SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For the Quarter Ended Commission File Number
March 31, 2002 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 41,863,381
- ------------------------------ --------------------------------------
(Title of class) (Shares outstanding at
March 31, 2002)
SHOP AT HOME, INC. AND SUBSIDIARIES
Index
Three and Nine Months Ended March 31, 2002 and 2001
--------------------------------------------------------------------------
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 16-21
Item 3 - Quantitative and Qualitative Disclosure About
Market Risk 21-22
Part II OTHER INFORMATION
Item 1 - Legal Proceedings 23
Item 6 - Exhibits and Reports on Form 8-K 23
SHOP AT HOME, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Thousands of Dollars)
- --------------------------------------------------------------------------------
March 31, June 30,
2002 2001
--------------------- -------------------
(Unaudited)
Cash and cash equivalents $ 15,327 $ 19,557
Restricted cash 700 -
Accounts receivable - trade, net 6,914 3,103
Inventories - net 11,834 9,953
Prepaid expenses 951 884
Deferred tax asset 2,941 3,177
Notes receivable - 380
Income tax receivable 43 310
--------------------- -------------------
Total current assets 38,710 37,364
Property and equipment - net 32,655 39,171
Deferred tax asset 18,205 9,418
Television station licenses 89,251 89,251
Goodwill 533 533
Other assets 3,676 4,280
--------------------- -------------------
Total assets $ 183,030 $ 180,017
===================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses $ 28,740 $ 25,784
Current portion - capital leases and long-term debt 561 877
Deferred revenue 1,850 2,124
--------------------- -------------------
Total current liabilities 31,151 28,785
Capital leases 151 484
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 shares issued and outstanding 161 161
Stockholders' equity:
Common stock - $.0025 par value, 100,000,000
shares authorized; 41,863,381 and 41,815,931 shares
issued and outstanding at March 31, 2002 and June 30, 2001, respectively
105 105
Additional paid in capital 110,982 110,904
Notes receivable related parties (3,602) (3,602)
Accumulated deficit (48,418) (31,820)
--------------------- -------------------
Total liabilities and stockholders' equity $ 183,030 $ 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 Nine Months Ended
March 31, March 31,
------------------------------ ------------------------------
2002 2001 2002 2001
--------------- -------------- -------------- ---------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Net revenues $ 49,745 $ 50,402 $ 142,368 $ 137,696
Operating expenses:
Cost of goods sold (excluding items listed below) 32,145 36,297 92,022 93,839
Salaries and wages 4,532 6,743 13,322 15,986
Transponder and affiliate charges 10,944 9,462 30,272 26,778
General and administrative 5,067 6,805 14,484 18,381
Depreciation and amortization 2,915 4,592 8,733 10,566
Offering costs 837 - 837 -
--------------- -------------- -------------- ---------------
Total operating expenses 56,440 63,899 159,670 165,550
--------------- -------------- -------------- ---------------
Loss from operations (6,695) (13,497) (17,302) (27,854)
Interest income 58 157 329 650
Interest expense (2,731) (3,613) (8,172) (9,527)
Gain on sale of station - 48,929 - 48,929
Other income - - (4) 4
--------------- -------------- -------------- ---------------
Income (loss) before income taxes (9,368) 31,976 (25,149) 12,202
Income tax expense (benefit) (3,185) 12,151 (8,551) 4,637
--------------- -------------- -------------- ---------------
Income (loss) from continuing operations before
cumulative effect of accounting change (6,183) 19,825 (16,598) 7,565
Loss from discontinued operations of CET, plus
applicable income tax benefit of $368 - - - (598)
Loss on disposal of CET, plus applicable income tax
benefit of $70 and $1,754 - (115) - (2,864)
--------------- -------------- -------------- ---------------
Income (loss) before cumulative effect of accounting
change (6,183) 19,710 (16,598) 4,103
Cumulative effect of accounting change, plus applicable
income tax benefit of $832 (see note 8) - - - (1,359)
(see note 7)
--------------- -------------- -------------- ---------------
Net income (loss) (6,183) 19,710 (16,598) 2,744
Preferred stock accretion and dividends - (2,722) - (8,156)
--------------- -------------- -------------- ---------------
Net income (loss) available for common shareholders $ (6,183) $ 16,988 $ (16,598) $ (5,412)
=============== ============== ============== ===============
Basic loss per common share:
Income (loss) from continuing operations $ (0.15) $ 0.43 $ (0.40) $ (0.02)
Loss from discontinued operations - - - (0.09)
Cumulative effect of accounting change - - - (0.04)
--------------- -------------- -------------- ---------------
Basic income (loss) per share $ (0.15) $ 0.43 (0.40) $ (0.15)
=============== ============== ============== ===============
Diluted loss per common share:
Income (loss) from continuing operations $ (0.15) $ 0.43 $ (0.40) $ (0.02)
Loss from discontinued operations - - - (0.09)
Cumulative effect of accounting change - - - (0.04)
--------------- -------------- -------------- ---------------
Diluted income (loss) per share $ (0.15) $ 0.43 $ (0.40) $ (0.15)
=============== ============== ============== ===============
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
Nine Months Ended March 31, 2002 and 2001
(Thousands of Dollars)
2002 2001
(Unaudited) (Unaudited)
------------------- -------------------
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss) $ (16,598) $ 2,744
Non-cash expenses/(income) included in net loss:
Depreciation and amortization 8,733 10,566
Cumulative effect of accounting change - 1,359
Discontinued operations - 4,619
Deferred tax benefit (8,551) 1,681
401K stock issuance - 123
Deferred interest 874 399
Provision for bad debt 950 2,080
Provision for inventory obsolescence - 2,208
Gain on sale of station - (48,929)
Changes in current and non-current items:
Accounts and notes receivable (4,381) 4,667
Inventories (1,881) 1,996
Prepaid expenses (67) 333
Income tax receivable 267 -
Accounts payable and accrued expenses 2,977 (6,290)
Deferred revenue (274) 1,601
------------------- -------------------
Net cash used by operations (17,951) (20,843)
------------------- -------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (2,091) (1,165)
Net change in restricted cash (700) 5,058
Sale of station net of closing costs - 55,629
Deposits 33 61
Licenses - (525)
------------------- -------------------
Net cash (used) provided by investing activities (2,758) 59,058
------------------- -------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of debt and capitalized leases (649) (20,682)
Proceeds from debt 17,500 -
Debt issue costs (429) (1,872)
Preferred stock dividends - (220)
Preferred stock redemption - (11,212)
Exercise of stock options and warrants 57 6
------------------- -------------------
Net cash provided (used) by financing activities 16,479 (33,980)
------------------- -------------------
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS (4,230) 4,235
Cash and cash equivalents beginning of period 19,557 27,515
------------------- -------------------
Cash and cash equivalents end of period $ 15,327 $ 31,750
=================== ===================
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)
Nine Months Ended March 31, 2002 and 2001
(Thousands of Dollars)
- --------------------------------------------------------------------------------
2002 2001
-------------------------- --------------------------
(Unaudited) (Unaudited)
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for income taxes $ - $ 250
========================== ==========================
Cash paid for interest $ 4,893 $ 5,418
========================== ==========================
SCHEDULE OF NONCASH FINANCING ACTIVITIES
Dividend on Series B preferred stock paid in
common stock $ - $ 489
========================== ==========================
Conversion of 1000 shares of Series B preferred
stock into common stock $ - $ 4,860
========================== ==========================
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
March 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 nine months ended March 31, 2002 and 2001;
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 consolidated 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 consolidated 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 March 31, 2002 and June 30, 2001 are as
follows:
March 31 June 30,
2002 2001
---- ----
Products purchased for resale $ 12,916 $ 11,670
Valuation allowance (1,082) (1,717)
--------------------
------------------
Total $ 11,834 $ 9,953
==================== ==================
NOTE 3 - REVOLVING CREDIT AGREEMENT
On August 1, 2001, the Company obtained a $17,500 revolving line of
credit from a financial institution. The new facility matures on August 1, 2003.
No principal payments are due before maturity except as required if 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 paying 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. On February 11, 2002, the Company was granted a waiver of the
EBITDA violation within an amendment to the loan agreement with the lender. The
amendment also prospectively eliminates the EBITDA covenant through June 30,
2002, and reduces the requirement thereafter.
NOTE 4 - NET INCOME (LOSS) PER SHARE
The following table sets forth for the periods indicated the
calculation of net income (loss) per share included in the Company's Condensed
Consolidated Statements of Operations:
Three Months Ended Nine Months Ended
March 31, March 31,
2002 2001 2002 2001
---------------- ---------------- --------------- ----------------
Numerator:
Income (loss) from continuing operations
before accounting change $ (6,183) $ 19,825 $ (16,598) $ 7,565
Preferred stock accretion and dividends - (2,722) - (8,156)
---------------- ---------------- --------------- ----------------
Numerator for basic and diluted earnings
per share-loss available
to common stockholders $ (6,183) $ 17,103 $ (16,598) $ (591)
================ ================ =============== ================
Denominator:
Common shares outstanding 41,861 39,477 41,842 35,202
Employee stock options and warrants - 118 - -
Warrants to shareholders - 72 - -
---------------- ---------------- --------------- ----------------
Denominator for basic and diluted earnings
per share-weighted-average shares 41,861 39,667 41,842 35,202
================ ================ =============== ================
Basic income (loss) per share $ (0.15) $ 0.43 $ (0.40) $ (0.02)
================ ================ =============== ================
Diluted income (loss) per share $ (0.15) $ 0.43 $ (0.40) $ (0.02)
================ ================ =============== ================
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 5,256 3,876 5,256 3,876
b) Warrants 2,000 2,170 2,000 2,170
c) Convertible preferred stock 16 9,694 16 9,694
Included in the preferred stock accretion and dividends above for the
quarter ending March 31, 2001 are $85 for dividends paid in cash and Common
Stock, $0.9 million for the beneficial conversion feature accretion and $1.7
million loss on repurchase of preferred stock treated as a dividend. Included in
the nine months ending March 31, 2001 are $0.7 million for dividends paid in
cash and Common Stock, $3.9 million for the beneficial conversion feature
accretion, and $3.6 million loss on repurchase of Preferred Stock treated as a
dividend.
The Company adopted certain provisions of EITF 00-27, "Application of
EITF Issue No. 98-5, "Accounting for Convertible Securities with Beneficial
Conversion Features or Contingently Adjustable Conversion Ratios," to Certain
Convertible Securities", in the second quarter of fiscal 2001. EITF 00-27
changed the approach of calculating the conversion price used in determining the
value of the beneficial conversion feature from using the conversion price
stated in the Preferred Stock certificate to using the accounting conversion
price. The adoption of this EITF increased the original value of the beneficial
conversion feature from $3,596 to $7,796. In accordance with EITF 00-27, the
adoption was treated as a cumulative effect of an accounting change, which
resulted in a cumulative adjustment to dividends of $499 which was recorded in
the second quarter of fiscal 2001.
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 March 31, Nine Months Ended March 31,
---------------------------- ---------------------------
2002 2001 2002 2001
---- ---- ---- ----
Revenue:
Network $ 44,251 $ 46,686 $ 127,937 $ 125,392
shopathometv.com 5,494 4,380 14,431 14,245
Intersegment eliminations - (664) - (1,941)
-------------------- --------------------- ----------------------- --------------------
$ 49,745 $ 50,402 $ 142,368 $ 137,696
==================== ===================== ======================= ====================
Operating loss:
Network $ (6,590) $ (10,657) $ (16,758) $ (21,232)
shopathometv.com (105) (2,840) (544) (6,622)
-------------------- --------------------- ----------------------- --------------------
$ (6,695) $ (13,497) $ (17,302) $ (27,854)
==================== ===================== ======================= ====================
Depreciation and amortization:
Network $ 2,349 $ 3,959 $ 7,031 $ 9,228
shopathometv.com 566 633 1,702 1,338
-------------------- --------------------- ----------------------- --------------------
$ 2,915 $ 4,592 $ 8,733 $ 10,566
==================== ===================== ======================= ====================
Interest income:
Network $ 58 $ 157 $ 329 $ 650
shopathometv.com - - - -
-------------------- --------------------- ----------------------- --------------------
$ 58 $ 157 $ 329 $ 650
==================== ===================== ======================= ====================
Interest expense:
Network $ 2,731 $ 3,613 $ 8,172 $ 9,527
shopathometv.com - - - -
-------------------- --------------------- ----------------------- --------------------
$ 2,731 $ 3,613 $ 8,172 $ 9,527
==================== ===================== ======================= ====================
Income (loss) before taxes:
Network $ (9,263) $ 34,816 $ (24,605) $ 18,824
shopathometv.com (105) (2,840) (544) (6,622)
-------------------- --------------------- ----------------------- --------------------
$ (9,368) $ 31,976 $ (25,149) $ 12,202
==================== ===================== ======================= ====================
Income tax expense (benefit):
Network $ (3,149) $ 13,230 $ (8,366) $ 7,153
shopathometv.com (36) (1,079) (185) (2,516)
-------------------- --------------------- ----------------------- --------------------
$ (3,185) $ 12,151 $ (8,551) $ 4,637
==================== ===================== ======================= ====================
March 31, 2002 June 30, 2001
----------------------- --------------------
Total assets:
Network $ 174,173 $ 169,624
shopathometv.com 8,857 10,393
----------------------- --------------------
$ 183,030 $ 180,017
======================= ====================
NOTE 6 - ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS
On June 29, 2001, the Financial Accounting Standards 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
16 (APB 16), Business Combinations.
The most significant changes made by FAS 141 are:
o It requires use of the purchase method of accounting for all business
combinations, thereby eliminating use of the pooling-of-interests
method.
o 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 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:
o Goodwill and indefinite-life intangible assets will no longer be
amortized and will be tested for impairment at least annually.
o Goodwill will be tested at least annually at the reporting unit level.
o 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 March 31, 2002
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 March 31,
2002 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 nine months ended March 31, 2001 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 Nine Months Ended
March 31, March 31,
2002 2001 2002 2001
(Pro forma) (Pro forma)
----------------- ------------------ ---------------- ----------------
Reported net income (loss) $ (6,183) $ 16,988 $ (16,598) $ (5,412)
Add back FCC license and goodwill
amortization, net of tax - 402 - 1,206
----------------- ------------------ ---------------- ----------------
Adjusted net income (loss) $ (6,183) $ 17,390 $ (16,598) $ (4,206)
================= ================== ================ ================
Basic income (loss) per share:
Reported net income (loss) $ (0.15) $ 0.43 $ (0.40) $ (0.15)
FCC license and goodwill amortization - 0.01 - 0.03
----------------- ------------------ ---------------- ----------------
Adjusted net income (loss) $ (0.15) $ 0.44 $ (0.40) $ (0.12)
================= ================== ================ ================
Diluted income (loss) per share:
Reported net income (loss) $ (0.15) $ 0.43 $ (0.40) $ (0.15)
FCC license and goodwill amortization - 0.01 - 0.03
----------------- ------------------ ---------------- ----------------
Adjusted net income (loss) $ (0.15) $ 0.44 $ (0.40) $ (0.12)
================= ================== ================ ================
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 Nine Months Ended
March 31, March 31,
2002 2001 2002 2001
---------------- ---------------- --------------- ----------------
$ - $ - $ - $ 2,519
NOTE 8 - CUMULATIVE EFFECT OF ACCOUNTING CHANGE
Pursuant to Staff Accounting Bulletin No. 101, Revenue Recognition in
Financial Statements (SAB 101), 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 SAB 101, the Company recognized revenue when the
products were shipped to the customers, as the products were shipped FOB
shipping point. Pursuant to the guidance in SAB 101, 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 fiscal year 2001,
the Company recorded a cumulative effect of change of $1,359 (net of tax benefit
of $832) to recognize the effect of merchandise shipped but not received as of
the end of the previous fiscal year.
NOTE 9 - SALE OF HOUSTON TELEVISION STATION KZJL
On March 20, 2001 the Company sold its Houston Television Station KZJL
for $57,000. In addition to the cash received, the Company retained rights to
50% of any profits from any sale of the station's Channel 59 - 69 spectrum. The
gain recognized on the sale is equal to the proceeds less $6.8 million for the
net book value of the fixed assets and license cost and $1.3 million in closing
costs.
NOTE 10 - CONSENT FROM BONDHOLDERS
In March 2001 the Company entered into an agreement with the holders of
its Senior Secured Notes to waive and amend certain provisions of its Indenture
that would have prohibited the redemption of the Series B Preferred Stock. In
exchange for the waiver the Company agreed to waive the Company's right to use
the proceeds from the sale of the three television stations pledged to secure
the Notes and to restrict the Company's borrowing under its senior credit
facility to $17,500. These agreements and waivers are detailed in the Company's
consent solicitation statement dated March 22, 2001. The company paid $1.9
million to receive this consent, which allowed funds from the sale of its
Houston Television Station to be used toward redeeming Series B Preferred Stock.
NOTE 11 - OFFERING COSTS
During the quarter ended March 31, 2002, the Company pursued the
private placement of $135 million of senior secured notes to refinance its
existing indebtedness and provide additional working capital. The placement was
not completed and, consequently, the Company expensed $0.8 million of costs
related to the offering.
NOTE 12 - 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 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
March 31, 2002 June 30, 2001
Guarantor Guarantor
Parent Subsidiaries Consolidated(1) Parent Subsidiaries Consolidated(1)
Assets:
Cash and cash equivalents $ 15,302 $ 25 $ 15,327 $ 19,562 $ (5) $ 19,557
Restricted cash 700 - 700 - - -
Accounts receivable 45,270 5 6,914 39,011 10 3,103
Inventories 11,834 - 11,834 9,953 - 9,953
Prepaid expenses 921 30 951 873 11 884
Deferred tax assets 2,941 - 2,941 3,177 - 3,177
Notes receivable - - - 380 - 380
Income tax receivable 43 - 43 310 - 310
-------------- ----------------- -------------- ---------------- --------------- ----------------
Total current assets 77,011 60 38,710 73,266 16 37,364
Property and equipment,
net 26,942 5,713 32,655 33,522 5,649 39,171
Deferred tax assets 35,448 - 18,205 9,418 - 9,418
Television station licenses - 89,251 89,251 - 89,251 89,251
Goodwill 528 5 533 528 5 533
Other assets 3,648 28 3,676 4,128 152 4,280
Investment in subsidiaries 23,816 - - 23,816 - -
-------------- ----------------- -------------- ---------------- --------------- ----------------
Total assets $ 167,393 $ 95,057 $ 183,030 $ 144,678 $ 95,073 $ 180,017
============== ================= ============== ================ =============== ================
Liabilities and
Stockholders' Equity:
Accounts payable and
accrued expenses $ 28,342 $ 62,575 $ 28,740 $ 25,425 $ 60,073 $ 25,784
Current portion--capital
leases and long-term
debt 561 - 561 877 - 877
Deferred revenue 1,850 - 1,850 2,124 - 2,124
-------------- ----------------- -------------- ---------------- --------------- ----------------
Total current liabilities 30,753 62,575 31,151 28,426 60,073 28,785
Long-term debt including
capital leases 92,651 - 92,651 75,484 - 75,484
Deferred income taxes - 17,243 - - 17,194 -
Redeemable preferred
stock 161 - 161 161 - 161
Common stock 105 - 105 105 - 105
Additional paid-in capital 110,982 - 110,982 110,904 - 110,904
Notes receivable (3,602) - (3,602) (3,602) - (3,602)
Accumulated deficit (63,657) 15,239 (48,418) (66,800) 17,806 (31,820)
-------------- ----------------- -------------- ---------------- --------------- ----------------
Total liabilities and
stockholders' equity $ 167,393 $ 95,057 $ 183,030 $ 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:
March 31, 2002 March 31, 2001
Parent Guarantor Consolidated Parent Guarantor Consolidated
Subsidiaries (1) Subsidiaries (1)
--------------- ------------- -------------- ------------- --------------- -------------
Net revenues $ 47,581 $ 2,164 $ 49,745 $ 47,981 $ 2,421 $ 50,402
Cost of goods sold 32,145 - 32,145 36,297 - 36,297
Operating expenses 21,373 2,085 23,458 25,096 2,506 27,602
Offering costs 837 - 837 - - -
--------------- ------------- -------------- ------------- --------------- -------------
Loss from continuing
operations (6,774) 79 (6,695) (13,412) (85) (13,497)
Interest income 58 - 58 157 - 157
Interest expense (2,731) - (2,731) (3,613) - (3,613)
Other income (expense) - - - - 48,929 48,929
--------------- ------------- -------------- ------------- --------------- -------------
Income (loss) before taxes (9,447) 79 (9,368) (16,868) 48,844 31,976
Income tax expense
(benefit) (3,212) 27 (3,185) (6,410) 18,561 12,151
--------------- ------------- -------------- ------------- --------------- -------------
Income (loss) before
discontinued operations (6,235) 52 (6,183) (10,458) 30,283 19,825
Discontinued operations - - - - (115) (115)
Cumulative effect of
accounting change - - - - - -
--------------- ------------- -------------- ------------- --------------- -------------
Net income (loss) $ (6,235) $ 52 $ (6,183) $ (10,458) $ 30,168 $ 19,710
=============== ============= ============== ============= =============== =============
(1) Intercompany balances have been eliminated in the consolidated totals.
Consolidating Statement of Operations and Cash Flow Data
For the Nine Months Ended:
March 31, 2002 March 31, 2001
Parent Guarantor Consolidated Parent Guarantor Consolidated
Subsidiaries (1) Subsidiaries (1)
-------------- --------------- -------------- ------------- --------------- -------------
Net revenues $ 135,875 $ 6,493 $ 142,368 $ 130,756 $ 6,940 $ 137,696
Cost of goods sold 92,022 - 92,022 93,839 - 93,839
Operating expenses 60,463 6,348 66,811 64,127 7,584 71,711
Offering costs 837 - 837 - - -
-------------- --------------- -------------- ------------- --------------- -------------
Income (loss) from
continuing operations (17,447) 145 (17,302) (27,210) (644) (27,854)
Interest income 328 1 329 650 - 650
Interest expense (8,172) - (8,172) (9,525) (2) (9,527)
Other income (expense) (4) - (4) 4 48,929 48,933
-------------- --------------- -------------- ------------- --------------- -------------
Income (loss) before
Taxes (25,295) 146 (25,149) (36,081) 48,283 12,202
Income tax expense
(benefit) (8,601) 50 (8,551) (13,711) 18,348 4,637
-------------- --------------- -------------- ------------- --------------- -------------
Income (loss) before
discontinued operations (16,694) 96 (16,598) (22,370) 29,935 7,565
Discontinued operations - - - - (3,462) (3,462)
Cumulative effect of
accounting change - - - (1,359) - (1,359)
-------------- --------------- -------------- ------------- --------------- -------------
Net income (loss) $ (16,694) $ 96 $ (16,598) $ (23,729) $ 26,473 $ 2,744
============== =============== ============== ============= =============== =============
CASH FLOWS
Cash provided by
(used in) operations $ (18,487) $ 536 $ (17,951) $ 34,461 $ (55,304) $ (20,843)
Cash provided by
(used in) investing
activities (2,252) (506) (2,758) 3,430 55,628 59,058
Cash provided by
(used in) financing
activities 16,479 - 16,479 (33,980) - (33,980)
-------------- --------------- -------------- ------------- --------------- -------------
Increase (decrease) in
Cash (4,260) 30 (4,230) 3,911 324 4,235
Cash at beginning of
Period 19,562 (5) 19,557 27,992 (477) 27,515
-------------- --------------- -------------- ------------- --------------- -------------
Cash at end of period $ 15,302 $ 25 $ 15,327 $ 31,903 $ (153) $ 31,750
============== =============== ============== ============= =============== =============
(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.
Critical Accounting Policies and Estimates
Management's Discussion and Analysis of Financial Condition and Results
of Operations discusses the Company's consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States of America. The preparation of these financial statements
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting periods. Management continually
evaluates its estimates and assumptions. Management bases its estimates and
assumptions on historical information and on various other factors that are
believed to be reasonable under the circumstances. Actual results may differ
from these estimates. Management believes the following critical accounting
policies affect the more significant assumptions and estimates used in the
preparation of its consolidated financial statements:
The assessment of the recoverability of the carrying value of
long-lived assets is disclosed in Note 6 to the condensed consolidated financial
statements. If circumstances suggest that long-lived assets may be impaired, and
a review indicates that the carrying value will not be recoverable, as
determined based on the projected undiscounted future cash flows, the carrying
value is reduced to its estimated fair value. The determination of cash flows is
based upon assumptions and forecasts that may not occur.
Revenue recognition for the Company is described in Note 8 to the
condensed consolidated financial statements. As noted, sales are reduced by
sales returns to arrive at net sales. The Company's sales policy allows
merchandise to be returned at the customer's discretion within 30 days of the
date of delivery. The estimated return percentage for the nine months ended
March 31, 2002 of 17.8% was arrived at based upon empirical evidence of actual
returns, and the percentage was applied against sales to arrive at net sales.
Actual levels of product returned may vary from these estimates.
Certain of the Company's accounts receivable are subject to credit
losses. The reserve for expected credit losses is based on past experience with
similar accounts receivable. It is possible, however, that the accuracy of the
Company's estimation process could be materially affected as the composition of
this pool of accounts receivable changes over time. Management continually
reviews and refines the estimation process to make it as current as possible;
however, there can be no guarantee that estimated credit losses on these
accounts receivable will be accurate.
The Company identifies slow-moving or obsolete inventories and
estimates appropriate loss provisions. These loss provisions are calculated with
the proviso that the majority of the Company's inventories are eligible for
return under various vendor return programs. While the Company has no reason to
believe its inventory return privileges will be discontinued in the future, its
risk of loss associated with obsolete or slow-moving inventories would increase
if such were to occur.
The Company records a valuation allowance to reduce its net deferred
tax assets to the amount that is more likely than not to be realized. While it
has considered future taxable income and ongoing prudent and feasible tax
planning strategies in assessing the need for its valuation allowance, in the
event the Company were to determine that it would be able to realize its
deferred tax assets in the future in an amount in excess of the net recorded
amount, an adjustment to the valuation allowance would decrease income tax
expense in the period such determination was made. Likewise, should the Company
determine that it would not be able to realize all or part of its net deferred
tax assets in the future, an adjustment to its valuation allowance would
increase income tax expense in the period such determination was made.
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 March 31, Nine Months Ended March 31,
2002 2001 2002 2001
Net revenues 100.0% 100.0% 100.0% 100.0%
Cost of goods sold (excluding items listed
below) 64.6 72.0 64.6 68.1
Salaries and wages 9.1 13.4 9.4 11.6
Transponder and affiliate charges 22.0 18.8 21.3 19.5
General and administrative 10.1 13.5 10.2 13.3
Depreciation and amortization 5.9 9.1 6.1 7.7
Offering costs 1.7 - 0.6 -
Total operating expenses 113.4 126.8 112.2 120.2
Interest income 0.1 0.3 0.2 0.5
Interest expense (5.5) (7.2) (5.7) (6.9)
Other income - 97.1 - 35.5
Income (loss) before income taxes (18.8) 63.4 (17.7) 8.9
Income tax expense (benefit) (6.4) 24.1 (6.0) 3.4
Net income (loss) from continued
operations before cumulative effect
of accounting change (12.4) 39.3 (11.7) 5.5
Discontinued operations, net of tax - (0.3) - (2.5)
Net income (loss) before cumulative
effect of accounting change, net of tax (12.4) 39.0 (11.7) 3.0
Cumulative effect of accounting change - - - (1.0)
Net income (loss) (12.4) 39.0 (11.7) 2.0
- --------------------------------------------------------------------------------------------------------------------------------
Three months ended March 31, 2002 vs. three months ended March 31, 2001
Net Revenues. The Company's net revenues for the quarter ended March
31, 2002, were $49.7 million, a decrease of 1.3% from $50.4 million in the prior
year. Returns decreased from $14.7 million or 23.6% of sales for the quarter
ended March 31, 2001 to $9.7 million or 17.3% of sales this quarter. Chargebacks
decreased from $0.7 million or 1.1% of sales for the quarter ended March 31,
2001 to $0.1 million or 0.1% of sales this quarter. Merchandise sales were
negatively impacted by the de-emphasis in the Company's marketing of sports
memorabilia, historically a major component of the overall product mix.
Additionally, the Company introduced new product categories and marketing
strategies during the quarter which may require a period of time to gain
customer acceptance.
Cost of Goods Sold. Cost of goods sold represents the purchase price of
merchandise and related shipping charges. For the quarter ended March 31, 2002,
the cost of goods sold improved to 64.6% of revenues in comparison to 72.0% in
the prior year. The cost of goods was $32.1 million for the quarter ended March
31, 2002 compared to $36.3 million for the quarter ended March 31, 2001. The
improvement was due to better merchandise planning and price negotiations.
Salaries and Wages. Salaries and wages for the quarter ended March 31,
2002 were $4.5 million, compared to $6.7 million in the prior year. Salaries and
wages, as a percent of revenues, decreased to 9.1% in the March 31, 2002 period
compared to 13.4% in the prior year. The decrease was due to the accrual in the
prior year of $2.3 million in severance compensation to the Company's former
Chief Executive Officer.
Transponder and Affiliate Charges. Transponder and affiliate charges
for the quarter ended March 31, 2002 were $10.9 million, an increase of $1.5
million or 15.7% from the comparable 2001 quarter. During the same period, the
average number of full-time equivalent households reached grew 41.5%. The
addition of DirecTV, a DBS provider, was the primary contributor to the increase
in households and affiliate charges.
General and Administrative. General and administrative expenses for the
quarter ended March 31, 2002 were $5.1 million, a decrease of $1.7 million or
25.5% from the prior year. The decrease was primarily due to reduction of bad
debt expense of $1.0 million.
Depreciation and Amortization. Depreciation and amortization for the
quarter ended March 31, 2002 was $2.9 million, compared to $4.6 million in the
prior year. The decrease was due to a $0.4 million reduction in amortization 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.
Offering Costs. The Company incurred $0.8 million in non-recurring
offering costs during the quarter ended March 31, 2002. The costs related to the
Company's uncompleted refinancing of its long-term debt.
Interest. Interest expense of $2.7 million decreased by $0.9 million or
24.4% from the prior year. The decrease is primarily due to interest associated
with a lower average level of bank debt and associated interest rates, as well
as the write off of $0.6 million of deferred financing costs in the prior year
in connection with the repayment of the revolving credit agreement.
Income Tax Expense (Benefit). Income tax expense (benefit) from
continuing operations was $3.2 million for the quarter ended March 31, 2002
versus $12.2 million expense in the prior year. The benefit in the current year
was due to operating losses; the expense in the prior year was due to the sale
of KZJL in Houston.
Nine months ended March 31, 2002 vs. nine months ended March 31, 2001
Net Revenues. The Company's net revenues for the period ended March 31,
2002, were $142.4 million, an increase of 3.4% over $137.7 million in the prior
year. Returns decreased from $46.4 million or 26.1% of sales last year to $28.7
million or 17.8% of sales this year. Chargebacks decreased from $2.7 million or
1.5% of sales last year to $0.5 million or 0.3% of sales this year. Merchandise
sales were negatively impacted by the retail slowdown which began before
September 11, 2001 and deepened for a period 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 March 31, 2002,
the cost of goods sold improved as a percentage of net revenues to 64.6% from
68.1% in the prior year. The cost of goods was $92.0 million for the period
ended March 31, 2002 compared to $93.8 million for the period ended March 31,
2001. The improvement was due to better merchandise planning and price
negotiations.
Salaries and Wages. Salaries and wages for the period ended March 31,
2002 were $13.3 million, a decrease of $2.7 million or 16.7% from the comparable
2001 period. Salaries and wages, as a percent of revenues, decreased to 9.4% in
the 2001 period compared to 11.6% in the prior year. The decrease was primarily
due to the accrual in the prior year of $2.3 million in severance compensation
to the Company's former Chief Executive Officer.
Transponder and Affiliate Charges. Transponder and affiliate charges
for the period ended March 31, 2002 were $30.3 million, an increase of $3.5
million or 13.1% over the comparable 2001 period. During the same period, the
average number of full-time equivalent households grew 32.6%. 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 March 31, 2002 were $14.5 million, a decrease of $3.9 million or
21.2% from the prior year. The decrease was due to reduction of bad debt expense
of $1.1 million and a variety of cost containment efforts.
Depreciation and Amortization. Depreciation and amortization for the
period ended March 31, 2002 was $8.7 million compared to $10.6 million in the
prior year. The decrease was due to a $1.2 million decrease in amortization 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.
Offering Costs. The Company incurred $0.8 million in non-recurring
offering costs during the period ended March 31, 2002. The costs related to the
Company's uncompleted refinancing of its long-term debt.
Interest. Interest expense of $8.2 million decreased by $1.4 million or
14.2% from the prior year. The decrease is primarily due to a lower average
level of bank debt and associated interest rates, as well as the write off of
$0.6 million of deferred financing costs in the prior year in connection with
the repayment of the revolving credit agreement.
Income Tax Expense (Benefit). Income tax expense (benefit) from
continuing operations was $8.6 million for the period ended March 31, 2002
versus $4.6 million expense in the prior year. The benefit in the current year
was due to operating losses; the expense in the prior year was due to the sale
of KZJL in Houston.
Liquidity and Capital Resources
Since June 30, 2001, the Company has invested in accounts receivable
and inventory. Accounts receivable have increased as the Company, in an effort
to improve sales, expanded its use of extended payment terms for its customers.
Merchandise inventory has 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 $15.3 million of unrestricted cash on hand at March 31,
2002. During August 2001, the Company executed and drew down a $17.5 million
senior credit facility. This credit facility restricts the Company from paying
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 was granted a waiver of the EBITDA violation within an
amendment to the loan agreement from the lender. The amendment 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. The
Company from time to time has engaged in discussions with potential sources of
debt and equity financing. 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.
Our future contractual obligations and commitments at March 31, 2002
consist of the following:
PAYMENTS DUE BY PERIOD
TOTAL LESS THAN
1 YEAR 1 - 2 YEARS 3 - 4 YEARS
(In thousands)
Long-term debt $ 92,500 $ - $ 17,500 $ 75,000
Capital lease
obligations 712 561 151 -
Operating lease
obligations 7,318 2,356 4,609 353
--------------- ---------------- ---------------- ----------------
$ 100,530 $ 2,917 $ 22,260 $ 75,353
=============== ================ ================ ================
In addition to the above commitments, the Company has redeemable
preferred stock outstanding at March 31, 2002. Any holder of any shares of
Series A Preferred Stock may require the Company to redeem all or any portion of
the Series A Preferred Stock for a redemption price per share of $10.00 plus
accrued and unpaid dividends. The Series A preferred Stock is convertible at any
time into shares of common stock at a ratio of one share of common stock for one
share of Series A Preferred Stock.
The Company also has affiliate carriage agreements which are cancelable
by the Company with generally thirty days notice and in no case greater than one
year's notice.
New Accounting Pronouncements
In August 2001, the FASB issued Statement No. 144, "Accounting for the
Impairment or 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 $16.0 million as of March 31, 2002. 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 seeking to turn inventory as quickly as possible.
The Company also reserves the right, with many vendors, to return products. Most
of the Company's products are purchased domestically, and, consequently, there
is little 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. The Company 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
the Company, including, among other things:
o general economic and business conditions, both nationally and in the
Company's markets;
o the Company's expectations and estimates concerning future financial
performance and financing plans;
o anticipated trends in the Company's business;
o existing and future regulations affecting the Company's business;
o the Company's successful implementation of its business strategy;
o fluctuations in the Company's operating results;
o technological changes in the television and Internet industries;
o restrictions imposed by the terms of the Company's indebtedness;
o significant competition in the sale of consumer products through
electronic media;
o the Company's dependence on exclusive arrangements with vendors;
o the Company's ability to achieve broad recognition of its brand names;
o continued employment of key personnel and the ability to hire qualified
personnel; and
o 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 the Company, 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.
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 one report on Form 8-K during the quarter
ending March 31, 2002, reporting the following:
Form 8-K filed February 15, 2002, reporting that on Thursday,
February 14, 2002, Shop At Home, Inc. held a conference call to discuss the
Company's financial results for the second quarter of its fiscal year 2002,
ending December 31, 2001. These results were filed with the SEC on the Form
10-Q/A filed on February 14, 2002. The Company elected to voluntarily file a
copy of the transcript on Form 8-K to ensure that the contents of such
conference call were fully disseminated and that any investor of Shop At Home,
Inc. have full access to such transcript.
Exhibits
Exhibit 10.71 Employment Agreement between Frank
A. Woods and Shop At Home, Inc.,
dated March 20, 2002
Exhibit 10.72 Employment Agreement between George
R. Ditomassi and Shop At Home,
Inc., dated March 20, 2002
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this 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 Date: 4/17/02
----------------------------------- ------------------
Frank A. Woods
Co-CEO, Chairman of the Executive Committee
By: /s/ Arthur D. Tek Date: 4/17/02
----------------------------------- ------------------
Arthur D. Tek
Executive Vice President and Chief Financial Officer
Exhibit 10.71
FRANK A. WOODS
EMPLOYMENT AGREEMENT
This Employment Agreement, dated as of March 20, 2002, is between Shop
At Home, Inc., a Tennessee corporation (herein "Corporation"), and Frank A.
Woods, a resident of the State of Tennessee (herein "Employee") and replaces and
supercedes a previous Employment Agreement between the parties dated as of
October 1, 2001 (herein "Original Agreement") .
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 "shop at 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
Co-Chief Executive Officer;
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
Co-Chief Executive Officer to perform such services and duties as the Shop At
Home, Inc. Board of Directors 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 March 20, 2002, (herein "Commencement Date") and
shall be for a term of two (2) years (the "Term"). Employee's employment under
this Agreement shall be extended automatically for additional one (1) year terms
after the initial term unless either party gives written notice to the contrary
to the other at least thirty (30) 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 (as hereinafter defined) or (b)
for Convenience (without cause) as long as it complies with its obligations
under Section 4. This Agreement shall terminate automatically upon the death of
the Employee or the Employee's Complete Disability as defined herein. Upon
proper termination of the Employee, except as may be provided in Section 4,
Employee shall not be entitled to receive any further compensation or benefits
from the Corporation other than the Corporation's then standard death insurance
benefit, if any, if such termination is because of the Employee's death.
3. Duties. Employee, during the term of this Agreement, will devote his
attention and energies to the diligent performance of his duties as an employee
of the Corporation. During the term of this Agreement the Employee will not
engage in any venture for profit which the Corporation may 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.
4. Compensation.
(a) Base Salary. The Corporation will pay to Employee as compensation
for the services to be performed by him hereunder an annual salary of Two
Hundred Thousand Dollars ($200,000) (the "Base Salary"), payable in equal
installments, subject to increase from time to time by the mutual agreement of
the parties hereto. The Employee shall also be entitled to such other benefits
generally available to the Corporation's employees, not including generally
available bonus plans or bonuses unless the Corporation and the Employee agree,
in light of the Bonus provided herein, that participation in such general bonus
plan is in the Corporation's best interest, such change to be done in compliance
with Section 16.
(b) Bonus. After the first year of employment, the Corporation may pay
a bonus if the Board of Directors believes that substantial progress has been
made and shall pay the Employee a bonus equal to three and one-half percent
(3.5%) of EBITDA in Fiscal Year 2002. In Fiscal Year ending June 30, 2003 and
thereafter, unless otherwise agreed by the parties, the Employee shall be
entitled to five percent (5%) of any increase over the preceding fiscal year's
EBITDA. If the EBITDA for the preceding fiscal year is negative, the increase
will be calculated on the assumption that EBITDA for the preceding year was
zero. If EBITDA declines in any fiscal year compared to the previous year, for
future calculation purposes, EBITDA for such fiscal year shall be assumed to be
the same as the previous year (thus resulting in bonuses being calculated based
on a "high-water mark" for EBITIDA.) Bonuses shall be properly accrued for the
time period to which they relate, and shall be calculated after the accrual for
any bonus payable the Corporation's Co-Chief Executive Officers. The parties
agree that if the Compensation that would otherwise be due to the Employee
exceeds the amount that would not allow the Corporation to deduct such expense
for tax purposes, that the amount exceeding such limits shall be deferred until
such time the payment of such Bonus can be properly deducted as an expense by
the Corporation. At termination for any reason other than Cause, any such
deferred Bonus shall be paid within thirty (30) days of such termination. Upon
termination for Cause, the Employee agrees that any deferred Bonus shall be
forfeited and the Corporation shall have no obligation to pay such deferred
Bonus.
The Parties agree that this Bonus is designed to create economic
incentives for the Employee to accomplish a turnaround of the Corporation's
operations. This Bonus structure may not be appropriate to the goals of the
Corporation or the Employee once a turnaround is accomplished. Therefore, the
parties agree to evaluate the Bonus plan at the end of the first term of this
Agreement to ensure that it is still aligned with the goals of both the Company
and Employee and to make such adjustments as the Parties may agree are
necessary.
(c) Termination Without Cause (For Convenience), for Cause and for
Resignation. If the Corporation terminates the Employee for any reason other
than Cause (for Convenience), Employee shall be entitled to be paid upon
termination a lump-sum amount equal to twice his then current Base Salary minus
any deductions or withholdings as required by law, and shall also be entitled
when due to his Earned Bonus for the current fiscal year, if any, again minus
any deductions or withholdings required by law. Upon resignation or termination
for Cause, of any type, the Corporation is not required to pay the Employee any
additional Base Salary beyond the termination date nor any Earned Bonus.
(d) Stock Options. The Employee shall be granted under the Corporation's
1999 Stock Option Plan ("Plan") upon the effective date of this Agreement
options used for previous grants to the Employee as Co-CEO, as modified herein,
to purchase an additional Two Hundred Fifty Thousand (250,000) shares of Common
with the Stock Option Agreement for this grant to provide that upon a
termination for any reason other than Cause or upon resignation following a
Change of Control, that the Employee shall have five (5) years to exercise such
stock options, as long as such period is not beyond the ten (10) year life from
grant of such option and "Change of Control" shall have the meaning set out in
this Agreement. As to the two previous Stock Option Agreements dated October 4,
2001 and November 29, 2001, such agreements shall be governed by their terms,
except that such agreements shall be modified to provide (i) that upon a
termination for any reason other than Cause, or upon resignation following a
Change of Control, that the Employee shall have five (5) years to exercise such
stock options, so long as such period is not beyond the ten (10) year life of
such option from grant, and (ii) that the definition of "Change of Control"
shall be as set out herein. If these modifications to the prior Option
Agreements, however, would result in the Corporation incurring a compensation
expense, such modification shall be voided.
(e) Termination Following Change of Control. If within one (1) year
following the consummation of a Change of Control, the Corporation elects to
terminate Employee's employment hereunder for any reason other than for Cause,
or the Employee resigns, the Corporation shall pay Employee upon termination a
lump-sum amount equal to two (2) years of his then current Base Salary and any
Earned Bonus for the current fiscal year when due, minus any deductions or
withholdings as required by law. In such a situation the Corporation shall have
no duty to continue any other benefits or compensation past the date of the lump
sum payment, other than the Earned Bonus, if any, unless required by law. Upon a
termination for Cause the Employee shall not be paid any other compensation
whatsoever nor shall he be paid any Earned Bonus, unless required by law.
(f) Expenses. Employee shall be entitled to his reasonable and customary
expenses incurred in the performance of his duties under this Agreement as long
as such expenses are requested pursuant to the standard procedures and
limitations in place at the time.
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.
[2] The Employee competes, in a manner
prohibited by this Agreement, with the
Corporation.
[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 five (5) days after
receipt of written notice from the
Corporation by Employee detailing such
failure or refusal and the steps necessary
to remedy that failure.
[4] Employee is convicted of a misdemeanor
involving dishonesty, breach of trust or
moral turpitude, or is convicted of any
felony.
[5] Employee engages in the use of any illegal
drug.
[6] 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) A "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 1 (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 twenty (20%) 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.
(c) "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, or any combination thereof, or distributed over the Internet,
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).
(d) The "Corporation's Territory" shall be deemed to be
North America.
(e) "Complete Disability" - 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.
(f) "Confidential Information" - 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.
(g) "Earned Bonus" - If the Employee serves as Co-Chief
Executive Officer for one-half (1/2) or more of the fiscal year, he shall be
entitled to the full Bonus. If he served for less than one-half (1/2) of the
fiscal year, he shall be entitled to one-half (1/2) of the Bonus. Such Earned
Bonus shall be paid to the Employee upon the Corporation's filing of its Annual
Report of the Form 10-K.
(h) "EBITDA" shall be defined as the Corporation achieving
positive operating income plus depreciation and amortization as determined using
generally acceptable accounting principles consistently applied.
(i) "Person" - Any individual, corporation, bank, partnership,
joint venture, association, joint-stock company, trust, unincorporated
organization, governmental authority or other entity.
6. Covenants Against Unfair Post-Termination Competition.
(a) Covenant Against Disclosure or Use of Confidential
Information. In consideration of his employment hereunder, Employee agrees
during the term of this Agreement and thereafter not disclose to any Person any
Confidential Information. Additionally, for a period of two (2) years
immediately after the termination or expiration of his employment hereunder, for
any reason, he will not:
[1] use in soliciting the patronage of any
Person for the purpose of providing products
or services of the kind provided in the
Corporation Business, or
[2] 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 two (2) years after the termination or expiration of his employment
hereunder, Employee will not attempt, either directly or indirectly, to induce
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 two (2) years immediately after the termination or expiration of
his employment hereunder, for any reason, 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 (i) any person or entity
engaged in the Corporation Business or (ii) any
Internet entity or person that engages in E-commerce
over the Internet in a business engaged in the sale
of products substantially similar to the products
sold by the Corporation; or (iii) any entity or
person that builds, runs or manages the primary
Internet site for a company 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 or resignation
after a Change of Control, termination for Convenience, resignation or
termination for Cause.
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 in 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. Employee agrees that the compensation that the Corporation
is agreeing to pay under Sections 4 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 and all 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, specifically including, but not
limited to, any claim of age, race, religion, national origin, handicap and/or
sex discrimination, and/or breach of contract, and/or claim or wrongful
discharge, and/or any claim arising under the Family and Medical Leave Act, or
any other action arising out of or otherwise associated with your employment
with the Corporation, or claims of any other nature against Corporation
whatsoever or any of the Corporation's or its subsidiaries' successors,
subsidiaries, assigns, agents, representatives, employees, officers, directors,
trustees and shareholders. The Employee agrees that the Corporation's
obligations under this Agreement are contingent upon him signing a separate
Release upon his termination, should the Corporation request, using the
Corporation's standard Release Agreement as amended from time to time, however,
nothing in this sentence shall in any way negate the release set out above
should the Employee accept the compensation provided by this Agreement in
Sections 4. If the Employee brings any of the actions referenced above, he is
agreeing to waive any contractual right to the compensation provided by Sections
4, and agrees that if he has accepted such compensation and then brings such an
action, except as prohibited by law, as a condition precedent to bringing such
an action to refund the Corporation all the compensation he has received under
Sections 4, and if such refund is prohibited by law, agrees that such
compensation shall be a valid set off against any award or settlement of such
claims including allowing the Corporation an affirmative recovery against the
Employee should such award not exceed the amount of such compensation.
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 Corporation: Shop At Home, Inc.
5388 Hickory Hollow Parkway
Antioch, Tennessee 37013
Attention: General Counsel
To Employee: Mr. Frank A. Woods
[Address Redacted]
With a copy to: Mr. Frank A. Woods
[Address Redacted]
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 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 to 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. 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.
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 action is brought in compliance with Sections 20, 21, and 22 of
this Agreement, shall be entitled to its reasonable attorney fees and costs.
25. Interpretation. The Employee acknowledges that the Corporation has
advised him to receive the advice of independent counsel concerning this
Agreement and therefore the parties agree that this Agreement has been fully
negotiated and also 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.
26. Informed Agreement. EMPLOYEE ACKNOWLEDGES THAT HE HAS HAD
AN OPPORTUNITY AND HAS BEEN ENCOURAGED TO READ AND REVIEW THIS AGREEMENT AND BY
SIGNING ACKNOWLEDGES THAT HE FULLY UNDERSTANDS IT. EMPLOYEE ALSO ACKNOWLEDGES
THAT HE HAS BEEN ADVISED AND ENCOURAGED TO HAVE HIS OWN LEGAL COUNSEL REVIEW
THIS AGREEMENT. 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: EMPLOYEE:
SHOP AT HOME, INC.
By: /s/ /s/
--------------------------- -------------------------------
J.D. Clinton Frank A. Woods
Chairman, Board of Directors
Exhibit 10.72
GEORGE R. DITOMASSI
EMPLOYMENT AGREEMENT
This Employment Agreement, dated as of March 20, 2002, is between Shop
At Home, Inc., a Tennessee corporation (herein "Corporation"), and George R.
Ditomassi, a resident of the State of Massachusetts (herein "Employee") and
replaces a previous Employment Agreement between the parties dated as of October
1, 2001 (herein "Original Agreement").
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 "shop at 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
Co-Chief Executive Officer;
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
Co-Chief Executive Officer to perform such services and duties as the Shop At
Home, Inc. Board of Directors 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 March 20, 2002, (herein "Commencement Date") and
shall be for a term of two (2) years (the "Term"). Employee's employment under
this Agreement shall be extended automatically for additional one (1) year terms
after the initial term unless either party gives written notice to the contrary
to the other at least thirty (30) 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) for Convenience as long as
it complies with its obligations under Section 4. This Agreement shall terminate
automatically upon the death of the Employee or the Employee's Complete
Disability as defined herein. Upon proper termination of the Employee, except as
may be provided in Section 4, Employee shall not be entitled to receive any
further compensation or benefits from the Corporation other than the
Corporation's then standard death insurance benefit, if any, if such termination
is because of the Employee's death.
3. Duties. Employee, during the term of this Agreement, will devote his
attention and energies to the diligent performance of his duties as an employee
of the Corporation. Corporation acknowledges that Employee had certain business
relationships in existence at the time Employee executed the Original Agreement
and nothing in this Agreement is intended to interfere with Employee's
commitments outside the Corporation. In no event, however, during the term of
this Agreement will the Employee engage in any venture for profit which the
Corporation may 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.
4. Compensation.
(a) Base Salary. The Corporation will pay to Employee as compensation
for the services to be performed by him hereunder an annual salary of Two
Hundred Thousand Dollars ($200,000) (the "Base Salary"), payable in equal
installments, subject to increase from time to time by the mutual agreement of
the parties hereto. The Employee shall also be entitled to such other benefits
generally available to the Corporation's employees, not including generally
available bonus plans or bonuses unless the Corporation and the Employee agree,
in light of the Bonus provided herein, that participation in such general bonus
plan is in the Corporation's best interest, such change to be done in compliance
with Section 16.
(b) Bonus. The Corporation may pay a bonus at any time during the term
of this Agreement if the Board of Directors believes that substantial progress
has been made, and shall pay the Employee a bonus equal to three and one-half
percent (3.5%) of EBITDA in Fiscal Year 2002. In Fiscal Year ending June 30,
2003 and thereafter, unless otherwise agreed by the parties, the Employee shall
be entitled to five percent (5%) of any increase over the preceding fiscal
year's EBITDA. If the EBITDA for the preceding fiscal year is negative, the
increase will be calculated on the assumption that EBITDA for the preceding year
was zero. If EBITDA declines in any fiscal year compared to the previous year,
for future calculation purposes, EBITDA for such fiscal year shall be assumed to
be the same as the previous year (thus resulting in bonuses being calculated
based on a "high-water mark" for EBITDA.) Bonuses shall be properly accrued for
the time period to which they relate, and shall be calculated after the accrual
for any bonus payable to the Corporation's Co-Chief Executive Officers. The
parties agree that if the Compensation that would otherwise be due to the
Employee exceeds the amount that would not allow the Corporation to deduct such
expense for tax purposes, that the amount exceeding such limits shall be
deferred until such time the payment of such Bonus can be properly deducted as
an expense by the Corporation. At termination for any reason other than Cause,
any such deferred Bonus shall be paid within thirty (30) days of such
termination. Upon termination for Cause, the Employee agrees that any deferred
Bonus shall be forfeited and the Corporation shall have no obligation to pay
such deferred Bonus.
The Parties agree that this Bonus is designed to create economic
incentives for the Employee to accomplish a turnaround of the Corporation's
operations. This Bonus structure may not be appropriate to the goals of the
Corporation or the Employee once a turnaround is accomplished. Therefore, the
parties agree to evaluate the Bonus plan at the end of the first term of this
Agreement to ensure that it is still aligned with the goals of both the Company
and Employee and to make such adjustments as the Parties may agree are
necessary.
(c) Stock Options. In addition to the stock options previously granted
to Employee, he shall be granted under the Corporation's 1999 Stock Option Plan
("Plan") upon the effective date of this Agreement options to purchase an
additional Two Hundred Fifty Thousand (250,000) shares of the Corporation's
Common Stock. The Stock Option Agreement for this grant shall be on the same
form as the Stock Option Agreements that were made pursuant to the Original
Agreement modified to provide that upon a termination for any reason other than
Cause or upon resignation following a Change of Control, that the Employee shall
have five (5) years to exercise such stock options, as long as such period is
not beyond the ten (10) year life from the grant of such Stock Option Agreement,
and that "Change of Control" shall have the meaning set out herein. As to the
two previous Stock Option Agreements dated October 4, 2001 and November 29,
2001, such agreements shall be governed by their terms, except that such
agreements shall be modified as set out above unless these modifications would
result in the Corporation incurring a compensation expense, then such
modification shall be voided.
(d) Termination for Cause, for Convenience and for Resignation. If the
Corporation terminates the Employee for Convenience, Employee shall be entitled
to be paid upon termination a lump-sum amount equal to twice his then current
Base Salary minus any deductions or withholdings as required by law, and shall
also be entitled when due his Earned Bonus for the current fiscal year, if any,
again minus any deductions or withholdings required by law. Upon resignation,
unless following a Change of Control, or termination for Cause the Corporation
is not required to pay the Employee any additional Base Salary nor any Earned
Bonus beyond the termination date.
(e) Termination Following Change of Control. If within one (1) year
following the consummation of a Change of Control, the Corporation elects to
terminate Employee's employment hereunder for Convenience, or the Employee
resigns, the Corporation shall pay Employee upon termination a lump-sum amount
equal to twice his then current Base Salary and any Earned Bonus for the current
fiscal year when due, minus any deductions or withholdings as required by law.
In such a situation the Corporation shall have no duty to continue any other
benefits or compensation past the date of the lump sum payment, other than the
Earned Bonus, if any, unless required by law. Upon a termination for Cause the
Employee shall not be paid any other compensation whatsoever nor shall he be
paid any Earned Bonus, unless required by law.
(f) Expenses. Employee shall be entitled to his reasonable and
customary expenses incurred in the performance of his duties under this
Agreement as long as such expenses are requested pursuant to the standard
procedures and limitations in place at the time.
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:
(i) The Employee commits an act of dishonesty,
embezzlement or fraud against the Corporation.
(ii) The Employee competes, in a manner prohibited by this
Agreement, with the Corporation.
(iii) Employee is convicted of a misdemeanor involving
dishonesty, breach of trust or moral turpitude, or is convicted of any felony.
(iv) Employee engages in the use of any illegal drug.
(v) 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 mean any of the following:
(i) 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.
(ii) The approval by the Corporation's shareholders
of any plan or proposal for the liquidation or dissolution of the Corporation.
(iii) 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 1 (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.
(iv) 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 twenty percent (20%) or more of the
combined voting power of the Corporation's outstanding securities ordinarily
having the right to vote at elections of Directors.
(v) 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.
(c) "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.
(d) "Confidential Information" shall mean 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.
(e) "Convenience" shall mean for any reason other than for Cause.
(f) "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, or
any combination thereof, or distributed over the Internet, 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).
(g) "Corporation's Territory" shall be deemed to be North America.
(h) "Earned Bonus" shall mean if the Employee serves as Co-Chief
Executive Officer for one-half (1/2) or more of the fiscal year, he shall be
entitled to the full Bonus. If he served for less than one-half (1/2) of the
fiscal year, he shall be entitled to one-half (1/2) of the Bonus. Such Earned
Bonus shall be paid to the Employee upon the Corporation's filing of its Annual
Report of the Form 10-K.
(i) "EBITDA" shall mean the Corporation achieving positive operating
income plus depreciation and amortization as determined using generally
acceptable accounting principles consistently applied.
(j) "Person" shall mean any individual, corporation, bank, partnership,
joint venture, association, joint-stock company, trust, unincorporated
organization, governmental authority or other entity.
6. Covenants Against Unfair Post-Termination Competition.
(a) Covenant Against Disclosure or Use of Confidential Information. In
consideration of his employment hereunder, Employee agrees during the term of
this Agreement and thereafter not disclose to any Person any Confidential
Information. Additionally, for a period of two (2) years immediately after the
termination or expiration of his employment hereunder, for any reason, he will
not use in soliciting the patronage of any Person for the purpose of providing
products or services of the kind provided in the Corporation Business, or
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 two (2)
years after the termination or expiration of his employment hereunder, Employee
will not attempt, either directly or indirectly, to induce 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
two (2) years immediately after the termination or expiration of his employment
hereunder, for any reason, he will not, directly or indirectly, individually or
on behalf of any Person:
(i) 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
(ii) provide services of the type provided by Employee
to the Corporation to any Person which is then engaged in the Corporation
Business; or
(iii) 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
(iv) specifically work for (a) any person or entity engaged in
the Corporation Business or (b) any Internet entity or person that engages in
E-commerce over the Internet in a business engaged in the sale of products
substantially similar to the products sold by the Corporation; or (c) any entity
or person that builds, runs or manages the primary Internet site for a company
in the Corporation Business; or
(v) 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 or resignation
after a Change of Control, termination for Convenience, resignation or
termination for Cause.
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 in 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. Employee agrees that the compensation that the Corporation
is agreeing to pay under Section 4 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 and all 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, specifically including, but not
limited to, 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, or
any other action arising out of or otherwise associated with your employment
with the Corporation, or claims of any other nature against Corporation
whatsoever or any of the Corporation's or its subsidiaries' successors,
subsidiaries, assigns, agents, representatives, employees, officers, directors,
trustees and shareholders. The Employee agrees that the Corporation's
obligations under this Agreement are contingent upon him signing a separate
Release upon his termination, should the Corporation request, using the
Corporation's standard Release Agreement as amended from time to time, however,
nothing in this sentence shall in any way negate the release set out above
should the Employee accept the compensation provided by this Agreement in
Section 4. If the Employee brings any of the actions referenced above, he is
agreeing to waive any contractual right to the compensation provided by Section
4, and agrees that if he has accepted such compensation and then brings such an
action, except as prohibited by law, as a condition precedent to bringing such
an action to refund the Corporation all the compensation he has received under
Section 4, and if such refund is prohibited by law, agrees that such
compensation shall be a valid set off against any award or settlement of such
claims including allowing the Corporation an affirmative recovery against the
Employee should such award not exceed the amount of such compensation.
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 Corporation: Shop At Home, Inc.
5388 Hickory Hollow Parkway
Antioch, Tennessee 37013
Attention: General Counsel
To Employee: George R. Ditomassi
[ADDRESS REDACTED]
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 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 to 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
herein.
19. Entire Agreement. 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.
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 action is brought in compliance with Sections 20, 21, and 22 of
this Agreement, shall be entitled to its reasonable attorney fees and costs.
25. Interpretation. The Employee acknowledges that the Corporation has
advised him to receive the advice of independent counsel concerning this
Agreement and therefore the parties agree that this Agreement has been fully
negotiated and also 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.
26. Informed Agreement. EMPLOYEE ACKNOWLEDGES THAT HE HAS HAD
AN OPPORTUNITY AND HAS BEEN ENCOURAGED TO READ AND REVIEW THIS AGREEMENT AND
BY SIGNING ACKNOWLEDGES THAT HE FULLY UNDERSTANDS IT. EMPLOYEE
ALSO ACKNOWLEDGES THAT HE HAS BEEN ADVISED AND ENCOURAGED TO HAVE HIS OWN
LEGAL COUNSEL REVIEW THIS AGREEMENT. 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: EMPLOYEE:
SHOP AT HOME, INC.
By: /s/ /s/
---------------------------- ----------------------------
J.D. Clinton George R. Ditomassi
Chairman, Board of Directors