Related Party Transactions and Outside Related Director Information

ValueVision Media, Inc. (VVTV)

5/23/2006 Proxy Information


In March 1999, we entered into a strategic alliance with NBC and GE Equity. Under the terms of the investment agreement outlining the transaction, NBC and GE Equity acquired 5,339,500 shares of our preferred stock between April 1999 and June 1999 for $44.3 million, or $8.29 per share. NBC was issued warrants, known as the distribution warrants, to acquire 1,450,000 shares of our common stock with an exercise price of $8.29 per share under a distribution and marketing agreement discussed below. In addition, we issued GE Equity a warrant, known as the investment warrant, to increase its potential aggregate equity stake in our company (together with its affiliates, including NBC) at the time of exercise to 39.9%. The preferred stock is convertible into an equal number of shares of our common stock, subject to anti-dilution adjustments, has a mandatory redemption on the tenth anniversary of its issuance or upon a change of control at $8.29 per share, participates in dividends on the same basis as the common stock and has a liquidation preference over the common stock and any other junior securities. On July 6, 1999, GE Equity exercised the investment warrant and acquired an additional 10,674,000 shares of our common stock for $178,370,000, or $16.71 per share. Following the exercise of the investment warrant, the combined ownership of our company by GE Equity and NBC on a diluted basis was approximately 40%. In February 2005, GE Equity sold 2,000,000 shares of our common stock to several purchasers. In September 2005, GE Equity further sold 2,600,000 shares of our common stock to a number of unaffiliated third parties. Following these sales, GE Equity and NBC collectively owned approximately 27% of our equity securities on a diluted basis.

Shareholder Agreement

Under the investment agreement, we entered into a shareholder agreement with GE Equity, which provides for certain corporate governance and standstill matters. The shareholder agreement (together with our certificate of designation of the preferred stock) initially provided that GE Equity and NBC would be entitled to designate nominees for an aggregate of two out of seven board seats so long as their aggregate beneficial ownership is at least equal to 50% of their initial beneficial ownership, and one out of seven board seats so long as their aggregate beneficial ownership is at least 10% of the "adjusted outstanding shares of common stock," as defined in the shareholder agreement. In 2004, we amended the agreement to expand the board to nine directors, with GE Equity and NBC entitled to designate three of these board seats. The shareholder agreement also requires the consent of GE Equity prior to our company entering into any substantial agreements with certain restricted parties (consisting of broadcast networks and Internet portals in certain limited circumstances). Finally, we are prohibited from exceeding certain thresholds relating to the issuance of voting securities over a 12-month period, the payment of quarterly dividends, the repurchase of common stock, acquisitions (including investments and joint ventures) or dispositions, and the incurrence of debt greater than $40.0 million or 30% of our total capitalization. We are also prohibited from taking any action that would cause any ownership interest of certain Federal Communication Commission regulated entities from being attributable to GE Equity, NBC or their affiliates.

The Shareholder Agreement provides that during the standstill period defined in the shareholder agreement, and subject to certain limited exceptions, GE Equity and NBC are prohibited from: (i) any asset or business purchases from our company in excess of 10% of the total fair market value of our assets, (ii) increasing their beneficial ownership above 39.9% of our shares, (iii) making or in any way participating in any solicitation of proxies, (iv) depositing any securities of our company in a voting trust, (v) forming, joining, or in any way becoming a member of a "13D group" with respect to any voting securities of our company, (vi) arranging any financing for, or providing any financing commitment specifically for, the purchase of any of our voting securities, (vii) otherwise acting, whether alone or in concert with others, to seek to propose to us any tender or exchange offer, merger, business combination, restructuring, liquidation, recapitalization or similar transaction involving our company, or nominating any person as a director of our company who is not nominated by the then incumbent directors, or proposing any matter to be voted upon by our shareholders. If, during the standstill period, any inquiry has been made regarding a takeover transaction or change in control, each as defined in the shareholder agreement, that has not been rejected by the board, or the board pursues these types of transactions, or engages in negotiations or provides information to a third party and the board has not resolved to terminate such discussions, then GE Equity or NBC may propose a tender offer or business combination proposal to our company.

In addition, unless GE Equity and NBC beneficially own less than 5% or more than 90% of the adjusted outstanding shares of common stock, GE Equity and NBC may not sell, transfer or otherwise dispose of any securities of our company except for transfers: (i) to certain affiliates who agree to be bound by the provisions of the shareholder agreement, (ii) that have been consented to by us, (iii) pursuant to a third party tender offer, (iv) pursuant to a merger, consolidation or reorganization to which we are a party, (v) in a bona fide public distribution or bona fide underwritten public offering, (vi) pursuant to rule 144 of the Securities Act of 1933, or (vii) in a private sale or under rule 144A of the Securities Act of 1933; provided, that in the case of any transfer pursuant to clause (v) or (vii), the transfer does not result in, to the knowledge of the transferor after reasonable inquiry, any other person acquiring, after giving effect to the transfer, beneficial ownership, individually or in the aggregate with that person's affiliates, of more than 10% of the adjusted outstanding shares of common stock.

The standstill period terminates on the earliest to occur of (i) the 10 year anniversary of the shareholder agreement, (ii) the entering into by our 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), or (v) six months after GE Equity and NBC 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)), GE Equity and NBC's beneficial ownership position may not exceed 39.9% of our diluted outstanding stock, except for shares acquired following the issuance or exercise of any warrants or a 100% tender offer for our company.

Registration Rights Agreement

Under the investment agreement, we entered into a registration rights agreement with GE Equity that provides GE Equity, NBC and their affiliates and any transferees and assigns, an aggregate of five demand registrations and unlimited piggyback registration rights. In February 2005, GE Equity sold 2,000,000 shares of our common stock to Trafelet & Company, LLC (or its affiliates). In September 2005, GE Equity further sold 2,600,000 shares of our common stock to a number of unaffiliated third parties. In connection with these sales, these parties and their affiliates received the rights to one demand registration on the same terms as GE Equity, as well as unlimited piggyback registration rights.

Distribution and Marketing Agreement

We entered into a distribution and marketing agreement with NBC on March 8, 1999, known as the distribution agreement, that provides NBC with the exclusive right to negotiate on our behalf for the distribution of its home shopping television programming service. As compensation for these services, we currently pay NBC an annual fee of approximately $1.7 million (increasing no more than 5% annually) and issued NBC 1,450,000 distribution warrants. The exercise price of the distribution warrants is $8.29 per share. The distribution warrants are exercisable for five years after vesting and were fully vested in November 2000. Because NBC successfully delivered to us 10 million full-time equivalent homes pursuant to the distribution agreement, in fiscal 2001 we issued NBC additional warrants to purchase 343,725 shares of common stock at an exercise price of $23.07 per share, and in fiscal 2002, we issued NBC additional warrants to purchase 36,858 shares of common stock at an exercise price of $15.74 per share. NBC may terminate the distribution agreement if we enter into certain significant affiliation agreements or a transaction resulting in a change of control. In April 2004, NBC exercised a portion of the original distribution warrants in a cashless exercise acquiring 101,509 shares of common stock. In November 2005, NBC exercised all remaining original distribution warrants in a cashless exercise acquiring 281,199 additional shares of our common stock.


On November 16, 2000, we entered into a trademark license agreement with NBC, known as the license agreement, whereby NBC granted us an exclusive, worldwide license for a term of 10 years to use certain NBC trademarks, service marks and domain names to rebrand our business and corporate name and companion Internet website. We selected the names ShopNBC and to rebrand our marketing and sales effort. We also agreed under the license agreement, among other things, to (i) certain restrictions on using any trademarks, service marks, domain names, logos or other source indicators owned or controlled by NBC, (ii) the loss of our rights under the license with respect to specific territories outside of the United States in the event we fail to achieve and maintain certain performance targets, (iii) not own, operate, acquire or expand our business to include certain businesses without NBC's prior consent, (iv) comply with NBC's privacy policies and standards and practices, and (v) not own, operate, acquire or expand our business so that one third or more of our revenues or our aggregate value is attributable to internet portal and related services. There is no limitation on the percent of our total merchandise sales revenues that are attributable to our internet site. The license agreement also grants NBC the right to terminate the license agreement at any time upon certain changes of control of our company, in certain circumstances the failure by NBC to own a certain minimum percentage of our outstanding capital stock on a fully-diluted basis, the failure of NBC to agree with us on new trademarks, service marks or related intellectual property rights, and certain other related matters.


In July 2004, we entered into an agreement with RightNow Technologies, Inc under which we paid RightNow Technologies approximately $150,000 during fiscal 2004 and $148,000 during fiscal 2005 to utilize certain proprietary customer service technologies developed by RightNow Technologies and for payment of annual software maintenance fees relating to this technology. Our president and chief executive officer, William J. Lansing, serves on the board of directors of RightNow Technologies.