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Exhibit 3
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.
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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 Xxxxxx
Communications Corporation (each, a "VVI Designated Entity") giving NBC or such
affiliate the right to negotiate on behalf of such VVI Designated Entity for the
distribution of any program service of such VVI Designated Entity, NBC shall not
be permitted to apply any portion of the Discretionary Carriage Fee (defined
below) to subsidize the carriage of such program service by any Distributor.
(ii) The parties acknowledge and agree that certain regulatory
requirements must be satisfied in order for VVTV to be carried by Distributors
in Canada and that, upon the determination by VVI in its reasonable commercial
judgment to pursue distribution of VVTV in Canada and the procurement by VVI of
rights to distribute VVTV in Canada, VVI and NBC will negotiate in good faith
the terms applicable to distribution of VVTV by NBC to Distributors in Canada.
(c) (i) In each carriage agreement for VVTV on a cable Distribution
System, NBC shall have the right, in its discretion, to agree to the payment by
VVI to the Distributor thereunder of an annual fee per full-time Subscriber
(defined below) for carriage of VVTV in such cable Distribution System (the
"Discretionary Carriage Fee"), not to exceed the maximum Discretionary Carriage
Fee then applicable, payable in equal monthly or quarterly installments,
commencing no earlier than the date of first launch of VVTV in such cable
Distribution System. The amount of the initial maximum Discretionary Carriage
Fee is set forth on SCHEDULE 2(C)(I) attached hereto.
(ii) In carriage agreements for VVTV in Distribution Systems other
than cable Distribution Systems, NBC and VVI shall negotiate in good faith the
amount of the maximum Discretionary Carriage Fee which NBC may agree will be
paid by VVI to the Distributor thereunder; provided, however, that in any
carriage agreement for VVTV on DirecTV (or any successor thereto), NBC shall
endeavor to obtain carriage of VVTV for a Discretionary Carriage Fee per year
per full-time Subscriber of up to the amount set forth as the "DirecTV
Discretionary Carriage Fee" on
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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).
(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
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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.
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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.
(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
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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 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),
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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.
(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
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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
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such written commitment within a period not in excess of three years beginning
on the date of the written commitment) or actual rollout of VVTV in Distribution
Systems, or some combination thereof, measured at any time on or prior to the
second anniversary of the Commencement Date (the "First Performance Target");
provided, however, that if achievement of the First Performance Target is
measured at any time prior to the second anniversary of the Commencement Date,
any written commitments to be included in determining whether the First
Performance Target has been achieved must be non-terminable prior to such second
anniversary of the Commencement Date; and provided further, that of such six
million (6,000,000) incremental FTE Subscribers, there shall have been actual
rollout of VVTV to at least at least two million (2,000,000) 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
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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 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
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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 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
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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 XXXX.xxx; provided,
however, that a significant affiliation shall not include an agreement or
arrangement entered into by VVI for the establishment of a link to XXXX.xxx from
a portal, site or web page in the ordinary course of business of VVI consistent
with past practice.
(ii) In the event that (x) NBC shall decline to give its consent to
a Restricted Promotional Transaction, (y) VVI shall enter into a Restricted
Promotional Transaction at any time after the first anniversary of the date
hereof, or (z) VVI shall enter into a transaction which would result in a Change
in Control, VVI shall be deemed to be in material breach of this Agreement. In
such event, NBC shall have the right to terminate this Agreement by giving 10
days' written notice to VVI of the effective date of such termination, and to
pursue all remedies available to NBC in law or in equity for a material breach
of this Agreement.
(e) NBC shall have the right to terminate this Agreement at any time
during the Term in the event that NBC delivers written notice to VVI stating
that, in the reasonable judgment of NBC, (i) there has occurred a diminution in
the quality of VVTV programming sufficient to have an adverse effect on NBC's
ability to distribute VVTV to Distribution Systems, stating with reasonable
specificity the nature of such diminution in quality, or (ii) VVI fails to
comply with the NBC Standards, and VVI fails to cure such diminution in quality
or failure to comply with the NBC Standards, within thirty days following
receipt by VVI of written notice thereof from NBC.
Section 10. Mutual Rights to Terminate. Either party shall have the
right to terminate this Agreement (i) in the event that the other party shall
fail to pay any amount payable by such other party (and which is not being
contested in good faith) within thirty days of receipt by such other party of
written notice of such failure; (ii) in the event of a material breach by the
other party of any representation, warranty or covenant under the agreement
which remains uncured for a period of thirty days following receipt by such
party of written notice of such breach; (iii) in the event that the other party
commences a voluntary case or proceeding, consents to the entry of an order for
relief against it in an involuntary case or proceeding or to the appointment of
a custodian of it or for all or substantially all of its property, makes a
general assignment for the benefit of its creditors or admits in writing its
inability to pay its debts generally as they become due, in any case within the
meaning of any bankruptcy law; or (iv) in the event that a court of competent
jurisdiction enters an order or decree under any bankruptcy law that is for
relief against the other party in an involuntary case or proceeding, appoints a
custodian of such other party for all or substantially all of its assets or
orders the liquidation of such other party, which order, decree or appointment
remains unstayed and in effect for at least 60 days.
Section 11. Termination Sole and Exclusive Remedy.
(a) The termination rights of VVI set forth herein shall be the sole
and exclusive remedy of VVI for any failure by NBC to perform its obligations
hereunder, except for the express payment and indemnification obligations of NBC
set forth herein.
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(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,
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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.
(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.
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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 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):
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If to VVI:
ValueVision International, Inc.
0000 Xxxxx Xxx Xxxx
Xxxxxxxxxxx, Xxxxxxxxx 00000
Attn: General Counsel
Telecopier: (000) 000-0000
with a copy to:
Xxxxxx & Xxxxxxx
000 Xxxx Xxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxxxxx, Xxxxxxxxxx 00000-0000
Attn: Xxxxxxx Xxxxxxxx, Esq.
Telecopier: (000) 000-0000
If to NBC:
National Broadcasting Company, Inc.
00 Xxxxxxxxxxx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxxx X. Xxxxxxxx, Executive Vice President and Managing
Director, Worldwide Business Development
Telecopier: (000) 000-0000
with a copy to:
National Broadcasting Company, Inc.
00 Xxxxxxxxxxx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Senior Corporate and Transactions Counsel
Telecopier: (000) 000-0000
Section 18. Miscellaneous.
(a) The term "Person" shall mean an individual, corporation,
unincorporated association, partnership, group (as defined in Section 13(d)(3)
of the Securities Exchange Act of 1934, as amended), trust, joint stock company,
joint venture, business trust or unincorporated organization, limited liability
company or other entity of whatever nature.
(b) This Agreement (including the documents referred to herein and the
Schedules and Exhibits hereto) between the parties hereto, constitutes the
entire agreement of the parties with respect to the matters contemplated hereby,
and all other prior negotiations, understandings and agreements, whether written
or oral, between the parties hereto are superseded by this Agreement. This
Agreement shall not benefit or create any right, remedy or cause of action in or
on behalf of any Person other than the parties hereto and their permitted
successors and assigns, as expressly set forth herein.
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(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.
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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/ Xxxxxx Xxxxxxxx
--------------------------------------------
Name: Xxxxxx Xxxxxxxx
Title: Executive Vice President, Worldwide
Business Development
VALUEVISION INTERNATIONAL, INC.
By: /s/ Xxxx XxXxxxxxx
--------------------------------------------
Name: Xxxx XxXxxxxxx
Title: Chief Executive Officer
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Schedule 2(c)(i)
Discretionary Carriage Fee
The initial maximum Discretionary Carriage Fee in carriage agreements for VVTV
on a cable Distribution System is equal to $2.00 per year per full-time
Subscriber. This amount is subject to increase as set forth in Section 2(c)(v).
The "DirecTV Discretionary Carriage Fee" is equal to $1.50 per year per
full-time Subscriber. This amount is subject to increase as set forth in Section
2(c)(v).
X-0
00
Xxxxxxxx 0(x)(xxx)
FTE Factors
(attached hereto)
S-2
21
Schedule 2(d)
Fee Reduction Bonus
The Fee Reduction Bonus described in Section 2(d) shall be paid in respect of
each carriage agreement for VVTV in a cable Distribution System which provides
for the payment by VVI of a Discretionary Carriage Fee of $1.95 or less per year
per full-time cable Subscriber, and shall be calculated in accordance with the
following table:
Average Annual
Discretionary Carriage Fee Commission per
Over Term of Agreement Full-Time Subscriber
-------------------------- --------------------
< $1.50 $0.65
$1.50 - $1.60 $0.50
$1.61 - $1.70 $0.40
$1.71 - $1.80 $0.25
$1.81 - $1.90 $0.10
$1.91 - $1.95 $0.05
S-3
22
Schedule 3(a)(ii)
Existing Subscriber Base
Attached hereto is a schedule of the Existing Carriage Agreements representing
substantially all of the Existing Subscriber Base.
S-4
23
Schedule 7(a)
Affiliate Relations Fee
The amount of the Affiliate Relations Fee shall equal $1,500,000 for the first
year of the Term.
S-5
24
Exhibit 1
NBC Broadcast and Advertising Standards and Practices
