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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) March 8, 1999
VALUEVISION INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
MINNESOTA
(State or other jurisdiction of incorporation)
0-20243 41-1673770
(Commission File Number) (IRS Employer Identification No.)
6740 SHADY OAK ROAD, MINNEAPOLIS, MN 55344-3433
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (612) 947-5200
NOT APPLICABLE
(Former name or former address, if changed since last report)
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ITEM 5. OTHER EVENTS.
ValueVision International, Inc. Announces Strategic Alliance with NBC and GE
Capital
On March 8, 1999 ValueVision International, Inc. ("ValueVision" or the
"Company") entered into a strategic alliance with the National Broadcasting
Company, Inc. ("NBC") and G.E. Capital Equity Investments, Inc. ("GE Capital").
Pursuant to the terms of the transaction, NBC and GE Capital have agreed to
jointly acquire 19.9% of ValueVision (consisting of 5,339,500 shares of Series A
Redeemable Convertible Preferred Stock, and a warrant to acquire 1,450,000
shares of Common Stock) for aggregate consideration of approximately $56.0
million (or approximately $8.29 per share). In addition, ValueVision will issue
NBC and GE Capital a warrant to increase their aggregate equity stake to 39.9%,
subject to approval of ValueVision's shareholders ("Shareholder Approval"). NBC
will also have the exclusive right to negotiate on behalf of ValueVision for the
distribution of its television home shopping service.
Investment Agreement
Pursuant to an Investment Agreement by and between ValueVision and GE
Capital dated March 6, 1999 (the "Investment Agreement"), ValueVision will sell
to GE Capital 5,339,500 shares of Series A Redeemable Convertible Preferred
Stock, $.01 par value (the "Preferred Stock") for an aggregate of $44,265,000
(or approximately $8.29 per share). The Preferred Stock is convertible into an
equal number of shares of ValueVision's Common Stock, $.01 par value ("Common
Stock"), subject to customary anti-dilution adjustments, has a mandatory
redemption on the 10th anniversary of its issuance or upon a "change of control"
at its stated value ($8.29 per share), participates in dividends on the same
basis as the Common Stock and has a liquidation preference over the Common Stock
and any other junior securities. So long as NBC or GE Capital is entitled to
designate a nominee to the Board of Directors (the "ValueVision Board") of
ValueVision (see discussion under "Shareholder Agreement" below), the holders of
the Preferred Stock shall be entitled to a separate class vote on the directors
subject to nomination by NBC and GE Capital. During such period of time, such
holders will not be entitled to vote in the election of any other directors, but
will be entitled to vote on all other matters put before shareholders of
ValueVision (including on the matter involving approval of the Investment
Warrant described below) on an as converted basis. Consummation of the sale of
the Preferred Stock (the "Initial Closing") is subject to clearance of the
transaction with the Federal Trade Commission and the Department of Justice
(collectively "Governmental Clearance"), and with respect to approximately 1.6
million shares of the Preferred Stock, is subject to Shareholder Approval. In
addition to failing to obtain the Governmental Clearance, the Investment
Agreement may be terminated by mutual consent or if the Initial Closing is not
consummated by August 31, 1999.
The Investment Agreement also provides that ValueVision will issue GE
Capital a common stock purchase warrant (the "Investment Warrant") to acquire
the number of shares of the Common Stock that would result in the combined
beneficial ownership by GE Capital and NBC of 39.9% of ValueVision at the time
of exercise subject to certain limitations set forth in the Investment Warrant.
The Investment Warrant is immediately exercisable, has a term of 5 years from
the date of issuance and its exercise price during the first two years of the
term of the Investment Warrant is the greater of (i) the 45-day average closing
price of the underlying Common Stock ending on the trading day prior to
exercise, (ii) the 150-day average closing price of the underlying Common Stock
ending on the trading day prior to exercise, or (iii) $12 per share, and during
the last three years of the term of the Investment Warrant is the greater of (i)
the 45-day average closing price of the underlying Common Stock ending on the
trading day prior to the exercise or (ii) $15 per share. Issuance of the
Investment Warrant (the "Second Closing"), in addition to obtaining the
Governmental Clearance noted above, is also subject to Shareholder Approval.
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Shareholder Agreement
Pursuant to the Investment Agreement, upon closing of the sale of the
Preferred Stock, ValueVision and GE Capital will enter into a Shareholder
Agreement (the "Shareholder Agreement") providing for certain corporate
governance and standstill matters. The Shareholder Agreement (together with the
Certificate of Designation of the Preferred Stock) provides that GE Capital and
NBC will be entitled to designate nominees for an aggregate of 2 out of 7 board
seats so long as their aggregate beneficial ownership is at least equal to 50%
(or 75% if Shareholder Approval is not obtained) of their initial beneficial
ownership, and 1 out of 7 board seats so long as their aggregate beneficial
ownership is at least 10% of the "adjusted outstanding shares of Common Stock"
(or 50% of their initial beneficial ownership if Shareholder Approval is not
obtained). GE Capital and NBC have also agreed to vote their shares of Common
Stock in favor of the Company's nominees to the ValueVision Board in certain
circumstances.
All committees of the ValueVision Board will include a proportional
number of directors nominated by GE Capital and NBC. The Shareholder Agreement
also requires the consent of GE Capital prior to ValueVision entering into any
substantial agreements with certain restricted parties (broadcast networks and
internet portals in certain limited circumstances, as defined), as well as
taking any of the following actions: (i) issuance of more than 15% of the total
voting shares of ValueVision in any 12 month period (25% in any 24 month
period), (ii) payment of quarterly dividends in excess of 4% of ValueVision's
market capitalization (or repurchases and redemption of Common Stock with
certain exceptions), (iii) entry by ValueVision into any business not ancillary,
complementary or reasonably related to ValueVision's current business, (iv)
acquisitions (including investments and joint ventures) or dispositions
exceeding the greater of $35.0 million or 10% of ValueVision's total market
capitalization, or (v) incurrence of debt exceeding the greater of $40.0 million
or 30% of ValueVision's total capitalization.
Pursuant to the Shareholder Agreement, so long as GE Capital and NBC
have the right to name at least one nominee to the ValueVision Board,
ValueVision will provide them with certain monthly, quarterly and annual
financial reports and budgets. In addition, ValueVision has agreed not to take
actions which would cause the Company to be in breach of or default under any of
its material contracts (or otherwise require a consent thereunder) as a result
of acquisitions of the Common Stock by GE Capital or NBC. ValueVision also is
prohibited from taking any action that would cause any ownership interest of
certain FCC regulated entities from being attributable to GE Capital, NBC or
their affiliates.
The Shareholder Agreement provides that during the Standstill Period
(as defined in the Shareholder Agreement), and with certain limited exceptions,
GE Capital and NBC shall be prohibited from: (i) any asset/business purchases
from ValueVision in excess of 10% of the total fair market value of
ValueVision's assets, (ii) increasing their beneficial ownership above 39.9% of
ValueVision's shares, (iii) making or in any way participating in any
solicitation of proxies, (iv) depositing any securities of ValueVision in a
voting trust, (v) forming, joining, or in any way becoming a member of a 13D
Group with respect to any voting securities of ValueVision, (vi) arranging any
financing for, or providing any financing commitment specifically for, the
purchase of any voting securities of ValueVision, (vii) otherwise acting,
whether alone or in concert with others, to seek to propose to ValueVision any
tender or exchange offer, merger, business combination, restructuring,
liquidation, recapitalization or similar transaction involving ValueVision , or
nominating any person as a director of ValueVision who is not nominated by the
then incumbent directors, or proposing any matter to be voted upon by the
shareholders of ValueVision. If during the Standstill Period any inquiry has
been made regarding a "takeover transaction" or "change in control" which has
not been rejected by the ValueVision Board, or the ValueVision Board pursues
such a transaction, or engages in negotiations or provides information to a
third party and the ValueVision Board has not resolved to terminate such
discussions, then GE Capital or NBC may propose to the Company a tender offer or
business combination proposal.
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In addition, unless GE Capital and NBC beneficially own less than 5% or
more than 90% of the adjusted outstanding shares of Common Stock, GE Capital and
NBC shall not sell, transfer or otherwise dispose of any securities of
ValueVision except for transfers: (i) to certain affiliates who agree to be
bound by the provisions of the Shareholder Agreement, (ii) which have been
consented to by ValueVision, (iii) pursuant to a third party tender offer,
provided that no shares of Common Stock may be transferred pursuant to this
clause (iii) to the extent such shares were acquired upon exercise of the
Investment Warrant on or after the date of commencement of such third party
tender offer or the public announcement by the offeror thereof or that such
offeror intends to commence such third party tender offer, (iv) pursuant to a
merger, consolidation or reorganization to which ValueVision is a party, (v) in
a bona fide public distribution or bona fide underwritten public offering, (vi)
pursuant to Rule 144 of the Securities Act, or (vii) in a private sale or
pursuant to Rule 144A of the Securities Act; provided that, in the case of any
transfer pursuant to clause (v) or (vii), such transfer does not result in, to
the knowledge of the transferor after reasonable inquiry, any other person
acquiring, after giving effect to such transfer, beneficial ownership,
individually or in the aggregate with such person's affiliates, of more than 10%
of the adjusted outstanding shares of the Common Stock.
The Standstill Period will terminate on the earliest to occur of (i)
the 10 year anniversary of the Shareholder Agreement, (ii) the entering into by
ValueVision of an agreement that would result in a "change in control" (subject
to reinstatement), (iii) an actual "change in control," (iv) a third party
tender offer (subject to reinstatement), and (v) six months after GE Capital and
NBC can no longer designate any nominees to the ValueVision Board. Following the
expiration of the Standstill Period pursuant to clause (i) or (v) above
(indefinitely in the case of clause (i) and two years in the case of clause
(v)), GE Capital and NBC's beneficial ownership position may not exceed 39.9% of
the ValueVision fully-diluted outstanding stock, except pursuant to issuance or
exercise of any warrants or pursuant to a 100% tender offer for ValueVision.
Registration Rights Agreement
Pursuant to the Investment Agreement, at the Initial Closing,
ValueVision and GE Capital will enter into a Registration Rights Agreement
providing GE Capital, NBC and their affiliates and any transferees and assigns,
an aggregate of four demand registrations and unlimited piggy-back registration
rights.
Distribution and Marketing Agreement
NBC and ValueVision have entered into the Distribution and Marketing
Agreement dated March 8, 1999 (the "Distribution Agreement") which provides that
NBC shall have the exclusive right to negotiate on behalf of ValueVision for the
distribution of its home shopping television programming service. The agreement
has a 10 year term and NBC is committed to delivering an additional 10 million
full time equivalent ("FTE") subscribers over the first 42 months of the term.
In compensation for such services, ValueVision will pay NBC an annual fee of
$1.5 million (increasing no more than 5% annually) and issue NBC a warrant (the
"Warrant") to acquire 1,450,000 shares of the Common Stock. The exercise price
of the Warrant is approximately $8.29 per share and vests 200,000 shares
immediately, with the remainder of the Warrant vesting 125,000 shares annually
over the 10 year term of the Distribution Agreement. The Warrant is exercisable
for five years after vesting. Assuming certain performance criteria above the 10
million FTE homes are met, NBC will be entitled to additional warrants to
acquire Common Stock. ValueVision is seeking shareholder ratification of the
issuance of these additional warrants, although the issuance and exercise of
such warrants are not conditioned upon obtaining such approval. ValueVision has
a right to terminate the Distribution Agreement after the twenty-fourth,
thirty-sixth and forty-second month anniversary if NBC is unable to meet the
performance targets. If terminated by ValueVision in such circumstance, the
unvested
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portion of the Warrant will expire. In addition, ValueVision will be entitled to
a $2.5 million payment from NBC if ValueVision terminates the Distribution
Agreement as a result of NBC's failure to meet the 24 month performance target.
If prior to ValueVision's shareholder vote, ValueVision receives a
"material transaction proposal" or "takeover proposal, " NBC has the right to
(i) terminate the Distribution Agreement or (ii) increase the annual fee payable
to NBC to the greater of $5.0 million or 10% of ValueVision's annual net profits
(as defined in the Distribution Agreement"). In addition, NBC may terminate the
Distribution Agreement if ValueVision's shareholders do not approve the
Investment Warrant or if ValueVision enters into certain "significant
affiliation" agreements or a transaction resulting in a "change of control."
Letter Agreement
ValueVision, GE Capital and NBC have also entered into a non-binding
letter of intent dated March 8, 1999 providing for certain cooperative business
activities which the parties contemplate pursuing, including but not limited to,
development of a private label credit card, development of electronic commerce
and other internet strategies, development of programming concepts for
ValueVision and cross channel promotion.
The foregoing is only a summary of the respective agreements and is
qualified in its entirety by reference to the complete agreements attached as
exhibits to the Form 8-K.
ValueVision International, Inc. is an integrated electronic and print
media direct marketing company, and operates a television home shopping network
and multi-book catalog operation. The Company offers live programming 24 hours
per day, 7 days a week. Approximately 21.8 million homes are able to receive
ValueVision's programming of which approximately 10.6 million homes are on a
full-time basis and another 11.2 million homes are on a part-time basis. In
addition, the company operates several direct mail operations and an Internet
shopping website (www.vvtv.com). The Company's shares are traded on the Nasdaq
Stock Market under the symbol VVTV.
(Note: The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in this
Form 8-K and other communications by the Company contain statements that are
forward-looking, such as statements relating to increased cable home
distribution and development of electronic commerce and internet opportunities,
a private label credit card and of programming concepts by NBC. There are
certain important factors that could cause results to differ materially from
those anticipated statements. Investors are cautioned that all forward-looking
statements involve risks and uncertainty, including the possibility that cable
distribution will not increase, that development of the credit card, electronic
commerce and internet opportunities and programming concepts, may not occur, or
that if they occur, will not be profitable. For more information on the
potential factors that could affect the Company's financial results, investors
should refer to the Company's recent filings with the Securities and Exchange
Commission, including the Company's annual report on Form 10-K, quarterly
reports on Form 10-Q and current reports on Form 8-K.)
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ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(c) Exhibits
10.1 Investment Agreement by and between ValueVision and GE Capital dated
as of March 8, 1999.
10.2 Distribution and Marketing Agreement dated as of March 8, 1999 by and
between NBC and ValueVision.
10.3 Letter Agreement dated March 8, 1999 between NBC, GE Capital and
ValueVision.
10.4 Form of Shareholder Agreement between ValueVision and GE Capital.
10.5 Form of Certificate of Designation of Series A Redeemable Convertible
Preferred Stock.
10.6 Form of ValueVision Common Stock Purchase Warrant to be issued to GE
Capital.
10.7 Form of Registration Rights Agreement between ValueVision and GE
Capital.
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SIGNATURE
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 on this 17th day of March, 1999.
VALUEVISION INTERNATIONAL, INC.
By: /s/ David T. Quinby
---------------------------------
David T. Quinby
Vice President, General
Counsel and Secretary
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Execution Copy
INVESTMENT AGREEMENT
By and Between
VALUEVISION INTERNATIONAL, INC.
AND
G.E. CAPITAL EQUITY INVESTMENTS, INC.
Dated as of March 8, 1999
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I. Definitions ........................................................ 1
Section 1.1 Definitions............................................... 1
ARTICLE II. Authorization, Sale and Purchase of the Securities ................ 6
Section 2.1 Authorization; Agreement to Sell and Purchase............. 6
Section 2.2 Closing................................................... 7
Section 2.3 Use of Proceeds........................................... 7
Section 2.4 Beneficial Ownership of Securities........................ 7
ARTICLE III. Representations and Warranties ................................... 8
Section 3.1 Representations and Warranties of the Company............. 8
Section 3.2 Representations and Warranties of the Purchaser........... 21
ARTICLE IV. Conduct of Business ............................................... 24
Section 4.1 Conduct of the Business Pending the Closing............... 24
Section 4.2 Access to Information..................................... 25
Section 4.3 No Solicitation........................................... 25
ARTICLE V. Other Agreements ................................................... 27
Section 5.1 Preparation of Proxy Statement............................ 27
Section 5.2 Shareholders Meeting...................................... 28
Section 5.3 Public Statements......................................... 28
Section 5.4 Reasonable Commercial Efforts............................. 28
Section 5.5 HSR Act................................................... 29
Section 5.6 Reservation of Shares..................................... 29
Section 5.7 Notification of Certain Matters........................... 29
Section 5.8 Further Assurances........................................ 29
ARTICLE VI. Conditions Precedent .............................................. 30
Section 6.1 Conditions of the Purchaser............................... 30
Section 6.2 Conditions of the Company................................. 31
</TABLE>
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<TABLE>
<CAPTION>
Page
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<S> <C>
ARTICLE VII. Term ............................................................. 32
Section 7.1 Termination............................................... 32
Section 7.2 Effect of Termination..................................... 33
ARTICLE VIII. Miscellaneous ................................................... 33
Section 8.1 Survival of Representations and Warranties................ 33
Section 8.2 Notices................................................... 33
Section 8.3 Entire Agreement; Amendment............................... 34
Section 8.4 Counterparts.............................................. 35
Section 8.5 Governing Law; Jurisdiction; Waiver of Jury Trial......... 35
Section 8.6 Public Announcements...................................... 35
Section 8.7 Fees and Expenses......................................... 35
Section 8.8 Indemnification by the Company............................ 35
Section 8.9 Indemnification by the Purchaser.......................... 37
Section 8.10 Successors and Assigns; Third Party Beneficiaries......... 38
Section 8.11 Arbitration............................................... 38
Section 8.12 Specific Performance...................................... 39
Section 8.13 Headings, Captions and Table of Contents.................. 39
</TABLE>
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SCHEDULES
3.1(b) - Capital Stock Obligations of Material Subsidiaries
3.1(c) - Conflicts
3.1(d) - Consents and Approvals of Company
3.1(e) - Common Stock Options and Obligations
3.1(f) - SEC Filings; Claims and Liabilities
3.1(i) - Legal Proceedings
3.1(j) - Certain Changes
3.1(k) - Employee Plans
3.1(m) - Material Agreements
3.1(o) - Tax Matters
3.1(u) - FCC Licenses and Applications
3.1(x) - Brokers and Finders
3.2(c) - Consents and Approvals
4.1 - Conduct of Business
5.4 - Required Consents
EXHIBITS
A - Form of Certificate of Designation
B - Form of Warrant
C - Form of Registration Rights Agreement
D - Form of Shareholder Agreement
E - Form of Operating Agreement
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INVESTMENT AGREEMENT
INVESTMENT AGREEMENT, dated as of March 8, 1999 (this
"Agreement"), by and between ValueVision International, Inc., a Minnesota
corporation (the "Company"), and G.E. Capital Equity Investments, Inc., a
Delaware corporation (the "Purchaser"). Capitalized terms not otherwise defined
where used shall have the meanings ascribed thereto in Article I.
WHEREAS, Purchaser has agreed to purchase from the Company,
and the Company has agreed to sell to the Purchaser, subject to the terms and
conditions of this Agreement, shares of the Company's Series A Redeemable
Convertible Preferred Stock and Warrants to purchase Common Stock; and
WHEREAS, the Company and the Purchaser desire to set forth
certain agreements herein.
NOW THEREFORE, in consideration of the premises and the
representations, warranties and agreements herein contained and intending to be
legally bound hereby, the parties hereby agree as follows:
ARTICLE I.
Definitions
Section 1.1 Definitions. As used in this Agreement, the
following terms shall have the meanings set forth below:
"Affiliate" shall mean, with respect to any Person, any other
Person that directly or indirectly controls, is controlled by, or is
under common control with, such Person. As used in this definition,
"control" (including its correlative meanings, "controlled by" and
"under common control with") shall mean the possession, directly or
indirectly, of power to direct or cause the direction of management or
policies (whether through ownership of securities or partnership or
other ownership interests, by contract or otherwise).
"Ancillary Documents" shall mean the Distribution
Agreement, Certificate of Designation, Warrants, Shareholder
Agreement and the Registration Rights Agreement.
"Beneficially Own" shall have the meaning set forth in Rule
13d-3 under the Exchange Act.
"Business Day" shall mean any day, other than a
Saturday, Sunday or a day on which commercial banks in New
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Investment Agreement
York, New York are authorized or obligated by law or executive order to
close.
"Certificate of Designation" shall mean the Certificate of
Designation of the Shares of the Company, to be executed and filed with
the Secretary of State of the State of Minnesota on or prior to the
Closing Date, which shall be substantially in the form of Exhibit A
hereto.
"Closing" and "Closing Date" shall have the meanings
set forth in Section 2.2(a).
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
"Common Stock" shall mean the Common Stock, par value $0.01
per share, of the Company.
"Company" shall have the meaning set forth in the
preamble hereto.
"Company Plans" shall have the meaning set forth in
Section 3.1(k).
"Company Subsidiary" shall mean any Subsidiary of the
Company.
"Contractual Obligation" shall mean, as to any Person, any
provision of any note, bond or security issued by such Person, or of
any mortgage, indenture, deed of trust, lease, license, franchise,
contract, agreement, instrument or undertaking to which such Person is
a party or by which it or any of its property is subject.
"Distribution Agreement" shall mean the Distribution and
Marketing Agreement dated as of the date hereof between the Company and
NBC pursuant to which NBC has agreed to distribute certain programing
of the Company.
"Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended.
"Excluded Breach" shall mean any breach of a representation or
warranty hereunder, provided that (i) the Purchaser had actual
knowledge of the event or circumstance constituting such breach on or
prior to the date hereof and (ii) the Purchaser believed, on or prior
to the date hereof, that such circumstance or event constituted a
breach of such representation or warranty hereunder.
"FCC" shall mean the Federal Communications Commission.
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Investment Agreement
"GAAP" shall mean generally accepted accounting principles in
the United States of America in effect from time to time.
"Governmental Entity" shall mean any nation or government, any
state or other political subdivision thereof, any entity exercising
executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government and any self-regulating
organization, securities exchange or securities trading system.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
"Intellectual Property" shall mean all material patents,
copyright registrations, mask work registrations, trademark and service
mark registrations, applications for any of the foregoing, designs,
copyrights, mask works, service marks, trade dress, trade names, secret
formulae, trade secrets, secret processes, computer programs,
confidential information and know-how.
"Lien" shall mean any mortgage, pledge, hypothecation,
assignment, encumbrance, lien (statutory or other) or security
agreement of any kind or nature whatsoever (including, without
limitation, any conditional sale or other title retention agreement or
any financing lease having substantially the same effect as any of the
foregoing).
"Material Adverse Effect" shall mean a material adverse effect
on (i) with respect to the Company, the assets, business condition,
results of operations or financial condition of the Company and the
Company Subsidiaries taken as a whole or (ii) with respect to any
party, the ability of such party to timely perform its obligations
under this Agreement or any Ancillary Document to which it is a party.
The dollar thresholds set forth in the definition of "Material
Agreement" shall not affect the meaning and interpretation of "Material
Adverse Effect."
"Material Agreement" shall mean any contract, lease,
restriction, agreement, instrument or commitment to which the Company
or any Company Subsidiary is a party or by which its properties are
bound (i) which provides a benefit to the Company and the Company
Subsidiaries of, or commits the Company or any Company Subsidiary to
expend, $500,000 or more (or, in the case of any agreement with any
customer of the Company or any Company Subsidiary, $50,000 or more),
(ii) which if breached by any party thereto would result in liability
or loss to the Company and the Company Subsidiaries of $500,000 or more
(or in the case of any
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Investment Agreement
agreement with any customer of the Company or any Company Subsidiary,
$50,000 or more) or (iii) which provides for the distributions of
programming of the Company to more than 250,000 full-time equivalent
homes by any multichannel video programming distributor, including
without limitation, by a cable television system, MATV and SMATV
systems, MMDS, TVRO and other wireline, wireless or direct broadcast
satellite delivery methods.
"Material Subsidiaries" shall mean those Subsidiaries of the
Company that constitute "significant subsidiaries" as defined in Rule
1-02 of Regulation S-X under the Securities Act.
"NBC" shall mean National Broadcasting Company, Inc., a
Delaware corporation and Affiliate of the Purchaser.
"Operating Agreement" shall mean the Memorandum of
Understanding, dated as of the date hereof, between the Company,
Purchaser and NBC which shall be substantially in the form attached as
Exhibit E hereto.
"Options" shall mean stock options to purchase Common Stock
(i) issued or issuable under the Company's 1990 Stock Option Plan, (ii)
issued or issuable under the Company's 1994 Executive Stock Option Plan
(whether or not issued) and (iii) as set forth on Schedule 3.1(e)
hereto.
"Permits" shall have the meaning set forth in Section
3.1(h).
"Permitted Liens" shall mean (i) mechanics', carriers',
repairmen's or other like Liens arising or incurred in the ordinary
course of business, (ii) Liens arising under original purchase price
conditioned sales contracts and equipment leases with third parties
entered into in the ordinary course of business consistent with past
practice, (iii) statutory Liens for Taxes not yet due and payable and
(iv) other encumbrances or restrictions or imperfections of title which
do not materially impair the continued use and operation of the assets
to which they relate.
"Person" shall mean an individual, corporation, unincorporated
association, partnership, group (as defined in Section 13(d)(3) of the
Exchange Act), trust, joint stock company, joint venture, business
trust or unincorporated organization, limited liability company, any
Governmental Entity or any other entity of whatever nature.
"Preferred Stock" shall mean the preferred stock, par
value $0.01 per share, of the Company.
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Investment Agreement
"Purchaser" shall mean G.E. Capital Equity Investments,
Inc. a Delaware corporation.
"Registration Rights Agreement" shall mean the registration
rights agreement to be executed by the Purchaser and the Company at the
Closing, which shall be substantially in the form attached as Exhibit C
hereto.
"Replacement Warrant" shall have the meaning set forth
in Section 2.4(b).
"Requirement of Law" shall mean, as to any Person, the
certificate of incorporation and by-laws or other organizational
documents of such Person, and any law, statute, order, treaty, rule or
regulation, or judgment, decree, determination or order of any
arbitrator, court or other Governmental Entity, applicable to or
binding upon such Person or any of its property.
"Restricted Party" shall have the meaning set forth in
the Shareholder Agreement.
"SEC" shall mean the United States Securities and
Exchange Commission.
"Securities" shall mean the Shares and the Warrants.
"Securities Act" shall mean the Securities Act of
1933, as amended.
"Shareholder Agreement" shall mean the Shareholder Agreement,
to be executed and delivered by the Company and the Purchaser at
Closing, which shall be substantially in the form of Exhibit D hereto.
"Shareholder Approval" shall have the meaning set forth
in Section 5.1.
"Shareholders Meeting" shall have the meaning set forth
in Section 5.2
"Shareholders Vote" shall mean the vote of the shareholders of
the Company taken at the Shareholders Meeting.
"Shares" shall have the meaning set forth in Section
2.1(a).
"Subsidiary" shall mean, as to any Person, a corporation,
partnership, limited liability company, joint venture or other entity
of which shares of stock or other ownership interests having ordinary
voting power (other than
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Investment Agreement
stock or such other ownership interests having such power only by
reason of the happening of a contingency) to elect a majority of the
board of directors or other managers of such corporation, partnership
or other entity are at the time owned, or the management of which is
otherwise controlled, directly or indirectly through one or more
intermediaries, or both, by such Person.
"Surviving Representations and Warranties" shall mean the
representations and warranties contained in Section 3.1(e)(ii) and
Section 3.1(t).
"Tax" or, collectively, "Taxes" shall mean any and all
federal, state, local and foreign taxes, assessments and other
governmental charges, duties, impositions and liabilities, including
taxes based upon or measured by gross receipts, income, profits, sales,
use and occupation, and value added, ad valorem, transfer, gains,
franchise, withholding, payroll, recapture, employment, excise,
unemployment insurance, social security, business license, occupation,
business organization, stamp, environmental and property taxes,
together with all interest, penalties and additions imposed with
respect to such amounts. For purposes of this Agreement, "Taxes" also
includes any obligations under any agreements or arrangements with any
other person with respect to Taxes of such other person (including
pursuant to Treas. Reg. Section 1.1502-6 or comparable provisions of
state, local or foreign tax law) and including any liability for taxes
of any predecessor entity.
"Tax Returns" shall mean any return, amended return or other
report required to be filed with respect to any Tax, including
declaration of estimated tax and information returns.
"Underlying Shares" shall have the meaning set forth in
Section 3.1(e)(ii).
"Warrant" shall have the meaning set forth in Section 2.1(a),
which shall be substantially in the form of Exhibit B hereto.
"Warrants" shall mean the Warrant together with the
Replacement Warrant.
ARTICLE II.
Authorization, Sale and Purchase of the Securities
Section 2.1 Authorization; Agreement to Sell and Purchase. (a)
Upon and subject to the terms and conditions set forth in this Agreement, the
Company has authorized the issuance
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Investment Agreement
and sale to Purchaser of (i) 5,339,500 shares of Series A Redeemable Convertible
Preferred Stock (the "Shares") which, in accordance with the terms and
conditions set forth in the Certificate of Designation, shall be convertible
into an equal number of shares of Common Stock (subject to adjustment under the
terms of the Certificate of Designations) and (ii) the warrant (the "Warrant")
to purchase shares of Common Stock. The Shares and the Warrants are collectively
referred to as the "Securities".
(b) Upon and subject to the terms and conditions of this
Agreement, and in reliance upon the representations and warranties hereinafter
set forth, the Company agrees to issue, sell and deliver to the Purchaser at the
Closing provided for in Section 2.2 hereof, and Purchaser agrees to purchase
from the Company, the Securities for an aggregate purchase price of $44,265,000.
Section 2.2 Closing. (a) Subject to the satisfaction or waiver
of the conditions set forth in this Agreement, the purchase and sale of the
Securities pursuant to Section 2.1 (the "Closing") shall take place at the
offices of Simpson Thacher & Bartlett, 425 Lexington Avenue, New York, New York,
within three Business Days after the conditions in Sections 6.1 and 6.2 are
satisfied or waived by the Purchaser or the Company, as the case may be (the
"Closing Date"), or at such other time and place as may be mutually agreed upon
by Purchaser and the Company.
(b) At the Closing: (i) the Company shall deliver to the
Purchaser, against payment of the purchase price therefor, stock and warrant
certificates for the Securities to be sold in accordance with the provisions of
Section 2.1, registered in the name of the Purchaser or its nominee (subject to
the provisions herein and in the Ancillary Documents) and in such denominations
as the Purchaser shall specify not less than two Business Days prior to the
Closing Date; (ii) the Purchaser, in full payment for the Securities, against
delivery of the stock and warrant certificates referred to above, shall deliver
to the Company on the Closing Date immediately available funds, by wire transfer
to such account as the Company shall specify at least three Business Days prior
to the Closing Date, in the amount of the purchase price to be paid hereunder by
the Purchaser pursuant to Section 2.1(b); and (iii) each party shall take or
cause to happen such other actions, and shall execute and deliver such other
instruments or documents, as shall be required under Article VI hereof.
Section 2.3 Use of Proceeds. The proceeds of the sale of the
Securities shall be used by the Company for general corporate purposes.
Section 2.4 Beneficial Ownership of Securities. The
Company hereby acknowledges and agrees that the Purchaser is
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Investment Agreement
entering into an arrangement with NBC (and/or one of its Subsidiaries) regarding
the joint voting and control by the Purchaser and NBC (and/or one or more of
their respective Subsidiaries) of the Warrants, the Preferred Stock and the
Common Stock issuable upon exercise or conversion thereof. Therefore, both the
Purchaser and NBC (and/or one of its Subsidiaries) will be deemed to
Beneficially Own such securities and the Company hereby acknowledges and agrees
to such Beneficial Ownership arising from its issuance of such securities. In
the event that NBC and the Purchaser are no longer Affiliates of each other, the
Company and Purchaser agree that the Warrant shall immediately terminate and the
Company shall issue a new warrant to NBC or its Subsidiary (the "Replacement
Warrant") having the same terms as the Warrant, except that the provision
described in this sentence will not be contained in the Replacement Warrant. NBC
or one of its Subsidiaries will at all times own at least 50% of the economic
interest in the Replacement Warrant. The Company hereby acknowledges and agrees
that NBC shall be a third party beneficiary hereunder, entitled to the benefits
of this Section 2.4 and to enforce its provisions.
ARTICLE III.
Representations and Warranties
Section 3.1 Representations and Warranties of the Company. The
Company represents and warrants to the Purchaser as of the date hereof and as of
the Closing Date as follows:
(a) Organization and Good Standing of the Company. The Company
is a corporation duly organized, validly existing and in good standing
under the laws of the State of Minnesota and has all requisite
corporate power and authority to own, operate and lease its properties
and to carry on its businesses as they are now being conducted. The
Company is duly licensed or qualified as a foreign corporation for the
transaction of business and is in good standing under the laws of each
other jurisdiction in which its ownership or leasing of properties, or
the conduct of its businesses requires such licensing or qualification
and good standing, except where the failure to be so licensed or
qualified or in good standing in any such jurisdiction would not have a
Material Adverse Effect.
(b) Organization and Good Standing of Company Subsidiaries.
The Company owns, directly or indirectly, all the shares of outstanding
capital stock of each Material Subsidiary, free and clear of all Liens,
except such Liens which do not have a Material Adverse Effect. There
are (i) no equity securities of any of the Material Subsidiaries that
are required to be issued by reason of any options, warrants, rights to
subscribe to, calls, preemptive rights or commitments of any character
whatsoever, (ii) outstanding
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Investment Agreement
no securities or rights convertible into or exchangeable for shares of
any capital stock of any Material Subsidiary and (iii) no contracts,
commitments, understandings or arrangements by which any Material
Subsidiary is bound to issue additional shares of its capital stock or
rights convertible into or exchangeable for its capital stock or
options, warrants or rights to purchase or acquire any additional
shares of its capital stock. Except as set forth in Schedule 3.1(b),
none of the Material Subsidiaries is subject to any obligation
(contingent or otherwise) to repurchase, redeem or otherwise acquire or
retire any of its capital stock. All of the shares of capital stock of
each of the Material Subsidiaries are duly and validly authorized and
issued, fully paid and nonassessable. Each Material Subsidiary is a
corporation duly organized, validly existing and in good standing under
the laws of its jurisdiction of incorporation, and has all requisite
corporate power and authority to own, operate and lease its properties
and to carry on its businesses as they are now being conducted, and is
duly licensed or qualified to do business and is in good standing in
each other jurisdiction in which its ownership or leasing of
properties, or the conduct of its businesses, requires such licensing
or qualification and good standing, except where the failure to be so
licensed or qualified or in good standing in any such jurisdiction
would not have a Material Adverse Effect.
(c) Authorization; No Conflicts. The Company has full
corporate power and authority to enter into this Agreement and the
Ancillary Documents and to perform its obligations hereunder and
thereunder. The execution, delivery and performance by the Company of
this Agreement and each Ancillary Document and the consummation of the
Company's obligations hereunder and thereunder have been duly
authorized by all necessary corporate action. This Agreement has been,
and on or prior to the Closing Date each Ancillary Document will be,
duly and validly executed and delivered by the Company. The Company's
Board of Directors has resolved to recommend that its shareholders vote
for the Shareholder Approval. This Agreement constitutes, and upon its
execution and delivery on or prior to the Closing Date, each Ancillary
Document will constitute, a valid and legally binding obligation of the
Company enforceable against the Company in accordance with its terms,
except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting
creditors generally and by general equitable principles. Except as set
forth in Schedule 3.1(c), the execution, delivery and performance of
this Agreement and the Ancillary Documents by the Company, the
consummation of the transactions by the Company contemplated hereby and
thereby and the compliance by the Company with the provisions hereof
and thereof will not conflict with, violate or result in a breach of
any provision of, require a
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Investment Agreement
consent, approval or notice under, or constitute a default (or an event
which, with notice or lapse of time or both, would constitute a
default) under, or result in the termination of or accelerate the
performance required by, or result in a right of termination or
acceleration under, or result in the creation of any Lien upon any of
the properties or assets of the Company or Material Subsidiaries under,
(i) the articles of incorporation, by-laws or other governing
instrument of the Company or any Material Subsidiary, (ii) any
Contractual Obligation of the Company or any Material Subsidiary or
(iii) assuming that the filings, consents and approvals specified in
Schedule 3.1(d) have been obtained or made and any waiting period
applicable thereto has expired or been terminated, any Requirement of
Law applicable to the Company or any Material Subsidiary, except, in
the case of clauses (ii) and (iii) above, such conflicts, violations,
breaches, consents, approvals, notices, defaults, terminations,
accelerations or Liens which would not have a Material Adverse Effect.
(d) Consents. Except as set forth in Schedule 3.1(d), no
consent, approval, order or authorization of, registration, declaration
or filing with, or notice to, any Governmental Entity is required on
the part of the Company or any of its Subsidiaries in connection with
the execution and delivery by the Company of this Agreement and the
Ancillary Documents, the consummation by the Company of the
transactions contemplated hereby and thereby or the performance by the
Company of its obligations hereunder and thereunder, except for (i) the
filing of all notices, reports and other documents required by, and the
expiration of all waiting periods under, the HSR Act and the rules and
regulations promulgated by the FCC, (ii) such filings as may be
required under the blue sky laws of the various states, (iii) the
filing of the Certificate of Designation with the Secretary of State of
the State of Minnesota and (iv) such consents, approvals, orders,
authorizations, registrations, declarations, filings or notices of
which the failure to make or obtain would not have a Material Adverse
Effect.
(e) Capitalization. (i) As of the date hereof, the authorized
capital stock of the Company consists of 100,000,000 shares of
undesignated capital stock. As of the date hereof, 25,988,466 shares of
Common Stock are issued and outstanding, no shares of Common Stock are
held in treasury, and no shares of Common Stock are reserved for
issuance upon exercise of outstanding stock options except for
4,410,070 shares reserved in respect of Options. As of the date hereof,
no shares of Preferred Stock are designated, and no shares are issued
and outstanding. All of the issued and outstanding shares of the
Company's capital stock have been duly and validly authorized and
issued and are fully paid and nonassessable and not subject to
preemptive rights.
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Investment Agreement
(ii) Upon delivery of and payment for the Shares on
the Closing Date as provided herein, such Shares will be duly and
validly authorized and issued, fully paid and nonassessable and not
subject to preemptive rights, and the Purchaser will acquire good title
thereto, free and clear of all Liens (other than any Lien created by
the Purchaser). The shares of Common Stock into which the Shares are
convertible and the shares of Common Stock issuable upon exercise of
the Warrants (collectively, the "Underlying Shares") have been reserved
for issuance and, when issued upon conversion of the Shares or exercise
of the Warrants, will be duly and validly authorized and issued, fully
paid and nonassessable and not subject to preemptive rights, and the
owner of such shares will acquire good title thereto, free and clear of
all Liens (other than any Lien created by such owner).
(iii) Other than (A) the requirement to issue
warrants to purchase shares of Common Stock pursuant to the terms and
conditions of the Distribution Agreement, (B) the requirement to issue
the Shares pursuant to the terms and conditions of this Agreement, (C)
the requirement to issue the Underlying Shares, (D) the requirement to
issue shares of Common Stock pursuant to Options set forth on Schedule
3.1(e) and (E) as set forth in Schedule 3.1(e), (1) no equity
securities of the Company are or may become required to be issued by
reason of any options, warrants, rights to subscribe to, calls,
preemptive rights, or commitments of any character whatsoever, (2)
there are outstanding no securities or rights convertible into or
exchangeable for shares of any capital stock of the Company and (3)
there are no contracts, commitments, understandings or arrangements by
which the Company is or will be bound to issue additional shares of its
capital stock or securities or rights convertible into or exchangeable
for shares of its capital stock or options, warrants or rights to
purchase or acquire any additional shares of its capital stock. Except
as set forth in Schedule 3.1(e), the Company is not subject to any
obligation (contingent or otherwise) to repurchase, redeem or otherwise
acquire or retire any of its capital stock. As of the Closing Date and
after giving effect to the Closing (and to all transactions to be
effected simultaneously therewith), there shall be issued no class or
series of Preferred Stock other than the Shares.
(iv) Except as set forth on Schedule 3.1(e), the
Company is not a party to, and the Company has no knowledge of any,
voting trusts, proxies or any other agreements or understandings with
respect to the voting of any capital stock of the Company.
(v) Except as set forth in Schedule 3.1(e), the
Company has not granted or agreed to grant any rights
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Investment Agreement
relating to the registration of its securities under applicable federal
and state securities laws, including piggyback rights.
(vi) Except as set forth on Schedule 3.1(e), the
consummation of the transactions contemplated by this Agreement will
not trigger the anti-dilution provisions or other price adjustment
mechanisms of any outstanding subscriptions, options, warrants, calls,
contracts, preemptive rights, demands, commitments, conversion rights
or other agreements or arrangements of any character or nature
whatsoever under which the Company is or may be obligated to issue or
acquire its capital stock.
(f) SEC Filings, Financial Information, Liabilities. The
Company has filed and made available to the Purchaser a true and
complete copy of each report, schedule, registration statement and
definitive proxy statement required to be filed with the SEC since
January 1, 1996 (the "SEC Documents"). Except as set forth in Schedule
3.1(f), as of their respective dates, the SEC Documents, after giving
effect to any amendments and supplements thereto filed prior to the
date hereof, complied in all material respects with the requirements of
the Securities Act or the Exchange Act, as the case may be, applicable
to such SEC Documents. None of the SEC Documents when filed, after
giving effect to any amendments and supplements thereto filed prior to
the date hereof, contained any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The financial
statements of the Company included in the SEC Documents comply as to
form in all material respect with the applicable accounting
requirements and with the published rules and regulations of the SEC
with respect thereto, have been prepared in accordance with GAAP during
the period involved (except as may be indicated in the notes thereto
or, in the case of the unaudited statements, as permitted by Form 10-Q
of the SEC, or for normal year-end adjustments) and fairly present in
all material respects the consolidated financial position of the
Company and its consolidated Subsidiaries as at the dates thereof and
the consolidated results of their operations and cash flows for the
periods then ended. Except as set forth in Schedule 3.1(f) and except
as set forth in the SEC Documents (including any item accounted for in
the financial statements contained in the SEC Documents or set forth in
the notes thereto) as of January 31, 1998, neither the Company nor any
of its Subsidiaries had, and since such date neither the Company nor
any of its Subsidiaries has incurred, any claims, liabilities or
obligations of any nature (whether accrued, absolute, contingent or
otherwise) which, individually or in the aggregate, would have a
Material Adverse Effect(other
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Investment Agreement
than claims, liabilities or obligations contemplated by this Agreement
or the Ancillary Documents or expressly permitted to be incurred
pursuant to this Agreement or the Ancillary Documents). In addition,
since January 31, 1998, there has not been any declaration, setting
aside or payment of a dividend or other distribution with respect to
shares of capital stock of the Company or any material change in
accounting methods or practices by the Company or any of its
Subsidiaries.
(g) Compliance with Applicable Law. Each of the Company and
each Material Subsidiary is and has been at all times since January 1,
1996, in compliance with all applicable Requirements of Law, other than
where the failure to be in compliance would not have a Material Adverse
Effect.
(h) Permits. Each of the Company and each of the Material
Subsidiaries has all licenses, permits, orders, approvals,
registrations, authorizations and qualifications of or with all
Governmental Entities necessary to enable it to own its properties and
conduct its businesses as presently conducted (collectively, the
"Permits"), except to the extent that the failure to have any such
Permits would not have a Material Adverse Effect. Each of the Company
and each Material Subsidiary is in compliance with the Permits, except
to the extent that the failure to be in compliance with any such
Permits would not have a Material Adverse Effect.
(i) Legal Proceedings. Except as set forth in Schedule 3.1(i),
there are no legal or administrative proceedings or arbitrations, and
no claims, actions or governmental investigations of any nature pending
against the Company or any Company Subsidiary or to which the Company
or any Company Subsidiary or any of their properties or assets is
subject, and, to the knowledge of the Company, there has not been
threatened any such proceeding, arbitration, claim, action or
governmental investigation against the Company or any of the Company
Subsidiaries, in each case, which would, if adversely determined, have
a Material Adverse Effect. Except as set forth in Schedule 3.1(i),
neither the Company nor any Company Subsidiary has been permanently or
temporarily enjoined or barred by any order, judgment or decree of any
Governmental Entity from engaging in or continuing any conduct or
practice in connection with the businesses conducted by the Company and
the Company Subsidiaries.
(j) Absence of Certain Changes. Except as set forth in
Schedule 3.1(j) hereto, since January 31, 1998, the businesses of the
Company and the Material Subsidiaries have been operated in the usual
and ordinary course consistent with past practice (except as disclosed
in the SEC Documents
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Investment Agreement
filed prior to the date hereof and the negotiation, execution, delivery
and performance of this Agreement and the Ancillary Documents and the
transactions contemplated hereby and thereby) and there has been no
event, condition or change that has had a Material Adverse Effect.
(k) Employee Benefits. (i) Each "employee benefit plan"
(within the meaning of section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")), and any other employee
plan, agreement or arrangement that is maintained or otherwise
contributed to by the Company or the Company Subsidiaries for the
benefit of their employees or with respect to which the Company or the
Company Subsidiaries has or could reasonably be expected to have any
liability (collectively, "Company Plans" as listed on Schedule 3.1(k)),
has been administered and is in compliance in all material respects
with the terms of such plan and all applicable laws, rules and
regulations. The Company is not party to any multiemployer plans.
(ii) Other than claims for benefits in the ordinary
course, there are no pending or, to the knowledge of the Company,
threatened, actions, claims or lawsuits against the Company, any of its
Subsidiaries or any Company Plan involving or arising out of any
Company Plan.
(iii) The Company and the Company Subsidiaries have
not incurred, and no event has occurred with respect to any Company
Plan which would result in, any material liability under ERISA or the
Code, including but not limited to liability resulting from a complete
or partial withdrawal from a "multiemployer plan" (as such term is
defined in section 3(37) of ERISA) or a termination of a Company Plan
which is covered by Title IV of ERISA, but which is not a multiemployer
plan.
(iv) Except as set forth in Schedule 3.1(k) hereto,
no Company Plan exists which could result in the payment to any
employee of the Company or any Company Subsidiary of any money or other
property or rights or accelerate or provide any other rights or
benefits to any such employee as a result of the transaction
contemplated by this Agreement or the Ancillary Documents, whether or
not such payment would constitute a parachute payment within the
meaning of Section 280G of the Code.
(v) The present value of all benefit obligations
under each Company Plan which is covered by Title IV of ERISA but which
is not a multiemployer plan (based upon those assumptions used to fund
such Plans) did not, as of the last annual valuation date prior to the
date on which this representation is made or deemed made, exceed the
value of the assets of such Plan allocable to such benefit obligations.
The Company and its Subsidiaries have no
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Investment Agreement
material liability with respect to "Expected Post-Retirement
Benefit Obligations" within the meaning of Statement of
Financial Accounting Standards No. 106 ("FAS 106").
(l) Labor Matters. Since January 1, 1996, (i) there has been
no attempt or plan to organize any employees of the Company or any
Material Subsidiary and (ii) no strike, work-stoppage or lockout or
labor dispute between the Company or any Material Subsidiary on the one
hand and any group of employees on the other hand. To the knowledge of
the Company, no such organization effort, strike, work stoppage,
lockout or labor dispute is threatened by any group of employees of the
Company or any Material Subsidiary or is otherwise anticipated to
occur. No employee of the Company or any Material Subsidiary is the
subject of any collective bargaining agreement.
(m) Material Agreements. The Company has made available to the
Purchaser a true and correct copy of all Material Agreements. Each
Material Agreement is valid, binding, in full force and effect and
enforceable by the Company or the relevant Company Subsidiary in
accordance with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors generally and by general equitable
principles. Except as disclosed in Schedule 3.1(m), the Company and the
Company Subsidiaries have performed all material obligations required
to be performed by them to date under the Material Agreements and they
are not (with or without the lapse of time or the giving of notice, or
both) in breach or default in any material respect thereunder and, to
the knowledge of the Company, no other party to any of the Material
Agreements is (with or without the lapse of time or the giving of
notice, or both) in breach or default in any material respect
thereunder.
(n) Title to Properties; Insurance. The Company and the
Material Subsidiaries have good and valid title to their respective
material properties and assets (or valid title insurance enforceable
for the fair value of such properties or assets) and all of such
material properties and assets are free of all Liens other than
Permitted Liens. The Company and the Material Subsidiaries have at all
times maintained in full force and effect property damage, liability
and other insurance with reputable insurers at levels of coverage
reasonable and customary in the applicable industry. All of the
material tangible assets of the Company and the Material Subsidiaries
are in good operating condition and repair, ordinary wear and tear
excepted and taking into account the respective ages of such assets.
The condition of all material leased personal property of the Company
and the Material Subsidiaries is consistent in all material respects
with the condition
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Investment Agreement
required of such property by the terms of the applicable lease.
(o) Taxes. (i) The Company and each of its Subsidiaries have
(A) filed all federal, state, local and foreign Tax Returns and reports
required to be filed by them (taking into account all applicable
extensions) which are correct and complete in all material respects,
(B) paid or accrued all Taxes due and payable, and (C) paid all Taxes
for which a notice of assessment or collection has been received (other
than Taxes that are being contested in good faith by appropriate
proceedings and that have been reserved against in accordance with
GAAP), except in the case of clause (A), (B) or (C) for any such
filings, payments or accruals that are not reasonably likely,
individually or in the aggregate, to have a Material Adverse Effect.
Except as set forth on Schedule 3.1(o), there are no audits known by
the Company to be pending or contemplated with respect to the Company's
Tax Returns. Neither the Internal Revenue Service (the "IRS") nor any
other taxing authority has asserted any claim for Taxes, or to the
knowledge of the Company, is threatening to assert any claims for
Taxes, which claims, individually or in the aggregate, are reasonably
likely to have a Material Adverse Effect. The Company and each of its
Subsidiaries have withheld or collected and paid over to the
appropriate governmental authorities (or are properly holding for such
payment) all Taxes required by law to be withheld or collected, except
for amounts that are not reasonably likely, individually or in the
aggregate, to have a Material Adverse Effect. Neither the Company nor
any of its Subsidiaries has made an election under Section 341(f) of
the Code. There are no liens for Taxes upon the assets of the Company
or any of its Subsidiaries (other than liens for Taxes that are not yet
due or that are being contested in good faith by appropriate
proceedings), except for liens that are not reasonably likely,
individually or in the aggregate, to have a Material Adverse Effect. No
extension of a statute of limitations relating to any Taxes is in
effect with respect to the Company or any of its Subsidiaries.
(ii) Neither the Company nor any of its Subsidiaries has been
a member of an affiliated group of corporations filing a consolidated
federal income tax return (or a group of corporations filing a
consolidated, combined or unitary income tax return under comparable
provisions of state, local or foreign tax laws), other than a group the
common parent of which was the Company or any Subsidiary of the
Company.
(iii) Neither the Company nor any of its Subsidiaries has any
obligation under any agreement or arrangement with any other person
with respect to Taxes of such other person (including pursuant to
Treas. Reg. Section 1.1502-6 or
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Investment Agreement
comparable provisions of state, local or foreign tax law) and including
any liability for Taxes or any predecessor entity, except for
obligations that are not reasonably likely, individually or in the
aggregate, to have a Material Adverse Effect.
(iv) Neither the Company nor any of its Subsidiaries has been
a United States real property holding corporation within the meaning of
Section 897(c)(2) of the Code during the applicable period specified in
Section 897(c)(1)(A)(ii) of the Code.
(p) Environmental Matters. To the knowledge of the
Company,
(i) The Company and the Company Subsidiaries hold and
are in compliance with all Environmental Permits, and are in
compliance with all applicable Environmental Laws, except to
the extent any failure to hold any such Environmental Permit
or any such noncompliance would not result in a Material
Adverse Effect;
(ii) Neither the Company nor any Company Subsidiary
has received any Environmental Claim, nor to their knowledge
is any Environmental Claim threatened, which would result in a
Material Adverse Effect;
(iii) Hazardous Materials have not been generated,
transported, treated, stored, disposed of, released or
threatened to be released by the Company or any Company
Subsidiary at, on, from or under any property or facility
currently owned, operated or otherwise used by the Company or
any Company Subsidiary, in violation of any Environmental Law,
which would result in a Material Adverse Effect;
(iv) There are no past or present actions,
activities, events, conditions or circumstances, including
without limitation the release, threatened release, emission,
discharge, generation, treatment, storage or disposal of
Hazardous Materials by the Company or any Company Subsidiary,
that would give rise to a Material Adverse Effect;
(v) The Company and the Company Subsidiaries have not
assumed, contractually or by operation of law, any material
liabilities under any Environmental Laws;
(vi) The Company and the Company Subsidiaries have
not entered into, have not agreed to, and are not subject to
any judgment, decree, order or other similar requirement of
any governmental authority under any Environmental Laws,
including without limitation those relating to compliance with
Environmental Laws or to
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Investment Agreement
investigation, cleanup, remediation or removal of Hazardous
Substances; and
(vii) For purposes of this Agreement, the following
terms shall have the following meanings:
"Environmental Claim" means any written
notice, claim, demand, action, suit, complaint,
proceeding which has been served upon or delivered or
otherwise transmitted to the Company or any Company
Subsidiary, by any Person alleging material liability
or potential material liability (including without
limitation material liability or potential material
liability for investigatory costs, cleanup costs,
governmental response costs, natural resource
damages, property damage, personal injury, fines or
penalties) arising out of, relating to, based on or
resulting from (i) the presence, discharge, emission,
release or threatened release of any Hazardous
Materials at, on, from or under any property or
facility currently owned by the Company, (ii)
circumstances forming the basis of any violation or
alleged violation of any Environmental Law or
Environmental Permit, or (iii) otherwise relating to
liabilities under any Environmental Law.
"Environmental Permits" means all permits,
licenses, registrations and other governmental
authorizations required under Environmental Laws for
the Company and the Company Subsidiaries to
conduct their operations.
"Environmental Laws" means all applicable
statutes, rules, regulations, ordinances, orders, and
decrees of any Governmental Entity relating in any
manner to contamination, pollution or protection of
human health or the environment, including the
Comprehensive Environmental Response, Compensation
and Liability Act, the Solid Waste Disposal Act, the
Clean Air Act, the Clean Water Act, the Toxic
Substances Control Act, the Emergency Planning and
Community-Right-to-Know Act, the Safe Drinking Water
Act and similar state laws.
"Hazardous Materials" means all hazardous,
dangerous or toxic substances, wastes, materials or
chemicals, petroleum (including, but not limited to,
crude oil or any fraction thereof) and petroleum
products, pollutants, contaminants and all other
materials or substances regulated pursuant to any
Environmental Law.
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Investment Agreement
(q) Intellectual Property. (i) The Company either owns,
licenses or otherwise has rights to all Intellectual Property used by
or necessary to the Company in the conduct of its business as now
conducted. No proceedings have been instituted or are pending or to the
Company's knowledge threatened that challenge the validity of the
ownership or use by the Company of such Intellectual Property, except
for such proceedings which would not have a Material Adverse Effect.
The Company knows of no infringing use or infringement of any of such
Intellectual Property by any other Person. The Company has taken such
security measures as it deems reasonably appropriate to protect the
secrecy, confidentiality and value of its trade secrets.
(r) Absence of Certain Business Practices. Neither the Company
nor any officer, employee or agent thereof, nor any other Person acting
on behalf of the Company, has, directly or indirectly, within the past
five years given or agreed to give any gift or similar benefit to any
customer, supplier, governmental employee or other Person or entity who
is or may be in a position to help or hinder the Company (or assist the
Company in connection with any actual or proposed transaction) which
(x) subjects any party or any of their respective Subsidiaries, to any
damage or penalty in any civil, criminal or governmental litigation or
proceeding which would have a Material Adverse Effect, (y) if not given
in the past, could have had a Material Adverse Effect or (z) if not
continued in the future, could have a Material Adverse Effect.
(s) Proxy Statement. The Proxy Statement shall not (other than
information supplied in writing by the Purchaser and its Affiliates for
inclusion in the Proxy Statement), on the date the Proxy Statement is
first mailed to shareholders of the Company and at the time of the
Shareholders Vote, contain any statement which, at such time and light
of the circumstances under which it shall be made, is false or
misleading with respect to any material fact, omit to state any
material fact necessary in order to make the statements made in the
Proxy Statement not false or misleading, or omit to state any material
fact necessary to correct any statement in any earlier communication
with respect to the solicitation of proxies for the Shareholders'
Meeting which has become false or misleading. If at any time prior to
the Shareholders Vote any event relating to the Company or any of its
Affiliates, officers or directors should be discovered by the Company
which should be set forth in the supplement to the Proxy Statement, the
Company shall promptly inform the Purchaser.
(t) Antitakeover Statutes. The Board of Directors of the
Company has taken all actions necessary under the MBCA, including
approving the transactions contemplated by the
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Investment Agreement
Agreement and each of the Ancillary Documents to which it is a party,
to ensure that Section 302A.673 of the MBCA applicable to a "business
combination" does not, and will not, apply to the transactions
contemplated hereunder and thereunder or any "business combination"
with any Restricted Party occurring after the date hereof. The
restrictions contained in Section 302A.671 of the MBCA applicable to
"control share acquisitions" will not apply to the authorization,
execution, delivery and performance of this Agreement or any of the
Ancillary Documents by the Company or to any shares of Common Stock or
Preferred Stock acquired at any time by the Purchaser pursuant to
Section 2.1 of this Agreement, the Warrant or the warrants to be issued
to NBC pursuant to the Distribution Agreement, or upon conversion of
the Preferred Stock (as applicable), provided that the Company makes no
representation or warranty regarding Section 2.4 of this Agreement or
to any assignment of the Securities or the warrants to be issued to NBC
pursuant to the Distribution Agreement or to any securities issuable
upon conversion or exercise of the Securities or the warrants to be
issued to NBC pursuant to the Distribution Agreement. No other "fair
price," "moratorium," or other similar anti-takeover statute or
regulation is applicable to the Company or (by reason of the Company's
participation therein) the transactions contemplated by this Agreement
or the Ancillary Documents.
(u) FCC Licenses and Applications. Set forth on Schedule
3.1(u) is a list of (i) all licenses relating to television stations
that are owned or operated by the Company or its Subsidiaries ("FCC
Licenses") and (ii) all applications for FCC Licenses or for television
station construction permits that are pending before the FCC as of the
date hereof. The FCC Licenses are the only licenses relating to
television stations that are required by applicable FCC law to be held
by the Company and its Subsidiaries in order to conduct the business of
the Company and its Subsidiaries as it is currently conducted.
(v) Year 2000 Compliance. The Company has adopted and
implemented a commercially reasonable plan to provide (x) that the
change of the year from 1999 to the year 2000 will not materially and
adversely affect the information and business systems of the Company or
its Subsidiaries and (y) that the impacts of such change on the vendors
and customers of the Company and its Subsidiaries will not have a
Material Adverse Effect. In the Company's reasonable best estimate, no
expenditures materially in excess of currently budgeted items
previously disclosed to the Purchaser will be required in order to
cause the information and business systems of the Company and its
Subsidiaries to operate properly following the change of the year 1999
to the year 2000. The Company reasonably expects that it will resolve
any material
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Investment Agreement
issues related to such change of the year in accordance with the
timetable set forth in such plan (and in any event on a timely basis in
order to be resolved before the year 2000). Between the date of this
Agreement and the Shareholders Meeting, the Company shall continue to
use commercially reasonable efforts to implement such plan.
(w) Subscribers. The Company has an Existing Subscriber Base
of at least 14.4 million FTE Subscribers represented by existing
carriage agreements, each of which is in full force and effect and is
the legal, valid and binding obligation of the Company, and to the
knowledge of the Company, the other parties thereto. The terms
"Existing Subscriber Base", "FTE" and "Subscriber" shall have the
meanings set forth in the Distribution Agreement.
(x) Brokers and Finders. Except as set forth in Schedule
3.1(x), neither the Company nor any Company Subsidiary has utilized any
broker, finder, placement agent or financial advisor or incurred any
liability for any fees or commissions in connection with any of the
transactions contemplated hereby or by the Ancillary Documents. The
Company is solely responsible for all fees or other amounts that may be
payable to each Person listed on Schedule 3.1(x).
Section 3.2 Representations and Warranties of the Purchaser.
The Purchaser represents and warrants to, and agrees with, the Company as
follows:
(a) Organization and Good Standing. Each of the Purchaser and
NBC is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has the requisite
power and authority to enter into this Agreement and the Ancillary
Documents to which it is a party and to carry out its obligations
hereunder and thereunder. Each of the Purchaser and NBC is duly
licensed or qualified as a foreign corporation for the transaction of
business and is in good standing under the laws of the State of New
York. In addition, NBC is duly licensed or qualified as a foreign
corporation for the transaction of business and is in good standing
under the laws of each other jurisdiction in which it conducts
business, except where the failure to be so licensed or qualified or in
good standing in any such jurisdiction would not have a Material
Adverse Effect.
(b) Authorization; No Conflicts. The execution and delivery of
this Agreement and the Ancillary Documents to which the Purchaser or
NBC is a party and the consummation of the transactions contemplated
hereby and thereby have been authorized by all necessary corporate
action on behalf of the Purchaser and NBC, as applicable. This
Agreement has
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Investment Agreement
been, and on or prior to the Closing Date each of the Ancillary
Documents to which the Purchaser and NBC is a party will be, duly and
validly executed and delivered on behalf of the Purchaser or NBC, as
applicable, and this Agreement is, and upon their execution and
delivery on or prior to the Closing Date each of the Ancillary
Documents to which the Purchaser or NBC is a party will be, a valid and
binding obligation of the Purchaser or NBC, as applicable, enforceable
against it in accordance with its terms. The execution, delivery and
performance of this Agreement and the Ancillary Documents to which the
Purchaser or NBC is a party, the consummation by the Purchaser and NBC,
as applicable, of the transactions contemplated hereby and thereby and
the compliance by Purchaser or NBC, as applicable, with the provisions
hereof and thereof will not conflict with, violate or result in a
breach of any provision of, require a consent, approval or notice
under, or constitute a default (or an event, which, with notice or
lapse of time or both, would constitute a default) under, (i) any
organizational document of the Purchaser or NBC, (ii) any Contractual
Obligation of the Purchaser or NBC, or (iii) assuming that the
clearances, filings, consents and approvals specified in Schedule
3.2(c) have been obtained or made and any waiting period applicable
thereto has expired or been terminated, any Requirement of Law
applicable to the Purchaser or NBC, except, in the case of clauses (ii)
and (iii) above, such conflicts, violations, breaches, consents,
approvals, notices, defaults, terminations, accelerations or Liens
which would not have a Material Adverse Effect.
(c) Consents and Approvals. Except as set forth in Schedule
3.2(c), no consent, approval, order or authorization of, registration,
declaration or filing with, or notice to, any Governmental Entity is
required on the part of Purchaser or NBC in connection with the
execution and delivery by Purchaser and NBC, as applicable, of this
Agreement and the Ancillary Documents to which the Purchaser or NBC is
a party, the consummation by the Purchaser and NBC, as applicable, of
the transactions contemplated hereby and thereby or the performance by
the Purchaser and NBC, as applicable, of its obligations hereunder and
thereunder, except for (i) the filing of all notices, reports and other
documents required by, and the expiration of all waiting periods under,
the HSR Act and the rules and regulations promulgated by the FCC, and
(ii) such consents, approvals, orders, authorizations, registrations,
declarations, filings or notices of which the failure to make or obtain
would not have a Material Adverse Effect. Each of Purchaser and NBC is
fully qualified under the FCC's rules, regulations, and policies
(including, but not limited to, its television network and its multiple
ownership rules) to consummate the transactions contemplated by this
Agreement and the Ancillary Documents, and such consummation shall not
cause
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Investment Agreement
the Company to be deemed to be an attributable owner of, or vertically
integrated with, any cable system for purposes of any of the provisions
of 47 C.F.R. part 76, or to be deemed an "affiliate" of any cable
system for purposes of the commercial leased access rules as
established in 47 C.F.R. Section 76.970(b).
(d) Compliance with Applicable Law. Each of the Purchaser and
NBC is and has been at all times since January 1, 1996, in compliance
with all applicable Requirements of Law, other than where the failure
to be in compliance would not have a Material Adverse Effect.
(e) Proxy Statement. The information supplied in writing by
the Purchaser or NBC for inclusion in the Proxy Statement shall not, on
the date the Proxy Statement is first mailed to shareholders of the
Company and at the time of the Shareholders Vote, contain any statement
which, at such time and in light of the circumstances under which it
shall be made, is false or misleading with respect to any material
fact, omit to state any material fact necessary in order to make such
statements made in the Proxy Statement not false or misleading, or omit
to state any material fact necessary to correct any statement in any
earlier communication with respect to the solicitation of proxies for
the Shareholders' Meeting which has become false or misleading. If at
any time prior to the Shareholders Vote any event relating to the
Purchaser or NBC or any of their respective Affiliates should be
discovered by the Purchaser or NBC which should be set forth in the
supplement to the Proxy Statement, the Purchaser or NBC, as applicable,
shall promptly inform the Company.
(f) Securities Act. The Purchaser (i) is acquiring the
Securities solely for the purpose of investment and not with a view to,
or for resale in connection with, any distribution thereof in violation
of the Securities Act; (ii) has had the opportunity to ask questions of
the officers and directors of, and has had access to information
concerning, the Company and the Securities; (iii) is an "accredited
investor" as defined in Rule 501(a) under the Securities Act; (iv) has
such knowledge, sophistication and experience in business and financial
matters so as to be capable of evaluating the merits and risks of the
investment in the Company and the Securities; (v) has so evaluated the
merits and risks of such investment; (vi) is able to bear the economic
risk of such investment; and (vii) is able to afford a complete loss of
such investment.
(g) Brokers and Finders. The Purchaser has not utilized any
broker, finder, placement agent or financial advisor or incurred any
liability for any fees or
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Investment Agreement
commissions in connection with any of the transactions contemplated
hereby or by the Ancillary Documents.
ARTICLE IV.
Conduct of Business
Section 4.1 Conduct of the Business Pending the Closing. The
Company agrees that except with the prior written consent of the Purchaser and
except as may be contemplated by this Agreement or the Ancillary Documents, and
except as set forth on Schedule 4.1, prior to the Shareholders Vote, it and its
Subsidiaries shall operate their businesses only in the usual, regular and
ordinary manner, on a basis consistent with past practice and, to the extent
consistent with such operation, use its reasonable efforts to preserve its
present business organization intact, keep available the services of its present
employees, preserve its present business relationships and maintain all rights,
privileges and franchises necessary or desirable in the normal conduct of the
Company's businesses. Without limitation of the foregoing, from the date hereof
until the Shareholders Vote, except as contemplated by this Agreement or the
Ancillary Documents, and except as set forth in Schedule 4.1 hereto, the Company
shall not:
(a) amend the articles of incorporation or bylaws of
the Company or any Material Subsidiary;
(b) issue, purchase or redeem, or authorize or propose the
issuance, purchase or redemption of, or declare or pay any dividend
with respect to, any shares of capital stock of the Company or any
class of securities convertible into, or rights, warrants or options to
acquire, any such shares or other convertible securities other than (i)
pursuant to Options outstanding on the date hereof and (ii) Options to
be issued to officers, directors, employees and/or consultants
exercisable in an aggregate amount not exceed the number of authorized
Shares under the Company's 1990 Stock Option Plan and the Company's
1994 Executive Stock Option Plan;
(c) except as set forth on Schedule 4.1, take any action that
would be prohibited by Section 3.4(a) of the Shareholder Agreement if
such Section were in effect and the Closing had occurred;
(d) other than in the ordinary course consistent with past
practices, form any joint venture, acquire or dispose of any business
or of any assets or acquire or dispose of any minority investment in
any Person;
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Investment Agreement
(e) enter into any transaction involving the merger,
consolidation or sale of all or substantially all of the assets of the
Company or any Material Subsidiary other than any such merger,
consolidation or sale solely involving the Company and its
Subsidiaries;
(f) file any voluntary petition for bankruptcy or receivership
or fail to oppose any other person's petition for bankruptcy or action
to appoint a receiver of the Company or any Material Subsidiary; or
(g) authorize any of, or commit or agree to take any of, the
foregoing actions.
Section 4.2 Access to Information. Subject to applicable laws
and existing confidentiality agreements, the Company and its Subsidiaries shall
afford the officers, employees, auditors and other agents of the Purchaser and
NBC reasonable access during normal business hours to their officers, employees,
properties, offices, plants and other facilities, and contracts, commitments,
books and records relating thereto, and shall furnish such Persons all such
documents and such financial, operating and other data and information regarding
such businesses and Persons that are in the possession of such Person as the
Purchaser or NBC, as applicable, through their respective officers, employees or
agents may from time to time reasonably request. All such information will be
provided subject to the terms of the confidentiality agreements dated June 24,
1998 between the Company and the Purchaser and dated January 28, 1999 (as
amended February 28, 1999) between the Company and NBC.
Section 4.3 No Solicitation. (a) Prior to the Shareholders
Vote, the Company shall not, nor shall it permit any of its Subsidiaries to, nor
shall it authorize or permit any officer, director or employee of, or any
investment banker, attorney or other advisor or representative of, the Company
or any of its Subsidiaries to, directly or indirectly, (i) take any action to
solicit, initiate, encourage or knowingly facilitate any Material Transaction
Proposal or the submission of a Material Transaction Proposal or (ii) enter into
or participate in any discussions or negotiations regarding, or furnish to any
person any information with respect to, a Material Transaction Proposal;
provided that, in response to an unsolicited bona fide Takeover Proposal, the
Company may, to the extent that the Board of Directors of the Company determines
in good faith based on the advice of outside legal counsel that such action is
required to comply with their fiduciary duties under applicable law, (A) furnish
information with respect to the Company and its Subsidiaries to the Person
making such Takeover Proposal and its representatives and discuss such
information with such Person and its representatives and (B) participate in
negotiations regarding such Takeover Proposal. The Company will promptly notify
the Purchaser of receipt of any request for information or any
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Investment Agreement
Material Transaction Proposal, the material terms and conditions of such request
or Material Transaction Proposal and the identity of the Person making any such
request or Material Transaction Proposal, and will keep the Purchaser fully
informed on a current basis of the status and details of any such request or
Material Transaction Proposal. The Company will immediately cease and cause to
be terminated any existing activities, discussions and negotiations conducted
heretofore with respect to any Material Transaction Proposal.
(b) Prior to the Shareholders Vote, the Board of Directors of
the Company shall not (i) approve or recommend or propose publicly to approve or
recommend any Material Transaction Proposal, (ii) cause or agree to cause the
Company or any of its Subsidiaries to enter into any agreement (including,
without limitation, any letter of intent or agreement in principle) related to a
Material Transaction Proposal or (iii) withdraw or modify, in a manner adverse
to the Purchaser, the approval or recommendation of the Board of Directors of
the Company for the transactions contemplated by this Agreement. Notwithstanding
the foregoing, if the Board of Directors of the Company receives a Takeover
Proposal without having violated Section 4.3(a) hereof, the Board of Directors
of the Company may, to the extent it determines in good faith based on the
advice of outside legal counsel that such action is required to comply with
their fiduciary duties under applicable law, take any action specified in
clauses (i) or (ii) above with respect to such Takeover Proposal, but in each
case only at a time that is at least five (5) business days after receipt by the
Purchaser of written notice from the Company advising the Purchaser that the
Board of Directors of the Company has resolved to take such action.
(c) As used herein, "Material Transaction Proposal" means any
inquiry, proposal or offer from any Person relating to (i) the direct or
indirect acquisition or purchase of 5% or more of the assets (based on the fair
market value thereof) of the Company and its Subsidiaries, taken as a whole, or
of 5% or more of any class of equity securities of the Company or any of its
Subsidiaries or any tender offer or exchange offer (including by the Company or
its Subsidiaries) that if consummated would result in any person beneficially
owning 5% or more of any class of equity securities of the Company or any of its
Subsidiaries, or (ii) any merger, consolidation, business combination, sale of
all or substantially all assets, recapitalization, liquidation, dissolution or
similar transaction involving the Company or any of its Subsidiaries other than
the transactions contemplated by this Agreement. As used herein, "Takeover
Proposal" means any inquiry, proposal or offer from any Person relating to (A)
any of the matters set forth in clause (i) of the definition of Material
Transaction Proposal but replacing "5%" with "50%" each place "5%" is used in
such definition, (B) a sale of all or substantially all of the assets of the
Company and its Subsidiaries or (C) a merger or consolidation of the Company as
a result of which the
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Investment Agreement
shareholders of the Company immediately prior to such transaction would not
beneficially own immediately after such transaction 50% or more of the resulting
or surviving entity (or the parent thereof).
ARTICLE V.
Other Agreements
Section 5.1 Preparation of Proxy Statement. (a) As soon as
practicable after the execution of this Agreement, the Company shall prepare and
cause to be filed with the SEC preliminary proxy materials (the "Proxy
Statement") for the solicitation of approval of the shareholders of the Company
of (i) the issuance by the Company of shares of Common Stock pursuant to, and
purchase of shares of Common Stock by the exercise of, the Warrants, (ii) such
other transactions contemplated hereby and pursuant to the Ancillary Documents
as may reasonably require approval of the Company's shareholders (together with
clause (i), the "Shareholder Approval"), (iii) the election of directors and
(iv) such other matters as the Company and the Purchaser may reasonably agree.
Subject to compliance by the Purchaser of its covenants in this Section 5.1, the
Company shall cause the Proxy Statement related thereto to materially comply
with applicable law and the rules and regulations promulgated by the SEC, to
respond promptly to any comments of the SEC or its staff and the Company shall
use reasonable best efforts to cause the Proxy Statement to be mailed to the
Company's shareholders as promptly as practicable. Each of the parties hereto
shall promptly furnish to the other party all information concerning itself, its
shareholders and its Affiliates that may be required or reasonably requested in
connection with any action contemplated by this Section 5.1. If any event
relating to any party occurs, or if any party becomes aware of any information,
that should be disclosed in an amendment or supplement to the Proxy Statement,
then such party shall inform the other thereof and shall cooperate with each
other in filing such amendment or supplement with the SEC and, if appropriate,
in mailing such amendment or supplement to the shareholders of the Company. The
Proxy Statement shall include the recommendations of the Board of Directors of
the Company in favor of the exercise of the Warrant and the transactions
contemplated hereby and thereby.
(b) Each of the Company and the Purchaser agrees with respect
to the information to be supplied by such party that: (i) none of the
information to be supplied by such party or its Affiliates for inclusion in the
Proxy Statement will, at the time the Proxy Statement is mailed to the
shareholders of the Company, or as of the Shareholders Vote, contain any untrue
statement of a material fact or omit to state any material fact required to be
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Investment Agreement
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading; and (ii) as to
matters respecting such party, the Proxy Statement will comply as to form in all
material respects with the provisions of the Exchange Act, and the rules and
regulations promulgated by the SEC thereunder.
Section 5.2 Shareholders Meeting. The Company shall promptly
after the date hereof take all action necessary in accordance with applicable
law and its articles of incorporation and bylaws to hold and convene a meeting
of the Company's shareholders (the "Shareholders Meeting") to provide for the
Shareholders Vote with respect to the matters subject to Shareholder Approval
and with respect to the other matters to be voted upon pursuant to Section
5.1(a). Except as required by the SEC or applicable court order, the Company
shall not postpone or adjourn (other than for the absence of a quorum) the
Shareholders Meeting without the consent of the Purchaser. The Company shall
take all other action necessary or advisable to secure the Shareholder Approval.
Notwithstanding anything to the contrary contained herein, the Shareholders
Meeting, the Shareholders Vote and the Shareholder Approval shall not be a
condition to the consummation of the Closing or the sale and purchase of the
Securities.
Section 5.3 Public Statements. Before any party or any
Affiliate of such party shall release any information concerning this Agreement
or the Ancillary Documents or the matters contemplated hereby or thereby which
is intended for or may result in public dissemination thereof, such party shall
cooperate with the other parties, shall furnish drafts of all documents or
proposed oral statements to the other parties, provide the other parties the
opportunity to review and comment upon any such documents or statements and
shall not release or permit release of any such information without the consent
of the other parties, except to the extent required by applicable law or the
rules of any securities exchange or automated quotation system on which its
securities or those of its Affiliate are traded.
Section 5.4 Reasonable Commercial Efforts. Subject to the
terms and conditions provided in this Agreement, each party shall use reasonable
commercial efforts to take promptly, or cause to be taken, all actions, and to
do promptly, or cause to be done, all things necessary, proper or advisable
under applicable laws and regulations to consummate and make effective the
transactions contemplated hereby, to obtain all necessary waivers, consents and
approvals and to effect all necessary registrations and filings, including
without limitation the filings and consents set forth on Schedule 5.4 hereto
(the "Required Consents") and to remove any injunctions or other impediments or
delays, legal or otherwise, in order to consummate and make effective the
transactions contemplated by this
28
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Investment Agreement
Agreement for the purpose of securing to the parties hereto the benefits
contemplated by this Agreement; provided that notwithstanding anything to the
contrary in this Agreement, no party nor any of their Affiliates shall be
required to make any disposition, including, without limitation, any disposition
of, or any agreement to hold separate, any Subsidiary, asset or business, and no
party hereto nor any of their Affiliates shall be required to make any payment
of money nor shall any party or its Affiliates be required to comply with any
condition or undertaking or take any action which, individually or in the
aggregate, would materially adversely affect the economic benefits to such party
of the transactions contemplated hereby and the Ancillary Documents, taken as a
whole or materially adversely affect any other business of such party or its
Affiliates.
Section 5.5 HSR Act. The Company and the Purchaser will each
make as promptly as practicable all filings it is required to make under the HSR
Act with regard to the transactions which are the subject of this Agreement and
each of them will take all reasonable steps within its control (including
providing information to the Federal Trade Commission and the Department of
Justice) to cause the waiting periods required by the HSR Act to be terminated
or to expire as promptly as practicable. The Company and the Purchaser will each
provide information and cooperate in all other respects to assist the other of
them in making its filings under the HSR Act.
Section 5.6 Reservation of Shares. The Company agrees to keep
reserved for issuance at all time prior to conversion of the Shares and the
exercise of the Warrants the aggregate number of Underlying Shares issuable upon
conversion of the Shares and the exercise of the Warrants.
Section 5.7 Notification of Certain Matters. Each party to
this Agreement shall give prompt notice to each other party of the occurrence or
non-occurrence of any event, the occurrence or non-occurrence of which is likely
to cause any condition of any party contained in Article VI of this Agreement to
not be satisfied at or prior to the Shareholders Vote; provided, however, that
the delivery of any notice pursuant to this Section 5.7 shall not limit or
otherwise affect any remedies available to the party receiving such notice. No
disclosure by any party pursuant to this Section 5.7, however, shall be deemed
to amend or supplement the disclosures set forth on the Schedules to Article III
or prevent or cure any misrepresentations, breach of warranty or breach of
covenant.
Section 5.8 Further Assurances. Each party shall execute and
deliver such additional instruments and other documents and shall take such
further actions as may be necessary or appropriate to effectuate, carry out and
comply with all of the terms of this Agreement and the transactions contemplated
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Investment Agreement
hereby, including without limitation making application as soon as practicable
for all consents and approvals required in connection with the transactions
contemplated hereby and diligently pursuing the receipt of such consents and
approvals in good faith.
ARTICLE VI.
Conditions Precedent
Section 6.1 Conditions of the Purchaser. The obligation of the
Purchaser to purchase the Securities at the Closing is subject to the
satisfaction or waiver of each of the following conditions precedent at or prior
to the Closing:
(a) Representations and Warranties; Covenants. The
representations and warranties of the Company contained in this
Agreement and the Ancillary Documents shall be true and correct in all
material respects on and as of the date of this Agreement or the date
of such Ancillary Documents, as the case may be, and on and as of the
Closing Date, with the same effect as though made on and as of such
date, except (i) to the extent any such representation and warranty is
made as of a specified date, in which case such representation and
warranty shall be true and correct in all material respects on and as
of such specified date and (ii) where the inaccuracy of such
representation and warranty constitutes an Excluded Breach, and the
Company shall have performed in all material respects all obligations,
agreements, undertakings, covenants and conditions of this Agreement
and the Ancillary Documents required to be performed by it at or prior
to the Closing Date.
(b) No Litigation. There shall not be in effect any order,
decree or injunction of a court or agency of competent jurisdiction
which enjoins or prohibits consummation of the transactions
contemplated hereby or in the Ancillary Documents. No action, suit,
investigation, arbitration, or administrative or governmental
proceeding by any Governmental Entity shall be pending, seeking to
restrain, prohibit or invalidate the transactions contemplated by this
Agreement, or any of the Ancillary Documents.
(c) Regulatory Approvals. All permits, consents,
authorizations, orders and approvals of, and filings and registrations
required under any Federal or state law, rule or regulation for or in
connection with the execution and delivery of this Agreement and the
Ancillary Documents and the consummation by the parties hereto of the
transactions contemplated hereby and thereby shall have been obtained
or made and all statutory waiting periods thereunder in respect
30
<PAGE> 35
Investment Agreement
thereof shall have expired, except where the failure to obtain any
permit, consent, authorization, order or approval, or make any filing
or registration would not have a Material Adverse Effect.
(d) Company Certificate. The Company shall have delivered to
the Purchaser a certificate, dated the Closing Date, signed by its
chief executive officer or its chief financial officer, in form and
substance reasonably satisfactory to the Purchaser, to the effect that
the conditions set forth in Sections 6.1(a) and (b) have been
satisfied.
(e) Shareholder Agreement. The Shareholder Agreement shall
have been duly executed and delivered by the Company.
(f) Registration Rights Agreement. The Registration Rights
Agreement shall have been duly executed and delivered by the Company.
(g) Certificate of Designation. The Certificate of Designation
shall have been duly filed with the Secretary of State of the State of
Minnesota.
(h) Distribution Agreement. The Distribution Agreement shall
be in full force and effect and the Warrants to purchase 1,450,000
shares of Common Stock pursuant thereto shall have been issued to NBC.
(i) Legal Opinion. The Purchaser shall have received from
counsel for the Company, an opinion in form and substance reasonably
acceptable to the Purchaser, addressed to the Purchaser.
Section 6.2 Conditions of the Company. The obligation of the
Company to sell the Securities at the Closing is subject to satisfaction or
waiver of each of the following conditions precedent at or prior to the Closing:
(a) Representations and Warranties; Covenants. The
representations and warranties of the Purchaser contained in this
Agreement and the Ancillary Documents shall be true and correct in all
material respects on and as of the date of this Agreement and on and as
of the Closing Date with the same effect as though made on and as of
such date, except to the extent any such representation and warranty is
made as of a specified date, in which case such representation and
warranty shall be true and correct in all material respects on and as
of such specified date, and the Purchaser shall have performed in all
material respects all obligations, agreements, undertakings, covenants
and conditions of this Agreement and the Ancillary Documents required
to be performed by it at or prior to the Closing.
31
<PAGE> 36
Investment Agreement
(b) No Litigation. There shall not be in effect any order,
decree or injunction of a court or agency of competent jurisdiction
which enjoins or prohibits consummation of the transactions
contemplated hereby or in the Ancillary Documents. No action, suit,
investigation, arbitration, or administrative or governmental
proceeding by any Governmental Entity shall be pending, seeking to
restrain, prohibit or invalidate the transactions contemplated by this
Agreement, or any of the Ancillary Documents.
(c) Regulatory Consents. All permits, consents,
authorizations, orders and approvals of, and filings and registrations
required under Federal or state law, rule or regulation for or in
connection with the execution and delivery of this Agreement and the
Ancillary Documents and the consummation by the parties hereto of the
transactions contemplated hereby and thereby shall have been obtained
or made and all statutory waiting periods thereunder in respect thereof
shall have expired, except where the failure to obtain any permit,
consent, authorization, order or approval, or make any filing or
registration would not have a Material Adverse Effect.
(d) The Purchaser's Certificate. The Purchaser shall have
delivered to the Company a certificate, dated the Closing Date, in form
and substance reasonably satisfactory to the Company to the effect that
the foregoing conditions set forth in Sections 6.2(a) and (b) have been
satisfied.
(e) Shareholder Agreement. The Shareholder Agreement shall
have been duly executed and delivered by the Purchaser.
(f) Distribution Agreement. The Distribution Agreement shall
be in full force and effect.
(g) Legal Opinion. The Company shall have received from
counsel for the Purchaser, an opinion in form and substance reasonably
acceptable to the Company, addressed to the Company.
(h) Operating Agreement. The Operating Agreement shall be in
full force and effect.
32
<PAGE> 37
Investment Agreement
ARTICLE VII.
Term
Section 7.1 Termination. This Agreement may be
terminated on or any time prior to the Closing:
(a) by the mutual written consent of the Purchaser and the
Company; or
(b) by either the Company or Purchaser if the Closing shall
have not have occurred on or prior to August 31, 1999 (the "Termination
Date"), unless the failure of such occurrence shall be due to the
failure of the party seeking to terminate this Agreement to perform or
observe its agreements set forth herein required to be performed or
observed by such party on or before the Closing; or
(c) by the Company or the Purchaser pursuant to notice if any
Governmental Entity of competent jurisdiction shall have denied any
approval under any of the laws, rules or regulations described in
Section 3.1(d) or 3.2(c) necessary for the consummation of the
transactions contemplated hereby by a final and unappealable order.
Section 7.2 Effect of Termination. In the event of the
termination of this Agreement as provided in Section 7.1, this Agreement shall
forthwith become void, except for the obligations set forth in this Section and
in Sections 8.6 and 8.7 and there shall be no liability or obligation on the
part of the parties hereto except as otherwise provided in this Agreement. The
termination of this Agreement under Section 7.1(b) shall not relieve any party
of any liability for breach of this Agreement prior to the date of termination.
ARTICLE VIII.
Miscellaneous
Section 8.1 Survival of Representations and Warranties. All
representations and warranties made herein or in any certificates delivered in
connection with the Closing shall survive for a period of eighteen months after
the Closing, provided, however, that (a) the Surviving Representations and
Warranties shall not terminate pursuant to this Section 8.1 and shall continue
to survive indefinitely and (b) the representations and warranties in Section
3.1(o) shall survive until 30 days after the expiration of the applicable
statute of limitations relating to the taxes or other matters covered.
Section 8.2 Notices. All notices and other communications
hereunder shall be in writing and shall be deemed
33
<PAGE> 38
Investment Agreement
to have been duly given, if delivered personally, by telecopier or sent by
overnight courier as follows:
(a) If to the Purchaser, to:
G.E. Capital Equity Investments, Inc.
120 Long Ridge Road
Stamford, Connecticut 06927
Attention: John Sprole
Fax: (203) 357-3047
with copies to:
National Broadcasting Company, Inc.
30 Rockefeller Plaza
New York, New York 10112
Attention: Stuart U. Goldfarb
Fax: (212) 664-7896
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: Richard Capelouto
Fax: (212) 455-2502
(b) If to the Company, to:
ValueVision International, Inc.
6740 Shady Oak Road
Eden Prairie, Minnesota 55344-3433
Attention: General Counsel
Fax: (612) 947-0188
With a copy to:
Latham & Watkins
633 West Fifth Street
Suite 4000
Los Angeles, CA 90071
Attention: Michael W. Sturrock
Fax: (213) 891-8763
or to such other address or addresses as shall be designated in writing. All
notices shall be effective when received.
34
<PAGE> 39
Investment Agreement
Section 8.3 Entire Agreement; Amendment. This Agreement, the
Ancillary Documents and the documents described herein and therein or attached
or delivered pursuant hereto or thereto set forth the entire agreement between
the parties hereto with respect to the transactions contemplated by this
Agreement. Any provision of this Agreement may be amended or modified in whole
or in part at any time by an agreement in writing between the parties hereto
executed in the same manner as this Agreement. No failure on the part of any
party to exercise, and no delay in exercising, any right shall operate as a
waiver thereof nor shall any single or partial exercise by any party of any
right preclude any other or future exercise thereof or the exercise of any other
right.
Section 8.4 Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall be deemed to constitute an
original, but all of which together shall constitute one and the same document.
SECTION 8.5 GOVERNING LAW; JURISDICTION; WAIVER OF JURY TRIAL.
THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK APPLICABLE TO CONTRACTS EXECUTED AND PERFORMED WITHIN SUCH
STATE, AND EACH PARTY HEREBY SUBMITS TO THE JURISDICTION OF ANY STATE OR U.S.
FEDERAL COURT SITTING WITHIN THE COUNTY OF NEW YORK OR COUNTY OF HENNEPIN. THE
PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR
PROCEEDING BROUGHT TO ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES UNDER THIS
AGREEMENT.
Section 8.6 Public Announcements. Each of the Company, the
Purchaser and NBC agrees to hold in strict confidence and not to disclose to
others the status of any discussions or relations among the parties with respect
to the subject matter of this Agreement or the Ancillary Documents until such
time as the parties mutually agree to publicly disclose such information or are
legally obligated to disclose such information or are obligated by applicable
Nasdaq rules to disclose such information.
Section 8.7 Fees and Expenses. Each party shall bear its own
costs and expenses incurred in connection with this Agreement and the Ancillary
Documents and the transactions contemplated hereby, including the fees and
expenses of their respective accountants and counsel.
Section 8.8 Indemnification by the Company. (a) Subject to the
provisions of Section 8.8(d), the Company agrees to indemnify and save harmless
the Purchaser and each of the respective partners, officers, directors,
employees, agents and Affiliates of the Purchaser in their respective capacities
as such (the "Purchaser Indemnitees"), from and against any and all actions,
suits, claims, proceedings, costs, damages, judgments,
35
<PAGE> 40
Investment Agreement
amounts paid in settlement (subject to Section 8.8(b)) and expenses (including
without limitation reasonable attorneys' fees and disbursements)(collectively,
"Losses"), relating to or arising out of any inaccuracy in or breach of the
representations, warranties, covenants or agreements made by the Company herein
other than any inaccuracy or breach of any representation or warranty that
constitutes an Excluded Breach.
(b) A Purchaser Indemnitee shall give written notice to the
Company of any claim with respect to which it seeks indemnification promptly
after the discovery by such party of any matters giving rise to a claim for
indemnification; provided that the failure of any Purchaser Indemnitee to give
notice as provided herein shall not relieve the Company of its obligations under
this Section 8.8 unless and to the extent that the Company shall have been
materially prejudiced by the failure of such Purchaser Indemnitee to so notify
the Company. In case any such action, suit, claim or proceeding is brought
against a Purchaser Indemnitee, the Company shall be entitled to participate in
the defense thereof and, to the extent that it may wish, to assume the defense
thereof, with counsel reasonably satisfactory to the Purchaser, and after notice
from the Company of its election so to assume the defense thereof, the Company
will not be liable to such Purchaser Indemnitee under this Section 8.8 for any
legal or other expense subsequently incurred by such Purchaser Indemnitee in
connection with the defense thereof; provided, however, that (i) if the Company
shall elect not to assume the defense of such claim or action or (ii) if outside
legal counsel to the Purchaser Indemnitee reasonably determines that there may
be a conflict between the positions of the Company and of the Purchaser
Indemnitee in defending such claim or action, then separate counsel shall be
entitled to participate in and conduct the defense, and the Company shall be
liable for any legal or other expenses reasonably incurred by the Purchaser
Indemnitee in connection with the defense (but only with respect to one such
separate counsel). The Company shall not be liable for any settlement of any
action, suit, claim or proceeding effected without its written consent;
provided, however, that the Company shall not unreasonably withhold, delay or
condition its consent. The Company further agrees that it will not, without the
Purchaser Indemnitee's prior written consent (which consent shall not be
unreasonably withheld), settle or compromise any claim or consent to entry of
any judgment in respect thereof in any pending or threatened action, suit, claim
or proceeding in respect of which indemnification may be sought hereunder unless
such settlement or compromise includes an unconditional release of the Purchaser
and each other Purchaser Indemnitee from all liability arising out of such
action, suit, claim or proceeding.
(c) The indemnification provided for in this Section 8.8 shall
be the exclusive post-Closing remedy available to the Purchaser with respect to
any inaccuracy in or breach of any representation or warranty made by the
Company in this Agreement;
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<PAGE> 41
Investment Agreement
provided that nothing herein shall prevent the Purchaser from pursuing any
remedies legally available for fraud or fraudulent misrepresentation. Any
payment made pursuant to this Section 8.8 shall be treated as an adjustment to
the purchase price.
(d) Notwithstanding anything to the contrary in this
Agreement, the Company shall only indemnify and hold harmless the Purchaser
Indemnitees under Section 8.8(a) with respect to any Loss relating to or arising
out of any inaccuracy in or breach of any representation or warranty made by the
Company if, and only if, such Loss, together with the aggregate of all other
Losses relating to or arising out of any inaccuracy in or breach of any
representation or warranty made by the Company shall exceed $500,000, whereupon
the Company shall be liable for all such Losses up to the aggregate purchase
price set forth in Section 2.1(b) hereof.
Section 8.9 Indemnification by the Purchaser. (a) The
Purchaser agrees to indemnify and save harmless the Company and each of the
respective partners, officers, directors, employees, agents and Affiliates of
the Company in their respective capacities as such (the "Company Indemnitees")
from and against any and all Losses relating to or arising out of any inaccuracy
in or breach of the representations, warranties, covenants or agreements made by
the Purchaser herein.
(b) A Company Indemnitee shall give written notice to
Purchaser of any claim with respect to which it seeks indemnification promptly
after the discovery by such party of any matters giving rise to a claim for
indemnification; provided that the failure of any Company Indemnitee to give
notice as provided herein shall not relieve Purchaser of its obligations under
this Section 8.9 unless and to the extent that Purchaser shall have been
materially prejudiced by the failure of such Company Indemnitee to so notify the
Purchaser. In case any such action, suit, claim or proceeding is brought against
a Company Indemnitee, the Purchaser shall be entitled to participate in the
defense thereof and, to the extent that it may wish, to assume the defense
thereof, with counsel reasonably satisfactory to the Company, and after notice
from the Purchaser of its election so to assume the defense thereof, the
Purchaser will not be liable to such Company Indemnitee under this Section 8.9
for any legal or other expense subsequently incurred by such Company Indemnitee
in connection with the defense thereof; provided, however, that (i) if the
Purchaser shall elect not to assume the defense of such claim or action or (ii)
if outside legal counsel to the Company Indemnitee reasonably determines that
there may be a conflict between the positions of the Purchaser and of the
Company Indemnitee in defending such claim or action, then separate counsel
shall be entitled to participate in and conduct the defense, and the Purchaser
shall be liable for any legal or other expenses reasonably incurred by the
Company Indemnitee in connection with the defense (but only with respect to one
such
37
<PAGE> 42
Investment Agreement
separate counsel). The Purchaser shall not be liable for any settlement of
any action, suit, claim or proceeding effected without its written consent;
provided, however, that the Purchaser shall not unreasonably withhold, delay or
condition its consent. The Purchaser further agrees that it will not, without
the Company Indemnitee's prior written consent (which consent shall not be
unreasonably withheld), settle or compromise any claim or consent to entry of
any judgment in respect thereof in any pending or threatened action, suit, claim
or proceeding in respect of which indemnification may be sought hereunder unless
such settlement or compromise includes an unconditional release of the Company
and each other Company Indemnitee from all liability arising out of such action,
suit, claim or proceeding.
(c) The indemnification provided for in this Section 8.9 shall
be the exclusive post-Closing remedy available to the Company with respect to
any inaccuracy in or breach of any representation or warranty made by Purchaser
in this Agreement; provided that nothing herein shall prevent the Company from
pursuing any remedies legally available for fraud or fraudulent
misrepresentation. Any payment made pursuant to this Section 8.9 shall be
treated as an adjustment to the purchase price.
Section 8.10 Successors and Assigns; Third Party
Beneficiaries. Subject to applicable law and the following sentence, the
Purchaser may assign its rights under this Agreement in whole or in part only to
any Affiliate of the Purchaser, but no such assignment shall relieve the
Purchaser of its obligations hereunder. The Purchaser shall not assign any
rights under this Agreement to any Affiliate if (a) such assignment would cause
any representation or warranty of the Purchaser to become materially untrue or
incorrect, (b) such Affiliate does not expressly assume pursuant to a document
in form and substance reasonably satisfactory to the Company all of the
obligations of the Purchaser associated with the rights proposed to be assigned
or (c) such assignment would materially delay or impair consummation of the
transactions contemplated by this Agreement or the Ancillary Documents. The
Company may not assign any of its rights or delegate any of its duties under
this Agreement without the prior written consent of the Purchaser. Any purported
assignment in violation of this Section shall be void. NBC shall be a third
party beneficiary with respect to Sections 2.1, 2.4, and any representations and
warranties, covenants or agreements herein relating to the Warrants and shall be
entitled to the benefit of such provisions.
Section 8.11 Arbitration. Any controversy, dispute or claim
arising out of, in connection with or in relation to the interpretation,
performance or breach of this Agreement, shall be determined, at the request of
any party, by arbitration in a city mutually agreeable to the parties to such
controversy, dispute or claim, or, failing such agreement, in New York, New York
or Minneapolis, Minnesota, before and in accordance with the then-
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<PAGE> 43
Investment Agreement
existing Rules for Commercial Arbitration of the American Arbitration
Association, and any judgment or award rendered by the arbitrator will be final,
binding and unappealable and judgment may be entered by any state or Federal
court having jurisdiction thereof. The pre-trial discovery procedures of the
Federal Rules of Civil Procedure shall apply to any arbitration under this
Section 8.11. Any controversy concerning whether a dispute is an arbitrable
dispute or as to the interpretation or enforceability of this Section 8.11 shall
be determined by the arbitrator. The arbitrator shall be a retired or former
United States District Judge or other person acceptable to each of the parties,
provided such individual has substantial professional experience with regard to
corporate or partnership legal matters. The parties intend that this agreement
to arbitrate be valid, enforceable and irrevocable.
Section 8.12 Specific Performance. The parties hereto agree
that irreparable damage would occur in the event any provision of this Agreement
was not performed in accordance with the terms hereof and that the parties shall
be entitled to an injunction or injunctions to prevent breaches of this
Agreement and to enforce specifically the terms and provisions of this Agreement
in addition to any other remedy to which they are entitled at law or in equity.
Section 8.13 Headings, Captions and Table of Contents. The
section headings, captions and table of contents contained in this Agreement are
for reference purposes only, are not part of this Agreement and shall not affect
the meaning or interpretation of this Agreement.
39
<PAGE> 44
Investment Agreement
IN WITNESS WHEREOF, this Agreement has been executed by the
parties hereto or by their respective duly authorized representatives, all as of
the date first above written.
VALUEVISION INTERNATIONAL, INC.
By: /s/ Gene McCaffery
-------------------------------------
Name: Gene McCaffery
Title: Chief Executive Officer
G.E. CAPITAL EQUITY INVESTMENTS, INC.
By: /s/ James Brown
-------------------------------------
Name: James Brown
Title: Department Operations Manager
40
<PAGE> 1
DISTRIBUTION AND MARKETING AGREEMENT
DISTRIBUTION AND MARKETING AGREEMENT, dated as of March 8, 1999 (this
"Agreement"), by and between National Broadcasting Company, Inc., a Delaware
corporation ("NBC"), and ValueVision International, Inc., a Minnesota
corporation ("VVI").
WHEREAS, VVI produces and distributes the home shopping television program
service known as "ValueVision Television";
WHEREAS, subject to the terms and conditions set forth herein, VVI desires
to engage NBC to negotiate on its behalf for the distribution of its home
shopping television program service, and NBC is willing to undertake such
engagement;
WHEREAS, VVI and G.E. Capital Equity Investments, Inc. ("GEC") have
entered into an Investment Agreement of even date herewith (the "Investment
Agreement"), pursuant to which GEC has agreed to purchase (a) 5,339,500 shares
of Series A Redeemable Convertible Preferred Stock (the "Preferred Stock"), the
powers, designations, preferences and rights of which are set forth in that
certain Certificate of Designation (the "Certificate of Designation") to be
filed pursuant to the Investment Agreement, and (b) a warrant to purchase Common
Stock of the Company (the "Purchase Warrant");
WHEREAS, pursuant to the Investment Agreement, VVI and GEC have agreed to
enter into a Shareholders' Agreement in substantially the form of Exhibit D to
the Investment Agreement (the "Shareholders' Agreement"), pursuant to which the
parties thereto have provided for certain matters with respect to the governance
of VVI; and
WHEREAS, NBC and VVI desire to set forth certain agreements herein;
NOW, THEREFORE, in consideration of the premises and the representations,
warranties and agreements herein contained and intending to be legally bound
hereby, the parties agree as follows:
Section 1. Term. This Agreement shall be for a term of 10 years (the
"Term"), which shall begin on the date of commencement (the "Commencement Date")
of performance of the Services (defined below) by NBC. The Commencement Date
shall occur as soon as practicable, but in no event more than 45 days after the
date hereof. NBC shall give VVI written confirmation of the Commencement Date.
Section 2. The Services.
(a) NBC shall have the exclusive right to negotiate on behalf of VVI for
the distribution of the home shopping television program service of VVI
presently known as "ValueVision Television" and any successor home shopping or
transactional television program service(s) of VVI ("VVTV"), to multichannel
video programming distributors (each, a "Distributor") which operate one or more
distribution systems including, without limitation, cable television systems,
MATV and SMATV systems, MMDS, TVRO and other wireline, wireless and direct
broadcast satellite delivery methods, in
<PAGE> 2
all cases, whether analog or digital (each, a "Distribution System") in the
Territory (defined below), and to provide promotion and affiliate marketing
services to VVI in connection with the distribution and carriage of VVTV
(collectively, the "Services").
(b) (i) NBC shall have the exclusive right to negotiate on behalf of VVI
for the distribution of VVTV to Distributors throughout the United States
(including its territories and possessions) (the "Territory"), including the
right to include VVTV as part of a package with other program services offered
by NBC (irrespective of whether such package sets forth the cost to the
Distributor of each component of the package), including, without limitation,
such components as the program services of NBC presently known as "MSNBC" and
"CNBC", Olympics coverage and retransmission consent; provided, however, that in
the event that NBC or any affiliate of NBC enters into any agreement with any of
Home Shopping Network, Inc., QVC, Inc., Shop-At-Home, Inc. or Paxson
Communications Corporation (each, a "VVI Designated Entity") giving NBC or such
affiliate the right to negotiate on behalf of such VVI Designated Entity for the
distribution of any program service of such VVI Designated Entity, NBC shall not
be permitted to apply any portion of the Discretionary Carriage Fee (defined
below) to subsidize the carriage of such program service by any Distributor.
(ii) The parties acknowledge and agree that certain regulatory
requirements must be satisfied in order for VVTV to be carried by Distributors
in Canada and that, upon the determination by VVI in its reasonable commercial
judgment to pursue distribution of VVTV in Canada and the procurement by VVI of
rights to distribute VVTV in Canada, VVI and NBC will negotiate in good faith
the terms applicable to distribution of VVTV by NBC to Distributors in Canada.
(c) (i) In each carriage agreement for VVTV on a cable Distribution
System, NBC shall have the right, in its discretion, to agree to the payment by
VVI to the Distributor thereunder of an annual fee per full-time Subscriber
(defined below) for carriage of VVTV in such cable Distribution System (the
"Discretionary Carriage Fee"), not to exceed the maximum Discretionary Carriage
Fee then applicable, payable in equal monthly or quarterly installments,
commencing no earlier than the date of first launch of VVTV in such cable
Distribution System. The amount of the initial maximum Discretionary Carriage
Fee is set forth on SCHEDULE 2(C)(I) attached hereto.
(ii) In carriage agreements for VVTV in Distribution Systems other
than cable Distribution Systems, NBC and VVI shall negotiate in good faith the
amount of the maximum Discretionary Carriage Fee which NBC may agree will be
paid by VVI to the Distributor thereunder; provided, however, that in any
carriage agreement for VVTV on DirecTV (or any successor thereto), NBC shall
endeavor to obtain carriage of VVTV for a Discretionary Carriage Fee per year
per full-time Subscriber of up to the amount set forth as the "DirecTV
Discretionary Carriage Fee" on SCHEDULE 2(c)(i), but shall have the right, in
its discretion, to agree to the payment by VVI of a Discretionary Carriage Fee
of up to the maximum Discretionary Carriage Fee then applicable to cable
carriage agreements for full-time Subscribers as set forth in Section 2(c)(i).
The term "full time" shall mean 24 hours per day, seven days per week.
(iii) For carriage of VVTV other than on a full-time basis, the
maximum Discretionary Carriage Fee which NBC may agree to be paid by VVI to a
Distributor shall be the product of (x) the sum
2
<PAGE> 3
of the applicable FTE Factors set forth on SCHEDULE 2(c)(iii) attached hereto
for each hour during each day on which VVTV is carried in the Distribution
System, multiplied by (y) the maximum Discretionary Carriage Fee then applicable
to carriage agreements for full-time Subscribers (as the same may have been
adjusted as set forth in the next succeeding paragraph). VVI shall have the
right to revise the FTE Factors set forth on SCHEDULE 2(c)(iii) not more
frequently than once in any 12-month period for changes in its business,
consistent with past practices of VVI; provided, however, that any such change
shall be subject to the prior approval of NBC, which shall not be unreasonably
withheld; and provided further, that in no event shall any such revision of FTE
Factors affect the calculation of the maximum Discretionary Carriage Fee or the
number of FTE Subscribers (defined below) under any carriage agreement in effect
as of the date of such revision.
(iv) The Discretionary Carriage Fee to be offered to any
Distribution System may be stated as (i) a fixed cash amount up to the amount of
the then-applicable maximum Discretionary Carriage Fee (as the same may have
been adjusted in accordance with the following sentence), or (ii) the greater of
a fixed cash amount up to the amount of the then-applicable maximum
Discretionary Carriage Fee (as the same may have been adjusted in accordance
with the following sentence), or an agreed percentage, based on then-applicable
standard home shopping program service industry practice (which the parties
agree is eight percent (8%) as of the date hereof), of net revenues derived by
VVI from sales of products (the "Products") in home shopping television
transactions or otherwise to Subscribers in such Distribution System.
(v) Commencing on the fifth anniversary of the Commencement Date,
the amount of the maximum Discretionary Carriage Fee applicable to full-time
Subscribers which may be offered and agreed by NBC on behalf of VVI shall
increase on such date and annually thereafter on each anniversary of the
Commencement Date at a rate equal to the annual rate of inflation in the United
States as published by the US Department of Commerce for the nearest preceding
annual period. For carriage of VVTV other than on a full-time basis, the maximum
Discretionary Carriage Fee shall be adjusted in accordance with the formula set
forth in Section 2(c)(iii).
(vi) VVI shall not be obligated to pay any amount in excess of the
then-applicable Discretionary Carriage Fee unless NBC has obtained the prior
written consent of VVI to such higher fee.
(d) VVI shall pay to NBC a one-time cash bonus (the "Fee Reduction
Bonus"), calculated in accordance with the table set forth in SCHEDULE 2(d), in
respect of each carriage agreement for VVTV in a cable Distribution System which
provides for the payment by VVI to the Distributor thereunder of a Discretionary
Carriage Fee per year per full-time cable Subscriber not in excess of the amount
set forth on SCHEDULE 2(d); provided, however, that NBC shall only be entitled
to receive the Fee Reduction Bonus for carriage agreements which (x) provide for
cable carriage of VVTV on a full-time basis; (y) have a term (including any
automatic renewals or extensions) of five years or more; and (z) if a periodic
rate escalation of the Discretionary Carriage Fee is included, provide for a
rate escalation which, when annualized and averaged over the term of the
agreement, is not in excess of the amount set forth in SCHEDULE 2(d). The Fee
Reduction Bonus shall be payable by VVI to NBC upon initial rollout of VVTV in
the Distribution System or Distribution Systems which are the subject of such
carriage agreement.
3
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Section 3. Existing Subscriber Base.
(a) (i) A "Subscriber" shall mean a household which receives VVTV in a
Distribution System. In the case of multiple dwelling units which receive VVTV
pursuant to bulk rate arrangements, the number of Subscribers shall be equal to
100% of all residential dwelling units in the multiple dwelling unit complex.
The term "Subscriber" shall not include commercial Subscribers (i.e.,
Subscribers receiving VVTV in the course of their business, including, without
limitation, commercial establishments, hospitals, nursing homes, hotels, motels,
universities, offices, bars and restaurants). One Subscriber which receives VVTV
on a full-time basis shall equal one full-time equivalent ("FTE") Subscriber.
For Distribution Systems carrying VVTV other than on a full-time basis, the
number of FTE Subscribers shall be computed by adding, for each hour during each
day on which VVTV is carried in the Distribution System, the product of (x) the
sum of the applicable FTE Factors set forth on SCHEDULE 2(c)(i) attached hereto
for each such hour on each such day, multiplied by (y) the number of Subscribers
in the Distribution System.
(ii) The term "Existing Subscriber Base" shall mean an aggregate of
at least 14,900,000 FTE Subscribers pursuant to oral or written carriage
agreements, a correct and complete list of which is attached hereto as SCHEDULE
3(a)(ii) (the "Existing Carriage Agreements").
(b) VVI represents and warrants that, as of the date hereof, (i) each of
the Existing Carriage Agreements is in full force and effect and is the legal,
valid and binding obligation of the parties thereto, enforceable against each of
them in accordance with its terms, and in aggregate the Existing Carriage
Agreements represent substantially all of the Existing Subscriber Base, and (ii)
neither VVI nor any affiliate of VVI is in material default of or in material
breach under any material Existing Carriage Agreement nor, to the knowledge of
VVI, under any other Existing Carriage Agreement, and, to the knowledge of VVI,
there does not exist any default or breach under any Existing Carriage Agreement
by any other party thereto.
(c) NBC shall use reasonable commercial efforts to support the Existing
Subscriber Base, such as responding to inquiries by and complaints from,
providing marketing information to and generally maintaining communications with
Distributors. Notwithstanding the foregoing, in no event shall NBC be liable for
or incur any penalty as a result of any termination or cancellation affecting
all or any portion of the Existing Subscriber Base pursuant to the terms of any
agreement, arrangement or commitment for carriage of VVTV in effect on the date
hereof, or any renewal or extension thereof which is effected automatically or
at the election of VVI (or otherwise without negotiation by NBC on behalf of
VVI), including, without limitation, the Existing Carriage Agreements.
Section 4. Marketing and Promotion.
(a) NBC shall provide VVI with an appropriate placement in its trade show
presence as the parties may mutually agree, taking into consideration the
comparative numbers of subscribers of VVTV and other program services offered by
NBC. Such presence may take the form of trade show booth signage, audio and/or
video presentations, written promotional material or other methods of
presentation, in NBC's discretion.
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(b) No later than sixty days prior to the commencement of each fiscal year
of VVI, NBC and VVI shall agree upon an annual budget for direct, out-of-pocket
expenses which may be incurred by NBC for marketing and promotion of VVTV
(including, without limitation, print advertising, promotional gifts, production
of signage, audio and/or video presentations and written promotional materials
to be used by NBC). VVI shall reimburse NBC within 45 days of the date of
invoice by NBC for expenses incurred in accordance with such budget and for
which NBC provides VVI written support in reasonable detail. VVI shall have no
obligation to reimburse NBC for expenses in excess of the annual budget unless
NBC shall have obtained the written approval of VVI prior to incurring such
expenses.
Section 5. Form of Carriage Agreement. VVI and NBC shall mutually agree
upon the standard form of carriage agreement to be executed between VVI and each
Distributor for carriage of VVTV (the "Standard Agreement"). Any material
modification of the Standard Agreement which, in the reasonable judgment of VVI,
would be expected to have a material adverse effect on the business or results
of operations of VVI will require the approval of VVI, which shall not be
unreasonably withheld; provided, however, that, subject to the limitation set
forth in the foregoing clause and the limitations set forth in Section 2(c) with
respect to the Discretionary Carriage Fee, NBC shall have the right to modify or
amend the terms thereof in its reasonable commercial discretion. NBC will
endeavor to negotiate in each such carriage agreement (i) the longest term of
effectiveness which is commercially reasonable under the circumstances, and (ii)
the right of VVI to receive cross channel promotional advertising of VVTV. VVI
shall in each case have the right to approve each carriage agreement by
execution thereof, but in the event that VVI declines to execute a carriage
agreement negotiated by NBC in its reasonable commercial discretion which (x)
provides for the payment of a Discretionary Carriage Fee by VVI not in excess of
the applicable maximum Discretionary Carriage Fee, (y) provides for carriage of
VVTV in any Distribution System which does not carry VVTV on a full-time basis
as of the date the proposed carriage agreement is furnished to VVI for execution
and (z) does not modify the Standard Agreement in a manner which, in the
reasonable judgment of VVI, would be expected to have a material adverse effect
on the business or results of operations of VVI, NBC shall nonetheless be given
credit for the number of additional FTE Subscribers represented by such carriage
agreement for purposes of calculating the number of additional shares of Common
Stock, par value $0.01 per share, of VVI ("Common Stock") issuable to NBC under
an Additional Warrant (defined below) pursuant to Section 7(c) and determining
achievement of the Performance Targets by NBC pursuant to Section 8.
Section 6. Obligations of VVI.
(a) VVI shall during the Term produce "home shopping", or consumer sales
transaction-related, programming for inclusion in VVTV, at least as high in
quality as that presented on VVTV as of the date hereof, sufficient to run VVTV
on a full-time basis and sufficient to meet the standards of content and quality
set forth in all agreements for carriage of VVTV in effect at any time during
the Term. In the event that VVI desires to make material alterations in the VVTV
service, VVI shall use its best efforts to inform NBC of any such proposed
alteration in writing at least 60 days in advance of the implementation of such
alteration; provided, however, that the sole remedy of NBC for any failure by
VVI to deliver such notice shall be the termination right set forth in this
Section 6(a). If, in the reasonable judgment of NBC, such alteration would be
expected to have a material adverse effect on the ability of NBC to distribute
VVTV, perform any of its obligations or achieve any Performance Targets
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hereunder, NBC shall have the right to terminate this Agreement at any time
during the 90-day period immediately following the date of receipt by NBC of
such written notice (or, if no written notice is given in advance, during the
90-day period immediately following the effectiveness of such material
alteration), by giving 45 days' written notice to VVI of the effective date of
such termination. As between NBC and VVI, VVI shall be solely responsible for
paying, and shall indemnify NBC and its affiliates, and their respective
directors, officers and employees against any liability for, any and all costs
of producing or acquiring programming for inclusion in VVTV. During the Term,
VVI and its affiliates shall not authorize or permit the exploitation,
distribution or exhibition of VVTV or any of its constituent programming by any
Person (defined below) other than NBC as set forth herein, or authorize or
create a programming service substantially similar to VVTV for delivery to any
Distribution System.
(b) VVI shall at all times during the Term retain a sufficient number of
employees on VVI's payroll to monitor and maintain accurate records with respect
to and ensure timely payment by VVI of fees payable to Distributors for carriage
of VVTV. Such employees will report to and be managed by an employee of VVI, but
shall provide information to and work with employees of NBC in a manner
sufficient to enable NBC to perform its obligations hereunder.
(c) VVI shall comply in all material respects with the standards and
practices of NBC applicable to programming and advertising for telecast by NBC,
a copy of which is attached hereto as Exhibit 1 (the "NBC Standards"). VVI shall
comply in all material respects (subject to any applicable period of grace or
opportunity for cure thereunder) with all truth-in-advertising, consumer credit,
consumer product safety and other laws, rules, regulations and orders applicable
to VVI or to the advertising and sale of Products, except for such failures to
comply which will not, either individually or in aggregate, have a material
adverse effect on the on the business or results of operations of VVI; provided,
however, that, in the event that any failure by VVI to comply with the NBC
Standards or any such truth-in-advertising, consumer credit, consumer product
safety or other laws, rules, regulations or orders has a material adverse effect
on the ability of NBC to distribute VVTV, perform any of its obligations or
achieve any Performance Targets hereunder, NBC shall have the right to terminate
this Agreement at any time upon 30 days' written notice to VVI. NBC shall have
no responsibility or liability with respect to any Products or the use thereof
(except as set forth in Section 15, with respect to Products supplied by NBC for
sale on VVTV), and in no event shall NBC be liable for incidental, indirect,
special or consequential damages with respect thereto.
Section 7. Consideration. In consideration of the provision of the
Services by NBC, VVI shall pay to NBC an annual fee for each year during the
Term (the "Affiliate Relations Fee"), and shall issue to NBC a warrant (the
"Warrant") to purchase up to 1,450,000 shares of Common Stock. In addition,
after the achievement by NBC of the Aggregate Performance Target (defined
below), NBC shall receive warrants to purchase additional shares of Common Stock
(or any securities issued by any successor to VVI into which Common Stock may be
convertible or for which Common Stock may be exchangeable, as adjusted in
accordance with any exchange ratio which may be applicable thereto) based upon
the number of FTE Subscribers to VVTV added by NBC (the "Additional Warrants").
The Warrant and each Additional Warrant shall be in substantially the form of
the Purchase Warrant, but shall contain anti-dilution provisions substantially
similar to those applicable to the Preferred Stock as set forth in the
Certificate of Designation. The Warrant and each Additional Warrant may be
assigned by NBC with the
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prior written consent of VVI, which shall not be unreasonably withheld, taking
into account the regulations of the Federal Communications Commission; provided,
however, that the consent of VVI shall not have been unreasonably withheld if
VVI does not approve a transfer of the Warrant or any Additional Warrants to any
VVI Designated Entity.
(a) Affiliate Relations Fee. The amount of the Affiliate Relations Fee for
the first year of the Term shall be as set forth in SCHEDULE 7(a) attached
hereto. The Affiliate Relations Fee shall increase annually on each anniversary
of the Commencement Date during the Term at a rate equal to the annual rate of
inflation in the United States as published by the US Department of Commerce for
the nearest preceding annual period, but in no event in excess of five percent
(5%) per annum. Each annual Affiliate Relations Fee shall be payable by VVI to
NBC in twelve equal monthly installments commencing on the Commencement Date
(and, with respect to each annual increase thereafter, on each anniversary of
the Commencement Date), and on the first day of each calendar month thereafter
during the Term.
(b) Warrant. The Warrant shall vest on the Commencement Date with respect
to 200,000 shares of Common Stock, and shall vest with respect to the remaining
1,250,000 shares of Common Stock issuable thereunder in equal cumulative annual
installments of 125,000 shares on each anniversary of the Commencement Date;
provided, however, that any unvested portion of the Warrant shall immediately
vest and become fully exercisable in the event of a Change in Control (as that
term is defined in the Shareholders' Agreement, except to the extent it involves
a Restricted Party). Each vested installment shall be exercisable, in whole or
in part, by NBC (or any affiliate of NBC) for a period of five years from the
date of vesting of such installment. The Warrant shall be exercisable at a price
per share equal to $8.288, payable in cash or by a net exercise of shares
issuable under the Warrant. The shares of Common Stock issued upon exercise of
the Warrant shall have all powers, preferences and rights applicable to Common
Stock pursuant to the articles of incorporation of VVI.
(c) Additional Warrants. (i) Following the achievement by NBC of the
Aggregate Performance Target, VVI shall issue Additional Warrants to NBC each
time NBC secures a written commitment for future rollout of VVTV, such future
rollout to commence by the terms of such written commitment within a period not
in excess of three years beginning on the date of the written commitment. The
number of shares of Common Stock issuable under each such Additional Warrant
shall be calculated as set forth in Section 7(c)(ii). Each Additional Warrant
shall be issued as promptly as practicable following execution of each such
written commitment for future rollout of VVTV, and shall be exercisable at a
price per share equal to the closing price of Common Stock on the Nasdaq
National Market on the trading day immediately preceding the date of execution
of such written commitment (irrespective of whether trading in Common Stock
occurred on such trading day), payable in cash or by a net exercise of shares
issuable under such Additional Warrant. Each Additional Warrant shall vest in
equal cumulative annual installments on the execution date of the written
commitment and each anniversary thereof throughout the base or initial term of
the written commitment (i.e., excluding any renewal periods or automatic
extensions thereunder); provided, however, that any unvested portion of the
Warrant shall immediately vest and become fully exercisable in the event of a
Change in Control. Each vested installment shall be exercisable, in whole or in
part, by NBC (or any affiliate of NBC) for a period of five years from the date
of vesting of such installment.
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(ii) The number of shares of Common Stock issuable under an
Additional Warrant shall equal (x) the product of the number of FTE Subscribers
to be added as a result of such written commitment (irrespective of the rollout
schedule) multiplied by $0.80, divided by (y) the present value of such
Additional Warrant on the date of execution of such written commitment
determined using the Black-Scholes pricing model, using reasonable and customary
assumptions taking into account the market price of Common Stock at the time of
issuance, the term of the Additional Warrant and a measurement of expected
volatility that is reasonable under the circumstances, multiplied by (z) the
quotient, expressed as a decimal, of the number of years in the term of such
written commitment divided by 10, but not to exceed 1.0. The number of FTE
Subscribers added as a result of such written commitment shall be calculated in
accordance with the methods set forth under Section 3(a)(i), and shall include
(i) FTE Subscribers obtained as a result of an extension or renewal of an
Existing Carriage Agreement (other than an extension or renewal effected
automatically or upon the written election of VVI) which extension or renewal is
"non-terminable" (as defined below) for a period of not less than three years
from the date of such extension or renewal, and (ii) FTE Subscribers obtained by
the written amendment of any Existing Carriage Agreement which is a
month-to-month agreement as of the date hereof (each such month-to-month
Existing Carriage Agreement, an "MTM Agreement", and identified as such by an
asterisk on SCHEDULE 3(a)(ii) attached hereto), to provide that such MTM
Agreement is non-terminable for a period of not less than three years from the
date of such written amendment. The term "non-terminable" shall mean not
terminable at the election of the Distributor during the period indicated merely
by the giving of written notice, without more, pursuant to the terms of the
written commitment or agreement. In the event that a written commitment for
future rollout does not contain a specific commitment regarding the number of
FTE Subscribers to be added but VVTV is rolled out thereunder, NBC and VVI shall
in good faith agree on the number of additional FTE Subscribers for which NBC
shall be given credit in order to calculate the number of shares of Common Stock
for which an Additional Warrant shall be issued by VVI. The shares of Common
Stock issued upon exercise of any Additional Warrant shall have all powers,
preferences and rights applicable to Common Stock pursuant to the articles of
incorporation of VVI.
Section 8. Performance Targets; VVI Right to Terminate.
(a) First Performance Target. VVI shall have the right to terminate the
Agreement at any time during the 90-day period immediately following the second
anniversary of the Commencement Date (but prior to the achievement of the
Aggregate Performance Target), in the event that NBC has failed to obtain
distribution of VVTV to six million (6,000,000) incremental FTE Subscribers over
and above the Existing Subscriber Base, whether as a result of written
commitments obtained by NBC from Distributors for future rollout of VVTV (such
future rollout to commence by the terms of such written commitment within a
period not in excess of three years beginning on the date of the written
commitment) or actual rollout of VVTV in Distribution Systems, or some
combination thereof, measured at any time on or prior to the second anniversary
of the Commencement Date (the "First Performance Target"); provided, however,
that if achievement of the First Performance Target is measured at any time
prior to the second anniversary of the Commencement Date, any written
commitments to be included in determining whether the First Performance Target
has been achieved must be non-terminable prior to such second anniversary of the
Commencement Date; and provided further, that of such six million (6,000,000)
incremental FTE Subscribers, there shall have been actual rollout of VVTV to at
least at least two million (2,000,000)
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incremental FTE Subscribers in Distribution Systems at any time on or prior to
the second anniversary of the Commencement Date. In the event that NBC exceeds
the First Performance Target, the amount of any excess shall be counted toward
achievement of the Second Performance Target (defined below). VVI's right to
terminate for failure to achieve the First Performance Target may be exercised
at any time during the 90-day period immediately following such second
anniversary, by giving 45 days' written notice to NBC of the effective date of
such termination (which effective date shall occur on or before the end of such
90-day period), and in the event of a termination by VVI during such 90-day
period, NBC shall be obligated to make a termination payment to VVI in the
amount of $2,500,000 in cash payable on the effective date of such termination.
(b) Second Performance Target. VVI shall have the right to terminate the
Agreement at any time during the 90-day period immediately following the third
anniversary of the Commencement Date (but prior to the achievement of the
Aggregate Performance Target), in the event that NBC has failed to obtain
distribution of VVTV to an aggregate of nine million (9,000,000) incremental FTE
Subscribers over and above the Existing Subscriber Base, whether as a result of
written commitments obtained by NBC from Distributors for future rollout of VVTV
(such future rollout to commence by the terms of such written commitment within
a period not in excess of three years beginning on the date of the written
commitment) or actual rollout of VVTV in Distribution Systems, or some
combination thereof, measured at any time on or prior to the third anniversary
of the Commencement Date (the "Second Performance Target"); provided, however,
that if achievement of the Second Performance Target is measured at any time
prior to the third anniversary of the Commencement Date, any written commitments
to be included in determining whether the Second Performance Target has been
achieved must be non-terminable prior to such third anniversary of the
Commencement Date. In the event that NBC exceeds the Second Performance Target,
the amount of any excess shall be counted toward achievement of the Third
Performance Target (defined below). VVI's right to terminate for failure to
achieve the Second Performance Target may be exercised at any time during the
90-day period immediately following such third anniversary, by giving 45 days'
written notice to NBC of the effective date of such termination (which effective
date shall occur on or before the end of such 90-day period).
(c) Third Performance Target. VVI shall have the right to terminate the
Agreement at any time during the 90-day period immediately following the last
calendar day of the forty-second full calendar month following the Commencement
Date (but prior to the achievement of the Aggregate Performance Target), in the
event that NBC has failed to obtain distribution of VVTV to an aggregate of ten
million (10,000,000) incremental FTE Subscribers over and above the Existing
Subscriber Base, whether as a result of written commitments obtained by NBC from
Distributors for future rollout of VVTV (such future rollout to commence by the
terms of such written commitment within a period not in excess of three years
beginning on the date of the written commitment) or actual rollout of VVTV in
Distribution Systems, or some combination thereof, measured at any time on or
prior to such last calendar day of the forty-second full calendar month
following the Commencement Date (the "Third Performance Target"); provided,
however, that if achievement of the Third Performance Target is measured at any
time prior to such last calendar day of the forty-second full calendar month
following the Commencement Date, any written commitments to be included in
determining whether the Third Performance Target has been achieved must be
non-terminable prior to such last calendar day of the forty-second full calendar
month following the Commencement Date. VVI's right to terminate for failure to
achieve the Third
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Performance Target may be exercised at any time during the 90-day period
immediately following such fourth anniversary, by giving 45 days' written notice
to NBC of the effective date of such termination (which effective date shall
occur on or before the end of such 90-day period).
(d) Aggregate Performance Target. The right of VVI to terminate the
Agreement for any failure to achieve any of the First, Second or Third
Performance Targets shall terminate and be of no further force or effect at such
time that NBC obtains distribution of VVTV to an aggregate of ten million
(10,000,000) incremental FTE Subscribers over and above the Existing Subscriber
Base, whether as a result of written commitments obtained by NBC from
Distributors for future rollout of VVTV (such future rollout to commence by the
terms of such written commitment within a period not in excess of three years
beginning on the date of the written commitment) or actual rollout of VVTV in
Distribution Systems, or some combination thereof, measured at any time during
the Term (the "Aggregate Performance Target"); provided, however, that if
achievement of the Aggregate Performance Target is measured at any time prior to
the last calendar day of the forty-second full calendar month following the
Commencement Date, any written commitments to be included in determining whether
the Aggregate Performance Target has been achieved must be non-terminable prior
to such last calendar day of the forty-second full calendar month following the
Commencement Date.
(e) In determining whether NBC has achieved any Performance Target, the
number of FTE Subscribers for which NBC shall be given credit shall be
calculated in accordance with the methods set forth in Section 3(a)(i), and
shall include (i) FTE Subscribers obtained as a result of an extension or
renewal which is non-terminable for a period of not less than three years from
the date of such extension or renewal, other than an extension or renewal
effected automatically or upon the written election of VVI, of an Existing
Carriage Agreement, and (ii) FTE Subscribers obtained by the written amendment
of any MTM Agreement to provide that such MTM Agreement is non-terminable for a
period of not less than three years from the date of such written amendment. In
the event that a written commitment for future rollout does not contain a
specific commitment regarding the number of FTE Subscribers to be added but VVTV
is rolled out thereunder, NBC and VVI shall in good faith agree on the number of
incremental FTE Subscribers for which NBC shall be given credit in determining
whether NBC has achieved any Performance Target.
Section 9. NBC Rights to Terminate; Certain Remedies.
(a) In the event that the Closing (as that term is defined in the
Investment Agreement) under the Investment Agreement shall not have occurred on
or prior to August 31, 1999 for any reason other than because of a material
breach by NBC and/or GEC which causes any condition of NBC and/or GEC pursuant
to Article VI of the Investment Agreement not to be satisfied, NBC shall have
the right to terminate this Agreement at any time during the 90-day period
immediately following such date by giving 10 days' written notice to VVI of the
effective date of such termination (which effective date shall occur on or
before the end of such 90-day period); provided, however, that to the extent the
parties to the Investment Agreement mutually agree to extend the Termination
Date (as that term is defined in the Investment Agreement), the foregoing date
of August 31, 1999 shall be extended to be concurrent with the Termination Date.
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(b) In the event that Shareholder Approval (as that term is defined in the
Investment Agreement) is not obtained on or prior to August 31, 1999 for any
reason other than because of a material breach by NBC and/or GEC which causes
any condition of NBC and/or GEC pursuant to Article VI of the Investment
Agreement not to be satisfied, NBC shall have the right to terminate this
Agreement at any time during the 90-day period immediately following the earlier
to occur of such disapproval or August 31, 1999 by giving 10 days' written
notice to VVI of the effective date of such termination (which effective date
shall occur on or before the end of such 90-day period).
(c) (i) In the event that VVI or the Board of Directors of VVI receives
notice of a Material Transaction, a Takeover Transaction or a Third Party Tender
Offer (as such terms are defined in the Shareholders' Agreement) at any time
after the date hereof but before the earlier to occur of (x) the date of the
Shareholders Meeting (as that term is defined in the Investment Agreement) and
(y) August 31, 1999, VVI shall give written notice to NBC of such acquisition
within 24 hours of the receipt of such notice of Material Transaction, Takeover
Transaction or Third Party Tender Offer, or the execution by VVI of an agreement
with respect thereto, whichever first occurs. At any time during the period
commencing on the date of receipt by NBC of such written notice and the later to
occur of (x) the date which is ten days after the date of the Shareholders
Meeting and (y) the date which is thirty days after the date of receipt by NBC
of such written notice, NBC shall have the right to elect, in its sole
discretion, to (i) continue to perform this Agreement and receive, effective
immediately upon written notice to VVI, an increased Affiliate Relations Fee for
the remainder of the Term determined as set forth in Section 9(c)(ii), or (ii)
terminate this Agreement by giving 10 days' written notice to VVI of the
effective date of such termination (which effective date shall occur on or
before the end of such 90-day period).
(ii) In the event that NBC elects to continue to perform this
Agreement and receive an increased Affiliate Relations Fee for the remainder of
the Term, such increased Affiliate Relations Fee shall be an amount equal to, at
NBC's written election in its sole discretion given to VVI on the date of such
initial election by NBC and thereafter at least 30 days prior to each
anniversary of such increase, either of (A) a fixed annual amount equal to
$5,000,000 for the first year following such increase, increasing annually
thereafter on each anniversary of such increase at a rate equal to the annual
rate of inflation in the United States as published by the US Department of
Commerce for the nearest preceding annual period, but in no event in excess of
five percent (5%) per annum; or (B) a variable annual amount equal to ten
percent (10%) of annual net profits of VVI for the year following such election,
where annual net profits shall equal annual net revenues (determined in
accordance with generally accepted accounting principles) less cost of goods
sold.
(d) (i) For a period of one year after the date hereof, VVI shall obtain
the prior written consent of NBC for any transaction involving a "significant
affiliation" with an Internet portal or other Person which is not an affiliate
of VVI that is engaged in transactional activity via the Internet (a "Restricted
Promotional Transaction"). A "significant affiliation" shall mean an agreement
or arrangement, including without limitation a joint venture, pursuant to which
VVI grants to a Person which is not an affiliate of VVI co-branding rights,
rights to have a branded presence on VVTV or rights to cross-promote home
shopping transactions between VVTV and an Internet portal, site or web page
other than VVTV.com; provided, however, that a significant affiliation shall not
include an agreement
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or arrangement entered into by VVI for the establishment of a link to VVTV.com
from a portal, site or web page in the ordinary course of business of VVI
consistent with past practice.
(ii) In the event that (x) NBC shall decline to give its consent to
a Restricted Promotional Transaction, (y) VVI shall enter into a Restricted
Promotional Transaction at any time after the first anniversary of the date
hereof, or (z) VVI shall enter into a transaction which would result in a Change
in Control, VVI shall be deemed to be in material breach of this Agreement. In
such event, NBC shall have the right to terminate this Agreement by giving 10
days' written notice to VVI of the effective date of such termination, and to
pursue all remedies available to NBC in law or in equity for a material breach
of this Agreement.
(e) NBC shall have the right to terminate this Agreement at any time
during the Term in the event that NBC delivers written notice to VVI stating
that, in the reasonable judgment of NBC, (i) there has occurred a diminution in
the quality of VVTV programming sufficient to have an adverse effect on NBC's
ability to distribute VVTV to Distribution Systems, stating with reasonable
specificity the nature of such diminution in quality, or (ii) VVI fails to
comply with the NBC Standards, and VVI fails to cure such diminution in quality
or failure to comply with the NBC Standards, within thirty days following
receipt by VVI of written notice thereof from NBC.
Section 10. Mutual Rights to Terminate. Either party shall have the right
to terminate this Agreement (i) in the event that the other party shall fail to
pay any amount payable by such other party (and which is not being contested in
good faith) within thirty days of receipt by such other party of written notice
of such failure; (ii) in the event of a material breach by the other party of
any representation, warranty or covenant under the agreement which remains
uncured for a period of thirty days following receipt by such party of written
notice of such breach; (iii) in the event that the other party commences a
voluntary case or proceeding, consents to the entry of an order for relief
against it in an involuntary case or proceeding or to the appointment of a
custodian of it or for all or substantially all of its property, makes a general
assignment for the benefit of its creditors or admits in writing its inability
to pay its debts generally as they become due, in any case within the meaning of
any bankruptcy law; or (iv) in the event that a court of competent jurisdiction
enters an order or decree under any bankruptcy law that is for relief against
the other party in an involuntary case or proceeding, appoints a custodian of
such other party for all or substantially all of its assets or orders the
liquidation of such other party, which order, decree or appointment remains
unstayed and in effect for at least 60 days.
Section 11. Termination Sole and Exclusive Remedy.
(a) The termination rights of VVI set forth herein shall be the sole and
exclusive remedy of VVI for any failure by NBC to perform its obligations
hereunder, except for the express payment and indemnification obligations of NBC
set forth herein.
(b) The termination rights of NBC set forth herein shall be the sole and
exclusive remedy of NBC for any failure by VVI to perform its obligations
hereunder, except (x) for the express payment and indemnification obligations of
VVI set forth herein and (y) as otherwise set forth in Section 9.
12
<PAGE> 13
(c) In the event of any termination by VVI pursuant to Section 8(a), (b)
or (c) or Section 10, the unvested portion of the Warrant and any Additional
Warrant shall cease to vest, but each vested installment shall continue to be
exercisable, in whole or in part, by NBC (or any affiliate of NBC) for a period
of five years from the date of vesting of such installment. In the event of any
termination by NBC pursuant to Section 9(a) or (b), the Warrant and the
Additional Warrant, whether or not vested, shall terminate and be of no further
force or effect.
Section 12. Representations and Warranties.
(a) Each party hereto represents and warrants to the other as follows:
(i) It is a corporation duly authorized, validly existing and in
good standing under the laws of the state of its incorporation, and has all
requisite corporate power and authority to own its property and carry on its
business as presently owned and carried on, including in the manner contemplated
by this Agreement, and is duly qualified to do business and is in good standing
in all jurisdictions where such qualification is necessary;
(ii) The execution and delivery by such party of this Agreement and
the performance by it of its obligations hereunder have been duly and validly
authorized by all necessary action on the part of such party;
(iii) This Agreement has been duly executed and delivered by such
party and, assuming the due execution and delivery hereof by the other party
hereto, is a valid and binding obligation of such party, enforceable against it
in accordance with its terms, except as such enforcement may be limited by (i)
bankruptcy, insolvency, reorganization, moratorium and other similar laws now or
hereafter in effect relating to or affecting creditors' rights generally, and
(ii) general principles of equity, regardless of whether enforcement is
considered in a proceeding in equity or at law;
(iv) None of the execution and delivery by such party of this
Agreement, the consummation by such party of the transactions contemplated
hereby (but excluding the transactions contemplated by the Investment Agreement,
which are subject to the terms, conditions, covenants and agreements set forth
in the Investment Agreement) or compliance by such party with any of the
provisions hereof will (i) conflict with or result in a breach of any provision
of its certificate of incorporation or bylaws; (ii) result in a breach of, or
constitute a default under, any material contract, agreement, indenture, note or
other instrument to which it is a party or by which it is bound; (iii) require
any consent, approval, authorization or permit of, or filing with or
notification to, any governmental authority applicable to it, except for such
consents, approvals, authorizations, permits, filings and notifications which,
if not obtained or made, would not prevent the consummation of the transactions
contemplated by this Agreement or otherwise prevent it from performing in all
material respects its obligations under this Agreement; or (iv) to the knowledge
of such party, violate or conflict with any order, writ, injunction, decree,
statute, rule or regulation applicable to it, other than, in the case of clauses
(i), (ii) and (iv), such breaches, violations or conflicts, which, individually
or in the aggregate, would not prevent the consummation of the transactions
contemplated hereby or otherwise prevent such party from performing in all
material respects its obligations under this Agreement; and
13
<PAGE> 14
(v) There is no claim, suit, arbitration, judicial action or
judicial proceeding pending or, to the knowledge of such party, threatened
against such party, nor any judgment, decree, order, injunction, writ or ruling
of any governmental authority outstanding against such party, which,
individually or in the aggregate, would be reasonably expected to prevent or
materially delay it from performing its obligations under this Agreement.
(b) VVI represents and warrants to NBC that neither VVTV nor any material
provided by VVI in connection with this Agreement, including, without
limitation, any advertising or promotional materials, will contain any material
which will libel, slander or defame any person, and neither VVTV nor any such
additional material will, when exhibited, transmitted or otherwise exploited in
accordance herewith, violate, infringe upon or give rise to any adverse claim
with respect to any contract right, common law right or any other right of any
party (including, without limitation, any copyright, trademark, literary or
dramatic right, music synchronization right or music performance right, or right
of privacy or publicity), or violate in any material respect any law, rule,
regulation or order applicable thereto.
(c) NBC represents and warrants to VVI that no advertising or promotional
material provided by NBC in connection with this Agreement will contain any
material which will libel, slander or defame any person, and such material will
not, when exhibited, transmitted or otherwise exploited in accordance herewith,
violate, infringe upon or give rise to any adverse claim with respect to any
contract right, common law right or any other right of any party (including,
without limitation, any copyright, trademark, literary or dramatic right, music
synchronization right or music performance right, or right of privacy or
publicity), or violate in any material respect any law, rule, regulation or
order applicable thereto.
(d) The representations and warranties made herein shall survive the
execution and delivery of this Agreement.
Section 13. Intellectual Property. VVI hereby grants to NBC a
non-exclusive license to use the trade names, trademarks, logos and other
identifying characteristics of or relating to VVI or VVTV during the Term in
connection with the performance of the Services by NBC.
Section 14. Insurance. VVI shall at all times during the Term maintain
with a reputable insurance company or companies (i) errors and omissions
insurance in an amount not less than $2 million combined single limit, naming
NBC and its affiliates as additional insured thereunder; and (ii) adequate
general comprehensive public liability insurance coverage against all types of
public liability (including bodily injury, property damage and personal injury),
in such amounts as are customary in accordance with sound business practices.
Such policies shall not be subject to cancellation or material modification upon
less than 30 days' prior written notice to NBC. VVI shall provide NBC with
certificates evidencing such insurance within 30 days after the date hereof.
Section 15. Indemnification. Each party shall indemnify and hold the other
party and such other party's affiliates, and their officers, directors, and
employees, harmless from and against any and all claims, damages, liabilities,
costs and expenses (including, without limitation, settlement costs and legal,
14
<PAGE> 15
accounting or other expenses incurred in connection with investigating or
defending any actual or threatened claims or actions) (collectively, "Claims")
arising out of or in connection with any breach or alleged breach by the
indemnifying party of its representations or warranties hereunder. VVI shall
indemnify, defend and hold NBC, its affiliates and their respective officers,
directors and employees harmless from and against any and all Claims caused by,
resulting from or relating to the Products or the sale or use thereof, except
with respect to Products which have been furnished by NBC or its affiliates for
sale on VVTV (in which event NBC shall indemnify, defend and hold VVI, its
affiliates and their respective officers, directors and employees harmless from
and against any and all Claims caused by, resulting from or relating to such
Products furnished by NBC or its affiliates). The party entitled to
indemnification hereunder ("Indemnified Party") shall notify the party hereto
whose indemnity hereunder is sought (the "Indemnifying Party") in writing of the
claim or action for which such indemnity applies. The Indemnifying Party shall
undertake the defense of any such claim or action and permit the Indemnified
Party to participate therein at its own expense. The settlement of any such
claim or action by an Indemnified Party without the Indemnifying Party's prior
written consent (which shall not be unreasonably withheld) shall release the
Indemnifying Party from its obligations hereunder with respect to such claim or
action so settled. The expiration or termination of this Agreement shall not
affect the continuing obligation of the parties pursuant to this paragraph.
Section 16. Assignment. Neither this Agreement nor any of the rights or
obligations of the parties under this Agreement may be assigned, in whole or in
part, by any party without the prior written consent of the other party hereto
and the assumption by the assignee of all obligations of the assigning party in
a writing reasonably satisfactory to the non-assigning party; provided, however,
that the rights, but not the obligations, of NBC under this Agreement may be
assigned by NBC to any controlled affiliate of NBC without the prior written
consent of VVI. Subject to the forgoing provisions, this Agreement shall be
binding upon, and inure to the benefit of, the parties hereto and their
respective successors and permitted assigns.
Section 17. Governing Law This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts to be executed and performed in that state.
Section 18. Notices. All notices and other communications given or made
hereunder shall be in writing and shall be deemed to have been duly given or
made if delivered personally, sent by prepaid recognized overnight delivery
service or, to the extent receipt is confirmed, telecopy, to the appropriate
address or telecopy number set forth below (or at such other address or telecopy
number for a party as shall be specified by like notice by that party at least
one day prior to such change of address or number):
If to VVI:
ValueVision International, Inc.
6740 Shady Oak Road
Minneapolis, Minnesota 55344
Attn: General Counsel
Telecopier: (612) 947-0188
15
<PAGE> 16
with a copy to:
Latham & Watkins
633 West Fifth Street, Suite 4000
Los Angeles, California 90071-2007
Attn: Michael Sturrock, Esq.
Telecopier: (213) 891-8763
If to NBC:
National Broadcasting Company, Inc.
30 Rockefeller Plaza
New York, New York 10112
Attn: Stuart U. Goldfarb, Executive Vice President and Managing Director,
Worldwide Business Development
Telecopier: (212) 664-7896
with a copy to:
National Broadcasting Company, Inc.
30 Rockefeller Plaza
New York, New York 10112
Attn: Senior Corporate and Transactions Counsel
Telecopier: (212) 977-7165
Section 18. Miscellaneous.
(a) The term "Person" shall mean an individual, corporation,
unincorporated association, partnership, group (as defined in Section 13(d)(3)
of the Securities Exchange Act of 1934, as amended), trust, joint stock company,
joint venture, business trust or unincorporated organization, limited liability
company or other entity of whatever nature.
(b) This Agreement (including the documents referred to herein and the
Schedules and Exhibits hereto) between the parties hereto, constitutes the
entire agreement of the parties with respect to the matters contemplated hereby,
and all other prior negotiations, understandings and agreements, whether written
or oral, between the parties hereto are superseded by this Agreement. This
Agreement shall not benefit or create any right, remedy or cause of action in or
on behalf of any Person other than the parties hereto and their permitted
successors and assigns, as expressly set forth herein.
16
<PAGE> 17
(c) The Schedules and Exhibits attached hereto are incorporated herein and
made a part hereof for all purposes. The term "this Agreement" means the body of
this Agreement, all other ancillary documents contemplated by this Agreement and
such Schedules and Exhibits.
(d) This Agreement may not be amended, changed or modified except by
written instrument signed by the parties hereto.
(e) If any provision or provisions of this Agreement shall be held to be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or be impaired
thereby.
(f) By entering into this Agreement the parties hereto do not intend to
become partners or joint venturers but shall for all purposes be deemed to be
independent contractors.
(g) The section headings contained in this Agreement are for reference
purposes only, are not part of this Agreement and shall not affect the meaning
or interpretation of this Agreement.
17
<PAGE> 18
IN WITNESS WHEREOF, this Agreement has been executed by the parties
hereto as of the date first above written.
NATIONAL BROADCASTING COMPANY, INC.
By: /s/ Stuart Goldfarb
-----------------------------------------------
Name: Stuart U. Goldfarb
Title: Executive Vice President and
Managing Director,
Worldwide Business Development
VALUEVISION INTERNATIONAL, INC.
By: /s/ Gene McCaffery
----------------------------------------------
Name: Gene McCaffery
Title: Chief Executive Officer
<PAGE> 1
March 8, 1999
National Broadcasting Company, Inc.
30 Rockefeller Plaza
New York, New York 10112
GE Capital Corp.
120 Long Ridge Road
Stamford, Connecticut 06927
Ladies and Gentlemen:
Reference is made to that certain Investment Agreement and
related Ancillary Documents (the "Agreement") dated March 8, 1999 pursuant to
which GE Capital Corp. ("GE") and National Broadcasting Company, Inc. ("NBC")
will acquire an equity interest or rights thereto in the undersigned. In
connection therewith, following Closing under the Agreement, we have discussed
various cooperative efforts that the parties contemplate undertaking that would
take advantage of the specialized resources of each and the synergies between
our businesses.
Appendix A sets forth certain cooperative business activities
which the parties contemplate pursuing.
None of ValueVision, NBC or GE shall make any disclosure with
respect to the proposed Transactions or existence of discussions with respect
thereto, or release any information regarding the matters contemplated herein,
without the prior consent of the other parties hereto.
This letter is not intended to, and does not, constitute a
complete statement of, or a legally binding or enforceable agreement or
commitment on the part of ValueVision, NBC or GE with respect to, the matters
described herein and the parties agree not to assert any argument to the
contrary. Any such agreement would arise only as a result of the negotiation,
execution and delivery of formal definitive written agreements containing terms
and conditions satisfactory to each of ValueVision, NBC and GE, including,
without limitation, appropriate compensation of GE and NBC as mutually agreed
among the parties. The parties specifically covenant and agree that no person
shall bring any claim against any other person based upon this letter agreement
as a result of a failure to agree on or enter into a definitive agreement, or
for any other reason related to the Transactions, other than pursuant to the
definitive agreements, if any such agreements are executed and delivered, or
pursuant to breach of any of the binding provisions of this letter agreement.
The foregoing shall not affect the provisions of the immediately preceding
paragraph and this paragraph, which are intended to be binding in accordance
with their respective terms. This letter shall be governed by and construed in
<PAGE> 2
2
accordance with the laws of the State of New York applicable to contracts to be
executed and performed in that state.
Please indicate your concurrence with the foregoing by signing
and returning a copy of this letter to us.
Very truly yours,
VALUEVISION INTERNATIONAL, INC.
By: /s/ Gene McCaffery
--------------------------
We concur:
GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ James Brown
--------------------------
NATIONAL BROADCASTING COMPANY, INC.
By: /s/ Stuart Goldfarb
--------------------------
<PAGE> 3
3
APPENDIX A -- COOPERATIVE EFFORTS
- - GE shall introduce ValueVision to GE's private label credit card
division with the view toward ValueVision negotiating a mutually
acceptable private label credit card program.
- - GE shall assist ValueVision in meeting with representatives of Wink, in
order for ValueVision to explore the utilization of Wink Technology.
- - GE, NBC and ValueVision shall explore ways to integrate present and
future e commerce activities in a mutually beneficial manner.
- - GE and NBC shall assist ValueVision in developing its e commerce
activities, in conjunction with appropriate activities engaged in or to
be engaged in by GE and NBC.
- - GE, NBC and ValueVision shall discuss cross-promotion, cross-marketing
and linking of appropriate Internet properties controlled by each.
- - NBC shall assist ValueVision in the redesign of its Internet presence.
- - NBC and ValueVision shall pursue opportunities for ValueVision to
utilize studio capacity at NBC's facilities in NY and LA, as well as
potential office space in Chicago.
- - NBC shall assist ValueVision in developing programming for use on its
home shopping network.
- - NBC shall provide ValueVision with non-exclusive televison home
shopping rights to sell NBC merchandise, to the extent NBC owns
such rights.
- - NBC shall assist ValueVision in organizing its cable cross-channel
commercial promotional time to allow more strategic and effective usage
of such spots.
<PAGE> 1
Shareholder Agreement
FORM OF
SHAREHOLDER AGREEMENT
dated as of ____, 1999
among
Valuation International, Inc.
and
G.E. Capital Equity Investments, Inc.
<PAGE> 2
Shareholder Agreement
FORM OF
SHAREHOLDER AGREEMENT
SHAREHOLDER AGREEMENT, dated as of ________, 1999, among ValueVision
International, Inc., a Minnesota corporation (together with its successors, the
"Company"), and G.E. Capital Equity Investments, Inc., a Delaware corporation
(together with its successors, "GE Capital Equity Investments").
W I T N E S S E T H :
WHEREAS, the parties hereto have entered into an Investment
Agreement dated as of March ___, 1999 (the "Investment Agreement"), pursuant to
which the Investor (as defined below) has agreed to purchase shares of Series A
Redeemable Convertible Preferred Stock (the "Preferred Stock") and a warrant to
purchase Common Stock of the Company (the "Purchase Warrant");
WHEREAS; the Company and NBC, an Affiliate of the Investor as of the
date hereof, have entered into the Distribution Agreement (as defined below),
pursuant to which the Company has agreed to issue to NBC or its designee (i)
warrants to purchase 1,450,000 shares of Common Stock of the Company (the
"Initial Distributor Warrants") and (ii) at agreed upon times and subject to the
satisfaction of certain conditions contained therein, additional warrants to
purchase Common Stock of the Company (the "Bonus Distributor Warrants"); and
WHEREAS, the parties hereto deem it in their best interests and in
the best interests of the Company to provide for certain matters with respect to
the governance of the Company and desire to enter into this Agreement in order
to effectuate that purpose.
NOW, THEREFORE, in consideration of the mutual agreements and
understandings set forth herein, the parties hereto hereby agree as follows:
<PAGE> 3
Shareholder Agreement
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1 Definitions. As used in this Agreement, the following
terms shall have the meanings set forth below:
"Adjusted Outstanding Common Stock" shall mean, at any time, the
total number of shares of outstanding Common Stock at such time; provided
that for purposes of such calculation (a) all shares of Common Stock
issuable upon conversion of the then outstanding Preferred Stock shall be
considered outstanding, (b) all shares of Common Stock issuable upon
exercise of the outstanding Initial Distributor Warrants (whether such
Initial Distributor Warrants are vested or unvested) shall be considered
outstanding, (c) to the extent that Bonus Distributor Warrants have been
issued and are outstanding (and only to such extent), all shares of Common
Stock issuable upon the exercise of such issued and outstanding Bonus
Distributor Warrants (whether such Bonus Distributor Warrants are vested
or unvested) shall be considered outstanding and (d) if Shareholder
Approval has been obtained(and only in such case) the maximum number of
shares of Common Stock then issuable upon exercise of the Purchase Warrant
shall be considered outstanding.
"Affiliate" shall mean, with respect to any Person, any other Person
that directly or indirectly controls, is controlled by, or is under common
control with, such Person. As used in this definition, "control"
(including its correlative meanings, "controlled by" and "under common
control with") shall mean the possession, directly or indirectly, of power
to direct or cause the direction of management or policies (whether
through ownership of securities or partnership or other ownership
interests, by contract or otherwise).
"Agreement" shall mean this Agreement as in effect on the date
hereof and as hereafter from time to time amended, modified or
supplemented in accordance with the terms hereof.
"Beneficially Own" shall have the meaning set forth in Rule 13d-3
under the Exchange Act, except that a Person shall be deemed to
"Beneficially Own" all securities that such Person has a right to acquire,
whether such right is exercisable immediately or only after the passage of
time (and without any additional condition), provided that a Person shall
not be deemed to "Beneficially Own" any shares of Common Stock which are
issuable upon exercise of any
-2-
<PAGE> 4
Shareholder Agreement
Bonus Distributor Warrants unless and until such Bonus Distributor
Warrants are actually issued and outstanding (at which time such Person
shall be deemed to Beneficially Own all shares of Common Stock which are
issuable upon exercise of such Bonus Distributor Warrants, whether or not
they are vested or unvested)and, provided further, except as expressly
provided in this Agreement no Person shall be deemed to "Beneficially Own"
any securities issuable upon exercise of the Purchase Warrant unless and
until the Shareholder Approval is obtained. In the event that the
Shareholder Approval is obtained, when calculating Beneficial Ownership on
any particular date after receipt of such Shareholder Approval, the
Purchase Warrant will be deemed to represent Beneficial Ownership of the
maximum number of shares of Common Stock that could be acquired upon
exercise of the Purchase Warrant on such date.
"Board of Directors" shall mean the Board of Directors of the
Company as from time to time hereafter constituted.
"Business Day" shall mean any day, other than a Saturday, Sunday or
a day on which commercial banks in New York, New York are authorized or
obligated by law or executive order to close.
"Certificate of Designation" shall mean the Certificate of
Designation of the Preferred Stock, filed with the Secretary of State of
the State of Minnesota on or prior to the date hereof.
"Change in Control of the Company" shall mean any of the following:
(i) a merger, consolidation or other business combination or transaction
to which the Company is a party if the shareholders of the Company
immediately prior to the effective date of such merger, consolidation or
other business combination or transaction, as a result of such merger,
consolidation or other business combination or transaction, do not have
Beneficial Ownership of voting securities representing 50% or more of the
Total Current Voting Power of the surviving corporation following such
merger, consolidation or other business combination or transaction; (ii)
an acquisition by any Person (other than the Restricted Parties and their
Affiliates or any 13D Group to which any of them is a member) of
Beneficial Ownership of Voting Stock of the Company representing 25% or
more of the Total Current Voting Power of the Company, (iii) a sale of all
or substantially all the consolidated assets of the Company to any Person
or Persons (other than Restricted Parties and their Affiliates or any 13D
Group to which any of them is a member); or (iv) a liquidation or
dissolution of the Company.
-3-
<PAGE> 5
Shareholder Agreement
"Common Stock" shall mean the common stock, par value $0.01 per
share, of the Company and any securities of the Company into which such
Common Stock may be reclassified, exchanged or converted.
"Company" shall have the meaning set forth in the preamble hereto.
"Designee" shall have the meaning set forth in Section 2.1(d).
"Disinterested Shareholders" shall mean any shareholder of the
Company who is not a Restricted Party or an Affiliate of a Restricted
Party or a member of a 13D Group in which a Restricted Party or an
Affiliate of a Restricted Party is also a member.
"Distribution Agreement" shall mean the Distribution and Marketing
Agreement dated March 8, 1999 between the Company and NBC pursuant to
which NBC has agreed to distribute certain programing of the Company, as
such agreement may be amended from time to time.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"GAAP" shall mean generally accepted accounting principles in the
United States of America in effect from time to time.
"GE Capital" shall mean General Electric Capital Corporation, a New
York corporation, together with its successors by operation of law.
"Independent Expert" shall mean an investment banking firm mutually
acceptable to the Company and the Investor.
"Investor" shall mean G.E. Capital Equity Investments, a
wholly-owned Subsidiary of GE Capital as of the date hereof and an
Affiliate of NBC as of the date hereof, together with its permitted
assigns pursuant to Section 5.6.
"Investment Agreement" shall have the meaning set forth in the
recitals hereto, as such agreement may be amended from time to time.
"Investor Tender Offer" shall mean a bona fide public tender offer
subject to the provisions of Regulation 14d under the Exchange Act, by a
Restricted Party (or any 13D
-4-
<PAGE> 6
Shareholder Agreement
Group that includes a Restricted Party) to purchase or exchange for cash
or other consideration any Voting Stock and which consists of an offer to
acquire 100% of the Total Current Voting Power of the Company then in
effect (other than Voting Stock owned by Restricted Parties or any
Affiliate of a Restricted Party) and is conditioned (which condition may
not be waived) on a majority of the shares of Voting Stock held by
Disinterested Shareholders being tendered and not withdrawn with respect
to such offer.
"Lien" shall mean any mortgage, pledge, hypothecation, assignment,
encumbrance, lien (statutory or other) or security agreement of any kind
or nature whatsoever (including, without limitation, any conditional sale
or other title retention agreement or any financing lease having
substantially the same effect as any of the foregoing).
"Market Capitalization" shall mean the aggregate Market Price of the
outstanding capital stock of the Company.
"Market Price" shall mean, with respect to a share of capital stock
on any day, except as set forth below in the case that the shares of such
capital stock are not publicly held or listed, the average of the "quoted
prices" of such capital stock for 30 consecutive Trading Days commencing
45 Trading Days before the date in question. The term "quoted prices" of
capital stock shall mean the last reported sale price on that day or, in
case no such reported sale takes place on such day, the average of the
last reported bid and asked prices, regular way, on that day, in either
case, as reported in the consolidated transaction reporting system with
respect to securities quoted on Nasdaq or, if shares of such capital stock
are not quoted on Nasdaq, as reported in the principal consolidated
transaction reporting system with respect to securities listed on the
principal national securities exchange on which shares of such capital
stock are listed or admitted to trading or, if shares of such capital
stock are not quoted on Nasdaq and not listed or admitted to trading on
any national securities exchange, the last quoted price or, if not so
quoted, the average of the high bid and low asked prices on such other
nationally recognized quotation system then in use, or, if on any such day
shares of such capital stock are not quoted on any such quotation system,
the average of the closing bid and asked prices as furnished by a
professional market maker selected by the Board of Directors making a
market in the shares of such capital stock. Notwithstanding the foregoing,
if shares of such capital stock are not publicly held or so listed, quoted
or publicly traded, the "Market Price" shall mean the fair market value of
a share of such capital stock,
-5-
<PAGE> 7
Shareholder Agreement
as determined in good faith by the Board of Directors; provided, however,
that if the Investor shall dispute the fair market value as determined by
the Board of Directors, the Investor and the Company shall retain an
Independent Expert. The determination of fair market value by the
Independent Expert shall be final, binding and conclusive on the Company
and the Investor. All costs and expenses of the Independent Expert shall
be borne by the Investor unless the determination of fair market value is
more favorable to such Investor by 5% or more, in which case, all such
costs and expenses shall be borne by the Company.
"Material Agreement" shall mean any contract, lease, restriction,
agreement, instrument or commitment to which the Company or any Subsidiary
of the Company is a party or by which its properties are bound (i) which
provides a benefit to the Company or any of its Subsidiaries of, or
commits the Company or any Subsidiary of the Company to expend, $500,000
or more (or, in the case of any agreement with any customer of the Company
or any Company Subsidiary of the Company, $50,000 or more), (ii) which if
breached by any party thereto would result in liability or loss to the
Company and its Subsidiaries of $500,000 or more (or in the case of any
agreement with any customer of the Company or any Subsidiary of the
Company, $50,000 or more) or(iii) which provides for the distribution of
programming of the Company to more than 250,000 full-time equivalent homes
by any multichannel video programming distributor, including without
limitation, by a cable television system, MATV and SMATV systems, MMDS,
TVRO and other wireline, wireless or direct broadcast satellite delivery
methods.
"Material Subsidiaries" shall mean those Subsidiaries of the Company
that constitute "significant subsidiaries" as defined in Rule 1-02 of
Regulation S-X under the Securities Act.
"Material Transaction" shall mean (i) the direct or indirect
acquisition or purchase of 5% or more of the assets (based on the fair
market value thereof) of the Company and its Subsidiaries, taken as a
whole, or of 5% or more of any class of equity securities of the Company
or any of its Subsidiaries or any tender offer or exchange offer
(including by the Company or its Subsidiaries) that if consummated would
result in any person beneficially owning 5% or more of any class of equity
securities of the Company or any of its Subsidiaries, or (ii) any merger,
consolidation, business combination, sale of all or substantially all
assets, recapitalization, liquidation, dissolution or similar transaction
involving the Company or
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<PAGE> 8
Shareholder Agreement
any of its Subsidiaries other than the transactions contemplated by the
Investment Agreement or this Agreement.
"NBC" shall mean National Broadcasting Company, Inc., a Delaware
corporation and Affiliate of the Investor as of the date hereof and a
wholly-owned Subsidiary of General Electric Company as of the date hereof,
together with its successors by operation of law
"NBC Restricted Person" shall mean each of the Persons listed on
Annex A hereto together with their respective Affiliates.
"Options" shall mean stock options to purchase Common Stock.
"Permitted Liens" shall mean (i) mechanics', carriers', repairmen's
or other like Liens arising or incurred in the ordinary course of
business, (ii) Liens arising under original purchase price conditioned
sales contracts and equipment leases with third parties entered into in
the ordinary course of business consistent with past practice, (iii)
statutory Liens for Taxes not yet due and payable and (iv) other
encumbrances or restrictions or imperfections of title which do not
materially impair the continued use and operation of the assets to which
they relate.
"Person" shall mean an individual, corporation, unincorporated
association, partnership, group (as defined in Section 13(d)(3) of the
Exchange Act), trust, joint stock company, joint venture, business trust
or unincorporated organization, limited liability company, any
governmental entity or any other entity of whatever nature.
"Preferred Stock" shall mean the Series A Redeemable Convertible
Preferred Stock, par value $0.01 per share, of the Company.
"Registration Rights Agreement" shall mean the Registration Rights
Agreement dated as of the date hereof between the Company and the
Investor, as it may be amended from time to time.
"Representatives" shall mean, with respect to any Person, such
Person's directors, officers, employees, agents and other representatives
acting in such capacity.
"Restricted Parties" shall mean each of (i) NBC, its Ultimate Parent
Entity (if any), each Subsidiary of NBC and each Subsidiary of its
Ultimate Parent Entity, (ii) GE
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Shareholder Agreement
Capital, its Ultimate Parent Entity (if any), each Subsidiary of GE
Capital and each Subsidiary of its Ultimate Parent Entity and (iii) any
Affiliate of any Person that is a Restricted Party if (and only if) such
Restricted Party has the right or power (acting alone or solely with other
Restricted Parties) to either cause such Affiliate to comply with or
prevent such Affiliate from not complying with all of the terms of this
Agreement that are applicable to Restricted Parties.
"SEC" shall mean the United States Securities and Exchange
Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
"Shareholder Approval" shall mean the approval at the Shareholder
Meeting by the Company's shareholders of the Purchase Warrant.
"Shareholders Meeting" shall mean the meeting of shareholders of
Company, which meeting the Company shall hold and convene promptly after
the date hereof in order to vote on certain matters including, but not
limited to, the Purchase Warrant.
"Shareholders Vote" shall mean the vote of the shareholders of the
Company taken at the Shareholders Meeting.
"Standstill Limit" means Beneficial Ownership of 39.9% of the
Adjusted Outstanding Common Stock.
"Standstill Period" shall mean the period beginning on the date
hereof and ending on the occurrence of a Standstill Termination Event,
provided that the Standstill Period shall recommence immediately upon the
occurrence of a Standstill Reinstatement Event.
"Standstill Reinstatement Event" shall mean the occurrence of any of
the following (a) the Standstill Period has terminated pursuant to clause
(iii) of the definition of "Standstill Termination Event" and such Third
Party Tender Offer is withdrawn or terminated (without having been
consummated) at any time during which an Investor Tender Offer is not then
pending (unless the party that commenced such Investor Tender Offer
determines to terminate such Investor Tender Offer in accordance with
Section 4.1(f), in which event a Standstill Reinstatement Event shall
occur at the time of such termination), or (b) the Standstill Period
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Shareholder Agreement
has terminated pursuant to clause (iv) of the definition of "Standstill
Termination Event" due to a Change of Control identified in clause (ii) of
the definition thereof and, within twelve months after the occurrence of
such Change in Control, the Person whose Beneficial Ownership of Voting
Stock triggered such Change of Control no longer Beneficially Owns 25% or
more of the Total Current Voting Power of the Company or (c) the
Standstill Period has terminated pursuant to clause (ii) of the definition
of "Standstill Termination Event," the relevant agreement that would have
otherwise resulted in a Change of Control has been terminated without a
Change of Control having occurred and subsequent to the occurrence of such
Standstill Termination Event but prior to the termination of such
agreement (x) the Restricted Parties have not acquired actual ownership of
Voting Stock representing in the aggregate a majority of the Total Current
Voting Power of the Company, (y) no Restricted Party has made any proposal
or offer to the Company regarding a Takeover Proposal (other than any such
proposal or offer that has been withdrawn by the party making such
proposal or offer or is no longer being pursued) and (z) no Restricted
Party has commenced any tender or exchange offer that is pending when such
agreement is terminated and that, if completed, would result in the
Restricted Parties having actual ownership of Voting Stock representing in
the aggregate a majority of the Total Current Voting Power of the Company.
Notwithstanding the foregoing, a Standstill Reinstatement Event will not
occur if prior to the occurrence of the event specified in clause (a), (b)
or (c) above that would otherwise result in a Standstill Reinstatement
Event, another Standstill Termination Event occurs for which there has not
been a related Standstill Reinstatement Event.
"Standstill Revised Limit" shall mean the percentage of the Adjusted
Outstanding Common Stock Beneficially Owned by the Restricted Parties as
of the occurrence of a Standstill Reinstatement Event.
"Standstill Termination Event" shall mean the earliest to occur of
the following: (i) the tenth anniversary of the date of this Agreement,
(ii) the date the Company enters into an agreement relating to a
transaction that if consummated will result in a Change in Control of the
Company, (iii) a Third Party Tender Offer, (iv) any Change in Control of
the Company occurs, or (v) the six month anniversary of the date on which
the Investor is no longer entitled to designate any nominees to the Board
of Directors pursuant to Section 2.1; provided, that the Standstill Period
will be immediately reinstated upon the occurrence of a Standstill
Reinstatement Event; provided further that,
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Shareholder Agreement
upon a Standstill Reinstatement Event, if the Standstill Revised Limit is
greater than the Standstill Limit, then the Standstill Revised Limit and
not the Standstill Limit shall thereafter be deemed the Standstill Limit
for all purposes hereunder.
"Subsidiary" shall mean, as to any Person, a corporation,
partnership, limited liability company, joint venture or other entity of
which shares of stock or other ownership interests having ordinary voting
power (other than stock or such other ownership interests having such
power only by reason of the happening of a contingency) to elect a
majority of the board of directors or other managers of such corporation,
partnership or other entity are at the time owned, directly or indirectly
through one or more intermediaries (including, without limitation, other
Subsidiaries), or both, by such Person.
"Takeover Transaction" shall mean (A) any of the matters set forth
in clause (i) of the definition of Material Transaction but replacing "5%"
with "50%" each place "5%" is used in such definition, (B) a sale of all
or substantially all of the assets of the Company and its Subsidiaries or
(C) a merger or consolidation of the Company.
"Third Party Tender Offer" shall mean a bona fide public offer
subject to the provisions of Regulation 14D under the Exchange Act, by a
Person (which is not made by and does not include any of the Company, a
Restricted Party or any Affiliate of any of them or any 13D Group that
includes the Company, a Restricted Party or any Affiliate of them) to
purchase or exchange for cash or other consideration any Voting Stock and
which consists of an offer to acquire 25% or more of the then Total
Current Voting Power of the Company.
"13D Group" means any "group" (within the meaning of Section 13(d)
of the Exchange Act) formed for the purpose of acquiring, holding, voting
or disposing of Voting Stock.
"Total Current Voting Power" shall mean, with respect to any
corporation the total number of votes which may be cast in the election of
members of the Board of Directors of the corporation if all securities
entitled to vote in the election of such directors (excluding shares of
preferred stock that are entitled to elect directors only upon the
occurrence of customary events of default) are present and voted (it being
understood that the Preferred Stock will be included on an as converted
basis in the calculation of Total Current Voting Power of the Company).
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Shareholder Agreement
"Transfer" shall have the meaning set forth in Section 4.2.
"Ultimate Parent Entity" shall mean, with respect to any Person (the
"Subject Person"), the Person (if any) that (i) owns, directly or
indirectly through one or more intermediaries, or both, shares of stock or
other ownership interests having ordinary voting power (other than stock
or such other ownership interests having such power only by reason of the
happening of a contingency) to elect a majority of the board of directors
or other managers of the Subject Person and (ii) is not itself a
Subsidiary of any other Person or is a natural person.
"Voting Stock" shall mean shares of the Common Stock and Preferred
Stock and any other securities of the Company having the ordinary power to
vote in the election of members of the Board of Directors of the Company.
"Warrants" shall mean the Purchase Warrant, the Initial Distributor
Warrants and the Bonus Distributor Warrants.
ARTICLE II
CORPORATE GOVERNANCE
Section 2.1 Board of Directors.
(a) The Company shall immediately expand the size of the Board of
Directors to seven directors and, pursuant to the terms of the Certificate of
Designation, appoint to the Board of Directors two individuals designated by the
Investor as the holder of a majority of the outstanding shares of Preferred
Stock. The directors designated by the Investor shall be subject to the
reasonable approval of a majority of the members of the Board of Directors and
shall continue to serve as directors until the next election of directors.
(b) If the Shareholder Approval is obtained, (i) as long as the
Restricted Parties continue to Beneficially Own an aggregate number of shares of
Common Stock equal to or greater than 50% of the number of shares of Common
Stock which the Restricted Parties Beneficially Own on the date hereof (making
equitable adjustments for any conversions, reclassifications, reorganizations,
stock dividends, stock splits, reverse splits and similar events which occur
with respect to the Common Stock), the Investor shall be entitled to designate
two individuals to be nominated to the Board of Directors or (ii) if the
condition in clause (i) of this paragraph (b) is not satisfied, then as long as
the Restricted Parties shall continue to Beneficially Own at
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Shareholder Agreement
least 10% of the Adjusted Outstanding Common Stock, the Investor shall be
entitled to designate one individual to be nominated to the Board of Directors.
For purpose of clause (i) above, the Preferred Stock and the Purchase Warrant
will be treated as outstanding and exercisable as of the date hereof.
(c) If the Shareholder Approval is not obtained, (i) as long as the
Restricted Parties continue to Beneficially Own an aggregate number of shares of
Common Stock equal to or greater than 75% of the number of shares of Common
Stock which the Restricted Parties Beneficially Own on the date hereof (making
equitable adjustments for any conversions, reclassifications, reorganizations,
stock dividends, stock splits, reverse splits and similar events which occur
with respect to the Common Stock), the Investor shall be entitled to designate
two individuals to be nominated to the Board of Directors or (ii) if the
condition in clause (i) of this paragraph (c) is not satisfied, then as long as
the Restricted Parties shall continue to Beneficially Own an aggregate number of
shares of Common Stock equal to or greater than 50% of the number of shares of
Common Stock which the Restricted Parties Beneficially Own on the date hereof
(making equitable adjustments for any conversions, reclassifications,
reorganizations, stock dividends, stock splits, reverse splits and similar
events which occur with the respect to Common Stock), the Investor shall be
entitled to designate one individual to be nominated to the Board of Directors.
For purposes of this paragraph (c), the Purchase Warrant will not be deemed to
be outstanding on the date hereof.
(d) Any individual so designated by the Investor pursuant to
paragraphs (b) or (c) of this Section 2.1 (each a "Designee") that has not
previously served as a member of the Board of Directors shall be subject to the
reasonable approval of a majority of the members of the Board of Directors.
(e) As long as a majority of the outstanding shares of Preferred
Stock are owned by the Restricted Parties and the Investor is otherwise entitled
to designate nominee(s) for election as director(s) pursuant to Section 2.1, the
Designee(s) will be elected to the Board of Directors by the holders of the
Preferred Stock voting separately as a class, as provided in the Certificate of
Designation. If the Restricted Parties no longer own a majority of the
outstanding shares of Preferred Stock (or no shares of Preferred Stock are
outstanding) but the Investor is otherwise entitled to designate nominee(s) for
election as director(s) pursuant to Section 2.1, the Company shall nominate each
such Designee for election as a director as part of the management slate that is
included in the proxy statement (or consent solicitation or similar document) of
the Company relating to the election of directors, and shall provide the same
support for the election of each such Designee as it provides to other
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Shareholder Agreement
persons standing for election as directors of the Company as part of the
Company's management slate.
(f) Subject to applicable law, in the event that any Designee on the
Board of Directors shall cease to serve as a director for any reason (other than
the failure of the shareholders of the Company to elect such person as
director), the vacancy resulting therefrom shall be filled by another Designee.
(g) For the avoidance of doubt, nothing in this Section 2.1 or
elsewhere in this Agreement is intended to prohibit the Restricted Parties from
nominating and electing a majority of the members of the Board of Directors if
the Restricted Parties have actual ownership of Voting Stock representing in the
aggregate a majority of the Total Current Voting Power and the Standstill Period
is no longer in effect.
(h) For as long as the Investor can designate nominee(s) for
election as director(s) pursuant to Section 2.1 and the Investor's Designee(s)
have been included in the Company's management slate for election as directors
in accordance with Section 2.1 in each vote (or written consent in lieu of) for
election of directors, the Restricted Parties will vote (or execute a written
consent in lieu of) in each shareholder vote (or written consent in lieu of) for
the election of directors of the Company all of their Voting Stock (other than
shares of Preferred Stock that vote for directors as a separate class from the
Common Stock) (i) if there is no bona fide proxy contest for the election of
directors, in favor of the management slate that is included in the proxy
statement (or consent solicitation or similar document) of the Company relating
to the election of directors or (ii) if there is a bona fide proxy contest for
the election of directors, at the election of each Restricted Party either (x)
in favor of the management slate that is included in the proxy statement (or
consent solicitation or other similar document) of the Company relating to the
election of directors or (y) in the same proportion as all votes cast by
Disinterested Shareholders. The Restricted Parties' obligations hereunder will
terminate on the earlier to occur of (A) the termination of the Standstill
Period, or (B) the five year anniversary of the date hereof.
(i) As long as the Investor is entitled to designate two persons for
nomination as directors, the then current Investor may assign pursuant to
Section 5.6 the right to designate pursuant to the terms and conditions hereof
one of such nominees to any other Restricted Party (such that two Restricted
Parties each have the right to designate one nominee; it being understood that
in such a case for all purposes of this Agreement where rights or obligations of
the Investor or the Restricted
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Shareholder Agreement
Parties are determined by the number of nominees the Investor is entitled to
designate, the Investor will be deemed to have the right to designate two
nominees).
Section 2.2 Board Committees. As long as the Investor has the right
to designate at least one nominee to the Board of Directors, unless otherwise
agreed to by the Investor, (a) each of the Audit Committee and the Compensation
Committee of the Board of Directors shall contain at least one Designee and (b)
each other committee of the Board of Directors shall contain a number of
Designees (to the extent available), rounded upward to the nearest whole number,
equal to the total number of directors on such committee multiplied by the
percentage of the entire Board of Directors who are Designees.
Section 2.3 Reimbursement of Expenses; Attendance at Board Meetings;
Indemnification. The Company will reimburse each Designee that serves as a
director for all reasonable costs and expenses (including travel expenses)
incurred in connection with such director's attendance at meetings of the Board
or any committee of the Board upon which such director serves. The Company will
not pay such director annual fees and fees for attending Board or committee
meetings. The Company shall indemnify each such director to the same extent it
indemnifies its other directors pursuant to its organizational documents and
applicable law.
Section 2.4 Consultation and Other Rights. As long as the Investor
has the right to designate at least one nominee to the Board of Directors, it
shall have: (i) the right to examine the books and records of the Company and
(ii) the right to have its representative consult with the Company's executive
officers regarding business strategies, operating priorities and other major
corporate issues.
ARTICLE III
CERTAIN AGREEMENTS
Section 3.1 Financial Statements and Other Reports. As long as the
Investor has the right to designate at least one person to be nominated for
election to the Board of Directors pursuant to Section 2.1, the Company will
deliver, or cause to be delivered to the Investor:
(a) between 30 days prior to and 60 days after the end of each
fiscal year, a budget (on a monthly basis) for the Company and its
Subsidiaries for the following fiscal year (including consolidating and
consolidated statements of operations);
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Shareholder Agreement
(b) as soon as available and in any event within 45 days after the
end of each month, consolidating and consolidated statements of operations
of the Company and its Subsidiaries for such month and for the period from
the beginning of the current fiscal year to the end of such month and a
consolidated balance sheet of the Company and its Subsidiaries as at the
end of such period and setting forth, in each case, in comparative form,
figures for the corresponding month and period in the preceding fiscal
year and the budget for such month and for the period from the beginning
of the current fiscal year to the end of such month, all in reasonable
detail and certified by an authorized financial officer of the Company as
fairly presenting in all material respects the financial condition and
results of operations of the Company and its Subsidiaries on a
consolidated basis in accordance with GAAP;
(c) as soon as practicable and in any event within 45 days after the
end of each fiscal quarter of the Company, consolidating and consolidated
statements of operations and cash flow of the Company and its Subsidiaries
for such quarter and for the period from the beginning of the current
fiscal year to the end of such quarter and a consolidated balance sheet of
the Company and its Subsidiaries as at the end of such quarter, setting
forth, in each case, in comparative form, figures for the corresponding
quarter in the preceding fiscal year and the budget for such quarter, all
in reasonable detail, and certified by an authorized financial officer of
the Company as fairly presenting in all material respects the financial
condition and results of operations of the Company and its Subsidiaries on
a consolidated basis in accordance with GAAP;
(d) as soon as available and in any event within 120 days after the
end of each fiscal year, consolidating and consolidated statements of
operations, shareholders' equity and cash flow of the Company and its
Subsidiaries for such fiscal year, and the related consolidating and
consolidated balance sheets of the Company and its Subsidiaries as at the
end of such fiscal year, setting forth, in each case, in comparative form,
corresponding consolidated and consolidating figures from the preceding
fiscal year, all in reasonable detail and accompanied (i) in the case of
such consolidated statements and balance sheet of the Company, by an
opinion thereon of independent certified public accountants of recognized
national standing (which shall be generally recognized as one of the "Big
Five" independent public accounting firms), which opinion shall state that
such consolidated financial statements fairly present the consolidated
financial condition and results of operations
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Shareholder Agreement
of the Company and its Subsidiaries as at the end of, and for, such fiscal
year in accordance with GAAP, and (ii) in the case of such consolidating
statements and balance sheets, by a certificate of an authorized financial
officer of the Company, which certificate shall state that such
consolidating financial statements fairly present, in all material
respects, the respective individual unconsolidated financial condition and
results of operations of the Company and of each of its Subsidiaries, in
each case in accordance with GAAP, consistently applied, as at the end of,
and for, such fiscal year;
(e) promptly upon transmission thereof to the shareholders of the
Company generally or to any other security holder of the Company,
including, without limitation, any holder of debt, copies of all financial
statements, notices, certificates, annual reports and proxy statements so
transmitted;
(f) promptly upon receipt thereof, a copy of each other report
submitted to the Company or any of its Subsidiaries by independent
accountants in connection with any annual, interim or special audit of the
books of the Company or any of its Subsidiaries made by such accountants,
or any management letters or similar document submitted to the Company or
any of its Subsidiaries by such accountants;
(g) promptly upon any material revision to the budgets referred to
in paragraph (a) above, such monthly budgets, as revised;
(h) promptly upon any officer of the Company obtaining knowledge
thereof, notice of any event of default under any credit agreement, loan
agreement or indenture that the Company is party to; and
(i) with reasonable promptness, such other information and data with
respect to the Company or any of its Subsidiaries as the Investor may
reasonably request.
Section 3.2 Certain Transactions with NBC Restricted Persons. (a)
The Company agrees for the benefit of the Restricted Parties that except with
the prior written consent of the Investor and except as may be expressly
permitted by this Agreement, the Company and its Subsidiaries shall not,
directly or indirectly:
(i) issue or sell to any NBC Restricted Person, or authorize or
propose the issuance or sale to any NBC Restricted Person of, any capital
stock, partnership or limited liability company interests or other equity
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Shareholder Agreement
securities of the Company or any Subsidiary of the Company or any options,
warrants or other rights (including, without limitation, any convertible
or exchangeable securities) to acquire, any such capital stock,
partnership or limited liability interests or other equity securities;
(ii) form, enter into or join any partnership or joint venture with,
sell or dispose of any business or any assets (other than inventory and
any other assets disposed of in the ordinary course consistent with past
practice of such business) to, or make any investment in any NBC
Restricted Person;
(iii) enter into any transaction involving the incurrence of
indebtedness (other than in the ordinary course of business consistent
with past practice) involving any NBC Restricted Person;
(iv) authorize, enter into or approve any Material Transaction with
any NBC Restricted Person or enter into any discussions or negotiations
relating to any inquiry, proposal or offer relating thereto;
(v) enter into any joint marketing or co-branding arrangement with
any NBC Restricted Person, license or otherwise grant to any NBC
Restricted Person the right to utilize any trademark, tradename or brand
of the Company or any Subsidiary of the Company or grant to any NBC
Restricted Person any rights to have a branded presence on any media of
the Company or its Subsidiaries or rights to cross-promote home shopping
transactions; or
(vi) authorize or commit or agree to take any of the foregoing
actions.
(b) The provisions of this Section 3.2 shall terminate and be of no
further force or effect at such time as the Investor is no longer entitled to
designate at least one person to be nominated for election to the Board of
Directors pursuant to Section 2.1. In addition, the provisions of this Section
3.2 shall terminate and be of no further force or effect with respect to those
NBC Restricted Persons (and their Affiliates) set forth on Annex B hereto
(collectively, the "Annex B Entities") in the event that (i) NBC or any of its
Subsidiaries or Affiliates enters into a significant transaction with any Annex
B Entity (the "Relevant Entity") that precludes NBC and its Subsidiaries from
entering into a significant transaction with any one of the other Annex B
Entities and (ii) during the period ending six months after the occurrence of an
event specified in clause (i), neither the Company nor any of its Subsidiaries
has entered into
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Shareholder Agreement
an agreement providing for a significant transaction with the Relevant Entity or
its Affiliate.
Section 3.3 Certain Other Transactions.
For as long as the Investor is entitled to designate two persons to
be nominated for election to the Board of Directors pursuant to Section 2.1, the
Company agrees that except with the prior written consent of the Investor, the
Company and its Subsidiaries shall not, directly or indirectly:
(a) issue or sell, or authorize or propose the issuance or sale, of
any capital stock of the Company, or any options, warrants or other rights
(including, without limitation, any convertible or exchangeable
securities) to acquire capital stock of the Company other than (i)
pursuant to Options outstanding on the date hereof or issued pursuant to
clause (ii) below, (ii) Options to be issued to officers, directors,
employees or consultants of the Company pursuant to any plan or
arrangement approved by the Company's shareholders, (iii) upon conversion
of the Preferred Stock outstanding on the date hereof or pursuant to the
Warrants, (iv) the issuance of Common Stock and other Voting Stock in an
aggregate amount not to exceed (x) during any twelve month period 15% of
the Total Voting Power of the Company as of the first day of such twelve
month period and (y) during any twenty-four month period 25% of the Total
Voting Power of the Company as of the first day of such twenty-four month
period, provided that no issuance will be made to any Person pursuant to
this clause (iv) who, together with its Affiliates, to the knowledge of
the Company after reasonable inquiry, would Beneficially Own securities
representing 10% or more of the Total Voting Power of the Company
following such issuance and (v) issuances of non-voting capital stock that
does not violate the terms of the Preferred Stock;
(b) declare or pay any dividends or distributions to holders of
Common Stock in any fiscal quarter exceeding in the aggregate 5% of the
Market Capitalization of the Company as of the first day of such fiscal
quarter or repurchase or redeem any Common Stock except (i) repurchases
and redemption of Common Stock from officers, directors, employees or
consultants of the Company and its Subsidiaries and (ii) repurchases and
redemptions of Common Stock in any fiscal quarter that, when aggregated
with all distributions and dividends on the Common Stock in such fiscal
quarter, do not exceed 5% of the Market Capitalization of the Company as
of the first day of such fiscal quarter;
(c) enter into or effect any single or related series of
acquisitions of businesses or assets or investments
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Shareholder Agreement
therein (including, without limitation, forming, entering into or joining
any joint venture), other than money market instruments and trade
receivables, pursuant to which the fair market value of the aggregate
purchase price paid, or investment made, by the Company and its
Subsidiaries will exceed the greater of (x) $35 million or (y) 10% of the
Market Capitalization of the Company at the time the Company or its
Subsidiaries enter into an agreement to effect such acquisition or
investment;
(d) enter into or effect any single or related series of sales,
leases or other dispositions of assets having a Fair Market Value in
excess of the greater of (x) $35 million or (y) 10% of the Market
Capitalization of the Company at the time the Company or its Subsidiaries
enter into an agreement to effect such sale, lease or other disposition;
(e) incur indebtedness for borrowed money that would cause the
Company's consolidated indebtedness to exceed the greater of (x) $40
million and (y) an amount equal to 30% of the Company's total
capitalization; for purposes of this clause (e) "total capitalization"
means the sum of consolidated shareholders equity and consolidated
indebtedness;
(f) issue any series or class of capital stock having (i) voting
rights that are disproportionate relating to its economic interest or (ii)
a separate class vote on any Takeover Transaction;
(g) enter into any business, either directly or indirectly, except
for those businesses in which the Company and/or its Subsidiaries and/or
its Affiliates are engaged in on the date hereof and those businesses
which are ancillary, complementary or reasonably related thereto;
(h) amend the Articles of Incorporation so as to adversely affect
the Restricted Parties (it being understood that increases in the
authorized capital stock of the Company and/or creation of a staggered
Board of Directors will not be deemed to adversely affect the Restricted
Parties); or
(i) authorize or commit or agree to take any of the foregoing
actions.
Section 3.4 Other Covenants. (a) The Company agrees that except with
the prior written consent of the Investor and except as otherwise expressly
permitted by this Agreement, it and its Subsidiaries shall not, directly or
indirectly:
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Shareholder Agreement
(i) adopt any shareholders rights plan, or amend any of its
organizational documents or enter into any Material Agreement with a third
party or issue any capital stock or other securities, the provisions of
which, upon the acquisition of all of the outstanding Common Stock or any
portion thereof by any Restricted Party would be violated or breached, or
which would require a consent, approval or notice thereunder, or which
would result in a default thereof (or an event which, with notice or lapse
of time or both, would constitute a default), or which would result in the
termination thereof or accelerate the performance required thereby, or
would result in a right of termination or acceleration thereunder, or
result in the creation of any Lien (except Permitted Liens) upon any of
the properties or assets of the Company or Material Subsidiaries
thereunder or disadvantage the Restricted Parties relative to other
shareholders on the basis of the size of their shareholdings or otherwise
restrict or impede the ability of the Restricted Parties to acquire
additional shares of Voting Stock or dispose of such Voting Stock in any
manner permitted by Section 4.2 to any Restricted Party or to any Person
that would Beneficially Own (together with such Person's Ultimate Parent
Entity, Subsidiaries and Affiliates) less than 10% of the Adjusted
Outstanding Common Stock;
(ii) Take any action that would cause any ownership interest in any
of the following to be attributable to any Restricted Party for purposes
of FCC regulations: (i) a U.S. broadcast radio or television station, (ii)
a U.S. cable television system, (iii) a U.S. "daily newspaper" (as such
term is defined in Section 73.3555 of the rules and regulations of the
Federal Communications Commission, as the same may be amended from time to
time), (iv) any U.S. communications facility operated pursuant to a
license granted by the Federal Communications Commission ("FCC") and
subject to the provisions of Section 310(b) of the Communications Act of
1934, as amended, or (v) any other business which is subject to FCC
regulations under which the ownership of a Person may be subject to
limitation or restriction as a result of the interest in such business
being attributed to such Person.
(b) The provisions of Section 3.4(a)(i) shall terminate and be of no
further force or effect at such time as the Investor is no longer entitled to
designate at least one person to be nominated for election to the Board of
Directors pursuant to Section 2.1.
Section 3.5 Houston Station. The Company and its Subsidiaries shall
use all commercially reasonable efforts to
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Shareholder Agreement
dispose of their interests in KVVV-TV Channel 57 Baytown, Texas as soon as
practicable.
Section 3.6 No Reinstatement of Rights. Anything in this Agreement
to the contrary notwithstanding, to the extent the Restricted Parties fail to
satisfy any ownership threshold set forth herein so that any rights of the
Investor under this Agreement and/or obligations of the Company under this
Agreement terminate, such terminated rights and/or obligations will not be
reinstated if the Restricted Parties thereafter satisfy such ownership
threshold.
ARTICLE IV
STANDSTILL AGREEMENTS
Section 4.1 Standstill Agreement.
(a) During the Standstill Period (and during the Standstill Period
only), no Restricted Party will, directly or indirectly, nor will it authorize
or direct any of its Representatives to (and will take appropriate action
against such Representatives to discourage), in each case unless specifically
requested to do so in writing in advance by the Board of Directors:
(i) acquire or agree, offer, seek or propose to acquire, or cause to
be acquired, ownership of any assets or businesses of the Company or any
of its Subsidiaries having a fair market value in excess of 10% of the
fair market value of all of the Company's and its Subsidiaries' assets, or
any rights or options to acquire any such ownership (including from a
third party);
(ii) acquire or agree, offer, seek or propose to acquire, or cause
to be acquired, Beneficial Ownership of any Common Stock of the Company or
any of its Subsidiaries, or any options, warrants or other rights
(including, without limitation, any convertible or exchangeable
securities) to acquire any such Voting Stock, in any case other than the
Preferred Stock, the Warrants and any Voting Stock issuable upon
conversion or exercise of the Preferred Stock or Warrants; provided,
however, that after the Shareholder Meeting (or if earlier August 31,
1999) the Restricted Parties may acquire or agree, offer, seek or propose
to acquire, or cause to be acquired, shares of Voting Stock of the Company
(or any convertible or exchangeable securities) to acquire any such Voting
Stock if such acquisition would not increase the Restricted Parties'
aggregate Beneficial Ownership of shares of Common Stock to more than the
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Shareholder Agreement
Standstill Limit (other than due to the issuance of additional Bonus
Distributor Warrants; provided that if the issuance of additional Bonus
Distributor Warrants results in the Restricted Parties' aggregate
Beneficial Ownership of shares of Common Stock exceeding the Standstill
Limit, then at any time during the Standstill Period (and only during the
Standstill Period) when the Standstill Limit is so exceeded, the
Restricted Parties shall not exercise any Bonus Distributor Warrants
unless (A) such exercise occurs during the six months prior to the
expiration or termination of such Bonus Distributor Warrants or (B)
immediately upon such exercise, the Restricted Parties' aggregate actual
ownership of outstanding shares of Common Stock would not exceed 39.9% of
the total outstanding shares of Common Stock, treating as outstanding and
actually owned for such purpose shares of Common Stock issuable upon
conversion of the Preferred Stock or upon the exercise of the Initial
Distributor Warrants, but no shares of Common Stock issuable upon exchange
or conversion of any other rights, warrants, options or other securities).
Notwithstanding the foregoing, during the Standstill Period, the holder of
a Warrant will not disclaim Beneficial Ownership of such Warrant and for
as long as the Purchase Warrant is outstanding and exercisable, no
Restricted Party will acquire actual ownership of any shares of Common
Stock other than (x) through exercise of the Warrants or conversion of the
Preferred Stock and (y) other acquisitions of shares of Common Stock at a
price per share equal to or greater than the applicable price set forth in
Section 8(a)(ii) of the Purchase Warrant (during the period prior to the
second anniversary of the Issue Date under the Warrant) or Section
8(b)(ii) of the Purchase Warrant (during the period on and after the
second anniversary of such Issue Date and prior to the fifth anniversary
of such Issue Date).
(iii) make, or in any way participate in, any "solicitation" of
"proxies" (as such terms are used in the proxy rules of the SEC) with
respect to the voting of any securities of the Company or any of its
Subsidiaries, provided that the limitation contained in this clause (iii)
shall not apply to any Takeover Transaction to be voted on by the
Company's shareholders that is not instituted or proposed by any
Restricted Party or any Affiliate of a Restricted Party or any 13D Group
of which any Restricted Party or any Affiliate of a Restricted Party is a
member;
(iv) deposit any securities of the Company or any of its
Subsidiaries in a voting trust or subject any such securities to any
arrangement or agreement with any Person (other than one or more
Restricted Parties);
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Shareholder Agreement
(v) form, join, or in any way become a member of a 13D Group with
respect to any voting securities of the Company or any of its Subsidiaries
(other than a "group" consisting solely of Restricted Parties);
(vi) arrange any financing for, or provide any financing commitment
specifically for, the purchase of any voting securities or securities
convertible or exchangeable into or exercisable for any voting securities
or assets of the Company or any of its Subsidiaries, except for such
assets as are then being offered for sale by the Company or such
Subsidiary;
(vii) otherwise act, whether alone or in concert with others, to
seek to propose to the Company any tender or exchange offer, merger,
business combination, restructuring, liquidation, recapitalization or
similar transaction involving the Company or any of its Subsidiaries, or
nominate any person as a director of the Company who is not nominated by
the then incumbent directors, or propose any matter to be voted upon by
the shareholders of the Company; provided that the Restricted Entities may
nominate directors in accordance with Section 2.1 and, provided further,
the provisions of this clause (vii) will not prohibit or restrict any
Restricted Party from entering into any agreement, arrangement or
understanding relating to the Transfer of any securities in accordance
with Section 4.2 or engaging in an discussion or negotiations relating to
any potential Transfer of any securities in accordance with Section 4.2;
(viii) solicit, initiate, encourage or knowingly or intentionally
facilitate the taking of any action by any Affiliate of a Restricted Party
(that is not itself a Restricted Party) that would be prohibited by this
Section 4.1 if that Affiliate were a Restricted Party; or
(ix) publicly announce or disclose any intention, plan or
arrangement inconsistent with the foregoing.
(b) In addition, during the Standstill Period (and only during the
Standstill Period), no Restricted Party will, nor will they authorize or direct
any of their respective Representatives to, take any action that they reasonably
believe based on the advice of outside counsel would require the Company to make
a public announcement regarding any of the matters set forth in Section 4.1(a)
(other than in connection with the transactions contemplated by the Investment
Agreement).
(c) If, at any time during the Standstill Period, (i) any Person
other than a Restricted Party or any Affiliate thereof
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<PAGE> 25
Shareholder Agreement
or any 13D Group of which any Restricted Party is a member has made any inquiry,
proposal or offer relating to a Takeover Transaction or Change in Control of the
Company which has not been rejected by the Board of Directors, (ii) the Board of
Directors has determined to pursue a Takeover Transaction or other Change in
Control of the Company and the Board of Directors has not resolved to stop
pursuing such Takeover Transaction or other Change in Control of the Company or
(iii) the Board of Directors or the Company has engaged in any discussions or
negotiations with, or provided any information to, any Person other than a
Restricted Party or any Affiliate thereof or any 13D Group of which any
Restricted Party is a member with respect to a potential Takeover Transaction or
other Change in Control of the Company or any potential inquiry, proposal or
offer relating thereto and the Board of Directors has not resolved to terminate
all such discussions, negotiations and provision of information, then, for so
long as such condition continues to apply, the limitation on the actions
described in clause (a)(vii) above shall not be applicable to the Restricted
Parties (but all other provisions of this Agreement will, subject to Section
4.1(d), continue to apply).
(d) Anything in this Section 4.1 to the contrary notwithstanding,
this Section 4.1 shall not prohibit or restrict any of the following: (x)
actions taken by the Investor's nominees on the Board of Directors in such
capacity, (y) the exercise by the Restricted Parties of their voting rights
(i.e., their right to vote their shares but not their right to make nominations,
to the extent prohibited by this Agreement, or take other related actions
otherwise prohibited by this Section 4.1) with respect to any shares of Voting
Stock they Beneficially Own and (z) any disclosure pursuant to Section 13(d) of
the Exchange Act which a Restricted Party reasonably believes, based on the
advice of outside counsel, is required in connection with any action taken by a
Restricted Party pursuant to Section 4.1(c).
(e) Following the expiration of the Standstill Period pursuant to
clause (i) of the definition of Standstill Termination Event and for two years
following the expiration of the Standstill Period pursuant to clause (v) of the
definition of Standstill Termination Event, no Restricted Party will purchase or
otherwise acquire any shares of Common Stock if such acquisition would increase
the Restricted Parties' aggregate Beneficial Ownership of shares of Common Stock
to more than 39.9% of the Adjusted Outstanding Common Stock except (x) increases
in Beneficial Ownership resulting from issuance of the Warrants or the exercise
of the Warrants or (y) pursuant to a Purchaser Tender Offer.
(f) If the Standstill Period terminates pursuant to clause (iii) of
the definition of "Standstill Termination Event"
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Shareholder Agreement
and the subject Third Party Tender Offer is terminated at any time during which
an Investor Tender Offer is then pending, unless otherwise agreed by the
Company, the Restricted Party that commenced such Investor Tender Offer (the
"Tendering Restricted Party") will not complete such Investor Tender Offer until
at least the sixth business day after the termination of such Third Party Tender
Offer. If, within two business days after termination of the subject Third Party
Tender Offer, the Company requests in writing that the Tendering Restricted
Party terminate its Investor Tender Offer and by the end of the second business
day after the receipt of such request the Tendering Restricted Party has not
terminated its Investor Tender Offer, then the provisions of Section 3.4(a)(i)
shall no longer prohibit the Company from amending its then existing
shareholders rights plan or adopting a shareholders rights plan that could be
triggered by the Restricted Parties if (and, only if) they subsequently acquired
Beneficial Ownership of additional Voting Securities that would increase the
Restricted Parties' aggregate Beneficial Ownership of shares of Common Stock to
more than the Standstill Limit (determined for these purposes as if a Standstill
Reinstatement Event had occurred on such date) other than as a result of the
acquisition of Beneficial Ownership of additional shares of Common Stock upon
the issuance or exercise of additional Bonus Distributer Warrants.
Section 4.2 Transfer Restrictions. Unless the Restricted Parties
Beneficially Own in the aggregate less than 5% of the Adjusted Outstanding
Common Stock or until the Restricted Parties Beneficially Own in the aggregate
at least 90% of the Adjusted Outstanding Common Stock, the Restricted Parties
shall not, directly or indirectly, sell, transfer or otherwise dispose of
(collectively, "Transfer") any of the Preferred Stock, Warrants or shares of
Common Stock Beneficially Owned by such Persons, except for Transfers: (i) to
Restricted Parties or to Affiliates who agree to be Restricted Parties bound by
the provisions of this Agreement, (ii) which have been consented to by the
Company, (iii) pursuant to a Third Party Tender Offer, provided that the
Restricted Parties may not Transfer pursuant to this clause (iii) any shares of
Common Stock acquired upon exercise of the Purchase Warrant on or after the date
of commencement of such Third Party Tender Offer or the public announcement by
the offeror thereof or that such offeror intends to commence such Third Party
Tender Offer, (iv) pursuant to a merger, consolidation or reorganization to
which the Company is a party, (v) in a bona fide public distribution or bona
fide underwritten public offering, (vi) pursuant to Rule 144 of the Securities
Act or (vii) in a private sale or pursuant to Rule 144A of the Securities Act;
provided that, in the case of any Transfer pursuant to clause (v) or (vii), such
Transfer does not result in, to the knowledge of the Restricted Parties after
reasonable inquiry, any other Person acquiring, after giving
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Shareholder Agreement
effect to such Transfer, Beneficial Ownership, individually or in the aggregate
with such Person's Ultimate Parent Entity, Subsidiaries and Affiliates, of more
than 10% of the Adjusted Outstanding Common Stock.
Section 4.3 Certain Permitted Transactions and Communications.
Notwithstanding the foregoing, this Agreement shall not prohibit (i) the
acquisition or holding of securities or rights in the ordinary course of
business by any employee benefit plan whose trustees, investment managers or
similar advisors are not Affiliates of any Restricted Party, (ii) the
consummation of any transaction expressly provided for in the Investment
Agreement or the Operating Agreement including the acquisition and/or exercise
of the Warrants or any purchase of shares of Common Stock upon conversion of
Preferred Stock or (iii) officers and employees of the Restricted Parties from
communicating with officers of the Company or its Affiliates on matters related
to or governed by the Distribution Agreement, the Operating Agreement or other
operational matters, or the Restricted Parties from communicating with the Board
of Directors, the Chairman of the Board of Directors, the Chief Executive
Officer or the Chief Financial Officer of the Company, so long as such
communication is conveyed in confidence, does not require public disclosure by
the Restricted Parties or, in the reasonable belief (based on the advice of
outside counsel) of the Restricted Party making such communication, by the
Company, and is not intended to (A) elicit, and, in the reasonable belief (based
on the advice of outside counsel) of the Restricted Party making such
communication, does not require the issuance of, a public response by the
Company or (B) otherwise circumvent the provisions of Section 4.1.
ARTICLE V
Miscellaneous
Section 5.1 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given, if delivered
personally, by telecopier or sent by overnight courier as follows:
(a) If to the Investor, to:
G.E. Capital Equity Investments, Inc.
120 Long Ridge Road
Stamford, CT 06927
Attention: John Sprole
Fax: (203) 357-3047
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Shareholder Agreement
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: Richard Capelouto
Fax: (212) 455-2502
(b) If to the Company, to:
ValueVision International, Inc.
6740 Shady Oak Road
Eden Prairie, MN 55344-3433
Attention: General Counsel
Fax: (612) 947-0188
With a copy to:
Latham & Watkins
633 West Fifth Street
Suite 4000
Los Angeles, CA 90071
Attention: Michael W. Sturrock
Fax: (213) 891-8763
or to such other address or addresses as shall be designated in writing. All
notices shall be effective when received.
Section 5.2 Entire Agreement; Amendment. This Agreement sets forth
the entire agreement between the parties hereto with respect to the transactions
contemplated by this Agreement. Any provision of this Agreement may be amended
or modified in whole or in part at any time by an agreement in writing between
the parties hereto executed in the same manner as this Agreement. No failure on
the part of any party to exercise, and no delay in exercising, any right shall
operate as a waiver thereof nor shall any single or partial exercise by any
party of any right preclude any other or future exercise thereof or the exercise
of any other right.
Section 5.3 Severability. In the event that any one or more of the
provisions contained in this Agreement or in any other instrument referred to
herein, shall, for any reason, be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not affect
any other provision of this Agreement or any other such instrument.
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Shareholder Agreement
Section 5.4 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to constitute an original, but
all of which together shall constitute one and the same document.
Section 5.5 Governing Law; Jurisdiction; Waiver of Jury Trial. This
Agreement shall be governed and construed in accordance with the laws of the
State of New York applicable to contracts executed and performed within such
state, and each party hereby submits to the jurisdiction of any state or U.S.
federal court sitting within the County of New York, New York or the County of
Hennepin, Minnesota. The parties hereto waive all right to trial by jury in any
action, suit or proceeding brought to enforce or defend any rights or remedies
under this Agreement.
Section 5.6 Successors and Assigns; Third Party Beneficiaries.
Subject to applicable law, GE Capital Equity Investments may assign its rights
under this Agreement in whole or in part only to a Restricted Party, but no such
assignment shall relieve GE Capital Equity Investments of its obligations
hereunder unless GE Capital Equity Investments' obligations hereunder are
assumed by NBC and/or GE Capital in a written agreement reasonably acceptable to
the Company delivered to the Company (in which case GE Capital Equity
Investments will be released from its obligations hereunder except for its
obligations as a Restricted Party to comply with the terms hereof). The Company
may not assign any of its rights or delegate any of its duties under this
Agreement without the prior written consent of the Investor. Any purported
assignment in violation of this Section shall be void. Nothing expressed or
mentioned in this Agreement is intended or shall be construed to give any Person
other than the Restricted Parties (who shall be third party beneficiaries of
this Agreement entitled to the benefit of, and to enforce, its terms) and the
Company and their respective successors, any legal or equitable right, remedy or
claim under or in respect of this Agreement or any provision herein contained.
This Agreement and all conditions and provisions hereof are intended to be for
the sole and exclusive benefit of the Restricted Parties and the Company and
their respective successors, and for the benefit of no other Person. No
purchaser of Preferred Stock, Warrants or Common Stock from a Restricted Party
(other than another Restricted Party) shall be deemed to be a successor or
assignee by reason merely of such purchase.
Section 5.7 Arbitration. Any controversy, dispute or claim arising
out of, in connection with or in relation to the interpretation, performance or
breach of this Agreement, shall be determined, at the request of any party, by
arbitration in a city mutually agreeable to the parties to such controversy,
dispute or claim before and in accordance with the then-existing Rules for
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Shareholder Agreement
Commercial Arbitration of the American Arbitration Association, and any judgment
or award rendered by the arbitrator will be final, binding and unappealable and
judgment may be entered by any state or Federal court having jurisdiction
thereof. The pretrial discovery procedures of the Federal Rules of Civil
Procedure shall apply to any arbitration under this Section 5.7. Any controversy
concerning whether a dispute is an arbitrable dispute or as to the
interpretation or enforceability of this Section 5.7 shall be determined by the
arbitrator. The arbitrator shall be a retired or former United States District
Judge or other person acceptable to each of the parties, provided such
individual has substantial professional experience with regard to corporate or
partnership legal matters. The parties intend that this agreement to arbitrate
be valid, enforceable and irrevocable.
Section 5.8 Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions of this Agreement in
addition to any other remedy to which they are entitled at law or in equity.
Section 5.9 Headings, Captions and Table of Contents. The section
headings, captions and table of contents contained in this Agreement are for
reference purposes only, are not part of this Agreement and shall not affect the
meaning or interpretation of this Agreement.
Section 5.10 Confidentiality. The provisions of Sections 1, 2 and 8
of the confidentiality agreement dated June 24, 1998 between the Company and the
Investor (the "Investor Confidentiality Agreement") shall continue and be in
full force and effect and apply to each Restricted Party as if it were the
Investor until the later to occur of the termination of the Distribution
Agreement and termination of the Investor's rights to designate at least one
director for nomination to the Board of Directors of the Company pursuant to
Section 2.1. All other provisions of the Investor Confidentiality Agreement and
the confidentiality agreement dated January 28, 1999 (as amended on February 28,
1999) between the Company and NBC are hereby terminated.
IN WITNESS WHEREOF, this Agreement has been executed by the
parties hereto or by their respective duly authorized representatives, all as of
the date first above written.
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Shareholder Agreement
VALUEVISION INTERNATIONAL, INC.
By:________________________________
Name:
Title:
G.E. CAPITAL EQUITY INVESTMENTS,
INC.
By:________________________________
Name:
Title:
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<PAGE> 1
VALUEVISION INTERNATIONAL, INC.
FORM OF
CERTIFICATE OF DESIGNATION
OF
SERIES A REDEEMABLE CONVERTIBLE PREFERRED STOCK
Pursuant to Section 302A.401 of the Minnesota Business
Corporation Act, ValueVision International, Inc., a Minnesota corporation (the
"Corporation"), hereby certifies that the following resolutions were duly
adopted by its Board of Directors on _______, 1999 to set forth the powers,
designations, preferences and relative, participating, optional or other rights
of its Redeemable Convertible Preferred Stock:
RESOLVED, that, pursuant to the authority granted to the Board
of Directors in the Articles of Incorporation, there is hereby created, and the
Corporation is hereby authorized to issue, a series of Preferred Stock (as
defined in the Articles of Incorporation) having the following powers,
designations, preferences and rights:
I. Designation of Series and Number of Shares. This series of
the Preferred Stock shall be designated the "Series A Redeemable Convertible
Preferred Stock" (the "Convertible Preferred Stock") and shall consist of
5,339,500 shares, par value $.01 per share. The stated value of the Convertible
Preferred Stock shall be $8.288 per share (the "Stated Value"). The number of
shares of Convertible Preferred Stock may be decreased from time to time, as
such shares are converted or redeemed as provided herein, by a resolution of the
Board of Directors filed with the Secretary of State of the State of Minnesota.
II. Rank. (a) All shares of Convertible Preferred Stock shall
rank prior, both as to payment of dividends and as to distributions of assets
upon liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, to all of the Corporation's now or hereafter issued
Common Stock, par value $0.01 per share ("Common Stock"), and to all of the
Corporation's now existing or hereafter issued capital stock which by its terms
ranks junior to the Convertible Preferred Stock both as to the payment of
dividends and as to distributions of assets upon liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, when and if
issued (the Common Stock and any such other capital stock being herein referred
to as "Junior Stock").
<PAGE> 2
Certificate of Designation
(b) No payment on account of the purchase, redemption,
retirement or other acquisition of shares of Junior Stock or any class or series
of the Corporation's capital stock which by its terms ranks junior to the
Convertible Preferred Stock as to distributions of assets upon liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary
(the Junior Stock and any such other class or series of the Corporation's
capital stock being herein referred to as "Junior Liquidation Stock"), shall be
made directly or indirectly by the Corporation unless and until all the
Convertible Preferred Stock shall have been converted into Common Stock or
redeemed as provided for herein or otherwise reacquired by the Corporation.
III. Dividends. (a) In the event that the Corporation declares
and pays any dividend on the Common Stock while any shares of Convertible
Preferred Stock are outstanding, dividends shall be paid on the outstanding
shares of Convertible Preferred Stock on the same basis as if such Convertible
Preferred Stock had been converted to Common Stock pursuant to Section VI hereof
prior to the date fixed for determination of the holders of Common Stock
entitled to such dividend. Holders of Convertible Preferred Stock will not be
entitled to any dividends, whether payable in cash, property or stock, in excess
of the dividends provided for herein. Such dividends shall be payable to holders
of record at the close of business on the date specified by the Board of
Directors (or, to the extent permitted by applicable law, a duly authorized
committee thereof) at the time such dividend is declared (the "Dividend Payment
Date")(with such record date and Dividend Payment Date being the same as the
record date and dividend payment date, respectively, of the Common Stock), in
preference to dividends on the Junior Stock and any other capital stock of the
Corporation which by its terms ranks junior as to dividends to the Convertible
Preferred Stock (the Junior Stock and any such other class or series of the
Corporation's capital stock being herein referred to as "Junior Dividend
Stock"). All dividends paid with respect to shares of Convertible Preferred
Stock pursuant to this Section III shall be paid pro rata to the holders
entitled thereto.
(b) No dividend or other distribution, other than dividends
payable solely in shares of Junior Stock, shall be declared, paid or set apart
for payment on shares of Junior Dividend Stock, unless and until all accrued and
unpaid dividends on the Convertible Preferred Stock shall have been paid or
declared and set apart for payment and, to the extent required by paragraph
III(a), the related dividend is declared and paid on the Convertible Preferred
Stock.
(c) No dividends shall be declared, paid or set apart for
payment on shares of any class or series of the Corporation's
2
<PAGE> 3
Certificate of Designation
capital stock whether now existing or hereafter issued which by its terms ranks,
as to dividends, on a parity with the Convertible Preferred Stock (any such
class or series of the Corporation's capital stock being herein referred to as
"Parity Dividend Stock") for any period unless dividends have been, or
contemporaneously are, paid or declared and set apart for payment on the
Convertible Preferred Stock. No dividends shall be paid on Parity Dividend Stock
except on dates on which dividends are paid on the Convertible Preferred Stock.
All dividends paid or declared and set apart for payment on the Convertible
Preferred Stock and any Parity Dividend Stock shall be paid or declared and set
apart for payment pro rata so that the amount of dividend paid or declared and
set apart for payment per share on the Convertible Preferred Stock and the
Parity Dividend Stock on any date shall in all cases bear to each other the same
ratio that accrued and unpaid dividends on the Convertible Preferred Stock and
the Parity Dividend Stock bear to each other.
IV. Liquidation Preference. In the event of a liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
the holders of the then outstanding shares of Convertible Preferred Stock shall
be entitled to receive out of the assets of the Corporation available for
distribution to shareholders an amount in cash equal to the Stated Value for
each share outstanding, plus an amount equal to the dividends accrued and
unpaid, if any, on such shares on the date of final distribution to such holders
without interest before any payment shall be made or any assets distributed to
the holders of shares of Junior Liquidation Stock. The entire assets of the
Corporation available for distribution to holders of Convertible Preferred Stock
and any class or series of the Corporation's capital stock which by its terms
ranks on a parity with the Convertible Preferred Stock as to distributions of
assets upon liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary (any such class or series of the Corporation's capital
stock being herein referred to as "Parity Liquidation Stock") shall be
distributed ratably among the holders of the Convertible Preferred Stock and any
Parity Liquidation Stock in proportion to the respective preferential amounts
(including accrued and unpaid dividends, if any) to which each is entitled (but
only to the extent of such preferential amounts). After payment in full of the
liquidation preferences of the shares of the Convertible Preferred Stock, the
holders of such shares shall not be entitled to any further participation in any
distribution of assets by the Corporation.
3
<PAGE> 4
Certificate of Designation
V. Redemption.
(a) Mandatory Redemption. On the tenth anniversary of the date
of issuance of the Convertible Preferred Stock (the "Issue Date"), the
Corporation shall redeem for cash, out of any source of funds legally available
therefor, all of the outstanding shares of Convertible Preferred Stock, at a
redemption price equal to 100% of the Stated Value per share, plus an amount in
cash equal to all declared and unpaid dividends, if any, thereon outstanding to
the redemption date.
(b) Redemption Upon Change in Control. Upon the occurrence of
a Change in Control, the Convertible Preferred Stock shall be redeemable at the
option of the holders thereof, in whole or in part, at a redemption price per
share equal to 100% of the Stated Value plus declared and unpaid dividends, if
any, thereon outstanding to the redemption date. The Corporation shall redeem
the number of shares specified in the holders' notices of election to redeem
pursuant to Section V(c)(ii) hereof on the date fixed for redemption. A "Change
of Control" shall mean (i) the consummation by the Corporation of a merger,
consolidation or other business combination in a transaction or series of
transactions as a result of which the holders of the Common Stock immediately
prior to such transaction or series of transactions will hold less than 50% of
the voting power of all outstanding voting securities of the surviving entity,
(ii) the consummation of a sale or other disposition in one or more transactions
by the Corporation or its subsidiaries of all or substantially all of the
Corporation's consolidated assets other than among the Corporation and its
subsidiaries, (iii) the acquisition by any person or entity, together with its
affiliates (as defined in Rule 12b-2 under the Exchange Act of 1934, as amended
(the "Exchange Act")), or any other group (as defined in Section 13(d) of the
Exchange Act), including through the formation of any such group or the
affiliation of any such persons or entities other than any Restricted Party (as
defined in the Shareholder Agreement) or an Affiliate thereof or any 13D Group
(as defined in the Shareholder Agreement) of which any of them is a member, of
beneficial ownership of a majority of the voting power of all the then
outstanding voting securities of the Corporation entitled to vote generally in
the election of directors or (iv) Continuing Directors no longer constitute a
majority of the Board of Directors of the Corporation. For purposes of this
paragraph (b), "Continuing Directors" shall mean (i) each director who is a
member of the Board of Directors of the Corporation on the date hereof and (ii)
each other director whose initial nomination as a director was approved by a
majority of the Continuing Directors as of the time of such nomination
(including, without limitation, director designees of the Restricted Parties
pursuant to the Shareholder Agreement).
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Certificate of Designation
(c) Procedure for Mandatory Redemption. In the event that the
Corporation shall redeem shares of Convertible Preferred Stock pursuant to
Section V(a) hereof, notice of such redemption shall be mailed by first-class
mail, postage prepaid, and mailed not less than 30 days nor more than 90 days
prior to the redemption date to the holders of record of the shares to be
redeemed at their respective addresses as they shall appear in the records of
the Corporation; provided, however, that failure to give such notice or any
defect therein or in the mailing thereof shall not affect the validity of the
proceeding for the redemption of any shares so to be redeemed except as to the
holder to whom the Corporation has failed to give such notice or except as to
the holder to whom notice was defective. Each such notice shall state: (A) the
redemption date; (B) the number of shares of Convertible Preferred Stock to be
redeemed; (C) the redemption price; (D) the place or places where certificates
for such shares are to be surrendered for payment of the redemption price (which
place shall be the principal place of business of the Corporation); and (E) that
the holder's right to convert such shares into shares of Common Stock shall
terminate on the close of business on the tenth business day preceding such
redemption date.
(d) Procedure for Change in Control Redemption. (i) If a
Change in Control should occur, then, in any one or more of such events the
Corporation shall give written notice by first-class mail, postage prepaid, to
each holder of Convertible Preferred Stock at its address as it appears in the
records of the Corporation, which notice shall describe such Change in Control
and shall state the date on which the Change in Control is expected to take
place, and shall be mailed within 10 business days following the occurrence of
the Change in Control. Such notice shall also set forth (in addition to the
information required by the next succeeding paragraph): (A) each holder's right
to require the Corporation to redeem shares of Convertible Preferred Stock held
by such holder as a result of such Change in Control; (B) the redemption price;
(C) the optional redemption date (which date shall be no earlier than 30 days
and no later than 90 days from the date of such Change in Control); (D) the
procedures to be followed by such holder in exercising its right of redemption,
including the place or places where certificates for such shares are to be
surrendered for payment of the redemption price (which place shall be the
principal place of business of the Corporation); and (E) that the holder's right
to convert such shares into shares of Common Stock shall terminate on the close
of business on the tenth business day preceding such redemption date with
respect to any shares of Convertible Preferred Stock with respect to which the
holder thereof has exercised its right to require the Corporation to redeem
pursuant to Section V(d). In the event a holder of shares of Convertible
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Certificate of Designation
Preferred Stock shall elect to require the Corporation to redeem any or all of
such shares of Convertible Preferred Stock, such holder shall deliver, within 20
days of the mailing to it of the Corporation's notice described in this Section
V(c)(ii), a written notice stating such holder's election and specifying the
number of shares to be redeemed pursuant to Section V(b) hereof.
(ii) In the case of any redemption pursuant to Section V(b)
hereof, the notice by the Corporation shall describe the Change in Control,
including a description of the Surviving Person and, if applicable, the effect
of the Change in Control on the Common Stock. The notice shall be accompanied by
(A) the consolidated balance sheet of the Corporation and its Subsidiaries as of
the end of the most recent fiscal year of the Corporation for which such
information is available and the related consolidated statements of operations
and cash flows for such fiscal year, in each case setting forth the comparative
figures for the preceding fiscal year, accompanied by an opinion of independent
public accountants of nationally recognized standing selected by the Corporation
as to the fair presentation in accordance with generally accepted accounting
principles of such financial statements, and (B) a consolidated balance sheet of
the Corporation and its Subsidiaries as of the end of the most recent fiscal
quarter of the Corporation for which such information is available and the
related consolidated statements of operations and cash flows for such quarter
and for the portion of the Corporation's fiscal year ended at the end of such
fiscal quarter, in each case setting forth in comparative form the figures for
the corresponding quarter and the corresponding portion of the Corporation's
preceding fiscal year. For so long as the Corporation is subject to the periodic
reporting requirements of the Exchange Act and makes timely filings thereunder,
the delivery requirements of the preceding sentence shall be satisfied by the
Corporation's most current report, schedule, registration statement, definitive
proxy statement or other document on file with the United States Securities and
Exchange Commission.
(e) Notice by the Corporation having been mailed as provided
in Section V(c) hereof, or notice of election having been mailed by the holders
as provided in Section V(d) hereof, and provided that on or before the
applicable redemption date funds necessary for such redemption shall have been
set aside by the Corporation, separate and apart from its other funds, in trust
for the pro rata benefit of the holders of the shares so called for or entitled
to redemption, so as to be and to continue to be available therefor, then, from
and after the redemption date (unless the Corporation defaults in the payment of
the redemption price, in which case such rights shall continue until the
redemption price is paid), such shares shall no longer be
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Certificate of Designation
deemed to be outstanding and shall not have the status of shares of Convertible
Preferred Stock, and all rights of the holders thereof as shareholders of the
Corporation (except the right to receive the applicable redemption price and any
accrued and unpaid dividends, if any, from the Corporation and the right to
convert such shares into shares of Common Stock, which shall continue until the
close of business on the tenth business day preceding the date of redemption in
accordance with Section VI hereof) shall cease. Upon surrender of the
certificates for any shares so redeemed (properly endorsed or assigned for
transfer, if the Board of Directors of the Corporation shall so require and a
notice by the Corporation shall so state), such shares shall be redeemed by the
Corporation at the applicable redemption price as aforesaid. In case fewer than
all the shares represented by any such certificate are redeemed, a new
certificate or certificates shall be issued representing the unredeemed shares
without cost to the holder thereof.
VI. Conversion.
(a) Conversion. Subject to adjustments as provided herein,
each full share of Convertible Preferred Stock shall be convertible at the
option of the holder thereof, at any time (including upon a Change of Control)
from the Issue Date until the close of business on the tenth business day prior
to any date fixed for redemption of such share as herein provided, into a number
of fully paid and nonassessable shares of Common Stock equal to the Stated Value
of each full share of the Convertible Preferred Stock to be converted divided by
a conversion price (the "Conversion Price"), which initially shall be $8.288
[The Conversion Price will be adjusted as set forth in this Section VI if prior
to the Issued Date any event occurs that would result in an adjustment to the
Conversion Price if such event occurred after the Issue Date.]
(b) Conversion Procedures. (i) Any holder of shares of
Convertible Preferred Stock desiring to convert any or all of such shares into
Common Stock shall surrender the certificate or certificates evidencing such
shares of Convertible Preferred Stock at the principal office of the
Corporation, as transfer agent (in such capacity, the "Transfer Agent") for the
Convertible Preferred Stock which certificate or certificates, if the
Corporation shall so require, shall be duly endorsed to the Corporation or in
blank, or accompanied by proper instruments of transfer to the Corporation or in
blank, accompanied by irrevocable written notice to the Corporation that the
holder elects, as of the date of surrender of such Convertible Preferred Stock,
to convert such shares of Convertible Preferred Stock and specifying the name or
names (with address or addresses) in which a certificate or certificates
evidencing shares of Common Stock
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Certificate of Designation
are to be issued. Any transfer taxes shall be paid in accordance with Section
XI hereof.
(ii) The Corporation shall, as soon as practicable after such
surrender of certificates evidencing shares of Convertible Preferred Stock
accompanied by the written notice and compliance with any other conditions
herein contained, deliver at such office of the Transfer Agent to the holder for
whose account such shares of Convertible Preferred Stock were so surrendered, or
to the nominee of such entity, certificates evidencing the number of full shares
of Common Stock to which such holder shall be entitled as aforesaid, together
with a cash adjustment in respect of any fraction of a share of Common Stock as
hereinafter provided. Such conversion shall be deemed to have been made as of
the date of the surrender of certificates evidencing shares of Convertible
Preferred Stock accompanied by the written notice and compliance with any other
conditions herein contained and the entity or entities entitled to receive the
Common Stock deliverable upon conversion of such Convertible Preferred Stock
shall be treated for all purposes as the record holder or holders of such Common
Stock on such date (the "Conversion Date"). The holder of record of any share of
Convertible Preferred Stock on any record date for the holders entitled to
receive any dividend or distribution in respect of the Convertible Preferred
Stock will be entitled to receive such dividend or distribution on the date
specified for payment thereof notwithstanding that such share of Convertible
Preferred Stock may be converted prior to such payment's date but after such
record date.
(c) Adjustment of Conversion Price. The Conversion Price at
which a share of Convertible Preferred Stock is convertible into Common Stock
shall be subject to adjustment from time to time as follows:
(i) In case the Corporation shall, after the Issue Date, pay a
dividend or make a distribution on its Common Stock or on any other
class or series of capital stock of the Corporation which dividend or
distribution includes or is convertible (without the payment of any
consideration other than surrender of such convertible security) into
Common Stock, the Conversion Price in effect at the opening of business
on the day following the date fixed for determination of the holders of
Common Stock or capital stock entitled to such payment or distribution
(the "Record Date") shall be reduced by multiplying such Conversion
Price by a fraction of which (A) the numerator shall be the number of
shares of Common Stock outstanding at the close of business on the
Record Date and (B) the denominator shall be the sum of such number of
shares and the total number of shares constituting or included in such
dividend or other
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Certificate of Designation
distribution (or in the case of a dividend consisting of securities
convertible into Common Stock, the number of shares of Common Stock
into which such securities are convertible), such reduction to become
effective immediately after the opening of business on the day
following the Record Date ; provided, however, that if any such
dividend or distribution is rescinded and not paid, then the Conversion
Price shall, as of the date when it is determined that such dividend or
distribution price will be rescinded, revert back to the Conversion
Price in effect prior to the adjustment made pursuant to this
paragraph.
(ii) In case the Corporation shall issue or sell (a) Common
Stock, (b) rights, warrants or options entitling the holders thereof to
subscribe for or purchase shares of Common Stock or (c) any security
convertible into Common Stock, in each case at a price, or having an
exercise or conversion price, per share less than the then-current
Market Price per share of Common Stock on (x) the date of such issuance
or sale or (y) in the case of a dividend or distribution of such
rights, warrants, options or convertible securities to the holders of
Common Stock, the date fixed for determination of the holders of such
Common Stock entitled to such dividend or distribution (the date
specified in clause (x) or (y) being the "Relevant Date") (excluding
any issuance for which an appropriate and full adjustment has been made
pursuant to the preceding subparagraph (i)), the Conversion Price shall
be reduced by multiplying the then-current Conversion Price by a
fraction of which (A) the numerator shall be the number of shares of
Common Stock outstanding at the open of business on the Relevant Date
plus the number of shares of Common Stock which the aggregate
consideration received or receivable (I) for the total number of shares
of Common Stock, rights, warrants or options or convertible securities
so issued or sold, and (II) upon the exercise or conversion of all such
rights, warrants, options or securities, would purchase at the
then-current Market Price per share of Common Stock and (B) the
denominator shall be the number of shares of Common Stock outstanding
at the close of business on the Relevant Date plus (without
duplication) the number of shares of Common Stock subject to all such
rights, warrants, options and convertible securities, such reduction of
the Conversion Price to be effective at the opening of business on the
day following the Relevant Date; provided, however, that if any such
dividend or distribution is rescinded and not paid, then the Conversion
Price shall, as of the date when it is determined that such dividend or
distribution will be rescinded, revert back to the Conversion Price in
effect prior to the adjustment made pursuant to this paragraph.
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Certificate of Designation
The issuance of any shares of Common Stock or other rights, warrants,
options or convertible securities pursuant to (a) any restricted stock
or stock option plan or program of the Corporation involving the grant
of options or rights solely to officers, directors, employees and/or
consultants of the Corporation or its Subsidiaries at below the
then-current Market Price per share of Common Stock (provided, that any
such options or rights were initially granted with an exercise or
conversion price of not less than 85% of the then-current Market Price
per share of Common Stock), (b) any option, warrant, right, or
convertible security outstanding as of the date hereof,(c) the terms of
a firmly committed bona fide underwritten public offering, or (d) any
merger, acquisition, consolidation, or similar transaction, shall not
be deemed to constitute an issuance or sale to which this clause (ii)
applies. Upon the expiration unexercised of any rights, warrants,
options or rights to convert any convertible securities for which an
adjustment has been made pursuant to this clause (ii), the adjustments
shall forthwith be reversed to effect such rate of conversion as would
have been in effect at the time of such expiration or termination had
such rights, warrants, options or rights to convertible securities, to
the extent outstanding immediately prior to such expiration or
termination, never been issued.
(iii) In case the Common Stock shall be subdivided into a
greater number of shares of Common Stock or combined into a smaller
number of shares of Common Stock, the Conversion Price in effect at the
opening of business on the day following the day upon which such
subdivision or combination becomes effective shall be adjusted so that
the holder of any shares of Convertible Preferred Stock thereafter
surrendered for conversion into shares of Common Stock shall be
entitled to receive the number of shares of Common Stock which such
holder would have owned or been entitled to receive after the happening
of such events had such shares of Convertible Preferred Stock been
surrendered for conversion immediately prior to such event. Such
adjustment shall become effective at the close of business on the day
upon which such subdivision or combination becomes effective.
(iv) Subject to the last sentence of this subparagraph (iv),
in case the Corporation shall, by dividend or otherwise, distribute to
all holders of its Common Stock evidences of its indebtedness, shares
of any class or series of capital stock, cash or assets (including
securities, but excluding any shares of Common Stock, rights, warrants,
options or convertible securities for which an appropriate
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Certificate of Designation
and full adjustment has been made pursuant to subparagraph (i) or (ii)
above), the Conversion Price in effect on the day immediately preceding
the date fixed for the payment of such distribution (the date fixed for
payment being referred to as the "Reference Date") shall be reduced by
multiplying such Conversion Price by a fraction of which the numerator
shall be the current Market Price per share (determined as provided in
subparagraph (v) of this Section VI(c)) of the Common Stock on the
Reference Date less the fair market value (as determined in good faith
by the Board of Directors, whose determination shall be mailed to the
holders of the Convertible Preferred Stock) on the Reference Date of
the portion of the evidences of indebtedness, shares of capital stock,
cash and assets so distributed applicable to one share of Common Stock,
and the denominator shall be such current Market Price per share of the
Common Stock, such reduction to become effective immediately prior to
the opening of business on the day following the Reference Date;
provided, however, that if such dividend or distribution is rescinded
and not paid, then the Conversion Price shall, as of the date when it
is determined that such dividend or distribution will be rescinded,
revert back to the Conversion Price in effect prior to the adjustment
made pursuant to this paragraph. If the Board of Directors determines
the fair market value of any distribution for purposes of this
subparagraph (iv) by reference to the actual or when issued trading
market for any securities comprising such distribution, it must in
doing so consider, to the extent possible, the prices in such market
over the same period used in computing the current Market Price per
share of Common Stock pursuant to this Section VI(c). Notwithstanding
the foregoing, if the holders of a majority of the outstanding
Convertible Preferred Stock shall dispute the fair market determination
of the Board of Directors, an investment banking firm (an "Independent
Expert") mutually agreeable to the Corporation and such majority
holders shall be selected to determine the fair market value of the
Common Stock as of the Reference Date, and such Independent Expert's
determination shall be final, binding and conclusive. All costs and
expenses of such Independent Expert shall be borne by the holders of
the then outstanding Convertible Preferred Stock unless the
determination of fair market value is more favorable to such holders by
5% or more, in which case, all such costs and expenses shall be borne
by the Corporation. For purposes of this subparagraph (iv), any
dividend or distribution that also includes shares of Common Stock or
rights, warrants or options to subscribe for or purchase shares of
Common Stock shall be deemed to be (1) a dividend or distribution of
the evidences of indebtedness, cash, assets or shares of capital stock
other
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Certificate of Designation
than such shares of Common Stock or rights, warrants, options or
convertible securities (making any Conversion Price reduction required
by this subparagraph (iv)) immediately followed by (2) a dividend or
distribution of such shares of Common Stock or such rights, warrants,
options or convertible securities (making any further Conversion Price
reduction required by subparagraph (i) or (ii) of this Section VI(c)),
except (A) the Reference Date of such dividend or distribution as
defined in this subparagraph (iv) shall be substituted as "the date
fixed for the determination of shareholders entitled to receive such
dividend or other distribution" and the "Relevant Date" within the
meaning of subparagraphs (i) and (ii) of this Section VI(c) and (B) any
shares of Common Stock included in such dividend or distribution shall
not be deemed "outstanding at the close of business on the date fixed
for such determination" within the meaning of subparagraph (i) of this
Section VI(c)).
(v) No adjustment in the Conversion Price shall be required if
(A) the holders of the outstanding Convertible Preferred Stock receive
the dividend or distribution otherwise giving rise to such adjustment
or (B) such adjustment would require an increase or decrease of less
than 1% in the Conversion Price; provided, however, that any
adjustments which by reason of this subparagraph (vi)(B) are not
required to be made shall be carried forward and taken into account in
any subsequent adjustment or in any conversion pursuant to this Section
VI.
(vi) Whenever the Conversion Price is adjusted as herein
provided:
(1) the Corporation shall compute the adjusted
Conversion Price and shall prepare a certificate signed by the
Chief Financial Officer of the Corporation setting forth the
adjusted Conversion Price and showing in reasonable detail the
facts upon which such adjustment is based, and such
certificate shall forthwith be filed with the Transfer Agent
for the Convertible Preferred Stock; and
(2) as soon as reasonably practicable after the
adjustment, the Corporation shall mail to all record holders
of Convertible Preferred Stock at their last address as they
shall appear upon the stock transfer books of the Corporation
a notice stating that the Conversion Price has been adjusted
and setting forth the adjusted Conversion Price.
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Certificate of Designation
(vii) The Corporation from time to time may reduce the
Conversion Price by any amount for any period of time if the period is
at least 20 days, the reduction is irrevocable during the period,
subject to any conditions that the Board of Directors may deem
relevant, and the Board of Directors of the Corporation shall have made
a determination that such reduction would be in the best interest of
the Corporation, which determination shall be conclusive. Whenever the
Conversion Price is reduced pursuant to the preceding sentence, the
Corporation shall mail to holders of record of the Convertible
Preferred Stock a notice of the reduction at least fifteen days prior
to the date the reduced Conversion Price takes effect, and such notice
shall state the reduced Conversion Price and the period it will be in
effect. If the Corporation shall take a record of the holders of its
Common Stock for the purpose of entitling them to receive a dividend or
other distribution, and shall thereafter and before the distribution to
shareholders thereof legally abandon its plan to pay or deliver such
dividend or distribution, then thereafter no adjustment in the number
of shares of Common Stock issuable upon exercise of the right of
conversion granted by this paragraph (c) or in the Conversion Price
then in effect shall be required by reason of the taking of such
record.
(viii) Anything in this Section VI(c) to the contrary
notwithstanding, in the event that a record date is established for a
dividend or distribution that gives rise to an adjustment to the
Conversion Price pursuant to this Section VI(c), if any share of
Convertible Preferred Stock is converted into shares of Common Stock
between such record date and the date such dividend or distribution is
paid then (x) the number of shares of Common Stock issued at the time
of such conversion will be determined by reference to the Conversion
Price as in effect without taking into account the adjustment resulting
from such dividend or distribution and (y) on the date that such
dividend or distribution is actually paid there shall be issued in
respect of such conversion such number of additional shares of Common
Stock as is necessary to reflect the Conversion Price in effect after
taking into account the adjustment resulting from the dividend or
distribution.
(d) No Fractional Shares. No fractional shares of Common Stock
shall be issued upon conversion of Convertible Preferred Stock. If more than one
certificate evidencing shares of Convertible Preferred Stock shall be
surrendered for conversion at such time by the holder, the number of full shares
issuable upon conversion thereof shall be computed on the basis of the aggregate
number of shares of Convertible Preferred Stock
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Certificate of Designation
so surrendered. Instead of any fractional share of Common Stock that would
otherwise be issuable to a holder upon conversion of any shares of Convertible
Preferred Stock, the Corporation shall pay a cash adjustment in respect of such
fractional share in an amount equal to the fraction of the then-current Market
Price per share of Common Stock on the day of conversion or, if the day of
conversion is not a Trading Day, on the next preceding Trading Day.
(e) Reclassification, Consolidation, Merger or Sale of Assets.
In the event that the Corporation shall be a party to any transaction pursuant
to which the Common Stock is converted into the right to receive other
securities, cash or other property (including without limitation any
capitalization or reclassification of the Common Stock (other than a change in
par value, or from par value to no par value, or from no par value to par value,
or as a result of a subdivision or combination of the Common Stock), any
consolidation of the Corporation with, or merger of the Corporation into, any
other entity, any merger of another entity into the Corporation (other than a
merger which does not result in a reclassification, conversion, exchange or
cancellation of outstanding shares of Common Stock), any sale or transfer of all
or substantially all of the assets of the Corporation or any share exchange),
then lawful provisions shall be made as part of the terms of such transaction
whereby the holder of each share of Convertible Preferred Stock then outstanding
shall have the right thereafter to convert such share only into the kind and
amount of securities, cash and other property receivable upon such transaction
by a holder of the number of shares of Common Stock into which such share of
Convertible Preferred Stock might have been converted immediately prior to such
transaction. The Corporation or the entity formed by such consolidation or
resulting from such merger or which acquires such shares or which acquires the
Corporation's shares, as the case may be, shall make provisions in its
certificate or articles of incorporation or other constituting document to
establish such right. Adjustments for events subsequent to the effective date of
such a consolidation, merger, sale or transfer of assets shall be as nearly
equivalent as may be reasonably practicable to the adjustments provided for
herein. In any such event, effective provisions shall be made in the certificate
or articles of incorporation of the resulting or surviving corporation, in any
contract of sale, conveyance, lease, transfer or otherwise so that the
provisions set forth herein for the protection of the rights of the holder of
Convertible Preferred Stock shall thereafter continue to be applicable, and any
such resulting or surviving corporation shall expressly assume the obligation to
pay dividends and deliver, upon conversion, such shares of common stock, other
securities, or cash as set forth
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Certificate of Designation
herein. The above provisions shall similarly apply to successive
transactions of the foregoing type.
(f) Reservation of Shares, Etc. The Corporation shall at all
times reserve and keep available, free from preemptive rights, out of its
authorized and unissued stock, solely for the purpose of effecting the
conversion of the Convertible Preferred Stock, such number of shares of its
Common Stock as shall from time to time be sufficient to permit the conversion
of all shares of Convertible Preferred Stock from time to time outstanding.
Without limitation of the foregoing, the Corporation shall from time to time, in
accordance with the laws of the State of Minnesota, in good faith and as
expeditiously as practicable endeavor to cause the authorized number of shares
of Common Stock to be increased if at any time the number of shares of
authorized and unissued Common Stock shall not be sufficient to permit the
conversion of all the then outstanding shares of Convertible Preferred Stock.
If any shares of Common Stock required to be reserved for
purposes of conversion of the Convertible Preferred Stock hereunder require
registration with or approval of any governmental authority under any Federal or
State law before such shares may be issued upon conversion, the Corporation will
in good faith and as expeditiously as possible endeavor to cause such shares to
be duly registered or approved as the case may be. If the Common Stock is listed
on any national securities exchange, the Corporation will, prior to the issuance
of shares of Common Stock upon conversion of the Convertible Preferred Stock, if
permitted by the rules of such exchange, list and keep listed on such exchange,
upon official notice of issuance, all shares of Common Stock issuable upon
conversion of the Convertible Preferred Stock, for so long as the Common Stock
continues to be so listed.
(g) Prior Notice of Certain Events. In case:
(i) the Corporation shall (1) declare any dividend (or any
other distribution) on its Common Stock, other than (A) a dividend
payable in shares of Common Stock or (B) a dividend payable in cash out
of its retained earnings other than any special or nonrecurring or
other extraordinary dividend or (2) declare or authorize a redemption
or repurchase of in excess of 5% of the then outstanding shares of
Common Stock;
(ii) the Corporation shall authorize the granting to all
holders of Common Stock of rights or warrants to subscribe for or
purchase any shares of stock of any class or series or of any other
rights or warrants;
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Certificate of Designation
(iii) of any reclassification of Common Stock (other than a
subdivision or combination of the outstanding Common Stock, or a change
in par value, or from par value to no par value, or from no par value
to par value), or of any consolidation or merger to which the
Corporation is a party and for which approval of any shareholders of
the Corporation shall be required, or of the sale of all or
substantially all of the assets of the Corporation or of any share
exchange whereby the Common Stock is converted into other securities,
cash or other property;
(iv) of the voluntary or involuntary dissolution, liquidation
or winding up of the Corporation; or
(v) of any other event which would require an adjustment to
the Conversion Price under subparagraph VI(c);
then the Corporation shall cause to be filed with the Transfer Agent for the
Convertible Preferred Stock, and shall cause to be mailed to the holders of
record of the Convertible Preferred Stock, at their last addresses as they shall
appear upon the stock transfer books of the Corporation, at least ten days prior
to the applicable record or effective date hereinafter specified, a notice
stating (x) the date on which a record (if any) is to be taken for the purpose
of such dividend, distribution, redemption, repurchase, or grant of rights or
warrants or, if a record is not to be taken, the date as of which the holders of
Common Stock of record to be entitled to such dividend, distribution,
redemption, repurchase, rights or warrants are to be determined or (y) the date
on which such reclassification, consolidation, merger, sale, transfer, share
exchange, dissolution, liquidation, winding up or other event is expected to
become effective, and the date as of which it is expected that holders of Common
Stock of record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, share exchange, dissolution, liquidation,
winding up or other event (but no failure to mail such notice or any defect
therein or in the mailing thereof shall affect the validity of the corporate
action required to be specified in such notice).
(h) Definitions. The following definitions shall apply to
terms used in this Section VI:
(i) "Closing Price" of any security on any day shall mean the
last reported sale price regular way on such day or, in case no such
sale takes place on such day, the average of the reported closing bid
and asked prices regular way of such security in each case as reported
in the consolidated transaction reporting system with respect to
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Certificate of Designation
securities quoted on Nasdaq or, if the shares of such security are not
quoted on Nasdaq, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal
national securities exchange on which the shares of such security are
listed or admitted to trading or, if the shares of such security are
not quoted on Nasdaq and not listed or admitted to trading on any
national securities exchange, the last quoted price or, if not so
quoted, the average of the high bid and low asked prices on such other
nationally recognized quotation system then in use, or, if on any such
day the shares of such security are not quoted on any such quotation
system, the average of the closing bid and asked prices as furnished by
a professional market maker selected by the Board of Directors making a
market in the shares of such security. Notwithstanding the foregoing,
if the shares of such security are not publicly held or so listed,
quoted or publicly traded, the "Closing Price" means the fair market
value of a share of such security, as determined in good faith by the
Board of Directors, provided, however, that if the holders of a
majority of outstanding Convertible Preferred Stock shall dispute the
fair market value as determined by the Board, such majority holders and
the Corporation may retain an Independent Expert. The determination of
fair market value by the Independent Expert shall be final, binding and
conclusive. All costs and expenses of the Independent Expert shall be
borne by the holders of the outstanding Convertible Preferred Stock
unless the determination of fair market value is more favorable to such
holders by 5% or more, in which case, all such costs and expenses shall
be borne by the Corporation.
(ii) "Market Price" with respect to a share of Common Stock on
any day means, except as set forth below in the case that the shares of
Common Stock are not publicly held or listed, the average of the
"quoted prices" of the Common Stock for 30 consecutive Trading Days
commencing 45 Trading Days before the date in question; provided that
if during such 30 consecutive Trading Day period (the "valuation
period"), there shall occur a record date for determining holders of
Common Stock entitled to receive a dividend or distribution on the
Common Stock, the "Market Price" shall be reduced by subtracting the
amount obtained by multiplying (a) the value of such dividend or
distribution per share of Common Stock by (b) a fraction (i) the
numerator of which shall be the number of Trading Days from the
beginning of such valuation period to and including the record date for
such dividend or distribution and (ii) the denominator of which shall
be the number of Trading Days in such valuation period. The term
"quoted prices" of the Common Stock shall
17
<PAGE> 18
Certificate of Designation
mean the last reported sale price on that day or, in case no such
reported sale takes place on such day, the average of the last reported
bid and asked prices, regular way, on that day, in either case, as
reported in the consolidated transaction reporting system with respect
to securities quoted on Nasdaq or, if the shares of Common Stock are
not quoted on Nasdaq, as reported in the principal consolidated
transaction reporting system with respect to securities listed on the
principal national securities exchange on which the shares of Common
Stock are listed or admitted to trading or, if the shares of Common
Stock are not quoted on Nasdaq and not listed or admitted to trading on
any national securities exchange, the last quoted price or, if not so
quoted, the average of the high bid and low asked prices on such other
nationally recognized quotation system then in use, or, if on any such
day the shares of Common Stock are not quoted on any such quotation
system, the average of the closing bid and asked prices as furnished by
a professional market maker selected by the Board of Directors making a
market in the shares of Common Stock. Notwithstanding the foregoing, if
the shares of Common Stock are not publicly held or so listed, quoted
or publicly traded, the "Market Price" means the fair market value of a
share of Common Stock, as determined in good faith by the Board of
Directors provided, however, that if the holders of a majority of
outstanding Convertible Preferred Stock shall dispute the fair market
value as determined by the Board, such majority holders and the
Corporation may retain an Independent Expert. The determination of fair
market value by the Independent Expert shall final, binding and
conclusive. All costs and expenses of the Independent Expert shall be
borne by the holders of the then outstanding Convertible Preferred
Stock unless the determination of fair market value is more favorable
to such holders by 5% or more, in which case, all such costs and
expenses shall be borne by the Corporation.
(iii) "Nasdaq" shall mean the National Association of
Securities Dealers Automatic Quotation System.
(iv) "Trading Day" shall mean a day on which securities are
traded on the national securities exchange or quotation system or in
the over-the-counter market used to determine the Closing Price.
VII. Voting Rights. (a) General. Subject to Section XI(d) and
except as set forth below or as otherwise from time to time required by law, the
holders of shares of Convertible Preferred Stock shall vote as a class together
with the holders of the Common Stock on all matters with respect to which the
holders of Common Stock have the right to vote. In connection
18
<PAGE> 19
Certificate of Designation
with any right to vote, each share of Convertible Preferred Stock shall be
entitled to a number of votes which is equal to the whole number of shares of
Common Stock that could be obtained upon conversion of one share of Convertible
Preferred Stock at the Conversion Price applicable on the record date set with
respect to such vote. Any shares of Convertible Preferred Stock owned, directly
or indirectly, by any entity of which the Corporation owns, directly or
indirectly, a majority of the shares entitled to vote for directors shall not
have voting rights hereunder and shall not be counted in determining the
presence of a quorum.
(b) Voting Rights for Directors.
(i) On the Issue Date, the number of directors constituting
the Board of Directors shall, without further action, be increased to
seven. For so long as the Restricted Parties (as defined in the
Shareholders Agreement) own a majority of the outstanding shares of
Convertible Preferred Stock and the Investor (as defined in the
Shareholder Agreement) is entitled to designate at least one nominee (a
"Designee") for election to the Board of Directors of the Corporation
pursuant to Section 2.1 of the Shareholder Agreement, subject to
Section XI(d), the holders of the outstanding shares of Convertible
Preferred Stock shall have the right, voting separately as a class and
to the exclusion of the holders of all other classes of stock of the
Corporation, to (A) initially elect two directors (who are reasonably
acceptable to the Corporation) and (B) thereafter, as long as the
Investor is entitled to designate at least one Designee for election to
the Board of Directors pursuant to Section 2.1 of the Shareholder
Agreement, elect that number of directors equal to the number of
Designees that the Investor is entitled to so designate (with each
Designee being reasonably acceptable to the Corporation if such
Designee has not previously been a member of the Board of Directors).
For as long as the holders of Convertible Preferred Stock voting
separately as a class are entitled to elect one or more directors
pursuant to this Section VII(b)(i), holders of the outstanding
Convertible Preferred Stock shall not be entitled to vote in the
election of any other directors of the Corporation.
(ii) The right to elect directors as described in Section
VII(b)(i) hereof may be exercised initially either at a special meeting
of the holders of Convertible Preferred Stock, called as hereinafter
provided in Section XI(c) hereof, at any annual meeting of shareholders
held for the purpose of electing directors, or by the written consent
of the holders of Convertible Preferred Stock without a meeting
19
<PAGE> 20
Certificate of Designation
pursuant to Section 302A.441 of the Minnesota Business Corporation Act
and thereafter at such annual meeting or by written consent. For so
long as the Restricted Parties own a majority of the outstanding shares
of Convertible Preferred Stock and subject to Section XI(d) hereof,
such voting right shall continue until such time as all outstanding
shares of Convertible Preferred Stock shall have been redeemed or
otherwise retired. If the Restricted Parties own less than a majority
of the outstanding shares of Convertible Preferred Stock or if the
Investor is no longer entitled to designate at least one Designee for
election to the Board of Directors pursuant to Section 2.1 of the
Shareholder Agreement, the holders of the Convertible Preferred Stock
shall, in any election of directors, vote as a single class together
with the holders of the Common Stock for the election of directors and
each share of Convertible Preferred Stock will be entitled to the
number of votes determined pursuant to Section VII(a).
(iii) The Secretary of the Corporation may, and upon the
written request of the holders of record of at least 10% of the
outstanding shares of Convertible Preferred Stock (addressed to the
Secretary of the Corporation at the principal office of the
Corporation) shall, call a special meeting of the holders of
Convertible Preferred Stock for the election (and, if applicable,
removal) of the directors to be elected by them as herein provided.
Such call shall be made by notice to each holder by first-class mail,
postage prepaid at its address as it appears in the records of the
Corporation, and such notice shall be mailed at least 10 days but no
more than 20 days before the date of the special meeting, or as
required by law. Such meeting shall be held at the earliest practicable
date upon the notice required for special meetings of shareholders at
the place designated by the Secretary of the Corporation. If such
meeting shall not be called by a proper officer of the Corporation
within 15 days after receipt of such written request by the Secretary
of the Corporation, then the holders of record of at least 10% of the
shares of Convertible Preferred Stock then outstanding may call such
meeting at the expense of the Corporation, and such meeting may be
called by such holders upon the notice required for special meetings of
shareholders and shall be held at the place designated in such notice.
Any holder of Convertible Preferred Stock that would be entitled to
vote at any such meeting shall have access to the stock books of the
Corporation for the purpose of causing a meeting of holders of
Convertible Preferred Stock to be called pursuant to the provisions of
this Section VII(b)(iii).
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<PAGE> 21
Certificate of Designation
(iv) At any meeting held for the purpose of electing
directors at which the holders of Convertible Preferred Stock shall
have the right to elect directors as a class as provided in this
Section VII(b), the presence in person or by proxy of the holders of a
majority of the then outstanding shares of Convertible Preferred Stock
shall be required and be sufficient to constitute a quorum of such
class for the election of directors by such class. At any such meeting
or adjournment thereof, (x) the absence of a quorum of the holders of
Convertible Preferred Stock shall not prevent the election of directors
other than the directors to be elected by the holders of Convertible
Preferred Stock as a class, and the absence of a quorum or quorums of
the holders of capital stock entitled to elect such other directors
shall not prevent the election of the directors to be elected by the
holders of Convertible Preferred Stock, and (y) in the absence of a
quorum of the holders of Convertible Preferred Stock, a majority of the
holders of Convertible Preferred Stock present in person or by proxy
shall have the power to adjourn the meeting for the election of
directors which such holders are entitled to elect as a class, from
time to time, without notice (except as required by law) other than
announcement at the meeting, until a quorum shall be present.
(v) Except as provided in Section XI(d) hereof and this
paragraph (v), the term of office of any director elected by the
holders of Convertible Preferred Stock pursuant to Section VII(b)(i)
hereof in office at any time shall terminate upon the election of his
successor. Directors elected by the holders of Convertible Preferred
Stock pursuant to Section VII(b) may be removed with or without cause
by the holders of a majority of the outstanding shares of Convertible
Preferred Stock and shall not otherwise be subject to removal other
than upon election of their successor or the Convertible Preferred
Stock voting separately as a class no longer being entitled to elect
directors as provided herein.
(vi) In case of a vacancy occurring in the office of any
director so elected pursuant to Section VII(b)(i) hereof, the holders
of a majority of the Convertible Preferred Stock then outstanding may,
at a special meeting of the holders or by written consent as provided
above, elect a successor to hold office for the unexpired term of such
director.
(vii) Unless otherwise agreed to by the holders of a
majority of the outstanding shares of Convertible Preferred Stock, for
so long as the holders of Convertible Preferred
21
<PAGE> 22
Certificate of Designation
Stock are entitled, voting separately as a class, to elect at least one
member of the Board of Directors and the Restricted Parties own a
majority of the outstanding Convertible Preferred Stock, (A) the number
of directors constituting the Board of Directors shall remain at seven,
(B) each of the Audit Committee and the Compensation Committee of the
Board of Directors shall contain at least one director elected by the
holders of Convertible Preferred Stock and (C) with respect to each
other committee of the Board of Directors, the percentage of directors
on such committee designated by the holders of Convertible Preferred
Stock shall, at all times, be at least equal to the percentage of the
Board of Directors elected by the holders of Convertible Preferred
Stock.
(c) Class Voting. So long as any shares of the Corporation's
Convertible Preferred Stock are outstanding the Corporation shall not, without
the affirmative vote or consent of the holders of at least a majority of all
outstanding shares of the Corporation's Convertible Preferred Stock, voting or
consenting separately as a class without regard to series:
(i) create any class of stock that by its terms ranks senior
to or on a parity with the Convertible Preferred Stock as to dividends
or upon liquidation, dissolution or winding up of the Corporation or
increase the authorized number of shares of, or issue any additional
shares of or any securities convertible into shares of, or reclassify
any Junior Stock into shares of, any such class;
(ii) alter or change any of the provisions of the
Corporation's Articles of Incorporation (whether by merger,
consolidation or other business combination with another person or by
any other means) so as to adversely affect the relative rights and
preferences of any outstanding Convertible Preferred Stock of the
Corporation; provided, however, that neither (A) the creation,
amendment or reclassification of any class of stock that following such
creation, amendment or reclassification by its terms ranks junior to
shares of Convertible Preferred Stock of the Corporation as to
dividends and upon liquidation, dissolution or winding up, nor (B) an
increase in the authorized number of shares of any such class, nor (C)
any merger, consolidation or other business combination subject to the
provisions of paragraph VI(e), shall give rise to any such voting
right;
(iii) issue any additional shares of Convertible Preferred
Stock.
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<PAGE> 23
Certificate of Designation
(d) Additional Class Voting. Unless otherwise agreed to by the
holders of a majority of the outstanding shares of Convertible Preferred Stock,
for so long as the Restricted Parties own a majority of the outstanding shares
of Convertible Preferred Stock, the Corporation shall not, without the express
written consent of the holders of a majority of the shares of Preferred Stock,
take any action, requiring the approval of the "Investor" pursuant to Sections
3.2, 3.3 or 3.4 of the Shareholder Agreement. The provisions of this paragraph
(d) will terminate with respect to such Sections 3.2, 3.3 or 3.4, as applicable,
when the obligations of the Company under such Sections terminate under the
Shareholder Agreement.
(e) For purposes of this Section VII:
"Shareholder Agreement" shall mean the Shareholder Agreement,
dated as of the date hereof, between the Corporation and the Investor
as such agreement may be amended, supplemented or otherwise modified
from time to time in accordance with the terms thereof.
VIII. Status of Acquired Shares. For purposes hereof, all
shares of Convertible Preferred Stock owned, directly or indirectly, by any
entity of which the Corporation owns, directly or indirectly, a majority of the
shares entitled to vote for directors shall be deemed not outstanding. Shares of
Convertible Preferred Stock redeemed by the Corporation, received upon
conversion pursuant to Section VI or otherwise acquired by the Corporation shall
be restored to the status of authorized but unissued shares of capital stock,
without designation as to series, and, subject to the other provisions hereof,
may thereafter be issued, but not as shares of Convertible Preferred Stock.
IX. Modification and Waiver. The Corporation may not, without
the consent of each holder affected thereby, (a) change the stated redemption
date of the Convertible Preferred Stock, (b) reduce the Stated Value or
liquidation preference of, or dividend on, the Convertible Preferred Stock, (c)
change the place or currency of payment of the Stated Value or liquidation
preference of, or dividend on, the Convertible Preferred Stock or (d) reduce the
percentage of outstanding Convertible Preferred Stock necessary to modify or
amend the terms thereof or to grant waivers in respect thereto.
X. Severability of Provisions. Whenever possible, each
provision hereof shall be interpreted in a manner as to be effective and valid
under applicable law, but if any provision hereof is held to be prohibited by or
invalid under applicable law, such provision shall be ineffective only to the
extent of
23
<PAGE> 24
Certificate of Designation
such prohibition or invalidity, without invalidating or otherwise adversely
affecting the remaining provisions hereof. If a court of competent jurisdiction
should determine that a provision hereof would be valid or enforceable if a
period of time were extended or shortened or a particular percentage were
increased or decreased, then such court may make such change as shall be
necessary to render the provision in question effective and valid under
applicable law.
XI. Miscellaneous. (a) Transfer Taxes. The Corporation shall
pay any and all stock transfer and documentary stamp taxes that may be payable
in respect of any issuance of delivery of shares of Convertible Preferred Stock
or shares of Common Stock or other securities issued on account of Convertible
Preferred Stock pursuant hereto or certificates or instruments evidencing such
shares or securities. The Corporation shall not, however, be required to pay any
such tax which may be payable in respect of any transfer involved in the
issuance or delivery of shares of Convertible Preferred Stock or Common Stock or
other securities in a name other than that in which the shares of Convertible
Preferred Stock with respect to which such shares or other securities are issued
or delivered were registered, or in respect of any payment to any entity with
respect to any such shares or securities other than a payment to the registered
holder thereof, and shall not be required to make any such issuance, delivery or
payment unless and until the entity otherwise entitled to such issuance,
delivery or payment has paid to the Corporation the amount of any such tax or
has established, to the satisfaction of the Corporation, that such tax has been
paid or is not payable.
(b) Failure to Designate Shareholder or Payee. In the event
that a holder of shares of Convertible Preferred Stock shall not by written
notice designate the name in which shares of Common Stock to be issued upon
conversion of such shares should be registered or to whom payment upon
redemption of shares of Convertible Preferred Stock should be made, or the
address to which the certificates or instruments evidencing such shares or such
payment should be sent, the Corporation shall be entitled to register such
shares and or such payment in the name of the holder of such Convertible
Preferred Stock as shown on the records of the Corporation and to send the
certificates or instruments evidencing such shares or such payment, to the
address of such holder shown on the records of the Corporation.
(c) Registration Rights Agreement. Reference is made to the
Registration Rights Agreement, dated on or about __________, 1999 (as the same
may be amended, supplemented or modified from time to time pursuant to the terms
thereof, the "Registration Rights Agreement"), between the Corporation and the
24
<PAGE> 25
Certificate of Designation
Investor. So long as any shares of Convertible Preferred Stock constitute
"Registrable Securities" as defined in the Registration Rights Agreement, each
holder shall be entitled to the rights granted by the Corporation thereunder and
shall be bound by the restrictions therein.
(d) Shareholder Agreement. Reference is made to the
Shareholder Agreement, dated on or about _______, 1999 (as the same may be
amended, supplemented or modified from time to time pursuant to the terms
thereof, the "Shareholder Agreement"), between the Corporation and the Investor.
The Convertible Preferred Stock shall be subject to the terms and conditions set
forth in the Shareholder Agreement, including without limitation, the voting,
transfer and standstill restrictions set forth therein.
(e) Documents on File. Copies of each of the Registration
Rights Agreement and Shareholder Agreement shall be kept on file at the
principal place of business of the Corporation at 6740 Shady Oak Road, Eden
Prairie, MN 55344-3433.
25
<PAGE> 26
Certificate of Designation
IN WITNESS WHEREOF, ValueVision International, Inc. has caused
this Certificate of Designation to be signed on its behalf by ________, its
President, and ___________, its Secretary, this ____ day of March, 1999.
VALUEVISION INTERNATIONAL, INC.
By: _____________________________
Name:
Title: President
ATTEST:
________________________________
________________, Secretary
26
<PAGE> 1
Warrant
NEITHER THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES
ISSUABLE UPON EXERCISE OF THE SECURITIES REPRESENTED HEREBY HAVE BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY STATE SECURITIES LAW, AND SUCH SECURITIES MAY
NOT BE OFFERED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT OR PURSUANT TO AN EXEMPTION FROM,
OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS. THE SECURITIES
REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS OF A SHAREHOLDER
AGREEMENT, DATED AS OF THE DATE HEREOF (THE "SHAREHOLDER AGREEMENT"),
BETWEEN VALUEVISION INTERNATIONAL, INC. AND GE CAPITAL EQUITY INVESTMENTS,
INC.
No. W-1 Warrant
FORM OF
COMMON STOCK PURCHASE WARRANT
Exercisable commencing _______, 1999
Void after Expiration Time (as defined herein)
ValueVision International, Inc., a Minnesota corporation (the
"Company"), hereby certifies that, for value received, G.E. Capital Equity
Investments, Inc., a Delaware corporation (the "Initial Holder"), or registered
assigns (in either case, the "Warrantholder"), is the owner of a Warrant (as
defined below), which entitles the Warrantholder to purchase from time to time
from the Company a number of fully paid, duly authorized and nonassessable
shares of Common Stock, par value $0.01 per share, of the Company (the "Common
Stock") up to (i) that number of shares that result in the Restricted Parties
(as defined below), at each time this Warrant is exercised, Beneficially Owning
(as defined below) 39.9% of the then Adjusted Outstanding Common Stock (as
defined below) minus (ii) the aggregate number of shares of Common Stock
directly or indirectly sold, transferred or otherwise disposed of by all
Restricted Parties (excluding any such sale, transfer or other disposition to
any other Restricted Party) prior to and including the date of exercise (making
equitable adjustments for any conversions, reclassifications, reorganizations,
stock dividends, stock splits, reverse splits and similar events which occur
with respect to the Common Stock). This Warrant may be exercised at
<PAGE> 2
Warrant
any time and from time to time from and after _______, 1999 (the "Issue Date")
and continuing up to the Expiration Time (as defined herein) at a per share
exercise price determined according to the terms and subject to the conditions
set forth in this certificate (the "Warrant Certificate"). The Warrant evidenced
by this Warrant Certificate (the "Warrant") is being issued pursuant to an
Investment Agreement, dated as of March 8, 1999 (as it may be amended,
supplemented or otherwise modified from time to time, the "Investment
Agreement"), by and between the Company and the Initial Holder.
Section 1. Definitions. As used in this Warrant Certificate, the
following terms shall have the meanings set forth below:
"Adjusted Outstanding Common Stock" shall mean, at any time this
Warrant is exercised for the purchase of shares of Common Stock, the total
number of shares of outstanding Common Stock at such time; provided that
for purposes of such calculation (a) all shares of Common Stock issuable
upon conversion of the then outstanding Preferred Stock shall be
considered outstanding, (b) all shares of Common Stock issuable upon
exercise of the outstanding Initial Distributor Warrants (whether such
Initial Distributor Warrants are vested or unvested) shall be considered
outstanding, (c) to the extent that Bonus Distributor Warrants have been
issued and are outstanding (and only to such extent), all shares of Common
Stock issuable upon the exercise of such issued and outstanding Bonus
Distributor Warrants (whether such Bonus Distributor Warrants are vested
or unvested) shall be considered outstanding and (d) all shares of Common
Stock purchased pursuant to such exercise of this Warrant (but not any
shares of Common Stock which may be purchased upon subsequent exercises of
this Warrant) shall be considered outstanding.
"Affiliate" shall mean, with respect to any Person, any other Person
that directly or indirectly controls, is controlled by, or is under common
control with, such Person. As used in this definition, "control"
(including its correlative meanings, "controlled by" and "under common
control with") shall mean the possession, directly or indirectly, of power
to direct or cause the direction of management or policies (whether
through ownership of securities or partnership or other ownership
interests, by contract or otherwise).
"Articles of Incorporation" shall mean the Articles of Incorporation
of the Company, as amended from time to time.
"Beneficially Own" shall have the meaning set forth in Rule 13d-3
under the Exchange Act, except that a Person shall be deemed to
"Beneficially Own" all securities that
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<PAGE> 3
Warrant
such Person has a right to acquire, whether such right is exercisable
immediately or only after the passage of time (and without any additional
conditions); provided, however, that a Person shall not be deemed to
"Beneficially Own" any shares of Common Stock which are issuable (but have
not yet been issued) upon exercise of this Warrant or which are issuable
upon exercise of any Bonus Distributor Warrants unless and until such
Bonus Distributor Warrants are actually issued and outstanding, at which
time such Person shall be deemed to "Beneficially Own" all shares of
Common Stock which are issuable upon exercise of such Bonus Distributor
Warrants, whether or not they are vested or unvested.
"Board of Directors" shall mean the board of directors of the
Company.
"Bonus Distributor Warrants" shall mean certain warrants issued by
the Company to NBC or its designee at agreed upon times, subject to the
satisfaction of certain conditions contained therein and in the
Distribution Agreement, which warrants may be exercised by the holder
thereof to purchase Common Stock in accordance with the terms therein.
"Business Day" shall mean any day, other than a Saturday, Sunday or
a day on which commercial banks in New York, New York are authorized or
obligated by law or executive order to close.
"Certificate of Designation" shall mean the Certificate of
Designation of the Preferred Stock, dated as of _______, 1999, executed
and filed with the Secretary of State of the State of Minnesota.
"Common Stock" shall have the meaning set forth in the preamble
hereto.
"Company" shall have the meaning set forth in the preamble hereto.
"Distribution Agreement" shall mean the Distribution and Marketing
Agreement dated as of March 8, 1999 between the Company and NBC pursuant
to which NBC has agreed to distribute certain programming of the Company,
as such agreement may be amended from time to time.
"Election to Exercise" shall have the meaning set forth
in Section 4.2(a) hereof.
"Equity Securities" shall mean, with respect to any Person, any and
all common stock, preferred stock, any other class of capital stock and
partnership or limited liability company interests of such Person or any
other similar
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<PAGE> 4
Warrant
interests of any Person that is not a corporation, partnership or limited
liability company.
"Exercise Price" shall have the meaning set forth in Section 8
hereof.
"Expiration Date" shall mean the fifth anniversary of the Issue
Date.
"Expiration Time" shall mean 5:00 P.M., New York City time, on the
Expiration Date.
"Fractional Warrant Share" shall mean any fraction of a whole share
of Common Stock issued, or issuable upon, exercise of the Warrant.
"Governmental Entity" shall mean any federal, state or local
government or any court, administrative agency or commission or other
governmental authority or agency, domestic or foreign.
"Independent Expert" shall mean an investment banking firm mutually
acceptable to the Company and the Warrantholder.
"Initial Distributor Warrants" shall mean certain warrants to
purchase 1,450,000 shares of Common Stock issued immediately by the
Company to NBC or its designee pursuant to the Distribution Agreement,
which warrants may be exercised by the holder thereof in accordance with
the terms therein.
"Initial Holder" shall have the meaning set forth in the preamble
hereto.
"Investment Agreement" shall have the meaning set forth in the
preamble hereto.
"Issue Date" shall have the meaning set forth in the preamble
hereto.
"Market Price" shall mean, with respect to a share of Common Stock
on any day, except as set forth below in the case that the shares of
Common Stock are not publicly held or listed, the average of the "quoted
prices" of the Common Stock for 30 consecutive Trading Days commencing 45
Trading Days before the date in question. The term "quoted prices" of the
Common Stock shall mean the last reported sale price on that day or, in
case no such reported sale takes place on such day, the average of the
last reported bid and asked prices, regular way, on that day, in either
case, as reported in the consolidated transaction reporting system with
respect to securities quoted on Nasdaq or, if the shares of Common Stock
are not quoted on Nasdaq, as reported
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<PAGE> 5
Warrant
in the principal consolidated transaction reporting system with respect to
securities listed on the principal national securities exchange on which
the shares of Common Stock are listed or admitted to trading or, if the
shares of Common Stock are not quoted on Nasdaq and not listed or admitted
to trading on any national securities exchange, the last quoted price or,
if not so quoted, the average of the high bid and low asked prices on such
other nationally recognized quotation system then in use, or, if on any
such day the shares of Common Stock are not quoted on any such quotation
system, the average of the closing bid and asked prices as furnished by a
professional market maker selected by the Board of Directors making a
market in the shares of Common Stock. Notwithstanding the foregoing, if
the shares of Common Stock are not publicly held or so listed, quoted or
publicly traded, the "Market Price" means the fair market value of a share
of Common Stock, as determined in good faith by the Board of Directors;
provided, however, that if the Warrantholder shall dispute the fair market
value as determined by the Board, the Warrantholder and the Company may
retain an Independent Expert. The determination of fair market value by
the Independent Expert shall be final, binding and conclusive on the
Company and the Warrantholder. All costs and expenses of the Independent
Expert shall be borne by the Warrantholder unless the determination of
fair market value is more favorable to such Warrantholder by 5% or more,
in which case, all such costs and expenses shall be borne by the Company.
"Nasdaq" shall mean The Nasdaq Stock Market's National Market.
"NBC" shall mean National Broadcasting Company, Inc., a Delaware
corporation and Affiliate of the Initial Holder.
"Organic Change" shall mean, with respect to any Person, any
transaction (including without limitation any recapitalization, capital
reorganization or reclassification of any class or series of Equity
Securities, any consolidation of such Person with, or merger of such
Person into, any other Person, any merger of another Person into such
Person (other than a merger which does not result in a reclassification,
conversion, exchange or cancellation of outstanding shares of capital
stock of such Person), and any sale or transfer or lease of all or
substantially all of the assets of such Person, but not including any
stock split, combination or subdivision) pursuant to which any class or
series of Equity Securities of such Person is exchanged for, or converted
into, the right to receive other securities, cash or other property.
"Person" shall mean any individual, firm, corporation, company,
limited liability company, association, partnership, joint venture, trust
or unincorporated
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<PAGE> 6
Warrant
organization, or a government or any agency or political subdivision
thereof.
"Preferred Stock" shall mean the Series A Redeemable Convertible
Preferred Stock, par value $0.01 per share, of the Company issued pursuant
to the Certificate of Designation.
"Regular Dividends" shall mean regular quarterly dividends not in
excess of 1% of the aggregate Market Price for the shares of capital stock
receiving such dividends as of the Business Day prior to the declaration
of such dividends.
"Restricted Party" shall have the meaning set forth in the
Shareholder Agreement.
"Securities Act" shall mean the U.S. Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder.
"Shareholder Agreement" shall mean the Shareholder Agreement, dated
as of ______, 1999 between the Company and the Initial Purchaser, as
amended, supplemented or otherwise modified from time to time in
accordance with its terms.
"Stated Value" shall mean the stated liquidation value of the
Preferred Stock as set forth in the Certificate of Designation.
"Trading Day" shall mean any day on which Nasdaq is open for
trading, or if the shares of Common Stock are not quoted on Nasdaq, any
day on which the principal national securities exchange or national
quotation system on which the shares of Common Stock are listed, admitted
to trading or quoted is open for trading, or if the shares of Common Stock
are not so listed, admitted to trading or quoted, any Business Day.
"Warrant" shall have the meaning set forth in the preamble hereto.
"Warrant Certificate" shall have the meaning set forth in the
preamble hereto.
"Warrant Market Price" shall mean (a) in the case of Section 8(a)
hereof, the greater of (i) the average of the closing prices of a share of
Common Stock for the 45 consecutive Trading Days ending on the Trading Day
immediately prior to the day on which the Election to Exercise is
delivered and (ii) the average of the closing prices of a share of Common
Stock for the 150 consecutive Trading Days ending on the Trading Day
immediately prior to the day on which the Election to Exercise is
delivered or
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<PAGE> 7
Warrant
(b) in the case of Section 8(b) hereof, the average of the closing prices
of a share of Common Stock for the 45 consecutive Trading Days ending on
the Trading Day immediately prior to the day on which the Election to
Exercise is delivered; provided that if during such 45 or 150 consecutive
Trading Day period (the "valuation period"), as applicable, there shall
occur a record date for determining holders of Common Stock entitled to
receive a dividend or distribution on the Common Stock, the amounts
determined pursuant to clauses (a)(i), (a)(ii) and/or (a)(iii) above, as
applicable, shall be reduced by subtracting the amount obtained by
multiplying (a) the value of such dividend or distribution per share of
Common Stock by (b) a fraction (i) the numerator of which shall be the
number of Trading Days from the beginning of such valuation period to and
including the record date for such dividend or distribution (but in no
event more than 30 days) and (ii) the denominator of which shall be the
number of Trading Days in such valuation period. For purposes of the
definition of Warrant Market Price, the "closing price" of a share of
Common Stock shall refer to the closing price quoted on Nasdaq or, if
shares of Common Stock are not quoted on Nasdaq, the closing price shall
be computed in accordance with the procedure set forth for such
contingency in the definition of "Market Price."
"Warrant Register" shall have meaning set forth in Section 2.2
hereof.
"Warrant Shares" shall mean the shares of Common Stock issued, or
issuable upon, exercise of this Warrant.
"Warrantholder" shall have the meaning set forth in the preamble
hereto.
Section 2. Transferability.
2.1 Registration. This Warrant shall be issued only in registered
form. The Company agrees to maintain, at its office or agency, books for the
registration and transfer of the Warrant.
2.2 Transfer. This Warrant may not be directly or indirectly sold,
transferred or otherwise disposed of at any time except to one or more
Restricted Parties. Any such permitted sale or transfer shall be effected on the
books of the Company (the "Warrant Register") maintained at its principal
executive offices upon surrender of this Warrant Certificate for registration of
transfer duly endorsed by the Warrantholder or by its duly authorized attorney
or representative, or accompanied by proper evidence of succession, assignment
or authority to transfer. Upon any registration of transfer, the Company shall
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<PAGE> 8
Warrant
execute and deliver a new Warrant Certificate to the Person entitled thereto.
Section 3. Exchange of Warrant Certificate.
This Warrant Certificate may be exchanged for another certificate of
like tenor entitling the Warrantholder to purchase a like aggregate number of
Warrant Shares as the certificate surrendered then entitles such Warrantholder
to purchase. Any Warrantholder desiring to exchange a Warrant certificate shall
make such request in writing delivered to the Company, and shall surrender,
properly endorsed, the certificate evidencing the Warrant to be so exchanged.
Thereupon, the Company shall execute and deliver to the Person entitled thereto
a new Warrant Certificate as so requested.
Section 4. Term of Warrant; Exercise of Warrant.
4.1 Duration of Warrant. On the terms and subject to the conditions
set forth in this Warrant Certificate, the Warrantholder or any Affiliate
thereof may exercise this Warrant, in whole or in part, at any time and from
time to time after the Issue Date and before the Expiration Time. At the
Expiration Time, this Warrant shall become void, and all rights hereunder shall
thereupon cease.
4.2 Exercise of Warrant.
(a) On the terms and subject to the conditions set forth in this
Warrant Certificate, the Warrantholder or any Affiliate thereof may exercise
this Warrant, in whole or in part, by presentation to the Company of the
attached Election to Exercise (the "Election to Exercise") duly filled in and
signed, and accompanied by payment to the Company of the Exercise Price for the
number of Warrant Shares specified in such Election to Exercise. Payment of the
aggregate Exercise Price shall be made by certified or official bank check in an
amount equal to the aggregate Exercise Price.
(b) On the terms and subject to the conditions set forth in this
Warrant Certificate, upon such presentation of an Election to Exercise and
payment of such aggregate Exercise Price as set forth in paragraph (a) hereof,
the Company shall promptly issue and cause to be delivered to the Warrantholder
and/or an Affiliate thereof, as applicable, a certificate or certificates (in
such name or names of the Warrantholder and/or the Affiliate(s) thereof, as
specified in the Election to Exercise) for the specified number of duly
authorized, fully paid and non-assessable Warrant Shares issuable upon exercise,
and shall deliver to the Warrantholder cash, as provided in Section 10 hereof,
with respect to any Fractional Warrant Shares otherwise issuable upon such
surrender. Upon each exercise of this Warrant,
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<PAGE> 9
Warrant
the Company shall record in its books the number of shares of Common Stock
purchased by the Warrantholder and/or such Affiliate(s).
(c) Each Person in whose name any certificate for Warrant Shares is
issued shall for all purposes be deemed to have become the holder of record of
the Warrant Shares represented thereby on the first date on which an Election to
Exercise was presented and payment of the Exercise Price and any applicable
taxes was made, irrespective of date of issue or delivery of such certificate.
4.3 Conditions to Exercise. Each exercise of this Warrant shall be
subject to the following conditions:
(a) The shareholders of the Company shall have approved this Warrant
as provided for in the Investment Agreement; and
(b) After taking into account the number of Warrant Shares issuable
upon such exercise, the Restricted Parties in the aggregate shall
Beneficially Own no more than (i) 39.9% of the then Adjusted Outstanding
Common Stock minus (ii) the aggregate number of shares of Common Stock
directly or indirectly sold, transferred or otherwise disposed of by all
Restricted Parties (excluding any such sale, transfer or other disposition
to any other Restricted Party) prior to and including the date of exercise
(making equitable adjustments for any conversions, reclassifications,
reorganizations, stock dividends, stock splits, reverse splits and similar
events which occur with respect to the Common Stock).
(c) The purchase of the Warrant Shares issuable upon such exercise
shall not be prohibited under applicable law.
4.4 Termination of Warrant. This Warrant shall automatically
terminate if:
(a) At the Shareholders Meeting (as defined in the Shareholder
Agreement), the shareholders of the Company shall fail to approve this
Warrant as provided in Section 4.3(a); or
(b) A Replacement Warrant (as defined in the Investment Agreement)
is issued pursuant to Section 2.4 of the Investment Agreement.
Section 5. Payment of Taxes.
The Company shall pay any and all documentary, stamp or similar
issue or transfer taxes and other governmental charges that may be imposed under
the laws of the United States or any
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<PAGE> 10
Warrant
political subdivision or taxing authority thereof or therein in respect of any
issue or delivery of Warrant Shares or of other securities or property
deliverable upon exercise of this Warrant or certificates representing such
shares or securities (other than income taxes imposed on the Warrantholder);
provided, however, that the Company shall not be required to pay any tax or
taxes which may be payable with respect to any transfer involving the issue of
any Warrant Certificate or any certificates for Warrant Shares in a name other
than that of the registered holder thereof, and the Company shall not be
required to issue or deliver such Warrant Certificate or certificates for
Warrant Shares unless and until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.
Section 6. Mutilated or Missing Warrant.
If this Warrant Certificate is lost, stolen, mutilated or destroyed,
the Company shall issue in exchange and substitution for and upon cancellation
of the mutilated Warrant Certificate, or in lieu of and substitution for the
Warrant certificate lost, stolen or destroyed, upon receipt of a proper
affidavit or other evidence reasonably satisfactory to the Company (and
surrender of any mutilated Warrant Certificate) and indemnity in form and amount
reasonably satisfactory to the Company in each instance protecting the Company,
a new Warrant Certificate of like tenor and representing an equivalent Warrant
as the Warrant Certificate so lost, stolen, mutilated or destroyed. Any such new
Warrant certificate shall constitute an original contractual obligation of the
Company, whether or not the allegedly lost, stolen, mutilated or destroyed
Warrant Certificate shall be at any time enforceable by anyone. An applicant for
such substitute Warrant Certificate shall also comply with such other reasonable
regulations and pay such other reasonable charges as the Company may prescribe.
The Warrant Certificate shall be held and owned upon the express condition that
the foregoing provisions are exclusive with respect to the replacement of lost,
stolen, mutilated or destroyed Warrant Certificate, and shall preclude any and
all other rights or remedies notwithstanding any law or statute existing or
hereafter enacted to the contrary with respect to the replacement of negotiable
instruments or other securities without their surrender.
Section 7. Reservation of Shares.
The Company hereby agrees that there shall be reserved for issuance
and delivery upon exercise of this Warrant, free from preemptive rights, the
number of shares of authorized but unissued shares of Common Stock as shall be
required for issuance or delivery upon full exercise of this Warrant. The
Company
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<PAGE> 11
Warrant
further agrees that it will not, by amendment of its Articles of Incorporation
or through reorganization, consolidation, merger, dissolution or sale or assets,
or by any other voluntary act, avoid or seek to avoid the observance or
performance of any of the covenants, stipulations or conditions to be observed
or performed hereunder by the Company. Without limiting the generality of the
foregoing, the Company shall from time to time take all such action that may be
necessary in order that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock at the Exercise Price.
Section 8. Exercise Price.
The price per share (the "Exercise Price") at which Warrant Shares
shall be purchasable upon the exercise of this Warrant shall be calculated as
follows:
(a) Exercise Prior to Second Anniversary. If the Warrantholder
elects to purchase Warrant Shares prior to the second anniversary of the
Issue Date, the Exercise Price shall be equal to the greater of (i) the
Warrant Market Price and (ii) $12.00 (as reduced by the excess of the fair
market value of the aggregate amount of dividends and other distributions
declared per share of Common Stock over the aggregate Regular Dividends
declared per share of Common Stock after the date hereof and having a
record date prior to the date of exercise), in each case making equitable
adjustments for any conversions, reclassifications, reorganizations, stock
dividends, stock splits, reverse splits and similar events which occur
with respect to the Common Stock.
(b) Exercise on or after Second Anniversary. If the Warrantholder
elects to purchase Warrant Shares on or after the second anniversary of
the Issue Date, the Exercise Price shall be equal to the greater of (i)
the Warrant Market Price and (ii) $15.00 (as reduced by the excess of the
fair market value of the aggregate amount of dividends and other
distributions declared per share of Common Stock over the aggregate
Regular Dividends declared per share of Common Stock after the date hereof
and having a record date prior to the date of exercise), in each case
making equitable adjustments for any conversions, reclassifications,
reorganizations, stock dividends, stock splits, reverse splits and similar
events which occur with respect to the Common Stock.
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<PAGE> 12
Warrant
Section 9. Certain Events.
9.1 Notice.
In case:
(i) the Company shall declare any dividend or any distribution
of any kind or character (whether in cash, securities or other property)
on or in respect of shares of Common Stock or to the shareholders of the
Company (in their capacity as such), excluding any regular periodic cash
dividend paid out of current or retained earnings (as such terms are used
in generally accepted accounting principles); or
(ii) the Company shall authorize the granting to the holders
of shares of Common Stock of rights to subscribe for or purchase any
shares of capital stock or of any other right; or
(iii) of any reclassification of shares of Common Stock (other
than a subdivision or combination of outstanding shares of Common Stock),
or of any consolidation or merger to which the Company is a party and for
which approval of any shareholders of the Company is required, or of the
sale or transfer of all or substantially all of the assets of the Company;
or
(iv) of the voluntary or involuntary dissolution, liquidation
or winding up of the Company;
then the Company shall cause to be mailed to the Warrantholder, at
their last addresses as they shall appear upon the Warrant Register,
at least 10 days prior to the applicable record date hereinafter
specified, a notice stating (x) the date on which a record is to be
taken for the purpose of such dividend, distribution or rights or,
if a record is not to be taken, the date as of which the holders of
shares of Common Stock of record to be entitled to such dividend,
distribution or rights are to be determined or (y) the date on which
such reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding up is expected to become
effective, and, if applicable, the date as of which it is expected
that holders of shares of Common Stock of record shall be entitled
to exchange their shares of Common Stock for securities or other
property (including cash) deliverable upon such reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation or
winding up. Failure to give any such notice, or any defect therein,
shall not affect the validity of the proceedings referred to in
clauses (i), (ii), (iii) and (iv) above.
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<PAGE> 13
Warrant
9.2 Section 305.
The Company shall be entitled, but not required, to make such
reductions in the Exercise Price as it in its discretion shall determine to be
advisable, including, without limitation, in order that any dividend in or
distribution of shares of Common Stock or shares of capital stock of any class
other than Common Stock, subdivision, reclassification or combination of shares
of Common Stock, issuance of rights or warrants, or any other transaction having
a similar effect, shall not be treated as a distribution of property by the
Company to its shareholders under Section 305 of the Internal Revenue Code of
1986, as amended, or any successor provision and shall not be taxable to them.
9.3 Organic Change.
(a) Company Survives. Upon the consummation of an Organic Change
(other than a transaction in which the Company is not the surviving entity),
lawful provision shall be made as part of the terms of such transaction whereby
the terms of the Warrant Certificate shall be modified, without payment of any
additional consideration therefor, so as to provide that upon exercise of this
Warrant following the consummation of such Organic Change, the Warrantholder
shall have the right to purchase for the Exercise Price the kind and amount of
securities, cash and other property receivable upon such Organic Change by a
holder of the number of Warrant Shares into which this Warrant might have been
exercised immediately prior to such Organic Change. Lawful provision also shall
be made as part of the terms of the Organic Change so that all other terms of
the Warrant Certificate shall remain in full force and effect following such an
Organic Change. The provisions of this Section 9.3(a) shall similarly apply to
successive Organic Changes.
(b) Company Does Not Survive. The Company shall not enter into an
Organic Change that is a transaction in which the Company is not the surviving
entity unless lawful provision shall be made as part of the terms of such
transaction whereby the surviving entity shall issue new securities to each
Warrantholder, without payment of any additional consideration therefor, with
terms that provide that upon the exercise of this Warrant, the Warrantholder
shall have the right to purchase the kind and amount of securities, cash and
other property receivable upon such Organic Change by a holder of the number of
Warrant Shares into which this Warrant might have been exercised immediately
prior to such Organic Change.
Section 10. Fractional Interests.
The Company shall not be required to issue Fractional Warrant Shares
on the exercise of this Warrant. If Fractional Warrant Shares totaling more than
one Warrant Share in the
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<PAGE> 14
Warrant
aggregate is presented for exercise at the same time by the Warrantholder, the
number of full Warrant Shares which shall be issuable upon exercise thereof
shall be computed on the basis of the aggregate number of Warrant Shares so
purchasable upon the exercise of the Warrants so presented. If any Fractional
Warrant Share would but for the provisions of this Section 10 be issuable on the
exercise of this Warrant (or specified portions thereof), the Company shall pay
an amount in cash equal to the fraction of a Warrant Share represented by such
Fractional Warrant Share multiplied by the Market Price on the day of such
exercise.
Section 11. No Rights as Shareholder.
Nothing in this Warrant Certificate shall be construed as conferring
upon the Warrantholder or its transferees any rights as a shareholder of the
Company, including the right to vote, receive dividends, consent or receive
notices as a shareholder with respect to any meeting of shareholders for the
election of directors of the Company or any other matter.
Section 12. Cooperation; Validity of Warrant.
The Company shall use its reasonable best efforts to obtain all such
authorizations, exemptions or consents from any Governmental Entity having
jurisdiction thereof as may be necessary to enable the Company to perform its
obligations under this Warrant. In addition, upon the request of Warrantholder,
the Company will at any time during the period this Warrant is outstanding
acknowledge in writing, in form satisfactory to Warrantholder, the continuing
validity of this Warrant and the obligations of the Company hereunder.
Section 13. Listing on Nasdaq or Securities Exchange.
The Company shall use its reasonable best efforts to list any shares
of Common Stock issuable upon exercise of this Warrant on Nasdaq or on such
other national securities exchange on which shares of Common Stock are then
listed. The Company will at its expense cause all shares of Common Stock issued
upon the exercise of this Warrant to be listed at the time of such issuance on
Nasdaq and/or such other securities exchange shares of Common Stock are then
listed on and shall maintain such listing.
Section 14. Covenant Regarding Consent.
The Company hereby covenants to use its reasonable best efforts upon
the request of the Warrantholder to seek any waivers
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<PAGE> 15
Warrant
or consents, or to take any other action required, to effectuate the exercise of
this Warrant by any Warrantholder.
Section 15. Limitation on Liability.
No provision hereof, in the absence of action by the Warrantholder
to receive shares of Common Stock, and no enumeration herein of the rights or
privileges of the Warrantholder, shall give rise to any liability of the
Warrantholder for any value subsequently assigned to the Common Stock or as a
shareholder of the Company, whether such liability is asserted by the Company or
by creditors of the Company.
Section 16. Nonwaiver and Expenses.
No course of dealing or any delay or failure to exercise any right
hereunder on the part of the Warrantholder or the Company shall operate as a
waiver of such right or otherwise prejudice the Warrantholder's or the
Company's, as the case may be, rights, powers or remedies.
Section 17. Amendment.
This Warrant and any other Warrant issued hereunder may be modified
or amended or the provisions hereof waived with the written consent of the
Company and Warrantholder's possessing in excess of 50% of the aggregate number
of shares of Common Stock then receivable upon full exercise of this Warrant
whether or not then exercisable; provided that no such Warrant may be modified
or amended in a manner which is materially adverse to the Initial Holder or any
of its successors or assigns, so long as such Person is a Warrantholder, without
the prior written consent of such Person.
Section 18. Successors.
All the covenants and provisions of this Warrant Certificate by or
for the benefit of the Company or the Warrantholder shall bind and inure to the
benefit of their respective successors and permitted assigns hereunder.
Section 19. Governing Law; Choice of Forum, Etc.
The validity, construction and performance of this Warrant
Certificate shall be governed by and interpreted in accordance with, the laws of
New York. The parties hereto agree that the appropriate forum for any disputes
arising out of this Warrant Certificate solely between or among any or all of
the Company, on the one hand, and the Initial Holder and/or any
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<PAGE> 16
Warrant
Person who has become a Warrantholder, on the other, shall be any state or U.S.
federal court sitting within the County of New York, New York or County of
Hennepin, Minnesota, and the parties hereto irrevocably consent to the
jurisdiction of such courts, and agree to comply with all requirements necessary
to give such courts jurisdiction. The parties hereto further agree that the
parties will not bring suit with respect to any disputes, except as expressly
set forth below, arising out of this Warrant Certificate for the execution or
enforcement of judgment, in any jurisdiction other than the above specified
courts. Each of the parties hereto irrevocably consents to the service of
process in any action or proceeding hereunder by the mailing of copies thereof
by registered or certified airmail, postage prepaid, if to (i) the Company, at
ValueVision International, Inc., 6740 Shady Oak Road, Eden Prairie, MN
55344-3433, Attention: General Counsel, Fax: (612) 947-0188, or at such other
address specified by the Company in writing to the other parties, with a copy to
Latham & Watkins, 633 West Fifth Street, Suite 4000, Los Angeles, CA 90071,
Attention: Michael W. Sturrock, Fax: (213) 891-8763 and (ii) any Warrantholder,
at the address of such Warrantholder specified in the Warrant Register. The
foregoing shall not limit the rights of any party hereto to serve process in an
other manner permitted by the law or to obtain execution of judgment in any
other jurisdiction. The parties further agree, to the extent permitted by law,
that final and unappealable judgment against any of them in any action or
proceeding contemplated above shall be conclusive and may be enforced in any
other jurisdiction within or outside the United States by suit on the judgment,
a certified or exemplified copy of which shall be conclusive evidence of the
fact and the amount of indebtedness. The parties agree to waive any and all
rights that they may have to a jury trial with respect to disputes arising out
of this Agreement.
Section 20. Enforcement.
The parties agree that irreparable damage would occur in the event
that any of the provisions of this Warrant were not performed in accordance with
their specific terms or were otherwise breached. It is accordingly agreed that
the parties shall be entitled to an injunction or injunctions to prevent
breaches of this Warrant and to enforce specifically the terms and provisions of
this Warrant.
Section 21. Benefits of this Agreement.
Nothing in this Warrant Certificate shall be construed to give to
any Person other than the Company and the Warrantholder any legal or equitable
right, remedy or claim under this Warrant Certificate, and this Warrant
Certificate shall be for the sole and exclusive benefit of the Company and the
Warrantholder.
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<PAGE> 17
Warrant
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed, as of this ___ day of ___________, 1999.
VALUEVISION INTERNATIONAL, INC.
By: _________________________
Name:
Title:
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<PAGE> 18
Warrant
ELECTION TO EXERCISE
(To be executed upon exercise of Warrant)
To ValueVision International, Inc.:
The undersigned hereby irrevocably elects to exercise the right
represented by the within Warrant Certificate for, and to acquire thereunder,
_____ Warrant Shares, as provided for therein, and tenders herewith payment of
the aggregate $________ Exercise Price in full.
Please issue a certificate or certificates for such Warrant Shares in the name
of, and pay any cash for any Fractional Warrant Shares to (please print name,
address and social security or other identifying number)*:
Name of Warrantholder (or Affiliate):__________________________________________
Address: ______________________________________________________________________
______________________________________________________________________
Soc. Sec. #:______________________
Signature:** ___________________________
- ---------
* The Warrant Certificate contains restrictions on the sale and other
transfer of the Warrant evidenced by such Warrant Certificate.
** The above signature should correspond exactly with the name on the face of
this Warrant Certificate or with the name of the assignee appearing in the
assignment form below.
<PAGE> 19
Warrant
ASSIGNMENT FORM
(To be signed only upon assignment of Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto
________________________________________________________________________________
________________________________________________________________________________
(Name and Address of Assignee must be Printed or Typewritten)
A Warrant to purchase Warrant Shares of the Company pursuant to the terms and
conditions therein, evidenced by the within Warrant Certificate hereby
irrevocably constituting and appointing ________________ Attorney to transfer
said Warrant on the books of the Company, with full power of substitution in the
premises.
Dated: _____________, ____
________________________________
Signature of Registered Holder*
________________________________
Signature Guaranteed: Signature of Guarantor
*The above signature should correspond exactly with the name on the face of this
Warrant Certificate.
<PAGE> 1
Form of
Registration Rights Agreement
between
G.E. Capital Equity Investments, Inc.
and
ValueVision International, Inc.
Dated as of ________, 1999
<PAGE> 2
TABLE OF CONTENTS
Page
Section 1. Definitions.........................................................2
Section 2. Demand Registration.................................................3
(a) Requests for Registration by Holders...........................3
(b) Filing and Effectiveness.......................................4
(c) Priority on Demand Registration................................5
(d) Postponement of Demand Registration............................5
Section 3. Piggyback Registration..............................................5
(a) Right to Piggyback.............................................5
(b) Priority on Piggyback Registrations............................6
Section 4. Restrictions on Sale by Holders.....................................6
Section 5. Registration Procedures.............................................7
Section 6. Registration Expenses..............................................13
Section 7. Indemnification....................................................14
(a) Indemnification by the Company................................14
(b) Indemnification by Holders....................................14
(c) Conduct of Indemnification Proceedings........................15
(d) Contribution..................................................16
Section 8. Underwritten Registrations.........................................16
Section 9. Miscellaneous......................................................17
(a) Remedies......................................................17
(b) Amendments and Waivers........................................17
(c) Notices.......................................................17
(e) Successors and Assigns........................................18
(f) Counterparts..................................................19
(g) Headings......................................................19
<PAGE> 3
Page
(h) Governing Law.................................................19
(i) Severability..................................................19
(j) Entire Agreement..............................................19
- ii -
<PAGE> 4
FORM OF
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and
entered into as of _______, 1999, by and between ValueVision International,
Inc., a Minnesota corporation (together with is successors and assigns, the
"Company"), and G.E. Capital Equity Investments, Inc., a Delaware corporation
(together with its successors and assigns, the "Purchaser"), and each other
person who becomes a Holder hereunder.
RECITALS
WHEREAS, pursuant to an Investment Agreement dated as of March 8,
1999 (the "Investment Agreement") between the Company and the Purchaser, the
Purchaser is purchasing shares of Series A Redeemable Convertible Preferred
Stock of the Company, par value $0.01 per share (including any securities into
which such preferred stock may be or has been converted or exchanged in any
merger, consolidation or reclassification, the "Preferred Stock"), that are
convertible into Common Stock of the Company, par value $0.01 per share (the
"Common Stock"); and
WHEREAS, pursuant to the Investment Agreement the Purchaser is
purchasing warrants to purchase shares of Common Stock; and
WHEREAS, pursuant to the Distribution Agreement (as defined below),
the Purchaser or its Affiliate will, under certain terms and conditions
specified therein, receive warrants to purchase shares of Common Stock (together
with warrants received under the Investment Agreement, the "Warrants"); and
WHEREAS, the Company's shares of Common Stock are registered with
the SEC and quoted on the Nasdaq Stock Market; and
WHEREAS, to induce the Purchaser to execute and deliver the
Investment Agreement and NBC to execute and deliver the Distribution Agreement,
the Company has agreed to provide to the Holders (as defined below) certain
registration rights under the Securities Act; and
WHEREAS, the execution and delivery of this agreement by the parties
hereto is a condition to the closing of the transactions contemplated by the
Investment Agreement.
NOW, THEREFORE, in consideration of the mutual promises and
agreements set forth herein and in the Investment Agreement, and other valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto hereby agree as follows:
<PAGE> 5
Registration Rights Agreement
Section 1. Definitions. For purposes of this Agreement, the following
capitalized terms have the following meanings:
"Common Stock": The Common Stock of the Company and any securities
into which such common stock may be or has been converted or exchanged in any
merger, consolidation or reclassification.
"Distribution Agreement": The Distribution and Marketing Agreement
dated as of March 8, 1999 between the Company and NBC pursuant to which NBC has
agreed to distribute certain programming of the Company, as such agreement may
be amended, supplemented or otherwise modified from time to time.
"Holders": Each Restricted Party (as defined in the Shareholder
Agreement) that from time to time owns Registrable Securities and each of their
permitted transferees pursuant to Section 9(e) who agree to be bound by the
provisions of this Agreement in accordance with said section.
"Prospectus": The prospectus included in any Registration Statement
(including, without limitation, a prospectus that discloses information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A under the Securities Act), as amended or
supplemented by any prospectus supplement, with respect to the terms of the
offering of any portion of the Registrable Securities covered by such
Registration Statement and all other amendments and supplements to such
prospectus, including post-effective amendments, and all material incorporated
by reference or deemed to be incorporated by reference in such prospectus.
"Registrable Securities": All shares of Common Stock (i) held from
time to time by the Holders who are Restricted Parties (the "Restricted Party
Common Stock") or (ii) held by Holders who are not Restricted Parties (but only
to the extent that such Common Stock previously constituted Restricted Party
Common Stock or Common Stock described in clause (iii) below) or (iii) issued or
issuable upon the conversion of Preferred Stock into Common Stock or (iv) issued
or issuable upon the exercise of Warrants, excluding shares of Common Stock that
have been disposed of by a Holder pursuant to a Registration Statement relating
to the sale thereof that has become effective under the Securities Act or
pursuant to Rule 144 or Rule 145 under the Securities Act. Registrable
Securities shall also include any shares of the Common Stock or other securities
(or shares of Common Stock underlying such other securities) that may be
received by the Holders (x) as a result of a stock dividend on or stock split of
Registrable Securities or (y) on account of Registrable Securities in a
recapitalization of or other transaction involving the Company.
"Registration Statement": Any registration statement of the Company
under the Securities Act that covers any of the Registrable Securities pursuant
to the provisions of this
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Registration Rights Agreement
Agreement, including the related Prospectus, any preliminary prospectus, all
amendments and supplements to such registration statement (including
post-effective amendments), all exhibits and all material incorporated by
reference or deemed to be incorporated by reference in such registration
statement.
"SEC": The Securities and Exchange Commission.
"Securities Act": The Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Shareholder Agreement": The Shareholder Agreement, dated as of the
date hereof, between the Company and the Purchaser, as such agreement may be
amended, supplemented or otherwise modified from time to time.
"Underwritten Offering": A distribution, registered pursuant to the
Securities Act, in which securities of the Company are sold to the public
through one or more underwriters.
Section 2. Demand Registration.
(a) Requests for Registration by Holders. Subject to the terms and
conditions of the Shareholder Agreement, at any time and from time to time,
subject to the conditions set forth in this Agreement: (i) one or more Holders
will have the right, by written notice delivered to the Company (a "Demand
Notice"), to require the Company to register Registrable Securities under and in
accordance with the provisions of the Securities Act (a "Demand Registration"),
provided that the Holders may not make in the aggregate more than four (4)
Demand Registrations under this Agreement; provided, further, that: (i) no such
Demand Registration may be required unless the Holders requesting such Demand
Registration provide to the Company a certificate (the "Authorizing
Certificate"), seeking to include Registrable Securities in such Demand
Registration with a market value of at least $5,000,000 (calculated based on the
closing sale price of such securities on the principal securities exchange where
such securities are listed on the business day immediately preceding the date of
the Demand Notice) as of the date the Demand Notice is given; and (ii) no Demand
Notice may be given prior to six (6) months after the effective date of the
immediately preceding Demand Registration or, if later, the date on which a
registration pursuant to this Section 2 is terminated in its entirety prior to
the effective date of the applicable registration statement. The Authorizing
Certificate shall set forth (A) the name of each Holder signing such Authorizing
Certificate, (B) the number of Registrable Securities held by each such Holder,
and, if different, the number of Registrable Securities such Holder has elected
to have registered, and (C) the intended methods of disposition of the
Registrable Securities. Notwithstanding the foregoing, a good faith decision by
a Holder to withdraw Registrable Securities from registration will not affect
the Company's obligations hereunder even if the
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Registration Rights Agreement
amount remaining to be registered has a market value of less than $5,000,000
(calculated as aforesaid), provided that: (1) such continuing registration shall
constitute a Demand Registration, (2) the withdrawing Holder reimburses the
Company for any registration and filing fees (including any fees payable to the
National Association of Securities Dealers, Inc. or any successor organization)
it has incurred with respect to the withdrawn Registrable Securities (unless all
Registrable Securities are withdrawn, in which case the withdrawing Holder(s)
shall reimburse the Company for all costs and expenses incurred by it in
connection with the registration of such Registrable Securities) and (3) such
Holder (or the other Holders participating in the subject registration) did not
include the withdrawn Registrable Securities as a means of circumventing the
$5,000,000 threshold described above. Subject to compliance with clause (2) of
the preceding proviso, a registration that is terminated in its entirety prior
to the effective date of the applicable registration statement will not
constitute a Demand Registration.
(b) Filing and Effectiveness. The Company will file a Registration
Statement relating to any Demand Registration as promptly as practicable (but in
any event within 90 days) following the date on which the Demand Notice is given
and will use all reasonable efforts to cause the same to be declared effective
by the SEC as soon as practicable thereafter. If any Demand Registration is
requested to be effected as a shelf registration pursuant to Rule 415 under the
Securities Act by the Holders demanding such Demand Registration, the Company
will keep the Registration Statement filed in respect thereof effective for a
period of six (6) months from the date on which the SEC declares such
Registration Statement effective (subject to extension pursuant to Section 5) or
such shorter period that will terminate when all Registrable Securities covered
by such Registration Statement have been sold pursuant to such Registration
Statement.
Within ten (10) business days after receipt of such Demand Notice,
the Company will serve written notice thereof (the "Notice") to all other
Holders and will, subject to the provisions of Section 2(c), include in such
registration all Registrable Securities with respect to which the Company
receives written requests for inclusion therein within ten (10) business days
after receipt of the Notice by the applicable Holder. Subject to the proviso at
the end of Section 2(a), the Holder will be permitted to withdraw in good faith
all or part of the Registrable Securities from a Demand Registration at any time
prior to the effective date of such Demand Registration, in which event the
Company will promptly amend or, if applicable, withdraw the related Registration
Statement.
(c) Priority on Demand Registration. If Registrable Securities are
to be registered pursuant to a Demand Registration, the Company shall provide
written notice to the other Holders and will permit all such Holders who request
to be
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Registration Rights Agreement
included in the Demand Registration to include any or all Registrable Securities
held by such Holders in such Demand Registration. Notwithstanding the foregoing,
if the managing underwriter or underwriters of an Underwritten Offering to which
such Demand Registration relates advises the Holders that the total amount of
Registrable Securities that such Holders intend to include in such Demand
Registration is in the aggregate such as to materially and adversely affect the
success of such offering, then the number of Registrable Securities to be
included in such Demand Registration will, if necessary, be reduced and there
will be included in such underwritten offering the number of Registrable
Securities that, in the opinion of such managing underwriter or underwriters,
can be sold without materially and adversely affecting the success of such
Underwritten Offering. The Registrable Securities of the Holder or Holders
initiating the Demand Registration shall receive priority in such Underwritten
Offering to the full extent of the Registrable Securities such Holder or Holders
desire to sell (unless these securities would materially and adversely affect
the success of such offering, in which case the number of such Holder's
Registrable Securities included in the offering shall be reduced to the extent
necessary) and the remaining allocation available for sale, if any, shall be
allocated pro rata among the other Holders on the basis of the amount of
Registrable Securities requested to be included therein by each such Holder.
(d) Postponement of Demand Registration. The Company will be
entitled to postpone the filing period of any Demand Registration for a
reasonable period of time not in excess of 90 calendar days if the Company
determines, in the good faith exercise of the business judgment of its Board of
Directors, that such registration and offering could materially interfere with a
bona fide business or financing transaction of the Company or would require
disclosure of information, the premature disclosure of which could materially
and adversely affect the Company. If the Company postpones the filing of a
Registration Statement, it will promptly notify the Holders in writing (i) when
the events or circumstances permitting such postponement have ended and (ii)
that the decision to postpone was made by the Board of Directors of the Company
in accordance with this Section 2(d).
Section 3. Piggyback Registration.
(a) Right to Piggyback. If at any time the Company proposes to file
a Registration Statement, whether or not for sale for the Company's own account,
on a form and in a manner that would also permit registration of Registrable
Securities, the Company shall give to Holders holding Registrable Securities,
written notice of such proposed filing at least thirty (30) days before the
anticipated filing. The notice referred to in the preceding sentence shall offer
Holders the opportunity to register such amount of Registrable Securities as
each Holder may request (a "Piggyback Registration"). Subject to Section 3(b),
the Company will include in each such Piggyback Registration all Registrable
Securities with respect to which the Company has
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Registration Rights Agreement
received written requests for inclusion therein. Subject to clause (2) of the
proviso at the end of Section 2(a), the Holders will be permitted to withdraw
all or part of the Registrable Securities from a Piggyback Registration at any
time prior to the effective date of such Piggyback Registration.
Notwithstanding the foregoing, the Company will not be obligated to
effect any registration of Registrable Securities under this Section 3 as a
result of the registration of any of its securities solely in connection with
mergers, acquisitions, exchange offers, dividend reinvestment and share purchase
plans offered solely to current holders of the Common Stock, rights offerings or
option or other employee benefit plans.
(b) Priority on Piggyback Registrations. The Company will cause the
managing underwriter or underwriters of a proposed Underwritten Offering on
behalf of the Company to permit Holders holding Registrable Securities requested
to be included in the registration for such offering to include therein all such
Registrable Securities requested to be so included on the same terms and
conditions as any securities of the Company included therein (other than the
indemnification by the Holders, which will be limited as set forth in Section 7
hereof). Notwithstanding the foregoing, if the managing underwriter or
underwriters of such Underwritten Offering advises the Holders to the effect
that the total amount of securities that such Holders and the Company propose to
include in such Underwritten Offering is such as to materially and adversely
affect the success of such offering, then the Company will include in such
registration (i) first, 100% of the Common Stock the Company proposes to sell,
and (ii) second, to the extent of the number of Registrable Securities requested
to be included in such registration which, with the advice of such managing
underwriter, can be sold without having the adverse effect referred to above,
the number of Registrable Securities which the Holders have requested to be
included in such registration, such amount to be allocated pro rata among all
requesting Holders on the basis of the relative number of Registrable Securities
then held by each such Holder.
Section 4. Restrictions on Sale by Holders. Each Holder agrees, if such
Holder is so requested (pursuant to a timely written notice) by the managing
underwriter or underwriters in an Underwritten Offering, not to effect any
public sale or distribution of any of the Company's securities of such class or
securities convertible or exchangeable into such class (except as part of such
underwritten offering), including a sale pursuant to Rule 144 under the
Securities Act, during the 15-calendar day period prior to, and during the
90-calendar day period beginning on, the closing date of such Underwritten
Offering.
Section 5. Registration Procedures. In connection with the Company's
registration obligations pursuant to Sections 2 and 3, the Company will effect
such registrations to permit the sale of such Registrable Securities in
accordance with the intended method or methods of disposition thereof, and
pursuant thereto
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Registration Rights Agreement
the Company will as expeditiously as possible, and in each case to the extent
applicable (it being understood that the obligations of the Company in clauses
(a), (b), (d), (h), (j), (k), (l), (n) and (q) of this Section 5 will be subject
to the first sentence of Section 3(b) and, except as provided in Section 3(b),
the Holders will not have any right to effect an underwritten public offering
under Section 3):
(a) Prepare and file with the SEC a Registration Statement or
Registration Statements on any appropriate form under the Securities Act
available for the sale of the Registrable Securities by the holders
thereof in accordance with the intended method or methods of distribution
thereof, and cause each such Registration Statement to become effective
and remain effective as provided herein; provided, however, that before
filing a Registration Statement or Prospectus or any amendments or
supplements thereto (including documents that would be incorporated or
deemed to be incorporated therein by reference) the Company will furnish
to the Holders holding Registrable Securities covered by such Registration
Statement, not more than one counsel chosen by Holders holding a majority
of the Registrable Securities being registered ("Special Counsel") and the
managing underwriters, if any, copies of all such documents proposed to be
filed, which documents will be subject to the review of such Holders, such
Special Counsel and such underwriters, and the Company will not file any
such Registration Statement or amendment thereto or any Prospectus or any
supplement thereto (excluding such documents that, upon filing, will be
incorporated or deemed to be incorporated by reference therein) to which
the Holders holding a majority of the Registrable Securities covered by
such Registration Statement or the managing underwriter, if any, shall
reasonably object.
(b) Prepare and file with the SEC such amendments and
post-effective amendments to each Registration Statement as may be
necessary to keep such Registration Statement continuously effective for
the applicable periods specified in Section 2; cause the related
Prospectus to be supplemented by any required Prospectus supplement, and
as so supplemented to be filed pursuant to Rule 424 (or any similar
provisions then in force) under the Securities Act; and comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such Registration Statement during the applicable
period in accordance with the intended methods of disposition by the
sellers thereof set forth in such Registration Statement as so amended or
in such Prospectus as so supplemented.
(c) Notify the selling Holders and the managing underwriters,
if any, promptly, and (if requested by any such person) confirm such
notice in writing, (i) when a Prospectus or any Prospectus supplement or
post-effective amendment has been filed, and, with respect to a
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Registration Rights Agreement
Registration Statement or any post-effective amendment, when the same has
become effective, (ii) of any request by the SEC or any other federal or
state governmental authority for amendments or supplements to a
Registration Statement or related Prospectus or for additional
information, (iii) of the issuance by the SEC or any other federal or
state governmental authority of any stop order suspending the
effectiveness of a Registration Statement or the initiation of any
proceedings for that purpose, (iv) if at any time the representations and
warranties of the Company contained in any agreement contemplated by
Section 5(n) (including any underwriting agreement) cease to be true and
correct in any material respect, (v) of the receipt by the Company of any
notification with respect to the suspension of the qualification or
exemption from qualification of any of the Registrable Securities for sale
in any jurisdiction or the initiation or threatening of any proceeding for
such purpose, (vi) of the occurrence of any event that makes any statement
made in such Registration Statement or related Prospectus or any document
incorporated or deemed to be incorporated therein by reference untrue in
any material respect or that requires the making of any changes in a
Registration Statement, Prospectus or any such document so that, in the
case of the Registration Statement, it will not contain any untrue
statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not
misleading and, in the case of the Prospectus, it will not contain any
untrue statement of a material fact or omit to state any material fact
required to be stated or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, and
(vii) of the Company's reasonable determination that a post-effective
amendment to a Registration Statement would be appropriate.
(d) Use every reasonable effort to obtain the withdrawal of
any order suspending the effectiveness of a Registration Statement, or the
lifting of any suspension of the qualification (or exemption from
qualification) of any of the Registrable Securities for sale in any
jurisdiction, at the earliest possible moment.
(e) If requested by the managing underwriters, if any, or
Holders holding a majority of the Registrable Securities being registered,
(i) promptly incorporate in a Prospectus supplement or post-effective
amendment such information as the managing underwriters, if any, and such
Holders agree should be included therein as may be required by applicable
law and (ii) make all required filings of such Prospectus supplement or
such post-effective amendment as soon as practicable after the Company has
received notification of the matters to be incorporated in such Prospectus
supplement or post-effective amendment; provided, however, that the
Company will not be required to take any actions under this Section 5(e)
that are not, in the opinion
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Registration Rights Agreement
of counsel for the Company, in compliance with applicable
law.
(f) Furnish to each selling Holder and each managing
underwriter, if any, without charge, at least one conformed copy of the
Registration Statement and any post-effective amendment thereto, including
financial statements (but excluding schedules, all documents incorporated
or deemed incorporated therein by reference and all exhibits, unless
requested in writing by such holder or underwriter).
(g) Deliver to each selling Holder and the underwriters, if
any, without charge as many copies of the Prospectus or Prospectuses
relating to such Registrable Securities (including each preliminary
prospectus) and any amendment or supplement thereto as such persons may
reasonably request; and, subject to the last paragraph of this Section 5,
the Company hereby consents to the use of such Prospectus or each
amendment or supplement thereto by each of the selling Holders and the
underwriters, if any, in connection with the offering and sale of the
Registrable Securities covered by such Prospectus or any amendment or
supplement thereto.
(h) Prior to any public offering of Registrable Securities, to
register or qualify or cooperate with the selling Holders, the
underwriters, if any, and their respective counsel in connection with the
registration or qualification (or exemption from such registration or
qualification) of such Registrable Securities for offer and sale under the
securities or blue sky laws of such jurisdictions within the United States
as any seller or underwriter reasonably requests in writing; use all
reasonable efforts to keep such registration or qualification (or
exemption therefrom) effective during the period the applicable
Registration Statement is required to be kept effective and do any and all
other acts or things necessary or advisable to enable the disposition in
each such jurisdiction of the Registrable Securities covered by the
applicable Registration Statement; provided, however, that the Company
will not be required to (i) qualify to do business in any jurisdiction
where it is not then so qualified or (ii) take any action that would
subject it to taxation or service of process in any such jurisdiction
where it is not then so subject.
(i) Cooperate with the selling Holders and the managing
underwriters, if any, to facilitate the timely preparation and delivery of
certificates representing Registrable Securities to be sold and enable
such Registrable Securities to be in such denominations and registered in
such names as the managing underwriters, if any, shall request at least
two business days prior to any sale of Registrable Securities to the
underwriters.
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Registration Rights Agreement
(j) Use all reasonable efforts to cause the Registrable
Securities covered by the applicable Registration Statement to be
registered with or approved by such other governmental agencies or
authorities within the United States except as may be required solely as a
consequence of the nature of any selling Holder's business, in which case
the Company will cooperate in all reasonable respects with the filing of
such Registration Statement and the granting of such approvals as may be
necessary to enable the seller or sellers thereof or the underwriters, if
any, to consummate the disposition of such Registrable Securities.
(k) Upon the occurrence of any event contemplated by Section
5(c)(vi) or 5(c)(vii), prepare a supplement or post-effective amendment to
each Registration Statement or a supplement to the related Prospectus or
any document incorporated therein by reference or file any other required
document so that, as thereafter delivered to the purchasers of the
Registrable Securities being sold thereunder, such Prospectus will not
contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(l) If requested by Holders holding a majority of the
Registrable Securities covered by such Registration Statement or the
managing underwriters, if any, use its best efforts to cause all
Registrable Securities covered by such Registration Statement to be (i)
listed on each securities exchange, if any, on which securities issued by
the Company of the same class are then listed or, if no such securities
issued by the Company are then so listed, on the New York Stock Exchange
or another national securities exchange if the securities qualify to be so
listed or (ii) authorized to be quoted on the National Association of
Securities Dealers Automated Quotation System ("Nasdaq") or the National
Market System of Nasdaq, if the securities qualify to be so quoted.
(m) As needed, (i) engage an appropriate transfer agent and
provide the transfer agent with printed certificates for the Registrable
Securities in a form eligible for deposit with The Depository Trust
Company and (ii) provide a CUSIP number for the Registrable Securities.
(n) Enter into such customary agreements (including, in the
event of an Underwritten Offering, an underwriting agreement in form,
scope and substance as is customary in underwritten offerings) and take
all such other commercially reasonable and customary actions in connection
therewith (including those reasonably requested by the Holders holding a
majority of the Registrable Securities being sold or, in the event of an
Underwritten Offering, those reasonably requested by the managing
underwriters) in
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Registration Rights Agreement
order to facilitate the disposition of such Registrable Securities and in
such connection, but only where an underwriting agreement is entered into
in connection with an underwritten registration, (i) make such
representations and warranties to the underwriters with respect to the
businesses of the Company and its subsidiaries, the Registration
Statement, Prospectus and documents incorporated by reference or deemed
incorporated by reference therein, if any, in each case, in form,
substance and scope as are customarily made by issuers to underwriters in
underwritten offerings and confirm the same if and when requested; (ii)
obtain opinions of counsel to the Company and updates thereof, which
counsel and opinions (in form, scope and substance) shall be reasonably
satisfactory to the managing underwriters, if any, addressed to each of
the underwriters covering the matters customarily covered in opinions
requested in underwritten offerings and such other matters as may be
reasonably requested by such underwriters; (iii) use reasonable efforts to
obtain "comfort" letters and updates thereof from the independent
certified public accountants of the Company (and, if necessary, any other
certified public accountants of any subsidiary of the Company or of any
business acquired by the Company for which financial statements and
financial data is, or is required to be, included in the Registration
Statement), addressed to each of the underwriters, such letters to be in
customary form and covering matters of the type customarily covered in
"comfort" letters in connection with underwritten offerings; and (iv)
deliver such documents and certificates as may be reasonably requested by
the managing underwriters, if any, to evidence the continued validity of
the representations and warranties of the Company and its subsidiaries
made pursuant to clause (i) above and to evidence compliance with any
customary conditions contained in the underwriting agreement entered into
by the Company. The foregoing actions will be taken in connection with
each closing under such underwriting agreement as and to the extent
required thereunder.
(o) Make available for reasonable inspection during normal
business hours by a representative of the Holders holding Registrable
Securities being sold, any underwriter participating in any disposition of
Registrable Securities, and any attorney or accountant retained by such
selling Holders or underwriter, all financial and other records, pertinent
corporate documents and properties of the Company and its subsidiaries,
and cause the officers, directors and employees of the Company and its
subsidiaries to supply all information reasonably requested by any such
representative, underwriter, attorney or accountant in connection with
such Registration Statement; provided, however, that any records,
information or documents that are designated by the Company in writing as
confidential at the time of delivery of such records, information or
documents will be kept confidential by such persons unless (i) such
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Registration Rights Agreement
records, information or documents are in the public domain or otherwise
publicly available, (ii) disclosure of such records, information or
documents is required by court or administrative order or is necessary to
respond to inquiries of regulatory authorities, or (iii) disclosure of
such records, information or documents, in the reasonable opinion of
counsel to such person, is otherwise required by law (including, without
limitation, pursuant to the requirements of the Securities Act).
(p) Comply with all applicable rules and regulations of the
SEC and make generally available to its security holders earning
statements satisfying the provisions of Section 11(a) of the Securities
Act and Rule 158 thereunder (or any similar rule promulgated under the
Securities Act) no later than 45 calendar days after the end of any
12-month period (or 90 calendar days after the end of any 12-month period
if such period is a fiscal year) (i) commencing at the end of any fiscal
quarter in which Registrable Securities are sold to underwriters in a firm
commitment or best efforts underwritten offering, or (ii) if not sold to
underwriters in such an offering, commencing on the first day of the first
fiscal quarter of the Company, after the effective date of a Registration
Statement, which statements shall cover such 12-month period.
(q) In connection with any Underwritten Offering, cause
appropriate members of management to cooperate and participate on a
reasonable basis in the underwriters' "road show" conferences related to
such offering.
The Company may require each seller of Registrable Securities as to
which any registration is being effected to furnish to the Company such
information regarding the distribution of such Registrable Securities as the
Company may, from time to time, reasonably request in writing, and the Company
may exclude from such registration the Registrable Securities of any seller who
unreasonably fails to furnish such information within a reasonable time after
receiving such request.
Each Holder will be deemed to have agreed by virtue of its
acquisition of Registrable Securities that, upon receipt of any notice from the
Company of the occurrence of any event of the kind described in Section
5(c)(ii), 5(c)(iii), 5(c)(v), 5(c)(vi) or 5(c)(vii) ("Suspension Notice"), such
Holder will forthwith discontinue disposition of such Registrable Securities
covered by such Registration Statement or Prospectus (a "Black-Out") until such
Holder's receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 5(k), or until it is advised in writing (the "Advice")
by the Company that the use of the applicable Prospectus may be resumed, and
such Holder has received copies of any additional or supplemental filings that
are incorporated or deemed to be incorporated by reference in such Prospectus.
Except as expressly provided herein, there shall be no limitation with regard to
the number of Suspension
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Registration Rights Agreement
Notices that the Company is entitled to give hereunder; provided, however, that
in no event shall the aggregate number of days the Holders are subject to
Black-Out during any period of 12 consecutive months exceed 180 days.
Section 6. Registration Expenses. Subject to clause (2) of the proviso at
the end of section 2(a), all fees and expenses incident to the performance of or
compliance with this Agreement by the Company will be borne by the Company
whether or not any of the Registration Statements become effective. Such fees
and expenses will include, without limitation, (i) all registration and filing
fees (including, without limitation, fees and expenses for compliance with
securities or "blue sky" laws), (ii) printing expenses (including, without
limitation, expenses of printing certificates for Registrable Securities in a
form eligible for deposit with The Depository Trust Company and of printing a
reasonable number of prospectuses if the printing of such prospectuses is
requested by the Holders holding a majority of the Registrable Securities
included in any Registration Statement), (iii) messenger, telephone and delivery
expenses incurred by the Company, (iv) fees and disbursements of counsel for the
Company incurred by the Company, (v) fees and disbursements of all independent
certified public accountants referred to in Section 5(n)(iii) (including the
expenses of any special audit and "comfort" letter required by or incident to
such performance) incurred by the Company, (vi) Securities Act liability
insurance, if any, and (vii) fees and expenses of Special Counsel retained by
the Holders in connection with the registration and sale of their Registrable
Securities (which counsel will be selected by the Holders of a majority of the
Registrable Securities being sold), provided that any such fees and expenses of
Special Counsel in excess of $20,000 for any offering will not be reimbursed by
the Company. In addition, the Company will pay internal expenses (including
without limitation all salaries and expenses of its officers and employees
performing legal or accounting duties), the expense of any annual audit, the
fees and expenses incurred in connection with the listing of the securities to
be registered on any securities exchange on which securities of the same class
issued by the Company are then listed and the fees and expenses of any person,
including special experts, retained by the Company. In no event, however, will
the Company be responsible for any underwriting discount or selling commission
with respect to any sale of Registrable Securities pursuant to this Agreement,
and the Holders shall be responsible on a pro rata basis for any taxes of any
kind (including, without limitation, transfer taxes) with respect to any
disposition, sale or transfer of Registrable Securities and for any legal,
accounting and other expenses incurred by them in connection with any
Registration Statement.
Section 7. Indemnification.
(a) Indemnification by the Company. The Company will, without
limitation as to time, indemnify and hold harmless, to the fullest extent
permitted by law, each Holder holding
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Registration Rights Agreement
Registrable Securities registered pursuant to this Agreement, the officers,
directors and agents and employees of each of them, each person who controls
such a Holder (within the meaning of Section 15 of the Securities Act or Section
20 of the Exchange Act) and the officers, directors, agents and employees of any
such controlling person, from and against all losses, claims, damages,
liabilities, costs (including without limitation the costs of investigation and
attorneys' fees) and expenses (collectively, "Losses"), as incurred, arising out
of or based upon any untrue or alleged untrue statement of a material fact
contained in any Registration Statement, Prospectus or form of Prospectus or in
any amendment or supplement thereto or in any preliminary prospectus, or arising
out of or based upon any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar and to the extent as the same are based
upon information furnished in writing to the Company by such Holder for use
therein; provided, however, that the Company will not be liable to any Holder to
the extent that any such Losses arise out of or are based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
any Registration Statement, Prospectus or preliminary prospectus if either (A)
(i) such Holder failed to send or deliver a copy of the Prospectus with or prior
to the delivery of written confirmation of the sale by such Holder of a
Registrable Security to the person asserting the claim from which such Losses
arise and (ii) the Prospectus would have corrected such untrue statement or
alleged untrue statement or such omission or alleged omission; or (B) such
untrue statement or alleged untrue statement, omission or alleged omission is
corrected in an amendment or supplement to the Prospectus previously furnished
by or on behalf of the Company with copies of the Prospectus, and such Holder
thereafter fails to deliver such Prospectus as so amended or supplemented prior
to or concurrently with the sale of a Registrable Security to the person
asserting the claim from which such Losses arise.
(b) Indemnification by Holders. In connection with any Registration
Statement in which a Holder is participating, such Holder will furnish to the
Company in writing such information as the Company reasonably requests for use
in connection with any Registration Statement, Prospectus or preliminary
prospectus and will indemnify, to the fullest extent permitted by law, the
Company, its directors and officers, agents and employees, each person who
controls the Company (within the meaning of Section 15 of the Securities Act and
Section 20 of the Exchange Act), and the directors, officers, agents or
employees of such controlling persons, from and against all Losses arising out
of or based upon any untrue statement of a material fact contained in any
Registration Statement, Prospectus or preliminary prospectus or arising out of
or based upon any omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading, to the extent, but only
to the extent, that such untrue statement or omission is contained in any
information so furnished in writing
14
<PAGE> 18
Registration Rights Agreement
by such Holder to the Company for use in such Registration Statement, Prospectus
or preliminary prospectus and was relied upon by the Company in the preparation
of such Registration Statement, Prospectus or preliminary prospectus. In no
event will the liability of any selling Holder hereunder be greater in amount
than the dollar amount of the proceeds (net of payment of all expenses) received
by such Holder upon the sale of the Registrable Securities giving rise to such
indemnification obligation.
(c) Conduct of Indemnification Proceedings. If any person shall
become entitled to indemnity hereunder (an "indemnified party"), such
indemnified party shall give prompt notice to the party from which such
indemnity is sought (the "indemnifying party") of any claim or of the
commencement of any action or proceeding with respect to which such indemnified
party seeks indemnification or contribution pursuant hereto; provided, however,
that the failure to so notify the indemnifying party will not relieve the
indemnifying party from any obligation or liability except to the extent that
the indemnifying party has been prejudiced materially by such failure. All
reasonable fees and expenses (including any reasonable fees and expenses
incurred in connection with investigating or preparing to defend such action or
proceeding) will be paid to the indemnified party (provided appropriate
documentation for such expenses is also submitted with such notice), as
incurred, within five calendar days of written notice thereof to the
indemnifying party (regardless of whether it is ultimately determined that an
indemnified party is not entitled to indemnification hereunder). The
indemnifying party will not consent to entry of any judgment or enter into any
settlement or otherwise seek to terminate any action or proceeding in which any
indemnified party is or could be a party and as to which indemnification or
contribution could be sought by such indemnified party under this Section 7,
unless such judgment, settlement or other termination includes as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release, in form and substance reasonably satisfactory to
the indemnified party, from all liability in respect of such claim or litigation
for which such indemnified party would be entitled to indemnification hereunder.
(d) Contribution. If the indemnification provided for in this
Section 7 is unavailable to an indemnified party under Section 7(a) or 7(b) in
respect of any Losses or is insufficient to hold such indemnified party
harmless, then each applicable indemnifying party, in lieu of indemnifying such
indemnified party, will, severally but not jointly, contribute to the amount
paid or payable by such indemnified party as a result of such Losses, in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party or indemnifying parties, on the one hand, and such indemnified party, on
the other hand, in connection with the actions, statements or omissions that
resulted in such Losses as well as any other relevant equitable considerations.
The relative fault of such indemnifying party or
15
<PAGE> 19
Registration Rights Agreement
indemnifying parties, on the one hand, and such indemnified party, on the other
hand, will be determined by reference to, among other things, whether any action
in question, including any untrue or alleged untrue statement of a material fact
or omission or alleged omission of a material fact, has been taken or made by,
or related to information supplied by, such indemnifying party or indemnified
party, and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such action, statement or omission. The amount
paid or payable by a party as a result of any Losses will be deemed to include
any legal or other fees or expenses incurred by such party in connection with
any action or proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 7(d) were determined by pro rata
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 7(d), an indemnifying party that
is a selling Holder will not be required to contribute any amount in excess of
the amount by which the total price at which the Registrable Securities sold by
such indemnifying party and distributed to the public were offered to the public
exceeds the amount of any damages that such indemnifying party has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) will be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
The indemnity, contribution and expense reimbursement obligations of
the Company hereunder will be in addition to any liability the Company may
otherwise have hereunder or otherwise. The provisions of this Section 7 will
survive so long as Registrable Securities remain outstanding, notwithstanding
any permitted transfer of the Registrable Securities by any Holder thereof or
any termination of this Agreement.
Section 8. Underwritten Registrations. If any of the Registrable
Securities included in any Demand Registration are to be sold in an Underwritten
Offering, the Holders holding a majority of the Registrable Securities included
in the Demand Notice may select an investment banker or investment bankers and
manager or managers to manage the Underwritten Offering, provided that such
investment banker or bankers is (are) reasonably acceptable to the Company. If
any Piggyback Registration is an Underwritten Offering, the Company will have
the exclusive right to select the investment banker or investment bankers and
managers to administer the offering. The Company agrees that, in connection with
any Underwritten Offering hereunder, it shall undertake to offer customary
indemnification to the participating underwriters.
Section 9. Miscellaneous.
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Registration Rights Agreement
(a) Remedies. In the event of a breach by a party of its obligations
under this Agreement, each other party, in addition to being entitled to
exercise all rights granted by law, including recovery of damages, will be
entitled to specific performance of its rights under this Agreement. Each party
agrees that monetary damages would not be adequate compensation for any loss
incurred by reason of a breach by it of any provision of this Agreement and
hereby further agrees that, in the event of any action for specific performance
in respect of such breach, it will waive the defense that a remedy at law would
be adequate.
(b) Amendments and Waivers. The provisions of this Agreement may not
be amended, modified or supplemented without the prior written consent of the
Company, and Holders holding in excess of 50% of the Registrable Securities in
respect of which Registrable Securities are issuable.
(c) Notices. Except as set forth below, all notices and other
communications provided for or permitted hereunder shall be in writing and shall
be deemed to have been duly given if delivered personally or sent by telex or
telecopier, registered or certified mail (return receipt requested), postage
prepaid or courier or overnight delivery service to the Company at the following
address and to a Holder at the address set forth on his or her signature page to
this Agreement (or at such other address for any party as shall be specified by
like notice, provided that notices of a change of address shall be effective
only upon receipt thereof):
If to the Company: ValueVision International, Inc.
6740 Shady Oak Road
Eden Prairie, MN 55344-3433
Attention: General Counsel
Telecopy: (612) 947-0188
With a copy to:
Latham & Watkins
633 West Fifth Street
Suite 4000
Los Angeles, CA 90071
Attention: Michael W. Sturrock
Telecopy: (213) 891-8763
If to the G.E. Capital Equity Investments, Inc.
Purchaser: 120 Long Ridge Road
Stamford, CT 06927
Attention: John Sprole
Telecopy: (203) 357-3047
With copies to:
17
<PAGE> 21
Registration Rights Agreement
National Broadcasting Company, Inc.
30 Rockefeller Plaza
New York, New York 10112
Attn: Stuart U. Goldfarb, Executive Vice
President and Managing Director, Worldwide
Business Development
Telecopy: (212) 664-7896
and
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
Attention: Richard Capelouto
Telecopy: (212) 455-2502
(d) Merger or Consolidation of the Company. If the Company is a
party to any merger or consolidation pursuant to which the Preferred Stock or
Registrable Securities are converted into or exchanged for securities or the
right to receive securities of any other person ("Conversion Securities"), the
issuer of such Conversion Securities shall assume (in a writing delivered to all
Holders) all obligations of the Company hereunder. The Company will not effect
any merger or consolidation described in the immediately preceding sentence
unless the issuer of the Conversion Securities complies with this Section 9(d).
(e) Successors and Assigns. Subject to the terms and conditions of
the Shareholder Agreement, (i) any transferee of all or a portion of the
Preferred Stock or Registrable Securities and (ii) any Restricted Party that
holds Registrable Securities shall become a Holder hereunder to the extent it
agrees in writing to be bound by all of the provisions applicable hereunder to
the transferring Holder (such acknowledgment being evidenced by execution of a
Counterpart and Acknowledgment substantially in the form of Exhibit A). Subject
to the requirements of this Section 9(e), this Agreement shall inure to the
benefit of and be binding upon the successors and assigns of the parties hereto.
(f) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed will be deemed to be an original and all of which taken
together will constitute one and the same instrument.
(g) Headings. The headings in this Agreement are for convenience of
reference only and will not limit or otherwise affect the meaning.
18
<PAGE> 22
Registration Rights Agreement
(h) Governing Law. This agreement will be governed by and construed
in accordance with the laws of the State of New York, as applied to contracts
made and performed within the State of New York, without regard to principles of
conflict of laws.
(i) Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid, void
or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein will remain in full force and effect and will in
no way be affected, impaired or invalidated, and the parties hereto will use
their best efforts to find and employ an alternative means to achieve the same
or substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such which may
be hereafter declared invalid, void or unenforceable.
(j) Entire Agreement. This Agreement is intended by the parties as a
final expression of their agreement and intended to be the complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein, with respect to such subject matter. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.
[Signature page follows]
19
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Registration Rights Agreement
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.
VALUEVISION INTERNATIONAL, INC.
By:
-------------------------------------
Name:
Title:
G.E. CAPITAL EQUITY INVESTMENTS,
INC.
By:
-------------------------------------
Name:
Title:
20
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Registration Rights Agreement
EXHIBIT A
REGISTRATION RIGHTS AGREEMENT
COUNTERPART AND ACKNOWLEDGMENT
TO: The Company
RE: The Registration Rights Agreement (the "Agreement") dated as of
_______, 1999, by and among the Company and the Holders (as defined
in the Agreement)
The undersigned hereby agrees to be bound by the terms of the
Agreement as a party to the Agreement, and shall be entitled to all benefits of
the Holders (as defined in the Agreement) and shall be subject to all
obligations and restrictions of the Holders pursuant to the Agreement, as fully
and effectively as though the undersigned had executed a counterpart of the
Agreement together with the other parties to the Agreement. The undersigned
hereby acknowledges having received and reviewed a copy of the Agreement.
DATED this _____ day of ____________, _____
By:
Title:
Number of
Shares of
Registrable Securities:
