<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 6, 1999
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[X] Preliminary proxy statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
VALUEVISION INTERNATIONAL, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
<PAGE> 2
[VALUE VISION LOGO]
VALUEVISION INTERNATIONAL, INC.
6740 SHADY OAK ROAD
MINNEAPOLIS, MINNESOTA 55344-3433
April [ ], 1999
To our Shareholders:
You are cordially invited to attend the Joint Special/Annual Meeting of
shareholders of ValueVision International, Inc., a Minnesota corporation (the
"Company"), to be held at the Radisson South Hotel, 7800 Normandale Blvd.,
Bloomington, Minnesota, 55439-3145, on June 1, 1999 at 10:00 a.m. local time.
At the meeting, you will be asked to approve a group of proposals relating
to a significant transaction involving the Company (the "Transaction") and
proposals relating to the Company's annual meeting. The Transaction proposals
provide for, among other things, (i) the issuance and sale of shares of the
Company's preferred stock to G.E. Capital Equity Investments, Inc. (the
"Investor") pursuant to the terms of an Investment Agreement, (ii) the issuance
to the Investor of shares of the Company's common stock upon exercise of a
warrant (the "Investment Warrant") in accordance with its terms and (iii) the
issuance to National Broadcasting Company, Inc. ("NBC") of "performance"
warrants, and the shares of common stock issuable upon exercise thereof,
pursuant to the terms of a Distribution and Marketing Agreement in the event NBC
meets certain performance targets set forth in the Distribution Agreement.
The Company's Board of Directors has approved the Investment Agreement, the
Investment Warrant, the Distribution and Marketing Agreement and certain related
Transaction documents and believes it is in the best interests of the Company
and its shareholders to consummate the transactions contemplated therein. The
Board of Directors recommends that shareholders vote FOR the proposals relating
to the Transaction and FOR the proposals relating to the annual meeting.
The enclosed Notice of Joint Special/Annual Meeting of Shareholders and
Proxy Statement contain details concerning the issuance of the Company's
preferred stock, the Investment Warrant and performance warrants and the other
matters to come before the meeting. We urge you to read and consider these
documents carefully. Whether or not you plan to attend the meeting, please be
sure to indicate your vote, sign and date the enclosed proxy card and return it
in the enclosed envelope as soon as possible for receipt prior to the meeting.
This will assure that your shares will be represented at the meeting and voted
in accordance with your wishes. Your vote is important, regardless of the number
of shares that you own.
Sincerely,
Gene McCaffery
Chairman of the Board, Chief Executive
Officer
and President
<PAGE> 3
VALUEVISION INTERNATIONAL, INC.
6740 SHADY OAK ROAD
MINNEAPOLIS, MINNESOTA 55344-3433
------------------------------
NOTICE OF 1999 JOINT SPECIAL/ANNUAL
MEETING OF SHAREHOLDERS
------------------------------
To the Shareholders of ValueVision International, Inc.:
The 1999 Joint Special/Annual Meeting of Shareholders (the "Meeting") of
ValueVision International, Inc. (the "Company") will be held, pursuant to due
call by the Board of Directors of the Company (the "Board"), at the Radisson
South Hotel, 7800 Normandale Blvd., Bloomington, Minnesota, 55439-3145, on June
1, 1999 at 10:00 a.m., or at any adjournment or adjournments thereof. The
Meeting is being held for the purpose of considering and taking appropriate
action with respect to the following:
1. To consider and act upon a proposal to approve the issuance to G.E.
Capital Equity Investments, Inc. (the "Investor") of 1,600,000 shares of
Series A Redeemable Convertible Preferred Stock of the Company pursuant
to the Investment Agreement dated as of March 8, 1999 by and between the
Company and the Investor, as amended (the "Investment Agreement");
2. To consider and act upon a proposal to approve the issuance to the
Investor, pursuant to a warrant (the "Investment Warrant"), of up to
that number of shares of the Company's common stock, par value $.01 per
share (the "Common Stock"), that results in the Investor (and its
affiliates) beneficially owning 39.9% of the Company's outstanding
Common Stock;
3. To consider and act upon a proposal to ratify the issuance to National
Broadcasting Company, Inc., an affiliate of the Investor ("NBC"), of
warrants to purchase shares of Common Stock (the "Performance
Distributor Warrants"), and the shares of Common Stock issuable upon
exercise thereof, pursuant the terms of the Distribution and Marketing
Agreement dated as of March 8, 1999 by and between the Company and NBC
(the "Distribution Agreement") in the event NBC meets certain
performance targets set forth therein;
4. To consider and act upon a proposal to approve Amendment No. 6 to the
Second Amended ValueVision International, Inc. 1990 Stock Option Plan to
increase the number of shares issuable thereunder from 2,150,000 to
3,250,000;
5. To consider and act upon a proposal to elect four nominees as directors
of the Company; and
6. To transact any other business as may properly come before the Meeting
or any adjournments thereof.
Although the Company does not believe shareholder approval of Proposal 2 or
shareholder ratification of Proposal 3 is required under applicable law or the
rules of the National Association of Securities Dealers, Inc., the Company is
seeking such approval and ratification because of the potential dilutive effect
that the issuance of the Investment Warrant and Performance Distributor Warrants
could have on the Company's shareholders. The Company has conditioned the
issuance of the shares of Common Stock under the Investment Warrant on the
receipt of shareholder approval but has not conditioned the issuance of the
Performance Distributor Warrants, or the shares of Common Stock issuable
thereunder, on the receipt of shareholder ratification.
NBC will have the right to terminate the Distribution Agreement if the
Company's shareholders do not approve Proposals 1 and 2. See "Proxy Statement
for the 1999 Joint Special/Annual Meeting of Shareholders -- Proposal 3:
Ratification of the Issuance of the Performance Distributor Warrants --
Distribution Agreement -- NBC Right to Terminate."
Pursuant to due action of the Board, shareholders of record on April 28,
1999 will be entitled to vote at the Meeting or any adjournments thereof.
<PAGE> 4
A proxy for the Meeting is enclosed herewith. Whether or not you plan to
attend the Meeting in person, you are requested to sign, date and promptly mail
the enclosed proxy card, which is solicited by the Board, and return it in the
postage-paid envelope provided so that your stock may be represented at the
Meeting. If you have returned your proxy card and attend the Meeting, you may
revoke your proxy and vote in person on all matters submitted at the Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE IN FAVOR OF EACH
OF THE PROPOSALS.
By Order of the Board of Directors
Gene McCaffery
Chairman of the Board, Chief Executive
Officer
and President
April [ ], 1999
<PAGE> 5
VALUEVISION INTERNATIONAL, INC.
6740 SHADY OAK ROAD
MINNEAPOLIS, MINNESOTA 55344-3433
------------------------------
PROXY STATEMENT FOR THE 1999 JOINT SPECIAL/ANNUAL
MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 1, 1999
------------------------------
INTRODUCTION
At the 1999 Joint Special/Annual Meeting (the "Meeting"), shareholders are
being asked to approve a group of proposals relating to a significant
transaction (the "Transaction") involving the Company and proposals relating to
the Company's annual meeting. As more fully described below, the Transaction
proposals provide for, among other things, (i) the issuance and sale to G.E.
Capital Equity Investments, Inc. (the "Investor"), of shares of the Company's
Series A Redeemable Convertible Preferred Stock (the "Preferred Stock") pursuant
to the terms of the Investment Agreement (as defined below), (ii) the issuance
to the Investor of shares of the Company's common stock, par value $.01 per
share ("Common Stock"), upon exercise of a warrant (the "Investment Warrant") in
accordance with its terms and (iii) the issuance to National Broadcasting
Company, Inc., an affiliate of the Investor ("NBC"), of "performance" warrants
(the "Performance Distributor Warrants"), and the shares of Common Stock
issuable upon exercise thereof, pursuant to the terms of the Distribution
Agreement (as defined below) in the event NBC meets certain performance targets
set forth therein.
BACKGROUND OF THE TRANSACTION
AGREEMENTS
On March 8, 1999, the Company, the Investor and NBC entered into definitive
agreements which provide for, among other things, (i) the issuance and sale to
the Investor of 5,339,500 shares of Preferred Stock, (ii) the issuance to the
Investor, pursuant to the Investment Warrant, of up to that number of shares of
Common Stock that result in the Investor (and its affiliates) beneficially
owning 39.9% of the Company's outstanding Common Stock, (iii) the issuance to
NBC of a warrant to purchase up to 1,450,000 shares of Common Stock (the
"Distributor Warrant") and (iv) the issuance to NBC of the Performance
Distributor Warrants.
Pursuant to the Investment Agreement dated as of March 8, 1999 by and
between the Company and the Investor, as amended (the "Investment Agreement"),
the Company will sell the shares of Preferred Stock to the Investor for
approximately $44.3 million (subject to, among other things, shareholder
approval of 1,600,000 shares of Preferred Stock) and will issue the Investment
Warrant to the Investor (subject to, among other things, shareholder approval of
the shares of Common Stock issuable thereunder). The exercise price of the
shares of Common Stock to be issued pursuant to the Investment Warrant is
described under "Proposal 2: Approval of Issuance of Shares of Common Stock
Pursuant to the Investment Warrant."
Pursuant to the Distribution and Marketing Agreement dated as of March 8,
1999 by and between the Company and NBC (the "Distribution Agreement"), the
Company will issue the Distributor Warrant to NBC in consideration for the
distribution and marketing services to be provided by NBC thereunder. In
addition, the Company will be required to issue the Performance Distributor
Warrants to NBC in the event NBC meets certain performance targets set forth in
the Distribution Agreement. The exercise prices of the Distributor Warrant and
the Performance Distributor Warrants are described under "Proposal 3:
Ratification of Issuance of Performance Distributor Warrants."
<PAGE> 6
Upon the issuance of the Preferred Stock (excluding the 1,600,000 shares
subject to shareholder approval) and the Distributor Warrant, the Investor and
NBC will beneficially own, in the aggregate, approximately 19.9% of the
outstanding shares of Common Stock. Upon approval of Proposals 1 and 2 and the
issuance of the 1,600,000 shares of Preferred Stock, the Investor and NBC will
beneficially own 39.9% of the outstanding shares of Common Stock.
Upon closing of the sale of the Preferred Stock (excluding the 1,600,000
shares subject to shareholder approval), the Company and the Investor will enter
into a Shareholder Agreement (the "Shareholder Agreement") providing for certain
corporate governance and standstill matters described in this Proxy Statement.
See "Proposal 1: Approval of Issuance of 1,600,000 Shares of Preferred
Stock -- Shareholder Agreement." The Shareholder Agreement (together with the
Certificate of Designation of the Preferred Stock) provides that the Investor
will be entitled to designate nominees (the "Investor Designees") to the
Company's Board for an aggregate of two out of seven board seats so long as the
Restricted Parties' (as defined in the Shareholder Agreement) aggregate
beneficial ownership of Common Stock is at least equal to 50% (or 75% if
shareholder approval of Proposals 1 and 2 is not obtained) of the Restricted
Parties' initial beneficial ownership on the date the Shareholder Agreement is
signed, and one out of seven board seats so long as the Restricted Parties'
aggregate beneficial ownership is at least 10% of the "adjusted outstanding
shares of Common Stock" (or 50% of the Restricted Parties' initial beneficial
ownership on the date the Shareholder Agreement is signed if shareholder
approval of Proposals 1 and 2 is not obtained). The Investor has also agreed to
vote its shares of Common Stock in favor of the Company's nominees to the Board
in certain circumstances.
The Federal Trade Commission notified the Company on April 5, 1999 that it
had granted the Company early termination with respect to the 30 day waiting
period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"). In light of this development, the Company expects that
the closing of the sale of the 3,739,500 shares of Preferred Stock not subject
to shareholder approval, the Investment Warrant and the Distributor Warrant will
take place during the week of April 12, 1999. This Proxy Statement will be
updated by amendment after such closing occurs. See "Proposal 1: Approval of
Issuance of 1,600,000 Shares of Preferred Stock -- Investment Agreement -- The
Closing Date."
OPINION OF FINANCIAL ADVISOR TO THE COMPANY
Bear, Stearns & Co. Inc. ("Bear Stearns") was engaged by the Company to
render an opinion to the Board as to the fairness of the Transaction from a
financial point of view to the Company. On March 8, 1999, Bear Stearns delivered
its written opinion (the "Bear Stearns Opinion") addressed to the Board to the
effect that, as of the date of such opinion, and based upon and subject to the
assumptions, limitations and qualifications set forth in the Bear Stearns
Opinion, the Transaction is fair, from a financial point of view, to the
Company.
A COPY OF THE BEAR STEARNS OPINION IS ATTACHED AS ANNEX A TO THIS PROXY
STATEMENT AND INCORPORATED BY REFERENCE HEREIN. THE COMPANY'S SHAREHOLDERS ARE
URGED TO READ THE BEAR STEARNS OPINION IN ITS ENTIRETY FOR ASSUMPTIONS MADE,
PROCEDURES FOLLOWED, OTHER MATTERS CONSIDERED AND LIMITATIONS OF THE REVIEW BY
BEAR STEARNS. THE BEAR STEARNS OPINION WAS PREPARED FOR THE BOARD AND IS
DIRECTED ONLY TO THE FAIRNESS OF THE TRANSACTION, FROM A FINANCIAL POINT OF
VIEW, TO THE COMPANY, DOES NOT ADDRESS ANY OTHER ASPECT OF THE TRANSACTION OR
RELATED MATTERS AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY SHAREHOLDER OF
THE COMPANY AS TO HOW SUCH SHAREHOLDER SHOULD VOTE AT THE MEETING.
For rendering its opinion in connection with the Transaction and rendering
other financial advisory services, the Company agreed to pay Bear Stearns a fee
of approximately $2,000,000. The Company also has agreed to reimburse Bear
Stearns for its reasonable out-of-pocket expenses, including the reasonable fees
and expenses of its counsel, and to indemnify Bear Stearns and certain related
persons against certain liabilities in connection with its engagement, including
certain liabilities under the federal securities laws.
2
<PAGE> 7
Bear Stearns has in the past performed certain investment banking services
for the Company as well as on behalf of affiliates of the Investor, for which
services Bear Stearns has received compensation. As part of its investment
banking business, Bear Stearns regularly is engaged in the valuation of
businesses and securities in connection with mergers and acquisitions,
negotiated underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and valuations of estate,
corporate and other purposes.
In the ordinary course of its business, Bear Stearns may actively trade the
equity securities of the Company and the parent corporation of the Investor for
its own account and for the accounts of customers and, accordingly, may at any
time hold a long or short position in such securities.
USE OF PROCEEDS FROM THE TRANSACTION
The Company entered into the Transaction because of the benefits it expects
to derive from the Distribution Agreement. The Company will use the net proceeds
from the Investor's equity investment in the Company for general corporate
purposes.
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) on an
actual basis as of February 28, 1999 and (ii) as adjusted to reflect the sale by
the Company of the 5,339,500 shares of Preferred Stock and the issuance of the
1,450,000 shares of Common Stock pursuant to the Distributor Warrant.
<TABLE>
<CAPTION>
FEBRUARY 28, 1999
-----------------------
ACTUAL AS ADJUSTED
------ -----------
(DOLLARS IN 000S)
<S> <C> <C>
Long-term debt and capital lease obligations, including
current portion........................................ $ 657 $ 657
-------- --------
Series A Redeemable Convertible Preferred Stock(1)....... -- 44,265
-------- --------
Shareholders' equity:
Common stock, $.01 par value; 100,000,000 shares
authorized, 25,988,466 issued and outstanding as of
February 28, 1999................................... 260 260
Common stock purchase warrants(2)...................... -- 6,931
Additional paid-in capital............................. 73,461 73,461
Accumulated other comprehensive losses................. (3,343) (3,343)
Notes receivable from shareholders..................... (1,063) (1,063)
Retained earnings...................................... 38,311 38,311
-------- --------
Total shareholders' equity........................ 107,626 114,557
-------- --------
Total capitalization.............................. $108,283 $159,479
======== ========
</TABLE>
- -------------------------
(1) Reflects issuance of 5,339,500 shares Preferred Stock at a stated value of
$8.29 per share.
(2) Reflects the original issuance of the Distributor Warrant with an exercise
price of $8.288 per share and the value assigned to such warrant as
determined pursuant to an independent appraisal. Does not reflect the
issuance of the Investment Warrant or the Performance Distributor Warrants.
3
<PAGE> 8
GENERAL INFORMATION
VOTING OF PROXIES
All shares of Common Stock and Preferred Stock which are entitled to vote
and are represented at the Meeting by properly executed proxies received prior
to or at the Meeting, and are not revoked, will be voted at such meeting and any
adjournments thereof in accordance with the instructions indicated on such
proxy. If no instructions are indicated, proxies will be voted on the proposals
(the "Proposals") as follows:
(1) FOR approval of Proposal Number 1 to issue to the Investor
1,600,000 shares of Preferred Stock pursuant to the terms of the Investment
Agreement;
(2) FOR approval of Proposal Number 2 to issue to the Investor shares
of Common Stock upon exercise of the Investment Warrant in accordance with
its terms;
(3) FOR approval of Proposal Number 3 to ratify the issuance to NBC of
the Performance Distributor Warrants and the shares of Common Stock
issuable upon exercise thereof pursuant the terms of the Distribution
Agreement;
(4) FOR approval of Proposal Number 4 to approve Amendment No. 6 to
the Second Amended ValueVision International, Inc. 1990 Stock Option Plan
(the "Stock Option Plan") to increase the number of shares issuable
thereunder from 2,150,000 to 3,250,000; and
(5) FOR approval of Proposal Number 5 to elect four nominees as
directors of the Company.
If any other matters are properly presented at the Meeting for
consideration, the persons named in the enclosed form of proxy and acting
thereunder will have discretion to vote on such matters in accordance with their
best judgment. Management of the Company will not use proxies voted against a
Proposal to vote for adjournment in order to permit additional solicitation.
Although the Company does not believe shareholder approval of Proposal 2 or
shareholder ratification of Proposal 3 is required under applicable law or the
rules of the National Association of Securities Dealers, Inc. (the "NASD"), the
Company is seeking such approval and ratification because of the potential
dilutive effect that the issuance of the Investment Warrant and Performance
Distributor Warrants could have on the Company's shareholders. The Company has
conditioned the issuance of the shares of Common Stock under the Investment
Warrant on the receipt of shareholder approval but has not conditioned the
issuance of the Performance Distributor Warrants, or the shares of Common Stock
issuable thereunder, on the receipt of shareholder ratification.
NBC will have the right to terminate the Distribution Agreement if the
Company's shareholders do not approve Proposals 1 and 2. See "Proposal 3:
Ratification of the Issuance of the Performance Distributor
Warrants -- Distribution Agreement -- NBC Right to Terminate."
SOLICITATION OF PROXIES
The Company will bear the cost of preparing, assembling and mailing this
Proxy Statement, the Annual Report and other material which may be sent to the
shareholders in connection with this solicitation. Brokerage houses and other
custodians, nominees and fiduciaries may be requested to forward soliciting
material to the beneficial owners of stock, in which case they will be
reimbursed by the Company for their expenses in doing so. Proxies are being
solicited primarily by mail, but, in addition, officers and regular employees of
the Company may solicit proxies personally, by telephone, by telegram or by
special letter. The Company intends to use the services of Beacon Hill Partners,
Inc. to aid in the solicitation of proxies at an anticipated fee of $5,000 plus
reasonable expenses.
RECORD DATE; SHARES ENTITLED TO VOTE; QUORUM
Only shareholders of record at the close of business on April 28, 1999 (the
"Record Date") will be entitled to vote at the Meeting or any adjournments
thereof. As of the Record Date, there were [ ] shares of Common Stock
issued and outstanding and [ ] record holders of Common Stock. In
addition,
4
<PAGE> 9
as of the Record Date, there were [ ] shares of Preferred Stock issued and
outstanding, all of which were held by the Investor. So long as the Restricted
Parties own a majority of the outstanding Preferred Stock and the Investor is
entitled to designate at least one Investor Designee to the Board, the Preferred
Stock is entitled to a separate class vote on the Investor Designees, and is
entitled to vote on an "as converted" basis with respect to all other matters,
meaning such shares will be entitled to cast [ ] votes, other than with
respect to Proposal 5, based on the current conversion price in effect for the
Preferred Stock. Holders of shares of Common Stock are not entitled to vote on
the Investor Designees and the holders of the shares of Preferred Stock are not
entitled to vote on Proposal 5. The Common Stock and Preferred Stock are
collectively referred to in this Proxy Statement as the "Voting Securities."
The presence, in person or by properly executed proxy, of the holders of a
majority of the outstanding shares of the Voting Securities entitled to vote at
the Meeting is necessary to constitute a quorum at the Meeting.
VOTES REQUIRED; EFFECT OF ABSTENTIONS AND BROKER NON-VOTES
The affirmative vote of the holders of a majority of the outstanding shares
of the Voting Securities present in person or by proxy and entitled to vote is
required to approve, or ratify, as applicable, each Proposal, provided that the
total vote cast on each Proposal represents at least 50% of all shares of the
Voting Securities entitled to vote on each Proposal. A shareholder who abstains
with respect to a Proposal is considered to be present and entitled to vote at
the Meeting, and is in effect casting a negative vote. A shareholder who does
not give authority to a proxy to vote on the Proposal shall not be considered
present and entitled to vote on the Proposal. Accordingly, broker non-votes will
not affect the outcome of the vote on a Proposal, provided that the total vote
cast on such Proposal represented at least 50% of all shares of the Voting
Securities entitled to vote thereon.
REVOCABILITY OF PROXIES
The presence at the Meeting of a shareholder will not revoke his or her
proxy. However, a proxy may be revoked with respect to any matter at any time
before the proxy is voted on such matter by delivering to an officer of the
Company written notice of such revocation or a duly executed new proxy. Such
written notice of revocation or duly executed new proxy will be effective upon
filing with an officer of the Company, either prior to or at the Meeting;
however, a revocation or new proxy will not affect a vote on any matter that was
cast prior to such filing. All written notices of revocation and other
communications with respect to the revocation of proxies should be delivered to
ValueVision International, Inc., 6740 Shady Oak Road, Eden Prairie, MN
55344-3433, Attention: Corporate Secretary, or may be hand-delivered to an
officer of the Company at the Meeting.
BOARD RECOMMENDATIONS
The Board recommends a vote FOR the approval, or ratification, as
applicable, of each of the Proposals.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The following table sets forth certain information regarding the beneficial
ownership of securities of the Company as of the Record Date based on a total of
[ ] shares of Common Stock outstanding as of such date by (i) each person
known by the Company to be the beneficial owner of more than 5% of the
outstanding shares of the Common Stock, (ii) each of the directors and nominees
for election to the Board, (iii) the Chief Executive Officer and each of the
executive officers named in the Summary Compensation Table and (iv) all
directors and executive officers of the Company as a group. Each shareholder
possesses sole voting and
5
<PAGE> 10
investment power with respect to the shares of the Common Stock listed opposite
the holder's name except as otherwise indicated herein.
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME AND ADDRESS BENEFICIALLY OWNED PERCENT
---------------- ------------------ -------
<S> <C> <C>
Snyder Capital Management, Inc.(1).......................... 3,990,900 15.3
350 California Street
San Francisco, CA 94104
Robert L. Johander(2)....................................... 1,541,911 5.8
8480 Montgomery Court
Eden Prairie, MN 55344
Nicholas M. Jaksich(3)...................................... 1,335,170 5.0
6400 Parkwood Road
Edina, MN 55436
Gene McCaffery(4)........................................... 722,222 2.7
6740 Shady Oak Road
Eden Prairie, MN 55344
Stuart R. Romenesko(5)...................................... 139,000 *
Cary Deacon(6).............................................. 33,333 *
David T. Quinby(7).......................................... 71,000 *
Gregory Lerman.............................................. 57,786 *
Robert J. Korkowski(8)...................................... 216,816 *
Marshall S. Geller(9)....................................... 185,000 *
Paul D. Tosetti(10)......................................... 75,000 *
Stuart Goldfarb(11)......................................... -- --
Jeffrey H. Coats(11)........................................ -- --
All directors and executive officers as a group (fourteen
persons)(12).............................................. 4,448,406 15.5
</TABLE>
- -------------------------
* Less than 1%
(1) Based upon information contained in the Schedule 13G of Snyder Capital
Management, Inc. dated February 4, 1999.
(2) Based upon information contained in the Schedule 13G of Mr. Johander dated
February 11, 1998 and subsequent conversations with Mr. Johander. Such
shares include 437,632 shares beneficially owned by Mr. Johander in his
capacity as General Partner to the Robert L. Johander Limited Partnership.
Includes 7,200 shares owned by Mr. Johander's wife for the benefit of his
children, as to which shares Mr. Johander disclaims beneficial ownership.
Includes options to purchase 600,000 shares of Common Stock that are
presently exercisable or will become exercisable within 60 days. Mr.
Johander resigned from his position as Chief Executive Officer on June 2,
1998 and from his position as Chairman of the Board on February 2, 1999.
(3) Based upon information contained in the Schedule 13G of Mr. Jaksich dated
February 11, 1998 and subsequent conversations with Mr. Jaksich. Such
shares include 399,110 shares beneficially owned by Mr. Jaksich in his
capacity as General Partner to the Nicholas M. Jaksich Limited Partnership.
Includes options to purchase 600,000 shares of Common Stock that are
presently exercisable or will become exercisable within 60 days. Mr.
Jaksich resigned from his position as President on February 2, 1999.
(4) Represents options to purchase 722,222 shares of Common Stock that are
presently exercisable or will become exercisable within 60 days.
(5) Represents options to purchase 139,000 shares of Common Stock that are
presently exercisable or will become exercisable within 60 days.
(6) Represents options to purchase 33,333 shares of Common Stock that are
presently exercisable or will become exercisable within 60 days.
6
<PAGE> 11
(7) Includes options to purchase 70,000 shares of Common Stock that are
presently exercisable or will become exercisable within 60 days.
(8) Includes options to purchase 125,000 shares of Common Stock that are
presently exercisable or will become exercisable within 60 days.
(9) Represents options to purchase 185,000 shares of Common Stock that are
presently exercisable or will become exercisable within 60 days.
(10) Represents options to purchase 75,000 shares of Common Stock that are
presently exercisable or will become exercisable within 60 days.
(11) Messrs. Goldfarb and Coats are expected to be elected to the Board upon the
closing of the sale of the Preferred Stock (excluding the 1,600,000 shares
subject to shareholder approval) and the Distributor Warrant to the
Investor.
(12) Includes options to purchase 2,616,222 shares of Common Stock that are
presently exercisable or will become exercisable within 60 days.
PROPOSALS
In connection with the Transaction, shareholders are being asked to
consider and vote upon the following Proposals:
(1) Proposal 1: Approval of the issuance to the Investor of 1,600,000
shares of Preferred Stock pursuant to the terms of the Investment
Agreement;
(2) Proposal 2: Approval of the issuance to the Investor, pursuant to
the Investment Warrant, of up to that number of shares of Common Stock that
result in the Investor (and its affiliates) beneficially owning 39.9% of
the Common Stock;
(3) Proposal 3: Ratification of the issuance to NBC of the Performance
Distributor Warrants, and the shares of Common Stock issuable upon exercise
thereof, to be issued by the Company pursuant to the terms of the
Distribution Agreement in the event NBC meets certain performance targets
set forth therein;
(4) Proposal 4: Approval of Amendment No. 6 to the Stock Option Plan
to increase the number of shares issuable thereunder from 2,150,000 to
3,250,000; and
(5) Proposal 5: To elect four nominees as directors of the Company.
Although the Company does not believe shareholder approval of Proposal 2 or
shareholder ratification of Proposal 3 is required under applicable law or the
rules of the NASD, the Company is seeking such approval and ratification because
of the potential dilutive effect that the issuance of the Investment Warrant and
the Performance Distributor Warrants could have on the Company's shareholders.
The Company has conditioned the issuance of the shares of Common Stock under the
Investment Warrant on the receipt of shareholder approval but has not
conditioned the issuance of the Performance Distributor Warrants, or the shares
of Common Stock issuable thereunder, on the receipt of shareholder ratification.
NBC will have the right to terminate the Distribution Agreement if the
Company's shareholders do not approve Proposals 1 and 2. See "Proposal 3:
Ratification of the Issuance of the Performance Distributor
Warrants -- Distribution Agreement -- NBC Right to Terminate."
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PROPOSAL 1
APPROVAL OF ISSUANCE OF 1,600,000 SHARES OF PREFERRED STOCK
On March 8, 1999, the Company entered into agreements with the Investor
relating to, among other things, (i) the sale by the Company to the Investor of
5,339,500 shares of Preferred Stock for a purchase price of approximately $44.3
million (of which 1,600,000 shares are subject to shareholder approval), (ii)
the issuance by the Company to the Investor, pursuant to the Investment Warrant,
of up to that number of shares of Common Stock that result in the Investor (and
its affiliates) beneficially owning 39.9% of the Company's outstanding Common
Stock, (iii) the registration rights relating to the shares of Common Stock
issuable upon conversion of the Preferred Stock and exercise of the Investment
Warrant, the Distributor Warrant and Performance Distributor Warrants and (iv)
certain corporate governance and standstill matters.
Proposal 1 relates to the approval by shareholders of the issuance to the
Investor of 1,600,000 shares of Preferred Stock pursuant to the terms of the
Investment Agreement. The Federal Trade Commission notified the Company on April
5, 1999 that it had granted the Company early termination with respect to the 30
day waiting period under the HSR Act. In light of this development, the Company
expects that the closing of the sale of the 3,739,500 shares of Preferred Stock
not subject to shareholder approval, the Investment Warrant and the Distributor
Warrant will take place during the week of April 12, 1999. This Proxy Statement
will be updated by amendment after such closing occurs.
Under NASD Rule 4310(c)(25)(H), a company that is listed on the Nasdaq
National Market must obtain shareholder approval prior to issuing 20% or more of
its outstanding voting securities at less than the market value of such
securities. Under NASD guidelines, the market value of securities being issued
is determined immediately prior to the issuance of such securities and not at
the time the contract providing for such issuance is entered into. In light of
this, and the fact that the current market value of the Common Stock is
[$ ], and the shares of Preferred Stock are being issued at a per share
price equal to $8.29 (which the Company's believes was market value at the time
the Investment Agreement was entered into based on the average closing prices of
the underlying shares of Common Stock), the Company is seeking shareholder
approval of the issuance of certain of the shares of the Preferred Stock. In
determining the number of shares of Preferred Stock subject to shareholder
approval, the Company assumed that it was issuing 6,789,500 shares of Common
Stock, representing the 5,339,500 shares issuable upon conversion of the
Preferred Stock (based on the current conversion price) and the 1,450,000 shares
issuable upon exercise of the Distributor Warrant. Based on NASD guidelines, the
number of shares of Preferred Stock subject to shareholder approval is
1,600,000. This is the difference (rounded to the nearest hundred thousandth)
between 6,789,500 and 19.99% of the 25,988,466 total number of shares of Common
Stock outstanding on March 8, 1999 (i.e., 5,195,094).
If the Company's shareholders do not approve this Proposal 1, NBC will have
the right to terminate the Distribution Agreement. See "Proposal 3: Ratification
of Issuance of the Performance Distributor Warrants -- Distribution
Agreement -- NBC Right To Terminate."
The terms of the Investment Agreement and the Certificate of Designation
(which governs the terms of the Preferred Stock) and certain related agreements
with the Investor are summarized below.
The following descriptions of the Investment Agreement, the Certificate of
Designation, the Shareholder Agreement and the Registration Rights Agreement are
only summaries thereof and are qualified in their entirety by reference to such
documents which are attached hereto or, in the case of the Registration Rights
Agreement, included in the Company's Current Report on Form 8-K filed with the
SEC on March 18, 1999. Capitalized terms used in the following summaries without
definition shall have the meanings ascribed to them in the respective
agreements.
INVESTMENT AGREEMENT
General. The Investment Agreement, a copy of which is attached as Annex B
to this Proxy Statement and incorporated by reference herein, provides for the
Company to sell the Investor 5,339,500 shares of Preferred Stock for a cash
purchase price of $44,265,000 and for the Company to issue the Investor the
Investment Warrant to purchase, from time to time, up to that number of shares
of Common Stock that would
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<PAGE> 13
result in the Investor (and its affiliates) beneficially owning 39.9% of the
outstanding shares of Common Stock.
The Closing Date. The closing of the sale, purchase and issuance of the
Preferred Stock, Investment Warrant and Distributor Warrant will take place in
two parts: (i) with respect to the issuance of the Preferred Stock (other than
the 1,600,000 shares subject to shareholder approval), Investment Warrant and
Distributor Warrant, the Company expects that this will take place during the
week of April 12, 1999 after the satisfaction of certain customary conditions
(the "First Closing Date") and (ii) with respect to the issuance of the
1,600,000 shares of Preferred Stock that are subject to shareholder approval,
within three business days following shareholder approval of Proposal 1 and the
satisfaction of certain other customary conditions, unless otherwise agreed to
by the parties (the "Second Closing Date" and together with the First Closing
Date, the "Closing Date"). See "Closing Conditions."
Representations and Warranties. Subject to the following paragraph, the
Investment Agreement contains various representations and warranties of the
Company to the Investor, relating to, among other things: (i) the due
organization, valid existence and good standing of the Company; (ii) the due
organization, valid existence and good standing of the Company's subsidiaries
and related corporate matters; (iii) the due authorization, execution, delivery
and performance of the Investment Agreement and certain related documents (the
"Transaction Documents") and the absence of any conflict between the execution,
delivery and performance of the Transaction Documents with the articles of
incorporation, by-laws or other governing instrument of the Company or any of
its material subsidiaries, any Contractual Obligation of the Company or any of
its material subsidiaries or any Requirement of Law; (iv) the absence of any
requirement on the part of the Company or any of its subsidiaries to obtain any
consent or approval from any Governmental Entity in connection with the
Transaction; (v) the capitalization of the Company and the reservation by the
Company of the shares of Common Stock issuable upon exercise of the Investment
Warrant and the absence of certain rights or obligations with respect to the
Company's capital stock; (vi) the accuracy of the Company's SEC filings and its
financial statements and the absence of liabilities; (vii) the compliance by the
Company and its material subsidiaries with all applicable Requirements of Law;
(viii) the representation that the Company and each of its material subsidiaries
has all Permits necessary to enable it to own its properties and conduct its
businesses as presently conducted and that it is in compliance with all such
Permits; (ix) the absence of any undisclosed pending or threatened litigation;
(x) the representation that, since January 31, 1998, the businesses of the
Company and its material subsidiaries have been operated in the usual and
ordinary course consistent with past practice; (xi) the absence of any
violations of or liabilities under the Employee Retirement Income Security Act
of 1974, as amended, with respect to any employee plan or pension plan to which
the Company is obligated to contribute; (xii) the absence of any pending or
threatened labor strike, work-stoppage, lockout or dispute; (xiii) the
representation that each of the Company's Material Agreements is valid, binding,
in full force and effect and enforceable by the Company or the relevant
subsidiary of the Company in accordance with its terms and the absence of any
default or violation of any such Material Agreement; (xiv) good and valid title
to all material properties and assets owned by the Company or its material
subsidiaries, the existence of insurance in sufficient amounts covering the
Company, its subsidiaries and their respective properties and/or assets and all
of the material tangible assets of the Company and its material subsidiaries
being in good operating condition and repair; (xv) the accurate, complete and
timely filings of all tax returns required by applicable law to be filed by the
Company and the payment of all taxes due; (xvi) the compliance by the Company
and its subsidiaries with all Environmental Permits and Environmental Laws and
the absence of Environmental Claims; (xvii) the valid right to use all of the
intellectual property used by the Company or necessary for the conduct of the
business of the Company; (xviii) the absence of certain business practices on
behalf of the Company and any of its officers, employees or agents and any other
person acting on behalf of the Company; (xix) the absence of false or misleading
statements in this Proxy Statement; (xx) the approval by the Board of the
Transaction so as to render inapplicable the limitations on business
combinations contained in Section 302A.673 of the Minnesota Business Corporation
Act ("MBCA") and the inapplicability of the restrictions on control share
acquisitions contained in Section 302A.671 of the MBCA with respect to the
Transaction any other applicable state takeover statutes; (xxi) the
representation that the FCC Licenses listed on the schedules to the Investment
Agreement 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 its business
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<PAGE> 14
as currently conducted; (xxii) the absence of malfunctions relating to year 2000
matters and the adoption and implementation by the Company of a commercially
reasonable plan relating thereto; (xxiii) each of the Company's existing
carriage agreements with respect to its FTE Subscribers (as defined in "Proposal
3: Ratification of Issuance of Performance Distributor Warrants -- Distribution
Agreement") being in full force and effect and a legal, valid and binding
obligation of the Company and the other parties thereto; and (xxiv) the absence
of claims for brokerage commissions or finder's fees or similar compensation in
connection with the transactions contemplated by the Transaction Documents.
The foregoing representations and warranties are subject, in certain cases,
to specified exceptions and qualifications, including without limitation, those
exceptions that are disclosed to the Investor in the written schedules delivered
by the Company to the Investor pursuant to the Investment Agreement. In many
instances the representations and warranties given by the Company are subject to
the qualification that the applicable representation or warranty would not fail
to be true and correct unless it would have a Material Adverse Effect. For
purposes of the Investment Agreement, "Material Adverse Effect," as it relates
to the Company, means any material adverse effect on the assets, business
condition, results of operations or financial condition of the Company and its
subsidiaries, taken as a whole. However, the dollar thresholds set forth in the
definition of "Material Agreement" do not affect the meaning and interpretation
of "Material Adverse Effect."
The Investment Agreement also includes certain representations and
warranties by the Investor and, in certain instances, NBC, including
representations and warranties regarding: (i) the due organization, good
standing and authority of the Investor and NBC to execute and deliver the
Transaction Documents to which it is a party, and to consummate the transactions
contemplated therein; (ii) the absence of conflict between the execution,
delivery and performance of the Transaction Documents with any organizational
document of the Investor or NBC, any Contractual Obligation of the Investor or
NBC or any Requirement of Law applicable to the Investor or NBC; (iii) the
absence of any requirement on the part of the Investor or NBC to obtain any
consent or approval from any Governmental Entity in connection with the
Transaction; (iv) compliance with all applicable Requirements of Law; (v) the
absence of false or misleading statements in this Proxy Statement; (vi)
representations that the Investor is an "accredited investor" (as defined in
Rule 501(a) of the Securities Act) who is not acquiring the Preferred Stock or
the Investment Warrant with a view to, or for resale in connection with, any
distribution thereof in violation of the Securities Act; and (vi) the absence of
claims for brokerage commissions or finder's fees or similar compensation in
connection with the transactions contemplated by the Transaction Documents.
Conduct of Business Pending Closing. The Company has agreed that, except
with the prior written consent of the Investor and except as contemplated by the
Transaction Documents, prior to the vote of the Company's shareholders with
respect to Proposals 1 and 2 (the "Shareholder Vote") the Company will, and will
cause its subsidiaries to, operate their respective businesses only in the
usual, regular and ordinary manner, on a basis consistent with past practice
and, to the extent consistent with such operation, will, and will cause its
subsidiaries to, 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.
Subject to the following paragraph, the Company has further agreed that,
until the Shareholder Vote, except as contemplated by the Transaction Documents,
among other things, it will not: (i) amend its, or any of its material
subsidiaries, articles of incorporation or bylaws; (ii) 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; (iii) take
any action that would be prohibited by Section 3.4(a) of the Shareholder
Agreement; (iv) 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, in
each case other than in the ordinary course consistent with past practices; (v)
enter into any transaction involving the merger, consolidation or sale of all or
substantially all of the assets of the Company or any of its material
subsidiaries other than a merger, consolidation or sale solely involving the
Company and its subsidiaries; (vi) file any voluntary petition for bankruptcy or
receivership or fail to oppose any other person's petition for bankruptcy or
action to
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<PAGE> 15
appoint a receiver of the Company or any of its material subsidiaries; or (vii)
authorize any of, or commit or agree to take any of, the foregoing actions.
The foregoing covenants are subject, in certain cases, to specified
exceptions and qualifications, including without limitation, those exceptions
that are disclosed to the Investor in the written schedules delivered by the
Company to the Investor pursuant to the Investment Agreement.
Restrictions on Solicitation. The Investment Agreement limits the Company's
ability, prior to the Shareholder Vote, to solicit, initiate, encourage or
knowingly facilitate any Material Transaction Proposal (as defined below) or
participate in any discussions or negotiations regarding any Material
Transaction Proposal; provided that, in response to an unsolicited bona fide
Takeover Proposal (as defined below) the Company may, to the extent the Board
makes a good faith determination 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 the Takeover Proposal and discuss such information with such
Person and its representatives and (B) participate in negotiations regarding the
Takeover Proposal. The Company must promptly notify the Investor of any request
for information or of any Material Transaction Proposal, the material terms and
conditions of such request or Material Transaction Proposal and the identity of
the Person making such request or Material Transaction Proposal and must keep
the Investor fully informed on a current basis of the status and details of any
such request or Material Transaction Proposal.
The Investment Agreement provides that, prior to the Shareholder Vote, the
Board will 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 relating to a
Material Transaction Proposal or (iii) withdraw or modify, in a manner adverse
to the Investor, the approval or recommendation of the Board for the
Transaction. Notwithstanding the foregoing, if the Board receives a Takeover
Proposal without having violated the conditions set forth in the paragraph
above, the Board may, to the extent it makes a good faith determination 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 after five days after receipt by the Investor of written notice from
the Company advising the Investor that the Board has resolved to take such
action.
As used in the Investment Agreement, "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, combination, sale of all or
substantially all of the assets, recapitalization, liquidation, dissolution or
similar transaction involving the Company or any of its subsidiaries other than
the transactions contemplated by the Investment Agreement.
As used in the Investment Agreement, "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 Company's
shareholders 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 entity).
Additional Covenants of the Parties. The Investment Agreement also contains
certain additional covenants of the parties including covenants relating to,
among other things, (i) subject to adherence by the Investor to existing
confidentiality agreements, access by the Investor to, among other things, the
Company's officers, employees, properties, offices, plants and other facilities,
and all financial, operating and other data and information of the Company; (ii)
the preparation by the Company and filing with the SEC of this Proxy
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<PAGE> 16
Statement; (iii) the convening by the Company of a meeting of holders of its
capital stock for the purpose of considering and taking actions to approve the
Proposals; (iv) the cooperation of the parties in connection with the release of
any information concerning the Investment Agreement or the other Transaction
Documents or the matters contemplated therein; (v) the parties use of their
respective reasonable commercial efforts to take all actions and promptly do or
cause to be done all things necessary, proper or advisable to consummate the
Transaction and to obtain the Required Consents; (vi) the preparation and filing
by the Company and the Investor of notifications under the HSR Act in connection
with the Transaction; and (vii) the reservation of shares of Common Stock
issuable upon conversion of the Preferred Stock and the exercise of the
Investment Warrant.
Closing Conditions.
Investor Closing Conditions. The obligation of the Investor to purchase the
Preferred Stock (excluding the 1,600,000 shares of Preferred Stock subject to
shareholder approval) and the Investment Warrant is subject to the satisfaction
or waiver, at or prior to the First Closing Date, of the each of the following
conditions: (i) the representations and warranties of the Company contained in
the Investment Agreement and the other Transaction Documents will be true and
correct in all material respects on and as of the date of the Investment
Agreement or the other Transaction Documents, as the case may be, and on and as
of the Closing Date, except (x) to the extent any such representation or
warranty is made as of a specified date, in which case such representation or
warranty shall be true and correct in all material respects on and as of such
specified date and (y) where the inaccuracy of such representation or warranty
constitutes an Excluded Breach; (ii) the Company will have performed in all
material respects all obligations, agreements, undertakings, covenants and
conditions required by the Investment Agreement and the other Transaction
Documents to be performed by it at or prior to the Closing Date; (iii) there is
not in effect any order, decree or injunction which enjoins or prohibits
consummation of the Transaction and no action, suit, investigation, arbitration
or administrative or governmental proceeding by any Governmental Entity is
pending which seeks to restrain, prohibit or invalidate the Transaction; (iv)
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 the Investment Agreement and
the other Transaction Documents and consummation of the Transaction will have
been obtained or made and all statutory waiting periods thereunder in respect
thereof will have expired, except where the failure to obtain or submit would
not have a Material Adverse Effect; (v) the Investor will have received from the
Company a certificate, dated the Closing Date, signed by the Chief Executive
Officer of the Company or its Chief Financial Officer, certifying that the
foregoing conditions (i), (ii) and (iii) have been satisfied; (vi) the
Shareholder Agreement will have been duly executed and delivered by the Company;
(vii) the Registration Rights Agreement (as defined below) will have been duly
executed and delivered; (viii) the Certificate of Designation for the Preferred
Stock will have been filed with the Secretary of State of the State of
Minnesota; (ix) the Distribution Agreement (as defined below) will be in full
force and effect and the Distributor Warrant will have been issued to NBC; and
(x) the Investor will have received from the Company an opinion in form and
substance reasonably acceptable to the Investor.
Company Closing Conditions. The obligation of the Company to sell the
Preferred Stock and the Investment Warrant is subject to the satisfaction or
waiver, at or prior to the First Closing Date, of the each of the following
conditions: (i) the representations and warranties of the Investor contained in
the Investment Agreement and the other Transaction Documents will be true and
correct in all material respects on and as of the date of the Investment
Agreement or the other Transaction Documents, as the case may be, and on and as
of the Closing Date, except to the extent any such representation or warranty is
made as of a specified date, in which case such representation or warranty shall
be true and correct in all material respects on and as of such specified date;
(ii) the Investor will have performed in all material respects all obligations,
agreements, undertakings, covenants and conditions required by the Investment
Agreement and the other Transaction Documents to be performed by it at or prior
to the Closing Date; (iii) there is not in effect any order, decree or
injunction which enjoins or prohibits consummation of the Transaction and no
action, suit, investigation, arbitration or administrative or governmental
proceeding by any Governmental Entity is pending which seeks to restrain,
prohibit or invalidate the Transaction; (iv) all permits, consents,
authorizations, orders, and
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<PAGE> 17
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
the Investment Agreement and the other Transaction Documents and consummation of
the Transaction will have been obtained or made and all statutory waiting
periods thereunder in respect thereof will have expired, except where the
failure to obtain or submit would not have a Material Adverse Effect; (v) the
Company will have received from the Investor a certificate, dated the Closing
Date, in form and substance reasonably satisfactory to the Company to the effect
that the foregoing conditions (i), (ii) and (iii) have been satisfied; (vi) the
Shareholder Agreement will have been duly executed and delivered by the
Investor; (vii) the Distribution Agreement will be in full force and effect;
(viii) the Company will have received from the Investor an opinion in form and
substance reasonably acceptable to the Company; and (ix) the Operating Agreement
between the Company, the Investor and NBC to be dated as of the Second Closing
Date will be in full force and effect.
Termination. The Investment Agreement may be terminated on or prior to the
First Closing Date (i) by mutual written consent of the Investor and the
Company; (ii) by either the Company or the Investor if (x) the First Closing
shall not have occurred on or prior to August 31, 1999 unless the failure of
such occurrence is due to the failure of the party seeking to terminate the
Investment Agreement to perform or observe its agreements set forth therein
required to be performed or observed by such party on or before the First
Closing Date; or (y) any Governmental Entity has denied any approval under any
of the laws, rules or regulations necessary for the consummation of the
Transaction.
Effect of Termination. If the Investment Agreement is terminated pursuant
to subsection (i) or (ii) under "Termination" above, the Investment Agreement
will become void, except for each parties obligations with respect to (x) public
announcements relating to the Transaction and (y) fees and expenses relating to
the Transaction.
Amendment. The Investment Agreement may be amended or modified in whole or
in part at any time by an agreement in writing between the parties.
CERTIFICATE OF DESIGNATION
The Certificate of Designation (the "Certificate"), the form of which is
attached as Annex C to this Proxy Statement and incorporated by reference
herein, governs the powers, designations, preferences and rights of the
Preferred Stock. Pursuant to the terms of the Investment Agreement, the Company
has authorized the issuance and sale to the Investor of 5,339,500 shares of the
Preferred Stock, subject to shareholder approval of 1,600,000 shares, at a
stated value of $8.29 per share (the "Stated Value").
Rank. The Preferred Stock ranks prior, both as to payment of dividends and
as to distributions of assets upon liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary, to all of the Company's now existing
or thereafter issued Common Stock and all of the Company's now existing or
thereafter issued Junior Stock. No payment on account of the purchase,
redemption, retirement or other acquisition of shares of any class or series of
the Company's Junior Liquidation Stock will be made directly or indirectly by
the Company unless and until all of the Preferred Stock has been converted into
Common Stock or redeemed pursuant to the Certificate or otherwise reacquired by
the Company.
Dividends. In the event that the Company declares and pays any dividend on
the Common Stock while any shares of Preferred Stock are outstanding, dividends
will be paid on the outstanding shares of Preferred Stock on the same basis as
if such Preferred Stock had been converted to Common Stock prior to the date
fixed for determination of the holders of Common Stock entitled to such
dividend. Holders of Preferred Stock will not be entitled to any dividends in
excess of the dividends provided for in the Certificate. Such dividends will be
payable to holders in preference to dividends on any Junior Dividend Stock and
will be paid pro rata to the holders entitled thereto. No dividend or other
distribution, other than dividends payable solely in shares of Junior Stock,
will be declared, paid or set apart for payment on shares of Junior Dividend
Stock, unless and until all accrued and unpaid dividends on the Preferred Stock
have been paid or declared and set apart for payment and any related dividend is
declared and paid on the Preferred Stock. In addition, no dividends will be
declared, paid or set apart for payment on shares of any class or series of the
Company's Parity Dividend Stock for any period unless dividends have been, or
contemporaneously are, paid or declared and set apart for payment on the
Preferred Stock. No dividends will be paid on Parity Dividend Stock except on
dates on which
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<PAGE> 18
dividends are paid on the Preferred Stock. All dividends paid or declared and
set apart for payment on the Preferred Stock and any Parity Dividend Stock will
be paid or declared and set apart for payment pro rata so that the amount of
such dividends on any date will in all cases bear to each other the same ratio
that accrued and unpaid dividends on the Preferred Stock and the Parity Dividend
Stock bear to each other.
Liquidation Preference. In the event of a liquidation, dissolution or
winding up of the Company, whether voluntary or involuntary, the holders of the
then outstanding shares of Preferred Stock will be entitled to receive out of
the assets of the Company available for distribution to shareholders an amount
in cash equal to the Stated Value for each share outstanding, plus any accrued
and unpaid dividends on such shares on the date of final distribution to such
holders, without interest, before any payment is made to the holders of Junior
Liquidation Stock. The entire assets of the Company available for distribution
to holders will be distributed ratably among the holders of the 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. After payment in full of the liquidation preferences of the shares of
the Preferred Stock, the holders of such shares will not be entitled to further
participate in any distribution of assets by the Company.
Redemption. The Preferred Stock will be mandatorily redeemed by the Company
ten years after the date of issuance of the Preferred Stock (the "Preferred
Stock Issue Date") in cash 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. The Preferred Stock will also be redeemable at the option of
the holder(s) thereof upon a Change of Control, 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.
Conversion. Subject to adjustment as described below, each full share of
Preferred Stock will be convertible at the option of the holder thereof, at any
time (including upon a change of control) from the Preferred Stock Issue Date
until the close of business on the tenth business day prior to any date fixed
for redemption of such shares, into a number of fully paid and nonassessable
shares of Common Stock equal to the Stated Value of each full share of Preferred
Stock to be converted divided by a conversion price (the "Conversion Price"),
which initially will be $8.29.
Certain Adjustments. The Conversion Price at which a share of Preferred
Stock is convertible into Common Stock will be subject to adjustment from time
to time in certain instances, including, but not limited to: (i) if the Company,
after the Preferred Stock Issue Date pays a dividend or makes a distribution on
its Common Stock or on any other class or series of capital stock of the Company
which dividend or distribution includes or is convertible into Common Stock;
(ii) the Common Stock is subdivided or combined; (iii) the issuance or sale by
the Company of (x) Common Stock, (y) rights, warrants or options entitling the
holders thereof to subscribe for or purchase shares of Common Stock or (z) 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 the Relevant Date; or (iv) if the Company, by
dividend or otherwise, distributes to all holders of Common Stock evidences of
its indebtedness, shares of any class or series of capital stock, cash or
assets, except for distributions below a certain specified annual threshold.
The Company may reduce the Conversion Price from time to time by any amount
for any period of time if (i) the period is at least 20 days, (ii) the reduction
is irrevocable during the period, subject to any conditions that the Board may
deem relevant and (iii) the Board has made a conclusive determination that such
reduction would be in the best interest of the Company.
The Conversion Price will not be subject to adjustment in the event (i) the
holders of outstanding shares of Preferred Stock receive the dividend or
distribution otherwise giving rise to the adjustment or (ii) the adjustment
would require an increase or decrease of less than 1% in the Conversion Price;
provided, however, that any adjustments not made as a result of events specified
in clause (ii) above, will be carried forward and taken into account in any
subsequent adjustment.
In the case of any capital reorganization or reclassification of the
Company's capital stock, or consolidation of the Company with, or merger of the
Company into, any other entity, any merger of another entity into the Company or
the sale or transfer of all or substantially all of the assets of the Company or
any
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<PAGE> 19
share exchange (individually, an "Event"), then lawful provisions will be made
as part of the terms of such transaction whereby the holder of each share of
Preferred Stock then outstanding will have the right thereafter to convert such
share 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 shares of Preferred Stock might have been converted immediately prior
to such transaction. The entity formed or surviving as a result of an Event must
make provisions establishing such right in its certificate or articles of
incorporation and effective provisions must be made in the certificate or
articles of incorporation of such entity and in any contract of sale,
conveyance, lease, transfer or otherwise, such that the protection of the rights
of the holders of Preferred Stock set forth in the Certificate continue to be
applicable. In addition, any such entity must expressly assume the obligation to
pay dividends and deliver, upon conversion, such shares of common stock, other
securities, or cash as set forth in the Certificate. Adjustments for events
subsequent to the effective date of an Event must be as nearly equivalent as may
be reasonably practicable to the adjustments provided for in the Certificate.
Fractional Shares. No fractional shares of Common Stock will be issued upon
conversion of the Preferred Stock. Instead, the Company will pay the holder of
the Preferred Stock at the time of conversion a cash adjustment in respect of
such fractional shares in an amount equal to the fraction of the then-current
Market Price per share of Common Stock on the day of conversion.
Voting Rights. Subject to certain ownership thresholds, as long as the
Restricted Parties own a majority of the outstanding shares of Preferred Stock,
the Preferred Stock will have the right, voting separately as a class, to (i)
initially elect two directors to the Board who are reasonably acceptable to the
Company and (ii) thereafter, as long as the Investor is entitled to designate at
least one nominee for election to the Board pursuant to the Shareholder
Agreement, elect that number of directors equal to the number of Designees that
the Investor is entitled to so designate. See "-- Shareholder Agreement." For so
long as holders of the outstanding Preferred Stock, voting separately as a
class, are entitled to elect one or more directors to the Board, they will not
be entitled to vote in the election of any other directors of the Company. The
holders of shares of Preferred Stock will vote on an "as converted" basis on all
other matters with respect to which the holders of the Common Stock have the
right to vote.
In addition, for so long as any shares of Preferred Stock are outstanding,
the Company may not, without the affirmative vote or consent of the holders of
at least a majority of all outstanding shares of Preferred Stock, voting or
consenting separately as a class: (i) create any class of stock that by its
terms ranks senior to or on a parity with the Preferred Stock as to dividends or
upon liquidation, dissolution or winding up of the Company 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) subject to certain exceptions set forth in the
Certificate, alter or change any of the provisions of the Company's articles of
incorporation so as to adversely affect the relative rights and preferences of
any outstanding Preferred Stock; or (iii) issue any additional shares of
Preferred Stock.
Prior Notice of Certain Events. The Company must notify holders of
outstanding shares of Preferred Stock in accordance with the provisions of the
Certificate in the event: (i) the Company (x) declares any dividend or
distribution on its Common Stock (other than a dividend payable in shares of
Common Stock or a dividend payable in cash out of its retained earnings other
than any special or nonrecurring or other extraordinary dividend) or (y)
declares or authorizes a redemption or repurchase of its Common Stock in excess
of 5% of the then outstanding shares of Common Stock; (ii) the Company
authorizes the granting to all holders of Common Stock of any rights or warrants
to subscribe for or purchase any shares of stock of any class or series; (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 any consolidation or merger
to which approval of any shareholders of the Company will be required or any
sale of all or substantially all of the assets of the Company or 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 Company; or (v) of any other event which would require an
adjustment to the Conversion Price.
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<PAGE> 20
Reservation of Shares. The Company will at all times reserve and keep
available, free from preemptive rights, out of its authorized but unissued
stock, solely for the purpose of effecting the conversion of the Preferred
Stock, such number of shares of its Common Stock as will from time to time be
sufficient to permit the conversion of all shares of Preferred Stock from time
to time outstanding. The Company will, in good faith and in accordance with the
laws of the state of Minnesota, cause the authorized number of shares of Common
Stock to be increased if at any time the number of shares of authorized but
unissued Common Stock will not be sufficient to permit the conversion of all the
then outstanding shares of Preferred Stock.
SHAREHOLDER AGREEMENT
On the First Closing Date the Company and the Investor will enter into the
Shareholder Agreement, the form of which is attached to this Proxy Statement as
Annex D and incorporated herein by reference, with respect to certain corporate
governance and standstill matters. Under the terms of the Shareholder Agreement,
the Company and the Investor have agreed to the following:
Corporate Governance. Under the terms of the Shareholder Agreement (and the
Certificate), the Company has agreed to expand the size of its Board to seven
directors and appoint to the Board two individuals designated by the Investor.
See "-- Certificate of Designation." The Investor Designees are subject to the
reasonable approval of a majority of the members of the Board and will continue
to serve as directors until the next election of directors.
If Shareholder Approval is obtained, the Investor will be entitled to
designate two individuals to be nominated to the Board so long as the Restricted
Parties (as defined in the Shareholder Agreement) continue to Beneficially Own
at least 50% of the number of shares of Common Stock owned by such parties on
the date the Shareholder Agreement is signed. In the event the Restricted
Parties' Beneficial Ownership falls below such 50% threshold, the Investor will
have the right to designate one individual to the Board, so long as the
Restricted Parties continue to Beneficially Own at least 10% of the Adjusted
Outstanding Common Stock. As long as the Investor is entitled to designate two
persons for nomination as directors, the current Investor may assign the right
to designate one of such nominees to any other Restricted Party (such that two
Restricted Parties each have the right to designate one nominee).
If Shareholder Approval is not obtained, the Investor will have the right,
so long as the Restricted Parties Beneficially Own at least 75% of the Common
Stock held by such parties on the date of the Shareholder Agreement, to
designate two individuals to the Board. In the event the Investor's Beneficial
Ownership falls below such 75% threshold, the Investor will have the right to
designate one individual to the Board, so long as the Restricted Parties
continue to Beneficially Own at least 50% of the Common Stock held by such
parties on the date of the Shareholder Agreement.
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) of the Company, the Investor
Designee(s) will be elected to the Board by the holders of the Preferred Stock
voting separately as a class, as provided in the Certificate. See
"-- Certificate of Designation." If the Restricted Parties no longer own a
majority of the outstanding shares of Preferred Stock (or if no shares of
Preferred Stock are outstanding) but the Investor is otherwise entitled to
designate nominee(s) for election as director(s) pursuant to the Shareholder
Agreement, the Company must nominate each Investor Designee for election as part
of the management slate that is included in its proxy statement and must provide
the same support for the election of such designee as it provides to other
persons standing for election as part of the management slate.
In addition, for so long as the Investor has the right to designate
nominee(s) for election as director(s) and the Investor Designees have been
included in the Company's management slate in each vote for election of
directors, the Restricted Parties must vote in each shareholder vote for the
election of the Company's directors all of their voting stock (other than shares
of Preferred Stock that vote for directors as a separate class from the Common
Stock) as follows: (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 Company's
proxy statement; 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
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<PAGE> 21
favor of the management slate that is included in such proxy statement or (y) in
the same proportion as all votes cast by Disinterested Shareholders.
Board Committees. As long as the Investor has the right to designate at
least one nominee to the Board, unless otherwise agreed to by the Investor, (i)
each of the Audit Committee and Compensation Committee of the Board must contain
at least one Investor Designee and (ii) each other committee of the Board must
contain a number of Investor Designees (to the extent available) rounded up to
the nearest whole number, equal to the total number of directors on such
committee multiplied by the percentage of the entire Board who are Investor
Designees.
Certain Agreements.
Transactions with NBC Restricted Persons. The Company has agreed that,
without the prior written consent of the Investor and except as may be expressly
permitted by the Shareholder Agreement, it and its subsidiaries will not: (i)
issue or sell to any NBC Restricted Person (as defined below) 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 securities of
the Company or any of its subsidiaries, or any options, warrants or other rights
to acquire any of the foregoing; (ii) form, enter into or join any partnership
or joint venture with, sell or dispose of any business or assets (other than
inventory and any other assets disposed of in the ordinary course consistent
with past practice) 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 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 of its
subsidiaries or grant to any NBC Restricted Person any rights to have a branded
presence on any of the Company's or its subsidiaries' media or rights to
cross-promote home shopping transactions; or (vi) authorize or commit or agree
to take any of the foregoing actions.
As used in the Shareholder Agreement, "NBC Restricted Person" means any one
of the following entities: CBS Corporation, Fox Entertainment Group, Inc., The
Walt Disney Company, Time Warner, Inc., Paxson Communications Corporation,
Viacom, Inc., Yahoo!, Inc. ("Yahoo"), American Online, Inc. ("AOL"), Excite,
Inc. ("Excite"), Lycos, Inc. ("Lycos"), Infoseek Corporation ("Infoseek") or
Microsoft Corporation ("Microsoft").
The foregoing provisions will terminate at such time as the Investor is no
longer entitled to designate at least one person to be nominated for election to
the Board under the terms of the Shareholder Agreement. In addition, such
provisions will terminate with respect to Yahoo, AOL, Excite, Lycos, Infoseek
and Microsoft (the "Carve-out Entities") in the event that (i) NBC or any of its
subsidiaries or affiliates enters into a significant transaction with any
Carve-out Entity (the "Relevant Entity") that precludes NBC and its subsidiaries
from entering into a significant transaction with any one of the other Carve-out
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 an agreement providing for a significant transaction with the
Relevant Entity or its affiliate.
Certain other Transactions. The Company has also agreed that, for so long
as the Investor is entitled to designate two persons to be nominated for
election to the Board, it and its subsidiaries will not, without the prior
written consent of the Investor, (i) 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 to acquire capital stock of the Company, other than in the
limited circumstances set forth in the Shareholder Agreement; (ii) declare or
pay any dividends or distributions to holders of Common Stock in any fiscal
quarter exceeding in the aggregate of 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 in the limited circumstances set forth in the Shareholder
Agreement; (iii) enter into or effect any single or related series of
acquisitions of businesses or assets or investments therein, other
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<PAGE> 22
than certain 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 exceeds the greater of (a) $35 million, or
(b) 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
deposition; (iv) 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; (v) incur indebtedness for
borrowed money that would cause the Company's consolidated indebtedness to
exceed the greater of (1) $40 million and (2) an amount equal to 30% of the
Company's "total capitalization;" (vi) issue any series or class of capital
stock having voting rights that are disproportionate relating to its economic
interest or having a separate class vote on any Takeover Transaction; (vii)
directly or indirectly enter into any business in which the Company and/or its
subsidiaries and/or affiliates are not engaged in on the date of the Shareholder
Agreement, except for those businesses which are ancillary, complementary or
reasonably related thereto; (viii) amend its articles of incorporation so as to
adversely affect the Restricted Parties or (ix) authorize or commit or agree to
take any of the foregoing actions.
Other Agreements. Pursuant to the Shareholder Agreement, so long as the
Investor has the right to name at least one nominee to the Board, the Company
will provide it with certain monthly, quarterly and annual financial reports and
budgets. In addition, the Company 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 the Investor or any of its affiliates. The
Company also is prohibited from taking any action that would cause any ownership
interest of certain FCC regulated entities from being attributable to the
Investor, NBC or their affiliates.
No Reinstatement of Rights. The Investor and the Company have agreed that
to the extent the Restricted Parties fail to satisfy any ownership threshold set
forth in the Shareholder Agreement such that any rights of the Investor under
the Agreement and/or obligations of the Company under the Agreement terminate,
such terminated rights and/or obligations will not be reinstated if the
Restricted Parties thereafter satisfy such ownership threshold.
Standstill Provisions. The Shareholder Agreement provides that, during the
Standstill Period and with certain limited exceptions, the Restricted Parties
will be prohibited from, unless specifically requested to do so in writing in
advance by the Board, doing any of the following: (i) making any asset/business
purchases from the Company in excess of 10% of the total fair market value of
the Company's assets; (ii) increasing their Beneficial Ownership above 39.9% of
the Company's outstanding shares of Common Stock (except under limited
circumstances); (iii) making or in any way participating in any solicitation of
proxies (except under limited circumstances); (iv) depositing any securities of
the Company or any of its subsidiaries in a voting trust; (v) forming, joining,
or in any way becoming a member of a 13D Group with respect to any voting
securities or assets of the Company or any of its subsidiaries; (vi) arranging
any financing for, or providing any financing commitment specifically for, the
purchase of any voting securities of the Company or any of its subsidiaries; and
(vii) otherwise acting, 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 nominating any person as a
director of the Company who is not nominated by the then incumbent directors, or
proposing any matter to be voted upon by the Company's shareholders. 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 Board, or the Board
pursues such a transaction, or engages in negotiations or provides information
to a third party with respect to such a transaction and the Board has not
resolved to terminate such discussions, then the Restricted Parties may propose
to the Company a tender offer or business combination proposal.
In addition, unless the Restricted Parties Beneficially Own less than 5% or
more than 90% of the Adjusted Outstanding Common Stock, the Restricted Parties
may not sell, transfer or otherwise dispose of any of the Preferred Stock, the
Warrants or shares of Common Stock Beneficially Owned by such persons 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 the Company;
(iii) pursuant to a Third Party Tender Offer; provided
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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 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
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
Common Stock.
The Standstill Period will terminate (subject to reinstatement under
certain circumstances) on the earliest to occur of (i) the 10 year anniversary
of the Shareholder Agreement; (ii) the entering into by the Company 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 the Investor can no longer designate any
nominees to the 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)), the Restricted Parties' Beneficial
Ownership position may not exceed 39.9% of the Adjusted Outstanding Common
Stock, except pursuant to issuance or exercise of any warrants or pursuant to a
Purchaser Tender Offer.
REGISTRATION RIGHTS AGREEMENT
On the First Closing Date, the Company will enter into a Registration
Rights Agreement (the "Registration Rights Agreement") with the Investor
pursuant to which the Investor and each other person who becomes a Holder of
Registrable Securities thereunder will have certain demand and "piggyback"
registration rights. For purposes of this summary, the term "Holder" is deemed
to include the Investor.
Demand Registration Rights. Under the terms of the Registration Rights
Agreement, Holders may make, in the aggregate, four demands for registration
(each, a "Demand Registration"). The Company is not obligated to effect a Demand
Registration unless (i) the Holder requesting the Demand Registration is seeking
to include Registrable Securities with a market value of at least $5,000,000 as
of the close of the business day immediately preceding the date written notice
of the demand (the "Demand Notice") is given to the Company and (ii) the Demand
Notice is given at least six months after the effective date of the immediately
preceding Demand Registration or, if later, the date on which a Demand
Registration is terminated in its entirety prior to the effective date of the
applicable registration statement.
If a Holder makes a Demand Registration, the Company must provide written
notice thereof to all other Holders, if any, and must, subject to the following
sentence, include in such registration all Registrable Securities for which the
Company receives written requests for inclusion therein within 10 business days
after the Company's notice is received by such Holders. If the managing
underwriter of an Underwritten Offering to which such Demand Registration
relates advises such Holders that the total amount of Registrable Securities
that they intend to include in the Demand Registration will, in the aggregate,
materially and adversely affect the success of the offering, then the number of
Registrable Securities to be included in the Demand Registration will, if
necessary, be reduced. If the number of Registrable Securities is reduced, the
Registrable Securities of the Holder initiating the Demand Registration will
receive priority in the Underwritten Offering to the full extent of the
Registrable Securities such Holder desires to sell. The remaining allocation
available for sale will 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.
Under the terms of the Registration Rights Agreement, the Company will have
the right to defer requests for Demand Registrations for a period not to exceed
90 days if the Company determines, in the good faith exercise of the business
judgment of the Board, that such registration and offering could materially
interfere with a bona fide business or financial transaction of the Company or
would require disclosure of information, the premature disclosure of which could
materially and adversely affect the Company.
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Piggyback Registration Rights. Holders are also entitled to unlimited
"piggyback" registration rights to include their Registrable Securities, subject
to certain limitations, in certain registrations initiated by the Company for
its own account, or otherwise. The Company must give Holders written notice at
least 30 days prior to the anticipated filing relating to any such proposed
offering and must offer Holders the opportunity to include in the offering the
amount of Registrable Securities as each Holder may request (a "Piggyback
Registration"). The Company must cause the managing underwriter of a proposed
Underwritten Offering to include in each such offering all Registrable
Securities with respect to which the Company has received written requests for
inclusion therein, subject to the advice of the managing underwriter that the
total amount of securities that such Holders and the Company propose to include
in the offering will materially and adversely affect the success of the
offering. Under such advisement, the Company will include in the registration
(i) first, 100% of the Common Stock of the person or entity who requests such
registration, if any, (ii) second, 100% of the Common Stock the Company proposes
to sell and (iii) third, the number of Registrable Securities requested to be
included in such registration which, with the advice of the managing
underwriter, can be sold without having the adverse effect referred to above,
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 Holder.
The Registration Rights Agreement contains customary indemnification and
contribution provisions relating to the exercise by the Holders of their
registration rights thereunder.
THE BOARD OF DIRECTORS BELIEVES PROPOSAL 1 TO BE IN THE BEST
INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS AND RECOMMENDS A VOTE
"FOR" APPROVAL OF PROPOSAL 1 AND EACH OF THE OTHER PROPOSALS.
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PROPOSAL 2
APPROVAL OF ISSUANCE OF SHARES OF COMMON STOCK PURSUANT TO THE
INVESTMENT WARRANT
Proposal 2 relates to the approval by the shareholders of the issuance to
the Investor of the shares of Common Stock issuable upon exercise of the
Investment Warrant.
Although the Company does not believe shareholder approval of Proposal 2 is
required under applicable law or the rules of the NASD, the Company is seeking
shareholder approval of Proposal 2 because of the potential dilutive effect that
the issuance of the Investment Warrant could have on the Company's shareholders.
The Company has conditioned the issuance of the shares of Common Stock under the
Investment Warrant on shareholder approval of this Proposal 2.
If the Company's shareholders do not approve this Proposal 2, NBC will have
the right to terminate the Distribution Agreement. See "Proposal 3: Ratification
of the Issuance of the Performance Distributor Warrants -- Distribution
Agreement -- NBC Right to Terminate."
The terms of the Investment Warrant are summarized below. For a description
of the terms of the Investment Agreement, the Shareholder Agreement and the
Registration Rights Agreement, each of which relate to the Investment Warrant,
see "Proposal 1: Approval of Issuance of 1,600,000 shares of Preferred Stock."
The following description of the Investment Warrant is only a summary
thereof and is qualified in its entirety by reference to such document the form
of which is attached hereto as Annex E. Capitalized terms used in the following
summary without definition shall have the meanings ascribed to them in the
Investment Warrant.
INVESTMENT WARRANT
General. The Investment Warrant, when exercised, will entitle the holder
thereof to receive (i) up to that number of shares that result in the Restricted
Parties at each time the Investment Warrant is exercised, Beneficially Owning
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. The Investment Warrant will be exercisable at
any time and from time to time from and after the Second Closing Date (the
"Issue Date"). Unless exercised, the Investment Warrant will automatically
expire on the fifth anniversary of the Issue Date.
The Investment Warrant may be exercised by a holder thereof, in whole or in
part, by presentation to the Company of the election to exercise attached
thereto (the "Election to Exercise") duly filled in and signed, and accompanied
by payment to the Company of the Exercise Price (as defined below) for the
number of shares of Common Stock (the "Warrant Shares") specified in such
Election to Exercise. Payment of the aggregate Exercise Price must be made by
certified or official bank check in an amount equal to the aggregate Exercise
Price. Upon presentation of an Election to Exercise and payment of the aggregate
Exercise Price to the Company, the Company will promptly issue and cause to be
delivered to the person holding the Investment Warrant (the "Warrantholder") a
certificate or certificates for the specified number of duly authorized, fully
paid and non-assessable Warrant Shares issuable upon exercise. No fractional
Warrant Shares will be issued upon exercise of the Investment Warrant unless the
fractional Warrant Shares totaling more than one Warrant Share in the aggregate
are presented for exercise at the same time by the Warrantholder. In such case,
the number of full Warrant Shares issuable upon exercise thereof will be
computed on the basis of the aggregate number of Warrant Shares so purchasable
upon the exercise of the Investment Warrant so presented. Otherwise, the Company
will pay to the holder of the Investment Warrant at the time of exercise an
amount in cash equal to the fraction of a Warrant Share represented by such
fractional Warrant Shares multiplied by the Market Price on the day of exercise.
Exercise Price. The price per share (the "Exercise Price") at which Warrant
Shares may be purchased upon the exercise of the Investment Warrant will be (i)
if the Warrantholder elects to purchase Warrant Shares prior to the second
anniversary of the Issue Date, equal to the greater of (x) the average of the
closing
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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 (y) 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, in each case
subject to adjustment (the "Warrant Market Price"), but in no case less than
$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 after the Issue Date and having a record
date prior to the date of exercise); or (ii) if the Warrantholder elects to
purchase Warrant Shares on or after the second anniversary of the Issue Date,
equal to the greater of (1) the Warrant Market Price and (2) $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 after the Issue Date and having a record date prior to the
date of exercise).
Conditions to Exercise. Exercise of the Investment Warrant is subject to
(i) shareholder approval of this Proposal 2, (ii) after taking into account the
number of Warrant Shares issuable upon such exercise, the Restricted Parties in
the aggregate Beneficially Owning no more than (x) 39.9% of the shares of the
then Adjusted Outstanding Common Stock minus (y) the aggregate number of shares
of Adjusted Outstanding 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, subject to adjustment, and (iii) the purchase of
the Warrant Shares issuable upon exercise of the Investment Warrant not being
prohibited under applicable law.
Certain Adjustments. Under the terms of the Investment Warrant, upon
consummation of an Organic Change, other than a transaction in which the Company
is not the surviving entity, as a condition of such Organic Change, lawful
provision must be made as part of the terms of such transaction, such that, upon
the exercise of the Investment Warrant, without payment of any additional
consideration therefor, the Warrantholder will 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 the Investment Warrant might have been exercised immediately prior to
such Organic Change. In addition, lawful provision must be made such that all
other terms of the Investment Warrant remain in full force and effect following
the Organic Change. This provision will similarly apply to successive Organic
Changes.
The Company may not enter into an Organic Change where the Company is not
the surviving entity unless lawful provision is made as part of the terms of
such transaction whereby the surviving entity will issue new securities to each
Warrantholder, without payment of any additional consideration therefor, with
terms that provide that upon exercise of the Investment Warrant following the
consummation of such Organic Change, the Warrantholder will 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
the Investment Warrant might have been exercised immediately prior to such
Organic Change.
Prior Notice of Certain Events. The Company must notify the Warrantholder
in accordance with the provisions of the Investment Warrant in the event the
Company (i) declares any dividend or distribution of any kind or character on or
in respect of shares of Common Stock or to the shareholders of the Company,
excluding any regular periodic cash dividend paid out of current or retained
earnings, (ii) authorizes the granting to the holders of shares of Common Stock
of rights to subscribe for or purchase any shares of capital stock or any other
right, (iii) reclassifies shares of Common Stock (other than a subdivision or
combination of outstanding shares of Common Stock), consolidates or merges with
another company for which approval of any shareholders of the Company is
required or sells or transfers all or substantially all of the assets of the
Company or (iv) in the event of a voluntary or involuntary dissolution,
liquidation or winding up of the Company.
Replacement Warrant. In the event that the Investor and NBC are no longer
Affiliates of each other, the Investment Warrant will immediately terminate and
the Company will issue a new warrant to NBC or its subsidiary (the "Replacement
Warrant") having the same terms as the Investment Warrant. NBC or one of its
subsidiaries will at all times own at least 50% of the economic interest in the
Replacement Warrant.
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Reservation of Shares. The Company will at all times reserve and keep
available for issuance and delivery upon exercise of the Investment 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.
Listing on Nasdaq or Securities Exchange. The Company must use its
reasonable best efforts to list any shares of Common Stock issuable upon
exercise of the Investment Warrant on Nasdaq or on such other national
securities exchange on which shares of Common Stock are then listed. In any
case, the Company must, at its expense, cause all shares of Common Stock issued
upon the exercise of the Investment Warrant to be listed at the time of such
issuance on Nasdaq and/or such other securities exchange on which shares of
Common Stock are then listed and must maintain such listing.
EFFECTIVE VOTING CONTROL BY THE INVESTOR
The Investment Warrant will allow the Investor to purchase a substantial
number of shares of Common Stock which will allow it to exert substantial
influence over the election of directors and the management and affairs of the
Company. Accordingly, the Investor may have sufficient voting power to determine
the outcome of various matters submitted to the shareholders for approval,
including mergers, consolidations and the sale of all or substantially all of
the Company's assets. Such control may result in decisions that are not in the
best interests of the Company or its shareholders.
THE BOARD OF DIRECTORS BELIEVES PROPOSAL 2 TO BE IN THE BEST
INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS AND RECOMMENDS A VOTE
"FOR" APPROVAL OF PROPOSAL AND EACH OF THE OTHER PROPOSALS.
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PROPOSAL 3
RATIFICATION OF THE ISSUANCE OF THE PERFORMANCE DISTRIBUTOR WARRANTS
On March 8, 1999, the Company and NBC entered into the Distribution
Agreement pursuant to which NBC will have the exclusive right to negotiate on
behalf of the Company for the distribution of its home shopping television
programming service and, in consideration therefor, the Company will issue to
NBC: (i) the Distributor Warrant to purchase 1,450,000 shares of Common Stock
and (ii) the Performance Distributor Warrants in the event NBC meets certain
performance targets set forth in the Distribution Agreement.
Although the Company does not believe shareholder approval of Proposal 3 is
required under applicable law or the rules of the NASD, the Company is seeking
shareholder ratification of Proposal 3 because of the potential dilutive effect
that the issuance of the Performance Distributor Warrants could have on the
Company's shareholders. The Company has not, however, conditioned the issuance
of the Performance Distributor Warrants, or the shares of Common Stock issuable
thereunder, on shareholder ratification of this Proposal 3. Shareholders are not
being asked to ratify the issuance of the Distributor Warrant because the shares
issuable upon exercise of such warrant were taken into consideration by the
Company in determining the number of shares of Preferred Stock subject to
shareholder approval. See "Proposal 1: Approval of Issuance of 1,600,000 Shares
of Preferred Stock."
The terms of the Distribution Agreement and the Performance Distributor
Warrants are summarized below.
The following description of the Distribution Agreement is only a summary
thereof and is qualified in its entirety by reference to the Distribution
Agreement which is attached here to as Annex F. Unless otherwise indicated,
capitalized terms used in the following summary without definition shall have
the meanings ascribed to them in the Distribution Agreement.
DISTRIBUTION AGREEMENT
General. The Distribution Agreement provides that NBC will have the
exclusive right to negotiate on behalf of the Company for the distribution of
its home shopping television program service and any of the Company's successor
home shopping or transactional television program service(s) ("VVTV") to
multichannel video programming distributors (each, a "Distributor") throughout
the United States. NBC will also provide promotion and affiliate marketing
services to the Company in connection with the distribution and carriage of VVTV
(collectively, the "Services"). In consideration of the Services provided by
NBC, the Company will issue NBC the Distributor Warrant and will pay NBC an
annual cash fee for each year during the Term (as defined below). As more fully
described below, the Company will be required to issue NBC the Performance
Distributor Warrants to purchase additional shares of Common Stock in the event
NBC meets certain performance targets set forth in the Distribution Agreement,
based upon the number of full time equivalent subscribers ("FTE Subscribers")
provided by NBC. The Distribution Agreement is for a term of 10 years (the
"Term"), which will begin on the date of commencement (the "Commencement Date")
of performance of the Services by NBC.
The Distributor Warrant. The Distributor Warrant will vest with respect to
200,000 shares of Common Stock on the Commencement Date, and 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 over the Term. Any unvested portion of the Distributor Warrant
will immediately vest and become fully exercisable in the event of a "change in
control" of the Company. Each vested installment will 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 Distributor Warrant will be exercisable
at a price per share equal to $8.288, subject to customary anti-dilution
adjustments.
Performance Distributor Warrants. NBC has committed to delivering an
additional 10 million FTE Subscribers to the Company over the first 42 months of
the Term (the "Aggregate Performance Target"). Assuming certain performance
milestones are met above the Aggregate Performance Target, the Company
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will issue Performance Distributor Warrants to NBC. Each Performance Distributor
Warrant will 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 NBC secures a written commitment for additional FTE
Subscribers. Each Performance Distributor Warrant will 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; provided, however, that any unvested portion of the Performance
Distributor Warrant will immediately vest and become fully exercisable in the
event of a "change in control." Each vested installment will 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 number of shares of Common Stock issuable under a Performance
Distributor Warrant will equal (i) the product of the number of FTE Subscribers
to be added as a result of such written commitment multiplied by .80, divided by
(ii) the present value of such Performance Distributor Warrant on the date of
execution of such written commitment determined using the Black-Scholes pricing
model, using reasonably and customary assumptions taking into account the market
price of the Common Stock at the time of issuance, the term of the Performance
Distributor Warrant and a measurement of expected volatility that is reasonable
under the circumstances, multiplied by (iii) 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.
Obligations of the Company. The Distribution Agreement provides that,
during the Term, the Company will (i) 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 the Distribution Agreement was
signed, 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, (ii) at all times during the Term
retain a sufficient number of employees on the Company's payroll to monitor and
maintain accurate records with respect to and ensure timely payment by the
Company of fees payable to Distributors for carriage of VVTV and (iii) comply in
all material respects with the standards and practices of NBC applicable to
programming and advertising for telecast by NBC (the "NBC Standards") and with
all truth-in-advertising, consumer credit, consumer product safety and other
laws, rules, regulations and orders applicable to the Company or to the
advertising and sale of products in home shopping television transactions,
except for such failures to comply which will not, either individually or in
aggregate, have a material adverse effect on the business or results of
operations of the Company.
Termination Rights.
Company Right to Terminate. The Company will have the right to terminate
the Distribution Agreement at any time during the 90 day period immediately
following the twenty-fourth, thirty-sixth and forty-second full calendar month
anniversary of the Commencement Date, in each case if certain performance
targets are not met by NBC thereunder. If terminated by the Company in such
circumstances, the unvested portion of the Distributor Warrant will expire. In
addition, the Company will be entitled to a $2.5 million payment from NBC if the
Company terminates the Distribution Agreement as a result of NBC's failure to
meet the 24 month performance target.
The right of the Company to terminate the Distribution Agreement as a
result of NBC's failure to achieve any of the performance targets will terminate
and be of no further force or effect at such time that NBC reaches the Aggregate
Performance Target.
NBC Right to Terminate. NBC will have the right to terminate the
Distribution Agreement under certain circumstances, including, but not limited
to, (i) in the event that the closing of the sale of the Preferred Stock (other
than the 1,600,000 shares subject to shareholder approval) and the Investment
Warrant has not occurred on or prior to August 31, 1999; provided however, that
to the extent the Company and NBC agree to extend the termination date of the
Investment Agreement (the "Termination Date"), such date will be extended to be
concurrent with the Termination Date; (ii) in the event that Shareholder
Approval is not obtained on or prior to August 31, 1999; (iii) if, prior to the
Shareholder Vote, the Company or the Board receives notice of a Material
Transaction, Takeover Transaction or a Third Party Tender Offer (as such
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<PAGE> 30
terms are defined in the Shareholder Agreement); (iv) in the event that (x) NBC
declines to give its consent to a Restricted Promotional Transaction, (y) the
Company enters into a Restricted Promotional Transaction at any time after the
first anniversary of the date of the Distribution Agreement, or (z) the Company
enters into a transaction which will result in a "change in control"; or (v) in
the reasonable judgment of NBC, there has occurred a diminution in the quality
of VVTV programming sufficient to have an adverse effect on NBC's ability to
distribute VVTV or the Company fails to comply with the NBC Standards.
Mutual Rights to Terminate. The Company or NBC will have the right to
terminate the Distribution Agreement under certain circumstances, including, (i)
if the Company or NBC fails to pay any amount payable to the other under the
terms of the Distribution Agreement within 30 days of receipt by the other party
of written notice of such failure; (ii) in the event the Company or NBC
materially breaches any representation, warranty or covenant under the
Distribution Agreement and such breach remains uncured for a period of 30 days
following; (iii) in the event either party commences a voluntary case or
proceeding, consents to the entry of an order for relief against it for relief
in an involuntary case or proceeding or consents to the appointment of a
custodian for it or for all or substantially all of its property, makes a
general assignment for the benefit of creditors or admits in writing its
inability to pay debts generally as they become due; or (iv) in the event a
court enters an order or decree (which remains unstayed and in effect for at
least 60 days) under any bankruptcy law for all or substantially all of the
assets or order the liquidation of the assets of the Company or NBC.
The Distribution Agreement contains customary representations and
warranties from each of the Company and NBC and customary indemnification
provisions relating to the rights of the parties in the event of a breach of
such representations and warranties by either the Company or NBC.
PERFORMANCE DISTRIBUTOR WARRANTS
The terms and conditions of the Performance Distributor Warrants will be
substantially similar to the terms and conditions of the Investment Warrant,
except that the Performance Distributor Warrants will contain anti-dilution
provisions substantially similar to those applicable to the Preferred Stock as
set forth in the Certificate. See "Proposal 2: Approval of the Issuance of
Shares of Common Stock Pursuant to the Investment Warrant" and "Proposal 1:
Approval of Issuance of 1,600,000 shares of Preferred Stock -- Certificate of
Designation."
THE BOARD OF DIRECTORS BELIEVES PROPOSAL 3 TO BE IN THE BEST
INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS AND RECOMMENDS A VOTE
"FOR" APPROVAL OF PROPOSAL 3 AND EACH OF THE OTHER PROPOSALS.
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PROPOSAL 4
PROPOSAL TO APPROVE AMENDMENT NO. 6
TO THE SECOND AMENDED VALUEVISION INTERNATIONAL, INC.
1990 STOCK OPTION PLAN
TO INCREASE THE NUMBER OF SHARES ISSUABLE
UNDER SUCH PLAN FROM 2,150,000 TO 3,250,000
On June 5, 1990, the Company's shareholders and the Board unanimously
approved the Second Amended ValueVision International, Inc. 1990 Stock Option
Plan (as amended from time to time, the "Stock Option Plan"). The Stock Option
Plan has been subsequently amended from time to time to, among other things,
increase the number of shares issuable thereunder. The aggregate number of
shares that may be currently awarded under the Stock Option Plan cannot exceed
2,150,000 of Common Stock. Due to the Company's continued growth and expansion
over the past few years and its need to attract, retain and reward its key
employees, the number of shares issuable pursuant to options granted under the
Stock Option Plan have substantially reached the 2,150,000 share limit. The
Board believes that it is in the best interests of the Company and its
shareholders to amend the Stock Option Plan to increase the number of shares
that may be issued thereunder to 3,250,000 shares. The Board believes such
increase will strengthen the Company's ability to attract, retain and motivate
employees by providing a means to encourage stock ownership and a proprietary
interest in the Company to valued employees whose judgment, initiative and
efforts are necessary to the continued financial success and growth of the
Company's business. The proposed Amendment No. 6 and a complete text of the
Stock Option Plan are attached as Annex G and Annex H, respectively, to this
Proxy Statement. The brief summary of the Stock Option Plan which follows is
qualified in its entirety by reference to the complete text. Capitalized terms
used in this summary without definition shall have the meanings ascribed to them
in the Stock Option Plan.
GENERAL
The purpose of the Stock Option Plan is to increase shareholder value and
to advance the interests of the Company by furnishing a variety of economic
incentives designed to attract, retain and motivate employees of the Company.
The Stock Option Plan provides that a committee comprised of at least two
"disinterested" members of the Board may grant stock options to employees.
Currently, the Stock Option Plan is administered by the Compensation Committee
of the Board (the "Committee") comprised of Messrs. Geller and Tosetti. In
general, a director is "disinterested" if he or she has not received Incentives
under the Stock Option Plan, or under another plan of the company for at least
one year. Incentive stock options may be granted only to key management
employees of the Company (including officers, but excluding directors) selected
from time to time by the Committee. Approximately 75 of the Company's employees
are considered key management employees who are eligible to receive options
under the Stock Option Plan.
Currently, the number of shares of Common Stock which may be issued under
the Stock Option Plan may not exceed 2,150,000, subject to adjustment in the
event of a merger, recapitalization or other corporate restructuring. The
amendment presently before the shareholders, if approved, will increase the
number of shares of Common Stock issuable under the Stock Option Plan to an
aggregate of 3,250,000, subject to adjustment in the event of a merger,
recapitalization or other corporate restructuring. This increase represents
approximately [ ]% of the outstanding Common Stock on the Record Date. On
the Record Date, the last sale price of the Common Stock as reported by Nasdaq
was $[ ] per share. As of Record Date, the market value of the additional
[ ] shares issuable under the Stock Option Plan, if the proposed Amendment
No. 6 is approved by the shareholders, was $[ ].
STOCK OPTIONS
Under the Stock Option Plan, the Committee may grant non-qualified and
incentive stock options to eligible employees to purchase shares of Common Stock
from the Company. The Stock Option Plan confers on the Committee discretion,
with respect to any such stock option, to determine the number and purchase
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<PAGE> 32
price of the Common Stock subject to the option, the term of each option and the
time or times during its term when the option becomes exercisable. The purchase
price for incentive stock options may not be less than the fair market value of
the shares subject to the option on the date of grant. The term of a
non-qualified option may not exceed 10 years and one day from the date of grant
and the term of an incentive stock option may not exceed 10 years from the date
of grant. Any option shall become immediately exercisable in the event of
specified changes in corporate ownership or control.
In the event that an optionee ceases to be an employee of the Company for
any reason, including death, any stock option or unexercised portion thereof
which was otherwise exercisable on the date of termination of employment shall
be exercisable or shall expire at the time or times established by the
Committee.
NON-TRANSFERABILITY OF INCENTIVES
No stock option will be transferable by its holder, except in the event of
the holder's death, by will or the laws of descent and distribution. During an
employee's lifetime, a stock option may be exercised only by the employee or by
his or her guardian or legal representative.
AMENDMENT OF THE STOCK OPTION PLAN
The Board may amend or discontinue the Stock Option Plan at any time.
However, subject to adjustment in the event of a merger, recapitalization, or
other corporate restructuring, no such amendment or discontinuance may, without
shareholder approval, (a) adversely affect, without the consent of the recipient
thereof, an Incentive previously granted, (b) increase the maximum number of
Shares which may be issued under the Plan, (c) decrease the minimum stock option
price under the Plan, (d) materially change the eligibility requirements to
participate in the Plan, or (e) materially increase the benefits accruing to
participants.
FEDERAL INCOME TAX CONSEQUENCES
When a non-qualified stock option granted pursuant to the Stock Option Plan
is exercised, the employee will realize ordinary income measured by the
difference between the aggregate purchase price of the Common Stock as to which
the option is exercised and the aggregate fair market value of the Common Stock
on the exercise date, and the Company will be entitled to a deduction in the
year the option is exercised equal to the amount the employee is required to
treat as ordinary income.
Options which qualify as incentive stock options are entitled to special
tax treatment. Under existing federal income tax law, if shares purchased
pursuant to the exercise of such an option are not disposed of by the optionee
within two years from the date of granting of the option or within one year
after the transfer of the shares to the optionee, whichever is longer, then (i)
no income will be recognized to the optionee upon the exercise of the option;
(ii) any gain or loss will be recognized to the optionee only upon ultimate
disposition of the shares and, assuming the shares constitute capital assets in
the optionee's hands, will be treated as long-term capital gain or loss; (iii)
the optionee's basis in the shares purchased will be equal to the amount of cash
paid for such shares; and (iv) the Company will not be entitled to a federal
income tax deduction in connection with the exercise of the option. The Company
understands that the difference between the option price and the fair market
value of the shares acquired upon exercise of an incentive stock option will be
treated as an "item of tax preference" for purposes of the individual's
alternative minimum tax calculation. In addition, incentive stock options
exercised more than three months after any termination of employment, other than
for disability, are treated as non-qualified options.
The Company further understands that if the optionee disposes of the shares
acquired by exercise of an incentive stock option before the expiration of the
holding period described above, the optionee must treat as ordinary income in
the year of that disposition an amount equal to the difference between the
optionee's basis in the shares and the lesser of the fair market value of the
shares on the date of exercise or the selling price. In addition, the Company
will be entitled to a deduction equal to the amount the employee is required to
treat as ordinary income.
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If the exercise price of an option is paid by surrender of previously owned
shares, the basis of the shares received in replacement of the previously owned
shares is carried over. If the option is a nonstatutory option, the gain
recognized on exercise is added to the basis. If the option is an incentive
stock option, the optionee will recognize gain if the shares surrendered were
acquired through the exercise of an incentive stock option and have not been
held for the applicable holding period. This gain will be added to the basis of
the shares received in replacement of the previously owned shares.
Under existing Federal income tax provisions, an employee who receives
stock under the Plan which is subject to restrictions which create a
"substantial risk of forfeiture" (within the meaning of section 83 of the
Internal Revenue Code) will not normally realize any income, nor will the
Company normally receive any deduction for federal income tax purposes in the
year such stock is received. Such employee will normally realize taxable income
on the date the shares become transferable or no longer subject to substantial
risk of forfeiture or on the date of their earlier disposition. The amount of
such taxable income will be equal to the amount by which the fair market value
of the Common Stock on the date such restrictions lapse (or any earlier date on
which the shares are disposed of) exceeds their purchase price, if any. An
employee may elect, however, to include in income in the year of purchase or
grant the excess of the fair market value of the Common Stock (without regard to
any restrictions) on the date of purchase or grant over its purchase price. The
Company will be entitled to a deduction for compensation paid in the same year
and in the same amount as income is realized by the employee.
THE BOARD OF DIRECTORS BELIEVES PROPOSAL 4 TO BE IN THE BEST INTERESTS
OF THE COMPANY AND ITS SHAREHOLDERS AND RECOMMENDS A VOTE "FOR"
APPROVAL OF PROPOSAL 4 AND EACH OF THE OTHER PROPOSALS.
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PROPOSAL 5
ELECTION OF DIRECTORS
Four directors will be elected at the Meeting, each director to hold office
until the next Meeting of shareholders and until his or her successor is elected
and shall have qualified, or his or her earlier resignation or removal. The
Investor, as the sole holder of the Preferred Stock, is entitled to a separate
class vote for the election of the Investor Designees. Accordingly, these
directors will not be subject to election by the holders of the Common Stock.
All of the persons listed below have consented to serve as a director, if
elected.
The following table sets forth information concerning the persons who are
nominated for election to the Board and the persons who are expected to be
elected as members of the Board by the holders of the Preferred Stock.
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE SINCE POSITIONS CURRENTLY HELD WITH THE COMPANY
---- --- -------- -----------------------------------------
<S> <C> <C> <C>
Gene McCaffery(1)....................... 51 1998 Chairman of the Board, Chief Executive
Officer and President
Marshall S. Geller...................... 60 1993 Director
Robert J. Korkowski..................... 58 1993 Director
Paul D. Tosetti......................... 44 1996 Director
Stuart Goldfarb(2)...................... 44 1999 Investor Designee
Jeffery H. Coats(2)..................... 41 1999 Investor Designee
</TABLE>
- -------------------------
(1) Mr. McCaffery replaced Robert L. Johander as Chief Executive Officer on June
2, 1998 and as Chairman of the Board on February 2, 1999.
(2) Messrs. Goldfarb and Coats are expected to be elected to the Board by the
Investor in connection with the Transaction and are not standing for
election at the Meeting.
BIOGRAPHICAL INFORMATION
GENE MCCAFFERY
Gene McCaffery joined the Company in March 1998, was named Chief Executive
Officer in June 1998 and President and Chairman of the Board in February 1999.
Mr. McCaffery spent 14 years at Montgomery Ward & Co., Incorporated, most
recently through 1995 as Senior Executive Vice President of Merchandising
Marketing; Strategic Planning and Credit Services. During this period, Mr.
McCaffery also served as Vice Chairman of Signature Group. From March 1996 to
March 1998, Mr. McCaffery served as Chief Executive Officer and managing partner
of Marketing Advocates, a celebrity-driven product and service development
company based in Los Angeles, California and Chicago, Illinois. He also served
as Vice-Chairman of the Board of ValueVision from August 1995 to March 1996. Mr.
McCaffery served as an infantry officer in Vietnam and was appointed as Civilian
Aid to the Secretary of the Army by President George Bush in 1991.
MARSHALL S. GELLER
Mr. Geller has been a director of the Company since May 1993 and Vice
Chairman of the Board since August 1994. Mr. Geller is currently the Chairman,
CEO, and Founding Partner of Geller & Friend Capital Partners, Inc., which was
formed in November 1995. From 1991 to October 1995, Mr. Geller was the Senior
Managing Partner and founder of Golenberg and Geller, Inc., a merchant banking
investment company. From 1988 to 1990, he was Vice-Chairman of Gruntal &
Company, a New York Stock Exchange investment banking firm. Prior to 1988, Mr.
Geller spent 21 years with Bear Stearns & Co., an investment banking firm, where
he was the Managing Partner in charge of all areas of Corporate Finance, Public
Finance, Institutional Equities & Debt for Bear Stearns' offices in Los Angeles,
San Francisco, Chicago and Hong Kong. Mr. Geller was Interim President and Chief
Operating Officer of Players International, Inc., and now serves on their Board
and is Chairman of their Investment Committee. Mr. Geller also serves on the
Boards of the following
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companies: Ballantyne of Omaha, Inc., iMALL, Inc., Cabletel Communications
Corporation, Strouds, Inc. and Hexcel Corporation.
ROBERT J. KORKOWSKI
Mr. Korkowski has been a director of the Company since May 1993. From 1989
to 1996, Mr. Korkowski was the Senior Vice President of Finance and a Director
of Opus Corporation, a privately held real estate developer and construction
company. From 1986 to 1989 Mr. Korkowski was the Vice President and Chief
Financial Officer of National Computer Systems, Inc., a publicly-held
information system company based in Minneapolis. From 1974 to 1986, Mr.
Korkowski was Executive Vice President and Chief Financial Officer of G.
Heileman Brewing Company.
PAUL D. TOSETTI
Mr. Tosetti has been a director of the Company since August 1996 and is a
partner in the Los Angeles office of the law firm of Latham & Watkins, a
position he has held since 1989. Mr. Tosetti has been associated with Latham &
Watkins since 1982, and is Chairman of that firm's Mergers and Acquisitions
group and a member of its Corporate Department. His principal areas of practice
specialization are mergers and acquisitions and corporate finance.
STUART GOLDFARB
Stuart Goldfarb is the Executive Vice President, Worldwide Business
Development for NBC where he is responsible for coordinating all of NBC's
business development activities, exclusive of interactive development. Mr.
Goldfarb has been associated with NBC since 1995. From 1993 to 1995 Mr. Goldfarb
was Managing Director of Communications Equity Associates, a media investment
banking firm. From 1988 to 1992, Mr. Goldfarb was President of Heartland
Ventures, Inc., a media consulting and investment firm. Mr. Goldfarb also serves
on the Board of Directors of the National Geographic Channels.
JEFFREY H. COATS
Jeffrey H. Coats is a Managing Director for GE Equity where he is
responsible for GE Equity's Consumer Group which focuses on strategic and
financial investments in E-Commerce/Internet, media/ entertainment, retail,
consumer services and consumer product companies. Mr. Coats has been associated
with GE Equity since 1996 and from 1987 to 1993. From 1993 to 1996, Mr. Coats
was a partner and managing director of Veritas Capital, a merchant banking firm
and a partner and president of Maverick Capital Equity Partners, an investment
firm. Mr. Coats also serves on the Board of Directors of the following
companies: autobytel.com, Inc., Consumer Financial Network, The Museum Company,
Wink Communications and Krause's Furniture, Inc.
All shares represented by proxies will be voted FOR the election of the
foregoing nominees (other than the Investor Designees) unless a contrary choice
is specified. If one or more of these nominees become unable or unwilling to
serve at the time of the Meeting, the shares represented by proxy will be voted
for the remaining nominees and for any substitute nominees designated by the
Board or, if none, the size of the Board will be reduced accordingly. The Board
does not anticipate that any nominee will be unavailable or unable to serve.
BOARD AND COMMITTEE MEETINGS
The Board held 16 meetings during fiscal 1999.
The Company's audit committee consisted of Messrs. Korkowski and Tosetti in
fiscal 1999. The audit committee held two meetings during fiscal 1999. The audit
committee recommends to the Board the engagement of the independent accountants,
reviews the audit plan and results of the audit engagement, reviews the
independence of the auditors, and reviews the adequacy of the Company's system
of internal accounting controls.
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<PAGE> 36
The Company's executive committee consisted of Messrs. Johander, Geller and
Korkowski in fiscal 1999, but did not formally meet in fiscal 1999. The
executive committee reviews and recommends to the Board strategic alternatives
for the Company.
The Company's compensation committee, which consisted of Messrs. Geller and
Tosetti in fiscal 1999, held one meeting in fiscal 1999. The compensation
committee reviews the Company's remuneration policies and practices, makes
recommendations to the Board in connection with the compensation matters
concerning the Company.
DIRECTOR COMPENSATION
For the fiscal year ended January 31, 1999, the Company paid its
non-employee directors, Messrs. Geller, Korkowski and Tosetti, an annual
retainer of $125,000, $30,000 and $20,000, respectively (paid quarterly on a pro
rata basis), plus $1,000 for each Board and committee meeting attended and $750
for each Board and committee meeting in which such director participated by
telephone. The Company also reimburses directors for costs and expenses in
connection with their attendance at Board and committee meetings. The Investor
Designees will not be entitled to any fees (but will be entitled to
reimbursement of costs and expenses) in connection with their services as
members of the Board. During fiscal 1999, no options to purchase shares of
Common Stock were granted to non-employee directors.
THE BOARD OF DIRECTORS BELIEVES PROPOSAL 5 TO BE IN THE BEST
INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS AND RECOMMENDS A VOTE
"FOR" APPROVAL OF PROPOSAL 5 AND EACH OF THE OTHER PROPOSALS.
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<PAGE> 37
EXECUTIVE COMPENSATION
The following table sets forth certain summary information with respect to
compensation earned during the fiscal years ended January 31, 1999, 1998, 1997,
for the Company's (i) current and former Chief Executive Officer, (ii) each of
the Company's four other most highly compensated executive officers who were
serving as executive officers on January 31, 1999 and (iii) one former executive
officer whose salary and bonus exceeded $100,000 during the fiscal year ended
January 31, 1999:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
AWARDS
ANNUAL COMPENSATION ------------
---------------------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY BONUS COMPENSATION(1) OPTIONS/SARS
--------------------------- ----------- ------ ----- --------------- ------------
($) ($) ($) ($) (#)
<S> <C> <C> <C> <C> <C>
Gene McCaffery(2).......................... 1999 413,462 130,000 5,225 800,000
Chairman of the Board, 1998 -- -- -- --
Chief Executive Officer and President 1997 -- -- -- --
Robert L. Johander(3)...................... 1999 350,000 -- 6,000 --
1998 293,750 -- 6,000 --
1997 237,500 -- 6,000 --
Nicholas M. Jaksich(4)..................... 1999 350,000 -- 6,000 --
1998 293,750 -- 6,000 --
1997 237,500 -- 6,000 --
Stuart R. Romenesko........................ 1999 200,712 52,500 5,400 75,000
Senior Vice President Finance, 1998 167,212 32,500 5,400 50,000
Chief Financial Officer, Treasurer 1997 123,654 30,000 5,400 10,000
and Assistant Secretary
Cary Deacon(5)............................. 1999 109,615 -- -- 100,000
Senior Vice President Marketing and 1998 -- -- -- --
Business Development 1997 -- -- -- --
David T. Quinby............................ 1999 165,712 -- 5,400 75,000
Vice President, General Counsel and 1998 140,000 50,000 5,400 50,000
Secretary 1997 -- -- -- --
Gregory Lerman(6).......................... 1999 220,000 20,000 5,400 --
Executive Vice President, General Manager 1998 7,308 -- -- 100,000
ValueVision Television 1997 -- -- -- --
</TABLE>
- -------------------------
(1) Automobile allowance.
(2) Mr. McCaffery was named Chief Executive Officer on June 2, 1998 and named
Chairman of the Board and President on February 2, 1999.
(3) Mr. Johander resigned from his position as Chief Executive Officer on June
2, 1998 and resigned as Chairman of the Board on February 2, 1999.
(4) Mr. Jaksich resigned from his position as Chief Operating Officer, President
and Director on February 2, 1999.
(5) Mr. Deacon commenced employment with the Company on August 18, 1998.
(6) Mr. Lerman terminated his employment with the Company on January 27, 1999.
33
<PAGE> 38
OPTION GRANTS DURING FISCAL YEAR ENDED JANUARY 31, 1999
The following table sets forth information with respect to options to
purchase shares of the Common Stock granted during the fiscal year ended January
31, 1999 to each of the executive officers in the Summary Compensation Table
above. No stock appreciation rights ("SARs") were granted to any of the persons
listed on the table below during fiscal 1999.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(INDIVIDUAL GRANTS)
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT ASSUMED ANNUAL
NUMBER OF PERCENT OF TOTAL RATES OF STOCK
SECURITIES OPTIONS/SARS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM($)(4)
FISCAL OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION ---------------------
NAME YEAR GRANTED (#) FISCAL YEAR(1) ($/SH)(2)(3) DATE(2)(3) 5%($) 10%($)
---- ------ ------------ ---------------- ------------ ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Gene McCaffery........... 1999 800,000 55.2% 3.38 3/30/03(3) 1,698,015 4,303,105
3/30/08(3)
Robert L. Johander....... 1999 -- 0.0% -- -- -- --
Nicholas M. Jaksich...... 1999 -- 0.0% -- -- -- --
Stuart R. Romenesko...... 1999 75,000 5.2% 3.50 5/1/06(2) 125,332 300,192
Cary Deacon.............. 1999 100,000 6.9% 4.25 11/20/06(2) 202,919 486,025
David T. Quinby.......... 1999 75,000 5.2% 3.50 5/1/06(2) 125,332 300,192
Gregory Lerman........... 1999 -- 0.0% -- -- -- --
</TABLE>
- -------------------------
(1) Percentage calculations in this column are based solely on the number of
options granted to employees of the Company and do not take into account
options granted to non-employee consultants or directors of the Company.
(2) Options were granted at an exercise price equal to the fair market value of
the Common Stock on the date of grant and vest one-third at the time of
issuance and one-third on each of the next two grant date anniversaries.
Such options will expire five years after vesting.
(3) Options were granted at an exercise price equal to the fair market value of
the Common Stock on the date of grant. One-half of such options will expire
five years after vesting and one-half will expire ten years after vesting.
(4) The amounts shown in these columns are the result of calculations at assumed
annual rates required by the Securities and Exchange Commission ("SEC") and
are not intended to forecast possible future appreciation, if any, of the
price of the Common Stock. Actual gains, if any, on stock option exercises
are dependent on the future performance of the Common Stock and overall
stock market conditions. The amounts reflected in this table may not
necessarily be achieved.
34
<PAGE> 39
OPTION EXERCISES AND YEAR-END OPTION VALUE TABLE
The following table sets forth information as of January 31, 1999 with
respect to the unexercised options held by each of the executive officers named
in the Summary Compensation Table above. None of such persons exercised any
options during fiscal 1999, except for Mr. Lerman who exercised options to
acquire 44,286 shares of Common Stock on January 28, 1999.
AGGREGATED OPTION/SAR EXERCISES IN FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SAR
AT JANUARY 31, 1999 (#) AT JANUARY 31, 1999 ($)
FISCAL --------------------------- ------------------------------
NAME YEAR (EXERCISABLE/UNEXERCISABLE) (EXERCISABLE/UNEXERCISABLE)(1)
---- ------ --------------------------- ------------------------------
<S> <C> <C> <C>
Gene McCaffery........................ 1999 518,889/281,111 3,048,473/1,651,527
Robert L. Johander.................... 1999 600,000/0 225,000/0
Nicholas M. Jaksich................... 1999 600,000/0 225,000/0
Stuart R. Romenesko................... 1999 99,000/106,000 474,938/568,500
Cary Deacon........................... 1999 33,333/66,667 166,665/333,335
David T. Quinby....................... 1999 35,000/90,000 190,000/472,500
Gregory Lerman........................ 1999 --(2) --(2)
</TABLE>
- -------------------------
(1) The dollar amount represents the positive spread between the exercise price
of the options and the closing price per share of the Common Stock on the
Nasdaq National Market of $9.25 on January 29, 1999.
(2) Mr. Lerman exercised options to acquire 44,286 shares of Common Stock on
January 28, 1999. Mr. Lerman resigned effective January 27, 1999 and had no
other unexercised stock options available for exercise.
EMPLOYMENT AGREEMENTS
Gene McCaffery
Effective March 30, 1998, the Company entered into a three year employment
agreement with Gene McCaffery (the "McCaffery Employment Agreement"). Pursuant
to the McCaffery Employment Agreement, Mr. McCaffery serves as the Chief
Executive Officer of the Company and will receive a base salary of $500,000
during the first year, $525,000 during the second year and $550,000 during the
third year of the term of his agreement. The McCaffery Employment Agreement also
provides for bonus salary of up to 100% of the base salary, which may be earned
only upon the Company meeting certain operating income, revenue and stock
performance criteria. In addition, pursuant to the McCaffery Employment
Agreement, Mr. McCaffery was issued stock options to acquire 800,000 shares of
Common Stock, with an exercise price equal to $3.375 per share, the last trading
price of the Common Stock on March 30, 1998. Of such options, 200,000 vest
monthly on a pro rata basis over the term of the McCaffery Employment Agreement
and 600,000 have vested because the average closing price of the Common Stock
has exceeded certain specified thresholds.
The McCaffery Employment Agreement generally provides for a one year
non-compete. In addition, in the event of a change of control (as defined in the
McCaffery Employment Agreement), Mr. McCaffery's employment can be terminated by
the Company or Mr. McCaffery in certain circumstances. In the event of such a
termination, Mr. McCaffery would be entitled to receive the base salary and
bonus salary remaining to be paid through the end of the term of the McCaffery
Employment Agreement, together with accrued benefits. See "Certain Relationships
and Related Transactions" for a discussion of the impact of the Transaction
under the McCaffery Employment Agreement.
35
<PAGE> 40
Robert L. Johander and Nicholas M. Jaksich
The Company entered into employment agreements with each of Robert L.
Johander and Nicholas M. Jaksich which expired on January 31, 1999. Effective
January 31, 1998, the annual base salary for each of Messrs. Johander and
Jaksich was $350,000. Messrs. Johander and Jaksich have agreed not to compete in
the television home shopping business or in any other business in which the
Company engaged during the six months prior to their termination, for the period
ending on February 2, 2000.
In September 1993 and in connection with entering into employment
agreements with Messrs. Johander and Jaksich, the Company granted to each of
Messrs. Johander and Jaksich options to purchase 500,000 shares of Common Stock
at an exercise price of $15.00 per share (in excess of the then fair market
value) exercisable until January 31, 2002 and 500,000 shares of Common Stock at
an exercise price of $25.00 per share (in excess of the then fair market value)
exercisable until January 31, 2005. In August 1995, pursuant to an independent
compensation study, the Compensation Committee (as defined below), consisting of
non-employee directors, recommended and with the approval of the Board, approved
and repriced the exercise price of the granted options with original exercise
prices of $15.00 and $25.00 per share to $8.50 and $10.50 per share (in excess
of the then fair market value), respectively. In addition, the number of shares
available per each respective grant was reduced from 500,000 to 375,000 options.
The Board repriced the exercise price of the options granted because the Board
believed that, due to the decline in the Company's stock price since the grant
of the options, the options did not provide sufficient long-term stock based
incentive and such incentive would be provided by the repricings. The Board
believes that the option grants with deferred vesting to executive officers are
important in retaining executive officers and providing them with incentives
consistent with the shareholders' objectives for appreciation in the value of
the Company's stock. At the time Messrs. Johander and Jaksich resigned, they
were each vested in an aggregate of 600,000 options. (300,000 each with a per
share exercise price of $8.50 and 300,000 each with a per share exercise price
of $10.50). No further option vesting will occur.
Stuart R. Romenesko
On May 1, 1998, the Company entered into a two year employment agreement
with Stuart R. Romenesko (the "Romenesko Employment Agreement") pursuant to
which he will serve as the Company's Senior Vice President of Finance, Chief
Financial Officer, Treasurer and Assistant Secretary. Pursuant to the Romenesko
Employment Agreement, the Company has agreed to pay Mr. Romenesko $210,000
annually, reimburse Mr. Romenesko for reasonable and necessary business
expenses, pay Mr. Romenesko a monthly car allowance of $450 and has granted Mr.
Romenesko options to purchase 75,000 shares of the Common Stock with a per share
exercise price equal to $3.50, the last trading price of the Common Stock on May
1, 1998. The options vest as follows: one-third upon grant and one-third upon
each anniversary of the grant date. Mr. Romenesko is also eligible to receive
bonuses in each fiscal year up to $150,000 based upon the Company's achievement
of certain performance milestones. Mr. Romenesko was paid a $52,500 bonus in
fiscal 1999. Pursuant to the Romenesko Employment Agreement, Mr. Romenesko has
agreed not to compete with the Company in the television home shopping and
direct marketing businesses for a period of six months following termination of
his employment by the Company.
Cary Deacon
On December 30, 1998, the Company entered into a two and one-fourth year
employment agreement with Cary Deacon (the "Deacon Employment Agreement")
pursuant to which he will serve as the Company's Senior Vice President of
Marketing and Business Development. Pursuant to the Deacon Employment Agreement,
the Company has agreed to pay Mr. Deacon $225,000 annually, reimburse Mr. Deacon
for reasonable and necessary business expenses, pay Mr. Deacon a monthly car
allowance of $450 and has granted Mr. Deacon options to purchase 100,000 shares
of Common Stock with a per share exercise price equal to $4.25, the last trading
price per share of the Common Stock on December 30, 1998. The options vest as
follows: one-third upon grant and one-third upon each anniversary of the grant
date. Mr. Deacon is also eligible to receive bonuses in each fiscal year up to
$150,000 based upon the achievement by the Company of certain performance
milestones. Pursuant to the Deacon Employment Agreement, Mr. Deacon has agreed
not
36
<PAGE> 41
to compete with the Company in the television home shopping and direct marketing
businesses for a period of six months following termination of his employment by
the Company.
David T. Quinby
On May 1, 1998, the Company entered into a two year employment agreement
with David T. Quinby (the "Quinby Employment Agreement") pursuant to which he
will serve as the Company's Vice President, General Counsel and Secretary.
Pursuant to the Quinby Employment Agreement, the Company has agreed to pay Mr.
Quinby $175,000 annually, reimburse Mr. Quinby for reasonable and necessary
business expenses, pay Mr. Quinby a monthly car allowance of $450 and has
granted Mr. Quinby options to purchase 75,000 shares of Common Stock with a per
share exercise price equal to $3.50, the last trading price of the Common Stock
on May 1, 1998. The options vest as follows: one-third upon grant and one-third
upon each anniversary of the grant date. Mr. Quinby is also eligible to receive
discretionary bonuses in each fiscal year. Pursuant to the Quinby Employment
Agreement, Mr. Quinby has agreed not to compete with the Company in the
television home shopping and direct marketing businesses for a period of six
months following termination of his employment by the Company.
Gregory Lerman
On January 12, 1998, the Company entered into an employment agreement with
Gregory Lerman (the "Lerman Employment Agreement") pursuant to which he served
as the Company's Executive Vice President of Merchandising. Mr. Lerman resigned
his employment with the Company on January 27, 1999. Pursuant to the Lerman
Employment Agreement, the Company paid Mr. Lerman $250,000 annually, reimbursed
Mr. Lerman for reasonable and necessary business expenses, paid Mr. Lerman a
monthly car allowance of $450 and granted Mr. Lerman options to purchase 100,000
shares of Common Stock with an exercise price equal to $3.625, the last trading
price of the Common Stock on January 12, 1998. Of these options, 44,286 were
vested at the time of Mr. Lerman's resignation. Mr. Lerman also received a
$20,000 bonus in fiscal 1999. Pursuant to the Lerman Employment Agreement, Mr.
Lerman has agreed not to compete with the Company in the television home
shopping and direct marketing business for a period ending on July 27, 1999.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1999, the Compensation Committee of the Board (the
"Compensation Committee") consisted of two nonemployee directors, Paul D.
Tosetti and Marshall S. Geller. Mr. Tosetti is a partner at Latham & Watkins, a
law firm that provides legal services to the Company.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Decisions on compensation of the Company's executives generally have been
made by the Compensation Committee. Each member of the Compensation Committee is
a non-employee director. All decisions by the Compensation Committee relating to
the compensation of the Company's executive officers are reviewed by the full
Board. Pursuant to rules designed to enhance disclosure of the Company's
policies toward executive compensation, set forth below is a report prepared by
the Compensation Committee addressing the compensation policies for the Company
and its subsidiaries for the year ended January 31, 1999 as they affected the
Company's executive officers.
The Compensation Committee's executive compensation policies are designed
to provide competitive levels of compensation that integrate pay with the
Company's annual objectives and long-term goals, reward above-average corporate
performance, recognize individual initiative and achievements, and assist the
Company in attracting and retaining qualified executives. Executive compensation
is set at levels that the Compensation Committee believes to be consistent with
others in the Company's industry.
The four elements in the Company's executive compensation program, all
determined by individual and corporate performance, are base salary
compensation, annual incentive compensation, stock options and miscellaneous
benefits and perquisites (consisting primarily of a car allowance and customary
life and health
37
<PAGE> 42
benefits). Total compensation opportunities are generally competitive with those
offered by employers of comparable size, growth and profitability in the
Company's industry.
Base salary compensation is determined by the potential impact the
individual has on the Company, the skills and experiences required by the job,
and the performance and potential of the incumbent in the job. Annual incentive
compensation for executives of the Company is based primarily on corporate
operating results and revenue growth and the Company's positioning for future
results, but also includes an overall assessment of executive management's
performance, as well as market conditions. Awards of stock grants under the
Stock Option Plan and the 1994 Executive Plan are designed to promote the
identity of long-term interests between the Company's executives and its
shareholders and assist in the retention of executives. The Stock Option Plan
also permits the granting of stock options to key personnel. Options become
exercisable based upon criteria established by the Company. During the fiscal
year ended January 31, 1999, stock options to acquire 800,000 shares of Common
Stock were granted to Mr. McCaffery, stock options to acquire 100,000 shares of
Common Stock were granted to Mr. Deacon and stock options to acquire 75,000
shares of Common Stock were granted to each of Messrs. Romenesko and Quinby.
Messrs. McCaffery, Deacon, Romenesko and Quinby were the only named executive
officers to receive any stock options during fiscal 1999.
The Compensation Committee surveys employee stock option programs of
companies with similar capitalization to the Company prior to recommending the
grant of options to executives. While the value realizable from exercisable
options is dependent upon the extent to which the Company's performance is
reflected in the market price of the Common Stock at any particular point in
time, the decision as to whether such value will be realized in any particular
year is determined by each individual executive and not by the Compensation
Committee. Accordingly, when the Committee recommends that an option be granted
to an executive, that recommendation does not take into account any gains
realized that year by that executive as a result of his or her individual
decision to exercise an option granted in a previous year. The Board believes
that the option grants with deferred vesting to executive officers are important
in retaining executive officers and providing them with incentives consistent
with the shareholders' objections for appreciation in the value of the Common
Stock.
The Compensation Committee established a compensation structure and entered
into the McCaffery Employment Agreement that provided for a base and bonus
salary and the granting of stock options. The contract provided for (i) a base
salary of $500,000 for the year ended January 31, 1999; (ii) a bonus up to 100%
of the base salary of which 25% was earned in fiscal 1999 and (iii) the granting
of 800,000 stock options, of which 518,889 options were vested as of January 31,
1999. The Compensation Committee believes that the continued growth, expansion
and profitability of the Company during fiscal 1999 and the successful
negotiation of a transaction with Investor and NBC was due in large part to Mr.
McCaffery's efforts.
During 1993, the Internal Revenue Code of 1986 was amended to include
Section 162(m) which denies a deduction to any publicly held corporation for
compensation paid to any "covered employee" (which is defined as the Chief
Executive Officer and the Company's other four most highly compensated officers,
as of the end of a taxable year) to the extent that the compensation exceeds
$1,000,000 in any taxable year of the corporation beginning after 1993.
Compensation which constitutes "performance based compensation" is excludable in
applying the $1,000,000 limit. It is the Company's policy to qualify
compensation paid to its top executives for deductibility under Section 162(m)
in order to maximize the Company's income tax deductions wherever, in the
judgment of the Compensation Committee, to do so would be consistent with the
objectives of the Company's compensation policies.
COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
MARSHALL S. GELLER
PAUL D. TOSETTI
38
<PAGE> 43
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
THE TRANSACTION
Change of Control Agreement
The McCaffery Employment Agreement contains change of control payment
provisions which could be triggered if Mr. McCaffery is terminated after the
consummation of the Transaction. Under the agreement, in the event of a
termination of employment not for "cause" or Mr. McCaffery's resignation
following a "change of control" (as defined therein), the Company must
immediately pay to Mr. McCaffery his base salary and bonus salary payable
through the end of the term of the agreement in addition to any outstanding
incentive compensation to which he would otherwise be entitled in the absence of
such termination or resignation, and to the continuation of certain employee
benefits to which he would otherwise be entitled for an additional year. The
"change of control" provisions also provide for a two year period in which Mr.
McCaffery may exercise any outstanding options to purchase Common Stock. For
purposes of his agreement, a "change of control" will occur by reason of the
consummation of the Transaction. Mr. McCaffery has agreed to waive his right to
terminate his employment agreement (and receive his severance payments
thereunder) as a result of the consummation of the Transaction, until such time
that the combined aggregate ownership interest of the Investor and NBC exceeds
20% of the total issued and outstanding voting securities of the Company, or at
such time as the Investor and NBC, in the aggregate, cease to own or have the
right to acquire an aggregate number of shares of Common Stock equal to at least
50% of the number of shares of Common Stock which they will own and have the
right to acquire following the Meeting.
Accelerated Vesting of Stock Options
As a result of the consummation of the Transaction, substantially all
unvested outstanding options to purchase Common Stock held by the Company's
directors, officers and employees will vest and become fully exercisable. As of
the Record Date, officers, directors and employees collectively hold unvested
options to acquire an aggregate of [ ] shares which will vest as a result of
the consummation of the Transaction. As of the Record Date, the closing market
price of the Common Stock was $[ ] per share and the weighted average
exercise prices of the unvested portion of such stock options was $[ ]
on that date.
Effective Voting Control by the Investor
The Preferred Stock, Investment Warrant, Distributor Warrant and
Performance Distributor Warrants will allow the Investor and NBC to purchase a
substantial number of shares of Common Stock which will allow them to exert
substantial influence over the election of directors and the management and
affairs of the Company. Accordingly, the Investor and NBC may have sufficient
voting power to determine the outcome of various matters submitted to the
shareholders for approval, including mergers, consolidations and the sale of all
or substantially all of the Company's assets. Such control may result in
decisions that are not in the best interests of the Company or its shareholders.
RIGHTS AGREEMENT AND PREFERRED SHARE PURCHASE RIGHTS
In connection with the Transaction and subject to the terms of the
Investment Agreement and Shareholder Agreement, the Board is considering
adopting a shareholder rights plan. Under such plan, the Company would cause to
be issued, with each share of Common Stock outstanding on the date of such
issuance, one preferred share purchase right (the "Rights"). The Rights would be
governed by a rights agreement (the "Rights Agreement") to be entered into
between the Company and an independent third party acting as rights agent. If
adopted, the Company expects that the Rights Agreement would have the following
material terms.
Generally, the Rights would become exercisable ten days after a person or
group (excluding the Investor and NBC and their affiliates (collectively, the
"Exempted Persons")), subject to certain exceptions, acquires a specified
percentage or more of the issued and outstanding shares of Common Stock or
announces a tender
39
<PAGE> 44
offer, the consummation of which would result in ownership by such a person or
group (excluding the Exempted Persons) of a specified percentage or more of the
issued and outstanding shares of Common Stock. Each Right would entitle the
holder, until the tenth anniversary of the Rights Agreement, to buy one one-
hundredth of a share of ValueVision Junior Preferred Stock, at an exercise price
to be determined by the Board prior to the time the Company enters into the
Rights Agreement.
If a person or group (excluding the Exempted Persons), subject to certain
exceptions, acquires a specified percentage or more of the issued and
outstanding shares of Common Stock or if the Company is the surviving
corporation in a merger or other business combination, each Right would entitle
its holder (other than such person or members of such group) to purchase, at the
Right's then current exercise price, shares of Common Stock having a market
value of twice the Right's exercise price. If the Company is not the surviving
corporation in a merger or other business combination, each Right would entitle
its holder to purchase, at the Right's then current exercise price, a number of
the acquiring company's common shares having a then current market value of
twice the Rights' exercise price.
Following the acquisition by a person or group (excluding the Exempted
Persons) of beneficial ownership of a specified percentage or more of the issued
and outstanding shares of Common Stock, the Board could exchange the Rights
(other than Rights owned by such person or group), in whole or in part, for
shares of Common Stock at an exchange rate based on the value of the Common
Stock at that time.
Prior to the time that a person or group (excluding the Exempted Persons)
has acquired beneficial ownership of a specified percentage or more of the
issued and outstanding shares of Common Stock, the Rights would be redeemable in
whole, not in part, at a price to be determined by the Board.
The issuance of the Rights to purchase shares of ValueVision Junior
Preferred Stock would have certain anti-takeover effects. The Rights would cause
substantial dilution to a person or group (excluding the Exempted Persons) that
attempts to acquire the Company on terms not approved by the Board. The Rights
should not interfere with any merger or other business combination approved by
the Board prior to the time that a person or group has acquired beneficial
ownership of a specified percentage or more of the Common Stock, as the Rights
would be redeemable by the Company prior to such time.
MANAGEMENT INDEBTEDNESS
As of March 31, 1999, the Company had loaned $348,000 to Robert L.
Johander, the Company's former Chief Executive Officer and Chairman, in the form
of eight promissory notes. The promissory notes bear interest at 5.63% to 6.88%
and are due one year after each date of issuance. Such loans were utilized by
Mr. Johander for personal purposes. Mr. Johander has pledged the shares of
Common Stock he directly owns as collateral for the promissory notes. As of
March 31, 1999, principal and accrued interest thereon of approximately $384,000
was due the Company by Mr. Johander. Such amount represents the largest
aggregate amount of indebtedness outstanding with respect to Mr. Johander since
the beginning of the Company's last fiscal year.
As of March 31, 1999, the Company had loaned $570,000 to Nicholas M.
Jaksich, the Company's former President and Chief Operating Officer, in the form
of three promissory notes. The first two promissory notes totaling $70,000 in
principal were due May 15, 1998, bearing interest at 6.80% and have been
extended until May 15, 1999. The third promissory note of $500,000 in principal
bears interest at 5 7/8% and is due the earlier of November 20, 2002 or when Mr.
Jaksich requests and is permitted to sell shares of the Common Stock which are
pledged to secure such indebtedness. Such loans were utilized by Mr. Jaksich in
the purchase of his home. Mr. Jaksich has pledged all of the shares of Common
Stock that he owns as collateral for each of the notes. The second promissory
note is also secured by a mortgage on certain real property. As of March 31,
1999, principal and accrued interest, in the aggregate, of approximately
$684,000 was due the Company by Mr. Jaksich. Such amount represents the largest
aggregate amount of indebtedness outstanding with respect to Mr. Jaksich since
the beginning of the Company's last fiscal year.
40
<PAGE> 45
OTHER RELATIONSHIPS
Paul D. Tosetti, a director of the Company, is a partner at Latham &
Watkins, a law firm that has provided legal services to the Company.
SECTION 16(A) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the "1934
Act"), requires the Company's directors and executive officers, and persons who
own more than ten percent of the Common Stock to file with the SEC initial
reports of ownership and reports of changes in ownership of common stock and
other equity securities of the Company. Officers, directors and greater than ten
percent shareholders are required by SEC regulation to furnish the Company with
copies of all Section 16(a) reports they file. To the Company's knowledge, based
solely on review of the copies of such reports furnished to the Company during
fiscal 1999, all Section 16(a) filing requirements applicable to its officers,
directors and greater than ten percent beneficial owners were complied with.
41
<PAGE> 46
STOCK PERFORMANCE GRAPH
The line-graph set forth below compares the cumulative, five-year, total
shareholder return to the Company's shareholders (based on appreciation of the
market price of the Common Stock) on an indexed basis with (i) a broad equity
market index and (ii) an appropriate published industry or line-of-business
index, or peer group index constructed by the Company. The presentation compares
the Common Stock price in the period from January 31, 1994 to January 31, 1999,
to the Nasdaq National Market stock index and to a "peer group" index created by
the Company over the same period. The "peer group" index consists of the common
stock of: Damark International, Inc., Land's End, Inc., Hanover Direct, Inc.,
Lillian Vernon Corp., E4L, Inc. (formerly known as National Media Corporation)
and Fingerhut Companies, Inc. These corporations are involved in various aspects
of direct marketing to consumers industry. In each case, the cumulative return
is calculated assuming an investment of $100 on January 31, 1994, and
reinvestment of all dividends.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
AMONG VALUEVISION INTERNATIONAL, INC.,
THE NASDAQ STOCK MARKET (U.S.) INDEX
AND A PEER GROUP
PERFORMANCE GRAPH
<TABLE>
<CAPTION>
VALUEVISION NASDAQ STOCK
INTERNATIONAL, INC. PEER GROUP MARKET (U.S.)
------------------- ---------- -------------
<S> <C> <C> <C>
1/94 100.00 100.00 100.00
1/95 41.00 57.00 95.00
1/96 50.00 53.00 135.00
1/97 38.00 63.00 177.00
1/98 31.00 92.00 209.00
1/99 76.00 89.00 326.00
</TABLE>
42
<PAGE> 47
OTHER MATTERS
As of the date of this Proxy Statement, the Board knows of no matters that
will be presented for consideration at the Meeting other than as described in
this Proxy Statement. If any other matters shall properly come before the
Meeting or any adjournments or postponements thereof and be voted upon, the
enclosed proxy will be deemed to confer discretionary authority on the
individuals named as proxies therein to vote the shares represented by such
proxies as to any such matters. The persons named as proxies intend to vote or
not to vote in accordance with the recommendation of the management.
INDEPENDENT ACCOUNTANTS
Arthur Andersen LLP has been the independent accountant for the Company
since 1990. Representatives of Arthur Andersen LLP will attend the Meeting, will
have an opportunity to make a statement if they desire to do so and will be
available to answer questions of the shareholders.
INCORPORATION BY REFERENCE
Pursuant to the Securities Act and the rules and regulations promulgated
thereunder, the Company may incorporate by reference information into this Proxy
Statement. The information incorporated by reference is deemed to be part of
this Proxy Statement, except for information superseded by information in this
Proxy Statement. This Proxy Statement incorporates by reference the Financial
Statements set forth in Item 8 of the Company's annual report on Form 10-K for
the fiscal year ended January 31, 1999, which was previously filed with the SEC.
SUBMISSION OF SHAREHOLDER PROPOSALS
Under the provisions of the Company's Bylaws, all proposals of shareholders
intended to be presented at the Company's 2000 Meeting of Shareholders must be
received at the Company's principal executive offices on or before January 2,
2000. Additionally, under the rules of the SEC relating to when a company must
include a shareholder's proposal in its proxy statement, shareholder proposals
intended to be included in the Company's 2000 Proxy Statement must be received
at the Company's principal executive offices on or before January 2, 2000.
By Order of the Board of Directors
Gene McCaffery
Chairman of the Board, Chief Executive
Officer
and President
43
<PAGE> 48
ANNEX A
Board of Directors March 8, 1999
ValueVision International, Inc.
6740 Shady Oak Road
Eden Prairie, MN 55344-3433
Dear Sirs:
We understand that ValueVision International, Inc. ("ValueVision") has
entered into an Investment Agreement, dated as of March 8, 1999 (the "Investment
Agreement"), with G.E. Capital Equity Investments, Inc. ("G.E. Capital") and
also has entered into a Distribution and Marketing Agreement, dated as of March
8, 1999 (the "Distribution Agreement"), with National Broadcasting Company,
Inc., an affiliate of G.E. Capital ("NBC"). Pursuant to the Investment
Agreement, G.E. Capital would purchase, for an aggregate cash purchase price of
approximately $44.3 million, (i) 5,339,500 shares of Series A Redeemable
Convertible Preferred Stock of ValueVision (the "Preferred Shares") and (ii) a
warrant (the "Investment Warrant") to purchase shares of common stock, par value
$.01 per share, of ValueVision (the "Common Stock"). Pursuant to the
Distribution Agreement, NBC will receive, in consideration of its commitment to
deliver a minimum of 10 million full-time equivalent cable subscribers and other
services to ValueVision thereunder, (i) a warrant (the "Distribution Warrant")
to purchase up to 1,450,000 shares of Common Stock; (ii) an annual cash payment
of $1.5 million, subject to increase to account for inflation over the term of
the Distribution Agreement; and (iii) additional warrants to purchase Common
Stock based upon a formula set forth in the Distribution Agreement in the event
certain performance milestones have been met by NBC thereunder (the "Performance
Warrants").
The Preferred Shares will (x) be convertible into an equal number of shares
of Common Stock, subject to adjustment, and (y) be mandatorily redeemable by
ValueVision after 10 years. The Investment Warrant will (i) have a term of five
years, (ii) be exercisable from the date of issuance, (iii) be exercisable for
that number of shares of the Common Stock that result in G.E. Capital and its
affiliates beneficially owning up to 39.9% of the outstanding shares of Common
Stock, after giving effect to the exercise of the Preferred Shares, the
Investment Warrant and the Distribution Warrant and (iv) be exercisable, in
whole or in part, at a purchase price equal to, (a) prior to the second
anniversary of its issue date, the greater of (x) the average of the closing
prices of a share of the Common Stock for the 45 consecutive trading days ending
on the day immediately prior to the date of the election to exercise or (y) the
average of the closing prices of a share of the Common Stock for the 150 days
ending on such date, but in no case less than $12.00 (subject to equitable
adjustment for certain events) and (b) on or after such second anniversary date,
the greater of (x) the average of the closing prices of a share of the Common
Stock for the 45 trading days ending on the day immediately prior to the date of
the election to exercise or (y) $15.00 (subject to equitable adjustment for
certain events). The Distribution Warrant will (i) vest as to 200,000 shares on
the commencement date of services by NBC under the Distribution Agreement (the
"Commencement Date") and as to 125,000 shares on each anniversary of such date,
and (ii) be exercisable at a per share price of $8.29.
The transactions contemplated by the Investment Agreement, the Distribution
Agreement, the Operating Agreement (as defined in the Investment Agreement) and
the other agreements, arrangements and understandings to be entered into by
ValueVision with G.E. Capital and/or NBC in connection with the Investment
Agreement and the Distribution Agreement (collectively, the "Transaction
Documents") hereinafter are referred to collectively as the "Transaction".
You have asked us to render our opinion as to whether the Transaction is
fair, from a financial point of view, to ValueVision.
In the course of performing our reviews and analyses for rendering this
opinion, we have:
1. reviewed the Investment Agreement, the Distribution Agreement, the
Investment Warrant, the Distribution Warrant and the Certificate of Designation
of the Preferred Shares as well as the Shareholder Agreement, Registration
Rights Agreement and a draft form of the Operating Agreement;
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<PAGE> 49
2. reviewed the Annual Report to Shareholders and the Annual Report on Form
10-K for the year ended January 31, 1998, and the Quarterly Reports on Form 10-Q
for the periods ended April 30, July 31 and October 31, 1998 for ValueVision;
3. reviewed certain operating and financial information, including
projections of future financial results on a stand-alone basis (the "Stand-Alone
Projections") as well as on a pro-forma basis to give effect to the Projected
Benefits (as hereinafter defined) of the Transaction (the "Pro-Forma
Projections"), provided to us and reviewed for us by the senior management of
ValueVision relating to ValueVision's business and future prospects;
4. met with certain members of ValueVision's senior management to discuss
ValueVision's operations, historical financial statements and future prospects,
as well as their views of the business, operational, strategic and financial
benefits and other implications of the Transaction (the "Projected Benefits");
5. met with certain members of senior management of G.E. Capital and NBC to
discuss these operations, historical financial statements and future prospects,
and their views of the business, operational and strategic benefits, and other
implications of the Transaction;
6. reviewed the historical stock prices, trading volumes and valuation
parameters of the Common Stock;
7. reviewed certain publicly available financial data, stock market
performance data and valuation parameters of companies that we deemed generally
comparable to ValueVision or otherwise relevant to our inquiry; and
8. considered such other information and conducted such other studies,
analyses, inquiries and investigations as we deemed appropriate.
In the course of our review, we have relied upon and assumed, without
independent verification, the accuracy and completeness of the financial and
other information, including the Stand-Alone Projections and the Pro-Forma
Projections, provided to us by ValueVision or otherwise publicly available. With
respect to the Stand-Alone Projections and the Pro-Forma Projections (including
the Projected Benefits), we have assumed that they have been reasonably prepared
on bases reflecting the best currently available estimates and judgments of the
senior management of ValueVision as to the expected future performance of
ValueVision. We have not assumed any responsibility for the independent
verification of any such information or projections provided to us and we have
relied further upon the assurances of the senior management of ValueVision that
they are unaware of any facts that would make the information or projections
provided to us incomplete or misleading. In arriving at our opinion, we have not
performed or obtained any independent appraisal of the assets or liabilities of
ValueVision nor have we been furnished with any such appraisals. We have further
assumed that the Transaction will be consummated in accordance with the terms of
the Transaction Documents, including that, in all respects material to our
analysis, the representations and warranties made by the parties thereto are
true and accurate in all material respects and that the performance targets set
forth in the Distribution Agreement will be met within the time frames estimated
thereby and set forth in the Pro-Forma Projections and Projected Benefits.
Our opinion is necessarily based on the economic, market and other
conditions, and the information made available to us, as of the date hereof. We
do not express any opinion as to the price or range of prices at which shares of
the Common Stock may trade prior to or subsequent to the consummation of the
Transaction. This opinion does not address ValueVision's underlying decision to
enter into the Transaction, and is not a recommendation to ValueVision directors
or shareholders as to whether to approve or vote for the Transaction or any
component thereof, and by rendering this opinion we assume no responsibility to
update or revise our opinion based upon circumstances or events occurring after
the date hereof.
We have acted as financial advisor to ValueVision in connection with the
Transaction and will receive a fee for such advisory services, including the
rendering of this opinion, payment of a significant portion of which is
contingent on the consummation of the Transaction. We have previously rendered
certain investment banking and financial advisory services to ValueVision and
G.E. Capital for which we received customary compensation. In the ordinary
course of business, Bear Stearns may actively trade the securities of
A-2
<PAGE> 50
ValueVision for its own account and for the accounts of customers and
accordingly, may, at any time, hold a long or short position in such securities.
It is understood that this letter is intended for the benefit and use of
the Board of Directors of ValueVision in its evaluation of the Transaction and
is not to be reproduced, disseminated, quoted from or referred to at any time,
in whole or in part, without our prior written consent; provided, however, that
this letter may be included in its entirety in any proxy statement to be
distributed to the holders of the Common Stock in connection with the
Transaction.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Transaction is fair, from a financial point of view, to
ValueVision.
Very truly yours,
BEAR, STEARNS & CO. INC.
By: /s/ JAMES CARROLL
------------------------------------
Senior Managing Director
A-3
<PAGE> 51
ANNEX B
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 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.
B-1
<PAGE> 52
"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.
"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 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.
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<PAGE> 53
"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.
"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
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,
B-3
<PAGE> 54
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 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
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<PAGE> 55
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 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 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
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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 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.
(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
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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 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
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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 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
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
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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 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 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
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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 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
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authority under any Environmental Laws, including without limitation
those relating to compliance with Environmental Laws or to
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.
(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
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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 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 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
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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 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 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).
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(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 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;
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(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;
(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 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
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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 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 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
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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 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.
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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 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 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.
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(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.
(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.
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
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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 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
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(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.
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, 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
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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; 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
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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 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-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
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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.
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
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<PAGE> 75
FORM OF FIRST AMENDMENT AND AGREEMENT
FIRST AMENDMENT AND AGREEMENT, dated as of April , 1999 (this
"Amendment"), to the Investment Agreement, dated as of March 8, 1999 (the
"Investment Agreement"), by and between VALUEVISION INTERNATIONAL, INC. (the
"Company") and G.E. CAPITAL EQUITY INVESTMENTS, INC. (the "Purchaser").
WITNESSETH:
WHEREAS, pursuant to the terms of the Investment Agreement and the
Ancillary Documents (as defined in the Investment Agreement), the Company is
issuing to the Purchaser and its affiliates certain securities (the
"Securities");
WHEREAS, the parties have subsequently determined that shareholder approval
of the issuance a portion of the Securities is required by the rules and
regulations of the Nasdaq Stock Market (the "Nasdaq Rules"); and
WHEREAS, the Company and the Purchaser have agreed to amend the terms of
the Investment Agreement to comply with the Nasdaq Rules.
NOW, THEREFORE, the parties hereto hereby agree as follows:
I. Defined Terms. Terms defined in the Investment Agreement and used herein
shall have the meanings given to them in the Investment Agreement.
II. Amendments to Investment Agreement. The Investment Agreement shall be
amended as follows:
1. The following definition shall be added in the appropriate
alphabetical place in Section 1.1 of the Investment Agreement:
"Additional Preferred Shares" shall have the meaning set forth in
Section 2.1(a).
"Second Closing" and "Second Closing Date" shall have the meanings
set forth in Section 5.9(a).
"Second Closing Consideration" shall have the meaning set forth in
Section 2.1(b).
2. The following sentence shall be added to the end of Section 2.1(a)
of the Investment Agreement:
At the Closing, the Purchaser shall Purchase 3,739,500 shares of
Preferred Stock. The difference between 5,339,500 shares and the
3,739,500 shares of Preferred Stock purchased at the Closing (i.e.
1,600,000 shares) shall be referred to as the "Additional Preferred
Shares".
3. The following sentence shall be added to the end of Section 2.1(b)
of the Investment Agreement:
Of this amount, the Purchaser shall pay at the Closing an amount equal
to (i) $44,265,000 minus (ii) the product of (A) the number of
Additional Preferred Shares multiplied by (B) $8.288. The difference
between $44,265,000 and the amount paid by the Purchaser at the Closing
shall be referred to as the "Second Closing Consideration".
4. The word "Securities" in Section 2.2 of the Investment Agreement
shall be replaced with the words "Securities (other than the Additional
Preferred Shares)" each time the word "Securities" appears in Section 2.2.
5. The first sentence of Section 5.1(a) shall be replaced with the
following sentence:
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) the issuance and sale by
the Company of the Additional Preferred Shares, (iii) such
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other transactions contemplated hereby and pursuant to the Ancillary
Documents as may reasonably require approval of the Company's
shareholders (together with clauses (i) and (ii), the "Shareholder
Approval"), (iv) the election of directors and (v) such other matters as
the Company and the Purchaser may reasonably agree.
6. The following sections shall be added to the end of Article V of
the Investment Agreement:
Section 5.9 Agreement to Sell and Purchase Additional Preferred
Shares. (a) If Shareholder Approval is obtained with respect to the
issuance and sale of the Additional Preferred Shares, the Company agrees
to issue and sell, and the Purchaser agrees to purchase, the Additional
Preferred Shares for an aggregate purchase price equal to the Second
Closing Consideration (the "Second Closing"). Such purchase shall occur
at such time as the Purchaser and the Company shall agree (but in no
event later than the third Business Day following the receipt of such
Shareholder Approval), unless otherwise agreed to by the parties (the
date of such purchase, the "Second Closing Date").
(b) At the Second Closing: (i) the Company shall deliver to the
Purchaser, against payment of the Second Closing Consideration, stock
certificates for the Additional Preferred Shares to be sold in
accordance with the provisions of Section 5.9(a), 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 Second
Closing Date; and (ii) the Purchaser, in full payment for the Additional
Preferred Shares, against delivery of the stock certificates referred to
above, shall deliver to the Company on the Second Closing Date
immediately available funds, by wire transfer to such account as the
Company shall specify at least three Business Days prior to the Second
Closing Date, in the amount equal to the Second Closing Consideration.
Section 5.10 Conduct of Business Pending the Second Closing. If
Shareholder Approval is obtained with respect to the issuance and sale
of the Additional Preferred Shares, the Company shall not, prior to the
Second Closing Date, take any action specified in Section 4.1(b) hereof.
7. The first sentence of Section 3.1(e)(ii) shall be replaced with the
following sentence:
Upon delivery of and payment for the Shares on the Closing Date or the
Second Closing Date, as applicable, as provided herein, such Shares to
be purchased on the Closing Date or the Second Closing Date, as
applicable, 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).
8. Except to the extent amended or modified by this Amendment or as
otherwise specified, for the avoidance of doubt, all references in the
Investment Agreement to "Preferred Stock" or "Shares" or "Securities" shall
include, and all terms and provisions relating thereto shall apply to, the
Additional Preferred Shares.
III. Condition to Effectiveness. This Amendment shall become effective on
the date on which the Company and the Purchaser shall have executed and
delivered this Amendment (the "Amendment Effective Date").
IV. General
1. Representation and Warranties of the Company. The Company
represents and warrants to the Purchaser as of the date hereof and as of
the Second Closing Date as follows:
(a) Authorization; No Conflicts. The Company has full corporate
power and authority to enter into this Amendment and to perform its
obligations hereunder. The execution, delivery and performance by the
Company of this Amendment and the consummation of the Company's
obligations hereunder have been duly authorized by all necessary
corporate action. This Amendment has been duly and validly executed and
delivered by the Company. The Company's Board of
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Directors has resolved to recommend that its shareholders vote for the
Shareholder Approval. This Amendment constitutes 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) to the Investment Agreement, the
execution, delivery and performance of this Amendment by the Company,
the consummation of the transactions by the Company contemplated hereby
and the compliance by the Company with the provisions hereof 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, 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) to
the Investment Agreement 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.
(b) Consents. Except as set forth in Schedule 3.1(d) to the
Investment Agreement, 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
Amendment, the consummation by the Company of the transactions
contemplated hereby or the performance by the Company of its obligations
hereunder, 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.
2. Representation and Warranties of the Purchaser. The Purchaser
represents and warrants to the Company as of the date hereof and as of the
Second Closing Date as follows:
(a) Authorization; No Conflicts. The execution and delivery of this
Amendment and the consummation of the transactions contemplated hereby
have been authorized by all necessary corporate action on behalf of the
Purchaser. This Amendment has been duly and validly executed and
delivered on behalf of the Purchaser, and this Amendment is a valid and
binding obligation of the Purchaser, enforceable against it in
accordance with its terms. The execution, delivery and performance of
this Amendment, the consummation by the Purchaser of the transactions
contemplated hereby and the compliance by Purchaser with the provisions
hereof 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) to the Investment Agreement 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.
(b) Consents and Approvals. Except as set forth in Schedule 3.2(c)
to the Investment Agreement, no consent, approval, order or
authorization of, registration, declaration or filing with, or
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notice to, any Governmental Entity is required on the part of Purchaser
in connection with the execution and delivery by Purchaser of this
Amendment, the consummation by the Purchaser of the transactions
contemplated hereby or the performance by the Purchaser of its
obligations hereunder, 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. The Purchaser
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
Amendment, and such consummation shall not cause 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. sec.
76.970(b).
3. Payment of Expenses. Each of the Company and the Purchaser agrees
to pay for its own out-of-pocket costs and expenses incurred in connection
with this Amendment, any other documents prepared in connection herewith
and the transactions contemplated hereby, including, without limitation,
the fees and disbursements of counsel.
4. No Other Amendments; Confirmation. Except as expressly amended,
modified and supplemented hereby, the provisions of the Investment
Agreement and the Ancillary Documents are and shall remain in full force
and effect. This Amendment shall be part of the Investment Agreement.
5. Governing Law; Counterparts. (a) This Amendment 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 Amendment.
(b) This Amendment 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.
IN WITNESS WHEREOF, this Amendment 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:
--------------------------------------
Name:
Title:
G.E. CAPITAL EQUITY INVESTMENTS, INC.
By:
--------------------------------------
Name:
Title:
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ANNEX C
FORM OF
VALUEVISION INTERNATIONAL, INC.
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").
(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
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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 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.
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
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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).
(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 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
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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 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 are to be issued. Any transfer taxes shall be paid in accordance with
Section XI hereof.
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(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 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
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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. 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 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.
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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 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.
(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
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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 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 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
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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;
(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 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
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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 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 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
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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 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
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purpose of causing a meeting of holders of Convertible Preferred Stock to
be called pursuant to the provisions of this Section VII(b)(iii).
(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 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
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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.
(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 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.
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(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
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.
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
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ANNEX D
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").
WITNESSETH:
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:
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.
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"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 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.
"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.
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"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 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, 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
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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 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 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.
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"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 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
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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, 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).
"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.
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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 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 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.
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(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 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.
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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);
(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 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;
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(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
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 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
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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 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:
(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
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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 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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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);
(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.
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(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 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" 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
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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 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
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: Richard Capelouto
Fax: (212) 455-2502
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(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.
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
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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
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.
VALUEVISION INTERNATIONAL, INC.
By:
--------------------------------------
Name:
Title:
G.E. CAPITAL EQUITY INVESTMENTS, INC.
By:
--------------------------------------
Name:
Title:
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ANNEX E
FORM OF INVESTMENT 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.
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 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
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(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 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 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.
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"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 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 organization, or a government or any agency or political
subdivision thereof.
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"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 (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.
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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
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, 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
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(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 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 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.
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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.
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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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 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.
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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 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 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
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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.
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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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.
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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.
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ANNEX F
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 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
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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 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).
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(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.
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
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
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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 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.
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(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.
(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
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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)
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 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
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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.
(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
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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 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.
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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.
(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
(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.
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(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,
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
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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
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
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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.
(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.
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
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ANNEX G
AMENDMENT NO. 6 TO THE SECOND AMENDED
VALUEVISION INTERNATIONAL, INC.
1990 STOCK OPTION PLAN
The number "2,150,000" is deleted from the first sentence of Section 14 of
the Second Amended 1990 Stock Option Plan (the "Plan") and is replace with the
number "3,250,000." As amended, Section 14 reads as follows:
14. Number of Shares. The aggregate number of shares of Class A Common
Stock which may be issued under options and which shall be reserved for purposes
of the Plan shall be 3,250,000, subject to adjustment pursuant to Section 10
hereof. Authorized but unissued shares or treasury shares or both may be
utilized for purposes of the Plan. If any stock option shall expire or terminate
for any reason without having been exercised in full, the unpurchased shares
under such option shall again become available for purposes of the Plan so long
as the holder of such stock option received no benefit of ownership from the
stock.
With the exception of the foregoing, the Plan remains in full force and
effect.
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ANNEX H
SECOND AMENDED VALUEVISION INTERNATIONAL, INC.
1990 STOCK OPTION PLAN
1. PURPOSE
The purpose of the Second Amended ValueVision International, Inc. 1990
Stock Option Plan (the "Plan") is to provide officers and other key management
employees ("Employees") of ValueVision International, Inc. (the "Company") and
its present and future subsidiaries (within the meaning of Section 425 of the
Internal Revenue Code of 1986, as amended (the "Code")) with an increased
incentive to make significant and extraordinary contributions to the performance
and growth of the Company and its subsidiaries, to increase stock ownership of
Employees, and to attract and retain Employees of exceptional ability, by means
of stock options.
2. ADMINISTRATION
(a) The administrator of the Plan (the "Plan Administrator") shall be
either:
(i) the Board of Directors of the Company, provided, however that with
regard to participation in the Plan by members of the Board of Directors, a
majority of the Board and a majority of the Directors acting in the matter
shall be "disinterested persons" as defined in Rule 16b-3 (or any successor
provision) adopted under the Securities Exchange Act of 1934 (the "Act");
or
(ii) at the discretion and by appointment of the Board of Directors of
the Company, by a committee of three or more persons (the "Committee").
Each of such appointees shall be "disinterested persons" as defined in
Subparagraph 2(a)(i) herein and shall serve at the pleasure of the Board.
All action of the Committee shall be taken by a majority of its members,
and shall be effective whether taken in person or by written action. The
committee may appoint a secretary, shall keep minutes of its meetings and
shall make such rules and regulations for the conduct of its business as it
shall deem advisable.
(b) The Plan Administrator shall have full and complete authority in its
discretion, but subject to the provisions of the Plan: to authorize the grant of
options under the Plan; to select those Employees to be granted stock options
under the Plan; to determine the number of stock options to be granted to an
Employee; to determine the time or times at which such options shall be granted;
to establish the terms and conditions to be contained in option agreements under
the Plan; to remove any restrictions and conditions upon such stock options; and
to adopt such rules and regulations and to make all other determinations deemed
necessary or desirable for administration of the Plan.
3. ELIGIBILITY AND PARTICIPATION
The class of employees eligible to receive stock options under the Plan are
key management employees (including officers and directors, but excluding
directors of the Company who are not also full-time employees of the Company)
who shall be selected by the Plan Administrator from those employees who, in the
opinion of the Plan Administrator, are in positions which enable them to make
significant and extraordinary contributions to the performance and growth of the
Company and its subsidiaries.
4. STOCK OPTIONS
Stock options to purchase full shares of the Class A Common Stock, par
value $.01 per share ("Class A Common Stock"), of the Company may at the
discretion of the Plan Administrator be Incentive Stock Options (as defined in
Section 422A of the Code) or Non-Incentive Stock Options are sometimes
hereinafter collectively referred to as "stock options" or "options".
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5. DETERMINATION OF OPTION PRICE
The option price of Class A Common Stock covered by each stock option
designated an Incentive Stock Option shall be determined by the Plan
Administrator but shall not be less than the fair market value of Class A Common
Stock on the date of grant of such stock option. Such fair market value shall be
the average of the high bid and low asked prices in the over-the-counter market,
as reported by NASDAQ or such other system then in use on the date of grant of
the stock option. The option price of Class A Common Stock covered by each
option designated a Non-Incentive Stock Option shall be determined by the Plan
Administrator on the date of grant of the stock option.
6. OPTION TERM
The term within which each stock option is exercisable shall be for such
period as the Plan Administrator may determine, but such term shall not exceed a
period of ten years in the case of Incentive Stock Options and ten years and one
day in the case of Non-Incentive Stock Options from the date of grant of an
option.
7. OPTION AGREEMENTS
Each stock option shall be evidenced by an option agreement containing such
terms and conditions, consistent with the provisions of the Plan, as the Plan
Administrator shall from time to time determine. Such terms and conditions, at
the discretion of the Plan Administrator, may include, without limitation,
provisions with respect to the time or times at which the stock option is
exercisable, the effect of termination of employment upon right of exercise, the
manner of exercise of such stock option, the payment for Class A Common Stock
either with other shares of Class A Common Stock or with cash or with both, and
payment of income tax withholding requirements in connection with the exercise
of a Non-Incentive Stock Option by the Company withholding or an Employee
delivering shares of Class A Common Stock.
8. DATE OF GRANT
The date of grant of a stock option shall occur when the granting of the
stock option is authorized by the Plan Administrator, or such later date as may
be specified by the Plan Administrator in such authorization.
9. INCENTIVE STOCK OPTIONS
Notwithstanding anything in the Plan to the contrary, the following
additional provisions shall apply to the grant of stock options which are
intended to qualify as Incentive Stock Options:
(a) The aggregate fair market value (determined as of the time the option
is granted) of Class A Common Stock with respect to which Incentive Stock
Options are exercisable for the first time by an employee during any calendar
year (under all plans of the Company or of its parent or any subsidiary of the
Company) shall not exceed $100,000;
(b) All Incentive Stock Options must be granted within ten years from the
earlier of the date on which this Plan was adopted by the Board of Directors or
the date this Plan was approved by the shareholders; and
(c) No Incentive Stock Options shall be granted to any Employee who, at the
time such option is granted, would own (within the meaning of Section 422A of
the Code) stock possessing more than 10% of the total combined voting power of
all classes of stock of the Company or of its parent or any subsidiary.
10. ADJUSTMENTS
In the event of any merger, consolidation or reorganization of the Company
with any other corporation or corporations, there shall be substituted for each
of the shares of Class A Common Stock then subject to the Plan, the number and
kind of shares of stock or other securities to which the holders of the shares
of Class A Common Stock will be entitled pursuant to the transaction. In the
event of any recapitalization, stock dividend, stock split, combination of
shares or other change in the Class A Common Stock, the number of shares of
Class A Common Stock then subject to the Plan, including shares subject to
options, shall be
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adjusted in proportion to the change in outstanding shares of Class A Common
Stock. In the event of any such adjustments, the purchase price of any option
and the shares of Class A Common Stock issuable pursuant to any option shall be
adjusted as and to the extent appropriate, in the discretion of the Plan
Administrator, to provide participants with the same relative rights before and
after such adjustment.
11. EFFECT OF TERMINATION OF EMPLOYMENT
In the event an employee ceases employment with the Company for any reason,
including death, any options held by such Employee may be exercised or shall
expire at such times as may be determined by the Plan Administrator.
12. TRANSFERABILITY OF OPTIONS
Options under the Plan shall not be assignable or transferable, or subject
to encumbrance or charge of any nature, otherwise than by will or the laws of
descent and distribution, and the Company shall not be required to recognize any
attempted assignment of such rights by an Employee. A stock option may be
exercised, during the lifetime of the Employee to whom such stock option was
granted, only by such Employee.
13. AMENDMENT AND TERMINATION
The Board of Directors of the Company may at any time and from time to time
amend, suspend or terminate the Plan in whole or in part; provided, however,
that the Board of Directors may not, without the favorable vote of a majority of
the shares of voting stock represented at a meeting of shareholders of the
Company, (a) increase the aggregate number of shares of Class A Common Stock
which may be issued under the Plan, or decrease the minimum stock option price
set forth in Paragraph 5 hereof, or change the designation of the class of
employees eligible to receive Incentive Stock Options under the plan, unless
otherwise permitted by the Code or (b) materially increase the benefits accruing
to participants under the Plan or materially modify the requirements as to
eligibility for participation in the Plan. No such amendment, suspension or
termination may, without the consent of the Employee to whom an option shall
theretofore have been granted, adversely affect the rights of such Employee
under such option.
14. COMMON STOCK RESERVED FOR PLAN
The aggregate number of shares of Class A Common Stock which may be issued
under options and which shall be reserved for purposes of the Plan shall be
300,000. Authorized but unissued shares or treasury shares or both may be
utilized for purposes of the Plan. If any stock option shall expire or terminate
for any reason without having been exercised in full, the unpurchased shares
under such option shall again become available for purposes of the Plan.
15. USE OF COMMON STOCK FOR INCOME TAX WITHHOLDING REQUIREMENTS.
(a) The Company shall have the right to withhold from any payments made
under the Plan or to collect as a condition of payment, any taxes required by
law to be withheld. At any time when an Employee is required to pay to the
Company an amount required to be withheld under applicable income tax laws in
connection with the exercise of a stock option, the Employee may satisfy this
obligation in whole or in part by electing (the "Election") to have the Company
withhold from the distribution shares of Class A Common Stock having a value up
to the amount required to be withheld. The value of the shares to be withheld
shall be based on the fair market value of the Class A Common Stock (as
determined in Paragraph 5 herein) on the date that the amount of tax to be
withheld shall be determined (herein "Tax Date").
(b) Each Election must be made prior to the Tax Date. The Plan
Administrator may disapprove of any Election, may suspend or terminate the right
to make Elections, or may provide with respect to any option that the right to
make Elections shall not apply to such option. An Election is irrevocable.
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(c) If the Employee is an officer or director of the Company within the
meaning of Section 16 of the Act, then an Election is subject to the following
additional restrictions:
(1) No election shall be effective for a Tax Date which occurs within
six months of the grant of the option, except that this limitation shall
not apply in the event death or disability of the Employee occurs prior to
the expiration of the six-month period.
(2) The Election must be made either six months prior to the Tax Date
or must be made during a period beginning on the third business day
following the date of release for publication of the Company's quarterly or
annual summary statements of sales and earnings and ending on the twelfth
business day following such date.
16. SECURITIES LAWS
Notwithstanding anything in this Plan to the contrary: (a) the Company may,
if it shall determine it necessary or desirable for any reason, at the time of
grant of any option or the issuance of any shares of Class A Common Stock
pursuant to any option, require the recipient of the option, as a condition to
the receipt thereof or to the receipt of shares of Class A Common Stock issued
pursuant thereto, to deliver to the Company a written representation of present
intention to acquire the option or the shares of Class A Common Stock issued
pursuant thereto for such recipient's own account for investment and not for
distribution; and (b) if at any time the Company further determines, in its
discretion, that the listing, registration or qualification (or any updating of
any such document) of any option or the shares of class a common stock issuable
pursuant thereto is necessary on any securities exchange or under any federal or
state securities or blue sky law, or that the consent or approval of any
governmental regulatory body is necessary or desirable as a condition of, or in
connection with the grant of any option, the issuance of shares of Class A
Common Stock pursuant thereto, or the removal of any restrictions imposed on
such shares, such option shall not be awarded or such shares of Class A Common
Stock shall not be issued or such restrictions shall not be removed, as the case
may be, in whole or in part, unless such listing, registration, qualification,
consent or approval shall have been effected or obtained free of any conditions
not acceptable to the Company.
17. MISCELLANEOUS PROVISIONS
(a) Nothing in the Plan or in any stock option granted pursuant to the Plan
shall confer on any Employee the right to continue in the employ of the Company
or any of its subsidiaries or affect in any way the right of the Company or any
such subsidiary to terminate such Employee's employment at any time.
(b) The grant of stock options under the Plan shall not confer upon any
Employee any of the rights of a shareholder until due exercise of the Employee's
stock option.
18. DURATION OF PLAN
(a) The Plan will become effective upon its approval by the affirmative
vote of the holders of a majority of the voting stock of the Company at a
meeting of its shareholders. Unless approved within one year after the date of
the Plan's adoption by the Board of Directors, the Plan shall not be effective
for any purpose.
(b) The Plan shall remain in effect until all options granted under the
Plan have been satisfied by the issuance of shares of Class A Common Stock or
terminated under the terms of the Plan and all restrictions imposed on shares of
Class A Common Stock in connection with their issuance under the Plan have
lapsed. No options may be granted under the Plan after the tenth anniversary of
the date the plan is approved by the shareholders of the company.
(c) Nothing contained in the Plan shall be construed as giving an Employee,
the Employee's beneficiaries or any other person any equity or interests of any
kind in the assets of the Company or creating a trust of any kind or a fiduciary
relationship of any kind between the Company and any such person.
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19. IMMEDIATE ACCELERATION OF OPTIONS UPON CHANGE IN CONTROL
Notwithstanding any provision in the Plan, any option agreement, or any
other agreement relating thereto to the contrary, all options granted under the
Plan will become exercisable immediately if any of the following events occur,
unless otherwise determined by the Board of Directors and a majority of the
Incumbent Members (as defined below) or unless and to the extent that the
exercise of the option would result in the application of the provisions of
Section 280G of the Internal Revenue Code of 1986, as amended:
(a) Any person, as defined in Sections 3(a)(9) and 13(d)(3) of the Act,
becomes the "beneficial owner" (as defined in rule 13d-3 promulgated pursuant to
the Act) directly or indirectly, of 30% or more of combined voting power of the
Company's then outstanding securities; or
(b) The occurrence within any twelve-month period of a change in the Board
of Directors of the Company with the result that the Incumbent Members (as
defined below) do not constitute a majority of the Board of Directors.
"Incumbent Members" in respect of any twelve-month period, shall mean the
members of the Board on the date immediately preceding the commencement of such
twelve-month period, provided that any person becoming a Director during such
twelve-month period whose election or nomination for election was supported by a
majority of the Directors who, on the date of such election or nomination for
election, comprised the Incumbent Members shall be considered one of the
Incumbent Members in respect to such twelve-month period; or (c) the
shareholders of the Company approve an agreement to merge or consolidate with or
into another corporation or an agreement to sell or otherwise dispose of all or
substantially all of the Company's assets (including a plan of liquidation).
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VALUEVISION INTERNATIONAL, INC.
AMENDMENT NO. 1
TO THE
SECOND AMENDED 1990 STOCK OPTION PLAN
Section 2 of the Second Amended 1990 Stock Option Plan (the "Plan") is
hereby deleted and replaced with the following:
2. Administration. The Plan shall be administered by the stock option
committee (the "Committee") of the board of directors of the Company. The
Committee shall consist of not less than two directors of the Company and shall
be appointed from time to time by the board of directors of the Company. Each
member of the Committee shall be a "disinterested person" within the meaning of
Rule 16b-3 of the Securities Exchange Act of 1934, and the regulations
promulgated thereunder (the "1934 Act"). The board of directors of the Company
may from time to time appoint members of the Committee in substitution for, or
in addition to, members previously appointed, and may fill vacancies, however
caused, in the Committee. The Committee shall select one of its members as its
chairman and shall hold its meetings at such times and places as it shall deem
advisable. A majority of the Committee's members shall constitute a quorum. All
action of the Committee shall be taken by the majority of its members. Any
action may be taken by a written instrument signed by majority of the members
and actions so taken shall be fully effective as if it had been made by a
majority vote at a meeting duly called and held. The Committee may appoint a
secretary, shall keep minutes of its meetings and shall make such rules and
regulations for the conduct of its business as it shall deem advisable. The
Committee shall have complete authority to award Incentives under the Plan, to
interpret the Plan, and to make any other determination which it believes
necessary and advisable for the proper administration of the Plan. The
Committee's decisions and matters relating to the Plan shall be final and
conclusive on the Company and its participants.
With the exception of the foregoing, the Plan remains in full force and
effect.
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VALUEVISION INTERNATIONAL, INC.
AMENDMENT NO. 2
TO THE
SECOND AMENDED 1990 STOCK OPTION PLAN
Section 14 of the Second Amended 1990 Stock Option Plan (the "Plan") is
hereby deleted and replaced with the following:
14. Number of Shares. The aggregate number of shares of Class A Common
Stock which may be issued under options and which shall be reserved for purposes
of the Plan shall be 650,000, subject to adjustment pursuant to Section 10
hereof. Authorized but unissued shares or treasury shares or both may be
utilized for purposes of the Plan. If any stock option shall expire or terminate
for any reason without having been exercised in full, the unpurchased shares
under such option shall again become available for purposes of the Plan so long
as the holder of such stock option received no benefit of ownership from the
stock.
With the exception of the foregoing, the Plan remains in full force and
effect.
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VALUEVISION INTERNATIONAL, INC.
AMENDMENT NO. 3
TO THE
SECOND AMENDED 1990 STOCK OPTION PLAN
Section 14 of the Second Amended 1990 Stock Option Plan (the "Plan") is
hereby deleted and replaced with the following:
14. Number of Shares. The aggregate number of shares of Class A Common
Stock which may be issued under options and which shall be reserved for purposes
of the Plan shall be 1,150,000, subject to adjustment pursuant to Section 10
hereof. Authorized but unissued shares or treasury shares or both may be
utilized for purposes of the Plan. If any stock option shall expire or terminate
for any reason without having been exercised in full, the unpurchased shares
under such option shall again become available for purposes of the Plan so long
as the holder of such stock option received no benefit of ownership from the
stock.
With the exception of the foregoing, the Plan remains in full force and
effect.
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<PAGE> 144
VALUEVISION INTERNATIONAL, INC.
AMENDMENT NO. 4
TO THE
SECOND AMENDED 1990 STOCK OPTION PLAN
The number "1,150,000" is deleted from the first sentence of Section 14 of
the Second Amended 1990 Stock Option Plan (the "Plan") and is replaced with the
number "2,150,000." As amended, Section 14 reads as follows:
14. Number of Shares. The aggregate number of shares of Class A Common
Stock which may be issued under options and which shall be reserved for purposes
of the Plan shall be 2,150,000, subject to adjustment pursuant to Section 10
hereof. Authorized but unissued shares or treasury shares or both may be
utilized for purposes of the Plan. If any stock option shall expire or terminate
for any reason without having been exercised in full, the unpurchased shares
under such option shall again become available for purposes of the Plan so long
as the holder of such stock option received no benefit of ownership from the
stock.
With the exception of the foregoing, the Plan remains in full force and
effect.
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<PAGE> 145
VALUEVISION INTERNATIONAL, INC.
AMENDMENT NO. 5
TO THE
SECOND AMENDED 1990 STOCK OPTION PLAN
The phrase "(including officers but excluding directors of the Company who
are not also employees of the Company)" in the first sentence of Section 3 of
the Second Amended 1990 Stock Option Plan (the "Plan") is hereby deleted and
replaced with the phrase "(including officers but excluding directors of the
Company)." As amended, Section 3 of the Plan reads as follow:
3. Eligibility and Participation. The class of employees eligible to
receive stock options under the Plan are key management employees (including
officers, but excluding directors of the Company) who shall be selected by the
Plan Administrator from those employees who, in the opinion of the Plan
Administrator, are in positions which enable them to make significant and
extraordinary contributions to the performance and growth of the Company and its
subsidiaries.
With the exception of the foregoing, the Plan remains in full force and
effect.
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[FORM OF PROXY CARD]
<TABLE>
<S><C>
</TABLE>
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PROXY PROXY
VALUEVISION INTERNATIONAL, INC.
PROXY FOR 1999 JOINT SPECIAL/ANNUAL MEETING OF SHAREHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL PROPOSALS
The undersigned, a shareholder of ValueVision International, Inc., hereby
appoints Gene McCaffery, David T. Quinby and Stuart R. Romenesko, and
each of them, as proxies, with full power of substitution, to vote on
behalf of the undersigned the number of shares which the undersigned
is then entitled to vote, at the Joint Special/Annual Meeting of
Shareholders of ValueVision International, Inc. to be held at the
Radisson South Hotel, 7800 Normandale Blvd., Bloomington, Minnesota
55439 on June 1, 1999 at 10:00 a.m., and at any and all adjournments
thereof, with all the powers which the undersigned would possess if
personally present, upon the matters set forth herein. When properly
executed, this proxy will be voted on the proposals set forth herein
as directed by the shareholder, but if no direction is made in the
space provided, the proxies will vote FOR all proposals and at their
discretion on any other business as may properly come before the
meeting.
The undersigned hereby revokes all previous proxies relating to the shares
covered hereby and acknowledges receipt of the Notice and Proxy
Statement relating to the Meeting.
To be Signed on Reverse Side
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Proposal to approve the issuance of 1,600,000 shares of Preferred Stock
to the Investor.
[ ] FOR [
] OPPOSE [ ] ABSTAIN
(2) Proposal to approve the issuance to the Investor of the shares of
Common Stock issuable upon exercise of the Investment Warrant.
[ ] FOR [
] OPPOSE [ ] ABSTAIN
(3) Proposal to ratify the issuance of the Performance Distributor
Warrants, and the shares of Common Stock issuable thereunder, to NBC.
[ ] FOR [
] OPPOSE [ ] ABSTAIN
(4) Proposal to approve Amendment No. 6 to the Second Amended ValueVision
International, Inc. 1990 Stock Option Plan to increase the number of
shares issuable thereunder from 2,150,000 to 3,250,000.
[ ] FOR [
] OPPOSE [ ] ABSTAIN
(5) Election of Directors: Nominees: Gene McCaffery, Robert J. Korkowski,
Marshall S. Geller and Paul D. Tosetti.
[ ] FOR all nominees [ ] WITHHOLD all nominees
[ ] FOR all nominees, except vote withheld from the following
nominees
----------------------------------------------
(6) Upon such other business as may properly come before the meeting or any
adjournments thereof.
Signature(s)
Dated , 1999
NOTE: Please sign exactly as name appears hereon. Joint owners should each
sign.
