-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AfKTlOjO5Y1L/Rqj1pZXwx84iXDHnQL5PybKZxDJeSrJFqduiAD8LS7eAanZznY3 tnVGOazXklZKruTERQDIJg== 0001036050-97-000640.txt : 19970815 0001036050-97-000640.hdr.sgml : 19970815 ACCESSION NUMBER: 0001036050-97-000640 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NATIONAL MEDIA CORP CENTRAL INDEX KEY: 0000070412 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-CATALOG & MAIL-ORDER HOUSES [5961] IRS NUMBER: 132658741 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-06715 FILM NUMBER: 97659820 BUSINESS ADDRESS: STREET 1: ELEVEN PENN CTR STE 1100 STREET 2: 1835 MARKET ST CITY: PHILADELPHIA STATE: PA ZIP: 19103 BUSINESS PHONE: 2159884600 MAIL ADDRESS: STREET 1: ELEVEN PENN CENTER SUITE 1100 STREET 2: 1835 MARKET STREET CITY: PHILADELPHIA STATE: PA ZIP: 19103 FORMER COMPANY: FORMER CONFORMED NAME: NATIONAL PARAGON CORP DATE OF NAME CHANGE: 19870827 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the period ended June 30, 1997 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______ to _______. Commission file number 1-6715 NATIONAL MEDIA CORPORATION ------------------------------------------------------------ (Exact Name of Registrant as Specified in Its Charter) Delaware 13-2658741 - -------------------------------------------------------------------------------- (State or Jurisdiction of Incorporation (I.R.S. Employer Identification No.) or Organization) Eleven Penn Center 1835 Market Street, Suite 1100 Philadelphia, PA 19103 ------------------------------------------------------------ (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, Including Area Code: (215) 988-4600 -------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] There were 24,895,292 issued and outstanding shares of the registrant's common stock, par value $.01 per share, at June 30, 1997. In addition, there were 707,311 shares of treasury stock as of such date. NATIONAL MEDIA CORPORATION -------------------------- AND SUBSIDIARIES ---------------- INDEX -----
Page ---- Facing Sheet................................................................ 1 Index....................................................................... 2 Part I. Financial Information Item 1. Financial Statements (unaudited) Condensed Consolidated Balance Sheets at June 30, 1997 and March 31, 1997....................................... 3 Condensed Consolidated Statements of Operations Three months ended June 30, 1997 and June 30, 1996....... 4 Condensed Consolidated Statements of Cash Flows Three months ended June 30, 1997 and June 30, 1996....... 5 Notes to Condensed Consolidated Financial Statements...... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............ 9 Part II. Other Information Item 1. Legal Proceedings......................................... 14 Item 6. Exhibits and Reports on Form 8-K.......................... 14 Signatures.................................................................. 15
-2- Part I. Financial Information Item 1. Financial Statements (Unaudited) NATIONAL MEDIA CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except number of shares and per share amounts)
ASSETS June 30, March 31, ------ 1997 1997 -------------- -------------- (Unaudited) (See Note Below) Current assets: Cash and cash equivalents....................... $ 7,445 $ 4,058 Accounts receivable, net........................ 33,159 40,179 Inventories, net................................ 29,905 30,919 Prepaid media................................... 3,295 3,563 Prepaid show production......................... 6,243 6,765 Deferred costs.................................. 3,765 3,318 Prepaid expenses and other current assets....... 2,040 2,505 Deferred income taxes........................... 2,547 2,591 -------------- -------------- Total current assets.......................... 88,399 93,898 Property and equipment, net....................... 15,038 14,182 Excess of cost over net assets of acquired businesses and other intangible assets, net...... 50,002 50,732 Other assets...................................... 6,839 6,820 -------------- -------------- Total assets.................................... $ 160,278 $ 165,632 ============== ============== LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ Current liabilities: Accounts payable................................ $ 20,492 $ 21,810 Accrued expenses................................ 32,512 30,830 Deferred revenue................................ 636 686 Income taxes payable............................ 332 552 Deferred income taxes........................... 2,351 2,351 Current portion of long-term debt and capital lease obligations...................... 23,806 17,901 -------------- -------------- Total current liabilities..................... 80,129 74,130 Long-term debt and capital lease obligations...... 1,258 959 Deferred income taxes............................. 240 240 Other liabilities................................. 1,721 1,743 Shareholders' equity: Preferred stock, $.01 par value; authorized 10,000,000 shares; issued 93,750 and 95,000 shares Series B convertible preferred stock, respectively................................... 1 1 Common stock, $.01 par value; authorized 75,000,000 shares; issued 24,895,292 and 24,752,792 shares, respectively................ 249 248 Additional paid-in capital...................... 128,689 127,764 Retained earnings............................... (42,111) (29,122) -------------- -------------- 86,828 98,891 Treasury stock, 707,311 shares, at cost......... (4,244) (4,244) Note receivable, officer........................ (139) - Foreign currency translation adjustment......... (5,515) (6,087) -------------- -------------- Total shareholders' equity.................... 76,930 88,560 -------------- -------------- Total liabilities and shareholders' equity.... $ 160,278 $ 165,632 ============== ==============
Note: The balance sheet at March 31, 1997 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. See notes to condensed consolidated financial statements. -3- NATIONAL MEDIA CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (In thousands, except per share amounts)
Three months ended June 30, --------------------------- 1997 1996 ---- ---- Revenues: Product sales..................................... $ 66,021 $ 102,922 Retail royalties.................................. - 5,187 Sales commissions and other revenues.............. 1,134 1,191 ---------------- ---------------- Net revenues.............................. 67,155 109,300 Operating costs and expenses: Media purchases................................... 23,218 37,576 Direct costs...................................... 41,228 53,241 Selling, general and administrative............... 14,769 11,128 Interest expense.................................. 625 305 ---------------- ---------------- Total operating costs and expenses........ 79,840 102,250 ---------------- ---------------- (Loss) income before income taxes......................... (12,685) 7,050 Income taxes.............................................. 304 2,500 ---------------- ---------------- Net (loss) income......................................... $(12,989) $ 4,550 ================ ================ Net (loss) income per common and common equivalent share: Primary........................................... $ (0.54) $ 0.18 ================ ================ Fully-diluted..................................... $ (0.54) $ 0.18 ================ ================ Weighted average number of common and common equivalent shares outstanding: Primary........................................... 24,141 25,345 ================ ================ Fully-diluted..................................... 24,141 25,345 ================ ================
See notes to condensed consolidated financial statements. -4- NATIONAL MEDIA CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (In thousands)
Three months ended June 30, --------------------------- 1997 1996 ---- ---- Cash flows from operating activities: Net (loss) income............................................ $ (12,989) $ 4,550 Adjustments to reconcile net (loss) income to net cash used in operating activities: Depreciation and amortization............................. 1,614 777 Tax benefit from exercise of stock options................ - 800 Changes in operating assets and liabilities, net of effects from acquisitions......................... 9,885 (10,301) Other..................................................... (40) (822) --------------- --------------- Net cash used in operating activities................... (1,530) (4,996) Cash flows from investing activities: Additions to property and equipment.......................... (1,268) (1,475) Investment in common stock................................... - (1,250) Cost of companies acquired, net of cash acquired............. - 747 --------------- --------------- Net cash used in investing activities................... (1,268) (1,978) Cash flows from financing activities: Proceeds from borrowing...................................... 6,000 9,400 Payments on long-term debt, notes payable and capital lease obligations................................... (322) (1,859) Exercise of stock options and warrants....................... - 450 --------------- --------------- Net cash provided by financing activities................ 5,678 7,991 Effect of exchange rate changes on cash and cash equivalents... 507 (359) --------------- --------------- Net increase in cash and cash equivalents................ 3,387 658 Cash and cash equivalents at beginning of period............... 4,058 18,405 --------------- --------------- Cash and cash equivalents at end of period..................... $ 7,445 $ 19,063 =============== ===============
See notes to condensed consolidated financial statements. -5- NATIONAL MEDIA CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) June 30, 1997 1. Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended June 30, 1997 are not necessarily indicative of the results that may be expected for the year ending March 31, 1998. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended March 31, 1997. 2. Per Share Amounts Net income (loss) per share amounts have been computed based upon the weighted average number of common shares and dilutive common equivalent shares (stock options, warrants and preferred stock) outstanding using the "if converted method". In February, 1997, the Financial Accounting Standards Board issued Statement No. 128, Earnings Per Share, which is required to be adopted for annual and quarterly periods ended after December 15, 1997. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods presented. Under the new requirements for calculating primary earnings per share (referred to as Basic EPS under SFAS No. 128), the dilutive effect of stock options will be excluded. Earnings per share will not be impacted for the quarters ending June 30, 1997 and 1996 and is not expected to have a material impact on the Company's full year earnings per share. 3. Income Taxes The Company recorded income tax expense of approximately $304,000 for the three months ended June 30, 1997, due to tax liabilities from its profitable Asian and South Pacific operations. Income tax benefits on domestic and European losses have been fully reserved until realized. This compares to income tax expense of $2.5 million for the three months ended June 30, 1996, a 35.5% effective rate. 4. Contingent Matters NATIONAL MEDIA LITIGATION Ab Roller Plus Patent Litigation On March 1, 1996, Precise Exercise Equipment ("Precise") filed suit in the United States District Court for the Central District of California against certain parties, including the Company, alleging patent infringement, unfair competition and other intellectual property claims. Such claims related to an alleged infringement of Precise's initial US patent for an exercise device. The suit claimed that a product marketed -6- by the Company pursuant to a license granted by a third party violated Precise's initial US patent. The suit sought an injunction and treble damages. On July 16, 1997, the Company and certain of the other defendants to the action entered into a settlement agreement with the plaintiffs. The Company recorded a charge of approximately $6.0 million in the fourth quarter of fiscal 1997 in connection with this matter. WWOR Litigation In March 1997, WWOR-TV filed a breach of contract action in the United States District Court for New Jersey against one of the Company's operating subsidiaries alleging that the subsidiary wrongfully terminated a contract for the purchase of media time, seeking in excess of $1,000,000 in compensatory damages. The Company is contesting the action and believes it has meritorious defenses to the plaintiff's claims for damages. PRTV LITIGATION PRTV Shareholders' California Class Action On May 1, 1995, prior to the acquisition of Positive Response Television, Inc. ("PRTV") by the Company in May 1996, a purported class action suit was filed in the United States District Court for the Central District of California against PRTV and its principal executive officers alleging that PRTV made false and misleading statements in its public filings, press releases and other public statements with respect to its business and financial prospects. The suit was filed on behalf of all persons who purchased PRTV common stock during the period from January 4, 1995 to April 28, 1995. The suit sought unspecified compensatory damages and other equitable relief. On or about September 25, 1995, the plaintiffs filed a second amended complaint which added additional officers as defendants and attempted to set forth new facts to support plaintiff's entitlement to legal relief. The Company has reached an agreement in principle to settle this action in fiscal year 1997 which provides for the payment of $550,000 to the class, 66% of which is to be paid by PRTV's insurance carrier. The Company recorded a charge of $187,000 during fiscal 1997 in connection with this matter. Such settlement is contingent upon court approval. Suntiger In late March 1997, Suntiger, Inc., a distributor of sunglasses, filed suit against PRTV and certain other parties alleging patent infringement. PRTV is indemnified by third parties in connection with this action for at least a portion of any liability which may exist. Settlement discussions are scheduled to occur shortly. Other Matters The Company, in the normal course of business, is a party to litigation relating to trademark and copyright infringement, product liability, contract- related disputes, and other actions. It is the Company's policy to vigorously defend all such claims and enforce its rights in these areas. Except as disclosed herein, the Company does not believe any of these actions, either individually or in the aggregate, will have a material adverse effect on the Company's results of operations or financial condition. -7- 5. Debt In June 1996, the Company increased its revolving line of credit (the "Line") from $5,000,000 to $20,000,000. The Line is available until September 30, 1997. On a quarterly basis, the Company is required to be in compliance with various financial covenants including tangible net worth and working capital minimums, various financial ratios, and capital expenditure limits under a term loan and the Line. At June 30, 1997, the Company continues to be in default of certain of these financial covenants for which the bank has not granted a waiver. As a result, the long-term portion of the term loan has been classified as current at June 30, 1997. Interest on cash advances under the Line was accrued at varying rates throughout a portion of the period based, at the Company's option, on the bank's national commercial rate or the London Interbank Offering Rate (LIBOR), plus 1.25%. Currently, interest on cash advances under the Line is only available at the bank's national commercial rate. The agreement requires the Company to pay an annual fee of .25% on the unused portion of the Line and maintain an average quarterly compensating balance of $2,500,000 subject to a .25% deficiency fee. There were borrowings of $19,000,000 outstanding under this facility, and $294,000 of the Line was used for the issuance of letters of credit as of June 30, 1997. In July 1997, the bank notified the Company that its $50.0 million foreign currency line under the facility had been reduced to $6.0 million, the amount of the Company's current outstanding balance. This may have an adverse impact on the Company's ability to limit its risk related to exchange rate fluctuations. The Company had borrowings outstanding in an amount of $550,000 under its $1.0 million overdraft line with Barclays Bank PLC as of the date hereof. In July 1997, the Company obtained a credit facility from ASB Bank through its Prestige Marketing Limited subsidiary (collectively with Prestige Marketing International Limited, "Prestige") consisting of a working capital facility (overdraft and letter of credit) of $1.0 million New Zealand dollars (approximately $.7 million US dollars) and a short term loan of $4.4 million New Zealand dollars (approximately $2.8 million US dollars). The working capital facility is due on demand, bears interest at the ASB Bank Banking Business Rate (BBBR rate) plus 1% payable monthly, and expires on February 15, 1998. The short term loan bears interest at the BBBR rate plus 2% and matures on January 24, 1998. Under the facility, Prestige is subject to certain financial covenants including tangible net worth and working capital minimums and various financial ratios and the Company is limited in its ability to obtain future financing from Prestige. 6. Subsequent Event Subsequent to June 30, 1997, the Company issued options to acquire 1,780,000 shares of the Company's Common Stock to certain officers of the Company. -8- CAUTIONARY STATEMENT FOR FORWARD-LOOKING STATEMENTS This Report contains "forward-looking" statements regarding potential future events and developments affecting the business of the Company. Such statements relate to, among other things, (i) competition for customers for its products and services; (ii) the uncertainty of developing or obtaining rights to new products that will be accepted by the market and the timing of the introduction of new products into the market; (iii) the limited market life of the Company's products; and (iv) other statements about the Company or the direct response industry. The Company's ability to predict results or the effect of any pending events on the Company's operating results is inherently subject to various risks and uncertainties, including competition for products, customers and media access; the risks of doing business abroad; the uncertainty of developing or obtaining rights to new products that will be accepted by the market; the limited market life of the Company's products; and the effects of government regulations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Item 2. Management's Discussion and Analysis of Financial Condition and - ------------------------------------------------------------------------- Results of Operations - --------------------- General The Company is engaged in the direct marketing of consumer products, primarily through the use of infomercials, in both domestic and international markets. Domestically, the Company has historically been dependent on a limited number of successful products to generate a significant portion of its net revenues. The Company's strategies for future periods are designed to reduce the risk associated with relying on a limited number of successful products for a disproportionate amount of its revenues and tailoring the Company's domestic operations to more efficiently deal with the cyclical nature of the Company's business. These include the more effective utilization and leveraging of its global presence, the continued development and marketing of innovative products to enhance its library of infomercial programs, and engineering the most efficient business model for the Company's future operations. International expansion has resulted in an increasing amount of the Company's revenues being generated from the international infomercial marketplace. As the Company enters new markets overseas, it is able to air the shows from its existing library, prolonging the life of products and related productions. The Company takes advantage of product awareness created by its infomercials and also extends the sales life of its products through non-infomercial distribution channels. These include retail arrangements and agreements with the Company's strategic partners who supply new products and retail distribution channels. Results of Operations The Company's operating results for the three months ended June 30, 1996 do not include the operating results of certain of the Company's operating subsidiaries, namely Prestige and Suzanne Paul Holdings Pty Limited and its operating subsidiaries (collectively, "Prestige") as these entities were acquired subsequent to June 1996, and include the operating results of PRTV from May 17, 1996 (date of acquisition) to June 30, 1996. -9- The following table sets forth operating data of the Company as a percentage of net revenues for the periods indicated below.
Three Months Ended June 30, ------------------ 1997 1996 ---- ---- Statement of Operations Data: Net revenues 100.0% 100.0% Operating costs and expenses: Media purchases 34.6 34.3 Direct costs 61.4 48.7 Selling, general and administrative 22.0 10.2 Interest expense 0.9 0.3 ------ ----- Total operating costs and expenses 118.9 93.5 (Loss) income before income taxes (18.9) 6.5 ------ ----- Net (loss) income (19.3)% 4.2% ====== =====
Three months ended June 30, 1997 compared to June 30, 1996 Net Revenues Net revenues were $67.2 million for the three months ended June 30, 1997 as compared to $109.3 million for the three months ended June 30, 1996, a decrease of $42.1 million or 38.6%. Domestic net revenues for the three months ended June 30, 1997 were $26.7 million as compared to $75.5 million for the three months ended June 30, 1996, a decrease of $48.8 million or 64.7%. This decrease is due primarily to the Ab Roller Plus performing strongly in the first quarter of the prior year on television and in print and retail. The Ab Roller Plus accounted for approximately 72.6% of domestic net revenues in the three months ended June 30, 1996. Approximately 46.3% of the net revenues for the three months ended June 30, 1997 were generated by sales of the Company's Great North American Slim Down product. Current period domestic net revenues were also unfavorably impacted by an increased return rate. The Company aired two new shows in the current quarter which yielded positive results in test airings, however, due to manufacturing / sourcing difficulties, these shows are not expected to significantly contribute to revenues until late in the second quarter or early third quarter. As a result, domestic revenues are expected to continue at a reduced level. International net revenues for the three months ended June 30, 1997 were $40.5 million as compared to $33.8 million for the three months ended June 30, 1996, an increase of $6.7 million or 19.9%. This was principally due to the current quarter including revenues from the Prestige and Suzanne Paul acquisitions completed in July 1996 and a 29.2% increase in European net revenues due to expansion in Eastern Europe. These increases offset the approximate 42.3% decline in revenues earned in the Japanese marketplace. This decline is a result of increased competition from traditional programming and other infomercial competitors and the fact that additional Japanese airtime was not obtained in the quantity or as quickly as anticipated. -10- Operating Costs Total operating costs and expenses were $79.8 million for the three months ended June 30, 1997 as compared to $102.3 million for the three months ended June 30, 1996, a decrease of $22.5 million or 21.9%. This is partially related to the 38.6% decline in net revenues. Media Purchases Media purchases were $23.2 million (net of $.5 million in media sales) for the three months ended June 30, 1997 as compared to $37.6 million (net of $.3 million in media sales) for the three months ended June 30, 1996, a decrease of $14.4 million or 38.3%. This decrease is directly related to the 38.6% decline in net revenues. The ratio of media purchases to net revenues remained consistent at 34.6% for the three months ended June 30, 1997 as compared to 34.3% for the three months ended June 30, 1996. A higher domestic ratio in the current quarter was offset by the favorable impact of a higher percentage of revenues being earned in the international marketplace in which media rates are generally more favorable. Direct Costs Direct costs consist of the cost of materials, freight, infomercial production, commissions and royalties, order fulfillment, in-bound telemarketing, credit card authorization, warehousing and profit participation payments. Direct costs were $ 41.2 million for the three months ended June 30, 1997 as compared to $53.2 million for the three months ended June 30, 1996, a decrease of $12.0 million or 22.6% primarily related to the decrease in net revenues. As a percentage of net revenues, direct costs were 61.4% for the three months ended June 30, 1997 and 48.7% for the three months ended June 30, 1996. Direct costs as a percentage of net revenues increased in both the domestic and international marketplace. Domestically, the ratio was unfavorably impacted by the 64.6% decrease in net revenues. The lower volume, coupled with certain fixed costs associated with the Company's fulfillment operations and a significant increase in the domestic return rate, negatively impacted the ratio. The three months ended June 30, 1996 benefited from retail royalties ($0 for June 30, 1997 as compared to $5.2 million for June 30,1996) which carry minimal direct costs. Internationally, a change in product mix and increased show customization costs adversely affected the ratio. In Japan, fulfillment and warehousing costs increased as a percentage of revenues as a result of the lower sales volume and higher inventory levels, respectively. Selling, General and Administrative Selling, general and administrative expenses were $14.8 million for the three months ended June 30, 1997 as compared to $11.1 million for the three months ended June 30,1996, an increase of $3.7 million or 32.7%. In excess of $2.0 million of the increase relates to selling, general and administrative expenses associated with the operations of Prestige which was acquired subsequent to June 30, 1996 or the operations of PRTV which were included for only a portion of the prior period. In addition, the current period includes $715,000 of goodwill amortization, as compared to only $332,000 in the prior period. The remainder of the increase was primarily a result of higher professional fees. Selling, general and administrative expenses as a percentage of net revenues increased from 10.2% for the three months ended June 30, 1996 to 22.0% for the three months ended June 30, 1997 due to the aforementioned cost increases combined with the 38.6% decrease in net revenues. Interest Expense Interest expense was approximately $625,000 for the three months ended June 30 1997 compared to $305,000 for the three months ended June 30, 1996, an increase of $320,000. This increase was primarily -11- due to an increase in the Company's average outstanding indebtedness from approximately $7.4 million during the first quarter of fiscal 1997 to approximately $22.8 million during the first quarter of fiscal 1998. Income Taxes The Company recorded income tax expense of approximately $304,000 for the three months ended June 30, 1997 resulting from tax liabilities generated on its Asian and South Pacific profits. Income tax benefits have not been recorded during the current quarter on domestic and European losses. These benefits will be recorded when realized, reducing the effective tax rate on future domestic and European earnings. This compares to approximately $2.5 million of income tax expense recorded for the first quarter of fiscal 1997, a 35.5% effective tax rate. Liquidity and Capital Resources The Company's working capital was $8.3 million at June 30, 1997 compared to working capital of $19.8 million at March 31, 1997, a decrease of $11.5 million. The Company met its current period cash needs primarily through its cash flow from borrowings and liquidation of accounts receivable. Operating activities for the three months ended June 30, 1997 resulted in a use of cash of $1.5 million. The Company's cash flow from operations in the three months ended June 30, 1997 was adversely affected by the net loss of approximately $13.0 million incurred during the period. Consolidated accounts receivable decreased by $7.0 million, or 17.5%, entirely due to the decrease in domestic accounts receivable. This decrease was principally due to the 63% decrease in revenues in the month of June 1997 as compared to the month of March 1997, and a $3.5 million reduction in the installment receivable balance due to the continued decline in domestic net revenues. The Company's international revenues are subject to foreign exchange risk. To the extent that the Company incurs local currency exposures that are based on locally denominated sales volume (order fulfillment and media costs), this exposure is reduced significantly. The Company monitors exchange rate movements and will protect short term cash flows through the use of options and/or forward contracts when appropriate. Until July 1997, the Company maintained a $50.0 million foreign exchange line for such purposes. The bank which previously provided such facility recently notified the Company that it may no longer arrange any additional borrowings under the facility. In the long term, the Company has the ability to change prices in a timely manner in order to react to major currency fluctuations; thus reducing the risk associated with local currency movements. Currently, the Company's two major foreign currencies are the German deutsch mark and the Japanese yen, each of which has been subject to significant recent fluctuations. During July 1996, the Company acquired two direct response marketing companies, Prestige and Suzanne Paul. The aggregate consideration paid by the Company for Prestige and Suzanne Paul was approximately $21.7 million in a combination of cash, note payable and Common Stock. Included in the Prestige and Suzanne Paul acquisition agreements were provisions concerning the future payment of additional purchase price, up to an aggregate of an additional $5.0 million in the Company's common stock, valued at then present market prices, in 1997 and 1998, contingent upon the levels of net income achieved in those years by Prestige and Suzanne Paul. Subsequent to June 30, 1997, the Company completed negotiations with the principals of these entities regarding an amendment to the acquisition agreements which accelerated the $5.0 million contingent purchase price amount and revised certain other provisions of the agreements. The Company will issue approximately 909,091 shares of the Company's Common Stock to the principals of these entities based on the closing price of the Company's Common Stock on the New York Stock Exchange on July 16, 1997. -12- On June 30, 1997, the Company had a total of $19.0 million in outstanding bank debt and $.3 million in outstanding letters of credit under its $20.0 million revolving line of credit (the "Line"). The Line has an expiration date of September 30, 1997. Interest accrues on the Line at the bank's national commercial rate and is payable monthly. On a quarterly basis, the Company must be in compliance with various financial covenants including tangible net worth and working capital minimums, various financial ratios and capital expenditure limits. At June 30, 1997, the Company continues to be in technical default of various financial covenants for which the bank has not granted a waiver. The Company also has an outstanding term loan with the bank in an approximate amount of $3.3 million, net of a $663,000 discount. The term loan is payable in annual installments of $1.0 million due December 1, 1997 and 1998 with the remaining balance due September 30, 1999. The term loan also includes the covenants listed above. As a result of the covenant defaults, the long-term portion of the term loan has been classified as current at June 30, 1997. The Line and term loan are secured by a lien on substantially all the assets of the Company and its subsidiaries. Such lien on certain non-domestic assets of the Company is subordinate to a lien held by Barclays Bank PLC. At present, the Company has an overdraft line of approximately $1.0 million with Barclays of which approximately $550,000 is outstanding as of the date hereof. In July 1997, the Company obtained a credit facility from ASB Bank through its Prestige subsidiary consisting of a working capital facility (overdraft and letter of credit) of $1.0 million New Zealand dollars (approximately $.7 million US dollars) and a short term loan of $4.4 million New Zealand dollars (approximately $2.8 million US dollars). The working capital facility is due on demand, bears interest at the ASB Bank Banking Business Rate (BBBR rate) plus 1% payable monthly, and expires on February 15, 1998. The short term loan bears interest at the BBBR rate plus 2% and matures on January 24, 1998. Under the facility, Prestige is subject to certain financial covenants including tangible net worth and working capital minimums and various financial ratios and the Company is limited in its ability to obtain future financing from Prestige. The Company's cash position continued to tighten during the current period as a result of the losses being incurred in the first quarter of fiscal 1998, the continued downturn in both Japanese and domestic revenues, the inability of the Company to obtain additional financing and payments of recently negotiated legal settlements. The Company expects to report a loss in the second quarter of fiscal 1998. The Company's revolving line of credit expires September 30, 1997. If the Company is unable to refinance its existing debt and obtain additional debt or equity financing it will have a further material adverse effect on the Company's operating results and financial condition. The Company continues to negotiate with its principal lenders regarding an extension of the Line, as well as exploring additional sources of financing with other financial institutions and potential partners; however, there can be no assurance that the Line will be extended or a replacement lender located. In addition, the Company has retained Lehman Brothers, as a financial advisor, to assist it in continuing discussions regarding potential strategic partnerships and other matters with interested parties. The Company faced significant difficulty during the latter half of its 1997 fiscal year and the first quarter of fiscal 1998. Management of the Company believes that cash flow from operations in fiscal 1998 will benefit from the Company's strategy, which focuses on cost reductions, restructuring of PRTV, and the re-negotiation of a number of its media contracts to terms that are more favorable to the Company. The Company's ability to continue as a going concern is dependent on its ability to implement certain plans and actions designed to rebuild its business including the introduction of successful new shows, to return the Company to profitability, and to improve its liquidity and/or obtain additional capital through new debt financings or equity investments. No assurance can be given that any of these actions will be successful. In addition, issuance of additional equity would have a dilutive effect upon existing shareholders. -13- Part II. Other Information Item 1. Legal Proceedings The information contained in Note 4 (Contingent Matters) to the Condensed Consolidated Financial Statements in Part I of this report is incorporated herein by reference. All of the matters referred to in Note 4 (Contingent Matters) have been the subject of disclosure in prior reports on Form 10-Q and/or 10-K. Other Matters The Company, in the normal course of business, is a party to litigation relating to trademark and copyright infringement, product liability, contract- related disputes and other actions. It is the Company's policy to vigorously defend all such claims and to enforce its rights in these areas. Except as disclosed herein, the Company does not believe any of these actions, either individually or in the aggregate, will have a material adverse effect on the Company's results of operations or financial condition. Item 6. Exhibits and Reports on Form 8-K (a) The following exhibits are included herein: 10.1 Amended and Restated Employment Agreement, dated April 28, 1997, between Registrant and Constantinos I. Costalas. 10.1(a) Amendment No. 1 to Employment Agreement, dated July 23, 1997, between Registrant and Constantinos I. Costalas. 10.2 Employment Agreement, dated February 28, 1997, between Registrant and Frederick S. Hammer. 11.1 Statement Re: Computation of Per Share Earnings. 27.1 Financial Data Schedule. (b) The Company filed the following Current Reports on Form 8-K during the three month period ended June 30, 1997: Current Report on Form 8-K, dated April 28, 1997, reporting (i) the resignation of Mark P. Hershhorn as President and Chief Executive Officer and as a Director of the Company; and (ii) the settlement of pending litigation between the Company's Positive Response Television, Inc. subsidiary ("PRTV") and Edmark Industries SDN. BHD concerning the "Super Slicer" product marketed by PRTV. Current Report on Form 8-K, dated June 30, 1997, reporting the Company's delay in filing its 1997 fiscal year and fourth quarter financial results. -14- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NATIONAL MEDIA CORPORATION Date: August 14, 1997 /s/ Robert N. Verratti --------------------------------------- Robert N. Verratti President, Chief Executive Officer and Director Date: August 14, 1997 /s/ Paul R. Brazina --------------------------------------- Paul R. Brazina Vice President and Chief Financial Officer EXHIBIT INDEX ------------- 10.1 Amended and Restated Employment Agreement, dated April 28, 1997, between Registrant and Constantinos I. Costalas. 10.1(a) Amendment No. 1 to Employment Agreement, dated July 23, 1997, between Registrant and Constantinos I. Costalas. 10.2 Employment Agreement, dated February 28, 1997, between Registrant and Frederick S. Hammer. 11.1 Statement Re: Computation of Per Share Earnings. 27.1 Financial Data Schedule. EX-10.1 2 AMENDED & RESTATED EMPLOYMENT AGREEMENT EXHIBIT 10.1 AMENDED AND RESTATED EMPLOYMENT AGREEMENT ----------------------------------------- EMPLOYMENT AGREEMENT ("Agreement") made and entered as of April 28, 1997 by and between NATIONAL MEDIA CORPORATION (the "Company"), a Delaware corporation and CONSTANTINOS I. COSTALAS (the "Executive"). Background ---------- The Company desires to amend and restate the Employment Agreement dated as of September 27, 1995 (the "Prior Agreement") pursuant to which the Company employs Executive as its Vice-Chairman . The parties further desire to set forth herein the revised terms and conditions of the Executive's employment by the Company. Accordingly, in consideration of the mutual covenants and agreements set forth herein and the mutual benefits to be derived herefrom, and intending to be legally bound hereby, the Company and the Executive agree as follows: 1. Prior Agreement. This Agreement replaces and supersedes the Prior Agreement, which shall no longer have any force or effect. 2. Employment. ---------- (a) Duties. The Company shall employ the Executive, on the terms ------ set forth in this Agreement, as its Vice-Chairman. The Executive accepts such employment with the Company and shall perform and fulfill such duties as are reasonably assigned to him hereunder by the Chairman of the Board and the Board of Directors of the Company (the "Board"), devoting his best efforts and professional time and attention to the performance and fulfillment of his duties and to the advancement of the interests of the Company, subject only to the direction, approval, control and directives of the Chairman of the Board and the Board. Nothing contained herein shall be construed, however, to prevent the Executive from investing, trading in or managing, for his own account and benefit, stocks, bonds, securities, real estate, commodities or other forms of investments (subject to law and Company policy with respect to trading in Company securities), or serving on noncompetitive corporate boards. (b) Place of Performance. In connection with his employment by -------------------- the Company, the Executive shall be based in the Philadelphia, Pennsylvania metropolitan area, except for required travel on Company business. Company shall furnish Executive with office space, stenographic assistance and such other facilities and services as shall be suitable to Executive's position and sufficient and satisfactory to the Executive for the performance of his duties as Vice-Chairman. 3. Term. ---- The Executive's employment under this Agreement shall commence as of the date of this Agreement (the "Commencement Date") and shall, unless sooner terminated in accordance with the provisions hereof, continue uninterrupted for a term expiring September 27, 1998 and thereafter may be renewed by the Company for successive one-year periods upon written notice given at least 6 months prior to the end of any Term, provided however, that the Executive may refuse any such renewal by written notice of rejection given to the Company within 30 days after receipt of the Company's notice, in which case the Term shall expire on the next September 27 without renewal. As used herein, the term "Term" shall refer to such initial term and any renewal term then in effect. -1- 4. Compensation. ------------ (a) Salary. During the Term, the Executive shall be paid an ------ annual salary of at least $325,000 (the "Base Salary") payable in installments at such times as the Company customarily pays its other senior executive employees (but in any event no less often than monthly). The Base Salary may be increased from time to time by the Board of Directors as conditions warrant including, but not limited to, Executive's performance as determined by the Board of Directors. In no event shall Executive's Base Salary be less than $325,000 in any year during the Term. (b) Incentive Pay. ------------- (i) In addition to the Base Salary provided for in Section 4(a) of this Agreement, (1) the Executive shall participate in the Company's 1995 Management Incentive Plan ("MIP"). (c) Options. Each of the Options identified below, granted to the Executive under the 1991 Stock Option Plan: . Options to purchase 60,000 shares of Common Stock at $12.99 per share, issued pursuant to the Prior Agreement, . Options to purchase 80,000 shares of Common Stock at $12.99 per share, issued pursuant to the Prior Agreement, and . Options to purchase 250,000 shares of Common Stock at $16.375 per share, granted after the effective time of the Prior Agreement; an aggregate of options to purchase 390,000 shares of Common Stock, shall be exchanged, effective the date of this Agreement, for non-qualified stock options (the "New Options") to purchase up to 195,000 shares (the "Shares") of the Company's common stock, $.01 par value ("Common Stock"), at an exercise price under the New Options of $7.00 per share, the fair market value of a share of Common Stock as of the date hereof. The specific terms of such grant shall be set forth in a separate stock option agreement made under and subject to the terms of the Company's 1991 Stock Option Plan, as amended (the "Plan"). The New Options shall expire ten (10) years from the date hereof and shall vest as follows: . one third of the Shares shall vest on the date of this Agreement; . one third of the Shares shall vest on March 27, 1998; and . one third of the Shares shall vest on September 27, 1998. To the extent allowable under the Plan, (a) the New Options vested through the date of any termination hereunder shall be exercisable in accordance with the Plan and the option agreement delivered thereunder, regardless of the manner of termination; and (b) notwithstanding the foregoing, upon the death of Executive during the existence of such New Options, all unvested portions thereof shall immediately vest. Executive will promptly deliver to the Company the original executed option agreements for cancellation, in exchange for a new option agreement relating to the New Options. (d) Health Insurance and Other Benefits. During the Term, the ----------------------------------- Executive shall receive all employee benefits offered by the Company to its senior executives and key management -2- employees, including, without limitation, all pension, profit sharing, retirement, salary continuation, deferred compensation, disability insurance, hospitalization insurance, major medical insurance, medical reimbursement, survivor income, life insurance and any other benefit plan or arrangement established and maintained by the Company, subject to the rules and regulations then in effect regarding participation therein. Unless such change is required by federal, state or local law, the Company shall not make any changes in any employee benefit plan or arrangement that would result in a disproportionately greater reduction in the rights of, or benefits to, the Executive compared with any other senior executive of the Company. (e) Club Membership. The Company shall pay Executive's annual --------------- membership dues at a luncheon club in the Philadelphia metropolitan area chosen by the Executive. 5. Life Insurance. -------------- (a) Purchase. Provided that Executive is insurable at rates that -------- are comparable to those obtainable on other persons of similar age and position in good health (if Executive is classified in a higher risk category he may elect to pay the excess premium cost to obtain the coverage), during the Term, the Company shall provide the Executive, or at the option of the Executive, the Executive's Life Insurance Trust, with a company-paid term life insurance policy in the face amount of $1,000,000. At the Executive's option, Executive may obtain an insurance policy in lieu of a policy provided by the Company hereunder, and the Company shall pay premiums therefor as set forth in invoices presented to the Company,;, provided the Company shall not be required to pay premiums in excess of the out-of-pocket costs it would otherwise have incurred had it purchased such policy directly. The owner of such life insurance policy shall be the Executive or the Executive's Life Insurance Trust, as directed by the Executive. (b) Payment of Premiums. The Company shall timely pay all ------------------- premiums for such life insurance whether provided by the Company for the Executive or by the Executive's Life Insurance Trust for the Executive. (c) Medical Examination. The Executive agrees to submit to all ------------------- medical examinations, supply all information and execute all documents required by the insurance company in connection with the issuance of a policy for such insurance as well as for any key man insurance the Company may desire to maintain on Executive's life. 6. Reimbursement of Expenses. The Executive shall be reimbursed for ------------------------- all items of travel, entertainment and miscellaneous expenses which the Executive reasonably incurs in connection with the performance of his duties hereunder, provided that the Executive shall submit to the Company such statements and other evidence supporting said expenses as the Company may reasonably require. 7. Automobile Allowance. The Company shall pay Executive a monthly -------------------- automobile allowance of $600.00. 8. Vacations. The Executive shall be entitled to the number of paid --------- vacation days in each calendar year determined by the Company from time to time for its senior executive officers, but not less than three (3) weeks in any calendar year (prorated in any calendar year during which the Executive is employed hereunder for less than the entire year in accordance with the number of days in such calendar year during which he is so employed). The Executive shall also be entitled to all paid holidays given by the Company to its senior executive officers. -3- 9. Termination of Employment. ------------------------- (a) Death or Total Disability. In the event of the death of the ------------------------- Executive during the Term, this Agreement shall terminate. The terms of the option agreements pertaining to the New Options shall control as to the vesting and expiration thereof upon the death of Executive. In the event of the Total Disability (as that term is defined below) of the Executive for one hundred eighty (180) days in the aggregate during any consecutive twelve (12) month period during the Term, the Company shall have the right to terminate this Agreement by giving the Executive thirty (30) days' prior written notice thereof, and upon the expiration of such thirty (30) day period, the Executive's employment under this Agreement shall terminate. If the Executive shall resume his duties within thirty (30) days after receipt of such a notice of termination and continue to perform such duties for four (4) consecutive weeks thereafter, this Agreement shall continue in full force and effect, without any reduction in Base Salary, other compensation and other benefits, and the notice of termination. shall be considered null and void and of no effect. Upon termination of this Agreement under this Section 9(a), the Company shall have no further obligations or liabilities under this Agreement, except to pay to the Executive's estate or the Executive, as the case may be, the portion, if any, that remains unpaid of the Base Salary for the period prior to termination. The term "Total Disability," as used herein, shall mean a mental or physical condition which, in the reasonable opinion of an independent medical doctor mutually selected by the Company and the Executive, renders the Executive unable or incompetent to carry out the material duties and responsibilities of the Executive under this Agreement at the time the disabling condition was incurred. Notwithstanding the foregoing, if the Executive is covered under any policy of disability insurance under Section 4(d) of this Agreement, under no circumstances shall the definition of Total Disability be different from the definition of that term in such policy. (b) Discharge for Cause. The Company may discharge the Executive ------------------- for Cause and thereby immediately terminate his employment under this Agreement. For purposes of this Agreement, the Company shall have "Cause" to terminate the Executive's employment if the Executive, in the reasonable judgment of the Company, (i) materially breaches any of his agreements, duties or obligations under this Agreement and has not cured or commenced in good faith to cure such breach within thirty (30) days after notice; (ii) embezzles or converts to his own use any funds of the Company or any client or customer of the Company; (iii) converts to his own use or unreasonably destroys any property of the Company, without the Company's consent; (iv) is convicted of a felony; (v) is adjudicated as mentally incompetent; or (vi) is habitually intoxicated or is diagnosed by an independent medical doctor to be addicted to a controlled substance or any drug whatsoever. Notwithstanding the foregoing, the Executive shall not be deemed to have been terminated for Cause unless and until the Executive has received thirty (30) days' prior written notice ("Dismissal Notice") of such termination. In the event the Executive does not dispute such determination within thirty (30) days after receipt of the Dismissal Notice, the Executive shall not have the remedies provided pursuant to Section 8(e) of this Agreement. (c) Termination Prior to Expiration of Term. Either party may --------------------------------------- terminate this Agreement upon sixty (60) days' prior written notice. Except as provided in Section 9(d) of this Agreement, such termination shall be without liability to either party. (d) Termination without Cause or for Good Reason. -------------------------------------------- (i) In the event that the Executive's employment is terminated by the Company without Cause, as defined in Section 9(b) of this Agreement, or the Executive shall resign for -4- "Good Reason," as defined in Section 9(d)(ii) of this Agreement, then, to the extent provided below, the Company shall: (1) pay the Executive in lieu of other damages, except as specifically provided herein, an amount equal to the greater of one years' Base Salary at the then current amount or the Base Salary payable during the balance of the Term of this Agreement. Such amounts shall be payable in installments equal to installments of Base Salary then payable to Executive as provided herein until such amount is paid in full. During such period of payments, the restrictions contained in Section 12(a)(i) of this Agreement shall be applicable to Executive, except that Executive may accept employment he might not otherwise accept under Section 12(a)(i) of this Agreement, in which event payment of salary received from such other employment shall be deducted from payments made hereunder; and (2) maintain in full force and effect, for the continued benefit of the Executive for a period of six (6) months after termination or for the balance of the Term, whichever is greater, all employee benefit plans and programs, except option plans and except bonus plans to the extent the Executive is not employed by the Company for all or a portion of the period of measurement for the bonus, in which the Executive was entitled to participate immediately prior to the Executive's discharge or resignation, provided that the Executive's continued participation is possible under the general terms and provisions of such benefit plans and programs, and provided further that any Options unvested and unexercisable at the date of termination shall then become vested and exercisable. In the event that the Executive's participation in any such benefit plan or program is barred, the Company shall arrange to provide the Executive with benefits substantially similar to those which the Executive is entitled to receive under such plans and programs. At the end of the period of coverage, the Executive shall have the option to have assigned to him at no cost and with no apportionment of prepaid premiums any assignable insurance policy owned by the Company which relates specifically to the Executive. At the Company's expense, the Executive may elect at any time during the period that he is receiving payments on account of his termination of employment to use the services of an outplacement firm of his choice. (ii) For purposes of this Section 9(d), "Good Reason" shall mean the failure by the Company to comply with the material provisions of this Agreement which failure is not cured within thirty (30) days after notice. Notwithstanding the foregoing, the Executive shall not be deemed to terminate this Agreement for Good Reason unless and until the Company has received five (5) days prior written notice of termination ("Notice of Termination for Good Reason"). In the event the Company does not dispute such termination within thirty (30) days after receipt of such Notice of Termination for Good Reason, the Company shall not have the remedies provided pursuant to Section 9(e) of this Agreement. (e) Arbitration. In the event that the Executive disputes a ----------- determination that Cause exists for terminating his employment pursuant to Section 9(b) of this Agreement, or the Company disputes the termination that Good Reason exists for Executive's termination of his Employment pursuant to Section 9(d)(ii) of this Agreement, either party disputing this determination shall serve the other with written notice of such dispute ("Dispute Notice") within thirty (30) days after receipt of the Dismissal Notice or Notice of Termination for Good Reason. Within fifteen (15) days thereafter, the Executive or the Company, as the case may be, shall, in accordance with the Rules of the American Arbitration Association ("AAA"), file a petition with the AAA for arbitration of the dispute, the costs thereof to be shared equally by the Executive and the Company unless an order of the AAA provides otherwise and each party shall be responsible for his or its legal fees. Such proceeding shall also determine all other disputes between the parties relating to Executive's employment. The parties covenant and agree that the decision of the AAA shall be final and binding and hereby waive their rights to appeal therefrom. -5- (f) Nonrenewal by Company. If this Agreement is not renewed by --------------------- the Company pursuant to Section 3 of this Agreement, Executive's obligations hereunder shall cease as of the end of the then current Term, and the Company shall have the following severance obligations: (i) Executive shall continue to be an employee of the Company under the terms of this Agreement for a period of six months after the end of the then current Term, but shall not be required to perform any services for the Company. In furtherance of this Agreement, in addition to the payment of Base Salary at the then current rate for a period of six months after the end of the then current Term, (1) The Company shall continue Executive's participation in the MIP for another six months after the end of the then current Term, unless his participation in the MIP is barred by the terms of the MIP, in which case the Company shall provide Executive with a substantially similar benefit. (2) Any options unvested and unexercisable at the expiration of the then current Term shall become immediately vested and exercisable. (3) The Company will continue for a period of six months after the end of the then current Term Executive's allowances and benefits pursuant to Section 4(c)-(d); his life insurance benefit pursuant to Section 5; and his automobile allowance pursuant to Section 7. Executive shall have the option to have assigned to him at the end of the six-month period at no cost and with no apportionment of prepaid premiums any assignable insurance policy owned by the Company that relates specifically to the Executive. 10. Change in Control. Upon a Change in Control, as hereinafter ----------------- defined, notwithstanding anything in this Agreement to the contrary, the following terms and provisions shall apply: (a) If, within thirty (30) days following the Change in Control, there is a Termination of Employment (as defined below), then the following provisions shall become applicable: (i) The Executive shall receive an immediate lump sum payment (within thirty (30) days following the Termination of Employment), of three (3) years' Base Salary at the then current amount; (ii) The Executive shall receive an immediate payment (within thirty (30) days following the Termination of Employment) of the annual bonuses that the Executive would have been entitled to receive through the remainder of the Term of this Agreement. For purposes of this Section 10(a)(ii), the annual bonus that the Executive would have been entitled to receive for each remaining year in the Term of this Agreement shall be equal to the last bonus (including amounts paid under the MIP) the Executive received prior to the Change of Control; (iii) All allowances and benefits, as contained in Sections 4(c)-(d), 5 and 7 of this Agreement, shall be continued for the full Term of this Agreement; and (iv) All unvested and unexercised stock options held by the Executive shall become immediately vested and exercisable by the Executive. -6- (b) If a Termination of Employment does not occur within thirty (30) days following the Change in Control, then the Term of this Agreement shall be automatically renewed for a two (2) year period commencing on the date of the Change in Control, in which case all of the terms and conditions of this Agreement shall remain in full force and effect until the end of such Term. (c) As used in this Section 10, "Termination of Employment" shall mean termination of the Executive's employment (i) by the Company for any reason, or (ii) by the Executive's death, Total Disability or resignation. (d) As used in this Section 10, a "Change in Control" shall be deemed to have taken place if: (i) subsequent to the date of this Agreement, any "Person" (including any individual, firm, corporation, partnership or other entity except the Executive, the Company or any employee benefit plan of the Company or of any Affiliate or Associate (each as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended), and any Person or entity organized, appointed or established by the Company for or pursuant to the terms of any such employee benefit plan), together with all Affiliates and Associates of such Person, shall become the beneficial owner in the aggregate of twenty percent (20%) or more of the Common Stock of the Company then outstanding; or (ii) during the Term of this Agreement, individuals who, as of the date of this Agreement, constituted the Board cease for any reason to constitute a majority thereof. (e) It is the intention of the parties that the payments under Section 10(a) of this Agreement shall not constitute "excess parachute payments" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended. Accordingly, notwithstanding anything in this Section 10 to the contrary, if any of the amounts otherwise payable under Section 10(a) of this Agreement would constitute "excess parachute payments," or if the independent accountants acting as auditors for the Company on the date of the Change of Control determine that such payments may constitute "excess parachute payments," then the cash amounts otherwise payable under Section 10(a) of this Agreement shall be reduced to the maximum amounts that may be paid without any such payments or other benefits under this Section 10 constituting, or potentially constituting, "excess parachute payments." 11. No Mitigation. The Executive shall not be required to mitigate ------------- the amount of any payment or benefit provided for in this Agreement by seeking other employment or otherwise nor, except as provided herein, shall the amount of any payment provided for in this Agreement be reduced by any compensation earned by the Executive as the result of his employment by another employer. 12. Restrictive Covenant. -------------------- (a) Competition. ----------- (i) Executive undertakes and agrees that he will not compete, directly or indirectly, or participate as a director, officer, employee, consultant, agent, representative or otherwise, or as a stockholder, partner or joint venturer, or have any direct or indirect financial interest, including, without limitation, the interest of a creditor, in any business competing directly with the infomercial direct response business of Company or any of its subsidiaries within any geographical area in which the business of Company or its subsidiaries is being conducted during Executive's employment (1) during the Term of this Agreement; (2) for a period of six (6) months after termination of this Agreement pursuant to Section 9(a) or 9(b) of this Agreement; and (3) subject to Section 9(d)(i)(1) of this Agreement, for any period after termination during which payments are made to Executive under Section 9(d)(i) of this Agreement with respect to termination by the Company or the Executive pursuant to Section 9(c) or 9(d) of this Agreement. -7- (ii) Executive further undertakes and agrees that during the Term of this Agreement and for a period of six (6) months after the termination or expiration or while payments are made pursuant to Section 9(d)(i)(1) of this Agreement he will not, directly or indirectly, employ, cause to be employed, or solicit for employment any of Company's or its subsidiaries' employees. (b) Trade Secrets. During the Term hereof and after termination ------------- or expiration for any reason, Executive shall not disclose, divulge, copy or otherwise use any trade secret of the Company or its subsidiaries other than any knowledge or information already known to Executive prior to this Agreement, it being acknowledged that all such new information and materials compiled or obtained by or disclosed to Executive while employed by the Company or its subsidiaries hereunder or otherwise are confidential and the exclusive property of the Company and its subsidiaries. (c) Injunctive Relief. The parties hereto agree that the remedy ----------------- at law for any breach of the provisions of this Section 11 will be inadequate and that the Company or any of its subsidiaries or other successors or assigns shall be entitled to injunctive relief without bond. Such injunctive relief shall not be exclusive, but shall be in addition to any other rights and remedies Company or any of its subsidiaries or their successors or assigns might have for such breach. (d) Scope of Covenant. Should the duration, geographical area or ----------------- range of prescribed activities in Section 11(a) of this Agreement be held unreasonable by any court of competent jurisdiction, then such duration, geographical area or range of prescribed activities shall be modified to such degree as to make it or them reasonable and enforceable. 13. Counsel Fees and Indemnification. -------------------------------- (a) In the event that it shall be necessary or desirable for the Executive to retain legal counsel and/or incur other costs and expenses in connection with the enforcement of any and all of his rights under this Agreement, including participation in any proceeding contesting the validity or enforceability of this Agreement and any arbitration proceeding pursuant to Section 9(e) of this Agreement, the Executive shall be entitled to recover from the Company his reasonable attorney's fees and costs and expenses in connection with the enforcement of his rights. No fees shall be payable if the Company is successful on the merits. (b) The Company shall indemnify and hold Executive harmless to the maximum extent permitted by law against judgments, fines, amounts paid in settlement and reasonable expenses, including attorneys' fees incurred by Executive, in connection with the defense of, or as a result of, any action or proceeding (or any appeal from any action or, proceeding) in which Executive is made or is threatened to be made a party by reason of any act or omission of Executive in his capacity as an officer, director or employee of the Company, regardless of whether such action or proceeding is one brought by or in the right of the Company and whether such action related to circumstances prior to the effective date of this Agreement, to procure a judgment in its favor. Expenses (including attorneys' fees) incurred by the Executive in defending any civil, criminal, administrative, or investigative action, suit or proceeding shall be paid by the Company in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the Executive to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Company as authorized in this Section 12(b). -8- 14. Miscellaneous. ------------- (a) Notices. Any notice, demand or communication required or ------- permitted under this Agreement shall be in writing and shall either be hand- delivered to the other party or mailed to the addresses set forth below by registered or certified mail, return receipt requested or sent by overnight express mail or courier or facsimile to such address, if a party has a facsimile machine. Notice shall be deemed to have been given and received when so hand- delivered or after three business days when so deposited in the U.S. Mail, or when transmitted and received by facsimile or sent by express mail properly addressed to the other party. The addresses are: To the Company: National Media Corporation 1835 Market Street Philadelphia, PA 19103 FAX #: (215) 988-4900 Attn: Corporate Secretary To the Executive: Mr. Constantinos I. Costalas 224 Church Road Devon, PA 19333 The foregoing addresses may be changed at any time by notice given in the manner herein provided. (b) Integration; Modification. This Agreement dated the date hereof constitutes the entire understanding and agreement between the Company and the Executive regarding its subject matter and supersedes all prior negotiations and agreements, whether oral or written, between them with respect to its subject matter. This Agreement may not be modified except by a written agreement signed by the Executive and a duly authorized officer, of the Company. (c) Enforceability. If any provision of this Agreement shall be -------------- invalid or unenforceable, in whole or in part, such provision shall be deemed to be modified or restricted to the extent and in the manner necessary to render the same valid and enforceable, or shall be deemed excised from this Agreement, as the case may require, and this Agreement shall be construed and enforced to the maximum extent permitted by law as if such provision had been originally incorporated herein as so modified or restricted, or as if such provision had not been originally incorporated herein, as the case may be. (d) Binding Effect. This Agreement shall be binding upon and -------------- inure to the benefit of the parties, including their respective heirs, executors, successors and assigns, except that this Agreement may not be assigned by the Executive. This Agreement supersedes the Prior Employment Agreement, which is hereby deemed null and void and of no further force or effect. (e) Waiver of Breach. No waiver by either party of any condition or of the breach by the other of any term or covenant contained in this Agreement, whether by conduct or otherwise, in any one or more instances shall be deemed or construed as a further or continuing waiver of any such condition or breach or a waiver of any other condition, or the breach of any other term or covenant set forth -9- in this Agreement. Moreover, the failure of either party to exercise any right hereunder shall not bar the later exercise thereof. (f) Governing Law and Interpretation. This Agreement shall be -------------------------------- governed by the laws of the Commonwealth of Pennsylvania without regard to its conflict of laws rules. Each of the parties agrees that he or it, as the case may be, shall deal fairly and in good faith with the other party in performing, observing and complying with the covenants, promises, duties, obligations, terms and conditions to be performed, observed or complied with by him or it, as the case may be, hereunder; and that this Agreement shall be interpreted, construed and enforced in accordance with the foregoing covenant notwithstanding any law to the contrary. (g) Headings. The headings of the various sections and -------- paragraphs have been included herein for convenience only and shall not be considered in interpreting this Agreement. (h) Counterparts. This Agreement may be executed in several ------------ counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. IN WITNESS WHEREOF, this Agreement has been executed by the Executive and on behalf of the Company by its duly authorized officers and approved by its Compensation, Committee, as of the date first above written. Attest: NATIONAL MEDIA CORPORATION /s/ By: /s/ Frederick S. Hammer - ---- ------------------------ Secretary Frederick S. Hammer, Chairman /s/ Constantinos I. Costalas ----------------------------- Constantinos I. Costalas APPROVED: COMPENSATION COMMITTEE By: /s/ Jon W. Yoskin ------------------ Jon W. Yoskin, II, Director, Chairman of the Compensation Committee of the Board of Directors -10- EX-10.1A 3 AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT EXHIBIT 10.1(a) AMENDMENT NO. 1 to EMPLOYMENT AGREEMENT _________________ This is Amendment No. 1, dated as of July 23, 1997, to the Employment Agreement made and entered as of April 28, 1997, by and between National Media Corporation (the "Company"), a Delaware Corporation, and Constantinos I. Costalas (the "Executive"). In consideration of the mutual covenants and agreements set forth herein, and intending to be legally bound hereby, the Company and the Executive agree as follows: 1. Section 10(a)(i) of the Employment Agreement is amended to read in its entirety as follows: "(i) The Executive shall receive an immediate lump sum payment (within thirty (30) days following the Termination of Employment), of three (3) years' Base Salary at the then current amount;" 2. Section 10(b) of the Agreement is amended to read in its entirety as follows: "(b) If a Termination of Employment does not occur within thirty (30) days following the Change in Control, then the Term of this Agreement shall be automatically renewed for a three (3) year period commencing on the date of the Change in Control, in which case all of the terms and conditions of this Agreement shall remain in full force and effect until the end of such Term." IN WITNESS WHEREOF, this Amendment No. 1 to the Employment Agreement has been executed by the Executive and, on behalf of the Company, by its duly authorized officers and approved by its Compensation Committee as of the date first above written. Attest: NATIONAL MEDIA CORPORATION _______________________________ By:________________________________ Secretary Frederick S. Hammer, Chairman ________________________________ Constantinos I. Costalas APPROVED: By____________________________ Jon W. Yoskin, II, Director, Chairman of the Compensation Committee of the Board of Directors EX-10.2 4 EMPLOYMENT AGREEMENT EXHIBIT 10.2 EMPLOYMENT AGREEMENT -------------------- EMPLOYMENT AGREEMENT ("Agreement") made and entered into as of February 27, 1997 by and between NATIONAL MEDIA CORPORATION (the "Company") a Delaware corporation and FREDERICK S. HAMMER ("Hammer"). Background ---------- The Company desires Hammer to serve as Chairman of the Board of Directors and Hammer desires to accept such position. The parties further desire to set forth herein the terms and conditions of Hammer's service to the Company. Accordingly, in consideration of the mutual covenants and agreements set forth herein and the mutual benefits to be derived herefrom, and intending to be legally bound hereby, the Company and Hammer agree as follows: 1. Employment. ---------- (a) Duties. The Company shall employ Hammer as Chairman of the ------ Board of Directors of the Company (the "Board"), as an "at will" employee, on the terms set forth in this Agreement. Hammer accepts such employment with the Company and shall preside at all meetings of the Board of Directors and perform and fulfill such other duties as are reasonably assigned to him hereunder by the Board, devoting his best efforts and professional time and attention to the performance and fulfillment of his duties and to the advancement of the interests of the Company, subject only to the direction, approval, control and directives of the Board. It is understood that Hammer will not serve in this position on a full-time basis, and will have no minimum number of hours or days per annum that are required to be devoted to the Company's affairs as Chairman, except as fixed by the Board. It is expected that Hammer will continue his regular employment with another business. Furthermore, nothing contained herein shall be construed, to prevent Hammer from investing, trading in or managing, for his own account and benefit, stocks, bonds, securities, real estate, commodities or other forms of investments (subject to law and Company policy with respect to trading in Company securities), or serving on noncompetitive corporate boards. (b) Place of Performance. In connection with his employment by -------------------- the Company, Hammer shall be based in the Philadelphia, Pennsylvania metropolitan area, except for required travel on Company business. Company shall furnish Hammer with office space, stenographic assistance and such other facilities and services as shall be suitable to Hammer's position and sufficient and satisfactory to Hammer for the performance of his duties as Chairman of the Board. 2. Term. ---- Hammer's employment under this Agreement shall commence as of February 27, 1997 (the "Commencement Date") and may be terminated at anytime by the Board of Directors of the Company, with or without cause, on 10 days' written notice. As used herein, the term "Term" shall refer to the period during which Hammer is employed hereunder. 3. Compensation. ------------ (a) Salary. During the Term, Hammer shall be paid an annual ------ salary at the rate of $200,000 per annum (the "Base Salary") payable in installments at such times as the Company customarily pays its other senior executive employees (but in any event no less often than monthly). The Base Salary may be increased from time to time by the Board of Directors as conditions warrant including, but not limited to, Hammer's performance as determined by the Board of Directors. (b) Options. As an inducement to Hammer to increase shareholder ------- value, the Company hereby grants to Hammer options (the "Options") to purchase up to 100,000 shares (the "Shares") of the Company's common stock, $.01 par value ("Common Stock"). The exercise price under the Options shall be $6.625 per share, the fair market value of a share of Common Stock as of the date hereof. The Options shall expire ten (10) years from the date hereof and shall vest as follows: (1) one-quarter of the Shares shall vest on February 27, 1997; (2) one-quarter of the Shares shall vest on February 27, 1998; (3) one-quarter of the Shares shall vest on February 27, 1999; (4) one-quarter of the Shares shall vest on February 27, 2000. All of the Options described above shall be issued outside of and shall not be subject to the Company's existing stock option plan, but such Options shall otherwise be on terms consistent with options issued under such plan to other executives of the Company. The specific terms of such grant shall be set forth in a separate stock option agreement. The Options vested through the date of any termination hereunder shall be exercisable in accordance with the option agreement, regardless of the manner of termination; and notwithstanding the foregoing, upon the death of Hammer during the existence of such Options, all unvested portions thereof shall immediately vest. (c) Health Insurance and Other Benefits. During the Term, Hammer ----------------------------------- shall receive all benefits offered by the Company to its senior executives and key management employee benefits offered by the Company to its senior executives and key management employees, including, without limitation, all pension, profit sharing, retirement, salary continuation, deferred compensation, disability insurance, hospitalization insurance, major medical insurance, medical reimbursement, survivor income, life insurance and any other benefit plan or arrangement established and maintained by the Company, subject to the rules and regulations then in effect regarding participation therein. Unless such change is required by federal, state or local law, the Company shall not make any changes in any employee benefit plan or arrangement that would result in a disproportionately greater reduction in the rights of, or benefits to, Hammer compared with any other senior executive of the Company. 4. Life Insurance. -------------- (a) Purchase. Provided that Hammer is insurable at rates that -------- are comparable to those obtainable on other persons of similar age and position in good health (if Hammer is classified in a higher risk category he may elect to pay the excess premium cost to obtain the coverage), during the Term, the Company shall provide Hammer, or at the option of Hammer, Hammer's Life Insurance Trust, with a company-paid term life insurance policy in the face amount of $1,000,000. At Hammer's option, Hammer may obtain an insurance policy in lieu of a policy provided by the Company hereunder, and the Company shall pay premiums therefor as set forth in invoices presented to the Company; provided the Company shall not be required to pay premiums in excess of the out-of-pocket costs it would otherwise have incurred had it purchased such policy directly. The owner of such life insurance policy shall be Hammer or Hammer's Life Insurance Trust, as directed by Hammer. (b) Payment of Premiums. The Company shall timely pay all ------------------- premiums for such life insurance whether provided by the Company for Hammer or by Hammer's Life Insurance Trust. -2- (c) Medical Examination. Hammer agrees to submit to all medical ------------------- examinations, supply all information and execute all documents required by the insurance company in connection with the issuance of a policy for such insurance as well as for any key man insurance the Company may desire to maintain on Hammer's life. 5. Reimbursement of Expenses; Automobile Allowance. ----------------------------------------------- (a) Hammer shall be reimbursed for all items of travel, entertainment and miscellaneous expenses which Hammer reasonably incurs in connection with the performance of his duties hereunder, provided that Hammer shall submit to the Company such statements and other evidence supporting said expenses as the Company may reasonably require. (b) The Company shall pay Hammer a monthly automobile allowance of $600.00. 6. Termination of Employment. ------------------------- (a) Death. In the event of the death of Hammer during the Term, ----- this Agreement shall terminate. The terms of the option agreements pertaining to the Options shall control as to the vesting and expiration thereof upon the death of Hammer. Upon termination of this Agreement under this Section 6(a), the Company shall have no further obligations or liabilities under this Agreement, except to pay to Hammer's estate the portion, if any, that remains unpaid of the Base Salary for the period prior to termination. (b) Discharge for Cause. The Company may discharge Hammer for ------------------- Cause and thereby immediately terminate his employment under this Agreement. For purposes of this Agreement, the Company shall have "Cause" to terminate Hammer's employment if Hammer, in the reasonable judgment of the Company, (i) materially breaches any of his agreements, duties or obligations under this Agreement and has not cured or commenced in good faith to cure such breach within ten (10) days after notice; (ii) embezzles or converts to his own use any funds of the Company or any client or customer of the Company; (iii) converts to his own use or unreasonably destroys any property of the Company, without the Company's consent; (iv) is convicted of a felony; (v) is adjudicated as mentally incompetent; or (vi) is habitually intoxicated or is diagnosed by an independent medical doctor to be addicted to a controlled substance or any drug whatsoever. Notwithstanding the foregoing, Hammer shall not be deemed to have been terminated for Cause unless and until Hammer has received ten (10) days' prior written notice ("Dismissal Notice") of such termination. In the event Hammer does not dispute such determination within ten (10) days after receipt of the Dismissal Notice, Hammer shall not have the remedies provided pursuant to Section 6(e) of this Agreement. (c) Termination at will. Either party may terminate this ------------------- Agreement upon ten (10) days' prior written notice. Except as provided in Section 6(d) of this Agreement, such termination shall be without liability to either party. (d) Termination without Cause or for Good Reason. -------------------------------------------- (i) In the event that Hammer's employment is terminated by the Company without Cause under Section 6(c) of this Agreement, or Hammer shall resign for "Good Reason," as defined in Section 6(d)(ii) of this Agreement, then, to the extent provided below, the Company shall: -3- (1) pay Hammer in lieu of other damages, except as specifically provided herein, an amount equal one years' Base Salary at the then current amount. Such amounts shall be payable in installments equal to installments of Base Salary then payable to Hammer as provided herein until such amount is paid in fall. During such period of payments, the restrictions contained in Section 9(a)(i) of this Agreement shall be applicable to Hammer, except that Hammer may accept employment he might not otherwise accept under Section 9 (a)(i) of this Agreement, in which event payment of salary received from such other employment shall be deducted from payments made hereunder; and (2) maintain in full force and effect, for the continued benefit of Hammer for a period of six (6) months after termination or for the balance of the Term, whichever is greater, all employee benefit plans and programs, except option plans and except bonus plans to the extent Hammer is not employed by the Company for all or a portion of the period of measurement for the bonus, in which Hammer was entitled to participate immediately prior to Hammer's discharge or resignation, provided that Hammer's continued participation is possible under the general terms and provisions of such benefit plans and programs, and provided further that any Options unvested and unexercisable at the date of termination shall then become vested and exercisable. In the event that Hammer's participation in any such benefit plan or program is barred, the Company shall arrange to provide Hammer with benefits substantially similar to those which Hammer is entitled to receive under such plans and programs. At the end of the period of coverage, Hammer shall have the option to have assigned to him at no cost and with no apportionment of prepaid premiums any assignable insurance policy owned by the Company which relates specifically to Hammer. (ii) For purposes of this Section 6(d), "Good Reason" shall mean the failure by the Company to comply with the material provisions of this Agreement which failure is not cured within thirty (30) days after notice. Notwithstanding the foregoing, Hammer shall not be deemed to terminate this Agreement for Good Reason unless and until the Company has received five (5) days prior written notice of termination ("Notice of Termination for Good Reason). In the event the Company does not dispute such termination within ten (10) days after receipt of such Notice of Termination for Good Reason, the Company shall not have the remedies provided pursuant to Section 6(e) of this Agreement. (e) Arbitration. In the event that Hammer disputes a ----------- determination that Cause exists for terminating his employment pursuant to Section 6(b) of this Agreement, or the Company disputes the termination that Good Reason exists for Hammer's termination of his Employment pursuant to Section 6(d)(ii) of this Agreement, either party disputing this determination shall serve the other with written notice of such dispute ("Dispute Notice") within thirty (30) days after receipt of the Dismissal Notice or Notice of Termination for Good Reason. Within fifteen (15) days thereafter, Hammer or the Company, as the case may be, shall, in accordance with the Rules of the American Arbitration Association ("AAA"), file a petition with the AAA for arbitration of the dispute, the costs thereof to be shared equally by Hammer and the Company unless an order of the AAA provides otherwise and each party shall be responsible for his or its legal fees. Such proceeding shall also determine all other disputes between the parties relating to Hammer's employment. The parties covenant and agree that the decision of the AAA shall be final and binding and hereby waive their rights to appeal therefrom. (f) Termination by Company. If this Agreement is terminated by ---------------------- the Company pursuant to Section 6(c) of this Agreement after February 27, 1999, any Options unvested and unexercisable at the date of termination of this Agreement shall then become immediately vested and exercisable. 7. Change in Control. Upon a Change in Control, as hereinafter ----------------- defined, notwithstanding anything in this Agreement to the contrary, the following terms and provisions shall apply: -4- (a) If, within one year following the Change in Control, there is a Termination of Employment (as defined below), then the following provisions shall become applicable: (i) Hammer shall receive an immediate lump sum payment (within thirty (30) days following the Termination of Employment), of one (1) years' Base Salary at the then current amount; (ii) All allowances and benefits, as contained in Section 3(c)-(d), 4 and 6 of this Agreement, shall be continued for the one year following the Termination of Employment; and (iii) All unvested and unexercised stock options held by Hammer shall become immediately vested and exercisable by Hammer, and shall remain exercisable until the date of expiration of the option exercise period. (b) As used in this Section 7, "Termination of Employment" shall mean termination of Hammer's employment (i) by the Company for any reason, or (ii) by Hammer's death or resignation. (c) As used in this Section 7, a "Change in Control" shall be deemed to have taken place if: (i) subsequent to February 27, 1997, any "Person" (including any individual, firm, corporation, partnership or other entity except Hammer, the Company or any employee benefit plan of the Company or of any Affiliate or Associate (each as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended), and any Person or entity organized, appointed or established by the Company for or pursuant to the terms of any such employee benefit plan), together with all Affiliates and Associates of such Person, shall become the beneficial owner in the aggregate of twenty percent (20%) or more of the Common Stock of the Company then outstanding; or (ii) during the Term of this Agreement, individuals who, as of February 27, 1997, constituted the Board cease for any reason to constitute a majority thereof. (d) It is the intention of the parties that the payments under Section 7(a) of this Agreement shall not constitute "excess parachute payments" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended. Accordingly, notwithstanding anything in this Section 7 to the contrary, if any of the amounts otherwise payable under Section 7(a) of this Agreement would constitute "excess parachute payments," or if the independent accountants acting as auditors for the Company on the date of the Change of Control determine that such payments may constitute "excess parachute payments," then the cash amounts otherwise payable under Section 7(a) of this Agreement shall be reduced to the maximum amounts that may be paid without any such payments or other benefits under this Section 7 constituting, or potentially constituting, "excess parachute payments." 8. No Mitigation. Hammer shall not be required to mitigate the ------------- amount of any payment or benefit provided for in this Agreement by seeking other employment or otherwise not, except as provided herein, shall the amount of any payment or benefit provided for in this Agreement be reduced by any compensation earned by Hammer as the result of his employment by another employer. 9. Restrictive Covenant. -------------------- (a) Competition. ----------- (i) Hammer undertakes and agrees that he will not compete, directly or indirectly, or participate as a director, officer, employee, consultant, agent, representative or otherwise, or as a stockholder, partner or joint venturer, or have any direct or indirect financial interest, including, without -5- limitation, the interest of a creditor, in any business competing directly with the infomercial direct response business of Company or any of its subsidiaries within any geographical area in which the business of Company or its subsidiaries is being conducted during Hammer's employment (1) during the Term of this Agreement; (2) for a period of six (6) months after termination of this Agreement pursuant to Section 6(b) of this Agreement; and (3) subject to Section 6(d)(i)(1) of this Agreement, for any period after termination during which payments are made to Hammer under Section 6(d)(i) of this Agreement with respect to termination by the Company or Hammer pursuant to Section 6(c) of this Agreement. (ii) Hammer further undertakes and agrees that during the Term of this Agreement and for a period of six (6) months after the termination or expiration or while payments are made pursuant to Section 6(d)(i)(1) of this Agreement he will not, directly or indirectly, employ, cause to be employed, or solicit for employment any of Company's or its subsidiaries' employees. (b) Trade Secrets. During the Term hereof and after termination ------------- or expiration for any reason, Hammer shall not disclose, divulge, copy or otherwise use any trade secret of the Company or its subsidiaries other than any knowledge or information already known to Hammer prior to this Agreement, it being acknowledged that all such new information and materials compiled or obtained by or disclosed to Hammer while employed by the Company or its subsidiaries hereunder or otherwise are confidential and the exclusive property of the Company and its subsidiaries. (c) Injunctive Relief. The parties hereto agree that the remedy ----------------- at law for any breach of the provisions of this Section 9 will be inadequate and that the Company or any of its subsidiaries or other successors or assigns shall be entitled to injunctive relief without bond. Such injunctive relief shall not be exclusive, but shall be in addition to any other rights and remedies Company or any of its subsidiaries or their successors or assigns might have for such breach. (d) Scope of Covenant. Should the duration, geographical area or ----------------- range of prescribed activities in Section 9(a) of this Agreement be held unreasonable by any court of competent jurisdiction, then such duration, geographical area or range of prescribed activities shall be modified to such degree as to make it or them reasonable and enforceable. 10. Counsel Fees and Indemnification. -------------------------------- (a) In the event that it shall be necessary or desirable for Hammer to retain legal counsel and/or incur other costs and expenses in connection with the enforcement of any and all of his rights under this Agreement, including participation in any proceeding contesting the validity or enforceability of this Agreement and any arbitration proceeding pursuant to Section 6(e) of this Agreement, Hammer shall be entitled to recover from the Company his reasonable attorney's fees and costs and expenses in connection with the enforcement of his rights. No fees shall be payable if the Company is successful on the merits. (b) The Company shall indemnify and hold Hammer harmless to the maximum extent permitted by law against judgments, fines, amounts paid in settlement and reasonable expenses, including attorneys' fees incurred by Hammer, in connection with the defense of, or as a result of, any action or proceeding (or any appeal from any action or, proceeding) in which Hammer is made or is threatened to be made a party by reason of any act or omission of Hammer in his capacity as an officer, director or employee of the Company, regardless of whether such action or proceeding is one brought by or in the right of the Company, to procure a judgment in its favor. Expenses (including attorneys' fees) incurred by Hammer in defending any civil, criminal, administrative, or investigative action, suit or proceeding shall be paid by the Company in advance of the final disposition of such action, suit or proceeding upon receipt of -6- an undertaking by or on behalf of Hammer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Company as authorized in this Section 10(b). 11. Miscellaneous. ------------- (a) Notices. Any notice, demand or communication required or ------- permitted under this Agreement shall be in writing and shall either be hand- delivered to the other party or mailed to the addresses set forth below by registered or certified mail, return receipt requested or sent by overnight express mail or courier or facsimile to such address, if a party has a facsimile machine. Notice shall be deemed to have been given and received when so hand- delivered or after three business days when so deposited in the U.S. Mail, or when transmitted and received by facsimile or sent by express mail properly addressed to the other party. The addresses are: To the Company: National Media Corporation Eleven Penn Center, Suite 1100 1835 Market Street Philadelphia, Pennsylvania 19103 FAX #: (215) 988-4869 Attn: Corporate Secretary To Hammer: Mr. Frederick S. Hammer 520 Meadowbrook Circle Wayne, Pennsylvania 19087 The foregoing addresses may be changed at any time by notice given in the manner herein provided. (b) Integration: Modification. This Agreement dated the date ------------------------- hereof constitutes the entire understanding and agreement between the Company and Hammer regarding its subject matter and supersedes all prior negotiations and agreements, whether oral or written, between them with respect to its subject matter. This Agreement may not be modified except by a written agreement signed by Hammer and a duly authorized officer of the Company. (c) Enforceability. If any provision of this Agreement shall be -------------- invalid or unenforceable, in whole or in part, such provision shall be deemed to be modified or restricted to the extent and in the manner necessary to render the same valid and enforceable, or shall be deemed excised from this Agreement, as the case may require, and this Agreement shall be construed and enforced to the maximum extent permitted by law as if such provision had been originally incorporated herein as so modified or restricted, or as if such provision had not been originally incorporated herein, as the case may be. (d) Binding Effect. This Agreement shall be binding upon and -------------- inure to the benefit of the parties, including their respective heirs, executors, successors and assigns, except that this Agreement may not be assigned by Hammer. This Agreement supersedes the Prior Employment Agreement, which is hereby deemed null and void and of no further force or effect. -7- (e) Waiver of Breach. No waiver by either party of any condition ---------------- or of the breach by the other of any term or covenant contained in this Agreement, whether by conduct or otherwise, in any one or more instances shall be deemed or construed as a further or continuing waiver of any such condition or breach or a waiver of any other condition, or the breach of any other term or covenant set forth in this Agreement. Moreover, the failure of either party to exercise any right hereunder shall not bar the later exercise thereof. (f) This Agreement shall be governed by the laws of the Commonwealth of Pennsylvania without regard to its conflict of laws rules. Each of the parties agrees that he or it, as the case may be, shall deal fairly and in good faith with the other party in performing, observing and complying with the covenants, promises, duties, obligations, terms and conditions to be performed, observed or complied with by him or it, as the case may be, hereunder; and that this Agreement shall be interpreted, construed and enforced in accordance with the foregoing covenant notwithstanding any law to the contrary. (g) Heading. The headings of the various sections and paragraphs ------- shall not be considered in interpreting this have been included herein for convenience only and shall not be considered in interpreting this Agreement. (h) Counterparts. This Agreement may be executed in several ------------ counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. -8- IN WITNESS WHEREOF, this Agreement has been executed by Hammer and on behalf of the Company by its duly authorized officers and approved by its Compensation Committee, as of the date first above written. Attest: NATIONAL MEDIA CORPORATION _________________________________ By:____________________________________ Secretary Constantinos I. Costalas Vice Chairman and Chief Operating Officer ____________________________________ Frederick S. Hammer APPROVED: COMPENSATION COMMITTEE By: _______________________________ Jon W. Yoskin, II, Director Chairman of the Compensation Committee of the Board of Directors _______________________________ Albert R. Dowden, Director -9- EX-11.1 5 STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE EXHIBIT 11.1 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS (In thousands, except per share data)
Three Months Ended June 30, 1997 1996 ------------------- ------------------ Primary Average common shares outstanding 24,141 18,500 Assumed conversion of preferred stock - 1,306 Net effect of common stock equivalents (2)(3) - 5,439 -------------- -------------- Total shares 24,141 25,345 ============== ============== Net (loss) income ($12,989) $ 4,550 Adjustments to net (loss) income: Reduction of interest expense (net of tax) related to assumed retired debt - - Increase in interest income (net of tax) from assumed investment of excess proceeds in short-term paper - - -------------- -------------- Adjusted net (loss) income ($12,989) $ 4,550 ============== ============== Per share (loss) earnings: ($.54) $.18 ============== ============== Fully Diluted Average common shares outstanding 24,141 18,600 Assumed conversion of preferred stock - 1,306 Net effect of common stock equivalents (2)(4) - 5,439 -------------- -------------- Total shares 24,141 25,345 ============== ============== Net (loss) income ($12,989) $ 4,550 Adjustments to net (loss) income: Reduction of interest expense (net of tax) related to assumed retired debt - - Increase in interest income (net of tax) from assumed investment of excess proceeds in short-term paper - - -------------- -------------- Adjusted net (loss) income ($12,989) $ 4,550 ============== ============== Per share (loss) earnings (1): ($ .54) $.18 ============== ==============
(1) This calculation is submitted in accordance with the requirements of Regulation S-K although not required by APB Opinion No. 15 because it results in dilution of less than 3%. (2) Common stock equivalents include the effect of the exercise of stock options and warrants. (3) Based on common stock equivalents using the if converted method and average market price. (4) Based on common stock equivalents using the if converted method and the period-end market price, if higher than the average market price. EX-27.1 6 FINANCIAL DATA SCHEDULE
5 3-MOS MAR-31-1998 JUN-30-1997 7,445 0 39,793 (6,634) 29,905 88,399 15,038 896 160,278 80,129 0 0 1 249 76,680 160,278 67,155 67,155 64,446 79,215 0 0 625 (12,685) 304 (12,989) 0 0 0 (12,989) (0.54) (0.54)
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