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HOME SHOPPING NETWORK, INC.
1995 ANNUAL REPORT
This report is being printed on the
lowest cost paper obtainable.
Management felt that this was
appropriate given this year's dismal
performance. Our hope is that next
year this report will glow with color,
graphics, and expansive statements
about the future of your Company,
supported by results from calendar
year 1996. Meanwhile, there is work to
be done.
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE YEAR ENDED DECEMBER 31, 1995
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COMMISSION FILE NO. 1-9118
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HOME SHOPPING NETWORK, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 59-2649518
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2501 118TH AVENUE NORTH, ST. PETERSBURG, 33716
FLORIDA (Zip Code)
(Address of registrant's principal executive
offices)
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(813) 572-8585
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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TITLE OF NAME OF EXCHANGE
EACH CLASS ON WHICH REGISTERED
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<S> <C>
Common Stock, $.01 Par Value............................ NYSE
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SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
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 / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
As of March 6, 1996, there were outstanding 70,740,579 shares of Common
Stock (net of 6,986,000 shares held in treasury) and 20,000,000 shares of Class
B common stock. The aggregate market value of the voting stock held by
non-affiliates of the registrant as of March 6, 1996, was $611,499,585.
DOCUMENTS INCORPORATED BY REFERENCE:
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DOCUMENTS FORM 10-K REFERENCE
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Proxy Statement dated March 1996..................... Part III Items 10-13
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HOME SHOPPING NETWORK, INC.
FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
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PAGE NO.
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PART I
Item 1 Business................................................................ 1
Item 2 Properties.............................................................. 7
Item 3 Legal Proceedings....................................................... 8
Item 4 Submission of Matters to a Vote of Security Holders..................... 8
PART II
Item 5 Market for Registrant's Common Equity and Related Stockholder Matters... 9
Item 6 Selected Financial Data................................................. 10
Item 7 Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 12
Item 8 Consolidated Financial Statements....................................... 24
Item 9 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures................................................... 46
PART III
Item 10 Directors and Executive Officers of the Registrant...................... 47
Item 11 Executive Compensation.................................................. 47
Item 12 Security Ownership of Certain Beneficial Owners and Management.......... 47
Item 13 Certain Relationships and Related Transactions.......................... 47
PART IV
Item 14 Exhibits, Financial Statement Schedule, and Reports on Form 8-K......... 47
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PART I
ITEM 1 -- BUSINESS
GENERAL
Home Shopping Network, Inc. ("HSN" or 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, and principal
source of revenue, is electronic retail sales by Home Shopping Club, Inc.
("HSC"), a wholly-owned subsidiary of the Company and a leader in the electronic
retailing industry.
The Company experienced a downturn in its business during 1995, reporting a
net loss of $61.9 million, a decline in net sales, significant operating losses
and negative cash flow from operations.
The Company believes that its negative performance in 1995 was due in part
to the adverse effects of certain merchandising and programming strategies which
had been implemented in late 1994 and 1995. In November 1995, the Company
appointed Barry Diller as Chairman of the Board of Directors and James Held as
President and Chief Executive Officer. The Company sought the services of
Messrs. Diller and Held because of their significant experience in electronic
retailing and programming.
The new senior management of HSN has undertaken a comprehensive review of
HSN's merchandising and programming strategies, operations, budget and financial
condition. Although the Company believes that new management's operating and
merchandising strategies will improve the Company's operating results, there can
be no assurance that management will be successful in these efforts.
On March 1, 1996, the Company obtained additional financing through a
private placement of $100.0 million of Convertible Subordinated Debentures.
In November 1995, Tele-Communications, Inc. ("TCI"), which, through its
wholly owned subsidiary Liberty Media Corporation ("Liberty"), beneficially owns
approximately 41% of the outstanding equity securities of the Company,
representing approximately 80% of the voting power, entered into certain
agreements with Mr. Diller and Silver King Communications, Inc. ("SKC") pursuant
to which, among other things, TCI has agreed to transfer these equity securities
of the Company to SKC. Pursuant to a separate proposed transaction between Mr.
Diller and Liberty, an entity controlled by Mr. Diller would acquire equity
securities representing a majority of the voting power of SKC. As a result,
assuming the consummation of these transactions, Mr. Diller would acquire
indirect voting control of the Company through his voting interest in SKC. The
consummation of each of these transactions is subject to a number of conditions
including, but not limited to, the receipt of necessary regulatory and SKC
shareholder approvals.
HOME SHOPPING CLUB, INC.
HSC sells a variety of consumer goods and services by means of HSC's live,
customer-interactive electronic retail sales programs which are transmitted
twenty-four hours a day, seven days per week, via satellite to cable television
systems, affiliated broadcast television stations and satellite dish receivers.
HSC's retail sales programming is currently carried on two separate networks,
HSN and Spree!. Both networks are carried by cable television systems and
broadcast television stations throughout the country. Spree! programming is
available in one hour segments, which enable broadcast and cable affiliates to
air Spree! in available time slots that would not otherwise produce revenue for
the affiliate.
The Company's electronic retail marketing and programming is intended to
promote sales and customer loyalty through a combination of information,
entertainment and the creation of confidence in HSC and its products. HSC
programming is divided into segments which are televised live with a show host
who presents the merchandise and conveys information relating to the product,
including price, quality, features and benefits. Viewers place orders for
products by calling a toll-free telephone number. Show hosts engage callers in
on-air discussions regarding the currently featured product or the caller's
previous experience with the Company's products. This format creates a
spontaneous and entertaining program. HSC attempts to stimulate
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customer loyalty by providing, among other things, marketing materials such as
the "Bargaineer(R) HomeView(sm)" magazine which offers discounts on HSC
purchases, features articles on the Company's products and programming, and
includes schedules of upcoming shows.
On August 5, 1995, the Company relaunched HSN with more scheduled programs
and theme related shows, new sets, graphics and music. During the third quarter
of 1995, the Company relaunched Spree! with a more spontaneous format, new
graphics and music. These changes were designed to distinguish the networks and
reach a broader range of potential customers.
The following table highlights the changes in the estimated unduplicated
television household reach of HSN, the Company's primary network, by category
for the year ended December 31, 1995:
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CABLE* BROADCAST SATELLITE TOTAL
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(In thousands of households)
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Households -- December 31, 1994..................... 38,960 23,068 3,750 65,778
Net additions/(deletions)........................... 4,757 (1,510) -- 3,247
Shift in classification............................. 503 (503) -- --
Change in Nielsen household counts.................. -- 164 -- 164
------ --------- --------- ------
Households -- December 31, 1995..................... 44,220 21,219 3,750 69,189
====== ======= ====== ======
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* Households capable of receiving both broadcast and cable transmissions are
included under cable.
According to industry sources, as of December 31, 1995, there were 95.3
million homes in the United States with a television set, 62.1 million basic
cable television subscribers and 3.8 million homes with satellite dish
receivers.
In addition to the households in the above table, as of January 1, 1996,
approximately 12.0 million cable television households were reached by Spree!,
of which 3.4 million were on a part-time basis. Of the total cable television
households receiving Spree!, 9.7 million also receive HSN.
CUSTOMER SERVICE AND RETURN POLICY
HSC believes that satisfied customers will be loyal and will purchase
merchandise on a regular basis. Accordingly, HSC has customer service personnel
and computerized voice response units (the "VRU") available to handle calls
relating to customer inquiries seven days a week, twenty-four hours a day.
Generally, any item purchased from HSC may be returned within thirty days
for a full refund of the purchase price, including the original shipping and
handling charges.
DISTRIBUTION, DATA PROCESSING AND TELECOMMUNICATIONS
The Company's fulfillment subsidiaries store, service and ship merchandise
from warehouses located in St. Petersburg, Florida, Salem, Virginia and
Waterloo, Iowa. During 1995, the Company closed its distribution warehouse in
Reno, Nevada. Generally, merchandise is delivered to customers within 7 to 10
business days of placing an order.
HSN currently operates several Unisys main frame computers and has
extensive computer systems which track purchase orders, inventory, sales,
payments, credit authorization, and delivery of merchandise to customers.
HSC has digital telephone and switching systems and utilizes the VRU which
allows callers to place their orders by means of touch tone input or to be
transferred to an operator.
The Company is developing plans for upgrading or replacing many of these
systems during 1996 and 1997.
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PRODUCT PURCHASING AND LIQUIDATION
HSC purchases merchandise made to its specifications, merchandise from
manufacturers' lines and overstock inventories of wholesalers. During 1995, the
Company continued to change its purchasing strategy to emphasize product
sourcing, variety, development of new private label lines and name brand
merchandise. This strategy is likely to change in 1996 based on determinations
to be made by new management. The mix of products and source of such merchandise
depends upon a variety of factors, including price and availability. HSC has no
long-term commitments with any of its vendors, and there are various sources of
supply available for each category of merchandise sold.
HSC's product offerings include: jewelry; hardgoods, which include consumer
electronics, collectibles, housewares, and consumables; softgoods, which consist
primarily of clothing and fashion accessories, and cosmetics. For 1995, jewelry,
hardgoods, softgoods and cosmetics accounted for approximately 39%, 37%, 14% and
10%, respectively, of HSC's net sales.
The Company liquidates short lot and returned merchandise through its five
outlet stores and two liquidation centers located in Florida. Merchandise that
is damaged is liquidated by the Company through traditional channels.
TRANSMISSION AND PROGRAMMING
HSC produces retail sales programs in its studios located in St.
Petersburg, Florida. These programs are distributed to cable television systems,
broadcast television stations, a direct broadcast satellite service and
satellite dish receivers by means of HSN's satellite uplink facilities to
satellite transponders leased by HSN. Any cable television system, broadcast
television station or individual satellite dish owner in the United States and
the Caribbean Islands equipped with standard satellite receiving facilities is
capable of receiving HSC programming.
HSN has lease agreements securing full-time use of three transponders on
three domestic communications satellites. Each of the transponder lease
agreements grants HSN "protected" rights. When the carrier provides services to
a customer on a "protected" basis, replacement transponders (i.e., spare or
unassigned transponders) on the satellite may be used in the event the
"protected" transponder fails. Should there be no replacement transponders
available, the "protected" customer will displace a "preemptible" transponder
customer on the same satellite. The carrier also maintains a protection
satellite and should a satellite fail completely, all "protected" transponders
would be moved to the protection satellite which is available on a "first fail,
first served" basis.
One transponder leased by HSN may, however, be preempted in order to
satisfy the owner's obligations to provide the transponder to another lessee on
the satellite in the event that the other lessee cannot be restored to service
through the use of spare or reserve transponders (the "Special Termination
Right"). As of June 5, 1995, the Company discontinued use of this satellite
transponder for which it has a non-cancelable operating lease calling for
monthly payments of approximately $150,000 through December 31, 2006. The
Company subleased this satellite transponder to a related party during 1995. The
sublease expired on February 15, 1996, and the Company is currently seeking to
sublease the transponder or to sell its rights with respect to this satellite
transponder. The Company does not expect any material adverse financial impact
in connection with the lease.
A transponder failure that would necessitate a move to another transponder
on the same satellite would not result in any significant interruptions of
service to the cable systems and/or television stations which receive HSC's
programming. However, a failure that would necessitate a move to another
satellite may temporarily affect the number of cable systems and/or television
stations which receive HSC's programming (as well as all other programming
carried on the failed satellite) because of the need to install equipment or to
reorient earth stations.
The terms of two of the leases are for the life of the satellites, which
are projected to be through 2004. The term of the third lease is through
December 31, 2006, subject to earlier implementation of the Special Termination
Right.
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HSN's access to three transponders pursuant to long-term agreements would
enable HSC to continue transmission of its two programming services, HSN and
Spree!, should any one of the satellites fail. Although HSN believes it is
taking every reasonable measure to ensure its continued satellite transmission
capability, there can be no assurance that termination or interruption of
satellite transmissions will not occur. Such a termination or interruption of
service by one or more of these satellites could have a material adverse effect
on the operation and financial condition of the Company.
The availability of replacement satellites and transponder time beyond
current leases is dependent on a number of factors over which HSN has no
control, including competition among prospective users for available
transponders and the availability of satellite launching facilities for
replacement satellites.
The Federal Communications Commission ("FCC") grants licenses to construct
and operate satellite uplink facilities which transmit signals to satellites.
These licenses are generally issued without a hearing if suitable frequencies
are available. HSN has been granted two licenses for operation of C-band
satellite transmission facilities and two licenses for operation of KU-band
satellite transmission facilities on a permanent basis in Clearwater and St.
Petersburg, Florida.
REGULATORY MATTERS
On October 5, 1992, the Cable Television Consumer Protection and
Competition Act of 1992 (the "1992 Cable Act") was enacted into law. Among the
many provisions of this law is one that mandates that cable systems carry the
signals of local commercial television stations ("must carry") or, at the
station's option, that cable systems and television stations negotiate a fee to
be paid by cable systems for the retransmission by such cable systems of the
local television station's broadcast signal. HSC's full-time, full power
broadcast affiliates have all requested "must carry" status in lieu of a
retransmission fee and most have obtained "must carry" status. The U. S.
District Court for the District of Columbia has twice upheld the
constitutionality of the "must carry" rules. The Supreme Court will review this
issue in late 1996 or early 1997.
During 1993 and 1994, "must carry" was important to the Company in
obtaining carriage by cable operators. Due to HSC's success in obtaining
long-term carriage commitments, in the event "must carry" is ruled
unconstitutional, the Company does not believe the ruling will have a material
adverse impact on the Company or result in any significant loss in carriage.
In November 1994, the FCC issued "going forward" rules pursuant to the 1992
Cable Act regarding the fees cable operators can charge subscribers for new
programming. The going forward rules provide that cable operators can increase
the charges to subscribers for new programming but must offset the charges by
revenues, including sales commissions, they receive from the programmer. The
Company and other electronic retailing companies filed Petitions for
Reconsideration with the FCC which requested that shop-at-home programming
revenues be excluded from the cable operator's offset to revenues, and this
petition was granted in August 1995.
In January 1996, the Telecommunications Act of 1996 became law, providing
for, among other things, the deregulation of the telephone and cable industries
to permit increased competition and technological developments. Although the
effect of this law on the telecommunications industry cannot yet be determined,
the Company does not believe it will have an adverse impact on its business.
AFFILIATION AGREEMENTS WITH CABLE OPERATORS
HSC enters into affiliation agreements with cable system operators to carry
HSN, Spree! or both. HSC has a standard form of affiliation agreement which has
a term of five years, is automatically renewable for subsequent one year terms,
and obligates the cable operator to assist the promotional efforts of HSC by
carrying commercials regarding HSN and Spree! and distributing HSC's marketing
materials to the cable operator's subscribers. The standard form of affiliation
agreement provides that the cable operator will receive a commission of five
percent of the net sales of merchandise sold within the cable operator's
franchise area (from both cable and non-cable households). However, particularly
with larger, multiple system operators, HSC has agreed to provide additional
compensation. In the past, this has included the purchase of advertising
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availabilities from cable operators on other programming networks and the
establishment of commission guarantees committing HSC to a certain level of
payments. Although a number of these contracts remain in effect, as a general
rule, HSC is no longer entering into agreements that provide for advertising
availability and commission guarantee compensation. These forms of compensation
were replaced with cable distribution fees or performance bonus commissions that
are intended to increase sales by compensating the cable operators for
promotional efforts which result in higher net sales levels.
Due to the possibility of "must carry" being found unconstitutional, HSC
embarked on an aggressive campaign to bring the "must carry" households under
contract by volunteering to pay commissions to cable operators required to
transmit HSC's programming. As an additional contract incentive, HSC offered to
make payments of cable distribution fees, primarily consisting of up-front
payments, based on a commitment to transmit HSC programming to a certain number
of subscribers. In exchange for these payments, HSC required significant
commitments for both the "must carry" and "non-must carry" households and
original terms of five to fifteen years.
AFFILIATION AGREEMENTS WITH BROADCAST TELEVISION STATIONS
SKC, through its subsidiaries, owns twelve broadcast television stations,
including one television satellite station. These stations are located in many
of the top markets in the United States and exclusively broadcast HSC
programming, except for a portion of broadcast time which is used to provide
public affairs and other non-entertainment programming and advertising inserts.
Each of the full power SKC stations has an affiliation agreement with HSC
to carry HSC's programming through December 28, 1997 providing for an hourly
fee, and upon reaching certain sales levels, commissions on net sales. These
agreements are automatically renewable at SKC's option for a five-year term,
unless written notice is given by SKC at least 18 months prior to the expiration
date. The Company has agreed in principle with SKC that the period for delivery
of the notice of non-renewal by SKC will be extended until December 28, 1996.
SKC has informed the Company that it has not made any final decision regarding
whether it will renew any or all of the affiliation agreements but presently
contemplates that it will not renew the affiliation agreements. The Company
believes, based on its preliminary analysis, that the orderly termination of the
affiliation agreements may be in the Company's best interests because of the
potential cost savings and the existing cable carriage of the HSC programming in
many of the SKC markets. The Company is evaluating the affected markets to
determine the need for obtaining additional program carriage and the related
costs of such carriage. There can be no assurance that SKC will in fact
terminate any or all of the affiliation agreements or that, if so terminated,
that the Company will be able to find other means of distributing HSC
programming by broadcast or cable to the households in the broadcast areas
currently served by SKC stations.
SKC also owns 26 low power television ("LPTV") stations that broadcast
HSC's programming services. Fourteen stations are currently under existing
affiliation agreements, and the Company contemplates entering into contracts
with the remaining stations in 1996. LPTV stations have lower power transmitters
than conventional television stations, and therefore, the broadcast signal of an
LPTV station does not cover as broad a geographical area as conventional
broadcast stations.
In addition to affiliation agreements with the SKC broadcast television and
LPTV stations, HSC has entered into affiliation agreements with other broadcast
television stations and LPTV stations to carry either HSN or Spree! for a
predetermined number of hours per day. The broadcast station affiliation
agreements may generally be terminated upon notice by either party and specify
the payment of fixed hourly fees for the carriage of HSC programming.
ADDITIONAL SUBSIDIARY BUSINESSES
In addition to the electronic retailing business, the Company's
subsidiaries are involved in mail order, insurance and other businesses
complementary to electronic retailing.
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HSN Mail Order, Inc. ("Mail Order") markets a variety of merchandise
through five mail order catalogs. The catalogs include HSN By Mail(sm), HSN By
Mail(sm) -- Signature Gem Collection(sm), HSN by Mail(sm) -- The Gallery of
Dolls(sm), HSN By Mail(sm) -- Private Showing(R) Jewelry, and Bargaineer(R)
Homeview(sm). Mail Order also markets a variety of products by inserting
marketing materials, including its catalogs, in packages containing HSC products
shipped to customers. In addition, through its Life Way(R) name, Mail Order
markets natural vitamin and mineral supplements, over-the-counter items, health
and wellness merchandise and a complete line of skin and hair products.
Vela Research, Inc. develops and markets high technology audio and video
MPEG compression/decompression products to the cable, broadcast, computer and
telecommunications industries.
HSN Direct Joint Venture ("HSND") develops, produces, and markets
infomercials and short form direct response spots on a national and
international basis. The Company presently owns a majority interest in HSND. The
Company has entered into negotiations with FlexTech p.1.c., an affiliate of TCI,
("FlexTech") pursuant to which FlexTech (or a subsidiary thereof) would make a
substantial investment in HSND and become the majority owner of HSND. If this
transaction is consummated upon the terms presently proposed, FlexTech would own
approximately 79% of the business of HSND, and the Company's interest would be
reduced to 15%. In connection with this transaction, the Company would receive
approximately $5.0 million. There can be no assurance that this transaction will
be consummated or, if consummated, will be consummated on the currently proposed
terms.
Internet Shopping Network, Inc. ("ISN") is a wholly-owned subsidiary which
operates an interactive shopping service on the Internet specializing in small
office and computer equipment. ISN is also engaged in exploring business
opportunities for merchandising products via digital interactive television
services and other new digital retailing vehicles.
HSN Insurance, Inc. ("HSI") is a full-service insurance agency marketing a
wide range of insurance products such as life, health, auto, homeowners and
commercial policies to the public and HSC customers. Mass-marketing of other
insurance and service-related products such as a private-label travel club, an
auto club, a health and dental discount program, an AD & D insurance product and
an extended service plan for electronics are offered to HSC customers
nationally. HSI also handles the placement of all property and liability
insurance for HSN and its subsidiaries, as well as employee benefits insurance
products.
COMPETITION
The Company operates in a highly competitive environment. It is in direct
competition with businesses which are engaged in retail merchandising, other
electronic retailers, direct marketing retailers such as mail order companies,
companies that sell from catalogs, other discount retailers and companies that
market through computer technology. The Company also competes for access to its
customers with broadcasters and alternative forms of entertainment and
information, such as programming for network and independent broadcast
television stations, basic and pay cable television services, satellite master
antenna systems, home satellite dishes and home entertainment centers. In
particular, the price and availability of programming for cable television
systems affects the availability of these channels for the Company's programs
and the compensation which must be paid to the cable operators for carriage of
HSC programming. In addition, the Company believes that due to a number of
factors, including the development by cable operators of alternative sources of
cable operator owned programming, the competition for channel capacity has
substantially increased. With the advent of new compression technologies on the
horizon, this competition for channel capacity may substantially decrease,
although additional competitors may have the opportunity to enter the
marketplace. No predictions can be made with respect to the viability of these
technologies or the extent to which they will ultimately impact the availability
of channel capacity.
The Company and QVC, Inc. ("QVC") are currently the two leading electronic
retailing companies. There are other companies, some having an affiliation or
common ownership with cable operators, that now market merchandise by means of
live television. A number of other entities are engaged in direct retail sales
businesses which utilize television in some form and which target the same
markets in which the Company
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operates. Some of the Company's competitors are larger and more diversified than
the Company, or are also affiliated with cable operators which have a
substantial number of subscribers. The Company cannot predict the degree of
success with which it will meet competition in the future. TCI currently owns
43% of QVC but has entered into a stockholders agreement with Comcast
Corporation (which owns 57% of QVC) pursuant to which Comcast Corporation
controls the day to day operations of QVC.
In addition to the above factors, the Company's affiliation with broadcast
television stations creates another set of competitive conditions. These
stations compete for television viewers primarily within local markets. The
Company's affiliated broadcast television stations are located in highly
competitive markets and compete against both VHF and UHF stations. Due to
technical factors, a UHF television station generally requires greater power and
a higher antenna to secure substantially the same geographical coverage as a VHF
television station. Under present FCC regulations, additional UHF commercial
television broadcasting stations may be operated in all such markets, with the
possible exception of New York City. The Company also competes with new
entertainment and shopping networks for carriage on broadcast television
stations. The Company cannot quantify the competitive effect of the foregoing or
any other sources of video programming on any of the Company's affiliated
television stations, nor can it predict whether such competition will have a
material adverse effect on its operations.
In summary, the Company operates in a highly competitive environment in
which, among other things, technological change, changes in distribution
patterns, media innovations, data processing improvements and new entrants make
the competitive position of both the Company and its competitors extremely
difficult to predict.
TRADEMARKS, TRADENAMES AND COPYRIGHTS
The Company has registered and continues to register, when appropriate, its
trade and service marks as they are developed and used, and the Company
vigorously protects its trade and service marks. The Company believes that its
marks are a primary marketing tool.
EMPLOYEES
During 1995, the Company instituted a number of cost cutting measures
including a reduction in work force of 262 employees. At December 31, 1995, the
Company had 3,804 full-time employees and 491 part-time employees. The Company
believes it has generally good employee relationships.
ITEM 2 -- PROPERTIES
The Company owns an approximately 480,000 square foot facility in St.
Petersburg, Florida, which houses its television studios, broadcast facilities,
and most of the Company's administrative offices and training facilities.
The Company operates four warehouse type facilities totaling approximately
115,000 square feet near the Company's main campus in St. Petersburg, Florida.
These facilities are used for returns processing, retail distribution and
general storage.
The Company leases a 21,000 square foot facility in Clearwater, Florida for
its video and post production operations.
The Company owns and operates a warehouse consisting of approximately
163,000 square feet located in Waterloo, Iowa which is used as a fulfillment
center.
The Company operates a warehouse located in Salem, Virginia, consisting of
approximately 650,000 square feet which is leased from the City of Salem
Industrial Development Authority. On November 1, 1999, the Company will have the
option to purchase the property for $1.
The Company's retail outlet subsidiary leases seven retail stores in the
Tampa Bay and Orlando areas totaling approximately 173,000 square feet.
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The Company and its other subsidiaries also lease office space in
California, Colorado and New Jersey.
The Company considers its properties suitable and adequate for its present
needs.
ITEM 3 -- LEGAL PROCEEDINGS
The Company has agreed to settle a consolidated class action initiated in
1990 pending 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 allege 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 proposed 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 is $2.5 million, which will be placed in an escrow account following
preliminary court approval of the settlement. 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. The settlement is subject to
approval by the Court after notice and hearing.
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, and proposed a settlement
based upon a cease and desist order that would require the Company to obtain
scientific evidence that would meet certain defined standards. The Company did
not agree that the consent order proposed by the FTC was warranted, and the
complaint, which seeks no monetary damages, will be heard by an FTC
administrative law judge during the first half of 1996.
ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
8
<PAGE> 12
PART II
ITEM 5 -- MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
The following table sets forth, for the quarterly periods indicated, the
high and low sales prices of the Company's common stock on the New York Stock
Exchange (Symbol: HSN).
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
HIGH LOW
--------------------------------------------------------------------------------------
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1995
Quarter ended March 31........................................... $10.00 $ 7.38
Quarter ended June 30............................................ 8.50 6.50
Quarter ended September 30....................................... 10.75 8.13
Quarter ended December 31........................................ 10.13 7.88
YEAR ENDED DECEMBER 31, 1994
Quarter ended March 31........................................... $15.13 $11.63
Quarter ended June 30............................................ 14.75 9.50
Quarter ended September 30....................................... 13.00 10.38
Quarter ended December 31........................................ 11.75 9.50
</TABLE>
The closing price per share as of March 6, 1996 was $11.50 and there were
8,050 stockholders of record as of that date.
The Company has paid no dividends on its common stock to date and does not
anticipate that it will pay cash dividends in 1996. Any payment of future
dividends and the amounts thereof will be dependent upon the Company's earnings,
financial requirements and other factors deemed relevant by the Board of
Directors.
9
<PAGE> 13
ITEM 6 -- SELECTED FINANCIAL DATA
SUMMARY FINANCIAL DATA
- --------------------------------------------------------------------------------
(Table amounts in thousands, except per share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SUMMARY CONSOLIDATED
STATEMENTS OF YEARS ENDED DECEMBER 31, FOUR MONTHS YEARS ENDED AUGUST 31,
OPERATIONS ------------------------------------- ENDED -----------------------
DATA 1995 1994 1993 DECEMBER 31, 1992 1992 1991
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
Net sales............ $1,018,625 $1,126,514 $1,046,580 $ 357,166 $1,097,787 $1,078,547
Gross profit......... 316,947(1) 396,010 342,540(4) 124,636 406,459 389,398
Operating profit
(loss)............. (80,280)(2) 26,879 (6,949) 17,569 82,202 64,570(6)
Earnings (loss)
before
extraordinary
item............... (61,883)(3) 17,701 (15,539)(5) 5,140 37,405 (9,599)(6)
Net earnings
(loss)............. (61,883)(3) 16,777 (22,781) 5,140 37,293 (8,945)(6)
Earnings (loss) per
common share:
Earnings (loss)
before
extraordinary
item............... (.69)(3) .19 (.18) .06 .42 (.11)(6)
Net earnings
(loss)............. (.69)(3) .18 (.26) .06 .42 (.10)(6)
Weighted average
common shares
outstanding........ 90,782 95,061 91,192 91,115 90,255 87,452
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31, AUGUST 31,
SUMMARY CONSOLIDATED --------------------------------------------------------- -----------------------
BALANCE SHEET DATA 1995 1994 1993 1992 1992 1991
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Working capital...... $ 7,571 $ 23,073 $ 8,053 $ 38,493 $ 47,004 $ 52,868
Total assets......... 436,295 446,499 501,143 477,913 519,670 565,036
Secured Revolving
Credit Facility.... 135,000 -- -- -- -- --
Unsecured Revolving
Credit Facility.... -- 25,000 -- -- -- --
Unsecured Senior Term
Loans.............. -- -- 85,000(7) -- -- --
11 3/4% Senior Notes
due October 15,
1996............... -- -- -- 140,000(7) 153,252(7) 184,752
5 1/2% Convertible
Subordinated
Debentures due
April 22, 2002..... -- -- -- 16,915 16,915 17,115
Other long-term
obligations........ 810 2,491 1,927 2,276 2,689 3,175
Stockholders'
equity............. 125,061 206,443 196,554 170,149 170,329 161,839
</TABLE>
- ---------------
(1) The gross profit declined to 31.1% for the year ended December 31, 1995,
from 35.2% for the year ended December 31, 1994. This was due to warehouse
sales and other promotional events and an inventory carrying value
adjustment of $14,500,000 primarily relating to new management's evaluation
of existing inventory and determining that certain merchandise would not fit
the Company's future sales and merchandising strategy.
(2) During 1995 the Company recorded a $4,114,000 restructuring charge related
to closing its fulfillment center in Reno, Nevada. The Company also recorded
$11,893,000 of other charges, including $3,978,000 of severance pay related
to a reduction in work force, $4,800,000 of payments to certain executives
as provided for under their employment agreements in connection with the
termination of their employment and $1,303,000 related to the write-down of
inventory to net realizable value for Ortho-Vent, one of the Company's mail
order subsidiaries. An additional $2,400,000 related to name lists of
Ortho-Vent were
10
<PAGE> 14
written off and included in depreciation and amortization. Other charges
also include the write-off of certain equipment maintenance and contractual
fees totaling $1,812,000 related to service contracts which the Company will
no longer utilize.
(3) During 1995, the Company recorded additional interest expense of $773,000
related to bank fees that were amortized, miscellaneous expense of
$4,700,000 for the write-down of computer equipment, and $6,383,000 of
additional litigation expense.
(4) The gross profit declined to 32.7% for the year ended December 31, 1993,
from 37.0% for the year ended August 31, 1992. This was primarily due to the
liquidation of inventory at less than cost.
(5) In the fourth quarter of 1993, the Company charged $13,000,000 to other
income (expense) for the settlement of various lawsuits.
(6) During 1991, the Company recorded $44,500,000 in pre-tax non-recurring
special charges. Additionally, the Company increased its income tax
provision $10,382,000 relating to certain adjustments proposed by the IRS.
(7) At December 31, 1993 and 1992, and August 31, 1992, $25,000,000, $3,200,000
and $27,500,000, respectively was classified as a current liability
reflecting management's ability and intent to satisfy a portion of the debt
from funds provided from operations.
11
<PAGE> 15
ITEM 7 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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.
The following discussion presents the material changes in the consolidated
results of operations of the Company which have occurred between the years ended
December 31, 1995 and 1994, along with material changes between the years ended
December 31, 1994 and 1993. Reference should also be made to the Consolidated
Financial Statements and Summary Financial Data included herein.
The Company expects to sell a majority of its interest in its infomercial
joint venture, HSN Direct Joint Venture ("HSND") in early 1996. This transaction
will result in a reduction in net sales, cost of sales and certain operating
expenses in 1996. The sale of HSND should not have a material impact on the
Company's results of operations in 1996 or future periods.
All tables and discussion included herein calculate the percentage changes
using actual dollar amounts, versus rounded dollar amounts.
YEAR ENDED DECEMBER 31, 1995 VS. YEAR ENDED DECEMBER 31, 1994
NET SALES
For the year ended December 31, 1995, net sales for the Company decreased
$107.9 million, or 9.6%, to $1.019 billion from $1.127 billion for the year
ended December 31, 1994. Net sales of HSC decreased $140.6 million, or 13.9%,
for the year ended December 31, 1995, reflecting a 19.4% decrease in the number
of packages shipped and a 9.1% increase in the average price per unit sold
compared to the year ended December 31, 1994. The decrease in HSC sales was
partially offset by sales increases by HSND, and wholly-owned subsidiaries, HSN
Mail Order, Inc. ("Mail Order") and Vela Research, Inc. ("Vela"), totaling $32.0
million for the year ended December 31, 1995.
Since June 5, 1995, the Company has operated two full-time networks renamed
HSN, the primary network, and Spree!. On August 5, 1995, the Company relaunched
the HSN network with more scheduled programs and theme related shows, new sets,
graphics and music. During the third quarter of 1995, the Company relaunched the
Spree! network with a more spontaneous format and new graphics and music. These
changes were designed to reduce programming redundancies, distinguish the
networks and reach a broader range of potential customers.
Management also instituted promotional programs to help increase sales,
including a national advertising campaign and a "no interest-no payments" credit
promotion through February 1996 for certain purchases made during the third and
fourth quarters of 1995 using the Company's private label credit card. Although
the credit promotion program was successful, its effect was not enough to offset
the overall decrease in sales.
The Company believes that its negative performance in 1995 was due, in
part, to the adverse effects of certain merchandising and programming strategies
which had been implemented in late 1994 and 1995. Consequently, 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. Immediate changes were made to the Company's
merchandising and programming strategies which management believes resulted in
the improved sales in December 1995 and January 1996 when compared to the same
months in the prior years. Further plans include improving inventory mix with
respect to product assortment and price point designed to attract both
first-time buyers and active buyers, improving inventory management and better
planning of programmed shows. While management is optimistic that results will
continue to improve and the Company will return to profitability, there can be
no assurance that changes to the Company's merchandising and programming
strategies will achieve management's intended results.
12
<PAGE> 16
For the year ended December 31, 1995, HSC's merchandise return percentage
increased to 25.7% from 24.4% compared to 1994. The increase in return rate is
attributable, in part, to an increase in average price per unit and, in part, to
returns resulting from promotional events. New management's merchandising
strategy is designed to reduce return rates in 1996. Promotional price discounts
increased to 2.8% from 2.7% of HSC sales for the year ended December 31, 1995
compared to 1994.
At December 31, 1995, HSC had approximately 4.8 million active members
representing a 3.1% decline from December 31, 1994. An active member is defined
as a customer that has completed a transaction within the last 18 months or
placed an order within the last seven months. In addition, 59.2% of active
members have made more than one purchase in the last 18 months, compared to
59.4% at December 31, 1994.
The Company has significantly increased its program carriage and believes
that future levels of net sales of HSC will be dependent on the success of new
management's plans, as discussed above, in increasing 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 of HSN, the Company's primary network, by category
for the year ended December 31, 1995:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
CABLE* BROADCAST SATELLITE TOTAL
---------------------------------------------------------------------------------------------
(In thousands of households)
<S> <C> <C> <C> <C>
Households -- December 31, 1994..................... 38,960 23,068 3,750 65,778
Net additions/(deletions)........................... 4,757 (1,510) -- 3,247
Shift in classification............................. 503 (503) -- --
Change in Nielsen household counts.................. -- 164 -- 164
------ --------- --------- ------
Households -- December 31, 1995..................... 44,220 21,219 3,750 69,189
====== ======= ====== ======
</TABLE>
- ---------------
* Households capable of receiving both broadcast and cable transmissions are
included under cable.
According to industry sources, as of December 31, 1995, there were 95.3
million homes in the United States with a television set, 62.1 million basic
cable television subscribers and 3.8 million homes with satellite dish
receivers.
The cable television household growth was achieved through increased cable
system carriage of HSC's broadcast signal due to the implementation of "must
carry" beginning in September 1993, and the Company's aggressive campaign to
obtain contracts for cable carriage of HSC programming. In areas where HSC
programming is now carried by a cable operator, former broadcast households that
are cable subscribers can more easily access HSC programming. In addition to the
households in the above table, as of January 1, 1996 approximately 12.0 million
cable television households were reached by the Spree! network, of which 3.4
million were on a part-time basis. Of the total cable television households
receiving Spree!, 9.7 million also receive HSN.
During 1996, cable system contracts covering 4.2 million cable subscribers
are subject to termination or renewal. This represents 9.4% 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.
HSC's market penetration lags behind increases in carriage. As a result of
the increase in carriage which began in late 1993, and previous changes in
merchandising and programming strategies, the Company has experienced a decrease
in its market penetration. As the new households mature and new management's
plans are fully implemented, the Company expects market penetration to improve,
but there can be no assurance that this will occur.
13
<PAGE> 17
COST OF SALES
For the year ended December 31, 1995, cost of sales decreased $28.8
million, or 3.9%, to $701.7 million from $730.5 million for the year ended
December 31, 1994. As a percentage of net sales, cost of sales increased to
68.9% from 64.8% compared to the year ended December 31, 1994.
Cost of sales of HSC decreased $49.1 million for the year ended December
31, 1995. This was partially offset by increases in cost of sales of HSND, Mail
Order and Vela totaling $21.4 million for the year ended December 31, 1995. As a
percentage of HSC's net sales, cost of sales increased to 71.8% from 66.9% for
the year ended December 31, 1995, compared to 1994.
The 1995 dollar decreases in consolidated and HSC's cost of sales, compared
to 1994, relate to the lower sales volume. The comparative increases in cost of
sales percentages primarily relate to warehouse sales and other promotional
events. These events offered price discounts to facilitate the Company's
distribution center restructuring and sales of existing merchandise to make room
for new merchandise for the holiday selling season and to correct excessive
inventory levels and product mix in December 1995. In addition, consolidated and
HSC's cost of sales for the year ended December 31, 1995, reflect a $14.5
million increase in HSC's inventory carrying value adjustment primarily related
to product which is inconsistent with HSC's new sales and merchandising
philosophy.
OPERATING EXPENSES
The following table highlights the operating expense section from the
Company's Consolidated Statements of Operations:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
YEARS ENDED
DECEMBER 31,
--------------- $ %
1995 1994 CHANGE CHANGE
---------------------------------------------------------------------------------------
(In millions, except %)
<S> <C> <C> <C> <C>
Selling and marketing............................... $167.1 $161.9 $ 5.2 3.2%
Engineering and programming......................... 98.2 98.8 (.6 ) (.6)
General and administrative.......................... 77.1 79.3 (2.2 ) (2.8)
Depreciation and amortization....................... 38.8 29.1 9.7 33.7
Other charges....................................... 11.9 -- 11.9 100.0
Restructuring charges............................... 4.1 -- 4.1 100.0
------ ------ ------
$397.2 $369.1 $28.1 7.6
====== ====== =====
</TABLE>
As a percentage of net sales, operating expenses increased to 39.0% from
32.8% compared to the year ended December 31, 1994.
In 1995 and early 1996, management instituted measures aimed at
streamlining operations primarily by reducing its work force and taking other
actions to reduce operating expenses. Although these changes resulted in some
reduction in individual categories of operating expenses in 1995 and will result
in future reductions to operating expenses, the Company incurred additional
costs in 1995 as a result of these measures. See "Other Charges" and
"Restructuring Charges."
SELLING AND MARKETING
For the year ended December 31, 1995, selling and marketing expenses, as a
percentage of net sales, increased to 16.4% from 14.4% compared to the year
ended December 31, 1994.
14
<PAGE> 18
The major components of selling and marketing expenses are detailed below:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
YEARS ENDED
DECEMBER 31,
------------- $ %
1995 1994 CHANGE CHANGE
----------------------------------------------------------------------------------------
(In millions, except %)
<S> <C> <C> <C> <C>
Telephone, operator and customer service............... $51.8 $53.8 $(2.0 ) (3.6 )%
Fees to cable system operators:
Commissions.......................................... 33.2 38.4 (5.2 ) (13.5 )
Marketing payments for cable advertising............. 16.8 25.3 (8.5 ) (33.6 )
Performance bonus commissions........................ 12.8 9.1 3.7 40.1
HSND selling expenses.................................. 10.0 6.7 3.3 50.6
</TABLE>
Telephone, operator and customer service expenses are typically related to
sales, call volume and the number of packages shipped. For the year ended
December 31, 1995, telephone costs decreased due to a $1.4 million rebate for
past telephone charges from the Company's long distance telephone carrier in
connection with a new contract for telephone services. This contract will also
result in lower future telephone rates compared to prior periods. HSC telephone
and operator costs decreased $2.2 million for the year ended December 31, 1995,
due to lower call volume. In addition, the sale in the second quarter of 1994 of
the Company's former wholly-owned subsidiary, HSN Mistix Corporation ("Mistix"),
resulted in a $2.0 million decrease in telephone and operator costs for the year
ended December 31, 1995. These decreases were primarily offset by increased
telephone and operator costs incurred by Mail Order and the Company's
telemarketing subsidiary, National Call Center, Inc., totaling $2.9 million for
the year ended December 31, 1995. Management expects HSC operator costs to
fluctuate in relation to call and package volume in 1996. Customer service costs
increased $.3 million for the year ended December 31, 1995, due to the expansion
of customer service operating hours, in March 1995, to seven days a week,
twenty-four hours a day.
For the year ended December 31, 1995, commissions to cable system operators
decreased as a result of the decrease in sales.
Marketing payments for cable advertising, which relate primarily to
previous contractual commitments, decreased for the year ended December 31,
1995. As older agreements expire or are renegotiated and new cable carriage
agreements are executed, marketing payments for cable advertising are being
replaced by other forms of incentive compensation to cable operators. These
include payment of cable distribution fees, as discussed in "Depreciation and
Amortization," and performance bonus commissions which require payments based
upon HSC attaining certain sales levels in the cable operator's franchise area.
Accordingly, marketing payments for cable advertising are expected to decrease,
and depreciation and amortization will increase in 1996. Performance bonus
commissions are expected to fluctuate in relation to sales in 1996.
In addition, cable operators which have executed affiliation agreements to
carry the Company's programming are generally compensated for all sales within
their franchise areas, regardless of whether a customer's order results from
watching the program via cable, satellite dish, or on a broadcast television
station. Thus, with the advent of "must carry," HSC is paying commissions to
cable operators in addition to the hourly affiliation payments made to broadcast
television stations. As a result of the above factors, subject to sales volume,
fees paid to cable system operators are expected to remain at higher levels in
future periods.
Selling and marketing expenses related to HSND primarily consist of media
and telephone, operator and customer service expenses. The remaining net
increase in selling and marketing expenses is attributable to promotional
expenses incurred in connection with the Company's programming strategies which
were implemented in 1995, increased Mail Order catalog costs and advertising and
promotional expenses of the Company's other subsidiary operations, totaling
$12.4 million. As a result of the Company's promotional program related to its
private label credit card, the Company incurred an additional $1.4 million of
interest charges in the fourth quarter of 1995. Management believes that total
selling and marketing expenses in future periods will be at higher levels as the
Company maintains its efforts to increase the number of cable systems carrying
the Company's programming and increase market penetration through expanded
direct mailings and other advertising, as discussed in "Net Sales."
15
<PAGE> 19
ENGINEERING AND PROGRAMMING
For the year ended December 31, 1995, engineering and programming expenses,
as a percentage of net sales, increased to 9.6% from 8.8% compared to the year
ended December 31, 1994 primarily as a result of the decrease in net sales.
The decrease in engineering and programming expenses for the year ended
December 31, 1995, compared to 1994, was primarily due to lower broadcast costs
of $2.3 million. In addition, based on sales within the broadcast markets of
Silver King Communications, Inc. ("SKC"), for the year ended December 31, 1995,
the Company incurred lower broadcast commission expense of $1.1 million,
compared to the year ended December 31, 1994. Broadcast commission expense is
expected to fluctuate in relation to sales for 1996. These decreases were offset
by increases totaling $2.3 million for the year ended December 31, 1995, in
production costs incurred in connection with the Company's new programming
strategies, as discussed in "Net Sales", and HSND programming costs. Engineering
and programming expenses are expected to remain relatively constant in 1996.
GENERAL AND ADMINISTRATIVE
For the year ended December 31, 1995, general and administrative expenses,
as a percentage of net sales, increased to 7.6% from 7.0% compared to the year
ended December 31, 1994.
For the year ended December 31, 1995, decreases in legal expense and
expense in connection with the Company's executive stock award program and
repairs and maintenance totaling $4.9 million were primarily offset by increases
in expenses for consulting, Stock Appreciation Rights ("SAR's"), the Company's
employee equity participation plan, and other administrative expenses totaling
$2.7 million.
Based on savings expected to be realized in connection with the reduction
of the Company's work force, as discussed in Note F to the Consolidated
Financial Statements included herein, and other expense reduction initiatives,
management expects general and administrative expenses to decrease in 1996.
DEPRECIATION AND AMORTIZATION
The increase in depreciation and amortization was primarily due to the
amortization of cable distribution fees, which increased $8.8 million to $12.7
million for the year ended December 31, 1995. Amortization of these fees is
expected to total $15.7 million in 1996 based on existing agreements. This
amortization could increase if additional long-term cable contracts are entered
into during 1996, as discussed in "Net Sales." The expected increase in
depreciation expense in 1996 will be partially offset by a decrease related to
the retirement of certain equipment as discussed in "Other Income (Expense)." In
addition, amortization expense increased $2.4 million for the year ended
December 31, 1995, in connection with the sale of the assets of Ortho-Vent, Inc.
("Ortho-Vent"), as discussed in Note F to the Consolidated Financial Statements
included herein.
OTHER CHARGES
The other charges of $11.9 million for the year ended December 31, 1995
consist of severance costs of $4.0 million related to a reduction in work force,
$4.8 million of payments to certain executives as provided for under their
employment agreements in connection with the termination of their employment and
the write-off of certain equipment maintenance and contractual fees totaling
$1.8 million related to service contracts which the Company will no longer
utilize. In addition, the Company recorded a write-down of inventory totaling
$1.3 million to net realizable value based on the disposition of Ortho-Vent's
assets. See Note F to the Consolidated Financial Statements, included herein.
The sale of Ortho-Vent should not have a material impact on the Company's net
sales or results of operations in future periods.
RESTRUCTURING CHARGES
Restructuring charges for the year ended December 31, 1995, of $4.1
million, represent management's estimate of costs to be incurred in connection
with the closing of the Company's Reno, Nevada, distribution
16
<PAGE> 20
center, which was accomplished in June 1995. The decision to close the Reno
distribution center was based on an evaluation of the Company's overall
distribution strategy. Management believes that consolidation of the Company's
distribution facilities will result in operating efficiencies and improved
service to customers.
OTHER INCOME (EXPENSE)
For the year ended December 31, 1995, the Company had net other expense of
$(14.9) million compared to net other income of $3.6 million for the year ended
December 31, 1994.
Interest income decreased $7.6 million for the year ended December 31,
1995, compared to 1994, primarily due to the repayment by SKC in August 1994, of
its indebtedness to the Company. Interest income is expected to further decrease
in 1996, compared to 1995.
Interest expense increased $4.6 million for the year ended December 31,
1995, due to borrowings by the Company under its Secured $150.0 million
Revolving Credit Facility ("Credit Facility") in late 1994 and 1995. On March 1,
1996, the Company obtained additional financing through a private placement of
$100.0 million of convertible subordinated debentures, as discussed in
"Financial Position, Liquidity and Capital Resources." Interest expense for 1996
will increase compared to 1995.
For the years ended December 31, 1995 and 1994, net miscellaneous expenses
remained constant at $.4 million. In 1995, $6.0 million in losses recorded in
connection with the retirement of equipment was offset by receipts from lawsuit
settlements, royalty income and other miscellaneous income totaling $5.6
million. In 1994, a $(2.9) million loss on the sale of the common stock of
Mistix was offset by receipts from lawsuit settlements and other miscellaneous
income totaling $2.5 million.
Litigation expense for the year ended December 31, 1995, of $6.4 million,
represents litigation settlements and anticipated costs in connection with the
resolution of certain pending litigation.
INCOME TAXES
The Company's effective tax rate was a benefit of (35.0)% for the year
ended December 31, 1995, and an expense of 42.0% for the year ended December 31,
1994. 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 ("IRS"). The Company anticipates full realization of its net operating
loss carryforward and accordingly no valuation allowance has been provided. See
Note D to the Consolidated Financial Statements included herein.
EXTRAORDINARY ITEM -- LOSS ON EARLY EXTINGUISHMENT OF LONG-TERM OBLIGATIONS
In the year ended December 31, 1994, the Company repaid the remaining $85.0
million outstanding balance on its Senior Term Loans. This resulted in an
extraordinary item -- loss on early extinguishment of long-term obligations, net
of taxes as discussed in Note C to the Consolidated Financial Statements
included herein.
NET EARNINGS (LOSS)
The Company had a net loss of $(61.9) million, or $(.69) per share, for the
year ended December 31, 1995, compared to net earnings of $16.8 million, or $.18
per share, for the year ended December 31, 1994. The loss for the year ended
December 31, 1995 compared to the year ended December 31, 1994, was primarily
attributable to the decrease in net sales of $107.9 million, the decrease in
gross profit of $79.1 million and increased operating expenses and other charges
as discussed above. The results for the year ended December 31, 1994, include an
extraordinary loss of $(.9) million, or $(.01) per share, on the early
extinguishment of long-term obligations.
17
<PAGE> 21
YEAR ENDED DECEMBER 31, 1994 VS. YEAR ENDED DECEMBER 31, 1993
NET SALES
For the year ended December 31, 1994, net sales for the Company increased
$79.9 million, or 7.6%, to $1.127 billion from $1.047 billion for the year ended
December 31, 1993. Net sales of HSC increased $65.2 million, or 6.8%, for the
year ended December 31, 1994, reflecting a 19.5% increase in the number of
packages shipped and a 10.2% decrease in the average price per unit sold
compared to the year ended December 31, 1993. Promotional price discounts, used
to enhance HSC merchandise sales, increased to 2.7% of HSC sales for the year
ended December 31, 1994, from 1.8% in 1993. In addition, sales by HSND, which
commenced operations during the third quarter of 1994, totaled $13.5 million and
sales by the Company's retail outlets increased $6.7 million for the year ended
December 31, 1994 compared to the prior year.
The increases for the year ended December 31, 1994 were primarily offset by
a decline in sales of $6.9 million attributable to the sale of Mistix in the
second quarter of 1994.
The sales increases for the year ended December 31, 1994 versus 1993,
occurred primarily in the first nine months of the year and were the
continuation of a trend that began in the latter part of the third quarter of
1993. Management believes that 1994 sales levels were positively affected by
several factors, most significantly the addition of new cable subscribers
beginning in September 1993 as a result of the "must carry" provisions of the
cable re-regulation law.
In September 1994, the Company appointed senior management personnel with
expertise in merchandising. The Company had also instituted procedures intended
to improve purchasing and other merchandising practices. Management's emphasis
included evaluating new product sources and programs to boost customer loyalty,
offering higher quality and a greater variety of products, developing strong
private label lines, selling higher margin items and offering name brand
merchandise.
During the fourth quarter of 1994, in addition to reorganizing its
merchandising and sales practices, the Company continued to significantly
restyle its programming. This included new on-air presentations, offering
regularly scheduled themed shows, increasing the number of items aired per hour
and the display of item numbers which enables a customer to order an item when
it is off the air.
These changes in merchandising and programming strategy were aimed at
long-term improvements in sales by attempting to attract new customers and
increase the frequency of sales. However, the impact of these changes was a
slowdown in sales, such that consolidated net sales for the quarter ended
December 31, 1994 increased only 1.8% over the same period in 1993.
For the years ended December 31, 1994 and 1993, HSC's merchandise return
percentage remained constant at 24.4%. The return rate continued to be affected
by high returns in jewelry and electronics merchandise categories which
typically experience higher return rates than other merchandise categories.
The following table highlights the changes in the estimated unduplicated
television household reach of HSN programming by category for the year ended
December 31, 1994:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
CABLE* BROADCAST SATELLITE TOTAL
---------------------------------------------------------------------------------------------
(In thousands of households)
<S> <C> <C> <C> <C>
Households -- December 31, 1993..................... 33,788 25,876 3,100 62,764
Net additions....................................... 2,029 463 650 3,142
Shift in classification............................. 3,143 (3,143) -- --
Change in Nielsen household counts.................. -- (128) -- (128)
------ --------- --------- ------
Households -- December 31, 1994..................... 38,960 23,068 3,750 65,778
====== ======= ====== ======
</TABLE>
- ---------------
* Households capable of receiving both broadcast and cable transmissions are
included under cable.
18
<PAGE> 22
COST OF SALES
For the year ended December 31, 1994, cost of sales increased $26.5
million, or 3.7%, to $730.5 million from $704.0 million for the year ended
December 31, 1993. As a percentage of net sales, cost of sales decreased to
64.8% from 67.3% compared to year ended December 31, 1993.
Cost of sales of HSC increased $22.5 million for the year ended December
31, 1994. As a percentage of HSC sales, cost of sales decreased to 66.9% from
69.1%, compared to the year ended December 31, 1993. In addition, cost of sales
for HSND and the Company's retail outlets for the year ended December 31, 1994,
increased $5.0 million and $3.7 million, respectively, compared to the year
ended December 31, 1993.
The remaining decrease in cost of sales for the year ended December 31,
1994, compared to 1993, was primarily attributable to the sale of Mistix, as
discussed in "Net Sales."
The decreases in consolidated and HSC's cost of sales percentages in 1994
compared to 1993 relate primarily to an additional $20.1 million adjustment made
to HSC's inventory carrying amount, which increased cost of sales in the first
quarter of 1993, in connection with a change in management's merchandising
philosophy.
OPERATING EXPENSES
The following table highlights the operating expense section from the
Company's Consolidated Statements of Operations:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
YEARS ENDED
DECEMBER 31,
--------------- $ %
1994 1993 CHANGE CHANGE
-----------------------------------------------------------------------------------------
(In millions, except %)
<S> <C> <C> <C> <C>
Selling and marketing................................. $161.9 $138.1 $ 23.8 17.2%
Engineering and programming........................... 98.8 93.7 5.1 5.5
General and administrative............................ 79.3 93.5 (14.2) (15.1)
Depreciation and amortization......................... 29.1 24.2 4.9 20.2
------ ------ ------
$369.1 $349.5 $ 19.6 5.6
====== ====== ======
</TABLE>
As a percentage of net sales, operating expenses decreased to 32.8% from
33.4% compared to year ended December 31, 1993.
SELLING AND MARKETING
For the year ended December 31, 1994, selling and marketing expenses, as a
percentage of net sales, increased to 14.4% from 13.2% compared to the year
ended December 31, 1993.
The major components of selling and marketing expenses are detailed below:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
YEARS ENDED
DECEMBER 31,
--------------- $ %
1994 1993 CHANGE CHANGE
----------------------------------------------------------------------------------------
(In millions, except %)
<S> <C> <C> <C> <C>
Telephone, operator and customer service......... $53.8 $48.5 $ 5.3 10.8 %
Fees to cable system operators:
Commissions.................................... 38.4 33.9 4.5 13.1
Marketing payments for cable advertising....... 25.3 30.7 (5.4 ) (17.5 )
Performance bonus commissions.................. 9.1 -- 9.1 100.0
</TABLE>
Telephone, operator and customer service expenses are typically related to
sales, call volume and the number of packages shipped, and for the year ended
December 31, 1994, compared to the year ended December 31, 1993, these expenses
increased as a result of increases in call and package volume.
19
<PAGE> 23
For the year ended December 31, 1994, commissions to cable system operators
increased at a higher rate than sales as a result of increased cable system
carriage of the Company's programming due to the implementation of the "must
carry" provisions of the cable re-regulation law.
Marketing payments for cable advertising, related primarily to previous
contractual commitments, decreased for the year ended December 31, 1994,
compared to the year ended December 31, 1993.
Selling and marketing expenses related to HSND totaled $6.7 million for the
year ended December 31, 1994. The remaining net increase in selling and
marketing expenses was attributable to other advertising and promotional
expenses of the Company's other subsidiary operations.
ENGINEERING AND PROGRAMMING
For the year ended December 31, 1994, engineering and programming expenses,
as a percentage of net sales, decreased to 8.8% from 9.0% compared to the year
ended December 31, 1993.
Increases in expense related to broadcast affiliates in additional markets
totaled $3.7 million compared with the year ended December 31, 1993. In
addition, based on sales within the broadcast markets of SKC for the year ended
December 31, 1994, the Company incurred additional broadcast commission expense
of $1.3 million, compared to the year ended December 31, 1993.
GENERAL AND ADMINISTRATIVE
For the year ended December 31, 1994, general and administrative expenses,
as a percentage of net sales, decreased to 7.0% from 8.9% compared to the year
ended December 31, 1993.
For the year ended December 31, 1994, consulting and stockholder relations
expenses decreased $5.3 million, due to expenses incurred in 1993, in connection
with a merger proposal by Liberty Media Corporation ("Liberty") following the
acquisition, in February 1993, of a controlling interest in the Company by a
wholly-owned subsidiary of Liberty and the unsolicited merger proposal by QVC,
Inc. that was not consummated. Expenses in connection with the Company's
executive stock award program, SAR's, settlement of sales tax issues, legal
expense, repairs and maintenance and equipment rental decreased $13.8 million
for the year ended December 31, 1994, compared to the year ended December 31,
1993. The above decreases were offset by increases for the year ended December
31, 1994, totaling $5.0 million, in payroll expense and other administrative
expenses.
DEPRECIATION AND AMORTIZATION
For the year ended December 31, 1994, depreciation and amortization
increased $3.9 million due to the amortization of cable distribution fees for
the year ended December 31, 1994. The balance of the increase in depreciation
and amortization was attributable to capital asset additions during the year
ended December 31, 1994.
OTHER INCOME (EXPENSE)
For the year ended December 31, 1994, the Company had net other income of
$3.6 million compared to net other expense of $(12.6) million for the year ended
December 31, 1993.
Interest income decreased $4.1 million for the year ended December 31,
1994, compared to the year ended December 31, 1993, due to the repayment by SKC,
in August 1994, of its indebtedness to the Company.
Interest expense decreased $5.4 million for the year ended December 31,
1994, primarily as a result of the repayment by the Company, in August 1994, of
its Senior Term Loans.
For the year ended December 31, 1994, net miscellaneous expense decreased
$2.0 million compared to the year ended December 31, 1993. Net miscellaneous
expense for the year ended December 31, 1993 included nonrecurring costs
totaling $3.8 million. For the year ended December 31, 1994, net miscellaneous
20
<PAGE> 24
expense included a $(2.9) million loss on the sale of Mistix. In addition, 1994
included the receipt of proceeds from a lawsuit settlement totaling $.8 million.
Net other expense for the year ended December 31, 1993 also included
litigation settlements totaling $13.0 million.
INCOME TAXES
The Company's effective tax rate was an expense of 42.0% for the year ended
December 31, 1994 and a benefit of (20.6)% for the year ended December 31, 1993.
The Company's effective tax rate for these periods differed from the statutory
rate due primarily to the amortization of goodwill and other acquired intangible
assets relating to acquisitions from prior years, state income taxes and the
provision for interest on adjustments proposed by the IRS, as discussed in Note
D to the Consolidated Financial Statements included herein.
EXTRAORDINARY ITEM -- LOSS ON EARLY EXTINGUISHMENT OF LONG-TERM OBLIGATIONS
In the year ended December 31, 1994, the Company repaid the remaining $85.0
million outstanding balance on its Senior Term Loans. In the year ended December
31, 1993, the Company refinanced and retired the remaining $143.3 million of its
11 3/4% Senior Notes and retired the remaining $16.9 million of its 5 1/2%
Convertible Subordinated Debentures. These transactions resulted in
extraordinary items -- loss on early extinguishment of long-term obligations,
net of taxes as discussed in Note C to the Consolidated Financial Statements
included herein.
NET EARNINGS (LOSS)
The Company had net earnings of $16.8 million, or $.18 per share, for the
year ended December 31, 1994, compared to a net loss of $(22.8) million, or
$(.26) per share, for the year ended December 31, 1993. The increase in net
earnings for the year ended December 31, 1994, was primarily attributable to an
increase in net sales of $79.9 million and an increase in gross profit of $53.5
million compared to the year ended December 31, 1993. As discussed in "Cost of
Sales," the results for the year ended December 31, 1993, included an additional
adjustment of $20.1 million to the inventory carrying amount. The results for
the year ended December 31, 1993 were also affected by the litigation
settlements of $13.0 million, as discussed in "Other Income (Expense)." As
previously discussed, the Company recorded a loss of $(2.9) million on the sale
of the common stock of Mistix. In addition, the consolidated results for the
year ended December 31, 1994 included a pre-tax loss for Mistix of $(1.6)
million. Consolidated results also included extraordinary losses, net of taxes,
of $(.9) million, or $(.01) per share, for the year ended December 31, 1994, and
$(7.2) million, or $(.08) per share, for the year ended December 31, 1993.
SEASONALITY
The Company believes that seasonality does impact its business but not to
the same extent it impacts the retail industry in general.
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
The following table highlights various balances and ratios from the
Consolidated Financial Statements included herein:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
DECEMBER 31,
-------------------
1995 1994
---------------------------------------------------------------------------------------
<S> <C> <C>
Cash and cash equivalents (millions).............................. $ 25.2 $ 33.6
Working capital (millions)........................................ $ 7.6 $ 23.1
Current ratio..................................................... 1.04:1 1.11:1
Accounts and notes receivable, net (millions)..................... $ 23.6 $ 43.7
Inventories, net (millions)....................................... $ 101.6 $ 118.8
Annual inventory turnover......................................... 6.37 6.36
</TABLE>
21
<PAGE> 25
The principal source of cash for the year ended December 31, 1995, was
borrowings by the Company under its Credit Facility, which were used principally
to pay cable distribution fees of $72.1 million, purchase treasury stock, pay
litigation settlements of $14.5 million and pay for capital expenditures. The
net loss adjusted for non-cash items totaled $(32.2) million for the year ended
December 1995.
The primary reason for the decrease in accounts and notes receivable is
"FlexPay" accounts receivable which totaled $13.0 million at December 31, 1995,
compared to $23.6 million at December 31, 1994. The Company's financing of
"FlexPay" accounts receivable has not had a significant impact on its liquidity
position. In addition, on March 27, 1995, Precision Systems, Inc. ("PSi") repaid
$2.7 million, plus accrued interest, of its $5.0 million loan from the Company.
Under an agreement between the Company and PSi, the remaining principal balance
of the loan was recorded as a prepayment of monthly software maintenance
payments due PSi from the Company through December 1995.
Inventories decreased due to promotional sales events held in December 1995
and a $14.5 million increase in HSC's inventory carrying value adjustment
primarily related to product which is inconsistent with HSC's new sales and
merchandising philosophy. The inventory balance is net of a carrying value
adjustment of $33.3 million at December 31, 1995, which represents an increase
from $18.8 million at December 31, 1994.
Capital expenditures for the year ended December 31, 1995, were $13.0
million. The Company estimates capital expenditures will range between $18.0
million and $21.0 million for 1996.
The Company's Credit Facility was amended on September 28, 1995 and the
maximum borrowing availability was increased from $100.0 million to $150.0
million at that time. On that date, HSN pledged the capital stock of HSC and HSN
Realty, Inc. ("Realty"), the guarantors of the Credit Facility, to secure the
Company's obligation under the Credit Facility. On February 13, 1996, the
covenants in the Credit Facility were further amended to include the effect of,
among other things, certain of the restructuring and other charges as discussed
in Note F to the Consolidated Financial Statements included herein, to allow for
additional subordinated financing as discussed in Notes P and R to the
Consolidated Financial Statements included herein and, upon conclusion of the
additional financing, to reduce the maximum borrowing availability under the
Credit Facility to $120.0 million. Restrictions remain on repurchases of the
Company's common stock based upon future cash flow levels. On March 1, 1996, the
Company completed a private placement of $100.0 million of Convertible
Subordinated Debentures due March 1, 2006. The Company used the net proceeds to
repay borrowings under the Credit Facility leaving an outstanding loan balance
of $30.0 million with $90.0 million available for borrowing. The Company
anticipates that it will use its additional borrowing capacity to finance
working capital requirements, capital expenditures and general corporate
purposes.
During 1996, management expects to pay cable distribution fees, totaling
$12.3 million, relating to current contracts with cable system operators to
carry HSC programming. Of this amount, $2.3 million is payable to a related
party.
In July 1995, the Company paid $4.0 million for a 20.0% interest in Body By
Jake Enterprises, L.L.C. This investment is accounted for under the cost method.
In management's opinion, available cash, internally generated funds and the
Credit Facility will provide sufficient capital resources to meet the Company's
foreseeable needs.
As of February 29, 1996, the Company had a $25.0 million committed bank
credit line collateralized by the capital stock of HSC and Realty. In addition,
the Company had an additional uncommitted unsecured bank credit line offered on
a conditional basis. These credit lines back letters of credit which are used
exclusively to facilitate the purchase of imported inventory. Presentation of
letters of credit by vendors results in an immediate charge to the Company's
account with no interest charges incurred. Outstanding letters of credit, which
cannot exceed $25.0 million in total in accordance with the Credit Facility,
amounted to $11.6 million at February 29, 1996, on the committed and uncommitted
lines, leaving $13.4 million available.
22
<PAGE> 26
For the year ended December 31, 1995, the Company did not pay any cash
dividends and does not anticipate paying cash dividends in the immediate future.
In 1994, the Company's Board of Directors authorized the repurchase of up
to an additional $75.0 million of the Company's common stock. In 1994, the
Company repurchased 1.3 million shares at a total cost of $13.1 million and in
the quarter ended March 31, 1995, the Company repurchased an additional 2.6
million shares at a total additional cost of $21.6 million. Under the terms of
the Credit Facility the Company is restricted from purchasing its common stock
until it meets certain cash flow ratios.
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 transactions entered into 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. Management believes that the
adoption of FAS 123 will not have a material impact on the financial condition
or the results of operations of the Company.
23
<PAGE> 27
ITEM 8 -- CONSOLIDATED FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' REPORT
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
THE BOARD OF DIRECTORS
HOME SHOPPING NETWORK, INC.
We have audited the accompanying consolidated balance sheets of Home
Shopping Network, Inc. and subsidiaries as of December 31, 1995 and 1994 and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years in the three year period ended December 31, 1995.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Home
Shopping Network, Inc. and subsidiaries as of December 31, 1995 and 1994, and
the results of their operations and their cash flows for each of the years in
the three year period ended December 31, 1995 in conformity with generally
accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
St. Petersburg, Florida
February 21, 1996
24
<PAGE> 28
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
DECEMBER 31,
-----------------------
1995 1994
- --------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents...................................................... $ 25,164 $ 33,648
Accounts and notes receivable (net of an allowance for doubtful accounts of
$1,685 and $1,738, respectively)............................................. 23,634 43,657
Inventories, net............................................................... 101,564 118,801
Deferred income taxes.......................................................... 24,484 22,108
Other current assets, net...................................................... 8,149 10,632
-------- --------
Total current assets.................................................. 182,995 228,846
PROPERTY, PLANT AND EQUIPMENT
Computer and broadcast equipment............................................... 90,581 106,144
Buildings and leasehold improvements........................................... 69,843 74,514
Furniture and other equipment.................................................. 49,561 46,183
-------- --------
209,985 226,841
Less accumulated depreciation and amortization........................ 118,710 116,697
-------- --------
91,275 110,144
Land........................................................................... 17,093 17,774
Construction in progress....................................................... 406 3,182
-------- --------
108,774 131,100
OTHER ASSETS
Cable distribution fees, net ($34,803 and $34,174, respectively, to related
parties)..................................................................... 99,161 67,978
Deferred income taxes.......................................................... 23,142 --
Long-term investments ($10,000 in a related party)............................. 14,000 10,000
Other non-current assets....................................................... 8,223 8,575
-------- --------
144,526 86,553
-------- --------
$436,295 $446,499
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term obligations.................................... $ 1,555 $ 1,690
Accounts payable............................................................... 84,297 75,264
Accrued liabilities:
Programming fees ($2,260 and $26,591 respectively, to related parties)....... 20,377 50,170
Sales returns................................................................ 10,832 12,304
Litigation settlements....................................................... 6,140 14,450
Treasury stock............................................................... -- 13,109
Other........................................................................ 52,223 38,786
-------- --------
Total current liabilities............................................. 175,424 205,773
LONG-TERM OBLIGATIONS (net of current maturities).............................. 135,810 27,491
DEFERRED INCOME TAXES.......................................................... -- 6,792
COMMITMENTS AND CONTINGENCIES.................................................. -- --
STOCKHOLDERS' EQUITY
Preferred stock -- $.01 par value; authorized 500,000 shares, no shares issued
and outstanding.............................................................. -- --
Common stock -- $.01 par value; authorized 150,000,000 shares, issued
77,718,379 and 77,553,329 at December 31, 1995 and 1994, respectively........ 777 776
Class B -- convertible common stock -- $.01 par value; authorized, issued and
outstanding 20,000,000 shares................................................ 200 200
Additional paid-in capital..................................................... 169,057 167,463
Retained earnings.............................................................. 7,677 69,560
Treasury stock -- 6,986,000 and 4,440,700 common shares, at cost, at December
31, 1995 and 1994, respectively.............................................. (48,718) (27,136)
Unearned compensation.......................................................... (3,932) (4,420)
-------- --------
125,061 206,443
-------- --------
$436,295 $446,499
======== ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
25
<PAGE> 29
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
------------------------------------
1995 1994 1993
- -------------------------------------------------------------------------------------------------
(In thousands, except per share
data)
<S> <C> <C> <C>
NET SALES.................................................. $1,018,625 $1,126,514 $1,046,580
Cost of sales.............................................. 701,678 730,504 704,040
---------- ---------- ----------
Gross profit..................................... 316,947 396,010 342,540
---------- ---------- ----------
Operating expenses:
Selling and marketing.................................... 167,063 161,886 138,092
Engineering and programming.............................. 98,216 98,835 93,686
General and administrative............................... 77,087 79,344 93,539
Depreciation and amortization............................ 38,854 29,066 24,172
Other charges............................................ 11,893 -- --
Restructuring charges.................................... 4,114 -- --
---------- ---------- ----------
397,227 369,131 349,489
---------- ---------- ----------
Operating profit (loss).......................... (80,280) 26,879 (6,949)
Other income (expense):
Interest income.......................................... 1,961 9,556 13,655
Interest expense......................................... (10,077) (5,512) (10,863)
Miscellaneous............................................ (426) (403) (2,410)
Litigation settlements................................... (6,383) -- (13,000)
---------- ---------- ----------
(14,925) 3,641 (12,618)
---------- ---------- ----------
Earnings (loss) before income taxes and extraordinary
item..................................................... (95,205) 30,520 (19,567)
Income tax expense (benefit)............................... (33,322) 12,819 (4,028)
---------- ---------- ----------
Earnings (loss) before extraordinary item.................. (61,883) 17,701 (15,539)
Extraordinary item -- loss on early extinguishment of
long-term obligations (net of tax benefit of $567 and
$4,395 for the years ended December 31, 1994 and 1993,
respectively)............................................ -- (924) (7,242)
---------- ---------- ----------
NET EARNINGS (LOSS)........................................ $ (61,883) $ 16,777 $ (22,781)
========= ========= =========
Earnings (loss) per common share:
Earnings (loss) before extraordinary item................ $ (.69) $ .19 $ (.18)
Extraordinary item, net.................................. -- (.01) (.08)
---------- ---------- ----------
Net earnings (loss)...................................... $ (.69) $ .18 $ (.26)
========= ========= =========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
26
<PAGE> 30
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
CLASS B
CONVERTIBLE ADDITIONAL UNEARNED
COMMON COMMON PAID-IN RETAINED TREASURY COMPEN-
STOCK STOCK CAPITAL EARNINGS STOCK SATION TOTAL
- ------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1992....... $671 $ 242 $115,846 $ 75,564 $(14,027) $(8,147) $170,149
Issuance of common stock upon
exercise of stock options........ 55 -- 31,796 -- -- -- 31,851
Issuance of common stock upon
conversion of debentures......... -- -- 15 -- -- -- 15
Unearned compensation related to
executive stock award program.... -- -- 1,009 -- -- (1,009) --
Income tax benefit related to
executive stock award program and
stock options exercised.......... -- -- 11,705 -- -- -- 11,705
Expense related to executive stock
award program.................... -- -- -- -- -- 5,615 5,615
Conversion of Class B common stock
to common stock.................. 36 (36) -- -- -- -- --
Net loss for the year ended
December 31, 1993................ -- -- -- (22,781) -- -- (22,781)
------ ----- ---------- -------- -------- -------- --------
BALANCE AT DECEMBER 31, 1993....... 762 206 160,371 52,783 (14,027) (3,541) 196,554
Issuance of common stock upon
exercise of stock options........ 8 -- 4,517 -- -- -- 4,525
Unearned compensation related to
employee equity participation
plan............................. -- -- -- -- -- (3,736) (3,736)
Income tax benefit related to
executive stock award program and
stock options exercised.......... -- -- 2,575 -- -- -- 2,575
Expense related to executive stock
award program.................... -- -- -- -- -- 2,047 2,047
Expense related to employee equity
participation plan............... -- -- -- -- -- 810 810
Purchases of treasury stock, at
cost............................. -- -- -- -- (13,109) -- (13,109)
Conversion of Class B common stock
to common stock.................. 6 (6) -- -- -- -- --
Net earnings for the year ended
December 31, 1994................ -- -- -- 16,777 -- -- 16,777
------ ----- ---------- -------- -------- -------- --------
BALANCE AT DECEMBER 31, 1994....... 776 200 167,463 69,560 (27,136) (4,420) 206,443
Issuance of common stock upon
exercise of stock options........ 1 -- 902 -- -- -- 903
Unearned compensation related to
executive stock award program and
stock options granted............ -- -- 96 -- -- (63) 33
Unearned compensation related to
employee equity participation
plan............................. -- -- -- -- -- (1,264) (1,264)
Income tax benefit related to
executive stock award program and
stock options exercised.......... -- -- 596 -- -- -- 596
Expense related to executive stock
award program.................... -- -- -- -- -- 795 795
Expense related to employee equity
participation plan............... -- -- -- -- -- 1,020 1,020
Purchases of treasury stock, at
cost............................. -- -- -- -- (21,582) -- (21,582)
Net loss for the year ended
December 31, 1995................ -- -- -- (61,883) -- -- (61,883)
------ ----- ---------- -------- -------- -------- --------
BALANCE AT DECEMBER 31, 1995....... $777 $ 200 $169,057 $ 7,677 $(48,718) $(3,932) $125,061
======== ========== ========= ========= ========= ======== =========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
27
<PAGE> 31
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
------------------------------------
1995 1994 1993
- -----------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss).................................... $(61,883) $ 16,777 $ (22,781)
Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization..................... 26,162 25,173 24,172
Amortization of cable distribution fees........... 12,692 3,893 --
Inventory carrying value adjustment............... 14,468 (6,455) 12,179
Deferred income taxes............................. (32,310) 5,649 (14,102)
Loss on disposition of wholly-owned subsidiary.... -- 2,854 --
Loss on retirement of long-term obligations....... -- 1,491 11,637
Change in Stock Appreciation Rights ("SAR's") and
common stock issued for services provided...... 1,911 1,310 8,449
Provision for losses on accounts and notes
receivable..................................... 440 377 (171)
Equity in (earnings) losses of unconsolidated
affiliates..................................... 302 (144) 589
(Gain) loss on sale of assets..................... 6,040 106 (277)
Liquidation of joint venture operation............ -- -- 722
Change in current assets and liabilities:
(Increase) decrease in accounts receivable..... 12,576 (10,698) (15,753)
(Increase) decrease in interest receivable from
related party................................ -- 1,039 (1,039)
(Increase) decrease in inventories............. 1,635 (1,416) (4,056)
(Increase) decrease in other current assets.... 3,572 (3,313) (1,175)
Increase (decrease) in accounts payable........ 9,362 (13,594) 26,683
Increase (decrease) in accrued liabilities..... (24,303) 24,687 29,923
Increase in cable distribution fees............... (43,874) (71,871) --
Stock purchases for employee equity participation
plan........................................... (1,264) (3,736) --
-------- -------- ---------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES................................... (74,474) (27,871) 55,000
-------- -------- ---------
Cash flows from investing activities:
Capital expenditures................................... (13,004) (18,602) (15,491)
Proceeds from sale of assets........................... 8,727 3,221 548
Increase in long-term investments...................... (4,000) -- (2,775)
Proceeds from long-term notes receivable............... 3,169 133,325 4,892
Increase in intangible assets.......................... (2,378) (4,338) (2,057)
(Increase) decrease in other non-current assets........ (920) (6,185) 683
-------- -------- ---------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES................................... (8,406) 107,421 (14,200)
-------- -------- ---------
Cash flows from financing activities:
Borrowings from secured credit facility................ 120,000 -- --
Payments for purchases of treasury stock............... (34,691) -- --
Principal payments on and redemptions of long-term
obligations......................................... (11,816) (110,993) (206,506)
Proceeds from issuance of common stock................. 903 4,525 31,851
Borrowings from unsecured credit facilities............ -- 25,000 150,000
-------- -------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES................................... 74,396 (81,468) (24,655)
-------- -------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS..... (8,484) (1,918) 16,145
Cash and cash equivalents at beginning of year........... 33,648 35,566 19,421
-------- -------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR................. $ 25,164 $ 33,648 $ 35,566
======== ======== =========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
28
<PAGE> 32
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Home Shopping Network, Inc. (the "Company" or "HSN") 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.
The following is a summary of the significant accounting policies of the
Company consistently applied in the preparation of the accompanying consolidated
financial statements.
1. CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and all wholly-owned subsidiaries. All significant intercompany transactions and
accounts have been eliminated.
2. CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include
cash and short-term investments. Short-term investments consist primarily of
U.S. Treasury Securities, auction preferred shares, U.S. Government agencies and
certificates of deposit with original maturities of less than 91 days.
3. ACCOUNTS AND NOTES RECEIVABLE
HSN has a sales program with a deferred payment arrangement, "FlexPay",
which allows customers to charge their purchases to third party credit cards in
installments, generally over three consecutive months. FlexPay receivables
totaled $13,015,000 and $23,621,000 at December 31, 1995 and 1994, respectively.
At December 31, 1994 accounts and notes receivable included $3,000,000 due from
a former chairman of the Company's Board of Directors and a $5,000,000 note
receivable from a former wholly-owned subsidiary, Precision Systems, Inc.
("PSi").
4. INVENTORIES, NET
Merchandise inventories are valued at the lower of cost or market, cost
being determined using the first-in, first-out method. Cost includes freight,
certain warehousing costs and other allocable overhead. Market is determined on
the basis of net realizable value, giving consideration to obsolescence and
other factors. Inventories are presented net of an inventory carrying adjustment
of $33,259,000 and $18,791,000 at December 31, 1995 and 1994, respectively.
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, including significant improvements, are
recorded at cost. Repairs and maintenance and any gains or losses on
dispositions are included in operations.
Depreciation and amortization are provided on a straight-line basis to
allocate the cost of depreciable assets to operations over their estimated
service lives as follows:
<TABLE>
<CAPTION>
DEPRECIATION/
ASSET CATEGORY AMORTIZATION PERIOD
-------------------------------------------------------------------- -------------------
<S> <C>
Computer and broadcast equipment.................................... 3 to 10 Years
Buildings........................................................... 30 to 40 Years
Leasehold improvements.............................................. 4 to 13 Years
Furniture and other equipment....................................... 3 to 10 Years
</TABLE>
29
<PAGE> 33
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Depreciation and amortization expense on property, plant and equipment was
$20,452,000, $22,540,000 and $21,911,000 for the years ended December 31, 1995,
1994 and 1993, respectively.
For income tax purposes, certain assets are depreciated using allowable
accelerated methods which result in different depreciation amounts than would be
calculated for financial statement purposes.
6. CABLE DISTRIBUTION FEES, NET
The Company pays upfront fees for long-term cable contracts for carriage of
the Company's programming. These fees are amortized to expense on a
straight-line basis, over the terms of the respective contracts which range from
5 to 15 years. Amortization expense for cable distribution fees for the years
ended December 31, 1995 and 1994 was $12,692,000 and $3,893,000, respectively.
Accumulated amortization as of December 31, 1995 and 1994 was $16,585,000 and
$3,893,000, respectively.
The Company periodically analyzes the value of its cable distribution fees
to determine if an impairment has occurred. The Company measures the potential
impairment of recorded cable distribution fees by the undiscounted value of
expected future operating cash flows in relation to its net capital investment.
Based on its analysis, the Company does not believe that an impairment of its
cable distribution fees has occurred.
7. OTHER NON-CURRENT ASSETS
Other non-current assets consists primarily of goodwill which is recorded
at cost and amortized on a straight-line basis over its economic life, primarily
three years. In connection with the purchase of Internet Software, Inc. ("ISN")
during 1994, as discussed in Note E, goodwill increased by $5,239,000.
Amortization expense for other non-current assets was $5,710,000,
$2,633,000 and $2,261,000 for the years ended December 31, 1995, 1994 and 1993,
respectively. The increase in amortization expense during 1995 was related to
the sale of name lists for Ortho-Vent, Inc. ("Ortho-Vent"), one of the Company's
mail order subsidiaries, as discussed below and in Note F.
Costs in connection with mailing lists developed for the Company's direct
response advertising business are amortized over a two year period. The total
amount of direct response advertising included in amortization expense for the
years ended December 31, 1995, 1994, and 1993, was $3,868,000, $1,982,000, and
$1,988,000, respectively. Due to the sale of the Ortho-Vent assets, the Company
no longer incurs these costs and all previously capitalized amounts were
written-off in 1995. All non-direct response advertising is expensed in the
period incurred.
8. NET SALES
Revenues include merchandise sales and shipping and handling revenues, and
are reduced by incentive discounts and sales returns to arrive at net sales.
Revenues are recorded for credit card sales upon transaction authorization, and
for check sales upon receipt of customer payment, which does not vary
significantly from the time goods are shipped. The Company's sales policy allows
merchandise to be returned at the customer's discretion, generally up to 30
days. An allowance for returned merchandise is provided based upon past
experience.
9. INCOME TAXES
The Company accounts for income taxes pursuant to Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes" ("Statement 109").
Under Statement 109, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates in effect for the year in which those temporary differences
30
<PAGE> 34
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
are expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
10. 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, when dilutive. Fully diluted
earnings per share is not materially different from primary earnings per share
in any period presented.
The weighted average number of common shares outstanding was 90,782,000,
95,061,000 and 91,192,000 for the years ended December 31, 1995, 1994 and 1993,
respectively.
11. RECLASSIFICATIONS
Certain amounts in the prior year's consolidated financial statements have
been reclassified to conform to the 1995 presentation.
NOTE B -- LONG-TERM INVESTMENTS
In July 1995, the Company paid $4,000,000 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 through HSC and other distribution channels.
The Company has a $10,000,000 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 $15,000,000. At December 31, 1995, one of the Company's
executive officers served as a director of NRI. J. Anthony Forstmann, a director
of the Company, is Chairman of NRI and had voting rights with respect to 28.3%
of NRI's common stock as of December 31, 1995.
NOTE C -- LONG-TERM OBLIGATIONS AND CREDIT FACILITIES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
DECEMBER 31,
----------------------
1995 1994
- ----------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Secured $150,000,000 Revolving Credit Facility as amended February 13,
1996, ("Credit Facility") which expires April 1, 1997 (unsecured
prior to September 28, 1995). Borrowings can be used for general
corporate purposes. The interest rate ranged from 6.25% to 8.81% and
is tied to the London Interbank Offered Rate ("LIBOR"), plus an
applicable margin based on the Company's total debt to operating
cash flow ratio..................................................... $135,000 $25,000
Unsecured 7.5% note, plus accrued interest, payable to related
parties, in connection with a business acquisition, due on September
1, 1996. See Note E................................................. 1,325 2,903
Other long-term obligations........................................... 1,040 1,278
-------- -------
Total long-term obligations........................................... 137,365 29,181
Less current maturities............................................... 1,555 1,690
-------- -------
Long-term obligations, net of current maturities...................... $135,810 $27,491
======== =======
</TABLE>
31
<PAGE> 35
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Aggregate contractual maturities of long-term obligations are as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
YEARS ENDING
DECEMBER 31,
---------------------------------------------------------------------------------------
(In thousands)
<S> <C>
1996................................................................... $ 1,555
1997................................................................... 135,250
1998................................................................... 270
1999................................................................... 290
--------------
$137,365
===========
</TABLE>
The Company's Credit Facility was amended on September 28, 1995 and the
maximum borrowing availability was increased from $100,000,000 to $150,000,000
at that time. On that date, HSN pledged the stock of HSC and HSN Realty, Inc.
("Realty"), the guarantors of the Credit Facility, to secure the Company's
obligation under the Credit Facility. On February 13, 1996, the covenants in the
Credit Facility were further amended to include the effect of, among other
things, certain of the restructuring and other charges as discussed in Note F
and to allow for additional subordinated financing as discussed in Note P. The
Credit Facility has yearly extension options beyond April 1997, if requested by
the Company, subject to approval of the participating banks. Under the Credit
Facility, the interest rate on borrowings is tied to the LIBOR, Federal Funds
Rate, or Prime Rate, at the Company's option, plus an applicable margin.
Commitment fee payments relating to the Credit Facility totaled $2,720,000 and
$170,000, respectively, during 1995 and 1994. The unamortized commitment fee
balance of $1,170,000 at December 31, 1995 is being amortized over the expected
remaining life of the agreement.
Restrictions contained in the Credit Facility include, but are not limited
to, limitations on the encumbrance and disposition of assets, certain
restrictions on repurchases of the Company's common stock and the maintenance of
various financial covenants and ratios.
The Company also has a $25,000,000 committed bank credit line secured by
the capital stock of HSC and Realty. In addition, the Company has an uncommitted
unsecured bank credit line offered on a conditional basis. On February 13, 1996,
the committed bank credit line was amended on the same terms as the Credit
Facility discussed above. These facilities back letters of credit, used
exclusively to facilitate the purchase of imported inventory. Presentation of
letters of credit by vendors results in an immediate charge to the Company's
account with no interest charges incurred. Outstanding letters of credit are
limited to a total of $25,000,000 at any time, under the terms of the Credit
Facility. At December 31, 1995, outstanding letters of credit amounted to
$14,052,000 leaving $10,948,000 of these bank credit lines available.
The Company recognized extraordinary losses on the early extinguishment of
its long-term obligations as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
DECEMBER 31,
--------------------
1994 1993
--------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Total extinguished.............................................. $85,000 $160,152
======= ========
Pre-tax loss net of discounts................................... $(1,491) $(11,637)
Income tax benefit.............................................. 567 4,395
------- --------
Extraordinary loss.............................................. $ (924) $ (7,242)
======= ========
</TABLE>
There was no early extinguishment of long-term obligations during the year
ended December 31, 1995.
32
<PAGE> 36
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE D -- INCOME TAXES
A reconciliation of total income tax expense (benefit) to the amounts
computed by applying the statutory federal income tax rate to earnings (loss)
before income tax expense (benefit) and extraordinary item is shown as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
--------------------------------
1995 1994 1993
-------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Income tax expense (benefit) at the federal statutory rate of
35% (effect of rate change in 1993 to 35% was $(196))........ $(33,322) $10,682 $(6,848)
Amortization and write-off of goodwill and other acquired
intangibles and interest on adjustments proposed by the
Internal Revenue Service ("IRS")............................. 1,629 2,145 1,582
State income tax expense (benefit), net of effect of federal
taxes........................................................ (1,778) 803 71
Executive compensation in excess of $1 million................. (688) -- 688
Sale of wholly-owned subsidiary................................ -- (920) --
Other, net..................................................... 837 109 479
-------- ------- -------
$(33,322) $12,819 $(4,028)
========= ======== ========
</TABLE>
The Company's effective tax expense (benefit) rate was (35.0)% for 1995,
42.0% for 1994; and (20.6)% for 1993.
The components of income tax expense (benefit) attributable to operations
are as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
---------------------------------
1995 1994 1993
-------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
CURRENT INCOME TAXES:
Federal....................................................... $ (1,023) $ 4,791 $ 8,753
State......................................................... 11 584 870
-------- ------- --------
(1,012) 5,375 9,623
-------- ------- --------
DEFERRED INCOME TAXES:
Net operating loss carry over................................. (23,489) -- --
Depreciation for tax in excess of (less than) financial
statements.................................................. (2,207) 683 55
Sales returns................................................. 382 493 (471)
Amortization of acquired intangible assets.................... -- (1,622) 47
Provision for accrued liabilities............................. (1,407) 956 (1,363)
Inventory costing............................................. (4,421) 1,330 (4,057)
Litigation settlements........................................ 1,859 542 (4,550)
Deferred compensation......................................... 662 275 (907)
State income taxes............................................ (1,786) 325 (618)
IRS settlement................................................ -- 1,794 --
Amortization of long-term obligation issue costs.............. -- -- (718)
Sales tax accrual............................................. 294 771 24
Provision for uncollectible amounts........................... (6) 2,585 (351)
Amortization of cable distribution fees....................... (1,775) (530) --
Charitable contribution carryover............................. (48) 244 (910)
Valuation allowance........................................... 240 116 135
Other, net.................................................... (608) (518) 33
-------- ------- --------
(32,310) 7,444 (13,651)
-------- ------- --------
$(33,322) $12,819 $ (4,028)
========= ======== =========
</TABLE>
During the years ended December 31, 1994 and 1993, the Company recorded an
extraordinary item, loss on early extinguishment of long-term obligations, net
of the income tax effect. See Note C.
33
<PAGE> 37
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
DECEMBER 31,
------------------
1995 1994
--------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
CURRENT
Deferred tax assets:
Inventory costing............................................... $ 10,339 $ 5,918
Provision for accrued liabilities............................... 5,182 3,775
Sales returns................................................... 3,794 4,176
Litigation settlements.......................................... 2,149 4,008
Provision for uncollectible amounts............................. 614 608
Deferred compensation........................................... 1,163 1,825
Sales tax accrual............................................... 484 778
Charitable contribution carryover............................... 714 666
Other........................................................... 45 354
-------- -------
Net deferred tax assets................................. $ 24,484 $22,108
======== =======
NON-CURRENT
Deferred tax liabilities (assets):
Net operating loss carry over................................... $(23,489) $ --
State income taxes.............................................. (2,419) (633)
Cable distribution fees......................................... (2,305) (530)
Investment in unconsolidated subsidiaries....................... -- (238)
Installment sale................................................ -- (182)
Other........................................................... (1,759) (915)
-------- -------
(29,972) (2,498)
Less valuation allowance........................................ 1,235 995
-------- -------
(28,737) (1,503)
Depreciation for tax in excess of financial statements.......... 5,409 7,616
Capitalized costs of mailing lists.............................. -- 539
Other........................................................... 186 140
-------- -------
Net deferred tax liabilities (assets)................... $(23,142) $ 6,792
======== =======
</TABLE>
The Company had taxable income (loss) and pre-tax book income (loss) for
the periods presented as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
-----------------------------
1995 1994 1993
---------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Taxable income (loss)................................... $(72,849) $ 5,200 $ 8,207
Pre-tax book income (loss).............................. $(95,205) $29,029 $(31,204)
</TABLE>
The primary differences between taxable income (loss) and pre-tax book
income (loss) are the gross effects of the deferred income taxes, exclusive of
the net operating loss carry over as detailed above. In addition to these
reconciling items, the Company recognized income tax deductions relating to the
issuance of common stock pursuant to the Company's executive stock award program
and the exercise of stock options ("Common Stock Deductions"), the income tax
benefit of which was recorded as an increase to additional
34
<PAGE> 38
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
paid-in capital. During the years ended December 31, 1995, 1994 and 1993, the
Company incurred Common Stock Deductions of $1,445,000, $7,308,000 and
$31,697,000, respectively.
Except for the effects of the reversal of net deductible temporary
differences and the effects of future Common Stock Deductions, the Company is
not currently aware of any factors which would cause any significant differences
between taxable income and pre-tax book income in future years. There can be no
assurances that there will not be significant differences in the future between
taxable income and pre-tax book income if circumstances change (for example,
changes in tax laws or the Company's financial condition or performance).
During 1995, the Company incurred a tax loss of $72,849,000. The Company
will carryback $8,900,000 to prior taxable years to obtain an income tax refund.
The remaining tax loss of $63,949,000 will be carried forward and will expire on
December 31, 2010. Management believes that it will generate future taxable
income sufficient to realize this tax benefit prior to its expiration. New
management, which has substantial experience in the television retail business,
has been appointed and is establishing a new direction for the Company intended
to reverse operating losses experienced in 1995. The Company's plans are to
provide a proper inventory mix with respect to product assortment and price
point that attracts both first-time buyers and active buyers, and improved
inventory management.
Management of the Company believes that through minimal growth in net
sales, calculated at cost of living increases of 3.5%, cost reduction measures
implemented during late 1995 and early 1996, and further anticipated reductions
resulting from expected capital expenditures, that both the net operating loss
carryforwards of $63,949,000 and a substantial portion of other deferred tax
assets presented above will be recovered within a three-year period.
Accordingly, the Company has recognized an asset related to these carryforward
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 in order to allow the Company to realize the benefits of the
net operating loss carryforward or other deferred tax assets.
During 1994, the IRS completed its examination of the Company's federal
income tax returns for fiscal years 1986 through 1989 and proposed various
adjustments. The Company and the IRS agreed to settle all of the outstanding
issues with the exception of the deductibility of royalty payments made to a
then related party. The Company paid the assessments, totaling $15,000,000
including interest, related to all the issues except the royalty payments
covering all taxable periods through August 31, 1993. These assessments had
previously been accrued.
Also in 1994, the IRS issued a Statutory Notice of Deficiency for fiscal
years 1986 through 1989 related to the royalty payments issue. The Company paid
the assessments, totaling $4,600,000 including interest, which had previously
been accrued. The Company continues to maintain that it has meritorious
positions regarding the deductibility of these payments and will file a refund
claim with the IRS during 1996.
On May 12, 1995, the IRS completed its examination of the Company's federal
income tax returns for fiscal years 1990 and 1991, and proposed adjustments
resulting in income tax and interest deficiencies of $4,200,000, primarily
related to the royalty payments issue. On October 31, 1995, the Company and the
IRS agreed to settle all of the outstanding issues, except the royalty payments
issue, and the Company paid the resulting assessment of $1,100,000, including
interest. These assessments had previously been accrued. The Company has not yet
received a Statutory Notice of Deficiency relating to the royalty payments
issue. The Company will protest such assessment when received.
The Company also made such royalty payments during fiscal years 1992
through 1993. The deductibility of these payments will also be challenged by the
IRS upon audit. The Company has made adequate provision for this issue for these
years.
35
<PAGE> 39
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's federal income tax returns for fiscal years 1992, 1993 and
1994 are currently under examination by the IRS. No proposed material
adjustments relating to such years, other than those discussed above, have been
brought to management's attention.
NOTE E -- BUSINESS COMBINATION
On September 1, 1994, a wholly-owned subsidiary of the Company purchased
all the outstanding shares of ISN for cash of $2,097,000 and notes payable of
$2,903,000, see Note C, for a total of $5,000,000. The purchase method of
accounting was used to account for this business combination. Goodwill acquired
in connection with this transaction is being amortized over three years.
Consolidated results of operations for the year ended December 31, 1994
include the results of ISN from its acquisition date. The results of operations
prior to the date of acquisition, were not significant to the Company's
consolidated results of operations and therefore pro forma effects are not
presented.
NOTE F -- OTHER CHARGES AND RESTRUCTURING CHARGES
During 1995, the Company recorded $42,340,000 in pre-tax special charges.
In connection with new management's sales and merchandising philosophy an
overall analysis of the Company's inventory was conducted and determined that
certain merchandise was not compatible with this new philosophy. As a result,
such merchandise will be liquidated through other than the Company's normal
retailing channels. Accordingly, management increased the Company's inventory
carrying value adjustment by $12,077,000 to $33,259,000 at December 31, 1995 to
reflect the net realizable value of the Company's inventory.
During 1995, the Company recorded $11,893,000 in "Other Charges." These
consisted of severance pay of $3,978,000 related to a reduction in work force,
$4,800,000 of payments to certain executives as provided for under their
employment agreements in connection with the termination of their employment and
the write-off of certain equipment maintenance and contractual fees totaling
$1,812,000 related to service contracts which the Company will no longer
utilize. In addition, the Company recorded a write-down of inventory totaling
$1,303,000 to net realizable value based on the disposition of Ortho-Vent's
assets. An additional $2,400,000, related to name lists of Ortho-Vent were
written off and included in "Depreciation and Amortization."
During 1995 the Company recorded restructuring charges of $4,114,000
covering employee and other costs related to the closing of its fulfillment
center in Reno, Nevada. The facility was closed by June 30, 1995. During 1995,
payments totaling $1,214,000 were made related to this charge leaving $2,900,000
accrued for future charges, at December 31, 1995.
Interest expense includes $773,000 of bank fees related to the Company's
Credit Facility which have been amortized based on the Company's intent to seek
refinancing of this debt prior to its contractual maturity. Miscellaneous
expense includes the write-down of computer equipment no longer in use with a
net book value of $4,700,000.
Estimated costs related to pending and settled litigation for the year
ended December 31, 1995 totaled $6,383,000.
NOTE G -- EMPLOYEE BENEFIT PLANS
The Company offers a plan pursuant to Section 401(k) of the Internal
Revenue Code covering substantially all full-time employees. Matching employer
contributions are set at the discretion of the Board of Directors. The Company's
contributions for the years ended December 31, 1995, 1994 and 1993 were
$864,000, $824,000 and $667,000, respectively.
36
<PAGE> 40
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On December 28, 1994, the Board of Directors adopted the Home Shopping
Network, Inc. Employee Equity Participation Plan (the "Equity Plan"), effective
December 31, 1994. In January 1996, the Company received a favorable
determination letter stating that the Equity Plan is a qualified plan for IRS
purposes.
The Equity Plan covers all employees who have completed one year of
service, at least 1,000 hours of service during that year, are at least 21 years
of age, are not highly compensated, and do not hold options to purchase shares
of HSN common stock.
The Company contributed $5,000,000 which was used to purchase a total of
499,000 shares of common stock in 1994 and 1995 to fund the Equity Plan.
Employees who met the eligibility requirements on December 31, 1994 and June 30,
1995, will receive grants under the Equity Plan. The stock vests ratably at 20%
a year with the first vesting being effective as of the calendar year in which
the eligible employee has worked at least 1,000 hours. The Board of Directors
have not made the decision regarding any additional grants for any period
subsequent to June 30, 1995. The common stock in the Equity Plan is included in
the weighted average number of shares for the Company's earnings per share
calculation.
The common stock when purchased was recorded as unearned compensation. For
the years ended December 31, 1995 and 1994, $1,020,000 and $810,000,
respectively, has been charged to expense based on the shares authorized for
granting and the vesting schedule discussed above. The fair value of the shares
which were unvested and as yet not authorized for grants at December 31, 1995 is
$2,858,000. Any future contributions to the Equity Plan will be subject to the
Board of Directors' approval.
NOTE H -- COMMITMENTS AND CONTINGENCIES
The Company leases satellite transponders, computers, warehouse and office
space used in connection with its operations under various operating leases.
Future minimum payments under non-cancellable operating leases are as
follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
YEARS ENDING
DECEMBER 31,
---------------------------------------------------------------------------------------
(In thousands)
<S> <C>
1996................................................................... $ 13,541
1997................................................................... 12,862
1998................................................................... 7,981
1999................................................................... 7,203
2000................................................................... 6,959
Thereafter............................................................. 30,352
--------
$ 78,898
========
</TABLE>
Rent and lease expenses charged to operations were $13,263,000, $13,978,000
and $15,185,000 for the years ended December 31, 1995, 1994 and 1993,
respectively.
During June 1995, in connection with the restructuring of its programming
the Company discontinued use of a satellite transponder which is under a
non-cancellable operating lease calling for monthly payments ranging from
$140,000 to $150,000 through December 2006. The Company subleased this satellite
transponder to a related party during 1995, as discussed in Note M. The sublease
expired on February 15, 1996, and the Company is currently seeking to sublease
the transponder or to sell its rights with respect to this satellite
transponder. The Company does not expect any material adverse financial impact
in connection with the lease.
On December 28, 1992, HSC entered into affiliation agreements with Silver
King Communications, Inc. ("SKC") which provide for SKC's broadcast television
stations to air HSC programming on a full-time basis. The agreements have an
original term of five years, and are renewable for two successive five year
terms at
37
<PAGE> 41
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SKC's sole option. The affiliation agreements are cancelable by SKC with
eighteen months' written notice prior to the end of any scheduled term. The
notice period of non-renewal of the first term is scheduled to end on June 28,
1996, but is being extended by mutual agreement between SKC and the Company to
December 28, 1996. HSC pays an affiliation fee to SKC based on hourly rates and,
upon reaching certain sales levels, commissions on net sales. Expense related to
affiliation agreements with SKC for the years ended December 31, 1995, 1994 and
1993, was $41,332,000, $42,415,000 and $41,135,000, respectively, of which
$778,000, $1,865,000 and $996,000, respectively, represents commissions.
In December 1995, the Company entered into a four-year employment agreement
with the Company's Executive Vice President of Administration, which is
automatically renewable for successive one-year terms unless either party
provides at least 180 days' written notice. The employment agreement provides
for an annual base salary of $235,000 per annum until December 1999, a signing
bonus of $50,000, and options to purchase 50,000 shares of the Company's common
stock at $8.50 per share. These options were granted under the terms of the 1996
Stock Option Plan for Employees ("1996 Employee Plan"), which plan is subject to
shareholder approval. See Note L.
In November 1995, the Company entered into a four-year employment agreement
with the Company's President, which is automatically renewable for successive
one-year terms unless either party provides at least 180 days' written notice.
The employment agreement provides for an annual base salary of not less than
$500,000 and a $1,000,000 loan, evidenced by a note, bearing interest at 5.00%
per annum, with only interest, payable monthly. The loan will be used for the
purchase or renovation of a residence and will be secured by this property. The
note, which has not yet been drawn against, will be due upon the first
anniversary of the termination of the President. The employment agreement also
provides options to purchase 2,500,000 shares of the Company's common stock at
$8.50 per share. These options were granted under the terms of the 1996 Employee
Plan, which plan is subject to shareholder approval. See Note L.
In September 1994, the Company entered into a three-year employment
agreement with its General Counsel which is automatically renewable for
successive one-year terms unless either party provides written notice by April
30 in any year. The agreement calls for an annual base salary of at least
$225,000 per year until August 1997 and options to purchase 100,000 shares of
the Company's common stock at $11.75 per share under the terms of the 1986 Stock
Option Plan for Employees.
Termination of the above employment agreements by the Company other than
for cause will result in payment of the annual base salary amounts that would
have been payable had employment continued until the expiration of the
employment terms plus any annual bonus for the year of termination. In addition,
termination of employment following a change in control of the Company may
result in entitlement to all unpaid compensation and other benefits through the
term of the contracts.
On August 11, 1993 a former Chairman of the Board of the Company, upon his
resignation, commenced a five-year consultancy and non-competition arrangement
with the Company during which period he receives $500,000 per year.
The Company has entered into an amended five year agreement for inbound 800
service usage with MCI Telecommunications Corporation ("MCI") ending in August
2000 which requires minimum annual payments of $9,600,000. If the Company
terminates the agreement for reasons other than cause, payment of 50% of the
aggregate of the minimum amounts for the remainder of the unexpired term will be
due 30 days after the termination. The Company's payments to MCI for phone
services during the years ended December 31, 1995 and 1994 substantially
exceeded the above mentioned minimum.
In addition, the Company has entered into an agreement with MCI covering
equipment maintenance for a term from April 1, 1996 through April 1, 2001,
requiring minimum annual payments of $2,676,000. Upon payment of $13,380,000
under the terms of the contract, the Company is no longer required to pay any
fees for these services. The Company will receive a credit for any annual fees
over $3,211,000.
38
<PAGE> 42
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE I -- LITIGATION
The Company has reached an agreement to settle a consolidated class action
pending in the Court of Common Pleas of Bucks County, Pennsylvania, relating 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 proposed 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 is $2,500,000. 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 $5,200,000 would be issuable under the settlement, the
Company has the right to require that the certificates be pro-rated among those
who elect to receive them. The settlement is subject to approval by the Court
after notice and hearing.
The Company believes it has accrued a balance sufficient to cover
anticipated costs in connection with the resolution of this and other pending
litigation.
During 1995, the Company paid $14,450,000 relating to litigation
settlements accrued in 1993.
The Company is also involved in various other lawsuits either as plaintiff
or defendant. In the opinion of management, the ultimate outcome of these
various lawsuits should not have a material impact on the Company's liquidity,
results of operations or financial condition.
NOTE J -- STOCKHOLDERS' EQUITY
The holders of both classes of the Company's common stock are entitled to
receive ratably such dividends, if any, as may be declared by the Board of
Directors out of funds legally available for the payment of dividends. In the
event of the liquidation, dissolution or winding up of the Company, the holders
of both classes of common stock are entitled to share ratably in all assets of
the Company remaining after provision for payment of liabilities. Shares of
Class B common stock are convertible at the option of the sole holder, Liberty
Media Corporation ("Liberty"), a wholly-owned subsidiary of Tele-Communications,
Inc. ("TCI"), into shares of common stock of the Company on a share-for-share
basis. In the event of conversion of the Class B common stock, the Class B
shares so converted will be retired and not subject to reissue.
The holder of the Class B common stock votes together with the holders of
common stock on all matters submitted to stockholders, except that it has no
vote in the election of 25% of the Board of Directors. The holder of the Class B
common stock is entitled to cast ten votes per share on all other matters.
As of December 31, 1995, Liberty's beneficial ownership and voting rights
were 41.4% and 80.4%, respectively.
NOTE K -- ANTICIPATED CHANGE IN CONTROL
In November 1995, Liberty and the new Chairman of the Company's Board of
Directors (the "Chairman"), entered into an agreement, which related to, among
other things, SKC's 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
39
<PAGE> 43
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 transaction in which it 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 which will require an amendment to the Credit Facility. See Note P.
There can be no assurance that the transactions described above will be
consummated.
NOTE L -- STOCK OPTIONS AND AWARDS
The Company has granted options to purchase common stock under option plans
as follows:
The Board of Directors authorized the issuance of a total of 18,700,000
shares for the 1996 Employee Plan and the 1996 Stock Option Plan for Directors
("1996 Director Plan"), subject to shareholder approval at the Company's annual
meeting of shareholders.
The 1996 Employee Plan provides for the grant of options to purchase common
stock at fair market value, subject to the discretion of the
Compensation/Benefits Committee of the Board of Directors, as of the date of
grant. The options vest annually and equally over five years, unless otherwise
specified by the Compensation/Benefits Committee of the Board of Directors,
beginning one year from the date of grant, and expire ten years from the date of
grant. During 1995, the Company granted options for 15,950,000 shares which
vests over a four year period of which 13,400,000 were to the Chairman of the
Board, 2,500,000 were to the new President and Chief Executive Officer, and
50,000 were to the Executive Vice President of Administration, all at $8.50 per
share.
The 1996 Director Plan provides for issuance of options to outside
directors. Options for 5,000 shares of common stock are automatically granted
upon appointment to the Board of Directors, and options for an additional 5,000
shares are granted annually thereafter. Options provide for purchase at fair
market value on the date of grant, vest over three years, and expire five years
from the date of vesting.
The 1987 Cable Operators Stock Option Plan, as amended, provided for the
issuance of options to purchase common stock at or above the fair market value
at the date of grant in exchange for entering into affiliation agreements to
carry the Company's programming for up to seven years. All outstanding options
were exercised or cancelled on or before June 1, 1994. The price of these
options ranged between $5.56 and $6.49.
The 1986 Stock Option Plan for Employees, as amended, provides for the
grant of options to purchase common stock at the fair market value at date of
grant. The options generally vest annually and equally over five years beginning
one year from the date of grant, and expire ten years from the date of grant.
The 1986 Stock Option Plan for Outside Directors, as amended, provides for
the grant of options to purchase common stock at fair market value as of the
date of grant. The options vest equally over two years beginning on the date of
grant and expire five years from the date they vest. During 1992, the Board of
Directors and shareholders approved certain amendments to the plan. The
amendments provide for additional option grants after five years of service and,
in addition, the number of shares of common stock subject to option under the
plan was increased to 1,630,000 shares.
40
<PAGE> 44
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of changes in outstanding options under the stock option plans
except for the 1996 Employee Plan and the 1996 Director Plan, which are subject
to shareholder approval, as discussed above, is as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
STOCK OPTION PLANS
-----------------------------------------------------------------------
CABLE
OPERATORS EMPLOYEES OUTSIDE DIRECTORS
--------- ----------------------- ----------------------- TOTAL
OPTIONS OPTIONS PRICE RANGE OPTIONS PRICE RANGE OPTIONS
- ------------------------------------------------------------------------------------------------------------
(In thousands, except price range)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total authorized................... 27,500 10,000 1,630 39,130
======= ====== ====== ======
Outstanding -- December 31, 1992... 4,325 2,934 $ 3.25- 8.23 300 $ 3.36- 6.61 7,559
Granted.......................... 49 1,063 $ 8.50- 14.63 180 $14.75- 14.75 1,292
Exercised........................ (3,305) (1,781) $ 3.25- 6.96 (216) $ 3.36- 6.61 (5,302)
Canceled......................... (524) (115) $ 4.41- 9.88 (54) $ 4.98- 4.98 (693)
--------- ------- ------- -------
Outstanding -- December 31, 1993... 545 2,101 $ 3.25- 14.63 210 $ 5.45- 14.75 2,856
Granted.......................... -- 3,316 $10.25- 12.25 -- -- 3,316
Exercised........................ (336) (335) $ 3.71- 9.88 (30) $ 5.45- 5.45 (701)
Canceled......................... (209) (419) $ 4.41- 14.63 -- -- (628)
--------- ------- ------- -------
Outstanding -- December 31, 1994... -- 4,663 $ 3.25- 14.63 180 $14.75- 14.75 4,843
Granted.......................... -- 195 $ 6.75- 9.00 90 $10.38- 10.38 285
Exercised........................ -- (165) $ 3.25- 8.50 -- -- (165)
Canceled......................... -- (755) $ 4.41- 14.63 -- -- (755)
--------- ------- ------- -------
Outstanding -- December 31, 1995... -- 3,938 $ 3.25- 14.63 270 $10.38- 14.75 4,208
======= ====== ====== ======
Options exercisable................ -- 2,425 $ 3.25- 14.63 210 $10.38- 14.75 2,635
======= ====== ====== ======
Available for grant................ -- 2,978 724 3,702
======= ====== ====== ======
</TABLE>
During the year ended December 31, 1995, 165,050 shares of common stock
were issued in connection with the exercise of stock options for which the
Company received $903,000 in cash.
In October 1990, the Company adopted the 1990 Executive Stock Award Program
(the "Program") pursuant to which 2,990,000 shares of common stock were granted
to certain key employees and consultants. The Program was funded exclusively by
the contribution of shares of common stock owned by a former chairman of the
board and a former president of the Company. The Company did not issue any
additional shares of stock in connection with the Program. The shares granted
under the Program are distributed in five equal annual installments commencing
one year from the grant date. Participants in the Program are entitled to
receive dividends, if declared, on their unvested shares and certain officers
are entitled to voting rights with respect to their unvested shares. Forfeitures
are reissued at the discretion of the Compensation/Benefits Committee of the
Board of Directors.
Under this Program and another award of stock, the amount amortized and
expensed relating to the compensation earned was $795,000, $2,047,000, and
$5,615,000 for the years ended December 31, 1995, 1994 and 1993, respectively.
In 1993, the former president and chief executive officer of HSN received
SAR's with respect to 984,876 shares of the Company's common stock at an
exercise price of $8.25 per share. The SAR's vested upon termination of his
employment and were exercised during September 1995, at $10.13 per share.
Compensation expense (benefit) recognized by the Company for the SAR's during
the years ended December 31, 1995, 1994 and 1993 was ($758,000), ($1,547,000)
and $2,834,000, respectively. In addition, $1,345,000 of expense related to the
exercise of these SAR's is included in "Other Charges."
41
<PAGE> 45
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE M -- RELATED PARTY TRANSACTIONS
Currently, the Company is involved in several agreements with related
parties and has made payments to those related parties as follows.
Effective August 25, 1995 the Chairman and Chief Executive Officer of SKC
was appointed to the Company's board of directors and was appointed Chairman of
the Company's Board of Directors effective November 27, 1995. The Company has
affiliation agreements with SKC for which the Company paid $42,651,000 in 1995.
See Note H.
HSC has entered into affiliation agreements with cable operators which are
wholly or partially owned by TCI. In addition, certain officers of Liberty and
TCI served, or continue to serve, on the Company's Board of Directors. The
managing general partner of certain cable systems which carry the Company's
programming, was appointed to HSN's Board of Directors in July 1993. TCI also
has an ownership interest in these cable systems. Payments to the above related
parties for cable commissions and advertising were $7,150,000, $7,269,000, and
$4,300,000 for the years ended December 31, 1995, 1994 and 1993, respectively.
Cable distribution fees paid to related parties were $28,715,000 and $8,673,000
for the years ended December 31, 1995 and 1994, respectively. Additional
commitments for cable distribution fees to related parties totaled $1,630,000 at
December 31, 1995. In addition, the Company received $896,000 in payments for
rental of a satellite transponder during 1995 from a wholly owned subsidiary of
TCI.
On April 28, 1992, the Company purchased 100,000 shares of Series A
Preferred Stock of NRI. Pursuant to the purchase of these shares, HSN provides
office space to NRI beginning in 1993. The Company charged NRI $68,000 and
$65,000, respectively, for rent during the years ended December 31, 1995 and
1994. The Chairman and Chief Executive Officer of NRI was appointed to the Board
of Directors of the Company on April 30, 1992. At December 31, 1995, one of the
Company's executive officers served as a director of NRI. See Notes B and Q.
Prior to 1994, the Company received a variety of products and services from
entities related through common ownership and management with the former
Chairman of the Company's Board of Directors and his immediate family members.
These transactions were considered related party transactions until the
resignation of the former Chairman of the Company's Board of Directors in August
1993. Subsequent to his resignation, these transactions are no longer considered
related party, but are included for disclosure purposes for periods prior to
January 1, 1994. Transactions with these entities are summarized as follows:
1. COMPUTER SOFTWARE LICENSE AGREEMENT: In 1985, the Company entered into
a license agreement for computer software with Pioneer Data Processing, Inc.,
which provided for continuing monthly payments of 1% of HSC's gross profit, as
defined. The amount expensed in connection with this agreement was $297,000 for
the year ended December 31, 1993.
2. COMMISSIONS ON INVENTORY: Certain inventory in the form of returned
merchandise, rejects and small lot saleable inventory were disposed of through
Western Hemisphere, Inc. ("Western") for a 15% commission. Sales by the related
party were less than 1% of total sales. The Company also provided certain
equipment and space located at or in close proximity to each of the Company's
four fulfillment centers, free of charge. The Company terminated this
arrangement in 1993. Commissions were $561,000 for the year ended December 31,
1993.
As of December 31, 1994 and 1993, the Company had a $4,500,000 liability
recorded to Western which was paid during 1995. This amount related to
cancellation of the computer software license agreement pursuant to which
Western provided certain liquidation and related services, as noted above, and
all other existing agreements and arrangements excluding certain assignment,
secrecy and non-compete agreements. In connection with this and other litigation
settlements, the former chairman of the Company's board of directors
42
<PAGE> 46
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
paid HSN $3,000,000 during 1995. This amount was recorded in accounts and notes
receivable, as of December 31, 1994.
The Company purchased certain equipment from PSi and paid license and
system maintenance fees related to this equipment of $1,316,000 and $3,545,000,
respectively, for the year ended December 31, 1993. The former chairman of HSN
owns a controlling position in PSi's outstanding stock. Until August 1993, HSN
and PSi also shared a common board member, and officer. Subsequent to August 11,
1993, PSi is no longer considered a related party due to the resignation of
certain members of PSi's board of directors, and the resignation of a former
chairman of the board of the Company.
NOTE N -- CONSOLIDATED STATEMENTS OF CASH FLOWS
Supplemental disclosure of cash flow information:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
---------------------------
1995 1994 1993
- -------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
CASH PAID DURING THE PERIOD FOR:
Interest.................................................... $ 6,896 $ 5,899 $13,872
Income taxes................................................ 1,707 25,922 2,815
CASH RECEIVED FOR:
Income tax refund........................................... 11,258 3,492 2,300
</TABLE>
Supplemental information of non-cash investing and financing activities:
- - During 1995 and 1994, the Company purchased 1,335,000 and 2,545,000 shares,
respectively, of treasury stock for which the Company paid $34,691,000 in
1995.
- - During the year ended December 31, 1993, $15,000 of the Company's 5 1/2%
Convertible Subordinated Debentures were converted into 2,293 shares of common
stock.
- - As discussed in Note E, in connection with the purchase of ISN, the Company
issued notes payable totaling $2,903,000.
- - During the years ended December 31, 1994 and 1993, RMS converted 559,456 and
3,600,000 shares, respectively, of Class B common stock into shares of common
stock.
- - On March 27, 1995, PSi repaid $2,700,000, plus accrued interest, of its
$5,000,000 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.
NOTE O -- QUARTERLY RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
QUARTER QUARTER QUARTER QUARTER
ENDED ENDED ENDED ENDED
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
- -------------------------------------------------------------------------------------------------------
(Table in thousands, except per share data)
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995
Net sales................................. $ 243,610 $246,659 $ 239,894 $288,462
Gross profit.............................. 81,675 80,503 77,583 77,186(c)
Net loss.................................. (8,799)(a) (9,736) (17,701)(b) (25,647)(d)
Loss per common share..................... (.10) (.11) (.20) (.28)
</TABLE>
43
<PAGE> 47
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
QUARTER QUARTER QUARTER QUARTER
ENDED ENDED ENDED ENDED
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
- -------------------------------------------------------------------------------------------------------
(Table in thousands, except per share data)
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1994
Net sales................................. $ 274,215 $274,005 $ 276,612 $301,682
Gross profit.............................. 98,600 95,202 97,620 104,588
Earnings before extraordinary item........ 6,651 1,908 7,349 1,793
Net earnings.............................. 6,651 1,908 6,425 1,793
Earnings per common share:
Before extraordinary item.............. .07 .02 .08(e) .02
Net earnings........................... .07 .02 .07(e) .02
</TABLE>
- ---------------
(a) The quarter ended March 31, 1995 included $2,041,000 of "Restructuring
Charges".
(b) During the quarter ended September 30, 1995, the Company recorded "Other
Charges" of $5,427,000, litigation expense of $3,200,000, and $2,400,000 of
additional "Depreciation and Amortization".
(c) During the quarter ended December 31, 1995, cost of sales included an
additional inventory carrying value adjustment of $12,077,000.
(d) The fourth quarter of 1995 included $6,466,000 of "Other Charges",
$2,073,000 in additional "Restructuring Charges," and $8,656,000 of other
expense items, including $3,183,000 of litigation expense.
(e) The difference between earnings before extraordinary item and net earnings
for the quarter ended September 30, 1994 represents a loss from the early
extinguishment of long-term obligations.
The Company believes that seasonality does impact its business, but not to
the same extent it impacts the retail industry in general.
NOTE P -- SUBSEQUENT EVENT
On February 15, 1996, the Company announced it was seeking $100,000,000 of
additional financing through a proposed private placement of convertible
subordinated debentures that will not be registered under the Securities Act of
1933.
On February 13, 1996, the Company amended its Credit Facility, as discussed
in Note C, and agreed that upon consummation of the sale of the subordinated
debentures the amount available for borrowing under the Credit Facility would be
reduced by 30% of the principal amount of subordinated debentures sold. In
addition, the covenants were amended to give consent to the anticipated change
in control, as discussed in Note K, subject to the Company obtaining at least
$50,000,000 in net proceeds from the sale of the subordinated debentures. There
can be no assurance that such private placement can be completed on terms
satisfactory to the Company.
44
<PAGE> 48
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE Q -- FINANCIAL INSTRUMENTS
The additional disclosure below of the estimated fair value of financial
instruments was made in accordance with the requirements of Statements of
Financial Accounting Standards No. 107. The estimated fair value amounts have
been determined by the Company using available market information and
appropriate valuation methodologies, when available.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
DECEMBER 31, 1995 DECEMBER 31, 1994
--------------------- -------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
- -------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Cash and cash equivalents......................... $ 25,164 $ 25,164 $ 33,648 $ 33,648
Other non-current assets.......................... 4,290 4,290 1,309 1,309
Long-term investments............................. 14,000 21,424 10,000 7,875
Long-term obligations............................. (137,365) (137,365) (29,181) (29,181)
</TABLE>
The carrying value of cash and cash equivalents and other non-current
assets are a reasonable estimate of their fair value.
There are no available current market prices for the $4,000,000 long-term
investment in Body by Jake Enterprises LLC as the investment is in a private
company. The Company has no reason to believe there has been a deterioration in
the investment value below its cost basis, and as such a total of $4,000,000 is
included in the 1995 Fair Value table above.
The amount set out in the table above as the fair value of long-term
investment in NRI at December 31, 1995 and 1994 has been determined using the
trading price of NRI's common stock on those dates. Management is of the
opinion, however, that the fair value of this investment is not readily
determinable. The Company's investment is in the preferred stock of NRI which is
not publicly traded and, therefore, does not have an established market price.
In addition, if the Company were to convert its investment to common stock, its
investment would represent 20.7% of NRI's outstanding common stock at December
31, 1995. It is not anticipated that the Company would be able to sell its
holdings without adversely affecting the market price of the NRI common stock
and the amount realized in the event of a sale.
In early 1995, NRI indicated that it believes the adequacy of cash
resources and the ability to continue operations is dependent upon achieving
sales and obtaining additional capital to continue, among other things, the
development, testing and marketing of its products. On March 15, 1995, NRI sold
4,000,000 shares of common stock to a third party investor for $4,000,000. In
addition, on January 30, 1996 NRI completed an equity financing pursuant to
which certain investors purchased from NRI 800 shares of NRI Series B Preferred
Stock for a gross cash purchase price of $8,000,000, before commissions and
expenses. Based in part on these capital infusions, which provided NRI funds to
continue the development, testing and marketing of its products, management
believes that continuing to carry the Company's investment in NRI at cost is
appropriate. The Company's maximum exposure on the NRI investment is the
$10,000,000 carrying value.
The fair value of the Company's long-term obligations at December 31, 1995
and 1994 approximates the carrying value because the underlying instrument is a
variable rate note that reprices frequently.
NOTE R -- EVENT (UNAUDITED) SUBSEQUENT TO THE DATE OF THE INDEPENDENT
AUDITORS' REPORT
On March 1, 1996, the Company completed a private placement of $100,000,000
of Convertible Subordinated Debentures due March 1, 2006, (the "Debentures").
The Debentures, which are unsecured and subordinated to all existing and future
senior debt of the Company, bear interest at 5 7/8% per annum payable in arrears
each March 1 and September 1. The Debentures are convertible into shares of the
Company's common stock at any time prior to redemption, repurchase or maturity,
at a conversion price of $12.00 per
45
<PAGE> 49
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
share, subject to adjustment in certain circumstances. The Debentures are not
redeemable by the Company prior to March 1, 1998. Thereafter, the Debentures may
be redeemed at the option of the Company in whole or in part at specified prices
provided that until March 1, 1999, the debentures may not be redeemed unless the
closing price of the common stock equals or exceeds 140% of the specified
conversion price for at least 20 out of 30 consecutive trading days ending
within 20 calendar days before the notice of redemption is mailed. Based on the
terms of the Credit Facility amendment discussed in Note P, the maximum
borrowing availability under the Credit Facility was reduced to $120,000,000.
The Company used the net proceeds to repay borrowings under its Credit Facility
leaving an outstanding loan balance of $30,000,000 with $90,000,000 available
for borrowing.
ITEM 9 -- CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable
46
<PAGE> 50
PART III
ITEM 10 -- DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information set forth under the caption "Election of Directors" in the
Proxy Statement dated March 1996, for the Annual Meeting of Stockholders to be
held May 9, 1996, is incorporated herein by reference.
ITEM 11 -- EXECUTIVE COMPENSATION
The information set forth under the captions "Summary Compensation Table"
and "Employment Agreements" in the Proxy Statement dated March 1996, for the
Annual Meeting of Stockholders to be held May 9, 1996, is incorporated herein by
reference.
ITEM 12 -- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security ownership by management as outlined under the caption "Security
Ownership of Certain Beneficial Owners and Management" in the Proxy Statement
dated March 1996, for the Annual Meeting of Stockholders to be held May 9, 1996,
is incorporated herein by reference.
ITEM 13 -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the captions "Compensation of Directors and
Executive Directors" and "Certain Transactions and Business Relationships" in
the Proxy Statement dated March 1996, for the Annual Meeting of Stockholders to
be held on May 9, 1996, is incorporated herein by reference.
PART IV
ITEM 14 -- EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
(a) List of Documents filed as part of this Report:
(1) Financial Statement Schedule
<TABLE>
<CAPTION>
SCHEDULE PAGE
NUMBER NUMBER
- -------- ------
<C> <S> <C>
II -- Valuation and Qualifying Accounts......................................... 56
</TABLE>
The report of the Company's independent auditors with respect to the above
listed financial statement schedule appears on page 55.
All other financial statements and schedules not listed have been omitted
since the required information is included in the Consolidated Financial
Statements or the notes thereto, or is not applicable or required.
(2) Exhibits (numbered in accordance with Item 601 of Regulation S-K)
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------------------------------------------------------------------------------
<C> <C> <S>
3.1 -- Restated Certificate of Incorporation of the Company filed as Exhibit 3.1 to the
Company's Annual Report on Form 10-K for the year ended August 31, 1987, is
incorporated herein by reference.
3.2 -- Amendment to Restated Certificate of Incorporation of the Company filed as Exhibit
3.2 to the Company's Annual Report on Form 10-K for the year ended August 31, 1987,
is incorporated herein by reference.
3.3 -- Amendment filed December 17, 1986, to the Restated Certificate of Incorporation of
the Company filed as Exhibit 3.3 to the Company's Annual Report on Form 10-K for
the year ended August 31, 1987, is incorporated herein by reference.
</TABLE>
47
<PAGE> 51
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------------------------------------------------------------------------------
<C> <C> <S>
3.4 -- Amended By-Laws of the Company filed as Exhibit 3.4 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1993, are incorporated herein by
reference.
3.5 -- Certificates of Amendment of By-Laws dated September 18, 1995 and February 27,
1996.
4.0 -- Indenture dated as of March 1, 1996 between the Company and United States Trust
Company of New York, as Trustee relating the Company's 5.875% Convertible
Subordinated Debentures due March 1, 2006.
*10.1 -- Employment Agreement dated March 5, 1986, by and between Roy M. Speer and the
Company, filed as Exhibit 10.10 to the Company's Form S-1 Registration Statement
#33-4356, dated May 13, 1986, is incorporated herein by reference.
*10.2 -- Amended 1986 Stock Option Plan for Outside Directors dated August 1, 1986, filed as
Exhibit 10.32 to the Company's Form S-1 Registration Statement #33-8560, dated
October 15, 1986, is incorporated herein by reference.
*10.3 -- 1986 Stock Option Plan for Employees dated August 1, 1986, filed as Exhibit 10.33
to the Company's Form S-1 Registration Statement #33-8560, dated October 15, 1986,
is incorporated herein by reference.
10.4 -- Lease Agreement dated December 1, 1986, by and between G&M Properties, a Nevada
partnership and Home Shopping Network Realty, Inc., a subsidiary of the Company
filed as Exhibit 10.53 to the Company's Form S-1 Registration Statement #33-12527,
dated May 4, 1987, is incorporated herein by reference.
10.5 -- Option Agreement dated December 1, 1986, by and between G&M Properties, a Nevada
partnership and Home Shopping Network Realty, Inc., a subsidiary of the Company
filed as Exhibit 10.54 to the Company's Form S-1 Registration Statement #33-12527,
dated May 4, 1987, is incorporated herein by reference.
10.6 -- Lease Agreement dated January 30, 1987, by and between G&M Properties, a Nevada
partnership and Home Shopping Network Realty, Inc., a subsidiary of the Company
filed as Exhibit 10.55 to the Company's Form S-1 Registration Statement #33-12527,
dated May 4, 1987, is incorporated herein by reference.
10.7 -- Lease Agreement dated January 30, 1987, by and between G&M Properties, a Nevada
partnership and Home Shopping Network Realty, Inc., a subsidiary of the Company
filed as Exhibit 10.56 to the Company's Form S-1 Registration Statement #33-12527,
dated May 4, 1987, is incorporated herein by reference.
10.8 -- License Agreement dated as of July 16, 1986, between Home Shopping Network, Inc.,
and Canadian Home Shopping Network, Ltd., filed as Exhibit 10.61 to the Company's
Form S-1 Registration Statement #33-12527, dated May 4, 1987, is incorporated
herein by reference.
*10.9 -- Form of 1990 Executive Stock Award Program dated October 17, 1990, as amended,
filed as Exhibit 10.23 to the Company's Annual Report on Form 10-K for the year
ended August 31, 1991, is incorporated herein by reference.
*10.10 -- Third and Fourth Amendments to 1986 Stock Option Plan for Outside Directors, filed
as Exhibit 10.30 to the Company's Annual Report on Form 10-K for the year ended
August 31, 1991, is incorporated herein by reference.
10.11 -- Distribution Agreement by and between Home Shopping Network, Inc. and Precision
Systems, Inc. dated as of July 31, 1992 filed as Exhibit 10.1 to the Precision
Systems, Inc. Form 10, Registration Statement No. 0-20068 and filed April 14, 1992,
is incorporated herein by reference.
10.12 -- Tax Sharing Agreement by and between Home Shopping Network, Inc. and Precision
Systems, Inc. dated as of July 31, 1992 filed as Exhibit 10.3 to the Precision
Systems, Inc. Form 10, Registration Statement No. 0-20068 and filed April 14, 1992,
is incorporated herein by reference.
</TABLE>
48
<PAGE> 52
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------------------------------------------------------------------------------
<C> <C> <S>
10.13 -- Software License Agreement by and between Home Shopping Network, Inc. and Precision
Systems, Inc. dated as of July 31, 1992 filed as Exhibit 10.4 to the Precision
Systems, Inc. Form 10, Registration Statement No. 0-20068 and filed April 14, 1992,
is incorporated herein by reference.
10.14 -- Software Development Agreement by and between Home Shopping Network, Inc. and
Precision Systems, Inc. dated as of July 31, 1992 filed as Exhibit 10.6 to the
Precision Systems, Inc. Form 10, Registration Statement No. 0-20068 and filed April
14, 1992, is incorporated herein by reference.
10.15 -- Stock Purchase Agreement by and between Home Shopping Network, Inc. and The
National Registry Inc. dated April 28, 1992 filed as Exhibit 10.29 to the Company's
Annual Report on Form 10-K for the year ended August 31, 1992, is incorporated
herein by reference.
10.16 -- Form of Distribution Agreement between Home Shopping Network, Inc. and Silver King
Communications, Inc. ("SKC") dated as of December 28, 1992 filed as Exhibit 10.1 to
the SKC Registration Statement on Form 10, as amended, Registration Statement No.
0-20570, is incorporated herein by reference.
10.17 -- Form of Affiliation Agreements between Home Shopping Club, Inc. and SKC dated as of
December 28, 1992 filed as Exhibit 10.2 to the SKC Registration Statement on Form
10, as amended, Registration Statement No. 0-20570, is incorporated herein by
reference.
10.18 -- Form of Amendment dated as of July 28, 1994 to Affiliation Agreements between Home
Shopping Club, Inc. and SKC filed as Exhibit 10.19 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1994 is incorporated herein by
reference.
10.19 -- Form of Tax Sharing Agreement between Home Shopping Network, Inc. and SKC dated as
of December 28, 1992 filed as Exhibit 10.4 to the SKC Registration Statement on
Form 10, as amended, Registration Statement No. 0-20570, is incorporated herein by
reference.
10.20 -- Amended and Restated System Maintenance and Support Agreement effective as of
February 2, 1993 between Home Shopping Network, Inc. and Precision Systems, Inc.
filed as Exhibit 10.28 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1993, is incorporated herein by reference.
10.21 -- Credit Card Program Agreement, dated as of February 16, 1994, by and among Home
Shopping Network, Inc., participating subsidiaries and General Electric Capital
Corporation filed as Exhibit 10.30 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1993, is incorporated herein by reference.
*10.22 -- First, Second, Third and Fourth Amendments to the 1986 Stock Option Plan for
Employees filed as Exhibit 10.31 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1993, are hereby incorporated herein by reference.
*10.23 -- Employment Agreement between Home Shopping Network, Inc. and Gerald F. Hogan, dated
as of February 23, 1993 filed as Exhibit 10.32 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1993, is hereby incorporated herein by
reference.
*10.24 -- First Amendment, effective as of August 4, 1994, to Employment Agreement between
Home Shopping Network, Inc. and Gerald F. Hogan filed as Exhibit 10.27 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1994, is
incorporated herein by reference
10.25 -- Second Amended and Restated Credit Agreement $100,000,000 Three-Year Revolving
Credit Facility, dated as of August 30, 1994 among Home Shopping Network, Inc.,
Home Shopping Club, Inc., the signatory banks, LTCB Trust Company as Agent, Bank of
Montreal and The Bank of New York, each as a Co-Agent, and LTCB Trust Company as
Administrative Agent, as amended filed as Exhibit 10.28 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1994, is incorporated herein by
reference.
</TABLE>
49
<PAGE> 53
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------------------------------------------------------------------------------
<C> <C> <S>
*10.26 -- Amended and Restated Home Shopping Network, Inc. Retirement Savings Plan and Trust
Agreements, which incorporates by reference the Home Shopping Network, Inc.
Retirement Savings and Employee Stock Ownership Plan and Trust filed as Exhibit
10.33 to the Company's Annual Report on Form 10-K for the year ended December 31,
1993 is incorporated herein by reference.
*10.27 -- Home Shopping Network, Inc. Employee Stock Purchase Plan and Part-Time Employee
Stock Purchase Plan filed as Exhibit 10.30 to the Company's Annual Report on Form
10-K for year ended December 31, 1994 is incorporated herein by reference.
*10.28 -- Home Shopping Network, Inc. Employee Equity Participation Plan and Agreement and
Declaration of Trust filed as Exhibit 10.31 to the Company's Annual Report on Form
10-K for the year ended December 31, 1994 is incorporated herein by reference.
*10.29 -- Employment Agreement between Home Shopping Network, Inc. and David F. Dyer, dated
as of August 16, 1994 filed as Exhibit 10.32 to the Company's Annual Report on Form
10-K for the year ended December 31, 1994 is incorporated herein by reference.
*10.30 -- Employment Agreement between Home Shopping Network, Inc. and Barry S. Augenbraun,
dated as of September 1, 1994 filed as Exhibit 10.33 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1994 is incorporated herein by
reference.
10.31 -- First Amendment, dated as of March 29, 1995, to the Second Amended and Restated
Credit Agreement filed as Exhibit 10.37 to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1995, is incorporated herein by reference.
10.32 -- Second Amendment, dated as of June 28, 1995, to the Second Amended and Restated
Credit Agreement filed as Exhibit 10.38 to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1995, is incorporated herein by reference.
10.33 -- Third Amendment, dated as of September 28, 1995, to the Second Amended and Restated
Credit Agreement filed as Exhibit 10.39 to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1995, is incorporated herein by reference.
10.34 -- Letter of Credit Facility dated as of September 28, 1995, filed as Exhibit 10.40 to
the Company's Quarterly Report on Form 10-Q for the quarter ended September 30,
1995, is incorporated herein by reference.
*10.35 -- Employment Agreement between Home Shopping Network, Inc. and James G. Held, dated
as of November 24, 1995.
*10.36 -- Employment Agreement between Home Shopping Network, Inc. and Mary Ellen Pollin,
dated as of December 15, 1995.
10.37 -- Fourth Amendment, dated as of February 13, 1996, to the Second Amended and Restated
Credit Agreement.
11 -- Computation of net earnings (loss) per share.
21 -- List of Subsidiaries of the Company.
27 -- Financial Data Schedule (for SEC use only).
</TABLE>
- ---------------
* Reflects management contracts and compensatory plans.
(b) Reports on Form 8-K
None.
50
<PAGE> 54
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) 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.
March 28, 1996
HOME SHOPPING NETWORK, INC.
By: /s/ JAMES G. HELD
------------------------------------
James G. Held
President and Chief Executive
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES AND EXCHANGE ACT OF 1934,
THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES INDICATED ON MARCH 28, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ------------------------------
<C> <S> <C>
/s/ JAMES G. HELD President, Chief Executive
- --------------------------------------------- Officer and Director
James G. Held
/s/ KEVIN J. McKEON Executive Vice President,
- --------------------------------------------- Chief Financial Officer and
Kevin J. McKeon Treasurer (Principal
Financial Officer)
/s/ BRIAN J. FELDMAN Vice President and Controller
- --------------------------------------------- (Chief Accounting Officer)
Brian J. Feldman
/s/ BARRY DILLER Chairman of the Board and
- --------------------------------------------- Director
Barry Diller
/s/ PETER R. BARTON Director
- ---------------------------------------------
Peter R. Barton
/s/ ROBERT R. BENNETT Director
- ---------------------------------------------
Robert R. Bennett
/s/ JOHN M. DRAPER Director
- ---------------------------------------------
John M. Draper
/s/ J. ANTHONY FORSTMANN Director
- ---------------------------------------------
J. Anthony Forstmann
/s/ LEO J. HINDERY, JR. Director
- ---------------------------------------------
Leo J. Hindery, Jr.
/s/ JOHN C. MALONE, PH.D. Director
- ---------------------------------------------
John C. Malone, Ph.D.
/s/ GEORGE C. MCNAMEE Director
- ---------------------------------------------
George C. McNamee
/s/ ELI J. SEGAL Director
- ---------------------------------------------
Eli J. Segal
</TABLE>
51
<PAGE> 55
EXHIBIT 11
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
COMPUTATION OF NET EARNINGS (LOSS) PER SHARE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
-----------------------------
1995 1994 1993
- -----------------------------------------------------------------------------------------------
(In thousands, except per
share amounts)
<S> <C> <C> <C>
Primary earnings (loss) per share:
Weighted average shares outstanding
Common Stock............................................... 70,782 72,843 67,802
Class B Common Stock....................................... 20,000 21,352 23,390
Shares assumed to be issued upon the exercise of common stock
options under the treasury stock method.................... -- 866 --
-------- ------- --------
90,782 95,061 91,192
======== ======= ========
Earnings (loss) before extraordinary item..................... $(61,883) $17,701 $(15,539)
Extraordinary item, net of taxes.............................. -- (924) (7,242)
-------- ------- --------
Net earnings (loss)........................................... $(61,883) $16,777 $(22,781)
======== ======= ========
Earnings (loss) per share before extraordinary item........... $ (.69) $ .19 $ (.18)
Extraordinary item per share, net of taxes.................... -- (.01) (.08)
-------- ------- --------
Net earnings (loss) per share................................. $ (.69) $ .18 $ (.26)
======== ======= ========
Fully diluted earnings (loss) per share:(2)
Weighted average shares outstanding
Common Stock............................................... 70,782 72,843 67,802
Class B Common Stock....................................... 20,000 21,352 23,390
Shares assumed to be issued upon the exercise of common stock
options under the treasury stock or modified treasury stock
method..................................................... 298 872 2,182
Shares assumed to be issued upon the conversion of the
Company's 5 1/2% convertible debentures.................... -- -- 938
-------- ------- --------
91,080 95,067 94,312
======== ======= ========
Earnings (loss) before extraordinary item..................... $(61,883) $17,701 $(15,539)
Interest expense adjustment(1)................................ -- -- 205
-------- ------- --------
Earnings (loss) before extraordinary item..................... (61,883) 17,701 (15,334)
Extraordinary item, net of taxes.............................. -- (924) (7,242)
-------- ------- --------
Net earnings (loss)........................................... $(61,883) $16,777 $(22,576)
======== ======= ========
Earnings (loss) per share before extraordinary item........... $ (.68) $ .19 $ (.16)
Extraordinary item per share, net of taxes.................... -- (.01) (.08)
-------- ------- --------
Net earnings (loss) per share................................. $ (.68) $ .18 $ (.24)
======== ======= ========
</TABLE>
- ---------------
(1) Interest expense, net of taxes, that would not have been incurred had
conversion of the Company's 5 1/2% convertible debentures taken place at
the beginning of the period.
(2) The amounts in earnings (loss) per share on the fully diluted basis are
solely shown in this exhibit. Because the amounts are the same as the
primary calculation for the year ended December 31, 1994 and are
antidilutive for the years ended December 31, 1995 and 1993, respectively,
(decrease the loss per share), they are not required to be presented
elsewhere in this Form 10-K.
52
<PAGE> 56
EXHIBIT 21
LIST OF SUBSIDIARIES OF HOME SHOPPING NETWORK, INC.
A DELAWARE CORPORATION
AS OF MARCH 1, 1996
<TABLE>
<CAPTION>
STATE OF
INCORPORATION
-------------
<S> <C>
Home Shopping Club, Inc......................................................... Delaware
d/b/a Home Shopping Club
Telemation
HSN Spree
HSC Spree
Home Shopping Network
HSN
Home Shopping Network Outlets, Inc.............................................. Delaware
d/b/a HSC Outlet
Home Shopping Network Outlet
HSN Liquidation Center
Home Shopping Services, Inc..................................................... Delaware
d/b/a Home Shopping Services of Delaware, Inc.
HSN Direct, Inc
d/b/a Innovations in Living
HSN Direct Joint Ventures
HSN Direct
Home Shopping Showcase
HSN Capital Corporation......................................................... Nevada
HSN Credit Corporation.......................................................... Delaware
HSN Entertainment Events, Inc................................................... Delaware
HSN Entertainment Holding Company, Inc.......................................... Delaware
HSN Entertainment Joint Ventures II, Inc........................................ Delaware
d/b/a/ Pacific Media Ventures
HSN Fulfillment, Inc............................................................ Delaware
HSN Fulfillment of Iowa, Inc.................................................... Delaware
HSN Fulfillment of Nevada, Inc.................................................. Delaware
HSN Fulfillment of Virginia, Inc................................................ Delaware
HSN Insurance, Inc.............................................................. Florida
HSN Interactive, Inc............................................................ Delaware
HSN Lifeway Health Products, Inc d/b/a HSN Products, Inc........................ Delaware
HSN Liquidation, Inc............................................................ Delaware
HSN Liquidation, Inc. of Florida................................................ Delaware
HSN Mail Order, Inc............................................................. Delaware
d/b/a HSN By Mail
HSC By Mail
Designer Direct
Home Shopping Values
Private Showing -- Jewelry Values by Mail
HSN Media Merchandise
Heroes Collector's Club
HSN Realty, Inc................................................................. Delaware
d/b/a HSN Realty of Delaware, Inc.
HSN Redi-Med, Inc............................................................... Delaware
HSN Television Shopping Mall, Inc............................................... Delaware
HSN Transportation, Inc......................................................... Delaware
</TABLE>
53
<PAGE> 57
<TABLE>
<CAPTION>
STATE OF
INCORPORATION
-------------
<S> <C>
HSN Travel, Inc................................................................. Delaware
Internet Shopping Network, Inc.................................................. California
MarkeTechs, Services, Inc....................................................... Delaware
d/b/a/ Petals & Presents
National Call Center, Inc....................................................... Delaware
Ortho-Vent, Inc................................................................. Delaware
Vela Research, Inc.............................................................. Delaware
World Rez, Inc.................................................................. Delaware
d/b/a Home Shopping Travel
World Rez Inc. of Delaware
</TABLE>
54
<PAGE> 58
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Home Shopping Network, Inc.
Under date of February 21, 1996, we reported on the consolidated balance
sheets of Home Shopping Network, Inc. and subsidiaries as of December 31, 1995
and 1994 and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the years in the three year period ended
December 31, 1995, as contained in Item 8 of the Company's 1995 Form 10-K. In
connection with our audits of the aforementioned consolidated financial
statements, we also have audited the related financial statement schedule as
listed in Item 14. This financial statement schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
/s/ KPMG Peat Marwick LLP
St. Petersburg, Florida
February 21, 1996
55
<PAGE> 59
SCHEDULE II
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
---------------------
BALANCE CHARGED CHARGED BALANCE
AT TO TO OTHER AT
BEGINNING COSTS AND ACCOUNTS-- DEDUCTIONS-- END
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE(1) OF PERIOD
- ---------------------------------------------- --------- --------- --------- ----------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1995................ $ 1,738 $ 2,851 $ -- $(2,904) $ 1,685
======= ======= ======== ========= =======
Year ended December 31, 1994................ $ 1,627 $ 1,866 $ -- $(1,755) $ 1,738
======= ======= ======== ========= =======
Year ended December 31, 1993................ $ 1,798 $ 2,025 $ -- $(2,196) $ 1,627
======= ======= ======== ========= =======
Allowance for doubtful other current assets:
Year ended December 31, 1995................ $ -- $ -- $ -- $ -- $ --
======= ======= ======== ========= =======
Year ended December 31, 1994................ $ 6,200 $ -- $ -- $(6,200) $ --
======= ======= ======== ========= =======
Year ended December 31, 1993................ $ 6,200 $ -- $ -- $ -- $ 6,200
======= ======= ======== ========= =======
</TABLE>
- ---------------
(1) Accounts written off as uncollectible.
56
<PAGE> 60
BOARD OF DIRECTORS
BARRY DILLER
Chairman
Home Shopping Network
Chairman and Chief Executive Officer
Silver King Communications, Inc.
New York, NY
JAMES G. HELD
President and Chief Executive Officer
Home Shopping Network, Inc.
PETER R. BARTON
President
Liberty Media Corporation
Englewood, Colorado
ROBERT R. BENNETT
Senior Vice President and Chief Financial Officer
Liberty Media Corporation
Englewood, Colorado
JOHN M. DRAPER
Consultant to
Liberty Media Corporation
Englewood, Colorado
J. ANTHONY FORSTMANN
Chairman
The National Registry Inc.
St. Petersburg, Florida
LEO J. HINDERY, JR.
Managing General Partner
InterMedia Partners
San Francisco, California
JOHN C. MALONE, PH.D.
President and Chief Executive Officer
Tele-Communications, Inc.
Denver, Colorado
GEORGE C. MCNAMEE
Chairman
First Albany Companies, Inc.
Albany, New York
ELI J. SEGAL
Former assistant to the President of the United States
Washington, DC
OFFICERS
JAMES G. HELD
President and Chief Executive Officer
BARRY S. AUGENBRAUN
Executive Vice President,
General Counsel and Secretary
BRIAN J. FELDMAN
Vice President and Controller
HONORE A. LE BRUN, III
Executive Vice President
Broadcast and Cable Affiliate Sales
KEVIN J. MCKEON
Executive Vice President, Chief
Financial Officer and Treasurer
MARY ELLEN POLLIN
Executive Vice President
Administration
STOCKHOLDER INFORMATION
CORPORATE
HEADQUARTERS
2501 118th Avenue North
St. Petersburg, Florida 33716-1900
(813) 572-8585
Mailing address:
Post Office Box 9090
Clearwater, Florida 34618-9090
STOCK EXCHANGE
Home Shopping Network is listed on the New York Stock Exchange. The ticker
symbol is HSN.
TRANSFER AGENT
AND REGISTRAR
For address changes, account consolidation, registration changes, lost stock
certificates and other stockholder services, contact:
The Bank of New York
101 Barclay Street
New York, New York 10286
(800) 524-4458
INVESTOR RELATIONS AND CORPORATE COMMUNICATIONS
The Company maintains an office to assist analysts, investment professionals,
stockholders, potential stockholders, press and media. Inquiries are welcome by
telephone or letter at the corporate headquarters.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
Barnett Tower, Suite 1600
200 Central Avenue
St. Petersburg, Florida 33701
ANNUAL MEETING
The Annual Meeting of Stockholders will be held on May 9, 1996 at 10:00 a.m. at
the Holiday Inn, 3535 Ulmerton Road, St. Petersburg/Clearwater, Florida
GETTING ON-LINE
WITH HSN
INTERNET SHOPPING
NETWORK (ISN)
At the World Wide Web (WWW) access line, type
"http://www.internet.net".
<PAGE> 61
HOME SHOPPING NETWORK, INC.
1995 ANNUAL REPORT
<PAGE> 1
EXHIBIT 3.5
CERTIFICATE OF AMENDMENT OF BY-LAWS
I, BARRY S. AUGENBRAUN, DO HEREBY CERTIFY as follows:
I am the duly elected Secretary of Home Shopping Network, Inc. (the
"Company");
I DO FURTHER CERTIFY that at a meeting of the Board of Directors held
on August 24, 1995, pursuant to waiver of notice duly executed by all members
of the Board of Directors, at which meeting a quorum was present and acting
throughout, the following amendment to Article III, Section 1 of the By-laws
was duly adopted by unanimous vote of the Directors:
Section 1. NUMBER AND TENURE. The business and affairs of the
Corporation shall be managed by a Board of nine (9) directors, unless
a different number shall be established by amendment to these By-laws,
subject to the limitation established by the Certificate of
Incorporation.
I DO FURTHER CERTIFY that the foregoing Amendment to the By-laws is in
full force and effect on the date hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal of the
Company this 18th day of September, 1995
--------------------------------
CORPORATE SEAL Barry S. Augenbraun
Secretary
<PAGE> 2
CERTIFICATE OF AMENDMENT OF BY-LAWS
I, BARRY S. AUGENBRAUN, DO HEREBY CERTIFY as follows:
I am the duly elected Secretary of Home Shopping Network, Inc. (the
"Company");
I DO FURTHER CERTIFY that at a meeting of the Board of Directors held
on February 12, 1996, pursuant to notice duly given, at which meeting a quorum
was present and acting throughout, the following amendment to Article III,
Section 1 of the By-laws was duly adopted by unanimous vote of the Directors:
Section 1. NUMBER AND TENURE. The business and affairs of the
Corporation shall be managed by a Board of ten (10) directors, unless
a different number shall be established by amendment to these By-laws,
subject to the limitation established by the Certificate of
Incorporation.
I DO FURTHER CERTIFY that the foregoing Amendment to the By-laws is in
full force and effect on the date hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal of the
Company this 27 day of February, 1996.
CORPORATE SEAL
----------------------------
Barry S. Augenbraun
Secretary
<PAGE> 1
EXHIBIT 4
HOME SHOPPING NETWORK, INC.
5.875% CONVERTIBLE SUBORDINATED DEBENTURES
DUE MARCH 1, 2006
INDENTURE
Dated as of March 1, 1996
UNITED STATES TRUST COMPANY OF NEW YORK
Trustee
<PAGE> 2
CROSS - REFERENCE TABLE*
<TABLE>
<CAPTION>
Trust Indenture
Act Section Indenture Section
<S> <C>
310 (a)(l) 7.10
(a)(2) 7.10
(a)(3) N.A.
(a)(4) N.A.
(a)(5) 7.8; 7.10; 13.2
(b) 7.10
(c) N.A.
311 (a) 7.11
(b) 7.11
(c) N.A.
312 (a) 2.5
(b) 13.3
(c) 13.3
313 (a) 7.6
(b)(1) N.A.
(b)(2) 7.6; 7.7
(c) 7.6; 13.2
(d) 7.6
314 (a) 4.3; 4.4; 13.2
(b) N.A.
(c)(l) 13.4
(c)(2) 13.4
(c)(3) N.A.
(d) N.A.
(e) 13.5
(f) N.A.
315 (a) 7.1
(b) 7.5; 13.2
(c) 7.1
(d) 7.1
(e) 6.11
316 (a)(last sentence) 2.9
(a)(1)(A) 6.5
(a)(1)(B) 6.4
(a)(2) N.A.
(b) 6.7
(c) 2.13
317 (a)(l) 6.8
(a)(2) 6.9
(b) 2.4
318 (a) 13.1
(b) N.A.
(c) 13.1
</TABLE>
N.A. means not applicable.
* This Cross-Reference Table is not part of this Indenture.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
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ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE . . . . . . . . . . . . . . . . . 1
SECTION 1.1 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.2 OTHER DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 1.3 INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 1.4 RULES OF CONSTRUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE 2. THE DEBENTURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 2.1 FORM AND DATING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 2.2 EXECUTION AND AUTHENTICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 2.3 REGISTRAR AND PAYING AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 2.4 PAYING AGENT TO HOLD MONEY IN TRUST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 2.5 LISTS OF HOLDERS OF THE DEBENTURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 2.6 TRANSFER AND EXCHANGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 2.7 REPLACEMENT DEBENTURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 2.8 OUTSTANDING DEBENTURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 2.9 TREASURY DEBENTURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 2.10 TEMPORARY DEBENTURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 2.11 CANCELLATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 2.12 DEFAULTED INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 2.13 RECORD DATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 2.14 CUSIP NUMBER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 2.15 COMPUTATION OF INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 2.16 SECURITIES IN GLOBAL FORM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 2.17 PERSONS DEEMED OWNERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE 3. REDEMPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 3.1 NOTICES TO TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 3.2 NOTICE OF REDEMPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 3.3 EFFECT OF NOTICE OF REDEMPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 3.4 DEPOSIT OF REDEMPTION PRICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 3.5 DEBENTURES REDEEMED IN PART . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 3.6 OPTIONAL REDEMPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 3.7 NO MANDATORY REDEMPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 3.8 SELECTION OF DEBENTURES TO BE REDEEMED . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE 4. COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 4.1 PAYMENT OF DEBENTURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 4.2 MAINTENANCE OF OFFICE OR AGENCY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 4.3 REPORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 4.4 COMPLIANCE CERTIFICATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 4.5 STAY, EXTENSIONS AND USURY LAWS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 4.6 [INTENTIONALLY DELETED] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 4.7 OFFER TO PURCHASE UPON CHANGE OF CONTROL . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 4.8 CORPORATE EXISTENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 4.9 PAYMENTS FOR CONSENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 4.10 CALCULATION OF ORIGINAL ISSUE DISCOUNT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
</TABLE>
i
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<TABLE>
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ARTICLE 5. SUCCESSORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 5.1 MERGER, CONSOLIDATION, OR SALE OF ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 5.2 SUCCESSOR CORPORATION SUBSTITUTED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
ARTICLE 6. CERTAIN DEFAULT PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 6.1 EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 6.2 ACCELERATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 6.3 OTHER REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 6.4 WAIVER OF PAST DEFAULTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 6.5 CONTROL BY MAJORITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 6.6 LIMITATION ON SUITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 6.7 RIGHTS OF HOLDERS OF DEBENTURES TO RECEIVE PAYMENT . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 6.8 COLLECTION SUIT BY TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 6.9 TRUSTEE MAY FILE PROOFS OF CLAIM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 6.10 PRIORITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 6.11 UNDERTAKING FOR COSTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
ARTICLE 7. TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 7.1 DUTIES OF TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 7.2 RIGHTS OF TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 7.3 INDIVIDUAL RIGHTS OF TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 7.4 TRUSTEE'S DISCLAIMER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 7.5 NOTICE OF DEFAULTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 7.6 REPORTS BY TRUSTEE TO HOLDERS OF THE DEBENTURES . . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 7.7 COMPENSATION AND INDEMNITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 7.8 REPLACEMENT OF TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 7.9 SUCCESSOR TRUSTEE BY MERGER, ETC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
SECTION 7.10 ELIGIBILITY; DISQUALIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
SECTION 7.11 PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY . . . . . . . . . . . . . . . . . . . . . . 48
ARTICLE 8. REGISTRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 8.1 SHELF REGISTRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 8.2 ADDITIONAL INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
SECTION 8.3 REGISTRATION PROCEDURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
SECTION 8.4 INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
SECTION 8.5 REGISTRATION EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
ARTICLE 9. AMENDMENT, SUPPLEMENT AND WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
SECTION 9.1 WITHOUT CONSENT OF HOLDERS OF DEBENTURES . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
SECTION 9.2 WITH CONSENT OF HOLDERS OF DEBENTURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
SECTION 9.3 COMPLIANCE WITH TRUST INDENTURE ACT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
SECTION 9.4 REVOCATION AND EFFECT OF CONSENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
SECTION 9.5 NOTATION ON OR EXCHANGE OF DEBENTURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
SECTION 9.6 TRUSTEE TO SIGN AMENDMENTS, ETC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
ARTICLE 10. SUBORDINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
SECTION 10.1 AGREEMENT TO SUBORDINATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
SECTION 10.2 LIQUIDATION; DISSOLUTION; BANKRUPTCY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
SECTION 10.3 DEFAULT ON SENIOR DEBT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
</TABLE>
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SECTION 10.4 ACCELERATION OF DEBENTURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
SECTION 10.5 WHEN DISTRIBUTION MUST BE PAID OVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
SECTION 10.6 NOTICE BY COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
SECTION 10.7 SUBROGATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
SECTION 10.8 RELATIVE RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
SECTION 10.9 SUBORDINATION NOT AFFECTED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
SECTION 10.10 DISTRIBUTION OR NOTICE TO REPRESENTATIVE . . . . . . . . . . . . . . . . . . . . . . . . . . 64
SECTION 10.11 RIGHTS OF TRUSTEE AND PAYING AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
SECTION 10.12 AUTHORIZATION TO EFFECT SUBORDINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
SECTION 10.14 AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
SECTION 10.15 NO WAIVER, ETC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
SECTION 10.16 NO SECURITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
ARTICLE 11. CONVERSION OF DEBENTURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
SECTION 11.1 CONVERSION PRIVILEGES AND CONVERSION PRICE . . . . . . . . . . . . . . . . . . . . . . . . . . 66
SECTION 11.2 EXERCISE OF CONVERSION PRIVILEGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
SECTION 11.3 FRACTIONAL SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
SECTION 11.4 ADJUSTMENT OF CONVERSION PRICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
SECTION 11.5 NOTICE OF ADJUSTMENTS OF CONVERSION PRICE. . . . . . . . . . . . . . . . . . . . . . . . . . . 71
SECTION 11.6 NOTICE OF CERTAIN CORPORATE ACTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
SECTION 11.7 COMPANY TO RESERVE COMMON STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
SECTION 11.8 TAXES ON CONVERSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
SECTION 11.9 COVENANT AS TO COMMON STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
SECTION 11.10 CANCELLATION OF CONVERTED DEBENTURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
SECTION 11.11 EFFECT OF RECLASSIFICATION, CONSOLIDATION, MERGER, SHARE EXCHANGE OR SALE . . . . . . . . . . 73
ARTICLE 12. DEFEASANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
SECTION 12.1 DEFEASANCE AND DISCHARGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
SECTION 12.2 CONDITIONS TO DEFEASANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
SECTION 12.3 DEPOSITED MONEY TO BE HELD IN TRUST;
OTHER MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
SECTION 12.4 REPAYMENT TO COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
SECTION 12.5 REINSTATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
ARTICLE 13. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
SECTION 13.1 TRUST INDENTURE ACT CONTROLS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
SECTION 13.2 NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
SECTION 13.3 COMMUNICATION BY HOLDERS OF DEBENTURES
WITH OTHER HOLDERS OF DEBENTURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
SECTION 13.4 CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . 79
SECTION 13.5 STATEMENTS REQUIRED IN CERTIFICATE OR OPINION . . . . . . . . . . . . . . . . . . . . . . . . 80
SECTION 13.6 RULES BY TRUSTEE AND AGENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
SECTION 13.7 NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS,
EMPLOYEES AND STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
SECTION 13.8 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
</TABLE>
iii
<PAGE> 6
<TABLE>
<S> <C> <C>
SECTION 13.9 NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . 81
SECTION 13.10 SUCCESSORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
SECTION 13.11 SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
SECTION 13.12 COUNTERPART ORIGINALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
SECTION 13.13 TABLE OF CONTENTS HEADINGS, ETC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
</TABLE>
iv
<PAGE> 7
INDENTURE dated as of March 1, 1996 by and between Home
Shopping Network, Inc., a Delaware corporation (the "Company"), and United
States Trust Company of New York, [a ________ banking association with its
principal corporate office in ____________], as trustee (the "Trustee").
The Company and the Trustee agree as follows for the benefit
of each other and for the equal and ratable benefit of the Holders of the
5.875% Convertible Subordinated Debentures due March 1, 2006 of the Company
(the "Debentures"):
ARTICLE 1.
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.1 DEFINITIONS
"Additional Interest" means all additional interest, if any,
payable pursuant to Article 8 hereof.
"Affiliate" of any specified Person means any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such Person,
whether through the ownership of voting securities, by agreement or otherwise.
"Agent" means any Registrar, Paying Agent or co-registrar.
"BNY Facility Agreement" means that certain Letter of Credit
Facility Agreement, dated as of the September 28, 1995, among Home Shopping
Club, Inc., HSN Mail Order, Inc. and HSN Direct, Inc., as applicants, the
Company and HSN Realty, Inc., as guarantors, The Bank of New York, as issuer
and as administrative agent, and The Bank of New York Company, Inc., as a
participant, as amended by the First Amendment thereto, dated as of February
13, 1996, and as otherwise amended and in effect from time to time.
"Bankruptcy Law" means Title 11 of the United States Code or
any similar federal or state law for the relief of debtors.
"Board of Directors" means, with respect to any Person, the
Board of Directors of such Person, or any authorized committee of the Board of
Directors of such Person.
<PAGE> 8
"Business Day" means any day other than a Legal Holiday.
"Capital Stock" means any and all shares, interests,
participations, rights or other equivalents (however designated) of corporate
stock, including, without limitation, with respect to partnerships, partnership
interests (whether general or limited) and any other interest or participation
that confers on a Person the right to receive a share of the profits and losses
of, or distributions of assets of, such partnership.
"Change of Control" means an event or series of events as a
result of which (i) any "person" or "group" (as such terms are used in Sections
13(d) or 14(d) of the Exchange Act) (other than a member of the Control Group)
acquires "beneficial ownership" (as determined in accordance with Rule 13d-3
under the Exchange Act), directly or indirectly, of more than 50% of the total
voting power of the outstanding Voting Stock (as defined below) of the Company;
provided, however, that any such person or group shall not be deemed to be the
beneficial owner of, or to beneficially own, any Voting Stock tendered in a
tender or exchange offer until such Voting Stock is accepted for purchase or
exchange under such tender or exchange offer, or (ii) the Common Stock of the
Company (or other equity securities into which the Debentures are then
convertible or into which the Common Stock of the Company shall have been
reclassified or changed) is neither listed for trading on a United States
national securities exchange nor approved for trading on an established
over-the-counter trading market in the United States; provided, however that no
such Change of Control shall be deemed to have occurred pursuant to clause (i)
of this definition as a result of any event or series of events to the extent
that (x) the Closing Price of the Common Stock (or other equity securities into
which the Debentures are then convertible or into which the Common Stock of the
Company shall have been reclassified or changed) for any five trading days
during the ten trading days immediately preceding the event or series of events
that would otherwise constitute a Change of Control is at least equal to 105%
of the Conversion Price in effect on the last such trading day and at least
fifteen Business Days prior to the consummation of the Change of Control (a)
the Holders of the Debentures shall have received written notice of such event
or series of events that would otherwise constitute a Change of Control and (b)
the Company shall have published in The Wall Street Journal, or if no longer
published, in a newspaper of general circulation a notice of the Change of
Control (both such notices to contain the information required by (i), (ii),
(v) and (x) of Section 4.7(b)) or (y) such Change of Control results from a
transaction or series of transactions (including any tender or exchange offer
subject to the provisions of the Exchange Act, whether by the issuer or
otherwise) available to the holders of the Voting Stock in general (including
holders of Debentures who
2
<PAGE> 9
would be entitled to tender or otherwise participate therein upon the
conversion thereof) in which the weighted average price paid by such person or
group to acquire such Voting Stock in such transaction or series of
transactions exceeds the then applicable Conversion Price of the Debentures.
"Closing Price" means, for any trading day, the last reported
sale price of the Common Stock regular way on such day or, in case no such
reported sales takes place on such day, the average of the reported closing bid
and asked prices regular way on such day, in either case on the New York Stock
Exchange or, if the Common Stock is not listed or admitted to trading or, if
not listed or admitted to trading on any national securities exchange, on the
Nasdaq National Market or, if the Common Stock is not listed or admitted to
trading on any national securities exchange or quoted on the Nasdaq National
Market, the average of the closing bid and asked prices in the over-the-counter
market as furnished by the New York Stock Exchange member firm selected from
time to time by the Company for that purpose. If the Common Stock is not
listed or admitted to trading in any national securities exchange, quoted on
such National Market System or listed in any list of bid and asked prices in
the over-the-counter market, "Closing Price" shall mean the fair market value
of the Common Stock as determined in good faith by the Board of Directors.
"Common Stock" means the Common Stock, par value $.01 per
share, of the Company.
"Company" means the party named as such in this Indenture
until a successor replaces it pursuant to this Indenture and thereafter means
such successor.
"Controlled Affiliate" means any Person in which one or more
members of the Control Group (including their respective Subsidiaries and other
Controlled Affiliates), directly or indirectly, collectively own (i) in the
case of a corporation, a majority of the outstanding Capital Stock of such
corporation with voting power under ordinary circumstances, to elect directors
or (ii) in the case of any other Person (other than a corporation), a majority
ownership interest and the power to generally direct the policies, management
and affairs thereof.
"Control Group" means, as of any date, (i)
Tele-Communications, Inc., Liberty Media Corporation, Mr. Barry Diller, Silver
Management Company, and Silver King Communications, Inc.; (ii) any Person that
acquires, directly or indirectly, through a Spin-Off Transaction or otherwise,
a substantial portion of the assets currently held, directly or indirectly, by
Liberty Media Corporation, if no Person or Persons (other than (x) a member or
members of the Control Group, (y) any entity formed in connection with or as a
result of such Spin-Off
3
<PAGE> 10
Transaction (a "Spin-Off Transaction Person"), or (z) any Person or group which
acquires equity securities of such Spin- Off Transaction Person representing a
majority of the voting power of the outstanding equity securities of such
Spin-Off Transaction Person solely as a result of such Spin-Off Transaction)
shall thereupon beneficially own, directly or indirectly, more than 50% of the
Voting Stock of the Company; (iii) the respective successors of each of the
foregoing; and (iv) their respective Controlled Affiliates.
"Conversion Price" shall have the meaning set forth in
Article 11 hereof.
"Corporate Trust Office of the Trustee" shall be at the
address of the Trustee specified in Section 13.2 hereof or such other address
as to which the Trustee shall give notice to the Company.
"Credit Agreement" means that certain Second Amended and
Restated Credit Agreement, dated as of August 30, 1994, among the Company, as
borrower, Home Shopping Club, Inc. and HSN Realty, Inc., as guarantors, the
banks that are parties thereto, LTCB Trust Company, as agent for such banks, as
administrative agent for such banks and as collateral agent for such banks, and
The Bank of New York Company, Inc., Toronto Dominion [Texas], Inc. and Bank of
Montreal, as co-agents, as amended by the First Amendment thereto, dated as of
March 29, 1995, as further amended by the Second Amendment thereto, dated as of
June 28, 1995, as further amended by the Third Amendment thereto, dated as of
September 28, 1995, as further amended by the Fourth Amendment thereto, dated
as of February 13, 1996, and as otherwise amended and in effect from time to
time.
"Custodian" means any receiver, trustee, assignee, liquidator
or similar official under any Bankruptcy Law.
"Default" means any event that is, or with the passage of time
or the giving of notice or both would be, an Event of Default as set forth in
Article 6 hereof.
"Designated Senior Debt" shall mean (i) any and all
obligations of the Company to pay principal, interest, fees and any other
amount under, or in connection with, the Credit Agreement, (ii) any and all
obligations of the Company and the other obligors under the BNY Facility
Agreement to pay principal, interest, fees and any other amount under, or in
connection with, unreimbursed drawings under the letters of credit issued under
the BNY Facility Agreement and the stated amount of all such outstanding
letters of credit under which drawings have not yet been made and (iii)
indebtedness incurred by the Company (and/or any of the other obligors under
the BNY Facility Agreement) to refund, refinance, repurchase or extend any of
the foregoing.
4
<PAGE> 11
"Distribution" means, for purposes of Article 10 hereof, a
distribution consisting of cash, securities or other property, by set-off or
otherwise.
"Effectiveness Period" means the period which commences on the
Issuance Date and ends on the earlier to occur of (x) the third anniversary of
the Issuance Date and (y) such time as there are no Transfer Restricted
Securities outstanding.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"GAAP" means generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as have been approved by a significant segment
of the accounting profession in the United States, as in effect from time to
time.
"Government Obligations" means direct Obligations of, or
Obligations guaranteed by, the United States of America for the payment of
which is pledged the full faith and credit of the United States of America.
"Holder" means a Person in whose name a Debenture is
registered on the books of the Company or the Registrar kept for that purpose.
"Indebtedness" means with respect to any Person, (i) any
obligation, contingent or otherwise, of such Person (a) for borrowed money
(whether or not the recourse of the lender is to the whole of the assets of
such Person or only to a portion thereof), (b) evidenced by a note, debenture
or similar instrument (including a purchase money obligation), (c) for the
payment of any money under a lease required to be capitalized on the balance
sheet of the lessee under generally accepted accounting principles, (d) in
respect of letters of credit (including reimbursement obligations with respect
thereto) or (e) to pay the deferred purchase price of property or services;
(ii) any obligation of others which the Person has directly or indirectly
guaranteed (including any monetary obligation of a keep-well or similar
nature); (iii) any obligation secured by a mortgage, pledge, lien, encumbrance,
charge or adverse claim affecting title or resulting in an encumbrance to which
the property or assets of such person are subject, whether or not the
obligations secured thereby shall have been assumed by or shall otherwise be
such person's legal liability; (iv) to the extent not otherwise included,
obligations under currency swap agreements and interest rate protection
agreements or similar agreements; and (v) any and all deferrals, renewals,
extensions
5
<PAGE> 12
and refundings of, or amendments, modifications or supplements to, any
liability of the kind described in any of the preceding clauses (i), (ii),
(iii), or (iv); provided, that Indebtedness shall not include accounts payable
or any other indebtedness to trade creditors created or assumed by the Company
in the ordinary course of business.
"Indenture" means this Indenture, as amended or supplemented
from time to time.
"Issuance Date" means the closing date for the sale and
original issuance of the Debentures.
"Legal Holiday" means a Saturday, a Sunday or a day on which
banking institutions in The City of New York or at a place of payment in the
state in which the Corporate Trust Office of the Trustee is located are
authorized by law, regulation or executive order to remain closed. If a date
on which any notice, payment or other action is required hereunder to be taken
or made is a Legal Holiday at a place of payment or in the state in which the
Corporate Trust Office of the Trustee is located, such action may be taken or
made at that place on the next succeeding day that is not a Legal Holiday, and,
if applicable, interest shall not accrue for the intervening period.
"Lien" means, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of such
asset, whether or not filed, recorded or otherwise perfected under applicable
law (including any conditional sale or other title retention agreement, any
lease in the nature thereof, any option or other agreement to sell or give a
security interest in and any filing of or agreement to give any financing
statement under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"NASD" means the National Association of Securities Dealers,
Inc.
"Obligations" means any principal, interest, premiums,
penalties, fees, indemnifications, reimbursements, damages and other
liabilities payable under the documentation governing any Indebtedness.
"Officer" means, with respect to any Person, the Chairman of
the Board, the Chief Executive Officer, the President, the Chief Operating
Officer, the Chief Financial Officer, any Vice-President, the Treasurer, any
Assistant Treasurer, the Controller, the Secretary or any Assistant Secretary
of such Person.
"Officers' Certificate" means a certificate signed on behalf
of the Company by two Officers of the Company, one of whom
6
<PAGE> 13
must be the principal executive officer, principal financial officer, or
principal accounting officer of the Company, that meets the requirements of
Section 13.5 hereof.
"Opinion of Counsel" means an opinion from legal counsel who
is reasonably acceptable to the Trustee, that meets the requirements of Section
13.5 hereof. The counsel may be an employee of or counsel to the Company, any
Subsidiary of the Company or the Trustee.
"Payment Blockage Notice" shall have the meaning provided in
Article 10 hereof.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization,
government or any agency or political subdivision thereof or any other entity.
"Prospectus" means any prospectus included in the Shelf
Registration Statement, as amended or supplemented by any subsequent prospectus
and by all other amendments thereto, including post-effective amendments and
all materials incorporated by reference into such Prospectus.
"Registration Default" shall have the meaning as defined in
Article 8 hereof.
"Representative" means (a) so long as any Obligations are
outstanding under the Credit Agreement or the BNY Facility Agreement, LTCB
Trust Company, as Agent for the banks parties to the Credit Agreement, or The
Bank of New York, as administrative agent under the BNY Facility Agreement or
such other trustee, agent or representative designated as such pursuant to an
intercreditor agreement among the creditors in respect of the Designated Senior
Debt and any additional Senior Debt and (b) thereafter the indenture trustee or
other trustee, agent or representative for any Senior Debt.
"Responsible Officer" when used with respect to the Trustee,
means any officer within the Corporate Trust Administration of the Trustee (or
any successor group of the Trustee) or any other officer of the Trustee
customarily performing functions similar to those performed by any of the above
designated officers and also means, with respect to a particular corporate
trust matter, any other officer of the Trustee to whom such matter is referred
because of his knowledge of and familiarity with the particular subject.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
7
<PAGE> 14
"Senior Debt" shall mean the principal of, premium, if any,
and interest (including interest which accrues after a petition in bankruptcy
is filed by or against the Company) on and other amounts due on or in
connection with any Indebtedness of the Company, whether outstanding on the
date of this Indenture or thereafter created, incurred, assumed, guaranteed or
in effect guaranteed by the Company (including all deferrals, renewals,
extensions or refundings of, or amendments, modifications or supplements to the
foregoing); provided, however, that Senior Debt does not include (i) any
particular Indebtedness in which the instrument creating or evidencing the same
or the assumption or guarantee thereof expressly provides that such
Indebtedness shall not be senior in right of payment to, or is pari passu with,
or is subordinated or junior to, the Debentures or (ii) the Debentures.
"Shelf Deadline Date" shall have the meaning set forth in
Article 8 hereof.
"Shelf Registration Statement" means the shelf registration
statement of the Company relating to the registration for resale of Transfer
Restricted Securities, which is filed pursuant to the provisions of this
Indenture, including the Prospectus included therein, all amendments and
supplements to the Shelf Registration Statement (including post-effective
amendments) and all exhibits and materials incorporated by reference therein.
"Significant Subsidiary" means any Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the date hereof.
"Spin-Off Transaction" means any transaction or series of
related transactions resulting in the holders of outstanding equity securities
of a member of the Control Group (either separately or together with the
holders of other series or classes of securities) acquiring (or having the
right to acquire upon the exercise of rights, warrants or similar securities)
equity securities of any Person which, directly or indirectly, holds equity
securities of the Company on a pro rata basis based upon such holders'
ownership of one or more classes or series of equity securities of such member
of the Control Group on the record or other similar date for such transaction.
"Standstill Period" shall have the meaning set forth in
Article 6 hereof.
"Subordinated Reorganization Securities" shall have the
meaning set forth in Article 10 hereof.
8
<PAGE> 15
"Subsidiary" means with respect to any Person, (i) a
corporation a majority of whose Capital Stock with voting power, under ordinary
circumstances, to elect directors is at the time, directly or indirectly, owned
by such Person, by one or more Subsidiaries of such Person or by such Person
and one or more Subsidiaries thereof or (ii) any other Person (other than a
corporation) in which such Person, one or more Subsidiaries thereof or such
Person and one or more Subsidiaries thereof, directly or indirectly, at the
date of determination thereof has at least a majority ownership interest and
the power to generally direct the policies, management and affairs thereof.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Section
Section 7aaa-77bbbb) as in effect on the date on which this Indenture is
qualified under the TIA, except as provided in Section 9.3 hereof and except to
the extent any amendment to the TIA retroactively applies to this Indenture.
"Transfer Restricted Security" means, the Debentures and the
Common Stock of the Company issuable upon conversion thereof unless or until
the first to occur of (x) the third anniversary of the Issue Date and (ii) the
effectiveness of the Shelf Registration Statement.
"Trustee" means the party named as such above until a
successor replaces it in accordance with the applicable provisions of this
Indenture and thereafter means the successor serving hereunder.
"Voting Stock" means the Common Stock of the Company, the
Class B Common Stock of the Company and any other capital stock or similar
interests of any class or classes (however designated) of the Company, the
holders of which are generally at the time entitled, as such holders, to vote
upon matters which may be submitted to a vote of stockholders at any annual or
special meeting.
SECTION 1.2 OTHER DEFINITIONS
<TABLE>
<CAPTION>
Term Defined in Section
---- ------------------
<S> <C>
"Change of Control Offer" 4.7
"Change of Control Payment" 4.7
"Change of Control Purchase Date" 4.7
"Change of Control Purchase Notice" 4.7
"Conversion Agent" 2.3
"Covenant Defeasance" 12.3
"Event of Default" 6.1
"Legal Defeasance" 12.2
"Paying Agent" 2.3
"Payment Blockage Notice" 10.3
"Registrar" 2.3
</TABLE>
9
<PAGE> 16
SECTION 1.3 INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture,
other than those provisions of the TIA that may be excluded herefrom, which
provisions shall be excluded to the extent specifically excluded from this
Indenture.
The following TIA terms used in this Indenture have the
following meanings:
"indenture securities" means the Debentures;
"indenture security holder" means a Holder of a Debenture;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the
Trustee;
"obligor" on the Debentures means the Company and any
successor obligor upon the Debentures.
All other terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by a rule or
regulation promulgated by the SEC under the TIA have the meanings so assigned
to them.
SECTION 1.4 RULES OF CONSTRUCTION
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the
meaning assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and words
in the plural include the singular;
(5) provisions apply to successive events and
transactions; and
(6) references to sections of or rules under the
Securities Act or the Exchange Act shall be deemed to include substitute,
replacement or successor sections or rules adopted by the SEC from time to
time.
10
<PAGE> 17
ARTICLE 2.
THE DEBENTURES
SECTION 2.1 FORM AND DATING
The Debentures and the Trustee's certificate of authentication
shall be substantially in the form of Exhibit A hereto, the terms of which are
incorporated in and made part of this Indenture. In addition to those set
forth in Exhibit A, the Debentures may have notations, legends or endorsements
approved as to form by the Company and required by law, stock exchange rule,
agreements to which the Company is subject, or usage. Each Debenture shall be
dated the date of its authentication. The Debentures will be issued in fully
registered form, without coupons, and will be initially issuable only in
denominations of $10,000 and any integral multiple of $1,000 in excess thereof;
provided, that following the effectiveness of the Shelf Registration Statement
the Debentures shall be issuable in minimum denominations of $1,000 and any
integral multiple in excess thereof. The Debentures are not issuable in bearer
form and the Debentures may be issued in whole or in part in the form of one or
more global Debentures as contemplated by Section 2.16.
SECTION 2.2 EXECUTION AND AUTHENTICATION
Two Officers of the Company shall sign the Debentures for the
Company by manual or facsimile signature. The Company's seal shall be
reproduced on the Debentures and may be in facsimile form.
If an Officer of the Company whose signature is on a
Debenture, no longer holds that office at the time the Debenture is
authenticated, the Debenture shall nevertheless be valid.
A Debenture shall not be valid until authenticated by the
manual signature of the Trustee. The signature of the Trustee shall be
conclusive evidence that the Debenture has been authenticated under this
Indenture. The form of Trustee's certificate of authentication to be borne by
the Debentures shall be substantially as set forth in Exhibit A hereto.
At any time and from time to time after the execution and
delivery of this Indenture, the Company may deliver Debentures executed by the
Company to the Trustee for authentication, and the Trustee shall, subject to
the provisions hereof and of such Debentures, authenticate said Debentures and
deliver said Debentures to or upon the written order of the Company, signed by
two Officers of the Company, without any further action by the Company.
The aggregate principal amount of the Debentures outstanding
at any time shall not exceed $100,000,000 (except as
11
<PAGE> 18
provided in Section 2.7 hereof). The Debentures shall be subordinated in right
of payment to Senior Debt as provided in Article 10 hereof. Unless the context
otherwise requires, the Debentures shall constitute one series for all purposes
under this Indenture, including without limitation, amendments, waivers,
approvals, redemptions, and Change of Control Offers.
The Trustee may appoint an authenticating agent acceptable to
the Company to authenticate the Debentures. Unless limited by the terms of
such appointment, an authenticating agent may authenticate the Debentures
whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent.
SECTION 2.3 REGISTRAR AND PAYING AGENT
The Company shall maintain in the City of New York (i) an
office or agency where the Debentures may be presented for registration of
transfer or for exchange (including any co-registrar, the "Registrar"); (ii) an
office or agency where the Debentures may be presented for payment ("Paying
Agent"); and (iii) an office or agency where the Debentures may be presented
for conversion ("Conversion Agent"). The Registrar shall keep a register of
the Debentures and of their transfer and exchange. The Company may appoint one
or more co-registrars, one or more additional paying agents and one or more
additional Conversion Agents. The terms "Paying Agents" and "Conversion
Agents" include any additional paying agent or conversion agent, respectively.
The Company may change any Paying Agent, Registrar or co-registrar without
prior notice to any Holder of a Debenture. The Company shall promptly notify
the Trustee and the Trustee shall promptly notify the Holders of the Debentures
of the name and address of any Agent not a party to this Indenture. The
Company may act as Paying Agent, Conversion Agent, Registrar or co-registrar.
The Company shall enter into an appropriate agency agreement with any Agent not
a party to this Indenture, which shall be subject to any obligations imposed by
the provisions of the TIA. The agreement shall implement the provisions of this
Indenture that relate to such Agent. The Company shall notify the Trustee of
the name and address of any such Agent. If the Company fails to maintain a
Conversion Agent, Registrar or Paying Agent, or fails to give the foregoing
notice, the Trustee shall act as such, and shall be entitled to appropriate
compensation in accordance with Section 7.7 hereof.
The Company initially appoints the Trustee as Registrar,
Paying Agent and Conversion Agent with respect to the Debentures.
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<PAGE> 19
SECTION 2.4 PAYING AGENT TO HOLD MONEY IN TRUST
The Company shall require each Paying Agent other than the
Trustee to agree in writing that the Paying Agent shall hold in trust for the
benefit of the Holders of the Debentures or the Trustee all money held by the
Paying Agent for the payment of principal of, and interest (and any Additional
Interest, if any) on the Debentures (for purposes of this Section 2.4 the
"Debenture Funds"), and shall notify the Trustee of any Default by the Company
in making any such payment. While any such Default continues, the Trustee may
require a Paying Agent to pay all Debenture Funds held by it to the Trustee.
The Company at any time may require a Paying Agent to pay all Debenture Funds
held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent
(if other than the Company) shall have no further liability for the Debenture
Funds delivered to the Trustee. If the Company acts as Paying Agent, it shall
segregate and hold in a separate trust fund for the benefit of the Holders of
the Debentures subject to Article 10 hereof, all Debenture Funds held by it as
Paying Agent. Upon any bankruptcy or reorganization proceeding relating to the
Company, the Trustee shall serve as Paying Agent for the Debentures and the
Company shall require each Paying Agent to agree in writing to turn over to the
Trustee immediately thereupon all money held by each such Paying Agent.
SECTION 2.5 LISTS OF HOLDERS OF THE DEBENTURES
The Trustee shall preserve in as current a form as is
reasonably practicable the most recent list available to it of the names and
addresses of Holders of the Debentures and shall otherwise comply with TIA
Section 312(a). If the Trustee is not the Registrar, the Company shall furnish
to the Trustee at least seven Business Days before each interest payment date
and at such other times as the Trustee may request in writing a list in such
form and as of such date as the Trustee may reasonably require of the names and
addresses of Holders of the Debentures, including the aggregate principal
amount of the Debentures held by each thereof, and the Company shall otherwise
comply with TIA Section 312(a).
SECTION 2.6 TRANSFER AND EXCHANGE
(a) Transfer and Exchange of Definitive Debentures. When any of
the Debentures are presented to the Registrar with a request:
(x) to register the transfer of the Debentures; or
(y) to exchange such Debentures for an equal principal
amount of Debentures of other authorized
denominations,
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<PAGE> 20
the Registrar shall register the transfer or make the exchange as requested if
its requirements for such transactions are met; provided, however, that the
Debentures presented or surrendered for register of transfer or exchange:
(i) shall be duly endorsed or accompanied by a written
instruction of transfer in form satisfactory to the Registrar; duly
executed by the Holder thereof or by his attorney duly authorized in
writing; and
(ii) in the case of a Debenture that is a Transfer
Restricted Security, such request shall be accompanied by the
following additional information and documents, as applicable:
(A) if such Transfer Restricted Security is being
delivered to the Registrar by a Holder for
registration in the name of such Holder,
without transfer, a certification from such
Holder to that effect (in substantially the
form of Exhibit A hereto); or
(B) if such Transfer Restricted Security is being
transferred to a "qualified institutional
buyer" (as defined in Rule 144A under the
Securities Act) in accordance with Rule 144A
under the Securities Act or pursuant to an
exemption from registration in accordance
with Rule 144 or Rule 904 under the
Securities Act or pursuant to an effective
registration statement under the Securities
Act, a certification from such Holder to that
effect (in substantially the form of Exhibit
A hereto) and, in the case of a transfer
pursuant to an exemption from registration in
accordance with Rule 144 or Rule 904 under
the Securities Act, an Opinion of Counsel
from such Holder or the transferee reasonably
acceptable to the Company and to the
Registrar to the effect that such transfer is
in compliance with the Securities Act; or
(C) if such Transfer Restricted Security is being
transferred in reliance on another exemption
from the registration requirements of the
Securities Act, a certification from such
Holder to that effect (in substantially the
form of Exhibit A hereto) and an Opinion of
Counsel from such Holder or the transferee
reasonably acceptable to the Company and to
the Registrar to the effect that such
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<PAGE> 21
transfer is in compliance with the Securities
Act.
(b) Legends.
(i) Except as permitted by the following paragraphs (ii)
and (iii), each Debenture shall bear legends in substantially the
following form:
"THE SECURITY REPRESENTED HEREBY (OR ITS PREDECESSOR) WAS
ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR
APPLICABLE EXEMPTION THEREFROM AND IN ANY EVENT MAY BE SOLD OR
OTHERWISE TRANSFERRED ONLY IN ACCORDANCE WITH THE INDENTURE
(COPIES OF WHICH MAY BE OBTAINED FROM THE COMPANY).
EACH HOLDER OF THIS SECURITY REPRESENTS TO THE COMPANY THAT
(A) SUCH HOLDER WILL NOT SELL OR OTHERWISE TRANSFER THIS
SECURITY PRIOR TO THE DATE WHICH IS THREE YEARS AFTER THE
LATER OF THE ORIGINAL ISSUE DATE AND THE LAST DATE ON WHICH
THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF
THIS SECURITY (OR ANY PREDECESSOR), OTHER THAN (I) TO A
QUALIFIED INSTITUTIONAL PREDECESSOR), OTHER THAN (II) IN AN
OFFSHORE TRANSACTION COMPLYING WITH REGULATION S UNDER THE
SECURITIES ACT, (III) TO AN ACCREDITED INVESTOR THAT, PRIOR TO
SUCH TRANSFER, FURNISHES (OR HAS FURNISHED ON ITS BEHALF BY A
U.S. BROKER-DEALER) TO THE COMPANY AND UNITED STATES TRUST
COMPANY OF NEW YORK, AS TRUSTEE, A SIGNED LETTER CONTAINING
CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE
RESTRICTIONS ON TRANSFER OF THIS SECURITY (THE FORM OF WHICH
LETTER CAN BE OBTAINED FROM THE TRUSTEE) AND, IN THE CASE OF
CLAUSE (I), (II) OR (III), SUCH OTHER DOCUMENTS, CERTIFICATES
AND OPINIONS AS THE COMPANY OR THE TRUSTEE MAY REASONABLY
REQUEST, (IV) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT (IN WHICH CASE THE
HOLDER SHALL HAVE RECEIVED THE PRIOR WRITTEN AUTHORIZATION OF
THE COMPANY OR SHALL PROVIDE AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY AND ADDRESSED TO THE COMPANY AND
THE TRUSTEE), (V) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT, OR (VI) TO THE COMPANY OR
ANY SUBSIDIARY THEREOF; AND THAT (B) THE HOLDER WILL, AND EACH
SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS
SECURITY FROM IT OF THE RESALE RESTRICTIONS REFERRED TO IN (A)
ABOVE AND TO DELIVER TO THE TRANSFEREE PRIOR TO SALE A COPY OF
A
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<PAGE> 22
NOTICE TO INVESTORS DESCRIBING SUCH RESTRICTIONS (COPIES OF
WHICH MAY BE OBTAINED FROM THE COMPANY)."
(ii) Upon any sale or transfer of a Debenture bearing the
legends set forth in (i) above pursuant to Rule 144 under the
Securities Act or pursuant to an effective registration statement
under the Securities Act, the Registrar shall permit the Holder
thereof to exchange such Debenture for a Debenture that does not bear
such legends and rescind any restriction on the transfer of such
Debenture; provided, however, that with respect to any request for an
exchange of a Debenture for a Debenture that does not bear such
legends, which request is made in reliance upon Rule 144, the Holder
thereof shall certify in writing to the Registrar that such request is
being made pursuant to Rule 144 (such certification to be
substantially in the form of Exhibit A hereto).
(c) General Provisions Relating To Transfers and Exchanges.
(i) To permit registrations of transfers and exchanges,
the Company shall execute and the Trustee shall authenticate the
Debentures at the Registrar's request.
(ii) No service charge shall be made to a Holder for any
registration of transfer or exchange, but the Company or the Registrar
may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay a sum sufficient to
cover any transfer tax or similar governmental charge payable in
connection therewith (other than any such transfer taxes or similar
governmental charge payable upon exchange or transfer pursuant to
Sections 2.7, 2.10, 3.5, 4.7 or 9.5 hereof).
(iii) The Registrar shall not be required to register the
transfer of or exchange any Debenture selected for redemption in whole
or in part or tendered for repurchase pursuant to Section 4.7 hereof,
except the unredeemed or unrepurchased portion of any Debenture being
redeemed or repurchased in part, as the case may be.
(iv) All Debentures issued upon any registration of
transfer or exchange of Debentures shall be the valid Obligations of
the Company, evidencing the same debt, and entitled to the same
benefits under this Indenture, as the Debentures surrendered upon such
registration of transfer or exchange.
(v) The Company or the Registrar shall not be required to
register the transfer or exchange of a Debenture between a record date
and the next succeeding interest payment date.
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<PAGE> 23
(vi) Prior to due presentment for the registration of a
transfer of any Debenture, the Trustee, any Agent and the Company may
deem and treat the person in whose name any Debenture is registered as
the absolute owner of such Debenture for the purpose of receiving
payment of principal of, interest and Additional Interest, if any, on
such Debenture, and neither the Trustee, any Agent nor the Company
shall be affected by notice to the contrary.
(vii) The Trustee shall authenticate the Debentures upon
receipt of an Officers' Certificate instructing it to do so.
(d) Global Certificate Debentures. Notwithstanding any other
provision of this Section, unless and until it is exchanged in whole or in part
for Debentures in definitive form, a global Debenture representing all or a
portion of the Debentures may not be transferred except as a whole by the
depositary for the Debentures to a nominee of such depositary or by a nominee
of such depositary to such depositary or another nominee of such depositary or
by such depositary or any such nominee to a successor depositary for the
Debentures or a nominee of such successor depositary.
A global Debenture may be exchanged only as provided in this
Section 2.6(d).
If at any time the depositary with respect to a global
Debenture or Debentures representing all or a portion of the Debentures
notifies the Company that it is unwilling, unable or ineligible to continue as
such depositary, the Company shall appoint a successor depositary with respect
to such Debenture. If a successor depositary is not so appointed by the
Company within 90 days after the Company receives such notice, the Company will
execute and the Trustee, upon receipt of a written order of the Company for the
authentication and delivery of definitive Debentures (or, if such written order
has previously been delivered, then upon receipt of written instructions from
the person or persons specified in such written order), will authenticate and
deliver Debentures of such series in definitive form equal in aggregate
principal amount to the principal amount of the global Debenture(s) in exchange
for such global Debenture(s).
The Company may at any time and in its sole discretion
determine that the Debentures issued in the form of one or more global
Debentures shall no longer be represented by such global Debenture(s). In such
event, the Company will execute and the Trustee, upon receipt of a written
order of the Company for the authentication and delivery of definitive
Debentures (or, if such written order has previously been delivered, then upon
receipt of written instructions from the person or persons specified in such
written order), will authenticate and deliver Debentures in
17
<PAGE> 24
definitive form equal in aggregate principal amount to the principal amount of
the global Debenture(s) in exchange for such global Debenture(s).
In any exchange provided for herein, the Company will execute
and the Trustee will authenticate and deliver Debentures in definitive
registered form in authorized denominations as provided in Section 2.1 hereof.
Upon the exchange of a global Debenture in definitive form,
such global Debenture shall be cancelled by the Trustee, unless endorsement of
the surrendered global Debenture is contemplated by Section 2.16.
Definitive Debentures issued in exchange for a global
Debenture pursuant to this Section shall be registered in such names and in
such authorized denominations as the depositary for such global Debenture shall
instruct the Registrar in writing, pursuant to instructions from its direct or
indirect participants or otherwise. The Company and the Trustee shall be fully
protected in relying upon written directions from the depositary as to the
names and addresses in which the Debentures are to be issued, and in no event
shall have any liability to any Person claiming any right in or to any of the
Debentures issued pursuant to directions received from the depositary. The
Trustee shall deliver such definitive Debentures to the persons in whose names
such Debentures are so registered.
If a definitive Debenture is issued in exchange for any
portion of a global Debenture after the close of business at the office or
agency where such exchange occurs on any regular record date, or special record
date, and before the opening of business at such office or agency on the
relevant interest payment date, interest and Additional Interest, if any, will
be payable on such interest payment date in respect of such definitive
Debenture, to the person to whom interest and Additional Interest, if any, in
respect of such portion of such global Debenture is payable in accordance with
the provisions of this Indenture.
SECTION 2.7 REPLACEMENT DEBENTURES
If (i) any mutilated Debenture is surrendered to the Trustee,
or (ii) the Company and the Trustee receive evidence to their satisfaction of
the destruction, loss or theft of any Debenture, and there is delivered to the
Company and the Trustee security or indemnity as may be required by them to
save each of them and any Agent harmless, then in the absence of notice to the
Company or the Trustee that such Debenture has been acquired by a bona fide
purchaser, the Company shall issue and the Trustee shall authenticate a
replacement Debenture, if the Trustee's and the Company's requirements for
replacements of Debentures are met. If required by the Trustee or the Company,
an indemnity
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<PAGE> 25
bond must be supplied by the Holder that is sufficient in the judgment of the
Trustee and the Company to protect the Company, the Trustee, any Agent or any
authenticating agent from any loss which any of them may suffer if a Debenture
is replaced. The Company and the Trustee may require the payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed
and any other expenses incurred by it in connection with replacing a Debenture.
Every Replacement Debenture shall represent an Obligation of
the Company and shall be entitled to all of the benefits of this Indenture
equally and ratably with all other Debentures duly issued hereunder.
SECTION 2.8 OUTSTANDING DEBENTURES
The Debentures outstanding at any time are all the Debentures
authenticated by the Trustee except for those cancelled by it, those delivered
to it for cancellation and those described in this Section 2.8 as not
outstanding. If a Debenture is replaced pursuant to Section 2.7 hereof, it
ceases to be outstanding unless the Trustee receives proof satisfactory to it
that the replaced Debenture is held by a bona fide purchaser. If the principal
amount of any Debenture is considered paid under Section 4.1 hereof, it ceases
to be outstanding and interest on it ceases to accrue. Subject to Section 2.9
hereof, a Debenture does not cease to be outstanding because the Company, a
Subsidiary of the Company or an Affiliate of the Company holds the Debenture.
SECTION 2.9 TREASURY DEBENTURES
In determining whether the Holders of the required principal
amount of Debentures have concurred in any direction, waiver or consent,
Debentures owned by the Company, or any of its Subsidiaries or any of its
Affiliates shall be considered as though not outstanding, except that for
purposes of determining whether the Trustee shall be protected in relying on
any such direction, waiver or consent, only Debentures which the Trustee is
advised by the Company are so owned shall be so considered. Notwithstanding
the foregoing, Debentures that are to be acquired by the Company, or any
Subsidiary of the Company or any of its Affiliates pursuant to an exchange
offer, tender offer or other agreement shall not be deemed to be owned by the
Company, a Subsidiary of the Company or its Affiliates until legal title to
such Debentures passes to the Company, such Subsidiary or such Affiliate, as
the case may be.
SECTION 2.10 TEMPORARY DEBENTURES
Until permanent Debentures are ready for delivery, the Company
may prepare, and the Trustee shall authenticate,
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<PAGE> 26
temporary Debentures. The temporary Debentures shall be substantially in the
form of permanent Debentures but may have variations that the Company and the
Trustee consider appropriate for temporary Debentures. Without unreasonable
delay upon the request of a Holder, the Company shall prepare and the Trustee,
upon receipt of the written order of the Company signed by two Officers of the
Company, shall authenticate permanent Debentures in exchange for temporary
Debentures. Until such exchange, temporary Debentures shall be entitled to the
same rights, benefits and privileges as permanent Debentures.
SECTION 2.11 CANCELLATION
The Company may at any time deliver Debentures to the Trustee
for cancellation. The Registrar and Paying Agent shall forward to the Trustee
any Debentures surrendered to them for registration of transfer, repurchase,
exchange or payment. The Trustee shall cancel all Debentures surrendered for
registration of transfer, repurchase, exchange, payment, replacement or
cancellation and shall destroy cancelled Debentures (subject to the record
retention requirement of the Exchange Act), unless the Company directs
cancelled Debentures to be returned to it. The Company may not issue new
Debentures to replace Debentures that it has redeemed, repurchased or paid or
that have been delivered to the Trustee for cancellation.
SECTION 2.12 DEFAULTED INTEREST
If the Company defaults in a payment of interest on the
Debentures, the Company shall pay the defaulted interest in any lawful manner
plus, to the extent lawful, interest payable on the defaulted interest, to the
Persons who are Holders of the Debentures on a subsequent special record date,
which date shall be at the earliest practicable date but in all events at least
five Business Days prior to the payment date, in each case at the rate provided
in the Debentures. The Company shall fix each such special record date and
payment date, and shall, promptly thereafter, notify the Trustee of any such
date. At least 15 days before the special record date, the Company (or the
Trustee, in the name of and at the expense of the Company) shall mail to
Holders of the Debentures a notice that states the special record date, the
related payment date and the amount of such interest to be paid, and at the
same time the Company shall deposit with the Trustee an amount of money equal
to the aggregate amount proposed to be paid in respect of such defaulted
interest or shall make arrangements satisfactory to the Trustee for such
deposit prior to the date of the proposed payment, such money when deposited to
be held in trust for the benefit of the Persons entitled to such defaulted
interest as in this Section 2.12 provided.
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SECTION 2.13 RECORD DATE
The record date for purposes of determining the identity of
Holders of the Debentures entitled to vote or consent to any action by vote or
consent authorized or permitted under this Indenture shall be determined as
provided for in TIA Section 316(c).
SECTION 2.14 CUSIP NUMBER
The Company in issuing the Debentures may use "CUSIP" numbers
and, if it does so, the Trustee shall use the CUSIP numbers in notices of
redemption or exchange as a convenience to Holders; provided that any such
notice may state that no representation is made as to the correctness or
accuracy of the CUSIP numbers printed in the notice or on the Debentures and
that reliance may be placed only on the other identification numbers printed on
the Debentures. The Company will promptly notify the Trustee of any change in
any CUSIP number.
SECTION 2.15 COMPUTATION OF INTEREST
Interest will be computed on the basis of a 360-day year
consisting of twelve 30-day months.
SECTION 2.16 SECURITIES IN GLOBAL FORM
In connection with the issuance of a global Debenture, the
Company shall execute, and the Trustee shall, in accordance with the written
order of the Company, authenticate and deliver one or more global Debentures in
permanent form that (i) shall be registered in the name of the depositary for
such global Debenture(s) or its nominee, (ii) shall be delivered by the Trustee
to such depositary or pursuant to such depositary's instructions, and (iii)
shall bear a legend substantially to the following effect: "Unless and until
it is exchanged in whole or in part for Debentures in definitive form as
provided in Section 2.6(d) of the Indenture, this Debenture may not be
transferred except as a whole by the depositary to a nominee of the depositary
or by a nominee of the depositary to the depositary or another nominee of the
depositary or by the depositary or any such nominee to a successor depositary
or a nominee of such successor depositary." Each depositary designated by the
Company for a global Debenture in registered form must be, to the extent
required by applicable law or regulation, a clearing agency registered under
the Exchange Act, any other applicable statute or regulation, at the time of
its designation and at all times that it serves as depositary. Any such global
Debenture shall represent such of the outstanding Debentures represented
thereby as shall be specified thereon and may provide that it shall represent
the aggregate amount of outstanding Debentures from time to time endorsed
thereon and that the aggregate amount of
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<PAGE> 28
the Debentures represented thereby may from time to time be increased or
decreased to reflect exchanges. Any endorsement of a Debenture in global form
to reflect the amount, or any increase or decrease in the amount, or changes in
the rights of Holders, of outstanding Debentures represented thereby shall be
made in such manner and upon instructions given by such person or persons as
shall be specified in a written order of the Company to be delivered to the
Trustee. The Trustee shall deliver and redeliver any Debenture in permanent
global form in the manner and upon instructions given by the person or persons
specified in an applicable written order of the Company.
SECTION 2.17 PERSONS DEEMED OWNERS
No holder of any beneficial interest in any global Debenture
held on its behalf by a depositary shall have any rights under this Indenture
with respect to such global Debenture, and such depositary (or its nominee, if
such global Debenture is registered in the name of a nominee) may be treated by
the Company, the Trustee and any agent of the Company or the Trustee as the
owner of such global Debenture for all purposes whatsoever. None of the
Company, the Trustee, any Paying Agent or the Registrar will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests of a global
Debenture or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests.
Notwithstanding the foregoing, with respect to any global
Debenture, nothing herein shall prevent the Company, the Trustee or any agent
of the Company or the Trustee from giving effect to any written certification,
proxy or other authorization furnished by any depositary, as a Holder, with
respect to such global Debenture or impair, as between such depositary and
owners of beneficial interests in such global Debenture, the operation of
customary practices governing the exercise of the rights of such depositary (or
its nominee) as Holder of such global Debenture.
ARTICLE 3.
REDEMPTION
SECTION 3.1 NOTICES TO TRUSTEE
If the Company elects to redeem Debentures pursuant to the
optional redemption provisions of Section 3.6 hereof, it shall furnish to the
Trustee, at least 30 days but not more than 60 days before a redemption date,
an Officers' Certificate setting forth (i) the redemption date, (ii) the
principal amount of Debentures to be redeemed, and (iii) the applicable
redemption price.
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<PAGE> 29
SECTION 3.2 NOTICE OF REDEMPTION
At least 30 days but not more than 60 days before a redemption
date, the Company shall mail or cause to be mailed, by first class mail, a
notice of redemption to each Holder whose Debentures are to be redeemed at its
registered address.
The notice shall identify the Debentures (including CUSIP
number, if any, and, in the case of a partial redemption, the principal amount
of the Debentures) to be redeemed and shall state:
(a) the redemption date;
(b) the redemption price (including accrued interest to the
redemption date);
(c) if any Debenture is being redeemed in part, the portion of the
principal amount of such Debenture to be redeemed and that, after the
redemption date upon surrender of such Debenture, a new Debenture in principal
amount equal to the unredeemed portion shall be issued upon cancellation of the
original Debenture;
(d) the name and address of the Paying Agent;
(e) that Debentures called for redemption must be surrendered to
the Paying Agent to collect the redemption price;
(f) that, unless the Company defaults in making such redemption
payment, interest on Debentures (or portion thereof) called for redemption
ceases to accrue on and after the redemption date;
(g) a statement of the conversion rights of the Holder of the
Debenture and the Conversion Price then in effect; and
(h) that no representation is made as to the correctness or
accuracy of the CUSIP number, if any, listed in such notice or printed on the
Debentures.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at its expense; provided, however, that
the Company shall have delivered to the Trustee, at least 30 days prior to the
redemption date, an Officers' Certificate requesting that the Trustee give such
notice and setting forth the information to be stated in such notice as
provided in the preceding paragraph. Failure to give any required notice of
redemption as to any Debenture, or any defect in any such notice, shall not
affect the validity of the call for redemption of any Debentures in respect of
which no such failure or defect has occurred. Any notice mailed as provided
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<PAGE> 30
herein shall be effective when sent and shall be conclusively presumed to have
been given, whether or not actually received by any Holder.
SECTION 3.3 EFFECT OF NOTICE OF REDEMPTION
Once notice of redemption is mailed in accordance with Section
3.2 hereof, Debentures called for redemption become irrevocably due and payable
on the redemption date at the redemption price. A notice of redemption may not
be conditional. On and after the redemption date, unless the Company defaults
in the payment of the redemption price, interest will cease to accrue on the
Debentures or portions thereof called for redemption and all rights of Holders
with respect to such Debentures will terminate except for the right to receive
payment of the redemption price upon surrender for redemption.
SECTION 3.4 DEPOSIT OF REDEMPTION PRICE
One Business Day prior to the redemption date, the Company
shall deposit with the Paying Agent money sufficient to pay the principal of,
accrued interest on and accrued Additional Interest, if any, on all Debentures
to be redeemed on the redemption date. The Paying Agent shall promptly return
to the Company any money deposited with the Paying Agent by the Company in
excess of the amounts necessary to pay the redemption price of, accrued
interest and accrued Additional Interest, if any, on, all Debentures to be
redeemed.
If the Company complies with the provisions of the preceding
paragraph, on and after the redemption date, interest shall cease to accrue on
the Debentures or the portions of Debentures called for redemption, whether or
not such Debentures are presented for payment. If a Debenture is redeemed on
or after an interest record date but on or prior to the related interest
payment date, then any accrued and unpaid interest (and Additional Interest, if
any) as of such record date shall be paid to the Person in whose name such
Debenture was registered at the close of business on such record date. If any
Debenture called for redemption shall not be so paid upon surrender for
redemption because of the failure of the Company to comply with the preceding
paragraph, interest shall be paid on the unpaid principal, from the redemption
date until such principal is paid, and to the extent lawful on any interest not
paid on such unpaid principal, in each case at the rate provided in the
Debentures. Any funds deposited by the Company pursuant to the preceding
paragraph that are not claimed by the Holders within one year of such deposit
shall be returned to the Company, subject to the requirements of any applicable
law which would require a different disposition of such funds.
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<PAGE> 31
SECTION 3.5 DEBENTURES REDEEMED IN PART
Upon surrender of a Debenture that is redeemed in part, the
Company shall issue and, upon the Company's written direction, the Trustee
shall authenticate for the Holder at the expense of the Company a new Debenture
equal in principal amount to the unredeemed portion of the Debenture
surrendered.
SECTION 3.6 OPTIONAL REDEMPTION
At any time on or after March 1, 1998, the Company may, at its
option, upon not less than 30, nor more than 60 days' notice, on the date
specified in such notice, redeem all or a portion of the Debentures by
prepaying all or a portion of the principal amount of the Debentures (in
integral multiples of $1000), at the following redemption prices (expressed as
percentages of the principal amount to be redeemed) plus accrued and unpaid
interest, and any accrued and unpaid Additional Interest on such principal
amount as of the redemption date:
If redeemed during the 12 month period beginning March 1 of the years
indicated:
<TABLE>
<CAPTION>
Year Redemption Price
---- ----------------
<S> <C>
1998 104.700%
1999 104.113%
2000 103.525%
2001 102.938%
2002 102.350%
2003 101.763%
2004 101.175%
2005 100.588%
</TABLE>
and, on or after March 1, 2006, at a redemption price equal to 100% of the
principal amount plus accrued and unpaid interest, and any accrued and unpaid
Additional Interest related thereto.
provided, however, that the Debentures may not be redeemed prior to March 1,
1999 unless the Closing Price of the Common Stock equals or exceeds 140% of the
then effective Conversion Price of the Debentures for at least 20 out of 30
consecutive trading days ending within 20 calendar days before the mailing of
the notice to be provided in connection with such redemption.
SECTION 3.7 NO MANDATORY REDEMPTION
Except as set forth below under Section 4.7 hereof, the
Company shall not be required to make mandatory redemption or sinking fund
payments with respect to the Debentures.
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<PAGE> 32
SECTION 3.8 SELECTION OF DEBENTURES TO BE REDEEMED
If less than all the Debentures are to be redeemed, the
particular Debentures (or portions thereof) to be redeemed shall be selected
from Debentures by lot or by such method as the Trustee considers fair and
appropriate (and in such manner as complies with applicable requirements of any
stock exchange on which the Debentures are listed) and which may provide for
the selection for redemption of portions in principal amount of $1,000 or any
integral multiple thereof). Provisions of this Indenture that apply to
Debentures called for redemption also apply to portions of Debentures called
for redemption. If any Debenture selected for partial redemption is converted
in part after such selection but before the termination of the conversion right
with respect to the portion of the Debenture so selected, the converted portion
of such Debenture shall be deemed (so far as may be practicable) to be the
portion selected for redemption.
ARTICLE 4.
COVENANTS
SECTION 4.1 PAYMENT OF DEBENTURES
The Company shall pay or cause to be paid the principal of,
Additional Interest, if any, and interest on the Debentures on the dates and in
the manner provided in the Debentures and in this Indenture. Principal,
Additional Interest, if any, and interest, as applicable, shall be considered
paid on the date due if the Paying Agent, if other than the Company, holds as
of 10:00 a.m. Eastern Time on the due date money deposited by the Company in
immediately available funds and designated for and sufficient to pay all
principal, Additional Interest, if any, and interest then due.
The Company shall pay interest (including post-petition
interest in any proceeding under any Bankruptcy Law) on overdue principal at
the applicable interest rate on the Debentures to the extent lawful. Any such
default interest payments shall be made in the same manner and in accordance
with the same provisions as regular interest payments.
The Company shall notify the Trustee of the Company's
obligation, if any, to pay Additional Interest to any Holders of Debentures no
later than five Business Days following the occurrence of the event giving rise
to the Company's obligation to pay such Additional Interest.
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SECTION 4.2 MAINTENANCE OF OFFICE OR AGENCY
The Company shall maintain in the Borough of Manhattan, City
of New York, an office or agency (which may be an office of the Trustee or an
affiliate of the Trustee, Registrar or co-registrar) where Debentures may be
surrendered for registration of transfer or for exchange and where notices and
demands to or upon the Company in respect of the Debentures and this Indenture
may be served. The Company shall give prompt written notice to the Trustee of
the location, and any change in the location, of such office or agency. If at
any time the Company shall fail to maintain any such required office or agency
or shall fail to furnish the Trustee with the address thereof, such
presentations, surrenders, notices and demands may be made or served at the
Corporate Trust Office of the Trustee.
The Company may also from time to time designate one or more
other offices or agencies where the Debentures may be presented or surrendered
for any or all such purposes and may from time to time rescind such
designations; provided, however, that no such designation or rescission shall
in any manner relieve the Company of its obligation to maintain an office or
agency in the Borough of Manhattan, City of New York for such purposes. The
Company shall give prompt written notice to the Trustee of any such designation
or rescission and of any change in the location of any such other office or
agency.
The Company hereby designates the Corporate Trust Office of
the Trustee at 114 West 47th Street, New York, NY 10036 as one such office or
agency of the Company in accordance with Section 2.3 hereof.
SECTION 4.3 REPORTS
Whether or not required by the rules and regulations of the
SEC, for so long as any Debentures are outstanding, the Company shall furnish
to the Trustee within 15 days after it files them with the SEC copies of the
annual report and of any other information, documents and other reports which
the Company files with the SEC pursuant to Section 13 or 15(d) of the Exchange
Act. The Company shall also comply with the provisions of TIA Section 314(a).
SECTION 4.4 COMPLIANCE CERTIFICATE
(a) The Company shall deliver to the Trustee, within 120 days
after the end of each fiscal year of the Company, an Officers' Certificate
stating whether or not, to the knowledge of such officer, the Company has
complied with all conditions and covenants on its part contained in this
Indenture, and if such officer has obtained knowledge of any default by the
Company in
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the performance, observance or fulfillment of any such condition or covenant,
specifying each such default and the nature thereof.
(b) The Company shall, so long as any of the Debentures are
outstanding, promptly deliver to the Trustee upon any such Officer becoming
aware of any Default or Event of Default, an Officers' Certificate specifying
any such Default or Event of Default and what action the Company is taking or
proposes to take with respect thereto.
SECTION 4.5 STAY, EXTENSIONS AND USURY LAWS
The Company covenants (to the extent that it may lawfully do
so) that it shall not at any time insist upon, plead, or in any manner
whatsoever claim or take the benefit or advantage of, any stay, extension or
usury law wherever enacted, now or at any time hereafter in force, that may
affect the covenants or the performance of this Indenture; and the Company (to
the extent that it may lawfully do so) hereby expressly waives all benefit or
advantage of any such law, and covenants that it shall not, by resort to any
such law, hinder, delay or impede the execution of any power herein granted to
the Trustee, but shall suffer and permit the execution of every such power as
though no such law has been enacted.
SECTION 4.6 [INTENTIONALLY DELETED]
SECTION 4.7 OFFER TO PURCHASE UPON CHANGE OF CONTROL
(a) Subject to Section 10.3 hereof, upon the occurrence of a
Change of Control, at any time after the Issuance Date and on or prior to the
maturity of the Debentures, the Company shall commence an offer in the manner
provided by this Section 4.7 (the "Change of Control Offer") to repurchase each
Holder's Debentures at an offer price in cash equal to 100% of the aggregate
principal amount thereof plus accrued and unpaid interest and Additional
Interest, if any, thereon (the "Change of Control Payment") at the change of
control purchase date, which shall be a business day no earlier than 15
Business Days nor later than 30 Business Days from the date of the mailing of
the notice required by Section 4.7(b) hereof (the "Change of Control Purchase
Date"). If a Change of Control shall have occurred, the Company shall purchase
the Debentures of an electing Holder by delivering the Change of Control
Payment on the Change of Control Purchase Date subject to satisfaction by the
Holder of any relevant requirements herein.
(b) Within 15 Business Days after the occurrence of a Change of
Control, the Company will mail a notice to the Trustee and to each Holder and
at such time will cause a copy of such notice to be published in The Wall
Street Journal, or if no
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longer published, in a national newspaper of general circulation, stating:
(i) the events causing such Change of Control and the
date of the consummation of the Change of Control;
(ii) the Change of Control Purchase Date;
(iii) the amount of the Change of Control Payment;
(iv) the name and address of the Paying Agent;
(v) the Conversion Price and any adjustments thereto
resulting from such Change of Control, if any;
(vi) that Debentures as to which a Change of Control
Purchase Notice has been tendered to the Company may thereafter be
converted in accordance with Article 11 hereof only if the Change of
Control Purchase Notice has been withdrawn in accordance with the
terms of this Indenture;
(vii) that tendered Debentures will cease to accrue
interest after the Change of Control Purchase Date;
(viii) that the Change of Control Payment for any Debenture
as to which a Change of Control Purchase Notice has been duly given
and not withdrawn will be paid promptly following the later of the
Change of Control Purchase Date and the time of surrender of such
Debenture as described in clause (h);
(ix) the procedures the Holder must follow to exercise
rights under this Section 4.7;
(x) a brief description of the conversion rights of the
Debentures; and
(xi) the procedures for withdrawing a Change of Control
Purchase Notice.
(c) A Holder may exercise its rights specified in this Section 4.7
by delivering a written notice of purchase (a "Change of Control Purchase
Notice") to the Paying Agent at any time prior to the close of business on the
Change of Control Purchase Date, stating:
(i) the certificate number of the Debenture that such
Holder will deliver to be purchased;
(ii) the portion of the principal amount of such Debenture
(in increments of the minimum authorized $1,000 denomination) that
such Holder will deliver to be purchased;
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(iii) that such Debenture is to be purchased by the Company
pursuant to the terms and conditions of this Indenture.
The delivery of such Debenture (together with all necessary
endorsements) to the Paying Agent prior to the close of business on the Change
of Control Purchase Date at the offices of the Paying Agent shall be a
condition to the receipt by the Holder of the Change of Control Payment
therefor, provided, however, that such Change of Control Payment shall be paid
pursuant to this Section 4.7 only if the Debenture so delivered to the Paying
Agent shall conform in all respects to the description thereof set forth in the
related Change of Control Purchase Notice and such notice shall have been
received by the Paying Agent prior to the close of business on the Change of
Control Purchase Date.
The Company shall purchase from the Holder thereof, pursuant
to this Section 4.7, a portion of the Debenture if such portion is equal to the
minimum authorized denomination for Debentures or an integral multiple of
$1,000 in excess thereof. Provisions of this Indenture that apply to the
purchase of a Debenture also apply to the purchase of a portion of such
Debenture.
The Paying Agent shall advise the Company, on a daily basis
following the mailing of the notice of the Change of Control to Holders as
contemplated by this Section 4.7, of all Change of Control Purchase Notices and
all written notices of withdrawal thereof received by the Paying Agent.
Notwithstanding anything herein to the contrary, any Holder
delivering to the Paying Agent the Change of Control Purchase Notice
contemplated by this Section 4.7 shall have the right to withdraw such Change
of Control Purchase Notice at any time prior to the close of business on the
Change of Control Purchase Date by delivery of a written notice of withdrawal
to the Paying Agent in the form of a telegram, telex, facsimile transmission or
letter setting forth the name of the Holder, the principal amount of the
Debentures to have been purchased, the principal amount of the Debentures which
remains subject to the original Change of Control Purchase Notice and which has
been or will be delivered for purchase by the Company (if applicable) and a
statement that such Holder is withdrawing his election to have such Debentures
purchased.
Notwithstanding anything herein to the contrary, for so long
as any Designated Senior Debt is outstanding, in the event of the occurrence of
any event or series of events which constitute a Change of Control under clause
(ii) of the definition of such term under this Indenture (that does not
otherwise constitute a Change of Control under clause (i) of the definition of
such term), the
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Company shall not commence its Change of Control Offer resulting from such
Change of Control until the later to occur of (i) April 15, 1997 and (ii) 15
Business Days following the occurrence of such Change of Control; provided that
the purchase of any Debentures pursuant to this Section 4.7 shall in any event
be subject to the provisions of Article 6 and Article 10 hereof.
(d) Upon receipt by the Company of the Change of Control Purchase
Notice, the Holder of the Debenture in respect of which such Change of Control
Purchase Notice was given shall (unless such Change of Control Purchase Notice
is withdrawn as specified herein) thereafter be entitled to receive solely the
Change of Control Payment with result to such Debenture. Such Change of
Control Payment shall be paid to such Holder promptly following the later of
(x) the second Business Day next following the Change of Control Purchase Date
with respect to such Debenture and (y) the time of delivery of such Debenture
to the Paying Agent by the Holder thereof. If a Change of Control Purchase
Notice has been timely given by a Holder in respect of a Debenture, such
Debenture may not be converted pursuant to the provisions of Article 11 on or
after the date of the delivery of such Change of Control Purchase Notice,
unless such Change of Control Purchase Notice has first been validly withdrawn
as specified herein. The purchase of any Debentures pursuant to this Section
4.7 shall also be subject to the restrictions of Article 10.
(e) On or before the second Business Day next following the Change
of Control Purchase Date, the Company shall deposit with the Trustee or with
the Paying Agent (or, if the Company or a Subsidiary is acting as the Paying
Agent, shall segregate and hold in trust) an amount of money sufficient to pay
the aggregate Change of Control Payment of all the Debentures or portions
thereof with respect to which a Change of Control Purchase Notice has been
delivered and not withdrawn and which are to be purchased as of the Change of
Control Purchase Date.
(f) Any Debenture which is to be purchased only in part shall be
surrendered at the office of the Paying Agent (with, if the Company or the
Trustee so requires, due endorsement by, or a written instrument of transfer in
form satisfactory to the Company and the Trustee duly executed by, the Holder
thereof or such Holder's attorney duly authorized in writing) and the Company
shall execute and the Trustee shall authenticate and deliver to the Holder of
such Debenture, without service charge, a new Debenture or Debentures, of any
authorized denomination as required by such holder, in aggregate principal
amount equal to, and in exchange for, the portion of the principal amount of
the Debenture so surrendered which is not purchased and, if a global Debenture
is so surrendered, the Company shall execute and the Trustee shall authenticate
and deliver to the depositary for such global Debenture, without service
charge, a new global Debenture
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in a denomination equal to and in exchange for the unpurchased portion of the
principal amount of the global Debenture so surrendered.
(g) In connection with any Change of Control Offer under this
Section 4.7 (provided that such offer or purchase constitutes an "issuer tender
offer" for purposes of Rule 13e-4 of the General Rules and Regulations under
the Exchange Act ("Rule 13e-4", which term, as used herein, includes any
successor provision thereto) at the time of such offer or purchase), the
Company shall (i) comply with Rule 13e-4, (ii) file the related Schedule 13E-4
(or any successor schedule, form or report) under the Exchange Act, and (iii)
otherwise comply with all Federal securities law, and use reasonable efforts to
comply with all state securities laws, regulating the Change of Control Offer
and delivery of the Change of Control Payment upon purchase of the Debentures,
so as to permit the rights and obligations under this Section 4.7 to be
exercised in the time and in the manner specified in this Section 4.7.
(h) To the extent that the aggregate amount of cash deposited by
the Company pursuant to this Section 4.7 exceeds the aggregate Change of
Control Payment of the Debentures or portions thereof that the Company is
obligated to purchase pursuant to this Section 4.7, then promptly after the
second Business Day next following the Change of Control Purchase Date the
Trustee or the Paying Agent, as the case may be, shall return any such excess
to the Company.
(i) Notwithstanding anything to the contrary in this Indenture, if
the Company shall have deposited with the Trustee or with the Paying Agent (or,
if the Company or a subsidiary is acting as the Paying Agent, shall segregate
and hold in trust) an amount of money sufficient to pay the aggregate Change of
Control Payment for all the Debentures or portions thereof which are required
to be purchased as of the Change of Control Purchase Date pursuant to this
Section 4.7, then from and after such date all obligations of the Company in
respect of such Debentures or portions thereof shall cease and be discharged.
(j) The Company may omit in any particular instance to comply with
any term, provision or condition set forth in this Section 4.7 with respect to
the Debentures if before the time for such compliance the Holders of at least a
majority in principal amount of the outstanding Debentures shall either waive
such compliance in such instance or generally waive compliance with such term,
provision or condition, but no such waiver shall extend to or affect such term,
provision or condition except to the extent so expressly waived, and, until
such waiver shall become effective, the obligations of the Company and the
duties of the Trustee in respect of any such term, provision or condition shall
remain in full force and effect. The Company
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shall provide to the Trustee an Officers' Certificate that such a waiver has
been given, which Officers' Certificate shall contain the terms, provisions or
conditions waived thereby.
SECTION 4.8 CORPORATE EXISTENCE
The Company shall do or cause to be done all things necessary
to preserve and keep in full force and effect its corporate existence and the
corporate, partnership or other existence of each of its Significant
Subsidiaries; provided that the foregoing shall not prohibit or otherwise
restrict any merger or consolidation (i) not prohibited by Article 5 hereof or
(ii) among the Company and one or more of its Subsidiaries (including its
Significant Subsidiaries) or among one or more of its Subsidiaries (including
Significant Subsidiaries).
SECTION 4.9 PAYMENTS FOR CONSENT
Neither the Company nor any of its Subsidiaries shall,
directly or indirectly, pay or cause to be paid any consideration, whether by
way of interest, fee or otherwise, to any Holder of any Debentures for or as an
inducement to any consent, waiver or amendment of any of the terms or
provisions of this Indenture or the Debentures unless such consideration is
offered to be paid or agreed to be paid to all Holders of the Debentures that
consent, waive or agree to amend in the time frame set forth in the
solicitation documents relating to such consent, waiver or agreement.
SECTION 4.10 CALCULATION OF ORIGINAL ISSUE DISCOUNT
If the Debentures are determined to have been issued with any
original issue discount, the Company shall file with the Trustee promptly at
the end of each calendar year a written notice specifying the amount of
original issue discount (including daily rates and accrued periods), if any,
accrued on outstanding Debentures as of the end of such year.
ARTICLE 5.
SUCCESSORS
SECTION 5.1 MERGER, CONSOLIDATION, OR SALE OF ASSETS
The Company shall not consolidate with or merge with or into
or sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of its properties or assets in one or more related
transactions, to another corporation, Person or entity unless (i) the Company
is the surviving corporation or the entity or the Person formed by or surviving
any such consolidation or merger (if other than the Company) or to which such
sale, assignment, transfer, lease, conveyance or
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other disposition shall have been made is a corporation organized or existing
under the laws of the United States, any state thereof or the District of
Columbia; (ii) the entity or Person formed by or surviving any such
consolidation or merger (if other than the Company) or the entity or Person to
which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made assumes all the obligations of the Company under the
Debentures and this Indenture pursuant to a supplemental indenture in a form
reasonably satisfactory to the Trustee; and (iii) immediately after such
transaction no Default or Event of Default exists.
SECTION 5.2 SUCCESSOR CORPORATION SUBSTITUTED
Upon any consolidation or merger, or any sale, assignment,
transfer, lease, conveyance or other disposition of all or substantially all of
the assets of the Company in accordance with Section 5.1 hereof, the successor
corporation formed by such consolidation or into or with which the Company is
merged (if other than the Company) or to which such sale, assignment, transfer,
lease, conveyance or other disposition is made shall succeed to, and be
substituted for (so that from and after the date of such consolidation, merger,
sale, lease, conveyance or other disposition, the provisions of this Indenture
referring to the "Company" shall refer instead to the successor corporation and
not to the Company), and may exercise every right and power of the Company
under this Indenture with the same effect as if such successor Person had been
named as the Company herein; provided, however, that the predecessor Company
shall not be relieved from the obligation to pay the principal of, interest and
Additional Interest, if any, on the Debentures except in the case of a sale of
all or substantially all of the Company's assets that meets the requirements of
Section 5.1 hereof.
ARTICLE 6.
CERTAIN DEFAULT PROVISIONS
SECTION 6.1 EVENTS OF DEFAULT
An "Event of Default" occurs if:
(a) the Company defaults in the payment of interest on, or
Additional Interest, if any, on the Debentures (whether or not such payment is
prohibited by the subordination provisions of Article 10 hereof) when the same
becomes due and payable and such default continues for a period of 30 days;
(b) the Company defaults in the payment of principal of the
Debentures (whether or not such payment is prohibited by the subordination
provisions of Article 10 hereof) when the same becomes due and payable at
maturity, upon redemption, upon
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purchase by the Company pursuant to a Change of Control Purchase Notice or
otherwise;
(c) the Company fails to comply with any of its other covenants
(including, but not limited to, the covenant to commence a Change of Control
Offer upon the occurrence of a Change of Control) in, the Debentures, or this
Indenture after the giving of notice and the failure to cure as specified
below;
(d) maturity of any Senior Debt is accelerated by the applicable
holder(s) or its or their Representative, if the aggregate principal amount
(or, if applicable, issue price plus accrued original issue discount, if any)
of the Senior Debt the maturity of which has been accelerated exceeds $10
million, unless within 30 days after the Company's receipt of written notice of
such Default hereunder such acceleration is rescinded or annulled, such Senior
Debt is paid or such acceleration is contested by appropriate proceedings and
all consequences thereof that would have a material adverse effect on the
Company stayed (without the Company's having posted a bond or surety or entered
into a similar arrangement);
(e) a final judgment or final judgments (in each case not subject
to further appeal) for the payment of money in excess of $5,000,000 are entered
by a court or courts of competent jurisdiction against the Company or any of
its Subsidiaries and such judgments are not paid, discharged or stayed for a
period of more than 90 days of the entry of the last of such judgments and are
not being contested by the Company in good faith;
(f) pursuant to or within the meaning of any Bankruptcy Law, the
Company, any of its Subsidiaries that is a Significant Subsidiary or any group
of Subsidiaries that, taken together, would constitute a Significant
Subsidiary:
(i) commences a voluntary case,
(ii) consents to the entry of an order for relief against
it in an involuntary case,
(iii) consents to the appointment of a Custodian of it or
for all or substantially all of its property,
(iv) makes a general assignment for the benefit of its
creditors, or
(g) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(i) is for relief against the Company or any Subsidiary
or group of Subsidiaries that is a Significant Subsidiary of the
Company in an involuntary case,
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(ii) appoints a Custodian of the Company or any Subsidiary
or group of Subsidiaries that is a Significant Subsidiary of the
Company or for all or substantially all of the property of the Company
or any Subsidiary or group of Subsidiaries that is a Significant
Subsidiary of the Company, or
(iii) orders the liquidation of the Company or any
Subsidiary or group of Subsidiaries that is a Significant Subsidiary
of the Company,
and the order or decree remains unstayed and in effect for 90 consecutive days.
A Default under clause (c) is not an Event of Default until
the Trustee notifies the Company, or the Holders of at least 25% in principal
amount of the then outstanding Debentures notify the Company and the Trustee,
of the Default and the Company does not cure the Default in all material
respects within 60 days after receipt of the notice. The notice must specify
the Default, demand that it be remedied and state that the notice is a "Notice
of Default."
SECTION 6.2 ACCELERATION
(a) Subject to the provisions of Section 6.2(b) hereof, if an
Event of Default (other than an Event of Default specified in clauses (f) and
(g) of Section 6.1 hereof relating to the Company or any Significant
Subsidiary) occurs and is continuing, the Trustee, by notice to the Company, or
the Holders of at least 25% in principal amount of the then outstanding
Debentures, by notice to the Company and the Trustee, may declare the unpaid
principal of and any accrued interest on and all other Obligations with respect
to all the Debentures to be due and payable. Upon such declaration the
principal of, and interest and Additional Interest, if any, on the Debentures
shall be due and payable immediately. Subject to the provisions of Section
6.2(b) hereof, if an Event of Default specified in clause (f) or (g) of Section
6.1 hereof occurs, such an amount shall ipso facto become and be immediately
due and payable without any declaration or other act on the part of the Trustee
or any Holder.
(b) At any time when there is outstanding any Senior Debt, in the
event of any "Event of Default" under this Article 6, neither the Trustee nor
any Holder of a Debenture shall, for a period (the "Standstill Period") of 180
days commencing on the date of occurrence of such Event of Default (or such
shorter period as is applicable if such Event of Default is cured or waived or
ceases to exist): (i) by declaration accelerate (including pursuant to the last
sentence of Section 6.2(a)), the maturity of the principal of and accrued
interest on, or other amount with respect to any of the Indebtedness owing
under the
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Debenture or this Indenture, unless the Senior Debt shall have been
accelerated, (ii) commence any judicial action or proceeding to collect the
payment of principal of or interest on or other amount with respect to any of
the Indebtedness owing under the Debentures or this Indenture, unless any
holders of the Senior Debt shall have commenced judicial action or proceedings
to collect payment of the principal of or interest on any Senior Debt or (iii)
commence an involuntary case or proceeding in bankruptcy against the Company,
unless any holders of the Senior Debt shall have commenced such a case or
proceeding. After the end of the Standstill Period, but subject to all other
terms and provisions of this Indenture (other than the preceding terms of this
Section 6.2), the Trustee or Holders of Debentures shall be free to accelerate
(if then permitted under this Indenture) the maturity of the Indebtedness under
the Debentures or this Indenture, to commence any judicial action or proceeding
to collect the Indebtedness under the Debentures or this Indenture or to
commence an involuntary case or proceeding in bankruptcy against the Company.
Notwithstanding the foregoing, no Standstill Period shall commence within 180
days after the expiration of any prior Standstill Period, if any. In addition
to the foregoing, unless the maturity of the Senior Debt has already been
accelerated, if the Trustee or the Holders of at least 25% in principal amount
of the then outstanding Debentures desire to accelerate the maturity of the
Debentures or the Indebtedness evidenced by this Indenture, it shall give at
least two Business Days' prior written notice to the Representative of Senior
Debt of its intent to accelerate prior to effecting such acceleration (which
notice may be given during the Standstill Period).
(c) At any time during the continuation of a Standstill Period
arising from the occurrence of an "Event of Default" as defined in this
Indenture, the Representative of Senior Debt or any of the holders of the
Senior Debt may cure such Event of Default, and the Holders of the Debentures
shall accept such cure. In addition, if (i) the Senior Debt has been
accelerated as a result of any event of default under such Senior Debt and (ii)
such event of default subsequently is cured or waived and any such acceleration
is rescinded by the Representative of the Senior Debt or the holders of the
Senior Debt, then (x) any Event of Default existing under Section 6.1(d) of
this Indenture solely as a result of such event of default or acceleration
under the Senior Debt shall be deemed cured (effective as of the date of the
cure or waiver of such event of default under the Senior Debt) and (y) the
Holders of the Debentures shall rescind any acceleration of the Debentures
attributable solely thereto; provided, however, that such Event of Default
under this Agreement shall be deemed cured and such rescission of the
acceleration of the Debentures shall be effective only if the cure of the event
of default under the Senior Debt and the rescission of any such acceleration
under the Senior Debt occurs
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prior to the time that the Trustee or the Holders of at least 25% in principal
amount of the then outstanding Debentures has commenced any judicial action or
proceeding or any involuntary case or proceeding in bankruptcy as permitted by
Section 6.2(a) hereof. The Trustee or any Holder of a Debenture that desires
to commence any judicial action or proceeding or any involuntary case or
proceeding in bankruptcy as permitted by Section 6.2(a) hereof shall give at
least five Business Days' prior written notice to the Representative of the
Senior Debt before commencing such judicial action or proceeding or such
involuntary case or proceeding in bankruptcy.
SECTION 6.3 OTHER REMEDIES
Subject to Section 6.2, if an Event of Default occurs and is
continuing, the Trustee may pursue any available remedy to collect the payment
of principal of, and interest and Additional Interest, if any, on the
Debentures or to enforce the performance of any provision of the Debentures or
this Indenture.
The Trustee may maintain a proceeding even if it does not
possess any of the Debentures or does not produce any of them in the
proceeding. A delay or omission by the Trustee or any Holder of a Debenture in
exercising any right or remedy accruing upon an Event of Default shall not
impair the right or remedy or constitute a waiver of or acquiescence in the
Event of Default. All remedies are cumulative to the extent permitted by law.
SECTION 6.4 WAIVER OF PAST DEFAULTS
Holders of not less than a majority in aggregate principal
amount of the Debentures then outstanding by notice to the Trustee may on
behalf of the Holders of all of the Debentures waive an existing Default or
Event of Default and its consequences hereunder, except a continuing Default or
Event of Default in the payment of the principal of, or interest on the
Debentures, and Additional Interest, if any (provided, however, that the
Holders of a majority in aggregate principal amount of the then outstanding
Debentures may rescind an acceleration and its consequences, including any
related payment default that resulted from such acceleration). Upon any such
waiver, such Default shall cease to exist, and any Event of Default arising
therefrom shall be deemed to have been cured for every purpose of this
Indenture; but no such waiver shall extend to any subsequent or other Default
or impair any right consequent thereon.
SECTION 6.5 CONTROL BY MAJORITY
Holders of a majority in principal amount of the then
outstanding Debentures may direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee or exercising any
trust or power conferred on it.
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However, the Trustee may refuse to follow any direction that (a) conflicts with
law or this Indenture or (b) the Trustee determines may be unduly prejudicial
to the rights of other Holders of Debentures or that may involve the Trustee in
personal liability unless, in the case of clause (b) above, it is given
satisfactory indemnity pursuant to Section 7.1(e) hereof.
SECTION 6.6 LIMITATION ON SUITS
Subject to the provisions of Section 6.2(b) and (c) hereof, a
Holder of a Debenture may pursue a remedy with respect to this Indenture or the
Debentures if, and only if all of the following occur:
(a) the Holder of a Debenture gives to the Trustee written notice
of a continuing Event of Default or the Trustee receives such notice from the
Company;
(b) the Holders of at least 25% in principal amount of the then
outstanding Debentures make a written request to the Trustee to pursue the
remedy;
(c) such Holder of a Debenture or Holders of Debentures offer and,
if requested, provide to the Trustee indemnity satisfactory to the Trustee
against any loss, liability or expense;
(d) the Trustee does not comply with the request within 60 days
after receipt of the request and the offer and, if requested, the provision of
indemnity; and
(e) during such 60-day period the Holders of a majority in
principal amount of the then outstanding Debentures do not give the Trustee a
direction inconsistent with the request.
A Holder of a Debenture may not use this Indenture to
prejudice the rights of another Holder of a Debenture or to obtain a preference
or priority over another Holder of a Debenture. Nothing contained in this
Section 6.6 shall affect the right of a Holder of a Debenture to sue for
enforcement of any overdue payment thereon.
SECTION 6.7 RIGHTS OF HOLDERS OF DEBENTURES TO RECEIVE PAYMENT
Notwithstanding any other provision of this Indenture , the
right of any Holder of a Debenture to receive payment of principal of and
interest on the Debentures, and Additional Interest, if any, on or after the
respective due dates expressed in the Debentures, or to bring suit for the
enforcement of any such payment on or after such respective dates, shall not be
impaired or affected without the consent of such Holder.
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SECTION 6.8 COLLECTION SUIT BY TRUSTEE
Subject to Article 10, if an Event of Default specified in
Section 6.1(a) or (b) hereof occurs and is continuing and the maturity of the
Debentures is accelerated in accordance with Section 6.2, the Trustee is
authorized to recover judgment in its own name and as trustee of an express
trust against the Company for the whole amount of principal of, and interest
remaining unpaid on the Debentures, premium thereon and Additional Interest, if
any, to the extent lawful, interest and such further amount as shall be
sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses disbursements and advances of the Trustee,
its agents and counsel.
SECTION 6.9 TRUSTEE MAY FILE PROOFS OF CLAIM
Subject to Article 10, in case of the pendency of any
receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement,
adjustment, composition or other similar judicial proceeding relative to the
Company or any other obligor upon the Debentures or the property of the Company
or of such other obligor or their creditors, the Trustee (irrespective of
whether the principal of the Debentures shall then be due and payable as
therein expressed or by declaration or otherwise and irrespective of whether
the Trustee shall have made any demand on the Company for the payment of
overdue principal or interest) shall be entitled and empowered, by intervention
in such proceeding or otherwise,
(a) to file and prove a claim for the whole amount of principal,
interest and Additional Interest, if any, owing and unpaid in respect of the
Debentures and to file such other papers or documents as may be necessary or
advisable in order to have the claims of the Trustee (including any claim for
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel) and of the Holders allowed in such judicial
proceeding, and
(b) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same in accordance with
the Indenture; and any custodian, receiver, assignee, trustee, liquidator,
sequestrator or similar official in any such judicial proceeding is hereby
authorized by each Holder of the Debentures to make such payments to the
Trustee and, in the event that the Trustee shall consent to the making of such
payments directly to the Holders, to pay the Trustee any amount due it for the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel, and any other amounts due the Trustee under Section 7.7
hereof.
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Nothing herein contained shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any Holder
of any Debenture any proposal, plan of reorganization, arrangement, adjustment
or composition or other similar arrangement affecting the Debentures or the
rights of any Holder thereof, or to authorize the Trustee to vote in respect of
the claim of any Holder in any such proceeding.
SECTION 6.10 PRIORITIES
If the Trustee collects any money pursuant to this Article, it
shall pay out the money in the following order:
First: to the holders of Senior Debt of the Company,
to the extent required by Article 10 hereof.
Second: to the Trustee, its agents and attorneys for
amounts due under Section 7.7 hereof;
Third: to Holders of Debentures for amounts due and
unpaid on the Debentures for principal, and Additional Interest, if
any, and interest, ratably, without preference or priority of any
kind, according to the amounts due and payable on the Debentures for
principal, and Additional Interest, if any, and interest,
respectively, and any other Obligations due and payable; and
Fourth: to the Company or to such party as a court
of competent jurisdiction shall direct.
The Trustee may fix a record date and payment date for any payment to Holders
of Debentures pursuant to this Section 6.10.
SECTION 6.11 UNDERTAKING FOR COSTS
In any suit for the enforcement of any right or remedy under
this Indenture or in any suit against the Trustee for any action taken or
omitted by it as a Trustee, a court in its discretion may require the filing by
any party litigant in the suit of an undertaking to pay the costs of the suit,
and the court in its discretion may assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in the suit, having due
regard to the merits and good faith of the claims or defenses made by the party
litigant. This Section does not apply to a suit by the Trustee, a suit by a
Holder of a Debenture pursuant to Section 6.7 hereof, or a suit by Holders of
more than 10% in principal amount of the then outstanding Debentures.
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ARTICLE 7.
TRUSTEE
SECTION 7.1 DUTIES OF TRUSTEE
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in its exercise, as a
prudent man would exercise or use under the circumstances in the conduct of his
own affairs.
(b) Except during the continuance of an Event of Default:
(i) the duties of the Trustee shall be determined solely
by the express provisions of this Indenture and the TIA and the
Trustee need perform only those duties that are specifically set forth
in this Indenture and the TIA and no others, and no implied covenants
or obligations shall be read into this Indenture against the Trustee;
and
(ii) in the absence of bad faith on its part, the Trustee
may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements
of this Indenture. However, the Trustee shall examine the
certificates and opinions to determine whether or not they conform to
the requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph
(b) of this Section;
(ii) the Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer, unless it is
proved that the Trustee was negligent in ascertaining the pertinent
facts; and
(iii) the Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 6.5 hereof.
(d) Whether or not therein expressly so provided, every provision
of this Indenture that in any way relates to the Trustee is subject to
paragraphs (a), (b), and (c) of this Section.
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(e) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or incur any liability. The Trustee shall be
under no obligation to exercise any of its rights and powers under this
Indenture at the request of any Holders, unless such Holder shall have offered
to the Trustee security and indemnity satisfactory to it against any loss,
liability or expense.
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
(g) Except with respect to Sections 4.1 (other than with respect
to Additional Interest, if any) and 4.3 herein, the Trustee shall have no duty
to inquire as to the performance of the Company's covenants in Article 4
hereof. In addition, the Trustee shall not be deemed to have knowledge of any
Default or Event of Default except (i) any Event of Default occurring pursuant
to Sections 6.1(a), 6.1(b), 4.1 (other than with respect to Additional
Interest, if any), (ii) any Default or Event of Default as may be set forth in
an Officer's Certificate provided pursuant to Section 4.4 hereof or of which
the Trustee shall have received written notification or (iii) any Default or
Event of Default under the Credit Agreement or the BNY Facility Agreement of
which the Trustee shall have received written notification from the
Representative. For purposes of the immediately preceding sentence, receipt by
the Trustee of any report or document furnished pursuant to Section 4.3 hereof
which contains information regarding any Default or Event of Default shall not
constitute receipt by the Trustee of notice of such Default or Event of
Default.
SECTION 7.2 RIGHTS OF TRUSTEE
(a) The Trustee may conclusively rely upon any document believed
by it to be genuine and to have been signed or presented by the proper Person.
The Trustee need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may
require an Officers' Certificate or an Opinion of Counsel or both. The Trustee
shall not be liable for any action it takes or omits to take in good faith in
reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may
consult with counsel, the reasonable cost of which will be borne by the
Company, and the written advice of such counsel or any Opinion of Counsel shall
be full and complete authorization and protection from liability in respect of
any action taken, suffered or omitted by it hereunder in good faith and in
reliance thereon.
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(c) The Trustee may act through its attorneys and agents and shall
not be responsible for the misconduct or negligence of any agent appointed with
due care.
(d) The Trustee shall not be liable for any action it takes or
omits to take in good faith that it believes to be authorized or within the
rights or powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Company shall be sufficient if
signed by an Officer of the Company.
(f) Subject to the provisions of Section 7.1(g), the Trustee shall
not be bound to make any investigation into the facts or matters stated in any
resolution, certificate, statement, instrument, opinion, report notice,
request, direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document, but the Trustee, in its discretion,
may make such further inquiry or investigation into such facts or matters as it
may see fit, and, if the Trustee shall determine to make such further inquiry
or investigation, it shall be entitled to examine the books, records and
premises of the Company personally or by agent or attorney;
(g) The Trustee shall not be deemed to have knowledge of the
occurrence of a Change of Control until the Trustee receives written notice
thereof from the Company or the Representative.
SECTION 7.3 INDIVIDUAL RIGHTS OF TRUSTEE
The Trustee in its individual or any other capacity may become
the owner or pledgee of Debentures and may otherwise deal with the Company, any
of its Subsidiaries or any Affiliate of the Company with the same rights it
would have if it were not the Trustee. However, in the event that the Trustee
acquires any conflicting interest (as such term is used in the TIA) it must
eliminate such conflict within 90 days, apply to the SEC for permission to
continue as trustee or resign. Any Agent may do the same with like rights and
duties. The Trustee is also subject to Sections 7.10 and 7.11 hereof.
SECTION 7.4 TRUSTEE'S DISCLAIMER
The Trustee shall not be responsible for and makes no
representation as to the validity or adequacy of this Indenture or the
Debentures, it shall not be accountable for the Company's use of the proceeds
from the Debentures or any money paid to the Company or upon the Company's
direction under any provision of this Indenture, it shall not be responsible
for the use or application of any money received by any Paying Agent other than
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the Trustee, and it shall not be responsible for any statement or recital
herein or any statement in the Debentures or any other document in connection
with the sale of the Debentures or pursuant to this Indenture other than its
certificate of authentication.
SECTION 7.5 NOTICE OF DEFAULTS
If a Default or Event of Default occurs and is continuing and
if it is known to the Trustee, the Trustee shall mail to the Holders of the
Debentures a notice of the Default or Event of Default within 90 days after it
occurs. Except in the case of a Default or Event of Default in payment of
principal of, or interest or Additional Interest, if any, on any Debenture, the
Trustee may withhold the notice if and so long as a committee of its
Responsible Officers in good faith determines that withholding the notice is in
the interests of the Holders of the Debentures.
SECTION 7.6 REPORTS BY TRUSTEE TO HOLDERS OF THE DEBENTURES
Within 60 days after each September 1st beginning with the
September 1st following the date of this Indenture, and for so long as
Debentures remain outstanding, the Trustee shall mail to the Holders of the
Debentures a brief report dated as of such reporting date that complies with
TIA Section 313(a) (but if no event described in TIA Section 313(a) has
occurred within the twelve months preceding the reporting date, no report need
be transmitted). The Trustee also shall comply with TIA Section 313(b)(2).
The Trustee shall also transmit by mail all reports as required by TIA Section
313(c).
A copy of each report at the time of its mailing to the
Holders of Debentures shall be mailed to the Company and filed with the SEC and
each stock exchange on which the Debentures are listed in accordance with TIA
Section 313(d). The Company shall promptly notify the Trustee when the
Debentures are listed on any stock exchange.
SECTION 7.7 COMPENSATION AND INDEMNITY
The Company shall pay to the Trustee from time to time
reasonable compensation, as agreed upon by the Company and the Trustee prior to
the date of this Indenture for its acceptance of this Indenture and services
hereunder or as thereafter agreed upon. The Trustee's compensation shall not
be limited by any law on compensation of a trustee of an express trust. In
addition to compensation for its services, the Company shall reimburse the
Trustee promptly upon request for all reasonable disbursements, advances and
expenses incurred or made by it in accordance with any provisions of this
Indenture, as agreed upon by the Company and the Trustee prior to the date of
this Indenture or as
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thereafter agreed upon, (including the reasonable compensation, disbursements
and expenses of the Trustee's agents and counsel).
The Company shall jointly and severally indemnify the Trustee
and its officers, directors, employees and agents from and against any and all
losses, liabilities or expenses incurred by it arising out of or in connection
with the acceptance or administration of its duties under this Indenture,
including the costs and expenses of enforcing this Indenture against the
Company (including this Section 7.7), and of defending itself against any claim
(whether asserted by the Company or any Holder or any other person) or
liability in connection with the exercise or performance of any of its powers
or duties hereunder, except to the extent any such loss, liability or expense
is caused by the negligence or bad faith of the Trustee. The Trustee shall
notify the Company promptly of any claim for which it may seek indemnity.
Failure by the Trustee to so notify the Company shall not relieve the Company
of its obligations hereunder (except to the extent any such failure prejudices
the ability of the Company to defend against such claim). The Company shall
defend the claim and the Trustee shall cooperate in the defense. The Trustee
may have separate counsel and the Company shall pay the reasonable fees and
expenses of such counsel. The Company need not pay for any settlement made
without its consent, which consent shall not be unreasonably withheld. Any
such payments and reimbursements shall be made with interest, accruing from the
date any such payment or reimbursement is due up to and including the date such
payment or reimbursement is paid, at the rate borne by the Debentures.
The obligations of the Company under this Section 7.7 shall
survive the satisfaction and discharge of this Indenture.
To secure all payments due to the Trustee under this
Indenture, the Trustee shall have a Lien prior to the Debentures but
subordinate to the Senior Debt on all money or property held or collected by
the Trustee, except that held in trust to pay principal, and interest on
particular Debentures. Such Lien shall survive the satisfaction and discharge
of this Indenture. Subject to Section 6.10, the Trustee's right to receive
payment of any amounts due under this Section 7.7 shall not be subordinate to
any other liability or Indebtedness of the Company (other than the Senior Debt)
(even though the Debentures may be so subordinated).
When the Trustee incurs expenses or renders services after an
Event of Default specified in Section 6.1(g) or (h) hereof occurs, the expenses
and the compensation for the services (including the fees and expenses of its
agents and counsel) are intended to constitute expenses of administration under
any Bankruptcy Law.
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The Trustee shall comply with the provisions of TIA Section
313(b)(2) to the extent applicable.
SECTION 7.8 REPLACEMENT OF TRUSTEE
A resignation or removal of the Trustee and appointment of a
successor Trustee shall become effective only upon the successor Trustee's
acceptance of appointment as provided in this Section.
The Trustee may resign in writing at any time and be
discharged from the trust hereby created by so notifying the Company. The
Holders of a majority in principal amount of the then outstanding Debentures
may remove the Trustee by so notifying the Trustee and the Company in writing.
The Company may remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof;
(b) the Trustee is adjudged a bankrupt or an insolvent or an order
for relief is entered with respect to the Trustee under any Bankruptcy Law:
(c) a Custodian or public officer takes charge of the Trustee or
its property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in
the office of Trustee for any reason, the Company shall promptly appoint a
successor Trustee. Within one year after the successor Trustee takes office,
the Holders of a majority in principal amount of the then outstanding
Debentures may appoint a successor Trustee to replace the successor Trustee
appointed by the Company.
If a successor Trustee does not take office within 60 days
after the retiring Trustee resigns or is removed, the retiring Trustee, the
Company, or the Holders of Debentures of at least 10% in principal amount of
the then outstanding Debentures may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
If the Trustee, after written request by any Holder of a
Debenture, fails to comply with Section 7.10 hereof, such Holder of a Debenture
may petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon, the
resignation or removal of the retiring Trustee
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shall become effective, and the successor Trustee shall have all the rights,
powers and duties of the Trustee under this Indenture. The successor Trustee
shall mail a notice of its succession to Holders of the Debentures. The
retiring Trustee shall promptly transfer all property held by it as Trustee to
the successor Trustee, provided all sums owing to the Trustee hereunder have
been paid and subject to the Lien provided for in Section 7.7 hereof.
Notwithstanding replacement of the Trustee pursuant to this Section 7.8, the
Company's obligations under Section 7.7 hereof shall continue for the benefit
of the retiring Trustee.
SECTION 7.9 SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation, the successor corporation without any further act shall be the
successor Trustee.
SECTION 7.10 ELIGIBILITY; DISQUALIFICATION
There shall at all times be a Trustee hereunder that is a
corporation organized and doing business under the laws of the United States of
America or of any state thereof that is authorized under such laws to exercise
corporate trustee power, that is subject to supervision or examination by
federal or state authorities and that, together with its Subsidiaries, has a
combined capital and surplus of at least $50,000,000 as set forth in its most
recent published annual report of condition. If, at any time, the Trustee
shall cease to be eligible in accordance with the provisions of this Section
7.10, the Trustee shall resign immediately in the manner and with the effects
specified in this Article 7. Nothing in this Indenture shall prevent the
Trustee from filing with the SEC the application referred to in the second to
last paragraph of TIA Section 310(b).
This Indenture shall always have a Trustee which satisfies the
requirements of TIA Section 310(a)(1), (2) and (5). The Trustee is subject to
TIA Section 310(b).
SECTION 7.11 PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY
The Trustee is subject to TIA Section 311(a), excluding any
creditor relationship listed in TIA Section 311(b). A Trustee who has resigned
or been removed shall be subject to TIA Section 311(a) to the extent indicated
therein.
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ARTICLE 8.
REGISTRATION
SECTION 8.1 SHELF REGISTRATION
(a) The Company shall use its reasonable best efforts to cause to
be filed on or prior to the date which is six months after the Issuance Date
(the "Shelf Deadline Date"), the Shelf Registration Statement pursuant to Rule
415 under the Securities Act (which Shelf Registration Statement shall provide
for resales of the Transfer Restricted Securities by the Holders thereof), on
such form as the Company deems appropriate, and shall use its reasonable best
efforts to cause such Shelf Registration Statement to be declared effective by
the SEC. The Company shall use its reasonable best efforts to keep such Shelf
Registration Statement effective, supplemented and amended as required by the
provisions hereof, to the extent necessary to ensure that it is available for
resales of the Transfer Restricted Securities entitled to the benefit of this
Section 8.1, and to ensure that it conforms with the requirements of this
Indenture, the Securities Act and the policies, rules and regulations of the
SEC as announced from time to time, for the Effectiveness Period.
(b) No Holder of Transfer Restricted Securities may sell any of
its Transfer Restricted Securities pursuant to the Shelf Registration Statement
pursuant to this Section 8.1 unless and until such Holder furnishes to the
Company in writing, within 20 Business Days after receipt of a request
therefor, such information as the Company may reasonably request for use in
connection with the Shelf Registration Statement or Prospectus or preliminary
Prospectus included therein or any amendment or supplement thereto. No Holder
of Transfer Restricted Securities shall be entitled to Additional Interest
pursuant to Section 8.2 hereof unless and until each such Holder shall have
provided all such reasonably requested information. In connection with any
sale of Transfer Restricted Securities pursuant to the Shelf Registration
Statement, each Holder agrees to furnish as promptly as practicable to the
Company all information required to be disclosed in order to make the
information previously furnished to the Company by such Holder not materially
misleading.
(c) Notwithstanding anything to the contrary contained herein, if
at any time after the filing of the Shelf Registration Statement or after it is
declared effective by the SEC, the Company determines, in its reasonable
business judgment, that such registration and offering could reasonably be
expected to interfere with or otherwise adversely affect any financing,
acquisition, corporate reorganization, or other material transaction or
development involving the Company or any of its Affiliates require the Company
to disclose matters that otherwise would not be required to be disclosed at
such time, then the
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Company may require the suspension of resales of the Transfer Restricted
Securities by giving notice to the Trustee and Holders of Transfer Restricted
Securities. Any such notice need not specify the reasons for such suspension
if the Company determines, in its reasonable business judgment, that doing so
could reasonably be expected to interfere with or adversely affect such
transaction or development or would result in the disclosure of material
non-public information. In the event that such notice is given, then until the
Company has determined, in its reasonable business judgment, that such
registration and offering would no longer interfere with the matters described
in the preceding sentence and has given notice thereof to such Holders of
Transfer Restricted Securities, the Company's obligations with respect to
registration pursuant to Article 8 hereunder will be suspended.
(d) The Company's obligations under this Indenture shall be
conditioned upon the compliance with the following by Holders of the
Debentures:
(i) Each holder shall cooperate with the Company in
connection with the preparation of the Shelf Registration Statement,
and for so long as the Company is obligated to keep the Shelf
Registration Statement effective, each Holder will provide to the
Company, in writing, for use in the Shelf Registration Statement, all
information regarding each Holder and such other information as may be
necessary to enable the Company to prepare the Shelf Registration
Statement and any Prospectus (including any supplement or amendment
thereto) covering the Transfer Restricted Securities and to maintain
the currency and effectiveness thereof;
(ii) Each Holder shall permit the Company, the agents or
broker-dealers in any offering or other distribution of Transfer
Restricted Securities and their respective representatives and agents
to examine such documents and records and shall supply any information
as they may reasonably request in connection with the offering or
other distribution of Transfer Restricted Securities in which such
Holders propose to participate;
(iii) Each Holder shall enter into such agreements with the
Company and any agent, broker-dealer or similar securities industry
professional containing representations, warranties, indemnities and
agreements as are in each case customarily entered into and made by
selling stockholders, and will cause its counsel to give any legal
opinions customarily given, in secondary distributions under similar
circumstances.
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SECTION 8.2 ADDITIONAL INTEREST
If the Shelf Registration Statement is not filed with the SEC
by the Company on or prior to the Shelf Deadline Date (a "Registration
Default"), the Company hereby agrees to pay each Holder of Debentures,
Additional Interest on the principal amount of the Debentures held by such
holders. Following a Registration Default, Additional Interest will accrue
from and after the date of such Registration Default at an initial rate of 0.5%
per annum on the principal amount of the Debentures and such rate will increase
in increments of 0.5% per annum at each subsequent six month anniversary of
such Registration Default until the date on which the Shelf Registration
Statement is filed with the SEC, on which date such rate will be fixed and
Additional Interest will continue to accrue at such fixed rate until the Shelf
Registration Statement is declared effective by the SEC. Accrued and unpaid
Additional Interest (together with stated interest on the Debentures) will be
payable (as determined by the regular record dates for the payment of interest)
by the Company along with and in the same manner as any accrued but unpaid
interest on each subsequent interest payment date following the occurrence of
the Registration Default or upon maturity of the Debentures or earlier
redemption or repurchase pursuant to the terms hereof, notwithstanding a cure
of such Registration Default prior to such interest payment date, date of
maturity or earlier redemption or repurchase.
SECTION 8.3 REGISTRATION PROCEDURE
(a) In connection with the Shelf Registration Statement, the
Company shall:
(i) use its reasonable best efforts to cause the Shelf
Registration Statement to remain effective during the Effectiveness
Period;
(ii) as expeditiously as practicable prepare and file with
the SEC any amendments and supplements to the Shelf Registration
Statement and the prospectus included in the Shelf Registration
Statement as may be necessary to keep the Shelf Registration Statement
effective for the Effectiveness Period;
(iii) as expeditiously as practicable furnish to any
selling Holder such reasonable numbers of copies of the Prospectus,
including a preliminary Prospectus, in conformity with the
requirements of the Securities Act, and such other documents as such
selling Holder may reasonably request in order to facilitate the
public sale or other disposition of the Transfer Restricted Securities
owned by such selling Holder;
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(iv) use its reasonable best efforts to qualify the
Indenture under the TIA; and
(v) as expeditiously as practicable use its reasonable
best efforts to register or qualify the Transfer Restricted Securities
covered by the Shelf Registration Statement under the securities or
Blue Sky laws of such states as any selling Holder shall reasonably
request, and to do any and all other acts and things that may be
necessary or desirable to enable such selling Holder to consummate the
public sale or other disposition in such states of the Transfer
Restricted Securities owned by such selling Holder.
(b) If the Company has delivered preliminary or final prospectuses
to the selling Holders after requests therefor, and after having done so the
Prospectus is amended to comply with the provisions of the Securities Act or
sales are to be suspended under Section 8.1(c) hereof, the Company shall
promptly notify such Holders and, if requested, such Holders shall immediately
cease making offers of Transfer Restricted Securities and return all
Prospectuses to the Company. The Company shall as promptly as practicable
provide such Holders with revised Prospectuses and, following receipt of the
revised Prospectuses, such Holders shall be free to resume making offers of the
Transfer Restricted Securities.
SECTION 8.4 INDEMNIFICATION
(a) The Company will indemnify each Holder, each of its officers,
directors and partners, and each person controlling such Holder within the
meaning of Section 15 of the Securities Act, with respect to which
registration, qualification or compliance has been effected pursuant to Section
8.1, against all expenses, claims, losses, damages or liabilities (or actions
in respect thereof), including any of the foregoing incurred in settlement of
any litigation, commenced or threatened, arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in the
Registration Statement, or other document (or any amendment or supplement
thereto), incident to any such registration, qualification or compliance, or
based on any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading, or any
violation by the Company of the Securities Act or any rule or regulation
promulgated under the Securities Act applicable to the Company in connection
with any such registration, qualification or compliance, and the Company will
reimburse each such Holder, each of its officers and directors, and each person
controlling such Holder, for any legal and any other expenses reasonably
incurred in connection with investigating, preparing or defending any such
claim, loss, damage, liability or action, provided that
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the Company will not be liable in any such case to the extent that any such
claim, loss, damage, liability or expense (i) arises out of or is based on any
untrue statement or omission or alleged untrue statement or omission, made in
reliance upon and in conformity with written information furnished to the
Company by such Holder or controlling person specifically for use therein; (ii)
arises out of or is based on the failure of such Holder to deliver the most
recent Prospectus (or supplement or amendment thereto provided by the Company);
or (iii) arises out of or is based upon the delivery of a Prospectus by such
Holder following such time as the Company has notified the Holders that such
Prospectus must be amended or supplemented or during a period when resales are
suspended by the Company pursuant to Section 8.1(c) hereof.
(b) Each Holder will indemnify the Company, each of its directors
and officers, each person who controls the Company within the meaning of
Section 15 of the Securities Act, and each other such Holder, each of its
officers and directors and each person controlling such other Holder within the
meaning of Section 15 of the Securities Act, against all claims, losses,
damages and liabilities (or actions in respect thereof) arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in the Registration Statement or other document (or any amendment or
supplement thereto), incident to any such registration, qualification or
compliance based on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they were made, not misleading,
and will reimburse the Company, such other Holders, such directors, officers or
control persons for any legal or any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action, in each case to the extent, but only to the extent, (i)
that such untrue statement (or alleged untrue statement) or omission (or
alleged omission) is made in the Registration Statement or other document (or
any amendment or supplement thereto) in reliance upon and in conformity with
written information furnished to the Company by such Holder specifically for
use therein; (ii) arises out of or is based on the failure of such Holder to
deliver the most recent Prospectus available or supplement or amendment thereto
provided by the Company; or (iii) arises out of or is based upon the delivery
of a Prospectus by such Holder following such time as the Company has notified
the Holders that such Prospectus must be amended or supplemented or during a
period when resales are suspended by the Company pursuant to Section 8.1(c)
hereof. Notwithstanding the foregoing, the liability of each Holder under this
Section 8.4(b) shall be limited to an amount equal to the gross proceeds
received by such Holder in connection with the sale of shares by such Holder,
unless such liability arises out of or is based on willful conduct by such
Holder.
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(c) Each party seeking indemnification under this Section 8.4 (the
"Indemnified Party") shall give notice to the party from which it is seeking
indemnification (the "Indemnifying Party") promptly after such Indemnified
Party has actual knowledge of any claim as to which indemnity may be sought,
and shall permit the Indemnifying Party to assume the defense of any such claim
or any litigation resulting therefrom, provided that the Indemnified Party may
participate in such defense at such party's expense, and provided further that
the failure of any Indemnified Party to give notice as provided herein shall
not relieve the Indemnifying Party of its obligations under this Section 8.4
unless the failure to give such notice is materially prejudicial to an
Indemnifying Party's ability to defend such action and provided further, that
the Indemnifying Party shall not assume the defense for matters as to which, it
has been advised by a written opinion of counsel to such Indemnified Party
there is a conflict of interest or separate and different defenses that result
in such a conflict of interest. No Indemnifying Party, in the defense of any
such claim or litigation, shall, except with the consent of each Indemnified
Party, consent to entry of any judgment or enter into any settlement which does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in respect
to such claim or litigation.
SECTION 8.5 REGISTRATION EXPENSES
All expenses incident to the Company's performance of or
compliance with the registration requirements of this Indenture will be borne
by the Company, regardless of whether a Registration Statement becomes
effective, including without limitation: (i) all registration and filing fees
and expenses (including filings made by any Holder with the NASD; (ii) all fees
and expenses of compliance with federal securities and state Blue Sky or
securities laws; (iii) all expenses of printing, messenger and delivery
services and telephone; (iv) all fees and disbursements of counsel for the
Company; (v) any application and filing fees in connection with listing the
Transfer Restricted Securities on a national securities exchange or automated
quotation system including the listing of the Common Stock issuable upon
conversion of the Debentures; and (vi) all fees and disbursements of
independent certified public accountants of the Company (including the expenses
of any special audit and comfort letters required by or incident to such
performance).
The Company will, in any event, bear its internal expenses
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), the expenses of any annual
audit and the fees and expenses of any Person, including special experts,
retained by the Company.
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ARTICLE 9.
AMENDMENT, SUPPLEMENT AND WAIVER
SECTION 9.1 WITHOUT CONSENT OF HOLDERS OF DEBENTURES
Notwithstanding Section 9.2 of this Indenture, the Company and
the Trustee may amend or supplement this Indenture or the Debentures without
the consent of any Holder of a Debenture:
(a) to cure any ambiguity, defect or inconsistency;
(b) except as otherwise provided in this Indenture; to provide for
uncertificated or book entry Debentures in addition to or in place of
certificated Debentures;
(c) to provide for the assumption of the Company's obligations to
the Holders of the Debentures in the case of a merger or consolidation pursuant
to Article 5 or Article 11 hereof, as the case may be;
(d) to make any change that would provide any additional rights or
benefits to the Holders of the Debentures or that does not adversely affect the
legal rights hereunder of any Holder of the Debenture; or
(e) to comply with requirements of the SEC in order to effect or
maintain the qualification of this Indenture under the TIA.
Upon the request of the Company accompanied by a resolution of
its Board of Directors authorizing the execution of any such amended or
supplemental Indenture, and upon receipt by the Trustee of the documents
described in Section 7.2 hereof, the Trustee shall join with the Company in the
execution of any amended or supplemental Indenture authorized or permitted by
the terms of this Indenture and to make any further appropriate agreements and
stipulations that may be therein contained, but the Trustee shall not be
obligated to enter into such amended or supplemental Indenture that affects its
own rights, duties or immunities under this Indenture or otherwise.
SECTION 9.2 WITH CONSENT OF HOLDERS OF DEBENTURES
Except as provided below in this Section 9.2, the Company and
the Trustee may amend or supplement this Indenture or the Debentures with the
consent of the Holders of at least a majority in principal amount of the
Debentures then outstanding (including consents obtained in connection with a
tender offer or exchange offer for the Debentures), and, subject to Sections
6.4 and 6.7 hereof, any existing Default or Event of Default (other than a
Default or Event of Default in the payment of the principal of, or Additional
Interest, if any, or interest on the
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Debentures, except a payment default resulting from an acceleration that has
been rescinded) or compliance with any provision of this Indenture or the
Debentures may be waived with the consent of the Holders of a majority in
principal amount of the then outstanding Debentures (including consents
obtained in connection with a tender offer or exchange offer for the
Debentures).
Upon the request of the Company accompanied by a resolution of
its Board of Directors authorizing the execution of any such amended or
supplemental Indenture, and upon the filing with the Trustee of evidence
reasonably satisfactory to the Trustee of the consent of the Holders of
Debentures as aforesaid, and upon receipt by the Trustee of the documents
described in Section 7.2 hereof, the Trustee shall join with the Company in the
execution of such amended or supplemental Indenture unless such amended or
supplemental Indenture affects the Trustee's own rights, duties or immunities
under this Indenture or otherwise, in which case the Trustee may in its
discretion, but shall not be obligated to, enter into such amended or
supplemental Indenture.
It shall not be necessary for the consent of the Holders of
Debentures under this Section 9.2 to approve the particular form of any
proposed amendment or waiver, but it shall be sufficient if such consent
approves the substance thereof.
After an amendment, supplement or waiver under this Section
becomes effective, the Company shall mail to the Holders of Debentures affected
thereby a notice briefly describing the amendment, supplement or waiver. Any
failure of the Company to mail such notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any such amended or
supplemental Indenture or waiver. Subject to Sections 6.4 and 6.7 hereof, the
Holders of a majority in aggregate principal amount of the Debentures then
outstanding may waive compliance in a particular instance by the Company with
any provision of this Indenture or the Debentures. However, without the consent
of each Holder affected, an amendment or waiver may not (with respect to any
Debentures held by a non-consenting Holder):
(a) reduce the principal amount of Debentures whose Holders must
consent to an amendment, supplement or waiver;
(b) reduce the principal of or change the fixed maturity of any
Debenture or alter any of the provisions with respect to the redemption of the
Debentures in a manner adverse to the Holders of the Debentures;
(c) reduce the rate of or change the time for payment of interest,
on any Debenture;
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(d) waive a Default or Event of Default in the payment of
principal of or interest or Additional Interest, if any, on the Debentures
(except a rescission of acceleration of the Debentures by the Holders of at
least a majority in aggregate principal amount of the then outstanding
Debentures and a waiver of the payment default that resulted from such
acceleration);
(e) make any Debenture payable in money other than that stated in
the Debentures;
(f) make any change in the provisions of this Indenture relating
to waivers of past Defaults or Events of Default or the rights of Holders of
Debentures to receive payments of principal of, or interest or Additional
Interest, if any, on the Debentures; or
(g) make any change in Section 6.4 or 6.7 hereof or in the
foregoing amendment and waiver provisions.
SECTION 9.3 COMPLIANCE WITH TRUST INDENTURE ACT
Every amendment or supplement to this Indenture or the
Debentures shall be set forth in an amended or supplemental Indenture that
complies with the TIA as then in effect.
SECTION 9.4 REVOCATION AND EFFECT OF CONSENTS
Until an amendment, supplement or waiver becomes effective, a
consent to it by a Holder of a Debenture is a continuing consent by the Holder
of a Debenture and every subsequent Holder of a Debenture or portion of a
Debenture that evidences the same debt as the consenting Holder's Debenture,
even if notation of the consent is not made on any Debenture. However, any
such Holder of a Debenture or subsequent Holder of a Debenture may revoke the
consent as to its Debenture if the Trustee receives written notice of
revocation before the date the waiver, supplement or amendment becomes
effective. An amendment, supplement or waiver becomes effective in accordance
with its terms and thereafter binds every Holder.
SECTION 9.5 NOTATION ON OR EXCHANGE OF DEBENTURES
The Company may place an appropriate notation about an
amendment, supplement or waiver on any Debenture thereafter authenticated. The
Company in exchange for all Debentures may issue and the Trustee shall
authenticate new Debentures that reflect the amendment, supplement or waiver.
Failure to make the appropriate notation or issue a new
Debenture shall not affect the validity and effect of such amendment,
supplement or waiver.
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SECTION 9.6 TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall sign any amended or supplemental Indenture
authorized pursuant to this Article 9 if the amendment or supplement does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
The Company may not sign an amendment or supplemental Indenture until the Board
of Directors of the Company approves it. In executing any amended or
supplemental Indenture, the Trustee shall be entitled to receive and (subject
to Section 7.1 hereof) shall be fully protected in relying upon, an Officers'
Certificate and an Opinion of Counsel stating that the execution of such
amended or supplemental indenture is authorized or permitted by this Indenture.
ARTICLE 10.
SUBORDINATION
SECTION 10.1 AGREEMENT TO SUBORDINATE
The Company, the Trustee and each Holder by accepting a
Debenture agrees that the Indebtedness evidenced by the Debentures is
subordinated in right of payment, to the extent and in the manner provided in
this Article, to the prior payment in full, in cash or cash equivalents, of all
Senior Debt of the Company (whether outstanding on the date hereof or hereafter
created, incurred, assumed or guaranteed), and that the subordination is for
the benefit of the holders of Senior Debt of the Company.
SECTION 10.2 LIQUIDATION; DISSOLUTION; BANKRUPTCY
(a) In the event of (i) any insolvency or bankruptcy
proceeding, or any receivership, liquidation, reorganization or other similar
proceeding in connection therewith, relative to the Company or its property, or
(ii) any proceeding for voluntary liquidation, dissolution or other winding up
of the Company, and whether or not involving insolvency or bankruptcy, or (iii)
any assignment for the benefit of creditors, or (iv) any distribution,
division, marshaling or application of any of the properties or assets of the
Company or the proceeds thereof, to creditors, voluntary or involuntary, and
whether or not involving legal proceedings, then and in any such event:
(1) holders of Senior Debt of the Company shall be
entitled to receive payment in full, in cash or cash
equivalents, of all Obligations due in respect of
such Senior Debt of the Company (including interest
after the commencement of any such proceeding at the
rate specified in the applicable Senior Debt of the
Company, regardless
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of whether such post-petition interest is allowed in
such proceeding) before Holders shall be entitled to
demand or receive any payment with respect to the
Debentures (except that Holders may receive
securities including, without limitation,
Subordinated Reorganization Securities, that are
subordinated on terms no less favorable than the
Debentures to (a) Senior Debt of the Company and (b)
any securities issued in exchange for Senior Debt of
the Company); and
(2) until all Obligations with respect to Senior Debt of
the Company (as provided in subsection (1) above) are
paid in full, any distribution to which Holders would
be entitled but for this Article shall be made to
holders of Senior Debt of the Company (except that
Holders may receive securities including, without
limitation, Subordinated Reorganization Securities,
that are subordinated on terms no less favorable than
the Debentures to (a) Senior Debt of the Company and
(b) any securities issued in exchange for Senior Debt
of the Company), ratably according to the respective
aggregate amounts remaining unpaid thereon, and the
Holders of Debentures hereby irrevocably authorize,
empower and direct all receivers, trustees,
liquidators, conservators and others having authority
in the premises to effect all such payments and
deliveries.
As used herein the term "Subordinated Reorganization
Securities" means securities issued to the holders of the Debentures pursuant
to a court order or decree made by a court of competent jurisdiction in a
reorganization under applicable federal bankruptcy law which order or decree
(1) gives effect to, and states that effect is given to, the subordination of
the Debentures to the Senior Debt and the rights conferred to the holders of
the Senior Debt set forth herein and (2) states that the total distribution to
the holders of the Senior Debt provides for full payment of all of the allowed
claims of the holders of the Senior Debt.
(b) Following the occurrence of an event of default in
respect of the Designated Senior Debt (but only during the continuation thereof
or until such default is waived or such Designated Senior Debt is paid in full
or all Obligations related thereto are deemed satisfied), the holders of the
Debentures irrevocably authorize and empower (without imposing any obligation
on) each holder of Designated Senior Debt at the time outstanding and such
holder's Representative to demand, sue for, collect and receive such holder's
ratable share of all such payments and distributions and to receipt therefor,
and to file
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and prove all claims therefor and take all such other action (including the
right to vote such Designated Senior Debt holder's ratable share of the
Debentures) in the name of the Holders of the Debentures or otherwise, as such
Designated Senior Debt holder or such holder's Representative may determine to
be necessary or appropriate for the enforcement of this Section 10.2.
(c) Following the occurrence of an event of default in
respect of the Designated Senior Debt (but only during the continuance thereof
or until such default is waived or such Designated Senior Debt is paid in full
or all Obligations related thereto are deemed satisfied), the Holders of the
Debentures shall execute and deliver to each holder of Designated Senior Debt
and such holder's Representative all such further instruments confirming the
above authorization, and all such powers of attorney, proofs of claim,
assignments of claim and other instruments, and shall take all such other
action as may be reasonably requested by such holder or such holder's
Representative, in order to enable such holder to enforce all claims upon or in
respect of such holder's ratable share of the Debentures.
SECTION 10.3 DEFAULT ON SENIOR DEBT
The Company may not make any payment or distribution to the
Trustee or any Holder in respect of Obligations with respect to the Debentures
and may not acquire from the Trustee or any Holder (whether pursuant to Section
3.6 or Section 4.7 hereof or otherwise) any Debentures for cash or property
other than securities, including without limitation, Subordinated
Reorganization Securities, that are subordinated on terms no less favorable
than the Debentures to (a) Senior Debt of the Company and (b) any securities
issued in exchange for Senior Debt of the Company) until all principal and
other Obligations with respect to the Senior Debt of the Company have been paid
in full, or otherwise satisfied, in cash (or such other manner satisfactory to
the holders thereof), if:
(i) a default in the payment of any principal of,
premium, if any, or interest on or fees relating to Senior Debt of the
Company occurs through maturity, acceleration or otherwise and is
continuing beyond any applicable grace period under the agreement,
indenture or other document governing such Senior Debt of the Company;
or
(ii) a default, other than a payment default, on Senior
Debt of the Company (including, but not limited to, a default on
Senior Debt which results from the acceleration of the Debentures)
occurs and is continuing that would give rise to the right of holders
of such Senior Debt of the Company to accelerate such Senior Debt and
the Trustee
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receives a notice of the default (a "Payment Blockage Notice") from a
Person who may give it pursuant to Section 10.11 hereof; no such
non-payment default that existed or was continuing on the date of
delivery of any such notice to the Trustee shall be, or be made, the
basis for a subsequent notice.
The Company may and shall resume payments on and distributions
in respect of the Debentures and may acquire them upon the earlier of:
(1) the date upon which the default to which reference is
made in the preceding sentence of this Section 10.3
is cured or waived or such Senior Debt is paid in
full or all obligations thereunder are otherwise
satisfied, or
(2) in the case of a default referred to in Section
10.3(ii) hereof, on the 180th calendar day after
receipt of a Payment Blockage Notice;
if this Article otherwise permits the payment, distribution or acquisition at
the time of such payment or acquisition.
Any payment of interest on the Debentures that is prohibited
by operation of this Section 10.3 shall, for a period of up to a cumulative,
aggregate of 180 days from the time such payment or payments would otherwise be
due, be added to the principal of the Debentures and shall bear interest at the
stated rate of interest on the Debentures from the date that such interest
payment would otherwise have been payable as provided in this Indenture.
SECTION 10.4 ACCELERATION OF DEBENTURES
If payment of the Debentures is accelerated because of an
Event of Default, the Company shall promptly notify holders of Senior Debt of
the Company of the acceleration.
SECTION 10.5 WHEN DISTRIBUTION MUST BE PAID OVER
In the event that the Trustee or any Holder receives any
payment of any Obligations in respect of the Debentures at a time such payment
is prohibited by Section 10.3 hereof, such payment shall be held by the Trustee
or such Holder, in trust for the benefit of, and shall be paid forthwith over
and delivered, upon written request, to, the holders of Senior Debt of the
Company as their interests may appear or their Representative under the
indenture or other agreement (if any) pursuant to which Senior Debt of the
Company may have been issued, as their respective interests may appear, for
application to the payment of all Obligations with respect to Senior Debt of
the Company
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remaining unpaid to the extent necessary to pay such Obligations in full in
accordance with their terms, after giving effect to any concurrent payment or
distribution to or for the holders of Senior Debt of the Company.
Upon any payment or distribution of assets or securities
referred to in this Article 10, the Holders of the Debentures shall be entitled
to rely upon an order or decree of a court of competent jurisdiction in which
such dissolution, winding up, liquidation or reorganization proceedings are
pending, and upon a certificate of the receiver, trustee in bankruptcy,
liquidating trustee, agent or other person making any such payment or
distribution, delivered to the Holders of the Debentures for the purpose of
ascertaining the Persons entitled to participate in such distribution, the
holders of Senior Debt and other indebtedness of the Company, the amount
thereof or payable thereon, the amount or amounts paid or distributed thereon
and all other facts pertinent thereto or this Article 10.
With respect to the holders of Senior Debt of the Company, the
Trustee undertakes to perform only such obligations on the part of the Trustee
as are specifically set forth in this Article 10, and no implied covenants or
obligations with respect to the holders of Senior Debt of the Company shall be
read into this Indenture against the Trustee. The Trustee shall not be deemed
to owe any fiduciary duty to the holders of Senior Debt of the Company, and
shall not be liable to any such holders if the Trustee shall pay over or
distribute to or on behalf of Holders or the Company or any other Person, money
or assets to which any holders of Senior Debt of the Company shall be entitled
by virtue of this Article 10, except if such payment is made as a result of the
willful misconduct or gross negligence of the Trustee.
SECTION 10.6 NOTICE BY COMPANY
The Company shall promptly notify the Trustee, the
Representative and the Paying Agent of any facts known to the Company that
would cause a payment of any Obligations with respect to the Debentures to
violate this Article, but failure to give such notice shall not affect the
subordination of the Debentures to the Senior Debt of the Company as provided
in this Article.
SECTION 10.7 SUBROGATION
Upon the payment in full of all amounts payable under or in
respect of the Senior Debt of the Company, each Holder of a Debenture shall be
subrogated to the rights of the holders of such Senior Debt to receive payments
or distributions of the Company made on such Senior Debt until the Debentures
shall be paid in full; and for the purposes of such subrogation, no payments or
distributions to holders of such Senior Debt to which
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such Holder of a Debenture would be entitled except for the provisions of this
Indenture, and no payment over pursuant to the provisions of this Indenture to
holders of such Senior Debt by such Holder of a Debenture, shall, as between
the Company, its creditors other than holders of such Senior Debt and the
Holder of a Debenture, be deemed to be a payment by the Company to or on
account of such Senior Debt, it being understood that the provisions of this
Article 10 are solely for the purpose of defining the relative rights of the
holders of such Senior Debt, on the one hand, and the Holders of the
Debentures, on the other hand.
If any payment or distribution to which any Holder of a
Debenture would otherwise have been entitled but for the provisions of this
Article 10 shall have been applied, pursuant to the provisions of this Article
10, to the payment of all amounts payable under the Senior Debt of the Company,
then and in such case, such Holder of a Debenture shall be entitled to receive
from the holders of such Senior Debt at the time outstanding any payments or
Distributions received by such holders of such Senior Debt in excess of the
amount sufficient to pay all amounts payable under or in respect of, the Senior
Debt of the Company in full.
SECTION 10.8 RELATIVE RIGHTS
This Article defines the relative rights of Holders and
holders of Senior Debt of the Company. Nothing in this Indenture shall:
(1) impair, as between the Company and the Holders, the
obligation of the Company, which is absolute and
unconditional, to pay principal of, interest and
Additional Interest, if any, on the Debentures in
accordance with their terms;
(2) affect the relative rights of Holders and creditors
of the Company other than their rights in relation to
holders of Senior Debt of the Company; or
(3) prevent the Trustee or any Holder from exercising its
available remedies upon a Default or Event of
Default, subject to the rights of holders and owners
of Senior Debt of the Company to exercise their
rights with respect to such Senior Debt or to receive
distributions and payments otherwise payable to
Holders.
If the Company fails because of this Article 10 to pay
principal of or interest or Additional Interest, if any, on a
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Debenture on the due date, the failure is still a Default or Event of Default.
SECTION 10.9 SUBORDINATION NOT AFFECTED
The terms of this Article 10, the subordination effected
hereby and the rights of the holders of Senior Debt shall not be affected by
(i) any amendment of or addition or supplement to any Senior Debt or any
instrument or agreement relating thereto; (ii) any exercise or non-exercise of
any right, power or remedy under or in respect of any Senior Debt or any
instrument, agreement or document relating thereto; (iii) any sale, exchange,
release or other transaction affecting all or any part of any property at any
time pledged or mortgaged to secure, or however securing, Senior Debt; (iv) any
waiver, consent, release, indulgence, extension, renewal, modification, delay
or other action, inaction or omission, in respect of any Senior Debt or any
instrument, agreement or document relating thereto; or (v) any application by
any holder or holders of Senior Debt thereof of any amount or sum (by
whomsoever paid or however realized) to Senior Debt, whether or not any Holder
of Debentures shall have had notice or knowledge of any of the foregoing.
For all purposes of this Article 10, Senior Debt shall not be
deemed to have been paid in full unless the holders thereof (or their duly
authorized representatives) shall have received cash or cash equivalents equal
to the amount of all principal, interest, premium and all other amounts due in
respect of Senior Debt at the time outstanding.
SECTION 10.10 DISTRIBUTION OR NOTICE TO REPRESENTATIVE
Whenever a distribution is to be made or a notice given to
holders of Senior Debt of the Company, the distribution may be made and the
notice given to the Representative of the Senior Debt.
Upon any payment or distribution of assets of the Company
referred to in this Article 10, the Trustee and the Holders shall be entitled
to rely upon any order or decree made by any court of competent jurisdiction or
upon any certificate of such Representative or of the liquidating trustee or
agent or other Person making any distribution to the Trustee or to the Holders
for the purpose of ascertaining the Persons entitled to participate in such
distribution, the holders of the Senior Debt of the Company and other
Indebtedness of the Company, the amount thereof or payable thereon, the amount
or amounts paid or distributed thereon and all other facts pertinent thereto or
to this Article 10.
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SECTION 10.11 RIGHTS OF TRUSTEE AND PAYING AGENT
Notwithstanding the provisions of this Article 10 or any other
provision of this Indenture, the Trustee shall not be charged with knowledge of
the existence of any facts that would prohibit the making of any payment or
distribution by the Trustee under Section 10.3, and the Trustee and the Paying
Agent may continue to make payments on the Debentures, unless the Trustee shall
have received at its Corporate Trust Office prior to the date of such payment a
Payment Blockage Notice. Only a Representative of Senior Debt of the Company
may give a Payment Blockage Notice. Nothing in this Article 10 shall impair
the claims of, or payments to, the Trustee under or pursuant to Section 7.7
hereof.
The Trustee in its individual or any other capacity may hold
Senior Debt of the Company with the same rights it would have if it were not
Trustee. Any Agent may do the same with like rights.
SECTION 10.12 AUTHORIZATION TO EFFECT SUBORDINATION
Each Holder of a Debenture by the Holder's acceptance thereof
authorizes and directs the Trustee on the Holder's behalf to take such action
as may be necessary or appropriate to effectuate the subordination as provided
in this Article 10, and appoints the Trustee to act as the Holder's
attorney-in-fact for any and all such purposes. If the Trustee does not file a
proper proof of claim or proof of debt in the form required in any proceeding
referred to in Section 6.9 hereof relating to the Company at least 30 days
before the expiration of the time to file such claim, any Representative of
Senior Debt of the Company is hereby authorized, but is not required, to file
an appropriate claim for and on behalf of the Holders of the Debentures.
SECTION 10.13 NOTICE OF SUBORDINATION
Each Debenture shall include a statement to the effect that
payments of such Debenture are subordinate to the payment in full of Senior
Debt.
SECTION 10.14 AMENDMENTS
The provisions of Sections 4.7, 6.2 and this Article 10 and
the definitions of Designated Senior Debt, Senior Debt, Change of Control, BNY
Facility Agreement, Credit Agreement and Representative and the provisions of
the Debentures relating to the subordination terms thereof, in each case, shall
not be amended or modified without the written consent of the Representative of
the then outstanding Senior Debt of the Company.
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SECTION 10.15 NO WAIVER, ETC.
No right of any present or future holder of any Senior Debt to
enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act by the Representative or
any such holder, or by any noncompliance by the Company, the Trustee or any
Holder of a Debenture with the terms and provisions and covenants herein or in
the Credit Agreement or in the BNY Facility Agreement or in any one or more
documents or instruments creating or evidencing the Senior Debt regardless of
any knowledge thereof any such holder may have or otherwise be charged with.
SECTION 10.16 NO SECURITY
Other than as expressly provided in favor of the Trustee in
Section 7.7 hereof, so long as any of the Senior Debt shall not have been paid
in full, the Company shall not, and shall not permit any of its Subsidiaries
to, give, and no Holder of Debentures shall demand, accept or receive, any
security, including any Lien on any of the assets of the Company nor its
Subsidiaries, whether direct or indirect, for any Debenture.
The provisions of this Article 10 are intended to be for the
benefit of, and shall be enforceable directly by, the Representative and the
holders of the Senior Debt.
ARTICLE 11.
CONVERSION OF DEBENTURES
SECTION 11.1 CONVERSION PRIVILEGES AND CONVERSION PRICE
Subject to and upon compliance with the provisions of this
Article, at the option of the Holder thereof, (i) at any time after 60 days
following the Issuance Date or (ii) in case the Debentures, or any portion
thereof, are called for redemption or repurchased by the Company upon the
occurrence of a Change of Control then (a) in the case of redemption, until and
including, but not after the close of business on the date of redemption
(unless the Company defaults in making the payment due upon redemption) or (b)
in the case of a Holder that has exercised its right to require the Company to
purchase such Debenture in connection with a Change of Control Offer pursuant
to Section 4.7 hereof to (but not including) the close of business on the
Change of Control Purchase Date (unless the Company defaults in making the
payments due upon such purchase), but only if such Holder withdraws its
election to exercise such right prior to such time, then any Debenture or any
portion of the principal amount thereof that is $1,000 or an integral multiple
of $1,000 in excess thereof may be converted at the principal amount thereof,
or of such portion thereof, into fully paid and non-assessable shares
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(calculated as to each conversion to the nearest 1/100 of a share) of Common
Stock of the Company, at the Conversion Price, determined as hereinafter
provided, in effect at the time of conversion. In case a Debenture or portion
thereof is called for redemption or is repurchased upon the occurrence of a
Change of Control, such conversion right in respect of the Debenture, or
portion so called, shall expire at the close of business on the redemption date
or the repurchase date, unless the Company defaults in making the payment due
upon redemption or such repurchase.
The price at which shares of Common Stock shall be delivered
upon conversion (herein called the "Conversion Price") shall be initially
$12.00 per share of Common Stock. This Conversion Price shall be adjusted from
time to time as provided in this Article 11.
SECTION 11.2 EXERCISE OF CONVERSION PRIVILEGE
In order to exercise the conversion privilege, the Holder of
any Debenture to be converted shall surrender such Debenture, duly endorsed or
assigned to the Company or in blank at any office or agency of the Company
maintained for that purpose pursuant to Section 2.3, accompanied by written
notice to the Company at such office or agency that the Holder elects to
convert such Debenture or, if less than the entire principal amount thereof is
to be converted, the portion thereof to be converted. Debentures surrendered
for conversion during the period from the close of business on any interest
record date next preceding any interest payment date shall (except in the case
of Debentures or portions thereof that have been called for redemption, on such
interest payment date or on a redemption date within the period beginning on
such interest record date and ending on such interest payment date) be
accompanied by payment to the Company by wire transfer or certified check or
other funds acceptable to the Company of an amount equal to the interest
payable on such interest payment date on the principal amount of Debentures
being surrendered for conversion. Subject to the provisions of Section 2.12
relating to the payment of defaulted interest by the Company, the interest
payment with respect to a Debenture called for redemption on a redemption date
during the period from the close of business on any interest record date next
preceding any interest payment date to the opening of business on such interest
payment date shall be payable on such interest payment date to the Holder of
such Debenture at the close of business on such interest record date
notwithstanding the conversion of such Debenture after such interest record
date and prior to such interest payment date, and the Holder converting such
Debenture need not include a payment of such interest payment amount upon
surrender of such Debenture for conversion. Except as provided in the
preceding sentence and subject to Section 2.12, no payment or adjustment shall
be made
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upon any conversion on account of any interest accrued on the Debentures
surrendered for conversion or on account of any dividends on the Common Stock
issued upon conversion.
Debentures shall be deemed to have been converted immediately
prior to the close of business on the day of surrender of such Debentures for
conversion in accordance with the foregoing provisions, and at such time, the
rights of the Holder of such Debentures as Holders shall cease; and the Person
or Persons entitled to receive the Common Stock, issuable upon conversion shall
be treated for all purposes as the record holder or holders of such Common
Stock at such time. As promptly as practicable on or after the conversion
date, the Company shall issue and shall deliver at such office or agency, a
certificate or certificates for the number of full shares of Common Stock
issuable upon conversion, together with payment in lieu of any fraction of a
share, as provided in Section 11.3.
In the case of any Debenture that is converted in part only,
upon such conversion the Company shall execute and the Trustee shall
authenticate and deliver to the Holder thereof, at the expense of the Company,
a new Debenture or Debentures of authorized denominations in an aggregate
principal amount equal to the unconverted portion of the principal amount of
such Debenture.
SECTION 11.3 FRACTIONAL SHARES
No fractional shares of Common Stock shall be issued upon
conversion of Debentures. If more than one Debenture shall be surrendered for
conversion at one time by the same Holder the number of full shares of Common
Stock that shall be issuable upon conversion thereof shall be computed on the
basis of the aggregate principal amount of the Debentures (or, specified
portions thereof) so surrendered. Instead of any fractional share of Common
Stock that would otherwise be issuable upon conversion of any Debenture or
Debentures (or, specified portions thereof), the Company shall pay a cash
adjustment in respect of such fraction in an amount equal to the same fraction
of the Closing Price on the last day prior to the date of conversion.
SECTION 11.4 ADJUSTMENT OF CONVERSION PRICE
(a) The Conversion Price shall be adjusted from time to time
as follows:
(i) In case the Company shall (i) declare a dividend or make
a distribution in shares of its Common Stock payable in shares of its
Common Stock; (ii) subdivide its outstanding Common Stock into a
greater number of shares, or (iii) combine its outstanding Common
Stock into a smaller number of shares, the Conversion Price in effect
immediately
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prior thereto shall be adjusted so that the Holder of any Debenture
thereafter surrendered for conversion shall be entitled to receive the
number of shares of Common Stock of the Company which he would have
owned or have been entitled to receive after the happening of any of
the events described above had such Debenture been converted
immediately prior to the happening of such event. An adjustment made
pursuant to this subsection (i) shall become effective immediately
after the record date in the case of a dividend or distribution and
shall become effective immediately after the effective date in the
case of subdivision or combination;
(ii) In case the Company shall issue rights, options,
warrants or securities convertible into Common Stock ("Convertible
Securities") to all holders of its Common Stock entitling them to
subscribe for or purchase Common Stock, at a price per share less than
the current market price per share of Common Stock (as defined in
subsection (iv) below) at the record date for the determination of
shareholders entitled to receive such Convertible Securities, the
Conversion Price in effect immediately prior thereto shall be adjusted
so that the same shall equal the price determined by multiplying the
Conversion Price in effect immediately prior to the date of issuance
of such Convertible Securities by a fraction of which the numerator
shall be the number of shares of Common Stock outstanding on the date
of the issuance of such Convertible Securities plus the number of
shares which the aggregate offering price of the total number of
shares of Common Stock purchasable under such Convertible Securities
so offered would purchase at such current market price, and of which
the denominator shall be the number of shares of Common Stock
outstanding on the date of issuance of such Convertible Securities
plus the number of additional shares of Common Stock purchasable under
such Convertible Securities offered for subscription or purchase.
Such adjustment shall be made successively whenever any such
Convertible Securities are issued, and shall become effective
retroactively as of the record date for the determination of
shareholders entitled to receive such Convertible Securities. In
determining whether any Convertible Securities entitle the holder to
subscribe for or purchase shares of Common Stock at the less than such
current market price, and in determining the aggregate offering price
of such shares of Common Stock, there shall be taken into account any
consideration received by the Company for such Convertible Securities
and any amount payable upon the conversion or exercise thereof, the
value of such consideration, if other than cash, to be determined by
the Board of Directors;
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(iii) In case the Company shall distribute to all holders
of its Common Stock or all holders of Common Stock shall otherwise
become entitled to receive, shares of capital stock of the Company
(other than dividends or distributions on its Common Stock referred to
in paragraph (i) above) or evidences of its indebtedness or rights,
options, warrants or convertible securities providing the right to
subscribe for or purchase any shares of the Company's Common Stock or
evidences of its indebtedness (other than Convertible Securities
referred to in paragraph (ii) above), or assets (including securities
(other than Common Stock), but excluding cash dividends or
distributions paid from retained earnings of the Company), then in
each such case the Conversion Price shall be adjusted so that the same
shall equal the price determined by multiplying the Conversion Price
in effect immediately prior to the date of such distribution by a
fraction of which the numerator shall be the current market price per
share (as defined in subsection (iv) below) of the Common Stock on the
record date mentioned below less the then fair market value (as
determined in good faith by the Board of Directors of the Company, and
described in a certificate filed with the Trustee) of the capital
stock or assets or evidences of indebtedness so distributed or of such
rights, options, warrants or convertible securities applicable to one
share of Common Stock and the denominator shall be the current market
price per share (as defined in subsection (iv) below) of the Common
Stock. Such adjustment shall be made whenever any such distribution
is made, and shall become effective retroactively as of the record
date for the determination of shareholders entitled to receive such
distribution;
(iv) For the purpose of any computation under subsections
(ii) and (iii) above, the current market price per share of the Common
Stock at any date shall mean the Closing Price for the trading day
next preceding the day in question;
(v) No adjustment in the Conversion Price shall be
required unless such adjustment would require an increase or decrease
of at least 1% in such price; provided, however, that any adjustments
which by reason of this subsection (v) are not required to be made
shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this Article 11 shall be made to
the nearest cent. Anything in this Section 11.4 to the contrary
notwithstanding, the Company shall be entitled to make such reductions
in the Conversion Price, (in addition to those required by this
Section 11.4) as it in its discretion shall determine to be advisable
in order that any stock dividends, subdivision of shares, distribution
of rights to purchase stock or securities, or a distribution of
securities
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convertible into or exchangeable for stock hereafter made by the
Company to its shareholders shall not be taxable;
(vi) In any case in which this Section 11.4 provides that
an adjustment shall become effective retroactively as of a record date
for an event, the Company may defer until the occurrence of such event
(i) issuing to the Holder of any Debenture converted after such record
date and before the occurrence of such event the additional shares of
Common Stock issuable upon such conversion by reason of the adjustment
required by such event over and above the Common Stock issuable upon
such conversion before giving effect to such adjustment and (ii)
paying to such Holder any amount in cash in lieu of any fractional
share pursuant to Section 11.3;
(vii) The Trustee shall not be responsible for any
calculation made under this Section.
(b) The Company from time to time may, to the extent
permitted by law and to the extent the Board of Directors of the Company has
determined that such decrease would be in the best interests of the Company,
reduce the Conversion Price by any amount for any period of at least 20 days,
in which case the Company shall give the Trustee and the Holders of the
Debentures at least 15 days' notice of such decrease.
SECTION 11.5 NOTICE OF ADJUSTMENTS OF CONVERSION PRICE.
Whenever the Conversion Price is adjusted as herein provided:
(a) The Company shall compute the adjusted Conversion Price in
accordance with Section 11.4 and shall prepare a certificate signed by the
Treasurer of the Company setting forth the adjusted Conversion Price and
showing in reasonable detail the facts upon which such adjustment is based, and
such certificate shall forthwith be delivered to the Trustee and filed at each
office or agency maintained for the purpose of conversion of Debentures
pursuant to Section 2.3; and
(b) a notice setting forth that the Conversion Price has been
adjusted and setting forth the adjusted Conversion Price shall forthwith be
prepared by the Company and mailed to all Holders of Debentures at their last
address as they shall appear in the Debenture Register.
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SECTION 11.6 NOTICE OF CERTAIN CORPORATE ACTION
In case:
(a) the Company shall declare a dividend (or any other
distribution) on its Common Stock payable otherwise than in cash; or
(b) the Company shall authorize the granting to the holders of its
Common Stock generally of rights, options warrants or convertible securities to
subscribe for or purchase any shares of Capital Stock of any class or of any
other rights; or
(c) of any reclassification of the Common Stock of the Company
(other than a subdivision or combination of its outstanding shares of Common
Stock), or of any consolidation or merger to which the Company is a party and
for which approval of any shareholders of the Company is required, or of the
sale or transfer of all or substantially all of the assets of the Company; or
(d) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company; or
(e) the Company or any Subsidiary of the Company shall commence a
tender offer for all or a portion of the Company's outstanding shares of Common
Stock (or shall amend any such tender offer);
then, the Company shall notify the Trustee and cause to be filed at such office
or agency maintained for the purpose of conversion of Debentures pursuant to
Section 2.3, and shall cause to be mailed to all Holders of Debentures at their
last addresses as they shall appear in the Debenture Register, at least 20 days
(or 10 days in any case specified in Section 11.6(a) or 11.6(b) above) prior to
the applicable date specified in (x), (y) or (z) below, as applicable, a notice
stating (x) the date on which a record is to be taken for the purposes of such
dividends, distribution, rights or warrants, or, if a record is not to be
taken, the date as to which the holders of Common Stock of record to be
entitled to such dividend, distribution, rights or warrants are to be
determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer, liquidation or winding up is expected to become
effective, and the date on which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation or winding up,
or (z) the date on which such tender offer commenced, the date on which such
tender offer is scheduled to expire unless extended, the consideration offered
and the
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material terms thereof (or the material terms of any amendment thereto).
SECTION 11.7 COMPANY TO RESERVE COMMON STOCK
The Company shall at all time reserve and keep available, free
from preemptive rights, out of its authorized but unissued Common Stock, for
the purpose of effecting the conversion of Debentures, the full number of
shares of Common Stock then issuable upon the conversion of all outstanding
Debentures.
SECTION 11.8 TAXES ON CONVERSION
The Company will pay any and all taxes, other than any
franchise or income taxes, that may be payable in respect of the issue or
delivery of stock certificates representing shares of Common Stock on
conversion of Debentures pursuant hereto. The Company shall not, however, be
required to pay any tax that may be payable in respect of any transfer involved
in the issue and delivery of shares of Common Stock in name other than that of
the Holder of the Debenture or Debentures to be converted, and no such issue or
delivery shall be made unless and until the Person requesting such issue has
paid to the Company the amount of any such tax, or has established to the
satisfaction of the Company that such tax has been paid.
SECTION 11.9 COVENANT AS TO COMMON STOCK
The Company covenants that all shares of Common Stock that may
be issued upon conversion of Debentures will, upon issue, be fully paid and
non-assessable and, except as provided in Section 11.8, the Company will pay
all taxes, liens and charges with respect to the issue thereof.
SECTION 11.10 CANCELLATION OF CONVERTED DEBENTURES
All Debentures delivered for conversion shall be delivered to
the Trustee to be cancelled by or at the direction of the Trustee, which shall
dispose of the same as provided in Section 2.11.
SECTION 11.11 EFFECT OF RECLASSIFICATION, CONSOLIDATION,
MERGER, SHARE EXCHANGE OR SALE
If any of the following events occur, namely (i) any
reclassification or change of outstanding shares of Common Stock issuable upon
conversion of the Debentures (other than a change in par value, or from par
value to no par value, or from no par value to par value, or as a result of a
subdivision or combination), (ii) any consolidation with or merger of the
Company with or into another corporation shall be effected as a
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result of which holders of Common Stock issuable upon conversion of the
Debentures shall be entitled to receive stock, securities or other property or
assets (including cash) with respect to or in exchange for such Common Stock or
(iii) any sale or conveyance of all or substantially all of the properties and
assets of the Company to any other corporation, then the Company or such
successor or purchasing corporation, as the case may be, shall execute with the
Trustee a supplemental indenture providing that each Debenture shall be
convertible into the kind and amount of shares of stock and other securities or
property or assets (including cash) receivable upon such reclassification,
change, consolidation, merger, sale or conveyance by a holder of a number of
shares of Common Stock issuable upon conversion of such Debentures immediately
prior to such reclassification, change, consolidation, merger, statutory share
exchange, sale or conveyance assuming such holder of the Debentures did not
exercise any rights of election as to the stock, other securities or property
or assets receivable in connection therewith. Such supplemental indenture
shall provide adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Article. The Company shall
cause notice of the execution of such supplemental indenture to be mailed to
each Holder of Debentures, at his/her address appearing on the Debenture
Register.
The above provisions of this Section shall similarly apply to
successive reclassifications, consolidations, mergers and sales.
ARTICLE 12.
DEFEASANCE
SECTION 12.1 DEFEASANCE AND DISCHARGE
The Company shall, subject to the satisfaction of the
conditions set forth in Section 12.2 hereof, be deemed to have been discharged
from its obligations with respect to all outstanding Debentures on the date the
conditions set forth below are satisfied (hereinafter, "Defeasance"). For this
purpose, Defeasance means that the Company shall be deemed to have paid and
discharged the entire Indebtedness represented by the outstanding Debentures,
which shall thereafter be deemed to be "Outstanding" only for the purposes of
Section 12.3 hereof and the other Sections of this Indenture referred to in (a)
and (b) below, and to have satisfied all its other Obligations under such
Debentures and this Indenture (and the Trustee, on demand of and at the expense
of the Company, shall execute proper instruments acknowledging the same),
except for the following provisions which shall survive until otherwise
terminated or discharged hereunder: (a) the rights of Holders of outstanding
Debentures to receive solely from the trust fund described in Section 12.4
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hereof, and as more fully set forth in such Section, payments in respect of the
principal of, and interest or Additional Interest, if any, on such Debentures
when such payments are due, (b) the Company's obligations with respect to such
Debentures under Article 2, Sections 4.1, 4.2, 4.3, 4.4, 4.5, 4.7 (but such
obligation shall continue only with respect to the Company's obligations
relating to a Change of Control described in clause (ii) of the definition of
such term) and Articles 8 and 11 hereof, (c) the rights, powers, trusts, duties
and immunities of the Trustee hereunder and the Company's obligations in
connection therewith and (d) this Article 12.
SECTION 12.2 CONDITIONS TO DEFEASANCE
The following shall be the conditions to the application of
Section 12.1 hereof to the outstanding Debentures:
In order to exercise Defeasance:
(a) the Company must irrevocably deposit with the Trustee, in
trust, for the benefit of the Holders, cash in United States dollars or
Government Obligations, in an amount as will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants, to pay the
principal of, and interest and Additional Interest if any, on the outstanding
Debentures on the stated date for payment thereof or on the applicable
redemption date or date of repurchase, as the case may be, of such principal
of, Additional Interest, if any, and interest on the outstanding Debentures;
(b) the Company shall have delivered to the Trustee an Opinion of
Counsel (which counsel may be an employee of the Company or any Subsidiary of
the Company) reasonably acceptable to the Trustee confirming that (A) the
Company has received from, or there has been published by, the Internal Revenue
Service a ruling or (B) since the Issuance Date, there has been a change in the
applicable federal income tax law, in either case to the effect that, and based
thereon, such Opinion of Counsel shall confirm that, the Holders of the
outstanding Debentures will not recognize income, gain or loss for federal
income tax purposes as a result of such Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Defeasance had not occurred;
(c) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit or, insofar as Sections 6.1(f) and
6.1(g) hereof are concerned, at any time in the period ending on the 91st day
after the date of deposit (or greater period of time in which any such deposit
of trust funds may remain subject to Bankruptcy Law insofar as those apply to
the deposit by the Company);
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(d) such Defeasance shall not result in a breach or violation of,
or constitute a default under, any material agreement or instrument (other than
this Indenture) to which the Company or any of its Subsidiaries is a party or
by which the Company or any of its Subsidiaries is bound;
(e) the Company shall have delivered to the Trustee an Opinion of
Counsel to the effect that after the 91st day (or such later day referred to in
(c) above) following the deposit, the trust funds will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally;
(f) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the
intent of preferring the Holders of Debentures over any other creditors of the
Company with the intent of defeating, hindering, delaying or defrauding
creditors of the Company or others; and
(g) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for or relating to the Legal Defeasance or the Covenant
Defeasance have been complied with.
SECTION 12.3 DEPOSITED MONEY TO BE HELD IN TRUST;
OTHER MISCELLANEOUS PROVISIONS
Subject to Section 12.4 hereof, all money deposited with the
Trustee (or other qualifying trustee, collectively for purposes of this Section
12.3 the "Trustee") pursuant to Section 12.2 hereof in respect of the
outstanding Debentures shall be held in trust and applied by the Trustee, in
accordance with the provisions of such Debentures and this Indenture, to the
payment, either directly or through any Paying Agent (including the Company
acting as Paying Agent) as the Trustee may determine, to the Holders of such
Debentures of all sums due and to become due thereon in respect of principal,
Additional Interest, if any, and interest, but such money need not be
segregated from other funds except to the extent required by law.
The Company shall pay and indemnify the Trustee against any
tax, fee or other charge imposed on or assessed against the cash deposited
pursuant to Section 12.2 hereof or the principal and interest received in
respect thereof other than any such tax, fee or other charge which by law is
for the account of the Holders of the outstanding Debentures.
Anything in this Article 12 to the contrary notwithstanding,
the Trustee shall deliver or pay to the Company from time to time upon the
request of the Company any money held
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by it as provided in Section 12.2 hereof which, in the opinion of a nationally
recognized firm of independent public accountants expressed in a written
certification thereof delivered to the Trustee (which may be the opinion
delivered under Section 12.2(a) hereof) is in excess of the amount thereof that
would then be required to be deposited to effect an equivalent Defeasance.
SECTION 12.4 REPAYMENT TO COMPANY
Any money deposited with the Trustee or any Paying Agent, or
then held by the Company, in trust for the payment of the principal of,
Additional Interest, if any, or interest, on any Debenture and remaining
unclaimed for one year after such principal, interest or Additional Interest,
if any, have become due and payable provided, however, that any funds held in
respect of Debentures which have been converted, or repurchased by the Company
pursuant to Section 4.7 or which have otherwise been acquired by the Company or
have otherwise ceased to be outstanding, shall be paid to the Company on its
request or (if then held by the Company) shall be discharged from such trust;
and the Holder of such Debenture shall thereafter, as an unsecured general
creditor, look only to the Company for payment thereof, and all liability of
the Trustee or such Paying Agent with respect to such trust money, and all
liability of the Company as trustee thereof, shall thereupon cease; provided,
however, that the Trustee or such Paying Agent, before being required to make
any such repayment, may at the expense of the Company cause to be published
once in The Wall Street Journal (national edition) or if no longer published,
in a national newspaper of general circulation, notice that such money remains
unclaimed and that, after a date specified therein, which shall not be less
than 30 days from the date of such notification or publication, any unclaimed
balance of such money then remaining will be repaid to the Company.
SECTION 12.5 REINSTATEMENT
If the Trustee or Paying Agent is unable to apply any United
States dollars in accordance with Section 12.1 hereof, as the case may be, by
reason of, any order or judgment of any court or governmental authority
enjoining, restraining or otherwise prohibiting such application, then the
Company's obligations under this Indenture and the Debentures shall be revived
and reinstated as though no deposit had occurred pursuant to Section 12.1
hereof until such time as the Trustee or Paying Agent is permitted to apply all
such money in accordance with Section 12.1 hereof, as the case may be;
provided, however, that, if the Company makes any payment of principal of,
Additional Interest, if any, or interest, on any Debenture following the
reinstatement of its obligations, the Company shall be subrogated to the rights
of the Holders of such Debentures to receive such payment from the money held
by the Trustee or Paying Agent.
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ARTICLE 13.
MISCELLANEOUS
SECTION 13.1 TRUST INDENTURE ACT CONTROLS
If any provision of this Indenture limits, qualifies or
conflicts with the duties imposed by TIA Section 318(c), the imposed duties
shall control.
SECTION 13.2 NOTICES
Any notice or communication by the Company or the Trustee to
the other is duly given if in writing and delivered in Person or mailed by
first class mail (registered or certified, return receipt requested), telex,
telecopier or overnight air courier guaranteeing next day delivery, to the
others' address:
If to the Company:
Home Shopping Network, Inc.
11831 30th Court North
St. Petersburg, Florida 33716
Telecopier No.: (813) 573-0866
With copies to:
Home Shopping Network, Inc.
11831 30M Court North
St. Petersburg, Florida 33716
Telecopier No.: (813) 573-0866
Attention: General Counsel
and
Baker & Botts, L.L.P.
885 Third Avenue
New York, New York 10022
Telecopier No.: (212) 705-5125
Attention: Frederick H. McGrath, Esq.
If to the Trustee:
United States Trust Company of New York
114 West 47th Street
New York, New York 10036
Telecopier No.: (212) 852-1625
Attention: Mr. Gerard F. Ganey
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With copies to:
Dow, Lohnes & Albertson
1200 New Hampshire Avenue, N.W.
Suite 800
Washington, D.C. 20036-6802
Telecopier No.: (202) 776-2222
Attention: Joseph Kelly, Jr., Esq.
The Company or the Trustee by notice to the other may
designate additional or different addresses for subsequent notices or
communications.
All notices and communications (other than those sent to
Holders) shall be deemed to have been duly given: at the time delivered by
hand, if personally delivered; five Business Days after being deposited in the
mail, postage prepaid, if mailed; when answered back, if telexed; when receipt
acknowledged, if telecopied; and the next Business Day after timely delivery to
the courier, if sent by overnight air courier guaranteeing next day delivery.
Any notice or communication to a Holder shall be mailed by
first class mail, certified or registered, return receipt requested, or by
overnight air courier guaranteeing next day delivery to its address shown on
the register kept by the Registrar. Any notice or communication shall also be
so mailed to any Person described in TIA Section 313(c), to the extent required
by the TIA. Failure to mail a notice or communication to a Holder or any defect
in it shall not affect its sufficiency with respect to other Holders.
If a notice or communication is mailed in the manner provided
above within the time prescribed, it is duly given, whether or not the
addressee receives it.
If the Company mails a notice or communication to Holders, it
shall mail a copy to the Trustee and each Agent at the same time.
SECTION 13.3 COMMUNICATION BY HOLDERS OF DEBENTURES
WITH OTHER HOLDERS OF DEBENTURES
Holders may communicate pursuant to TIA Section 312(b) with
other Holders with respect to their rights under this Indenture or the
Debentures. The Company, the Trustee, the Registrar and anyone else shall have
the protection of TIA Section 312(c).
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SECTION 13.4 CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT
Upon any request or application by the Company to the Trustee
to take any action under this Indenture, the Company shall furnish to the
Trustee:
(a) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth in
Section 13.5 hereof) stating that, in the opinion of the signers, all
conditions precedent and covenants provided for in this Indenture relating to
the proposed action have been satisfied; and
(b) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth in
Section 13.5 hereof) stating that, in the opinion of such counsel, all such
conditions precedent and covenants have been satisfied.
SECTION 13.5 STATEMENTS REQUIRED IN CERTIFICATE OR OPINION
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than a certificate
provided pursuant to TIA Section 314(a)(4)) shall comply with the provisions of
TIA Section 314(e) and shall include:
(a) a statement that the Person making such certificate or opinion
has read such covenant or condition;
(b) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he or she has
made such examination or investigation as is necessary to enable him or her to
express an informed opinion as to whether or not such covenant or condition has
been satisfied; and
(d) a statement as to whether or not, in the opinion of such
Person, such condition or covenant has been satisfied.
80
<PAGE> 87
SECTION 13.6 RULES BY TRUSTEE AND AGENTS
The Trustee may make reasonable rules for action by or at a
meeting of Holders. The Registrar or Paying Agent may make reasonable rules
and set reasonable requirements for its functions.
SECTION 13.7 NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS,
EMPLOYEES AND STOCKHOLDERS
No past, present or future director, officer, employee,
incorporator or stockholder of the Company, as such, shall have any liability
for any obligations of the Company under the Debentures, this Indenture or for
any claim based on, or in respect of such obligations or their creation. Each
Holder of Debentures by accepting a Debenture waives and releases all such
liability. The waiver and release are part of the consideration for issuance
of the Debentures.
SECTION 13.8 GOVERNING LAW
THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE
USED TO CONSTRUE THIS INDENTURE AND THE DEBENTURES WITHOUT REGARD TO THE
CONFLICTS OF LAW RULES OR PROVISIONS THEREOF.
SECTION 13.9 NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS
This Indenture may not be used to interpret any other
indenture, loan or debt agreement of the Company or its Subsidiaries or of any
other Person. Any such indenture, loan or debt agreement may not be used to
interpret this Indenture.
SECTION 13.10 SUCCESSORS
All agreements of the Company in this Indenture and the
Debentures and the Debentures shall bind their respective successors. All
agreements of the Trustee in this Indenture shall bind its successors.
SECTION 13.11 SEVERABILITY
In case any provision in this Indenture or in the Debentures
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
SECTION 13.12 COUNTERPART ORIGINALS
The parties may sign any number of copies of this Indenture.
Each such copy shall be an original, but all of them together shall represent
the same agreement.
81
<PAGE> 88
SECTION 13.13 TABLE OF CONTENTS HEADINGS, ETC.
The Table of Contents, Cross-Reference Table and Headings of
the Articles and Sections of this Indenture have been inserted for convenience
of reference only, are not to be considered a part of this Indenture and shall
in no way modify or restrict any of the terms or provisions hereof.
SIGNATURES:
March 1, 1996 HOME SHOPPING NETWORK, INC.
- --------
By: /s/ James G. Held
---------------------------------------------
Name: James G. Held
Title: President and Chief Executive Officer
March 1, 1996 UNITED STATES TRUST COMPANY
- -------- OF NEW YORK
By: /s/ Gerard F. Ganey
---------------------------------------------
Name: Gerard F. Ganey
Title: Senior Vice President
82
<PAGE> 1
EXHIBIT 10.37
FOURTH AMENDMENT, dated as of February 13, 1996, to the SECOND
AMENDED AND RESTATED CREDIT AGREEMENT, dated as of August 30, 1994 (as amended
by the First Amendment thereto, dated as of March 29, 1995, as further amended
by the Second Amendment thereto, dated as of June 28, 1995, and as further
amended by the Third Amendment thereto, dated as of September 28, 1995, the
"Credit Agreement"), among HOME SHOPPING NETWORK, INC., a Delaware corporation,
as borrower (the "Company"), HOME SHOPPING CLUB, INC., a Delaware corporation
("HSC"), HSN REALTY, INC., a Delaware corporation ("HSNR"; together with HSC,
the "Guarantors"), the banks signatory thereto (individually, a "Bank" and
collectively, the "Banks"), LTCB TRUST COMPANY, as Agent, THE BANK OF NEW YORK
COMPANY, INC., TORONTO DOMINION [TEXAS], INC. and BANK OF MONTREAL, each as a
Co-Agent (each in such capacity, a "Co-Agent"), LTCB TRUST COMPANY, as
Administrative Agent for the Banks (in such capacity, the "Administrative
Agent"), and LTCB TRUST COMPANY, as collateral agent for the Banks (in such
capacity, the "Collateral Agent").
WHEREAS, the Company and each of the Guarantors have
requested, and the Banks and the Administrative Agent are willing, to amend
certain provisions of the Credit Agreement.
NOW, THEREFORE, in consideration of the foregoing, and for
other good and valuable consideration the receipt of which is hereby
acknowledged, the parties hereby agree as follows:
Section 1. Certain Defined Terms. Except as expressly set
forth in this Fourth Amendment, terms defined in the Credit Agreement and used
herein shall have their respective defined meanings when used herein.
Section 2. Amendments to the Credit Agreement. Subject to the
fulfillment of the conditions precedent set forth in Section 5 hereof, the
Credit Agreement is hereby amended as follows:
(a) Section 1.1 of the Credit Agreement is hereby amended
by inserting the parenthetical "(except for any such other event relating to
the Contemplated Change of Control)" immediately after the words "or any other
event" appearing in clause (i) of the definition of "Change in Control" set
forth in such Section.
(b) Section 1.1 of the Credit Agreement is hereby further
amended by inserting the words "and Section 2.8(c)" immediately after the
reference to "Section 2.3" appearing within the parenthetical appearing in the
definition of "Commitment" set forth in such Section.
(c) Section 1.1 of the Credit Agreement is hereby further
amended by inserting the following new sentence at the
<PAGE> 2
end of the definition of "Operating Cash Flow" set forth in such Section:
Operating Cash Flow for each of the following Fiscal
Quarters, and for any period including any such Fiscal Quarter, shall
be calculated without giving effect to in the case of (a) the Fiscal
Quarter ending on September 30, 1995, $5,427,000 of severance and
restructuring charges, (b) the Fiscal Quarter ending on December 31,
1995, up to but not exceeding $21,000,000 in the aggregate of
non-recurring charges as reflected in the Company's financial
statements for such Fiscal Quarter (the nature of which charges shall
be substantially the same as those described by the Company to the
Administrative Agent and the Banks prior to the Fourth Amendment
Effective Date), and (c) to the extent less than $21,000,000 of such
non-recurring charges occurred in the Fiscal Quarter ending on
December 31, 1995, the Fiscal Quarter ending on March 31, 1996, up to
but not exceeding the lesser of (x) such remainder and (y) $2,500,000
of such non-recurring charges as reflected in the Company's financial
statements for such Fiscal Quarter.
(d) Section 1.1 of the Credit Agreement is hereby further
amended by adding the following new definitions thereto in the appropriate
alphabetical position as follows:
"Contemplated Change of Control" shall have the meaning
assigned to that term in Section 3 of the Fourth Amendment.
"Fourth Amendment" shall mean the Fourth Amendment to this
Agreement dated as of February 13, 1996.
"Permitted Indebtedness" shall mean, for any Person (but
without duplication):
(a) loans, not under this Agreement, outstanding on the Third
Amendment Effective Date, but not any extension, renewal, refinancing
or replacement thereof;
(b) Loans to the Company under this Agreement in accordance
with Section 9.20(e) hereof;
(c) Indebtedness of the Company and the Guarantors under the
BNY L/C Facility and in connection with the Insurance Standby Letter
of Credit; and
(d) the Permitted Subordinated Debentures of the Company.
"Permitted Subordinated Debentures" shall mean Indebtedness of
the Company under convertible subordinated debentures up to
approximately an aggregate principal amount of $100,000,000; provided
that the Permitted Subordinated
-2-
<PAGE> 3
Debentures (a) shall have a final maturity at least six months after
the Commitment Termination Date under each of this Agreement and the
BNY Facility Agreement, (b) shall be issued at par and shall bear
interest at a rate per annum not greater than 8.5%, (c) shall be
unsecured and (d) shall be expressly subordinated in all respects to
the payment in full in cash of all of the Obligations and all of the
obligations of the Company and the other obligors under the BNY L/C
Facility; and, provided, further, that the terms of subordination of
the Permitted Subordinated Debentures, including, without limitation,
stop payment provisions which shall become effective upon the
occurrence of an Event of Default under this Agreement, shall have
been approved in writing in advance by the Majority Banks. The Banks
agree to respond promptly to any such request for approval made by the
Company.
"Schedule 13D" shall have the meaning assigned to that term in
Section 3 of the Fourth Amendment.
(e) Section 2.4 of the Credit Agreement is hereby amended by adding
the following new subparagraph (c) at the end thereof:
(c) On March 31, 1996, if by such date the Company has not
received cash proceeds in an aggregate principal amount of at least
$50,000,000 from the issuance of Permitted Subordinated Debentures,
the Company shall pay to the Administrative Agent for the account of
each Bank a fee in an amount equal to .075% of such Bank's outstanding
Commitment (whether or not utilized) as in effect on such date.
(f) Section 2.8 of the Credit Agreement is hereby amended
by adding the following new subparagraph (c) at the end thereof:
(c) The Company shall apply an amount equal to 30% of
the principal amount of any Permitted Subordinated Debentures that the
Company issues to permanently reduce the Commitments. If any such
reduction in the Commitments shall result in the aggregate principal
amount of the Loans exceeding the Commitments, the Company shall
prepay the Loans in an amount equal to such excess so that the
aggregate principal amount of the Loans does not exceed the
Commitments. Each such prepayment shall be made within five Business
Days after the date on which cash proceeds are received by the Company
from each issuance of the Permitted Subordinated Debentures.
(g) Section 8.2 of the Credit Agreement is hereby amended
by (i) deleting the reference to "June 30, 1995" appearing in the first
sentence thereof and inserting "September
-3-
<PAGE> 4
30, 1995" in lieu thereof, (ii) deleting the words "two-Fiscal Quarter period"
appearing in the first sentence thereof and inserting the words "three-Fiscal
Quarter period" in lieu thereof and (iii) deleting the words "Third Amendment"
appearing at the end of the last sentence thereof and inserting the words
"Fourth Amendment" in lieu thereof.
(h) Section 9.13 of the Credit Agreement is hereby amended by
inserting the following proviso immediately before the period appearing at the
end thereof:
; and, provided, further, that Consolidated Net Worth
for the Fiscal Quarter ending on December 31, 1995 and each subsequent
Fiscal Quarter shall be calculated without giving effect to an amount
equal to the after-tax effect of up to but not exceeding $29,300,000 of
pre-tax non-recurring charges including non-Operating Cash Flow items
(the nature of which charges shall be substantially the same as those
described by the Company to the Administrative Agent and the Banks
prior to the Fourth Amendment Effective Date) as reflected in the
Company's financial statements for such Fiscal Quarter
(i) Section 9.18 of the Credit Agreement is hereby amended by
inserting the following new sentence at the end thereof:
In addition, the Company shall not prepay, redeem or otherwise
repurchase any of the Permitted Subordinated Debentures.
(j) Section 9.20(a) of the Credit Agreement is hereby amended
by deleting the proviso set forth in such Section in its entirety.
(k) Section 9.20(d) of the Credit Agreement is hereby amended
by deleting the parenthetical set forth in such Section and inserting "(other
than Permitted Indebtedness)" in lieu thereof.
(l) Section 9 of the Credit Agreement is hereby further amended
by adding the following new Section 9.24:
9.24. Permitted Subordinated Debentures. The Company shall
not amend, modify, terminate or waive any of the terms and conditions
of the Permitted Subordinated Debentures or any agreement or document
related thereto or any term thereof in any manner which would have any
adverse effect upon the rights of the Banks.
-4-
<PAGE> 5
(m) Section 10 of the Credit Agreement is hereby amended by (i)
inserting the word "or" immediately after the semi-colon appearing at the end of
subparagraph (m) set forth in such Section and (ii) adding the following new
subparagraph (n):
(n) The Contemplated Change of Control shall be
consummated in a manner other than substantially as described in the
Schedule 13D;
(n) References in the Credit Agreement to "this Agreement" and
the words "hereof", "herein", "hereto" and the like, shall refer to the Credit
Agreement as amended by this Fourth Amendment; provided that the words "the date
of this Agreement" and "the date hereof" shall continue to refer to the date of
the Credit Agreement (being August 30, 1994).
Section 3. Consent of the Administrative Agent and the Banks
to the Contemplated Change of Control. Subject to the fulfillment of the
conditions set forth in Sections 5 and 6 of this Fourth Amendment, the
Administrative Agent and the Banks hereby consent to the consummation of (i)
the transfer by Liberty Media Corporation, a Wholly-Owned Subsidiary of TCI, of
all of its shares of the Company's common stock to Silver King Communications,
Inc. substantially in the manner described in Amendment No. 2 to the Schedule
13D of TCI (as filed with the Securities and Exchange Commission on November
30, 1995, a copy of which has been provided to the Administrative Agent and the
Banks (the "Schedule 13D")), and (ii) the other transactions described in the
Schedule 13D substantially in the manner described therein (collectively, the
"Contemplated Change of Control"). No other transaction affecting the assets,
shares or agreements of the Company is hereby authorized by the Administrative
Agent and the Banks.
Section 4. Representations and Warranties. To induce the
Administrative Agent and each Bank to consent to the Contemplated Change of
Control and to enter into this Fourth Amendment, each of the Company and the
Guarantors hereby represents and warrants that each of the representations and
warranties set forth in Section 8 of the Credit Agreement is true, correct and
complete on and as of the date of this Fourth Amendment (whether or not the
Fourth Amendment Effective Date (as defined in Section 5 hereof) occurs), and
on and as of the Fourth Amendment Effective Date, both before and after giving
effect to the amendments set forth in Section 2 of this Fourth Amendment on
either such date, as if each reference therein to "this Agreement" were a
reference to "this Agreement as amended by the Fourth Amendment", except that
the representations and warranties in the last sentence of Section 8.2 of the
Credit Agreement shall, each time when they are made under this Section 4, be
deemed to have been amended as provided in Section 2(f) of this Fourth
-5-
<PAGE> 6
Amendment. Each of the Company and the Guarantors further represents and
warrants that, as of the date of this Fourth Amendment and as of the Fourth
Amendment Effective Date, no Default or Event of Default has occurred and is
continuing.
Section 5. Conditions Precedent to Effectiveness. The
amendments set forth in Section 2 of this Fourth Amendment and the consent of
the Administrative Agent and the Banks set forth in Section 3 of this Fourth
Amendment shall become effective as of the date (the "Fourth Amendment
Effective Date"), as specified by the Administrative Agent, when counterparts
hereof shall have been duly executed and delivered by the Majority Banks, the
Administrative Agent, the Company and each of the Guarantors, and when each of
the conditions precedent set forth in this Section 5 shall have been fulfilled
to the satisfaction of the Administrative Agent; provided that, as of the
Fourth Amendment Effective Date, (i) the amendment set forth in Section 2(a) of
this Fourth Amendment shall be deemed to be effective as of November 27, 1995
and (ii) the amendments set forth in Sections 2(c) and 2(h) of this Fourth
Amendment shall be deemed to be effective as of December 31, 1995:
A. The Administrative Agent shall have received each
of the following documents, each of which shall be satisfactory to the
Administrative Agent in form and substance:
(1) Certified copies of all corporate action and
(if necessary) stockholder action taken by the Company and
each Guarantor approving this Fourth Amendment and the Credit
Agreement, as amended hereby, and the consummation of the
transactions contemplated hereby and thereby (including,
without limitation, a certificate setting forth the
resolutions of the Boards of Directors of the Company and each
Guarantor adopted in respect of the transactions contemplated
hereby and thereby).
(2) A certificate of each of the Company and each
Guarantor in respect of each of the officers (i) who is
authorized to sign this Fourth Amendment on its behalf and
(ii) who will, until replaced by another officer or officers
duly authorized for that purpose, act as its representative
for the purposes of signing documents and giving notices and
other communications in connection with the Credit Agreement,
as amended hereby, and the transactions contemplated thereby
and hereby. The Administrative Agent, the Agent, the Co-Agents
and the Banks may conclusively rely on such certificate until
the Administrative Agent receives notice in writing from the
Company or either Guarantor, respectively, to the contrary.
(3) A certificate of each of the Company and each
Guarantor as to (i) the absence of changes to the
-6-
<PAGE> 7
certified copies of the certificate of incorporation and
by-laws of the Company and each Guarantor delivered to the
Administrative Agent and the Banks on the Third Amendment
Effective Date and (ii) the continued good standing of the
Company and each Guarantor in each jurisdiction in which the
Company and each Guarantor are incorporated or qualified to do
business.
(4) An opinion of Counsel to the Company and the
Guarantors, substantially in the form of Annex A hereto.
(5) A certificate of a senior officer of each of
the Company and each Guarantor to the effect set forth in
Section 5.C of this Fourth Amendment.
(6) Evidence of the payment of the fees provided
for in Section 5.B of this Fourth Amendment, and of all other
fees and expenses then payable, including, without limitation,
pursuant to Section 12.3 of the Credit Agreement.
(7) Evidence of payment (to the extent then payable)
of (a) all interest on the Loans outstanding under the Credit
Agreement and (b) all facility fees accrued through the Fourth
Amendment Effective Date.
(8) Evidence of the fulfillment of all the conditions
precedent to the effectiveness of the consent to the
Contemplated Change of Control under, and the amendments to,
the BNY Facility Agreement, which shall be substantially in the
same form as the consent and amendments set forth in this
Fourth Amendment.
(9) Such other documents and information as the
Administrative Agent or any Bank may reasonably request,
including, without limitation, all requisite governmental
approvals and filings.
B. The Company shall have paid to the Administrative
Agent, for the account of each Bank, a non-refundable amendment fee in an
amount equal to .05% of the amount of such Bank's Commitment (whether or not
utilized) as in effect immediately prior to the Fourth Amendment Effective
Date.
C. As of such date:
(1) No Default or Event of Default shall have occurred
and be continuing; and
(2) The representations and warranties made by the
Company and each of the Guarantors in Section 4 hereof and
-7-
<PAGE> 8
in any other certificate or other document delivered in connection
with this Fourth Amendment or the Credit Agreement, as amended hereby,
shall be true, correct and complete on and as of each such date with
the same force and effect as if made on and as of such date.
The Administrative Agent will promptly notify the other parties of the
occurrence of the Fourth Amendment Effective Date.
Section 6. Condition Subsequent to Effectiveness. The consent
of the Administrative Agent and the Banks to the Contemplated Change of Control
set forth in Section 3 of this Fourth Amendment shall be subject to receipt by
the Company on or before March 31, 1996 of cash proceeds in an aggregate
principal amount of at least $50,000,000 from the issuance of Permitted
Subordinated Debentures.
Section 7. Miscellaneous.
A. This Fourth Amendment may be executed in any number
of counterparts, all of which taken together and when delivered to the
Administrative Agent shall constitute one and the same instrument, and any of
the parties hereto may execute this Fourth Amendment by signing any such
counterpart.
B. Each of the Company and each Guarantor hereby
confirms its obligation, pursuant to Section 12.3(a) of the Credit Agreement,
to pay all of the Administrative Agent's costs and expenses (including, without
limitation, the reasonable fees and expenses of all special counsels to the
Administrative Agent) in connection with this Fourth Amendment, whether or not
the Fourth Amendment Effective Date occurs.
C. THIS FOURTH AMENDMENT AND THE CREDIT AGREEMENT AS
AMENDED HEREBY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS
OF THE STATE OF NEW YORK.
-8-
<PAGE> 9
D. Except as expressly set forth in this Fourth
Amendment, the Credit Agreement as amended prior to the date hereof shall
remain unmodified and in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Fourth
Amendment to be duly executed as of the date first above written.
HOME SHOPPING NETWORK, INC.,
as Borrower
By /s/ Kevin J. McKeon
----------------------------------
Title: Sr. V.P. of Accounting and
Finnace and Treasurer
HOME SHOPPING CLUB, INC.,
as a Guarantor
By /s/ Kevin J. McKeon
----------------------------------
Title: Secretary and Treasurer
HSN REALTY, INC.,
as a Guarantor
By /s/ Kevin J. McKeon
----------------------------------
Title: Secretary and Treasurer
The Banks
---------
LTCB TRUST COMPANY, as a Bank and
as Agent
By /s/ John A. Knob
----------------------------------
Title: Senior Vice President
THE BANK OF NEW YORK COMPANY, INC.,
as a Bank and as a Co-Agent
By /s/ Kalpana Raina
----------------------------------
Title: Senior Vice President
TORONTO DOMINION [TEXAS], INC.,
as a Bank and as a Co-Agent
By /s/ Diane Bailey
----------------------------------
Title: Vice President
-9-
<PAGE> 10
BANK OF MONTREAL, as a Bank and as a
Co-Agent
By /s/ Yvonne Bos
----------------------------------
Title: Managing Director
FIRST UNION NATIONAL BANK OF
NORTH CAROLINA
By /s/ J. F. Nelson
----------------------------------
Title: Senior Vice President
PNC BANK, KENTUCKY, INC.
By /s/ Ralph A. Phillips
----------------------------------
Title: Vice President
THE DAIWA BANK, LIMITED
By: THE SUMITOMO BANK, LIMITED, as
Agent for The Daiwa Bank, Limited
By /s/ Sybil H. Weldon
-------------------------------
Title: Vice President & Manager
By /s/ Allen L. Harvell, Jr.
-------------------------------
Title: Vice President
-10-
<PAGE> 11
The Administrative Agent
------------------------
LTCB TRUST COMPANY,
as Administrative Agent
By /s/ John A. Knob
----------------------------------
Title: Senior Vice President
The Collateral Agent
--------------------
LTCB TRUST COMPANY,
as Collateral Agent
By /s/ John A. Knob
----------------------------------
Title: Senior Vice President
-11-
<PAGE> 12
FIRST AMENDMENT, dated as of February 13, 1996, to the LETTER
OF THE CREDIT FACILITY AGREEMENT, dated as of September 28, 1995 (the
"Agreement"), among HOME SHOPPING CLUB, INC., a Delaware corporation ("HSC"),
HSN MAIL ORDER, INC., A Delaware corporation ("HSN Mail Order"), and HSN DIRECT,
INC., a Delaware corporation ("HSN Direct"; together with HSC and HSN Mail
Order, the "Applicants"), HSN REALTY, INC., a Delaware corporation ("HSNR"), and
HOME SHOPPING NETWORK, INC., a Delaware corporation ("HSN"); together with HSNR,
the "Guarantors"), THE BANK OF NEW YORK, (the "Issuer"), THE BANK OF NEW YORK
COMPANY, INC. (the "Participant"), and THE BANK OF NEW YORK, as Administrative
Agent (in such capacity, together with its successors, the "Administrative
Agent").
WHEREAS, each of the Applicants and each of the Guarantors
have requested, and the Issuer, the Participant and the Administrative Agent
are willing, to amend certain provisions of the Agreement.
NOW, THEREFORE, in consideration of the foregoing, and for
other good and valuable consideration the receipt of which is hereby
acknowledged, the parties hereby agree as follows:
Section 1. Certain Defined Terms. Except as expressly
set forth in this First Amendment, terms defined in the Agreement and used
herein shall have their respective defined meanings when used herein.
Section 2. Amendments to the Agreement. Subject to the
fulfillment of the conditions precedent set forth in Section 5 hereof, the
Agreement is hereby amended as follows:
(a) Section 1.1 of the Credit Agreement is hereby amended
by deleting the words "even date herewith" appearing in the third line of the
definition of "Amended Revolving Credit Agreement" set forth in such Section
and inserting the phrase "September 28, 1995, as further amended by the Fourth
Agreement, dated as of February 13, 1996" lieu thereof.
(b) Section 1.1 of the Agreement is hereby further
amended by adding the following new definitions thereto in the appropriate
alphabetical position as follows:
"First Amendment" shall mean the First Amendment to this
Agreement dated as of February 13, 1996.
"First Amendment Effective Date" shall have the meaning
assigned to that term in Section 5 of the First Amendment.
"Permitted Subordinated Debentures" shall mean Indebtedness of
HSN under convertible subordinated debentures up to approximately an
aggregate principal amount of $100,000,000; provided that the
Permitted Subordinated
<PAGE> 13
Debentures (a) shall have a final maturity at least six months after
the Commitment Termination Date under each of this Agreement and the
Amended Revolving Credit Agreement, (b) shall be issued at par and
shall bear interest at a rate per annum not greater than 8.5%, (c)
shall be unsecured and (d) shall be expressly subordinated in all
respects to the payment in full in cash of all of the Secured
Obligations and all of the obligations of HSN and the other obligors
under the Amended Revolving Credit Agreement; and, provided, further,
that the terms of subordination of the Permitted Subordinated
Debentures, including, without limitation, stop payment provisions
which shall become effective upon the occurrence of an Event of
Default under this Agreement, shall have been approved in writing in
advance by the Issuer and the Participants holding a majority of the
Participation Percentages hereunder. The Issuer and the Participants
agree to respond promptly to any such request for approval made by
HSN.
(c) Section 6 of the Agreement is hereby amended by
inserting the phrase ", except that the representations and warranties set
forth in the last sentence of Section 8.2 of the Amended Revolving Credit
Agreement shall be as in effect on the First Amendment Effective Date"
immediately after the words "date hereof" appearing in the fifth line of the
first sentence thereof.
(d) Section 7 of the Agreement is hereby amended by (i)
deleting the words "to a waiver" in both places where they appear in the
provided, however clause of the first sentence thereof and inserting the words
"or waivers" in lieu thereof and (ii) deleting the word "to" in the second
sentence thereof and inserting the word "the" in lieu thereof.
(e) Section 7 of the Agreement is hereby further amended
by adding the following new Section 7.4:
7.4. Permitted Subordinated Debentures. HSN shall
not amend, modify, terminate or waive any of the terms and conditions
of the Permitted Subordinated Debentures or any agreement or document
related thereto or any term thereof in any manner which would have any
adverse effect upon the rights of the Issuer and the Participants.
(f) Section 8(e) of the Agreement is hereby amended by
deleting the parenthetical appearing therein and inserting " (as in effect on
the First Amendment Effective Date") in lieu thereof.
(g) References in the Agreement to "this Agreement" and
the words "hereof", "herein", "hereto" and the like, shall refer to the
Agreement as amended by this First Amendment;
-2-
<PAGE> 14
provided that the words "the date of this Agreement" and "the date hereof"
shall continue to refer to the date of the Agreement (being September 28,
1995).
Section 3. Consent of the Administrative Agent, the
Issuer and the Participant to the Contemplated Change of Control and the
Amendments to the Amended Revolving Credit Agreement.
(a) Subject to the fulfillment of the conditions set
forth in Sections 5 and 6 of this First Amendment, the Administrative Agent,
the Issuer and the Participant hereby consent to the consummation of (i) the
transfer by Liberty Media Corporation, a Wholly-Owned Subsidiary of
Tele-Communications, Inc., a Delaware corporation (formerly called TCI/Liberty
Holdings, Inc., "TCI"), of all of its shares of HSN's common stock to Silver
King Communications, Inc. substantially in the manner described in Amendment
No. 2 to the Schedule 13D of TCI (as filed with the Securities and Exchange
Commission on November 30, 1995, a copy of which has been provided to the
Administrative Agent, the Issuer and the Participant (the "Schedule 13D")), and
(ii) the other transactions described in the Schedule 13D substantially in the
manner described therein (collectively, the "Contemplated Change of Control").
No other transaction affecting the assets, shares or agreements of HSN is
hereby authorized by the Administrative Agent, the Issuer and the Participant.
(b) Subject to the fulfillment of the conditions set
forth in Section 5 of this First Amendment, the Administrative Agent, the
Issuer and the Participant hereby consent to the amendments to be made to the
Amended Revolving Credit Agreement, including, without limitation, the
amendments to be made to Sections 9.13, 9.18, 9.20(a) and 9.20(d) thereof, set
forth in the Fourth Amendment thereto, dated as of the date hereof, a copy of
which has been provided to the Administrative Agent, the Issuer and the
Participant. No other amendment to the Amended Revolving Credit Agreement is
hereby authorized by the Administrative Agent, the Issuer and the Participant.
Section 4. Representations and Warranties. To induce
the Administrative Agent, the Issuer and the Participant to consent to the
Contemplated Change of Control and each of the amendments to the Amended
Revolving Credit Agreement set forth in the Fourth Amendment thereto, dated as
of the date hereof, and to enter into this First Amendment, each of the
Applicants and the Guarantors hereby represents and warrants that each of the
representations and warranties set forth in Section 6 of the Agreement is true,
correct and complete on and as of the date of this First Amendment (whether or
not the First Amendment Effective Date (as defined in Section 5 hereof)
occurs), and on and as of the First Amendment Effective Date, both before and
after giving effect to the amendments set forth in Section 2 of this First
Amendment on either such date, as if each reference
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<PAGE> 15
therein to "this Agreement" were a reference to "this Agreement as amended by
the First Amendment", except that the representations and warranties in the
last sentence of Section 8.2 of the Amended Revolving Credit Agreement
incorporated in the Agreement by reference shall, each time when they are made
under this Section 4, be deemed to have been amended as provided in Section
2(c) of this First Amendment. Each of the Applicants and the Guarantors
further represents and warrants that, as of the date of this First Amendment and
as of the First Amendment Effective Date, no Default or Event of Default has
occurred and is continuing.
Section 5. Conditions Precedent to Effectiveness. The
amendments set forth in Section 2 of this First Amendment and the consents of
the Administrative Agent, the Issuer and the Participant set forth in Section 3
of this First Amendment shall become effective as of the date (the "First
Amendment Effective Date"), as specified by the Administrative Agent, when
counterparts hereof shall have been duly executed and delivered by the
Participant, and the Administrative Agent, the Issuer, each of the Applicants
and each of the Guarantors, and when each of the conditions precedent set forth
in this Section 5 shall have been fulfilled to the satisfaction of the
Administrative Agent:
A. The Administrative Agent shall have received
each of the following documents, each of which shall be satisfactory
to the Administrative Agent in form and substance:
(1) Certified copies of all corporate action and
(if necessary) stockholder action taken by each Applicant and each
Guarantor approving this First Amendment and the Agreement, as
amended hereby, and the consummation of the transactions
contemplated hereby and thereby (including, without limitation, a
certificate setting forth the resolutions of the Boards of
Directors of each Applicant and each Guarantor adopted in respect
of the transactions contemplated hereby and thereby).
(2) A certificate of each Applicant and each
Guarantor in respect of each of the officers (i) who is
authorized to sign this First Amendment on its behalf and (ii)
who will, until replaced by another officer or officers duly
authorized for that purpose, act as its representative for the
purposes of signing documents and giving notices and other
communications in connection with the Agreement, as amended
hereby, and the transactions contemplated thereby and hereby.
The Administrative Agent, the Issuer and the Participant may
conclusively rely on such certificate until the Administrative
Agent receives notice in writing from
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<PAGE> 16
any Applicant or either Guarantor, respectively, to the contrary.
(3) A certificate of each Applicant and each
Guarantor as to (i) the absence of changes to the certified
copies of the certificate of incorporation and by-laws of each
Applicant and each Guarantor delivered to the Administrative
Agent, the Issuer and the Participant on September 28, 1995 and
(ii) the continued good standing of each Applicant and each
Guarantor in each jurisdiction in which each Applicant and each
Guarantor are incorporated or qualified to do business.
(4) A certificate of a senior officer of each
Applicant and each Guarantor to the effect set forth in Section
5.B of this First Amendment.
(5) Evidence of the fulfillment of all the
conditions precedent to the effectiveness of the consent to the
Contemplated Change of Control under, and the amendments to, the
Amended Revolving Credit Agreement, which shall be substantially
in the same form as the consent and amendments set forth in this
First Amendment.
(6) Such other documents and information as the
Administrative Agent, the Issuer or the Participant may reasonably
request, including, without limitation, all requisite governmental
approvals and filings.
B. As of such date:
(1) No Default or Event of Default shall have occurred
and be continuing; and
(2) The representations and warranties made by each of
the Applicants and each of the Guarantors in Section 4 hereof and in
any other certificate or other document delivered in connection with
this First Amendment or the Agreement, as amended hereby, shall be
true, correct and complete on and as of each such date with the same
force and effect as if made on and as of such date.
The Administrative Agent will promptly notify the other parties of the
occurrence of the First Amendment Effective Date.
Section 6. Condition Subsequent to Effectiveness. The
consent of the Administrative Agent, the Issuer and the Participant to the
Contemplated Change of Control set forth in Section 3 of this First Amendment
shall be subject to receipt by HSN on or before March 31, 1996 of cash proceeds
in an aggregate
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<PAGE> 17
principal amount of at least $50,000,000 from the issuance of Permitted
Subordinated Debentures.
Section 7. Miscellaneous
A. This First Amendment may be executed in any number of
counterparts, all of which taken together and when delivered to the
Administrative Agent shall constitute one and the same instrument, and any of
the parties hereto may execute this First Amendment by signing any such
counterpart.
B. Each Applicant and each Guarantor hereby confirms its
obligation, pursuant to Section 11.3(a) of the Agreement, to pay all of the
Administrative Agent's costs and expenses (including, without limitation, the
reasonable fees and expenses of all special counsels to the Administrative
Agent) in connection with this First Amendment, whether or not the First
Amendment Effective Date occurs.
C. THIS FIRST AMENDMENT AND THE AGREEMENT AS AMENDED
HEREBY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK.
D. Except as expressly set forth in this First
Amendment, the Agreement as amended prior to the date hereof shall remain
unmodified and in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this First
Amendment to be duly executed as of the date first above written.
HOME SHOPPING CLUB, INC.,
as an Applicant
By /s/ Kevin J. McKeon
--------------------------------
Title: Treasurer
HSN MAIL ORDER, INC., as an Applicant
By /s/ Kevin J. McKeon
--------------------------------
Title: Treasurer
HSN DIRECT, INC., as an Applicant
By /s/ Kevin J. McKeon
--------------------------------
Title: Treasurer
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<PAGE> 18
HSN REALTY, INC., as a Guarantor
By /s/ Kevin J. McKeon
--------------------------------
Title: Treasurer
HOME SHOPPING NETWORK, INC.,
as a Guarantor
By /s/ Kevin J. McKeon
--------------------------------
Title: Treasurer
THE BANK OF NEW YORK, as the Issuer
By /s/ Wade Layton
--------------------------------
Title:
THE BANK OF NEW YORK, as the
Administrative Agent
By /s/ Wade Layton
--------------------------------
Title:
THE BANK OF NEW YORK COMPANY, INC.,
as the Participant
By Kalpana Raina
--------------------------------
Title: Senior Vice President
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<PAGE> 19
ANNEX A
[Form of Opinion of Counsel to the Company and the Guarantors]
February 13, 1996
To the Banks party to the Credit
Agreement referred to below and
LTCB Trust Company, as Administrative
Agent and as Collateral Agent
Ladies and Gentlemen:
I am the General Counsel to Home Shopping Network, Inc., a
Delaware corporation (the "Company"), Home Shopping Club, Inc., a Delaware
corporation ("HSC"), and HSN Realty, Inc., a Delaware corporation ("HSNR";
together with HSC, the "Guarantors"), and have acted as such in connection with
the Fourth Amendment, dated as of February 13, 1996 (the "Fourth Amendment"),
to the Second Amended and Restated Credit Agreement, dated as of August 30,
1994 (as amended by the First Amendment, dated as of March 29, 1995, as further
amended by the Second Amendment, dated as of June 28, 1995, and as further
amended by the Third Amendment, dated as of September 28, 1995, the "Credit
Agreement"), among the Company, the Guarantors, the Banks named therein, LTCB
Trust Company, as Agent, The Bank of New York Company, Inc.,
Toronto Dominion [Texas], Inc. and Bank of Montreal, as Co-Agents, LTCB Trust
Company, as Administrative Agent, and LTCB Trust Company, as Collateral Agent,
providing for loans to be made to the Company in the aggregate principal amount
of $150,000,000 under the joint and several guarantee of the Guarantors. Terms
defined in the Credit Agreement are used herein as defined therein.
In rendering the opinions expressed below, we have examined
and relied upon the originals or conformed copies of such corporate records,
agreements and instruments of the Company and the Guarantors, certificates of
public officials and of officers of the Company and the Guarantors, and such
other documents and records, and such matters of law, as we have deemed
appropriate as a basis for the opinions hereinafter expressed.
Based upon the foregoing, I am of the opinion that:
<PAGE> 20
1. Each of the Company and each of the Guarantors is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware; each of them has the necessary corporate power
to enter into and perform the Fourth Amendment and the Credit Agreement as
amended thereby and, in the case of the Company, to borrow under the Credit
Agreement as amended by the Fourth Amendment. Each of the Guarantors is a
Wholly-Owned Subsidiary of the Company.
2. The execution, delivery and performance by each of
the Company and each of the Guarantors of the Fourth Amendment and the Credit
Agreement as amended by the Fourth Amendment and the borrowings under the
Credit Agreement as amended by the Fourth Amendment have been duly authorized
by all necessary corporate action, and do not and will not violate any
provision of law, regulation, order, writ, injunction or decree of any court or
governmental authority or agency or any provision of the certificate of
incorporation or by-laws of the Company or either Guarantor or result in the
breach of, or constitute a default or require any consent under, or result in
the creation of any Lien upon any of its respective properties, revenues or
assets pursuant to, any indenture or other agreement or instrument to which the
Company, either Guarantor or any Subsidiary of any thereof is a party or by
which the Company or either Guarantor or any Subsidiary of any thereof or its
respective properties may be bound, except pursuant to the Pledge Agreement.
3. The Fourth Amendment and the Credit Agreement as
amended by the Fourth Amendment have been duly executed and delivered by the
Company and each Guarantor and, assuming due execution and delivery thereof by
the Administrative Agent and the Banks, constitute the legal, valid and binding
obligations of the Company and each Guarantor enforceable in accordance with
their respective terms, except as such enforceability may be limited by (a)
bankruptcy, insolvency, reorganization, moratorium or other similar laws of
general applicability affecting the enforcement of creditors' rights and (b)
the application of general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law), and except
that no opinion is expressed as to the fourth sentence of Section 4.7 of the
Credit Agreement.
4. Except as disclosed to the Administrative Agent and
the Banks in SEC Reports delivered to the Administrative Agent and the Banks
prior to the date hereof, to my knowledge after due inquiry, there are no
legal or arbitral proceedings, and no proceedings by or before any governmental
or regulatory authority or agency, pending or threatened against or affecting
the Company or either Guarantor or any of the Subsidiaries of any thereof, or
any properties or rights of the Company or either Guarantor or any of the
Subsidiaries of any thereof, which, if adversely determined, would have a
material adverse effect on the
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<PAGE> 21
consolidated financial condition or operations, or the business taken as a
whole, of the Company, the Guarantors and the Subsidiaries.
5. As of February 13, 1996, there were 1,000 shares of
capital stock of HSC and 1,000 shares of capital stock of HSNR issued and
outstanding. All of such outstanding shares of capital stock constitute the
Pledged Securities and are duly authorized, validly issued, fully paid and
non-assessable and owned of record and beneficially by the Company, free and
clear of any Lien, other than that created by the Pledge Agreement.
I am admitted to practice law in the State of New York and the
Commonwealth of Pennsylvania. The opinions expressed herein relate only to the
laws of the State of New York, the General Corporation Law of the State of
Delaware and the federal laws of the United States.
The opinions expressed in this letter are based upon the law
in effect on the date hereof, and I assume no obligation to revise or
supplement this opinion should such law be changed in any respect by
legislative action, judicial decision or otherwise.
This opinion is being furnished to you solely for your benefit
and only with respect to the transactions referred to herein. Accordingly, it
may not be relied upon by any other person or entity without, in each instance,
my prior written consent.
Very truly yours,
------------------------------
Barry S. Augenbraun
General Counsel
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<PAGE> 1
EXHIBIT 10.35
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated as of November 24, 1995 between HOME
SHOPPING NETWORK, INC., a Delaware corporation (the "Company"), and JAMES HELD
("Executive").
This Agreement sets forth the terms and conditions of Executive's
employment by the Company as the Company's President and Chief Executive
Officer.
In consideration of the mutual covenants and agreements herein
contained and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties, intending to be
legally bound, do hereby agree as follows:
1. Term and Termination.
(a) Term. The term of Executive's employment under this
Agreement (the "Employment Term") shall commence on December 1, 1995 (the
"Effective Date") and end on the fourth anniversary of such date. The
Employment Term shall be automatically extended beyond the original four year
term for successive one year periods unless at least one hundred eighty (180)
days prior to the expiration of the original Employment Term or any subsequent
renewal thereof, either party notifies the other party in writing that it is
electing to terminate this Agreement at the expiration of the then current
term. During the Employment Term, the Company agrees to employ Executive and
Executive agrees to serve the Company upon and subject to the terms and
conditions set forth in this Agreement.
(b) Termination by the Company. Executive's employment
by the Company may be terminated by the Company only as provided in clauses
(i), (ii), (iii) and (iv) below.
(i) Upon the death of Executive.
(ii) Upon six (6) months' prior written notice from
the Company to Executive (the "Notice Period"), in the event of an
illness or other disability which has incapacitated Executive from
performing his duties hereunder, as determined in good faith by the
Board of Directors of the Company, for an aggregate of one hundred
eighty (180) consecutive days during the twelve calendar months
preceding the month in which such notice is given; provided, however,
that in the event that prior to the end of the Notice Period,
Executive recovers from such illness or other disability to an extent
permitting him to perform his duties hereunder, the notice of
termination pursuant to this clause (ii) shall be of no further force
and effect.
<PAGE> 2
(iii) At any time upon giving written notice of such
termination to Executive and by (x) paying to Executive in a lump sum
upon such termination an amount equal to Annual Base Salary (as
hereinafter defined) that would have been payable to Executive had his
employment by the Company continued until the expiration of the
Employment Term and (y) committing to pay to Executive (as and when
due as provided in Section 4) the amount of Annual Bonus (as
hereinafter defined) that Executive would have been entitled to
receive had his employment by the Company continued until the end of
the fiscal year in which such termination occurred (such amount of
Annual Bonus is hereinafter referred to as the "Remainder Bonus").
(iv) At any time for "Cause", which for purposes of
this Agreement shall be deemed to have occurred only on the happening
of any of the following:
(A) the plea of guilty to, or conviction
for, the commission of a felony offense by Executive;
provided, however, that after indictment, the Company
may suspend Executive from the rendition of services,
but without limiting or modifying in any other way
the Company's obligations under this Agreement;
(B) a material breach by Executive of a
material fiduciary duty owed to the Company;
(C) a material breach by Executive of any of
the covenants made by him in Sections 6 and 7 hereof;
or
(D) the willful and gross neglect by
Executive of the material duties specifically and
expressly required by this Agreement;
provided, however, that any claim that "Cause", within the meaning of
clauses (B), (C) or (D) above, exists for the termination of
Executive's employment may be asserted on behalf of the Company only
by a resolution duly adopted by two-thirds of the total number of
members of the Board of Directors of the Company, and only after 15
days prior written notice to Executive during which period he may cure
the breach or neglect that is the basis of any such claim, if curable;
provided, further, that no state of facts that, with or without notice
to Executive or the passage of time or both, would give rise to the
right of the Company to terminate Executive's employment pursuant to
clause (ii) of this Section 1(b) may, directly or indirectly, in whole
or in part, be the basis for a claim that Cause, within the meaning of
clause (D) above, exists for the termination of Executive's
employment; provided, further, that during the period of
twelve (12) months following a Change in Control (as hereinafter
defined), Cause shall be deemed to have occurred only upon the
happening of an event referred to in clause (A) above; and provided,
further, that the term "material" as used in clauses (B), (C) and (D)
above and in Section 10 hereof shall be
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<PAGE> 3
construed by reference to the effect of the relevant action or
omission on the Company and its subsidiaries taken as a whole.
(c) Effect of Termination by the Company. If Executive's
employment is terminated by the Company pursuant to Section 1(b) hereof, all
Annual Base Salary and Annual Bonus (to the extent not otherwise included in
Remainder Bonus) that has accrued in favor of Executive as of the date of such
termination, to the extent unpaid or delivered, shall be paid or delivered to
Executive on the date of termination. If Executive dies while employed by the
Company or during the period that he is receiving payments pursuant to the
immediately succeeding sentence and, in either case, prior to the expiration of
the Employment Term, the Company shall, as promptly as practicable following
Executive's death, pay to Executive's designated beneficiary or beneficiaries
in a lump sum an amount equal to the Annual Base Salary that would have been
payable to Executive had his employment by the Company continued until the
expiration of the Employment Term plus the Remainder Bonus and his beneficiary
or beneficiaries shall be eligible to receive benefits under the Company's life
insurance and death benefit plans or practices in which he is participating, to
the extent provided in such plans or practices. If Executive's employment is
terminated pursuant to Section 1(b)(ii) of this Agreement, the Company shall
(i) continue to pay to Executive his Annual Base Salary as and when the same
would otherwise be due in accordance with Section 4 of this Agreement until the
first to occur of the expiration of the Employment Term or the date of
Executive's death and (ii) pay the Remainder Bonus to Executive on the date
such payment is due pursuant to the terms of Section 4. The amounts payable by
the Company pursuant to the foregoing two sentences shall be reduced by the
amount of any long term disability benefits paid directly to Executive pursuant
to any benefit or welfare plans maintained by the Company for Executive's
benefit. The phrase "designated beneficiary or beneficiaries" shall mean the
person or persons named from time to time by Executive in a signed instrument
filed for this purpose with the Company. If the designation made in any such
signed instrument shall for any reason be ineffective, of if there is no such
designation, the phrase "designated beneficiary or beneficiaries" shall mean
Executive's estate. With respect to the payment of Annual Base Salary in
respect of time periods subsequent to the date of termination of Executive's
employment with the Company, such amount shall be calculated at the annual rate
of Executive's Annual Base Salary in effect at the time of termination and the
calculation of the remaining Employment Term shall be made without
consideration of any renewal thereof, unless at the time of such termination
such renewal would otherwise be automatic. With respect to the payment of the
Remainder Bonus, such amount shall be the amount which would have been payable
to Executive as his Annual Bonus in accordance with this Agreement had
Executive's employment continued until the end of the fiscal year of the
Company in which such termination occurred, but without regard to any
requirement that Executive be employed by the Company at any time following the
conclusion of such succeeding fiscal year in order to receive his Annual Bonus;
provided, however, that in the event Executive's employment is terminated as a
result of his death or disability, the amount of the Remainder Bonus shall be
not less than the minimum amount of Annual Bonus specified in Section 4.
Notwithstanding the foregoing, in the event Executive's employment is
terminated for Cause, Executive shall be entitled only to the amount specified
in the first sentence of this paragraph (c) and shall not be entitled to any
Remainder Bonus.
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<PAGE> 4
(d) Termination by Executive. The Executive's employment
may be terminated during the Employment Term by the Executive (i) for Good
Reason or (ii) without any reason during the twelve (12) month period
immediately following a Change in Control. For purposes of this Agreement,
"Good Reason" shall mean:
(A) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position (including
status, offices, titles and reporting requirements), authority, duties
or responsibilities as contemplated by Section 2 of this Agreement, or
any other action by the Company which results in a diminution in such
position, authority, duties or responsibilities, excluding for this
purpose an isolated, insubstantial and inadvertent action not taken in
bad faith and which is remedied by the Company promptly after receipt
of notice thereof given by the Executive;
(B) any material breach of this Agreement by the
Company which is not remedied by the Company promptly after receipt of
notice thereof given by the Executive;
(C) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this
Agreement;
(D) any failure by the Company to comply with
and satisfy Section 13 of this Agreement; or
(E) failure to elect or appoint Executive to the
Board of Directors within ninety (90) days of the Effective Date or
failure to reelect Executive as a member of the Board of Directors or
the removal of Executive as a member of such Board, in each case
during the Employment Term; provided, however, that such failure to
reelect or removal shall not constitute "Good Reason" during any
period of the suspension of Executive's services pursuant to the
proviso set forth in Section 1(b)(iv)(A).
For purposes of this subsection (d), a determination of "Good Reason" by the
Executive which is reasonable and is made in good faith shall be conclusive.
(e) Effect of Termination by the Executive. If Executive
terminates his employment with the Company pursuant to Section 1(d) of this
Agreement, or if the Company terminates the Executive's employment under this
Agreement in any way that is a breach of this Agreement by the Company, the
Company shall (i) pay to Executive in a lump sum upon such termination an
amount in cash equal to (x) all Annual Base Salary and Annual Bonus (to the
extent not otherwise included in the Remainder Bonus) that has accrued in favor
of Executive as of the date of termination, to the extent unpaid or delivered
and (y) the Annual Base Salary that would have been payable to Executive had
his employment by the Company continued until the expiration of the Employment
Term, and (ii) commit to pay to Executive (as and when due as provided in
Section 4) the Remainder Bonus. Amounts payable pursuant to the preceding
sentence shall not be reduced by any amounts received by Executive from a
subsequent employer in respect of any period
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<PAGE> 5
subsequent to such termination. In addition, if the Executive is terminated
under the circumstances set forth in the first sentence of this Section 1(e),
the Company shall reimburse Executive for the costs and expenses (which shall
be limited to the costs and expenses of physically relocating, such as moving
expenses, but shall not include matters such as the reimbursement of temporary
housing expenses) relating to the relocation of Executive and his family to an
area within the continental United States specified by Executive. In the event
Executive terminates his employment other than for Good Reason or pursuant to
Section 1(d)(ii), Executive shall be entitled to receive only the amount
specified in clause (i)(x) in the second preceding sentence.
(f) Survival. Upon termination of Executive's employment
and payment of the amounts due Executive pursuant to Section 1 of this
Agreement, the obligations of the Company and the Executive under this
Agreement shall terminate, except that the Company's obligations with respect
to the payment of amounts upon the death or disability of Executive set forth
in the second and third sentences of Section 1(c) (if and to the extent
applicable), Section 1(h) (Continuation of Benefits), Section 4(e)
(Indemnification), Section 5 (Reimbursement of Expenses) (as it relates to
expenses incurred prior to such termination, including, without limitation,
relocation expenses incurred pursuant to Section 5(c) and Schedule 5(c)),
Section 12 (Options) and Section 13 (Successors), and the Executive's
obligations under Sections 6 (Noncompetition), 7 (Confidentiality), 8 (Delivery
of Materials) and 9 (Noninterference), will survive (in accordance with the
terms and conditions thereof) any such termination.
(g) Change of Control. For purposes of this Agreement, a
"Change of Control" shall mean the acquisition following the date hereof by any
individual, entity or group within the meaning of Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")(a
"Person")(other than Barry Diller ("Diller"), Liberty Media Corporation
("Liberty") or Tele-Communications, Inc. ("TCI") or any of their respective
subsidiaries (which, for purposes of this Section 1(g) shall be deemed to
include any entity in which such person, directly or indirectly, owns at least
a majority of the outstanding equity securities, without regard to the voting
power of such securities or any proxy or other voting agreement granting voting
power of such securities to any other person) or affiliates (within the meaning
of Rule 12b-2 promulgated under the Exchange Act)), of (i) beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of a
majority of the combined voting power of the then-outstanding voting securities
of the Company entitled to vote generally upon matters submitted to the
stockholders of the Company, (ii) all or substantially all of the assets of the
Company, or (iii) in the event that Diller, Liberty, TCI or their respective
subsidiaries or affiliates collectively cease to own, directly or indirectly,
equity securities of the Company representing a majority of the voting power of
the then-outstanding equity securities of the Company, beneficial ownership of
the greatest of (x) equity securities of the Company representing 10 percent of
the voting power of the then-outstanding equity securities of the Company, (y)
equity securities of the Company having an aggregate voting power in excess of
the aggregate voting power represented by the equity securities of the Company
then owned, directly or indirectly, by Liberty and the members of its
Stockholder Group (as defined in the Agreement, dated as of August 24, 1995, as
amended, between Liberty and Diller), and (z) equity securities of the Company
having an aggregate voting power in excess of the aggregate voting power
represented
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<PAGE> 6
by the equity securities of the Company then owned, directly or indirectly, by
Diller and the members of his Stockholder Group.
(h) Continuation of Certain Benefits. In the event
Executive's employment is terminated due to death or disability or for any
reason other than for Cause, or if Executive terminates under Section 1(d),
then for the remainder of the Employment Term the Company shall continue
benefits to the Executive and/or the Executive's family at least equal to those
which would have been provided to them in accordance with this Agreement if the
Executive's employment had not been terminated, in accordance with the most
favorable plans, practices, programs or policies of the Company as in effect
and applicable generally to other executives and their families; provided,
however, that the Company may terminate such benefits if the Executive becomes
reemployed with another employer and is eligible to receive similar benefits
under such subsequent employer's benefit plans. For purposes of determining
eligibility of the Executive for retiree benefits pursuant to the Company's
plans, practices, programs and policies, the Executive shall be considered to
have remained employed until the end of the Employment Term and to have retired
on the last day of such period.
2. Services to be Rendered by Executive. The Company and
Executive agree that Executive will serve the Company as its President and
Chief Executive Officer and shall have the rights, powers, duties and
obligations relating to such offices as is specified in the By-laws of the
Company as in effect on the date of this Agreement. In such capacity,
Executive shall perform all reasonable acts customarily associated with such
positions, or necessary or desirable to protect and advance the best interests
of the Company. Executive shall perform such acts and carry out such duties,
and shall in all other respects serve the Company faithfully and to the best of
his ability (subject, however, during the Transition Period (as defined below)
to Executive fulfilling his duties to his prior employer as provided in the
first sentence of Section 3 hereof). The Company and Executive acknowledge and
agree that the Executive's primary reporting responsibility shall be to the
current Chairman of the Board of Directors of the Company, and if the person
currently serving as Chairman ceases to be Chairman, then to the Board of
Directors.
3. Time to be Devoted by Executive. Executive agrees to devote
substantially all of his business time, attention, efforts and abilities to the
business of the Company and to use his best efforts to promote the interests of
the Company; provided, however, that during the period from the Effective Date
to January 3, 1996 (the "Transition Period"), the parties acknowledge and agree
that the Executive shall be employed on a part-time basis while Executive
fulfills certain obligations to his prior employer. During the Employment Term
it shall not be a violation of this Agreement for the Executive to (i) serve on
corporate, civic or charitable boards or committees, (ii) fulfill speaking
engagements and (iii) manage personal investments, so long as such activities
do not significantly interfere with the performance of the Executive's
responsibilities as an employee of the Company in accordance with this
Agreement.
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<PAGE> 7
4. Compensation.
(a) Salary. During the Employment Term, the Executive
shall receive an annual base salary of not less than $500,000 ("Annual Base
Salary"), which amount shall be reviewed at least annually and may not be
decreased during the Employment Term and which shall be paid in accordance with
the Company's customary payroll practices for salaried employees.
(b) Annual Bonus. In addition to Annual Base Salary, the
Executive shall be entitled to receive an annual bonus (the "Annual Bonus")
calculated in accordance with the provisions set forth on Exhibit A hereto.
The Annual Bonus shall be paid as soon as practicable following the Company's
receipt of audited financial results in each year and in any event not later
than 90 days after the conclusion of each fiscal year. All payments of Annual
Bonus shall be made in cash, without liability for interest on any such payment
by the Company. All payments of Annual Bonus shall, when paid, be subject to a
deduction for any or all taxes required by any government to be withheld by the
Company and paid over to such government for the account of Executive. The
payment to any such government of an amount so withheld shall be deemed a
payment thereof to Executive. Executive acknowledges and agrees that the
Company's obligation to pay the Annual Bonus is an unfunded, unsecured
obligation of the Company, and that nothing contained herein shall give the
Executive any rights greater than those of a general creditor of the Company.
(c) Benefits. During the Employment Term, the Executive
(including, where applicable, Executive's family) shall be entitled to benefits
in accordance with the welfare benefit and incentive plans, practices, programs
and policies of the Company (including, but not limited to, retirement,
savings, incentive and stock compensation plans, employee stock purchase plans,
medical, death and disability, and life and other insurance plans and
policies), and the minimum service eligibility conditions of such plans shall
be waived unless such a waiver would adversely affect the plan or the
participants therein.
(d) Vacation. During the Employment Term, the Executive
shall be entitled to four weeks of paid vacation per year or such longer period
as may be provided by the Company in accordance with the plans, policies,
programs and practices of the Company applicable to executives of the Company
generally.
(e) Indemnification.
(i) In addition to any separate agreements between
Executive and the Company relating to indemnification, the Company
will indemnify and hold harmless Executive, to the fullest extent
permitted by applicable law, but subject to the provisions of clause
(iv) below, in respect of any liability, damage, cost or expense
(including reasonable counsel fees) incurred in connection with the
defense of any claim, action, suit or proceeding to which he is a
party, or threat thereof, by reason of his being or having been an
officer or director of the Company or any subsidiary or affiliate of
the Company, or his serving or
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<PAGE> 8
having served at the request of the Company as a director,
officer, employee or agent of another corporation or of a partnership,
joint venture, trust, business organization, enterprise or other
entity, including service with respect to employee benefit plans.
Without limiting the generality of the foregoing, the Company will pay
the expenses (including reasonable counsel fees) of defending any such
claim, action, suit or proceeding in advance of its final disposition,
upon receipt of an undertaking by Executive to repay all amounts
advanced if it should ultimately be determined that Executive is not
entitled to be indemnified under this Section.
(ii) In addition to the foregoing, the Company
agrees to pay promptly as incurred, to the full extent permitted by
law, all legal fees and expenses incurred by Executive in connection
with the defense (including in connection with the defense of
counterclaims or cross-claims) of any claim, action, suit or
proceeding relating to the enforcement by the Company (including
claims, actions, suits or proceedings brought in the right of the
Company) of the provisions of Sections 6, 7, 8 or 9 of this Agreement;
provided, however, that in the event that the Company (or any person
asserting the Company's right) is the prevailing party in such
enforcement action (as determined by a court of competent jurisdiction
in a final adjudication not subject to appeal), the Executive shall
reimburse the Company for all payments made by it pursuant to this
Section 4(e)(ii).
(iii) Except as otherwise provided in Section
4(e)(ii) above, the Company agrees to pay promptly as incurred, to the
full extent permitted by law, all legal fees and expenses which
Executive may reasonably incur as a result of any contest (regardless
of the outcome thereof) by the Company, Executive or others of the
validity or enforceability of, or liability under any provision of
this Agreement or any guarantee of performance thereof (including as a
result of any contest by Executive about the amount of any payment
pursuant to this Agreement), plus in each case interest on any delayed
payment at the applicable Federal rate provided for in Section
7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended.
(iv) Notwithstanding anything contained herein to
the contrary, the Company shall not be obligated to indemnify
Executive or advance or reimburse expenses pursuant to this Section
4(e) with respect to any claims, actions, suits or proceedings which
arise out of, or relate to any termination of Executive's employment
or other arrangements with any prior employer, including, but not
limited to, matters relating to non-competition and confidentiality
agreements.
5. Expenses; Relocation Expenses; Loan; Automobile.
(a) During the Employment Term, the Executive shall be
entitled to receive prompt reimbursement for all reasonable expenses incurred
by the Executive in accordance with the policies, practices and procedures of
the Company.
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<PAGE> 9
(b) In addition, the Company shall reimburse Executive
for the costs and expenses relating to the temporary and permanent relocation
of Executive and his family to the Tampa, Florida area, including, but not
limited to, reimbursement of Executive for all reasonable temporary housing
expenses for Executive and his family during the period of their temporary
relocation, not to exceed a reasonable period, plus any taxes imposed upon
Executive with respect to such reimbursed expenses.
(c) In connection with Executive's relocation to the
Tampa, Florida area, the Company agrees to make a loan to the Executive in the
principal amount of $1,000,000 for the purpose of purchasing and, if
applicable, making improvements upon, a residence in the area. In the event
that, after completion of the improvements to be undertaken by Executive within
a reasonable period of time following the purchase of such residence, the fair
market value of such residence is less than $800,000, the Executive shall repay
a portion of the principal amount of the loan in an amount equal to the
difference between such fair market value and $800,000. The other terms of
such loan shall be as follows:
(i) The loan shall be evidenced by a note
executed by Executive and secured by a first mortgage upon such residence.
(ii) The loan shall bear interest at 5.0% per
annum.
(iii) Executive shall be required to pay only the
interest payable (which shall be payable on a monthly basis) on such loan prior
to the principal amount of such loan becoming due and payable as provided
below.
(iv) The principal amount of such loan, together
with any accrued and unpaid interest thereon, shall become due and payable (x)
in the event Executive's employment with the Company is terminated for any
reason, on the first anniversary of such termination or (y) in the event such
residence is sold or transferred, immediately upon the consummation of such
sale or transfer.
(d) Executive shall be entitled during the Employment
Term to the use of a luxury automobile supplied to him by the Company. The
Company shall bear all costs and expenses associated with the acquisition and
use of such automobile, including but not limited to, fuel, maintenance and
insurance.
6. Noncompetition. Executive agrees that while in the employ of
the Company and, if Executive terminates his employment with the Company prior
to the expiration of the Employment Term in breach of his obligations
hereunder, for the period beginning on the date Executive terminates his
employment and ending on the date the Employment Term was otherwise scheduled
to expire (the "Subject Period"), Executive will not, directly or indirectly,
as principal or agent, or in any other capacity, own, manage, operate,
participate in or be employed by or otherwise be interested in, or connected in
any manner with, any person, firm, corporation or other enterprise which
directly competes in a material respect with the business of the Company or any
of its
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<PAGE> 10
majority-owned subsidiaries as it is conducted while Executive is employed by
the Company, except as provided in Schedule 6 hereto. Nothing herein contained
shall be construed as denying Executive the right to own securities of any such
corporation which is listed on a national securities exchange or quoted in the
National Association of Security Dealers, Inc. Automated Quotation System to
the extent of an aggregate of 5% of the total number or voting power of such
securities outstanding.
7. Confidentiality. Executive agrees that while in the employ of
the Company (otherwise than in the performance of his duties hereunder) and
during the period of two years following the scheduled expiration of the
Employment Term, he shall not, directly or indirectly, make use of, or divulge
to any person, firm, corporation, entity or business organization, and shall
use his best efforts to prevent the publication or disclosure of, any
Confidential Information (as hereinafter defined) concerning the Company, but
this Section 7 shall not prevent Executive from responding to any subpoena,
court order or threat of other legal duress, provided Executive notifies the
Company thereof with reasonable promptness so that the Company may seek a
protective order or other appropriate relief. The term "Confidential
Information" shall mean information disclosed to Executive by the Company in
connection with his employment relating to the business of the Company,
including its accounts and finances, customers and customer lists, and its
future plans and proposals, to the extent that the foregoing matters are
considered proprietary by the Company; provided, however, that the following
shall not be deemed to be Confidential Information:
(a) information which is or becomes publicly known other
than as a result of a breach of this provision by Executive;
(b) information lawfully in the possession of Executive
prior to disclosure to him by the Company;
(c) information disclosed to Executive by any third party
who is not affiliated with the Company or otherwise subject to a
confidentiality obligation in favor of the Company; or
(d) information developed independently by Executive
subsequent to the termination of Executive's employment by the Company.
8. Delivery of Materials. Executive agrees that upon the
termination of his employment he will deliver to the Company all documents,
papers, materials and other property of the Company relating to its affairs
which may then be in his possession or under his control.
9. Noninterference. Executive agrees that he will not, while in
the employ of the Company and, in the event Executive terminates his employment
with the Company prior to the expiration of the Employment Term in breach of
his obligations hereunder, during the Subject Period, solicit the employment of
any employee of the Company on behalf of any other person, firm, corporation,
entity or business organization, or otherwise interfere with the employment
relationship between any employee or officer of the Company and the Company.
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<PAGE> 11
10. Remedies of the Company. Executive agrees that, in the event
of a material breach by Executive of this Agreement, in addition to any other
rights that the Company may have pursuant to this Agreement, the Company shall
be entitled, if it so elects, to institute and prosecute proceedings at law or
in equity to obtain damages with respect to such breach or to enforce the
specific performance of this Agreement by Executive or to enjoin Executive from
engaging in any activity in violation hereof. Executive agrees that because
Executive's services to the Company are of such a unique and extraordinary
character, a suit at law may be an inadequate remedy with respect to a breach
by Executive of Sections 6, 7, 8 and 9 hereof, and that upon any such breach or
threatened breach by him of such Sections the Company shall be entitled, in
addition to any other lawful remedies that may be available to it, to
injunctive relief.
11. Notices. All notices to be given hereunder shall be deemed
duly given when delivered personally in writing or mailed, certified mail,
return receipt requested, postage prepaid and addressed as follows:
(a) If to be given to the Company:
Home Shopping Network, Inc.
2501 118th Avenue North
St. Petersburg, Florida 33716
Attention: Chairman of the Board of Directors
With a separate copy addressed to the Legal
Department, Attention: General Counsel
(b) If to be given to Executive:
Home Shopping Network, Inc.
2501 118th Avenue North
St. Petersburg, Florida 33716
Attention: President
With a separate copy to:
Kronish, Lieb, Weiner & Hellman L.L.P.
1114 Avenue of the Americas
New York, New York 10036
Attention: Paul M. Ritter, Esq.
and to:
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<PAGE> 12
Steven M. Gerber, Esq.
1114 Avenue of the Americas
45th Floor
New York, NY 10036-7798
or to such other address as a party may request by notice given in accordance
with this Section 11.
12. Stock Options.
(a) The Company hereby grants to Executive, effective
November 24, 1994 (the "Grant Date"), but subject to (x) Executive having
entered into this Agreement no later than December 7, 1995, and (y) the receipt
of stockholder approval of a new Stock Option Plan (the "Plan") of the Company
(which has been approved in principle by the Board of Directors of the
Company), options (the "Options") to purchase up to 2,500,000 (the "Total
Number of Options") shares of the Company's common stock, par value $.01 per
share (the "Common Stock", which term shall include the Common Stock of the
Company as it exists on the date hereof and any class or series into which it
may hereafter have been changed). The Options granted hereunder (i) shall have
an exercise price per share of $8.50 (such price being the closing price of the
Common Stock on the trading day prior to the Grant Date); (ii) shall vest and
become exercisable, subject to the provisions of Section 12(b) hereof, over
four years as follows: 1/4 of the Total Number of Options shall vest and
become exercisable on the first anniversary of the Grant Date, and an
additional 1/4 of the Total Number of Options shall vest and become exercisable
on each subsequent anniversary of the Grant Date, such that the Total Number of
Options shall have become vested and exercisable upon the fourth anniversary of
the Grant Date; and (iii) shall have a term expiring 10 years from the Grant
Date. The Company covenants and agrees to use its reasonable best efforts to
cause such Plan to be approved by the stockholders of the Company at the next
annual or special meeting of stockholders.
(b) Options granted hereunder shall provide that upon
termination of Executive's employment by the Company without Cause, or by
Executive for Good Reason or during the period described in Paragraph 1(d)(ii),
or by reason of Executive's death or pursuant to Section 1(b)(ii), all
outstanding but unexercised Options will immediately vest and be exercisable
for one year; provided, however, that all Options shall terminate upon the 10th
anniversary of the Grant Date. If Executive is terminated for Cause, the
Options will be exercisable for not more than three months following the date
of termination and then only to the extent vested as of the date of
termination. If Executive terminates in violation of this Agreement, all
Options shall immediately terminate and cease to be exercisable.
(c) In the event of a stock dividend, recapitalization,
reorganization, split-up, spin-off, combination, exchange of shares, warrants
or rights offering to purchase Common Stock or other similar corporate event
affecting the Common Stock such that an adjustment is required in order to
preserve the benefits of this Section 12, an adjustment shall be made to
increase or decrease any or all of (i) the number and kind of shares subject to
the Options granted hereunder and/or (ii) the exercise price of the Options, in
such manner as the Company's board of directors may deem
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<PAGE> 13
reasonable and appropriate; provided, however, that the number of shares
subject to the Options granted hereunder shall always be a whole number.
(d) The grant of Options hereunder shall not affect in
any way the right or power of the Company to make reclassifications,
reorganizations or other changes of or to its capital or business structure or
to merge, consolidate, liquidate, sell or otherwise dispose of all or any part
of its business or assets.
(e) Subject to the provisions hereof, the Executive may
exercise one or more Options at any time when they are exercisable by giving
written notice of exercise to the Company specifying: (i) the number of shares
of Common Stock with respect to which the Options are being exercised; (ii) the
method of withholding of taxes that the Executive has chosen in accordance with
the Plan, if not previously specified; and (iii) whether the Executive elects
to pay the exercise price by (A) tendering to the Company previously owned
shares of Common Stock with an aggregate Fair Market Value (calculated as of
the day before the date of exercise) equal to the aggregate exercise price of
the Options being exercised or (B) delivering to the Company (1) a copy of an
irrevocable instruction from the Executive to an underwriter or broker
directing such underwriter or broker to sell shares of Common Stock to be
acquired by the exercise of such Options in an amount, net of brokers' and
underwriters' fees, commissions or discounts, sufficient to pay such exercise
price in full, and promptly remit to the Company the amount of such exercise
price, all of which arrangements shall be reasonably satisfactory to the
Company, (2) irrevocable instructions from the Executive to the Company to
withhold from the shares of Common Stock to be acquired by the exercise of such
Options a number of shares having a Fair Market Value on the date of exercise
sufficient to pay such exercise price in full or (3) a combination of the
foregoing (in the case of (1), (2) or (3), a "Cashless Exercise"). The term
"Fair Market Value" shall mean, as of any given date, the mean between the
highest and lowest reported sales prices of the Common Stock in the
over-the-counter market, as reported by NASDAQ, or, if the Common Stock is
listed on a national securities exchange, as reported in the principal
consolidated transaction reporting system with respect to securities listed on
the principal national security exchange on which the Common Stock is listed or
admitted to trading, on that date or, if there are no reported sales on that
date, on the next day after that date on which there are such reported sales.
13. Successors.
(a) This Agreement is personal to the Executive and
without the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives. However, no rights or obligations of the Company under
this Agreement may be assigned or transferred by the Company except that such
rights or obligations may be assigned or transferred pursuant to a merger or
consolidation in which the Company is not the continuing entity or the sale or
liquidation of all or substantially all of the assets of the Company.
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<PAGE> 14
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
(c) The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform it if no such
succession had taken place. As used in this Agreement, "Company" shall mean
the Company as hereinbefore defined and any successor to its business and/or
assets as aforesaid which assumes and agrees to perform this Agreement by
operation of law, or otherwise.
14. Miscellaneous.
(a) This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and replaces and
supersedes as of the date hereof any and all prior agreements and
understandings with respect to Executive's employment by the Company, whether
oral or written, between the parties hereto. This Agreement may not be changed
nor may any provision hereof be waived except by an instrument in writing duly
signed by the party to be charged. This Agreement shall be interpreted,
governed and controlled by the law of the State of Florida, without reference
to principles of conflict of laws.
(b) The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(c) The Company may withhold from any amounts payable
under this Agreement such Federal, state or local taxes as shall be required to
be withheld pursuant to any applicable law or regulation.
(d) The Executive's or the Company's failure to insist
upon strict compliance with any provision hereof or any other provision of this
Agreement or the failure to assert any right the Executive or the Company may
have hereunder, including, without limitation, the right of the
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<PAGE> 15
Executive to terminate employment for Good Reason pursuant to Section 1(d) of
this Agreement, shall not be deemed to be a waiver of such provision or right
or any other provision or right of this Agreement.
(e) This Agreement may be executed in counterparts, each
of which shall be deemed to be an original, and all of which together shall be
deemed to be one and the same instrument.
IN WITNESS WHEREOF, this Agreement has been executed as of the day and
year first above written.
ATTEST: HOME SHOPPING NETWORK, INC.
- -------------------------- By:
Name: ---------------------------
Title: Name:
Title:
---------------------------
James Held
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<PAGE> 16
EXHIBIT A
DETERMINATION OF ANNUAL BONUS
The Executive's Annual Bonus for each fiscal year of the Company
during the Employment Term shall be calculated as follows:
The Executive's Annual Bonus shall equal the greater of (x) $150,000
or (y) in the event Actual EBITDA equals or exceeds Target EBITDA, $250,000
plus 1.25% of the amount by which Actual EBITDA exceed Target EBITDA for such
fiscal year.
Where:
(i) "Actual EBITDA" means the earnings for the Company and its
subsidiaries on a consolidated basis for the fiscal year in
question, determined in accordance with generally accepted
accounting principles consistently applied (except to the
extent described in clause (ii) below), before interest,
taxes, depreciation, amortization and any net extraordinary
gains or losses of the Company or any such subsidiary for the
fiscal year in question.
(ii) "Target EBITDA" means $66.57 million (or such other amount as
the Chairman of the Board and the Executive shall agree in
good faith, based upon certain adjustments to the 1996
projected budget, constitutes the revised Target EBITDA, which
revised budget a2and Target EBITDA shall have been approved by
the Board of Directors), as such amount may be adjusted in
good faith by the Board of Directors from time to time in
order to give effect to (x) any accounting or other financial
reporting changes adopted by the Company for periods
subsequent to fiscal year 1995 or (y) without limiting in any
manner the Company's ability to operate its business and
structure the timing and amounts of income and expenses,
changes in the calculation of EBITDA resulting from the
inclusion of an item into income or expense which item had in
fiscal year 1995 been included in a category which was not
includable in the calculation of EBITDA. (By way of example,
if the Company were to restructure its payments to cable
system operators in such a way that, without effecting the
Company's aggregate obligations to such operators, a higher
percentage of the amount payable would be included as an
expense item than is currently includable (by, for example,
determining not to amortize such payments), then the
calculation of EBITDA would be appropriated adjusted such that
the basis upon which EBITDA is calculated from year to year is
consistent).
All determinations of EBITDA and Target EBITDA shall be based upon the
information contained in the Company's audited financial statements, or in the
event the Company is not required to publish financial information which has
been audited by the Company's independent accountants
<PAGE> 17
in any such year, the financial results of the Company for such year, prepared
in accordance with generally accepted accounting practices consistently applied
(except to the extent set forth in clause (ii) above), and certified by the
Company's Chief Financial Officer.
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<PAGE> 1
EXHIBIT 10.36
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into as of the
15th day of December, 1995, (the "Effective Date") by and between Mary Ellen
Pollin ("Employee") and Home Shopping Network, Inc. ("the Company").
WHEREAS, the Company desires to employ Employee; and
WHEREAS, Employee desires to be employed by the Company and commit to
serve the Company on the terms herein provided.
NOW, THEREFORE, in consideration of the foregoing and of the
respective covenants and agreements of the parties herein contained, the
parties agree as follows:
1. Position, Responsibilities and Term of Employment.
1.01 Employment and Duties. Subject to the terms and
conditions of this Agreement, the Company agrees to employ Employee as
Executive Vice President of Human Resources and Employee accepts such
employment and agrees to perform in a diligent, careful and proper manner the
responsibilities and duties of such position commencing December 15, 1995 (the
"Commencement Date"). As long as employment with the Company continues,
Employee shall comply with the Company's policies and procedures as in effect
from time to time.
1.02 Term. Subject to the provisions of this Agreement,
the term of this Agreement shall commence upon the Effective Date and shall
continue for a four (4) year period from the Commencement Date (the "Term"),
unless sooner terminated as provided in Section 4. Thereafter, this Agreement
shall automatically renew for one (1) year on each December 15, unless either
party provides notice of non-renewal, on or before October 15 of each year.
2. Compensation.
2.01 Signing Bonus. Upon execution hereof by both
parties, the Company shall pay to Employee Fifty Thousand Dollars ($50,000),
less applicable deductions pursuant to Section 2.06, as a one time signing
bonus.
<PAGE> 2
2.02 Salary. From and after the Commencement Date and
during the remaining Term of this Agreement, the Company shall pay Employee a
salary at the rate of Two Hundred Thirty-Five Thousand Dollars ($235,000) per
year in accordance with the Company policy. Salary may be reviewed during the
Term of this Agreement in accordance with the Company's policy and adjusted
accordingly. Employee shall be paid once every two (2) weeks or in such other
regular periodic installments, at least as frequently as monthly, as salary
payments are generally made by the Company to its senior executives.
2.03 Participation in Benefit Plans. Employee shall be
entitled to participate in, or receive benefits under, any of the Company's
employee benefit plans as made available to other senior executives of the
Company.
2.04 Stock Options.
(a) Employee shall receive stock options to purchase fifty
thousand (50,000) shares of the Company's common stock at an exercise price of
$8.50 per share pursuant to the Company's 1986 Stock Option Plan for Employees,
or the successor stock option plan thereto (the "Options"). The Options will
be reflected in a separate agreement which shall provide, among other things,
the terms set forth below.
(b) Upon any termination of Employee's employment (i) by the
Company for any reason other than death, disability or for Cause, or (ii) by
Employee for Good Reason, all Options granted hereunder shall vest immediately
and remain exercisable for a period of one year after such termination. Upon a
termination of Employee's employment by the Company for Cause, or by Employee
for other than Good Reason, any non-vested Options shall immediately expire and
any vested Options shall expire three (3) months following such termination.
Upon a termination of Employee's employment by reason of death or disability,
the provisions of the Stock Option Plan as interpreted by the
Compensation/Benefits Committee of the Board of Directors of the Company shall
govern the exercisability of the Options and the period for which the Options
are exercisable.
2.05 Vacation. Employee shall be entitled to four weeks
of paid vacation per year, including during Employee's first year
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<PAGE> 3
of employment. Employee shall receive paid holidays and sick days in accordance
with the Company's policies and procedures.
2.06 Deductions. All amounts payable under this Agreement
shall be subject to such deductions as may from time to time be required to be
made pursuant to law or governmental regulation or by agreement with or consent
of Employee.
3. Relocation The Company shall pay to Employee her moving
expenses from New York, New York to the Tampa Bay area in accordance with the
Company's policies and procedures.
4. Termination of Employment.
4.01 Termination for Cause. Employee's employment under
this Agreement may be terminated by the Company, prior to expiration of the
Term, for Cause upon at least 30 days' prior written notice. The term "Cause"
shall mean only one or more of the following:
(a) Employee's conviction by a court of competent jurisdiction
(which conviction, through lapse of time or otherwise, is not subject to
appeal) of any felony, fraud or business crime;
(b) Employee's possession or use of illegal drugs or
prohibited substance, or Employee's excessive drinking of alcoholic beverages
that impairs her ability to perform her duties under this Agreement;
(c) Employee's commission of a tort or act of fraud upon the
Company or material breach of her fiduciary duty to the Company;
(d) a breach by Employee of any of the covenants made by
Employee in Sections 5 and 6 hereof; or
(e) Employee's continued failure or refusal to perform her
duties under this Agreement, as determined by the Chief Executive Officer of
the Company in good faith.
If the Company terminates this Agreement for Cause, the
Company shall pay to Employee her salary under this Agreement
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<PAGE> 4
through the date of termination specified in the Company's notice of
termination, and her Options shall be exercisable as described in section
2.04(b).
4.02 Termination without Cause. The Company may terminate
Employee's employment under this Agreement without Cause, in which case
Employee's Options shall vest and be exercisable as described in section
2.04(b) and the Company shall pay to Employee: (a) Employee's salary under
this Agreement through the date of termination and (b) the amount of salary
Employee would have received under this Agreement during the remainder of the
then current Term if this Agreement had not been terminated, payable
periodically as provided in Section 2.02. The Company shall also maintain or
pay the cost of maintaining during the remainder of the then current Term all
medical and other health insurance benefits and coverage previously provided to
Employee by the Company. Employee shall be required to mitigate the amount of
any payment provided for in this Section 4.02 by seeking other employment, and
the amount of any payment or benefits due hereunder shall be reduced by any
compensation or benefits received by Employee as a result of her employment by
any other person, firm or corporation. Employment as used in this paragraph
includes self-employment and activities as a consultant, independent contractor
or otherwise. As a condition precedent to receipt of any payment hereunder,
Employee shall be required, at the time of termination, to execute a general
release and waiver in favor of the Company.
4.03 Disability. In the event that Employee shall be
physically or mentally disabled so as not to be able to perform her duties
pursuant to this Agreement for any period of ninety (90) consecutive days or
more, the Company shall have the right to terminate Employee's employment upon
ninety (90) days prior written notice (the "Notice Period") of such termination
to Employee, whereupon the Company shall continue to pay Employee her salary
under this Agreement through the date of termination specified in the Company's
notice of termination; provided, however, that in the event Employee, during
the Notice Period, recovers from such disability to an extent permitting her
to perform her duties hereunder, the notice of termination pursuant to this
clause shall be of no further force and effect.
4.04 Death. This Agreement shall terminate upon the date
of death of Employee, and the Company shall be obligated to
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<PAGE> 5
pay to Employee's estate her salary under this Agreement through the end of the
calendar month in which her death occurred, as well as vacation and sick days
in accordance with the Company policy.
4.05 By Employee. Employee may terminate her employment
for Good Reason. The term "Good Reason" shall mean:
(a) the assignment to Employee of any duties inconsistent
with Employee's position as Executive Vice President of Human Resources,
including status, title and reporting requirements, or any other action by the
Company which results in a material diminution in Employee's position,
authority, duties or responsibilities, excluding for this purpose an isolated,
insubstantial or inadvertent action which is remedied by the Company promptly
after receipt of notice thereof given by Employee;
(b) any material breach of this Agreement by the Company
which is not remedied by the Company promptly after receipt of notice thereof
given by Employee; or
(c) any purported termination by the Company of
Employee's employment otherwise than as expressly permitted by this Agreement.
If Employee believes "Good Reason" exists hereunder, Employee shall
give written notice to the Chief Executive Officer of the Company specifying
the reason for such belief. The Company shall have ten (10) business days after
receipt of said notice to cure or respond to this notice, and during such
period, Employee shall respond in good faith to any efforts made by the Company
to respond to her concerns. Upon failure of the Company to redress the concerns
within said ten (10) days, Employee may terminate her employment upon notice to
the Company. If Employee terminates her employment with the Company in
accordance with this Section 4.05, she shall receive the benefits described in
Section 4.02, subject to the conditions specified in Section 4.02..
5. Covenant and Confidential Information.
(a) Non-Competition. During Employee's employment with
the Company and for eighteen (18) months thereafter (but in no event less than
66 months from the Commencement Date), Employee shall not, directly or
indirectly, on behalf of Employee or on
5
<PAGE> 6
behalf of or with any other person, enterprise or entity, in any individual or
representative capacity, engage or participate in any business, anywhere in the
United States of America, that is engaged (a) in the sale of goods or services
through broadcast or cable television or over telephone, cable, satellite
transmission, computer network, or other communication system, or (b) in the
business of mail order or catalog sales. Employee's obligations under this
Section shall continue during the Term and for the period after the Term set
forth above, and shall not, for any reason, cease upon termination of
Employee's employment with the Company (whether for Cause, without Cause, Good
Reason or otherwise).
(b) Non-Solicitation. During Employee's employment with
the Company and for eighteen (18) months thereafter (but in no event less than
66 months from the Commencement Date), Employee shall not solicit the
employment of any employee of the Company or its subsidiaries on behalf of any
other person, firm, corporation, entity or business organization, or otherwise
interfere with the employment relationship between any employee of the Company
and the Company.
(c) Confidential Information.
(i) Definition. "Confidential Information" means
any information that relates to or is used in the business or operations of the
Company or any of its affiliates and that is not generally known to the public,
or that is competitively sensitive to the Company or any of its affiliates,
including without limitation, personnel and employment information, customer
lists, marketing methods, merchandise sources, methods of merchandising deemed
proprietary by the Company, product and assortment selection, sales and price
lists, product research or data, vendors, contractors, financial information,
business plans and methods or other trade secrets of the Company, and all
information that the Company or any of its affiliates is required to keep
confidential pursuant to any confidentiality or non-disclosure agreement or
that is otherwise delivered to the Company or any of its affiliates in
confidence. Confidential Information includes information in any form
whatsoever, including without limitation oral information, any notes,
documents, files, records and information in any other written form, any
magnetic, electric, digital and
6
<PAGE> 7
other recording medium, and any products, equipment, technology and any other
tangible object.
(ii) Confidentiality Obligation. Employee shall
preserve and protect the confidentiality of all Confidential Information and
shall not, without the prior written consent of an executive officer of the
Company or except as required in the course of Employee's employment with the
Company, (i) remove any Confidential Information from the Company's premises or
disclose, make available or transmit in any manner any Confidential Information
to any other person, enterprise or entity, or (ii) use, directly or indirectly,
any Confidential Information for Employee's own benefit or for the benefit of
any other person, enterprise or entity. Employee's obligations under this
Section 5(c) shall continue during the term and indefinitely after the term,
and shall not, for any reason, cease upon termination of Employee's employment
with the Company (whether by wrongful discharge or otherwise).
(d) Proprietary Rights; Assignment. All Employee
Developments shall be work made for hire by Employee for the Company.
"Employee Developments" means any idea, discovery, invention, design, method,
technique, improvement, enhancement, development, computer program, machine,
algorithm or other work or authorship that (1) relates to the business or
operations of the Company or any of its affiliates, or (2) results from or is
suggested by any undertaking assigned to Employee or work performed by Employee
for or on behalf of the Company or any of its affiliates, whether created alone
or with others, during or after working hours. All Confidential Information and
all Employee Developments shall remain the sole property of the Company and its
affiliates. Employee shall acquire no proprietary interest in any Confidential
Information or Employee Developments developed or acquired during the term. To
the extent Employee may, by operation of law or otherwise, acquire any right,
title or interest in or to any Confidential Information or Employee
Development, Employee hereby assigns to the Company all such proprietary
rights. Employee shall, both during and after the Term, upon the Company's
request, promptly execute and deliver to the Company all such assignments,
certificates and instruments, and shall promptly perform such other acts, as
the Company may from time to time in
7
<PAGE> 8
its discretion deem necessary or desirable to evidence, establish, maintain,
perfect, protect, enforce or defend the Company's rights in Confidential
Information and the Company Developments.
(e) Remedies for Breach. Employee expressly agrees and
understands that the remedy at law for any breach by Employee of this Section 5
will be inadequate and that damages flowing from such breach are not usually
susceptible to being measured in monetary terms. Accordingly, it is
acknowledged that upon Employee's violation of any provision of this Section 5,
the Company shall be entitled to obtain from any court of competent
jurisdiction (including without limitation in Pinellas or Hillsborough County,
Florida) immediate injunctive relief and obtain a temporary order restraining
any threatened or further breach as well as an equitable accounting of all
profits or benefits arising out of such violation. Nothing in this Section 5
shall be deemed to limit the Company's remedies at law or in equity for any
breach by Employee of any of the provisions of this Section 5 which may be
pursued or available of by the Company.
(f) Tolling of Periods. In the event Employee shall
violate any provision of this Section 5 as to which there is a specific time
period during which Employee is prohibited from taking certain actions or from
engaging in certain activities, as set forth in such provision, then, such
violation shall toll the running of such time period from the date of such
violation until such violation shall cease.
(g) Acknowledgment. Employee has carefully considered
the nature and extent of the restrictions upon Employee and the rights and
remedies conferred upon the Company under this Section 5, and Employee
acknowledges and agrees that the same are reasonable in time and territory, are
designed to eliminate competition, which otherwise would be unfair to the
Company, do not stifle the inherent skill and experience of Employee, would not
operate as a bar to Employee's sole means of support, are fully required to
protect the legitimate interests of the Company, do not confer a benefit upon
the Company disproportionate to the detriment to Employee and are material
provisions without which the Company would not employ Employee pursuant to this
Agreement.
6. Time to be Devoted by Employee. Employee agrees to devote
substantially all of her business time, attention, efforts
8
<PAGE> 9
and abilities to the business of the Company and to use her best efforts to
promote, protect and advance the interests of the Company.
7. Delivery of Materials. Employee agrees that upon the
termination of her employment she will deliver to the Company all documents,
papers, materials and other property of the Company relating to its affairs
which may then be in her possession or under her control.
8. Indemnification. In addition to any separate agreements
between Employee and the Company relating to indemnification, or any
indemnification provided under the Company's certificate of incorporation or
by-laws, the Company will indemnify and hold harmless Employee, to the fullest
extent permitted by applicable law, in respect of any liability, damage, cost
or expense (including reasonable counsel fees) incurred in connection with the
defense of any claim, action, suit or proceeding to which she is a party, or
threat thereof, by reason of her being or having been an officer or director of
the Company or any subsidiary or affiliate of the Company, or her serving or
having served at the request of the Company as a director, officer, employee or
agent of another corporation or of a partnership, joint venture, trust,
business organization, enterprise or other entity, including service with
respect to employee benefit plans. Without limiting the generality of the
foregoing, the Company will pay the expenses (including reasonable counsel
fees) of defending any such claim, action, suit or proceeding in advance of its
final disposition, upon receipt of Employee's written agreement to repay all
amounts advanced if it should ultimately be determined that Employee is not
entitled to be indemnified under this Section.
9. Assignment. Neither this Agreement nor any rights or benefits
hereunder may be assigned by the Company or Employee except that this Agreement
may be assigned to a successor upon the Company's merger, consolidation or
disposition of substantially all of its assets.
10. Miscellaneous.
10.01 Entire Agreement. This Agreement embodies the entire
agreement and understanding between the Company and Employee relating to the
subject matter hereof. This Agreement supersedes
9
<PAGE> 10
and cancels all prior agreements between the Company and Employee, whether
written or oral, relating to the employment of Employee.
10.02 Governing Law. This Agreement shall be construed in
accordance with and governed for all purposes by the laws of the State of
Florida without giving effect to Florida's choice of law principles.
10.03 Notice. Any notice, request, or instruction to be
given hereunder shall be in writing and shall be deemed given when person ally
delivered or sent by telecopy transmission or three days after being sent by
United States mail, postage prepaid to the parties at their respective
addresses set forth below:
(a) To the Company: Home Shopping Club, Inc.
2501 118th Avenue North
St. Petersburg, FL 33716
Attn: Legal Department
(b) To Employee: Mary Ellen Pollin
------------------------
------------------------
10.04 Severability. If any section, subsection or
provision hereof is found for any reason whatsoever to be invalid or
inoperative, that section, subsection or provision shall be deemed severable
and shall not affect the force and validity of any other provision of this
Agreement. If any covenant herein is determined by a court to be overly broad
thereby making the covenant unenforceable, the parties agree and it is their
desire that such court shall substitute a reasonable judicially enforceable
limitation in place of the offensive part of the covenant and that as so
modified the covenant shall be as fully enforceable as if set forth herein by
the parties themselves in the modified form. The covenants of Employee in this
Agreement shall each be construed as an agreement independent of any other
provision in this Agreement, and the existence of any claim or cause of action
of Employee against the Company, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by the Company of
the covenants in this Agreement.
10
<PAGE> 11
10.05 Amendment and Waiver. This Agreement may not be
amended, supplemented or waived except by a writing signed by the party against
which such amendment or waiver is to be enforced. The waiver by any party of a
breach of any provision of this Agreement shall not operate to, or be construed
as a waiver of, any other breach of that provision nor as a waiver of any
breach of another provision.
10.06 Arbitration of Dispute. Except as set forth in
Section 5, any controversy or claim arising out of or relating to this
Agreement or to the breach thereof or to Employee's employment by the Company
(other than claims expressly excluded by statute) shall be settled exclusively
by binding arbitration conducted in the City of Tampa, Florida in accordance
with the commercial rules of the American Arbitration Association then in
effect (the "Rules"), by a single, independent arbitrator selected by the
Company and Employee . If the parties can not agree on an arbitrator, within
thirty (30) days of the commencement of an arbitration proceeding hereunder,
either party may request that the American Arbitration Association select a
candidate, with experience in employment law, in accordance with the Rules.
The decision of the arbitrator shall be final and binding. Judgment upon the
award rendered by the arbitrator may be entered in any court having
jurisdiction thereof. The cost of any arbitration proceeding conducted
hereunder shall be borne equally between Employee and the Company unless
otherwise determined by the arbitrator. By signing this Agreement, Employee
agrees that all disputes, except as set forth in the first sentence hereof,
will be decided by mutual arbitration, and Employee is giving up any right to a
jury trial or court trial.
10.07 Survival of Rights and Obligations. All rights and
obligations of Employee or the Company arising during the Term of this
Agreement shall continue to have full force and effect after the date that this
Agreement terminates or expires.
10.08 Counterparts. This Agreement may be executed in two
counterparts, each of which is an original but which shall together constitute
one and the same instrument.
11
<PAGE> 12
IN WITNESS WHEREOF, the parties have entered into this Agreement as of
the Effective Date.
HOME SHOPPING NETWORK, INC.
By:
------------------------
JAMES G. HELD
President and Chief
Executive Officer
EMPLOYEE
------------------------
MARY ELLEN POLLIN
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS ON FORM 8-K AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 25,164
<SECURITIES> 0
<RECEIVABLES> 23,634
<ALLOWANCES> 0
<INVENTORY> 101,564
<CURRENT-ASSETS> 182,995
<PP&E> 227,484
<DEPRECIATION> 118,710
<TOTAL-ASSETS> 436,295
<CURRENT-LIABILITIES> 175,424
<BONDS> 135,810
0
0
<COMMON> 777
<OTHER-SE> 124,284
<TOTAL-LIABILITY-AND-EQUITY> 436,295
<SALES> 1,018,625
<TOTAL-REVENUES> 1,018,625
<CGS> 701,678
<TOTAL-COSTS> 707,678
<OTHER-EXPENSES> 397,227
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,077
<INCOME-PRETAX> (95,205)
<INCOME-TAX> (33,322)
<INCOME-CONTINUING> (61,883)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (61,883)
<EPS-PRIMARY> (.69)
<EPS-DILUTED> (.69)
</TABLE>
