<PAGE> 1
LOGO
HOME SHOPPING NETWORK
FORM 10-Q
For the Quarter Ended
June 30, 1995
<PAGE> 2
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1995
COMMISSION FILE NUMBER 1-9118
---------------------
HOME SHOPPING NETWORK, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 59-2649518
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
2501 118TH AVENUE NORTH, ST. PETERSBURG, FLORIDA 33716
(Address of principal executive offices) (Zip Code)
(813) 572-8585
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding
of each of the issuer's classes of common stock, as of the latest practicable
date.
Total number of shares of outstanding stock
(net of 6,986,000 shares of common stock held in treasury) as of August 1, 1995:
<TABLE>
<S> <C>
Common stock......................... 70,633,629
Class B common stock................. 20,000,000
</TABLE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE> 3
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- ---------------------
1995 1994 1995 1994
----------------------------------------------------------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
NET SALES............................ $246,659 $274,005 $490,269 $548,220
Cost of sales........................ 166,156 178,803 328,091 354,418
-------- -------- -------- --------
Gross profit.............. 80,503 95,202 162,178 193,802
-------- -------- -------- --------
Operating expenses:
Selling and marketing.............. 41,433 39,078 83,580 77,246
Engineering and programming........ 24,082 24,809 49,439 49,033
General and administrative......... 21,089 20,134 40,383 40,388
Depreciation and amortization...... 8,956 6,932 17,900 13,027
Restructuring charge............... -- -- 2,041 --
-------- -------- -------- --------
95,560 90,953 193,343 179,694
-------- -------- -------- --------
Operating profit (loss)... (15,057) 4,249 (31,165) 14,108
Other income (expense):
Interest income.................... 466 3,628 1,021 7,077
Interest expense................... (2,058) (2,089) (3,277) (4,176)
Miscellaneous...................... 1,178 (2,498) 3,525 (2,252)
-------- -------- -------- --------
(414) (959) 1,269 649
-------- -------- -------- --------
Earnings (loss) before income
taxes.............................. (15,471) 3,290 (29,896) 14,757
Income tax expense (benefit)......... (5,735) 1,382 (11,361) 6,198
-------- -------- -------- --------
NET EARNINGS (LOSS).................. $ (9,736) $ 1,908 $(18,535) $ 8,559
========= ========= ========= =========
Net earnings (loss) per common
share.............................. $ (.11) $ .02 $ (.21) $ .09
========= ========= ========= =========
Weighted average shares
outstanding........................ 90,606 94,949 90,897 95,008
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
1
<PAGE> 4
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
JUNE 30,
--------------------- DECEMBER 31,
ASSETS 1995 1994 1994
-----------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents........................ $ 15,684 $ 28,852 $ 33,648
Accounts and notes receivable, net............... 27,817 29,271 40,841
Income taxes receivable.......................... 8,607 -- 2,816
Note and interest receivable from related
party.......................................... -- 130,007 --
Inventories, net................................. 107,598 102,421 118,801
Deferred income taxes............................ 16,115 24,693 22,108
Other current assets, net........................ 11,824 10,523 10,632
-------- -------- ------------
Total current assets.................. 187,645 325,767 228,846
PROPERTY, PLANT AND EQUIPMENT
Computer and broadcast equipment................. 107,523 104,089 106,144
Buildings and leasehold improvements............. 75,692 72,810 74,514
Furniture and other equipment.................... 47,427 42,467 46,183
-------- -------- ------------
230,642 219,366 226,841
Less accumulated depreciation and
amortization................................ 124,527 108,264 116,697
-------- -------- ------------
106,115 111,102 110,144
Land............................................. 17,833 17,695 17,774
Construction in progress......................... 2,925 3,321 3,182
-------- -------- ------------
126,873 132,118 131,100
OTHER ASSETS
Cable distribution fees, net ($34,295, $20,034,
and $34,174, respectively, to related
parties)....................................... 94,759 32,535 67,978
Long-term investment in related party............ 10,000 10,000 10,000
Other non-current assets......................... 9,873 5,246 8,575
-------- -------- ------------
114,632 47,781 86,553
-------- -------- ------------
$429,150 $505,666 $446,499
========= ========= ===========
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE> 5
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
JUNE 30,
--------------------- DECEMBER 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994 1994
-----------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
CURRENT LIABILITIES
Current maturities of long-term obligations....... $ 1,540 $ 85,947 $ 1,690
Accounts payable.................................. 91,439 84,992 75,264
Income taxes payable.............................. -- 14,732 --
Accrued liabilities:
Programming fees ($16,282, $19,703 and $26,591,
respectively, to related parties)............ 36,200 34,612 50,170
Sales returns................................... 8,647 11,638 12,304
Sales taxes..................................... 5,184 5,791 --
Litigation settlements.......................... 4,850 14,450 14,450
Treasury stock.................................. -- -- 13,109
Other........................................... 32,318 31,155 38,786
-------- -------- ------------
Total current liabilities.............. 180,178 283,317 205,773
LONG-TERM OBLIGATIONS (net of current
maturities)..................................... 77,365 1,255 27,491
DEFERRED INCOME TAXES............................. 5,348 8,978 6,792
COMMITMENTS AND CONTINGENCIES..................... -- -- --
STOCKHOLDERS' EQUITY
Preferred stock -- $.01 par value; authorized
500,000 shares, no shares issued and
outstanding..................................... -- -- --
Common stock -- $.01 par value; authorized
150,000,000 shares, issued 77,603,129 and
77,458,979 shares at June 30, 1995 and 1994,
respectively, and 77,553,329 shares at December
31, 1994........................................ 776 775 776
Class B -- convertible common stock -- $.01 par
value; authorized, issued and outstanding,
20,000,000 shares at June 30, 1995 and 1994 and
December 31, 1994, respectively................. 200 200 200
Additional paid-in capital........................ 167,787 166,108 167,463
Retained earnings................................. 51,025 61,342 69,560
Treasury stock -- 6,986,000 and 3,105,700 common
shares at June 30, 1995 and 1994, respectively,
and 4,440,700 common shares at December 31,
1994, at cost................................... (48,718) (14,027) (27,136)
Unearned compensation............................. (4,811) (2,282) (4,420)
-------- -------- ------------
166,259 212,116 206,443
-------- -------- ------------
$429,150 $505,666 $446,499
========= ========= ===========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 6
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
CLASS B
CONVERTIBLE ADDITIONAL
COMMON COMMON PAID-IN RETAINED TREASURY UNEARNED
STOCK STOCK CAPITAL EARNINGS STOCK COMPENSATION TOTAL
------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1994...... $762 $ 206 $160,371 $ 52,783 $(14,027) $ (3,541) $196,554
Issuance of common stock upon
exercise of stock options..... 7 -- 3,974 -- -- -- 3,981
Income tax benefit related to
executive stock award program
and stock options exercised... -- -- 1,763 -- -- -- 1,763
Expense related to executive
stock award program........... -- -- -- -- -- 1,259 1,259
Conversion of Class B common
stock to common stock......... 6 (6) -- -- -- -- --
Net earnings for the six months
ended June 30, 1994........... -- -- -- 8,559 -- -- 8,559
------ ----- ---------- -------- -------- ------------ --------
BALANCE AT JUNE 30, 1994........ $775 $ 200 $166,108 $ 61,342 $(14,027) $ (2,282) $212,116
======== ========== ========= ========= ========= ============ =========
BALANCE AT JANUARY 1, 1995...... $776 $ 200 $167,463 $ 69,560 $(27,136) $ (4,420) $206,443
Issuance of common stock upon
exercise of stock options..... -- -- 274 -- -- -- 274
Income tax benefit related to
executive stock award program
and stock options exercised... -- -- 50 -- -- -- 50
Expense related to executive
stock award program........... -- -- -- -- -- 363 363
Unearned compensation related to
employee equity participation
plan.......................... -- -- -- -- -- (1,264) (1,264)
Expense related to employee
equity participation plan..... -- -- -- -- -- 510 510
Purchase of treasury stock, at
cost.......................... -- -- -- -- (21,582) -- (21,582)
Net loss for the six months
ended June 30, 1995........... -- -- -- (18,535) -- -- (18,535)
------ ----- ---------- -------- -------- ------------ --------
BALANCE AT JUNE 30, 1995........ $776 $ 200 $167,787 $ 51,025 $(48,718) $ (4,811) $166,259
======== ========== ========= ========= ========= ============ =========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 7
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
SIX MONTHS ENDED
JUNE 30,
---------------------
1995 1994
----------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss).................................................... $(18,535) $ 8,559
Adjustments to reconcile net earnings (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization..................................... 12,353 12,381
Amortization of cable distribution fees........................... 5,547 646
Deferred income taxes............................................. 4,549 5,250
Loss on disposition of wholly-owned subsidiary.................... -- 2,854
Change in stock appreciation rights and common stock issued for
services provided................................................ (414) 682
Inventory carrying value adjustment............................... (2,642) (3,427)
Provision for losses on accounts and notes receivable............. (36) 217
(Gain) loss on sale of assets..................................... (19) 144
Equity in (earnings) losses of unconsolidated affiliates.......... 16 (93)
Change in current assets and liabilities:
(Increase) decrease in accounts receivable...................... 7,835 (1,587)
Increase in income taxes receivable............................. (5,791) --
Decrease in inventories......................................... 13,845 11,936
(Increase) decrease in other current assets..................... 105 (2,453)
Increase (decrease) in accounts payable......................... 16,175 (3,866)
Increase (decrease) in accrued liabilities and income taxes
payable........................................................ (27,174) 19,573
Increase in cable distribution fees............................... (32,328) (33,181)
Stock purchases for employee benefit plan......................... (1,264) --
-------- --------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES.......... (27,778) 17,635
-------- --------
Cash flows from investing activities:
Capital expenditures................................................. (7,044) (7,404)
Proceeds from long-term notes receivable............................. 2,907 2,320
Increase in intangible assets........................................ (1,577) (993)
(Increase) decrease in other non-current assets...................... (703) 731
Proceeds from sale of assets......................................... 925 2,086
-------- --------
NET CASH USED IN INVESTING ACTIVITIES........................ (5,492) (3,260)
-------- --------
Cash flows from financing activities:
Net borrowings from unsecured credit facility........................ 50,000 --
Purchases of treasury stock.......................................... (34,691) --
Principal payments on long-term obligations.......................... (277) (25,070)
Proceeds from issuance of common stock............................... 274 3,981
-------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES.......... 15,306 (21,089)
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS.............................. (17,964) (6,714)
Cash and cash equivalents at beginning of period....................... 33,648 35,566
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD............................. $ 15,684 $ 28,852
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE> 8
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A -- BASIS OF PRESENTATION
The interim Condensed Consolidated Financial Statements of Home Shopping
Network, Inc. and Subsidiaries (the "Company") are unaudited and should be read
in conjunction with the audited Consolidated Financial Statements and Notes
thereto for the years ended December 31, 1994 and 1993, the four months ended
December 31, 1992 and the year ended August 31, 1992. Certain amounts in the
Condensed Consolidated Financial Statements for the six month period ended June
30, 1994, have been reclassified to conform to the 1995 presentation.
In the opinion of the Company, all adjustments necessary for a fair
presentation of such Condensed Consolidated Financial Statements have been
included. Such adjustments consist of normal recurring items and a nonrecurring
item as discussed in Note E. Interim results are not necessarily indicative of
results for a full year. The interim Condensed Consolidated Financial Statements
and Notes thereto are presented as permitted by the Securities and Exchange
Commission and do not contain certain information included in the Company's
annual Consolidated Financial Statements and Notes thereto.
NOTE B -- COMMITMENTS AND CONTINGENCIES
Litigation
A consolidated class action initiated in 1990 is pending against the
Company in the Court of Common Pleas of Bucks County, Pennsylvania. The
complaints allege violation of the Pennsylvania Unfair Trade Practices and
Consumer Protection Law with respect to the Company's pricing practices for
diamond and imitation diamond jewelry. Plaintiffs seek compensatory damages of
at least $100 per class member, treble damages, attorneys' fees, costs, interest
and other relief on behalf of all Pennsylvania residents who purchased any
jewelry containing diamonds or imitation diamonds from the Home Shopping Club
between December 27, 1984 and May 20, 1991. Substantial discovery has been taken
in the case. Motions for summary judgment filed by Plaintiffs and the Company
have been denied. The Company believes that it has meritorious defenses and is
vigorously defending this action.
The Company is also involved in various other lawsuits either as plaintiff
or defendant. In the opinion of management, the ultimate outcome of these other
lawsuits should not have a material impact on the Company's liquidity, results
of operations or financial condition.
NOTE C -- CREDIT FACILITY
The Company's $150.0 million revolving credit facility, as amended on June
28, 1995, expires on August 30, 1997. Borrowings under this facility may be used
for general corporate purposes. The total amount available to be drawn under
this facility is dependent upon, among other things, future operating cash flow
performance. The interest rate on borrowings under the credit facility is tied
to LIBOR plus a margin based on the Company's total borrowings and operating
cash flow results. At June 30, 1995, the Company was in compliance with all
covenants contained in the credit facility. At August 14, 1995, $95.0 million
was outstanding under this facility.
NOTE D -- INCOME TAXES
The Company's federal income tax returns have previously been examined by
the Internal Revenue Service ("IRS") for all years through August 31, 1989. All
assessments relating to these examinations have been paid. The assessments
included a disallowance of deductions for royalty payments made to a then
related party.
On May 12, 1995, the IRS completed its examination of the Company's federal
income tax returns for fiscal years 1990 and 1991, proposing adjustments
resulting in income tax deficiencies of $3.0 million,
6
<PAGE> 9
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
primarily related to the previously discussed royalty payments. The Company also
made such royalty payments during fiscal years 1992 through early 1993. It is
expected that the deductibility of these payments will also be challenged by the
IRS upon audit. The Company has made adequate provision for this issue for all
of the above years.
The Company continues to maintain that it has meritorious positions
regarding the deductibility of these payments and intends to file a refund claim
with the IRS for the payment made for years through fiscal 1989 and will contest
the assessment for this matter on open tax years.
The Company's federal income tax returns for fiscal years ended August 31,
1992, 1993, and 1994 are currently under examination by the IRS. No additional
proposed adjustments relating to such years have been brought to management's
attention.
The Company has incurred pre-tax financial statement and tax losses for the
six months ended June 30, 1995, totaling $29.8 million and $40.9 million,
respectively. Should such tax losses still exist at December 31, 1995, $8.9
million may be carried back to obtain an income tax refund at the Company's
option. Management believes that it is more likely than not that it will
generate future taxable income sufficient to realize this tax benefit which
expires December 31, 2010. This belief is based upon, among other things,
merchandising and programming strategies instituted by new senior management
which are aimed at long-term improvements in sales and operating results,
reducing merchandise return rates, obtaining additional program carriage and
increasing market penetration. Accordingly, the Company has recognized an asset
related to these carry-forwards and no valuation allowance has been provided.
NOTE E -- RESTRUCTURING CHARGE
During the six months ended June 30, 1995, the Company recorded a charge of
$2.0 million covering employee and other costs related to the closing of its
fulfillment center in Reno, Nevada. The restructuring was completed by June 30,
1995. During the six months ended June 30, 1995, payments totaling $.5 million
were made related to this charge.
NOTE F -- EARNINGS (LOSS) PER COMMON SHARE
Primary earnings (loss) per common share is based on net earnings (loss)
divided by the weighted average common shares outstanding giving effect to stock
options when dilutive. Fully diluted earnings per share is not materially
different from primary earnings per share in any period presented.
NOTE G -- STATEMENTS OF CASH FLOWS
For purposes of reporting cash flows, cash and cash equivalents include
cash and short-term investments. Short-term investments consist primarily of
auction preferred shares, money market funds and certificates of deposit with
original maturities of less than 91 days.
Supplemental disclosures of cash flow information:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
SIX MONTHS ENDED
JUNE 30,
--------------------
1995 1994
--------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
CASH PAID FOR:
Interest...................................................... $ 2,580 $4,640
Income taxes.................................................. 385 39
CASH RECEIVED FOR:
Income tax refund............................................. 10,725 --
</TABLE>
7
<PAGE> 10
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
On March 27, 1995, Precision Systems, Inc. ("PSi") repaid $2.7 million,
plus accrued interest, of its $5.0 million loan from the Company. Under an
agreement between the Company and PSi, the remaining principal balance of the
loan has been recorded as a prepayment of future monthly software maintenance
payments due PSi by the Company through December 1996.
8
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
GENERAL
Home Shopping Network, Inc. (the "Company") is a holding company, the
subsidiaries of which conduct the day-to-day operations of the Company's various
business activities. The Company's primary business is electronic retailing
conducted by Home Shopping Club, Inc. ("HSC"), a wholly-owned subsidiary of the
Company.
A. CONSOLIDATED RESULTS OF OPERATIONS
The following discussion presents the material changes in the consolidated
results of operations of the Company which have occurred in the second quarter
and first six months of 1995, compared with the same periods in 1994. Reference
should also be made to the Condensed Consolidated Financial Statements included
herein.
All tables and discussion included herein calculate the percentage changes
using actual dollar amounts, versus rounded dollar amounts.
NET SALES
For the quarter and six months ended June 30, 1995, net sales for the
Company decreased $27.3 million, or 10.0%, to $246.7 million from $274.0 million
and $58.0 million, or 10.6%, to $490.3 million from $548.2 million,
respectively, compared to the same periods in 1994. Net sales of HSC decreased
$34.7 million, or 14.1%, and $81.0 million, or 16.3%, for the quarter and six
months ended June 30, 1995. HSC's sales reflect decreases of 17.9% and 17.2% in
the number of packages shipped while the average price per unit sold increased
6.6% and 2.3% for the quarter and six months ended June 30, 1995, respectively,
compared to the same periods in 1994. The decreases in HSC sales for the quarter
and six months ended June 30, 1995, were somewhat offset by sales of $5.3
million and $17.1 million, respectively, by the Company's infomercial joint
venture, HSN Direct Joint Venture ("HSND"), which commenced operations during
the third quarter of 1994. The remaining increases in sales are attributable to
the Company's other subsidiary operations.
Since September 1994, the Company has appointed new senior management
personnel with expertise in merchandising and has also instituted procedures
intended to improve purchasing and other merchandising practices. Management's
strategies include offering a greater variety of products, developing strong
private label lines, selling higher margin items and offering name brand and
other high quality merchandise. Management attributes HSC's decline in net sales
for the quarter and six months ended June 30, 1995, to the initial impact of the
Company's new merchandising and programming strategies.
Since June 5, 1995, the Company has operated two full-time networks renamed
HSN, the primary network, and Spree!. On August 5, 1995, the Company relaunched
the HSN network with more scheduled programs and theme related shows, new sets,
graphics and music. During the third quarter of 1995, the Company will relaunch
the Spree! network with a casual, fun format, including new graphics, music and
less scheduled programming. These changes, which are ongoing, are designed to
eliminate programming redundancies, distinguish the networks and reach a broader
range of potential customers.
The Company has made significant progress in executing these strategies,
which are aimed at long-term improvements in sales by attracting new customers
and increasing the frequency of repeat purchases. However, sales and operating
results through the third quarter of 1995, when compared to the prior year, are
expected to continue to be negatively affected by these changes. While
management believes the Company's new merchandising and programming strategies
will improve results, it estimates the earliest that sales and operating results
will be positively affected, when compared to the prior year, will be the fourth
quarter of 1995. There can be no assurance that these changes will achieve
management's intended results.
9
<PAGE> 12
For the quarter and six months ended June 30, 1995, HSC's merchandise
return percentage increased to 25.1% from 23.4%, and to 24.6% from 24.2%,
respectively, compared to the same periods in 1994. Management is evaluating the
Company's product mix and taking other steps in the area of merchandising, as
discussed above, in an attempt to reduce the merchandise return rate.
Promotional price discounts remained constant at 2.9% of HSC sales for the
quarter ended June 30, 1995, and increased to 3.2% from 2.6% of HSC sales for
the six months ended June 30, 1995, compared to the same periods in 1994.
At June 30, 1995, HSC had approximately 4.9 million active members
representing a 2.7% increase over June 30, 1994. An active member is defined as
a customer that has completed a transaction within the last 18 months or placed
an order within the last seven months. In addition, 58.8% of active members have
made more than one purchase in the last 18 months, compared to 61.2% at June 30,
1994.
Since late 1993, the Company has significantly increased its program
carriage and believes that future levels of net sales of HSC will be dependent
on the success of the new merchandising and programming strategies in increasing
market penetration. Market penetration represents the level of active members
within a market.
The following table highlights the changes in the estimated unduplicated
television household reach of HSC programming by category for the twelve months
ended June 30, 1995:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
CABLE BROADCAST SATELLITE TOTAL
---------------------------------------------------------------------------------------------
(In thousands of households)
<S> <C> <C> <C> <C>
Households -- June 30, 1994......................... 35,571 24,399 3,750 63,720
Net additions....................................... 2,434 164 -- 2,598
Shift in classification............................. 3,585 (3,585) -- --
Change in Nielsen household counts.................. -- 316 -- 316
------ --------- --------- ------
Households -- June 30, 1995......................... 41,590 21,294 3,750 66,634
====== ======= ====== ======
</TABLE>
As of June 30, 1995, there were 94.8 million homes in the United States
with a television set, 60.0 million basic cable television subscribers and 3.8
million homes with satellite dish receivers.
The cable television household growth was achieved through increased cable
system carriage of HSC's broadcast signal due to the implementation of "must
carry" beginning in September 1993, and the Company's aggressive campaign to
obtain contracts for cable carriage of HSC programming. Because HSC programming
is now on a cable channel line-up, former broadcast households can more easily
access HSC programming. The decrease in broadcast television households was
primarily attributable to the shift in classification from broadcast to cable.
This decrease was offset, in part, by the addition of broadcast television
households due to changes in the composition of the broadcast television station
group with which HSC has affiliation agreements. In addition to the households
in the above table, approximately 4.0 million unduplicated cable television
households are reached by the Spree! network.
During the remainder of 1995, cable system contracts covering 3.5 million
cable subscribers are subject to termination or renewal. This represents 8.4% of
the total number of unduplicated cable households receiving HSC programming,
exclusive of "must carry" subscribers. The Company is pursuing both renewals and
additional cable television system contracts, but channel availability,
competition, cost of carriage and cable re-regulation are some of the factors
affecting the negotiations for cable television system contracts. Although
management cannot determine the percentage of expiring contracts that will be
renewed or the number of households that will be added through new contracts,
management believes that a majority of these contracts will be renewed.
HSC's market penetration lags behind increases in carriage. As a result of
the increase in carriage since late 1993, the Company has initially experienced
a decrease in its market penetration. As the new households mature, the Company
expects market penetration to improve, but there can be no assurance that this
will occur. Beginning in the third quarter of 1995, in connection with the
relaunch of its programming networks, the Company is embarking on a national
advertising campaign including television and print media. These efforts are
aimed at increasing consumer awareness of HSC programming to improve market
penetration.
10
<PAGE> 13
The Company has postponed further development of its planned shopping
service, Television Shopping Mall ("TSM"). Costs related to TSM did not have a
material negative impact on the Company's results of operations during the
quarter and six months ended June 30, 1995.
COST OF SALES
For the quarter and six months ended June 30, 1995, cost of sales decreased
$12.6 million, or 7.1%, to $166.2 million from $178.8 million and $26.3 million,
or 7.4%, to $328.1 million from $354.4 million, respectively, compared to the
same periods in 1994. As a percentage of net sales, cost of sales increased to
67.4% from 65.3% and to 66.9% from 64.6% for the quarter and six months ended
June 30, 1995, respectively, compared to the same periods in 1994.
Cost of sales of HSC decreased $18.0 million and $39.8 million,
respectively, for the quarter and six months ended June 30, 1995, which was
somewhat offset by increases in cost of sales for HSND of $2.4 million and $7.1
million, respectively. The remaining increase in cost of sales is attributable
to the Company's other subsidiary operations. As a percentage of HSC's net
sales, cost of sales increased to 69.7% from 67.1% and to 69.7% from 66.4%, for
the quarter and six months ended June 30, 1995, compared to the same periods in
1994.
The dollar decreases in consolidated and HSC's cost of sales relate to the
lower sales volumes. The increases in cost of sales percentage compared to the
second quarter and first six months of 1994 relate to warehouse sales and other
promotional events. These events offered price discounts and were held in
connection with, among other things, the Company's distribution center
restructuring.
OPERATING EXPENSES
The following table highlights the operating expense section from the
Company's Condensed Consolidated Statements of Operations, including the dollar
and percentage changes for the quarter and six months ended June 30, 1995,
compared to the same periods in 1994:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1995 JUNE 30, 1995
-------------------------- --------------------------
$ $ % $ $ %
AMOUNT CHANGE CHANGE AMOUNT CHANGE CHANGE
---------------------------------------------------------------------------------------------
(In millions, except %)
<S> <C> <C> <C> <C> <C> <C>
Selling and marketing............ $41.4 $2.4 6.0% $ 83.6 $ 6.3 8.2 %
Engineering and programming...... 24.1 (.7) (2.9) 49.4 .4 .8
General and administrative....... 21.1 .9 4.7 40.4 -- --
Depreciation and amortization.... 9.0 2.0 29.2 17.9 4.9 37.4
Restructuring charge............. -- -- -- 2.0 2.0 100.0
------ ------ ------ ------
$95.6 $4.6 $193.3 $13.6
====== ===== ====== =====
</TABLE>
As a percentage of net sales, these expenses increased to 38.7% from 33.2%,
and to 39.4% from 32.8%, respectively, for the quarter and six months ended June
30, 1995, compared to the same periods in 1994.
In August of 1995, management instituted measures aimed at streamlining
operations primarily by reducing its work force and other operating expenses.
Although these changes will result in future reductions to operating expenses,
the Company will incur costs related to severance in the third quarter of 1995.
SELLING AND MARKETING
For the quarter and six months ended June 30, 1995, selling and marketing
expenses, as a percentage of net sales, increased to 16.8% from 14.3%, and to
17.0% from 14.1%, respectively, compared to the same periods in 1994.
11
<PAGE> 14
The major components of selling and marketing expenses are detailed below,
including the dollar and percentage changes for the quarter and six months ended
June 30, 1995, compared to the same periods in 1994:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1995 JUNE 30, 1995
-------------------------- --------------------------
$ $ % $ $ %
AMOUNT CHANGE CHANGE AMOUNT CHANGE CHANGE
---------------------------------------------------------------------------------------------
(In millions, except %)
<S> <C> <C> <C> <C> <C> <C>
Telephone, operator and customer
service........................ $13.3 $ (.4 ) (2.9 )% $26.0 $ (.7 ) (2.6 )%
Fees to cable systems operators:
Commissions.................... 7.5 (2.2 ) (22.8 ) 14.8 (4.7 ) (24.2 )
Marketing payments for cable
advertising................. 4.8 (3.2 ) (38.0 ) 9.1 (6.5 ) (41.8 )
Performance bonus
commissions................. 3.4 2.0 149.3 6.8 4.7 230.3
HSND selling expenses............ 2.7 2.7 100.0 9.0 9.0 100.0
</TABLE>
Telephone, operator and customer service expenses are typically related to
sales, call volume and the number of packages shipped. Although telephone
expenses decreased 11.4% and 17.0%, respectively, for the quarter and six months
ended June 30, 1995, compared to the same periods in 1994, operator and customer
service payroll expenses remained relatively constant in total dollars, while
increasing as a percent of sales, compared to the quarter and six months ended
June 30, 1994. This was due to the expansion of customer service operating
hours, in March 1995, to seven days a week, twenty-four hours a day. Management
is reviewing these expenses, and operator and customer service expenses are
expected to fluctuate more in relation to call and package volume for the
remainder of 1995.
For the quarter and six months ended June 30, 1995, commissions to cable
system operators decreased as a result of the decrease in sales.
Marketing payments for cable advertising, which relate primarily to
previous contractual commitments, decreased for the quarter and six months ended
June 30, 1995, compared to the same periods in 1994. As older agreements expire
or are renegotiated and new cable carriage agreements are executed, marketing
payments for cable advertising are being replaced by other forms of incentive
compensation to cable operators. These include payment of cable distribution
fees, as discussed in "Depreciation and Amortization," and performance bonus
commissions which require payments based upon HSC attaining certain sales levels
in the cable operator's franchise area. Accordingly, marketing payments for
cable advertising are expected to continue to decrease, and depreciation and
amortization and performance bonus commissions will increase for the remainder
of 1995.
In addition, cable operators which have executed affiliation agreements to
carry the Company's programming are compensated for all sales within their
franchise areas, regardless of whether a customer's order results from watching
the program via cable, satellite dish, or on a broadcast television station.
Thus, with the advent of "must carry," HSC is paying commissions to cable
operators in addition to the hourly affiliation payments made to broadcast
television stations. As a result of the above factors, subject to sales volume,
fees paid to cable system operators are expected to remain at higher levels in
future periods.
Selling and marketing expenses related to HSND, which primarily consist of
media and telephone, operator and customer service expenses, are expected to
fluctuate in relation to HSND sales levels for the remainder of 1995. The
remaining net increase in selling and marketing expenses is attributable to
advertising and promotional expenses of the Company's other subsidiary
operations. Management believes that total selling and marketing expenses in
future periods will be at higher levels as the Company maintains its efforts to
increase the number of cable systems carrying the Company's programming and
increase market penetration through expanded direct mailings and other
advertising, as discussed in "Net Sales".
12
<PAGE> 15
ENGINEERING AND PROGRAMMING
For the quarter and six months ended June 30, 1995, engineering and
programming expenses, as a percentage of net sales, increased to 9.8% from 9.1%,
and to 10.1% from 8.9%, respectively, compared to the same periods in 1994.
The decrease in engineering and programming expenses for the quarter ended
June 30, 1995, and increase for the six months then ended, compared to the same
periods in 1994, was due to lower broadcast costs of $1.0 million and $1.2
million, respectively, offset by HSND programming costs of $.2 million and $1.5
million, respectively. Engineering and programming expenses are expected to
remain relatively constant for the remainder of 1995.
GENERAL AND ADMINISTRATIVE
For the quarter and six months ended June 30, 1995, general and
administrative expenses, as a percentage of net sales, increased to 8.5% from
7.3%, and to 8.2% from 7.4%, respectively, compared to the same periods in 1994.
Payroll expense, consulting and other administrative expenses increased by
$2.3 million and $4.1 million for the quarter and six months ended June 30,
1995, respectively. These increases were partially offset by decreases in legal
expense and expenses in connection with the Company's executive stock award
program and stock appreciation rights granted in 1993 totaling $1.4 million and
$4.1 million, respectively, for the quarter and six months ended June 30, 1995,
compared to the same periods in 1994.
Based on present circumstances, management expects general and
administrative expenses to remain at current levels for the remainder of 1995.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased primarily due to the amortization
of cable distribution fees, which increased $2.4 million and $4.9 million,
respectively, for the quarter and six months ended June 30, 1995. Amortization
of these fees is expected to total $11.8 million in 1995 based on existing
agreements. This amortization could increase if additional cable contracts are
entered into during the remainder of 1995 in connection with renewing or adding
long-term cable subscribers, as discussed in "Net Sales." Accordingly,
depreciation and amortization will be higher for the remainder of 1995.
RESTRUCTURING CHARGE
The restructuring charge for the six months ended June 30, 1995, of $2.0
million, represents management's estimate of costs to be incurred in connection
with the closing of the Company's Reno, Nevada, distribution center, which was
accomplished in June 1995. The decision to close the Reno distribution center
was based on an evaluation of the Company's overall distribution strategy.
Management believes that consolidation of the Company's distribution facilities
will result in better operating efficiencies and improved service to customers.
OTHER INCOME (EXPENSE)
For the quarter and six months ended June 30, 1995, the Company had net
other expense of $.4 million and net other income of $1.3 million, respectively,
compared to net other expense of $1.0 million and net other income of $.6
million, respectively, for the same periods in 1994.
Interest income decreased $3.2 million and $6.1 million, respectively, for
the quarter and six months ended June 30, 1995, compared to the same periods in
1994, primarily due to the repayment by Silver King Communications, Inc.
("SKC"), in August 1994, of its indebtedness to the Company. Interest income is
expected to further decrease for the remainder of 1995, compared to 1994.
Interest expense decreased $.9 million for the six months ended June 30,
1995, primarily as a result of the repayment by the Company, in August 1994, of
its Senior Term Loans. For the quarter ended June 30, 1995,
13
<PAGE> 16
interest expense remained constant with the same period in 1994 due to
borrowings by the Company under its amended bank facility in late 1994 and the
first half of 1995. The Company intends to borrow additional amounts during the
remainder of 1995. Interest expense for the last six months of 1995 will show an
increase compared to 1994 as a result of these borrowings and higher interest
rates.
For the quarter and six months ended June 30, 1995, the Company had net
miscellaneous income of $1.2 million and $3.5 million, respectively, which
primarily include the receipt of proceeds from lawsuit settlements of $.4
million and $1.0 million, respectively, royalty income related to HSND of $.2
million and $.7 million, respectively, and a gain of $.6 million on the sale of
other assets in the first quarter of 1995. For the quarter and six months ended
June 30, 1994, the Company had net miscellaneous expense of $2.5 million and
$2.3 million, respectively, due to a $2.9 million loss on the sale of the common
stock of the Company's former wholly-owned subsidiary, HSN Mistix Corporation.
INCOME TAXES
The Company's effective tax rates were benefits of (37.1)% and (38.0)% for
the quarter and six months ended June 30, 1995, respectively, and an expense of
42.0% for the quarter and six months ended June 30, 1994. The Company's
effective tax rate for these periods differed from the statutory rate due
primarily to the amortization of goodwill and other acquired intangible assets
relating to acquisitions from prior years, state income taxes and the provision
for interest on adjustments proposed by the Internal Revenue Service ("IRS"), as
discussed in Note D to the Condensed Consolidated Financial Statements included
herein. The Company's effective tax rate is expected to vary from the statutory
rate for the remainder of 1995.
NET EARNINGS (LOSS)
The Company had a net loss of $(9.7) million, or $(.11) per share, for the
quarter ended June 30, 1995, compared to net earnings of $1.9 million, or $.02
per share, for the quarter ended June 30, 1994. For the six months ended June
30, 1995, the Company had a net loss of $(18.5) million, or $(.21) per share,
compared to net earnings of $8.6 million, or $.09 per share in the same period
of 1994. The decreases in net income for the quarter and six months ended June
30, 1995, were primarily attributable to decreases in net sales of $27.3 million
and $58.0 million and decreases in gross profit of $14.7 million and $31.6
million, respectively, compared to the quarter and six months ended June 30,
1994. As discussed in "Restructuring Charge," the results for the six months
ended June 30, 1995, include $2.0 million of costs expected to be incurred in
connection with the closing of the Company's Reno, Nevada, distribution center.
SEASONALITY
The Company believes that seasonality does impact its business but not to
the same extent it impacts the retail industry in general.
14
<PAGE> 17
B. FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
The following table highlights various balances and ratios from the
Condensed Consolidated Financial Statements included herein:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
JUNE 30,
------------------ DECEMBER 31,
1995 1994 1994
------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash and cash equivalents (millions)................. $ 15.7 $ 28.9 $ 33.6
Working capital (millions)........................... $ 7.5 $ 42.5 $ 23.1
Current ratio........................................ 1.04:1 1.15:1 1.11:1
Accounts and notes receivable, net (millions)........ $ 27.8 $ 29.3 $ 40.8
Inventories, net (millions).......................... $ 107.6 $102.4 $118.8
Inventory turnover for the quarter (annualized for
June periods only)................................. 6.07 6.95 6.36
Inventory turnover for six months (annualized for
June periods only)................................. 5.80 6.64 6.36
</TABLE>
Cash and cash equivalents totaled $15.7 million at June 30, 1995, compared
to $28.9 million at June 30, 1994, and $33.6 million at December 31, 1994. The
principal sources of cash for the twelve months ended June 30, 1995, were the
repayment by SKC of its obligation to the Company in the amount of $130.0
million and borrowings by the Company under its revolving credit facility. These
funds, along with operating funds, were used principally to repay the $85.0
million balance of the Company's Senior Term Loans, pay cable distribution fees
of $65.3 million, purchase treasury stock, pay settlements to the IRS in the
amount of $19.6 million, pay litigation settlements and pay for $18.2 million of
capital expenditures.
The principal source of cash for the six months ended June 30, 1995, was
borrowings by the Company under its revolving credit facility. These funds,
along with operating funds, were used principally to pay cable distribution fees
of $42.8 million, purchase treasury stock, pay litigation settlements and pay
for capital expenditures. Net earnings adjusted for non-cash items totaled $24.6
million and $.8 million for the twelve months and six months ended June 30,
1995, respectively.
Accounts and notes receivable, net, decreased to $27.8 million at June 30,
1995, from $29.3 million at June 30, 1994, and from $40.8 million at December
31, 1994. The primary reason for the decreases is "FlexPay" accounts receivable
which totaled $16.8 million at June 30, 1995, compared to $17.9 million at June
30, 1994, and $23.6 million at December 31, 1994. The Company's financing of
"FlexPay" accounts receivable has not had a significant impact on its liquidity
position. In addition, on March 27, 1995, Precision Systems, Inc. ("PSi") repaid
$2.7 million, plus accrued interest, of its $5.0 million loan from the Company.
Under an agreement between the Company and PSi, the remaining principal balance
of the loan has been recorded as a prepayment of future monthly software
maintenance payments due PSi from the Company through December 1996.
Inventories, net, increased to $107.6 million at June 30, 1995, from $102.4
million at June 30, 1994, and decreased from $118.8 million at December 31,
1994. The inventory balance is net of a carrying value adjustment of $16.1
million at June 30, 1995, which represents a decrease from $21.8 million at June
30, 1994, and from $18.8 million at December 31, 1994.
Capital expenditures for the six months ended June 30, 1995, were $7.0
million. The Company estimates capital expenditures will range between $9.0
million and $10.0 million for the remainder of 1995.
On June 28, 1995, the Company entered into an amendment to its $150.0
million revolving credit facility. The amendment provides the Company with more
flexibility with respect to certain of its financial covenants and the amount of
borrowings available, through June 30, 1996. However, there remain restrictions
on borrowings and repurchases of the Company's common stock based upon future
cash flow levels. As of August 14, 1995, $95.0 million was outstanding under
this facility.
15
<PAGE> 18
In February 1995, the Company paid $9.6 million, plus interest, in
connection with litigation settlements, using borrowings under its bank
facility. During the remainder of 1995, management expects to pay cable
distribution fees, totaling $24.0 million, relating to current contracts with
cable system operators to carry HSC programming. Of this amount, $15.8 million
is payable to a related party over the next four months along with interest at
1% over one-month LIBOR.
In July 1995, the Company paid $4.0 million for a 20.0% interest in Body By
Jake Enterprises, L.L.C. This investment will be accounted for under the cost
method.
Because of a decision made by major league baseball regarding investments
of HSN's major shareholder in other professional sports ventures, the Company
will not participate in the major league baseball franchise for the Tampa Bay
area.
In management's opinion, available cash, internally generated funds, the
credit facility, and other sources of financing which management believes are
readily available, will provide sufficient capital resources to meet the
Company's foreseeable needs.
As of July 31, 1995, the Company has $58.0 million of bank credit lines
available to back letters of credit which are used exclusively to facilitate
inventory imports. Presentation of letters of credit by vendors results in an
immediate charge to the Company's account with no interest charges incurred.
Outstanding letters of credit amounted to $22.5 million at July 31, 1995,
leaving $35.5 million available.
For the quarter ended June 30, 1995, the Company did not pay any cash
dividends and does not anticipate paying cash dividends in the immediate future.
At July 31, 1995, .8 million options to purchase the Company's common stock
were outstanding and exercisable at prices ranging between $3.25 and $14.75. The
exercise of such stock options would result in a cash inflow of $2.4 million to
the Company.
In 1994, the Company's Board of Directors authorized the repurchase of up
to an additional $75.0 million of the Company's common stock. In 1994, the
Company repurchased 1.3 million shares at a total cost of $13.1 million and in
the quarter ended March 31, 1995, the Company repurchased an additional 2.6
million shares at a total additional cost of $21.6 million. The Company may,
subject to cash availability, debt covenants and market conditions, continue to
repurchase its common stock within the limits set by the Board of Directors.
Under the terms of its credit facility, the Company may repurchase its common
stock only if it meets certain cash flow ratios.
16
<PAGE> 19
PART II -- OTHER INFORMATION
ITEM 1 -- LEGAL PROCEEDINGS
On April 26, 1993, four stockholders of the Company filed with the Delaware
Chancery Court a purported class action complaint, styled as 7547 Corp. v.
Liberty Media Corp., C.A. No. 12956, on behalf of an unspecified class of
stockholders of the Company (the "Section 203 Action"). The defendants in the
original complaint were Liberty, Liberty Program Investments, Inc. ("LPI"), the
Company, and certain current and former directors of the Company (Messrs. Speer,
Forstmann, McNamara, Wandler, Chu, James, Ramsey and Roberts). On June 24, 1994,
plaintiffs filed an amended complaint which names additional defendants who are
past or present directors of the Company (Messrs. Barton, Bennett, Draper,
Hogan, Malone, Hindery and McNamee).
The gravamen of the amended complaint in the Section 203 action was that,
prior to the time when Liberty reached an agreement, arrangement or
understanding with RMS Limited Partnership, a Nevada Limited Partnership
("RMS"), to allow Liberty to purchase a controlling equity interest in the
Company, the Company's Board and Executive Committee failed to take effective
action to approve the proposed transaction and, thereby, failed under Section
203(a)(1) to exempt Liberty from the restrictions under Section 203 on any
"business combination" between Liberty and the Company prior to December 4,
1995. As a result, plaintiffs alleged that any business combination involving
Liberty, its affiliates or associates, and the Company would require the
affirmative vote of 66 2/3% of the outstanding voting stock of the Company which
is not owned by Liberty.
Plaintiffs also alleged that Liberty's disclosures regarding the
effectiveness of the Section 203 exemption by the HSN Executive Committee on
December 4, 1992, were false and misleading. Plaintiffs asserted that Liberty
disregarded the conflicts of interest held by the members of the HSN Executive
Committee on the Section 203 exemption, and that Liberty knew that no valid
action had been taken by the Company's Board to exempt Liberty from the
restrictions under Section 203. The amended complaint alleged that, by asserting
that Liberty was exempt from Section 203, Liberty and the other defendants
misrepresented a material fact to all sellers of the Company's stock and holders
of the Company's stock after the public announcement of the Liberty/RMS
Agreement in Principle on December 7, 1992. Plaintiffs also alleged that the
Liberty Tender Offer constituted a prohibited "business combination" under
Section 203.
Plaintiffs also alleged that the members of the Company's Executive
Committee (Messrs. Speer, Wandler and Ramsey) had disabling conflicts of
interest which prevented the Company's Executive Committee from taking effective
action on December 4, 1992, to exempt Liberty from the restrictions of Section
203. The Company and the individual defendants allegedly aided and abetted
Liberty in its asserted scheme to misrepresent its status under Section 203. The
individual defendants also allegedly breached their fiduciary duties by failing
to correct Liberty's asserted misrepresentation of its exemption from Section
203. Plaintiffs sought a declaratory judgment that Liberty is subject to
Section 203, an award of damages to the plaintiff class members who sold the
Company's common stock, and equitable relief.
On November 16, 1994, the parties reached an agreement to settle the
Section 203 Action subject to several conditions. Under the settlement, all
claims which were, could have been or in the future might be asserted by any
member of the Section 203 Class against any of the defendants or their
affiliates, which relate to or arise out of, directly or indirectly, the
allegations contained in any complaint filed in the Section 203 Action (the
"Section 203 Claims"), would be dismissed with prejudice. In exchange for the
foregoing release of the Section 203 Claims, Liberty and the Company have
agreed, among other things, that the consummation of any "business combination,"
as defined in Section 203, prior to December 4, 1995, between the Company, on
the one hand, and Liberty or any of its "affiliates" or "associates," on the
other hand (a "Qualifying Business Combination"), shall be subject to the prior
approval of the Company's board of directors, and the authorization at an annual
or special meeting of the Company's stockholders, and not by written consent, by
the affirmative vote of the holders of at least a majority of the outstanding
voting stock which is not "owned" by Liberty (the "Section 203 Undertaking").
17
<PAGE> 20
The parties to the Section 203 Action also agreed, among other things, that
upon the approval by the Delaware Chancery Court of the settlement of the
Section 203 Action, (i) the Section 203 Undertaking shall be binding as against
any member of the Section 203 Class, which shall include any holder, purchaser
or seller of the Company's stock from and after October 12, 1994, through and
including December 4, 1995 (a "Subsequent Company Stockholder"); and (ii) so
long as Liberty and the Company comply with the Section 203 Undertaking, no
member of the Section 203 Class (including any Subsequent Company Stockholder)
shall be entitled to assert that any Qualifying Business Combination (a) is
required to be separately approved by the Company's stockholders under any
provision of Section 203, or (b) is otherwise subject to, conditioned upon,
restricted by or prohibited under any provision of Section 203. Liberty also has
agreed that, in the event it consummates a "business combination" (as defined in
Section 203) with the Company prior to the hearing on the proposed settlement of
the Section 203 Action, Liberty will comply with the Section 203 Undertaking.
Plaintiffs' counsel in the Section 203 Action petitioned the Court for an award
of attorneys' fees and expenses not to exceed $2.6 million. Liberty agreed to
pay plaintiffs' counsel such fees and disbursements as may be awarded by the
Delaware Chancery Court in the Section 203 Action, and the Company is not
responsible for any of the fees or expenses of plaintiffs' counsel in the
Section 203 Action.
On January 25, 1995, the Delaware Chancery Court approved the settlement of
the Section 203 Action.
This disclosure is included in this Form 10-Q pursuant to the terms of the
above settlement.
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
Exhibit 10.37 First Amendment, dated as of March 29, 1995, to the Second Amended
and Restated Credit Agreement.
Exhibit 10.38 Second Amendment, dated as of June 28, 1995, to the Second Amended
and Restated Credit Agreement.
Exhibit 27 Financial Data Schedule (SEC use only).
18
<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HOME SHOPPING NETWORK, INC.
------------------------------------
(Registrant)
<TABLE>
<S> <C>
Dated August 14, 1995 /s/ GERALD F. HOGAN
------------------------ -----------------------------------------------
Gerald F. Hogan
President and Chief
Executive Officer
Dated August 14, 1995 /s/ KEVIN J. MCKEON
------------------------ -----------------------------------------------
Kevin J. McKeon
Senior Vice President, Accounting & Finance
and Treasurer
(Principal Financial Officer)
Dated August 14, 1995 /s/ BRIAN J. FELDMAN
------------------------ -----------------------------------------------
Brian J. Feldman
Controller
(Chief Accounting Officer)
</TABLE>
19
<PAGE> 22
LOGO
HOME SHOPPING NETWORK
<PAGE> 1
EXHIBIT 10.37
EXECUTION COPY
FIRST AMENDMENT, dated as of March 29, 1995, to the SECOND
AMENDED AND RESTATED CREDIT AGREEMENT, dated as of August 30, 1994 (the "Credit
Agreement"), among HOME SHOPPING NETWORK, INC., a Delaware corporation, as
borrower (the "Company"), HOME SHOPPING CLUB, INC., a Delaware corporation, as
guarantor (the "Guarantor"), the banks signatory thereto (individually, a
"Bank" and collectively, the "Banks"), LTCB TRUST COMPANY, as Agent, BANK OF
MONTREAL and THE BANK OF NEW YORK COMPANY, INC., each as a Co-Agent (each in
such capacity, a "Co-Agent"), and LTCB TRUST COMPANY, as Administrative Agent
for the Banks (in such capacity, the "Administrative Agent").
WHEREAS, the Company and the Guarantor have requested, and the
Banks and the Administrative Agent are willing, to amend certain provisions of
the Credit Agreement to provide for increases in the Commitments and for other
matters provided herein;
NOW, THEREFORE, in consideration of the foregoing, and for
other good and valuable consideration the receipt of which is hereby
acknowledged, the parties hereby agree as follows:
SECTION 1. CERTAIN DEFINED TERMS. Except as expressly set
forth in this First Amendment, terms defined in the Credit Agreement and used
herein shall have their respective defined meanings when used herein.
SECTION 2. AMENDMENTS TO THE CREDIT AGREEMENT. Subject to the
fulfillment of the conditions precedent set forth in Section 4 hereof, the
Credit Agreement is hereby amended as follows:
(a) Section 1.1 of the Credit Agreement is hereby amended
by deleting the definition of "Applicable Margin" set forth in such Section in
its entirety and replacing it with the following:
"Applicable Margin" shall mean, at any time: (a) with
respect to LIBOR Loans, 1.625% minus the Margin Adjustment (if any) in
effect at such time; and (b) with respect to Prime Rate Loans, 0.625%
minus the Margin Adjustment (if any) in effect at such time; provided,
that in no event shall the Applicable Margin be less than 0%.
(b) Section 1.1 of the Credit Agreement is hereby amended
by deleting the definition of "Commitment" set forth in such Section in its
entirety and replacing it with the following:
<PAGE> 2
"Commitment" shall mean, with respect to any Bank, at
any time prior to the First Amendment Commitment Effective Date, the
amount set forth opposite such Bank's name on the signature pages of
this Agreement under the caption "Commitment", and at any time on or
after the First Amendment Commitment Effective Date, the amount set
forth opposite such Bank's name on the signature pages of the First
Amendment under the caption "Commitment" (in either case as reduced
from time to time pursuant to Section 2.3 hereof or otherwise).
(c) Section 1.1 of the Credit Agreement is hereby amended
by deleting the definition of "Facility Fee Rate" set forth in such Section in
its entirety and replacing it with the following:
"Facility Fee Rate" shall mean, at any time of
determination thereof, when the Total Debt Ratio, as set forth in the
Total Debt Ratio Notice most recently delivered to the Administrative
Agent pursuant to Section 9.1(g) hereof (which Notice shall be
effective on the date of the Administrative Agent's receipt thereof in
accordance with Section 12.2 hereof), is at each of the following
levels, the rate per annum set forth opposite such level below:
<TABLE>
<CAPTION>
Effective
Total Debt Ratio Facility Fee Rate
------------------ -----------------
<S> <C>
Greater than or
equal to 4.00 to 1 0.375%
Less than 4.00 to 1,
but greater than or
equal to 3.50 to 1 0.375%
Less than 3.50 to 1
but greater than or
equal to 3.00 to 1 0.375%
Less than 3.00 to 1
but greater than or
equal to 2.50 to 1 0.375%
Less than 2.50 to 1
but greater than or
equal to 2.00 to 1 0.375%
Less than 2.00 to 1
but greater than or
equal to 1.00 to 1 0.250%
Less than 1.00 to 1 0.250%;
</TABLE>
-2-
<PAGE> 3
provided, that the Facility Fee Rate for the period commencing on
April 1, 1995 until the next date on which the Administrative Agent
receives the Total Debt Ratio Notice pursuant to Section 9.1(g) hereof
shall be 0.375%.
(d) Section 1.1 of the Credit Agreement is hereby amended
by deleting the definition of "Margin Adjustment" set forth in such Section in
its entirety and replacing it with the following:
"Margin Adjustment" shall mean, at any time of
determination thereof, when the Total Debt Ratio, as set forth in the
Total Debt Ratio Notice most recently delivered to the Administrative
Agent pursuant to Section 9.1(g) hereof (which Notice shall be
effective on the date of the Administrative Agent's receipt thereof in
accordance with Section 12.2 hereof), is at each of the following
levels, the percentage set forth opposite such level:
<TABLE>
<CAPTION>
Effective
Total Debt Ratio Margin Adjustment
------------------ -----------------
<S> <C>
Greater than or
equal to 4.00 to 1 0
Less than 4.00 to 1,
but greater than or
equal to 3.50 to 1 0.125%
Less than 3.50 to 1
but greater than or
equal to 3.00 to 1 0.375%
Less than 3.00 to 1
but greater than or
equal to 2.50 to 1 0.375%
Less than 2.50 to 1
but greater than or
equal to 2.00 to 1 0.625%
Less than 2.00 to 1
but greater than or
equal to 1.00 to 1 0.875%
Less than 1.00 to 1 1.125%;
</TABLE>
-3-
<PAGE> 4
provided, that in no event shall the Margin Adjustment cause the
Applicable Margin to be less than 0%; and provided, further, that the
Margin Adjustment for the period commencing on April 1, 1995 until the
next date on which the Administrative Agent receives the Total Debt
Ratio Notice pursuant to Section 9.1(g) hereof shall be 0.625%.
(e) Section 1.1 is hereby amended by adding the following
new definitions thereto in the appropriate alphabetical position as follows:
"Current Total Debt Ratio" shall mean, on any day on
which the Company repurchases or proposes to repurchase any of its
shares of common stock, the ratio of (a) the Total Debt of the Company
and its consolidated Subsidiaries on such day after giving effect to
the incurrence of any Indebtedness on such day, to (b) the Operating
Cash Flow for the Company and its Subsidiaries on a consolidated basis
for the four-Fiscal Quarter period then most recently ended as shown
in the Total Debt Ratio Notice for such period; provided that if such
day falls in any Fiscal Quarter at any time prior to the date on which
the Total Debt Ratio Notice required to be delivered pursuant to
Section 9.1(g) for the most recently ended four-Fiscal Quarter period
has been delivered to the Agent, the Company shall calculate the
Current Total Debt Ratio utilizing the Operating Cash Flow for the
four-Fiscal Quarter period ending with the next preceding Fiscal
Quarter as reported in the Total Debt Ratio Notice for such next
preceding Fiscal Quarter.
"Current Total Debt Ratio Notice" shall mean each
notice provided for in Section 9.18 hereof setting forth the Current
Total Debt Ratio of the Company and its Subsidiaries on a consolidated
basis.
"First Amendment" shall mean the First Amendment to
this Agreement dated as of March 29, 1995.
"First Amendment Commitment Effective Date" shall
mean the date on which the First Amendment shall have been duly
executed by all parties provision for whose signature is made on the
signature pages thereof, and on which all conditions precedent set
forth in Section 4 thereof shall have been fulfilled to the reasonable
satisfaction of the Administrative Agent.
-4-
<PAGE> 5
(f) Section 3.2(b) of the Credit Agreement is hereby
amended by adding the following text to the end of said Section immediately
prior to the semicolon: "(at any time when the Total Debt Ratio of the Company
and its Subsidiaries on a consolidated basis is less than 3.0:1) or 2.250% per
annum (at any time when such Total Debt Ratio is greater than or equal to
3.0:1)".
(g) The first sentence of Section 8.2 of the Credit
Agreement is hereby amended by deleting the reference therein to "December 31,
1993" and replacing it with "December 31, 1994", by deleting the reference
therein to "June 30, 1994" and replacing it with "September 30, 1994", and by
deleting the words "two-Fiscal Quarter" and replacing them with "three-Fiscal
Quarter".
(h) Section 9.12 of the Credit Agreement is hereby
deleted and replaced in its entirety as follows:
9.12. Total Debt Ratio. The Company will maintain the Total
Debt Ratio of the Company and its Subsidiaries on a consolidated basis
at all times during the periods set forth below to be less than the
ratio set forth below for such period:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
At any time at or prior
to March 31, 1995 3.0:1
After March 31, 1995 and
at or prior to
June 30, 1995 4.25:1
After June 30, 1995 and
at or prior to
September 30, 1995 4.25:1
After September 30, 1995
and at or prior to
December 31, 1995 3.5:1
After December 31, 1995
and at or prior to
March 31, 1996 3.25:1
At all times after
March 31, 1996 3.0:1;
</TABLE>
provided that if the Company repurchases any shares of its common
stock in any Fiscal Quarter, the Company shall
-5-
<PAGE> 6
maintain the Total Debt Ratio for the four-Fiscal Quarter period
ending with (and including)such Fiscal Quarter in any event at less
than 2.5:1, irrespective of the Current Total Debt Ratio that was
calculated at the time of such repurchase; and provided, further,
that, without limiting the requirements of the preceding proviso, if
the date of such repurchase occurs prior to the delivery of the Total
Debt Ratio Notice for the four-Fiscal Quarter period most recently
ended as of such date, it shall be deemed to be a default under this
Section 9.12 if the Total Debt Ratio for such period, as shown in the
Total Debt Ratio Notice for such period when delivered to the Agent
pursuant to Section 9.1(g), shall turn out to have been greater than
or equal to 2.5:1, irrespective of the Current Total Debt Ratio that
was calculated at the time of such repurchase.
Notwithstanding the foregoing, the denominator of the
Total Debt Ratio shall be deemed to be $34,989,000 for the period from
April 1, 1995 to and including May 30, 1995 or, if earlier, the date
on which the Company delivers to the Administrative Agent and the
Banks, pursuant to Section 9.1 hereof, the financial statements of the
Company and its consolidated Subsidiaries for the Fiscal Quarter
ending March 31, 1995 and the Total Debt Ratio Notice for the
four-Fiscal Quarter period ended on March 31, 1995, at which time said
denominator shall be Operating Cash Flow of the Company and its
Subsidiaries on a consolidated basis as shown in such Total Debt Ratio
Notice.
(i) Section 9.18 of the Credit Agreement is hereby
amended by inserting the following proviso immediately before the period at the
end of that Section:
; provided, that no repurchase of common stock shall be made (1) on
any day prior to July 1, 1995, or (2) thereafter, on any day if, after
giving effect to the incurrence of any Indebtedness on such date of
repurchase, the Current Total Debt Ratio of the Company and its
Subsidiaries on a consolidated basis would be greater than or equal to
2.5:1 as shown in the Current Total Debt Ratio Notice for such date of
repurchase, which shall have been delivered by the Company to the
Agent and the Banks prior to such repurchase.
(j) Section 9 is hereby amended by adding at the end
thereof the following new Section 9.19:
9.19. Minimum Operating Cash Flow. At any time when
the Total Debt Ratio of the Company and its Subsidiaries on a
consolidated basis is greater than 3.0:1,
-6-
<PAGE> 7
the Company shall not permit the Operating Cash Flow of the Company
and its Subsidiaries on a consolidated basis to be less than the
following amounts during each of the following periods:
<TABLE>
<CAPTION>
Period Amount
------ ------
<S> <C>
At any time at or prior
to March 31, 1995 $30,000,000
After March 31, 1995 and
at or prior to
June 30, 1995 $30,000,000
After June 30, 1995 and
at or prior to
September 30, 1995 $30,000,000
After September 30, 1995
and at or prior to
December 31, 1995 $40,000,000
After December 31, 1995
and at or prior to
March 31, 1996 $50,000,000.
</TABLE>
(k) References in the Credit Agreement to "this
Agreement" and the words "hereof", "herein", "hereto" and the like, shall refer
to the Credit Agreement, the First Amendment, and the Credit Agreement as
amended by the First Amendment; provided, that the words "the date of this
Agreement" and "the date hereof" shall continue to refer to the date of the
Credit Agreement.
(l) Each reference in the Credit Agreement to the "Notes"
or to a "Note" shall be deemed to include the New Notes issued pursuant to
Section 4.C(1) of this First Amendment.
Section 3. REPRESENTATIONS AND WARRANTIES. To induce the
Administrative Agent and each Bank to enter into this First Amendment, each of
the Company and the Guarantor hereby represents and warrants that each of the
representations and warranties set forth in Section 8 of the Credit Agreement
is true, correct and complete on and as of the date of this First Amendment
(whether or not the First Amendment Covenant Effective Date or the First
Amendment Commitment Effective Date, each as defined in Section 4 hereof,
occurs), and on and as of the First Amendment Covenant Effective Date and on
and as of the First Amendment Commitment Effective Date, both before and after
giving
-7-
<PAGE> 8
effect to the amendments set forth in Section 2 of this First Amendment on any
such date, as if each reference therein to "this Agreement" were a reference to
"this Agreement as amended by the First Amendment". Each of the Company and the
Guarantor further represents and warrants that, as of the date of this First
Amendment, as of the First Amendment Covenant Effective Date and as of the
First Amendment Commitment Effective Date, no Default or Event of Default has
occurred and is continuing.
SECTION 4. CONDITIONS TO EFFECTIVENESS.
A. The amendments set forth in Section 2 of this First
Amendment (other than in Sections 2(b) and 2(l) hereof) shall become effective
as of the date (the "First Amendment Covenant Effective Date"), as specified by
the Administrative Agent, when counterparts hereof shall have been duly
executed and delivered by the Majority Banks, the Administrative Agent, the
Company and the Guarantor, and when each of the conditions precedent set forth
in Sections 4.C(2), (8) and (9) and 4.D hereof shall have been fulfilled to the
satisfaction of the Administrative Agent. The Administrative Agent will
promptly notify the other parties of the occurrence of the First Amendment
Covenant Effective Date.
B. The amendments set forth in Section 2(b) and 2(l) of
this First Amendment shall become effective as of the date (the "First
Amendment Commitment Effective Date"), as specified by the Administrative
Agent, when counterparts hereof shall have been duly executed and delivered by
all of the Banks, the Administrative Agent, the Company and the Guarantor, and
each of the conditions precedent set forth in Sections 4.C and 4.D hereof shall
have been fulfilled to the satisfaction of the Administrative Agent on or prior
to April 5, 1995. The Administrative Agent will promptly notify the other
parties of the occurrence of the First Amendment Commitment Effective Date.
C. The effectiveness of all or part of the amendments
set forth in Section 2 hereof shall, as provided in Sections 4.A hereof and 4.B
hereof, be subject to the condition precedent that the Administrative Agent
shall have received each of the following documents, each of which shall be
satisfactory to the Administrative Agent in form and substance:
(1) New Notes, substantially in the form of Exhibit A to
the Credit Agreement, duly executed and delivered by the Company to
the order of each Increasing Bank (as defined in Section 4.C(11)
below) and otherwise appropriately completed, bearing the executed
guarantee of the Guarantor, and dated the First Amendment Commitment
Effective Date (the "New Notes").
-8-
<PAGE> 9
(2) Certified copies of the certificate of incorporation
and bylaws of the Company and the Guarantor and all corporate action
and (if necessary) stockholder action taken by the Company and the
Guarantor approving this First Amendment, the Credit Agreement as
amended hereby and the New Notes and borrowings by the Company under
the Credit Agreement as amended hereby and the guarantee by the
Guarantor hereunder and thereunder (including, without limitation, a
certificate setting forth the resolutions of the Boards of Directors
of the Company and the Guarantor adopted in respect of the
transactions contemplated hereby and thereby).
(3) A certificate of each of the Company and the
Guarantor in respect of each of the officers (i) who is authorized to
sign this First Amendment or the New Notes on its behalf and (ii) who
will, until replaced by another officer or officers duly authorized
for that purpose, act as its representative for the purposes of
signing documents and giving notices and other communications in
connection with the Credit Agreement as amended by this First
Amendment and the transactions contemplated thereby and hereby. The
Administrative Agent, the Agent, the Co-Agents and the Banks may
conclusively rely on such certificate until the Administrative Agent
receives notice in writing from the Company or the Guarantor,
respectively, to the contrary.
(4) Certificates, as of a recent date, from the
appropriate authorities for each jurisdiction in which the Company and
the Guarantor are incorporated or qualified to do business, as to the
good standing of the Company and the Guarantor, respectively, in each
such jurisdiction.
(5) A certificate of a senior officer of each of the
Company and the Guarantor to the effect set forth in Section 4.D of
this First Amendment.
(6) An opinion of Counsel to the Company and the
Guarantor, substantially in the form of Exhibit A hereto.
(7) A compliance certificate in the form of Exhibit C to
the Credit Agreement and a Total Debt Ratio Notice for Fiscal 1994.
(8) Evidence of the payment of all fees and expenses then
payable pursuant to Section 12.3 of the Credit Agreement, and all
other fees heretofore agreed between the Company and the
Administrative Agent.
-9-
<PAGE> 10
(9) Evidence of payment (to the extent then payable) of
(a) all interest on the Loans outstanding under the Credit Agreement
and (b) all facility fees accrued through the First Amendment Covenant
Effective Date or the First Amendment Commitment Effective Date, as
the case may be.
(10) Such other documents as the Administrative Agent or
any Bank may reasonably request including, without limitation, all
requisite governmental approvals and filings.
(11) Each Bank with a Commitment which, expressed as a
percentage of the aggregate Commitments of all Banks, is increasing on
the First Amendment Commitment Effective Date (an "Increasing Bank")
shall have paid to the Agent, for distribution to the Banks whose
Commitments, expressed as a percentage as aforesaid, are decreasing on
such date (the "Decreasing Banks") such amount as shall be necessary
(such Increasing Bank's "Settlement Amount") so that the aggregate
principal amount of the Loans outstanding upon the occurrence of the
First Amendment Commitment Effective Date shall be shared among the
Banks pro rata in accordance with their respective Commitments as in
effect after the effectiveness of the amendments set forth in Section
2(b) hereof. Assuming that the aggregate principal amount of all
Loans outstanding on the First Amendment Commitment Effective Date is
$75,000,000, the Settlement Amount that each Bank is required to pay
or entitled to receive, as the case may be, shall be the amount set
forth for such Bank in Schedule 1 hereto, and if the aggregate
principal amount of all Loans is other than $75,000,000, the
Settlement Amount of each Bank shall be the amount notified by the
Administrative Agent to such Bank within a reasonable time on or prior
to the First Amendment Commitment Effective Date. The payment by each
Increasing Bank of its Settlement Amount shall constitute the purchase
by such Increasing Bank from each Decreasing Bank, and the sale and
assignment by each Decreasing Bank to such Increasing Bank, of a
ratable portion of such Decreasing Bank's then outstanding Loans. Such
purchase, sale and assignment shall be without recourse,
representation or warranty of any kind, except that each Decreasing
Bank represents and warrants to the Administrative Agent and the other
Banks that it owns the interests being so purchased, sold and assigned
free and clear of all Liens. The Administrative Agent hereby agrees
not to require the payment of the recordation fee required by Section
12.6 of the Credit Agreement in connection with the foregoing
assignments. After the First Amendment
-10-
<PAGE> 11
Commitment Effective Date, when the Administrative Agent receives
payment of interest on the Loans that are subject to the purchases,
sales and assignments provided for in this clause (11), the
Administrative Agent shall distribute such payments to the Banks pro
rata in accordance with the principal amounts of such Loans held by
each of them from time to time during the period for which interest
was paid, and in accordance with the respective periods in which such
Loans were held by each of them.
(12) To the extent that the Increasing Banks and the
Decreasing Banks are unable to settle such amounts among themselves,
the Company shall have paid to each Bank (whether an Increasing Bank
or a Decreasing Bank) such amounts as may be necessary to compensate
such Bank for any loss, cost or expense (of the type described in the
first sentence of Section 5.4 of the Credit Agreement) that such Bank
may incur in connection with the purchases, sales and assignments
contemplated in clause (11) of this Section 4 as a result of (a) the
repayment or prepayment of any principal of any Loan prior to the last
day of the Interest Period therefor, or (b) the funding of a Loan, or
any portion thereof, for the remainder of the Interest Period then in
effect therefor.
D. The occurrence of each of the First Amendment
Covenant Effective Date and the First Amendment Commitment Effective Date shall
be subject to the further conditions precedent that, as of each such date:
(1) No Default or Event of Default shall have occurred
and be continuing; and
(2) The representations and warranties made by the
Company and the Guarantor in Section 3 hereof and in any other
certificate or other document delivered in connection with this First
Amendment or the Credit Agreement as amended hereby shall be true,
correct and complete on and as of each such date with the same force
and effect as if made on and as of such date (including, without
limitation, that there shall have occurred no material adverse change
since December 31, 1993 in the consolidated financial condition or
operations, or the business taken as a whole, of the Company and its
consolidated Subsidiaries from that set forth in their financial
statements dated as of December 31, 1993).
-11-
<PAGE> 12
SECTION 5. MISCELLANEOUS.
A. This First Amendment may be executed in any number of
counterparts, all of which taken together and when delivered to the
Administrative Agent shall constitute one and the same instrument, and any of
the parties hereto may execute this First Amendment by signing any such
counterpart.
B. Each of the Company and the Guarantor hereby confirms
its obligation, pursuant to Section 12.3(a) of the Credit Agreement, to pay all
of the Administrative Agent's costs and expenses (including, without
limitation, the reasonable fees and expenses of all special counsels to the
Administrative Agent) in connection with this First Amendment, whether or not
the First Amendment Covenant Effective Date or the First Amendment Commitment
Effective Date occurs.
C. THIS FIRST AMENDMENT AND THE CREDIT AGREEMENT AS
AMENDED HEREBY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS
OF THE STATE OF NEW YORK.
D. Except as expressly set forth in this First
Amendment, the Credit Agreement shall remain unmodified and in full force and
effect.
IN WITNESS WHEREOF, the parties hereto have caused this First
Amendment to be duly executed as of the date first above written.
HOME SHOPPING NETWORK, INC.,
as the Company
By
-------------------------
Title:
HOME SHOPPING CLUB, INC.,
as the Guarantor
By
-------------------------
Title:
-12-
<PAGE> 13
Commitment The Banks
---------- ---------
$ 30,000,000 LTCB TRUST COMPANY
By
----------------------------
Title:
$ 25,500,000 BANK OF MONTREAL
By
----------------------------
Title:
$ 25,500,000 THE BANK OF NEW YORK COMPANY,
INC.
By
----------------------------
Title:
$ 24,500,000 TORONTO DOMINION [TEXAS], INC.
By
----------------------------
Title:
$ 17,000,000 FIRST UNION NATIONAL BANK OF
NORTH CAROLINA
By
----------------------------
Title:
$ 14,000,000 PNC BANK, KENTUCKY, INC.
By
----------------------------
Title:
-13-
<PAGE> 14
$ 13,500,000 THE DAIWA BANK, LIMITED
By
----------------------------
Title:
By
----------------------------
Title:
The Administrative Agent
LTCB TRUST COMPANY,
as Administrative Agent
By
----------------------------
Title:
-14-
<PAGE> 15
Schedule 1
<TABLE>
<CAPTION>
Settlement Amount to
Bank be Paid (Received)
----- ------------------
<S> <C>
LTCB Trust Company $ 0.00
Bank of Montreal $ 0.00
The Bank of New York
Company, Inc. $ 0.00
Toronto Dominion [Texas], Inc. $1,750,000
First Union National Bank
of North Carolina $1,750,000
PNC Bank, Kentucky, Inc. $(3,500,000)
The Daiwa Bank, Limited $ 0.00
</TABLE>
-15-
<PAGE> 16
EXHIBIT A
[Form of Opinion of Counsel to the Company and Guarantor]
_______, 1995
To the Banks party to the Credit
Agreement referred to below and
LTCB Trust Company, as Administrative
Agent
Ladies and Gentlemen:
We are, respectively, the General Counsel and Senior Counsel to Home
Shopping Network, Inc., a Delaware corporation (the "Company"), and Home
Shopping Club, Inc., a Delaware corporation (the "Guarantor"), and have acted
as such in connection with the First Amendment dated as of March 29, 1995 (the
"First Amendment") to the Second Amended and Restated Credit Agreement dated as
of August 30, 1994 (the "Credit Agreement") among the Company, the Guarantor,
the Banks named therein, LTCB Trust Company, as Agent, Bank of Montreal and The
Bank of New York Company, Inc., as Co-Agents, and LTCB Trust Company, as
Administrative Agent, providing for loans to be made to the Company in the
aggregate principal amount of $100,000,000 under the guarantee of the
Guarantor, as increased pursuant to the First Amendment. Terms defined in the
Credit Agreement are used herein as defined therein.
In rendering the opinion expressed below, we have examined and relied
upon the originals or conformed copies of such corporate records, agreements
and instruments of the Company and the Guarantor, certificates of public
officials and of officers of the Company and the Guarantor, and such other
documents and records, and such matters of law, as we have deemed appropriate
as a basis for the opinions hereinafter expressed.
Based upon the foregoing, we are of the opinion that:
-16-
<PAGE> 17
1. The Company is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware and the
Guarantor is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware; each of them is duly
qualified to transact business in the State of Florida and has the necessary
corporate power to enter into and perform the First Amendment, the Credit
Agreement as amended thereby and the new Notes issued under the Credit
Agreement as amended by the First Amendment (the "New Notes") and, in the case
of the Company, to borrow under the Credit Agreement as amended by the First
Amendment. The Guarantor is a Wholly-Owned Subsidiary of the Company.
2. The execution, delivery and performance by each of the Company
and the Guarantor of the First Amendment, the Credit Agreement as amended by
the First Amendment and the New Notes and, in the case of the Company, the
borrowings thereunder have been duly authorized by all necessary corporate
action, and do not and will not violate any provision of law, regulation,
order, writ, injunction or decree of any court or governmental authority or
agency or any provision of the certificate of incorporation or by-laws of the
Company or the Guarantor or result in the breach of, or constitute a default or
require any consent under, or result in the creation of any Lien upon any of
its respective properties, revenues or assets pursuant to, any indenture or
other agreement or instrument to which the Company, the Guarantor or any
Subsidiary of either thereof is a party or by which the Company or the
Guarantor or any Subsidiary of either thereof or its respective properties may
be bound.
3. The First Amendment, the Credit Agreement as amended by the
First Amendment and the New Notes have been duly executed and delivered by the
Company and the Guarantor and, assuming due execution and delivery thereof by
the Administrative Agent and the Banks, constitute the legal, valid and binding
obligations of the Company and the Guarantor enforceable in accordance with
their respective terms, except as such enforceability may be limited by (a)
bankruptcy, insolvency, reorganization, moratorium or other similar laws of
general applicability affecting the enforcement of creditors' rights and (b)
the application of general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law), and except
that no opinion is expressed as to the fourth sentence of Section 4.7 of the
Credit Agreement.
4. Except as disclosed to the Administrative Agent and the Banks
in SEC Reports delivered to the Administrative Agent and the Banks prior to the
date hereof, to our knowledge after due inquiry, there are no legal or arbitral
proceedings, and no
-17-
<PAGE> 18
proceedings by or before any governmental or regulatory authority or agency,
pending or threatened against or affecting the Company or the Guarantor or any
of the Subsidiaries of either thereof, or any properties or rights of the
Company or the Guarantor or any of the Subsidiaries of either thereof, which,
if adversely determined, would have a material adverse effect on the
consolidated financial condition or operations, or the business taken as a
whole, of the Company and the Guarantor and the Subsidiaries.
5. No authorizations, consents, approvals, licenses, filings or
registrations with any governmental or regulatory authority or agency are
required in connection with the execution, delivery or performance by the
Company or the Guarantor of the First Amendment, the Credit Agreement as
amended by the First Amendment or the New Notes or the borrowings thereunder.
6. Assuming that the Administrative Agent has its principal
office in the State of New York, the proceeds of the Loans will be disbursed
from the Administrative Agent's office in New York, payments will be made to
the Administrative Agent at its office in New York and the Loans will be
administered by the Administrative Agent from said office, the provisions of
Section 5(c) of the First Amendment and of Section 12.11 of the Credit
Agreement as amended by the First Amendment regarding the choice of the laws of
the State of New York to govern the Credit Agreement and the New Notes is,
under the laws of the State of Florida, a valid choice of law and would be
given effect by the courts in Florida. However, courts in Florida are likely to
apply Florida procedural law.
7. The provisions of the Credit Agreement as amended by the First
Amendment and the New Notes do not violate any Florida law relating to usury or
other limitations on the rate of interest that a lender may charge, collect or
receive.
Barry S. Augenbraun, Esq., General Counsel, is admitted to practice
law in the State of New York and the Commonwealth of Pennsylvania, and
Elizabeth A. Waters, Esq., Senior Counsel, is admitted to practice law in the
State of Florida. The opinions expressed herein relate only to the laws of the
States of New York and Florida, the General Corporation Law of the State of
Delaware and the federal laws of the United States. Opinions herein based on
the laws of the State of New York, the General Corporation Law of the State of
Delaware and the federal laws of the United States are rendered by Mr.
Augenbraun, and opinions herein based on the laws of the State of Florida are
rendered by Ms. Waters.
-18-
<PAGE> 19
The opinions expressed in this letter are based upon the law in effect
on the date hereof, and we assume no obligation to revise or supplement this
opinion should such law be changed in any respect by legislative action,
judicial decision or otherwise.
This opinion is being furnished to you solely for your benefit and
only with respect to the transaction referred to herein. Accordingly, it may
not be relied upon by any other person or entity without, in each instance, our
prior written consent.
Very truly yours,
--------------------------
Barry S. Augenbraun, Esq.,
General Counsel
--------------------------
Elizabeth A. Waters, Esq.,
Senior Counsel
-19-
<PAGE> 1
EXHIBIT 10.38
EXECUTION COPY
SECOND AMENDMENT, dated as of June 28, 1995, to the SECOND
AMENDED AND RESTATED CREDIT AGREEMENT, dated as of August 30, 1994 (as amended
by the First Amendment thereto, dated as of March 29, 1995, the "Credit
Agreement"), among HOME SHOPPING NETWORK, INC., a Delaware corporation, as
borrower (the "Company"), HOME SHOPPING CLUB, INC., a Delaware corporation, as
guarantor (the "Guarantor"), the banks signatory thereto (individually, a
"Bank" and collectively, the "Banks"), LTCB TRUST COMPANY, as Agent, BANK OF
MONTREAL and THE BANK OF NEW YORK COMPANY, INC., each as a Co-Agent (each in
such capacity, a "Co-Agent"), and LTCB TRUST COMPANY, as Administrative Agent
for the Banks (in such capacity, the "Administrative Agent").
WHEREAS, the Company and the Guarantor have requested, and
the Banks and the Administrative Agent are willing, to amend certain provisions
of the Credit Agreement to change the rate of interest and certain fees and to
provide for certain other matters as provided herein;
NOW, THEREFORE, in consideration of the foregoing, and for
other good and valuable consideration the receipt of which is hereby
acknowledged, the parties hereby agree as follows:
SECTION 1. CERTAIN DEFINED TERMS. Except as expressly set
forth in this Second Amendment, terms defined in the Credit Agreement and used
herein shall have their respective defined meanings when used herein.
SECTION 2. AMENDMENTS TO THE CREDIT AGREEMENT. Subject to the
fulfillment of the conditions precedent set forth in Section 4 hereof, the
Credit Agreement is hereby amended as follows:
(a) Section 1.1 of the Credit Agreement is hereby amended by
deleting the definition of "Applicable Margin" set forth in such Section in its
entirety and replacing it with the following:
"Applicable Margin" shall mean:
(i) at any time when none of the covenants set forth in
Section 9.20 hereof is in effect or, on or after January 1,
1996 (even if said Section 9.20 is in effect), when the Total
Debt Ratio of the Company and its Subsidiaries on a
consolidated basis (for the four-Fiscal Quarter period most
recently ended for which financial statements have been
delivered to the
<PAGE> 2
Administrative Agent and the Banks in accordance with Section
9.1 hereof) is less than or equal to 4.0:1, (a) with respect
to LIBOR Loans, 1.625% minus the Margin Adjustment (if any) in
effect at such time, and (b) with respect to Prime Rate Loans,
0.625% minus the Margin Adjustment (if any) in effect at such
time; provided, that in no event shall the Applicable Margin
be less than 0%; or
(ii) at any time when any of the covenants set forth
in Section 9.20 hereof are in effect and, on or after January
1, 1996, when the Total Debt Ratio of the Company and its
Subsidiaries on a consolidated basis (for the four-Fiscal
Quarter period as aforesaid) is greater than 4.0:1, (a) with
respect to LIBOR Loans, 2.125%, and (b) with respect to Prime
Rate Loans, 1.125%; provided, that if on any day (when such
covenants are in effect and such Total Debt Ratio is as stated
in this clause (ii)) on or after January 1,1996 the aggregate
principal amount of all Loans outstanding under this Agreement
shall be less than or equal to $95,000,000, the Applicable
Margin for such day shall be (1) with respect to LIBOR Loans,
1.875%, and (2) with respect to Prime Rate Loans, 0.875%.
(b) Section 1.1 of the Credit Agreement is hereby amended by
adding the following proviso to the end of the definitio of "Facility Fee Rate"
set forth in such Section, immediately before the period:
; and provided, further, that at any time when any of the
covenants set forth in Section 9.20 hereof is in effect, the
Facility Fee Rate shall be 0.375%.
(c) Section 1.1 of the Credit Agreement is hereby amended by
adding the following proviso to the end of the definition of "Margin
Adjustment" set forth in such Section, immediately before the period:
; and provided, further, that no Margin Adjustment shall apply
at any time when any of the covenants set forth in Section
9.20 hereof is in effect.
(d) Section 1.1 is hereby amended by adding the following new
definitions thereto in the appropriate alphabetical position:
"Second Amendment" shall mean the Second Amendment
to this Agreement dated as of June 28, 1995.
-2-
<PAGE> 3
"Second Amendment Effective Date" shall have the
meaning assigned to that term in Section 4 of the Second
Amendment.
(e) Section 1.2(a) is hereby amended by deleting the words
"Sections 9.11, 9.12 and 9.13" appearing in the second sentence thereof, and
replacing them with the words "Sections 9.11, 9.12, 9.13, 9.19, 9.20 and 9.21".
(f) Section 3.2(b) of the Credit Agreement is hereby amended
by adding the following proviso at the end of said Section, immediately before
the semicolon:
; provided, that at any time when any of the covenants set
forth in Section 9.20 are in effect, the spread over the
applicable Federal Funds Rate shall be 2.625% per annum.
(g) In Section 7.2(b) of the Credit Agreement, each of the
references to "December 31, 1993" shall be amended to read "December 31, 1994",
and the words "date of this Agreement" shall be amended to read "date of the
Second Amendment".
(h) The first sentence of Section 8.2 of the Credit Agreement
is hereby amended by deleting the reference therein to "September 30, 1994" and
replacing it with "March 31, 1995", and by deleting the words "three-Fiscal
Quarter" and replacing them with "Fiscal Quarter".
(i) The last sentence of Section 8.2 of the Credit Agreement
shall be amended to read in its entirety as follows:
Since December 31, 1994, there has been no material adverse
change in the consolidated financial condition or operations,
or the business taken as a whole, of the Company and its
consolidated Subsidiaries (including, without limitation, the
Guarantor) from that set forth in such financial statements as
at such date, except as disclosed in writing to the Banks
(including, without limitation, in financial data furnished to
the Banks) prior to the date of the Second Amendment.
(j) Section 8.9(a) of the Credit Agreement is amended to read
in its entirety as follows:
(a) United States Federal income tax returns of the Company,
the Guarantor and the Subsidiaries have been examined and
closed through Fiscal 1989, have been
-3-
<PAGE> 4
examined for Fiscal 1990 and 1991, and are under examination
for Fiscal 1992, 1993 and 1994.
(k) Section 8.11 of the Credit Agreement is amended by
deleting the date "December 31, 1993" and replacing it with the date "December
31, 1994", and by deleting the words "Footnotes D and G" in clause (a) of said
Section and replacing them with the words "Footnotes D and H".
(l) Section 9.1(b) of the Credit Agreement is hereby amended
by deleting the words "9.17 or 9.18 hereof" and replacing them with the words
"9.17, 9.18, 9.19, 9.20 or 9.21 hereof".
(m) The final paragraph of Section 9.1 of the Credit Agreement
is hereby amended by (1) amending the words "Sections 9.11, 9.12 and 9.13
hereof" in clause (ii) thereof to read "Sections 9.11, 9.12, 9.13, 9.19 and
9.21 hereof", and (2) adding the following text to the end of the final
paragraph thereof:
For each period for which any of the covenants in Section 9.20
is in effect, the Company and the Guarantor shall continue to
furnish to the Administrative Agent all financial information,
notices and calculations pursuant to this Section 9.1 as if
the covenants in Sections 9.11, 9.12 and 9.19 had remained in
effect. In addition, the Company and the Guarantor will
furnish to the Administrative Agent, with sufficient copies
for the Banks, at the time when it furnishes each set of
financial statements pursuant to Section 9.1(a) or (b), a
certificate of a senior financial officer of the Company and
the Guarantor setting forth in reasonable detail the
computations necessary to determine whether the Company and
the Guarantor are in compliance with Section 9.20 hereof. Said
certificate may, at the option of the Company and the
Guarantor, form a part of the certificate otherwise
accompanying such financial statements in accordance with this
final paragraph of Section 9.1. The obligation of the Company
and the Guarantor to furnish information with respect to
compliance with Section 9.20 shall survive the termination of
Section 9.20 for such period as may be necessary to determine
such compliance from the financial statements of the Company
and its Subsidiaries.
(n) Section 9.7 of the Credit Agreement is hereby amended by
replacing the words "any Person" in the sixth line of said Section with the
words "to any Person"; by deleting the word "and" at the end of clause (ii)
thereof; by deleting the period
-4-
<PAGE> 5
at the end of clause (iii) thereof and replacing it with the word "; and"; and
by adding the following new clause (iv):
(iv) sales by the Company or any Material Subsidiary of
the shares of capital stock of any Non-Material Subsidiary on
an arm's length basis for at least fair consideration, so long
as such Non-Material Subsidiary, together with all other
Non-Material Subsidiaries with respect to which there has
been, since the date of this Agreement, such a sale of shares,
does not constitute a Material Subsidiary Group.
(o) Section 9.11 of the Credit Agreement is hereby amended by
adding the following proviso to the end of said Section, immediately before the
period:
; provided, that the covenants in this Section are subject to
Section 9.20 hereof at such times as said Section 9.20 is in
effect.
(p) Section 9.12 of the Credit Agreement is hereby amended by
adding the following sentence to the end of said Section, as a new indented
paragraph:
Notwithstanding the foregoing, the covenants in this
Section 9.12 are subject to Section 9.20 hereof at such times
as said Section 9.20 is in effect.
(q) Section 9.19 of the Credit Agreement is hereby amended by
adding to the following proviso to the end of said Section, immediately prior
to the period:
; provided, that the covenants in this Section are subject to
Section 9.20 hereof at such times as said Section 9.20 is in
effect.
(r) Section 9 is hereby amended by adding at the end thereof
the following new Sections 9.20 and 9.21:
9.20. Alternative Financial Covenants. At any time during
the period from the Second Amendment Effective Date until this
Section 9.20 shall cease to be in effect as provided in clause
(g) hereof, the Company's obligation to comply with the
covenants in Sections 9.11, 9.12 and 9.19 hereof shall be
suspended, and instead the Company and its Subsidiaries will
be obligated to comply with all of the following covenants set
forth in this Section 9.20:
-5-
<PAGE> 6
(a) The Company shall not permit the Operating Cash Flow
of the Company and its Subsidiaries on a consolidated basis
for each of the following Fiscal Quarters to be less than the
following amounts:
<TABLE>
<CAPTION>
Fiscal Quarter Ending Amount
--------------------- ------
<S> <C>
June 30, 1995 ($ 6,500,000)
September 30, 1995 $ 5,000,000
December 31, 1995 $14,000,000.
</TABLE>
(b) The Company shall not permit the Operating Cash Flow
of the Company and its Subsidiaries on a consolidated basis
for the four-Fiscal Quarter Period ending March 31, 1996 to be
less than $25,000,000.
(c) The Company shall maintain the Total Debt Ratio of
the Company and its Subsidiaries on a consolidated basis at
not greater than 4.0:1 at all times from and including March
31, 1996 to but not including June 30, 1996, and not greater
than 3.0:1 on June 30, 1996.
(d) The Company shall not, and shall not permit any of
its Subsidiaries to, incur or assume any Indebtedness
whatsoever (other than (i) loans, not under this Agreement,
outstanding on March 31, 1995, but not any extension, renewal,
refinancing or replacement thereof, and (ii) Loans to the
Company under this Agreement in accordance with Section
9.20(e) hereof) unless the financial statements of the Company
and its Subsidiaries on a consolidated basis, delivered to the
Administrative Agent and the Banks in accordance with Sections
9.1(a) or (b) hereof, show that the Total Debt Ratio of the
Company and its Subsidiaries on a consolidated basis, for the
four-Fiscal Quarter period most recently ended on the date of
the incurrence or assumption of such Indebtedness and covered
by such financial statements, was less than or equal to 3.0:1.
(e) The Company shall not incur or suffer to remain
outstanding any Loans under this Agreement at any time prior
to March 31, 1996, except for Loans in such amounts that the
aggregate principal amount of all Loans outstanding under this
Agreement shall not exceed
-6-
<PAGE> 7
the following amounts at any time during the following periods:
<TABLE>
<CAPTION>
Maximum Aggregate
Period Principal Amount
------ ----------------
<S> <C>
At any time on or after the
Second Amendment Effective
Date and on or prior
to June 30, 1995 $ 75,000,000
After June 30, 1995
and on or prior to
September 30, 1995 $105,000,000
After September 30,
1995 and prior to
December 31, 1995 $115,000,000
On or after December 31,
1995 and prior to
January 31, 1996 $105,000,000
On or after January 31,
1996 and prior to
March 31, 1996 $100,000,000;
</TABLE>
provided, that the foregoing limitations on Indebtedness shall
not be deemed to reduce the amount of any Bank's Commitment
for any purposes of this Agreement (including, without
limitation, Section 2.4 hereof or Section 5 hereof).
(f) The Company will not, and will not permit any of its
Subsidiaries to, cause any letter of credit to be issued for
its account, or otherwise be or become directly or indirectly
obligated for the reimbursement of any letter of credit, other
than Trade Letters of Credit (as hereinafter defined) in an
aggregate stated amount which, when aggregated with the amount
of all unreimbursed drawings under all letters of credit of
the Company and its Subsidiaries, does not exceed the
following amounts during each of the following periods:
<TABLE>
<CAPTION>
Period Maximum Aggregate Amount
------ ------------------------
<S> <C>
At June 30, 1995 $ 15,000,000
After June 30, 1995
</TABLE>
-7-
<PAGE> 8
<TABLE>
<S> <C>
and prior to
September 30, 1995 $ 25,000,000
On or after September 30,
1995 and prior to
December 31, 1995 $ 25,000,000
On or after December 31,
1995 and prior to
June 30, 1996 $ 20,000,000.
</TABLE>
As used in this Section 9.20(e), "Trade Letter of Credit"
shall mean a trade letter of credit issued for the account of
the Company or any of its Subsidiaries or for the
reimbursement of draws under which the Company or any
Subsidiary may be directly or indirectly obligated, in either
case in the ordinary course of business of the Company or such
Subsidiary, as the case may be, in favor of one or more
vendors of merchandise sold or to be sold to the Company or
such Subsidiary in the ordinary course of the business of the
Company or such Subsidiary, providing for or securing the
payment by the Company or such Subsidiary for such
merchandise, pursuant to the terms of which letter of credit
(or any application, reimbursement agreement or similar
document in connection therewith) (A) the Company or such
Subsidiary, as the case may be, is obligated to reimburse the
issuer thereof for any drawing thereunder on the date of such
drawing and (B) such issuer extends no other credit thereunder
to the Company or any Subsidiary.
(g) The covenants set forth in this Section 9.20
shall cease to be in effect on June 30, 1996, unless the financial
statements for any Fiscal Quarter ended prior to that date, when
delivered to the Administrative Agent and the Banks in accordance with
Section 9.1(a) or (b) hereof, show that the Company and its
Subsidiaries have complied with all of the covenants in this Agreement
other than this Section 9.20 (such compliance to include, without
limitation, compliance with Sections 9.11, 9.12 and 9.19 hereof
without regard to the final proviso to each thereof), for the
four-Fiscal Quarter period then ended, in which case the covenants in
this Section 9.20 shall not apply to such four-Fiscal Quarter period
or to any subsequent period. Commencing on June 30, 1996 or such
earlier date on which this Section 9.20 no longer applies, as
aforesaid (and for each period to which this Section 9.20 no longer
applies, and for all periods thereafter), the Company and its
-8-
<PAGE> 9
Subsidiaries shall be obligated to perform and comply with each of
Sections 9.11, 9.12 and 9.19 hereof without regard to the final
provision to each thereof (as well as all other covenants set forth in
this Agreement) as if this Section 9.20 had not existed, and any
failure to be in compliance with such covenants on or after such date
shall be an Event of Default.
9.21. Current Ratio. The Company will maintain the ratio
of current assets to current liabilities (each as defined by GAAP) of
the Company and its Subsidiaries on a consolidated basis at not less
than 1.01:1 as at the end of each Fiscal Quarter.
(s) References in the Credit Agreement to "this
Agreement" and the words "hereof", "herein", "hereto" and the like, shall refer
to the Credit Agreement, the Second Amendment, and the Credit Agreement as
amended by the Second Amendment; provided, that the words "the date of this
Agreement" and "the date hereof" shall continue to refer to the date of the
Credit Agreement (being August 30, 1994).
SECTION 3. REPRESENTATIONS AND WARRANTIES. To induce
the Administrative Agent and each Bank to enter into this Second Amendment,
each of the Company and the Guarantor hereby represents and warrants that each
of the representations and warranties set forth in Section 8 of the Credit
Agreement is true, correct and complete on and as of the date of this Second
Amendment (whether or not the Second Amendment Effective Date, as defined in
Section 4 hereof, occurs), and on and as of the Second Amendment Effective
Date, both before and after giving effect to the amendments set forth in
Section 2 of this Second Amendment on either such date, as if each reference
therein to "this Agreement" were a reference to "this Agreement as amended by
the Second Amendment", except that the representations and warranties in the
last sentence of Section 8.2 and in Section 8.11 of the Credit Agreement shall,
each time when they are made under this Section 3, be deemed to have been
amended as provided in Sections 2(j) and (k), respectively, of this Second
Amendment. Each of the Company and the Guarantor further represents and
warrants that, as of the date of this Second Amendment and as of the Second
Amendment Effective Date, no Default or Event of Default has occurred and is
continuing.
SECTION 4. CONDITIONS TO EFFECTIVENESS. The amendments set
forth in Section 2 of this Second Amendment shall become effective as of the
date (the "Second Amendment Effective Date"), as specified by the
Administrative Agent, when counterparts hereof shall have been duly executed
and delivered
-9-
<PAGE> 10
by the Majority Banks, the Administrative Agent, the Company and the Guarantor,
and when each of the conditions precedent set forth in this Section 4 shall
have been fulfilled to the satisfaction of the Administrative Agent:
A. The Administrative Agent shall have received each of the
following documents, each of which shall be satisfactory to the Administrative
Agent in form and substance:
(1) A certificate of a senior officer of each of the Company
and the Guarantor to the effect set forth in Section 4.C of this
Second Amendment.
(2) Evidence of the payment of the fees provided for in Section
4.B of this Second Amendment, and of all other fees and expenses then
payable, including, without limitation, pursuant to Section 12.3 of
the Credit Agreement.
(3) Such other documents as the Administrative Agent or any
Bank may reasonably request including, without limitation, all
requisite governmental approvals and filings.
B. The Company shall have paid to the Administrative Agent,
for the account of each Bank, a non-refundable amendment fee in an amount equal
to 0.6250% of the amount of such Bank's Commitment (if such Bank has signed
this Second Amendment) and 0.3125% (if such Bank has not signed this Second
Amendment).
C. As of such date:
(1) No Default or Event of Default shall have occurred and be
continuing; and
(2) The representations and warranties made by the Company and
the Guarantor in Section 3 hereof and in any other certificate or
other document delivered in connection with this Second Amendment or
the Credit Agreement as amended hereby shall be true, correct and
complete on and as of each such date with the same force and effect as
if made on and as of such date.
The Administrative Agent will promptly notify the other parties of the
occurrence of the Second Amendment Effective Date.
-10-
<PAGE> 11
SECTION 5. MISCELLANEOUS.
A. This Second Amendment may be executed in any number of
counterparts, all of which taken together and when delivered to the
Administrative Agent shall constitute one and the same instrument, and any of
the parties hereto may execute this Second Amendment by signing any such
counterpart.
B. Each of the Company and the Guarantor hereby confirms its
obligation, pursuant to Section 12.3(a) of the Credit Agreement, to pay all of
the Administrative Agent's costs and expenses (including, without limitation,
the reasonable fees and expenses of all special counsels to the Administrative
Agent) in connection with this Second Amendment, whether or not the Second
Amendment Effective Date occurs.
C. THIS SECOND AMENDMENT AND THE CREDIT AGREEMENT AS AMENDED
HEREBY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK.
D. Except as expressly set forth in this Second Amendment,
the Credit Agreement shall remain unmodified and in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Second
Amendment to be duly executed as of the date first above written.
HOME SHOPPING NETWORK, INC.,
as the Company
By
------------------------------------
Title:
HOME SHOPPING CLUB, INC.,
as the Guarantor
By
------------------------------------
Title:
The Banks
LTCB TRUST COMPANY
By
-----------------------------------
Title:
-11-
<PAGE> 12
BANK OF MONTREAL
By
-----------------------------------
Title:
THE BANK OF NEW YORK COMPANY, INC.
By
-----------------------------------
Title:
TORONTO DOMINION [TEXAS], INC.
By
-----------------------------------
Title:
FIRST UNION NATIONAL BANK OF
NORTH CAROLINA
By
-----------------------------------
Title:
PNC BANK, KENTUCKY, INC.
By
-----------------------------------
Title:
THE DAIWA BANK, LIMITED
By
-----------------------------------
Title:
By
-----------------------------------
Title:
-12-
<PAGE> 13
The Administrative Agent
LTCB TRUST COMPANY,
as Administrative Agent
By
-----------------------------------
Title:
-13-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1995, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 15,684
<SECURITIES> 0
<RECEIVABLES> 27,817
<ALLOWANCES> 0
<INVENTORY> 107,598
<CURRENT-ASSETS> 187,645
<PP&E> 251,400
<DEPRECIATION> 124,527
<TOTAL-ASSETS> 429,150
<CURRENT-LIABILITIES> 180,178
<BONDS> 77,365
<COMMON> 776
0
0
<OTHER-SE> 165,483
<TOTAL-LIABILITY-AND-EQUITY> 429,150
<SALES> 490,269
<TOTAL-REVENUES> 490,269
<CGS> 328,091
<TOTAL-COSTS> 328,091
<OTHER-EXPENSES> 193,343
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,277
<INCOME-PRETAX> (29,896)
<INCOME-TAX> (11,361)
<INCOME-CONTINUING> (18,535)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (18,535)
<EPS-PRIMARY> (.21)
<EPS-DILUTED> (.21)
</TABLE>
