updated 4/21/2004 2:52:01 PM ET 2004-04-21T18:52:01

Vivendi Universal has reached an agreement with InterActiveCorp that removes a major obstacle to the sale of the Paris-based company's U.S. entertainment assets to NBC. (MSNBC is a Microsoft-NBC joint venture.)

Vivendi said Wednesday that it will issue letters of credit to IAC that void certain covenants IAC Chairman Barry Diller had negotiated when he sold his USA Interactive to Vivendi in 2001.

IAC, the successor to USA Interactive, retained a 5.4 percent interest in Vivendi Universal Entertainment, a complicated partnership that runs the Universal Studios film company, theme parks, television production company and several cable channels.

Diller retained a 1.5 percent interest in the partnership.

As part of that deal, IAC retained a preferred interest in VUE with a face value of $750 million that will be worth approximately $1.9 billion when the shares mature in 2022. Diller agreed that IAC would not redeem its interest until the maturity date.

Diller's deal also included three covenants that triggered payments to IAC under certain conditions.

As part of its deal to buy VUE last October, General Electric's NBC required that those covenants be removed.

Under the agreement announced Wednesday, Vivendi will issue letters of credit to IAC to cover its obligations in return for IAC dropping the covenants.

Vivendi had sued IAC in March after negotiations over the form of the letters of credit had broken down.

As part of the new agreement, Vivendi said it would stay its legal action until the NBC deal closes and the letters are issued, at which time it will dismiss the lawsuit.

The agreement comes one day after the Federal Trade Commission cleared the way for the NBC deal, which will form a new company, NBC Universal.

Under the terms of a deal announced in October, NBC will own 80 percent of the new company, with Vivendi retaining a 20 percent stake. NBC is paying Vivendi $3.8 billion in cash and is assuming $1.7 billion of Vivendi's debt in the deal.

NBC Universal will have a leading broadcast network, the Universal movie and television studios, 14 TV stations, an array of cable networks including USA, CNBC and Bravo, and interests in five theme parks.

Copyright 2004 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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