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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 0-20243
----------------
VALUEVISION INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Minnesota 41-1673770
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6740 Shady Oak Road, Minneapolis, MN 55344 (Address of
principal executive offices)
612-947-5200
(Registrant's telephone number, including area code)
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
--- ---
As of June 9, 1998, there were 25,478,343 shares of the Registrant's
common stock, $.01 par value, outstanding.
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VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
FORM 10-Q TABLE OF CONTENTS
APRIL 30, 1998
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION Page of
Form 10-Q
---------
<S> <C> <C>
Item 1. Financial Statements
- Condensed Consolidated Balance Sheets as of April 30, 1998 and 3
January 31, 1998
- Condensed Consolidated Statements of Operations for the Three 4
Months Ended April 30, 1998 and 1997
- Condensed Consolidated Statement of Shareholders' Equity for 5
the Three Months Ended April 30, 1998
- Condensed Consolidated Statements of Cash Flows for the Three 6
Months Ended April 30, 1998 and 1997
- Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and 10
Results of Operations
PART II OTHER INFORMATION
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURES 20
</TABLE>
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VALUEVISION INTERNATIONAL, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
APRIL 30, JANUARY 31,
1998 1998
------------- --------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 45,859,500 $ 17,198,074
Short-term investments 6,567,424 14,667,669
Accounts receivable, net 9,417,124 8,694,293
Inventories, net 17,308,370 20,426,862
Prepaid expenses and other 8,729,329 10,478,848
Note receivable -- National Media Corporation 10,000,000 7,000,000
Income taxes receivable -- 748,319
Deferred income taxes 447,000 447,000
------------- -------------
Total current assets 98,328,747 79,661,065
Property and equipment, net 20,420,439 21,403,724
Federal Communications Commission licenses, net 2,082,585 5,807,187
Montgomery Ward operating agreement and licenses, net 2,025,231 2,073,360
Investment in Paxson Communications Corporation 14,497,006 9,847,688
Goodwill and other intangible assets, net 6,251,705 6,892,454
Investments and other assets, net 9,130,894 9,078,826
============= =============
$ 152,736,607 $ 134,764,304
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term obligations $ 389,484 $ 410,648
Accounts payable 15,195,569 17,643,895
Accrued liabilities 10,120,500 11,535,551
Income taxes payable 5,999,079 --
------------- -------------
Total current liabilities 31,704,632 29,590,094
LONG-TERM OBLIGATIONS 833,054 1,036,821
DEFERRED INCOME TAXES 3,697,000 1,869,660
------------- -------------
Total liabilities 36,234,686 32,496,575
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SHAREHOLDERS' EQUITY:
Common stock, $.01 par value, 100,000,000 shares authorized;
26,780,778 and 26,780,778 shares issued and outstanding 267,808 267,808
Additional paid-in capital 74,538,225 74,538,225
Accumulated other comprehensive losses (3,288,871) (6,275,652)
Notes receivable from officers (993,295) (960,476)
Retained earnings 45,978,054 34,697,824
------------- -------------
Total shareholders' equity 116,501,921 102,267,729
------------- -------------
$ 152,736,607 $ 134,764,304
============= =============
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated balance sheets.
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VALUEVISION INTERNATIONAL, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
APRIL 30,
-----------------------------
1998 1997
------------ ------------
<S> <C> <C>
NET SALES $43,676,233 $51,061,796
COST OF SALES 25,022,354 28,366,858
----------- -----------
Gross profit 18,653,879 22,694,938
----------- -----------
Margin % 42.7% 44.4%
OPERATING EXPENSES:
Distribution and selling 16,818,763 21,102,834
General and administrative 2,853,668 2,914,699
Depreciation and amortization 1,270,079 1,801,240
----------- -----------
Total operating expenses 20,942,510 25,818,773
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OPERATING LOSS (2,288,631) (3,123,835)
----------- -----------
OTHER INCOME (EXPENSE):
Gain on sale of broadcast stations 19,750,000 --
Equity in losses of affiliates (16,362) (369,996)
Interest income 783,208 527,270
Other, net (32,985) 54,324
----------- -----------
Total other income 20,483,861 211,598
----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES 18,195,230 (2,912,237)
INCOME TAX PROVISION (BENEFIT) 6,915,000 (1,151,000)
=========== ===========
NET INCOME (LOSS) $11,280,230 $(1,761,237)
=========== ===========
NET INCOME (LOSS) PER COMMON SHARE $ 0.42 $ (0.05)
=========== ===========
NET INCOME (LOSS) PER COMMON SHARE
---ASSUMING DILUTION $ 0.42 $ (0.05)
=========== ===========
Weighted average number of common shares outstanding:
Basic 26,780,778 32,949,056
=========== ===========
Diluted 26,877,387 32,949,056
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
4
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VALUEVISION INTERNATIONAL, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
For the Three Months Ended April 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
COMMON STOCK ACCUMULATED
---------------------- ADDITIONAL OTHER
COMPREHENSIVE NUMBER PAR PAID-IN COMPREHENSIVE
INCOME OF SHARES VALUE CAPITAL INCOME (LOSSES)
-------------- -------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
BALANCE, January 31, 1998 26,780,778 $ 267,808 $ 74,538,225 $ (6,275,652)
Comprehensive income:
Net income $ 11,280,230 -- -- -- --
Other comprehensive income, net of tax:
Unrealized gains on securities, net
of tax of $1,831,000 2,986,781 -- -- -- 2,986,781
-------------
Comprehensive income $ 14,267,011
=============
Increase in notes receivable from officers -- -- -- --
------------- ------------- ------------- -------------
BALANCE, April 30, 1998 26,780,778 $ 267,808 $ 74,538,225 $ (3,288,871)
============= ============= ============= =============
<CAPTION>
NOTES
RECEIVABLE TOTAL
FROM RETAINED SHAREHOLDERS'
OFFICERS EARNINGS EQUITY
-------------- ------------- ---------------
<S> <C> <C> <C>
BALANCE, January 31, 1998 $ (960,476) $ 34,697,824 $ 102,267,729
Comprehensive income:
Net income -- 11,280,230 11,280,230
Other comprehensive income, net of tax:
Unrealized gains on securities, net
of tax of $1,831,000 -- -- 2,986,781
Comprehensive income
Increase in notes receivable from officers (32,819) -- (32,819)
------------- ------------- -------------
BALANCE, April 30, 1998 $ (993,295) $ 45,978,054 $ 116,501,921
============= ============= =============
</TABLE>
The accompanying notes are an integral part of this
condensed consolidated finacial statement.
5
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VALUEVISION INTERNATIONAL, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED APRIL 30,
--------------------------------------------
1998 1997
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 11,280,230 $ (1,761,237)
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities-
Depreciation and amortization 1,270,079 1,801,240
Deferred taxes (3,660) (76,000)
Equity in losses of affiliates 16,362 369,996
Gain on sale of investments -- (100,075)
Gain on sale of broadcast stations (19,750,000) --
Changes in operating assets and liabilities:
Accounts receivable, net (722,831) (2,897,329)
Inventories, net 3,118,492 (1,790,529)
Prepaid expenses and other 1,702,035 (382,568)
Accounts payable and accrued liabilities (3,872,536) 963,873
Income taxes payable (receivable), net 6,747,398 (45,008)
------------ ------------
Net cash used for operating activities (214,431) (3,917,637)
------------ ------------
INVESTING ACTIVITIES:
Property and equipment additions, net of retirements (212,755) (1,479,917)
Proceeds from sale of investments -- 280,638
Proceeds from sale of broadcast stations 24,483,200 --
Loan to National Media Corporation (3,000,000) --
Purchase of short-term investments (1,479,021) (13,547,228)
Proceeds from sale of short-term investments 9,747,729 12,843,773
Payment for investments and other assets (407,254) (1,150,891)
------------ ------------
Net cash provided by (used for) investing activities 29,131,899 (3,053,625)
------------ ------------
FINANCING ACTIVITIES:
Proceeds from exercise of stock options and warrants -- 46,514
Payments for repurchases of common stock -- (10,458,412)
Payment of long-term obligations (256,042) (61,485)
------------ ------------
Net cash used for financing activities (256,042) (10,473,383)
------------ ------------
Net increase (decrease) in cash and cash equivalents 28,661,426 (17,444,645)
BEGINNING CASH AND CASH EQUIVALENTS 17,198,074 28,618,943
------------ ------------
ENDING CASH AND CASH EQUIVALENTS $ 45,859,500 $ 11,174,298
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 52,000 $ 21,000
============ ============
Income taxes paid $ 410,000 $ 75,000
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
6
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VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1998
(Unaudited)
(1) GENERAL
ValueVision International, Inc. and Subsidiaries ("ValueVision" or the
"Company") is an integrated direct marketing company which markets its products
directly to consumers through electronic and print media.
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 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., doing business as HomeVisions ("VVDM"), is 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 and
other women's apparel through its wholly-owned subsidiary Beautiful Images, Inc.
("BII").
(2) BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations. The information furnished in the interim condensed
consolidated financial statements includes normal recurring adjustments and
reflects all adjustments which, in the opinion of management, are necessary for
a fair presentation of such financial statements. Although management believes
the disclosures and information presented are adequate to make the information
not misleading, it is suggested that these interim condensed consolidated
financial statements be read in conjunction with the Company's most recent
audited financial statements and notes thereto included in its fiscal 1998
Annual Report on Form 10-K. Operating results for the three month period ended
April 30, 1998, are not necessarily indicative of the results that may be
expected for the fiscal year ending January 31, 1999.
Certain amounts in the fiscal 1998 financial statements have been
reclassified to conform to the fiscal 1999 presentation with no impact on
previously reported net income (loss).
7
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VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1998
(Unaudited)
(3) NET INCOME (LOSS) PER COMMON SHARE
In the fourth quarter of fiscal 1998, the Company adopted Statement of
Financial Accounting Standards No. 128 "Earnings per Share" ("SFAS No. 128"),
which established new guidelines for computing and presenting earnings (loss)
per share data ("EPS"), and retroactively restated EPS for all prior periods.
SFAS No. 128 requires presentation of basic and diluted EPS. Basic EPS is
computed by dividing reported net income (loss) by the weighted average number
of common shares outstanding. Diluted EPS reflects potential dilution from
outstanding stock options and warrants, using the treasury stock method. The
adoption of SFAS No. 128 did not have a significant effect on previously
reported EPS information.
(4) COMPREHENSIVE INCOME
In the first quarter of fiscal 1999, the Company adopted Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
No. 130") which establishes standards for reporting in the financial statements
all changes in equity during a period, except those resulting from investments
by and distributions to owners. For the Company, comprehensive income includes
net income and other comprehensive income (loss) which consists of unrealized
holding gains and losses from equity investments classified as
"available-for-sale". Total comprehensive income (loss) was $14,267,000 and
($1,761,000) for the three months ended April 30, 1998 and 1997, respectively.
(5) SALE OF BROADCAST STATIONS
On February 27, 1998, the Company completed the sale of its television
broadcast station KBGE- TV Channel 33, which serves the Seattle, Washington
market, along with two of the Company's non- cable, low-power stations in
Portland, Oregon and Indianapolis, Indiana and a minority interest in an entity
which had applied for a new full-power station to Paxson Communications
Corporation ("Paxson") for a total of approximately $35 million in cash. Under
the terms of the agreement, Paxson paid the Company approximately $25 million
upon closing and the remaining $10 million is to be paid when KBGE, which is
currently operating at reduced power from downtown Seattle, is able to relocate
its antenna and increase its transmitter power to a level at or near its
licensed full power. The Company will retain and continue to serve the Seattle
market via its recently-launched low-power station K58DP-TV, which transmits
from downtown Seattle. KBGE was acquired by the Company in March 1996 for
approximately $4.6 million. The pre-tax gain recorded on the first installment
with respect to the sale of these television stations was approximately $19.8
million and was recognized in the fiscal quarter ended April 30, 1998.
8
<PAGE> 9
(6) NATIONAL MEDIA CORPORATION
On January 5, 1998, the Company entered into an Agreement and Plan of
Reorganization and Merger (the "Merger Agreement"), by and among the Company,
National Media Corporation ("National Media") and Quantum Direct Corporation,
formerly known as V-L Holdings Corp. ("Quantum Direct"), a newly-formed Delaware
corporation. National Media Corporation is a publicly-held direct marketer of
consumer products through the use of direct response transactional television
programming, known as infomercials, and currently makes its programming
available to more than 370 million television households in more than 70
countries worldwide.
On April 8, 1998, it was announced that the Company received preliminary
notification from holders of more than 5% of the Company's common stock that
they intended to exercise their dissenter's rights with respect to the proposed
merger of the Company and National Media. The Company also reported that it had
advised National Media that it did not intend to waive the Merger Agreement
condition to closing requiring that holders of not more than 5% of the shares of
the Company common stock have demanded their dissenter's rights. The Company and
National Media had special meetings of their shareholders scheduled on April 14,
1998 to vote on the Mergers. In light of the receipt of the dissenters' notice,
the companies mutually agreed to postpone their respective shareholder meetings.
On June 2, 1998, the Company announced that attempts to renegotiate new,
mutually acceptable terms and conditions regarding a transaction with National
Media were unsuccessful and the Merger Agreement was terminated. As of April 30,
1998, the Company has incurred approximately $2.0 million of acquisition related
costs and anticipates expensing these costs in the second quarter ended July 31,
1998.
(7) COMMON STOCK REPURCHASE PROGRAM
In fiscal 1996, the Company established a stock repurchase program whereby
the Company may repurchase shares of its common stock 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. As of April 30, 1998,
the Company was authorized to repurchase an aggregate of $20 million of its
common stock of which approximately $16 million in stock had been repurchased .
In June 1998, the Company's Board of Directors authorized an additional
repurchase of up to $6 million of the Company's common stock.
(8) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENT
The Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS No. 131") in June 1997. SFAS No. 131
requires that public business enterprises report information about operating
segments in annual financial statements and requires selected information in
interim financial reports issued to shareholders. It also establishes standards
for related disclosures about products and services, geographic areas, and major
customers and is effective for fiscal years beginning after December 15, 1997.
The Company plans to adopt the disclosure requirements of SFAS No. 131 in its
fiscal 1999 year-end financial statements when required. The disclosure
requirements of SFAS No. 131 need not be applied to interim periods in the
initial year of application.
9
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ITEM 2. 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 should be read in conjunction with the Company's accompanying
unaudited condensed consolidated financial statements and notes thereto included
elsewhere herein and the audited consolidated financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the fiscal year
ended January 31, 1998.
SELECTED CONDENSED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
DOLLAR AMOUNTS AS A
PERCENTAGE OF NET SALES
FOR THE THREE MONTHS
ENDED APRIL 30,
------------------------
1998 1997
--------- --------
<S> <C> <C>
Net sales 100.0% 100.0%
===== =====
Gross margin 42.7% 44.4%
----- -----
Operating expenses:
Distribution and selling 38.5% 41.3%
General and administrative 6.5% 5.7%
Depreciation and amortization 2.9% 3.5%
----- -----
47.9% 50.5%
----- -----
Operating loss (5.2%) (6.1%)
===== =====
</TABLE>
10
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
ValueVision International, Inc. and its subsidiaries ("ValueVision" or 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., doing business as HomeVisions ("VVDM"), is a
direct-mail marketer of a broad range of quality general merchandise which is
sold to consumers through direct-mail catalogs. Through its wholly-owned
subsidiary, Catalog Ventures, Inc. ("CVI"), the Company sells a variety of
fashion jewelry 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 and other women's apparel
through its wholly-owned subsidiary, Beautiful Images, Inc. ("BII").
NATIONAL MEDIA CORPORATION
On January 5, 1998, the Company entered into an Agreement and Plan of
Reorganization and Merger (the "Merger Agreement"), by and among the Company,
National Media Corporation ("National Media") and Quantum Direct Corporation,
formerly known as V-L Holdings Corp. ("Quantum Direct"), a newly-formed Delaware
corporation. National Media Corporation is a publicly-held direct marketer of
consumer products through the use of direct response transactional television
programming, known as infomercials, and currently makes its programming
available to more than 370 million television households in more than 70
countries worldwide.
On April 8, 1998, it was announced that the Company received preliminary
notification from holders of more than 5% of the Company's common stock that
they intended to exercise their dissenter's rights with respect to the proposed
merger of the Company and National Media. The Company also reported that it had
advised National Media that it did not intend to waive the Merger Agreement
condition to closing requiring that holders of not more than 5% of the shares of
the Company common stock have demanded their dissenter's rights. The Company and
National Media had special meetings of their shareholders scheduled on April 14,
1998 to vote on the Mergers. In light of the receipt of the dissenters' notice,
the companies mutually agreed to postpone their respective shareholder meetings.
On June 2, 1998, the Company announced that attempts to renegotiate new,
mutually acceptable terms and conditions regarding a transaction with National
Media were unsuccessful and the Merger Agreement was terminated. As of April 30,
1998, the Company has incurred approximately $2.0 million of acquisition related
costs and anticipates expensing these costs in the second quarter ended July 31,
1998.
11
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RESULTS OF OPERATIONS
NET SALES
Net sales for the three months ended April 30, 1998 (fiscal 1999), were
$43,676,000 compared with net sales of $51,062,000 for the three months ended
April 30, 1997 (fiscal 1998), a 14.5% decrease. The decrease in net sales is
directly attributable to the decline in catalog sales resulting from the
downsizing of the HomeVisions (formerly known as Montgomery Ward Direct)
direct-mail operations after the November 1997 restructuring of the Company's
operating agreements with Montgomery Ward & Co., Incorporated ("Montgomery
Ward"). Sales attributed to direct-mail marketing operations totaled $14,537,000
or 33.3% of total net sales for the quarter ended April 30, 1998 and totaled
$26,691,000 or 52.3% of total net sales for the quarter ended April 30, 1997.
Sales attributed to the Company's television home-shopping programming increased
19.6% to $29,140,000 for the quarter ended April 30, 1998 from $24,370,000 for
the comparable prior year period. The increase in television home-shopping net
sales occurred while full-time equivalent cable homes able to receive the
Company's home-shopping programming remained essentially unchanged from the
prior year at approximately 12.0 million. This improvement in home shopping is a
direct result of a strengthened merchandising effort under the leadership of
ValueVision - TV's new general management. During the 12-month period ended
April 30, 1998 the Company added approximately 1.3 million full-time cable
homes, a 16% increase. In addition to new full-time cable homes, television
home-shopping sales increased due to the continued addition of new customers
from households already receiving the Company's television home-shopping
programming, as well as an increase in repeat sales to existing customers. The
increase in repeat sales to existing customers experienced during the first
three months of fiscal 1999 was due, in part, to the effects of continued
testing of certain merchandising and programming strategies during the first
quarter of fiscal 1999. Certain changes were made to the Company's merchandising
and programming strategies in the fourth quarter of fiscal 1998 and the first
quarter of fiscal 1999 which contributed to an improvement in television
home-shopping 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 the intended results.
GROSS PROFIT
Gross profits for the first quarter ended April 30, 1998 and 1997 were
$18,654,000 and $22,695,000, respectively, a decrease of $4,041,000 or 17.8%.
Gross margins for the three months ended April 30, 1998 were 42.7% compared to
44.4% for the same period last year. The principal reason for the decrease in
gross profits was the decreased sales volume resulting from the downsizing of
the HomeVisions catalog operations. Television gross margins for the first
quarter ended April 30, 1998 and 1997 were 38.1% and 41.3% respectively. Gross
margins for the Company's direct mail-order operations were 51.9% and 47.3% for
the same respective periods. Television home shopping gross margins between
comparable periods decreased slightly from prior year primarily as a result of a
decrease in gross margin percentages in the giftware and houseware product
categories and a greater proportion of lower margin non-jewelry products such as
electronics, offset by increases in volume of higher margin seasonal and jewelry
products. During the first quarter of fiscal 1999, the Company continued to
broaden its merchandise mix as compared to the same period last year by
expanding the range and quantity of non-jewelry items. As part of the ongoing
shift in merchandise mix, the Company continued to devote additional program air
time to non-jewelry merchandise. Jewelry products accounted for approximately
63% of air time during the first quarter of fiscal 1999, compared with 64% for
the same period last year. Gross margins for the Company's direct mail-order
operations increased primarily as a result of the decrease in HomeVisions sales
due to the downsizing of the HomeVisions catalog operations which has a
considerably lower margin than CVI or BII
12
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
and as a result of the exclusion of two lower margin CVI catalog titles from the
fiscal 1999 summer mailing.
OPERATING EXPENSES
Total operating expenses for the three months ended April 30, 1998 were
$20,943,000 versus $25,819,000 representing a decrease of $4,876,000 or 18.9%
from the three months ended April 30, 1997. Distribution and selling expenses
decreased $4,284,000 or 20.3% to $16,819,000 or 38.5% of net sales during the
first quarter of fiscal 1999 compared to $21,103,000 or 41.3% of net sales for
the comparable prior-year period. Distribution and selling costs decreased
primarily as a result of the downsizing of the Company's HomeVisions catalog
operations, offset by increases in net cable access fees due to an increase in
the rate per full-time equivalent cable home, increased marketing and
advertising fees as a result of absorbing additional advertising costs which
were previously resold to Montgomery Ward, additional personnel costs associated
with increased staffing levels, labor rates and increased costs associated with
handling the increased television home shopping sales volume. Distribution and
selling expenses decreased as a percentage of net sales over prior year
primarily as a result of additional unusual costs incurred by the Company and
included in the first quarter of fiscal 1998 in connection with the conversion
and integration of the Company's acquired direct-mail operations and start-up
costs associated with the Company's fulfillment and warehouse facility which
were not included in the first quarter of fiscal 1999.
General and administrative expenses for the three months ended April 30,
1998 decreased $61,000 or 2.1% to $2,854,000 or 6.5% of net sales compared to
$2,915,000 or 5.7% of net sales for the three month period ended April 30, 1997.
General and administrative costs remained relatively flat compared to the prior
year and increased as a percentage of net sales as a result of the decrease in
net sales from quarter to quarter.
Depreciation and amortization costs for the three months ended April 30,
1998 were $1,270,000 versus $1,801,000 representing a decrease of $531,000 or
29.5% from the comparable prior-year period. Depreciation and amortization costs
as a percentage of net sales were 2.9% for the three months ended April 30, 1998
versus 3.5% for the comparable prior-year period. The dollar decrease is
primarily due to a reduction in amortization expense of approximately $465,000
relating to intangible assets reduced in connection with the November 1997
amended Montgomery Ward operating and license agreement. In addition,
depreciation and amortization expense decreased from prior year as a result of
the Company's sale of its Seattle, Washington television broadcast station
(KBGE-TV , Channel 33) in February 1998.
OPERATING LOSS
For the three months ended April 30, 1998, the Company incurred an
operating loss of $2,289,000 compared to an operating loss of $3,124,000 for
the three months ended April 30, 1997, a decrease of $835,000 or 27%. The
improvement in the operating loss resulted primarily from decreases in
distribution and selling costs over prior year due to the recent downsizing of
the HomeVisions catalog operations and the fact that the first quarter of
fiscal 1998 included certain unusual costs incurred by the Company in
connection with the conversion and integration of the Company's acquired
direct-mail operations and start-up costs incurred associated with the
Company's fulfillment and warehouse facility. Also contributing to the
operating loss improvement for the first quarter of fiscal 1999 was a reduction
in amortization expense
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<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
over prior year relating primarily to the November 1997 amended Montgomery Ward
operating and license agreement. These decreases were offset by decreased sales
volumes, margins and a corresponding decrease in gross profits.
NET INCOME (LOSS)
For the three months ended April 30, 1998, the Company reported net income
of $11,280,000 or $.42 per share on 26,877,000 diluted weighted average common
shares outstanding ($.42 per share on 26,781,000 basic shares) compared with a
net loss of $1,761,000, or $.05 per share on 32,949,000 diluted weighted average
common shares outstanding ($.05 per share on 32,949,000 basic shares) for the
first quarter of fiscal 1998. Results for the first quarter of fiscal 1999
include a pre-tax gain of $19,750,000 from the sale of television station
KBGE-TV, Channel 33 in Seattle, Washington and two low-power television stations
in February 1998. For the three months ended April 30, 1998, excluding the gain
on the sale of the television stations, the Company had a net loss of $964,000,
or $.04 per share. For the quarter ended April 30, 1998, net income reflects an
income tax provision of $6,915,000 which results in an effective tax rate of
38%.
PROGRAM DISTRIBUTION
The Company's television home-shopping programming was available to
approximately 17.4 million cable homes as of April 30, 1998, as compared to 17.4
million cable homes as of January 31, 1998 and to 18.1 million cable homes as of
April 30, 1997. The Company's programming is currently available through
affiliation and time-block purchase agreements with approximately 320 cable
systems and one wholly-owned full power television broadcast station. 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 April 30, 1998 and
1997, the Company's programming was available to approximately 11.9 million and
12.0 million full-time equivalent ("FTE") cable homes, respectively. As of
January 31, 1998, the Company's programming was available to 11.7 million FTE
cable homes. Approximately 9.4 million and 8.1 million cable homes at April 30,
1998 and 1997, respectively, received the Company's programming on a full-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.
CIRCULATION
With respect to the Company's direct-mail marketing operations,
approximately 2.8 million HomeVisions catalogs were mailed in the first quarter
of fiscal 1999. At April 30, 1998, HomeVisions had approximately 524,000
"active" customers (defined as individuals that have purchased from the Company
within the preceding 12 months) and combined customer and prospect files that
totaled approximately 4.1 million names. Approximately 4.8 million CVI catalogs
were mailed in the first quarter of fiscal 1999 and at April 30, 1998, CVI had
approximately 545,000 active catalog customers and approximately 4.8 million
customer names in its catalog customer list database. During the first quarter
of fiscal 1999, BII had approximately 175 million space advertisements or
"impressions" circulated in national and regional newspapers and magazines and
at April 30, 1998, BII had approximately 210,000 active customers and
approximately 690,000 customer names in its customer list database.
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<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YEAR 2000 CONSIDERATIONS
The Company has reviewed the implications of year 2000 compliance and has
taken steps designed to ensure that the Company's information systems and
software applications will manage dates beyond 1999. The Company believes that
it has allocated adequate resources for this purpose and that planned software
upgrades, which are underway and in the normal course of business, will address
the Company's internal year 2000 needs. While the Company expects that efforts
on the part of current employees of the Company will be required to monitor year
2000 issues, no assurances can be given that these efforts will be successful.
The Company does not expect the cost of addressing any year 2000 issue to be a
material event or uncertainty that would have a material, adverse effect on
future operating results or financial condition.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
As of April 30, 1998, cash and cash equivalents and short-term investments
were $52,427,000, compared to $31,866,000 as of January 31, 1998, a $20,561,000
increase. For the three months ended April 30, 1998, working capital increased
$16,553,000 to $66,624,000. The current ratio was 3.1 at April 30, 1998 compared
to 2.7 at January 31, 1998. At April 30, 1998 all short-term investments and
cash equivalents were invested in securities with original maturity dates of
less than two hundred and seventy (270) days.
Total assets at April 30, 1998 were $152,737,000, compared to $134,764,000
at January 31, 1998. Shareholders' equity was $116,502,000 at April 30, 1998,
compared to $102,268,000 at January 31, 1998, a $14,234,000 increase. The
increase in shareholders' equity for the three month period ended April 30, 1998
resulted primarily from net income of $11,280,000 for the quarter and net
unrealized holding gains of $2,987,000 on investments available-for-sale.
For the three-month period ended April 30, 1998, net cash used for
operating activities totaled $214,000 compared to net cash used for operating
activities of $3,918,000 for the three-month period ended April 30, 1997. Cash
flows from operations before consideration of changes in working capital items
and investing and financing activities was a negative $1,019,000 for the three
months ended April 30, 1998, compared to a negative $1,323,000 for the same
prior-year period. Net cash used for operating activities for the three months
ended April 30, 1998 reflects net income, as adjusted for depreciation and
amortization, equity in losses of affiliates and gain on sale of broadcast
stations, decreased accounts payable and accrued liabilities and increased
accounts receivable, offset by a decrease in inventories, prepaid expenses and
an increase in net income taxes payable. Accounts receivable increased primarily
due to timing relative to receipt of funds from credit card companies and
increased receivables due from customers for merchandise sales made pursuant to
the "ValuePay" installment program. Inventories decreased from year end as a
result of tighter inventory management, changes in merchandise mix and the
downsizing of the HomeVisions catalog operations. Prepaid expenses decreased
primarily as a result of decreased deferred catalog costs as the Company's
direct-mail operations end the Spring 1998 catalog season.
Net cash provided by investing activities totaled $29,132,000 during the
first quarter of fiscal 1999 compared to net cash used for investing activities
of $3,054,000 for the same period of fiscal 1998. For the three months ended
April 30, 1998 and 1997, expenditures for property and equipment were $213,000
and $1,480,000, respectively. Expenditures for property and equipment during the
periods ended April 30, 1998 and 1997 include (i) the upgrade of broadcast
station and production equipment, studios and
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<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
transmission equipment and (ii) the upgrade of computer software and related
equipment. Principal future capital expenditures will be for upgrading
television production and transmission equipment, studio expansions and order
fulfillment equipment to support expanded operations. During the first quarter
of fiscal 1999, the Company received $24,483,000 in proceeds from the sale of
its broadcast television station KBGE-TV. In addition, during the first quarter
of fiscal 1999, the Company disbursed $407,000 relating to certain strategic
investments and other long-term assets and granted an additional $3.0 million
working capital loan in the form of a demand note to National Media Corporation.
During the first quarter of fiscal 1998, the Company disbursed $1,151,000
relating to certain strategic investments and other long-term assets and
received $281,000 in net proceeds from the sale of certain long-term
investments.
Net cash used for financing activities totaled $256,000 for the three
months ended April 30, 1998 and included a $200,000 installment payment made
under a five year non-compete obligation entered into upon the acquisition of a
broadcast television station and payments made on capital lease obligations. Net
cash used for financing activities totaled $10,473,000 for the three months
ended April 30, 1997 and primarily related to repurchases of the Company's
common stock under its stock repurchase program and capital lease obligation
payments, offset by proceeds received from the exercise of stock options and
warrants.
Management believes that 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 1999. Additional
capital may be required in the event the Company is able to identify additional
direct marketing company acquisition targets and television stations in
strategic markets at favorable prices.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
Information contained in this Form 10-Q and in 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) contain various "forward looking statements" within the meaning of
federal securities laws which represent management's expectations or beliefs
concerning future events, including the outcome of litigation, 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 affect the Company's
financial position and results of operations including: the ability to resolve
satisfactorily the disputed issues in litigation, 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.
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<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In addition to any specific risks and uncertainties discussed in this Form
10-Q, the risks and uncertainties discussed in detail in the Company's Form 10-K
for the fiscal year ended January 31, 1998, specifically under the caption
entitled "Risk Factors", provide information which should be considered in
evaluating any of the Company's forward looking statements. In addition, the
facts and circumstances which exist when any forward looking statements are made
and on which those forward looking statements are based, may significantly
change in the future, thereby rendering obsolete the forward looking statements
on which such facts and circumstances were based.
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<PAGE> 18
VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
PART II OTHER INFORMATION
ITEM 5. OTHER INFORMATION
(a) Increase in Stock Repurchase Program.
The Company announced that its Board of Directors
has revised upward its Common Stock repurchase authorization so
that approximately $10 million is currently available to
repurchase stock. The Company's stock repurchase program was
initiated by the Board of Directors in November 1996. The Company
is currently authorized to repurchase an aggregate of up to $26
million of its Common Stock in open market or negotiated
transactions. As of April 30, 1998, approximately $16 million in
stock had been repurchased under the program.
(b) Chief Executive Officer
On June 3, 1998, the Company announced the election of
veteran marketing, direct response and retail executive, Gene
McCaffery, 50, as Chief Executive Officer of the Company. Mr.
McCaffery also was appointed to the Company's Board of Directors
and brings to the Company 25 years in retail and marketing
experience, as well as substantial executive experience. Since
March 30, 1998, he served as Chief Executive Officer of Quantum
Direct Corporation, the entity that was formed for the proposed
merger of the Company and National Media. Prior to such time, Mr.
McCaffery served as Chief Executive Officer and managing partner
of Marketing Advocates, a celebrity-driven product and service
development company based in Los Angeles, CA. Mr. McCaffery was
formerly Senior Executive Vice President of Montgomery Ward &
Co., Incorporated, a $7 billion retail chain ("Montgomery Ward"),
in charge of its merchandising, strategic planning, advertising
and marketing operations before leaving in 1996. While at
Montgomery Ward, Mr. McCaffery also oversaw The Signature Group,
one of the nation's largest direct marketing companies, and also
served as Vice-Chairman of the Board of the Company from August
1995 to March 1996. Mr. McCaffery served as an infantry officer
in the Vietnam War and was appointed as Civilian Aide to the
Secretary of the Army by President George Bush in 1991.
Mr. McCaffery and the Company have entered into a three
year employment agreement providing for him to serve as Chief
Executive Officer and a Director of the Company, with a base
salary of $500,000 during the first year, $525,000 during the
second year, and $550,000 during the third year. The agreement
also provides for bonus salary of up to 100% of the base salary,
which may be earned only upon the Company meeting certain
operating income, revenue and stock performance criteria. In
addition, pursuant to the agreement, Mr. McCaffery is being
issued stock options to acquire 800,000 shares of the Company's
Common Stock, $.01 par value, with an exercise price equal to
$3.375 per share, the last trading price of the Company's Common
Stock on March 30, 1998. Of such options, 200,000 vest monthly
on a pro rata basis over the term of the employment agreement,
and 600,000 vest on the earlier of the fifth anniversary of Mr.
McCaffery's start date (provided he is still an employee of the
Company) or in equal 20% (120,000 share) blocks based on the
average closing price of the Company's common stock for 20
consecutive trading days being at $5.00, $6.00, $7.00, $8.00 and
$9.00 respectively. Such
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options are being issued pursuant to the Company's 1994 Executive
Stock Option and Compensation Plan. The employment agreement
generally provides for a one year non-compete. In addition, in
the event of a change of control (as defined) of the Company, Mr.
McCaffery's employment can be terminated by the Company or Mr.
McCaffery in certain circumstances. In the event of such a
termination, Mr. McCaffery would be entitled to receive the base
salary and bonus salary remaining to be paid through the end of
the term of the employment agreement, together with accrued
benefits. The foregoing description of certain terms of the
employment agreement by and among the Company, Quantum Direct and
Mr. McCaffery, does not purport to be complete and is subject to
and qualified in its entirety by reference to a copy of the
employment agreement attached as Exhibit 10.1 to this Form 10-Q.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Employment Agreement made as of June 2, 1998 by and
among the Company, Gene McCaffery and Quantum Direct
Corporation.
10.2 Employment Agreement made effective as of May 1,
1998 between the Company and Stuart R. Romenesko.
10.3 Employment Agreement made effective as of May 1,
1998 between the Company and David T. Quinby.
11 Computation of Net Income (Loss) Per Share.
27 Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K
(i) The Registrant filed a Form 8-K on March 31, 1998
reporting under Item 5, the Registrant's Press Release dated March
26, 1998 announcing the Registrant's fourth quarter and year end
earnings for the three and twelve months ended January 31, 1998.
The Registrant also reported under Item 5 the selection of veteran
marketing, direct response and retail executive, Gene McCaffery,
as Chief Executive Officer of Quantum Direct Corporation, the
international electronic commerce company that was to be formed by
the proposed merger of the Registrant and National Media
Corporation.
(ii) The Registrant filed a Form 8-K on April 9, 1998
reporting under Item 5, the Registrant's Press Release dated April
8, 1998 announcing the postponement of the special shareholder
meetings of the Registrant's and National Media Corporation to
vote on their proposed merger in light of the Registrant's
dissenting shareholders.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
/s/ Gene McCaffery
----------------------------------------
Gene McCaffery
Chief Executive Officer
(Principal Executive Officer)
/s/ Stuart R. Romenesko
----------------------------------------
Stuart R. Romenesko
Senior Vice President Finance and
Chief Financial Officer
(Principal Financial and Accounting Officer)
June 10, 1998
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EXHIBIT 10.1
EMPLOYMENT AGREEMENT
THIS AGREEMENT made as of the 2nd day of June, 1998, by and among
ValueVision International, Inc., a Minnesota corporation ("Employer"), Gene
McCaffery ("Employee"), and Quantum Direct Corporation, a Delaware corporation
("Quantum Direct").
WITNESSETH:
WHEREAS, Employer, Employee and Quantum Direct previously entered into an
Employment Agreement dated March 30, 1998 (the "Original Agreement"), whereby
Employee was employed as Chief Executive Officer of Quantum Direct in
anticipation of the consummation of the transactions (the "Transactions")
contemplated by that certain Agreement and Plan of Reorganization and Merger
(the "Merger Agreement") dated as of January 5, 1998 by and among ValueVision,
National Media Corporation ("NMC") and V-L Holdings Corp. (subsequently renamed
"Quantum Direct Corporation"), whereby ValueVision and NMC were to become
wholly-owned subsidiaries of Quantum Direct;
WHEREAS, ValueVision and NMC mutually agreed to terminate the Merger
Agreement on June 1, 1998;
WHEREAS, pursuant to the Original Agreement, in the event the Merger
Agreement is terminated and the Transactions not consummated, Employer and
Employee agreed to enter into an employment agreement on substantially the same
terms and conditions as set forth in the Original Agreement;
WHEREAS, Employer and Employee have agreed that Employee will be employed
by Employer on the terms and conditions set forth herein which both parties
agree is on substantially the same terms and conditions as the Original
Agreement; and
WHEREAS, Quantum Direct is being made a party hereto only for purposes of
Section 14 of this Agreement to terminate the Original Agreement;
NOW, THEREFORE, in consideration of the premises and mutual promises
contained in this Agreement, the parties hereto agree as follows:
1. EMPLOYMENT. Employer hereby agrees to employ Employee, and Employee hereby
agrees to be employed by Employer, on the terms and conditions set forth
herein.
2. TERM. The term of Employee's employment hereunder shall commence on the
date of this Agreement and shall continue on a full-time basis for a period
of three (3) years from March 30, 1998 (such period, the "Term"), unless
earlier terminated as hereinafter provided. The "Employment Period" for
purposes of this Agreement shall be the period beginning on the date hereof
and ending at the time Employee shall cease to act as an employee of
Employer.
<PAGE> 2
3. DUTIES. Employee shall serve as the Chief Executive Officer of Employer and
be appointed to serve as a member of the Board of Directors of Employer
(the "Board") on the date hereof, and shall continue to be nominated by the
Board to serve as a member of the Board during the Term, which nomination
shall be subject to approval by the shareholders of Employer at its annual
meetings of shareholders held subsequent to the date hereof, provided that
if Employee's employment with Employer is earlier terminated in accordance
with the provisions herein, Employee shall immediately resign from the
Board upon request by Employer. Employee shall perform the duties as
assigned by the Board 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 the Board. As Chief
Executive Officer, Employee's duties shall include, without limitation,
making recommendations to the Compensation Committee of Employer with
respect to awards made under Employer's stock option and compensation
plans. The executive officers of Employer, including the President, shall
report directly to Employee, as Chief Executive Officer, provided that, if
at any time there is no person serving as President, Employee shall also
serve as President for such period until another person is appointed by the
Board to serve as President. 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 to other senior
executives of Employer.
4. COMPENSATION. During the Employment Period, Employee's compensation for the
services performed under this Agreement shall be as follows:
a. Base Salary. Employee shall receive a base salary as follows: (i) Five
Hundred Thousand and no/100 Dollars ($500,000) for the twelve-month period
from March 30, 1998 through March 29, 1999 (a portion of which was paid
under the Original Agreement), (ii) Five Hundred Twenty Five Thousand and
no/100 Dollars ($525,000) for the twelve-month period from March 30, 1999
through March 29, 2000 and (iii) Five Hundred Fifty Thousand and no/100
Dollars ($550,000) for the twelve-month period from March 30, 2000 through
March 30, 2001, in each case, payable in accordance with Employer's normal
payment schedule for its executive employees (the "Base Salary").
b. Signing Bonus. Upon the execution of the Original Agreement, Employee
received a payment of One Hundred Thirty Thousand and no/100 Dollars
($130,000) (the "Signing Bonus"). If Employee's employment with Employer is
terminated prior to March 30, 1999 either by Employer for Cause (as defined
below) pursuant to Section 6.d herein or by Employee pursuant to Section
6.c herein, Employee shall return to Employer the pro rata portion of the
Signing Bonus (calculated as a percentage of the remaining portion of such
twelve-month period with respect to such twelve-month period).
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<PAGE> 3
c. Bonus Salary. Employee may receive bonus salary with respect to any year
in an aggregate amount not to exceed 100% of the Base Salary applicable
with respect to such year (the "Bonus Salary"). The Bonus Salary shall be
calculated as follows:
(i) Up to 50% of the applicable Base Salary (the "50% Goal"), if
Employer's Operating Income (as defined below) equals 1% of Employer's Net
Sales (as defined below), then Employee shall receive a bonus payment equal
to 25% of the 50% Goal, which payment shall increase on a pro rata basis to
100% of the 50% Goal if the Operating Income equals or exceeds 3% of
Employer's Net Sales (the "Operating Income Bonus"). As used in this
Agreement, "Operating Income" shall mean earnings before interest, taxes
and unusual items, and "Net Sales" shall mean gross sales, net of returns
and related reserves, and excludes shipping, handling, sales taxes and
insurance revenues, each as determined with respect to any fiscal year and
pursuant to generally accepted accounting principles by Employer,
consistently applied.
(ii) Up to 30% of the applicable Base Salary (the "30% Goal") if the
Average Price (defined as the greater of (a) the average closing price of
Employer's common stock for 20 consecutive trading days immediately prior
to the last day of Employer's fiscal year or (b) the average daily closing
price for the final four months of Employer's fiscal year) meets the
following target prices (the "Stock Price Bonus"):
If (A) the Average Price increases at least 25% but not 50% over the
Base Price (defined as $3.375, the closing price of Employer's common
stock on the date of the Original Agreement, which Base Price shall be
adjusted at the end of each fiscal year to the Average Price with
respect to such fiscal year, provided that in no event shall the Base
Price, as adjusted, exceed 133% of the Base Price of the previous
fiscal year), the Stock Price Bonus shall be equal to 25% of the 30%
Goal, (B) the Average Price increases at least 50% but not 75% over
the Base Price, the Stock Price Bonus shall be equal to one-half of
the 30% Goal, (C) the Average Price increases at least 75% but not
100% over the Base Price, the Stock Price Bonus shall be equal to
three-quarters of the 30% Goal, and (D) the Average Price increases
100% or more over the Base Price, the Stock Price Bonus shall be equal
to 100% of the 30% Goal.
(iii) Up to 20% of the applicable Base Salary (the "20% Goal"), if
Employer has positive Operating Income and Employer's Net Sales (exclusive
of sales of any acquisitions during the then current fiscal year) increases
over the prior fiscal year's Net Sales ("Base Sales") as follows (the
"Sales Bonus"):
If (A) Employer's Net Sales for any fiscal year increase at least 4%
but less than 5% over the Base Sales, the Sales Bonus shall be equal
to one-quarter of the 20% Goal, (B) Employer's Net Sales increase at
least 5% but not 6% over the Base Sales, the Sales Bonus shall be
equal to one-half of the 20% Goal, (C) Employer's net sales increase
at least 6% but not 7% over the Base Sales, the Sales Bonus shall be
equal
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<PAGE> 4
to three-quarters of the 20% Goal, and (D) Employer's Net Sales
increase at least 7% over the Base Sales, the Sales Bonus shall be
equal to 100% of the 20% Goal.
Notwithstanding anything to the contrary herein, if the aggregate
compensation payable to Employee under this Agreement exceeds the amount
that is deductible under Section 162(m) of the Internal Revenue Code of
1986, as amended (the "Code"), then any such excess amount shall be
deferred and credited by Employer to an account for the benefit of
Employee, which shall be paid to Employee, with interest at a per annum
rate equal to 1.5% plus the prime rate (as announced by Employer's primary
financial lender from time to time), compounded annually, at such time
within five (5) days after the first date on which Employee no longer
constitutes a "covered employee" within the meaning of Section 162(m) of
the Code.
d. Automobile Allowance. Employer shall pay Employee a monthly automobile
allowance of $600.00 per month ("Auto Allowance").
e. Stock Options. As of the date hereof, Employer shall grant to Employee,
employee stock options to purchase an aggregate of 800,000 shares of the
common stock, par value $.01 per share (the "Common Stock") of Employer
(collectively, the "Options"). The Options shall be granted under an option
agreement between Employer and Employee dated as of the date hereof, which
option agreement shall be on terms consistent with the terms of this
Agreement. One-half of the Options shall have a term of five years (the
"Five Year Options") and one-half of the Options shall have a term of ten
years (the "Ten Year Options"), provided that upon the termination of
Employee's employment with Employer, Employee shall have six months from
the date of such termination to exercise any vested Options. The Options
shall have a per share exercise price equal to $3.375, the closing price of
one share of common stock of Employer as of the date of the Original
Agreement. The Options shall vest, in equal amounts of Five Year Options
and Ten Year Options, as follows: (i) Options for 200,000 shares of Common
Stock shall vest in pro rata amounts on a monthly basis over the Term of
this Agreement (the "Pro Rata Options"), and (ii) Options for 600,000
shares of Common Stock shall vest on the earlier of (A) the fifth
anniversary of the date of this Agreement (provided that Employee is still
an employee of Employer) or (B) in equal installments of options to
purchase 120,000 shares of Common Stock, based upon the attainment of an
average closing price of Employer's common stock for any 20 consecutive
trading day period at $5.00, $6.00, $7.00, $8.00 and $9.00, respectively.
All of the Options shall automatically vest upon a termination of
Employee's employment with Employer prior to the end of the Term (unless
pursuant to Sections 6.c or 6.d.) or upon a Change of Control (as defined
below), provided that a Potential Change of Control (as defined below)
which results in such Change of Control first occurred ninety (90) days or
more after the date of the Original Agreement. If such Change of Control is
a result of a Potential Change of Control which first occurred less than
ninety (90) days after the date of the Original Agreement, only the Pro
Rata Options shall immediately vest upon the occurrence of such Change of
Control.
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"Potential Change of Control" shall mean any of the following events: (i)
the authorization by the Board for Employer to enter into a letter of
intent, an agreement in principle or any other written agreement with
respect to a transaction or transactions that, if consummated, would result
in a Change of Control, (ii) the commencement of a tender offer for the
Common Stock of Employer in connection with a transaction not authorized or
approved by the Board, or (iii) the commencement of a proxy contest with
respect to the election of directors to the Board.
5. OTHER BENEFITS DURING THE EMPLOYMENT PERIOD. During the Employment Period,
Employer shall provide Employee with the following benefits:
a. Employee shall receive all 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, the Employment Period shall
terminate and Employee shall cease to receive Base Salary, Bonus Salary,
Auto Allowance, and Benefits as of the date on which his death occurs.
Employer shall provide Employee with a term life insurance policy (of which
Employee shall be the owner) for $1.0 million at standard rates, provided
that Employee shall be responsible for any premiums in excess of the
standard rates applicable to a person of Employee's age who is in good
health at the time of application for such a policy. In addition,
Employee's estate shall be entitled to receive any payments or Benefits
provided herein that have accrued (but have not been paid) prior to the
date of Employee's death (including the acceleration of any unvested
Options pursuant to Section 4.e).
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 one hundred twenty (120) consecutive
days, then Employer may, in its sole discretion, terminate the Employment
Period, provided that a physician to be selected by Employer, subject to
the reasonable satisfaction of Employee, shall have determined the
existence of
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<PAGE> 6
such disability. Upon the date of such termination, Employee shall then
cease to receive Base Salary, Bonus Salary, Auto Allowance, 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. In
addition, Employee shall be entitled to receive any payments or Benefits
provided in this Agreement that have accrued (but have not been paid) prior
to the date of such termination (including the acceleration of any unvested
Options pursuant to Section 4.e).
c. Voluntary Termination. In the event that Employee voluntarily terminates
his employment other than pursuant to Section 6.e, the Employment Period
shall terminate and Employee shall cease to receive Base Salary, Bonus
Salary, Auto Allowance, and all other Benefits as of the date of such
termination. Employee shall be entitled to receive any payments or Benefits
provided herein that have accrued (but have not been paid) prior to the
date of such termination (but no unvested Options shall accelerate as a
result of such termination).
d. Termination With Cause. Employer shall be entitled to terminate the
Employment Period and Employee's employment hereunder for Cause (as defined
below), and in the event that Employer elects to do so, Employee shall
cease to receive Base Salary, Bonus Salary, Auto Allowance, and Benefits as
of the date of such termination specified by Employer. For purposes of this
Agreement, "Cause" shall mean: (i) a material improper act or act of fraud
which results in or is intended to result in Employee's personal enrichment
at the direct expense of Employer, including without limitation, theft or
embezzlement from Employer; (ii) material violation by Employee of any
material policy, regulation or practice or Employer; (iii) conviction of a
felony; or (iv) habitual intoxication, drug use or chemical substance abuse
by any intoxicating or chemical substance. Notwithstanding the forgoing,
Employee shall not be deemed to have been terminated for Cause unless and
until (A) Employee has received thirty (30) days' prior written notice (a
"Dismissal Notice") of such termination and (B) if such "Cause" event is
capable of being cured, Employee has not cured such "Cause" event within
ten (10) days following delivery of such notice. In the event Employee does
not dispute such determination within thirty (30) days after receipt of the
Dismissal Notice, Employee shall not have the remedies provided pursuant to
Section 6.g. of this Agreement. Employee shall be entitled to receive any
payments or Benefits provided herein that have accrued (but have not been
paid) prior to the date of such termination (but no unvested Options shall
accelerate as a result of such termination).
e. By Employee for Employer Cause. Employee may terminate the Employment
Period upon thirty (30) days written notice to Employer (the "Employee
Notice") upon the occurrences without Employee's express written consent,
of any one or more of the following events, provided, however, that
Employee shall not have the right to terminate the Employment Period if
Employer is able to cure such event within thirty (30) days (ten (10) days
with regard to Subsection (ii) hereof) following delivery of such notice:
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<PAGE> 7
(i) Employer substantially diminishes Employee's duties such that they
are no longer of an executive nature as contemplated by Section 3 hereof or
(ii) 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 Employer and Employee.
(iii) Any purported termination of this Agreement by Employer not
effected in accordance with the provisions set forth herein, provided that
Employee has delivered thirty (30) days' prior written notice of such
termination and Employer has not cured such event within thirty (30) days
following delivery of such notice by Employee.
In the event of a termination of Employee's employment with Employer under
this Section 6.e, Employee shall be entitled to receive the payments and
Benefits as set forth in Section 6.g.
f. Termination After Change of Control. If Employee is terminated by
Employer without Cause within one year after the consummation of a
transaction constituting a Change of Control, Employee shall receive (i) a
payment in an amount equal to one year's Base Salary at the rate in effect
at the time of such termination, if a Potential Change of Control (which
results in such Change of Control) occurs less than ninety (90) days after
the date of the Original Agreement, or (ii) a payment in an amount equal to
Base Salary and Bonus Salary (based upon the last paid Bonus Salary
received or accrued for in the previous year, if any, and pro rated for the
number of remaining months until the end of the Term) which would otherwise
be payable until the end of the Term, if a Potential Change of Control
(which results in such Change of Control) occurs ninety (90) days or more
after the date of the Original Agreement. Any payments made by Employer to
Employee under this Section 6.f shall be paid on a pro rata basis over the
Non-Competition Period (as defined below). In addition, during the 30 day
period immediately following the six month anniversary of the consummation
of a transaction constituting a Change of Control, Employee may terminate
this Agreement for any reason by providing written notice to Employer and
receive the benefits provided in clauses (i) or (ii) of the immediately
preceding sentence, as applicable, provided that any such termination by
Employee under this Section 6.f shall not also be deemed to be a
termination by Employee under Section 6.c. In the event that Employee's
employment with Employer is terminated by either Employer or Employee
pursuant to this Section 6.f, Employee shall be entitled to any payments or
Benefits provided in this Agreement that have accrued (but have not been
paid) prior to the date of such termination, provided that any acceleration
of any unvested Options shall be in accordance with the provisions of
Section 4.e).
g. Other Termination. Employer reserves the right to terminate the
Employment Period and Employee's employment hereunder at any time (and
without Cause), in its sole and absolute discretion. If Employer terminates
the Employment Period under this Section 6.g or if Employee terminates this
Agreement pursuant to Section 6.e. above, Employer shall
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<PAGE> 8
immediately pay Employee in a lump sum payment an amount equal to Base
Salary which would otherwise be payable until the end of the Term (the
"Severance Payment"), provided that if such remaining Term exceeds 12
months, the Severance Payment attributable to the last twelve months of the
Term shall not be included in the lump sum payment and instead shall be
paid over the Noncompetition Period (as defined below) on a pro rata basis
in accordance with Employer's normal payment schedule for its executive
employees. In addition, Employer shall continue to provide Employee with
Benefits until the end of the Term. Employee shall be entitled to receive
any payments or Benefits provided herein that have accrued (but have not
been paid) prior to the date of such termination (including the
acceleration of any unvested Options pursuant to Section 4.e).
h. Arbitration. In the event that Employee disputes a determination that
Cause exists for terminating his employment pursuant to Section 6.d. of
this Agreement, or Employer disputes the determination that Cause exists
for Employee's termination of his employment pursuant to Section 6.e of
this Agreement, either such disputing party may, in accordance with the
Rules of the American Arbitration Association ("AAA"), and within 30 days
of receiving a Dismissal Notice or Employee Notice, as applicable, file a
petition with the AAA in any city in which Employer's corporate executive
offices are located for arbitration of the dispute, the costs thereof
(including legal fees and expenses) to be shared equally by Employer and
Employee unless an order of the AAA provides otherwise. Such proceeding
shall also determine all other items then in dispute between the parties
relating to this Agreement, except with respect to enforcement of the
agreements contained in Sections 7 and 9 if either party seeks injunctive
relief, and the parties covenant and agree that the decision of the AAA
shall be final and binding and hereby waive their rights to appeal thereof.
7. CONFIDENTIAL INFORMATION. Employee acknowledges that the confidential
information and data obtained by him during the course of his performance
under this Agreement and the Original Agreement concerning the business or
affairs of Employer, or any entity related thereto, are the property of
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 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
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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 Employer and
perform all actions reasonably requested by Employer to establish and
confirm such ownership.
9. NONCOMPETE AND RELATED AGREEMENTS.
a. Employee agrees that during the Noncompetition Period, 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) for any other person or entity engaged in (a) the television
home shopping business, (b) 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 Employer's or its
affiliates' catalogs during the term of this Agreement or (c) any business
which Employer (upon authorization of its board of directors) has invested
significant research and development funds or resources and contemplates
entering into during the next twelve (12) months (the "Restricted
Business"), in any country that Employer or any of its affiliates operates
during the term of this Agreement (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 Employer or any entity related to Employer to leave his, her or
their employ, or in any other way interfere with the relationship between
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 affiliate of 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 Employer or any entity related to Employer,
without the prior written consent of Employer. For purposes of this
Agreement, the "Noncompetition Period" shall commence as of the date hereof
and end on the last day
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<PAGE> 10
of the period that is equal to twelve (12) months following the date on
which Employee's employment is terminated under this Agreement for any
reason. Notwithstanding anything to the contrary herein, Employee shall not
be bound by the provisions of this Section 9 if, and only if, (x) a
Potential Change of Control (resulting in a Change of Control) occurs less
than ninety (90) days after the date of the Original Agreement and (y) the
Employment Period is terminated following the consummation of a transaction
constituting such Change of Control pursuant to Section 6.f.
b. If, at the time of enforcement of any provisions of this Section 9, a
court of competent jurisdiction holds that the restrictions stated herein
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.
10. TERMINATION OF EXISTING AGREEMENTS. This Agreement, effective as of the
date hereof, supersedes and preempts any prior understandings, agreements
or representations, written or oral, by or between Employee and Employer,
including but not limited to the Original Agreement, 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 becoming 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 Employer to another
corporation, entity or individual, 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 Employer hereunder.
13. CHANGE OF CONTROL. For purposes of this Agreement, a "Change of Control"
shall mean an event as a result of which: (i) any "person" (as such term is
used in Sections 13(d) and 14(d) of the Securities and Exchange Act of 1934
(the "Exchange Act")), is or becomes the
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"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act, except
that a person shall be deemed to have "beneficial ownership" of all
securities that such person has a right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of more than 20% of the total voting power of the voting stock
of Employer (or their successors and assigns); (ii) Employer consolidates
with, or merges with or into another corporation or sells, assigns,
conveys, transfers, leases or otherwise disposes of all or substantially
all of its assets to any person, or any corporation consolidates with, or
merges with or into, Employer, in any such event pursuant to a transaction
in which the outstanding voting stock of Employer is changed into or
exchanged for cash, securities or other property, other than any such
transaction where (A) the outstanding voting stock of Employer is changed
into or exchanged for (x) voting stock of the surviving or transferee
corporation or (y) cash, securities (whether or not including voting stock)
or other property, and (B) the holders of the voting stock of Employer
immediately prior to such transaction own, directly or indirectly, not less
than 80% of the voting power of the voting stock of the surviving
corporation immediately after such transaction; or (iii) during any period
of two consecutive years, individuals who at the beginning of such period
constituted the Board of Directors of Employer (together with any new
directors whose election by such Board or whose nomination for election by
the stockholders of Employer was approved by a vote of 66-2/3% of the
directors then still in office who were either directors at the beginning
of such period or whose election or nomination for election was previously
so approved) cease for any reason to constitute a majority of the Board of
Employer then in office, or (iv) Employer is liquidated or dissolved or
adopts a plan of liquidation.
14. TERMINATION OF THE ORIGINAL AGREEMENT. Employer, Quantum Direct and
Employee hereby terminate the Original Agreement.
15. NO OFFSET - NO MITIGATION. Employee shall not be required to mitigate
damages under this Agreement by seeking other comparable employment. The
amount of any payment or benefit provided for in this Agreement, including
welfare benefits, shall not be reduced by any compensation or benefits
earned by or provided to Employee as the result of employment by another
employer.
16. 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.
17. INDEMNIFICATION. Employee shall be entitled to indemnification to the
fullest extent permitted under the laws of the State of Minnesota.
18. 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 Employer's principal
business office; and (ii) in the case of Employee, to his
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address appearing on the records of Employer, or to such other address as
he may designate in writing to Employer.
19. 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.
20. AMENDMENT. This Agreement may be amended only by an agreement in writing
signed by the parties hereto.
21. 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.
22. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of Minnesota.
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/ Nicholas M. Jaksich
--------------------------------
Its: President
--------------------------------
EMPLOYEE: /s/ Gene McCaffery
--------------------------------
GENE MCCAFFERY
QUANTUM DIRECT CORPORATION
By: /s/ Stuart R. Romenesko
--------------------------------
Its: Chief Finanacial Officer
--------------------------------
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Exhibit 10.2
EMPLOYMENT AGREEMENT
THIS AGREEMENT made effective as of the 1st day of May, 1998, by and
between ValueVision International, Inc., a Minnesota corporation (hereinafter
referred to as "Employer"), and Stuart R. Romenesko (hereinafter referred to as
"Employee").
WITNESSETH:
WHEREAS, Employer desires to assure itself of the services of Employee
on the terms and conditions set forth below; and
WHEREAS, Employee desires to remain employed by Employer pursuant to
the terms and conditions set forth below, which Employee acknowledges to
constitute an increase in Employee's existing compensation package; and
NOW, THEREFORE, in consideration of the premises and mutual promises
contained in this Agreement, the parties hereto agree as follows:
1. EMPLOYMENT. Employer agrees to continue to employ Employee and Employee
agrees to the continuation of his 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 the
date hereof and shall continue on a full-time basis for a period of
twenty-four (24) months (the "Term"). The "Employment Period" for
purposes of this Agreement shall be the period beginning on the date
hereof and ending at the time Employee shall cease to act as an
employee of Employer.
3. DUTIES. Employee shall serve as Senior Vice President, Finance and
Chief Financial Officer 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 four
(4) weeks during each year of the term, or such additional vacation
allowance as may be granted in the sole discretion of 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:
<PAGE> 2
a. Base Salary. Employee shall receive a base salary of at least Two
Hundred Ten Thousand and No/100 Dollars ($210,000.00) per year for the
term of this Agreement ("Base Salary").
b. Bonus Salary. Employee may receive bonus salary ("Bonus Salary"),
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 Salary.
c. Automobile Allowance. Employer shall pay Employee a monthly
automobile allowance of $450.00 per month ("Auto Allowance").
d. Professional Fees. Employer shall pay all of Employee's professional
fees, including without limitation, professional association fees and
memberships, and all of Employee's continuing accounting education fees
and expenses, up to $5,000 annually ("Professional Fees").
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, Bonus
Salary, Auto Allowance, Professional Fees 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 one hundred twenty (120)
consecutive days, then Employer may, in its sole discretion, terminate
this Agreement and Employee shall then cease to receive Base Salary,
Bonus Salary, Auto Allowance, Professional Fees and all other Benefits,
on the date this Agreement
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<PAGE> 3
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.
c. Voluntary Termination. In the event that Employee voluntarily
terminates his employment, he shall cease to receive Base Salary, Bonus
Salary, Auto Allowance, Professional Fees and all other Benefits as of
the date of such termination.
d. Termination With Cause. Employer shall be entitled to terminate this
Agreement and Employee's employment hereunder for Cause (as herein
defined), and in the event that Employer elects to do so, Employee
shall cease to receive Base Salary, Bonus Salary, Auto Allowance,
Professional Fees and Benefits as of the date of such termination
specified by 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 Employer, including without limitation, theft or
embezzlement from Employer; (ii) public conduct by Employee
substantially detrimental to the reputation of Employer, (iii) material
violation by Employee of any Employer policy, regulation or practice;
(iv) conviction of a felony; or (v) habitual intoxication, drug use or
chemical substance use by any intoxicating or chemical substance.
Notwithstanding the forgoing, Employee shall not be deemed to have been
terminated for Cause unless and until Employee has received thirty (30)
days' prior written notice (a "Dismissal Notice") of such termination.
In the event Employee does not dispute such determination within thirty
(30) days after receipt of the Dismissal Notice, Employee shall not
have the remedies provided pursuant to Section 6.g. of this Agreement.
e. By Employee for Employer Cause. Employee may terminate this
Agreement upon thirty (30) days written notice to Employer (the
"Employee Notice") upon the occurrences without Employee's express
written consent, of any one or more of the following events, provided,
however, that Employee shall not have the right to terminate this
Agreement if Employer is able to cure such event within thirty (30)
days (ten (10) days with regard to Subsection (ii) hereof) following
delivery of such notice:
(i) 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 Prairie,
Minnesota 55344 or
(ii) 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 Employer and Employee.
f. Other. If Employer terminates this Agreement or Employee's
employment during the Employment Period for any reason other than as
set forth in Sections 6.a, 6.b., 6.c or 6.d.
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above, or if Employee terminates this Agreement or his employment
during the Employment Period pursuant to Section 6.e. above, Employer
shall immediately pay Employee in a lump sum payment, an amount equal
to Base Salary, Bonus Salary, Auto Allowance and Professional Fees for
twelve months (collectively, the "Severance Payment"). In addition,
Employer shall continue to provide Employee with Benefits during the
twelve months following such termination. For purposes of calculating
Bonus Salary payable pursuant to this Section 6.f., Employee shall
receive Bonus Salary equal to the last Bonus Salary actually paid the
Employee. Notwithstanding the foregoing, following a Change in Control
(as defined below), the number of months upon which the calculation of
the Severance Payment shall be based and for which Employer shall be
obligated to provide Employee with the Benefits pursuant to this
Section 6.f. shall be the greater of (i) the remaining number of months
left in the Term and (ii) twelve (12) months.
g. Arbitration. In the event that Employee disputes a determination
that Cause exists for terminating his employment pursuant to Section
6.d. of this Agreement, or Employer disputes the determination that
cause exists for Employee's termination of his employment pursuant to
Section 6.e of this Agreement, either such disputing party may, in
accordance with the Rules of the American Arbitration Association
("AAA"), and within 30 days of receiving a Dismissal Notice or Employee
Notice, as applicable, file a petition with the AAA for arbitration of
the dispute, the costs thereof (including legal fees and expenses) to
be shared equally by the Employer and Employee unless an order of the
AAA provides otherwise. Such proceeding shall also determine all other
items then in dispute between the parties relating to this Agreement,
and the parties covenant and agree that the decision of the AAA shall
be final and binding and hereby waive their rights to appeal thereof.
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
Employer, or any entity related thereto, are the property of 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 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
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<PAGE> 5
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 Employer and perform all actions reasonably
requested by Employer to establish and confirm such ownership.
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 an 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, 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 Employer's or its affiliates' catalogs during
the term of this Agreement or any business which Employer (upon
authorization of its board of directors) has invested significant
research and development funds or resources and contemplates entering
into during the next twelve (12) months (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 Employer or any entity related to Employer to leave his,
her or their employ, or in any other way interfere with the
relationship between 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 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
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<PAGE> 6
the relationship between any customer, franchisee or other business
relation and Employer or any entity related to Employer, without the
prior written consent of Employer. For purposes of this Agreement,
"Noncompetition Period" shall mean the period commencing as of the
Closing 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.
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 becoming 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 Holdings Corp., or
consolidation or merger of Employer or Holdings Corp. with or into
another corporation or entity, or the sale of substantially all of the
operating assets of Employer or Holdings Corp. to another corporation,
entity or individual, 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 Employer hereunder.
13. STOCK OPTIONS. Employee shall be granted incentive stock options in
accordance with the Second Amended 1990 Stock Option Plan of Employer
(the "Plan") for 75,000 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-third
each, on the date hereof, the first
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anniversary of the date hereof and the second anniversary of the date
hereof, or such earlier date in the sole discretion of the Employer's
Chief Executive Officer. All such Stock Options, together with any
other stock options of Employer issued to Employee, shall automatically
vest upon a termination of Employee's employment during the Employment
Period (unless pursuant to Sections 6.c or 6.d.) or upon a Change of
Control.
14. CHANGE OF CONTROL. For purposes of this Agreement, a "Change of
Control" shall mean an event as a result of which: (i) any "person" (as
such term is used in Sections 13(d) and 14(d) of the Securities and
Exchange Act of 1934 (the "Exchange Act")), is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act,
except that a person shall be deemed to have "beneficial ownership" of
all securities that such person has a right to acquire, whether such
right is exercisable immediately or only after the passage of time),
directly or indirectly, of more than 20% of the total voting power of
the voting stock of either Employer (or its successors and assigns);
(ii) Employer consolidates with, or merges with or into another
corporation or sells, assigns, conveys, transfers, leases or otherwise
disposes of all or substantially all of its assets to any person, or
any corporation consolidates with, or merges with or into Employer, in
any such event pursuant to a transaction in which the outstanding
voting stock of Employer is changed into or exchanged for cash,
securities or other property, other than any such transaction where (A)
the outstanding voting stock of Employer is changed into or exchanged
for (x) voting stock of the surviving or transferee corporation or (y)
cash, securities (whether or not including voting stock) or other
property, and (B) the holders of the voting stock of Employer
immediately prior to such transaction own, directly or indirectly, not
less than 80% of the voting power of the voting stock of the surviving
corporation immediately after such transaction; or (iii) during any
period of two consecutive years, individuals who at the beginning of
such period constituted the Board of Directors of Employer (together
with any new directors whose election by such Board or whose nomination
for election by the stockholders of Employer was approved by a vote of
66-2/3% of the directors then still in office who were either directors
at the beginning of such period or whose election ro nomination for
election was previously so approved) cease for any reason to constitute
a majority of the Board of Employer then in office, or (iv) Gene
McCaffery is no longer Chief Executive Officer of Employer, or (v)
Employer is liquidated or dissolved or adopts a plan of liquidation.
15. NO OFFSET - NO MITIGATION. Employee shall not be required to mitigate
damages under this Agreement by seeking other comparable employment.
The amount of any payment or benefit provided for in this Agreement,
including welfare benefits, shall not be reduced by any compensation or
benefits earned by or provided to Employee as the result of employment
by another employer.
16. 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.
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17. ATTORNEY'S FEES. In the event of any action for breach of, to enforce
the provisions of, or otherwise arising out of or in connection 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.
18. 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 Employer's
principal business office; and (ii) in the case of Employee, to his
address appearing on the records of Employer, or to such other address
as he may designate in writing to Employer.
19. 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.
20. AMENDMENT. This Agreement may be amended only by an agreement in
writing signed by the parties hereto.
21. 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.
22. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of Minnesota.
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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/ Gene McCaffery
-----------------------------------
Gene McCaffery
Its: Chief Executive Officer
EMPLOYEE: /s/ Stuart R. Romenesko
-----------------------------------
Stuart R. Romenesko
9
<PAGE> 1
Exhibit 10.3
EMPLOYMENT AGREEMENT
THIS AGREEMENT made effective as of the 1st day of May, 1998, 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, Employer desires to assure itself of the services of Employee
on the terms and conditions set forth below; and
WHEREAS, Employee desires to remain employed by Employer pursuant to
the terms and conditions set forth below, which Employee acknowledges to
constitute an increase in Employee's existing compensation package; and
NOW, THEREFORE, in consideration of the premises and mutual promises
contained in this Agreement, the parties hereto agree as follows:
1. EMPLOYMENT. Employer agrees to continue to employ Employee and Employee
agrees to the continuation of his 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 the
date hereof and shall continue on a full-time basis for a period of
twenty-four (24) months (the "Term"). The "Employment Period" for
purposes of this Agreement shall be the period beginning on the date
hereof 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 four (4)
weeks during each year of the term, or such additional vacation
allowance as may be granted in the sole discretion of 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:
<PAGE> 2
a. Base Salary. Employee shall receive a base salary of at least One
Hundred Seventy- Five Thousand and No/100 Dollars ($175,000.00) per
year for the term of this Agreement ("Base Salary").
b. Bonus Salary. Employee may receive bonus salary ("Bonus Salary"),
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 Salary.
c. Automobile Allowance. Employer shall pay Employee a monthly
automobile allowance of $450.00 per month ("Auto Allowance").
d. Professional Fees. Employer shall pay all of Employee's
professional fees, including without limitation, professional
association fees and memberships, and all of Employee's continuing
legal education fees and expenses, up to $5,000 annually ("Professional
Fees").
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, Bonus
Salary, Auto Allowance, Professional Fees 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 one hundred twenty (120)
consecutive days, then Employer may, in its sole discretion, terminate
this Agreement and Employee shall then cease to receive Base Salary,
Bonus Salary, Auto Allowance, Professional Fees and all other Benefits,
on the date this Agreement
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<PAGE> 3
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.
c. Voluntary Termination. In the event that Employee voluntarily
terminates his employment, he shall cease to receive Base Salary, Bonus
Salary, Auto Allowance, Professional Fees and all other Benefits as of
the date of such termination.
d. Termination With Cause. Employer shall be entitled to terminate this
Agreement and Employee's employment hereunder for Cause (as herein
defined), and in the event that Employer elects to do so, Employee
shall cease to receive Base Salary, Bonus Salary, Auto Allowance,
Professional Fees and Benefits as of the date of such termination
specified by 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 Employer, including without limitation, theft or
embezzlement from Employer; (ii) public conduct by Employee
substantially detrimental to the reputation of Employer, (iii) material
violation by Employee of any Employer policy, regulation or practice;
(iv) conviction of a felony; or (v) habitual intoxication, drug use or
chemical substance use by any intoxicating or chemical substance.
Notwithstanding the forgoing, Employee shall not be deemed to have been
terminated for Cause unless and until Employee has received thirty (30)
days' prior written notice (a "Dismissal Notice") of such termination.
In the event Employee does not dispute such determination within thirty
(30) days after receipt of the Dismissal Notice, Employee shall not
have the remedies provided pursuant to Section 6.g. of this Agreement.
e. By Employee for Employer Cause. Employee may terminate this
Agreement upon thirty (30) days written notice to Employer (the
"Employee Notice") upon the occurrences without Employee's express
written consent, of any one or more of the following events, provided,
however, that Employee shall not have the right to terminate this
Agreement if Employer is able to cure such event within thirty (30)
days (ten (10) days with regard to Subsection (ii) hereof) following
delivery of such notice:
(i) 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 Prairie, Minnesota 55344 or
(ii) 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 Employer and Employee.
f. Other. If Employer terminates this Agreement or Employee's
employment during the Employment Period for any reason other than as
set forth in Sections 6.a, 6.b., 6.c
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or 6.d. above, or if Employee terminates this Agreement or his
employment during the Employment Period pursuant to Section 6.e. above,
Employer shall immediately pay Employee in a lump sum payment, an
amount equal to Base Salary, Bonus Salary, Auto Allowance and
Professional Fees for twelve months (collectively, the "Severance
Payment"). In addition, Employer shall continue to provide Employee
with Benefits during the twelve months following such termination. For
purposes of calculating Bonus Salary payable pursuant to this Section
6.f., Employee shall receive Bonus Salary equal to the last Bonus
Salary actually paid the Employee. Notwithstanding the foregoing,
following a Change in Control (as defined below), the number of months
upon which the calculation of the Severance Payment shall be based and
for which Employer shall be obligated to provide Employee with the
Benefits pursuant to this Section 6.f. shall be the greater of (i) the
remaining number of months left in the Term and (ii) twelve (12)
months.
g. Arbitration. In the event that Employee disputes a
determination that Cause exists for terminating his employment pursuant
to Section 6.d. of this Agreement, or Employer disputes the
determination that cause exists for Employee's termination of his
employment pursuant to Section 6.e of this Agreement, either such
disputing party may, in accordance with the Rules of the American
Arbitration Association ("AAA"), and within 30 days of receiving a
Dismissal Notice or Employee Notice, as applicable, file a petition
with the AAA for arbitration of the dispute, the costs thereof
(including legal fees and expenses) to be shared equally by the
Employer and Employee unless an order of the AAA provides otherwise.
Such proceeding shall also determine all other items then in dispute
between the parties relating to this Agreement, and the parties
covenant and agree that the decision of the AAA shall be final and
binding and hereby waive their rights to appeal thereof.
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
Employer, or any entity related thereto, are the property of 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 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
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<PAGE> 5
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 Employer and perform all actions reasonably
requested by Employer to establish and confirm such ownership.
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 an 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, 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 Employer's or its affiliates' catalogs during
the term of this Agreement or any business which Employer (upon
authorization of its board of directors) has invested significant
research and development funds or resources and contemplates entering
into during the next twelve (12) months (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 Employer or any entity related to Employer to leave his,
her or their employ, or in any other way interfere with the
relationship between 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 Employer
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<PAGE> 6
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 Employer or any entity related to Employer, without the
prior written consent of Employer. For purposes of this Agreement,
"Noncompetition Period" shall mean the period commencing as of the
Closing 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.
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 becoming 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 Holdings Corp., or
consolidation or merger of Employer or Holdings Corp. with or into
another corporation or entity, or the sale of substantially all of the
operating assets of Employer or Holdings Corp. to another corporation,
entity or individual, 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 Employer hereunder.
13. STOCK OPTIONS. Employee shall be granted incentive stock options in
accordance with the Second Amended 1990 Stock Option Plan of Employer
(the "Plan") for 75,000 shares of ValueVision International, Inc.
common stock ("Stock Options") subject to the provisions
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<PAGE> 7
thereof and exercisable at the time or times established by the Stock
Option Agreement. The Stock Options shall vest in equal amounts,
one-third each, on the date hereof, the first anniversary of the date
hereof and the second anniversary of the date hereof, or such earlier
date in the sole discretion of the Employer's Chief Executive Officer.
All such Stock Options, together with any other stock options of
Employer issued to Employee, shall automatically vest upon a
termination of Employee's employment during the Employment Period
(unless pursuant to Sections 6.c or 6.d.) or upon a Change of Control.
14. CHANGE OF CONTROL. For purposes of this Agreement, a "Change of
Control" shall mean an event as a result of which: (i) any "person" (as
such term is used in Sections 13(d) and 14(d) of the Securities and
Exchange Act of 1934 (the "Exchange Act")), is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act,
except that a person shall be deemed to have "beneficial ownership" of
all securities that such person has a right to acquire, whether such
right is exercisable immediately or only after the passage of time),
directly or indirectly, of more than 20% of the total voting power of
the voting stock of either Employer (or its successors and assigns);
(ii) Employer consolidates with, or merges with or into another
corporation or sells, assigns, conveys, transfers, leases or otherwise
disposes of all or substantially all of its assets to any person, or
any corporation consolidates with, or merges with or into Employer, in
any such event pursuant to a transaction in which the outstanding
voting stock of Employer is changed into or exchanged for cash,
securities or other property, other than any such transaction where (A)
the outstanding voting stock of Employer is changed into or exchanged
for (x) voting stock of the surviving or transferee corporation or (y)
cash, securities (whether or not including voting stock) or other
property, and (B) the holders of the voting stock of Employer
immediately prior to such transaction own, directly or indirectly, not
less than 80% of the voting power of the voting stock of the surviving
corporation immediately after such transaction; or (iii) during any
period of two consecutive years, individuals who at the beginning of
such period constituted the Board of Directors of Employer (together
with any new directors whose election by such Board or whose nomination
for election by the stockholders of Employer was approved by a vote of
66-2/3% of the directors then still in office who were either directors
at the beginning of such period or whose election ro nomination for
election was previously so approved) cease for any reason to constitute
a majority of the Board of Employer then in office, or (iv) Gene
McCaffery is no longer Chief Executive Officer of Employer, or (v)
Employer is liquidated or dissolved or adopts a plan of liquidation.
15. NO OFFSET - NO MITIGATION. Employee shall not be required to mitigate
damages under this Agreement by seeking other comparable employment.
The amount of any payment or benefit provided for in this Agreement,
including welfare benefits, shall not be reduced by any compensation or
benefits earned by or provided to Employee as the result of employment
by another employer.
16. 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
7
<PAGE> 8
relinquishment of any right granted hereunder or of the future
performance of any such term, covenant or condition.
17. ATTORNEY'S FEES. In the event of any action for breach of, to enforce
the provisions of, or otherwise arising out of or in connection 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.
18. 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 Employer's
principal business office; and (ii) in the case of Employee, to his
address appearing on the records of Employer, or to such other address
as he may designate in writing to Employer.
19. 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.
20. AMENDMENT. This Agreement may be amended only by an agreement in
writing signed by the parties hereto.
21. 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.
22. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of Minnesota.
8
<PAGE> 9
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/ Gene McCaffery
------------------------------------
Gene McCaffery
Its: Chief Executive Officer
EMPLOYEE: /s/ David T.Quinby
---------------------------------------
David T. Quinby
9
<PAGE> 1
EXHIBIT 11
VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
Computation of Net Income (Loss) Per Common Share
<TABLE>
<CAPTION>
Three Months Ended April 30,
----------------------------
1998 1997
-------------- -------------
<S> <C> <C>
Net income (loss) $ 11,280,230 $ (1,761,237)
-------------- -------------
Weighted average number of common
shares outstanding 26,780,778 32,949,056
Shares assumed to be issued upon the
exercise of common stock options and
warrants under the treasury stock method 96,609 -
-------------- -------------
Weighted average number of common
and dilutive shares outstanding 26,877,387 32,949,056
-------------- -------------
Net income (loss) per common share $ 0.42 $ (0.05)
-------------- -------------
Net income (loss) per common share-
assuming dilution $ 0.42 $ (0.05)
-------------- -------------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
VALUEVISION INTERNATIONAL, INC.'S CONSOLIDATED BALANCE SHEET AS OF APRIL 30,
1998 AND CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE-MONTH PERIOD ENDED
APRIL 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
CONSOLIDATED FINANCIAL STATEMENTS AS FILED ON FORM 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> APR-30-1998
<CASH> 45,859,500
<SECURITIES> 6,567,424
<RECEIVABLES> 9,417,124<F1>
<ALLOWANCES> 0
<INVENTORY> 17,308,370
<CURRENT-ASSETS> 98,328,747
<PP&E> 20,420,439<F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 152,736,607
<CURRENT-LIABILITIES> 31,704,632
<BONDS> 0
0
0
<COMMON> 267,808
<OTHER-SE> 116,234,113
<TOTAL-LIABILITY-AND-EQUITY> 152,736,607
<SALES> 43,676,233
<TOTAL-REVENUES> 43,676,233
<CGS> 25,022,354
<TOTAL-COSTS> 45,964,864
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 18,195,230
<INCOME-TAX> 6,915,000
<INCOME-CONTINUING> 11,280,230
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,280,230
<EPS-PRIMARY> .42
<EPS-DILUTED> .42
<FN>
<F1> Accounts receivable represents amounts net of allowance for doubtful
accounts.
<F2> Property and equipment represents amounts net of accumulated depreciation.
</FN>
</TABLE>
