<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
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)
NOT APPLICABLE
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT)
---------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No ____
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common stock, as of the latest
practicable date.
Total number of shares of outstanding stock
(net of 6,986,000 shares of common stock held in treasury) as of August 1, 1996:
Common stock................71,984,759
Class B common stock........20,000,000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
1996 1995 1996 1995
- -------------------------------------------------------------------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
NET SALES............................................. $243,988 $221,410 $499,601 $441,274
Cost of sales......................................... 151,679 140,907 316,491 279,096
-------- -------- -------- --------
Gross profit................................ 92,309 80,503 183,110 162,178
-------- -------- -------- --------
Operating expenses:
Selling and marketing............................... 35,099 41,433 71,866 83,580
Engineering and programming......................... 24,663 24,082 48,741 49,439
General and administrative.......................... 16,660 21,089 33,433 40,383
Depreciation and amortization....................... 8,253 8,956 16,412 17,900
Restructuring charges............................... -- -- -- 2,041
-------- -------- -------- --------
84,675 95,560 170,452 193,343
-------- -------- -------- --------
Operating profit (loss)..................... 7,634 (15,057) 12,658 (31,165)
Other income (expense):
Interest income..................................... 428 466 938 1,021
Interest expense.................................... (2,255) (2,058) (6,336) (3,277)
Miscellaneous....................................... 2,204 1,178 4,369 3,525
-------- -------- -------- --------
377 (414) (1,029) 1,269
-------- -------- -------- --------
Earnings (loss) before income taxes................... 8,011 (15,471) 11,629 (29,896)
Income tax expense (benefit).......................... 3,045 (5,735) 4,420 (11,361)
-------- -------- -------- --------
NET EARNINGS (LOSS)................................... $ 4,966 $ (9,736) $ 7,209 $(18,535)
======== ======== ======== ========
Net earnings (loss) per common share.................. $ .05 $ (.11) $ .07 $ (.21)
======== ======== ======== ========
Weighted average shares outstanding................... 97,298 90,606 95,037 90,897
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
1
<PAGE> 3
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JUNE 30,
------------------- DECEMBER 31,
ASSETS 1996 1995 1995
- -------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents.................................... $ 17,351 $ 15,684 $ 25,164
Accounts and notes receivable, net........................... 27,908 27,817 23,634
Income taxes receivable...................................... -- 8,607 --
Inventories, net............................................. 89,569 107,598 101,564
Deferred income taxes........................................ 25,876 16,115 24,484
Other current assets......................................... 5,122 11,824 8,149
-------- -------- ------------
Total current assets.......................... 165,826 187,645 182,995
PROPERTY, PLANT AND EQUIPMENT
Computer and broadcast equipment............................. 90,801 107,523 90,581
Buildings and leasehold improvements......................... 70,001 75,692 69,843
Furniture and other equipment................................ 49,923 47,427 49,561
-------- -------- ------------
210,725 230,642 209,985
Less accumulated depreciation and amortization............. 125,543 124,527 118,710
-------- -------- ------------
85,182 106,115 91,275
Land......................................................... 16,914 17,833 17,093
Construction in progress..................................... 92 2,925 406
-------- -------- ------------
102,188 126,873 108,774
OTHER ASSETS
Cable distribution fees, net ($35,328 and $34,295 at June 30,
1996 and 1995, respectively, and $34,803 at December 31,
1995, to related parties).................................. 108,664 94,759 99,161
Deferred income taxes........................................ 20,202 -- 23,142
Long-term investments ($10,154 at June 30, 1996 and $10,000
at June 30, 1995 and December 31, 1995, respectively, in
related parties)........................................... 14,129 10,000 14,000
Other non-current assets..................................... 6,901 9,873 8,223
-------- -------- ------------
149,896 114,632 144,526
-------- -------- ------------
$417,910 $429,150 $436,295
======== ======== ==========
</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>
JUNE 30,
------------------- DECEMBER 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995 1995
- -------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
CURRENT LIABILITIES
Current maturities of long-term obligations.................. $ 417 $ 1,540 $ 1,555
Accounts payable............................................. 69,608 91,439 84,297
Accrued liabilities:
Programming fees ($580 and $16,282 at June 30, 1996 and
1995, respectively, and $2,260 at December 31, 1995, to
related parties)........................................ 14,627 36,200 20,377
Sales returns.............................................. 12,132 8,647 10,832
Other...................................................... 54,986 42,352 58,363
-------- -------- ------------
Total current liabilities.......................... 151,770 180,178 175,424
LONG-TERM OBLIGATIONS (net of current maturities)............ 118,079 77,365 135,810
DEFERRED INCOME TAXES........................................ -- 5,348 --
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 78,970,759 and 77,603,129 shares at June 30,
1996 and 1995, respectively, and 77,718,379 shares at
December 31, 1995.......................................... 790 776 777
Class B -- convertible common stock -- $.01 par value;
authorized, issued and outstanding, 20,000,000 shares...... 200 200 200
Additional paid-in capital................................... 184,196 167,787 169,057
Retained earnings............................................ 14,886 51,025 7,677
Treasury stock -- 6,986,000 common shares at cost............ (48,718) (48,718) (48,718)
Unearned compensation........................................ (3,293) (4,811) (3,932)
-------- -------- ------------
148,061 166,259 125,061
-------- -------- ------------
$417,910 $429,150 $436,295
======== ======== ==========
</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>
CLASS B
CONVERTIBLE ADDITIONAL
COMMON COMMON PAID-IN RETAINED TREASURY UNEARNED
STOCK STOCK CAPITAL EARNINGS STOCK COMPENSATION TOTAL
- ------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1995..... $776 $ 200 $167,463 $ 69,560 $(27,136) $ (4,420) $206,443
Issuance of common stock upon
exercise of stock options.... -- -- 274 -- -- -- 274
Income tax benefit related to
executive stock award program
and stock options
exercised.................... -- -- 50 -- -- -- 50
Expense related to executive
stock award program.......... -- -- -- -- -- 363 363
Unearned compensation related
to employee equity
participation plan........... -- -- -- -- -- (1,264) (1,264)
Expense related to employee
equity participation plan.... -- -- -- -- -- 510 510
Purchase of treasury stock, at
cost......................... -- -- -- -- (21,582) -- (21,582)
Net loss for the six months
ended June 30, 1995.......... -- -- -- (18,535) -- -- (18,535)
------ ----- ---------- -------- -------- ------------ --------
BALANCE AT JUNE 30, 1995....... $776 $ 200 $167,787 $ 51,025 $(48,718) $ (4,811) $166,259
======== ========== ========= ========= ========= ============ =========
BALANCE AT JANUARY 1, 1996..... $777 $ 200 $169,057 $ 7,677 $(48,718) $ (3,932) $125,061
Issuance of common stock upon
exercise of stock options.... 13 -- 13,622 -- -- -- 13,635
Income tax benefit related to
executive stock award
program, stock options
exercised and employee equity
participation plan........... -- -- 1,517 -- -- -- 1,517
Expense related to executive
stock award program and stock
options...................... -- -- -- -- -- 129 129
Expense related to employee
equity participation plan.... -- -- -- -- -- 510 510
Net earnings for the six months
ended June 30, 1996.......... -- -- -- 7,209 -- -- 7,209
------ ----- ---------- -------- -------- ------------ --------
BALANCE AT JUNE 30, 1996....... $790 $ 200 $184,196 $ 14,886 $(48,718) $ (3,293) $148,061
======== ========== ========= ========= ========= ============ =========
</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>
SIX MONTHS ENDED
JUNE 30,
---------------------
1996 1995
- ----------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss).................................................... $ 7,209 $(18,535)
Adjustments to reconcile net earnings (loss) to net cash used in
operating activities:
Depreciation and amortization..................................... 8,319 12,353
Amortization of cable distribution fees........................... 8,162 5,547
Deferred income taxes............................................. 1,548 4,549
Inventory carrying value adjustment............................... 3,071 (2,642)
Provision for losses on accounts receivable....................... 542 (36)
Common stock and change in stock appreciation rights issued for
services provided................................................ 639 (414)
Gain on sale of controlling interest in joint venture............. (1,948) --
Gain on sale of assets............................................ (100) (19)
Equity in (earnings) losses of unconsolidated affiliates.......... (80) 16
Change in current assets and liabilities:
(Increase) decrease in accounts and notes receivable............ (4,816) 7,835
Increase in income taxes receivable............................. -- (5,791)
Decrease in inventories......................................... 8,924 13,845
Decrease in other current assets................................ 3,027 105
Increase (decrease) in accounts payable......................... (14,689) 16,175
Decrease in accrued liabilities................................. (6,310) (27,174)
Increase in cable distribution fees............................... (17,665) (32,328)
Stock purchases for employee benefit plan......................... -- (1,264)
-------- --------
NET CASH USED IN OPERATING ACTIVITIES........................ (4,167) (27,778)
-------- --------
Cash flows from investing activities:
Cash received for sale of controlling interest in joint venture...... 4,924 --
Increase in other non-current assets................................. (2,488) (703)
Capital expenditures................................................. (1,088) (7,044)
Proceeds from sale of assets......................................... 416 925
Increase in net long-term investments................................ (129) --
Increase in intangible assets........................................ (26) (1,577)
Proceeds from long-term notes receivable............................. 48 2,907
-------- --------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES.......... 1,657 (5,492)
-------- --------
Cash flows from financing activities:
Principal payments on long-term obligations.......................... (126,138) (277)
Net proceeds from issuance of Convertible Subordinated Debentures.... 97,200 --
Proceeds from issuance of common stock............................... 13,635 274
Borrowings from secured credit facility.............................. 10,000 50,000
Payments for purchases of treasury stock............................. -- (34,691)
-------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES.......... (5,303) 15,306
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS.............................. (7,813) (17,964)
Cash and cash equivalents at beginning of period....................... 25,164 33,648
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD............................. $ 17,351 $ 15,684
======== ========
</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") are unaudited and should be read
in conjunction with the audited Consolidated Financial Statements and Notes
thereto for the years ended December 31, 1995 and 1994.
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 non-recurring
items as discussed in Notes B, F and I. 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 -- RECLASSIFICATION
Beginning with the quarter and six months ended June 30, 1996, the Company
has changed the classification of shipping and handling revenues from a
component of "Net Sales" to an offset to the related fulfillment costs incurred
by the Company recorded in "Cost of Sales." The following table presents "Net
Sales" and "Cost of Sales" for prior periods, which conform to the current
presentation:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
QUARTERS ENDED
---------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1995 1995 1995 1995 1996
-------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Net sales....................... $ 219,864 $221,410 $ 217,567 $260,955 $ 255,613
Cost of sales................... 138,189 140,907 139,984 183,769 164,812
--------- -------- ------------- ------------ ---------
Gross Profit.................... $ 81,675 $ 80,503 $ 77,583 $ 77,186 $ 90,801
======== ======== ========== ========== ========
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
--------------------------------
1993 1994 1995
----------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Net sales............................................. $954,369 $1,014,981 $919,796
Cost of sales......................................... 611,829 618,971 602,849
-------- ---------- --------
Gross profit.......................................... $342,540 $ 396,010 $316,947
======== ========= ========
</TABLE>
NOTE C -- LONG TERM INVESTMENTS
In July 1995, the Company paid $4.0 million for a 20% interest in Body by
Jake Enterprises, L.L.C. ("BBJ"). This investment is accounted for under the
cost method. Simultaneously, the Company entered into a long-term joint
marketing agreement with BBJ to provide for the sale and promotion of
merchandise.
The Company has a $10.0 million investment consisting of 100,000 shares of
Series A non-voting preferred stock, $.01 par value, with a liquidation
preference of $100 per share, in The National Registry Inc. ("NRI"), which is
accounted for under the cost method. This investment is convertible into
6,336,154 shares of NRI common stock at the Company's option; however,
conversion to common stock is automatic in the event that cumulative gross
revenues for NRI reach $15.0 million.
In connection with the sale of HSN Direct Joint Venture ("HSND") during the
second quarter of 1996, the Company recorded a $.2 million investment in a newly
formed venture. This investment is accounted for under the cost method. See Note
I.
The Company does not have the ability to exercise any significant influence
over the operating or financial activities of BBJ, NRI or HSND.
6
<PAGE> 8
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
NOTE D -- CREDIT FACILITIES AND CONVERTIBLE SUBORDINATED DEBENTURES
On March 1, 1996, the Company completed an offering of $100.0 million of
unsecured Convertible Subordinated Debentures (the "Debentures"), due March 1,
2006, which bear interest at 5 7/8% and are convertible into shares of the
Company's common stock any time after May 1, 1996, at a conversion price of
$12.00 per share. The Debentures are redeemable by the Company for cash at any
time on or after March 1, 1998 at specified redemption prices, plus accrued
interest, except that prior to March 1, 1999, the debentures may not be redeemed
unless the closing price of the common stock equals or exceeds 140% of the
conversion price per share, or $16.80, for a specified period of time. The
Debentures are subordinated to all existing and future senior debt of the
Company.
The Company used the net proceeds of $97.2 million from the Debentures to
repay borrowings under its Revolving Credit Facility (the "Credit Facility").
This and other repayments reduced the total outstanding amount under the Credit
Facility to $20.0 million at June 30, 1996, leaving $100.0 million available for
borrowing.
The covenant under the Credit Facility related to the anticipated change in
control, as discussed in Note J, has been waived. The Company was in compliance
with all other covenants contained in the Credit Facility as of June 30, 1996.
On August 2, 1996, the Company entered into a new three-year $150.0 million
Revolving Credit Facility (the "New Facility"), due August 2, 1999, which
replaces the Credit Facility. As of August 5, 1996, after repayment of the
outstanding borrowings under the Credit Facility, there were $15.0 million of
outstanding borrowings under the New Facility. The New Facility is secured by
the stock of Home Shopping Club, Inc. and HSN Realty, Inc. (as was the Credit
Facility). Under the New Facility, the interest rate on borrowings is tied to
the LIBOR, plus an applicable margin.
NOTE E -- INCOME TAXES
The Company had taxable income for the quarter and six months ended June
30, 1996 which offset a portion of the net operating loss carryforward ("NOL")
from 1995. Management believes that the Company will generate future taxable
income sufficient to realize the tax benefit of the NOL prior to its expiration.
Accordingly, the Company has recognized a non-current asset related to this NOL
and no valuation allowance has been provided. There can be no assurance,
however, that the Company will generate any earnings or any specific level of
continuing earnings to allow the Company to realize the benefits of the NOL or
other deferred tax assets.
NOTE F -- RESTRUCTURING CHARGES
During the three months ended March 31, 1995, the Company recorded charges
of $2.0 million covering employee and other costs related to the closing of its
fulfillment center in Reno, Nevada. In addition, in the fourth quarter of 1995
the Company recorded additional charges of $2.1 million to reflect costs
expected to be incurred in relation to the closing. The facility was closed by
June 30, 1995. During the three months ended June 30, 1996, payments totaling
$.2 million were made related to this charge leaving $2.2 million accrued for
future payments.
NOTE G -- EARNINGS (LOSS) PER SHARE
Primary earnings (loss) per common share is based on net earnings (loss)
divided by the weighted average number of common shares outstanding giving
effect to stock options and convertible debt. Fully diluted earnings (loss) per
common share is considered to be the same as primary earnings (loss) per common
share since the effect of certain potentially dilutive securities is
anti-dilutive in all periods presented.
7
<PAGE> 9
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
NOTE H -- CONSOLIDATED STATEMENTS OF CASH FLOWS
For purposes of reporting cash flows, cash and cash equivalents include
cash and short-term investments. Short-term investments consist primarily of
auction preferred shares, money market funds and certificates of deposit with
original maturities of less than 91 days.
Supplemental disclosures of cash flow information:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
SIX MONTHS ENDED
JUNE 30,
------------------
1996 1995
--------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
CASH PAID FOR:
Interest........................................................ $5,475 $ 2,580
Income taxes.................................................... 183 385
CASH RECEIVED FOR:
Income tax refund............................................... 649 10,725
</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 was recorded as a prepayment of future monthly software maintenance
payments through December 1995.
During April 1996, in connection with the sale of HSND, the Company
recorded a note receivable of $1.0 million. See Note I.
NOTE I -- SALE OF HSND
During April 1996, the Company sold a majority of its interest in HSND for
$5.9 million to a company under control of Tele-Communications, Inc. ("TCI"),
which also owns a controlling interest in the Company. The Company received $4.9
million in cash at closing and is due an additional $1.0 million payable in four
equal annual installments commencing on February 1, 1997. The Company will
retain a 15% interest in the venture and a related corporation. See Note C. In
connection with the sale of HSND, the Company recorded a $1.9 million gain which
is included in miscellaneous income for the quarter ended June 30, 1996.
The following unaudited table reports the pro-forma results of the Company
for 1995, after the shipping and handling reclassification as discussed in Note
B, giving effect to the sale of HSND as if it occurred on January 1, 1995:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
QUARTERS ENDED
---------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1995 1995 1995 1995
-----------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Net sales................................. $ 210,098 $216,956 $ 215,390 $259,681
Cost of sales............................. 135,494 139,380 138,629 182,774
--------- -------- ------------- ------------
Gross profit............................ 74,604 77,576 76,761 76,907
Operating expenses........................ 89,274 91,504 96,219 103,691
--------- -------- ------------- ------------
Operating loss.......................... (14,670) (13,928) (19,458) (26,784)
Other income (expense).................... 1,119 (676) (5,138) (11,413)
--------- -------- ------------- ------------
Loss before income taxes.................. $ (13,551) $(14,604) $ (24,596) $(38,197)
======== ======== ========== ==========
</TABLE>
Due to the anticipated sale and gain associated therewith, the results of
operations of HSND were not included in the consolidated results of operations
for 1996.
8
<PAGE> 10
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
NOTE J -- ANTICIPATED CHANGE IN CONTROL
In November 1995, Liberty Media Corporation ("Liberty"), a wholly-owned
subsidiary of TCI, and the new Chairman of the Company's Board of Directors (the
"Chairman"), entered into an agreement, which related to, among other things,
Silver King Communications, Inc.'s ("SKC") acquisition of control of the Company
through the transfer to SKC of the common stock and Class B common stock owned
by Liberty ("Company Shares"). Pursuant to the agreement between the Chairman
and Liberty and certain other agreements entered into at such time, SKC would
acquire the Company Shares (which shares represent a majority of the voting
power of the outstanding equity securities of the Company) in exchange for
additional shares of SKC's common stock and Class B stock. If such transactions
are consummated, the Chairman, who became Chairman of the Board and Chief
Executive Officer of SKC in August 1995, and acquired a significant number of
options to acquire SKC common stock at such time, would also control securities
of SKC representing a majority of the outstanding voting power of that entity.
In addition, in connection with such transfer of the Company Shares, TCI would
acquire beneficial ownership of a substantial additional equity interest in SKC
and, through such ownership of SKC securities, would continue to have a
substantial equity interest in the Company.
The consummation of each of the foregoing transactions is subject to the
satisfaction of certain conditions, including, but not limited to, receipt of
FCC approval, and approval of the transaction in which SKC is to acquire the
Company Shares by the stockholders of SKC. In addition, SKC's acquisition of
control of the Company referred to above, will constitute a "change in control"
of the Company. There can be no assurance that the transactions described above
will be consummated.
9
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
GENERAL
Home Shopping Network, Inc. (the "Company") is a holding company, the
subsidiaries of which conduct the day-to-day operations of the Company's various
business activities. The Company's primary business is electronic retailing
conducted by Home Shopping Club, Inc. ("HSC"), a wholly-owned subsidiary of the
Company.
A. CONSOLIDATED RESULTS OF OPERATIONS
The following discussion presents the material changes in the consolidated
results of operations of the Company which have occurred in the second quarter
and first six months of 1996, compared with the same periods in 1995. Reference
should also be made to the Condensed Consolidated Financial Statements included
herein.
In April 1996, the Company sold a majority of its interest in its
infomercial joint venture, HSN Direct Joint Venture ("HSND"). Due to the
anticipated sale and gain associated therewith, the results of operations of
HSND were not included in the consolidated results of operations for 1996.
During calendar 1995, the consolidated results of operations included a $4.3
million pre-tax loss related to HSND. See Note I to the Condensed Consolidated
Financial Statements for pro-forma effects of excluding HSND from the Company's
1995 results of operations.
As discussed in Note B to the Condensed Consolidated Financial Statements
included herein, shipping and handling revenues are now included as a reduction
of Cost of Sales to offset the related fulfillment costs incurred by the
Company. Previously, shipping and handling revenues were included as a component
of Net Sales. All amounts and percentages in the following discussion reflect
this reclassification.
All tables and discussion included herein calculate the percentage changes
using actual versus rounded dollar amounts.
NET SALES
For the quarter and six months ended June 30, 1996, net sales for the
Company increased $22.6 million, or 10.2%, to $244.0 million from $221.4 million
and $58.3 million, or 13.2%, to $499.6 million from $441.3 million,
respectively, compared to the same periods in 1995. Net sales of HSC increased
$24.3 million, or 12.8%, and $63.8 million, or 17.0%, for the quarter and six
months ended June 30, 1996, respectively. HSC's sales reflect increases of 6.2%
and 8.2% in the number of packages shipped and increases of 6.1% and 9.0% in the
average price per unit sold for the quarter and six months ended June 30, 1996,
respectively, compared to the same periods in 1995. In addition, sales by
wholly-owned subsidiaries, Vela Research, Inc. ("Vela") and Internet Shopping
Network, Inc. ("ISN") increased $3.6 million and $1.1 million, respectively, for
the quarter ended June 30, 1996, and increased $6.4 million and $5.1 million,
respectively, for the six months then ended. These increases were partially
offset by decreases related to HSND of $4.5 million and $14.2 million for the
quarter and six months ended June 30, 1996, respectively.
In November 1995, the Company appointed a new chairman of the board and a
new president and chief executive officer, both with significant experience in
the electronic retailing and programming areas. The Company believes that the
improved sales in the quarter and six months ended June 30, 1996 compared to
1995 were primarily the result of immediate changes made by new management to
the Company's merchandising and programming strategies. In addition, the Company
offered a "no interest-no payment" credit promotion through September 1996 for
certain purchases made during June 1996 using the Company's private label credit
card. Management expects to take additional steps designed to attract both
first-time and active customers which include improving product assortment,
reducing the average price per unit, improving
10
<PAGE> 12
inventory management and better planning of programmed shows. The Company
believes that its negative performance in the second quarter and first six
months of 1995 which resulted in decreases in consolidated net sales of $26.0
million and $54.6 million, respectively, from the comparable 1994 periods, was
due, in part, to the adverse effects of certain merchandising and programming
strategies which had been implemented in late 1994 and 1995. While management is
optimistic that results will continue to improve and the Company will remain
profitable, there can be no assurance that changes to the Company's
merchandising and programming strategies will achieve management's intended
results.
For the quarter and six months ended June 30, 1996, respectively, HSC's
merchandise return percentage decreased to 24.7% from 25.1% and increased to
24.8% from 24.6%, compared to the same periods in 1995. Management believes that
the high return rate is attributable to an increase in the average price per
unit shipped. Management's merchandising strategy is designed to reduce return
rates by attempting to decrease the average price per unit shipped for the
remainder of 1996. Promotional price discounts increased to 3.3% of HSC sales
from 2.9% for the quarter ended June 30, 1996 and to 3.5% from 3.2% for the six
months ended June 30, 1996, compared to the same periods in 1995.
At June 30, 1996, HSC had approximately 4.7 million active members
representing a 5.2% decline from June 30, 1995. 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, 59.3% of active members have
made more than one purchase in the last 18 months, compared to 58.8% at June 30,
1995.
Management believes that future levels of net sales of HSC will be
dependent on the success of its current efforts to increase market penetration.
Market penetration represents the level of active customers within a market.
The following table highlights the changes in the estimated unduplicated
television household reach, as explained below, of HSN, the Company's primary
network, for the twelve months ended June 30, 1996:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
CABLE* BROADCAST SATELLITE TOTAL
--------------------------------------------------------------------------------------------
(In thousands of households)
<S> <C> <C> <C> <C>
Households -- June 30, 1995...................... 41,590 21,294 3,750 66,634
Net additions/(deletions)........................ 3,208 (1,002) 38 2,244
Shift in classification.......................... 1,093 (1,093) -- --
Change in Nielsen household counts............... -- 603 -- 603
------ --------- --------- ------
Households -- June 30, 1996...................... 45,891 19,802 3,788 69,481
====== ======= ====== ======
</TABLE>
- ---------------
* Households capable of receiving both broadcast and cable transmissions are
included under cable and excluded from broadcast to present unduplicated
household reach.
According to industry sources, as of June 30, 1996, there were 95.8 million
homes in the United States with a television set, 62.5 million basic cable
television subscribers and 3.8 million homes with satellite dish receivers.
In addition to the households in the above table, as of June 30, 1996
approximately 11.7 million cable television households were reached by the
Company's Spree! network, of which 4.8 million were on a part-time basis. Of the
total cable television households receiving Spree!, 10.2 million also receive
HSN.
During the remainder of 1996, cable system contracts covering 2.5 million
cable subscribers are subject to termination or renewal. This represents 5.5% 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, consolidation within the cable industry and
cost of carriage 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.
11
<PAGE> 13
GROSS PROFIT
For the quarter and six months ended June 30, 1996, gross profit increased
$11.8 million, or 14.7%, to $92.3 million from $80.5 million and $20.9 million,
or 12.9%, to $183.1 million from $162.2 million, respectively, compared to the
same periods in 1995. As a percentage of net sales, gross profit increased to
37.8% from 36.4% for the second quarter of 1996, and remained relatively
constant at 36.7% for the six months ended June 30, 1996, compared to the same
periods in 1995.
Gross profit of HSC increased $15.9 million and $30.1 million for the
quarter and six months ended June 30, 1996, respectively. These increases were
partially offset by decreases related to HSND of $2.9 million and $10.0 million.
As a percentage of HSC's net sales, gross profit increased to 37.5% from 34.0%
and to 35.7% from 33.8% for the quarter and six months ended June 30, 1996,
respectively, compared to the same periods in 1995.
The dollar increases in consolidated and HSC's gross profit relate to the
higher sales volume. The comparative increase in consolidated gross profit
percentage in the quarter ended June 30, 1996, relates to warehouse sales and
other promotional events held during the second quarter of 1995 which reduced
gross profit in that period. For the six months ended June 30, 1996, the
constant consolidated gross profit percentage, compared to 1995, primarily
relates to the effect of HSND's gross profit in 1995.
OPERATING EXPENSES
The following table highlights the operating expense section from the
Company's Condensed Consolidated Statements of Operations:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1996 JUNE 30, 1996
------------------------ ------------------------
$ $ % $ $ %
AMOUNT CHANGE CHANGE AMOUNT CHANGE CHANGE
--------------------------------------------------------------------------------------------
(In millions, except %)
<S> <C> <C> <C> <C> <C> <C>
Selling and marketing............... $35.1 $ (6.3) (15.3)% $ 71.9 $(11.7) (14.0)%
Engineering and programming......... 24.7 .5 2.4 48.8 (.7) (1.4)
General and administrative.......... 16.7 (4.4) (21.0) 33.4 (7.0) (17.2)
Depreciation and amortization....... 8.2 (.7) (7.8) 16.4 (1.5) (8.3)
Restructuring charges............... -- -- -- -- (2.0) (100.0)
------ ------ ------ ------
$84.7 $(10.9) $170.5 $(22.9)
====== ====== ====== ======
</TABLE>
As a percentage of net sales, operating expenses decreased to 34.7% from
43.2% and to 34.1% from 43.8%, respectively, for the quarter and six months
ended June 30, 1996, compared to the same periods in 1995.
In late 1995 and the first quarter of 1996, management instituted measures
aimed at streamlining operations primarily by reducing the Company's work force
and taking other actions to reduce operating expenses. These changes resulted in
some reduction of operating expenses in the second quarter and first six months
of 1996 compared with the same periods in 1995 and are expected to result in
future reductions to operating expenses when compared to 1995.
12
<PAGE> 14
SELLING AND MARKETING
For the quarter and six months ended June 30, 1996, selling and marketing
expenses, as a percentage of net sales, decreased to 14.4% from 18.7% and to
14.4% from 18.9%, respectively, compared to the same periods in 1995.
The major components of selling and marketing expenses are detailed below:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1996 JUNE 30, 1996
------------------------ ------------------------
$ $ % $ $ %
AMOUNT CHANGE CHANGE AMOUNT CHANGE CHANGE
---------------------------------------------------------------------------------------------
(In millions, except %)
<S> <C> <C> <C> <C> <C> <C>
Telephone, operator and customer
service............................. $12.7 $ (.6) (4.3)% $26.0 $ -- --%
Fees to cable system operators:
Commissions......................... 9.4 1.9 25.8 19.8 5.0 33.8
Performance bonus commissions....... 3.0 (.4) (10.5) 5.7 (1.1 ) (16.1)
Marketing payments for cable
advertising...................... 2.5 (1.9) (42.6) 5.2 (3.4 ) (39.2)
HSND selling expenses................. -- (2.7) (100.0) -- (9.0 ) (100.0)
</TABLE>
Telephone, operator and customer service expenses are typically related to
sales, call volume and the number of packages shipped. Although call and package
volume increased, telephone, operator and customer service expenses decreased
for the quarter ended June 30, 1996 and remained constant for the six months
ended June 30, 1996, compared to the same periods in 1995. This was due in part
to a new contract with the Company's long distance telephone carrier negotiated
in the third quarter of 1995. In addition, operator and customer service payroll
expenses remained constant due to work force reduction measures and volume
efficiencies. Management expects telephone, operator and customer service
expenses to remain at the same percentage of net sales and fluctuate in relation
to call and package volume for the remainder of 1996.
For the quarter and six months ended June 30, 1996, commissions to cable
system operators increased as a result of the increase in net sales. Commission
payments are based on net merchandise sales after giving effect to customer
returns. Additionally, cable operators which have executed affiliation
agreements to carry the Company's programming are generally compensated for all
sales within their franchise areas resulting from watching the program via
cable, satellite dish, or a broadcast television station. Commissions as a
percentage of sales increased due to the growth in cable households and the
increase in cable households within broadcast markets. 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.
Performance bonus commissions decreased because of higher guaranteed
minimum commissions in the quarter and six months ended June 30, 1995, compared
to the same periods in 1996, relating to contracts with certain cable operators.
Performance bonus commissions are expected to fluctuate in relation to sales for
the remainder of 1996.
Marketing payments for cable advertising decreased for the quarter and six
months ended June 30, 1996, because older agreements requiring such payments
expired or were renegotiated and new cable carriage agreements were executed.
Current contracts generally provide other forms of incentive compensation to
cable operators, including upfront payments of cable distribution fees or
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
amortization of cable distribution fees will increase in 1996 as discussed in
"Depreciation and Amortization."
The remaining net decrease in selling and marketing expenses is
attributable to lower advertising and promotional expenses of the Company's
other subsidiary operations. Selling and marketing expenses are expected to
remain relatively constant as a percentage of net sales for the remainder of
1996, compared to the first six months of 1996.
13
<PAGE> 15
ENGINEERING AND PROGRAMMING
For the quarter and six months ended June 30, 1996, engineering and
programming expenses, as a percentage of net sales, decreased to 10.1% from
10.9% and to 9.8% from 11.2%, respectively, compared to the same periods in
1995, primarily as a result of the increase in net sales.
Broadcast costs payable to Silver King Communications, Inc. increased $1.1
million and $2.4 million for the quarter and six months ended June 30, 1996,
respectively, related to the increase in sales. In addition, HSC production
costs increased $.8 million and $1.4 million compared to the same periods in
1995. These increases were partially offset by lower broadcast costs of $1.1
million and $3.0 million for the quarter and six months ended June 30, 1996,
respectively, relating to fewer broadcast affiliates compared to the same
periods in 1995. In addition, engineering and programming expenses decreased $.2
million and $1.5 million for the quarter and six months ended June 30, 1996
related to the sale of a majority of the Company's interest in HSND. For the
remainder of 1996, these engineering and programming expenses are expected to
remain relatively constant in comparison to the first six months of 1996.
GENERAL AND ADMINISTRATIVE
For the quarter and six months ended June 30, 1996, general and
administrative expenses, as a percentage of net sales, decreased to 6.8% from
9.5% and to 6.7% from 9.2%, respectively, compared to the same periods in 1995.
For the quarter and six months ended June 30, 1996, payroll, consulting,
legal, repairs and maintenance and other administrative expenses decreased $4.4
million and $8.1 million, respectively. The decreases for the six months ended
June 30, 1996 were offset by a $1.2 million credit in the six months ended June
30, 1995 related to stock appreciation rights for the former chief executive
officer.
Based on savings realized in connection with the reduction of the Company's
work force and other expense reduction initiatives, management expects general
and administrative expenses to remain at lower levels for the remainder of 1996,
compared to the same periods in 1995.
DEPRECIATION AND AMORTIZATION
The decreases in depreciation and amortization for the quarter and six
months ended June 30, 1996 were primarily due to decreases of $1.3 million and
$3.0 million, respectively, related to assets that became fully depreciated in
1995, the retirement of certain equipment in the fourth quarter of 1995 and
lower capital expenditure levels in the quarter and six months ended June 30,
1996, compared to the same periods in 1995. Depreciation expense is expected to
remain at lower levels for the remainder of 1996 compared to the same periods in
1995. In addition, amortization expense for name lists decreased $.5 million and
$1.0 million for the quarter and six months ended June 30, 1996, respectively,
relating to the sale of the assets of Ortho-Vent, Inc. in the fourth quarter of
1995. These decreases were offset by increased amortization of cable
distribution fees of $1.2 million and $2.6 million for the quarter and six
months ended June 30, 1996. Amortization of these fees is expected to total
$16.5 million in calendar 1996 based on existing agreements. This amortization
will increase if additional long-term cable contracts containing upfront
payments of cable distribution fees are entered into during 1996, as discussed
in "Selling and Marketing."
RESTRUCTURING CHARGES
Restructuring charges for the six months ended June 30, 1995, of $2.0
million, represented 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
resulted in operating efficiencies and improved service to customers.
14
<PAGE> 16
OTHER INCOME (EXPENSE)
For the quarter and six months ended June 30, 1996, the Company had net
other income of $.4 million and net other expense of $(1.0) million,
respectively, compared to net other expense of $(.4) million and net other
income of $1.3 million, respectively, for the same periods in 1995.
Interest expense for the quarter ended June 30, 1996 increased $.2 million
due to lower interest rates resulting from additional financing obtained by the
Company on March 1, 1996 through a private placement of $100.0 million of
Convertible Subordinated Debentures (the "Debentures"), as discussed in
"Financial Position, Liquidity and Capital Resources" and Note D to the
Condensed Consolidated Financial Statements included herein. Interest expense
increased $3.1 million for the six months ended June 30, 1996, due to a higher
level of borrowings by the Company and a reduction in the useful life of loan
costs due to the refinancing of the Company's Revolving Credit Facility (the
"Credit Facility"). Management expects that interest expense for the remainder
of 1996 will decrease relative to the same periods in 1995.
For the quarter and six months ended June 30, 1996, the Company had net
miscellaneous income of $2.2 million and $4.4 million, respectively, which
primarily included a gain on the sale of a controlling interest in HSND of $1.9
million in the second quarter of 1996 and a one-time $1.5 million payment
received in the first quarter of 1996 in connection with the termination of the
Canadian Home Shopping Network license agreement. For the quarter and six months
ended June 30, 1995, the Company had net miscellaneous income of $1.2 million
and $3.5 million, respectively, which primarily included the receipt of proceeds
from lawsuit settlements of $.4 million and $1.0 million, respectively, royalty
income related to HSND of $.2 million and $.7 million, respectively, and a gain
of $.6 million on the sale of other assets in the first quarter of 1995.
INCOME TAXES
The Company's effective tax rate was 38.0% for the quarter and six months
ended June 30, 1996, and benefits of (37.1)% and (38.0)% for the quarter and six
months ended June 30, 1995, respectively. The Company's effective tax rate for
these periods differed from the statutory rate due primarily to the amortization
of goodwill, state income taxes and the provision for interest on adjustments
proposed by the Internal Revenue Service. The Company anticipates full
realization of its net operating loss carryforward and accordingly no valuation
allowance has been provided. The Company's effective tax rate is expected to
vary from the statutory rate for the remainder of 1996.
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>
------------------------------------------------------------------------------------------
JUNE 30,
----------------- DECEMBER 31,
1996 1995 1995
------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash and cash equivalents (millions).................... $ 17.4 $ 15.7 $ 25.2
Working capital (millions).............................. $ 14.1 $ 7.5 $ 7.6
Current ratio........................................... 1.09:1 1.04:1 1.04:1
Accounts and notes receivable, net (millions)........... $ 27.9 $ 27.8 $ 23.6
Inventories, net (millions)............................. $ 89.6 $ 107.6 $ 101.6
Inventory turnover for the quarter (annualized for June
periods only)......................................... 6.67 5.15 5.47
Inventory turnover for the six months (annualized for
June periods only).................................... 6.62 4.93 5.47
</TABLE>
15
<PAGE> 17
The principal sources of cash for the twelve months ended June 30, 1996
were net borrowings by the Company under the Credit Facility and the Debentures,
which were used principally to repay outstanding borrowings under the Credit
Facility, pay cable distribution fees of $52.9 million, pay litigation
settlements of $8.6 million and pay for capital expenditures of $7.0 million.
The net loss adjusted for non-cash items totaled $(5.5) million for the twelve
months ended June 30, 1996. The principal source of cash for the six months
ended June 30, 1996, was the issuance of the Debentures, which, along with
available cash, was used principally to repay outstanding borrowings under the
Credit Facility, pay cable distribution fees of $23.6 million and pay litigation
settlements of $3.7 million. Net earnings adjusted for non-cash items totaled
$27.5 million for the six months ended June 30, 1996.
The primary reason for the increase in accounts and notes receivable
compared to December 31, 1995, is "FlexPay" accounts receivable which totaled
$16.4 million at June 30, 1996, compared to $13.0 million at December 31, 1995.
The Company's financing of "FlexPay" accounts receivable has not had a
significant impact on its liquidity position.
The inventory balance is net of a carrying value adjustment of $36.3
million at June 30, 1996, compared to $16.1 million at June 30, 1995 and $33.3
million at December 31, 1995. The inventory carrying value adjustment, which was
significantly increased in the fourth quarter of 1995, is primarily related to
product which is inconsistent with HSC's new sales and merchandising philosophy.
Capital expenditures for the six months ended June 30, 1996, were $1.1
million. The Company estimates capital expenditures will range between $5.0
million and $8.0 million for the remainder of 1996.
On August 2, 1996, the Company entered into a new $150.0 million Revolving
Credit Facility (the "New Facility") with a $25.0 million sub-limit for import
letters of credit. The New Facility, which replaced the Credit Facility
discussed above, has a three-year term and expires on August 2, 1999, and like
the Credit Facility, is secured by the stock of Home Shopping Club, Inc. and HSN
Realty, Inc. Outstanding borrowings under the New Facility totaled $15.0 million
as of August 5, 1996, and approximately $120.0 million was available for
borrowing after taking into account outstanding letters of credit. The Company
anticipates that it will use its borrowing capacity under the New Facility for
working capital requirements, capital expenditures and general corporate
purposes.
During the remainder of 1996, management expects to pay cable distribution
fees, totaling $31.3 million, relating to new and current contracts with cable
system operators to carry HSC programming.
In April 1996, the Company sold a majority of its interest in HSND for $5.9
million, $4.9 million of which was received as of the closing of the
transaction, the remainder of which will be received in four equal annual
installments commencing on February 1, 1997.
During the second quarter, the Company received cash proceeds of $13.5
million from the exercise of 1.2 million options to purchase the Company's
stock.
In management's opinion, available cash, internally generated funds and the
New Facility will provide sufficient capital resources to meet the Company's
foreseeable needs.
For the quarter ended June 30, 1996, 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 June 30, 1995, the Company repurchased an additional 2.6
million shares at a total additional cost of $21.6 million. Under the terms of
the New Facility, the Company is restricted from purchasing its common stock.
16
<PAGE> 18
NEW ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("FAS 123") effective for fiscal years beginning after December
15, 1995. FAS 123 provides alternatives for the methods used by entities to
record compensation expense associated with its stock-based compensation plans.
Additionally, FAS 123 provides further guidance on the disclosure requirements
relating to stock-based compensation plans. Presently, management intends to
present the effects of FAS 123 only on a disclosure basis.
17
<PAGE> 19
PART II
OTHER INFORMATION
ITEM 1 -- LEGAL PROCEEDINGS
On February 17, 1996, the Company settled a consolidated class action
initiated in 1990 and litigated in the Court of Common Pleas of Bucks County,
Pennsylvania, entitled Mauger v. Home Shopping Network, Inc.; Powell v. Home
Shopping Network, Inc. (case number 91-6152-20-1). The complaints alleged
violation of the Pennsylvania Unfair Trade Practices and Consumer Protection Law
in relation to the Company's pricing practices with respect to diamond and
imitation diamond jewelry sold to Pennsylvania residents between December 27,
1984 and May 20, 1991. Under the Stipulation and Agreement of Compromise and
Settlement, customers who present adequate proof of purchase of cubic zirconia
or diamond jewelry during the class period will have the option of receiving a
cash payment or a discount certificate usable for the purchase of HSN
merchandise during the following twelve months. The maximum cash payment
required from the Company with respect to all costs relating to the settlement,
including administrative costs and fees and expenses of counsel for the class,
is $2.5 million, which has been placed in an escrow account. The Company will be
entitled to a refund of any balance 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. On June 17, 1996, the Court
issued a Final Judgment and Dismissal Order, approving the settlement.
On March 2, 1995, the Federal Trade Commission ("FTC") issued an
administrative complaint against the Company, HSC and HSN Lifeway Health
Products, Inc., In Re Home Shopping Network, Inc. et al., No. D-9272, in
connection with the on-air presentation in 1993 of certain spray vitamin and
nutritional supplement products. The FTC alleged that the Company did not have a
reasonable basis to support certain on-air claims. On May 9, 1996, the Company
and its subsidiaries entered into a consent and cease and desist order under
which they agreed to obtain competent and reliable scientific evidence to
substantiate claims made for specified categories of products, including any
claim that any product can cure or prevent any illness, or affect the structure
or function of the human body. The settlement does not represent any admission
of wrongdoing by the Company, and does not require payment of any monetary
damages. The settlement is subject to final approval by the FTC, following
publication of notice in the Federal Register.
ITEM 6(A) -- EXHIBITS
Exhibit 10.38 -- Credit Agreement dated as of August 2, 1996, among Home
Shopping Network, Inc., as borrower, Home Shopping Club, Inc. and HSN Realty,
Inc., as guarantors, the Chase Manhattan Bank, as Administrative Agent, LTCB
Trust Company, as Collateral Agent, the Bank of New York Company, Inc., as
Documentation Agent and the Lenders.
Exhibit 10.39 -- Pledge Agreement dated as of August 2, 1996, made by Home
Shopping Network, Inc., a Delaware corporation, in favor of LTCB Trust Company,
a New York trust company, as collateral agent for the Secured Parties under the
Credit Agreement dated as of August 2, 1996, among the Pledgor, as borrower,
Home Shopping Club, Inc. and HSN Realty, Inc., as guarantors, The Chase
Manhattan Bank, as Administrative Agent, LTCB Trust Company, as Collateral
Agent, The Bank of New York Company, Inc., as Documentation Agent, and the
Lenders.
Exhibit 27 -- Financial Data Schedule (for 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>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ------------------------------ ----------------
<C> <S> <C>
/s/ JAMES G. HELD President and Chief Executive August 9, 1996
- --------------------------------------------- Officer
James G. Held
/s/ KEVIN J. MCKEON Executive Vice President, August 9, 1996
- --------------------------------------------- Chief Financial Officer and
Kevin J. McKeon Treasurer (Principal
Financial Officer)
/s/ BRIAN J. FELDMAN Vice President and Controller August 9, 1996
- --------------------------------------------- (Chief Accounting Officer)
Brian J. Feldman
</TABLE>
19
<PAGE> 1
EXHIBIT 10.38
================================================================================
CREDIT AGREEMENT
Dated as of August 2, 1996
among
HOME SHOPPING NETWORK, INC.,
as Borrower,
HOME SHOPPING CLUB, INC.
and
HSN REALTY, INC.,
as Guarantors,
THE CHASE MANHATTAN BANK,
as Administrative Agent,
LTCB TRUST COMPANY,
as Collateral Agent,
THE BANK OF NEW YORK COMPANY, INC.,
as Documentation Agent,
and
THE LENDERS PARTY HERETO
================================================================================
[CS&M Ref. No. 6700-427]
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I
Definitions and Accounting Matters
SECTION 1.01. Certain Defined Terms . . . . . . . . . . . . . . . . . . . . 2
SECTION 1.02. Terms Generally; Certain Accounting
Matters . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE II
Credits
SECTION 2.01. Commitments . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 2.02. Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 2.03. Borrowing Procedure . . . . . . . . . . . . . . . . . . . . . 16
SECTION 2.04. Termination and Reduction of
Commitments . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 2.05. Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 2.06. Lending Offices . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 2.07. Several Obligations; Remedies
Independent . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 2.08. Evidence of Debt . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 2.09. Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 2.10. Conversion and Continuation of
Borrowings . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 2.11. Letters of Credit . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE III
Payments of Principal and Interest
SECTION 3.01. Repayment of Loans . . . . . . . . . . . . . . . . . . . . . 25
SECTION 3.02. Interest . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE IV
Payments; Pro Rata Treatment; Computations, etc.
SECTION 4.01. Payments . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 4.02. Pro Rata Treatment . . . . . . . . . . . . . . . . . . . . . 27
SECTION 4.03. Non-Receipt of Funds by the
Administrative Agent . . . . . . . . . . . . . . . . . . 27
SECTION 4.04. Sharing of Payments, etc. . . . . . . . . . . . . . . . . . . 28
</TABLE>
<PAGE> 3
2
<TABLE>
<S> <C> <C>
ARTICLE V
Yield Protection and Illegality
SECTION 5.01. Additional Costs . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 5.02. Alternate Rate of Interest . . . . . . . . . . . . . . . . . 30
SECTION 5.03. Illegality . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 5.04. Compensation . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 5.05. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
August 5,1996
ARTICLE VI
Guarantee
SECTION 6.01. Unconditional Guarantee . . . . . . . . . . . . . . . . . . . 32
SECTION 6.02. Validity . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 6.03. Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 6.04. Subordination and Subrogation . . . . . . . . . . . . . . . . 33
SECTION 6.05. Acceleration . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 6.06. Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . 34
ARTICLE VII
Conditions Precedent
SECTION 7.01. Initial Credit Event . . . . . . . . . . . . . . . . . . . . 35
SECTION 7.02. Initial and Subsequent Credit Events . . . . . . . . . . . . 36
ARTICLE VIII
Representations and Warranties
SECTION 8.01. Corporate Existence . . . . . . . . . . . . . . . . . . . . . 37
SECTION 8.02. Financial Condition . . . . . . . . . . . . . . . . . . . . . 37
SECTION 8.03. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 8.04. No Breach or Default, etc. . . . . . . . . . . . . . . . . . 38
SECTION 8.05. Corporate Action . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 8.06. Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 8.07. Use of Loans . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 8.08. ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 8.09. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 8.10. Credit Agreements . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 8.11. Ownership of Assets . . . . . . . . . . . . . . . . . . . . . 39
SECTION 8.12. Pari Passu Obligations . . . . . . . . . . . . . . . . . . . 40
SECTION 8.13. Investment Company Act; Public
Utility Holding Company Act . . . . . . . . . . . . . . 40
SECTION 8.14. Environmental Matters . . . . . . . . . . . . . . . . . . . . 40
SECTION 8.15. Pledge Agreement . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 8.16. Labor Matters . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 8.17. Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . 41
</TABLE>
<PAGE> 4
3
<TABLE>
<S> <C> <C>
ARTICLE IX
Covenants of the Borrower and the Guarantors
SECTION 9.01. Financial Statements; Reports and
Other Information . . . . . . . . . . . . . . . . . . . 41
SECTION 9.02. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 9.03. Corporate Existence, etc. . . . . . . . . . . . . . . . . . . 44
SECTION 9.04. Payment of Obligations . . . . . . . . . . . . . . . . . . . 45
SECTION 9.05. Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 9.06. Sale and Lease-Back Transactions . . . . . . . . . . . . . . 46
SECTION 9.07. Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 9.08. Ranking . . . . . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 9.09. Business; Fiscal Year . . . . . . . . . . . . . . . . . . . 48
SECTION 9.10. Transactions with Affiliates . . . . . . . . . . . . . . . . 48
SECTION 9.11. Interest Coverage Test . . . . . . . . . . . . . . . . . . . 48
SECTION 9.12. Total Debt Ratio . . . . . . . . . . . . . . . . . . . . . . 48
SECTION 9.13. Total Senior Debt Ratio . . . . . . . . . . . . . . . . . . 48
SECTION 9.14. Consolidated Net Worth . . . . . . . . . . . . . . . . . . . 49
SECTION 9.15. Minimum Operating Cash Flow . . . . . . . . . . . . . . . . 49
SECTION 9.16. Capital Expenditures . . . . . . . . . . . . . . . . . . . . 50
SECTION 9.17. Interest Rate Protection
Agreement . . . . . . . . . . . . . . . . . . . . . . 50
SECTION 9.18. Mergers and Sale of Assets . . . . . . . . . . . . . . . . . 50
SECTION 9.19. Dispositions of Assets . . . . . . . . . . . . . . . . . . . 51
SECTION 9.20. Restricted Payments; Restrictions
on Ability of Subsidiaries to
Pay Dividends . . . . . . . . . . . . . . . . . . . . . 51
SECTION 9.21. Restricted Investments . . . . . . . . . . . . . . . . . . . 52
SECTION 9.22. Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 9.23. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 9.24. Certain Agreements . . . . . . . . . . . . . . . . . . . . . 54
SECTION 9.25. Compliance with Laws . . . . . . . . . . . . . . . . . . . . 54
SECTION 9.26. Further Assurances . . . . . . . . . . . . . . . . . . . . . 54
SECTION 9.27. Ownership of the Guarantors . . . . . . . . . . . . . . . . 54
SECTION 9.28. Notification of Incurrence of Debt . . . . . . . . . . . . . 55
ARTICLE X
Events of Default
ARTICLE XI
The Administrative Agent and the Collateral Agent
</TABLE>
<PAGE> 5
4
<TABLE>
<S> <C> <C>
ARTICLE XII
Miscellaneous
SECTION 12.01. Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
SECTION 12.02. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
SECTION 12.03. Expenses, etc. . . . . . . . . . . . . . . . . . . . . . . . 61
SECTION 12.04. Amendments, etc. . . . . . . . . . . . . . . . . . . . . . . 62
SECTION 12.05. Successors and Assigns . . . . . . . . . . . . . . . . . . . 63
SECTION 12.06. Assignments and Participation . . . . . . . . . . . . . . . . 63
SECTION 12.07. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . 64
SECTION 12.08. Survival . . . . . . . . . . . . . . . . . . . . . . . . . . 64
SECTION 12.09. Captions . . . . . . . . . . . . . . . . . . . . . . . . . . 64
SECTION 12.10. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . 64
SECTION 12.11. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . 65
SECTION 12.12. Jurisdiction; Waiver of Jury Trial . . . . . . . . . . . . . 65
SECTION 12.13. Severability . . . . . . . . . . . . . . . . . . . . . . . . 65
</TABLE>
Schedule 2.01(a) Lenders and Commitments
Schedule 2.01(b) Description of Credit Card Program
Schedule 2.01(c) Form of Calculation of Financial Ratios
Schedule 2.01(d) Material Subsidiaries
Schedule 8.10 Credit Agreements
Schedule 9.05 Liens
Schedule 9.07 Indebtedness
Schedule 9.21 Investments
EXHIBIT A Form of Assignment and Acceptance
EXHIBIT B Form of Promissory Note
EXHIBIT C Form of Pledge Agreement
EXHIBIT D Form of Opinion of General Counsel to the Credit
Parties
EXHIBIT E Form of Total Debt Ratio Notice
EXHIBIT F Form of Compliance Certificate
<PAGE> 6
CREDIT AGREEMENT dated as of August 2, 1996,
among HOME SHOPPING NETWORK, INC., a Delaware
corporation (the "Borrower"), HOME SHOPPING CLUB,
INC., a Delaware corporation ("HSC"), HSN REALTY,
INC., a Delaware corporation ("HSNR"; and, together
with HSC, the "Guarantors"), THE CHASE MANHATTAN
BANK, as administrative agent for the Lenders (in
such capacity, the "Administrative Agent"), LTCB
TRUST COMPANY as collateral agent for the Lenders (in
such capacity, the "Collateral Agent"), THE BANK OF
NEW YORK COMPANY, INC., as documentation agent (in
such capacity, the "Documentation Agent"), and each
of the Lenders (as defined in Article I).
WHEREAS, the Borrower and the Guarantors are parties to the
Second Amended and Restated Credit Agreement dated as of August 30, 1994 (as
amended from time to time, the "Existing Credit Agreement"), pursuant to which
the "Lenders" (as defined therein) have made available to the Borrower, under
the guarantee of HSC and HSNR, a revolving credit facility providing for loans
in an aggregate principal amount not exceeding $150,000,000 at any one time
outstanding; and
WHEREAS, the Borrower has requested that the revolving credit
facility under the Existing Credit Agreement be replaced by this Agreement.
WHEREAS, the Lenders are willing to make loans to the
Borrower, with the unconditional guarantee of payment by the Guarantors, in an
aggregate principal amount not exceeding $150,000,000 at any one time
outstanding upon the terms and conditions hereof.
WHEREAS, the Borrower has also requested the Issuing Bank (as
defined in Article I) to issue letters of credit in an aggregate face amount at
any one time outstanding not in excess of $25,000,000.
WHEREAS, the Issuing Bank is willing to issue letters of
credit to the Borrower and each Lender is willing to take an irrevocable and
unconditional pro rata participation in each letter of credit, each letter of
credit to be guaranteed by the Guarantors, in an aggregate face amount at any
one time outstanding not in excess of $25,000,000 upon the terms and conditions
hereof.
<PAGE> 7
2
NOW, THEREFORE, the parties hereto hereby agree as follows:
ARTICLE I
Definitions and Accounting Matters
SECTION 1.01 Certain Defined Terms. As used herein, the
following terms shall have the following meanings:
"ABR Borrowing" shall mean a Borrowing comprised of ABR Loans.
"ABR Loan" shall mean any Loan bearing interest at the
Alternate Base Rate in accordance with the provisions of Article II.
"Adjusted LIBO Rate" shall mean, with respect to any
Eurodollar Borrowing for any Interest Period, an interest rate per annum
(rounded upwards, if necessary, to the next 1/16 of 1%) equal to (a) the LIBO
Rate in effect for such Interest Period multiplied by (b) the Statutory Reserve
Rate.
"Administrative Questionnaire" shall mean an Administrative
Questionnaire in a form supplied by the Administrative Agent.
"Affiliate" shall mean, with respect to any Person, any other
Person (other than a Wholly Owned Subsidiary of such Person), directly or
indirectly through one or more intermediaries, 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 (A) is an officer or director
of such other Person, (B) possesses, directly or indirectly, the power to
direct or cause the direction of the management and policies of such other
Person, whether through the ownership of voting securities, by contract or
otherwise, or (C) directly or indirectly owns or controls 10% or more of such
other Person's capital stock. "Controlling" and "controlled" shall have
meanings correlative to "control".
"Alternate Base Rate" shall mean, for any day, a rate per
annum equal to the greatest of (a) the Prime Rate in effect on such day, (b)
the Base CD Rate in effect on such day plus 1% and (c) the Federal Funds
Effective Rate in effect on such day plus 1/2 of 1%. Any change in the
Alternate Base Rate due to a change in the Prime Rate, the Base CD Rate or the
Federal Funds Effective Rate shall be effective from and including the
effective date of such change in the Prime Rate, the Base CD Rate or the
Federal Funds Effective Rate, respectively.
"Applicable Lending Office" shall mean, for each Lender and
for each type of Loan, the Lending Office of such Lender (or of an affiliate of
such Lender) designated for such type of Loan on the signature pages hereof or
such other office of such Lender (or of an Affiliate of such Lender) as such
Lender may from time to time specify to the Administrative Agent and the
Borrower as the office by which its Loans of such type are to be made and
maintained.
"Applicable Margin" shall mean, with respect to any Eurodollar
Loan, any ABR Loan or the Commitment Fees, as the case may be, the applicable
percentage set forth in its appropriate table below under the caption
"Eurodollar Spread", "ABR Spread" or "Commitment Fee Percentage", as the case
may be, based upon the Total Debt Ratio as set forth in the Total Debt Ratio
Notice most recently
<PAGE> 8
3
delivered under Section 9.01(g) (which Notice shall be effective on the date of
the Administrative Agent's receipt thereof in accordance with Section 12.02):
<TABLE>
<CAPTION>
Eurodollar Commitment Fee
Total Debt Ratio Spread ABR Spread Percentage
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than 2:1 .750% 0% .25%
-------------------------------------------------------------------------------------------------
Greater than or equal to 2:1,
but less than 3:1 .875% 0% .25%
-------------------------------------------------------------------------------------------------
Greater than or equal to 3:1,
but less than 3.5:1 1.000% 0% .25%
-------------------------------------------------------------------------------------------------
Greater than or equal to 3.5:1,
but less than 4:1 1.250% .250% .375%
-------------------------------------------------------------------------------------------------
Greater than or equal to 4:1,
but less than 4.5:1 1.500% .500% .375%
-------------------------------------------------------------------------------------------------
Greater than or equal to 4.5:1,
but less than or equal to 5:1 1.750% .750% .375%
-------------------------------------------------------------------------------------------------
</TABLE>
"Assessment Rate" means, for any day, the annual assessment
rate in effect on such day that is payable by a member of the Bank Insurance
Fund classified as "well-capitalized" and within supervisory subgroup "B" (or a
comparable successor risk classification) within the meaning of 12 C.F.R. Part
327 (or any successor provision) to the Federal Deposit Insurance Corporation
(or any successor thereto) for insurance by such Corporation (or such
successor) of time deposits made in dollars at the offices of such member in
the United States; provided that if, as a result of any change in any law, rule
or regulation, it is no longer possible to determine the Assessment Rate as
aforesaid, then the Assessment Rate shall be such annual rate as shall be
determined by the Administrative Agent to be representative of the cost to the
Lenders of such insurance.
"Assignment and Acceptance" shall mean an assignment and
acceptance entered into by a Lender and an assignee, and accepted by the
Administrative Agent, in the form of Exhibit A or such other form as shall be
approved by the Administrative Agent.
"Bankruptcy Code" shall mean the Federal Bankruptcy Code of
the United States, 11 U.S.C. Section 101 et seq., as amended from time to
time
"Base CD Rate" shall mean the sum of (a) the Three-Month
Secondary CD Rate multiplied by the Statutory Reserve Rate plus (b) the
Assessment Rate.
"BNY Facility" shall mean the Letter of Credit Facility
Agreement dated as of September 28, 1995, as amended, among HSC, HSM Mail Order
and HSN Direct, Inc., as applicants, the Borrower and HSNR, as guarantors, The
Bank of New York Company, Inc., and The Bank of New York, pursuant to which The
Bank of New York issued letters of credit set forth on Annex II to the Pledge
Agreement.
<PAGE> 9
4
"Board" shall mean the Board of Governors of the Federal
Reserve System of the United States of America (or any successor thereto).
"Borrowing" shall mean a group of Loans of a single Type made
by the Lenders on a single date and as to which a single Interest Period is in
effect.
"Borrowing Request" shall mean a request by the Borrower for a
Borrowing in accordance with Section 2.03.
"Business Day" shall mean any day that is not a Saturday,
Sunday or other day on which commercial banks in New York City are authorized
or required by law to remain closed; provided that when used in connection with
a Eurodollar Loan, the term "Business Day" shall also exclude any day on which
banks are not open for dealings in Dollar deposits in the London interbank
market.
"Capital Expenditures" shall mean, for any period, all amounts
that would, in accordance with GAAP, be set forth as "capital expenditures" on
the consolidated financial statement of the Borrower and its consolidated
Subsidiaries for such period.
"Capital Lease" shall mean any lease or other contractual
arrangement which under GAAP has been or should be recorded as a capital lease.
"Change of Control" shall be deemed to have occurred if:
(a) Barry Diller, TCI, Liberty, Silver King or any combination
thereof, shall fail to maintain Voting Control of the Borrower;
(b) any Person or group shall acquire, directly or indirectly,
beneficially or of record, more than 50% of the voting power of TCI;
(c) on or after the date on which neither Barry Diller, TCI or
Silver King nor any combination thereof maintains Voting Control of
the Borrower, any person or group shall acquire, directly or
indirectly, beneficially or of record, more than 50% of the voting
power of Liberty; provided, however that TCI may spin-off Liberty (or
any part thereof) to the shareholders of TCI (which must include the
founding and principal shareholders of TCI who as of the date hereof
maintain at least 40% of the voting power of TCI as set forth in the
proxy statement of TCI dated July 22, 1996, and, in the event of death
or incapacitation of any such founding and principal shareholder of
TCI, must include his heirs or estate) and provided further that after
such spin-off no person or group shall acquire, directly or
indirectly, beneficially or of record, more than 50% of the voting
power of Liberty;
(d) on or after the date on which neither Barry Diller, TCI
or Liberty nor any combination thereof maintains Voting Control of the
Borrower, Barry Diller, TCI, Liberty or any combination thereof shall
fail to maintain, directly or indirectly through controlled
Subsidiaries, at least 51% of the voting power of Silver King;
(e) any change of control (or similar event, however
denominated) with respect to the Borrower or any Subsidiary of the
Borrower shall occur (unless otherwise waived) under and
<PAGE> 10
5
as defined in any indenture or agreement in respect to indebtedness to
which the Borrower or any Subsidiary of the Borrower is a party; or
(f) any Person or group other than Barry Diller, TCI, Silver
King or Liberty shall acquire all or substantially all of the assets
of the Borrower, TCI, Silver King or Liberty.
For purposes of this definition (i) "Voting Control" of the Borrower shall mean
(x) control, directly or indirectly through Wholly Owned Subsidiaries, of at
least 51% of the voting power of the Borrower and (y) the ability to elect a
majority of the seats of the board of directors of the Borrower, (ii) "voting
power" of any person shall mean the voting power (through ownership of shares,
beneficially or of record, by contract or otherwise, representing at least the
relevant percentage of the aggregate ordinary voting power represented by the
issued and outstanding capital stock of such person) and (iii) "group" shall
mean a group within the meaning of Rule 13d-5 of the Securities Exchange Act of
1934, as amended from time to time.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
"Collateral Agent" shall mean LTCB Trust Company in its
capacity as Collateral Agent under the Pledge Agreement.
"Commitment" shall mean, with respect to any Lender, the
amount set forth opposite such Lender's name on Schedule 2.01(a) as the same
may be terminated or reduced from time to time pursuant to Section 2.04 or
reduced or increased from time to time pursuant to one or more assignments
under Section 12.06.
"Commitment Fee" shall have the meaning assigned to such term
in Section 2.05(a).
"Consolidated Net Worth" shall mean, at any date, all amounts
which, in conformity with GAAP, would be included under stockholder's equity on
a consolidated balance sheet of the Borrower and its Subsidiaries at such time.
"Core Business" shall mean any of the primary businesses in
which the Borrower is engaged on the date of this Agreement.
"Credit Exposure" shall mean, with respect to any Lender at
any time, the sum of the outstanding principal amount of all outstanding Loans
of such Lender and its L/C Exposure.
"Credit Parties" shall mean the Borrower and the Guarantors.
"Cumulative Net Income" shall mean, for any period, the sum of
the net income (but not any net loss) of the Borrower and its Subsidiaries
(including the Guarantors) on a consolidated basis for such period, determined
in accordance with GAAP, for each Fiscal Quarter falling within such period.
"Default" shall mean an Event of Default or any event or
condition which with notice or lapse of time or both would constitute an Event
of Default.
<PAGE> 11
6
"Dollars" and "$" shall mean lawful money of the United States
of America.
"Effective Date" shall mean the date on which this Agreement
shall have been executed and delivered by each of the parties provision for
whose signature has been made on the signature pages hereof, and each of the
conditions precedent set forth in Section 7.01 has been satisfied.
"Environmental Law" shall have the meaning assigned to such
term in Section 8.14.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time.
"ERISA Affiliate" shall mean any corporation or trade or
business which is a member of the same controlled group of corporations (within
the meaning of Section 414(b) of the Code) as any Credit Party or is under
common control (within the meaning of Section 414(c) of the Code) with any
Credit Party, or, solely for purposes of Section 412 of the Code, is treated as
a single employer under Section 414(b), (c), (m) or (o) of the Code.
"Eurodollar Borrowing" shall mean a Borrowing comprised of
Eurodollar Loans.
"Eurodollar Loan" shall mean any Loan bearing interest at a
rate determined by reference to the Adjusted LIBO Rate in accordance with the
provisions of Article II.
"Event of Default" shall have the meaning assigned to that
term in Article X.
"Federal Funds Effective Rate" shall mean, for any day, the
weighted average (rounded upwards, if necessary, to the next 1/100 of 1%) of
the rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published on the next
succeeding Business Day by the Federal Reserve Bank of New York or, if such
rate is not so published for any day that is a Business Day, the average
(rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations for
the day for such transactions received by the Administrative Agent from three
Federal funds brokers of recognized standing selected by it.
"Fees" shall mean the Commitment Fees, the L/C Participation
Fees and the Fronting Fees.
"Financial Officer" shall mean the chief financial officer,
the principal accounting officer, treasurer or controller of the Borrower.
"Fiscal Quarter" shall mean, a period of three consecutive
calendar months commencing on any January 1, April 1, July 1 and October 1 in
any Fiscal Year.
"Fiscal Year" shall mean, for any Credit Party or Subsidiary,
the 12 consecutive calendar months' period commencing on such date and on
January 1 of each calendar year thereafter and ending on December 31 of such
calendar year; and "Fiscal 1996", "Fiscal 1997", and any other year so
designated shall mean the Fiscal Year ending on December 31 of the indicated
calendar year.
"Fronting Fee" shall have the meaning assigned to such term in
Section 2.05(c).
<PAGE> 12
7
"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.
"Governmental Authority" means the government of the United
States of America, any other nation or any political subdivision thereof,
whether state or local, and any agency, authority, instrumentality, regulatory
body, court, central bank or other entity exercising executive, legislative,
judicial, taxing, regulatory or administrative powers or functions of or
pertaining to government.
"Guaranteed Program" shall have the meaning assigned to that
term in Schedule 2.01(b).
"Guarantor" shall mean HSC and HSNR, individually, and
"Guarantors" shall mean HSC and HSNR, collectively.
"Hedging Agreements" shall mean any interest rate protection
agreement, foreign currency exchange agreement, commodity price protection
agreement or other interest or currency exchange rate or commodity price
hedging arrangement entered into by the Borrower or any of its Subsidiaries.
"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 all
obligations of such Person evidenced by bonds, debentures, notes or
other similar instruments;
(b) all obligations of such Person under Hedging Agreements;
(c) the stated amount of all letters of credit (including the
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;
(d) all obligations of such Person under any Capital Leases;
(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 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
<PAGE> 13
8
(h) all obligations of any Credit Party or Subsidiary under
the Program, individually or in the aggregate, in excess of
$3,000,000.
"Interest Expense" shall mean, for any period, all interest
expense of the Borrower and its consolidated Subsidiaries for such period
determined in accordance with GAAP.
"Interest Payment Date" shall mean, (a) with respect to any
ABR Loan, the last day of each March, June, September and December and (b) with
respect to any Eurodollar Loan, the last day of the Interest Period applicable
to the Borrowing of which such Loan is a part and, in the case of a Eurodollar
Borrowing with an Interest Period of more than three months' duration, the last
day of such Interest Period that occurs at intervals of three months' duration
after the first day of such Interest Period.
"Interest Period" shall mean with respect to any Eurodollar
Borrowing, the period commencing on the date of such Borrowing and ending on
the numerically corresponding day in the calendar month that is one, two, three
or six months thereafter, as the Borrower may elect; provided, however, that
(a) if any Interest Period would end on a day other than a Business Day, such
Interest Period shall be extended to the next succeeding Business Day unless,
in the case of a Eurodollar Borrowing only, such next succeeding Business Day
would fall in the next calendar month, in which case such Interest Period shall
end on the next preceding Business Day and (b) any Interest Period pertaining
to a Eurodollar Borrowing that commences on the last Business Day of a calendar
month (or on a day for which there is no numerically corresponding day in the
last calendar month of such Interest Period) shall end on the last Business Day
of the last calendar month of such Interest Period. For purposes hereof, the
date of a Borrowing initially shall be the date on which such Borrowing is made
and thereafter shall be the effective date of the most recent conversion or
continuation of such Borrowing.
"Investment" shall mean, for any Person, (a) the acquisition
(whether for cash, property, services or otherwise) of capital stock, bonds,
notes, debentures, partnership or other ownership interests or other securities
or obligations of any other Person or any agreement to make any such
acquisition (including any "short sale" or any sale of any securities at a time
when such securities are not owned by the Person entering into such short
sale); (b) the making of any deposit with, or advance, or loan or other
extension of credit to, any other Person (including the purchase of property
from another Person subject to an understanding or agreement, contingent or
otherwise, to resell such property to such Person, but excluding any such
advance, loan or other extension of credit to customers of the Borrower or to
customers of the Borrower's Subsidiaries having a term not exceeding 90 days
arising in the ordinary course of business); (c) the entering into any
guarantee of, or other contingent obligation with respect to, Indebtedness or
other liability of any other Person and (without duplication) any amount
committed to be advanced, lent or extended to such person; or (d) the entering
into any Hedging Agreement.
"Issuing Bank" shall mean The Chase Manhattan Bank, in its
capacity as the issuer of Letters of Credit hereunder, and its successors in
such capacity as provided in Section 2.11(i).
"L/C Commitment" shall mean the commitment of the Issuing Bank
to issue Letters of Credit pursuant to Section 2.11.
<PAGE> 14
9
"L/C Disbursement" shall mean a payment made by the Issuing
Bank pursuant to a Letter of Credit.
"L/C Exposure" shall mean at any time the sum of (a) the
aggregate undrawn amount of all outstanding Letters of Credit at such time plus
(b) the aggregate amount of all L/C Disbursements that have not yet been
reimbursed by or on behalf of the Borrower at such time. The L/C Exposure of
any Lender at any time shall be its Pro Rata Percentage of the total L/C
Exposure at such time.
"L/C Participation Fee" shall have the meaning assigned to
such term in Section 2.05(b).
"Lenders" shall mean (a) the financial institutions listed on
Schedule 2.01(a) (other than any such financial institution that has ceased to
be a party hereto pursuant to an Assignment and Acceptance) and (b) any
financial institution that has become a party hereto pursuant to an Assignment
and Acceptance.
"Letter of Credit" shall mean any letter of credit issued by
the Issuing Bank pursuant to Section 2.11.
"Liberty" shall mean Liberty Media Corporation, a Delaware
corporation.
"LIBO Rate" shall mean, with respect to any Eurodollar
Borrowing for any Interest Period, the rate appearing on Page 3750 of the
Telerate Service (or on any successor or substitute page of such Service, or
any successor to or substitute for such Service, providing rate quotations
comparable to those currently provided on such page of such Service, as
determined by the Administrative Agent from time to time for purposes of
providing quotations of interest rates applicable to dollar deposits in the
London interbank market) at approximately 11:00 a.m., London time, two Business
Days prior to the commencement of such Interest Period, as the rate for dollar
deposits with a maturity comparable to such Interest Period. In the event that
such rate is not so available at such time for any reason, then the "LIBO Rate"
with respect to such Eurodollar Borrowing for such Interest Period shall be the
rate at which dollar deposits of $5,000,000 and for a maturity comparable to
such Interest Period are offered to the principal London office of the
Administrative Agent in immediately available funds in the London interbank
market at approximately 11:00 a.m., London time, two Business Days prior to the
commencement of such Interest Period.
"Lien" shall mean, with respect to any asset or other
property, (a) any mortgage, deed of trust, lien, pledge, hypothecation, 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, (b) the interest of
a vendor or a lessor under any conditional sale agreement, Capital Lease or
title retention agreement (or any financing lease having substantially the same
economic effect as any of the foregoing) relating to such asset or property,
(c) any account receivable transferred by it with recourse (including any such
transfer subject to a holdback or similar arrangement that effectively imposes
the risk of collectibility on the transferor) and (d) in the case of
securities, any purchase option, call or similar right of a third party with
respect to such securities.
<PAGE> 15
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"Loan Documents" shall mean this Agreement, the Notes, the
Pledge Agreement, the Letters of Credit and each amendment, supplement,
modification, consent or waiver of, to or in respect of any of the foregoing.
"Loans" shall mean the loans provided for by Section 2.01.
Each Loan shall be a Eurodollar Loan or an ABR Loan.
"Majority Banks" shall mean at any time Lenders having Credit
Exposures and unused Commitments representing at least 51% of the Total
Commitment.
"Margin Stock" shall have the meaning assigned to such term in
Regulation U.
"Material Adverse Effect" shall mean material adverse effect
on (a) the business, operations or financial condition of the Borrower and the
Subsidiaries taken as a whole or (b) the ability of any Credit Party to perform
any of its Obligations under any of the Loan Documents.
"Material Subsidiary" shall mean, at any time, a Subsidiary
the book value of whose tangible assets at such time exceeds 10% of the book
value of the total tangible assets of the Borrower and its Subsidiaries (on a
consolidated basis), which as of the date of this Agreement are as listed on
Schedule 2.01(d).
"Material Subsidiary Group" shall mean, at any time, a group
of any two or more Subsidiaries which at such time has a combined aggregate
book value of tangible assets in excess of 10% of the book value of the total
tangible assets of the Borrower and its Subsidiaries (on a consolidated basis).
"Maturity Date" shall mean the third anniversary of the
Effective Date.
"Multiemployer Plan" shall mean a plan defined as such in
Section 3(37) of ERISA to which contributions have been made by the Borrower or
any ERISA Affiliate and which is covered by Title IV of ERISA.
"Non-Material Subsidiary" shall mean, at any time, a
Subsidiary that is not a Material Subsidiary.
"Notes" shall mean the promissory notes provided for by
Section 2.08.
"Obligations" shall mean all obligations and liabilities of
the Borrower to the Administrative Agent, the Collateral Agent, the Issuing
Bank, and the Lenders (or any of the foregoing) now or in the future existing
under or in connection with any Loan Document or any related document (as any
Loan Document or document may from time to time be respectively amended,
modified, substituted, extended or renewed), direct or indirect, absolute or
contingent, due or to become due, now or hereafter existing, including (a) the
payment of any principal of and interest on the Loans, when and as due, whether
at maturity, by acceleration, upon one or more dates set forth for prepayment
or otherwise, and the payment of any fees, expenses or other amounts under any
Loan Document, (b) each payment required to be made by the Borrower under this
Agreement in respect of any Letter of Credit, when and as due, including
payments in respect of reimbursement of Letters of
<PAGE> 16
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Credit disbursements, interest thereon and the obligations to provide cash
collateral and (c) all obligations of the Borrower, monetary or otherwise,
under each Hedging Agreement.
"Operating Cash Flow" shall mean, for any period, the sum of
the following for the Borrower and its Subsidiaries (including the Guarantors)
on a consolidated basis:
(a) operating profit of such Persons for such period; plus
(b) (to the extent already deducted in arriving at operating
profit) depreciation and amortization expense for such Persons for
such period; plus
(c) (to the extent already deducted in arriving at operating
profit) non-cash compensation expense related to the Borrower's
executive stock award program and the Borrower's equity participation
plan;
all as shown on the consolidated financial statements, including the notes
thereto, of the Borrower and its consolidated Subsidiaries for such period.
Operating Cash Flow for the four-Fiscal Quarter period ended June 30, 1996 is
as set forth in Schedule 2.01(c).
"PBGC" shall mean the Pension Benefit Guaranty Corporation or
any entity succeeding to any or all of its functions under ERISA.
"Person" shall mean any individual, corporation, company,
association, partnership, trust, joint venture, unincorporated organization,
limited liability company, Governmental Authority or other entity.
"Plan" shall mean an employee benefit or other plan
established or maintained by the Borrower or any ERISA Affiliate and which is
covered by Title IV of ERISA or Section 412 of the Code, other than a
Multiemployer Plan.
"Pledge Agreement" shall mean the Pledge Agreement, executed
and delivered by the Borrower in favor of the Collateral Agent, substantially
in the form of Exhibit C.
"Pledged Securities" shall mean all of the shares of capital
stock of the Guarantors owned beneficially and of record by the Borrower,
together with all stock certificates, options and rights of any nature that may
be issued or granted by HSC and/or HSNR to the Borrower while this Agreement is
in effect.
"Post-Default Rate" shall mean a rate per annum, during the
period commencing on the date on which any Obligation is not paid in cash in
full when due (whether at stated maturity, by acceleration or otherwise) and
ending on the date on which all such overdue Obligations are paid in cash in
full, equal to a rate per annum (computed on the basis of the actual number of
days elapsed over a year of 360 days) equal to the sum of the Alternate Base
Rate plus 2.00% per annum.
"Prime Rate" shall mean the rate of interest per annum
publicly announced from time to time by the Administrative Agent as its prime
rate in effect at its principal office in New York City. Each change in the
Prime Rate shall be effective on the date such change is publicly announced as
being effective.
<PAGE> 17
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"Program" shall have the meaning assigned to that term in
Schedule 2.01(b).
"Pro Rata Percentage" shall mean, with respect to any Lender,
the percentage of the Total Commitment represented by such Lenders's
Commitment. If the Commitments have terminated or expired, the Pro Rata
Percentage shall be determined based upon the Commitments most recently in
effect, giving effect to any subsequent assignments pursuant to Section 12.06.
"Regulation D" shall mean Regulation D of the Board as from
time to time in effect and all official rulings and interpretations thereunder
or thereof.
"Regulation G" shall mean Regulation G of the Board as from
time to time in effect and all official rulings and interpretations thereunder
or thereof.
"Regulation U" shall mean Regulation U of the Board as from
time to time in effect and all official rulings and interpretations thereunder
or thereof.
"Regulation X" shall mean Regulation X of the Board as from
time to time in effect and all official rulings and interpretations thereunder
or thereof.
"Regulatory Change" shall mean, with respect to any Lender,
any change after the date of this Agreement in United States Federal, state or
foreign law or regulations (including Regulation D) or the adoption or making
after such date of any interpretations, directives or requests applying to a
class of banks including such Lender of or under any United States Federal,
state or foreign law or regulations (whether or not having the force of law) by
any court or Governmental Authority charged with the interpretation or
administration thereof (whether or not having the force of law).
"SEC Report" shall mean, with respect to any Person, any
document 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.
"Secured Parties" shall mean (a) the Lenders, (b) the
Administrative Agent, (c) the Collateral Agent, (d) the Issuing Bank, (e) the
successors and assigns of the foregoing and (f) The Bank of New York under the
BNY Facility.
"Short-Term Debt" shall mean, for any Person, all Indebtedness
of such Person which would be short-term debt, whether direct or contingent,
under GAAP as in effect on the date of this Agreement.
"Silver King" shall mean Silver King Communications, Inc., a
Delaware corporation.
"Special Program" shall have the meaning assigned to that term
in Schedule 2.01(b).
"Statutory Reserve Rate" shall mean a fraction (expressed as a
decimal), the numerator of which is the number one and the denominator of which
is the number one minus the aggregate of the maximum reserve percentages
(including any marginal, special, emergency or supplemental reserves) expressed
as a decimal established by the Board and any other banking authority, domestic
or foreign, to which the Administrative Agent or any Lender (including any
branch,
<PAGE> 18
13
Affiliate, or other fronting office making or holding a Loan) is subject for
eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in
Regulation D of the Board). Such reserve percentages shall include those
imposed pursuant to such Regulation D. Eurodollar Loans shall be deemed to
constitute a eurocurrency funding and to be subject to such reserve
requirements without benefit of or credit for proration, exemptions or offsets
that may be available from time to time to any Lender under such Regulation D.
The Statutory Reserve Rate shall be adjusted automatically on and as of the
effective date of any change in any reserve percentage.
"Subordinated Debentures" shall mean the Borrower's 5-7/8%
Convertible Subordinated Debentures due March 1, 2006.
"Subsidiary" shall mean any corporation, partnership or other
Person (a) 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 (b) that is at the time any determination is made
directly or indirectly owned or controlled by any Credit Party or by the
Borrower and/or either Guarantor, and in any event shall include the Guarantors
and their respective subsidiaries.
"TCI" shall mean Tele-Communications, Inc., a Delaware
corporation (formerly called TCI/Liberty Holdings, Inc.).
"Three-Month Secondary CD Rate" means, for any day, the
secondary market rate for three-month certificates of deposit reported as being
in effect on such day (or, if such day is not a Business Day, the next
preceding Business Day) by the Board through the public information telephone
line of the Federal Reserve Bank of New York (which rate will, under the
current practices of the Board, be published in Federal Reserve Statistical
Release H.15(519) during the week following such day), or, if such rate is not
so reported on such day or such next preceding Business Day, the average of the
secondary market quotations for three-month certificates of deposit of major
money center banks in New York City received at approximately 10:00 a.m., New
York City time, on such day (or, if such day is not a Business Day, on the next
preceding Business Day) by the Administrative Agent from three negotiable
certificate of deposit dealers of recognized standing selected by it.
"Total Commitment" shall mean, at any time, the aggregate
amount of the Commitments, as in effect at such time.
"Total Debt" shall mean, for any Person at any time, all
Indebtedness of such Person at such time (including all long-term senior and
subordinated Indebtedness, all Short-Term Debt, the stated amount of all
letters of credit (including the Letters of Credit) issued for the account of
such Person and (without duplication) all unreimbursed draws thereunder), as
shown on the consolidated quarterly or annual financial statements, including
the notes thereto, of the Borrower delivered for such period pursuant to
Section 9.01 or referred to in Section 8.02). Total Debt of the Borrower and
its consolidated Subsidiaries as at the end of the four-Fiscal Quarter period
ended June 30, 1996 is as set forth on Schedule 2.01(c).
"Total Debt Ratio" shall mean, at any time, the ratio of (a)
Total Debt of the Borrower and its consolidated Subsidiaries as at the end of
the Borrower's four-Fiscal Quarter period most recently ended as of such time,
to (b) Operating Cash Flow for the same period, as shown in the Total Debt
Ratio Notice for such period.
<PAGE> 19
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"Total Debt Ratio Notice" shall mean each notice provided for
in Section 7.01(f) or Section 9.01(g).
"Total Senior Debt" shall mean, for any Person at any time,
all Indebtedness of such Person at such time (including all long- and
Short-Term Debt, the stated amount of all letters of credit (including the
Letters of Credit) issued for the account of such Person and (without
duplication) all unreimbursed draws thereunder), as shown on the consolidated
quarterly or annual financial statements, including the notes thereto, of the
Borrower delivered for such period pursuant to Section 9.01 (or referred to in
Section 8.02); provided, however, that Total Senior Debt shall not include (a)
any obligation of the Borrower to any Subsidiary, (b) any liability for
Federal, state, local or other taxes owed or owing by the Borrower, (c) any
accounts payable or other liability to trade creditors arising in the ordinary
course of business (including guarantees thereof or instruments evidencing such
liabilities), (d) any Indebtedness, guarantee or obligation of the Borrower
which is expressly subordinate or junior in right of payment in any respect to
any other Indebtedness, guarantee or obligation of the Borrower, including any
senior subordinated Indebtedness and any subordinated obligations or (e) any
obligations with respect to any capital stock. Total Senior Debt of the
Borrower and its consolidated Subsidiaries as at the end of the four-Fiscal
Quarter period ended June 30, 1996 is as set forth on Schedule 2.01(c) hereto.
"Total Senior Debt Ratio" shall mean, at any time, the ratio
of (a) Total Senior Debt of the Borrower and its consolidated Subsidiaries as
at the end of the Borrower's four-Fiscal Quarter period most recently ended as
of such time, to (b) Operating Cash Flow for the same period, as shown in the
Total Senior Debt Ratio Notice for such period.
"Type", when used in respect of any Loan or Borrowing, shall
refer to whether the rate of interest on such Loan, or on the Loans comprising
such Borrowing, is determined by reference to the Adjusted LIBO Rate or the
Alternate Base Rate.
"Wholly Owned Subsidiary" shall mean any Person of which all
of such ownership interests, other than directors' qualifying shares, are so
owned or controlled.
SECTION 1.02. Terms Generally; Certain Accounting Matters.
(a) The definitions in Section 1.01 shall apply equally to both the singular
and plural forms of the terms defined. Whenever the context may require, any
pronoun shall include the corresponding masculine, feminine and neuter forms.
The words "include", "includes" and "including" shall be deemed to be followed
by the phrase "without limitation". The word "will" shall be construed to have
the same meaning and effect as the word "shall". Unless the context requires
otherwise (i) any definition of or reference to any agreement, instrument or
other document herein shall be construed as referring to such agreement,
instrument or other document as from time to time amended, supplemented or
otherwise modified (subject to any restrictions on such amendments, supplements
or modifications set forth herein), (ii) any reference herein to any Person
shall be construed to include such Person's successors and assigns, (iii) the
words "herein", "hereof" and "hereunder", and words of similar import, shall be
construed to refer to this Agreement in its entirety and not to any particular
provision hereof, (iv) all references herein to Articles, Sections, Exhibits
and Schedules shall be construed to refer to Articles and Sections of, and
Exhibits and Schedules to, this Agreement and (v) the words "asset" and
"property" shall be construed to have the same meaning and effect and to refer
to any and all tangible and intangible assets and properties, including cash,
securities, accounts and contract rights.
<PAGE> 20
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(b) Unless otherwise disclosed to the Lenders in writing at
the time of delivery thereof in the manner described in subsection (c) below,
all financial statements and certificates and reports as to financial matters
required to be delivered to the Administrative Agent on behalf of itself and
the Lenders 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 Lenders hereunder after the date hereof (or, prior
to the delivery of the first financial statements furnished to the Lenders
hereunder, used in the preparation of the audited financial statements referred
to in Section 8.02). All calculations made for the purposes of determining
compliance with the terms of Sections 9.11, 9.12, 9.13, 9.14, 9.15, 9.16, 9.17,
9.18, 9.20, 9.21 and 9.22 shall, except as otherwise expressly provided herein,
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 Lenders pursuant to Section 9.01 (or referred to in
Section 8.02) unless (i) the Borrower shall have objected to determining such
compliance on such basis at the time of delivery of such financial statements
or (ii) the Majority Lenders 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.
(c) The Borrower shall deliver to the Administrative Agent,
with sufficient copies for delivery to the Lenders, contemporaneously with
delivery of any annual or quarterly financial statement under Section 9.01 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 accordance with the
last sentence of subsection (b) above, and reasonable estimates of the
difference between such statements arising as a consequence thereof.
ARTICLE II
Credits
SECTION 2.01. Commitments. Each Lender severally agrees, on
the terms and subject to the conditions of this Agreement and relying upon the
representations and warranties herein set forth, to make Loans to the Borrower
from time to time during the period from and including the date hereof to but
not including the earlier of the Maturity Date and the termination of the
Commitment of such Lender in accordance with the terms hereof in an aggregate
principal amount at any time outstanding that will not result in (a) the
aggregate Credit Exposure exceeding the Total Commitment then in effect or (b)
the sum of such Lender's Credit Exposure exceeding such Lender's Commitment.
Subject to the terms and conditions of this Agreement, during such period the
Borrower may borrow, pay or repay and reborrow Loans.
SECTION 2.02. Loans. (a) Each Loan shall be made as part of
a Borrowing consisting of Loans made by the Lenders ratably in accordance with
their respective Commitments. The Loans comprising any Borrowing shall be in
an aggregate principal amount that is (i) an integral multiple of $1,000,000
and not less than $5,000,000 or (ii) equal to the remaining available balance
of the applicable Commitments.
<PAGE> 21
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(b) Subject to Sections 5.02 and 5.03, each Borrowing shall
be comprised entirely of ABR Loans or Eurodollar Loans as the Borrower may
request pursuant to Section 2.03. Each Lender may at its option make any
Eurodollar Loan by causing any domestic or foreign branch or Affiliate of such
Lender to make such Loan; provided that any exercise of such option shall not
affect the obligation of the Borrower to repay such Loan in accordance with the
terms of this Agreement. Borrowings of more than one Type may be outstanding
at the same time; provided, however, that the Borrower shall not be entitled to
request any Borrowing that, if made, would result in more than ten Eurodollar
Borrowings outstanding hereunder at any time. For purposes of the foregoing,
Borrowings having different Interest Periods, regardless of whether they
commence on the same date, shall be considered separate Borrowings.
(c) Each Lender shall make each Loan to be made by it
hereunder on the proposed date thereof by wire transfer of immediately
available funds to such account set forth in Section 4.01(a) or to such other
account in New York City as the Administrative Agent may designate not later
than 12:00 noon, New York City time, and the Administrative Agent shall by 3:00
p.m., New York City time, credit the amounts so received to an account in the
name of the Borrower, maintained with the Administrative Agent and designated
by the Borrower in the applicable Borrowing Request or, if a Borrowing shall
not occur on such date because any condition precedent herein specified shall
not have been met, return the amounts so received to the respective Lenders.
(d) Notwithstanding any other provision of this Agreement,
the Borrower shall not be entitled to request any Eurodollar Borrowing if the
Interest Period requested with respect thereto would end after the Maturity
Date. The Interest Period for any ABR Borrowing shall in no event extend
beyond the Maturity Date.
SECTION 2.03. Borrowing Procedure. In order to request a
Borrowing, the Borrower shall hand deliver or telecopy (or request by
telephone, which telephonic Borrowing Request shall be irrevocable and shall be
confirmed promptly by hand delivery or telecopy) to the Administrative Agent a
duly completed Borrowing Request (a) in the case of a Eurodollar Borrowing, not
later than 11:00 a.m., New York City time, three Business Days before a
proposed Borrowing, and (b) in the case of an ABR Borrowing, not later than
10:00 a.m., New York City time, one Business Day before a proposed Borrowing.
Each Borrowing Request shall be irrevocable, shall be signed by or on behalf of
the Borrower and shall specify the following information: (i) whether the
Borrowing then being requested is to be a Eurodollar Borrowing or an ABR
Borrowing; (ii) the date of such Borrowing (which shall be a Business Day);
(iii) the number and location of the account to which funds are to be disbursed
(which shall be an account that complies with the requirements of Section
2.02(c)); (iv) the amount of such Borrowing; and (v) if such Borrowing is to be
a Eurodollar Borrowing, the Interest Period with respect thereto; provided,
however, that, notwithstanding any contrary specification in any Borrowing
Request, each requested Borrowing shall comply with the requirements set forth
in Section 2.02 and this Section. If no election as to the Type of Borrowing
is specified in any such notice, then the requested Borrowing shall be an ABR
Borrowing. If no Interest Period with respect to any Eurodollar Borrowing is
specified in any such notice, then the Borrower shall be deemed to have
selected an Interest Period of one month's duration. The Administrative Agent
shall promptly advise the Lenders of any notice given pursuant to this Section
2.03 (and the contents thereof), and of each Lender's portion of the requested
Borrowing.
<PAGE> 22
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SECTION 2.04. Termination and Reduction of Commitments. (a)
The Commitments shall be automatically terminated on the Maturity Date if not
terminated earlier pursuant to the terms of this Agreement.
(b) Upon at least three Business Days' prior irrevocable
written or telecopy notice to the Administrative Agent, the Borrower may at any
time in whole permanently terminate, or from time to time in part permanently
reduce, the Commitments; provided, however, that (i) each partial reduction of
the Commitments shall be in an integral multiple of $1,000,000 and in a minimum
amount of $5,000,000 and (ii) no such termination or reduction shall be made
(A) which would reduce the Total Commitment to an amount that is less than
aggregate Credit Exposure at the time or (B) which would reduce any Lender's
Commitment to an amount that is less than such Lender's Credit Exposure.
(c) Each reduction in the Commitments hereunder shall be made
ratably among the Lenders in accordance with their respective Commitments. The
Borrower shall pay to the Administrative Agent for the account of the
applicable Lenders, on the date of each termination, the Commitment Fees on the
amount of the Commitments so terminated accrued to but excluding the date of
such termination.
SECTION 2.05. Fees. (a) Commitment Fee. The Borrower
agrees to pay to each Lender, through the Administrative Agent, on the last day
of March, June, September and December of each year and on each date on which
the Commitment of such Lender shall expire or be terminated as provided herein,
a commitment fee (a "Commitment Fee") equal to the applicable Commitment Fee
Percentage (as set forth in the definition of Applicable Margin) per annum on
the average daily unused amount of the Commitment of such Lender during the
preceding Fiscal Quarter (or other period commencing with the date hereof or
ending with the Maturity Date or the date on which the Commitments of such
Lender shall expire or be terminated). The Administrative Agent shall
calculate the aggregate amount of Commitment Fees in respect of such Fiscal
Quarter (or shorter period) by applying the applicable Commitment Fee
Percentage in effect on each day during such period to the average daily unused
amount of the Commitments on each such day. All Commitment Fees shall be
computed on the basis of the actual number of days elapsed in a year of 360
days. The Commitment Fee due to each Lender shall commence to accrue on the
date hereof and shall cease to accrue on the date on which the Commitment of
such Lender shall be terminated as provided herein.
(b) L/C Participation Fee. The Borrower agrees to pay to
each Lender, through the Administrative Agent, on the last day of March, June,
September and December of each year and on each date on which the Commitment of
such Lender shall expire or be terminated as provided herein, a fee (the "L/C
Participation Fee") calculated on such Lender's Pro Rata Percentage of the
average daily aggregate undrawn amount of all outstanding Letters of Credit
during the preceding Fiscal Quarter (or shorter period commencing with the
Effective Date and ending with the Maturity Date or the date on which all
Letters of Credit have been canceled or have expired and the Commitments shall
have been terminated) at a rate equal to (i) 3/8 of 1% per annum if the Total
Debt Ratio is less than 3:1 and (ii) 40% of the Applicable Margin for
Eurodollar Loans if the Total Debt Ratio is greater than or equal to 3:1. All
L/C Participation Fees shall be computed on the basis of the actual number of
days elapsed in a year of 360 days.
(c) Fronting Fee, etc. The Borrower agrees to pay to the
Issuing Bank a fronting fee (the "Fronting Fee"), and the customary issuance,
amendment, administrative and drawing fees, as agreed upon in writing by the
Borrower and the Issuing Bank.
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All Fees and all other fees agreed upon by the Borrower and
the Administrative Agent or the Issuing Bank shall be paid on the dates due, in
immediately available funds, to the Administrative Agent for distribution, if
and as appropriate, among the Lenders. Once paid, none of the Fees or other
fees shall be refundable under any circumstances.
SECTION 2.06. Lending Offices. The Loans made by each Lender
shall be made and maintained at such Lender's Applicable Lending Office for
Loans of such Type.
SECTION 2.07. Several Obligations; Remedies Independent. The
failure of any Lender to make any Loan to be made by it on the date specified
therefor shall not in itself relieve any other Lender of its obligation to make
its Loan on such date, but no Lender shall be responsible for the failure of
any other Lender to make a Loan required to be made by such other Lender. The
amounts payable by any Credit Party at any time hereunder and under any other
Loan Document to each Lender shall be a separate and independent debt and each
Lender shall be entitled to protect and enforce its rights arising out of this
Agreement and the other Loan Documents, and it shall not be necessary for any
other Lender, the Administrative Agent, the Collateral Agent or the Issuing
Bank to consent to, or be joined as an additional party in, any proceedings for
such purposes.
SECTION 2.08. Evidence of Debt. (a) The Loans made by each
Lender shall be evidenced by a single promissory note of the Borrower in
substantially the form of Exhibit B, dated the date of this Agreement, payable
to the order of such Lender in a principal amount equal to the amount of its
Commitment and otherwise duly completed. Each Loan made by each Lender, and
all payments and prepayments made on account of the principal thereof and
interest thereon, and all conversions of such Loans, shall be recorded by such
Lender in accordance with its usual practice and, prior to any transfer of the
Note held by it, endorsed by such Lender on the schedule attached to such Note
or any continuation thereof; provided that no failure by any Lender to make
such recording or endorsement (or any error in such recording or endorsement)
shall affect the obligations of any Credit Party under this Agreement or any
other Loan Document to such Lender or the holder of such Note.
(b) Each Lender shall be entitled to have its Note subdivided
or reissued in connection with an assignment of all or any portion of its
Commitment, Loans and Note pursuant to Section 12.06(b).
(c) The Administrative Agent shall maintain accounts in which
it will record (i) the amount of each Loan made hereunder, the Type thereof,
the Interest Period applicable thereto and all conversions of such Loans, (ii)
the amount of any principal or interest due and payable or to become due and
payable from the Borrower to each Lender hereunder and (iii) the amount of any
sum received by the Administrative Agent hereunder from any Credit Party and
each Lender's share thereof.
(d) The entries made in the accounts maintained pursuant to
paragraphs (b) and (c) above shall be prima facie evidence of the existence and
amounts of the obligations therein recorded; provided, however, that the
failure of any Lender or the Administrative Agent to maintain such accounts or
any error therein shall not in any manner affect the obligations of the
Borrower to repay the Loans in accordance with their terms.
SECTION 2.09. Prepayments. (a) The Borrower shall have the
right at any time and from time to time to prepay any Borrowing, in whole or in
part, (i) in the case of a Eurodollar Borrowing, upon at least three Business
Days' prior written or telecopy notice to the Administrative
<PAGE> 24
19
Agent before 11:00 a.m., New York City time or (ii) in the case of an ABR
Borrowing, upon at least one Business Day's prior written or telecopy notice to
the Administrative Agent before 10:00 a.m., New York City time; provided,
however, that each partial prepayment shall be in an amount that is an integral
multiple of $1,000,000 and not less than $5,000,000.
(b) In the event of any termination of all the Commitments,
the Borrower shall repay or prepay all its outstanding Borrowings on the date
of such termination. In the event of any partial reduction of the Commitments,
then (i) at or prior to the effective date of such reduction or termination,
the Administrative Agent shall notify the Borrower and the Lenders of the
Credit Exposure after giving effect thereto and (ii) if the aggregate Credit
Exposure would exceed the Total Commitment after giving effect to such
reduction or termination, then the Borrower shall, on the date of such
reduction or termination, repay or prepay Borrowings in an amount sufficient to
eliminate such excess.
(c) Each notice of prepayment shall specify the prepayment
date and the principal amount of each Borrowing (or portion thereof) to be
prepaid, shall be irrevocable and shall commit the Borrower to prepay such
Borrowing by the amount stated therein on the date stated therein. All
prepayments under this Section 2.09 shall be subject to Section 5.04, but
otherwise without premium or penalty. All prepayments under this Section 2.09
shall be accompanied by accrued interest on the principal amount being prepaid
to the date of payment.
SECTION 2.10. Conversion and Continuation of Borrowings. (a)
The Borrower shall have the right at any time upon prior irrevocable notice to
the Administrative Agent (i) not later than 10:00 a.m., New York City time, one
Business Day prior to conversion, to convert any Eurodollar Borrowing into an
ABR Borrowing, (ii) not later than 11:00 a.m., New York City time, three
Business Days prior to conversion or continuation, to convert any ABR Borrowing
into a Eurodollar Borrowing or to continue any Eurodollar Borrowing as a
Eurodollar Borrowing for an additional Interest Period, and (c) not later than
11:00 a.m., New York City time, three Business Days prior to conversion, to
convert the Interest Period with respect to any Eurodollar Borrowing to another
permissible Interest Period, subject in each case to the following:
(A) each conversion or continuation shall be made pro rata
among the Lenders in accordance with the respective principal amounts
of the Loans comprising the converted or continued Borrowing;
(B) if less than all the outstanding principal amount of any
Borrowing shall be converted or continued, then each resulting
Borrowing shall satisfy the limitations specified in Sections 2.02(a)
and 2.02(b) regarding the principal amount and maximum number of
Borrowings of the relevant Type;
(C) each conversion shall be effected by each Lender and the
Administrative Agent by recording for the account of such Lender the
new Loan of such Lender resulting from such conversion and reducing
the Loan (or portion thereof) of such Lender being converted by an
equivalent principal amount; accrued interest on any Eurodollar Loan
(or portion thereof) being converted shall be paid by the Borrower at
the time of conversion;
<PAGE> 25
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(D) if any Eurodollar Borrowing is converted at a time other
than the end of the Interest Period applicable thereto, the Borrower
shall pay, upon demand, any amounts due to the Lenders pursuant to
Section 5.04;
(E) any portion of a Borrowing maturing or required to be
repaid in less than one month may not be converted into or, except
during the month prior to the termination of the Commitments and
subject to availability, continued as a Eurodollar Borrowing; and
(F) any portion of a Eurodollar Borrowing that cannot be
converted into or continued as a Eurodollar Borrowing by reason of the
immediately preceding clause shall be automatically converted at the
end of the Interest Period in effect for such Borrowing into an ABR
Borrowing; and
(G) after the occurrence and during the continuance of an
Event of Default, no outstanding Loan may be continued as or converted
into a Eurodollar Loan.
(b) Each notice pursuant to this Section 2.10 shall be
irrevocable and shall refer to this Agreement and specify (i) the identity and
amount of the Borrowing that the Borrower requests be converted or continued,
(ii) whether such Borrowing is to be converted to or continued as a Eurodollar
Borrowing or an ABR Borrowing, (iii) if such notice requests a conversion, the
date of such conversion (which shall be a Business Day) and (iv) if such
Borrowing is to be converted to or continued as a Eurodollar Borrowing, the
Interest Period with respect thereto. If no Interest Period is specified in
any such notice with respect to any conversion to or continuation as a
Eurodollar Borrowing, the Borrower shall be deemed to have selected an Interest
Period of one month's duration. The Administrative Agent shall promptly advise
the Lenders of any notice given pursuant to this Section 2.10 (and the contents
thereof) and of each Lender's portion of any converted or continued Borrowing.
If the Borrower shall not have given notice in accordance with this Section
2.10 to continue any Borrowing into a subsequent Interest Period (and shall not
otherwise have given notice in accordance with this Section 2.10 to convert
such Borrowing), such Borrowing shall, at the end of the Interest Period
applicable thereto (unless repaid pursuant to the terms hereof), automatically
be continued into a new Interest Period as an ABR Borrowing.
SECTION 2.11 Letters of Credit. (a) General. The Borrower
may request the issuance of a Letter of Credit for its own account, in a form
reasonably acceptable to the Administrative Agent and the Issuing Bank, at any
time and from time to time while the Commitments remain in effect. The Issuing
Bank agrees, subject to the terms and conditions set forth herein, to issue
Letters of Credit requested by the Borrower in an aggregate amount at any time
outstanding not to exceed the amount of its L/C Commitment. This Section shall
not be construed to impose an obligation upon the Issuing Bank to issue any
Letter of Credit that is inconsistent with the terms and conditions of this
Agreement. In the event of any inconsistency between the terms and conditions
of this Agreement and the terms and conditions of any form of letter of credit
application or other agreement submitted by the Borrower to, or entered into by
the Borrower with, the Issuing Bank relating to any Letter of Credit, the terms
and conditions of this Agreement shall control.
(b) Notice of Issuance, Amendment, Renewal, Extension;
Certain Conditions. In order to request the issuance of a Letter of Credit (or
the amendment, renewal or extension of an outstanding Letter of Credit), the
Borrower shall hand deliver or telecopy to the Issuing Bank and the
Administrative Agent (reasonably in advance of the requested date of issuance,
amendment, renewal or
<PAGE> 26
21
extension) a notice requesting the issuance of a Letter of Credit, or
identifying the Letter of Credit to be amended, renewed or extended, the date
of issuance, amendment, renewal or extension, the date on which such Letter of
Credit is to expire (which shall comply with paragraph (c) below), the amount
of such Letter of Credit, the name and address of the beneficiary thereof and
such other information as shall be necessary to prepare, amend, renew or extend
such Letter of Credit. If requested by the Issuing Bank, the Borrower also
shall submit a letter of credit application on the Issuing Bank's standard form
in connection with any request for a Letter of Credit. A Letter of Credit
shall be issued, amended, renewed or extended only if (and upon issuance,
amendment, renewal or extension of each Letter of Credit the Borrower shall be
deemed to represent and warrant that), after giving effect to such issuance,
amendment, renewal or extension (A) the L/C Exposure shall not exceed
$25,000,000, and (B) the aggregate Credit Exposure shall not exceed the Total
Commitment. Upon request of any Lender, the Administrative Agent shall provide
to such Lender the amount and expiration date of any outstanding Letter of
Credit.
(c) Expiration Date. Each Letter of Credit shall expire at
the close of business on the earlier of (i) the date one year after the date of
the issuance of such Letter of Credit (or, in the case of any renewal or
extension thereof, one year after such renewal or extension) and (ii) the date
that is five Business Days prior to the Maturity Date, unless such Letter of
Credit expires by its terms on an earlier date.
(d) Participations. By the issuance of a Letter of Credit
(or any amendment to a Letter of Credit increasing the amount thereof) and
without any further action on the part of the Issuing Bank or the Lenders, the
Issuing Bank hereby grants to each Lender, and each such Lender hereby acquires
from the Issuing Bank, a participation in such Letter of Credit and any related
Letter of Credit application equal to such Lender's Pro Rata Percentage from
time to time of the aggregate amount available to be drawn under such Letter of
Credit. In consideration and in furtherance of the foregoing, each Lender
hereby absolutely and unconditionally agrees to pay to the Administrative
Agent, for the account of the Issuing Bank, such Lender's Pro Rata Percentage
of each L/C Disbursement made by the Issuing Bank and not reimbursed by the
Borrower on the date due as provided in paragraph (e) below, or of any
reimbursement payment required to be refunded to the Borrower for any reason.
Each Lender acknowledges and agrees that its obligation to acquire
participations pursuant to this paragraph in respect of Letters of Credit is
absolute and unconditional and shall not be affected by any circumstance
whatsoever, including any amendment, renewal or extension (provided that such
amendment, renewal or extension complies with this Section 2.11) of any Letter
of Credit or the occurrence and continuance of a Default or reduction or
termination of the Commitments, and that each such payment shall be made
without any offset, abatement, withholding or reduction whatsoever.
(e) Reimbursement. If the Issuing Bank shall make any L/C
Disbursement in respect of a Letter of Credit, the Borrower shall reimburse
such L/C Disbursement by paying to the Administrative Agent, for the account of
the Issuing Bank, an amount equal to such L/C Disbursement not later than 5:00
p.m., New York City time, on the date that such L/C Disbursement is made or, if
the Borrower shall not have received notice of such L/C Disbursement prior to
12:00 noon, New York City time, on the Business Day immediately following the
day that the Borrower receives such notice. If the Borrower shall fail to pay
any amount required to be paid under this paragraph on or prior to the time
specified in the preceding sentence, then (i) such unpaid amount shall bear
interest, for each day from and including the date specified for payment of
such L/C Disbursement in the preceding sentence, to but excluding the date of
payment, at a rate per annum equal to the interest rate applicable to
<PAGE> 27
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overdue ABR Loans pursuant to Section 3.02(c), (ii) the Administrative Agent
shall promptly notify the Issuing Bank and the Lenders thereof, (iii) each
Lender shall comply with its obligation under paragraph (d) above by wire
transfer of immediately available funds, in the same manner as provided in
Section 2.02(c) with respect to Loans made by such Lender (and Section 2.02(c)
shall apply, mutatis mutandis, to the payment obligations of the Lenders) and
(iv) the Administrative Agent shall promptly pay to the Issuing Bank amounts so
received by it from the Lenders. The Administrative Agent shall promptly pay
to the Issuing Bank any amounts received by it from the Borrower pursuant to
this paragraph prior to the time that any Lender makes any payment pursuant to
paragraph (d) above; any such amounts received by the Administrative Agent
thereafter shall be promptly remitted by the Administrative Agent to the
Lenders that shall have made such payments and to the Issuing Bank, as their
interests may appear. Any payment made by a Lender pursuant to this paragraph
to reimburse the Issuing Bank for any L/C Disbursement shall not constitute a
Loan and shall not relieve the Borrower of its obligation to reimburse such L/C
Disbursement.
(f) Obligations Absolute. The Borrower's obligations to
reimburse L/C Disbursements as provided in paragraph (e) above shall be
absolute, unconditional and irrevocable, and shall be performed strictly in
accordance with the terms of this Agreement, under any and all circumstances
whatsoever, and irrespective of:
(i) any lack of validity or enforceability of any Letter of
Credit or any other Loan Document, or any term or provision therein;
(ii) any amendment or waiver of or any consent to departure
from all or any of the provisions of any Letter of Credit or any other
Loan Document;
(iii) the existence of any claim, setoff, defense or other
right that the Borrower, any other party guaranteeing, or otherwise
obligated with, the Borrower, any Subsidiary or other Affiliate
thereof or any other Person may at any time have against the
beneficiary under any Letter of Credit, the Issuing Bank, the
Administrative Agent, the Collateral Agent or any Lender or any other
Person, whether in connection with this Agreement, any other Loan
Document or any other related or unrelated agreement or transaction;
(iv) any draft or 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;
(v) payment by the Issuing Bank under a Letter of Credit
against presentation of a draft or other document that does not comply
with the terms of such Letter of Credit; and
(vi) any other act or omission to act or delay of any kind of
the Issuing Bank, the Lenders, the Administrative Agent, the
Collateral Agent or any other Person or any other event or
circumstance whatsoever, whether or not similar to any of the
foregoing, that might, but for the provisions of this Section,
constitute a legal or equitable discharge of the Borrower's
obligations hereunder.
Without limiting the generality of the foregoing, it is
expressly understood and agreed that the absolute and unconditional obligation
of the Borrower hereunder to reimburse L/C Disbursements will not be excused by
the gross negligence or wilful misconduct of the Issuing Bank.
<PAGE> 28
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However, the foregoing shall not be construed to excuse the Issuing Bank from
liability to the Borrower to the extent of any direct damages (as opposed to
consequential damages, claims in respect of which are hereby waived by the
Borrower to the extent permitted by applicable law) suffered by the Borrower
that are caused by the Issuing Bank's gross negligence or wilful misconduct in
determining whether drafts and other documents presented under a Letter of
Credit comply with the terms thereof. It is understood that the Issuing Bank
may accept documents that appear on their face to be in substantial compliance
with the terms of such Letter of Credit, without responsibility for further
investigation, regardless of any notice or information to the contrary and, may
make payment upon presentation of documents that appear on their face to be in
substantial compliance with the terms of such Letter of Credit; provided that
the Issuing Bank shall have the right in its sole discretion to decline to
accept such documents and to make such payment if such documents are not in
strict compliance with the terms of such Letter of Credit. In making any
payment under any Letter of Credit, the Issuing Bank's exclusive reliance on
the documents presented to it under such Letter of Credit as to any and all
matters set forth therein, including reliance on the amount of any draft
presented under such Letter of Credit, whether or not the amount due to the
beneficiary thereunder equals the amount of such draft and whether or not any
document presented pursuant to such Letter of Credit proves to be insufficient
in any respect, if such document on its face appears to be in substantial
compliance with the terms of such Letter of Credit, and whether or not any
other statement or any other document presented pursuant to such Letter of
Credit proves to be forged or invalid or any statement therein proves to be
inaccurate or untrue in any respect shall, in each case, be deemed not to
constitute wilful misconduct or gross negligence of the Issuing Bank.
(g) Disbursement Procedures. The Issuing Bank shall,
promptly following its receipt thereof, examine all documents purporting to
represent a demand for payment under a Letter of Credit. The Issuing Bank
shall also as promptly as possible give telephonic notification, confirmed by
telecopy, to the Administrative Agent and the Borrower of such demand for
payment and whether the Issuing Bank has made or will make an L/C Disbursement
thereunder; provided that any failure to give or delay in giving such notice
shall not relieve the Borrower of its obligation to reimburse the Issuing Bank
and the Lenders with respect to any such L/C Disbursement. The Administrative
Agent shall promptly give each Lender notice thereof.
(h) Interim Interest. If the Issuing Bank shall make any L/C
Disbursement, then, unless the Borrower shall reimburse such L/C Disbursement
in full on the date such L/C Disbursement is made, the unpaid amount thereof
shall bear interest, for each day from and including the date such L/C
Disbursement is made to but excluding the date that the Borrower reimburses
such L/C Disbursement, at the rate per annum then applicable to ABR Loans;
provided that, if the Borrower fails to reimburse such L/C Disbursement when
due pursuant to paragraph (e) of this Section, then Section 3.02(c) shall
apply. Interest accrued pursuant to this paragraph shall be for the account of
the Issuing Bank, except that interest accrued on and after the date of payment
by any Lender pursuant to paragraph (e) of this Section to reimburse the
Issuing Bank shall be for the account of such Lender to the extent of such
payment.
(i) Resignation of Issuing Bank. The Issuing Bank may resign
at any time by giving 60 days' prior written notice to the Administrative
Agent, the Lenders and the Borrower. Subject to the next succeeding paragraph,
upon the acceptance of any appointment as the Issuing Bank hereunder by a
successor Issuing Bank, such successor shall succeed to and become vested with
all the interests, rights and obligations of the retiring Issuing Bank and the
retiring Issuing Bank shall be discharged from its obligations to issue
additional Letters of Credit hereunder. At the time such removal or
<PAGE> 29
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resignation shall become effective, the Borrower shall pay all accrued and
unpaid fees owed to the Issuing Bank pursuant to Sections 2.05(b) and (c). The
acceptance of any appointment as the Issuing Bank hereunder by a successor
Lender shall be evidenced by a written agreement entered into by such
successor, and, from and after the effective date of such agreement, (i) such
successor Issuing Bank shall have all the rights and obligations of the
previous Issuing Bank under this Agreement and the other Loan Documents and
(ii) references herein and in the other Loan Documents to the term "Issuing
Bank" shall be deemed to refer to such successor or to any previous Issuing
Bank, or to such successor and all previous Issuing Banks, as the context shall
require. After the resignation or removal of a Issuing Bank hereunder, the
retiring Issuing Bank shall remain a party hereto and shall continue to have
all the rights and obligations of a Issuing Bank under this Agreement and the
other Loan Documents with respect to Letters of Credit issued by it prior to
such resignation or removal, but shall not be required to issue additional
Letters of Credit.
(j) Cash Collateralization. If any Event of Default shall
occur and be continuing, the Borrower shall, on the Business Day it receives
notice from the Administrative Agent or the Majority Lenders (or, if the
maturity of the Loans has been accelerated, Lenders with L/C Exposure
representing greater than 50% of the total L/C Exposure) demanding the deposit
of cash collateral pursuant to this paragraph, deposit in an account with the
Administrative Agent, for the benefit of the Lenders, an amount in cash equal
to 105% of the L/C Exposure as of such date; provided that such deposit shall
become due and payable automatically, without demand or other notice of any
kind, upon any Event of Default with respects to the Borrower described in
clause (e), (f) or (g) of Article X. The Borrower hereby grants to the
Collateral Agent, for the benefit of the Secured Parties, a first priority
security interest in such cash, account and proceeds thereof, as additional
security to the payment of the Obligations. Such deposit shall be held by the
Administrative Agent as collateral for the payment and performance of the
Obligations. The Administrative Agent shall have exclusive dominion and
control, including the exclusive right of withdrawal, over such account and any
balances therein. Other than any interest earned on the investment of such
deposits in cash or cash equivalents, which investments shall be made at the
option and sole discretion of the Administrative Agent, such deposits shall not
bear interest. Interest or profits, if any, on such investments shall
accumulate in such account. Moneys in such account shall (i) be applied by the
Administrative Agent to reimburse the Issuing Banks for L/C Disbursements from
time to time for which they shall not have been reimbursed in accordance with
paragraph (e) above, (ii) be held for the satisfaction of the portion of the
reimbursement obligations of the Borrower for the L/C Exposure at such time and
(iii) if the maturity of the Loans has been accelerated (but subject to the
consent of Lenders with L/C Exposure representing greater than 50% of the total
L/C Exposure), be applied to satisfy the Obligations. If the Borrower is
required to provide an amount of cash collateral hereunder as a result of the
occurrence and continuance of an Event of Default, such amount (to the extent
not applied as aforesaid) shall be returned to the persons depositing the same
within three Business Days after all Events of Default have been cured or
waived.
(k) Termination or Reduction of L/C Commitment. The Borrower
may permanently terminate, or from time to time in part permanently reduce, the
L/C Commitment, in each case upon at least one Business Day's prior written or
telecopy irrevocable notice to the Administrative Agent and the Issuing Bank;
provided that, after giving effect to such termination or reduction, the
aggregate L/C Commitment shall not be less than the L/C Exposure at such time.
<PAGE> 30
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ARTICLE III
Payments of Principal and Interest
SECTION 3.01. Repayment of Loans. The Borrower hereby
unconditionally promises to pay to the Administrative Agent for the account of
each Lender the principal amount then outstanding of all Loans of such Lender
on the Maturity Date.
SECTION 3.02. Interest. The Borrower shall pay to the
Administrative Agent for account of each Lender interest on the unpaid
principal amount of each Loan made by such Lender for the period commencing on
the date of such Loan to but excluding the date such Loan shall be paid in
full, at the following rates per annum and at the following times:
(a) Subject to the provisions of clause (c) below, during
such periods as such Borrowing is a Eurodollar Borrowing, for each
Interest Period relating thereto, the Adjusted LIBO Rate (computed on
the basis of the actual number of days elapsed over a year of 360
days) for such Borrowing for such Interest Period plus the Applicable
Margin in effect for each day during such Interest Period.
(b) Subject to the provisions of clause (c) below, during
such periods as such Borrowing is an ABR Borrowing, the Alternate Base
Rate (computed on the basis of the actual number of days elapsed over
a year of 365 or 366 days, as the case may be, for periods during
which the Alternate Base Rate is determined by reference to the Prime
Rate and 360 days for other periods) plus the Applicable Margin in
effect for each day during such Borrowing.
(c) Notwithstanding the foregoing, at any time during the
period commencing on the date on which any Obligation is not paid in
cash in full when due (whether at stated maturity, by acceleration or
otherwise) and ending on the date on which all such overdue
Obligations are paid in cash in full, the Borrower shall pay to the
Administrative Agent for account of each Lender interest on the
principal of all Loans and (to the fullest extent permitted by law) on
any unpaid interest or any other amount payable by the Borrower
hereunder or under any other Loan Document held by such Lender at the
Post-Default Rate.
(d) Accrued interest on each Loan shall be payable (i) on
each Interest Payment Date for such Loan and (ii) in any case, on the
date on which any principal amount thereof is paid or prepaid or
converted to a Loan of another type on the portion thereof being so
paid, prepaid or converted, except that interest on any principal,
interest or other amount payable at the Post-Default Rate shall be
payable from time to time on demand. The applicable Alternate Base
Rate or Adjusted LIBO Rate for each Interest Period or day within an
Interest Period, as the case may be, shall be determined by the
Administrative Agent, and such determination shall be conclusive
absent manifest error.
(e) If the Borrower shall fail to timely deliver a Total Debt
Ratio Notice in respect of any four-Fiscal Quarter period in
accordance with Section 9.01(g), and it transpires that the Total Debt
Ratio has changed from that which was in effect with respect to the
previous four-Fiscal Quarter period such that any interest rate or
Commitment Fee hereunder would increase, the Borrower agrees that the
interest rate on the Loans shall, by operation of the definition of
Applicable Margin, automatically increase on the date such Total Debt
Ratio
<PAGE> 31
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Notice is duly given in accordance with Section 12.02. In addition,
(i) such increase shall be retroactive to the date on which such Total
Debt Ratio Notice should have been delivered in accordance with
Section 9.01(g) and (ii) the incremental interest for the retroactive
period shall be payable on the next date on which interest is payable
under the Loan Documents (or, if no further interest or Commitment Fee
is payable, immediately on demand by the Administrative Agent or any
Lender). If the Borrower shall fail to timely deliver a Total Debt
Ratio Notice in respect of any four-Fiscal Quarter period, and it
transpires that the Total Debt Ratio has changed from that which was
in effect with respect to the previous four-Fiscal Quarter period such
that any interest rate or Commitment Fee hereunder would decrease,
then such decrease shall be effective from the date on which such
Total Debt Ratio Notice is received by the Administrative Agent, and
shall have no retroactive effect.
(f) No provision of this Agreement, any other Loan Document
or any other document delivered in connection herewith or with either
thereof and no transaction contemplated hereby or thereby shall be
construed or shall operate so as to require any Credit Party or any
other Person liable for payment of any of the Obligations to pay
interest in an amount or at a rate greater than the maximum allowed
from time to time by applicable law. Should any interest or other
charges paid by any Credit Party or any such other Person under any
such document result in a computation or earning of interest in excess
of the maximum rate of interest permitted under applicable law in
effect while such interest is being earned, then such excess shall be
and hereby is waived by each Lender and all such excess shall be
automatically credited against and in reduction of the principal
balance of such amounts payable under such documents and any portion
of such excess received by any Lender shall be paid over by such
Lender to such Credit Party or such other Person, as the case may be,
it being the intent of the parties hereto that under no circumstances
shall the Credit Party or such other Person be required to pay
interest in excess of the maximum rate allowed by such applicable law.
ARTICLE IV
Payments; Pro Rata Treatment; Computations, etc.
SECTION 4.01. Payments. (a) Except to the extent otherwise
provided herein, all payments of Obligations shall be made in Dollars, in
immediately available funds and without set-off, counterclaim, defense or
deduction of any kind, to the Administrative Agent at account name: Home
Shopping Network, Inc., Clearing account number 323-5-07530, maintained by the
Administrative Agent, care of Agent Bank Services Group, at its offices at 140
East 45th Street, 29th Floor, New York, New York 10017 (or at such other
account or at such other place or in such other manner as the Administrative
Agent may notify the Borrower and the Lenders from time to time), not later
than 11:00 a.m., New York City time, on the date on which such payment shall
become due (each such payment made after such time on such due date to be
deemed to have been made on the next succeeding Business Day). Any Lender for
whose account any such payment is to be made may (but shall not be obligated
to) debit the amount of any such payment which is not made by such time to any
ordinary deposit account of any Credit Party with such Lender or any affiliate
of such Lender (with subsequent notice to any Credit Party; provided that such
Lender's failure to give such notice shall not affect the validity of such
debit). The appropriate Credit Party shall at the time of making a payment
under this Agreement or any other Loan Document specify to the Administrative
Agent (i) the account from which the payment funds will be transmitted and the
manner and approximate time of such transmission and (ii) the Loans or other
amounts payable by such Credit Party hereunder to which such
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payment shall be applied, and in the event that it shall have failed to
specify, or if an Event of Default shall have occurred and be continuing, the
Administrative Agent may distribute such payment to the Lenders in such manner
as it or the Majority Lenders may deem appropriate, subject to Section 4.02.
(b) Each payment received by the Administrative Agent under
this Agreement or any other Loan Document for account of a Lender shall be paid
promptly to such Lender, in immediately available funds, for account of such
Lender's Applicable Lending Office for the Loan in respect of which such
payment is made.
(c) If the due date of any payment (including principal of or
interest on any Borrowing or any Fees or any other fees or other amounts) to be
made hereunder or under any other Loan Document would otherwise fall on a day
which is not a Business Day, such date shall be extended to the next succeeding
Business Day (and such extension of time shall in such case be included in the
computation of interest, Fees or other fees, if applicable, unless, in the case
of a Eurodollar Borrowing only, such next succeeding Business Day would fall in
the next calendar month, in which case such date shall be changed to the next
preceding Business Day).
SECTION 4.02. Pro Rata Treatment. (a) Except to the extent
otherwise provided herein:
(i) each Borrowing from the Lenders under Section 2.01 shall
be made from the Lenders, each payment of Commitment Fee under Section
2.05 shall be made for account of the Lenders and each termination or
reduction of the amount of the Commitments under Section 2.04 shall be
applied to the Commitments of the Lenders, pro rata according to the
amounts of their respective unused Commitments;
(ii) each conversion of Loans of a particular Type (other than
conversions provided for by Section 5.01) shall be made pro rata among
the Lenders holding Loans of such Type according to the respective
principal amounts of such Loans held by such Lenders; and
(iii) each payment and prepayment by the Borrower of principal
of or interest on Loans of a particular type shall be made to the
Administrative Agent for account of the Lenders holding Loans of such
Type pro rata in accordance with the respective unpaid principal
amounts of such Loans held by such Lenders.
(b) Each Lender agrees that in computing such Lender's
portion of any Borrowing to be made hereunder, the Administrative Agent may, in
its discretion, round each Lender's percentage of such Borrowing to the next
higher or lower whole dollar amount.
SECTION 4.03. Non-Receipt of Funds by the Administrative
Agent. Unless the Administrative Agent shall have been notified by a Lender or
any Credit Party prior to the date on which such Lender or Credit Party is
scheduled to make payment to the Administrative Agent of (in the case of a
Lender) the proceeds of a Loan to be made by it hereunder or (in the case of
any Credit Party) a payment to the Administrative Agent for account of one or
more of the Lenders hereunder (such payment being herein called the "Required
Payment"), which notice shall be effective upon receipt, that it does not
intend to make the Required Payment to the Administrative Agent, the
Administrative Agent may assume that the Required Payment has been made and
may, in reliance upon such assumption (but shall not be required to), make the
amount thereof available to the intended
<PAGE> 33
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recipient or recipients on such date and, if such Lender or such Credit Party,
as the case may be, has not in fact made the Required Payment to the
Administrative Agent, the recipient of such payment shall, on demand, repay to
the Administrative Agent the amount so made available together with interest
thereon in respect of each day during the period commencing on the date such
amount was so made available by the Administrative Agent until the date the
Administrative Agent recovers such amount at (a) in the case of the Borrower,
the interest rate applicable at the time to the Loans comprising such Borrowing
and (b) in the case of such Lender, a rate determined by the Administrative
Agent to represent its cost of overnight or short-term funds (which
determination shall be conclusive absent manifest error). If such Lender shall
repay to the Administrative Agent such corresponding amount, such amount shall
constitute such Lender's Loan as part of such Borrowing for purposes of this
Agreement.
SECTION 4.04. Sharing of Payments, etc. Each Credit Party
agrees that, in addition to (and without limitation of) any right of setoff,
bankers' lien or counterclaim a Lender may otherwise have, each Lender shall be
entitled, at its option, to offset balances held by it in ordinary deposit
accounts of any Credit Party at any of its offices, in Dollars or in any other
currency, against any principal of or interest on any of such Lender's Loans,
or any other amount payable to such Lender hereunder, which is not paid when
due (regardless of whether such balances are then due any Credit Party), in
which case it shall promptly notify the relevant Credit Party and the
Administrative Agent thereof; provided that such Lender's failure to give such
notice shall not affect the validity thereof. Each Lender agrees that, if any
Lender shall obtain payment of any principal of or interest on any Loan or L/C
Exposure made by it to the Borrower, or any other amount payable to such
Lender, under this Agreement through the exercise of any right of setoff,
banker's lien or counterclaim or similar right, and, as a result of such
voluntary or involuntary payment, such Lender shall have received a greater
percentage of the principal, interest or such other amount then due hereunder
by the Borrower to such Lender than the percentage received by any other
Lenders, it shall be deemed simultaneously to have purchased at face value from
such other Lenders participations in (or, if and to the extent specified by
such Lender, direct interests in) the Loans and L/C Exposure made by other
Lenders (or in interest due thereon, as the case may be) in such amounts, and
make such other adjustments from time to time as shall be equitable, to the end
that all the Lenders shall share the benefit of such excess payment (net of any
expenses which may be incurred by such Lender in obtaining or preserving such
excess payment) pro rata in accordance with the unpaid principal and/or
interest on the Loans held by each of the Lenders or such other amount due to
the Lenders hereunder. To such end all the Lenders shall make appropriate
adjustments among themselves (by the resale of participations sold or
otherwise) if such payment is rescinded or must otherwise be restored. Each
Credit Party agrees that any Lender so purchasing a participation (or direct
interest) in the Loans and L/C Exposure made by other Lenders (or in interest
due thereon, as the case may be) may exercise all rights of setoff, bankers'
lien, counterclaim or similar rights with respect to such participation as
fully as if such Lender were a direct holder of Loans in the amount of such
participation. Nothing contained herein shall require any Lender to exercise
any such right or shall affect the right of any Lender to exercise, and retain
the benefits of exercising, any such right with respect to any other
indebtedness or obligation of any Credit Party. If under any applicable
bankruptcy, insolvency or other similar law, any Lender receives a secured
claim in lieu of a setoff to which this Section 4.04 applies, such Lender
shall, to the extent practicable, exercise its rights in respect of such
secured claim in a manner consistent with the rights of the Lenders entitled
under this Section 4.04 to share in the benefits of any recovery on such
secured claim.
<PAGE> 34
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ARTICLE V
Yield Protection and Illegality
SECTION 5.01. Additional Costs. (a) The Borrower shall pay
directly to each Lender or the Issuing Bank, as the case may be, upon demand
from time to time such amounts as the Issuing Bank or such Lender, as the case
may be, may determine to be necessary to compensate it for any costs which the
Issuing Bank or such Lender, as the case may be, determines are attributable to
its issuing, maintaining or participating in any Letter of Credit or its making
or maintaining of any Eurodollar Loans to the Borrower or its obligation to
make any Eurodollar Loans to the Borrower hereunder, or any reduction in any
amount receivable by the Issuing Bank or Lender hereunder in respect of any of
such Loans or Letters of Credit or such obligation (such increases in costs and
reductions in amounts receivable being herein called "Additional Costs"),
resulting from any Regulatory Change which (i) changes the basis of taxation of
any amounts payable to the Issuing Bank or such Lender, as the case may be, by
any Credit Party under this Agreement or any other Loan Document in respect of
any of such Loans (other than changes in respect of taxes imposed on the
overall net income of such Lender or of its Applicable Lending Office for any
of such Loans by the jurisdiction in which such Lender has its principal office
or such Applicable Lending Office) or Letters of Credit; or (ii) imposes,
modifies or deems applicable any reserve, special deposit, minimum capital,
capital ratio or similar requirements relating to any extensions of credit or
other assets of, or any deposits with or other liabilities of, the Issuing Bank
or such Lender, as the case may be, (including any of such Loans or Letters of
Credit or any deposits referred to in the definition of "LIBO Rate"), or the
Commitment of such Lender; or (iii) imposes any other condition affecting this
Agreement or any other Loan Document (or any of such extensions of credit or
liabilities) or the Commitments.
(b) Without limiting the effect of the provisions of Section
5.01(a), in the event that, by reason of any Regulatory Change, any Lender
either (i) incurs Additional Costs based on or measured by the excess above a
specified level of the amount of a category of deposits or other liabilities of
such Lender which includes deposits by reference to which the interest rate on
Eurodollar Loans is determined as provided in this Agreement or a category of
extensions of credit or other assets of such Lender which includes Eurodollar
Loans or (ii) becomes subject to restrictions on the amount of such a category
of liabilities or assets which it may hold, then, if such Lender so elects by
notice to the Borrower, the obligation of such Lender to make, and to convert
ABR Loans into, Eurodollar Loans hereunder shall be suspended until such
Regulatory Change ceases to be in effect (and all Eurodollar Loans held by such
Lender shall be automatically converted into ABR Loans at the end of the then
current Interest Period for each of them, or on such earlier date as such
Lender may specify in writing as being the last permissible date for such
prepayment under applicable law, rules or regulations).
(c) Without limiting the effect of the foregoing provisions
of this Section 5.01 (but without duplication), the Borrower shall pay to the
Issuing Bank and to each Lender from time to time on request such amounts as
the Issuing Bank or such Lender, as the case may be, may determine to be
necessary to compensate the Issuing Bank or such Lender, as the case may be,
for any costs which it determines are attributable to the maintenance by the
Issuing Bank or such Lender (or any Applicable Lending Office), as the case may
be, pursuant to any law or regulation or any interpretation, directive or
request (whether or not having the force of law) of any Governmental Authority,
of capital in respect of the Issuing Bank's or such Lender's Commitment (such
compensation to include an amount equal to any reduction of the rate of return
on assets or equity of the Issuing Bank or such Lender (or
<PAGE> 35
30
any Applicable Lending Office) to a level below that which the Issuing Bank or
such Lender (or any Applicable Lending Office) could have achieved but for such
law, regulation, interpretation, directive or request).
(d) Determinations and allocations by the Issuing Bank and
any Lender for purposes of this Section 5.01 of the effect of any Regulatory
Change pursuant to Section 5.01(a) or (b), or of the effect of capital
maintained pursuant to Section 5.01(c), on its costs or rate of return of
maintaining Loans or Letters of Credit or its obligation to make Loans or
Letters of Credit, or to participate in Letters of Credit, or on amounts
receivable by it in respect of Loans or Letters of Credit, and of the amounts
required to compensate such Lender under this Section 5.01, shall be conclusive
absent manifest error.
(f) A certificate of a Lender or the Issuing Bank, as the
case may be, setting forth the amount or amounts necessary to compensate such
Lender or the Issuing Bank or its holding company as specified in paragraph
(a), (b) or (c) above shall be delivered to the Borrower and shall be
conclusive absent manifest error. The Borrower shall pay such Lender or the
Issuing Bank, as the case may be, the amount shown as due on any such
certificate delivered by it within five days after its receipt of the same.
Notwithstanding the foregoing, no Lender or the Issuing Bank shall have the
right to collect payments from the Borrower pursuant to paragraph (c) of this
Section 5.01 unless it is the policy of the Issuing Bank or such Lender, as the
case may be, at the time of such collection, to collect similar payments from
other borrowers (if any) who are similarly situated as the Borrower, including
with respect to credit standing, in connection with credit facilities similar
to those made available pursuant to this Agreement, where the documents
governing such credit facilities establish the right of such Lender to collect
such payments.
(g) Failure or delay on the part of the Issuing Bank or any
Lender to demand compensation for any increased costs or reduction in amounts
received or receivable or reduction in return on capital shall not constitute a
waiver of the Issuing Bank's or such Lender's right to demand such
compensation. The protection of this Section shall be available to the Issuing
Bank and each Lender regardless of any possible contention of the invalidity or
inapplicability of the law, rule, regulation, agreement, guideline or other
change or condition that shall have occurred or been imposed.
SECTION 5.02. Alternate Rate of Interest. Anything herein to
the contrary notwithstanding, if, on or prior to the determination of any
interest rate for any Eurodollar Borrowing for any Interest Period therefor:
(a) the Administrative Agent determines (which determination
shall be conclusive) that quotations of interest rates for the
deposits referred to in the definition of "LIBO Rate" are not being
provided in the relevant amounts or for the relevant maturities for
purposes of determining rates of interest for such Loans as provided
herein; or
(b) the Administrative Agent or any Lender determines (which
determination shall be conclusive), and so notifies the Administrative
Agent, that the rates of interest referred to in the definition of
"LIBO Rate" upon the basis of which the rate of interest for
Eurodollar Loans for such Interest Period is to be determined do not
adequately and fairly reflect the cost to any Lender of making or
maintaining its Eurodollar Loans for such Interest Period; or
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(c) the Administrative Agent determines (which determination
shall be inclusive) that reasonable means do not exist for
ascertaining the Adjusted LIBO Rate;
then the Administrative Agent shall, as soon as practicable, give the Borrower
notice thereof, and so long as such condition remains in effect, the Lenders
shall be under no obligation to make additional Eurodollar Loans or to convert
ABR Loans into Eurodollar Loans and the Borrower shall, on the last day or days
of the then current Interest Period or Periods for the outstanding Eurodollar
Loans, either repay such Loans as provided in Section 3.01 or convert such
Loans into ABR Loans in accordance with Section 2.10.
SECTION 5.03. Illegality. Notwithstanding any other
provision of this Agreement, in the event that it becomes unlawful for any
Lender or its Applicable Lending Office to honor its obligation to make or
maintain Eurodollar Loans hereunder, then such Lender shall promptly notify the
Administrative Agent and the Borrower and such Lender's obligation to make
Eurodollar Loans shall be suspended until such time (prior to the termination
of the Commitment pursuant to the terms of this Agreement) as such Lender may
again make and maintain Eurodollar Loans and such Lender's outstanding
Eurodollar Loans shall be automatically converted into ABR Loans, as such
Lender may select, at the end of the then current Interest Period for each of
them, or on such earlier date as such Lender may specify in writing as being
the last permissible date for such prepayment under applicable laws, rules or
regulations.
SECTION 5.04. Compensation. The Borrower shall pay to each
Lender, upon the request of such Lender through the Administrative Agent, such
amount or amounts as shall be sufficient (in the reasonable opinion of such
Lender) to compensate it for any loss, cost or expense (including costs arising
from premature termination of such Lender's obligations under any Hedging
Agreement) which such Lender determines are attributable to:
(a) any payment, prepayment or conversion of a Loan for any
reason (including the acceleration of the Loans pursuant to Article X)
on a date other than the last day of an Interest Period for such Loan;
or
(b) any failure by the Borrower for any reason (including the
failure of any of the conditions precedent specified in Article VII to
be satisfied) to borrow or convert into a Eurodollar Loan on the date
for such borrowing or conversion specified in the relevant Borrowing
Request given pursuant to Section 2.03 or notice of conversion given
pursuant to Section 2.10.
Such Lender shall deliver to the Borrower, promptly upon such request, a
certificate setting forth in reasonable detail the basis for calculation of
such amounts, the contents of such certificate being, in the absence of
manifest error therein, conclusive evidence of such amounts; provided that the
failure of such Lender to deliver such certificate shall in no way affect such
Lender's rights to such compensation. The failure of any Lender to request the
compensation provided for in this Section 5.04 in any instance shall not affect
such rights of such Lender in any other instance or of any other such Lender in
any instance.
SECTION 5.05. Taxes. All payments of Obligations (as used in
this Section 5.05, "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,
<PAGE> 37
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collected, withheld or assessed by any jurisdiction or any agency or taxing
authority thereof or therein (as used in this Section 5.05, "Taxes"), all of
which shall be paid by the Borrower for its own account not later than the date
when due. If the Borrower is required by law to deduct or withhold any Taxes
from any Payment, the Borrower 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 such Lender, 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 such Lender of the payment when due of the full
amount of such Taxes; and (d) pay to the respective Lender, forthwith upon any
request by such Lender therefor from time to time, such additional amounts as
may be necessary so that such Lender receives, free and clear of all Taxes, the
full amount of such Payment stated to be due under this Agreement or the Notes
as if no such deduction or withholding had been made.
Each Lender that is not organized under the laws of the United
States or of any political subdivision thereof agrees that it will deliver to
the Borrower on the date of its initial Loan 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 the
Borrower to such Lender under this Agreement or such Note 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.
Each Lender agrees to use reasonable efforts to transfer its
Commitment or Loans to another Applicable Lending Office of such Lender if such
transfer would avoid the need for or mitigate the amount of any deduction or
withholding of Taxes on payments of interest to such Lender under this
Agreement thereafter, but no Lender shall be required to make such transfer if
such Lender determines in its sole discretion that such Lender would suffer any
legal, economic or regulatory disadvantage.
Without limiting the survival of any other provisions of this
Agreement or the Notes, the obligations of the Borrower under this Section,
Section 5.01 and Section 5.04 shall survive the repayment of the Loans and the
Notes.
ARTICLE VI
Guarantee
SECTION 6.01. Unconditional Guarantee. For valuable
consideration, receipt of which is hereby acknowledged, and to induce the
Lenders to make Loans to the Borrower and to induce the Issuing Bank to issue
Letters of Credit, each of the Guarantors hereby, jointly and severally,
unconditionally and irrevocably, guarantees the payment to the Administrative
Agent, the Collateral Agent, the Issuing Bank, the Agent, each of the Lenders,
as a primary obligor and not as a surety, the Obligations, and, in the case of
any extension of time of payment, in whole or in part, that all such
Obligations in cash in full when due (whether at stated maturity, by
acceleration or otherwise) in accordance with the terms hereof or of any such
extension. Each of the Guarantors hereby agrees that the Obligations may be
extended or renewed in whole or in part, without notice to or further assent
from it, and that it will remain bound upon its guarantee obligations hereunder
notwithstanding any such extension or renewal of any Obligation. Each of the
Guarantors hereby unconditionally agrees that upon default in the payment when
due (whether at stated maturity, by acceleration or otherwise) of
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any of such principal, interest or other amounts, the Guarantors shall
forthwith pay and perform the same in Dollars, at the time, in the place and in
the manner provided for such payment in this Agreement, the Notes or other
applicable document.
SECTION 6.02. Validity. Each of the Guarantors hereby agrees
that the guarantee provided by this Article VI 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, any Loan Document or any
other document referred to herein or therein, (b) any rescission, amendment,
modification or waiver of any term or condition of any Loan Document or any
such other document, or any waiver or consent by the Administrative Agent, the
Collateral Agent, the Issuing Bank or any Lender 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 by
the Administrative Agent, the Collateral Agent, the Issuing Agent or any Lender
to assert any claim or demand or to enforce any of such Obligations against the
Borrower or either Guarantor, (f) the recovery of any judgment against the
Borrower 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).
SECTION 6.03. Waivers. Each of the Guarantors hereby waives
any right to require that any resort be had by any Lender to any balance of any
deposit account or credit on the books of any Lender in favor of any Borrower
or any other Person, notice of acceptance of the guarantee provided by this
Article VI, notice of the extension of any credit or financial accommodation,
notice of the making of any Loan or the incurrence of any other Obligations,
demand of payment, filing of claims with a court in the event of bankruptcy of
the Borrower or any other Person, any right to require a proceeding or the
filing of a claim first against the Borrower, 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 Borrower, the Administrative
Agent, the Collateral Agent, the Issuing Bank and each of the Lenders.
SECTION 6.04. Subordination and Subrogation. Each of the
Guarantors hereby subordinates all present and future claims, now held or
hereafter acquired, against the Borrower as a creditor or contributor of
capital, or otherwise, to the prior and final payment in cash in full to the
Lenders of all of the Obligations. If, without reference to the provisions of
this Section 6.04, either of the Guarantors would at any time be or become
entitled to receive any payment on account of any claim against the Borrower,
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 Lenders until all Obligations shall be paid in cash in full. Should either
of the Guarantors receive any such payment, such Guarantor shall receive such
amount in trust for the Administrative Agent, for the benefit of the Lenders,
and shall immediately pay over to the Administrative Agent such amount as
provided in the preceding sentence.
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Anything contained in this Article VI 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 Borrower or other
Affiliates of the Borrower 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 (a) applicable law or
(b) any agreement providing for an equitable allocation among such Guarantor
and other Affiliates of Borrower 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 Borrower, and any rights of
contribution such Guarantor may have against Borrower, 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, the Collateral Agent, the Issuing Bank or the
Lenders may have against such other Guarantor or any such other guarantor.
Each of the Guarantors further agrees that it shall not be entitled to enforce
or receive any payments arising out of, or based upon, such right of
subrogation until all amounts then due and payable by the Borrower hereunder or
under any other Loan Document shall have been paid in full in cash.
SECTION 6.05. Acceleration. Each of the Guarantors agrees
that, as between the Borrower on the one hand, and the Administrative Agent,
the Issuing Bank, the Collateral Agent and the Lenders, on the other hand, the
obligations of the Borrower guaranteed under this Article VI may be declared to
be forthwith due and payable, or may be deemed automatically to have been
accelerated, as provided in Article X for purposes of this Article VI,
notwithstanding any stay, injunction or other prohibition (whether in a
bankruptcy proceeding affecting the Borrower or otherwise) preventing such
declaration as against the Borrower and that, in the event of such declaration
or automatic acceleration, such obligations (whether or not due and payable by
the Borrower) shall forthwith become due and payable by such Guarantor for
purposes of this Article VI.
SECTION 6.06. Reinstatement. Each of the Guarantors
covenants that the guarantee provided by this Article VI 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 Borrower 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 Borrower, such Guarantor or any other Person
(whether upon the insolvency or bankruptcy of the Borrower or either Guarantor
or otherwise), each Guarantor's obligations hereunder shall immediately and
automatically be reinstated as though such payment had not been made.
<PAGE> 40
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ARTICLE VII
Conditions Precedent
SECTION 7.01. Initial Credit Event. The occurrence of the
Effective Date and the obligation of the Lenders to make the initial Loans and
of the Issuing Bank to issue Letters of Credit hereunder are subject to the
receipt by the Administrative Agent, on or before the date hereof, of each of
the following documents, each of which shall be satisfactory in form and
substance to the Administrative Agent, the Collateral Agent and the Issuing
Bank:
(a) Certified copies of the certificate of incorporation and
bylaws of each Credit Party and all corporate action and, if
necessary, stockholder action taken by each Credit Party approving
this Agreement and the other Loan Documents and borrowings by the
Borrower hereunder and the guarantee by the Guarantors hereunder
(including a certificate setting forth the resolutions of the Boards
of Directors of each Credit Party adopted in respect of the
transactions contemplated hereby and thereby);
(b) A certificate of each Credit Party in respect of each of
the officers (i) who is authorized to sign this Agreement and the
other Loan Documents 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 this Agreement,
the other Loan Documents and the transactions contemplated hereby and
thereby. The Administrative Agent, the Collateral Agent, the Issuing
Bank and the Lenders may conclusively rely on such certificate until
such person receives notice in writing from the applicable Credit
Party to the contrary;
(c) Certificates, as of a recent date, from the appropriate
authorities for each jurisdiction in which the Credit Parties are
incorporated or qualified to do business, as to the good standing of
each Credit Party in each such jurisdiction;
(d) A certificate of a senior officer of each Credit Party to
the effect set forth in the first sentence of Section 7.02;
(e) An opinion of Barry S. Augenbraun, General Counsel, and
H. Steven Holtzman, Senior Counsel, to the Credit Parties,
substantially in the form of Exhibit D;
(f) The Total Debt Ratio Notice for the Borrower's
four-Fiscal Quarter period ended June 30, 1996 (or, if the initial
Loans hereunder are made more than 60 days after the end of any
succeeding Fiscal Quarter, for the four-Fiscal Quarter period ended as
of the end of the most recent such succeeding Fiscal Quarter);
(g) The Notes dated the date hereof and duly executed and
delivered by the Borrower to the order of each Lender and otherwise
appropriately completed, bearing the executed guarantee of the
Guarantors;
(h) The Pledge Agreement shall have been duly executed by the
parties thereto and delivered to the Collateral Agent and shall be in
full force and effect, and all the outstanding capital stock of or
equity interests in each Guarantor shall have been duly and validly
pledged
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36
thereunder to the Collateral Agent, for the ratable benefit of the
Secured Parties, and certificates representing such stock or equity
interests, accompanied by undated stock powers endorsed in blank,
shall be in the actual possession of the Collateral Agent;
(i) Counterparts of this Agreement which, when taken
together, bear the signatures of all the parties hereto;
(j) (i) Financial projections for Fiscal Years 1996-9 of the
Borrower and its consolidated Subsidiaries (including the Guarantors),
(ii) the consolidated balance sheet of the Borrower and its
consolidated Subsidiaries (including the Guarantors) as at December
31, 1995, and the related consolidated statements of income, retained
earnings and changes in financial position of the Company and its
consolidated Subsidiaries (including the Guarantors) for the Fiscal
Year ended in such date, audited by and accompanied by an unqualified
opinion of KPMG Peat Marwick LLP, independent auditors, and (iii) in
draft form, the unaudited consolidated balance sheet of the Company
and its consolidated Subsidiaries (including the Guarantors) as at
June 30, 1996, and the related consolidated statements of income,
retained earnings and changes in financial position for the two-Fiscal
Quarter period ended in such date, certified by its chief financial
officer;
(k) A policy or policies of title insurance issued by a
nationally recognized title insurance company insuring the assets and
properties of the Credit Parties;
(l) Evidence satisfactory to the Administrative Agent that
the commitments under the Existing Credit Agreement have been
terminated, all loans and letters of credit (other than the letters of
credit described in Schedule 9.07) thereunder have been repaid or
terminated in full, all accrued interest, fees and other amounts
payable thereunder have been paid in full and all Liens on collateral
thereunder have been released other than as otherwise permitted by
Section 9.05(a) of the Credit Agreement;
(m) Evidence satisfactory to the Administrative Agent that
the commitments under the BNY Facility have been terminated, all
Liens on collateral thereunder have been released (other than those
permitted by Section 9.05(a) or (h)) and all amounts thereunder owing
as of the date hereof have been paid in full (it being understood that
letters of credit listed on Annex II to the Pledge Agreement shall
continue to be outstanding under the BNY Facility until their
respective expiry dates set forth on such Annex II); and
(n) Such other documents as the Administrative Agent or any
Lender may reasonably request including all requisite governmental
approvals and filings, if any.
SECTION 7.02. Initial and Subsequent Credit Events. The
obligation of the Lenders to make each Loan to the Borrower (including the
initial Loans) and of the Issuing Bank to issue Letters of Credit, and the
occurrence of the Effective Date shall be subject to the further conditions
that, as of the date of the making of such Loans and the issuance of such
Letters of Credit and after giving effect thereto (and also as of the Effective
Date):
(a) receipt by the Administrative Agent of a Borrowing Request
as required by Section 2.03 or, in the case of the Issuance of a
Letter of Credit, receipt by the Issuing Bank
<PAGE> 42
37
and Administrative Agent of a notice requesting the issuance of such
Letter of Credit as required by Section 2.11;
(b) no Default or Event of Default shall have occurred and be
continuing;
(c) the representations and warranties made by each Credit
Party in Article VIII, in the other Loan Documents and in any other
certificate or other document delivered in connection herewith or
therewith shall be true in all material respects on and as of the date
of the making of such Loans (and the Effective Date) with the same
force and effect as if made on and as of such date (including that
there shall have occurred no Material Adverse Effect since December
31, 1995, except as disclosed in any SEC report of the Borrower
delivered to the Lenders prior to the date hereof);
(d) the Borrower shall be in compliance with the financial
covenants in this Agreement both before and immediately after the
making of such Loan or the issuance of such Letter of Credit on both
an historical and a pro forma basis; and
(e) the payment of all Fees and expenses then payable pursuant
to Sections 2.05 and 12.03 and all other fees theretofore agreed
between the Borrower and the Administrative Agent or the Issuing Bank.
Each Borrowing made pursuant to Section 2.02 and each issuance of a Letter of
Credit made pursuant to Section 2.11 shall constitute a certification by each
Credit Party as to the circumstances specified in paragraphs (b), (c) and (d)
above (both as of the date of such notice and, unless any Credit Party
otherwise notifies the Administrative Agent prior to the date of such Borrowing
or issuance of a Letter of Credit, as of the date of such credit event).
ARTICLE VIII
Representations and Warranties
Each of the Credit Parties represents and warrants to the
Administrative Agent, the Collateral Agent, the Issuing Bank and the Lenders
that:
SECTION 8.01. Corporate Existence. Each Credit Party and
each of the other Material Subsidiaries (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 9.03; 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.
SECTION 8.02. Financial Condition. The consolidated balance
sheet of the Borrower and its consolidated Subsidiaries (including the
Guarantors) as at December 31, 1995, and the related consolidated statements of
income, retained earnings and changes in financial position of the Borrower and
its consolidated Subsidiaries (including the Guarantors) for the Fiscal Year
ended on such
<PAGE> 43
38
date, audited by and with the opinion thereon of KPMG Peat Marwick LLP, the
independent auditors of the Borrower, and, in draft form, the unaudited
consolidated balance sheet of the Borrower and its consolidated Subsidiaries
(including the Guarantors) as at June 30, 1996, and the related consolidated
statements of income, retained earnings and changes in financial position for
the two-Fiscal Quarter period ended on such date, each of which has been
heretofore furnished to the Administrative Agent and each of the Lenders, are
complete and correct and fairly present the consolidated financial condition of
the Borrower and its consolidated Subsidiaries (including the Guarantors) as at
such dates and the consolidated results of their operations for such Fiscal
Year or period, as the case may be, ended on such dates, all in accordance with
GAAP applied on a consistent basis. Neither the Borrower nor any of its
consolidated Subsidiaries (including the Guarantors) had on either such date
any material contingent liabilities, liabilities for taxes, unusual forward or
long-term commitments or unrealized or anticipated losses from any unfavorable
commitments, except as referred to or reflected or provided for in such balance
sheets as at such dates. Since December 31, 1995, there has been no Material
Adverse Effect except as disclosed in any SEC Report delivered to the Lenders
prior to the date hereof.
SECTION 8.03. Litigation. Except as heretofore disclosed to
the Lenders in writing or in any SEC Report of the Borrower delivered to the
Lenders 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 any Credit
Party) threatened against any such Credit Party or any Subsidiary of any
thereof which, if adversely determined, could have a Material Adverse Effect.
SECTION 8.04. No Breach or Default, etc. Neither the
execution and delivery of each of the Loan Documents, nor the consummation of
the transactions contemplated hereby and thereby, nor the compliance by any
Credit Party with the terms and provisions hereof or thereof will (a) conflict
with or result in a breach of, or constitute (alone or with notice or lapse of
time or both) a default under, or give rise to any right to accelerate or to
require the prepayment, repurchase or redemption of any obligation under, or
require any consent or vote of any Person under, the certificate of
incorporation or bylaws of any Credit Party, or any agreement or instrument to
which any Credit Party or any Subsidiary of any thereof is a party (including
employment and affiliation agreements) or to which it is subject, (b) violate
any applicable law, regulation, order, writ, injunction or decree of any court
or Governmental Authority, 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 any Credit Party or any Subsidiary of
any thereof under any such agreement or instrument.
SECTION 8.05. Corporate Action. The execution, delivery and
performance by each Credit Party of each of the Loan Documents to which it is a
party, and the performance by the Borrower 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 other Loan Documents, when duly executed and
delivered by each Credit Party thereto will constitute, the legal, valid and
binding obligation of each such Credit Party, enforceable against each of them,
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).
<PAGE> 44
39
SECTION 8.06. 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 Credit Party of any of the Loan Documents or for the
validity or enforceability hereof or thereof, or for the consummation of the
transactions contemplated hereby and thereby.
SECTION 8.07. Use of Loans. Neither any Credit Party nor
any Subsidiary of any of them 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 G, T, U or X of the Board) and no part of the
proceeds of any Loan or any Letter of Credit will be used to buy or carry any
margin stock.
SECTION 8.08. ERISA. Each Credit Party and the ERISA
Affiliates have fulfilled its obligations under the minimum funding standards
of ERISA and the Code with respect to each Plan, are in compliance in all
material respects with the presently applicable provisions of ERISA and the
Code and have not incurred any liability to the PBGC or any Plan or
Multiemployer Plan.
SECTION 8.09. Taxes. (a) United States Federal income tax
returns of the Credit Parties and the Subsidiaries have been examined and
closed through Fiscal 1990, have been examined for Fiscal 1991 and 1992, and
are under examination for Fiscal 1993, 1994 and 1995.
(b) Each Credit Party and the Subsidiaries have filed all
United States Federal income tax returns and all other material tax returns
which are required to be filed by it and has paid all taxes due pursuant to
such returns or pursuant to any assessment received by any Credit Party or any
Subsidiary. The charges, accruals and reserves on the books of the Credit
Parties and the Subsidiaries in respect of taxes and other governmental charges
are, in the opinion of each Credit Party, adequate.
SECTION 8.10. Credit Agreements. Schedule 8.10 hereto and
all SEC Reports of the Borrower delivered to the Lenders prior to the date
hereof completely and correctly disclose each credit agreement, loan agreement,
indenture, purchase agreement, guarantee or other arrangement providing for or
otherwise relating to any extension of credit or commitment for any extension
of credit (other than pursuant to any letter of credit excepted from the
definition of Indebtedness herein under paragraph (c) thereof) to, or guarantee
by, any Credit Party or any other Material Subsidiary the aggregate principal
or face amount of which equals or exceeds (or may equal or exceed) $10,000,000
and accurately describes the aggregate principal or face amount outstanding and
which may become outstanding under each thereof.
SECTION 8.11. Ownership of Assets. Each Credit Party and
each other Material Subsidiary has good and marketable title to all assets
reflected on the audited consolidated balance sheet as of December 31, 1995,
referred to in Section 8.02, subject to:
(a) no Liens other than such Liens as are listed on Schedule
9.05, and on any date hereafter, additional Liens permitted by Section
9.05 and either (i) listed in notes to the financial statements
delivered pursuant to Section 9.01(a) or (b) or (ii) otherwise
communicated to the Lenders in writing, and
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40
(b) on any date hereafter, dispositions permitted by Section
9.19 and either (i) described in the financial statements, including
any notes thereto, delivered pursuant to Section 9.01(a) or (b) or
(ii) otherwise communicated to the Lenders in writing.
SECTION 8.12. Pari Passu Obligations. The obligations of
each Credit Party under this Agreement, the Notes and the Letters of Credit
rank and will rank at least pari passu in all respects with all other
unsubordinated Indebtedness of each Credit Party, except for Indebtedness that
is senior solely by operation of applicable law, and except that Indebtedness
of each Credit Party secured as permitted by Section 9.05 ranks senior in
right of security with respect to the collateral therefor.
SECTION 8.13. Investment Company Act; Public Utility Holding
Company Act. (a) Neither the Borrower nor either Guarantor is an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
(b) Neither the Borrower nor either Guarantor is a "holding
company" within the meaning of the Public Utility Holding Company Act of 1935,
as amended.
SECTION 8.14. Environmental Matters. To the best of the
knowledge of each Credit Party, all operations and conditions at or in the
premises in which each Credit Party conducts its business comply in all
material respects with all Federal, state and local laws, rules, regulations,
codes, ordinances, orders, decrees, judgments, injunctions, notices or binding
agreements relating to environmental matters, pollution, waste disposal or
industrial hygiene including such laws, rules, regulations, codes, ordinances,
orders, devices, judgments, injunctions, notices or binding agreements relating
to asbestos (collectively, "Environmental Laws"). None of the operations of
any Credit Party is subject to any judicial or administrative proceeding
alleging the violation of or liability under any Environmental Law.
SECTION 8.15. Pledge Agreement. By virtue of the execution
and delivery by the Credit Parties of the Pledge Agreement, when the stock
certificates representing the Pledged Securities owned by the Borrower 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 Lenders, as
security for the repayment and performance in full of the Obligations, prior to
all other Liens thereon other than the Liens described in Section 6(a)(x) of
the Pledge Agreement.
SECTION 8.16. Labor Matters. There are no strikes, lockouts
or slowdowns against any Credit Party or any Subsidiary pending or, to the
knowledge of any Credit Party, threatened. There are no pending (or to the
knowledge of any Credit Party) threatened action, proceeding or investigation
by or before any court or any arbitral, governmental or regulatory authority or
agency against any Credit Party in connection with the Fair Labor Standards Act
or any other applicable Federal, state, local or foreign law dealing with such
matters which, if adversely determined, could have a Material Adverse Effect.
All payments due from any Credit Party or any Subsidiary, or for which any
claim may be made against any Credit Party or any Subsidiary, on account of
wages and employee health and welfare insurance and other benefits, have been
paid or accrued as a liability on the books of such Credit Party or Subsidiary
through the end of the most recent fiscal quarter of such Credit Party or
Subsidiary as to which financial statements have been delivered to the Lenders.
The consummation of the transactions contemplated hereby or by the other Loan
Documents will not give
<PAGE> 46
41
rise to any right of termination or right of renegotiation on the part of any
union under any collective bargaining agreement to which any Credit Party or
Subsidiary is bound.
SECTION 8.17. Solvency. Immediately after the consummation
of the transactions contemplated hereby or by the other Loan Documents to occur
on the Effective Date and immediately following the making of each Loan and
issuing of each Letter of Credit made on the Effective Date and after giving
effect to the application of the proceeds of such Loans and Letters of Credit,
(i) the fair value of the assets of the Borrower and its consolidated
Subsidiaries (including the Guarantors), at a fair valuation, will exceed its
debts and liabilities, subordinated, contingent or otherwise; (ii) the present
fair saleable value of the property of the Borrower and its consolidated
Subsidiaries (including the Guarantors) will be greater than the amount that
will be required to pay the probable liability of its debts and other
liabilities, subordinated, contingent or otherwise, as such debts and other
liabilities become absolute and matured; (iii) the Borrower and its
consolidated Subsidiaries (including the Guarantors) do not intend to incur and
do not believe it will incur debts and liabilities, subordinated, contingent or
otherwise, beyond its ability to pay such debts and liabilities as they become
absolute and matured; and (iv) the Borrower and its consolidated Subsidiaries
(including the Guarantors) will not have unreasonably small capital with which
to conduct the business in which it is engaged as such business is now
conducted and is proposed to be conducted following the Effective Date.
ARTICLE IX
Covenants of the Borrower and the Guarantors.
Each Credit Party agrees that, so long as any of the
Commitments are in effect and until payment in full of all Obligations:
SECTION 9.01. Financial Statements; Reports and Other
Information. The Borrower shall deliver to the Administrative Agent, with
sufficient copies for each of the Lenders, and the Issuing Bank:
(a) as soon as available and in any event within 60 days after
the end of each of the first three Fiscal Quarters of each Fiscal Year
of the Borrower, unaudited consolidated statements of income, retained
earnings and changes in financial position of the Borrower and its
consolidated Subsidiaries (including the Guarantors) for such period
and for the period from the beginning of such Fiscal Year to the end
of such period, and the related consolidated balance sheet as at the
end of such period, setting forth in each case in comparative form the
corresponding figures for the corresponding period in the preceding
Fiscal Year, accompanied by a certificate of a Financial Officer of
the Borrower, which certificate shall state that such financial
statements fairly present the consolidated financial condition and
results of operations of the Borrower and its consolidated
Subsidiaries in accordance with GAAP, consistently applied, as at the
end of, and for, such period (subject to normal year-end audit
adjustments);
(b) as soon as available and in any event within 120 days
after the end of each Fiscal Year of the Borrower, audited
consolidated statements of income, retained earnings and changes in
financial position of the Borrower and its consolidated Subsidiaries
(including the Guarantors) for such year and the related consolidated
balance sheet as at the end of such year, setting forth in each case
in comparative form the corresponding figures for the preceding
<PAGE> 47
42
Fiscal Year, and accompanied by an opinion thereon of independent
certified public accountants of recognized national standing, which
opinion shall state that such financial statements fairly present the
consolidated financial condition and results of operations of the
Borrower and its consolidated Subsidiaries (including the Guarantors)
as at the end of, and for, such Fiscal Year, and a certificate of a
Financial Officer of the Borrower that, in examining the financial
condition of the Borrower and its Subsidiaries for such Fiscal Year,
he or she obtained no knowledge, except as specifically stated, of any
Default arising from the breach of the covenants provided for in
Sections 9.04, 9.07, 9.11, 9.12, 9.13, 9.14, 9.15, 9.16, 9.17, 9.18,
9.20, 9.21 and 9.22;
(c) promptly upon their becoming available, copies of all
registration statements and regular SEC Reports, if any, which the
Borrower shall have filed with the Securities and Exchange Commission
(or any governmental agency substituted therefor) or any national
securities exchange;
(d) promptly upon the mailing thereof to the shareholders of
the Borrower generally, copies of all financial statements, reports
and proxy statements so mailed;
(e) as soon as possible, and in any event within ten days
after any Credit Party knows or has reason to know that any of the
events or conditions specified below with respect to any Plan or
Multiemployer Plan has occurred or exists, a statement signed by a
Financial Officer of the relevant Credit Party setting forth details
respecting such event or condition and the action, if any, which such
Credit Party or its ERISA Affiliate proposes to take with respect
thereto (and a copy of any report or notice required to be filed with
or given to PBGC by any Credit Party or an ERISA Affiliate with
respect to such event or condition):
(i) any reportable event, as defined in Section 4043
of ERISA and the regulations issued thereunder, with respect
to a Plan, as to which PBGC has not by regulation waived the
requirement of Section 4043(a) of ERISA that it be notified
within 30 days of the occurrence of such event (provided that
a failure to meet the minimum funding standard of Section 412
of the Code or Section 302 of ERISA shall be a reportable
event regardless of the issuance of any waivers in accordance
with Section 412(d) of the Code);
(ii) the filing under Section 4041 of ERISA of a
notice of intent to terminate any Plan or the termination of
any Plan;
(iii) the institution by PBGC of proceedings under
Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Plan, or the
receipt by the Borrower or any ERISA Affiliate of a notice
from a Multiemployer Plan that such action has been taken by
PBGC with respect to such Multiemployer Plan;
(iv) the complete or partial withdrawal by any Credit
Party or any ERISA Affiliate under Title IV of ERISA from a
Multiemployer Plan, or the receipt by any Credit Party or any
ERISA Affiliate of notice from a Multiemployer Plan that is in
reorganization or insolvency pursuant to Section 4241 or 4245
of ERISA or that it intends to terminate or has terminated
under Section 4041A of ERISA; and
<PAGE> 48
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(v) the institution of a proceeding by a fiduciary of
any Multiemployer Plan against any Credit Party or any ERISA
Affiliate to enforce Section 515 of ERISA, which proceeding is
not dismissed within 30 days;
(f) promptly after any Credit Party knows or has reason to
know that (i) any Default or any Event of Default has occurred, a
notice of such Default or Event of Default, describing the same in
reasonable detail and the corrective action taken or proposed to be
taken with respect thereto or (ii) any development that, in the
opinion of the Borrower's senior management, could reasonably be
expected to result in a Material Adverse Effect has occurred;
(g) not later than (i) 60 days after the last day of each of
the first three Fiscal Quarters of each of the Borrower's Fiscal Years
and (ii) 120 days after the last Fiscal Quarter of each such Fiscal
Year, a notice, executed by a Financial Officer of the Borrower and
its consolidated Subsidiaries (including the Guarantors),
substantially in the form of Exhibit E (the "Total Debt Ratio
Notice"), setting forth the Total Debt Ratio for the four-Fiscal
Quarter period ended on the last day of such Fiscal Quarter, which
notice shall set forth calculations and computations in sufficient
detail to show the amount and nature of each of the components of the
Total Debt Ratio for such four-Fiscal Quarter period; provided that in
the case of the Total Debt Ratio Notice delivered with respect to each
Fiscal Quarter specified in clause (i) above, the Borrower shall (if
the final form of either of such Notices is not yet available) deliver
such Notice in a preliminary form within 60 days of the end of such
Fiscal Quarter setting forth all matters required by this paragraph
(g) to be included in the final form thereof as accurately as shall be
possible based upon information available to the Borrower at such
time;
(h) (i) as soon as available (but not later than January 31,
1997) a detailed annual budget of the Borrower and its consolidated
Subsidiaries (including the Guarantors) for Fiscal Years 1996-7 and
(ii) as soon as available and in any event within 10 days after
preparation thereof, a detailed annual budget of the Borrower and its
consolidated Subsidiaries (including the Guarantors) for each Fiscal
Year commencing with Fiscal Year 1997 and, to the extent materially
different from any such annual budgets, any updates of business plans
and financial projections, in each case accompanied by a certificate
of a Financial Officer of the Borrower, which certificate shall state
that such information has been prepared in good faith based upon
assumptions believed by the Borrower's senior management to be
reasonable; and
(i) from time to time such other information regarding the
business, operations or financial condition of the Borrower or any of
the Subsidiaries (including any Plan or Multiemployer Plan and any
reports or other information required to be filed under ERISA) as any
Lender, the Administrative Agent, the Collateral Agent or the Issuing
Bank may reasonably request through the Administrative Agent.
Each Credit Party will furnish to the Administrative Agent, with sufficient
copies for the Lenders and the Issuing Bank, at the time it furnishes each set
of financial statements pursuant to paragraph (a) or (b) above, a certificate
of a Financial Officer of the Credit Parties, substantially in the form of
Exhibit F (i) to the effect that, to the best of his or her knowledge, after
full inquiry, no Default has occurred and is continuing (or, if any Default has
occurred and is continuing, describing the same in reasonable detail and the
corrective action taken or proposed to be taken with respect thereto),
<PAGE> 49
44
(ii) setting forth in reasonable detail the computations necessary to determine
whether the Credit Parties are in compliance with Sections 9.11, 9.12, 9.13,
9.14, 9.15 and 9.16 as at the end of the respective Fiscal Quarter or Fiscal
Year, (iii) certifying that the Credit Parties are in compliance with Sections
9.17, 9.18, 9.20. 9.21 and 9.22 and (iv) setting forth additions to the list of
Subsidiaries that are Material Subsidiaries contained in the certificate most
recently delivered pursuant to this provision and containing either (A) a
representation that all other Subsidiaries combined do not constitute a
Material Subsidiary Group as at such date or (B) a representation that all
other Subsidiaries do constitute a Material Subsidiary Group as at such date
and identifying any such Subsidiary whose aggregate book value of tangible
assets exceeds $10,000,000 as at such date. In addition, each Credit Party
hereby agrees to furnish the Administrative Agent and the Issuing Bank with an
updated notice with respect to the information specified in clause (ii) of the
preceding sentence upon the occurrence of any event either that has resulted or
could result in a Subsidiary becoming a Material Subsidiary or a group of
Subsidiaries becoming a Material Subsidiary Group or that could make the
representation contained in the most recently delivered certificate furnished
pursuant to this Section 9.01 no longer accurate.
SECTION 9.02. Litigation. Without limiting the obligations
of the Borrower under Section 9.01(i), each Credit Party shall promptly give to
each Lender notice of any threat or notice of intention of any person to file
or commence any court or arbitral proceedings or investigations, or proceedings
or investigations before any governmental or regulatory authority or agency,
affecting any Credit Party or any Subsidiary, except proceedings or
investigations which, if adversely determined, would not have a Material
Adverse Effect.
SECTION 9.03. Corporate Existence, etc. Each Credit Party
will, and will cause each of its respective Subsidiaries (but in the case of
clauses (a), (d) and (e) of this Section 9.03, only those Subsidiaries which
are Material Subsidiaries) to:
(a) preserve and maintain its corporate existence and all of
its material rights, privileges, licenses and franchises;
(b) comply with the requirements of all applicable laws,
rules, regulations and orders of Governmental Authorities if failure
to comply with such requirements would have a Material Adverse Effect;
(c) pay and discharge all taxes, assessments and governmental
charges or levies imposed on it or on its income or profits or on any
of its property prior to the date on which penalties attach thereto,
except for any such tax, assessment, charge or levy the payment of
which is being contested in good faith and by proper proceedings and
against which adequate reserves are being maintained in accordance
with GAAP;
(d) maintain all of its properties used or useful in its
business in good working order and condition, ordinary wear and tear
excepted;
(e) keep proper books of record and account in which full,
true and correct entries in conformity with GAAP and all requirements
of law are made of all dealings and transactions in relation to its
business and activities and upon request by the Administrative Agent
permit representatives of any Lender, the Administrative Agent, the
Collateral Agent or the Issuing Bank, during normal business hours, to
examine, copy and make extracts from its books and
<PAGE> 50
45
records, to inspect its properties, and to discuss its business and
financial condition with its officers, all to the extent reasonably
requested by such person; and
(f) keep insured by financially sound and reputable insurers
all property of a character usually insured by corporations engaged in
the same or similar business similarly situated against loss or damage
of the kinds and in the amounts customarily insured against by such
corporations and carry such other insurance as is usually carried by
such corporations.
SECTION 9.04. Payment of Obligations. Without limiting the
obligations of the Credit Parties under Section 9.03, each Credit Party will,
and will cause each of its respective Subsidiaries to, pay and discharge at or
before the date when due, all of their respective material obligations and
other liabilities, including tax and pension liabilities, except where such
obligations or liabilities are being contested in good faith and by appropriate
proceedings, and maintain, in accordance with GAAP, appropriate reserves for
the accrual of all of the foregoing.
SECTION 9.05. Liens. Neither the Borrower nor any Guarantor
will, nor will either of them permit any of their respective Subsidiaries to,
create, incur, assume or suffer to exist any Lien on any asset, revenue or
other property now or hereafter owned or acquired by it (including (i) the
Pledged Securities at any time, including any time after the release of the
pledge thereon as set forth in Section 16 of the Pledge Agreement and (ii) the
assets and capital stock acquired as permitted by Sections 9.21 and 9.22)
except:
(a) Liens existing on the Effective Date securing Indebtedness
outstanding on the Effective Date and identified in Schedule 9.05, but
in the case of any Lien on any capital stock of the Guarantors to the
benefit of The Bank of New York, such Lien shall be terminated on the
date upon which (x) all letters of credit listed on Annex II to the
Pledge Agreement shall have expired (which for any such letter of
credit shall not be later than its expiry date listed on such Annex
II) or terminated and under which all drawings have been reimbursed in
full and (y) all "Secured Obligations" as defined in the BNY Facility
have been fully satisfied; but in any case not any extension, renewal,
refinancing or replacement thereof;
(b) any purchase money security interest hereafter created on
any property of any Credit Party or such Subsidiary securing
Indebtedness incurred solely for the purpose of financing all or a
portion of the purchase price of such property; provided that: (i)
such Lien (A) is created within six months of the acquisition of such
property, (B) extends to no other property and (C) secures no other
Indebtedness; (ii) the principal amount of Indebtedness secured by
such Lien shall at no time exceed the lesser of (A) the cost to such
Person of the property subject thereto and (B) the fair value of such
property (as determined in good faith by the Board of Directors of
such Person) at the time of the acquisition thereof; (iii) such Lien
does not extend to or in any way encumber any inventory of either
Guarantor purchased in the ordinary course of business; and (iv) the
aggregate principal amount of all Indebtedness secured by all such
Liens shall not exceed at any time $15,000,000 less the aggregate
principal amount of all Indebtedness secured by Liens permitted under
Section 9.05(j);
(c) carriers', warehousemen's, mechanics', materialmen's and
repairmen's liens arising in the ordinary course of business of any
Credit Party or such Subsidiary and not overdue for a period of more
than 30 days or which are being contested in good faith and by
appropriate proceedings;
<PAGE> 51
46
(d) Liens in favor of consignors against inventory being sold
on consignment in the ordinary course of business by any Credit Party
or any Subsidiary;
(e) Liens created in substitution for any Liens permitted by
paragraphs (a) and (b) of this Section 9.05; provided that (i) any
such newly-created Lien does not extend to any other or additional
property and (ii) if permitted by such paragraph (a) or (b), does not
secure any other (or additional principal amount of) Indebtedness;
(f) Liens existing on assets at the time of acquisition
thereof (other than assets acquired pursuant to Section 9.22 by any
Credit Party) or the respective Subsidiary and not incurred in
anticipation of or in connection with such acquisition;
(g) operating leases and Capital Leases, to the extent the
same would constitute Liens, pursuant to which any Credit Party or its
Subsidiary is lessee, and incurred by such Person in the ordinary
course of its business;
(h) Liens on property of the Borrower or its Subsidiaries
which secure Indebtedness under trade letters of credit having an
aggregate principal amount not exceeding at any time $20,000,000;
provided that such Liens shall be limited to the related merchandise
(and not a general Lien on all assets of the Borrower or its
Subsidiaries); and
(i) Liens arising under the Pledge Agreement in favor of the
Secured Parties; and
(j) in addition to Liens otherwise permitted by this Section
9.05, Liens on property of any Credit Party or any of its Subsidiaries
(i) which secure Indebtedness (other than any Hedging Agreement)
having an aggregate principal amount not exceeding at any time
$15,000,000 less the aggregate principal amount of all Indebtedness
secured by Liens permitted under Section 9.05(b) and (ii) each of
which shall be limited to specified items of collateral (and not a
general Lien on all assets of such Person) having a book value not
greater than 150% of the aggregate principal amount of the
Indebtedness secured by such Lien;
provided, however, that all capital stock of all Subsidiaries will in any event
be maintained free and clear of all Liens whatsoever, except for the Lien
created pursuant to the Pledge Agreement.
It is understood and agreed that the grant of security
interests described in clauses (i), (ii), (iii), (v) and (vi) of paragraph 6 of
Schedule 2.01(b), to the extent that such security interests relate to the same
property that is "sold" by the Borrower under the Program, as described in
paragraph 1 of said Schedule, will not constitute a lien on assets of the
Borrower or its Subsidiaries for the purposes of this Section 9.05.
SECTION 9.06. Sale and Lease-Back Transactions. Neither the
Borrower nor either Guarantor will, nor will any of them permit any of its
Subsidiaries to, enter into any arrangement, directly or indirectly, with any
Person whereby it shall sell or transfer any property used or useful in its
business, whether now owned or hereafter acquired, and thereafter rent or lease
such property or other property which it intends to use for substantially the
same purpose or purposes as the property being sold or transferred, except for
any such arrangement or arrangements having an aggregate principal amount not
exceeding at any time $5,000,000.
<PAGE> 52
47
SECTION 9.07. Indebtedness. The Borrower shall not, and
shall not permit any of its Subsidiaries to, incur or assume any Indebtedness
whatsoever except for:
(a) Indebtedness, not under this Agreement, outstanding on the
Effective Date as described in Schedule 9.07, but not any extension,
renewal, refinancing or replacement thereof;
(b) Loans or Letters of Credit to the Borrower under this
Agreement;
(c) Indebtedness owed to the Borrower;
(d) Capital Leases;
(e) Indebtedness of either Guarantor under this Agreement;
(f) the joint and several liability of the Borrower, HSC and
the other "Participating Subsidiaries" identified in Schedule 2.01(b)
under the Program arising in the context of customary credit card
chargebacks, as described in paragraph 4 of said Schedule, for
accounts that are sold without recourse;
(g) the joint and several liability of the Borrower, HSC and
such other "Participating Subsidiaries" for the obligations under the
Special Program and the Guaranteed Program, but only if and for so
long as the Borrower causes the Special Program and the Guaranteed
Program at all times to comply with the requirements of Section
9.05(j) (including the $15,000,000 and 150% tests set forth therein);
(h) Indebtedness incurred in connection with trade letters of
credit (other than the letters of credit described in Schedule 9.07)
in an aggregate amount not in excess of $20,000,000; and
(i) Indebtedness incurred in connection with interest rate
protection agreements to the extent required by Section 9.17.
SECTION 9.08. Ranking. (a) Each Credit Party will cause its
obligations under this Agreement, the Notes, the Letters of Credit 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 such Credit Party, except that Indebtedness
secured by any Lien permitted by Section 9.05 may rank senior in right of
security with respect to the collateral subject to such Lien. Without limiting
the generality of the foregoing, the Borrower covenants, and will take all
steps necessary to assure, that its obligations under this Agreement will at
all times constitute "Senior Indebtedness" or "Senior Debt" (or any other
defined term intended to describe 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 Credit Party will cooperate with the Administrative
Agent, the Collateral Agent, the Issuing Bank and the Lenders and will execute
such further instruments and documents as any such person may reasonably
request to carry out the intentions of this Section. Without limiting the
generality of the foregoing, if any Credit Party hereafter issues or otherwise
incurs any sub-
<PAGE> 53
48
ordinated Indebtedness (other than the Subordinated Debentures), each of them
will execute and cause to be executed such further documents as the
Administrative Agent, the Collateral Agent, the Issuing Bank or any Lender may
reasonably request to ensure that the obligations of the Credit Parties under
this Agreement, the Notes and the Letters of Credit at all times rank senior to
such subordinated Indebtedness.
(c) Nothing in this Section shall be construed so as to limit
the ability of such Credit Party to incur any Indebtedness (consistent with
paragraphs (a) and (b) above and otherwise permitted by this Agreement) on a
basis pari passu with its Indebtedness under this Agreement, the Notes and the
Letters of Credit.
SECTION 9.09. Business; Fiscal Year. Neither the Borrower
nor either Guarantor will make any material change in the nature of its
business from that in which it is engaged on the date of this Agreement, and
neither the Borrower nor either Guarantor shall cause, or permit any of their
respective Subsidiaries to cause, any other Subsidiary to conduct business or
operations substantially similar to the business or operations conducted by
either Guarantor on the date of this Agreement. Neither the Borrower nor
either Guarantor will change its fiscal year from that currently in effect on
the date hereof, as set forth in the definition of "Fiscal Year".
SECTION 9.10. Transactions with Affiliates. Neither the
Borrower nor either Guarantor will, and none of them will permit any of its
respective Subsidiaries to, enter into or be a party to any transaction
(including any merger, consolidation or sale of substantially all assets
otherwise permitted by Section 9.18) with any Affiliate of any Credit Party,
except upon fair and reasonable terms no less favorable to such Credit Party or
Subsidiary than would obtain in a comparable arm's-length transaction with a
Person not an Affiliate of such Credit Party.
SECTION 9.11. Interest Coverage Test. The Borrower will at
all times maintain the ratio of Operating Cash Flow for the Borrower and its
Subsidiaries on a consolidated basis for the four-Fiscal Quarter period most
recently ended at such time to Interest Expense for the Borrower and its
Subsidiaries on a consolidated basis for the four-Fiscal Quarter period most
recently ended at such time to be not less than 4:1; provided that (i) the
ratio for the period ended June 30, 1996 shall be at least 3.5:1 and shall be
based on Operating Cash Flow for the Borrower and its Subsidiaries on a
consolidated basis for the two-Fiscal Quarter period then ended times two and
(ii) the ratio for the period ended September 30, 1996 shall be based on
Operating Cash Flow for the Borrower and its Subsidiaries on a consolidated
basis for the three-Fiscal Quarter period then ended times 1.34.
SECTION 9.12. Total Debt Ratio. The Borrower will at all
times maintain the Total Debt Ratio of the Borrower and its Subsidiaries on a
consolidated basis for the four-Fiscal Quarter period most recently ended at
such time to be less than 5:1; provided that (i) the ratio for the period ended
June 30, 1996 shall be based on Operating Cash Flow for the Borrower and its
Subsidiaries on a consolidated basis for the two Fiscal Quarter period then
ended times two and (ii) the ratio for the period ended September 30, 1996
shall be based on Operating Cash Flow for the Borrower and its Subsidiaries on
a consolidated basis for the three-Fiscal Quarter period then ended times 1.34.
SECTION 9.13. Total Senior Debt Ratio. The Borrower will at
all times maintain the Total Senior Debt Ratio of the Borrower and its
Subsidiaries on a consolidated basis for the four-Fiscal Quarter period most
recently ended at such time to be less than 3:1; provided that (i) the ratio
for the period ended June 30, 1996 shall be based on Operating Cash Flow of the
Borrower and
<PAGE> 54
49
its Subsidiaries on a consolidated basis for the two-Fiscal Quarter period then
ended times two and (ii) the ratio for the period ended September 30, 1996
shall be based on Operating Cash Flow for the Borrower and its Subsidiaries on
a consolidated basis for the three-Fiscal Quarter period then ended times 1.34.
SECTION 9.14. Consolidated Net Worth. The Borrower shall not
permit Consolidated Net Worth on the last day of any Fiscal Quarter to be less
than the sum of $120,000,000, plus an amount equal to 50% of the Cumulative Net
Income of the Borrower and its consolidated Subsidiaries (if positive) for each
Fiscal Quarter commencing after March 31, 1996, and ending on or prior to the
date of determination (but not reduced by any net loss in any Fiscal Quarter
during such period).
SECTION 9.15. Minimum Operating Cash Flow. (a) The Borrower
shall not permit the Operating Cash Flow of the Borrower and its Subsidiaries
on a consolidated basis to be less than the following amounts during each of
the following periods:
<TABLE>
<CAPTION>
Period Amount
------ ------
<S> <C>
First Fiscal Quarter of 1996 $ 10,000,000
First Two Fiscal Quarters of 1996 $ 20,000,000
First Three Fiscal Quarters of 1996 $ 30,000,000
Fiscal Year 1996 $ 50,000,000
</TABLE>
(b) At any time when the Total Debt Ratio of the Borrower and
its Subsidiaries on a consolidated basis is greater than 2.5:1, the Borrower
shall not permit the Operating Cash Flow of the Borrower and its Subsidiaries
on a consolidated basis to be less than the following amounts during each of
the following periods:
<TABLE>
<CAPTION>
Period Amount
------ ------
<S> <C>
From the beginning of the second Fiscal Quarter of 1996 to
the end of the first Fiscal Quarter of 1997 $ 60,000,000
From the beginning of the third Fiscal Quarter of 1996 to
the end of the second Fiscal Quarter of 1997 $ 65,000,000
From the beginning of the fourth Fiscal Quarter of 1996 to
the end of the third Fiscal Quarter of 1997 $ 70,000,000
From the beginning of the first Fiscal Quarter of 1997 to
the end of the fourth Fiscal Quarter of 1997 $ 75,000,000
From the beginning of the second Fiscal Quarter of 1997 to
the end of the first Fiscal Quarter of 1998 $ 85,000,000
From the beginning of the third Fiscal Quarter of 1997 to
the end of the second Fiscal Quarter of 1998 $ 85,000,000
</TABLE>
<PAGE> 55
50
<TABLE>
<S> <C>
From the beginning of the fourth Fiscal Quarter of 1997 to
the end of the third Fiscal Quarter of 1998 $ 85,000,000
From the beginning of the first Fiscal Quarter of 1998 to
the end of the fourth Fiscal Quarter of 1998 $ 85,000,000
</TABLE>
SECTION 9.16. Capital Expenditures. Neither the Borrower nor
either Guarantor will, nor will any of them permit any of its Subsidiaries to,
directly or indirectly (by way of the acquisition of the securities of a Person
or otherwise), make or commit to make any Capital Expenditure in the aggregate
for the Borrower and its Subsidiaries exceeding (a) for Fiscal Year 1996,
$15,000,000, (b) for Fiscal Year 1997, $20,000,000 or (c) for Fiscal Year 1998,
$20,000,000; provided, however, that if Capital Expenditures made in Fiscal
Year 1996, 1997 or 1998, as the case may be, are less than the applicable
maximum amount set forth in clause (a), (b) and (c) above, respectively, then
an amount equal to the lesser of such short fall and $5,000,000 shall be
carried forward and added to the amount of Capital Expenditures permitted in
the next Fiscal Year only.
SECTION 9.17. Interest Rate Protection Agreement. At any
time when the Adjusted LIBO Rate is equal to at least 8%, the Borrower shall
enter promptly into an interest rate protection agreement or agreements in a
form reasonably satisfactory to the Administrative Agent covering an aggregate
notional principal amount equal to the lesser of (a) $50,000,000 and (b) the
aggregate principal amount of Loans outstanding at any such time.
SECTION 9.18. Mergers and Sale of Assets. Neither the
Borrower nor either Guarantor will, and neither of them will permit any other
Material Subsidiary or Subsidiaries constituting a Material Subsidiary Group
to,
(a) consolidate or merge with or into any other Person, except
that a Wholly Owned Subsidiary of the Borrower or either Guarantor
(other than the Guarantors) may merge with or consolidate into the
Borrower or either Guarantor (provided that the Borrower or either
Guarantor, as the case may be, shall be the survivor of such merger or
consolidation) or another Wholly Owned Subsidiary of the Borrower or
either Guarantor; or
(b) sell, assign, convey, lease, sublet, transfer or otherwise
dispose of all or substantially all of its assets to any Person,
whether in a single transaction or in a series of related
transactions, except that a Wholly Owned Subsidiary of the Borrower or
either Guarantor (other than the Guarantors) may sell, assign, convey,
lease, sublet, transfer or otherwise dispose of all or substantially
all of its assets to the Borrower or to another Wholly Owned
Subsidiary of the Borrower or either Guarantor or except as otherwise
permitted by Section 9.19;
provided, however, that none of the foregoing transactions shall be permitted
if a Default or an Event of Default has occurred and is continuing or would
result from the consummation of any such transaction.
It is understood and agreed that any consolidation, merger,
sale, assignment, conveyance, letting, subletting, transfer or other
disposition of all or substantially all of the assets of a Non-Material
Subsidiary shall be permitted under this Section, so long as such Non-Material
<PAGE> 56
51
Subsidiary, together with all other Non-Material Subsidiaries with respect to
which there has been, since the date hereof, a consolidation, merger, sale,
assignment, conveyance, letting, subletting, transfer or other disposition of
all or substantially all of its assets, does not constitute a Material
Subsidiary Group.
SECTION 9.19. Dispositions of Assets. Neither the Borrower
nor either Guarantor will, and neither of them will permit any other Material
Subsidiary to, sell, assign, convey, lease, sublet, transfer, swap, exchange or
otherwise dispose of any of the assets, business or other properties of any
Credit Party or any such Material Subsidiary to any Person, whether in a single
transaction or in a series of related transactions, except for:
(a) sales of inventory (but not of accounts receivable) in the
ordinary course of business of such Credit Party or any such
Subsidiary;
(b) dispositions of assets in the ordinary course of business
in arm's-length transactions by such Credit Party or any such
Subsidiary to the extent such assets either are no longer used or
useful to such Credit Party or such Subsidiary or are promptly
replaced by other assets of at least equal usefulness;
(c) any such disposition by any Credit Party or any Wholly
Owned Subsidiary to any Credit Party or any Wholly Owned Subsidiary,
as the case may be; provided, however, that the Credit Parties shall
maintain their respective assets and operations substantially in
accordance with their respective assets and operations as of the date
hereof, and that in the case of any such disposition by any Credit
Party to a Wholly Owned Subsidiary, each Credit Party agrees that such
disposition shall be in the ordinary course of business consistent
with past practice and shall be accomplished upon fair and reasonable
terms to such Credit Party; and
(d) sales or exchanges by the Borrower or any Material
Subsidiary of the shares of capital stock of Vela Research, Inc.,
Internet Shopping Network Inc., The National Registry Inc., Body By
Jake or any Non-Material Subsidiary, in each case on an arm's-length
basis for at least fair consideration, so long as such Non-Material
Subsidiary, together with all other Non-Material Subsidiaries with
respect to which there has been, since the date of this Agreement,
such a sale or exchange of shares, does not constitute a Material
Subsidiary Group; provided that in the event that cash proceeds of any
such sale or sales shall exceed $5,000,000, the Borrower shall
promptly apply such cash proceeds to repay any outstanding Loans.
It is understood and agreed that the non-recourse sales of
receivables described in Schedule 2.01(b), if transacted in accordance with
paragraph 1 thereof, will not constitute a sale or other disposition of assets
for purposes of this Section.
SECTION 9.20. Restricted Payments; Restrictions on Ability of
Subsidiaries to Pay Dividends. (a) The Borrower shall not, and shall not
permit any of its Subsidiaries to, (i) repurchase, redeem or otherwise acquire
any of the shares of capital stock of the Borrower or either Guarantor; (ii)
declare or make, or agree to pay or make, directly or indirectly, any dividend
or other distribution (by reduction of capital or otherwise), whether in cash,
property, securities or a contribution thereof, with respect to any shares of
any class of capital stock of the Borrower or any such Subsidiary, except
<PAGE> 57
52
that any Wholly Owned Subsidiary may declare and pay dividends and make other
distributions with respect to its capital stock to any other Wholly Owned
Subsidiaries or to the Borrower, or (iii) make any optional payment or
prepayment on or redemption of any Indebtedness of any Person (other than (x)
the conversion of the Subordinated Debentures into common equity of the
Borrower pursuant to the terms thereof, and (y) other payments in an aggregate
principal amount not in excess of $1,000,000);
(b) The Borrower shall not, and shall not permit any
Subsidiary to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
such Subsidiary (including any Guarantor) to (i) pay any dividends or make any
other distributions on its capital stock or any other interest or (ii) make or
repay any loans or advances to the Borrower or to the parent of such
Subsidiary.
SECTION 9.21. Restricted Investments. Neither the Borrower
nor either Guarantor will, nor will any of them permit any of its Subsidiaries
to, make any Investments, except for:
(a) (i) Investments in the capital stock of either Guarantor
or other Wholly Owned Subsidiaries of the Borrower existing as of the
Effective Date and identified on Schedule 9.21, or (ii) Investments in
the capital stock of any other Wholly Owned Subsidiary of the Borrower
created after the Effective Date to be solely engaged in a Core
Business; provided that the aggregate principal amount of such
Investments referred to in clause (ii) above together with such
investments referred to in paragraph (e) below shall not exceed
$30,000,000 and provided further that in the case of any Investment or
Investments (in one or a series of Investments in the capital stock of
the same Wholly Owned Subsidiary of the Borrower) pursuant to clause
(ii) above in an aggregate amount in excess of $25,000,000, any such
Wholly Owned Subsidiary of the Borrower created after the Effective
Date shall promptly give a first priority pledge to the Collateral
Agent, for the ratable benefit of the Secured Parties, on all its
capital stock and shall execute and deliver to the Administrative
Agent a guarantee substantially in the form of Article VI;
(b) loans or advances made by the Borrower to any Wholly Owned
Subsidiary and made by any Subsidiary to the Borrower or any Wholly
Owned Subsidiary;
(c) Investments in interest rate protection agreements to the
extent required by Section 9.17;
(d) Investments in (i) commercial paper rated A-1 or the
equivalent thereof by Standard and Poor's Ratings Group 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, (ii)
debt securities issued by any corporation incorporated in the United
States of America or any state thereof that has a short-term credit
rating of at least A-1 or the equivalent thereof by Standard and
Poor's Ratings Group 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, (iii) eurodollar time deposits,
certificates of deposit and bankers' acceptance with maturities of six
months or less from the date of acquisition, and overnight bank
deposits, in each case, with any Lender or with any domestic
commercial bank having capital and surplus in excess of $100,000,000,
(iv) tax exempt securities rated MIG-1 or the equivalent thereof by
Moody's Investors Service, Inc. with maturities of six months or less
from the date of acquisition and (v) securities issued or fully
guaranteed or insured by the United States Government or any
<PAGE> 58
53
agency or instrumentality thereof having maturities of not more than
six months from the date of acquisition; and
(e) investments in any joint venture, partnership or any other
entity solely engaged or to be solely engaged in a Core Business
(other than Investments otherwise permitted by clause (i) of
subparagraph (a) above or subparagraph (b), (c) or (d) above), at any
time when the Total Senior Debt Ratio is less than 2:1 before the
making of such investment, in an aggregate principal amount for all
such investments (together with Investments referred to in clause (ii)
of subparagraph (a) above) not in excess of $30,000,000; provided,
however, that any such investments are subject to the following
conditions:
(i) no Default or Event of Default shall have
occurred and be continuing, both before and immediately after
the making of such investment; and
(ii) the Borrower shall be in compliance with
Sections 9.11, 9.12, 9.13, 9.14, 9.15, 9.16, 9.17, 9.18, 9.20,
9.21 and 9.22 both before and immediately after the making of
such investment on both a historical and a pro forma basis.
SECTION 9.22. Acquisitions. Neither the Borrower nor either
Guarantor will, nor will any of them permit any of its Subsidiaries to,
purchase, lease or otherwise acquire (in one or in a series of transactions)
(whether for cash, property, services or securities or otherwise) any assets or
properties, or any class of capital stock, of any other Person outside the
ordinary course of business, except for
(a) any non-hostile cash acquisition of assets or properties
in any Core Business, or stock of entities solely engaged in a Core
Business, at any time when the Total Senior Debt Ratio is less than
2:1 both before and immediately after the making of such acquisition
on both an historical and a pro forma basis (excluding for purposes of
such pro forma calculation the positive cash flow of such acquired
corporation, but including the negative cash flow thereof), in an
aggregate amount for all such cash acquisitions not in excess of
$50,000,000 (subject to reduction on a Dollar-to-Dollar basis if any
Investments or investments are made pursuant to clause (ii) of
subparagraph (a) of Section 9.21 or subparagraph (e) of Section 9.21);
provided, however, that any such cash acquisitions are subject to the
following conditions:
(i) in the case of an acquisition of at least 51% of
the voting power (in one or in a series of transactions for
the same Person) in an aggregate amount in excess of
$25,000,000 and at any time when the Pledged Securities are
required to be pledged pursuant to the Pledge Agreement, the
Borrower will promptly give a first priority pledge to the
Collateral Agent, for the ratable benefit of the Secured
Parties, on all capital stock acquired and will cause the
acquired Person to execute and deliver to the Administrative
Agent a guarantee substantially in the form of Article VI,
unless such guarantee and pledge cannot be legally granted;
(ii) no Default or Event of Default shall have
occurred and be continuing, both before and immediately after
the making of such acquisition; and
(iii) the Borrower shall be in compliance with
Sections 9.11, 9.12, 9.13, 9.14, 9.15, 9.16, 9.17, 9.18, 9.20,
9.21 and 9.22 both before and immediately after the
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making of such acquisition on both an historical and a pro
forma basis (excluding for purposes of such pro forma
calculation the positive cash flow of such acquired
corporation, but including the negative cash flow thereof);
and
(b) any acquisition consented to in writing by the Majority
Banks.
SECTION 9.23. Use of Proceeds. The Borrower shall use (a)
the proceeds of the Loans solely (i) for its general corporate purposes
(including to fund its working capital needs), (ii) for the purposes of
financing non-hostile cash acquisitions only as permitted by Section 9.22;
(iii) for the purposes of financing Capital Expenditures only as permitted by
Section 9.16 and (iv) for the purposes of repaying on the Effective Date all
indebtedness and other obligations under the Existing Credit Agreement
outstanding on the Effective Date, and (b) the Letters of Credit solely for its
general corporate purposes, and in each case in compliance with all applicable
legal and regulatory requirements, including Regulations G, T, U and X of the
Board, the Securities Act of 1933, as amended, the Securities Exchange Act of
1934, as amended, and in each case the regulations thereunder. Neither the
Administrative Agent, the Collateral Agent or the Issuing Bank nor any Lender
shall have any responsibility for any use of the proceeds of the Loans or the
Letters of Credit.
SECTION 9.24. Certain Agreements. Neither the Borrower nor
either Guarantor will amend, modify, terminate or waive, nor will any of them
permit any of its Subsidiaries to agree to any amendment, modification,
termination or waiver of any material agreement of any such person (including
the Subordinated Debentures) if such amendment, modification, termination or
waiver would reasonably be expected to have a Material Adverse Effect.
SECTION 9.25. Compliance with Laws. Each Credit Party and
each Subsidiary thereof will comply with all applicable laws, rules and
regulations, and all orders (including ERISA, margin regulations and
Environmental Laws) of any Governmental Authority applicable to it or any of
its property, business, operations or transactions to the extent noncompliance
could reasonably be expected to result in (a) a Material Adverse Effect or (b)
a Default or an Event of Default.
SECTION 9.26. Further Assurances. (a) Each Credit Party
will promptly execute any documents, financing statements, agreements or
instruments, and take all further actions (including, if applicable, filing
Uniform Commercial Code and other financing statements) that may be required
under applicable law, or that the Majority Banks, the Administrative Agent, the
Collateral Agent or the Issuing Bank may reasonably request, in order to
effectuate the pledges and security interests contemplated by this Agreement
and the other Loan Documents and in order to grant, preserve, protect or
perfect the validity or first priority of pledges and security interests
created, intended to be created or to be created by this Agreement or the other
Loan Documents.
(b) The Borrower will, in connection with an acquisition
under, and subject to the terms of, Section 9.22, amend Schedule 1 to the
Pledge Agreement to include any acquired capital stock and will cause any such
acquired corporation to execute a guarantee agreement substantially in the form
of Article VI in favor of the Collateral Agent, for the benefit of the Lenders.
SECTION 9.27. Ownership of the Guarantors. The Borrower
agrees at all times to own, both beneficially and of record and free and clear
of all Liens (other than Liens arising under the Pledge Agreement, in favor of
the Secured Parties), and control 100% of the capital shares of each Guarantor.
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SECTION 9.28. Notification of Incurrence of Debt. Prior to
the incurrence by the Borrower or any of its Subsidiaries of Indebtedness, or
upon obtaining commitments for Indebtedness, in each case as permitted by
Section 9.07, the Borrower shall deliver notice to the Administrative Agent and
the Lenders, certifying, on the basis of its financial statements for the four
Fiscal Quarters most recently ended, the Borrower's compliance with the
financial covenants under this Agreement both before and immediately after the
incurrence of such Indebtedness or commitment therefor.
ARTICLE X
Events of Default
If one or more of the following events (herein called "Events
of Default" shall occur and be continuing:
(a) (i) any Credit Party shall fail to pay the principal of
any Loan or shall fail to make any reimbursement with respect to any
L/C Disbursement when and as the same shall become due and payable,
whether at the due date thereof or at a date fixed for prepayment
thereof or by acceleration thereof or otherwise; (ii) or any Credit
Party shall fail to pay any interest on any Loan or L/C Disbursement
or any fee or other amount payable by it hereunder (other than an
amount referred to in clause (a) above) more than two Business Days
after the date when and as the same shall become due and payable,
whether at the due date thereof or at a date fixed for prepayment
thereof or by acceleration thereof or otherwise; or
(b) any Credit Party or any Subsidiary shall default in the
payment when due (after giving effect to all applicable grace periods
provided for in the documents relating to such Indebtedness, without
regard to any waiver thereof) of any amount of principal of or
interest on or any other amount payable in connection with any of its
Indebtedness not specified in clause (a) above in an aggregate
principal amount of $5,000,000 or more; or any event specified in any
note, agreement, indenture or other document evidencing or relating to
any such Indebtedness shall occur if (after giving effect to all
applicable grace periods provided for in the documents relating to
such Indebtedness, without regard to any waiver thereof) the effect of
such event is to cause, or to permit the holder or holders of such
Indebtedness (or a trustee or agent on behalf of such holder or
holders) to cause, such Indebtedness becoming due prior to its stated
maturity; or
(c) any representation, warranty or certification made or
deemed made herein or in any other Loan Document by any Credit Party,
or any certificate furnished to any Lender, the Administrative Agent,
the Collateral Agent or the Issuing Bank pursuant to the provisions
hereof or the other Loan Documents, shall prove to have been false or
misleading as of the time made or deemed made or furnished in any
material respect and, if the Credit Parties and the Majority Lenders
agree that the effects of such false or misleading representation,
warranty or certification are curable, such effects shall not have
been cured to the satisfaction of the Majority Lenders within 10 days
after the earlier of (x) the date on which any Credit Party obtained
knowledge that such representation, warranty or certification was so
false or misleading or (y) the date of notice by the Administrative
Agent, the Collateral Agent or the Issuing Bank to the relevant Credit
Party that such representation, warranty or certification was so false
or misleading; or
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56
(d) any Credit Party shall default in the performance of any
of its obligations under Article IX (other than under any of Sections
9.01(a), 9.01(b), 9.01(c), 9.01(d), 9.01(g), 9.01(h), 9.02, 9.03(b),
9.03(c) and 9.04); or any Credit Party shall default in the
performance of any of its other obligations in this Agreement or any
other Loan Document, including any of Sections 9.01(a), 9.01(b),
9.01(c), 9.01(d), 9.01(g), 9.01(h), 9.02, 9.03(b), 9.03(c) and 9.04
(not governed by any other provision in this Article X), and such
default shall continue unremedied for a period of 10 days after the
earlier of (x) the date on which any Credit Party obtained knowledge
of such default or (y) the date of notice by the Administrative Agent,
the Collateral Agent or the Issuing Bank to the relevant Credit Party
of the occurrence of such default; or
(e) any Credit Party, any Material Subsidiary or Subsidiaries
constituting a Material Subsidiary Group shall admit in writing its
inability to, or be generally unable to, pay its debts as such debts
become due; or
(f) any Credit Party, any Material Subsidiary or Subsidiaries
constituting a Material Subsidiary Group shall (i) apply for or
consent to the appointment of, or the taking of possession by, a
receiver, custodian, trustee or liquidator of itself or of all or a
substantial part of its assets, (ii) make a general assignment for the
benefit of its creditors, (iii) commence a voluntary case under the
Bankruptcy Code (as now or hereafter in effect), (iv) file a petition
seeking to take advantage of any other law relating to bankruptcy,
insolvency, reorganization, creditor or debtor rights, winding-up, or
composition or readjustment of debts, (v) take any corporate action
for the purpose of effecting any of the foregoing; provided that an
event specified in clauses (i) through (v) above shall be deemed to
have occurred (whether at one time or cumulatively over a period of
time after the date hereof) with respect to a Material Subsidiary
Group at the time when such an event shall have occurred with respect
to all Subsidiaries constituting such Material Subsidiary Group; or
(g) a proceeding or case shall be commenced, without the
application or consent of any Credit Party, any Material Subsidiary or
all Subsidiaries constituting a Material Subsidiary Group in any court
of competent jurisdiction, seeking (i) its liquidation,
reorganization, dissolution or winding-up, or the composition or
readjustment of its debts, including the filing of an involuntary
petition under the Bankruptcy Code, (ii) the appointment of a trustee,
receiver, custodian, liquidator or the like of such Credit Party or
Subsidiary or of all or any substantial part of its assets, or (iii)
similar relief in respect of such Credit Party or Subsidiary under any
law relating to bankruptcy, insolvency, reorganization, creditor or
debtor rights, winding-up, or composition or adjustment of debts, and
such proceeding or case shall continue undismissed, or an order,
judgment or decree approving or ordering any of the foregoing shall be
entered and shall not be vacated or dismissed within 60 days; or an
order for relief against such Credit Party or Subsidiary shall be
entered in an involuntary case under any applicable bankruptcy code;
provided that an event specified in clauses (i) through (iii) above or
the preceding subclause shall be deemed to have occurred with respect
to a Material Subsidiary Group at the time when such an event shall
have occurred (whether at one time or cumulatively over a period of
time after the date hereof) with respect to all Subsidiaries
constituting such Material Subsidiary Group; or
(h) a judgment or judgments for the payment of money in excess
of $1,000,000 in the aggregate shall be rendered by a court or courts
against any Credit Party and/or any of its
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57
Subsidiaries and the same shall not be discharged (or provision shall
not be made for such discharge), or a stay of execution thereof shall
not be procured, within 30 days from the date of entry thereof (or, if
later, by the date on which such judgment specified that payment is
due), and the relevant Credit Party or Subsidiary shall not, within
said period of 30 days (or by such later date on which payment is due,
as aforesaid), or such longer period during which execution of the
same shall have been stayed, appeal therefrom and cause the execution
thereof to be stayed during such appeal; or
(i) an event or condition specified in Section 9.01(e) shall
occur or exist with respect to any Plan or Multiemployer Plan and, as
a result of such event or condition, together with all other such
events or conditions, any Credit Party or any ERISA Affiliate shall
incur or in the opinion of the Majority Lenders shall be reasonably
likely to incur a liability to a Plan, a Multiemployer Plan or PBGC
(or any combination of the foregoing) which is, in the determination
of the Majority Lenders, material in relation to the consolidated
financial position of the Borrower and its consolidated Subsidiaries;
or
(j) there shall occur a Change of Control; or
(k) an event or condition that constitutes a default or breach
by the Borrower or any of its Subsidiaries of any affiliation
agreement between the Borrower or such Subsidiary on the one hand and
Silver King or any of its Affiliates (or the respective successors or
assigns of Silver King or such Affiliates) on the other hand; or
(l) any material provision of the Pledge Agreement or Article
VI of this Agreement shall cease, for any reason, to be in full force
and effect, or any Person 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 Borrower 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, the Collateral Agent and the Issuing Bank within
30 days of the effectiveness of such change;
THEREUPON: (A) in the case of an Event of Default other than one referred to
in clause (e), (f) or (g) of this Article X, the Administrative Agent, with the
consent of the Majority Lenders, may and, upon request of the Majority Lenders,
shall, by notice to the Borrower, terminate the Commitments and/or declare the
principal amount then outstanding of, and the accrued interest on, the Loans
and all other amounts payable by the Borrower and the Guarantors hereunder and
under any other Loan Documents to be forthwith due and payable, whereupon such
amounts shall be immediately due and payable without presentment, demand,
diligence, protest or other formalities of any kind, all of which are hereby
expressly waived by the Credit Parties; and (B) in the case of the occurrence
of an Event of Default referred to in clause (e), (f) or (g) of this Article X,
the Commitments shall be automatically terminated and the principal amount then
outstanding of, and the accrued interest on, the Loans and all other amounts
payable by the Borrower and the Guarantors hereunder and under any other Loan
Documents shall become automatically immediately due and payable without
presentment, demand, protest or other formalities of any kind, all of which are
hereby expressly waived by the Credit Parties.
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ARTICLE XI
The Administrative Agent and the Collateral Agent.
In order to expedite the transactions contemplated by this
Agreement, The Chase Manhattan Bank is hereby appointed to act as
Administrative Agent and LTCB Trust Company is hereby appointed to act as
Collateral Agent on behalf of the Lenders (for purposes of this Article XI, the
Administrative Agent and the Collateral Agent are referred to collectively as
the "Agents"). Each of the Lenders, the Issuing Bank and each assignee of any
such Lender or the Issuing Bank, hereby irrevocably authorizes the Agents to
take such actions on behalf of such Lender or assignee and to exercise such
powers as are specifically delegated to the Agents by the terms and provisions
hereof and of the other Loan Documents, together with such actions and powers
as are reasonably incidental thereto. Each Agent and its respective directors,
officers, employees or agents shall have no responsibilities except those
expressly set forth in this Agreement and the other Loan Documents and shall
not by reason of this Agreement or any other Loan Documents be a trustee or
other fiduciary for any Lender. The Administrative Agent is hereby expressly
authorized by the Lenders, without hereby limiting any implied authority, (a)
to receive on behalf of the Lenders all payments of principal of and interest
on the Loans and all other amounts due to the Lenders hereunder, and promptly
to distribute to each Lender its proper share of each payment so received; (b)
to give notice on behalf of each of the Lenders to the Borrower of any Event of
Default specified in this Agreement of which the Administrative Agent has
actual knowledge acquired in connection with its agency hereunder; and (c) to
distribute to each Lender copies of all notices and financial statements
delivered by the Borrower or any other Credit Party pursuant to this Agreement
or the other Loan Documents as received by the Administrative Agent. Without
limiting the generality of the foregoing, the Agents are hereby expressly
authorized to execute any and all documents (including releases) with respect
to the Collateral and the rights of the Secured Parties with respect thereto,
as contemplated by and in accordance with the provisions of this Agreement and
the Pledge Agreement.
Neither the Agents nor any of their respective directors,
officers, employees or agents shall be liable as such for any action taken or
omitted by any of them except for its or his own gross negligence or wilful
misconduct, or be responsible for any recital, statement, warranty or
representation herein or in any other Loan Document or the contents of any
certificate or other document delivered in connection herewith or therewith, or
be required to ascertain or to make any inquiry concerning the performance or
observance by the Borrower or any other Credit Party of any of the terms,
conditions, covenants or agreements contained in any Loan Document. The Agents
shall not be responsible to the Lenders for the due execution, genuineness,
sufficiency, value, validity, enforceability or effectiveness of this Agreement
or any other Loan Documents or any other certificates, instruments or
agreements referred to or provided for herein or therein. The Agents shall in
all cases be fully protected in acting, or refraining from acting, in
accordance with written instructions signed by the Majority Lenders and, except
as otherwise specifically provided herein, such instructions and any action or
inaction pursuant thereto shall be binding on all the Lenders. Each Agent
shall, in the absence of knowledge to the contrary, be entitled to rely on any
notice, instrument, document or other communication believed by it in good
faith to be genuine and correct and to have been signed or sent by the proper
person or persons. Neither the Agents nor any of their respective directors,
officers, employees or agents shall have any responsibility to the Borrower or
any other Credit Party on account of the failure of or delay in performance or
breach by any Lender of any of its obligations hereunder or to any Lender on
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account of the failure of or delay in performance or breach by any other Lender
or the Borrower or any other Credit Party of any of their respective
obligations hereunder or under any other Loan Document or in connection
herewith or therewith. Each of the Agents may execute any and all duties
hereunder by or through agents or employees and shall be entitled to rely upon
the advice of legal counsel, independent accountants and other experts selected
by it with respect to all matters arising hereunder and shall not be liable for
any action taken or suffered in good faith by it in accordance with the advice
of such counsel.
The Lenders hereby acknowledge that neither Agent shall be
under any duty to take any discretionary action permitted to be taken by it
pursuant to the provisions of this Agreement unless it shall be requested in
writing to do so by the Majority Lenders.
Neither Agent shall be deemed to have knowledge of the
occurrence of a Default (other than, in the case of the Administrative Agent,
the nonpayment of principal of or interest on Loans or of Fees) unless such
Agent has received notice from a Lender or the Borrower specifying such Default
and stating that such notice is a "Notice of Default". In the event that
either Agent receives such a notice of the occurrence of a Default, such Agent
shall give prompt notice thereof to the Lenders and the other Agent (and the
Administrative Agent shall give each Lender and the Collateral Agent prompt
notice of each such nonpayment). The Administrative Agent or the Collateral
Agent, as the case may be, shall (subject to this Article XI and Section 12.04)
take such action with respect to such Default as shall be directed by the
Majority Banks; provided that, unless and until the Administrative Agent or the
Collateral Agent shall have received such directions, the Administrative Agent
or the Collateral Agent may (but shall not be obligated to) take such action,
or refrain from taking such action, with respect to such Default as it shall
deem advisable in the best interest of the Lenders.
Subject to the appointment and acceptance of a successor Agent
as provided below, either Agent may resign at any time upon delivery of 30
days' prior written notice to the Lenders and the Borrower. Upon any such
resignation, the Majority Lenders and the Borrower shall have the right to
appoint a successor. If no successor shall have been so appointed by the
Majority Lenders and the Borrower and shall have accepted such appointment
within 30 days after the retiring Agent gives notice of its resignation, then
the retiring Agent may, on behalf of the Lenders, appoint a successor Agent
which shall be a bank with an office in New York, New York, having a combined
capital and surplus of at least $500,000,000, or an Affiliate of any such bank.
Upon the acceptance of any appointment as Agent hereunder by a successor bank,
such successor shall succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Agent and the retiring Agent shall be
discharged from its duties and obligations hereunder. After the Agent's
resignation hereunder, the provisions of this Article and Section 12.03 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 Agent.
With respect to the Loans made by it hereunder, each Agent in
its individual capacity and not as Agent shall have the same rights and powers
as any other Lender and may exercise the same as though it were not an Agent,
and the Agents and their Affiliates may accept deposits from, lend money to and
generally engage in any kind of business with the Borrower or any Subsidiary or
other Affiliate thereof as if it were not an Agent.
Each Agent acts initially through its office designated on the
signature pages hereof, but may transfer its functions as Administrative Agent
or Collateral Agent, as the case may be, to any
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other office, branch or Affiliate of such Agent at any time by giving prompt,
subsequent written notice to each of the other parties to this Agreement or the
Pledge Agreement, as the case may be.
Each Lender agrees (a) to reimburse the Agents, on demand, in
the amount of its pro rata share (based on its Commitment hereunder) of any
expenses incurred for the benefit of the Lenders by the Agents, including
protective advances for insurance, taxes or other amounts advanced by the
Collateral Agent to preserve or protect the interests of the Secured Parties,
as well as counsel fees and compensation of agents and employees paid for
services rendered on behalf of the Lenders, that shall not have been reimbursed
by the Borrower and (b) to indemnify and hold harmless each Agent and any of
its directors, officers, employees or agents, on demand, in the amount of such
pro rata share, from and against any and all liabilities, taxes, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever that may be imposed on, incurred
by or asserted against it in its capacity as Agent or any of them in any way
relating to or arising out of this Agreement or any other Loan Document or any
other documents contemplated by or referred to herein or therein or the
transactions contemplated hereby or thereby or the enforcement of any of the
terms hereof or thereof or any other action taken or omitted by it or any of
them under this Agreement or any other Loan Document, to the extent the same
shall not have been reimbursed by the Borrower or any other Credit Party;
provided that no Lender shall be liable to an Agent or any such other
indemnified person for any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
which are determined by a court of competent jurisdiction by final and
nonappealable judgment to have resulted from the gross negligence or wilful
misconduct of such Agent or any of its directors, officers, employees or
agents.
Each Lender acknowledges that it has, independently and
without reliance upon the Agents or any other Lender and based on such
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon the Agents
or any other Lender and based on such documents and information as it shall
from time to time deem appropriate, continue to make its own decisions in
taking or not taking action under or based upon this Agreement or any other
Loan Document, any related agreement or any document furnished hereunder or
thereunder.
Neither Agent shall be required to keep itself informed as to
the performance or observance by the Borrower or either Guarantor of this
Agreement, the Pledge Agreement or any other document referred to or provided
for herein or therein or to inspect the properties or books of the Borrower,
either Guarantor or any of their respective Subsidiaries. Except for notices,
reports and other documents and information expressly required to be furnished
by the Administrative Agent or the Collateral Agent hereunder or under the
Pledge Agreement, neither Agent shall have any duty or responsibility to
provide the other Agent or any Lender with any credit or other information
concerning the affairs, financial condition or business of the Borrower or any
Subsidiary (or any of their Affiliates) which may come into the possession of
such Agent or any of its respective Affiliates.
ARTICLE XII
Miscellaneous
SECTION 12.01. Waiver. No failure on the part of the
Administrative Agent, the Collateral Agent, the Issuing Bank or any Lender to
exercise, no delay in exercising, and no course of
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dealing with respect to, any right, power or privilege under this Agreement or
any other Loan Document shall operate as a waiver thereof; nor shall any single
or partial exercise of any right, power or privilege under this Agreement or
any other Loan Document 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.
SECTION 12.02. Notices. All notices and other communications
provided for herein (including 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.
SECTION 12.03. Expenses, etc. (a) The Credit Parties
jointly and severally agree to pay or reimburse each of the Lenders, the
Administrative Agent, the Collateral Agent and the Issuing Bank for paying:
(i) all costs and expenses of each of the Administrative
Agent, the Collateral Agent and the Issuing Bank (including the
reasonable fees and expenses of all special counsel to the
Administrative Agent, the Collateral Agent, the Issuing Bank and the
Lenders, in connection with the preparation, negotiation, execution
and delivery of this Agreement, the other Loan Documents and any
related documents) in connection with the administration of this
Agreement, the other Loan Documents and any related documents and the
making of the initial Loans hereunder and (B) any amendment,
modification or waiver of any of the terms of this Agreement, any
other Loan Documents or any related documents (whether or not any such
amendment, modification or waiver is signed or becomes effective); and
(ii) all reasonable costs and expenses of each Lender, the
Administrative Agent, the Collateral Agent and the Issuing Bank
(including reasonable counsels' fees and expenses) in connection with
the enforcement of this Agreement or any other Loan Documents and the
protection of the rights of each Lender, the Administrative Agent, the
Collateral Agent and the Issuing Bank against any Credit Party or any
of their respective assets;
(iii) all transfer, stamp, documentary and other similar
taxes, assessments or charges (including penalties and interest)
levied by any governmental or revenue authority in respect of this
Agreement, the other Loan Documents or any other document referred to
herein.
(b) The Borrower agrees to indemnify the Administrative
Agent, the Collateral Agent, the Issuing Bank and each Lender, each Affiliate
of any of the foregoing persons and each of their respective directors,
officers, employees and agents (each such person being called an "Indemnitee")
against, and to hold each Indemnitee harmless from, any and all losses, claims,
damages, liabilities and related expenses, including reasonable counsel fees,
charges and disbursements, incurred by or asserted against any Indemnitee
arising out of, in any way connected with, or as a result of (i) the execution
or delivery of this Agreement or any other Loan Document or any agreement or
instrument contemplated hereby or thereby, the performance by the parties
hereto or thereto of their
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respective obligations hereunder or thereunder or the consummation of the
transactions contemplated hereby and thereby, (ii) the use of the proceeds of
the Loans and the Letters of Credit, or (iii) any claim, litigation,
investigation or proceeding (including any threatened litigation or other
proceeding) relating to any of the foregoing, whether or not any Indemnitee is
a party thereto; provided that such indemnity shall not, as to any Indemnitee,
be available to the extent that such losses, claims, damages, liabilities or
related expenses are determined by a court of competent jurisdiction by final
and nonappealable judgment to have resulted from the gross negligence or wilful
misconduct of such Indemnitee.
(c) The provisions of this Section 12.03 shall remain
operative and in full force and effect regardless of the expiration of the term
of this Agreement or the other Loan Documents, the consummation of the
transactions contemplated hereby or thereby, the repayment of any of the Loans
or Letters of Credit, the expiration of the Commitments, the invalidity or
unenforceability of any term or provision of this Agreement or any other Loan
Document, or any investigation made by or on behalf of the Administrative
Agent, the Collateral Agent, the Issuing Bank or any Lender. All amounts due
under this Section 12.03 shall be payable on written demand therefor
accompanied by a reasonably detailed description of the amounts due and the
circumstances giving rise thereto.
SECTION 12.04. Amendments, etc. Neither this Agreement nor
any other Loan Documents nor any terms hereof or thereof may be amended,
supplemented or modified except in accordance with the provisions of this
subsection. With the prior written consent of the Majority Lenders, the
Administrative Agent and the Credit Parties may, from time to time, enter into
written amendments, supplements or modifications hereto for the purpose of
adding any provisions to this Agreement or any of the other Loan Documents or
changing in any manner the rights of the Lenders or the Issuing Bank or of any
Credit Party hereunder or thereunder or waiving, on such terms and conditions
as the Administrative Agent (with the consent of the Majority Lenders) may
specify in such instrument, any of the requirements of this Agreement or the
other Loan Documents or any Default or Event of Default and its consequences;
provided, however, that no such waiver and no such amendment, supplement or
modification shall (a) extend the maturity of any Note or the Maturity Date, or
reduce the rate or extend the time of payment of interest thereon, or reduce or
extend the time of payment of any fee payable to the Lenders hereunder, or
reduce the principal amount of any Loan or any L/C Disbursement, or increase
the amount of any Lender's Commitment, or release either Guarantor from any of
its obligations hereunder (or any future guarantor that executes a guarantee
substantially in the form of Article VI), or amend, modify or waive any
provision of this subsection, or reduce the percentage specified in the
definition of "Majority Lenders" in Section 1.01 or the percentage of the
Lenders otherwise required to take actions under this Agreement, or any of the
other Loan Documents, or consent to the assignment or transfer by any Credit
Party of any of its rights and obligations under this Agreement or any of the
other Loan Documents or release any Credit Party or any of the Pledged
Securities (other than a release pursuant to Article 16 of the Pledge
Agreement), in each case without the prior written consent of all the Lenders,
or (b) amend, modify or waive any provision of Article XI without the prior
written consent of the Administrative Agent and the Collateral Agent. Any such
waiver and any such amendment, supplement or modification shall apply equally
to each of the Lenders and shall be binding upon the Credit Parties, the
Lenders, the Administrative Agent, the Collateral Agent, the Issuing Bank and
all future holders of the Notes. In the case of any waiver, the Credit
Parties, the Lenders, the Administrative Agent, the Collateral Agent and the
Issuing Bank shall be restored to their former position and rights hereunder
and under the outstanding Notes and the Letters of Credit, and any Default or
Event of Default waived shall be deemed to be cured and
<PAGE> 68
63
not continuing; but no such waiver shall extend to any subsequent or other
Default or Event of Default, or impair any right subsequent thereon.
SECTION 12.05. 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.
SECTION 12.06. Assignments and Participation. (a) Neither
the Borrower nor either Guarantor may assign its rights or obligations
hereunder or under any other Loan Document without the prior consent of all of
the Lenders, the Administrative Agent, the Collateral Agent and the Issuing
Bank.
(b) Any Lender may assign any of its Loans, its Note or its
Commitment without the prior consent of the Borrower, either Guarantor, the
Administrative Agent, the Collateral Agent, the Issuing Bank or any Lender;
provided that (i) partial assignments (being assignments of less than the
entire amount of a Lender's Commitment and Loans) to any Person other than
another Lender or an office, branch or affiliate of the assigning Lender shall
be in a principal amount of not less than $5,000,000, (ii) any such assignment
shall be made pursuant to an Assignment and Acceptance to be delivered to the
Administrative Agent and (iii) the assignee, if it shall not be a Lender, shall
deliver to the Administrative Agent an Administrative Questionnaire. Upon (A)
written notice to the Borrower and the Administrative Agent of an assignment,
identifying in detail reasonably satisfactory to the Administrative Agent the
assignee Lender and the amount of the assignor Lender's Commitment and Loans
assigned, and (B) payment by the assignor or the assignee to the Administrative
Agent, for the Administrative Agent's own account, of a recordation fee of
$3,500, 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 deemed for all purposes hereunder, a Lender party
hereto holding the Commitment and Loans (or portions thereof) assigned to it
(in addition to the Commitment and Loans, if any, theretofore held by such
assignee) and the assignor shall be released from such obligations to such
extent.
(c) Any Lender may sell to one or more other Persons a
participation in all or any part of the Commitment or any Loan held by it, in
which event each such participant shall be entitled to the rights and benefits
of the provisions of Article V and 9.01(h) with respect to its participation in
such Loan as if (and the Credit Parties shall be directly obligated to such
participant under such provisions as if) such participant were a "Lender" for
purposes of said Sections, but shall not have any other rights or benefits
under this Agreement or any other Loan Document (the participant's rights
against such Lender in respect of such participation to be those set forth in
the agreement (the "Participation Agreement") executed by such Lender in favor
of such participant); provided that all amounts payable by any Credit Party to
any Lender and any participant under Article V in respect of any Loan shall be
determined as if such Lender had not sold any participations in such Loan and
as if such Lender were funding all of such Loan in the same way that it is
funding the portion of such Loan in which no participations have been sold. In
no event shall a Lender that sells a participation be obligated to any
participant under the Participation Agreement to take or refrain from taking
any action hereunder or under such Lender's Note (including the extension of
such Lender's Commitment pursuant to Section 2.09) except that such Lender may
agree in the Participation Agreement that it will not, without the consent of
the participant, agree to (i) the extension of any date fixed for the payment
of principal of or interest on the related Loan or Loans, (ii) the reduction of
any payment of principal thereof, (iii) the reduction of the rate at which
either interest is payable thereon or (if the participant is entitled to any
part thereof) Commitment Fee is payable hereunder to a level below the rate at
which
<PAGE> 69
64
the participant is entitled to receive interest or Commitment Fee, as the case
may be, in respect of such participation or (iv) release any of the Pledged
Securities (other than a release pursuant to Section 16 of the Pledge
Agreement).
(d) In addition to the assignments and participations
permitted under the foregoing provisions of this Section 12.06, any Lender may,
without the prior consent of the Borrower, either Guarantor, the Administrative
Agent, the Collateral Agent, the Issuing Agent or any Lender, assign and pledge
all or any portion of its Loans and its Note to any Federal Reserve Bank as
collateral security. No such assignment shall release the assigning Lender
from its obligations hereunder.
(e) A Lender may, subject to Section 12.07, furnish any
information concerning any Credit Party or any of its Subsidiaries in the
possession of such Lender from time to time to assignees and participants
(including prospective assignees and participants).
SECTION 12.07. Confidentiality. The Administrative Agent,
the Collateral Agent, the Issuing Bank and each of the Lenders hereby
acknowledge that certain of the information to be furnished to them pursuant to
this Agreement may be non-public information. The Administrative Agent, the
Collateral Agent, the Issuing Bank and each Lender 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 (a) in connection
with matters involving this Agreement (including litigation involving any
Credit Party, the Administrative Agent, the Collateral Agent, the Issuing Bank
or the Lenders) and with the obligations of any of the Administrative Agent,
the Collateral Agent, the Issuing Bank or such Lender under law or regulation,
(b) pursuant to subpoenas or similar process, (c) to Governmental Authorities
or examiners, (d) to independent auditors or counsel, (e) to any parent or
corporate Affiliate of any of the Administrative Agent, the Collateral Agent,
the Issuing Bank or such Lender, or (f) 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 (i) is not
in the same general type of business as the Borrower on the date of such
disclosure and (ii) agrees in writing to accept such information subject to the
restrictions provided in this Section 12.07; provided that in no event shall
any of the Administrative Agent, the Collateral Agent, the Issuing Bank or such
Lender be obligated or required to return any materials furnished by the
Borrower or any of its Subsidiaries.
SECTION 12.08. Survival. Without limiting the survival of
any other obligations of the Credit Parties and the Lenders hereunder, the
obligations of the Credit Parties under Sections 2.06, 5.01, 5.04, 5.05 and
12.03 and the obligations of the Banks under Sections 4.07, 11.05 and 12.07,
shall survive the repayment of the Loans and the termination of the
Commitments.
SECTION 12.09. 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.
SECTION 12.10. 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.
<PAGE> 70
65
SECTION 12.11. GOVERNING LAW. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
SECTION 12.12. JURISDICTION; WAIVER OF JURY TRIAL. EACH OF
THE CREDIT PARTIES HEREBY AGREES THAT:
(A) ANY SUIT, ACTION OR PROCEEDING AGAINST ANY CREDIT
PARTY WITH RESPECT TO THIS AGREEMENT, THE LOANS, THE NOTES, THE
LETTERS OF CREDIT, ANY OTHER LOAN DOCUMENT OR ANY DOCUMENTS RELATED
HERETO OR THERETO OR ANY JUDGMENT ENTERED BY ANY COURT IN RESPECT
HEREOF OR THEREOF MAY BE BROUGHT IN THE SUPREME COURT OF THE STATE OF
NEW YORK, COUNTY OF NEW YORK OR IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF NEW YORK (COLLECTIVELY, THE "SUBJECT
COURTS"), AS THE ADMINISTRATIVE AGENT, THE COLLATERAL AGENT, THE
ISSUING BANK OR ANY LENDER MAY ELECT IN ITS SOLE DISCRETION AND EACH
OF THE CREDIT PARTIES 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. EACH OF THE CREDIT PARTIES
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 COLLATERAL AGENT, THE ISSUING
BANK OR THE RESPECTIVE LENDER BY REGISTERED OR CERTIFIED MAIL, POSTAGE
PREPAID, TO THE APPLICABLE CREDIT PARTY ADDRESSED AS PROVIDED IN
SECTION 12.02. NOTHING HEREIN SHALL IN ANY WAY BE DEEMED TO LIMIT THE
ABILITY OF THE ADMINISTRATIVE AGENT, THE COLLATERAL AGENT, THE ISSUING
BANK OR ANY LENDER TO SERVE ANY SUCH WRITS, PROCESS OR SUMMONSES IN
ANY OTHER MANNER PERMITTED BY APPLICABLE LAW OR TO BRING PROCEEDINGS
AGAINST ANY CREDIT PARTY IN ANY COMPETENT COURT OF ANY OTHER
JURISDICTION OR JURISDICTIONS, AND IN SUCH MANNER, AS MAY BE PERMITTED
BY APPLICABLE LAW.
(B) EACH OF THE CREDIT PARTIES HEREBY WAIVES ANY RIGHT TO
TRIAL BY JURY IN ANY SUIT, ACTION OR PROCEEDING IN RESPECT OF THIS
AGREEMENT, THE NOTES, THE LETTERS OF CREDIT, ANY OTHER LOAN DOCUMENT
OR ANY OTHER DOCUMENTS IN CONNECTION HEREWITH OR THEREWITH, 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.
SECTION 12.13. Severability. Any provision of this Agreement or any
other Loan Document that 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 or thereof or affecting the validity or enforceability of such provision
in any other jurisdiction.
<PAGE> 71
66
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first above written.
HOME SHOPPING NETWORK, INC.,
as the Borrower,
by
/s/ Kevin J. McKeon
------------------------------------
Name: Kevin J. McKeon
Title: Executive Vice President,
Chief Financial Officer
and Treasurer
11831 30th Court North
St. Petersburg, FL 33716
Telecopier No.: (813) 539-6505
Telephone No.: (813) 572-8585
Attention of Chief Financial Officer
with a copy to:
"Legal Department"
Attention of General Counsel
Telecopier No.: (813) 573-0866
<PAGE> 72
67
HOME SHOPPING CLUB, INC.,
as a Guarantor,
by
/s/ Kevin J. McKeon
------------------------------------
Name: Kevin J. McKeon
Title: Secretary and Treasurer
11831 30th Court North
St. Petersburg, FL 33716
Telecopier No.: (813) 539-6505
Telephone No.: (813) 572-8585
Attention of Finance Department
with a copy to:
"Legal Department"
Attention of General Counsel
Telecopier No.: (813) 573-0866
HSN REALTY, INC.,
as a Guarantor,
by
/s/ Kevin J. McKeon
------------------------------------
Name: Kevin J. McKeon
Title: Secretary and Treasurer
11831 30th Court North
St. Petersburg, FL 33716
Telecopier No.: (813) 539-6505
Telephone No.: (813) 572-8585
Attention of Finance Department
with a copy to:
"Legal Department"
Attention of General Counsel
Telecopier No.: (813) 573-0866
<PAGE> 73
68
The Lenders
Commitment
$32,000,000 THE CHASE MANHATTAN BANK,
individually and as Administrative Agent,
by
/s/ John J. Huber, III
------------------------------------
Name: John J. Huber, III
Title: Managing Director
Lending Office for ABR Loans:
270 Park Avenue
New York, New York 10017
Lending Office for Eurodollar Loans:
270 Park Avenue
New York, NY 10017
Address for Notices:
One Chase Manhattan Plaza
4th Floor
New York, NY 10081
Telecopier No.: (212) 552-4905
Telephone No.: (212) 552-1366
Attention of John J. Huber
with a copy to:
Agent Bank Services Group
140 East 45th Street, 29th Floor
New York, NY 10017
Telecopy No.: (212) 622-0002
Telephone No.: (212) 622-0648
Attention of Gloria Javier
<PAGE> 74
69
$31,500,000 LTCB TRUST COMPANY, individually and
as Collateral Agent,
By
/s/ John A. Krob
------------------------------------
Name: John A. Krob
Title: Senior Vice President
Lending Office for ABR Loans:
165 Broadway, 49th Floor
New York, NY 10006
Lending Office for Eurodollar Loans:
165 Broadway, 49th Floor
New York, New York 10006
Address for Notices:
165 Broadway, 49th Floor
New York, New York 10006
Telex No.: 425722
Telecopier No.: (212) 608-3081
Telephone No.: (212) 335-4854
Attention of Winston Brown
With a copy to:
The Long-Term Credit Bank of Japan,
Limited
Atlanta Representative Office
245 Peach Tree Center Avenue, N.E.,
Suite 2801
Atlanta, Georgia 30303
Telecopier No.: (404) 658-9751
Telephone No.: (404) 659-7210
Attention of Philip Marsden
<PAGE> 75
70
$31,500,000 THE BANK OF NEW YORK COMPANY, INC.,
individually and as Documentation
Agent,
by
/s/ Kalpana Raina
------------------------------------
Name: Kalpana Raina
Title: Authorized Signer
Lending Office for ABR Loans:
One Wall Street
New York, New York 10286
Lending Office for Eurodollar Loans:
One Wall Street
New York, New York 10286
Address for Notices:
One Wall Street
New York, New York 10286
Telex No.:
Telecopier No.:
Telephone No.:
Attention of
<PAGE> 76
71
$15,000,000 FIRST HAWAIIAN BANK,
by
/s/ Donald C. Young
------------------------------------
Name: Donald C. Young
Title: Assistant Vice President
Lending Office for ABR Loans:
1132 Bishop Street, 19th Floor
Honolulu, HI 96813
Lending Office for Eurodollar Loans:
1132 Bishop Street, 19th Floor
Honolulu, HI 96813
Address for Notices:
1132 Bishop Street, 19th Floor
Honolulu, HI 96813
Telex No.: 723-8329 Answer Back-FRST HR
Telecopier No.: (808) 525-8973
Telephone No.: (808) 525-8975
Attention of Don Young
<PAGE> 77
72
$15,000,000 THE FUJI BANK, LIMITED,
by
/s/ Hirotoshi Naito
------------------------------------
Name: Hirotoshi Naito
Title: Joint General Manager
Lending Office for ABR Loans:
333 South Hope Street, 39th Floor
Los Angeles, CA 90071
Lending Office for Eurodollar Loans:
333 South Hope Street, 39th Floor
Los Angeles, CA 90071
Address for Notices:
333 South Hope Street, 39th Floor
Los Angeles, CA 90071
Telex No.:
Telecopier No.: (213) 253-4198
Telephone No.: (213) 253-4129
Attention of Vivian Chang
<PAGE> 78
73
$10,000,000 THE SUMITOMO BANK, LIMITED,
by
/s/ Brian M. Smith
------------------------------------
Name: Brian M. Smith
Title: Senior Vice President and
Regional Manager (East)
by
/s/ Jeffrey N. Frost
------------------------------------
Name: Jeffrey N. Frost
Title: Regional Vice President-Credit
(East)
Lending Office for ABR Loans:
Chicago Administration Center
233 South Wacker Drive, Suite 5400
Chicago, IL 60606
Lending Office for Eurodollar Loans:
Chicago Administration Center
233 South Wacker Drive, Suite 5400
Chicago, IL 60606
Address for Notices:
Tampa Representative Office
100 South Ashley Drive, Suite 1780
Tampa, FL 33602
Telex No.: none
Telecopier No.: (813) 229-6372
Telephone No.: (813) 229-6002
Attention of Vice President and Manager
<PAGE> 79
74
$15,000,000 TORONTO DOMINION (TEXAS), INC.,
by
/s/ Neva Nesbitt
------------------------------------
Name: Neva Nesbitt
Title: Vice President
Lending Office for ABR Loans:
909 Fannin Street, 17th Floor
Houston, TX 77010
Lending Office for Eurodollar Loans:
909 Fannin Street, 17th Floor
Houston, TX 77010
Address for Notices:
909 Fannin Street, 17th Floor
Houston, TX 77010
Telex No.:
Telecopier No.: (713) 951-9921
Telephone No.: (713) 653-8261
Attention of Neva Nesbitt
<PAGE> 1
EXHIBIT 10.39
PLEDGE AGREEMENT dated as of August 2, 1996 (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 the Secured Parties under the
Credit Agreement dated as of August 2, 1996 (as 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, The Chase Manhattan Bank, as Administrative Agent,
LTCB Trust Company, as Collateral Agent, The Bank of New York
Company, Inc., as Documentation Agent, and the Lenders.
W I T N E S S E T H:
WHEREAS pursuant to the Credit Agreement, the Lenders have
agreed to make extensions of credit to the Pledgor and the Issuing Bank has
agreed to issue (and the Lenders have agree to take pro rata participation in)
letters of credit upon the terms and subject to the conditions set forth
therein;
WHEREAS pursuant to Article VI of the Credit Agreement, the
Guarantors have agreed to guarantee, among other things, all obligations of the
Borrower under the Credit Agreement;
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);
WHEREAS it is a condition precedent to the agreement of (i)
the Lenders to make the extensions of credit to the Pledgor and (ii) the
Issuing Bank to issue the Letters of Credit that the Pledgor shall have
executed and delivered this Agreement to the Collateral Agent for the benefit
of the Secured Parties; and
NOW, THEREFORE, in consideration of the premises, and other
good and valuable consideration, the sufficiency and receipt of which are
hereby acknowledged, the Pledgor hereby agrees with the Collateral Agent, for
the benefit of the Secured Parties, 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.
"Issuers" shall mean Home Shopping Club, Inc. and HSN Realty,
Inc., each a Delaware corporation.
"Pledged Securities" shall have the meaning assigned to such
term in Section 2.
<PAGE> 2
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,
distributions, cash, instruments or other income or property 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, unreimbursed drawings under the
letters of credit described in Annex II and the stated amount of all
outstanding letters of credit described in Annex II under which drawings have
not yet been made (but not any extension, renewal, refinancing or replacement
of any such letter of credit) and all liabilities of the Pledgor from time to
time owing to any Secured Party (including all fees, costs, expenses and
indemnities, whether primary, secondary, direct, contingent, fixed or
otherwise) under or in respect of the Loan Documents or the BNY Facility; (b)
all other obligations of the Pledgor to any Secured Party under this Agreement
and any of the other Loan Documents or the BNY Facility; and (c) all
obligations of the Pledgor, monetary or otherwise, under each Hedging Agreement
entered into with a Secured Party.
"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 transfers,
hypothecates, pledges, assigns, grants, sets over and delivers to the
Collateral Agent, for the benefit of the Secured Parties, 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,
beneficially or of record, and listed on Annex I, 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
<PAGE> 3
3
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");
(ii) all other property that may be delivered to and held by
the Collateral Agent pursuant to the terms hereof;
(iii) subject to 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; and
(iv) subject to Section 5, all rights and privileges of the
Pledgor with respect to the Pledged Securities and other properties referred to
in clauses (i), (ii) and (iii) above (all of the items referred to herein in
clauses (i) through (iv) being collectively referred to as the "Collateral").
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 Secured Parties 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 Secured
Parties; 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, 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 Secured Parties,
subject to the terms of this Agreement, as additional Collateral.
<PAGE> 4
4
SECTION 4. Registration in Nominee Name. Upon the
occurrence and during the continuance of an Event of Default, 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
Secured Parties. 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:
(i) the Pledgor shall be entitled to exercise any and all
voting and/or consensual rights and powers inuring to an owner of the
Pledged Securities or any part thereof for any purpose consistent with
the terms of this Agreement, the Credit Agreement and the other Loan
Documents; provided, however, that the Pledgor will not be entitled to
exercise any such right if the result thereof could materially and
adversely affect the rights inuring to a holder of the Pledged
Securities or the rights and remedies of any of the Secured Parties
under this Agreement or the Credit Agreement or any other Loan
Document or the ability of the Secured Parties to exercise the same;
(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 it is entitled
to exercise pursuant to subparagraph (i) above and to receive the cash
dividends it is entitled to receive pursuant to subparagraph (iii)
below; and
(iii) the Pledgor shall be entitled to receive and retain any
and all cash dividends and distributions paid on the Pledged
Securities to the extent and only to the extent that such dividends
and distributions are permitted by, and otherwise paid in accordance
with, the terms and conditions of the Credit Agreement and applicable
laws. Except for cash dividends and distributions that the Pledgor
shall be entitled to receive and retain pursuant to the preceding
sentence, all noncash dividends and distributions, 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, or
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 Secured Parties, 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, all rights of the Pledgor to dividends, interest or principal
that the Pledgor is authorized to receive pursuant to paragraph (a)(iii) above
shall cease, and all such rights shall thereupon become vested solely in the
Collateral Agent, which shall have the sole and exclusive right and authority
to receive and retain such
<PAGE> 5
5
dividends, interest or principal. All dividends or distributions received by
the Pledgor contrary to the provisions of this Section 5 shall be held in
trust for the benefit of the Collateral Agent, shall be segregated from other
property or funds of the Pledgor and shall be forthwith delivered to the
Collateral Agent upon demand in the same form as so received (with any necessary
endorsement). Any and all money and other property paid over to or received by
the Collateral Agent pursuant to the provisions of this paragraph (b) shall be
retained by the Collateral Agent in an account to be established by the
Collateral Agent upon receipt of such money or other property and shall be
applied in accordance with the provisions of Section 9. The Pledgor hereby
grants to the Collateral Agent, for the benefit of the Secured Parties, a first
priority security interest in such money, property, account and proceeds
thereof, as additional security to the payment of the Secured Obligations.
After all Events of Default have been cured or waived, the Collateral Agent
shall, within five Business Days after all such Events of Default have been
cured or waived, repay to the Pledgor all cash dividends, interest or principal
(without interest), that such Pledgor would otherwise be permitted to retain
pursuant to the terms of paragraph (a)(iii) above and which remain in such
account.
(c) 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 (e), (f) or (g) of Article X 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 solely 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 each Secured Party that:
(a) Except for the security interest granted hereunder to (x)
the Collateral Agent for the benefit of The Bank of New York under the BNY
Facility (it being understood and agreed that such security interest shall be
terminated on the date upon which (x) all letters of credit listed on Annex II
shall have expired (which for any such letter of credit shall not be later than
its expiry date listed on Annex II) or terminated and under which all drawings
have been reimbursed in full and (y) all "Secured Obligations" as defined in
the BNY Facility have been fully satisfied), and (y) the Collateral Agent for
the benefit of the other Secured Parties, 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
Secured Parties, 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.
<PAGE> 6
6
(c) No authorization, consent or approval, or other action
by, and no notice to or filing with, any Governmental Authority (including any
securities exchange) or any other Person 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
thereby, (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 (including foreclosure thereon), 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.
(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 lien upon and security interest in such Pledged Securities, for the
benefit of the Secured Parties, 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; all information set forth herein relating to the Pledged Securities
is accurate and complete in all material respects.
(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
(i) 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 (ii) 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 of any Lien upon any assets of the
Pledgor under, (A) any contract to which the Pledgor is a party or by which it
or its property may be bound or (B) 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.
<PAGE> 7
7
(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 nor any other Secured
Party 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 (ii) vote any of the Pledged
Securities in favor of any of the foregoing.
(m) The Pledgor shall pay, and save the Collateral Agent and
each other Secured Party harmless from, any and all liabilities with respect
to, or resulting from any delay in paying, any and all stamps, 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.
(n) This Agreement is effective to vest in the Collateral
Agent, on behalf of the Secured Parties, the rights of the Collateral Agent in
the Collateral as set forth herein.
(o) The pledge of the Pledged Securities pursuant to this
Agreement does not violate Regulation G, T, U or X of the Board or any
successor thereto as of the date hereof.
SECTION 7. Issuance of Additional Stock. The Pledgor agrees
that it will not (a) permit any Issuer to issue any stock 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 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.
SECTION 8. Remedies upon Default. (a) If an Event of
Default shall have occurred and be continuing, the Collateral Agent, for the
benefit of the Secured Parties, 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 Secured
Parties 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) 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 sold absolutely free
from any claim or
<PAGE> 8
8
right on the part of the Pledgor (other than rights that the Pledgor may have
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, valuation 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 10
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 on or 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 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, and any
other Secured Party 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, or such other Secured
Party by the Pledgor under or pursuant to the Credit Agreement, as a credit, up
to an amount equal to the amount the Collateral Agent, in its individual
capacity, or such other Secured Party 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 to 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.
<PAGE> 9
9
(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.
(d) Any sale pursuant to the provisions of this Section 8
shall be deemed to conform to the commercially reasonably standards as provided
in Section 9-504(3) of the UCC as in effect in the State of New York or its
equivalent in other jurisdictions.
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 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 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, which appointment is irrevocable and 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, 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 or any other Secured Party to take any action, including requiring or
obligating the Collateral
<PAGE> 10
10
Agent or any other Secured Party to make any commitment or to make any inquiry
as to the nature or sufficiency of any payment received by the Collateral Agent
or any other Secured Party or to present or to 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 or any other Secured Party 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 or any other
Secured Party in the absence of the gross negligence or wilful misconduct of
the Collateral Agent or any other Secured Party, as the case may 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 wilful
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 wilful 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 or any other Secured Party, 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,
power or remedy by the Collateral Agent or any other Secured Party, or any
abandonment or discontinuance of steps to enforce such a right, power or
remedy, 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 or any other Secured Party 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, subject to any
consent required in accordance with Section 12.04 of the Credit Agreement.
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 now or hereafter in effect (the "Securities Act") or any similar
or successor Federal securities law (together with the Securities Act, the
"Federal Securities Laws")
<PAGE> 11
11
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 offer or offers to buy such
Pledged Securities or any part thereof, for cash, from a single investor or a
limited number of investors deemed by the Collateral Agent, in its exclusive
judgment, to be responsible parties who might be interested in purchasing such
Pledged Securities. The Pledgor acknowledges and agrees that any such sale
might result in prices and other terms less favorable to the seller than if
such sale were a public sale without such restrictions. In the event of any
such sale, the Collateral Agent shall incur no responsibility or liability for
selling all or any part of the Pledged Securities that the Collateral Agent may
in good faith deem reasonable under the circumstances.
SECTION 13. Security Interest Absolute; Waivers by Pledgor.
(a) All rights of the Collateral Agent and each other Secured Party 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, any other Loan
Document, 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 or any departure from the Credit Agreement, any other Loan Document,
or any other agreement or instrument (other than payment in full of the Secured
Obligations or, in the case or 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 or any other Secured Party to demand payment or performance by the
Pledgor and/or any of the Guarantors 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 nor any other Secured Party
shall be under any obligation to marshal any assets in favor of the Pledgor or
against or in payment of any or all of the Secured Obligations.
<PAGE> 12
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(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 or the Credit 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 or the Credit 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 or any other Secured Party 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 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 (a) all the Secured Obligations
shall have been paid in full in cash, and (b) the Maturity 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 or any other Secured Party
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. Release of Collateral. The Collateral shall be
released to the Pledgor upon the earlier of (a) the senior unsecured non-credit
enhanced long-term debt issued by the Pledgor is rated at least BBB- from
Standard & Poor's Rating Group and Baa3 from Moody's Investors Service, Inc. or
(b) (i) the Operating Cash Flow of the Pledgor and its Subsidiaries (on a
trailing four-Fiscal Quarter period most recently ended) exceeds $100,000,000
for two consecutive Fiscal Quarters and (ii) the Total Debt Ratio of the
Pledgor and its Subsidiaries (based on the Operating Cash Flow of the Pledgor
and its Subsidiaries for a trailing four-Fiscal Quarter period most recently
ended) is less than 2:1 for the same two consecutive Fiscal Quarters. The
Collateral Agent shall return to the Pledgor any
<PAGE> 13
13
certificates representing the Pledged Securities and any other Collateral
within 10 Business Days after receipt by the Collateral Agent of a notice from
the Pledgor requesting such release and confirming the matters set forth in (a)
and (b) above, in each case in a manner reasonably satisfactory to the
Collateral Agent. Notwithstanding the foregoing, such released Collateral
shall at all times be subject to Section 9.05 of the Credit Agreement and shall
not be pledged to (or subject to any negative pledge covenant benefitting) any
third party without the prior written consent of all Lenders.
SECTION 17. 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 331716, telecopier number: (813) 539-6506, telephone
number: (813) 572-8585, attention of Chief Financial Officer, with a copy to
Legal Department, attention General Counsel, 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 22, all notices and other
communications given to any party hereto in accordance with the provisions of
this Agreement shall be deemed to have been given at the time determined
pursuant to Section 12.02 of the Credit Agreement.
SECTION 18. 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 and the other Secured Parties 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 and the other Secured Parties and that the Collateral Agent
and the other Secured Parties 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.
SECTION 19. Successors and Assigns. In the event of
assignment of all or a portion of any of the Indebtedness under the Credit
Agreement by the Issuing Bank or a Lender, the rights of or on behalf of such
Lender or the Issuing Bank, as the case may be, hereunder, to the extent
applicable to the Indebtedness so assigned, shall be transferred with such
Indebtedness and the term "Lender" or "Issuing Bank", 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 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 or the Credit
Agreement.
<PAGE> 14
14
SECTION 20. 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 sought. Any
waiver shall be effective only in the specific instance and for the specific
purpose for which made or given.
SECTION 21. 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 22. 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 17, 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 or any other Secured Party to serve process in any other manner permitted
by law or shall limit the right of the Collateral Agent or any other Secured
Party 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 or any other Secured
Party 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 AND EACH OTHER
SECURED PARTY HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING
ANY SUCH CLAIM.
SECTION 23. 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 24. 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 enforceability in any jurisdiction
shall not invalidate or render unenforceable such provision in any other
jurisdiction.
SECTION 25. 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 26. 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
<PAGE> 15
15
Agreement. Nothing contained herein shall be construed to enlarge the degree
of responsibility or discretion or the duty of care to be 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 Article XI 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
/s/ Kevin J. McKeon
--------------------------------------
Name: Kevin J. McKeon
Title: Executive Vice President, Chief
Financial Officer and Treasurer
LTCB TRUST COMPANY, as Collateral Agent,
by
/s/ John A. Krob
--------------------------------------
Name: John A. Krob
Title: Senior Vice President
<PAGE> 16
Annex I
To The Pledge Agreement
PLEDGED SECURITIES
<TABLE>
<CAPTION>
Shares Shares Certificate
Issuer Pledged Authorized Number(s) Pledgor
<S> <C> <C> <C> <C>
Home Shopping
Home Shopping Club, Inc. 1,000 1,000 1 Network, Inc.
Home Shopping
HSN Realty, Inc. 1,000 1,000 1 Network, Inc.
</TABLE>
<PAGE> 17
ANNEX II
To The Pledge Agreement
<TABLE>
<S> <C>
LETTERS OF CREDIT OUTSTANDING REPORT FOR HOME SHOPPING CLUB INC.
AS OF 08/01/96
L/C OPENING
NUMBER BALANCE
-------- --------
00070908 16,794.00
00071664 35,355.00
00070945 18,000.00
00070946 23,250.00
00071363 106,750.00
00071844 213,500.00
00071633 20,520.00
00071709 28,480.00
00070877 35,370.00
00071366 4,500.00
00070872 113,800.00
00071998 439,824.00
00071454 9,450.00
00071049 308,790.00
00071997 42,790.00
00071637 50,345.00
00070942 88,800.00
00071671 111,500.00
00071636 214,670.00
00071872 45,000.00
00071852 61,300.00
00071361 19,187.50
00071642 36,745.00
00071668 37,765.00
00070962 38,375.00
00071638 49,627.50
00062488 288,282.24
00066944 288,282.24
00071712 29,171.80
00071958 21,290.00
00071703 24,250.00
00071641 35,660.00
00071359 38,495.00
00071613 38,630.00
00071669 48,500.00
00071358 53,545.00
00071635 74,160.00
00071666 84,000.00
00071845 84,000.00
00071672 102,500.00
00070961 152,355.00
00071615 30,000.00
00067315 32,500.00
00071616 38,050.00
00070871 10,980.00
00070909 10,200.00
</TABLE>
<PAGE> 18
L/C OPENING
NUMBER BALANCE
------- ----------
00071631 11,025.00
00070944 14,700.00
00070907 15,120.00
00070911 13,035.00
00071843 44,460.00
00071640 46,454.00
00071455 158,195.20
00070875 31,130.40
00070874 34,087.50
00070876 36,360.00
00071873 9,900.00
00071711 27,688.80
00070912 23,790.00
00070913 32,940.00
00071618 25,620.00
00071849 27,990.00
00071617 31,032.00
00070915 33,300.00
00071619 31,110.00
00071622 38,220.00
00070914 36,600.00
00070916 43,440.00
00071621 44,400.00
00071620 134,353.50
00070873 145,400.00
00070943 54,651.00
00071846 11,000.00
00071458 19,294.00
00071848 27,500.00
00071847 87,500.00
00071667 70,680.00
00071354 37,634.50
00071355 14,546.40
00071356 16,926.40
00067319 22,808.50
00071357 86,573.50
00070950 21,920.00
00071665 13,140.00
00070951 38,334.24
00070918 22,375.00
00070949 43,584.00
00071708 38,675.00
00071634 44,625.00
00071874 98,880.00
00071639 184,450.00
00071710 9,990.00
00070964 53,995.00
L/C OPENING
NUMBER BALANCE
------- ----------
00071360 86,040.00
00066967 190,500.00
00071453 13,545.00
00071851 13,591.50
00071452 15,075.00
00071850 16,902.00
00071632 19,278.00
00070952 86,625.00
<PAGE> 19
--
HOME SHOPPING TOTAL FOR :
CID # 9781240068 --
-
00071842 8,484.00
00071486 9,727.90
00070954 17,770.00
00067782 8,038.50
00071488 6,617.00
00071888 13,000.00
00070953 22,271.00
00071451 25,392.50
00071704 59,064.00
00071485 7,565.60
00071705 21,972.10
00071942 5,262.00
00070955 14,406.50
00071487 9,228.80
00067781 38,500.80
--
HOME SHOPPING TOTAL FOR :
CID # 9781240076 --
-
--
: --
-
OUTSTANDING CUSTOMER CURRENT
BALANCE REFERENCE EXPIRY D
---------- ---------------- --------
16,794.00 907240 08/20/96
35,355.00 907510519521 09/28/96
18,000.00 907293 08/20/96
23,250.00 907293 08/20/96
106,750.00 907492 08/22/96
213,500.00 907493 09/22/96
20,520.00 907212907452 09/04/96
28,480.00 907617 08/31/96
35,370.00 907152907195 08/22/96
4,500.00 907419 08/30/96
104,836.00 907377ETC 08/31/96
439,824.00 907649 08/28/96
9,450.00 907387 08/25/96
308,790.00 907091ETC 08/22/96
42,790.00 907189 08/06/96
50,345.00 907272 09/19/96
88,800.00 906972 08/22/96
111,500.00 907610 08/30/96
214,670.00 907268269270 09/19/96
45,000.00 907231 09/15/96
61,300.00 907256257 09/20/96
19,187.50 907470 10/05/96
36,745.00 907488 08/30/96
37,765.00 907487 08/30/96
38,375.00 907164 08/10/96
49,627.50 907275 09/19/96
158,999.04 906818 08/21/96
317,998.08 906819 09/21/96
29,171.80 9075867587 08/31/96
21,290.00 907193 08/26/96
24,250.00 907624 09/21/96
35,660.00 907489 09/19/96
38,495.00 907305 08/22/96
38,630.00 907192 08/05/96
48,500.00 907608 09/19/96
53,545.00 907304 08/22/96
74,160.00 907267 09/19/96
84,000.00 907500 09/19/96
84,000.00 907499 09/20/96
102,500.00 907607 09/19/96
152,355.00 907163 08/22/96
30,000.00 907022 09/10/96
32,500.00 907020 08/10/96
38,050.00 907023 09/10/96
10,980.00 907382 08/25/96
10,200.00 907071 08/22/96
<PAGE> 20
OUTSTANDING CUSTOMER CURRENT
BALANCE REFERENCE EXPIRY D
---------- ---------------- --------
11,025.00 907328 09/10/96
14,700.00 907242 08/23/96
15,120.00 907070 08/10/96
13,035.00 907262 08/26/96
44,460.00 907371 09/10/96
46,454.00 907172374583 09/22/96
158,195.20 907527 09/28/96
31,130.40 907300 08/22/96
34,087.50 907081 08/22/96
36,360.00 907299 08/22/96
9,900.00 907206 09/18/96
27,688.80 907433 08/31/96
25,620.00 907155 08/15/96
25,620.00 907157 08/14/96
25,620.00 907121 09/20/96
27,990.00 907295 09/18/96
31,032.00 907119 09/20/96
33,300.00 907197 08/14/96
36,600.00 907156 09/20/96
38,220.00 907222 09/20/96
40,260.00 C07159 08/15/96
43,440.00 907198 08/14/96
44,400.00 907194 09/20/96
134,353.50 907160 09/14/96
145,400.00 907331333 08/22/96
54,651.00 907180907181 08/22/96
11,000.00 907550 09/20/96
19,294.00 907555557 08/24/96
27,500.00 907560 09/19/96
87,500.00 907552 09/22/96
70,680.00 907567907570 09/28/96
37,634.50 907463464465 08/22/96
15,048.00 TELCO 08/22/96
17,040.00 907176 08/22/96
23,595.00 907076 08/10/96
87,071.50 90717789 08/22/96
21,920.00 907174 09/10/96
13,140.00 907518 09/19/96
38,334.24 907102907303 08/26/96
22,375.00 907183 08/15/96
43,584.00 907171 08/15/96
38,675.00 907566 09/21/96
44,625.00 907250 09/20/96
121,292.80 907342 08/31/96
184,450.00 907277787980 09/25/96
9,990.00 907462 09/10/96
53,995.00 907162 08/05/96
OUTSTANDING CUSTOMER CURRENT
BALANCE REFERENCE EXPIRY D
---------- ---------------- --------
86,040.00 907252253 08/22/96
190,500.00 906906 08/22/96
13,545.00 907406 09/12/96
13,591.50 907404 09/18/96
15,075.00 907402 08/20/96
16,902.00 907399 09/18/96
19,278.00 907398 09/09/96
86,625.00 907339340341 08/24/96
----------------
6,125,770.86
----------------
8,484.00 800289 09/20/96
9,727.90 800279 09/20/96
17,770.00 800263 08/22/96
3,251.20 800253800257 08/06/96
6,617.00 800273 09/20/96
13,000.00 800281 08/26/96
22,271.00 800216256262 08/21/96
25,392.50 800276 08/15/96
59,064.00 800290 09/20/96
7,565.60 800280 08/20/96
14,406.50 800280800284 09/19/96
5,262.00 800300800304 10/20/96
14,406.50 800249250251 08/22/96
9,228.80 800271 08/30/96
34,525.80 80025458960 08/20/96
----------------
250,972.80
----------------
----------------
6,370,02086
----------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 17,351
<SECURITIES> 0
<RECEIVABLES> 27,908
<ALLOWANCES> 0
<INVENTORY> 89,569
<CURRENT-ASSETS> 165,826
<PP&E> 227,731
<DEPRECIATION> 125,543
<TOTAL-ASSETS> 417,910
<CURRENT-LIABILITIES> 151,770
<BONDS> 118,079
0
0
<COMMON> 790
<OTHER-SE> 147,271
<TOTAL-LIABILITY-AND-EQUITY> 417,910
<SALES> 243,988
<TOTAL-REVENUES> 243,988
<CGS> 151,679
<TOTAL-COSTS> 151,679
<OTHER-EXPENSES> 84,675
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,255
<INCOME-PRETAX> 8,011
<INCOME-TAX> 3,045
<INCOME-CONTINUING> 4,966
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,966
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
