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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 31, 1997
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to ________
Commission File No. 0-20243
VALUEVISION INTERNATIONAL, INC.
(Exact Name of Issuer in Its Charter)
Minnesota 41-1673770
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(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
6740 Shady Oak Road, Minneapolis, MN 55344 - 3433
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(Address of Principal Executive Offices) (Zip Code)
612-947-5200
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(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: Common Stock,
$0.01 par value
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 by check mark if disclosure of delinquent filers in response to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of April 21, 1997, 28,145,512 shares of the Registrant's common stock were
outstanding. The aggregate market value of the common stock held by
non-affiliates of the registrant on such date, based upon the sale price of the
common stock as reported by Nasdaq on April 21, 1997, was approximately
$102,478,000. For purposes of this computation, affiliates of the registrant
are deemed only to be the registrant's executive officers and directors.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive ValueVision International, Inc. Proxy Statement for
the 1997 Annual Meeting of Shareholders are incorporated by reference in Part
III of this Annual Report on Form 10-K.
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VALUEVISION INTERNATIONAL, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED
JANUARY 31, 1997
TABLE OF CONTENTS
<TABLE>
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PART I PAGE
<S> <C> <C>
Item 1. Business 3
Item 2. Properties 24
Item 3. Legal Proceedings 25
Item 4. Submission of Matters to a Vote of Security Holders 27
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters 28
Item 6. Selected Financial Data 29
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 30
Item 8. Financial Statements 40
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 65
PART III
Item 10. Directors and Executive Officers of the Registrant 66
Item 11. Executive Compensation 66
Item 12. Security Ownership of Certain Beneficial Owners and Management 66
Item 13. Certain Relationships and Related Transactions 66
PART IV
Item 14. Exhibits, Lists and Reports on Form 8-K 67
SIGNATURES 72
</TABLE>
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PART I
ITEM 1. BUSINESS
A. GENERAL
ValueVision International, Inc. ("ValueVision" or the "Company") is an
integrated direct marketing company which markets its products directly to
consumers through electronic and print media. The Company is a Minnesota
corporation with principal and executive offices at 6740 Shady Oak Road,
Minneapolis, Minnesota 55344-3433. The Company was incorporated in the state
of Minnesota on June 25, 1990 and its fiscal year ends on January 31. Fiscal
years are designated by the calendar year in which the fiscal year ends.
The Company's principal electronic media activity is its television home
shopping network which uses recognized on-air television home shopping
personalities to market brand name merchandise and proprietary and private
label consumer products at competitive or discount prices. The Company's live
24-hour per day television home shopping programming is distributed primarily
through long-term cable affiliation agreements and the purchase of
month-to-month full- and part-time block lease agreements of cable and
broadcast television time. In addition, the Company distributes its
programming through Company owned or affiliated full power Ultra-High Frequency
("UHF") broadcast television stations, low power television ("LPTV") stations
and to satellite dish owners.
The Company, through its wholly-owned subsidiary, ValueVision Direct
Marketing Company, Inc. ("VVDM"), is also a direct-mail marketer of a broad
range of quality general merchandise which is sold to consumers through
direct-mail catalogs and other direct marketing solicitations. Products
offered include domestics, housewares, home accessories, electronics and
various apparel wear. Through VVDM's wholly-owned subsidiary, Catalog
Ventures, Inc. ("CVI"), the Company sells a variety of fashion jewelry, health
and beauty aids, books, audio and video cassettes and other related consumer
merchandise through the publication of five consumer specialty catalogs. The
Company also manufactures and markets, via direct-mail, women's foundation
undergarments through VVDM's subsidiary Beautiful Images, Inc. ("BII").
Electronic Media
The Company's principal electronic media activity is its television home
shopping network program. The ValueVision home shopping network is the third
largest television home shopping retailer in the United States. Through its
continuous merchandise-focused television programming, the Company sells a wide
variety of products and services directly to consumers. Sales from the Company's
television home shopping network totaled $99,419,000, representing 62% of net
sales, for the fiscal year ended January 31, 1997. Products are presented by
on-air television home shopping personalities and orders are placed directly
with ValueVision by viewers who call a toll-free telephone number. Orders are
processed on-site by the Company's call center representatives who use
ValueVision's customized computer processing system which provides real-time
feedback to the on-air hosts. ValueVision's television programming is produced
at the Company's Minneapolis facility and is transmitted nationally via
satellite to local cable system operators, broadcast television stations and
satellite dish owners.
Products and Product Mix. Products sold on the Company's television home
shopping network include jewelry, giftware, collectibles and related
merchandise, apparel, electronics, housewares, seasonal items and other
merchandise. As part of the ongoing shift in merchandise mix, the Company
continued to devote increasing airtime to non-jewelry merchandise during fiscal
1997. Jewelry accounted for 67% of the programming air time during fiscal 1997
compared with 70% for fiscal 1996. Jewelry is the largest single category of
merchandise, representing 62% of net sales in fiscal 1997, 73% of net sales in
fiscal 1996 and 77% of net sales in fiscal 1995. The Company has developed
this product group to include proprietary lines such as New York
Collection(TM), Bold Elegance(R), Daywear and Illusions(TM) products
produced to ValueVision's specifications or designed exclusively for sale by
the Company.
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Growth in FTE Cable Homes. Since the inception of the Company's
television operations, ValueVision has experienced substantial growth in the
number of full-time equivalent cable homes ("FTE"s) which receive the Company's
programming. As of January 31, 1997, the Company served a total of 16.4
million cable homes or 11.4 million FTEs, compared with a total of 13.6 million
cable homes or 10.5 million FTEs as of January 31, 1996 and compared with
223,000 cable homes or 76,000 FTEs at January 31, 1992, the end of the Company's
first fiscal year. Approximately 7.7 million, 7.2 million and 3.5 million cable
homes at January 31, 1997, 1996 and 1995, respectively, received the Company's
television home shopping programming on a full-time basis. As of January 31,
1997, the Company's television home shopping programming was carried by three
full power broadcast television stations owned by the Company, 188 cable systems
(160 in fiscal 1996) on a full-time basis and 77 cable systems (88 in fiscal
1996) on a part-time basis. Homes that receive the Company's television home
shopping programming 24 hours per day are counted as one FTE each and homes that
receive the Company's programming for any period less than 24 hours are counted
based upon an analysis of time of day and day of week. The total number of
cable homes that receive the Company's television home shopping programming
represents approximately 25% of the total number of cable subscribers in the
United States.
Satellite Service. The Company's programming is distributed to cable
systems, full and low power television stations and satellite dish owners via a
leased communications satellite transponder. Satellite service may be
interrupted due to a variety of circumstances beyond the Company's control, such
as satellite transponder failure, satellite fuel depletion, governmental action,
preemption by the satellite lessor and service failure. The Company does not
have any agreements from immediate backup satellite services, although it
believes it could arrange for such services from others. However, there can be
no assurance that the Company will be able to make any such arrangements and the
Company may incur substantial additional costs in entering into new
arrangements.
Print Media
The Company is also a direct-mail marketer of a broad range of quality
general merchandise which is sold to consumers through direct-mail catalogs and
other direct marketing solicitations. The Company's involvement in the print
media, direct marketing business is the result of a series of acquisitions made
in fiscal 1997 by VVDM. Sales from the Company's print media, direct
marketing business totaled $60,059,000, representing 38% of net sales, for the
fiscal year ended January 31, 1997.
Effective July 27, 1996, the Company acquired substantially all of the
assets and assumed certain obligations of Montgomery Ward Direct L.P., a four
year old catalog business ("MWD"). MWD's principal direct marketing vehicle is
its home decor and furnishings catalog, a full- color booklet of approximately
50 to 100 pages that is mailed semi-monthly to its customer list and to
individuals whose names are generated from mailing lists rented by MWD. MWD
also produces and mails special issues during the holiday season and produces
inventory clearance catalogs. Historically, a significant portion of MWD's
catalogs have been targeted mainly to Montgomery Ward & Co., Incorporated
("Montgomery Ward") credit card account holders.
On October 22, 1996, VVDM acquired all of the outstanding shares of BII, a
manufacturer and direct marketer of women's foundation undergarments. Direct
marketing solicitation is through space advertisements of BII's merchandise in
national and regional newspapers and magazines.
Effective November 1, 1996, VVDM acquired substantially all of the assets
and assumed certain obligations of Catalog Ventures, Inc. and Mitchell & Webb,
Inc. (collectively "CVI"), two direct marketing companies which together
publish five consumer specialty catalogs. CVI currently produces five special
interest catalogs which are mailed approximately monthly and include Nature's
Jewelry(R),The Pyramid Collection (TM), Serengeti(R), NorthStyle(R) and The
Mind's Eye(R). The full-color catalogs generally contain approximately 50 to 60
pages and are mailed on a monthly basis to CVI's customer list and to
individuals whose names are generated from mailing lists rented by CVI.
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Products and Product Mix. Products offered under the MWD catalog include
domestics, housewares, home accessories and electronics. Products offered
through CVI include a variety of fashion jewelry, health and beauty aids,
books, audio and video cassettes and other related consumer merchandise. BII
manufactures and markets via direct mail, women's foundation undergarments,
which are products designed to provide comfort, support and posture
enhancement.
Circulation. A significant portion of MWD's catalogs are mailed on a
semi-monthly basis and are primarily targeted to educated middle income women
aged 35 to 50. Approximately 40 million MWD catalogs were mailed in fiscal
1997. At January 31, 1997, MWD had approximately 606,000 "active" customers
(defined as individuals that have purchased from the Company within the
preceding 12 months) and combined customer and prospect files that totaled more
than 3.2 million names. CVI mails each of its five specialty catalogs on a
seasonal basis and primarily targets well-educated, middle and upper-income
women aged 35 to 55. Approximately 26 million CVI catalogs were mailed in
fiscal 1997. At January 31, 1997, CVI had approximately 514,000 active catalog
customers and approximately 4.5 million customer names in its catalog customer
list database. During fiscal 1997, BII had approximately 678 million printed
space advertisements or "impressions" circulated in national and regional
newspapers and magazines. At January 31, 1997, BII had approximately 185,000
active customers and approximately 415,000 customer names in its customer list
database.
B. BUSINESS STRATEGY
The Company's primary business strategy is to increase sales and cash flows
from existing direct marketing operations and through the acquisition of
additional direct-mail companies to complement its growing direct marketing
business. In addition, the Company's strategy involves increasing sales and
cash flows by increasing the number of FTEs that receive the Company's
television home shopping programming through (i) affiliation agreements with
cable companies, (ii) block lease agreements and (iii) the use of broadcast
television stations and "must carry" rights. The Company also anticipates
growth through (i) increased penetration of new customers from existing homes
served by television programming and through the Company's recent investment
and future expected growth in direct-to-consumer selling on the Internet, (ii)
continued expansion of repeat sales to existing customers, (iii) increased
circulation of catalog mailings and (iv) the acquisition of additional
direct-mail companies.
Cable Affiliation Agreements
As of January 31, 1997, the Company had entered into long-term cable
affiliation agreements with eleven multiple system operators ("MSOs"), which
require each MSO to offer the Company's cable television home shopping
programming substantially on a full-time basis to their cable systems. The
aggregate number of cable homes served by these eleven MSOs is approximately
19.8 million, of which approximately 7.2 million cable homes (6.8 million FTEs)
currently receive the Company's programming. The stated terms of the
affiliation agreements range from three to seven years. Under certain
circumstances, the MSOs may cancel the agreements prior to their expiration.
There can be no assurance that such agreements won't be so terminated or that
such termination won't materially or adversely affect the Company's business.
In addition, these MSOs are also carrying the Company's programming on an
additional 750,000 cable homes (361,000 FTEs) pursuant to short-term cable
carriage arrangements. The affiliation agreements provide that the Company
will pay each MSO a monthly cable access fee and marketing support payments
based upon the number of homes carrying the Company's television home shopping
programming. Certain of the affiliation agreements also require payment of
onetime initial launch fees which are capitalized and amortized on a
straight-line basis over the term of the agreements. The Company has entered
into, and currently plans to enter into, affiliation agreements with other
cable television operators providing for full- or part-time carriage of the
Company's television home shopping programming.
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Block Lease Agreements
The Company currently leases blocks of cable television time from certain
cable operators, typically for one year periods, with thirty-day cancellation
privileges by either party.
General. Commencing in January 1992, the Company began leasing blocks of
cable television time for its programming. On average, the Company's lease
agreements provide for approximately 120 to 140 hours or more of programming
weekly and are generally terminable by either party on thirty days' notice.
This method of programming distribution, as a component of the Company's
overall distribution strategy, may be significantly expanded in the event of
favorable action or judical review of the "leased access" rules pursuant to
the Cable Act. However, no assurance can be made with respect to the outcome
of these proceedings. See "Federal Regulation."
"Leased Access." Cable systems are generally required to make up to
15% of their channel capacity available for lease by nonaffiliated
programmers. See "Federal Regulation." In May 1993, the Federal Communications
Commission ("FCC") issued rules limiting cable leased access rates that cable
systems can charge nonaffiliated programmers such as the Company. These rules,
which used a "highest implicit fee" proxy for the costs cable operators
incurred in carrying leased access programming, often allowed operators to
increase lease rates dramatically and affected the Company's ability to gain
carriage on some systems. The FCC adopted revised rules in February 1997.
These revised rules include a modified version of the proxy called the "average
implicit fee," which changes the calculation of the proxy in a way that makes
it unclear whether or to what extent lease rates will be affected. The impact
of the revised rules on lease rates will not be certain until the Company and
cable operators attempt to negotiate for carriage under the new provisions.
The Company has petitioned the D.C. Circuit for review of these newly revised
rate provisions. Both the petition for review and a similar petition are
currently pending and the time for other parties to file petitions for review
has not yet expired. There can be no assurances that the Company will prevail
in this litigation or, if it succeeds, that the rules the FCC would adopt in
place of the challenged ones will be favorable to the Company. Moreover, other
parties may seek judical review in efforts to obtain a pricing formula or
part-day access rules less favorable to the Company. The timing of any FCC or
court action is uncertain.
Broadcast Television Stations
The Company currently owns three full power broadcast television stations
that carry the ValueVision television home shopping program primarily on a
full-time basis: KBGE (TV), licensed to Bellevue, Washington and serving the
Seattle-Tacoma, Washington area; KVVV (TV), licensed to Baytown, Texas and
serving the Houston, Texas area; and WVVI (TV) licensed to Manassas, Virginia
and serving the Washington, D.C. area. The Company's current strategy is to
buy or sell broadcast television stations at appropriate prices when investment
opportunities arise.
When purchasing broadcast television stations, the Company does not
consider conventional measures of a station's performance, such as over the air
coverage, advertising revenues, audience share, programming or demographics, to
select stations for acquisition. Rather, the Company focuses on the Area of
Dominant Influence ("ADI") of the market in which the station is located and
the number of cable households within each ADI. The Company generally intends
to broadcast primarily home shopping programming over full power television
stations that it acquires, and does not expect its programming to generate
significant advertising revenues. Accordingly, the preacquisition operating
results of any full power television station will not be predictive of the
operating results following acquisition by the Company.
Summary of Acquisitions and Dispositions. In March 1996, the Company
completed the acquisition of the full power Ultra-High Frequency ("UHF")
independent television station KBGE (TV), Channel 33, serving the
Seattle-Tacoma, Washington market ("KBGE") for approximately $4.6 million.
During fiscal 1995, the Company acquired four full power UHF television
stations (WVVI -- Washington, D.C. ADI; KVVV -- Houston, Texas ADI; WHAI --
Bridgeport, Connecticut, New York City ADI; and WAKC -- Cleveland-Akron, Ohio
ADI) for an aggregate purchase price, including acquisition related costs, of
approximately $22.4 million. In February 1996,
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the Company sold two stations serving the New York City (WHAI) and
Cleveland-Akron, Ohio (WAKC) markets. In November 1996, the Company announced
that an agreement was entered into for the sale of television station WVVI,
licensed to Manassas, Virginia. Television stations WVVI, KVVV and KBGE are
currently carrying the Company's television home shopping programming and are
located in markets that have a total of approximately 5.0 million homes,
including approximately 3.3 million cable homes within their combined ADIs.
Approximately 1.7 million of these cable homes currently receive ValueVision's
programming.
The Company purchased KBGE, licensed to Bellevue, Washington and serving
Seattle-Tacoma, Washington from NWTV, Inc. for aggregate consideration of
$4,600,000 on March 15, 1996. KBGE commenced broadcast operations during
October 1995. The Seattle-Tacoma, Washington market represents the 13th
largest ADI in the nation and ranks ninth among U.S. cable markets, with
approximately 1.0 million cable television households and an average cable
penetration of almost 70%. As of January 31, 1997, approximately 543,000 of
the estimated 1.0 million cable television households in the Seattle-Tacoma ADI
were receiving KBGE's signal, and KBGE is seeking additional cable carriage
under the "must carry" rules.
The Company acquired Channel 43 in Bridgeport, Connecticut (WHAI), a full
power UHF television station licensed to Bridgeport, Connecticut and servicing
part of the New York City ADI in December 1994 from Bridgeways Communications
Corp. Total consideration for the acquisition of WHAI was $7,320,000,
including $3,900,000 in cash and 720,000 shares of the Company's common stock
with a fair market value of $3,420,000. In April 1994, the Company acquired
WAKC, a full power UHF station licensed to Akron, Ohio, for approximately
$6,000,000, including $1,000,000 payable under the terms of a non-compete
agreement in five equal annual installments commencing in April 1995. Since
its acquisition, WAKC had been operated as an ABC network affiliate and did
not carry any of the Company's television home shopping programming. On
February 28, 1996, the Company completed the sale of these two television
stations to Paxson Communications Corporation ("Paxson") for $40.0 million in
cash plus the assumption of certain obligations. The net gain on the sale of
these two television stations of approximately $27 million was recognized in
the quarter ended April 30, 1996.
The Company purchased WVVI, licensed to Manassas, Virginia, from National
Capital Christian Broadcasting, Inc. ("National") for $4,850,000, of which
$4,050,000 was paid at the initial closing on March 28, 1994 and $800,000 was
paid at a second closing on April 11, 1996. The Company also purchased at the
WVVI initial closing a five-year secured convertible debenture in the principal
amount of $450,000. The debenture was convertible at the Company's option into
that number of shares of common stock which represented approximately 19% of the
outstanding capital stock of Capital Television Network, Inc. ("Capital"). In
April 1996, the Company received certain studio and production equipment from
National and Capital in lieu of a cash repayment of the amount outstanding under
the secured convertible debenture. On November 22, 1996, the Company announced
that an agreement had been reached with Paxson for the sale of its television
broadcast station, WVVI (TV), for approximately $30 million. Under the terms of
the agreement, Paxson will pay the Company $20 million in cash and $10 million
in Paxson common stock valued at the average closing price during the 60-day
period following the signing of the agreement. As part of the agreement, Paxson
will be required to pay an additional $10 million to the Company as a result of
the recent decision of the United States Supreme Court upholding the "must
carry" provision of the 1992 Cable Act. WVVI (TV) carries the Company's
television home shopping programming to approximately 874,000 cable television
households. The transaction was approved by the FCC in April 1997 and is
anticipated to close by the end of the second quarter of fiscal 1998. The
effects of the disposition will be reflected in the financial statements at the
date of closing. Management believes that the sale will not have a significant
impact on the operations of the Company.
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The Company purchased KVVV, licensed to Baytown, Texas, from Pray, Inc. for
a purchase price of $5,750,000, of which $4,150,000 was paid at the initial
closing on March 28, 1994. On March 31, 1997, the Supreme Court upheld the
"must carry" provisions of the 1992 Cable Act. Assuming there is no petition
for a rehearing, and the decision becomes final, the Company will be obligated
to pay the remaining $1,600,000 upon a second closing. In lieu of paying the
$1,600,000 in cash, the Company may issue to Pray, Inc. that number of shares
of registered common stock that have a market value of $2,000,000 on the date
of the second closing.
"Must Carry." The Company intends to achieve increased cable
distribution of its programming under the FCC's "must carry" rules through
mandatory carriage on local cable systems of full power television stations it
has acquired or intends to acquire. In general, and subject to the right of a
cable operator to seek FCC relief upon a showing of lack of service or
coverage or by other factors, the current "must carry" rules entitle full power
television stations to mandatory cable coverage, at no charge, in all cable
homes located within each station's ADI or Designated Market Area ("DMA"),
provided that the signal is of adequate strength and the cable system has
"must carry" designated channels available. See "Federal Regulation." Mandatory
cable carriage can substantially increase, at a low cost, the number of homes
that a full power television station can reach. On March 31, 1997, the Supreme
Court, rejecting a constitutional challenge brought by cable industry
plaintiffs, upheld in their entirety the "must carry" rules applicable to full
power television stations.
Other Methods of Program Distribution
The Company's programming is also broadcast full-time to approximately 3.0
million "C"-band satellite dish owners and to approximately 2.5 million homes
via eleven low power television ("LPTV") stations that the Company owns or with
which it has programming lease agreements. The LPTV stations and satellite
dish transmissions were collectively responsible for less than 8% of the
Company's sales in its last fiscal year. LPTV stations reach a substantially
smaller radius of television households than full power television stations,
are generally not entitled to "must carry" rights and are subject to
substantial FCC limitations on their operations. However, LPTV stations can be
constructed and operated at a substantially lower cost than full power
television stations. During fiscal 1997, the Company completed construction of
and obtained a license for one LPTV station located in Portland, Oregon. The
Company now owns and operates six LPTV stations. The Company also exercised
options to buy five LPTV stations with which it has programming lease
agreements and the Company is currently awaiting FCC approval for these
acquisitions. Three other stations with which the Company has programming
agreements, located in Seattle, Washington, Richmond, Virginia, and
Indianapolis, Indiana are to be completed in Fiscal 1998. The channel
allocation process for digital television technology ("DTV") may prevent the
Company from utilizing LPTV stations. See "Federal Regulation."
WWW.VVTV.COM
In April 1997, the Company launched an interactive shopping site address on
the Internet located at WWW.VVTV.COM. The Internet site will provide consumers
with access to the general merchandise offered on the Company's television home
shopping program as well as provide consumers the opportunity to view and hear
the live 24-hour per day television home shopping program. This method of
program distribution is in the development stage and, consequently, the Company
cannot predict operating results.
Print Media Operations
The Company's print media operations provide customers with a broad range
of quality merchandise at competitive or discounted prices through the
convenience of catalog and other direct marketing solicitations. The Company's
objective for print media activities is to expand recently acquired direct
marketing operations while acquiring additional direct-mail companies. The
Company's strategy for print media operations is to (i) perform effective
target marketing and increase catalog circulation to achieve strong sales
growth, (ii) procure products more efficiently and improve pricing to increase
gross margins, (iii) improve order processing and distribution efficiencies
through consolidation of operations, and share customer lists between operating
units.
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C. STRATEGIC RELATIONSHIPS
Montgomery Ward Alliance
During fiscal 1996, the Company entered into a Securities Purchase
Agreement, an Operating Agreement, a Credit Card License and Receivable Sales
Agreement, and a Servicemark License Agreement (collectively, the "MW
Agreements") with Montgomery Ward. Under the MW Agreements, Montgomery Ward
purchased 1,280,000 unregistered shares of common stock of the Company at $6.25
per share, which represented approximately 4.4% of the issued and outstanding
shares of common stock of the Company, and received warrants to purchase an
additional 25 million shares of common stock of the Company, subject to
adjustment (25,770,461 as adjusted through January 31, 1996). These warrants
had exercise prices ranging from $6.50 to $17.00 per share, with an average
exercise price of $9.16 per share (the "Warrants"). The value assigned to the
Warrants of $17,500,000 was determined pursuant to an independent appraisal.
On June 7, 1996, the Company signed a non-binding Memorandum of
Understanding with Montgomery Ward pursuant to which the companies agreed to
the expansion and restructuring of their ongoing operating and license
agreements as well as the Company's acquisition of substantially all of the
assets and assumption of certain obligations of MWD. Effective July 27, 1996
the companies reached definitive agreements and closed the transaction in the
third quarter ended October 31, 1996. Pursuant to the provisions of the
agreements, the Company's sales promotion rights were expanded beyond
television home shopping to include the full use of the service mark of
Montgomery Ward for direct-mail catalogs and ancillary promotions. In
addition, the strategic alliance between the companies has been restructured
and amended such that (i) 18 million unvested warrants granted to Montgomery
Ward in August 1995 and exercisable at prices ranging from $7.00 - $17.00 were
terminated in exchange for the issuance by the Company of 1,484,467 new vested
warrants exercisable at $0.01 per share, (ii) the Company issued 1,484,993 new
vested warrants, valued at $5.625 per share and exercisable at $0.01 per share,
to Montgomery Ward as full consideration for the acquisition of approximately
$4.7 million in net assets, representing substantially all of the assets and
the assumption of certain liabilities of MWD, (iii) Montgomery Ward has
committed to provide $20 million in supplemental advertising support over a
five-year period, (iv) the Montgomery Ward operating agreements and licenses
have been amended and expanded, as defined in the agreements, and extended to
July 31, 2008 and (v) the Company issued to Montgomery Ward new vested warrants
to purchase 2.2 million shares of the Company's common stock at an exercise
price of $.01 per share in exchange for 7 million vested warrants granted to
Montgomery Ward in August 1995 which were exercisable at prices ranging from
$6.50 - $6.75 per share.
Under the MW Agreements, Montgomery Ward may provide the Company with
certain operational support, including merchandise sourcing and use of the
Montgomery Ward credit card by the Company's customers, and may also assist the
Company in obtaining a line of credit for strategic acquisitions or expansion.
Montgomery Ward may assist the Company in obtaining cable carriage agreements
by purchasing advertising time on cable systems. During the term of the MW
Agreements, the Company will be Montgomery Ward's exclusive outlet for
television shopping (as defined in the MW Agreements), subject to certain
exceptions. The Operating Agreement has a twelve-year term and may be
terminated under certain circumstances as defined in the agreement.
The current rules of the FCC limit the number of television stations within
a single market, and the aggregate number of television stations, in which
related persons and entities may own attributable interests (the "Combined
Ownership Rules"). The ownership of television stations by affiliates of
Montgomery Ward and by the Company may violate the FCC's Combined Ownership
Rules in the event that Montgomery Ward seeks to exercise the Warrants. In
such event, the Montgomery Ward interest in the Company may be subject to
divestiture or other regulatory action. In addition, no assurance can be given
as to the actual impact of this relationship on the Company or whether
termination of such relationship will have a material adverse impact on the
Company.
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Net Radio Network
In March 1997, the Company acquired a 15% interest in Net Radio Corporation
("Net Radio") for an aggregate purchase price of $3 million, consisting of $1
million in cash and a commitment to provide $2 million in future advertising.
Net Radio is a popular music and entertainment site on the Internet. Navarre
Corporation, a leading national distributor of music, computer software and
interactive CD ROM products, owns the remaining 85% of Net Radio. The
Company's 24-hour per day shopping program is currently being carried by Net
Radio. This investment allows ValueVision to establish a foothold in providing
electronic commerce on the Internet. Additionally, ValueVision has been
granted exclusive rights for most merchandise categories to be made available
in Net Radio's program marketplace.
D. MARKETING AND MERCHANDISING
Electronic Media
The Company's television revenues are generated from sales of merchandise
offered through its television home shopping programming. ValueVision's
programming features recognizable on-air television home shopping network
personalities, many of whom have built a following on other home shopping
programs. The sales environment is friendly and informal. As a part of its
programming, the Company provides live, on-air telephone interaction between
the on-air host and customers. Such customer testimonials give credibility to
the products and provide entertainment value for the viewers.
The Company's television home shopping network utilizes live television 24
hours per day, seven days a week, to create an interactive and entertaining
atmosphere to effectively describe and demonstrate the Company's merchandise.
Selected customers participate through live conversations with on-air hosts and
occasional celebrity guests. The Company believes its customers make purchases
based primarily on convenience, quality of merchandise and availability of
brand name value.
The Company employs a variety of techniques for marketing the products sold
on the air including, among others, segmented merchandising programs and
merchandise-themed, in-studio and live remote "specials" as well as on-air
contests to supplement the general merchandise offering format. The Company
believes that its customers are primarily women between the ages of 35 and 55,
with household income of approximately $35,000 to $45,000. The typical viewer
is from a household with a professional or managerial primary wage earner.
ValueVision schedules its special segments at different times of the day and
week to appeal to specific viewer and customer profiles. The Company also
produces special theme programs for events such as Father's Day, Mother's Day
and Valentine's Day. The Company features frequent and occasionally
unannounced, special bargain, discount and inventory-clearance sales in order
to, among other reasons, encourage customer loyalty or add new customers.
The Company produces segmented merchandising programs and
merchandise-themed, in-studio and occasional remote "specials" to supplement
the general merchandise offering format, including The Doll Collector, The
Sports Page, The Coin Collector, Italian Romance, Home Accents, Silver
Sensations and Everything Electric.
In addition to the Company's daily produced home shopping programming, the
Company may from time to time test other types of strategies, including
localized home shopping programming in conjunction with retailers and other
catalogers. During fiscal 1996, the Company entered into a strategic alliance
with Montgomery Ward, under which the Company featured products acquired
through the assistance of Montgomery Ward. The Company may seek to enter into
joint ventures, acquisitions or similar arrangements with other consumer
merchandising companies (subject to Montgomery Ward's approval of any other
retailer), television home shopping companies, television stations, networks or
programmers to complement or expand the Company's television home shopping
business. Most of the Company's cable lease and affiliation agreements
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provide for cross channel 30-second promotional spots. The Company purchases
advertising time on other cable channels to advertise specialty shows and other
special promotions. The Company prominently features its on-air hosts in
advertising and promotion of its programming.
The Company's television home shopping merchandise is generally
offered at or below retail prices. Jewelry accounted for approximately 62% of
the Company's net sales in fiscal 1997 compared to 73% in fiscal 1996 and 77%
in fiscal 1995. Giftware, collectibles and related merchandise, apparel,
electronics, housewares, seasonal items and other merchandise comprise the
remaining sales. The Company continually introduces new items with additional
merchandise selection chosen from available inventories of previously featured
products. The alliance with Montgomery Ward provides the Company with access
to certain merchandise at Montgomery Ward's cost and permits the Company to
expand its product offerings, including the addition of a variety of brand name
merchandise. Inventory sources include manufacturers, wholesalers,
distributors, inventory liquidators and importers.
ValueVision has also developed several lines of private label merchandise
that are targeted to its viewer/customer preferences, including Bold
Elegance(R), Romantic Expressions(R), Illusions(TM) New York(TM) and Vincenzia
Collections(TM). The Company intends to continue to promote private label
merchandise, which generally has higher than average margins. The Company also
may negotiate with celebrities, including television, motion picture and sports
stars, for the right to develop various licensed products and merchandising
programs which may include occasional on-air appearances by the celebrity.
In 1991, the Company introduced its Video Shopping Cart(SM) service. The
Video Shopping Cart allows customers to order as many items as often as they
wish during a 24-hour period between midnight to midnight each day, and pay a
single shipping and handling charge for the entire order (currently $9.95;
$14.95 to households in Alaska and Hawaii). Substantially all of the
Company's merchandise qualifies for inclusion in a customer's Video Shopping
Cart, except for certain large items, items over $300, items placed on the
"ValuePay" installment payment program or items that are direct-shipped from
the vendor.
The Company transmits daily programming instantaneously to cable
operators, full and low power television stations, and satellite dish owners by
means of a communications satellite. In March 1994, the Company entered into a
12-year satellite lease on a new Hughes Communication cable programming
satellite offering transponders to the cable programming industry, including
the Company. Under certain circumstances, the Company's transponder could be
preempted and the Company currently has not contracted for backup services.
Print Media
VVDM, through MWD, is a direct-mail marketer of a broad range of quality
general merchandise which is sold to consumers through direct-mail catalogs.
Products offered include domestics, housewares, home accessories and
electronics. MWD's principal direct marketing vehicle is its home decor and
furnishings catalog, a full-color booklet of approximately 50 to 100 pages that
is mailed semi-monthly to its customer list and to individuals whose names are
generated from mailing lists rented by MWD. MWD also produces and mails special
issues during the holiday season and produces inventory clearance catalogs.
Historically, a significant portion of MWD's catalogs have been targeted to
Montgomery Ward credit card account holders.
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CVI markets a variety of merchandise through five consumer specialty
catalogs under distinct titles. The catalogs are mailed seasonally and are
targeted to middle and upper-income women aged 35-55 years old. Catalog titles
offered by CVI include: (i) Nature's Jewelry(R) - offering moderately-priced,
nature-themed jewelry, apparel and gifts; (ii) The Pyramid Collection (TM) -
offering a wide array of self- improvement, spiritually oriented and New Age
books, tapes and CDS as well as jewelry and gifts with related themes; (iii)
Serengeti(R) - offering jewelry, apparel and gifts based on various wildlife
themes; (iv) NorthStyle(R) - "America's Nature Gift Catalog", sells
"northwoods" or "log cabin" styled home decor and apparel, as well as books,
videos and audio products on a similar theme; and (v) The Mind's Eye(R) - a
nostalgia catalog offering audio, video, games and home products from
customers' childhood, some with a collectible component.
BII is a leading direct marketer of women's foundation undergarments.
Products include the Posture X Bra(TM) and other related products that provide
comfort, support and posture enhancement. BII markets its products through
newspaper inserts, magazines and other print media as well as and through
various syndication offers in the credit card billing statements of individual
consumers.
Favorable Purchasing Terms
The Company obtains products for its electronic and print media, direct
marketing businesses from domestic and foreign manufacturers and is often able
to make purchases on favorable terms based on the volume of transactions. A
substantial portion of the Company's purchasing arrangements include inventory
terms which allow for return privileges or stock balancing. The Company is not
dependent upon any one supplier for a significant portion of its inventory.
E. ORDER ENTRY, FULFILLMENT AND CUSTOMER SERVICE
Products offered through all of the Company's selling mediums, except BII,
are available for purchase via toll-free "800" telephone numbers. The Company
maintains on-site telephone response centers in its Minneapolis, Minnesota and
Chelmsford, Massachusetts facilities, staffed by call center representatives,
each equipped with a terminal on-line with the Company's computerized order
response and fulfillment systems. These order response and fulfillment systems
have approximately 300 dedicated order entry agent stations, approximately 50
to 90 of which are currently staffed at various times and an additional 100
"flex" order entry stations to handle overflow capacity during peak seasons.
The Company's primary telephone system has a 1,400 line capacity, and its
primary computer system has a 1,500-agent capacity, both of which can be
readily upgraded for additional volume. The Company's telephone systems
display up-to-the-second data on the volume of incoming calls, the number of
call center representatives on duty, the number of calls being handled and the
number of incoming calls, if any, waiting for available call center
representatives. The fulfillment systems automatically report and update
available merchandise quantities as customers place orders and stock is
depleted. The Company's computerized systems handle customer order entry, order
fulfillment, customer service, merchandise purchasing, on-air scheduling,
warehousing, customer record keeping and inventory control. In fiscal 1996,
the Company invested in backup power supply systems to ensure that
interruptions to the Company's operations due to electrical power outages are
minimized.
During fiscal 1997, the Company purchased a 262,000 square foot
distribution facility in Bowling Green, Kentucky which is being used primarily
in connection with the fulfillment operations of MWD. In addition, during
fiscal 1997, the Company installed a 192-line Automated Voice Response Unit
("VRU") to capture additional ValueVision customer orders quickly without the
assistance of a live call center representative. Customers simply place orders
using the touch-tone pad of their telephone. Approximately 25-30% of daily
sales orders are taken using the new VRU system.
The majority of customer purchases are paid by credit card. Commencing in
March 1995, customers were able to use either a Montgomery Ward or a
ValueVision/Montgomery Ward credit card to charge ValueVision purchases. In
accordance with general industry practice, the Company accepts "reservation"
orders from
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customers who wish to pay by check. The Company does not offer C.O.D. terms to
customers. During fiscal 1995, the Company introduced an installment payment
program called ValuePay which entitles television home shopping customers to
purchase merchandise and pay for the merchandise in two to four equal
successive monthly installments. The Company intends to continue to sell
merchandise using the ValuePay program.
Merchandise is shipped to customers via United Parcel Service and the
United States Postal Service, which generally results in delivery to the
customer within seven to ten days after an order is received. Both United
Parcel Service and the United States Postal Service pick up merchandise
directly at the Company's distribution centers. Orders are generally shipped
to customers within 48 hours after the order is placed.
The Company's Customer Service departments handle customer inquiries, most
of which consist of inquiries with respect to the status of pending orders or
returns of merchandise. The customer service representatives are on-line with
the Company's computerized order response and fulfillment systems. Being
on-line permits access to a customer's purchase history while on the phone with
the customer, thus enabling most inquiries and requests to be promptly
resolved. The Company considers its order entry, fulfillment and customer
service functions as particularly important functions positioned with open
capacity to enable it to accommodate future growth. The Company designs all
aspects of its infrastructure to meet the needs of the customer and to
accommodate future expansion.
The Company's television home shopping return policy allows a standard
30-day refund period for all customer purchases. Recently, the Company's return
rates on its television sales have been approximately 28%, which is slightly
higher than the reported industry average of approximately 24% to 26%.
Management attributes the higher return rate in part to the Video Shopping
Cart, as customers are more likely to order additional items on a trial basis
when using the Video Shopping Cart; higher than average unit price points of
approximately $85 in fiscal 1997 ($80 in fiscal 1996); and a higher mix of
gemstone jewelry items, which traditionally experience higher than average
return rates. Management believes that the higher return rate is acceptable,
given the higher net sales generated and the Company's ability to quickly
process returned merchandise at relatively low cost. Generally, the Company's
return policy for direct-mail operations allows unconditional return of
products. The return rate for the Company's direct-mail operations for fiscal
1997 was approximately 10% and the Company believes that this return rate is
comparable to industry averages.
F. COMPETITION
The direct marketing and retail businesses are highly competitive. In both
its television home shopping and direct-mail operations, the Company competes
for consumer expenditures with other forms of retail businesses, including
department, discount, warehouse and specialty stores, mail order and other
catalog companies and direct sellers.
The television home shopping industry is highly competitive and is
dominated by two companies, QVC Network, Inc. ("QVC") and Home Shopping
Network, Inc. ("HSN"). The Company believes that the home shopping industry is
attractive to consumers, cable companies, manufacturers and retailers. The
industry offers consumers convenience, value and entertainment, and offers
manufacturers and retailers an opportunity to test market new products,
increase brand awareness and access additional channels of distribution. The
Company believes the industry is well positioned to compete with other forms of
cable programming for cable air time, as home shopping networks compensate
cable television operators, whereas other forms of cable programming receive
compensation from cable operators for carriage. The Company competes for cable
distribution with all other programmers, including other television home
shopping networks such as QVC and HSN. The Company currently competes for
viewership and sales with QVC, HSN, or both companies, in virtually all of its
markets. The Company is at a competitive disadvantage in attracting viewers
due to the fact that the Company's programming is not carried full time in
approximately one-half of its markets, and that the Company may have less
desirable cable channels in many markets.
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The Company expects increasing competition for viewers/customers and for
experienced home shopping personnel from major cable systems, television
networks and retailers that may seek to enter television home shopping. The
Company will also compete to lease cable television time, to enter into cable
affiliation agreements, and to acquire full power broadcast television
stations. Entry and ultimate success in the television home shopping industry
is dependent upon several key factors, the most significant of which is
obtaining carriage on cable systems reaching an adequate number of subscribers.
The Company believes that the number of new entrants into the television home
shopping industry will continue to increase. The Company believes that it is
strategically positioned to compete because of its established relationships
with cable operators and its current intentions to acquire additional
television stations in the event that stations in strategic markets can be
acquired at favorable prices, however, no assurance can be given that the
Company will be able to acquire cable carriage or additional television
stations at prices favorable to the Company.
New technological and regulatory developments may also increase competition
and the Company's costs. In April 1997, the FCC adopted rules for digital
television ("DTV") that will allow full power television stations to broadcast
multiple channels of digital data simultaneously on the bandwidth presently
used by one normal analog channel. FCC rules will allow broadcasters to use
this additional capacity to provide new services, including home shopping,
video delivery and interactive data transfer. Every full power television
station now in operation will be assigned an additional channel on which to
broadcast DTV until analog transmissions are terminated. Station affiliates of
the four major networks in the top ten markets must be on the air with a DTV
signal by May 1, 1999; network affiliates in the top thirty markets must be on
the air by November 1, 1999. Two additional direct broadcast satellite ("DBS")
systems began service in 1996, bringing the total number of DBS providers to
four. At least three other companies have been issued licenses to provide DBS
service. About 4.5 million homes now subscribe to one of the DBS systems and
at least one DBS system has announced plans to begin providing local broadcast
signals. Finally, a number of telephone companies have also sought and
received FCC approval to provide video dialtone service and recent legislation
expands the opportunities for telephone companies to provide cable services.
See "Federal Regulation." These developments could have the effect of
increasing home shopping competitors to include firms with substantial
financial and technical ability.
Developing alternative technologies could in the future provide outlets for
increased competition to the Company's programming. In 1996, the FCC completed
auctions for authorizations to provide multichannel multipoint distribution
services ("MMDS"), also known as wireless cable. Approximately one million
subscribers now receive traditional video programming through MMDS. Local
multipoint distribution service ("LMDS"), another technology that allows
wireless transmission and reception of video or audio programming or other
data, may also compete with cable and traditional broadcast television in the
future. In 1997, the FCC will begin auctions for LMDS licenses; the FCC plans
to sell approximately 500 licenses nationwide. An additional potential
competing technology is interactive video data service ("IVDS"). IVDS will
enable viewers to order products and services on demand and will offer viewers
more programming choice and the ability to download information. Interactive
television data services will also compete generally with existing media for
viewers. Approximately 600 IVDS licenses were awarded by the FCC in 1993 and
1994. Almost all of these initial licensees are currently required to provide
service to 30% of their service area by March 1997 and to 50% of those areas by
March 1999; the FCC has eliminated the requirement that an IVDS licensee begin
service to 10% of its service area within one year from the issuance of the
license. An additional 856 licenses, filling out the remainder of the nation,
will be auctioned in 1997. A final, similar technology is instructional
television fixed service ("ITFS"). The FCC now allows the educational entities
that hold ITFS licenses to lease their "excess" capacity for commercial
purposes. The multichannel capacity of ITFS could be combined with either an
existing single channel MDS or a new MMDS to increase the number of available
channels offered by an individual operator.
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In its direct-mail operations, the Company competes with other major catalog
sales organizations, as well as retail specialty stores and conventional
retailers with substantial catalog operations and other discount retailers and
companies that market via computer technology. Management believes that the
Company is able to compete effectively by offering its customers a broad range
of quality merchandise at competitive or discount prices with a high degree of
convenience and reliability.
Many of the Company's competitors are larger and more diversified than the
Company, or have greater financial, marketing and merchandising and
distribution resources. Therefore, the Company cannot predict the degree of
success with which it will meet competition in the future.
G. NATIONAL MEDIA CORPORATION
In January 1994, the Company proposed an acquisition of National Media
Corporation ("National Media"). In February 1994, the Company announced a
tender offer for a majority of the outstanding shares of National Media. In
March 1994, the Company and National Media entered into a merger agreement and
the Company modified the terms of its tender offer. In April 1994, the Company
terminated its tender offer and the merger agreement with National Media based
upon inaccurate representations and breach of warranties by National Media, and
based upon adverse regulatory developments concerning National Media.
Litigation challenging the Company's termination of the tender offer and merger
agreement was subsequently filed by National Media and its former chief
executive officer and president. In addition, shareholders of National Media
filed four purported class action lawsuits against the Company and certain
officers of the Company. Each of these suits alleged deception and manipulative
practices by the Company in connection with the tender offer and merger
agreement.
In fiscal 1996, the Company, National Media and National Media's former
chief executive officer and president agreed to dismiss all claims, to enter
into joint operating agreements involving telemarketing and post-production
capabilities, and to enter into an international joint venture agreement.
Under the agreement, the Company received ten-year warrants, which vest over
three years, to purchase 500,000 shares of National Media's common stock at a
price of $8.865 per share. In November 1996, the Company and National Media
amended their agreement by providing for the additional payment by the Company
to National Media of $1.2 million as additional exercise price on the warrants.
An initial $400,000 was paid upon signing the amendment with two additional
annual installments of $400,000 to be paid on each of September 1, 1997 and
1998.
In March 1997, the court gave final approval to a $1.0 million settlement,
which was paid by the Company from insurance proceeds, in the matter of the
class action suits initiated by certain shareholders of National Media. See
"Legal Proceedings".
H. FEDERAL REGULATION
The cable television industry, the acquisition, ownership and operation of
full and low power television stations, and the broadcasting industry in
general are subject to extensive regulation by the FCC. The following does not
purport to be a complete summary of all of the provisions of the Communications
Act of 1934, as amended (the "Communications Act"), the Cable Television
Consumer Protection Act of 1992 (the "Cable Act"), the Telecommunications Act
of 1996 (the "Telecommunications Act") or the FCC rules or policies that may
affect the operations of the Company. Reference is made to the Communications
Act, the Cable Act, the Telecommunications Act and regulations and public
notices promulgated by the FCC for further information. The laws and
regulations affecting the industries are subject to change, including through
pending proposals. There can be no assurance that laws, rules or policies that
may have an adverse effect on the Company will not be enacted or promulgated at
some future date.
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Cable Television
The cable industry is regulated by the FCC under the Cable Act and FCC
regulations promulgated thereunder.
"Leased Access." Cable systems are generally required to make up to 15% of
their channel capacity available for lease by nonaffiliated programmers.
Little use has been made of leased access because of the prohibitively high
lease rates charged by cable systems. The Cable Act directs the FCC to
establish procedures to regulate the rates, terms and conditions of cable time
leases so as to encourage leased access.
The maximum leased access rates that cable systems may charge nonaffiliated
programmers such as the Company are unsettled because the rules governing
those rates have recently been amended and are subject to the filing of
petitions for reconsideration and judicial review. In May 1993, the FCC first
issued rules limiting leased access rates to the "highest implicit fee" of any
channel on a cable system, which was calculated by subtracting the license fee
the cable operator paid each programmer on the system to carry its channel from
the system's average subscriber charge for a channel and using the highest of
those differences. These rules often allowed cable operators to increase lease
rates and affected the Company's ability to gain carriage on some systems.
The FCC released its most recent revisions to these rules in February 1997.
These recent revisions adopted an "implicit fee" formula similar to the one
already in place. However, instead of capping lease rates at the "highest
implicit fee," the new rules capped rates at the "average implicit fee" for a
channel on a cable system, which is the difference between the average
subscriber charge for a channel and the average license fee the cable operator
pays to carry programming. The rules have changed the base of cable channels
on which the average is calculated in a way that makes it unclear whether or to
what extent the revised rules will affect the lease rates that the Company must
pay for carriage. The FCC also established rules governing the process of
negotiating for carriage, making other changes to the terms and conditions of
leased access carriage and making it easier for programmers like the Company to
lease channels for less than a full 24-hour day.
The Company has petitioned the U.S. Court of Appeals for the District
of Columbia Circuit for review of the rate formula portions of the recent
revisions to the rules. Both the Company's petition for review and a similar
petition are currently pending and the time for filing other petitions has not
yet expired. There can be no guarantee that the Company will succeed on its
petition for review or, if it does succeed, that the rules that the FCC would
adopt in place of the current formula would not have a material adverse effect
on the Company. Moreover, other parties may seek judical review in efforts to
obtain a pricing formula or part-day access rules less favorable to the
Company.
"Must Carry." In general, the FCC's current "must carry" rules under the
Cable Act entitle full power television stations to mandatory cable carriage of
their signals, at no charge, to all cable homes located within each station's
ADI provided that the signal is of adequate strength, and the cable system has
"must carry" designated channels available. In March 1997, the Supreme Court
upheld in their entirety the "must carry" provisions applicable to full power
television stations. The scope of "must carry" rights for future broadcast
transmissions of DTV stations is as yet uncertain. The FCC is expected to
begin a proceeding in 1997 to determine such rights. The FCC has been asked to
reevaluate its July 1993 extension of "must carry" rights to predominantly home
shopping television stations. It has yet to reverse that decision, but there
can be no assurance that home shopping television stations will continue to
have "must carry" rights. In addition, under the Cable Act, cable systems may
petition the FCC to determine that a station is ineligible for "must carry"
rights because of such station's lack of service to the community, its previous
noncarriage, or other factors. An important factor considered by the FCC in
its evaluation of such petitions is whether a given station places Grade B
coverage over the community in question. The unavailability of "must carry"
rights to the Company's existing or future stations would likely substantially
reduce the number of cable homes that could be reached by any full power
television station that the Company may acquire.
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The Company's ability to increase the cable distribution of its programming
will be adversely affected in the event of unfavorable judicial, regulatory or
administrative determinations of the validity and application of the "must
carry" and "leased access" provisions of the Cable Act and the FCC rules
promulgated thereunder. The Company believes, however, that even absent
favorable determinations regarding "must carry" and "leased access," it will
be able to achieve growth through other strategies such as affiliation
agreements, block leasing and broadcast television programming. However, no
assurance can be given that the Company will achieve sufficient growth through
such other strategies, or that cable systems will continue to carry television
stations that broadcast the Company's programming.
Closed Captioning. Pursuant to the requirements of the Telecommunications
Act of 1996, the FCC has proposed but not yet implemented regulations that
would require television stations, cable systems and other video programming
providers to phase in closed captioning for new programming over an eight-year
period, in order to make such programming accessible to the hearing impaired.
The FCC has tentatively determined not to exercise its discretion under the Act
to exempt home shopping programming from this requirement. If adopted, such
requirements could substantially increase the Company's television programming
expenses.
Full Power Television Stations
General. The Company's acquisition and operation of full power television
stations are subject to FCC regulation under the Communications Act. The
Communications Act prohibits the operation of television broadcasting stations
except under a license issued by the FCC. This statute empowers the FCC, among
other things, to issue, revoke and modify broadcasting licenses, determine the
locations of stations, regulate the equipment used by stations, adopt
regulations to carry out the provisions of the Communications Act and impose
penalties for violation of such regulations. Over-the-air coverage of full
power television stations assigned by the FCC to the UHF spectrum, such as the
stations that the Company has acquired, is significantly less extensive than
that of Very High Frequency ("VHF") stations.
FCC Approval of License Transfers. The Company's acquisition and sale of
full power television stations will be subject, in each case, to the prior
approval of the FCC. The Company has previously been found qualified by the FCC
to hold full power television and LPTV licenses, and the Company believes that
it should be found qualified to purchase additional full power television
stations. FCC approval, however, is also subject to other conditions, including
the filing of petitions to deny or other opposition by interested parties and,
accordingly, there can be no assurance of FCC approval.
License Grant and Renewal. The Communications Act provides that a broadcast
license may be granted to any qualified applicant if the public interest,
convenience and necessity will be served thereby, subject to certain
limitations. Under these recent changes, applications for renewal of a
broadcast license must be granted if during the preceding term the station has
served the public interest, convenience and necessity; committed no serious
violations of the Act or the FCC's regulations; and committed no other
violations that would constitute a pattern of abuse. If the licensee cannot
satisfy this test, the FCC may deny the renewal application (if there are no
mitigating circumstances) or grant it subject to terms and conditions,
including renewal for a shorter term. Competing applications for the license
at issue are to be accepted only if the FCC denies the renewal application.
The new FCC rules implementing the renewal provisions of the
Telecommunications Act as yet provide no clear standards for interpretation.
Subsidiaries of the Company hold licenses for two of the Company's full power
television stations: KVVV, Baytown, Texas, whose license expires August 1,
1998; and KBGE, Bellevue, Washington, whose license expires February 1, 1999.
The Company holds the license for WVVI, Manassas, Virginia, which expires
October 1, 2004. Television licenses are typically issued for a term of eight
years.
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Multiple Ownership. Under existing FCC regulations governing multiple
ownership of broadcast stations, a license to operate a television station will
not be granted, unless established waiver standards are met, to any party (or
parties under common control) that has an "attributable interest" in another
television station with an overlapping service area (as specified by FCC
regulations promulgated under the Communications Act). However, the
Telecommunications Act directs the FCC to conduct a rulemaking with regard to
maintaining, modifying, or eliminating local television cross-ownership limits.
The regulations also prohibit, with certain qualifications, any person or
entity from having an "attributable interest" in television stations that reach
markets containing more than 35% of the national television audience. Although
the calculation of national audience reach currently discounts the audience
reach of UHF stations, the FCC is presently reconsidering that approach. Any
entity that acquires stations in the interim and complies with the audience
reach limitation by virtue of the UHF discount will be subject to the outcome
of the foregoing reconsideration.
Additionally, the rules prohibit, with certain qualifications, anyone with
an "attributable interest" in a television station from also having an
"attributable interest" in a radio station, daily newspaper or cable television
system serving a community located within the relevant coverage area (as
specified by FCC regulations promulgated under the Communications Act) of that
station, and vice versa. However, the FCC plans to conduct a rulemaking to
consider modifying or eliminating the prohibition on common ownership of a
television station and a cable television system.
Under FCC regulations, the officers, directors and certain of the equity
owners of a television broadcasting company are deemed to have an "attributable
interest" in the company, so that there would be a violation of FCC regulations
if an officer, director or certain owners of a full power television
broadcasting company together held more than the permitted national audience
reach, or more than one broadcast station serving the same area, or a daily
newspaper or cable system in a television station coverage area. In the case of
a corporation controlling or operating television stations, there is generally
attribution only to directors and officers and to stockholders who own 5% or
more of the outstanding voting stock, except for institutional investors,
including mutual funds, insurance companies and banks acting in a fiduciary
capacity, which may own up to 10% of the outstanding voting stock without being
subject to attribution, provided that such stockholders exercise no control
over the management or policies of the television broadcasting company. The
FCC's multiple ownership restrictions currently do not apply to LPTV stations.
The FCC is currently proposing changes to certain aspects of its multiple
ownership and attribution rules. No prediction can be made as to the outcome
of these proposals. Moreover, the Telecommunications Act directs the FCC to
review all of its ownership rules as part of its biennial regulatory reform
review beginning in 1998 and to repeal or modify any regulations that are not
in the public interest.
Foreign Ownership. Foreign governments, representatives of foreign
governments, aliens, representatives of aliens, and corporations and
partnerships organized under the laws of a foreign nation are barred from
holding broadcast licenses. Aliens may own up to 20% of the capital stock of a
licensee corporation, or generally up to 25% of a U.S. corporation which, in
turn, has a controlling interest in a licensee.
Commercial and Other Limitations. The FCC has eliminated many of its former
rules applicable to commercial television stations in order to "deregulate"
broadcasting. Nonetheless, a commercial television station remains under an
obligation to provide non-entertainment programming that is responsive to
issues of concern to its community of license and to provide programming that
serves the informational and educational needs of children. The FCC reimposed
commercial limits on children's television programs, as required by the
Children's Television Act of 1990. In September 1993, the FCC initiated an
inquiry to determine whether to reimpose commercial limits on non-children's
programs on full power television stations including those that predominantly
broadcast home shopping programming (whether on an hourly, daily, weekly, or
some other basis). There can be no assurance as to the outcome of this inquiry.
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<PAGE> 19
Low Power Television Stations
Ownership and operation of LPTV stations are subject to FCC licensing
requirements similar to those applicable to full power television stations.
LPTV stations, however, are generally not eligible for "must carry" rights.
Like full power stations, the transfer of ownership of any LPTV station license
requires prior approval by the FCC. LPTV construction permits are granted by
the FCC for an initial term of 18 months, which may be extended for one or more
six-month terms if there is substantial progress towards station construction
unless completion of the station is prevented by causes not under the control
of the permittee. LPTV licenses are typically issued for terms of eight years.
LPTV is a secondary broadcast service that is not permitted to interfere
with the broadcast signal of any existing or future full power television
station. Construction of a full power television station on the same channel
in the same region could therefore force a LPTV station off the air if such
interference is not corrected, subject to a right to apply for a replacement
channel. LPTV stations must also accept interference from existing and future
full power television stations.
The advent of DTV is expected to disrupt the operations of the Company's
LPTV stations to an as-yet unknown extent. The DTV proceedings will allocate an
additional channel to be used for DTV to every eligible full power television
station in the nation, effectively doubling the number of channels currently
used by full power television stations during the transition period between
analog and digital transmissions. A number of these new DTV stations have been
allocated to channels currently used by LPTV stations. Construction of these
newly authorized DTV stations will therefore force many LPTV stations off the
air unless they can find substitute channels. It is not known at this time
whether all or some of these "displaced" LPTV stations will be able to modify
their broadcast channel and continue operations.
Alternative Technologies
Alternative technologies could increase the types of systems on which the
Company may seek carriage. Four DBS systems currently provide service to the
public and three additional companies currently hold licenses to provide DBS
services. The number of DBS subscribers more than doubled in 1996 to
approximately 4.5 million households. Wireless cable systems, also known as
MMDS systems, continue to grow, although at a somewhat slower rate than DBS.
Approximately one million households now subscribe to MMDS services, which now
provide traditional video programming and are beginning to provide advanced
data transmission services. The FCC has now completed auctions for MMDS
licenses throughout the nation. Similar programming and data transmission
service can be offered by IVDS providers. The FCC awarded roughly 600 licenses
in 1993 and 1994 and plans to auction off licenses for the remainder of the
nation in 1997. LMDS is another technology that allows wireless transmission
and reception of video or audio programming or other data; one LMDS system is
presently operational in the New York area and the FCC plans to begin auctions
for approximately 500 LMDS licenses in 1997. Similar service can be offered by
instructional television fixed service ("ITFS"). The FCC now allows the
educational entities that hold ITFS licenses to lease their "excess" capacity
for commercial purposes. The multichannel capacity of ITFS could be combined
with either an existing single channel MDS or a new MMDS to increase the number
of available channels offered by an individual operator. Lastly, the emergence
of home satellite dish antennas has also made it possible for individuals to
receive a host of video programming options via satellite transmission.
Advanced Television Systems
Technological developments in television transmission will in the near
future make it possible for the broadcast and nonbroadcast media to provide
advanced television services ("ATV") -- television services provided using
digital or other advanced technologies. The FCC in late 1996 approved a DTV
technical standard to be used by television broadcasters, television set
manufacturers, the computer industry and the motion picture industry. This DTV
standard will allow the simultaneous transmission of multiple streams of
19
<PAGE> 20
digital data on the bandwidth presently used by a normal analog channel. It
will be possible to broadcast one "high definition" channel ("HDTV") with
visual and sound quality superior to present-day television or several
"standard definition" channels ("SDTV") with digital sound and pictures of a
quality slightly better than present television; to provide interactive data
services, including visual or audio transmission, on multiple channels
simultaneously; or to provide some combination of these possibilities on the
multiple channels allowed by DTV.
In April 1997, the FCC announced that it would allocate to every existing
television broadcaster one additional channel to be used for DTV during the
transition between present-day analog television and DTV. Broadcasters will
not be required to pay for this new DTV channel, but will be required to
relinquish their present analog channel when the transition to DTV is complete.
The FCC presently plans for the transition period to end by 2006; broadcasters
will at that time be required to return their present channel to the FCC.
Station affiliates of the four major networks in the top ten markets must be on
the air with a DTV signal by May 1, 1999; network affiliates in the top thirty
markets must be on the air by November 1, 1999. The FCC currently is expected
to begin to issue construction permits to build DTV stations in 1997.
The FCC has recently issued regulations with respect to DTV allocations and
interference criteria which are not yet final, and other aspects of the DTV
regulatory framework have not yet been established. The FCC is expected to
apply to DTV the rules applicable to analogous services in other contexts,
including those rules that require broadcasters to serve the public interest
and may seek to impose additional programming or other requirements on DTV
service. While broadcasters will not have to pay for the additional DTV
channel itself, the FCC has indicated that fees will likely be imposed upon
broadcasters if they choose to use the DTV channel to provide paid subscription
services to the public. As noted above, neither the Telecommunications Act nor
the recent Supreme Court decision resolves the applicability of the "must
carry" rules to DTV; the FCC will begin proceedings in 1997 on this issue.
It is not yet clear when and to what extent DTV or other digital technology
will become available through the various media; whether and how television
broadcast stations will be able to avail themselves or profit by the
transmission to DTV; how channel, tower height and power assignments will be
configured so as to allow that transition; the extent of any potential
interference with analog channels; whether viewing audiences will make choices
among services upon the basis of such differences; whether and how quickly the
viewing public will embrace the cost of the new digital television sets and
monitors; to what extent the DTV standard will be compatible with the digital
standards adopted by cable, DBS, MMDS, LMDS, IVDS, or ITFS; or whether
significant additional expensive equipment will be required for television
stations to provide digital service, including HDTV and supplemental or
ancillary data transmission services. Pursuant to the Telecommunications Act,
the FCC must conduct a ten-year evaluation regarding public interest in
advanced television, alternative uses for the spectrum and reduction of the
amount of spectrum each licensee utilizes. Many segments of the industry are
also intensely studying these advanced technologies. There can be no
assurances as to the answers to these questions or the nature of future FCC
regulation.
Telephone Companies' Provision of Programming Services
The Telecommunications Act eliminated the previous statutory restriction
forbidding the common ownership of a cable system and telephone company. The
extent of the regulatory obligations that the Telecommunications Act imposes on
a telephone company that selects and provides video programming services to
subscribers depends essentially upon whether the telephone company elects to
provide its programming over an "open video system" or to do so as a cable
operator fully subject to the existing provisions of the Communications Act
regulating cable providers. A telephone company that provides programming over
an open video system will be subject only to new legislative provisions
governing open video systems and to certain specified existing cable provisions
of the Communications Act, including requirements equivalent to the "must
carry" regulations. Such a telephone company will be required to lease
capacity to unaffiliated programmers on a nondiscriminatory basis and may not
select the video programming services for carriage on more than one-third of
activated channel capacity of the system. Generally, a telephone company that
provides video programming but does not operate over an open video platform
will be regulated as a cable operator.
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<PAGE> 21
The Company cannot predict how many telephone companies will begin
operation of open video systems or otherwise seek to provide video programming
services, or whether such video providers will be likely to carry the Company's
programming. The FCC has adopted rules that impose on open video systems many
of the obligations imposed upon cable systems, including those pertaining to
"must carry" and retransmission consent. However, open video systems are not
subject to rate regulation and are exempt from local cable franchise
requirements. These rules are still subject to judicial review. The FCC has
certified three OVS systems for operation. Moreover, a number of local carriers
are continuing to plan to provide video programming as traditional cable systems
or through MMDS.
I. SEASONALITY
The Company's businesses are subject to seasonal fluctuation, with the
highest sales activity normally occurring during the fourth calendar quarter of
the year. Seasonal fluctuation in demand is generally associated with the
number of households using television and the direct market and retail
industries. In addition, the Company's businesses are sensitive to general
economic conditions and business conditions affecting consumer spending.
J. EMPLOYEES
At January 31, 1997, the Company, including its wholly-owned subsidiaries,
had approximately 1,200 employees, the majority of whom are employed in
telemarketing, customer service, order fulfillment and production.
Approximately 32% of the Company's employees work part-time. The Company is
not a party to any collective bargaining agreement with respect to its
employees. Management considers its employee relations to be good.
K. FORWARD-LOOKING INFORMATION
Forward-looking statements contained herein (as well as statements made in
oral presentations or other written statements made by the Company) are made
pursuant to the "Safe Harbor" provisions of the Private Securities Litigation
Reform Act of 1995 and represent management's expectations or beliefs
concerning future events, including statements regarding anticipated operating
results, revenue growth, capital spending requirements, potential future
acquisitions and the effects of regulation and competition. There are certain
important factors that could cause results to differ materially from those
anticipated by some of the statements made herein. Investors are cautioned
that all forward-looking statements involve risks and uncertainty. The
factors, among others, that could cause actual results to differ materially
include: consumer spending and debt levels, interest rate fluctuations,
seasonal variations in consumer purchasing activities, increases in postal,
paper and outbound shipping costs, competition in the retail and direct
marketing industries, continuity of relationships with or purchases from major
vendors, product mix, competitive pressure on sales and pricing, the ability of
the Company to manage growth, changes in the regulatory framework affecting the
Company, increases in cable access fees and other costs which cannot be
recovered through improved pricing and the identification and availability of
potential acquisition targets at prices favorable to the Company. Investors
are cautioned that all forward-looking statements involve risk and uncertainty.
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<PAGE> 22
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the names, ages and titles at ValueVision International,
Inc., principal occupations and employment for the past five years of the
persons serving as executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION(S) HELD
- -------------------- ------ ---------------------------------------------------------------------
<S> <C> <C>
Robert L. Johander 51 Chairman of the Board and Chief Executive Officer
Nicholas M. Jaksich 52 President, Chief Operating Officer and Director
Edward A. Karr 49 Executive Vice President, Merchandising and Programming
Stuart R. Romenesko 34 Senior Vice President Finance, Chief Financial Officer, Treasurer and
Assistant Secretary
David T. Quinby 36 Vice President, General Counsel and Secretary
Michael L. Jones 39 Vice President, Television Broadcasting
Gary G. Kazmer 39 Vice President, Warehouse and Telemarketing Operations
Scott A. Lindquist 50 Vice President, Administration
</TABLE>
Robert L. Johander, a founder of the Company, has served as Chairman of the
Board and Chief Executive Officer of the Company since June 1990. Mr.
Johander's experience in television home shopping began in 1984 as president of
Telethon Marketing Company, where he was responsible for the creation,
production, and management of national cable television home shopping programs,
which were subsequently acquired by C.O.M.B. Co. ("C.O.M.B."), a
Minneapolis-based mail-order liquidator of consumer merchandise. In early
1986, Mr. Johander, as General Manager of C.O.M.B.'s Value Network, conceived
and managed the launch of Cable Value Network, Inc., a joint-venture television
home shopping network formed by C.O.M.B. and several national cable television
system operators. In 1987, C.O.M.B. changed its name to CVN Companies, Inc.
("CVN"), which was subsequently acquired by QVC Network, Inc.
Nicholas M. Jaksich, a founder of the Company, has served as President and
Chief Operating Officer and as a director of the Company since June 1990. From
February 1984 to June 1986, Mr. Jaksich was Vice President, Distribution and
Operations for Lillian Vernon Corporation, a national direct-mail merchandising
firm. In July 1986, Mr. Jaksich joined C.O.M.B. to assist in the launch of its
television activities. His responsibilities included the direct day-to-day
supervision of television production and merchandising activities; the
development of various television order response, inventory, and sales tracking
systems, and supervision of on-air hosts. In 1987, Mr. Jaksich succeeded Mr.
Johander as divisional Senior Vice President of CVN-Television, a division of
CVN.
Edward A. Karr has served as the Company's Executive Vice President,
Merchandising and Programming since July 1993. Mr. Karr served as the Senior
Vice President of Sales and Marketing for Ravel Inc., a manufacturer of gold
jewelry from June 1992 to July 1993. Mr. Karr was the Senior Vice President of
Merchandising for QVC from March 1989 to June 1992, and prior to that was the
Vice President of Merchandising for QVC from March 1987 to March 1989.
Stuart R. Romenesko has served the Company as Senior Vice President
Finance, Chief Financial Officer, Treasurer and Assistant Secretary since
August 1995. Mr. Romenesko joined the Company in March 1994 as Vice President,
Chief Accounting Officer. From December 1991 to March 1994, Mr. Romenesko, a
Certified Public Accountant, was a Senior Manager in the Accounting and Audit
Division of Shinners, Hucovski & Company, S.C. From July 1985 to November
1991, Mr. Romenesko served in a variety of capacities at Arthur Andersen LLP,
an international accounting firm, leaving in 1991 as an experienced manager in
the firm's Audit and Business Advisory Practice.
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<PAGE> 23
David T. Quinby joined the Company as Vice President, General Counsel and
Secretary in February 1997. From May 1993 to February 1997, Mr. Quinby was an
associate at the law firm of Maslon Edelman Borman & Brand PLLP. From August
1990 to May 1993, Mr. Quinby was an an associate at the law firm of Faegre &
Benson, LLP. Mr. Quinby is a 1990 graduate of the University of Minnesota Law
School. From August 1983 to August 1987, Mr. Quinby, a Certified Public
Accountant, served in a variety of capacities at Arthur Anderson LLP, in the
firm's Audit and Business Advisory Practice.
Michael L. Jones joined the Company as Vice President, Television
Broadcasting in September 1993. From September 1992 to July 1993, Mr. Jones
served as Vice President, Broadcasting of Corridor Broadcast. From October 1990
to September 1992, Mr. Jones served as Vice President and General Sales Manager
of WDAS AM/FM in Philadelphia.
Gary G. Kazmer has served as the Company's Vice President, Warehouse and
Telemarketing Operations since June 1994. Prior to joining the Company, Mr.
Kazmer served in various management positions with QVC Network, Inc. from
November 1988 through May 1994, most recently as Director of Engineering and
Facilities. Prior to joining QVC Network, Inc., Mr. Kazmer was involved in
various operational positions at The Franklin Mint's Distribution Center,
Portion Packaging, Inc. and Union Carbide Corporation.
Scott A. Lindquist has served as the Company's Vice President,
Administration since November 1995. Prior to joining the Company, Mr.
Lindquist served as County Assessor for St. Louis County, Minnesota, from May
1984 to November 1995.
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<PAGE> 24
ITEM 2. PROPERTIES
The Company leases approximately 139,000 square feet of space in Eden
Prairie, Minnesota (a suburb of Minneapolis), which includes all corporate
administrative, television production, telemarketing, customer service and
television warehouse operations. During fiscal 1997, the Company purchased a
262,000 square foot distribution facility on a 34 acre parcel of land in
Bowling Green, Kentucky which is being used primarily in connection with the
fulfillment operations of MWD. The Company also purchased approximately 34
acres of land in Eden Prairie, Minneapolis during fiscal 1997 which is being
held for future expansion and investment purposes. The Company leases
approximately 96,000 square feet of office and warehouse space in Chelmsford,
Massachusetts (a suburb of Boston) and approximately 1,500 square feet of
office space in Tempe, Arizona in connection with the direct-mail operations of
CVI and BII, respectively. In connection with the operation of WVVI- Manassas,
Virginia, the Company owns property which is used as general office and studio
locations. Additionally, the Company rents transmitter site and studio
locations used to transmit programming for KVVV and KBGE. The Company believes
that its existing facilities are adequate to meet its current needs and that
suitable additional or alternative space will be available as needed to
accommodate expansion of operations.
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<PAGE> 25
ITEM 3. LEGAL PROCEEDINGS
In January 1994, the Company proposed an acquisition of National Media
Corporation ("National Media"). In February 1994, the Company announced a
tender offer for a majority of the outstanding shares of National Media. In
March 1994, the Company and National Media entered into a merger agreement and
the Company modified the terms of its tender offer. In April 1994, the Company
terminated its tender offer and the merger agreement with National Media based
upon inaccurate representations and breach of warranties by National Media and
based upon adverse regulatory developments concerning National Media.
Litigation challenging the Company's termination of the tender offer and merger
agreement was subsequently filed by National Media and its former chief
executive officer and president. In addition, shareholders of National Media
filed four purported class action lawsuits against the Company and certain
officers of the Company, one in Minnesota and three in Pennsylvania. The suit
brought in Minnesota was subsequently transferred to Pennsylvania, and all four
suits were consolidated. Each of these suits alleged deception and
manipulative practices by the Company in connection with the tender offer and
merger agreement. The Company was initially named, but subsequently dropped as
a named defendant in two purported class action suits brought on behalf of
National Media shareholders in Delaware Chancery Court.
1. National Media Corporation and John J. Turchi, Jr. v. ValueVision
International, Inc., et al. (U.S. District Court, E.D. Pa. C.A.
No. 94-CV-2500). In a complaint filed on April 22, 1994, and amended on
May 17, 1994, National Media and its chief executive officer and president
alleged, on the theory that the Company was not entitled to terminate its
tender offer and merger agreement, breach of contract and deceptive
practices by the Company in violation of Section 14(e) of the Securities
Exchange Act of 1934, as amended ("Exchange Act").
The amended complaint further alleged that the Company concealed alleged
difficulties in obtaining financing for the tender offer, failed to use
its best efforts to obtain financing, and misrepresented the Company's
reasons for terminating the tender offer and merger agreement. The amended
complaint sought in excess of $25 million in compensatory damages,
including payment of $7 million under certain termination provisions in the
merger agreement, as well as punitive damages. On May 26, 1994, the Company
responded to the amended complaint, and filed a counterclaim seeking
damages in excess of $10 million. On April 17, 1995, the parties reached a
tentative settlement of this litigation. On August 30, 1995, the
settlement was approved by a majority of the shareholders of National
Media. In addition, pursuant to such agreement, National Media granted
ValueVision Warrants to purchase certain additional shares of National
Media stock. In November 1996, the Company and National Media amended
their agreements by providing for the additional payment by the Company to
National Media of $1.2 million as additional exercise price on these
warrants. An initial $400,000 was paid upon signing the amendment with two
additional annual installments of $400,000 to be paid on each of September
1, 1997 and 1998.
2. Efron v. ValueVision International, Inc., et al. (U.S. District Court, E.D.
Pa. C.A. No. 94-CV-4766); Kalodner v. ValueVision International, Inc., et
al. (U.S. District Court, E.D. Pa. C.A. No. 94-CV-2838); Uhr v. Robert L.
Johander, ValueVision International, Inc., et al. (U.S. District Court,
E.D. Pa. C.A. No. 94-CV-3269); Hochman v. ValueVision International, Inc.,
et al. (U.S. District Court, E.D. Pa. C.A. No. 94-CV-4051). In these four
actions, plaintiffs purportedly representing classes of purchasers and
tenderers of National Media stock alleged violations of Section 10(b) of
the Exchange Act and Rule 10b-5 promulgated thereunder, and of Sections
14(e) and 20 of the Exchange Act. By stipulation of the parties, on
October 27, 1994 these cases were consolidated in In Re ValueVision
International Inc. Securities Litigation, Master File No. 94-CV-2838.
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<PAGE> 26
The amended consolidated complaint alleged that the Company failed to
adequately disclose "that it would be unwilling and/or unable to raise the
funds necessary for the Offer if interest rates rose," and "falsely
represented" that "it would use its reasonable best efforts to take or
cause to be taken all actions to consummate the Offer." The complaint
sought unspecified damages. In March 1997, the court gave final approval
to a $1.0 million settlement in this matter, which was paid by the Company
from insurance proceeds.
The Company is not a party to any other material legal proceeding.
26
<PAGE> 27
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to shareholders during the fourth quarter ended
January 31, 1997.
27
<PAGE> 28
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED SHAREHOLDER MATTERS
MARKET INFORMATION FOR COMMON STOCK
The Company's common stock symbol is "VVTV" and is traded on the Nasdaq
National Market tier of the Nasdaq Stock Market. The following table sets
forth the range of high and low sales prices of the common stock as quoted by
the Nasdaq Stock Market for the periods indicated.
<TABLE>
<CAPTION>
HIGH LOW
-------- --------
<S> <C> <C>
FISCAL 1996
First Quarter $6 3/8 $4 7/16
Second Quarter 6 1/16 3 7/8
Third Quarter 7 5/16 4 3/4
Fourth Quarter 6 3/8 4 3/4
FISCAL 1997
First Quarter 8 9/16 5 5/8
Second Quarter 8 1/2 5 3/8
Third Quarter 6 7/16 5 3/8
Fourth Quarter 5 7/8 4 5/8
</TABLE>
HOLDERS
As of April 21, 1997, the Company had approximately 561 shareholders of
record.
DIVIDENDS
The Company has never declared or paid any dividends with respect to its
capital stock. The Company currently expects to retain its earnings for the
development and expansion of its business and does not anticipate paying cash
dividends in the foreseeable future. Any future determination by the Company to
pay cash dividends will be at the discretion of the Board of Directors of the
Company and will be dependent upon the Company's results of operations,
financial condition, any contractual restrictions then existing, and other
factors deemed relevant at the time by the Board of Directors.
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<PAGE> 29
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data presented below under the captions "Statement
of Operations Data" and "Balance Sheet Data" as of and for each of the years in
the five-year period ended January 31, 1997 are derived from the financial
statements of the Company. The selected financial data presented below are
qualified in their entirety by, and should be read in conjunction with, the
financial statements and notes thereto and other financial and statistical
information referenced elsewhere herein including the information referenced
under the caption "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
-----------------------------------------------------------------------------
1997(a) 1996 1995 1994 1993
------------ ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales $159,477,917 $ 88,909,853 $ 53,930,847 $ 37,614,497 $ 14,545,194
Gross margin percentage 42.2% 41.2% 41.6% 38.8% 39.7%
Operating loss (2,639,784) (766,157) (3,712,364) (1,745,307) (1,633,060)
Income (loss) before income taxes
and extraordinary item 29,689,722 11,119,565 (6,104,095) (1,413,775) (1,670,798)
Net income (loss) 18,089,722 11,019,565 (6,104,095) (1,925,084) (1,670,798)
Net income (loss) per share $ 0.57 $ 0.38 $ (0.22) $ (0.12) $ (0.23)
Weighted average shares outstanding 31,984,463 28,627,356 27,264,856 15,400,289 7,158,833
</TABLE>
<TABLE>
<CAPTION>
JANUARY 31,
-----------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------ ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and short-term investments $ 52,858,783 $ 46,451,327 $ 26,659,475 $ 48,382,401 $ 851,565
Working capital 61,631,478 52,085,060 29,121,909 50,151,583 86,950
Current ratio 2.6 4.9 3.9 7.7 1.0
Total assets 166,412,670 117,269,217 77,503,889 77,698,340 4,777,294
Long-term obligations 1,443,189 447,430 577,930 147,004 321,904
Shareholders' equity 127,245,607 103,303,139 66,802,024 70,018,430 1,178,328
</TABLE>
(a) Results of operations for the year ended January 31, 1997, included the
operations of Montgomery Ward Direct, Beautiful Images, Inc. and Catalog
Ventures, Inc. which were acquired by the Company in the second half of
fiscal 1997.
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<PAGE> 30
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The following discussion and analysis of financial condition and results
of operations are qualified by reference to and should be read in conjunction
with the financial statements and notes thereto included elsewhere herein.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations and other materials filed by the Company with the
Securities and Exchange Commission (as well as information included in oral
statements or other written statements made or to be made by the Company)
contains various "forward looking statements" within the meaning of federal
securities laws which represent management's expectations or beliefs concerning
future events, including statements regarding anticipated operating results,
revenue growth, capital spending requirements, potential future acquisitions
and the effects of regulation and competition. These, and other forward
looking statements made by the Company, must be evaluated in the context of a
number of important factors that may effect the Company's financial position
and results of operations including: consumer spending and debt levels,
interest rate fluctuations, seasonal variations in consumer purchasing
activities, increases in postal, paper and outbound shipping costs, competition
in the retail and direct marketing industries, continuity of relationships with
or purchases from major vendors, product mix, competitive pressure on sales and
pricing, the ability of the Company to manage growth and expansion, changes in
the regulatory framework affecting the Company, increases in cable access fees
and other costs which cannot be recovered through improved pricing and the
identification and availability of potential acquisition targets at prices
favorable to the Company. Investors are cautioned that all forward looking
statements involve risk and uncertainty.
ACQUISITIONS AND DISPOSITIONS
MONTGOMERY WARD DIRECT CATALOG OPERATIONS
Effective July 27, 1996, the Company acquired substantially all of the
assets and assumed certain obligations of Montgomery Ward Direct, L.P. ("MWD"),
a four year old catalog business, by issuing 1,484,993 vested warrants with an
exercise price of $.01 per share, to Montgomery Ward & Co., Incorporated
("Montgomery Ward") as full consideration for the acquisition of approximately
$4.7 million in net assets of MWD.
The Company's acquisition of MWD was made through ValueVision Direct
Marketing Company, Inc. ("VVDM") for an aggregate purchase price of $8,497,000,
which included acquired cash of $5,764,000 and acquisition costs of $144,000.
The acquisition was accounted for using the purchase method of accounting and
accordingly, the net assets of MWD were recorded at their estimated fair values
based upon a preliminary allocation of the purchase price to such net assets.
The preliminary purchase price allocations are subject to change upon receipt
of additional information relative to asset and liability valuations.
Therefore, the final allocation may differ from the preliminary allocation.
The excess of the purchase price over the net assets acquired was
$4,531,000 and has been recorded as goodwill and other intangible assets and is
being amortized on a straight-line basis over 5-12 years. The operating
results of MWD have been included in the fiscal 1997 consolidated statement of
operations from the date of acquisition. Unaudited pro forma consolidated net
sales of the Company for the years ended January 31, 1997 and 1996, as if the
acquisition had occurred as of the beginning of the respective periods, were
$194,284,000 and $240,850,000 respectively. Unaudited pro forma net income was
$17,151,000, or $.52 per share, in fiscal 1997 and $4,341,000, or $.14 per
share, in fiscal 1996. Such pro forma amounts are not necessarily indicative
of what the
30
<PAGE> 31
actual consolidated results of operations would have been had the acquisition
been effective at the beginning of the respective periods.
BEAUTIFUL IMAGES, INC.
On October 22, 1996, the Company, through VVDM, acquired all of the
outstanding shares of Beautiful Images, Inc. ("BII"), a manufacturer and direct
marketer of women's foundation undergarments. The Company paid $4,253,000 in
cash, which included acquired cash of $423,000, $500,000 relating to a
non-compete agreement and acquisition costs of approximately $75,000, and
assumed certain obligations totaling $109,000. The acquisition was accounted
for using the purchase method of accounting and, accordingly, the purchase
price was allocated to the assets purchased and the liabilities assumed based
upon estimated fair values at the date of acquisition. The excess of the
purchase price over the fair values of the net assets acquired was $3,310,000,
of which $2,810,000 has been recorded as goodwill, which is being amortized on
a straight-line basis over 15 years and $500,000 has been assigned to the
non-compete agreement, which is being amortized on a straight-line basis over
the 6 year term of the agreement. The operating results of BII have been
included in the fiscal 1997 consolidated statement of operations from the date
of acquisition. Pro forma results of operations have not been presented
because the effects were not significant.
CATALOG VENTURES, INC.
Effective November 1, 1996, the Company, through VVDM, acquired
substantially all of the assets and assumed certain obligations of Catalog
Ventures, Inc. and Mitchell & Webb, Inc. (collectively "CVI"), two direct
marketing companies which together publish five consumer specialty catalogs.
The Company paid $7,369,000 in cash which included acquired cash of $1,465,000
and acquisition costs of approximately $100,000. The acquisition was accounted
for using the purchase method of accounting and accordingly, the purchase price
was allocated to the assets purchased and liabilities assumed based upon
estimated fair values at the date of acquisition. The excess of the purchase
price over the fair values of the net assets acquired was $1,953,000, and has
been recorded as goodwill, which is being amortized on a straight-line basis
over 15 years. The operating results of CVI have been included in the fiscal
1997 consolidated statement of operations from the date of acquisition. Pro
forma results of operations have not been presented because the effects were
not significant.
ACQUISITION OF BROADCAST STATIONS
During the first quarter of fiscal 1995, the Company completed the
acquisitions of three full power television broadcast stations serving the
Washington, D.C. ("WVVI"); Houston, Texas ("KVVV"); and Cleveland - Akron, Ohio
("WAKC") Areas of Dominant Influence ("ADI"). On December 28, 1994 the Company
completed the acquisition of a full power television broadcast station serving
the New York City ADI and licensed to Bridgeport, Connecticut ("WHAI"). The
aggregate purchase price for the four stations was approximately $22.4 million
in cash, Company common stock and non-compete obligations. The acquisitions
were accounted for under the purchase method of accounting. Accordingly, the
net assets of the four stations were recorded at their estimated values at the
time of acquisition, as determined by independent appraisals.
On March 15, 1996, the Company completed the acquisition of independent
television station KBGE (TV), Channel 33, serving the Seattle-Tacoma,
Washington market, for approximately $4.6 million including the assumption of
certain debt obligations and acquisition related costs. This acquisition was
completed in accordance with the terms of a five-year programming affiliation
and financing agreement with the station which was signed on July 21, 1995.
Pursuant to this agreement, the Company provided financing of up to
$1,450,000 related to a working capital loan for channel operations.
31
<PAGE> 32
On April 11, 1996, the Company completed a second closing with respect to
its acquisition of independent television station WVVI (TV), Channel 66,
serving the Washington, D.C. market whereby the Company paid $800,000 to the
former owner of WVVI (TV) as a final payment in exchange for not having to pay
$1,600,000 in the event the "must carry" provisions of the Cable Act are upheld
by a final decision. The Company had previously paid $4,050,000 to National
Capital Christian Broadcasting, WVVI's former owners, at an initial closing on
March 28, 1994. The $800,000 additional payment has been classified as excess
purchase price and is being amortized over 25 years on a straight-line basis.
In addition, the Company received certain studio and production equipment from
the former owner of WVVI, in lieu of a cash payment, for the balance
outstanding under a secured convertible debenture in the face amount of
$450,000.
On March 31, 1997, the United States Supreme Court upheld the "must carry"
provisions of the 1992 Cable Act. Assuming there is no petition for a
rehearing, and the decision becomes final, the Company will be obligated to pay
an additional $1,600,000 for the Houston, Texas station upon a second closing.
In lieu of paying $1,600,000 in cash, the Company may issue that number of
shares of common stock having a market value of $2,000,000 on the date of the
second closing. The additional payment, when made, will be classified as
unallocated excess purchase price and amortized over 25 years on a
straight-line basis.
SALE OF BROADCAST STATIONS
On February 28, 1996, the Company completed the sale of two television
stations to Paxson Communications Corporation ("Paxson") for $40.0 million in
cash plus the assumption of certain obligations. The stations sold were ABC
affiliate WAKC (TV), Channel 23, licensed to Akron, Ohio, and independent
station WHAI (TV), Channel 43, licensed to Bridgeport, Connecticut. WAKC (TV)
was acquired by the Company in April 1994 for approximately $6.0 million and
WHAI (TV) was acquired by the Company in December 1994 for approximately $7.3
million. The net gain on the sale of these two television stations of
approximately $27 million was recognized in the quarter ended April 30, 1996.
On November 22, 1996, the Company announced that an agreement had been
reached with Paxson for the sale of its television broadcast station, WVVI
(TV), Channel 66, which serves the Washington, D.C. market, for approximately
$30 million. Under the terms of the agreement, Paxson will pay the Company $20
million in cash and $10 million in Paxson common stock valued at the average
closing price during the 60-day period following the signing of the agreement.
As part of the agreement, Paxson will be required to pay an additional $10
million to the Company as a result of the United States Supreme Court upholding
the "must carry" provision of the 1992 Cable Act. WVVI (TV) carries the
Company's television home shopping programming and was acquired by the Company
in March 1994 for $4,850,000. The transaction is anticipated to close by the
end of the second quarter of fiscal 1998. The effects of the disposition will
be reflected in the financial statements at the date of closing. Management
believes that the sale will not have a significant impact on the operations of
the Company.
32
<PAGE> 33
RESULTS OF OPERATIONS
Results of operations for the year ended January 31, 1997 include the
direct-mail operations of MWD effective July 27, 1996, BII effective October
31, 1996 and CVI effective November 1, 1996, which were acquired by the Company
in fiscal 1997.
The following table sets forth, for the periods indicated, certain
statement of operations data expressed as a percentage of net sales.
<TABLE>
<CAPTION>
Year Ended January 31,
---------------------------
1997 1996 1995
------ ------- --------
<S> <C> <C> <C>
NET SALES 100.0% 100.0% 100.0%
====== ====== ======
GROSS MARGIN 42.2% 41.2% 41.6%
----- ----- -----
OPERATING EXPENSES:
Distribution and selling 35.6% 31.7% 36.4%
General and administrative 4.5% 5.0% 7.9%
Depreciation and amortization 3.8% 5.4% 4.2%
----- ----- -----
Total operating expenses 43.9% 42.1% 48.5%
----- ----- -----
OPERATING LOSS (1.7)% (.9)% (6.9)%
Other income (expense), net 20.3% 13.4% (4.4)%
----- ----- -------
INCOME (LOSS) BEFORE INCOME TAXES 18.6% 12.5% (11.3)%
Income taxes (7.3)% (.1)% -%
----- ----- -------
NET INCOME (LOSS) 11.3% 12.4% (11.3)%
===== ===== =======
</TABLE>
NET SALES
Net sales for the year ended January 31, 1997 (fiscal 1997), were
$159,478,000 compared to $88,910,000 for the year ended January 31, 1996
(fiscal 1996), a 79.4% increase. The increase in net sales is primarily
attributed to revenues associated with the Company's newly acquired direct
marketing businesses, primarily MWD. Sales attributed to direct marketing
operations totaled $60,059,000 or 37.7% of total net sales for the year ended
January 31, 1997. The increase in net sales is also attributable to the
increase in full-time equivalent cable homes able to receive the Company's
television home shopping programming, which increased approximately 900,000 or
8.6% from January 31, 1996 to January 31, 1997. During fiscal 1997, the
Company added approximately 500,000 full-time cable homes, a 6.9% increase. In
addition to new homes, sales increased due to the continued addition of new
customers from households already receiving the Company's television home
shopping programming, offset by a slight decline in repeat sales to existing
customers. The slight decline in repeat sales to existing customers
experienced in fiscal 1997 was due, in part, to the effects of continued
testing of certain merchandising and programming strategies in the latter part
of the first and third quarters of fiscal 1997. Certain changes were made to
the Company's merchandising and programming strategies in the latter part of
the first and second quarters, which contributed to an improvement in sales.
The Company intends to continue to test and change its merchandising and
programming strategies with the intent of improving its television home
shopping sales results. However, while the Company is optimistic that results
will continue to improve, there can be no assurance that such changes in
strategy will achieve intended results. As a result of the increased number of
households able to receive the Company's programming and the recent direct-mail
company acquisitions, the Company anticipates net sales and operating expenses
to continue to increase in fiscal 1998.
33
<PAGE> 34
Net sales for the year ended January 31, 1996, were $88,910,000 compared
to fiscal 1995 net sales of $53,931,000, a 64.9% increase. The increase in net
sales was primarily attributed to the increase in total number of cable homes
able to receive the Company's programming, which increased from 12.2 million
(7.2 million FTEs) at January 31, 1995 to 13.6 million (10.5 million FTEs) at
January 31, 1996, an 11.5% increase in cable homes and a 45.8% increase in
FTEs.
The Company records a reserve as a reduction of gross sales for
anticipated product returns at each month-end based upon historical product
return experience. The return rates for fiscal years 1997, 1996 and 1995 were
approximately 21.9%, 26.8% and 26.9%, respectively. The lower return rate in
fiscal 1997 is directly attributable to the effect of the Company's newly
acquired direct marketing businesses which typically experience lower average
return rates. The 1997 return rate for the company's television home shopping
business was 27.8 %. The return rate for the television home shopping business
is slightly higher than the average industry return rate of 24% to 26% and is
attributable in part to the Company's Video Shopping Cart service, which allows
for multiple items to be shipped in one order for a single shipping and
handling fee. The slightly higher return rate is also attributed to the
average unit selling price for the Company of approximately $85 in fiscal 1997
($80 in fiscal 1996) as compared to the industry average selling price per unit
of approximately $40 to $50. During fiscal 1997, net sales included a higher
mix of gemstone jewelry, as compared to fiscal 1996 and 1995 which
traditionally experiences higher return rates. The Company is continuing to
manage return rates and is adjusting average selling price points and product
mix in an effort to reduce the overall return rate related to its home shopping
business.
GROSS PROFIT
Gross profits for fiscal 1997 and 1996 were $67,363,000 and $36,641,000,
respectively, an increase of $30,722,000 or 83.8%. Gross margins for fiscal
1997 were 42.2% compared to 41.2% for fiscal 1996. The principal reason for
the increase in gross profits was increased sales volume primarily as a result
of the direct mail-order acquisitions. Television gross margins for fiscal 1997
were 40.1% and gross margins for the Company's direct mail-order operations
were 45.9%. Television gross margins between comparable periods declined
slightly, primarily as a result of increased sales of traditionally lower
margin electronic merchandising categories, such as computers. The slight
decline in gross margins was partially offset by an increase in gross margin
percentages in jewelry, giftware and apparel product categories, a greater
proportion of higher margin non-jewelry products, such as housewares and
seasonal products. During fiscal 1997, the Company continued to broaden its
merchandise mix by expanding the range and quantity of non-jewelry merchandise.
As part of the ongoing shift in merchandise mix, the Company continued to
devote increasing program air time to non-jewelry merchandise during the past
fiscal year. Jewelry accounted for 67% of air time during fiscal 1997,
compared with 70% for fiscal 1996.
Gross profits for fiscal 1996 and 1995 were $36,641,000 and $22,454,000,
respectively, which represented an increase of $14,187,000 or 63.2%. Gross
margins for the respective years were 41.2% and 41.6%. The increase in gross
profit was a direct result of increased sales volume. Gross margins in fiscal
1996 and 1995 remained relatively consistent primarily as a result of increased
gross margin percentages in most product categories, except electronics, in
those years and a greater proportion of higher margin non-jewelry merchandise.
OPERATING EXPENSES
Total operating expenses were $70,003,000, $37,408,000 and $26,166,000 for
the years ended January 31, 1997, 1996 and 1995, respectively, representing
increases of $32,595,000 or 87.1% from fiscal 1996 to fiscal 1997 and
$11,242,000 or 43.0% from fiscal 1995 to fiscal 1996.
34
<PAGE> 35
Distribution and selling expenses for fiscal 1997 increased $28,641,000 or
101.6% to $56,819,000 or 35.6% of net sales compared to $28,178,000 or 31.7% of
net sales in fiscal 1996. Distribution and selling costs increased as a direct
result of additional distribution and selling expenses associated with the
Company's newly acquired direct marketing businesses, primarily MWD, and
increases in cable access fees resulting from the growth in the number of cable
homes receiving the Company's programming, additional personnel costs
associated with increased staffing levels and labor rates and additional costs
associated with handling increased sales volume. Distribution and selling
expenses increased as a percentage of net sales for the year due to the impact
of the acquired mail-order businesses and increases in cable access fees on a
full-time equivalent basis over the prior year.
Distribution and selling expenses for fiscal 1996 increased $8,523,000 or
43.4%, to $28,178,000 or 31.7% of net sales compared to $19,655,000 or 36.4% of
net sales in fiscal 1995, primarily due to increases in cable access fees as a
result of the growth in the number of cable homes, increased rates paid to
cable system operators, additional personnel costs associated with increased
staffing levels as the Company further enlarged its programming and
distribution capacities, and additional costs associated with handling
increased sales volumes.
General and administrative expenses for fiscal 1997 increased $2,765,000
or 62.5% to $7,187,000 or 4.5% of net sales compared to $4,422,000 or 5.0% of
net sales in fiscal 1996. General and administrative costs increased as a
direct result of increased costs associated with the Company's acquired
direct-mail operations, increased personnel in support of expanded operations
and additional legal costs incurred relative to clarification of certain cable
regulations.
General and administrative expenses for fiscal 1996 increased $184,000 or
4.3% to $4,422,000 or 5.0% of net sales compared to $4,238,000 or 7.9% of net
sales in fiscal 1995. General and administrative costs remained relatively
consistent between fiscal years and declined as a percentage of net sales as
the Company continued to leverage its existing operating infrastructure.
Depreciation and amortization costs were $5,996,000, $4,808,000 and
$2,274,000 for the years ended January 31, 1997, 1996 and 1995, respectively,
representing an increase of $1,188,000 or 24.7% from fiscal 1996 to fiscal 1997
and $2,534,000 or 111.4% from fiscal 1995 to fiscal 1996. Depreciation and
amortization costs as a percentage of net sales were 3.8% in fiscal 1997, 5.4%
in fiscal 1996 and 4.2% in fiscal 1995. The dollar increase in depreciation
and amortization is primarily due to additional amortization of approximately
$690,000 relating to the Montgomery Ward operating agreement and licenses
entered into in August 1995, depreciation and amortization of approximately
$640,000 relating to assets associated with the Company's direct-mail
acquisitions and amortization of prepaid cable launch fees offset by a
reduction associated with the sale of WAKC and WHAI in February 1996.
OPERATING LOSS
The operating loss was $2,640,000, $766,000 and $3,712,000 for the years
ended January 31, 1997, 1996 and 1995, respectively. The increase in the
operating loss for fiscal 1997 resulted primarily from decreases in gross
margin percentages relating to the Company's television home shopping business
over the prior year, as well as increases in distribution and selling costs due
to expanded operations, although the Company continues to leverage its
operating infrastructure, and increases in general and administrative and
depreciation and amortization expenses as a result of expanded operations
offset by increased sales volumes and a corresponding increase in gross
profits. The decrease in the operating loss for fiscal 1996 resulted primarily
from increased sales volumes and a corresponding increase in gross profits
offset by a rise in distribution and selling costs and depreciation and
amortization costs due to continued expansion of operations.
35
<PAGE> 36
OTHER INCOME (EXPENSE)
Total other income was $32,330,000 in fiscal 1997 and $11,886,000 in
fiscal 1996, compared to total other expense of $2,392,000 in fiscal 1995.
Total other income for the year ended January 31, 1997 resulted primarily from
a $27,050,000 gain recorded on the sale of television stations WAKC and WHAI in
February 1996, equity in earnings of affiliates of $419,000, gains of $808,000
recorded from sales of other investments and interest income earned on cash and
cash equivalents and short-term investments. The equity in earnings of
affiliates represents amounts earned on a 13% ownership interest in a limited
partnership accounted for under the equity method of accounting. Total other
income for the year ended January 31, 1996 resulted primarily from an
$8,480,000 gain on the sale of the Company's investment in National Media
Corporation ("National Media"), equity in earnings of affiliates of $1,983,000
and interest income earned on cash and cash equivalents and short-term
investments. These items were partially offset by a provision for estimated
litigation costs associated with settling the shareholder litigation arising
from the Company's terminated tender offer for National Media. Total other
expense for the year ended January 31, 1995 included a non-recurring charge of
$3,667,000 to write off acquisition and offering costs incurred in conjunction
with the National Media tender offer and merger agreement, offset by interest
income of $1,722,000.
NET INCOME (LOSS)
Net income was $18,090,000 or $.57 per share for the year ended January
31, 1997. Excluding the gain on the sale of the two television stations, the
gain on the sale of investments and equity in earnings from affiliates, the
Company had net income of $847,000, or $.03 per share. Net income was
$11,020,000 or $.38 per share for the year ended January 31, 1996. Excluding
the gain on sale of investments, equity in earnings of affiliates and the
provision for litigation costs, the Company had net income for fiscal 1996 of
$1,173,000 or $.04 per share. Net loss was $6,104,000 or $.22 per share for
the year ended January 31, 1995. Excluding non-recurring charges to earnings in
fiscal 1995 of $3,667,000 or $.13 per share to write off acquisition and
offering costs incurred in conjunction with the terminated tender offer and
merger agreement with National Media, the Company had a net loss of $2,437,000
or $.09 per share. For the years ended January 31, 1997, 1996 and 1995,
respectively, the Company had approximately 31,984,000, 28,627,000 and
27,265,000, weighted average common and common equivalent shares outstanding.
For the year ended January 31, 1997, net income also reflects an income
tax provision of $11,600,000, which results in an effective tax rate of 39%.
Net tax carryforwards at January 31, 1997 consist of alternative minimum tax
carryforwards which are available to offset future taxable income. The
realization of the tax benefit associated with the carryforwards is dependent
upon the generation of taxable income in future years as well as any
limitations on utilization imposed by Internal Revenue Code relating to
ownership changes.
PROGRAM DISTRIBUTION
The Company's television home shopping program was available to
approximately 16.4 million cable homes as of January 31, 1997 as compared to
13.6 million cable homes as of January 31, 1996 and to 12.2 million cable homes
as of January 31, 1995. The Company's programming is currently available
through affiliation and time-block purchase agreements with approximately 265
cable systems and three wholly-owned full power UHF television broadcast
stations. In addition, the Company's programming is broadcast full-time over
eleven owned or affiliated low power television stations in major markets, and
is available unscrambled to homes equipped with satellite dishes. As of
January 31, 1997, 1996 and 1995, the Company's programming was available to
approximately 11.4 million, 10.5 million and 7.2 million full-time equivalent
cable homes ("FTE"), respectively. Approximately 7.7 million, 7.2 million and
3.5 million cable homes at January 31, 1997, 1996 and 1995, respectively,
received the Company's programming on a full-time basis. Homes that receive
the Company's programming 24 hours a day are counted as one FTE each and homes
that receive the Company's television home shopping programming for any period
less than 24 hours are counted based upon an analysis of time of day and day of
week.
36
<PAGE> 37
QUARTERLY RESULTS
The following summarized unaudited results of operations for the quarters
in the fiscal years ended January 31, 1997 and 1996 have been prepared on the
same basis as the annual financial statements and reflect adjustments
(consisting of normal recurring adjustments) which the Company considers
necessary for a fair presentation of results of operations for the periods
presented. The Company's results of operations have varied and may continue to
fluctuate significantly from quarter to quarter. Results of operations in any
period should not be considered indicative of the results to be expected for
any future period.
<TABLE>
<CAPTION>
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER TOTAL
------------- -------------- ------------- -------------- -----
(in thousands, except per share amounts)
FISCAL 1997:
<S> <C> <C> <C> <C> <C>
Net sales $22,788 $24,341 $47,118 $65,231 $159,478
Gross profit 9,388 9,728 18,661 29,586 67,363
Gross margin 41.2% 40.0% 39.6% 45.4% 42.2%
Operating expenses 10,071 10,523 19,421 29,988 70,003
Operating loss (683) (795) (760) (402) (2,640)
Other income, net 28,086 1,036 1,773 1,435 32,330
Net income $16,453 $ 145 $ 609 $ 883 $ 18,090
======= ======= ======= ======= ========
Net income per share (a) $ .54 $ - $ .02 $ .03 $ .57
======= ======= ======= ======= ========
Weighted average shares
outstanding 30,416 29,577 33,628 34,317 31,984
======= ======= ======= ======= ========
FTE homes (in millions) 10.7 10.8 11.0 11.4
======= ======= ======= =======
FISCAL 1996: (b)
Net sales $19,259 $20,467 $22,017 $27,167 $ 88,910
Gross profit 7,979 8,423 9,291 10,948 36,641
Gross margin 41.4% 41.2% 42.2% 40.3% 41.2%
Operating expenses 8,127 9,400 9,622 10,259 37,408
Operating income (loss) (148) (977) (331) 689 (766)
Other income, net 366 406 8,462 2,653 11,886
Net income (loss) $ 218 $ (571) $ 8,131 $ 3,242 $ 11,020
======= ======= ======= ======= ========
Net income (loss) per share $ .01 $ (.02) $ .28 $ .11 $ .38
======= ======= ======= ======= ========
Weighted average shares
outstanding 27,992 28,001 29,194 29,323 28,627
======= ======= ======= ======= ========
FTE homes (in millions) 9.0 9.4 9.6 10.5
======= ======= ======= =======
</TABLE>
(a) The sum of quarterly per share amounts does not equal the annual
amount due to changes in the average common and common equivalent
shares outstanding.
(b) The sum for the four quarters may not equal the total for the full
year due to the effect of rounding.
37
<PAGE> 38
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
As of January 31, 1997 and 1996, cash and cash equivalents and short-term
investments were $52,859,000 and $46,451,000, respectively, a $6,408,000
increase. For the year ended January 31, 1997, working capital increased
$9,546,000 to $61,631,000 compared to an increase of $22,963,000 to $52,085,000
for the year ended January 31, 1996. The current ratio was 2.6 at January 31,
1997 and 4.9 at January 31, 1996. At January 31, 1997, all short-term
investments and cash equivalents were invested in debt securities with original
maturity dates of less than 270 days.
Total assets at January 31, 1997 were $166,413,000 compared to
$117,269,000 at January 31, 1996. Shareholders' equity was $127,246,000 at
January 31, 1997, compared to $103,303,000 at January 31, 1996, an increase of
$23,943,000. The increase in shareholders' equity for fiscal 1997 resulted
primarily from net income of $18,090,000 for the year, $9,484,000 of value
assigned to common stock purchase warrants issued in connection with the
acquisition of MWD, proceeds received on the exercise of stock options and
warrants of $1,150,000, a $790,000 income tax benefit relating to stock options
exercised and an unrealized holding gain of $254,000 on investments
available-for-sale, offset by $5,826,000 relating to the repurchase of
1,047,000 shares of Company common stock made in connection with the Company's
authorized stock repurchase program. The increase in shareholders' equity for
fiscal 1996 resulted primarily from net income of $11,020,000, proceeds
received from the sale of 1,280,000 shares of common stock to Montgomery Ward
for $8.0 million in August 1995 and $17.5 million of value assigned to the
Montgomery Ward common stock purchase warrants based upon independent
appraisal. As of January 31, 1997, the Company's long-term obligations
consisted of a ten-year $600,000 note due and payable in 2006 related to the
purchase of land, capital lease obligations of $537,000 as a result of the
Company's recent acquisitions and a five-year non-compete obligation totaling
$306,000 related to the acquisition of WAKC, Akron, Ohio. The Company
deposited $1,000,000 in escrow in fiscal 1995 which is being used to fund
annual payments of $200,000 under the non-compete agreement. The Company has
no other long-term debt obligations.
For the year ended January 31, 1997, net cash used for operating
activities totaled $5,779,000 compared to net cash provided by operating
activities of $2,304,000 in fiscal 1996. Net cash used for operating
activities totaled $463,000 in fiscal 1995. Cash flows from operations before
consideration of changes in working capital items and investing and financing
activities was a positive $3,357,000 in fiscal 1997 compared to a positive
$4,042,000 in fiscal 1996 and a negative $1,439,000 in fiscal 1995. Net cash
used for operating activities for fiscal 1997 reflects net income, as adjusted
for depreciation and amortization and gain on sale of broadcast stations and
investments, increased accounts payable and accrued liabilities, decreased
prepaid expenses and other, offset by funding required to support higher levels
of accounts receivable and inventories. Accounts receivable primarily
increased due to timing relative to receipt of funds from credit card
companies, increased sales volume and increased receivables due from customers
for merchandise sales made pursuant to the "ValuePay" installment program.
Inventories increased from year-end to support increased sales volume, business
seasonality and changes in merchandising mix. Net cash provided by operating
activities for fiscal 1996 reflects net income, as adjusted for depreciation
and amortization, gain on sale of investments, other non-cash items and
increased accounts payable and accrued liabilities, offset by funding required
to support higher levels of accounts receivable, inventories and prepaid
expenses and other as a result of increased sales volume.
During fiscal 1995, the Company introduced an installment payment program
called ValuePay which entitles customers to purchase merchandise and pay for
the merchandise in two to four equal monthly installments. As of January 31,
1997, the Company had approximately $1,847,000 due from customers under the
ValuePay installment program compared to $733,000 at January 31, 1996.
ValuePay was introduced to increase sales while at the same time reducing
return rates on merchandise with above-normal average selling prices. The
Company intends to continue to sell merchandise using the ValuePay installment
program. Receivables generated from the ValuePay program will be funded in
fiscal 1998 from the Company's present capital resources and future operating
cash flows.
38
<PAGE> 39
Net cash provided by investing activities totaled $19,223,000 in fiscal
1997 compared to net cash used for investing activities of $11,443,000 for
fiscal 1996 and $5,902,000 for fiscal 1995. Expenditures for property and
equipment approximated $14,365,000 in fiscal 1997 compared to $3,041,000 for
fiscal 1996 and $2,978,000 for fiscal 1995. Expenditures for property and
equipment for fiscal 1997 and 1996 primarily include (i) the upgrade of
broadcast station and production equipment, studios and transmission equipment,
(ii) the upgrade of computer software and related equipment, and (iii) a $4.7
million land purchase in fiscal 1997, which is being held for future expansion
and investment purposes. Principal future capital expenditures will be for
upgrading television production and transmission equipment, studio expansions
and order fulfillment equipment to support expanded operations, especially with
respect to the Company's direct-mail operations. In the second half of fiscal
1997, the Company assumed net cash of approximately $4,114,000 in connection
with the acquisition of three direct-mail companies. During the first quarter
of fiscal 1997, the Company received $40.0 million in proceeds from the sale of
two television stations; Akron ABC affiliate WAKC (TV) and independent station
WHAI (TV). The Company paid approximately $3.8 million toward the acquisition
of independent television station KBGE (TV), including acquisition costs and
paid $800,000 at a second closing relative to broadcast station WVVI (TV).
During fiscal 1997, the Company also received $6,104,000 in net proceeds from
the sale of certain long-term investments and disbursed $6,534,000 for
investments and other long-term assets. During fiscal 1996, the Company
received $16,439,000 in net proceeds from the sale of its entire investment in
National Media and this amount, together with other funds received, primarily
from the sale of common stock to Montgomery Ward, was reinvested in short-term
investments. During fiscal 1996 the Company also disbursed $3,457,000 for
investments and other long-term assets.
Net cash used for financing activities totaled $4,888,000 for the year
ended January 31, 1997 and primarily relates to repurchases of the Company's
common stock, under its stock repurchase program, an installment payment made
under a five year non-compete obligation entered into upon the acquisition of a
broadcast station and capital lease obligation payments offset by proceeds
received from the exercise of stock options and warrants. Net cash provided by
financing activities totaled $7,547,000 for the year ended January 31, 1996 and
was primarily due to proceeds received from Montgomery Ward for its initial
investment of $8.0 million, offset by the payment of related offering costs.
In addition, the Company made the first installment payment due under the
five-year non-compete obligation entered into upon the acquisition of WAKC
(TV), Akron, Ohio, and received proceeds from the exercise of stock options.
Management believes funds currently held by the Company will be sufficient
to fund the Company's operations, the repurchase of any additional Company
common stock pursuant to an authorized repurchase plan, anticipated capital
expenditures and cable launch fees through fiscal 1998. Additional capital may
be required in the event the Company is able to identify additional direct-mail
company acquisition targets and television stations in strategic markets at
favorable prices, and if the Company decides to acquire up to the maximum
number of full power television stations that it may own under current
regulations.
39
<PAGE> 40
ITEM 8. FINANCIAL STATEMENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
OF VALUEVISION INTERNATIONAL, INC.
AND SUBSIDIARIES
PAGE
Report of Independent Public Accountants 41
Consolidated Balance Sheets as of January 31, 1997 and 1996 42
Consolidated Statements of Operations for the Years
Ended January 31, 1997, 1996 and 1995 43
Consolidated Statements of Shareholders' Equity for the Years Ended
January 31, 1997, 1996 and 1995 44
Consolidated Statements of Cash Flows for the Years Ended
January 31, 1997, 1996 and 1995 45
Notes to Consolidated Financial Statements 46
40
<PAGE> 41
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To ValueVision International, Inc.:
We have audited the accompanying consolidated balance sheets of ValueVision
International, Inc. (a Minnesota corporation) and Subsidiaries as of January
31, 1997 and 1996, and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the three years in the period
ended January 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of ValueVision International,
Inc. and Subsidiaries as of January 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
January 31, 1997 in conformity with generally accepted accounting principles.
As disclosed in Note 5 to the consolidated financial statements, effective
February 1, 1994, the Company adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities."
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
March 31, 1997
41
<PAGE> 42
VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
AS OF JANUARY 31,
---------------------------------
1997 1996
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 28,618,943 $ 20,063,901
Short-term investments 24,239,840 26,387,426
Accounts receivable, net 6,488,094 5,130,502
Inventories, net 28,109,081 8,889,426
Prepaid expenses and other 11,483,394 4,882,453
Deferred taxes 416,000 250,000
------------ ------------
Total current assets 99,355,352 65,603,708
PROPERTY AND EQUIPMENT, NET 24,283,108 13,813,347
FEDERAL COMMUNICATIONS COMMISSION LICENSES, NET 6,934,546 9,312,437
MONTGOMERY WARD OPERATING AGREEMENT AND LICENSES, NET 15,052,935 16,621,255
GOODWILL AND OTHER INTANGIBLE ASSETS, NET 10,764,011 1,688,497
INVESTMENTS AND OTHER ASSETS, NET 10,022,718 10,229,973
------------ ------------
$166,412,670 $117,269,217
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term obligations $ 392,921 $ 200,000
Accounts payable 24,887,904 8,770,685
Accrued liabilities 12,398,041 4,197,963
Income taxes payable 45,008 350,000
------------ ------------
Total current liabilities 37,723,874 13,518,648
LONG-TERM OBLIGATIONS 1,443,189 447,430
------------ ------------
Total liabilities 39,167,063 13,966,078
------------ ------------
COMMITMENTS AND CONTINGENCIES (Notes 3, 4, 6, 8, 10 and 11)
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value, 100,000,000 shares authorized;
28,842,198 and 29,343,748 shares issued and outstanding 288,422 293,437
Common stock purchase warrants;
5,368,557 and 25,770,461 shares 26,984,038 17,500,000
Additional paid-in capital 83,309,455 87,189,939
Net unrealized holding gains (losses) on investments
available-for-sale 69,437 (184,770)
Retained earnings (deficit) 16,594,255 (1,495,467)
------------ ------------
Total shareholders' equity 127,245,607 103,303,139
------------ ------------
$166,412,670 $117,269,217
============ ============
The accompanying notes are an integral part of these consolidated balance sheets.
</TABLE>
42
<PAGE> 43
VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
-------------------------------------------------------------
1997 1996 1995
-------------- ------------ -------------
<S> <C> <C> <C>
NET SALES $ 159,477,917 $ 88,909,853 $ 53,930,847
COST OF SALES 92,114,663 52,268,398 31,476,842
-------------- ------------ -------------
Gross profit 67,363,254 36,641,455 22,454,005
-------------- ------------ -------------
OPERATING EXPENSES:
Distribution and selling 56,819,304 28,177,953 19,654,681
General and administrative 7,187,377 4,421,924 4,238,108
Depreciation and amortization 5,996,357 4,807,735 2,273,580
-------------- ------------ -------------
Total operating expenses 70,003,038 37,407,612 26,166,369
-------------- ------------ -------------
OPERATING LOSS (2,639,784) (766,157) (3,712,364)
-------------- ------------ -------------
OTHER INCOME (EXPENSE):
Gain on sale of broadcast stations 27,050,000 - -
Gain on sale of investments 808,449 8,480,453 -
Cost of National Media
Corporation tender offer - - (3,667,000)
Litigation costs - (617,000) (320,000)
Equity in earnings of affiliates 419,430 1,983,226 -
Interest income 3,912,231 2,137,720 1,722,275
Other, net 139,396 (98,677) (127,006)
-------------- ------------ -------------
Total other income (expense) 32,329,506 11,885,722 (2,391,731)
-------------- ------------ -------------
INCOME (LOSS) BEFORE PROVISOIN FOR INCOME TAXES 29,689,722 11,119,565 (6,104,095)
Provision for income taxes 11,600,000 100,000 -
-------------- ------------ -------------
NET INCOME (LOSS) $ 18,089,722 $ 11,019,565 $ (6,104,095)
============== ============ =============
NET INCOME (LOSS) PER COMMON AND DILUTIVE
COMMON EQUIVALENT SHARE $ 0.57 $ 0.38 $ (0.22)
============== ============ =============
Weighted average number of common and
dulitive common equivalent shares outstanding 31,984,463 28,627,356 27,264,856
============== ============ =============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
43
<PAGE> 44
VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Years Ended January 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Class A Class B
Common Stock Common Stock Common
---------------------- ----------------- Stock Additional
Number Par Number Par Purchase Paid-In
of Shares Value of Shares Value Warrants Capital
--------- -------- --------- ----- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, January 31, 1994 26,995,975 $269,960 111,785 $ 112 $ - $76,159,295
Cumulative effect of change in
accounting for certain investments
in debt and equity securities - - - - - -
Exercise of stock options 158,666 1,586 - - - 176,089
Issuance of Class A Common Stock 720,000 7,200 - - - 3,412,800
Conversion of Class B Common
Stock to Class A Common Stock 111,785 1,118 (111,785) (112) - (1,006)
Offering expenses - - - - - (95,460)
Unrealized holding loss on
investments available-for-sale - - - - - -
Net loss - - - - - -
---------- -------- ------- ----- ----------- -----------
BALANCE, January 31, 1995 27,986,426 279,864 - - - 79,651,718
Exercise of stock options 77,322 773 - - - 141,071
Issuance of common stock 1,280,000 12,800 - - - 7,987,200
Value assigned to common stock
purchase warrants - - - - 17,500,000 -
Offering expenses - - - - - (590,050)
Unrealized holding gain on
investments available-for-sale - - - - - -
Net income - - - - - -
---------- -------- ------- ----- ----------- -----------
BALANCE, January 31, 1996 29,343,748 293,437 - - 17,500,000 87,189,939
Exercise of stock options and warrants 545,150 5,452 - - - 1,144,943
Common stock repurchases (1,046,700) (10,467) - - - (5,815,427)
Value assigned to common stock
purchase warrants - - - - 9,484,038 -
Income tax benefit from stock
options exercised - - - - - 790,000
Unrealized holding gain on
investments available-for-sale - - - - - -
Net income - - - - - -
---------- -------- ------- ----- ----------- -----------
BALANCE, January 31, 1997 28,842,198 $288,422 - $- $26,984,038 $83,309,455
========== ======== ======= ===== =========== ===========
<CAPTION>
Net
Unrealized
Holding
Gains (Losses)
on Investments Retained Total
Available- Earnings Shareholders'
For-Sale (Deficit) Equity
---------- --------- -------------
<S> <C> <C> <C>
BALANCE, January 31, 1994 $ - $(6,410,937) $70,018,430
Cumulative effect of change in
accounting for certain investments
in debt and equity securities 3,849,474 - 3,849,474
Exercise of stock options - - 177,675
Issuance of Class A Common Stock - - 3,420,000
Conversion of Class B Common
Stock to Class A Common Stock - - -
Offering expenses - - (95,460)
Unrealized holding loss on
investments available-for-sale (4,464,000) - (4,464,000)
Net loss - (6,104,095) (6,104,095)
----------- ----------- -----------
BALANCE, January 31, 1995 (614,526) (12,515,032) 66,802,024
Exercise of stock options - - 141,844
Issuance of common stock - - 8,000,000
Value assigned to common stock
purchase warrants - - 17,500,000
Offering expenses - - (590,050)
Unrealized holding gain on
investments available-for-sale 429,756 - 429,756
Net income - 11,019,565 11,019,565
----------- ----------- -----------
BALANCE, January 31, 1996 (184,770) (1,495,467) 103,303,139
Exercise of stock options and warrants - - 1,150,395
Common stock repurchases - - (5,825,894)
Value assigned to common stock
purchase warrants - - 9,484,038
Income tax benefit from stock
options exercised - - 790,000
Unrealized holding gain on
investments available-for-sale 254,207 - 254,207
Net income - 18,089,722 18,089,722
----------- ----------- -----------
BALANCE, January 31, 1997 $ 69,437 $16,594,255 $127,245,607
=========== =========== ============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
44
<PAGE> 45
VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
-----------------------------------------------
1997 1996 1995
------------ ------------ -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 18,089,722 $ 11,019,565 $ (6,104,095)
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities-
Depreciation and amortization 5,996,357 4,807,735 2,273,580
Deferred taxes (236,668) (250,000) -
Gain on sale of broadcast stations (27,050,000) - -
Gain on sale of investments (808,449) (8,480,453) -
Cost of National Media Corporation tender offer - - 3,667,000
Equity in earnings of affiliates (419,430) (1,983,226) -
Other non-cash charges - 646,268 203,625
Changes in operating assets and liabilities,
net of effect of acquisitions:
Accounts receivable, net (555,925) (2,064,405) (1,433,577)
Inventories, net (4,479,713) (1,056,425) (607,333)
Prepaid expenses and other 1,889,663 (3,230,141) (1,118,153)
Accounts payable and accrued liabilities 1,433,867 2,894,713 2,655,665
Income taxes payable 361,481 - -
------------ ------------ -------------
Net cash provided by (used for) operating activities (5,779,095) 2,303,631 (463,288)
------------ ------------ -------------
INVESTING ACTIVITIES:
Property and equipment additions, net of effect of acquisitions (14,364,600) (3,040,865) (2,978,333)
Purchase of broadcast stations (4,618,743) - (11,689,025)
Acquisition of direct-mail companies, net of cash acquired (4,113,984) - -
Proceeds from sale of broadcast stations 40,000,000 - -
Proceeds from sale of investments 6,103,541 16,438,979 -
Purchase of short-term investments (84,506,099) (55,094,124) (23,900,870)
Proceeds from sale of short-term investments 87,256,886 33,710,220 39,023,136
Payment of National Media Corporation tender offer costs - - (3,110,749)
Payment for investments and other assets (6,534,383) (3,457,071) (3,246,341)
------------ ------------ --------------
Net cash provided by (used for) investing activities 19,222,618 (11,442,861) (5,902,182)
------------ ------------ -------------
FINANCING ACTIVITIES:
Proceeds from exercise of stock options and warrants 1,150,395 141,844 177,675
Payments for repurchases of common stock (5,825,894) - -
Proceeds from sale of common stock - 8,000,000 -
Payment of offering costs - (464,167) (85,760)
Payment of long-term obligations (212,982) (130,500) (327,105)
------------ ------------ -------------
Net cash provided by (used for) financing activities (4,888,481) 7,547,177 (235,190)
------------ ------------ -------------
Net increase (decrease) in cash and cash equivalents 8,555,042 (1,592,053) (6,600,660)
BEGINNING CASH AND CASH EQUIVALENTS 20,063,901 21,655,954 28,256,614
------------ ------------ -------------
ENDING CASH AND CASH EQUIVALENTS $ 28,618,943 $ 20,063,901 $ 21,655,954
============ ============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 83,000 $ 69,000 $ 29,000
============ ============ ============
Income taxes paid $ 10,051,000 $ - $ -
============ ============ ============
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:
Issuance of 1,484,993 warrants in connection with
the acquisition of Montgomery Ward Direct, L.P. $ 8,353,000 $ - $ -
============ ============ ============
Issuance of 199,097 warrants as a limited partnership contribution $ 1,131,000 $ - $ -
============ ============ ============
Note payable issued in connection with the purchase of land $ 600,000 $ - $ -
============ ============ ============
Issuance of warrants to Montgomery Ward & Co., Incorporated $ - $ 17,500,000 $ -
============ ============ ============
Issuance of 720,000 shares of common stock as partial consideration
for the acquisition of a full power television station $ - $ - $ 3,420,000
============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
45
<PAGE> 46
VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997 AND 1996
1. THE COMPANY:
ValueVision International, Inc. and Subsidiaries ("the Company") is an
integrated direct marketing company which markets its products directly to
consumers through electronic and print media.
The Company's television home shopping network uses recognized on-air
television home shopping personalities to market brand name merchandise and
proprietary and private label consumer products at competitive or discount
prices. The Company's 24-hour per day television home shopping programming is
distributed primarily through long-term cable affiliation agreements and the
purchase of month-to-month full- and part-time block lease agreements of cable
and broadcast television time. In addition, the Company distributes its
programming through Company owned or affiliated full power Ultra-High Frequency
("UHF") broadcast television stations, low power television ("LPTV") stations
and to satellite dish owners.
The Company, through its wholly-owned subsidiary, ValueVision Direct
Marketing Company, Inc. ("VVDM"), is also a direct-mail marketer of a broad
range of quality general merchandise which is sold to consumers through
direct-mail catalogs and other direct marketing solicitations. Products offered
include domestics, housewares, home accessories and electronics. Through its
wholly-owned subsidiary, Catalog Ventures, Inc. ("CVI"), the Company sells a
variety of fashion jewelry, health and beauty aids, books, audio and video
cassettes and other related consumer merchandise through the publication of
five consumer specialty catalogs. The Company also manufactures and markets,
via direct-mail, women's foundation undergarments through its wholly-owned
subsidiary, Beautiful Images, Inc. ("BII").
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
ValueVision International, Inc. ("ValueVision") and its wholly-owned
subsidiaries. Significant intercompany accounts and transactions have been
eliminated in consolidation.
Results of operations for the year ended January 31, 1997 include the
direct-mail operations of Montgomery Ward Direct effective July 27, 1996,
Beautiful Images, Inc. effective October 22, 1996 and Catalog Ventures, Inc.
effective November 1, 1996, which were acquired by the Company in fiscal 1997.
FISCAL YEAR
The Company's fiscal year ends on January 31. Fiscal years are designated
in the accompanying consolidated financial statements and related notes by the
calendar year in which the fiscal year ends.
REVENUE RECOGNITION AND ACCOUNTS RECEIVABLE
Revenue is recognized at the time merchandise is shipped. Shipping and
handling fees collected from customers are recognized as merchandise is shipped
and are offset against actual shipping expenses as a component of distribution
and selling costs. Returns are estimated and provided for at the time of sale
based on historical experience. Payments received for unfilled orders are
reflected as a component of accrued liabilities.
46
<PAGE> 47
VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997 AND 1996
(CONTINUED)
Accounts receivable consist primarily of amounts due from customers for
merchandise sales and from credit card companies, and are reflected net of
reserves for estimated uncollectible amounts of $529,000 at January 31, 1997
and $181,000 at January 31, 1996.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash, money market funds and
commercial paper with an original maturity of 90 days or less.
SHORT-TERM INVESTMENTS
Short-term investments consist principally of commercial paper with a
remaining maturity of less than 12 months and are stated at cost, which
approximates market value.
INVENTORIES
Inventories, which consist primarily of consumer merchandise held for
resale, are stated at the lower of first-in, first-out cost or realizable
value.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Betterments and renewals that
extend the life of an asset are capitalized and depreciated. Repairs and
maintenance are charged to expense as incurred. The cost and accumulated
depreciation of property and equipment retired or otherwise disposed of are
removed from the related accounts, and any residual values are charged or
credited to operations. Depreciation and amortization for financial reporting
purposes are provided principally on the straight-line method based upon
estimated useful lives.
Property and equipment consisted of the following at January 31:
<TABLE>
<CAPTION>
Estimated
Useful Life
(In Years) 1997 1996
---------- ---- ----
<S> <C> <C> <C>
Land and improvements - $ 7,151,000 $ 1,026,000
Buildings and improvements 40 4,630,000 866,000
Transmission and production equipment 5-20 10,226,000 11,258,000
Office and warehouse equipment 3-10 2,962,000 1,923,000
Computer and telephone equipment 3- 5 3,726,000 2,431,000
Leasehold improvements 3-10 1,720,000 1,164,000
Less - Accumulated depreciation (6,132,000) (4,855,000)
----------- -----------
$24,283,000 $13,813,000
=========== ===========
</TABLE>
47
<PAGE> 48
VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997 AND 1996
(CONTINUED)
FEDERAL COMMUNICATIONS COMMISSION LICENSES
Federal Communications Commission ("FCC") licenses are stated at
acquisition cost as determined based upon independent appraisals and are
amortized on a straight-line basis over their estimated useful lives of 25
years. Accumulated amortization was $529,000 at January 31, 1997 and $536,000
at January 31, 1996.
MONTGOMERY WARD OPERATING AGREEMENT AND LICENSES
As discussed further in Note 3, during fiscal 1996, the Company issued
common stock purchase warrants in exchange for various agreements entered into
with Montgomery Ward & Co., Incorporated ("Montgomery Ward") including an
Operating Agreement, a Credit Card License and Receivable Sales Agreement, and
a Servicemark License Agreement. The value assigned to the agreements of
$17,500,000 was determined pursuant to an independent appraisal and is being
amortized on a straight-line basis over the amended term of the agreements.
The Operating Agreement expires July 31, 2008 and may be terminated under
certain circumstances, as defined in the agreement. The Credit Card License and
Receivable Sales Agreement and Servicemark License Agreement automatically
terminate upon termination of the Operating Agreement. Accumulated
amortization related to the agreements was $2,447,000 at January 31, 1997 and
$879,000 at January 31, 1996.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets consisted of the following at
January 31:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Goodwill, net $ 9,054,000 $1,688,000
Other intangible assets, net 1,710,000 -
----------- -----------
$10,764,000 $1,688,000
=========== ==========
</TABLE>
Goodwill represents the cost in excess of fair value of the net assets of
businesses acquired in purchase transactions, and is being amortized on a
straight-line basis over periods ranging from 12 to 25 years. Other intangible
assets represent costs allocated to customer lists arising from business
acquisitions and are being amortized on a straight-line basis over 5 years.
The carrying values of goodwill and other intangible assets are evaluated
periodically by the Company in relation to the operating performance and future
undiscounted net cash flows of the related acquired businesses. Accumulated
amortization was $660,000 at January 31, 1997 and $361,000 at January 31, 1996.
48
<PAGE> 49
VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997 AND 1996
(CONTINUED)
INVESTMENTS AND OTHER ASSETS
Investments and other assets consisted of the following at January 31:
<TABLE>
<CAPTION>
1997 1996
---------- -----------
<S> <C> <C>
Investments $ 4,444,000 $ 2,922,000
Prepaid cable launch fees, net 2,382,000 2,455,000
Other, net 3,197,000 4,853,000
---------- -----------
$10,023,000 $10,230,000
=========== ===========
</TABLE>
The Company has nonmarketable investments in private companies,
partnerships and a venture capital limited partnership which are carried at the
lower of cost or net realizable value. In addition, the Company has, from time
to time, made investments in public companies which are classified as
"available-for-sale" investment securities, and are stated at fair value, with
unrealized gains and losses reported as a separate component of shareholders'
equity. (See Note 5.) The fair values of other investments were estimated
based primarily on recent financing and securities transactions and, to a
lesser extent, on other pertinent information, including financial condition
and operating results.
At January 31, 1997, investments include approximately $2,710,000 related
to a 13% interest in a venture capital limited partnership. The purpose of the
limited partnership is to invest in and assist new and emerging growth-oriented
businesses and leveraged buyouts in the consumer services, retailing and direct
marketing industries. In addition to the Company, Merchant Advisors, L.P. is
the only other limited partner in the limited partnership. The investment in
this partnership is accounted for using the equity method of accounting. In
fiscal 1996, the Company received a distribution of certain investment
securities valued at $2,744,000 from the limited partnership.
Other assets consist principally of non-compete agreements, prepaid
satellite transponder launch fees, long-term deposits, notes receivable and
software development costs, all of which are carried at cost, net of
accumulated amortization. Costs are amortized on a straight-line basis over
the estimated useful lives of the assets ranging from 3 to 12 years.
Accumulated amortization was $433,000 at January 31, 1997 and $373,000 at
January 31, 1996.
In March 1997, the Company acquired a 15% interest in Net Radio
Corporation ("Net Radio") for an aggregate purchase price of $3 million,
consisting of $1 million in cash and a commitment to provide $2 million in
future advertising. Net Radio is a music and entertainment site on the
Internet. Navarre Corporation, a national distributor of music, computer
software and interactive CD ROM products, owns the remaining 85% of Net Radio.
The Company's 24-hour per day shopping program is currently being carried by
Net Radio. This investment allows ValueVision to establish a foothold in
providing electronic commerce on the Internet. Additionally, ValueVision has
been granted exclusive rights for most merchandise categories to be made
available in Net Radio's program marketplace.
49
<PAGE> 50
VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997 AND 1996
(CONTINUED)
INCOME TAXES
The Company accounts for income taxes under the liability method of
accounting under which deferred tax assets are recognized for deductible
temporary differences, and operating loss and tax credit carryforwards and
deferred tax liabilities are recognized for taxable temporary differences.
Deferred tax assets and liabilities are adjusted for the effects of changes in
tax laws and rates on the date of the enactment of such laws.
NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed by dividing net income (loss) by
the weighted average number of shares of common stock and dilutive common stock
equivalents outstanding, as determined using the treasury stock method.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments as reported in
the accompanying balance sheets for cash and cash equivalents, short-term
investments, accounts receivable, accounts payable, accrued liabilities and
current portion of long-term obligations approximate fair values principally
due to the short maturities of these instruments.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities as of the date of the financial
statements and the reported amounts of revenues and expenses during reporting
periods. These estimates relate primarily to the carrying amounts of accounts
receivable and inventories, the realizability of certain long-term assets and
the recorded balances of certain accrued liabilities and reserves. Ultimate
results could differ from the use of these estimates.
RECLASSIFICATIONS
Certain 1996 and 1995 amounts in the accompanying consolidated financial
statements have been reclassified to conform to the fiscal 1997 presentation
with no impact on previously reported net income (loss) or shareholders'
equity.
3. MONTGOMERY WARD ALLIANCE:
During fiscal 1996, the Company entered into a Securities Purchase
Agreement, an Operating Agreement, a Credit Card License and Receivable Sales
Agreement, and a Servicemark License Agreement (collectively, the "MW
Agreements") with Montgomery Ward. Under the MW Agreements, Montgomery Ward
purchased 1,280,000 unregistered shares of common stock of the Company at $6.25
per share, which represented approximately 4.4% of the issued and outstanding
shares of common stock of the Company, and received warrants to purchase an
additional 25 million shares of common stock of the Company, subject to
adjustment (25,770,461 as adjusted through January 31, 1996). These warrants
had exercise prices ranging from $6.50 to $17.00 per share, with an average
exercise price of $9.16 per share (the "Warrants"). The value assigned to the
Warrants of $17,500,000 was determined pursuant to an independent appraisal.
50
<PAGE> 51
VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997 AND 1996
(CONTINUED)
On June 7, 1996, the Company signed a non-binding Memorandum of
Understanding with Montgomery Ward pursuant to which the companies agreed to
the expansion and restructuring of their ongoing operating and license
agreements as well as the Company's acquisition of substantially all of the
assets and assumption of certain obligations of Montgomery Ward Direct L.P.
("MWD"), a four year old catalog business. Effective July 27, 1996 the
companies reached definitive agreements and closed the transaction in the third
quarter ended October 31, 1996. Pursuant to the provisions of the agreements,
the Company's sales promotion rights were expanded beyond television home
shopping to include the full use of the service mark of Montgomery Ward for
direct-mail catalogs and ancillary promotions. In addition, the strategic
alliance between the companies has been restructured and amended such that (i)
18,000,000 unvested warrants granted to Montgomery Ward in August 1995 and
exercisable at prices ranging from $7.00 - $17.00 were terminated in exchange
for the issuance by the Company of 1,484,467 new vested warrants exercisable at
$0.01 per share, (ii) the Company issued 1,484,993 new vested warrants, valued
at $5.625 per share and exercisable at $0.01 per share, to Montgomery Ward as
full consideration for the acquisition of approximately $4.7 million in net
assets, representing substantially all of the assets and the assumption of
certain liabilities of MWD, (iii) Montgomery Ward has committed to provide $20
million in supplemental advertising support over a five-year period, (iv) the
Montgomery Ward operating agreements and licenses have been amended and
expanded, as defined in the agreements, and extended to July 31, 2008 and (v)
the Company issued to Montgomery Ward new vested warrants to purchase 2.2
million shares of the Company's common stock at an exercise price of $.01 per
share in exchange for 7,000,000 vested warrants granted to Montgomery Ward in
August 1995 which were exercisable at prices ranging from $6.50 - $6.75 per
share.
Under the MW Agreements, Montgomery Ward provides the Company with certain
operational support, including merchandise sourcing and use of the Montgomery
Ward credit card by the Company's customers, and may also assist the Company in
obtaining a line of credit for strategic acquisitions or expansion. Montgomery
Ward may assist the Company in obtaining cable carriage agreements by
purchasing advertising time on cable systems. During the term of the MW
Agreements, the Company will be Montgomery Ward's exclusive outlet for
television shopping (as defined in the MW Agreements), subject to certain
exceptions. The Operating Agreement has a twelve-year term and may be
terminated under certain circumstances as defined in the agreement.
Montgomery Ward purchased approximately $4.2 million and $1.5 million of
advertising spot time on cable systems affiliated with the Company pursuant to
cable affiliation agreements for the years ended January 31, 1997 and 1996,
respectively. Under the terms of the Credit Card License and Receivable Sales
Agreement, the Company processed approximately $20,960,000 and $19,453,000 of
merchandise sales as a result of customers using Montgomery Ward/ValueVision
credit cards and the Company incurred $596,000 and $175,000 of processing fees
during fiscal 1997 and 1996, respectively. In addition, during fiscal 1997 and
1996, the Company earned $793,000 and $292,000 for administering and processing
Montgomery Ward credit card applications. As of January 31, 1997 and 1996, the
Company had $830,000 and $1,981,000 included in accounts receivable from
Montgomery Ward for merchandise sales made on Montgomery Ward/Value Vision
credit cards, advertising spot time acquired and administrative and processing
fees, net of processing fees due Montgomery Ward for use of its credit card.
4. ACQUISITIONS AND DISPOSITIONS:
MONTGOMERY WARD DIRECT
As discussed further in Note 3, effective July 27, 1996, the Company
acquired substantially all of the assets and assumed certain obligations of MWD
by issuing 1,484,993 vested warrants with an exercise price of $.01 per share,
to Montgomery Ward as full consideration for the acquisition of approximately
$4.7 million in net assets of MWD.
51
<PAGE> 52
VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997 AND 1996
(CONTINUED)
The Company's acquisition of MWD was made through VVDM, for an aggregate
purchase price of $8,497,000, which included acquired cash of $5,764,000 and
acquisition costs of $144,000. The acquisition was accounted for using the
purchase method of accounting and accordingly, the net assets of MWD were
recorded at their estimated fair values based upon a preliminary allocation of
the purchase price to such net assets. The preliminary purchase price
allocations are subject to change upon receipt of additional information
relative to asset and liability valuations. Therefore, the final allocation
may differ from the preliminary allocation. The preliminary allocation is
summarized as follows:
<TABLE>
<S> <C>
Cash $ 5,764,000
Inventories 9,140,000
Other current assets 2,861,000
Property and equipment 557,000
Intangible assets 4,531,000
Liabilities assumed (14,356,000)
-----------
$ 8,497,000
===========
</TABLE>
The excess of the purchase price over the net assets acquired was
$4,531,000 and has been recorded as goodwill and other intangible assets in
the accompanying balance sheet and is being amortized on a straight-line basis
over 5-12 years. The operating results of MWD have been included in the fiscal
1997 consolidated statement of operations from the date of acquisition.
Unaudited pro forma consolidated net sales of the Company for the years ended
January 31, 1997 and 1996, as if the acquisition had occurred as of the
beginning of the respective periods were $194,284,000 and $240,850,000
respectively. Unaudited pro forma net income was $17,151,000, or $.52 per
share, in fiscal 1997 and $4,341,000, or $.14 per share, in fiscal 1996. Such
pro forma amounts are not necessarily indicative of what the actual
consolidated results of operations would have been had the acquisition been
effective at the beginning of the respective periods.
BEAUTIFUL IMAGES, INC.
On October 22, 1996, the Company, through VVDM, acquired all of the
outstanding shares of BII, a manufacturer and direct marketer of women's
foundation undergarments. The Company paid $4,253,000 in cash, which included
acquired cash of $423,000, $500,000 relating to a non-compete agreement and
acquisition costs of approximately $75,000, and assumed certain obligations
totaling $109,000. The acquisition was accounted for using the purchase method
of accounting and, accordingly, the purchase price was allocated to the assets
purchased and the liabilities assumed based upon estimated fair values at the
date of acquisition. The excess of the purchase price over the fair values of
the net assets acquired was $3,310,000, of which $2,810,000 has been recorded
as goodwill, which is being amortized on a straight-line basis over 15 years
and $500,000 has been assigned to the non-compete agreement, which is being
amortized on a straight-line basis over the 6 year term of the agreement. The
operating results of BII have been included in the fiscal 1997 consolidated
statement of operations from the date of acquisition. Pro forma results of
operations have not been presented because the effects were not significant.
52
<PAGE> 53
VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997 AND 1996
(CONTINUED)
CATALOG VENTURES, INC.
Effective November 1, 1996, the Company, through VVDM, acquired
substantially all of the assets and assumed certain obligations of Catalog
Ventures, Inc. and Mitchell & Webb, Inc. ("Webb"), two direct marketing
companies which together publish five consumer specialty catalogs. The Company
paid $7,369,000 in cash which included acquired cash of $1,465,000 and
acquisition costs of approximately $100,000. The acquisition was accounted for
using the purchase method of accounting and accordingly, the purchase price was
allocated to the assets purchased and liabilities assumed based upon estimated
fair values at the date of acquisition. The excess of the purchase price over
the fair values of the net assets acquired was $1,953,000, and has been
recorded as goodwill, which is being amortized on a straight-line basis over 15
years. The operating results of CVI have been included in the fiscal 1997
consolidated statement of operations from the date of the acquisition. Pro
forma results of operations have not been presented because the effects were
not significant.
BROADCAST STATIONS
During the first quarter of fiscal 1995, the Company completed the
acquisitions of three full power television broadcast stations serving the
Washington D.C. ("WVVI"); Houston, Texas ("KVVV"); and Cleveland - Akron, Ohio
("WAKC") Areas of Dominant Influence ("ADI"). On December 28, 1994 the Company
completed the acquisition of a full power television broadcast station serving
the New York City ADI and licensed to Bridgeport, Connecticut ("WHAI"). The
aggregate purchase price for the four stations was approximately $22,374,000 in
cash, Company common stock and non-compete obligations. The acquisitions were
accounted for under the purchase method of accounting. Accordingly, the net
assets of the four stations were recorded at their estimated values at the time
of acquisition, as determined by independent appraisals.
On March 15, 1996, the Company completed the acquisition of independent
television station KBGE (TV), Channel 33 serving the Seattle-Tacoma, Washington
market, for approximately $4.6 million including the assumption of certain debt
obligations and acquisition related costs. This acquisition was completed in
accordance with the terms of a five-year programming affiliation and financing
agreement with the station which was signed on July 21, 1995. Pursuant to this
agreement, the company provided financing of up to $1,450,000 related to a
working capital loan for channel operations.
On April 11, 1996, the Company completed a second closing with respect to
its acquisition of independent television station WVVI (TV), Channel 66,
serving the Washington, D.C. market whereby the Company paid $800,000 to the
former owner of WVVI (TV) as a final payment in exchange for not having to pay
$1,600,000 in the event the "must carry" provisions of the 1992 Cable Act are
upheld by a final decision. The Company had previously paid $4,050,000 to
National Capital Christian Broadcasting, WVVI's former owners, at an initial
closing on March 28, 1994. The $800,000 additional payment has been
classified as excess purchase price and is being amortized over 25 years on a
straight-line basis. In addition, the Company received certain studio and
production equipment from the former owner of WVVI, in lieu of a cash payment,
for the balance outstanding under a secured convertible debenture in the face
amount of $450,000.
On March 31, 1997, the United States Supreme Court upheld the "must carry"
provisions of the 1992 Cable Act. Assuming there is no petition for a
rehearing, and the decision becomes final, the Company will be obligated to pay
an additional $1,600,000 in connection with its 1995 acquisition of television
station KVVV (TV) in Houston, Texas upon a second closing. In lieu of paying
$1,600,000 in cash, the Company may issue that number of shares of common stock
having a market value of $2,000,000 on the date of the second closing. The
additional payment, when made, will be classified as unallocated excess
purchase price and amortized over 25 years on a straight-line basis.
53
<PAGE> 54
VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997 AND 1996
(CONTINUED)
SALE OF BROADCAST STATIONS
On February 28, 1996, the Company completed the sale of two television
stations to Paxson Communications Corporation ("Paxson") for $40.0 million in
cash plus the assumption of certain obligations. The stations sold were ABC
affiliate WAKC (TV), Channel 23, licensed to Akron, Ohio, and independent
station WHAI (TV), Channel 43, licensed to Bridgeport, Connecticut. WAKC (TV)
was acquired by the Company in April 1994 for approximately $6.0 million and
WHAI (TV) was acquired by the Company in December 1994 for approximately $7.3
million. The net gain on the sale of these two television stations of
approximately $27 million was recognized in the quarter ended April 30, 1996.
On November 22, 1996, the Company announced that an agreement had been
reached with Paxson for the sale of its television broadcast station, WVVI
(TV), Channel 66, which serves the Washington, D.C. market, for approximately
$30 million. Under the terms of the agreement, Paxson will pay the Company $20
million in cash and $10 million in Paxson common stock valued at the average
closing price during the 60-day period following the signing of the agreement.
As part of the agreement, Paxson will be required to pay an additional $10
million to the Company as a result of the United States Supreme Court upholding
the "must carry" provision of the 1992 Cable Act. WVVI (TV) carries the
Company's television home shopping programming and was acquired by the Company
in March 1994 for $4,850,000. The transaction is anticipated to close by the
end of the second quarter of fiscal 1998. The effects of the disposition will
be reflected in the financial statements at the date of closing. Management
believes that the sale will not have a significant impact on the operations of
the Company.
5. ADOPTION OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 115,
"ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES":
Effective February 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" ("SFAS No. 115"). SFAS No. 115 requires (i) investments in
debt and equity securities to be classified at the time of their acquisition
into one of three categories (trading, available-for-sale and
held-to-maturity), and (ii) unrealized gains (losses) on investments
available-for-sale to be reflected as a separate component of shareholders'
equity and in certain instances, as a realized loss at the time a decline in
fair value below the cost basis is determined to be other than temporary. The
cumulative effect of adopting SFAS No. 115 effective February 1, 1994 resulted
in the recognition of an unrealized holding gain on investments
available-for-sale of approximately $3,849,000.
At January 31, 1997 and 1996, the Company had cash equivalents and
short-term investments of approximately $44,840,000 and $45,828,000,
respectively, that are classified as "held-to-maturity" investment securities
and stated at cost which approximates market value. The Company's long-term
investments are classified as "available-for-sale" investment securities.
6. LOW POWER TELEVISION STATIONS:
The licensing of LPTV stations' transmission authority is regulated by the
FCC through the Communications Act of 1934. LPTV construction permits and the
licensing rights that result upon definitive FCC operating approval are awarded
solely at the discretion of the FCC and are subject to periodic renewal
requirements. Prior to the incorporation of the Company, certain of the
Company's officers, directors and principal shareholders received construction
permits pursuant to individual initiatives. As of January 31, 1997, certain of
the Company's officers, directors and principal shareholders held six
construction permits for the stations. In addition, as of January 31, 1997,
the Company had been granted one construction permit on its own behalf.
54
<PAGE> 55
VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997 AND 1996
(CONTINUED)
The Company has entered into non-binding agreements with holders of the
six LPTV construction permits held or applied for by related parties whereby
the Company has the option to enter into a secured financing arrangement to
support the construction of transmission equipment for each LPTV station and to
provide its programming to the station. Four of the agreements contain a fixed
price purchase option of $5,000 each in favor of the Company, effective
immediately upon FCC licensing or within 12 months from the FCC licensing date,
as defined. The remaining two agreements provide the Company with the right of
first refusal should the station be offered for sale. Under the six agreements
with related parties, such parties could receive maximum annual programming
fees of approximately $300,000.
In March 1997, the Company entered into asset purchase agreements with the
holders of the six LPTV construction permits whereby a wholly-owned subsidiary
of the Company will acquire all of such holders' rights in and to the licenses,
permits, authorizations and other assets used in connection with each of the
stations. Four of the agreements provide for a purchase price of $5,000 and two
of the agreements provide for a purchase price of $75,000. The transactions
are anticipated to close by the end of the second quarter of fiscal 1998 and
are subject to regulatory approvals. Upon the closing of these transactions,
the Company will have no further obligations to the related parties thereunder
regarding these LPTV stations.
7. SHAREHOLDERS' EQUITY:
COMMON STOCK
The Company currently has authorized 100,000,000 shares of undesignated
capital stock, of which approximately 28,842,000 shares were issued and
outstanding as Common Stock as of January 31, 1997. The Board of Directors can
establish new classes and series of capital stock by resolution without
shareholder approval. The Company's Sixth Amended and Restated Articles of
Incorporation, which were approved at the 1994 Annual Meeting of Shareholders,
eliminated Class B Common Stock, Class A Convertible Preferred Stock and Class
B Convertible Preferred Stock.
Prior to the adoption of the Sixth Amended and Restated Articles of
Incorporation, the Company's Articles of Incorporation provided for two classes
of common stock, Class A Common Stock and Class B Common Stock. The Company's
Class A and Class B Common Stock were substantially identical in all respects,
except that Class B Common Stock had a four to one per share voting advantage
over Class A Common Stock. Class B Common Stock was convertible into Class A
Common Stock on a share-for-share basis at any time. The Company's amended and
restated Articles of Incorporation limited the transfer of Class B Common
Stock to permitted transferees, as defined. Additionally, the Class B Common
Stock automatically converted to Class A Common Stock in the event that the
holder thereof violated certain non-compete clauses, including competing
directly or indirectly with the Company.
55
<PAGE> 56
VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997 AND 1996
(CONTINUED)
WARRANTS
As discussed further in Note 3, in fiscal 1996, the Company issued
Montgomery Ward warrants to purchase 25 million shares of common stock of the
Company, subject to adjustment (25,770,461 as adjusted through January 31,
1996), with exercise prices ranging from $6.50 to $17.00 per share, with an
average price of $9.16 per share.
In July 1996, in connection with the acquisition of MWD, the Company's
strategic alliance with Montgomery Ward was restructured and amended whereby
new vested warrants to purchase 3,684,467 shares of the Company's common stock
at an exercise price of $.01 per share were issued to Montgomery Ward in
exchange for the 25,770,461 vested warrants currently held. In addition, the
Company issued 1,484,993 new vested warrants with a fair market value of
$8,353,000 and exercisable at $.01 per share to Montgomery Ward as full
consideration for the acquisition of MWD.
In July 1996, the Company also issued 199,097 new vested warrants with a
fair market value of $1,131,000 and exercisable at $.01 per share as a limited
partnership investment contribution.
UNDERWRITER OPTIONS
In connection with the Company's fiscal 1992 initial public offering, the
Company issued options to purchase up to an aggregate 72,000 units for $5.23
per unit. Each unit consisted of three shares of common stock, three Class A
Warrants and one-quarter of a Class B Warrant, subject to adjustment pursuant
to antidilution provisions as defined. At the beginning of fiscal 1997, 20,400
units had been previously exercised. During the year ended January 31, 1997,
options to purchase the remaining 51,600 units were exercised in full and
resulted in the issuance of 509,550 shares of common stock. The Company
received proceeds of approximately $1,051,000 relating to this exercise. No
unit purchase options were exercised in fiscal 1996 or 1995.
The underwriters of the fiscal 1994 common stock offering were given
options to purchase up to 400,000 shares of common stock at an initial
exercise price of $16.41 per share, subject to certain specified adjustments,
as defined, exercisable until November 15, 1998. No underwriter options were
exercised in fiscal 1997, 1996 or 1995.
STOCK OPTIONS
The Company has adopted an incentive stock option plan ("the 1990 Plan"),
as amended, which provides for the grant of options to employees to purchase up
to 2,150,000 shares of the Company's common stock. In addition to options
granted under the 1990 Plan, the Company has also granted nonqualified stock
options to purchase shares of the Company's common stock to current and former
directors, a consultant and certain employees. The exercise price for options
granted under the 1990 Plan are determined by the stock option committee of the
Board of Directors, but shall not be less than the fair market value of the
shares on the date of grant. The options' maximum term may not exceed 10 years
from the date of grant. Options are exercisable in whole or in installments,
as determined by the stock option committee, and are generally exercisable in
annual installments of 20% to 33% commencing one year after grant. The
exercise price of the nonqualified stock options equaled the market value of
the Company's common stock at the date of grant and the maximum term of such
options does not exceed 10 years from the date of grant.
56
<PAGE> 57
VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997 AND 1996
(CONTINUED)
The Company accounts for its stock options under Accounting Principles
Board Opinion No. 25 and has adopted the disclosure-only provisions of
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS No. 123"). Accordingly, no compensation cost
has been recognized in the accompanying consolidated statements of operations.
Had compensation cost related to these options been determined based on the
fair value at the grant date for awards granted in fiscal 1997 and 1996,
consistent with the provisions of SFAS No. 123, the Company's net income and
net income per share would have been reduced to the following pro forma
amounts:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Net income: As reported $18,089,700 $11,019,600
Pro forma 17,794,500 10,775,500
Net income per share: As reported $0.57 $0.38
Pro forma 0.56 0.38
</TABLE>
Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to February 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.
The weighted average fair values of options granted were as follows:
<TABLE>
<CAPTION>
Incentive Nonqualified
Stock Stock
Options Options
--------- ------------
<S> <C> <C>
Fiscal 1997 grants $3.36 $3.46
Fiscal 1996 grants 3.20 1.78
</TABLE>
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following
weighted-average assumptions used for grants in fiscal 1997 and 1996,
respectively: risk-free interest rates of 6.0 and 6.2 percent; expected
volatility of 46 and 45 percent; and expected lives of 7.5 years. Dividend
yields were not used in the fair value computations as the Company has never
declared or paid dividends on its common stock and currently intends to retain
earnings for use in operations.
57
<PAGE> 58
VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997 AND 1996
(CONTINUED)
A summary of the status of the Company's stock option plan as of January
31, 1997, 1996, and 1995 and changes during the years then ended is presented
below:
<TABLE>
<CAPTION>
Weighted Non- Weighted
Incentive Average qualified Average
Stock Exercise Stock Exercise
Options Price Options Price
---------- -------- --------- --------
<S> <C> <C> <C> <C>
Balance outstanding, January 31, 1994 880,002 $4.28 175,000 $3.27
Granted 760,863 5.00 190,000 4.32
Exercised (158,666) 1.12 - -
Forfeited or canceled (290,863) 8.23 - -
--------- -------- --------- --------
Balance outstanding, January 31, 1995 1,191,336 4.20 365,000 3.82
Granted 344,322 5.50 190,000 5.08
Exercised (27,322) 2.90 (50,000) 1.25
Forfeited or canceled (6,500) 4.37 - -
--------- -------- --------- --------
Balance outstanding, January 31, 1996 1,501,836 4.52 505,000 4.55
Granted 151,000 5.74 325,000 5.62
Exercised (35,600) 2.79 - -
Forfeited or canceled (9,400) 4.84 - -
--------- -------- --------- --------
Balance outstanding, January 31, 1997 1,607,836 $4.67 830,000 $4.97
========= ======== ========= ========
Options exercisable at:
January 31, 1997 971,000 $4.24 505,000 $4.55
========= ======== ========= ========
January 31, 1996 759,000 $3.97 315,000 $4.22
========= ======== ========= ========
January 31, 1995 378,000 $3.97 365,000 $3.82
========= ======== ========= ========
</TABLE>
58
<PAGE> 59
VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997 AND 1996
(CONTINUED)
The following table summarizes information regarding stock options outstanding
at January 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------- -----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
RANGE OF OPTIONS EXERCISE REMAINING OPTIONS EXERCISE
OPTION TYPE EXERCISE PRICES OUTSTANDING PRICE CONTRACTUAL LIFE EXERCISABLE PRICE
----------- --------------- ----------- -------- ---------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
INCENTIVE: $1.00 - $2.53 210,336 $1.51 3.2 YEARS 210,000 $1.51
$4.00 - $6.00 1,397,500 $5.14 6.0 761,000 $4.99
--------- -------
$1.00 - $6.00 1,607,836 $4.67 5.7 971,000 $4.24
========= =======
NONQUALIFIED: $1.25 25,000 $1.25 1.4 25,000 $1.25
$4.13 - $6.19 805,000 $5.08 6.0 480,000 $4.72
--------- -------
$1.25 - $6.19 830,000 $4.97 5.9 505,000 $4.55
========= =======
</TABLE>
STOCK OPTION TAX BENEFIT
The exercise of stock options which have been granted under the
Company's stock option plan gives rise to compensation which is includable in
the taxable income of the applicable employees and deductible by the Company
for federal and state income tax purposes. Such compensation results from
increases in the fair market value of the Company's common stock subsequent to
the date of grant of the applicable exercised stock options and is not
recognized as an expense for financial accounting purposes. The related tax
benefits are recorded as additional paid-in capital when realized, and totaled
$790,000 in fiscal 1997.
COMMON STOCK REPURCHASE PROGRAM
In fiscal 1996, the Company established a stock repurchase program
whereby the Company may repurchase shares of its common stock, up to a maximum
of $10 million, in the open market and through negotiated transactions, at
prices and times deemed to be beneficial to the long-term interests of
shareholders and the Company. During fiscal 1997, the Company repurchased
1,047,000 common shares under the program for a total cost of $5,826,000. No
shares were repurchased in fiscal 1996. In March 1997, the Company's Board of
Directors authorized an additional repurchase of up to $10 million of the
Company's common stock.
59
<PAGE> 60
VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997 AND 1996
(CONTINUED)
8. LONG-TERM OBLIGATIONS:
In conjunction with the acquisition of WAKC (see Note 4), the Company
entered into three covenant not-to-compete agreements with former employees and
majority stockholders of WAKC involving aggregate consideration of $1,000,000
to be paid in five equal annual installments commencing in April 1995.
Obligations under these non-compete agreements were initially reflected in the
accompanying consolidated balance sheets at a present value of approximately
$778,000 based upon an 8% imputed interest rate and are being amortized on a
straight-line basis over the term of the agreements. The long-term and current
portions of this obligation at January 31, 1997 were $306,000 and $200,000,
respectively.
As a result of the Company's recent acquisitions, the Company leases
computer and telephone equipment under noncancelable capital leases and
includes these assets as part of property and equipment in the accompanying
consolidated balance sheets. At January 31, 1997, the capitalized cost of
leased equipment was approximately $539,000 and the related accumulated
depreciation was approximately $93,000. Future minimum lease payments for
assets under capital leases at January 31, 1997 are as follows:
<TABLE>
<CAPTION>
Fiscal Year
-----------
<S> <C>
1998 $ 284,000
1999 243,000
2000 224,000
2001 76,000
---------
Total minimum lease payments 827,000
Less: Amounts representing interest (97,000)
---------
730,000
Less: Current portion (193,000)
---------
Long-term capital lease obligation $ 537,000
=========
</TABLE>
The Company has entered into a $600,000, 10 year note payable
arrangement in connection with the purchase of land to be used in the
Company's fulfillment operations. The note bears interest, payable in monthly
installments, at 7.5% for the first five years and at Prime interest thereafter
until maturity. The principal amount matures and is payable in December 2006.
The note is collateralized by the underlying related property.
60
<PAGE> 61
VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997 AND 1996
(CONTINUED)
9. INCOME TAXES:
The Company records deferred taxes for differences between the
financial reporting and income tax bases of certain assets and liabilities,
computed in accordance with tax laws in effect at that time. The differences
which give rise to deferred taxes were as follows:
<TABLE>
<CAPTION>
January 31,
---------------------------------
1997 1996
---- ----
<S> <C> <C>
Accruals and reserves not currently
deductible for tax purposes $ 2,579,000 $ 988,000
Inventory capitalization 541,000 219,000
Deferred catalog costs (667,000) -
Start-up costs capitalized for tax purposes 30,000 64,000
Net tax carryforwards 198,000 977,000
Differences in depreciation lives and (1,237,000) (1,031,000)
methods
Difference in investments and other items (1,028,000) (967,000)
----------- -----------
Net deferred tax asset $ 416,000 $ 250,000
=========== ===========
</TABLE>
The net tax carryforwards at January 31, 1997 consist of alternative
minimum tax carryforwards which are available to offset future taxable income.
The realization of the carryforwards is dependent upon the generation of taxable
income in future years as well as any limitations on utilization imposed by the
Internal Revenue Code relating to ownership changes.
The provision (benefit) for income taxes consisted of the following:
<TABLE>
<CAPTION>
Years Ended January 31,
----------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Current $11,434,000 $350,000 $ -
Deferred 166,000 (250,000) -
----------- -------- ------------
$11,600,000 $100,000 $ -
=========== ======== ============
</TABLE>
61
<PAGE> 62
VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997 AND 1996
(CONTINUED)
A reconciliation of income taxes computed at the statutory rates to the
Company's effective tax rate is as follows:
<TABLE>
<CAPTION>
Years Ended January 31,
---------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Taxes at federal statutory rates 35.0% 35.0% (35.0%)
State income taxes, net of federal tax benefit 4.1 5.0 (5.0)
Effect of recognition of previously unrecorded
deferred tax assets - (39.1) 40.0
---- ----- ----
Effective tax rate 39.1% .9% -%
==== ===== ====
</TABLE>
10. COMMITMENTS AND CONTINGENCIES:
CABLE AFFILIATION AGREEMENTS
As of January 31, 1997, the Company had entered into 3 to 7 year
affiliation agreements with eleven multiple systems operators ("MSOs") which
require each MSO to offer the Company's cable television home shopping
programming on a full-time basis over their cable systems. Under certain
circumstances, these cable television operators may cancel their agreements
prior to expiration. The affiliation agreements provide that the Company will
pay each MSO a monthly cable access fee and marketing support payment based upon
the number of homes carrying the Company's television home shopping
programming. For the years ended January 31, 1997, 1996 and 1995, the Company
paid approximately $15,182,000, $12,078,000 and $4,531,000, under these
long-term cable affiliation agreements.
The Company has entered into, and will continue to enter into,
affiliation agreements with other cable television operators providing for full-
or part-time carriage of the Company's television home shopping programming.
Under certain circumstances the Company may be required to pay the cable
operator a one time initial launch fee which is capitalized and amortized on a
straight-line basis over the term of the agreement.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with its chief
executive officer and chief operating officer which expire on January 31, 1999.
The employment agreements provide that each officer, in addition to a base
salary, were granted options to purchase 375,000 shares of common stock at
$8.50 per share and 375,000 shares of common stock at $10.50 per share.
The options vest and become exercisable at the earlier of the Company
achieving certain net income goals, as defined, or in September 2003.
In addition, the Company has entered into employment agreements with a
number of officers of the Company and its subsidiaries for terms ranging from 24
to 36 months. These agreements specify, among other things, the term and duties
of employment, compensation and benefits, termination of employment (including
for cause, which would reduce the Company's total obligation under these
agreements), severance payments and non-disclosing and non-compete
restrictions. The aggregate commitment for future base compensation at January
31, 1997 was approximately $2,498,000.
62
<PAGE> 63
VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997 AND 1996
(CONTINUED)
OPERATING LEASE COMMITMENTS
The Company leases certain property and equipment under non-cancelable
operating lease agreements. Property and equipment covered by such operating
lease agreements include the Company's main corporate office and warehousing
facility, offices and warehousing facilities at subsidiary locations, satellite
transponder and certain tower site locations.
Future minimum lease payments at January 31, 1997 were as follows:
<TABLE>
<CAPTION>
Fiscal
Year Amount
------ ------
<S> <C>
1998 $ 4,077,000
1999 3,712,000
2000 3,563,000
2001 2,617,000
2002 and thereafter 11,356,000
</TABLE>
Total lease expense under such agreements was approximately $4,222,000
in 1997, $3,348,000 in 1996 and $3,031,000 in 1995.
RETIREMENT AND SAVINGS PLAN
During fiscal 1995, the Company implemented a qualified 401(k)
retirement savings plan covering substantially all employees. The plan allows
the Company's employees to make voluntary contributions to the plan. The
Company's contribution, if any, is determined annually at the discretion of the
Board of Directors. There were no contributions to the plan for fiscal 1997
and 1996 or 1995.
11. LITIGATION:
In January 1994, the Company proposed an acquisition of National Media
Corporation ("National Media"). In February 1994, the Company announced a
tender offer for a majority of the outstanding shares of National Media. In
March 1994, the Company and National Media entered into a merger agreement and
the Company modified the terms of its tender offer. In April 1994, the Company
terminated its tender offer and the merger agreement with National Media based
upon inaccurate representations and breach of warranties by National Media, and
based upon adverse developments concerning National Media. Litigation
challenging the Company's termination of the tender offer and merger agreement
was subsequently filed by National Media and its former chief executive officer
and president. In addition, shareholders of National Media filed four
purported class action lawsuits against the Company and certain officers of the
Company. Each of these suits alleged deception and manipulative practices by
the Company in connection with the tender offer and merger agreement.
63
<PAGE> 64
VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997 AND 1996
(CONTINUED)
In fiscal 1996, the Company, National Media and National Media's former
chief executive officer and president agreed to dismiss all claims, to enter
into joint operating agreements involving telemarketing and post-production
capabilities, and to enter into an international joint venture agreement.
Under the agreement, the Company received ten-year warrants, which vest over
three years, to purchase 500,000 shares of National Media's common stock at a
price of $8.865 per share. In November 1996, the Company and National Media
amended their agreement by providing for the additional payment by the Company
to National Media of $1.2 million as additional exercise price on the warrants.
An initial $400,000 was paid upon signing the amendment with two additional
annual installments of $400,000 to be paid on each of September 1, 1997 and
1998.
In March 1997, the court gave final approval to a $1.0 million
settlement, which was paid by the Company from insurance proceeds, in the
matter of the class action suit initiated by certain shareholders of National
Media. During the year ended January 31, 1996, the Company recorded a
provision of $617,000 for estimated costs associated with settling the National
Media shareholder class action suit. The Company is not a party to any other
material legal proceeding.
12. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENT:
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128, "Earnings per Share" ("SFAS No. 128") in
February 1997. SFAS No. 128 establishes accounting standards for computing and
presenting earnings per share ("EPS") and is effective for reporting periods
ending after December 15, 1997. Management believes that the adoption of SFAS
No. 128 will not have a material impact on the Company's calculation of EPS.
64
<PAGE> 65
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
65
<PAGE> 66
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information in response to this Item is incorporated herein by reference
to the Company's definitive proxy statement to be filed pursuant to Regulation
14A within 120 days after the end of the fiscal year covered by this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Information in response to this Item is incorporated herein by reference
to the Company's definitive proxy statement to be filed pursuant to Regulation
14A within 120 days after the end of the fiscal year covered by this Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
Information in response to this Item is incorporated herein by reference
to the Company's definitive proxy statement to be filed pursuant to Regulation
14A within 120 days after the end of the fiscal year covered by this Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS
Information in response to this Item is incorporated herein by reference
to the Company's definitive proxy statement to be filed pursuant to Regulation
14A within 120 days after the end of the fiscal year covered by this Form 10-K.
66
<PAGE> 67
PART IV
ITEM 14. EXHIBITS, LISTS AND REPORTS ON FORM 8-K
EXHIBIT INDEX
a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number
- ------
<S> <C>
3 (1) __ Sixth Amended and Restated Articles of Incorporation, as amended. (D)
3 (2) __ Bylaws, as amended. (D)
10 (1) __ Form of Financing Agreement between the Registrant and Owner of affiliated LPT stations (i) for which
construction permits have been applied for and (ii) for which the Company has an option to purchase. (A)
10 (2) __ Form of Financing Agreement between the Registrant and Owner of affiliated LPTV stations (i) for which
construction permits have been granted and (ii) for which the Company has an option to purchase. (A)
10 (3) __ Form of Financing Agreement between the Registrant and Owner of affiliated LPTV stations (i) for which
construction permits have been applied for and (ii) for which the Company has a right of first refusal to
purchase. (A)
10 (4) __ Form of Financing Agreement between the Registrant and Owner of affiliated LPTV stations (i) for which
construction permits have been granted and (ii) for which the Company has a right of first refusal to purchase. (A)
10 (5) __ Financing Agreement Summary. (A)
10 (6) __ Amended 1990 Stock Option Plan of the Registrant. (A)+
10 (7) __ Telecommunications Terminal Site Access Agreement for Channel 7. (A)
10 (8) __ Assumption of Telecommunications Terminal Site Access Agreement for Channel 7, letter dated
June 26, 1990. (A)
10 (9) __ Option Agreement between the Registrant and Steve Cunningham dated April 15, 1992. (A)+
10 (10) __ Option Agreement between the Registrant and Mark A. Payne dated as of January 5, 1993. (A)+
10 (11) __ Option Agreement between the Registrant and Steve Cunningham dated as of June 24, 1993. (B)+
10 (12) __ Option Agreement between the Registrant and Marshall Geller dated as of June 24, 1993. (B)
10 (13) __ Option Agreement between the Registrant and Robert Korkowski dated as of June 24, 1993. (B)
10 (14) __ Option Agreement between the Registrant and Edward Karr dated as of July 8, 1993. (B)+
10 (15) __ Option Agreement between the Registrant and Stephen P. Cunningham dated as of
August 30, 1993. (B)+
10 (16) __ Option Agreement between the Registrant and Michael Jones dated as of August 30, 1993. (B)+
10 (17) __ Option Agreement between the Registrant and Mark A. Payne dated as of August 30, 1993. (B)+
10 (18) __ Employment Agreement between the Registrant and Edward Karr dated as of July 8, 1993. (B)+
10 (19) __ Employment Agreement between the Registrant and Michael Jones dated as of August 30, 1993. (B)+
10 (20) __ Employment Agreement between the Registrant and Robert Johander dated as of
September 1, 1993. (B)+
10 (21) __ Employment Agreement between the Registrant and Nicholas Jaksich dated as of
September 1, 1993. (B)+
10 (22) __ Transponder Lease Agreement between the Registrant and Hughes Communications Galaxy, Inc. dated as of
July 23, 1993 as supplemented by letters dated as of July 23, 1993. (B)
10 (23) __ Transponder Service Agreement between the Registrant and Hughes Communications Satellite Services, Inc. (B)
10 (24) __ Option Agreement between the Registrant and Stuart R. Romenesko dated March 31, 1994. (C)+
</TABLE>
67
<PAGE> 68
ITEM 14. EXHIBITS, LISTS AND REPORTS ON FORM 8-K
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number
- ------
<S> <C>
10 (25) __ Option Agreement between the Registrant and Gary Kazmer dated as of June 7, 1994. (D)+
10 (26) __ Option Agreement between the Registrant and Arthur Laffer dated as of June 16, 1994. (D)
10 (27) __ Industrial Space Lease Agreement between Registrant and Shady Oak Partners dated
August 31, 1994. (D)
10 (28) __ Credit Card License & Receivables Sales Agreement dated March 13, 1995 by and between the
Registrant and Montgomery Ward & Co. (E)
10 (29) __ Option Agreement between the Registrant and Mark A. Payne dated as of March 14, 1995 (F) +
10 (30) __ Option Agreement between the Registrant and Stuart R. Romenesko dated May 1, 1995. (F)+
10 (31) __ Option Agreement between the Registrant and Gary Kazmer dated June 1, 1995. (F)+
10 (32) __ Option Agreement between the Registrant and Marshall Geller dated August 8, 1995. (F)+
10 (33) __ Option Agreement between the Registrant and Robert Korkowski dated August 8, 1995. (F)+
10 (34) __ Option Agreement between the Registrant and Edward Karr dated August 24, 1995. (F)+
10 (35) __ Employment Agreement between the Registrant and Scott Lindquist dated November 30, 1995. (F)+
10 (36) __ Employment Agreement between the Registrant and Edward Karr dated September 1, 1995. .(F)+
10 (37) __ Option Agreement between the Registrant and Dominic Mangone dated November 15, 1995. (F)+
10 (38) __ Option Agreement between the Registrant and Scott Lindquist dated November 10, 1995. (F)+
10 (39) __ Option Agreement between the Registrant and Stuart R. Romenesko dated January 5, 1996. (F)+
10 (40) __ Option Agreement between the Registrant and Scott Lindquist dated January 5, 1996. (F)+
10 (41) __ Asset Purchase Agreement dated July 27, 1996 between Montgomery Ward Direct, L.P.
and ValueVision Direct Marketing Company, Inc. (G)
10 (42) __ Amended and Restated Operating Agreement dated July 27, 1996 between
Montgomery Ward & Co., Incorporated and ValueVision International, Inc. (G)
10 (43) __ Agreement dated July 27, 1996 between Signature Financial / Marketing, Inc. and
ValueVision International, Inc. (G)
10 (44) __ Amended and Restated Servicemark License Agreement dated July 27, 1996 between
Montgomery Ward & Co., Incorporated and ValueVision International, Inc. (G)
10 (45) __ Letter agreement between Montgomery Ward & Co., Incorporated and
ValueVision International, Inc. (G)
10 (46) __ Amended and Restated Warrant Agreement dated July 27, 1996 among ValueVision
International, Inc. , Montgomery Ward & Co., Incorporated and Montgomery Ward Direct, L.P. (G)
10 (47) __ Amended and Restated Registration Rights Agreement dated July 27, 1996 among
ValueVision International, Inc. Montgomery Ward & Co., Incorporated and Montgomery
Ward Direct L.P. (G)
10 (48) __ Restructuring Agreement dated July 27, 1996 between Montgomery Ward & Co., Incorporated
Inc., and ValueVision International, Inc. (H)
10 (49) __ Agreement dated July 27, 1996 among Merchant Advisors, Limited Partnership,
Montgomery Ward & Co., Incorporated and ValueVision International, Inc. (H)
10 (50) __ Asset Purchase Agreement dated as of November 21, 1996 by and among the Registrant,
VVI Manassas, Inc., WVVI (TV), Inc., Paxson Communications of Washington - 66, Inc.
and Paxson Communications Corporation.
10 (51) __ Employment Agreement between the Registrant and David T. Quinby dated February 1, 1997.+
10 (52) __ Option Agreement between the Registrant and David T. Quinby dated February 1, 1997.+
10 (53) __ Option Agreement between the Registrant and Stuart R. Romenesko dated March 20, 1997.+
68
</TABLE>
<PAGE> 69
ITEM 14. EXHIBITS, LISTS AND REPORTS ON FORM 8-K
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number
- ------
<S> <C>
11 __ Computation of Net Income (Loss) per share.
21 __ Significant Subsidiaries of the Registrant.
23 __ Consent of Arthur Andersen LLP.
27 __ Financial Data Schedule (for SEC use only).
69
</TABLE>
<PAGE> 70
ITEM 14. EXHIBITS, LISTS AND REPORTS ON FORM 8-K
EXHIBIT INDEX
_______________________________
<TABLE>
<S> <C>
(A) Incorporated herein by reference to Registration Statement No. 33-38374 and Form S-1, as amended on Form SB-2.
(B) Incorporated herein by reference to Registration Statement No. 33-70256 on Form S-3, as amended.
(C) Incorporated herein by reference to the Company's Form 10-K/A, as amended for the year ended
January 31, 1994.
(D) Incorporated herein by reference to the Company's Form 10-QSB, for the quarter ended August 31, 1994, filed on
September 13, 1994.
(E) Incorporated by reference to the Company's Report on Form 8-K dated March 13, 1995.
(F) Incorporated herein by reference to the Company's Form 10-K, for the year ended January 31, 1996
(G) Incorporated by reference to the Company's Report on Form 8-K dated September 27, 1996, filed on October 10, 1996.
(H) Incorporated by reference to the Company's Report on Form 10-Q for the quarter ended July 31, 1996.
+ Management compensatory plan/arrangement.
b) Reports on Form 8-K
The Company filed a Form 8-K on October 11, 1996 (which was amended
by a Form 8-K/A filed on December 17, 1996) reporting (i) under Item 2.
the acquisition of substantially all of the assets of Montgomery Ward
Direct, L.P., a four-year old catalog business of Montgomery Ward & Co.,
Incorporated, and a restructuring agreement as of July 27, 1996 whereby
the Company and Montgomery Ward agreed to the expansion and amendment of
certain operating and license agreements and (ii) under Item 7. the
financial statements as of December 29, 1995 and December 30, 1994 and
interim financial statements for the seven month periods ended July 26,
1996 and July 28, 1995 of Montgomery Ward Direct, L.P. , together with
pro forma financial information as of July 31, 1996.
</TABLE>
70
<PAGE> 71
This Page Intentionally Left Blank
71
<PAGE> 72
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized, on April 29, 1997.
ValueVision International, Inc.
(registrant)
By: /s/ Robert L. Johander
-----------------------------
Robert L. Johander
Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities indicated
on April 29, 1997.
<TABLE>
<CAPTION>
Name Title
- ---- -----
<S> <C>
/s/ Robert L. Johander
- -------------------------------------- Chairman of the Board, Chief Executive
Robert L. Johander Officer (Principal Executive Officer) and Director
/s/ Nicholas M. Jaksich
- -------------------------------------- Chief Operating Officer, President and Director
Nicholas M. Jaksich
/s/ Stuart R. Romenesko
- -------------------------------------- Senior Vice President Finance and Chief Financial
Stuart R. Romenesko Officer (Principal Financial and Accounting Officer)
/s / Marshall S. Geller
- -------------------------------------- Director
Marshall S. Geller
/s/ Paul D. Tosetti
- -------------------------------------- Director
Paul D. Tosetti
/s/ Robert J. Korkowski
- -------------------------------------- Director
Robert J. Korkowski
/s / John Workman
- -------------------------------------- Director
John Workman
</TABLE>
72
<PAGE> 1
EXHIBIT 10.50
ASSET PURCHASE AGREEMENT
DATED AS OF NOVEMBER 21, 1996
BY AND AMONG
VALUEVISION INTERNATIONAL, INC.;
VVI MANASSAS, INC.; WVVI(TV), INC.;
PAXSON COMMUNICATIONS OF WASHINGTON-66, INC.;
AND
PAXSON COMMUNICATIONS CORPORATION
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 1 CERTAIN DEFINITIONS .................................. 1
1.1 Terms Defined in this Section ........................ 1
1.2 Terms Defined Elsewhere in this Agreement ............ 4
SECTION 2 PURCHASE AND SALE OF ASSETS .......................... 6
2.1 Agreement to Sell and Buy ............................ 6
2.2 Excluded Assets ...................................... 7
2.3 Purchase Price and Purchase Price Adjustment ......... 8
2.4 Working Capital Credits and Payment .................. 9
(a) Prorations ...................................... 9
(b) Expenses and Revenues Not Prorated .............. 9
(c) Manner of Determining Prorations and Credits .... 10
(d) Payments at Closing With Respect to
Working Capital Credits ......................... 10
(e) Payments to Reflect Final Determination of
Working Capital Credits ......................... 11
2.5 Assumption of Liabilities and Obligations ............ 11
SECTION 3 REPRESENTATIONS AND WARRANTIES OF SELLERS
AND VALUEVISION ...................................... 12
3.1 Organization, Standing, and Authority ................ 12
3.2 Authorization and Binding Obligation ................. 12
3.3 Absence of Conflicting Agreements .................... 12
3.4 Governmental Licenses ................................ 13
3.5 Real Property ........................................ 13
3.6 Tangible Personal Property ........................... 13
3.7 Contracts ............................................ 13
3.8 Consents ............................................. 14
3.9 Intangibles .......................................... 14
3.10 Financial Statements ................................. 14
3.11 Insurance ............................................ 14
3.12 Reports .............................................. 14
3.13 Labor Relations ...................................... 14
3.14 Taxes ................................................ 14
3.15 Claims and Legal Actions ............................. 15
3.16 Compliance with Licenses ............................. 15
3.17 Conduct of Business in Ordinary Course ............... 15
</TABLE>
- i -
<PAGE> 3
<TABLE>
<S> <C> <C>
3.18 Transactions with Affiliates ......................... 15
3.19 No Broker ............................................ 15
3.20 Accredited Investor; Investment Knowledge;
Distribution ......................................... 15
3.21 Disclaimer of Warranties ............................. 16
SECTION 4 REPRESENTATIONS AND WARRANTIES OF BUYER AND PCC ...... 16
4.1 Organization, Standing, and Authority ................ 16
4.2 Authorization and Binding Obligation ................. 16
4.3 Absence of Conflicting Agreements .................... 16
4.4 Licensee Qualifications .............................. 17
4.5 No Broker ............................................ 17
4.6 Acknowledgment of "As-Is-Where-Is" Sale .............. 17
SECTION 5 OPERATIONS OF THE STATION PRIOR TO CLOSING ........... 18
5.1 Generally ............................................ 18
5.2 Contracts ............................................ 18
5.3 Disposition of Assets ................................ 18
5.4 Encumbrances ......................................... 18
5.5 Licenses ............................................. 18
5.6 Obligations .......................................... 18
5.7 Exclusivity .......................................... 19
5.8 Access to Information ................................ 19
5.9 Maintenance of Assets ................................ 20
5.10 Insurance ............................................ 20
5.11 Consents ............................................. 20
5.12 Books and Records .................................... 20
5.13 Notification ......................................... 20
5.14 Financial Information ................................ 20
5.15 Compliance with Laws ................................. 20
SECTION 6 SPECIAL COVENANTS AND AGREEMENTS ..................... 21
6.1 FCC Consent .......................................... 21
6.2 Control of the Station ............................... 21
6.3 Risk of Loss ......................................... 21
6.4 Confidentiality ...................................... 22
6.5 Cooperation .......................................... 22
6.6 Access to Books and Records .......................... 22
6.7 [Intentionally omitted] .............................. 22
6.8 HSR Act Filing ....................................... 22
6.9 Title to Real Property ............................... 23
6.10 Environmental Survey ................................. 24
6.11 Engineering Study .................................... 24
</TABLE>
- ii -
<PAGE> 4
<TABLE>
<S> <C> <C>
6.12 Sales Tax Filings .................................... 25
6.13 Accounts Receivable .................................. 25
(a) Collection ..................................... 25
(b) Payments to ValueVision ........................ 25
(c) Further Obligations ............................ 25
6.14 No Inconsistent Action ............................... 25
6.15 CTN Lease ............................................ 26
6.16 Acquisition of Transmitter Site and Relocation
of Studio ............................................ 26
SECTION 7 CONDITIONS TO OBLIGATIONS OF BUYER AND SELLERS
AT CLOSING ........................................... 26
7.1 Conditions to Obligations of Buyer ................... 26
(a) FCC Consent .................................... 26
(b) [Intentionally omitted ......................... 26
(c) HSR Act ........................................ 26
(d) Deliveries ..................................... 26
(e) Station ........................................ 26
7.2 Conditions to Obligations of Sellers ................. 26
(a) Representations and Warranties ................. 26
(b) Covenants and Conditions ....................... 27
(c) Deliveries ..................................... 27
(d) FCC Consent .................................... 27
(e) HSR Act ........................................ 27
(f) Judgments ...................................... 27
SECTION 8 CLOSING AND CLOSING DELIVERIES ....................... 27
8.1 Closing .............................................. 27
(a) Closing Date ................................... 27
(b) Closing Place .................................. 28
8.2 Deliveries by Sellers ................................ 28
(a) Deeds .......................................... 28
(b) Other Conveyancing Documents ................... 28
(c) Working Capital Payment ........................ 28
(d) Estoppel Certificates and Lessor's Consents .... 28
(e) Consents ....................................... 28
(f) Certificate .................................... 28
(g) Licenses, Contracts, Business Records, Etc...... 28
8.3 Deliveries by Buyer and PCC .......................... 29
(a) Purchase Price ................................. 29
(b) Working Capital Payment ........................ 29
(c) Assumption Agreements .......................... 29
(d) Certificate .................................... 29
</TABLE>
- iii -
<PAGE> 5
<TABLE>
<S> <C> <C>
SECTION 9 TERMINATION .......................................... 29
9.1 Termination by Sellers and ValueVision ............... 29
(a) Conditions ..................................... 29
(b) Judgments ...................................... 29
(c) Upset Date ..................................... 29
(d) Breach ......................................... 29
9.2 Termination by Buyer and PCC ......................... 30
(a) Title Defects .................................. 30
(b) Environmental Hazards .......................... 30
(c) Technical Deficiencies ......................... 30
(d) Material Contracts ............................. 30
9.3 Escrow Deposit ....................................... 30
9.4 Rights on Termination ................................ 31
9.5 Specific Performance ................................. 31
9.6 No Special Damages ................................... 32
SECTION 10 INDEMNIFICATION ...................................... 32
10.1 Indemnification by Sellers and ValueVision ........... 32
10.2 Indemnification by Buyer and PCC ..................... 32
10.3 Procedure for Indemnification ........................ 33
SECTION 11 [Intentionally omitted] .............................. 33
SECTION 12 MISCELLANEOUS ........................................ 34
12.1 Fees and Expenses .................................... 34
12.2 Notices .............................................. 34
12.3 Arbitration .......................................... 35
12.4 Benefit and Binding Effect ........................... 35
12.5 Further Assurances ................................... 36
12.6 GOVERNING LAW ........................................ 36
12.7 Headings ............................................. 36
12.8 Gender and Number .................................... 36
12.9 Entire Agreement ..................................... 36
12.10 Waiver of Compliance: Consents ....................... 36
12.11 Counterparts ......................................... 36
ADDENDUM I Registration Rights Provisions
</TABLE>
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<PAGE> 6
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT is dated as of November 21, 1996, by and
among VVI MANASSAS, INC., a Minnesota corporation("VVI Manassas"); WVVI(TV),
INC., a Virginia corporation ("WVVI"); VALUEVISION INTERNATIONAL INC., a
Minnesota corporation("ValueVision"); PAXSON COMMUNICATIONS OF WASHINGTON-66,
INC., a Florida corporation ("Buyer"); and PAXSON COMMUNICATIONS CORPORATION, a
Delaware corporation ("PCC").
PRELIMINARY STATEMENT
WHEREAS, WVVI is the licensee of television station WVVI in Manassas,
Virginia (the "Station") pursuant to licenses issued by the Federal
Communications Commission (the "FCC") and the owner of certain assets used in
the operation of the Station; and
WHEREAS, VVI Manassas is the owner of all of the outstanding capital stock
of WVVI and certain assets used in the operation of the Station; and
WHEREAS, VVI Manassas and WVVI desire to sell the assets used or held for
use in the operation of the Station to Buyer, and Buyer desires to purchase
such assets from VVI Manassas and WVVI, for the consideration and on the terms
and conditions herein provided; and
WHEREAS, each of VVI Manassas and WVVI is sometimes hereinafter referred
to as a "Seller," and together they are hereinafter sometimes referred to as
"Sellers."
AGREEMENTS
In consideration of the above recitals and of the mutual agreements and
covenants contained in this Agreement, the parties hereto, intending to be
bound legally, agree as follows:
SECTION 1 CERTAIN DEFINITIONS.
1.1 Terms Defined in this Section. The following terms, as used
in this Agreement, shall have the meanings set forth in this Section:
"Affiliate" means "affiliate" as defined in Rule 12b-2 promulgated
under the Exchange Act.
"Affirmative Decision" means either: (a) a ruling by the Supreme
Court in the Turner v. FCC case that affirms in whole (not in part) without
remand for further determination of any issues, the decision of the United
States District Court in Turner v. FCC, or (b) a ruling by the Supreme Court in
the Turner v. FCC case that affirms the constitutionality of Section 4 of the
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Cable Television Consumer Protection and Competition Act of 1992 as applied to
any class or category of television stations that is finally determined to
include the Station.
"Assets" means the assets to be sold, transferred, or otherwise
conveyed to Buyer under this Agreement, as specified in Section 2.1.
"Assumed Contracts" means (a) all Material Contracts, (b) any other
Contract listed on Schedule 3.7 with respect to which Sellers are able to
obtain and deliver to Buyer at or prior to the Closing any Consent required for
the assignment of such Contract to Buyer, (c) contracts entered into prior to
the date of this Agreement with advertisers for the sale of advertising time or
production services for cash at rates consistent with past practices, (d) any
Contracts entered into by any Seller between the date of this Agreement and the
Closing Date that Buyer agrees in writing to assume, and (e) other contracts
entered into by any Seller between the date of this Agreement and the Closing
Date in compliance with Section 5.2.
"Closing" means the consummation of the purchase and sale of the
Assets pursuant to this Agreement in accordance with the provisions of Section
8.
"Closing Date" means the date on which the Closing occurs, as
determined pursuant to Section 8.
"Consents" means the consents, permits, or approvals of government
authorities and other third parties necessary to transfer the Assets to Buyer or
otherwise to consummate the transactions contemplated by this Agreement,
including consents to the assignment of the Assumed Contracts.
"Contracts" means all contracts, leases, non-governmental licenses,
and other agreements (including leases for personal or real property and
employment agreements), written or oral (including any amendments and other
modifications thereto) to which any Seller is a party or that are binding upon
any Seller and that relate to or affect the Assets or the business or
operations of the Station, and (a) that are in effect on the date of this
Agreement or (b) that are entered into by any Seller between the date of this
Agreement and the Closing Date.
"CTN" means Capital Television Network, Inc., a Virginia corporation.
"Effective Time" means 12:01 a.m., Eastern time, on the Closing Date.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Escrow Agent" means First Union National Bank of Florida.
"Escrow Agreement" means the Escrow Agreement to be entered into among
Buyer, ValueVision, and the Escrow Agent in accordance with Section 9.3.
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<PAGE> 8
"Exchange Act" means the Securities and Exchange Act of 1934, as
amended.
"Excluded Assets" means the assets described in Section 2.2(a) through
(k) of this Agreement.
"FCC Consent" means action or actions by the FCC granting its consent to
the assignment of all the FCC Licenses to Buyer as contemplated by this
Agreement.
"FCC Licenses" means all Licenses issued by the FCC to Sellers in
connection with the existing or currently authorized business or operations of
the Station.
"Final Decision" means (a) a decision by the United States Supreme
Court from which no further rehearing, remand, stay, injunction or other
judicial proceedings are required or may be taken, or (b) a decision by a lower
federal court, after remand from the United States Supreme Court, from which no
further appeal, writ of certiorari, rehearing, remand, stay, injunction or
other judicial proceedings are required or may be taken.
"Final Order" means an action by the FCC that has not been reversed,
stayed, enjoined, set aside, annulled, or suspended, and with respect to which
no requests are pending for administrative or judicial review, reconsideration,
appeal, or stay, and the time for filing any such requests and the time for the
FCC to set aside the action on its own motion have expired.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"Intangibles" means all copyrights, trademarks, trade names, service
marks, service names, licenses, patents, permits, jingles, proprietary
information, technical information and data, machinery and equipment
warranties, and other similar intangible property rights and interests (and any
goodwill associated with any of the foregoing) applied for, issued to, or owned
by any Seller or under which any Seller is licensed or franchised and that are
used or useful in the business and operations of the Station, together with any
additions thereto between the date of this Agreement and the Closing Date.
"Licenses" means all licenses, permits, construction permits, and other
authorizations issued by the FCC, the Federal Aviation Administration, or any
other federal, state, or local governmental authorities to any Seller,
currently in effect and used in connection with the conduct of the business or
operations of the Station, together with any additions thereto between the date
of this Agreement and the Closing Date.
"Material Contracts" means those Assumed Contracts that are designated
on Schedule 3.7 as "Material Contracts."
"NCCB" means National Capital Christian Broadcasting, Inc., a Virginia
corporation.
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<PAGE> 9
"PCC Common Stock" means fully paid, non-assessable shares of the Class
A Common Stock, $0.001 par value, of PCC, which shares shall not be registered
under the Securities Act when issued, but shall be subject to the registration
rights set forth in Addendum I to this Agreement.
"Permitted Encumbrances" means (a) liens for current taxes not yet due
and payable, (b) easements, covenants, conditions, and restrictions that are
disclosed on Schedule 3.5, (c) other easements, covenants, conditions, and
restrictions of record that affect any Real Property Interest and do not have a
material adverse effect on the use of such Real Property Interest in the
conduct of the business of the Station or materially detract from the value of
such Real Property Interest in the conduct of the business of the Station, and
(d) other Title Defects that constitute Permitted Encumbrances pursuant to
Section 6.9(c).
"Person" means an individual, corporation, association, partnership,
joint venture, joint stock company, trust, estate, limited liability company,
limited liability partnership, governmental entity, or other entity or
organization.
"Purchase Price" means the purchase price specified in Section 2.3.
"Real Property" means all real property, and all buildings and other
improvements thereon, whether or not owned or held by any Seller, used or
useful in the business or operations of the Station, subject to the provisions
of Section 6.16 of this Agreement.
"Real Property Interests" means all interests in real property,
including fee estates, leaseholds and subleaseholds, purchase options,
easements, licenses, rights to access, and rights of way, and all buildings and
other improvements thereon, owned or held by any Seller that are used or useful
in the business or operations of the Station, subject to the provisions of
Section 6.16 of this Agreement.
"Securities Act" means the Securities Act of 1933, as amended.
"Tangible Personal Property" means all machinery, equipment, tools,
vehicles, furniture, leasehold improvements, office equipment, plant,
inventory, spare parts, and other tangible personal property owned or held by
any Seller that is used or useful in the conduct of the business or operations
of the Station, together with any additions thereto between the date of this
Agreement and the Closing Date.
1.2 Terms Defined Elsewhere in this Agreement. For purposes of
this Agreement, the following terms have the meanings set forth in the Sections
indicated:
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<PAGE> 10
<TABLE>
<CAPTION>
Term Section
- ---- -------
<S> <C>
Adjustment Factor Section 2.3(c)
Buyer Preliminary Statement
Buyer's Working Capital Credits Section 2.4(a)
Claimant Section 10.3(a)
Collection Period Section 6.13(a)
Contingent Cash Payment Section 2.3(a)
CTN Lease Section 6.15
DOJ Section 6.8
Environmental Hazard Section 6.10(b)
FCC Preliminary Statement
Financial Statements Section 3.10
FTC Section 6.8
In A Material Way Section 8.2(f)
Indemnifying Party Section 10.3
Law Engineering Phase I Report Section 6.10(a)
Non-Discretionary Carriage Decision Section 2.3(c)
Non-Discretionary Carriage Homes Section 2.3(c)
PCC Preliminary Statement
PCC Stock Consideration Section 2.3(a)
Seller Preliminary Statement
Sellers' Working Capital Credits Section 2.4(a)
Station Preliminary Statement
Stations' Receivables Section 6.13(a)
Technical Deficiency Section 6.11(a)
Title Defect Section 6.9(b)
Transmitter Site Section 6.16
Turner v. FCC Section 2.3(a)
ValueVision Preliminary Statement
</TABLE>
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<PAGE> 11
VVI Manassas Preliminary Statement
Working Capital Credits Section 2.4(a)
WVVI Preliminary Statement
SECTION 2 PURCHASE AND SALE OF ASSETS.
2.1 Agreement to Sell and Buy. Subject to the terms and conditions set
forth in this Agreement, Sellers hereby agree to sell, transfer, convey,
assign, and deliver to Buyer on the Closing Date (and ValueVision agrees to
cause each other Seller to sell, transfer, convey, assign, and deliver to Buyer
on the Closing Date), and Buyer agrees to purchase, all of each Seller's right,
title, and interest in the tangible and intangible assets used or useful in
connection with the conduct of the business or operations of the Station,
together with any additions thereto between the date of this Agreement and the
Closing Date, but excluding the assets described in Section 2.2, free and clear
of any claims, liabilities, security interests, mortgages, liens, pledges,
conditions, charges, covenants, easements, restrictions, encroachments, leases,
or encumbrances of any nature (except for Permitted Encumbrances), including
the following:
(a) The Tangible Personal Property;
(b) The Real Property Interests;
(c) The Licenses;
(d) The Assumed Contracts;
(e) The Intangibles and all intangible assets of any Seller relating
to the operation of the Station that are not specifically included within the
Intangibles, including the goodwill of the Station, if any;
(f) All of each Seller's proprietary information, technical
information and data, machinery and equipment warranties, maps, computer discs
and tapes, plans, diagrams, blueprints, and schematics, including filings with
the FCC relating to the business and operation of the Station;
(g) All choses in action of any Seller relating to the ownership or
operations of the Station to the extent they relate to the period after the
Effective Time; and
(h) Copies of all books and records relating to the business or
operations of the Station, including executed copies of the Assumed Contracts,
and all records required by the FCC to be kept by the Station.
2.2 Excluded Assets. The Assets shall exclude the following:
(a) [Intentionally omitted.]
(b) Any Seller's cash on hand as of the Closing and any Seller's
interest in its bank accounts;
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<PAGE> 12
(c) Any insurance policies, promissory notes, amounts due from
employees, bonds, letters of credit, certificates of deposit, other similar
items, or deposits or prepaid items (except to the extent that Sellers receive
a Working Capital Credit for any such deposit or prepaid item pursuant to
Section 2.4(a)), and any cash surrender value in regard thereto;
(d) Any pension, profit-sharing, or employee benefit plans,
including any Seller's interest in any welfare plan, pension plan, or benefit
arrangement;
(e) Any collective bargaining agreements;
(f) All tax returns and supporting materials, all original financial
statements and supporting materials, all books and records that any Seller is
required by law to retain, and all records of any Seller relating to the sale
of the Assets;
(g) Any interest in and to any refunds of federal, state, or local
franchise, income, or other taxes for periods prior to the Closing Date;
(h) All accounts receivable of Sellers as of the Closing Date and
any intercompany accounts between the Sellers or any Affiliates thereof;
(i) Any claim or cause of action by any Seller relating to the
period before the Effective Time, including all claims arising under the
purchase agreement pursuant to which VVI Manassas purchased the Station and any
right to any funds deposited in the escrow account established pursuant to that
certain Indemnity Escrow Agreement dated as of March 28, 1994, by and among VVI
Manassas, NCCB, and Norwest Bank Minnesota, N.A.; and
(j) The property and equipment obtained by Sellers and their
Affiliates pursuant to that certain Agreement and Mutual Release with NCCB,
CTN, Lester R. Raker, and others entered into on or about April 11, 1996; and
(k) Any Real Property or Real Property Interest constituting the
current studio site utilized by the Station located at 9008 Center Street,
Manassas, Virginia 22110, or any proceeds of the foregoing, if Sellers shall
exercise their right pursuant to Section 6.16 of this Agreement to discontinue
use of such studio and relocate a similar studio to the Transmitter Site at no
cost or expense to Buyer; provided, however, that in the event Sellers exercise
such right pursuant to Section 6.16 and the studio shall not have been
relocated to the Transmitter Site prior to the Closing Date, Buyer shall have
the right, without payment of additional consideration to Sellers, to use the
current studio site until such studio shall have been relocated to the
Transmitter Site.
2.3 Purchase Price and Purchase Price Adjustment.
(a) Subject to Sections 2.3(b) and (c) hereof, the purchase price for
the Assets (the "Purchase Price") shall be Forty Million Dollars ($40,000,000),
payable as follows at Closing or as otherwise provided: (i) Twenty Million
Dollars ($20,000,000) in cash by wire transfer of immediately available funds,
plus (ii) a fixed number of shares of PCC Common Stock (the "PCC Stock
Consideration") equal to (x) Ten Million Dollars ($10,000,000) divided by (y)
the arithmetic average of the closing prices per share of PCC Common Stock as
reported on the
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<PAGE> 13
American Stock Exchange for the sixty (60) consecutive trading days commencing
on the first trading day following the date of execution of this Agreement,
plus (iii) a contingent payment (the "Contingent Cash Payment"), equal to Ten
Million Dollars ($10,000,000), payable in the event of an Affirmative Decision
in the case of Turner Broadcasting Systems, Inc. v. FCC, No. 95-922 ("Turner v.
FCC"), on the later to occur of (x) the Closing Date and (y) thirty (30) days
after any Final Decision that constitutes an Affirmative Decision.
(b) Notwithstanding Section 2.3(a) hereof, in the event that there is
any ruling by the United States Supreme Court in Turner v. FCC which is not an
Affirmative Decision, then the aggregate Purchase Price set forth in Section
2.3(a) hereof payable to Sellers shall be reduced to Thirty Million Dollars
($30,000,000), such adjustment to be effected as follows: (i) If the
adjustment required to be made to the Purchase Price arises on or before the
Closing Date, then Sellers may elect to adjust the Purchase Price by (x)
terminating PCC's obligation to issue the PCC Stock Consideration and electing
that the Contingent Cash Payment be made at Closing or (y) terminating Buyer's
obligation to make the Contingent Cash Payment, or (ii) if the adjustment
required to be made to the Purchase Price arises after the Closing, then,
within thirty (30) days after such decision, Sellers may elect to adjust the
Purchase Price by (x) returning all of the shares of PCC Stock Consideration
issued to Sellers at Closing upon the payment by Buyer to Sellers of the
Contingent Cash Payment or (y) terminating the Buyer's obligation to make the
Contingent Cash Payment. An election by Sellers to receive the Contingent Cash
Payment or PCC Stock Consideration under this Section 2.3(b) shall be
irrevocable once made, and any adjustment to the Purchase Price shall be made
solely pursuant to Section 2.3(c), if applicable.
(c) In the event the decision in Turner v. FCC is not an Affirmative
Decision, but nevertheless such decision (a "Non-Discretionary Carriage
Decision") results in the actual non-discretionary requirement of carriage, or
continuation of carriage, of the Station (not on an interim or temporary basis)
by one or more cable television systems through no effort of the Station other
than its election to be so carried (the cable homes on the cable television
systems carrying the Station as a result of any such Non-Discretionary Carriage
Decision being referred to herein as "Non-Discretionary Carriage Homes"), the
Purchase Price set forth in Section 2.3(b) shall be increased by either (i) if
Sellers shall have elected option 2.3(b)(i)(y) or 2.3(b)(ii)(y) above, then an
amount in cash equal to the product of (w) Ten Million Dollars ($10,000,000.00)
and (x) a fraction whose numerator is the total number of Non-Discretionary
Carriage Homes and the denominator of which is 1,301,430 (the "Adjustment
Factor") or (ii) if Sellers shall have elected option 2.3(b)(i)(x) or
2.3(b)(ii)(x), a number of shares of PCC Common Stock equal to the product of
(Y) the PCC Stock Consideration and (Z) the Adjustment Factor, it being the
intention of the parties hereto that under no circumstances shall Buyer be
required to pay more than Thirty Million Dollars ($30,000,000.00) of the
Purchase Price, as adjusted pursuant to this Section 2.3(c), in cash. Any
increase to the Purchase Price required to be made pursuant to the preceding
sentence shall be made on the later to occur of the Closing Date and the date
that is thirty (30) days after any Final Decision that constitutes a
Non-Discretionary Carriage Decision.
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<PAGE> 14
2.4 Working Capital Credits and Payment.
(a) Prorations. All revenues and expenses arising from the
operation of the Station, including tower rental, business and license fees,
utility charges, real and personal property taxes and assessments levied
against the Assets, property and equipment rentals, applicable copyright or
other fees, sales and service charges, taxes (except for taxes arising from the
transfer of the Assets under this Agreement), and similar prepaid and deferred
items, shall be prorated between Buyer and Sellers in accordance with the
principle that Sellers shall receive all revenues and shall be responsible for
all expenses, costs, and liabilities allocable to the operations of the Station
for the period prior to the Effective Time, and Buyer shall receive all
revenues and shall be responsible for all expenses, costs, and obligations
allocable to the operations of the Station for the period after the Effective
Time, subject to Section 2.4(b). To effectuate the proration of expenses and
revenues pursuant to this Section 2.4(a), but subject to Section 2.4(b),
Sellers shall receive a credit equal to the amount of any expenses, costs, or
liabilities that are paid or incurred by Sellers and are allocable to the
operations of the Station for the period after the Effective Time plus the
amount of any revenues that are received by Buyer, and are allocable to the
operations of the Station for the period before the Effective Time, and Buyer
shall receive a credit equal to the amount of any expenses, costs, or
liabilities that are paid or incurred by Buyer and are allocable to the
operations of the Station for the period before the Effective Time plus the
amount of any revenues that are received by Sellers and are allocable to the
operations of the Station for the period after the Effective Time. The credits
to Sellers pursuant to this Section 2.4(a) are referred to as "Sellers' Working
Capital Credits," the credits to Buyer pursuant to this Section 2.4(a) are
referred to as "Buyer's Working Capital Credits," and Sellers' Working Capital
Credits and Buyer's Working Capital Credits are referred to collectively as the
"Working Capital Credits."
(b) Expenses and Revenues Not Prorated.
(1) There shall be no proration of, and Sellers shall remain
solely liable with respect to, liabilities and obligations arising under any
Contracts not included in the Assumed Contracts and any other obligation or
liability not being assumed by Buyer in accordance with Section 2.5.
(2) Buyer shall receive a credit pursuant to Section 2.4(a) to
the extent that Buyer assumes any liability under any Assumed Contract to
refund (or to credit against payments otherwise due) any security deposit or
similar prepayment paid to any Seller by any lessee or other third party.
(3) No proration shall be made in favor of either Sellers or
Buyer for any difference between the value of the goods or services to be
received by the Station under its trade or barter agreements as of the
Effective Time and the value of any advertising time remaining to be run by the
Station as of the Effective Time.
(4) There shall be no proration of earned vacation time or
other employee compensation. Sellers shall be solely responsible for the
payment of all compensation and commissions owed to the Station's employees up
to the Effective Time. Buyer may, as of the
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<PAGE> 15
Effective Time, employ those employees of the Station as Buyer may elect on
terms and conditions determined by Buyer.
(5) There shall be no proration of music license fees (ASCAP,
BMI, SESAC, etc.); Sellers shall be responsible for filing and paying all music
license fees due and payable as of the Effective Time, and Buyer shall be
responsible for filing and paying all such fees after the Effective Time.
(c) Manner of Determining Prorations and Credits. The prorations
and Working Capital Credits required by Section 2.4(a) shall be determined
finally in accordance with the following procedures:
(1) ValueVision, on behalf of Sellers, shall prepare and
deliver to Buyer not later than five (5) days before the Closing Date a
preliminary settlement statement which shall set forth ValueVision's good faith
estimate of the Working Capital Credits, taking into account all prorations
under Section 2.4(a). The preliminary settlement statement (A) shall contain
all information reasonably necessary to determine the Working Capital Credits,
taking into account all prorations under Section 2.4(a), to the extent such
prorations can be determined or estimated as of the date of the preliminary
settlement statement, and such other information as may be reasonably requested
by Buyer, and (B) shall be certified by ValueVision to be true and complete to
ValueVision's knowledge as of the date thereof.
(2) Not later than sixty (60) days after the Closing Date,
Buyer shall deliver to ValueVision a statement setting forth Buyer's
determination of the Working Capital Credits pursuant to Section 2.4(a).
Buyer's statement (A) shall contain all information reasonably necessary to
determine the Working Capital Credits, taking into account all prorations under
Section 2.4(a), and such other information as may be reasonably requested by
ValueVision, and (B) shall be certified by Buyer to be true and complete to
Buyer's knowledge as of the date thereof. If ValueVision disputes the amount of
the Working Capital Credits determined by Buyer, it shall deliver to Buyer
within thirty (30) days after its receipt of Buyer's statement a statement
setting forth its determination of the amount of the Working Capital Credits.
If ValueVision notifies Buyer of its acceptance of Buyer's statement, or if
ValueVision fails to deliver its statement within the thirty-day period
specified in the preceding sentence, Buyer's determination of the Working
Capital Credits shall be conclusive and binding on Sellers and ValueVision as
of the last day of the thirty-day period.
(3) If ValueVision disputes the amount of the Working Capital
Credits determined by Buyer, Buyer and ValueVision shall use good faith efforts
to resolve any dispute involving the determination of the Working Capital
Credits as expeditiously as practicable.
(d) Payments at Closing With Respect to Working Capital Credits.
At Closing:
(1) Sellers shall pay or cause to be paid to or for the account
of Buyer, by wire transfer, the amount, if any, by which Buyer's Working
Capital Credits exceed Sellers' Working Capital Credits, each as estimated in
ValueVision's preliminary settlement statement pursuant to Section 2.4(c)(1).
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<PAGE> 16
(2) Buyer shall pay or cause to be paid to or for the account
of Sellers, by wire transfer, the amount, if any, by which Sellers' Working
Capital Credits exceed Buyer's Working Capital Credits, each as estimated in
ValueVision's preliminary settlement statement pursuant to Section 2.4(c)(1).
(e) Payments to Reflect Final Determination of Working Capital
Credits. Within five (5) business days after the date on which the Working
Capital Credits are finally determined pursuant to Section 2.4(c):
(1) Sellers shall pay or cause to be paid to or for the account
of Buyer, by wire transfer, the amount, if any, by which the sum of the amount
of Buyer's Working Capital Credits, as finally determined pursuant to Section
2.4(c), plus the amount of any payment made by Buyer pursuant to Section
2.4(d)(2) exceeds the sum of amount of Sellers' Working Capital Credits, as
finally determined pursuant to Section 2.4(c), plus the amount of any payment
made by Sellers pursuant to Section 2.4(d)(1).
(2) Buyer shall pay or cause to be paid to or for the account
of Sellers, by wire transfer, the amount, if any, by which the sum of the
amount of Sellers' Working Capital Credits, as finally determined pursuant to
Section 2.4(c), plus the amount of any payment made by Sellers pursuant to
Section 2.4(d)(1) exceeds the sum of amount of Buyer's Working Capital Credits,
as finally determined pursuant to Section 2.4(c), plus the amount of any
payment made by Buyer pursuant to Section 2.4(d)(2).
2.5 Assumption of Liabilities and Obligations. As of the Closing Date,
Buyer shall assume and undertake to pay, discharge, and perform all obligations
and liabilities of any Seller under the Licenses and the Assumed Contracts to
the extent that either (a) the obligations and liabilities relate to the time
after the Effective Time or (b) Buyer received a Working Capital Credit
therefor under Section 2.4(a) as a result of the proration of such obligations
and liabilities. Buyer shall not assume any other obligations or liabilities
of any Seller, including (i) any obligations or liabilities under any Contract
(including any film or programming license agreement) not included in the
Assumed Contracts, (ii) any obligations or liabilities under the Assumed
Contracts relating to the period prior to the Effective Time except insofar as
Buyer receives a Working Capital Credit therefor under Section 2.4(a), (iii)
any claims, litigation, or proceedings relating to the operation of the Station
prior to the Closing, whether asserted or filed before or after the Effective
Time, (iv) any obligations or liabilities of any Seller under any management
incentive, employee pension, retirement, or other benefit plans, (v) any
obligations or liabilities of any Seller under any collective bargaining
agreements, (vi) any obligation to any employee of the Station for severance
benefits, vacation time, or sick leave accrued prior to the Closing Date, (vii)
any credit agreements, note purchase agreements, indentures, or other financing
arrangements, other than leases or agreements listed on Schedule 3.7 and
included in the Assumed Contracts, (viii) any agreements entered into other
than in the ordinary course of business of the Station, or (ix) any obligations
or liabilities caused by, arising out of, or resulting from any action or
omission of any Seller prior to the Closing, and all such obligations and
liabilities shall remain and be the obligations and liabilities solely of
Sellers.
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<PAGE> 17
SECTION 3 REPRESENTATIONS AND WARRANTIES OF SELLERS AND
VALUEVISION.
Sellers and ValueVision, jointly and severally, represent and warrant
to Buyer and PCC as follows:
3.1 Organization, Standing, and Authority. Each of VVI Manassas
and ValueVision is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Minnesota. WVVI is a corporation duly
organized, validly existing, and in good standing under the laws of the
Commonwealth of Virginia. Each Seller is duly qualified to conduct business as
a foreign corporation in each state in which the nature of its business or the
ownership of its assets requires it to be so qualified, all of which are
identified on Schedule 3.1. Each Seller has all requisite corporate power and
authority (a) to own, lease, and use the Assets as now owned, leased, and used
by it, (b) to conduct the business and operations of the Station as now
conducted by it, and (c) to execute and deliver this Agreement and the
documents contemplated hereby, and to perform and comply with all of the terms,
covenants, and conditions to be performed and complied with by such Seller
hereunder and thereunder. ValueVision owns, directly or indirectly, all of the
outstanding shares of each Seller.
3.2 Authorization and Binding Obligation. The execution, delivery,
and performance of this Agreement by each Seller and ValueVision have been duly
authorized by all necessary actions on the part of such Seller and ValueVision.
This Agreement has been duly executed and delivered by each Seller and
ValueVision and constitutes the legal, valid, and binding obligation of each
Seller and ValueVision, enforceable against it in accordance with its terms
except as the enforceability of this Agreement may be affected by bankruptcy,
insolvency, or similar laws affecting creditors rights generally and by
judicial discretion in the enforcement of equitable remedies.
3.3 Absence of Conflicting Agreements. Subject to obtaining the
governmental Consents provided for in Section 6.1 and Section 6.8 and the other
Consents listed on Schedule 3.3, the execution, delivery, and performance of
this Agreement and the documents contemplated hereby (with or without the
giving of notice, the lapse of time, or both): (a) do not require the consent
of any third party; (b) will not conflict with any provision of the Articles of
Incorporation or By-Laws of any Seller or ValueVision; (c) will not conflict
with, result in a breach of, or constitute a default under, any law, judgment,
order, ordinance, injunction, decree, rule, regulation, or ruling of any court
or governmental instrumentality; (d) will not conflict with, constitute grounds
for termination of, result in a breach of, constitute a default under, or
accelerate or permit the acceleration of any performance required by the terms
of, any agreement, instrument, license, or permit to which any Seller or
ValueVision is a party or by which any Seller or ValueVision may be bound
legally; and (e) will not create any claim, liability, mortgage, lien, pledge,
condition, charge, or encumbrance of any nature upon any of the Assets.
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3.4 Governmental Licenses.
(a) Schedule 3.4 includes a true and complete list of the
Licenses. Sellers have made available to Buyer true and complete copies of the
Licenses (including any amendments and other modifications thereto). The
Licenses have been validly issued, and the Seller designated as such on
Schedule 3.4 is the authorized legal holder thereof. The Licenses listed on
Schedule 3.4 comprise all licenses, permits, and other authorizations required
from the FCC and, to each Seller's knowledge, from any other governmental or
regulatory authority for the lawful conduct in all material respects of the
business and operations of the Station in the manner and to the full extent
they are now conducted, and none of the Licenses is subject to any unusual or
special restriction or condition that could reasonably be expected to limit the
full operation of the Station as now operated. Seller has no reason to believe
that, under existing law, rules, regulations, policies, and procedures of the
FCC, any of the Licenses would not be renewed by the FCC or other granting
authority in the ordinary course. Except as set forth in Schedule 3.4, the
Licenses are in full force and effect. Sellers have timely paid to the FCC all
annual regulatory fees payable with respect to the FCC Licenses.
(b) Schedule 3.4 also includes a true and complete list,
to each Seller's knowledge, of (i) all cable television systems that carry the
signal of the Station, (ii) all retransmission consent and other similar
agreements entered into by any Seller with respect to the Station, and (iii)
all cable television systems to which either Seller has delivered a must carry
notice or retransmission consent notice in accordance with Section 4 of the
Cable Television Consumer Protection and Competition Act of 1992 and the rules
and regulations of the FCC promulgated thereunder.
3.5 Real Property. Schedule 3.5 contains a complete and accurate
description of all Real Property and all Real Property Interests (including
street address, legal description (where known), owner, and Sellers' use
thereof), and all claims, liabilities, security interests, mortgages, liens,
pledges, conditions, charges, covenants, easements, restrictions,
encroachments, leases, or encumbrances known to any Seller.
3.6 Tangible Personal Property. Schedule 3.6 lists all material
items of Tangible Personal Property, to the best of Sellers' knowledge without
inquiry. Except as described in Schedule 3.6, one of the Sellers, as
designated on Schedule 3.6, owns and has good title to each item of Tangible
Personal Property and none of the Tangible Personal Property owned by any
Seller is subject to any security interest, mortgage, pledge, conditional sales
agreement, or other lien or encumbrance, except for liens for current taxes not
yet due and payable.
3.7 Contracts. Schedule 3.7 is a true and complete list of all
Contracts except contracts with advertisers for production or the sale of
advertising time on the Station for cash at rates consistent with past
practices and that may be canceled by Sellers without penalty on not more than
thirty (30) days' notice. Sellers have delivered to Buyer true and complete
copies of all written Assumed Contracts and true and complete descriptions of
all oral Assumed Contracts (including any amendments and other modifications to
such Contracts). Schedule 3.7 also includes (a) a schedule summarizing as of
the date of such schedule all contracts with advertisers for production or the
sale of advertising time on the Station and (b) a schedule setting forth the
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following information as of the date of such schedule with respect to each
Assumed Contract under which the Station is licensed to broadcast any
programming: (i) the identity of the licensed programming, (ii) the number of
exhibitions thereof originally licensed, (iii) the number of exhibitions on the
Station then available to Sellers, (iv) the unpaid license fees on a monthly
basis, (v) the expiration of the license, (vi) the purchase price for each
program, and (vii) the purchase price for additional episodes for which Buyer
may be liable. Except for the need to obtain the Consents listed on Schedule
3.3, the Seller that is a party to each Assumed Contract has full legal power
and authority to assign its rights under such Assumed Contracts to Buyer in
accordance with this Agreement, and such assignment will not affect the
validity, enforceability, or continuation of such Assumed Contract.
3.8 Consents. Except for the governmental Consents provided for
in Section 6.1 and Section 6.8 and the other Consents described in Schedule
3.3, to each Seller's knowledge, no consent, approval, permit, or authorization
of, or declaration to, or filing with any governmental or regulatory authority
or any other third party is required to consummate this Agreement and the
transactions contemplated hereby or to permit Sellers to assign or transfer the
Assets to Buyer.
3.9 Intangibles. Schedule 3.9 is a true and complete list of all
Intangibles (exclusive of Licenses listed in Schedule 3.4) that are used in the
conduct of the business and operations of the Station as now conducted.
Sellers have made available to Buyer copies of all documents establishing or
evidencing the Intangibles listed on Schedule 3.9. There is no claim or action
pending, or to the knowledge of any Seller threatened, relating to the Station
with respect to any actual or alleged infringement by any Seller upon any
trademark, trade name, service mark, service name, copyright, patent, patent
application, know-how, method, or process owned by any other Person.
3.10 Financial Statements. Sellers have furnished Buyer with true
and complete copies of the unaudited financial statements of the Station,
containing a balance sheet and a statement of income, as at and for the period
from February 1, 1995 through January 31, 1996, and the seven (7) months ended
August 31, 1996 (collectively, the "Financial Statements").
3.11 Insurance. Schedule 3.11 is a true and complete list of all
insurance policies of any Seller that insure any part of the Assets or the
business of the Station. All policies of insurance listed in Schedule 3.11 are
in full force and effect.
3.12 Reports. All reporting requirements of the FCC and, to each
Seller's knowledge, any other governmental authority with respect to the
Station have been complied with by Sellers in all material respects.
3.13 Labor Relations. No labor union or other collective
bargaining unit represents or claims to represent any of the employees of the
Station. To each Seller's knowledge, there is no union campaign being
conducted to solicit cards from employees to authorize a union to request a
National Labor Relations Board certification election with respect to any
employees at the Station.
3.14 Taxes. Each Seller has filed or caused to be filed all
federal, state, county, local, or city tax returns that are required to be
filed with respect to the ownership and operation of the
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Station, and each Seller has paid or caused to be paid all taxes shown on those
returns or on any tax assessment received by it to the extent that such taxes
have become due. There are no legal, administrative, or tax proceedings
pursuant to which any Seller is or could be made liable for any taxes,
penalties, interest, or other charges, the liability for which could extend to
Buyer as transferee of the business of the Station, and no event has occurred
that could impose on Buyer any transferee liability for any taxes, penalties,
or interest due or to become due from any Seller.
3.15 Claims and Legal Actions. Except as disclosed on Schedule
3.15 and except for any FCC rulemaking proceedings generally affecting the
television broadcasting industry and not particular to any Seller, there is no
claim, legal action, counterclaim, suit, arbitration, or other legal,
administrative, or tax proceeding, nor any order, decree, or judgment, in
progress or pending, or to the knowledge of any Seller threatened, against or
relating to any Seller with respect to its ownership or operation of the
Station or otherwise relating to the Assets or the business or operations of
the Station, nor does any Seller know of any basis for the same.
3.16 Compliance with Licenses. Each Seller has complied in all
material respects with the Licenses.
3.17 Conduct of Business in Ordinary Course. Since August 31, 1996,
the Sellers have conducted the business and operations of the Station only in
the ordinary course and, except as disclosed in Schedule 3.17:
(a) The Station has not suffered any material damage,
destruction, or loss affecting any assets or transferred any material assets
used or useful in the conduct of the business of the Station;
(b) The Station has not suffered any material write-down
of the value of any Assets; and
(c) The Station has not transferred or granted any right
under, or entered into any settlement regarding the breach or infringement of,
any license, patent, copyright, trademark, trade name, franchise, or similar
right, or modified any existing right relating to the Station.
3.18 Transactions with Affiliates. No Seller has been involved in
any business arrangement or relationship relating to the Station with any
Affiliate of any Seller (other than another Seller or ValueVision), and no
Affiliate of any Seller (other than another Seller or ValueVision) owns any
property or right, tangible or intangible, that is used in the business of the
Station.
3.19 No Broker. Except as set forth in Schedule 3.19, neither the
Sellers nor ValueVision has employed, nor obligated itself, Buyer or PCC to
compensate, any finder, broker, advisor or similar Person in connection with
the transactions contemplated by this Agreement.
3.20 Accredited Investor; Investment Knowledge; Distribution.
ValueVision is an accredited investor within the meaning of Rule 501
promulgated under the Securities Act. ValueVision has sufficient knowledge and
experience in financial and business matters so as to be capable of evaluating
the risks and merits of its investment in PCC and is capable of bearing the
economic risks of such investment. ValueVision has had an opportunity to
discuss the business,
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management and financial affairs of PCC with PCC's representatives, and
ValueVision has had its questions concerning PCC and its business answered to
its full satisfaction. ValueVision has received from PCC all of the
documentation it requires in order to make its investment decision. The shares
of PCC Common Stock to be transferred hereunder to ValueVision are being
acquired for ValueVision's own account for the purpose of investment and not
with a view to or for resale in connection with any distribution thereof or
interest therein. ValueVision understands that (a) such shares of PCC Common
Stock have not been registered under the Securities Act by reason of their
issuance in a transaction exempt from the registration requirements of the
Securities Act pursuant to Section 4(2) thereof, (b) such shares of PCC Common
Stock must be held indefinitely unless subsequent disposition thereof is
registered under the Securities Act or is exempt from such registration, and
(c) such PCC Shares shall bear a legend to such effect.
3.21 Disclaimer of Warranties. Except for the foregoing
representations and warranties specifically set forth in Section 3.1 through
Section 3.20 of this Agreement and the representations and warranties in the
certificate delivered by Sellers pursuant to Section 8.2(f), the Assets are
being transferred by Sellers to Buyer on an "as-is-where-is" basis without any
representation or warranty, all other representations and warranties of any
kind, either express or implied, including warranties of fitness, being hereby
expressly disclaimed.
SECTION 4 REPRESENTATIONS AND WARRANTIES OF BUYER AND PCC.
Buyer and PCC, jointly and severally, represent and warrant to Sellers
and ValueVision as follows:
4.1 Organization, Standing, and Authority. Buyer is a corporation
duly organized, validly existing, and in good standing under the laws of the
State of Florida and, on the Closing Date, will be duly qualified to conduct
business in the Commonwealth of Virginia. PCC is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Delaware.
Buyer and PCC each has all requisite corporate power and authority to execute
and deliver this Agreement and the documents contemplated hereby, and to
perform and comply with all of the terms, covenants, and conditions to be
performed and complied with by it hereunder and thereunder.
4.2 Authorization and Binding Obligation. The execution, delivery,
and performance of this Agreement by Buyer and PCC have been duly authorized by
all necessary actions on the part of Buyer and PCC. This Agreement has been
duly executed and delivered by Buyer and PCC and constitutes the legal, valid,
and binding obligation of Buyer and PCC, enforceable against Buyer and PCC in
accordance with its terms except as the enforceability of this Agreement may be
affected by bankruptcy, insolvency, or similar laws affecting creditors' rights
generally and by judicial discretion in the enforcement of equitable remedies.
4.3 Absence of Conflicting Agreements. Subject to obtaining the
governmental Consents provided for in Section 6.1 and Section 6.8 and the other
Consents listed on Schedule 4.3, the execution, delivery, and performance by
Buyer and PCC of this Agreement and the documents contemplated hereby (with or
without the giving of notice, the lapse of time, or both): (a) do not require
the consent of any third party; (b) will not conflict with the Certificate of
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<PAGE> 22
Incorporation or By-Laws of Buyer or PCC; (c) will not conflict with, result in
a breach of, or constitute a default under, any law, judgment, order,
injunction, decree, rule, regulation, or ruling of any court or governmental
instrumentality; or (d) will not conflict with, constitute grounds for
termination of, result in a breach of, constitute a default under, or
accelerate or permit the acceleration of any performance required by the terms
of, any agreement, instrument, license, or permit to which Buyer or PCC is a
party or by which Buyer or PCC may be bound legally, such that Buyer could not
acquire or operate the Assets or PCC could not perform its obligations
hereunder.
4.4 Licensee Qualifications. To Buyer's knowledge, there is no
fact that would, under the Communications Act of 1934, as amended, and the
rules and regulations of the FCC, each as in effect on the date of this
Agreement, disqualify Buyer from being the licensee of the Station other than
Buyer's or its Affiliate's interest in the television station described on
Schedule 4.3. Buyer has sufficient net liquid assets on hand or available from
committed sources to consummate the transactions contemplated by this Agreement
and to operate the Station for three (3) months after Closing and is otherwise
financially qualified under the Communications Act of 1934, as amended, and the
rules and regulations of the FCC, each as in effect on the date of this
Agreement, to be the licensee of the Station.
4.5 No Broker. Except as set forth in Schedule 4.5, neither Buyer
nor PCC has employed, nor obligated itself, any Seller or ValueVision to
compensate, any finder, broker, advisor or similar Person in connection with
the transactions contemplated by this Agreement.
4.6 Acknowledgment of "As-Is-Where-Is" Sale. Buyer acknowledges
and agrees that it is purchasing and accepting the Assets on an
"as-is-where-is" basis, except for the representations and warranties
specifically set forth in Section 3.1 through Section 3.20 of this Agreement
and the representations and warranties in the certificate delivered by Sellers
pursuant to Section 8.2(f). To the fullest extent permitted by law, Buyer and
PCC hereby unconditionally and irrevocably waive and release any and all actual
or potential claims that it might have against any Seller or ValueVision
regarding any form of warranty, express or implied, of any kind or type,
including warranties of fitness, relating to or in connection with the purchase
of the Assets, other than the representations and warranties specifically set
forth in Section 3.1 through Section 3.20 of this Agreement and the
representations and warranties in the certificate delivered by Sellers pursuant
to Section 8.2(f). This waiver and release is, to the fullest extent permitted
by law, absolute, complete, total, and unlimited in every way and includes, to
the fullest extent permitted by law, a waiver and release of express warranties
(other than the representations and warranties specifically set forth in
Section 3.1 through Section 3.20 of this Agreement and the representations and
warranties in the certificate delivered by Sellers pursuant to Section 8.2(f)),
implied warranties, warranties of fitness for a particular use, warranties of
merchantability, warranties of habitability, claims based on apparent or latent
defects or deficiencies, whether now or hereafter existing, and strict
liability rights and claims of every kind and type (including claims regarding
defects that were not or are not discoverable and all other extant or later
created or conceived of strict liability or strict liability-type claims and
rights).
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SECTION 5 OPERATIONS OF THE STATION PRIOR TO CLOSING.
Between the date of this Agreement and the Closing Date, Sellers shall
comply, and ValueVision shall cause each Seller to comply, with the covenants
in this Section 5:
5.1 Generally. Except as otherwise provided in this Agreement,
Sellers shall operate the Station diligently in the ordinary course of business
in accordance with past practices (except where such conduct would conflict
with the following covenants or with Sellers' other obligations under this
Agreement).
5.2 Contracts. Sellers will not amend or terminate any Material
Contract (or waive any material right thereunder), or enter into any contract
or commitment relating to the Station or the Assets (except as provided in
Section 6.16), or incur any obligation (including obligations relating to the
borrowing of money or the guaranteeing of indebtedness and obligations arising
from the amendment of any existing Contract, regardless whether such Contract
is a Material Contract) that will be binding on Buyer after Closing, except for
(a) cash time sales agreements and production agreements made in the ordinary
course of business consistent with Sellers' past practices, and (b) other
contracts (excluding film or programming license agreements and trade or barter
agreements) entered into in the ordinary course of business consistent with
Sellers' past practices that do not involve consideration, in the aggregate, in
excess of $25,000 measured at Closing. Prior to the Closing Date, Sellers
shall deliver to Buyer a list of all Contracts entered into between the date of
this Agreement and the Closing Date and shall make available to Buyer copies of
such Contracts.
5.3 Disposition of Assets. No Seller shall sell, assign, lease,
or otherwise transfer or dispose of any assets that are used or useful in
connection with the conduct of the business or operations of the Station,
except for (a) any transaction permitted by Section 6.16, (b) dispositions of
assets in connection with the acquisition of replacement property of equivalent
kind and value and (c) the assignment and transfer of assets and liabilities
between Sellers and/or ValueVision.
5.4 Encumbrances. No Seller shall create, assume, or permit to
exist any claim, liability, security interest, mortgage, lien, pledge,
condition, charge, covenant, easement, restriction, encroachment, lease, or
encumbrance of any nature upon the Assets, except for (a) liens disclosed on
Schedule 3.5 or Schedule 3.6 that will be removed prior to the Closing Date,
and (b) Permitted Encumbrances.
5.5 Licenses. No Seller shall cause or permit, by any act or
failure to act, any of the Licenses required to be listed on Schedule 3.4 to
expire or to be revoked, suspended, or modified, or take any action that could
reasonably be expected to cause the FCC or any other governmental authority to
institute proceedings for the suspension, revocation, or material adverse
modification of any of the Licenses. Sellers shall use reasonable efforts to
prosecute (a) any applications to any governmental authority necessary for the
operation of the Station and (b) any must-carry proceedings described on
Schedule 5.5.
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<PAGE> 24
5.6 Obligations. Sellers shall pay all obligations relating to
the Station as they become due, consistent with past practices, so that all
such obligations shall be current as of the Closing Date.
5.7 Exclusivity.
(a) Neither any Seller nor any officer, director,
representative, or agent of any Seller shall, directly or indirectly, (i)
solicit, initiate, or encourage the submission of any proposal or offer
relating to (A) any liquidation, dissolution, or recapitalization of any
Seller, (B) any merger or consolidation of any Seller with any other Person,
(C) any acquisition or purchase of securities or assets by any Person from any
Seller, or (D) any similar transaction or business combination involving any
Seller, or (ii) participate in any discussions or negotiations regarding,
furnish any information with respect to, assist or participate in, or
facilitate in any other manner any effort or attempt by any Person to do or
seek any of the foregoing. Sellers shall notify Buyer as soon as practicable
if any Person makes any proposal with respect to any of the foregoing.
(b) Section 5.7(a) shall not apply to any action by any
Seller or any officer, director, representative, or agent of any Seller with
respect to (i) the assignment and transfer by either Seller of all its assets
and liabilities to the other Seller or to ValueVision, or (ii) so long as
ValueVision's ability to perform its obligations under this Agreement is not
adversely affected, any recapitalization of ValueVision, any merger or
consolidation of ValueVision with any other Person, or any acquisition or
purchase of securities or assets (other than the Assets) by any Person from
ValueVision.
5.8 Access to Information.
(a) Each Seller shall give Buyer and its counsel,
accountants, engineers, and other authorized representatives reasonable access
to the Assets and to all other books, records, and documents relating to the
Station for the purpose of audit and inspection, and will furnish or cause to
be furnished to Buyer or its authorized representatives all information with
respect to the affairs and business of the Station that Buyer may reasonably
request (including any financial reports and operations reports produced with
respect to the affairs and business of the Station, a list of all employees of
the Station and a description of their base compensation).
(b) Without limiting the generality of the foregoing,
Sellers shall give Buyer and its counsel, accountants, and other authorized
representatives reasonable access to Sellers' financial records relating to the
operations of the Station and the Station's employees, counsel, accountants,
and other representatives for the purpose of preparing and auditing such
financial statements as Buyer determines, in its reasonable judgment, are
required or advisable to comply with federal or state securities laws and the
rules and regulations of securities markets as a result of the execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby. Sellers agree to provide financial statements concerning the
operations of the Station, reviewed by Sellers' accountants, containing
reasonably requested customary representations; provided, however, that the
parties hereto agree that Buyer shall have no right under any circumstance to
delay the Closing or terminate this Agreement on account of the information
contained in any such financial statement or the inability of Sellers or their
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<PAGE> 25
accountants in good faith to make any representation requested by Buyer. The
preparation and auditing of any financial statements pursuant to this Section
5.8(b) shall be at Buyer's sole cost and expense.
5.9 Maintenance of Assets. Except as provided in Section 6.16,
Sellers shall maintain all of the Assets in their condition on the date of this
Agreement (ordinary wear and tear excepted), and use, operate, and maintain all
of the Assets in a reasonable manner. Seller shall maintain inventories of
spare parts and expendable supplies at levels consistent with past practices.
If any insured or indemnified loss, damage, impairment, confiscation, or
condemnation of or to any of the Assets occurs, Sellers shall repair, replace,
or restore the Assets to their prior condition as soon thereafter as possible,
and Sellers shall use the proceeds of any claim under any property damage
insurance policy or other recovery solely to repair, replace, or restore any of
the Assets that are lost, damaged, impaired, or destroyed.
5.10 Insurance. Sellers shall maintain the existing insurance
policies on the Station and the Assets.
5.11 Consents. Sellers shall use their respective reasonable
efforts to obtain all Consents, without any change in the terms or conditions
of any Assumed Contract or License that could reasonably be expected to be less
advantageous to Buyer than those pertaining under the Assumed Contract or
License as in effect on the date of this Agreement. Sellers shall request
estoppel certificates from the lessors of all leasehold and subleasehold
interests included in the Real Property Interests, consents of such lessors to
the collateral assignment by Buyer to its lenders of such leasehold and
subleasehold interests, and estoppel certificates of contracting parties to all
Material Contracts. Sellers shall promptly advise Buyer of any difficulties
experienced in obtaining any of the Consents and of any conditions proposed,
considered, or requested for any of the Consents.
5.12 Books and Records. Each Seller shall maintain its books and
records relating to the Station in accordance with past practices.
5.13 Notification. Sellers shall promptly notify Buyer in writing
of any material change in any of the information contained in Sellers' and
ValueVision's representations and warranties contained in Section 3 of this
Agreement.
5.14 Financial Information. Sellers shall furnish to Buyer within
forty-five (45) days after the end of each month ending between the date of
this Agreement and the Closing Date a statement of income and expense and a
balance sheet for and as of the end of such month. All financial information
delivered by Sellers to Buyer pursuant to this Section shall be prepared from
the books and records of Sellers in accordance with generally accepted
accounting principles consistently applied, shall accurately reflect the books,
records, and accounts of the Station, shall be complete and correct in all
material respects, and shall present fairly the financial condition of the
Station as at their respective dates and the results of operations for the
periods then ended.
5.15 Compliance with Laws. Each Seller shall comply in all
material respects with all laws, rules, and regulations applicable or relating
to the ownership and operation of the Station.
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SECTION 6 SPECIAL COVENANTS AND AGREEMENTS.
6.1 FCC Consent.
(a) The assignment of the FCC Licenses in connection with
the purchase and sale of the Assets pursuant to this Agreement shall be subject
to the prior consent and approval of the FCC.
(b) Sellers and Buyer shall prepare and within five (5)
business days after the date of this Agreement shall file with the FCC
appropriate applications for the FCC Consent, which shall include a commitment
by Buyer to sell the television station described in Schedule 4.3. Buyer shall
file with the FCC the necessary application to sell the television station
described in Schedule 4.3, together with a copy of the executed purchase and
sale agreement, within ten (10) business days of the aforementioned filings by
Sellers and Buyer and shall use its reasonable efforts to sell such station as
expeditiously as practicable. The parties shall prosecute the foregoing
applications (including Buyer's application to sell the station described in
Schedule 4.3) with all reasonable diligence and otherwise use their reasonable
efforts to obtain a grant of the applications, as expeditiously as practicable.
Each party agrees to comply with any condition imposed on it by the FCC
Consent.
(c) Within five (5) business days of any written request
of Sellers, Buyer agrees to use its best efforts to file for and prosecute a
request for any temporary waiver of the FCC rules deemed by Sellers in their
sole discretion to be necessary or desirable in order to permit the Closing to
occur prior to the divestiture of the television station described in Schedule
4.3, the form and substance of which waiver request shall be reasonably
acceptable to Sellers and Buyer.
6.2 Control of the Station. Prior to Closing, Buyer shall not,
directly or indirectly, control, supervise, direct, or attempt to control,
supervise, or direct, the operations of the Station; such operations, including
complete control and supervision of all of the Station's programs, employees,
and policies, shall be the sole responsibility of Sellers until the Closing.
6.3 Risk of Loss.
(a) The risk of any loss, damage or impairment,
confiscation, or condemnation of any of the Assets from any cause shall be
borne by Sellers at all times prior to the completion of the Closing, except
that Buyer will be required to purchase the Assets notwithstanding any such
loss, damage or impairment, confiscation, or condemnation if the conditions
contained in Section 7.1 to the obligations of Buyer at the Closing are
nonetheless satisfied.
(b) In the event of any damage or destruction of the
Assets described above, if the damaged or destroyed Assets have not been
restored or replaced prior to the Closing Date, Sellers shall deliver to Buyer
all insurance proceeds received in connection with such damage or destruction
of the Assets to the extent of the costs and expenses arising in connection
with such restoration and replacement.
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6.4 Confidentiality. (a) Except as necessary for the consummation
of the transactions contemplated by this Agreement, including Buyer's obtaining
of financing related hereto, and except as and to the extent required by law,
including disclosure requirements of federal or state securities laws and rules
and regulations of securities markets, each party will keep confidential any
information obtained from any other party in connection with the transactions
contemplated by this Agreement. If this Agreement is terminated, each party
will return to any other party that furnished it with information in connection
with the transactions contemplated by this Agreement all such information.
(b) No party shall publish any press release or make any
other public announcement concerning this Agreement or the transactions
contemplated hereby without the prior written consent of each other party,
which shall not be withheld unreasonably; provided, however, that nothing
contained in this Agreement shall prevent any party, after notification to each
other party, from making any filings with governmental authorities that, in its
judgment, may be required or advisable in connection with the execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby.
6.5 Cooperation. Each party hereto shall cooperate fully with
each other party and their respective counsel and accountants in connection
with any actions required to be taken as part of their respective obligations
under this Agreement, and the parties hereto shall execute such other documents
as may be necessary and desirable to the implementation and consummation of
this Agreement, and otherwise use their reasonable efforts to consummate the
transactions contemplated hereby and to fulfill their obligations under this
Agreement. Notwithstanding the foregoing, and except as otherwise expressly
provided in this Agreement, (a) Buyer shall have no obligation to expend funds
to obtain any of the Consents (other than any fee payable to the FCC in
connection with the filing of the applications for FCC Consent and any fee
imposed by the FTC in connection with filings made pursuant to the HSR Act, in
each case to the extent provided in Section 12.1), and (b) Sellers shall have
no obligation to expend funds to obtain any of the Consents (other than any fee
payable to the FCC in connection with the filing of the applications for FCC
Consent and any fee imposed by the FTC in connection with filings made pursuant
to the HSR Act, in each case to the extent provided in Section 12.1).
6.6 Access to Books and Records. Each Seller shall provide Buyer
access and the right to copy for a period of two (2) years from the Closing
Date any books and records relating to the Assets but not included in the
Assets. Buyer shall provide Sellers access and the right to copy for a period
of two (2) years after the Closing Date any books and records relating to the
Assets that are included in the Assets.
6.7 [Intentionally omitted].
6.8 HSR Act Filing. ValueVision and Buyer agree to (a) file, or
cause to be filed, with the U.S. Department of Justice ("DOJ") and Federal
Trade Commission ("FTC") all filings, if any, that are required in connection
with the transactions contemplated hereby under the HSR Act within forty-five
(45) days of the date of this Agreement; (b) submit to the other party, prior
to filing, their respective HSR Act filings to be made hereunder, and to
discuss with the other any comments the reviewing party may have; (c) cooperate
with each other in connection with such
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HSR Act filings, which cooperation shall include furnishing the other with any
information or documents that may be reasonably required in connection with
such filings; (d) promptly file, after any request by the FTC or DOJ, any
information or documents requested by the FTC or DOJ; and (e) furnish each
other with any correspondence from or to, and notify each other of any other
communications with, the FTC or DOJ that relates to the transactions
contemplated hereunder, and to the extent practicable, to permit each other to
participate in any conferences with the FTC or DOJ.
6.9 Title to Real Property.
(a) Buyer may, at its option and expense, obtain the
following title commitments, surveys, and related information:
(1) with respect to each fee estate included in
the Real Property Interests, a title commitment issued by a title insurer
satisfactory to Buyer disclosing the condition of title to such fee estate and
all easements, rights-of-way, and restrictions of record with respect thereto,
as of a date not earlier than the date of this Agreement;
(2) with respect to each leasehold included in
the Real Property Interests, a title commitment issued by a title insurer
satisfactory to Buyer disclosing the condition of title to such leasehold as of
a date not earlier than the date of this Agreement;
(3) with respect to each Real Property Interest
as to which a title commitment is obtained pursuant to this Section 6.9(a),
copies of all instruments evidencing the scope and extent of all easements,
rights-of-way, and restrictions of record with respect thereto; and
(4) with respect to each Real Property Interest
as to which a title commitment is obtained pursuant to this Section 6.9(a), a
current survey of the relevant parcel, prepared and certified to Buyer and to
the title insurer of such Real Property Interest by a licensed surveyor and
conforming to current ALTA Minimum Detail Requirements for Land Title Surveys,
disclosing the location of all improvements, easements, party walls, sidewalks,
roadways, utility lines, and other matters customarily shown on such surveys.
(b) If the title commitments, surveys, and related
information obtained by Buyer pursuant to Section 6.9(a) reveal (i) any
easement, covenant, condition, restriction, encroachment, lack of practical
access to public roads, or other encumbrance, defect, or condition with respect
to any Real Property Interest (other than any easement, covenant, condition, or
restriction that is disclosed on Schedule 3.5) that, individually or in the
aggregate, has a material adverse effect on the use of such Real Property
Interest in the conduct of the business of the Station or materially detracts
from the value of such Real Property Interest in the conduct of the business of
the Station (each, a "Title Defect"), Buyer may give Sellers written notice of
its objection to any such Title Defect at any time within thirty (30) days
after the date of this Agreement. Within seven (7) days after their receipt of
Buyer's objection to any such Title Defect, Sellers shall notify Buyer whether
they agree to cure or correct such Title Defect prior to the Closing. If
Sellers do not agree to cure or correct any such Title Defect, Buyer may
terminate this Agreement pursuant to Section 9.2(a).
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(c) For purposes of this Agreement, "Permitted
Encumbrances" shall include, in addition to the matters described in Section
1.1, any Title Defect (other than any claim, liability, security interest,
mortgage, lien (including any tax or judgment lien), pledge, or other monetary
charge) that is disclosed in the title commitments, surveys, and related
information obtained by Buyer pursuant to Section 6.9(a) if (i) Buyer does not
object to such Title Defect on or before the date specified above for Buyer's
objection, or (ii) Buyer objects to such Title Defect and Sellers notify Buyer
within seven (7) days after their receipt of Buyer's objection of Sellers'
election not to cure or correct such Title Defect.
(d) Sellers shall remove prior to Closing any claim,
liability, security interest, mortgage, lien (including any tax or judgment
lien), pledge, or other monetary charge except for Permitted Encumbrances with
respect to any Real Property Interest.
6.10 Environmental Survey.
(a) Sellers have heretofore provided to Buyer a copy of
the Phase I Environmental Site Assessment of 6740 Arrington Road, Fairfax,
Virginia, prepared for Sellers by Law Engineering and Environmental Services,
Inc., dated October 4, 1996, and Addendum No. 1 thereto dated October 10, 1996
(together, the "Law Engineering Phase I Report"), for the information of Buyer,
but without any representation or warranty being made by Sellers or ValueVision
as to the accuracy or completeness of any of the information contained therein.
(b) Buyer may, at its option and expense, retain an
environmental consultant to be selected by Buyer to perform Phase I
environmental surveys of the properties of the Station. If such survey
discloses any material environmental hazard or material possibility of future
material liability for environmental damages or clean-up costs not identified
in the Law Engineering Phase I Report (each, an "Environmental Hazard"), Buyer
shall so notify Sellers as soon as practicable.
(c) If Buyer notifies Sellers pursuant to Section 6.10(b)
of any Environmental Hazard as indicated in an environmental study described in
Section 6.10(b), within thirty (30) days after the date of this Agreement, then
Sellers may, by notice delivered to Buyer within seven (7) days after their
receipt of such notice from Buyer, agree to remedy such Environmental Hazard
prior to the Closing Date. If Sellers do not agree prior to the end of such
seven-day period to remedy such Environmental Hazard prior to the Closing Date,
then Buyer may terminate this Agreement pursuant to Section 9.2(b).
6.11 Engineering Study.
(a) Buyer may, at its option and expense, retain an
engineering firm or other broadcast engineer to conduct proof of performance
studies of the Station and to prepare a report on the Station's compliance with
customary engineering practices and all applicable FCC rules, regulations,
prescribed practices, and technical standards. If either study discloses any
material deficiencies in the operations or equipment of the Station (each, a
"Technical Deficiency"), Buyer shall so notify Sellers as soon as practicable.
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(b) If Buyer notifies Sellers pursuant to Section 6.11(a) of any
Technical Deficiency, as indicated in either engineering study described in
Section 6.11(a), within thirty (30) days after the date of this Agreement, then
Sellers may, by notice delivered to Buyer within seven (7) days after Sellers'
receipt of such notice from Buyer, agree to remedy such Technical Deficiency
prior to the Closing Date. If Sellers do not agree pursuant to this Section
6.11(b) prior to the end of such seven-day period to remedy any Technical
Deficiency prior to the Closing Date, then Buyer may terminate this Agreement
pursuant to section 9.2(c).
6.12 Sales Tax Filings. Sellers shall continue to file Virginia
sales tax returns with respect to the Station in accordance with all applicable
legal requirements and shall concurrently deliver copies of all such returns to
Buyer.
6.13 Accounts Receivable.
(a) Collection. At the Closing, Sellers shall designate
Buyer as their agent to collect any accounts receivable of Sellers in existence
on the Closing Date and arising from the sale of advertising time by the
Station prior to the Closing Date (the "Station's Receivables"). Buyer shall
use reasonable efforts to collect the Station's Receivables during the
"Collection Period," which shall be the period beginning on the Closing Date
and ending on the last day of the fourth calendar month beginning after the
Closing Date. Buyer shall not be obligated to use any extraordinary efforts to
collect any of the Station's Receivables or to refer any of the Station's
Receivables to a collection agency or attorney for collection, and Buyer shall
not make any such referral or compromise, nor settle or adjust the amount of
any of the Station's Receivables, except with the approval of ValueVision.
Sellers and their respective representatives and agents may undertake to
collect any of the Station's Receivables during the Collection Period so long
as Sellers first notify and consult with Buyer concerning Sellers' proposed
collection efforts.
(b) Payments to ValueVision. On or before the twentieth
day after the end of each full calendar month during the Collection Period,
Buyer shall furnish to ValueVision (i) a list of the amounts collected before
the end of such month with respect to the Station's Receivables, and (ii) the
amount collected during such month with respect to the Station's Receivables.
On or before the twentieth day after the end of the Collection Period, Buyer
shall furnish ValueVision with a list of all of the Station's Receivables that
remain uncollected at the end of the Collection Period.
(c) Further Obligations. After the expiration of the
Collection Period, Buyer shall have no further obligation hereunder other than
to make the payment under Section 6.13(b) and to remit to ValueVision any
payments with respect to any of the Station's Receivables that Buyer
subsequently receives, and any Seller itself may act to collect any of the
Station's Receivables that remain uncollected without restriction.
6.14 No Inconsistent Action. Between the date of this Agreement
and the Closing Date, no party shall take any action that is inconsistent with
its obligations under this Agreement in any material respect or that could
reasonably be expected to hinder or delay the consummation of the transactions
contemplated by this Agreement. Between the date of this Agreement and the
Closing Date, Buyer shall not take any action that would disqualify Buyer from
being the licensee
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of the Station under the Communications Act of 1934, as amended, and the rules
and regulations of the FCC, each as in effect on the date of this Agreement.
6.15 CTN Lease. VVI Manassas shall give notice of termination to
CTN of that certain Lease by and between VVI Manassas and CTN dated as of March
28, 1994 (the "CTN Lease"), promptly after execution of this Agreement.
6.16 Acquisition of Transmitter Site and Relocation of Studio.
Anything herein to the contrary notwithstanding, it is expressly agreed by the
parties that Sellers may, in their sole discretion, elect to purchase the real
property currently leased as the transmitter site for the Station and to
relocate the studio for the Station to such site (the "Transmitter Site"). In
the event Sellers elect to enter into any transaction described in the
preceding sentence, such transaction shall be binding on Buyer and shall not
result in any amendment to this Agreement or any change in the Purchase Price,
and Buyer consents in advance to any such transaction(s), whether consummated
before or after the Closing Date, and agrees to cooperate with Sellers in
effectuating such transaction(s), provided that any initial purchase by Sellers
of the Transmitter Site is consummated pursuant to terms and conditions which
shall not impose liability for any portion of the purchase price of the
Transmitter Site on Buyer and any relocation of the studio for the Station is
accomplished at no cost to Buyer prior to Closing or as soon thereafter as
reasonably practicable.
SECTION 7 CONDITIONS TO OBLIGATIONS OF BUYER AND SELLERS AT
CLOSING.
7.1 Conditions to Obligations of Buyer. All obligations of Buyer
at the Closing are subject to the fulfillment prior to or at the Closing Date
of each of the following conditions, any of which may be waived by Buyer in
writing:
(a) FCC Consent. The FCC Consent shall have been
granted.
(b) [Intentionally omitted].
(c) HSR Act. The waiting period under the HSR Act shall
have expired or been terminated without action by the DOJ or the FTC to prevent
the Closing.
(d) Deliveries. Sellers shall have made or stand willing
to make all the deliveries to Buyer set forth in Section 8.2(a),(b), and (e).
(e) Station. The FCC shall have (i) approved the sale of
the television station described in Schedule 4.3 in accordance with the
requirements of Section 6.1(b) and the closing of such sale shall have occurred
or shall be scheduled to occur immediately prior to the Closing, or (ii) the
FCC shall have granted to Buyer a temporary waiver permitting the Closing to
occur prior to the sale of the station described in Schedule 4.3.
7.2 Conditions to Obligations of Sellers. All obligations of
Sellers at the Closing are subject to the fulfillment prior to or at the
Closing Date of each of the following conditions, any of which may be waived by
ValueVision in writing:
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(a) Representations and Warranties. All representations
and warranties of Buyer contained in this Agreement shall be true and complete
in all material respects at and as of the Closing Date as though made at and as
of that time, and Sellers shall have received a certificate, executed on behalf
of Buyer by an authorized officer, to that effect.
(b) Covenants and Conditions. Buyer shall have performed
and complied in all material respects with all covenants, agreements, and
conditions required by this Agreement to be performed or complied with by it
prior to or on the Closing Date, and Sellers shall have received a certificate,
executed on behalf of Buyer by an authorized officer, to that effect.
(c) Deliveries. Buyer shall have made or stand willing
to make all the deliveries set forth in Section 8.3.
(d) FCC Consent. The FCC Consent shall have been granted.
(e) HSR Act. The waiting period under the HSR Act shall have
expired or been terminated without action by the DOJ or the FTC to prevent the
Closing.
(f) Judgments. There shall not be in effect any
judgment, decree, or order that would prevent or make unlawful the Closing.
SECTION 8 CLOSING AND CLOSING DELIVERIES.
8.1 Closing.
(a) Closing Date.
(1) Except as provided in the following sentence
or as otherwise agreed to by Buyer and ValueVision, but subject to Section
8.1(a)(2), the Closing shall take place at 10:00 a.m. on a date, to be set by
Buyer on at least five (5) days' written notice to ValueVision, which shall be
not earlier than the later of February 3, 1997 or the first business day after
the FCC Consent is granted and not later than twenty (20) business days
following the date upon which the FCC Consent has become a Final Order. Except
as otherwise agreed to by Buyer and ValueVision, but subject to Section
8.1(a)(2), if Buyer fails to specify the date for Closing pursuant to the
preceding sentence prior to the fifteenth business day after the date upon
which the FCC Consent has become a Final Order, the Closing shall take place on
the twentieth business day after the date upon which the FCC Consent has become
a Final Order.
(2) Notwithstanding Section 8.1(a)(1), if on the
date that, but for this Section 8.1(a)(2), would be the Closing Date pursuant
to Section 8.1(a)(1), the certificate provided to Buyer under Section 8.2(f)
discloses, or the Buyer has notified Sellers in writing that it has determined
that, any representation or warranty of Sellers and ValueVision contained in
this Agreement is not true and complete In A Material Way, or that Sellers have
failed to comply with their obligations and covenants to be performed under
this Agreement In A Material Way, then (A) Sellers shall take any actions
necessary or appropriate to make such representation or warranty true and
complete or to comply with such obligations and covenants, and (B) the Closing
shall be postponed for such period as is required to cure the conditions
warranting such postponement.
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(b) Closing Place. The Closing shall be held at the
offices of Dow, Lohnes & Albertson in Washington, D.C., or any other place that
is agreed upon by Buyer and ValueVision.
8.2 Deliveries by Sellers. Prior to or on the Closing Date,
Sellers shall deliver to Buyer the following, in form and substance reasonably
satisfactory to Buyer and its counsel:
(a) Deeds. Duly executed quitclaim deeds that are
sufficient to vest all of any Seller's right, title, and interest in and to all
Real Property Interests (including any real property acquired before Closing
pursuant to Section 6.16 of this Agreement) in the name of Buyer, free and
clear of all claims, liabilities, security interests, mortgages, liens,
pledges, conditions, charges, covenants, easements, restrictions,
encroachments, leases, or encumbrances of any nature, except for Permitted
Encumbrances.
(b) Other Conveyancing Documents. Duly executed bills
of sale, motor vehicle titles, assignments, and other transfer documents that
are sufficient to vest good title to all Assets (other than Real Property
Interests) in the name of Buyer, free and clear of all claims, liabilities,
security interests, mortgages, liens, pledges, conditions, charges, covenants,
easements, restrictions, encroachments, leases, or encumbrances of any nature.
(c) Working Capital Payment. Any payment required to be
made by Sellers pursuant to Section 2.4(d)(1).
(d) Estoppel Certificates and Lessor's Consents. Any estoppel
certificates and consents of lessors that Sellers shall have obtained pursuant
to Section 5.11.
(e) Consents. A manually executed copy of any instrument
evidencing receipt of any Consent.
(f) Certificate. A certificate, dated as of the Closing
Date, executed on behalf of each Seller by an authorized officer, certifying
that, except as specifically stated in such certificate, (1) the
representations and warranties of each Seller and ValueVision contained in
this Agreement are true and complete in all material respects as of the
Closing Date as though made on and as of that date, and (2) each Seller and
ValueVision has in all material respects performed and complied with all of
its obligations, covenants, and agreements set forth in this Agreement to be
performed and complied with on or prior to the Closing Date; provided, however,
that if such certificate shall disclose, or Buyer shall notify Sellers in
writing prior to the Closing Date that Buyer has determined that, any
representation or warranty of Sellers or ValueVision contained in this
Agreement is not true and complete as of the Closing Date In A Material Way,
or that Sellers or ValueVision have failed to comply with their obligations
and covenants to be performed under this Agreement as of the Closing Date In
A Material Way, Buyer may elect to delay the Closing until such representation
or warranty is made materially true and complete or such obligation or
covenant is complied with in all material respects, as the case may be, and
Buyer's sole remedy hereunder shall be the remedy of specific performance to
compel Sellers or ValueVision to make such representation or warranty
materially true and complete or such obligation or covenant to be complied
with in all material respects. For purposes of this Agreement, "In A Material
Way" shall mean that an expenditure in excess of $100,000.00 is reasonably
estimated to be required to make
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such representation or warranty materially true and complete or to
materially comply with such obligation or covenant.
(g) Licenses, Contracts, Business Records, Etc. Copies of all
Licenses, Assumed Contracts, blueprints, schematics, working drawings, plans,
projections, engineering records, and all files and records used by any Seller
in connection with its operation of the Station and included in the Assets.
8.3 Deliveries by Buyer and PCC. Prior to or on the Closing Date,
Buyer and PCC shall deliver to Sellers the following, in form and substance
reasonably satisfactory to Sellers and their counsel:
(a) Purchase Price. The Purchase Price as provided in Section 2.3.
(b) Working Capital Payment. Any payment required to be made by
Buyer pursuant to Section 2.4(d)(2).
(c) Assumption Agreements. Appropriate assumption agreements pursuant
to which Buyer shall assume and undertake to perform each Seller's obligations
under the Licenses and Assumed Contracts to the extent provided in Section
2.5.
(d) Certificate. A certificate, dated as of the Closing Date,
executed on behalf of Buyer by an authorized officer, certifying that, except
as specifically stated in such certificate, (1) the representations and
warranties of Buyer and PCC contained in this Agreement are true and complete
in all material respects as of the Closing Date as though made on and as of
that date, and (2) Buyer and PCC have in all material respects performed and
complied with all of their obligations, covenants, and agreements set forth in
this Agreement to be performed and complied with on or prior to the Closing
Date.
SECTION 9 TERMINATION.
9.1 Termination by Sellers and ValueVision. This Agreement may be
terminated by Sellers and ValueVision and the purchase and sale of the Station
abandoned, upon written notice to Buyer, upon the occurrence of any of the
following:
(a) Conditions. If on the date that would otherwise be the
Closing Date any of the conditions precedent to the obligations of Sellers set
forth in this Agreement have not been satisfied or waived in writing by
Sellers.
(b) Judgments. If there shall be in effect on the date that would
otherwise be the Closing Date any judgment, decree, or order that would prevent
or make unlawful the Closing.
(c) Upset Date. If the Closing shall not have occurred on or
prior to October 1, 1997; provided, however, that Sellers and ValueVision shall
not be entitled to terminate this Agreement pursuant to this Section 9.1(c) if
(a) the Closing shall not have occurred on or prior to October 1, 1997, as a
result of the intentional breach of this Agreement by Sellers or (b) the
Closing has been postponed beyond October 1, 1997 pursuant to Section
8.1(a)(2), but only for such period as is required to cure the condition
warranting such postponement.
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(d) Breach. If Buyer or PCC is in breach in any material
respect of any of its representations, warranties, or covenants under this
Agreement.
(e) If Buyer shall not have filed with the FCC the
necessary application to sell the station described in Schedule 4.3 within
fifteen (15) business days of the date that Seller and Buyer shall have filed
with the FCC the necessary applications for the FCC Consent, as required by
Section 6.1(b).
9.2 Termination by Buyer and PCC. This Agreement may be
terminated by Buyer and PCC and the purchase and sale of the Station abandoned,
if Buyer and PCC are not then in material default, upon written notice to
Sellers and ValueVision, upon the occurrence of any of the following:
(a) Title Defects. If Buyer shall have notified Sellers
pursuant to Section 6.9(b) of any Title Defect within thirty (30) days after
the date of this Agreement and Sellers shall not have agreed within the period
specified in Section 6.9(b) to cure or correct such Title Defect; provided,
however, that Buyer may only terminate this Agreement pursuant to this Section
9.2(a) by delivering written notice to ValueVision within seven (7) days after
the end of the period specified in Section 6.9(b) during which Sellers had the
right to elect to cure or correct such Title Defect.
(b) Environmental Hazards. If Buyer shall have notified
Sellers pursuant to Section 6.10(a) of any Environmental Hazard within thirty
(30) days after the date of this Agreement and Sellers shall not have agreed
within the period specified in Section 6.10(b) to remedy such Environmental
Hazard; provided, however, that Buyer may only terminate this Agreement
pursuant to this Section 9.2(b) by delivering written notice to ValueVision
within seven (7) days after the end of the period specified in Section 6.10(b)
during which Sellers had the right to elect to remedy such Environmental
Hazard.
(c) Technical Deficiencies. If Buyer shall have notified
Sellers pursuant to Section 6.10(a) of any Technical Deficiency within thirty
(30) days after the date of this Agreement and Sellers shall not have agreed
within the period specified in Section 6.11(b) to remedy such Technical
Deficiency; provided, however, that Buyer may only terminate this Agreement
pursuant to this Section 9.2(c) by delivering written notice to ValueVision
within seven (7) days after the end of the period specified in Section 6.11(b)
during which Sellers had the right to elect to remedy such Technical
Deficiency.
(d) Material Contracts. If Sellers shall not have
obtained and delivered to Buyer, within thirty (30) days after the date of this
Agreement, with respect to each Material Contract, any consent required for the
assignment to Buyer of such Material Contract, without any change in the terms
or conditions of such Material Contract that could reasonably be expected to be
less advantageous to Buyer than those pertaining under the Material Contract as
in effect on the date of this Agreement; provided, however, that Buyer may only
terminate this Agreement pursuant to this Section 9.2(d) by delivering written
notice to ValueVision within seven (7) days after the end of such thirty-day
period if such Consent has not been delivered to Buyer.
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9.3 Escrow Deposit. Simultaneously with the execution and
delivery of this Agreement, Buyer has deposited with the Escrow Agent the
amount of One Million Dollars ($1,000,000.00) in accordance with the Escrow
Agreement. All funds and documents deposited with the Escrow Agent shall be
held and disbursed in accordance with the terms of the Escrow Agreement and the
following provisions:
(a) At the Closing, Buyer and ValueVision shall jointly
instruct the Escrow Agent to disburse all amounts held by the Escrow Agent
pursuant to the Escrow Agreement, including any interest or other proceeds from
the investment of funds held by the Escrow Agent, to or at the direction of
Buyer.
(b) If this Agreement is terminated pursuant to Section
9.1(a), (b) or (c), by Sellers and ValueVision, Buyer and ValueVision shall
jointly instruct the Escrow Agent to disburse all amounts held by the Escrow
Agent pursuant to the Escrow Agreement, including any interest or other
proceeds from the investment of funds held by the Escrow Agent, to or at the
direction of ValueVision.
(c) If this Agreement is terminated by Buyer and PCC
pursuant to Section 9.2, then Buyer and ValueVision shall jointly instruct the
Escrow Agent to disburse all amounts held by the Escrow Agent pursuant to the
Escrow Agreement, including any interest or other proceeds from the investment
of funds held by the Escrow Agent, to or at the direction of Buyer.
9.4 Rights on Termination.
(a) If this Agreement is terminated by Sellers and
ValueVision pursuant to Section 9.1(a), (b), (c), or (e), Buyer shall promptly
pay or cause to be paid to Sellers the sum of Two Million Dollars
($2,000,000.00), which amount shall be liquidated damages and shall constitute
full payment and the exclusive remedy for any damages suffered by Sellers and
ValueVision by reason of such event. The parties hereto agree in advance that
actual damages would be difficult to ascertain and that the sum of Two Million
Dollars ($2,000,000.00) is a fair and equitable amount to reimburse Sellers and
ValueVision for damages sustained due to such event. Any payment to
ValueVision pursuant to Section 9.3(b) shall be credited against Buyer's
obligation to Sellers pursuant to this Section 9.4(a).
(b) If this Agreement is terminated by Sellers and
ValueVision pursuant to Section 9.1(d), Sellers and ValueVision may pursue any
remedy available at law or equity against Buyer and PCC as a result of such
breach, including without limitation an action to recover damages from such
breach (without any limitation as set forth in Section 9.4(a) of this
Agreement).
(c) Termination of this Agreement by Buyer and PCC
pursuant to Section 9.2 shall be without liability or obligation on the part of
any Seller or ValueVision to Buyer or PCC.
9.5 Specific Performance. The parties recognize that if any
Sellers breach this Agreement and refuse to perform under the provisions of
this Agreement, monetary damages alone would not be adequate to compensate
Buyer for its injury. Buyer shall therefore be entitled to obtain specific
performance of the terms of this Agreement, which shall be Buyer's exclusive
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remedy hereunder. If any action is brought by Buyer to enforce this Agreement,
each Seller shall waive the defense that there is an adequate remedy at law.
9.6 No Special Damages. No party to this Agreement shall be
entitled to any special, incidental, or consequential damages as a result of
the breach of this Agreement by any other party to this Agreement.
SECTION 10 INDEMNIFICATION.
10.1 Indemnification by Sellers and ValueVision. After the
Closing, and regardless of any investigation made at any time by or on behalf
of Buyer or PCC or any information Buyer or PCC may have, each Seller and
ValueVision hereby agree, jointly and severally, to indemnify and hold Buyer
and PCC and their officers, directors, employees, and representatives harmless
against and with respect to, and shall reimburse Buyer and its officers,
directors, employees, and representatives for:
(a) Any and all losses, liabilities, or damages resulting
from the operation or ownership of the Station prior to the Closing, including
any liabilities arising under the Licenses or the Assumed Contracts that relate
to events occurring prior the Closing Date, or resulting from any other
obligations of any Seller that are not assumed by Buyer pursuant to this
Agreement, including any liabilities arising at any time under any Contract
that is not included in the Assumed Contracts;
(b) Any loss, liability, obligation, or cost resulting
from any agreement with any finder, broker, advisor, or similar Person retained
by or on behalf of any Seller relating to the transactions contemplated by this
Agreement;
(c) Any and all out-of-pocket costs and expenses,
including reasonable legal fees and expenses, incident to any action, suit,
proceeding, claim, demand, assessment, or judgment incident to the foregoing or
incurred in investigating or attempting to avoid the same or to oppose the
imposition thereof, or in enforcing this indemnity.
10.2 Indemnification by Buyer and PCC. After the Closing, and
regardless of any investigation made at any time by or on behalf of any Seller
or ValueVision or any information any Seller or ValueVision may have, Buyer and
PCC hereby agree, jointly and severally, to indemnify and hold each Seller and
ValueVision and their officers, directors, employees, and representatives
harmless against and with respect to, and shall reimburse each Seller and
ValueVision and their officers, directors, employees, and representatives for:
(a) Any and all obligations of such Seller assumed by
Buyer pursuant to this Agreement;
(b) Any and all losses, liabilities, or damages resulting
from the operation or ownership of the Station after the Closing;
(c) Any loss, liability, obligation, or cost resulting
from any agreement with any finder, broker, advisor, or similar Person retained
by or on behalf of Buyer relating to the transactions contemplated by this
Agreement; and
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(d) Any and all out-of-pocket costs and expenses,
including reasonable legal fees and expenses, incident to any action, suit,
proceeding, claim, demand, assessment, or judgment incident to the foregoing or
incurred in investigating or attempting to avoid the same or to oppose the
imposition thereof, or in enforcing this indemnity.
10.3 Procedure for Indemnification. The procedure for indemnification
shall be as follows:
(a) The party claiming indemnification (the "Claimant")
shall promptly give notice to the party from which indemnification
is claimed (the "Indemnifying Party") of any claim, whether between the parties
or brought by a third party, specifying in reasonable detail the factual basis
for the claim.
(b) With respect to claims solely between the parties,
following receipt of notice from the Claimant of a claim, the Indemnifying
Party shall have thirty (30) days to make such investigation of the claim as
the indemnifying Party deems necessary or desirable. For the purposes of such
investigation, the Claimant agrees to make available to the Indemnifying Party
and its authorized representatives the information relied upon by the Claimant
to substantiate the claim. If the Claimant and the Indemnifying Party agree at
or prior to the expiration of the thirty-day period (or any mutually agreed
upon extension thereof) to the validity and amount of such claim, the
Indemnifying Party shall immediately pay to the Claimant the full amount of the
claim. If the Claimant and the Indemnifying Party do not agree within the
thirty-day period (or any mutually agreed upon extension thereof), the Claimant
may seek appropriate remedy at law or equity or under the arbitration
provisions of this Agreement, as applicable.
(c) With respect to any claim by a third party as to
which the Claimant is entitled to indemnification under this Agreement, if the
Indemnifying Party notifies the Claimant in writing within ten (10) days of its
receipt of notice from the Claimant of the third-party claim that the
Indemnifying Party acknowledges its potential liability to the Claimant under
this Agreement, the Indemnifying Party shall have the right at its own expense,
to participate in or assume control of the defense of such claim, and the
Claimant shall cooperate fully with the Indemnifying Party, subject to
reimbursement for actual out-of-pocket expenses incurred by the Claimant as the
result of a request by the Indemnifying Party. If the Indemnifying Party
elects to assume control of the defense of any third-party claim, the Claimant
shall have the right to participate in the defense of such claim at its own
expense. If the Indemnifying Party fails timely to notify the Claimant in
writing that the Indemnifying Party acknowledges its potential liability to the
Claimant under this Agreement or if the Indemnifying Party does not elect to
assume control or otherwise participate in the defense of any third-party
claim, the Indemnifying Party shall be bound by the results obtained by the
Claimant with respect to such claim.
(d) If a claim, whether between the parties or by a third
party, requires immediate action, the parties will make every effort to reach a
decision with respect thereto as expeditiously as possible.
(e) For the purpose of the procedures set forth in this
Section 10.3, any indemnification claim by any officer, director, employee, or
representative of Buyer shall be made
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<PAGE> 39
by and through PCC, and any indemnification claim by any officer, director,
employee, or representative of any Seller shall be made by and through
ValueVision.
SECTION 11 [Intentionally omitted]
SECTION 12 MISCELLANEOUS.
12.1 Fees and Expenses. ValueVision and Buyer shall each pay
one-half of any filing fees, transfer taxes, recordation taxes, sales taxes,
document stamps, or other charges levied by any governmental entity in
connection with the transactions contemplated by this Agreement, including any
fees payable to the FCC in connection with the filing of the applications for
FCC Consent and the fee imposed by the FTC in connection with filings made
pursuant to the HSR Act. Except as otherwise provided in this Agreement, each
party shall pay its own expenses incurred in connection with the authorization,
preparation, execution, and performance of this Agreement, including all fees
and expenses of counsel, accountants, agents and representatives, and each
party shall be responsible for all fees or commissions payable to any finder,
broker, advisor, or similar Person retained by or on behalf of such party.
12.2 Notices. All notices, demands, and requests required or
permitted to be given under the provisions of this Agreement shall be (a) in
writing, (b) delivered by telecopier, by personal delivery, by commercial
delivery service, or by registered or certified mail, return receipt requested,
(c) deemed to have been given on the date on which the telecopy is confirmed,
the date of personal delivery, or the date set forth in the records of the
delivery service or on the return receipt, as applicable, and (d) addressed as
follows:
If to any Seller or ValueVision: ValueVision International, Inc.
6740 Shady Oak Road
Eden Prairie, Minnesota 55344
Attention: Robert L. Johander
Telecopier: 1-612-947-0188
With copies to: Wilmer, Cutler & Pickering
2445 M Street, N.W.
Washington, D.C. 20037-1420
Attention: M. Carolyn Cox
Telecopier: 1-202-663-6363
If to Buyer or PCC: Paxson Communications Corporation
601 Clearwater Park Road
West Palm Beach, Florida 33401
Attention: Lowell W. Paxson, Chairman
Telecopier: 1-407-659-4252
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<PAGE> 40
With a copy to: Dow, Lohnes & Albertson
1200 New Hampshire Avenue, N.W.
Suite 800
Washington, D.C. 20036-1802
Attention: John R. Feore, Jr.
Telecopier: 1-202-776-2222
or to any other or additional Persons and addresses as the parties may from
time to time designate in a writing delivered in accordance with this Section
12.2.
12.3 Arbitration. Except as otherwise provided to the contrary
below, any dispute arising out of or related to this Agreement that Sellers
and/or ValueVision and Buyer and/or PCC are unable to resolve by themselves
shall be settled by arbitration in Washington, D.C., by a panel of three
arbitrators. Sellers and/or ValueVision and Buyer and/or PCC shall each
designate one disinterested arbitrator, and the two arbitrators so designated
shall select the third arbitrator. The persons selected as arbitrators need
not be professional arbitrators, and persons such as lawyers, accountants,
brokers, and bankers shall be acceptable. Before undertaking to resolve the
dispute, each arbitrator shall be duly sworn faithfully and fairly to hear and
examine the matters in controversy and to make a just award according to the
best of his or her understanding. The arbitration hearing shall be conducted
in accordance with the commercial arbitration rules for large cases of the
American Arbitration Association. The written decision of a majority of the
arbitrators shall be final and binding on all Sellers, ValueVision, Buyer, and
PCC. The costs and expenses of the arbitration proceeding shall be assessed
between Sellers and Buyer in a manner to be decided by a majority of the
arbitrators, and the assessment shall be set forth in the decision and award of
the arbitrators. Judgment on the award, if it is not paid within thirty days,
may be entered in any court having jurisdiction over the matter. No action at
law or suit in equity based upon any claim arising out of or related to this
Agreement shall be instituted in any court by any Seller, ValueVision, Buyer or
PCC against any other party except (a) an action to compel arbitration pursuant
to this Section 12.3, (b) an action to enforce the award of the arbitration
panel rendered in accordance with this Section, or (c) a suit for specific
performance pursuant to Section 9.5.
12.4 Benefit and Binding Effect. (a) No party may this Agreement
without the prior written consent of the other parties hereto, except that (a)
without the consent of any Seller or ValueVision, Buyer may (i) collaterally
assign its rights and interests under this Agreement to its lenders, and (b)
without the consent of Buyer or PCC, either Seller may assign its rights and
interests under this Agreement to the other or to ValueVision in connection
with the assignment of all its assets and liabilities to the other or to
ValueVision. If either Seller assigns all its assets to the other or to
ValueVision as contemplated by the preceding sentence and, in connection
therewith, ValueVision assumes all obligations and liabilities of such Seller
under this Agreement, Buyer and Sellers agree to amend this Agreement so as to
eliminate such Seller as a party hereto and to reflect the assumption by
ValueVision of all obligations and liabilities of Seller under this
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<PAGE> 41
Agreement. This Agreement shall be binding upon and inure to the benefit of
the parties and their respective successors and permitted assigns.
(b) Upon notice by either Seller or Buyer that an assignment
permitted by Section 12.4(a) has occurred, the other party shall enter into an
Amended and Restated Asset Purchase Agreement to reflect the new parties hereto
as a result of such assignment; provided that the other party shall not
condition its execution of such Amended and Restated Asset Purchase Agreement
upon the modification or inclusion of any provision therein. The other party
shall execute any such Amended and Restated Asset Purchase Agreement within two
(2) business days of presentation of same by Sellers or Buyer, as the case may
be, and any failure or refusal to do so shall be a material breach of this
Agreement.
12.5 Further Assurances. The parties shall take any actions and
execute any other documents that may be necessary or desirable to the
implementation and consummation of this Agreement, including, in the case of
Sellers, any additional deeds, bills of sale, or other transfer documents that,
in the reasonable opinion of Buyer, may be necessary to ensure, complete, and
evidence the full and effective transfer of the Assets to Buyer pursuant to
this Agreement.
12.6 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED, CONSTRUED,
AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE (WITHOUT
REGARD TO THE CHOICE OF LAW PROVISIONS THEREOF).
12.7 Headings. The headings in this Agreement are included for
ease of reference only and shall not control or affect the meaning or
construction of the provisions of this Agreement.
12.8 Gender and Number. Words used in this Agreement, regardless
of the gender and number specifically used, shall be deemed and construed to
include any other gender, masculine, feminine, or neuter, and any other number,
singular or plural, as the context requires.
12.9 Entire Agreement. This Agreement, the Escrow Agreement, the
schedules, hereto, and all documents, certificates, and other documents to be
delivered by the parties pursuant hereto, collectively represent the entire
understanding and agreement between Buyer, PCC, Sellers, and ValueVision with
respect to the subject matter of this Agreement. This Agreement supersedes all
prior negotiations among Buyer, PCC, Sellers, and ValueVision and cannot be
amended, supplemented, or changed except by an agreement in writing that makes
specific reference to this Agreement and that is signed by the party against
which enforcement of any such amendment, supplement, or modification is sought.
12.10 Waiver of Compliance: Consents. Except as otherwise provided
in this Agreement, any failure of any of the parties to comply with any
obligation, representation, warranty, covenant, agreement, or condition in this
Agreement may be waived by the party entitled to the benefits thereof only by a
written instrument signed by the party granting such
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<PAGE> 42
waiver, but such waiver or failure to insist upon strict compliance with such
obligation, representation, warranty, covenant, agreement, or condition shall
not operate as a waiver of, or estoppel with respect to, any subsequent or
other failure. Whenever this Agreement requires or permits consent by or on
behalf of any party hereto, such consent shall be given in writing in a manner
consistent with the requirements for a waiver of compliance as set forth in
this Section 12.10.
12.11 Counterparts. This Agreement may be signed in counterparts
with the same effect as if the signature on each counterpart were upon the same
instrument.
IN WITNESS WHEREOF, this Agreement has been executed by Sellers,
ValueVision, Buyer, and PCC as of the date first written above.
VALUEVISION INTERNATIONAL, INC.
By:
---------------------------
Name:
---------------------------
Title:
---------------------------
VVI MANASSAS, INC.
By:
---------------------------
Name:
---------------------------
Title:
---------------------------
WVVI(TV), INC.
By:
---------------------------
Name:
---------------------------
Title:
---------------------------
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<PAGE> 43
PAXSON COMMUNICATIONS OF
WASHINGTON-66, INC.
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
PAXSON COMMUNICATIONS
CORPORATION
By:
-------------------------------
Name:
----------------------------
Title:
----------------------------
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<PAGE> 1
EXHIBIT 10.51
EMPLOYMENT AGREEMENT
THIS AGREEMENT made as of the 1st day of February, 1997, by and
between ValueVision International, Inc., a Minnesota corporation (hereinafter
referred to as "Employer"), and David T. Quinby (hereinafter referred to as
"Employee").
WITNESSETH:
WHEREAS, Employee and Employer have agreed that Employee will become
an employee of Employer; and
WHEREAS, Employer desires to assure itself of the services of Employee
and Employee desires to be employed by Employer as an employee on the terms and
conditions set forth below;
NOW, THEREFORE, in consideration of the premises and mutual promises
contained in this Agreement, the parties hereto agree as follows:
1. EMPLOYMENT. Employer hereby employs Employee and Employee hereby
accepts employment with Employer on the terms and conditions set
forth in this Agreement.
2. TERM. The term of Employee's employment hereunder shall commence on
February 1, 1997 ("Commencement Date"), and shall continue on a
full-time basis for a period of twenty-four (24) months. The
"Employment Period" for purposes of this Agreement shall be the
period beginning on the Commencement Date and ending at the time
Employee shall cease to act as an employee of Employer.
3. DUTIES. Employee shall serve as Vice President, General Counsel and
Secretary of Employer and shall perform the duties as assigned by
Employer, from time to time, and shall faithfully, and to the best of
his ability, perform such reasonable duties and services of an active,
executive, administrative and managerial nature as shall be specified
and designated, from time to time, by Employer. Employee agrees to
devote his full time and skills to such employment while he is so
employed, subject to a vacation allowance of not less than three (3)
weeks during each year of the term, or such additional vacation
allowance as may be granted in the sole discretion of the Employer.
Employer's Chief Executive Officer shall provide Employee with a
performance review at least annually.
4. COMPENSATION. Employee's compensation for the services performed
under this Agreement shall be as follows:
a. Base Salary. Employee shall receive a base salary of
at least One Hundred Forty Thousand and No/100 Dollars ($140,000.00)
per year for the term of this Agreement ("Base Salary").
<PAGE> 2
b. Bonus Compensation. Employee may receive bonus pay
("Bonus Pay"), from time to time, based upon Employee's job
performance. Employer's Chief Executive Officer and Employee shall
establish job performance criteria for Employee at least annually,
which shall be the basis of such Bonus Pay.
c. Automobile Allowance. Employer shall pay Employee a
monthly automobile allowance of $450.00 per month.
d. Bar and Continuing Legal Education. Employer shall pay
all of Employee's bar fees and memberships, and all of Employee's
continuing legal education fees and expenses, up to $5,000 annually.
5. OTHER BENEFITS DURING THE EMPLOYMENT PERIOD.
a. Employee shall receive all other benefits made available
to executive officers of Employer, from time to time, at its
discretion ("Benefits"). It is understood and agreed that Employer
may terminate such Benefits or change any benefit programs at its
sole discretion, as they are not contractual for the term hereof.
b. Employer shall reimburse Employee for all reasonable and
necessary out-of-pocket business expenses incurred during the regular
performance of services for Employer, including, but not limited to,
entertainment and related expenses so long as Employer has received
proper documentation of such expenses from Employee.
c. Employer shall furnish Employee with such working
facilities and other services as are suitable to Employee's position
with Employer and adequate to the performance of his duties under this
Agreement.
6. TERMINATION OF EMPLOYMENT.
a. Death. In the event of Employee's death, this Agreement
shall terminate and Employee shall cease to receive Base Salary,
rights to any Bonus Pay and Benefits as of the date on which his death
occurs.
b. Disability. If Employee becomes disabled such that
Employee cannot perform the essential functions of his job, and the
disability shall have continued for a period of more than sixty (60)
consecutive days, then Employer may, in its sole discretion, terminate
this Agreement and Employee shall then cease to receive Base Salary,
rights to any Bonus Pay and all other Benefits, on the date this
Agreement is so terminated; provided however, Employee shall then be
entitled to such disability, medical, life insurance, and other
benefits as may be provided generally for disabled employees of
Employer when payments and benefits hereunder ceases.
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<PAGE> 3
c. Voluntary Termination. In the event that Employee
voluntarily terminates his employment, he shall cease to receive
Base Salary, rights to any Bonus Pay and all other Benefits as of the
date of such termination.
d. Termination With Cause. The Employer shall be entitled
to terminate this Agreement and Employee's employment hereunder for
Cause (as herein defined), and in the event that the Employer elects
to do so, Employee shall cease to receive Base Salary, Bonus Pay and
Benefits as of the date of such termination specified by the Employer.
For purposes of this Agreement, "Cause" shall mean: (i) a material act
or act of fraud which results in or is intended to result in
Employee's personal enrichment at the direct expense of the Employer,
including without limitation, theft or embezzlement of Employer; (ii)
public conduct by Employee substantially detrimental to the reputation
of the Employer, (iii) material violation by Employee of any Employer
policy, regulation or practice; (iv) conviction of a felony; (v)
habitual intoxication, drug use or chemical substance use by any
intoxicating or chemical substance; (vi) failure to perform under the
terms of this Agreement as determined by the Board in its sole
discretion which shall continue without cure for thirty (30) days
after notice to Employee by Employer, provided, however, that if this
Agreement is terminated as a result of this Section 6.d.(vi) hereof,
Employer shall pay Employee a severance payment (the "Severence
Payment") equal to (y) six (6) months of the Base Salary hereunder or
(z) if such termination occurs after a Change of Control (as defined
herein), twelve (12) months of the Base Salary hereunder. For
purposes of this Agreement, a "Change of Control" shall mean a sale,
consolidation or merger as set forth in Section 12 hereof or if the
Chief Executive Officer or Chairman of the Board of Employer shall no
longer be Robert L. Johander.
e. By Employee for Employer Cause. Employee may
terminate this Agreement upon thirty (30) days written notice to the
Employer upon the occurrences without Employee's express written
consent, of any one or more of the following events, provided that the
Employee shall not have the right to terminate this Agreement if the
Employer is able to cure such event within thirty (30) days (ten (10)
days with regard to Subsection i. hereof) following delivery of such
notice:
(i) The Employer substantially diminishes Employee's
duties such that they are no longer of an executive nature as
contemplated by Section 3 hereof or Employer requires Employee to
relocate his offices and perform his duties hereunder more than 25
miles from Employer's current corporate offices located at 6740 Shady
Oak Road, Eden Praire, Minnesota 55344 or
(ii) The Employer materially breaches its obligations
to pay Employee as provided for herein and such failure to pay is not
a result of a good faith dispute between the Employer and Employee.
f. Other. If Employer shall terminate this Agreement
for any reason other than those set forth in Sections 6.a, 6.b., 6.c
and 6.d. above, or if Employee terminates this Agreement pursuant to
Section 6.e. above, Employee shall continue to receive from
3
<PAGE> 4
Employer the Base Salary, Bonus Pay and Benefits until the end of the
Term, provided however, that the Base Salary payable pursuant to this
Section 6.f. shall in no event be less than the Severance Payment
Employee would be entitled to receive pursuant to Section 6.d.(vi)(y)
or (z) hereof as would be applicable regarding a Change of Control.
7. CONFIDENTIAL INFORMATION. Employee acknowledges that the confidential
information and data obtained by him during the course of his
performance under this Agreement concerning the business or affairs
of the Employer, or any entity related thereto, are the property of
the Employer and will be confidential to Employer. Such confidential
information may include, but is not limited to, specifications,
designs, and processes, product formulae, manufacturing, distributing,
marketing or selling processes, systems, procedures, plans, know-how,
services or material, trade secrets, devices (whether or not patented
or patentable), customer or supplier lists, price lists, financial
information including, without limitation, costs of materials,
manufacturing processes and distribution costs, business plans,
prospects or opportunities, and software and development or research
work, but does not include Employee's general business or direct
marketing knowledge (the "Confidential Information"). All the
Confidential Information shall remain the property of Employer and
Employee agrees that he will not disclose to any unauthorized persons
or use for his own account or for the benefit of any third party any
of the Confidential Information without the Employer's written
consent. Employee agrees to deliver to Employer at the termination of
this employment, all memoranda, notes, plans, records, reports, video
and audio tapes and any and all other documentation (and copies
thereof) relating to the business of Employer, or any entity related
thereto, which he may then possess or have under his direct or
indirect control. Notwithstanding any provision herein to the
contrary, the Confidential Information shall specifically exclude
information which is publicly available to Employee and others by
proper means, readily ascertainable from public sources known to
Employee at the time the information was disclosed or which is
rightfully obtained from a third party, information required to be
disclosed by law provided Employee provides notice to Employer to seek
a protective order, or information disclosed by Employee to his
attorney regarding litigation with Employer.
8. INVENTIONS AND PATENTS. Employee agrees that all inventions,
innovations or improvements in the method of conducting Employer's
business or otherwise related to Employer's business (including new
contributions, improvements, ideas and discoveries, whether patentable
or not) conceived or made by him during the Employment Period belong
to Employer. Employee will promptly disclose such inventions,
innovations and improvements to the Employer and perform all actions
reasonably requested by the Employer to establish and confirm such
ownership.
4
<PAGE> 5
9. NONCOMPETE AND RELATED AGREEMENTS.
a. Employee agrees that during the Noncompetition Period (as
herein defined), he will not: (i) directly or indirectly own, manage,
control, participate in, lend his name to, act as consultant or
advisor to or render services (alone or in association with any other
person, firm, corporation or other business organization; provided
however, that the parties hereto agree that this provision may not be
used to prohibit employee for working for a law firm which so provides
such services, so long as Employee does not specifically provide legal
services to a Restricted Business as defined herein) for any other
person or entity engaged in the television home shopping business or
any mail order business that directly competes with Employer or any of
its affiliates by selling merchandise primarily of the type offered in
and using a similar theme as any of the Employer's or its affiliates'
catalogs during the term of this Agreement (the "Restricted
Business"), anywhere that Employer or any of its affiliates operates
during the term of this Agreement within the continental United States
(the "Restricted Area"); (ii) have any interest directly or indirectly
in any business engaged in the Restricted Business in the Restricted
Area other than Employer (provided that nothing herein will prevent
Employee from owning in the aggregate not more than one percent (1%)
of the outstanding stock of any class of a corporation engaged in the
Restricted Business in the Restricted Area which is publicly traded,
so long as Employee has no participation in the management or conduct
of business of such corporation), (iii) induce or attempt to induce
any employee of the Employer or any entity related to Employer to
leave his, her or their employ, or in any other way interfere with the
relationship between the Employer or any entity related to Employer
and any other employee of Employer or any entity related to Employer,
or (iv) induce or attempt to induce any customer, supplier,
franchisee, licensee, other business relation of any member of the
Employer or any entity related to Employer to cease doing business
with Employer or any entity related to Employer, or in any way
interfere with the relationship between any customer, franchisee or
other business relation and the Employer or any entity related to
Employer, without the prior written consent of the Employer. For
purposes of this Agreement, "Noncompetition Period" shall mean the
period commencing as of the Commencement Date and ending on the last
day of the sixth (6th) month following the date on which Employee is
terminated during the term of this Agreement.
b. If, at the time of enforcement of any provisions of
Section 9, a court of competent jurisdiction holds that the
restrictions stated therein are unreasonable under circumstances
then existing, the parties hereto agree that the maximum period, scope
or geographical area reasonable under such circumstances will be
substituted for the stated period, scope or area.
c. Employee agrees that the covenants made in this Section 9
shall be construed as an agreement independent of any other provision
of this Agreement and shall survive the termination of this
Agreement.
5
<PAGE> 6
10. TERMINATION OF EXISTING AGREEMENTS. This Agreement supersedes and
preempts any prior understandings, agreements or representations,
written or oral, by or between Employee and Employer, which may have
related to the employment of Employee, Employee's Agreement Not to
Compete with Employer, or the payment of salary or other compensation
by Employer to Employee, and upon this Agreement shall effective, all
such understandings, agreements and representations shall terminate
and shall be of no further force or effect.
11. SPECIFIC PERFORMANCE. Employee and Employer acknowledge that in the
event of a breach of this Agreement by either party, money damages
would be inadequate and the nonbreaching party would have no adequate
remedy at law. Accordingly, in the event of any controversy
concerning the rights or obligations under this Agreement, such rights
or obligations shall be enforceable in a court of equity by a decree
of specific performance. Such remedy, however, shall be cumulative
and nonexclusive and shall be in addition to any other remedy to which
the parties may be entitled.
12. SALE, CONSOLIDATION OR MERGER. In the event of a sale of the stock,
or substantially all of the stock, of Employer, or consolidation or
merger of Employer with or into another corporation or entity, or the
sale of substantially all of the operating assets of the Employer to
another corporation, entity or individual, the Employer may assign
its rights and obligations under this Agreement to its
successor-in-interest and such successor-in-interest shall be deemed
to have acquired all rights and assumed all obligations of the
Employer hereunder.
13. STOCK OPTIONS. Employee shall be granted incentive stock options in
accordance with the Second Amended 1990 Stock Option Pland of
Employerfor 50,000 shares of ValueVision International, Inc.
common stock ("Stock Options") subject to the provisions thereof and
exercisable at the time or times established by the Stock Option
Agreement. The Stock Options shall vest in equal amounts, one-fifth
each, for the next successive five (5) years as measured from the
anniversary of the Commencement Date, or such earlier date in the sole
discretion of the Employer's Chief Executive Officer.
14. WAIVER. The failure of either party to insist, in any one or more
instances, upon performance of the terms or conditions of this
Agreement shall not be construed as a waiver or relinquishment
of any right granted hereunder or of the future performance of any
such term, covenant or condition.
15. ATTORNEY'S FEES. In the event of any action for breach of, to
enforce the provisions of, or otherwise arising out of or in
conncetion with this Agreement, the prevailing party in such action,
as determined by a court of competent jurisdiction in such action,
shall be entitled to receive its reasonable attorney fees and costs
from the other party. If a party voluntarily dismisses an action it
has brought hereunder, it shall pay to the other party its reasonable
attorney fees and costs.
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<PAGE> 7
16. NOTICES. Any notice to be given hereunder shall be deemed sufficient
if addressed in writing, and delivered by registered or certified
mail or delivered personally: (i) in the case of Employer, to the
Employer's principal business office; and (ii) in the case of
Employee, to his address appearing on the records of the Employer, or
to such other address as he may designate in writing to the Employer.
17. SEVERABILITY. In the event that any provision shall be held to be
invalid or unenforceable for any reason whatsoever, it is agreed such
invalidity or unenforceability shall not affect any other provision
of this Agreement and the remaining covenants, restrictions and
provisions hereof shall remain in full force and effect and any
court of competent jurisdiction may so modify the objectionable
provisions as to make it valid, reasonable and enforceable.
18. AMENDMENT. This Agreement may be amended only by an agreement in
writing signed by the parties hereto.
19. BENEFIT. This Agreement shall be binding upon and inure to the
benefit of and shall be enforceable by and against Employee's heirs,
beneficiaries and legal representatives. It is agreed that the
rights and obligations of Employee may not be delegated or assigned
except as specifically set forth in this Agreement.
20. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of Minnesota.
7
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have executed or caused this
Agreement to be executed as of the day, month and year first above written.
EMPLOYER: VALUEVISION INTERNATIONAL, INC.
By /s/ Robert L. Johander
---------------------------------
Robert L. Johander
Its: Chief Executive Officer
EMPLOYEE: /s/ David T. Quinby
---------------------------------
David T. Quinby
8
<PAGE> 1
EXHIBIT 10.52
VALUEVISION INTERNATIONAL, INC.
TO
DAVID T. QUINBY
OPTION AGREEMENT made as of the 2nd day of February, 1997, between
ValueVision International, Inc., a Minnesota corporation ("ValueVision"), and
DAVID T. QUINBY, an employee of ValueVision ("Employee").
WHEREAS, ValueVision desires, by affording Employee an opportunity to
purchase its shares of Common Stock, $0.01 par value ("Shares"), reserved under
and pursuant to the Second Amended Valuevision International 1990 Stock Option
Plan, as amended, ("Plan"), as hereinafter provided, to carry out the
resolutions of the Board of Directors of ValueVision granting an option to
Employee as partial compensation for his efforts on behalf of ValueVision as
its employee.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Grant of Option. ValueVision hereby irrevocably grants to
Employee the right and option, hereinafter called the Option, to purchase all
or any part of an aggregate of fifty thousand (50,000) Shares (such number
being subject to adjustment as provided in paragraph 7 hereof) on the terms and
conditions herein set forth. This grant is intended to qualify as an Incentive
Stock Option pursuant to the Plan.
1
<PAGE> 2
2. Purchase Price. The purchase price of the Shares covered by
the Option shall be $4.675, which is equal to the last price on the NASDAQ
System of one share of ValueVision's Common Stock on the last trade date prior
to the date hereof day first written above.
3. Exercise of Option. The right to exercise the Option in whole
or in part, shall be effective, except as otherwise specifically limited
herein, as follows: on and after February 1, 1998, Employee may purchase up to
10,000 Shares; on and after February 1, 1999, Employee may purchase up to an
additional 10,000 Shares; on and after February 1, 2000, Employee may purchase
up to 10,000 Shares; on and after February 1, 2001, Employee may purchase up to
10,000 Shares; and on and after February 1, 2002, Employee may purchase up to
an additional 10,000 Shares, or such earlier date in the sole discretion of the
Employer's Chief Executive Officer. Each of the rights to purchase Shares
granted in the preceding sentence shall expire five (5) years after the right
to purchase the Shares became effective, except as otherwise specifically
limited herein. The purchase price of Shares acquired through exercise of any
part of the Option shall be paid in full in cash at the time of exercise.
Employee, as holder of the Option, shall not have any of the rights of a
Shareholder with respect to the Shares covered by the Option except to the
extent that one or more certificates for such Shares shall be delivered to him
upon the due exercise of all or any part of the Option.
4. Non-Transferability. The Option shall not be transferable
otherwise than by will or the laws of descent and distribution, and the Option
may be exercised, during the lifetime of Employee, only
2
<PAGE> 3
the Option may be exercised, during the lifetime of Employee, only
by Employee. More particularly (but without limiting the generality of the
foregoing), the Option may not be assigned, transferred (except as provided
above), pledged, or hypothecated in any way, shall not be assignable by
operation of law, and shall not be subject to execution, attachment, or similar
process. Any attempted assignment, transfer, pledge, hypothecation, or other
disposition of the Option contrary to the provisions hereof, and the levy of
any execution, attachment, or similar process upon the Option shall be null and
void and without effect.
5. Exercise Upon Termination. If Employee ceases to serve as an
employee of ValueVision, while the Option remains in effect, whether as a
result of resignation or termination, with or without cause, the Option may be
exercised (to the extent that Employee shall have been entitled to do so on the
last day in which he served as an employee of ValueVision) by Employee at
anytime within ninety (90) days of the day in which he ceased to serve as an
employee of ValueVision. Upon the expiration of such ninety (90) day period,
or, if earlier, upon the expiration date of the Option as set forth in
Paragraph 3 hereof, the Option shall become null and void.
6. Exercise Upon Death. If Employee dies while the Option
remains in effect, the Option may be exercised (to the extent that Employee
shall have been entitled to do so at the date of his death) by the legatee or
legatees of Employee under his will, or by his personal representatives or
distributees, at any time within ninety (90) days after his death. Upon the
expiration of such
3
<PAGE> 4
ninety (90) day period, or, if earlier, upon the expiration date of the Option
as set forth in paragraph 3 hereof, the Option shall become null and void.
7. Changes in Capital Structure. If all or any portion of the
Option shall be exercised subsequent to any Share dividend, split- up,
recapitalization, merger, consolidation, combination or exchange of Shares,
separation, reorganization, or liquidation occurring after the date hereof, as
a result of which Shares of any class shall be issued in respect of outstanding
Shares, or Shares shall be changed into the same or a different number of
Shares of the same or another class or classes, the person or persons so
exercising the Option shall receive, for the aggregate price paid upon such
exercise, the aggregate number and class of Shares which, if Shares (as
authorized at the date hereof) had been purchased at the date hereof for the
same aggregate price (on the basis of the price per Share set forth in
paragraph 2 hereof) and had not been disposed of, such person or persons would
be holding, at the time of such exercise, as a result of such purchase and all
such shared dividends, split-ups, recapitalizations, mergers, consolidations,
combinations or exchanges of Shares, separations, reorganizations, or
liquidations; provided, however, that no fractional Share shall be issued upon
any such exercise, and the aggregate price paid shall be appropriately reduced
on account of any fractional Share not issued.
8. Method of Exercising Option. Subject to the terms and
conditions of this Agreement, the Option may only be exercised by written
notice to ValueVision. Such notice shall state the
4
<PAGE> 5
election to exercise the Option and the number of Shares in respect of which it
is being exercised, and shall be signed by the person or person so exercising
the Option. Such notice shall either: (a) be accompanied by payment of the
full purchase price of such Shares, in which event ValueVision shall deliver a
certificate or certificates representing such Shares as soon as practicable
after the notice shall be received; or (b) fix a date (not less than five (5)
nor more than ten (10) business days from the date such notice shall be
received by ValueVision) for the payment of the full purchase price of such
Shares against delivery of a certificate or certificates representing such
Shares. Payment of such purchase price shall, in either case, be made by
certified or cashier's check payable to the order of ValueVision. All Shares
that shall be purchased upon the exercise of the Option as provided herein
shall be fully paid and non-assessable.
9. Investment Certificate and Registration. Prior to the receipt
of the certificates pursuant to the exercise of the Option granted hereunder,
Employee shall agree to hold the Shares acquired by exercise of the Option for
investment and not with a view to resale or distribution thereof to the public,
and shall deliver to ValueVision a certificate to that effect. Nothing in this
Agreement shall require ValueVision to register the Option or the Shares
purchased upon the exercise of said Option.
10. General. ValueVision shall at all times during the term of the Option
reserve and keep available such number of Shares as will be sufficient to
satisfy the requirements of this Option Agreement.
5
<PAGE> 6
This Option shall be construed in accordance with the laws of the State of
Minnesota.
IN WITNESS WHEREOF, ValueVision and Employee have executed this
Agreement as of the date first written above.
VALUEVISION INTERNATIONAL, INC.
By /s/ Robert L. Johander
----------------------------------
Robert L. Johander,
Chief Executive Officer
Employee:
/s/ David T. Quinby
----------------------------------
Employee Name
6
<PAGE> 1
EXHIBIT 10.53
VALUEVISION INTERNATIONAL, INC.
TO
STUART R. ROMENESKO
OPTION AGREEMENT made as of the 20th day of March, 1997, between
ValueVision International, Inc., a Minnesota corporation ("ValueVision"), and
STUART R. ROMENESKO, an employee of ValueVision ("Employee").
WHEREAS, ValueVision desires, by affording Employee an opportunity to
purchase its shares of Common Stock, $0.01 par value ("Shares"), reserved under
and pursuant to the Second Amended Valuevision International 1990 Stock Option
Plan, as amended, ("Plan"), as hereinafter provided, to carry out the
resolutions of the Board of Directors of ValueVision granting an option to
Employee as partial compensation for his efforts on behalf of ValueVision as
its employee.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Grant of Option. ValueVision hereby irrevocably grants to
Employee the right and option, hereinafter called the Option, to purchase all
or any part of an aggregate of fifty thousand (50,000) Shares (such number
being subject to adjustment as provided in paragraph 7 hereof) on the terms and
conditions herein set forth. This grant is intended to qualify as an Incentive
Stock Option pursuant to the Plan.
1
<PAGE> 2
2. Purchase Price. The purchase price of the Shares covered by
the Option shall be $3.875, which is equal to the last price on the NASDAQ
System of one share of ValueVision's Common Stock on the last trade date prior
to the date hereof day first written above.
3. Exercise of Option. The right to exercise the Option in whole
or in part, shall be effective, except as otherwise specifically limited
herein, as follows: on and after March 20 1998, Employee may purchase up to
10,000 Shares; on and after March 20, 1999, Employee may purchase up to an
additional 10,000 Shares; on and after March 20, 2000, Employee may purchase up
to 10,000 Shares; on and after March 20, 2001, Employee may purchase up to
10,000 Shares; and on and after March 20, 2002, Employee may purchase up to an
additional 10,000 Shares, or such earlier date in the sole discretion of the
Employer's Chief Executive Officer. Each of the rights to purchase Shares
granted in the preceding sentence shall expire five (5) years after the right
to purchase the Shares became effective, except as otherwise specifically
limited herein. The purchase price of Shares acquired through exercise of any
part of the Option shall be paid in full in cash at the time of exercise.
Employee, as holder of the Option, shall not have any of the rights of a
Shareholder with respect to the Shares covered by the Option except to the
extent that one or more certificates for such Shares shall be delivered to him
upon the due exercise of all or any part of the Option.
2
<PAGE> 3
4. Non-Transferability. The Option shall not be transferable
otherwise than by will or the laws of descent and distribution, and the Option
may be exercised, during the lifetime of Employee, only by Employee. More
particularly (but without limiting the generality of the foregoing), the Option
may not be assigned, transferred (except as provided above), pledged, or
hypothecated in any way, shall not be assignable by operation of law, and shall
not be subject to execution, attachment, or similar process. Any attempted
assignment, transfer, pledge, hypothecation, or other disposition of the Option
contrary to the provisions hereof, and the levy of any execution, attachment,
or similar process upon the Option shall be null and void and without effect.
5. Exercise Upon Termination. If Employee ceases to serve as an
employee of ValueVision, while the Option remains in effect, whether as a
result of resignation or termination, with or without cause, the Option may be
exercised (to the extent that Employee shall have been entitled to do so on the
last day in which he served as an employee of ValueVision) by Employee at
anytime within ninety (90) days of the day in which he ceased to serve as an
employee of ValueVision. Upon the expiration of such ninety (90) day period,
or, if earlier, upon the expiration date of the Option as set forth in
Paragraph 3 hereof, the Option shall become null and void.
6. Exercise Upon Death. If Employee dies while the Option
remains in effect, the Option may be exercised (to the extent that Employee
shall have been entitled to do so at the date of his death) by the legatee or
legatees of Employee under his will, or by his personal representatives or
distributees, at any time within
3
<PAGE> 4
ninety (90) days after his death. Upon the expiration of such ninety (90) day
period, or, if earlier, upon the expiration date of the Option as set forth in
paragraph 3 hereof, the Option shall become null and void.
7. Changes in Capital Structure. If all or any portion of the
Option shall be exercised subsequent to any Share dividend, split- up,
recapitalization, merger, consolidation, combination or exchange of Shares,
separation, reorganization, or liquidation occurring after the date hereof, as
a result of which Shares of any class shall be issued in respect of outstanding
Shares, or Shares shall be changed into the same or a different number of
Shares of the same or another class or classes, the person or persons so
exercising the Option shall receive, for the aggregate price paid upon such
exercise, the aggregate number and class of Shares which, if Shares (as
authorized at the date hereof) had been purchased at the date hereof for the
same aggregate price (on the basis of the price per Share set forth in
paragraph 2 hereof) and had not been disposed of, such person or persons would
be holding, at the time of such exercise, as a result of such purchase and all
such shared dividends, split-ups, recapitalizations, mergers, consolidations,
combinations or exchanges of Shares, separations, reorganizations, or
liquidations; provided, however, that no fractional Share shall be issued upon
any such exercise, and the aggregate price paid shall be appropriately reduced
on account of any fractional Share not issued.
8. Method of Exercising Option. Subject to the terms and
conditions of this Agreement, the Option may only be exercised by
4
<PAGE> 5
written notice to ValueVision. Such notice shall state the election to
exercise the Option and the number of Shares in respect of which it is being
exercised, and shall be signed by the person or person so exercising the
Option. Such notice shall either: (a) be accompanied by payment of the full
purchase price of such Shares, in which event ValueVision shall deliver a
certificate or certificates representing such Shares as soon as practicable
after the notice shall be received; or (b) fix a date (not less than five (5)
nor more than ten (10) business days from the date such notice shall be
received by ValueVision) for the payment of the full purchase price of such
Shares against delivery of a certificate or certificates representing such
Shares. Payment of such purchase price shall, in either case, be made by
certified or cashier's check payable to the order of ValueVision. All Shares
that shall be purchased upon the exercise of the Option as provided herein
shall be fully paid and non-assessable.
9. Investment Certificate and Registration. Prior to the receipt
of the certificates pursuant to the exercise of the Option granted hereunder,
Employee shall agree to hold the Shares acquired by exercise of the Option for
investment and not with a view to resale or distribution thereof to the public,
and shall deliver to ValueVision a certificate to that effect. Nothing in this
Agreement shall require ValueVision to register the Option or the Shares
purchased upon the exercise of said Option.
10. General. ValueVision shall at all times during the term of the
Option reserve and keep available such number of Shares as will be sufficient to
satisfy the requirements of this Option Agreement.
5
<PAGE> 6
This Option shall be construed in accordance with the laws of the State of
Minnesota.
IN WITNESS WHEREOF, ValueVision and Employee have executed this
Agreement as of the date first written above.
VALUEVISION INTERNATIONAL, INC.
By /s/ Robert L. Johander
----------------------------------
Robert L. Johander,
Chief Executive Officer
Employee:
/s/ Stuart R. Romenesko
-----------------------------------
Stuart R. Romenesko
6
<PAGE> 1
Exhibit 11
VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
Computation of Net Income (Loss) Per Share
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net income (loss) $18,089,722 $11,019,565 $(6,104,095)
=========== =========== ===========
Weighted average number of common
shares outstanding 31,718,390 28,627,356 27,264,856
Shares assumed to be issued upon the
exercise of common stock options and
warrants under the treasury stock method 266,073 - -
----------- ----------- -----------
Weighted average number of common
and dilutive common equivalent shares
outstanding 31,984,463 28,627,356 27,264,856
=========== =========== ===========
Net income (loss) per common and
dilutive common equivalent share $ 0.57 $ 0.38 $ (0.22)
=========== =========== ===========
</TABLE>
<PAGE> 1
Exhibit 21
Significant Subsidiaries of the Registrant
All of the Company's subsidiaries listed below are wholly owned and
incorporated in the state of Minnesota,
except for Beautiful Images, Inc., which is incorporated in the state of
Delaware.
ValueVision Acquisition I Corp.
VVI Baytown, Inc.
VVI Seattle, Inc.
VVI LPTV, Inc.
ValueVision Direct Marketing Company, Inc. (d/b/a "Montgomery Ward Direct")
Beautiful Images, Inc.
Catalog Ventures, Inc.
VVI Fulfillment Center, Inc.
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report included in this Form 10-K, into the Company's previously filed
Registration Statements File Nos. 33-60549, 33-68646, 33-68648, 33-86616,
33-93006 and 33-96950.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
April 29, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A)
VALUEVISION INTERNATIONAL, INC.'S CONSOLIDATED BALANCE SHEET AS OF JANUARY 31,
1997 AND CONSOLIDATED STATEMENT OF OPERATIONS FOR THE TWELVE-MONTH PERIOD ENDED
JANUARY 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B)
CONSOLIDATED FINANCIAL STATEMENTS AS FILED ON FORM 10K
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> FEB-01-1996
<PERIOD-END> JAN-31-1997
<CASH> 28,618,943
<SECURITIES> 24,239,840
<RECEIVABLES> 6,488,094
<ALLOWANCES> 0
<INVENTORY> 28,109,081
<CURRENT-ASSETS> 99,355,352
<PP&E> 24,283,108
<DEPRECIATION> 0
<TOTAL-ASSETS> 166,412,670
<CURRENT-LIABILITIES> 37,723,874
<BONDS> 0
0
0
<COMMON> 288,422
<OTHER-SE> 126,957,185
<TOTAL-LIABILITY-AND-EQUITY> 166,412,670
<SALES> 159,477,917
<TOTAL-REVENUES> 159,477,917
<CGS> 92,114,663
<TOTAL-COSTS> 70,003,038
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 29,689,722
<INCOME-TAX> 11,600,000
<INCOME-CONTINUING> 18,089,722
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,089,722
<EPS-PRIMARY> .57
<EPS-DILUTED> 0
</TABLE>
