<PAGE> 1
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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 SEPTEMBER 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 November 1,
1995:
<TABLE>
<S> <C>
Common stock.............. 70,680,879
Class B common stock...... 20,000,000
</TABLE>
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<PAGE> 2
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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ---------------------
1995 1994 1995 1994
- -------------------------------------------------------------------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
NET SALES....................................... $239,894 $276,612 $730,163 $824,832
Cost of sales................................... 162,311 178,992 490,402 533,410
-------- -------- -------- --------
Gross profit.................................. 77,583 97,620 239,761 291,422
-------- -------- -------- --------
Operating expenses:
Selling and marketing......................... 38,857 36,529 122,437 113,775
Engineering and programming................... 24,399 24,721 73,838 73,754
General and administrative.................... 18,114 18,184 58,497 58,572
Depreciation and amortization................. 11,614 7,594 29,514 20,621
Other charges................................. 5,427 -- 5,427 --
Restructuring charge.......................... -- -- 2,041 --
-------- -------- -------- --------
98,411 87,028 291,754 266,722
-------- -------- -------- --------
Operating profit (loss).................... (20,828) 10,592 (51,993) 24,700
Other income (expense):
Interest income............................... 413 1,696 1,434 8,773
Interest expense.............................. (2,581) (779) (5,858) (4,955)
Miscellaneous................................. 344 1,163 3,869 (1,089)
Litigation.................................... (3,200) -- (3,200) --
-------- -------- -------- --------
(5,024) 2,080 (3,755) 2,729
-------- -------- -------- --------
Earnings (loss) before income taxes and
extraordinary item............................ (25,852) 12,672 (55,748) 27,429
Income tax expense (benefit).................... (8,151) 5,323 (19,512) 11,521
-------- -------- -------- --------
Earnings (loss) before extraordinary item....... (17,701) 7,349 (36,236) 15,908
Extraordinary item -- loss on early
extinguishment of long-term obligations, net
of taxes...................................... -- (924) -- (924)
-------- -------- -------- --------
NET EARNINGS (LOSS)............................. $(17,701) $ 6,425 $(36,236) $ 14,984
======== ======== ======== ========
Earnings (loss) per common share:
Earnings (loss) before extraordinary item..... $ (.20) $ .08 $ (.41) $ .17
Extraordinary item, net....................... -- (.01) -- (.01)
-------- -------- -------- --------
Net earnings (loss)........................... $ (.20) $ .07 $ (.41) $ .16
======== ======== ======== ========
Weighted average shares outstanding............. 90,646 95,053 90,812 95,094
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
1
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HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
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SEPTEMBER 30,
--------------------- DECEMBER 31,
ASSETS 1995 1994 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(In thousands)
CURRENT ASSETS
Cash and cash equivalents................................ $ 20,438 $ 43,666 $ 33,648
Accounts and notes receivable, net....................... 31,734 44,709 40,841
Income taxes receivable.................................. -- -- 2,816
Inventories, net......................................... 136,822 117,706 118,801
Deferred income taxes.................................... 36,532 23,252 22,108
Other current assets, net................................ 11,789 13,156 10,632
-------- -------- ------------
Total current assets........................... 237,315 242,489 228,846
PROPERTY, PLANT AND EQUIPMENT
Computer and broadcast equipment......................... 107,936 105,315 106,144
Buildings and leasehold improvements..................... 75,114 73,698 74,514
Furniture and other equipment............................ 47,397 43,115 46,183
-------- -------- ------------
230,447 222,128 226,841
Less accumulated depreciation and amortization......... 128,405 112,724 116,697
-------- -------- ------------
102,042 109,404 110,144
Land..................................................... 17,711 17,915 17,774
Construction in progress................................. 3,940 4,700 3,182
-------- -------- ------------
123,693 132,019 131,100
OTHER ASSETS
Cable distribution fees, net ($33,354, $33,958, and
$34,174, respectively, to related parties)............. 94,977 56,644 67,978
Long-term investments ($10,000 in a related party)....... 14,000 10,000 10,000
Other non-current assets................................. 7,719 9,126 8,575
-------- -------- ------------
116,696 75,770 86,553
-------- -------- ------------
$477,704 $450,278 $446,499
======== ======== ============
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE> 4
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
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SEPTEMBER 30,
--------------------- DECEMBER 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(In thousands)
CURRENT LIABILITIES
Current maturities of long-term obligations.............. $ 1,540 $ 1,710 $ 1,690
Accounts payable......................................... 116,854 99,867 75,264
Income taxes payable..................................... 3,263 5,705 --
Accrued liabilities:
Programming fees ($4,322, $36,118 and $26,591,
respectively, to related parties)................... 23,457 49,193 50,170
Sales returns.......................................... 9,654 12,677 12,304
Litigation settlements................................. 8,050 14,450 14,450
Sales taxes............................................ 5,172 6,709 7,173
Treasury stock......................................... -- -- 13,109
Other.................................................. 38,399 31,290 31,613
-------- -------- ------------
Total current liabilities...................... 206,389 221,601 205,773
LONG-TERM OBLIGATIONS (net of current maturities)........ 116,040 2,706 27,491
DEFERRED INCOME TAXES.................................... 5,814 6,444 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 77,665,879 and 77,515,329 shares at
September 30, 1995 and 1994, respectively, and
77,553,329 shares at December 31, 1994................. 777 775 776
Class B -- convertible common stock -- $.01 par value;
authorized, issued and outstanding, 20,000,000
shares................................................. 200 200 200
Additional paid-in capital............................... 168,266 166,499 167,463
Retained earnings........................................ 33,324 67,767 69,560
Treasury stock -- 6,986,000 and 3,105,700 common shares
at September 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.................................... (4,388) (1,687) (4,420)
-------- -------- ------------
149,461 219,527 206,443
-------- -------- ------------
$477,704 $450,278 $446,499
======== ======== ============
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 5
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
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CLASS B
CONVERTIBLE ADDITIONAL UNEARNED
COMMON COMMON PAID-IN RETAINED TREASURY COMPEN-
STOCK STOCK CAPITAL EARNINGS STOCK SATION TOTAL
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
(In thousands)
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 -- 4,288 -- -- -- 4,295
Income tax benefit related to
executive stock award program and
stock options exercised........... -- -- 1,840 -- -- -- 1,840
Expense related to executive stock
award program..................... -- -- -- -- -- 1,854 1,854
Conversion of Class B common stock
to common stock................... 6 (6) -- -- -- -- --
Net earnings for the nine months
ended September 30, 1994.......... -- -- -- 14,984 -- -- 14,984
------ ----- -------- -------- -------- -------- --------
BALANCE AT SEPTEMBER 30, 1994....... $775 $ 200 $166,499 $ 67,767 $(14,027) $(1,687) $219,527
===== ===== ======== ======== ======== ======== ========
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......... 1 -- 622 -- -- -- 623
Income tax benefit related to
executive stock award program and
stock options exercised........... -- -- 181 -- -- -- 181
Expense related to executive stock
award program..................... -- -- -- -- -- 531 531
Unearned compensation related to
employee equity participation
plan.............................. -- -- -- -- -- (1,264 ) (1,264)
Expense related to employee equity
participation plan................ -- -- -- -- -- 765 765
Purchase of treasury stock, at
cost.............................. -- -- -- -- (21,582) -- (21,582)
Net loss for the nine months ended
September 30, 1995................ -- -- -- (36,236) -- -- (36,236)
---- ----- -------- -------- -------- -------- --------
BALANCE AT SEPTEMBER 30, 1995....... $777 $ 200 $168,266 $ 33,324 $(48,718) $(4,388) $149,461
==== ===== ======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 6
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
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NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1995 1994
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<S> <C> <C>
(In thousands)
Cash flows from operating activities:
Net earnings (loss)............................................... $(36,236) $ 14,984
Adjustments to reconcile net earnings (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization................................ 20,834 18,630
Amortization of cable distribution fees...................... 8,680 1,991
Deferred income taxes........................................ (15,402) 4,157
Loss on disposition of wholly-owned subsidiary............... -- 2,854
Inventory carrying value adjustment.......................... 1,973 (3,155)
Change in stock appreciation rights ("SARs") and common stock
issued for services provided................................ 1,296 691
Provision for losses on accounts and notes receivable........ (724) 227
Loss on sale of assets....................................... 541 102
Equity in (earnings) losses of unconsolidated affiliates..... 21 (51)
Loss on retirement of long term obligations.................. -- 1,491
Change in current assets and liabilities:
(Increase) decrease in accounts and interest receivable... 4,516 (9,504)
Decrease in income taxes receivable....................... 2,816 --
Increase in inventories................................... (19,994) (3,621)
(Increase) decrease in other current assets............... 140 (5,837)
Increase in accounts payable.............................. 41,590 11,009
Increase (decrease) in accrued liabilities and income
taxes payable........................................... (27,534) 27,882
Increase in cable distribution fees.......................... (35,679) (58,635)
Stock purchases for employee benefit plan.................... (1,264) --
-------- ---------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES....... (54,426) 3,215
-------- ---------
Cash flows from investing activities:
Capital expenditures.............................................. (10,247) (13,000)
Increase in long-term investments................................. (4,000) --
Proceeds from long-term notes receivable.......................... 2,984 131,587
Increase in intangible assets..................................... (2,378) (3,789)
Increase in other non-current assets.............................. (1,004) (5,708)
Proceeds from sale of assets...................................... 1,530 2,259
-------- ---------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES....... (13,115) 111,349
-------- ---------
Cash flows from financing activities:
Net borrowings from secured credit facility....................... 90,000 --
Purchases of treasury stock....................................... (34,691) --
Principal payments on long-term obligations....................... (1,601) (110,759)
Proceeds from issuance of common stock............................ 623 4,295
-------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES....... 54,331 (106,464)
-------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................ (13,210) 8,100
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.................... 33,648 35,566
-------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.......................... $ 20,438 $ 43,666
======== =========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE> 7
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" or "HSN") 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 nine month period ended
September 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 nonrecurring
items as discussed in Notes E and F. 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.
The Company has reached agreement in principle to settle this case on the
following terms. Customers who present adequate proof of purchase during the
class period will have the option of receiving a cash payment or a discount
certificate for the purchase of HSN merchandise during the following twelve
months. Under the proposed settlement agreement, $2.5 million will be the
maximum cash payment required from the Company with respect to all costs
relating to the settlement, including costs of administration, fees and expenses
of the attorneys for the class, cash settlement payments to the class and all
other payments. The Company will be entitled to a refund of any cash not used
for these purposes.
If certificates representing a maximum discount of more than $5.2 million
would be issuable under the settlement, the Company has the right to require
that the certificates be pro-rated among those who elect to receive them.
The settlement is subject to execution of definitive agreements by the
parties and approval by the Court, after notice and hearing.
During the quarter ended September 30, 1995, the Company accrued a balance
sufficient to cover anticipated costs in connection with the resolution of this
and other pending litigation.
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.
6
<PAGE> 8
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
NOTE C -- CREDIT FACILITY
The Company's $150.0 million revolving credit facility, was amended on
September 28, 1995. The amended credit facility now expires on April 1, 1997, is
secured by the capital stock of Home Shopping Club, Inc. ("HSC") and HSN Realty,
Inc. ("Realty"), wholly-owned subsidiaries of HSN, and provides the Company with
full availability of the facility and increased flexibility with respect to
certain of its financial covenants. Borrowings under this facility may be used
for general corporate purposes. 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 September 30, 1995, the Company was in
compliance with all covenants contained in the credit facility. At November 6,
1995, $120.0 million was outstanding under this facility. Fees relating to the
credit facility amendments totaled $2.7 million during the nine months ended
September 30, 1995.
In addition to the above credit facility, the Company also has a $25.0
million committed bank credit line, secured by the capital stock of HSC and
Realty, and a $15.0 million uncommitted unsecured facility. These facilities
back letters of credit used exclusively to facilitate inventory importation. At
October 31, 1995, outstanding letters of credit amounted to $14.0 million
leaving $11.0 million of these bank credit lines available. Outstanding letters
of credit are limited to a total of $25.0 million at any time, under the terms
of the revolving credit facility discussed above.
NOTE D -- INCOME TAXES
On May 12, 1995, the Internal Revenue Service ("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, primarily related to the disallowance of royalty payments made to a
previously related party. The Company also made such royalty payments during
fiscal years 1992 through early 1993. 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 tax losses for the nine months ended September 30,
1995 totaling $56.3 million. The Company will carry back $8.9 million to obtain
an income tax refund. Any remaining tax loss (presently $47.4 million) would be
carried forward and would expire on December 31, 2010. Management believes that
it will generate future taxable income sufficient to realize this tax benefit
prior to its expiration. This belief is based upon, among other things,
merchandising and programming strategies aimed at long-term improvements in
sales and operating results, obtaining additional program carriage and
increasing market penetration. Accordingly, the Company has recognized an asset
related to these carryforwards and no valuation allowance has been provided.
NOTE E -- RESTRUCTURING CHARGE
During the nine months ended September 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 nine months ended September 30, 1995, payments
totaling $1.3 million were made related to this charge.
7
<PAGE> 9
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
NOTE F -- OTHER CHARGES
During the quarter ended September 30, 1995, the Company recorded $5.4
million in "Other Charges." These consisted of severance pay of $2.0 million
related to a reduction in work force, and $2.1 million of payments to the former
president and chief executive officer as provided for under his employment
agreement in connection with the termination of his employment. In addition, the
Company recorded a write-down of inventory totaling $1.3 million to net
realizable value based on the planned disposition of Ortho-Vent, Inc., one of
its mail order subsidiaries. An additional $2.4 million, related to name lists
of Ortho-Vent, Inc. were written off and included in "Depreciation and
Amortization."
NOTE G -- 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 H -- 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>
--------------------------------------------------------------------------------------
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
1995 1994
--------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
CASH PAID FOR:
Interest..................................................... $ 4,363 $ 5,839
Income taxes................................................. 385 15,064
CASH RECEIVED FOR:
Income tax refund............................................ 11,006 227
</TABLE>
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> 10
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 third quarter
and first nine 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 nine months ended September 30, 1995, net sales for the
Company decreased $36.7 million, or 13.3%, to $239.9 million from $276.6 million
and $94.7 million, or 11.5%, to $730.2 million from $824.8 million,
respectively, compared to the same periods in 1994. Net sales of HSC decreased
$49.9 million, or 19.5%, and $130.9 million, or 17.4%, for the quarter and nine
months ended September 30, 1995. HSC's sales reflect decreases of 29.2% and
21.1% in the number of packages shipped while the average price per unit sold
increased 18.1% and 6.9% for the quarter and nine months ended September 30,
1995, respectively, compared to the same periods in 1994. The decreases in HSC
sales were offset by sales increases by the Company's infomercial joint venture,
HSN Direct Joint Venture ("HSND"), and wholly-owned subsidiaries, HSN Mail
Order, Inc., ("Mail Order") and Vela Research, Inc. ("Vela") totaling $11.5
million and $36.5 million, respectively, for the quarter and nine months ended
September 30, 1995.
Since September 1994, the Company has appointed new 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 nine months ended September 30, 1995, to the 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 relaunched 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 improvement in sales by attracting new customers
and increasing the frequency of repeat purchases. While management believes the
Company's new merchandising and programming strategies will improve both sales
and operating results, the fourth quarter of 1995, when compared to the prior
year, may continue to be negatively affected by these changes. Management has
also instituted additional promotional programs to help increase sales,
including no interest and no payments through February 1996 for certain
purchases made using the Company's private label credit card. There can be no
assurance that these changes will achieve management's intended results.
9
<PAGE> 11
For the quarter and nine months ended September 30, 1995, HSC's merchandise
return percentage increased to 27.6% from 25.0%, and to 25.6% from 24.5%,
respectively, compared to the same periods in 1994. The increase in return rates
is attributable, in part, to an increase in average price per unit and, in part,
to returns resulting from promotional events. Management expects return rates to
remain at higher levels in the fourth quarter when compared to the prior year.
Promotional price discounts decreased to 2.4% from 2.7% of HSC sales for the
quarter ended September 30, 1995, and increased to 2.9% from 2.6% of HSC sales
for the nine months ended September 30, 1995, compared to the same periods in
1994.
At September 30, 1995 and 1994, HSC had approximately 4.8 million active
members. 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, 59.1% of active members have made more than one purchase in
the last 18 months, compared to 59.9% at September 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 HSN, the Company's primary network, by category
for the twelve months ended September 30, 1995:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
CABLE BROADCAST SATELLITE TOTAL
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(In thousands of households)
Households -- September 30, 1994.................... 38,005 23,855 3,750 65,610
Net additions/(deletions)........................... 4,015 (864) -- 3,151
Shift in classification............................. 1,456 (1,456) -- --
Change in Nielsen household counts.................. -- 187 -- 187
------ --------- --------- ------
Households -- September 30, 1995.................... 43,476 21,722 3,750 68,948
====== ======= ====== ======
</TABLE>
As of September 30, 1995, there were 95.3 million homes in the United
States with a television set, 62.1 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.
An additional decrease was 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 23.3 million cable
television households are reached by the Spree! network, of which 15.2 million
are on a part-time basis. Of the total cable television households receiving
Spree!, 19.8 million also receive HSN.
During the remainder of 1995, cable system contracts covering 1.6 million
cable subscribers are subject to termination or renewal. This represents 3.8% of
the total number of unduplicated cable households receiving HSN. 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 which began in late 1993, the Company has 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,
10
<PAGE> 12
the Company embarked 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.
COST OF SALES
For the quarter and nine months ended September 30, 1995, cost of sales
decreased $16.7 million, or 9.3%, to $162.3 million from $179.0 million and
$43.0 million, or 8.1%, to $490.4 million from $533.4 million, respectively,
compared to the same periods in 1994. As a percentage of net sales, cost of
sales increased to 67.7% from 64.7% and to 67.2% from 64.7% for the quarter and
nine months ended September 30, 1995, respectively, compared to the same periods
in 1994.
Cost of sales of HSC for the quarter and nine months ended September 30,
1995, decreased $25.7 million and $65.5 million, respectively. This was
primarily offset by increases in cost of sales by HSND, Mail Order and Vela
totaling $7.8 million and $20.6 million, respectively, for the quarter and nine
months ended September 30, 1995. As a percentage of HSC's net sales, cost of
sales increased to 70.1% from 66.5% and to 69.8% from 66.4%, for the quarter and
nine months ended September 30, 1995, compared to the same periods in 1994.
The 1995 dollar decreases in consolidated and HSC's cost of sales, compared
to the same 1994 periods, relate to the lower sales volumes. The comparative
increases in cost of sales percentages relate to warehouse sales and other
promotional events. These events offered price discounts and were designed to
accommodate the Company's distribution center restructuring and to sell existing
merchandise to make room for new merchandise receipts late in the third quarter
in preparation for the holiday selling season.
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 nine months ended September 30, 1995,
compared to the same periods in 1994:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1995 SEPTEMBER 30, 1995
------------------------ ------------------------
$ $ % $ $ %
AMOUNT CHANGE CHANGE AMOUNT CHANGE CHANGE
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(In millions, except %)
Selling and marketing................... $38.9 $ 2.4 6.4 % $122.4 $ 8.7 7.6%
Engineering and programming............. 24.4 (.3 ) (1.3 ) 73.9 .1 .1
General and administrative.............. 18.1 (.1 ) (.4 ) 58.5 (.1 ) (.1)
Depreciation and amortization........... 11.6 4.0 52.9 29.5 8.9 43.1
Other charges........................... 5.4 5.4 100.0 5.4 5.4 100.0
Restructuring charge.................... -- -- -- 2.0 2.0 100.0
------ ------ ------ ------
$98.4 $11.4 $291.7 $25.0
====== ===== ====== =====
</TABLE>
As a percentage of net sales, these expenses increased to 41.0% from 31.5%,
and to 40.0% from 32.3%, respectively, for the quarter and nine months ended
September 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 resulted in some reduction in individual categories of
operating expenses in the quarter ended September 30, 1995 and will result in
future reductions to operating expenses, the Company incurred additional costs
in the third quarter of 1995 in connection with these measures. See "Other
Charges."
11
<PAGE> 13
SELLING AND MARKETING
For the quarter and nine months ended September 30, 1995, selling and
marketing expenses, as a percentage of net sales, increased to 16.2% from 13.2%,
and to 16.8% from 13.8%, respectively, compared to the same periods in 1994.
The major components of selling and marketing expenses are detailed below,
including the dollar and percentage changes for the quarter and nine months
ended September 30, 1995, compared to the same periods in 1994:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1995 SEPTEMBER 30, 1995
------------------------ ------------------------
$ $ % $ $ %
AMOUNT CHANGE CHANGE AMOUNT CHANGE CHANGE
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(In millions, except %)
Telephone, operator and customer
service............................. $11.3 $(1.4 ) (11.2 )% $37.3 $(2.1 ) (5.4)%
Fees to cable systems operators:
Commissions......................... 8.0 (1.2 ) (12.9 ) 22.8 (5.9 ) (20.6)
Marketing payments for cable
advertising...................... 4.2 .6 18.4 12.8 (5.9 ) (31.7)
Performance bonus commissions....... 3.0 (.6 ) (17.9 ) 9.8 4.1 71.9
HSND selling expenses................. .6 -- -- 9.6 9.0 1,593.8
</TABLE>
Telephone, operator and customer service expenses are typically related to
sales, call volume and the number of packages shipped. For the quarter and nine
months ended September 30, 1995, telephone costs decreased due to a $1.4 million
rebate for past telephone charges from the Company's long distance telephone
carrier in connection with a new contract for telephone services. This contract
will also result in lower future telephone rates compared to prior periods. HSC
telephone and operator costs decreased $.9 million and $1.3 million for the
quarter and nine months ended September 30, 1995, respectively, due to lower
call volume. In addition, the sale in the second quarter of 1994 of the
Company's former wholly-owned subsidiary, HSN Mistix Corporation ("Mistix"),
resulted in a $2.0 million decrease in telephone and operator costs for the nine
months ended September 30, 1995. These decreases were primarily offset by
increased telephone and operator costs incurred by Mail Order and the Company's
telemarketing subsidiary, National Call Center, Inc., totaling $.7 million and
$2.4 million for the quarter and nine months ended September 30, 1995,
respectively. Management expects HSC operator costs to fluctuate in relation to
call and package volume for the remainder of 1995. Customer service costs
increased $.1 million and $.4 million for the quarter and nine months ended
September 30, 1995, respectively, due to the expansion of customer service
operating hours, in March 1995, to seven days a week, twenty-four hours a day.
For the quarter and nine months ended September 30, 1995, commissions to
cable system operators decreased as a result of the decrease in sales.
Marketing payments for cable advertising increased for the quarter ended
September 30, 1995 compared to the same period in 1994 due to contractual
commitments with certain cable operators. However, such payments which relate
primarily to previous contractual commitments, decreased for the nine months
ended September 30, 1995. 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
decrease, and depreciation and amortization will increase for the remainder of
1995. Performance bonus commissions are expected to fluctuate in relation to
sales for the remainder of 1995.
In addition, cable operators which have executed affiliation agreements to
carry the Company's programming are generally 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
12
<PAGE> 14
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
decrease during the remainder of 1995. The remaining net increase in selling and
marketing expenses is attributable to promotional expenses incurred in
connection with the Company's new programming strategies, increased Mail Order
catalog costs and advertising and promotional expenses of the Company's other
subsidiary operations. As a result of the Company's promotional program related
to its private label credit card, the Company will incur additional interest
charges in the fourth quarter. 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."
ENGINEERING AND PROGRAMMING
For the quarter and nine months ended September 30, 1995, engineering and
programming expenses, as a percentage of net sales, increased to 10.2% from
8.9%, 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
September 30, 1995, and increase for the nine months then ended, compared to the
same periods in 1994, was due to lower broadcast costs of $1.1 million and $2.3
million, respectively. This was offset by increases totaling $.8 million and
$2.2 million for the quarter and nine months ended September 30, 1995,
respectively, in production costs incurred in connection with the Company's new
programming strategies, as discussed in "Net Sales" and HSND programming costs.
Engineering and programming expenses are expected to remain relatively constant
for the remainder of 1995.
GENERAL AND ADMINISTRATIVE
For the quarter and nine months ended September 30, 1995, general and
administrative expenses, as a percentage of net sales, increased to 7.6% from
6.6%, and to 8.0% from 7.1%, respectively, compared to the same periods in 1994.
For the quarter ended September 30, 1995, decreases in consulting and legal
expenses totaling $1.3 million were primarily offset by an increase in expense
of $1.1 million in connection with SARs. For the nine months ended September 30,
1995, decreases in legal expense and expense in connection with the Company's
executive stock award program totaling $4.3 million were primarily offset by
increases in consulting, payroll, expenses in connection with SARs and the
Company's employee equity participation plan, and other administrative expenses
totaling $4.2 million.
Based on savings to be realized in connection with the reduction of the
Company's work force, as discussed in Note F to the Condensed Consolidated
Financial Statements included herein, management expects general and
administrative expenses to decrease for the remainder of 1995.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased primarily due to the amortization
of cable distribution fees, which increased $1.8 million and $6.7 million,
respectively, for the quarter and nine months ended September 30, 1995.
Amortization of these fees is expected to total $12.0 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. In addition, amortization expense increased $2.4 million for the quarter
and nine months ended September 30, 1995, as capitalized name lists were fully
amortized in connection with the pending sale of a division of Mail Order,
13
<PAGE> 15
Ortho-Vent, Inc., ("Ortho-Vent") as discussed in Note F to the Condensed
Consolidated Financial Statements included herein.
OTHER CHARGES
The other charges for the quarter and nine months ended September 30, 1995
of $5.4 million consist of severance costs of $2.0 million related to a
reduction in work force, and $2.1 million of payments to the former president
and chief executive officer as provided for under his employment agreement in
connection with the termination of his employment. In addition, the Company
recorded a write-down of inventory totaling $1.3 million to net realizable value
in connection with the pending sale of Ortho-Vent. See Note F to the Condensed
Consolidated Financial Statements, included herein. The sale of Ortho-Vent
should not have a significant impact on the Company's net sales or results of
operations in future periods.
RESTRUCTURING CHARGE
The restructuring charge for the nine months ended September 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 nine months ended September 30, 1995, the Company had
net other expense of $5.0 million and $3.8 million, respectively, compared to
net other income of $2.1 million and $2.7 million, respectively, for the same
periods in 1994.
Interest income decreased $1.3 million and $7.3 million, respectively, for
the quarter and nine months ended September 30, 1995, compared to the same
periods in 1994, primarily due to the repayment by Silver King Communications,
Inc., 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 increased $1.8 million and $.9 million, respectively, for
the quarter and nine months ended September 30, 1995, due to borrowings by the
Company under its amended bank facility in late 1994 and the first nine months
of 1995. The Company intends to borrow additional amounts during the remainder
of 1995. Interest expense for the fourth quarter will show an increase compared
to 1994 as a result of these borrowings and higher interest rates. The increases
for the quarter and nine months ended September 30, 1995, were partially offset
by decreased interest expense as a result of the repayment by the Company, in
August 1994, of its Senior Term Loans.
For the quarter and nine months ended September 30, 1995, the Company had
net miscellaneous income of $.3 million and $3.9 million, respectively, which
primarily include the receipt of proceeds from lawsuit settlements of $.4
million and $1.5 million, respectively, royalty income related to HSND of $.1
million and $.9 million, respectively, and a gain of $.6 million on the sale of
other assets in the first quarter of 1995. For the quarter and nine months ended
September 30, 1994, the Company had net miscellaneous income of $1.2 million and
net miscellaneous expense of $1.1 million, respectively, which includes the
receipt of proceeds from a lawsuit settlement totaling $.8 million. The nine
months ended September 30, 1994 includes a $2.9 million loss on the sale of the
common stock of Mistix.
Litigation expense for the quarter and nine months ended September 30,
1995, of $3.2 million, represents anticipated costs in connection with the
resolution of certain pending litigation.
INCOME TAXES
The Company's effective tax rates were benefits of (31.5)% and (35.0)% for
the quarter and nine months ended September 30, 1995, respectively, and an
expense of 42.0% for the quarter and nine months ended
14
<PAGE> 16
September 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") offset in part by previously disallowed
compensation, 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 $(17.7) million, or $(.20) per share, for the
quarter ended September 30, 1995, compared to net earnings of $6.4 million, or
$.07 per share, for the quarter ended September 30, 1994. For the nine months
ended September 30, 1995, the Company had a net loss of $(36.2) million, or
$(.41) per share, compared to net earnings of $15.0 million, or $.16 per share
in the same period of 1994. The decreases in net income for the quarter and nine
months ended September 30, 1995, were primarily attributable to decreases in net
sales of $36.7 million and $94.7 million and decreases in gross profit of $20.0
million and $51.7 million, respectively, compared to the quarter and nine months
ended September 30, 1994. As discussed in "Other Charges," the results for the
quarter and nine months ended September 30, 1995, included $5.4 million of costs
related to severance, SARs and the write-down of inventory. As discussed in
"Restructuring Charge," the results for the nine months ended September 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. The results for
the quarter and nine months ended September 30, 1994, include an extraordinary
loss of $(.9) million, or $(.01) per share, on the early extinguishment of
long-term obligations.
SEASONALITY
The Company believes that seasonality does impact its business but not to
the same extent it impacts the retail industry in general.
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>
----------------------------------------------------------------------------------------
SEPTEMBER 30,
----------------- DECEMBER 31,
1995 1994 1994
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash and cash equivalents (millions)................ $ 20.4 $ 43.7 $ 33.6
Working capital (millions).......................... $ 30.9 $ 20.9 $ 23.1
Current ratio....................................... 1.15:1 1.09:1 1.11:1
Accounts and notes receivable, net (millions)....... $ 31.7 $ 44.7 $ 40.8
Inventories, net (millions)......................... $136.8 $117.7 $118.8
Inventory turnover for the quarter (annualized for
September periods only)........................... 5.31 6.51 6.36
Inventory turnover for nine months (annualized for
September periods only)........................... 5.12 6.22 6.36
</TABLE>
Cash and cash equivalents totaled $20.4 million at September 30, 1995,
compared to $43.7 million at September 30, 1994, and $33.6 million at December
31, 1994. The principal source of cash for the twelve months ended September 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 $70.8 million, purchase treasury stock, pay settlements to
the IRS in the amount of $19.6 million, pay litigation settlements and pay for
$15.8 million of capital expenditures.
The principal source of cash for the nine months ended September 30, 1995,
was borrowings by the Company under its revolving credit facility. These funds
were used principally to pay cable distribution fees of $57.9 million, purchase
treasury stock, pay litigation settlements and pay for capital expenditures. The
net loss
15
<PAGE> 17
adjusted for non-cash items totaled $(9.9) million and $(19.0) million for the
twelve months and nine months ended September 30, 1995, respectively.
Accounts and notes receivable, net, decreased to $31.7 million at September
30, 1995, from $44.7 million at September 30, 1994, and from $40.8 million at
December 31, 1994. The primary reason for the decreases is "FlexPay" accounts
receivable which totaled $15.2 million at September 30, 1995, compared to $25.8
million at September 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 $136.8 million at September 30, 1995, from
$117.7 million at September 30, 1994, and $118.8 million at December 31, 1994,
due to merchandise receipts late in the quarter ended September 30, 1995 in
preparation for the holiday selling season. The inventory balance is net of a
carrying value adjustment of $20.5 million at September 30, 1995, which
represents a decrease from $22.1 million at September 30, 1994, and an increase
from $18.8 million at December 31, 1994.
Capital expenditures for the nine months ended September 30, 1995, were
$10.2 million. The Company estimates capital expenditures will range between
$2.0 million and $4.0 million for the remainder of 1995.
On September 28, 1995, the Company amended its $150.0 million revolving
credit facility. The amended facility is secured by the capital stock of HSC and
HSN Realty, Inc. ("Realty"), wholly-owned subsidiaries of the Company, and
provides the Company with full availability of the facility and more flexibility
with respect to certain of its financial covenants, through April 1, 1997.
However, there remain restrictions on repurchases of the Company's common stock
based upon future cash flow levels. As of November 6, 1995, $120.0 million was
outstanding under this facility.
In February 1995, the Company paid $9.6 million, plus interest, in
connection with litigation settlements, using borrowings under its bank
facility. An additional $5.0 million will be paid in the fourth quarter of 1995
following final court approval of a previously disclosed litigation settlement.
During the remainder of 1995, management expects to pay cable distribution fees,
totaling $14.3 million, relating to current contracts with cable system
operators to carry HSC programming. Of this amount, $4.0 million is payable to a
related party.
In July 1995, the Company paid $4.0 million for a 20.0% interest in Body By
Jake Enterprises, L.L.C. This investment is accounted for under the cost method.
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 October 31, 1995, the Company has a $25.0 million committed bank
credit line collateralized by the capital stock of HSC and Realty, and a $15.0
million uncommitted unsecured facility. These credit lines 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, which
cannot exceed $25.0 million in total in accordance with the revolving line of
credit, amounted to $14.0 million at October 31, 1995, leaving $11.0 million
available.
For the quarter ended September 30, 1995, the Company did not pay any cash
dividends and does not anticipate paying cash dividends in the immediate future.
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. Under the terms of
its credit facility the Company is restricted from purchasing its common stock
until it meets certain cash flow ratios.
16
<PAGE> 18
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> 19
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.
See Note B to the Condensed Consolidated Financial Statements for
information with respect to an agreement in principle to settle a class action
pending against the Company in the Court of Common Pleas of Bucks County,
Pennsylvania: Mauger v. Home Shopping Network, Inc.; Powell v. Home Shopping
Network, Inc. (Case Number 91-6152-20-1).
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
Exhibit 10.39 Third Amendment, dated as of September 28, 1995, to the Second
Amended and Restated Credit Agreement.
Exhibit 10.40 Letter of Credit Facility dated as of September 28, 1995.
Exhibit 27 Financial Data Schedule (SEC use only).
18
<PAGE> 20
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 November 6, 1995 /s/ DAVID F. DYER
- --------------------------------------------- ---------------------------------------------
David F. Dyer
President and
Chief Operating Officer
Dated November 6, 1995 /s/ KEVIN J. McKEON
- --------------------------------------------- ---------------------------------------------
Kevin J. McKeon
Senior Vice President,
Accounting & Finance
and Treasurer
(Principal Financial Officer)
Dated November 6, 1995 /s/ BRIAN J. FELDMAN
- --------------------------------------------- ---------------------------------------------
Brian J. Feldman
Controller
(Chief Accounting Officer)
</TABLE>
19
<PAGE> 1
EXHIBIT 10.39
EXECUTION COPY
THIRD AMENDMENT, dated as of September 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, and as further
amended by the Second Amendment thereto, dated as of June 28, 1995, the "Credit
Agreement"), among HOME SHOPPING NETWORK, INC., a Delaware corporation, as
borrower (the "Company"), HOME SHOPPING CLUB, INC., a Delaware corporation
("HSC"), HSN REALTY, INC., a Delaware corporation ("HSNR"; together with HSC,
the "Guarantors"), the banks signatory thereto (individually, a "Bank" and
collectively, the "Banks"), LTCB TRUST COMPANY, as Agent, THE BANK OF NEW YORK
COMPANY, INC., TORONTO DOMINION [TEXAS], INC. and BANK OF MONTREAL, each as a
Co-Agent (each in such capacity, a "Co-Agent"), LTCB TRUST COMPANY, as
Administrative Agent for the Banks (in such capacity, the "Administrative
Agent"), and LTCB TRUST COMPANY, as collateral agent for the Banks (in such
capacity, the "Collateral Agent").
WHEREAS, the Company and each of the Guarantors have
requested, and the Banks and the Administrative Agent are willing, to amend
certain provisions of the Credit Agreement to provide for (i) increases in the
availability of the Commitments of certain Banks, (ii) changes in the rate of
interest and certain fees, (iii) additional collateralization of the Company's
obligations under the Credit Agreement, including, without limitation, the
guarantee of HSNR and a pledge by the Company of a first priority security
interest in all its capital stock of HSC and HSNR to the Collateral Agent for
the benefit of the Banks, and (iv) 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 Third 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:
<PAGE> 2
(a) Section 1.1 of the Credit Agreement is hereby amended
by (i) deleting the reference in clause (ii)(a) of the definition of
"Applicable Margin" set forth in such Section to "2.125%" and replacing it with
"2.50%" and (ii) deleting the reference in clause (ii)(b) of such definition to
"1.125%" and replacing it with "1.50%".
(b) Section 1.1 of the Credit Agreement is hereby further
amended by deleting the definition of "Commitment" and replacing it with the
following:
"Commitment" shall mean, with respect to any Bank,
(a) at any time prior to the Third Amendment Effective Date, the
amount set forth opposite such Bank's name on the signature pages of
the First Amendment under the caption "Commitment", and (b) at any
time on or after the Third Amendment Effective Date, the amount set
forth opposite such Bank's name on the signature pages of the Third
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 further
amended by deleting the reference in clause (a) of the definition of
"Commitment Termination Date" to "August 30, 1997" and replacing it with "April
1, 1997".
(d) Section 1.1 of the Credit Agreement is hereby further
amended by deleting the first two rows of the grid appearing in the definition
of "Facility Fee Rate" and replacing them with the following:
<TABLE>
<CAPTION>
Effective Total
Debt Ratio Facility Fee Rate
--------------- -----------------
<S> <C>
Greater than 4.00 to 1 0.500%
Less than or equal to 4.00
to 1, but greater than
or equal to 3.50 to 1 0.375%
</TABLE>
(e) Section 1.1 of the Credit Agreement is hereby further
amended by inserting the name "HSN Direct, Inc. (except for purposes of Section
9.7)" immediately after the name "HSN
-2-
<PAGE> 3
Mail Order, Inc." appearing in the sixth line of the definition of
"Material Subsidiary".
(f) Section 1.1 of the Credit Agreement is hereby further
amended by (i) inserting the words ", the Pledge Agreement" immediately after
the word "Notes" appearing in the fifth line of the definition of "Obligations"
and (ii) inserting the words ", Pledge Agreement" immediately after the word
"Notes" appearing in the sixth line of such definition.
(g) Section 1.1 of the Credit Agreement is hereby further
amended by inserting the words and punctuation ", a limited liability company"
immediately after the words "an unincorporated association" appearing in the
definition of "Person".
(h) Section 1.1 of the Credit Agreement is hereby further
amended by adding the following new definitions thereto in the appropriate
alphabetical position:
"BNY" shall mean The Bank of New York in its capacity
as the issuer of trade letters of credit under the BNY L/C Facility.
"BNY L/C Facility" shall mean a $25,000,000 committed
letter of credit facility, as evidenced by the Letter of Credit
Facility Agreement, dated as of September 28, 1995, as amended,
supplemented or modified from time to time in accordance with the
terms thereof and hereof (the "BNY Facility Agreement"), among HSC,
HSN Mail Order and HSN Direct, Inc., Inc., as applicants, the Company
and HSNR, as guarantors, BNY, as issuer, The Bank of New York Company,
Inc., as a participant, and BNY, as administrative agent.
"Collateral Agent" shall mean LTCB Trust Company in
its capacity as Collateral Agent under the Pledge Agreement.
"Guarantor" shall mean, unless the context provides
otherwise, HSC and HSNR; provided that references in this Agreement to
(i) "[E]ach of the Company and the Guarantor" shall mean "[E]ach of
the Company and each of HSC and HSNR" and (ii) "or the Guarantor" or
"and/or the
-3-
<PAGE> 4
Guarantor" shall mean "or either HSC or HSNR" or "and/or either HSC or
HSNR", as the case may be.
"HSC" shall mean Home Shopping Club, Inc., a Delaware
corporation.
"HSNR" shall mean HSN Realty, Inc., a Delaware
corporation.
"Intercreditor Agreement" shall mean the
Intercreditor Agreement, dated as of September 28, 1995, as amended,
supplemented or modified from time to time, among the Banks, the
Administrative Agent, the Collateral Agent, BNY, The Bank of New York
Company, Inc., BNY, as Administrative Agent under the BNY Facility
Agreement, and such other parties who from time to time either issue
or participate in unreimbursed drawings under Trade Letters of Credit
and become party thereto, substantially in the form of Annex D to the
Third Amendment.
"Pledge Agreement" shall mean the Pledge Agreement,
dated as of September 28, 1995, as amended, supplemented or modified
from time to time, executed and delivered by the Company in favor of
the Collateral Agent, substantially in the form of Annex B to the
Third Amendment.
"Pledged Securities" shall mean all of the shares of
capital stock of HSC and HSNR owned beneficially and of record by the
Company, together with all stock certificates, options and rights of
any nature that may be issued or granted by HSC and/or HSNR to the
Company while this Agreement is in effect.
"Third Amendment" shall mean the Third Amendment,
dated as of September 28, 1995, to this Agreement.
"Third Amendment Effective Date" shall have the
meaning assigned to that term in Section 4 of the Third Amendment.
"Trade Letters of Credit" shall mean (i) the letters
of credit issued under the BNY L/C Facility (or, if the commitments
under the BNY Facility Agreement are
-4-
<PAGE> 5
terminated, the commercial letters of credit issued under a trade
letter of credit agreement with the same covenants, events of default
and maturity date as this Agreement), (ii) a standby letter of credit
(the "Insurance Standby Letter of Credit") issued in substitution for
the standby letter of credit issued by The Chase Manhattan Bank, N.A.
for the account of the Company in favor of the State of Florida in
connection with the Company's self insurance program, the stated
amount of which is, as of the Third Amendment Effective Date, $347,879
and (iii) the outstanding letters of credit (but not extensions or
replacements thereof) as of the Third Amendment Effective Date issued
by The Chase Manhattan Bank, N.A. for the account of HSN Direct, Inc.
and the Company listed on Schedule 5 attached hereto.
(i) Section 2.7(a) of the Credit Agreement is hereby
amended by deleting the words "as originally in effect" appearing in the fifth
line thereof.
(j) Section 2.8 of the Credit Agreement is hereby amended
by (x) inserting "(a)" immediately before the words "The Company" appearing in
the first line thereof, (y) deleting each of the references to "(a)", "(b)" and
"(c) appearing after the proviso and inserting "(i)", "(ii)" and "(iii)" in
lieu thereof and (z) inserting the following new paragraph (b) at the end
thereof:
(b) If the Company or any of its Subsidiaries
shall receive net cash proceeds from (i) any sale, lease, assignment,
conveyance, transfer of title or other disposition (a "disposition")
of any right or interest in or to property of any kind whatsoever,
whether real, personal or mixed and whether tangible or intangible,
including, without limitation, any mortgage of real property and any
sale/ leaseback, but excluding the disposition of inventory in the
ordinary course of business (an "asset disposition"), or (ii) any
disposition of any shares, interests, participations or other
equivalents (however designated) of capital stock of any of its
Subsidiaries (other than HSC and HSNR), any equivalent ownership
interests in any of its Subsidiaries which are not organized as
corporations and any warrants or options to purchase any of the
foregoing (a "stock disposition"), the Company shall, in each such
-5-
<PAGE> 6
instance, apply 100% of such net cash proceeds in excess of $1,000,000
to prepay the Loans. Each such prepayment shall be made, in the case
of any stock disposition involving net cash proceeds of less than
$5,000,000, within 90 days after the date of such disposition and, in
the case of any asset disposition involving net cash proceeds of less
than $5,000,000, within 30 days after the date on which the aggregate
net cash proceeds of all asset dispositions equals $5,000,000 and, in
the case of any asset disposition or stock disposition involving net
cash proceeds of $5,000,000 or more, within 30 days after the date of
such disposition and shall be subject to the indemnity provisions of
Section 5.4 hereof. Any such prepayment shall not reduce the
Commitments as in effect on the Third Amendment Effective Date. For
purposes of this Section 2.8(b), "net cash proceeds" shall mean the
aggregate cash proceeds received by the Company or any of its
Subsidiaries in respect of a disposition (and any cash payments
received in respect of promissory notes or other non-cash
consideration delivered to the Company or any such Subsidiary in
respect of a disposition), less (without duplication) (i) all
reasonable fees and expenses incurred by the Company or such
Subsidiary that are payable to Persons which are not Affiliates or
Subsidiaries of the Company in connection with such disposition, (ii)
all taxes attributable to such disposition which are incurred by the
Company or such Subsidiary and (iii) the aggregate amount of reserves
required in accordance with GAAP to be maintained on the books of the
Company or any of its Subsidiaries in order to pay contingent
liabilities incurred by the Company or any of its Subsidiaries in
respect of such disposition.
(k) Section 3.2 of the Credit Agreement is hereby amended
by (i) deleting the word "and" appearing at the end of clause (a) thereof, (ii)
inserting the word "and" immediately after the semicolon appearing at the end
of clause (b) thereof and (iii) by deleting the reference to "2.625%" in the
proviso to clause (b) thereof and inserting in lieu thereof "3.0%".
(l) Section 4.6 of the Credit Agreement is hereby amended
by deleting each reference in the fourth, 16th and 28th lines thereof to "the
Guarantor" and replacing it with "such Guarantor".
-6-
<PAGE> 7
(m) Section 6 of the Credit Agreement is hereby deleted
in its entirety and the following is hereby inserted in lieu thereof:
Section 6. Guarantee.
6.1 Unconditional Guarantee. For valuable
consideration, receipt of which is hereby acknowledged, and to induce
the Banks to make Loans to the Company, each of the Guarantors hereby,
jointly and severally, unconditionally and irrevocably, guarantees to
the Administrative Agent, the Collateral Agent, the Agent, each of the
Co-Agents and each of the Banks the payment in full when due (whether
at stated maturity, by acceleration or otherwise) of all principal of
and interest on each Loan and all other amounts payable by the Company
hereunder and under the Notes and all other documents referred to
herein or therein, in accordance with the terms hereof and thereof,
and, in the case of any extension of time of payment, in whole or in
part, that all such amounts shall be paid in full when due (whether at
stated maturity, by acceleration or otherwise) in accordance with the
terms of such extension. Each of the Guarantors hereby
unconditionally agrees that upon default in the payment when due
(whether at stated maturity, by acceleration or otherwise) of any of
such principal, interest or other amounts, the Guarantors shall
forthwith pay and perform the same in the money and funds, at the
time, in the place and in the manner provided for such payment in this
Agreement, the Notes or other applicable document.
6.2 Validity. Each of the Guarantors hereby
agrees that the guarantee provided by this Section 6 is a continuing
guarantee of payment and not merely of collection, that it is a
primary, independent obligation of each of the Guarantors and that
each Guarantor's obligations hereunder shall be joint and several,
absolute, unconditional and irrevocable, irrespective of (a) any
invalidity, illegality, irregularity or unenforceability of, or defect
in or any change in this Agreement, the Notes, the Pledge Agreement or
any other document referred to herein or therein, (b) any amendment,
modification or waiver of any term or condition of this Agreement or
the Notes or the
-7-
<PAGE> 8
Pledge Agreement or any such other document, or any waiver or consent
by the Administrative Agent, the Collateral Agent or any Bank to any
departure from the terms hereof or thereof, (c) any sale, exchange,
release, surrender, realization upon or other dealings with any
security or guarantee for any of the obligations guaranteed hereby
(whether now or hereafter granted), (d) any settlement or compromise
of such obligations, (e) the absence of any action to demand or
enforce any of such obligations against the Company, (f) the recovery
of any judgment against the Company or any other Person, or any action
to enforce the same, (g) the recovery of any claim under any other
guarantee of or security for such obligations or under any applicable
insurance, or (h) any other circumstance which might otherwise
constitute a legal or equitable discharge or defense of a guarantor or
surety (other than full and strict compliance with and satisfaction of
such liabilities).
6.3 Waivers. Each of the Guarantors hereby
waives notice of acceptance of the guarantee provided by this Section
6, notice of the extension of any credit or financial accommodation,
notice of the making of any Loan or the incurrence of any other
Obligations, notice of any extension of any Commitment Termination
Date, demand of payment, filing of claims with a court in the event of
bankruptcy of the Company or any other Person, any right to require a
proceeding or the filing of a claim first against the Company, any
other guarantor, any other Person, any letter of credit, or any
security for any of the Obligations, presentment, protest, notice of
default, dishonor or nonpayment and any other notice and all demands
whatsoever. Each of the Guarantors hereby further waives all setoffs
and counterclaims against the Company, the Administrative Agent, the
Collateral Agent, the Agent, each of the Co-Agents and each of the
Banks.
6.4 Subordination and Subrogation. Each of the
Guarantors hereby subordinates all present and future claims, now held
or hereafter acquired, against the Company as a creditor or
contributor of capital, or otherwise, to the prior and final payment
in full to the Banks of all of the Obligations. If, without reference
to the provisions of this Section 6.4, either of the Guarantors would
at any time
-8-
<PAGE> 9
be or become entitled to receive any payment on account of any claim
against the Company, whether in insolvency, bankruptcy, liquidation or
reorganization proceedings, or otherwise, such Guarantor shall and
does hereby irrevocably direct that all such payments shall be made
directly to the Administrative Agent on account of the Banks until all
Obligations shall be paid in full. Should either of the Guarantors
receive any such payment, such Guarantor shall receive such amount in
trust for the Banks and shall immediately pay over to the
Administrative Agent such amount as provided in the preceding
sentence.
Anything contained in this Section 6 to the contrary
notwithstanding, the obligations of each of the Guarantors hereunder
shall be limited to a maximum aggregate amount equal to the largest
amount that would not render its obligations hereunder subject to
avoidance as a fraudulent transfer or conveyance under Section 548 of
Title 11 of the United States Code or any applicable provisions of
comparable state law (collectively, the "Fraudulent Transfer Laws"),
in each case after giving effect to all other liabilities of such
Guarantor, contingent or otherwise, that are relevant under the
Fraudulent Transfer Laws (specifically excluding, however, any
liabilities of such Guarantor in respect of intercompany indebtedness
to the Company or other Affiliates of the Company to the extent that
such indebtedness would be discharged in an amount equal to the amount
paid by such Guarantor hereunder) and after giving effect as assets to
the value (as determined under the applicable provisions of the
Fraudulent Transfer Laws) of any rights to subrogation or contribution
of such Guarantor pursuant to (i) applicable law or (ii) any agreement
providing for an equitable allocation among such Guarantor and other
Affiliates of Company of obligations arising under guaranties by such
parties.
Each of the Guarantors further agrees that any rights
of subrogation such Guarantor may have against the Company, and any
rights of contribution such Guarantor may have against Company, and
any rights of contribution such Guarantor may have against the other
Guarantor or any other guarantor of the Obligations hereunder, shall
be junior and subordinate to any rights the Administrative Agent or
the
-9-
<PAGE> 10
Banks may have against such other Guarantor or any such other
guarantor.
6.5 Acceleration. Each of the Guarantors agrees
that, as between the Company on the one hand, and the Administrative
Agent, the Collateral Agent, the Agent, the Co-Agents and the Banks,
on the other hand, the obligations of the Company guaranteed under
this Section 6 may be declared to be forthwith due and payable, or may
be deemed automatically to have been accelerated, as provided in
Section 10 hereof for purposes of this Section 6, notwithstanding any
stay, injunction or other prohibition (whether in a bankruptcy
proceeding affecting the Company or otherwise) preventing such
declaration as against the Company and that, in the event of such
declaration or automatic acceleration, such obligations (whether or
not due and payable by the Company) shall forthwith become due and
payable by such Guarantor for purposes of this Section 6.
6.6 Reinstatement. Each of the Guarantors
covenants that the guarantee provided by this Section 6 will not be
discharged except by complete and final payment of all of the
Obligations and all obligations of the Guarantors arising out of this
guarantee. In the event that any payment is made by the Company
hereunder or by either of the Guarantors under this guarantee, and is
thereafter required to be rescinded or otherwise restored or paid over
to the Company, such Guarantor or any other person (whether upon the
insolvency or bankruptcy of the Company or either Guarantor or
otherwise), each Guarantor's obligations hereunder shall immediately
and automatically be reinstated as though such payment had not been
made.
(n) Section 7.2(b) of the Credit Agreement is hereby
amended by deleting the words "date of the Second Amendment" wherever they
appear and replacing them with "date of the Third Amendment".
(o) Section 7.2 of the Credit Agreement is hereby further
amended by deleting the words "and the Guarantor" appearing in the last
sentence thereof and replacing them with "and each Guarantor".
-10-
<PAGE> 11
(p) Section 8.2 of the Credit Agreement is hereby amended
by (i) deleting the reference in the first sentence thereof to "March 31, 1995"
and replacing it with "June 30, 1995", (ii) inserting the word and punctuation
"two-" immediately before the words "Fiscal Quarter" appearing in the first
sentence thereof and (iii) deleting the reference in the last sentence thereof
to "the Second Amendment" and replacing it with "the Third Amendment".
(q) Sections 8.4, 8.5 and 8.6 of the Credit Agreement are
hereby amended in their entirety as follows:
8.4. No Breach. Neither the execution and delivery
of this Agreement, the Pledge Agreement and the Notes, nor the
consummation of the transactions contemplated hereby and thereby, nor
the compliance by the Company or either Guarantor with the terms and
provisions hereof or thereof will (a) conflict with or result in a
breach of, or require any consent or vote of any Person under, the
certificate of incorporation or bylaws of the Company or either
Guarantor, or any agreement or instrument to which the Company, either
Guarantor or any Subsidiary of any thereof is a party or to which it
is subject, (b) violate any applicable law, regulation, order, writ,
injunction or decree of any court or governmental authority or agency,
or (c) constitute a default or, except as set forth in the Pledge
Agreement, result in the imposition of any Lien on any of the assets,
revenues or other properties of the Company, either Guarantor or any
Subsidiary of any thereof under any such Agreement or instrument.
8.5. Corporate Action. The execution, delivery and
performance by each of the Company and each Guarantor of this
Agreement and the Notes, and the execution, delivery and performance
by the Company of the Pledge Agreement, and the consummation of the
transactions contemplated hereby and thereby, are within the scope of
its corporate powers, and have been duly authorized by all necessary
corporate action on the part of each of them. This Agreement
constitutes, and each of the Notes, when duly executed and delivered
will constitute, the legal, valid and binding obligation of the
Company and each Guarantor, and the Pledge Agreement constitutes the
legal, valid and binding obligation of the
-11-
<PAGE> 12
Company, enforceable against each of them, as the case may be, 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).
8.6. Approvals. No authorizations, approvals or
consents of, and no filings or registrations with, any governmental or
regulatory authority or agency are necessary for the execution,
delivery of performance by the Company or either Guarantor of this
Agreement or the Notes or by the Company of the Pledge Agreement or
for the validity or enforceability hereof or thereof, or for the
consummation of the transactions contemplated hereby and thereby.
(r) Sections 8.7, 8.10 and 8.13 of the Credit Agreement
are hereby amended by deleting each reference therein to "the Guarantor" and
replacing it with "either Guarantor".
(s) Section 8.9(b) of the Credit Agreement is hereby
amended by (i) deleting the phrase "Each of the Company, the Guarantor" and
replacing it with "Each of the Company, each Guarantor" and (ii) deleting the
phrase "by the Company, the Guarantor" and replacing it with "by the Company,
either Guarantor".
(t) Section 8.11 of the Credit Agreement is hereby
amended by deleting the words "the Guarantor" and replacing them with "each
Guarantor".
(u) Section 8.14 of the Credit Agreement is hereby
amended by deleting the words "and the Guarantor" each time they appear in the
first sentence thereof and replacing them with "and each Guarantor".
(v) Section 8 of the Credit Agreement is hereby amended
by adding at the end thereof the following new Section 8.16:
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<PAGE> 13
8.16. Pledge Agreement. By virtue of the execution
and delivery by the Company of the Pledge Agreement, when the stock
certificates representing the Pledged Securities owned by the
Company are delivered to the Collateral Agent in accordance with the
Pledge Agreement, the Collateral Agent will obtain and, so long as
the Collateral Agent maintains possession of the certificates
representing the Pledged Securities, will have and will continue to
have a valid and perfected first priority security interest in such
Pledged Securities, for the benefit of the Banks and the parties to
the BNY L/C Facility, as security for the repayment and performance in
full of the Secured Obligations (as defined in the Pledge Agreement),
prior to all other Liens thereon.
(w) Section 9.5 of the Credit Agreement is hereby amended
by (i) deleting the date "December 31, 1993" in clause (a) thereof and
replacing it with "December 31, 1994", (ii) deleting the words "Footnotes D and
G" in said clause (a) and replacing them with "Footnotes D and H", (iii)
deleting the reference to "Section 9.5(i)" in clause (b) thereof and replacing
it with "Section 9.5(j)", (iv) deleting the word "and" appearing immediately
after the semicolon at the end of clause (h) thereof, (v) relettering clause
(i) thereof as "(j)", (vi) adding a new clause (i) as follows:
(i) Liens on property of the Company or its Subsidiaries which
secure Indebtedness under the Trade Letters of Credit having an
aggregate principal amount not exceeding at any time $40,000,000;
provided that such Liens shall be limited to specified items of
collateral (and not a general Lien on all assets of the Company or its
Subsidiaries); and
and (vii) inserting the following phrase immediately before the period
appearing after the proviso:
, except for the Lien created pursuant to the Pledge Agreement
(x) Section 9.11 of the Credit Agreement is hereby
amended by deleting each of the provisos in their entirety and inserting the
following in lieu thereof:
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<PAGE> 14
; provided that (i) the ratio for the four-Fiscal Quarter period ended
September 30, 1996 shall be 2.5:1 and (ii) the ratio for the
four-Fiscal Quarter period ended December 31, 1996 shall be 3.75:1,
and; provided, further, that the covenants in this Section 9.11 shall
not be in effect until September 30, 1996.
(y) Section 9.13 of the Credit Agreement is hereby
amended by (i) deleting the reference to "$175,000,000" and replacing it with
"$165,000,000" and (ii) deleting the date "June 30, 1994" appearing in the
fifth line thereof and replacing it with "September 30, 1995".
(z) Section 9.17 of the Credit Agreement is hereby
amended by (i) deleting the word "and" appearing at the end of clause (iv)
thereof, (ii) deleting the period appearing at the end of clause (v) thereof
and inserting "; and" in lieu thereof and (iii) inserting the following new
clause (vi) at the end thereof:
(vi) The joint and several liability of HSNR and the Company
for the obligations of HSC, HSN Mail Order, Inc. and HSN Direct, Inc.
under the BNY L/C Facility or the liability of the Company in
connection with the Insurance Standby Letter of Credit.
(aa) Section 9.20(a) of the Credit Agreement is hereby
amended by deleting the grid set forth therein in its entirety and inserting
the following in lieu thereof:
<TABLE>
<CAPTION>
Fiscal Quarter
Ending On Minimum Operating Cash Flow
--------- ---------------------------
<S> <C>
September 30, 1995 <$7,000,000>
December 31, 1995 <$3,000,000>
March 31, 1996 $0
June 30, 1996 $5,000,000
</TABLE>
; provided that, for purposes of calculating Operating Cash Flow for
the Fiscal Quarter ending on either September 30, 1995 or December 31,
1995, Operating Cash Flow shall be calculated prior to giving effect
to up to $7,500,000 in the aggregate of severance and restructuring
charges.
-14-
<PAGE> 15
(bb) Section 9.20(b) of the Credit Agreement is hereby
deleted in its entirety and "[Reserved.]" is inserted in lieu thereof.
(cc) Section 9.20(c) of the Credit Agreement is hereby
deleted in its entirety and the following is inserted in lieu thereof:
(c) The Company shall maintain the Total Debt Ratio of the
Company and its Subsidiaries on a consolidated basis at less than (i)
5.0:1 at all times from and including September 30, 1996 to and
including December 30, 1996, (ii) 4.0:1 at all times from and
including December 31, 1996 to and including March 30, 1997 and (iii)
3.0:1 at all times from and including March 31, 1997 to and including
April 1, 1997.
(dd) Section 9.20(d) of the Credit Agreement is hereby
amended by (i) deleting the date "March 31, 1995" and replacing it with "the
Third Amendment Effective Date", (ii) deleting the word "and" appearing before
"(ii)" and (iii) inserting "and (iii) Indebtedness of the Company and the
Guarantors under the BNY L/C Facility and in connection with the Insurance
Standby Letter of Credit" immediately after the reference to "Section 9.20(e)
hereof" appearing in the parenthetical set forth therein.
(ee) Section 9.20(e) of the Credit Agreement is hereby
amended by (i) deleting the date "March 31, 1996" appearing in the third line
thereof and replacing it with "September 29, 1996" and (ii) deleting the last
four entries in the grid contained therein in their entirety and inserting the
following in lieu thereof:
<TABLE>
<CAPTION>
Maximum Aggregate
Period Principal Amount
------ -----------------
<S> <C>
After June 30, 1995 and $105,000,000
at any time prior to the
Third Amendment Effective
Date
</TABLE>
-15-
<PAGE> 16
<TABLE>
<S> <C>
At any time on or after $150,000,000
the Third Amendment
Effective Date and on or
prior to September 29,
1996
</TABLE>
(ff) Section 9.20(f) of the Credit Agreement is hereby
amended by (i) deleting the parenthetical phrase "(as hereinafter defined)"
appearing in the first sentence thereof, (ii) deleting the last three entries
in the grid contained therein in their entirety and inserting the following in
lieu thereof:
<TABLE>
<CAPTION>
Period Maximum Aggregate Amount
------ ------------------------
<S> <C>
After June 30, 1995 $25,000,000
and on or prior to
September 29, 1996
</TABLE>
and (iii) deleting the second sentence thereof in its entirety.
(gg) Section 9.20(g) of the Credit Agreement is hereby
amended by (i) inserting the phrase "unless otherwise provided in this Section
9.20 and" immediately after the first reference to "June 30, 1996," and (ii)
inserting the words "or later" immediately after the words "or such earlier"
appearing in the 14th line thereof.
(hh) Section 9.21 of the Credit Agreement is hereby
amended by adding the following proviso at the end thereof:
; provided that, for purposes of calculating current liabilities for
any Fiscal Quarter ended on or after September 30, 1995, any amounts
due within one year in respect of the principal of the Loans made
hereunder shall be excluded.
-16-
<PAGE> 17
(ii) Section 9 is hereby further amended by adding the
following new Sections 9.22 and 9.23:
9.22. Restricted Investments. The Company shall not, and
shall not permit either Guarantor or any of its other Subsidiaries to,
make any cash investments except for:
(i) investments (by way of capital contribution or
otherwise) in HSC and other Wholly-Owned Subsidiaries of the
Company existing as of the Third Amendment Effective Date and
identified on Schedule 4 to this Agreement and HSN Direct,
Inc. a Delaware corporation, Vela Research, Inc., a Delaware
corporation, HSN Interactive, Inc., a Delaware corporation,
and Internet Software, Inc., a California corporation; and
(ii) investments in (a) commercial paper rated A-1 or
the equivalent thereof by Standard and Poor's Corporation or
P-1 or the equivalent thereof by Moody's Investors Service,
Inc. and in each case maturing within six months after the
date of acquisition thereof,(b) eurodollar time deposits and
certificates of deposit with maturities of six months or less
from the date of acquisition, and overnight bank deposits, in
each case, with any Bank or with any domestic commercial bank
having capital and surplus in excess of $100,000,000 and (c)
securities issued or fully guaranteed or insured by the United
States Government or any agency or instrumentality thereof
having maturities of not more than six months from the date of
acquisition.
9.23. BNY Facility Agreement. The Company shall not amend,
modify, terminate or waive, and shall not permit any of its Subsidiaries to
agree to any amendment, modification, termination or waiver of, any of the
terms and conditions set forth in the BNY Facility Agreement in a manner that
would be more restrictive than the terms and conditions set forth in this
Agreement.
(jj) Section 10(d) of the Credit Agreement is hereby
amended by inserting "or the Pledge Agreement" immediately after
-17-
<PAGE> 18
the words "the provisions hereof" appearing in the fourth line thereof.
(kk) Sections 10(f), (g), (h), (i) and (j) of the Credit
Agreement are hereby amended by deleting each reference therein to "the
Guarantor" and replacing it with "either Guarantor".
(ll) Section 10 of the Credit Agreement is hereby further
amended by (i) inserting the word "or" immediately after the semicolon
appearing at the end of clause (l) thereof and (ii) adding the following new
clause (m):
(m) any material provision of the Pledge Agreement or Section
6 of this Agreement shall cease, for any reason, to be in full force
and effect, or the Company or either Guarantor shall so assert, or any
Lien created by the Pledge Agreement shall cease, for any reason other
than a change in applicable law, to be enforceable and of the same
effect and priority purported to be created thereby; provided that, in
the event any Lien created by the Pledge Agreement shall cease to be
enforceable and of the same effect and priority purported to be
created thereby solely as a result of a change in applicable law, such
unenforceability and effected priority shall not constitute an Event
of Default so long as the Company takes all necessary action under
such change to restore the enforceability and priority of such Lien
and delivers an opinion of counsel to such effect in form and
substance satisfactory to the Administrative Agent within 30 days of
the effectiveness of such change;
(mm) Section 12.1 of the Credit Agreement is hereby
amended by (i) inserting "the Collateral Agent," immediately before the words
"the Agent" appearing in the second line thereof and (ii) inserting ", the
Pledge Agreement" immediately after each reference therein to "this Agreement"
appearing therein.
(nn) Section 12.2 of the Credit Agreement is hereby
amended by inserting "or, in the case of HSNR, at the 'Address for Notices'
specified beneath its name on the signature pages of the Third Amendment"
immediately after the phrase "below its name on the signature pages hereof"
appearing in the seventh and eighth lines thereof.
-18-
<PAGE> 19
(oo) Section 12.3(b) of the Credit Agreement is hereby
amended by inserting the words and punctuation ", the Pledge Agreement"
immediately after the words "this Agreement" appearing in the fourth line
thereof.
(pp) Section 12.4 of the Credit Agreement is hereby
amended by (i) inserting the punctuation and words ", the Pledge Agreement"
immediately after the words "this Agreement" each time such words appear
therein, (ii) deleting the words "or release the Guarantor" appearing in the
21st line thereof and replacing them with "or release either Guarantor", (iii)
adding "or release any of the Pledged Securities," immediately before the
phrase "in each case without the prior written consent of all the Banks"
appearing at the end of clause (a) of the proviso and (iv) inserting "and the
Collateral Agent" immediately before the period appearing at the end of the
second sentence thereof.
(qq) Section 12.6(a) of the Credit Agreement is hereby
amended by deleting the words "nor the Guarantor" and replacing them with the
words "nor either Guarantor".
(rr) Section 12.6(b) of the Credit Agreement is hereby
amended by inserting the words "another Bank or" immediately after the words
"to any Person other than" appearing in the sixth line thereof.
(ss) The last sentence of Section 12.6(c) of the Credit
Agreement is hereby amended by (i) deleting the words "or release the
Guarantor" appearing in clause (iv) thereof and replacing them with "or release
either Guarantor" and (ii) adding "or (v) release any of the Pledged
Securities" immediately before the period appearing at the end thereof.
(tt) Exhibit A of the Credit Agreement is hereby amended
by (i) attaching Annex A hereto thereto as page A-4 and (ii) renumbering page
A-4 thereof as page A-5.
(uu) The Credit Agreement is further amended by attaching
Annex C hereto thereto as Schedule 4.
(vv) The Credit Agreement is further amended by attaching
Annex F hereto thereto as Schedule 5.
-19-
<PAGE> 20
(ww) References in the Credit Agreement to "this
Agreement" and the words "hereof", "herein", "hereto" and the like, shall refer
to the Credit Agreement as amended by the Third 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).
(xx) Each reference in the Credit Agreement to the "Notes"
or to a "Note" shall, as of the Third Amendment Effective Date, be deemed to
include the new Notes issued pursuant to the Third Amendment.
(yy) Each reference in Sections 11 and 12.3 of the Credit
Agreement to the "Administrative Agent" shall also be deemed to refer to LTCB
Trust Company in its capacity as "Collateral Agent" under the Pledge Agreement.
Section 3. Representations and Warranties. To induce the
Administrative Agent and each Bank to enter into this Third Amendment, each of
the Company and the Guarantors 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 Third Amendment
(whether or not the Third Amendment Effective Date, as defined in Section 4
hereof, occurs), and on and as of the Third Amendment Effective Date, both
before and after giving effect to the amendments set forth in Section 2 of this
Third Amendment on either such date, as if each reference therein to "this
Agreement" were a reference to "this Agreement as amended by the Third
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 Section 2(i) of the Second Amendment and Section 2(p) of this Third
Amendment, in the case of Section 8.2, and Section 2(k) of the Second Amendment
and Section 2(t) of this Third Amendment, in the case of Section 8.11. Each of
the Company and the Guarantors further represents and warrants that, as of the
date of this Third Amendment and as of the Third 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 Third Amendment shall become
-20-
<PAGE> 21
effective as of the date (the "Third Amendment Effective Date"), as specified
by the Administrative Agent, when counterparts hereof shall have been duly
executed and delivered by the Majority Banks, each of the Banks whose
Commitments are to be increased as of the Third Amendment Effective Date, the
Administrative Agent, the Company and each of the Guarantors, 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) 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 Bank whose Commitment is
either increasing or decreasing as of the Third Amendment
Effective Date and otherwise appropriately completed, bearing
the executed guarantee of each Guarantor, and dated the
earliest last date through which interest was paid on the
Loans (the "New Notes").
(2) A guarantee, substantially in the form of page
A-4 of Exhibit A to the Credit Agreement, as amended hereby,
duly executed and delivered by HSNR, of the Company's
obligations under each of the Notes that were issued by the
Company prior to the Third Amendment Effective Date to a Bank
whose Commitment shall not be increased or reduced as of the
Third Amendment Effective Date.
(3) The Pledge Agreement, substantially in the
form of Annex B hereto, duly executed and delivered by the
Company.
(4) Stock certificates evidencing all of the
Pledged Securities, together with an undated stock power for
each such certificate executed in blank by a duly authorized
officer of the Company and duly
-21-
<PAGE> 22
completed and executed financing statements on Form UCC-1.
(5) Evidence of the fulfillment of all the
conditions precedent to the effectiveness of the BNY Facility
Agreement and the consummation of the closing contemplated
under the BNY L/C Facility.
(6) The Intercreditor Agreement, substantially in
the form of Annex D hereto, duly executed and delivered by the
Banks, the Administrative Agent, the Collateral Agent, BNY,
The Bank of New York Company, Inc. and BNY, as Administrative
Agent under the BNY Facility Agreement.
(7) Certified copies of the certificate of
incorporation and by-laws of the Company and each Guarantor
and all corporate action and (if necessary) stockholder action
taken by the Company and each Guarantor approving this Third
Amendment, the Credit Agreement, as amended hereby, and, in
the case of the Company, the Pledge Agreement and borrowings
by the Company under the Credit Agreement, as amended hereby,
the guarantee by each Guarantor hereunder and thereunder and
the consummation of the transactions contemplated hereby and
thereby (including, without limitation, a certificate setting
forth the resolutions of the Boards of Directors of the
Company and each Guarantor adopted in respect of the
transactions contemplated hereby and thereby).
(8) A certificate of each of the Company and each
Guarantor in respect of each of the officers (i) who is
authorized to sign this Third Amendment or the New Notes or,
in the case of HSNR, the guarantees relating to the Notes
issued prior to the Third Amendment Effective Date, 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 hereby, and the transactions
contemplated thereby and hereby. The Administrative
-22-
<PAGE> 23
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 either
Guarantor, respectively, to the contrary.
(9) Certificates, as of a recent date, from the
appropriate authorities for each jurisdiction in which the
Company and each Guarantor are incorporated or qualified to do
business, as to the good standing of the Company and each
Guarantor, respectively, in each such jurisdiction.
(10) An opinion of Counsel to the Company and the
Guarantors, substantially in the form of Annex E hereto.
(11) A certificate of a senior officer of each of
the Company and each Guarantor to the effect set forth in
Section 4.D of this Third Amendment.
(12) Evidence of the payment of the fees provided
for in Sections 4.B and 4.C of this Third Amendment, and of
all other fees and expenses then payable, including, without
limitation, pursuant to Section 12.3 of the Credit Agreement.
(13) 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 Third Amendment Effective Date.
(14) Such other documents and information 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 0.25% of the amount of such Bank's Commitment as in effect
immediately prior to the Third Amendment Effective Date.
-23-
<PAGE> 24
C. The Company shall have paid to the Administrative
Agent the fees provided for in each of the letters, dated September 13, 1995,
executed by the Company and HSC and delivered to the Administrative Agent, at
the times specified therein.
D. 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 each of the Guarantors in Section 3 hereof and in any
other certificate or other document delivered in connection with this
Third 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 Third Amendment Effective Date.
Section 5. Miscellaneous.
A. This Third 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 Third Amendment by signing any such
counterpart.
B. Each of the Company and each 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 to the extent provided in that certain letter agreement, dated September
13, 1995, among the Company, HSC and the Administrative Agent) in connection
with this Third Amendment, whether or not the Third Amendment Effective Date
occurs.
C. THIS THIRD 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.
-24-
<PAGE> 25
D. Except as expressly set forth in this Third Amendment, the
Credit Agreement as amended prior to the date hereof shall remain unmodified
and in full force and effect.
E. HSNR HEREBY AGREES THAT:
(A) ANY SUIT, ACTION OR PROCEEDING AGAINST HSNR WITH
RESPECT TO THIS THIRD AMENDMENT, THE CREDIT AGREEMENT, AS AMENDED
HEREBY, THE STOCK PLEDGE, THE LOANS, THE NOTES OR ANY DOCUMENTS
RELATED HERETO OR ANY JUDGMENT ENTERED BY ANY COURT IN RESPECT
THEREOF MAY BE BROUGHT IN THE SUPREME COURT OF THE STATE OF NEW YORK,
COUNTY OF NEW YORK, IN THE UNITED STATES DISTRICT COURT FOR THE
SOUTHERN DISTRICT OF NEW YORK, OR IN ANY STATE OR FEDERAL COURT
SITTING IN THE STATE OF FLORIDA (COLLECTIVELY, THE "SUBJECT COURTS"),
AS THE ADMINISTRATIVE AGENT, THE AGENT, EITHER CO-AGENT OR ANY BANK
MAY ELECT IN ITS SOLE DISCRETION AND HSNR HEREBY IRREVOCABLY SUBMITS
TO THE NON-EXCLUSIVE JURISDICTION OF EACH OF THE SUBJECT COURTS FOR
THE PURPOSE OF ANY SUCH SUIT, ACTION, PROCEEDING OR JUDGMENT. HSNR
HEREBY IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS IN ANY SUIT,
ACTION OR PROCEEDING IN ANY OF THE SUBJECT COURTS BY THE MAILING
THEREOF BY THE ADMINISTRATIVE AGENT, THE AGENT, THE RESPECTIVE
CO-AGENT OR THE RESPECTIVE BANK BY REGISTERED OR CERTIFIED MAIL,
POSTAGE PREPAID, TO HSNR ADDRESSED AS PROVIDED IN SECTION 12.2 OF THE
CREDIT AGREEMENT, AS AMENDED HEREBY. NOTHING HEREIN SHALL IN ANY WAY
BE DEEMED TO LIMIT THE ABILITY OF THE ADMINISTRATIVE AGENT, THE AGENT,
EITHER CO-AGENT OR ANY BANK TO SERVE ANY SUCH WRITS, PROCESS OR
SUMMONSES IN ANY OTHER MANNER PERMITTED BY APPLICABLE LAW OR TO BRING
PROCEEDINGS AGAINST HSNR IN ANY COMPETENT COURT OF ANY OTHER
JURISDICTION OR JURISDICTIONS, AND IN SUCH MANNER, AS MAY BE PERMITTED
BY APPLICABLE LAW.
(B) HSNR HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY
SUIT, ACTION OR PROCEEDING IN RESPECT OF THIS THIRD AMENDMENT, THE
CREDIT AGREEMENT, AS AMENDED HEREBY, THE NOTES OR ANY OTHER DOCUMENTS
IN CONNECTION HEREWITH, ANY OBJECTION TO THE LAYING OF VENUE IN ANY
SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY OF THE SUBJECT COURTS,
AND, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY CLAIM THAT SUCH SUIT,
ACTION OR PROCEEDING IN ANY OF THE SUBJECT COURTS HAS BEEN BROUGHT IN
AN INCONVENIENT FORUM.
-25-
<PAGE> 26
F. By executing this Third Amendment, each Bank
irrevocably appoints and authorizes LTCB Trust Company, in its capacity as
Collateral Agent under the Pledge Agreement, to act as its agent under the
Pledge Agreement with such powers as are specifically delegated to the
Collateral Agent by the terms of the Credit Agreement, as amended by this Third
Amendment, and the Pledge Agreement, together with such other powers as are
reasonably incidental thereto.
-26-
<PAGE> 27
[THIS PAGE INTENTIONALLY LEFT BLANK]
-27-
<PAGE> 28
IN WITNESS WHEREOF, the parties hereto have caused this Third
Amendment to be duly executed as of the date first above written.
HOME SHOPPING NETWORK, INC.,
as Borrower
By
------------------------------------------
Title:
HOME SHOPPING CLUB, INC.,
as a Guarantor
By
------------------------------------------
Title:
HSN REALTY, INC.,
as a Guarantor
By
------------------------------------------
Title:
Address For Notices:
-------------------
11831 30th Court North
St. Petersburg, Florida 33716
Telecopier No.: (813) 539-6505
Telephone No.: (813) 572-8585
Attention: Finance Department
with a copy to:
Legal Department
Telecopier No.: (813) 573-0866
The Banks
---------
Commitment
- ----------
$37,783,333.33 LTCB TRUST COMPANY, as a Bank and
as Agent
By
--------------------------------------------
-28-
<PAGE> 29
Title:
$21,633,333.33 THE BANK OF NEW YORK COMPANY, INC.,
as a Bank and as a Co-Agent
By
--------------------------------------------
Title:
$33,933,333.33 TORONTO DOMINION [TEXAS], INC.,
as a Bank and as a Co-Agent
By
--------------------------------------------
Title:
$25,500,000.00 BANK OF MONTREAL, as a Bank and as a
Co-Agent
By
--------------------------------------------
Title:
$11,900,000.00 FIRST UNION NATIONAL BANK OF
NORTH CAROLINA
By
--------------------------------------------
Title:
$9,800,000.00 PNC BANK, KENTUCKY, INC.
By
--------------------------------------------
Title:
-29-
<PAGE> 30
$9,450,000.00 THE DAIWA BANK, LIMITED
By
--------------------------------------------
Title:
By
- -------------------- --------------------------------------------
Total: $150,000,000 Title:
The Administrative Agent
------------------------
LTCB TRUST COMPANY,
as Administrative Agent
By
--------------------------------------------
Title:
The Collateral Agent
--------------------
LTCB TRUST COMPANY,
as Collateral Agent
By
--------------------------------------------
Title:
-30-
<PAGE> 31
ANNEX A
-------
GUARANTEE
The undersigned HSN REALTY, INC., a Delaware corporation (the
"Guarantor"), hereby unconditionally and irrevocably guarantees the payment in
full when due (whether at stated maturity, by acceleration or otherwise) of the
principal of and interest on this Note and all other amounts payable hereunder,
in accordance with the terms hereof and of Section 6 of the Credit Agreement,
and, in the case of any extension of time of payment, in whole or in part, that
all such amounts shall be paid in full when due (whether at stated maturity, by
acceleration or otherwise) in accordance with the terms of such extension. In
addition, the Guarantor hereby unconditionally agrees that upon default in the
payment when due (whether at stated maturity, by acceleration or otherwise) of
any of such principal, interest or other amounts, the Guarantor shall forthwith
pay and perform the same in the money and funds, at the time, in the place and
in the manner provided for such payment in the Credit Agreement. This
guarantee is a continuing guarantee of payment and not merely of collection; it
is a primary, independent obligation of the Guarantor; and the Guarantor's
obligations hereunder shall be absolute, unconditional and irrevocable,
irrespective of any and all circumstances whatsoever. The Guarantor hereby
waives diligence, presentment, protest, notice of default, dishonor or
nonpayment and any other notice and all demands whatsoever. The Guarantor
hereby further waives all setoffs and counterclaims against the Company, the
Administrative Agent, the Agent, each of the Co-Agents and each of the Banks.
HSN REALTY, INC.
By
--------------------------------------------
Title:
A-4
<PAGE> 32
ANNEX B
-------
FORM OF PLEDGE AGREEMENT
------------------------
<PAGE> 33
EXECUTION COPY
PLEDGE AGREEMENT
PLEDGE AGREEMENT, dated as of September 28, 1995 (as amended,
supplemented or modified from time to time, this "Agreement"), made by HOME
SHOPPING NETWORK, INC., a Delaware corporation (the "Pledgor"), in favor of
LTCB TRUST COMPANY, a New York trust company, as collateral agent (in such
capacity, the "Collateral Agent") for (i) the Banks party to the Second Amended
and Restated Credit Agreement, dated as of August 30, 1994 (as amended by the
First Amendment, dated as of March 29, 1995, as further amended by the Second
Amendment, dated as of June 28, 1995, as further amended by the Third
Amendment, dated as of September 28, 1995, and as further amended, supplemented
or modified from time to time, the "Credit Agreement"), among the Pledgor, as
borrower, Home Shopping Club, Inc. ("HSC") and HSN Realty, Inc. ("HSNR"), as
guarantors, LTCB Trust Company, as Agent, the Banks and Co-Agents named
therein, LTCB Trust Company, as administrative agent, and the Collateral Agent,
and (ii) the L/C Issuer and the L/C Participant party to the Letter of Credit
Facility Agreement, dated as of September 28, 1995 (as amended, supplemented or
modified from time to time, the "BNY Facility Agreement"), among HSC, HSN Mail
Order, Inc. and HSN Direct, Inc., as applicants (collectively, the "L/C
Applicants"), the Pledgor and HSNR, as guarantors, The Bank of New York, as
issuer (the "L/C Issuer"), The Bank of New York Company, Inc., as a participant
(the "L/C Participant"), and The Bank of New York, as administrative agent (the
"L/C Administrative Agent").
W I T N E S S E T H:
WHEREAS, pursuant to the Credit Agreement, the Banks have
agreed to make extensions of credit to the Pledgor upon the terms and subject
to the conditions set forth therein;
WHEREAS, pursuant to the Third Amendment, dated as of
September 28, 1995 (the "Third Amendment"), to the Credit Agreement and at the
request of the Pledgor, HSC and HSNR, the Banks have agreed to amend certain
provisions of the Credit Agreement to provide for (i) increases in the
availability of the Commitments (as defined in the Credit Agreement) of certain
Banks, (ii) changes in the rate of interest and certain fees, (iii) additional
collateralization of the Pledgor's obligations under the
<PAGE> 34
Credit Agreement and (iv) certain other matters provided for therein;
WHEREAS, pursuant to the BNY Facility Agreement, the L/C
Issuer has agreed to issue trade letters of credit (the "Letters of Credit")
for the account of the L/C Applicants, and the L/C Participant has agreed to
participate in unreimbursed drawings under such Letters of Credit, upon the
terms and subject to the terms and conditions set forth therein;
WHEREAS, the Pledgor is the legal and beneficial owner of the
shares of Pledged Securities (as hereinafter defined) issued by each of the
Issuers (as hereinafter defined); and
WHEREAS, it is a condition precedent to (i) the agreement of
the Banks to provide for the increased availability under the Credit Agreement
and the effectiveness of the amendments to the Credit Agreement contemplated by
the Third Amendment and (ii) the agreement of the L/C Issuer to issue the
Letters of Credit and the L/C Participant to participate in unreimbursed
drawings under such Letters of Credit and the effectiveness of the BNY Facility
Agreement that the Pledgor shall have executed and delivered this Agreement to
the Collateral Agent for the benefit of the Banks, the L/C Issuer and the L/C
Participant.
NOW, THEREFORE, in consideration of the premises, and other
good and valuable consideration, the sufficiency and receipt of which are
hereby acknowledged, and to induce the Banks to increase the availability of
credit under the Credit Agreement and to give effect to the amendments
contemplated by the Third Amendment and to induce the L/C Issuer and the L/C
Participant to enter into the BNY Facility Agreement, the Pledgor hereby agrees
with the Collateral Agent, for the benefit of the Banks, the L/C Issuer and the
L/C Participant as follows:
SECTION 1. Definitions. (a) Capitalized terms used but not
otherwise defined herein shall have the meanings assigned to such terms in the
Credit Agreement.
(b) The following terms, as used herein, shall have the
following meanings:
"Collateral" shall have the meaning assigned to such term in
Section 2.
-2-
<PAGE> 35
"Issuers" shall mean Home Shopping Club, Inc. and HSN Realty,
Inc., each a Delaware corporation.
"Loan Documents" shall mean this Agreement, the Credit
Agreement, the Notes, the BNY Facility Agreement and the Letters of Credit.
"Pledged Securities" shall have the meaning assigned to such
term in Section 2.
"Proceeds" shall have the meaning assigned to such term under
the UCC and, in any event, shall include (i) any and all proceeds of any
guarantee, insurance or indemnity payable to the Pledgor from time to time with
respect to any of the Collateral, (ii) any and all payments (in any form
whatsoever) made or due and payable to the Pledgor from time to time in
connection with any requisition, confiscation, condemnation, seizure or
forfeiture of all or any part of the Collateral by any governmental authority
and (iii) any and all other amounts from time to time paid or payable with
respect to or in connection with any of the Collateral, including all dividends
or other income from the Pledged Securities, collections thereon or
distributions with respect thereto.
"Secured Obligations" shall mean, collectively, (a) the
principal of and interest (including interest accruing after the date of any
filing by the Pledgor of any petition in bankruptcy or the commencement of any
bankruptcy, insolvency or similar proceedings with respect to the Pledgor,
whether or not allowed as a claim in such proceeding under all applicable law,
principles of equity and orders, decisions, judgments and decrees of all courts
and arbitrators) on the Loans, the Notes, unreimbursed drawings under the
Letters of Credit and the stated amount of all outstanding Letters of Credit
under which drawings have not yet been made and all liabilities of the Pledgor
from time to time owing to the Collateral Agent, the Administrative Agent, any
Bank, the L/C Issuer, the L/C Participant or the L/C Administrative Agent
(including all facility and other fees) under or in respect of the Loan
Documents; and (b) all other obligations of the Pledgor to the Collateral
Agent, the Administrative Agent, any Bank, the L/C Issuer, any L/C Participant
or the L/C Administrative Agent under this Agreement and any of the other Loan
Documents.
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"UCC" shall mean the Uniform Commercial Code from time to time
in effect in the State of New York.
(c) Unless otherwise defined herein or in the Credit
Agreement, or unless the context otherwise requires, all terms used herein that
are defined in the UCC shall have the meanings therein stated.
(d) The words "include," "includes" and "including" as
used in this Agreement shall be deemed in each case to be followed by the
phrase "without limitation." References to Sections and Schedules shall be
deemed references to Sections of and Schedules to this Agreement, unless
otherwise specified.
SECTION 2. Pledge. As security for the prompt payment and
performance in full when due (whether at the stated maturity, by acceleration
or otherwise) of the Secured Obligations, the Pledgor hereby hypothecates,
pledges, assigns, grants, sets over and delivers to the Collateral Agent, for
the benefit of the Banks, the L/C Issuer and the L/C Participant, a continuing
first priority security interest in all its right, title and interest in, to
and under the following, whether now owned or hereafter acquired:
(i) all of the shares of capital stock owned by the
Pledgor listed on Schedule 1, and any additional shares of capital
stock of each of the Issuers (or successors thereto) obtained in the
future by the Pledgor, and, in each case, all stock certificates
representing such shares and, in each case, all options, warrants or
rights of any nature whatsoever and all stock or other securities
which may hereafter be received, receivable or distributed in respect
of, or exchanged for, any of the foregoing (all of the foregoing being
collectively referred to herein as the "Pledged Securities"); and
(ii) subject to the provisions of Section 5, all Proceeds
of the Pledged Securities, including all cash or securities at any
time and from time to time acquired, receivable or otherwise
distributed in respect of, or in exchange for, any of or all such
stock (all of the items referred to herein in clauses (i) and (ii)
being collectively referred to as the "Collateral").
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TO HAVE AND TO HOLD the Collateral, together with all right,
title, interest, powers, privileges and preferences pertaining or incidental
thereto, unto the Collateral Agent for the benefit of the Banks, the L/C Issuer
and the L/C Participant and their successors and assigns, forever; subject,
however, to the terms, covenants and conditions hereinafter set forth.
SECTION 3. Delivery of Collateral. (a) Contemporaneously
with the execution of this Agreement, the Pledgor shall deliver or cause to be
delivered to the Collateral Agent (i) any and all certificates and other
instruments evidencing the Pledged Securities, along with undated stock powers
duly executed in blank (with, if the Collateral Agent so requests, signatures
properly guaranteed) or other instruments of transfer covering each such
certificate satisfactory to the Collateral Agent and endorsed in blank and such
other instruments and documents as the Collateral Agent may reasonably request
to effect the purposes contemplated hereby and (ii) any and all certificates or
other instruments or documents representing any of the Collateral.
(b) If the Pledgor shall become entitled to receive or
shall receive any shares of stock (including shares of Pledged Securities
acquired after the date of this Agreement), options, warrants, rights or other
similar property (including any certificate representing a stock dividend, or
any distribution in connection with any recapitalization, reclassification or
increase or reduction of capital, or issued in connection with any
reorganization of any Issuer) in respect of the Pledged Securities (whether as
an addition to, in substitution of, or in exchange for, such Pledged Securities
or otherwise), the Pledgor agrees:
(i) to accept the same as the agent of the Collateral
Agent;
(ii) to hold the same in trust on behalf of and for the
benefit of the Collateral Agent for the benefit of the Banks, the L/C
Issuer and the L/C Participant; and
(iii) to deliver any and all certificates or instruments
evidencing the same to the Collateral Agent on or before the close of
business on the seventh Business Day following the receipt thereof by
the Pledgor, in the exact form received,
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with the endorsement in blank of the Pledgor when necessary and with
appropriate undated stock powers duly executed in blank (with, if the
Collateral Agent so requests, signatures properly guaranteed), to be
held by the Collateral Agent, for the benefit of the Banks, the L/C
Issuer and the L/C Participant, subject to the terms of this
Agreement, as additional Collateral.
SECTION 4. Registration in Nominee Name. Upon the occurrence
and during the continuance of an Event of Default and the declaration of
acceleration or demand for payment, the Collateral Agent shall have the right
(in its sole and absolute discretion and without prior notice to the Pledgor)
to transfer to or to register the Pledged Securities in its own name or the
name of its nominee, for the benefit of the Banks, the L/C Issuer and the L/C
Participant. After any such registration or transfer, the Collateral Agent
shall provide notice thereof to the Pledgor.
SECTION 5. Voting Rights, etc. (a) Unless and until an
Event of Default shall have occurred and be continuing and a declaration of
acceleration or demand for payment shall have been made:
(i) the Pledgor shall be entitled to exercise any and all
voting and/or consensual rights and powers accruing to an owner of the
Pledged Securities or any part thereof for any purpose not prohibited
by the terms of this Agreement, the Credit Agreement or the BNY
Facility Agreement;
(ii) the Collateral Agent shall execute and deliver to the
Pledgor, or cause to be executed and delivered to the Pledgor, all
such proxies, powers of attorney, and other instruments as the Pledgor
may reasonably request for the purpose of enabling the Pledgor to
exercise the voting and/or consensual rights and powers which it is
entitled to exercise pursuant to subparagraph (i) above; and
(iii) the Pledgor shall be entitled to receive, subject to
the provisions of Section 2, and retain any and all cash dividends
paid on the Pledged Securities to the extent and only to the extent
that such dividends are not prohibited by the terms and conditions of
the Credit Agreement or the BNY
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Facility Agreement. Except for cash dividends that the Pledgor shall
be entitled to receive and retain pursuant to the preceding sentence,
all noncash dividends, stock or dividends paid or payable in cash or
otherwise in connection with a partial or total liquidation or
dissolution, instruments, securities, other distributions in property,
return of capital, capital surplus or paid-in surplus or other
distributions made on or in respect of Pledged Securities, whether
paid or payable in cash or otherwise, whether resulting from a
subdivision, combination or reclassification of the outstanding
capital stock of any Issuer or from any bankruptcy or reorganization
of any Issuer or received in exchange for the Pledged Securities or
any part thereof, or in redemption thereof, as a result of any merger,
consolidation, acquisition or other exchange of assets to which any
Issuer may be a party or otherwise, shall be and become part of the
Collateral, and, if received by the Pledgor, shall not be commingled
by the Pledgor with any of its other funds or property but shall be
held separate and apart therefrom, shall be held in trust for the
benefit of the Collateral Agent, for the benefit of the Banks, the L/C
Issuer and the L/C Participant, and shall be forthwith delivered to
the Collateral Agent in the same form as so received (with any
necessary endorsements).
(b) Upon the occurrence and during the continuance of an
Event of Default, and, in the case of an Event of Default other than one
referred to in clause (f), (g) or (h) of Section 10 of the Credit Agreement, if
so specified by the Collateral Agent in a notice to the Pledgor, all rights of
the Pledgor to exercise the voting and consensual rights and powers which the
Pledgor is entitled to exercise pursuant to Section 5(a)(i) shall cease, and
all such rights shall thereupon become vested in the Collateral Agent, which
shall have the sole and exclusive right and authority to exercise such voting
and consensual rights and powers, and the Pledgor shall execute and deliver to
the Collateral Agent all such documents and instruments (including proxies) as
the Collateral Agent shall reasonably request in order to effect the purposes
of this Section 5(b).
SECTION 6. Representations; Warranties and Covenants. The
Pledgor hereby represents, warrants and covenants to and with the Collateral
Agent, the Administrative Agent, each Bank, the
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L/C Issuer, the L/C Participant and the L/C Administrative Agent that:
(a) Except for the security interest granted to the
Collateral Agent hereunder and except as expressly permitted by Section 9.7 of
the Credit Agreement, the Pledgor (i) is and will at all times continue to be
the direct owner, beneficially and of record, of the Pledged Securities, (ii)
holds and will at all times continue to hold the Collateral free and clear of
all Liens of every kind and nature, (iii) will make no assignment, pledge,
hypothecation or transfer of, or create or suffer to exist any Lien on, the
Collateral and (iv) subject to Section 5, will cause any and all Collateral,
whether for value paid by the Pledgor or otherwise, to be forthwith deposited
with the Collateral Agent, for the benefit of the Banks, the L/C Issuer, the
L/C Participant and the L/C Administrative Agent, and pledged or assigned
hereunder.
(b) The Pledgor (i) has, and at all times will have, the
right and legal authority to pledge the Collateral in the manner hereby done or
contemplated, and (ii) will defend its and the Collateral Agent's respective
title and interest thereto or therein against any and all attachments, Liens,
claims or other impediments of any nature, however arising, of all Persons
whomsoever.
(c) No authorization, consent or approval, or other
action by, and no notice to or filing with, any governmental authority
(including any securities exchange) not previously obtained is required (i) for
the pledge by the Pledgor of the Collateral pursuant to this Agreement or the
perfection therein of the Collateral Agent's security interest created hereby,
other than the filing of appropriate Uniform Commercial Code financing
statements in the office of the Secretary of State in each of the States of
Delaware and Florida, and in the office of the County Clerk in each of New
Castle County, Delaware, and Pinellas County, Florida, (ii) for the execution,
delivery or performance of this Agreement by the Pledgor or (iii) for the
exercise by the Collateral Agent of the rights provided for in this Agreement
or the remedies in respect of the Collateral pursuant to this Agreement, other
than compliance with applicable Federal and state securities laws in connection
with the acquisition and sale
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or other disposition of the Pledged Securities in accordance with the terms of
this Agreement.
(d) By virtue of the execution and delivery by the
Pledgor of this Agreement, when the stock certificates representing the Pledged
Securities owned by the Pledgor are delivered to the Collateral Agent in
accordance with this Agreement, the Collateral Agent will obtain and, so long
as the Collateral Agent maintains possession of the certificates representing
the Pledged Securities, will have and will continue to have a valid and
perfected first priority security interest in such Pledged Securities, for the
benefit of the Banks, the L/C Issuer and the L/C Participant, as security for
the repayment and performance in full of the Secured Obligations, prior to all
other Liens thereon.
(e) The Pledged Securities constitute, and at all times
will constitute, all of the issued and outstanding shares of capital stock of
the Issuers.
(f) All of the representations and warranties contained
in this Agreement shall survive the execution, delivery and performance of this
Agreement.
(g) This Agreement constitutes the legal, valid and
binding obligation of the Pledgor, enforceable in accordance with its terms
(subject as to enforceability to applicable bankruptcy, reorganization,
insolvency, moratorium and similar laws affecting creditors' rights generally
and to general principles of equity).
(h) The execution, delivery and performance in accordance
with its respective terms by the Pledgor of this Agreement do not and will not
(a) require any governmental approval or any other consent or approval, other
than governmental approvals and other consents and approvals that have been
obtained, are in full force and effect and are final and not subject to review
on appeal or to collateral attack and other than compliance with applicable
Federal and state securities laws in connection with the acquisition and sale
or other disposition of the Pledged Securities in accordance with the terms of
this Agreement, or (b) violate, conflict with, result in a breach of or
constitute a default under, or, except as expressly contemplated by this
Agreement, result in or require the creation
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of any Lien upon any assets of the Pledgor under, (i) any contract to which the
Pledgor is a party or by which it or its property may be bound or (ii) any
applicable law.
(i) The Pledged Securities have been duly authorized and
validly issued, are fully paid and non- assessable and have been duly and
validly pledged hereunder in accordance with applicable law.
(j) There are no contractual restrictions upon the voting
rights or upon the transfer of any of the shares of the Pledged Securities
other than as referred to herein or in the Credit Agreement or the BNY Facility
Agreement.
(k) The Pledgor represents and warrants that it has made
its own arrangements for keeping informed of changes or potential changes
affecting the Collateral (including rights to convert, rights to subscribe,
payment of dividends, reorganization or other exchanges, tender offers and
voting rights), and the Pledgor agrees that neither the Collateral Agent, the
Administrative Agent, any Bank, the L/C Issuer, the L/C Participant nor the L/C
Administrative Agent shall have any responsibility or liability for informing
the Pledgor of any such changes or potential changes.
(l) The Pledgor shall not (i) permit or suffer any Issuer
to voluntarily dissolve or liquidate, retire any of its capital stock, reduce
its capital or merge or consolidate with any other entity if such action would
violate the provisions of the Credit Agreement or the BNY Facility Agreement or
(ii) vote any of the Pledged Securities in favor of any of the foregoing.
(m) The Pledgor shall pay, and save the Collateral Agent,
the Administrative Agent, each Bank, the L/C Issuer, the L/C Participant and
the L/C Administrative Agent harmless from, any and all liabilities with
respect to, or resulting from any delay in paying, any and all stamp, excise,
sales or other taxes which may be payable or determined to be payable (i) with
respect to any of the Collateral or (ii) in connection with any of the
transactions contemplated by this Agreement.
SECTION 7. Issuance of Additional Stock. The Pledgor agrees
that it will not (a) permit any Issuer to issue any stock
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or other securities (including warrants, options and other similar agreements),
whether in addition to, by stock dividend or other distribution upon, or in
substitution for, the Pledged Securities or otherwise (unless such issuance is
not prohibited by the Credit Agreement or the BNY Facility Agreement and such
stock or other securities are effectively pledged hereunder in a manner
reasonably satisfactory to the Collateral Agent) or (b) sell, assign, transfer,
exchange or otherwise dispose of, or grant any option with respect to, the
Collateral, or create, incur or permit to exist any Lien or option in favor of,
or any claim of any Person with respect to, any of the Collateral, or any
interest therein, except for the Lien provided for by this Agreement and as
otherwise expressly permitted under Section 9.7 of the Credit Agreement.
SECTION 8. Remedies Upon Default. (a) If an Event of Default
shall have occurred and be continuing and upon the declaration of acceleration
or demand for payment, the Collateral Agent, for the benefit of the Banks, the
L/C Issuer and the L/C Participant, shall have, in addition to any other rights
and except as otherwise provided herein, all of the rights and remedies with
respect to the Collateral of a secured party under the UCC. In addition and
subject to all applicable law, the Collateral Agent, on behalf of the Banks,
the L/C Issuer and the L/C Participant may, and upon the request of the
Majority Banks, shall (without any obligation to seek performance of any
guarantee or to resort to any other security, right or remedy granted to it
under any other instrument or agreement, including the Credit Agreement and/or
the BNY Facility Agreement) sell the Collateral, or any part thereof, at public
or private sale or at any broker's board or on any securities exchange, for
cash, upon credit or for future delivery as the Collateral Agent shall deem
appropriate. The Collateral Agent shall be authorized at any such sale (if it
deems it advisable to do so) to restrict the prospective bidders or purchasers
to persons who will represent and agree that they are purchasing the Collateral
for their own account for investment and not with a view to the distribution or
sale thereof, and upon consummation of any such sale the Collateral Agent shall
have the right to assign, transfer and deliver to the purchaser or purchasers
thereof the Collateral so sold. Each such purchaser at any such sale shall
hold the property so sold absolutely, free from any claim or right on the part
of the Pledgor (other than rights that the Pledgor may have
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against such purchaser generally and without regard to this Agreement or such
sale), and the Pledgor hereby waives (to the extent permitted by law) all
rights of redemption, stay and appraisal which the Pledgor may now have or may
at any time in the future have under any applicable law now existing or
hereafter enacted.
(b) The Collateral Agent shall give the Pledgor at least
ten Business Days' written notice (which the Pledgor agrees is reasonable
notice within the meaning of Section 9-504(3) of the UCC) of the Collateral
Agent's intention to make any sale of Collateral. Such notice, in the case of
a public sale, shall state the time of and place where such sale is to be made
and, in the case of a sale at a broker's board or on a securities exchange,
shall state the board or exchange at which such sale is to be made and the day
on which the Collateral, or any portion thereof, will first be offered for sale
at such board or exchange. Any such public sale shall be held at such time or
times within ordinary business hours and at such place or places as the
Collateral Agent may fix and state in the notice of such sale. At any such
sale, the Collateral, or portion thereof, to be sold may be sold in one lot as
an entirety or in separate parcels, as the Collateral Agent may (in its sole
and absolute discretion) determine. The Collateral Agent shall not be
obligated to make any sale of any Collateral if it shall determine not to do
so, regardless of the fact that notice of sale of such Collateral shall have
been given. The Collateral Agent may, without notice or publication, adjourn
any public or private sale or cause the same to be adjourned from time to time
by announcement at the time and place fixed for sale, and such sale may,
without further notice, be made at the time and place to which the same was so
adjourned. In case any sale of all or any part of the Collateral is made on
credit or for future delivery, the Collateral so sold may be retained by the
Collateral Agent until the sale price is paid by the purchaser or purchasers
thereof, but the Collateral Agent shall not incur any liability in case any
such purchaser or purchasers shall fail to take up and pay for the Collateral
so sold and, in case of any such failure, such Collateral may be sold again
upon like notice, and in no event shall any portion of the proceeds of any such
sale be credited against payment of the costs, expenses and obligations set
forth in Section 9 until cash payment for the Collateral so sold has been
received by the Collateral Agent. At
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any private sale of Collateral of a type customarily sold in a recognized
market, and at any public sale made pursuant to this Section 8, the Collateral
Agent, in its individual capacity, any Bank, the L/C Issuer and the L/C
Participant may bid for or purchase, free (to the extent permitted by law) from
any equity or right of redemption, stay or appraisal on the part of the Pledgor
(all said rights being also hereby waived and released to the extent permitted
by law), the Collateral or any part thereof offered for sale and may make
payment on account thereof by using any claim then due and payable to the
Collateral Agent, in its individual capacity, such Bank, the L/C Issuer or the
L/C Participant by the Pledgor under or pursuant to the Credit Agreement or the
BNY Facility Agreement, as the case may be, as a credit, up to an amount equal
to the amount the Collateral Agent, in its individual capacity, such Bank, the
L/C Issuer or the L/C Participant would otherwise be entitled to receive
pursuant to Section 9 in connection with such sale, against the purchase price.
For purposes hereof, in the case of any such sale pursuant to a written
agreement to purchase the Collateral or any portion thereof, the Collateral
Agent shall be free to carry out such sale pursuant to such agreement, and the
Pledgor shall not be entitled to the return of the Collateral or any portion
thereof subject thereto, notwithstanding the fact that after the Collateral
Agent shall have entered into such an agreement all Events of Default shall
have been remedied and the Secured Obligations paid in full. As an alternative
to exercising the power of sale herein conferred upon it, the Collateral Agent
may proceed by a suit or suits at law or in equity to foreclose upon the
Collateral pursuant this Agreement and to sell the Collateral, or any portion
thereof, pursuant to a judgment or decree of a court or courts having competent
jurisdiction or pursuant to a proceeding by a court-appointed receiver.
(c) If the Collateral Agent shall have instituted any
proceeding to enforce any right or remedy hereunder, and such proceeding shall
have been discontinued or abandoned for any reason, or shall have been
determined adversely to the Collateral Agent, the Collateral Agent shall,
subject to any determination in any such proceeding, be restored to its former
position hereunder, and thereafter, subject as aforesaid, all rights and
remedies of the Collateral Agent shall continue as though no such proceeding
had been instituted.
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SECTION 9. Application of Proceeds of Sale. The
proceeds of any sale of, or other realization upon, all or any part of the
Collateral pursuant to Section 8, as well as any Collateral consisting of cash,
shall be applied by the Collateral Agent as follows:
FIRST, to the payment of all costs and expenses reasonably
incurred by the Collateral Agent in connection with such sale or
otherwise in connection with this Agreement or any of the Secured
Obligations, including, without limitation, a reasonable allocation of
salaries and wages of officers and employees and related overhead of
the Collateral Agent who are involved in such sale, all court costs
and the reasonable fees and expenses of its agents and legal counsel,
the repayment of all advances plus any interest thereon made hereunder
by the Collateral Agent on behalf of the Pledgor and any other costs
or expenses reasonably incurred in connection with the exercise of any
right or remedy hereunder;
SECOND, to the payment in full of the Secured Obligations pro
rata as among the holders of the Secured Obligations in accordance
with the amounts of monetary Secured Obligations owed to them and
outstanding (whether or not then due and payable, at maturity, by
acceleration or otherwise) as of the date of such payment, until all
the Secured Obligations have been paid in full; and
THIRD, any balance remaining to the Pledgor, its successors or
assigns, or as a court of competent jurisdiction may otherwise direct.
SECTION 10. Collateral Agent Appointed Attorney-in-Fact;
Indemnity.
(a) The Pledgor hereby appoints the Collateral Agent as
its true and lawful agent and attorney-in- fact for the purpose of carrying out
the provisions of this Agreement and taking any action and executing any
instrument which the Collateral Agent may deem necessary or advisable to
accomplish the purposes hereof, in each case upon the occurrence and during the
continuance of an Event of Default and the declaration of acceleration or
demand for payment, which appointment is irrevocable and
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coupled with an interest and any proxy or proxies heretofore given by the
Pledgor to any other person that is inconsistent herewith are hereby revoked.
Without limiting the generality of the foregoing, the Collateral Agent shall
have the right, upon the occurrence and during the continuance of an Event of
Default and the declaration of acceleration or demand for payment, with full
power of substitution either in the Collateral Agent's name or in the name of
the Pledgor, to ask for, demand, sue for, collect, receive, receipt and give
acquittance for any and all moneys due or to become due under and by virtue of
any Collateral, to endorse checks, drafts, orders and other instruments for the
payment of money payable to the Pledgor representing any interest or dividend
or other distribution payable in respect of the Collateral or any part thereof
or on account thereof and to give full discharge for the same, to settle,
compromise, prosecute or defend any action, claim or proceeding with respect
thereto, and to sell, assign, endorse, pledge, transfer and make any agreement
respecting, or otherwise deal with, the same; provided, however, that nothing
herein contained shall be construed as requiring or obligating the Collateral
Agent, the Administrative Agent, any Bank, the L/C Issuer, the L/C Participant
or the L/C Administrative Agent to take any action, including requiring or
obligating the Collateral Agent, the Administrative Agent, any Bank, the L/C
Issuer, the L/C Participant or the L/C Administrative Agent to make any
commitment or to make any inquiry as to the nature or sufficiency of any
payment received by the Collateral Agent, the Administrative Agent, any Bank,
the L/C Issuer, the L/C Participant or the L/C Administrative Agent or to
present or file any claim or notice, or to take any action with respect to the
Collateral or any part thereof or the moneys due or to become due in respect
thereof or any property covered thereby, and no action taken by the Collateral
Agent, the Administrative Agent, any Bank, the L/C Issuer, the L/C Participant
or the L/C Administrative Agent or omitted to be taken by any of them with
respect to the Collateral or any part thereof shall give rise to any defense,
counterclaim or offset in favor of the Pledgor or to any claim or action
against the Collateral Agent, the Administrative Agent, any Bank, the L/C
Issuer, the L/C Participant or the L/C Administrative Agent in the absence of
the gross negligence or willful misconduct of the Collateral Agent, the
Administrative Agent, any Bank, the L/C Issuer, the L/C Participant or the L/C
Administrative Agent, as the case may
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be, as shall have been determined in a final, nonappealable judgment of a court
of competent jurisdiction.
(b) The Pledgor hereby agrees to assume liability for,
and does hereby agree to indemnify, protect, save and keep harmless the
Collateral Agent and its directors, officers, employees and agents from and
against, any and all liabilities, obligations, losses, damages, penalties,
claims, actions, suits and reasonable costs and expenses of whatsoever kind or
nature, imposed on, incurred by or asserted against the Collateral Agent or its
directors, officers, employees or agents, in any way relating to or arising out
of this Agreement, including the enforcement hereof, or the acceptance,
rejection, ownership, delivery, possession, sale or return of any Collateral
(other than by reason of a material breach by the Collateral Agent of its
obligations under this Agreement or the respective indemnitees' own gross
negligence or willful misconduct and, solely to the extent any such costs,
liabilities and expenses do not in any way relate to any representation,
warranty or covenant of the Pledgor under this Agreement, or any act or
omission by the Pledgor). Without limiting the generality of the foregoing,
the Pledgor hereby agrees to reimburse the Collateral Agent for all costs,
liabilities or expenses reasonably incurred by it pursuant to any of the duties
hereby created or in the exercise of any duty, right, remedy or power herein
imposed or conferred upon it (other than any such costs, liabilities and
expenses resulting from a material breach by the Collateral Agent of its
obligations under this Agreement or the Collateral Agent's gross negligence or
willful misconduct and, solely to the extent any such costs, liabilities and
expenses do not in any way relate to any representation, warranty or covenant
of the Pledgor under this Agreement, or any act or omission by the Pledgor).
The obligations of the Pledgor contained in this Section 10(b) shall survive
the termination of this Agreement and the discharge of the Pledgor's other
obligations hereunder and under the other Loan Documents.
SECTION 11. No Waiver; Remedies Cumulative. No failure on
the part of the Collateral Agent, the Administrative Agent, any Bank, the L/C
Issuer, the L/C Participant or the L/C Administrative Agent to exercise, and no
delay in exercising, any right, power or remedy hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right,
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power or remedy by the Collateral Agent, the Administrative Agent, any Bank,
the L/C Issuer, the L/C Participant or the L/C Administrative Agent preclude
any other or further exercise thereof or the exercise of any other right, power
or remedy. All remedies hereunder are cumulative and are not exclusive of any
other remedies provided by law or otherwise. The Collateral Agent, the
Administrative Agent, the Banks, the L/C Issuer, the L/C Participant or the L/C
Administrative Agent shall not be deemed to have waived any rights hereunder or
under any other agreement or instrument unless such waiver shall be in writing
and signed by the Collateral Agent.
SECTION 12. (a) Securities Act, etc. In view of the
position of the Pledgor in relation to the Pledged Securities, or because of
other present or future circumstances a question may arise under the Securities
Act of 1933, as amended (the "Securities Act"), or any similar or successor
Federal securities law (together with the Securities Act, the "Federal
Securities Laws") with respect to any disposition of the Pledged Securities
permitted hereunder. The Pledgor understands that compliance with the Federal
Securities Laws might strictly limit the course of conduct of the Collateral
Agent if the Collateral Agent were to attempt to dispose of all or any part of
the Pledged Securities, and might also limit the extent to which or the manner
in which any subsequent transferee of any Pledged Securities could dispose of
the same. Similarly, there may be other legal restrictions or limitations
affecting the Collateral Agent in any attempt to dispose of all or part of the
Pledged Securities under applicable blue sky or other state securities laws or
similar laws analogous in purpose or effect.
(b) Anything herein to the contrary notwithstanding, and
in view of restrictions specified in paragraph (a) of this Section 12, the
Pledgor agrees that, if an Event of Default shall exist under the Credit
Agreement, the Collateral Agent may, from time to time, attempt to sell all or
any part of the Pledged Securities by means of a private placement, restricting
the bidders and prospective purchasers to those who will represent or agree as
to their investment intent or method of resale or both in a manner reasonably
required by the Collateral Agent to assure compliance with applicable
securities laws. In so doing, the Collateral Agent may solicit offers to buy
such Pledged Securities or any part thereof, for cash, from a limited number
-17-
<PAGE> 50
of investors deemed by the Collateral Agent, in its exclusive judgment, to be
responsible parties who might be interested in purchasing such Pledged
Securities.
SECTION 13. Security Interest Absolute; Waivers by Pledgor.
(a) All rights of the Collateral Agent, the Administrative Agent, the Banks,
the L/C Issuer, the L/C Participant and the L/C Administrative Agent hereunder,
the grant of a security interest in the Collateral and all obligations of the
Pledgor hereunder, shall be absolute and unconditional irrespective of (i) any
lack of validity or enforceability of the Credit Agreement, the BNY Facility
Agreement, any other agreement with respect to any of the Secured Obligations
or any other agreement or instrument relating to any of the foregoing, (ii) any
change in the time, manner or place of payment of, or in any other term of, all
or any of the Secured Obligations, or any other amendment or waiver of or any
consent to any departure from the Credit Agreement, the BNY Facility Agreement
or any other agreement or instrument (other than payment in full of the Secured
Obligations or, in the case of rights predicated on the existence of an Event
of Default, a cure or waiver of such Event of Default), (iii) any exchange,
release or nonperfection of any other collateral, or any release or amendment
or waiver of or consent to or departure from any guarantee, for all or any of
the Secured Obligations (other than payment in full of the Secured Obligations
or, in the case of rights predicated on the existence of an Event of Default, a
cure or waiver of such Event of Default), (iv) any failure by the Collateral
Agent, the Administrative Agent, any Bank, the L/C Issuer, the L/C Participant
or the L/C Administrative Agent to demand payment or performance by the Pledgor
and/or either of the L/C Applicants and/or any of the Guarantors (as defined in
each of the Credit Agreement and the BNY Facility Agreement) of any of the
Secured Obligations or to exercise or enforce any right or remedy in respect
thereof or (v) any other circumstance (other than payment in full of the
Secured Obligations or, in the case of rights predicated on the existence of an
Event of Default, a cure or waiver of such Event of Default) which might
otherwise constitute a defense available to, or a discharge of, the Pledgor or
any other person in respect of the Secured Obligations or in respect of this
Agreement. The Pledgor hereby acknowledges that neither the Collateral Agent,
the Administrative Agent, any Bank, the L/C Issuer, the L/C Participant nor the
L/C Administrative Agent shall be under any obliga-
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<PAGE> 51
tion to marshal any assets in favor of the Pledgor or against or in payment of
any or all of the Secured Obligations.
(b) The Pledgor hereby waives notice of acceptance of
this Agreement. The Pledgor further waives presentment and demand for payment
of any of the Secured Obligations, protest and notice of dishonor or default
with respect to any of the Secured Obligations, and all other notices to which
the Pledgor might otherwise be entitled, except as otherwise expressly provided
in this Agreement, the Credit Agreement or the BNY Facility Agreement. The
Pledgor (to the extent that it may lawfully do so) covenants that it shall not
at any time insist upon or plead, or in any manner claim or take the benefit or
advance of, any stay (except in connection with a pending appeal), valuation,
appraisal, redemption or extension law now or at any time hereafter in force
that, but for this waiver, might be applicable to any sale made under any
judgment, order or decree based on this Agreement, the Credit Agreement or the
BNY Facility Agreement; and the Pledgor (to the extent that it may lawfully do
so) hereby expressly waives and relinquishes all benefit and advance of any and
all such laws and hereby covenants that it will not hinder, delay or impede the
execution of any power in this Agreement or therein granted and delegated to
the Collateral Agent, but that it will suffer and permit the execution of every
such power as though no such law or laws had been made or enacted.
SECTION 14. Duty of Collateral Agent. The Collateral Agent's
sole duty with respect to the custody, safekeeping and physical preservation of
the Collateral in its possession, under Section 9-207 of the UCC or otherwise,
shall be to hold the Collateral for safekeeping and deal with it in the same
manner as the Collateral Agent deals with similar securities and property for
its own account. To the extent that any of the Collateral is comprised of
cash, the Collateral Agent shall have no obligation to invest such funds in any
collateral account and may hold the same as demand deposits. None of the
Collateral Agent, the Administrative Agent, any Bank, the L/C Issuer, the L/C
Participant, the L/C Administrative Agent or any of their respective directors,
officers, employees or agents shall be liable for failure to demand, collect or
realize upon any of the Collateral or for any delay in doing so or shall be
under any obligation to sell or otherwise dispose of any Collateral upon the
request of
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<PAGE> 52
the Pledgor or any other Person or to take any action whatsoever with respect
to the Collateral or any part thereof.
SECTION 15. Termination. This Agreement, and the
assignments, pledges and security interests created or granted hereby, shall
terminate with respect to all Collateral, when (i) all the Secured Obligations
shall have been paid in full in cash, and (ii) the Commitment Termination Date
has passed, in each case, at which time the Collateral Agent shall reassign and
deliver to the Pledgor, or to such Person or Persons as the Pledgor shall
designate in writing, against receipt, such of the Collateral (if any) as shall
not have been sold or otherwise applied by the Collateral Agent pursuant to the
terms hereof and shall still be held by it hereunder, in any case, together
with appropriate instruments of reassignment and release, all without any
recourse to, or warranty whatsoever by, the Collateral Agent, the
Administrative Agent, any Bank, the L/C Issuer, the L/C Participant or the L/C
Administrative Agent, and at the sole cost and expense of the Pledgor. Upon
any termination of any of the security interests or release of any Collateral
pursuant to this Section 15, the Collateral Agent will, at the Pledgor's
expense, execute and deliver to the Pledgor such documents as the Pledgor shall
reasonably request to evidence the termination of the security interests in
such Collateral.
SECTION 16. Notices. Notices and other communications
provided for herein shall be in writing and shall be delivered or mailed (or
delivered by facsimile equipment, the receipt of which is promptly confirmed by
telephone) addressed,
(a) if to the Pledgor, to it at 11831 30th Court North,
St. Petersburg, Florida 33716, telecopier number: (813) 539-6505, telephone
number: (813) 572-8585, attention: Finance Department, with a copy to Legal
Department, telecopier number: (813) 573-0866; and
(b) if to the Collateral Agent, to it at the address of
the Administrative Agent set forth in or determined pursuant to the Credit
Agreement.
Except as specifically provided in Section 21, all notices and other
communications given to any party hereto in accordance with the provisions of
this Agreement shall be deemed to have been
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<PAGE> 53
given at the time determined pursuant to Section 12.2 of the Credit Agreement.
SECTION 17. Further Assurances. The Pledgor agrees to do or
cause to be done all such further acts, and to execute and deliver, or cause to
be executed and delivered, such additional conveyances, stock powers, proxies,
assignments, agreements, financing statements and other instruments, at the
Pledgor's sole expense, as the Collateral Agent may at any time reasonably
request in connection with the administration and enforcement of this Agreement
or with respect to the Collateral or any part thereof or in order better to
assure and confer unto the Collateral Agent, the Administrative Agent, the
Banks, the L/C Issuer, the L/C Participant and the L/C Administrative Agent,
their respective rights and remedies hereunder; provided that the Pledgor shall
not be obligated under this Section to deliver additional collateral to the
Collateral Agent. The Pledgor further agrees that a breach of any of the
covenants contained in this Section will cause irreparable injury to the
Collateral Agent, the Administrative Agent, the Banks, the L/C Issuer, the L/C
Participant and the L/C Administrative Agent that the Collateral Agent, the
Administrative Agent, the Banks, the L/C Issuer, the L/C Participant and the
L/C Administrative Agent have no adequate remedy at law in respect of such
breach and, as a consequence, that each and every covenant contained in this
Section shall be specifically enforceable against the Pledgor, and the Pledgor
hereby waives and agrees not to assert any defenses against an action for
specific performance of such covenants except for a defense that no Event of
Default has occurred under the Credit Agreement and/or the BNY Facility
Agreement.
SECTION 18. Successors and Assigns. In the event of
assignment of all or a portion of any of the Indebtedness under the Credit
Agreement by a Bank or the BNY Facility Agreement by the L/C Issuer or the L/C
Participant, the rights of or on behalf of such Bank, the L/C Issuer or the L/C
Participant, as the case may be, hereunder, to the extent applicable to the
Indebtedness so assigned, shall be transferred with such Indebtedness and the
term "Bank", "L/C Issuer" or "L/C Participant", as the case may be, when used
herein shall be deemed to include any such assignee. This Agreement is binding
on the Pledgor and its successors but none of them shall be permitted to assign
this
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<PAGE> 54
Agreement, any of its obligations hereunder or any interest herein or in the
Collateral, or any part thereof, or otherwise pledge, encumber or grant any
option with respect to the Collateral, or any part thereof, or any cash or
property held by the Collateral Agent as Collateral under this Agreement except
as expressly permitted by this Agreement, the Credit Agreement or the BNY
Facility Agreement.
SECTION 19. Changes in Writing. Neither this Agreement nor
any provision hereof may be changed, waived, discharged or terminated orally,
but only by a statement or instrument in writing signed by the party against
which enforcement of the change, waiver, discharge or termination is sought.
Any waiver shall be effective only in the specific instance and for the
specific purpose for which made or given.
SECTION 20. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK
(WITHOUT GIVING EFFECT TO ITS CHOICE OF LAW PRINCIPLES).
SECTION 21. Judicial Proceedings; Waiver of Jury. Any
judicial proceeding brought against the Pledgor with respect to any claim in
any way arising out of, related to or connected with this Agreement may be
brought in any court of competent jurisdiction in the City of New York, and, by
execution and delivery of this Agreement, the Pledgor (a) accepts, generally
and unconditionally, the nonexclusive jurisdiction of such courts and any
related appellate court and irrevocably agrees to be bound by any judgment
rendered thereby in connection with any such claim, and (b) irrevocably waives
any objection it may now or hereafter have as to the venue of any such
proceeding brought in such a court or that such a court is an inconvenient
forum. The Pledgor hereby waives personal service of process and consents that
service of process upon it may be made by certified or registered mail, return
receipt requested, at its address specified or determined in accordance with
the provisions of Section 16, and service so made shall be deemed completed on
the third business day in St. Petersburg, Florida after such service is
deposited in the mail. Nothing herein shall affect the right of the Collateral
Agent, the Administrative Agent, any Bank, the L/C Issuer, the L/C Participant
or the L/C Administrative Agent to serve process in any other manner permitted
by law or shall limit the right of the
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<PAGE> 55
Collateral Agent, the Administrative Agent, any Bank, the L/C Issuer, the L/C
Participant or the L/C Administrative Agent to bring proceedings against the
Pledgor in the courts of any other jurisdiction. To the extent permitted in
accordance with applicable law (including applicable law relating to
jurisdiction and venue), any judicial proceeding by the Pledgor against the
Collateral Agent, the Administrative Agent, any Bank, the L/C Issuer, the L/C
Participant or the L/C Administrative Agent involving any such claim shall be
brought only in a court located in the City and State of New York. THE
PLEDGOR, THE COLLATERAL AGENT, THE ADMINISTRATIVE AGENT, EACH BANK, THE L/C
ISSUER, THE L/C PARTICIPANT AND THE L/C ADMINISTRATIVE AGENT HEREBY WAIVE TRIAL
BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING ANY SUCH CLAIM.
SECTION 22. Governmental Regulation. The Collateral Agent
will not, solely by reason of the execution, delivery and performance (other
than the enforcement of remedies) of this Agreement or any other instrument or
agreement referred to herein, be subject to the regulation or control of either
the Federal Communications Commission, any other Federal regulatory authority
or agency regulating the public utilities commission of any state.
SECTION 23. Severability. Any provision of this Agreement
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof in such
jurisdiction, and any such prohibition or unenforceability in any jurisdiction
shall not invalidate or render unenforceable such provision in any other
jurisdiction.
SECTION 24. Headings. Section headings used herein are for
convenience only and are not to affect the construction of, or be taken into
consideration in interpreting, this Agreement.
SECTION 25. Immunities of the Collateral Agent. The
Collateral Agent's performance of its duties hereunder shall in all respects be
subject to and governed by the Credit Agreement. Nothing contained herein
shall be construed to enlarge the degree of responsibility or discretion or the
duty of care to be
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<PAGE> 56
exercised by the Collateral Agent beyond those expressly set forth in the
Credit Agreement. Without limiting the generality of the foregoing, the
Pledgor hereby acknowledges and agrees that the Collateral Agent shall, with
respect to all of its rights, obligations and duties under this Agreement, be
entitled to all of its rights, protections and immunities provided for under
Section 11 of the Credit Agreement as fully and to the same extent as if such
provisions were set forth in full herein.
IN WITNESS WHEREOF, the Pledgor and the Collateral Agent have
duly executed this Agreement as of the day and year first above written.
HOME SHOPPING NETWORK, INC., as Pledgor
By
-------------------------------------
Name:
Title:
LTCB TRUST COMPANY, as Collateral Agent
By
-------------------------------------
Name:
Title:
-24-
<PAGE> 57
SCHEDULE 1 TO THE
PLEDGE AGREEMENT
PLEDGED SECURITIES
<TABLE>
<CAPTION>
ISSUER SHARES PLEDGED SHARES AUTHORIZED CERTIFICATE NUMBER(S) PLEDGOR
------ -------------- ----------------- --------------------- -------
<S> <C> <C> <C> <C>
Home Shopping Club, Inc. 1,000 1,000 Home Shopping Network,Inc.
HSN Realty, Inc. 1,000 1,000 Home Shopping Network,Inc.
</TABLE>
-25-
<PAGE> 58
ANNEX C
-------
SCHEDULE 4
LIST OF WHOLLY-OWNED SUBSIDIARIES
OF THE COMPANY AS OF THE THIRD
AMENDMENT EFFECTIVE DATE FOR
PURPOSES OF SECTION 9.22(i)
---------------------------
<PAGE> 59
ANNEX D
-------
FORM OF INTERCREDITOR AGREEMENT
-------------------------------
<PAGE> 60
ANNEX E
-------
Form of Opinion of Counsel to the
Company and the Guarantors
---------------------------------
<PAGE> 1
EXHIBIT 10.40
************************************************************
HOME SHOPPING CLUB, INC.
HSN MAIL ORDER, INC.
HSN DIRECT, INC.,
as Applicants
HSN REALTY, INC.
HOME SHOPPING NETWORK, INC.,
as Guarantors
__________
LETTER OF CREDIT
FACILITY AGREEMENT
Dated as of September 28, 1995
__________
THE BANK OF NEW YORK,
as Issuer
__________
THE BANK OF NEW YORK COMPANY, INC.,
as Participant
<PAGE> 2
__________
THE BANK OF NEW YORK,
as Administrative Agent
__________
************************************************************
<PAGE> 3
TABLE OF CONTENTS
Page
----
Section 1. Definitions and Accounting Matters. . . . . . . . . . . . . 1
1.1. Certain Defined Terms . . . . . . . . . . . . . . . . . . . 1
1.2. Certain Accounting Matters. . . . . . . . . . . . . . . . . 7
Section 2. Letters of Credit . . . . . . . . . . . . . . . . . . . . . 8
2.1. The Letters of Credit . . . . . . . . . . . . . . . . . . . 8
2.2. Commitment Termination Date of the BNY L/C Facility . . . 9
2.3. Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.4. Reimbursement for Drawings Under the Letters of
Credit; Default Interest; Manner of Payment . . . . . . . . 9
2.5. Immediate Utilization of Commitment . . . . . . . . . . . . 11
2.6. Letter of Credit Participations . . . . . . . . . . . . . . 11
2.7. Set-off; Sharing of Payments, Etc . . . . . . . . . . . . . 13
Section 3. Additional Costs; Taxes . . . . . . . . . . . . . . . . . . 14
3.1. Additional Costs . . . . . . . . . . . . . . . . . . . . . 14
3.2. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 4. Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.1. Unconditional Guarantee . . . . . . . . . . . . . . . . . . 15
4.2. Validity. . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.3. Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.4. Subordination and Subrogation . . . . . . . . . . . . . . . 17
4.5. Acceleration . . . . . . . . . . . . . . . . . . . . . . . 18
4.6. Reinstatement . . . . . . . . . . . . . . . . . . . . . . . 18
Section 5. Conditions Precedent. . . . . . . . . . . . . . . . . . . . 18
5.1. Effectiveness of this Agreement . . . . . . . . . . . . . . 18
5.2. Conditions to Issuance of Letters of Credit . . . . . . . . 19
Section 6. Representations and Warranties. . . . . . . . . . . . . . . 21
6.1. Corporate Existence . . . . . . . . . . . . . . . . . . . . 21
6.2. No Breach . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.3. Corporate Action. . . . . . . . . . . . . . . . . . . . . . 22
6.4. Approvals . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.5. Litigation . . . . . . . . . . . . . . . . . . . . . . . . 22
-i-
<PAGE> 4
Page
----
6.6. Use of Letters of Credit. . . . . . . . . . . . . . . . . 22
6.7. Pari Passu Obligations. . . . . . . . . . . . . . . . . . 22
6.8. Pledge Agreement. . . . . . . . . . . . . . . . . . . . . 23
6.9. Security Interest . . . . . . . . . . . . . . . . . . . . 23
6.10. Investment Company Act . . . . . . . . . . . . . . . . . 23
Section 7. Covenants of each Applicant and each Guarantor. . . . . . 23
7.1. Incorporated Covenants . . . . . . . . . . . . . . . . . 23
7.2. Ranking . . . . . . . . . . . . . . . . . . . . . . . . . 24
7.3. Cash Collateralization . . . . . . . . . . . . . . . . . 24
Section 8. Events of Default . . . . . . . . . . . . . . . . . . . . 24
Section 9. Security Interest . . . . . . . . . . . . . . . . . . . . 26
9.1. Grant of Security Interest . . . . . . . . . . . . . . . 26
9.2. Perfection of Security Interest in the Collateral;
Necessary Filings; Notations; Place of
Business/Location of Collateral . . . . . . . . . . . . . 26
9.3. Further Assurances . . . . . . . . . . . . . . . . . . . 27
9.4. Actions by the Administrative Agent . . . . . . . . . . . 28
9.5. Rights and Remedies Upon Default. . . . . . . . . . . . . 29
9.6. Release Upon Reimbursement of Drawing . . . . . . . . . . 31
9.7. Waiver by the Applicants . . . . . . . . . . . . . . . . 31
9.8. Purchase By the Administrative Agent, the Issuer
or Any Participant . . . . . . . . . . . . . . . . . . . 32
9.9. No Representation; Etc. . . . . . . . . . . . . . . . . . 32
9.10. Remedies . . . . . . . . . . . . . . . . . . . . . . . . 33
9.11. Indemnity . . . . . . . . . . . . . . . . . . . . . . . . 33
9.12. Termination; Release . . . . . . . . . . . . . . . . . . 34
Section 10. The Administrative Agent. . . . . . . . . . . . . . . . . 34
10.1. Appointment, Powers and Immunities. . . . . . . . . . . . 34
10.2. Reliance by the Administrative Agent. . . . . . . . . . . 35
10.3. Defaults. . . . . . . . . . . . . . . . . . . . . . . . . 35
10.4. Other Rights of the Administrative Agent. . . . . . . . . 35
10.5. Indemnification . . . . . . . . . . . . . . . . . . . . . 36
10.6. Non-Reliance on Administrative Agent . . . . . . . . . . 36
10.7. Failure to Act. . . . . . . . . . . . . . . . . . . . . . 37
10.8. Resignation or Removal of Administrative Agent . . . . . 37
10.9. Administrative Agent's Office . . . . . . . . . . . . . . 37
-ii-
<PAGE> 5
Page
----
Section 11. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . 38
11.1. Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . 38
11.2. Notices . . . . . . . . . . . . . . . . . . . . . . . . . 38
11.3. Expenses, Etc . . . . . . . . . . . . . . . . . . . . . . 38
11.4. Amendments, Etc . . . . . . . . . . . . . . . . . . . . . 39
11.5. Successors and Assigns. . . . . . . . . . . . . . . . . . 40
11.6. Assignments and Participation . . . . . . . . . . . . . . 40
11.7. Confidentiality . . . . . . . . . . . . . . . . . . . . . 41
11.8. Survival. . . . . . . . . . . . . . . . . . . . . . . . . 42
11.9. Captions. . . . . . . . . . . . . . . . . . . . . . . . . 42
11.10. Counterparts. . . . . . . . . . . . . . . . . . . . . . . 42
11.11. GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . 42
11.12. JURISDICTION. . . . . . . . . . . . . . . . . . . . . . . 42
11.13. The Collateral Agent . . . . . . . . . . . . . . . . . . 43
11.14. Severability. . . . . . . . . . . . . . . . . . . . . . . 43
-iii-
<PAGE> 6
SCHEDULE 1 List of Converted Letters of Credit
SCHEDULE 2 Place of Business/Location of Collateral
EXHIBIT A Form of Letter of Credit Application
EXHIBIT B Form of Opinion of Counsel to the Applicants and the
Guarantors
EXHIBIT C Form of Pledge Agreement
EXHIBIT D Form of Intercreditor Agreement
-iv-
<PAGE> 7
LETTER OF CREDIT
FACILITY AGREEMENT
LETTER OF CREDIT FACILITY AGREEMENT, dated as of September 28,
1995 (as the same may be amended, modified or supplemented from time to time,
this "Agreement"), among HOME SHOPPING CLUB, INC., a Delaware corporation
("HSC"); HSN MAIL ORDER, INC., a Delaware corporation ("HSN Mail Order"); HSN
DIRECT, INC., a Delaware corporation ("HSN Direct"; together with HSC and HSN
Mail Order, the "Applicants"); HSN REALTY, INC., a Delaware corporation
("HSNR"); HOME SHOPPING NETWORK, INC., a Delaware corporation ("HSN"; together
with HSNR, the "Guarantors"); THE BANK OF NEW YORK (the "Issuer"); THE BANK OF
NEW YORK COMPANY, INC. (the "Participant"); and THE BANK OF NEW YORK, as
Administrative Agent (in such capacity, together with its successors, the
"Administrative Agent").
The Applicants have requested, and the Issuer has agreed, to
provide the Applicants with a commercial letter of credit facility pursuant to
this Letter of Credit Facility Agreement and under the guarantee of the
Guarantors in the aggregate principal amount not exceeding $25,000,000 at any
one time outstanding upon the terms and conditions hereof.
Accordingly, the parties hereto hereby agree as follows:
Section 1. Definitions and Accounting Matters.
1.1 Certain Defined Terms. As used herein, the following
terms shall have the following meanings (all terms defined in this Section 1 or
in other provisions of this Agreement in the singular to have the same meanings
when used in the plural and vice versa):
"Affiliate" shall mean, with respect to any Person, any other
Person (other than a Wholly-Owned Subsidiary of such Person) directly or
indirectly controlling, controlled by, or under direct or indirect common
control with, such Person. A Person shall be deemed to control another Person
if such Person (x) is an officer or director of such other Person, (y)
possesses, directly or indirectly, the power to direct or
<PAGE> 8
cause the direction of the management and policies of such other Person,
whether through the ownership of voting securities, by contract or otherwise or
(z) directly or indirectly owns or controls 10% or more of such other Person's
capital stock.
"Amended Revolving Credit Agreement" shall mean the Existing
Revolving Credit Agreement, as amended by the Third Amendment, dated as of even
date hereof, and as the same may be further amended, modified or supplemented
from time to time, among HSN, as borrower, HSC and HSNR, as guarantors, the
banks signatory thereto, LTCB Trust Company, as Agent, the Bank of New York
Company, Inc., Toronto Dominion [Texas], Inc. and [Bank of Montreal], each as a
co-agent, and LTCB Trust Company, as Administrative Agent for the Banks.
"Application" shall mean an application by an Applicant
requesting that the Issuer issue a Letter of Credit, such application to be
substantially in the form attached hereto as Exhibit A.
"Authorized Signatory" shall mean, with respect to any
Applicant, such persons whose names, incumbency and signatures shall have been
certified to the Issuer pursuant to Section 5.1(b).
"Bankruptcy Code" shall mean the federal Bankruptcy Code of
the United States, 11 U.S.C. Section 101 et seq., the regulations thereunder
and any successor Federal statute and regulations.
"Beneficiary" shall mean the beneficiary named in any Letter
of Credit.
"BNY L/C Facility" shall mean the letter of credit facility
established pursuant to this Agreement.
"Business Day" shall mean any day on which commercial banks
are not authorized or required to close in New York City.
"Collateral" shall mean, collectively, (i) all personal
property purchased by or for the account of an Applicant with the proceeds of
Drawings under the Letters of Credit, whether now or hereafter existing or now
owned or hereafter acquired and whether
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or not subject to Article 9 of the UCC; (ii) any and all shipping documents,
warehouse receipts, policies or certificates of insurance and other documents
or instruments accompanying or related to Drawings under the Letters of Credit
and all property shipped, stored or otherwise disposed of under or pursuant to
or in connection with the Letters of Credit, or in any way relating thereto or
to any of the Drawings (whether or not such documents, goods or other property
be released to such Applicant or upon such Applicant's order and whether or not
any such release shall be on trust or bailee receipt); (iii) all rights and
causes of action of each Applicant against all parties arising from or in
connection with the contract of sale or purchase of the property covered by the
Letters of Credit, or any guarantees, agreements or other undertakings
(including those in effect between an Applicant and any account party named in
the Letter of Credit), credits, policies of insurance or other assurances in
connection therewith; and (iv) all "proceeds" (as such term is defined in the
UCC) of each of the foregoing.
"Collateral Agent" shall mean LTCB Trust Company, in its
capacity as Collateral Agent under the Pledge Agreement.
"Commitment" shall mean, in the case of the Issuer, the
Issuer's commitment to issue Letters of Credit under the BNY L/C Facility in a
maximum aggregate stated amount of $25,000,000, and in the case of each
Participant, such Participant's commitment to purchase participations in each
Letter of Credit.
"Commitment Termination Date" shall mean April 1, 1997, or
such earlier date as the Commitment shall terminate pursuant to Section 8
hereof.
"Default" shall mean an Event of Default or an event which
with notice or lapse of time or both would become an Event of Default.
"Default Interest" shall mean the interest payable pursuant to
Section 2.4(b) on any Unreimbursed Drawing, which interest will accrue from the
date such amount is due until the date such amount is paid in full.
"Default Rate" is a rate per annum equal to the sum of the
Lender's Alternative Base Rate plus the Applicable Margin (as
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each such term is defined in the Amended Revolving Credit Agreement) plus 2%,
calculated on the basis of a 360-day year for the actual number of days
elapsed.
"Dollars" and "$" shall mean lawful money of the United States
of America.
"Drawing" shall mean a drawing under a Letter of Credit upon
presentation of the documents required by such Letter of Credit.
"Effective Date" shall mean the first date on which the
conditions set forth in Section 5.1 have been satisfied or waived.
"Event of Default" shall have the meaning assigned to that
term in Section 8 hereof.
"Existing Revolving Credit Agreement" shall mean 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, and as further
amended by the Second Amendment thereto, dated as of June 28, 1995, among HSN,
as borrower, HSC, as guarantor, the banks signatory thereto, LTCB Trust
Company, as Agent, The Bank of New York Company, Inc. and Bank of Montreal,
each as a co- agent, and LTCB Trust Company, as Administrative Agent for the
Banks.
"Federal Funds Rate" shall mean, for any day, the rate per
annum (rounded upwards, if necessary, to the nearest 1/100th of 1%) equal to
the weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of New York on the Business Day
next succeeding such day; provided, that (i) if the day for which such rate is
to be determined is not a Business Day, the Federal Funds Rate for such day
shall be such rate on such transactions on the next preceding Business Day as
so published on the next succeeding Business Day and (ii) if such rate is not
so published for any day, the Federal Funds Rate for such day shall be the
average rate charged to the Issuer on such day on such transactions as
determined by the Issuer.
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"Fees" shall mean the fees payable by the Applicants, as
enumerated in Section 2.3.
"Fee Payment Date" shall mean the last Business Day of each of
February, May, August and November in each year, the first of which shall be
the first such day after the date of this Agreement.
"GAAP" shall mean generally accepted accounting principles in
the United States of America, consistently applied, as in effect (unless
otherwise specified in this Agreement) from time to time.
"Indebtedness" shall mean, for any Person (but without
duplication):
(a) all indebtedness and other obligations of such Person
for borrowed money or for the deferred purchase price of property or
services (other than trade payables incurred in the ordinary course of
business and not overdue by more than 180 days), including, without
limitation, all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments;
(b) all obligations of such Person under interest rate or
currency swaps, caps, collars, floors, options, forward exchange
contracts and similar hedging arrangements;
(c) the stated amount of all letters of credit issued for
the account of such Person and (without duplication) all drafts drawn
thereunder, and the aggregate face amount of all banker's acceptances
as to which such Person is obligated, other than trade letters of
credit issued for the account of such Person in the ordinary course of
business pursuant to the terms of which (i) such Person is obligated
to reimburse the issuer thereof for any drawing thereunder on the date
of such drawing and (ii) no other credit shall be extended thereunder
to such Person by such issuer;
(d) all obligations of such Person under any Capital
Leases (as defined in the Amended Revolving Credit Agreement);
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(e) all obligations of such Person in connection with
employee benefit or similar plans;
(f) all obligations of such Person in respect of
guarantees, whether direct or indirect (including, without limitation,
agreements to "keep well" or otherwise ensure a creditor against loss)
with respect to any indebtedness or other obligation of any other
Person of the type described in any of clauses (a) through (e) above;
(g) all indebtedness or other obligations referred to in
any of clauses (a) through (f) above secured by any Lien upon property
owned by such Person, whether or not such Person is liable on any such
obligation; and
(h) all obligations of the Applicants, the Guarantors or
any other Subsidiary under the Special Program and/or the Guaranteed
Program (each as defined in Schedule 3 to the Amended Revolving Credit
Agreement).
"Intercreditor Agreement" shall mean the Intercreditor
Agreement, dated as of September 28, 1995, as amended, modified or supplemented
from time to time, among the Banks party to the Amended Revolving Credit
Agreement, the Issuer, the Participants and the Administrative Agents named
therein, substantially in the form attached hereto as Exhibit D.
"Letter of Credit" shall mean each letter of credit issued by
the Issuer pursuant to Section 2.1.
"Lien" shall mean, with respect to any asset or other
property, any mortgage, lien, pledge, charge, security interest or encumbrance
of any kind in respect of such asset or property, any agreement to grant any of
the foregoing with respect to such asset or property, and the filing of a
financing statement or similar recording in any jurisdiction with respect to
such asset or property. For all purposes hereunder, any Applicant, either
Guarantor or any of their respective Affiliates and Subsidiaries shall be
deemed to own subject to a Lien (i) any asset or other property which it has
acquired or holds subject to the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention agreement
relating to such asset or property and (ii) any account receivable transferred
by
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it with recourse (including any such transfer subject to a holdback or similar
arrangement that effectively imposes the risk of collectibility on the
transferor).
"Participant" shall mean, initially, The Bank of New York
Company, Inc., and thereafter, each Person that purchases a participation
interest in the Commitment pursuant to Section 11.6 hereof.
"Participation Percentage" shall mean the percentage set forth
opposite each Participant's name on the signature page hereof, as modified from
time to time in accordance with Section 11.6.
"Person" shall mean an individual, a corporation, a company, a
voluntary association, a partnership, a trust, an unincorporated organization,
a limited liability company, or a government or any agency, instrumentality or
political subdivision thereof.
"Pledge Agreement" shall mean the Pledge Agreement, dated as
of September 28, 1995, as amended, modified or supplemented from time to time,
executed and delivered by HSN in favor of the Collateral Agent, substantially
in the form of Exhibit C hereto.
"Pledged Securities" shall have the meaning assigned to such
term in the Pledge Agreement.
"Regulation A" shall mean Regulation A of the Board of
Governors of the Federal Reserve System (or any successor), as the same may be
amended or supplemented from time to time.
"Related Documents" shall mean any Application, the Existing
Revolving Credit Agreement, the Amended Revolving Credit Agreement, the Pledge
Agreement and the Intercreditor Agreement.
"Secured Obligations" shall mean all obligations and
liabilities of the Applicants and the Guarantors to the Issuer, the
Participants, or the Administrative Agent under this Agreement or any other
document relating hereto (as any document may be amended, modified,
substituted, extended or renamed), direct or indirect, absolute or contingent,
due or to become due,
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now or hereafter existing, including, without limitation (i) to repay any and
all Drawings under the Letters of Credit pursuant to the terms of Section 2.4,
(ii) to pay any Default Interest on the amount of any Unreimbursed Drawing,
(iii) to repay any amounts advanced by the Issuer, any Participant or the
Administrative Agent to the Applicants, together with Default Interest thereon
and (iv) to pay all Fees, indemnities and all other amounts due hereunder.
"Security Interest" shall mean the security interest in the
Collateral granted by the Applicants to the Administrative Agent, for the
ratable benefit of the Issuer and all Participants, pursuant to Section 9.
"SEC Report" shall mean, with respect to any Person, any
document filed, or deemed filed, at any time with the Securities and Exchange
Commission (or any successor thereto) by or on behalf of such Person and
available to the public.
"Stated Amount" shall mean, with respect to any Letter of
Credit, the maximum amount which may be drawn under such Letter of Credit by
the Beneficiary of such Letter of Credit.
"Subsidiary" shall mean any corporation, partnership or other
Person of which at least a majority of the outstanding shares of capital stock
or other ownership interests ordinarily having, in the absence of
contingencies, by the terms thereof voting power to elect a majority of the
board of directors or similar governing body of such Person is at the time
directly or indirectly owned or controlled by any Applicant, either Guarantor
or by any Applicant and/or either Guarantor. "Wholly-Owned Subsidiary" shall
mean any Person of which all of such ownership interests, other than directors'
qualifying shares, are so owned or controlled.
"UCC" shall mean the Uniform Commercial Code, as enacted and
in force and effect in the State of New York and the State of Florida.
"Unreimbursed Drawing" shall mean any Drawing under a Letter
of Credit for which the Applicants do not reimburse the Issuer pursuant to
Section 2.4.
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1.2. Certain Accounting Matters.
(a) Unless otherwise disclosed to the Issuer and the
Participants in writing at the time of delivery thereof in the manner described
in subsection (b) below, all financial statements and certificates and reports
as to financial matters required to be delivered to the Issuer and the
Participant hereunder shall be prepared in accordance with GAAP applied on a
basis consistent with those used in the preparation of the latest financial
statements furnished to the Issuer and the Participant hereunder after the date
hereof (or, prior to the delivery of the first financial statements furnished
to the Issuer and the Participant hereunder, used in the preparation of the
audited financial statements incorporated by reference from Section 8.2 of the
Amended Revolving Credit Agreement). All calculations made for the purposes of
determining compliance with the terms of Sections 9.11, 9.12, 9.13, 9.19, 9.20
and 9.21 of the Amended Revolving Credit Agreement (as incorporated herein by
reference) shall, except as otherwise expressly provided herein or therein, be
made by application of GAAP applied on a basis consistent with those used in
the preparation of the annual or quarterly financial statements then most
recently furnished to the Issuer and the Participant pursuant to Section 9.1
(or referred to in Section 8.2 of the Amended Revolving Credit Agreement) of
the Amended Revolving Credit Agreement unless (i) HSN shall have objected to
determining such compliance on such basis at the time of delivery of such
financial statements or (ii) the Participants voting in accordance with Section
11.4 hereof shall so object in writing within 30 days after delivery of such
financial statements, in either of which cases such calculations shall be made
on a basis consistent with those used in the preparation of the most recent
financial statements as to which such objection shall not have been made.
(b) HSN shall deliver to the Issuer and the Participant
contemporaneously with delivery of any annual or quarterly financial statement
under Section 9.1 of the Amended Revolving Credit Agreement a description in
reasonable detail of any material variation between the application of
accounting principles employed in the preparation of such statement and the
application of accounting principles employed in the preparation of the most
recently preceding annual or quarterly financial statements as to which no
objection shall have been made in
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accordance with the last sentence of subsection (a) above, and reasonable
estimates of the difference between such statements arising as a consequence
thereof.
Section 2. Letters of Credit.
2.1. The Letters of Credit.
(a) Subject to the terms and conditions of this
Agreement, the Issuer agrees that it shall issue Letters of Credit so long as
the sum of (i) the aggregate Stated Amount of all Letters of Credit outstanding
on such date (after giving effect to the requested Letter of Credit) plus (ii)
all Unreimbursed Drawings under the Letters of Credit, does not exceed
$25,000,000. Whenever any Applicant desires to have the Issuer issue a Letter
of Credit, an Authorized Signatory shall so advise the Issuer in writing, with
at least one Business Day's notice, by submitting a duly completed Application,
and shall provide the Issuer with such information as the Issuer shall require
with respect to such request, including, without limitation, the Stated Amount
of the Letter of Credit, the tenor of the Letter of Credit, the Beneficiary of
the Letter of Credit, the purpose of the Letter of Credit (which shall be a
commercial trade transaction) and the proposed form of the Letter of Credit,
which form, prior to issuance, must be approved by the Issuer in its sole
discretion; provided, however, that if an Applicant ceases to be a Subsidiary
of HSN, such corporation shall thereafter no longer be permitted to request the
Issuer to issue a Letter of Credit hereunder. Subject to the foregoing, any
Applicant may request that the Issuer issue more than one Letter of Credit at
any time.
(b) The expiration date of any Letter of Credit shall not
be later than the earlier of (i) 180 days from the date of issuance of such
Letter of Credit or (ii) March 31, 1997.
(c) Drawings under each Letter of Credit shall be made
only by the Beneficiary named therein and shall be honored by the Issuer
pursuant to the provisions of, and on the terms and conditions set forth in,
such Letter of Credit.
2.2. Commitment Termination Date of the BNY L/C Facility.
The BNY L/C Facility shall terminate and no longer be
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available to the Applicants, and the Commitment shall terminate, on the
Commitment Termination Date.
2.3. Fees. As consideration for issuance of the Letters
of Credit and the Commitment of the Participants, the Applicants jointly and
severally agree to pay:
(a) to the Issuer, for itself and the respective accounts
of the Participants, an up-front fee, equal to 1.5% of the amount of
the BNY L/C Facility, payable on the Effective Date;
(b) to the Issuer, for the respective accounts of the
Participants, a facility fee, at a rate per annum equal to the
Facility Fee Rate (as defined in the Amended Revolving Credit
Agreement), on the unused amounts of the BNY L/C Facility, payable
quarterly in arrears on each Fee Payment Date and on the Commitment
Termination Date;
(c) to the Issuer, an issuance fee, equal to the higher
of (i) 0.25% of the Stated Amount, or the amount of any increase in
the Stated Amount, of each Letter of Credit or (ii) $50, payable upon
the issuance or amendment of such Letter of Credit;
(d) to the Issuer, a drawing fee, equal to the higher of
(i) 0.25% of the amount of each Drawing under each Letter of Credit or
(ii) $50, payable upon the honoring of each Drawing under such Letter
of Credit; and
(e) to the Issuer, an amendment fee, in addition to the
fee listed in (c) above, equal to $25 for each amendment of a Letter
of Credit, payable upon the Issuer's amending of such Letter of
Credit.
2.4. Reimbursement for Drawings Under the Letters of
Credit; Default Interest; Manner of Payment.
(a) If the Issuer shall make any payment pursuant to a
Drawing under any Letter of Credit, the Applicants jointly and severally agree
to reimburse the Issuer a principal sum equal to the amount so drawn on the
date of such Drawing; provided, however, that with respect to the Letters of
Credit deemed issued
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under the BNY L/C Facility pursuant to Section 2.5 hereof, HSN and the
Applicants shall be jointly and severally liable to reimburse the Issuer for
all drawings under such Letters of Credit. The Issuer shall promptly notify
the Applicants or the Guarantors of the presentation for payment of any Drawing
under any Letter of Credit; provided, however, that the failure of the Issuer
to give such notice shall in no way affect, limit or modify the Applicants'
joint and several obligation to reimburse the Issuer for the payment of such
Drawing.
(b) If, for any reason whatsoever other than the Issuer's
failure to act under the terms of the Letter of Credit, the Issuer is not
reimbursed in full on the same day as any Drawing under a Letter of Credit, the
Applicants (and in the case of the Letters of Credit deemed issued pursuant to
Section 2.5, HSN) jointly and severally agree to pay to the Issuer Default
Interest on any and all amounts (including, without limitation, the Fees and
indemnities described in this Agreement) unpaid by the Applicants on the due
date thereof, until such amounts are paid, payable on demand, at a rate equal
to the Default Rate.
(c) All payments made by the Applicants under this
Agreement shall be in Dollars and in immediately available funds, without
set-off, counterclaim or deduction of any kind, at the Issuer's office and in
accordance with the instructions specified under the Issuer's name on the
signature page of this Agreement, or at such other place or by such other
method as the Issuer from time to time may specify in writing, (i) if the
Applicant or a Guarantor receives notice or otherwise learns of payment of a
Drawing prior to 12:00 noon (New York City time) on the date of payment of such
Drawing, not later than 4:00 p.m. (New York City time) on such day of payment
of such Drawing, or (ii) if the Applicant or a Guarantor receives notice or
otherwise learns of payment of a Drawing after 12:00 noon on the day of payment
of such Drawing, not later than 12:00 noon (New York City time) on the next
succeeding Business Day; provided, however, that irrespective of when the
Applicant or a Guarantor receives notice or learns of payment of a Drawing,
Default Interest shall accrue commencing on the date of payment of such
Drawing. If the due date of any payment to be made hereunder would otherwise
fall on a day which is not a Business Day, such date shall be extended to the
next succeeding Business Day and interest shall be payable
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for any principal so extended for the period of such extension at a rate equal
to the Federal Funds Rate.
(d) The obligations of the Applicants under this
Agreement shall be absolute, unconditional and irrevocable, and shall be
performed strictly in accordance with the terms of this Agreement, irrespective
of any of the following circumstances:
(i) any lack of validity or enforceability of any
Letter of Credit or all or any of the Related Documents;
(ii) any amendment or waiver of, or consent to
departure from, this Agreement, any Letter of Credit or all or any of
the Related Documents;
(iii) the existence of any claim, set-off, defense
or other rights which any Applicant or Guarantor may have at any time
against the Beneficiary of a Letter of Credit, the Issuer, the
Participants or any other Person or entity, whether in connection with
this Agreement, such Letter of Credit, the Related Documents, or any
unrelated transactions;
(iv) any certificate or any other document
presented under a Letter of Credit proving to be forged, fraudulent,
invalid or insufficient in any respect or any statement therein being
untrue or inaccurate in any respect whatsoever;
(v) payment by the Issuer under a Letter of
Credit against presentation of a draft or certificate which does not
comply with the terms of such Letter of Credit, provided such payment
shall not have constituted gross negligence or willful misconduct on
the part of the Issuer;
(vi) any act or omission pursuant to the
instructions of an Applicant or a Guarantor; or
(vii) any other circumstance or happening
whatsoever, whether or not similar to any of the foregoing, provided
that the same shall not have constituted gross negligence or willful
misconduct on the part of the Issuer.
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2.5. Immediate Utilization of Commitment. Automatically
on the Effective Date and without any further action on the part of the Issuer,
the letters of credit currently outstanding under the $40,000,000 uncommitted
letter of credit facility extended by the Issuer to HSN, HSC and HSN Mail
Order, as listed on Schedule 1 hereto, shall become Letters of Credit
hereunder, utilizing a portion of the Commitment hereunder equal to the
aggregate stated amount of such letters of credit; provided, however, that the
aggregate stated amount of the outstanding letters of credit under such
facility do not exceed the Commitment hereunder.
2.6. Letter of Credit Participations.
(a) Each Participant, by executing this Agreement or
purchasing a participation interest pursuant to Section 11.6, hereby
irrevocably authorizes the Issuer to issue Letters of Credit, to pay the amount
of any draft presented under a Letter of Credit upon presentation of documents
which, upon their face, conform to the terms of such Letter of Credit, to
receive from the Applicants (or the Guarantors on behalf of the Applicants)
reimbursement for Drawings on Letters of Credit, to receive from the Applicants
(or the Guarantors on behalf of the Applicants) payment of all Fees, charges
and interest, and to take such action on its behalf under the provisions of
this Agreement and to exercise such powers and to perform such duties hereunder
as are specifically delegated to or required of the Issuer by the terms hereof
and thereof, together with such powers as are reasonably incidental thereto.
(b) By the issuance of each Letter of Credit and without
any further action on the part of the Issuer, the Issuer hereby grants to each
Participant, and each Participant hereby acquires from the Issuer, a
participation interest equal to such Participant's Participation Percentage of
the Commitment, each Letter of Credit and each Unreimbursed Drawing under the
Letters of Credit. In consideration and in furtherance of the foregoing, each
Participant hereby absolutely and unconditionally agrees to pay, without
offset, abatement, withholding or reduction, to the Issuer such Participant's
Participation Percentage of each Unreimbursed Drawing. Such liability of each
Participant to the Issuer shall be unconditional and without regard to the
occurrence of any Event of Default or Default or other
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noncompliance by the Applicants or the Guarantors with any of their obligations
under this Agreement or any Related Document. The Issuer shall give the
Participants prompt notice of any Unreimbursed Drawing on the date of such
Unreimbursed Drawing; provided, however, that the failure of the Issuer to give
such notice shall not, in any way, impair, limit or affect the Participant's
obligation to reimburse the Issuer for its Participation Percentage in such
Unreimbursed Drawing. Upon receipt of such notice, each Participant shall make
available to the Issuer its Participation Percentage of such Unreimbursed
Drawing, in immediately available funds, before 3:00 p.m. (New York City time)
on the day such notice was given (if such notice was given before 1:00 p.m.
(New York City time) on such day), and before 12:00 noon (New York City time)
on the next succeeding Business Day (if such notice was given after 1:00 p.m.
(New York City time) on such day). Each Participant shall indemnify and hold
harmless the Issuer from and against any and all losses, liabilities (including
liabilities for penalties), actions, suits, judgments, demands, costs and
expenses (including, without limitation, reasonable attorneys' fees and
expenses) resulting from any failure on the part of such Participant to
provide, or from any delay in providing, the Issuer with its Participation
Percentage of the amount of any Unreimbursed Drawing in accordance with this
Section 2.6(b), but no Participant shall be so liable for any such failure on
the part of any other Participant. If a Participant does not make available to
the Issuer such Participant's Participation Percentage of any Unreimbursed
Drawing, such Participant shall be required to pay interest to the Issuer on
its Participation Percentage of such Unreimbursed Drawing at a rate equal to
the overnight Federal Funds Rate until such amount is so paid. Each
Participant shall indemnify the Issuer, ratably in accordance with its
Participation Percentage, for any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind and nature whatsoever which may be imposed on, incurred by or
asserted against the Issuer in any way relating to or arising out of this
Agreement or any Letter of Credit or the transactions contemplated hereby.
Notwithstanding the foregoing, the Participant shall not be obligated to pay
the Issuer for the wrongful payment or disbursement made under the Letter of
Credit or any other action or omission of the Issuer which constitutes the
gross negligence or willful misconduct of the Issuer.
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(c) So long as a Participant is not in default in the
performance of its obligations under Section 2.6(b), the Issuer shall transfer
to such Participant its proportionate share of each reimbursement of, and/or
payment of Default Interest on, any Unreimbursed Drawing, based on the
proportion that the payments made by such Participant with respect to such
Unreimbursed Drawing bears to the total of such Unreimbursed Drawing made by
the Issuer under the respective Letter of Credit.
(d) If a Participant fails to make any payments under
Section 2.6(b), and if any such payments are not made prior to the expiration
of five Business Days following notice of such nonpayment given by the Issuer
to such Participant, then the Issuer may acquire, or transfer to a third party,
in exchange for the sum or sums due from such Participant, such Participant's
participation interest hereunder and in the Unreimbursed Drawing, and all other
rights of such Participant under this Agreement, without, however, relieving
such Participant from any liability for damages, costs and expenses suffered by
the Issuer as a result of such failure. The purchaser of any such interest
(including the Issuer) shall be deemed to have acquired an interest senior to
the interest of such Participant and, accordingly, (i) such purchaser shall be
entitled to receive all subsequent payments which the Issuer would otherwise
have made hereunder to such Participant and (ii) such Participant shall
thereupon cease to be a Participant and shall cease to have any further rights
in respect hereof, except that such Participant shall continue to be entitled
to be reimbursed for all amounts previously advanced by it not theretofore
reimbursed.
2.7. Set-off; Sharing of Payments, Etc. Each Applicant
and each Guarantor agrees that, in addition to (and without limitation of) any
right of set-off, bankers' lien or counterclaim the Issuer or any Participant
may otherwise have, the Issuer and each Participant shall be entitled, at its
option, to offset balances held by it in ordinary deposit accounts of any
Applicant or either Guarantor at any of its offices, in Dollars or in any other
currency, against any principal of or Default Interest on any Secured
Obligation hereunder or any other amount payable to the Issuer or any
Participant hereunder, which is not paid when due (regardless of whether such
balances are then due to any Applicant or either Guarantor), in which case it
shall promptly notify the Applicant or the Guarantor, as the case may
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be; provided that the failure to give such notice shall not affect the validity
of such set-off. Each Applicant and each Guarantor agrees that any Participant
purchasing a participation (or direct interest) in the Commitment, the Letters
of Credit and all Unreimbursed Drawings may exercise all rights of set-off,
bankers' lien, counterclaim or similar rights with respect to such
participation as fully as if such Participant were a direct issuer of Letters
of Credit in the amount of such Participant's Participation Percentage of the
Commitment. Nothing contained herein shall require the Issuer or any
Participant to exercise any such right or shall affect the right of any such
party to exercise, and retain the benefits of exercising, any such right with
respect to any other indebtedness or obligation of any Applicant or either
Guarantor; provided that to the extent any such party exercises any such right
with respect to any other indebtedness or obligation of any Applicant or either
Guarantor, it shall also exercise its rights under this Section 2.7 and agrees
that the benefits of exercising any such rights shall be shared with the other
parties pro rata in the proportion that the unpaid obligations of the Applicant
and the Guarantor owing to such party hereunder bear to such other indebtedness
or obligation. If under any applicable bankruptcy, insolvency or other similar
law, any party receives a secured claim in lieu of a set-off to which this
Section 2.7 applies, such party shall, to the extent practicable, exercise its
rights in respect of such secured claim in a manner consistent with the rights
of the other parties entitled under this Section 2.7 to share in the benefits
of any recovery on such secured claim.
Section 3. Additional Costs; Taxes.
3.2. Additional Costs. If the Issuer or any Participant
is now or hereafter becomes subject to any reserve, special deposit or similar
requirement against assets of, deposits with, or for the account of, or credit
extended by, the Issuer or any Participant, or any other condition is imposed
upon the Issuer or any Participant, which imposes a cost upon the Issuer or
such Participant, and the result, in the determination of the Issuer or such
Participant, as the case may be, is to increase the cost to the Issuer or any
Participant of maintaining the Commitment or paying or funding the payment of a
Drawing or an Unreimbursed Drawing under any Letter of Credit hereunder, or to
reduce the amount of any sum received or receivable by the
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Issuer or any Participant hereunder, or reduce the return to the Issuer or such
Participant, by an amount determined by the Issuer or such Participant, as the
case may be, to be material, the Applicants and the Guarantors jointly and
severally agree to pay to the Issuer or such Participant upon demand such
amount in respect of such increased cost or reduction as the Issuer or such
Participant may determine to be the additional amount or amounts required to
compensate the Issuer or such Participant for such increased cost or reduction.
In making the determinations contemplated hereunder, the Issuer or any
Participant may make such estimates, assumptions, allocations and the like
which the Issuer or such Participant, as the case may be, in good faith
determines to be appropriate, but the Issuer's or such Participant's selection
thereof, and its determinations based thereon, shall be final and binding and
conclusive upon the Applicants and the Guarantors.
3.2. Taxes. All payments of Secured Obligations (as used
in this Section 3.2, "Payments") shall be made free and clear of, and without
deduction by reason of, any and all taxes, duties, assessments, withholdings,
retentions or other similar charges whatsoever imposed, levied, collected,
withheld or assessed by any jurisdiction or any agency or taxing authority
thereof or therein (as used in this Section 3.2, "Taxes"), all of which shall
be paid by the Applicants for their own account not later than the date when
due. If any Applicant is required by law to deduct or withhold any Taxes from
any Payment, such Applicant shall: (a) make such deduction or withholding; (b)
pay the amount so deducted or withheld to the appropriate taxing authority not
later than the date when due (irrespective of the rate of such deduction or
withholding); (c) deliver to the Issuer and the Participants promptly and in
any event within 30 days after the date on which such Taxes become due,
original tax receipts and other evidence satisfactory to the Issuer and the
Participants of the payment when due of the full amount of such Taxes; and (d)
pay to the Issuer and the Participants, forthwith upon any request by the
Issuer and the Participants, as the case may be, therefor from time to time,
such additional amounts as may be necessary so that the Issuer or any
Participant receive, free and clear of all Taxes, the full amount of such
Payment stated to be due under this Agreement as if no such deduction or
withholding had been made. Notwithstanding any provision to the contrary, the
Applicants shall not be required to pay to the
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Issuer or any Participant any increased amounts pursuant to this Section 3.2 on
account of Taxes measured by or based upon the overall gross or net income,
receipts, capital, net worth, or corporate franchise of the Issuer or such
Participant, as the case may be.
Without limiting the survival of any other provisions of this
Agreement or any Related Document, the obligations of the Applicants under this
Section 3.2 shall survive the repayment of all Unreimbursed Drawings, the
expiration of all Letters of Credit and the termination of the Commitment and
the BNY L/C Facility.
Section 4. Guarantee.
4.1. Unconditional Guarantee. For valuable consideration,
receipt of which is hereby acknowledged, and to induce the Issuer to issue
Letters of Credit and the Issuer and the Participants to provide the BNY L/C
Facility, each of the Guarantors hereby, jointly and severally, absolutely,
unconditionally and irrevocably, guarantees to the Issuer, all Participants and
the Administrative Agent the payment, in full, when due of the principal amount
of, and Default Interest on, each Drawing under any Letter of Credit, and all
other amounts (including, without limitation, all Fees and indemnities) payable
by the Applicants hereunder and in connection with the Letters of Credit and
all other documents referred to herein or therein, in accordance with the terms
hereof and thereof. Each of the Guarantors hereby unconditionally agrees that
upon default in the payment when due of any of such principal amount, Default
Interest or other amounts, the Guarantors shall forthwith pay and perform the
same in the money and funds, at the time, in the place and in the manner
provided for such payment in this Agreement or any other applicable document.
4.2. Validity. Each of the Guarantors hereby agrees that
its guarantee provided pursuant to this Section 4 is a continuing guarantee of
payment and not merely of collection, that it is a primary, independent
obligation of each of the Guarantors and that the Guarantors' obligations
hereunder shall be joint and several, absolute, unconditional and irrevocable,
irrespective of (a) any invalidity, illegality, irregularity or
unenforceability of, or defect in or any change in, this
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Agreement, the Letters of Credit, the Amended Revolving Credit Agreement, the
Pledge Agreement or any other Related Document, (b) any amendment, modification
or waiver of any term or condition of this Agreement, the Letters of Credit,
the Amended Revolving Credit Agreement, the Pledge Agreement or any other
Related Document, or any waiver or consent by the Issuer, the Administrative
Agent or any Participant to any departure from the terms hereof or thereof, (c)
any sale, exchange, release, surrender, realization upon or other dealings with
any security or guarantee for any of the obligations guaranteed hereby (whether
now or hereafter granted), (d) any settlement or compromise of such
obligations, (e) the absence of any action to demand or enforce any of such
obligations against any or all of the Applicants or the other Guarantor, (f)
the recovery of any judgment against any or all of the Applicants or any other
Person, or any action to enforce the same, (g) the recovery of any claim under
any other guarantee of or security for such obligations or under any applicable
insurance or (h) any other circumstance which might otherwise constitute a
legal or equitable discharge or defense of a guarantor or surety (other than
full and strict compliance with and satisfaction of such liabilities or, in the
case of an Event of Default, the cure or waiver of such Event of Default).
4.3. Waivers. Each of the Guarantors hereby waives notice
of acceptance of the guarantee provided by this Section 4, notice of the
extension of any credit or financial accommodation, notice of the issuance of
any Letter of Credit or the incurrence of any other Secured Obligation, notice
of any extension of the Commitment Termination Date, demand of payment, filing
of claims with a court in the event of bankruptcy of any Applicant or any other
Person, any right to require a proceeding or the filing of a claim first
against any Applicant, any other guarantor, any other Person, any letter of
credit, or any security for any of the Secured Obligations, presentment,
protest, notice of default, dishonor or nonpayment, or release of any
Collateral and any other notice and all demands whatsoever. Each of the
Guarantors hereby further waives all set-offs and counterclaims against the
Applicants, the Issuer, the Administrative Agent and any Participant.
4.4. Subordination and Subrogation. Each of the
Guarantors hereby subordinates all present and future claims, now
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held or hereafter acquired, against any Applicant as a creditor or contributor
of capital, or otherwise, to the prior and final payment in full to the Issuer,
the Administrative Agent and the Participants of all of the Secured
Obligations. If, without reference to the provisions of this Section 4.4,
either Guarantor would at any time, upon the occurrence and during the
continuance of an Event of Default, be or become entitled to receive any
payment on account of any claim against any Applicant, whether in insolvency,
bankruptcy, liquidation or reorganization proceedings, or otherwise, such
Guarantor shall and does hereby irrevocably direct that all such payments shall
be made directly to the Issuer, the Administrative Agent and the Participants
until all Secured Obligations shall be paid in full. Should either Guarantor
receive any such payment, such Guarantor shall receive such amount in trust for
the Issuer, the Administrative Agent and the Participants and shall immediately
pay over to the Issuer, the Administrative Agent and the Participants such
amount as provided in the preceding sentence.
Anything contained in this Section 4 to the contrary
notwithstanding, the obligations of each of the Guarantors hereunder shall be
limited to a maximum aggregate amount equal to the largest amount that would
not render its obligations hereunder subject to avoidance as a fraudulent
transfer or conveyance under Section 548 of the Bankruptcy Code or any
applicable provisions of comparable state law (collectively, the "Fraudulent
Transfer Laws"), in each case after giving effect to all other liabilities of
such Guarantor, contingent or otherwise, that are relevant under the Fraudulent
Transfer Laws (specifically excluding, however, any liabilities of such
Guarantor in respect of intercompany indebtedness to the Applicants or other
Affiliates of the Applicants to the extent that such indebtedness would be
discharged in an amount equal to the amount paid by such Guarantor hereunder)
and after giving effect as assets to the value (as determined under the
applicable provisions of the Fraudulent Transfer Laws) of any rights to
subrogation or contribution of such Guarantor pursuant to (i) applicable law or
(ii) any Agreement providing for an equitable allocation among such Guarantor
and other Affiliates of the Applicants of obligations arising under guaranties
by such parties.
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Each of the Guarantors further agrees that any rights of
subrogation such Guarantor may have against any Applicant and any rights of
contribution such Guarantor may have against any Applicant, and any rights of
contribution such Guarantor may have against the other Guarantor or any other
guarantor of the Secured Obligations hereunder, shall be junior and subordinate
to any rights the Issuer, the Administrative Agent or the Participants may have
against such other Guarantor or guarantor.
4.5. Acceleration. Each of the Guarantors agrees that, as
between the Applicants on the one hand, and the Issuer, the Administrative
Agent and the Participants on the other hand, the obligations of the Applicants
guaranteed under this Section 4 may be declared to be forthwith due and
payable, notwithstanding any stay, injunction or other prohibition (whether in
a bankruptcy proceeding affecting any Applicant or otherwise) preventing such
declaration as against any Applicant.
4.6. Reinstatement. Each of the Guarantors covenants that
the guarantee provided by this Section 4 will not be discharged except by
complete and final payment of all of the Secured Obligations and all
obligations of the Guarantors arising out of this guarantee. In the event that
any payment is made by the Applicants hereunder or by either Guarantor under
this guarantee, and is thereafter required to be rescinded or otherwise
restored or paid over to the Applicants, such Guarantor or any other person
(whether upon the insolvency or bankruptcy of any Applicant or either Guarantor
or otherwise), each Guarantor's obligations hereunder shall immediately and
automatically be reinstated as though such payment had not been made.
Section 5. Conditions Precedent.
5.1. Effectiveness of this Agreement. The occurrence of
the Effective Date and the obligation of the Issuer to issue the Letters of
Credit hereunder are subject to the receipt by the Issuer and the Participant,
on or before the Effective Date, of each of the following documents, each of
which shall be satisfactory in form and substance to the Issuer and the
Participant:
(a) Certified copies of the certificate of incorporation
and by-laws of each Applicant and each
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Guarantor and all corporate action and (if necessary) stockholder
action taken by each Applicant and each Guarantor approving this
Agreement and the transactions contemplated hereby (including, without
limitation, a certificate setting forth the resolutions of the Boards
of Directors of each Applicant and each Guarantor adopted in respect
of the transactions contemplated hereby).
(b) A certificate of each Applicant and each Guarantor in
respect of each of the persons (i) who is authorized to sign this
Agreement on its behalf and (ii) who will, until replaced by another
person or persons duly authorized for that purpose, act as its
representative for the purposes of signing Applications, documents and
giving notices and other communications in connection with this
Agreement and the transactions contemplated hereby. The Issuer may
conclusively rely on such certificate until the Issuer and
Administrative Agent receive notice in writing from the Applicants or
the Guarantors, as the case may be, to the contrary.
(c) Certificates, as of a recent date, from the
appropriate authorities for each jurisdiction in which each Applicant
and each Guarantor is incorporated or qualified to do business as to
the good standing of each Applicant and each Guarantor, respectively,
in each such jurisdiction.
(d) A certificate of a senior officer of each Applicant
and each Guarantor to the effect set forth in the first sentence of
Section 5.2 hereof.
(e) An opinion of Barry S. Augenbraun, Esq., General
Counsel, and H. Steven Holtzman, Esq., Senior Counsel to the
Applicants and the Guarantors, substantially in the form of Exhibit B
hereto.
(f) A certificate of a senior officer of HSN, HSC and HSN
Mail Order (i) confirming the termination of the $40,000,000
uncommitted letter of credit facility extended by the Issuer to HSN,
HSC and HSN Mail Order and (ii) listing the letters of credit
outstanding on the Effective Date under such letter of credit
facility.
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(g) An executed counterpart of the Third Amendment to the
Existing Revolving Credit Agreement in form and substance satisfactory
to the Issuer and the Participants.
(h) An executed counterpart of the Pledge Agreement.
(i) A certificate evidencing the payment of all Fees and
expenses then payable pursuant to Sections 2.3 and 11.3 hereof and all
other fees theretofore agreed between the Applicants, the Issuer and
the Participant.
(j) Such other documents as the Issuer or the
Participants may reasonably request including, without limitation, all
requisite governmental approvals and filings.
5.2. Conditions to Issuance of Letters of Credit. The
obligation of the Issuer to issue a Letter of Credit to any Applicant and the
occurrence of the Effective Date shall be subject to the further conditions
that, as of the date of the issuance of such Letters of Credit and after giving
effect thereto (and also as of the Effective Date):
(a) no Default or Event of Default shall have occurred
and be continuing, and no Default or Event of Default shall result
from the issuance of such Letter of Credit;
(b) the representations and warranties made by each
Applicant and each Guarantor in Section 6 hereof and in any other
certificate or other document delivered in connection with this
Agreement shall be true in all material respects on and as of the date
of the issuance of such Letter of Credit (and the Effective Date) with
the same force and effect as if made on and as of such date;
(c) the representations made by HSN and HSC in Section 8
of the Amended Revolving Credit Agreement shall be true in all
material respects on and as of the date of issuance of such Letter of
Credit (and the Effective 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, 1994
in the consolidated financial condition or operations, or
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the business taken as a whole, of HSN and its consolidated
Subsidiaries from that set forth in their financial statements dated
as of December 31, 1994, except as disclosed to the Issuer and the
Participant in writing prior to the date of this Agreement);
(d) the Applicants shall have created and perfected the
Security Interest of the Administrative Agent, for the ratable benefit
of the Issuer and all Participants, in the Collateral pursuant to
Section 9.2(b), and to the extent that the Security Interest may be
perfected by possession, the Applicants shall have made such
arrangements as shall be satisfactory to the Administrative Agent for
the delivery of such types of Collateral to the Administrative Agent
for purposes of perfection;
(e) the Applicants and the Guarantors shall be in
compliance with the covenant contained in Section 9.20(f) of the
Amended Revolving Credit Agreement; and
(f) the Applicants shall have paid in full all fees and
expenses payable pursuant to Sections 2.3 and 11.3 hereof.
Each Application for the issuance of a Letter of Credit hereunder made pursuant
to Section 2.1 hereof shall constitute a certification by the Applicants and
the Guarantors as to the circumstances specified in paragraphs (a), (b), (c),
(d) and (e) above (both as of the date of such Application and, unless any
Applicant or either Guarantor otherwise notifies the Issuer and the
Participants prior to the date of the issuance of such Letter of Credit, as of
the date of such Letter of Credit).
Section 6. Representations and Warranties. HSN and HSC
hereby make the representations and warranties set forth in Sections 8.1
through 8.3, 8.8 through 8.11 and 8.13 through 8.15 of the Amended Revolving
Credit Agreement, as in effect on the date hereof, and such representations and
warranties are incorporated herein by reference and shall have the same force
and effect as if set forth herein in full; provided, however, that any
amendments to or waivers of such representations and warranties set forth in
the Amended Revolving Credit Agreement shall not constitute amendments of or
waivers of such
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representations and warranties for purposes of this Agreement unless and until
such amendments or waivers have been approved in accordance with Section 11.4
hereof. In addition, each of the Applicants and the Guarantors, jointly and
severally, represents and warrants to the Issuer, the Administrative Agent and
the Participants that:
6.1. Corporate Existence. Each Applicant and each
Guarantor (a) is a corporation duly organized and validly existing under the
laws of the jurisdiction of its incorporation; (b) has all requisite corporate
power, and has all material governmental licenses, authorizations, consents and
approvals, necessary to own its assets and carry on its business as presently
conducted, and conducts its business in compliance with the requirements set
forth in Section 9.3(b) of the Amended Revolving Credit Agreement; and (c) is
qualified to do business in all jurisdictions in which the nature of the
business conducted by it makes such qualification necessary and where failure
so to qualify would have a material adverse effect on its business, financial
condition or operations.
6.2. No Breach. Neither the execution and delivery of this
Agreement, the Pledge Agreement and the other documents and instruments
contemplated hereby and thereby nor the consummation of the transactions
contemplated hereby and thereby, nor the compliance by any Applicant or either
Guarantor with the terms and provisions hereof or thereof will (a) conflict
with or result in a breach of, or require any consent or vote of any Person
under, the certificate of incorporation or by-laws of any Applicant or either
Guarantor, or any agreement or instrument to which any Applicant, either
Guarantor or a Subsidiary of any thereof is a party or to which it is subject,
(b) violate any applicable law, regulation, order, writ, injunction or decree
of any court or governmental authority or agency or (c) constitute a default
or, except as set forth in the Pledge Agreement and in Section 9 hereof, result
in the imposition of any Lien on any of the assets, revenues or other
properties of any Applicant, either Guarantor or a Subsidiary of any thereof
under any such agreement or instrument.
6.3. Corporate Action. The execution, delivery and
performance by each Applicant and each Guarantor of this Agreement, and the
execution, delivery and performance by HSN of
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the Pledge Agreement, and the consummation of the transactions contemplated
hereby and thereby, are within the scope of its corporate powers, and have been
duly authorized by all necessary corporate action on the part of each of them.
This Agreement constitutes the legal, valid and binding obligation of each
Applicant and each Guarantor, and the Pledge Agreement constitutes the legal,
valid and binding obligation of HSN, enforceable against each of them, as the
case may be, 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).
6.4. Approvals. No authorizations, approvals or consents
of, and no filings or registrations with, any governmental or regulatory
authority or agency are necessary for the execution, delivery of performance by
any Applicant or either Guarantor of this Agreement or any Application or by
HSN of the Pledge Agreement or for the validity or enforceability hereof or
thereof or for the consummation of the transactions contemplated hereby and
thereby.
6.5. Litigation. Except as heretofore disclosed to the
Issuer and the Participants in writing or in any SEC Report of HSN delivered to
the Issuer and the Participants prior to the date hereof, there is no action,
proceeding or investigation by or before any court or any arbitral,
governmental or regulatory authority or agency, pending or (to the knowledge of
the Applicants or the Guarantors) threatened against any Applicant or either
Guarantor or any Subsidiary of any thereof which, if adversely determined,
could have a material adverse effect on the financial condition or business of
HSN and its consolidated Subsidiaries taken as a whole.
6.6. Use of Letters of Credit. None of the Applicants or
the Guarantors nor any Subsidiary of any thereof is engaged principally, or as
one of its important activities, in the business of extending credit for the
purpose, whether immediate, incidental or ultimate, of buying or carrying
margin stock (within the meaning of Regulation U or X of the Board of
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Governors of the Federal Reserve System) and no part of the proceeds of any
Drawing under any Letter of Credit will be used to buy or carry any margin
stock.
6.7. Pari Passu Obligations. The Secured Obligations of
each Applicant and each Guarantor under this Agreement rank and will rank at
least pari passu in all respects with all other unsubordinated Indebtedness of
the Applicants and the Guarantors, respectively, except for Indebtedness that
is senior solely by operation of applicable law, and except that Indebtedness
of the Applicants and the Guarantors secured as permitted by Section 9.5 of the
Amended Revolving Credit Agreement ranks senior in right of security with
respect to the collateral therefor.
6.8. Pledge Agreement. By virtue of the execution and
delivery by HSN of the Pledge Agreement, when the stock certificates
representing the Pledged Securities owned by HSN are delivered to the
Collateral Agent in accordance with the Pledge Agreement, the Collateral Agent
will obtain and, so long as the Collateral Agent maintains possession of the
certificates representing the Pledged Securities, will have and will continue
to have a valid and perfected first priority security interest in such Pledged
Securities, for the benefit of the Banks under the Amended Revolving Credit
Agreement, the Issuer and the Participants as security for the repayment and
performance in full of the Secured Obligations, prior to all other Liens
thereon.
6.9. Security Interest. Each Applicant has, or will have,
title to the Collateral free and clear of all Liens, except for the Liens
contemplated by this Agreement.
6.10. Investment Company Act. No Applicant nor any
Guarantor is, and none is "controlled by", an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
Section 7. Covenants of each Applicant and each Guarantor.
So long as the Commitment is in effect and until payment in full of all Secured
Obligations and the termination of the Commitment, HSN and HSC hereby agree to
comply with each of the covenants set forth in Sections 9.1 through 9.7,
Sections 9.9 through 9.14, and Sections 9.16 through 9.23 of the Amended
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Revolving Credit Agreement and such covenants are incorporated herein by
reference and shall have the same force and effect as if set forth herein in
full; provided, however, that any amendments to a waiver of such covenants set
forth in the Amended Revolving Credit Agreement shall not constitute amendments
to a waiver of such covenants for purposes of this Agreement unless and until
such amendments or waivers have been approved in accordance with Section 11.4
hereof. So long as to Commitment is in effect and until payment in full of all
Secured Obligations and the termination of the Commitment, each Applicant and
each Guarantor further agrees that:
7.1. Incorporated Covenants. Each Applicant and each
Guarantor will comply with the covenants set forth in Sections 9.3 through 9.5,
9.9 and 9.10 of the Amended Revolving Credit Agreement as if such covenants
were written, mutatis mutandis, to apply to "each Applicant and each Guarantor"
in lieu of "the Company and the Guarantor", and such covenants as so read are
hereby incorporated herein by reference and shall have the same force and
effect as if set forth herein in full.
7.2. Ranking. a. Each Applicant and each Guarantor will
cause the Secured Obligations and any other obligations under this Agreement
and each other document now or hereafter entered into with respect hereto or
thereto to rank at least pari passu in right of payment and of security with
all other unsubordinated Indebtedness of any Applicant or either Guarantor, as
the case may be, except that Indebtedness secured by any Lien permitted by
Section 9.5 of the Amended Revolving Credit Agreement may rank senior in right
of security with respect to the collateral subject to such Lien. Without
limiting the generality of the foregoing, each Applicant and each Guarantor
covenants, and will take all steps necessary to assure, that its obligations
under this Agreement will at all times constitute "Senior Indebtedness" as
defined in, and for all purposes of, any indenture or other instrument relating
to subordinated debt (and will be entitled to the benefits of the subordination
provisions relating thereto).
(b) Each Applicant and each Guarantor will cooperate with
the Issuer and the Participants and execute such further instruments and
documents as the Issuer or any Participant may reasonably request to carry out
the intentions of this Section
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7.2. Without limiting the generality of the foregoing, if any Applicant or
either Guarantor hereafter issues or otherwise incurs any subordinated
Indebtedness, each of them will execute and cause to be executed such further
documents as the Issuer or any Participant may reasonably request to ensure
that the obligations of the Applicants and the Guarantors under this Agreement
at all times rank senior to such subordinated Indebtedness.
(c) Nothing in this Section 7.2 shall be construed so as
to limit the ability of any Applicant or either Guarantor to incur any
Indebtedness (consistent with paragraphs (a) and (b) above and otherwise
permitted by this Agreement) on a basis pari passu with their respective
Indebtedness under this Agreement.
7.3. Cash Collateralization. In the event that any
Applicant ceases to be a Subsidiary of HSN, then as a condition precedent to
the consummation of any sale or disposition of such Applicant, HSN shall
provide to the Issuer cash collateral in an amount equal to the aggregate
stated amount of all then outstanding Letters of Credit issued for the account
of such Applicant.
Section 8. Events of Default. If one or more of the following
events (herein called "Events of Default") shall be continuing:
(a) any Applicant or either Guarantor shall fail to (i)
reimburse the Issuer for any Drawing under any Letter of Credit in
accordance with Section 2.4(c), or (ii) pay any Default Interest, Fees
or other amounts due hereunder within two Business Days of the due
date thereof;
(b) any representation, warranty or certification made or
made herein by incorporation by reference by any Applicant or either
Guarantor shall prove to have been false or misleading as of the time
made or deemed made;
(c) any Applicant or either Guarantor shall default in
the performance of any of its obligations under Section 2 hereof, and
such default shall continue unremedied for a period of 10 days after
the earlier of (x) the date on which such Applicant or such Guarantor
obtained knowledge of such
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default, or (y) the date of notice by the Issuer to the Applicant or
such Guarantor of the occurrence of such default;
(d) any Lien created by Section 9 of this Agreement shall
cease, for any reason other than a change in applicable law, to be
enforceable and of the same effect and priority purported to be
created thereby; provided that, in the event any Lien created
hereunder shall cease to be enforceable and of the same effect and
priority purported to be created thereby solely as a result of a
change in applicable law, such unenforceability and affected priority
shall not constitute an Event of Default so long as the Applicant with
respect to the Letter of Credit to which such Lien relates takes all
necessary action under such change to restore the enforceability and
priority of such Lien and delivers an opinion of counsel to such
effect in form and substance satisfactory to the Issuer within 30 days
of the effectiveness of such change; or
(e) there shall occur any of the Events of Default set
forth in Section 10 of the Amended Revolving Credit Agreement (as in
effect on the date hereof), all of which are incorporated herein by
reference and shall have the same force and effect as if set forth
herein in full.
Upon the occurrence of (i) an Event of Default (other than an Event of Default
specified in Section 10(f), (g) or (h) of the Amended Revolving Credit
Agreement (as in effect on the date hereof), the Issuer may and, on the
instructions of the Participants holding a majority of the Participation
Percentages, shall, declare all Secured Obligations to be immediately due and
payable, and/or terminate the Issuer's Commitment to issue any Letters of
Credit; and (ii) an Event of Default specified in Section 10(f), (g) or (h) of
the Amended Revolving Credit Agreement, all Secured Obligations shall
automatically be immediately due and payable, in each case without presentment,
demand, protest or other notice of any kind, all of which are expressly waived,
and the Issuer's Commitment to issue any Letters of Credit shall automatically
and immediately terminate.
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Section 9. Security Interest.
9.1. Grant of Security Interest. As security for the
prompt payment, observance and performance when due of the Secured Obligations,
each Applicant hereby grants to the Administrative Agent, for the ratable
benefit of the Issuer and all Participants, a continuing first priority
security interest in, a continuing Lien upon and/or a right of set-off against
all of the Collateral. This Agreement shall constitute a "security agreement"
within the meaning of the UCC.
9.2. Perfection of Security Interest in the Collateral;
Necessary Filings; Notations; Place of Business/Location of Collateral.
(a) At any time and from time to time, upon demand of the
Administrative Agent, each Applicant will (i) deliver and pledge (or cause to
be delivered and pledged) to the Administrative Agent endorsed and/or
accompanied by such further instruments of assignment and transfer in such form
and substance as the Administrative Agent may reasonably request, any and all
proceeds, shipping documents, warehouse receipts, policies or certificates of
insurance, and other documents and/or instruments included in or evidencing or
otherwise relating to the Collateral owned or held by such Applicant as the
Administrative Agent may specify and (ii) if and to the extent determined by
the Administrative Agent to be desirable to protect the interests of the Issuer
and all Participants, notify each obligor upon any credit or other obligation
included in the Collateral at any time owing to such Applicant, in such manner
as the Administrative Agent may specify.
(b) All filings, registrations and recordings necessary,
appropriate or reasonably requested by the Administrative Agent to create and
perfect the Security Interest granted by the Applicants to the Administrative
Agent, for the ratable benefit of the Issuer and all Participants, hereby in
respect of the Collateral and required to be made on or before the date hereof
have been accomplished. When the Collateral consisting of instruments,
documents of title and other similar items in which a security interest can be
perfected by possession, is delivered to the Administrative Agent in accordance
with this Agreement, the Administrative Agent will
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obtain and, so long as the Administrative Agent maintains possession of such
Collateral, will have and will continue to have a valid and perfected first
priority security interest in such Collateral, for the benefit of the Issuer
and the Participants as security for the repayment and performance in full of
the Secured Obligations, prior to all other Liens thereon. The Security
Interest granted to the Administrative Agent pursuant to this Section 9 in and
to the Collateral constitutes and hereafter will constitute a perfected
security interest therein, superior and prior to the rights of all persons
therein and subject to no other Liens except Liens which are permitted by, and
subject to, Section 9.5 of the Amended Revolving Credit Agreement.
(c) Each Applicant will keep and stamp or otherwise mark
any and all documents and chattel paper and its individual books and records
relating to the Collateral in such manner as the Administrative Agent may
reasonably require.
(d) Each Applicant represents and warrants to the
Administrative Agent that the chief place of business of such Applicant, and
the place where such Applicant keeps all of its books and records, is specified
in Schedule 2 hereof. All tangible evidence and all receivables, contracts and
general intangibles of each Applicant and the only original books of account
and records of such Applicant relating thereto are, and will continue to be,
kept at such chief place of business, or at such new location for such chief
place of business as such Applicant may establish in accordance with the last
sentence of this Section 9.2(d). All Collateral (other than personal property
received by HSN Direct) of each Applicant is (or, when received by the
Applicant, will be) located at one of the locations for such Applicant listed
on Schedule 2 hereof, and will remain located at any one of such locations
unless the Applicant shall have given the Administrative Agent at least 30
days' prior written notice of its intention to remove the Collateral from such
location, clearly describing the proposed new location which shall be in the
United States of America. HSN Direct will provide to the Administrative Agent a
list of all locations outside the United States where Collateral owned by HSN
Direct is or may be located. No Applicant shall establish a new location for
its chief place of business nor shall it change its name until (i) it shall
have given to the Administrative Agent
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not less than 30 days' prior written notice of its intention to do so, clearly
describing such new location (which shall be in the United States of America)
or name, and providing such other information in connection therewith as the
Administrative Agent may reasonably request and (ii) with respect to such new
location or name, the Applicants shall have taken all actions satisfactory to
the Administrative Agent to maintain the perfection and proof of the Security
Interest of the Administrative Agent in the Collateral intended to be granted
hereby, including, without limitation, obtaining waivers of warehouseman's
liens with respect to such new location.
9.3. Further Assurances. Each Applicant will, from time
to time and at its own expense, promptly execute, acknowledge, witness and
deliver and file and/or record, or cause the execution, acknowledgment,
witnessing, delivery, filing and/or recordation of, such specific and further
assignment of Collateral and such other documents or instruments, and shall
take or cause to be taken such other action as the Administrative Agent may
reasonably request for the perfection against such Applicant and all third
parties whomsoever of the Security Interest created hereby, or for the
continuation and protection thereof, and promptly furnish to the Administrative
Agent evidence satisfactory to the Administrative Agent of such action.
Without limiting the generality of the foregoing, each Applicant promptly upon
the execution and delivery of this Agreement, and at any time and from time to
time thereafter upon the request of the Administrative Agent, will execute,
acknowledge, witness and deliver such financing and continuation statements,
notices and security agreements, make such notations on its records, and take
such other action as the Administrative Agent may reasonably request for the
purpose of so perfecting, maintaining and protecting such Security Interest and
shall cause this Agreement, any amendment or supplement hereto or thereto and
each such financing and continuation statement, notice and security agreements
to be filed and/or recorded in such manner and in such places as may be
required by applicable law or as the Administrative Agent may reasonably
request for such purpose. After written notice to the Applicants, each
Applicant hereby authorizes the Administrative Agent to effect any filing
and/or recording which the Administrative Agent has requested pursuant to this
Section 9.3 without the signature of such Applicant, to the extent permitted by
applicable law. The Administrative Agent
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shall give the Applicants written notice subsequent to any such filing and/or
recording.
9.4. Actions by the Administrative Agent. The
Administrative Agent may, at any time and from time to time, at its option,
after having given notice of its intention to do so to the Applicants, perform
any act which is undertaken by any of the Applicants to be performed by such
Applicant hereunder but which such Applicant shall have failed to perform, and
the Administrative Agent may take any other action which the Administrative
Agent may deem necessary for the maintenance, preservation or protection of any
of the Collateral or the Security Interest therein, and the Administrative
Agent is hereby irrevocably appointed attorney-in-fact of each Applicant for
this purpose. The Applicants jointly and severally agree to pay, upon the
demand of the Administrative Agent all moneys advanced by the Administrative
Agent in connection with any of the foregoing, together with interest thereon
at the Default Rate hereunder from the date of such advance to the date of the
repayment thereof. Such advances shall constitute additional Secured
Obligations hereunder. The making of any such advance by the Administrative
Agent shall not, however, relieve any Applicant of liability for any default
hereunder until the full amount of all such moneys so advanced and such
interest thereon shall have been repaid by the Applicants to the Administrative
Agent and such default shall have otherwise been cured.
9.5. Rights and Remedies Upon Default.
(a) Rights and Remedies Generally. Upon the occurrence
and during the continuance of any Event of Default, the Administrative Agent
shall have all the rights and remedies of a secured party under the UCC, or
other applicable law, including the power of sale upon notice, and all rights
provided herein, all of which rights and remedies shall, to the fullest extent
permitted by law, be cumulative.
(b) Specific Rights and Remedies. Without limiting the
generality of the foregoing:
(i) After an Event of Default shall have occurred and so
long as it shall be continuing, each Applicant will, at the request of
the Administrative Agent, cause all payments
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made under or in respect of all obligations owed to such Applicant to
be paid directly to the Administrative Agent. The Administrative
Agent shall hold all such payments as additional Collateral hereunder.
The Administrative Agent shall not be liable to any Person for any
incorrect or improper payment made pursuant to this Section 9.5(b)(i)
in the absence of gross negligence or willful misconduct.
(ii) Each Applicant hereby constitutes the Administrative
Agent its true and lawful attorney, irrevocably and with full power of
substitution, in the name of such Applicant or otherwise, upon the
occurrence and during the continuance of any Event of Default, (A) to
give notice at any time to each account debtor or other obligor of the
fact of assignment of the respective account or other obligation under
this Agreement, (B) to demand, receive, compromise, sue for, and give
acquittance for, any and all moneys and claims for money due and to
become due under or arising out of such accounts and other
obligations, (C) to endorse any checks or other instruments or orders
in connection therewith, (D) to file any claims or take any actions or
institute any proceedings which the Administrative Agent may deem to
be necessary or advisable in its sole and complete discretion and to
compromise, litigate or settle the same and (E) to take any other
action which by the terms of this Agreement is to be taken by such
Applicant.
(iii)(1) Upon the occurrence and during the continuance of
any Event of Default, the Administrative Agent may do any one or more
of the following acts:
(A) exercise all of the rights and remedies
of a secured party under the provisions of applicable law;
(B) institute legal proceedings for the
specific performance of any covenant or agreement herein
undertaken by each Applicant or for aid in the execution of
any power or remedy herein granted;
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(C) institute legal proceedings for the
sale, under a judgment or decree of any court of competent
jurisdiction, of any of the Collateral;
(D) institute legal proceedings for the
appointment of a receiver or receivers pending foreclosure
hereunder or the sale of any of the Collateral under the order
of a court of competent jurisdiction or under other legal
process;
(E) personally, or by agents or attorneys,
enter into and upon any premises wherein the Collateral or any
part thereof may then be situated and take possession of all
or any part thereof or render it unusable; and, without being
responsible (except for gross negligence or wilful misconduct)
for loss or damage, hold, store, and keep idle, or operate,
lease, or otherwise use or permit the use of the same or any
part thereof, for such time and upon such terms as the
Administrative Agent may deem to be in its best interests, and
demand, collect, and retain all hire, earnings and all other
sums due and to become due in respect of the same from any
party whomsoever, accounting only for net earnings, if any,
arising from such use, after charging against all receipts
from the use of the same and from any subsequent sale thereof,
by court proceedings or pursuant to clause (D) of this Section
9.5(b)(iii)(1) all reasonable costs and expenses of, and
damages or losses by reason of, such use and/or sale; and/or
(F) personally, or by agents or attorneys,
enter upon and into any place wherein the same may then be
located, and take possession of any part or all of the
Collateral, with or without process of law and without being
responsible for loss or damage (except such as results from
the Administrative Agent's gross negligence or wilful
misconduct), and sell, lease or otherwise dispose of all or
any part of the same, free from any and all claims of any
Applicant at law, in equity, or otherwise, at one or more
public or private sales, in such place or places, at such time
or times, for cash or credit and upon such terms as the
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Administrative Agent may determine, with or without any
previous demand or notice to any Applicant or advertisement
and demand, and any right or equity of redemption otherwise
required by law are hereby waived by each Applicant to the
fullest extent permitted by applicable law. The power of sale
hereunder shall not be exhausted by one or more sales, and the
Administrative Agent may from time to time adjourn any sale to
be made pursuant to this Section 9.5.
(2) If the Administrative Agent shall demand possession
of the Collateral or any part thereof pursuant hereto, each Applicant
will, at its own expense, forthwith cause the Collateral or any part
thereof designated by the Administrative Agent to be assembled and
made available and/or delivered to the Administrative Agent at any
place designated by the Administrative Agent.
(3) In the event that any mandatory requirement of
applicable law shall obligate the Administrative Agent to give prior
notice to any Applicant of any of the foregoing acts, each Applicant
agrees that a notice sent to each Applicant in writing by certified
U.S. mail, return receipt requested, or by facsimile with receipt
thereof acknowledged in writing, at least five Business Days before
the date of any such act, at each Applicant's address specified on the
signature page hereof (or such other address as shall have been
notified to the Administrative Agent in writing), shall be deemed to
be reasonable notice of such act and, specifically, reasonable
notification of the time and place of any public sale hereunder and
reasonable notification of the time after which any private sale or
other intended disposition to be made hereunder is to be made.
(4) The Administrative Agent shall apply the proceeds
from the sale or other disposition of the Collateral in accordance
with the terms and provisions of this Agreement, and any balance,
after payment in full of all Secured Obligations and all other amounts
due hereunder, shall be paid to the Applicants.
(5) No sale or other disposition of all or any part of
the Collateral by the Administrative Agent pursuant to this
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Section 9.5(b) shall be deemed to relieve any Applicant or either
Guarantor of its obligations in respect of the Secured Obligations
except to the extent the proceeds thereof are finally and irrevocably
applied by the Administrative Agent to the payment of such Secured
Obligations.
9.6. Release Upon Reimbursement of Drawing. Upon the
reimbursement of a Drawing, the security interest granted pursuant to this
Section 9 in the specific items of Collateral related to such Drawing shall be
released, without any action by the Administrative Agent.
9.7. Waiver by the Applicants. To the fullest extent
permitted by law, each Applicant agrees that it will not at any time insist
upon, claim, plead, or take any benefit or advantage of any appraisement,
valuation, stay, extension, moratorium, redemption or similar law now or
hereafter in force in order to prevent, delay, or hinder the enforcement hereof
or the absolute sale of any part of the Collateral or the possession thereof by
any purchaser at any sale pursuant to Section 9.5(b)(iii) above; and each
Applicant, for itself and all who claim through it, as far as it or they now or
hereafter lawfully may do so, hereby waives the benefit of all such laws, and
all right to have the Collateral marshaled upon any foreclosure hereof, and
agrees that any court having jurisdiction to foreclose this Agreement may order
the sale of the Collateral as an entirety. Without limiting the generality of
the foregoing, upon the occurrence and during the continuance of an Event of
Default, each Applicant hereby: (i) authorizes the Administrative Agent, in
its sole discretion and without notice to or demand upon any Applicant or
either Guarantor and without otherwise affecting the obligations of any
Applicant or either Guarantor hereunder or in respect of the Secured
Obligations, from time to time to take and hold other collateral (in addition
to the Collateral) for payment of the Secured Obligations, or any part thereof,
and to exchange, enforce or release such other collateral or any part thereof
and to accept and hold any endorsement or guarantee of payment of the Secured
Obligations or any part thereof and to release or substitute either Guarantor,
any endorser or guarantor or any other Person granting security for or in any
other way obligated upon any Secured Obligations or any part thereof and/or to
modify or terminate the terms of subordination of any Indebtedness
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subordinated to any of the Secured Obligations and (ii) waives and releases any
and all right to require the Administrative Agent to collect any of the Secured
Obligations from any specific item or items of the Collateral, from the
Guarantors, from any other Person liable as guarantor or in any other manner in
respect of any of the Secured Obligations or from any other collateral.
9.8. Purchase By the Administrative Agent, the Issuer or
Any Participant. At any public or private sale pursuant to Section 9.5(b)(iii)
hereof, the Administrative Agent, the Issuer or any Participant or their
respective agents may, to the extent permitted by applicable law, bid for and
purchase the Collateral offered for sale, make payment on account thereof as
hereinafter provided in this Section 9.8, and, upon compliance in full with the
terms of such sale, hold, retain, and dispose of such property without further
accountability therefor to any Applicant or any other party. In any such sale
to any such purchaser, the purchaser may, for the purposes of making payment
for the Collateral or any part thereof so purchased, use any claim for the
Secured Obligations then due and payable to it as a credit against the purchase
price.
9.9 No Representation; Etc. Anything herein contained to
the contrary notwithstanding, neither the Administrative Agent nor any of its
respective nominees or assignees shall have any obligation or liability by
reason of or arising out of this Section 9 to make any inquiry as to the nature
or sufficiency of, to present or file any claim with respect to, or to take any
action to collect or enforce the payment of, any amounts to which it may be
entitled at any time or times by virtue of this Section 9. The Administrative
Agent makes no representations or warranties with respect to the Collateral or
any part thereof, and the Administrative Agent shall not be chargeable with any
obligations or liabilities of any Applicant or any other Person with respect
thereto.
9.10. Remedies. Each right, power, and remedy herein
specifically granted to the Administrative Agent or otherwise available to it
shall be cumulative, and shall be in addition to every other right, power and
remedy herein specifically given or now or hereafter existing at law, in equity
or otherwise; and each right, power and remedy, whether specifically granted
herein
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or otherwise existing, may be exercised at any time and from time to time as
often and in such order as may be deemed expedient by the Administrative Agent
in its sole and complete discretion; and the exercise or commencement of
exercise of any right, power or remedy shall not be construed as a waiver of
the right to exercise, at the same time or thereafter, the same or any other
right, power or remedy. No delay or omission by the Administrative Agent in
exercising any such right or power, or in pursuing any such remedy, shall
impair any such right, power or remedy or be construed to be a waiver of any
Default on the part of any Applicant or an acquiescence therein. No waiver by
the Administrative Agent of any breach or Default of or by any Applicant
hereunder shall be deemed to be a waiver of any other or similar, previous or
subsequent breach or Default.
9.11. Indemnity. Each Applicant hereby jointly and
severally agrees to assume liability for, and does hereby agree to indemnify,
protect, save and keep harmless the Administrative Agent and its agents and
servants, from and against, any and all liabilities, obligations, losses,
damages, penalties, claims, actions, suits and reasonable costs and expenses
(including, without limitation, reasonable attorneys' fees and those referred
to in Section 9.5(b)(iii) hereof), of whatsoever kind or nature, imposed on,
incurred by or asserted against the Administrative Agent or its agents and
servants, in any way relating to or arising out of this Agreement or the
manufacture, purchase, acceptance, rejection, ownership, delivery, lease,
possession, use, operation, condition, merchantability, fitness, sale, return
or other disposition of any Collateral (other than by reason of the respective
indemnitees' own gross negligence or wilful misconduct). Without limiting the
generality of the foregoing, each Applicant hereby jointly and severally agrees
to reimburse the Administrative Agent for all costs, liabilities or expenses
reasonably incurred by them pursuant to any of the duties hereby or thereby
created or in the exercise of any duty, right, remedy or power herein or
therein imposed or conferred upon either of them (other than any such costs,
liabilities and expenses resulting from the Administrative Agent's gross
negligence or wilful misconduct). The obligations of the Applicants contained
in this Section 9.11 shall survive the termination of this Agreement, the
expiration of the Commitment and the discharge of the Applicants' Secured
Obligations under this Agreement.
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9.12. Termination; Release. When all the Secured
Obligations (other than Secured Obligations in the nature of continuing
indemnitees or expense reimbursement obligations not yet due and payable) have
been paid in full and have been terminated and the Commitment of the Issuer to
issue any Letter of Credit under this Agreement has expired, the obligations
under this Section 9 shall terminate. Upon termination of the obligations
under this Section 9 or any release of Collateral in accordance with the
provisions of this Agreement, the Administrative Agent shall, upon the request
and at the expense of the Applicants, forthwith assign, transfer and deliver to
the Applicants, against receipt and without recourse to or warranty by the
Administrative Agent, such of the Collateral to be released (in the case of a
release) as may be in possession of the Administrative Agent and which shall
not have been sold or otherwise applied pursuant to the terms hereof, in the
order of and at the expense of the Applicants, and proper instruments
(including UCC termination statements on Form UCC-3) acknowledging the
termination of the obligations under this Section 9 or the release of such
Collateral, as the case may be.
Section 10. The Administrative Agent.
10.1 Appointment, Powers and Immunities. Each of the
Issuer and the Participants hereby irrevocably appoints and authorizes the
Administrative Agent to act as its agent hereunder with such powers as are
specifically delegated to the Administrative Agent by the terms of this
Agreement, together with such other powers as are reasonably incidental
thereto. The Administrative Agent (which term as used in this sentence and in
Section 10.5 and the first sentence of Section 10.6 hereof shall include
reference to its Affiliates and each of the officers, directors, employees and
agents of itself and of its Affiliates): (a) shall have no duties or
responsibilities except those expressly set forth in this Agreement, and shall
not by reason of this Agreement be a trustee or other fiduciary for any of the
Issuer or the Participants; (b) shall not be responsible to the Issuer or the
Participants for any recitals, statements, representations or warranties
contained in this Agreement, or in any certificate or other document referred
to or provided for in, or received by any of them under, this Agreement, or for
the value, validity, effectiveness, genuineness, enforceability or sufficiency
of this Agreement, any Letter of Credit, any Related
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Document or any other document referred to or provided for herein or for any
failure by the Applicants or any other Person to perform any of its obligations
hereunder or thereunder; (c) shall not be required to initiate or conduct any
litigation or collection proceedings hereunder, except as provided for under
Section 10.3 hereof and (d) shall not be responsible for any action taken or
omitted to be taken by it hereunder or under any other document or instrument
referred to or provided for herein or in connection herewith, except for its
own gross negligence or willful misconduct. The Administrative Agent may
employ agents and attorneys-in-fact and shall not be responsible for the
negligence or misconduct of any such agents or attorneys-in-fact selected by it
in good faith.
10.2. Reliance by the Administrative Agent. The
Administrative Agent shall be entitled to rely upon any certification, notice
or other communication (including any thereof by telephone, telex, telegram or
cable) reasonably believed by it to be genuine and correct and to have been
signed or sent by or on behalf of the proper Person or Persons, and upon advice
and statements of legal counsel, independent accountants and other experts
selected by the Administrative Agent. As to any matters not expressly provided
for by this Agreement, the Administrative Agent shall in all cases be fully
protected in acting, or in refraining from acting, hereunder in accordance with
instructions signed by the Issuer and the Participants holding a majority of
Participation Percentages interest hereunder.
10.3. Defaults. The Administrative Agent shall not be
deemed to have knowledge of the occurrence of a Default or an Event of Default
unless the Administrative Agent has received notice from the Issuer or any
Participant specifying such Default or Event of Default. In the event that the
Administrative Agent receives such notice, the Administrative Agent shall give
prompt notice thereof to the Issuer and all Participants. The Administrative
Agent shall (subject to Section 10.7 and Section 11.4 hereof) take such action
with respect to a Default or an Event of Default as shall be directed by the
Issuer and the Participants holding a majority of Participation Percentages
hereunder; provided, that, unless and until the Administrative Agent shall have
received such directions, the Administrative Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with
respect to such Default or
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Event of Default as it shall deem advisable in the best interests of the Issuer
and all Participants.
10.4. Other Rights of the Administrative Agent. With
respect to the other rights of the Administrative Agent (and any successor
acting as Administrative Agent) in its capacity as a Participant hereunder, the
Administrative Agent shall have the same rights and powers hereunder as any
other Participant and may exercise the same as though it were not acting as the
Administrative Agent and the term "Participant" shall, unless the context
otherwise indicates, include the Administrative Agent in its individual
capacity. The Participant (and any successor acting as Administrative Agent)
and its Affiliates may (without having to account therefor to any Participant)
accept deposits from, lend money to and generally engage in any kind of
banking, trust or other business with the Applicants and the Guarantors (and
any of their respective Affiliates or Subsidiaries) as if it were not acting as
the Administrative Agent and the Participant and its Affiliates may accept fees
and other consideration from the Applicants and the Guarantors (and any of
their respective Affiliates or Subsidiaries) for services in connection with
this Agreement or otherwise without having to account for the same to any other
Participant.
10.5. Indemnification. Each of the Issuer and the
Participants agrees to indemnify the Administrative Agent (to the extent not
reimbursed under Section 11.3 hereof, but without limiting the obligations of
the Applicants under said Section 11.3), ratably in accordance with their
respective Participation Percentages, for any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements (including reasonable attorneys' fees) of any kind and nature
whatsoever which may be imposed on, incurred by or asserted against the
Administrative Agent in any way relating to or arising out of this Agreement or
any other documents contemplated by or referred to herein or the transactions
contemplated hereby or the enforcement of any of the terms hereof or of any
such other documents, provided that no party shall be liable for any of the
foregoing to the extent they arise from the gross negligence or willful
misconduct of the Administrative Agent.
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10.6. Non-Reliance on Administrative Agent. Each of the
Issuer and the Participants agrees that it has, independently and without
reliance on the Administrative Agent, and based on such documents and
information as it has deemed appropriate, made its own credit analysis of the
Applicants, the Guarantors and their respective Affiliates and Subsidiaries and
its own decision to enter into this Agreement and that it will, independently
and without reliance upon the Administrative Agent, and based on such documents
and information as it shall deem appropriate at the time, continue to make its
own analysis and decisions in taking or not taking action under this Agreement,
the Letters of Credit or any Related Documents. The Administrative Agent shall
not be required to keep itself informed as to the performance or observance by
the Applicants or the Guarantors of this Agreement or any other document
referred to or provided for herein or to inspect the properties or books of the
Applicants, the Guarantors or any of their respective Affiliates and
Subsidiaries. Except for notices, reports and other documents and information
expressly required to be furnished to the Issuer and the Participants by the
Administrative Agent hereunder, the Administrative Agent shall not have any
duty or responsibility to provide any such party with any credit or other
information concerning the affairs, financial condition or business of the
Applicants, the Guarantors or any of their respective Affiliates or
Subsidiaries which may come into the possession of the Administrative Agent or
any of its Affiliates.
10.7. Failure to Act. Except for action expressly required
of the Administrative Agent hereunder, the Administrative Agent shall in all
cases be fully justified in failing or refusing to act hereunder unless it
shall be indemnified to its satisfaction by the Issuer and the Participants
against any and all liability and expense (other than that arising from gross
negligence or willful misconduct) which may be incurred by it by reason of
taking or continuing to take any such action.
10.8. Resignation or Removal of Administrative Agent.
Subject to the appointment and acceptance of a successor Administrative Agent
as provided below, the Administrative Agent may resign at any time by giving
notice thereof to the Issuer, the Participants, the Applicants and the
Guarantors, and the Administrative Agent may be removed at any time with or
without
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cause by the Issuer and the Participants holding a majority of Participation
Percentages hereunder. Upon any such resignation or removal, the Issuer and
the Participants holding a majority of Participation Percentages hereunder
shall have the right to appoint a successor Administrative Agent. If no
successor Administrative Agent shall have been so appointed by the Issuer and
the Participants holding a majority of Participation Percentages hereunder and
shall have accepted such appointment within 30 days after the retiring
Administrative Agent's giving of notice of resignation or the Issuer's and the
Participants' holding a majority of Participation Percentages hereunder removal
of the retiring Administrative Agent, then the retiring Administrative Agent
may, on behalf of the Issuer and the Participants, appoint a successor
Administrative Agent, which shall be a bank which has an office in New York,
New York with a combined capital and surplus of at least $100,000,000. Upon
the acceptance of any appointment as Administrative Agent hereunder by a
successor Administrative Agent, such successor Administrative Agent shall
thereupon succeed to and become vested with all the rights, powers, privileges
and duties of the retiring Administrative Agent, and the retiring
Administrative Agent shall be discharged from its duties and obligations
hereunder. After any retiring Administrative Agent's resignation or removal
hereunder as Administrative Agent, the provisions of this Section 10 shall
continue in effect for its benefit in respect of any actions taken or omitted
to be taken by it while it was acting as the Administrative Agent.
10.9. Administrative Agent's Office. The Administrative
Agent acts initially through its office designated on the signature pages
hereof, but may transfer its functions as Administrative Agent to any other
office, branch or affiliate of The Bank of New York Company, Inc. at any time
by giving prompt, subsequent written notice to each of the other parties to
this Agreement.
Section 11. Miscellaneous.
11.1. Waiver. No failure on the part of the Issuer, the
Administrative Agent or any Participant to exercise, no delay in exercising,
and no course of dealing with respect to, any right, power or privilege under
this Agreement, any Letter of Credit or any other Related Document shall
operate as a waiver
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thereof; nor shall any single or partial exercise of any right, power or
privilege under this Agreement or any Letter of Credit preclude any other or
further exercise thereof or the exercise of any other right, power or
privilege. The remedies provided herein are cumulative and not exclusive of
any remedies provided by law.
11.2. Notices. All notices and other communications
provided for herein (including, without limitation, any modifications of, or
waivers or consents under, this Agreement) shall be given or made by telex,
telecopy, telegraph, cable or in writing and telexed, telecopied, telegraphed,
cabled, mailed or delivered to the intended recipient at the "Address for
Notices" specified below its name on the signature pages hereof; or, as to any
party, at such other address as shall be designated by such party in a notice
to each other party. Except as otherwise provided in this Agreement, all such
communications shall be deemed to have been duly given when transmitted by
telex or telecopier (with receipt confirmed either mechanically or in writing
by a person at the office of the recipient), personally delivered or, in the
case of a mailed notice, upon receipt, in each case given or addressed as
aforesaid.
11.3. Expenses, Etc. The Applicants and the Guarantors
jointly and severally agree to pay or reimburse each of the Issuer, the
Administrative Agent and the Participants for:
(a) all costs and expenses of the Issuer, the
Administrative Agent and each Participant (including, without
limitation, reasonable attorneys' fees and expenses) in connection
with (i) the preparation, negotiation, execution and delivery of this
Agreement and the Letters of Credit and any related documents, and
(ii) any amendment, modification or waiver of any of the terms of this
Agreement or any of the Letters of Credit or any Related Document
(whether or not any such amendment, modification or waiver is signed
or becomes effective);
(b) all reasonable costs and expenses of the Issuer, the
Administrative Agent and each Participant (including reasonable
attorneys' fees and expenses) in connection with the enforcement of
this Agreement, any of the Letters of Credit or any Related Document
and protection of the rights
-47-
<PAGE> 54
of the Issuer, the Administrative Agent and each Participant against
any of the Applicants, the Guarantors or any of their respective
assets; and
(c) all transfer, stamp, documentary and other similar
taxes, assessments or charges (including, without limitation,
penalties and interest) levied by any governmental or revenue
authority in respect of this Agreement, any Letter of Credit or any
Related Document.
Each Applicant and each Guarantor hereby agrees to indemnify the Issuer, the
Administrative Agent and each Participant and their respective Affiliates,
directors, officers, employees and agents from, and hold each of them harmless
against, any and all losses, liabilities, claims, damages or expenses incurred
by any of them arising out of or by reason of any investigation or litigation
or other proceedings (including any threatened investigation or litigation or
other proceedings) relating to or arising out of this Agreement, or any Related
Document of the Issuer and the Participants, or any aspect thereof, or from any
actual or proposed use by the Applicants, the Guarantors or any of their
respective Affiliates or Subsidiaries of the proceeds of any of the Letters of
Credit or from an alleged breach of this Agreement or any Related Document,
including, without limitation, the reasonable fees and disbursements of counsel
incurred in connection with any such investigation or litigation or other
proceedings (but excluding any such losses, liabilities, claims, damages or
expenses incurred by reason of the gross negligence or willful misconduct of
the Person to be indemnified).
11.4. Amendments, Etc. This Agreement may not be amended,
supplemented or modified except in accordance with the provisions of this
subsection without the prior written consent of the Participants holding a
majority of the Participation Percentages hereunder; provided, however, that,
without the consent of each of the Participants, no such amendment, supplement,
modification or waiver shall (i) extend any date fixed for the payment of
principal of or Default Interest on any Unreimbursed Drawing, (ii) extend the
Commitment Terminate Date, (iii) reduce the rate at which either Default
Interest is payable thereon or Fees are payable hereunder to a level below the
rate at which the Participant is entitled to receive Default Interest or Fees
(as the case may be) in respect of such participation,
-48-
<PAGE> 55
(iv) release either Guarantor from any of its obligations under this Agreement
or (v) release any Collateral except as otherwise permitted by this Agreement;
and provided, further, that without the consent of the Issuer or the
Administrative Agent, as the case may be, the rights and obligations of the
Issuer or the Administrative Agent, respectively, may not be amended.
11.5. Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
11.6. Assignments and Participation.
(a) Neither any Applicant nor either Guarantor may assign
any of its rights or obligations hereunder without the prior written consent of
the Issuer, the Administrative Agent and each Participant.
(b) Any Participant may assign all, or a portion of its
Participation Percentage in the Commitment, the Letters of Credit and
Unreimbursed Drawings, without the prior consent of any Applicant or either
Guarantor; provided that partial assignments to any Person other than an
office, branch or affiliate of the Issuer or any Participant shall be in a
principal amount of not less than $5,000,000. Notwithstanding the foregoing or
any contrary provision of this Agreement, The Bank of New York Company, Inc.
hereby agrees that it will, so long as the Commitment is in effect, hold for
its own account a Participation Percentage equal to at least 51%. Upon (A)
written notice to the Applicants of an assignment, identifying in detail
reasonably satisfactory to the Applicants the proposed assignee and the amount
of the Commitment, the Letters of Credit and the Unreimbursed Drawings
assigned, (B) payment by the assignor or the assignee to the Administrative
Agent, for the Administrative Agent's own account, of a recordation fee of
$2,500, (C) the execution of a counterpart signature page to this Agreement,
and (D) execution by the assignee of a written instrument binding such assignee
to the terms and conditions of the Intercreditor Agreement in form and
substance reasonably satisfactory to the R/C Administrative Agent (as defined
in the Intercreditor Agreement), the assignee shall have, as of the date of
effectiveness of such assignment and to the extent of such assignment, the
obligations, rights and benefits of, and shall be
-49-
<PAGE> 56
deemed for all purposes hereunder, a Participant party hereto holding a
Participation Percentage in the Commitment, the Letters of Credit and the
Unreimbursed Drawings assigned to it (in addition to the Commitment, the
Letters of Credit and the Unreimbursed Drawings theretofore held by such
assignee) and the assignor shall be released from such obligations to such
extent.
(c) Any Participant may sell to one or more other Persons
a participation in all or any part of its Participation Percentage in the
Commitment, the Letters of Credit and the Unreimbursed Drawings, in which event
each such participant shall be entitled to the rights and benefits of the
provisions of Sections 2 and 5.1(i) of this Agreement with respect to its
participation in such Commitment, Letters of Credit and Unreimbursed Drawings
as if (and the Applicants and the Guarantors shall be directly obligated to
such Participant under such provisions as if) such participant were a
"Participant" for purposes of said Sections, but shall not have any other
rights or benefits under this Agreement; provided, that all amounts payable by
any Applicant or either Guarantor to the Issuer and any Participant under
Section 2 hereof in respect of any Unreimbursed Drawing shall be determined as
if the Issuer or any Participant had not sold any participations in such
Participation Percentage and as if such Participant were funding all of such
Unreimbursed Drawings in the same way that it is funding the portion of such
Unreimbursed Drawings in which no participations have been sold.
(d) Each Participant that is not organized under the laws
of the United States or of any political subdivision thereof agrees that it
will deliver to the Applicants on the date it acquires its Participation
Percentage hereunder and thereafter as may be required from time to time by
applicable law or regulation United States Internal Revenue Service Form 4224
or 1001 (or any successor form) or such other form as from time to time may be
required to demonstrate that payments made by any Applicant to the Issuer under
this Agreement either are exempt from United States Federal withholding taxes
or are payable at a reduced rate (if any) specified in any applicable tax
treaty or convention.
(e) In addition to the assignments and participations
permitted under the foregoing provisions of this Section 11.6, the Issuer or
any Participant may assign and pledge all or any portion of its rights
hereunder to any Federal Reserve Bank as
-50-
<PAGE> 57
collateral security pursuant to Regulation A and any Operating Circular issued
by such Federal Reserve Bank. No such assignment shall release the Issuer or
any Participant from its obligations hereunder.
(f) The Issuer or any Participant may furnish any
information concerning the Applicants, the Guarantors or any of their
respective Affiliates or Subsidiaries in the possession of the Issuer or any
Participant from time to time to assignees and participants (including
prospective assignees and participants).
11.7. Confidentiality. The Issuer, the Administrative
Agent and each Participant acknowledge that certain of the information to be
furnished to them pursuant to this Agreement may be non-public information.
Each of the Issuer, the Administrative Agent and the Participants hereby agrees
that it will keep all information so furnished to it pursuant hereto
confidential in accordance with its normal banking procedures and, except in
accordance with such procedures, will make no disclosure to any other Person of
such information until the same shall have become public, except (i) in
connection with matters involving this Agreement (including, without
limitation, litigation involving any Applicant or either Guarantor) and with
the obligations of the Issuer, the Administrative Agent and each Participant
under law or regulation, (ii) pursuant to subpoenas or similar process, (iii)
to governmental authorities or examiners, (iv) to independent auditors or
counsel, (v) to any parent or corporate Affiliate of the Issuer, the
Administrative Agent and any Participant or (vi) to any Participant or proposed
participant or assignee or proposed assignee hereunder so long as such
participant or proposed participant or assignee or proposed assignee (a) is not
in the same general type of business as HSN or any of its Subsidiaries on the
date of such disclosure and (b) agrees in writing to accept such information
subject to the restrictions provided in this Section 11.7; provided, that in no
event shall the Issuer, the Administrative Agent or any Participant be
obligated or required to return any materials furnished by the Applicants, the
Guarantors or any of their respective Affiliates or Subsidiaries.
11.8. Survival. Without limiting the survival of any other
obligations of the Applicants, the Guarantors, the Issuer, the Administrative
Agent or any Participant hereunder, the
-51-
<PAGE> 58
obligations of the Applicants and the Guarantors under Sections 2.4 and 11.3
hereof and the obligations of the Issuer and the Participants under Section
10.5 hereof, shall survive the repayment of the Unreimbursed Drawings, the
expiration of the Letters of Credit and the termination of the Commitment and
the BNY L/C Facility.
11.9. Captions. Captions and section headings appearing
herein are included solely for convenience of reference and are not intended to
affect the interpretation of any provision of this Agreement.
11.10. Counterparts. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and
the same instrument and any of the parties hereto may execute this Agreement by
signing any such counterpart.
11.11. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. EACH
LETTER OF CREDIT SHALL BE SUBJECT TO THE UNIFORM CUSTOMS AND PRACTICE FOR
DOCUMENTARY CREDITS (1993 REVISION), INTERNATIONAL CHAMBER OF COMMERCE
PUBLICATION NO. 500. AS TO MATTERS NOT GOVERNED BY THE UNIFORM CUSTOMS, EACH
LETTER OF CREDIT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF NEW YORK.
11.12. JURISDICTION. EACH APPLICANT AND EACH GUARANTOR
HEREBY AGREES THAT:
(A) ANY SUIT, ACTION OR PROCEEDING AGAINST ANY APPLICANT
OR EITHER GUARANTOR WITH RESPECT TO THIS AGREEMENT, THE LETTERS OF
CREDIT OR ANY DOCUMENTS RELATED HERETO OR ANY JUDGMENT ENTERED BY ANY
COURT IN RESPECT THEREOF MAY BE BROUGHT IN THE SUPREME COURT OF THE
STATE OF NEW YORK, COUNTY OF NEW YORK, IN THE UNITED STATES DISTRICT
COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, OR IN ANY STATE OR
FEDERAL COURT SITTING IN THE STATE OF FLORIDA (COLLECTIVELY, THE
"SUBJECT COURTS"), AS THE ISSUER, THE ADMINISTRATIVE AGENT OR ANY
PARTICIPANT MAY ELECT IN ITS SOLE DISCRETION AND EACH APPLICANT AND
EACH GUARANTOR HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE
JURISDICTION OF EACH OF THE SUBJECT COURTS FOR THE PURPOSE OF ANY SUCH
SUIT,
-52-
<PAGE> 59
ACTION, PROCEEDING OR JUDGMENT. EACH APPLICANT AND EACH GUARANTOR
HEREBY IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS IN ANY SUIT,
ACTION OR PROCEEDING IN ANY OF THE SUBJECT COURTS BY THE MAILING
THEREOF BY THE ISSUER, THE ADMINISTRATIVE AGENT OR ANY PARTICIPANT BY
REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO ANY APPLICANT OR
EITHER GUARANTOR, AS THE CASE MAY BE, ADDRESSED AS PROVIDED IN SECTION
11.2 HEREOF. NOTHING HEREIN SHALL IN ANY WAY BE DEEMED TO LIMIT THE
ABILITY OF THE ISSUER, THE ADMINISTRATIVE AGENT OR ANY PARTICIPANT TO
SERVE ANY SUCH WRITS, PROCESS OR SUMMONSES IN ANY OTHER MANNER
PERMITTED BY APPLICABLE LAW OR TO BRING PROCEEDINGS AGAINST ANY
APPLICANT OR EITHER GUARANTOR IN ANY COMPETENT COURT OF ANY OTHER
JURISDICTION OR JURISDICTIONS, AND IN SUCH MANNER, AS MAY BE PERMITTED
BY APPLICABLE LAW.
(B) EACH APPLICANT AND EACH GUARANTOR HEREBY WAIVES ANY
RIGHT TO TRIAL BY JURY IN ANY SUIT, ACTION OR PROCEEDING IN RESPECT OF
THIS AGREEMENT, THE LETTERS OF CREDIT OR ANY OTHER DOCUMENTS IN
CONNECTION HEREWITH, ANY OBJECTION TO THE LAYING OF VENUE IN ANY SUCH
SUIT, ACTION OR PROCEEDING BROUGHT IN ANY OF THE SUBJECT COURTS, AND,
TO THE FULLEST EXTENT PERMITTED BY LAW, ANY CLAIM THAT SUCH SUIT,
ACTION OR PROCEEDING IN ANY OF THE SUBJECT COURTS HAS BEEN BROUGHT IN
AN INCONVENIENT FORUM.
11.13. The Collateral Agent. By executing this Agreement,
the Issuer and the Participants irrevocably appoint and authorize the
Collateral Agent, in its capacity as Collateral Agent under the Pledge
Agreement, to act as its agent under the Pledge Agreement with such powers as
are specifically delegated to the Collateral Agent by the terms of the Amended
Revolving Credit Agreement and the Pledge Agreement, together with such other
powers as are reasonably incident thereto. The Issuer and the Participants,
hereby agree to the incorporation by reference of Section 11 of the Amended
Revolving Credit Agreement in its entirety and agree that each reference in
such Section 11 to the "Administrative Agent" shall also be deemed to refer to
LTCB Trust Company, in its capacity as Collateral Agent under the Pledge
Agreement.
11.14. Severability. Any provision of this Agreement or the
Letters of Credit that is prohibited or unenforceable in
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<PAGE> 60
any jurisdiction shall, as to such jurisdiction, be ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions hereof or thereof or affecting the validity or enforceability of
such provision in any other jurisdiction.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first above written.
HOME SHOPPING CLUB, INC.,
as an Applicant
By ______________________________
Title: Treasurer
11831 30th Court North
St. Petersburg, Florida 33716
Telecopier No.: (813) 539-6505
Telephone No.: (813) 572-8585
Attention: Finance Department
with a copy to:
"Legal Department"
Telecopier No.: (813) 573-0866
-54-
<PAGE> 61
HSN MAIL ORDER, INC.,
as an Applicant
By ______________________________
Title: Treasurer
11831 30th Court North
St. Petersburg, Florida 33716
Telecopier No.: (813) 539-6505
Telephone No.: (813) 572-8585
Attention: Finance Department
with a copy to:
"Legal Department"
Telecopier No.: (813) 573-0866
HSN DIRECT, INC.,
as an Applicant
By ______________________________
Title: Treasurer
11831 30th Court North
St. Petersburg, Florida 33716
Telecopier No.: (813) 539-6505
Telephone No.: (813) 572-8585
Attention: Finance Department
with a copy to:
"Legal Department"
Telecopier No.: (813) 573-0866
-55-
<PAGE> 62
HSN REALTY, INC.,
as a Guarantor
By ______________________________
Title: Treasurer
11831 30th Court North
St. Petersburg, Florida 33716
Telecopier No.: (813) 539-6505
Telephone No.: (813) 572-8585
Attention: Finance Department
with a copy to:
"Legal Department"
Telecopier No.: (813) 573-0866
HOME SHOPPING NETWORK, INC.,
as a Guarantor
By ______________________________
Title: Treasurer
11831 30th Court North
St. Petersburg, Florida 33716
Telecopier No.: (813) 539-6505
Telephone No.: (813) 572-8585
Attention: Finance Department
with a copy to:
"Legal Department"
Telecopier No.: (813) 573-0866
-56-
<PAGE> 63
THE BANK OF NEW YORK,
as the Issuer
By ______________________________
Title:
Address for Notices:
One Wall Street
16th Floor
New York, New York 10286
Telecopier No.: (212) 635-8679
or (212) 635-8634
Telephone No.: (212) 635-8741
Attention: Brian Marshall
THE BANK OF NEW YORK,
as the Administrative Agent
By ______________________________
Title:
Address for Notices:
One Wall Street
16th Floor
New York, New York 10286
Telecopier No.: (212) 635-8679
or (212) 635-8634
Telephone No.: (212) 635-8741
Attention: Brian Marshall
-57-
<PAGE> 64
PARTICIPANTS
Participation Percentage THE BANK OF NEW YORK COMPANY, INC.,
- ------------------------ as a Participant
100%
By ______________________________
Title:
Address for Notices:
One Wall Street
16th Floor
New York, New York 10286
Telecopier No.: (212) 635-8679
or (212) 635-8634
Telephone No.: (212) 635-8741
Attention: Brian Marshall
-58-
<PAGE> 65
SCHEDULE 1
[List of Converted Letters of Credit]
<PAGE> 66
SCHEDULE 2
Place of Business/Location of Collateral
Applicants
Home Shopping Club, Inc.
HSN Mail Order, Inc.
HSN Direct, Inc.
Principal Place of Business for the Applicants
11831 30th Court North
St. Petersburg, Florida 33716
Locations of Collateral
115 Brand Road
Salem, Virginia 24156
209 Roosevelt Street
Cedar Falls, Iowa 50613
2510 118th Avenue North
St. Petersburg, Florida 33716
<PAGE> 67
EXHIBIT A
[Form of Letter of Credit Application]
A-1
<PAGE> 68
EXHIBIT B
[Form of Opinion of Counsel to the Applicants and the Guarantors]
B-1
<PAGE> 69
EXHIBIT C
[Form of Pledge Agreement]
C-1
<PAGE> 70
EXHIBIT D
[Form of Intercreditor Agreement]
D-1
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1995, AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 20,438
<SECURITIES> 0
<RECEIVABLES> 31,734
<ALLOWANCES> 0
<INVENTORY> 136,822
<CURRENT-ASSETS> 237,315
<PP&E> 252,098
<DEPRECIATION> 128,405
<TOTAL-ASSETS> 477,704
<CURRENT-LIABILITIES> 206,389
<BONDS> 116,040
<COMMON> 777
0
0
<OTHER-SE> 148,684
<TOTAL-LIABILITY-AND-EQUITY> 477,704
<SALES> 730,163
<TOTAL-REVENUES> 730,163
<CGS> 490,402
<TOTAL-COSTS> 490,402
<OTHER-EXPENSES> 291,754
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,858
<INCOME-PRETAX> (55,748)
<INCOME-TAX> (19,512)
<INCOME-CONTINUING> (36,236)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (36,236)
<EPS-PRIMARY> (.41)
<EPS-DILUTED> (.41)
</TABLE>
