SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q/A
(Amendment No. 1)
Quarterly Report Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For the Quarter Ended Commission File Number
December 31, 2001 0-25596
----------------------- ----------------------------------------
SHOP AT HOME, INC.
---------------------
(Exact name of registrant as specified in its charter)
TENNESSEE 62-1282758
--------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
5388 Hickory Hollow Parkway
P. O. Box 305249
Nashville, Tennessee 37230-5249
---------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (615) 263-8000
--------------
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
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Common Stock $.0025 par value 41,861,581
- ------------------------------ ----------------------------------
(Title of class) (Shares outstanding at
February 13, 2002)
SHOP AT HOME, INC. AND SUBSIDIARIES
Index
Three and Six Months Ended December 31, 2001 and 2000
--------------------------------------------------------------------------
Part I FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations 4
Condensed Consolidated Statements of Cash Flows 5-6
Notes to Condensed Consolidated Financial Statements 7-15
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 16-19
Item 3 - Quantitative and Qualitative Disclosure
About Market Risk 19-20
Part II OTHER INFORMATION
Item 1 - Legal Proceedings 21
Item 6 - Exhibits and Reports on Form 8-K 21
SHOP AT HOME, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Thousands of Dollars)
- ------------------------------------------------------------------------------------------------------------------------------
December 31, June 30,
2001 2001
--------------------- -------------------
(Unaudited)
Cash and cash equivalents $ 19,924 $ 19,557
Restricted cash 357 -
Accounts receivable - trade, net 7,481 3,103
Inventories - net 12,642 9,953
Prepaid expenses 952 884
Deferred tax assets 3,643 3,177
Notes receivable - 380
Income tax receivable 59 310
--------------------- -------------------
Total current assets 45,058 37,364
Property and equipment - net 34,779 39,171
Deferred tax asset 14,318 9,418
Television station licenses 89,251 89,251
Goodwill 533 533
Other assets 3,896 4,280
--------------------- -------------------
Total assets $ 187,835 $ 180,017
===================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses $ 26,807 $ 25,784
Current portion - capital leases and long-term debt 741 877
Deferred revenue 2,178 2,124
--------------------- -------------------
Total current liabilities 29,726 28,785
Capital leases 205 484
Long-term debt 92,500 75,000
Series A redeemable preferred stock:
Redeemable at $10 per share, $10 par value, 1,000,000 shares authorized;
16,088 and 16,088 shares issued and outstanding at
December 31, 2001 and June 30, 2001, respectively 161 161
Stockholders' equity:
Common stock - $.0025 par value, 100,000,000
shares authorized; 41,860,581 and 41,815,931 shares
issued at December 31, 2001 and June 30, 2001, respectively 105 105
Additional paid in capital 110,976 110,904
Notes receivable related parties (3,602) (3,602)
Accumulated deficit (42,236) (31,820)
--------------------- -------------------
Total liabilities and stockholders' equity $ 187,835 $ 180,017
===================== ===================
The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.
SHOP AT HOME, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Thousands of Dollars)
- ----------------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
December 31, December 31,
------------------------------ ------------------------------
2001 2000 2001 2000
--------------- -------------- -------------- ---------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Net revenues $ 49,213 $ 46,515 $ 92,623 $ 87,294
Operating expenses:
Cost of goods sold (excluding items listed below) 31,464 29,690 59,877 57,541
Salaries and wages 4,480 4,603 8,790 9,243
Transponder and affiliate charges 11,113 9,272 19,328 18,431
General and administrative 5,012 5,400 9,417 10,461
Depreciation and amortization 2,897 3,058 5,818 5,974
--------------- -------------- -------------- ---------------
Total operating expenses 54,966 52,023 103,230 101,650
--------------- -------------- -------------- ---------------
Loss from operations (5,753) (5,508) (10,607) (14,356)
Interest income 89 227 271 492
Interest expense (2,796) (3,108) (5,441) (5,914)
Other income - - (4) 4
--------------- -------------- -------------- ---------------
Loss before income taxes (8,460) (8,389) (15,781) (19,774)
Income tax benefit 2,876 3,186 5,365 7,514
--------------- -------------- -------------- ---------------
Loss from continuing operations before cumulative
effect of accounting change (5,584) (5,203) (10,416) (12,260)
Loss from discontinued operations of CET plus applicable income tax benefit of
$0, $123, $0
and $368, respectively - (200) - (598)
Loss on disposal of CET, plus applicable income tax
benefit of $1,684 - (2,749) - (2,749)
--------------- -------------- -------------- ---------------
Loss before cumulative effect of accounting change (5,584) (8,152) (10,416) (15,607)
Cumulative effect of accounting change plus applicable
income tax benefit of $832 (see note 8) - - - (1,359)
(see note 7)
--------------- -------------- -------------- ---------------
Net loss (5,584) (8,152) (10,416) (16,966)
Preferred stock accretion and dividends - (4,227) - (5,439)
--------------- -------------- -------------- ---------------
Net loss available for common shareholders $ (5,584) $ (12,379) $ (10,416) $ (22,405)
=============== ============== ============== ===============
Basic loss per common share:
Loss from continuing operations $ (0.13) $ (0.27) $ (0.25) $ (0.53)
Loss from discontinued operations - (0.08) - (0.10)
Cumulative effect of accounting change - - - (0.05)
--------------- -------------- -------------- ---------------
Basic loss per share $ (0.13) $ (0.35) $ (0.25) $ (0.68)
=============== ============== ============== ===============
Diluted loss per common share:
Loss from continuing operations $ (0.13) $ (0.27) $ (0.25) $ (0.53)
Loss from discontinued operations - (0.08) - (0.10)
Cumulative effect of accounting change - - - (0.05)
--------------- -------------- -------------- ---------------
Diluted loss per share $ (0.13) $ (0.35) $ (0.25) $ (0.68)
=============== ============== ============== ===============
The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.
SHOP AT HOME, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Six Months Ended December 31, 2001 and 2000
(Thousands of Dollars)
2001 2000
(Unaudited) (Unaudited)
------------------- -------------------
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss $ (10,416) $ (16,966)
Non-cash expenses/(income) included in net loss:
Depreciation and amortization 5,817 5,974
Cumulative effect of accounting change - 1,359
Discontinued operations - 4,433
Deferred tax benefit (5,366) (10,398)
Deferred interest 579 520
Provision for bad debt 690 857
Provision for inventory obsolescence - 202
Changes in current and non-current items:
Accounts receivable (4,688) 6,003
Inventories (2,689) 787
Prepaid expenses (68) 312
Income tax receivable 251 -
Accounts payable and accrued expenses 1,043 (8,804)
Deferred revenue 54 3,562
------------------- -------------------
Net cash used by operations (14,793) (12,159)
------------------- -------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (1,341) (949)
Net change in restricted cash (357) 2,427
Deposits 25 (47)
Licenses - (525)
------------------- -------------------
Net cash (used) provided by investing activities (1,673) 906
------------------- -------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of debt and capitalized leases (415) (445)
Proceeds from debt 17,500 -
Debt issue costs (304) (520)
Preferred stock dividends - (131)
Preferred stock redemption - (4,368)
Exercise of stock options and warrants 52 6
------------------- -------------------
Net cash provided (used) by financing activities 16,833 (5,458)
------------------- -------------------
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 367 (16,711)
Cash and cash equivalents beginning of period 19,557 27,515
------------------- -------------------
Cash and cash equivalents end of period $ 19,924 $ 10,804
=================== ===================
The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.
SHOP AT HOME, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Continued)
Six Months Ended December 31, 2001 and 2000
(Thousands of Dollars)
- --------------------------------------------------------------------------------
2001 2000
-------------------------- --------------------------
(Unaudited) (Unaudited)
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest $ 4,733 $ 4,909
========================== ==========================
SCHEDULE OF NONCASH FINANCING ACTIVITIES
Accrued preferred stock dividends $ - $ 229
========================== ==========================
Dividend on Series B preferred stock paid in
common stock $ - $ 264
========================== ==========================
Accretion and loss on repurchase of Series B
preferred stock $ - $ 4,711
========================== ==========================
Property and equipment acquired through capital leases $ - $ 360
========================== ==========================
The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.
SHOP AT HOME, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
December 31, 2001 (Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
All dollar values have been expressed in thousands (000s) unless otherwise noted
except for per share data. The financial information included herein is
unaudited for the three and six months ended December 31, 2001 and 2000;
however, such information reflects all adjustments (consisting only of normal
recurring adjustments) which are, in the opinion of the Company, necessary for a
fair presentation of financial condition and results of operations of the
interim periods. The condensed consolidated balance sheet data for the fiscal
year ended June 30, 2001 was derived from audited financial statements, but does
not include all disclosures required by generally accepted accounting
principles.
The accounting policies followed by the Company are set forth in the Company's
financial statements in its Annual Report on Form 10-K for the fiscal year ended
June 30, 2001.
Certain amounts in the prior periods' condensed consolidated financial
statements have been reclassified for comparative purposes to conform to the
current year presentation.
NOTE 2 - INVENTORY
The components of inventory at December 31, 2001 and June 30, 2001 are
as follows:
December 31 June 30,
2001 2001
---- ----
Products purchased for resale $ 13,657 $ 11,670
Valuation allowance (1,015) (1,717)
-------------------- ------------------
Total $ 12,642 $ 9,953
==================== ==================
NOTE 3 - REVOLVING CREDIT AGREEMENT
On August 1, 2001, the Company obtained a $17.5 million revolving line of credit
from a financial institution. The new facility matures on August 1, 2003. No
principal payments are due before then except as required as certain assets are
sold. The facility requires that interest be paid at least quarterly at a
variable rate (6.88% currently) based on LIBOR or prime rate. The facility
contains covenants restricting the sale of assets, mergers and investments and
requiring that cash on hand exceed $3.0 million at all times. This credit
facility restricts the Company from issuing dividends on its common stock and
has cumulative quarterly requirements for earnings before interest, taxes,
depreciation and amortization (EBITDA), as defined in the agreement. The Company
failed to comply with the cumulative EBITDA covenant for the six months ended
December 31, 2001. The Company has been granted a waiver of the EBITDA violation
within an amendment to the loan agreement from the lending financial
institution. The amendment also prospectively eliminates the EBITDA covenant
through June 30, 2002, and reduces the requirement thereafter.
NOTE 4 - NET LOSS PER SHARE
The following table sets forth for the periods indicated the calculation of net
loss per share included in the Company's Condensed Consolidated Statements of
Operations:
Three Months Ended December 31, Six Months Ended
December 31,
2001 2000 2001 2000
---------------- ---------------- --------------- ----------------
Numerator:
Loss from continuing operations before
accounting change $ (5,584) $ (5,203) $ (10,416) $ (12,260)
Preferred stock accretion and dividends - (4,227) - (5,439)
---------------- ---------------- --------------- ----------------
Numerator for basic and diluted earnings
per share-loss available
to common stockholders $ (5,584) $ (9,430) $ (10,416) $ (17,699)
================ ================ =============== ================
Denominator:
Denominator for basic and diluted earnings
per share-weighted-average shares 41,848 34,956 41,832 33,111
================ ================ =============== ================
Basic loss per share $ (0.13) $ (0.27) $ (0.25) $ (0.53)
================ ================ =============== ================
Diluted loss per share $ (0.13) $ (0.27) $ (0.25) $ (0.53)
================ ================ =============== ================
Although these amounts are excluded from the computation in loss years because
their inclusion would be anti-dilutive, they are shown here for information and
comparative purposes only.
a) Employee stock options 4,714 3,298 4,714 3,298
b) Warrants 2,000 4,205 2,000 4,205
c) Convertible preferred stock 16 5,507 16 5,507
NOTE 5 - SEGMENT DISCLOSURE
The Company operates principally in two segments: Shop At Home Network and
shopathometv.com. The Company operates almost exclusively in the United States.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. Intersegment sales and transfers are
accounted for as if the sales or transfers were with third parties, that is, at
current market prices.
OPERATING SEGMENT DATA
Three Months Ended December 31, Six Months Ended December 31,
------------------------------- -----------------------------
2001 2000 2001 2000
---- ---- ---- ----
Revenue:
Network $ 44,341 $ 41,766 $ 83,686 $ 78,706
shopathometv.com 4,872 5,402 8,937 9,865
Intersegment eliminations - (653) - (1,277)
-------------------- --------------------- ----------------------- --------------------
$ 49,213 $ 46,515 $ 92,623 $ 87,294
==================== ===================== ======================= ====================
Operating income (loss):
Network $ (5,783) $ (3,484) $ (10,168) $ (10,575)
shopathometv.com 30 (2,024) (439) (3,781)
-------------------- --------------------- ----------------------- --------------------
$ (5,753) $ (5,508) $ (10,607) $ (14,356)
==================== ===================== ======================= ====================
Depreciation and amortization:
Network $ 2,329 $ 2,706 $ 4,682 $ 5,269
shopathometv.com 568 352 1,136 705
-------------------- --------------------- ----------------------- --------------------
$ 2,897 $ 3,058 $ 5,818 $ 5,974
==================== ===================== ======================= ====================
Interest income:
Network $ 89 $ 227 $ 271 $ 492
shopathometv.com - - - -
-------------------- --------------------- ----------------------- --------------------
$ 89 $ 227 $ 271 $ 492
==================== ===================== ======================= ====================
Interest expense:
Network $ 2,796 $ 3,108 $ 5,441 $ 5,914
shopathometv.com - - - -
-------------------- --------------------- ----------------------- --------------------
$ 2,796 $ 3,108 $ 5,441 $ 5,914
==================== ===================== ======================= ====================
Income (loss) before taxes:
Network $ (8,490) $ (6,364) $ (15,342) $ (15,992)
shopathometv.com 30 (2,025) (439) (3,782)
-------------------- --------------------- ----------------------- --------------------
$ (8,460) $ (8,389) $ (15,781) $ (19,774)
==================== ===================== ======================= ====================
Income tax expense (benefit):
Network $ (2,886) $ (2,416) $ (5,216) $ (6,077)
shopathometv.com 10 (770) (149) 1,437
-------------------- --------------------- ----------------------- --------------------
$ (2,876) $ (3,186) $ (5,365) $ (7,514)
==================== ===================== ======================= ====================
December 31, 2001 June 30, 2001
----------------------- --------------------
Total assets:
Network $ 178,440 $ 169,624
shopathometv.com 9,395 10,393
----------------------- --------------------
$ 187,835 $ 180,017
======================= ====================
NOTE 6 - ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS
On June 29, 2001, the Financial Accounting Standards Board ("FASB" or
the "Board") issued two Statements: Statement No. 141 (FAS 141), Business
Combinations, and Statement No. 142 (FAS 142), Goodwill and Other Intangible
Assets.
FAS 141 primarily addresses the accounting for the cost of an acquired
business (i.e., the purchase price allocation), including any subsequent
adjustments to its cost. FAS 141 supercedes Accounting Principles Board Opinion
("APB") 16, Business Combinations.
The most significant changes made by FAS 141 are:
It requires use of the purchase method of accounting for all business
combinations, thereby eliminating use of the pooling-of-interests
method.
It provides new criteria for determining whether intangible assets
acquired in a business combination should be recognized separately from
goodwill.
FAS 141 is effective for all business combinations (as defined in the
FAS 141) initiated after June 30, 2001, and for all business combinations
accounted for by the purchase method that are completed after June 30, 2001
(that is, the date of acquisition is July 1, 2001, or later).
The Company adopted FAS 141 effective July 1, 2001. The adoption of FAS
141 did not have a material effect on the Company's financial statements.
FAS 142 primarily addresses the accounting for goodwill and intangible
assets after their acquisition (i.e., the post-acquisition accounting), and FAS
142 supercedes APB 17, Intangible Assets.
The most significant changes made by FAS 142 are:
Goodwill and indefinite-life intangible assets will no longer be
amortized and will be tested for impairment at least annually.
Goodwill will be tested at least annually at the reporting unit level.
The amortization period of intangible assets with finite lives is no longer
limited to forty years.
FAS 142 is effective for fiscal years beginning after December 15,
2001, to all goodwill and other intangible assets recognized in an entity's
statement of financial position at that date, regardless of when those assets
were initially recognized. Early application is permitted for entities with
fiscal years beginning after March 15, 2001, provided that the first interim
period financial statements have not been issued previously. In all cases, the
provisions of FAS 142 should be applied at the beginning of a fiscal year.
Retroactive application is not permitted.
The Company adopted FAS 141 effective July 1, 2001. The effect of such
adoption was to discontinue amortization of the Company's television station
license costs ("FCC Licenses") and goodwill. The FCC licenses are granted by the
Federal Communications Commission, stipulating each station's operating
parameters as defined by channels, effective radiated power and antenna height.
In the past, these licenses have become valuable intangible assets, appreciating
in value. The Company believes these intangible assets have an indefinite useful
life because they are expected to generate cash flow indefinitely. Thus, the
Company ceased to amortize these licenses on July 1, 2001. As of December 31,
2001 and June 30, 2001, the carrying value of the FCC licenses was $89.3
million.
The Company's carrying value of goodwill of $0.5 million at December
31, 2001 is attributable to its network reporting segment. The Company completed
the first step of the transitional goodwill impairment test during the quarter
ended December 31, 2001 and has determined that no potential impairment exists.
As a result, the Company has recognized no transitional impairment loss in
connection with the adoption of FAS 142.
The following pro forma information reconciles the net loss and loss
per share reported for the three and six months ended December 31, 2000 to
adjusted net loss and loss per share which reflect the adoption of FAS 142 and
compares the adjusted information to the current year results:
Three Months Ended Six Months Ended
December 31, December 31,
2001 2000 2001 2000
(Pro forma) (Pro forma)
----------------- ------------------ ---------------- ----------------
Reported net loss $ (5,584) $ (12,379) $ (10,416) $ (22,405)
Add back FCC license and goodwill
amortization, net of tax - 402 - 804
----------------- ------------------ ---------------- ----------------
Adjusted net loss $ (5,584) $ (11,977) $ (10,416) $ (21,601)
================= ================== ================ ================
Basic loss per share
Reported net loss $ (0.13) $ (0.35) $ (0.25) $ (0.68)
FCC license and goodwill amortization - 0.01 - 0.02
----------------- ------------------ ---------------- ----------------
Adjusted net loss $ (0.13) $ (0.34) $ (0.25) $ (0.66)
================= ================== ================ ================
Diluted loss per share
Reported net loss $ (0.13) $ (0.35) $ (0.25) $ (0.68)
FCC license and goodwill amortization - 0.01 - 0.02
----------------- ------------------ ---------------- ----------------
Adjusted net loss $ (0.13) $ (0.34) $ (0.25) $ (0.66)
================= ================== ================ ================
NOTE 7 - DISCONTINUANCE OF COLLECTOR'S EDGE
In December 2000, the Company discontinued the operations of its
subsidiary and segment, Collector's Edge of Tennessee, Inc. (CET), which
formerly manufactured and distributed football trading cards. The Company sold
CET's assets on February 19, 2001, for $1,500, consisting of $500 in cash and a
note for $1,000 due in six equal installments which was paid in full on August
15, 2001. Revenues from CET were as follows:
Three Months Ended December 31, Six Months Ended
December 31,
2001 2000 2000 1999
---------------- ---------------- --------------- ----------------
- $1,349 - $2,519
NOTE 8 - CUMULATIVE EFFECT OF ACCOUNTING CHANGE
Pursuant to Staff Accounting Bulletin No. 101, Revenue Recognition in
Financial Statements (SAB101), the Company changed its method of recognizing
revenue on products it ships to its customers in the quarter ended December 31,
2000. Prior to the adoption of SAB101 the Company recognized revenue when the
products were shipped to the customers, as the products were shipped FOB
shipping point. Pursuant to the new guidance in SAB101 the Company now
recognizes the revenue from shipments once the product is received by the
customer. This change was necessitated since the Company routinely maintains
risk of loss, covered by insurance, while the products are in transit. In
accordance with SAB101, the Company has reduced revenue for the products which
were shipped at the end of the period but not received by the customer by
recording a cumulative effect of an accounting change of $1,359 (net of a tax
benefit of $832) for the effects through June 30, 2000 and restated the results
of operations for the quarter ended September 30, 2000.
NOTE 9 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The following is summarized condensed consolidating financial
information for the Company, segregating the Parent from the guarantor
subsidiaries of the $75,000 of 11% Senior Secured Notes. The guarantor
subsidiaries are wholly owned subsidiaries of the Company and guarantees are
full, unconditional, joint and several. The separate company financial
statements of each guarantor subsidiary have not been included herein because
management does not believe that their inclusion would be more meaningful to
investors than the presentation of the condensed consolidating financial
information presented below.
CONSOLIDATING BALANCE SHEET DATA
December 31, 2001 June 30, 2001
----------------- -------------
Guarantor Guarantor
Parent Subsidiaries Consolidated(1) Parent Subsidiaries Consolidated(1)
Assets:
Cash and cash equivalents $ 19,881 $ 43 $19,924 $ 19,562 $ (5) $ 19,557
Restricted cash 357 - 357 - - -
Accounts receivable 45,026 1 7,481 39,011 10 3,103
Inventories 12,642 - 12,642 9,953 - 9,953
Prepaid expenses 905 47 952 873 11 884
Deferred tax assets 3,643 - 3,643 3,177 - 3,177
Notes receivable - - - 380 - 380
Income tax receivable 59 - 59 310 - 310
-------------- ----------------- -------------- ---------------- --------------- ----------------
Total current assets 82,513 91 45,058 73,266 16 37,364
Property and equipment,
net 28,986 5,793 34,779 33,522 5,649 39,171
Deferred tax assets 14,318 - 14,318 9,418 - 9,418
Television station licenses - 89,251 89,251 - 89,251 89,251
Goodwill 528 5 533 528 5 533
Other assets 3,826 70 3,896 4,128 152 4,280
Investment in subsidiaries 23,816 - - 23,816 - -
-------------- ----------------- -------------- ---------------- --------------- ----------------
Total assets $ 153,987 $ 95,210 $ 187,835 $ 144,678 $ 95,073 $ 180,017
============== ================= ============== ================ =============== ================
Liabilities and
Stockholders' Equity:
Accounts payable and
accrued expenses $ 26,250 $ 61,919 $ 26,807 $ 25,425 $ 60,073 $ 25,784
Current portion--capital
leases and long-term
debt 741 - 741 877 - 877
Deferred revenue 2,178 - 2,178 2,124 - 2,124
-------------- ----------------- -------------- ---------------- --------------- ----------------
Total current liabilities 29,169 61,919 29,726 28,426 60,073 28,785
Long-term debt including
capital leases 92,705 - 92,705 75,484 - 75,484
Deferred income taxes - 17,216 - - 17,194 -
Redeemable preferred
stock 161 - 161 161 - 161
Common stock 105 - 105 105 - 105
Additional paid-in capital 110,976 - 110,976 110,904 - 110,904
Notes receivable (3,602) - (3,602) (3,602) - (3,602)
Accumulated deficit (75,527) 16,075 (42,236) (66,800) 17,806 (31,820)
-------------- ----------------- -------------- ---------------- --------------- ----------------
Total liabilities and
stockholders' equity $ 153,987 $ 95,210 $ 187,835 $ 144,678 $ 95,073 $ 180,017
============== ================= ============== ================ =============== ================
(1) Intercompany balances have been eliminated in the consolidated totals.
Consolidating Statement of Operations
For the Three Months Ended:
December 31, 2001 December 31, 2000
Parent Guarantor Consolidated Parent Guarantor Consolidated
Subsidiaries (1) Subsidiaries (1)
-------------- --------------- -------------- ------------- --------------- -------------
Net revenues $ 47,048 $ 2,165 $ 49,213 $ 44,255 $ 2,260 $ 46,515
Cost of goods sold 31,464 - 31,464 29,690 - 29,690
Operating expenses 21,426 2,076 23,502 19,791 2,542 22,333
-------------- --------------- -------------- ------------- --------------- -------------
Loss from continuing
operations (5,842) 89 (5,753) 5,227 (282) (5,508)
Interest income 89 - 89 227 - 227
Interest expense (2,796) - (2,796) (3,108) - (3,108)
-------------- --------------- -------------- ------------- --------------- -------------
Other income (expense) - - - - - -
-------------- --------------- -------------- ------------- --------------- -------------
Loss before taxes (8,549) 89 (8,460) (8,107) (282) (8,389)
Income tax expense
(benefit) (2,906) 30 (2,876) (3,079) - (3,186)
-------------- --------------- -------------- ------------- --------------- -------------
Income (loss) before
discontinued operations (5,643) 59 (5,584) (5,028) (107) (5,203)
Discontinued operations - - - - (2,949) (2,949)
Cumulative effect of
accounting change - - - - - -
-------------- --------------- -------------- ------------- --------------- -------------
Net loss $ (5,643) $ 59 $ (5,584) $ (5,028) $ (3,124) $ (8,152)
============== =============== ============== ============= =============== =============
(1) Intercompany balances have been eliminated in the consolidated totals.
Consolidating Statement of Operations and Cash Flow Data
For the Six Months Ended:
December 31, 2001 December 31, 2000
Parent Guarantor Consolidated Parent Guarantor Consolidated
Subsidiaries (1) Subsidiaries (1)
-------------- --------------- -------------- ------------- --------------- -------------
Net revenues $ 88,294 $ 4,329 $ 92,623 $ 82,775 $ 4,519 $ 87,294
Cost of goods sold 59,877 59,877 57,541 57,541
Operating expenses 39,090 4,263 43,353 39,031 5,078 44,109
-------------- --------------- -------------- ------------- --------------- -------------
Loss from continuing
operations (10,673) 66 (10,607) (13,797) (559) (14,356)
Interest income 270 1 271 (492) - 492
Interest expense (5,441) - (5,441) (5,913) (1) (5,914)
-------------- --------------- -------------- ------------- --------------- -------------
Other income (expense) (4) - (4) 4 - 4
-------------- --------------- -------------- ------------- --------------- -------------
Income (loss) before
taxes (15,848) 67 (15,781) (19,214) (560) (19,774)
Income tax expense
(benefit) (5,388) 23 (5,365) (7,301) (213) (7,514)
-------------- --------------- -------------- ------------- --------------- -------------
Income (loss) before
discontinued operations (10,460) 44 (10,416) (11,913) (347) (12,260)
Discontinued operations - - - - (3,347) (3,347)
Cumulative effect of
accounting change - - - (1,359) - (1,359)
-------------- --------------- -------------- ------------- --------------- -------------
Net loss $ (10,460) $ 44 $ (10,416) $ (13,272) $ (3,694) $ (16,966)
============== =============== ============== ============= =============== =============
CASH FLOWS
Cash provided by
(used in) operations $ (15,280) $ 487 $ (14,793) $ (12,641) $ 482 $ (12,159)
Cash provided by
(used in) investing
activities (1,234) (439) (1,673) 929 (23) 906
Cash provided by
(used in) financing
activities 16,833 - 16,833 (5,458) - (5,458)
-------------- --------------- -------------- ------------- --------------- -------------
Increase (decrease) in
cash 319 48 367 (17,170) 459 (16,711)
Cash at beginning of
period 19,562 (5) 19,557 27,992 (477) 27,515
-------------- --------------- -------------- ------------- --------------- -------------
Cash at end of period $ 19,881 $ 43 $ 19,924 $ 10,822 $ (18) $ 10,804
============== =============== ============== ============= =============== =============
(1) Intercompany balances have been eliminated in the consolidated totals
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
"Selected Financial Data" and the Company's condensed consolidated financial
statements and related notes included elsewhere herein.
General
The Company, founded in 1986, sells a variety of consumer products
through interactive electronic media including broadcast, cable and satellite
television and the Internet. The Company's products fall into three principal
categories: collectibles; jewelry, beauty and fitness; and electronics. The
Company produces programming in a digital format at its facilities in Nashville,
Tennessee. The programming is transmitted by satellite to cable television
systems, direct broadcast satellite (DBS) systems and television broadcasting
stations across the country. The Company also operates a website,
shopathometv.com.
Overview of Results of Operations
The following table sets forth for the periods indicated the percentage
relationship to net revenues of certain items included in the Company's
Statements of Operations:
Three Months Ended December 31, Six Months Ended December 31,
2001 2000 2001 2000
Net revenues 100.0% 100.0% 100.0% 100.0%
Cost of goods sold (excluding items listed
below) 63.9 63.8 64.6 65.9
Salaries and wages 9.1 9.9 9.4 10.6
Transponder and affiliate charges 22.6 19.9 20.9 21.1
General and administrative 10.2 11.6 10.2 12.1
Depreciation and amortization 5.9 6.6 6.3 6.8
Total operating expenses 111.7 111.8 111.4 116.5
Interest income 0.2 0.5 0.3 0.6
Interest expense (5.7) (6.7) (5.9) (6.8)
Other income - - - -
Loss before income taxes (17.2) (18.0) (17.0) (22.7)
Income tax benefit (5.9) (6.8) (5.8) (8.6)
Loss from continued operations before
cumulative effect of accounting change (11.3) (11.2) (11.2) (14.1)
Discontinued operations, net of tax - (6.3) - (3.8)
Loss before cumulative effect of
accounting change, net of tax (11.3) (17.5) (11.2) (17.9)
Cumulative effect of accounting change - - - (1.5)
Net loss (11.3) (17.5) (11.2) (19.4)
- --------------------------------------------------------------------------------------------------------------------------------
Three months ended December 31, 2001 vs. three months ended December 31, 2000
Net Revenues. The Company's net revenues for the quarter ended December
31, 2001, were $49.2 million, an increase of 5.8% over $46.5 million in the
prior year. Returns decreased from $16.5 million or 27.1% of sales for the
quarter ended December 31, 2000 to $9.7 million or 17.6% of sales this quarter.
Chargebacks decreased from $0.7 million or 1.2% of sales for the quarter ended
December 31, 2000 to $0.1 million or 0.3% of sales this quarter. Merchandise
sales were negatively impacted by the retail slowdown which began before
September 11, 2001, and deepened thereafter, as well as by the de-emphasis in
the Company's marketing of sports memorabilia, historically a major component of
the overall product mix. These negative effects were partly offset by the
successful launch of the Network on DirecTV, the largest DBS system, in late
October 2001.
Cost of Goods Sold. Cost of goods sold represents the purchase price of
merchandise and related shipping charges. For the quarter ended December 31,
2001, the cost of goods sold remained constant as a percentage of net revenues
at 63.9% in comparison to the prior year. The cost of goods was $31.5 million
for the quarter ended December 31, 2001 compared to $29.7 million for the
quarter ended December 31, 2000.
Salaries and Wages. Salaries and wages for the quarter ended December
31, 2001 were $4.5 million, representing a small decrease from the prior year.
Salaries and wages, as a percent of revenues, decreased to 9.1% in the 2001
period compared to 9.9% in the prior year due to cost management efforts
regarding headcount.
Transponder and Affiliate Charges. Transponder and affiliate charges
for the quarter ended December 31, 2001 were $11.1 million, an increase of $1.8
million or 19.9% from the comparable 2000 quarter. During the same period, the
average number of full-time equivalent households reached grew 39.5%. The
addition of DirecTV was the primary contributor to the increase in households
and affiliate charges.
General and Administrative. General and administrative expenses for the
quarter ended December 31, 2001 were $5.0 million, a decrease of $0.4 million or
7.2% from the prior year. The decrease was due to a variety of cost containment
efforts.
Depreciation and Amortization. Depreciation and amortization for the
quarter ended December 31, 2001 was $2.9 million, compared to $3.1 million in
the prior year. The decrease was due to the elimination of amortization of
television station license costs, offset by an increase in depreciation
primarily due to the reduction of the useful life of certain computer hardware
and software from five years to three years to better reflect the expected
utility of these assets.
Interest. Interest expense of $2.8 million decreased by $0.3 million or
10.0% from the prior year. The decrease is primarily due to interest associated
with a lower average level of bank debt and associated interest rates.
Income Tax Benefit. Income tax benefit from continuing operations was
$2.9 million for the quarter ended December 31, 2001 versus $3.2 million in the
prior year primarily due to the changes in the Company's effective tax rate. The
change in the effective tax rate is primarily due to a full valuation allowance
provided against the Company's state net operating loss carry forwards.
Six months ended December 31, 2001 vs. six months ended December 31, 2000
Net Revenues. The Company's net revenues for the period ended December
31, 2001, were $92.6 million, an increase of 6.1% over $87.3 million in the
prior year. Returns decreased from $31.7 million or 27.3% of sales last year to
$19.1 million or 18.1% of sales this year. Chargebacks decreased from $2.0
million or 1.8% of sales last year to $0.4 million or 0.4% of sales this year.
Merchandise sales were negatively impacted by the retail slowdown which began
before September 11, 2001 and deepened thereafter, as well as the de-emphasis in
the Company's marketing of sports memorabilia, historically a major component of
overall product mix. These negative effects were partly offset by the successful
launch of the Network on DirecTV, the largest DBS system, in late October 2001.
Cost of Goods Sold. Cost of goods sold represents the purchase price of
merchandise and related shipping charges. For the period ended December 31,
2001, the cost of goods sold decreased as a percentage of net revenues to 64.6%
from 65.9% in the prior year. The cost of goods was $59.9 million for the period
ended December 31, 2001 compared to $57.5 million for the period ended December
31, 2000. The improvement in cost of goods in relation to net revenues was due
to better merchandise planning and price negotiations.
Salaries and Wages. Salaries and wages for the period ended December
31, 2001 were $8.8 million, a decrease of $0.5 million or 5.0% over the
comparable 2000 period. Salaries and wages, as a percent of revenues, decreased
to 9.5% in the 2001 period compared to 10.6% in the prior year. The decrease was
primarily due to reduced employee headcount and open executive positions.
Transponder and Affiliate Charges. Transponder and affiliate charges
for the period ended December 31, 2001 were $19.3 million, an increase of $0.9
million or 4.9% over the comparable 2000 period. During the same period, the
average number of full-time equivalent households grew 28.5%. The addition of
DirecTV was the primary contributor to the increase in households and affiliate
charges.
General and Administrative. General and administrative expenses for the
quarter ended December 31, 2001 were $9.4 million, a decrease of $1.0 million or
10.0% from the prior year. The decrease was due to a variety of cost containment
efforts.
Depreciation and Amortization. Depreciation and amortization for the
period ended December 31, 2001 was $ 5.8 million compared to $6.0 million in the
prior year. The decrease was due to the elimination of amortization of
television station license costs, offset by an increase in depreciation
primarily due to the reduction of the useful life of certain computer hardware
and software from five years to three years to better reflect the expected
utility of these assets.
Interest. Interest expense of $5.4 million decreased by $0.5 million or
8.0% from the prior year. The decrease is primarily due to a lower average level
of bank debt and associated interest rates.
Income Tax Benefit. Income tax benefit from continuing operations was
$5.4 million for the period ended December 31, 2001 versus $7.5 million in the
prior year primarily due to the change in the Company's effective tax rate. The
change in the effective tax rate is primarily due to a full valuation allowance
provided against the Company's state net operating loss carry forwards.
Liquidity and Capital Resources
During the quarter, the Company invested in accounts receivable and
inventory. Accounts receivable increased as the Company, in an effort to improve
sales, expanded its use of extended payment terms for its customers. Merchandise
inventory also increased as the Company reduced its reliance on drop-shipping to
improve the quality and timeliness of delivery to its customers.
The Company had $19.9 million of cash on hand at December 31, 2001.
During August 2001, the Company executed and drew down a $17.5 million senior
credit facility. This credit facility restricts the Company from issuing
dividends on its Common Stock and has quarterly EBITDA requirements. The Company
failed to comply with the EBITDA covenant for the six months ended December 31,
2001. The Company has been granted a waiver of the EBITDA violation from the
lender. The waiver also prospectively eliminates the EBITDA covenant through
June 30, 2002, and reduces the requirement thereafter.
The Company has continued to experience a loss from operations. If the
Company is unable to eliminate its operating losses during the balance of fiscal
2002 and beyond, additional financing or asset sales may be required. However,
there can be no assurance that the Company could obtain additional financing or
that asset sales could be consummated. Also, some or all of the proceeds
generated by asset sales could be required to repay the Company's indebtedness.
New Accounting Pronouncements
In August 2001, the FASB issued Statement No. 144, "Accounting for the
Impairment of Disposal of Long-Lived Assets," which provides clarifications of
certain implementation issues within FAS No. 121 along with additional guidance
on the accounting for the impairment or disposal of long-lived assets. FAS 144
supersedes FAS 121 and applies to all long-lived assets (including discontinued
operations) and consequently amended APB 30, "Reporting the Effects of Disposal
of a Segment of a Business." FAS 144 develops one accounting model (based on the
model in FAS 121) for long-lived assets that are to be disposed of by sale, as
well as addresses the principal implementation issues. FAS 144 is effective for
financial statements issued for fiscal years beginning after December 15, 2001
and early application is encouraged. The Company is evaluating the impact of the
adoption of this standard and has not yet determined the effect of adoption on
its financial position and results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk represents the risk of loss that may affect the financial
position, results of operations, or cash flows of the Company due to adverse
changes in financial market prices, including interest rate risk, foreign
currency exchange rate risk, commodity price risk, and other relevant market
rate or price risks.
The Company is exposed to some market risk through interest rates
related to its investment of its current cash and cash equivalents (including
restricted cash) of approximately $20.3 million as of December 31, 2001. These
funds are generally invested in highly liquid debt instruments with short-term
maturities. As such instruments mature and the funds are re-invested, the
Company is exposed to changes in market interest rates. This risk is not
considered material and the Company manages such risk by continuing to evaluate
the best investment rates available for short-term high quality investments.
The Company is not exposed to market risk through potential interest
rate fluctuation on its $75.0 million Senior Secured Notes, because interest
accrues on this debt at a fixed rate. The Company does incur some market risk on
its $17.5 million senior facility, which accrues interest at a floating rate
based on LIBOR (London Interbank Offered Rate) or the lender's prime rate at the
Company's option. The Company has chosen not to incur hedging expense related to
this facility at this time.
Certain risks are associated with the products sold by the Company,
namely that product prices are subject to changes in market conditions. The
Company manages this risk by maintaining minimal inventory levels as a
percentage of its revenues. The Company also reserves the right, with many
vendors, to return products. The Company's products are purchased domestically,
and, consequently, there is no foreign currency exchange risk.
The Company has no activities related to derivative financial
instruments or derivative commodity instruments.
FORWARD-LOOKING STATEMENTS
This report includes forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Shop At Home, Inc. (the "Company" or "Shop At Home") based
these forward-looking statements largely on its current expectations and
projections about future events and financial trends affecting the financial
condition of its business. These forward-looking statements are subject to a
number of risks, uncertainties and assumptions about Shop At Home, including,
among other things:
general economic and business conditions, both nationally and in the
Company's markets;
the Company's expectations and estimates concerning future financial
performance and financing plans;
anticipated trends in the Company's business;
existing and future regulations affecting the Company's business;
the Company's successful implementation of its business strategy;
fluctuations in the Company's operating results;
technological changes in the television and Internet industries;
restrictions imposed by the terms of the Company's indebtedness;
significant competition in the sale of consumer products through
electronic media;
the Company's dependence on exclusive arrangements with vendors;
the Company's ability to achieve broad recognition of its brand names;
continued employment of key personnel and the ability to hire qualified
personnel; and
legal uncertainties and possible security breaches associated with the
Internet.
In addition, in this report, the words "believe," "may," "will,"
"estimate," "continue," "anticipate," "intend," "expect" and similar
expressions, as they relate to Shop At Home, its business or management, are
intended to identify forward-looking statements.
The Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise after the date of this report. Because of these risks and
uncertainties, the forward-looking events and circumstances discussed in this
report may not occur and actual results could differ materially from those
anticipated or implied in the forward-looking statements.
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
A lawsuit was filed against the Company in January 2000 by a
former vendor, Classic Collectibles, LLC, in state Chancery Court in
Chattanooga, Tennessee. The vendor alleges that the Company improperly canceled
certain orders and that certain amounts it paid to the Company under a written
agreement should be refunded, and that certain amounts were left owing on the
account. In connection with alleged breach of the written agreement, the vendor
is claiming entitlement to alleged lost profits in an amount of approximately $2
million, asserting the Company did not provide an amount of broadcast network
time in 1999 that the vendor alleges was orally promised in connection with the
written agreement. The Company believes the "lost profits" claim is speculative
and unlikely to be awarded. The Company has filed its answer and has vigorously
pursued its defense of this action which is set for trial in May 2002.
The Company is subject to routine litigation arising from the normal
and ordinary operation of its business. The Company believes that such
litigation is not likely to have a material adverse effect on its business.
Item 6. Reports On Form 8-K.
The Company filed two reports on Form 8-K during the quarter
ending December 31, 2001, reporting the following:
Form 8-K filed October 30, 2001, reporting that on October 25,
2001, the Company held a conference call to discuss the Company's financial
results for the first quarter of its fiscal year 2002, ending September 30,
2001. These results were filed with the SEC on Form 10-Q on October 25, 2001.
The Company has elected to voluntarily file a copy of this transcript on the
Form 8-K to ensure that the contents of such conference call are fully
disseminated and that any investor of Shop At Home, Inc. has full access to such
transcript.
Form 8-K filed November 9, 2001, reporting that on November 7,
2001, the Company dismissed PricewaterhouseCoopers LLP as its independent
accountants. The decision to change independent accountants was prompted when
the Company was notified that the accountants' Nashville, Tennessee office would
be closing. The Company has engaged Deloitte & Touche LLP as its new principal
independent accountants effective November 7, 2001.
Exhibits
Exhibit 10.70 Employment Agreement between Bennett
Scott Smith and Shop At Home, Inc.,
dated November 22, 2001
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this Amendment No. 1 to the Quarterly
Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto
duly authorized.
SHOP AT HOME, INC.
By: /s/ Frank A. Woods 2/14/02
----------------------------------- Date: __________
Frank A. Woods
Co-CEO, Chairman of the Executive Committee
By: /s/ Arthur D. Tek 2/14/02
----------------------------------- Date: __________
Arthur D. Tek
Executive Vice President and Chief Financial Officer
Exhibit 10.70
BENNETT SCOTT SMITH
EMPLOYMENT AGREEMENT
This Employment Agreement, executed on December 7, 2001, to be effective as
of November 22, 2001, is between Shop At Home, Inc., a Tennessee corporation
(herein "Corporation"), and Bennett Scott Smith (herein "Employee").
W I T N E S S E T H:
WHEREAS, the Corporation engages in the business of the retail sale of
merchandise by sales presentations broadcast and distributed directly to
potential customers by cable, broadcast and satellite television transmissions
and by Internet, commonly known as the "shopping home business," and in the
business of the ownership and operation of television stations;
WHEREAS, the Corporation is employing the Employee to serve as its
Executive Vice President for Strategic Planning;
WHEREAS, the Corporation recognizes that the Employee will be a valuable
employee of the Corporation who will be directly responsible for the
Corporation's growth and financial success; and
WHEREAS, the parties hereto desire to enter into a negotiated agreement for
the Corporation's employment of Employee on the terms and conditions hereinafter
stated, with the intention to replace all previous employment agreements, if
any, written or oral, in their entirety.
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants and agreements contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereby agree as follows:
1. Employment and Term. The Corporation hereby employs Employee as its
Executive Vice President for Strategic Planning and to perform such
services and duties as the Shop At Home, Inc. President and Chief Executive
Officer(s) and/or the Board of Directors of the Corporation may from time
to time designate during the term hereof, and Employee accepts such
employment, all subject to the terms and conditions of this Agreement.
Employee's employment under the terms of this Agreement shall commence on
November 22, 2001, (herein "Commencement Date") and shall be for a term of
three (3) years (the "Term"). Employee's employment under this Agreement
shall be extended automatically for additional two (2) year terms after the
initial term unless either party gives written notice to the contrary to
the other at least ninety (90) days prior to commencement of the renewal
term.
2. Termination. The Corporation may terminate Employee's employment under this
Agreement at any time (a) for Cause or (b) if Employee becomes Completely
Disabled, or (c) Without Cause as long as it complies with its obligations
under Section 4(c), 4(d) and 4(e). This Agreement shall terminate
automatically upon the death of the Employee. Upon proper termination of
the Employee, except as provided in Sections 4(c), 4(d) and 4(e), Employee
shall not be entitled to receive any further compensation or benefits from
the Corporation.
3. Duties. Employee, during the term of this Agreement, will devote his
full-time attention and energies to the diligent performance of his duties
as an employee of the Corporation. During the term of this Agreement,
Employee will not accept employment with any other Person, or engage in any
venture for profit which the Corporation may reasonably consider to be in
conflict with its best interest or to be in competition with its business
or which may interfere with Employee's performance of his duties hereunder.
Additionally, the Employee agrees to comply with the Corporation's policies
that are generally applicable to the Corporation's employees, many of these
policies being included in the Corporation's handbook, a copy of which is
attached hereto as Exhibit A. These policies shall be binding on the
Employee as long as the Employee is given written notice of such policies
and the Employee hereby agrees to abide by such policies unless the terms
of this Agreement specifically contradict the terms of the applicable
policy (e.g. the Handbook says all employees are terminable at will,
however, with respect to the Employee herein the Corporation is subject to
the terms of this Agreement), then the terms of this Agreement shall
control. The Employee agrees, however, that his violation of the
Corporation's generally applicable policies set out in the Corporation's
handbook or otherwise distributed to the Employee in writing, including but
not limited to the Corporation's policies concerning nondiscrimination,
nonharrassment, the restrictions on the sale or purchase of the
Corporation's stock and limitations on gifts can result in discipline up to
and including termination and that termination for the violation of these
policies would constitute a Termination for Cause under the terms of this
Agreement, provided that the Corporation provides the Employee written
notice of any such violation and offers the Employee ten (10) days to
"cure" any violation that can reasonably be cured.
4. Compensation.
(a) Base Salary and Stock Options.
(i) Base Salary. The Corporation will pay to Employee as compensation for the
services to be performed by him hereunder an annual salary of One Hundred and
Seventy Five Thousand Dollars ($175,000) (the "Base Salary"), payable in equal
installments, subject to increase from time to time by the mutual agreement of
the parties hereto.
(ii) Stock Options. Additionally, the Corporation agrees to grant the Employee
options to purchase One Hundred and Fifty Thousand (150,000) shares of the
Corporation's Common Stock under its 1999 Stock Option Plan (herein "Plan") when
such option grant is approved by the Corporation's Stock Option Committee. The
parties agree that such options shall be priced based on the closing price on
that date of the Corporation's stock as reported by NASDAQ on the day that the
Stock Option Committee approves such grant. This grant shall be made using the
standard stock option agreement for Executive Vice Presidents, except that
one-third (1/3) of these options shall vest upon grant, an additional one-third
(1/3) shall vest upon the first anniversary date of the grant and the final
one-third (1/3) shall vest upon the second anniversary date of the grant (the
Form of the Corporation's standard stock option agreement for Executive Vice
Presidents is attached hereto as Exhibit B.)
(b) Performance Incentive Compensation and Stock Options.
----------------------------------------------------
(i) Performance Incentive Compensation. The Corporation shall pay the Employee
Performance Incentive Compensation as defined herein. The Performance
Incentive Compensation, if any, is to be paid at the same time as the
"Bonus" is paid under the CEO Employment Agreement as defined therein.
(ii) Performance Incentive Stock Options. The parties also agree that if the
Employee meets certain individual performance criteria that he shall be
granted upon each anniversary date of this Agreement (including any renewal
terms) a number of stock options, herein the Performance Incentive Stock
Options, up to but not exceeding options to purchase up to One Hundred
Thousand (100,000) shares of the Corporation's Common Stock per year from
the Plan (if available at such time), on the standard Executive Vice
President form for such agreements, except that one-third (1/3) of these
options shall vest upon grant, an additional one-third (1/3) shall vest
upon the first anniversary date of the grant and the final one-third (1/3)
shall vest upon the second anniversary date of the grant. The performance
criteria to be used in determining whether the Employee shall be granted
any Performance Incentive Stock Options and the number of such options to
be granted, shall be mutually agreed by the Corporation's Co-Chief
Executive Officers and the Employee, with the approval of the Corporation's
Stock Option Committee, within ninety (90) days of this Agreement. The
parties agree that once the performance criteria for the Performance
Incentive Stock Options are finalized, that such criteria are to be reduced
to writing, signed by both parties, approved by the Corporation's Stock
Option Committee and attached to this Agreement as Exhibit C (herein
"Performance Incentive Compensation Stock Option Plan"). If for any reason
the options are not available under the Plan, the parties agree to work in
good faith to grant the Employee options or comparable securities in the
same number and at the same exercise price to the extent possible.
(c) Termination Without Cause. Contingent upon the Employee executing a release
as set out in Section 11 of this Agreement, if the Corporation terminates
the Employee Without Cause, Corporation shall pay the Employee (i) the
greater of (a) his annual Base Salary set out herein or (b) the future Base
Salary for the rest of the term of this Agreement, (ii) the Employee's
Earned Performance Incentive Compensation, if any, for the year in which he
was terminated and (iii) if Employee is terminated within the first year of
employment the additional lump sum payment provided for in Section 4(e)(ii)
((i)(ii) and (iii) herein collectively the "Severance'). The Severance
specified in (i) and (iii)(if any) above shall be paid in a lump sum
payment within thirty (30) days after the date of the Employee's
termination. The Severance specified in (ii) above, if any, shall be paid
at the same time the "Bonus" is paid under the CEO Employment Agreement. If
the Employee is terminated for Cause or resigns, the Corporation is not
required to pay the Employee any additional compensation or the Severance.
(d) Termination Without Cause Following Change of Control. Contingent upon the
Employee executing a release as set out in Section 11 of this Agreement, if
within twenty-four (24) months following the occurrence of a Change of
Control, the Corporation elects to terminate Employee's employment
hereunder Without Cause, the Corporation shall pay Employee the Severance
set out in Section 4(c) above (and in Section 4(e)(ii), if applicable).
Again, if the Employee is terminated for Cause or resigns following a
Change of Control, the Corporation is not required to pay the Employee any
additional compensation or the Severance.
(e) (i) Moving Expenses. The Corporation agrees to pay the reasonable expense
of the following items representing Employee's reasonable moving expenses
in relocating to the Nashville ("Moving Expenses"):
[1] Packaging and transportation of the
Employee's household items to Tennessee from
Atlanta, Georgia,
including the transportation costs for two
vehicles;
[2] Temporary Corporate Housing in Tennessee
until such time as Employee shall have
closed on the sale of his primary residence
in Atlanta and moved into his new principal
residence in Nashville not to exceed ninety
(90) days;
[3] Travel Expenses for Employee to visit his
immediate family in Atlanta and for his
immediate family to visit him in Nashville
on a reasonable basis until Employee's
family moves into Employee's new principal
residence in Nashville;
[4] If necessary, storage for the Employee's
household items and personal belongings in
Nashville for
a maximum of ninety (90) days;
[5] The reasonable realtor fees and closing
costs attributable to the Seller for
selling the
Employee's house in Atlanta, Georgia;
[6] Any reasonable charges incurred in
connection with the Employee's financing of
his new primary residence in Nashville,
Tennessee, and the Employee's reasonable
attorney fees in reviewing and negotiating
this Agreement and in reviewing certain real
estate contracts and closing documents
involving the purchase of the Employee's
residence, all of these expenses not to
exceed Fifteen Thousand Dollars ($15,000);
and
[7] Any other reasonable moving expenses and
dining expenses, including his family's
dining expenses when visiting the Employee,
until the Employee moves into his new
primary residence in Nashville (a per diem
of One Hundred Dollars ($100.00) for dining
expenses allowed without the requirement of
receipts) up to a maximum of Six Thousand
Dollars ($6,000), as long as the Employee
submits the receipts for such expenses and
such expenses are directly related to the
Employee's move to Nashville or dining
expenses.
The Employee agrees to pre-clear the costs or estimated costs set out above
with the Corporation's Co-CEO, Frank A. Woods, and agrees to otherwise to
reasonably coordinate these expenses with and to submit any requests for the
payment of these expenses to the Corporation's Vice President of Human
Resources.
(ii) Moving Expenses Following a Termination Without Cause. Contingent upon the
Employee executing a release as set out in Section 11, should the
Corporation terminate the Employee Without Cause during the first year of
employment, the Corporation agrees to pay the Employee as part of his
severance up to the amount of the Moving Expenses that was paid to Employee
when he moved to Nashville, not to exceed Fifty Thousand Dollars ($50,000).
If the Employee is terminated for Cause or resigns he shall not be entitled
to this compensation.
5. Definitions. For purposes of this Agreement the following terms shall have
the meanings specified below:
(a) "Cause" shall mean any one of the following:
[1] The Employee commits an act of dishonesty, embezzlement or fraud against
the Corporation; or
[2] The Employee competes, in a manner prohibited by this Agreement, with the
Corporation; or
[3] If the Employee breaches any of his obligations under this Agreement and
fails or refuses to comply with the provisions of this Agreement within ten
(10) days after receipt of written notice from the Corporation by Employee
detailing such failure or refusal and the steps necessary to remedy that
failure; or
[4] Employee is convicted of a misdemeanor involving dishonesty, breach of
trust or moral turpitude, or is convicted of any felony; or
[5] Employee engages in the use of any illegal drug; or
[6] Employee is impaired in the performance of his duties or is excessively
absent from work due to an addiction or an apparent addiction to alcohol,
another chemical substance or a particular behavior, and the Board of
Directors determines that such addiction or apparent addiction has
substantially impaired the Employee's performance of his duties and has
caused or threatens to cause significant harm to the operations of the
Corporation; or
[7] Any state or federal regulatory agency or court of competent jurisdiction
issues an order requiring the Employee's removal from any duties or
responsibilities for the Corporation.
(b) "Change of Control" shall be defined as (a) the sale, lease, exchange or
other transfer of all or substantially all of the assets of the Corporation
(in one transaction or in a series of related transactions) to a person
that is not controlled by the Corporation, (b) the approval by the
Corporation's shareholders of any plan or proposal for the liquidation or
dissolution of the Corporation, or
(c) a change in control of the Corporation of a nature that would be required
to be reported (assuming such event has not been "previously reported") in
response to Item I (a) of the Current Report on Form 8-K, as in effect on
the effective date of this Agreement, pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934, whether or not the Corporation is then
subject to such reporting requirements; provided, however, that, without
limitation, such a Change in Control shall be deemed to have occurred at
such time as (i) any Person becomes after the date of this Agreement the
"beneficial owner" (as defined in Rule 13d-3 under the Securities Exchange
Act of 1934), directly or indirectly, of thirty percent (30%) or more of
the combined voting power of the Corporation's outstanding securities
ordinarily having the right to vote at elections of Directors or (ii)
individuals who constitute the Board of Directors of the Corporation on the
date of this Agreement cease for any reason to constitute at least a
majority thereof, provided that any person becoming a Director subsequent
to such date whose election, or nomination for election by the
Corporation's shareholders, was approved by a vote of at least a majority
of the Directors comprising or deemed pursuant hereto to comprise the Board
on the date of this Agreement shall be, for purposes of this clause (ii),
considered as though such person were a member of the Board on the date of
this Agreement.
(d) "Corporation Business" shall mean the business of retail sales of
merchandise by sales presentations broadcast directly to potential
customers over broadcast stations, by cable and by satellite television
transmissions, commonly known as the "shop at home business," and shall
also include but is not limited to QVC, HSN (Home Shopping Network),
ShopNBC (ValueVision) and ACN (America's Collectible Network).
(e) "Corporation's Territory" shall be deemed to be North America.
(f) "Complete Disability" shall mean Employee's inability, due to illness,
accident or any other physical or mental incapacity, to perform the duties
provided for herein for an aggregate of ninety (90) days within any period
of two hundred forty (240) consecutive days.
(g) "Confidential Information" means names, addresses, telephone numbers,
contact persons and other identifying information relating to Accounts and
information with respect to the needs and requirements of Accounts for the
Corporation's products and services; rate and price information on products
and services provided by the Corporation to its Accounts; all business
records and personnel data relating to the Corporation's employees,
including compensation arrangements of such employees; any trade secrets or
other confidential information licensed to, obtained, developed or
purchased or otherwise possessed by the Corporation or licensed by the
Corporation to others; any other trade secrets or confidential information
used or obtained by Employee in the course of his employment hereunder from
any officer, employee, agent or representative of the Corporation or any
division, subsidiary or affiliate of the Corporation or otherwise,
information contained in any confidential documents prepared by or for the
Corporation and its employees or agents at the Corporation's expense, on
Corporation time or otherwise in furtherance of the Corporation Business,
and other confidential information used or obtained by Employee in the
course of his employment with the Corporation; financial information with
respect to the Corporation Business; and information with respect to the
Corporation's suppliers, and the source and availability of the supplies,
equipment and materials used in the Corporation Business; provided,
however, that Confidential Information shall not include: (i) any
information that shall become generally known to the industry through no
fault of Employee; (ii) any information that shall be disclosed to Employee
by a third party (other than an officer, employee, agent or representative
of the Corporation or any division, subsidiary or affiliate of the
Corporation) having legitimate and unrestricted possession thereof and the
unrestricted right to make such disclosure; or (iii) any information that
Employee can demonstrate was within his legitimate and unrestricted
possession prior to the time of his employment by the Corporation. All
Confidential Information shall be contractually subject to protection under
this Agreement whether such information would otherwise be regarded or
legally considered "confidential" and without regard to whether such
information constitutes a trade secret under applicable law or is
separately protectable at law or in equity as a trade secret.
(h) "Earned Performance Incentive Compensation" means the Performance Incentive
Compensation that would have been earned by the Employee, if any, in the
year he was terminated Without Cause reduced by multiplying such
Performance Incentive Compensation by a fraction derived by the number of
months the Employee worked in that year divided by twelve.
(i) "Performance Incentive Compensation" shall mean one-half (1/2) of the
average of the bonus paid to the Corporation's Co-Chief Executive Officers
(Mr. George R. Ditomassi and Mr. Frank A. Woods), or their successor(s), as
set out in and pursuant to Section 4(b) of the Co-Chief Executive Officers'
Employment Agreements dated as of October 1, 2001, or their successor's
employment agreement (herein "CEO Employment Agreement"). The calculation
of the Bonus shall not include any bonuses that may be paid to the Co-Chief
Executive Officers, or their successor(s), in addition to the bonus paid
under the CEO Employment Agreement. Such other bonuses, if any, shall not
be included in calculating the Employee's Performance Incentive
Compensation. The Performance Incentive Compensation may not exceed and is
capped at a maximum of One Hundred And Twenty Five Thousand Dollars
($125,000) in any of the Corporation's fiscal years (ending June 30th).
(j) "Person" means any individual, corporation, bank, partnership, joint
venture, association, joint-stock company, trust, unincorporated
organization, governmental authority or other entity.
(k) "Without Cause" means the Corporation's termination of the Employee's
employment with the Corporation for convenience meaning a termination at
the Corporation's discretion for any reason or no reason.
5. Covenants Against Unfair Post-Termination Competition.
(a) Covenant Against Disclosure or Use of Confidential Information. In
consideration of his employment hereunder, Employee agrees that, for a
period of one (1) year immediately after the termination or expiration of
his employment hereunder, for any reason, he will not:
[1] disclose to any Person any Confidential Information,
[2] use Confidential Information soliciting the patronage of
any Person for the purpose of providing products or
services of the kind provided in the Corporation Business, or
[3] otherwise use for his own purposes, any Confidential
Information obtained by Employee while employed by the
Corporation; provided, however, that Employee may make
disclosures required by a valid order or subpoena issued by a
court or administrative agency of competent jurisdiction. In
such event, Employee will promptly notify the Corporation of
such order or subpoena to provide the Corporation an
opportunity to protect its interest.
(b) Covenant Against Solicitation of the Corporation's Employees. Employee
further agrees that during this Agreement and for a period of one (1) year
after the termination or expiration of his employment hereunder, Employee
will not attempt, either directly or indirectly, to induce nor hire any
employee of the Corporation, or the Corporation's affiliates, to leave the
employment of the Corporation or its affiliates without prior written
consent of the Corporation.
(c) Covenant Against Post-Termination Competition. In consideration of
Employee's employment by the Corporation, Employee agrees that, for a
period of one (1) year immediately after the termination, for any reason
including for Cause, Without Cause, for Resignation or by the Corporation
not renewing the term of this Agreement, he will not, directly or
indirectly, individually or on behalf of any Person:
[1] solicit any Account for the purpose of selling or providing to
the Account products or services of the same kind as provided
by the Corporation during Employee's employment by the
Corporation; or
[2] provide services of the type provided by Employee to the
Corporation to any Person which is then engaged in the
Corporation Business; or
[3] enter into the employ of or render any service to or act in
concert with any person, partnership, corporation or other
entity engaged in the Corporation Business within the
Corporation's Territory; or
[4] specifically work for any person or entity engaged in the
Corporation Business; or
[5] become interested in the Corporation Business as a proprietor,
partner, shareholder, director, officer, principal, agent,
employee, consultant or in any other relationship or capacity;
provided, that Employee may own up to five percent (5%) of the
outstanding shares of any company which is a reporting company
with the U.S. Securities and Exchange Commission.
This Section shall survive the expiration or termination of this
Agreement for any reason including but not limited to termination after a Change
of Control.
7. Inventions, Discoveries and Improvements.
(a) Disclosure to Corporation. Employee will promptly disclose in writing to
the Corporation any and all inventions, discoveries and improvements,
directly or indirectly related to the Corporation Business, whether
conceived or made solely by Employee or jointly with others during the
period of Employee's employment hereunder. All of Employee's right, title
and interest n and to all such inventions, discoveries and improvements
developed or conceived by Employee during the period of his employment
shall be the sole property of the Corporation.
(b) Documents of Assignment. At the Corporation's request and expense, both
during and subsequent to Employee's employment hereunder, Employee will
promptly execute a specific assignment of title to the Corporation of each
invention, discovery or improvement belonging to the Corporation and will
perform all other acts reasonably necessary to enable the Corporation to
secure a patent therefore in the United States and in foreign countries,
and to maintain, defend and assert such patents. This Section shall survive
the expiration or termination of this Agreement.
(c) Prior Inventions. Any inventions, discoveries or improvements, patented or
unpatented, that Employee can demonstrate were conceived or made by him
prior to the date hereof shall be excluded from the provisions of this
Section.
8. Return of Client Lists, Other Documents and Equipment. Upon the termination
or expiration of his employment hereunder, Employee shall deliver promptly
to the Corporation all Corporation files, customer lists, memoranda,
research, drawings, blueprints, Corporation forms and other documents
supplied to or created by him in connection with his employment hereunder
(including all copies of the foregoing) in his possession or control and
all of the Corporation equipment and other materials in his possession or
control. Employee acknowledges that all items described in this Section are
and will remain at all times the sole and exclusive property of the
Corporation.
9. Survival of Restrictions. Notwithstanding the breach of any of the
provisions of this Agreement by either party hereto, all of the provisions
of Sections 6, 7 and 8 of this Agreement shall survive the termination or
expiration of Employee's employment with the Corporation and shall continue
in full force and effect in the same manner and to the same extent as if
they were set forth in a separate agreement between the Corporation and
Employee, and all of such provisions shall be binding on the heirs,
legatees and legal representative(s) of Employee.
10. Hold Harmless. Employee and the Corporation covenant and agree that they
will indemnify and hold harmless the other from (i) any and all losses,
damages, liabilities, expenses of claims resulting from or arising out of
any nonfulfillment by the defaulting party of any material provision of
this Agreement, and (ii) any and all losses or damages resulting from the
defaulting party's malfeasance or gross negligence.
11. Release for Severance. Employee agrees that the Severance that the
Corporation is agreeing to pay under Sections 4(c), 4(d) and 4(e) is
contingent upon the Employee executing a release at that time in which the
Employee will agree for himself, his heirs, personal representatives,
successors and assigns for the consideration set out herein, to hereby
release and forever discharge the Corporation and its subsidiaries and the
Corporation's and its subsidiaries' successors, subsidiaries, assigns,
affiliates, agents, representatives, employees, officers, directors,
trustees and shareholders, from any causes of action or claims, demands and
judgments whatsoever in law on equity, known or unknown, anticipated or
unanticipated, in any federal or state court or before any federal or state
commission, agency, or board, including, or asserting any claim of age,
race, religion, national origin, handicap and/or sex discrimination, and/or
breach of contract, and/or claim of wrongful discharge, and/or any claim
arising under the Family and Medical Leave Act (other than for any claim
that the Corporation has not paid the Severance owed under this Agreement,
the Employee agrees that such claims, however, shall be extinguished upon
the payment of such sums). The Employee agrees that the Corporation's
obligations under this Agreement are contingent upon him signing a separate
Release upon his termination reflecting the waivers set out above in this
section, however, should the Employee not execute a release at that time,
he agrees that if he accepts the compensation provided by this Agreement in
Sections 4(c), 4(d) and 4(e), that he also is waiving the specific claims
set out above in this Section. The Employee agrees, to the extent not
prohibited by law, to refund any Severance that was paid to him as a
condition precedent to bringing any actions waived as set out above. If
such refund is prohibited by law from being a condition precedent to
bringing any such action, Employee agrees that any compensation paid as
Severance shall be a valid set off against any award or settlement of such
claim, including allowing the Corporation an affirmative recovery against
the Employee should such award or settlement not exceed the amount of such
Severance. The Employee, if the Corporation is willing to pay the full
Severance owed under this agreement, agrees to consider signing a fuller
and complete release of all claims of any type against the Corporation at
that time. Should the Employee not agree to sign the fuller release, he
agrees, upon the Corporation's request, to detail the basis of any claim
that he is aware of or should be reasonably aware of that he wishes to
preserve in writing to the Corporation's General Counsel in advance of
being paid the Severance. The Employee agrees that his failure to provide
the Corporation's General Counsel such claims in writing if requested, or
the failure to incorporate any specific claim in such submission, shall
constitute an affirmative waiver of any unenumerated claims of which
Employee is aware or should reasonably be aware at that time.
12. Contract Nonassignable. The parties acknowledge that this Agreement has
been entered into due to, among other things, the special skills of
Employee, and agree that this Agreement may not be assigned or transferred
by Employee, in whole or in part, without the prior written consent of the
Corporation. This Agreement shall be binding and shall inure to the benefit
of the Corporation and its successors and assigns.
13. Notices. All notices, requests, demands and other communications required
or permitted hereunder shall be in writing and shall be deemed to have been
duly given if delivered or mailed, first class, certified mail, postage
prepaid to the following addresses (Employee agrees to update the
Corporation with any changes in his addresses:
To Corporation: Shop At Home, Inc.
5388 Hickory Hollow Parkway
Antioch, Tennessee 37013
Attention: General Counsel
Telephone: (615) 263-8090
Internet Address: gphillips@sath.com
To Employee: Mr. Bennett Scott Smith
3009 Smith Lane
Franklin, Tennessee 37069
Telephone:
Internet Address: bss1020@aol.com
With a copy to: Boult, Cummings, Conners & Berry, PLC
414 Union Street, Suite 1600
P.O. Box 198062
Nashville, Tennessee 37219
Attention: Samuel D. Lipshie, Esq.
Telephone: (615) 244-2582
Internet Address: slipshie@boultcummings.com
14. Cumulative and Severable Nature of Rights and Agreements. Employee
acknowledges and agrees that the Corporation's various rights and remedies
in this Agreement are cumulative and nonexclusive of one another and that
Employee's several undertakings and agreements contained herein, including,
without limitation, those contained in Sections 6, 7 and 8 of this
Agreement, are severable covenants independent of one another and of any
other provision or covenant of this Agreement. Employee agrees that the
existence of any claim by him against the Corporation, whether predicated
on this Agreement or otherwise, shall not constitute a defense to
enforcement by the Corporation of any or all of such provisions or
covenants. If any provision or covenant, or any part thereof, of this
Agreement should be held by any court to be invalid, illegal or
unenforceable, either in whole or in part, such invalidity, illegality or
unenforceability shall not affect the validity of the remaining provisions
or covenants, or any part thereof, of this Agreement, all of which shall
remain in full force and effect.
15. Waiver. Failure of either party to insist, in one or more instances, on
performance by the other in strict accordance with the terms and conditions
of this Agreement shall not be deemed a waiver or relinquishment of any
right granted in this Agreement or of the future performance of any such
condition or of any other term or condition of this Agreement, unless such
waiver is contained in a writing signed by the party making the waiver.
16. Amendments and Modifications. This Agreement may be amended or modified
only by a writing signed by both parties hereto.
17. Execution in Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and all of which
shall constitute one and the same instrument.
18. Headings. The headings set out in this Agreement are for convenience of
reference and shall not be deemed a part of this Agreement and shall not
affect the meaning or construction of any of the provisions her
19. Entire Agreement (Except Stock Option Agreements). This Agreement
(including the documents referred to herein) constitutes the entire
agreement among the parties and supersedes any prior understandings,
agreements, or representations by or among the parties, written or oral, to
the extent they related in any way to the subject matter hereof. The
Employee's Stock Option Agreements, however, are separate and apart from
this Agreement and are to be governed by the terms of such Stock Option
Agreements without reference to this Agreement except as specifically
provided in Section 4(a) of this Agreement.
20. Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Tennessee without giving
effect to any choice or conflict of law provision or rule (whether of the
State of Tennessee or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of
Tennessee. The Parties agree that any conflict of law rule that might
require reference to the laws of some jurisdiction other than Tennessee
shall be disregarded.
21. Venue and Jurisdiction. Employee hereby agrees for himself and his
properties that the courts sitting in Davidson County, Tennessee, shall
have proper jurisdiction and venue over any matter arising out of this
Agreement and hereby submits himself and his property to the venue and
jurisdiction of such courts. Each Party waives any objection that it may
now or hereafter have to the laying of venue of any such proceeding in any
court located in Davidson County, Tennessee, and any claim that it may now
or hereafter have that any such proceeding in such court has been brought
in an inconvenient forum. Employee expressly agrees as to any action
brought by him that such Davidson County courts shall herein be the
exclusive and sole jurisdiction and venue for any such action and Employee
agrees to waive its rights to oppose any motion to dismiss if he files a
lawsuit in any court located outside of Davidson County, Tennessee.
22. NO JURY TRIAL. EACH PARTY WAIVES ITS RIGHT TO A TRIAL BY JURY IN ANY
PROCEEDING BETWEEN THE PARTIES.
23. INJUNCTIVE RELIEF. The Employee acknowledges that any breach or violation
of the Agreement, specifically the Employee covenants set our in Sections
6, 7 and 8 will result in immediate, irreparable and continuing injury to
Corporation for which there will be no adequate remedy at law. Therefore,
the Employee agrees that in the event of any such breach or violation or
any threatened or intended breach or violation of the Agreement,
Corporation and its successors and assigns shall be entitled to injunctive
relief (temporary, preliminary, and permanent) to restrain such breach or
violation or such threatened or intended breach or violation in addition to
whatever and further legal and equitable remedies available to the
Corporation. Employee specifically waives any request that the Corporation
has to post any bond or security before seeking such relief.
24. ATTORNEY FEES. If either party must bring an action against the other for
any breach of this Agreement, the prevailing party in such action, as long
as such party has brought such action in compliance with Sections 20, 21
and 22 of this Agreement, shall be entitled to its reasonable attorney fees
and costs.
25. Limitation of Damages. Notwithstanding any other provision of this
Agreement to the contrary, CORPORATION SHALL NOT BE LIABLE TO THE EMPLOYEE
UNDER THIS AGREEMENT OR OTHERWISE FOR EMPLOYEE'S SPECIAL, INDIRECT,
INCIDENTAL, PERSONAL, PUNITIVE AND CONSEQUENTIAL DAMAGES ARISING FROM A
BREACH OR ALLEGED BREACH OF THIS AGREEMENT, INCLUDING EMPLOYEE'S DAMAGES
FOR LOST PROFITS OR INTERRUPTION OF BUSINESS, EVEN IF CORPORATION HAS BEEN
INFORMED OF THE POSSIBILITY OF SUCH DAMAGES. EMPLOYEE'S ONLY REMEDY FOR A
BREACH OF THIS AGREEMENT IS THE PAYMENT OF THE SUMS OWED HEREUNDER.
26. Interpretation. The Employee acknowledges that he has received the advice
of his own independent legal counsel, Mr. Sam Lipshie, with the Nashville
law firm of Boult, Cummings, Conners & Berry, PLC, in connection with the
review, revision and execution of this Agreement. The parties agree that
this Agreement has been fully negotiated and revised based on requests from
the Employee and his counsel, therefore the parties agree that no provision
of this Agreement shall be construed against or interpreted to the
disadvantage of any Party by any court or other governmental or judicial
authority by reason of such Party having or being deemed to have structured
or drafted such provision.
27. Informed Agreement. EMPLOYEE ACKNOWLEDGES THAT HE HAS HAD A FULL
OPPORTUNITY TO READ AND REVIEW THIS AGREEMENT, HAS BEEN ADVISED BY HIS OWN
COUNSEL CONCERNING THIS AGREEMENT, HAS NEGOTIATED THIS AGREEMENT AND BY
SIGNING THIS AGREEMENT ACKNOWLEDGES THAT HE FULLY UNDERSTANDS IT. EMPLOYEE
AGREES TO THE TERMS SET OUT HEREIN FREELY, VOLUNTARILY AND WITHOUT
COERCION.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day and year first above written.
EMPLOYER:
SHOP AT HOME, INC. EMPLOYEE:
By:
---------------------------- ------------------------------
Frank A. Woods Bennett Scott Smith
Co-Chief Executive Officer Executive Vice President for Strategic Panning
EXHIBIT A
CORPORATION'S EMPLOYEE HANDBOOK
EXHIBIT B
FORM OF STOCK OPTION AGREEMENT
FOR EXECUTIVE VICE PRESIDENTS
EXHIBIT C
PERFORMANCE INCENTIVE STOCK OPTION PLAN