-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, eKp+1m3YDC4sbpvyhNGlVpDa7sChUpczjUKiulMwm3XoJYos1HBEXNAhKHVokqS6 6CAYa9tdZlb487FaVnGBew== 0000950144-94-000739.txt : 19940330 0000950144-94-000739.hdr.sgml : 19940330 ACCESSION NUMBER: 0000950144-94-000739 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HOME SHOPPING NETWORK INC CENTRAL INDEX KEY: 0000791024 STANDARD INDUSTRIAL CLASSIFICATION: 5961 IRS NUMBER: 592649518 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 001-09118 FILM NUMBER: 94518637 BUSINESS ADDRESS: STREET 1: 11831 30TH COURT NORTH CITY: ST PETERSBURG STATE: FL ZIP: 33716 BUSINESS PHONE: 8135728585 10-K 1 HSN FORM 10-K 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- FORM 10-K /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, 1993 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NO. 1-9118 --------------------- HOME SHOPPING NETWORK, INC. (Exact name of registrant as specified in its charter) DELAWARE 59-2649518 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.)
2501 118TH AVENUE NORTH, ST. PETERSBURG, FLORIDA (Address of registrant's principal executive offices) 33716 (Zip Code) (813) 572-8585 (Registrant's telephone number, including area code) SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF NAME OF EXCHANGE EACH CLASS REGISTERED ----------------------------------------------------------------- ---------------- Common Stock $.01 Par Value...................................... NYSE
--------------------- 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. / / As of March 18, 1994, there were outstanding 73,920,285 shares of Common Stock (net of 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 18, 1994 was $732,596,579. APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes / / No / / DOCUMENTS INCORPORATED BY REFERENCE:
DOCUMENTS FORM 10-K REFERENCE --------------------------------------------------------------------- --------------------- 1993 Annual Report................................................... Part II Items 5-8 Proxy Statement dated March 29, 1994................................. Part III Items 10-13
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 HOME SHOPPING NETWORK, INC. FORM 10-K ANNUAL REPORT TABLE OF CONTENTS
PAGE NO. -------- PART I Item 1 Business................................................................ 1 Item 2 Properties.............................................................. 8 Item 3 Legal Proceedings....................................................... 9 Item 4 Submission of Matters to a Vote of Security-Holders..................... 16 PART II Item 5 Market for Registrant's Common Equity and Related Stockholder Matters... 17 Item 6 Selected Financial Data................................................. 17 Item 7 Management's Discussion and Analysis of Financial Condition and Results 17 of Operations........................................................... Item 8 Consolidated Financial Statements and Supplementary Data................ 17 Item 9 Changes in and Disagreements with Accountants on Accounting and 17 Financial Disclosure.................................................... PART III Item 10 Directors and Executive Officers of the Registrant...................... 18 Item 11 Executive Compensation.................................................. 18 Item 12 Security Ownership of Certain Beneficial Owners and Management.......... 18 Item 13 Certain Relationships and Related Transactions.......................... 18 PART IV Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K......... 19
3 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. On July 13, 1993, the Company elected to change its annual reporting period from a year ending August 31 to a year ending December 31, effective January 1, 1993. The change in year end was made following the acquisition of voting control of the Company (the "Acquisition") by a wholly-owned subsidiary of Liberty Media Corporation, a Delaware corporation ("Liberty"), which reports its financial position and results of operations using a December 31 year end. HOME SHOPPING CLUB, INC. HSC sells a variety of consumer goods and services by means of HSC's live, customer-interactive 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 produces three separate retail sales programming networks, HSN 1, HSN 2, and HSN Spree. HSN 1 is carried by cable television systems throughout the country and is the original HSC programming network. HSN 2 is carried by broadcast television stations which are affiliated with HSC. HSN 2 is also carried by cable television systems which primarily retransmit the broadcast television signal of one of the independent broadcast television stations carrying HSN 2. HSN Spree is carried primarily on a part-time basis by both cable television systems and broadcast television stations. This provides system operators and broadcasters with income producing programming during portions of the day in which programming may not otherwise be scheduled. As of December 31, 1993, there were approximately 93.7 million homes in the United States with a television set, 60.0 million basic cable television subscribers and 3.1 million homes with satellite dish receivers. As of December 31, 1993, approximately 21.8 million homes throughout the United States were able to receive HSN 1 via over 1,526 cable systems. HSN 2 was broadcast at the same date via 35 full power and 9 low power broadcast television stations in areas with a total viewership of approximately 25.9 million households. In addition, approximately 19.7 million households were able to receive HSN 2 via over 770 cable systems. See "Broadcast Television Affiliations -- Cable Re-regulation Law." As of December 31, 1993, HSN Spree was carried on a full-or part-time basis by 112 broadcast television stations, including certain stations that are in areas also served by cable television systems or broadcast television stations which carry HSN 1 and/or HSN 2. Approximately 3.1 million additional households also were able to receive HSN 1, HSN 2 or HSN Spree by means of satellite dish receivers. Approximately 7.8 million of the cable television households receiving HSC programming are considered multiple service households which receive HSN 1 and HSN 2. In addition, an indeterminate number of television households which are capable of receiving HSN 1 or HSN 2 by means of broadcast television stations or cable may also receive HSN Spree and, in certain markets, HSN Spree is carried by cable television systems located within the coverage area of broadcast television stations which broadcast HSN Spree. Each of HSC's three programming services may be received by households with satellite dish receivers which households may also be located within areas served by cable television systems or broadcast television stations which carry HSC programming. HSC'S RETAIL SALES PROGRAMMING HSC's electronic retail marketing and programming concept is the "Home Shopping Club" (the "Club"). The distinctive format of the Club is intended to promote sales through a combination of product information, price information, entertainment and the creation of confidence in HSC and its products, thus 1 4 promoting customer loyalty and repeat purchases. HSC programming is divided into segments. Each segment is televised live with an experienced show host. The show host presents merchandise one product at a time and conveys to the viewer information relating to the product, including price, quality, uses and attributes. Viewers place orders for products by calling a toll-free telephone number. Show hosts engage callers in spontaneous on-the-air discussions regarding the Club, the currently featured product or the caller's previous experience with the Club and its products. This distinctive format creates a spontaneous and entertaining program. First-time purchasers of merchandise receive a complimentary membership in the Club. HSC attempts to stimulate Club member loyalty by providing Club members with incentives to purchase additional items from the Club using, for example, the "Bargaineer" magazine which, among other features, offers discounts on HSC purchases. The Club format is used on HSN 1, HSN 2 and HSN Spree. MEMBER SERVICES AND RETURN POLICY HSC believes that satisfied Club members will be loyal and will purchase merchandise from HSC on a regular basis. To help ensure Club member satisfaction, HSC has member services personnel and voice response units available to handle calls relating to member inquiries. The member services department maintains toll-free lines operating on weekdays from 8:00 a.m. to 12 midnight, Eastern Time, to assist Club members. As part of HSC's member service policy, a Club member may, generally within thirty days, return for any reason any item purchased from HSC, except certain special sale items, for a full refund of the purchase price, including the original shipping and handling charges. PRODUCT PURCHASING AND LIQUIDATION The Company believes that a primary factor contributing to the success of its business is its ability to locate and take advantage of opportunities to purchase, and to have manufactured to its specifications, large quantities of quality merchandise at favorable prices. HSC principally purchases merchandise made to its specifications and also purchases merchandise from manufacturers' lines, overproduction closeouts and the overstock inventories of wholesalers. 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 historically, there have been various sources of supply available for each category of merchandise sold by HSC. HSC's product offerings include: jewelry; hardgoods, which include consumer electronics, housewares and toys; softgoods, which consist primarily of clothing; and other product categories which include collectibles, cosmetics and consumables. For calendar 1993, jewelry, hardgoods, softgoods and other categories accounted for approximately 49%, 34%, 15% and 2%, respectively, of HSC's sales. The Company liquidates merchandise through its six outlet stores. The Company opened the fifth outlet store in the second quarter of 1993 and the sixth outlet store in the fourth quarter of 1993. Merchandise that becomes damaged and is unsuitable for sale via the Club or the outlet stores is liquidated by the Company through traditional channels. For the first five months of calendar 1993, the Company liquidated merchandise through Western Hemisphere Sales, Inc. ("Western"), a company owned by a former related party. See "Legal Proceedings" and "Certain Relationships and Related Transactions." Sales of damaged merchandise by Western were less than .5% of the total sales of the Company for the year ended December 31, 1993. Merchandise also is disposed of from time to time through charitable contributions. 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 and satellite dish receivers by means of HSN's satellite uplink facilities to satellite transponders leased by HSN which retransmit the signals received from HSN. Any cable television system, broadcast television station or individual satellite dish owner in the 2 5 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, Satcom C-3, Satcom C-4, and Satcom F2R. The three Satcom transponders are located on domestic communications satellites owned by GE American Communications, Inc. ("GE"). Two lease agreements which relate to Satcom C-3 used by HSN 1 and Satcom C-4 used by HSN 2 grant HSN "protected" rights. The lease agreement which relates to Satcom F2R used for HSN Spree provides HSN with "transponder protected" rights. Domestic communication satellite transponders may be leased full-or part-time on a "protected," "transponder protected" or "unprotected" basis. When the carrier provides services to a customer on a "protected" basis, replacement transponders are reserved on board the satellite for use in the event the "protected" transponder fails. Should there be no reserve transponders available, the "protected" customer will displace an "unprotected" transponder customer on the same satellite. The carrier also maintains a protection satellite and should a satellite fail completely, all lessors' "protected" transponders would be moved to the protection satellite. The customer who leases a "transponder protected" transponder has the same level of protection as the "protected" customer except for the availability of the back-up protection satellite. The customer who leases an "unprotected" transponder has no reserve transponders available, and may have its service interrupted for indefinite periods when its transponder is required to restore a "protected" service. GE provides one (1) back-up transponder for every four (4) transponders, and one (1) back-up satellite for all their satellites. 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 because of the need to reorient earth stations to the substitute satellite transponder. Satcom C-3 and Satcom C-4 were launched in September and August 1992, respectively. The terms of the contracts are for the life of the satellites, which are projected to be 12 years. The transponder agreement for Satcom F2R has been extended to December 31, 1994. HSN has commenced negotiations to secure a replacement transponder. HSN anticipates that it will be able to negotiate a transponder lease to replace the lease on Satcom F2R. 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. HSN's access to three transponders pursuant to long-term agreements would enable HSC to continue transmission of its two primary programming services, HSN 1 and HSN 2, should any one of the satellites fail. 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 HSN. See "Federal Government Regulation of Satellite Transmissions." 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. FEDERAL GOVERNMENT REGULATION OF SATELLITE TRANSMISSIONS 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 (2) licenses for operation of C-band satellite transmission facilities and two (2) licenses for operation of KU-band satellite transmission facilities on a permanent basis in Clearwater and St. Petersburg, Florida. The FCC has jurisdiction over satellite service and facility providers. Under current FCC policy, domestic satellite service and facility providers are not subject to the market exit provisions of Section 214 of the Communications Act of 1934 (the "Communications Act"). Thus, FCC policies would not preclude GE 3 6 from ceasing to provide communication services to customers on short notice, and the Company would need to rely principally upon protections in its lease agreements described above. See "Transmission and Programming." HSN has not received notification that GE has any intention to cease providing transmission services. GE is required by the FCC to provide services on terms and conditions that are just, reasonable and non-discriminatory, and are subject to complaints filed with the FCC pursuant to the Communications Act. CABLECASTING HOME SHOPPING CLUB PROGRAMMING HSC has entered into affiliation agreements with a number of cable system operators to carry HSN 1, HSN 2 or both HSN 1 and HSN 2. HSC's standard affiliation agreement provides that the cable operator will receive a commission of 5% of the net sales of merchandise sold to Club members located within the cable operator's franchise area in return for distributing to its customers HSC's sales programs as part of the cable operator's cable service. Cable operators which have executed affiliation agreements to carry HSN 2 are compensated for all sales on HSN 2 of merchandise 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 within the cable operator's franchise area. Although there is some variation among affiliation agreements with cable operators, the current standard affiliation agreement provides for an initial term of five years which is automatically renewable for subsequent one year terms. The agreement may be terminated, however, by either party ninety days prior to the end of the term. The agreements obligate a cable operator to assist the promotional efforts of HSC by carrying commercials regarding the Home Shopping Club and distributing HSC's marketing materials to their subscribers. HSC also purchases advertising availabilities from many cable operators on programming networks other than the Club as an incentive to the cable operators to carry HSC programming and as a marketing device to increase awareness of HSC programming among viewers in a given cable system. To further promote cable carriage of HSC programming, HSC has, in certain markets, guaranteed a minimum level of commissions to cable operators which agree to carry the HSC programming or offered additional compensation based upon the sales performance of HSC programming in the cable operator's franchise area. HSC has also increased cable carriage of HSN 2 and HSN Spree as a result of the cable re-regulation law. See "BROADCAST TELEVISION AFFILIATIONS -- Cable Re-regulation Law." The Company has entered into agreements with broadcast television stations to carry HSN Spree on both a part-time and full-time basis. Cable operators within the coverage areas of such broadcast television stations may carry a station's broadcast signal of HSN Spree and, if under contract, receive a commission on all sales made during the hours between 12 midnight and 9:00 a.m., Eastern Time, via HSN Spree within the cable operator's wired franchise area. HSN Spree is also carried by "superstation" WWOR, from 3 a.m. to 6 a.m., Eastern Time, which is transmitted to approximately 17.0 million cable subscribers. 1987 CABLE OPERATORS STOCK OPTION PLAN During fiscal 1987, the Company offered certain cable operators the opportunity to participate in the 1987 Cable Operators Stock Option Plan (the "1987 Plan"). The special affiliation agreement executed by participants in the 1987 Plan provided that a cable operator would carry HSN 1, HSN 2 or both HSN 1 and HSN 2 for a period of five years beginning no later than January 31, 1988. In exchange for the commitment to carry HSC programming for five years, cable operators received (1) options to purchase the Company's common stock, exercisable over a five year period which expired July 1, 1992, and (2) the standard commission of 5% on sales of the Company's merchandise via television in the cable operator's territory. The exercise price for the options was $13.00 per share, and none were exercised prior to expiration. For each subscriber to which a cable operator agreed to transmit HSN 1 or HSN 2, the cable operator was granted an option to purchase $10.00 worth of the Company's common stock. The Company granted an option to purchase $20.00 worth of its common stock for each subscriber to which a cable operator agreed to transmit both HSN 1 and HSN 2. Under the 1987 Plan, cable operators were granted certain piggyback and mandatory registration rights with respect to the shares into which the options are exercisable. 4 7 In December 1987, the Company re-opened the offering of the 1987 Plan to additional cable operators and provided cable operators already participating in the 1987 Plan with the opportunity to reduce the exercise price of options previously granted under the 1987 Plan. The Company offered cable operators not participating in the 1987 Plan the opportunity to receive an option to purchase 77 shares of common stock for every 100 subscribers to which the cable operator agreed to transmit HSN 1 and HSN 2 for up to seven years. Cable operators which agreed to carry HSN 1 and HSN 2 for a period of five years received options exercisable in five equal annual installments with an exercise price of $7.00 per share. Cable operators which agreed to carry HSN 1 and HSN 2 for a period of seven years received options exercisable in three equal annual installments with an exercise price of $6.00 per share. The options issued to five year participants expired in 1993, and the options issued to seven year participants will expire in June 1994. Cable operators already participating in the 1987 Plan were able to reduce the exercise price of options granted under the 1987 Plan to $7.00 per share exercisable in five equal annual installments, provided they agreed to carry HSN 1 or HSN 2 for a total of five years. In addition, cable operators holding options under the 1987 Plan were able to further reduce the exercise price of options granted under the 1987 Plan to $6.00 per share exercisable in three equal annual installments provided they agreed to carry HSN 1 or HSN 2 for a total of seven years. As a result of the distribution by the Company of the capital stock of its former wholly-owned subsidiary, Precision Systems, Inc., in 1992, the exercise prices of these options were adjusted from $7.00 to $6.651 and from $6.00 to $5.701, respectively and were further adjusted from $6.651 to $6.491 and from $5.701 to $5.564, respectively as a result of the distribution by the Company of the capital stock of its former wholly-owned subsidiary, Silver King Communications, Inc. ("SKC"). Under the 1987 Plan, the Company may cancel options issued to a cable operator if the cable operator fails to carry the Company's programming to the agreed upon number of cable system subscribers. The number of shares subject to options, therefore, may be reduced from time to time to reflect the number of cable system subscribers actually receiving HSC programming under the 1987 Plan. During fiscal 1993, cable operators exercised options for approximately 3.3 million shares contributing approximately $20.4 million to the Company's Stockholders' Equity under the 1987 Plan. As of December 31, 1993, options to purchase approximately .5 million shares of common stock were outstanding under the 1987 Plan. The Company may, in the future, issue options to purchase the Company's common stock in order to help secure cable carriage. DISTRIBUTION, DATA PROCESSING AND TELECOMMUNICATIONS The Company's fulfillment subsidiaries ship merchandise purchased by Club members from warehouses located in St. Petersburg, Florida; Salem, Virginia; Waterloo, Iowa; and Reno, Nevada. Substantially all inventory resides at the Company's four fulfillment centers prior to being offered for sale. Merchandise typically is delivered to customers within 7 to 10 business days of placing an order with HSC. HSN currently operates several Unisys main frame computers and has extensive proprietary data processing and order processing systems which facilitate the timely delivery of merchandise to customers. HSN's computerized systems track purchase orders, inventory, member orders, shipping records, and member payments and also enhance credit verification and authorization. The Company believes these software systems, which would be difficult for competitors to duplicate, have been a primary factor in HSC's ability to meet the demands of its sales growth. To further facilitate the delivery of merchandise to Club members, HSC installed a state-of-the-art fiber optic telephone system and switching complex which was developed for the Company in fiscal 1988. HSC also utilizes a computerized voice response phone answering system (the "VRU system") capable of handling incoming sales calls. The VRU system provides callers with the option to place their order by means of touch tone input or to be transferred, in the case of new members or if the member requires personal service, to an operator. 5 8 BROADCAST TELEVISION AFFILIATIONS AFFILIATION WITH BROADCASTERS In July 1986, the Company initiated a program to broaden the viewership of HSC's programming services by acquiring broadcast television stations in principal television markets through SKC. On December 28, 1992, the Company distributed the capital stock of SKC (the "Distribution") to the Company's shareholders of record as of December 24, 1992, in the form of a pro rata stock dividend. Intercompany indebtedness in an amount of $135.2 million owed by SKC was converted into a secured long-term senior loan between SKC and a wholly-owned subsidiary of the Company pursuant to a loan agreement (the "Loan Agreement"), evidenced by a promissory note (the "Note"), bearing interest on the unpaid principal amount at a rate of 9.5% per annum. The terms of the Note are governed by the Loan Agreement and the liability evidenced thereby is secured by substantially all of SKC's assets. The Note is payable in equal monthly installments of principal and interest over fifteen years. The Note provides that the principal amount and the payment schedule of the loan may be adjusted to increase or decrease payments over the remaining term of the loan to reflect certain liabilities pursuant to a Tax Sharing Agreement, which was entered into in connection with the distribution of the capital stock of SKC. The Loan Agreement contains certain restrictive covenants and default provisions. The balance of the Note, including interest receivable, at December 31, 1993, was $132.3 million. So long as any indebtedness is outstanding under the Loan Agreement, each SKC station is required to maintain an affiliation agreement with HSC to carry HSC's programming. HSC pays an affiliation fee to SKC based on hourly rates and, upon reaching certain sales levels, commissions on net sales. Certain of the SKC stations have realized additional compensation during the second year, and those stations, and possibly others, are expected to continue to receive additional compensation during subsequent years of their affiliation agreements if "must carry" survives legal challenge. See "Cable Re-regulation Law." SKC, through its subsidiaries, owns twelve broadcast television stations, including one television satellite station, located in many of the top markets in the United States. These stations 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. SKC also owns 14 low power television ("LPTV") stations that broadcast HSC's programming services. 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 2 or HSN Spree for a predetermined number of hours per day. The broadcast station affiliation agreements may generally be terminated upon proper notice and specify the payment of fixed fees for the carriage of HSC programming. HSN Spree programming is available in one hour segments twenty-four hours per day which allow broadcast and cable affiliates to distribute HSN Spree in available daytime, evening, or overnight time slots that would not otherwise produce revenue. As of December 31, 1993, HSC had entered into either full-or part-time affiliation agreements with 35 broadcast television stations to carry HSN 2 (including broadcast television stations owned by SKC), 70 television stations to carry HSN Spree and 51 LPTV stations to carry HSN 2 or HSN Spree. The Company may also affiliate with additional broadcast television stations and LPTV stations in the coming year. CABLE RE-REGULATION LAW On October 5, 1992, the Cable Television Consumer Protection and Competition Act of 1992 was enacted into law. Among the many provisions of this new cable re-regulation 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 6 9 retransmission by such cable systems of the local television station's broadcast signal. HSC's full-time broadcast affiliates have all requested "must carry" status in lieu of a retransmission fee. On July 2, 1993, the FCC ruled that stations predominantly used for the transmission of sales presentations or program-length commercials operate in the public interest and are entitled to "must carry" status. A petition for reconsideration of the FCC's ruling currently is pending before the FCC. The Company has filed an opposition to that petition. Also, the Supreme Court of the United States has heard oral arguments regarding a decision by the United States District Court for the District of Columbia upholding "must carry" generally. A ruling is expected in mid-1994. As a result of "must carry," HSC has experienced increased cable distribution of its programming due to an increase in the number of cable systems that carry HSC programming. On September 23, 1993, the FCC adopted a Notice of Inquiry initiating a proceeding to evaluate the commercial programming practices of broadcast television stations (including stations with shop at home formats) and seeking comment on whether the public interest would be served by establishing limits on the amount of commercial matter broadcast by television stations. The FCC has received comments and reply comments. Although the FCC is only seeking comments at this time and has not made any proposals to limit the amount of commercialization on television stations, there can be no assurance whether or when such proposals will be forthcoming, what the nature of such proposals might be, whether they will be implemented, and thus what impact, if implemented, they would have on the Company. 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. HSN Mail Order, Inc. ("Mail Order") markets a variety of merchandise through four mail order catalogs distributed to individuals on mailing lists developed by Mail Order or rented from agents. The catalogs include Home Shopping Values(TM), Bargaineer Shopping Values(TM), Private Showing Jewelry Values By Mail, and Stuart McGuire Men's Footwear and Accessories. Mail Order also markets a variety of products by inserting marketing materials, including its catalogs, in packages containing products shipped to Club members. 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 Club members locally. Mass-marketing of other insurance and service-related products such as a private-label auto club, a legal services plan, a dental insurance plan, an extended services plan for electronics, and an appliance protection plan are also offered to the Club members nationally. HSI also handles the placement of all property and liability insurance for HSN and its subsidiaries as well as employee benefits insurance products. HSN Mistix Corporation serves as a computerized ticketing and campground reservations company. HSN Lifeway Health Products, Inc. markets natural vitamin and mineral supplements, over-the-counter items, health and wellness merchandise and a complete line of skin and hair products. More than 280 products are offered under the Lifeway(R) line and are marketed via HSC's programming services, mail order catalogs and continuity-based outbound telemarketing. COMPETITION The Company operates in a highly competitive environment. It is in direct competition with businesses which are engaged in retail merchandising and competes most intensely with other electronic retailers, direct marketing retailers such as mail order companies, companies that sell from catalogs, and other discount volume retail outlets. 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 7 10 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 was the first specialty retailer to market merchandise by means of live, nationally televised sales programs. The Company's principal competitor in the electronic retail industry is QVC, Inc ("QVC"). The Company and QVC account for the majority of sales in the electronic retail industry. Within the last year, new electronic retailers have commenced or enhanced operations, and several others have announced their intention to enter the business. 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 operates. Some of the Company's competitors are larger and more diversified than the Company, or are 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. 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 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 At December 31, 1993, the Company had 4,266 full-time employees and 752 part-time employees. The Company believes it has generally good employee relationships. ITEM 2 -- PROPERTIES During fiscal 1986, the Company purchased a 165,000 square foot facility located at 1529 U.S. Highway 19 South in Clearwater, Florida, which housed its corporate headquarters, studios and certain of its administrative offices. The Company occupies approximately 82,000 square feet of this facility and leases approximately 83,000 square feet to third parties. The Company operates out of a campus facility at 2501 118th Avenue North, St. Petersburg, Florida, containing in excess of 580,000 square feet which, since 8 11 September 30, 1987, has housed television studios, broadcast facilities and most of the Company's administrative offices and training facilities. In fiscal 1986, the Company purchased a 160,000 square foot warehouse located in Waterloo, Iowa, and leased a 200,000 square foot warehouse located near Reno, Nevada, with an option to purchase the property. The lease expires September 30, 2002. Both facilities are used as fulfillment centers. The Company operates a 450,000 square foot warehouse and fulfillment center with administrative offices located in Salem, Virginia, which is leased from the City of Salem Industrial Development Authority. At the end of the term of such lease, on November 1, 1999, the Company will have the option to purchase the property for $1. In fiscal 1991, the Company completed a 215,000 square foot expansion of this facility, at an approximate cost of $4.2 million. In December 1986, the Company purchased a 43,200 square foot fulfillment center located in St. Petersburg, Florida. In July and September 1991, the Company purchased three properties, which it formerly leased, from a former related party. The properties, consisting of approximately 90,000 square feet in Clearwater and St. Petersburg, Florida, are currently used for warehouse space. The Company's subsidiaries also lease office and/or warehouse space in several states to operate its businesses. The Company considers its properties suitable and adequate for its present needs. ITEM 3 -- LEGAL PROCEEDINGS On February 12, 1993, a class action complaint titled Arazie v. Malone, et al. was filed by a shareholder of the Company in the Court of Chancery of the State of Delaware, in and for the County of New Castle (the "Delaware Court"), against the Company, John C. Malone, Peter R. Barton, Robert R. Bennett, John M. Draper, Roy M. Speer and Liberty. Shortly thereafter, four other class action complaints were filed with the Delaware Court by shareholders of the Company; certain of these actions also named as defendants Les R. Wandler and RMS Limited Partnership, a Nevada Limited Partnership ("RMS") in addition to the defendants named in Arazie. On February 19, 1993, the five Delaware actions were consolidated for all purposes in an action titled In re: Home Shopping Network, Inc. Shareholders Litigation, Civil Action No. 12868 (the "Delaware Action"). On March 15, 1993, three additional class action complaints were consolidated into the Delaware Action. On April 26, 1993, the plaintiffs in the Delaware Action filed a consolidated amended and supplemental class action complaint (the "Supplemental Complaint"). The Supplemental Complaint was brought on behalf of all public stockholders of the Company (other than defendants) as of February 12, 1993, and their successors in interest, and names as defendants the persons and entities named in the prior pending complaint in the Delaware Action, as well as Liberty, Liberty Program Investments, Inc. ("LPI") and three current or former directors of the Company (Gerald F. Hogan, J. Anthony Forstmann and John J. McNamara). In the Supplemental Complaint, the plaintiffs allege, among other things, that (i) Mr. Speer and RMS breached their fiduciary duties in agreeing to the Acquisition, and that Liberty aided and abetted the supposed wrongdoing by Mr. Speer and RMS; (ii) Liberty and LPI have breached their fiduciary duties by commencing an unfairly priced, improperly timed, coercive and manipulative tender offer (the "Tender Offer"); (iii) the offer to purchase disseminated by Liberty and LPI in connection with the Tender Offer contains several misrepresentations and omits material information; and (iv) the members of the Board of Directors of the Company have breached their fiduciary duties of loyalty, due care and candor by failing to protect the public stockholders of the Company from the Tender Offer. Plaintiffs seek to rescind the Acquisition, to enjoin consummation of the Tender Offer and to enjoin the defendants from taking any action to eliminate the separate class voting rights of the holders of the Shares and the Class B Shares on any future proposal relating to a merger or other business combination involving the Company. On May 10, 1993, the plaintiffs filed a Second Consolidated Amended and Supplemental Class Action Complaint (the "Second Supplemental Complaint"). In addition to the parties and allegations contained in the Supplemental Complaint that plaintiffs filed on April 26, 1993, the Second Supplemental 9 12 Complaint contains allegations, among other things, that the Tender Offer is false, misleading and coercive. On July 14, 1993, the Delaware Chancery Court granted the plaintiffs leave to file a third consolidated amended and supplemental class action complaint (the "Third Supplemental Complaint"). In addition to the parties and allegations contained in the Second Supplemental Complaint, the Third Supplemental Complaint adds claims and allegations and adds QVC as an additional party defendant. The Third Supplemental Complaint alleges that the QVC merger proposal of July 12, 1993 to form a business combination with the Company (the "QVC Merger Proposal") was inadequate and grossly unfair to the Company's minority stockholders. It asserts class action claims against all defendants other than QVC for breach of fiduciary duty, and against QVC for aiding and abetting Liberty's alleged breaches of fiduciary duty in connection with the QVC Merger Proposal. In addition to the relief sought in the Second Supplemental Complaint, the Third Supplemental Complaint seeks to rescind the Tender Offer or obtain damages in connection therewith. On November 5, 1993, QVC withdrew the QVC Merger Proposal. On April 26, 1993, four stockholders of the Company filed with the Delaware Court a purported class action complaint, styled as 7547 Corp. V. Liberty Media Corp., C.A. No. 12956, on behalf of an unspecified class of stockholders of the Company (the "Delaware State Law Action"). The defendants including Liberty, LPI, the Company, and certain current and former directors of the Company (Messrs. Speer, Forstmann, McNamara, Wandler, Chu, James, Ramsey and Roberts). Plaintiffs contend, among other things, that (i) the Board of Directors of the Company failed to approve the Agreement in Principle between RMS and Liberty relating to purchase of a controlling interest in the Company by Liberty before RMS and Liberty reached an agreement, arrangement or understanding regarding the Acquisition; (ii) any approval of the Agreement in Principle by the Board of Directors of the Company on December 4, 1992, was ineffective to exempt Liberty from the restrictions of Section 203 of the Delaware General Corporation Law; and (iii) the Tender Offer is a prohibited "business combination" under Section 203. Plaintiffs sought an injunction hearing prohibiting consummation of the Tender Offer and sought a declaratory judgment prohibiting Liberty from engaging in a "business combination," as defined in Section 203 of the Delaware General Corporation Law (including a business combination with the Company) until December 3, 1995. On May 17, 1993, a hearing was held in the Delaware Court on the motions for preliminary injunction filed by the plaintiffs in the Delaware Action and in the Delaware State Law Action. On May 19, 1993, the Delaware Court issued an Order denying plaintiffs' motions for preliminary injunction, ruling that plaintiffs in the Delaware Action had not demonstrated a reasonable probability of success on the merits of their disclosure claims, and that plaintiffs in the Delaware State Law Action had not demonstrated a reasonable probability of success on their claim that the proposed tender offer was in violation of the Delaware Business Combinations Act, 8 Del. C. Section 203. On July 19, 1993, certain named plaintiffs filed a Class Action Complaint styled Bartnik, et al. V. Home Shopping Network, Inc., Liberty Media Corp., QVC Network, Inc., Roy M. Speer, Les R. Wandler, John C. Malone, Peter R. Barton, Robert R. Bennett, Gerald F. Hogan, J. Anthony Forstmann, and John J. McNamara, Civil Action No. 93-336, in the United States District Court for the District of Delaware (the "Bartnik Complaint"). The Bartnik Complaint alleges class action claims against Roy M. Speer, Liberty, Gerald F. Hogan, John C. Malone, Peter R. Barton, and Robert R. Bennett for violations of Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder in connection with an alleged scheme to maintain an artificially low market price for the common stock of the Company and to induce class members to sell the Company's common stock during the class period at artificially depressed prices. The Bartnik Complaint contains a class action claim against QVC for aiding and abetting the defendants in their alleged violations of Section 10(b) and Rule 10b-5. The Bartnik Complaint also alleges class action claims against defendants Liberty, Hogan, Malone, Barton, and Bennett for violating Sections 20 and 20A of the Exchange Act through their alleged control over the Company and its disclosures during the class period. The Bartnik Complaint further alleges class action claims against all defendants except QVC, alleging that Liberty's Offer to Purchase and 14D-1 dated on or about April 22, 1993, and the Company's 14D-9 dated on or about May 6, 1993, were materially false and misleading in violation of Section 14(e) of the Exchange Act. The Bartnik Complaint also alleges claims against all defendants except QVC for negligent misrepresentation. 10 13 On or about July 22, 1993, plaintiff Meny Beriro filed a purported class action complaint, Beriro V. Home Shopping Network, Inc., et al., No. 93-347, in the United States District Court for the District of Delaware (the "Beriro Complaint"). On or about August 17, 1993, plaintiff Lawrence G. Metzger filed a purported class action complaint, Metzger V. Home Shopping Network, Inc. et al., No. 93-406, in the United States District Court for the District of Delaware (the "Metzger Complaint"). The Beriro and Metzger Complaints name the same defendants and contain substantially the same claims as the Bartnik Complaint. On September 14, 1993, the United States District Court for the District of Delaware entered an order consolidating the Beriro Complaint and the Metzger Complaint into the Bartnik Complaint as the Complaint for the consolidated action. On December 16, 1993, four actions that had been filed in, consolidated by and transferred from the United States District Court for the District of Colorado were consolidated with the Bartnik Complaint (the "Delaware Federal Action"). On February 15, 1994, plaintiffs filed a consolidated and amended complaint. The action seeks unspecified damages on behalf of a purported class consisting of all purchasers of the Company's common stock prior to April 9, 1993 who thereafter sold such shares on public exchanges prior to July 12, 1993 or in the Tender Offer. The defendants include Liberty, LPI, John C. Malone, Peter R. Barton and Robert R. Bennett (collectively, the "Liberty Defendants"), QVC, the Company, Gerald F. Hogan, J. Anthony Forstmann, John J. McNamara, Roy M. Speer and Les R. Wandler. Plaintiffs allege that, between March 30, 1993 and July 12, 1993, the Liberty Defendants failed to disclose their supposed "plans and expectations" for a merger of the Company and QVC. Plaintiffs also allege that (i) defendants supposedly made misleading and overly negative disclosures between April-July 1993 regarding the business activities and prospects of the Company which had the effect of artificially depressing the price of the Company's shares; (ii) defendants allegedly misled sellers of the Company's shares by failing to disclose defendants' expectations regarding a July 1993 ruling by the Federal Communications Commission which improved the business prospects of the Company; and (iii) Liberty and the Company supposedly misled the Company's stockholders by making incorrect disclosures (particularly in connection with the Tender Offer) regarding Liberty's ability to control the Company's stockholder vote on certain fundamental corporate transactions. Plaintiffs assert that the foregoing alleged acts and omissions violated the federal securities laws and state law. On December 31, 1993, an agreement in principle was reached to settle the Delaware Action and the Delaware Federal Action. The Company does not anticipate having to contribute to the settlement of these actions or pay any of the plaintiffs' attorneys' fees or expenses therein. The settlement of these actions is conditioned on, among other things, court approval after notice to the shareholders and a hearing on the fairness of the settlement. On February 12, 1993, a class action complaint entitled Mizell et al. V. Speer et al., C.A. No. 93-000494-CI-020, was filed in the Circuit Court for Pinellas County, Florida against Roy M. Speer, Les R. Wandler, Franklin J. Chu, J. Anthony Forstmann, Thomas A. James, John J. McNamara, William J. Ramsey, Michael V. Roberts and Liberty ("Mizell "). On February 19, 1993, plaintiffs in Mizell filed an amended complaint adding the Company as an additional defendant. The Mizell plaintiffs allege, among other things, that the Liberty merger proposal delivered to the Board of Directors of the Company following the closing of the Acquisition (the "Liberty Merger Proposal") was fundamentally unfair to the Company's public stockholders; did not represent the current value of the Company's Common Stock, assets and business; and that certain of the defendants breached their fiduciary duties to plaintiffs and to the Company's other shareholders. The plaintiffs seek, inter alia, an injunction enjoining any merger or other business combination resulting from the Liberty Merger Proposal and unspecified monetary damages. Liberty and the other defendants in the Mizell action have filed motions to dismiss the amended complaint on various grounds or, in the alternative, to stay that proceeding in favor of the prior-filed Delaware action. On January 19, 1994, the Mizell plaintiffs voluntarily dismissed the Mizell lawsuit without prejudice. On April 13 and 14, 1993, seven purported class action lawsuits were filed in the United States District Court for the Middle District of Florida, Tampa Division (the "Court") against the Company and Roy M. Speer and, in two of the cases, current or former officers and directors of the Company. RMS is also named as a defendant in two of the actions. The complaints filed in four of the suits are virtually identical and allege that 11 14 certain statements made by Roy Speer and the Company in press releases and in an information statement dated March 11, 1993, failed to disclose material facts relating to the Company's business practices. Goldstein V. Roy M. Speer, et al. and Home Shopping Network, Inc., Civil Action No. 93-602-CIV-T-23B; Milton Partners, L.P. V. Roy M. Speer, et al. and Home Shopping Network, Inc., Civil Action No. 93-608-CIV-T-15C; Kirsch V. Roy M. Speer, et al. and Home Shopping Network, Inc., Civil Action No. 93-623-CIV-T-23A; and Greenwald V. Roy M. Speer, et al. and Home Shopping Network, Inc., Civil Action No. 93-624-CIV-T-17B. In particular, these suits allege that employees of the Company improperly accepted compensation from vendors; that the Company paid Nando DiFilippo, former executive vice-president, general counsel and secretary of the Company, to prevent him from disclosing such vendor bribes; and that the Company had failed to properly disclose certain related party transactions in its filings with the SEC. These suits allege that the failure to disclose these matters violated Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder, and Section 20 of the Exchange Act and constituted common law fraud. In International Gemmological Institute, Inc. et al. V. Home Shopping Network, Inc. et al., Civil Action No. 93-610-CIV-T-21B, another of the purported class action suits, the plaintiffs assert that Speer and the Company misstated material facts or omitted to state material facts in certain public filings and announcements, that certain insiders of the Company (Franklin Chu, John McNamara, Michael Roberts, and Edward Vaughn) traded securities of the Company while in the possession of material nonpublic information and that Speer and the Company engaged in certain activities which amount to common law fraud and deceit and negligent misrepresentation. This purported class action seeks damages, including punitive damages, interest, costs and fees. The allegations in this complaint are similar to those in the class action suits described above. Likewise, in Arnold Jerome Sussman, et al. V. Home Shopping Network, Inc., Civil Action No. 93-613-CIV-T-17B the plaintiffs assert violations of Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder based upon a failure to properly disclose certain bribes allegedly paid by unspecified vendors to Mr. Speer and Lowell W. Paxson, a former president of the Company, the fact that certain payments to Mr. DiFilippo allegedly were to cover-up financial wrongdoing, that corporate assets were purportedly transferred to Western and that an improper loan was made to a consultant of the Company. The plaintiffs in this action seek damages, prejudgment interest, costs, expenses and attorneys' fees and other unspecified relief. The plaintiff in one of the putative class actions, Kas V. Home Shopping Network Inc., et al., Civil Action No. 93-621-CIV-T-15A, voluntarily dismissed his claims without prejudice. On or about April 23, 1993, plaintiffs Mike and Natalie Magula filed another purported class action in the Court titled Magula V. Home Shopping Network, Inc., Civil Action No. 93-679-CIV-T-21C. The defendants in this action are the Company, Roy M. Speer, Les R. Wandler, Franklin J. Chu, Fernando DiFilippo, Jr., Lowell W. Paxson and RMS. The plaintiffs allege violations of Section 10 of the Exchange Act, Rule 10b-5 promulgated thereunder and Section 20(a) of the Exchange Act as well as a Florida statute relating to commercial bribery in seeking an unspecified amount of damages, including punitive damages, prejudgment interest, costs and attorneys' fees. The complaint alleges that (i) the Company failed to properly disclose the nature of certain payments made by Mr. Speer and Mr. Paxson to Mr. DiFilippo; (ii) the Company knew or recklessly disregarded the fact that certain vendors to the Company allegedly paid bribes to certain employees of the Company; (iii) that the Company's Annual Report on Form 10-K for the year ended August 31, 1992, and Report on Form 10-Q for the period ended November 30, 1992, contained misleading financial statements because they failed to disclose the payments to Mr. DiFilippo and that certain employees of the Company had allegedly been paid bribes; (iv) that the Company failed to disclose certain information regarding its inventory levels and a recent change in management's policies which resulted in an increase in the Company's inventory reserve; and (v) that the Company failed to accurately disclose the existence of a known trend that would have a material impact on the business of the Company. On or about April 28, 1993, another purported class action lawsuit, Newborn V. Home Shopping Network, Inc., et al., Civil Action No. 93 681 CIV T 17A was filed in the Court against the Company, Mr. Speer and RMS. The plaintiff alleges violations of Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder, and the plaintiff seeks an unspecified amount of damages, including prejudgment interest, plus costs, expenses and attorneys' fees. The plaintiff alleges that the defendants engaged in improper activities including (i) improper payments to Mr. Speer, Mr. Paxson, and possibly other senior executives of the 12 15 Company; (ii) diversion of Company funds to Western; (iii) a cover-up of the alleged improper payments, including payments to Mr. DiFilippo and an alleged improper loan to a financial advisor to the Company; and (iv) issuance of materially false and misleading statements to the investing public. Plaintiffs have moved to consolidate all of the pending class action suits filed in April 1993 in the Court against the Company and various defendants (the "Florida Federal Securities Actions"). On December 30, 1993, the counsel for both the Company and the plaintiffs in the Florida Federal Securities Actions, entered into an agreement in principle to settle the Florida Federal Securities Actions. Pursuant to the terms of the agreement in principle to settle the Florida Federal Securities Actions, the Company agreed to pay $9,600,000 in full settlement of any and all claims whatsoever which have been or could have been made in the Florida Federal Securities Actions by any members of a plaintiff class consisting of all purchasers of the Company's common stock (other than the defendants) from June 1, 1992 through and including April 12, 1993 (collectively the "Purchaser Class"). Any attorneys' fees awarded by the Court to the plaintiffs' attorneys will be paid out of the $9,600,000 settlement fund. The settlement of the Florida Federal Securities Actions is conditioned on, among other things, Court approval after notice to the Purchaser Class and a hearing on the fairness of the settlement. On December 15, 1992, a shareholder derivative lawsuit was filed by 7457 Corp., a Colorado corporation, against certain current and former officers and directors of the Company (Roy M. Speer, Les Wandler, Franklin J. Chu, J. Anthony Forstmann, Thomas A. James, John J. McNamara, William J. Ramsey, and Michael R. Roberts) (the "Named Directors"), and against the Company as a nominal defendant in the United States District Court for the Middle District of Florida, Tampa Division, Case No. 92-1966-CIV-T-15A. Another shareholder derivative suit was filed in the Court against the Named Directors and the Company as a nominal defendant on December 31, 1992, by Isaac Fillosov and Claire Rand. On February 23, 1993, the Court granted a motion to consolidate these two actions as 7547 Corp. et al. V. Speer et al. (the "Derivative Action") with leave to file a consolidated amended complaint. On April 16, 1993, the plaintiffs filed a consolidated amended complaint. On May 24, 1993, the court granted plaintiffs leave to file a second consolidated amended complaint (the "Second Amended Complaint"). The amendments add Richard Speer, Western, Liberty and LPI as defendants and add Ricky Werbosky as plaintiff. The Company is named as a nominal defendant in a derivative capacity with respect to one of the claims asserted in the Second Amended Complaint. The suit alleges a breach of fiduciary duties owed to the Company and its stockholders by the Named Directors and a failure to exercise due care and diligence in the management and administration of the affairs of the Company. Western and Richard Speer are alleged to have aided and abetted such breaches. The suit challenges the validity of a license agreement with Western pursuant to which the Company was given the exclusive rights to certain software and alleges that the Company wrongfully made, and continues to make, payments to Western pursuant to a computer services agreement which was allegedly terminated. The suit alleges that the Company wrongfully made payments to Western of $3,502,000, $3,286,000 and $3,084,000 during the Company's 1992, 1991 and 1990 fiscal years, respectively, pursuant to the agreement. Merchandise that is unsuitable for sale via the Company's programs or outlet stores was sold by Western, which received a commission of 15% on the amount realized upon disposition. Western received $1,469,000, $1,615,000 and $1,427,000 and through this arrangement during the Company's 1992, 1991 and 1990 fiscal years, respectively. The suit also alleges that this 15% commission was commercially unreasonable. The sole stockholder of Western is Richard Speer, the son of Roy M. Speer. The suit alleges that the above-described arrangements would not have been entered into by the Company with an unrelated third party and that Roy and Richard Speer owned undisclosed interests in unspecified firms which sell merchandise to the Company. The Second Amended Complaint also asserts a class action claim relating to certain alleged misstatements or omissions of material facts in the Company's proxy statements for 1990, 1991 and 1992. In particular, the suit alleges that the proxy statements (i) did not disclose certain unspecified interests of Roy and Richard Speer in vendors which did business with the Company; (ii) mischaracterized certain payments made to Mr. DiFilippo as consulting fees rather than as amounts paid to DiFilippo to secure his silence concerning certain alleged, unspecified misconduct by Speer; (iii) failed to properly disclose the Western arrangements and the fact that the Audit Committee of the Board of Directors had not approved related party transactions, and (iv) that one of the Named Directors was the President of a company alleged to have been controlled by Roy Speer. The 13 16 suit seeks findings that the Named Directors, Richard Speer and Western breached their fiduciary duties to the Company and its stockholders or aided and abetted such breaches; that the Named Directors, Richard Speer and Western must account to the Company for any losses, plus interest; that the plaintiffs be awarded all costs for the action; that the Named Directors return to the Company all compensation received by them during the relevant time periods; that certain defendants be enjoined from paying additional money or delivering valuable assets to Richard Speer or Western and that certain of the Named Directors take corrective action with respect to the Company's alleged disclosure violations. The Second Amended Complaint alleges class action claims against Liberty and LPI for violations of Section 13(e) and 14(e) of the Exchange Act and Rules 13e-3 and 13e-4 promulgated thereunder in connection with the Offer to Purchase. The Second Amended Complaint also contains a class action claim against Liberty and LPI alleging that Liberty controlled the contents of the Solicitation/Recommendation section of the Schedule 14D-9 the Company filed on May 6, 1993, and that the 14D-9 is materially false and misleading in violation of Sections 14(d) and 14(e) of the Exchange Act and Rule 14e-2 promulgated thereunder. On or about February 8, 1994, counsel for the Company, with the approval of the special litigation committee of its Board of Directors, signed an agreement in principle to settle the Derivative Action. Pursuant to the terms of this agreement, Roy M. Speer has agreed to pay the Company $2,000,000 and to pay the Company an additional $1,000,000 to partially fund the $9,600,000 settlement in the Florida Federal Securities Actions. The Company has agreed to pay Western, the successor to Pioneer Data Processing, Inc. ("Pioneer"), $4,500,000 in exchange for releases and cancellation or acquisition of a 1985 license agreement involving the Company and Pioneer. This agreement in principle also provides for certain limitations on the rights of Roy M. Speer to seek indemnification for the advancement of expenses from the Company and that the parties to the Derivative Action agree to release certain claims against each other. The Company also has agreed to pay such attorneys' fees as may be awarded by the Court to the plaintiffs' counsel. The settlement of the Derivative Action is conditioned on, among other things, Court approval after notice to the shareholders and a hearing on the fairness of the settlement. On April 1, 1993, Mr. Allen P. Allweiss, a former executive vice president and general counsel of the Company, filed a lawsuit styled Allweiss V. HSN, et al., in the Circuit Court of the Sixth Judicial Circuit of the State of Florida for Pinellas County, Case No. 93-1176CI13, against the Company, Roy M. Speer, Francis Santangelo, Liberty, Gerald F. Hogan and John M. Draper complaining about, among other things, his February 24, 1993, termination from the Company (the "Allweiss Suit"). The Allweiss Suit asserted that the defendants violated certain provisions of Florida law relating to stock options and restricted stock (the "Stock Rights") issued to Allweiss under the Company's 1986 Stock Option Plan for Employees (the "Employee Plan") and the Company's 1990 Executive Stock Award Program (the "Award Program"). Additional allegations against one or more of the defendants relating to Mr. Allweiss' Stock Rights include securities fraud, an alleged fraudulent scheme to deprive him of the value of such rights, theft, conversion, breach of contract, interference with a business or contractual relationship and deprivation of unpaid wages. In addition, Mr. Allweiss alleged that his discharge was in retaliation for bringing to the attention of the Company certain alleged improprieties by Mr. Speer, Mr. Santangelo and certain former officers and directors of the Company. The Allweiss Suit is seeking an unspecified amount of damages for losses associated with his Stock Rights and lost benefits and wages, treble damages against the Company, Speer and Santangelo for an alleged pattern of criminal activities that allegedly injured Mr. Allweiss and relief for intentional infliction of emotional distress. During his tenure with the Company, Mr. Allweiss was granted certain stock options and restricted stock under the Company's Employee Plan and the Award Program. Following his dismissal, the Company notified Allweiss that all of the options granted under the Employee Plan had vested and were exercisable at $8.229 per share, the exercise price set upon the initial grant of the options. Mr. Allweiss maintains that the exercise price had been amended following the initial grant date and that the correct exercise price is $4.753 per share. The Award Program provides that nonvested shares of stock are forfeited upon the termination of a participant's employment with the Company unless such termination results from a change in control of the Company. Mr. Allweiss alleges that the Company has violated certain of his rights by failing to notify him of the status of the stock granted to him under the Award Program. In addition to the counts relating to the Stock Rights, the Allweiss Suit refers to a variety of allegedly improper 14 17 transactions and purportedly inaccurate or incomplete disclosures involving (i) the severance arrangements between the Company, Mr. Speer and Mr. Paxson, and Mr. DiFilippo; (ii) transactions between the Company and Pioneer and Western; (iii) the failure of the Company's Audit Committee to approve certain related party transactions; (iv) disclosures to the IRS relating to payments to Pioneer and a proposed reorganization of Western; (v) the independence of a former member of the Audit Committee of the Board of Directors; (vi) disclosures contained in certain documents filed with the FCC; (vii) transactions between the Company and Francis Santangelo; and (viii) certain additional matters. The Allweiss Suit maintains, among other things, that Mr. Allweiss' efforts to disclose or rectify these matters caused him to be dismissed. On August 30, 1993, Mr. Allweiss filed an amended complaint (the "Amended Complaint") in the Circuit Court of the Sixth Judicial Circuit of the State of Florida for Pinellas County, Case No. 93-1176CI13. The Amended Complaint restates several of the causes of action in the original complaint and contains essentially the same allegations of purported wrongdoing as the original complaint but no longer includes several counts including the claims for securities fraud, common law fraud, deprivation for unpaid wages, and intentional infliction of emotional distress. The Amended Complaint also adds counts for conspiracy to commit theft, conversion, and retaliatory discharge. The Amended Complaint also includes a claim for civil remedies for alleged criminal practices against the Company, Mr. Speer and Mr. Santangelo, along with a claim for interference with business and contractual relations against Santangelo only. On October 26, 1993, the court denied the defendants' motions to dismiss the Amended Complaint except that the court dismissed the retaliatory discharge count with prejudice as to all of the defendants except the Company. Plaintiff also filed on August 30, 1993, a notice of appeal as to those claims dismissed without leave to amend by the court's July 29, 1993, order in the Allweiss Suit. The appeal was dismissed on October 15, 1993, as premature. On December 2, 1993, the Company filed a counterclaim against Mr. Allweiss alleging breach of fiduciary duties, legal malpractice and breach of a confidentiality agreement. The Company believes it has meritorious defenses and intends to vigorously defend this action. On December 27, 1990, a customer of HSC filed an amended class action complaint against the Company styled Mauger V. Home Shopping Network, Inc., in the Court of Common Pleas, Philadelphia County, Pennsylvania. Plaintiff alleged violation of the Pennsylvania Unfair Trade Practices and Consumer Protection Law in relation to the Company's pricing practices with respect to diamond and imitation diamond jewelry. Plaintiff seeks certification of the class, compensatory damages or $100 per class member, treble damages, attorney's fees, costs, interest and other relief. Plaintiff claims that the diamond ring she purchased from HSC was not of the same value stated in an appraisal provided to the customer. On June 22, 1991, another customer of HSC filed a class action complaint against the Company, styled Powell V. Home Shopping Network, Inc., making similar allegations concerning jewelry purchased from HSC and seeking similar relief. On April 19, 1993, the Mauger and Powell cases were consolidated in the Court of Common Pleas of Bucks County, Pennsylvania, (Case No. 91-6152-20-1). On May 4, 1993, the Court entered an order granting the plaintiffs' motion for class certification and declared the plaintiffs to be class representatives and the class to be "all Pennsylvania residents who purchased any jewelry containing diamonds or imitation diamonds from Home Shopping Network, Inc's subsidiary Home Shopping Club, Inc. between December 27, 1984 and May 20, 1991." On July 23, 1993 the court denied the Company's motion for interlocutory appeal of the May 4, 1993 order. The Company believes that it has meritorious defenses and intends to continue vigorously defending this action. The Company has been informed that the Securities and Exchange Commission has entered a formal order of investigation involving matters relating to, among other things, certain of the Company's SEC filings and other public disclosures. The Company has furnished documents in connection with this formal investigation and is cooperating in the investigation while maintaining its legal privileges, including the attorney/client privilege. This is a nonpublic investigation and the scope of the investigation is confidential. The Company has been advised that this inquiry should not be construed as an indication by the Commission or its staff that any violations of law have occurred, nor should it be considered a reflection upon any person, entity or security. 15 18 The Company has been informed that a federal grand jury impaneled in the Middle District of Florida is investigating matters relating to the Company. The Company has furnished documents in connection with this investigation and has taken action to protect its legal privileges in these proceedings, including the attorney/client privilege. Information related to the scope of matters occurring before the grand jury is confidential. The Company was advised by the federal government that the Company is not a target, at this time, of the Grand Jury investigation. Pursuant to existing indemnification agreements with current and former officers and directors, the Company has paid in 1993 approximately $1,983,000 in attorneys' fees and expenses of its current and former officers and directors in connection with the foregoing described litigation. On March 4, 1993, the Company's Board of Directors formed a Special Committee to investigate the allegations in the Derivative Action and certain other matters and to take such action in response to the Derivative Action and other litigation as the Committee determined to be in the interests of the Company and its stockholders. The members of the Special Committee are Messrs. Hindery, Draper and Bennett. Both Messrs. Draper and Bennett are officers of Liberty. The Special Committee has retained legal counsel to assist in its investigation. The Special Committee is finalizing their review in connection with the settlement of the matters. In conjunction with the proposed settlement of the Delaware Federal Action, the Delaware Action, the Derivative Action and the Florida Federal Securities Actions, certain defendants in those lawsuits agreed through their attorneys on February 8, 1994 that, upon the final consummation of the proposed settlements in all such actions, all such parties will release each other as to any claims for contribution relating to the claims actually asserted in those proceedings (the "Release Agreement"). The parties to the Release Agreement are the Company, Roy M. Speer, Les R. Wandler, Franklin J. Chu, J. Anthony Forstmann, Gerald F. Hogan, Thomas A. James, John J. McNamara, William J. Ramsey, Michael V. Roberts, RMS, Liberty, LPI, John C. Malone, Peter R. Barton, Robert R. Bennett and John M. Draper. The foregoing descriptions of these actions and the proposed settlements of the Delaware Action, the Delaware Federal Action, the Derivative Action and the Florida Federal Securities Actions do not purport to be a complete summary thereof and are qualified in their entirety by reference to the complaints and other pleadings in these actions and the documents associated with the proposed settlements. The Company has determined that the publicity surrounding the legal proceedings referenced above has not, and is not expected to, materially adversely affect the Company's business operations. ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable 16 19 PART II ITEM 5 -- MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information set forth under the caption "Price Range of Common Stock" on page 61 of the 1993 Annual Report, is incorporated herein by reference. The total number of stockholders of record as of March 18, 1994, was 8,804. The Company has paid no cash dividends on its common stock to date and does not anticipate that it will pay cash dividends in 1994. 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. On December 28, 1992, the Company distributed the capital stock of SKC to the Company's stockholders of record on December 24, 1992, in the form of a pro rata stock dividend. The distribution also included Telemation, Inc., formerly a wholly-owned subsidiary of the Company that operates video production and post-production facilities, the capital stock of which was contributed to SKC prior to the distribution. The distribution of the capital stock of SKC was a taxable transaction. The Company recognized a gain for income tax purposes in the amount equal to the difference between the fair market value of the SKC capital stock distributed and the Company's basis in such SKC capital stock. This gain resulted in additional income tax expense of approximately $1.5 million which was recorded during the four months ended December 31, 1992. ITEM 6 -- SELECTED FINANCIAL DATA The information set forth under the caption "Summary Financial Data" on page 60 of the 1993 Annual Report, is incorporated herein by reference. ITEM 7 --MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information set forth under the caption "Management's Discussion and Analysis" on pages 21 through 34 of the 1993 Annual Report, is incorporated herein by reference. ITEM 8 -- CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following consolidated financial statements of the Registrant and Independent Auditors' Reports set forth on pages 35 through 59 of the 1993 Annual Report are incorporated herein by reference: Independent Auditors' Reports for the year ended December 31, 1993, the four months ended December 31, 1992, and the years ended August 31, 1992 and 1991. Consolidated Balance Sheets as of December 31, 1993, and 1992 and August 31, 1992. Consolidated Statements of Operations for the year ended December 31, 1993, the four months ended December 31, 1992, and the years ended August 31, 1992 and 1991. Consolidated Statements of Stockholders' Equity for the year ended December 31, 1993, the four months ended December 31, 1992, and the years ended August 31, 1992 and 1991. Consolidated Statements of Cash Flows for the years ended December 31, 1993, the four months ended December 31, 1992, and the years ended August 31, 1992 and 1991. Notes to Consolidated Financial Statements. ITEM 9 --CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES A report was filed on Form 8-K for the event occurring February 23, 1993, reflecting the change in accountants from Deloitte & Touche to KPMG Peat Marwick. 17 20 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 29, 1994, for the Annual Meeting of Stockholders to be held May 4, 1994, 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 29, 1994, for the Annual Meeting of Stockholders to be held May 4, 1994, 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 29, 1994, for the Annual Meeting of Stockholders to be held May 4, 1994, is incorporated herein by reference. ITEM 13 -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information set forth under the captions "Compensation of Directors and Executive Officers" and "Certain Transactions and Business Relationships" in the Proxy Statement dated March 29, 1994, for the Annual Meeting of Stockholders to be held on May 4, 1994, is incorporated herein by reference. 18 21 PART IV ITEM 14 -- EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) List of Documents filed as part of this Report (1) Financial Statements Independent Auditors' Report -- KPMG Peat Marwick. Independent Auditors' Report -- Deloitte & Touche. Consolidated Balance Sheets as of December 31, 1993 and 1992, and August 31, 1992. Consolidated Statements of Operations for the year ended December 31, 1993, the four months ended December 31, 1992, and the years ended August 31, 1992 and 1991. Consolidated Statements of Stockholders' Equity for the year ended December 31, 1993, the four months ended December 31, 1992, and the years ended August 31, 1992 and 1991. Consolidated Statements of Cash Flows for the year ended December 31, 1993, the four months ended December 31, 1992, and the years ended August 31, 1992 and 1991. Notes to Consolidated Financial Statements. (2) Financial Statement Schedules
SCHEDULE PAGE NUMBER NUMBER - -------- ------ II -- Amounts Receivable from Related Parties and Underwriters, Promoters, and 29 Employees other than Related Parties.................................... V -- Property, Plant and Equipment........................................... 30 VI -- Accumulated Depreciation and Amortization of Property, Plant and 31 Equipment............................................................... VIII -- Valuation and Qualifying Accounts....................................... 32 X -- Supplementary Income Statement Information.............................. 33
The reports of the Company's independent auditors with respect to the above listed financial statement schedules appears on pages 27 and 28. 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. (3) Exhibits (numbered in accordance with Item 601 of Regulation S-K)
EXHIBIT NUMBER DESCRIPTION - ------- ----------------------------------------------------------------------------------- 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 hereby incorporated 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 hereby incorporated 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 is hereby incorporated by reference. 3.4 -- Amended Bylaws of the Company. 10.1 -- Agreement for Computer Services dated June 21, 1985, by and between Pioneer Data, Inc. and the Company filed as Exhibit 10.17 to the Company's Form S-1 Registration Statement #33-4356, dated May 13, 1986, is incorporated herein by reference.
19 22
EXHIBIT NUMBER DESCRIPTION - ------- ----------------------------------------------------------------------------------- *10.2 -- 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. *10.3 -- 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. *10.4 -- 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. 10.5 -- Form of 1987 Cable Operators Stock Option Plan, filed as Exhibit 10.48 to the Company's Form S-1 Registration Statement #33-12527, dated May 4, 1987, is incorporated herein by reference. 10.6 -- Form of Affiliation Agreement by and between the Company and Cable Operators under the 1987 Cable Operators Stock Option Plan, filed as Exhibit 10.49 to the Company's Form S-1 Registration Statement #33-12527, dated May 4, 1987, is incorporated herein by reference. 10.7 -- Form of Cable Operators Stock Option Agreement by and between the Company and Cable Operators under the 1987 Cable Operators Stock Option Plan, filed as Exhibit 10.50 to the Company's Form S-1 Registration Statement #33-12527, dated May 4, 1987, is incorporated herein by reference. 10.8 -- 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. 10.9 -- 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. 10.10 -- 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. 10.11 -- 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. 10.12 -- 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. *10.13 -- 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 hereby incorporated by reference. *10.14 -- 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 hereby incorporated by reference. 10.15 -- 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.
20 23
EXHIBIT NUMBER DESCRIPTION - ------- ----------------------------------------------------------------------------------- 10.16 -- 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. 10.17 -- 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. 10.18 -- 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. 10.19 -- 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. 10.20 -- 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. 10.21 -- 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. 10.22 -- Form of Corporate Services Agreement between Home Shopping Network, Inc. and SKC dated as of December 28, 1992 filed as Exhibit 10.3 to the SKC Registration Statement on Form 10, as amended, Registration Statement No. 0-20570, is incorporated herein by reference. 10.23 -- 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. 10.24 -- Loan Agreement, as amended, and Promissory Note between HSN Capital Corporation and SKC dated as of December 28, 1992. 10.25 -- Term Loan Agreement, dated as of December 18, 1992, among Home Shopping Network, Inc., Home Shopping Club, Inc., the signatory banks, LTCB Trust Company and Bank of Montreal as Co-Agents and LTCB Trust Company as Administrative Agents, as amended. 10.26 -- Amended and Restated Credit Agreement, dated as of December 18, 1992 among Home Shopping Network, Inc., Home Shopping Club, Inc., the signatory banks, LTCB Trust Company and Bank of Montreal as Co-Agents and LTCB Trust Company as Administrative Agent, as amended. 10.27 -- Term Loan Agreement, dated as of February 4, 1993, 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. 10.28 -- Amended and Restated System Maintenance and Support Agreement effective as of February 2, 1993 between Home Shopping Network, Inc. and Precision Systems, Inc. 10.29 -- MCI Special Customer Arrangement between MCI Telecommunications Corporation and Home Shopping Network, Inc. 10.30 -- Credit Card Program Agreement, dated as of February 16, 1994, by and among Home Shopping Network, Inc., participating subsidiaries and General Electric Capital Corporation. *10.31 -- First, Second, Third and Fourth Amendments to the 1986 Stock Option Plan for Employees. *10.32 -- Employment Agreement between Home Shopping Network, Inc. and Gerald F. Hogan, dated as of February 23, 1993.
21 24
EXHIBIT NUMBER DESCRIPTION - ------- ----------------------------------------------------------------------------------- *10.33 -- Home Shopping Network, Inc. Retirement Savings and Employee Stock Ownership Plan and Trust Agreement. 11 -- Computation of net earnings (loss) per share. 13 -- Annual Report to Stockholders. 21 -- List of Subsidiaries of the Company.
- --------------- * Reflects management contracts and compensatory plans. (b) Reports on Form 8-K Report dated November 5, 1993, reporting the termination of merger negotiations with QVC, Inc. 22 25 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 25, 1994 HOME SHOPPING NETWORK, INC. By: /s/ GERALD F. HOGAN ---------------------------------- Gerald F. Hogan 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 25, 1994.
SIGNATURE TITLE - ----------------------------------------------- -------------------------------------------- /s/ GERALD F. HOGAN President and Chief Executive Officer and - ----------------------------------------------- Director Gerald F. Hogan /s/ KEVIN J. McKEON Senior Vice President of Accounting and - ----------------------------------------------- Finance and Treasurer (Principal Financial Kevin J. McKeon and Accounting Officer) /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/ GEORGE C. McNAMEE Director - ----------------------------------------------- George C. McNamee
23 26 INDEPENDENT AUDITORS' REPORT The Board of Directors Home Shopping Network, Inc. Under date of February 15, 1994, we reported on the consolidated balance sheets of Home Shopping Network, Inc. and subsidiaries as of December 31, 1993 and 1992 and the related consolidated statements of operations, stockholders' equity, and cash flows for the year ended December 31, 1993 and the four months ended December 31, 1992 as contained in the Company's 1993 Annual Report. These consolidated financial statements and our report thereon are incorporated by reference in the annual report on Form 10-K for the year 1993. In connection with our audits of the aforementioned consolidated financial statements, we also have audited the related financial statement schedules as listed in Item 14. These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statement schedules based on our audits. In our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. KPMG Peat Marwick St. Petersburg, Florida February 15, 1994 27 27 INDEPENDENT AUDITORS' REPORT The Board of Directors Home Shopping Network, Inc. We have audited the consolidated financial statements of Home Shopping Network, Inc. and subsidiaries (the "Company") as of August 31, 1992 and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the two years in the period ended August 31, 1992, and have issued our report thereon dated October 15, 1992 (February 15, 1994 as to Note H to the consolidated financial statements); such consolidated financial statements and report are included in your 1993 Annual Report and are incorporated herein by reference. Our audits also included the financial statement schedules of the Company, listed in Item 14. These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. DELOITTE & TOUCHE Tampa, Florida October 15, 1992 (February 15, 1994 as to Note H to the consolidated financial statements) 28 28 SCHEDULE II HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS, PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
DEDUCTIONS BALANCE AT END BALANCE ------------------------------- OF PERIOD AT AMOUNTS ------------------- BEGINNING AMOUNTS WRITTEN NOT NAME OF DEBTOR OF PERIOD ADDITIONS COLLECTED OFF OTHER CURRENT CURRENT - ------------------------------------ --------- --------- --------- ------- ----- ------- ------- (In thousands) Year ended December 31, 1993 Vernon J. Troupe(2)............... $ 316 $ 16(5) $(332) $ -- $ -- $ -- $ -- Roy M. Speer(6)................... -- 3,000 -- -- -- 3,000 -- Rene Aiu.......................... -- 107(3) -- -- -- 107 -- --------- --------- --------- ------- ----- ------- ------- $ 316 $ 3,123 $(332) $ -- $ -- $3,107 $ -- --------- --------- --------- ------- ----- ------- ------- --------- --------- --------- ------- ----- ------- ------- Four months ended December 31, 1992 Roberts Broadcasting(1)........... $ 432 $ 157 $(138) $ -- $(451)(4) $ -- $ -- Vernon J. Troupe(2)............... 315 8(5) (7) -- -- 316 -- --------- --------- --------- ------- ----- ------- ------- $ 747 $ 165 $(145) $ -- $(451) $ 316 $ -- --------- --------- --------- ------- ----- ------- ------- --------- --------- --------- ------- ----- ------- ------- Year ended August 31, 1992 Roberts Broadcasting(1)........... $ 380 $ 432 $(380) $ -- $ -- $ 432 $ -- Vernon J. Troupe(2)............... 287 28(5) -- -- -- 315 -- --------- --------- --------- ------- ----- ------- ------- $ 667 $ 460 $(380) $ -- $ -- $ 747 $ -- --------- --------- --------- ------- ----- ------- ------- --------- --------- --------- ------- ----- ------- ------- Year ended August 31, 1991 Roberts Broadcasting(1)........... $ -- $ 525 $(145) $ -- $ -- $ 380 $ -- Vernon J. Troupe(2)............... -- 287(3) -- -- -- 287 -- --------- --------- --------- ------- ----- ------- ------- $ -- $ 812 $(145) $ -- $ -- $ 667 $ -- --------- --------- --------- ------- ----- ------- ------- --------- --------- --------- ------- ----- ------- -------
- --------------- (1) Amounts lent in April 1989 to Roberts Broadcasting Corporation, of which Michael V. Roberts is Chairman of the Board, were not considered as a related party transaction until his election to the Company's Board in September 1990. Michael V. Roberts resigned from the Company's Board on February 11, 1993. (2) Amount renewable annually which bears an interest rate of 10%. (3) Amount includes loan plus accrued interest. (4) Deduction relating to subsidiary spin-off. (5) Represents accrued interest. (6) Company's former Chairman of the Board of Directors and CEO was a related party until his resignation in August 1993. Receivable originated on December 30, 1993, in connection with lawsuit settlements. 29 29 SCHEDULE V HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES PROPERTY, PLANT AND EQUIPMENT
BALANCE OTHER BALANCE AT CHANGES -- AT BEGINNING ADDITIONS ADD (DEDUCT) -- END CLASSIFICATION OF PERIOD AT COST RETIREMENTS DESCRIBE OF PERIOD - ----------------------------------- --------- --------- ----------- --------------- --------- (In thousands) Year ended December 31, 1993 Computer and broadcast equipment..................... $ 98,403 $ 8,414 $ (694) $ 1,316 $ 107,439 Buildings and leasehold improvements.................. 70,012 566 (20) 725 71,283 Furniture and other equipment.... 43,866 3,610 (930) 1,545 48,091 Land............................. 16,417 87 -- 1,204 17,708 Construction in progress......... 3,219 4,882 (685) (4,790) 2,626 --------- --------- ----------- --------------- --------- $ 231,917 $17,559 $(2,329) $ --(4) $ 247,147 --------- --------- ----------- --------------- --------- --------- --------- ----------- --------------- --------- Four months ended December 31, 1992 Computer and broadcast equipment..................... $ 151,359 $ 2,380 $ (360) $ (54,976) $ 98,403 Buildings and leasehold improvements.................. 89,686 106 (4) (19,776) 70,012 Furniture and other equipment.... 45,529 345 (127) (1,881) 43,866 Land............................. 19,650 49 -- (3,282) 16,417 Construction in progress......... 18,678 7,063 -- (22,522) 3,219 --------- --------- ----------- --------------- --------- $ 324,902 $ 9,943 $ (491) $(102,437)(3) $ 231,917 --------- --------- ----------- --------------- --------- --------- --------- ----------- --------------- --------- Year ended August 31, 1992 Computer and broadcast equipment..................... $ 145,528 $12,687 $ (998) $ (5,858) $ 151,359 Buildings and leasehold improvements.................. 84,662 688 (90) 4,426 89,686 Furniture and other equipment.... 43,343 2,253 (224) 157 45,529 Land............................. 19,602 533 (14) (471) 19,650 Construction in progress......... 16,849 19,812 -- (17,983) 18,678 --------- --------- ----------- --------------- --------- $ 309,984 $35,973 $(1,326) $ (19,729)(2) $ 324,902 --------- --------- ----------- --------------- --------- --------- --------- ----------- --------------- --------- Year ended August 31, 1991 Computer and braodcast equipment..................... $ 135,914 $ 8,320 $(1,234) $ 2,528 $ 145,528 Buildings and leasehold improvements.................. 57,038 3,995 (93) 23,722 84,662 Furniture and other equipment.... 33,022 4,306 (644) 6,659 43,343 Land............................. 17,233 1,729 -- 640 19,602 Construction in progress......... 17,883 35,168 (2) (36,200) 16,849 --------- --------- ----------- --------------- --------- $ 261,090 $53,518 $(1,973) $ (2,651)(1) $ 309,984 --------- --------- ----------- --------------- --------- --------- --------- ----------- --------------- ---------
- --------------- (1) Represents equipment traded with no gain or loss in connection with a new lease. (2) Assets relating to subsidiary spin-off of $18.3 million. Land and Buildings of $1.4 million were transferred to other assets held for sale. (3) Represents assets relating to subsidiary spin-off. (4) Represents reclassifications of amounts among property and equipment classifications. 30 30 SCHEDULE VI HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
ADDITIONS BALANCE CHARGED OTHER BALANCE AT TO COSTS CHANGES -- AT BEGINNING AND ADD (DEDUCT) -- END CLASSIFICATION OF PERIOD EXPENSES RETIREMENTS DESCRIBE OF PERIOD - -------------------------------------- --------- --------- ----------- --------------- --------- (In thousands) Year ended December 31, 1993 Computer and broadcast equipment.... $ 54,726 $13,021 $(1,361) $ (2) $ 66,384 Buildings and leasehold improvements..................... 11,098 2,863 (6) (94) 13,861 Furniture and other equipment....... 19,724 5,755 (691) 94 24,882 Land improvements................... 376 272 -- 2 650 --------- --------- ----------- --------------- --------- $ 85,924 $21,911 $(2,058) $ --(4) $ 105,777 --------- --------- ----------- --------------- --------- --------- --------- ----------- --------------- --------- Four months ended December 31, 1992 Computer and broadcast equipment.... $ 103,458 $ 6,790 $ (292) $ (55,230) $ 54,726 Buildings and leasehold improvements..................... 14,519 1,193 (2) (4,612) 11,098 Furniture and other equipment....... 19,158 1,688 (48) (1,074) 19,724 Land improvements................... 346 35 -- (5) 376 --------- --------- ----------- --------------- --------- $ 137,481 $ 9,706 $ (342) $ (60,921)(3) $ 85,924 --------- --------- ----------- --------------- --------- --------- --------- ----------- --------------- --------- Year ended August 31, 1992 Computer and broadcast equipment.... $ 82,910 $24,102 $ (656) $ (2,898) $ 103,458 Buildings and leasehold improvements..................... 11,384 3,467 (2) (330) 14,519 Furniture and other equipment....... 14,642 4,945 (134) (295) 19,158 Land improvements................... 244 139 -- (37) 346 --------- --------- ----------- --------------- --------- $ 109,180 $32,653 $ (792) $ (3,560)(2) $ 137,481 --------- --------- ----------- --------------- --------- --------- --------- ----------- --------------- --------- Year ended August 31, 1991 Computer and braodcast equipment.... $ 62,924 $21,912 $ (772) $ (1,154) $ 82,910 Buildings and leasehold improvements..................... 8,277 3,005 (32) 134 11,384 Furniture and other equipment....... 11,187 4,132 (261) (416) 14,642 Land improvements................... 160 84 -- -- 244 --------- --------- ----------- --------------- --------- $ 82,548 $29,133 $(1,065) $ (1,436)(1) $ 109,180 --------- --------- ----------- --------------- --------- --------- --------- ----------- --------------- ---------
- --------------- (1) Represents equipment traded with no gain or loss in connection with new lease. (2) Accumulated depreciation related to subsidiary spin-off of $3.2 million. Accumulated depreciation related to building transferred to other assets held for sale of $.3 million. (3) Represents accumulated depreciation related to subsidiary spin-off. (4) Represents reclassifications of amounts among property and equipment classifications. 31 31 SCHEDULE VIII HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS
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) Allowance for doubtful accounts: Year ended December 31, 1993.............. $ 1,798 $ 2,025 $ -- $(2,196) $ 1,627 --------- --------- ----------- ------------- --------- --------- --------- ----------- ------------- --------- Four months ended December 31, 1992....... $ 2,233 $ 645 $ -- $(1,080) $ 1,798 --------- --------- ----------- ------------- --------- --------- --------- ----------- ------------- --------- Year ended August 31, 1992................ $ 2,180 $ 2,177 $ -- $(2,124) $ 2,233 --------- --------- ----------- ------------- --------- --------- --------- ----------- ------------- --------- Year ended August 31, 1991................ $ 1,487 $ 3,557 $ -- $(2,864) $ 2,180 --------- --------- ----------- ------------- --------- --------- --------- ----------- ------------- --------- Allowance for doubtful other current assets: Year ended December 31, 1993.............. $ 6,200 $ -- $ -- $ -- $ 6,200 --------- --------- ----------- ------------- --------- --------- --------- ----------- ------------- --------- Four months ended December 31, 1992....... $ 6,200 $ -- $ -- $ -- $ 6,200 --------- --------- ----------- ------------- --------- --------- --------- ----------- ------------- --------- Year ended August 31, 1992................ $ 6,200 $ -- $ -- $ -- $ 6,200 --------- --------- ----------- ------------- --------- --------- --------- ----------- ------------- --------- Year ended August 31, 1991................ $ -- $ 6,200 $ -- $ -- $ 6,200 --------- --------- ----------- ------------- --------- --------- --------- ----------- ------------- ---------
- --------------- (1) Accounts written off as uncollectible. 32 32 SCHEDULE X HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES SUPPLEMENTARY INCOME STATEMENT INFORMATION
CHARGED TO COSTS AND EXPENSES ITEM ---------------- - ------------------------------------------------------------------------------ (In thousands) Year ended December 31, 1993 Amortization of intangible assets(2)........................................ $ 2,261 Advertising costs(1)........................................................ 9,753 Four months ended December 31, 1992 Amortization of intangible assets........................................... $ 4,660 Advertising costs(1)........................................................ 3,310 Year ended August 31, 1992 Amortization of intangible asssets.......................................... $ 14,241 Advertising costs(1)........................................................ 7,314 Year ended August 31, 1991 Amortization of intangible assets........................................... $ 22,107 Advertising costs(1)........................................................ 12,522
- --------------- (1) Represents all costs related to the Company's marketing department. (2) Decrease is primarily due to the stock distribution of SKC in December 1992. 33 EX-3.4 2 HSN BYLAWS 1 EXHIBIT 3.4 BY-LAWS OF HOME SHOPPING NETWORK, INC. ARTICLE I OFFICES SECTION 1. PRINCIPAL OFFICE. The registered office of the corporation shall be located in the City of Wilmington, County of New Castle, State of Delaware. SECTION 2. OTHER OFFICES. The corporation may also have offices at such other place, both within and without the State of Delaware, as the Board of Directors may from time to time determine or the business of the corporation may require. ARTICLE II STOCKHOLDERS SECTION 1. PLACE OF MEETING. Meetings of stockholders may be held at such place, either within or without the State of Delaware, as may be designated by the Board of Directors. If no designation is made, the place of the meeting shall be the principal office of the corporation. SECTION 2. ANNUAL MEETING. The annual meeting of the stockholders shall be held following the end of the corporation's fiscal year at a date and time determined by the Board of Directors for the purpose of electing directors and for the transaction of such other business as may come before the meeting. If the 2 2 election of directors shall not be held on the day designated by the Board of Directors for any annual meeting, or at any adjournment thereof, the Board of Directors shall cause the election to be held at a meeting of the stockholders as soon thereafter as is convenient. SECTION 3. SPECIAL MEETING. Special meetings of the stockholders may be called by the Chairman of the Board of Directors, the Board of Directors, or at the request in writing of stockholders owning a majority in amount of the shares of either the Common Stock or Class B Common Stock as of the date of such request. SECTION 4. NOTICE. Written notice stating the date, time and place of the meeting, and in case of a special meeting, the purpose or purposes thereof, shall be given to each stockholder entitled to vote thereat not less than ten (10) nor more than sixty (60) days prior thereto, either personally or by mail or telegraph, addressed to each stockholder at his address as it appears on the records of the corporation. If mailed, such notice shall be deemed to be delivered three (3) days after being deposited in the United States mail so addressed, with postage thereon prepaid. If notice be by telegram, such notice shall be deemed to be delivered when the telegram is delivered to the telegraph company. SECTION 5. ADJOURNED MEETINGS. When a meeting is adjourned to another time or place, notice of the adjourned meeting need not be given if the time and place thereof are announced at the meeting at which the adjournment is taken, if the adjournment is for not 3 3 more than thirty (30) days, and if no new record date is fixed for the adjourned meeting. At the adjourned meeting the corporation may transact any business which might have been transacted at the original meeting. SECTION 6. QUORUM. The holders of a majority of the Voting Securities (as hereinafter defined) issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business provided, however, that in the event the holders of the Common Stock and Class B Common Stock are not then voting as a single class, the holders of a majority of each class of stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute such a quorum. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting at which a quorum shall be present or represented any business may be transacted which might have been transacted at the meeting as originally notified. When a quorum is present at any meeting, the vote of the holders of a majority of Voting Securities having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which by express provision of the Delaware General Corporation Law or of the certificate of incorporation, a 4 4 different vote is required in which case such express provision shall govern and control the decision of such question. SECTION 7. VOTING. Each holder of Common Stock shall at every meeting of the stockholders be entitled to one (1) vote in person or by proxy for each share of stock held by such stockholder, each holder of Class B Common Stock, when voting as a single class with the holders of Common Stock, shall be entitled to ten (10) votes in person or by proxy for each share of stock held by such stockholder and each holder of Class B Common Stock, when voting as a separate class of Class B Common Stock, shall be entitled to one (1) vote in person or by proxy for each share of stock held by such stockholder, but no proxy shall be voted after three (3) years from its date, unless the proxy provides for a longer period, and, except where the transfer books of the corporation have been closed or a date has been fixed as a record date for the determination of its stockholders entitled to vote, no share of stock shall be voted at any election for directors which has been transferred on the books of the corporation within ten (10) days next preceding such election of directors. When a quorum is present at any meeting, the affirmative vote of a majority of the total voting power represented by the outstanding Voting Securities entitled to vote, present in person or represented by proxy, shall decide any matter brought before such meeting, unless the laws of the State of Delaware or the Restated Certificate of Incorporation require a different vote, in which case such provision shall govern and control the decision of such 5 5 question. Election of directors need not be by written ballot. The term "Voting Securities" shall include the Company's Common Stock and the Class B Common Stock. SECTION 8. ACTION WITHOUT MEETING. Any action required or permitted to be taken at any annual or special meeting of stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all the shares entitled to vote thereon were present and voted, provided that prompt notice of such action shall be given to those stockholders who have not so consented in writing to such action without a meeting. ARTICLE III DIRECTORS SECTION 1. NUMBER AND TENURE. The business and affairs of the corporation shall be managed by a board of seven (7) directors, unless a different number shall be established by amendment to these By-Laws, subject to the limitation established by the certificate of incorporation. Each director shall serve for a term of one year from the date of his election and until his successor is elected. Directors need not be stockholders. SECTION 2. RESIGNATION OR REMOVAL. Any director may at any time resign by delivering to the Board of Directors his resignation 6 6 in writing, to take effect no later than ten days thereafter. Any director may at any time be removed effective immediately, with or without cause, by the vote, either in person or represented by proxy, of a majority of the holders of the Voting Securities issued and outstanding and entitled to vote at a special meeting held for such purpose or by the written consent of the holders of a majority of the Voting Securities issued and outstanding provided, however, that any director elected by the holders of the Common Stock pursuant to Article Fourth of the Corporation's Restated Certificate of Incorporation may be removed only by the majority vote, either in person or represented by proxy, of the holders of the Common Stock issued and outstanding and entitled to vote at a special meeting held for such purpose or by the written consent of the holders of a majority of such class of Common Stock issued and outstanding. SECTION 3. VACANCIES. Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, though less than a quorum, or by the sole remaining director, and the directors so chosen shall hold office until the next annual election and until their respective successors are duly elected. SECTION 4. REGULAR MEETINGS. A regular meeting of the Board of Directors shall be held quarterly at a date, time and place set by the Board of Directors or the Chairman. SECTION 5. SPECIAL MEETINGS. Special meetings of the Board 7 7 of Directors may be called by or at the request of the Chairman of the Board of Directors or any three (3) directors. The Chairman of the Board of Directors may fix a place within or without the State of Florida for holding any special meeting of the Board of Directors. SECTION 6. NOTICE. Written notice of any regular meeting shall be given at least five (5) days prior thereto, either personally or by mail or telegraph, addressed to each director at his address as it appears on the records of the corporation; provided however, that written notice of any special meeting or any regular meeting or a special meeting to be conducted by conference telephone, shall be given at least two (2) days prior thereto, either personally or by telegraph. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail so addressed, with postage thereon prepaid. If notice be by telegram, such notice shall be deemed to be delivered when the telegram is delivered to the telegraph company. SECTION 7. QUORUM. At all meetings of the Board of Directors a majority of the total number of directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting, until a quorum shall be present. A director present at a meeting shall be counted in determining the presence of a quorum, regardless of whether a 8 8 contract or transaction between the corporation and such director or between the corporation and any other corporation, partnership, association, or other organization in which such director is a director or officer, or has a financial interest, is authorized or considered at such meeting. SECTION 8. ACTION WITHOUT MEETING. Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if all members of the Board or such committee, as the case may be, consent thereto in writing and such written consent is filed with the minutes of proceedings of the Board or committee. SECTION 9. ACTION BY CONFERENCE TELEPHONE. Members of the Board of Directors or any committee thereof may participate in a meeting of such Board or committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at such meeting. SECTION 10. COMMITTEES. The Board of Directors, by resolution adopted by the majority of the whole Board, may designate one (1) or more committees, each committee to consist of two (2) or more directors. The Board may designate one (1) or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of any member of a committee, the member or members thereof present at any meeting and not 9 9 disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in such resolution, shall have and may exercise all of the powers of the Board of Directors in the management of the business and affairs of the corporation and may authorize the seal of the corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amending the certificate of incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the corporation's property and assets, recommending to the stockholders a dissolution of the corporation or a revocation of a dissolution, or amending the by-laws of the corporation; nor shall such committee have the power or authority to declare a dividend or to authorize the issuance of stock. SECTION 11. CHAIRMAN. The directors shall elect from among their number a Chairman of the Board following the stockholders' annual meeting to serve for a term of one (1) year and until a successor is elected by the Board. The Chairman shall preside at all meetings of the Board of Directors and perform such other duties as may be directed by the Board. SECTION 12. COMPENSATION OF DIRECTORS. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at 10 10 each meeting of the Board of Directors or a stated salary as director. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor. Members of committees may be allowed like compensation for attending committee meetings. ARTICLE IV OFFICERS SECTION 1. NUMBER AND SALARIES. The officers of the corporation shall consist of a President, a Chief Executive Officer, a Chief Operating Officer, one (1) or more Vice Presidents (the number thereof to be determined by the Board of Directors), a Secretary, and a Treasurer. Such other officers and assistant officers and agents as may be deemed necessary by the Board of Directors may be elected or appointed by the Board. Any two (2) or more offices may be held by the same person. The salaries of all officers and agents of the corporation shall be fixed by the Board of Directors. SECTION 2. ELECTION AND TERM OF OFFICE. The officers of the corporation shall be appointed by the Board of Directors following the stockholders' annual meeting for a term of one (1) year and until a successor is appointed by the Board. Any officer appointed by the Board may be removed, with or without cause, at any time by the President. An officer may resign at any time upon written notice to the corporation. Each officer shall hold his office until his or her successor is appointed or until his or her 11 11 earlier resignation or removal. SECTION 3. THE PRESIDENT. The President shall have general and active supervision of the business of the corporation subject to the direction of the Board of Directors and in the absence of a Chairman of the Board, the President shall preside at all meetings of the stockholders and of the Board of Directors; shall be empowered to sign or countersign all certificates, contracts or other instruments; and the President shall perform any and all duties assigned to him by the Board of Directors or as are incident to the office of the President of a corporation. SECTION 4. THE CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall be the chief executive officer of the Company and shall have general and active management of the business of the corporation, subject to the direction of the Board of Directors, and shall see that all orders and resolutions of the Board of Directors are carried into effect; the Chief Executive Officer shall be empowered to sign or countersign all certificates, contracts or other instruments; and the Chief Executive Officer shall perform any and all duties assigned to him by the Board of Directors or as are incident to the Office of Chief Executive Officer of a corporation. SECTION 5. THE CHIEF OPERATING OFFICER. The Chief Operating Officer shall have general and active management and supervision of the business operations of the Company subject to the direction of the Board of Directors; the Chief Operating Officer shall be empowered to sign or countersign all certificates, contracts or 12 12 other instruments; and the Chief Operating Officer shall perform any and all duties assigned to him by the Board of Directors or as are incident to the office of the Chief Operating Officer of a corporation. SECTION 6. THE VICE PRESIDENTS. In the absence of the President or in the event of his inability or refusal to act, the Vice President (or in the event there be more than one Vice President, the Vice Presidents in the order designated, or in the absence of any designation, then in the order of their election) shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. The Vice President shall perform such other duties as from time to time may be assigned to him by the Board of Directors. SECTION 7. THE SECRETARY. The Secretary shall keep the minutes of the proceedings of the shareholders and the Board of Directors; the Secretary shall give, or cause to be given, all notices in accordance with the provisions of these By-Laws or as required by law; the Secretary shall be custodian of the corporate records and of the seal of the corporation; the Secretary shall keep at the registered office or principal place of business of the corporation a record of the stockholders of the corporation, giving the names and addresses of all such stockholders (which addresses shall be furnished to the Secretary by such stockholders) and the number and class of the shares held by each; the Secretary shall have general charge of the stock transfer books of the corporation; 13 13 and in general the Secretary shall perform all duties as from time to time may be assigned to him by the Board of Directors. SECTION 8. TREASURER. The Treasurer shall act as the chief financial officer of the corporation and shall have the custody of the corporate funds and securities and shall keep, or cause to be kept, correct and complete books and records of account, including full and accurate accounts of receipts and disbursements in books belonging to the corporation and shall deposit all monies and other valuable effects in the name and to the credit of the corporation in such depositories as may be designated by the Board of Directors; and in general shall perform all the duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him by the Board of Directors. SECTION 9. ASSISTANT SECRETARIES. The Assistant Secretaries, if any, in general shall perform such duties as from time to time may be assigned to them by the Secretary, or by the Board of Directors, and shall in the absence of the Secretary perform his functions. ARTICLE V CERTIFICATES OF STOCK SECTION 1. SIGNATURE BY OFFICERS. Every holder of stock in the corporation shall be entitled to have a certificate signed by or in the name of the corporation by the the President or a Vice President, and by the Secretary or an Assistant Secretary of the 14 14 corporation, certifying the number of shares owned by the stockholder in the corporation. SECTION 2. FACSIMILE SIGNATURES. The signature of the President, Vice President, Treasurer, Secretary or Assistant Secretary may be a facsimile. In case any officer or officers who have signed, or whose facsimile signature or signatures have been used on any such certificate or certificates shall cease to be such officer or officers of the corporation, whether because of death, resignation or otherwise, before such certificate or certificates have been delivered by the corporation, such certificate or certificates may nevertheless be adopted by the corporation and be issued and delivered as though the person or persons who signed such certificate or certificates or whose facsimile signature or signatures have been used thereon had not ceased to be such officer or officers of the corporation. SECTION 3. LOST CERTIFICATES. The Board of Directors may direct a new certificate or certificates to be issued by the corporation alleged to have been lost or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost or destroyed certificate or certificates, or his or her legal representative, to advertise the same in such manner as it shall require and/or to give the corporation a bond in such sum as it may direct as indemnity 15 15 against any claim that may be made against the corporation with respect to the certificate alleged to have been lost or destroyed. SECTION 4. TRANSFER OF STOCK. Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. SECTION 5. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. The Board of Directors may close the stock transfer books of the corporation for a period of no more than sixty (60) nor less than ten (10) days preceding the date of any meeting of stockholders or the date for payment of any dividend or the date for the allotment of rights or the date when any change or conversion or exchange of capital stock shall go into effect or for a period of no more than sixty (60) nor less than ten (10) days in connection with obtaining the consent of stockholders for any purpose. In lieu of closing the stock transfer books as aforesaid, the Board of Directors may fix in advance a date of no more than sixty (60) nor less than ten (10) days preceding the date of any dividend, or the date for the allotment of rights, or the date when any change or conversion or exchange of capital stock shall go into effect, or a date in connection with obtaining such consent, as a record date for the determination of the stockholders entitled to notice of, and to vote at, any such meeting, and any adjournment 16 16 thereof, or entitled to receive payment of any such dividend, or to any such allotment of rights, or to exercise the rights in respect of any change, conversion or exchange of capital stock, or to give such consent, and in such case such stockholders and only such stockholders as shall be stockholders of record on the date so fixed shall be entitled to such notice of, and to vote at, such meeting and any adjournment thereof, or to receive payment of such dividend, or to receive such allotment of rights, or to exercise such rights, or to give such consent as the case may be notwithstanding any transfer of any stock on the books of the corporation after any such record date fixed as aforesaid. ARTICLE VI CONTRACT, LOANS, CHECKS AND DEPOSITS SECTION 1. CONTRACTS. When the execution of any contract or other instrument has been authorized by the Board of Directors without specification of the executing officers, the President, or any Vice President, Treasurer, and the Secretary, or any Assistant Secretary, may execute the same in the name of and on behalf of the corporation and may affix the corporate seal thereto. SECTION 2. LOANS. No loans shall be contracted on behalf of the corporation and no evidence of indebtedness shall be issued in its name unless authorized by a resolution of the Board of Directors. SECTION 3. CHECKS. All checks or demands for money and notes 17 17 of the corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate. ARTICLE VII DIVIDENDS SECTION 1. DECLARATION OF DIVIDENDS. Dividends upon the capital stock of the corporation, subject to the provisions of the certificate of incorporation, if any, may be declared by the Board of Directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property or contractual rights, or in shares of the capital stock, subject to the provisions of the certificate of incorporation. SECTION 2. RESERVES. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the directors shall think conducive to the interest of the corporation, and the directors may modify or abolish any such reserve in the manner in which it was created. 18 18 ARTICLE VIII FISCAL YEAR The fiscal year of the corporation shall be determined by the Board of Directors. ARTICLE IX WAIVER OF NOTICE Whenever any notice whatever is required to be given by law, the certificate of incorporation or these By-Laws, a written waiver thereof, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting. ARTICLE X SEAL The corporate seal shall have inscribed thereon the name of the corporation, the year of its organization, and the words "Corporate Seal, Delaware." The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced otherwise. ARTICLE XI AMENDMENTS These By-Laws may be altered, amended, or repealed and new By- Laws adopted at any regular or special meeting of the Board of 19 19 Directors by an affirmative vote of 60% of all directors; provided, however, that at least ten (10) days advance written notice of the meeting is given to the directors, describing the proposed amendment or alteration of these By-Laws. EX-10.24 3 HSN LOAN AGREEMENT 1 EXHIBIT 10.24 LOAN AGREEMENT THIS LOAN AGREEMENT (the "Agreement"), dated as of this 28th day of December, 1992, by and between HSN CAPITAL CORPORATION, a Nevada corporation having its principal offices at 4910 Longley Lane, Reno, Nevada 89502, ("Lender), a wholly-owned subsidiary of Home Shopping Network, Inc., a Delaware Corporation ("HSN"), and Silver King Communications, Inc., a Delaware corporation having its principal offices at 12425 28th Street North, St. Petersburg, FL 33716 ("Borrower"). W I T N E S S E T H WHEREAS, HSN is planning to distribute all of the capital shares of Borrower to shareholders of HSN in a tax-free distribution (the "Distribution"); WHEREAS, Borrower has incurred substantial debt to Lender in connection with the acquisition of full power television broadcast stations (the "Stations") owned by the Borrower; WHEREAS, the Federal Communications Commission ("FCC") has authorized the transfer of control of television companies holding FCC licenses from HSN's subsidiaries to Borrower's subsidiaries; NOW, THEREFORE, in consideration of the mutual promises and agreements herein contained, the Lender and Borrower agree as follows: 2 2 ARTICLE I AMOUNT AND TERMS OF THE LOAN Section 1.01. The Loan. The Lender has loaned to the Borrower One Hundred Thirty-Five Million, One Hundred Seventy-One Thousand, Eight Hundred Seventy-Five Dollars ($135,171,875) in principal amount (the "Loan"). Section 1.02. The Promissory Note. As of the effective date of the Distribution (the "Distribution Date"), the Loan shall be evidenced by and subject to the terms of a promissory note, dated of even date herewith, substantially in the form set forth as Exhibit "1" hereto (the "Note") payable to the order of the Lender and representing the obligation of the Borrower to pay the Lender the principal amount of the Loan, with interest thereon, as prescribed therein and in Section 1.04. Section 1.03. Interest. The Note shall bear interest on the unpaid principal amount thereof at a rate per annum at all times equal to 9.5%, except in the event of late payments under paragraph 4 of the Note, in which case late payments shall bear interest at the rate of 15%. Interest shall be computed on the basis of a year of three hundred sixty (360) days and actual days elapsed (including the first day but excluding the last day) occurring in the period for which such interest is payable. Interest shall begin to accrue on the principal amount of the Loan on the Distribution Date. The rate of interest payable on the Note from time to time shall in no event exceed the maximum rate, if any, permissible under applicable law. If the rate of interest payable 3 3 on the Note is ever reduced as a result of the preceding sentence and any time thereafter the maximum rate permitted by applicable law shall exceed the rate of interest provided for on the Note, then the rate provided for on the Note shall be increased to the maximum rate permitted by applicable law for such period as is required so that the total amount of interest received by Lender is that which would have been received by Lender but for the operation of the preceding sentence. Section 1.04. Repayment of the Loan. On the second day of the second full calendar month following the Distribution Date, Borrower shall begin repayment to the Lender of the principal amount of the Loan in One Hundred Eighty (180) equal monthly installments and shall continue payment on the second day of each month thereafter with a final payment of all outstanding principal and accrued interest due on January 2, 2008. Each such monthly payment shall be referred to as a "Loan Payment." Section 1.05. Adjustments Pursuant to Tax Sharing Agreement. Pursuant to Sections 3.03 and 3.04 of the Tax Sharing Agreement, HSN and Borrower have agreed that if, as a result of certain adjustments to HSN's tax position for periods prior to the Distribution Date, there would have been a corresponding increase or decrease in the deferred tax liability account of Borrower as of the Distribution Date, then Borrower will receive a cash payment from HSN (or make a cash payment to HSN) in the amount of such increase (or decrease) to its deferred tax liability account as recalculated as of the Distribution Date. If the Borrower is 4 4 required to pay HSN pursuant to the Tax Sharing Agreement, then at the election of Borrower pursuant to Section 3.05(d) of the Tax Sharing Agreement, the principal amount and payment schedule of this Loan shall be adjusted to reflect the amount of such payment required to be made by Borrower so that during the then remaining term of the Note, all principal and interest accrued thereon shall be paid in equal monthly installments. If HSN is required to pay Borrower pursuant to the Tax Sharing Agreement, then at the request of the Lender and with the consent of Borrower pursuant to Section 3.05(d) of the Tax Sharing Agreement, which consent shall not be unreasonably withheld, the principal amount and payment schedule of the Loan shall be adjusted to reflect the amount of such payment required to be made by HSN so that during the then remaining term of the Note, all principal and interest accrued thereon shall be paid in equal monthly installments. Section 1.06. Prepayment. The Borrower may prepay the Note in whole at any time, or from time to time in part, with accrued interest to the date of prepayment on the amount prepaid, without penalty, provided that each payment, other than for the full amount of the outstanding balance, shall be in the principal amount of One Hundred Thousand Dollars ($100,000.00) or an integral multiple thereof, unless such payment in accordance with Section 5.02(c) relates to the extinguishment of that portion of the Loan related to one or more of the Stations in which case the prepayment shall consist of such portion of the Loan so related. Each prepayment on the Note shall be applied to installments of principal payable on the Note in the inverse order of maturity. 5 5 Section 1.07. Payment and Grace Period. Whenever payment to be made hereunder or under the Note shall become due on a Saturday, Sunday or bank holiday in the State of Florida, such payment may be made on the next succeeding day which is not a Saturday, Sunday or bank holiday. ARTICLE II CLOSING Section 2.01. Closing Date. Closing of this transaction shall occur on December 28, 1992, or such other date agreed upon by the parties hereto (the "Closing Date"), at the offices of Home Shopping Network, Inc., 11831 30th Court North, St. Petersburg, Florida 33716. Section 2.02. Related Transactions. On the Closing Date, in addition to the documents to be delivered pursuant to this Agreement, Borrower and Lender shall execute the Note, the Security Agreement and any mortgages, deeds of trust or other documents required by Section 3.03 below. ARTICLE III SECURITY Section 3.01. Security Interest. As security for the Loan, the Borrower and each of its subsidiaries shall execute and deliver and cause each of its subsidiaries to execute and deliver to the Lender, on or before the Closing Date, a security agreement substantially in the form of Exhibit "2" hereto granting to Lender a perfected first priority security interest in each and every 6 6 asset of Borrower to the fullest extent permitted by applicable law (the "Security Agreement"). Section 3.02. Assignment of Leases. At such time as Borrower or any of its subsidiaries enters into any leases, Borrower or such subsidiary shall execute an Assignment of Lease, in form and substance satisfactory to Lender permitting Lender to receive lease payments on behalf of the Borrower or such subsidiary in the event of default by Borrower. Any such payments made to the Lender shall be treated as payments hereunder in accordance with the terms of this Agreement. Section 3.03 Mortgages. As security for the Loan, the Borrower and each of its subsidiaries shall execute and deliver to the Lender, on or before the Closing Date, a first mortgage ("Mortgage") or deed of trust ("Deed of Trust") on each parcel of real estate owned by the Borrower or its subsidiaries. ARTICLE IV REPRESENTATIONS AND WARRANTIES Section 4.01. Representations and Warranties of Borrower. In order to induce the Lender to enter into this agreement, the Borrower represents and warrants as follows: (a) Existence and Standing. Borrower is a corporation duly incorporated, validity existing and in good standing under the laws of the State of Delaware and is qualified to do business under the laws of any jurisdiction in which it conducts its business, and has all requisite power and authority, corporate or otherwise, to conduct its business, to own its properties and to execute and 7 7 deliver, and to perform all of its obligations under this Agreement, the Note, the Security Agreement, the Collateral Assignment of Leases and the Mortgages. (b) Authorizations. The execution, delivery and performance by the Borrower of this Agreement, the Note,the Security Agreement, the Collateral Assignment of Leases and the Mortgages have been duly authorized by all necessary corporate action. (c) No Consent. No authorization, consent, approval, release, exemption from or filing or registration with any court or governmental department or agency will be necessary to the valid execution, delivery and performance by the Borrower of this Agreement, the Note, the Security Agreement, the Collateral Assignment of Leases or any of the Mortgages, deeds of trust or other documents required by Section 3.03. (d) Binding Obligations. This Agreement, the Note, Mortgages, Deeds of Trust, the Security Agreement, the Collateral Assignment of Leases and the Mortgages have been or will be executed and delivered by duly authorized officers of the Borrower and constitute or will constitute, legal, valid and binding obligations of the Borrower enforceable in accordance with their respective terms. ARTICLE V COVENANTS OF THE BORROWER Section 5.01. Affirmative Covenants. So long as the Note shall remain unpaid and the events described in Article VII have not occurred, the Borrower hereby covenants and agrees that it will 8 8 and it will cause each subsidiary to, unless the Lender shall otherwise consent in writing: (a) Payment of Obligations. Pay punctually and discharge when due: (i) all indebtedness heretofore or hereafter incurred; (ii) all taxes, assessments and governmental charges or fines imposed upon it or its income or profits, or upon any of the properties belonging to it; (iii) claims or demands of materialmen, mechanics, carriers, warehousemen, landlords and other like persons which, if unpaid, might become a lien or charge on its property; provided that this covenant shall not require the payment of any of the matters set forth in (i), (ii) and (iii) above if the same shall be contested in good faith and by proper proceedings diligently pursued and as to which adequate reserves have been set aside on the books of the Borrower in accordance with Generally Accepted Accounting Principles ("GAAP"). (b) Corporate Existence, Etc. The Borrower will, and will cause each of its subsidiaries to: (i) preserve and maintain its corporate existence and all of its material rights, privileges and franchises; (ii) pay and discharge all taxes, assessments and governmental charges or levies imposed on it or on its income or profits or on any of its property prior to the date on which penalties attach thereto, except for any such tax, assessment, charge or levy the payment of which is being contested in good faith and by proper proceedings and against which adequate reserves are being maintained; and 9 9 (iii) upon 72 hours notice to Borrower by Lender, permit representatives of the Lender, during normal business hours, to examine, on a quarterly basis, copy and make extracts from its books and records, to inspect its properties, and to discuss its business and financial condition with its officers provided, however, that the Lender shall not divulge, and shall cause its representatives not to divulge, any information obtained as a result of the examination of the books and records of the Borrower pursuant to this subsection to a competitor of the Borrower. (c) Maintenance of Properties. Maintain and preserve and cause each of its subsidiaries to maintain and preserve all of its properties necessary or useful in the proper conduct of its business in good working order and condition, ordinary wear and tear excepted. (d) Compliance with Laws. Comply and cause each of its subsidiaries to comply in all material respects with the requirements of all applicable laws, rules, regulations and orders of any governmental authority. (e) Maintenance of Insurance. Maintain and cause each of its subsidiaries to maintain policies with financially sound, responsible and reputable insurance companies on all of their properties and covering such risks, including property, casualty, liability and worker's compensation, in such amounts as are usually carried by companies engaged in similar businesses and owning similar properties as the Borrower or such subsidiary, and promptly 10 10 upon execution thereof provide to the Lender copies of all such policies and any riders or amendments thereto. The policies of insurance required hereunder shall provide that the Lender shall receive at least thirty (30) days' written notice prior to the cancellation, termination or material alteration of any such policy. (f) Maintenance of Affiliated Relationship. Except as otherwise provided in this Agreement, as long as any amounts are owed to Lender pursuant to the terms of this Agreement as it may be amended from time to time, ensure that each of the Stations currently owned by Borrower or any of its subsidiaries shall maintain its affiliation agreement (the "Affiliation Agreements") with Home Shopping Club, Inc. ("HSC") or its successors, unless such affiliation is terminated pursuant to Section 6(b), (c) or (d) or 21 of the applicable Affiliation Agreement or unless otherwise consented to in writing by the Lender. (g) Funded Debt Coverage Test. Provide that Consolidated Funded Debt of Borrower as of the close of any fiscal quarter shall not exceed Consolidated Operating Cash Flow for the preceding consecutive four fiscal quarter periods as shown below:
Funded Debt From Through Coverage Test ---- ------- ------------- 9/1/92 8/31/93 6.50 9/1/93 8/31/94 6.40 9/1/94 8/31/95 6.30 9/1/95 8/31/96 6.20 9/1/96 8/31/97 6.10 9/1/97 And Beyond 6.00
11 11 Funded Debt shall mean the sum of (i) any and all obligations and indebtedness under this Agreement, (ii) the principal portion of any and all obligations under a lease which is treated as a capitalized lease under GAAP, and (iii) any other indebtedness incurred for borrowed money whether current or long term. Operating Cash Flow shall mean the sum of (i) operating profit (earnings before interest and taxes), (ii) depreciation, and (iii) amortization, all determined in accordance with GAAP. With respect to each of the first three (3) fiscal quarters closed immediately after the date hereof, Operating Cash Flow, for the twelve (12) month period closed as of such quarter, shall be the Operating Cash Flow for the period(s) closed as of the end of such first, second and third fiscal quarter multiplied by 4, 2 and 1.33, respectively. The Funded Debt Coverage Test report shall be furnished by Borrower to Lender on a quarterly basis within sixty (60) days after the end of each of the first three (3) fiscal quarters of each fiscal year and within one hundred twenty (120) days after the end of each fiscal year. (h) Fixed Charge Coverage Test. Provide that Operating Cash Flow (as defined in 5.01(g) above) for any four consecutive fiscal quarter periods cannot be less than 95 percent of Consolidated Fixed Charges, which shall consist of the sum of (i) all interest expense net of interest income, (ii) all capital expenditures and intangible additions, (iii) principal payments with respect to any Funded Debt (as defined in paragraph 5.01(g)) made or scheduled to be made in a particular fiscal quarter excluding prepayments under 12 12 this Agreement net of principal payments received on notes receivable and (iv) all cash outflows from equity (i.e., dividends of cash or cash equivalents plus any payment on account of the purchase, redemption or other retirement of any capital stock of the Borrower or any other payment or distribution made in respect thereof, either directly or indirectly) net of all cash inflows to equity, for any consecutive four (4) fiscal quarter period. With respect to each of the first three (3) fiscal quarters closed immediately after the date hereof, the fixed charge coverage test will be computed after the end of each of the first three (3) fiscal quarters. The computation shall be cumulative for each of the first three (3) fiscal quarters after the first quarterly fiscal period. The Fixed Charge Coverage Test report shall be furnished by Borrower to Lender on a quarterly basis within sixty (60) days after the end of each of the first three (3) fiscal quarters of each fiscal year and within one hundred twenty (120) days after the end of each fiscal year. (i) Cash Maintenance Test. On August 31, 1993, the Borrower, in recognition of deferred taxes that may be required to be paid by Borrower in future periods, shall maintain cash and cash equivalents in the amount of Two Million Dollars ($2,000,000) and shall increase such amount by Two Million Dollars ($2,000,000) per year for each of the next four (4) years. Such required amounts shall be reviewed and may be revised downward with the consent of the Lender and upward with the consent of the Borrower on an annual basis. Consent hereunder shall not be unreasonably withheld. The 13 13 Cash Maintenance Test report shall be furnished by Borrower to Lender on an annual basis one hundred twenty (120) days after the end of each fiscal year. (j) Financial Statements. The Borrower shall deliver to the Lender: (i) as soon as available and in any event within sixty (60) days after the end of each of the first three (3) fiscal quarters of each fiscal year of the Borrower, consolidated statements of operations, stockholders' equity and cash flows of the Borrower and its consolidated subsidiaries for such period and for the period from the beginning of such fiscal year to the end of such period, and the related consolidated balance sheet as at the end of such period, setting forth in each case in comparative form the corresponding figures for the corresponding period in the preceding fiscal year, accompanied by a certificate of the Chief Financial Officer of the Borrower, which certificate shall state that such financial statements present fairly the consolidated financial position of the Borrower and its consolidated subsidiaries and results of their operations and cash flows in accordance with GAAP, consistently applied, as at the end of, and for, such period (subject to normal year-end audit adjustments). (ii) as soon as available and in any event within one hundred twenty (120) days after the end of each fiscal year of the Borrower, consolidated statements of operations, stockholders' equity, retained earnings and cash flows of the 14 14 Borrower for such year and the related consolidated balance sheet as at the end of such year, setting forth in each case in comparative form the corresponding figures for the preceding fiscal year, and accompanied by an opinion thereon of independent certified public accountants of recognized standing, which opinion shall state that such consolidated financial statements present fairly in all material respects, the financial position of the Borrower and results of its operations and its cash flows as at the end of, and for, such fiscal years. (iii) promptly upon their becoming available, copies of all registration statements and SEC Reports other than financial statements, if any, which the Borrower shall have filed with the Securities and Exchange Commission (or any governmental agency substituted therefor) or any national securities exchange. (k) Financial Certification. The financial statements required by this Section and the Funded Debt Coverage Report, Fixed Charge Coverage Report and Cash Maintenance Report in accordance with the provisions of Section 5.01(g), (h) and (i), respectively, shall be accompanied by a Certificate from the Chief Financial Officer of the Borrower certifying that (i) no Event of Default or event which with the passage of time or the giving of notice or both would constitute an Event of Default has occurred, or if any such Event of Default has occurred, a statement describing the actions that the Borrower proposes to take in connection therewith, 15 15 and (ii) and that the tests set forth in 5.01(g), (h) and (i) have been satisfied. (l) Litigation. The Borrower shall notify Lender within ten (10) business days of receipt of notice by Borrower of all court or arbitral proceedings and investigations, and of all proceedings and investigations before any governmental or regulatory authority or agency, affecting the Borrower or any of its subsidiaries, except proceedings or investigations which, if adversely determined, would not have a material adverse effect on the consolidated financial condition or operations, or the business taken as a whole, of the Borrower. Notwithstanding the foregoing, the Borrower shall notify Lender with respect to the aforesaid litigation, as appropriate, prior to ten (10) business days of receipt of notice by Borrower if the circumstances require earlier action by Borrower. (m) Payment of Obligations. Without limiting the obligations of the Borrower under Section 5.01(b), the Borrower will, and will cause each of its subsidiaries to, pay and discharge at or before the date when due (including any grace period allowed therefor), all of their respective obligations and other liabilities, including, without limitation, tax and pension liabilities, except where such obligations or liabilities are being contested in good faith and by appropriate proceedings, and maintain, in accordance with GAAP, appropriate reserves for the accrual of all of the foregoing. (n) Perfection of Liens. Borrower shall do all things requested by Lender to preserve and perfect the liens and security 16 16 interests of Lender arising pursuant hereto and pursuant to the Security Agreement, Collateral Assignment of Leases and Mortgages as first liens and security interests, except as expressly permitted in Section 5.02(b) hereof. If Borrower should purchase any real property, or should lease any real property, it shall notify Lender and execute, deliver and cause to be recorded any mortgage or leasehold mortgage requested by Lender in connection therewith, which shall be a first lien, except as expressly permitted herein. Any such mortgage or leasehold mortgage shall be accompanied by an ALTA mortgagee's policy of title insurance (Form 1970) (at Borrower's expense) insuring the lien of such mortgage or leasehold mortgage as being the first lien on such real property, subject to liens permitted herein, and by the consent of the lessor, if necessary. (o) FCC Approval. Borrower acknowledges that certain transactions contemplated by this Agreement or the documents entered into in connection herewith, and certain actions which may be taken by Lender in the exercise of its rights under this Agreement or such other documents may require the consent of the FCC. If counsel to Lender reasonably determines that the consent of the FCC is required in connection with the execution, delivery and performance of any of the aforesaid documents or any documents delivered to Lender in connection therewith or as a result of any action which may be taken pursuant thereto, then Borrower, at its sole cost and expense, agrees to use its best efforts to secure such consent and to cooperate with Lender in any action commenced 17 17 by Lender to secure such consent. Borrower shall not take any action which interferes with the exercise or completion of any such action taken by Lender. (p) Environmental Compliance. Borrower shall comply in all material respects with any and all Environmental Laws (as that term is defined below), including, without limitation, all Environmental Laws in jurisdictions in which Borrower owns or operates a facility or site, arranges for disposal or treatment of hazardous substances, solid waste or other wastes, accepts for transport any hazardous substances, solid wastes or other wastes or holds any interest in real property or otherwise. Borrower will furnish to Lender promptly after receipt thereof a copy of any notice Borrower may receive from any governmental authority, private person or entity or otherwise that any litigation or proceeding pertaining to any environmental, health or safety matter has been filed or is threatened against Borrower, any real property in which Borrower holds any interest or any past or present operation of Borrower. Borrower will not allow the release or disposal of hazardous waste, solid waste or other wastes on, under or to any real property in which Borrower holds any interest or performs any of its operations, in violation of any Environmental Law. Borrower shall notify Lender of any material spill, release or disposal of a hazardous material on, under or adjacent to the real property in which Borrower holds or has held an interest. As used in this Section "litigation or proceeding" means any demand, claim, notice, suit, suit in equity, action, administrative action, investigation 18 18 or inquiry whether brought by any governmental authority, private person or entity or otherwise. "Environmental Laws" means all provisions of law, statutes, ordinances, rules, regulations, permits licenses, concessions, grants, franchises, judgments, writs, injunctions, decrees, orders, awards and standards or other governmental restrictions promulgated by the government of the United States of America or by any state or municipality thereof or by any court, agency, instrumentality, regulatory authority or commission of any of the foregoing concerning health, safety and protection of, or regulation of the emission, release or discharge of substances into, the environment. (q) Indemnification. Solely with respect to events arising after the Distribution Date, Borrower shall defend, indemnify and hold Lender, and its officers, directors, shareholders, employees, agents, affiliates, successors and assigns harmless from and against all costs, expenses, claims, demands, damages, penalties and liabilities of every kind or nature whatsoever (including reasonable attorneys fees) arising out of, resulting from or relating to (i) the noncompliance of Borrower or any property owned or leased by Borrower with any Environmental Law, or (ii) any investigatory or remedial action involving Borrower or any property owned or leased by Borrower and required by Environmental Laws or by order of any governmental authority having jurisdiction under any Environmental Laws, or (iii) any injury to any person whatsoever or damage to any property arising out of, in connection with or in any way relating to the breach of any of the 19 19 environmental warranties or covenants contained in this Agreement or any facts or circumstances that cause any of the environmental representations or warranties contained in this Agreement to cease to be true, or (iv) the existence, treatment, storage, disposal, release, spill, generation, transportation, removal, manufacture or other handling of any hazardous material on any property owned or leased by Borrower or on any property adjacent to such property or (v) the presence of any asbestos-containing material or underground storage tanks, whether in use or closed, under or on any property owned or leased by Borrower. (r) Committed Projects List. Borrower agrees to allocate approximately Five Million Dollars ($5,000,000) of Loan proceeds toward the projects identified on Exhibit "3" attached hereto. The Board of Directors of Borrower or the Executive Committee thereof may, from time to time, add, change or delete projects contained on such list and shall forward a copy of such revised list to Lender if an individual addition, deletion or change exceeds Twenty-Five Thousand Dollars ($25,000). (s) Capital Expenditures. Borrower agrees that the Executive Committee of Borrower shall establish and provide the Lender, not later than thirty (30) days after the commencement of any fiscal year or from the Date of Distribution, an itemized list of proposed expenditures for Borrower for that fiscal year. Any additions, deletions or changes that exceed Twenty-Five Thousand Dollars ($25,000) to that list during the fiscal year must be approved by the Executive Committee of Borrower and provided to the Lender. 20 20 Section 5.02. Negative Covenants. So long as the Note shall remain unpaid, the Borrower hereby covenants that neither it nor any of its subsidiaries will, without the Lender's prior written consent: (a) Indebtedness. Create or incur, assume or suffer to exist any indebtedness, obligation or liability, whether matured or unmatured, liquidated or unliquidated, direct or contingent, joint or several which, on a pro forma basis, as of the last day of the preceding fiscal quarter would place the Borrower in violation of the covenants described in Paragraphs 5.01(g) and (h) above. (b) Liens. Except as otherwise provided in this Agreement, create, assume or suffer to exist, directly or indirectly, any security interest, mortgage, deed of trust, pledge, lien, charge or other encumbrance, of any nature whatsoever upon any of its properties or assets, now owned or hereafter acquired, excluding, however, from the operation of this covenant: (i) any security interest or lien created pursuant to this Agreement. (ii) liens for taxes or assessments either not delinquent or the validity of which is being contested in good faith by appropriate legal or administrative proceedings and as to which adequate reserves shall have been set aside on its books, in conformity with GAAP. (iii) materialmen's, mechanics', carriers', workmen's, repairmen's, warehousemen's or other like liens arising in the ordinary course of business, which are either not delinquent 21 21 or are being contested in good faith by appropriate legal proceedings and as to which adequate reserves shall have been set aside on its books, in conformity with GAAP. (iv) deposits or pledges to secure payment of worker's compensation, unemployment insurance or other social security benefits or obligations; (v) any judgment lien, provided the judgment it secures shall, within thirty (30) days after the entry thereof, have been discharged, vacated, reversed, or execution thereof stayed pending appeal, or shall have been discharged, vacated or reversed within thirty (30) days after the expiration of such stay; or (vi) encumbrances consisting of zoning restrictions, easements, licenses, reservations, provisions, covenants, conditions, waivers, restrictions on the use of property or minor irregularities of title, provided that none of such encumbrances, in the reasonable opinion of Lender, materially impairs the use or value of any property in the operation of Borrower's business; or (vii) liens or security interests securing conditional sale, rental or purchase money obligations to the extent the indebtedness secured is permitted under Section 5.02(a), but only in the property which is the subject of such obligations. (c) Disposition of Assets. Except as provided in subparagraphs (ii) and (iii) below, sell, transfer, assign, lease, convey or otherwise transfer or dispose of, whether in a single 22 22 transaction or in a series of related transactions, all or any material part of its assets, including but not limited to any one or more of its Stations and licenses therefor, other than in the ordinary course of business, unless the disposition is in exchange for collateral of like value which is satisfactory to the Lender in which the Lender shall have a security interest. If the Lender has given consent to the Borrower for the sale of collateral, Borrower shall have up to twelve (12) months to replace the collateral in a manner satisfactory to the Lender. In the case of a sale of a Station, the portion of the proceeds attributable to the pro rata debt of the Station sold in accordance with the formula set forth in Exhibit "4" attached hereto shall be placed in an escrow account for a period not to exceed twelve (12) months from the date of sale unless the Lender and Borrower agree otherwise. Borrower shall have the right to withdraw the escrowed amount at any time if Borrower immediately, upon such withdrawal, pays Lender the full amount of indebtedness so relating to such Station. In the event that like collateral is not found at any time up to twelve months, the pro rata debt of the Station sold in accordance with the formula set forth in Exhibit "4" shall be paid to Lender as a prepayment governed by Section 1.06 of this Agreement. (i) The foregoing limitation on the disposition of assets shall not apply to the Borrower's Telemation subsidiary and Low Power television stations. (ii) Notwithstanding the foregoing, the Borrower may sell any of its Stations serving a market other than New York, 23 23 Los Angeles or Chicago without the consent of Lender if the proceeds of the sale are applied to extinguish the pro rata debt of the Station sold in accordance with the formula set forth in Exhibit "4" attached hereto. The formula, which is based on the previous twelve (12) months' performance by such station, shall be applied on a monthly basis and the results of the application of such formula shall be furnished to the Lender on a quarterly basis, except that the formula shall be promptly furnished on a monthly basis in the event of a proposed disposition of a Station until such disposition occurs or is no longer intended. (iii) Notwithstanding the foregoing, in the event that the Borrower elects to sell one or more of the Stations serving the New York, Los Angeles or Chicago markets, such sale may occur without the consent of the Lender, but in the absence of such consent, the balance of the Loan attributable to such Station in accordance with the formula set forth in Exhibit "4" shall become immediately due and payable to the Lender upon the sale, and the balance of the Loan shall become due and payable six (6) months from the date of closing of the sale of such Station. (d) Remove Assets. Remove from their location as of the date of this Agreement any of the assets procured with the proceeds of the borrowings provided for herein, or any replacements for such assets, other than in the ordinary course of business. 24 24 (e) Dividend Restriction. No dividends shall be paid unless the debt owed to Lender is less than 50% of the book value of the consolidated assets of the Borrower after giving effect to the dividend. For purposes of this paragraph, a "dividend" shall mean any distribution, dividend or the incurrence of any liability to make any other payment or distribution of cash or other property or assets in respect of any capital stock of the Borrower. (f) Change of Business. Change, in any material respect, the nature or character of its television broadcast business as conducted, or engage in any activity not reasonably related to such television broadcast business, as conducted on the date of this Agreement. Section 5.03. Reporting Requirements. So long as the Note shall remain unpaid the Borrower shall, unless the Lender shall otherwise consent in writing, furnish to the Lender: (a) Default Certificate. As soon as possible and in any event within ten business days after the occurrence of each Event of Default (as defined in Section 6.01) of which Borrower has knowledge, the statement from the Chief Financial Officer of the Borrower setting forth details of such Event of Default and the action which the Borrower proposes to take with respect thereto. (b) Financial Statements. Financial statements in accordance with the provisions of Section 5.01(j) above and Funded Debt Coverage Report, Fixed Charge Coverage Report and Cash Maintenance Report in accordance with the provisions of Sections 5.01(g), (h) and (i), respectively. 25 25 (c) Notice of Litigation. Written notice of any litigation in accordance with the provisions of Section 5.01(l) above. ARTICLE VI EVENTS OF DEFAULT Section 6.01. Events of Default. Under this Agreement, an Event of Default shall be any of the following except where they have been predominately caused by the breach by Lender (or any entity controlled by it) of any agreement between it and Borrower: (a) Except as may be permitted pursuant to Article VII below, Borrower shall fail to pay any installment of principal or interest under the Note, or any other obligation to the Lender when due whether at the due date thereof or by acceleration or otherwise, and such default shall remain unremedied for a period of five (5) business days after the due date thereof. (b) The security interest or lien of the Lender in any material portion of the collateral covered by the Security Agreement, the Collateral Assignment of Leases and/or the Mortgages shall at any time be reasonably determined by the Lender not to constitute a legal, valid and enforceable first priority security interest or lien. (c) Any representation or warranty made by Borrower (or any of its officers) herein, in the Security Agreement, the Collateral Assignment of Leases and/or the Mortgages or by Borrower (or any of its officers) in any certificate, agreement, instrument or statement contemplated by or made or delivered pursuant to or in 26 26 connection with this Agreement, or the Note shall prove to have been incorrect in any material respect when made; or (d) Borrower shall fail to perform or observe any other term, covenant or agreement contained in this Agreement, the Note, the Security Agreement, the Collateral Assignment of Leases and/or the Mortgages and any such failure remains unremedied for thirty (30) days after written notice thereof shall have been given to Borrower by Lender; or (e) Borrower shall (i) file a petition commencing a voluntary case concerning it under any Chapter of the United States Code entitled "Bankruptcy" or similar state statute; or (ii) Borrower shall apply for or consent to the appointment of any receiver, trustee, custodian, or similar officer for it or for all or any substantial part of its property; or (iii) such receiver, trustee, custodian, or similar officer shall be appointed without the application or consent of Borrower and such appointment shall continue undischarged for a period of thirty (30) days; or (iv) an involuntary case is commenced against the Borrower under any Chapter of the United States Code entitled "Bankruptcy" or similar state statute and an order for relief under any such Chapter or state statute is entered or the petition commencing the case is controverted but is not dismissed within thirty (30) days after the commencement of the case; or (v) Borrower shall institute (by petition, application, answer, consent or otherwise) any bankruptcy, insolvency, reorganization, arrangement, readjustment of debt, dissolution, liquidation or similar proceeding relating to 27 27 it under the laws of any jurisdiction; or (vi) any such proceeding shall be instituted against Borrower and shall remain undismissed for a period of thirty (30) days; or (vii) Borrower shall take any action for the purpose of effectuating the foregoing; or (f) There shall be an irrevocable and unappealable denial or revocation of any broadcast license for any one or more of the Stations which is not attributable in whole or in substantial part to the actions of the Lender or its subsidiaries. (g) Borrower shall default under any agreement governing or securing any liability or indebtedness of Borrower, any promissory note or any other evidence of indebtedness in excess of $250,000 if the holder of such liability or indebtedness has the right to accelerate the maturity thereof as a result of such default or if such liability or indebtedness is automatically accelerated as a result of such default. (h) Borrower shall incur final judgments for the payment of money aggregating at any one time in excess of $250,000 and shall not discharge the same within a period of thirty days unless, pending further proceedings, execution thereon has been effectively stayed. (i) A creditor of Borrower shall obtain possession of any of the collateral for the obligations owed to Lender by any means, including, without limitation, levy, distraint, replevin or self-help, or any creditor shall establish or obtain any right in such collateral which is equal or senior to a security interest or lien of Lender in such collateral. 28 28 (j) Any court, government or governmental agency shall condemn, seize, or otherwise appropriate, or take custody or control of any substantial portion of the assets of Borrower pursuant to a final, non-appealable order. (k) Borrower's on-the-air broadcast operations at any Station shall be interrupted at any time for more than forty- eight hours, whether or not consecutive, during any period of seven consecutive days, unless (a) the broadcasting operations of all or substantially all of the television stations in the relevant market also are interrupted for a like period of time, or (b) Borrower shall be receiving during such period of interruption insurance sufficient to assure that its per diem cash flow during such period is at least equal to its per diem cash flow for the month immediately preceding the initial date of interruption. Section 6.02. Effect of Event of Default. Should any Event of Default occur, the Lender may at its option declare the entire unpaid principal amount of the Note, together with all unpaid interest and all other amounts payable under this Agreement and every other obligation of the Borrower to the Lender, immediately due and payable, whereupon the Note and all such obligations shall become and be forthwith due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Borrower, anything contained herein or in the Note or in such other note or evidence of indebtedness to the contrary notwithstanding. The Lender shall have, in addition to all other rights and remedies allowed by law, the rights and 29 29 remedies of a secured party under the Uniform Commercial Code and, without limiting the generality of the foregoing, the rights and remedies provided for in the Security Agreement, the Collateral Assignment of Leases and the Mortgages dated of even date herewith executed by Borrower, which provisions are hereby incorporated by reference. Section 6.03 Affiliation Payment Offset. In the event that the Borrower fails to make one or more Loan Payment(s) in full under this Agreement, Lender shall have the right to direct that HSC make payments due to Borrower under the Affiliation Agreements to Lender in an amount equal to such missed payments to the full amount of such missed payment or payments from any subsequent Affiliation Payment made to the Stations on a pro rata basis among the Stations. Section 6.04 Compliance with Law. Any sale or cessation of operations by Borrower with respect to a Station (including any LPTV Station) which results from compliance with applicable Federal or State law shall not constitute an Event of Default hereunder. ARTICLE VII ASSIGNMENT OF LOAN REPAYMENTS Section 7.01. Missed Affiliation Payments. If HSC fails to make any portion of any payment when due and payable under any Affiliation Agreement then all of the following (a) through (e) shall occur: (a) As of the close of business on the date such unpaid amount was due and payable under such Affiliation Agreement, Lender 30 30 shall be deemed, without any further action by any party hereto, to have received from Borrower an assignment of Borrower's right to receive any and all amounts unpaid by HSC under such Affiliation Agreement; provided, however, the amount so assigned shall not exceed the amount of the next monthly installment otherwise due from Borrower to Lender pursuant to Section 1.04; (b) As of the close of business on the date such unpaid amount was due and payable under such Affiliation Agreement, Borrower shall be deemed, without any further action by any party hereto, to have made a payment to Lender equal to the amount assigned from Borrower to Lender in accordance with Section 7.01(a), which shall be applied to Borrower's obligations hereunder and under the Note with exactly the same effect as if Borrower had made to Lender a cash payment of such amount at such time; (c) Borrower shall be obligated to pay Lender as the next monthly installment due from Borrower to Lender pursuant to Section 1.04 an amount equal to the difference between (i) the amount otherwise due from Borrower to Lender pursuant to Section 1.04, and (ii) the amount assigned from Borrower to Lender in accordance with Section 7.01(a); and (d) HSC shall have no obligation to Borrower with respect to any and all amounts assigned from Borrower to Lender in accordance with Section 7.01(a), but, in accordance with such assignment, HSC shall be obligated to pay such assigned amount to Lender. Nothing in this Section 7.01 shall amend, alter or diminish HSC's obligation under any such Affiliation Agreement to pay to 31 31 Borrower or its Subsidiaries, as appropriate, the difference between (i) all amounts not paid when due and payable under any such Affiliation Agreement and (ii) all amounts assigned from Borrower to Lender in accordance with Section 7.01(a). Failure by HSC to pay to Borrower or its Subsidiaries, as appropriate, such difference on or prior to the earliest date in the immediately succeeding calendar month on which any payment under any Affiliation Agreement is due and payable shall constitute a failure by HSC to make any portion of any payment when due and payable under any Affiliation Agreement during such succeeding calendar month. 7.02. Subordination of Portions of Loan. In the event that Section 7.01 shall be applicable, then, notwithstanding any other provision of this Agreement, including without limitation Section 5.01 or 5.02, Borrower may borrow from any source or other lender an amount equal at the time of such borrowing to twice the amount of the difference between (i) all amounts not paid when due and payable under any Affiliation Agreement and (ii) all amounts assigned from Borrower to Lender in accordance with Section 7.01 but in no event at any time in excess of the product determined by multiplying Three Million Dollars ($3,000,000) by the number (but not more than 18) of months during which HSC has not made all payments required under the Affiliation Agreements. Lender hereby agrees to subordinate all repayment rights it has under this Agreement and the Note to all such borrowings made under this Section 7.02 up to but not in excess of Fifty-Four 32 32 Million Dollars ($54,000,000). Borrowings made by Borrower under this Section 7.02 shall not be considered an indebtedness, obligation or liability of Borrower for purposes of the application of Section 5.01 or 5.02. ARTICLE VIII MISCELLANEOUS Section 8.01. No Waiver; Cumulative Remedies. No failure or delay on the part of the Lender in exercising any right, power or remedy hereunder shall operate as a waiver, nor shall any single or partial exercise of any such right, power or remedy hereunder preclude any further or other exercise thereof. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. Section 8.02. Amendments. No amendment, modification, termination or waiver of any provision of this Agreement, the Note, the Security Agreement, the Collateral Assignment of Leases and the Mortgages nor consent to any departure by the Borrower therefrom, shall in any event be effective unless in writing, signed by the Lender and then only in the specific instance and for the specific purpose for which given. No notice to or demand on the Borrower in any case shall entitle it to any other or further notice or demand in similar or other circumstances. Section 8.03. Conflicts. In the event of any conflict or inconsistency between any provision of this Agreement and a provision of the Note, the Security Agreement, the Collateral 33 33 Assignment of Leases and/or the Mortgages the provisions of this Agreement shall control. Section 8.04. Address for Notices. All notices and other communications under this Agreement shall be in writing and shall be served by personal service or by mailing a copy thereof by first class mail, postage prepaid to the applicable party at the addresses indicated below: If to the Borrower, to: Jeffrey M. McGrath President Silver King Communications, Inc. 100 South Sangamon Street Suite 300 Chicago, Illinois 60607 with an additional copy (which shall not constitute notice) to: Steven H. Grant Chief Financial Officer Silver King Communications, Inc. 12425 28th Street North St. Petersburg, Florida 33716 If to the Lender, to: John S. True, President HSN Capital Corporation 4910 Longley Lane Reno, Nevada 89502 and to: Legal Department Home Shopping Network, Inc. P.O. Box 9090 Clearwater, FL 34618-9090 or at such other address as may be designated by either party in a written notice to the other complying as to delivery with the terms 34 34 of this Section. All such notices and other communications shall be effective when deposited in the mails. Section 8.05. Expenses. The Borrower agrees to pay on demand all costs and expenses incurred directly in connection with the enforcement of this Agreement, the Note, the Security Agreement, Collateral Assignment of Leases and the Mortgages and other instruments and documents to be delivered hereunder, including, without limitation, the reasonable fees and expenses of any attorney to whom the Note is referred for collection (whether or not litigation is commenced) or for representation in proceedings under any bankruptcy or insolvency law. In addition, the Borrower shall pay any and all taxes and fees payable or determined to be payable in connection with the execution, delivery and recordation of any instruments and documents to be delivered hereunder, including but not limited to documentary stamps. Section 8.06. Binding Effect; Assignment. This Agreement shall become effective when executed and thereafter shall be binding upon and inure to the benefit of the Borrower, the Lender and their respective successors and assigns, except that the Borrower shall not have the right to assign any rights or obligations hereunder without the prior written consent of the other. Section 8.07. Governing Law. This Agreement, the Note, the Security Agreement, and related documents shall be governed by, and construed in accordance with, the laws of the State of Nevada with the exception of its conflicts of laws provisions; provided that 35 35 the effect of any recordation shall be determined by the state thereof. Section 8.08. Severability of Provisions. Any provision of this Agreement, the Note, the Security Agreement, the Collateral Assignment, and the Mortgages which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions or affecting the validity or enforceability of any provisions in any other jurisdiction. Section 8.09. Headings. Article and Section headings in this Agreement are included for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. Section 8.10. Rights Affected by Extensions. The rights of the Lender and its assigns shall not be impaired by any indulgence, release, renewal, extension or modification which the Lender may grant with respect to the indebtedness or any part thereof, or with respect to any endorser, guarantor, or surety without notice or consent of the Borrower or any endorser, guarantee, or surety. Section 8.11. Survival of Representations and Warranties. All representations and warranties made in this Agreement and in any documents or certificates delivered pursuant hereto or thereto shall survive the execution and delivery of this Agreement and the Note and the making of the Loan hereunder and continue in full force and effect, as of the respective dates as of which they were made, until all of the obligations of the Borrower to the Lender hereunder have been paid in full. 36 36 (a) From time to time, Borrower shall execute and deliver to Lender such additional documents as Lender may reasonably require to carry out the purposes of this Agreement or any of the documents entered into in connection herewith, or to preserve and protect the rights of the Lender hereunder or thereunder. (b) Borrower hereby indemnifies and holds harmless Lender and its directors, officers, shareholders, employees, agents, counsel, subsidiaries and affiliates (the "Indemnified Persons") from and against any and all losses, liabilities, obligations, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against any Indemnified Person in any way relating to or arising out of this Agreement, the documents entered into in connection herewith, or any of them or any of the transactions contemplated hereby or thereby; provided, however, that Borrower shall not be liable to any Indemnified Person, if there is a judicial determination that such losses, liabilities, obligations, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting solely from the gross negligence or willful misconduct of such Indemnified Person. (c) Notwithstanding anything herein or in any of the related documents to the contrary, but without limiting or waiving Borrower's obligations hereunder or under any of the related documents, Lender's remedies hereunder and under the related documents are subject to compliance with the Communications Act of 1934, as amended, and to all applicable rules, regulations and 37 37 policies of the FCC, and Lender will not take any action pursuant to this Agreement or any of the related documents that will constitute or result in any assignment of an FCC license or any change of control of any Station if such assignment of license or change of control would require under then existing law (including the written rules and regulations promulgated by the FCC), the prior approval of the FCC, without first obtaining such approval of the FCC. This Agreement, the related documents and the transactions contemplated hereby and thereby do not and will not constitute, create, or have the effect of constituting or creating, directly or indirectly, actual or practical ownership of Borrower by Lender or control, affirmative or negative, direct or indirect, of Borrower by Lender, over the programming, management, or any other aspect of the operation of Borrower, which ownership and control remains exclusively and at all times in the shareholders and the Board of Directors of Borrower until such time as Lender has complied with such law, rules, regulations and policies. BORROWER AND LENDER EACH WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE, BETWEEN LENDER AND BORROWER ARISING OUT OF, IN CONNECTION WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT OR ANY NOTE OR OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS RELATED THERETO. 38 38 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective duly authorized officers, as of the date first above written. ATTEST: HSN CAPITAL CORPORATION /s/ Stuart A. Sheldon By: /s/ John A. True - ---------------------- ----------------------- John True President ATTEST: HOME SHOPPING CLUB, INC. /s/ Stuart A. Sheldon By: /s/ Les R. Wandler - ---------------------- ------------------------ Les R. Wandler Secretary/ Treasurer President and CEO ATTEST: SILVER KING COMMUNICATIONS, INC. /s/ Stuart A. Sheldon By: /s/ Steven H. Grant - ---------------------- ----------------------------- Steven H. Grant, Vice President, Chief Financial Officer, Secretary/Treasurer 39 HSN CAPITAL CORPORATION 4910 Longley Lane Reno, Nevada 89502 January 25, 1993 Silver King Communications, Inc. 12425 28th Street North St. Petersburg, Florida 33716 Attention: Steven H. Grant, Vice President, Chief Financial Officer and Secretary/Treasurer RE: Loan Agreement (the "Loan Agreement") dated December 28, 1992, by and between HSN Capital Corporation, A Nevada corporation ("Lender"), and Silver King Communications, Inc. a Delaware corporation ("Borrower") Gentlemen: Reference is made to the Loan Agreement identified above. Unless otherwise defined herein, capitalized terms used herein shall have the meaning assigned to such terms in the Loan Agreement. You have requested that we waive the requirement of Section 5.01(s) of the Loan Agreement that the Executive Committee of the Borrower established and provide the Lender, not later than thirty (30) days from the Date of Distribution, an itemized list of expenditures for the Borrower for its fiscal year 1993. Subject to the conditions set forth below, the Lender hereby waives its right to exercise any remedies available to the Lender under the Loan Agreement, or any other document executed in connection therewith, related to the requirement of Section 5.01(s) set forth in the immediately preceding sentence. The waiver by the Lender set forth in the immediately preceding paragraph is expressly conditioned upon and subject to the Executive Committee of the Borrower establishing and providing to the Lender, not later than thirty (30) days from the effective date thereof, an itemized list of proposed expenditures for Borrower for its fiscal year 1993. If the Borrower agrees to the foregoing, please evidence such agreement by executing at least two (2) counterparts of this letter in the space provided below and by returning said executed counterparts to HSN Capital Corporation at 4910 Longley Lane, Reno, Nevada 89502, Attention: John True, President. 40 Silver King Communications, Inc. January 25, 1993 Page 2 Effective upon the execution and delivery by the Borrower of counterparts of this letter as provided above, this letter shall be a binding agreement between the parties hereto. Very truly yours, HSN CAPITAL CORPORATION By: /s/ John A. True ----------------------- Name: John A. True --------------------- Title: President AGREED AND ACCEPTED: SILVER KING COMMUNICATIONS, INC. By: /s/ Steven H. Grant --------------------------- Name: Steven H. Grant ------------------------ Title: Vice President, Chief Financial Officer, Secretary/Treasurer 41 February 26, 1993 Silver King Communications, Inc. 12425 28th Street North St. Petersburg, Florida 33716 Attention: Steven H. Grant, Vice President Chief Financial Officer & Secretary/Treasurer RE: Loan Agreement (the "Loan Agreement") dated December 28, 1992, by and between HSN Capital Corporation, a Nevada corporation ("Lender"), and Silver King Communications, Inc., a Delaware corporation ("Borrower") Gentlemen: This letter concerns the above-referenced Loan Agreement. All capitalized terms used herein, unless otherwise defined, shall have the same meaning as assigned to such terms in the Loan Agreement. On January 25, 1993, by letter agreement, Lender and Borrower waived the requirement of Section 5.01(s) of the Loan Agreement that the Executive Committee of the Borrower establish and provide the Lender, no later than thirty (30) days from the Date of Distribution, an itemized list of expenditures for the Borrower for its fiscal year 1993. In so doing, the parties extended the date for the provision of such list an additional thirty (30) days until February 26, 1993. As a result of a change in the ownership of Lender's parent company, Lender hereby requests that the deadline for providing such itemized list of expenditures be extended until May 1, 1993 (hereinafter "the additional extension period") and that during the additional extension period no capital expenditures be made outside the ordinary course of business and all capital expenditures within the ordinary course of business which exceed Ten Thousand Dollars ($10,000) be subject to approval by the Executive Committee of Borrower on a case by case basis. Further, during the additional extension period, Lender requests that the expenditure of any Loan proceeds towards any of the committed projects identified in Exhibit 3 to the Loan Agreement and described in Section 5.01(r) thereof, other than the Urban Broadcasting Corporation project, be subject to approval by the Executive Committee of Borrower on a case by case basis. 42 Silver King Communications, Inc. February 26, 1993 Page 2 Further, by the last day of the additional extension period, Lender requests that Borrower complete and provide to Lender an operating budget for the remainder of fiscal year 1993 approved by the Executive Committee of Borrower. If Borrower agrees to the foregoing, please evidence this agreement by executing at least two (2) counterparts of this letter in the space provided below and return at least one (1) of said executed counterparts to HSN Capital Corporation, 4910 Longley Lane, Reno, Nevada 89502 Attention: John A. True, President. Very truly yours, HSN CAPITAL CORPORATION By: /s/ John A. True ------------------------- Name: John A. True Title: President AGREED AND ACCEPTED: SILVER KING COMMUNICATIONS, INC. By: /s/ Steven H. Grant -------------------------- Name: Steven H. Grant Title: Vice President, Chief Financial Officer & Secretary/Treasurer 43 HSN CAPITAL CORPORATION 4910 Longley Lane Reno, Nevada 89502 April 29, 1993 Silver King Communications, Inc. 12425 28th Street North St. Petersburg, Florida 33716 Attention: Steven H. Grant, Vice President Chief Financial Officer & Secretary/Treasurer RE: Loan Agreement (the "Loan Agreement") dated December 28, 1992, by and between HSN Capital Corporation, a Nevada corporation ("Lender"), and Silver King Communications, Inc., a Delaware corporation ("Borrower") Gentlemen: This letter concerns the above-referenced Loan Agreement. All capitalized terms used herein, unless otherwise defined, shall have the same meaning as assigned to such terms in the Loan Agreement. On January 25, 1993, by letter agreement, Lender and Borrower waived the requirement of Section 5.01(s) of the Loan Agreement that the Executive Committee of the Borrower establish and provide the Lender, no later than thirty (30) days from the Date of Distribution, an itemized list of expenditures for the Borrower for its fiscal year 1993. In so doing, the parties extended the date for the provision of such list an additional thirty (30) days until February 26, 1993. As a result of a change in the ownership of Lender's parent company, at Lender's request, on February 26, 1993, by letter agreement, Lender and Borrower extended the deadline for providing such itemized list of expenditures until May 1, 1993 (hereinafter "the additional extension period"). Lender and Borrower agreed that during the additional extension period no capital expenditures be made outside the ordinary course of business which exceed Ten Thousand Dollars ($10,000) be subject to approval by the Executive Committee of Borrower on a case by case basis. Further, Lender and Borrower agreed that during the additional extension period the expenditure of any Loan proceeds towards any of the committed projects identified in Exhibit 3 to the Loan Agreement and described in Section 5.01(r) thereof, other than the 44 Silver King Communications, Inc. April 29, 1993 Page 2 Urban Broadcasting Corporation project, be subject to approval by the Executive Committee of Borrower on a case by case basis. Finally, Lender and Borrower agreed that by the last day of the additional extension period, Borrower would complete and provide to Lender an operating budget for the remainder of fiscal year 1993 approved by the Executive Committee of Borrower. By this letter, Lender hereby requests that Borrower agree to meet with Lender and Home Shopping Network, Inc. ("HSN"), the parent company of Lender, at the corporate headquarters of HSN on May 17, 1993, and provide the itemized list of expenditures and the operating budget of Borrower for the remainder of its fiscal year 1993. Accordingly, Borrower shall not be required to provide the itemized list of expenditures and the operating budget by May 1, 1993. The Executive Committee approval requirements established in the February 26, 1993 letter agreement shall be extended and remain in force until May 17, 1993. If Borrower agrees to the foregoing, please evidence this agreement by executing at least two (2) counterparts of this letter in the space provided below and return at least one (1) of said executed counterparts to HSN Capital Corporation, 4910 Longley Lane, Reno, Nevada 89502 Attention: John A. True, President. Very truly yours, HSN CAPITAL CORPORATION By: /s/ John A. True ----------------------- Name: John A. True Title: President 45 Silver King Communications, Inc. April 29, 1993 Page 3 AGREED AND ACCEPTED: SILVER KING COMMUNICATIONS, INC. By: /s/ Steven H. Grant ------------------------- Name: Steven H. Grant Title: Vice President, Chief Financial Officer & Secretary/Treasurer 46 HSN CAPITAL CORPORATION 4910 Longley Lane Reno, Nevada 89502 May 17, 1993 Silver King Communications, Inc. 12425 28th Street North St. Petersburg, Florida 33716 Attention: Steven H. Grant, Vice President, Chief Financial Officer & Secretary/Treasurer RE: Loan Agreement (the "Loan Agreement") dated December 28, 1992, by and between HSN Capital Corporation, a Nevada corporation ("Lender"), and Silver King Communications, Inc., a Delaware corporation ("Borrower") Gentlemen: This letter concerns the above-referenced Loan Agreement. All capitalized terms used herein, unless otherwise defined, shall have the same meaning as assigned to such terms in the Loan Agreement. Lender requests that Section 5.01(r) of the Loan Agreement be amended by deleting its current language and replacing it with the following: (r) Committed Projects List. Borrower agrees to allocate approximately Five Million Dollars ($5,000,000) of Loan proceeds toward the projects identified on Exhibit "3" attached hereto; provided, however, that Borrower may reallocate to the "Denver" project funds earmarked for any of the other projects identified on Exhibit "3" so that the funds allocated to the "Denver" project equal up to Two and One-Half Million Dollars ($2,500,000). Except as otherwise provided with respect to the reallocation of funds to the "Denver" project, the Board of Directors of Borrower or the Executive Committee thereof may, from time to time, add, change or delete projects contained on such list and shall forward a copy of such revised list to Lender if an individual addition, deletion or change exceeds Twenty-Five Thousand Dollars ($25,000). 47 Silver King Communications, Inc. May 17, 1993 Page 2 If Borrower agrees to the foregoing amendment, please evidence this agreement by executing at least two (2) counterparts of this letter in the space provided below and return at least one (1) of said executed counterparts to HSN Capital Corporation, 4910 Longley Lane, Reno, Nevada 89502 Attention: John A. True, President. Very truly yours, HSN CAPITAL CORPORATION By: /s/ John A. True ------------------------ Name: John A. True Title: President AGREED AND ACCEPTED: SILVER KING COMMUNICATIONS, INC. By: /s/ Steven H. Grant ------------------------- Name: Steven H. Grant Title: Vice President, Chief Financial Officer & Secretary/Treasurer 48 HSN CAPITAL CORPORATION 4910 Longley Lane Reno, Nevada 89502 June 16, 1993 Silver King Communications, Inc. 12425 28th Street North St. Petersburg, Florida 33716 Attention: Steven H. Grant, Vice President, Chief Financial Officer & Secretary/Treasurer RE: Loan Agreement (the "Loan Agreement") dated December 28, 1992, as amended, by and between HSN Capital Corporation, a Nevada corporation ("Lender"), and Silver King Communications, Inc., a Delaware corporation ("Borrower") Gentlemen: This letter concerns the above-referenced Loan Agreement. All capitalized terms used herein, unless otherwise defined, shall have the same meaning as assigned to such terms in the Loan Agreement. Lender requests that Section 5.01(r) of the Loan Agreement, as amended, be further amended by deleting its current language and replacing it with the following: r) Committed Projects List. Borrower agrees to allocate approximately Five Million Dollars ($5,000,000) of Loan proceeds toward the projects identified on Exhibit "3" attached hereto; provided, however, that Borrower may reallocate to the "Denver" project funds earmarked for any of the other projects identified on Exhibit "3" so that the funds allocated to the "Denver" project equal up to Two and One-Half Million Dollars ($2,500,000) and Borrower may reallocate to the "Urban Broadcasting" project identified on Exhibit "3" so that the funds allocated to the "Urban Broadcasting" project equal up to One Million Eight Hundred Thousand Dollars ($1,800,000). Except as otherwise provided with respect to the reallocation of funds to the "Denver" and "Urban Broadcasting" projects, the Board of Directors of Borrower or the Executive Committee thereof may, 49 Silver King Communications, Inc. June 16, 1993 Page 2 from time to time, add, change or delete projects contained on such list and shall forward a copy of such revised list to Lender if an individual addition, deletion or change exceeds Twenty-Five Thousand Dollars ($25,000). If Borrower agrees to the foregoing amendment, please evidence this agreement by executing at least two (2) counterparts of this letter in the space provided below and return at least one (1) of said executed counterparts to HSN Capital Corporation, 4910 Longley Lane, Reno, Nevada 89502 Attention: John A. True, President. Very truly yours, HSN CAPITAL CORPORATION By: /s/ John A. True ---------------- Name: John A. True Title: President AGREED AND ACCEPTED: SILVER KING COMMUNICATIONS, INC. By: /s/ Steven H. Grant ------------------- Name: Steven H. Grant Title: Vice President, Chief Financial Officer & Secretary/Treasurer 50 HSN CAPITAL CORPORATION September 24, 1993 Silver King Communications, Inc. 12425 28th Street North St. Petersburg, Florida 33716 Attention: Steven H. Grant, Executive Vice President, Chief Financial/Administrative Officer & Treasurer RE: Loan Agreement (the "Loan Agreement") dated December 28, 1992, by and between HSN Capital Corporation, a Nevada corporation ("Lender"), and Silver King Communications, Inc., a Delaware corporation ("Borrower") Gentlemen: This letter concerns the above-referenced Loan Agreement. All capitalized terms used herein, unless otherwise defined, shall have the same meaning as assigned to such terms in the Loan Agreement. Section 5.01(s) of the Loan Agreement provides that the Executive Committee of the Borrower shall establish and provide the Lender, not later than thirty (30) days after the commencement of any fiscal year an itemized list of proposed expenditures for Borrower for that fiscal year. By this letter, Lender hereby proposes that Section 5.01(s) of the Loan Agreement be amended to provide that the Executive Committee of the Borrower shall establish and provide the Lender, no later than thirty (30) days after the commencement of any fiscal year or ten (10) days after Borrower's first Executive Committee of the fiscal year, whichever is later, an itemized list of proposed expenditures for Borrower for that fiscal year. P.O. BOX 70548 - Reno, Nevada 89570 - 702-826-4919 51 Silver King Communications, Inc. September 24, 1993 Page 2 If Borrower agrees to the foregoing, please evidence this agreement by executing at least two (2) counterparts of this letter in the space provided below and return at least one (1) of said executed counterparts to HSN Capital Corporation, 4910 Longley Lane, Reno, Nevada 89502 Attention: John A. True, President. Very truly yours, HSN CAPITAL CORPORATION By: /s/ John A. True ---------------- Name: John A. True Title: President AGREED AND ACCEPTED: SILVER KING COMMUNICATIONS, INC. By: /s/ Steven H. Grant ------------------- Name: Steven H. Grant Title: Executive Vice President, Chief Financial/Administrative Officer & Treasurer 52 PROMISSORY NOTE $135,171,875 December 28, 1982 Reno, Nevada FOR VALUE RECEIVED, SILVER KING COMMUNICATIONS, INC., a Delaware corporation (the "Borrower"), hereby promises to pay to the order of HSN CAPITAL CORPORATION, a Nevada corporation (the "Lender"), at the office of the Lender at 4910 Longley Lane, Reno, Nevada 89502 or at such other place as the Lender may specify from time to time, in lawful money of the United States of America, in immediately available funds, the principal sum of One Hundred Thirty-Five Million One Hundred Seventy-One Thousand Eight Hundred Seventy-Five Dollars ($135,171,875), plus interest thereon and any other charges applicable thereto all as set forth more fully in that certain Loan Agreement, dated as of the date hereof, by and between the Lender and the Borrower (the "Loan Agreement"). This Note shall bear interest as provided in the Loan Agreement. Interest and principal shall be payable and principal shall be prepayable as provided in the Loan Agreement. The principal amount shall be subject to adjustment under certain circumstances as provided in the Loan Agreement. This Note shall mature on January 2, 2008 on which date all unpaid principal and interest accrued thereon, together with any other applicable charges, shall be due and payable in full. The outstanding principal amount of this Note and all accrued and unpaid interest thereon, together with any other applicable charges, shall be and become immediately due and payable in full upon the terms and subject to the conditions of Article VI of the Loan Agreement. If any suit or action is instituted or attorneys are employed to collect this Note or any part thereof, the Borrower promises and agrees to pay all costs of collection, including court costs and reasonable attorneys' fees. Presentment for payment, demand, notice of dishonor, protest, notice of protest and all other demands and notices in connection with the delivery, performance and enforcement of this Note are hereby waived, except as specifically otherwise provided in the Loan Agreement. This Note shall be binding upon the Borrower, its successors and assigns, and shall inure to the benefit of the successors and assigns of the Lender. This Note shall be governed by and construed in accordance with the laws of the State of Nevada with the exception of its conflicts of law provisions. 53 -2- IN WITNESS WHEREOF, the Borrower has executed this Note as of the day and year first written above. SILVER KING COMMUNICATIONS, INC. By: /s/ Steven H. Grant -------------------------- Steven H. Grant Vice President EX-10.25 4 HSN TERM LOAN AGREEMENT 1 EXHIBIT 10.25 ************************************************************ HOME SHOPPING NETWORK, INC., as Borrower HOME SHOPPING CLUB, INC., as Guarantor __________ TERM LOAN AGREEMENT Dated as of December 18, 1992 __________ LTCB TRUST COMPANY, as Administrative Agent __________ LTCB TRUST COMPANY and BANK OF MONTREAL, as Co-Agents __________ THE BANKS NAMED HEREIN ************************************************************ 2 TABLE OF CONTENTS
Page ---- Section 1. Definitions and Accounting Matters . . . . . . . . . . . . . . . . . . . . . . 1 1.1. Certain Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2. Certain Accounting Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Section 2. Commitments and Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 2.1. Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 2.2. Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 2.3. Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 2.4. Lending Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 2.5. Several Obligations; Remedies Independent . . . . . . . . . . . . . . . . . . . 18 2.6. Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Section 3. Payments of Principal and Interest . . . . . . . . . . . . . . . . . . . . . . . 19 3.1. Repayment of Principal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 3.2. Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 3.3. Prepayments and Conversions of the Loans . . . . . . . . . . . . . . . . . . . . 21 Section 4. Payments and Computations . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 4.1. Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 4.2. Pro Rata Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 4.3. Computations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 4.4. Minimum Amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 4.5. Certain Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 4.6. Non-Receipt of Funds by the Administrative Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 4.7. Sharing of Payments, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Section 5. Yield Protection and Illegality . . . . . . . . . . . . . . . . . . . . . . . . 27 5.1. Additional Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 5.2. Limitation on Types of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . 29 5.3. Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 5.4. Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 5.5. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Section 6. Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 6.1. Unconditional Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 6.2. Validity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 6.3. Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 6.4. Subordination and Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . 33 6.5. Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 6.6. Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Section 7. Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 7.1. Basic Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 7.2. Additional Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
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Page ----- Section 8. Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . 37 8.1. Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 8.2. Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 8.3. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 8.4. No Breach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 8.5. Corporate Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 8.6. Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 8.7. Use of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 8.8. ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 8.9. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 8.10. Credit Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 8.11. Ownership of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 8.12. Pari Passu Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 8.13. Investment Company Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 8.14. Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Section 9. Covenants of the Company and the Guarantor . . . . . . . . . . . . . . . . . . . 41 9.1. Financial Statements; Reports and Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 9.2. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 9.3. Corporate Existence, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 9.4. Payment of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 9.5. Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 9.6. Mergers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 9.7. Dispositions of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 9.8. Ranking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 9.9. Business; Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 9.10. Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . 53 9.11. Fixed Charges Coverage Test . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 9.12. Debt Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 9.13. Consolidated Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 9.14. Notification of Incurrence of Debt or Making of Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 9.15. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 9.16. Ownership of Guarantor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 9.17. Indebtedness of Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . 55 9.18. Interest Rate Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 Section 10. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 Section 11. The Administrative Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 11.1. Appointment, Powers and Immunities . . . . . . . . . . . . . . . . . . . . . . . 60 11.2. Reliance by the Administrative Agent . . . . . . . . . . . . . . . . . . . . . . 60 11.3. Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 11.4. Rights as a Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 11.5. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 11.6. Non-Reliance on Administrative Agent, Co-agents and other Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
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Page ----- 11.7. Failure to Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 11.8. Resignation or Removal of Administrative Agent . . . . . . . . . . . . . . . . . 63 11.9. Administrative Agent's Office . . . . . . . . . . . . . . . . . . . . . . . . . . 63 11.10. Co-Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 Section 12. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 12.1. Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 12.2. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 12.3. Expenses, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 12.4. Amendments, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 12.5. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 12.6. Assignments and Participation . . . . . . . . . . . . . . . . . . . . . . . . . . 66 12.7. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 12.8. Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 12.9. Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 12.10. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 12.11. GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 12.12. JURISDICTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 12.13. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 Schedule 1: Existing Credit Agreements and Liens Schedule 2: Calculations of Sample Financial Terms Schedule 3: List of Broadcast Subsidiaries Exhibit A: Form of Note Exhibit B: Form of Opinion of Counsel to the Company and the Guarantor Exhibit C: Form of Compliance Certificate Exhibit D-1: Form of Funded Debt Ratio Notice Exhibit D-2: Form of Total Debt Ratio Notice Exhibit E: Form of Assignment and Assumption Agreement Annex A: Press release of Liberty Media Corporation of December 7, 1992 Annex B: Form 10 of Silver King Communications, Inc. Annex C: Interest Rate Protection Agreements
(iii) 5 TERM LOAN AGREEMENT, dated as of December 18, 1992 (as the same may be amended or modified from time to time, this "Agreement"), among HOME SHOPPING NETWORK, INC., a Delaware corporation (the "Company"); HOME SHOPPING CLUB, INC., a Delaware corporation (the "Guarantor"); each of the banks which is a signatory hereto (individually, a "Bank" and, collectively, the "Banks"); LTCB TRUST COMPANY, a New York trust company, and Bank of Montreal, each as a Co-Agent for the Banks (in such capacity, together with its successors in such capacity, each a "Co-Agent"); and LTCB TRUST COMPANY, a New York trust company, as Administrative Agent for the Banks (in such capacity, together with its successors in such capacity, the "Administrative Agent"). WHEREAS, the Company has requested the Banks to make term loans to the Company, under the guarantee of the Guarantor, in an aggregate principal amount up to but not exceeding $60,000,000 for the purpose of refinancing certain existing indebtedness, as more fully described in this Agreement; and WHEREAS, the Banks are willing to make such loans to the Company on the terms and subject to the conditions of this Agreement; and WHEREAS, the Administrative Agent has been requested to act as agent for the Banks, and the Administrative Agent is willing to act as such agent on the terms and subject to the conditions of this Agreement, NOW THEREFORE, in consideration of the premises and mutual covenants contained herein, the parties hereto hereby agree as follows: Section 1. Definitions and Accounting Matters. 1.1. Certain Defined Terms. As used herein, the following terms shall have the following meanings (all terms defined in this Section 1 or in other provisions of this Agreement in the singular to have the same meanings when used in the plural and vice versa): "Adjusted Operating Cash Flow" shall mean, for any period, the sum of the following for the Company and its Subsidiaries (including, without limitation, the Guarantor) on a consolidated basis: (a) Operating Cash Flow for such period, plus (or minus) (b) cash inflows to (or outflows from) equity (including, without limitation, cash dividends on capital stock) for such period, all as shown on the consolidated 6 financial statements, including the notes thereto, of the Company for such period. Adjusted Operating Cash Flow for the four-Fiscal Quarter period ended August 31, 1992 is as set forth in Schedule 2 hereto. "Affiliate" shall mean, with respect to any Person, any other Person (other than a Wholly-Owned Subsidiary of such Person) directly or indirectly controlling, controlled by, or under direct or indirect common control with, such Person. A Person shall be deemed to control another Person if such Person (x) is an officer or director of such other Person, (y) possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such other Person, whether through the ownership of voting securities, by contract or otherwise, or (z) directly or indirectly owns or controls 10% or more of such other Person's capital stock. "Applicable Lending Office" shall mean, for each Bank and for each type of Loan, the Lending Office of such Bank (or of an affiliate of such Bank) designated for such type of Loan on the signature pages hereof or such other office of such Bank (or of an affiliate of such Bank) as such Bank may from time to time specify to the Administrative Agent and the Company as the office by which its Loans of such type are to be made and maintained. "Applicable Margin" shall mean, at any time: (a) with respect to LIBOR Loans, 2.00% minus the Margin Adjustment (if any) in effect at such time; and (b) with respect to Prime Rate Loans, 1.00% minus the Margin Adjustment (if any) in effect at such time. "Bankruptcy Code" shall mean the federal Bankruptcy Code of the United States, 11 U.S.C. Section 101 et seq. "Broadcast Subsidiary" shall mean, with respect to any Person, a Wholly-Owned Subsidiary of such Person which owns one or more television broadcast stations, but in any event shall include Telemation, Inc., a Delaware corporation, and its respective successors. As of the date hereof, Broadcast Subsidiaries are each company set forth on Schedule 3 attached hereto. "Broadcast Subsidiary Group" shall mean a Material Subsidiary Group, each constituent Subsidiary of which is a Broadcast Subsidiary. "Business Day" shall mean any day on which commercial banks are not authorized or required to close in New York -2- 7 City and dealings in Dollar deposits are carried out in the London interbank market. "Capital Lease" shall mean any lease or other contractual arrangement which under GAAP has been or should be recorded as a capital lease. "Change of Control" shall mean any of the following events: (i) the acquisition by any "person" or "group" of persons of the "beneficial ownership" (as such terms are defined within the meaning of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended) of outstanding shares of the Company's capital stock, or any sale or other disposition by Roy M. Speer (other than an involuntary disposition by reason of death or disability), or, following the consummation of the Liberty Media Transaction, Liberty Media, of any of the capital stock of the Company owned by Mr. Speer, or, following the consummation of the Liberty Media Transaction, Liberty Media, or any other event such that, after giving effect to such acquisition, sale, disposition or other event, Mr. Speer, or, following the consummation of the Liberty Media Transaction, Liberty Media, would no longer (A) own, directly or indirectly, or otherwise control at least 51% of the outstanding shares of any class of the Company's common stock the approval of which is required for any fundamental corporate action (including, without limitation, any merger, reorganization, recapitalization, liquidation, distribution, winding-up, sale, transfer or hypothecation of substantially all or a substantial portion of the Company's assets), or (B) possess the ability to elect at least a majority of the Board of Directors of the Company, or (ii) any person or group of persons shall acquire all or substantially all of the assets of the Company. "Code" shall mean the Internal Revenue Code of 1986, as amended. "Commitment" shall mean, with respect to any Bank, the amount set forth opposite such Bank's name on the signature pages hereof under the caption "Commitment". "Commitment Termination Date" shall mean February 6, 1993, or such earlier date on which the Commitments shall terminate in accordance with this Agreement. "Consolidated Net Worth" shall mean, at any date, all amounts which, in conformity with GAAP, would be included under stockholder's equity on a consolidated balance sheet of the Company and its Subsidiaries at such time. -3- 8 "Convertible Subordinated Debentures" shall mean the Company's 5-1/2% Convertible Subordinated Debentures due April 22, 2002, issued under the Convertible Subordinated Debenture Indenture. "Convertible Subordinated Debenture Indenture" shall mean the Indenture, dated as of April 22, 1987, between the Company and Bankers Trust Company, as trustee. "Default" shall mean an Event of Default or an event which with notice or lapse of time or both would become an Event of Default. "Dollars" and "$" shall mean lawful money of the United States of America. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time. "ERISA Affiliate" shall mean any corporation or trade or business which is a member of the same controlled group of corporations (within the meaning of Section 414(b) of the Code) as the Company or the Guarantor or is under common control (within the meaning of Section 414(c) of the Code) with the Company or the Guarantor. "Event of Default" shall have the meaning assigned to that term in Section 10 hereof. "Federal Funds Rate" shall mean, (i) for Overnight Federal Funds Rate Loans, for any day, the rate per annum (rounded upwards, if necessary, to the nearest 1/100th of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day, and (ii) for Term Federal Funds Rate Loans (if requested by the Company and agreed to by the Administrative Agent and the Banks), for any Interest Period, the rate per annum (rounded upwards, if necessary, to the nearest 1/100th of 1%) equal to the weighted average of the rates on term Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on the first day of such Interest Period for a period equal to such Interest Period, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day and as determined by the Administrative Agent, provided that (x) if the day for which such rate is to be determined is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the -4- 9 next preceding Business Day as so published on the next succeeding Business Day, and (y) if such rate is not so published for any day, the Federal Funds Rate for such day shall be the average rate charged to LTCB on such day on such transactions as determined by the Administrative Agent. "Federal Funds Rate Loans" shall mean the Loans (or any portion thereof) when they bear interest at rates based upon the Federal Funds Rate, and in any event shall be either an Overnight Federal Funds Rate Loan or a Term Federal Funds Rate Loan. "Fiscal Quarter" shall mean a period of three consecutive calendar months commencing on any of the following dates in any Fiscal Year: March 1; June 1, September 1 and December 1. "Fiscal Year" shall mean, for the Company, the Guarantor or any Subsidiary, the twelve consecutive calendar month period commencing on September 1 of each calendar year and ending on August 31 of the next following calendar year; and "Fiscal 1992", "Fiscal 1993", and any other year so designated shall mean the Fiscal Year ending on August 31 of the indicated calendar year. "Fixed Charges" shall mean, for any Person and for any period, the sum (without duplication) of: (a) all capital expenditures and increases in intangible assets of such Person for such period, plus (b) the sum (without duplication) of (i) all interest expense of such Person for such period, (ii) all payments of principal of all Indebtedness of such Person that were scheduled for payment during such period, whether or not paid (unless cancelled or forgiven for, or prepaid in advance of, such period), (iii) any increase in total current assets and any decrease in total current liabilities (net of the change in cash and cash equivalents and the change in Short-Term Debt) of such Person for such period, (iv) any cash increase in long-term investments (excluding periods prior to September 1, 1992), and (v) any cash increase in long-term notes receivable (excluding periods prior to September 1, 1992), minus -5- 10 (c) the sum (without duplication) of (i) all interest income, other than interest income related to the Silver King Notes, of such Person for such period, (ii) any decrease in total current assets and any increase in total current liabilities (net of the change in cash and cash equivalents and the change in Short-Term Debt) of such Person for such period, (iii) any cash decrease in long-term investments (excluding periods prior to September 1, 1992), (iv) any cash decrease in long-term notes receivable (excluding periods prior to September 1, 1992), and (v) the amounts accrued at August 31, 1991 for litigation settlements, in each case as reflected on the consolidated quarterly or annual financial statements, including the notes thereto, of the Company most recently delivered to the Administrative Agent pursuant to Section 9.1 (or referred to in Section 8.2) hereof. Fixed Charges for the four-Fiscal Quarter period ended August 31, 1992 are as set forth in Schedule 2 hereto. "Funded Debt Ratio" shall mean, at any time, the ratio of (a) Total Funded Debt of the Company and its consolidated Subsidiaries as at the end of the Company's four-Fiscal Quarter period most recently ended as of such time, to (b) Operating Cash Flow for the same period, as shown in the Funded Debt Ratio Notice for such period. "Funded Debt Ratio Notice" shall mean each notice provided for in Section 9.1(g) (or Section 7.1(f)) hereof. "GAAP" shall mean generally accepted accounting principles in the United States of America, consistently applied, as in effect (unless otherwise specified in this Agreement) from time to time. "Indebtedness" shall mean, for any Person (but without duplication): (a) all indebtedness and other obligations of such Person for borrowed money or for the deferred purchase price of property or services (other than trade payables incurred in the ordinary course of business and not overdue by more than 180 days), including, without limitation, all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments; (b) all obligations of such Person under interest rate or currency swaps, caps, collars, floors, options, forward exchange contracts and similar hedging arrangements; -6- 11 (c) the stated amount of all letters of credit issued for the account of such Person and (without duplication) all drafts drawn thereunder, and the aggregate face amount of all banker's acceptances as to which such Person is obligated, other than trade letters of credit issued for the account of such Person in the ordinary course of business pursuant to the terms of which (i) such Person is obligated to reimburse the issuer thereof for any drawing thereunder on the date of such drawing and (ii) no other credit shall be extended thereunder to such Person by such issuer; (d) all obligations of such Person under any Capital Leases; (e) all obligations of such Person in connection with employee benefit or similar plans; (f) all obligations of such Person in respect of guarantees, whether direct or indirect (including, without limitation, agreements to "keep well" or otherwise ensure a creditor against loss) with respect to any indebtedness or other obligation of any other Person of the type described in any of clauses (a) through (e) above; and (g) all indebtedness or other obligations referred to in any of clauses (a) through (f) above secured by any Lien upon property owned by such Person, whether or not such Person is liable on any such obligation. "Interest Payment Date" shall mean, (i) for any Loan, the last day of the Interest Period relating thereto, and (ii) for any Federal Funds Rate Loan or Prime Rate Loan, the last day of any month which occurs during the Interest Period related thereto, and in any case if such day is not a Business Day, the next succeeding Business Day. "Interest Period" shall mean with respect to any (1) LIBOR Loan, each period commencing on the date such Loan is made or converted from a Loan of another type or the last day of the immediately preceding Interest Period for such Loan and ending on the numerically corresponding day in the first, second, third or sixth calendar month thereafter, as the Company may select as provided in Section 2.2 hereof (or such period of less than one month as the Company may select in accordance with clause (ii) or (iii) of the next paragraph below), except that each such Interest Period which commences on the last Business Day of a calendar month (or on any day for which there is no numerically corresponding day in the -7- 12 appropriate subsequent calendar month) shall end on the last Business Day of the appropriate subsequent calendar month, (2) Overnight Federal Funds Rate Loan, each period of one Business Day, (3) Term Federal Funds Rate Loan, each period commencing on the date such Loan is made or converted from a Loan of another type or the last day of the immediately preceding Interest Period for such Loan and ending on the last day for which the Federal Funds Rate for such Loan applies, as agreed between the Company and the Administrative Agent with the consent of the Banks prior to the commencement of such Interest Period and (4) Prime Rate Loan, each period commencing on the date such Loan is made or converted from a Loan of another type or the last day of the immediately preceding Interest Period for such Loan and ending on the date 30 days later. Notwithstanding the foregoing, (i) each Interest Period which would otherwise end on a day that is not a Business Day shall end on the next succeeding Business Day (or if such next succeeding Business Day falls in the next succeeding calendar month, on the next preceding Business Day); (ii) if the Company selects an Interest Period that would begin before and end after any Maturity Date, the Administrative Agent may notify the Company and the Banks that the Company must select a shorter Interest Period that will end on or prior to such Maturity Date, in which case such shorter period selected by the Company shall (subject to clauses (i) and (ii) above) be the relevant Interest Period; and (iii) the Company must select the duration of Interest Periods so that, notwithstanding clause (i) above, no Interest Period for LIBOR Loans shall have a duration of less than one month (except as provided in clause (ii) above), and so that no more than six Interest Periods with respect to LIBOR Loans shall be in effect at any one time. "Interest Rate Protection Agreement" shall mean any interest rate protection agreement, interest rate future, interest rate option, interest rate swap, interest rate cap, interest rate collar or other forward exchange contract or similar interest rate hedge or arrangement under which the Company or a Subsidiary is a party or a beneficiary. "Investment" shall mean, for any Person, (a) the acquisition (whether for cash, property, services or securities or otherwise) of capital stock, bonds, notes, debentures, partnership or other ownership interests or other securities or obligations of any other Person or any agreement to make any such acquisition (including, without limitation, any "short sale" or any sale of any securities at a time when such securities are not owned by the Person entering into such -8- 13 short sale); (b) the making of any deposit with, or advance, or loan or other extension of credit to, any other Person (including the purchase of property from another Person subject to an understanding or agreement, contingent or otherwise, to resell such property to such Person, but excluding any such advance, loan or other extension of credit to customers of the Company or to customers of the Company's Subsidiaries having a term not exceeding 90 days arising in the ordinary course of business); (c) the entering into of any guarantee of, or other contingent obligation with respect to, Indebtedness or other liability of any other Person and (without duplication) any amount committed to be advanced, lent or extended to such person; or (d) the entering into of any interest rate or currency swaps, caps, collars, floors, options, forward exchange contracts and similar hedging arrangements. "Liberty Media" shall mean Liberty Media Corporation, a Delaware corporation. "Liberty Media Transaction" shall mean the acquisition by Liberty Media of an aggregate of 20,000,000 shares of Class B Common Stock of the Company from RMS Limited Partnership, on substantially the terms outlined in Liberty Media's press release of December 7, 1992, attached hereto as Annex A. "LIBOR" shall mean, with respect to any LIBOR Loan for any Interest Period therefor, the rate per annum (rounded upwards, if necessary, to the nearest 1/16 of 1%) quoted by the London office of LTCB at approximately 11:00 a.m. London time (or as soon thereafter as practicable) or if such rate is not quoted to LTCB, the rate per annum appearing on the display designated as page "LIBO" on the Reuter Monitor Money Rates Service (or such other page as may replace the LIBO page of that service for the purpose of displaying London interbank offered rates of major banks) two Business Days prior to the first day of such Interest Period for the offering by such office to leading banks in the London interbank market of Dollar deposits having a term comparable to such Interest Period and in an amount comparable to the principal amount of the LIBOR Loan scheduled to be outstanding during such Interest Period from LTCB Trust. "LIBOR Loans" shall mean the Loans (or any portion thereof) when they bear interest at rates determined on the basis of LIBOR. "Lien" shall mean, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, any agreement to -9- 14 grant any of the foregoing with respect to such asset, and the filing of a financing statement or similar recording in any jurisdiction with respect to such asset. For all purposes hereunder, the Company, the Guarantor or any Subsidiary shall be deemed to own subject to a Lien (i) any asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such asset and (ii) any account receivable transferred by it with recourse (including any such transfer subject to a holdback or similar arrangement that effectively imposes the risk of collectibility on the transferor). "Loans" shall mean the loans provided for by Section 2.1 hereof. "LTCB" shall mean The Long-Term Credit Bank of Japan, Limited, a banking corporation duly organized and validly existing under the laws of Japan, and its successors. "LTCB Trust" shall mean LTCB Trust Company, a trust company duly organized and validly existing under the laws of the State of New York, and its successors. "Majority Banks" shall mean Banks having not less than 51% of the aggregate amount of the Loans outstanding, or if no Loans are then outstanding, Banks holding not less than 51% of the Commitments then in effect, or, if no Loans are then outstanding nor Commitments in effect, Banks which held not less than 51% of the Commitments when most recently in effect or, if later, which held not less than 51% of the aggregate principal amount of the Loans when most recently outstanding. "Margin Adjustment" shall mean, at any time of determination thereof commencing after the first anniversary of the date of the initial funding of the Loans, when the Funded Debt Ratio, as set forth in the Funded Debt Ratio Notice most recently delivered to the Administrative Agent (which Notice shall be effective on the date of the Administrative Agent's receipt thereof in accordance with Section 12.2 hereof), is at each of the following levels, a subtraction from any Applicable Margin, as set forth below: -10- 15 Effective Subtraction from Funded Debt Ratio Applicable Margin ----------------- ----------------- Greater than 1.25 to 1 0 1.25 to 1 or less, but greater than 1.00 to 1 (0.375%) 1.00 to 1 or less (0.75%). "Material Subsidiary" shall mean, at any time, a Subsidiary the book value of whose tangible assets at such time exceeds 10% of the book value of the total tangible assets of the Company and the Subsidiaries (on a consolidated basis), but in any event shall include each of the Guarantor, HSN Capital Corporation, a Nevada corporation, and HSN Fulfillment, Inc., HSN Mail Order, Inc. and HSN Realty, Inc., each a Delaware corporation, and their respective successors. "Material Subsidiary Group" shall mean, at any time, a group of any two or more Subsidiaries which at such time has a combined aggregate book value of tangible assets in excess of 10% of the book value of the total tangible assets of the Company and the Subsidiaries (on a consolidated basis). "Maturity Date" shall mean any date on which an installment of principal due to the Banks under Section 3.1 hereof is scheduled to become due. "Multiemployer Plan" shall mean a plan defined as such in Section 3(37) of ERISA to which contributions have been made by the Company or any ERISA Affiliate and which is covered by Title IV of ERISA. "Non-Material Subsidiary" shall mean, at any time, a Subsidiary which is not a Material Subsidiary. "Notes" shall mean the promissory notes provided for by Section 2.6 hereof. "Obligations" shall mean all obligations and liabilities of the Company to the Administrative Agent, the Co-Agents and the Banks (or any of the foregoing) now or in the future existing under or in connection with this Agreement, any of the Notes or any related document (as any of the foregoing Agreement, Notes or documents may from time to time be respectively amended, modified, substituted, extended or renewed), direct or indirect, absolute or contingent, due or to become due, now or hereafter existing, including without -11- 16 limitation, any payment of principal, interest, fees or expenses due at any time under this Agreement. "Operating Cash Flow" shall mean, for any period, the sum of the following for the Company and its Subsidiaries (including, without limitation, the Guarantor) on a consolidated basis: (a) operating profit of such Persons for such period; plus (to the extent already deducted in arriving at operating profit) (b) depreciation and amortization expense for such Persons for such period; plus (c) commencing September 1, 1992, non-cash compensation expense related to the Company's executive stock award program; plus (d) all cash interest (if any), other cash income (if any) or cash principal repayments (if any) received by the Company or any Subsidiaries in connection with the Silver King Notes, and, for the twelve months immediately following the delivery of any such Silver King Note, accrued interest income on such note for no more than one month, all as shown on the consolidated financial statements, including the notes therreto, of the Company for such period or, with respect to clause (d) above, if such financial statements do not present information in sufficient detail to derive the amount specified in clause (d) of this definition, as shown on the certificate to be delivered to the Administrative Agent pursuant to the last paragraph of Section 9.1 hereof. Operating Cash Flow for the four-Fiscal Quarter period ended August 31, 1992 is as set forth in Schedule 2 hereto. "Overnight Federal Funds Rate Loans" shall mean Loans (or any portion thereof) when they bear interest at an overnight Federal Funds Rate. "PBGC" shall mean the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. "Person" shall mean an individual, a corporation, a company, a voluntary association, a partnership, a trust, an unincorporated organization or a government or any agency, instrumentality or political subdivision thereof. "Plan" shall mean an employee benefit or other plan established or maintained by the Company or any ERISA Affiliate and which is covered by Title IV of ERISA, other than a Multiemployer Plan. "Post-Default Rate" shall mean a rate per annum, during the period commencing on the date on which any Obligation is not paid in full when due (whether at stated maturity, by acceleration or otherwise) and ending on the date on which -12- 17 all such overdue Obligations are paid in full, equal to 2.00% plus the higher of (x) the Prime Rate as in effect from time to time and (y) the interest rate in effect from time to time for Overnight Federal Funds Rate Loans hereunder (including the Applicable Margin in effect for such Loans at each such time); provided that, if any such unpaid Obligation is principal of a LIBOR Loan or of a Term Federal Funds Rate Loan and the due date thereof is a day other than the last day of the Interest Period therefor, the "Post-Default Rate" for such principal shall be, for the period commencing on the due date and ending on the last day of the then current Interest Period therefor, 2.00% plus the interest rate for such Loan as provided in Section 3.2(a) or (b) hereof and, thereafter, the rate otherwise provided for above in this definition. "Prime Rate" shall mean the rate of interest from time to time announced by LTCB at its office in New York, New York as its prime commercial lending rate, which rate is not necessarily the lowest rate of interest charged or received by LTCB. Each change in the Prime Rate resulting from a change in such prime commercial lending rate shall take effect when such prime commercial lending rate changes. "Prime Rate Loans" shall mean the Loans (or any portion thereof) when they bear interest at rates based upon the Prime Rate. "Regulation A" shall mean Regulation A of the Board of Governors of the Federal Reserve System (or any successor), as the same may be amended or supplemented from time to time. "Regulation D" shall mean Regulation D of the Board of Governors of the Federal Reserve System (or any successor), as the same may be amended or supplemented from time to time. "Regulatory Change" shall mean, with respect to any Bank, any change after the date of this Agreement in United States Federal, state or foreign law or regulations (including Regulation D) or the adoption or making after such date of any interpretations, directives or requests applying to a class of banks including such Bank of or under any United States Federal, State or foreign law or regulations (whether or not having the force of law) by any court or governmental or monetary authority charged with the interpretation or administration thereof. "Revolving Credit Agreement" shall mean the Amended and Restated Revolving Credit Agreement, dated December 18, 1992, among the Company, the Guarantor, the Co-Agents, the Administrative Agent and the financial institutions party -13- 18 thereto, as the same may be amended or modified from time to time. "SEC Report" shall mean, with respect to any Person, any document filed, or deemed filed, at any time with the Securities and Exchange Commission (or any successor thereto) by or on behalf of such Person and available to the public. "Senior Notes" shall mean the Company's 11-3/4% Senior Notes due October 15, 1996, issued under the Senior Note Indenture. "Senior Note Indenture" shall mean the Indenture, dated October 15, 1986, between the Company and First Union National Bank of Florida (successor-in-interest to Southeast Bank, N.A.), as trustee. "Short-Term Debt" shall mean, for any Person, all Indebtedness of such Person which would be short term debt, whether direct or contingent, under GAAP as in effect on the date of this Agreement. "Silver King Notes" shall mean all notes in favor of the Company delivered in connection with the disposition of stock of any of the Broadcast Subsidiaries as permitted by Section 9.7 hereof. "Subsidiary" shall mean any corporation, partnership or other Person of which at least a majority of the outstanding shares of capital stock or other ownership interests ordinarily having, in the absence of contingencies, by the terms thereof voting power to elect a majority of the board of directors or similar governing body of such Person is at the time directly or indirectly owned or controlled by the Company, the Guarantor or by the Company and/or the Guarantor, and in any event shall include the Guarantor and its subsidiaries. "Wholly-Owned Subsidiary" shall mean any Person of which all of such ownership interests, other than directors' qualifying shares, are so owned or controlled. "Term Federal Funds Rate Loan" shall mean any Federal Funds Rate Loan other than an Overnight Federal Funds Rate Loan. "Total Debt" shall mean, for any Person at any time, all Indebtedness of such Person at such time (including, without limitation, all long-term senior and subordinated Indebtedness, all Short-Term Debt, the stated amount of all letters of credit issued for the account of such Person and (without duplication) all unreimbursed draws thereunder), as -14- 19 shown on the consolidated quarterly or annual financial statements, including the notes thereto, of the Company delivered for such period pursuant to Section 9.1 (or referred to in Section 8.2) hereof. Total Debt of the Company and its consolidated Subsidiaries as at the end of the four-Fiscal Quarter period ended August 31, 1992 is as set forth on Schedule 2 hereto. "Total Debt Ratio" shall mean, at any time, the ratio of (a) Total Debt of the Company and its consolidated Subsidiaries as at the end of the Company's four-Fiscal Quarter period most recently ended as of such time, to (b) Operating Cash Flow for the same period, as shown in the Total Debt Ratio Notice for such period. "Total Debt Ratio Notice" shall mean each notice provided for in Section 9.1(g) (or Section 7.1(f)) hereof. "Total Funded Debt" shall mean, for any Person at any time, (a) all Indebtedness of such Person outstanding at such time (other than the aggregate of all unsecured borrowings of such Person having a scheduled maturity of less than twelve months from the date of incurrence thereof in an aggregate principal amount not in excess of $5,000,000 at such time), minus (b) the stated amount available to be drawn of all letters of credit issued for the account of such Person, as shown on the consolidated quarterly or annual financial statements, including the notes thereto, of the Company delivered for such period pursuant to Section 9.1 (or referred to in Section 8.2) hereof. Total Funded Debt of the Company and its consolidated Subsidiaries as at the end of the four-Fiscal Quarter period ended August 31, 1992 is as set forth on Schedule 2 hereto. 1.2. Certain Accounting Matters. (a) Unless otherwise disclosed to the Banks in writing at the time of delivery thereof in the manner described in subsection (b) below, all financial statements and certificates and reports as to financial matters required to be delivered to the Administrative Agent on behalf of itself and the Banks hereunder shall be prepared in accordance with GAAP applied on a basis consistent with those used in the preparation of the latest financial statements furnished to the Banks hereunder after the date hereof(or, prior to the delivery of the first financial statements furnished to the Banks hereunder, used in the preparation of the audited financial statements referred to in Section 8.2 hereof). All calculations made for the purposes of determining compliance with the terms of Sections 9.11, 9.12 and 9.13 hereof shall, -15- 20 except as otherwise expressly provided herein, be made by application of GAAP applied on a basis consistent with those used in the preparation of the annual or quarterly financial statements then most recently furnished to the Banks pursuant to Section 9.1 (or referred to in Section 8.2) hereof unless (i) the Company shall have objected to determining such compliance on such basis at the time of delivery of such financial statements or (ii) the Majority Banks shall so object in writing within 30 days after delivery of such financial statements, in either of which cases such calculations shall be made on a basis consistent with those used in the preparation of the most recent financial statements as to which such objection shall not have been made. (b) The Company shall deliver to the Administrative Agent, with sufficient copies for delivery to the Banks, contemporaneously with delivery of any annual or quarterly financial statement under Section 9.1 hereof a description in reasonable detail of any material variation between the application of accounting principles employed in the preparation of such statement and the application of accounting principles employed in the preparation of the most recently preceding annual or quarterly financial statements as to which no objection shall have been made in accordance with the last sentence of subsection (a) above, and reasonable estimates of the difference between such statements arising as a consequence thereof. Section 2. Commitments and Loans. 2.1. Loans. Each Bank severally agrees, on the terms and subject to the conditions of this Agreement, to make one Loan to the Company on a Business Day on or prior to the Commitment Termination Date in a principal amount not to exceed the amount of such Bank's Commitment, and further agrees that such Loan may be comprised of Federal Funds Rate Loans, Prime Rate Loans, LIBOR Loans, or any combination thereof, in accordance with Section 3.2(c) hereof. The Loans shall be made by the Banks pro rata in accordance with their respective Commitments. 2.2. Borrowing. The Company shall give the Administrative Agent (which shall promptly notify the Banks) notice of the borrowing hereunder as provided in Section 4.5 hereof. Not later than 10:00 a.m., or, in the case of a borrowing of Overnight Federal Funds Rate Loans or Prime Rate Loans, 12:00 p.m., New York time on the date specified for such borrowing, each Bank shall make available the amount of the Loan to be made by it on such date to the Administrative -16- 21 Agent, at account number 04203606 maintained by the Administrative Agent with Bankers Trust Company (ABA No. 021001033), One Bankers Trust Plaza, New York, New York 10006 (reference: "Home Shopping Network - Term Loan Facility"), attention: Robert Pacifici, in immediately available funds. The amount so received by the Administrative Agent shall, subject to the terms and conditions of this Agreement, be made available to or for the benefit of the Company by depositing the same, in immediately available funds, either (i) in the account of the trustee for the Senior Notes designated by the Company in the related notice of borrowing, or (ii) in the account of the Company designated by the Company in the related notice of borrowing, to the extent and only to the extent that the Company has repurchased Senior Notes in the open market and is entitled to reimbursement therefor in accordance with Section 9.15 hereof. Each of the Company and the Guarantor acknowledges and agrees that any Loans disbursed to the trustee of the Senior Notes as contemplated in clause (i) of the preceding sentence shall be deemed for all purposes to have been disbursed to the Company. References in this Agreement to the date on which a Loan is made shall be to the date on which funds borrowed pursuant to such Loan shall have been made available to the Company pursuant to this Section 2.2. The borrowing of the Loans shall terminate the Commitments. 2.3. Fees. (a) The Company shall pay to the Administrative Agent for account of each Bank a commitment fee on the daily average unused amount of such Bank's outstanding Commitment, for the period from and including the date of this Agreement to and including the earlier of the day prior to the date such Commitment is terminated or the day prior to the Commitment Termination Date for such Bank, at a rate per annum equal to 1/4 of 1%; provided, however, that no such fee shall be payable to any Bank with respect to the portion (if any) of such Bank's Commitment corresponding to the principal amount of Loans which such Bank shall not have made in accordance with (i) a notice of borrowing properly and timely given and (ii) the terms and conditions of this Agreement, and with respect to which all conditions precedent thereto shall have been satisfied. All outstanding accrued commitment fees of each Bank shall be due and payable on the earlier of the date the Commitment of such Bank is terminated or the Commitment Termination Date. (b) The Company shall pay to LTCB Trust, as a Co-Agent, for its own account a facility fee in the amount and at the times set forth in the fee letter, dated September 28, -17- 22 1992, as amended, among the Company, the Guarantor and LTCB Trust, as a Co-Agent, and shall pay to Bank of Montreal, as a Co-Agent, for its own account a facility fee in the amount and at the times set forth in the fee letter, dated October 8, 1992, as amended, among the Company, the Guarantor and Bank of Montreal, as a Co-Agent. (c) The Company shall pay to the Administrative Agent for its own account an annual Agency Fee in the amount and at the times set forth in the fee letter, dated September 28, 1992, among the Company, the Guarantor and the Administrative Agent. 2.4. Lending Offices. The Loans made by each Bank shall be made and maintained at such Bank's Applicable Lending Office for Loans of such type. 2.5. Several Obligations; Remedies Independent. The failure of any Bank to make the Loan to be made by it on the date specified therefor shall not relieve any other Bank of its obligation to make its Loan on such date, but no Bank shall be responsible for the failure of any other Bank to make the Loan to be made by such other Bank. The amounts payable by the Company or the Guarantor at any time hereunder and under the Notes to each Bank shall be a separate and independent debt and each Bank shall be entitled to protect and enforce its rights arising out of this Agreement and the Notes, and it shall not be necessary for any other Bank or any Co-Agent or the Administrative Agent to consent to, or be joined as an additional party in, any proceedings for such purposes. 2.6. Notes. (a) The Loan made by each Bank on the occasion of the borrowing pursuant to Section 2.2 hereof shall be evidenced by a single promissory note of the Company in substantially the form of Exhibit A hereto, dated the date of such borrowing, payable to the order of such Bank in a principal amount equal to the principal amount of its Loan and otherwise duly completed. The Loan made by each Bank, and all payments and prepayments made on account of the principal thereof, and all conversions of such Loan, shall be recorded by such Bank on its books and, prior to any transfer of the Note held by it, endorsed by such Bank on the schedule attached to such Note or any continuation thereof; provided, that no failure by any Bank to make such recording or endorsement shall affect the obligations of the Company or the Guarantor under this Agreement to such Bank or the holder of such Note. -18- 23 (b) Each Bank shall be entitled to have its Note subdivided in connection with an assignment of all or any portion of its Commitment, Loans and Note pursuant to Section 12.6(b) hereof. Section 3. Payments of Principal and Interest. 3.1. Repayment of Principal. The Company shall pay to the Administrative Agent for account of the Banks the aggregate principal amount of the Loans in three installments on the dates set forth below, each such installment to be in the amount equal to the lesser of the corresponding "Principal Amount" set forth below and the remaining aggregate principal amount of such installment: Date Principal Amount ---- ---------------- June 15, 1994 $25,000,000 June 15, 1995 $25,000,000 December 15, 1995 $10,000,000. Each payment of principal of the Loans shall be applied pro rata to each Bank according to the principal amounts of their respective Loans. 3.2. Interest. (a) The Company shall pay to the Administrative Agent for account of each Bank interest on the unpaid principal amount of each installment of the Loan made by such Bank for the period commencing on the date of such Loan to but excluding the date such installment shall be paid in full, at the following rates per annum: (i) during such periods as such Loan (or any portion thereof) is a LIBOR Loan, for each Interest Period relating thereto, the LIBOR for such Loan for such Interest Period plus the Applicable Margin in effect for each day during such Interest Period; and (ii) during such periods as such Loan (or any portion thereof) is a Federal Funds Rate Loan, for each Interest Period relating thereto, the Federal Funds Rate (as in effect for such Interest Period) plus 2.50% per annum; (iii) during such periods as such Loan (or any portion thereof) is a Prime Rate Loan, for each Interest Period relating thereto, the Prime Rate (as in effect for -19- 24 such Interest Period) plus the Applicable Margin in effect for each day during such Interest Period. Notwithstanding the foregoing, at any time during the period commencing on the date on which any Obligation is not paid in full when due (whether at stated maturity, by acceleration or otherwise) and ending on the date on which all such overdue Obligations are paid in full, the Company shall pay to the Administrative Agent for account of each Bank interest on the principal of all Loans and (to the fullest extent permitted by law) on any unpaid interest or any other amount payable by the Company hereunder or under the Note held by such Bank at the Post-Default Rate. (b) Accrued interest on each Loan shall be payable (i) on each Interest Payment Date for such Loan and (ii) in any case, on the date on which any principal amount thereof is paid or prepaid or converted to a Loan of another type on the portion thereof being so paid, prepaid or converted, except that interest on any principal, interest or other amount payable at the Post-Default Rate shall be payable from time to time on demand. If the Company shall fail to timely deliver a Funded Debt Ratio Notice in respect of any four-Fiscal Quarter period in accordance with Section 9.1(g) hereof, and it transpires that the Funded Debt Ratio has changed from that which was in effect with respect to the previous four-Fiscal Quarter period such that any interest rate hereunder would increase, the Company agrees that the interest rate on the Loans shall, by operation of the definition of Applicable Margin, automatically increase on the date such Funded Debt Ratio Notice is duly given in accordance with Section 12.2 hereof. In addition, (i) such increase shall be retroactive to the date on which such Funded Debt Ratio Notice should have been delivered in accordance with Section 9.1(g) hereof and (ii) the incremental interest for the retroactive period shall be payable on the next date on which interest is payable under this Agreement and the Notes (or, if no further interest is payable, immediately on demand by the Administrative Agent or any Bank). If the Company shall fail to timely deliver a Funded Debt Ratio Notice in respect of any four-Fiscal Quarter period, and it transpires that the Funded Debt Ratio has changed from that which was in effect with respect to the previous four-Fiscal Quarter period such that any interest rate hereunder would decrease, then such decrease shall be effective from the date on which such Funded Debt Ratio Notice is received by the Administrative Agent, and shall have no retroactive effect. -20- 25 No provision of this Agreement or the Notes or any other document delivered in connection with either thereof and no transaction contemplated hereby or thereby shall be construed or shall operate so as to require the Company, the Guarantor or any other Person liable for payment of any of the Obligations to pay interest in an amount or at a rate greater than the maximum allowed from time to time by applicable law. Should any interest or other charges paid by the Company, the Guarantor or any such other Person under any such document result in a computation or earning of interest in excess of the maximum rate of interest permitted under applicable law in effect while such interest is being earned, then such excess shal be and hereby is waived by each Bank and all such excess shall be automatically credited against and in reduction of the principal balance of such amounts payable under such documents and any portion of such excess received by any Bank shall be paid over by such Bank to the Company, the Guarantor or such other Person, as the case may be, it being the intent of the parties hereto that under no circumstances shall the Company, the Guarantor or such other Person be required to pay interest in excess of the maximum rate allowed by such applicable law. (c) The Company shall select the duration of the initial Interest Period (or Interest Periods) for the Loans and the interest type of the Loans for such Interest Period (or Interest Periods) by giving notice to the Administrative Agent as provided in Section 4.5 hereof, and may select the duration of each subsequent Interest Period (or Interest Periods) for the Loans and the interest type of the Loans for such Interest Period (or Interest Periods), by giving notice as provided in Section 4.5 hereof, provided, however, that no more than three (3) Interest Periods shall apply to all Loans then outstanding with respect to any particular Bank. 3.3. Prepayments and Conversions of the Loans. (a) The Company shall have the right to prepay Loans, or to convert Loans of one type into Loans of another type, at any time or from time to time; provided that: (i) the Company shall give the Administrative Agent notice of each such prepayment or conversion as provided in Section 4.5 hereof, (ii) Loans may be prepaid or converted only on the last day of an Interest Period for such Loans; and (iii) prepayments and conversions of Loans shall be subject to the indemnity provisions of Section 5.4 hereof. (b) In the event that the Company receives a payment of principal of the Silver King Notes prior to the date on which such amount was scheduled to be paid, the -21- 26 Company shall, on the first Business Day after receipt of the proceeds of such prepayment, prepay the Loans in an amount equal to the excess of such proceeds over $5,000,000 (cumulatively since the date hereof). (c) Any prepayment made to the Banks in accordance with Section 3.3(a) or (b) shall be applied to reduce the installments of principal due to the Banks under Section 3.1 hereof and under the Notes pro rata to all remaining installments due to the Banks. The Administrative Agent shall promptly notify the Banks of each notice of prepayment. (d) Any portion of the Loans prepaid, whether pursuant to this Section 3.3, Section 5.3 hereof or otherwise, may not be reborrowed. Section 4. Payments and Computations. 4.1. Payments. (a) Except to the extent otherwise provided herein, all payments of Obligations shall be made in Dollars, in immediately available funds and without set-off, counterclaim or deduction of any kind, to the Administrative Agent at account number 04203606 maintained by the Administrative Agent at Bankers Trust Company (ABA No. 021001033), One Bankers Trust Plaza, New York, New York 10006 (reference: "Home Shopping Network - Term Loan Facility"), attention: Robert Pacifici (or at such other account or at such other place as the Administrative Agent may notify the Company from time to time), not later than 11:00 a.m. New York time on the date on which such payment shall become due (each such payment made after such time on such due date to be deemed to have been made on the next succeeding Business Day). Any Bank for whose account any such payment is to be made may (but shall not be obligated to) debit the amount of any such payment which is not made by such time to any ordinary deposit account of the Company or the Guarantor with such Bank or any affiliate of such Bank (with subsequent notice to the Company or the Guarantor, as the case may be, provided that such Bank's failure to give such notice shall not affect the validity of such debit). The Company or the Guarantor, as the case may be, shall at the time of making a payment under this Agreement or any Note specify to the Administrative Agent (i) the account from which the payment funds will be transmitted and the manner and approximate time of such transmission and (ii) the Loans or other amounts payable by the Company hereunder to which such payment shall be applied, and in the event that it shall have failed so to specify, or -22- 27 if an Event of Default shall have occurred and be continuing, the Administrative Agent may distribute such payment to the Banks in such manner as it or the Majority Banks may deem appropriate, subject to Section 4.2 hereof. Each payment received by the Administrative Agent under this Agreement or any Note for account of a Bank shall be paid promptly to such Bank, in immediately available funds, for account of such Bank's Applicable Lending Office for the Loan in respect of which such payment is made. (b) If the due date of any payment to be made hereunder or under any Note would otherwise fall on a day which is not a Business Day, such date shall be extended to the next succeeding Business Day and interest shall be payable for any principal so extended for the period of such extension. 4.2. Pro Rata Treatment. Except to the extent otherwise provided herein: (a) the borrowing from the Banks under Section 2.1 hereof shall be made from the Banks and each payment of commitment fee under Section 2.3 hereof shall be made for account of the Banks pro rata according to the amounts of their respective unused Commitments; (b) each conversion of Loans (or portions thereof) of a particular type (other than conversions provided for by Section 5.1 hereof) shall be made pro rata among the Banks holding Loans of such type according to the respective principal amounts of such Loans (or portions thereof) held by such Banks; and (c) each payment and prepayment by the Company of principal of or interest on Loans (or portions thereof) of a particular type shall be made to the Administrative Agent for account of the Banks holding Loans of such type pro rata in accordance with the respective unpaid principal amounts of such Loans (or portions thereof) held by such Banks. 4.3. Computations. Interest on all Loans and the commitment fee shall be computed on the basis of a year of 360 days and actual days elapsed (including the first day but excluding the last day) occurring in the period for which payable. 4.4. Minimum Amounts. Except for conversions or prepayments made pursuant to Section 5.1 hereof, each borrowing, conversion and prepayment of principal of Loans shall be in an aggregate amount at least equal to $5,000,000, provided that borrowings, prepayments or conversions of or into Loans of different types or, in the case of LIBOR Loans, having different Interest Periods, at the same time hereunder shall each be deemed separate bor -23- 28 rowings, conversions or prepayments, as the case may be. Notwithstanding anything in this Agreement to the contrary, the aggregate principal amount of LIBOR Loans having the same Interest Period shall be at least equal to $5,000,000 and, if any LIBOR Loans would otherwise be in a lesser principal amount for any period, such Loans shall be Prime Rate Loans during such period. 4.5. Certain Notices. Notices by the Company to the Administrative Agent of the borrowing of the Loans, of conversions and prepayments of Loans and of the duration of Interest Periods shall be irrevocable and shall be effective only if received by the Administrative Agent not later than 10:00 a.m. New York time on the number of Business Days prior to the date of the borrowing, conversion or prepayment or the first day of such Interest Period specified below: Number of Business Notice Days Prior ------ ---------- Borrowing of Overnight Federal Funds Rate Loans; or conversion of Term Federal Funds Rate Loans or Prime Rate Loans into Overnight Federal Funds Rate Loans same day Borrowing or prepayment of LIBOR Loans; conversion of LIBOR Loans into any other type of Loans; conversion of any type of Loans into LIBOR Loans; or duration of Interest Period for LIBOR Loans 3 Borrowing or prepayment of Term Federal Funds Rate Loans; conversion of any type of Loans into Term Federal Funds Rate Loans; or duration of Interest Period for Term Federal Funds Rate Loans 3 Borrowing or prepayment of Prime Rate Loans; or conversion of Federal Funds Rate Loans into Prime Rate Loans same day -24- 29 In addition: (a) Each such notice of borrowing, conversion or prepayment shall specify the Loans to be borrowed, converted or prepaid and the amount (subject to Section 4.4 hereof) and type of the Loans to be borrowed, converted or prepaid and the date of borrowing, conversion or prepayment (which shall be a Business Day). (b) Each such notice of the duration of an Interest Period shall specify the Loans to which such Interest Period is to relate. The Administrative Agent shall promptly notify the Banks of the contents of each such notice. In the event that the Company fails to select the duration of any Interest Period for any LIBOR Loans or Term Federal Funds Rate Loans within the time period and otherwise as provided in this Section 4.5, or if the Company and the Administrative Agent with the consent of the Banks fail to agree upon a term for any requested Term Federal Funds Rate Loans, such Loans (if outstanding as LIBOR Loans) will be automatically converted into Overnight Federal Funds Rate Loans on the last day of the then current Interest Period for such Loans or (if outstanding as Overnight Federal Funds Rate Loans or Prime Rate Loans) will remain as Overnight Federal Funds Rate Loans or Prime Rate Loans, as the case may be, or (if not then outstanding) will be made as Overnight Federal Funds Rate Loans. 4.6. Non-Receipt of Funds by the Administrative Agent. Unless the Administrative Agent shall have been notified by a Bank or the Company or the Guarantor prior to the date on which such Bank or the Company or the Guarantor is scheduled to make payment to the Administrative Agent of (in the case of a Bank) the proceeds of a Loan to be made by it hereunder or (in the case of the Company or the Guarantor) a payment to the Administrative Agent for account of one or more of the Banks hereunder (such payment being herein called the "Required Payment"), which notice shall be effective upon receipt, that it does not intend to make the Required Payment to the Administrative Agent, the Administrative Agent may assume that the Required Payment has been made and may, in reliance upon such assumption (but shall not be required to), make the amount thereof available to the intended recipient(s) on such date and, if such Bank or the Company or the Guarantor (as the case may be) has not in fact made the Required Payment to the Administrative Agent, the recipient(s) of such payment shall, on demand, repay to the Administrative Agent the amount -25- 30 so made available together with interest thereon in respect of each day during the period commencing on the date such amount was so made available by the Administrative Agent until the date the Administrative Agent recovers such amount at a rate per annum equal to the overnight Federal Funds Rate for such day (as determined by the Administrative Agent). 4.7. Sharing of Payments, Etc. Each of the Company and the Guarantor agrees that, in addition to (and without limitation of) any right of setoff, bankers' lien or counterclaim a Bank may otherwise have, each Bank shall be entitled, at its option, to offset balances held by it in ordinary deposit accounts of the Company or the Guarantor at any of its offices, in Dollars or in any other currency, against any principal of or interest on any of such Bank's Loans, or any other amount payable to such Bank hereunder, which is not paid when due (regardless of whether such balances are then due to the Company or the Guarantor), in which case it shall promptly notify the Company or the Guarantor, as the case may be, and the Administrative Agent thereof, provided that such Bank's failure to give such notice shall not affect the validity thereof. If any Bank shall obtain payment of any principal of or interest on any Loan made by it to the Company, or any other amount payable to such Bank, under this Agreement through the exercise of any right of setoff, banker's lien or counterclaim or similar right or otherwise, and, as a result of such payment, such Bank shall have received a greater percentage of the principal, interest or such other amount then due hereunder by the Company to such Bank than the percentage received by any other Banks, it shall promptly purchase from such other Banks participations in (or, if and to the extent specified by such Bank, direct interests in) the Loans made by such other Banks (or in interest due thereon, as the case may be) in such amounts, and make such other adjustments from time to time as shall be equitable, to the end that all the Banks shall share the benefit of such excess payment (net of any expenses which may be incurred by such Bank in obtaining or preserving such excess payment) pro rata in accordance with the unpaid principal and/or interest on the Loans held by each of the Banks or such other amount due to the Banks hereunder. To such end all the Banks shall make appropriate adjustments among themselves (by the resale of participations sold or otherwise) if such payment is rescinded or must otherwise be restored. Each of the Company and the Guarantor agrees that any Bank so purchasing a participation (or direct interest) in the Loans made by other Banks (or in interest due thereon, as the case may be) may exercise all rights of setoff, bankers' lien, counterclaim or similar rights with respect to such participation as fully as if such Bank were a direct holder of Loans in the amount of such par- -26- 31 ticipation. Nothing contained herein shall require any Bank to exercise any such right or shall affect the right of any Bank to exercise, and retain the benefits of exercising, any such right with respect to any other indebtedness or obligation of the Company or the Guarantor; provided that to the extent any such Bank exercises any such right with respect to any other indebtedness or obligation of the Company or the Guarantor, it shall also exercise its rights under this Section 4.7 and agrees that the benefits of exercising any such rights shall be shared with the Banks pro rata in the proportion that the unpaid obligations of the Company and the Guarantor owing to such Bank hereunder bear to such other indebtedness or obligation. If under any applicable bankruptcy, insolvency or other similar law, any Bank receives a secured claim in lieu of a setoff to which this Section 4.7 applies, such Bank shall, to the extent practicable, exercise its rights in respect of such secured claim in a manner consistent with the rights of the Banks entitled under this Section 4.7 to share in the benefits of any recovery on such secured claim. Section 5. Yield Protection and Illegality. 5.1. Additional Costs. (a) The Company shall pay directly to each Bank from time to time such amounts as such Bank may determine to be necessary to compensate it for any costs which such Bank determines are attributable to its making or maintaining of any LIBOR Loans to the Company or its obligation to make any LIBOR Loans to the Company hereunder, or any reduction in any amount receivable by the Bank hereunder in respect of any of such Loans or such obligation (such increases in costs and reductions in amounts receivable being herein called "Additional Costs"), resulting from any Regulatory Change which (i) changes the basis of taxation of any amounts payable to such Bank by the Company or the Guarantor under this Agreement or the Notes in respect of any of such Loans (other than taxes imposed on the overall net income of such Bank or of its Applicable Lending Office for any of such Loans by the jurisdiction in which such Bank has its principal office or such Applicable Lending Office); or (ii) imposes or modifies any reserve, special deposit, minimum capital, capital ratio or similar requirements relating to any extensions of credit or other assets of, or any deposits with or other liabilities of, such Bank (including any of such Loans or any deposits referred to in the definition of "LIBOR" in Section 1.1 hereof), or the Commitment of such Bank; or (iii) imposes any other condition affecting this Agreement or the Notes (or any -27- 32 of such extensions of credit or liabilities) or the Commitments. (b) Without limiting the effect of the provisions of Section 5.1(a) hereof, in the event that, by reason of any Regulatory Change, any Bank either (i) incurs Additional Costs based on or measured by the excess above a specified level of the amount of a category of deposits or other liabilities of such Bank which includes deposits by reference to which the interest rate on LIBOR Loans is determined as provided in this Agreement or a category of extensions of credit or other assets of such Bank which includes LIBOR Loans or (ii) becomes subject to restrictions on the amount of such a category of liabilities or assets which it may hold, then, if such Bank so elects by notice to the Company, the obligation of such Bank to make, and to convert Federal Funds Rate Loans or Prime Rate Loans into, LIBOR Loans hereunder shall be suspended until such Regulatory Change ceases to be in effect (and all LIBOR Loans held by such Bank shall be automatically converted into Overnight Federal Funds Rate Loans at the end of the then current Interest Period for each of them, or on such earlier date as such Bank may specify in writing as being the last permissible date for such prepayment under applicable law, rules or regulations); provided that in such event such Bank shall use its best efforts to obtain a Federal Funds Rate offered for deposits made for a period of time longer than overnight (to the extent such a rate is then obtainable), but any failure to obtain such a rate shall in no way affect the rights of the Banks to receive interest on such Loans at the Federal Funds Rate otherwise obtainable. (c) Without limiting the effect of the foregoing provisions of this Section 5.1 (but without duplication), the Company shall pay to each Bank from time to time on request such amounts as such Bank may determine to be necessary to compensate such Bank for any costs which it determines are attributable to the maintenance by such Bank (or any Applicable Lending Office), pursuant to any law or regulation or any interpretation, directive or request (whether or not having the force of law) of any court or governmental or monetary authority, of capital in respect of such Bank's Commitment (such compensation to include, without limitation, an amount equal to any reduction of the rate of return on assets or equity of such Bank (or any Applicable Lending Office) to a level below that which such Bank (or any Applicable Lending Office) could have achieved but for such law, regulation, interpretation, directive or request). (d) Determinations and allocations by any Bank for purposes of this Section 5.1 of the effect of any Regulatory -28- 33 Change pursuant to Section 5.1(a) or (b) hereof, or of the effect of capital maintained pursuant to Section 5.1(c) hereof, on its costs or rate of return of maintaining Loans or its obligation to make Loans, or on amounts receivable by it in respect of Loans, and of the amounts required to compensate such Bank under this Section 5.1, shall be conclusive absent manifest error. 5.2. Limitation on Types of Loans. Anything herein to the contrary notwithstanding, if, on or prior to the determination of any interest rate for any LIBOR Loan for any Interest Period therefore: (a) the Administrative Agent determines (which determination shall be conclusive) that quotations of interest rates for the deposits referred to in the definition of "LIBOR" in Section 1.1 hereof are not being provided in the relevant amounts or for the relevant maturities for purposes of determining rates of interest for such Loans as provided herein; or (b) any Bank determines (which determination shall be conclusive), and so notifies the Administrative Agent, that the rates of interest referred to in the definition of "LIBOR" in Section 1.1 hereof upon the basis of which the rate of interest for LIBOR Loans for such Interest Period is to be determined do not adequately cover the cost to such Bank of making or maintaining such LIBOR Loans for such Interest Period; then the Administrative Agent shall give the Company prompt notice thereof, and so long as such condition remains in effect, the Banks shall be under no obligation to make additional LIBOR Loans or to convert Federal Funds Rate Loans or Prime Rate Loans into LIBOR Loans and the Company shall, on the last day(s) of the then current Interest Period(s) for the outstanding LIBOR Loans, either repay such Loans as provided in Section 3.1 hereof or convert such Loans into Federal Funds Rate Loans or Prime Rate Loans in accordance with Section 3.3 hereof. 5.3. Illegality. Notwithstanding any other provision of this Agreement, in the event that it becomes unlawful for any Bank or its Applicable Lending Office to honor its obligation to make or maintain LIBOR Loans hereunder, then such Bank shall promptly notify the Administrative Agent and the Company and such Bank's obligation to make LIBOR Loans shall be suspended until such time (prior to the Commitment Termination Date) as such Bank may again make and maintain LIBOR Loans and such Bank's outstanding LIBOR Loans shall be -29- 34 automatically converted into Federal Funds Rate Loans or Prime Rate Loans, as such Bank may select, at the end of the then current Interest Period for each of them, or on such earlier date as such Bank may specify in writing as being the last permissible date for such prepayment under applicable laws, rules or regulations. 5.4. Compensation. The Company shall pay to each Bank, upon the request of such Bank, such amount or amounts as shall be sufficient (in the reasonable opinion of such Bank) to compensate it for any loss, cost or expense (including, without limitation, costs arising from premature termination of such Bank's obligations under interest rate swaps, caps, collars, floors, options, forward exchange contracts and similar hedging arrangements) which such Bank determines are attributable to: (a) any payment, prepayment or conversion of a Loan for any reason (including, without limitation, the acceleration of the Loans pursuant to Section 10 hereof) on a date other than the last day of an Interest Period for such Loan; or (b) any failure by the Company for any reason (including, without limitation, the failure of any of the conditions precedent specified in Section 7 hereof to be satisfied) to borrow or convert into a LIBOR Loan or a Term Federal Funds Rate Loan on the date for such borrowing or conversion specified in the relevant notice of borrowing given pursuant to Section 2.2 hereof or notice of conversion given pursuant to Section 2.8 hereof. Such Bank shall deliver to the Company, promptly upon such request, a certificate setting forth in reasonable detail the basis for calculation of such amounts, the contents of such certificate being, in the absence of manifest error therein, conclusive evidence of such amounts; provided that the failure of such Bank to deliver such certificate shall in no way affect such Bank's rights to such compensation. The failure of any Bank to request the compensation provided for in this Section 5.4 in any instance shall not affect such rights of such Bank in any other instance or of any other such Bank in any instance. 5.5. Taxes. All payments of Obligations (as used in this Section 5.5, "Payments") shall be made free and clear of, and without deduction by reason of, any and all taxes, duties, assessments, withholdings, retentions or other similar charges whatsoever imposed, levied, collected, withheld or -30- 35 assessed by any jurisdiction or any agency or taxing authority thereof or therein (as used in this Section 5.5, "Taxes"), all of which shall be paid by the Company for its own account not later than the date when due. If the Company is required by law to deduct or withhold any Taxes from any Payment, the Company shall: (a) make such deduction or withholding; (b) pay the amount so deducted or withheld to the appropriate taxing authority not later than the date when due (irrespective of the rate of such deduction or withholding); (c) deliver to such Bank, promptly and in any event within 30 days after the date on which such Taxes become due, original tax receipts and other evidence satisfactory to such Bank of the payment when due of the full amount of such Taxes; and (d) pay to the respective Bank, forthwith upon any request by such Bank therefor from time to time, such additional amounts as may be necessary so that such Bank receives, free and clear of all Taxes, the full amount of such Payment stated to be due under this Agreement or the Notes as if no such deduction or withholding had been made. Each Bank that is not organized under the laws of the United States or of any political subdivision thereof agrees that it will deliver to the Company on the date of its Loan and thereafter as may be required from time to time by applicable law or regulation United States Internal Revenue Service Form 4224 or 1001 (or any successor form) or such other form as from time to time may be required to demonstrate that payments made by the Company to such Bank under this Agreement or such Note either are exempt from United States Federal withholding taxes or are payable at a reduced rate (if any) specified in any applicable tax treaty or convention. Each Bank agrees to use reasonable efforts to transfer its Commitment or Loans to another Applicable Lending Office of such Bank if such transfer would avoid the need for or mitigate the amount of any deduction or withholding of Taxes on payments of interest to such Bank under this Agreement, but no Bank shall be required to make such transfer if such Bank determines that such Bank would suffer any legal, economic or regulatory disadvantage. Without limiting the survival of any other provisions of this Agreement or the Notes, the obligations of the Company under this Section shall survive the repayment of the Loans and the Notes. -31- 36 Section 6. Guarantee. 6.1. Unconditional Guarantee. For valuable consideration, receipt of which is hereby acknowledged, and to induce the Banks to make Loans to the Company, the Guarantor hereby unconditionally and irrevocably guarantees to the Administrative Agent, the Co-Agents and each of the Banks the payment in full when due (whether at stated maturity, by acceleration or otherwise) of all principal of and interest on each Loan and all other amounts payable by the Company hereunder and under the Notes and all other documents referred to herein or therein, in accordance with the terms hereof and thereof, and, in the case of any extension of time of payment, in whole or in part, that all such amounts shall be paid in full when due (whether at stated maturity, by acceleration or otherwise) in accordance with the terms of such extension. The Guarantor hereby unconditionally agrees that upon default in the payment when due (whether at stated maturity, by acceleration or otherwise) of any of such principal, interest or other amounts, the Guarantor shall forthwith pay and perform the same in the money and funds, at the time, in the place and in the manner provided for such payment in this Agreement, the Notes or other applicable document. 6.2. Validity. The Guarantor hereby agrees that the guarantee provided by this Section 6 is a continuing guarantee of payment and not merely of collection, that it is a primary, independent obligation of the Guarantor and that the Guarantor's obligations hereunder shall be absolute, unconditional and irrevocable, irrespective of (a) any invalidity, illegality, irregularity or unenforceability of, or defect in or any change in this Agreement, the Notes or any other document referred to herein or therein, (b) any amendment, modification or waiver of any term or condition of this Agreement or the Notes or any such other document, or any waiver or consent by the Administrative Agent or any Bank to any departure from the terms hereof or thereof, (c) any sale, exchange, release, surrender, realization upon or other dealings with any security or guarantee for any of the obligations guaranteed hereby (whether now or hereafter granted), (d) any settlement or compromise of such obligations, (e) the absence of any action to demand or enforce any of such obligations against the Company, (f) the recovery of any judgment against the Company or any other Person, or any action to enforce the same, (g) the recovery of any claim under any other guarantee of or security for such obligations or under any applicable insurance, or (h) any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor or surety (other -32- 37 than full and strict compliance with and satisfaction of such liabilities). 6.3. Waivers. The Guarantor hereby waives notice of acceptance of the guarantee provided by this Section 6, notice of the extension of any credit or financial accommodation, notice of the making of any Loan or the incurrence of any other Obligations, notice of any extension of any Commitment Termination Date, demand of payment, filing of claims with a court in the event of bankruptcy of the Company or any other Person, any right to require a proceeding or the filing of a claim first against the Company, any other guarantor, any other Person, any letter of credit, or any security for any of the Obligations, presentment, protest, notice of default, dishonor or nonpayment and any other notice and all demands whatsoever. The Guarantor hereby further waives all setoffs and counterclaims against the Company, the Administrative Agent, the Co-Agents and each of the Banks. 6.4. Subordination and Subrogation. The Guarantor hereby subordinates all present and future claims, now held or hereafter acquired, against the Company as a creditor or contributor of capital, or otherwise, to the prior and final payment in full to the Banks of all of the Obligations. If, without reference to the provisions of this Section 6.4, the Guarantor would at any time be or become entitled to receive any payment on account of any claim against the Company, whether in insolvency, bankruptcy, liquidation or reorganization proceedings, or otherwise, the Guarantor shall and does hereby irrevocably direct that all such payments shall be made directly to the Administrative Agent on account of the Banks until all Obligations shall be paid in full. Should the Guarantor receive any such payment, the Guarantor shall receive such amount in trust for the Banks and shall immediately pay over to the Administrative Agent such amount as provided in the preceding sentence. Anything contained in this Section 6 to the contrary notwithstanding, the obligations of the Guarantor hereunder shall be limited to a maximum aggregate amount equal to the largest amount that would not render its obligations hereunder subject to avoidance as a fraudulent transfer or conveyance under Section 548 of Title 11 of the United States Code or any applicable provisions of comparable state law (collectively, the "Fraudulent Transfer Laws"), in each case after giving effect to all other liabilities of the Guarantor, contingent or otherwise, that are relevant under the Fraudulent Transfer Laws (specifically excluding, however, any liabilities of the Guarantor in respect of intercompany indebtedness to the Company or other Affiliates of the Company to the extent that -33- 38 such indebtedness would be discharged in an amount equal to the amount paid by the Guarantor hereunder) and after giving effect as assets to the value (as determined under the applicable provisions of the Fraudulent Transfer Laws) of any rights to subrogation or contribution of the Guarantor pursuant to (i) applicable law or (ii) any agreement providing for an equitable allocation among the Guarantor and other Affiliates of Company of obligations arising under guaranties by such parties. The Guarantor further agrees that any rights of subrogation the Guarantor may have against the Company, and any rights of contribution the Guarantor may have against Company, and any rights of contribution the Guarantor may have against any other guarantor of the Obligations hereunder, shall be junior and subordinate to any rights the Administrative Agent or the Banks may have against such other guarantor. 6.5. Acceleration. The Guarantor agrees that, as between the Company on the one hand, and the Administrative Agent, the Co-Agents and the Banks, on the other hand, the obligations of the Company guaranteed under this Section 6 may be declared to be forthwith due and payable, or may be deemed automatically to have been accelerated, as provided in Section 10 hereof for purposes of this Section 6, notwithstanding any stay, injunction or other prohibition (whether in a bankruptcy proceeding affecting the Company or otherwise) preventing such declaration as against the Company and that, in the event of such declaration or automatic acceleration, such obligations (whether or not due and payable by the Company) shall forthwith become due and payable by the Guarantor for purposes of this Section 6. 6.6. Reinstatement. The Guarantor covenants that the guarantee provided by this Section 6 will not be discharged except by complete and final payment of all of the Obligations and all obligations of the Guarantor arising out of this guarantee. In the event that any payment is made by the Company hereunder or by the Guarantor under this guarantee, and is thereafter required to be rescinded or otherwise restored or paid over to the Company, the Guarantor or any other person (whether upon the insolvency or bankruptcy of the Company or the Guarantor or otherwise), the Guarantor's obligations hereunder shall immediately and automatically be reinstated as though such payment had not been made. -34- 39 Section 7. Conditions Precedent. 7.1. Basic Conditions. The obligation of the Banks to make the Loans hereunder on the occasion of the borrowing pursuant to Section 2.2 hereof is subject to the receipt by the Administrative Agent, on or before December 18, 1992, of each of the following documents, each of which shall be satisfactory to the Administrative Agent in form and substance: (a) Certified copies of the certificate of incorporation and bylaws of the Company and the Guarantor and all corporate action and (if necessary) stockholder action taken by the Company and the Guarantor approving this Agreement and the Notes and borrowings by the Company hereunder and the guarantee by the Guarantor hereunder (including, without limitation, a certificate setting forth the resolutions of the Boards of Directors of the Company and the Guarantor adopted in respect of the transactions contemplated hereby). (b) A certificate of each of the Company and the Guarantor in respect of each of the officers (i) who is authorized to sign this Agreement or the Notes on its behalf and (ii) who will, until replaced by another officer or officers duly authorized for that purpose, act as its representative for the purposes of signing documents and giving notices and other communications in connection with this Agreement and the transactions contemplated hereby. The Administrative Agent, the Co-Agents and the Banks may conclusively rely on such certificate until the Administrative Agent receives notice in writing from the Company or the Guarantor, respectively, to the contrary. (c) Certificates, as of a recent date, from the appropriate authorities for each jurisdiction in which the Company and the Guarantor are incorporated or qualified to do business, as to the good standing of the Company and the Guarantor, respectively, in each such jurisdiction. (d) A certificate of a senior officer of each of the Company and the Guarantor to the effect set forth in the first sentence of Section 7.2 hereof. (e) An opinion of Allen P. Allweiss, Esq., General Counsel to the Company and the Guarantor, substantially in the form of Exhibit B hereto. -35- 40 (f) The Funded Debt Ratio Notice and the Total Debt Ratio Notice for the Company's four-Fiscal Quarter period ended August 31, 1992 (or, if the initial Loans hereunder are made more than 60 days after the end of any succeeding Fiscal Quarter, for the four-Fiscal Quarter period ended as of the end of the most recent such succeeding Fiscal Quarter). (g) The Notes, duly executed and delivered by the Company to the order of each Bank and otherwise appropriately completed, bearing the executed guarantee of the Guarantor. (h) Evidence of the payment of all fees and expenses then payable pursuant to Sections 2.3 and 12.3 hereof. (i) The execution and delivery by all necessary parties to, and the simultaneous effectiveness of, the Revolving Credit Agreement. (j) Such other documents as the Administrative Agent or any Bank may reasonably request including, without limitation, all requisite governmental approvals and filings. 7.2. Additional Conditions. The obligation of the Banks to make the Loans to the Company shall be subject to the further conditions that, as of the date of the making of such Loans and after giving effect thereto: (a) no Default or Event of Default shall have occurred and be continuing; (b) the representations and warranties made by the Company and the Guarantor in Section 8 hereof and in any other certificate or other document delivered in connection with this Agreement shall be true in all material respects on and as of the date of the making of such Loans with the same force and effect as if made on and as of such date (including, without limitation, that there shall have occurred no material adverse change since August 31, 1992 in the consolidated financial condition or operations, or the business taken as a whole, of the Company and its consolidated Subsidiaries from that set forth in their financial statements dated as of August 31, 1992, except as disclosed to the Banks in writing prior to the date of this Agreement); -36- 41 (c) the Company shall have furnished evidence satisfactory to the Banks either (i) that it has committed to redeem Senior Notes by furnishing proper notice to the trustee thereof or (ii) that it has repurchased Senior Notes in the open market following the date hereof, in either case in an aggregate principal amount not less than the aggregate principal amount of the Loans to be made on such date; (d) the Company shall be in compliance with the financial covenants under the Revolving Credit Agreement and this Agreement both before and immediately after the making of such Loan on both an historical and a pro forma basis; and (e) payment in full of all fees and expenses payable pursuant to Sections 2.3 and 12.3 hereof. The notice of borrowing made pursuant to Section 2.2 hereof shall constitute a certification by the Company and the Guarantor as to the circumstances specified in paragraphs (a), (b), (c) and (d) above (both as of the date of such notice and, unless the Company or the Guarantor otherwise notifies the Administrative Agent prior to the date of suchborrowing, as of the date of such borrowing). Upon the satisfaction of all the conditions set forth in Sections 7.1 and 7.2 hereof, (i) the obligations (if any) of the Co-Agents, the Administrative Agent or the Banks under the commitment letter and term sheet, dated September 28, 1992, as amended, of LTCB Trust, as a Co-Agent, and (ii) the obligations (if any) of the Co-Agents, the Administrative Agent or the Banks under the commitment letter and term sheet, dated October 8, 1992, as amended, of Bank of Montreal, as a Co-Agent, shall cease to be of any force or effect. Section 8. Representations and Warranties. Each of the Company and the Guarantor represents and warrants to the Administrative Agent and the Banks that: 8.1. Corporate Existence. Each of the Company and the Guarantor and each of the other Material Subsidiaries (a) is a corporation duly organized and validly existing under the laws of the jurisdiction of its incorporation; (b) has all requisite corporate power, and has all material governmental licenses, authorizations, consents and approvals, necessary to own its assets and carry on its business as presently conducted, and conducts its business in compliance with the requirements set forth in Section 9.3(b) hereof; and (c) is -37- 42 qualified to do business in all jurisdictions in which the nature of the business conducted by it makes such qualification necessary and where failure so to qualify would have a material adverse effect on its business, financial condition or operations. 8.2. Financial Condition. The consolidated balance sheet of the Company and its consolidated Subsidiaries (including, without limitation, the Guarantor) as at August 31, 1992 and the related consolidated statements of income, retained earnings and changes in financial position of the Company and its consolidated Subsidiaries (including, without limitation, the Guarantor) for the fiscal year ended on such date, with the opinion thereon of Deloitte & Touche, the independent auditors of the Company, heretofore furnished to the Administrative Agent and each of the Banks, are complete and correct and fairly present the consolidated financial condition of the Company and its consolidated Subsidiaries (including, without limitation, the Guarantor) as at such date and the consolidated results of their operations for such Fiscal Year ended on such date, all in accordance with GAAP applied on a consistent basis. Neither the Company nor any of its consolidated Subsidiaries (including, without limitation, the Guarantor) had on such date any material contingent liabilities, liabilities for taxes, unusual forward or long-term commitments or unrealized or anticipated losses from any unfavorable commitments, except as referred to or reflected or provided for in such balance sheets as at such date. Since August 31, 1992, there has been no material adverse change in the consolidated financial condition or operations, or the business taken as a whole, of the Company and its consolidated Subsidiaries (including, without limitation, the Guarantor) from that set forth in such financial statements as at such date, except as disclosed to the Banks in writing prior to the date of this Agreement. 8.3. Litigation. Except as heretofore disclosed to the Banks in writing or in any SEC Report of the Company delivered to the Banks prior to the date hereof, there is no action, proceeding or investigation by or before any court or any arbitral, governmental or regulatory authority or agency, pending or (to the knowledge of the Company or the Guarantor) threatened against the Company or the Guarantor or any Subsidiary of either thereof which, if adversely determined, could have a material adverse effect on the consolidated financial condition or business of the Company and its consolidated Subsidiaries (including, without limitation, the Guarantor). -38- 43 8.4. No Breach. Neither the execution and delivery of this Agreement and the Notes, nor the consummation of the transactions contemplated hereby, nor the compliance by the Company or the Guarantor with the terms and provisions hereof or thereof, will (a) conflict with or result in a breach of, or require any consent or vote of any Person under, the certificate of incorporation or bylaws of either the Company or the Guarantor, or any agreement or instrument to which the Company, the Guarantor or any Subsidiary of either thereof is a party or to which it is subject, (b) violate any applicable law, regulation, order, write, injunction or decree of any court or governmental authority or agency, or (c) constitute a default or result in the imposition of any Lien on any of the assets, revenues or other properties of the Company, the Guarantor or any Subsidiary of either thereof under any such agreement or instrument. 8.5. Corporate Action. The execution, delivery and performance by each of the Company and the Guarantor of this Agreement and the Notes, and the consummation of the transactions contemplated hereby, are within the scope of its corporate power, and have been duly authorized by all necessary corporate action on the part of each of them. This Agreement constitutes, and each of the Notes, when duly executed and delivered will constitute, the legal, valid and binding obligation of the Company and the Guarantor, enforceable against each of them in accordance with their respective terms, except as such enforceability may be limited by (a) bankruptcy, insolvency, reorganization, moratorium or other similar laws of general applicability affecting the enforcement of creditors' rights and (b) the application of general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). 8.6. Approvals. No authorizations, approvals or consents of, and no filings or registrations with, any governmental or regulatory authority or agency are necessary for the execution, delivery or performance by the Company or the Guarantor of this Agreement or the Notes or for the validity or enforceability thereof, or for the consummation of the transactions contemplated hereby. 8.7. Use of Loans. Neither the Company, the Guarantor nor any Subsidiary of either of them is engaged principally, or as one of its important activities, in the business of extending credit for the purpose, whether immediate, incidental or ultimate, of buying or carrying margin stock (within the meaning of Regulation U or X of the Board of Governors of the Federal Reserve System) and no part of the -39- 44 proceeds of any Loan will be used to buy or carry any margin stock. 8.8. ERISA. Each of the Company and the Guarantor and the ERISA Affiliates have fulfilled its obligations under the minimum funding standards of ERISA and the Code with respect to each Plan, are in compliance in all material respects with the presently applicable provisions of ERISA and the Code and have not incurred any liability to the PBGC or any Plan or Multiemployer Plan. 8.9. Taxes. (a) United States Federal income tax returns of the Company, the Guarantor and the Subsidiaries have been examined and closed through Fiscal 1985, have been examined for Fiscal 1986 and Fiscal 1987 and are under examination for Fiscal 1988 and Fiscal 1989. (b) Each of the Company, the Guarantor and the Subsidiaries has filed all United States Federal income tax returns and all other material tax returns which are required to be filed by it and has paid all taxes due pursuant to such returns or pursuant to any assessment received by the Company, the Guarantor or any Subsidiary. The charges, accruals and reserves on the books of the Company, the Guarantor and the Subsidiaries in respect of taxes and other governmental charges are, in the opinion of the Company and the Guarantor, adequate. 8.10. Credit Agreements. Schedule 1 hereto and all SEC Reports of the Company completely and correctly disclose each credit agreement, loan agreement, indenture, purchase agreement, guarantee or other arrangement providing for or otherwise relating to any extension of credit or commitment for any extension of credit (other than pursuant to any letter of credit excepted from the definition of Indebtedness herein under paragraph (c) thereof) to, or guarantee by, the Company, the Guarantor or any other Material Subsidiary the aggregate principal or face amount of which equals or exceeds (or may equal or exceed) $10,000,000 and accurately describes the aggregate principal or face amount outstanding and which may become outstanding under each thereof. 8.11. Ownership of Assets. Each of the Company, the Guarantor and each other Material Subsidiary has good and marketable title to all assets reflected on the audited consolidated balance sheet as of August 31, 1992 referred to in Section 8.2 hereof, subject to no Liens other than the Liens specified in Footnotes D and G to such balance sheet and, on the date hereof, such additional Liens as are listed on Schedule 1 hereto, and on any date here after, additional Liens permitted by Section 9.5 hereof and listed in Footnotes -40- 45 to the financial statements delivered pursuant to Section 9.1(a) or (b) hereof. 8.12. Pari Passu Obligations. The obligations of the Company and the Guarantor under this Agreement and the Notes rank and will rank at least pari passu in all respects with all other unsubordinated Indebtedness of the Company and the Guarantor, respectively, except for Indebtedness that is senior solely by operation of applicable law, and except that Indebtedness of the Company and the Guarantor secured as permitted by Section 9.5 hereof ranks senior in right of security with respect to the collateral therefor. Without limiting the generality of the foregoing, all principal of and interest (including post-petition interest allowable in any proceeding under any bankruptcy law) on and other amounts payable inconnection with this Agreement constitute "Senior Indebtedness" as defined in, and for all purposes of, the Convertible Subordinated Debentures (and is entitled to the benefit of the subordination provisions relating thereto). 8.13. Investment Company Act. Neither the Company nor the Guarantor is, and neither is "controlled by," an "investment company" within the meaning of the Investment Company Act of 1940, as amended. 8.14. Environmental Matters. To the best of the knowledge of the Company and the Guarantor, all operations and conditions at or in the premises in which the Company and the Guarantor conduct their business comply in all material respects with all Federal, state and local laws, rules and regulations relating to environmental matters, pollution, waste disposal or industrial hygiene including, without limitation, such laws, rules and regulations relating to asbestos (collectively, "Environmental Laws"). None of the operations of either the Company or the Guarantor is subject to any judicial or administrative proceeding alleging the violation of or liability under any Environmental Law. Section 9. Covenants of the Company and the Guarantor. Each of the Company and the Guarantor agrees that, so long as any of the Commitments are in effect and until payment in full of all Obligations: 9.1. Financial Statements; Reports and Other Information. The Company shall deliver to the Administrative Agent, with sufficient copies for each of the Banks: (a) as soon as available and in any event within 60 days after the end of each of the first three Fiscal -41- 46 Quarters of each Fiscal Year of the Company, consolidated statements of income, retained earnings and changes in financial position of the Company and its consolidated Subsidiaries (including, without limitation, the Guarantor) for such period and for the period from the beginning of such Fiscal Year to the end of such period, and the related consolidated balance sheet as at the end of such period, setting forth in each case in comparative form the corresponding figures for the corresponding period in the preceding Fiscal Year, accompanied by a certificate of a senior financial officer of the Company, which certificate shall state that such financial statements fairly present the consolidated financial condition and results of operations of the Company and its consolidated Subsidiaries in accordance with GAAP, consistently applied, as at the end of, and for, such period (subject to normal year-end audit adjustments); (b) as soon as available and in any event within 120 days after the end of each Fiscal Year of the Company, consolidated statements of income, retained earnings and changes in financial position of the Company and its consolidated Subsidiaries (including, without limitation, the Guarantor) for such year and the related consolidated balance sheet as at the end of such year, setting forth in each case in comparative form the corresponding figures for the preceding Fiscal Year, and accompanied by an opinion thereon of independent certified public accountants of recognized national standing, which opinion shall state that such financial statements fairly present the consolidated financial condition and results of operations of the Company and its consolidated Subsidiaries (including, without limitation, the Guarantor) as at the end of, and for, such Fiscal Year, and a certificate of the chief financial officer of the Company that, in examining the financial condition of the Company and its Subsidiaries for such Fiscal Year, he or she obtained no knowledge, except as specifically stated, of any Default arising from the breach of the covenants provided for in Sections 9.4, 9.6, 9.7, 9.11, 9.12, 9.13 or 9.17 hereof; (c) promptly upon their becoming available, copies of all registration statements and regular SEC Reports, if any, which the Company shall have filed with the Securities and Exchange Commission (or any governmental agency substituted therefor) or any national securities exchange; -42- 47 (d) promptly upon the mailing thereof to the shareholders of the Company generally, copies of all financial statements, reports and proxy statements so mailed; (e) as soon as possible, and in any event within ten days after either the Company or the Guarantor knows or has reason to know that any of the events or conditions specified below with respect to any Plan or Multiemployer Plan has occurred or exists, a statement signed by a senior financial officer of the Company or the Guarantor setting forth details respecting such event or condition and the action, if any, which the Company, the Guarantor or their ERISA Affiliate proposes to take with respect thereto (and a copy of any report or notice required to be filed with or given to PBGC by the Company, the Guarantor or an ERISA Affiliate with respect to such event or condition): (i) any reportable event, as defined in Section 4043(b) of ERISA and the regulations issued thereunder, with respect to a Plan, as to which PBGC has not by regulation waived the requirement of Section 4043(a) of ERISA that it be notified within 30 days of the occurrence of such event (provided that a failure to meet the minimum funding standard of Section 412 of the Code or Section 302 of ERISA shall be a reportable event regardless of the issuance of any waivers in accordance with Section 412(d) of the Code); (ii) the filing under Section 4041 of ERISA of a notice of intent to terminate any Plan or the termination of any Plan; (iii) the institution by PBGC of proceedings under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan, or the receipt by the Company or any ERISA Affiliate of a notice from a Multiemployer Plan that such action has been taken by PBGC with respect to such Multiemployer Plan; (iv) the complete or partial withdrawal by the Company, the Guarantor or any ERISA Affiliate under Section 4201 or 4204 of ERISA from a Multiemployer Plan, or the receipt by the Company, the Guarantor or any ERISA Affiliate of notice from a Multiemployer Plan that is in reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA -43- 48 or that it intends to terminate or has terminated under Section 4041A of ERISA; and (v) the institution of a proceeding by a fiduciary of any Multiemployer Plan against the Company, the Guarantor or any ERISA Affiliate to enforce Section 515 of ERISA, which proceeding is not dismissed within 30 days; (f) promptly after either the Company or the Guarantor knows or has reason to know that any Default has occurred, a notice of such Default, describing the same in reasonable detail; (g) not later than (i) 60 days after the last day of each of the first three Fiscal Quarters of each of the Company's Fiscal Years and (ii) 120 days after the last Fiscal Quarter of each such Fiscal Year, a notice, substantially in the form of Exhibit D-1 hereto (the "Funded Debt Ratio Notice"), setting forth the Funded Debt Ratio for the four-Fiscal Quarter period ended on the last day of such Fiscal Quarter and a notice, substantially in the form of Exhibit D-1 hereto (the "Total Debt Ratio Notice"), setting forth the Total Debt Ratio for the four-Fiscal Quarter period ended on the last day of such Fiscal Quarter, which notices shall set forth calculations and computations in sufficient detail to show the amount and nature of each of the components of the Funded Debt Ratio and the Total Debt Ratio, respectively, for such four-Fiscal Quarter period; provided that in the case of the Funded Debt Ratio Notice and the Total Debt Ratio Notice delivered with respect to each Fiscal Quarter specified in clause (ii) above, the Company shall (if the final form of either of such Notices is not yet available) deliver such Notice in a preliminary form within 60 days of the end of such Fiscal Quarter setting forth all matters required by this paragraph (g) to be included in the final form thereof as accurately as shall be possible based upon information available to the Company at such time; and (h) from time to time such other information regarding the business or financial condition of the Company or any of the Subsidiaries (including, without limitation, any Plan or Multiemployer Plan and any reports or other information required to be filed under ERISA) as any Bank or the Administrative Agent may reasonably request. -44- 49 Each of the Company and the Guarantor will furnish to the Administrative Agent, with sufficient copies for the Banks, at the time it furnishes each set of financial statements pursuant to paragraph (a) or (b) above, a certificate of a senior financial officer of the Company and the Guarantor, substantially in the form of Exhibit C hereto (i) to the effect that, to the best of his or her knowledge, after full inquiry, no Default has occurred and is continuing (or, if any Default has occurred and is continuing, describing the same in reasonable detail), (ii) setting forth in reasonable detail the computations necessary to determine whether the Company and the Guarantor are in compliance with Sections 9.11, 9.12 and 9.13 hereof as at the end of the respective Fiscal Quarter or Fiscal Year and (iii) setting forth additions to the list of Subsidiaries that are Material Subsidiaries contained in the certificate most recently delivered pursuant to this provision and containing either (A) a representation that all other Subsidiaries combined do not constitute a Material Subsidiary Group as at such date or (B) a representation that all other Subsidiaries do constitute a Material Subsidiary Group as at such date and identifying any such Subsidiary whose aggregate book value of tangible assets exceeds $10,000,000 as at such date. In addition, each of the Company and the Guarantor hereby agrees to furnish the Administrative Agent with an updated notice with respect to the information specified in clause (iii) of the preceding sentence upon the occurrence of any event either that has resulted or could result in a Subsidiary becoming a Material Subsidiary or a group of Subsidiaries becoming a Material Subsidiary Group or that could make the representation contained in the most recently delivered certificate furnished pursuant to this Section 9.1 no longer accurate. 9.2. Litigation. Without limiting the obligations of the Company under Section 9.1(h) hereof, each of the Company and the Guarantor shall promptly give to each Bank notice of all court or arbitral proceedings and investigations, and of all proceedings and investigations before any governmental or regulatory authority or agency, affecting the Company, the Guarantor or any Subsidiary, except proceedings or investigations which, if adversely determined, would not have a material adverse effect on the consolidated financial condition or operations, or the business taken as a whole, of the Company and its consolidated Subsidiaries (including, without limitation, the Guarantor). 9.3. Corporate Existence, Etc. Each of the Company and the Guarantor will, and will cause each of their respective Subsidiaries (but in the case of paragraphs (a), (d) and -45- 50 (e) of this Section 9.3, only those Subsidiaries which are Material Subsidiaries) to: (a) preserve and maintain its corporate existence and all of its material rights, privileges, licenses and franchises; (b) comply with the requirements of all applicable laws, rules, regulations and orders of governmental or regulatory authorities if failure to comply with such requirements would materially and adversely affect the consolidated financial condition or operations, or the business taken as a whole, of the Company and its consolidated Subsidiaries; (c) pay and discharge all taxes, assessments and governmental charges or levies imposed on it or on its income or profits or on any of its property prior to the date on which penalties attach thereto, except for any such tax, assessment, charge or levy the payment of which is being contested in good faith and by proper proceedings and against which adequate reserves are being maintained in accordance with GAAP; (d) maintain all of its properties used or useful in its business in good working order and condition, ordinary wear and tear excepted; (e) permit representatives of any Bank or the Administrative Agent, during normal business hours, to examine, copy and make extracts from its books and records, to inspect its properties, and to discuss its business and financial condition with its officers, all to the extent reasonably requested by such Bank or the Administrative Agent (as the case may be); and (f) keep insured by financially sound and reputable insurers all property of a character usually insured by corporations engaged in the same or similar business similarly situated against loss or damage of the kinds and in the amounts customarily insured against by such corporations and carry such other insurance as is usually carried by such corporations. 9.4. Payment of Obligations. Without limiting the obligations of the Company and the Guarantor under Section 9.3 hereof, each of the Company and the Guarantor will, and will cause each of their respective Subsidiaries to, pay and discharge at or before the date when due, all of their respective material obligations and other liabilities, including, -46- 51 without limitation, tax and pension liabilities, except where such obligations or liabilities are being contested in good faith and by appropriate proceedings, and maintain, in accordance with GAAP, appropriate reserves for the accrual of all of the foregoing. 9.5. Liens. Neither the Company nor the Guarantor will, nor will either of them permit any of their respective Subsidiaries to, create, incur, assume or suffer to exist any Lien on any asset, revenue or other property now or hereafter owned or acquired by it (including, without limitation, the stock of Subsidiaries other than Broadcast Subsidiaries at the time of disposition thereof as permitted by Section 9.7 hereof) except: (a) Liens existing on the date hereof securing Indebtedness outstanding on such date and identified in Footnote D and G to the Company's audited consolidated balance sheet as of August 31, 1992 or on Schedule 1 hereto; (b) any purchase money security interest hereafter created on any property of the Company, the Guarantor or such Subsidiary securing Indebtedness incurred solely for the purpose of financing all or a portion of the purchase price of such property; provided that: (i) such Lien (A) is created within six months of the acquisition of such property, (B) extends to no other property and (C) secures no other Indebtedness; (ii) the principal amount of Indebtedness secured by such Lien shall at no time exceed the lesser of (A) the cost to such Person of the property subject thereto or (B) the fair value of such property (as determined in good faith by the Board of Directors of such Person) at the time of the acquisition thereof; (iii) such Lien does not extend to or in any way encumber any inventory of the Guarantor purchased in the ordinary course of business; and (iv) the aggregate principal amount of all Indebtedness secured by all such Liens shall not exceed at any time $15,000,000 less the aggregate principal amount of all Indebtedness secured by Liens permitted under Section 9.5(i) hereof; (c) carriers', warehousemen's, mechanics', materialmen's and repairmen's liens arising in the ordinary course of business of the Company, the Guarantor or such Subsidiary and not overdue for a period of more than 30 days or which are being contested in good faith and by appropriate proceedings; -47- 52 (d) Liens created in connection with the lease by the Company, the Guarantor or any of their respective Subsidiaries of any property (whether real, personal or mixed) (i) now or hereafter owned by the Company, the Guarantor or any such Subsidiary which has been sold or otherwise transferred by any thereof to any other Person within six months of the acquisition thereof or (ii) which any of the Company, the Guarantor or any such Subsidiary, as the case may be, intends to use for substantially the same purpose as any property described in clause (i) above; (e) Liens in favor of consignors against inventory being sold on consignment in the ordinary course of business by the Company, the Guarantor or any Subsidiary; (f) Liens created in substitution for any Liens permitted by paragraphs (a), (b) and (d) of this Section 9.5, provided that (i) any such newly-created Lien does not extend to any other or additional property and (ii) (A) if permitted by such paragraph (a) or (b), does not secure any other (or additional principal amount of) Indebtedness and (B) if permitted by such paragraph (d) does not secure any other obligations under such lease or any obligations under any other lease; (g) Liens existing on assets at the time of acquisition thereof by the Company, the Guarantor or the respective Subsidiary and not incurred in anticipation of or in connection with such acquisition; (h) operating leases and Capital Leases, to the extent the same would constitute Liens, pursuant to which the Company, the Guarantor or the respective Subsidiary is lessee, and incurred by such Person in the ordinary course of its business; and (i) in addition to Liens otherwise permitted by this Section 9.5, Liens on property of the Company, the Guarantor or any of their respective Subsidiaries (i) which secure Indebtedness having an aggregate principal amount not exceeding at any time $15,000,000 less the aggregate principal amount of all Indebtedness secured by Liens permitted under Section 9.5(b) hereof and (ii) each of which shall be limited to specified items of collateral (and not a general Lien on all assets of such Person) having a book value not greater than 150% of the aggregate principal amount of the Indebtedness secured by such Lien; -48- 53 provided, however, that (A) all capital stock of all Subsidiaries (other than the Broadcast Subsidiaries at the time of disposition thereof as permitted by Section 9.7 hereof) and (B) all promissory notes and other securities acquired by the Company in connection with the disposition of the Broadcast Subsidiaries will in any event be maintained free and clear of all Liens whatsoever. 9.6. Mergers. Neither the Company nor the Guarantor will, and neither of them will permit any other Material Subsidiary or Subsidiaries constituting a Material Subsidiary Group or a Broadcast Subsidiary Group to, (a) consolidate or merge with or into any other Person, except that a Wholly-Owned Subsidiary of the Company or the Guarantor (other than the Guarantor) may merge with or consolidate into the Company or the Guarantor (provided that the Company or the Guarantor, as the case may be, shall be the survivor of such merger or consolidation) or another Wholly-Owned Subsidiary of the Company or the Guarantor, or (b) sell, assign, convey, lease, sublet, transfer or otherwise dispose of all or substantially all of its assets to any Person, whether in a single transaction or in a series of related transactions, except that a Wholly-Owned Subsidiary of the Company or the Guarantor (other than the Guarantor) may sell, assign, convey, lease, sublet, transfer or otherwise dispose of all or substantially all of its assets to the Company or to another Wholly-Owned Subsidiary of the Company or the Guarantor; provided, however, that none of the foregoing transactions shall be permitted if a Default or an Event of Default has occurred and is continuing or would result from the consummation of any such transaction. It is understood and agreed that: (i) any consolidation, merger, sale, assignment, conveyance, letting, subletting, transfer or other disposition of all or substantially all of the assets of a Broadcast Subsidiary shall be permitted under this Section 9.6, so long as such Broadcast Subsidiary, together with all other Broadcast Subsidiaries with respect to which there has been, since the date hereof, a consolidation, merger, sale, assignment, conveyance, letting, subletting, transfer or other disposition -49- 54 of all or substantially all of its assets, does not constitute a Broadcast Subsidiary Group, and (ii) any consolidation, merger, sale, assignment, conveyance, letting, subletting, transfer or other disposition of all or substantially all of the assets of a Non-Material Subsidiary shall be permitted under this Section 9.6, so long as such Non-Material Subsidiary, together with all other Non-Material Subsidiaries with respect to which there has been, since the date hereof, a consolidation, merger sale, assignment, conveyance, letting, subletting, transfer or other disposition of all or substantially all of its assets, does not constitute a Material Subsidiary Group. It is further understood and agreed that the distribution or arms'-length sale of the Company's shares of capital stock of the Broadcast Subsidiaries as permitted under Section 9.7 hereof will not constitute all or substantially all of the assets or liabilities of the Company, the Guarantor or any Subsidiary for purposes of this Section 9.6 nor shall the value thereof be aggregated with other assets of the Company for purposes of determining the Company's compliance with this Section 9.6. 9.7. Dispositions of Assets. Neither the Company nor the Guarantor will, and neither of them will permit any other Material Subsidiary or any Broadcast Subsidiary to, sell, assign, convey, lease, sublet, transfer or otherwise dispose of any of the assets, business or other properties of the Company, the Guarantor or any such Material Subsidiary or Broadcast Subsidiary to any Person, whether in a single transaction or in a series of related transactions, except for: (i) sales of inventory (but not of accounts receivable) in the ordinary course of business of the Company, the Guarantor or any such Subsidiary; (ii) dispositions of assets in the ordinary course of business in arm's-length transactions by the Company, the Guarantor or any such Subsidiary to the extent such assets either are no longer used or useful to the Company, the Guarantor or such Subsidiary or are promptly replaced by other assets of at least equal usefulness; -50- 55 (iii) the sale or distribution of shares of capital stock held by the Company or any Subsidiary in any Broadcast Subsidiary; provided that (i) all requisite consents and approvals with respect to such sale or distribution have been obtained, (ii) any such transaction is on substantially the same terms and conditions specified in the Form 10 filed by Silver King Communications, Inc., a Subsidiary of the Company, with the Securities and Exchange Commission on August 27, 1992, as amended through December 11, 1992, attached hereto as Annex B (including, without limitation, the provision that the Company shall retain a broadcast affiliation relationship with each of the Broadcast Subsidiaries after such transaction), and the Banks shall have reviewed all final documentation with respect to each such sale or distribution and have confirmed to their satisfaction that the terms and conditions set forth in such Form 10 have been complied with, and (ii) the aggregate amount of the Company's interest in the capital stock of such Broadcast Subsidiaries (whether directly or by distribution of the shares of capital stock of any corporation directly or indirectly holding such Broadcast Subsidiaries' capital stock) that is distributed by the Company as a dividend to its stockholders in connection with all such transactions cumulatively after the date hereof does not exceed $15,000,000; and (iv) any such disposition by the Company, the Guarantor or any Wholly-Owned Subsidiary to the Company, the Guarantor or any Wholly-Owned Subsidiary, as the case may be; provided, however, that the Company and the Guarantor shall maintain their respective assets and operations substantially in accordance with their respective assets and operations as of the date hereof, and that in the case of any such disposition by the Company or the Guarantor to a Wholly-Owned Subsidiary, each of the Company and the Guarantor agree that such disposition shall be in the ordinary course of business consistent with past practice and shall be accomplished upon fair and reasonable terms to the Company or the Guarantor; provided that all promissory notes and other securities acquired by the Company in connection with the disposition of the Broadcast Subsidiaries will in any event be maintained free and clear of all dispositions whatsoever. -51- 56 9.8. Ranking. (a) Each of the Company and the Guarantor will cause its obligations under this Agreement, the Notes and each other document now or hereafter entered into with respect hereto or thereto to rank at least pari passu in right of payment and of security with all other unsubordinated Indebtedness of the Company or the Guarantor, as the case may be, except that Indebtedness secured by any Lien permitted by Section 9.5 hereof may rank senior in right of security with respect to the collateral subject to such Lien. Without limiting the generality of the foregoing, the Company covenants, and will take all steps necessary to assure, that its obligations under this Agreement will at all times constitute "Senior Indebtedness" as defined in, and for all purposes of, the Convertible Subordinated Debentures (and will be entitled to the benefits of the subordination provisions relating thereto). (b) Each of the Company and the Guarantor will cooperate with the Administrative Agent and the Banks and execute such further instruments and documents as any Bank may reasonably request to carry out the intentions of this Section 9.8. Without limiting the generality of the foregoing, if the Company or the Guarantor hereafter issues or otherwise incurs any subordinated Indebtedness, each of them will execute and cause to be executed such further documents as any Bank may reasonably request to ensure that the obligations of the Company and the Guarantor under this Agreement and the Notes at all times rank senior to such subordinated Indebtedness. (c) Nothing in this Section 9.8 shall be construed so as to limit the ability of the Company or the Guarantor to incur any Indebtedness (consistent with paragraphs (a) and (b) above and otherwise permitted by this Agreement) on a basis pari passu with their respective Indebtedness under this Agreement and the Notes. 9.9. Business; Fiscal Year. Neither the Company nor the Guarantor will make any material change in the nature of its business from that in which it is engaged on the date of this Agreement, and neither the Company nor the Guarantor shall cause, or permit any of their respective Subsidiaries to cause, any other Subsidiary to conduct business or operations substantially similar to the business or operations conducted by the Guarantor on the date of this Agreement. Neither the Company nor the Guarantor will change its fiscal year from that currently in effect on the date hereof, as set forth in the definition of "Fiscal Year" in Section 1.1 hereof. -52- 57 9.10. Transactions with Affiliates. Neither the Company nor the Guarantor will, and neither will permit any of its respective Subsidiaries to, enter into or be a party to any transaction (including but not limited to any merger, consolidation or sale of substantially all assets) with any Affiliate of the Company or the Guarantor, except upon fair and reasonable terms no less favorable to the Company or the Guarantor or such Subsidiary than would obtain in a comparable arm's-length transaction with a Person not an Affiliate of the Company or the Guarantor. 9.11. Fixed Charges Coverage Test. The Company will maintain the ratio of Adjusted Operating Cash Flow to Fixed Charges for the Company and its Subsidiaries on a consolidated basis, for each four-Fiscal Quarter period ending in each of the following Fiscal Years, to be not less than the following ratios: Fiscal Year Minimum Ratio ----------- ------------- Fiscal 1993 1.70:1 Fiscal 1994 1.35:1 Fiscal 1995 1.40:1 Fiscal 1996 1.70:1. 9.12. Debt Ratio. The Company will not permit the ratio of Total Debt to Operating Cash Flow for the Company and its Subsidiaries on a consolidated basis, for each four-Fiscal Quarter period ending in each of the following Fiscal Years, to be greater than the following ratios: Fiscal Year Maximum Ratio ----------- ------------- Fiscal 1993 1.90:1 Fiscal 1994 1.60:1 Fiscal 1995 1.35:1 Fiscal 1996 1.15:1. 9.13. Consolidated Net Worth. The Company shall not permit Consolidated Net Worth at any time prior to August 30, 1993, to be less than $125,000,000, and at any time during the following periods to be less than the following amounts: Period Amount ------ ------ August 31, 1993 to August 30, 1994 $135,000,000 August 31, 1994 to August 30, 1995 $145,000,000 August 31, 1995 to August 30, 1996 $155,000,000 -53- 58 and, commencing on August 31, 1996, $10,000,000 above the minimum amount of Consolidated Net Worth required pursuant to this Section 9.13 on the last day of the preceding Fiscal Year. 9.14. Notification of Incurrence of Debt or Making of Investment. Prior to the incurrence by the Company or any of its Subsidiaries of Indebtedness (other than Indebtedness under the Revolving Credit Agreement or this Agreement), or upon obtaining commitments for Indebtedness, or the making of any Investment of cash, property or other assets in an aggregate principal amount of $20,000,000 (per incurrence or cumulatively since September 1, 1992 or since the last time incurrence compliance was required to be tested pursuant to this Section 9.14) or more, the Company shall deliver notice to the Administrative Agent and the Banks, certifying, on the basis of its financial statements for the four Fiscal Quarters most recently ended, the Company's compliance with the financial covenants under the Revolving Credit Agreement and this Agreement both before and immediately after the incurrence of such Indebtedness or Investment on both an historical and pro forma basis; provided, that in the event any cash change in long-term investments or cash change in long-term notes receivable triggers notification of the incurrence of Indebtedness and certification of compliance with financial covenants pursuant to this Section 9.14, the calculation to determine pro forma compliance with the Fixed Charges Coverage Test set forth in Section 9.11 hereof shall be performed after excluding the smallest amount of any cash increase in long-term investments and cash increase in long-term notes receivable for any Fiscal Quarter included in such test. 9.15. Use of Proceeds. The Company shall use the proceeds of the Loans solely for the purpose of refinancing a portion of its outstanding Senior Notes either by redeeming Senior Notes in accordance with the Senior Note Indenture or by repurchasing Senior Notes in the open market following the date hereof, and in any event in compliance with all applicable legal and regulatory requirements, including, without limitation, Regulations G, T, U and X of the Board of Governors of the Federal Reserve System and the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, and the regulations thereunder. Neither the Administrative Agent nor any Bank shall have any responsibility for any use of the proceeds of the Loans. 9.16. Ownership of Guarantor. The Company agrees at all times to own, both beneficially and of record and free and -54- 59 clear of all Liens, and control 100% of the capital shares of the Guarantor. 9.17. Indebtedness of Subsidiaries. The Company will not permit any of its Subsidiaries to create, incur, assume, suffer to exist or otherwise become obligated for or under any Indebtedness whatsoever, except for: (i) Indebtedness owed to the Company; (ii) trade Indebtedness incurred by such Subsidiary in the ordinary course of its business; (iii) Capital Leases; and (iv) Indebtedness of the Guarantor under this Agreement and the Revolving Credit Agreement. 9.18. Interest Rate Protection. No later than 90 days after the date on which the Loans are made on the occasion of the borrowing under Section 2.2 hereof, the Company shall enter into Interest Rate Protection Agreements covering the lesser of (i) 100% of the aggregate principal amount of the Loans or (ii) at least $25,000,000 of the aggregate principal amount of the Loans. Such agreements, attached hereto as Annex C, are with parties and have terms and conditions satisfactory to the Co-Agents, as evidenced by their signature hereto. The Company shall use its best efforts to maintain in full force and effect each Interest Rate Agreement to which it is a party or under which it is a beneficiary for a period of not less than 24 months from the date of such agreement, without any sale, assignment, transfer or conveyance by it thereof, and shall not default (beyond any applicable grace period) in the performance of any of its obligations thereunder. Section 10. Events of Default. If one or more of the following events (herein called "Events of Default" shall occur and be continuing: (a) The Company or the Guarantor shall fail to pay the principal of any Loan when due; or the Company or the Guarantor shall fail to pay any interest on any Loan or any other amount payable by it hereunder more than two Business Days after the date when any such amount shall be due; or (b) There shall have occurred a default or event of default under the Revolving Credit Agreement, the -55- 60 Senior Note Indenture or the Convertible Subordinated Debenture Indenture; or (c) The Company or the Guarantor or any Subsidiary shall default in the payment when due (after giving effect to all applicable grace periods provided for in the documents relating to such Indebtedness, without regard to any waiver thereof) of any principal of or interest on or any other amount payable in connection with any of its Indebtedness not specified in Section 10(a) or 10(b) hereof in an aggregate principal amount of $5,000,000 or more; or any event specified in any note, agreement, indenture or other document evidencing or relating to any such Indebtedness shall occur if (after giving effect to all applicable grace periods provided for in the documents relating to such Indebtedness, without regard to any waiver thereof) the effect of such event is to cause, or to permit the holder or holders of such Indebtedness (or a trustee or agent on behalf of such holder or holders) to cause, such Indebtedness becoming due prior to its stated maturity; or (d) Any representation, warranty or certification made or deemed made herein by the Company or the Guarantor, or any certificate furnished to any Bank or the Administrative Agent pursuant to the provisions hereof, shall prove to have been false or misleading as of the time made or deemed made or furnished in any material respect and, if the Company, the Guarantor and the Majority Banks agree that the effects of such false or misleading representation, warranty or certification are curable, such effects shall not have been cured to the satisfaction of the Majority Banks within 10 days after the earlier of (x) the date on which the Company or the Guarantor obtained knowledge that such representation, warranty or certification was so false or misleading or (y) the date of notice by the Administrative Agent to the Company or the Guarantor that such representation, warranty or certification was so false or misleading; or (e) The Company or the Guarantor shall default in the performance of any of its obligations under Section 9 (other than under any of Sections 9.1(a), 9.1(b), 9.1(c), 9.1(d), 9.1(g), 9.1(h), 9.2, 9.3(b), 9.3(c) and 9.4 hereof); or the Company or the Guarantor shall default in the performance of any of its other obligations in this Agreement, including, without limitation, any of Sections 9.1(a), 9.1(b), 9.1(c), 9.1(d), 9.1(g), 9.1(h), 9.2, -56- 61 9.3(b), 9.3(c) and 9.4 hereof (not governed by any other provision in this Section 10), and such default shall continue unremedied for a period of 10 days after the earlier of (x) the date on which the Company or the Guarantor obtained knowledge of such default or (y) the date of notice by the Administrative Agent to the Company or the Guarantor of the occurrence of such default; or (f) The Company, the Guarantor, any other Material Subsidiary or Subsidiaries constituting a Material Subsidiary Group shall admit in writing its inability to, or be generally unable to, pay its debts as such debts become due; or (g) The Company, the Guarantor, any other Material Subsidiary or Subsidiaries constituting a Material Subsidiary Group shall (i) apply for or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee or liquidator of itself or of all or a substantial part of its assets, (ii) make a general assignment for the benefit of its creditors, (iii) commence a voluntary case under the Bankruptcy Code (as now or hereafter in effect), (iv) file a petition seeking to take advantage of any other law relating to bankruptcy, insolvency, reorganization, creditor or debtor rights, winding-up, or composition or readjustment of debts, (v) take any corporate action for the purpose of effecting any of the foregoing; provided that an event specified in clauses (i) through (v) above shall be deemed to have occurred (whether at one time or cumulatively over a period of time after the date hereof) with respect to a Material Subsidiary Group at the time when such an event shall have occurred with respect to all Subsidiaries constituting such Material Subsidiary Group; or (h) A proceeding or case shall be commenced, without the application or consent of the Company, the Guarantor, any other Material Subsidiary or all Subsidiaries constituting a Material Subsidiary Group in any court of competent jurisdiction, seeking (i) its liquidation, reorganization, dissolution or winding-up, or the composition or e readjustment of its debts, including the filing of an involuntary petition under the Bankruptcy Code, (ii) the appointment of a trustee, receiver, custodian, liquidator or the like of the Company, the Guarantor or such Subsidiary or of all or any substantial part of its assets, or (iii) similar relief in respect of the Company, the Guarantor or such Subsidiary under any law relating to bankruptcy, insolvency, reorganization, creditor or debtor rights, -57- 62 winding-up, or composition or adjustment of debts, and such proceeding or case shall continue undismissed, or an order, judgment or decree approving or ordering any of the foregoing shall be entered and shall not be vacated or dismissed within 60 days; or an order for relief against the Company, the Guarantor or such Subsidiary shall be entered in an involuntary case under any applicable bankruptcy code; provided that an event specified in clauses (i) through (iii) above or the preceding subclause shall be deemed to have occurred with respect to a Material Subsidiary Group at the time when such an event shall have occurred (whether at one time or cumulatively over a period of time after the date hereof) with respect to all Subsidiaries constituting such Material Subsidiary Group; or (i) A judgment or judgments for the payment of money in excess of $1,000,000 in the aggregate shall be rendered by a court or courts against the Company, the Guarantor and/or any of their respective Subsidiaries and the same shall not be discharged (or provision shall not be made for such discharge), or a stay of execution thereof shall not be procured, within 30 days from the date of entry thereof and the Company, the Guarantor or the relevant Subsidiary shall not, within said period of 30 days, or such longer period during which execution of the same shall have been stayed, appeal therefrom and cause the execution thereof to be stayed during such appeal; or (j) An event or condition specified in Section 9.1(e) hereof shall occur or exist with respect to any Plan or Multiemployer Plan and, as a result of such event or condition, together with all other such events or conditions, the Company, the Guarantor or any ERISA Affiliate shall incur or in the opinion of the Majority Banks shall be reasonably likely to incur a liability to a Plan, a Multiemployer Plan or PBGC (or any combination of the foregoing) which is, in the determination of the Majority Banks, material in relation to the consolidated financial position of the Company and its consolidated Subsidiaries; or (k) There shall occur a Change of Control; provided that any such Change of Control shall not constitute an Event of Default for purposes of this Section 10(k) if (i)(A) such Change of Control arises solely in connection with the Liberty Media Transaction, and (B) as of the date the Liberty Media Transaction is consummated and after giving effect thereto, no other -58- 63 Default or Event of Default shall have occurred and be continuing, or (ii)(A) such Change of Control arises solely by reason of the merger or consolidation of the Company with another corporation which is organized under the laws of a state in the United States and the Company is the surviving corporation in such merger or consolidation, (B) as of the date of such merger or consolidation and after giving effect thereto, no other Default or Event of Default shall have occurred and be continuing, and (C) the Company has delivered a notice to the Administrative Agent and the Banks not less than 30 days prior to the consummation of any such merger or consolidation that sets forth in reasonable detail information indicating compliance with the terms of clause (ii) of this paragraph (k); or (l) Following the disposition of any of the Broadcast Subsidiaries as permitted by Section 9.7 hereof, an event or condition that constitutes (i) a default or breach by any such Broadcast Subsidiary that is party to a Silver King Note or any other agreement, including without limitation, an affiliation agreement, which had been entered into in connection with such disposition and pursuant to which such Broadcast Subsidiary and the Company continued a business relationship, and such default or breach shall continue unremedied for a period of 30 days after the Company obtained knowledge of such default or breach or (ii) a default or breach by the Company of any agreement, including without limitation, an affiliation agreement, which had been entered into in connection with such disposition and pursuant to which such Broadcast Subsidiary and the Company continued a business relationship. THEREUPON: (i) in the case of an Event of Default other than one referred to in clause (f), (g) or (h) of this Section 10, the Administrative Agent, with the consent of the Majority Banks, may and, upon request of the Majority Banks, shall, by notice to the Company, terminate the Commitments and/or declare the principal amount then outstanding of, and the accrued interest on, the Loans and all other amounts payable by the Company and the Guarantor hereunder and under the Notes to be forthwith due and payable, whereupon such amounts shall be immediately due and payable without presentment, demand, diligence, protest or other formalities of any kind, all of which are hereby expressly waived by the Company and the Guarantor; and (ii) in the case of the occurrence of an Event of Default referred to in clause (f), (g) or (h) of this Section 10, the Commitments shall be automatically terminated and the principal amount then outstanding of, and the accrued -59- 64 interest on, the Loans and all other amounts payable by the Company and the Guarantor hereunder and under the Notes shall become automatically immediately due and payable without presentment, demand, protest or other formalities of any kind, all of which are hereby expressly waived by the Company and the Guarantor. Section 11. The Administrative Agent. 11.1. Appointment, Powers and Immunities. Each Bank hereby irrevocably appoints and authorizes the Administrative Agent to act as its agent hereunder with such powers as are specifically delegated to the Administrative Agent by the terms of this Agreement, together with such other powers as are reasonably incidental thereto. The Administrative Agent (which term as used in this sentence and in Section 11.5 and the first sentence of Section 11.6 hereof shall include reference to its affiliates and each of the officers, directors, employees and agents of itself and of its affiliates): (a) shall have no duties or responsibilities except those expressly set forth in this Agreement, and shall not by reason of this Agreement be a trustee for any Bank; (b) shall not be responsible to the Banks for any recitals, statements, representations or warranties contained in this Agreement, or in any certificate or other document referred to or provided for in, or received by any of them under, this Agreement, or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement, any Note or any other document referred to or provided for herein or for any failure by the Company or any other Person to perform any of its obligations hereunder or thereunder; (c) shall not be required to initiate or conduct any litigation or collection proceedings hereunder, except as provided for under Section 11.3 hereof; and (d) shall not be responsible for any action taken or omitted to be taken by it hereunder or under any other document or instrument referred to or provided for herein or in connection herewith, except for its own gross negligence or willful misconduct. The Administrative Agent may employ agents and attorneys-in-fact and shall not be responsible for the negligence or misconduct of any such agents or attorneys-in-fact selected by it in good faith. The Administrative Agent may deem and treat the payee of any Note as the holder thereof for all purposes hereof unless and until a written notice of the assignment or transfer thereof shall have been filed with the Administrative Agent. 11.2. Reliance by the Administrative Agent. The Administrative Agent shall be entitled to rely upon any certification, notice or other communication (including any -60- 65 thereof by telephone, telex, telegram or cable) reasonably believed by it to be genuine and correct and to have been signed or sent by or on behalf of the proper Person or Persons, and upon advice and statements of legal counsel, independent accountants and other experts selected by the Administrative Agent. As to any matters not expressly provided for by this Agreement, the Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder in accordance with instructions signed by the Majority Banks, and such instructions of the Majority Banks and any action taken or failure to act pursuant thereto shall be binding on all of the Banks. 11.3. Defaults. The Administrative Agent shall not be deemed to have knowledge of the occurrence of a Default (other than the nonpayment of principal of or interest on Loans or of commitment fees) unless the Administrative Agent has received notice from a Bank or the Company specifying such Default and stating that such notice is a "Notice of Default". In the event that the Administrative Agent receives such a notice of the occurrence of a Default, the Administrative Agent shall give prompt notice thereof to the Banks (and shall give each Bank prompt notice of each such nonpayment). The Administrative Agent shall (subject to Section 11.7 and Section 12.4 hereof) take such action with respect to such Default as shall be directed by the Majority Banks, provided that, unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default as it shall deem advisable in the best interest of the Banks. 11.4. Rights as a Bank. With respect to its Commitment and the Loans made by it, LTCB Trust (and any successor acting as Administrative Agent) in its capacity as a Bank hereunder shall have the same rights and powers hereunder as any other Bank and may exercise the same as though it were not acting as the Administrative Agent, and the term "Bank" or "Banks" shall, unless the context otherwise indicates, include the Administrative Agent in its individual capacity. LTCB Trust (and any successor acting as Administrative Agent) and its affiliates may (without having to account therefor to any Bank) accept deposits from, lend money to and generally engage in any kind of banking, trust or other business with the Company (and any of its Affiliates) as if it were not acting as the Administrative Agent, and LTCB, LTCB Trust and their affiliates may accept fees and other consideration from the Company and the Guarantor for services in connection with this Agreement or otherwise without having to account for the same to the Banks. -61- 66 11.5. Indemnification. The Banks agree to indemnify the Administrative Agent (to the extent not reimbursed under Section 12.3 hereof, but without limiting the obligations of the Company under said Section 12.3), ratably in accordance with the aggregate principal amount of the Loans made by the Banks (or, if no Loans are at the time outstanding, ratably in accordance with their respective Commitments), for any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind and nature whatsoever which may be imposed on, incurred by or asserted against the Administrative Agent in any way relating to or arising out of this Agreement or any other documents contemplated by or referred to herein or the transactions contemplated hereby (including, without limitation, the costs and expenses which the Company is obligated to pay under Section 12.3 hereof but excluding, unless a Default has occurred and is continuing, normal administrative costs and expenses incident to the performance of its agency duties hereunder) or the enforcement of any of the terms hereof or of any such other documents, provided that no Bank shall be liable for any of the foregoing to the extent they arise from the gross negligence or willful misconduct of the party to be indemnified. 11.6. Non-Reliance on Administrative Agent, Co-Agents and other Banks. Each Bank agrees that it has, independently and without reliance on the Administrative Agent, either Co-Agent or any other Bank, and based on such documents and information as it has deemed appropriate, made its own credit analysis of the Company, the Guarantor and their respective Subsidiaries and its own decision to enter into this Agreement and that it will, independently and without reliance upon the Administrative Agent, either Co-Agent or any other Bank, and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under this Agreement, the Notes or any other related documents. The Administrative Agent shall not be required to keep itself informed as to the performance or observance by the Company or the Guarantor of this Agreement or any other document referred to or provided for herein or to inspect the properties or books of the Company, the Guarantor or any of their respective Subsidiaries. Except for notices, reports and other documents and information expressly required to be furnished to the Banks by the Administrative Agent hereunder, the Administrative Agent shall not have any duty or responsibility to provide any Co-Agent or any Bank with any credit or other information concerning the affairs, financial condition or business of the Company or any Subsidiary (or any -62- 67 of their affiliates) which may come into the possession of the Administrative Agent or any of its affiliates. 11.7. Failure to Act. Except for action expressly required of the Administrative Agent hereunder, the Administrative Agent shall in all cases be fully justified in failing or refusing to act hereunder unless it shall be indemnified to its satisfaction by the Banks against any and all liability and expense (other than that arising from gross negligence or willful misconduct) which may be incurred by it by reason of taking or continuing to take any such action. 11.8. Resignation or Removal of Administrative Agent. Subject to the appointment and acceptance of a successor Administrative Agent as provided below, the Administrative Agent may resign at any time by giving notice thereof to the Banks, the Company and the Guarantor, and the Administrative Agent may be removed at any time with or without cause by the Majority Banks. Upon any such resignation or removal, the Majority Banks shall have the right to appoint a successor Administrative Agent. If no successor Administrative Agent shall have been so appointed by the Majority Banks and shall have accepted such appointment within 30 days after the retiring Administrative Agent's giving of notice of resignation or the Majority Banks' removal of the retiring Administrative Agent, then the retiring Administrative Agent may, on behalf of the Banks, appoint a successor Administrative Agent, which shall be a bank which has an office in New York, New York with a combined capital and surplus of at least $100,000,000. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations hereunder. After any retiring Administrative Agent's resignation or removal hereunder as Administrative Agent, the provisions of this Section 11 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as the Administrative Agent. 11.9. Administrative Agent's Office. The Administrative Agent acts initially through its office designated on the signature pages hereof, but may transfer its functions as Administrative Agent to any other office, branch or affiliate of LTCB at any time by giving prompt, subsequent written notice to each of the other parties to this Agreement. -63- 68 11.10. Co-Agents. Each of the parties acknowledges and agrees that the Co-Agents, in their capacity as such, have no obligations, duties or liabilities whatsoever under or in respect of this Agreement or the Notes. Section 12. Miscellaneous. 12.1. Waiver. No failure on the part of the Administrative Agent, either Co-Agent or any Bank to exercise, no delay in exercising, and no course of dealing with respect to, any right, power or privilege under this Agreement or any Note shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege under this Agreement or any Note preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The remedies provided herein are cumulative and not exclusive of any remedies provided by law. 12.2. Notices. All notices and other communications provided for herein (including, without limitation, any modifications of, or waivers or consents under, this Agreement) shall be given or made by telex, telecopy, telegraph, cable or in writing and telexed, telecopied, telegraphed, cabled, mailed or delivered to the intended recipient at the "Address for Notices" specified below its name on the signature pages hereof; or, as to any party, at such other address as shall be designated by such party in a notice to each other party. Except as otherwise provided in this Agreement, all such communications shall be deemed to have been duly given when transmitted by telex or telecopier (with receipt confirmed either mechanically or in writing by a person at the office of the recipient), personally delivered or, in the case of a mailed notice, upon receipt, in each case given or addressed as aforesaid. 12.3. Expenses, Etc. The Company and the Guarantor jointly and severally agree to pay or reimburse each of the Banks and the Administrative Agent for paying: (a) all costs and expenses of the Administrative Agent (including, without limitation, the reasonable fees and expenses of all special counsel to the Administrative Agent, the Co-Agents and the Banks, in connection with (i) the preparation, negotiation, execution and delivery of this Agreement and the Notes and any related documents and the making of the initial Loans hereunder, subject to limitations set forth in letters dated the date hereof between the Company and LTCB Trust and Bank of Montreal, respectively, and (ii) any amendment, modification or -64- 69 waiver of any of the terms of this Agreement or any of the Notes or any related documents (whether or not any such amendment, modification or waiver is signed or becomes effective); (b) all reasonable costs and expenses of each Bank, each Co-Agent and the Administrative Agent (including reasonable counsels' fees and expenses) in connection with the enforcement of this Agreement or any of the Notes and the protection of the rights of each Bank, each Co-Agent and the Administrative Agent against the Company, the Guarantor or any of their respective assets; and (c) all transfer, stamp, documentary and other similar taxes, assessments or charges (including, without limitation, penalties and interest) levied by any governmental or revenue authority in respect of this Agreement, any of the Notes or any other document referred to herein. The Company hereby agrees to indemnify the Administrative Agent, each Co-Agent and each Bank and their respective Affiliates, directors, officers, employees and agents from, and hold each of them harmless against, any and all losses, liabilities, claims, damages or expenses incurred by any of them arising out of or by reason of any investigation or litigation or other proceedings (including any threatened investigation or litigation or other proceedings) relating to or arising out of this Agreement, the statements contained in the commitment letter and term sheet, dated September 28, 1992, as amended, of LTCB Trust, as a Co-Agent, and the commitment letter and term sheet, dated October 8, 1992, as amended, of Bank of Montreal, as a Co-Agent, or any aspect thereof, the Banks' agreement to make the Loans hereunder or from any actual or proposed use by the Company, the Guarantor or any Subsidiary of either thereof of the proceeds of any of the Loans or from an alleged breach of this Agreement, including, without limitation, the reasonable fees and disbursements of counsel incurred in connection with any such investigation or litigation or other proceedings (but excluding any such losses, liabilities, claims, damages or expenses incurred by reason of the gross negligence or willful misconduct of the Person to be indemnified). 12.4. Amendments, Etc. Neither this Agreement nor any Note nor any terms hereof or thereof may be amended, supplemented or modified except in accordance with the provisions of this subsection. With the prior written consent of the Majority Banks, the Administrative Agent, the Company -65- 70 and the Guarantor may, from time to time, enter into written amendments, supplements or modifications hereto for the purpose of adding any provisions to this Agreement or the Notes or changing in any manner the rights of the Banks or of the Company and the Guarantor hereunder or thereunder or waiving, on such terms and conditions as the Administrative Agent (with the consent of the Majority Banks) may specify in such instrument, any of the requirements of this Agreement or the Notes or any Default or Event of Default and its consequences; provided, however, that no such waiver and no such amendment, supplement or modification shall (a) extend the maturity of any installment of principal of any Loan or Note, or reduce the rate or extend the time of payment of interest thereon, or reduce or extend the time of payment of any fee payable to the Banks hereunder, or reduce the principal amount of any Loan, or increase the amount of any Bank's Commitment, or release the Guarantor from any of its obligations hereunder, or amend, modify or waive any provision of this subsection, or reduce the percentage specified in the definition of "Majority Banks" in Section 1.1 hereof, or consent to the assignment or transfer by the Company or the Guarantor of any of its rights and obligations under this Agreement or the Notes, in each case without the prior written consent of all the Banks, or (b) amend, modify or waive any provision of Section 11 hereof without the written consent of the Administrative Agent. Any such waiver and any such amendment, supplement or modification shall apply equally to each of the Banks and shall be binding upon the Company, the Guarantor, the Banks, the Administrative Agent, the Co-Agents and all future holders of the Notes. In the case of any waiver, the Company, the Guarantor, the Banks and the Administrative Agent shall be restored to their former position and rights hereunder and under the outstanding Notes, and any Default or Event of Default waived shall be deemed to be cured and not continuing; but no such waiver shall extend to any subsequent or other Default or Event of Default, or impair any right subsequent thereon. 12.5. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. 12.6. Assignments and Participation. (a) Neither the Company nor the Guarantor may assign its rights or obligations hereunder or under the Notes without the prior consent of all of the Banks and the Administrative Agent. -66- 71 (b) Any Bank may assign any of its Loan, its Note or its Commitment without the prior consent of the Company, the Guarantor, the Administrative Agent or any other Bank, provided that (i) assignments of less than all of a Bank's Commitment and Loan shall be in a principal amount of not less than $10,000,000 (or such lesser amount as may be agreed upon by the Company) and (ii) any such assignment shall be made pursuant to an assignment and assumption agreement substantially in the form of Exhibit E hereto (an "Assignment Agreement"). Upon written notice to the Company and the Administrative Agent of an assignment, identifying in detail reasonably satisfactory to the Administrative Agent the assignee Bank and the amount of the assignor Bank's Commitment and Loans assigned, the assignee shall have, as of the date of effectiveness of such assignment and to the extent of such assignment, the obligations, rights and benefits of, and shall be deemed for all purposes hereunder, a Bank party hereto holding the Commitment and Loans (or portions thereof) assigned to it (in addition to the Commitment and Loans, if any, theretofore held by such assignee) and the assignor shall be released from such obligations to such extent. (c) Any Bank may sell to one or more other Persons a participation in all or any part of the Commitment or the Loan held by it, in which event each such participant shall be entitled to the rights and benefits of the provisions of Sections 5 and 9.1(h) hereof with respect to its participation in such Loan as if (and the Company and the Guarantor shall be directly obligated to such participant under such provisions as if) such participant were a "Bank" for purposes of said Sections, but shall not have any other rights or benefits under this Agreement or any Note (the participant's rights against such Bank in respect of such participation to be those set forth in the agreement (the "Participation Agreement") executed by such Bank in favor of such participant); provided, that all amounts payable by the Company or the Guarantor to any Bank and any participant under Section 5 hereof in respect of any Loan shall be determined as if such Bank had not sold any participations in such Loan and as if such Bank were funding all of such Loan in the same way that it is funding the portion of such Loan in which no participations have been sold. In no event shall a Bank that sells a participation be obligated to any participant under the Participation Agreement to take or refrain from taking any action hereunder or under such Bank's Note except that such Bank may agree in the Participation Agreement -67- 72 that it will not, without the consent of the participant, agree to (i) the extension of any date fixed for the payment of principal of or interest on the related Loan or Loans, (ii) the reduction of any payment of principal thereof, (iii) the reduction of the rate at which either interest is payable thereon or (if the participant is entitled to any part thereof) commitment fee is payable hereunder to a level below the rate at which the participant is entitled to receive interest or commitment fee (as the case may be) in respect of such participation, or (iv) any release of the Guarantor from any of its obligations under this Agreement or the Notes. (d) In addition to the assignments and participations permitted under the foregoing provisions of this Section 12.6, any Bank may assign and pledge all or any portion of its Loan and its Note to any Federal Reserve Bank as collateral security pursuant to Regulation A and any Operating Circular issued by such Federal Reserve Bank. No such assignment shall release the assigning Bank from its obligations hereunder. (e) A Bank may furnish any information concerning the Company, the Guarantor or any of their respective Subsidiaries in the possession of such Bank from time to time to assignees and participants (including prospective assignees and participants). 12.7. Confidentiality. The Administrative Agent, the Co-Agents, and each of the Banks hereby acknowledge that certain of the information to be furnished to them pursuant to this Agreement may be non-public information. The Administrative Agent, each Co-Agent, and each Bank hereby agrees that it will keep all information so furnished to it pursuant hereto confidential in accordance with its normal banking procedures and, except in accordance with such procedures, will make no disclosure to any other Person of such information until the same shall have become public, except (i) in connection with matters involving this Agreement (including, without limitation, litigation involving the Company, the Guarantor, the Co-Agents, the Administrative Agent or the Banks) and with the obligations of any of the Administrative Agent, such Co-Agent or such Bank under law or regulation, (ii) pursuant to subpoenas or similar process, (iii) to Governmental Authorities or examiners, (iv) to independent auditors or counsel, (v) to any parent or corporate Affiliate of any of the Administrative Agent, such Co-Agent or such Bank, or (vi) to any participant or proposed participant or assignee or proposed assignee hereunder so long as such participant or proposed participant or assignee or -68- 73 proposed assignee (a) is not in the same general type of business as the Company on the date of such disclosure and (b) agrees in writing to accept such information subject to the restrictions provided in this Section 12.7; provided that in no event shall any of the Administrative Agent, such Co-Agent or such Bank be obligated or required to return any materials furnished by the Company or any of its Subsidiaries. 12.8. Survival. Without limiting the survival of any other obligations of the Company, the Guarantor and the Banks hereunder, the obligations of the Company and the Guarantor under Sections 2.5, 5.1, 5.4, 5.5 and 12.3 hereof and the obligations of the Banks under Sections 4.7, 11.5 and 12.7 hereof, shall survive the repayment of the Loans and the termination of the Commitments. 12.9. Captions. Captions and section headings appearing herein are included solely for convenience of reference and are not intended to affect the interpretation of any provision of this Agreement. 12.10. Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and any of the parties hereto may execute this Agreement by signing any such counterpart. 12.11. GOVERNING LAW. THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. 12.12. JURISDICTION. EACH OF THE COMPANY AND THE GUARANTOR HEREBY AGREES THAT: (A) ANY SUIT, ACTION OR PROCEEDING AGAINST THE COMPANY OR THE GUARANTOR WITH RESPECT TO THIS AGREEMENT, THE LOANS, THE NOTES OR ANY DOCUMENTS RELATED HERETO OR ANY JUDGMENT ENTERED BY ANY COURT IN RESPECT THEREOF MAY BE BROUGHT IN THE SUPREME COURT OF THE STATE OF NEW YORK, COUNTY OF NEW YORK, IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, OR IN ANY STATE OR FEDERAL COURT SITTING IN THE STATE OF FLORIDA (COLLECTIVELY, THE "SUBJECT COURTS"), AS THE ADMINISTRATIVE AGENT, EITHER CO-AGENT OR ANY BANK MAY ELECT IN ITS SOLE DISCRETION AND EACH OF THE COMPANY AND THE GUARANTOR HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF EACH OF THE SUBJECT COURTS FOR THE PURPOSE OF ANY SUCH SUIT, ACTION, PROCEEDING OR JUDGMENT. EACH OF THE COMPANY AND THE GUARANTOR HEREBY IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS IN ANY SUIT, ACTION OR PROCEEDING -69- 74 IN ANY OF THE SUBJECT COURTS BY THE MAILING THEREOF BY THE ADMINISTRATIVE AGENT, THE RESPECTIVE CO-AGENT OR THE RESPECTIVE BANK BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE COMPANY OR THE GUARANTOR, AS THE CASE MAY BE, ADDRESSED AS PROVIDED IN SECTION 12.2 HEREOF. NOTHING HEREIN SHALL IN ANY WAY BE DEEMED TO LIMIT THE ABILITY OF THE ADMINISTRATIVE AGENT, EITHER CO-AGENT OR ANY BANK TO SERVE ANY SUCH WRITS, PROCESS OR SUMMONSES IN ANY OTHER MANNER PERMITTED BY APPLICABLE LAW OR TO BRING PROCEEDINGS AGAINST THE COMPANY OR THE GUARANTOR IN ANY COMPETENT COURT OF ANY OTHER JURISDICTION OR JURISDICTIONS, AND IN SUCH MANNER, AS MAY BE PERMITTED BY APPLICABLE LAW. (B) EACH OF THE COMPANY AND THE GUARANTOR HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY SUIT, ACTION OR PROCEEDING IN RESPECT OF THIS AGREEMENT, THE NOTES OR ANY OTHER DOCUMENTS IN CONNECTION HEREWITH, ANY OBJECTION TO THE LAYING OF VENUE IN ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY OF THE SUBJECT COURTS, AND, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY CLAIM THAT SUCH SUIT, ACTION OR PROCEEDING IN ANY OF THE SUBJECT COURTS HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. 12.13. Severability. Any provision of this Agreement or the Notes that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or thereof or affecting the validity or enforceability of such provision in any other jurisdiction. -70- 75 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written. HOME SHOPPING NETWORK, INC., as the Company By ------------------------------ Title: Chief Financial Officer 2501 118th Avenue North St. Petersburg, Florida 33716 Telecopier No.: (813) 539-6505 Telephone No.: (813) 572-8585 Attention: Les R. Wandler with a copy to: "Legal Department" Telecopier No.: (813) 573-0866 HOME SHOPPING CLUB, INC., as Guarantor By ------------------------------ Title: Treasurer 2501 118th Avenue North St. Petersburg, Florida 33716 Telecopier No.: (813) 539-6505 Telephone No.: (813) 572-8585 Attention: Les R. Wandler with a copy to: "Legal Department" Telecopier No.: (813) 573-0866 -71- 76 The Banks Commitment $13,500,000 LTCB TRUST COMPANY, as a Bank and a Co-Agent By ------------------------------ Title: Lending Office for Federal Funds Rate Loans and Prime Rate Loans: 165 Broadway New York, New York 10006 Lending Office for LIBOR Loans: 165 Broadway New York, New York 10006 Address for Notices: 165 Broadway New York, New York 10006 Telex No.: 425722 Telecopier No.: (212) 608-3081 Telephone No.: (212) 335-4854 Attention: --------------------- -72- 77 $13,500,000 BANK OF MONTREAL, as a Bank and a Co-Agent By ------------------------------ Title: Lending Office for Federal Funds Rate Loans and Prime Rate Loans: 115 South LaSalle Street 11th Floor Chicago, Illinois 60603 Lending Office for LIBOR Loans: 115 South LaSalle Street 11th Floor Chicago, Illinois 60603 Address for Notices: 430 Park Avenue 15th Floor, Account Administration New York, New York 10022 Telecopier No.: (212) 605-1525 Telephone No.: (212) 605-1436 or (212) 605-1458 Attention: Prescilla Quinones or John Decoufle -73- 78 $9,000,000 THE BANK OF NEW YORK By ------------------------------ Title: Lending Office for Federal Funds Rate Loans and Prime Rate Loans: One Wall Street New York, New York 10286 Lending Office for LIBOR Loans: One Wall Street New York, New York 10286 Address for Notices: One Wall Street 22nd Floor New York, New York 10286 Telecopier No.: (212) 635-6399 or (212) 635-6877 Telephone No.: (212) 635-6780 Attention: Ramona McCottrie -74- 79 $6,000,000 CITIZENS FIDELITY BANK & TRUST COMPANY By ------------------------------ Title: Lending Office for Federal Funds Rate Loans and Prime Rate Loans: 500 West Jefferson Street Louisville, Kentucky 40202 Lending Office for LIBOR Loans: 500 West Jefferson Street Louisville, Kentucky 40202 Address for Notices: PNC Commercial Corp. 201 South Orange Avenue Suite 750 Orlando, Florida 32801 Telecopier No.: (407) 843-8263 Telephone No.: (407) 841-3585 Attention: James Neil or Diane Tyre -75- 80 $6,000,000 THE DAIWA BANK, LIMITED By ------------------------------ Title: By ------------------------------ Title: Lending Office for Federal Funds Rate Loans and Prime Rate Loans: 233 South Wacker Dr., Suite 5400 Chicago, Illinois 60606 Lending Office for LIBOR Loans: 233 South Wacker Dr., Suite 5400 Chicago, Illinois 60606 Address for Notices: 100 South Ashley Drive Suite 1780 Tampa, Florida 33602 Telecopier No.: (813) 229-6372 Telephone No.: (813) 229-6002 Attention: Sybil Weldon, Vice President -76- 81 $6,000,000 FIRST UNION NATIONAL BANK OF FLORIDA By ------------------------------ Title: Lending Office for Federal Funds Rate Loans and Prime Rate Loans: 214 Hogan Street Jacksonville, Florida 33202 Lending Office for LIBOR Loans: 214 Hogan Street Jacksonville, Florida 33202 Address for Notices: 410 Central Avenue St. Petersburg, Florida 33701 --------------------------- Telecopier No.: (813) 892-7254 Telephone No.: (813) 892-7297 Attention: J. Gregory Olivier, Vice President -77- 82 $6,000,000 SUN BANK OF TAMPA BAY By ------------------------------ Title: Lending Office for Federal Funds Rate Loans and Prime Rate Loans: 315 East Madison Tampa, Florida 33601 Lending Office for LIBOR Loans: 315 East Madison Tampa, Florida 33601 Address for Notices: 3601 34th Street, North 3rd Floor, Corporate Banking St. Petersburg, Florida 33713 Telecopier No.: (813) 892-4810 Telephone No.: (813) 892-4951 Attention: Peggy Scarborough - ------------------- Total: $60,000,000 -78 83 The Administrative Agent LTCB TRUST COMPANY, as Administrative Agent By ------------------------------ Title: Address for Notices to Administrative Agent: 165 Broadway New York, New York 10006 Telex No.: 425722 Telecopier No.: (212) 608-3081 Telephone No.: (212) 335-4854 Attention: ---------------------- -79- 84 EXHIBIT A PROMISSORY NOTE $______________ ___________, 1992 New York, New York FOR VALUE RECEIVED, HOME SHOPPING NETWORK, INC., a Delaware corporation (the "Company"), hereby promises to pay to the order of ___________________ (the "Bank"), for account of its respective Applicable Lending Offices provided for by the Term Loan Agreement referred to below, by paying to account no. 04203606 of LTCB Trust Company (the "Administrative Agent") at the principal offices of Bankers Trust Company, New York, New York (reference: "Home Shopping Network - Term Loan Facility") (or at such other place as the Administrative Agent may notify the Company from time to time) the principal sum of ______________ Dollars ($_____________), in lawful money of the United States of America and in immediately available funds, without set-off, counterclaim or deduction of any kind, which sum shall be due and payable in three installments on the dates set forth below, each installment to be in the amount equal to the lesser of the amount set forth opposite the applicable installment below and the remaining aggregate principal amount of the installment: Date Principal Amount ---- ---------------- June 15, 1994 $ June 15, 1995 $ December 15, 1995 $ . The Company further agrees to pay interest on the unpaid principal amount of this Note, at such office, in like money and funds and in such manner, for the period commencing on the date of this Note until this Note shall be paid in full, at the rates per annum and on the dates provided in the Term Loan Agreement. The amount and type of, and the duration of each Interest Period (if applicable) for, the Loan evidenced hereby, the date such Loan is made or converted from a Loan of another type, and the amount of each payment or prepayment made on account of the principal thereof, shall be recorded by the Bank on its books and, prior to any transfer of this Note, endorsed by the Bank on the schedule attached hereto or any continuation thereof; provided that no failure of the Bank to make any such endorsement shall affect the obligations of the Company under the Term Loan Agreement or this Note. This Note is one of the Notes referred to in the Term Loan Agreement, dated as of December 18, 1992 (as in effect from time to time, the "Term Loan Agreement"), among 85 the Company, Home Shopping Club, Inc., a Delaware corporation, as guarantor (the "Guarantor"), the Banks named therein (including the Bank), LTCB Trust Company and Bank of Montreal, each as a Co-Agent for the Banks, and the Administrative Agent, and evidences the Loan made by the Bank thereunder, is entitled to the benefits thereof and is subject to the optional and mandatory prepayment provisions contained therein. Capitalized terms used in this Note have the respective meanings assigned to them in the Term Loan Agreement. The Term Loan Agreement provides for the acceleration of the maturity of this Note upon the occurrence of certain events and for prepayments of Loans upon the terms and conditions specified therein. No provision of the Term Loan Agreement or this Note or any other document delivered in connection with either thereof and no transaction contemplated hereby or thereby shall be construed or shall operate so as to require the Company or the Guarantor to pay interest hereunder in an amount or at a rate greater than the maximum allowed from time to time by applicable law. Should any interest or other charges paid by the Company or the Guarantor hereunder result in a computation or earning of interest in excess of the maximum rate of interest permitted under applicable law in effect while such interest is being earned, then such excess shall be waived by the Bank and all such excess shall be automatically credited against and in reduction of the principal balance of such amounts payable hereunder and any portion of such excess received by the Bank shall be paid over by the Bank to the Company or the Guarantor, as the case may be, it being the intent of the Company and the Guarantor and the other parties to the Term Loan Agreement that under no circumstances shall the Company or the Guarantor or any other Person be required to pay interest in excess of the maximum rate allowed by such applicable law. The Company hereby waives diligence, presentment, protest, notice of default, dishonor or nonpayment and any other notice and all demands whatsoever. The Company hereby further waives all setoffs and counterclaims against the Company, the Administrative Agent, the Co-Agents and each of the Banks. 86 THIS NOTE HAS BEEN EXECUTED AND DELIVERED IN, AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF, THE STATE OF NEW YORK. HOME SHOPPING NETWORK, INC. By ------------------------- Title: GUARANTEE The undersigned HOME SHOPPING CLUB, INC., a Delaware corporation (the "Guarantor"), hereby unconditionally and irrevocably guarantees the payment in full when due (whether at stated maturity, by acceleration or otherwise) of the principal of and interest on this Note and all other amounts payable hereunder, in accordance with the terms hereof and of Section 6 of the Term Loan Agreement, and, in the case of any extension of time of payment, in whole or in part, that all such amounts shall be paid in full when due (whether at stated maturity, by acceleration or otherwise) in accordance with the terms of such extension. In addition, the Guarantor hereby unconditionally agrees that upon default in the payment when due (whether at stated maturity, by acceleration or otherwise) of any of such principal, interest or other amounts, the Guarantor shall forthwith pay and perform the same in the money and funds, at the time, in the place and in the manner provided for such payment in the Term Loan Agreement. This guarantee is a continuing guarantee of payment and not merely of collection; it is a primary, independent obligation of the Guarantor; and the Guarantor's obligations hereunder shall be absolute, unconditional and irrevocable, irrespective of any and all circumstances whatsoever. The Guarantor hereby waives diligence, presentment, protest, notice of default, dishonor or nonpayment and any other notice and all demands whatsoever. The Guarantor hereby further waives all setoffs and counterclaims against the Company, the Administrative Agent, the Co-Agents and each of the Banks. HOME SHOPPING CLUB, INC. By ------------------------- Title: 87
LOANS Date Loan Principal Type Amount Unpaid Made or Amount of Interest Paid or Principal Notation Converted of Loan Loan Period Prepaid Amount Made By --------- -------- ---- -------- ------- --------- --------
88 FIRST AMENDMENT, dated as of January 15, 1993, to the Term Loan Agreement, dated as of December 18, 1992 (the "Term Loan Agreement"), among HOME SHOPPING NETWORK, INC. (the "Company"), HOME SHOPPING CLUB, INC. (the "Guarantor"), the banks signatory thereto (the "Banks"), LTCB TRUST COMPANY and BANK OF MONTREAL, each as a Co-Agent for the Banks (each in such capacity, a "Co- Agent"), and LTCB TRUST COMPANY, as Administrative Agent for the Banks (in such capacity, the "Administrative Agent"). WHEREAS, the Company and the Guarantor have requested, and the Banks, the Co-Agents and the Administrative Agent have agreed, to amend certain provisions of the Term Loan 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 Term Loan Agreement and used herein shall have their respective defined meanings when used herein. SECTION 2. AMENDMENTS TO THE TERM LOAN AGREEMENT. (a) The Term Loan Agreement is hereby amended by replacing the date "February 6, 1993" in the definition of "Commitment Termination Date" in Section 1.1 of the Term Loan Agreement with the date "February 19, 1993". (b) The definition of "Silver King Notes" in Section 1.1 of the Term Loan Agreement is hereby amended by inserting the words "or any of its Subsidiaries" after the word "Company" in such definition. (c) Paragraph (b) of Section 3.3 of the Term Loan Agreement is hereby amended by inserting the words "or any of its Subsidiaries" after the word "Company" in the first line of such paragraph. (d) Clause (B) of the final proviso to Section 9.5 of the Term Loan Agreement is hereby amended by inserting the words "or any of its Subsidiaries" after the word "Company" appearing therein. 89 (e) The final proviso to Section 9.7 of the Term Loan Agreement is hereby amended by inserting the words "or any of its Subsidiaries" after the word "Company" appearing therein. (f) Clause (ii) of Section 9.17 of the Term Loan Agreement is hereby amended by inserting the words ", provided that in the case of any Subsidiary that holds any of the Silver King Notes and any other Subsidiary that owns shares of capital stock of any such Subsidiary, such trade Indebtedness does not at any time and with respect to all such Subsidiaries collectively exceed $1,000,000 in an aggregate principal amount" after the word "business" at the end of such clause. (g) Paragraph (l) of Section 10 of the Term Loan Agreement is hereby amended by (A) inserting the words "or any of its Subsidiaries" after the word "Company" in each of the ninth and thirteenth lines of such paragraph, and (B) inserting the words "or any such Subsidiary" after the word "Company" in each of the eleventh and sixteenth lines of such paragraph. (h) Each reference in the Term Loan Agreement to "this Agreement" and the words "hereof", "hereto", "herein" and the like, shall, except where the context otherwise requires, refer to the Term Loan Agreement as amended by this First Amendment. SECTION 3. REPRESENTATIONS AND WARRANTIES. Each of the Company and the Guarantor represents and warrants to the Administrative Agent and the Banks that the representations and warranties made by the Company and the Guarantor in Section 8 of the Term Loan Agreement and in any other certificate or other document delivered in connection with the Term Loan Agreement shall be true in all material respects on and as of the date of the effectiveness of this First Amendment with the same force and effect as if made on and as of such date (including, without limitation, that there shall have occurred no material adverse change since August 31, 1992 in the consolidated financial condition or operations, or the business taken as a whole, of the Company and its consolidated Subsidiaries from that set forth in their financial statements dated as of August 31, 1992, except as disclosed to the Banks in writing prior to the date of this Amendment. SECTION 4. CONDITIONS TO EFFECTIVENESS. This First Amendment shall become effective as of the date first above written when (a) counterparts hereof shall have been duly executed and delivered by each of the parties provision for -2- 90 whose signature is made on the signature pages hereof, and (b) the Company shall have paid to the Administrative Agent for the ratable account of the Banks an aggregate fee of $12,500 to be paid to each Bank on a pro rata basis in proportion to such Bank's respective Commitment. SECTION 5. MISCELLANEOUS. A. This First Amendment may be executed in any number of counterparts, all of which taken together and when delivered to the Administrative Agent shall constitute one and the same instrument, and any of the parties hereto may execute this First Amendment by signing any such counterpart. B. THIS FIRST AMENDMENT AND THE TERM LOAN AGREEMENT AS AMENDED HEREBY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. C. Except as expressly set forth in this First Amendment, the Term Loan Agreement shall remain unmodified and in full force and effect. IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to be duly executed as of the date first above written. HOME SHOPPING NETWORK, INC., as the Company By /s/ LES R. WANDLER ---------------------------- Title: Executive Vice President HOME SHOPPING CLUB, INC., as Guarantor By /s/ LES R. WANDLER ---------------------------- Title: Treasurer -3- 91 The Banks LTCB TRUST COMPANY, as a Bank and a Co-Agent By /s/ JOHN A. KROB ------------------------------- Title: Senior Vice President BANK OF MONTREAL, as a Bank and a Co-Agent By /s/ PATRICK SULLIVAN ------------------------------- Title: Director THE BANK OF NEW YORK By /s/ ALAN LYSTER, JR. ------------------------------- Title: Vice President CITIZENS FIDELITY BANK & TRUST COMPANY By /s/ JAMES D. NEIL ------------------------------- Title: Assistant Vice President THE DAIWA BANK, LIMITED By /s/ SYBIL H. WELDON ------------------------------- Title: Vice President & Manager By /s/ ALLEN L. HARVELL, JR. ------------------------------- Title: Vice President FIRST UNION NATIONAL BANK OF FLORIDA By /s/ ROBERT E. HASTINGS ------------------------------- Title: Vice President SUN BANK OF TAMPA BAY By /s/ ROBERT J. WILLSEA ------------------------------- Title: Corporate Banking Officer -4- 92 The Administrative Agent LTCB TRUST COMPANY, as Administrative Agent By /s/ JOHN A. KROB ---------------------------- Title: Senior Vice President -5- 93 SECOND AMENDMENT, dated as of February 4, 1993, to the Term Loan Agreement, dated as of December 18, 1992, as amended by the First Amendment, dated as of January 15, 1993 (as so amended, the "Term Loan Agreement"), among HOME SHOPPING NETWORK, INC. (the "Company"), HOME SHOPPING CLUB, INC. (the "Guarantor"), the banks signatory thereto (the "Banks"), LTCB TRUST COMPANY and BANK OF MONTREAL, each as a Co-Agent for the Banks (each in such capacity, a "Co-Agent"), and LTCB TRUST COMPANY, as Administrative Agent for the Banks (in such capacity, the "Administrative Agent"). WHEREAS, the Company and the Guarantor have requested, and the Banks, the Co-Agents and the Administrative Agent are willing, to amend certain provisions of the Term Loan 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 Second Amendment, terms defined in the Term Loan Agreement and used herein shall have their respective defined meanings when used herein. SECTION 2. AMENDMENTS TO THE TERM LOAN AGREEMENT. (a) Section 1.1 of the Term Loan Agreement is hereby amended by inserting the following definition at the beginning of the list of defined terms in such Section: "'1993 Term Loan Agreement' shall mean the Term Loan Agreement, dated as of February 4, 1993, among the Company, the Guarantor, the banks signatory thereto, LTCB Trust Company, as agent for such banks, Bank of Montreal and The Bank of New York, each as a co-agent for such banks, and LTCB Trust Company, as administrative agent for such banks, as the same may be amended or modified from time to time in accordance with the terms thereof." (b) Section 8.11 of the Term Loan Agreement is hereby amended by deleting all of the text in such Section following the word "hereof" in the fifth line of such Section and inserting the following: "(other than the assets which were disposed of in connection with the distribution of the 94 capital stock of Silver King Communications, Inc., a Wholly-Owned Subsidiary of the Company, as reflected in Note 6.c to the Condensed Consolidated Financial Statements contained in the Company's Quarterly Report on Form 10-Q for the Fiscal Quarter ended November 30, 1992), subject to: (a) no Liens other than the Liens specified in Footnotes D and G to such balance sheet and, on the date hereof, such additional Liens as are listed on Schedule 1 hereto, and on any date hereafter, additional Liens permitted by Section 9.5 hereof and either (i) listed in Footnotes to the financial statements delivered pursuant to Section 9.1(a) or (b) hereof or (ii) otherwise communicated to the Banks in writing, and (b) on any date hereafter, dispositions permitted by Section 9.7 hereof and either (i) described in the financial statements, including any notes thereto, delivered pursuant to Section 9.1(a) or (b) hereof or (ii) otherwise communicated to the Banks in writing." (c) Section 9.14 of the Term Loan Agreement is hereby amended by inserting after the words "Revolving Credit Agreement" in each of the fourth and fourteenth lines of such Section the following: ", the 1993 Term Loan Agreement". (d) Clause (iv) of Section 9.17 of the Term Loan Agreement is hereby amended by deleting such clause in its entirety and replacing it with the following: "Indebtedness of the Guarantor under this Agreement, the Revolving Credit Agreement and the 1993 Term Loan Agreement." SECTION 3. REPRESENTATIONS AND WARRANTIES. Each of the Company and the Guarantor represents and warrants to the Administrative Agent and the Banks that (a) no Default or Event of Default has occurred and is continuing, and (b) the representations and warranties made by the Company and the Guarantor in Section 8 of the Term Loan Agreement, as amended hereby, and in any other certificate or other document delivered in connection with the Term Loan Agreement shall be true in all material respects on and as of the date of the effectiveness of this Second Amendment with the same force and effect as if made on and as of such date (including, without limitation, that there shall have occurred no material adverse change since August 31, 1992 in the consolidated financial condition or operations, or the business taken as a whole, of the Company and its consolidated Subsidiaries from that set forth in their financial statements dated as of August 31, -2- 95 1992, except as disclosed to the Banks in writing prior to the date of this Amendment). SECTION 4. CONDITIONS TO EFFECTIVENESS. This Second Amendment shall become effective as of the date first above written when counterparts hereof shall have been duly executed and delivered by the Majority Banks. SECTION 5. MISCELLANEOUS. A. This Second Amendment may be executed in any number of counterparts, all of which taken together and when delivered to the Administrative Agent shall constitute one and the same instrument, and any of the parties hereto may execute this Second Amendment by signing any such counterpart. B. THIS SECOND AMENDMENT AND THE TERM LOAN AGREEMENT AS AMENDED HEREBY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. C. Except as expressly set forth in this Second Amendment, the Term Loan Agreement shall remain unmodified and in full force and effect. IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment to be duly executed as of the date first above written. HOME SHOPPING NETWORK, INC., as the Company By /s/ LES R. WANDLER ------------------- Title: Executive Vice President HOME SHOPPING CLUB, INC., as Guarantor By /s/ LES R. WANDLER ------------------- Title: Treasurer -3- 96 The Banks LTCB TRUST COMPANY, as a Bank and a Co-Agent By /s/ RIKUICHI YOSHISUE ---------------------- Title: Executive Vice President BANK OF MONTREAL, as a Bank and a Co-Agent By /s/ PATRICK J. SULLIVAN ------------------------ Title: Director THE BANK OF NEW YORK By /s/ ALAN LYSTER, JR. --------------------- Title: Vice President CITIZENS FIDELITY BANK & TRUST COMPANY By /s/ H. JOSEPH BRENNER ---------------------- Title: Vice President THE DAIWA BANK, LIMITED By ---------------------- Title: By ---------------------- Title: FIRST UNION NATIONAL BANK OF FLORIDA By /s/ ROBERT E. HASTINGS ---------------------- Title: Vice President SUN BANK OF TAMPA BAY By ----------------------- Title: -4- 97 The Administrative Agent LTCB TRUST COMPANY, as Administrative Agent By /s/ RIKUICHI YOSHISUE --------------------- Title: Executive Vice President -5- 98 THIRD AMENDMENT, dated as of May 28, 1993, to the Term Loan Agreement, dated as of December 18, 1992, as amended by the First Amendment, dated as of January 15, 1993, the Second Amendment, dated as of February 4, 1993, and paragraph number 2 of the letter dated April 14, 1993 from LTCB Trust Company, as Administrative Agent, to Home Shopping Network, Inc. (as so amended, the "1992 Term Loan Agreement"), among HOME SHOPPING NETWORK, INC. (the "Company"), HOME SHOPPING CLUB, INC. (the "Guarantor"), the banks signatory thereto (the "Banks"), LTCB TRUST COMPANY and BANK OF MONTREAL, each as a Co-Agent for the Banks (each in such capacity, a "Co-Agent"), and LTCB TRUST COMPANY, as Administrative Agent for the Banks (in such capacity, the "Administrative Agent"). WHEREAS, the Company and the Guarantor have requested, and the Banks, the Co-Agents and the Administrative Agent are willing, to amend certain provisions of the 1992 Term Loan 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 Third Amendment, terms defined in the 1992 Term Loan Agreement and used herein shall have their respective defined meanings when used herein. SECTION 2. AMENDMENTS TO THE 1992 TERM LOAN AGREEMENT. (a) Section 9.11 of the 1992 Term Loan Agreement is hereby amended by deleting such Section in its entirety and replacing it with the following: "9.11. Fixed Charges Coverage Test. The Company will maintain the ratio of Adjusted Operating Cash Flow to Fixed Charges for the Company and its Subsidiaries on a consolidated basis, (a) for each four-Fiscal Quarter period ending with each of the following Fiscal Quarters, to be not less than the following ratios: 99 Fiscal Quarter Ended Minimum Ratio ----------------- ------------- February 28, 1993 1.70:1 May 31, 1993 1.70:1 August 31, 1993 1.70:1 November 30, 1993 1.35:1 February 28, 1994 1.45:1 May 31, 1994 1.35:1 August 31, 1994 1.35:1, and (b) for each four-Fiscal Quarter period ending in each of the following Fiscal Years, to be not less than the following ratios: Fiscal Year Minimum Ratio ----------- ------------- Fiscal 1995 1.40:1 Fiscal 1996 1.70:1." (b) Section 9.12 of the 1992 Term Loan Agreement is hereby amended by deleting such Section in its entirety and replacing it with the following: "9.12. Debt Ratio. The Company will not permit the ratio of Total Debt to Operating Cash Flow for the Company and its Subsidiaries on a consolidated basis, (a) for each four-Fiscal Quarter period ending with each of the following Fiscal Quarters, to be greater than the following ratios: Fiscal Quarter Ended Maximum Ratio ---------------- ------------- February 28, 1993 1.90:1 May 31, 1993 1.90:1 August 31, 1993 2.15:1 November 30, 1993 1.95:1 February 28, 1994 1.65:1 May 31, 1994 1.60:1 August 31, 1994 1.60:1, and (b) for each four-Fiscal Quarter period ending in each of the following Fiscal Years, to be greater than the following ratios: -2- 100 Fiscal Year Maximum Ratio ----------- ------------- Fiscal 1995 1.35:1 Fiscal 1996 1.15:1." SECTION 3. REPRESENTATIONS AND WARRANTIES. Each of the Company and the Guarantor represents and warrants to the Administrative Agent and the Banks that (a) no Default or Event of Default has occurred and is continuing, and (b) the representations and warranties made by the Company and the Guarantor in Section 8 of the 1992 Term Loan Agreement, as amended hereby, and in any other certificate or other document delivered in connection with the 1992 Term Loan Agreement shall be true in all material respects on and as of the date of the effectiveness of this Third Amendment with the same force and effect as if made on and as of such date (including, without limitation, that there shall have occurred no material adverse change since August 31, 1992 in the consolidated financial condition or operations, or the business taken as a whole, of the Company and its consolidated Subsidiaries from that set forth in their financial statements dated as of August 31, 1992, except as disclosed to the Banks in writing prior to the date of this Third Amendment). SECTION 4. CONDITIONS TO EFFECTIVENESS. This Third Amendment shall become effective as of the date first above written when (a) counterparts hereof shall have been duly executed and delivered by the Majority Banks and (b) the Company shall have paid to the Administrative Agent, for the account of the Banks, a fee in accordance with the terms and conditions set forth in the Company's letter, dated May 24, 1993, to the Administrative Agent, as modified by the Administrative Agent's notices, dated June 3, 1993 and June 14, 1993, to the Banks. SECTION 5. MISCELLANEOUS. A. This Third Amendment may be executed in any number of counterparts, all of which taken together and when delivered to the Administrative Agent shall constitute one and the same instrument, and any of the parties hereto may execute this Third Amendment by signing any such counterpart. -3- 101 B. THIS THIRD AMENDMENT AND THE 1992 TERM LOAN AGREEMENT AS AMENDED HEREBY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. C. Except as expressly set forth in this Third Amendment, the 1992 Term Loan Agreement shall remain unmodified and in full force and effect. IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment to be duly executed as of the date first above written. HOME SHOPPING NETWORK, INC., as the Company By /s/ LES R. WANDLER ------------------- Title: Executive Vice President and Chief Financial Officer HOME SHOPPING CLUB, INC., as Guarantor By /s/ LES R. WANDLER ------------------ Title: Treasurer -4- 102 The Banks LTCB TRUST COMPANY, as a Bank and a Co-Agent By /s/ PHILIP A. MARSDEN ------------------------- Title: Senior Vice President BANK OF MONTREAL, as a Bank and a Co-Agent By /s/ PATRICK J. SULLIVAN ------------------------- Title: Director THE BANK OF NEW YORK By /s/ KALPANA RAINA ------------------------- Title: Vice President PNC BANK, KENTUCKY, INC. (formerly known as Citizens Fidelity Bank & Trust Company) By /s/ JAMES D. NEIL ------------------------- Title: Vice President THE DAIWA BANK, LIMITED By /s/ SYBIL H. WELDON ------------------------- Title: Vice President and Manager By /s/ ALLEN L. HARVELL, JR. ------------------------- Title: Vice President FIRST UNION NATIONAL BANK OF FLORIDA By /s/ JOHN T. WATTS ------------------------- Title: Vice President -5- 103 SUN BANK OF TAMPA BAY By /s/ ROBERT J. WILLSEA ------------------------- Title: Corporate Banking Officer The Administrative Agent ------------------------ LTCB TRUST COMPANY, as Administrative Agent By PHILIP A. MARSDEN ------------------------- Title: Senior Vice President -6- 104 FOURTH AMENDMENT, dated as of September 20, 1993, to the Term Loan Agreement, dated as of December 18, 1992, as amended by the First Amendment, dated as of January 15, 1993, the Second Amendment, dated as of February 4, 1993, paragraph number 2 of the letter dated April 14, 1993 from LTCB Trust Company, as Administrative Agent, to Home Shopping Network, Inc. and the Third Amendment, dated as of May 28, 1993 (as so amended, the "1992 Term Loan Agreement"), among HOME SHOPPING NETWORK, INC., as borrower (the "Company"), HOME SHOPPING CLUB, INC., as guarantor (the "Guarantor"), the banks signatory thereto (the "Banks"), LTCB TRUST COMPANY and BANK OF MONTREAL, each as a Co-Agent for the Banks (each in such capacity, a "Co-Agent"), and LTCB TRUST COMPANY, as Administrative Agent for the Banks (in such capacity, the "Administrative Agent"). WHEREAS, the Company and the Guarantor have requested, and the Banks, the Co-Agents and the Administrative Agent are willing, to amend certain provisions of the 1992 Term Loan 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 1992 Term Loan Agreement and used herein shall have their respective defined meanings when used herein. SECTION 2. AMENDMENTS TO THE 1992 TERM LOAN AGREEMENT. (a) Section 1.1 of the 1992 Term Loan Agreement is hereby amended by (i) deleting the definition of "Fiscal Quarter" set forth in such Section in its entirety and replacing it with the following: "Fiscal Quarter" shall mean, (i) for the period ending on August 31, 1993, a period of three consecutive calendar months commencing on any of the following dates in any Fiscal Year: March 1, June 1, September 1 and December 1, and (ii) for the period commencing on July 1, 1993, a period of three consecutive calendar months commencing on any of the 105 following dates in any Fiscal Year: January 1, April 1, July 1 and October 1; provided, however, that during the period commencing on September 1, 1993 and ending on June 30, 1994, in the event any provision of this Agreement requires any calculation or determination with respect to a four-Fiscal Quarter period ending on a particular date, such period shall refer to the four immediately preceding three consecutive calendar months periods ending on such date." and (ii) deleting the definition of "Fiscal Year" set forth in such Section in its entirety and replacing it with the following: "Fiscal Year" shall mean, for the Company, the Guarantor or any Subsidiary, (i) for the period ending on August 31, 1993, the twelve consecutive calendar month period commencing on September 1, 1992 and ending on August 31, 1993, (ii) for the period commencing on September 1, 1993 and ending on December 31, 1993, the four consecutive calendar month period commencing on September 1, 1993, and (iii) for the period commencing on January 1, 1994, the twelve consecutive calendar month period commencing on such date and on January 1 of each calendar year thereafter and ending on December 31 of such calendar year; and "Fiscal 1992", "Fiscal 1993", and any other year so designated shall mean the Fiscal Year ending on August 31 or December 31, as the case may be, of the indicated calendar year; provided, however, that the Fiscal Year defined in clause (ii) above shall be known as "Fiscal Stub 1993" and, provided, further, that no provision of this Agreement shall be construed to require presentation of Fiscal Stub 1993 in the financial statements of the Company or the Guarantor except as would be required by the rules and regulations of the Securities and Exchange Commission and in accordance with GAAP with respect to such transition periods." (b) Section 9.11 of the 1992 Term Loan Agreement is hereby amended by deleting the dates November 30, 1993 through August 31, 1994 and the related ratios that appear in paragraph (a) of such Section and replacing such dates and ratios with the following: -2- 106 "September 30, 1993 1.70:1 December 31, 1993 1.35:1 March 31, 1994 1.45:1 June 30, 1994 1.35:1 September 30, 1994 1.35:1 December 31, 1994 1.40:1,". (c) Section 9.12 of the 1992 Term Loan Agreement is hereby amended by deleting the dates November 30, 1993 through August 31, 1994 and the related ratios that appear in paragraph (a) of such Section and replacing such dates and ratios with the following: "September 30, 1993 2.125:1 December 31, 1993 1.85:1 March 31, 1994 1.65:1 June 30, 1994 1.60:1 September 30, 1994 1.60:1 December 31, 1994 1.35:1,". (d) Section 9.13 of the 1992 Term Loan Agreement is hereby amended by (i) deleting all references to "August 30" in such Section and replacing them in each case with "September 29" and (ii) deleting all references to "August 31" in such Section and replacing them in each case with "September 30". SECTION 3. REPRESENTATIONS AND WARRANTIES. Each of the Company and the Guarantor represents and warrants to the Administrative Agent and the Banks that (a) no Default or Event of Default has occurred and is continuing, and (b) the representations and warranties made by the Company and the Guarantor in Section 8 of the 1992 Term Loan Agreement, as amended hereby, and in any other certificate or other document delivered in connection with the 1992 Term Loan Agreement shall be true in all material respects on and as of the date of the effectiveness of this Fourth Amendment with the same force and effect as if made on and as of such date (including, without limitation, that there shall have occurred no material adverse change since August 31, 1992 in the consolidated financial condition or operations, or the business taken as a whole, of the Company and its consolidated Subsidiaries from that set forth in their financial statements dated as of August 31, 1992, except as disclosed to the Banks in writing prior to the date of this Fourth Amendment). SECTION 4. CONDITIONS TO EFFECTIVENESS. This Fourth Amendment shall become effective as of July 13, 1993 when counterparts hereof shall have been duly executed and -3- 107 delivered by the Majority Banks, the Company and the Guarantor. SECTION 5. 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. THIS FOURTH AMENDMENT AND THE 1992 TERM LOAN AGREEMENT AS AMENDED HEREBY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. C. Except as expressly set forth in this Fourth Amendment, the 1992 Term Loan Agreement 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 the Company By /s/ LES R. WANDLER --------------------------------- Title: Executive Vice President HOME SHOPPING CLUB, INC., as Guarantor By /s/ LES R. WANDLER ---------------------------------- Title: Treasurer -4- 108 The Banks LTCB TRUST COMPANY, as a Bank and a Co-Agent By /s/ PHILIP A. MARSDEN ----------------------------- Title: Senior Vice President BANK OF MONTREAL, as a Bank and a Co-Agent By /s/ PATRICK J. SULLIVAN ----------------------------- Title: Director THE BANK OF NEW YORK By /s/ KALPANA RAINA ----------------------------- Title: Vice President PNC BANK, KENTUCKY, INC. (formerly known as Citizens Fidelity Bank & Trust Company) By /s/ JAMES D. NEIL ---------------------------- Title: Vice President THE DAIWA BANK, LIMITED By /s/ SYBIL H. WELDON ----------------------------- Title: Vice President & Manager By /s/ ALLEN L. HARVELL, JR. ------------------------------ Title: Vice President FIRST UNION NATIONAL BANK OF FLORIDA By /s/ ROBERT E. HASTINGS, JR. ------------------------------- Title: Vice President -5- 109 SUN BANK OF TAMPA BAY By /s/ ROBERT J. WILLSEA ------------------------ Title: Corporate Banking Officer The Administrative Agent LTCB TRUST COMPANY, as Administrative Agent By /s/ PHILIP A. MARSDEN ----------------------------- Title: Senior Vice President -6- 110 FIFTH AMENDMENT TO TERM LOAN AGREEMENT, DATED AS OF DECEMBER 18, 1992 FIFTH AMENDMENT, dated as of January 7, 1994, to the Term Loan Agreement, dated as of December 18, 1992, as amended by the First Amendment, dated as of January 15, 1993, the Second Amendment, dated as of February 4, 1993, paragraph number 2 of the letter dated April 14, 1993 from LTCB Trust Company, as Administrative Agent, to Home Shopping Network, Inc. and the Third Amendment, dated as of May 28, 1993 and the Fourth Amendment, dated as of September 20, 1993 (as so amended, the "1992 Term Loan Agreement"), among HOME SHOPPING NETWORK, INC., as borrower (the "Company"), HOME SHOPPING CLUB, INC., as guarantor (the "Guarantor"), the banks signatory thereto (the "Banks"), LTCB TRUST COMPANY and BANK OF MONTREAL, each as a Co-Agent for the Banks (each in such capacity, a "Co-Agent"), and LTCB TRUST COMPANY, as Administrative Agent for the Banks (in such capacity, the "Administrative Agent"). WHEREAS, the Company and the Guarantor have requested that certain provisions of the 1992 Term Loan Agreement be amended, as set forth below; and WHEREAS, the Banks, the Co-Agents and the Administrative Agent are willing to amend such provisions; 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 Fifth Amendment, terms defined in the 1992 Term Loan Agreement and used herein shall have their respective defined meanings when used herein. SECTION 2. AMENDMENTS TO THE 1992 TERM LOAN AGREEMENT. (a) Section 1.1 of the 1992 Term Loan Agreement is hereby amended by inserting the following definitions in alphabetical order in the list of definitions in such Section: "Bell Atlantic Transaction" shall mean the combination of Liberty Media and Tele-Communications, Inc., a Delaware corporation, with Bell Atlantic Corporation, a Delaware corporation, on substantially the terms outlined in Liberty Media's Current Report on Form 8-K dated October 27, 1993 111 (including the exhibits thereto), copies of which have been furnished to the Banks by the Company. "Lawsuit" shall mean any of the legal proceedings described in the Company's Amended and Restated Proxy Statement, dated August 23, 1993, under the caption "Legal Proceedings", as such description of such proceedings may be updated by the Company in subsequent SEC Reports, and includes, without limitation, the proceedings relating to the termination of the Company's or the Guarantor's contractual relationship with Western Hemisphere Sales, Inc. (as successor to Pioneer Data Processing, Inc.). "Lawsuit Settlement Accrual Amount" shall mean, for any period, the aggregate amount that has been charged against earnings and either (i) accrued as liabilities for such period or (ii) paid during such period, in each case with respect to estimated settlement payments in connection with the Lawsuits (including, without limitation, in connection with the termination of the contractual relationship with Western Hemisphere Sales, Inc. (as successor to Pioneer Data Processing, Inc.), which is the subject of one of the Lawsuits). "Lawsuit Settlement Payment Amount" shall mean, for any period, the sum of (a) the aggregate amount of settlement payments made by the Company during such period (and reductions in accrued liabilities, if any, in respect of such settlement payments) to parties asserting claims in connection with the Lawsuits, and (b) any payments made by the Company, the Guarantor or any Subsidiary during such period (and reductions in accrued liabilities, if any, in respect of such settlement payments) in connection with the termination of the contractual relationship with Western Hemisphere Sales, Inc. (as successor to Pioneer Data Processing, Inc.), which is the subject of one of the Lawsuits. "Tax Settlement Payment Amount" shall mean, for any period, the aggregate amount of payments made by the Company to the Internal Revenue Service during such period (and reductions in accrued liabilities related to such payments) to settle federal tax liabilities described in the note captioned "Income Taxes" to the consolidated quarterly financial statements of the Company contained in the Company's -2- 112 Quarterly Report on Form 10-Q for the Quarter Ended September 30, 1993. "TCI Transaction" shall mean the combination of Liberty Media and Tele-Communications, Inc., a Delaware corporation, through the exchange of Class A and Class B shares of both companies for like shares of a holding company, on substantially the terms outlined in Liberty Media's Current Report on Form 8-K dated October 27, 1993 (including the exhibits thereto), copies of which have been furnished to the Banks by the Company. (b) Section 1.1 of the 1992 Term Loan Agreement is hereby further amended by deleting the definition of "Fixed Charges" in its entirety and by replacing it with the following: "'Fixed Charges' shall mean, for any Person and for any period, the sum (without duplication) of: (a) all capital expenditures and increases in intangible assets of such Person for such period, plus (b) the sum (without duplication) of (i) all interest expense of such Person for such period, (ii) all payments of principal of all Indebtedness of such Person that were scheduled for payment during such period, whether or not paid (unless any such payment (x) was cancelled or forgiven for, or prepaid in advance of, such period or (y) represents the June 15, 1994 principal installment due pursuant to Section 3.1 of this Agreement), (iii) any increase in total current assets and any decrease in total current liabilities (net of the change in cash and cash equivalents and the change in Short-Term Debt, and without giving effect to: (A) that portion, if any, of the Tax Settlement Payment Amount paid (and any reductions in accrued liabilities related thereto) in such period which, when aggregated with all other Tax Settlement Payment Amounts paid (or such reductions) in all previous periods, does not exceed $20,947,000, or (B) that portion, if any, of the Lawsuit Settlement Accrual Amount recognized in such -3- 113 period which, when aggregated with all other Lawsuit Settlement Accrual Amounts recognized in all previous periods, does not exceed $25,000,000, or (C) that portion, if any, of the Lawsuit Settlement Payment Amount paid (and any reductions in accrued liabilities related thereto) in such period which, when aggregated with all other Lawsuit Settlement Payment Amounts paid (or such reductions) in all previous periods, does not exceed $25,000,000), (iv) any cash increase in long-term investments (excluding periods prior to September 1, 1992) of such Person for such period, and (v) any cash increase in long-term notes receivable (excluding periods prior to September 1, 1992) of such Person for such period, minus (c) the sum (without duplication) of (i) all interest income, other than interest income related to the Silver King Notes, of such Person for such period, (ii) any decrease in total current assets and any increase in total current liabilities (net of the change in cash and cash equivalents and the change in Short-Term Debt, and without giving effect to: (A) that portion, if any, of the Tax Settlement Payment Amount paid (and any reductions in accrued liabilities related thereto) in such period which, when aggregated with all other Tax Settlement Payment Amounts paid (or such reductions) in all previous periods, does not exceed $20,947,000, or (B) that portion, if any, of the Lawsuit Settlement Accrual Amount recognized in such period which, when aggregated with all other Lawsuit Settlement Accrual Amounts recognized in all previous periods, does not exceed $25,000,000, or (C) that portion, if any, of the Lawsuit Settlement Payment Amount paid (and any reductions in accrued liabilities related thereto) in such period which, when aggregated -4- 114 with all other Lawsuit Settlement Payment Amounts paid (or such reductions) in all previous periods, does not exceed $25,000,000), (iii) any cash decrease in long-term investments (excluding periods prior to September 1, 1992) of such Person for such period, and (iv) any cash decrease in long-term notes receivable (excluding periods prior to September 1, 1992) of such Person for such period, in each case as reflected on the consolidated quarterly or annual financial statements, including the notes thereto, of the Company most recently delivered to the Administrative Agent pursuant to Section 9.1 (or Section 8.2) hereof. Fixed Charges for the four-Fiscal Quarter period ended August 31, 1992 are as set forth in Schedule 2 hereto." (c) Section 1.1 of the 1992 Term Loan Agreement is hereby further amended by deleting the definition of "Operating Cash Flow" in its entirety and by replacing it with the following: "'Operating Cash Flow' shall mean, for any period, the sum of the following for the Company and its Subsidiaries (including, without limitation, the Guarantor) on a consolidated basis: (a) operating profit of such Persons for such period; plus (b) (to the extent already deducted in arriving at operating profit) depreciation and amortization expense for such Persons for such period; plus (c) (to the extent already deducted in arriving at operating profit) commencing September 1, 1992, non-cash compensation expense related to the Company's executive stock award program; plus (d) all cash interest (if any), other cash income (if any) or cash principal repayments (if any) received by the Company or any Subsidiaries in connection with the Silver King Notes, and, for the twelve months immediately following the delivery of any such Silver King Note, accrued interest income on such note for no more than one month; plus -5- 115 (e) (to the extent already deducted in arriving at operating profit) the lesser of (x) the Lawsuit Settlement Accrual Amount for such period (whether or not paid) and (y) that portion, if any, of such Lawsuit Settlement Accrual Amount that when aggregated with all other Lawsuit Settlement Accrual Amounts accrued in previous periods (whether or not paid) does not exceed $25,000,000, all as shown on the consolidated financial statements, including the notes thereto, of the Company and its consolidated Subsidiaries for such period or, with respect to clause (d) above, if such financial statements do not present information in sufficient detail to derive the amount specified in clause (d) of this definition, as shown on the certificate to be delivered to the Administrative Agent pursuant to the last paragraph of Section 9.1 hereof. Operating Cash Flow for the four-Fiscal Quarter period ended August 31, 1992 is as set forth in Schedule 2 hereto." (d) Section 9.11 of the 1992 Term Loan Agreement is hereby amended by deleting the dates March 31, 1994 through September 30, 1994 and the related ratios that appear in paragraph (a) of such Section and replacing such dates and ratios with the following: "March 31, 1994 1.40:1 June 30, 1994 1.40:1 September 30, 1994 1.40:1,". (e) Section 9.12 of the 1992 Term Loan Agreement is hereby amended by deleting the dates December 31, 1993 through December 31, 1994 and the related ratios that appear in paragraph (a) of such Section and replacing such dates and ratios with the following: "December 31, 1993 2.125:1 March 31, 1994 2.50:1 June 30, 1994 2.50:1 September 30, 1994 2.25:1 December 31, 1994 2.25:1,". (f) Section 10 of the 1992 Term Loan Agreement is hereby amended by inserting the following immediately before the semi-colon at the end of such paragraph (k): ", or (iii) (A) such Change of Control arises solely in connection with the TCI Transaction, and (B) as of the date the TCI Transaction is consummated and -6- 116 after giving effect thereto, no other Default or Event of Default shall have occurred and be continuing, or (iv) with respect to any date on or following the date the TCI Transaction is consummated, (A) such Change of Control arises solely in connection with the Bell Atlantic Transaction, and (B) as of the date the Bell Atlantic Transaction is consummated and after giving effect thereto, no other Default or Event of Default shall have occurred and be continuing". (g) Each reference in the 1992 Term Loan Agreement to "this Agreement" and the words "hereof", "hereto" and "herein" and the like shall, except where the context otherwise requires, refer to the 1992 Term Loan Agreement as amended by, and through the effective date of, this Fifth Amendment. SECTION 3. REPRESENTATIONS AND WARRANTIES. Each of the Company and the Guarantor represents and warrants to the Administrative Agent and the Banks as of the date of this Fifth Amendment and as of the date on which it becomes effective that (a) no Default or Event of Default has occurred and is continuing, and (b) the representations and warranties made by the Company and the Guarantor in Section 8 of the 1992 Term Loan Agreement, as amended hereby, and in any other certificate or other document delivered in connection with the 1992 Term Loan Agreement are true in all material respects on the date hereof and are hereby restated on and as of the date of the effectiveness of this Fifth Amendment with the same force and effect as if made on and as of such date (including, without limitation, that there has occurred no material adverse change since August 31, 1992 in the consolidated financial condition or operations, or the business taken as a whole, of the Company and its consolidated Subsidiaries from that set forth in their financial statements dated as of August 31, 1992, except as disclosed to the Banks in writing prior to the date of this Fifth Amendment). SECTION 4. CONDITIONS TO EFFECTIVENESS. This Fifth Amendment shall become effective as of December 31, 1993 when (a) counterparts hereof shall have been duly executed and delivered by the Majority Banks and (b) the Company shall have paid to LTCB Trust Company a fee in accordance with the terms and conditions set forth in the Amendment Fee Letter, dated December 9, 1993, among LTCB Trust Company, the Company and the Guarantor. -7- 117 SECTION 5. MISCELLANEOUS. (a) This Fifth 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 Fifth Amendment by signing any such counterpart. (b) Upon the effectiveness of this Fifth Amendment, LTCB Trust Company, as Administrative Agent, shall pay fees to the Banks in accordance with the terms and conditions of its notice to the Banks dated December 10, 1993. (c) THIS FIFTH AMENDMENT AND THE 1992 TERM LOAN 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 Fifth Amendment, the 1992 Term Loan Agreement shall remain unmodified and in full force and effect. IN WITNESS WHEREOF, the parties hereto have caused this Fifth Amendment to be duly executed as of the date first above written. HOME SHOPPING NETWORK, INC., as the Company By /s/ KEVIN J. MCKEON ---------------------------- Title: Senior Vice President of Accounting & Finance HOME SHOPPING CLUB, INC., as Guarantor By /s/ R. JOSEPH RILEY ----------------------------- Title: Assistant Treasurer -8- 118 The Banks LTCB TRUST COMPANY, as a Bank and a Co-Agent By /s/ JOHN A. KROB ----------------------------- Title: Senior Vice President BANK OF MONTREAL, as a Bank and a Co-Agent By /s/ PATRICK J. SULLIVAN ----------------------- Title: Director THE BANK OF NEW YORK By /s/ KALPANA RAINA ---------------------- Title: Vice President PNC BANK, KENTUCKY, INC. (formerly known as Citizens Fidelity Bank & Trust Company) By /s/ JAMES D. NEIL ---------------------- Title: Vice President THE DAIWA BANK, LIMITED By /s/ SYBIL H. WELDON --------------------------- Title: Vice President & Manager By /s/ ALLEN L. HARVELL, JR. ------------------------------ Title: Vice President FIRST UNION NATIONAL BANK OF FLORIDA By /s/ ROBERT E. HASTINGS, JR. --------------------------- Title: Vice President -9- 119 TORONTO DOMINION (TEXAS), INC. By /s/ CAROLE A. CLAUSE ----------------------------- Title: Vice President The Administrative Agent LTCB TRUST COMPANY, as Administrative Agent By /s/ JOHN A. KROB ----------------------------- Title: Senior Vice President -10- EX-10.26 5 HSN CREDIT AGREEMENT 1 EXHIBIT 10.26 ************************************************************ HOME SHOPPING NETWORK, INC., as Borrower HOME SHOPPING CLUB, INC., as Guarantor __________ AMENDED AND RESTATED CREDIT AGREEMENT Dated as of December 18, 1992 __________ LTCB TRUST COMPANY, as Administrative Agent __________ LTCB TRUST COMPANY and BANK OF MONTREAL, as Co-Agents __________ THE BANKS NAMED HEREIN ************************************************************ 2 TABLE OF CONTENTS
Page ---- Section 1. Definitions and Accounting Matters . . . . . . . . . . . . . . . . . . . . . . . 2 1.1. Certain Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.2. Certain Accounting Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Section 2. Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 2.1. Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 2.2. Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 2.3. Changes of Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 2.4. Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 2.5. Lending Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 2.6. Several Obligations; Remedies Independent . . . . . . . . . . . . . . . . . . . . 19 2.7. Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 2.8. Prepayments and Conversions of Loans . . . . . . . . . . . . . . . . . . . . . . 20 2.9. Extension of Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Section 3. Payments of Principal and Interest . . . . . . . . . . . . . . . . . . . . . . . 23 3.1. Repayment of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 3.2. Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Section 4. Payments; Pro Rata Treatment; Computations, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 4.1. Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 4.2. Pro Rata Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 4.3. Computations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 4.4. Minimum Amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 4.5. Certain Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 4.6. Non-Receipt of Funds by the Administrative Agent . . . . . . . . . . . . . . . . 29 4.7. Sharing of Payments, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Section 5. Yield Protection and Illegality . . . . . . . . . . . . . . . . . . . . . . . . . 31 5.1. Additional Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 5.2. Limitation on Types of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . 32 5.3. Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 5.4. Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 5.5. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Section 6. Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 6.1. Unconditional Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 6.2. Validity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 6.3. Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 6.4. Subordination and Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . 37 6.5. Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 6.6. Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Section 7. Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
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Page ---- 7.1. Initial Loan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 7.2. Initial and Subsequent Loans. . . . . . . . . . . . . . . . . . . . . . . . . . 40 Section 8. Representations and Warranties. . . . . . . . . . . . . . . . . . . . . . . . . 41 8.1. Corporate Existence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 8.2. Financial Condition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 8.3. Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 8.4. No Breach. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 8.5. Corporate Action. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 8.6. Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 8.7. Use of Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 8.8. ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 8.9. Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 8.10. Credit Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 8.11. Ownership of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 8.12. Pari Passu Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 8.13. Investment Company Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 8.14. Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Section 9. Covenants of the Company and the Guarantor. . . . . . . . . . . . . . . . . . . 45 9.1. Financial Statements; Reports and Other Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 9.2. Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 9.3. Corporate Existence, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 9.4. Payment of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 9.5. Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 9.6. Mergers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 9.7. Dispositions of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 9.8. Ranking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 9.9. Business; Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 9.10. Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . 56 9.11. Fixed Charges Coverage Test . . . . . . . . . . . . . . . . . . . . . . . . . . 56 9.12. Debt Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 9.13. Consolidated Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 9.14. Notification of Incurrence of Debt or Making of Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 9.15. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 9.16. Ownership of Guarantor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 9.17. Indebtedness of Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . 58 Section 10. Events of Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 Section 11. The Administrative Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 11.1. Appointment, Powers and Immunities. . . . . . . . . . . . . . . . . . . . . . . 63 11.2. Reliance by the Administrative Agent. . . . . . . . . . . . . . . . . . . . . . 64 11.3. Defaults. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 11.4. Rights as a Bank. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 11.5. Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
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Page ---- 11.6. Non-Reliance on Administrative Agent, Co-Agents and other Banks . . . . . . . . . 65 11.7 Failure to Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 11.8. Resignation or Removal of Administrative Agent . . . . . . . . . . . . . . . . . 66 11.9. Administrative Agent's Office . . . . . . . . . . . . . . . . . . . . . . . . . 67 11.10. Co-Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 Section 12. Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 12.1. Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 12.2. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 12.3. Expenses, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 12.4. Amendments, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 12.5. Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 12.6. Assignments and Participation. . . . . . . . . . . . . . . . . . . . . . . . . . 70 12.7. Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 12.8. Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 12.9. Captions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 12.10. Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 12.11. GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 12.12. JURISDICTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 12.13. Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 Schedule 1: Existing Credit Agreements and Liens Schedule 2: Calculations of Sample Financial Terms Schedule 3: List of Broadcast Subsidiaries Exhibit A: Form of Note Exhibit B: Form of Opinion of Counsel to the Company and the Guarantor Exhibit C: Form of Compliance Certificate Exhibit D-1: Form of Funded Debt Ratio Notice Exhibit D-2: Form of Total Debt Ratio Notice Exhibit E: Form of Assignment and Assumption Agreement Annex A: Press release of Liberty Media Corporation of December 7, 1992 Annex B: Form 10 of Silver King Communications, Inc.
-4- 5 AMENDED AND RESTATED CREDIT AGREEMENT, dated as of December 18, 1992 (as the same may be amended or modified from time to time, this "Agreement"), among HOME SHOPPING NETWORK, INC., a Delaware corporation (the "Company"); HOME SHOPPING CLUB, INC., a Delaware corporation (the "Guarantor"); each of the banks which is a signatory hereto (individually, a "Bank" and, collectively, the "Banks"); LTCB TRUST COMPANY, a New York trust company, and Bank of Montreal, each as a Co-Agent for the Banks (in such capacity, together with its successors in such capacity, each a "Co-Agent"); and LTCB TRUST COMPANY, a New York trust company, as Administrative Agent for the Banks (in such capacity, together with its successors in such capacity, the "Administrative Agent"). The Company, the Guarantor, the Co-Agents, as "Banks", and LTCB Trust Company, as "Agent", are parties to a Credit Agreement, dated as of June 20, 1991 (as amended, the "1991 Revolving Credit Agreement"), pursuant to which the Co-Agents, as "Banks", have made available to the Company, under the guarantee of the Guarantor, a revolving credit facility providing for loans in an aggregate principal amount not exceeding $50,000,000 at any one time outstanding. The Company has requested that the revolving credit facility under the 1991 Revolving Credit Agreement be decreased to $40,000,000, and that a separate term loan facility, providing for term loans in an aggregate principal amount not exceeding $60,000,000 for the purpose of refinancing existing indebtedness, be established. Each of the Banks other than the Co-Agents (collectively, the "New Banks") wishes to become a party to the 1991 Revolving Credit Agreement, as amended and restated hereby, and to have all of the rights and obligations of "Banks" hereunder. Accordingly, the Banks are willing to make loans to the Company, under the guarantee of the Guarantor, in an aggregate principal amount not exceeding $40,000,000 at any one time outstanding upon the terms hereof. In addition, the banks party to the Term Loan Agreement (as hereinafter defined) are willing to make term loans to the Company in an aggregate principal amount not exceeding $60,000,000 upon the terms of the Term Loan Agreement, which is being entered into simultaneous herewith. Accordingly, the parties hereto hereby agree that, effective on the Amendment Effective Date (as hereinafter defined), the 1991 Revolving Credit Agreement is hereby amended and restated in its entirety as follows: Section 1. Definitions and Accounting Matters. 1.1. Certain Defined Terms. As used herein, the following terms shall have the following meanings (all terms defined in this Section 1 or in other provisions of this Agreement in the singular to have the same meanings when used in the plural and vice versa): 6 "Adjusted Operating Cash Flow" shall mean, for any period, the sum of the following for the Company and its Subsidiaries (including, without limitation, the Guarantor) on a consolidated basis: (a) Operating Cash Flow for such period, plus (or minus) (b) cash inflows to (or outflows from) equity (including, without limitation, cash dividends on capital stock) for such period, all as shown on the consolidated financial statements, including the notes thereto, of the Company for such period. Adjusted Operating Cash Flow for the four-Fiscal Quarter period ended August 31, 1992 is as set forth in Schedule 2 hereto. "Affiliate" shall mean, with respect to any Person, any other Person (other than a Wholly-Owned Subsidiary of such Person) directly or indirectly controlling, controlled by, or under direct or indirect common control with, such Person. A Person shall be deemed to control another Person if such Person (x) is an officer or director of such other Person, (y) possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such other Person, whether through the ownership of voting securities, by contract or otherwise, or (z) directly or indirectly owns or controls 10% or more of such other Person's capital stock. "Amendment Effective Date" shall mean the date on which this Agreement shall have been executed and delivered by each of the parties provision for whose signature has been made on the signature pages hereof, and each of the conditions precedent set forth in Section 7.1 hereof has been satisfied. "Anniversary Date" shall mean the Fee Payment Date falling on or about each anniversary date of this Agreement. "Applicable Lending Office" shall mean, for each Bank and for each type of Loan, the Lending Office of such Bank (or of an affiliate of such Bank) designated for such type of Loan on the signature pages hereof or such other office of such Bank (or of an affiliate of such Bank) as such Bank may from time to time specify to the Administrative Agent and the Company as the office by which its Loans of such type are to be made and maintained. "Applicable Margin" shall mean, at any time: (a) with respect to LIBOR Loans, 2.00% minus the Margin Adjustment (if any) in effect at such time; and (b) with respect to Prime Rate Loans, 1.00% minus the Margin Adjustment (if any) in effect at such time. "Bankruptcy Code" shall mean the federal Bankruptcy Code of the United States, 11 U.S.C. Section 101 et seq. -2- 7 "Broadcast Subsidiary" shall mean, with respect to any Person, a Wholly-Owned Subsidiary of such Person which owns one or more television broadcast stations, but in any event shall include Telemation, Inc., a Delaware corporation, and its respective successors. As of the date hereof, Broadcast Subsidiaries are each company set forth on Schedule 3 attached hereto. "Broadcast Subsidiary Group" shall mean a Material Subsidiary Group, each constituent Subsidiary of which is a Broadcast Subsidiary. "Business Day" shall mean any day on which commercial banks are not authorized or required to close in New York City and dealings in Dollar deposits are carried out in the London interbank market. "Capital Lease" shall mean any lease or other contractual arrangement which under GAAP has been or should be recorded as a capital lease. "Change of Control" shall mean any of the following events: (i) the acquisition by any "person" or "group" of persons of the "beneficial ownership" (as such terms are defined within the meaning of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended) of outstanding shares of the Company's capital stock, or any sale or other disposition by Roy M. Speer (other than an involuntary disposition by reason of death or disability), or, following the consummation of the Liberty Media Transaction, Liberty Media, of any of the capital stock of the Company owned by Mr. Speer, or, following the consummation of the Liberty Media Transaction, Liberty Media, or any other event such that, after giving effect to such acquisition, sale, disposition or other event, Mr. Speer, or, following the consummation of the Liberty Media Transaction, Liberty Media, would no longer (A) own, directly or indirectly, or otherwise control at least 51% of the outstanding shares of any class of the Company's common stock the approval of which is required for any fundamental corporate action (including, without limitation, any merger, reorganization, recapitalization, liquidation, distribution, winding-up, sale, transfer or hypothecation of substantially all or a substantial portion of the Company's assets), or (B) possess the ability to elect at least a majority of the Board of Directors of the Company, or (ii) any person or group of persons shall acquire all or substantially all of the assets of the Company. "Code" shall mean the Internal Revenue Code of 1986, as amended. -3- 8 "Commitment" shall mean, with respect to any Bank, the amount set forth opposite such Bank's name on the signature pages hereof under the caption "Commitment" (as reduced from time to time pursuant to Section 2.3 hereof or otherwise). "Commitment Termination Date" shall mean (a) initially, the Fee Payment Date falling on or immediately prior to December 18, 1995, and (b) in the event that the Administrative Agent and the Banks agree to extend the facility provided for by this Agreement in accordance with Section 2.9 hereof, then with respect to the Banks agreeing to any such extension, the Commitment Termination Date as so extended, and with respect to the Banks not agreeing to such extension, the Commitment Termination Date as in effect without regard to such extension. "Consolidated Net Worth" shall mean, at any date, all amounts which, in conformity with GAAP, would be included under stockholder's equity on a consolidated balance sheet of the Company and its Subsidiaries at such time. "Convertible Subordinated Debentures" shall mean the Company's 5-1/2% Convertible Subordinated Debentures due April 22, 2002, issued under the Convertible Subordinated Debenture Indenture. "Convertible Subordinated Debenture Indenture" shall mean the Indenture, dated as of April 22, 1987, between the Company and Bankers Trust Company, as trustee. "Default" shall mean an Event of Default or an event which with notice or lapse of time or both would become an Event of Default. "Dollars" and "$" shall mean lawful money of the United States of America. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time. "ERISA Affiliate" shall mean any corporation or trade or business which is a member of the same controlled group of corporations (within the meaning of Section 414(b) of the Code) as the Company or the Guarantor or is under common control (within the meaning of Section 414(c) of the Code) with the Company or the Guarantor. "Extension Date" shall mean, for each extension of the Commitment Termination Date requested by the Company under Section 2.9 hereof, the Anniversary Date falling two years -4- 9 prior to such Commitment Termination Date. Accordingly, the first Extension Date shall be the Anniversary Date on or about December 18, 1993; and each subsequent such date shall be the corresponding Anniversary Date in the appropriate subsequent calendar year. "Event of Default" shall have the meaning assigned to that term in Section 10 hereof. "Federal Funds Rate" shall mean, (i) for Overnight Federal Funds Rate Loans, for any day, the rate per annum (rounded upwards, if necessary, to the nearest 1/100th of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day, and (ii) for Term Federal Funds Rate Loans (if requested by the Company and agreed to by the Administrative Agent and the Banks), for any Interest Period, the rate per annum (rounded upwards, if necessary, to the nearest 1/100th of 1%) equal to the weighted average of the rates on term Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on the first day of such Interest Period for a period equal to such Interest Period, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day and as determined by the Administrative Agent, provided that (x) if the day for which such rate is to be determined is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (y) if such rate is not so published for any day, the Federal Funds Rate for such day shall be the average rate charged to LTCB on such day on such transactions as determined by the Administrative Agent. "Federal Funds Rate Loans" shall mean Loans which bear interest at rates based upon the Federal Funds Rate, and in any event shall be either an Overnight Federal Funds Rate Loan or a Term Federal Funds Rate Loan. "Fee Payment Date" shall mean the 18th day of each March, June, September and December in each year, the first of which shall be the first such day after the date of this Agreement; provided, that if any such day is not a Business Day, then such Fee Payment Date shall be the next succeeding Business Day (unless such Business Day falls in a subsequent calendar month, in which case such Fee Payment Date shall be the next preceding Business Day). -5- 10 "Fiscal Quarter" shall mean a period of three consecutive calendar months commencing on any of the following dates in any Fiscal Year: March 1; June 1, September 1 and December 1. "Fiscal Year" shall mean, for the Company, the Guarantor or any Subsidiary, the twelve consecutive calendar month period commencing on September 1 of each calendar year and ending on August 31 of the next following calendar year; and "Fiscal 1992", "Fiscal 1993", and any other year so designated shall mean the Fiscal Year ending on August 31 of the indicated calendar year. "Fixed Charges" shall mean, for any Person and for any period, the sum (without duplication) of: (a) all capital expenditures and increases in intangible assets of such Person for such period, plus (b) the sum (without duplication) of (i) all interest expense of such Person for such period, (ii) all payments of principal of all Indebtedness of such Person that were scheduled for payment during such period, whether or not paid (unless cancelled or forgiven for, or prepaid in advance of, such period), (iii) any increase in total current assets and any decrease in total current liabilities (net of the change in cash and cash equivalents and the change in Short-Term Debt) of such Person for such period, (iv) any cash increase in long-term investments (excluding periods prior to September 1, 1992), and (v) any cash increase in long-term notes receivable (excluding periods prior to September 1, 1992), minus (c) the sum (without duplication) of (i) all interest income, other than interest income related to the Silver King Notes, of such Person for such period, (ii) any decrease in total current assets and any increase in total current liabilities (net of the change in cash and cash equivalents and the change in Short-Term Debt) of such Person for such period, (iii) any cash decrease in long-term investments (excluding periods prior to September 1, 1992), (iv) any cash decrease in long-term notes receivable (excluding periods prior to September 1, 1992), and (v) the amounts accrued at August 31, 1991 for litigation settlements, -6- 11 in each case as reflected on the consolidated quarterly or annual financial statements, including the notes thereto, of the Company most recently delivered to the Administrative Agent pursuant to Section 9.1 (or Section 8.2) hereof. Fixed Charges for the four-Fiscal Quarter period ended August 31, 1992 are as set forth in Schedule 2 hereto. "Funded Debt Ratio" shall mean, at any time, the ratio of (a) Total Funded Debt of the Company and its consolidated Subsidiaries as at the end of the Company's four-Fiscal Quarter period most recently ended as of such time, to (b) Operating Cash Flow for the same period, as shown in the Funded Debt Ratio Notice for such period. "Funded Debt Ratio Notice" shall mean each notice provided for in Section 9.1(g) (or Section 7.1(f)) hereof. "GAAP" shall mean generally accepted accounting principles in the United States of America, consistently applied, as in effect (unless otherwise specified in this Agreement) from time to time. "Indebtedness" shall mean, for any Person (but without duplication): (a) all indebtedness and other obligations of such Person for borrowed money or for the deferred purchase price of property or services (other than trade payables incurred in the ordinary course of business and not overdue by more than 180 days), including, without limitation, all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments; (b) all obligations of such Person under interest rate or currency swaps, caps, collars, floors, options, forward exchange contracts and similar hedging arrangements; (c) the stated amount of all letters of credit issued for the account of such Person and (without duplication) all drafts drawn thereunder, and the aggregate face amount of all banker's acceptances as to which such Person is obligated, other than trade letters of credit issued for the account of such Person in the ordinary course of business pursuant to the terms of which (i) such Person is obligated to reimburse the issuer thereof for any drawing thereunder on the date of such drawing and (ii) no other credit shall be extended thereunder to such Person by such issuer; -7- 12 (d) all obligations of such Person under any Capital Leases; (e) all obligations of such Person in connection with employee benefit or similar plans; (f) all obligations of such Person in respect of guarantees, whether direct or indirect (including, without limitation, agreements to "keep well" or otherwise ensure a creditor against loss) with respect to any indebtedness or other obligation of any other Person of the type described in any of clauses (a) through (e) above; and (g) all indebtedness or other obligations referred to in any of clauses (a) through (f) above secured by any Lien upon property owned by such Person, whether or not such Person is liable on any such obligation. "Interest Payment Date" shall mean, (i) for any Loan, the last day of the Interest Period relating thereto, and (ii) for any Federal Funds Rate Loan or Prime Rate Loan, the last day of any month which occurs during the Interest Period related thereto, and in any case if such day is not a Business Day, the next succeeding Business Day. "Interest Period" shall mean with respect to any (1) LIBOR Loan, each period commencing on the date such Loan is made or converted from a Loan of another type or the last day of the immediately preceding Interest Period for such Loan and ending on the numerically corresponding day in the first, second, third or sixth calendar month thereafter, as the Company may select as provided in Section 2.2 hereof (or such period of less than one month as the Company may select in accordance with clause (ii) or (iii) of the next paragraph below), except that each such Interest Period which commences on the last Business Day of a calendar month (or on any day for which there is no numerically corresponding day in the appropriate subsequent calendar month) shall end on the last Business Day of the appropriate subsequent calendar month, (2) Overnight Federal Funds Rate Loan, each period of one Business Day, (3) Term Federal Funds Rate Loan, each period commencing on the date such Loan is made or converted from a Loan of another type or the last day of the immediately preceding Interest Period for such Loan and ending on the last day for which the Federal Funds Rate for such Loan applies, as agreed between the Company and the Administrative Agent with the consent of the Banks prior to the commencement of such Interest Period and (4) Prime Rate Loan, each period commencing on the date such Loan is made or converted from a Loan of another type or the last day of the immediately -8- 13 preceding Interest Period for such Loan and ending on the date 30 days later. Notwithstanding the foregoing, (i) each Interest Period which would otherwise end on a day that is not a Business Day shall end on the next succeeding Business Day (or if such next succeeding Business Day falls in the next succeeding calendar month, on the next preceding Business Day); (ii) each Interest Period which would otherwise commence before and end after any Commitment Termination Date then in effect for any Bank shall end on such Commitment Termination Date; (iii) if the Company selects an Interest Period that would begin before and end after any Anniversary Date, the Administrative Agent may notify the Company and the Banks that the Company must select a shorter Interest Period that will end on or prior to such Anniversary Date, in which case such shorter period selected by the Company shall (subject to clauses (i) and (ii) above) be the relevant Interest Period; and (iv) the Company must select the duration of Interest Periods so that, notwithstanding clause (i) above, no Interest Period for LIBOR Loans shall have a duration of less than one month (except as provided in clause (ii) or (iii) above), and so that no more than six Interest Periods with respect to LIBOR Loans shall be in effect at any one time. "Investment" shall mean, for any Person, (a) the acquisition (whether for cash, property, services or securities or otherwise) of capital stock, bonds, notes, debentures, partnership or other ownership interests or other securities or obligations of any other Person or any agreement to make any such acquisition (including, without limitation, any "short sale" or any sale of any securities at a time when such securities are not owned by the Person entering into such short sale); (b) the making of any deposit with, or advance, or loan or other extension of credit to, any other Person (including the purchase of property from another Person subject to an understanding or agreement, contingent or otherwise, to resell such property to such Person, but excluding any such advance, loan or other extension of credit to customers of the Company or to customers of the Company's Subsidiaries having a term not exceeding 90 days arising in the ordinary course of business); (c) the entering into of any guarantee of, or other contingent obligation with respect to, Indebtedness or other liability of any other Person and (without duplication) any amount committed to be advanced, lent or extended to such person; or (d) the entering into of any interest rate or currency swaps, caps, collars, floors, options, forward exchange contracts and similar hedging arrangements. -9- 14 "Liberty Media" shall mean Liberty Media Corporation, a Delaware corporation. "Liberty Media Transaction" shall mean the acquisition by Liberty Media of an aggregate of 20,000,000 shares of Class B Common Stock of the Company from RMS Limited Partnership, on substantially the terms outlined in Liberty Media's press release of December 7, 1992, attached hereto as Annex A. "LIBOR" shall mean, with respect to any LIBOR Loan for any Interest Period therefor, the rate per annum (rounded upwards, if necessary, to the nearest 1/16 of 1%) quoted by the London office of LTCB at approximately 11:00 a.m. London time (or as soon thereafter as practicable) or if such rate is not quoted to LTCB, the rate per annum appearing on the display designated as page "LIBO" on the Reuter Monitor Money Rates Service (or such other page as may replace the LIBO page of that service for the purpose of displaying London interbank offered rates of major banks) two Business Days prior to the first day of such Interest Period for the offering by such office to leading banks in the London interbank market of Dollar deposits having a term comparable to such Interest Period and in an amount comparable to the principal amount of the LIBOR Loan scheduled to be outstanding during such Interest Period from LTCB Trust. "LIBOR Loans" shall mean Loans the interest rates on which are determined on the basis of LIBOR. "Lien" shall mean, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, any agreement to grant any of the foregoing with respect to such asset, and the filing of a financing statement or similar recording in any jurisdiction with respect to such asset. For all purposes hereunder, the Company, the Guarantor or any Subsidiary shall be deemed to own subject to a Lien (i) any asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such asset and (ii) any account receivable transferred by it with recourse (including any such transfer subject to a holdback or similar arrangement that effectively imposes the risk of collectibility on the transferor). "Loans" shall mean the loans provided for by Section 2.1 hereof. "LTCB" shall mean The Long-Term Credit Bank of Japan, Limited, a banking corporation duly organized and validly existing under the laws of Japan, and its successors. -10- 15 "LTCB Trust" shall mean LTCB Trust Company, a trust company duly organized and validly existing under the laws of the State of New York, and its successors. "Majority Banks" shall mean Banks having not less than 51% of the aggregate amount of the Loans outstanding, or if no Loans are then outstanding, Banks holding not less than 51% of the Commitments then in effect, or, if no Loans are then outstanding nor Commitments in effect, Banks which held not less than 51% of the Commitments when most recently in effect; provided that solely for purposes of determining whether or not the Banks have agreed to each requested extension of the Commitment Termination Date pursuant to Section 2.9 hereof or amendments or waivers of Section 2.9 with respect to any particular extension, "Majority Banks" shall not include any Bank whose Commitment, by reason of such Bank having been a Dissenting Bank for any previous extension, is scheduled to expire or has expired at any time prior to the Commitment Termination Date that is the subject of such extension request. "Margin Adjustment" shall mean, at any time of determination thereof commencing after the first anniversary of the date of the initial funding of the Term Loans, when the Funded Debt Ratio, as set forth in the Funded Debt Ratio Notice most recently delivered to the Administrative Agent (which Notice shall be effective on the date of the Administrative Agent's receipt thereof in accordance with Section 12.2 hereof), is at each of the following levels, a subtraction from any Applicable Margin, as set forth below: Effective Subtraction from Funded Debt Ratio Applicable Margin ----------------- ----------------- Greater than 1.25 to 1 0 1.25 to 1 or less, but greater than 1.00 to 1 (0.375%) 1.00 to 1 or less (0.75%). "Material Subsidiary" shall mean, at any time, a Subsidiary the book value of whose tangible assets at such time exceeds 10% of the book value of the total tangible assets of the Company and the Subsidiaries (on a consolidated basis), but in any event shall include each of the Guarantor, HSN Capital Corporation, a Nevada corporation, and HSN Fulfillment, Inc., HSN Mail Order, Inc. and HSN Realty, Inc., each a Delaware corporation, and their respective successors. -11- 16 "Material Subsidiary Group" shall mean, at any time, a group of any two or more Subsidiaries which at such time has a combined aggregate book value of tangible assets in excess of 10% of the book value of the total tangible assets of the Company and the Subsidiaries (on a consolidated basis). "Multiemployer Plan" shall mean a plan defined as such in Section 3(37) of ERISA to which contributions have been made the Company or any ERISA Affiliate and which is covered by Title IV of ERISA. "Non-Material Subsidiary" shall mean, at any time, a Subsidiary which is not a Material Subsidiary. "Notes" shall mean the promissory notes provided for by Section 2.7 hereof. "Obligations" shall mean all obligations and liabilities of the Company to the Administrative Agent, the Co-Agents and the Banks (or any of the foregoing) now or in the future existing under or in connection with this Agreement, any of the Notes or any related document (as any of the foregoing Agreement, Notes or documents may from time to time be respectively amended, modified, substituted, extended or renewed), direct or indirect, absolute or contingent, due or to become due, now or hereafter existing, including without limitation, any payment of principal, interest, fees or expenses due at any time under this Agreement. "Operating Cash Flow" shall mean, for any period, the sum of the following for the Company and its Subsidiaries (including, without limitation, the Guarantor) on a consolidated basis: (a) operating profit of such Persons for such period; plus (to the extent already deducted in arriving at operating profit) (b) depreciation and amortization expense for such Persons for such period; plus (c) commencing September 1, 1992, non-cash compensation expense related to the Company's executive stock award program; plus (d) all cash interest (if any), other cash income (if any) or cash principal repayments (if any) received by the Company or any Subsidiaries in connection with the Silver King Notes, and, for the twelve months immediately following the delivery of any such Silver King Note, accrued interest income on such note for no more than one month, all as shown on the consolidated financial statements, including the notes thereto, of the Company for such period or, with respect to clause (d) above, if such financial statements do not present information in sufficient detail to derive the amount specified in clause (d) of this definition, as shown on the certificate to be delivered to the Administrative Agent pursuant to the last paragraph of Section 9.1 hereof. -12- 17 Operating Cash Flow for the four-Fiscal Quarter period ended August 31, 1992 is as set forth in Schedule 2 hereto. "Overnight Federal Funds Rate Loan" shall mean a Loan which bears interest at an overnight Federal Funds Rate. "PBGC" shall mean the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. "Person" shall mean an individual, a corporation, a company, a voluntary association, a partnership, a trust, an unincorporated organization or a government or any agency, instrumentality or political subdivision thereof. "Plan" shall mean an employee benefit or other plan established or maintained by the Company or any ERISA Affiliate and which is covered by Title IV of ERISA, other than a Multiemployer Plan. "Post-Default Rate" shall mean a rate per annum, during the period commencing on the date on which any Obligation is not paid in full when due (whether at stated maturity, by acceleration or otherwise) and ending on the date on which all such overdue Obligations are paid in full, equal to 2.00% plus the higher of (x) the Prime Rate as in effect from time to time and (y) the interest rate in effect from time to time for Overnight Federal Funds Rate Loans hereunder (including the Applicable Margin in effect for such Loans at each such time); provided that, if any such unpaid Obligation is principal of a LIBOR Loan or of a Term Federal Funds Rate Loan and the due date thereof is a day other than the last day of the Interest Period therefor, the "Post-Default Rate" for such principal shall be, for the period commencing on the due date and ending on the last day of the then current Interest Period therefor, 2.00% plus the interest rate for such Loan as provided in Section 3.2(a) or (b) hereof and, thereafter, the rate otherwise provided for above in this definition. "Prime Rate" shall mean the rate of interest from time to time announced by LTCB at its office in New York, New York as its prime commercial lending rate, which rate is not necessarily the lowest rate of interest charged or received by LTCB. Each change in the Prime Rate resulting from a change in such prime commercial lending rate shall take effect when such prime commercial lending rate changes. "Prime Rate Loans" shall mean Loans which bear interest at rates based upon the Prime Rate. -13- 18 "Regulation A" shall mean Regulation A of the Board of Governors of the Federal Reserve System (or any successor), as the same may be amended or supplemented from time to time. "Regulation D" shall mean Regulation D of the Board of Governors of the Federal Reserve System (or any successor), as the same may be amended or supplemented from time to time. "Regulatory Change" shall mean, with respect to any Bank, any change after the date of this Agreement in United States Federal, state or foreign law or regulations (including Regulation D) or the adoption or making after such date of any interpretations, directives or requests applying to a class of banks including such Bank of or under any United States Federal, State or foreign law or regulations (whether or not having the force of law) by any court or governmental or monetary authority charged with the interpretation or administration thereof. "SEC Report" shall mean, with respect to any Person, any document filed, or deemed filed, at any time with the Securities and Exchange Commission (or any successor thereto) by or on behalf of such Person and available to the public. "Senior Notes" shall mean the Company's 11-3/4% Senior Notes due October 15, 1996, issued under the Senior Note Indenture. "Senior Note Indenture" shall mean the Indenture, dated October 15, 1986, between the Company and First Union National Bank of Florida (successor-in-interest to Southeast Bank, N.A.), as trustee. "Short-Term Debt" shall mean, for any Person, all Indebtedness of such Person which would be short term debt, whether direct or contingent, under GAAP as in effect on the date of this Agreement. "Silver King Notes" shall mean all notes in favor of the Company delivered in connection with the disposition of stock of any of the Broadcast Subsidiaries as permitted by Section 9.7 hereof. "Subsidiary" shall mean any corporation, partnership or other Person of which at least a majority of the outstanding shares of capital stock or other ownership interests ordinarily having, in the absence of contingencies, by the terms thereof voting power to elect a majority of the board of directors or similar governing body of such Person is at the time directly or indirectly owned or controlled by the Company, the Guarantor or by the Company and/or the Guarantor, -14- 19 and in any event shall include the Guarantor and its subsidiaries. "Wholly-Owned Subsidiary" shall mean any Person of which all of such ownership interests, other than directors' qualifying shares, are so owned or controlled. "Term Federal Funds Rate Loan" shall mean any Federal Funds Rate Loan other than an Overnight Federal Funds Rate Loan. "Term Loan Agreement" shall mean the Term Loan Agreement, dated December 18, 1992, among the Company, the Guarantor, the Co-Agents, the Administrative Agent and the financial institutions party thereto, as the same may be amended or modified from time to time. "Term Loans" shall mean any of the loans made in accordance with the Term Loan Agreement. "Total Debt" shall mean, for any Person at any time, all Indebtedness of such Person at such time (including, without limitation, all long-term senior and subordinated Indebtedness, all Short-Term Debt, the stated amount of all letters of credit issued for the account of such Person and (without duplication) all unreimbursed draws thereunder), as shown on the consolidated quarterly or annual financial statements, including the notes thereto, of the Company delivered for such period pursuant to Section 9.1 (or referred to in Section 8.2) hereof. Total Debt of the Company and its consolidated Subsidiaries as at the end of the four-Fiscal Quarter period ended August 31, 1992 is as set forth on Schedule 2 hereto. "Total Debt Ratio" shall mean, at any time, the ratio of (a) Total Debt of the Company and its consolidated Subsidiaries as at the end of the Company's four-Fiscal Quarter period most recently ended as of such time, to (b) Operating Cash Flow for the same period, as shown in the Total Debt Ratio Notice for such period. "Total Debt Ratio Notice" shall mean each notice provided for in Section 9.1(g) (or Section 7.1(f)) hereof. "Total Funded Debt" shall mean, for any Person at any time, (a) all Indebtedness of such Person outstanding at such time (other than the aggregate of all unsecured borrowings of such Person having a scheduled maturity of less than twelve months from the date of incurrence thereof in an aggregate principal amount not in excess of $5,000,000 at such time), minus (b) the stated amount available to be drawn of all letters of credit issued for the account of such Person, as shown on the consolidated quarterly or annual financial -15- 20 statements, including the notes thereto, of the Company delivered for such period pursuant to Section 9.1 (or referred to in Section 8.2) hereof. Total Funded Debt of the Company and its consolidated Subsidiaries as at the end of the four-Fiscal Quarter period ended August 31, 1992 is as set forth on Schedule 2 hereto. 1.2. Certain Accounting Matters. (a) Unless otherwise disclosed to the Banks in writing at the time of delivery thereof in the manner described in subsection (b) below, all financial statements and certificates and reports as to financial matters required to be delivered to the Administrative Agent on behalf of itself and the Banks hereunder shall be prepared in accordance with GAAP applied on a basis consistent with those used in the preparation of the latest financial statements furnished to the Banks hereunder after the date hereof (or, prior to the delivery of the first financial statements furnished to the Banks hereunder, used in the preparation of the audited financial statements referred to in Section 8.2 hereof). All calculations made for the purposes of determining compliance with the terms of Sections 9.11, 9.12 and 9.13 hereof shall, except as otherwise expressly provided herein, be made by application of GAAP applied on a basis consistent with those used in the preparation of the annual or quarterly financial statements then most recently furnished to the Banks pursuant to Section 9.1 (or referred to in Section 8.2) hereof unless (i) the Company shall have objected to determining such compliance on such basis at the time of delivery of such financial statements or (ii) the Majority Banks shall so object in writing within 30 days after delivery of such financial statements, in either of which cases such calculations shall be made on a basis consistent with those used in the preparation of the most recent financial statements as to which such objection shall not have been made. (b) The Company shall deliver to the Administrative Agent, with sufficient copies for delivery to the Banks, contemporaneously with delivery of any annual or quarterly financial statement under Section 9.1 hereof a description in reasonable detail of any material variation between the application of accounting principles employed in the preparation of such statement and the application of accounting principles employed in the preparation of the most recently preceding annual or quarterly financial statements as to which no objection shall have been made in accordance with the last sentence of subsection (a) above, and reasonable estimates of the difference between such statements arising as a consequence thereof. -16- 21 Section 2. Commitments. 2.1. Loans. Each Bank severally agrees, on the terms and subject to the conditions of this Agreement, to make Loans to the Company from time to time during the period from and including the date hereof to but not including the Commitment Termination Date (as from time to time in effect for such Bank) in principal amounts not to exceed in the aggregate at any time outstanding the amount of such Bank's Commitment as in effect from time to time. Subject to the terms and conditions of this Agreement, during such period the Company may borrow, repay and reborrow the amount of the Commitments by means of LIBOR Loans, Federal Funds Rate Loans or Prime Rate Loans, and during such period the Company may convert Loans of one type into Loans of another type (as provided in Section 2.8 hereof); provided, that no more than six LIBOR Loans may be outstanding from each Bank at any time. On the Amendment Effective Date, any loans in an aggregate principal amount of not more than $40,000,000 then outstanding under the 1991 Revolving Credit Agreement shall be deemed to be a Loan under this Agreement, and the Administrative Agent, on behalf of the Company, is hereby authorized and directed to make a borrowing from all of the Banks to reimburse the Co-Agents in such amounts as may be required so that the aggregate principal amount of the loans that were outstanding under the 1991 Revolving Credit Agreement shall be Loans held pro rata by the Banks hereunder in accordance with their respective Commitments. On the Amendment Effective Date, any loans in an aggregate principal amount in excess of $40,000,000 then outstanding under the 1991 Revolving Credit Agreement shall be prepaid in full, together with interest accrued thereon to the date of prepayment and all fees, expenses and other amounts owing in connection therewith. 2.2. Borrowings. The Company shall give the Administrative Agent (which shall promptly notify the Banks) notice of each borrowing hereunder as provided in Section 4.5 hereof. Not later than 10:00 a.m., or, in the case of a borrowing of Overnight Federal Funds Rate Loans or Prime Rate Loans, 12:00 p.m., New York time on the date specified for each such borrowing, each Bank shall make available the amount of the Loan to be made by it on such date to the Administrative Agent, at account number 04203606 maintained by the Administrative Agent with Bankers Trust Company (ABA No. 021001033), One Bankers Trust Plaza, New York, New York 10006 (reference: "Home Shopping Network - 1992 Revolving Credit Facility"), attention: Robert Pacifici, in immediately available funds. The amount so received by the Administrative Agent shall, subject to the terms and conditions of this Agreement, be made available to the Company by depositing the -17- 22 same, in immediately available funds, in an account of the Company designated by the Company in the related notice of borrowing. References in this Agreement to the date on which a Loan is made shall be to the date on which funds borrowed pursuant to such Loan shall have been made available to the Company pursuant to this Section 2.2. 2.3. Changes of Commitments. The Company shall have the right to terminate or reduce the amount of the Commitments at any time or from time to time; provided that (i) the Company shall give notice of each such termination or reduction as provided in Section 4.5 hereof; (ii) each partial reduction shall be in an aggregate amount at least equal to $5,000,000; and (iii) the Commitments may not be reduced below the aggregate principal amount of all Loans then outstanding. Commitments once terminated or reduced may not be reinstated. 2.4. Fees. (a) The Company shall pay to the Administrative Agent for account of each Bank a commitment fee on the daily average unused amount of such Bank's outstanding Commitment, for the period from and including the date of this Agreement to and including the earlier of the date such Commitment is terminated or the day prior to the Commitment Termination Date for such Bank, at a rate per annum equal to 1/2 of 1%; provided, however, that no such fee shall be payable to any Bank with respect to the portion (if any) of such Bank's Commitment corresponding to the principal amount of Loans which such Bank shall not have made in accordance with (i) a notice of borrowing properly and timely given and (ii) the terms and conditions of this Agreement, and with respect to which all conditions precedent thereto shall have been satisfied. All outstanding accrued commitment fees of each Bank shall be due and payable on each Fee Payment Date and on the earlier of the date the Commitment of such Bank is terminated or the Commitment Termination Date for such Bank. (b) The Company shall pay to the Administrative Agent for its own account an annual Agency Fee in the amount and at the times set forth in the fee letter, dated September 28, 1992, among the Company, the Guarantor and the Administrative Agent. 2.5. Lending Offices. The Loans made by each Bank shall be made and maintained at such Bank's Applicable Lending Office for Loans of such type. 2.6. Several Obligations; Remedies Independent. The failure of any Bank to make any Loan to be made by it on the date specified therefor shall not relieve any other Bank -18- 23 of its obligation to make its Loan on such date, but no Bank shall be responsible for the failure of any other Bank to make a Loan to be made by such other Bank. The amounts payable by the Company or the Guarantor at any time hereunder and under the Notes to each Bank shall be a separate and independent debt and each Bank shall be entitled to protect and enforce its rights arising out of this Agreement and the Notes, and it shall not be necessary for any other Bank or any Co-Agent or the Administrative Agent to consent to, or be joined as an additional party in, any proceedings for such purposes. 2.7. Notes. (a) The Loans made by each Bank shall be evidenced by a single promissory note of the Company in substantially the form of Exhibit A hereto, dated the date of this Agreement, payable to the order of such Bank in a principal amount equal to the amount of its Commitment as originally in effect and otherwise duly completed. Each Loan made by each Bank, and all payments and prepayments made on account of the principal thereof, and all conversions of such Loans, shall be recorded by such Bank on its books and, prior to any transfer of the Note held by it, endorsed by such Bank on the schedule attached to such Note or any continuation thereof; provided, that no failure by any Bank to make such recording or endorsement shall affect the obligations of the Company or the Guarantor under this Agreement to such Bank or the holder of such Note. (b) Each Bank shall be entitled to have its Note subdivided in connection with an assignment of all or any portion of its Commitment, Loans and Note pursuant to Section 12.6(b) hereof. 2.8. Prepayments and Conversions of Loans. The Company shall have the right to prepay Loans, or to convert Loans of one type into Loans of another type, at any time or from time to time, it being understood that any such conversion constitutes the simultaneous repayment of a Loan in accordance with Section 3.1 hereof and the making of a new Loan in accordance with Section 2.1 hereof; provided that (a) the Company shall give the Administrative Agent notice of each such prepayment or conversion as provided in Section 4.5 hereof; (b) Loans may be prepaid or converted only on the last day of an Interest Period for such Loans; (c) prepayments and conversions of Loans shall be subject to the indemnity provisions of Section 5.4 hereof. 2.9. Extension of Facility. The Company shall be entitled to request, by written notice to be given to the Administrative Agent not less than 45 days prior to any Exten- -19- 24 sion Date (of which request the Administrative Agent shall promptly notify the Banks), that the Commitment Termination Date then in effect be extended for a period of one year to the Fee Payment Date that is one year after such Commitment Termination Date and: (i) if all the Banks shall have notified the Administrative Agent that they agree to such request by not later than the date (the "Cut-Off Date") 15 days prior to such Extension Date, the definition of "Commitment Termination Date" in Section 1.1 shall, so long as no Default shall have occurred and be continuing on such Extension Date, be extended to the Fee Payment Date which is one year beyond the date that would otherwise have been the Commitment Termination Date; (ii) if such notifications are not received from the Majority Banks or if the Administrative Agent does not so agree, then no such extension shall be made, and the facility provided for hereunder shall terminate on the then scheduled Commitment Termination Date (or Dates) then in effect; and (iii) if such notifications are not received from all the Banks, but are received from a Bank or Banks ("Assenting Banks") whose Commitments constitute not less than 51 percent of the aggregate Commitments at such time and from the Administrative Agent, the Commitments of the Bank or Banks ("Dissenting Banks") who do not so notify shall be reduced to zero on the Commitment Termination Date then in effect and, solely for purposes of the Administrative Agent and the Assenting Banks (and the obligations of the Company and the Guarantor with respect thereto), the Commitment Termination Date shall be extended as provided in (i) above in respect of the Assenting Banks provided that no Default shall have occurred and be continuing on such Extension Date. Each of the Banks and the Administrative Agent agrees to use its reasonable efforts to timely respond (either to consent or to withhold consent) to a request to extend the Commitment Termination Date pursuant to this Section 2.9 on or before the relevant Cut-Off Date. If the Administrative Agent or any Bank fails to timely respond in accordance with the previous sentence, the Administrative Agent or such Bank, as the case may be, shall be deemed to have rejected such request. In the event that clause (iii) above of this Section 2.9 is applicable, the following additional provisions shall apply: -20- 25 (1) If, at any time after the Cut-Off Date for any extension but prior to the corresponding Extension Date (15 dayslater), any Dissenting Bank notifies the Administrative Agent that it has changed its decision and that it agrees to the requested extension, the Administrative Agent may, with the consent of the Company (which consent shall not be unreasonably withheld), include or not include such Bank as an Assenting Bank in the proposed extension, and if such Bank is included as an Assenting Bank and if the provisions of clause (i) or (iii) of this Section 2.9 become effective, the Commitment of such Bank shall not be reduced to zero as provided in clause (iii). (2) At any time during the period commencing on the Cut-Off Date for any extension pursuant to Section 2.9(i) to but not including the Commitment Termination Date as then in effect for the Dissenting Banks for such Cut-Off Date (without regard to any extension thereof) (the "Replacement Period," such period being approximately two years plus 15 days), the Company may give a written request to the Administrative Agent (each such request a "Commitment Reinstatement Request") requesting that the Administrative Agent assist the Company in arranging with any financial institution or institutions (which may or may not be a Bank hereunder at such time) selected by the Company to assume that portion of the Commitments of all of the Dissenting Banks for such extension (the "Available Commitment Interests") as the Company may request in such Commitment Reinstatement Request. If the Administrative Agent receives a Commitment Reinstatement Request on or prior to the last day of such Replacement Period, the Administrative Agent may, but shall not be obligated to, assist the Company in making such arrangements. If any financial institution or institutions agree to assume any portion of the Available Commitment Interests (each such institution being called a "Replacement Bank") on or prior to the last day of such Replacement Period, the Administrative Agent shall allocate the portion of the Available Commitment Interests to be so assumed pro rata among the Commitments and Loans of all Dissenting Banks for such Replacement Period. Each such Dissenting Bank hereby agrees, immediately upon request therefor by the Administrative Agent and in any event on the last day of an Interest Period and no later than the last day of such Replacement Period, to assign to such Replacement Bank the portion of its Commitment and outstanding Loans so allocated for a purchase price equal to the principal amount of each such Loan plus all accrued interest thereon to the date of purchase. Such -21- 26 assignment shall be effected by the execution and delivery to the Administrative Agent of an Assignment and Assumption Agreement substantially in the form of Exhibit E hereto. Upon execution and delivery of an Assignment and Assumption Agreement by the Dissenting Banks and each Replacement Bank and the effectiveness thereof as provided therein, such Replacement Bank shall be treated as a "Bank" for all purposes of this Agreement and, without limiting the foregoing, shall perform all of the obligations, and be entitled to the full benefit, of this Agreement to the same extent as if it were an original party to this Agreement in respect of the rights and/or obligations assigned or transferred to it. Solely for the purposes of determining the rights and obligations of any Replacement Bank with respect to the portion of the Commitments so assigned to it, each Dissenting Bank shall, upon the effectiveness of each such assignment, be deemed to have assented to the previously proposed extension of the Commitment Termination Date pursuant to this Section 2.9. The giving of any Commitment Reinstatement Request shall constitute the Company's and the Guarantor's authorization to the Administrative Agent to effect the transactions contemplated thereby, and no revocation thereof shall be effective unless received by the Administrative Agent from the Company at least five Business Days prior to the effectiveness of any assignment arranged by the Administrative Agent in response to such Commitment Reinstatement Request. Each request or notice from the Company under this Section 2.9, and each action taken by the Administrative Agent in response to such request or notice, shall bind the Guarantor. It is expressly agreed that the Administrative Agent and each Bank may from time to time grant or withhold its consent to any extension of the Commitment Termination Date at its sole discretion and based on such criteria and subject to such terms or conditions as the Administrative Agent or such Bank may deem appropriate at the time; provided that amendments to the terms and conditions of this Agreement shall require the prior consent of the Company, the Guarantor and some or all of the Banks, as provided in Section 12.4 hereof. Nothing in this Agreement or any related document shall be construed to constitute a commitment by the Administrative Agent or any Bank to effect any such extension, and none of the Administrative Agent, any Co-Agent or any Bank shall be liable to the Company, the Guarantor or any other Person for any consequences arising from the failure to effect any such extension. -22- 27 Section 3. Payments of Principal and Interest. 3.1. Repayment of Loans. The Company shall pay to the Administrative Agent for account of each Bank (i) the principal of each of such Bank's Loans on the last day of each Interest Period for such Loan and (ii) on the Commitment Termination Date for each Bank, the principal then outstanding of all Loans of such Bank. 3.2. Interest. The Company shall pay to the Administrative Agent for account of each Bank interest on the unpaid principal amount of each Loan made by such Bank for the period commencing on the date of such Loan to but excluding the date such Loan shall be paid in full, at the following rates per annum: (a) during such periods as such Loan is a LIBOR Loan, for each Interest Period relating thereto, the LIBOR for such Loan for such Interest Period plus the Applicable Margin in effect for each day during such Interest Period; and (b) during such periods as such Loan is a Federal Funds Rate Loan, for each Interest Period relating thereto, the Federal Funds Rate (as in effect for such Interest Period) plus 2.50% per annum; (c) during such periods as such Loan is a Prime Rate Loan, for each Interest Period relating thereto, the Prime Rate (as in effect for such Interest Period) plus the Applicable Margin in effect for each day during such Interest Period. Notwithstanding the foregoing, at any time during the period commencing on the date on which any Obligation is not paid in full when due (whether at stated maturity, by acceleration or otherwise) and ending on the date on which all such overdue Obligations are paid in full, the Company shall pay to the Administrative Agent for account of each Bank interest on the principal of all Loans and (to the fullest extent permitted by law) on any unpaid interest or any other amount payable by the Company hereunder or under the Note held by such Bank at the Post-Default Rate. Accrued interest on each Loan shall be payable (i) on each Interest Payment Date for such Loan and (ii) in any case, on the date on which any principal amount thereof is paid or prepaid or converted to a Loan of another type on the portion thereof being so paid, prepaid or converted, except that interest on any principal, interest or other amount -23- 28 payable at the Post-Default Rate shall be payable from time to time on demand. If the Company shall fail to timely deliver a Funded Debt Ratio Notice in respect of any four-Fiscal Quarter period in accordance with Section 9.1(g) hereof, and it transpires that the Funded Debt Ratio has changed from that which was in effect with respect to the previous four-Fiscal Quarter period such that any interest rate hereunder would increase, the Company agrees that the interest rate on the Loans shall, by operation of the definition of Applicable Margin, automatically increase on the date such Funded Debt Ratio Notice is duly given in accordance with Section 12.2 hereof. In addition, (i) such increase shall be retroactive to the date on which such Funded Debt Ratio Notice should have been delivered in accordance with Section 9.1(g) hereof and (ii) the incremental interest for the retroactive period shall be payable on the next date on which interest is payable under this Agreement and the Notes (or, if no further interest is payable, immediately on demand by the Administrative Agent or any Bank). If the Company shall fail to timely deliver a Funded Debt Ratio Notice in respect of any four-Fiscal Quarter period, and it transpires that the Funded Debt Ratio has changed from that which was in effect with respect to the previous four-Fiscal Quarter period such that any interest rate hereunder would decrease, then such decrease shall be effective from the date on which such Funded Debt Ratio Notice is received by the Administrative Agent, and shall have no retroactive effect. No provision of this Agreement or the Notes or any other document delivered in connection with either thereof and no transaction contemplated hereby or thereby shall be construed or shall operate so as to require the Company, the Guarantor or any other Person liable for payment of any of the Obligations to pay interest in an amount or at a rate greater than the maximum allowed from time to time by applicable law. Should any interest or other charges paid by the Company, the Guarantor or any such other Person under any such document result in a computation or earning of interest in excess of the maximum rate of interest permitted under applicable law in effect while such interest is being earned, then such excess shall be and hereby is waived by each Bank and all such excess shall be automatically credited against and in reduction of the principal balance of such amounts payable under such documents and any portion of such excess received by any Bank shall be paid over by such Bank to the Company, the Guarantor or such other Person, as the case may be, it being the intent of the parties hereto that under no circumstances shall the Company, the Guarantor or such other Person be required to pay -24- 29 interest in excess of the maximum rate allowed by such applicable law. Section 4. Payments; Pro Rata Treatment; Computations, Etc. 4.1. Payments. Except to the extent otherwise provided herein, all payments of Obligations shall be made in Dollars, in immediately available funds and without set-off, counterclaim or deduction of any kind, to the Administrative Agent at account number 04203606 maintained by the Administrative Agent at Bankers Trust Company (ABA No. 021001033), One Bankers Trust Plaza, New York, New York 10006 (reference: "Home Shopping Network - 1992 Revolving Credit Facility"), attention: Robert Pacifici (or at such other account or at such other place as the Administrative Agent may notify the Company from time to time), not later than 11:00 a.m. New York time on the date on which such payment shall become due (each such payment made after such time on such due date to be deemed to have been made on the next succeeding Business Day). Any Bank for whose account any such payment is to be made may (but shall not be obligated to) debit the amount of any such payment which is not made by such time to any ordinary deposit account of the Company or the Guarantor with such Bank or any affiliate of such Bank (with subsequent notice to the Company or the Guarantor, as the case may be, provided that such Bank's failure to give such notice shall not affect the validity of such debit). The Company or the Guarantor, as the case may be, shall at the time of making a payment under this Agreement or any Note specify to the Administrative Agent (i) the account from which the payment funds will be transmitted and the manner and approximate time of such transmission and (ii) the Loans or other amounts payable by the Company hereunder to which such payment shall be applied, and in the event that it shall have failed so to specify, or if an Event of Default shall have occurred and be continuing, the Administrative Agent may distribute such payment to the Banks in such manner as it or the Majority Banks may deem appropriate, subject to Section 4.2 hereof. Each payment received by the Administrative Agent under this Agreement or any Note for account of a Bank shall be paid promptly to such Bank, in immediately available funds, for account of such Bank's Applicable Lending Office for the Loan in respect of which such payment is made. If the due date of any payment to be made hereunder or under any Note would otherwise fall on a day which is not a Business Day, such date shall be extended to the next succeed- -25- 30 ing Business Day and interest shall be payable for any principal so extended for the period of such extension. 4.2. Pro Rata Treatment. Except to the extent otherwise provided herein: (a) each borrowing from the Banks under Section 2.1 hereof shall be made from the Banks, each payment of commitment fee under Section 2.4 hereof shall be made for account of the Banks and each termination or reduction of the amount of the Commitments under Section 2.3 hereof shall be applied to the Commitments of the Banks, pro rata according to the amounts of their respective unused Commitments; (b) each conversion of Loans of a particular type (other than conversions provided for by Section 5.1 hereof) shall be made pro rata among the Banks holding Loans of such type according to the respective principal amounts of such Loans held by such Banks; and (c) each payment and prepayment by the Company of principal of or interest on Loans of a particular type shall be made to the Administrative Agent for account of the Banks holding Loans of such type pro rata in accordance with the respective unpaid principal amounts of such Loans held by such Banks. 4.3. Computations. Interest on all Loans and the commitment fee shall be computed on the basis of a year of 360 days and actual days elapsed (including the first day but excluding the last day) occurring in the period for which payable. 4.4. Minimum Amounts. Except for conversions or prepayments made pursuant to Section 5.1 hereof, each borrowing, conversion and prepayment of principal of Loans shall be in an aggregate amount at least equal to $5,000,000, provided that borrowings, prepayments or conversions of or into Loans of different types or, in the case of LIBOR Loans, having different Interest Periods, at the same time hereunder shall each be deemed separate borrowings, conversions or prepayments, as the case may be. Notwithstanding anything in this Agreement to the contrary, the aggregate principal amount of LIBOR Loans having the same Interest Period shall be at least equal to $5,000,000 and, if any LIBOR Loans would otherwise be in a lesser principal amount for any period, such Loans shall be Prime Rate Loans during such period. 4.5. Certain Notices. Notices by the Company to the Administrative Agent of terminations or reductions of -26- 31 Commitments, of borrowings, conversions and prepayments of Loans and of the duration of Interest Periods shall be irrevocable and shall be effective only if received by the Administrative Agent not later than 10:00 a.m. New York time on the number of Business Days prior to the date of the relevant termination, reduction, borrowing, conversion or prepayment or the first day of such Interest Period specified below:
Number of Business Notice Days Prior ------ ----------- Termination or reduction of Commitments 10 Borrowing of Overnight Federal Funds Rate Loans; or conversion of Term Federal Funds Rate Loans or Prime Rate Loans into Overnight Federal Funds Rate Loans same day Borrowing or prepayment of LIBOR Loans; conversion of LIBOR Loans into any other type of Loans; conversion of any type of Loans into LIBOR Loans; or duration of Interest Period for LIBOR Loans 3 Borrowing or prepayment of Term Federal Funds Rate Loans; conversion of any type of Loans into Term Federal Funds Rate Loans; or duration of Interest Period for Term Federal Funds Rate Loans 3 Borrowing or prepayment of Prime Rate Loans; or conversion of Federal Funds Rate Loans into Prime Rate Loans same day
In addition: (a) Each such notice of termination or reduction shall specify the amount of the Commitments to be terminated or reduced. (b) Each such notice of borrowing, conversion or prepayment shall specify the Loans to be borrowed, converted or prepaid and the amount (subject to Section 4.4 hereof) and type of the Loans to be borrowed, converted or prepaid and the date of borrowing, conversion or prepayment (which shall be a Business Day). -27- 32 (c) Each such notice of the duration of an Interest Period shall specify the Loans to which such Interest Period is to relate. The Administrative Agent shall promptly notify the Banks of the contents of each such notice. In the event that the Company fails to select the duration of any Interest Period for any LIBOR Loans or Term Federal Funds Rate Loans within the time period and otherwise as provided in this Section 4.5, or if the Company and the Administrative Agent with the consent of the Banks fail to agree upon a term for any requested Term Federal Funds Rate Loans, such Loans (if outstanding as LIBOR Loans) will be automatically converted into Overnight Federal Funds Rate Loans on the last day of the then current Interest Period for such Loans or (if outstanding as Overnight Federal Funds Rate Loans or Prime Rate Loans) will remain as Overnight Federal Funds Rate Loans or Prime Rate Loans, as the case may be, or (if not then outstanding) will be made as Overnight Federal Funds Rate Loans. 4.6. Non-Receipt of Funds by the Administrative Agent. Unless the Administrative Agent shall have been notified by a Bank or the Company or the Guarantor prior to the date on which such Bank or the Company or the Guarantor is scheduled to make payment to the Administrative Agent of (in the case of a Bank) the proceeds of a Loan to be made by it hereunder or (in the case of the Company or the Guarantor) a payment to the Administrative Agent for account of one or more of the Banks hereunder (such payment being herein called the "Required Payment"), which notice shall be effective upon receipt, that it does not intend to make the Required Payment to the Administrative Agent, the Administrative Agent may assume that the Required Payment has been made and may, in reliance upon such assumption (but shall not be required to), make the amount thereof available to the intended recipient(s) on such date and, if such Bank or the Company or the Guarantor (as the case may be) has not in fact made the Required Payment to the Administrative Agent, the recipient(s) of such payment shall, on demand, repay to the Administrative Agent the amount so made available together with interest thereon in respect of each day during the period commencing on the date such amount was so made available by the Administrative Agent until the date the Administrative Agent recovers such amount at a rate per annum equal to the overnight Federal Funds Rate for such day (as determined by the Administrative Agent). 4.7. Sharing of Payments, Etc. Each of the Company and the Guarantor agrees that, in addition to (and without limitation of) any right of setoff, bankers' lien or -28- 33 counterclaim a Bank may otherwise have, each Bank shall be entitled, at its option, to offset balances held by it in ordinary deposit accounts of the Company or the Guarantor at any of its offices, in Dollars or in any other currency, against any principal of or interest on any of such Bank's Loans, or any other amount payable to such Bank hereunder, which is not paid when due (regardless of whether such balances are then due to the Company or the Guarantor), in which case it shall promptly notify the Company or the Guarantor, as the case may be, and the Administrative Agent thereof, provided that such Bank's failure to give such notice shall not affect the validity thereof. If any Bank shall obtain payment of any principal of or interest on any Loan made by it to the Company, or any other amount payable to such Bank, under this Agreement through the exercise of any right of setoff, banker's lien or counterclaim or similar right or otherwise, and, as a result of such payment, such Bank shall have received a greater percentage of the principal, interest or such other amount then due hereunder by the Company to such Bank than the percentage received by any other Banks, it shall promptly purchase from such other Banks participations in (or, if and to the extent specified by such Bank, direct interests in) the Loans made by such other Banks (or in interest due thereon, as the case may be) in such amounts, and make such other adjustments from time to time as shall be equitable, to the end that all the Banks shall share the benefit of such excess payment (net of any expenses which may be incurred by such Bank in obtaining or preserving such excess payment) pro rata in accordance with the unpaid principal and/or interest on the Loans held by each of the Banks or such other amount due to the Banks hereunder. To such end all the Banks shall make appropriate adjustments among themselves (by the resale of participations sold or otherwise) if such payment is rescinded or must otherwise be restored. Each of the Company and the Guarantor agrees that any Bank so purchasing a participation (or direct interest) in the Loans made by other Banks (or in interest due thereon, as the case may be) may exercise all rights of setoff, bankers' lien, counterclaim or similar rights with respect to such participation as fully as if such Bank were a direct holder of Loans in the amount of such participation. Nothing contained herein shall require any Bank to exercise any such right or shall affect the right of any Bank to exercise, and retain the benefits of exercising, any such right with respect to any other indebtedness or obligation of the Company or the Guarantor; provided that to the extent any such Bank exercises any such right with respect to any other indebtedness or obligation of the Company or the Guarantor, it shall also exercise its rights under this Section 4.7 and agrees that the benefits of exercising any such rights shall be shared with the Banks pro rata in the proportion that the unpaid obligations of the Company and the -29- 34 Guarantor owing to such Bank hereunder bear to such other indebtedness or obligation. If under any applicable bankruptcy, insolvency or other similar law, any Bank receives a secured claim in lieu of a setoff to which this Section 4.7 applies, such Bank shall, to the extent practicable, exercise its rights in respect of such secured claim in a manner consistent with the rights of the Banks entitled under this Section 4.7 to share in the benefits of any recovery on such secured claim. Section 5. Yield Protection and Illegality. 5.1. Additional Costs. (a) The Company shall pay directly to each Bank from time to time such amounts as such Bank may determine to be necessary to compensate it for any costs which such Bank determines are attributable to its making or maintaining of any LIBOR Loans to the Company or its obligation to make any LIBOR Loans to the Company hereunder, or any reduction in any amount receivable by the Bank hereunder in respect of any of such Loans or such obligation (such increases in costs and reductions in amounts receivable being herein called "Additional Costs"), resulting from any Regulatory Change which (i) changes the basis of taxation of any amounts payable to such Bank by the Company or the Guarantor under this Agreement or the Notes in respect of any of such Loans (other than taxes imposed on the overall net income of such Bank or of its Applicable Lending Office for any of such Loans by the jurisdiction in which such Bank has its principal office or such Applicable Lending Office); or (ii) imposes or modifies any reserve, special deposit, minimum capital, capital ratio or similar requirements relating to any extensions of credit or other assets of, or any deposits with or other liabilities of, such Bank (including any of such Loans or any deposits referred to in the definition of "LIBOR" in Section 1.1 hereof), or the Commitment of such Bank; or (iii) imposes any other condition affecting this Agreement or the Notes (or any of such extensions of credit or liabilities) or the Commitments. (b) Without limiting the effect of the provisions of Section 5.1(a) hereof, in the event that, by reason of any Regulatory Change, any Bank either (i) incurs Additional Costs based on or measured by the excess above a specified level of the amount of a category of deposits or other liabilities of such Bank which includes deposits by reference to which the interest rate on LIBOR Loans is determined as provided in this Agreement or a category of extensions of credit or other assets of such Bank which includes LIBOR Loans or (ii) becomes -30- 35 subject to restrictions on the amount of such a category of liabilities or assets which it may hold, then, if such Bank so elects by notice to the Company, the obligation of such Bank to make, and to convert Federal Funds Rate Loans or Prime Rate Loans into, LIBOR Loans hereunder shall be suspended until such Regulatory Change ceases to be in effect (and all LIBOR Loans held by such Bank shall be automatically converted into Overnight Federal Funds Rate Loans at the end of the then current Interest Period for each of them, or on such earlier date as such Bank may specify in writing as being the last permissible date for such prepayment under applicable law, rules or regulations); provided that in such event such Bank shall use its best efforts to obtain a Federal Funds Rate offered for deposits made for a period of time longer than overnight (to the extent such a rate is then obtainable), but any failure to obtain such a rate shall in no way affect the rights of the Banks to receive interest on such Loans at the Federal Funds Rate otherwise obtainable. (c) Without limiting the effect of the foregoing provisions of this Section 5.1 (but without duplication), the Company shall pay to each Bank from time to time on request such amounts as such Bank may determine to be necessary to compensate such Bank for any costs which it determines are attributable to the maintenance by such Bank (or any Applicable Lending Office), pursuant to any law or regulation or any interpretation, directive or request (whether or not having the force of law) of any court or governmental or monetary authority, of capital in respect of such Bank's Commitment (such compensation to include, without limitation, an amount equal to any reduction of the rate of return on assets or equity of such Bank (or any Applicable Lending Office) to a level below that which such Bank (or any Applicable Lending Office) could have achieved but for such law, regulation, interpretation, directive or request). (d) Determinations and allocations by any Bank for purposes of this Section 5.1 of the effect of any Regulatory Change pursuant to Section 5.1(a) or (b) hereof, or of the effect of capital maintained pursuant to Section 5.1(c) hereof, on its costs or rate of return of maintaining Loans or its obligation to make Loans, or on amounts receivable by it in respect of Loans, and of the amounts required to compensate such Bank under this Section 5.1, shall be conclusive absent manifest error. 5.2. Limitation on Types of Loans. Anything herein to the contrary notwithstanding, if, on or prior to the determination of any interest rate for any LIBOR Loan for any Interest Period therefor: -31- 36 (a) the Administrative Agent determines (which determination shall be conclusive) that quotations of interest rates for the deposits referred to in the definition of "LIBOR" in Section 1.1 hereof are not being provided in the relevant amounts or for the relevant maturities for purposes of determining rates of interest for such Loans as provided herein; or (b) any Bank determines (which determination shall be conclusive), and so notifies the Administrative Agent, that the rates of interest referred to in the definition of "LIBOR" in Section 1.1 hereof upon the basis of which the rate of interest for LIBOR Loans for such Interest Period is to be determined do not adequately cover the cost to such Bank of making or maintaining such LIBOR Loans for such Interest Period; then the Administrative Agent shall give the Company prompt notice thereof, and so long as such condition remains in effect, the Banks shall be under no obligation to make additional LIBOR Loans or to convert Federal Funds Rate Loans or Prime Rate Loans into LIBOR Loans and the Company shall, on the last day(s) of the then current Interest Period(s) for the outstanding LIBOR Loans, either repay such Loans as provided in Section 3.1 hereof or convert such Loans into Federal Funds Rate Loans or Prime Rate Loans in accordance with Section 2.8 hereof. 5.3. Illegality. Notwithstanding any other provision of this Agreement, in the event that it becomes unlawful for any Bank or its Applicable Lending Office to honor its obligation to make or maintain LIBOR Loans hereunder, then such Bank shall promptly notify the Administrative Agent and the Company and such Bank's obligation to make LIBOR Loans shall be suspended until such time (prior to the Commitment Termination Date) as such Bank may again make and maintain LIBOR Loans and such Bank's outstanding LIBOR Loans shall be automatically converted into Federal Funds Rate Loans or Prime Rate Loans, as such Bank may select, at the end of the then current Interest Period for each of them, or on such earlier date as such Bank may specify in writing as being the last permissible date for such prepayment under applicable laws, rules or regulations. 5.4. Compensation. The Company shall pay to each Bank, upon the request of such Bank, such amount or amounts as shall be sufficient (in the reasonable opinion of such Bank) to compensate it for any loss, cost or expense (including, without limitation, costs arising from premature termination of such Bank's obligations under interest rate swaps, caps, collars, floors, options, forward exchange contracts and -32- 37 similar hedging arrangements) which such Bank determines are attributable to: (a) any payment, prepayment or conversion of a Loan for any reason (including, without limitation, the acceleration of the Loans pursuant to Section 10 hereof) on a date other than the last day of an Interest Period for such Loan; or (b) any failure by the Company for any reason (including, without limitation, the failure of any of the conditions precedent specified in Section 7 hereof to be satisfied) to borrow or convert into a LIBOR Loan or a Term Federal Funds Rate Loan on the date for such borrowing or conversion specified in the relevant notice of borrowing given pursuant to Section 2.2 hereof or notice of conversion given pursuant to Section 2.8 hereof. Such Bank shall deliver to the Company, promptly upon such request, a certificate setting forth in reasonable detail the basis for calculation of such amounts, the contents of such certificate being, in the absence of manifest error therein, conclusive evidence of such amounts; provided that the failure of such Bank to deliver such certificate shall in no way affect such Bank's rights to such compensation. The failure of any Bank to request the compensation provided for in this Section 5.4 in any instance shall not affect such rights of such Bank in any other instance or of any other such Bank in any instance. 5.5. Taxes. All payments of Obligations (as used in this Section 5.5, "Payments") shall be made free and clear of, and without deduction by reason of, any and all taxes, duties, assessments, withholdings, retentions or other similar charges whatsoever imposed, levied, collected, withheld or assessed by any jurisdiction or any agency or taxing authority thereof or therein (as used in this Section 5.5, "Taxes"), all of which shall be paid by the Company for its own account not later than the date when due. If the Company is required by law to deduct or withhold any Taxes from any Payment, the Company shall: (a) make such deduction or withholding; (b) pay the amount so deducted or withheld to the appropriate taxing authority not later than the date when due (irrespective of the rate of such deduction or withholding); (c) deliver to such Bank, promptly and in any event within 30 days after the date on which such Taxes become due, original tax receipts and other evidence satisfactory to such Bank of the payment when due of the full amount of such Taxes; and (d) pay to the respective Bank, forthwith upon any request by such Bank therefor from time to time, such additional amounts as may be -33- 38 necessary so that such Bank receives, free and clear of all Taxes, the full amount of such Payment stated to be due under this Agreement or the Notes as if no such deduction or withholding had been made. Each Bank that is not organized under the laws of the United States or of any political subdivision thereof agrees that it will deliver to the Company on the date of its initial Loan and thereafter as may be required from time to time by applicable law or regulation United States Internal Revenue Service Form 4224 or 1001 (or any successor form) or such other form as from time to time may be required to demonstrate that payments made by the Company to such Bank under this Agreement or such Note either are exempt from United States Federal withholding taxes or are payable at a reduced rate (if any) specified in any applicable tax treaty or convention. Each Bank agrees to use reasonable efforts to transfer its Commitment or Loans to another Applicable Lending Office of such Bank if such transfer would avoid the need for or mitigate the amount of any deduction or withholding of Taxes on payments of interest to such Bank under this Agreement, but no Bank shall be required to make such transfer if such Bank determines that such Bank would suffer any legal, economic or regulatory disadvantage. Without limiting the survival of any other provisions of this Agreement or the Notes, the obligations of the Company under this Section shall survive the repayment of the Loans and the Notes. Section 6. Guarantee. 6.1. Unconditional Guarantee. For valuable consideration, receipt of which is hereby acknowledged, and to induce the Banks to make Loans to the Company, the Guarantor hereby unconditionally and irrevocably guarantees to the Administrative Agent, the Co-Agents and each of the Banks the payment in full when due (whether at stated maturity, by acceleration or otherwise) of all principal of and interest on each Loan and all other amounts payable by the Company hereunder and under the Notes and all other documents referred to herein or therein, in accordance with the terms hereof and thereof, and, in the case of any extension of time of payment, in whole or in part, that all such amounts shall be paid in full when due (whether at stated maturity, by acceleration or otherwise) in accordance with the terms of such extension. The Guarantor hereby unconditionally agrees that upon default in the payment when due (whether at stated maturity, by -34- 39 acceleration or otherwise) of any of such principal, interest or other amounts, the Guarantor shall forthwith pay and perform the same in the money and funds, at the time, in the place and in the manner provided for such payment in this Agreement, the Notes or other applicable document. 6.2. Validity. The Guarantor hereby agrees that the guarantee provided by this Section 6 is a continuing guarantee of payment and not merely of collection, that it is a primary, independent obligation of the Guarantor and that the Guarantor's obligations hereunder shall be absolute, unconditional and irrevocable, irrespective of (a) any invalidity, illegality, irregularity or unenforceability of, or defect in or any change in this Agreement, the Notes or any other document referred to herein or therein, (b) any amendment, modification or waiver of any term or condition of this Agreement or the Notes or any such other document, or any waiver or consent by the Administrative Agent or any Bank to any departure from the terms hereof or thereof, (c) any sale, exchange, release, surrender, realization upon or other dealings with any security or guarantee for any of the obligations guaranteed hereby (whether now or hereafter granted), (d) any settlement or compromise of such obligations, (e) the absence of any action to demand or enforce any of such obligations against the Company, (f) the recovery of any judgment against the Company or any other Person, or any action to enforce the same, (g) the recovery of any claim under any other guarantee of or security for such obligations or under any applicable insurance, or (h) any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor or surety (other than full and strict compliance with and satisfaction of such liabilities). 6.3. Waivers. The Guarantor hereby waives notice of acceptance of the guarantee provided by this Section 6, notice of the extension of any credit or financial accommodation, notice of the making of any Loan or the incurrence of any other Obligations, notice of any extension of any Commitment Termination Date, demand of payment, filing of claims with a court in the event of bankruptcy of the Company or any other Person, any right to require a proceeding or the filing of a claim first against the Company, any other guarantor, any other Person, any letter of credit, or any security for any of the Obligations, presentment, protest, notice of default, dishonor or nonpayment and any other notice and all demands whatsoever. The Guarantor hereby further waives all setoffs and counterclaims against the Company, the Administrative Agent, the Co-Agents and each of the Banks. -35- 40 6.4. Subordination and Subrogation. The Guarantor hereby subordinates all present and future claims, now held or hereafter acquired, against the Company as a creditor or contributor of capital, or otherwise, to the prior and final payment in full to the Banks of all of the Obligations. If, without reference to the provisions of this Section 6.4, the Guarantor would at any time be or become entitled to receive any payment on account of any claim against the Company, whether in insolvency, bankruptcy, liquidation or reorganization proceedings, or otherwise, the Guarantor shall and does hereby irrevocably direct that all such payments shall be made directly to the Administrative Agent on account of the Banks until all Obligations shall be paid in full. Should the Guarantor receive any such payment, the Guarantor shall receive such amount in trust for the Banks and shall immediately pay over to the Administrative Agent such amount as provided in the preceding sentence. Anything contained in this Section 6 to the contrary notwithstanding, the obligations of the Guarantor hereunder shall be limited to a maximum aggregate amount equal to the largest amount that would not render its obligations hereunder subject to avoidance as a fraudulent transfer or conveyance under Section 548 of Title 11 of the United States Code or any applicable provisions of comparable state law (collectively, the "Fraudulent Transfer Laws"), in each case after giving effect to all other liabilities of the Guarantor, contingent or otherwise, that are relevant under the Fraudulent Transfer Laws (specifically excluding, however, any liabilities of the Guarantor in respect of intercompany indebtedness to the Company or other Affiliates of the Company to the extent that such indebtedness would be discharged in an amount equal to the amount paid by the Guarantor hereunder) and after giving effect as assets to the value (as determined under the applicable provisions of the Fraudulent Transfer Laws) of any rights to subrogation or contribution of the Guarantor pursuant to (i) applicable law or (ii) any agreement providing for an equitable allocation among the Guarantor and other Affiliates of Company of obligations arising under guaranties by such parties. The Guarantor further agrees that any rights of subrogation the Guarantor may have against the Company, and any rights of contribution the Guarantor may have against Company, and any rights of contribution the Guarantor may have against any other guarantor of the Obligations hereunder, shall be junior and subordinate to any rights the Administrative Agent or the Banks may have against such other guarantor. 6.5. Acceleration. The Guarantor agrees that, as between the Company on the one hand, and the Administrative -36- 41 Agent, the Co-Agents and the Banks, on the other hand, the obligations of the Company guaranteed under this Section 6 may be declared to be forthwith due and payable, or may be deemed automatically to have been accelerated, as provided in Section 10 hereof for purposes of this Section 6, notwithstanding any stay, injunction or other prohibition (whether in a bankruptcy proceeding affecting the Company or otherwise) preventing such declaration as against the Company and that, in the event of such declaration or automatic acceleration, such obligations (whether or not due and payable by the Company) shall forthwith become due and payable by the Guarantor for purposes of this Section 6. 6.6. Reinstatement. The Guarantor covenants that the guarantee provided by this Section 6 will not be discharged except by complete and final payment of all of the Obligations and all obligations of the Guarantor arising out of this guarantee. In the event that any payment is made by the Company hereunder or by the Guarantor under this guarantee, and is thereafter required to be rescinded or otherwise restored or paid over to the Company, the Guarantor or any other person (whether upon the insolvency or bankruptcy of the Company or the Guarantor or otherwise), the Guarantor's obligations hereunder shall immediately and automatically be reinstated as though such payment had not been made. Section 7. Conditions Precedent. 7.1. Initial Loan. The occurrence of the Amendment Effective Date, the accession of each New Bank to this Agreement and the obligation of the Banks to make the initial Loans hereunder are subject to the receipt by the Administrative Agent, on or before December 18, 1992, of each of the following documents, each of which shall be satisfactory to the Administrative Agent in form and substance: (a) Certified copies of the certificate of incorporation and bylaws of the Company and the Guarantor and all corporate action and (if necessary) stockholder action taken by the Company and the Guarantor approving this Agreement and the Notes and borrowings by the Company hereunder and the guarantee by the Guarantor hereunder (including, without limitation, a certificate setting forth the resolutions of the Boards of Directors of the Company and the Guarantor adopted in respect of the transactions contemplated hereby). (b) A certificate of each of the Company and the Guarantor in respect of each of the officers (i) who is authorized to sign this Agreement or the Notes on its -37- 42 behalf and (ii) who will, until replaced by another officer or officers duly authorized for that purpose, act as its representative for the purposes of signing documents and giving notices and other communications in connection with this Agreement and the transactions contemplated hereby. The Administrative Agent, the Co-Agents and the Banks may conclusively rely on such certificate until the Administrative Agent receives notice in writing from the Company or the Guarantor, respectively, to the contrary. (c) Certificates, as of a recent date, from the appropriate authorities for each jurisdiction in which the Company and the Guarantor are incorporated or qualified to do business, as to the good standing of the Company and the Guarantor, respectively, in each such jurisdiction. (d) A certificate of a senior officer of each of the Company and the Guarantor to the effect set forth in the first sentence of Section 7.2 hereof. (e) An opinion of Allen P. Allweiss, Esq., General Counsel to the Company and the Guarantor, substantially in the form of Exhibit B hereto. (f) The Funded Debt Ratio Notice and the Total Debt Ratio Notice for the Company's four-Fiscal Quarter period ended August 31, 1992 (or, if the initial Loans hereunder are made more than 60 days after the end of any succeeding Fiscal Quarter, for the four-Fiscal Quarter period ended as of the end of the most recent such succeeding Fiscal Quarter). (g) The Notes, dated the date hereof and duly executed and delivered by the Company to the order of each Bank and otherwise appropriately completed, bearing the executed guarantee of the Guarantor. (h) Evidence of the payment of all fees and expenses then payable pursuant to Sections 2.4 and 12.3 hereof. (i) The Company shall have prepaid the principal amount and all accrued interest and fees with respect to any loans in an aggregate principal amount in excess of $40,000,000 under the 1991 Revolving Credit Agreement as of the Amendment Effective Date together with interest accrued thereon to the date of prepayment and all other amounts then payable under the 1991 Revolving Credit Agreement. -38- 43 (j) The execution and delivery by all necessary parties to, and the simultaneous effectiveness of, the Term Loan Agreement. (k) Such other documents as the Administrative Agent or any Bank may reasonably request including, without limitation, all requisite governmental approvals and filings. Upon the occurrence of the Amendment Effective Date, (i) each of the promissory notes heretofore delivered to the Co-Agents as "Banks" under the 1991 Revolving Credit Agreement, (ii) the obligations (if any) of the Co-Agents, the Administrative Agent or the Banks under the commitment letter and term sheet, dated September 28, 1992, as amended, of LTCB Trust, as a Co-Agent, and (iii) the obligations (if any) of the Co-Agents, the Administrative Agent or the Banks under the commitment letter and term sheet, dated October 8, 1992, as amended, of Bank of Montreal, as a Co-Agent, shall cease to be of any force or effect, except with respect to any unpaid amounts incurred under the 1991 Revolving Credit Agreement prior to the Amendment Effective Date. 7.2. Initial and Subsequent Loans. The obligation of the Banks to make each Loan to the Company (including the initial Loans) shall be subject to the further conditions that, as of the date of the making of such Loans and after giving effect thereto: (a) no Default or Event of Default shall have occurred and be continuing; (b) the representations and warranties made by the Company and the Guarantor in Section 8 hereof and in any other certificate or other document delivered in connection with this Agreement shall be true in all material respects on and as of the date of the making of such Loans with the same force and effect as if made on and as of such date (including, without limitation, that there shall have occurred no material adverse change since August 31, 1992 in the consolidated financial condition or operations, or the business taken as a whole, of the Company and its consolidated Subsidiaries from that set forth in their financial statements dated as of August 31, 1992, except as disclosed to the Banks in writing prior to the date of this Agreement); (c) the Company shall be in compliance with the financial covenants under the Term Loan Agreement and this Agreement both before and immediately after the -39- 44 making of such Loan on both an historical and a pro forma basis; and (d) payment in full of all fees and expenses payable pursuant to Sections 2.4 and 12.3 hereof. Each notice of borrowing made pursuant to Section 2.2 hereof shall constitute a certification by the Company and the Guarantor as to the circumstances specified in paragraphs (a), (b) and (c) above (both as of the date of such notice and, unless the Company or the Guarantor otherwise notifies the Administrative Agent prior to the date of such borrowing, as of the date of such borrowing). Section 8. Representations and Warranties. Each of the Company and the Guarantor represents and warrants to the Administrative Agent and the Banks that: 8.1. Corporate Existence. Each of the Company and the Guarantor and each of the other Material Subsidiaries (a) is a corporation duly organized and validly existing under the laws of the jurisdiction of its incorporation; (b) has all requisite corporate power, and has all material governmental licenses, authorizations, consents and approvals, necessary to own its assets and carry on its business as presently conducted, and conducts its business in compliance with the requirements set forth in Section 9.3(b) hereof; and (c) is qualified to do business in all jurisdictions in which the nature of the business conducted by it makes such qualification necessary and where failure so to qualify would have a material adverse effect on its business, financial condition or operations. 8.2 Financial Condition. The consolidated balance sheet of the Company and its consolidated Subsidiaries (including, without limitation, the Guarantor) as at August 31, 1992 and the related consolidated statements of income, retained earnings and changes in financial position of the Company and is consolidated Subisdiaries (including, without limitation, the Guarantor) for the fiscal year ended on such date, with the opinion thereon of Deloitte & Touche, the independent auditors of the Company, heretofore furnished to the Administrative Agent and each of the Banks, are complete and correct and fairly present the consolidated financial condition of the Company and its consolidated Subsidiaries (including, without limitation, the Guarantor) as at such date and the consolidated results of their operations for such Fiscal Year ended on such date, all in accordance with GAAP applied on a consistent basis. Neither the Company nor any of its consolidated Subsidiaries (including, without limitation, the -40- 45 Guarantor) had on such date any material contingent liabilities, liabilities for taxes, unusual forward or long-term commitments or unrealized or anticipated losses from any unfavorable commitments, except as referred to or reflected or provided for in such balance sheets as at such date. Since August 31, 1992, there has been no material adverse change in the consolidated financial condition or operations, or the business taken as a whole, of the Company and its consolidated Subsidiaries (including, without limitation, the Guarantor) from that set forth in such financial statements as at such date, except as disclosed to the Banks in writing prior to the date of this Agreement. 8.3. Litigation. Except as heretofore disclosed to the Banks in writing or in any SEC Report of the Company delivered to the Banks prior to the date hereof, there is no action, proceeding or investigation by or before any court or any arbitral, governmental or regulatory authority or agency, pending or (to the knowledge of the Company or the Guarantor) threatened against the Company or the Guarantor or any Subsidiary of either thereof which, if adversely determined, could have a material adverse effect on the consolidated financial condition or business of the Company and its consolidated Subsidiaries (including, without limitation, the Guarantor). 8.4. No Breach. Neither the execution and delivery of this Agreement and the Notes, nor the consummation of the transactions contemplated hereby, nor the compliance by the Company or the Guarantor with the terms and provisions hereof or thereof, will (a) conflict with or result in a breach of, or require any consent or vote of any Person under, the certificate of incorporation or bylaws of either the Company or the Guarantor, or any agreement or instrument to which the Company, the Guarantor or any Subsidiary of either thereof is a party or to which it is subject, (b) violate any applicable law, regulation, order, writ, injunction or decree of any court or governmental authority or agency, or (c) constitute a default or result in the imposition of any Lien on any of the assets, revenues or other properties of the Company, the Guarantor or any Subsidiary of either thereof under any such agreement or instrument. 8.5. Corporate Action. The execution, delivery and performance by each of the Company and the Guarantor of this Agreement and the Notes, and the consummation of the transactions contemplated hereby, are within the scope of its corporate power, and have been duly authorized by all necessary corporate action on the part of each of them. This Agreement constitutes, and each of the Notes, when duly executed and delivered will constitute, the legal, valid and binding obli- -41- 46 gation of the Company and the Guarantor, enforceable against each of them in accordance with their respective terms, except as such enforceability may be limited by (a) bankruptcy, insolvency, reorganization, moratorium or other similar laws of general applicability affecting the enforcement of creditors' rights and (b) the application of general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). 8.6. Approvals. No authorizations, approvals or consents of, and no filings or registrations with, any governmental or regulatory authority or agency are necessary for the execution, delivery or performance by the Company or the Guarantor of this Agreement or the Notes or for the validity or enforceability thereof, or for the consummation of the transactions contemplated hereby. 8.7. Use of Loans. Neither the Company, the Guarantor nor any Subsidiary of either of them is engaged principally, or as one of its important activities, in the business of extending credit for the purpose, whether immediate, incidental or ultimate, of buying or carrying margin stock (within the meaning of Regulation U or X of the Board of Governors of the Federal Reserve System) and no part of the proceeds of any Loan will be used to buy or carry any margin stock. 8.8. ERISA. Each of the Company and the Guarantor and the ERISA Affiliates have fulfilled its obligations under the minimum funding standards of ERISA and the Code with respect to each Plan, are in compliance in all material respects with the presently applicable provisions of ERISA and the Code and have not incurred any liability to the PBGC or any Plan or Multiemployer Plan. 8.9. Taxes. (a) United States Federal income tax returns of the Company, the Guarantor and the Subsidiaries have been examined and closed through Fiscal 1985, have been examined for Fiscal 1986 and Fiscal 1987 and are under examination for Fiscal 1988 and Fiscal 1989. (b) Each of the Company, the Guarantor and the Subsidiaries has filed all United States Federal income tax returns and all other material tax returns which are required to be filed by it and has paid all taxes due pursuant to such returns or pursuant to any assessment received by the Company, the Guarantor or any Subsidiary. The charges, accruals and reserves on the books of the Company, the Guarantor and the Subsidiaries in respect of taxes and other governmental charges are, in the opinion of the Company and the Guarantor, adequate. -42- 47 8.10. Credit Agreements. Schedule 1 hereto and all SEC Reports of the Company completely and correctly disclose each credit agreement, loan agreement, indenture, purchase agreement, guarantee or other arrangement providing for or otherwise relating to any extension of credit or commitment for any extension of credit (other than pursuant to any letter of credit excepted from the definition of Indebtedness herein under paragraph (c) thereof) to, or guarantee by, the Company, the Guarantor or any other Material Subsidiary the aggregate principal or face amount of which equals or exceeds (or may equal or exceed) $10,000,000 and accurately describes the aggregate principal or face amount outstanding and which may become outstanding under each thereof. 8.11. Ownership of Assets. Each of the Company, the Guarantor and each other Material Subsidiary has good and marketable title to all assets reflected on the audited consolidated balance sheet as of August 31, 1992 referred to in Section 8.2 hereof, subject to no Liens other than the Liens specified in Footnotes D and G to such balance sheet and, on the date hereof, such additional Liens as are listed on Schedule 1 hereto, and on any date hereafter, additional Liens permitted by Section 9.5 hereof and listed in Footnotes to the financial statements delivered pursuant to Section 9.1(a) or (b) hereof. 8.12. Pari Passu Obligations. The obligations of the Company and the Guarantor under this Agreement and the Notes rank and will rank at least pari passu in all respects with all other unsubordinated Indebtedness of the Company and the Guarantor, respectively, except for Indebtedness that is senior solely by operation of applicable law, and except that Indebtedness of the Company and the Guarantor secured as permitted by Section 9.5 hereof ranks senior in right of security with respect to the collateral therefor. Without limiting the generality of the foregoing, all principal of and interest (including post-petition interest allowable in any proceeding under any bankruptcy law) on and other amounts payable in connection with this Agreement constitute "Senior Indebtedness" as defined in, and for all purposes of, the Convertible Subordinated Debentures (and is entitled to the benefit of the subordination provisions relating thereto). 8.13. Investment Company Act. Neither the Company nor the Guarantor is, and neither is "controlled by," an "investment company" within the meaning of the Investment Company Act of 1940, as amended. 8.14. Environmental Matters. To the best of the knowledge of the Company and the Guarantor, all operations and conditions at or in the premises in which the Company and the -43- 48 Guarantor conduct their business comply in all material respects with all Federal, state and local laws, rules and regulations relating to environmental matters, pollution, waste disposal or industrial hygiene including, without limitation, such laws, rules and regulations relating to asbestos (collectively, "Environmental Laws"). None of the operations of either the Company or the Guarantor is subject to any judicial or administrative proceeding alleging the violation of or liability under any Environmental Law. Section 9. Covenants of the Company and the Guarantor. Each of the Company and the Guarantor agrees that, so long as any of the Commitments are in effect and until payment in full of all Obligations: 9.1. Financial Statements; Reports and Other Information. The Company shall deliver to the Administrative Agent, with sufficient copies for each of the Banks: (a) as soon as available and in any event within 60 days after the end of each of the first three Fiscal Quarters of each Fiscal Year of the Company, consolidated statements of income, retained earnings and changes in financial position of the Company and its consolidated Subsidiaries (including, without limitation, the Guarantor) for such period and for the period from the beginning of such Fiscal Year to the end of such period, and the related consolidated balance sheet as at the end of such period, setting forth in each case in comparative form the corresponding figures for the corresponding period in the preceding Fiscal Year, accompanied by a certificate of a senior financial officer of the Company, which certificate shall state that such financial statements fairly present the consolidated financial condition and results of operations of the Company and its consolidated Subsidiaries in accordance with GAAP, consistently applied, as at the end of, and for, such period (subject to normal year-end audit adjustments); (b) as soon as available and in any event within 120 days after the end of each Fiscal Year of the Company, consolidated statements of income, retained earnings and changes in financial position of the Company and its consolidated Subsidiaries (including, without limitation, the Guarantor) for such year and the related consolidated balance sheet as at the end of such year, setting forth in each case in comparative form the corresponding figures for the preceding Fiscal Year, and accompanied by an opinion thereon of independent certified public accountants of recognized national standing, which -44- 49 opinion shall state that such financial statements fairly present the consolidated financial condition and results of operations of the Company and its consolidated Subsidiaries (including, without limitation, the Guarantor) as at the end of, and for, such Fiscal Year, and a certificate of the chief financial officer of the Company that, in examining the financial condition of the Company and its Subsidiaries for such Fiscal Year, he or she obtained no knowledge, except as specifically stated, of any Default arising from the breach of the covenants provided for in Sections 9.4, 9.6, 9.7, 9.11, 9.12, 9.13 or 9.17 hereof; (c) promptly upon their becoming available, copies of all registration statements and regular SEC Reports, if any, which the Company shall have filed with the Securities and Exchange Commission (or any governmental agency substituted therefor) or any national securities exchange; (d) promptly upon the mailing thereof to the shareholders of the Company generally, copies of all financial statements, reports and proxy statements so mailed; (e) as soon as possible, and in any event within ten days after either the Company or the Guarantor knows or has reason to know that any of the events or conditions specified below with respect to any Plan or Multiemployer Plan has occurred or exists, a statement signed by a senior financial officer of the Company or the Guarantor setting forth details respecting such event or condition and the action, if any, which the Company, the Guarantor or their ERISA Affiliate proposes to take with respect thereto (and a copy of any report or notice required to be filed with or given to PBGC by the Company, the Guarantor or an ERISA Affiliate with respect to such event or condition): (i) any reportable event, as defined in Section 4043(b) of ERISA and the regulations issued thereunder, with respect to a Plan, as to which PBGC has not by regulation waived the requirement of Section 4043(a) of ERISA that it be notified within 30 days of the occurrence of such event (provided that a failure to meet the minimum funding standard of Section 412 of the Code or Section 302 of ERISA shall be a reportable event regardless of the issuance of any waivers in accordance with Section 412(d) of the Code); -45- 50 (ii) the filing under Section 4041 of ERISA of a notice of intent to terminate any Plan or the termination of any Plan; (iii) the institution by PBGC of proceedings under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan, or the receipt by the Company or any ERISA Affiliate of a notice from a Multiemployer Plan that such action has been taken by PBGC with respect to such Multiemployer Plan; (iv) the complete or partial withdrawal by the Company, the Guarantor or any ERISA Affiliate under Section 4201 or 4204 of ERISA from a Multiemployer Plan, or the receipt by the Company, the Guarantor or any ERISA Affiliate of notice from a Multiemployer Plan that is in reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA or that it intends to terminate or has terminated under Section 4041A of ERISA; and (v) the institution of a proceeding by a fiduciary of any Multiemployer Plan against the Company, the Guarantor or any ERISA Affiliate to enforce Section 515 of ERISA, which proceeding is not dismissed within 30 days; (f) promptly after either the Company or the Guarantor knows or has reason to know that any Default has occurred, a notice of such Default, describing the same in reasonable detail; (g) not later than (i) 60 days after the last day of each of the first three Fiscal Quarters of each of the Company's Fiscal Years and (ii) 120 days after the last Fiscal Quarter of each such Fiscal Year, a notice, substantially in the form of Exhibit D-1 hereto (the "Funded Debt Ratio Notice"), setting forth the Funded Debt Ratio for the four-Fiscal Quarter period ended on the last day of such Fiscal Quarter and a notice, substantially in the form of Exhibit D-2 hereto (the "Total Debt Ratio Notice"), setting forth the Total Debt Ratio for the four-Fiscal Quarter period ended on the last day of such Fiscal Quarter, which notices shall set forth calculations and computations in sufficient detail to show the amount and nature of each of the components of the Funded Debt Ratio and the Total Debt Ratio, respectively, for such four-Fiscal Quarter period; provided that in the case of the Funded Debt Ratio Notice and the Total Debt Ratio Notice delivered with respect to -46- 51 each Fiscal Quarter specified in clause (ii) above, the Company shall (if the final form of either of such Notices is not yet available) deliver such Notice in a preliminary form within 60 days of the end of such Fiscal Quarter setting forth all matters required by this paragraph (g) to be included in the final form thereof as accurately as shall be possible based upon information available to the Company at such time; and (h) from time to time such other information regarding the business or financial condition of the Company or any of the Subsidiaries (including, without limitation, any Plan or Multiemployer Plan and any reports or other information required to be filed under ERISA) as any Bank or the Administrative Agent may reasonably request. Each of the Company and the Guarantor will furnish to the Administrative Agent, with sufficient copies for the Banks, at the time it furnishes each set of financial statements pursuant to paragraph (a) or (b) above, a certificate of a senior financial officer of the Company and the Guarantor, substantially in the form of Exhibit C hereto (i) to the effect that, to the best of his or her knowledge, after full inquiry, no Default has occurred and is continuing (or, if any Default has occurred and is continuing, describing the same in reasonable detail), (ii) setting forth in reasonable detail the computations necessary to determine whether the Company and the Guarantor are in compliance with Sections 9.11, 9.12 and 9.13 hereof as at the end of the respective Fiscal Quarter or Fiscal Year and (iii) setting forth additions to the list of Subsidiaries that are Material Subsidiaries contained in the certificate most recently delivered pursuant to this provision and containing either (A) a representation that all other Subsidiaries combined do not constitute a Material Subsidiary Group as at such date or (B) a representation that all other Subsidiaries do constitute a Material Subsidiary Group as at such date and identifying any such Subsidiary whose aggregate book value of tangible assets exceeds $10,000,000 as at such date. In addition, each of the Company and the Guarantor hereby agrees to furnish the Administrative Agent with an updated notice with respect to the information specified in clause (iii) of the preceding sentence upon the occurrence of any event either that has resulted or could result in a Subsidiary becoming a Material Subsidiary or a group of Subsidiaries becoming a Material Subsidiary Group or that could make the representation contained in the most recently delivered certificate furnished pursuant to this Section 9.1 no longer accurate. -47- 52 9.2. Litigation. Without limiting the obligations of the Company under Section 9.1(h) hereof, each of the Company and the Guarantor shall promptly give to each Bank notice of all court or arbitral proceedings and investigations, and of all proceedings and investigations before any governmental or regulatory authority or agency, affecting the Company, the Guarantor or any Subsidiary, except proceedings or investigations which, if adversely determined, would not have a material adverse effect on the consolidated financial condition or operations, or the business taken as a whole, of the Company and its consolidated Subsidiaries (including, without limitation, the Guarantor). 9.3. Corporate Existence, Etc. Each of the Company and the Guarantor will, and will cause each of their respective Subsidiaries (but in the case of paragraphs (a), (d) and (e) of this Section 9.3, only those Subsidiaries which are Material Subsidiaries) to: (a) preserve and maintain its corporate existence and all of its material rights, privileges, licenses and franchises; (b) comply with the requirements of all applicable laws, rules, regulations and orders of governmental or regulatory authorities if failure to comply with such requirements would materially and adversely affect the consolidated financial condition or operations, or the business taken as a whole, of the Company and its consolidated Subsidiaries; (c) pay and discharge all taxes, assessments and governmental charges or levies imposed on it or on its income or profits or on any of its property prior to the date on which penalties attach thereto, except for any such tax, assessment, charge or levy the payment of which is being contested in good faith and by proper proceedings and against which adequate reserves are being maintained in accordance with GAAP; (d) maintain all of its properties used or useful in its business in good working order and condition, ordinary wear and tear excepted; (e) permit representatives of any Bank or the Administrative Agent, during normal business hours, to examine, copy and make extracts from its books and records, to inspect its properties, and to discuss its business and financial condition with its officers, all to the extent reasonably requested by such Bank or the Administrative Agent (as the case may be); and -48- 53 (f) keep insured by financially sound and reputable insurers all property of a character usually insured by corporations engaged in the same or similar business similarly situated against loss or damage of the kinds and in the amounts customarily insured against by such corporations and carry such other insurance as is usually carried by such corporations. 9.4. Payment of Obligations. Without limiting the obligations of the Company and the Guarantor under Section 9.3 hereof, each of the Company and the Guarantor will, and will cause each of their respective Subsidiaries to, pay and discharge at or before the date when due, all of their respective material obligations and other liabilities, including, without limitation, tax and pension liabilities, except where such obligations or liabilities are being contested in good faith and by appropriate proceedings, and maintain, in accordance with GAAP, appropriate reserves for the accrual of all of the foregoing. 9.5. Liens. Neither the Company nor the Guarantor will, nor will either of them permit any of their respective Subsidiaries to, create, incur, assume or suffer to exist any Lien on any asset, revenue or other property now or hereafter owned or acquired by it (including, without limitation, the stock of Subsidiaries other than Broadcast Subsidiaries at the time of disposition thereof as permitted by Section 9.7 hereof) except: (a) Liens existing on the date hereof securing Indebtedness outstanding on such date and identified in Footnote D and G to the Company's audited consolidated balance sheet as of August 31, 1992 or on Schedule 1 hereto; (b) any purchase money security interest hereafter created on any property of the Company, the Guarantor or such Subsidiary securing Indebtedness incurred solely for the purpose of financing all or a portion of the purchase price of such property; provided that: (i) such Lien (A) is created within six months of the acquisition of such property, (B) extends to no other property and (C) secures no other Indebtedness; (ii) the principal amount of Indebtedness secured by such Lien shall at no time exceed the lesser of (A) the cost to such Person of the property subject thereto or (B) the fair value of such property (as determined in good faith by the Board of Directors of such Person) at the time of the acquisition thereof; (iii) such Lien does not extend to or in any way encumber any inventory of the Guarantor purchased in the ordinary course of business; and (iv) -49- 54 the aggregate principal amount of all Indebtedness secured by all such Liens shall not exceed at any time $15,000,000 less the aggregate principal amount of all Indebtedness secured by Liens permitted under Section 9.5(i) hereof; (c) carriers', warehousemen's, mechanics', materialmen's and repairmen's liens arising in the ordinary course of business of the Company, the Guarantor or such Subsidiary and not overdue for a period of more than 30 days or which are being contested in good faith and by appropriate proceedings; (d) Liens created in connection with the lease by the Company, the Guarantor or any of their respective Subsidiaries of any property (whether real, personal or mixed) (i) now or hereafter owned by the Company, the Guarantor or any such Subsidiary which has been sold or otherwise transferred by any thereof to any other Person within six months of the acquisition thereof or (ii) which any of the Company, the Guarantor or any such Subsidiary, as the case may be, intends to use for substantially the same purpose as any property described in clause (i) above; (e) Liens in favor of consignors against inventory being sold on consignment in the ordinary course of business by the Company, the Guarantor or any Subsidiary; (f) Liens created in substitution for any Liens permitted by paragraphs (a), (b) and (d) of this Section 9.5, provided that (i) any such newly-created Lien does not extend to any other or additional property and (ii) (A) if permitted by such paragraph (a) or (b), does not secure any other (or additional principal amount of) Indebtedness and (B) if permitted by such paragraph (d) does not secure any other obligations under such lease or any obligations under any other lease; (g) Liens existing on assets at the time of acquisition thereof by the Company, the Guarantor or the respective Subsidiary and not incurred in anticipation of or in connection with such acquisition; (h) operating leases and Capital Leases, to the extent the same would constitute Liens, pursuant to which the Company, the Guarantor or the respective Subsidiary is lessee, and incurred by such Person in the ordinary course of its business; and -50- 55 (i) in addition to Liens otherwise permitted by this Section 9.5, Liens on property of the Company, the Guarantor or any of their respective Subsidiaries (i) which secure Indebtedness having an aggregate principal amount not exceeding at any time $15,000,000 less the aggregate principal amount of all Indebtedness secured by Liens permitted under Section 9.5(b) hereof and (ii) each of which shall be limited to specified items of collateral (and not a general Lien on all assets of such Person) having a book value not greater than 150% of the aggregate principal amount of the Indebtedness secured by such Lien; provided, however, that (A) all capital stock of all Subsidiaries (other than the Broadcast Subsidiaries at the time of disposition thereof as permitted by Section 9.7 hereof) and (B) all promissory notes and other securities acquired by the Company in connection with the disposition of the Broadcast Subsidiaries will in any event be maintained free and clear of all Liens whatsoever. 9.6. Mergers. Neither the Company nor the Guarantor will, and neither of them will permit any other Material Subsidiary or Subsidiaries constituting a Material Subsidiary Group or a Broadcast Subsidiary Group to, (a) consolidate or merge with or into any other Person, except that a Wholly-Owned Subsidiary of the Company or the Guarantor (other than the Guarantor) may merge with or consolidate into the Company or the Guarantor (provided that the Company or the Guarantor, as the case may be, shall be the survivor of such merger or consolidation) or another Wholly-Owned Subsidiary of the Company or the Guarantor, or (b) sell, assign, convey, lease, sublet, transfer or otherwise dispose of all or substantially all of its assets to any Person, whether in a single transaction or in a series of related transactions, except that a Wholly-Owned Subsidiary of the Company or the Guarantor (other than the Guarantor) may sell, assign, convey, lease, sublet, transfer or otherwise dispose of all or substantially all of its assets to the Company or to another Wholly-Owned Subsidiary of the Company or the Guarantor; provided, however, that none of the foregoing transactions shall be permitted if a Default or an Event of Default has occurred and is continuing or would result from the consummation of any such transaction. -51- 56 It is understood and agreed that: (i) any consolidation, merger, sale, assignment, conveyance, letting, subletting, transfer or other disposition of all or substantially all of the assets of a Broadcast Subsidiary shall be permitted under this Section 9.6, so long as such Broadcast Subsidiary, together with all other Broadcast Subsidiaries with respect to which there has been, since the date hereof, a consolidation, merger, sale, assignment, conveyance, letting, subletting, transfer or other disposition of all or substantially all of its assets, does not constitute a Broadcast Subsidiary Group, and (ii) any consolidation, merger, sale, assignment, conveyance, letting, subletting, transfer or other disposition of all or substantially all of the assets of a Non-Material Subsidiary shall be permitted under this Section 9.6, so long as such Non-Material Subsidiary, together with all other Non-Material Subsidiaries with respect to which there has been, since the date hereof, a consolidation, merger, sale, assignment, conveyance, letting, subletting, transfer or other disposition of all or substantially all of its assets, does not constitute a Material Subsidiary Group. It is further understood and agreed that the distribution or arms'-length sale of the Company's shares of capital stock of the Broadcast Subsidiaries as permitted under Section 9.7 hereof will not constitute all or substantially all of the assets or liabilities of the Company, the Guarantor or any Subsidiary for purposes of this Section 9.6 nor shall the value thereof be aggregated with other assets of the Company for purposes of determining the Company's compliance with this Section 9.6. 9.7. Dispositions of Assets. Neither the Company nor the Guarantor will, and neither of them will permit any other Material Subsidiary or any Broadcast Subsidiary to, sell, assign, convey, lease, sublet, transfer or otherwise dispose of any of the assets, business or other properties of the Company, the Guarantor or any such Material Subsidiary or Broadcast Subsidiary to any Person, whether in a single transaction or in a series of related transactions, except for: (i) sales of inventory (but not of accounts receivable) in the ordinary course of business of the Company, the Guarantor or any such Subsidiary; (ii) dispositions of assets in the ordinary course of business in arm's-length transactions by -52- 57 the Company, the Guarantor or any such Subsidiary to the extent such assets either are no longer used or useful to the Company, the Guarantor or such Subsidiary or are promptly replaced by other assets of at least equal usefulness; (iii) the sale or distribution of shares of capital stock held by the Company or any Subsidiary in any Broadcast Subsidiary; provided that (i) all requisite consents and approvals with respect to such sale or distribution have been obtained, (ii) any such transaction is on substantially the same terms and conditions specified in the Form 10 filed by Silver King Communications, Inc., a Subsidiary of the Company, with the Securities and Exchange Commission on August 27, 1992, as amended through December 11, 1992, attached hereto as Annex B (including, without limitation, the provision that the Company shall retain a broadcast affiliation relationship with each of the Broadcast Subsidiaries after such transaction), and the Banks shall have reviewed all final documentation with respect to each such sale or distribution and have confirmed to their satisfaction that the terms and conditions set forth in such Form 10 have been complied with, and (ii) the aggregate amount of the Company's interest in the capital stock of such Broadcast Subsidiaries (whether directly or by distribution of the shares of capital stock of any corporation directly or indirectly holding such Broadcast Subsidiaries' capital stock) that is distributed by the Company as a dividend to its stockholders in connection with all such transactions cumulatively after the date hereof does not exceed $15,000,000; and (iv) any such disposition by the Company, the Guarantor or any Wholly-Owned Subsidiary to the Company, the Guarantor or any Wholly-Owned Subsidiary, as the case may be; provided, however, that the Company and the Guarantor shall maintain their respective assets and operations substantially in accordance with their respective assets and operations as of the date hereof, and that in the case of any such disposition by the Company or the Guarantor to a Wholly-Owned Subsidiary, each of the Company and the Guarantor agree that such disposition shall be in the ordinary course of business consistent with past practice and shall be accomplished upon fair and reasonable terms to the Company or the Guarantor; -53- 58 provided that all promissory notes and other securities acquired by the Company in connection with the disposition of the Broadcast Subsidiaries will in any event be maintained free and clear of all dispositions whatsoever. 9.8. Ranking. (a) Each of the Company and the Guarantor will cause its obligations under this Agreement, the Notes and each other document now or hereafter entered into with respect hereto or thereto to rank at least pari passu in right of payment and of security with all other unsubordinated Indebtedness of the Company or the Guarantor, as the case may be, except that Indebtedness secured by any Lien permitted by Section 9.5 hereof may rank senior in right of security with respect to the collateral subject to such Lien. Without limiting the generality of the foregoing, the Company covenants, and will take all steps necessary to assure, that its obligations under this Agreement will at all times constitute "Senior Indebtedness" as defined in, and for all purposes of, the Convertible Subordinated Debentures (and will be entitled to the benefits of the subordination provisions relating thereto). (b) Each of the Company and the Guarantor will cooperate with the Administrative Agent and the Banks and execute such further instruments and documents as any Bank may reasonably request to carry out the intentions of this Section 9.8. Without limiting the generality of the foregoing, if the Company or the Guarantor hereafter issues or otherwise incurs any subordinated Indebtedness, each of them will execute and cause to be executed such further documents as any Bank may reasonably request to ensure that the obligations of the Company and the Guarantor under this Agreement and the Notes at all times rank senior to such subordinated Indebtedness. (c) Nothing in this Section 9.8 shall be construed so as to limit the ability of the Company or the Guarantor to incur any Indebtedness (consistent with paragraphs (a) and (b) above and otherwise permitted by this Agreement) on a basis pari passu with their respective Indebtedness under this Agreement and the Notes. 9.9. Business; Fiscal Year. Neither the Company nor the Guarantor will make any material change in the nature of its business from that in which it is engaged on the date of this Agreement, and neither the Company nor the Guarantor shall cause, or permit any of their respective Subsidiaries to cause, any other Subsidiary to conduct business or operations substantially similar to the business or operations conducted by the Guarantor on the date of this Agreement. Neither the Company nor the Guarantor will change its fiscal year from -54- 59 that currently in effect on the date hereof, as set forth in the definition of "Fiscal Year" in Section 1.1 hereof. 9.10. Transactions with Affiliates. Neither the Company nor the Guarantor will, and neither will permit any of its respective Subsidiaries to, enter into or be a party to any transaction (including but not limited to any merger, consolidation or sale of substantially all assets) with any Affiliate of the Company or the Guarantor, except upon fair and reasonable terms no less favorable to the Company or the Guarantor or such Subsidiary than would obtain in a comparable arm's-length transaction with a Person not an Affiliate of the Company or the Guarantor. 9.11. Fixed Charges Coverage Test. The Company will maintain the ratio of Adjusted Operating Cash Flow to Fixed Charges for the Company and its Subsidiaries on a consolidated basis, for each four-Fiscal Quarter period ending in each of the following Fiscal Years, to be not less than the following ratios: Fiscal Year Minimum Ratio ----------- ------------- Fiscal 1993 1.70:1 Fiscal 1994 1.35:1 Fiscal 1995 1.40:1 Fiscal 1996 1.70:1. 9.12. Debt Ratio. The Company will not permit the ratio of Total Debt to Operating Cash Flow for the Company and its Subsidiaries on a consolidated basis, for each four-Fiscal Quarter period ending in each of the following Fiscal Years, to be greater than the following ratios: Fiscal Year Maximum Ratio ----------- ------------- Fiscal 1993 1.90:1 Fiscal 1994 1.60:1 Fiscal 1995 1.35:1 Fiscal 1996 1.15:1. 9.13. Consolidated Net Worth. The Company shall not permit Consolidated Net Worth at any time prior to August 30, 1993, to be less than $125,000,000, and at any time during the following periods to be less than the following amounts: Period Amount ------ ------ August 31, 1993 to August 30, 1994 $135,000,000 August 31, 1994 to August 30, 1995 $145,000,000 August 31, 1995 to August 30, 1996 $155,000,000 -55- 60 and, commencing on August 31, 1996, $10,000,000 above the minimum amount of Consolidated Net Worth required pursuant to this Section 9.13 on the last day of the preceding Fiscal Year. 9.14. Notification of Incurrence of Debt or Making of Investment. Prior to the incurrence by the Company or any of its Subsidiaries of Indebtedness (other than Indebtedness under the Term Loan Agreement or this Agreement), or upon obtaining commitments for Indebtedness, or the making of any Investment of cash, property or other assets in an aggregate principal amount of $20,000,000 (per incurrence or cumulatively since September 1, 1992 or since the last time incurrence compliance was required to be tested pursuant to this Section 9.14) or more, the Company shall deliver notice to the Administrative Agent and the Banks, certifying, on the basis of its financial statements for the four Fiscal Quarters most recently ended, the Company's compliance with the financial covenants under the Term Loan Agreement and this Agreement both before and immediately after the incurrence of such Indebtedness or Investment on both an historical and pro forma basis; provided, that in the event any cash change in long-term investments or cash change in long-term notes receivable triggers notification of the incurrence of Indebtedness and certification of compliance with financial covenants pursuant to this Section 9.14, the calculation to determine pro forma compliance with the Fixed Charges Coverage Test set forth in Section 9.11 hereof shall be performed after excluding the smallest amount of any cash increase in long-term investments and cash increase in long-term notes receivable for any Fiscal Quarter included in such test. 9.15. Use of Proceeds. The Company shall use the proceeds of the Loans solely for its general corporate purposes and in any event in compliance with all applicable legal and regulatory requirements, including, without limitation, Regulations G, T, U and X of the Board of Governors of the Federal Reserve System and the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, and the regulations thereunder. Neither the Administrative Agent nor any Bank shall have any responsibility for any use of the proceeds of the Loans. 9.16. Ownership of Guarantor. The Company agrees at all times to own, both beneficially and of record and free and clear of all Liens, and control 100% of the capital shares of the Guarantor. 9.17. Indebtedness of Subsidiaries. The Company will not permit any of its Subsidiaries to create, incur, -56- 61 assume, suffer to exist or otherwise become obligated for or under any Indebtedness whatsoever, except for: (i) Indebtedness owed to the Company; (ii) trade Indebtedness incurred by such Subsidiary in the ordinary course of its business; (iii) Capital Leases; and (iv) Indebtedness of the Guarantor under this Agreement and the Term Loan Agreement. Section 10. Events of Default. If one or more of the following events (herein called "Events of Default" shall occur and be continuing: (a) The Company or the Guarantor shall fail to pay the principal of any Loan when due (provided that, other than with respect to any principal payment due on the Commitment Termination Date or on such earlier date on which all principal of the Loans shall have become due, if the Company or the Guarantor has transmitted payment of such principal by wire transfer to the Administrative Agent not later than 11:00 a.m. New York time on the date when due and has delivered to the Administrative Agent a written acknowledgement by the remitting bank that such bank has been instructed to transfer such payment to the Administrative Agent and that there are sufficient funds available in the Company's account with such remitting bank to make such payment, then if the Administrative Agent shall have failed to receive such payment of principal by 11:00 a.m. New York time on the Business Day after the date when due); or the Company or the Guarantor shall fail to pay any interest on any Loan or any other amount payable by it hereunder more than two Business Days after the date when any such amount shall be due; or (b) There shall have occurred a default or event of default under the Term Loan Agreement, the Senior Note Indenture or the Convertible Subordinated Debenture Indenture; or (c) The Company or the Guarantor or any Subsidiary shall default in the payment when due (after giving effect to all applicable grace periods provided for in the documents relating to such Indebtedness, without regard to any waiver thereof) of any principal of or interest on or any other amount payable in connection with any of its Indebtedness not specified in -57- 62 Section 10(a) or 10(b) hereof in an aggregate principal amount of $5,000,000 or more; or any event specified in any note, agreement, indenture or other document evidencing or relating to any such Indebtedness shall occur if (after giving effect to all applicable grace periods provided for in the documents relating to such Indebtedness, without regard to any waiver thereof) the effect of such event is to cause, or to permit the holder or holders of such Indebtedness (or a trustee or agent on behalf of such holder or holders) to cause, such Indebtedness becoming due prior to its stated maturity; or (d) Any representation, warranty or certification made or deemed made herein by the Company or the Guarantor, or any certificate furnished to any Bank or the Administrative Agent pursuant to the provisions hereof, shall prove to have been false or misleading as of the time made or deemed made or furnished in any material respect and, if the Company, the Guarantor and the Majority Banks agree that the effects of such false or misleading representation, warranty or certification are curable, such effects shall not have been cured to the satisfaction of the Majority Banks within 10 days after the earlier of (x) the date on which the Company or the Guarantor obtained knowledge that such representation, warranty or certification was so false or misleading or (y) the date of notice by the Administrative Agent to the Company or the Guarantor that such representation, warranty or certification was so false or misleading; or (e) The Company or the Guarantor shall default in the performance of any of its obligations under Section 9 (other than under any of Sections 9.1(a), 9.1(b), 9.1(c), 9.1(d), 9.1(g), 9.1(h), 9.2, 9.3(b), 9.3(c) and 9.4 hereof); or the Company or the Guarantor shall default in the performance of any of its other obligations in this Agreement, including, without limitation, any of Sections 9.1(a), 9.1(b), 9.1(c), 9.1(d), 9.1(g), 9.1(h), 9.2, 9.3(b), 9.3(c) and 9.4 hereof (not governed by any other provision in this Section 10), and such default shall continue unremedied for a period of 10 days after the earlier of (x) the date on which the Company or the Guarantor obtained knowledge of such default or (y) the date of notice by the Administrative Agent to the Company or the Guarantor of the occurrence of such default; or (f) The Company, the Guarantor, any other Material Subsidiary or Subsidiaries constituting a Material Subsidiary Group shall admit in writing its inability to, or -58- 63 be generally unable to, pay its debts as such debts become due; or (g) The Company, the Guarantor, any other Material Subsidiary or Subsidiaries constituting a Material Subsidiary Group shall (i) apply for or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee or liquidator of itself or of all or a substantial part of its assets, (ii) make a general assignment for the benefit of its creditors, (iii) commence a voluntary case under the Bankruptcy Code (as now or hereafter in effect), (iv) file a petition seeking to take advantage of any other law relating to bankruptcy, insolvency, reorganization, creditor or debtor rights, winding-up, or composition or readjustment of debts, (v) take any corporate action for the purpose of effecting any of the foregoing; provided that an event specified in clauses (i) through (v) above shall be deemed to have occurred (whether at one time or cumulatively over a period of time after the date hereof) with respect to a Material Subsidiary Group at the time when such an event shall have occurred with respect to all Subsidiaries constituting such Material Subsidiary Group; or (h) A proceeding or case shall be commenced, without the application or consent of the Company, the Guarantor, any other Material Subsidiary or all Subsidiaries constituting a Material Subsidiary Group in any court of competent jurisdiction, seeking (i) its liquidation, reorganization, dissolution or winding-up, or the composition or readjustment of its debts, including the filing of an involuntary petition under the Bankruptcy Code, (ii) the appointment of a trustee, receiver, custodian, liquidator or the like of the Company, the Guarantor or such Subsidiary or of all or any substantial part of its assets, or (iii) similar relief in respect of the Company, the Guarantor or such Subsidiary under any law relating to bankruptcy, insolvency, reorganization, creditor or debtor rights, winding-up, or composition or adjustment of debts, and such proceeding or case shall continue undismissed, or an order, judgment or decree approving or ordering any of the foregoing shall be entered and shall not be vacated or dismissed within 60 days; or an order for relief against the Company, the Guarantor or such Subsidiary shall be entered in an involuntary case under any applicable bankruptcy code; provided that an event specified in clauses (i) through (iii) above or the preceding subclause shall be deemed to have occurred with respect to a Material Subsidiary Group at the time when such an event shall have occurred (whether at one time or cumulatively over a period of -59- 64 time after the date hereof) with respect to all Subsidiaries constituting such Material Subsidiary Group; or (i) A judgment or judgments for the payment of money in excess of $1,000,000 in the aggregate shall be rendered by a court or courts against the Company, the Guarantor and/or any of their respective Subsidiaries and the same shall not be discharged (or provision shall not be made for such discharge), or a stay of execution thereof shall not be procured, within 30 days from the date of entry thereof and the Company, the Guarantor or the relevant Subsidiary shall not, within said period of 30 days, or such longer period during which execution of the same shall have been stayed, appeal therefrom and cause the execution thereof to be stayed during such appeal; or (j) An event or condition specified in Section 9.1(e) hereof shall occur or exist with respect to any Plan or Multiemployer Plan and, as a result of such event or condition, together with all other such events or conditions, the Company, the Guarantor or any ERISA Affiliate shall incur or in the opinion of the Majority Banks shall be reasonably likely to incur a liability to a Plan, a Multiemployer Plan or PBGC (or any combination of the foregoing) which is, in the determination of the Majority Banks, material in relation to the consolidated financial position of the Company and its consolidated Subsidiaries; or (k) There shall occur a Change of Control; provided that any such Change of Control shall not constitute an Event of Default for purposes of this Section 10(k) if (i) (A) such Change of Control arises solely in connection with the Liberty Media Transaction, and (B) as of the date the Liberty Media Transaction is consummated and after giving effect thereto, no other Default or Event of Default shall have occurred and be continuing, or (ii) (A) such Change of Control arises solely by reason of the merger or consolidation of the Company with another corporation which is organized under the laws of a state in the United States and the Company is the surviving corporation in such merger or consolidation, (B) as of the date of such merger or consolidation and after giving effect thereto, no other Default or Event of Default shall have occurred and be continuing, and (C) the Company has delivered a notice to the Administrative Agent and the Banks not less than 30 days prior to the consummation of any such merger or consolidation that sets forth in reasonable detail information -60- 65 indicating compliance with the terms of clause (ii) of this paragraph (k); or (1) Following the disposition of any of the Broadcast Subsidiaries as permitted by Section 9.7 hereof, an event or condition that constitutes (i) a default or breach by any such Broadcast Subsidiary that is party to a Silver King Note or any other agreement, including without limitation, an affiliation agreement, which had been entered into in connection with such disposition and pursuant to which such Broadcast Subsidiary and the Company continued a business relationship, and such default or breach shall continue unremedied for a period of 30 days after the Company obtained knowledge of such default or breach or (ii) a default or breach by the Company of any agreement, including without limitation, an affiliation agreement, which had been entered into in connection with such disposition and pursuant to which such Broadcast Subsidiary and the Company continued a business relationship. THEREUPON: (i) in the case of an Event of Default other than one referred to in clause (f), (g) or (h) of this Section 10, the Administrative Agent, with the consent of the Majority Banks, may and, upon request of the Majority Banks, shall, by notice to the Company, terminate the Commitments and/or declare the principal amount then outstanding of, and the accrued interest on, the Loans and all other amounts payable by the Company and the Guarantor hereunder and under the Notes to be forthwith due and payable, whereupon such amounts shall be immediately due and payable without presentment, demand, diligence, protest or other formalities of any kind, all of which are hereby expressly waived by the Company and the Guarantor; and (ii) in the case of the occurrence of an Event of Default referred to in clause (f), (g) or (h) of this Section 10, the Commitments shall be automatically terminated and the principal amount then outstanding of, and the accrued interest on, the Loans and all other amounts payable by the Company and the Guarantor hereunder and under the Notes shall become automatically immediately due and payable without presentment, demand, protest or other formalities of any kind, all of which are hereby expressly waived by the Company and the Guarantor. Section 11. The Administrative Agent. 11.1. Appointment, Powers and Immunities. Each Bank hereby irrevocably appoints and authorizes the Administrative Agent to act as its agent hereunder with such powers as are specifically delegated to the Administrative Agent by the -61- 66 terms of this Agreement, together with such other powers as are reasonably incidental thereto. The Administrative Agent (which term as used in this sentence and in Section 11.5 and the first sentence of Section 11.6 hereof shall include reference to its affiliates and each of the officers, directors, employees and agents of itself and of its affiliates): (a) shall have no duties or responsibilities except those expressly set forth in this Agreement, and shall not by reason of this Agreement be a trustee for any Bank; (b) shall not be responsible to the Banks for any recitals, statements, representations or warranties contained in this Agreement, or in any certificate or other document referred to or provided for in, or received by any of them under, this Agreement, or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement, any Note or any other document referred to or provided for herein or for any failure by the Company or any other Person to perform any of its obligations hereunder or thereunder; (c) shall not be required to initiate or conduct any litigation or collection proceedings hereunder, except as provided for under Section 11.3 hereof; and (d) shall not be responsible for any action taken or omitted to be taken by it hereunder or under any other document or instrument referred to or provided for herein or in connection herewith, except for its own gross negligence or willful misconduct. The Administrative Agent may employ agents and attorneys-in-fact and shall not be responsible for the negligence or misconduct of any such agents or attorneys-in-fact selected by it in good faith. The Administrative Agent may deem and treat the payee of any Note as the holder thereof for all purposes hereof unless and until a written notice of the assignment or transfer thereof shall have been filed with the Administrative Agent. 11.2. Reliance by the Administrative Agent. The Administrative Agent shall be entitled to rely upon any certification, notice or other communication (including any thereof by telephone, telex, telegram or cable) reasonably believed by it to be genuine and correct and to have been signed or sent by or on behalf of the proper Person or Persons, and upon advice and statements of legal counsel, independent accountants and other experts selected by the Administrative Agent. As to any matters not expressly provided for by this Agreement, the Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder in accordance with instructions signed by the Majority Banks, and such instructions of the Majority Banks and any action taken or failure to act pursuant thereto shall be binding on all of the Banks. 11.3. Defaults. The Administrative Agent shall not be deemed to have knowledge of the occurrence of a Default -62- 67 (other than the nonpayment of principal of or interest on Loans or of commitment fees) unless the Administrative Agent has received notice from a Bank or the Company specifying such Default and stating that such notice is a "Notice of Default". In the event that the Administrative Agent receives such a notice of the occurrence of a Default, the Administrative Agent shall give prompt notice thereof to the Banks (and shall give each Bank prompt notice of each such nonpayment). The Administrative Agent shall (subject to Section 11.7 and Section 12.4 hereof) take such action with respect to such Default as shall be directed by the Majority Banks, provided that, unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default as it shall deem advisable in the best interest of the Banks. 11.4. Rights as a Bank. With respect to its Commitment and the Loans made by it, LTCB Trust (and any successor acting as Administrative Agent) in its capacity as a Bank hereunder shall have the same rights and powers hereunder as any other Bank and may exercise the same as though it were not acting as the Administrative Agent, and the term "Bank" or "Banks" shall, unless the context otherwise indicates, include the Administrative Agent in its individual capacity. LTCB Trust (and any successor acting as Administrative Agent) and its affiliates may (without having to account therefor to any Bank) accept deposits from, lend money to and generally engage in any kind of banking, trust or other business with the Company (and any of its Affiliates) as if it were not acting as the Administrative Agent, and LTCB, LTCB Trust and their affiliates may accept fees and other consideration from the Company and the Guarantor for services in connection with this Agreement or otherwise without having to account for the same to the Banks. 11.5. Indemnification. The Banks agree to indemnify the Administrative Agent (to the extent not reimbursed under Section 12.3 hereof, but without limiting the obligations of the Company under said Section 12.3), ratably in accordance with the aggregate principal amount of the Loans made by the Banks (or, if no Loans are at the time outstanding, ratably in accordance with their respective Commitments), for any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind and nature whatsoever which may be imposed on, incurred by or asserted against the Administrative Agent in any way relating to or arising out of this Agreement or any other documents contemplated by or referred to herein or the transactions contemplated hereby (including, without limitation, the costs and expenses which the Company is obligated to pay under -63- 68 Section 12.3 hereof but excluding, unless a Default has occurred and is continuing, normal administrative costs and expenses incident to the performance of its agency duties hereunder) or the enforcement of any of the terms hereof or of any such other documents, provided that no Bank shall be liable for any of the foregoing to the extent they arise from the gross negligence or willful misconduct of the party to be indemnified. 11.6. Non-Reliance on Administrative Agent, Co-Agents and other Banks. Each Bank agrees that it has, independently and without reliance on the Administrative Agent, either Co-Agent or any other Bank, and based on such documents and information as it has deemed appropriate, made its own credit analysis of the Company, the Guarantor and their respective Subsidiaries and its own decision to enter into this Agreement and that it will, independently and without reliance upon the Administrative Agent, either Co-Agent or any other Bank, and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under this Agreement, the Notes or any other related documents. The Administrative Agent shall not be required to keep itself informed as to the performance or observance by the Company or the Guarantor of this Agreement or any other document referred to or provided for herein or to inspect the properties or books of the Company, the Guarantor or any of their respective Subsidiaries. Except for notices, reports and other documents and information expressly required to be furnished to the Banks by the Administrative Agent hereunder, the Administrative Agent shall not have any duty or responsibility to provide any Co-Agent or any Bank with any credit or other information concerning the affairs, financial condition or business of the Company or any Subsidiary (or any of their affiliates) which may come into the possession of the Administrative Agent or any of its affiliates. 11.7. Failure to Act. Except for action expressly required of the Administrative Agent hereunder, the Administrative Agent shall in all cases be fully justified in failing or refusing to act hereunder unless it shall be indemnified to its satisfaction by the Banks against any and all liability and expense (other than that arising from gross negligence or willful misconduct) which may be incurred by it by reason of taking or continuing to take any such action. 11.8. Resignation or Removal of Administrative Agent. Subject to the appointment and acceptance of a successor Administrative Agent as provided below, the Administrative Agent may resign at any time by giving notice thereof to the Banks, the Company and the Guarantor, and the -64- 69 Administrative Agent may be removed at any time with or without cause by the Majority Banks. Upon any such resignation or removal, the Majority Banks shall have the right to appoint a successor Administrative Agent. If no successor Administrative Agent shall have been so appointed by the Majority Banks and shall have accepted such appointment within 30 days after the retiring Administrative Agent's giving of notice of resignation or the Majority Banks' removal of the retiring Administrative Agent, then the retiring Administrative Agent may, on behalf of the Banks, appoint a successor Administrative Agent, which shall be a bank which has an office in New York, New York with a combined capital and surplus of at least $100,000,000. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations hereunder. After any retiring Administrative Agent's resignation or removal hereunder as Administrative Agent, the provisions of this Section 11 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as the Administrative Agent. 11.9. Administrative Agent's Office. The Administrative Agent acts initially through its office designated on the signature pages hereof, but may transfer its functions as Administrative Agent to any other office, branch or affiliate of LTCB at any time by giving prompt, subsequent written notice to each of the other parties to this Agreement. 11.10. Co-Agents. Each of the parties acknowledges and agrees that the Co-Agents, in their capacity as such, have no obligations, duties or liabilities whatsoever under or in respect of this Agreement or the Notes. Section 12. Miscellaneous. 12.1. Waiver. No failure on the part of the Administrative Agent, either Co-Agent or any Bank to exercise, no delay in exercising, and no course of dealing with respect to, any right, power or privilege under this Agreement or any Note shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege under this Agreement or any Note preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The remedies provided herein are cumulative and not exclusive of any remedies provided by law. -65- 70 12.2. Notices. All notices and other communications provided for herein (including, without limitation, any modifications of, or waivers or consents under, this Agreement) shall be given or made by telex, telecopy, telegraph, cable or in writing and telexed, telecopied, telegraphed, cabled, mailed or delivered to the intended recipient at the "Address for Notices" specified below its name on the signature pages hereof; or, as to any party, at such other address as shall be designated by such party in a notice to each other party. Except as otherwise provided in this Agreement, all such communications shall be deemed to have been duly given when transmitted by telex or telecopier (with receipt confirmed either mechanically or in writing by a person at the office of the recipient), personally delivered or, in the case of a mailed notice, upon receipt, in each case given or addressed as aforesaid. 12.3. Expenses, Etc. The Company and the Guarantor jointly and severally agree to pay or reimburse each of the Banks and the Administrative Agent for paying: (a) all costs and expenses of the Administrative Agent (including, without limitation, the reasonable fees and expenses of all special counsel to the Administrative Agent, the Co-Agents and the Banks, in connection with (i) the preparation, negotiation, execution and delivery of this Agreement and the Notes and any related documents and the making of the initial Loans hereunder, subject to limitations set forth in letters dated the date hereof between the Company and LTCB Trust and Bank of Montreal, respectively, and (ii) any amendment, modification or waiver of any of the terms of this Agreement or any of the Notes or any related documents (whether or not any such amendment, modification or waiver is signed or becomes effective); (b) all reasonable costs and expenses of each Bank, each Co-Agent and the Administrative Agent (including reasonable counsels' fees and expenses) in connection with the enforcement of this Agreement or any of the Notes and the protection of the rights of each Bank, each Co-Agent and the Administrative Agent against the Company, the Guarantor or any of their respective assets; and (c) all transfer, stamp, documentary and other similar taxes, assessments or charges (including, without limitation, penalties and interest) levied by any governmental or revenue authority in respect of this Agreement, any of the Notes or any other document referred to herein. -66- 71 The Company hereby agrees to indemnify the Administrative Agent, each Co-Agent and each Bank and their respective Affiliates, directors, officers, employees and agents from, and hold each of them harmless against, any and all losses, liabilities, claims, damages or expenses incurred by any of them arising out of or by reason of any investigation or litigation or other proceedings (including any threatened investigation or litigation or other proceedings) relating to or arising out of this Agreement, the statements contained in the commitment letter and term sheet, dated September 28, 1992, as amended, of LTCB Trust, as a Co-Agent, and the commitment letter and term sheet, dated October 8, 1992, as amended, of Bank of Montreal, as a Co-Agent, or any aspect thereof, the Banks' agreement to make the Loans hereunder or from any actual or proposed use by the Company, the Guarantor or any Subsidiary of either thereof of the proceeds of any of the Loans or from an alleged breach of this Agreement, including, without limitation, the reasonable fees and disbursements of counsel incurred in connection with any such investigation or litigation or other proceedings (but excluding any such losses, liabilities, claims, damages or expenses incurred by reason of the gross negligence or willful misconduct of the Person to be indemnified). 12.4. Amendments, Etc. Neither this Agreement nor any Note nor any terms hereof or thereof may be amended, supplemented or modified except in accordance with the provisions of this subsection. With the prior written consent of the Majority Banks, the Administrative Agent, the Company and the Guarantor may, from time to time, enter into written amendments, supplements or modifications hereto for the purpose of adding any provisions to this Agreement or the Notes or changing in any manner the rights of the Banks or of the Company and the Guarantor hereunder or thereunder or waiving, on such terms and conditions as the Administrative Agent (with the consent of the Majority Banks) may specify in such instrument, any of the requirements of this Agreement or the Notes or any Default or Event of Default and its consequences; provided, however, that no such waiver and no such amendment, supplement or modification shall (a) extend the maturity of any Note, or reduce the rate or extend the time of payment of interest thereon, or reduce or extend the time of payment of any fee payable to the Banks hereunder, or reduce the principal amount of any Loan, or increase the amount of any Bank's Commitment, or release the Guarantor from any of its obligations hereunder, or amend, modify or waive any provision of this subsection, or reduce the percentage specified in the definition of "Majority Banks" in Section 1.1 hereof, or consent to the assignment or transfer by the Company or the Guarantor of any of its rights and obligations under this Agreement or the Notes, in each case without the -67- 72 prior written consent of all the Banks, or (b) amend, modify or waive any provision of Section 11 hereof without the prior written consent of the Administrative Agent. Any such waiver and any such amendment, supplement or modification shall apply equally to each of the Banks and shall be binding upon the Company, the Guarantor, the Banks, the Administrative Agent, the Co-Agents and all future holders of the Notes. In the case of any waiver, the Company, the Guarantor, the Banks and the Administrative Agent shall be restored to their former position and rights hereunder and under the outstanding Notes, and any Default or Event of Default waived shall be deemed to be cured and not continuing; but no such waiver shall extend to any subsequent or other Default or Event of Default, or impair any right subsequent thereon. 12.5. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. 12.6. Assignments and Participation. (a) Neither the Company nor the Guarantor may assign its rights or obligations hereunder or under the Notes without the prior consent of all of the Banks and the Administrative Agent. (b) Any Bank may assign any of its Loans, its Note or its Commitment without the prior consent of the Company, the Guarantor, the Administrative Agent or any other Bank, provided that (i) assignments of less than all of a Bank's Commitment and Loans shall be in a principal amount of not less than $10,000,000 (or such lesser amount as may be agreed upon by the Company) and (ii) any such assignment shall be made pursuant to an assignment and assumption agreement substantially in the form of Exhibit E hereto (an "Assignment Agreement"). Upon written notice to the Company and the Administrative Agent of an assignment, identifying in detail reasonably satisfactory to the Administrative Agent the assignee Bank and the amount of the assignor Bank's Commitment and Loans assigned, the assignee shall have, as of the date of effectiveness of such assignment and to the extent of such assignment, the obligations, rights and benefits of, and shall be deemed for all purposes hereunder, a Bank party hereto holding the Commitment and Loans (or portions thereof) assigned to it (in addition to the Commitment and Loans, if any, theretofore held by such assignee) and the assignor shall be released from such obligations to such extent. -68- 73 (c) Any Bank may sell to one or more other Persons a participation in all or any part of the Commitment or any Loan held by it, in which event each such participant shall be entitled to the rights and benefits of the provisions of Sections 5 and 9.1(h) hereof with respect to its participation in such Loan as if (and the Company and the Guarantor shall be directly obligated to such participant under such provisions as if) such participant were a "Bank" for purposes of said Sections, but shall not have any other rights or benefits under this Agreement or any Note (the participant's rights against such Bank in respect of such participation to be those set forth in the agreement (the "Participation Agreement") executed by such Bank in favor of such participant); provided, that all amounts payable by the Company or the Guarantor to any Bank and any participant under Section 5 hereof in respect of any Loan shall be determined as if such Bank had not sold any participations in such Loan and as if such Bank were funding all of such Loan in the same way that it is funding the portion of such Loan in which no participations have been sold. In no event shall a Bank that sells a participation be obligated to any participant under the Participation Agreement to take or refrain from taking any action hereunder or under such Bank's Note (including, without limitation, the extension of such Bank's Commitment pursuant to Section 2.9 hereof) except that such Bank may agree in the Participation Agreement that it will not, without the consent of the participant, agree to (i) the extension of any date fixed for the payment of principal of or interest on the related Loan or Loans, (ii) the reduction of any payment of principal thereof, (iii) the reduction of the rate at which either interest is payable thereon or (if the participant is entitled to any part thereof) commitment fee is payable hereunder to a level below the rate at which the participant is entitled to receive interest or commitment fee (as the case may be) in respect of such participation or (iv) any release of the Guarantor from any of its obligations under this Agreement or the Notes. (d) In addition to the assignments and participations permitted under the foregoing provisions of this Section 12.6, any Bank may assign and pledge all or any portion of its Loans and its Note to any Federal Reserve Bank as collateral security pursuant to Regulation A and any Operating Circular issued by such Federal Reserve Bank. No such assignment shall release the assigning Bank from its obligations hereunder. (e) A Bank may furnish any information concerning the Company, the Guarantor or any of their respective -69- 74 Subsidiaries in the possession of such Bank from time to time to assignees and participants (including prospective assignees and participants). 12.7. Confidentiality. The Administrative Agent, the Co-Agents, and each of the Banks hereby acknowledge that certain of the information to be furnished to them pursuant to this Agreement may be non-public information. The Administrative Agent, each Co-Agent, and each Bank hereby agrees that it will keep all information so furnished to it pursuant hereto confidential in accordance with its normal banking procedures and, except in accordance with such procedures, will make no disclosure to any other Person of such information until the same shall have become public, except (i) in connection with matters involving this Agreement (including, without limitation, litigation involving the Company, the Guarantor, the Co-Agents, the Administrative Agent or the Banks) and with the obligations of any of the Administrative Agent, such Co-Agent or such Bank under law or regulation, (ii) pursuant to subpoenas or similar process, (iii) to Governmental Authorities or examiners, (iv) to independent auditors or counsel, (v) to any parent or corporate Affiliate of any of the Administrative Agent, such Co-Agent or such Bank, or (vi) to any participant or proposed participant or assignee or proposed assignee hereunder so long as such participant or proposed participant or assignee or proposed assignee (a) is not in the same general type of business as the Company on the date of such disclosure and (b) agrees in writing to accept such information subject to the restrictions provided in this Section 12.7; provided that in no event shall any of the Administrative Agent, such Co-Agent or such Bank be obligated or required to return any materials furnished by the Company or any of its Subsidiaries. 12.8. Survival. Without limiting the survival of any other obligations of the Company, the Guarantor and the Banks hereunder, the obligations of the Company and the Guarantor under Sections 2.6, 5.1, 5.4, 5.5 and 12.3 hereof and the obligations of the Banks under Sections 4.7, 11.5 and 12.7 hereof, shall survive the repayment of the Loans and the termination of the Commitments. 12.9. Captions. Captions and section headings appearing herein are included solely for convenience of reference and are not intended to affect the interpretation of any provision of this Agreement. 12.10. Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and any of the -70- 75 parties thereto may execute this Agreement by signing any such counterpart. 12.11. GOVERNING LAW. THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. 12.12. JURISDICTION. EACH OF THE COMPANY AND THE GUARANTOR HEREBY AGREES THAT: (A) ANY SUIT, ACTION OR PROCEEDING AGAINST THE COMPANY OR THE GUARANTOR WITH RESPECT TO THIS AGREEMENT, THE LOANS, THE NOTES OR ANY DOCUMENTS RELATED HERETO OR ANY JUDGMENT ENTERED BY ANY COURT IN RESPECT THEREOF MAY BE BROUGHT IN THE SUPREME COURT OF THE STATE OF NEW YORK, COUNTY OF NEW YORK, IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, OR IN ANY STATE OR FEDERAL COURT SITTING IN THE STATE OF FLORIDA (COLLECTIVELY, THE "SUBJECT COURTS"), AS THE ADMINISTRATIVE AGENT, EITHER CO-AGENT OR ANY BANK MAY ELECT IN ITS SOLE DISCRETION AND EACH OF THE COMPANY AND THE GUARANTOR HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF EACH OF THE SUBJECT COURTS FOR THE PURPOSE OF ANY SUCH SUIT, ACTION, PROCEEDING OR JUDGMENT. EACH OF THE COMPANY AND THE GUARANTOR HEREBY IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS IN ANY SUIT, ACTION OR PROCEEDING IN ANY OF THE SUBJECT COURTS BY THE MAILING THEREOF BY THE ADMINISTRATIVE AGENT, THE RESPECTIVE CO-AGENT OR THE RESPECTIVE BANK BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE COMPANY OR THE GUARANTOR, AS THE CASE MAY BE, ADDRESSED AS PROVIDED IN SECTION 12.2 HEREOF. NOTHING HEREIN SHALL IN ANY WAY BE DEEMED TO LIMIT THE ABILITY OF THE ADMINISTRATIVE AGENT, EITHER CO-AGENT OR ANY BANK TO SERVE ANY SUCH WRITS, PROCESS OR SUMMONSES IN ANY OTHER MANNER PERMITTED BY APPLICABLE LAW OR TO BRING PROCEEDINGS AGAINST THE COMPANY OR THE GUARANTOR IN ANY COMPETENT COURT OF ANY OTHER JURISDICTION OR JURISDICTIONS, AND IN SUCH MANNER, AS MAY BE PERMITTED BY APPLICABLE LAW. (B) EACH OF THE COMPANY AND THE GUARANTOR HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY SUIT, ACTION OR PROCEEDING IN RESPECT OF THIS AGREEMENT, THE NOTES OR ANY OTHER DOCUMENTS IN CONNECTION HEREWITH, ANY OBJECTION TO THE LAYING OF VENUE IN ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY OF THE SUBJECT COURTS, AND, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY CLAIM THAT SUCH SUIT, ACTION OR PROCEEDING IN ANY OF THE SUBJECT COURTS HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. -71- 76 12.13. Severability. Any provision of this Agreement or the Notes that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or thereof or affecting the validity or enforceability of such provision in any other jurisdiction. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written. HOME SHOPPING NETWORK, INC., as the Company By ------------------------------ Title: Chief Financial Officer 2501 118th Avenue North St. Petersburg, Florida 33716 Telecopier No.: (813) 539-6505 Telephone No.: (813) 572-8585 Attention: Les R. Wandler with a copy to: "Legal Department" Telecopier No.: (813) 573-0866 HOME SHOPPING CLUB, INC., as Guarantor By ------------------------------ Title: Treasurer 2501 118th Avenue North St. Petersburg, Florida 33716 Telecopier No.: (813) 539-6505 Telephone No.: (813) 572-8585 Attention: Les R. Wandler with a copy to: "Legal Department" Telecopier No.: (813) 573-0866 -72- 77 The Banks Commitment $9,000,000 LTCB TRUST COMPANY, as a Bank and a Co-Agent By ------------------------------ Title: Lending Office for Federal Funds Rate Loans and Prime Rate Loans: 165 Broadway New York, New York 10006 Lending Office for LIBOR Loans: 165 Broadway New York, New York 10006 Address for Notices: 165 Broadway New York, New York 10006 Telex No.: 425722 Telecopier No.: (212) 608-3081 Telephone No.: (212) 335-4854 Attention: --------------------- -73- 78 $9,000,000 BANK OF MONTREAL, as a Bank and a Co-Agent By ------------------------------- Title: Lending Office for Federal Funds Rate Loans and Prime Rate Loans: 115 South LaSalle Street 11th Floor Chicago, Illinois 60603 Lending Office for LIBOR Loans: 115 South LaSalle Street 11th Floor Chicago, Illinois 60603 Address for Notices: 430 Park Avenue 15th Floor, Account Administration New York, New York 10022 Telecopier No.: (212) 605-1525 Telephone No.: (212) 605-1436 or (212) 605-1458 Attention: Prescilla Quinones or John Decoufle -74- 79 $6,000,000 THE BANK OF NEW YORK By ------------------------------ Title: Lending Office for Federal Funds Rate Loans and Prime Rate Loans: One Wall Street New York, New York 10286 Lending Office for LIBOR Loans: One Wall Street New York, New York 10286 Address for Notices: One Wall Street 22nd Floor New York, New York 10286 Telecopier No.: (212) 635-6399 or (212) 635-6877 Telephone No.: (212) 635-6780 Attention: Ramona McCottrie -75- 80 $4,000,000 CITIZENS FIDELITY BANK & TRUST COMPANY By ------------------------------ Title: Lending Office for Federal Funds Rate Loans and Prime Rate Loans: 500 West Jefferson Street Louisville, Kentucky 40202 Lending Office for LIBOR Loans: 500 West Jefferson Street Louisville, Kentucky 40202 Address for Notices: PNC Commercial Corp. 201 South Orange Avenue Suite 750 Orlando, Florida 32801 Telecopier No.: (407) 843-8263 Telephone No.: (407) 841-3585 Attention: James Neil or Diane Tyre -76- 81 $4,000,000 THE DAIWA BANK, LIMITED By ----------------------------- Title: By ----------------------------- Title: Lending Office for Federal Funds Rate Loans and Prime Rate Loans: 233 South Wacker Dr., Suite 5400 Chicago, Illinois 60606 Lending Office for LIBOR Loans: 233 South Wacker Dr., Suite 5400 Chicago, Illinois 60606 Address for Notices: 100 South Ashley Drive Suite 1780 Tampa, Florida 33602 Telecopier No.: (813) 229-6372 Telephone No.: (813) 229-6002 Attention: Sybil Weldon, Vice President -77- 82 $4,000,000 FIRST UNION NATIONAL BANK OF FLORIDA By ------------------------------ Title: Lending Office for Federal Funds Rate Loans and Prime Rate Loans: 214 Hogan Street Jacksonville, Florida 33202 Lending Office for LIBOR Loans: 214 Hogan Street Jacksonville, Florida 33202 Address for Notices: 410 Central Avenue St. Petersburg, Florida 33701 Telecopier No.: (813) 892-7254 Telephone No.: (813) 892-7297 Attention: J. Gregory Olivier, Vice President -78- 83 $4,000,000 SUN BANK OF TAMPA BAY By ------------------------------ Title: Lending Office for Federal Funds Rate Loans and Prime Rate Loans: 315 East Madison Tampa, Florida 33601 Lending Office for LIBOR Loans: 315 East Madison Tampa, Florida 33601 Address for Notices: 3601 34th Street, North 3rd Floor, Corporate Banking St. Petersburg, Florida 33713 Telecopier No.: (813) 892-4810 Telephone No.: (813) 892-4951 - ------------------- Attention: Peggy Scarborough Total: $40,000,000 -79- 84 The Administrative Agent LTCB TRUST COMPANY, as Administrative Agent By ----------------------------- Title: Address for Notices to Administrative Agent: 165 Broadway New York, New York 10006 Telex No.: 425722 Telecopier No.: (212) 608-3081 Telephone No.: (212) 335-4854 Attention: --------------------- -80- 85 EXHIBIT A PROMISSORY NOTE $______________ December 18, 1992 New York, New York FOR VALUE RECEIVED, HOME SHOPPING NETWORK, INC., a Delaware corporation (the "Company"), hereby promises to pay to the order of ___________________ (the "Bank"), for account of its respective Applicable Lending Offices provided for by the Credit Agreement referred to below, by paying to account no. 04203606 of LTCB Trust Company (the "Administrative Agent") at the principal offices of Bankers Trust Company, New York, New York (reference: "Home Shopping Network-1992 Revolving Credit Facility") (or at such other place as the Administrative Agent may notify the Company from time to time) the principal sum of ______________ Dollars ($_____________) (or such lesser amount as shall equal the aggregate unpaid principal amount of the Loans made by the Bank to the Company under the Credit Agreement), in lawful money of the United States of America and in immediately available funds, without set-off, counterclaim or deduction of any kind, on the dates and in the principal amounts provided in the Credit Agreement, and to pay interest on the unpaid principal amount of each such Loan, at such office, in like money and funds and in such manner, for the period commencing on the date of such Loan until such Loan shall be paid in full, at the rates per annum and on the dates provided in the Credit Agreement. The amount and type of, and the duration of each Interest Period (if applicable) for, each Loan made by the Bank to the Company under the Credit Agreement, the date such Loan is made or converted from a Loan of another type, and the amount of each payment or prepayment made on account of the principal thereof, shall be recorded by the Bank on its books and, prior to any transfer of this Note, endorsed by the Bank on the schedule attached hereto or any continuation thereof; provided that no failure of the Bank to make any such endorsement shall affect the obligations of the Company under the Credit Agreement or this Note. This Note is one of the Notes referred to in the Amended and Restated Credit Agreement, dated as of December 18, 1992 (as in effect from time to time, the "Credit Agreement"), among the Company, Home Shopping Club, Inc., a Delaware corporation, as guarantor (the "Guarantor"), the Banks named therein (including the Bank), LTCB Trust Company and Bank of Montreal, each as a Co-Agent for the Banks, and the Administrative Agent, and evidences Loans made by the Bank thereunder and is entitled to the benefits thereof. Capitalized terms used in this Note have the respective meanings assigned to them in the Credit Agreement. A-1 86 The Credit Agreement provides for the acceleration of the maturity of this Note upon the occurrence of certain events and for prepayments of Loans upon the terms and conditions specified therein. No provision of the Credit Agreement or this Note or any other document delivered in connection with either thereof and no transaction contemplated hereby or thereby shall be construed or shall operate so as to require the Company or the Guarantor to pay interest hereunder in an amount or at a rate greater than the maximum allowed from time to time by applicable law. Should any interest or other charges paid by the Company or the Guarantor hereunder result in a computation or earning of interest in excess of the maximum rate of interest permitted under applicable law in effect while such interest is being earned, then such excess shall be waived by the Bank and all such excess shall be automatically credited against and in reduction of the principal balance of such amounts payable hereunder and any portion of such excess received by the Bank shall be paid over by the Bank to the Company or the Guarantor, as the case may be, it being the intent of the Company and the Guarantor and the other parties to the Credit Agreement that under no circumstances shall the Company or the Guarantor or any other Person be required to pay interest in excess of the maximum rate allowed by such applicable law. The Company hereby waives diligence, presentment, protest, notice of default, dishonor or nonpayment and any other notice and all demands whatsoever. The Company hereby further waives all setoffs and counterclaims against the Company, the Administrative Agent, the Co-Agents and each of the Banks. THIS NOTE HAS BEEN EXECUTED AND DELIVERED IN, AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF, THE STATE OF NEW YORK. HOME SHOPPING NETWORK, INC. By ------------------------- Title: A-2 87 GUARANTEE The undersigned HOME SHOPPING CLUB, INC., a Delaware corporation (the "Guarantor"), hereby unconditionally and irrevocably guarantees the payment in full when due (whether at stated maturity, by acceleration or otherwise) of the principal of and interest on this Note and all other amounts payable hereunder, in accordance with the terms hereof and of Section 6 of the Credit Agreement, and, in the case of any extension of time of payment, in whole or in part, that all such amounts shall be paid in full when due (whether at stated maturity, by acceleration or otherwise) in accordance with the terms of such extension. In addition, the Guarantor hereby unconditionally agrees that upon default in the payment when due (whether at stated maturity, by acceleration or otherwise) of any of such principal, interest or other amounts, the Guarantor shall forthwith pay and perform the same in the money and funds, at the time, in the place and in the manner provided for such payment in the Credit Agreement. This guarantee is a continuing guarantee of payment and not merely of collection; it is a primary, independent obligation of the Guarantor; and the Guarantor's obligations hereunder shall be absolute, unconditional and irrevocable, irrespective of any and all circumstances whatsoever. The Guarantor hereby waives diligence, presentment, protest, notice of default, dishonor or nonpayment and any other notice and all demands whatsoever. The Guarantor hereby further waives all setoffs and counterclaims against the Company, the Administrative Agent, the Co-Agents and each of the Banks. HOME SHOPPING CLUB, INC. By --------------------- Title: A-3 88
LOANS Date Loan Principal Type Amount Unpaid Made or Amount of Interest Paid or Principal Notation Converted of Loan Loan Period Prepaid Amount Made By --------- -------- ---- -------- ------- --------- --------
A-4 89 EXHIBIT 10.26 FIRST AMENDMENT, dated as of January 15, 1993, to the Amended and Restated Credit Agreement, dated as of December 18, 1992 (the "Credit Agreement"), among HOME SHOPPING NETWORK, INC. (the "Company"), HOME SHOPPING CLUB, INC. (the "Guarantor"), the banks signatory thereto (the "Banks"), LTCB TRUST COMPANY and BANK OF MONTREAL, each as a Co-Agent for the Banks (each in such capacity, a "Co-Agent"), and LTCB TRUST COMPANY, as Administrative Agent for the Banks (in such capacity, the "Administrative Agent"). WHEREAS, the Company and the Guarantor have requested, and the Banks, the Co-Agents and the Administrative Agent have agreed, 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 First Amendment, terms defined in the Credit Agreement and used herein shall have their respective defined meanings when used herein. SECTION 2. AMENDMENTS TO THE CREDIT AGREEMENT. (a) The definition of "Silver King Notes" in Section 1.1 of the Credit Agreement is hereby amended by inserting the words "or any of its Subsidiaries" after the word "Company" in such definition. (b) Clause (B) of the final proviso to Section 9.5 of the Credit Agreement is hereby amended by inserting the words "or any of its Subsidiaries" after the word "Company" appearing therein. (c) The final proviso to Section 9.7 of the Credit Agreement is hereby amended by inserting the words "or any of its Subsidiaries" after the word "Company" appearing therein. (d) Clause (ii) of Section 9.17 of the Credit Agreement is hereby amended by inserting the words ", provided that in the case of any Subsidiary that holds any of the Silver King Notes and any other Subsidiary that owns shares of capital stock of any such Subsidiary, such trade Indebtedness does not at any time and with respect to all such Subsidiaries 90 collectively exceed $1,000,000 in an aggregate principal amount "after the word "business" at the end of such clause. (e) Paragraph (l) of Section 10 of the Credit Agreement is hereby amended by (A) inserting the words "or any of its Subsidiaries" after the word "Company" in each of the ninth and thirteenth lines of such paragraph, and (B) inserting the words "or any such Subsidiary" after the word "Company" in each of the eleventh and sixteenth lines of such paragraph. (f) Each reference in the Credit Agreement to "this Agreement" and the words "hereof", "hereto", "herein" and the like, shall, except where the context otherwise requires, refer to the Credit Agreement as amended by this First Amendment. SECTION 3. REPRESENTATIONS AND WARRANTIES. Each of the Company and the Guarantor represents and warrants to the Administrative Agent and the Banks that the representations and warranties made by the Company and the Guarantor in Section 8 of the Credit Agreement and in any other certificate or other document delivered in connection with the Credit Agreement shall be true in all material respects on and as of the date of the effectiveness of this First Amendment with the same force and effect as if made on and as of such date (including, without limitation, that there shall have occurred no material adverse change since August 31, 1992 in the consolidated financial condition or operations, or the business taken as a whole, of the Company and its consolidated Subsidiaries from that set forth in their financial statements dated as of August 31, 1992, except as disclosed to the Banks in writing prior to the date of this Amendment. SECTION 4. CONDITIONS TO EFFECTIVENESS. This First Amendment shall become effective as of the date first above written when counterparts hereof shall have been duly executed and delivered by each of the parties provision for whose signature is made on the signature pages hereof. SECTION 5. MISCELLANEOUS. A. This First Amendment may be executed in any number of counterparts, all of which taken together and when delivered to the Administrative Agent shall constitute one and the same instrument, and any of the parties hereto may execute this First Amendment by signing any such counterpart. B. THIS FIRST AMENDMENT AND THE CREDIT AGREEMENT AS AMENDED HEREBY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. -2- 91 C. Except as expressly set forth in this First Amendment, the Credit Agreement shall remain unmodified and in full force and effect. IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to be duly executed as of the date first above written. HOME SHOPPING NETWORK, INC., as the Company By /s/ LES R. WANDLER ------------------ Title: Executive Vice President HOME SHOPPING CLUB, INC., as Guarantor By /s/ LES R. WANDLER ------------------ Title: Treasurer -3- 92 The Banks LTCB TRUST COMPANY, as a Bank and a Co-Agent By /s/ JOHN A. KROB ---------------- Title: Senior Vice President BANK OF MONTREAL, as a Bank and a Co-Agent By /s/ PATRICK SULLIVAN -------------------- Title: Director THE BANK OF NEW YORK By /s/ ALAN LYSTER, JR. -------------------- Title: Vice President CITIZENS FIDELITY BANK & TRUST COMPANY By /s/ JAMES D. NEIL ----------------- Title: Assistant Vice President THE DAIWA BANK, LIMITED By /s/ SYBIL H. WELDON ------------------- Title: Vice President & Manager By /s/ ALLEN L. HARVELL, JR. ------------------------- Title: Vice President FIRST UNION NATIONAL BANK OF FLORIDA By /s/ ROBERT E. HASTINGS ---------------------- Title: Vice President SUN BANK OF TAMPA BAY By /s/ ROBERT J. WILLSEA --------------------- Title: Corporate Banking Officer -4- 93 The Administrative Agent LTCB TRUST COMPANY, as Administrative Agent By /s/ JOHN A. KROB ---------------- Title: Senior Vice President -5- 94 SECOND AMENDMENT, dated as of February 4, 1993, to the Amended and Restated Credit Agreement, dated as of December 18, 1992, as amended by the First Amendment, dated as of January 15, 1993 (as so amended, the "Credit Agreement"), among HOME SHOPPING NETWORK, INC. (the "Company"), HOME SHOPPING CLUB, INC. (the "Guarantor"), the banks signatory thereto (the "Banks"), LTCB TRUST COMPANY and BANK OF MONTREAL, each as a Co-Agent for the Banks (each in such capacity, a "Co-Agent"), and LTCB TRUST COMPANY, as Administrative Agent for the Banks (in such capacity, the "Administrative Agent"). WHEREAS, the Company and the Guarantor have requested, and the Banks, the Co-Agents 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 Second Amendment, terms defined in the Credit Agreement and used herein shall have their respective defined meanings when used herein. SECTION 2. AMENDMENTS TO THE CREDIT AGREEMENT. (a) Section 1.1 of the Credit Agreement is hereby amended by inserting the following definition at the beginning of the list of defined terms in such Section: "'1993 Term Loan Agreement' shall mean the Term Loan Agreement, dated as of February 4, 1993, among the Company, the Guarantor, the banks signatory thereto, LTCB Trust Company, as agent for such banks, Bank of Montreal and The Bank of New York, each as a co-agent for such banks, and LTCB Trust Company, as administrative agent for such banks, as the same may be amended or modified from time to time in accordance with the terms thereof." (b) Section 8.11 of the Credit Agreement is hereby amended by deleting all of the text in such Section following the word "hereof" in the fifth line of such Section and inserting the following: "(other than the assets which were 95 disposed of in connection with the distribution of the capital stock of Silver King Communications, Inc., a Wholly-Owned Subsidiary of the Company, as reflected in Note 6.c to the Condensed Consolidated Financial Statements contained in the Company's Quarterly Report on Form 10-Q for the Fiscal Quarter ended November 30, 1992), subject to: (a) no Liens other than the Liens specified in Footnotes D and G to such balance sheet and, on the date hereof, such additional Liens as are listed on Schedule 1 hereto, and on any date hereafter, additional Liens permitted by Section 9.5 hereof and either (i) listed in Footnotes to the financial statements delivered pursuant to Section 9.1(a) or (b) hereof or (ii) otherwise communicated to the Banks in writing, and (b) on any date hereafter, dispositions permitted by Section 9.7 hereof and either (i) described in the financial statements, including any notes thereto, delivered pursuant to Section 9.1(a) or (b) hereof or (ii) otherwise communicated to the Banks in writing." (c) Section 9.14 of the Credit Agreement is hereby amended by inserting after the words "Term Loan Agreement" in each of the fourth and fourteenth lines of such Section the following: ", the 1993 Term Loan Agreement". (d) Clause (iv) of Section 9.17 of the Credit Agreement is hereby amended by deleting such clause in its entirety and replacing it with the following: "Indebtedness of the Guarantor under this Agreement, the Term Loan Agreement and the 1993 Term Loan Agreement. SECTION 3. REPRESENTATIONS AND WARRANTIES. Each of the Company and the Guarantor represents and warrants to the Administrative Agent and the Banks that (a) no Default or Event of Default has occurred and is continuing, and (b) the representations and warranties made by the Company and the Guarantor in Section 8 of the Credit Agreement, as amended hereby, and in any other certificate or other document delivered in connection with the Credit Agreement shall be true in all material respects on and as of the date of the effectiveness of this Second Amendment with the same force and effect as if made on and as of such date (including, without limitation, that there shall have occurred no material adverse change since August 31, 1992 in the consolidated financial condition or operations, or the business taken as a whole, of the Company and its consolidated Subsidiaries from that set forth in their financial statements dated as of August 31, -2- 96 1992, except as disclosed to the Banks in writing prior to the date of this Amendment). SECTION 4. CONDITIONS TO EFFECTIVENESS. This Second Amendment shall become effective as of the date first above written when counterparts hereof shall have been duly executed and delivered by the Majority Banks. SECTION 5. MISCELLANEOUS. A. This Second Amendment may be executed in any number of counterparts, all of which taken together and when delivered to the Administrative Agent shall constitute one and the same instrument, and any of the parties hereto may execute this Second Amendment by signing any such counterpart. B. THIS SECOND AMENDMENT AND THE CREDIT AGREEMENT AS AMENDED HEREBY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. C. Except as expressly set forth in this Second Amendment, the Credit Agreement shall remain unmodified and in full force and effect. IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment to be duly executed as of the date first above written. HOME SHOPPING NETWORK, INC., as the Company By /s/ LES R. WANDLER ------------------ Title: Executive Vice President HOME SHOPPING CLUB, INC., as Guarantor By /s/ LES R. WANDLER ------------------ Title: Treasurer -3- 97 The Banks LTCB TRUST COMPANY, as a Bank and a Co-Agent By /s/ RIKUICHI YOSHISUE --------------------- Title: Executive Vice President BANK OF MONTREAL, as a Bank and a Co-Agent By /s/ PATRICK J. SULLIVAN ----------------------- Title: Director THE BANK OF NEW YORK By /s/ ALAN LYSTER, JR. -------------------- Title: Vice President CITIZENS FIDELITY BANK & TRUST COMPANY By /s/ H. JOSEPH BRENNER --------------------- Title: Vice President THE DAIWA BANK, LIMITED By ------------------------ Title: By ------------------------- Title: FIRST UNION NATIONAL BANK OF FLORIDA By /s/ ROBERT E. HASTINGS ---------------------- SUN BANK OF TAMPA BAY By ---------------------- Title: -4- 98 The Administrative Agent LTCB TRUST COMPANY, as Administrative Agent By /s/ RIKUICHI YOSHISUE --------------------- Title: Executive Vice President -5- 99 THIRD AMENDMENT, dated as of May 28, 1993, to the Amended and Restated Credit Agreement, dated as of December 18, 1992, as amended by the First Amendment, dated as of January 15, 1993, the Second Amendment, dated as of February 4, 1993, and paragraph number 2 of the letter dated April 14, 1993 from LTCB Trust Company, as Administrative Agent, to Home Shopping Network, Inc. (as so amended, the "Credit Agreement"), among HOME SHOPPING NETWORK, INC. (the "Company"), HOME SHOPPING CLUB, INC. (the "Guarantor"), the banks signatory thereto (the "Banks"), LTCB TRUST COMPANY and BANK OF MONTREAL, each as a Co-Agent for the Banks (each in such capacity, a "Co-Agent"), and LTCB TRUST COMPANY, as Administrative Agent for the Banks (in such capacity, the "Administrative Agent"). WHEREAS, the Company and the Guarantor have requested, and the Banks, the Co-Agents 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 Third Amendment, terms defined in the Credit Agreement and used herein shall have their respective defined meanings when used herein. SECTION 2. AMENDMENTS TO THE CREDIT AGREEMENT. (a) Section 9.11 of the Credit Agreement is hereby amended by deleting such Section in its entirety and replacing it with the following: "9.11. Fixed Charges Coverage Test. The Company will maintain the ratio of Adjusted Operating Cash Flow to Fixed Charges for the Company and its Subsidiaries on a consolidated basis, (a) for each four-Fiscal Quarter period ending with each of the following Fiscal Quarters, to be not less than the following ratios: 100 Fiscal Quarter Ended Minimum Ratio -------------- ------------- February 28, 1993 1.70:1 May 31, 1993 1.70:1 August 31, 1993 1.70:1 November 30, 1993 1.35:1 February 28, 1994 1.45:1 May 31, 1994 1.35:1 August 31, 1994 1.35:1, and (b) for each four-Fiscal Quarter period ending in each of the following Fiscal Years, to be not less than the following ratios: Fiscal Year Minimum Ratio ----------- ------------- Fiscal 1995 1.40:1 Fiscal 1996 1.70:1." (b) Section 9.12 of the Credit Agreement is hereby amended by deleting such Section in its entirety and replacing it with the following: "9.12. Debt Ratio. The Company will not permit the ratio of Total Debt to Operating Cash Flow for the Company and its Subsidiaries on a consolidated basis, (a) for each four-Fiscal Quarter period ending with each of the following Fiscal Quarters, to be greater than the following ratios: Fiscal Quarter Ended Maximum Ratio -------------- ------------- February 28, 1993 1.90:1 May 31, 1993 1.90:1 August 31, 1993 2.15:1 November 30, 1993 1.95:1 February 28, 1994 1.65:1 May 31, 1994 1.60:1 August 31, 1994 1.60:1, and (b) for each four-Fiscal Quarter period ending in each of the following Fiscal Years, to be greater than the following ratios: -2- 101 Fiscal Year Maximum Ratio ----------- ------------- Fiscal 1995 1.35:1 Fiscal 1996 1.15:1." SECTION 3. REPRESENTATIONS AND WARRANTIES. Each of the Company and the Guarantor represents and warrants to the Administrative Agent and the Banks that (a) no Default or Event of Default has occurred and is continuing, and (b) the representations and warranties made by the Company and the Guarantor in Section 8 of the Credit Agreement, as amended hereby, and in any other certificate or other document delivered in connection with the Credit Agreement shall be true in all material respects on and as of the date of the effectiveness of this Third Amendment with the same force and effect as if made on and as of such date (including, without limitation, that there shall have occurred no material adverse change since August 31, 1992 in the consolidated financial condition or operations, or the business taken as a whole, of the Company and its consolidated Subsidiaries from that set forth in their financial statements dated as of August 31, 1992, except as disclosed to the Banks in writing prior to the date of this Third Amendment). SECTION 4. CONDITIONS TO EFFECTIVENESS. This Third Amendment shall become effective as of the date first above written when (a) counterparts hereof shall have been duly executed and delivered by the Majority Banks and (b) the Company shall have paid to the Administrative Agent, for the account of the Banks, a fee in accordance with the terms and conditions set forth in the Company's letter, dated May 24, 1993, to the Administrative Agent, as modified by the Administrative Agent's notices, dated June 3, 1993 and June 14, 1993, to the Banks. SECTION 5. MISCELLANEOUS. A. This Third Amendment may be executed in any number of counterparts, all of which taken together and when delivered to the Administrative Agent shall constitute one and the same instrument, and any of the parties hereto may execute this Third Amendment by signing any such counterpart. -3- 102 B. THIS THIRD AMENDMENT AND THE CREDIT AGREEMENT AS AMENDED HEREBY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. C. Except as expressly set forth in this Third Amendment, the Credit Agreement shall remain unmodified and in full force and effect. IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment to be duly executed as of the date first above written. HOME SHOPPING NETWORK, INC., as the Company By /s/ LES R. WANDLER --------------------------- Title: Executive Vice President and Chief Financial Officer HOME SHOPPING CLUB, INC., as Guarantor By /s/ LES R. WANDLER --------------------------- Title: Treasurer -4- 103 The Banks LTCB TRUST COMPANY, as a Bank and a Co-Agent By /s/ PHILIP A. MARSDEN ------------------------------- Title: Senior Vice President BANK OF MONTREAL, as a Bank and a Co-Agent By /s/ PATRICK J. SULLIVAN ------------------------------- Title: Director THE BANK OF NEW YORK By /s/ KALPANA RAINA ------------------------------- Title: Vice President PNC BANK, KENTUCKY, INC. (formerly known as Citizens Fidelity Bank & Trust Company) By /s/ JAMES D. NEIL ------------------------------- Title: Vice President THE DAIWA BANK, LIMITED By /s/ SYBIL H. WELDON ------------------------------- Title: Vice President and Manager By /s/ ALLEN L. HARVELL, JR. ------------------------------- Title: Vice President FIRST UNION NATIONAL BANK OF FLORIDA By /s/ JOHN T. WATTS ------------------------------- Title: Vice President -5- 104 SUN BANK OF TAMPA BAY By /s/ ROBERT J. WILLSEA ------------------------------- Title: Corporate Banking Officer The Administrative Agent LTCB TRUST COMPANY, as Administrative Agent By /s/ PHILIP A. MARSDEN ------------------------------- Title: Senior Vice President -6- 105 FOURTH AMENDMENT, dated as of September 20, 1993, to the Amended and Restated Credit Agreement, dated as of December 18, 1992, as amended by the First Amendment, dated as of January 15, 1993, the Second Amendment, dated as of February 4, 1993, paragraph number 2 of the letter dated April 14, 1993 from LTCB Trust Company, as Administrative Agent, to Home Shopping Network, Inc. and the Third Amendment, dated as of May 28, 1993 (as so amended, the "Credit Agreement"), among HOME SHOPPING NETWORK, INC., as borrower (the "Company"), HOME SHOPPING CLUB, INC., as guarantor (the "Guarantor"), the banks signatory thereto (the "Banks"), LTCB TRUST COMPANY and BANK OF MONTREAL, each as a Co-Agent for the Banks (each in such capacity, a "Co-Agent"), and LTCB TRUST COMPANY, as Administrative Agent for the Banks (in such capacity, the "Administrative Agent"). WHEREAS, the Company and the Guarantor have requested, and the Banks, the Co-Agents 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. (a) Section 1.1 of the Credit Agreement is hereby amended by (i) deleting the definition of "Fiscal Quarter" set forth in such Section in its entirety and replacing it with the following: "Fiscal Quarter" shall mean, (i) for the period ending on August 31, 1993, a period of three consecutive calendar months commencing on any of the following dates in any Fiscal Year: March 1, June 1, September 1 and December 1, and (ii) for the period commencing on July 1, 1993, a period of three consecutive calendar months commencing on any of the following dates in any Fiscal Year: January 1, 106 April 1, July 1 and October 1; provided, however, that during the period commencing on September 1, 1993 and ending on June 30, 1994, in the event any provision of this Agreement requires any calculation or determination with respect to a four-Fiscal Quarter period ending on a particular date, such period shall refer to the four immediately preceding three consecutive calendar month periods ending on such date." and (ii) deleting the definition of "Fiscal Year" set forth in such Section in its entirety and replacing it with the following: "Fiscal Year" shall mean, for the Company, the Guarantor or any Subsidiary, (i) for the period ending on August 31, 1993, the twelve consecutive calendar month period commencing on September 1, 1992 and ending on August 31, 1993, (ii) for the period commencing on September 1, 1993 and ending on December 31, 1993, the four consecutive calendar month period commencing on September 1, 1993, and (iii) for the period commencing on January 1, 1994, the twelve consecutive calendar month period commencing on such date and on January 1 of each calendar year thereafter and ending on December 31 of such calendar year; and "Fiscal 1992", "Fiscal 1993", and any other year so designated shall mean the Fiscal Year ending on August 31 or December 31, as the case may be, of the indicated calendar year; provided, however, that the Fiscal Year defined in clause (ii) above shall be known as "Fiscal Stub 1993" and, provided, further, that no provision of this Agreement shall be construed to require presentation of Fiscal Stub 1993 in the financial statements of the Company or the Guarantor except as would be required by the rules and regulations of the Securities and Exchange Commission and in accordance with GAAP with respect to such transition periods." (b) Section 9.11 of the Credit Agreement is hereby amended by deleting the dates November 30, 1993 through August 31, 1994 and the related ratios that appear in paragraph (a) of such Section and replacing such dates and ratios with the following: -2- 107 "September 30, 1993 1.70:1 December 31, 1993 1.35:1 March 31, 1994 1.45:1 June 30, 1994 1.35:1 September 30, 1994 1.35:1 December 31, 1994 1.40:1,". (c) Section 9.12 of the Credit Agreement is hereby amended by deleting the dates November 30, 1993 through August 31, 1994 and the related ratios that appear in paragraph (a) of such Section and replacing such dates and ratios with the following: "September 30, 1993 2.125:1 December 31, 1993 1.85:1 March 31, 1994 1.65:1 June 30, 1994 1.60:1 September 30, 1994 1.60:1 December 31, 1994 1.35:1,". (d) Section 9.13 of the Credit Agreement is hereby amended by (i) deleting all references to "August 30" in such Section and replacing them in each case with "September 29" and (ii) deleting all references to "August 31" in such Section and replacing them in each case with "September 30". SECTION 3. REPRESENTATIONS AND WARRANTIES. Each of the Company and the Guarantor represents and warrants to the Administrative Agent and the Banks that (a) no Default or Event of Default has occurred and is continuing, and (b) the representations and warranties made by the Company and the Guarantor in Section 8 of the Credit Agreement, as amended hereby, and in any other certificate or other document delivered in connection with the Credit Agreement shall be true in all material respects on and as of the date of the effectiveness of this Fourth Amendment with the same force and effect as if made on and as of such date (including, without limitation, that there shall have occurred no material adverse change since August 31, 1992 in the consolidated financial condition or operations, or the business taken as a whole, of the Company and its consolidated Subsidiaries from that set forth in their financial statements dated as of August 31, 1992, except as disclosed to the Banks in writing prior to the date of this Fourth Amendment). SECTION 4. CONDITIONS TO EFFECTIVENESS. This Fourth Amendment shall become effective as of July 13, 1993 when counterparts hereof shall have been duly executed and delivered by the Majority Banks, the Company and the Guarantor. -3- 108 SECTION 5. 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. 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. C. Except as expressly set forth in this Fourth Amendment, the Credit Agreement 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 the Company By /s/ LES R. WANDLER ------------------------------ Title: Executive Vice President HOME SHOPPING CLUB, INC., as Guarantor By /s/ LES R. WANDLER ------------------------------ Title: Treasurer -4- 109 The Banks LTCB TRUST COMPANY, as a Bank and a Co-Agent By /s/ PHILIP A. MARSDEN ------------------------------ Title: Senior Vice President BANK OF MONTREAL, as a Bank and a Co-Agent By /s/ PATRICK J. SULLIVAN ------------------------------ Title: Director THE BANK OF NEW YORK By /s/ KALPANA RAINA ------------------------------ Title: Vice President PNC BANK, KENTUCKY, INC. (formerly known as Citizens Fidelity Bank & Trust Company) By /s/ JAMES D. NEIL ------------------------------ Title: Vice President THE DAIWA BANK, LIMITED By /s/ SYBIL H. WELDON ------------------------------ Title: Vice President & Manager By /s/ ALLEN L. HARVELL, JR. ------------------------------ Title: Vice President FIRST UNION NATIONAL BANK OF FLORIDA By /s/ ROBERT E. HASTINGS, JR. ------------------------------ Title: Vice President -5- 110 SUN BANK OF TAMPA BAY By /s/ ROBERT J. WILLSEA ------------------------------ Title: Corporate Banking Officer The Administrative Agent LTCB TRUST COMPANY, as Administrative Agent By /s/ PHILIP A. MARSDEN ------------------------------ Title: Senior Vice President -6- 111 FIFTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT, DATED AS OF DECEMBER 18, 1992 FIFTH AMENDMENT, dated as of January 7, 1994, to the Amended and Restated Credit Agreement, dated as of December 18, 1992, as amended by the First Amendment, dated as of January 15, 1993, the Second Amendment, dated as of February 4, 1993, paragraph number 2 of the letter dated April 14, 1993 from LTCB Trust Company, as Administrative Agent, to Home Shopping Network, Inc., the Third Amendment, dated as of May 28, 1993 and the Fourth Amendment, dated as of September 20, 1993 (as so amended, the "Credit Agreement"), among HOME SHOPPING NETWORK, INC., as borrower (the "Company"), HOME SHOPPING CLUB, INC., as guarantor (the "Guarantor"), the banks signatory thereto (the "Banks"), LTCB TRUST COMPANY and BANK OF MONTREAL, each as a Co-Agent for the Banks (each in such capacity, a "Co-Agent"), and LTCB TRUST COMPANY, as Administrative Agent for the Banks (in such capacity, the "Administrative Agent"). WHEREAS, the Company and the Guarantor have requested that certain provisions of the Credit Agreement be amended, as set forth below; and WHEREAS, the Banks, the Co-Agents and the Administrative Agent are willing to amend such provisions; 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 Fifth 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. (a) Section 1.1 of the Credit Agreement is hereby amended by inserting the following definitions in alphabetical order in the list of definitions in such Section: "Bell Atlantic Transaction" shall mean the combination of Liberty Media and Tele-Communica-tions, Inc., a Delaware corporation, with Bell Atlantic Corporation, a Delaware corporation, on 112 substantially the terms outlined in Liberty Media's Current Report on Form 8-K dated October 27, 1993 (including the exhibits thereto), copies of which have been furnished to the Banks by the Company. "Lawsuit" shall mean any of the legal proceedings described in the Company's Amended and Restated Proxy Statement, dated August 23, 1993, under the caption "Legal Proceedings", as such description of such proceedings may be updated by the Company in subsequent SEC Reports, and includes, without limitation, the proceedings relating to the termination of the Company's or the Guarantor's contractual relationship with Western Hemisphere Sales, Inc. (as successor to Pioneer Data Processing, Inc.). "Lawsuit Settlement Accrual Amount" shall mean, for any period, the aggregate amount that has been charged against earnings and either (i) accrued as liabilities for such period or (ii) paid during such period, in each case with respect to estimated settlement payments in connection with the Lawsuits (including, without limitation, in connection with the termination of the contractual relationship with Western Hemisphere Sales, Inc. (as successor to Pioneer Data Processing, Inc.), which is the subject of one of the Lawsuits). "Lawsuit Settlement Payment Amount" shall mean, for any period, the sum of (a) the aggregate amount of settlement payments made by the Company during such period (and reductions in accrued liabilities, if any, in respect of such settlement payments) to parties asserting claims in connection with the Lawsuits, and (b) any payments made by the Company, the Guarantor or any Subsidiary during such period (and reductions in accrued liabilities, if any, in respect of such settlement payments) in connection with the termination of the contractual relationship with Western Hemisphere Sales, Inc. (as successor to Pioneer Data Processing, Inc.), which is the subject of one of the Lawsuits. "Tax Settlement Payment Amount" shall mean, for any period, the aggregate amount of payments made by the Company to the Internal Revenue Service during such period (and reductions in accrued liabilities related to such payments) to settle federal tax liabilities described in the note captioned "Income -2- 113 Taxes" to the consolidated quarterly financial statements of the Company contained in the Company's Quarterly Report on Form 10-Q for the Quarter Ended September 30, 1993. "TCI Transaction" shall mean the combination of Liberty Media and Tele-Communications, Inc., a Delaware corporation, through the exchange of Class A and Class B shares of both companies for like shares of a holding company, on substantially the terms outlined in Liberty Media's Current Report on Form 8-K dated October 27, 1993 (including the exhibits thereto), copies of which have been furnished to the Banks by the Company. (b) Section 1.1 of the Credit Agreement is hereby further amended by deleting the definition of "Fixed Charges" in its entirety and by replacing it with the following: "'Fixed Charges' shall mean, for any Person and for any period, the sum (without duplication) of: (a) all capital expenditures and increases in intangible assets of such Person for such period, plus (b) the sum (without duplication) of (i) all interest expense of such Person for such period, (ii) all payments of principal of all Indebtedness of such Person that were scheduled for payment during such period, whether or not paid (unless any such payment (x) was cancelled or forgiven for, or prepaid in advance of, such period or (y) represents the June 15, 1994 principal installment due pursuant to Section 3.1 of the Term Loan Agreement), (iii) any increase in total current assets and any decrease in total current liabilities (net of the change in cash and cash equivalents and the change in Short-Term Debt, and without giving effect to: (A) that portion, if any, of the Tax Settlement Payment Amount paid (and any reductions in accrued liabilities related thereto) in such period which, when aggregated with all other Tax Settlement Payment Amounts paid (or such reductions) in all previous periods, does not exceed $20,947,000, or -3- 114 (B) that portion, if any, of the Lawsuit Settlement Accrual Amount recognized in such period which, when aggregated with all other Lawsuit Settlement Accrual Amounts recognized in all previous periods, does not exceed $25,000,000, or (C) that portion, if any, of the Lawsuit Settlement Payment Amount paid (and any reductions in accrued liabilities related thereto) in such period which, when aggregated with all other Lawsuit Settlement Payment Amounts paid (or such reductions) in all previous periods, does not exceed $25,000,000), (iv) any cash increase in long-term investments (excluding periods prior to September 1, 1992) of such Person for such period, and (v) any cash increase in long-term notes receivable (excluding periods prior to September 1, 1992) of such Person for such period, minus (c) the sum (without duplication) of (i) all interest income, other than interest income related to the Silver King Notes, of such Person for such period, (ii) any decrease in total current assets and any increase in total current liabilities (net of the change in cash and cash equivalents and the change in Short-Term Debt, and without giving effect to: (A) that portion, if any, of the Tax Settlement Payment Amount paid (and any reductions in accrued liabilities related thereto) in such period which, when aggregated with all other Tax Settlement Payment Amounts paid (or such reductions) in all previous periods, does not exceed $20,947,000, or (B) that portion, if any, of the Lawsuit Settlement Accrual Amount recognized in such period which, when aggregated with all other Lawsuit Settlement Accrual Amounts recognized in all previous periods, does not exceed $25,000,000, or (C) that portion, if any, of the Lawsuit Settlement Payment Amount paid (and any -4- 115 reductions in accrued liabilities related thereto) in such period which, when aggregated with all other Lawsuit Settlement Payment Amounts paid (or such reductions) in all previous periods, does not exceed $25,000,000), (iii) any cash decrease in long-term investments (excluding periods prior to September 1, 1992) of such Person for such period, and (iv) any cash decrease in long-term notes receivable (excluding periods prior to September 1, 1992) of such Person for such period, in each case as reflected on the consolidated quarterly or annual financial statements, including the notes thereto, of the Company most recently delivered to the Administrative Agent pursuant to Section 9.1 (or Section 8.2) hereof. Fixed Charges for the four-Fiscal Quarter period ended August 31, 1992 are as set forth in Schedule 2 hereto." (c) Section 1.1 of the Credit Agreement is hereby further amended by deleting the definition of "Operating Cash Flow" in its entirety and by replacing it with the following: "'Operating Cash Flow' shall mean, for any period, the sum of the following for the Company and its Subsidiaries (including, without limitation, the Guarantor) on a consolidated basis: (a) operating profit of such Persons for such period; plus (b) to the extent already deducted in arriving at operating profit) depreciation and amortization expense for such Persons for such period; plus (c) (to the extent already deducted in arriving at operating profit) commencing September 1, 1992, non-cash compensation expense related to the Company's executive stock award program; plus (d) all cash interest (if any), other cash income (if any) or cash principal repayments (if any) received by the Company or any Subsidiaries in connection with the Silver King Notes, and, for the twelve months immediately following the delivery of any such Silver King Note, accrued interest income on such note for no more than one month; plus -5- 116 (e) (to the extent already deducted in arriving at operating profit) the lesser of (x) the Lawsuit Settlement Accrual Amount for such period (whether or not paid) and (y) that portion, if any, of such Lawsuit Settlement Accrual Amount that when aggregated with all other Lawsuit Settlement Accrual Amounts accrued in previous periods (whether or not paid) does not exceed $25,000,000, all as shown on the consolidated financial statements, including the notes thereto, of the Company and its consolidated Subsidiaries for such period or, with respect to clause (d) above, if such financial statements do not present information in sufficient detail to derive the amount specified in clause (d) of this definition, as shown on the certificate to be delivered to the Administrative Agent pursuant to the last paragraph of Section 9.1 hereof. Operating Cash Flow for the four-Fiscal Quarter period ended August 31, 1992 is as set forth in Schedule 2 hereto." (d) Section 9.11 of the Credit Agreement is hereby amended by deleting the dates March 31, 1994 through September 30, 1994 and the related ratios that appear in paragraph (a) of such Section and replacing such dates and ratios with the following: "March 31, 1994 1.40:1 June 30, 1994 1.40:1 September 30, 1994 1.40:1,". (e) Section 9.12 of the Credit Agreement is hereby amended by deleting the dates December 31, 1993 through December 31, 1994 and the related ratios that appear in paragraph (a) of such Section and replacing such dates and ratios with the following: "December 31, 1993 2.125:1 March 31, 1994 2.50:1 June 30, 1994 2.50:1 September 30, 1994 2.25:1 December 31, 1994 2.25:1,". (f) Section 10 of the Credit Agreement is hereby amended by inserting the following immediately before the semi-colon at the end of such paragraph (k): ", or (iii) (A) such Change of Control arises solely in connection with the TCI Transaction, and (B) as of the date the TCI Transaction is consummated and -6- 117 after giving effect thereto, no other Default or Event of Default shall have occurred and be continuing, or (iv) with respect to any date on or following the date the TCI Transaction is consummated, (A) such Change of Control arises solely in connection with the Bell Atlantic Transaction, and (B) as of the date the Bell Atlantic Transaction is consummated and after giving effect thereto, no other Default or Event of Default shall have occurred and be continuing". (g) Each reference in the Credit Agreement to "this Agreement" and the words "hereof", "hereto" and "herein" and the like shall, except where the context otherwise requires, refer to the Credit Agreement as amended by, and through the effective date of, this Fifth Amendment. SECTION 3. REPRESENTATIONS AND WARRANTIES. Each of the Company and the Guarantor represents and warrants to the Administrative Agent and the Banks as of the date of this Fifth Amendment and as of the date on which it becomes effective that (a) no Default or Event of Default has occurred and is continuing, and (b) the representations and warranties made by the Company and the Guarantor in Section 8 of the Credit Agreement, as amended hereby, and in any other certificate or other document delivered in connection with the Credit Agreement are true in all material respects on the date hereof and are hereby restated on and as of the date of the effectiveness of this Fifth Amendment with the same force and effect as if made on and as of such date (including, without limitation, that there has occurred no material adverse change since August 31, 1992 in the consolidated financial condition or operations, or the business taken as a whole, of the Company and its consolidated Subsidiaries from that set forth in their financial statements dated as of August 31, 1992, except as disclosed to the Banks in writing prior to the date of this Fifth Amendment). SECTION 4. CONDITIONS TO EFFECTIVENESS. This Fifth Amendment shall become effective as of December 31, 1993 when (a) counterparts hereof shall have been duly executed and delivered by the Majority Banks and (b) the Company shall have paid to LTCB Trust Company a fee in accordance with the terms and conditions set forth in the Amendment Fee Letter, dated December 9, 1993, among LTCB Trust Company, the Company and the Guarantor. -7- 118 SECTION 5. MISCELLANEOUS. (a) This Fifth 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 Fifth Amendment by signing any such counterpart. (b) Upon the effectiveness of this Fifth Amendment, LTCB Trust Company, as Administrative Agent, shall pay fees to the Banks in accordance with the terms and conditions of its notice to the Banks dated December 10, 1993. (c) THIS FIFTH AMENDMENT AND THE CREDIT AGREEMENT AS AMENDED HEREBY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. (d) Except as expressly set forth in this Fifth Amendment, the Credit Agreement shall remain unmodified and in full force and effect. IN WITNESS WHEREOF, the parties hereto have caused this Fifth Amendment to be duly executed as of the date first above written. HOME SHOPPING NETWORK, INC., as the Company By /s/ KEVIN J. MCKEON -------------------------------- Title: Senior Vice President of Accounting & Finance HOME SHOPPING CLUB, INC., as Guarantor By /s/ R. JOSEPH RILEY -------------------------------- Title: Assistant Treasurer -8- 119 The Banks LTCB TRUST COMPANY, as a Bank and a Co-Agent By /s/ JOHN A. KROB -------------------------------- Title: Senior Vice President BANK OF MONTREAL, as a Bank and a Co-Agent By /s/ PATRICK J. SULLIVAN -------------------------------- Title: Director THE BANK OF NEW YORK By /s/ KALPANA RAINA -------------------------------- Title: Vice President PNC BANK, KENTUCKY, INC. (formerly known as Citizens Fidelity Bank & Trust Company) By /s/ JAMES D. NEIL -------------------------------- Title: Vice President THE DAIWA BANK, LIMITED By /s/ SYBIL H. WELDON -------------------------------- Title: Vice President & Manager By /s/ ALLEN L. HARVELL, JR. -------------------------------- Title: Vice President FIRST UNION NATIONAL BANK OF FLORIDA By /s/ ROBERT E. HASTINGS, JR. -------------------------------- Title: Vice President -9- 120 TORONTO DOMINION (TEXAS), INC. By /s/ CAROLE A. CLAUSE ----------------------------- Title: Vice President The Administrative Agent LTCB TRUST COMPANY, as Administrative Agent By /s/ JOHN A. KROB ----------------------------- Title: Senior Vice President -10- EX-10.27 6 HSN TERM LOAN AGREEMENT 1 EXHIBIT 10.27 ************************************************************ HOME SHOPPING NETWORK, INC., as Borrower HOME SHOPPING CLUB, INC., as Guarantor __________ TERM LOAN AGREEMENT Dated as of February 4, 1993 __________ LTCB TRUST COMPANY, as Administrative Agent __________ LTCB TRUST COMPANY, as Agent __________ BANK OF MONTREAL and THE BANK OF NEW YORK, as Co-Agents __________ THE BANKS NAMED HEREIN ************************************************************ 2 TABLE OF CONTENTS
Page ---- Section 1. Definitions and Accounting Matters. . . . . . . . . . . . . . . . . . . . . 1 1.1. Certain Defined Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2. Certain Accounting Matters. . . . . . . . . . . . . . . . . . . . . . . . . 16 Section 2. Commitments and Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 2.1. Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 2.2. Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 2.3. Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 2.4. Lending Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 2.5. Several Obligations; Remedies Independent. . . . . . . . . . . . . . . . . . 19 2.6. Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Section 3. Payments of Principal and Interest . . . . . . . . . . . . . . . . . . . . . 19 3.1. Repayment of Principal . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 3.2. Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 3.3. Prepayments and Conversions of the Loans . . . . . . . . . . . . . . . . . . 22 Section 4. Payments and Computations . . . . . . . . . . . . . . . . . . . . . . . . . 23 4.1. Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 4.2. Pro Rata Treatment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 4.3. Computations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 4.4. Minimum Amounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 4.5. Certain Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 4.6. Non-Receipt of Funds by the Administrative Agent . . . . . . . . . . . . . . 26 4.7. Sharing of Payments, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . 27 Section 5. Yield Protection and Illegality. . . . . . . . . . . . . . . . . . . . . . . 28 5.1. Additional Costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 5.2. Limitation on Types of Loans. . . . . . . . . . . . . . . . . . . . . . . . 30 5.3. Illegality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 5.4. Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 5.5. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Section 6. Guarantee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 6.1. Unconditional Guarantee. . . . . . . . . . . . . . . . . . . . . . . . . . . 33 6.2. Validity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 6.3. Waivers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 6.4. Subordination and Subrogation. . . . . . . . . . . . . . . . . . . . . . . . 34
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Page ---- 6.5. Acceleration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 6.6. Reinstatement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Section 7. Conditions Precedent. . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 7.1. Basic Conditions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 7.2. Additional Conditions. . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Section 8. Representations and Warranties. . . . . . . . . . . . . . . . . . . . . . . 38 8.1. Corporate Existence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 8.2. Financial Condition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 8.3. Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 8.4. No Breach. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 8.5. Corporate Action. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 8.6. Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 8.7. Use of Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 8.8. ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 8.9. Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 8.10. Credit Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 8.11. Ownership of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 8.12. Pari Passu Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 8.13. Investment Company Act . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 8.14. Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Section 9. Covenants of the Company and the Guarantor. . . . . . . . . . . . . . . . . 43 9.1. Financial Statements; Reports and Other Information. . . . . . . . . . . . . 43 9.2. Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 9.3. Corporate Existence, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . 47 9.4. Payment of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 9.5. Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 9.6. Mergers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 9.7. Dispositions of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 9.8. Ranking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 9.9. Business; Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 9.10. Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . 53 9.11. Fixed Charges Coverage Test . . . . . . . . . . . . . . . . . . . . . . . . 53 9.12. Debt Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 9.13. Consolidated Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 9.14. Notification of Incurrence of Debt or Making of Investment . . . . . . . . . 54 9.15. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 9.16. Ownership of Guarantor . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 9.17. Indebtedness of Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . 55 9.18. Interest Rate Protection . . . . . . . . . . . . . . . . . . . . . . . . . . 56
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Page ---- Section 10. Events of Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Section 11. The Administrative Agent. . . . . . . . . . . . . . . . . . . . . . . . . . 61 11.1. Appointment, Powers and Immunities. . . . . . . . . . . . . . . . . . . . . 61 11.2. Reliance by the Administrative Agent. . . . . . . . . . . . . . . . . . . . 62 11.3. Defaults. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 11.4. Rights as a Bank. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 11.5. Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 11.6. Non-Reliance on Administrative Agent, Agent, Co-Agents and other Banks. . . 63 11.7. Failure to Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 11.8. Resignation or Removal of Administrative Agent . . . . . . . . . . . . . . . 64 11.9. Administrative Agent's Office . . . . . . . . . . . . . . . . . . . . . . . 65 11.10. Agent and Co-Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 Section 12. Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 12.1. Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 12.2. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 12.3. Expenses, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 12.4. Amendments, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 12.5. Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . . . . . 68 12.6. Assignments and Participation. . . . . . . . . . . . . . . . . . . . . . . . 68 12.7. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 12.8. Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 12.9. Captions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 12.10. Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 12.11. GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 12.12. JURISDICTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 12.13. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 Schedule 1: Existing Credit Agreements and Liens Schedule 2: Calculations of Sample Financial Terms Exhibit A: Form of Note Exhibit B: Form of Opinion of Counsel to the Company and the Guarantor Exhibit C: Form of Compliance Certificate Exhibit D-1: Form of Funded Debt Ratio Notice Exhibit D-2: Form of Total Debt Ratio Notice Exhibit E: Form of Assignment and Assumption Agreement Annex A: Press Release of Liberty Media Corporation of December 7, 1992
(iii) 5 TERM LOAN AGREEMENT, dated as of February 4, 1993 (as the same may be amended or modified from time to time, this "Agreement"), among HOME SHOPPING NETWORK, INC., a Delaware corporation (the "Company"); HOME SHOPPING CLUB, INC., a Delaware corporation (the "Guarantor"); each of the banks which is a signatory hereto (individually, a "Bank" and, collectively, the "Banks"); LTCB TRUST COMPANY, a New York trust company, as Agent for the Banks (in such capacity, the "Agent"); Bank of Montreal and The Bank of New York, each as a Co-Agent for the Banks (in such capacity, together with its successors in such capacity, each a "Co- Agent"); and LTCB TRUST COMPANY, a New York trust company, as Administrative Agent for the Banks (in such capacity, together with its successors in such capacity, the "Administrative Agent"). WHEREAS, the Company has requested the Banks to make term loans to the Company, under the guarantee of the Guarantor, in an aggregate principal amount up to but not exceeding $50,000,000 for the purpose of refinancing certain existing indebtedness, as more fully described in this Agreement; and WHEREAS, the Banks are willing to make such loans to the Company on the terms and subject to the conditions of this Agreement; and WHEREAS, the Administrative Agent has been requested to act as agent for the Banks, and the Administrative Agent is willing to act as such agent on the terms and subject to the conditions of this Agreement, NOW THEREFORE, in consideration of the premises and mutual covenants contained herein, the parties hereto hereby agree as follows: Section 1. Definitions and Accounting Matters. 1.1. Certain Defined Terms. As used herein, the following terms shall have the following meanings (all terms defined in this Section 1 or in other provisions of this Agreement in the singular to have the same meanings when used in the plural and vice versa): "1992 Term Loan Agreement" shall mean the Term Loan Agreement, dated as of December 18, 1992, among the Company, the Guarantor, LTCB Trust and Bank of Montreal, each as a co-agent, LTCB Trust, as the administrative agent, and the financial institutions party thereto, as the same may be amended or modified from time to time. 6 "Adjusted Operating Cash Flow" shall mean, for any period, the sum of the following for the Company and its Subsidiaries (including, without limitation, the Guarantor) on a consolidated basis: (a) Operating Cash Flow for such period, plus (or minus) (b) cash inflows to (or outflows from) equity (including, without limitation, cash dividends on capital stock) for such period, all as shown on the consolidated financial statements, including the notes thereto, of the Company for such period. Adjusted Operating Cash Flow for the four-Fiscal Quarter period ended November 30, 1992 is as set forth in Schedule 2 hereto. "Affiliate" shall mean, with respect to any Person, any other Person (other than a Wholly-Owned Subsidiary of such Person) directly or indirectly controlling, controlled by, or under direct or indirect common control with, such Person. A Person shall be deemed to control another Person if such Person (x) is an officer or director of such other Person, (y) possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such other Person, whether through the ownership of voting securities, by contract or otherwise, or (z) directly or indirectly owns or controls 10% or more of such other Person's capital stock. "Applicable Lending Office" shall mean, for each Bank and for each type of Loan, the Lending Office of such Bank (or of an affiliate of such Bank) designated for such type of Loan on the signature pages hereof or such other office of such Bank (or of an affiliate of such Bank) as such Bank may from time to time specify to the Administrative Agent and the Company as the office by which its Loans of such type are to be made and maintained. "Applicable Margin" shall mean (a) with respect to any date prior to the date on which the Liberty Media Transaction is consummated: (i) with respect to LIBOR Loans, 2.375% minus the Margin Adjustment (if any) in effect at such time; and (ii) with respect to Prime Rate Loans, 1.375% minus the Margin Adjustment (if any) in effect at such time, and (b) with respect to any date on or following the date on which the Liberty Media Transaction is consummated: (i) with respect to LIBOR Loans, 2.125% minus the Margin Adjustment (if any) in effect at such time; and (ii) with respect to Prime Rate Loans, 1.125% minus the Margin Adjustment (if any) in effect at such time. "Bankruptcy Code" shall mean the federal Bankruptcy Code of the United States, 11 U.S.C. Section 101 et seq. -2- 7 "Business Day" shall mean any day on which commercial banks are not authorized or required to close in New York City and dealings in Dollar deposits are carried out in the London interbank market. "Capital Lease" shall mean any lease or other contractual arrangement which under GAAP has been or should be recorded as a capital lease. "Change of Control" shall mean any of the following events: (i) the acquisition by any "person" or "group" of persons of the "beneficial ownership" (as such terms are defined within the meaning of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended) of outstanding shares of the Company's capital stock, or any sale or other disposition by Roy M. Speer (other than an involuntary disposition by reason of death or disability), or, following the consummation of the Liberty Media Transaction, Liberty Media, of any of the capital stock of the Company owned by Mr. Speer, or, following the consummation of the Liberty Media Transaction, Liberty Media, or any other event such that, after giving effect to such acquisition, sale, disposition or other event, Mr. Speer, or, following the consummation of the Liberty Media Transaction, Liberty Media, would no longer (A) own, directly or indirectly, or otherwise control at least 51% of the outstanding shares of any class of the Company's common stock the approval of which is required for any fundamental corporate action (including, without limitation, any merger, reorganization, recapitalization, liquidation, distribution, winding-up, sale, transfer or hypothecation of substantially all or a substantial portion of the Company's assets), or (B) possess the ability to elect at least a majority of the Board of Directors of the Company, or (ii) any person or group of persons shall acquire all or substantially all of the assets of the Company. "Code" shall mean the Internal Revenue Code of 1986, as amended. "Commitment" shall mean, with respect to any Bank, the amount set forth opposite such Bank's name on the signature pages hereof under the caption "Commitment". "Commitment Letters" shall mean, collectively, (i) the commitment letter and term sheet, dated December 17, 1992, among LTCB Trust, as Agent, the Company and the Guarantor, (ii) the letter, dated January 11, 1993, among Bank of Montreal, as a Co-Agent, the Company and the Guarantor and (iii) the letter, dated January 6, 1993, between The Bank of New York, as a Co-Agent, and the Company. -3- 8 "Commitment Termination Date" shall mean April 15, 1993, or such earlier date on which Loans in an aggregate principal amount equal to 100% of the Commitments shall have been made by the Banks in accordance with this Agreement. "Consolidated Net Worth" shall mean, at any date, all amounts which, in conformity with GAAP, would be included under stockholder's equity on a consolidated balance sheet of the Company and its Subsidiaries at such time. "Convertible Subordinated Debentures" shall mean the Company's 5-1/2% Convertible Subordinated Debentures due April 22, 2002, issued under the Convertible Subordinated Debenture Indenture. "Convertible Subordinated Debenture Indenture" shall mean the Indenture, dated as of April 22, 1987, between the Company and Bankers Trust Company, as trustee. "Default" shall mean an Event of Default or an event which with notice or lapse of time or both would become an Event of Default. "Dollars" and "$" shall mean lawful money of the United States of America. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time. "ERISA Affiliate" shall mean any corporation or trade or business which is a member of the same controlled group of corporations (within the meaning of Section 414(b) of the Code) as the Company or the Guarantor or is under common control (within the meaning of Section 414(c) of the Code) with the Company or the Guarantor. "Event of Default" shall have the meaning assigned to that term in Section 10 hereof. "Federal Funds Rate" shall mean, (i) for Overnight Federal Funds Rate Loans, for any day, the rate per annum (rounded upwards, if necessary, to the nearest 1/100th of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day, and (ii) for Term Federal Funds Rate Loans (if requested by the Company and agreed to by the Administrative Agent and the Banks), for any Interest Period, the rate per annum (rounded upwards, if -4- 9 necessary, to the nearest 1/100th of 1%) equal to the weighted average of the rates on term Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on the first day of such Interest Period for a period equal to such Interest Period, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day and as determined by the Administrative Agent, provided that (x) if the day for which such rate is to be determined is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (y) if such rate is not so published for any day, the Federal Funds Rate for such day shall be the average rate charged to LTCB on such day on such transactions as determined by the Administrative Agent. "Federal Funds Rate Loans" shall mean the Loans (or any portion thereof) when they bear interest at rates based upon the Federal Funds Rate, and in any event shall be either an Overnight Federal Funds Rate Loan or a Term Federal Funds Rate Loan. "Fiscal Quarter" shall mean a period of three consecutive calendar months commencing on any of the following dates in any Fiscal Year: March 1; June 1, September 1 and December 1. "Fiscal Year" shall mean, for the Company, the Guarantor or any Subsidiary, the twelve consecutive calendar month period commencing on September 1 of each calendar year and ending on August 31 of the next following calendar year; and "Fiscal 1993", "Fiscal 1994", and any other year so designated shall mean the Fiscal Year ending on August 31 of the indicated calendar year. "Fixed Charges" shall mean, for any Person and for any period, the sum (without duplication) of: (a) all capital expenditures and increases in intangible assets of such Person for such period, plus (b) the sum (without duplication) of (i) all interest expense of such Person for such period, (ii) all payments of principal of all Indebtedness of such Person that were scheduled for payment during such period, whether or not paid (unless cancelled or forgiven for, or prepaid in advance of, such period), (iii) any increase in total current assets and any decrease in total current -5- 10 liabilities (net of the change in cash and cash equivalents and the change in Short-Term Debt) of such Person for such period, (iv) any cash increase in long-term investments of such Person for such period (excluding periods prior to September 1, 1992), and (v) any cash increase in long- term notes receivable of such Person for such period (excluding periods prior to September 1, 1992), minus (c) the sum (without duplication) of (i) all interest income, other than interest income related to the Silver King Note, of such Person for such period, (ii) any decrease in total current assets and any increase in total current liabilities (net of the change in cash and cash equivalents and the change in Short-Term Debt) of such Person for such period, (iii) any cash decrease in long-term investments of such Person for such period (excluding periods prior to September 1, 1992), and (iv) any cash decrease in long-term notes receivable of such Person for such period (excluding periods prior to September 1, 1992), in each case as reflected on the consolidated quarterly or annual financial statements, including the notes thereto, of the Company most recently delivered to the Administrative Agent pursuant to Section 9.1 (or referred to in Section 8.2) hereof. Fixed Charges for the four-Fiscal Quarter period ended November 30, 1992 are as set forth in Schedule 2 hereto. "Funded Debt Ratio" shall mean, at any time, the ratio of (a) Total Funded Debt of the Company and its consolidated Subsidiaries as at the end of the Company's four-Fiscal Quarter period most recently ended as of such time, to (b) Operating Cash Flow for the same period, as shown in the Funded Debt Ratio Notice for such period. "Funded Debt Ratio Notice" shall mean each notice provided for in Section 9.1(g) (or Section 7.1(f)) hereof. "GAAP" shall mean generally accepted accounting principles in the United States of America, consistently applied, as in effect (unless otherwise specified in this Agreement) from time to time. "HSN Capital" shall mean HSN Capital Corporation, a Nevada corporation and a Wholly-Owned Subsidiary of the Company, and its successors. -6- 11 "Indebtedness" shall mean, for any Person (but without duplication): (a) all indebtedness and other obligations of such Person for borrowed money or for the deferred purchase price of property or services (other than trade payables incurred in the ordinary course of business and not overdue by more than 180 days), including, without limitation, all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments; (b) all obligations of such Person under interest rate or currency swaps, caps, collars, floors, options, forward exchange contracts and similar hedging arrangements; (c) the stated amount of all letters of credit issued for the account of such Person and (without duplication) all drafts drawn thereunder, and the aggregate face amount of all banker's acceptances as to which such Person is obligated, other than trade letters of credit issued for the account of such Person in the ordinary course of business pursuant to the terms of which (i) such Person is obligated to reimburse the issuer thereof for any drawing thereunder on the date of such drawing and (ii) no other credit shall be extended thereunder to such Person by such issuer; (d) all obligations of such Person under any Capital Leases; (e) all obligations of such Person in connection with employee benefit or similar plans; (f) all obligations of such Person in respect of guarantees, whether direct or indirect (including, without limitation, agreements to "keep well" or otherwise ensure a creditor against loss) with respect to any indebtedness or other obligation of any other Person of the type described in any of clauses (a) through (e) above; and (g) all indebtedness or other obligations referred to in any of clauses (a) through (f) above secured by any Lien upon property owned by such Person, whether or not such Person is liable on any such obligation. "Interest Payment Date" shall mean, (i) for any Loan, the last day of the Interest Period relating thereto, and (ii) for any Federal Funds Rate Loan or Prime Rate Loan, -7- 12 the last day of any month which occurs during the Interest Period related thereto, and in any case if such day is not a Business Day, the next succeeding Business Day. "Interest Period" shall mean with respect to any (1) LIBOR Loan, each period commencing on the date such Loan is made or converted from a Loan of another type or the last day of the immediately preceding Interest Period for such Loan and ending on the numerically corresponding day in the first, second, third or sixth calendar month thereafter, as the Company may select as provided in Section 2.2 hereof (or such period of less than one month as the Company may select in accordance with clause (ii) or (iii) of the next paragraph below), except that each such Interest Period which commences on the last Business Day of a calendar month (or on any day for which there is no numerically corresponding day in the appropriate subsequent calendar month) shall end on the last Business Day of the appropriate subsequent calendar month, (2) Overnight Federal Funds Rate Loan, each period of one Business Day, (3) Term Federal Funds Rate Loan, each period commencing on the date such Loan is made or converted from a Loan of another type or the last day of the immediately preceding Interest Period for such Loan and ending on the last day for which the Federal Funds Rate for such Loan applies, as agreed between the Company and the Administrative Agent with the consent of the Banks prior to the commencement of such Interest Period and (4) Prime Rate Loan, each period commencing on the date such Loan is made or converted from a Loan of another type or the last day of the immediately preceding Interest Period for such Loan and ending on the date 30 days later. Notwithstanding the foregoing, (i) each Interest Period which would otherwise end on a day that is not a Business Day shall end on the next succeeding Business Day (or if such next succeeding Business Day falls in the next succeeding calendar month, on the next preceding Business Day); (ii) if the Company selects an Interest Period that would begin before and end after any Maturity Date, the Administrative Agent may notify the Company and the Banks that the Company must select a shorter Interest Period that will end on or prior to such Maturity Date, in which case such shorter period selected by the Company shall (subject to clause (i) above) be the relevant Interest Period; and (iii) the Company must select the duration of Interest Periods so that, notwithstanding clause (i) above, no Interest Period for LIBOR Loans shall have a duration of less than one month (except as provided in clause (ii) above), and so that no more than six Interest Periods with respect to LIBOR Loans shall be in effect at any one time. -8- 13 "Interest Rate Protection Agreement" shall mean any interest rate protection agreement, interest rate future, interest rate option, interest rate swap, interest rate cap, interest rate collar or other forward exchange contract or similar interest rate hedge or arrangement under which the Company or a Subsidiary is a party or a beneficiary. "Investment" shall mean, for any Person, (a) the acquisition (whether for cash, property, services or securities or otherwise) of capital stock, bonds, notes, debentures, partnership or other ownership interests or other securities or obligations of any other Person or any agreement to make any such acquisition (including, without limitation, any "short sale" or any sale of any securities at a time when such securities are not owned by the Person entering into such short sale); (b) the making of any deposit with, or advance, or loan or other extension of credit to, any other Person (including the purchase of property from another Person subject to an understanding or agreement, contingent or otherwise, to resell such property to such Person, but excluding any such advance, loan or other extension of credit to customers of the Company or to customers of the Company's Subsidiaries having a term not exceeding 90 days arising in the ordinary course of business); (c) the entering into of any guarantee of, or other contingent obligation with respect to, Indebtedness or other liability of any other Person and (without duplication) any amount committed to be advanced, lent or extended to such person; or (d) the entering into of any interest rate or currency swaps, caps, collars, floors, options, forward exchange contracts and similar hedging arrangements. "Liberty Media" shall mean Liberty Media Corporation, a Delaware corporation. "Liberty Media Transaction" shall mean the acquisition by Liberty Media of an aggregate of 20,000,000 shares of Class B Common Stock of the Company from RMS Limited Partnership pursuant to an Agreement in Principle, dated December 4, 1992, between RMS Limited Partnership and Liberty Media, on substantially the terms outlined in Liberty Media's press release of December 7, 1992, attached hereto as Annex A. "LIBOR" shall mean, with respect to any LIBOR Loan for any Interest Period therefor, the rate per annum (rounded upwards, if necessary, to the nearest 1/16 of 1%) quoted by the London office of LTCB at approximately 11:00 a.m. London time (or as soon thereafter as practicable) or if such rate is not quoted to LTCB, the rate per annum appearing on the display designated as page "LIBO" on the Reuter Monitor Money -9- 14 Rates Service (or such other page as may replace the LIBO page of that service for the purpose of displaying London interbank offered rates of major banks) two Business Days prior to the first day of such Interest Period for the offering by such office to leading banks in the London interbank market of Dollar deposits having a term comparable to such Interest Period and in an amount comparable to the principal amount of the LIBOR Loan scheduled to be outstanding during such Interest Period from LTCB Trust. "LIBOR Loans" shall mean the Loans (or any portion thereof) when they bear interest at rates determined on the basis of LIBOR. "Lien" shall mean, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, any agreement to grant any of the foregoing with respect to such asset, and the filing of a financing statement or similar recording in any jurisdiction with respect to such asset. For all purposes hereunder, the Company, the Guarantor or any Subsidiary shall be deemed to own subject to a Lien (i) any asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such asset and (ii) any account receivable transferred by it with recourse (including any such transfer subject to a holdback or similar arrangement that effectively imposes the risk of collectibility on the transferor). "Loans" shall mean the loans provided for by Section 2.1 hereof. "LTCB" shall mean The Long-Term Credit Bank of Japan, Limited, a banking corporation duly organized and validly existing under the laws of Japan, and its successors. "LTCB Trust" shall mean LTCB Trust Company, a trust company duly organized and validly existing under the laws of the State of New York, and its successors. "Majority Banks" shall mean Banks having not less than 60% of the aggregate principal amount of the Loans outstanding, or if no Loans are then outstanding, Banks holding not less than 60% of the Commitments then in effect, or, if no Loans are then outstanding nor Commitments in effect, Banks which held not less than 60% of the Commitments when most recently in effect or, if later, which held not less than 60% of the aggregate principal amount of the Loans when most recently outstanding. -10- 15 "Margin Adjustment" shall mean, at any time of determination thereof commencing after the first anniversary of the date of the initial funding of the Loans, when the Funded Debt Ratio, as set forth in the Funded Debt Ratio Notice most recently delivered to the Administrative Agent (which Notice shall be effective on the date of the Administrative Agent's receipt thereof in accordance with Section 12.2 hereof), is at each of the following levels, a subtraction from any Applicable Margin, as set forth below: Effective Subtraction from Funded Debt Ratio Applicable Margin ----------------- ----------------- Greater than 1.00 to 1 0 1.00 to 1 or less For LIBOR Loans: (0.500%) For Prime Rate Loans: (0.625%) "Material Subsidiary" shall mean, at any time, a Subsidiary the book value of whose tangible assets at such time exceeds 10% of the book value of the total tangible assets of the Company and the Subsidiaries (on a consolidated basis), but in any event shall include each of the Guarantor, HSN Capital, HSN Fulfillment, Inc., a Delaware corporation, HSN Mail Order, Inc., a Delaware corporation, and HSN Realty, Inc., a Delaware corporation, and their respective successors. "Material Subsidiary Group" shall mean, at any time, a group of any two or more Subsidiaries which at such time has a combined aggregate book value of tangible assets in excess of 10% of the book value of the total tangible assets of the Company and the Subsidiaries (on a consolidated basis). "Maturity Date" shall mean any date on which an installment of principal due to the Banks under Section 3.1 hereof is scheduled to become due. "Multiemployer Plan" shall mean a plan defined as such in Section 3(37) of ERISA to which contributions have been made by the Company or any ERISA Affiliate and which is covered by Title IV of ERISA. "Non-Material Subsidiary" shall mean, at any time, a Subsidiary which is not a Material Subsidiary. "Notes" shall mean the promissory notes provided for by Section 2.6 hereof. -11- 16 "Obligations" shall mean all obligations and liabilities of the Company to the Administrative Agent, the Agent, the Co-Agents and the Banks (or any of the foregoing) now or in the future existing under or in connection with this Agreement, any of the Notes or any related document (as any of the foregoing Agreement, Notes or documents may from time to time be respectively amended, modified, substituted, extended or renewed), direct or indirect, absolute or contingent, due or to become due, now or hereafter existing, including without limitation, any payment of principal, interest, fees or expenses due at any time under this Agreement. "Operating Cash Flow" shall mean, for any period, the sum of the following for the Company and its Subsidiaries (including, without limitation, the Guarantor) on a consolidated basis: (a) operating profit of such Persons for such period; plus (to the extent already deducted in arriving at operating profit) (b) depreciation and amortization expense for such Persons for such period; plus (c) commencing September 1, 1992, non-cash compensation expense related to the Company's executive stock award program; plus (d) all cash interest (if any), other cash income (if any) or cash principal repayments (if any) received by HSN Capital in connection with the Silver King Note, and, for the twelve months immediately following the delivery of such Silver King Note, accrued interest income on such note for no more than one month, all as shown on the consolidated financial statements, including the notes thereto, of the Company for such period or, with respect to clause (d) above, if such financial statements do not present information in sufficient detail to derive the amount specified in clause (d) of this definition, as shown on the certificate to be delivered to the Administrative Agent pursuant to the last paragraph of Section 9.1 hereof. Operating Cash Flow for the four-Fiscal Quarter period ended November 30, 1992 is as set forth in Schedule 2 hereto. "Overnight Federal Funds Rate Loans" shall mean Loans (or any portion thereof) when they bear interest at an overnight Federal Funds Rate. "PBGC" shall mean the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. "Person" shall mean an individual, a corporation, a company, a voluntary association, a partnership, a trust, an unincorporated organization or a government or any agency, instrumentality or political subdivision thereof. -12- 17 "Plan" shall mean an employee benefit or other plan established or maintained by the Company or any ERISA Affiliate and which is covered by Title IV of ERISA, other than a Multiemployer Plan. "Post-Default Rate" shall mean a rate per annum, during the period commencing on the date on which any Obligation is not paid in full when due (whether at stated maturity, by acceleration or otherwise) and ending on the date on which all such overdue Obligations are paid in full, equal to 2.00% plus the higher of (x) the Prime Rate as in effect from time to time and (y) the interest rate in effect from time to time for Overnight Federal Funds Rate Loans hereunder (including the Applicable Margin in effect for such Loans at each such time); provided that, if any such unpaid Obligation is principal of a LIBOR Loan or of a Term Federal Funds Rate Loan and the due date thereof is a day other than the last day of the Interest Period therefor, the "Post-Default Rate" for such principal shall be, for the period commencing on the due date and ending on the last day of the then current Interest Period therefor, 2.00% plus the interest rate for such Loan as provided in Section 3.2(a) or (b) hereof and, thereafter, the rate otherwise provided for above in this definition. "Prime Rate" shall mean the rate of interest from time to time announced by LTCB at its office in New York, New York as its prime commercial lending rate, which rate is not necessarily the lowest rate of interest charged or received by LTCB. Each change in the Prime Rate resulting from a change in such prime commercial lending rate shall take effect when such prime commercial lending rate changes. "Prime Rate Loans" shall mean the Loans (or any portion thereof) when they bear interest at rates based upon the Prime Rate. "Qualifying U.S. Corporation" shall mean, at any date of determination, any corporation (a) that is organized under the laws of a state in the United States, and (b)(i) that is at such date of determination and has been for the twelve months preceding such date of determination a business enterprise consistently operating for profit with a majority of its operations, and at least $100,000,000 of its assets, located in the United States or (ii) that is at such date of determination part of a group of companies any one of which is at such date of determination and has been for the twelve months preceding such date of determination a business enterprise consistently operating for profit with a majority of the operations of, and at least $100,000,000 of assets of, any such company, located in the United States. -13- 18 "Regulation A" shall mean Regulation A of the Board of Governors of the Federal Reserve System (or any successor), as the same may be amended or supplemented from time to time. "Regulation D" shall mean Regulation D of the Board of Governors of the Federal Reserve System (or any successor), as the same may be amended or supplemented from time to time. "Regulatory Change" shall mean, with respect to any Bank, any change after the date of this Agreement in United States Federal, state or foreign law or regulations (including Regulation D) or the adoption or making after such date of any interpretations, directives or requests applying to a class of banks including such Bank of or under any United States Federal, State or foreign law or regulations (whether or not having the force of law) by any court or governmental or monetary authority charged with the interpretation or administration thereof. "Revolving Credit Agreement" shall mean the Amended and Restated Credit Agreement, dated December 18, 1992, among the Company, the Guarantor, LTCB Trust and Bank of Montreal, each as a co-agent, LTCB Trust, as the administrative agent, the financial institutions party thereto, as the same may be amended or modified from time to time. "SEC Report" shall mean, with respect to any Person, any document filed, or deemed filed, at any time with the Securities and Exchange Commission (or any successor thereto) by or on behalf of such Person and available to the public. "Senior Notes" shall mean the Company's 11-3/4% Senior Notes due October 15, 1996, issued under the Senior Note Indenture. "Senior Note Indenture" shall mean the Indenture, dated October 15, 1986, between the Company and First Union National Bank of Florida (successor-in-interest to Southeast Bank, N.A.), as trustee. "Short-Term Debt" shall mean, for any Person, all Indebtedness of such Person which would be short term debt, whether direct or contingent, under GAAP as in effect on the date of this Agreement. "Silver King" shall mean Silver King Communications, Inc., a Delaware corporation, and its successors. -14- 19 "Silver King Distribution" shall mean the distribution by the Company on December 28, 1992 of shares of capital stock of Silver King held by the Company. "Silver King Note" shall mean the note, dated December 28, 1992, in the aggregate principal amount of $135,171,875, made by Silver King in favor of HSN Capital and delivered in connection with the Silver King Distribution. "Subsidiary" shall mean any corporation, partnership or other Person of which at least a majority of the outstanding shares of capital stock or other ownership interests ordinarily having, in the absence of contingencies, by the terms thereof voting power to elect a majority of the board of directors or similar governing body of such Person is at the time directly or indirectly owned or controlled by the Company, the Guarantor or by the Company and/or the Guarantor, and in any event shall include the Guarantor and its subsidiaries. "Wholly-Owned Subsidiary" shall mean any Person of which all of such ownership interests, other than directors' qualifying shares, are so owned or controlled. "Term Federal Funds Rate Loan" shall mean any Federal Funds Rate Loan other than an Overnight Federal Funds Rate Loan. "Total Debt" shall mean, for any Person at any time, all Indebtedness of such Person at such time (including, without limitation, all long-term senior and subordinated Indebtedness, all Short-Term Debt, the stated amount of all letters of credit issued for the account of such Person and (without duplication) all unreimbursed draws thereunder), as shown on the consolidated quarterly or annual financial statements, including the notes thereto, of the Company delivered for such period pursuant to Section 9.1 (or referred to in Section 8.2) hereof. Total Debt of the Company and its consolidated Subsidiaries as at the end of the four-Fiscal Quarter period ended November 30, 1992 is as set forth on Schedule 2 hereto. "Total Debt Ratio" shall mean, at any time, the ratio of (a) Total Debt of the Company and its consolidated Subsidiaries as at the end of the Company's four-Fiscal Quarter period most recently ended as of such time, to (b) Operating Cash Flow for the same period, as shown in the Total Debt Ratio Notice for such period. "Total Debt Ratio Notice" shall mean each notice provided for in Section 9.1(g) (or Section 7.1(f)) hereof. -15- 20 "Total Funded Debt" shall mean, for any Person at any time, (a) all Indebtedness of such Person outstanding at such time (other than the aggregate of all unsecured borrowings of such Person having a scheduled maturity of less than twelve months from the date of incurrence thereof in an aggregate principal amount not in excess of $5,000,000 at such time), minus (b) the stated amount available to be drawn of all letters of credit issued for the account of such Person, as shown on the consolidated quarterly or annual financial statements, including the notes thereto, of the Company and its Subsidiaries delivered for such period pursuant to Section 9.1 (or referred to in Section 8.2) hereof. Total Funded Debt of the Company and its consolidated Subsidiaries as at the end of the four-Fiscal Quarter period ended November 30, 1992 is as set forth on Schedule 2 hereto. 1.2. Certain Accounting Matters. (a) Unless otherwise disclosed to the Banks in writing at the time of delivery thereof in the manner described in subsection (b) below, all financial statements and certificates and reports as to financial matters required to be delivered to the Administrative Agent on behalf of itself and the Banks hereunder shall be prepared in accordance with GAAP applied on a basis consistent with those used in the preparation of the latest financial statements furnished to the Banks hereunder after the date hereof (or, prior to the delivery of the first financial statements furnished to the Banks hereunder, used in the preparation of the audited financial statements referred to in Section 8.2 hereof). All calculations made for the purposes of determining compliance with the terms of Sections 9.11, 9.12 and 9.13 hereof shall, except as otherwise expressly provided herein, be made by application of GAAP applied on a basis consistent with those used in the preparation of the annual or quarterly financial statements then most recently furnished to the Banks pursuant to Section 9.1 (or referred to in Section 8.2) hereof unless (i) the Company shall have objected to determining such compliance on such basis at the time of delivery of such financial statements or (ii) the Majority Banks shall so object in writing within 30 days after delivery of such financial statements, in either of which cases such calculations shall be made on a basis consistent with those used in the preparation of the most recent financial statements as to which such objection shall not have been made. (b) The Company shall deliver to the Administrative Agent, with sufficient copies for delivery to the Banks, contemporaneously with delivery of any annual or quarterly financial statement under Section 9.1 hereof a description in -16- 21 reasonable detail of any material variation between the application of accounting principles employed in the preparation of such statement and the application of accounting principles employed in the preparation of the most recently preceding annual or quarterly financial statements as to which no objection shall have been made in accordance with the last sentence of subsection (a) above, and reasonable estimates of the difference between such statements arising as a consequence thereof. Section 2. Commitments and Loans. 2.1. Loans. Each Bank severally agrees, on the terms and subject to the conditions of this Agreement, to make one or more Loans to the Company on any Business Day on or prior to the Commitment Termination Date in an aggregate principal amount not to exceed the amount of such Bank's Commitment, and further agrees that such Loans may be comprised of Federal Funds Rate Loans, Prime Rate Loans, LIBOR Loans, or any combination thereof, in accordance with Section 3.2(c) hereof. The Loans shall be made by the Banks pro rata in accordance with their respective Commitments. 2.2. Borrowing. The Company shall give the Administrative Agent (which shall promptly notify the Banks) notice of each borrowing hereunder as provided in Section 4.5 hereof. Not later than 10:00 a.m., or, in the case of a borrowing of Overnight Federal Funds Rate Loans or Prime Rate Loans, 12:00 noon, New York time on the date specified for such borrowing, each Bank shall make available the amount of the Loan to be made by it on such date to the Administrative Agent, at account number 04203606 maintained by the Administrative Agent with Bankers Trust Company (ABA No. 021001033), One Bankers Trust Plaza, New York, New York 10006 (reference: "Home Shopping Network - 1993 Term Loan Facility"), attention: Robert Pacifici, in immediately available funds. The amount so received by the Administrative Agent shall, subject to the terms and conditions of this Agreement, be made available to or for the benefit of the Company by depositing the same, in immediately available funds, either (i) in the account of the trustee for the Senior Notes designated by the Company in the related notice of borrowing, or (ii) in the account of the Company designated by the Company in the related notice of borrowing, to the extent and only to the extent that the Company has repurchased Senior Notes in the open market and is entitled to reimbursement therefor in accordance with Section 9.15 hereof. Each of the Company and the Guarantor acknowledges and agrees that any Loans disbursed to the trustee of the Senior Notes as contemplated in clause (i) of -17- 22 the preceding sentence shall be deemed for all purposes to have been disbursed to the Company. References in this Agreement to the date on which a Loan is made shall be to the date on which funds borrowed pursuant to such Loan shall have been made available to the Company pursuant to this Section 2.2. Each borrowing of the Loans shall reduce the Commitments by an amount equal to the aggregate principal amount of such Loans. 2.3. Fees. (a) The Company shall pay to the Administrative Agent for account of each Bank a commitment fee on the daily average unused amount of such Bank's outstanding Commitment, for the period from and including the date of this Agreement to and including the earlier of the day prior to the date such Commitment is terminated or the day prior to the Commitment Termination Date, at a rate per annum equal to 1/4 of 1%; provided, however, that no such fee shall be payable to any Bank with respect to the portion (if any) of such Bank's Commitment corresponding to the principal amount of Loans which such Bank shall not have made in accordance with (i) a notice of borrowing properly and timely given and (ii) the terms and conditions of this Agreement, and with respect to which all conditions precedent thereto shall have been satisfied. All outstanding accrued commitment fees of each Bank shall be due and payable on the earlier of (i) the date on which each borrowing is made under Section 2.2 hereof or (ii) the Commitment Termination Date. (b) The Company (i) shall pay to LTCB Trust, as the Agent, for its own account a facility fee in the amount and at the times set forth in the fee letter, dated December 17, 1992, among the Company, the Guarantor and LTCB Trust, as the Agent, (ii) shall pay to Bank of Montreal, as a Co-Agent, for its own account a facility fee in the amount and at the times set forth in its Commitment Letter, and (iii) shall pay to The Bank of New York, as a Co-Agent, for its own account a facility fee in the amount and at the times set forth in its Commitment Letter. (c) The Company shall pay to the Administrative Agent for its own account an annual Agency Fee in the amount and at the times set forth in the fee letter, dated December 17, 1992, among the Company, the Guarantor and the Administrative Agent. 2.4. Lending Offices. The Loans made by each Bank shall be made and maintained at such Bank's Applicable Lending Office for Loans of such type. -18- 23 2.5. Several Obligations; Remedies Independent. The failure of any Bank to make the Loan to be made by it on the date specified therefor shall not relieve any other Bank of its obligation to make its Loan on such date, but no Bank shall be responsible for the failure of any other Bank to make the Loan to be made by such other Bank. The amounts payable by the Company or the Guarantor at any time hereunder and under the Notes to each Bank shall be a separate and independent debt and each Bank shall be entitled to protect and enforce its rights arising out of this Agreement and the Notes, and it shall not be necessary for any other Bank or the Agent or either Co-Agent or the Administrative Agent to consent to, or be joined as an additional party in, any proceedings for such purposes. 2.6. Notes. (a) All of the Loans made by each Bank shall be evidenced by a single promissory note of the Company in substantially the form of Exhibit A hereto, dated the date of this Agreement, payable to the order of such Bank in a principal amount equal to the aggregate principal amount of such Bank's Commitment and otherwise duly completed. Each Loan made by each Bank, and all payments and prepayments made on account of the principal thereof, and all conversions of such Loan, shall be recorded by such Bank on its books and, prior to any transfer of the Note held by it with respect to such Loan, endorsed by such Bank on the schedule attached to such Note or any continuation thereof; provided, that no failure by any Bank to make such recording or endorsement shall affect the obligations of the Company or the Guarantor under this Agreement to such Bank or the holder of such Note. (b) Each Bank shall be entitled to have its Note subdivided in connection with an assignment of all or any portion of its Commitment, Loans and Note pursuant to Section 12.6(b) hereof. Section 3. Payments of Principal and Interest. 3.1. Repayment of Principal. The Company shall pay to the Administrative Agent for account of the Banks the aggregate principal amount of the Loans in two installments on the dates set forth below, each such installment to be in the -19- 24 amount equal to the corresponding "Principal Amount" set forth below or, in the event prepayments have been made pursuant to Section 3.3 hereof, such lesser amount as is equal to the remaining outstanding aggregate principal amount of such installment: Date Principal Amount ---- ---------------- January 31, 1997 $25,000,000 January 31, 1998 $25,000,000. Each payment of principal of the Loans shall be applied pro rata to each Bank according to the principal amounts of each of their respective Loans. In the event that 100% of the Commitments is not utilized by the Company, the aggregate amount not utilized shall be applied to reduce the principal amounts of the installments set forth above in inverse order of maturity. 3.2. Interest. (a) The Company shall pay to the Administrative Agent for account of each Bank interest on the unpaid principal amount of each installment of each Loan made by such Bank for the period commencing on the date of such Loan to but excluding the date such installment shall be paid in full, at the following rates per annum: (i) during such periods as such Loan (or any portion thereof) is a LIBOR Loan, for each Interest Period relating thereto, the LIBOR for such Loan for such Interest Period plus the Applicable Margin in effect for each day during such Interest Period; and (ii) during such periods as such Loan (or any portion thereof) is a Federal Funds Rate Loan, for each Interest Period relating thereto, the Federal Funds Rate (as in effect for such Interest Period) plus 2.75% per annum; (iii) during such periods as such Loan (or any portion thereof) is a Prime Rate Loan, for each Interest Period relating thereto, the Prime Rate (as in effect from time to time during such Interest Period) plus the Applicable Margin in effect for each day during such Interest Period. Notwithstanding the foregoing, at any time during the period commencing on the date on which any Obligation is not paid in full when due (whether at stated maturity, by acceleration or -20- 25 otherwise) and ending on the date on which all such overdue Obligations are paid in full, the Company shall pay to the Administrative Agent for account of each Bank interest on the principal of all Loans and (to the fullest extent permitted by law) on any unpaid interest or any other amount payable by the Company hereunder or under the Note held by such Bank at the Post-Default Rate. (b) Accrued interest on each Loan shall be payable (i) on each Interest Payment Date for such Loan and (ii) in any case, on the date on which any principal amount thereof is paid or prepaid or converted to a Loan of another type on the portion thereof being so paid, prepaid or converted, except that interest on any principal, interest or other amount payable at the Post-Default Rate shall be payable from time to time on demand. If the Company shall fail to timely deliver a Funded Debt Ratio Notice in respect of any four-Fiscal Quarter period in accordance with Section 9.1(g) hereof, and it transpires that the Funded Debt Ratio has changed from that which was in effect with respect to the previous four-Fiscal Quarter period such that any interest rate hereunder would increase, the Company agrees that the interest rate on the Loans shall, by operation of the definition of Applicable Margin, automatically increase on the date such Funded Debt Ratio Notice is duly given in accordance with Section 12.2 hereof. In addition, (i) such increase shall be retroactive to the date on which such Funded Debt Ratio Notice should have been delivered in accordance with Section 9.1(g) hereof and (ii) the incremental interest for the retroactive period shall be payable on the next date on which interest is payable under this Agreement and the Notes (or, if no further interest is payable, immediately on demand by the Administrative Agent or any Bank). If the Company shall fail to timely deliver a Funded Debt Ratio Notice in respect of any four-Fiscal Quarter period, and it transpires that the Funded Debt Ratio has changed from that which was in effect with respect to the previous four-Fiscal Quarter period such that any interest rate hereunder would decrease, then such decrease shall be effective from the date on which such Funded Debt Ratio Notice is received by the Administrative Agent, and shall have no retroactive effect. No provision of this Agreement or the Notes or any other document delivered in connection with either thereof and no transaction contemplated hereby or thereby shall be construed or shall operate so as to require the Company, the Guarantor or any other Person liable for payment of any of the Obligations to pay interest in an amount or at a rate greater -21- 26 than the maximum allowed from time to time by applicable law. Should any interest or other charges paid by the Company, the Guarantor or any such other Person under any such document result in a computation or earning of interest in excess of the maximum rate of interest permitted under applicable law in effect while such interest is being earned, then such excess shall be and hereby is waived by each Bank and all such excess shall be automatically credited against and in reduction of the principal balance of such amounts payable under such documents and any portion of such excess received by any Bank shall be paid over by such Bank to the Company, the Guarantor or such other Person, as the case may be, it being the intent of the parties hereto that under no circumstances shall the Company, the Guarantor or such other Person be required to pay interest in excess of the maximum rate allowed by such applicable law. (c) The Company shall select the duration of the initial Interest Period (or Interest Periods) for the Loans and the interest type of the Loans for such Interest Period (or Interest Periods) by giving notice to the Administrative Agent as provided in Section 4.5 hereof, and may select the duration of each subsequent Interest Period (or Interest Periods) for the Loans and the interest type of the Loans for such Interest Period (or Interest Periods), by giving notice as provided in Section 4.5 hereof, provided, however, that no more than three (3) Interest Periods shall apply to all Loans then outstanding with respect to any particular Bank. 3.3. Prepayments and Conversions of the Loans. (a) The Company shall have the right to prepay Loans, or to convert Loans of one type into Loans of another type, at any time or from time to time; provided that: (i) the Company shall give the Administrative Agent notice of each such prepayment or conversion as provided in Section 4.5 hereof, (ii) Loans may be prepaid or converted only on the last day of an Interest Period for such Loans; and (iii) prepayments and conversions of Loans shall be subject to the indemnity provisions of Section 5.4 hereof. (b) In the event that HSN Capital receives a payment of principal of the Silver King Note prior to the date on which such amount was scheduled to be paid, the Company shall, on the first Business Day after receipt of the proceeds of such prepayment, prepay the Loans in an amount equal to the difference between (i) the excess of such proceeds over $5,000,000 (cumulatively since the date hereof) less (ii) any amount the Company is obligated to pay under the 1992 Term -22- 27 Loan Agreement as a consequence of such prepayment to HSN Capital. (c) Any prepayment made to the Banks in accordance with Section 3.3(a) or (b) shall be applied to reduce the installments of principal due to the Banks under Section 3.1 hereof and under the Notes pro rata to all remaining installments due to the Banks and pro rata in accordance with the respective unpaid principal amounts of all Loans held by each Bank. The Administrative Agent shall promptly notify the Banks of each notice of prepayment. (d) Any portion of the Loans prepaid, whether pursuant to this Section 3.3, Section 5.3 hereof or otherwise, may not be reborrowed. Section 4. Payments and Computations. 4.1. Payments. (a) Except to the extent otherwise provided herein, all payments of Obligations shall be made in Dollars, in immediately available funds and without set-off, counterclaim or deduction of any kind, to the Administrative Agent at account number 04203606 maintained by the Administrative Agent at Bankers Trust Company (ABA No. 021001033), One Bankers Trust Plaza, New York, New York 10006 (reference: "Home Shopping Network - 1993 Term Loan Facility"), attention: Robert Pacifici (or at such other account or at such other place as the Administrative Agent may notify the Company from time to time), not later than 11:00 a.m. New York time on the date on which such payment shall become due (each such payment made after such time on such due date to be deemed to have been made on the next succeeding Business Day). Any Bank for whose account any such payment is to be made may (but shall not be obligated to) debit the amount of any such payment which is not made by such time to any ordinary deposit account of the Company or the Guarantor with such Bank or any affiliate of such Bank (with subsequent notice to the Company or the Guarantor, as the case may be, provided that such Bank's failure to give such notice shall not affect the validity of such debit). The Company or the Guarantor, as the case may be, shall at the time of making a payment under this Agreement or any Note specify to the Administrative Agent (i) the account from which the payment funds will be transmitted and the manner and approximate time of such transmission and (ii) the Loans or other amounts payable by the Company hereunder to which such payment shall be applied, and in the event that it shall have failed so to specify, or -23- 28 if an Event of Default shall have occurred and be continuing, the Administrative Agent may distribute such payment to the Banks in such manner as it or the Majority Banks may deem appropriate, subject to Section 4.2 hereof. Each payment received by the Administrative Agent under this Agreement or any Note for account of a Bank shall be paid promptly to such Bank, in immediately available funds, for account of such Bank's Applicable Lending Office for the Loan in respect of which such payment is made. (b) If the due date of any payment to be made hereunder or under any Note would otherwise fall on a day which is not a Business Day, such due date shall be extended to the next succeeding Business Day and interest shall be payable for any principal so extended for the period of such extension. 4.2. Pro Rata Treatment. Except to the extent otherwise provided herein: (a) each borrowing from the Banks under Section 2.1 hereof shall be made from the Banks and each payment of commitment fee under Section 2.3 hereof shall be made for account of the Banks pro rata according to the amounts of their respective unused Commitments; (b) each conversion of Loans (or portions thereof) of a particular type (other than conversions provided for by Section 5.1 hereof) shall be made pro rata among the Banks holding Loans of such type according to the respective principal amounts of such Loans (or portions thereof) held by such Banks; and (c) each payment and prepayment by the Company of principal of or interest on Loans (or portions thereof) of a particular type shall be made to the Administrative Agent for account of the Banks holding Loans of such type pro rata in accordance with the respective unpaid principal amounts of such Loans (or portions thereof) held by such Banks. 4.3. Computations. Interest on all Loans and the commitment fee shall be computed on the basis of a year of 360 days and actual days elapsed (including the first day but excluding the last day) occurring in the period for which payable. -24- 29 4.4. Minimum Amounts. Except for conversions or prepayments made pursuant to Section 5.1 hereof, each borrowing, conversion and prepayment of principal of Loans shall be in an aggregate amount at least equal to $5,000,000, provided that borrowings, prepayments or conversions of or into Loans of different types or, in the case of LIBOR Loans, having different Interest Periods, at the same time hereunder shall each be deemed separate borrowings, conversions or prepayments, as the case may be. Notwithstanding anything in this Agreement to the contrary, the aggregate principal amount of LIBOR Loans having the same Interest Period shall be at least equal to $5,000,000 and, if any LIBOR Loans would otherwise be in a lesser principal amount for any period, such Loans shall be Prime Rate Loans during such period. 4.5. Certain Notices. Notices by the Company to the Administrative Agent of borrowings, conversions and prepayments of Loans and of the duration of Interest Periods shall be irrevocable and shall be effective only if received by the Administrative Agent not later than 10:00 a.m. New York time on the number of Business Days prior to the date of the borrowing, conversion or prepayment or the first day of such Interest Period specified below:
Number of Business Notice Days Prior ------ ---------- Borrowing of Overnight Federal Funds Rate Loans; or conversion of Term Federal Funds Rate Loans or Prime Rate Loans into Overnight Federal Funds Rate Loans same day Borrowing or prepayment of LIBOR Loans; conversion of LIBOR Loans into any other type of Loans; conversion of any type of Loans into LIBOR Loans; or duration of Interest Period for LIBOR Loans 3 Borrowing or prepayment of Term Federal Funds Rate Loans; conversion of any type of Loans into Term Federal Funds Rate Loans; or duration of Interest Period for Term Federal Funds Rate Loans 3 Borrowing or prepayment of Prime Rate Loans; or conversion of Federal Funds Rate Loans into Prime Rate Loans same day
-25- 30 In addition: (a) Each such notice of borrowing, conversion or prepayment shall specify the Loans to be borrowed, converted or prepaid and the amount (subject to Section 4.4 hereof) and type of the Loans to be borrowed, converted or prepaid and the date of borrowing, conversion or prepayment (which shall be a Business Day). (b) Each such notice of the duration of an Interest Period shall specify the Loans to which such Interest Period is to relate. The Administrative Agent shall promptly notify the Banks of the contents of each such notice. In the event that the Company fails to select the duration of any Interest Period for any LIBOR Loans or Term Federal Funds Rate Loans within the time period and otherwise as provided in this Section 4.5, or if the Company and the Administrative Agent with the consent of the Banks fail to agree upon a term for any requested Term Federal Funds Rate Loans, such Loans (if outstanding as LIBOR Loans) will be automatically converted into Overnight Federal Funds Rate Loans on the last day of the then current Interest Period for such Loans or (if outstanding as Overnight Federal Funds Rate Loans or Prime Rate Loans) will remain as Overnight Federal Funds Rate Loans or Prime Rate Loans, as the case may be, or (if not then outstanding) will be made as Overnight Federal Funds Rate Loans. 4.6. Non-Receipt of Funds by the Administrative Agent. Unless the Administrative Agent shall have been notified by a Bank or the Company or the Guarantor prior to the date on which such Bank or the Company or the Guarantor is scheduled to make payment to the Administrative Agent of (in the case of a Bank) the proceeds of a Loan to be made by it hereunder or (in the case of the Company or the Guarantor) a payment to the Administrative Agent for account of one or more of the Banks hereunder (such payment being herein called the "Required Payment"), which notice shall be effective upon receipt, that it does not intend to make the Required Payment to the Administrative Agent, the Administrative Agent may assume that the Required Payment has been made and may, in reliance upon such assumption (but shall not be required to), make the amount thereof available to the intended recipient(s) on such date and, if such Bank or the Company or the Guarantor (as the case may be) has not in fact made the Required Payment to the Administrative Agent, the recipient(s) of such payment shall, on demand, repay to the Administrative Agent the amount -26- 31 so made available together with interest thereon in respect of each day during the period commencing on the date such amount was so made available by the Administrative Agent until the date the Administrative Agent recovers such amount at a rate per annum equal to the overnight Federal Funds Rate for such day (as determined by the Administrative Agent). 4.7. Sharing of Payments, Etc. Each of the Company and the Guarantor agrees that, in addition to (and without limitation of) any right of setoff, bankers' lien or counterclaim a Bank may otherwise have, each Bank shall be entitled, at its option, to offset balances held by it in ordinary deposit accounts of the Company or the Guarantor at any of its offices, in Dollars or in any other currency, against any principal of or interest on any of such Bank's Loans, or any other amount payable to such Bank hereunder, which is not paid when due (regardless of whether such balances are then due to the Company or the Guarantor), in which case it shall promptly notify the Company or the Guarantor, as the case may be, and the Administrative Agent thereof, provided that such Bank's failure to give such notice shall not affect the validity thereof. If any Bank shall obtain payment of any principal of or interest on any Loan made by it to the Company, or any other amount payable to such Bank, under this Agreement through the exercise of any right of setoff, banker's lien or counterclaim or similar right or otherwise, and, as a result of such payment, such Bank shall have received a greater percentage of the principal, interest or such other amount then due hereunder by the Company to such Bank than the percentage received by any other Banks, it shall promptly purchase from such other Banks participations in (or, if and to the extent specified by such Bank, direct interests in) the Loans made by such other Banks (or in interest due thereon, as the case may be) in such amounts, and make such other adjustments from time to time as shall be equitable, to the end that all the Banks shall share the benefit of such excess payment (net of any expenses which may be incurred by such Bank in obtaining or preserving such excess payment) pro rata in accordance with the unpaid principal and/or interest on the Loans held by each of the Banks or such other amount due to the Banks hereunder. To such end all the Banks shall make appropriate adjustments among themselves (by the resale of participations sold or otherwise) if such payment is rescinded or must otherwise be restored. Each of the Company and the Guarantor agrees that any Bank so purchasing a participation (or direct interest) in the Loans made by other Banks (or in interest due thereon, as the case may be) may exercise all rights of setoff, bankers' lien, counterclaim or similar rights with respect to such participation as fully as if such Bank were a direct holder of Loans in the amount of such par- -27- 32 ticipation. Nothing contained herein shall require any Bank to exercise any such right or shall affect the right of any Bank to exercise, and retain the benefits of exercising, any such right with respect to any other indebtedness or obligation of the Company or the Guarantor; provided that to the extent any such Bank exercises any such right with respect to any other indebtedness or obligation of the Company or the Guarantor, it shall also exercise its rights under this Section 4.7 and agrees that the benefits of exercising any such rights shall be shared with the Banks pro rata in the proportion that the unpaid obligations of the Company and the Guarantor owing to such Bank hereunder bear to such other indebtedness or obligation. If under any applicable bankruptcy, insolvency or other similar law, any Bank receives a secured claim in lieu of a setoff to which this Section 4.7 applies, such Bank shall, to the extent practicable, exercise its rights in respect of such secured claim in a manner consistent with the rights of the Banks entitled under this Section 4.7 to share in the benefits of any recovery on such secured claim. Section 5. Yield Protection and Illegality. 5.1. Additional Costs. (a) The Company shall pay directly to each Bank from time to time such amounts as such Bank may determine to be necessary to compensate it for any costs which such Bank determines are attributable to its making or maintaining of any LIBOR Loans to the Company or its obligation to make any LIBOR Loans to the Company hereunder, or any reduction in any amount receivable by the Bank hereunder in respect of any of such Loans or such obligation (such increases in costs and reductions in amounts receivable being herein called "Additional Costs"), resulting from any Regulatory Change which (i) changes the basis of taxation of any amounts payable to such Bank by the Company or the Guarantor under this Agreement or the Notes in respect of any of such Loans (other than taxes imposed on the overall net income of such Bank or of its Applicable Lending Office for any of such Loans by the jurisdiction in which such Bank has its principal office or such Applicable Lending Office); or (ii) imposes or modifies any reserve, special deposit, minimum capital, capital ratio or similar requirements relating to any extensions of credit or other assets of, or any deposits with or other liabilities of, such Bank (including any of such Loans or any deposits referred to in the definition of "LIBOR" in Section 1.1 hereof), or the Commitment of such Bank; or (iii) imposes any other condition affecting this Agreement or the Notes (or any -28- 33 of such extensions of credit or liabilities) or the Commitments. (b) Without limiting the effect of the provisions of Section 5.1(a) hereof, in the event that, by reason of any Regulatory Change, any Bank either (i) incurs Additional Costs based on or measured by the excess above a specified level of the amount of a category of deposits or other liabilities of such Bank which includes deposits by reference to which the interest rate on LIBOR Loans is determined as provided in this Agreement or a category of extensions of credit or other assets of such Bank which includes LIBOR Loans or (ii) becomes subject to restrictions on the amount of such a category of liabilities or assets which it may hold, then, if such Bank so elects by notice to the Company, the obligation of such Bank to make, and to convert Federal Funds Rate Loans or Prime Rate Loans into, LIBOR Loans hereunder shall be suspended until such Regulatory Change ceases to be in effect (and all LIBOR Loans held by such Bank shall be automatically converted into Overnight Federal Funds Rate Loans at the end of the then current Interest Period for each of them, or on such earlier date as such Bank may specify in writing as being the last permissible date for such prepayment under applicable law, rules or regulations); provided that in such event such Bank shall use its best efforts to obtain a Federal Funds Rate offered for deposits made for a period of time longer than overnight (to the extent such a rate is then obtainable), but any failure to obtain such a rate shall in no way affect the rights of the Banks to receive interest on such Loans at the Federal Funds Rate otherwise obtainable. (c) Without limiting the effect of the foregoing provisions of this Section 5.1 (but without duplication), the Company shall pay to each Bank from time to time on request such amounts as such Bank may determine to be necessary to compensate such Bank for any costs which it determines are attributable to the maintenance by such Bank (or any Applicable Lending Office), pursuant to any law or regulation or any interpretation, directive or request (whether or not having the force of law) of any court or governmental or monetary authority, of capital in respect of such Bank's Commitment (such compensation to include, without limitation, an amount equal to any reduction of the rate of return on assets or equity of such Bank (or any Applicable Lending Office) to a level below that which such Bank (or any Applicable Lending Office) could have achieved but for such law, regulation, interpretation, directive or request). (d) Determinations and allocations by any Bank for purposes of this Section 5.1 of the effect of any Regulatory -29- 34 Change pursuant to Section 5.1(a) or (b) hereof, or of the effect of capital maintained pursuant to Section 5.1(c) hereof, on its costs or rate of return of maintaining Loans or its obligation to make Loans, or on amounts receivable by it in respect of Loans, and of the amounts required to compensate such Bank under this Section 5.1, shall be conclusive absent manifest error. 5.2. Limitation on Types of Loans. Anything herein to the contrary notwithstanding, if, on or prior to the determination of any interest rate for any LIBOR Loan for any Interest Period therefor: (a) the Administrative Agent determines (which determination shall be conclusive) that quotations of interest rates for the deposits referred to in the definition of "LIBOR" in Section 1.1 hereof are not being provided in the relevant amounts or for the relevant maturities for purposes of determining rates of interest for such Loans as provided herein; or (b) any Bank determines (which determination shall be conclusive), and so notifies the Administrative Agent, that the rates of interest referred to in the definition of "LIBOR" in Section 1.1 hereof upon the basis of which the rate of interest for LIBOR Loans for such Interest Period is to be determined do not adequately cover the cost to such Bank of making or maintaining such LIBOR Loans for such Interest Period; then the Administrative Agent shall give the Company prompt notice thereof, and so long as such condition remains in effect, the Banks shall be under no obligation to make additional LIBOR Loans or to convert Federal Funds Rate Loans or Prime Rate Loans into LIBOR Loans and the Company shall, on the last day(s) of the then current Interest Period(s) for the outstanding LIBOR Loans, either repay such Loans as provided in Section 3.1 hereof or convert such Loans into Federal Funds Rate Loans or Prime Rate Loans in accordance with Section 3.3 hereof. 5.3. Illegality. Notwithstanding any other provision of this Agreement, in the event that it becomes unlawful for any Bank or its Applicable Lending Office to honor its obligation to make or maintain LIBOR Loans hereunder, then such Bank shall promptly notify the Administrative Agent and the Company and such Bank's obligation to make LIBOR Loans shall be suspended until such time (prior to the Commitment Termination Date) as such Bank may again make and maintain LIBOR Loans and such Bank's outstanding LIBOR Loans shall be -30- 35 automatically converted into Federal Funds Rate Loans or Prime Rate Loans, as such Bank may select, at the end of the then current Interest Period for each of them, or on such earlier date as such Bank may specify in writing as being the last permissible date for such prepayment under applicable laws, rules or regulations. 5.4. Compensation. The Company shall pay to each Bank, upon the request of such Bank, such amount or amounts as shall be sufficient (in the reasonable opinion of such Bank) to compensate it for any loss, cost or expense (including, without limitation, costs arising from premature termination of such Bank's obligations under interest rate swaps, caps, collars, floors, options, forward exchange contracts and similar hedging arrangements) which such Bank determines are attributable to: (a) any payment, prepayment or conversion of a Loan for any reason (including, without limitation, the acceleration of the Loans pursuant to Section 10 hereof) on a date other than the last day of an Interest Period for such Loan; or (b) any failure by the Company for any reason (including, without limitation, the failure of any of the conditions precedent specified in Section 7 hereof to be satisfied) to borrow or convert into a LIBOR Loan or a Term Federal Funds Rate Loan on the date for such borrowing or conversion specified in the relevant notice of borrowing given pursuant to Section 2.2 hereof or notice of conversion given pursuant to Section 2.8 hereof. Such Bank shall deliver to the Company, promptly upon such request, a certificate setting forth in reasonable detail the basis for calculation of such amounts, the contents of such certificate being, in the absence of manifest error therein, conclusive evidence of such amounts; provided that the failure of such Bank to deliver such certificate shall in no way affect such Bank's rights to such compensation. The failure of any Bank to request the compensation provided for in this Section 5.4 in any instance shall not affect such rights of such Bank in any other instance or of any other such Bank in any instance. 5.5. Taxes. All payments of Obligations (as used in this Section 5.5, "Payments") shall be made free and clear of, and without deduction by reason of, any and all taxes, duties, assessments, withholdings, retentions or other similar charges whatsoever imposed, levied, collected, withheld or -31- 36 assessed by any jurisdiction or any agency or taxing authority thereof or therein (as used in this Section 5.5, "Taxes"), all of which shall be paid by the Company for its own account not later than the date when due. If the Company is required by law to deduct or withhold any Taxes from any Payment, the Company shall: (a) make such deduction or withholding; (b) pay the amount so deducted or withheld to the appropriate taxing authority not later than the date when due (irrespective of the rate of such deduction or withholding); (c) deliver to such Bank, promptly and in any event within 30 days after the date on which such Taxes become due, original tax receipts and other evidence satisfactory to such Bank of the payment when due of the full amount of such Taxes; and (d) pay to the respective Bank, forthwith upon any request by such Bank therefor from time to time, such additional amounts as may be necessary so that such Bank receives, free and clear of all Taxes, the full amount of such Payment stated to be due under this Agreement or the Notes as if no such deduction or withholding had been made. Each Bank that is not organized under the laws of the United States or of any political subdivision thereof agrees that it will deliver to the Company on the date of its Loan and thereafter as may be required from time to time by applicable law or regulation United States Internal Revenue Service Form 4224 or 1001 (or any successor form) or such other form as from time to time may be required to demonstrate that payments made by the Company to such Bank under this Agreement or such Note either are exempt from United States Federal withholding taxes or are payable at a reduced rate (if any) specified in any applicable tax treaty or convention. Each Bank agrees to use reasonable efforts to transfer its Commitment or Loans to another Applicable Lending Office of such Bank if such transfer would avoid the need for or mitigate the amount of any deduction or withholding of Taxes on payments of interest to such Bank under this Agreement, but no Bank shall be required to make such transfer if such Bank determines that such Bank would suffer any legal, economic or regulatory disadvantage. Without limiting the survival of any other provisions of this Agreement or the Notes, the obligations of the Company under this Section shall survive the repayment of the Loans and the Notes. -32- 37 Section 6. Guarantee. 6.1. Unconditional Guarantee. For valuable consideration, receipt of which is hereby acknowledged, and to induce the Banks to make Loans to the Company, the Guarantor hereby unconditionally and irrevocably guarantees to the Administrative Agent, the Agent, the Co-Agents and each of the Banks the payment in full when due (whether at stated maturity, by acceleration or otherwise) of all principal of and interest on each Loan and all other amounts payable by the Company hereunder and under the Notes and all other documents referred to herein or therein, in accordance with the terms hereof and thereof, and, in the case of any extension of time of payment, in whole or in part, that all such amounts shall be paid in full when due (whether at stated maturity, by acceleration or otherwise) in accordance with the terms of such extension. The Guarantor hereby unconditionally agrees that upon default in the payment when due (whether at stated maturity, by acceleration or otherwise) of any of such principal, interest or other amounts, the Guarantor shall forthwith pay and perform the same in the money and funds, at the time, in the place and in the manner provided for such payment in this Agreement, the Notes or other applicable document. 6.2. Validity. The Guarantor hereby agrees that the guarantee provided by this Section 6 is a continuing guarantee of payment and not merely of collection, that it is a primary, independent obligation of the Guarantor and that the Guarantor's obligations hereunder shall be absolute, unconditional and irrevocable, irrespective of (a) any invalidity, illegality, irregularity or unenforceability of, or defect in or any change in this Agreement, the Notes or any other document referred to herein or therein, (b) any amendment, modification or waiver of any term or condition of this Agreement or the Notes or any such other document, or any waiver or consent by the Administrative Agent or any Bank to any departure from the terms hereof or thereof, (c) any sale, exchange, release, surrender, realization upon or other dealings with any security or guarantee for any of the obligations guaranteed hereby (whether now or hereafter granted), (d) any settlement or compromise of such obligations, (e) the absence of any action to demand or enforce any of such obligations against the Company, (f) the recovery of any judgment against the Company or any other Person, or any action to enforce the same, (g) the recovery of any claim under any other guarantee of or security for such obligations or under any applicable insurance, or (h) any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor or surety (other -33- 38 than full and strict compliance with and satisfaction of such liabilities). 6.3. Waivers. The Guarantor hereby waives notice of acceptance of the guarantee provided by this Section 6, notice of the extension of any credit or financial accommodation, notice of the making of any Loan or the incurrence of any other Obligations, notice of any extension of any Commitment Termination Date, demand of payment, filing of claims with a court in the event of bankruptcy of the Company or any other Person, any right to require a proceeding or the filing of a claim first against the Company, any other guarantor, any other Person, any letter of credit, or any security for any of the Obligations, presentment, protest, notice of default, dishonor or nonpayment and any other notice and all demands whatsoever. The Guarantor hereby further waives all setoffs and counterclaims against the Company, the Administrative Agent, the Agent, the Co-Agents and each of the Banks. 6.4. Subordination and Subrogation. The Guarantor hereby subordinates all present and future claims, now held or hereafter acquired, against the Company as a creditor or contributor of capital, or otherwise, to the prior and final payment in full to the Banks of all of the Obligations. If, without reference to the provisions of this Section 6.4, the Guarantor would at any time be or become entitled to receive any payment on account of any claim against the Company, whether in insolvency, bankruptcy, liquidation or reorganization proceedings, or otherwise, the Guarantor shall and does hereby irrevocably direct that all such payments shall be made directly to the Administrative Agent on account of the Banks until all Obligations shall be paid in full. Should the Guarantor receive any such payment, the Guarantor shall receive such amount in trust for the Banks and shall immediately pay over to the Administrative Agent such amount as provided in the preceding sentence. Anything contained in this Section 6 to the contrary notwithstanding, the obligations of the Guarantor hereunder shall be limited to a maximum aggregate amount equal to the largest amount that would not render its obligations hereunder subject to avoidance as a fraudulent transfer or conveyance under Section 548 of Title 11 of the United States Code or any applicable provisions of comparable state law (collectively, the "Fraudulent Transfer Laws"), in each case after giving effect to all other liabilities of the Guarantor, contingent or otherwise, that are relevant under the Fraudulent Transfer Laws (specifically excluding, however, any liabilities of the Guarantor in respect of intercompany indebtedness to the -34- 39 Company or other Affiliates of the Company to the extent that such indebtedness would be discharged in an amount equal to the amount paid by the Guarantor hereunder) and after giving effect as assets to the value (as determined under the applicable provisions of the Fraudulent Transfer Laws) of any rights to subrogation or contribution of the Guarantor pursuant to (i) applicable law or (ii) any agreement providing for an equitable allocation among the Guarantor and other Affiliates of Company of obligations arising under guaranties by such parties. The Guarantor further agrees that any rights of subrogation the Guarantor may have against the Company, and any rights of contribution the Guarantor may have against Company, and any rights of contribution the Guarantor may have against any other guarantor of the Obligations hereunder, shall be junior and subordinate to any rights the Administrative Agent or the Banks may have against such other guarantor. 6.5. Acceleration. The Guarantor agrees that, as between the Company on the one hand, and the Administrative Agent, the Agent, the Co-Agents and the Banks, on the other hand, the obligations of the Company guaranteed under this Section 6 may be declared to be forthwith due and payable, or may be deemed automatically to have been accelerated, as provided in Section 10 hereof for purposes of this Section 6, notwithstanding any stay, injunction or other prohibition (whether in a bankruptcy proceeding affecting the Company or otherwise) preventing such declaration as against the Company and that, in the event of such declaration or automatic acceleration, such obligations (whether or not due and payable by the Company) shall forthwith become due and payable by the Guarantor for purposes of this Section 6. 6.6. Reinstatement. The Guarantor covenants that the guarantee provided by this Section 6 will not be discharged except by complete and final payment of all of the Obligations and all obligations of the Guarantor arising out of this guarantee. In the event that any payment is made by the Company hereunder or by the Guarantor under this guarantee, and is thereafter required to be rescinded or otherwise restored or paid over to the Company, the Guarantor or any other person (whether upon the insolvency or bankruptcy of the Company or the Guarantor or otherwise), the Guarantor's obligations hereunder shall immediately and automatically be reinstated as though such payment had not been made. -35- 40 Section 7. Conditions Precedent. 7.1. Basic Conditions. The obligation of the Banks to make the Loans hereunder on the occasion of the initial borrowing pursuant to Section 2.2 hereof is subject to the receipt by the Administrative Agent, on or before February 15, 1993, of each of the following documents, each of which shall be satisfactory to the Administrative Agent in form and substance: (a) Certified copies of the certificate of incorporation and bylaws of the Company and the Guarantor and all corporate action and (if necessary) stockholder action taken by the Company and the Guarantor approving this Agreement and the Notes and borrowings by the Company hereunder and the guarantee by the Guarantor hereunder (including, without limitation, a certificate setting forth the resolutions of the Boards of Directors of the Company and the Guarantor adopted in respect of the transactions contemplated hereby). (b) A certificate of each of the Company and the Guarantor in respect of each of the officers (i) who is authorized to sign this Agreement or the Notes on its behalf and (ii) who will, until replaced by another officer or officers duly authorized for that purpose, act as its representative for the purposes of signing documents and giving notices and other communications in connection with this Agreement and the transactions contemplated hereby. The Administrative Agent, the Agent, the Co-Agents and the Banks may conclusively rely on such certificate until the Administrative Agent receives notice in writing from the Company or the Guarantor, respectively, to the contrary. (c) Certificates, as of a recent date, from the appropriate authorities for each jurisdiction in which the Company and the Guarantor are incorporated or qualified to do business, as to the good standing of the Company and the Guarantor, respectively, in each such jurisdiction. (d) A certificate of a senior officer of each of the Company and the Guarantor to the effect set forth in the first sentence of Section 7.2 hereof. (e) An opinion of Allen P. Allweiss, Esq., General Counsel to the Company and the Guarantor, substantially in the form of Exhibit B hereto. -36- 41 (f) The Funded Debt Ratio Notice and the Total Debt Ratio Notice for the Company's four-Fiscal Quarter period ended November 30, 1992 (or, if the initial Loans hereunder are made more than 60 days after the end of any succeeding Fiscal Quarter, for the four-Fiscal Quarter period ended as of the end of the most recent such succeeding Fiscal Quarter). (g) The Notes, duly executed and delivered by the Company to the order of each Bank and otherwise appropriately completed, bearing the executed guarantee of the Guarantor. (h) Evidence of the payment of all fees and expenses then payable pursuant to Sections 2.3 and 12.3 hereof. (i) Such other documents as the Administrative Agent or any Bank may reasonably request including, without limitation, all requisite governmental approvals and filings. 7.2. Additional Conditions. The obligation of the Banks to make Loans to the Company on the occasion of each borrowing (including, without limitation, the initial borrowing) shall be subject to the further conditions that, as of the date of the making of such Loans and after giving effect thereto: (a) no Default or Event of Default shall have occurred and be continuing; (b) the representations and warranties made by the Company and the Guarantor in Section 8 hereof and in any other certificate or other document delivered in connection with this Agreement shall be true in all material respects on and as of the date of the making of such Loans with the same force and effect as if made on and as of such date (including, without limitation, that there shall have occurred no material adverse change since August 31, 1992 in the consolidated financial condition or operations, or the business taken as a whole, of the Company and its consolidated Subsidiaries from that set forth in their financial statements dated as of August 31, 1992, except as disclosed to the Banks in writing prior to the date of this Agreement); (c) the Company shall have furnished evidence satisfactory to the Banks either (i) that it has committed to redeem Senior Notes by furnishing proper -37- 42 notice to the trustee thereof or (ii) that it has repurchased Senior Notes in the open market following the date hereof, in either case in an aggregate principal amount not less than the aggregate principal amount of the Loans to be made on such date; (d) the Company shall be in compliance with the financial covenants under the Revolving Credit Agreement, the 1992 Term Loan Agreement and this Agreement both before and immediately after the making of such Loan on both an historical and a pro forma basis; and (e) payment in full of all fees and expenses payable pursuant to Sections 2.3 and 12.3 hereof. Each notice of borrowing made pursuant to Section 2.2 hereof shall constitute a certification by the Company and the Guarantor as to the circumstances specified in paragraphs (a), (b), (c) and (d) above (both as of the date of such notice and, unless the Company or the Guarantor otherwise notifies the Administrative Agent prior to the date of such borrowing, as of the date of such borrowing). Upon the execution of this Agreement by each of the Administrative Agent, the Agent, the Co-Agents and the Banks, the obligations (if any) of the Agent, the Co-Agents, the Administrative Agent or the Banks under any of the Commitment Letters shall cease to be of any force or effect, except for provisions (if any) of the Commitment Letters that limit the amount for which the Agent and the Co-Agents may seek reimbursement by the Company for expenses incurred by them in connection with the negotiation, preparation and review of this Agreement and related documents. Section 8. Representations and Warranties. Each of the Company and the Guarantor represents and warrants to the Administrative Agent and the Banks that: 8.1. Corporate Existence. Each of the Company and the Guarantor and each of the other Material Subsidiaries (a) is a corporation duly organized and validly existing under the laws of the jurisdiction of its incorporation; (b) has all requisite corporate power, and has all material governmental licenses, authorizations, consents and approvals, necessary to own its assets and carry on its business as presently conducted, and conducts its business in compliance with the requirements set forth in Section 9.3(b) hereof; and (c) is qualified to do business in all jurisdictions in which the nature of the business conducted by it makes such -38- 43 qualification necessary and where failure so to qualify would have a material adverse effect on its business, financial condition or operations. 8.2. Financial Condition. The consolidated balance sheet of the Company and its consolidated Subsidiaries (including, without limitation, the Guarantor) as at August 31, 1992, and the unaudited consolidated balance sheet of the Company and its consolidated Subsidiaries (including without limitation, the Guarantor) as at November 30, 1992, and the related consolidated statements of income, retained earnings and changes in financial position of the Company and its consolidated Subsidiaries (including, without limitation, the Guarantor) for the Fiscal Year, or Fiscal Quarter, respectively, ended on such date, with the opinion thereon (in the case of such year-end financial statements) of Deloitte & Touche, the independent auditors of the Company, heretofore furnished to the Administrative Agent and each of the Banks, are complete and correct and fairly present the consolidated financial condition of the Company and its consolidated Subsidiaries (including, without limitation, the Guarantor) as at such dates and the consolidated results of their operations for such Fiscal Year or Fiscal Quarter, respectively, ended on such dates, all in accordance with GAAP applied on a consistent basis (subject, in the case of such quarterly financial statements, to normal year-end audit adjustments). Neither the Company nor any of its consolidated Subsidiaries (including, without limitation, the Guarantor) had on such dates any material contingent liabilities, liabilities for taxes, unusual forward or long-term commitments or unrealized or anticipated losses from any unfavorable commitments, except as referred to or reflected or provided for in such balance sheets as at such dates. Since August 31, 1992, there has been no material adverse change in the consolidated financial condition or operations, or the business taken as a whole, of the Company and its consolidated Subsidiaries (including, without limitation, the Guarantor) from that set forth in such financial statements as at such date, except as disclosed to the Banks in writing prior to the date of this Agreement. 8.3. Litigation. Except as heretofore disclosed to the Banks in writing or in any SEC Report of the Company delivered to the Banks prior to the date hereof, there is no action, proceeding or investigation by or before any court or any arbitral, governmental or regulatory authority or agency, pending or (to the knowledge of the Company or the Guarantor) threatened against the Company or the Guarantor or any Subsidiary of either thereof which, if adversely determined, could have a material adverse effect on the consolidated financial condition or business of the Company and its con- -39- 44 solidated Subsidiaries (including, without limitation, the Guarantor). 8.4. No Breach. Neither the execution and delivery of this Agreement and the Notes, nor the consummation of the transactions contemplated hereby, nor the compliance by the Company or the Guarantor with the terms and provisions hereof or thereof, will (a) conflict with or result in a breach of, or require any consent or vote of any Person under, the certificate of incorporation or bylaws of either the Company or the Guarantor, or any agreement or instrument to which the Company, the Guarantor or any Subsidiary of either thereof is a party or to which it is subject, (b) violate any applicable law, regulation, order, writ, injunction or decree of any court or governmental authority or agency, or (c) constitute a default or result in the imposition of any Lien on any of the assets, revenues or other properties of the Company, the Guarantor or any Subsidiary of either thereof under any such agreement or instrument. 8.5. Corporate Action. The execution, delivery and performance by each of the Company and the Guarantor of this Agreement and the Notes, and the consummation of the transactions contemplated hereby, are within the scope of its corporate power, and have been duly authorized by all necessary corporate action on the part of each of them. This Agreement constitutes, and each of the Notes, when duly executed and delivered will constitute, the legal, valid and binding obligation of the Company and the Guarantor, enforceable against each of them in accordance with their respective terms, except as such enforceability may be limited by (a) bankruptcy, insolvency, reorganization, moratorium or other similar laws of general applicability affecting the enforcement of creditors' rights and (b) the application of general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). 8.6. Approvals. No authorizations, approvals or consents of, and no filings or registrations with, any governmental or regulatory authority or agency are necessary for the execution, delivery or performance by the Company or the Guarantor of this Agreement or the Notes or for the validity or enforceability thereof, or for the consummation of the transactions contemplated hereby. 8.7. Use of Loans. Neither the Company, the Guarantor nor any Subsidiary of either of them is engaged principally, or as one of its important activities, in the business of extending credit for the purpose, whether imme- -40- 45 diate, incidental or ultimate, of buying or carrying margin stock (within the meaning of Regulation U or X of the Board of Governors of the Federal Reserve System) and no part of the proceeds of any Loan will be used to buy or carry any margin stock. 8.8. ERISA. Each of the Company and the Guarantor and the ERISA Affiliates have fulfilled its obligations under the minimum funding standards of ERISA and the Code with respect to each Plan, are in compliance in all material respects with the presently applicable provisions of ERISA and the Code and have not incurred any liability to the PBGC or any Plan or Multiemployer Plan. 8.9. Taxes. (a) United States Federal income tax returns of the Company, the Guarantor and the Subsidiaries have been examined and closed through Fiscal 1985, have been examined for Fiscal 1986 and Fiscal 1987 and are under examination for Fiscal 1988 and Fiscal 1989. (b) Each of the Company, the Guarantor and the Subsidiaries has filed all United States Federal income tax returns and all other material tax returns which are required to be filed by it and has paid all taxes due pursuant to such returns or pursuant to any assessment received by the Company, the Guarantor or any Subsidiary. The charges, accruals and reserves on the books of the Company, the Guarantor and the Subsidiaries in respect of taxes and other governmental charges are, in the opinion of the Company and the Guarantor, adequate. 8.10. Credit Agreements. Schedule 1 hereto and all SEC Reports of the Company completely and correctly disclose each credit agreement, loan agreement, indenture, purchase agreement, guarantee or other arrangement providing for or otherwise relating to any extension of credit or commitment for any extension of credit (other than pursuant to any letter of credit excepted from the definition of Indebtedness herein under paragraph (c) thereof) to, or guarantee by, the Company, the Guarantor or any other Material Subsidiary the aggregate principal or face amount of which equals or exceeds (or may equal or exceed) $10,000,000 and accurately describes the aggregate principal or face amount outstanding and which may become outstanding under each thereof. 8.11. Ownership of Assets. Each of the Company, the Guarantor and each other Material Subsidiary has good and marketable title to all assets reflected on the audited -41- 46 consolidated balance sheet as of August 31, 1992 referred to in Section 8.2 hereof (other than the assets which were disposed of in connection with the Silver King Distribution, as reflected in Note 6.c to the Condensed Consolidated Financial Statements contained in the Company's Quarterly Report on Form 10-Q for the Fiscal Quarter ended November 30, 1992), subject to: (a) no Liens other than the Liens specified in Footnotes D and G to such balance sheet and, on the date hereof, such additional Liens as are listed on Schedule 1 hereto, and on any date hereafter, additional Liens permitted by Section 9.5 hereof and either (i) listed in Footnotes to the financial statements delivered pursuant to Section 9.1(a) or (b) hereof or (ii) otherwise communicated to the Banks in writing, and (b) on any date hereafter, dispositions permitted by Section 9.7 hereof and either (i) described in the financial statements, including any notes thereto, delivered pursuant to Section 9.1(a) or (b) hereof or (ii) otherwise communicated to the Banks in writing. 8.12. Pari Passu Obligations. The obligations of the Company and the Guarantor under this Agreement and the Notes rank and will rank at least pari passu in all respects with all other unsubordinated Indebtedness of the Company and the Guarantor, respectively, except for Indebtedness that is senior solely by operation of applicable law, and except that Indebtedness of the Company and the Guarantor secured as permitted by Section 9.5 hereof ranks senior in right of security with respect to the collateral therefor. Without limiting the generality of the foregoing, all principal of and interest (including post-petition interest allowable in any proceeding under any bankruptcy law) on and other amounts payable in connection with this Agreement constitute "Senior Indebtedness" as defined in, and for all purposes of, the Convertible Subordinated Debentures (and is entitled to the benefit of the subordination provisions relating thereto). 8.13. Investment Company Act. Neither the Company nor the Guarantor is, and neither is "controlled by," an "investment company" within the meaning of the Investment Company Act of 1940, as amended. 8.14. Environmental Matters. To the best of the knowledge of the Company and the Guarantor, all operations and conditions at or in the premises in which the Company and the Guarantor conduct their business comply in all material respects with all Federal, state and local laws, rules and -42- 47 regulations relating to environmental matters, pollution, waste disposal or industrial hygiene including, without limitation, such laws, rules and regulations relating to asbestos (collectively, "Environmental Laws"). None of the operations of either the Company or the Guarantor is subject to any judicial or administrative proceeding alleging the violation of or liability under any Environmental Law. Section 9. Covenants of the Company and the Guarantor. Each of the Company and the Guarantor agrees that, so long as any of the Commitments are in effect and until payment in full of all Obligations: 9.1. Financial Statements; Reports and Other Information. The Company shall deliver to the Administrative Agent, with sufficient copies for each of the Banks: (a) as soon as available and in any event within 60 days after the end of each of the first three Fiscal Quarters of each Fiscal Year of the Company, consolidated statements of income, retained earnings and changes in financial position of the Company and its consolidated Subsidiaries (including, without limitation, the Guarantor) for such period and for the period from the beginning of such Fiscal Year to the end of such period, and the related consolidated balance sheet as at the end of such period, setting forth in each case in comparative form the corresponding figures for the corresponding period in the preceding Fiscal Year, accompanied by a certificate of a senior financial officer of the Company, which certificate shall state that such financial statements fairly present the consolidated financial condition and results of operations of the Company and its consolidated Subsidiaries in accordance with GAAP, consistently applied, as at the end of, and for, such period (subject to normal year-end audit adjustments); (b) as soon as available and in any event within 120 days after the end of each Fiscal Year of the Company, consolidated statements of income, retained earnings and changes in financial position of the Company and its consolidated Subsidiaries (including, without limitation, the Guarantor) for such year and the related consolidated balance sheet as at the end of such year, setting forth in each case in comparative form the corresponding figures for the preceding Fiscal Year, and accompanied by an opinion thereon of independent certified public accountants of recognized national standing, which opinion shall state that such financial statements fairly -43- 48 present the consolidated financial condition and results of operations of the Company and its consolidated Subsidiaries (including, without limitation, the Guarantor) as at the end of, and for, such Fiscal Year, and a certificate of the chief financial officer of the Company that, in examining the financial condition of the Company and its Subsidiaries for such Fiscal Year, he or she obtained no knowledge, except as specifically stated, of any Default arising from the breach of the covenants provided for in Sections 9.4, 9.6, 9.7, 9.11, 9.12, 9.13 or 9.17 hereof; (c) promptly upon their becoming available, copies of all registration statements and regular SEC Reports, if any, which the Company shall have filed with the Securities and Exchange Commission (or any governmental agency substituted therefor) or any national securities exchange; (d) promptly upon the mailing thereof to the shareholders of the Company generally, copies of all financial statements, reports and proxy statements so mailed; (e) as soon as possible, and in any event within ten days after either the Company or the Guarantor knows or has reason to know that any of the events or conditions specified below with respect to any Plan or Multiemployer Plan has occurred or exists, a statement signed by a senior financial officer of the Company or the Guarantor setting forth details respecting such event or condition and the action, if any, which the Company, the Guarantor or their ERISA Affiliate proposes to take with respect thereto (and a copy of any report or notice required to be filed with or given to PBGC by the Company, the Guarantor or an ERISA Affiliate with respect to such event or condition): (i) any reportable event, as defined in Section 4043(b) of ERISA and the regulations issued thereunder, with respect to a Plan, as to which PBGC has not by regulation waived the requirement of Section 4043(a) of ERISA that it be notified within 30 days of the occurrence of such event (provided that a failure to meet the minimum funding standard of Section 412 of the Code or Section 302 of ERISA shall be a reportable event regardless of the issuance of any waivers in accordance with Section 412(d) of the Code); -44- 49 (ii) the filing under Section 4041 of ERISA of a notice of intent to terminate any Plan or the termination of any Plan; (iii) the institution by PBGC of proceedings under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan, or the receipt by the Company or any ERISA Affiliate of a notice from a Multiemployer Plan that such action has been taken by PBGC with respect to such Multiemployer Plan; (iv) the complete or partial withdrawal by the Company, the Guarantor or any ERISA Affiliate under Section 4201 or 4204 of ERISA from a Multiemployer Plan, or the receipt by the Company, the Guarantor or any ERISA Affiliate of notice from a Multiemployer Plan that is in reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA or that it intends to terminate or has terminated under Section 4041A of ERISA; and (v) the institution of a proceeding by a fiduciary of any Multiemployer Plan against the Company, the Guarantor or any ERISA Affiliate to enforce Section 515 of ERISA, which proceeding is not dismissed within 30 days; (f) promptly after either the Company or the Guarantor knows or has reason to know that any Default has occurred, a notice of such Default, describing the same in reasonable detail; (g) not later than (i) 60 days after the last day of each of the first three Fiscal Quarters of each of the Company's Fiscal Years and (ii) 120 days after the last Fiscal Quarter of each such Fiscal Year, a notice, substantially in the form of Exhibit D-1 hereto (the "Funded Debt Ratio Notice"), setting forth the Funded Debt Ratio for the four-Fiscal Quarter period ended on the last day of such Fiscal Quarter and a notice, substantially in the form of Exhibit D-2 hereto (the "Total Debt Ratio Notice"), setting forth the Total Debt Ratio for the four-Fiscal Quarter period ended on the last day of such Fiscal Quarter, which notices shall set forth calculations and computations in sufficient detail to show the amount and nature of each of the components of the Funded Debt Ratio and the Total Debt Ratio, respectively, for such four-Fiscal Quarter period; provided that in the case of the Funded Debt Ratio Notice -45- 50 and the Total Debt Ratio Notice delivered with respect to each Fiscal Quarter specified in clause (ii) above, the Company shall (if the final form of either of such Notices is not yet available) deliver such Notice in a preliminary form within 60 days of the end of such Fiscal Quarter setting forth all matters required by this paragraph (g) to be included in the final form thereof as accurately as shall be possible based upon information available to the Company at such time; and (h) from time to time such other information regarding the business or financial condition of the Company or any of the Subsidiaries (including, without limitation, any Plan or Multiemployer Plan and any reports or other information required to be filed under ERISA) as any Bank or the Administrative Agent may reasonably request. Each of the Company and the Guarantor will furnish to the Administrative Agent, with sufficient copies for the Banks, at the time it furnishes each set of financial statements pursuant to paragraph (a) or (b) above, a certificate of a senior financial officer of the Company and the Guarantor, substantially in the form of Exhibit C hereto (i) to the effect that, to the best of his or her knowledge, after full inquiry, no Default has occurred and is continuing (or, if any Default has occurred and is continuing, describing the same in reasonable detail), (ii) setting forth in reasonable detail the computations necessary to determine whether the Company and the Guarantor are in compliance with Sections 9.11, 9.12 and 9.13 hereof as at the end of the respective Fiscal Quarter or Fiscal Year and (iii) setting forth additions to the list of Subsidiaries that are Material Subsidiaries contained in the certificate most recently delivered pursuant to this provision and containing either (A) a representation that all other Subsidiaries combined do not constitute a Material Subsidiary Group as at such date or (B) a representation that all other Subsidiaries do constitute a Material Subsidiary Group as at such date and identifying any such Subsidiary whose aggregate book value of tangible assets exceeds $10,000,000 as at such date. In addition, each of the Company and the Guarantor hereby agrees to furnish the Administrative Agent with an updated notice with respect to the information specified in clause (iii) of the preceding sentence upon the occurrence of any event either that has resulted or could result in a Subsidiary becoming a Material Subsidiary or a group of Subsidiaries becoming a Material Subsidiary Group or that could make the representation contained in the most recently delivered certificate furnished pursuant to this Section 9.1 no longer accurate. -46- 51 9.2. Litigation. Without limiting the obligations of the Company under Section 9.1(h) hereof, each of the Company and the Guarantor shall promptly give to each Bank notice of all court or arbitral proceedings and investigations, and of all proceedings and investigations before any governmental or regulatory authority or agency, affecting the Company, the Guarantor or any Subsidiary, except proceedings or investigations which, if adversely determined, would not have a material adverse effect on the consolidated financial condition or operations, or the business taken as a whole, of the Company and its consolidated Subsidiaries (including, without limitation, the Guarantor). 9.3. Corporate Existence, Etc. Each of the Company and the Guarantor will, and will cause each of their respective Subsidiaries (but in the case of paragraphs (a), (d) and (e) of this Section 9.3, only those Subsidiaries which are Material Subsidiaries) to: (a) preserve and maintain its corporate existence and all of its material rights, privileges, licenses and franchises; (b) comply with the requirements of all applicable laws, rules, regulations and orders of governmental or regulatory authorities if failure to comply with such requirements would materially and adversely affect the consolidated financial condition or operations, or the business taken as a whole, of the Company and its consolidated Subsidiaries; (c) pay and discharge all taxes, assessments and governmental charges or levies imposed on it or on its income or profits or on any of its property prior to the date on which penalties attach thereto, except for any such tax, assessment, charge or levy the payment of which is being contested in good faith and by proper proceedings and against which adequate reserves are being maintained in accordance with GAAP; (d) maintain all of its properties used or useful in its business in good working order and condition, ordinary wear and tear excepted; (e) permit representatives of any Bank or the Administrative Agent, during normal business hours, to examine, copy and make extracts from its books and records, to inspect its properties, and to discuss its business and financial condition with its officers, all -47- 52 to the extent reasonably requested by such Bank or the Administrative Agent (as the case may be); and (f) keep insured by financially sound and reputable insurers all property of a character usually insured by corporations engaged in the same or similar business similarly situated against loss or damage of the kinds and in the amounts customarily insured against by such corporations and carry such other insurance as is usually carried by such corporations. 9.4. Payment of Obligations. Without limiting the obligations of the Company and the Guarantor under Section 9.3 hereof, each of the Company and the Guarantor will, and will cause each of their respective Subsidiaries to, pay and discharge at or before the date when due, all of their respective material obligations and other liabilities, including, without limitation, tax and pension liabilities, except where such obligations or liabilities are being contested in good faith and by appropriate proceedings, and maintain, in accordance with GAAP, appropriate reserves for the accrual of all of the foregoing. 9.5. Liens. Neither the Company nor the Guarantor will, nor will either of them permit any of their respective Subsidiaries to, create, incur, assume or suffer to exist any Lien on any asset, revenue or other property now or hereafter owned or acquired by it (including, without limitation, the stock of Subsidiaries) except: (a) Liens existing on the date hereof securing Indebtedness outstanding on such date and identified in Footnote D and G to the Company's audited consolidated balance sheet as of August 31, 1992 or on Schedule 1 hereto; (b) any purchase money security interest hereafter created on any property of the Company, the Guarantor or such Subsidiary securing Indebtedness incurred solely for the purpose of financing all or a portion of the purchase price of such property; provided that: (i) such Lien (A) is created within six months of the acquisition of such property, (B) extends to no other property and (C) secures no other Indebtedness; (ii) the principal amount of Indebtedness secured by such Lien shall at no time exceed the lesser of (A) the cost to such Person of the property subject thereto or (B) the fair value of such property (as determined in good faith by the Board of Directors of such Person) at the time of the acquisition thereof; (iii) such Lien does not extend to -48- 53 or in any way encumber any inventory of the Guarantor purchased in the ordinary course of business; and (iv) the aggregate principal amount of all Indebtedness secured by all such Liens shall not exceed at any time $15,000,000 less the aggregate principal amount of all Indebtedness secured by Liens permitted under Section 9.5(i) hereof; (c) carriers', warehousemen's, mechanics', materialmen's and repairmen's liens arising in the ordinary course of business of the Company, the Guarantor or such Subsidiary and not overdue for a period of more than 30 days or which are being contested in good faith and by appropriate proceedings; (d) Liens created in connection with the lease by the Company, the Guarantor or any of their respective Subsidiaries of any property (whether real, personal or mixed) (i) now or hereafter owned by the Company, the Guarantor or any such Subsidiary which has been sold or otherwise transferred by any thereof to any other Person within six months of the acquisition thereof or (ii) which any of the Company, the Guarantor or any such Subsidiary, as the case may be, intends to use for substantially the same purpose as any property described in clause (i) above; (e) Liens in favor of consignors against inventory being sold on consignment in the ordinary course of business by the Company, the Guarantor or any Subsidiary; (f) Liens created in substitution for any Liens permitted by paragraphs (a), (b) and (d) of this Section 9.5, provided that (i) any such newly-created Lien does not extend to any other or additional property and (ii) (A) if permitted by such paragraph (a) or (b), does not secure any other (or additional principal amount of) Indebtedness and (B) if permitted by such paragraph (d) does not secure any other obligations under such lease or any obligations under any other lease; (g) Liens existing on assets at the time of acquisition thereof by the Company, the Guarantor or the respective Subsidiary and not incurred in anticipation of or in connection with such acquisition; (h) operating leases and Capital Leases, to the extent the same would constitute Liens, pursuant to which the Company, the Guarantor or the respective Subsidiary -49- 54 is lessee, and incurred by such Person in the ordinary course of its business; and (i) in addition to Liens otherwise permitted by this Section 9.5, Liens on property of the Company, the Guarantor or any of their respective Subsidiaries (i) which secure Indebtedness having an aggregate principal amount not exceeding at any time $15,000,000 less the aggregate principal amount of all Indebtedness secured by Liens permitted under Section 9.5(b) hereof and (ii) each of which shall be limited to specified items of collateral (and not a general Lien on all assets of such Person) having a book value not greater than 150% of the aggregate principal amount of the Indebtedness secured by such Lien; provided, however, that (A) all capital stock of all Subsidiaries and (B) the Silver King Note will in any event be maintained free and clear of all Liens whatsoever. 9.6. Mergers. Neither the Company nor the Guarantor will, and neither of them will permit any other Material Subsidiary or Subsidiaries constituting a Material Subsidiary Group to, (a) consolidate or merge with or into any other Person, except that (i) a Wholly-Owned Subsidiary of the Company or the Guarantor (other than the Guarantor) may merge with or consolidate into the Company or the Guarantor (provided that the Company or the Guarantor, as the case may be, shall be the survivor of such merger or consolidation) or another Wholly-Owned Subsidiary of the Company or the Guarantor, and (ii) the Company may merge with or consolidate into another corporation that is organized under the laws of a state in the United States, provided that (A) the Company is the surviving corporation in such merger or consolidation, and (B) the Company has delivered a notice to the Administrative Agent and the Banks not less than 30 days prior to the consummation of any such merger or consolidation that sets forth in reasonable detail information indicating compliance with the terms of this clause (ii) to Section 9.6(a), or -50- 55 (b) sell, assign, convey, lease, sublet, transfer or otherwise dispose of all or substantially all of its assets to any Person, whether in a single transaction or in a series of related transactions, except that a Wholly-Owned Subsidiary of the Company or the Guarantor (other than the Guarantor) may sell, assign, convey, lease, sublet, transfer or otherwise dispose of all or substantially all of its assets to the Company or to another Wholly-Owned Subsidiary of the Company or the Guarantor; provided, however, that none of the foregoing transactions shall be permitted if a Default or an Event of Default has occurred and is continuing or would result from the consummation of any such transaction. It is understood and agreed that any consolidation, merger, sale, assignment, conveyance, letting, subletting, transfer or other disposition of all or substantially all of the assets of a Non-Material Subsidiary shall be permitted under this Section 9.6, so long as such Non-Material Subsidiary, together with all other Non-Material Subsidiaries with respect to which there has been, since December 18, 1992, a consolidation, merger, sale, assignment, conveyance, letting, subletting, transfer or other disposition of all or substantially all of its assets, does not constitute a Material Subsidiary Group. It is further understood and agreed that the value of the Silver King Distribution shall not be aggregated with other assets of the Company for purposes of determining the Company's compliance with this Section 9.6. 9.7. Dispositions of Assets. Neither the Company nor the Guarantor will, and neither of them will permit any other Material Subsidiary to, sell, assign, convey, lease, sublet, transfer or otherwise dispose of any of the assets, business or other properties of the Company, the Guarantor or any such Material Subsidiary to any Person, whether in a single transaction or in a series of related transactions, except for: (i) sales of inventory (but not of accounts receivable) in the ordinary course of business of the Company, the Guarantor or any such Subsidiary; (ii) dispositions of assets in the ordinary course of business in arm's-length transactions by the Company, the Guarantor or any such Subsidiary to the extent such assets either are no longer used or -51- 56 useful to the Company, the Guarantor or such Subsidiary or are promptly replaced by other assets of at least equal usefulness; and (iii) any such disposition by the Company, the Guarantor or any Wholly-Owned Subsidiary to the Company, the Guarantor or any Wholly-Owned Subsidiary, as the case may be; provided, however, that the Company and the Guarantor shall maintain their respective assets and operations substantially in accordance with their respective assets and operations as of the date hereof, and that in the case of any such disposition by the Company or the Guarantor to a Wholly-Owned Subsidiary, each of the Company and the Guarantor agree that such disposition shall be in the ordinary course of business consistent with past practice and shall be accomplished upon fair and reasonable terms to the Company or the Guarantor; provided that the Silver King Note will in any event be maintained free and clear of all dispositions whatsoever. 9.8. Ranking. (a) Each of the Company and the Guarantor will cause its obligations under this Agreement, the Notes and each other document now or hereafter entered into with respect hereto or thereto to rank at least pari passu in right of payment and of security with all other unsubordinated Indebtedness of the Company or the Guarantor, as the case may be, except that Indebtedness secured by any Lien permitted by Section 9.5 hereof may rank senior in right of security with respect to the collateral subject to such Lien. Without limiting the generality of the foregoing, the Company covenants, and will take all steps necessary to assure, that its obligations under this Agreement will at all times constitute "Senior Indebtedness" as defined in, and for all purposes of, the Convertible Subordinated Debentures (and will be entitled to the benefits of the subordination provisions relating thereto). (b) Each of the Company and the Guarantor will cooperate with the Administrative Agent and the Banks and execute such further instruments and documents as any Bank may reasonably request to carry out the intentions of this Section 9.8. Without limiting the generality of the foregoing, if the Company or the Guarantor hereafter issues or otherwise incurs any subordinated Indebtedness, each of them will execute and cause to be executed such further documents as any Bank may reasonably request to ensure that the obligations of the Company and the Guarantor under this -52- 57 Agreement and the Notes at all times rank senior to such subordinated Indebtedness. (c) Nothing in this Section 9.8 shall be construed so as to limit the ability of the Company or the Guarantor to incur any Indebtedness (consistent with paragraphs (a) and (b) above and otherwise permitted by this Agreement) on a basis pari passu with their respective Indebtedness under this Agreement and the Notes. 9.9. Business; Fiscal Year. Neither the Company nor the Guarantor will make any material change in the nature of its business from that in which it is engaged on the date of this Agreement, and neither the Company nor the Guarantor shall cause, or permit any of their respective Subsidiaries to cause, any other Subsidiary to conduct business or operations substantially similar to the business or operations conducted by the Guarantor on the date of this Agreement. Neither the Company nor the Guarantor will change its fiscal year from that currently in effect on the date hereof, as set forth in the definition of "Fiscal Year" in Section 1.1 hereof; provided, however, that following the consummation of the Liberty Media Transaction, the Company may change its fiscal year to coincide with Liberty Media's fiscal year upon notice to the Administrative Agent and, upon receipt of such notice by the Administrative Agent, the definitions of "Fiscal Quarter" and of "Fiscal Year" in Section 1.1 hereof shall be modified to reflect such change in fiscal year, and the covenants contained in Sections 9.11, 9.12 and 9.13 shall be adjusted in the reasonable discretion of the Administrative Agent so that the ratios and amounts specified in such Sections at all times, notwithstanding such adjustment, are equivalent to the ratios and amounts that would have been in effect if such change in fiscal year had not been made. 9.10. Transactions with Affiliates. Neither the Company nor the Guarantor will, and neither will permit any of its respective Subsidiaries to, enter into or be a party to any transaction (including but not limited to any merger, consolidation or sale of substantially all assets) with any Affiliate of the Company or the Guarantor, except upon fair and reasonable terms no less favorable to the Company or the Guarantor or such Subsidiary than would obtain in a comparable arm's-length transaction with a Person not an Affiliate of the Company or the Guarantor. 9.11. Fixed Charges Coverage Test. The Company will maintain the ratio of Adjusted Operating Cash Flow to Fixed Charges for the Company and its Subsidiaries on a consolidated -53- 58 basis, for each four-Fiscal Quarter period ending in each of the following Fiscal Years, to be not less than the following ratios: Fiscal Year Minimum Ratio ----------- ------------- Fiscal 1993 1.70:1 Fiscal 1994 1.35:1 Fiscal 1995 1.40:1 Fiscal 1996 1.70:1 Fiscal 1997 1.70:1 Fiscal 1998 1.90:1. 9.12. Debt Ratio. The Company will not permit the ratio of Total Debt to Operating Cash Flow for the Company and its Subsidiaries on a consolidated basis, for each four-Fiscal Quarter period ending in each of the following Fiscal Years, to be greater than the following ratios: Fiscal Year Maximum Ratio ----------- ------------- Fiscal 1993 1.90:1 Fiscal 1994 1.60:1 Fiscal 1995 1.35:1 Fiscal 1996 1.15:1 Fiscal 1997 1.00:1 Fiscal 1998 0.80:1. 9.13. Consolidated Net Worth. The Company shall not permit Consolidated Net Worth at any time prior to August 30, 1993, to be less than $125,000,000, and at any time during the following periods to be less than the following amounts: Period Amount ------ ------ August 31, 1993 to August 30, 1994 $135,000,000 August 31, 1994 to August 30, 1995 $145,000,000 August 31, 1995 to August 30, 1996 $155,000,000 August 31, 1996 to August 30, 1997 $165,000,000 August 31, 1997 to August 30, 1998 $175,000,000 and, commencing on August 31, 1998, $10,000,000 above the minimum amount of Consolidated Net Worth required pursuant to this Section 9.13 on the last day of the preceding Fiscal Year. 9.14. Notification of Incurrence of Debt or Making of Investment. Prior to the incurrence by the Company or any of its Subsidiaries of Indebtedness (other than Indebtedness under the Revolving Credit Agreement, the 1992 Term Loan -54- 59 Agreement or this Agreement), or upon obtaining commitments for Indebtedness, or the making of any Investment of cash, property or other assets in an aggregate principal amount of $20,000,000 (per incurrence or cumulatively since September 1, 1992 or since the last time incurrence compliance was required to be tested pursuant to this Section 9.14) or more, the Company shall deliver notice to the Administrative Agent and the Banks, certifying, on the basis of its financial statements for the four Fiscal Quarters most recently ended, the Company's compliance with the financial covenants under the Revolving Credit Agreement, the 1992 Term Loan Agreement and this Agreement both before and immediately after the incurrence of such Indebtedness or Investment on both an historical and pro forma basis; provided, that in the event any cash change in long-term investments or cash change in long-term notes receivable triggers notification of the incurrence of Indebtedness and certification of compliance with financial covenants pursuant to this Section 9.14, the calculation to determine pro forma compliance with the Fixed Charges Coverage Test set forth in Section 9.11 hereof shall be performed after excluding the smallest amount of any cash increase in long-term investments and cash increase in long-term notes receivable for any Fiscal Quarter included in such test. 9.15. Use of Proceeds. The Company shall use the proceeds of the Loans solely for the purpose of refinancing a portion of its outstanding Senior Notes either by redeeming Senior Notes in accordance with the Senior Note Indenture or by repurchasing Senior Notes in the open market following the date hereof, and in any event in compliance with all applicable legal and regulatory requirements, including, without limitation, Regulations G, T, U and X of the Board of Governors of the Federal Reserve System and the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, and the regulations thereunder. Neither the Administrative Agent nor any Bank shall have any responsibility for any use of the proceeds of the Loans. 9.16. Ownership of Guarantor. The Company agrees at all times to own, both beneficially and of record and free and clear of all Liens, and control 100% of the capital shares of the Guarantor. 9.17. Indebtedness of Subsidiaries. The Company will not permit any of its Subsidiaries to create, incur, assume, suffer to exist or otherwise become obligated for or under any Indebtedness whatsoever, except for: (i) Indebtedness owed to the Company; -55- 60 (ii) trade Indebtedness incurred by such Subsidiary in the ordinary course of its business, provided that in the case of any Subsidiary that holds the Silver King Note and any other Subsidiary that owns shares of capital stock of any such Subsidiary, such trade Indebtedness does not at any time and with respect to all such Subsidiaries collectively exceed $1,000,000 in an aggregate principal amount; (iii) Capital Leases; and (iv) Indebtedness of the Guarantor under this Agreement, the Revolving Credit Agreement and the 1992 Term Loan Agreement. 9.18. Interest Rate Protection. No later than 90 days after the date on which the Loans are made on the occasion of each borrowing under Section 2.2 hereof, the Company shall enter into Interest Rate Protection Agreements covering at least 50% of the aggregate principal amount of the Loans. Such agreements shall be with parties and have terms and conditions satisfactory to the Administrative Agent. The Company shall use its best efforts to maintain in full force and effect each Interest Rate Agreement to which it is a party or under which it is a beneficiary for a period of not less than 30 months from the date of such agreement, without any sale, assignment, transfer or conveyance by it thereof, and shall not default (beyond any applicable grace period) in the performance of any of its obligations thereunder. Section 10. Events of Default. If one or more of the following events (herein called "Events of Default" shall occur and be continuing: (a) The Company or the Guarantor shall fail to pay the principal of any Loan when due; or the Company or the Guarantor shall fail to pay any interest on any Loan or any other amount payable by it hereunder more than two Business Days after the date when any such amount shall be due; or (b) There shall have occurred a default or event of default under the Revolving Credit Agreement, the 1992 Term Loan Agreement, the Senior Note Indenture or the Convertible Subordinated Debenture Indenture; or (c) The Company or the Guarantor or any Subsidiary shall default in the payment when due (after giving -56- 61 effect to all applicable grace periods provided for in the documents relating to such Indebtedness, without regard to any waiver thereof) of any principal of or interest on or any other amount payable in connection with any of its Indebtedness not specified in Section 10(a) or 10(b) hereof in an aggregate principal amount of $5,000,000 or more; or any event specified in any note, agreement, indenture or other document evidencing or relating to any such Indebtedness shall occur if (after giving effect to all applicable grace periods provided for in the documents relating to such Indebtedness, without regard to any waiver thereof) the effect of such event is to cause, or to permit the holder or holders of such Indebtedness (or a trustee or agent on behalf of such holder or holders) to cause, such Indebtedness becoming due prior to its stated maturity; or (d) Any representation, warranty or certification made or deemed made herein by the Company or the Guarantor, or any certificate furnished to any Bank or the Administrative Agent pursuant to the provisions hereof, shall prove to have been false or misleading as of the time made or deemed made or furnished in any material respect and, if the Company, the Guarantor and the Majority Banks agree that the effects of such false or misleading representation, warranty or certification are curable, such effects shall not have been cured to the satisfaction of the Majority Banks within 10 days after the earlier of (x) the date on which the Company or the Guarantor obtained knowledge that such representation, warranty or certification was so false or misleading or (y) the date of notice by the Administrative Agent to the Company or the Guarantor that such representation, warranty or certification was so false or misleading; or (e) The Company or the Guarantor shall default in the performance of any of its obligations under Section 9 (other than under any of Sections 9.1(a), 9.1(b), 9.1(c), 9.1(d), 9.1(g), 9.1(h), 9.2, 9.3(b), 9.3(c) and 9.4 hereof); or the Company or the Guarantor shall default in the performance of any of its other obligations in this Agreement, including, without limitation, any of Sections 9.1(a), 9.1(b), 9.1(c), 9.1(d), 9.1(g), 9.1(h), 9.2, 9.3(b), 9.3(c) and 9.4 hereof (not governed by any other provision in this Section 10), and such default shall continue unremedied for a period of 10 days after the earlier of (x) the date on which the Company or the Guarantor obtained knowledge of such default or (y) the -57- 62 date of notice by the Administrative Agent to the Company or the Guarantor of the occurrence of such default; or (f) The Company, the Guarantor, any other Material Subsidiary or Subsidiaries constituting a Material Subsidiary Group shall admit in writing its inability to, or be generally unable to, pay its debts as such debts become due; or (g) The Company, the Guarantor, any other Material Subsidiary or Subsidiaries constituting a Material Subsidiary Group shall (i) apply for or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee or liquidator of itself or of all or a substantial part of its assets, (ii) make a general assignment for the benefit of its creditors, (iii) commence a voluntary case under the Bankruptcy Code (as now or hereafter in effect), (iv) file a petition seeking to take advantage of any other law relating to bankruptcy, insolvency, reorganization, creditor or debtor rights, winding-up, or composition or readjustment of debts, (v) take any corporate action for the purpose of effecting any of the foregoing; provided that an event specified in clauses (i) through (v) above shall be deemed to have occurred (whether at one time or cumulatively over a period of time after the date hereof) with respect to a Material Subsidiary Group at the time when such an event shall have occurred with respect to all Subsidiaries constituting such Material Subsidiary Group; or (h) A proceeding or case shall be commenced, without the application or consent of the Company, the Guarantor, any other Material Subsidiary or all Subsidiaries constituting a Material Subsidiary Group in any court of competent jurisdiction, seeking (i) its liquidation, reorganization, dissolution or winding-up, or the composition or readjustment of its debts, including the filing of an involuntary petition under the Bankruptcy Code, (ii) the appointment of a trustee, receiver, custodian, liquidator or the like of the Company, the Guarantor or such Subsidiary or of all or any substantial part of its assets, or (iii) similar relief in respect of the Company, the Guarantor or such Subsidiary under any law relating to bankruptcy, insolvency, reorganization, creditor or debtor rights, winding-up, or composition or adjustment of debts, and such proceeding or case shall continue undismissed, or an order, judgment or decree approving or ordering any of the foregoing shall be entered and shall not be vacated or dismissed within 60 days; or an order for relief -58- 63 against the Company, the Guarantor or such Subsidiary shall be entered in an involuntary case under any applicable bankruptcy code; provided that an event specified in clauses (i) through (iii) above or the preceding subclause shall be deemed to have occurred with respect to a Material Subsidiary Group at the time when such an event shall have occurred (whether at one time or cumulatively over a period of time after the date hereof) with respect to all Subsidiaries constituting such Material Subsidiary Group; or (i) A judgment or judgments for the payment of money in excess of $1,000,000 in the aggregate shall be rendered by a court or courts against the Company, the Guarantor and/or any of their respective Subsidiaries and the same shall not be discharged (or provision shall not be made for such discharge), or a stay of execution thereof shall not be procured, within 30 days from the date of entry thereof and the Company, the Guarantor or the relevant Subsidiary shall not, within said period of 30 days, or such longer period during which execution of the same shall have been stayed, appeal therefrom and cause the execution thereof to be stayed during such appeal; or (j) An event or condition specified in Section 9.1(e) hereof shall occur or exist with respect to any Plan or Multiemployer Plan and, as a result of such event or condition, together with all other such events or conditions, the Company, the Guarantor or any ERISA Affiliate shall incur or in the opinion of the Majority Banks shall be reasonably likely to incur a liability to a Plan, a Multiemployer Plan or PBGC (or any combination of the foregoing) which is, in the determination of the Majority Banks, material in relation to the consolidated financial position of the Company and its consolidated Subsidiaries; or (k) There shall occur a Change of Control; provided that any such Change of Control shall not constitute an Event of Default for purposes of this Section 10(k) if: (i) (A) such Change of Control arises solely in connection with the Liberty Media Transaction, and (B) as of the date the Liberty Media Transaction is consummated and after giving effect thereto, no other Default or Event of Default shall have occurred and be continuing, or -59- 64 (ii) with respect to any date prior to the date the Liberty Media Transaction is consummated, (A) such Change of Control arises solely by reason of either (1) the merger or consolidation of the Company with a Qualifying U.S. Corporation and the Company is the surviving corporation in such merger or consolidation, or (2) a sale of capital stock to a Qualifying U.S. Corporation, (B) as of the date of such merger, consolidation or sale and after giving effect thereto, no other Default or Event of Default shall have occurred and be continuing, and (C) the Company has delivered a notice to the Administrative Agent and the Banks not less than 30 days prior to the consummation of any such merger or consolidation that sets forth in reasonable detail information indicating compliance with the terms of clause (ii) of this paragraph (k), or (iii) with respect to any date on or following the date the Liberty Media Transaction is consummated, (A) such Change of Control arises solely by reason of the merger or consolidation of the Company with another corporation which is organized under the laws of a state in the United States and the Company is the surviving corporation in such merger or consolidation, (B) as of the date of such merger or consolidation and after giving effect thereto, no other Default or Event of Default shall have occurred and be continuing, and (C) the Company has delivered a notice to the Administrative Agent and the Banks not less than 30 days prior to the consummation of any such merger or consolidation that sets forth in reasonable detail information indicating compliance with the terms of clause (iii) of this paragraph (k); or (l) An event or condition that constitutes (i) a default or breach by Silver King or any of its subsidiaries under the Silver King Note or any other agreement, including without limitation, any affiliation agreement, which had been entered into in connection with the Silver King Distribution and pursuant to which Silver King, or such subsidiary, as the case may be, and the Company or any of its Subsidiaries continued a business relationship, and such default or breach shall continue unremedied for a period of 30 days after the Company or any such Subsidiary obtained knowledge of such default or breach or (ii) a default or breach by the Company or any of its Subsidiaries of any agreement, including without limitation, any affiliation agreement, which had been -60- 65 entered into in connection with the Silver King Distribution and pursuant to which Silver King, or such subsidiary, as the case may be, and the Company or any such Subsidiary continued a business relationship. THEREUPON: (i) in the case of an Event of Default other than one referred to in clause (f), (g) or (h) of this Section 10, the Administrative Agent, with the consent of the Majority Banks, may and, upon request of the Majority Banks, shall, by notice to the Company, terminate the Commitments and/or declare the principal amount then outstanding of, and the accrued interest on, the Loans and all other amounts payable by the Company and the Guarantor hereunder and under the Notes to be forthwith due and payable, whereupon such amounts shall be immediately due and payable without presentment, demand, diligence, protest or other formalities of any kind, all of which are hereby expressly waived by the Company and the Guarantor; and (ii) in the case of the occurrence of an Event of Default referred to in clause (f), (g) or (h) of this Section 10, the Commitments shall be automatically terminated and the principal amount then outstanding of, and the accrued interest on, the Loans and all other amounts payable by the Company and the Guarantor hereunder and under the Notes shall become automatically immediately due and payable without presentment, demand, protest or other formalities of any kind, all of which are hereby expressly waived by the Company and the Guarantor. Section 11. The Administrative Agent. 11.1. Appointment, Powers and Immunities. Each Bank hereby irrevocably appoints and authorizes the Administrative Agent to act as its agent hereunder with such powers as are specifically delegated to the Administrative Agent by the terms of this Agreement, together with such other powers as are reasonably incidental thereto. The Administrative Agent (which term as used in this sentence and in Section 11.5 and the first sentence of Section 11.6 hereof shall include reference to its affiliates and each of the officers, directors, employees and agents of itself and of its affiliates): (a) shall have no duties or responsibilities except those expressly set forth in this Agreement, and shall not by reason of this Agreement be a trustee for any Bank; (b) shall not be responsible to the Banks for any recitals, statements, representations or warranties contained in this Agreement, or in any certificate or other document referred to or provided for in, or received by any of them under, this Agreement, or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement, any Note or any -61- 66 other document referred to or provided for herein or for any failure by the Company or any other Person to perform any of its obligations hereunder or thereunder; (c) shall not be required to initiate or conduct any litigation or collection proceedings hereunder, except as provided for under Section 11.3 hereof; and (d) shall not be responsible for any action taken or omitted to be taken by it hereunder or under any other document or instrument referred to or provided for herein or in connection herewith, except for its own gross negligence or willful misconduct. The Administrative Agent may employ agents and attorneys-in-fact and shall not be responsible for the negligence or misconduct of any such agents or attorneys-in-fact selected by it in good faith. The Administrative Agent may deem and treat the payee of any Note as the holder thereof for all purposes hereof unless and until a written notice of the assignment or transfer thereof shall have been filed with the Administrative Agent. 11.2. Reliance by the Administrative Agent. The Administrative Agent shall be entitled to rely upon any certification, notice or other communication (including any thereof by telephone, telex, telegram or cable) reasonably believed by it to be genuine and correct and to have been signed or sent by or on behalf of the proper Person or Persons, and upon advice and statements of legal counsel, independent accountants and other experts selected by the Administrative Agent. As to any matters not expressly provided for by this Agreement, the Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder in accordance with instructions signed by the Majority Banks, and such instructions of the Majority Banks and any action taken or failure to act pursuant thereto shall be binding on all of the Banks. 11.3. Defaults. The Administrative Agent shall not be deemed to have knowledge of the occurrence of a Default (other than the nonpayment of principal of or interest on Loans or of commitment fees) unless the Administrative Agent has received notice from a Bank or the Company specifying such Default and stating that such notice is a "Notice of Default". In the event that the Administrative Agent receives such a notice of the occurrence of a Default, the Administrative Agent shall give prompt notice thereof to the Banks (and shall give each Bank prompt notice of each such nonpayment). The Administrative Agent shall (subject to Section 11.7 and Section 12.4 hereof) take such action with respect to such Default as shall be directed by the Majority Banks, provided that, unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from -62- 67 taking such action, with respect to such Default as it shall deem advisable in the best interest of the Banks. 11.4. Rights as a Bank. With respect to its Commitment and the Loans made by it, LTCB Trust (and any successor acting as Administrative Agent) in its capacity as a Bank hereunder shall have the same rights and powers hereunder as any other Bank and may exercise the same as though it were not acting as the Administrative Agent, and the term "Bank" or "Banks" shall, unless the context otherwise indicates, include the Administrative Agent in its individual capacity. LTCB Trust (and any successor acting as Administrative Agent) and its affiliates may (without having to account therefor to any Bank) accept deposits from, lend money to and generally engage in any kind of banking, trust or other business with the Company (and any of its Affiliates) as if it were not acting as the Administrative Agent, and LTCB, LTCB Trust and their affiliates may accept fees and other consideration from the Company and the Guarantor for services in connection with this Agreement or otherwise without having to account for the same to the Banks. 11.5. Indemnification. The Banks agree to indemnify the Administrative Agent (to the extent not reimbursed under Section 12.3 hereof, but without limiting the obligations of the Company under said Section 12.3), ratably in accordance with the aggregate principal amount of the Loans made by the Banks (or, if no Loans are at the time outstanding, ratably in accordance with their respective Commitments), for any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind and nature whatsoever which may be imposed on, incurred by or asserted against the Administrative Agent in any way relating to or arising out of this Agreement or any other documents contemplated by or referred to herein or the transactions contemplated hereby (including, without limitation, the costs and expenses which the Company is obligated to pay under Section 12.3 hereof but excluding, unless a Default has occurred and is continuing, normal administrative costs and expenses incident to the performance of its agency duties hereunder) or the enforcement of any of the terms hereof or of any such other documents, provided that no Bank shall be liable for any of the foregoing to the extent they arise from the gross negligence or willful misconduct of the party to be indemnified. 11.6. Non-Reliance on Administrative Agent, Agent, Co-Agents and other Banks. Each Bank agrees that it has, independently and without reliance on the Administrative Agent, the Agent, either Co-Agent or any other Bank, and based -63- 68 on such documents and information as it has deemed appropriate, made its own credit analysis of the Company, the Guarantor and their respective Subsidiaries and its own decision to enter into this Agreement and that it will, independently and without reliance upon the Administrative Agent, the Agent, either Co-Agent or any other Bank, and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under this Agreement, the Notes or any other related documents. The Administrative Agent shall not be required to keep itself informed as to the performance or observance by the Company or the Guarantor of this Agreement or any other document referred to or provided for herein or to inspect the properties or books of the Company, the Guarantor or any of their respective Subsidiaries. Except for notices, reports and other documents and information expressly required to be furnished to the Banks by the Administrative Agent hereunder, the Administrative Agent shall not have any duty or responsibility to provide the Agent, either Co-Agent or any Bank with any credit or other information concerning the affairs, financial condition or business of the Company or any Subsidiary (or any of their affiliates) which may come into the possession of the Administrative Agent or any of its affiliates. 11.7. Failure to Act. Except for action expressly required of the Administrative Agent hereunder, the Administrative Agent shall in all cases be fully justified in failing or refusing to act hereunder unless it shall be indemnified to its satisfaction by the Banks against any and all liability and expense (other than that arising from gross negligence or willful misconduct) which may be incurred by it by reason of taking or continuing to take any such action. 11.8. Resignation or Removal of Administrative Agent. Subject to the appointment and acceptance of a successor Administrative Agent as provided below, the Administrative Agent may resign at any time by giving notice thereof to the Banks, the Company and the Guarantor, and the Administrative Agent may be removed at any time with or without cause by the Majority Banks. Upon any such resignation or removal, the Majority Banks shall have the right to appoint a successor Administrative Agent. If no successor Administrative Agent shall have been so appointed by the Majority Banks and shall have accepted such appointment within 30 days after the retiring Administrative Agent's giving of notice of resignation or the Majority Banks' removal of the retiring Administrative Agent, then the retiring Administrative Agent may, on behalf of the Banks, appoint a successor Administrative Agent, which shall be a bank which -64- 69 has an office in New York, New York with a combined capital and surplus of at least $100,000,000. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations hereunder. After any retiring Administrative Agent's resignation or removal hereunder as Administrative Agent, the provisions of this Section 11 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as the Administrative Agent. 11.9. Administrative Agent's Office. The Administrative Agent acts initially through its office designated on the signature pages hereof, but may transfer its functions as Administrative Agent to any other office, branch or affiliate of LTCB at any time by giving prompt, subsequent written notice to each of the other parties to this Agreement. 11.10. Agent and Co-Agents. Each of the parties acknowledges and agrees that the Agent and the Co-Agents, in their respective capacities as such, have no obligations, duties or liabilities whatsoever under or in respect of this Agreement or the Notes. Section 12. Miscellaneous. 12.1. Waiver. No failure on the part of the Administrative Agent, the Agent, either Co-Agent or any Bank to exercise, no delay in exercising, and no course of dealing with respect to, any right, power or privilege under this Agreement or any Note shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege under this Agreement or any Note preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The remedies provided herein are cumulative and not exclusive of any remedies provided by law. Each of the parties acknowledges that the Company, the Guarantor, the Administrative Agent, the Agent, the Co-Agents and certain of the Banks are or from time to time may be parties to the 1992 Term Loan Agreement and the Revolving Credit Agreement, and that certain terms and conditions of this Agreement now or hereafter may differ from the corresponding terms and conditions of the 1992 Term Loan Agreement or the Revolving Credit Agreement. The Company and the Guarantor agree that this Agreement, the 1992 Term Loan -65- 70 Agreement and the Revolving Credit Agreement are separate and independent agreements and that the execution and delivery of this Agreement (and any future waiver, amendment or modification hereof) shall not be deemed to affect any of the terms and conditions of, or constitute any waiver, amendment or modification of, the 1992 Term Loan Agreement or the Revolving Credit Agreement, either now or hereafter. 12.2. Notices. All notices and other communications provided for herein (including, without limitation, any modifications of, or waivers or consents under, this Agreement) shall be given or made by telex, telecopy, telegraph, cable or in writing and telexed, telecopied, telegraphed, cabled, mailed or delivered to the intended recipient at the "Address for Notices" specified below its name on the signature pages hereof; or, as to any party, at such other address as shall be designated by such party in a notice to each other party. Except as otherwise provided in this Agreement, all such communications shall be deemed to have been duly given when transmitted by telex or telecopier (with receipt confirmed either mechanically or in writing by a person at the office of the recipient), personally delivered or, in the case of a mailed notice, upon receipt, in each case given or addressed as aforesaid. 12.3. Expenses, Etc. The Company and the Guarantor jointly and severally agree to pay or reimburse each of the Banks and the Administrative Agent for paying: (a) all costs and expenses of the Administrative Agent (including, without limitation, the reasonable fees and expenses of all special counsel to the Administrative Agent, the Agent, the Co-Agents and the Banks, in connection with (i) the preparation, negotiation, execution and delivery of this Agreement and the Notes and any related documents and the making of the initial Loans hereunder, subject to limitations set forth in the Commitment Letters, and (ii) any amendment, modification or waiver of any of the terms of this Agreement or any of the Notes or any related documents (whether or not any such amendment, modification or waiver is signed or becomes effective); (b) all reasonable costs and expenses of each Bank, the Agent, each Co-Agent and the Administrative Agent (including reasonable counsels' fees and expenses) in connection with the enforcement of this Agreement or any of the Notes and the protection of the rights of each Bank, the Agent, each Co-Agent and the Administrative -66- 71 Agent against the Company, the Guarantor or any of their respective assets; and (c) all transfer, stamp, documentary and other similar taxes, assessments or charges (including, without limitation, penalties and interest) levied by any governmental or revenue authority in respect of this Agreement, any of the Notes or any other document referred to herein. The Company hereby agrees to indemnify the Administrative Agent, the Agent, each Co-Agent and each Bank and their respective Affiliates, directors, officers, employees and agents from, and hold each of them harmless against, any and all losses, liabilities, claims, damages or expenses incurred by any of them arising out of or by reason of any investigation or litigation or other proceedings (including any threatened investigation or litigation or other proceedings) relating to or arising out of this Agreement, the statements contained in the Commitment Letters, or any aspect thereof, the Banks' agreement to make the Loans hereunder or from any actual or proposed use by the Company, the Guarantor or any Subsidiary of either thereof of the proceeds of any of the Loans or from an alleged breach of this Agreement, including, without limitation, the reasonable fees and disbursements of counsel incurred in connection with any such investigation or litigation or other proceedings (but excluding any such losses, liabilities, claims, damages or expenses incurred by reason of the gross negligence or willful misconduct of the Person to be indemnified). 12.4. Amendments, Etc. Neither this Agreement nor any Note nor any terms hereof or thereof may be amended, supplemented or modified except in accordance with the provisions of this subsection. With the prior written consent of the Majority Banks, the Administrative Agent, the Company and the Guarantor may, from time to time, enter into written amendments, supplements or modifications hereto for the purpose of adding any provisions to this Agreement or the Notes or changing in any manner the rights of the Banks or of the Company and the Guarantor hereunder or thereunder or waiving, on such terms and conditions as the Administrative Agent (with the consent of the Majority Banks) may specify in such instrument, any of the requirements of this Agreement or the Notes or any Default or Event of Default and its consequences; provided, however, that no such waiver and no such amendment, supplement or modification shall (a) extend the maturity of any installment of principal of any Loan or Note, or reduce the rate or extend the time of payment of interest thereon, or reduce or extend the time of payment of -67- 72 any fee payable to the Banks hereunder, or reduce the principal amount of any Loan, or increase the amount of any Bank's Commitment, or release the Guarantor from any of its obligations hereunder, or amend, modify or waive any provision of this subsection, or reduce the percentage specified in the definition of "Majority Banks" in Section 1.1 hereof, or consent to the assignment or transfer by the Company or the Guarantor of any of its rights and obligations under this Agreement or the Notes, in each case without the prior written consent of all the Banks, or (b) amend, modify or waive any provision of Section 11 hereof without the written consent of the Administrative Agent. Any such waiver and any such amendment, supplement or modification shall apply equally to each of the Banks and shall be binding upon the Company, the Guarantor, the Banks, the Administrative Agent, the Agent, the Co-Agents and all future holders of the Notes. In the case of any waiver, the Company, the Guarantor, the Banks and the Administrative Agent shall be restored to their former position and rights hereunder and under the outstanding Notes, and any Default or Event of Default waived shall be deemed to be cured and not continuing; but no such waiver shall extend to any subsequent or other Default or Event of Default, or impair any right subsequent thereon. 12.5. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. 12.6. Assignments and Participation. (a) Neither the Company nor the Guarantor may assign its rights or obligations hereunder or under the Notes without the prior consent of all of the Banks and the Administrative Agent. (b) Any Bank may assign any of its Loans, its Note or its Commitment without the prior consent of the Company, the Guarantor, the Administrative Agent or any other Bank, provided that (i) assignments of less than all of a Bank's Commitment and Loans shall be in a principal amount of not less than $10,000,000 (or such lesser amount as may be agreed upon by the Company), except that LTCB Trust shall be permitted to make an assignment in a principal amount of not less than $5,000,000 on one occasion, and (ii) any such assignment shall be made pursuant to an assignment and assumption agreement substantially in the form of Exhibit E hereto (an "Assignment Agreement"). Upon written notice to the Company and the Administrative Agent of an assignment, identifying in detail reasonably satisfactory to the -68- 73 Administrative Agent the assignee Bank and the amount of the assignor Bank's Commitment and Loans assigned, the assignee shall have, as of the date of effectiveness of such assignment and to the extent of such assignment, the obligations, rights and benefits of, and shall be deemed for all purposes hereunder, a Bank party hereto holding the Commitment and Loans (or portions thereof) assigned to it (in addition to the Commitment and Loans, if any, theretofore held by such assignee) and the assignor shall be released from such obligations to such extent. (c) Any Bank may sell to one or more other Persons a participation in all or any part of the Commitment or any Loan held by it, in which event each such participant shall be entitled to the rights and benefits of the provisions of Sections 5 and 9.1(h) hereof with respect to its participation in such Loan as if (and the Company and the Guarantor shall be directly obligated to such participant under such provisions as if) such participant were a "Bank" for purposes of said Sections, but shall not have any other rights or benefits under this Agreement or any Note (the participant's rights against such Bank in respect of such participation to be those set forth in the agreement (the "Participation Agreement") executed by such Bank in favor of such participant); provided, that all amounts payable by the Company or the Guarantor to any Bank and any participant under Section 5 hereof in respect of any Loan shall be determined as if such Bank had not sold any participations in such Loan and as if such Bank were funding all of such Loan in the same way that it is funding the portion of such Loan in which no participations have been sold. In no event shall a Bank that sells a participation be obligated to any participant under the Participation Agreement to take or refrain from taking any action hereunder or under such Bank's Note except that such Bank may agree in the Participation Agreement that it will not, without the consent of the participant, agree to (i) the extension of any date fixed for the payment of principal of or interest on the related Loan or Loans, (ii) the reduction of any payment of principal thereof, (iii) the reduction of the rate at which either interest is payable thereon or (if the participant is entitled to any part thereof) commitment fee is payable hereunder to a level below the rate at which the participant is entitled to receive interest or commitment fee (as the case may be) in respect of such participation, or (iv) any release of the Guarantor from any of its obligations under this Agreement or the Notes. -69- 74 (d) In addition to the assignments and participations permitted under the foregoing provisions of this Section 12.6, any Bank may assign and pledge all or any portion of its Loans and its Note to any Federal Reserve Bank as collateral security pursuant to Regulation A and any Operating Circular issued by such Federal Reserve Bank. No such assignment shall release the assigning Bank from its obligations hereunder. (e) A Bank may furnish any information concerning the Company, the Guarantor or any of their respective Subsidiaries in the possession of such Bank from time to time to assignees and participants (including prospective assignees and participants). 12.7. Confidentiality. The Administrative Agent, the Agent, the Co-Agents, and each of the Banks hereby acknowledge that certain of the information to be furnished to them pursuant to this Agreement may be non-public information. The Administrative Agent, the Agent, each Co-Agent, and each Bank hereby agrees that it will keep all information so furnished to it pursuant hereto confidential in accordance with its normal banking procedures and, except in accordance with such procedures, will make no disclosure to any other Person of such information until the same shall have become public, except (i) in connection with matters involving this Agreement (including, without limitation, litigation involving the Company, the Guarantor, the Agent, the Co-Agents, the Administrative Agent or the Banks) and with the obligations of any of the Administrative Agent, the Agent, such Co-Agent or such Bank under law or regulation, (ii) pursuant to subpoenas or similar process, (iii) to Governmental Authorities or examiners, (iv) to independent auditors or counsel, (v) to any parent or corporate Affiliate of any of the Administrative Agent, the Agent, such Co-Agent or such Bank, or (vi) to any participant or proposed participant or assignee or proposed assignee hereunder so long as such participant or proposed participant or assignee or proposed assignee (a) is not in the same general type of business as the Company on the date of such disclosure and (b) agrees in writing to accept such information subject to the restrictions provided in this Section 12.7; provided that in no event shall any of the Administrative Agent, the Agent, such Co-Agent or such Bank be obligated or required to return any materials furnished by the Company or any of its Subsidiaries. 12.8. Survival. Without limiting the survival of any other obligations of the Company, the Guarantor and the Banks hereunder, the obligations of the Company and the Guarantor under Sections 2.5, 5.1, 5.4, 5.5 and 12.3 hereof -70- 75 and the obligations of the Banks under Sections 4.7, 11.5 and 12.7 hereof, shall survive the repayment of the Loans and the termination of the Commitments. 12.9. Captions. Captions and section headings appearing herein are included solely for convenience of reference and are not intended to affect the interpretation of any provision of this Agreement. 12.10. Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and any of the parties hereto may execute this Agreement by signing any such counterpart. 12.11. GOVERNING LAW. THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. 12.12. JURISDICTION. EACH OF THE COMPANY AND THE GUARANTOR HEREBY AGREES THAT: (A) ANY SUIT, ACTION OR PROCEEDING AGAINST THE COMPANY OR THE GUARANTOR WITH RESPECT TO THIS AGREEMENT, THE LOANS, THE NOTES OR ANY DOCUMENTS RELATED HERETO OR ANY JUDGMENT ENTERED BY ANY COURT IN RESPECT THEREOF MAY BE BROUGHT IN THE SUPREME COURT OF THE STATE OF NEW YORK, COUNTY OF NEW YORK, IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, OR IN ANY STATE OR FEDERAL COURT SITTING IN THE STATE OF FLORIDA (COLLECTIVELY, THE "SUBJECT COURTS"), AS THE ADMINISTRATIVE AGENT, THE AGENT, EITHER CO-AGENT OR ANY BANK MAY ELECT IN ITS SOLE DISCRETION AND EACH OF THE COMPANY AND THE GUARANTOR HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF EACH OF THE SUBJECT COURTS FOR THE PURPOSE OF ANY SUCH SUIT, ACTION, PROCEEDING OR JUDGMENT. EACH OF THE COMPANY AND THE GUARANTOR HEREBY IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS IN ANY SUIT, ACTION OR PROCEEDING IN ANY OF THE SUBJECT COURTS BY THE MAILING THEREOF BY THE ADMINISTRATIVE AGENT, THE AGENT, THE RESPECTIVE CO-AGENT OR THE RESPECTIVE BANK BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE COMPANY OR THE GUARANTOR, AS THE CASE MAY BE, ADDRESSED AS PROVIDED IN SECTION 12.2 HEREOF. NOTHING HEREIN SHALL IN ANY WAY BE DEEMED TO LIMIT THE ABILITY OF THE ADMINISTRATIVE AGENT, THE AGENT, EITHER CO-AGENT OR ANY BANK TO SERVE ANY SUCH WRITS, PROCESS OR SUMMONSES IN ANY OTHER MANNER PERMITTED BY APPLICABLE LAW OR TO BRING PROCEEDINGS AGAINST THE COMPANY OR THE GUARANTOR IN ANY COMPETENT COURT OF ANY -71- 76 OTHER JURISDICTION OR JURISDICTIONS, AND IN SUCH MANNER, AS MAY BE PERMITTED BY APPLICABLE LAW. (B) EACH OF THE COMPANY AND THE GUARANTOR HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY SUIT, ACTION OR PROCEEDING IN RESPECT OF THIS AGREEMENT, THE NOTES OR ANY OTHER DOCUMENTS IN CONNECTION HEREWITH, ANY OBJECTION TO THE LAYING OF VENUE IN ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY OF THE SUBJECT COURTS, AND, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY CLAIM THAT SUCH SUIT, ACTION OR PROCEEDING IN ANY OF THE SUBJECT COURTS HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. 12.13. Severability. Any provision of this Agreement or the Notes that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or thereof or affecting the validity or enforceability of such provision in any other jurisdiction. -72- 77 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written. HOME SHOPPING NETWORK, INC., as the Company By /s/ LES R. WANDLER ----------------------------- Title: Chief Financial Officer 2501 118th Avenue North St. Petersburg, Florida 33716 Telecopier No.: (813) 539-6505 Telephone No.: (813) 572-8585 Attention: Les R. Wandler with a copy to: "Legal Department" Telecopier No.: (813) 573-0866 HOME SHOPPING CLUB, INC., as Guarantor By /s/ LES R. WANDLER ----------------------------- Title: Treasurer 2501 118th Avenue North St. Petersburg, Florida 33716 Telecopier No.: (813) 539-6505 Telephone No.: (813) 572-8585 Attention: Les R. Wandler with a copy to: "Legal Department" Telecopier No.: (813) 573-0866 -73- 78 The Banks Commitment - ---------- $20,000,000 LTCB TRUST COMPANY, as a Bank and the Agent By /s/ RIKUICHI YOSHISUE --------------------------- Title: Executive Vice President Lending Office for Federal Funds Loans and Prime Rate Loans: 165 Broadway New York, New York 10006 Lending Office for LIBOR Loans: 165 Broadway New York, New York 10006 Address for Notices: 165 Broadway New York, New York 10006 Telex No.: 425722 Telecopier No.: (212) 608-3081 Telephone No.: (212) 335-4854 Attention: Robert Pacifici -74- 79 $12,500,000 BANK OF MONTREAL, as a Bank and a Co-Agent By /s/ PATRICK J. SULLIVAN ------------------------------- Title: Director Lending Office for Federal Funds Rate Loans and Prime Rate Loans: 115 South LaSalle Street 11th Floor Chicago, Illinois 60603 Lending Office for LIBOR Loans: 115 South LaSalle Street 11th Floor Chicago, Illinois 60603 Address for Notices: 430 Park Avenue 15th Floor, Account Administration New York, New York 10022 Telecopier No.: (212) 605-1525 Telephone No.: (212) 605-1436 or (212) 605-1458 Attention: Prescilla Quinones or John Decoufle -75- 80 $12,500,000 THE BANK OF NEW YORK, as a Bank and a Co-Agent By /s/ ALAN LYSTER, JR. ----------------------------- Title: Vice President Lending Office for Federal Fund Rate Loans and Prime Rate Loans: One Wall Street New York, New York 10286 Lending Office for LIBOR Loans: One Wall Street New York, New York 10286 Address for Notices: One Wall Street 22nd Floor New York, New York 10286 Telecopier No.: (212) 635-6399 or (212) 635-6877 Telephone No.: (212) 635-6780 Attention: Ramona McCottrie -76- 81 $5,000,000 CITIZENS FIDELITY BANK & TRUST COMPANY By /s/ H. JOSEPH BRENNER ------------------------------ Title: Vice President Lending Office for Federal Funds Rate Loans and Prime Rate Loans: 500 West Jefferson Street Louisville, Kentucky 40202 Lending Office for LIBOR Loans: 500 West Jefferson Street Louisville, Kentucky 40202 Address for Notices: PNC Commercial Corp. 201 South Orange Avenue Suite 750 Orlando, Florida 32801 Telecopier No.: (407) 843-8263 Telephone No.: (407) 841-3585 Attention: James Neil or Diane Tyre - ------------------- Total: $50,000,000 -77- 82 The Administrative Agent LTCB TRUST COMPANY, as Administrative Agent By /s/ RIKUICHI YOSHISUE ----------------------------- Title: Executive Vice President Address for Notices to Administrative Agent: 165 Broadway New York, New York 10006 Telex No.: 425722 Telecopier No.: (212) 608-3081 Telephone No.: (212) 335-4854 Attention: Robert Pacifici -78- 83 EXHIBIT A PROMISSORY NOTE $______________ ___________, 1993 New York, New York FOR VALUE RECEIVED, HOME SHOPPING NETWORK, INC., a Delaware corporation (the "Company"), hereby promises to pay to the order of ___________________ (the "Bank"), for account of its respective Applicable Lending Offices provided for by the Term Loan Agreement referred to below, by paying to account no. 04203606 of LTCB Trust Company (the "Administrative Agent") at the principal offices of Bankers Trust Company, New York, New York (reference: "Home Shopping Network - 1993 Term Loan Facility") (or at such other place as the Administrative Agent may notify the Company from time to time) the principal sum of ______________ Dollars ($_____________) (or such lesser amount as shall equal the aggregate unpaid principal amount of the Loans made by the Bank to the Company under the Term Loan Agreement), in lawful money of the United States of America and in immediately available funds, without set-off, counterclaim or deduction of any kind, which sum shall be due and payable in two installments on the dates set forth below, each installment to be in the amount equal to the amount set forth opposite the applicable installment below or, in the event prepayments have been made pursuant to Section 3.3 of the Term Loan Agreement, such lesser amount as is equal to the remaining outstanding aggregate principal amount of such installment: Date Principal Amount ---- ---------------- January 31, 1997 $ January 31, 1998 $ . In the event that the aggregate principal amount of the Loans made by the Bank to the Company is less than the maximum aggregate principal amount of Loans the Company is permitted to borrow from such Bank under the Term Loan Agreement, the aggregate amount not borrowed from such Bank shall be applied to reduce the principal amounts of the installments set forth above in inverse order of maturity. The Company further agrees to pay interest on the unpaid principal amount of this Note, at such office, in like money and funds and in such manner, for the period commencing on the date of this Note until this Note shall be paid in full, at the rates per annum and on the dates provided in the Term Loan Agreement. The amount and type of, and the duration of each Interest Period (if applicable) for, the Loan evidenced hereby, the date such Loan is made or converted from a Loan of another type, and the amount of each payment or prepayment made on account of the principal thereof, shall be recorded by the A-1 84 Bank on its books and, prior to any transfer of this Note, endorsed by the Bank on the schedule attached hereto or any continuation thereof; provided that no failure of the Bank to make any such endorsement shall affect the obligations of the Company under the Term Loan Agreement or this Note. This Note is one of the Notes referred to in the Term Loan Agreement, dated as of February 4, 1993 (as in effect from time to time, the "Term Loan Agreement"), among the Company, Home Shopping Club, Inc., a Delaware corporation, as guarantor (the "Guarantor"), the Banks named therein (including the Bank), LTCB Trust Company, as the Agent for the Banks, Bank of Montreal and The Bank of New York, each as a Co-Agent for the Banks, and the Administrative Agent, and evidences the Loan made by the Bank thereunder, is entitled to the benefits thereof and is subject to the optional and mandatory prepayment provisions contained therein. Capitalized terms used in this Note have the respective meanings assigned to them in the Term Loan Agreement. The Term Loan Agreement provides for the acceleration of the maturity of this Note upon the occurrence of certain events and for prepayments of Loans upon the terms and conditions specified therein. No provision of the Term Loan Agreement or this Note or any other document delivered in connection with either thereof and no transaction contemplated hereby or thereby shall be construed or shall operate so as to require the Company or the Guarantor to pay interest hereunder in an amount or at a rate greater than the maximum allowed from time to time by applicable law. Should any interest or other charges paid by the Company or the Guarantor hereunder result in a computation or earning of interest in excess of the maximum rate of interest permitted under applicable law in effect while such interest is being earned, then such excess shall be waived by the Bank and all such excess shall be automatically credited against and in reduction of the principal balance of such amounts payable hereunder and any portion of such excess received by the Bank shall be paid over by the Bank to the Company or the Guarantor, as the case may be, it being the intent of the Company and the Guarantor and the other parties to the Term Loan Agreement that under no circumstances shall the Company or the Guarantor or any other Person be required to pay interest in excess of the maximum rate allowed by such applicable law. The Company hereby waives diligence, presentment, protest, notice of default, dishonor or nonpayment and any other notice and all demands whatsoever. The Company hereby A-2 85 further waives all setoffs and counterclaims against the Company, the Administrative Agent, the Agent, the Co-Agents and each of the Banks. THIS NOTE HAS BEEN EXECUTED AND DELIVERED IN, AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF, THE STATE OF NEW YORK. HOME SHOPPING NETWORK, INC. By --------------------------- Title: GUARANTEE The undersigned HOME SHOPPING CLUB, INC., a Delaware corporation (the "Guarantor"), hereby unconditionally and irrevocably guarantees the payment in full when due (whether at stated maturity, by acceleration or otherwise) of the principal of and interest on this Note and all other amounts payable hereunder, in accordance with the terms hereof and of Section 6 of the Term Loan Agreement, and, in the case of any extension of time of payment, in whole or in part, that all such amounts shall be paid in full when due (whether at stated maturity, by acceleration or otherwise) in accordance with the terms of such extension. In addition, the Guarantor hereby unconditionally agrees that upon default in the payment when due (whether at stated maturity, by acceleration or otherwise) of any of such principal, interest or other amounts, the Guarantor shall forthwith pay and perform the same in the money and funds, at the time, in the place and in the manner provided for such payment in the Term Loan Agreement. This guarantee is a continuing guarantee of payment and not merely of collection; it is a primary, independent obligation of the Guarantor; and the Guarantor's obligations hereunder shall be absolute, unconditional and irrevocable, irrespective of any and all circumstances whatsoever. The Guarantor hereby waives diligence, presentment, protest, notice of default, dishonor or nonpayment and any other notice and all demands whatsoever. The Guarantor hereby further waives all setoffs and counterclaims against the Company, the Administrative Agent, the Agent, the Co-Agents and each of the Banks. HOME SHOPPING CLUB, INC. By ---------------------------- Title: A-3 86
LOANS Date Loan Principal Type Amount Unpaid Made or Amount of Interest Paid or Principal Notation Converted of Loan Loan Period Prepaid Amount Made By --------- ------- ---- -------- ------- --------- --------
A-4 87 FIRST AMENDMENT, dated as of May 28, 1993, to the Term Loan Agreement, dated as of February 4, 1993, as amended by paragraph number 2 of the letter dated April 14, 1993 from LTCB Trust Company, as Administrative Agent, to Home Shopping Network, Inc. (as so amended, the "1993 Term Loan Agreement"), among HOME SHOPPING NETWORK, INC. (the "Company"), HOME SHOPPING CLUB, INC. (the "Guarantor"), the banks signatory thereto (the "Banks"), LTCB TRUST COMPANY, as Agent for the Banks (in such capacity, the "Agent"), BANK OF MONTREAL and THE BANK OF NEW YORK, each as a Co-Agent for the Banks (each in such capacity, a "Co-Agent"), and LTCB TRUST COMPANY, as Administrative Agent for the Banks (in such capacity, the "Administrative Agent"). WHEREAS, the Company and the Guarantor have requested, and the Banks, the Agent, the Co-Agents and the Administrative Agent are willing, to amend certain provisions of the 1993 Term Loan 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 1993 Term Loan Agreement and used herein shall have their respective defined meanings when used herein. SECTION 2. AMENDMENTS TO THE 1993 TERM LOAN AGREEMENT. (a) Section 9.11 of the 1993 Term Loan Agreement is hereby amended by deleting such Section in its entirety and replacing it with the following: "9.11. Fixed Charges Coverage Test. The Company will maintain the ratio of Adjusted Operating Cash Flow to Fixed Charges for the Company and its Subsidiaries on a consolidated basis, (a) for each four-Fiscal Quarter period ending with each of the following Fiscal Quarters, to be not less than the following ratios: 88 Fiscal Quarter Ended Minimum Ratio --------------- ------------- February 28, 1993 1.70:1 May 31, 1993 1.70:1 August 31, 1993 1.70:1 November 30, 1993 1.35:1 February 28, 1994 1.45:1 May 31, 1994 1.35:1 August 31, 1994 1.35:1, and (b) for each four-Fiscal Quarter period ending in each of the following Fiscal Years, to be not less than the following ratios: Fiscal Year Minimum Ratio ----------- ------------- Fiscal 1995 1.40:1 Fiscal 1996 1.70:1 Fiscal 1997 1.70:1 Fiscal 1998 1.90:1." (b) Section 9.12 of the 1993 Term Loan Agreement is hereby amended by deleting such Section in its entirety and replacing it with the following: "9.12. Debt Ratio. The Company will not permit the ratio of Total Debt to Operating Cash Flow for the Company and its Subsidiaries on a consolidated basis, (a) for each four-Fiscal Quarter period ending with each of the following Fiscal Quarters, to be greater than the following ratios: Fiscal Quarter Ended Maximum Ratio -------------- ------------- February 28, 1993 1.90:1 May 31, 1993 1.90:1 August 31, 1993 2.15:1 November 30, 1993 1.95:1 February 28, 1994 1.65:1 May 31, 1994 1.60:1 August 31, 1994 1.60:1, and (b) for each four-Fiscal Quarter period ending in each of the following Fiscal Years, to be greater than the following ratios: -2- 89 Fiscal Year Maximum Ratio ----------- ------------- Fiscal 1995 1.35:1 Fiscal 1996 1.15:1 Fiscal 1997 1.00:1 Fiscal 1998 0.80:1." SECTION 3. REPRESENTATIONS AND WARRANTIES. Each of the Company and the Guarantor represents and warrants to the Administrative Agent and the Banks that (a) no Default or Event of Default has occurred and is continuing, and (b) the representations and warranties made by the Company and the Guarantor in Section 8 of the 1993 Term Loan Agreement, as amended hereby, and in any other certificate or other document delivered in connection with the 1993 Term Loan Agreement shall be true in all material respects on and as of the date of the effectiveness of this Third Amendment with the same force and effect as if made on and as of such date (including, without limitation, that there shall have occurred no material adverse change since August 31, 1992 in the consolidated financial condition or operations, or the business taken as a whole, of the Company and its consolidated Subsidiaries from that set forth in their financial statements dated as of August 31, 1992, except as disclosed to the Banks in writing prior to the date of this First Amendment). SECTION 4. CONDITIONS TO EFFECTIVENESS. This First Amendment shall become effective as of the date first above written when (a) counterparts hereof shall have been duly executed and delivered by the Majority Banks and (b) the Company shall have paid to the Administrative Agent, for the account of the Banks, a fee in accordance with the terms and conditions set forth in the Company's letter, dated May 24, 1993, to the Administrative Agent, as modified by the Administrative Agent's notices, dated June 3, 1993 and June 14, 1993, to the Banks. -3- 90 SECTION 5. MISCELLANEOUS. A. This First Amendment may be executed in any number of counterparts, all of which taken together and when delivered to the Administrative Agent shall constitute one and the same instrument, and any of the parties hereto may execute this First Amendment by signing any such counterpart. B. THIS FIRST AMENDMENT AND THE 1993 TERM LOAN AGREEMENT AS AMENDED HEREBY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. C. Except as expressly set forth in this First Amendment, the 1993 Term Loan Agreement shall remain unmodified and in full force and effect. IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to be duly executed as of the date first above written. HOME SHOPPING NETWORK, INC., as the Company By /s/ LES R. WANDLER ------------------------- Title: Executive Vice President and Chief Financial Officer HOME SHOPPING CLUB, INC., as Guarantor By /s/ LES R. WANDLER ------------------------- Title: Treasurer -4- 91 The Banks LTCB TRUST COMPANY, as a Bank and the Agent By /s/ PHILIP A. MARSDEN ------------------------- Title: Senior Vice President BANK OF MONTREAL, as a Bank and a Co-Agent By /s/ PATRICK J. SULLIVAN ------------------------- Title: Director THE BANK OF NEW YORK, as a Bank and a Co-Agent By /s/ KALPANA RAINA ------------------------- Title: Vice President PNC BANK, KENTUCKY, INC. (formerly known as Citizens Fidelity Bank & Trust Company) By /s/ JAMES D. NEIL ------------------------- Title: Vice President The Administrative Agent LTCB TRUST COMPANY, as Administrative Agent By /s/ PHILIP A. MARSDEN ------------------------- Title: Senior Vice President -5- 92 SECOND AMENDMENT, dated as of September 20, 1993, to the Term Loan Agreement, dated as of February 4, 1993, as amended by paragraph number 2 of the letter dated April 14, 1993 from LTCB Trust Company, as Administrative Agent, to Home Shopping Network, Inc. and the First Amendment, dated as of May 28, 1993 (as so amended, the "1993 Term Loan Agreement"), among HOME SHOPPING NETWORK, INC., as borrower (the "Company"), HOME SHOPPING CLUB, INC., as guarantor (the "Guarantor"), the banks signatory thereto (the "Banks"), LTCB TRUST COMPANY, as Agent for the Banks (in such capacity, the "Agent"), BANK OF MONTREAL and THE BANK OF NEW YORK, each as a Co-Agent for the Banks (each in such capacity, a "Co-Agent"), and LTCB TRUST COMPANY, as Administrative Agent for the Banks (in such capacity, the "Administrative Agent"). WHEREAS, the Company and the Guarantor have requested, and the Banks, the Agent, the Co-Agents and the Administrative Agent are willing, to amend certain provisions of the 1993 Term Loan 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 Second Amendment, terms defined in the 1993 Term Loan Agreement and used herein shall have their respective defined meanings when used herein. SECTION 2. AMENDMENTS TO THE 1993 TERM LOAN AGREEMENT. (a) Section 1.1 of the 1993 Term Loan Agreement is hereby amended by (i) deleting the definition of "Fiscal Quarter" set forth in such Section in its entirety and replacing it with the following: "Fiscal Quarter" shall mean, (i) for the period ending on August 31, 1993, a period of three consecutive calendar months commencing on any of the following dates in any Fiscal Year: March 1, June 1, September 1 and December 1, and (ii) for the period commencing on July 1, 1993, a period of three consecutive calendar months commencing on any of the following dates in any Fiscal Year: January 1, 93 April 1, July 1 and October 1; provided, however, that during the period commencing on September 1, 1993 and ending on June 30, 1994,in the event any provision of this Agreement requires any calculation or determination with respect to a four-Fiscal Quarter period ending on a particular date, such period shall refer to the four immediately preceding three consecutive calendar month periods ending on such date." and (ii) deleting the definition of "Fiscal Year" set forth in such Section in its entirety and replacing it with the following: "Fiscal Year" shall mean, for the Company, the Guarantor or any Subsidiary, (i) for the period ending on August 31, 1993, the twelve consecutive calendar month period commencing on September 1, 1992 and ending on August 31, 1993, (ii) for the period commencing on September 1, 1993 and ending on December 31, 1993, the four consecutive calendar month period commencing on September 1, 1993, and (iii) for the period commencing on January 1, 1994, the twelve consecutive calendar month period commencing on such date and on January 1 of each calendar year thereafter and ending on December 31 of such calendar year; and "Fiscal 1992", "Fiscal 1993", and any other year so designated shall mean the Fiscal Year ending on August 31 or December 31, as the case may be, of the indicated calendar year; provided, however, that the Fiscal Year defined in clause (ii) above shall be known as "Fiscal Stub 1993" and, provided, further, that no provision of this Agreement shall be construed to require presentation of Fiscal Stub 1993 in the financial statements of the Company or the Guarantor except as would be required by the rules and regulations of the Securities and Exchange Commission and in accordance with GAAP with respect to such transition periods." (b) Section 9.11 of the 1993 Term Loan Agreement is hereby amended by deleting the dates November 30, 1993 through August 31, 1994 and the related ratios that appear in paragraph (a) of such Section and replacing such dates and ratios with the following: -2- 94 "September 30, 1993 1.70:1 December 31, 1993 1.35:1 March 31, 1994 1.45:1 June 30, 1994 1.35:1 September 30, 1994 1.35:1 December 31, 1994 1.40:1,". (c) Section 9.12 of the 1993 Term Loan Agreement is hereby amended by deleting the dates November 30, 1993 through August 31, 1994 and the related ratios that appear in paragraph (a) of such Section and replacing such dates and ratios with the following: "September 30, 1993 2.125:1 December 31, 1993 1.85:1 March 31, 1994 1.65:1 June 30, 1994 1.60:1 September 30, 1994 1.60:1 December 31, 1994 1.35:1,". (d) Section 9.13 of the 1993 Term Loan Agreement is hereby amended by (i) deleting all references to "August 30" in such Section and replacing them in each case with "September 29" and (ii) deleting all references to "August 31" in such Section and replacing them in each case with "September 30". SECTION 3. REPRESENTATIONS AND WARRANTIES. Each of the Company and the Guarantor represents and warrants to the Administrative Agent and the Banks that (a) no Default or Event of Default has occurred and is continuing, and (b) the representations and warranties made by the Company and the Guarantor in Section 8 of the 1993 Term Loan Agreement, as amended hereby, and in any other certificate or other document delivered in connection with the 1993 Term Loan Agreement shall be true in all material respects on and as of the date of the effectiveness of this Second Amendment with the same force and effect as if made on and as of such date (including, without limitation, that there shall have occurred no material adverse change since August 31, 1992 in the consolidated financial condition or operations, or the business taken as a whole, of the Company and its consolidated Subsidiaries from that set forth in their financial statements dated as of August 31, 1992, except as disclosed to the Banks in writing prior to the date of this Second Amendment). SECTION 4. CONDITIONS TO EFFECTIVENESS. This Second Amendment shall become effective as of July 13, 1993 when counterparts hereof shall have been duly executed and -3- 95 delivered by the Majority Banks, the Company and the Guarantor. SECTION 5. MISCELLANEOUS. A. This Second Amendment may be executed in any number of counterparts, all of which taken together and when delivered to the Administrative Agent shall constitute one and the same instrument, and any of the parties hereto may execute this Second Amendment by signing any such counterpart. B. THIS SECOND AMENDMENT AND THE 1993 TERM LOAN AGREEMENT AS AMENDED HEREBY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. C. Except as expressly set forth in this Second Amendment, the 1993 Term Loan Agreement shall remain unmodified and in full force and effect. IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment to be duly executed as of the date first above written. HOME SHOPPING NETWORK, INC., as the Company By /s/ LES R. WANDLER ------------------------- Title: Executive Vice President HOME SHOPPING CLUB, INC., as Guarantor By /s/ LES R. WANDLER ------------------------- Title: Treasurer -4- 96 The Banks LTCB TRUST COMPANY, as a Bank and Agent By /s/ PHILIP A. MARSDEN ------------------------- Title: Senior Vice President BANK OF MONTREAL, as a Bank and a Co-Agent By /s/ PATRICK J. SULLIVAN ------------------------- Title: Director THE BANK OF NEW YORK, as a Bank and a Co-Agent By /s/ KALPANA RAINA ------------------------- Title: Vice President PNC BANK, KENTUCKY, INC. (formerly known as Citizens Fidelity Bank & Trust Company) By /s/ JAMES D. NEIL ------------------------- Title: Vice President The Administrative Agent LTCB TRUST COMPANY, as Administrative Agent By /s/ PHILIP A. MARSDEN ------------------------- Title: Senior Vice President -5- 97 THIRD AMENDMENT TO TERM LOAN AGREEMENT, DATED AS OF FEBRUARY 4, 1993 THIRD AMENDMENT, dated as of January 7, 1994, to the Term Loan Agreement, dated as of February 4, 1993, as amended by paragraph number 2 of the letter dated April 14, 1993 from LTCB Trust Company, as Administrative Agent, to Home Shopping Network, Inc., the First Amendment, dated as of May 28, 1993 and the Second Amendment, dated as of September 20, 1993 (as so amended, the "1993 Term Loan Agreement"), among HOME SHOPPING NETWORK, INC., as borrower (the "Company"), HOME SHOPPING CLUB, INC., as guarantor (the "Guarantor"), the banks signatory thereto (the "Banks"), LTCB TRUST COMPANY, as Agent for the Banks (in such capacity, the "Agent"), BANK OF MONTREAL and THE BANK OF NEW YORK, each as a Co-Agent for the Banks (each in such capacity, a "Co-Agent"), and LTCB TRUST COMPANY, as Administrative Agent for the Banks (in such capacity, the "Administrative Agent"). WHEREAS, the Company and the Guarantor have requested that certain provisions of the 1993 Term Loan Agreement be amended, as set forth below; and WHEREAS, the Banks, the Agent, the Co-Agents and the Administrative Agent are willing to amend such provisions; NOW, THEREFORE, in consideration of the foregoing, and for other good and valuable consideration the receipt of which is hereby acknowledged, the parties hereby agree as follows: SECTION 1. CERTAIN DEFINED TERMS. Except as expressly set forth in this Third Amendment, terms defined in the 1993 Term Loan Agreement and used herein shall have their respective defined meanings when used herein. SECTION 2. AMENDMENTS TO THE 1993 TERM LOAN AGREEMENT. (a) Section 1.1 of the 1993 Term Loan Agreement is hereby amended by inserting the following definitions in alphabetical order in the list of definitions in such Section: "Bell Atlantic Transaction" shall mean the combination of Liberty Media and Tele-Communications, Inc., a Delaware corporation, with Bell Atlantic Corporation, a Delaware corporation, on 98 substantially the terms outlined in Liberty Media's Current Report on Form 8-K dated October 27, 1993 (including the exhibits thereto), copies of which have been furnished to the Banks by the Company. "Lawsuit" shall mean any of the legal proceedings described in the Company's Amended and Restated Proxy Statement, dated August 23, 1993, under the caption "Legal Proceedings", as such description of such proceedings may be updated by the Company in subsequent SEC Reports, and includes, without limitation, the proceedings relating to the termination of the Company's or the Guarantor's contractual relationship with Western Hemisphere Sales, Inc. (as successor to Pioneer Data Processing, Inc.). "Lawsuit Settlement Accrual Amount" shall mean, for any period, the aggregate amount that has been charged against earnings and either (i) accrued as liabilities for such period or (ii) paid during such period, in each case with respect to estimated settlement payments in connection with the Lawsuits (including, without limitation, in connection with the termination of the contractual relationship with Western Hemisphere Sales, Inc. (as successor to Pioneer Data Processing, Inc.), which is the subject of one of the Lawsuits). "Lawsuit Settlement Payment Amount" shall mean, for any period, the sum of (a) the aggregate amount of settlement payments made by the Company during such period (and reductions in accrued liabilities, if any, in respect of such settlement payments) to parties asserting claims in connection with the Lawsuits, and (b) any payments made by the Company, the Guarantor or any Subsidiary during such period (and reductions in accrued liabilities, if any, in respect of such settlement payments) in connection with the termination of the contractual relationship with Western Hemisphere Sales, Inc. (as successor to Pioneer Data Processing, Inc.), which is the subject of one of the Lawsuits. "Tax Settlement Payment Amount" shall mean, for any period, the aggregate amount of payments made by the Company to the Internal Revenue Service during such period (and reductions in accrued liabilities related to such payments) to settle federal tax liabilities described in the note captioned "Income -2- 99 Taxes" to the consolidated quarterly financial statements of the Company contained in the Company's Quarterly Report on Form 10-Q for the Quarter Ended September 30, 1993. "TCI Transaction" shall mean the combination of Liberty Media and Tele-Communications, Inc., a Delaware corporation, through the exchange of Class A and Class B shares of both companies for like shares of a holding company, on substantially the terms outlined in Liberty Media's Current Report on Form 8-K dated October 27, 1993 (including the exhibits thereto), copies of which have been furnished to the Banks by the Company. (b) Section 1.1 of the 1993 Term Loan Agreement is hereby further amended by deleting the definition of "Fixed Charges" in its entirety and by replacing it with the following: "'Fixed Charges' shall mean, for any Person and for any period, the sum (without duplication) of: (a) all capital expenditures and increases in intangible assets of such Person for such period, plus (b) the sum (without duplication) of (i) all interest expense of such Person for such period, (ii) all payments of principal of all Indebtedness of such Person that were scheduled for payment during such period, whether or not paid (unless any such payment (x) was cancelled or forgiven for, or prepaid in advance of, such period or (y) represents the June 15, 1994 principal installment due pursuant to Section 3.1 of the 1992 Term Loan Agreement), (iii) any increase in total current assets and any decrease in total current liabilities (net of the change in cash and cash equivalents and the change in Short-Term Debt, and without giving effect to: (A) that portion, if any, of the Tax Settlement Payment Amount paid (and any reductions in accrued liabilities related thereto) in such period which, when aggregated with all other Tax Settlement Payment Amounts paid (or such reductions) in all previous periods, does not exceed $20,947,00, or -3- 100 (B) that portion, if any, of the Lawsuit Settlement Accrual Amount recognized in such period which, when aggregated with all other Lawsuit Settlement Accrual Amounts recognized in all previous periods, does not exceed $25,000,000, or (C) that portion, if any, of the Lawsuit Settlement Payment Amount paid (and any reductions in accrued liabilities related thereto) in such period which, when aggregated with all other Lawsuit Settlement Payment Amounts paid (or such reductions) in all previous periods, does not exceed $25,000,000), (iv) any cash increase in long-term investments (excluding periods prior to September 1, 1992) of such Person for such period, and (v) any cash increase in long-term notes receivable (excluding periods prior to September 1, 1992) of such Person for such period, minus (c) the sum (without duplication) of (i) all interest income, other than interest income related to the Silver King Notes, of such Person for such period, (ii) any decrease in total current assets and any increase in total current liabilities (net of the change in cash and cash equivalents and the change in Short-Term Debt, and without giving effect to: (A) that portion, if any, of the Tax Settlement Payment Amount paid (and any reductions in accrued liabilities related thereto) in such period which, when aggregated with all other Tax Settlement Payment Amounts paid (or such reductions) in all previous periods, does not exceed $20,947,000, or (B) that portion, if any, of the Lawsuit Settlement Accrual Amount recognized in such period which, when aggregated with all other Lawsuit Settlement Accrual Amounts recognized in all previous periods, does not exceed $25,000,000, or (C) that portion, if any, of the Lawsuit Settlement Payment Amount paid (and any -4- 101 reductions in accrued liabilities related thereto) in such period which, when aggregated with all other Lawsuit Settlement Payment Amounts paid (or such reductions) in all previous periods, does not exceed $25,000,000), (iii) any cash decrease in long-term investments (excluding periods prior to September 1, 1992) of such Person for such period, and (iv) any cash decrease in long-term notes receivable (excluding periods prior to September 1, 1992) of such Person for such period, in each case as reflected on the consolidated quarterly or annual financial statements, including the notes thereto, of the Company most recently delivered to the Administrative Agent pursuant to Section 9.1 (or Section 8.2) hereof. Fixed Charges for the four-Fiscal Quarter period ended August 31, 1992 are as set forth in Schedule 2 hereto." (c) Section 1.1 of the 1993 Term Loan Agreement is hereby further amended by deleting the definition of "Operating Cash Flow" in its entirety and by replacing it with the following: "'Operating Cash Flow' shall mean, for any period, the sum of the following for the Company and its Subsidiaries (including, without limitation, the Guarantor) on a consolidated basis: (a) operating profit of such Persons for such period; plus (b) (to the extent already deducted in arriving at operating profit) depreciation and amortization expense for such Persons for such period; plus (c) (to the extent already deducted in arriving at operating profit) commencing September 1, 1992, non-cash compensation expense related to the Company's executive stock award program; plus (d) all cash interest (if any), other cash income (if any) or cash principal repayments (if any) received by the Company or any Subsidiaries in connection with the Silver King Notes, and, for the twelve months immediately following the delivery of any such Silver King Note, accrued interest income on such note for no more than one month; plus -5- 102 (e) (to the extent already deducted in arriving at operating profit) the lesser of (x) the Lawsuit Settlement Accrual Amount for such period (whether or not paid) and (y) that portion, if any, of such Lawsuit Settlement Accrual Amount that when aggregated with all other Lawsuit Settlement Accrual Amounts accrued in previous periods (whether or not paid) does not exceed $25,000,000, all as shown on the consolidated financial statements, including the notes thereto, of the Company and its consolidated Subsidiaries for such period or, with respect to clause (d) above, if such financial statements do not present information in sufficient detail to derive the amount specified in clause (d) of this definition, as shown on the certificate to be delivered to the Administrative Agent pursuant to the last paragraph of Section 9.1 hereof. Operating Cash Flow for the four-Fiscal Quarter period ended August 31, 1992 is as set forth in Schedule 2 hereto." (d) Section 9.11 of the 1993 Term Loan Agreement is hereby amended by deleting the dates March 31, 1994 through September 30, 1994 and the related ratios that appear in paragraph (a) of such Section and replacing such dates and ratios with the following: "March 31, 1994 1.40:1 June 30, 1994 1.40:1 September 30, 1994 1.40:1,". (e) Section 9.12 of the 1993 Term Loan Agreement is hereby amended by deleting the dates December 31, 1993 through December 31, 1994 and the related ratios that appear in paragraph (a) of such Section and replacing such dates and ratios with the following: "December 31, 1993 2.125:1 March 31, 1994 2.50:1 June 30, 1994 2.50:1 September 30, 1994 2.25:1 December 31, 1994 2.25:1,". (f) Section 10 of the 1993 Term Loan Agreement is hereby amended by (i) deleting "; or" at the end of clause (iii) of paragraph (k) of such Section and replacing it with ", or" and (ii) inserting the following at the end of such paragraph (k): -6- 103 "(iv) (A) such Change of Control arises solely in connection with the TCI Transaction, and (B) as of the date the TCI Transaction is consummated and after giving effect thereto, no other Default or Event of Default shall have occurred and be continuing, or "(v) with respect to any date on or following the date the TCI Transaction is consummated, (A) such Change of Control arises solely in connection with the Bell Atlantic Transaction, and (B) as of the date the Bell Atlantic Transaction is consummated and after giving effect thereto, no other Default or Event of Default shall have occurred and be continuing; or". (g) Each reference in the 1993 Term Loan Agreement to "this Agreement" and the words "hereof", "hereto" and "herein" and the like shall, except where the context otherwise requires, refer to the 1993 Term Loan Agreement as amended by, and through the effective date of, this Third Amendment. SECTION 3. REPRESENTATIONS AND WARRANTIES. Each of the Company and the Guarantor represents and warrants to the Administrative Agent and the Banks as of the date of this Third Amendment and as of the date on which it becomes effective that (a) no Default or Event of Default has occurred and is continuing, and (b) the representations and warranties made by the Company and the Guarantor in Section 8 of the 1993 Term Loan Agreement, as amended hereby, and in any other certificate or other document delivered in connection with the 1993 Term Loan Agreement are true in all material respects on the date hereof and are hereby restated on and as of the date of the effectiveness of this Third Amendment with the same force and effect as if made on and as of such date (including, without limitation, that there has occurred no material adverse change since August 31, 1992 in the consolidated financial condition or operations, or the business taken as a whole, of the Company and its consolidated Subsidiaries from that set forth in their financial statements dated as of August 31, 1992, except as disclosed to the Banks in writing prior to the date of this Third Amendment). SECTION 4. CONDITIONS TO EFFECTIVENESS. This Third Amendment shall become effective as of December 31, 1993 when (a) counterparts hereof shall have been duly executed and delivered by the Majority Banks and (b) the Company shall have paid to LTCB Trust Company a fee in accordance with the terms and conditions set forth in the Amendment Fee Letter, dated December 9, 1993, among LTCB Trust Company, the Company and the Guarantor. -7- 104 SECTION 5. MISCELLANEOUS. (a) This Third Amendment may be executed in any number of counterparts, all of which taken together and when delivered to the Administrative Agent shall constitute one and the same instrument, and any of the parties hereto may execute this Third Amendment by signing any such counterpart. (b) Upon the effectiveness of this Third Amendment, LTCB Trust Company, as Administrative Agent, shall pay fees to the Banks in accordance with the terms and conditions of its notice to the Banks dated December 10, 1993. (c) THIS THIRD AMENDMENT AND THE 1993 TERM LOAN 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 Third Amendment, the 1993 Term Loan Agreement shall remain unmodified and in full force and effect. IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment to be duly executed as of the date first above written. HOME SHOPPING NETWORK, INC., as the Company By /s/ KEVIN J. MCKEON ----------------------------- Title: Senior Vice President of Accounting & Finance HOME SHOPPING CLUB, INC., as Guarantor By /s/ R. JOSEPH RILEY ----------------------------- Title: Assistant Treasurer -8- 105 The Banks LTCB TRUST COMPANY, as a Bank and Agent By /s/ JOHN A. KROB ----------------------------- Title: Senior Vice President BANK OF MONTREAL, as a Bank and a Co-Agent By /s/ PATRICK J. SULLIVAN ----------------------------- Title: Director THE BANK OF NEW YORK, as a Bank and a Co-Agent By /s/ KALPANA RAINA ----------------------------- Title: Vice President PNC BANK, KENTUCKY, INC. (formerly known as Citizens Fidelity Bank & Trust Company) By /s/ JAMES D. NEIL ----------------------------- Title: Vice President TORONTO DOMINION [TEXAS], INC. By /s/ CAROLE A. CLAUSE ----------------------------- Title: Vice President The Administrative Agent LTCB TRUST COMPANY, as Administrative Agent By /s/ JOHN A. KROB ----------------------------- Title: Senior Vice President -9- EX-10.28 7 HSN SYSTEM MAINTENANCE & SUPP. AGREEMENT 1 EXHIBIT 10.28 AMENDED AND RESTATED SYSTEM MAINTENANCE AND SUPPORT AGREEMENT This System Maintenance and Support Agreement (the "Agreement") is made effective as of February 1, 1993 by and between Precision Systems, Inc., a Delaware corporation ("PSi"), and Home Shopping Network, Inc., a Delaware corporation ("HSN"). WITNESSETH: WHEREAS, PSi and HSN entered into that certain PSi System Maintenance and Support Agreement executed as of July 31, 1992, pursuant to which PSi has provided maintenance and support for the Total Call Processor system and all associated equipment, firmware and software; and WHEREAS, PSi and HSN desire to amend and restate the terms of such Maintenance and Support Agreement as provided herein; NOW, THEREFORE, in consideration of the mutual agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: ARTICLE I DEFINITIONS 1.1 Definitions. As used in this Agreement, the following terms have the meaning set forth below: "Confidential Information" has the meaning specified in Section 9.3. "Cost of Performance" means the direct costs for labor and materials incurred by PSi in performing its obligations hereunder (excluding (i) any overhead costs, (ii) any expenses incurred by PSi in causing the Lead Capture System to become operational in accordance with Section 6.1, and (iii) any expenses or other amounts reimbursed or paid by HSN in accordance with the terms of 2 this Agreement or any other agreement (such as the Software Development Agreement). "Custom Work Product" means, solely with respect to this Agreement, the resulting software updates, releases, corrections and enhancements, if any (including all functional and technical designs, programs, modules, code, algorithms, flowcharts, data diagrams, documentation and the like) created by PSi after the effective date of this Agreement on behalf of HSN and in the course of rendering Maintenance and Support Services hereunder. Custom Work Product does not include any Third Party Software or any Embedded Software. "Documentation" means textual and/or graphical material perceivable directly by humans relating to the computer programs comprising the Software, together with hardware design documentation. Such documentation shall include (i) documentation describing data flows, data structures and control logic of the computer programs, programmers' notes and all other documentation, as well as hardware design documentation, all of which shall exist in sufficient detail to enable competent programmers to maintain, support, enhance and redesign the System, and (ii) user documentation describing the function and use of the Software in sufficient detail to permit use of the Software, and operating manuals which facilitate operation and use of the System. "Documentation Maintenance" means maintenance and updating of the Documentation from time to time during the term hereof (and no less often than every three (3) months) as necessary to reflect modifications or fixes to the System, as well as new releases or updates to the Software to keep the Documentation current. "Embedded Software" means pre-existing software owned by PSi or any thirdr party and incorporated or "embedded" into Custom Work Product. "Enhancement" means any modification to the System requested by HSN and agreed to by PSi that materially exceeds the level of functionality or performance provided for in the Specifications for the System. "Equipment" means computer hardware, telecommunications hardware, peripheral equipment and other equipment included in the System, as described in Exhibit A-1 hereto, and shall include Third Party Equipment and additional equipment acquired by HSN from PSi after the date hereof and added to the System. "Fee" means the fee for Maintenance and Support Services payable by HSN in accordance with the terms of Section 4.1 below. "Firmware" means microcode imbedded in read-only memory (ROM) included in the System. "Lead Capture Subsystem" means the lead capture platform to be developed and installed by PSi as part of the System pursuant to Article VI below. The Lead Capture Subsystem will expand the -2- 3 existing System to provide HSN with an operating environment which permits HSN to create and execute lead capture applications. The specifications for the Lead Capture Subsystem are set forth in the Lead Capture Subsystem Specifications attached to the Specifications (Exhibit A) as Annex I. The Lead Capture Subsystem shall be included as part of the System for purposes of this Agreement. "Lead Capture Subsystem Specifications" means the specifications for the Lead Capture Subsystem set forth in Annex I to the Specifications (Exhibit A). "Maintenance and Support Services" means all services and materials and supplies to be provided by PSi for the System pursuant to this Agreement, and includes, without limitation, technical advice and assistance, repair and/or replacement of defective Equipment and Software, maintenance and support of Equipment and Software, including Third Party Equipment and Third Party Software, provision of updates and new releases for the Software, when and if made by PSi, and review and evaluation of System modifications. The Maintenance and Support Services to be provided by PSi are specified in Exhibit B hereto. The Maintenance and Support Services will also include Documentation Maintenance. "Object Code" means the Software in a form which is directly executable by a computer (i.e., executable code). "Prime Rate" means the Prime Rate of Interest, as published in the "Money Rates" column of the Wall Street Journal from time to time (or, if the Wall Street Journal ceases publication of such rate, a similar published rate intended to reflect the base rate on corporate loans posted by a representative sample of the largest U.S. banks). "Principal Site" means the principal location at which HSN locates and operates the System, which shall be in the Hillsborough, Pinellas or Pasco counties in Florida. "Prior Agreement" means the PSi System Maintenance and Support Agreement dated as of July 31, 1992 between PSi and HSN relating to the maintenance and support of the System. -3- 4 "Remote Site" means any site at which Equipment is located other than the Principal Site. "Software" means the computer programs included in the System, in both Source Code and Object Code forms. A complete list of the current Software is set forth on Exhibit A-2. For purposes hereof, Software shall include all Firmware, Third Party Software, Custom Work Product, Embedded Software, and software created after the date hereof by PSi pursuant to the terms of the Software Development Agreement, and, in all cases, shall include both software and firmware in existence on the date hereof and software and firmware hereafter furnished to HSN. "Software Development Agreement" means the Software Development Agreement between HSN and PSi dated as of July 31, 1992. "Software License Agreement" means the Software License Agreement dated as of July 31, 1992 between PSi and HSN, relating to the Software (as amended pursuant hereto). "Source Code" means Documentation and the version of the Software written in higher level computer language(s) which may be read by humans and which may be translated into Object Code form by compiling. Source Code shall be internally documented with programmer's comments in sufficient detail to enable competent computer software programmers to maintain, support, enhance and redesign the Software. "Source Code Escrow Agreement" means the Source Code Escrow Agreement between HSN and PSi, dated as of January ___, 1994, pursuant to which PSi has delivered the Source Code, Object Code and Documentation for the System to the Escrow Agent thereunder. "Specifications" means the specifications for the System, as set forth in Exhibit A, and as updated from time to time pursuant hereto. "System" means the Total Call Processor platform ("TCP") which provides an operating environment which permits HSN to create, execute and maintain various interactive voice response applications, including, without limitation, applications which allow HSN to accept telephone calls and callers to place orders for HSN merchandise, to place orders for pay per view or other services, or to obtain information. With the addition of the Lead Capture Subsystem, the System will also permit HSN to create, execute and maintain lead capture applications in accordance with the functional specifications. The System is described more fully in Exhibit A and is comprised of the Software (including Firmware) and Hardware. The System will also include any Hardware or Software added to the System after the date hereof, including additional ports. "Third Party Equipment" means computer hardware and related equipment included in the System which is fabricated or supplied by third parties, as identified in Exhibit A-3. -4- 5 "Third Party Software" means the computer software programs included in the System which are not owned by PSi but are supplied to HSN under license from a third party to PSi, as identified in Exhibit A-4. "Warranty Period" means the period during which new ports or Equipment added after the date hereof shall continue under warranty for purposes hereof. The Warranty Period with respect to Equipment will be one (1) year from the date of installation of the Equipment, unless the manufacturer or supplier of Third Party Equipment provides a longer warranty period for such Equipment, in which case the Warranty Period will be extended as long as the third party manufacturer's (or supplier's) warranty continues, or (ii) PSi offers a longer warranty on the same or similar equipment to any other customer, in which case the Warranty Period will be equal to the warranty offered to such other customer. ARTICLE II TECHNICAL SUPPORT 2.1 Maintenance and Support Services. In consideration of payment by HSN of the fee specified in Section 4.1 during the term of this Agreement, PSi will provide Maintenance and Support Services specified in Exhibit B and in accordance with the terms hereof. In order to facilitate the provision of such services, PSi will maintain a Technical Service Center in accordance with the provisions of Exhibit B. 2.2 Excluded Services. PSi's maintenance and support obligations pursuant to this Agreement do not include the following: (a) Any maintenance and support services for equipment or software that is not part of the System. Without limiting the generality of the foregoing, PSi is not responsible for maintenance and repair of the software or hardware for PC-based VRU systems owned by HSN. -5- 6 (b) Repair of damage resulting from any of the following: neglect, misuse or improper operation of the System by HSN or by persons not authorized by PSi, the introduction of any software virus by HSN, failure to provide appropriate operating facilities or environment as required by Exhibit C (Client Responsibilities) fire, lightning, water damage, loss of power, fluctuation of power beyond the tolerances specified in Exhibit C (Client Responsibilities), or modifications or repairs to the System performed by persons not authorized by PSi. (c) Any services which constitute Enhancements to the System (as defined in Section 1.1). Any such services would be rendered pursuant to the Software Development Agreement as contemplated by Section 2.4(a) below. However, it is understood and agreed that, if PSi does make any Enhancements to the System pursuant to the Software Development Agreement or other agreement between the parties, the hardware and software added to the System in connection with such Enhancements will be considered Hardware and Software for purposes of this Agreement, and PSi will be required to maintain such Hardware and Software in accordance with the terms of this Agreement. 2.3 Third Party Equipment and Software. PSi may from time to time subcontract its maintenance and support obligations with respect to Third Party Equipment and Third Party Software to qualified third party vendors of such services, and HSN hereby consents thereto. PSi shall supervise and coordinate the provision of Maintenance and Support Services by any such subcontractors. Any costs of such maintenance and support services provided by subcontractors (including, without limitation, license fees, rental fees and maintenance and support or other service fees payable to such third party vendors) will be borne solely by PSi and will not be subject to reimbursement by HSN. PSi has provided HSN with a true, correct and complete list of the names and addresses of all such third party vendors currently providing such services, and will promptly provide the names and addresses of any such third party vendors hereafter engaged by PSi to provide such services to support PSi's performance hereunder; provided, however, that PSi shall not be required to list (or hereafter to provide information with respect to) any such vendor if payments to that vendor relating to HSN work over the preceding twelve (12) month period did not exceed $10,000, and payments to that vendor during the next succeeding twelve (12) month period cannot reasonably be expected to exceed $10,000. Upon termination of this Agreement for any reason (other than termination pursuant to Section 3.2(b)(ii) below as a result of a material breach of this Agreement by HSN) or delivery of Source Code to HSN in accordance with the terms hereof, at the written request of HSN, PSi will promptly cause all license agreements, leases, maintenance and support agreements and other service agreements with third party vendors relating to the System to be assigned to HSN, to the extent such agreements are assignable. In the event of any such assignments, PSi reserves the right to collect from such third parties a refund of any prepaid fees to which PSi may be entitled pursuant to such agreements. -6- 7 2.4 Additional Services. (a) Additional Development Services. PSi and HSN may, from time to time, agree that PSi will provide services and materials outside of the scope of the Maintenance and Support Services provided for hereunder. For example, such services and materials could include additional site preparation, development of new software or firmware, or other Enhancements to the System. Any such services and materials will be provided in accordance with, and subject to the terms and conditions of, the Software Development Agreement. (b) Additional Maintenance and Support Services. In the event that the System suffers any damage resulting from any of the causes identified in Section 2.2(b) above (the repair of which is excluded from PSi's maintenance and support obligations hereunder in accordance with the provisions of Section 2.2(b)), then PSi agrees that it will furnish HSN with any and all assistance required in an effort to repair such damage as quickly as possible and in an effort to restore the System to normal working order, including, without limitation, coordination and supervision of third-party vendors required in an effort to effect such repairs. PSi shall be entitled to be reimbursed for any services rendered by it pursuant to this Section 2.4(b) at a rate equal to the lesser of (i) PSi's then-current published rates for such services, or (ii) $100 per hour. ARTICLE III TERM AND TERMINATION 3.1 Term. (a) Initial Term. The initial term of this Agreement shall commence effective as of February 1, 1993 and shall continue through December 31, 1994. (b) Automatic Renewal for Additional One-Year Terms. Upon expiration of the initial term provided for in Section 3.1(a) above, this Agreement shall thereafter automatically renew for up to four (4) successive terms of one (1) year each, unless (i) notice of non-renewal is given by one of the parties pursuant -7- 8 to Section 3.2(a)(i) or 3.2(b)(i) below; or (ii) HSN elects to extend the term hereof for an additional term of either three years or five years pursuant to Section 3.1(c) below. (c) Election to Extend for Additional Three-Year or Five Year Term. Subject to PSi's right to terminate this Agreement upon expiration of the initial term as set forth in Section 3.2(b)(i) below (and in lieu of the automatic extension of the term hereof for one or more additional one year terms pursuant to Section 3.1(b) above), HSN shall have the option to renew this Agreement for an additional term of either (i) three (3) years, beginning January 1, 1995 and ending December 31, 1997; or (ii) five (5) years, beginning January 1, 1995 and ending December 31, 1999. Such option must be exercised by HSN, if at all, on or before September 30, 1994 by delivery of written notice to PSi by HSN, which notice shall specify the period of the extended term. Failure by HSN to provide such notice of its exercise of the option to renew this Agreement pursuant to this Section 3.1(c) shall constitute, on the part of HSN, an election to allow this Agreement to automatically renew in accordance with the provisions of Section 3.1(b), unless HSN has given written notice of an election not to renew this Agreement in accordance with Section 3.2(a). Except for the new term as governed by the option to renew and the adjustment to the Maintenance and Support Fees provided for in Section 4.1(a), such renewal shall be on the same terms and conditions as set forth in this Agreement. 3.2 Termination. (a) Termination by HSN. This Agreement may be terminated by HSN as follows: (i) Election Not to Renew. This Agreement may be terminated by HSN at the end of the initial term specified in Section 3.1(a) or at the end of any subsequent one (1) year renewal term provided for in Section 3.1(b), for any reason. Such termination pursuant to this Section 3.2(a)(i) shall be effected by delivery of written notice of non-renewal to PSi at least ninety (90) days prior to the end of the initial term or any additional one-year renewal term. (ii) Termination Upon Event of Default. HSN may terminate this Agreement at any time, by providing written notice of termination to PSi upon the occurrence of one of the following Events of Default: (1) The Arbitrator provided for in Section 5.2 determines that an Event of Default exists with respect to PSi's performance of its obligations to provide Maintenance and Support Services hereunder; or (2) PSi materially breaches any of its other obligations hereunder (other than the obligation to provide Maintenance and Support Services) and fails to cure such breach within thirty (30) days of receipt of written -8- 9 notice from HSN of the existence of such breach; or (3) PSi fails to continue to operate as a going concern, or refuses to provide, or otherwise ceases to provide, Maintenance and Support Services in accordance with the terms hereof. (b) Termination by PSi. (i) Election not to Renew. This Agreement may be terminated by PSi at the end of the initial term specified in Section 3.1(a) or at the end of any subsequent automatic one (1) year renewal term provided for in Section 3.1(b) (but PSi shall not have the right to terminate pursuant to this Section 3.2(b)(i) during any three year or five year term extension elected by HSN pursuant to Section 3.1(c)); provided, that PSi's documented Cost of Performance of its obligations under this Agreement over a running twelve (12) month period has exceeded the amount of the Fees paid hereunder during such twelve (12) month period; provided, further, that PSi has satisfied the conditions specified below in this Section 3.2(b)(i). Such termination pursuant to this Section 3.2(b)(i) shall be effected by delivery of written notice of non-renewal to HSN at least ninety (90) days prior to the end of the initial term specified in Section 3.1(a) or the end of any automatic one-year renewal period provided for in Section 3.1(b). (1) PSi's right to terminate pursuant to this Section 3.2(b)(i) is subject to the obligation of PSi to: (aa) deliver to HSN a complete and current copy of all Source Code and Object Code for the Software, together with all Documentation, and, in accordance with Section 7.1(a), HSN shall thereafter be deemed to have a fully-paid, perpetual, non-exclusive, irrevocable right and license to use such Source Code and Documentation to maintain and support (or to permit -9- 10 technically qualified third parties to maintain and support) the System and to modify and enhance the System, but HSN shall not have the right to develop, nor shall it develop a new product with the same or similar functionality or intended for the same or similar purposes for sale, lease or distribution to any third party, (bb) make available to HSN, for a period of up to three (3) months, qualified personnel of PSi selected by PSi and reasonably acceptable to HSN for the purpose of training HSN personnel (or third party vendors selected by HSN) in the maintenance, support, operation and enhancement of the System and making the HSN personnel (or the selected third party vendors) fully and independently functional with the Source Code and, if PSi makes its employees available to HSN as contemplated by this clause (bb) at the request of HSN, then HSN will continue to pay the monthly Fee provided for in Section 4.1 during such period, (cc) make available to HSN a complete and accurate list of the names and last known addresses or phone numbers of all programming personnel (including independent contractors) known to PSi who designed or wrote any portions of the Software, (dd) at the request of HSN, PSi will promptly cause all license agreements, leases, maintenance and support agreements and other service agreements with third party vendors relating to the System to be assigned to HSN, to the extent such agreements are assignable. In the event of any such assignments, PSi reserves the right to collect from such third parties a refund of any prepaid fees to which PSi may be entitled pursuant to such agreements, and (ee) Allow HSN, upon receipt of notice of termination by PSi pursuant to this Section 3.2(b)(i), to cause PSi's outside auditors to audit the books and records of PSi in order to confirm that PSi's Cost of Performance in fact exceeds the Fees paid hereunder during the relevant twelve (12) month period, as contemplated hereunder, and such -10- 11 auditors shall provide HSN with a certificate to such effect. PSi shall be required to provide complete and detailed records as will permit such auditors to confirm the actual amount of such Cost of Performance. (2) The rights of HSN under this Section 3.2(b)(i) to obtain the Source Code, Object Code and Documentation from PSi are intended to be in addition to, and not in lieu of, HSN's rights under the Source Code Escrow Agreement or any other agreement between the parties relating to the Source Code, Object Code or Documentation. (ii) Breach by HSN. This Agreement may be terminated by PSi, upon delivery of written notice of such termination to HSN, if HSN is in material default with respect to any of its obligations under this Agreement (including the failure to pay PSi the Fee when due in accordance with the terms of this Agreement), and such breach is not cured within thirty (30) days after PSi delivers written notice of such breach to HSN. If HSN fails to pay PSi the Fee when due, such late payment will bear interest at the Prime Rate, plus two percent (2%) per annum, from the date of HSN's receipt of written notice of the breach, until paid. 3.3 HSN's Rights to Obtain Source Code. HSN's rights to receive the Source Code from escrow shall be as specifically set forth under the terms of the Source Code Escrow Agreement provided for in Article VIII of this Agreement. HSN acknowledges that, in the event of any default by PSi under this Agreement which would not result in a release of the Source Code from escrow under the terms of the Source Code Escrow Agreement, HSN would have adequate remedies for such breach hereunder without recourse to the escrowed Source Code. -11- 12 ARTICLE IV FEES 4.1 Maintenance and Support Fees. (a) Maintenance and Support Fees shall be payable by HSN as follows: (i) For the period beginning on the Effective Date hereof (February 1, 1993) and ending January 31, 1994, HSN shall pay to PSi a Fee, in the amount of Two Hundred Eighty Thousand Dollars ($280,000) per month (that is, $14 per port per month), for the Maintenance and Support Services. For the period beginning February 1, 1994 and ending December 31, 1994, HSN shall pay to PSi a Fee, in the amount of One Hundred Ninety Five Thousand Five Hundred Dollars ($195,500) per month (that is, $9.78 per port per month), for such Maintenance and Support Services. (ii) In the event that the term hereof is automatically extended beyond December 31, 1994 for one or more additional one year terms pursuant to Section 3.1(b) above, then, during the period beginning January 1, 1995 and ending upon termination of this Agreement, the Fee shall be an amount equal to One Hundred Ninety Five Thousand Five Hundred Dollars ($195,500) per month (that is, $9.78 per port per month) throughout such renewal term (or terms). (iii) In the event that HSN elects to extend the term hereof beyond December 31, 1994 for an additional three (3) year term pursuant to Section 3.1(c)(i) above, then, during the three (3) year period beginning on January 1, 1995 and ending December 31, 1997, the monthly Fee will be an amount equal to One Hundred Fifty Thousand Dollars ($150,000) per month (that is, $7.50 per port per month) throughout such additional three year term. In the event that HSN elects to extend the term hereof beyond December 31, 1994 for an additional five year period pursuant to Section 3.1(c)(ii) above, then, during the five year period beginning January 1, 1995 and ending December 31, 1999, the monthly Fee will be an amount equal to One Hundred Twenty Thousand Dollars ($120,000) per month (that is, $6.00 per port per month) throughout such additional five year term. The Fee, as specified above in this Section 4.1(a), will not be increased during the initial term or any renewal term provided for hereunder (except as specifically provided in Section 4.1(b) below). -12- 13 (b) In the event that HSN requests that PSi add any additional ports to the System beyond the 20,016 ports currently in existence and PSi consents thereto, the Fee will be increased by an amount equal to $117.36 per year ($9.78 per month) for each such additional port added to the System; provided, however, that if HSN elects to extend the term hereof beyond December 31, 1994 for an additional three (3) year term pursuant to Section 3.1(c)(i) above, then, during the three (3) year period beginning on January 1, 1995 and ending December 31, 1997, such increase in the monthly Fee will be equal to $7.50 per additional port per month, or $90 per annum, throughout such additional three year term, and if HSN elects to extend the term hereof beyond December 31, 1994 for an additional five year period pursuant to Section 3.1(c)(ii) above, then, during the five year period beginning January 1, 1995 and ending December 31, 1999, such increase in the monthly Fee will be equal to $6.00 per port per month, or $72 per annum, throughout such additional five year term. It is specifically understood and agreed that the ports to be used as a part of the Lead Capture Subsystem are included in the 20,016 ports that are already part of the System, and the completion of the Software relating to the Lead Capture Subsystem will not result in an increase in the Fee. Additionally, it is agreed that any additions to the System (such as Enhancements) that do not result in the addition of any Equipment to the System will not result in any adjustment to the Fee. If Enhancements made to the System do result in the addition of Equipment to the System, the parties will negotiate concerning the effect, if any, that such Enhancements would have on the Fee at the time that the Enhancements are agreed upon by the parties. Notwithstanding the foregoing, no adjustment under this paragraph (b) will be effective with respect to any additional ports added to the System until the Warranty Period with respect to the related additional Equipment expires. It is understood and agreed that the provisions of this Section 4.1(b) are not intended to alter the provisions of Section 2.2(c) hereof, which confirm that services which constitute Enhancements are excluded from PSi's obligations hereunder and would be rendered at HSN's request, and with PSi's consent, pursuant to the Software Development Agreement. (c) In the event that PSi is required to provide Maintenance and Support Services at a Remote Site, HSN shall reimburse PSi for all direct, out-of-pocket travel related -13- 14 expenses (the "Reimbursable Expenses"), including airfare, hotel, ground transportation and meal expenses. The Reimbursable Expenses shall be reimbursed in accordance with the rules specified in Exhibit K to this Agreement, and all PSi invoices therefor shall include receipts and other supporting documentation. 4.2 Taxes. HSN shall, in addition to the payments specified in Section 4.1, pay or reimburse PSi for all sales, use, transfer or other taxes or duties, whether national, state or local, however designated, which are levied or imposed by reason of the transactions defined in this Agreement; provided, however that HSN shall not be required to pay or reimburse PSi for taxes on the net income of PSi. 4.3 Payment Terms. HSN shall pay the Fee to PSi on a monthly basis. PSi will invoice between the 1st and 5th day of the month for the Fee for that month, together with any Reimbursable Expenses, payable net thirty (30) days after receipt. 4.4 "Most Favored Nations" Pricing. (a) PSi agrees that at no time during the term hereof will HSN be required to pay Fees for the Maintenance and Support Services provided hereunder in excess of the fees charged by PSi to any customer for similar products or services or functions (whether such charges to such customer are determined on a per port or other charge basis). In the event that PSi offers to charge a customer lower fees for such similar services or products or functions, the Fee provided for in Section 4.1 shall be reduced to the amount charged to such other customer, retroactive to the date on which such lower amount was first charged to such other customer. In determining whether the amount charged to another customer is less than the Fees provided for hereunder, the Fees payable by HSN should be compared only to those fees received (or to be received) by PSi from such other customer which are attributable to the same or similar products or services or functions furnished to HSN; charges to such other customer that are attributable to products or services or functions which are not similar to those furnished to HSN hereunder shall be excluded and shall not be taken into account. In the event that the provisions of this Section 4.4(a) result in a retroactive reduction in Fees already paid to PSi, the difference between the amounts already paid by HSN after the effective date for such reduction provided for above, over the reduced price provided for above, shall be promptly refunded by PSi within sixty (60) days following receipt of an invoice therefor from HSN (or, at the option of HSN, may be offset by HSN against the Fees payable by HSN under Section 4.1, as adjusted pursuant to this Section 4.4). (b) PSi will provide a duly executed certificate of PSi's outside auditors, not more than once in any calendar year, after receiving written request for such certificate from HSN, -14- 15 certifying either (i) that PSi has not offered similar products, services or functions to a customer at prices lower than the prices provided for hereunder as contemplated in Section 4.4(a) above, or (ii) advising HSN of the amount of the adjustment to the Fee required in accordance with Section 4.4(a) above. Such certificate shall also be executed by the President of PSi. HSN will only request such certificate in the event that HSN has tangible evidence to believe that PSi has added a new customer, or amended the terms of an existing customer contract, for the same or similar products, services or functions furnished to HSN by PSi. ARTICLE V WARRANTY AND INDEMNIFICATION 5.1 Warranty and Limitation of Liability. (a) PSi warrants that all parts repaired or replaced and all Equipment furnished to HSN during the term of this Agreement shall be free of defects in manufacture or materials for a period of one (1) year from installation. All services provided by PSi pursuant to this Agreement shall be performed in a good and workmanlike manner. In addition, PSi warrants that each of its employees, agents or representatives assigned to perform hereunder shall have the proper skill, training and background so as to be able to perform in a competent and professional manner, and that all work will be so performed, and performed in a manner that does not unreasonably disrupt HSN's business operations at its premises. (b) The warranties set forth in Section 5.1(a) above do not apply to defects that arise from neglect, misuse or improper operation of the System by HSN or by persons not authorized by PSi, power failure, fluctuation of power beyond the tolerances specified in Exhibit C (Client Responsibilities), environmental control failure, failure of equipment that is not part of the System or unauthorized modifications or other causes beyond PSi's control. (c) THE WARRANTIES PROVIDED FOR IN THIS AGREEMENT ARE IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING -15- 16 BUT NOT LIMITED TO, ANY IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, IF APPLICABLE. (d) PSi's liability and HSN's exclusive remedy for breach of the warranties stated in Section 5.1(a) above shall be limited to the repair or replacement of the defective Equipment or repair parts provided by PSi under this Agreement or correction of the problems resulting from inadequate service. In no event shall PSi be liable under this Section 5.1(d) for any indirect, incidental, special, consequential or punitive damages, including loss of profit, revenue, data or use, incurred by HSN or any third party, whether in contract or tort, even if PSi has been advised of the possibility of such damage, except to the extent that any such loss, cost, damage or expense arises from or is attributable to the gross negligence or willful misconduct of PSi. Notwithstanding the foregoing sentence, PSi's liability under this Section 5.1(d) shall not exceed $18,000,000, except in cases of willful misconduct by PSi. 5.2 Warranty of Performance; Default. (a) PSi represents and warrants that the System will conform in all respects to the Specifications for the System set forth in Exhibit A. The parties acknowledge that: (i) ISDN support for the MCI Circuits is currently limited to 47B + 1D configuration, while the Specifications require ISDN support in 94B + 2D configuration. HSN has agreed that the failure to provide the required ISDN support for the MCI Circuits in accordance with the Specifications will not be deemed to constitute a breach of the foregoing representation and warranty at the present time. However, PSi agrees that it will submit a high level design for this functionality for HSN's approval by May 1, 1994 and, at the written request of HSN, PSi will thereafter promptly implement such design by making such modifications to the System as are necessary to provide ISDN support for the MCI Circuits in 94B + 2D configuration, in accordance with the Specifications, at the sole cost and expense of PSi, and the failure to do so will constitute a breach of the representation and warranty specified in the first sentence of this Section 5.2(a); (ii) The System currently has only a portion of the Enhanced Fail-Over Capability required by the Specifications (that is, in the event of an SCP or SCP-MCP communications link failure, new calls are correctly sent to a functional MCF but, all calls in progress at the time of the Fail-Over are disconnected). However PSi agrees that it will deliver this capability to HSN in accordance with the Specifications, at the sole cost and expense of PSi, and the failure to do so will constitute a breach of the representations and warranties specified in the first sentence of this Section 5.2(a); (iii) The System does not currently provide a Process Watcher as required in the Specifications, and the failure to provide the Process Watcher in accordance with the Specifications will not be deemed to constitute a breach of the foregoing representations and warranties at the present time. -16- 17 However, PSi agrees that it will, as provided in the Specifications, make such modifications to the Software as are necessary to provide the Process Watcher in accordance with the Specifications, at the sole cost and expense of PSi, and the failure to do so will constitute a breach of the representations and warranties specified in the first sentence of this Section 5.2(a); (iv) The parties acknowledge and agree that, as of the date of execution of this Agreement, Documentation for all aspects of the Software has not yet been completed, and the failure to complete such documentation will not be deemed to constitute a breach of the foregoing representations and warranties at the present time. However, PSi has agreed that it will complete all such Documentation on or before December 31, 1994. Upon completion of each module of the Documentation, PSi will notify HSN in writing, and will promptly deposit the additional Documentation with the Escrow Agent under the Source Code Escrow Agreement. (b) In the event that there exists any Performance Default (as defined in Section 5.2(d) below), then HSN shall provide a written notice to PSi (the "Default Notice") describing the Performance Default, and demanding that a cure be made within thirty (30) days. HSN shall continue to pay the Fees due hereunder during this thirty (30) day cure period. In the event that HSN delivers a Default Notice to PSi, the parties shall promptly select an Arbitrator in accordance with the provisions of Section 5.2(c) below. Such Arbitrator shall determine whether the Performance Default exists. The Arbitrator shall render its decision on the thirty-first (31st) day from the date on which HSN delivers the Default Notice. (i) On the thirtieth (30th) day following PSi's receipt of HSN's Default Notice, if the Performance Default has been cured, the parties shall continue in accordance with the terms of this Agreement. If the Arbitrator determines that the Performance Default still exists, or the Arbitrator is not able to make a determination, the Arbitrator shall deliver to the Escrow Agent under the Escrow Agreement written notice (an "Arbitrator's Performance Default Notice," in the form attached as Exhibit E-1) that an uncured Performance Default exists, -17- 18 directing the Escrow Agent to turn over to HSN such portion of the materials being held by the Escrow Agent (including Source Code and Documentation) as is necessary in the judgment of the Arbitrator to effect a cure (and, if the Arbitrator is unable to determine what portion of such Escrow Materials is required in order to effect a cure, then the Arbitrator shall instruct the Escrow Agent to turn all of such Escrow Materials over to HSN). During days thirty-one (31) through sixty (60) following PSi's receipt of HSN's Default Notice, employees of PSi and HSN shall work together continuously and diligently with the Source Code to attempt to effect a cure to the System. During days thirty-one (31) through sixty (60), HSN shall not be obligated to pay PSi any Fees hereunder or otherwise. (ii) If by day sixty (60) the Performance Default is cured, as determined by the Arbitrator, then all Escrow Materials previously delivered to HSN shall be returned to Escrow and the parties shall recommence to perform their respective obligations hereunder. If the parties cannot agree whether a cure has been effected, the arbitration process described in the foregoing paragraph shall again be commenced on day sixty (60), with a decision rendered by the Arbitrator ten (10) days later. If by day sixty (60) the Performance Default is still not cured, as determined by the Arbitrator, then, for purposes of this Agreement (including, without limitation, the provisions of Section 3.2(a)(ii)(1) regarding Termination of this Agreement) and the Source Code Escrow Agreement, an Event of Default shall be deemed to exist with respect to PSi's performance of its obligations to provide Maintenance and Support Services hereunder. The Arbitrator shall thereupon immediately deliver to the Escrow Agent under the Source Code Escrow Agreement written notice (an "Arbitrator's Event of Default Notice," in the form attached hereto as Exhibit E-2) of the existence of such Event of Default with respect to PSi's performance of its obligation to provide Maintenance and Support Services hereunder, directing the Escrow Agent to deliver to HSN all of the Escrow Materials (including, without limitation, the Source Code and Documentation), and PSi shall thereafter continue to work with HSN for an additional sixty (60) days, during which time PSi then shall train HSN individuals (or third party vendors selected by HSN) on the Source Code and the System to make HSN independently functional. During days sixty (60) through one hundred twenty (120), HSN shall pay PSi for HSN requisitioned training costs in the amount of $100.00 per hour, but HSN will not be required to pay the Fees provided for hereunder. If the last day of any time period falls on Saturday, Sunday or holiday, such time period shall be extended to the next following business day. In the case of trouble tickets in existence on the date of execution and delivery of this Agreement (rather than the effective date of this Agreement), such trouble tickets shall be deemed new trouble tickets open on the date of execution of this Agreement (not the effective date), and the cure periods specified in Section 5.2(d) shall not begin to run unless and until notice has been given with respect to such trouble tickets in accordance with the provisions of Section 5.2(d) on or after the date of execution and delivery of this Agreement (not the effective date). Copies of all trouble tickets in existence on -18- 19 the date of execution and delivery of this Agreement have been attached hereto as Exhibit L and a priority has been ascribed on each ticket to the particular trouble which is the subject matter of that ticket. (c) Arbitration. All disputes under Section 5.2 concerning the issue of whether the System conforms to the Specifications shall be settled by arbitration in accordance with the provisions of this Section 5.2. All arbitration proceedings hereunder shall be conducted in St. Petersburg, Florida. All such proceedings shall be conducted at a site, date and time mutually acceptable to the parties. Arbitration proceedings hereunder shall be conducted by one (1) arbitrator chosen in the manner specified in this Section. The Arbitrator selected hereunder shall be a partner in a "Big-Six" accounting firm with which neither party has had any dealings within the past five (5) years and shall have a background or training in either computer software or computer systems. The party electing arbitration hereunder (the "Initiating Party") shall notify the other party (the "Responding Party") of such election in writing. Such notice shall include the name of the arbitrator meeting the criteria specified above proposed by the Initiating Party. Within two (2) days of receipt of the notice from the Initiating Party, the Responding Party will notify the Initiating Party either that the Responding Party accepts the arbitrator proposed by the Initiating Party or, alternatively, specifying the name of an arbitrator proposed by the Responding Party. If the parties have not identified a single arbitrator from the arbitrators proposed by each side, then, within two (2) days of the proposal of two arbitrators in accordance with the preceding provisions, the two arbitrators so proposed will select a third arbitrator meeting the criteria specified above, and the arbitrator so selected by the first two arbitrators shall act at the Arbitrator hereunder (the "Arbitrator"). The parties hereto agree to facilitate the arbitration proceeding by making available to each other and to the Arbitrator for inspection and copying necessary documents, books and records directly related to the dispute and those personnel under their control as the Arbitrator shall determine to be relevant to the dispute. Information disclosed during the arbitration proceeding that is confidential or competitively sensitive will be disclosed in confidence to the Arbitrator (who shall agree in writing to maintain such -19- 20 confidence). The costs of any arbitration pursuant hereto will be split equally by the parties. (d) Definition of Performance Default. For purposes of this Agreement, a "Performance Default" shall mean: (i) the existence of a Priority 1 Defect and the failure of PSi to cure such defect within twenty-four (24) hours of receipt of notice of such defect from HSN. For purposes of this Section 5.2, a "Priority 1 Defect" means (1) any critical problem which causes a reduction of 50% or more in the operational capacity of any application using 500 or more ports; or (2) any Priority 1 Defect or Priority 2 Defect which occurs more than three (3) times in any two (2) consecutive twenty-four (24) hour periods; or, (3) any problem which results in a complete loss of the operational capacity of any application (regardless of the number of ports which such application is using). (ii) the existence of a Priority 2 Defect and the failure of PSi to cure such defect within thirty days after receipt of written notice of the defect from HSN. For purposes of this Section 5.2, a "Priority 2" Defect means any other problems (other than a Priority 1 Defect) causing the System to operate in a degraded mode. (iii) the existence of a Priority 3 Defect and the failure of PSi to cure such defect within sixty (60) days after receipt of written notice of the defect from HSN. For purposes of this Section 5.2, a "Priority 3" Defect means System operational problems or other nonconformity with System Specifications which do not directly affect System performance. The Lead Capture Subsystem and Generic Database shall be excluded from the definition of a Priority Defect until after there has been acceptance of the Lead Capture Subsystem and the Generic Database by HSN. 5.3 Intellectual Property Warranty and Indemnification. (a) Warranties by PSi. PSi warrants that it is the (i) sole author or owner by assignment of all works comprising the Software (other than the Third Party Software) and (ii) licensee authorized to use and distribute (as envisioned in this Agreement and the Software License Agreement) the Third Party Software. PSi warrants that it has and will have full and sufficient rights to grant the licenses granted to HSN herein and in the Software License Agreement, on the terms and conditions set forth herein and in the Software License Agreement. PSi warrants that neither the Equipment nor the Software infringes any patent, copyright, trade secret or other intellectual property right of any third party, and that no claim alleging any such infringement is currently pending or threatened. (b) Indemnification by PSi - Infringement of Intellectual Property Rights. PSi shall indemnify, defend and -20- 21 hold harmless HSN against all claims and actions (or threats thereof) asserting that the Software or Equipment infringes any patent, copyright, trademark, trade secret or other intellectual property rights of a third party and PSi will pay all costs (including court costs), damages (including punitive or enhanced damages), and attorney fees awarded by a court of competent jurisdiction arising from or in connection with any such claim. PSi shall bear all expenses of defending HSN against any such claim or proceeding by reason of the alleged infringement. PSi further agrees to submit to personal jurisdiction in any forum in which an action has been brought against HSN on any claim subject to indemnification. PSi shall have no obligation to defend HSN or to pay any such costs, damages, and attorney fees for any claim (i) based upon the combination, operation or use of the Software with any computer code or other information or device (other than the Hardware) not manufactured or supplied by PSi if such infringement would have been avoided by the combination, operation or use of the Software without such code, information or device (unless the Software was combined, used or operated with such code, information or device at the direction of PSi), or (ii) based upon facts or circumstances in existence as of July 31, 1992 (unless PSi had actual knowledge of such facts or circumstances on the date of execution and delivery of this Agreement (not the effective date)). (c) Conditions to Indemnification. The foregoing indemnities are conditioned on HSN furnishing to PSi prompt written notice of any known claim or proceeding subject to indemnity. If the facts pertaining to an indemnified loss arise out of the claim of any third party, or if there is any claim against a third party available by virtue of the circumstances of the loss, PSi may assume the defense or prosecution thereof, including the employment of counsel reasonably acceptable to HSN, at the cost and expense of PSi. HSN hereby represents and warrants that, to the best of its knowledge, as of the Effective Date of this Agreement, no such claims are pending or are threatened. HSN shall have the right to participate in the defense of any such action being defended by PSi, but the fees and expenses of counsel employed by HSN shall be HSN's responsibility. PSi shall not be liable for any settlement of any such claim giving rise to indemnification without the prior written approval of PSi, which will not be unreasonably withheld. PSi will not agree to any settlement of a claim which provides -21- 22 for relief other than the payment of monetary damages without HSN's written consent, which will not be unreasonably withheld. HSN will cooperate with PSi in the defense of such claim or proceeding, at the expense of PSi. ARTICLE VI LEAD CAPTURE SUBSYSTEM 6.1 Completion of Lead Capture Subsystem. The parties acknowledge that, as the date hereof, PSi has not completed development and implementation of the Lead Capture Subsystem. PSi agrees to use its best efforts to complete the implementation of the Lead Capture Subsystem on 2,880 ports of the System on or about March 31, 1994. PSi warrants that, upon completion of such implementation, the Lead Capture Subsystem will conform in all respects to the Lead Capture Subsystem Specifications set forth in Annex I to the Specifications (Exhibit A). All costs incurred by PSi in completing the Lead Capture Subsystem (including, without limitation, labor costs, subcontractor costs, and materials) shall be the responsibility of PSi, and HSN will not be responsible for, or be required to reimburse, any such expenses, nor shall such expenses be included in PSi's Cost of Performance. 6.2 Failure to Complete Lead Capture Subsystem. The Fee has been reduced in an amount equal to $40,320, plus applicable tax, per month ($14 per port per month for 2,880 ports), effective for the period beginning on July 1, 1993 through January 31, 1994, and, from and after February 1, 1994, such Fee shall continue to be reduced by an amount equal to $28,166 per month, plus applicable tax ($9.78 per port per month for 2,880 ports) until the Lead Capture Subsystem is completed in accordance with the Lead Capture Subsystem Specifications. In the event that PSi fails to complete the Lead Capture Subsystem in accordance with the provisions of Section 6.1 above, the reduction in the Fee provided for in Section 6.1 will continue in effect, and, in addition, PSi will pay to HSN an amount in cash equal to $1,950,000 (which amount the parties agree represents the sole damages that will be suffered by HSN as a result of PSi's failure to complete the Lead Capture Subsystem as required hereunder). Such amount shall be payable by PSi in twelve (12) equal monthly installments over a one year period, beginning July 1, 1994, by offset of such amounts by HSN against the monthly Maintenance and Support Fees payable to PSi hereunder. In the event that this Agreement terminates before all such installments have been paid by offset as contemplated in the preceding sentence, any remaining installments shall become immediately due and payable in full by PSi, in a single lump sum, within thirty (30) days following the date of termination of this Agreement (and such amount shall bear interest at a rate equal to -22- 23 the Prime Rate, plus two percent (2%) per annum from the date of termination of this Agreement until paid in full). The foregoing provisions shall constitute HSN's exclusive remedy for PSi's failure to complete the Lead Capture Subsystem in accordance with Section 6.1, it being understood and agreed that such failure will not be considered a default by PSi for other purposes of this Agreement. ARTICLE VII 7.1 Rights to Use Source Code and Object Code. Notwithstanding the provisions of the Software License Agreement, the parties hereby agree as follows: (a) In the event that PSi is not maintaining the System in accordance with the terms of this Agreement for any reason (whether as a result of termination of this Agreement, a breach by PSi of its obligations hereunder or otherwise), or HSN otherwise receives a copy of the Source Code pursuant to the terms hereof or the Source Code Escrow Agreement, HSN shall have the right to alter, modify, revise or enhance, or to cause a third party vendor to alter, modify, revise or enhance, the Software for purposes of maintaining, supporting, or enhancing the Software and the System, and HSN will retain title to any such revisions, modifications or enhancements to the Software (provided that HSN shall be entitled to use any such revisions, modifications or enhancements for internal purposes only and not for purposes of sale, lease or any other form of distribution). In addition, upon receipt of the Source Code, as contemplated hereunder, or under the Source Code Escrow Agreement, HSN shall have a non-exclusive, perpetual, irrevocable, fully-paid right and license to use (or to permit third party vendors to use) the Source Code for purposes contemplated under this paragraph (subject to the limitations on use set forth herein). In the event that HSN furnishes Source Code to any third party vendor providing maintenance or support services as contemplated hereunder, HSN will require that such third party vendor execute a confidentiality agreement restricting the use and disclosure of such Source Code. (b) HSN shall have the right to make appropriate copies of all Software for backup purposes. -23- 24 (c) HSN shall have the right to make an appropriate number of copies of all user documentation included in the Software. (d) The Software License Agreement and the various rights and obligations arising thereunder shall inure to the benefit of and be binding upon the parties thereto and their respective successors and assigns. No assignment of HSN's rights under the Software License Agreement shall be made by HSN without the prior written consent of PSi which shall not be unreasonably withheld; provided, however, that HSN shall be entitled to assign its rights and obligations under the Software License Agreement, without the consent of PSi, to any subsidiary or affiliated entity, to any purchaser of all or substantially all of the assets of HSN, or to any successor by merger; provided, however, that any such transferee agrees in writing to be bound by the terms and conditions of the Software License Agreement (including without limitation confidentiality obligations). (e) As consideration for the payments provided for under this Agreement, the Software License Agreement and the Software Development Agreement, PSi agrees that during the term of this Agreement and for a period of twelve (12) months after the termination of this Agreement, PSi will not: (i) sell, lease, license, or otherwise make available a TCP Platform (as defined in the Software License Agreement) or other voice processing system which processes ingoing and outgoing telephone calls or license the Software or the Patented Technology to any entity principally engaged in the televised electronic retail sales industry as of the date of this Agreement (or any successor to the business of any such entity); (ii) sell, lease, license or otherwise make available a TCP Platform or other voice processing system which processes ingoing or outgoing telephone calls to any retailer who is engaged in, or who has announced an intention to enter into, the televised electronic retail sales business; provided, if PSi has entered into substantive communications with another party with respect to such sale, lease or license prior to such announcement and PSi had no knowledge of the intent to make such announcement, PSi shall not be precluded from concluding such sale, lease or license with such party; or (iii) sell, lease, license, develop, distribute, promote or otherwise make available any televised electronic retail sales computer software application, or consult with or assist any party with, the design, development or implementation of any such televised electronic retail sales computer software application. -24- 25 (f) The provisions of this Section 7.1 shall be deemed to constitute amendments to the relevant provisions of the Software License Agreement and the Software Development Agreement (and shall survive the termination of this Agreement, but with respect to Section 7.1(e) only to the extent set forth therein). 7.2 Limitations on the Use of Source Code. Upon receipt by HSN of the Source Code, whether pursuant to the terms of this Agreement, the Source Code Escrow Agreement, or otherwise, HSN agrees that it will not use the Source Code other than for the purposes specified in Section 7.1(a) above and in the Software License Agreement; that HSN shall not obtain any ownership rights in the Source Code; and that HSN will protect the confidentiality thereof in the same manner that HSN protects its own confidential information. In the event of a breach of this Section 7.2, PSi shall be entitled to appropriate remedies, including, but not limited to, liquidated damages, injunctive relief and specific performance. In the event of a knowing and willful breach by HSN of the provisions of this Section 7.2 by HSN, PSi will be entitled to liquidated damages in the amount of $9,000,000. ARTICLE VIII SOURCE CODE ESCROW AGREEMENT 8.1 Source Code Escrow Agent. Contemporaneously with the execution of this Agreement, and as a condition to the execution and delivery of this Agreement by HSN, the parties have executed and delivered the Source Code Escrow Agreement, in the form attached hereto as Exhibit D, pursuant to which PSi has delivered the current Source Code and Object Code and Documentation for the System to the Escrow Agent thereunder. The rights of HSN to receive the Source Code and Documentation pursuant to the Source Code Escrow Agreement shall be as expressly set forth in Section 2.1 of the Source Code Escrow Agreement, and it is specifically understood and agreed that such Section 2.1 does not give HSN the right to receive the Source Code from escrow if this Agreement merely terminates upon expiration of the term hereof. -25- 26 8.2 Escrow Fees. The escrow fees payable under the Source Code Agreement shall be split equally by the parties. ARTICLE XI MISCELLANEOUS PROVISIONS 9.1 Notice. Any notice, demand, claim, or other communication required or permitted to be given under this Agreement shall be in writing and may be personally served, provided a receipt is obtained therefor, or may be sent by certified mail, return receipt requested, postage prepaid, to the parties at the following addresses (or at such other address as one party may specify by notice to the other party): HSN Original to: Home Shopping Network, Inc. 11831 30th Court North St. Petersburg, Florida 33716 Telephone Number - (813) 572-8585 Facsimile Number - (813) 539-6505 (Attn: General Counsel) And a copy to: National Call Center, Inc. 11831 30th Court North St. Petersburg, Florida 33716 Telephone Number - (813) 572-8585 Facsimile Number - (813) 572-8941 (Attn: President) And a copy to: Home Shopping Network, Inc. 11831 30th Court North St. Petersburg, Florida 33716 Telephone Number - (813) 572-8585 Facsimile Number - (813) 539-6505 (Attn: Executive Vice President - MIS) PSi Original to: Precision Systems, Inc. 11800 30th Court North St. Petersburg, Florida 33716 Telephone Number - (813) 572-9300 Facsimile Number - (813) 573-9577 (Attn: President) And a copy to: Robbins, Gaynor & Bronstein, P.A. 150 2nd Avenue No., Suite 1700 St. Petersburg, Florida 33701 Telephone Number - (813) 895-1971 Facsimile Number - (813) 823-8978 (Attn: David L. Robbins) -26- 27 A notice which is delivered personally shall be deemed given and received as of the date specified on the written receipt thereof. A notice mailed by certified mail as provided herein shall be deemed given and received on the third business day following the date so mailed. Notification of a change of address may be given by either party to the other as provided in this Section. 9.2 Compliance. The parties shall, in the performance of this Agreement, comply with all applicable laws, regulations, orders, and decrees; obtain all required consents and approvals; make all required filings with any governmental agency, other regulatory or administrative agency, commission or similar authority and promptly provide the other party with all such information as they may reasonably request in order to be able to comply with the provisions of this Section. 9.3 Confidential Information. (a) Acknowledgment of Confidentiality. Each party hereby acknowledges that it may be exposed to confidential and proprietary information of the other party including, without limitation, technical information (including functional and technical specifications, designs, drawings, analysis, research, processes, computer programs, methods, ideas, "know how" and the like), business information (sales and marketing research, materials, plans, accounting and financial information, personnel records and the like) and other information designated as confidential expressly or by the circumstances in which it is provided ("Confidential Information"). Confidential Information does not include (i) information already known or independently developed by the recipient; (ii) information in the public domain through no wrongful acts of the recipient, (iii) information received by the recipient from a third party who was free to disclose it, or (iv) information which is required to be disclosed by court order or by an order arising out of an administrative proceeding. (b) Covenant Not to Disclose. With respect to the other party's Confidential Information, the recipient hereby -27- 28 agrees that during the Term of this Agreement and at all times thereafter it shall not use, commercialize or disclose such Confidential Information to any person or entity, except its own employees having a "need to know" (and who are themselves bound by similar nondisclosure restrictions), and to such other recipients as the other party may approve in writing (provided, however, that HSN will not be required to obtain the consent of PSi to the disclosure by HSN of the Source Code to third party vendors as necessary in order to obtain maintenance, support and enhancement services for the Software and System as contemplated in Section 7.1(a) above; provided, that all such recipients shall have first executed a confidentiality agreement in a form acceptable to the owner of such information. PSi shall be responsible for obtaining confidentiality agreements from all third party vendors who provide Maintenance and Support Services pursuant hereto. Neither party nor any recipient may alter or remove from any hardware, software, or associated documentation owned or provided by the other party and proprietary, copyright, trademark or trade secret legend. Each party shall use at least the same degree of care in safeguarding the other party's Confidential Information as it uses in safeguarding its own confidential information. (c) Injunctive Relief. The parties acknowledge that violation by one party of the provisions of this Section 9.3 ("Confidential Information") would cause irreparable harm to the other party and may not adequately be compensable by monetary damages. In addition to other relief, it is agreed that injunctive relief shall be available to prevent any actual or threatened violation of such provisions. 9.4 Proprietary Rights. (a) Third Party Software. Third Party Software provided by PSi pursuant hereto shall be subject to the terms and conditions of the license agreement accompanying or otherwise applicable to such Third Party Software. PSi has provided HSN with true, correct and complete copies of all license agreements with respect to Third Party Software supplied to HSN hereunder. If PSi provides any Third Party Software after the date hereof, such license must be in the form attached as Exhibit I (Form of Third Party Software License). (b) License to Custom Work Product. PSi shall own all right, title and interest to all Custom Work Product. HSN expressly acknowledges and agrees that none of the Custom Work Product shall be deemed to constitute "work made for hire" under the Federal copyright laws (17 U.S.C. Sec 101) and, alternatively, HSN hereby irrevocably assigns all ownership or other rights it might have in Custom Work Product to PSi. HSN is hereby granted a license to use the Custom Work Product and Embedded Software strictly as an integral part of, in conjunction with, and for so long as HSN continues to use the System and HSN is not in breach under the Software License Agreement. The Custom Work Product and Embedded Software are made available under such license in object code form, but Source Code materials and Documentation related to Custom Work Product and Embedded -28- 29 Software will be placed in escrow pursuant to the terms of the Source Code Escrow Agreement. 9.5 Recommended Spares. (a) PSi recommends that HSN procure and maintain certain recommended current, nonobsolete spare parts as set forth in Exhibit F (the "Recommended Spares"), other than spare parts relating to the Lead Capture Subsystem. It is acknowledged that HSN does not have the spare parts listed on Exhibit F which relate to the Lead Capture Subsystem and will not be required to obtain those spare parts even after the Lead Capture Subsystem has been completed and is operational. In the event that HSN fails to obtain and maintain Spare Parts relating to the Lead Capture Subsystem and such failure adversely impact's PSi's ability to satisfy its Maintenance and Support Obligations hereunder, then PSi's obligation to perform will be tolled until PSi is able to obtain the replacement part (so long as PSi uses its good faith efforts to obtain such parts). (b) The Spare Parts maintained in HSN's spare parts inventory are the property of HSN. In the event that PSi is required to use any of such Spare Parts in order to effect repairs to the System, PSi will be required to promptly replace such spare parts, at the sole cost and expense of PSi. If PSi fails to promptly replace such spare parts as required above, HSN shall be entitled, at its option, to replace such spare parts itself and to bill PSi directly for the cost thereof (or to offset such amount against the amount of Fees payable by HSN to PSi pursuant to Section 4.1 above). 9.6 Amendments; Waiver. (a) This Agreement may be amended if, and only if, such amendment is in writing and signed by authorized officers of both parties. No waiver shall be effective unless it is in writing and signed by the party against whom the waiver is to be effective. (b) No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof not shall any single or partial exercise thereof preclude -29- 30 any other or further exercise thereof or the exercise of any other right, power or privilege. 9.7 Governing Law and Interpretation. This Agreement shall be governed by and construed in accordance with the laws of the United States and the State of Florida applicable to agreements made and to be performed in the State of Florida without application of its conflicts of laws provisions. The parties agree that any suit arising out of this Agreement must be brought in a court of competent jurisdiction in Pinellas County, Florida, except that if it is determined that the federal courts would have jurisdiction over such matter, then such suit must be brought in the federal courts for the Middle District of Florida located in Tampa, Florida. 9.8 Titles and Headings. Titles and headings are inserted for convenience of reference only and are not intended to be a part of or to affect the meaning or intent of this Agreement. 9.9 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. 9.10 Severability. The parties hereby agree that, if any provision of this Agreement should be adjudicated to be invalid or unenforceable, such provision shall be deemed deleted herefrom with respect, and only with respect, to the operation of said provision in the particular jurisdiction in which such adjudication was made, and only to the extent of the invalidity, and any such invalidity or unenforceability in a particular jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. All other remaining provisions of this Agreement shall remain in full force and effect for the particular jurisdiction and all other jurisdictions. 9.11 Entire Agreement; Termination of Prior Agreements. This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements, whether or not written, with respect to the subject matter hereof, including, without limitation the Prior Agreement and the Letter Agreement between HSN and PSi dated May 28, 1993 relating to the execution of this Agreement and the Source Code Escrow Agreement (provided, however, that Paragraph 9 of such Letter Agreement shall survive the execution and delivery hereof and is incorporated herein by this reference). Notwithstanding the foregoing, this Section 9.11 is not intended to affect any agreement entered into contemporaneously with this Agreement (including, without limitation, the Source Code Escrow Agreement). -30- 31 9.12 Exhibits. The Exhibits attached hereto and referred to herein are incorporated and made a part of this Agreement. In the event of any conflict between the terms of this Agreement and the terms of the Exhibits, the terms of this Agreement shall prevail. 9.13 Assignability. This Agreement and the various rights and obligations arising hereunder shall inure to the benefit of and be binding upon the parties hereto and their respective successors and assigns. Notwithstanding the foregoing, no assignment of rights or delegation of duties shall be made by either party without the prior written consent of the other party, which shall not be unreasonably withheld provided, however, that HSN shall be entitled to assign its rights and obligations hereunder, without the consent of PSi, to any subsidiary or affiliated entity, to any purchaser of all or substantially all of the assets of HSN, or to any successor by merger. In the event of an assignment, the assignee must execute a written assumption agreement expressly assuming all of the obligations of HSN under this Agreement. 9.14 Force Majeure. PSi shall not be liable for any delay or failure of PSi to perform its obligations under this Agreement if such delay or failure is caused by an Act of God, flood, fire, war or public enemy, natural disaster, actions or decrees of governmental bodies or other acts beyond PSi's control. 9.15 Customer Demonstrations. Subject to HSN's prior consent (which shall not be unreasonably withheld) and satisfaction of HSN's requirements concerning confidentiality, PSi shall be entitled to bring customers to HSN's Principal Office in order to show them the System during the hours of 9:00am to 5:00pm, Monday through Friday. Any such customers shall be accompanied by an authorized representative of HSN and PSi and shall be subject to HSN's normal security procedures. HSN personnel will, at all times, retain control over the operations of the System and will not be -31- 32 required to perform any special demonstrations for any such customers of PSi. PSi shall use its best efforts to provide HSN with seven (7) days' advance notice (but in any event not less than two (2) days' advance notice) of PSi's desire to conduct such a demonstration. 9.16 Publicity. PSi and its employees, agents and representatives will not, without HSN's prior written consent in each instance, use in advertising, publicity or otherwise the name of HSN or any HSN affiliate, or any officer or employee of HSN, or any trade name, trademark, trade device, service mark, symbol or any abbreviation, contraction or simulation thereof wned by HSN or its affiliates, or represent, directly or indirectly, that any product or service by PSi has been approved or endorsed by HSN, or refer to the existence of this Agreement in press releases, advertising or materials distributed to prospective customers, beyond a statement that HSN is a customer of PSi. This paragraph shall survive termination of this Agreement. 9.17 Independent Contractor. PSi, in performance of this Agreement, is acting as an independent contractor and shall have the exclusive control of the manner and means of performing the work. Personnel supplied by PSi hereunder are not HSN's employees or agents, and PSi assumes full responsibility for their acts. 9.18 Insurance. PSi shall maintain adequate insurance coverage as required by Exhibit J and shall provide HSN with certificates of insurance at the request of HSN. 9.19 Regulations Regarding Hourly Compensation. In the event that any employees, consultants or other representatives of PSi provide services to HSN which are subject to reimbursement by HSN (whether pursuant to the Software Development Agreement or otherwise), PSi will be required to comply with the procedures specified in Exhibit G. IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the day and year first above written. HOME SHOPPING NETWORK INC. By: --------------------------- Name: ------------------------- Title: ------------------------ -32- 33 PRECISION SYSTEMS, INC. By: ------------------------- Name: ------------------------- Title: ------------------------- -33- 34 EXHIBIT A 1.0 Definition: The defined System means the Total Call Processor platform ("TCP") which provides an operating environment which permits HSN to create, execute and maintain various interactive voice response applications, including, without limitation, applications which allow HSN to accept telephone calls and callers to place orders for HSN merchandise, to place orders for pay per view or other services, or to obtain information. With the addition of the Lead Capture Subsystem, the System will also permit HSN to create, execute and maintain lead capture applications. The System is comprised of the Software (including Firmware) and Hardware. The System will also include any Hardware or Software added to the System after the date hereof, including additional ports, and includes the following three subsystems: (a) Tootie II Application Platform (b) Services Bureau Platform (including the Lead Capture Platform) (c) Development Platform. 2.0 Inventory for "System": The list of Hardware included in the System is attached hereto as Exhibit A-1. A list of all Software and Firmware included in the System is attached hereto as Exhibit A-2. A list of Third Party Hardware is attached as Exhibit A-3. A list of Third Party Software is attached as Exhibit A-4. 3.0 Additions to the System: Additions purchased by HSN shall become part of the System. 4.0 Specifications The Specifications for the System are attached to this Exhibit A. -1- EX-10.29 8 HSN MCI SPECIAL CUSTOMER ARRANGEMENT 1 EXHIBIT 10.29 MCI SPECIAL CUSTOMER ARRANGEMENT THIS MCI SPECIAL CUSTOMER ARRANGEMENT (the "Agreement") is Made and entered into as of the dates set forth below by and between MCI Telecommunications Corporation ("MCI") and Home Shopping Network, Inc. ("Customer"), effective as of (i) the first day of the first full month after the tariff governing the offering under this Agreement becomes effective; (ii) the first day of the month if the tariff effective date is the same date; or (iii) in the event that MCI determines that applicable law does not require the filing of a specific tariff implementing this Agreement, such earlier date as the parties may agree but in no event any date before the date of execution and delivery of this Agreement by Customer to MCI (such date is hereinafter referred to as the "Effective Date"). WITNESSETH: WHEREAS, Customer is desirous of receiving telecommunications services from MCI and MCI is desirous of providing said services to Customer, pursuant to the terms and conditions more particularly described herein; NOW, THEREFORE, for and in consideration of the premises, the terms and conditions herein and for other good and valuable consideration, the receipt, adequacy and sufficiency of which are hereby acknowledged, MCI and Customer hereby agree as follows: 1. DEFINITIONS CONTAINED IN MCI TARIFF FCC NO. 1. All capitalized terms used herein and not expressly defined herein shall have the respective meanings given to such terms in the MCI Tariff FCC No. 1 ("Tariff") on file with the Federal Communications Commission ("FCC"). 2. DEFINITION OF BASE RATES. "Base Rates" shall mean rates and discounts for which Customer qualifies under the Tariff for services described in the Tariff, or if not in the Tariff, in standard price lists, all calculated without application of the discounts provided by this Agreement; provided, however, that: (i) the Base Rates for private line services subject to Network Pricing Plans ("NPP") shall be the month to month rates under the Tariff after application of applicable discounts provided under the Tariff; (ii) the Base Rates for interstate Vnet service shall b determined by dividing the applicable "Vnet Rate" (as hereinafter defined) by and (iii) the Base Rates for interstate 800 service shall be determined by dividing the applicable "800 Rate" (as hereinafter defined) by . 3. SERVICE PROVISIONING AND RECEIPT. MCI will provide to Customer, and Customer will receive from MCI, interstate and international telecommunications service(s) provided pursuant to the Tariff, MCI Tariff FCC No. 8, WUI Tariff FCC No. 27, and any other interstate and international tariff of MCI and its affiliates, each as supplemented by this Agreement, and intrastate telecommunications services provided pursuant to MCI's state tariffs governing such MCI CONFIDENTIAL 2 Page 2 of 14 services, This Agreement incorporates by reference the terms of each such tariff. MCI may modify its tariffs from time to time in accordance with law and thereby affect the service(s) furnished Customer. In the event tariff revisions that may be required to implement the terms of this Agreement are suspended or rejected, then either party may elect to terminate this Agreement without liability on thirty (30) days' written notice given not later than thirty (30) days after the event giving rise to the termination right. MCI will use its best efforts to maintain its tariffs in a manner consistent with the terms of this Agreement. In the event that MCI revises any tariff in a manner inconsistent in any material respect with the provisions of this Agreement and MCI does not effect revisions that remedy such inconsistency within thirty (30) days after receipt of written notice from Customer, then Customer may, as its sole remedy, elect to terminate this Agreement without liability on thirty (30) days'written notice given not later than thirty (30) days after the event giving rise to the termination right. This Agreement is a Specialized Customer Arrangement as such term is defined in Section B-17.03 of the Tariff and the services hereunder are being provided to Customer pursuant to the provisions of the Tariff applicable to such arrangements. 4. MINIMUM CHARGES. (A) As used herein "Monthly Minimum" shall mean per month, and "Quarterly Minimum" shall mean per calendar quarter (collectively referred to as "Minimum Amount"). MCI calculates the Monthly Minimum and the Quarterly Minimum by adding recurring and usage charges at Base Rates for all common carrier service furnished to Customer by MCI, but excluding the following items: (i) taxes and tax related surcharges; (ii) charges for any enhanced services, including MCI Mail, MCI Fax, and Global Communications Services; (iii) charges for equipment and collocation; (iv) charges incurred where MCI or an MCI affiliate acts as agent for Customer in the acquisition of goods or services; and (v) charges incurred by third parties using pay phones or room phones controlled by Customer. However, charges for service furnished by MCI affiliates shall not be eligible for the rates or discounts provided in this Agreement. MCI affiliates are Telecom*USA, Inc., Western Union International, MCI International, Inc. and MCI/OTI Corporation. (B) In order to be entitled to the rates and discounts provided by this Agreement, Customer must use not less than the Monthly Minimum of MCI services described in this Agreement, calculated at Base Rates, during each MCI monthly billing period of the "Service Term" (as hereinafter defined). MCI CONFIDENTIAL 3 Page 3 of 14 (C) If Customer's use of such services during any month of the Service Term results in charges at Base Rates of less than the Monthly Minimum, Customer will pay: (1) Customer's actual amount of usage and other charges calculated at Base Rates; plus (2) an underutilization charge (which Customer agrees is reasonable) equal to twenty five percent (25%) of the difference between the Monthly Minimum and the combined actual amount of usage and other charges calculated at Base Rates. (D) If Customer's use of such services during any calendar quarter of the Service Term results in charges at Base Rates of less than the Quarterly Minimum, Customer will pay: (i) Customer's actual amount of usage and other charges calculated at Base Rates for the calendar quarter; plus (ii) an underutilization charge (which Customer agrees is reasonable) equal to twenty five percent (25%) of the difference between the Quarterly Minimum and the combined actual amount of usage and other charges calculated at Base Rates; minus (iii) an amount equal to any underutilization charges paid by Customer pursuant to Section 4(C) for failing to satisfy the Monthly Minimum in any month of the calendar quarter. 5. RATES AND DISCOUNTS FOR MCI SERVICES. If the Minimum Amount is satisfied in any given month of the Service Term, Customer will receive the rates and discounts set forth below during such month: (A) VNET SERVICE, INCLUDING VNET CARD. (i) For domestic intrastate services, Customer shall pay standard tariffed rates less the discount associated with Network Savings Plan Option 4, (ii) For domestic interstate services, Customer will receive the following fixed rates per minute depending on mileage band, time of day, length of call, and traffic type: MCI CONFIDENTIAL 4 Page 4 of 14 a. Dedicated/Dedicated Day Evening/Night/Weekend Each Additional Each Additional Mileage First 18 Increment of First 18 Increment of Band Seconds 6 Seconds or Less Seconds 6 Seconds or Less ---- -------- ----------------- ---------- ----------------- b. Dedicated/Switched Switched/Dedicated Day Evening/Night/Weekend Each Additional Each Additional Mileage First 18 Increment of First 18 Increment of Band Seconds 6 Seconds or Less Seconds 6 Seconds or Less ---- -------- ----------------- ---------- ----------------- c. Switched/Switched Day Evening/Night/Weekend Each Additional Each Additional Mileage First 18 Increment of First 18 Increment of Band Seconds 6 Seconds or Less Secondss 6 Seconds or Less ---- -------- ----------------- ---------- ----------------- MCI CONFIDENTIAL 5 Page 5 of 14 (iii) The above referenced rates and discounts shall not apply to pass-through access/egress (or related) charges imposed by third parties (such as local exchange carriers); access or egress charges for Vnet Service, any non-recurring charge imposed in the Tariff, charges for intrastate and international service, charges for directory assistance, taxes and surcharges. (B) MCI 800. (i) For domestic intrastate services, Customer shall pay standard tariffed rates less the discounts associated with the MCI which discounts are currently for Dedicated Access Line ("DAL") and Common Business Line ("CBL"). After application of the VIP Option discounts, the MCI Multi-Option Discount shall be applied to Customer's monthly usage charges. (ii) For domestic interstate services, Customer will receive the following fixed, non-distance sensitive, postalized rates per minute depending on call type and time of day: Night/ Day Evening Weekend --- ------- ------- CBL $ $. $ DAL $ $. $ (iii) MCI agrees to waive each month the following feature charges sociated with specific MCI 800 Service number not to exceed per month: Tailored Call Coverage (Section C-3.0881 of the Tariff), Point of Call Routing (Section C-3.0882 of the Tariff), Day of Week Routing (Section C-3.0883 of the Tariff), Holiday Routing (Section C-3.0884 of the Tariff), Time Internal Routing (Section C-3. 0885 of the Tariff), Percentage Allocation Routing (Section C-3.0886 of the Tariff) and Alternate Routing (Section C-3.0887 of the Tariff). (iv) For international MCI 800 service calls that originate in Canada and terminate to a Customer location in the continental United States, Customer will receive the following fixed, non-distance sensitive, postalized rates per minute depending on call type and time of day: Night/ Day Evening Weekend ---- ------- ------- CBL $ $. $ DAL $ $. $ MCI CONFIDENTIAL 6 Page 6 of 14 (v) The above referenced rates and discounts shall apply to usage and recurring charges, but shall not apply to pass through access/egress (or related) charges imposed by third parties (such as LECs), any non-recurring charge imposed in the Tariff, charges for intrastate and international service, charges for directory assistance, taxes and surcharges. (C) MCI 900 SERVICE. (i) For MCI 900 Service, provided that Customer's usage of MCI's 900 Service in a given month of the Service Term is less than minutes, Customer shall pay tariffed rates plus any applicable tariff surcharges less: (i) the tariff discount, which is (ii) after discount. (ii) In the event that Customer's usage of MCI's 900 Service in an given month of the Service Term is minutes, Customer shall pay a fixed, postalized rate per minute of for MCI 900 Service. (D) PRIVATE LINE DISCOUNTS. For private line services, Customer shall be entitled to the benefit of the NPP discounts for Dedicated Lease Line Services associated with specified in the Tariff, which discounts will remain fixed during the "Initial Term" (as hereinafter defined) and are for DDS service, for T-1 service, for fractional T-1 service and for T-3 service. Services provided with such NPP discount shall not be subject to separate minimum revenue and term requirements, notwithstanding the Tariff. (E) VNET INTERNATIONAL TERM PLAN. Customer subscribes to the Vnet International Term Plan ("ITP") under Section C 3.091918 of the Tariff and shall receive a discount on International Direct Distance Dial ("IDDD") services thereunder, after application of the standard tariffed discount on IDDD services. (F) FORUM CONFERENCE CALLING SERVICE. The rates applicable to Customer for Intercity Facilities Usage charges pursuant to Section C-3.17211 of the Tariff for calls which both originate and terminate in the U.S. mainland, Alaska, Hawaii, Puerto Rico or U.S. Virgin Islands shall be $ per minute per bridge port for attended calls. The per call and per leg charges set forth in the Tariff shall not apply to Customer. Forum service shall MCI CONFIDENTIAL 7 Page 7 of 14 not be subject to any other discounts, whether set forth in this Agreement or in the Tariff. (G) ACCESS COORDINATION AND CENTRAL OFFICE CONNECTION. For each T-1 utilized by Customer, Customer shall pay Central Office Connection ("COC") and Access Coordination, which charges shall remain fixed during the Initial Term hereof. (H) 800 TRAFFICVIEW. Customer will receive a discount of off the standard tariffed rates for the TrafficView product. (I) 800 MULTIMANAGER. Customer will receive a discount of off the standard tariffed rates for the 800 MultiManager product and MCI agrees to waive all installation charges associated with said product. (J) D-CHANNEL SERVICE DISCOUNT. During any month of the Initial Term in which Customer meets the Minimum Amount and Customer's combined monthly MCI T-1 access COC charges and MCI Integrated Services Digital Network ("ISDN") D-Channel surcharge Customer shall receive a discount in such month off the surcharges associated with the monthly recurring charges for MCI ISDN D-Channel service. (K) 800 ECR FEATURES. Customer will receive discounts on the Enhanced Call Router ("ECR") feature usage charges for "ECR Menu Routing" (Tariff Section C-3.088151) and "Takeback and Transfer" (Tariff Section C-3.0881570) in accordance with the following schedule based on the percentage of ECR calls in that month which utilize the ECR features: MCI CONFIDENTIAL 8 Page 8 of 14 Percentage of ECR Calls in be applied to Monthly Month Utilizing Feature Usage Charges for Feature ----------------------- ------------------------- Less than or equal to 25% Greater than 25% but less than or equal to 50% Greater than 50% but less than or equal to 75% Greater than 75% 6. Exclusivity. (A) Customer agrees it shall use MCI exclusively as its interexchange carrier ("IXC") during the Service Term hereof for all IXC services, including, without limitation, virtual network services, 800 services, data services and international services, at all times during the Service Term during which MCI is technically able to offer "Intelligent Call Routing", "Customer Provided Service Control Point" and "Call Transfer Capability" (as such terms are defined on Schedule 1 attached hereto and incorporated herein by this reference) to Customer. During periods of the service Term in which MCI is not technically able to offer Intelligent Call Routing, Customer Provided Service Control Point and Call Transfer Capability, Customer agrees it shall use MCI exclusively for all its IXC services, including, without limitation, virtual network services, data services, international services and all 800 services which do not require Intelligent Call Routing, Customer Provided Service Control or Call Transfer Capability. For definitional purposes of this Agreement only, Customer shall mean Customer and all majority-owned subsidiaries. Exclusivity shall mean not less than of all IXC traffic, based on a dollar volume. (B) After the Effective Date of this Agreement, but not more than once annually, upon significant changes in Customer's traffic patterns or upon a public statement by Customer (including advertisements) indicating a significant migration of traffic, MCI may request, and Customer shall provide to MCI in writing, Customer records, data and invoices pertaining to its to its total IXC service usage for the most recent twelve (12) month period preceding the request. MCI may review this information for the sole purpose of determining Customer's compliance with the exclusivity covenant set forth in Section 6(A) above. 7. INSTALLATION CREDIT. Provided that Customer achieves the Minimum Amount throughout the Initial Term, Customer shall receive a credit of up to MCI CONFIDENTIAL 9 Page 9 of 14 for the one-time installation and other one-time non-recurring charges associated with the implementation of MCI service under this Agreement. Such credits will be issued from time to time throughout the Initial Term as MCI services are installed. 8. PAYMENT. Customer shall pay MCI for service(s) within twenty-five (25) days of Customer's receipt of MCI's detailed invoice. If Customer should default in any payment required hereunder on the date when due, the outstanding balance shall bear simple interest at the rate of fifteen (15%) per annum, until paid in full. 9. PROVISIONS FOR SERVICE INTERRUPTIONS. (A) CREDIT ALLOWANCE FOR SERVICE INTERRUPTIONS. Customer shall be entitled to Credit Allowances for Service Interruptions in accordance with Section B.15 of the Tariff. A Service Interruption begins when Customer reports the interruption to MCI and releases the "Service Element" (as hereinafter defined) for testing and repair and ends when MCI retenders the Service Element to Customer in good working condition. For the purpose of determining the Quarterly Minimum and the Monthly Minimum only, MCI will not reduce monthly charges by the amount of Credit Allowances applied. For purposes of this Agreement, "Service Element" refers to the specific MCI service affected at the specific geographic Customer location affected. (B) PARTIAL DISCONTINUANCE WITHOUT LIABILITY. Customer may discontinue receipt of service on a Service Element at any time without liability except as otherwise expressly provided for in the Tariff or this Agreement (an example of such a provision might be where a private line installation charge is waived but is to be assessed if the line is not in place for a minimum period). If Customer discontinues receipt of service on a Service Element having chronic Service Interruptions and does not take substitute service from MCI, the Minimum Amount for purposes of assessing underutilization charges shall be reduced by the average monthly charges for the discontinued Service Element measured over the last three (3) billing months prior to discontinuation. A Service Element with chronic Service Interruptions is one on which there have been three or more Service Interruptions, each consisting of thirty (30) or more minutes, totaling twenty-four (24) or more hours within three (3) consecutive calendar months. MCI CONFIDENTIAL 10 Page 10 of 14 10. TERM AND TERMINATION. (A) INITIAL TERM. The initial term (the "Initial Term") shall begin on the Effective Date and end upon the completion of thirty six (36) months thereafter. (B) ADDITIONAL TERM. The service term hereof (the "Service Term") shall include the Initial Term and shall continue on a month-to-month basis thereafter until either party provides the other with at least ninety (90) days prior written notice of its intent to terminate this Agreement. Nothing in this Agreement shall modify or be deemed to modify MCI's right to terminate service(s) as provided for in Section B-11.01 of the Tariff or in any other MCI tariff. (C) TERMINATION OF AGREEMENT. After termination of this Agreement, service received by Customer shall be subject to the terms and conditions, including rates, of MCI's filed and effective tariffs. 11. TERMINATION LIABILITY. If Customer terminates this Agreement during the Initial Term, for reasons other than for "Cause" (as hereinafter defined) or to take service under another arrangement with MCI having equal or greater term and volume requirements, Customer will pay within thirty (30) days after such termination: (i) a that would have been applicable for the remaining unexpired portion of the Initial Term; and (ii) the Interstate 800 Credit in full, without setoff or deduction. As used herein, "Cause" shall mean a failure of MCI to perform a material obligation under this Agreement which failure is not remedied by MCI within thirty (30) days after receipt of written notice. 12. REPRESENTATION AND WARRANTY. Customer represents and warrants that it has the full right, power and authority to enter into this Agreement, to perform its obligations hereunder and that the execution, delivery and performance by Customer of this Agreement will not conflict with, result in the breach of or constitute a default under any contract, agreement or other document of whatever kind or nature to which Customer is a party or by which Customer may be bound or affected. MCI CONFIDENTIAL 11 Page 11 of 14 13. NONDISCLOSURE. Customer shall not disclose to any third party (excluding attorneys and accountants retained by Customer, who shall be deemed agents of Customer under the provisions of this Section) during the Service Term or during the three-year period after termination of this Agreement any of the material terms and conditions set forth in this Agreement (including but not limited to price-related terms), unless such disclosure is lawfully required by any federal governmental agency or is otherwise required to be disclosed by law or is necessary in any legal proceeding establishing rights and obligations under this Agreement, or unless Customer obtains MCI's written consent which shall not be unreasonably withheld prior to such disclosure. Customer agrees to use its best efforts to ensure the continued confidentiality of such information and all proprietary information known, disclosed, or made available to it, or any of its employees or agents as a result of this agreement or its relationship with MCI. Customer further agrees to cooperate with MCI's reasonable confidentiality and other requirements which may be established from time to time, and immediately notify MCI of any unauthorized disclosure or use of such confidential information of which customer becomes aware. MCI reserves the right, as its sole remedy, to terminate this Agreement immediately upon delivering written notice to Customer if there has been any unpermitted third party disclosure hereunder. 14. OVERLAPPING DISCOUNTS. If MCI amends the Tariff to provide a discount applicable to combined usage of services (as opposed to a discount on any individual service) that is similar in nature but not necessary similar in amount to that provided in this Agreement, Customer may elect either to receive the benefit of such discount or continue to receive the discount provided hereunder, but shall not be entitled to receive the benefit of both discounts. The discounts provided for herein are in lieu of, not in addition to, any discounts or commissions to which Customer is or would otherwise be entitled to receive by application of Tariff discounts applicable to Qualified Commercial Affinity Group members, Qualified Industry Affinity Group members, Qualified Residential Affinity Group members (all as the same are defined in the Tariff), and recipients of discounts or commissions under these or any other similar or related programs (e.g. NASD, IVANS, etc.). 15. NOTICE. All notices, requests, or other communications (excluding invoices) hereunder shall be in writing and hand delivered or addressed and sent by certified or registered mall, Postage prepaid and return receipt requested to the parties as follows: MCI CONFIDENTIAL 12 Page 12 of 14 If to MCI: MCI Telecommunications Corporation 6 Concourse Parkway Atlanta, Georgia 30329 Attn: Vice President National Accounts with a copy to: MCI Telecommunications Corporation 5 International Drive Rye Brook, New York 10573 Attn: Director, Legal Affairs If to Customer: Home Shopping Network, Inc. P.O. Box 9090 Clearwater, Florida 33606-9090 Attn: Executive Vice President, MIS with a copy to: Home Shopping Network, Inc. P.O. Box 9090 Clearwater, Florida 33606-9090 Attn: General Counsel If either party wishes to alter the recipient or address to which communications to it are sent, it may do so by providing the name of the new recipient or a new address, in writing, to the other party. All notices, requests or other communications addressed in accordance with this Agreement shall be effective when received if delivered by mail or if personally delivered, the date on which delivery is made. 16. GOVERNING LAW/ARBITRATION. Customer acknowledges and agrees that MCI, in conducting its business in the manner set forth herein, is subject to the Communications Act of 1934, as amended and as interpreted and applied by the FCC. This Agreement shall be governed and construed in accordance with the laws of the State of New York without regard to the conflict of law provisions thereof. MCI and Customer hereby stipulate and agree that any and all disputes between the parties arising out of or relating to this Agreement, except those disputes as may be preempted by the original jurisdiction afforded the Federal Communications Commission, shall be submitted for resolution by arbitration before a single arbitrator in accordance with the Commercial Rules of Arbitration of the American Arbitration Association then in effect. Such arbitration shall be held at an office of the American Arbitration Association in New York, New York. To the fullest extentpermitted by law, the parties irrevocably submit to the jurisdiction of the arbitrator, waive any objection to the venue of the arbitration, and enforced in any court of competent jurisdiction. The arbitrator shall have no power or authority to make awards or issue orders of any kind except as expressly permitted by this Agreement, applicable MCI Tariffs and substantive law. In particular and without limiting the generality of the MCI CONFIDENTIAL 13 Page 13 of 14 foregoing, if this Agreement or applicable MCI tariffs limit the relief available to one or both parties (e.g., by prohibiting awards of incidental or consequential damages or otherwise limits the liability of any party in any respect), then the arbitrator shall have no power or authority to make any award that provides for any such relief. In addition, the arbitrator shall have no power or authority to make any award that provides for any element of punitive or exemplary damages. MCI and Customer hereby further stipulate and agree that each party to such arbitration proceedings shall pay its own costs of participating in the arbitration, and that the losing party shall pay the fees and expenses of the arbitrator. Notwithstanding the foregoing, both parties shall have the right to seek and obtain from any court of competent jurisdiction any equitable or provisional relief or remedy enforcing any right it may have in connection with this Agreement or applicable MCI tariffs. No such judicial action permitted by the foregoing sentence shall waive or limit either parties right to adjudicate the merits of the dispute by arbitration. 17. COMPLETE AGREEMENT; AMENDMENTS. This Agreement, together with the Tariff, is the complete agreement of the parties concerning its subject matter and supersedes all other prior agreements and representations, oral or in writing, concerning its subject matter, including, without limitation, that certain Agreement for Telecommunications Services dated March 26, 1991, as amended by that certain Amendment dated March 30, 1992. Any amendments (except amendments of the Tariff) must be in writing and signed by both parties to this Agreement. No waiver of any of the provisions of this Agreement shall be binding unless it is in writing and signed by the party making the waiver. No waiver shall be deemed, or shall constitute, a waiver of any other provision, whether or not similar, and no waiver shall be deemed, or shall constitute, a continuing waiver. All sections and subsections of this Agreement are severable and the unenforceability or invalidity of any of the sections or subsections of this Agreement shall not, unless Customer is deprived of an economic benefit hereunder as a result of such unenforceability or invalidity, affect the validity or enforceability of the remaining sections or subsections of this Agreement, but such remaining sections or subsections will be interpreted or construed in such a manner as to carry out fully the intention of the parties. In the event the unenforceability or invalidity of any of the sections or subsections of this Agreement deprive the Customer of an economic benefit hereunder, the Customer may elect to terminate this Agreement without liability on thirty (30) days' written notice. 18. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the successors and permitted assigns of the parties hereto, as provided below. Neither this Agreement, nor any rights or obligations of Customer herein shall be transferable or assignable by Customer without MCI's prior written consent and any attempted transfer or assignment hereof by Customer not in accordance herewith shall be null and void. MCI CONFIDENTIAL 14 Page 14 of 14 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized representatives as of the dates set forth below, effective as of the Effective Date. MCI TELECOMMUNICATIONS CORPORATION By: A. B. Name: Alan B. Title: Vice President Date: 12/29/93 HOME SHOPPING NETWORK, INC. By: Stella L. Tavilla Name: Stella L. Tavilla Title: EVP - MIS Date: 11/11/93 MCI CONFIDENTIAL 15 SCHEDULE 1 "Intelligent Call Routing" shall mean database intelligent (origination, termination or both) call routing that incorporates load balancing between call centers (automatic call distribution sites) with a caller recognition routing feature for call by call routing and other industry standard peripheral features. "Customer Provided Service Control Point" shall mean a gateway to the MCI data access point to serve as an external interface to MCI for database routing and intelligence. The specifications for such interface are to be provided to Customer by MCI. "Call Transfer Capability" shall mean the ability for Customer provided equipment to send an MCI specified protocol to the MCI network for purposes of transferring an originating call to a second destination, which ability includes network management features. MCI CONFIDENTIAL EX-10.30 9 HSN CREDIT CARD PROGRAM AGREEMENT 1 EXHIBIT 10.30 CREDIT CARD PROGRAM AGREEMENT, dated as of February ___, 1994 by and among HOME SHOPPING NETWORK, INC. ("HSN") a Delaware corporation with its principal place of business at 2501 118th Avenue North, St. Petersburg, Florida 33716; the Participating Subsidiaries (as defined below); and GENERAL ELECTRIC CAPITAL CORPORATION ("GE Capital"), a New York corporation having an office at 260 Long Ridge Road, Stamford, Connecticut 06927. W I T N E S S E T H : WHEREAS, HSN, through one or more of its Participating Subsidiaries is engaged, among other activities, in the business of selling Merchandise from Stores and through television or other electronic media; and WHEREAS, GE Capital has agreed (i) to purchase qualifying Accounts and Indebtedness and (ii) to provide certain credit-related services to HSN all pursuant to the terms and conditions hereinafter set forth; and WHEREAS, to induce GE Capital to make such purchases and perform such services, HSN and the Participating Subsidiaries have each agreed to make certain undertakings, covenants, representations, and warranties; NOW, THEREFORE, in consideration of the premises and the mutual covenants hereinafter contained, the parties hereto agree as follows: ARTICLE I DEFINITIONS Section 1.01. Generally. As used in this Agreement, the following terms shall have the respective meanings set forth below: "Account" shall mean any account, account receivable, other receivable, contract right, chose in action, general intangible, chattel paper, instrument, document, note, and proceeds thereof (as each of those terms which is defined in the applicable UCC is so defined), whether now owned or hereafter acquired by either HSN, any Participating Subsidiary or GE Capital, and wherever located, arising out of the sale of Merchandise by HSN or any of the Participating Subsidiaries to an Account Debtor pursuant to a Credit Agreement entered into between HSN and/or any Participating Subsidiary and an Account Debtor pursuant 2 to this Program together with (a) all of the instruments and Account Documentation evidencing the same, the receivables therefrom (including all Indebtedness), and the proceeds thereof, (b) all of HSN's and the Participating Subsidiaries's rights as to any Merchandise, goods, or other property which is represented thereby or is security or collateral therefor, and (c) all guarantees, claims, security interests, or other security held by or granted to HSN and/or the Participating Subsidiaries to secure payment by any Person with respect thereto. "Account Debtor" shall mean any natural person who is or who may become obligated under, with respect to, or on account of, an Account. "Account Documentation" shall mean any and all documentation relating to an Account, including, without limitation, Credit Applications, Credit Agreements, sales slips, credit slips, Credit Cards, delivery receipts, billing statements, checks and stubs, and all correspondence, memoranda, magnetic tapes, disks, or hardcopy formats, or any other computer-readable data transmissions or software related thereto, all other written material relating to an Account, and any microfilm or microfiche copy of any of the foregoing. "Active Account" shall mean, with respect to a Billing Cycle, an Account owned by GE Capital which Account has a debit or credit balance or to which a debit or credit has been posted. "Aggregate Investment" shall mean, at any time, the aggregate of all Indebtedness owned by GE Capital as calculated on the relevant date (excluding the total of any amounts written-off by GE Capital on the Accounts or Indebtedness repurchased by HSN). "Agreement" shall mean this Credit Card Program Agreement, including all amendments, modifications, supplements, exhibits, and schedules hereto, and shall refer to this Agreement as the same may be in effect at the time such reference becomes operative. "Average Account Balance" shall mean for any period consisting of one or more consecutive Billing Cycles, the sum for all such Billing Cycles of the Average Aggregate Investment on the relevant Billing Date during each such Billing Cycle, divided by the sum of the number of Active Accounts during each such Billing Cycle. "Average Aggregate Investment" shall mean, for any period, the sum of all Indebtedness owned by GE Capital on each day during such period, divided by the number of days in such period. 2 3 "Average Commercial Paper Rate" shall mean, for any period, the sum of the Commercial Paper Rates for each Business Day on which such rate is published, divided by the number of Business Days on which such rate is published during such period. "Average Periodic Aggregate Investment" shall mean for any period, the sum of the Average Aggregate Investments as of each date during such period, divided by the number of days during such period. "Average Reserve Balance" shall mean, with respect to any period, an amount equal to the sum of the Reserve Balances for each day in the period divided by the number of days in such period. "Bad Debt" shall mean Indebtedness pursuant to an Account, (i) on which eight (8) or more payments are due as calculated on a contractual basis, (ii) where the Account Debtor (a) has filed a petition for relief under the Bankruptcy Code, (b) had filed against it any petition or other application for relief under such Bankruptcy Code (c) or has suffered a receiver or trustee to be appointed for all or a significant portion of its assets, (iii) where the Account Debtor has died and GE Capital has deemed the Indebtedness uncollectible, (iv) where an Account Debtor has asserted that the Indebtedness was fraudulently incurred and the claim of fraud is not frivolous, provided that such fraudulent incurrence does not arise in connection with a fraudulent Credit Application, (v) where the Account Debtor is no longer located at the address stated in the Account Documentation and GE Capital has endeavored but has been unable to find a forwarding address, or (vi) which is deemed by GE Capital in its good faith judgment after applying reasonable standards to be uncollectible, and which GE Capital therefore determines to be Bad Debt prior to such Account being eight (8) payments due. "Bankruptcy Code" shall mean the Bankruptcy Reform Act of 1978, as amended, 11 U.S.C. Section 1101 et seq., as the same may be amended from time to time, and any similar successor statute that may be in effect from time to time. "Billing Cycle" shall mean the time interval between regular periodic Billing Dates for an Account. "Billing Date" shall mean the last day of a Billing Cycle for an Account. "Business Day" shall mean any day, except Saturday, Sunday or a legal holiday, on which HSN and GE Capital are open for business. "Collection Policy" shall mean the collection policy applied by GE Capital in accordance with its usual standards in the context of its retail 3 4 accounts receivable business which are attached to this Agreement as Exhibit A and may be modified from time to time by GE Capital in its sole discretion. "Commercial Paper Rate" shall mean the rate for so-called sixty (60) day high-grade unsecured notes sold through dealers by major corporations in multiples of $1000 as published by The Wall Street Journal in its "Money Rates" section under the heading "Commercial Paper" (or if such publication is discontinued, such other publication of similar type designated by GE Capital) on any Business Day (that such publication is published), whether or not such rate is actually charged or paid by an entity. "Confidential Information" shall have the meaning assigned to it in Section 14.10 hereof. "Credit Agreement" shall mean an open-end revolving credit agreement entered into pursuant to this Program pursuant to which an Account Debtor may be permitted to purchase, from time to time, Merchandise from HSN or a Participating Subsidiary on credit, whether or not there is a finance charge computed from time to time, and includes, without limitation, revolving charge plans, extended payment plans, and interest free plans. "Credit Application" shall mean a credit application which must be completed by individuals who wish to become Account Debtors and which must be submitted to GE Capital for review. "Credit Card" shall mean the plastic card or temporary card issued under the Program, which evidences an Account Debtor's right to purchase Merchandise under the Program. "Credit Sales Turnover" shall mean, with respect to any period, (i) the aggregate Net Credit Sales for such period divided by (ii) the Average Periodic Aggregate Indebtedness for such period. "Customer Service Policy" shall mean the customer service policy applied by GE Capital in accordance with its usual standards in the context of its retail accounts receivable business which are attached to this Agreement as Exhibit B, and may be modified from time to time by GE Capital in its reasonable discretion (provided that any such modification shall not impair the quality and level of service set forth in Exhibit B). "Effective Date" means February 16, 1994. "Event of Default" shall have the meaning assigned to it in Article XIII hereof. 4 5 "GAAP" shall mean generally accepted accounting principles in the United States of America as from time to time in effect. "GE Capital's Accounting Practices" shall mean the general accounting practices followed uniformly by GE Capital (as such accounting practices may be modified from time to time) with respect to consumer credit indebtedness purchased by GE Capital, including, without limitation, GE Capital's practices for assessing finance charges and insurance charges with respect to Accounts and for reversing such charges. "HSN Marks" means the name, logo, trademarks and service marks or similar proprietary designations claimed owned or used by HSN as set forth on Exhibit C attached hereto. "HSN Payment" shall mean any payment on an Account made by an Account Debtor (or any other Person acting on behalf of such Account Debtor) at any HSN or any Participating Subsidiary location (other than a Store). "Indebtedness" shall mean any obligation incurred by an Account Debtor in respect of an Account, whether or not billed, including, without limitation, any charges for Merchandise, finance charges, charges for Credit Insurance and any other charges in respect of an Account as such charges are accrued pursuant to GE Capital's Accounting Practices. "Lien" shall mean any mortgage or deed of trust, pledge, hypothecation, assignment, deposit arrangement, lien, charge, claim, security interest (including, without limitation, any interest of a buyer of accounts or chattel paper which is subject to Article 9 of the UCC), easement or encumbrance, preference, priority, or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any lease or title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of, or agreement to file, any financing statement pursuant to the UCC). "Loss(es)" shall mean any losses, liabilities, expenses (including reasonable attorneys' fees and court costs), judgments, damages, claims, demands, offsets, defenses, counterclaims, settlements, actions, proceedings or other costs reasonably incurred by any party to this Agreement, as the case may be. "Maximum Indebtedness" shall mean One Hundred Fifty Million Dollars ($150,000,000) or such greater amount as GE Capital, in its sole discretion shall, from time to time, specify to HSN. 5 6 "Merchandise" shall mean those goods and services sold at retail by HSN and the Participating Subsidiaries in Stores or through mail order, television or other electronic media to the general public for personal, family, or household use. "Net Billed Insurance Charges" shall mean the sum of all Credit Insurance charges billed on Accounts (excluding Credit Insurance charges reversed in connection with a credit-based promotion or a cancellation of the insurance) each month. "Net Credit Sales" shall have the meaning assigned to it in Section 4.01 hereof. "Obligations" shall mean any and all liabilities, obligations, covenants, and duties owing by HSN or any Participating Subsidiary to GE Capital arising under this Agreement (or any modification, alteration or amendment hereof), of any kind or nature, present or future, whether or not evidenced by any note, guarantee, or other instrument, whether or not for the payment of money, whether arising by reason of an extension of credit, loan, guarantee, letter of credit, indemnification, or in any other manner, whether direct or indirect (including those acquired by assignment), absolute or contingent, due or to become due, now existing or hereafter arising, and however acquired. The term includes, without limitation, any fee, charge, expense, attorney's fee or other sum chargeable to HSN or any affiliate of HSN pursuant to this Agreement, as the same may be modified, altered or amended. "Operating Procedures" shall mean the instructions and procedures established by GE Capital and delivered to HSN that are to be followed by HSN and the Participating Subsidiaries in connection with the Program and attached hereto as Exhibit D, and as the same may from time to time be amended or modified by GE Capital in its sole reasonable discretion. "Participating Subsidiaries" shall mean Home Shopping Club, Inc., HSN Tours, Inc., HSN Mail Order, Inc., World Rez, Inc., Home Shopping Club Outlet of Clearwater, Inc., Home Shopping Club Outlet of Tampa, Inc., Home Shopping Club Outlet of Orlando, Inc., Home Shopping Club Outlet of South Orlando, Inc., Home Shopping Club Outlet of St. Petersburg, Inc., Home Shopping Club Outlet of West Tampa, Inc., Home Shopping Club Outlet of Brandon, Inc. and such other wholly-owned Subsidiaries of HSN as HSN and GE Capital shall from time to time agree upon (it being understood, that any such wholly-owned subsidiary shall be added to and become a party and signatory of, this Agreement). "Person" shall mean any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, institution, public benefit corporation, entity, or government (whether federal, 6 7 state, county, city, municipal, or otherwise, including, without limitation, any instrumentality, division, agency, body, or department thereof). "POS Network" shall mean the electronic communication interchange system (including without limitation any electronic network) utilized by HSN, the Participating Subsidiaries and GE Capital to administer the Program. "Program" shall mean the credit card program, including the Regular Program, the Special Program, and the Recourse Program established by GE Capital in furtherance of this Agreement and made available to Account Debtors for the purchase of Merchandise. The term "Program" includes the assignment of Accounts and Indebtedness and extension of credit in connection therewith, billings, collections, accounting between the parties and all aspects of the credit card program contemplated herein. "Program Year" shall mean the twelve (12) month period commencing with the date on which this Agreement is executed, and each successive twelve month period during the Initial Term and Renewal Term(s). "Regular Program" shall mean the program under which GE Capital purchases Accounts and Indebtedness from HSN or any Participating Subsidiary not subject to the terms of the Special Program or the Recourse Program. "Required Reserve" shall mean, an amount equal to the product of (x) the difference between Targeted Loss Rate and five percent (5%) and (y) two and six-tenths (2.6), multiplied by the SP Aggregate Investment. "Reserve Account" shall have the meaning assigned to it in Section 7.02(a) hereof. "Reserve Balance" shall mean, at any time, the net amount of all debits and credits to the Reserve Account at such time. "Reserve Percentage" shall mean, for a period of twenty-four (24) months commencing with the end of the first full month next following the SP Effective Date (the "24 Month Period") an amount equal to the product of (x) the amount by which the Targeted Loss Rate exceeds five percent (5%) multiplied by (y) two and six-tenths (2.6), divided by two (2). "RP Annual Loss Rate" shall mean, for any Program Year, an amount equal to the quotient derived by dividing (x) the sum of the RP Net Bad Debt for such Program Year by (y) the RP Average Aggregate Investment for such Program Year. 7 8 "RP Average Aggregate Investment" shall mean, in respect of Indebtedness (other than Indebtedness created under the Special Program or the Recourse Program), for any period, the sum of all such Indebtedness owned by GE Capital on each day during such period, divided by the number of days in such period. "RP Net Bad Debt" shall mean, in respect of all Indebtedness (other than Indebtedness created under the Special Program or the Recourse Program), the amount of Bad Debt first becoming Bad Debt during the period in question less the gross amount of cash recoveries received during such period in question (less deductions for attorney's fees, collection agency fees or other collection costs) in respect of Bad Debt (regardless of when such Bad Debt was incurred). "RPR Indebtedness" shall mean any Indebtedness incurred pursuant to an Account (a) as to which the Account Debtor has, in apparent good faith, made a claim of (i) a breach of a representation or warranty (either express or implied) by HSN or any Participating Subsidiary, (ii) a violation of a local, state, or federal law or regulation by HSN or any Participating Subsidiary or (iii) failure by HSN or any Participating Subsidiary to provide the Account Debtor with the agreed-upon goods or services, (b) as to which HSN or any Participating Subsidiary has accepted a return of Merchandise from an Account Debtor or has granted a partial credit with respect to Merchandise purchased pursuant thereto other than in the ordinary course of business, (c) with respect to which the Account Documentation has not been forwarded to GE Capital in accordance with Section 3.05 hereof, (d) as to which there is a breach of any representation, warranty or covenant of HSN or any Participating Subsidiary hereunder relating to an Account, or there would be such a breach if such representation or warranty did not contain a requirement of materiality, (e) where an Account Debtor has asserted that the Indebtedness was fraudulently incurred and the claim of fraud is not frivolous, provided that such fraudulent incurrence does not arise in connection with a fraudulent Credit Application (f) as to which any charges have been made which have not been authorized by GE Capital pursuant to Section 3.01(b) hereof. With respect to subsection (c) above, such event shall not be considered RPR Indebtedness if cured or resolved by HSN within two (2) Business Days after receiving notice from GE Capital thereof. "SP Aggregate Investment" shall mean, at any time, the aggregate of Indebtedness owned by GE Capital and created under the Special Program. "SP Annual Loss Rate" shall mean, for any Special Program Year, an amount equal to the quotient derived by dividing (x) the sum of the SP Net Bad Debt for such Special Program Year by (y) the SP Average Aggregate Investment for such Special Program Year. 8 9 "SP Average Aggregate Investment" shall mean, in respect of Indebtedness created under the Special Program, for any period, the sum of all such Indebtedness owned by GE Capital on each day during such period, divided by the number of days in such period. "SP Effective Date" shall mean the date upon which GE Capital first purchases Accounts and Indebtedness under the terms of the Special Program. "SP Loss Rate" shall mean, for any period, an amount equal to the quotient derived by dividing (x) the SP Net Bad Debt for such period by (y) the SP Average Aggregate Investment for such period. "SP Net Bad Debt" shall mean, in respect of Indebtedness created under the Special Program or the Recourse Program, Indebtedness identified by GE Capital as Bad Debt during the period in question less the gross amount of cash recoveries received during such period (less deductions for attorney's fees, collection agency fees or other collection costs) in question in respect of such Bad Debt (regardless of when such Bad Debt was incurred). "SP Net Credit Sales" shall mean, in respect of Indebtedness created under the Special Program, the amount shown as the total of purchases on charge slips submitted by HSN and the Participating Subsidiaries to GE Capital (gross credit sales) less the total amount of any credit slips submitted by HSN and the Participating Subsidiaries to GE Capital. "SP Required Loss Payments" shall mean, for any Special Program Year, the difference derived from subtracting (x) the product of the SP Average Periodic Aggregate Investment for such period and five percent (5%) from (y) the sum of the SP Net Bad Debt for such Special Program Year. "Solvent" means, when used with respect to an entity on a particular date, that on such date (a) that the assets of such entity are greater than the total amount of its liabilities ("assets" and "liabilities" shall have the meanings assigned to them in accordance with GAAP), (b) such entity is able to realize upon its assets and pay its debts and other liabilities, contingent obligations and other commitments as they mature in the normal course of business, (c) such entity does not intend to, and does not believe that it will, incur debts or liabilities beyond such entity's ability to pay as such debts and liabilities mature, and (d) such entity is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such entity's property would constitute unreasonably small capital after giving due consideration to the prevailing practice in the industry in which such entity is engaged. In computing the amount of contingent liabilities at any time, it is intended that such liabilities will be computed at the amount which, 9 10 in light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability. "Special Program" shall have the meaning assigned to it in Section 7.01(a) hereof. "Special Program Year" shall mean the twelve-month period commencing on the SP Effective Date, and each successive twelve-month period after such initial twelve-month period. "Stores" shall mean those stores operated by HSN and/or the Participating Subsidiaries on the date hereof or hereafter. "Targeted Loss Rate" shall mean a rate established by HSN and GE Capital from time to time as the targeted rate of losses computed as a percentage of the SP Aggregate Investment under the Special Program. "UCC" shall mean the Uniform Commercial Code (or similar law) of the jurisdiction with respect to which such term is used, as in effect from time to time. "Unidentifiable Media" shall mean media that does not have a valid account number, or media with an account number that is illegibly imprinted, or media that contains any illegible content. Section 1.02. Miscellaneous. (a) The words "herein," "hereof," "hereunder," and other words of similar import refer to this Agreement as a whole, including the Exhibits hereto, as the same may from time to time be amended or supplemented, and not to any particular section, subsection, or clause contained in this Agreement. (b) The parties hereto acknowledge and agree that the specification of any dollar amount in the representations and warranties included in this Agreement or the inclusion of any specific item in the Exhibits there is not intended to imply that such amounts or higher or lower amounts, or the items so included or other items, are or are not material, and neither party hereto shall use the specification of any such dollar amount or the inclusion of any such item in any dispute or controversy between the parties as to whether any obligation, item or matter not described herein or included in an Exhibit hereto is or is not material for the purposes of this Agreement. (c) It is the intent of the parties to this Agreement that for purposes of calculating the various measurements contained herein, and unless otherwise specified, if there is generally one Billing Cycle per calendar month, any reference 10 11 to a "period" or "month" shall mean a "Billing Cycle" and any reference to a "date" shall mean a "Billing Date". In the event that there is more than one Billing Cycle per calendar month, the relevant data used in the various calculations contained herein shall be aggregated as of the last Billing Date that appears in such calendar month. (d) Wherever from the context it appears appropriate, each term stated in either the singular or plural shall include the singular and the plural, and pronouns stated in the masculine, feminine, or neuter gender shall include the masculine, the feminine, and the neuter. ARTICLE II ESTABLISHMENT OF PROGRAM Section 2.01. HSN to Honor Credit Card. HSN and each of the Participating Subsidiaries hereby agrees to participate in the Program and to honor the Credit Card so that Account Debtors may make purchases of Merchandise. HSN and each of the Participating Subsidiaries shall honor the Credit Card only in accordance with the Operating Procedures. Section 2.02. Purchase of Accounts and Indebtedness. (a) Subject to the limitations set forth in this Section 2.02(a) and Section 7.01(f), HSN and each of its Participating Subsidiaries agrees to offer to sell, assign, and transfer to GE Capital in accordance with the terms and provisions of this Agreement all Accounts and Indebtedness originated from time to time by HSN and each of its Participating Subsidiaries in connection with this Program and GE Capital agrees to purchase and acquire from HSN all such Accounts and Indebtedness offered which meet the requirements of this Agreement. GE Capital may, but shall not be obligated to, purchase any Accounts and Indebtedness from HSN and/or any of the Participating Subsidiaries at any time during which the Aggregate Investment equals or exceeds the Maximum Indebtedness; provided, however, that notwithstanding the foregoing, GE Capital shall be obligated to purchase all Indebtedness incurred in connection with a specific purchase of Merchandise authorized by GE Capital under the Program. (b) HSN and the Participating Subsidiaries hereby transfer, convey and assign to GE Capital, effective as of the date of payment of the purchase price, all of HSN's and the Participating Subsidiaries right, title and interest in, to and under the Accounts and Indebtedness for which GE Capital has paid the purchase price pursuant to Section 2.03 or Section 2.08(c) (including, without limitation, the right to receive finance charges and all other income and profits derived from the relevant Accounts and Indebtedness), free and clear of any Lien by HSN or any 11 12 Participating Subsidiary, subject only to the limited repurchase rights specified in Sections 2.04, 7.03, 12.05 and 12.06 of this Agreement (it being understood that it is not the intent of the parties that such repurchase rights result in the characterization of the transactions contemplated by this Agreement as a financing). (c) In the event that as of any month-end, the Aggregate Investment equals or exceeds eighty percent (80%) of the Maximum Indebtedness, GE Capital shall within ninety (90) days elect any one of the following options and give HSN written notice of such election within said ninety (90) day period: (i) GE Capital will, in its sole discretion, increase the Maximum Indebtedness to an amount GE Capital deems acceptable, but in any event to a sum equal to or higher than the amount which, at the time of the election of this option, would not trigger the provisions of Section 2.02(c). If GE Capital elects this option, then GE Capital's written notice to HSN shall include the amount of the increased Maximum Indebtedness. (ii) GE Capital may elect not to increase the Maximum Indebtedness and in such event, HSN shall be entitled to terminate this Agreement in accordance with the provisions of Section 12.02(b). (d) HSN and the Participating Subsidiaries expressly acknowledges GE Capital's right to establish the Maximum Indebtedness as described in Section 2.02 and, in this regard, hereby releases GE Capital from any and all Losses incurred as a result of GE Capital's failure to purchase Accounts or Indebtedness in excess of the Maximum Indebtedness (other than Indebtedness of the type specified in the proviso in Section 2.02(a)) or to increase the Maximum Indebtedness or as a result of any other action contemplated under Section 2.02, including but not limited to, any losses relating to a lender liability claim. Section 2.03. Purchase Price. The purchase price (sales price, shipping and handling and taxes) for all Indebtedness purchased pursuant to Section 2.02 hereof shall be one hundred percent (100%) of the face amount of such Indebtedness. HSN shall provide to GE Capital each day an electronic data transmission or daily computer tape from HSN reflecting Indebtedness and Net Credit Sales for the preceding day. GE Capital shall forward to HSN (on its own behalf and as agent for the Participating Subsidiaries) the purchase price for Indebtedness purchased hereunder, net of any (a) amount or fee referred to in Section 4.01 and (b) other adjustments with respect to Merchandise returns and/or credits, such as discounts and adjustments, by initiating a wire transfer of funds for the purchase price by 3:00 p.m. Eastern Time on the same Business Day after receipt by GE Capital of the electronic data transmissions or daily computer tape reflecting such Indebtedness, provided that such transmission or tape is received 12 13 by 8:00 a.m. Eastern Time on such Business Day. Electronic data transmissions or daily computer tapes received after 8:00 a.m. Eastern Time on any Business Day shall be deemed received by 8:00 a.m. Eastern Time the following Business Day. Any amounts paid to HSN as agent for the Participating Subsidiaries shall be deemed paid by GE Capital to the relevant Participating Subsidiary. Section 2.04. RPR Indebtedness. If any Indebtedness becomes RPR Indebtedness, GE Capital shall have the right to require HSN to repurchase such RPR Indebtedness from GE Capital subject only to HSN's right to cure conditions pursuant to Section 2.04(c). (a) Repurchase Price and Payment. The repurchase price payable for RPR Indebtedness shall be 100% of the amount of such RPR Indebtedness and any unpaid finance charges that have accrued on such RPR Indebtedness during the first Billing Cycle in which finance charges are assessed. Until such time as GE Capital exercises its right to have HSN repurchase RPR Indebtedness, GE Capital shall continue to attempt to collect such RPR Indebtedness from the relevant Account Debtor. The payment of the purchase price for such RPR Indebtedness shall, in GE Capital's discretion, be (a) deducted from the amounts owing from GE Capital to HSN and the Participating Subsidiaries pursuant to Section 2.03 or (b) paid directly by HSN to GE Capital within ten (10) Business Days after receipt of notice that such amount is due and the computation of such amount. (b) Assignment and Servicing. Upon any such repurchase, GE Capital shall assign to HSN all of GE Capital's right, title, and interest in and to such RPR Indebtedness, without any warranty or recourse, and, if all Indebtedness with respect to an Account is repurchased, such Account, without any warranty or recourse, and the ownership interest of GE Capital in such Indebtedness and related Account, if any, shall be terminated. After HSN has repurchased such RPR Indebtedness, (i) GE Capital's obligation to service such RPR Indebtedness, as set forth in Section 3.01 hereof, shall be terminated, (ii) all payments in respect to such RPR Indebtedness shall be forwarded by GE Capital to HSN, but shall be subject to GE Capital's right of setoff as set forth in Section 6.08 hereof, and (iii) upon HSN's request, GE Capital shall deliver to HSN all evidences of Indebtedness and copies (or, upon HSN's reasonable request, GE Capital will make reasonable efforts to obtain and deliver originals) of Account Documentation with respect to such RPR Indebtedness then in GE Capital's possession. (c) Cure of RPR Claims or Conditions by HSN. In the event that Indebtedness has become RPR Indebtedness (collectively a "Claim or Condition"), GE Capital shall use its best efforts to provide oral or written notice to HSN within five (5) Business Days of receipt of such Claim or Condition that such Indebtedness has become RPR Indebtedness and the reason therefor. Upon receipt 13 14 of such notice from GE Capital, HSN shall have with respect to such RPR Indebtedness (other than if such Indebtedness is classified as RPR Indebtedness pursuant to clause (c) of the definition of the term RPR Indebtedness), a period of twenty-five (25) days within which to cure or resolve the Claim or Condition which gave rise to the Indebtedness becoming RPR Indebtedness; if HSN cures or resolves the Claim or Condition within such twenty-five (25) day period to the reasonable satisfaction of GE Capital to the extent that such Indebtedness should no longer be classified as RPR Indebtedness, then GE Capital will remove such Indebtedness from the classification of RPR Indebtedness. If such Claim or Condition is not cured or resolved by HSN within such twenty-five (25) day period (or, if such Indebtedness is classified as RPR Indebtedness pursuant to clause (c) of the definition of the term RPR Indebtedness), then GE Capital shall have the unqualified right to require HSN to repurchase such RPR Indebtedness. (d) HSN's Obligations Unconditional. Any obligation of HSN to repurchase RPR Indebtedness pursuant to this Agreement shall be unconditional and shall not be waived, released or affected by any settlement, extension, compromise, variation in terms, forbearance or other indulgence or agreement made or granted by GE Capital with or to any Account Debtor or other Persons obligated for an Account to the extent that the settlement, extension, compromise, variation in terms, forbearance or other indulgence or agreement complies with GE Capital's Collection Policy; provided, however, that the repurchase price to be paid by HSN to GE Capital for RPR Indebtedness pursuant to Section 2.04(a) above shall be adjusted and reduced by an amount equivalent to any settlement, compromise or agreement made or granted by GE Capital with respect thereto which results in a reduction of the amount originally owed by the Account Debtor or other persons obligated for an Account with respect to such RPR Indebtedness. GE Capital shall not be required to exhaust its remedies against Account Debtors, other Persons or Merchandise as a condition precedent to requiring performance by HSN of its repurchase obligation. Without hereby waiving HSN's rights to notice of release, compromise, settlement, extension or renewal, HSN hereby expressly waives notice of nonpayment and nonperformance, demand, protest, notice of presentment, dishonor, default, maturity, notice of intent to accelerate and notice of acceleration, of any or all Accounts and guarantees at any time held by GE Capital to the fullest extent permitted by applicable law. Section 2.05. Monthly Statements. GE Capital shall provide to HSN a monthly statement, as of each Billing Date, of the calculations, for any Billing Cycle, of the fees and charges payable pursuant to Article IV together with such supporting information as may reasonably be requested by HSN. Each and every monthly statement shall be deemed final, binding, and conclusive upon HSN in all respects as to all matters reflected therein, except as to clear error, unless HSN, within thirty (30) days after the date the statement is received by HSN, notifies GE Capital of any objections which HSN may have to any such monthly 14 15 statement, describing the basis for each such objection with specificity. In that event, all matters reflected in such statement, other than those items expressly objected to in such notice, shall be deemed final, binding and conclusive on HSN. Section 2.06. Payments. GE Capital may, at its option and following reasonable prior notice to HSN, apply any amounts due from GE Capital to HSN or any Participating Subsidiary pursuant to this Agreement against amounts past due from HSN or any Participating Subsidiary to GE Capital hereunder, including, but not limited to, the return of the unearned portion, if any, of the Commitment Fee paid by GE Capital pursuant to Section 4.02. Section 2.07. Credit Insurance. (a) Subject to applicable state law and regulation, GE Capital shall have (i) the exclusive right to arrange the solicitation and offering to Account Debtors of credit life and credit disability insurance, provided that prior to the distribution of materials to be used in connection with such solicitation and offering, such materials shall first be submitted to HSN for approval (which approval shall not be unreasonably withheld) and (ii) subject to the mutual agreement of HSN and GE Capital, the non-exclusive right to arrange the solicitation and offering to Account Debtors credit property or other types of credit insurance (collectively "Credit Insurance") on the Accounts under a credit insurance program. The Credit Insurance will be under a master group plan with GE Capital or an affiliate of GE Capital underwritten by an insurer selected by GE Capital, provided that such underwriter shall have a Best's rating of no less than A- unless HSN and GE Capital agree otherwise. GE Capital shall service and bill Account Debtors who have purchased Credit Insurance under Accounts. The insurance offers may be in direct mail or statement inserts and, subject to the mutual consent of the parties to this Agreement, Credit Applications or Credit Card carrier enrollments. The monthly charges incurred by an Account Debtor under an Account for such Credit Insurance shall be charged as an insurance service transaction to the applicable Account Debtor's Account. Compensation or fees shall be paid to HSN (or offset by GE Capital against monies owed to GE Capital by HSN hereunder) at least monthly in the amount which is the equivalent of thirty percent (30%) of Net Billed Insurance Charges. If required by the insurer in accordance with applicable law, HSN or a subsidiary shall obtain insurance licensing necessary for GE Capital to pay to HSN the fees provided for hereunder. If the insurer requires such license of HSN, GE Capital shall not be permitted to offset monies due HSN under this Section 2.07 against amounts owed to GE Capital. All payments to HSN under this Section 2.07 shall cease upon a termination of this Agreement pursuant to Section 12.03(b) or (c) whether or not GE Capital is liquidating the Accounts. Notwithstanding anything herein to the contrary, nothing in this Agreement shall preclude HSN Insurance, Inc., a wholly-owned subsidiary of HSN, from offering its insurance products (other than credit life and credit disability insurance) to Account Debtors. 15 16 (b) GE Capital shall process through the insurance carrier all claims received from Account Debtors having Credit Insurance on their Accounts. (c) GE Capital, HSN and the Participating Subsidiaries understand that Credit Insurance, including the compensation and fees that may be paid to each of them, is regulated under applicable state laws and regulations. GE Capital makes no representations or warranties with respect to the availability of Credit Insurance on any Account(s) nor with respect to any compensation or fees. Prior to GE Capital offering any such insurance products to Account Debtors, it shall cause the underwriter of such insurance product to directly indemnify HSN, to HSN's satisfaction, for all Losses incurred by HSN as a result of the underwriter's acts and omissions and/or the insurance product itself. Section 2.08. Interim Provisions. (a) Notwithstanding anything to the contrary in this Agreement, up and until the conditions specified in Section 5.01(e) shall have been satisfied, GE Capital shall not be obligated to purchase Accounts and Indebtedness pursuant to this Agreement and GE Capital shall service accounts and indebtedness of HSN and Participating Subsidiaries in accordance with the provisions of this Section 2.08. (b) GE Capital, HSN and the Participating Subsidiaries hereby agree that for the periods (i) from the date hereof through the date on which the conditions specified in Section 5.01(e) shall have been satisfied and (ii) from and after the date this Agreement shall terminate pursuant to Section 12.03(d) hereof as a consequence of those conditions set forth in Section 5.01(e) not being satisfied until the earlier to occur of the date (A) one hundred eighty (180) days after the date of such termination and (B) on which HSN shall have notified GE Capital that HSN has an alternative to the Program in effect, GE Capital shall provide to HSN and the Participating Subsidiaries the services specified in Article III hereof, (y) all of the provisions of this Agreement shall be equally applicable and shall be in full force and effect with respect to both the accounts and indebtedness for which GE Capital provides services pursuant to Article III and such services provided by GE Capital, except that (A) Sections 2.02, 2.03, 2.04, 2.07, 3.01(i), 3.06, 4.02, 12.05, 12.07 and 14.14 and Articles V (other than Section 5.01(a)) and VII shall not be applicable to such accounts and indebtedness, (B) HSN and the Participating Subsidiaries shall not be deemed to have breached any representation, warranty or covenant as a result of such account and/or indebtedness not being transferred to and owned by GE Capital and (C) HSN's failure to satisfy Section 5.01(e)(ii) and (iii) shall not be deemed to be an Event of Default or material breach under this Agreement but shall give rise to the rights set forth herein, including those set forth in this Section 2.08 and 12.03(d) and (z) subject to clause (y) above, such accounts and indebtedness shall be deemed to be Accounts and Indebtedness for all purposes of this Agreement. In the event this Agreement 16 17 shall have been terminated pursuant to Section 12.03(d), during the period in which GE Capital will provide services pursuant to this Section 2.08(b), GE Capital and HSN will reasonably cooperate to facilitate the transfer to HSN of the service responsibilities provided by GE Capital pursuant to this Section 2.08(b), at the end of the period specified in this Section 2.08(b). (c) Upon satisfaction of the conditions specified in Section 5.01(e) of this Agreement, subject to the satisfaction of the other conditions specified in Article V of this Agreement, GE Capital shall purchase all accounts and indebtedness for which GE Capital provided all services specified in Section 2.08(a) of this Agreement, (including, without limitation, the services specified in Section 3.01(b), free and clear of any and all Liens created by or through HSN or any Participating Subsidiary, for a purchase price equal to one hundred percent (100%) of the amount of the accounts and indebtedness so purchased (including, without limitation, unpaid finance charges thereon) net of any (a) amount or fee referred to in Section 4.01 and (b) other adjustments with respect to merchandise returns and/or credits, such as discounts and adjustments. On and subsequent to such purchase, such accounts and indebtedness shall become Accounts and Indebtedness for all purposes of this Agreement and all of the provisions of this Agreement relating to Accounts and Indebtedness shall be equally applicable to such Accounts and Indebtedness. (d) During the period in which GE Capital shall provide services to HSN and the Participating Subsidiaries pursuant to Section 2.08(b), HSN and the Participating Subsidiaries shall pay GE Capital the following service fee: (i) for the period commencing with the date hereof and ending with the earlier to occur of (A) the date thirty (30) days after the date hereof (or, such later date to which GE Capital shall agree to extend the satisfaction of the conditions specified in Section 5.01(e)) and (B) the date on which GE Capital shall purchase the Accounts and Indebtedness pursuant to Section 2.08(c), the Service Fee specified in Section 4.01 of the Agreement; and (ii) for the period commencing with the later of the date thirty one (31) days after the date hereof or the date one day after the date to which GE Capital has agreed to extend the satisfaction of the conditions specified in Section 5.01(e) and ending on the date on which GE Capital shall cease to provide services to HSN and the Participating Subsidiaries with respect to the Accounts (as specified in Section 2.08(b)), a service fee in the amount of $2.75 per account serviced by GE Capital (and HSN shall not be required to pay the Service Fee specified in Section 4.01). The Service Fee due and payable pursuant to clause (i) above shall be paid in the following manner: 17 18 (A) in the event GE Capital shall purchase the Accounts pursuant to Section 2.08(c), the Service Fee due and payable pursuant to clause (i) above shall be paid by netting the aggregate amount of such Service Fee from the purchase price (as specified in Section 2.08(c)) and (B) in the event GE Capital shall not purchase the Accounts pursuant to Section 2.08(c), the Service Fee due and payable pursuant to clause (i) above shall be paid by GE Capital deducting the aggregate amount of such Service Fee from amounts GE Capital is required to transfer to HSN pursuant to Section 2.08(e) and, after any such deduction, GE Capital shall provide notice to HSN of any such deduction and the calculation thereof. The service fee due and payable pursuant to clause (ii) above shall be due and payable for each Special Services Period (as defined below) for each account which has a debit or credit balance or to which a debit or credit has been posted, in each case during the applicable Special Services Period, on the last day of the applicable Special Services Period, and shall be paid to GE Capital by GE capital deducting the amount of such service fee due and payable from amounts GE Capital is required to transfer to HSN pursuant to Section 2.08(e) and, after any such deduction, GE Capital shall provide notice to HSN of any such deduction and the calculation thereof. In the event the service fee due and payable to GE Capital on the last day of the last Special Services Period is greater than the amount GE Capital is required to transfer to HSN pursuant to Section 2.08(e) on such day, GE Capital shall invoice HSN for the amount of such deficiency and HSN shall pay the amount of such deficiency to GE Capital within ten (10) Business Days after its receipt of such invoice. The term "Special Services Period" means a period commencing with the later of the 31st day after the date hereof or the date one day after the date to which GE Capital has agreed to extend the satisfaction of the conditions specified in Section 5.01(e) and ending on the first monthly anniversary of the date thereof and, thereafter, commencing with the date immediately succeeding the last day of the immediately preceding Special Services Period and ending on the earlier to occur of (i) the monthly anniversary of the first day of such period and (ii) the date on which GE Capital shall cease to provide to HSN and the Participating Subsidiaries the services specified in Section 2.08(b). (e) During the periods specified in clauses (i) and (ii) of Section 2.08(d) of this Agreement, GE Capital will post and then forward to HSN (on its own behalf and as agent for the Participating Subsidiaries) all payments received by GE Capital from account debtors relating to accounts (including, without limitation, all finance charges and late fees) in the manner specified in this paragraph (e). GE Capital shall have no right, title or interest in such payments except those rights specified in this Section 2.08. GE Capital shall be deemed to hold the funds in trust for HSN until such payments are delivered to HSN. Payments received by GE Capital on any Business Day will be paid by GE Capital to 18 19 HSN through GE Capital initiating a wire transfer of funds in the amount of such payment on or before 3:00 p.m. Eastern Time on the immediately succeeding Business Day; provided, however, that in the event the amount required to be paid by transfer to HSN on any Business Day is in an amount equal to or less than Ten Thousand Dollars ($10,000.00), such amount shall not be wire transferred to HSN on the Business Day such amount shall be required to be transferred to HSN pursuant to this paragraph (e) (but for this provisio) and such amount shall be transferred to HSN on the immediately succeeding Business Day on which the amount required to be wire transferred to HSN pursuant to this paragraph (e) on such Business Day together with the amount held by GE Capital pursuant to provisio exceeds Ten Thousand Dollars ($10,000.00). Amounts received by GE Capital after 12:00 p.m. Eastern Time on any Business Day shall be deemed received by GE Capital on the next succeeding Busies Day. GE Capital shall have the right to deduct from any amounts due and payable to HSN pursuant to this paragraph (e), amounts then owing to GE Capital by HSN or any Participating Subsidiary pursuant to this Agreement. GE Capital shall promptly notify HSN of any such deduction. ARTICLE III SERVICING Section 3.01. GE Capital's Responsibilities. In connection with its purchase and continued ownership of Accounts and Indebtedness GE Capital shall perform the following: (a) Forms. GE Capital shall be responsible for the costs of printing billing statements, Credit Card carriers, collection notices, adverse action notices and other internal Account Documentation as may be required to administer the Program. (b) Credit Processing. GE Capital will review all Credit Applications. Except in the case of Credit Applications submitted to GE Capital under the Special Program or the Recourse Program, GE Capital will (i) approve for purchase the Accounts of those applicants which GE Capital deems creditworthy in accordance with credit standards and other reasonable criteria as established by GE Capital from time to time and (ii) set credit standards and otherwise use its reasonable best efforts to achieve and maintain an RP Annual Loss Rate of five percent (5%) during the term of this Program. GE Capital shall develop routines and procedures with respect to application processing and authorizations in connection with Stores, mail order and through television or other electronic media. As to each applicant who is found to be creditworthy by GE Capital in accordance with the above-referenced standards and criteria, GE Capital will from time to time establish the maximum amount of credit it shall purchase with respect to such applicant, 19 20 which amount may be changed from time to time. Specific credit approval shall be obtained from GE Capital by HSN or the relevant Participating Subsidiary prior to each purchase on an Account by an Account Debtor. GE Capital may furnish credit information and other information concerning creditworthiness with respect to any applicant or Account Debtor to Transunion, TRW and Equifax or such other credit bureaus, credit interchanges and other persons reasonably utilized by GE Capital in evaluating the creditworthiness of the applicant or Account Debtor or for collection purposes, provided that GE Capital shall use its reasonable best efforts to assist HSN in obtaining confidentiality agreements from such entities that are furnished the aforementioned information. The standards of acceptability and eligibility as may be revised and used from time to time by GE Capital in reviewing applications for credit and determining creditworthiness of applicants or Account Debtors will at all times comply with applicable consumer protection laws. With respect to Credit Applications submitted to GE Capital under the Special Program, GE Capital shall follow the procedures and standards specified in Article VII of this Agreement. (c) Customer Service. Customer service matters shall be performed by GE Capital personnel acting in accordance with the Customer Service Policy. This notwithstanding, HSN shall have the option to assume responsibility for performing certain of the services provided by GE Capital under this Agreement, provided that GE Capital and HSN mutually agree that HSN is capable of performing such services. In the event GE Capital and HSN shall agree that certain services provided by GE Capital pursuant to this clause (c) shall cease to be performed by GE Capital and be performed by HSN, GE Capital and HSN shall mutually agree upon an appropriate adjustment to the fees due and payable by HSN to GE Capital pursuant to Section 4.01. (d) Collections. Collection activity on delinquent accounts shall be performed by GE Capital personnel in accordance with the Collection Policy. (e) Billing/Payment Processing. GE Capital shall prepare and mail billing statements to Account Debtors and process corresponding mailed payments at GE Capital's expense. GE Capital shall include as inserts with such billing statements any legal notices as required by law, and such notices shall have priority with respect to any other inserts to be mailed with such billing statements supplied by HSN. GE Capital shall also include with said billing statements up to six (6) inserts per customer billing statement per month, which inserts shall be supplied by HSN (at the address stated by GE Capital and using GE Capital's insert requirements as outlined in the Operating Procedures), provided that HSN must reimburse GE Capital for any extra postage paid as a result of such insertion. In addition, GE Capital shall also include with said billing statements up to two (2) customized promotional messages per month provided by HSN which GE Capital shall include in such space as may reasonably be available in billing statements, 20 21 subject to any limitations imposed by GE Capital's reasonable needs, including by way of example and without limitation, GE Capital's billing statement systems configuration and GE Capital's needs to comply with applicable law. GE Capital agrees that, except for such inserts that constitute legal notices as required by law, no inserts shall be included with the billing statements without HSN's prior consent. (f) Reporting. GE Capital shall establish and maintain accurate records for Account Debtors and all Accounts owned by GE Capital and shall provide to HSN reports thereof in accordance with GE Capitals' normal operating procedures, and/or such other reports thereof, at no expense to HSN, as may be reasonably requested by HSN. A list of such reports is attached to this Agreement as Exhibit E and may be modified from time to time. (g) Credit Cards. GE Capital shall emboss, encode and mail Credit Cards to Account Debtors at GE Capital's expense. (h) Use of Marks. GE Capital shall operate the Program as a separate private label revolving credit plan, utilizing the HSN Marks from time to time. HSN hereby grants to GE Capital a non-exclusive license to use the HSN Marks in connection with the Program, subject to the limitations set forth herein. Such license shall be irrevocable as long as this Agreement remains in effect and shall continue in effect after the expiration or any termination of this Agreement as provided, and subject to the limitations contained, herein. GE Capital acknowledges and agrees that the grant of the foregoing license shall not be construed as the grant of any right, title or interest in the HSN Marks (except the right to use the HSN Marks in connection with the Program) and that the HSN Marks are the sole and exclusive property of HSN. HSN shall have the right to approve the use and manner of use of the HSN Marks by GE Capital, which such approval shall not unreasonably be denied. HSN shall have the right to impose or prescribe any reasonable requirements with respect to the use of the HSN Marks in connection with the Program. HSN shall be responsible for the validity of any HSN Marks used in connection with the Program. Notwithstanding the expiration or any termination of this Agreement for any reason, the license granted to GE Capital pursuant to this Section 3.01(h) shall continue in effect after the effective date of the expiration or any termination of the Program for a period of two (2) years after termination so long as GE Capital owns any Account, except that GE Capital may continue to use the HSN name (but not the remainder of the HSN Marks) in accordance with Section 12.07(iii) hereof. GE Capital may use its name in connection with the operation of the credit program described herein in accordance with its usual standards in the context of its retail accounts receivable business to the extent deemed reasonably necessary by GE Capital to protect its interest hereunder. 21 22 (i) Marketing Programs. GE Capital shall make available to HSN for consideration by it, from time to time during the term of the Agreement, various marketing programs and promotions relating to Accounts in accordance with its usual standards in the context of its retail accounts receivable business. Beginning on the first anniversary date of the Program, GE Capital shall contribute an amount equal to .0208% of Average Aggregate Investment per month to a promotion fund for the creation and use of Accounts; provided, that each such promotion shall be mutually agreed upon by the parties hereto and; provided further, that HSN shall contribute an amount equal to fifty percent (50%) of the cost for each such promotion. (j) Program Manager. Throughout the term of this Agreement, GE Capital shall provide a qualified and dedicated Program Manager at no cost to HSN, who will administer GE Capital's obligations under this Agreement and serve as HSN's primary contact for all matters relating to this Agreement. The Program Manager will not work on or otherwise directly or indirectly assist GE Capital with regard to accounts of direct competitors of HSN (e.g., QVC) without consent from HSN, provided that the Program Manager may serve in such capacity for other GE Capital programs during the term of this Program. (k) Merchandise Returns. GE Capital shall not advertise or otherwise promote the fact that Account Debtors may return Merchandise to GE Capital. If, notwithstanding the foregoing, any Merchandise is returned to GE Capital, GE Capital shall forward such Merchandise to HSN within five (5) Business Days of receipt. The cost of such shipment to HSN shall be borne solely by HSN. (l) Training. GE Capital shall provide up to four (4) training sessions to HSN personnel at no cost to HSN. HSN shall pay GE Capital for all out-of-pocket expenses incurred by GE Capital as a result of any additional training requested by HSN. HSN shall be authorized to make copies of manuals and written information provided for training purposes by GE Capital for HSN's use, subject to compliance with Section 14.10. (m) Advice and Counsel. GE Capital shall advise HSN promptly on an on-going basis about federal, state and local laws, ordinances, rules, regulations, judicial decisions and administrative rulings applicable to (i) limitations on finance charges and other charges for Accounts, (ii) the forms to be used in connection with the Program pursuant to this Article III and (iii) all communications by HSN made at the request of GE Capital with current or prospective Account Debtors pursuant to this Agreement. With respect to other material acts required by GE Capital to be performed by HSN, GE Capital shall use reasonable efforts to consult with HSN on such matters. In addition, GE Capital shall assist HSN in complying with all such laws, ordinances, rules, regulations, judicial decisions, administrative rulings or similar governmental pronouncements, including, but not limited to, 22 23 those laws and regulations which require certain credit disclosures to be made in connection with written and telephonic requests for credit and certain notices to be given of changes in certain terms. Section 3.02. GE Capital's Liabilities. The rejection for credit of any applicant, or any number of applicants, shall not give rise to any claim, liability, demand, offset, defense, or counterclaim (each a "Claim") by HSN or any Participating Subsidiary against GE Capital for lost sales, lost profits or consequential damages and HSN and each Participating Subsidiary hereby waives and releases any such Claim that it may have against GE Capital. The provisions of this Section 3.02 shall not limit any right of HSN to indemnification pursuant to Section 11.02. Section 3.03. HSN's Responsibilities. HSN and the Participating Subsidiaries shall, at no additional cost to GE Capital unless specifically stated in this Agreement, comply with the following with respect to Accounts purchased by GE Capital or submitted to GE Capital by HSN or any Participating Subsidiary for purchase in connection with this Agreement: (a) Forms. No Account Documentation shall be utilized unless GE Capital has expressly approved its form and content, such approval not to be unreasonably withheld. HSN shall be responsible for costs of (i) printing and customization expenses associated with sales slips, Credit Applications and Credit Agreements and (ii) providing Credit Cards (other than embossing and mailing). HSN shall indemnify GE Capital with respect to any and all losses incurred as a result of all unauthorized changes and/or omissions in such Account Documentation. (b) Sales Slips. Each sale pursuant to this Agreement shall be evidenced by a sales slip or other form of media which shall include the total cash price including any applicable taxes and shipping and handling fees indicated thereon; shall be signed by the Account Debtor (unless the sale is by way of television or other electronic media, mail order or catalog); and shall contain the Account Debtor's name and account number from the Account Debtor's Credit Card. Every sales slip or the corresponding sales invoice shall adequately describe the Merchandise sold. HSN agrees to obtain authorization before completing the transaction and record the authorization number on the sales slips or other form of media. (c) Retained Cards. HSN and each Participating Subsidiary shall use its best efforts, by reasonable and peaceful means, to retain a Credit Card when requested by GE Capital to do so for any reason in accordance with GE Capital's usual standards in the context of its retail accounts receivable business. 23 24 (d) Dates. HSN shall date all sales slips with the date of the transaction which, for the purposes of electronic retailing, shall be deemed to be the date the item of Merchandise purchased was televised and the Account Debtor placed the order (the "Show Date"), and shall date all credit forms with the date the credit is allowed. (e) Deductions. GE Capital shall deduct from any obligations it owes to HSN or any of the Participating Subsidiaries under this Agreement, including the purchase price for an Account, the full amount of any adjustments GE Capital properly makes for errors and adjustments made by HSN or any Participating Subsidiary in sales slips, credit slips, sales summaries, credit summaries, and other documents and computations used in computing settlements under this Agreement. If such obligations are insufficient to satisfy such adjustments, HSN shall pay GE Capital the excess amount on demand in same day funds (i) during the first Program Year following execution of this Agreement, on the fifth Business Day and (ii) during each Program Year after the first Program Year, on the third Business Day, in each case, after such demand is made. GE Capital shall add to amounts due in the next available transmission of funds to HSN hereunder any adjustments made in HSN's favor. (f) All Credit Applications submitted to GE Capital by HSN and/or the Participating Subsidiaries shall accurately contain the information as submitted to HSN and/or the Participating Subsidiaries by applicants and Account Debtors. Section 3.04. Promotion. HSN and the Participating Subsidiaries collectively agree to actively promote the credit program and will promote the purchase of Merchandise on credit to create Accounts for submission to GE Capital. Acceptable credit promotions and advertising projects, subject to applicable law, may include but not be limited to the following: credit-based promotions, insurance (as described in Section 2.07 hereof), and such other products as GE Capital and HSN may mutually determine. During the first Program Year following execution of this Agreement, HSN shall pay GE Capital monthly an amount equal to ninety percent (90%) of the finance charges which otherwise would have been assessed by GE Capital for any "same as cash" or other no- finance charge or reduced finance charge promotion on any Account for Indebtedness subject to such promotion if such finance charges were not waived as part of a promotion. For each subsequent Program Year, the percentage referenced above will be reviewed by the parties and will be adjusted to reflect the actual performance of the Program, provided that in no event will the percentage be adjusted below eighty-five percent (85%). HSN shall submit to GE Capital all such advertising and promotional material stating any consumer credit terms and/or conditions and all HSN and/or Participating Subsidiary promotional programs which propose to change or affect credit terms and/or conditions in respect of the Program for prior written approval by GE Capital. In the event HSN or any 24 25 Participating Subsidiary proceeds with any such material or program without the prior written approval by GE Capital, HSN shall indemnify GE Capital for any and all liabilities, costs and expenses (including reasonable attorneys' fees and expenses), judgments, damages, claims, demands, offsets, defenses, counterclaims, actions or proceedings arising from such material or program. Neither of HSN nor any Participating Subsidiary shall, without GE Capital's prior consent, use GE Capital's name or logo type in any advertisement or promotional materials except as may be otherwise required by applicable law. Section 3.05. Records. With respect to each Account sold by HSN or any Participating Subsidiary to GE Capital, HSN and/or the relevant Participating Subsidiary will (a) cause accounting entries to be made on its books of account and other records reflecting the sale of such Account to GE Capital, (b) except as provided in clause (d) below, promptly after the purchase by an Account Debtor creating the Account, deliver to GE Capital Account Documentation for such Account as required by GE Capital, (c) execute and deliver to GE Capital such written assignment, financing statements, and other written matter and, at the expense of GE Capital, take any action reasonably requested by GE Capital to perfect and maintain GE Capital's interest in the Accounts and other security granted to it herein, and (d) except as otherwise requested by GE Capital, retain sales slips and delivery receipts. HSN and/or the relevant Participating Subsidiary shall submit to GE Capital completed Credit Applications. GE Capital shall be entitled to retain all Accounts and Account Documentation (including, without limitation, any completed Credit Applications and sales slips), shall retain such Account Documentation, and shall not otherwise destroy original Account Documentation other than in the ordinary course of business pursuant to GE Capital's records retention policy. In the event HSN and/or the relevant Participating Subsidiary shall retain certain Account Documentation, HSN and/or the relevant Participating Subsidiary will store such Account Documentation in an orderly and secure manner and deliver such Account Documentation to GE Capital within five (5) Business Days of GE Capital's request to HSN (HSN will promptly give notice to the relevant Participating Subsidiary of such request); provided, however, that if such Account Documentation is not available because it is being microfilmed, HSN and/or the relevant Participating Subsidiary shall provide the Account Documentation to GE Capital as soon as practicable, but in no event more than eight (8) days from GE Capital's request. GE Capital will maintain Account Documentation received by it in accordance with its customary business practice and in an orderly and secure manner. Each party hereto agrees that the other party may store Account Documentation in such other party's possession on microfilm or other media in accordance with such other party's customary business practice, and may, in the normal course of business, destroy original Account Documentation once such Account Documentation has been microfilmed or otherwise recorded. In the event of a repurchase by HSN of any Indebtedness, and related Accounts, if any, pursuant to the terms of this Agreement, GE Capital 25 26 will provide to HSN Account Documentation relating to such repurchased Accounts or items of Indebtedness to the extent that (i) it is required to do so pursuant to Section 2.04 hereof or has otherwise maintained such Account Documentation and (ii) GE Capital has received full payment of the purchase price of such repurchased Accounts or items of Indebtedness. If such Account Documentation has been maintained by GE Capital in a computer-readable format, GE Capital will provide to HSN copies thereof in such format. Section 3.06. Ownership of Accounts; Finance Charges. GE Capital shall be the sole and exclusive owner of all Accounts, Indebtedness, sale slips, receipts or evidences of payment for purchases by Account Debtors and other Account Documentation and each of HSN and each Participating subsidiary acknowledges and agrees that it has no right, title or interest therein. It is expressly understood that HSN has the right to establish the finance charge rates and other charges with respect to Accounts. If GE Capital is of the opinion that the rate of finance charge does not comply with state and/or federal law, GE Capital may require HSN to supply, at HSN's expense, an opinion of outside counsel satisfactory to GE Capital that the rate of finance charge complies with state and/or federal law. As a condition precedent to any change in the finance charge rates with respect to Accounts during the term of this Agreement, HSN and GE Capital shall agree on an appropriate change in the Service Fee set forth in Section 4.01 hereof. GE Capital shall be entitled to receive payments made by Account Debtors on all Accounts and to retain for its account all finance charges, returned check fees, late fees and all other fees and income, if any, collected with respect to Accounts. Section 3.07. HSN Payments. HSN and the Participating Subsidiaries shall not advertise or otherwise promote the fact that Account Debtors (or other Persons acting on behalf of Account Debtors) may make HSN Payments. If, notwithstanding the foregoing, any HSN Payments are made, HSN and/or the relevant Participating Subsidiary receiving such payment shall, (a) forward all such HSN Payments received to GE Capital within one (1) Business Day of receipt, (b) not deposit any HSN Payments received and (c) hold any payments received in the form of cash in trust for GE Capital. HSN Payments shall be credited to the Account of the relevant Account Debtor as of the date of actual receipt by GE Capital. Section 3.08. Authorization Line Expense. HSN shall be responsible for expenses associated with the installation and on- going usage of authorization processes exclusively on HSN's or any Participating Subsidiaries' property, including but not limited to telephone lines to connect the authorization system from GE Capital to HSN's or any Participating Subsidiaries' associated equipment. The items associated with these expenses are listed on Exhibit F of this Agreement and shall be charged to HSN at GE Capital's actual costs. 26 27 ARTICLE IV PAYMENTS; SETTLEMENT Section 4.01. Service Fee. (a) During the Initial Term and any Renewal Term(s) hereof a service fee ("the Service Fee") shall be calculated and paid by HSN. The Service Fee shall be equal to .85% of Net Credit Sales for the first Program Year, and for each month commencing with the first month after the first Program Year, shall be equal to a percentage of Net Credit Sales (the "Service Fee Percentage") set forth in the matrix attached as Schedule 4.01(a) hereto (the "Matrix") which appears (i) in the row appearing opposite the amount of the Average Account Balance calculated for the twelve (12) consecutive months ending on the last day of the immediately preceding month (rounded up or down to the nearest Average Account Balance shown on the Matrix) and (ii) in the column appearing under the amount of Credit Sales Turnover shown on the Matrix calculated for the twelve (12) consecutive months ending on the last day of the immediately preceding month (rounded up or down to the nearest Credit Sales Turnover amount shown on the Matrix) As used herein "Net Credit Sales" means the amount shown as the total of purchases on charge slips submitted by HSN and/or the Participating Subsidiaries to GE Capital (gross credit sales) less the total amount of any credit slips submitted by HSN and/or the Participating Subsidiaries to GE Capital. (b) If United States first class postage rates exceed $.29 per one-ounce item as of any date during the term of this Agreement, HSN shall pay GE Capital an amount equal to (x) such increase in the first class postage rate plus $0.005 multiplied by (y) the number of Active Accounts as of such date. (c) If, as of any date, the Average Commercial Paper Rate for that month exceeds three and one-tenth percent (3.10%), HSN shall pay to GE Capital an amount equal to the product of (x) the amount by which Average Commercial Paper Rate for that month exceeds three and one-tenth percent (3.10%) and (y) eight-nine percent (89%), multiplied by the Average Aggregate Investment for such period, divided by twelve (12). (d) If, as of any date, the Average Commercial Paper Rate for that month is less than three and one-tenth percent (3.10%), GE Capital shall pay to HSN an amount equal to the product of (x) the amount by which three and one-tenth percent (3.10%) exceeds the Average Commercial Paper Rate for that month and (y) eight-nine percent (89%), multiplied by the Average Aggregate Investment for such period, divided by twelve (12). Section 4.02. Commitment Fee. In consideration for HSN's agreement to a term of five (5) years hereunder, GE Capital shall pay to HSN 27 28 within thirty (30) days after the date on which the conditions specified in Section 5.01(e) of this Agreement shall have been satisfied, a commitment fee of Two Hundred Fifty Thousand Dollars ($250,000) ("Commitment Fee") to promote the creation and use of Accounts. In the event that this Agreement is terminated for any reason at any time prior to the end of such five (5) year period, other than a termination of this Agreement by HSN pursuant to Section 12.02(b), (c), or (d) hereof, GE Capital shall be entitled to a return of the unearned portion of the Commitment Fee paid by GE Capital in the amount of one-sixtieth (1/60th) of the amount of the Commitment Fee paid by GE Capital times the number of whole calendar months remaining in such five (5) year period. In the event HSN terminates this Agreement pursuant to Section 12.02(b), (c), or (d) hereof, HSN shall be entitled to retain such unearned portion of the Commitment Fee and GE Capital shall have no right therein. Section 4.03. Application Fee. HSN shall reimburse GE Capital for each Credit Application processed pursuant to Section 3.01(b) as shown on GE Capital's Application Processing Report an amount equal to (i) $1.45 for each Credit Application submitted to GE Capital directly by electronic means, (ii) $2.15 for each Credit Application submitted to GE Capital by mail, (iii) $5.45 for each Credit Application submitted to GE Capital by telephone and (iv) $3.80 for each Credit Application submitted to GE Capital by facsimile means. HSN acknowledges and agrees that the amounts payable pursuant to this Section 4.03 do not include any postage costs on applications for which postage has been prepaid, which postage costs shall be separately billed to HSN and are subject to change from time to time as provided for in Section 4.01(b) above. Section 4.04. Authorization Processing Fee. HSN shall reimburse GE Capital for each credit authorization as shown on GE Capital's Authorization Processing Report an amount equal to (i) $.04 for each authorization by GE Capital processed by electronic means or by telephone if the authorization system is not in operation and such inoperation is not attributable to HSN or any Participating Subsidiary and (ii) $2.19 for each authorization processed by GE Capital by telephone in the event that such authorization system is in operation. Section 4.05. Payment Terms and Rights of Set Off and Recoupment. Unless specifically provided for in another Section of this Agreement, any amount(s) payable by HSN or any Participating Subsidiary to GE Capital under this Agreement shall be paid within ten (10) Business Days of HSN's receipt of a bill rendered by GE Capital. In the event HSN or any Participating Subsidiary fails to make payment within such ten (10) Business Day period, GE Capital may deduct such amount due from Net Credit Sales. 28 29 ARTICLE V CONDITIONS PRECEDENT Section 5.01. Conditions Precedent to Purchase Obligation. Notwithstanding any other provision of this Agreement, GE Capital shall not be obligated to purchase Accounts and Indebtedness from HSN or any Participating Subsidiary unless, as of the date of each purchase hereunder, the requirements below shall be satisfied: (a) Appropriate financing statements (form UCC-1 or others) in the form attached hereto as Schedule 5.01(a) shall have been executed, delivered and filed and shall be in full force and effect; provided, however, that this condition shall be deemed satisfied in the event appropriate financing statements shall have been executed and delivered to GE Capital (provided that HSN shall have provided to GE Capital the information contained in Section 8.03) and GE Capital shall not have filed such financing statements in the appropriate filing offices specified by HSN within three (3) Business Days after receipt by GE Capital of such financing statements. (b) All of the representations and warranties of HSN and the Participating Subsidiaries contained in this Agreement shall be correct in all material respects on and as of the date of such purchase as though made on and as of such date, subject to the introductory paragraph set forth in Article VIII. (c) No event shall have occurred and be continuing, or would result from such purchase, which constitutes an Event of Default under Section 13.01 hereof. (d) GE Capital shall have received an Officer's Certificate, certified by the Senior Vice President of Finance of HSN, stating that to the best of his knowledge, after due inquiry, the representations and warranties of HSN and such Participating Subsidiary specified in Section 8.10 of this Agreement, are true and correct. (e) It shall be a condition precedent to GE Capital's obligations to purchase Accounts or Indebtedness pursuant to this Agreement that, (i) HSN and the Participating Subsidiaries comply with the covenants specified in Section 8.11(r) of this Agreement, (ii) HSN shall obtain the confirmation, consent and/or waiver of the required financial institutions party to the LTCB Credit Agreement (as defined in Section 8.11(r))(the number of required financial institutions will be the number required by the LTCB Credit Agreement as necessary to approve such confirmation, consent and/or waiver) to the transactions contemplated by this Agreement, in form, scope and substance reasonably satisfactory to GE Capital, within thirty (30) days of the Effective Date (or such later date as HSN shall 29 30 request and GE Capital shall agree to in its sole discretion) and (iii) with respect to other Material Credit Agreements (other than the LTCB Credit Agreement), GE Capital shall have either (A) determined, in its sole discretion, within thirty (30) days of the Effective Date, that the provisions of such Material Credit Agreement, if any, do not require the consent or approval of any party to any such Material Credit Agreement to consummate the transactions contemplated by this Agreement or (B) GE Capital shall have received the confirmation, consent and/or waiver (in form, scope and substance reasonably satisfactory to GE Capital) of the relevant parties to such Material Credit Agreements to the transactions contemplated by this Agreement. ARTICLE VI SECURITY Section 6.01. Security Interest. The parties hereto intend that the transactions contemplated herein shall be treated as a purchase and sale of Accounts and Indebtedness for all purposes and not as a lending transaction, and shall file UCC-1 or comparable statements in order to perfect the interests created thereby. Such filing shall also perfect in GE Capital a present and continuing security interest in the Accounts and Indebtedness, in the event the transactions contemplated hereby are not considered a purchase and sale of Accounts and Indebtedness despite the intentions of the parties. To secure all Obligations, whether now existing or hereafter created or acquired, including liabilities and obligations that may be deemed to exist in the event of the applicability of Article 9 of the UCC to, and any recharacterization of, any transactions contemplated hereby, HSN and its Participating Subsidiaries hereby grant to GE Capital for GE Capital's benefit a present and continuing security interest in and lien upon together with the proceeds thereof in any form whatsoever, all of HSN's and its Participating Subsidiaries right, title and interest in and to: (a) all Accounts and Indebtedness which are purchased by GE Capital and not repurchased by HSN hereunder; (b) all Account Documentation relating to any Account in which GE Capital has an interest hereunder; (c) all general intangibles but only to the extent of guarantees, claims, security interests or other security now held by or hereafter granted to HSN or any Participating Subsidiary to secure payment by any Person who is or may become obligated to HSN or any Participating Subsidiary with respect to or on account of any of the items listed in (a) above, and all proceeds thereof; (d) all general intangibles consisting of credit balances and reserves of whatever type or description created or established by GE Capital in favor of or with respect to HSN or any Participating Subsidiary including, without limitation, the Reserve Account and Reserve Balance; (e) all accounts, accounts receivable, other receivables, all contract rights, commercial paper, choses in action, instruments, documents, chattel paper, general intangibles (as each of 30 31 those terms which is defined in the applicable UCC is so defined) and writings or property, relating to Accounts and Indebtedness purchased by GE Capital hereunder which is not repurchased by HSN, in each case whether now existing or in which HSN or any Participating Subsidiary now has or hereafter acquires and interest, and wherever the same may be located; and (f) all Merchandise purchased by Account Debtors pursuant to Accounts in which GE Capital has an interest hereunder, to the extent of the Lien, if any, of HSN or any Participating Subsidiary thereon. Section 6.02. Returns of Merchandise. HSN and the Participating Subsidiaries may settle or adjust any dispute or claim, grant any discount, credit, or allowance, or accept any return of Merchandise purchased pursuant to an Account, in the ordinary course of business. HSN shall notify GE Capital, as soon as practical, of all credits issued to Account Debtors by HSN with respect to such Merchandise. Each such notification shall indicate the Account and Indebtedness to which it relates and the amount of credit issued to the Account Debtor. The amount of all such credits shall be paid to GE Capital pursuant to Section 2.03 hereof or, at GE Capital's option, in accordance with Section 4.05 hereof. When HSN or any Participating Subsidiary receives property in respect of Accounts owned by GE Capital by reason of transactions between HSN or any Participating Subsidiary and Account Debtors, HSN or the relevant Participating subsidiary shall hold the same in trust for the benefit of GE Capital, as property forming part of the Accounts, and subject to GE Capital's Lien until GE Capital receives payment from HSN with respect to the Account pursuant to which the Merchandise was purchased. Notwithstanding anything contained herein to the contrary, nothing shall preclude HSN from treating returned Merchandise in accordance with its customary business practices. Section 6.03. Notices to GE Capital. Upon request from GE Capital, HSN shall promptly (a) inform GE Capital in writing of any delay in the performance by HSN or any Participating Subsidiary of any of its obligations to Account Debtors and (b) furnish to GE Capital and inform GE Capital of any information known to HSN or any Participating Subsidiary personnel whose job functions involve Accounts relating to any Account Debtor, including, without limitation, information regarding changes of address of Account Debtors and notices of filings under the Bankruptcy Code with respect to Account Debtors, to the extent that HSN or any Participating Subsidiary may lawfully provide such information to GE Capital and that such information shall be used by GE Capital in connection with the Program. Section 6.04. Further Assurances. In addition to the undertakings specifically provided for in this Agreement, HSN and the Participating Subsidiaries shall, at the expense of GE Capital, do all other things and sign and deliver all other documents and instruments reasonably requested and required by GE Capital to 31 32 perfect, protect, maintain, and enforce the Liens of GE Capital and the first priority of such Liens, and all other rights granted pursuant to this Agreement. Each of HSN and the Participating Subsidiaries irrevocably authorize GE Capital to execute and file on its own behalf any financing statement (with or without the signature of HSN or the relevant Participating Subsidiary) or any other document or instrument which may be required to perfect, protect, or enforce any right or Lien granted to GE Capital pursuant to this Agreement. Section 6.05. Attorney-in-Fact. Each of HSN and each of the Participating Subsidiaries appoints GE Capital or GE Capital's designee, as its attorney-in-fact, and at GE Capital's sole cost and expense, (a) to endorse its name on any checks, notes, acceptances, money orders, drafts, or other forms of payment of or security for any Account or Indebtedness that may come into GE Capital's possession and in which GE Capital has an interest pursuant to the provisions hereof; (b) to sign its name on any invoice or bill of lading relating to any such Account or Indebtedness, on drafts against Account Debtors relating to any such Account or Indebtedness, schedules and assignments of any such Account or Indebtedness, on notices of assignment or other public records, verifications, and notices to any Account Debtor of such an Account; (c) to send requests for verification of any such Account or Indebtedness to Account Debtors of such Accounts; (d) to sue Account Debtors of such Accounts for the collection of such Indebtedness in its name and (e) to do all things reasonable and necessary to carry out or enforce the obligations of Account Debtors and to preserve GE Capital's Lien in and to Accounts and Indebtedness in which GE Capital has an interest hereunder. This power, being coupled with an interest, is irrevocable until there shall no longer be any Indebtedness owned by GE Capital and all Obligations shall have been fully satisfied. Section 6.06. Continued Liability. Anything herein to the contrary notwithstanding, (a) except with respect to payment and credit obligations, each of HSN shall remain liable under any contracts and agreements with any Account Debtor included in any Account to the extent set forth therein to perform all of its duties and obligations pursuant thereto to the same extent as if this Agreement had not been executed; (b) the exercise by GE Capital of any rights pursuant to this Agreement shall not release HSN and the Participating Subsidiaries from any of its duties or obligations under the contracts and agreements relating to any Account; and (c) except to the extent specifically set forth herein, GE Capital shall not have any obligation or liability with respect to any Account by reason of this Agreement or be obligated to perform any of the obligations or duties of HSN or any Participating Subsidiary pursuant to this Agreement. Section 6.07. Access. GE Capital (by any of its approved officers, employees and/or agents, each of which, in each instance, shall be necessary for the purposes hereof), shall have the right, during normal business hours and in 32 33 such a manner as to minimize interference with HSN's normal business operations, and the normal business operations of the Participating Subsidiaries, to examine, audit, inspect, make extracts and meet with the appropriate officers and/or other personnel of HSN -(collectively "review"), at GE Capital's sole cost and expense, all of the records, files and books of account of HSN and the Participating Subsidiaries, limited, however, to the extent to which same relate to Accounts in which GE Capital has an interest hereunder, and HSN shall use its best efforts to facilitate GE Capital's exercise of the review right created hereunder, including, where applicable, the assignment of such personnel of HSN for the assistance of GE Capital as GE Capital shall reasonably request. HSN shall deliver any document or instrument necessary for GE Capital to obtain records relating to Accounts and Indebtedness in which GE Capital has an interest hereunder from any Person maintaining records for HSN and shall maintain records or media pursuant to its regular record retention policy, including, without limitation, computer tapes and discs owned entirely by HSN or the Participating Subsidiaries. HSN shall make available information from banking and other financial institutions, to GE Capital, at GE Capital's reasonable request, limited, however, to the extent that same relate to Accounts in which GE Capital has an interest hereunder. No information as to which GE Capital has been given access, pursuant hereto shall be used or disclosed for any purpose other than to determine HSN's compliance with the terms of this Agreement. Section 6.08. Right of Setoff. In addition to any other rights of GE Capital hereunder, and without limiting any of the set-off or other provisions herein, GE Capital shall, upon the occurrence of any Event of Default have the right to appropriate and apply to the payment of Obligations any and all money or property of HSN or any Participating Subsidiary then held by GE Capital or amounts owing to HSN or any Participating Subsidiary by GE Capital. Section 6.09. Losses. Except as specifically provided for in Article VII in connection with the Special Program and the Recourse Program, all Bad Debt on Accounts shall be solely borne by GE Capital and shall not be passed on to HSN except for an RPR Indebtedness allowed pursuant to Section 2.04. Section 6.10 Limited Guarantee. (a) Each of HSN and each Participating Subsidiary hereby unconditionally and irrevocably jointly and severally guarantee, as primary obligor and not as surety only, and promises to pay to GE Capital when due, any amounts due and payable to GE Capital by HSN or any Participating Subsidiary (other than the applicable guarantor) pursuant to this Agreement. This guarantee is a guarantee of payment when due and not of collection. 33 34 (b) Each guarantor pursuant to Section 6.10(a) waives any subrogation or similar type right or claim it may have for any payment made pursuant to Section 6.10(a) and waives (i) presentment, demand, protest, notice of protest, notice of dishonor and notice of nonpayment with respect to claims guaranteed by such guarantor pursuant to Section 6.10(a) and (ii) the right to require GE Capital to proceed against the party whose obligations are being guaranteed by such guarantor or to pursue any other remedy against such party. ARTICLE VII SPECIAL PROGRAM; RECOURSE PROGRAM Section 7.01. Special Program. (a) HSN shall have the right, at any time during the term of this Agreement (so long as at such time there is no Event of Default) to request GE Capital to add a feature to the Program (the "Special Program") to implement special credit standards designed to permit the approval of certain credit applicants who would otherwise fail to qualify for an Account. In order to implement the Special Program, HSN shall, as set forth in this Article VII, provide additional funds to GE Capital on a monthly basis (a) to compensate GE Capital for losses in the Special Program in excess of five percent (5%) and (b) to establish a reserve over a two year period and thereafter to maintain the reserve. The mechanism for implementing the Special Program shall be as follows: (a) HSN shall provide a list of individuals to GE Capital for possible consideration for inclusion in a Special Program; (b) GE Capital shall prescreen and credit score the list provided to GE Capital by HSN; (c) within five (5) Business Days after completion of the prescreen and scoring, GE Capital shall submit to HSN a list of eligible individuals given various expected loss rates; (d) the Targeted Loss Rate shall be established and (e) the Special Program shall be implemented including such individuals whose inclusion would be expected to result in the Special Program meeting the Targeted Loss Rate. From time to time, GE Capital and HSN may mutually agree to modify and/or amend the procedures specified in clauses (b) and (c) of the immediately preceding sentence. This notwithstanding, an individual shall be eligible to participate in the Special Program only if such individual is a customer, in good standing, of HSN or one of the Participating Subsidiaries. Except as specifically provided in this Article VII, the Special Program shall be on the same terms as the Program. (b) If, as of any date, the SP Loss Rate for that month or, in the case more than one Billing Cycle ends during a calendar month, for the Billing Cycles ending during such calendar month, exceeds forty two one-hundredths percent (.42%), HSN shall pay to GE Capital an amount equal to the product derived by multiplying (x) the amount by which the SP Loss Rate for that month or, in the case more than one Billing Cycle ends during a calendar month, for the 34 35 Billing Cycles ending during such calendar month, exceeds forty two one-hundredths percent (.42%) by (y) the SP Average Aggregate Investment for that month, or, in the case more than one Billing Cycle ends during a calendar month, for the Billing Cycles ending during such calendar month. This amount shall be known herein as the "SP Periodic Loss Payment". (c) If, at the end of each Special Program Year the SP Annual Loss Rate is less than or equal to five percent (5%), within thirty (30) days following the end of such Special Program Year, GE Capital shall refund to HSN any and all SP Periodic Loss Payments made during such Special Program Year. (d) If, at the end of a Special Program Year, (i) the SP Annual Loss Rate exceeds five percent (5%) and (ii) the sum of the SP Periodic Loss Payments made during such Special Program Year exceed the SP Required Loss Payments, then within thirty (30) days following the end of such Special Program Year, GE Capital shall pay to HSN an amount equal to the difference between the sum of such SP Periodic Loss Payments and such SP Required Loss Payments. If, at the end of any Special Program Year, (i) the SP Annual Loss Rate exceeds five percent (5%) and (ii) the sum of the SP Periodic Loss Payments made during such Special Program Year is less than the SP Required Loss Payments made by HSN during such Special Program Year, then within thirty (30) days following the end of such Special Program Year, HSN shall pay to GE Capital an amount equal to the difference between such SP Required Loss Payments and the sum of such SP Periodic Loss Payments. (e) Any payments pursuant to Section 7.01(b), (c) or (d) may be made by deducting or adding to the daily settlement payments with respect to the purchase of Indebtedness created under the Special Program. (f) Notwithstanding anything to the contrary in this Article VII, GE Capital shall not be required to purchase Indebtedness created under the Special Program to the extent the Aggregate Investment pursuant to the Special Program on the date of such proposed purchase exceeds the greater of (i) the lesser of (A) Ten Million Dollars ($10,000,000) and (B) fifty percent (50%) of the Aggregate Investment as of the date of such purchase and (ii) twenty percent (20%) of the Aggregate Investment as of the date of such proposed purchase. Section 7.02. Reserve Account. (a) GE Capital shall create, on its books, a record known as the "Reserve Account." Amounts on deposit in the Reserve Account shall be applied solely in accordance with the provisions of this Section 7.02. (b) Beginning on the SP Effective Date, and for a period of twenty-four (24) months commencing with the end of the first full month next following the SP 35 36 Effective Date (the "24 Month Period"), GE Capital shall deduct the Reserve Percentage from SP Net Credit Sales and credit such amounts to the Reserve Account. As of every date commencing with the date coinciding with the end of the 24 Month Period, the Reserve Balance shall be required to equal the Required Reserve. (c) If, on any date commencing with the date coinciding with the end of the 24 Month Period, the Reserve Balance is less than the Required Reserve, GE Capital shall notify HSN of such deficiency and, at GE Capital's option, (i) withhold the amount of such deficiency from SP Net Credit Sales until such deficiency is eliminated and/or (ii) request that HSN pay GE Capital the amount of such deficiency, in which event payment shall be due within ten (10) Business Days after receipt by HSN of such notice. Any amounts paid in cash by HSN hereunder shall be credited to the Reserve Balance upon receipt of good funds. (d) If, on any date commencing with the date coinciding with the end of the 24 Month Period, (and unless this Agreement has been terminated or there has been any Event of Default by HSN that has occurred and is continuing at that time), the Reserve Balance exceeds the Required Reserve, GE Capital shall pay HSN the amount of such excess and deduct such amount from the Reserve Balance. (e) During the period in which there shall be a Reserve Balance, GE Capital shall pay HSN on a monthly basis a fee equal to the product of (x) the Average Reserve Balance for such month multiplied by the Average Commercial Paper Rate for such month and (x) eighty-nine percent (89%), divided by twelve (12). (f) GE Capital shall have the right, in its sole discretion, from time to time, to withdraw from the Reserve Account amounts past due and payable to GE Capital from HSN or any Participating Subsidiary with respect to Accounts which are part of the Special Program or the Recourse Program. Section 7.03. Termination. (a) Upon termination of this Agreement, if HSN purchases all of the Accounts and Indebtedness from GE Capital, simultaneously with such purchase, (i) GE Capital shall pay to HSN all amounts in the Reserve Account (provided that all Obligations then owing have been satisfied) and (ii) the parties hereto shall make such payment as is necessary to effect the settlement required pursuant to Section 7.01(d) with appropriate adjustment for the fact that the purchase date is not the last day of a Special Program Year. (b) Upon termination of this Agreement, if HSN does not purchase all of the Accounts and Indebtedness: (i) in the event the Reserve Balance shall be less than the Required Reserve (whether or not the 24 Month Period shall have 36 37 elapsed), HSN shall promptly pay to GE Capital, for credit to the Reserve Account, the amount of such deficiency; (ii) if on any date, the Reserve Balance is greater than the SP Aggregate Investment, GE Capital shall promptly pay such excess amount to HSN (provided that all Obligations then owing shall have been satisfied) (iii) at such time as all Indebtedness created under the Special Program has either been collected, liquidated or classified by GE Capital as Bad Debt (the "Settlement Date"), the parties shall calculate what payment is necessary to effect the settlement required pursuant to Section 7.01(d) with appropriate adjustment for the fact that the Settlement Date is not the last day of a Special Program Year (the "Settlement Payment") and if (A) a Settlement Payment is payable by HSN to GE Capital, HSN shall promptly make the Settlement Payment to GE Capital or (B) a Settlement Payment is payable by GE Capital to HSN, GE Capital shall promptly make the Settlement Payment to HSN (provided that all Obligations then owing have been satisfied) (iv) on the Settlement Date, GE Capital shall pay the balance in the Reserve Account to HSN (provided that all Obligations then owing have been satisfied). Section 7.04. Recourse Program. (a) HSN shall have the right at any time during the term of this Agreement (so long as at such time there is no Event of Default), to request GE Capital to add a feature to the Program (the "Recourse Program") pursuant to which certain credit applicants who would otherwise fail to qualify for an Account under the Regular Program or the Special Program will qualify for an account. To qualify for the Recourse Program, (i) an applicant must have notified HSN or a Participating Subsidiary that such applicant's application for the Program has been denied and such applicant requests HSN or a Participating Subsidiary to intervene and approve such an applicant for the Program, (ii) the Senior Vice President of Finance of HSN shall have provided written request and authorization to GE Capital to approve such applicant for the Recourse Program and (iii) the aggregate of the maximum amount of credit available and/or approved for (A) any individual applicant approved pursuant to the Recourse Program shall not exceed $750.00 and (B) all applicants approved pursuant to Recourse Program (prior to the receipt by GE Capital of such request for qualification for the Recourse Program (after giving effect to the approval of such application)) shall not exceed $150,000. Except as specifically provided in this Section 7.04, the Recourse Program shall be on the same terms as the Program. (b) In consideration of GE Capital agreeing to purchase Accounts subject to the Recourse Program, each of HSN and the Participating Subsidiary from whom GE Capital purchases an Account subject to the Recourse Program, if any (each a "Guarantor" and collectively the "Guarantors"), unconditionally and irrevocably jointly and severally guarantee, as primary obligor and not as surety only, and promises to pay to GE Capital when such Account subject to the Recourse Program becomes Bad Debt, any amounts due to GE Capital pursuant to Accounts subject to the Recourse Program which are purchased by GE Capital. 37 38 The foregoing guarantees are guarantees of payment and shall remain in full force and effect until all amounts owed to GE Capital pursuant to such Accounts are paid in full. The Guarantors agree that the foregoing guarantees shall remain in full force and effect notwithstanding any extension, forebearance, or amendment or acceptance agreed to by GE Capital with respect to any Account subject to the Recourse Program. To the extent that a Guarantor makes payment to GE Capital with respect to an Account, such Guarantor shall be subrogated to the rights of GE Capital against the relevant Account Debtor to the extent of such payment. ARTICLE VIII REPRESENTATIONS, WARRANTIES AND COVENANTS OF HSN To induce GE Capital to purchase Accounts and Indebtedness, each of HSN and the Participating Subsidiaries jointly and severally make the following representations, warranties and covenants to GE Capital as pertains to them, as of the date hereof each and all of which shall survive the execution and delivery of this Agreement, and each and all of such representatives and warranties which are set forth in Sections 8.01, 8.02, 8.03, 8.04, 8.05, 8.09 and 8.10 shall be deemed to be restated and remade on each date on which GE Capital purchases Accounts and Indebtedness: Section 8.01. Corporate Existence. Each of HSN and the Participating Subsidiaries (a) is a corporation duly organized, validly existing, and in good standing under the laws of the state of its incorporation, with its principal place of business as indicated in the first paragraph of this Agreement; (b) is duly qualified as a foreign corporation and in good standing under the laws of each jurisdiction where its ownership or lease of property or the conduct of its business requires such qualification and where the failure to so qualify would have a material adverse effect on its business operations; (c) has the requisite corporate power and authority and the legal right to own, pledge, mortgage, and operate its properties, to lease the properties it operates under lease, and to conduct its business as now, heretofore, and proposed to be conducted; (d) has all necessary licenses, permits, consents, or approvals from or by, and has made all necessary filings with, and has given all necessary notices to, all governmental authorities having jurisdiction, to the extent required for such ownership, lease, operation, and conduct and where the failure to obtain such licenses, permits, consents, approvals or filings would have a material adverse effect on its business operations; and (e) is in compliance with its articles of incorporation, bylaws or other similar organizational documents. Section 8.02. Corporate Power; Authorization; Enforceable Obligations. The execution, delivery, and performance of this Agreement by HSN and each Participating Subsidiary and all instruments and documents to be 38 39 delivered by HSN and each Participating Subsidiary pursuant to this Agreement, and the creation of all Liens provided for herein: (a) are within HSN's or the applicable Participating Subsidiary's corporate power; (b) have been duly authorized by all necessary or proper corporate action, including the consent of shareholders where required; (c) are not in contravention of any provision of HSN's or the applicable Participating Subsidiary's articles of incorporation, bylaws or other similar organizational documents; (d) will not violate any law or regulation or any order or decree of any court or governmental instrumentality applicable to HSN or the applicable Participating Subsidiary; (e) will not conflict with or result in the breach of, or constitute a default under, any indenture, mortgage, deed of trust, lease, agreement, or other instrument to which HSN or any Participating Subsidiary is a party or by which HSN or any Participating Subsidiary or any of their respective properties are bound; and (f) do not require of HSN or any Participating Subsidiary any filing or registration with or the consent or approval of any governmental body, agency, authority, or any other Person which has not been made or obtained previously. This Agreement has been duly executed and delivered by HSN and each Participating Subsidiary and constitutes the legal, valid, and binding obligation of HSN and each Participating Subsidiary, enforceable against HSN and each Participating Subsidiary in accordance with its terms, except as such enforcement may be limited by applicable bankruptcy, moratorium, reorganization, or other laws affecting the rights of creditors generally or by general principles of equity (whether or not a proceeding is brought in a court of law or equity). Section 8.03. Executive Offices and Stores. (a) The chief executive office of HSN and each of the Participating Subsidiaries is, at 2501 118th Avenue North, St. Petersburg, Florida 33716, (b) the chief executive office of HSN and the Participating Subsidiaries will during the term of this Agreement be located at such location or at such other location as HSN and Participating Subsidiaries shall, from time to time, specify upon at least forty-five (45) days prior written notice to GE Capital, (c) all records relating to Accounts and Indebtedness owned by GE Capital and maintained by HSN and/or the Participating Subsidiaries are maintained at such location, at HSN's, its Participating Subsidiaries or such other locations as are set forth on Schedule 8.03 annexed hereto, as such schedule may be amended by HSN from time to time upon forty-five (45) days prior written notice to GE Capital, and (d) Schedule 8.03 contains a complete and correct listing of the addresses of all of HSN's Stores, as such schedule may be amended by HSN from time to time at least forty-five (45) days prior to the commencement, or ten (10) days prior to a termination, of a Store's operations. Section 8.04. Solvency. Each of HSN and the Participating Subsidiaries is Solvent. 39 40 Section 8.05. No Default. Neither HSN nor any of the Participating Subsidiaries is not in default with respect to any material contract, agreement, document, lease, or other instrument to which it or any subsidiary of it is a party or by which HSN, any Participating Subsidiary or any of their respective properties may be bound, where such default would have a material adverse effect on the business, operations, property, or financial or other condition of HSN, the Accounts or the value thereof, the Indebtedness or the value thereof, GE Capital's Lien in and to the Accounts and Indebtedness, or the priority of such Lien. Section 8.06. No Burdensome Restrictions. No contract, lease, agreement, or other instrument to which HSN or any of the Participating Subsidiaries is a party or is bound and no provision of applicable law or governmental regulation materially and adversely affects or may be reasonably likely to so affect the business, operations, property, or financial or other condition of HSN or any Participating Subsidiary, the Accounts or the value thereof, the Indebtedness or the value thereof, GE Capital's Lien in and to the Accounts and Indebtedness, or the priority of such Lien. Section 8.07. No Litigation. Except as shown in Schedule 8.07 or as included by HSN in written notification to GE Capital pursuant to Section 8.11 (e), to the best of HSN's knowledge, no action, claim, or proceeding is now pending against HSN, at law, in equity, or otherwise, before any court, board, commission, agency, or instrumentality of any federal, state, or local government or of any agency or subdivision thereof or before any arbitrator or panel of arbitrators which, if adversely determined, would result in a liability of HSN in an amount greater than five percent (5%) of HSN's consolidated tangible net worth, nor, to the knowledge of HSN, does a state of facts exist which might give rise to any such proceedings. Section 8.08. Full Disclosure. No information contained in this Agreement or any other agreement or writing executed or issued by HSN or any statement furnished by or on behalf of HSN or any Participating Subsidiary in connection with this Agreement or any other agreement or writing executed or issued in connection with this Agreement contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained herein or therein not misleading, which would have a material adverse effect on HSN's business, operations, or financial or other condition, the Accounts or the value thereof, the Indebtedness or the value thereof, GE Capital's Lien in and to the Accounts and the Indebtedness, or the priority of such Lien. Section 8.09. Conflicts; Defaults; Etc.. Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby by HSN or any Participating Subsidiary will (i) conflict with, violate, result in the breach of, constitute an event which would, or with the lapse of time or action 40 41 by a third party or both would result in a default under, or accelerate HSN's performance required by, the terms of any material contracts, instrument or agreement to which HSN is a party or by which it is bound, or by which HSN's assets are bound, except for conflicts, breaches and defaults which would not have material adverse effect upon HSN or any Participating Subsidiary, the Program or HSN's or any Participating Subsidiary's ability to perform its obligations under this Agreement, (ii) conflict with or violate the articles of incorporation or by-laws, or any other equivalent organizational document(s) of HSN, (iii) except for any lien that may be created by this Agreement, result in the creation of any lien, restriction, charge or encumbrance upon any of the Accounts, (iv) violate any Law or conflict with, or require any consent or approval under, any judgment, order, writ, decree, permit or license, to which HSN is a party or by which it is bound or affected, except to the extent that such violation or the failure to obtain such consent or approval would not have a material or adverse effect upon HSN, the Program or HSN's obligations under this Agreement, (v) require the consent or approval of any party to any material contract, instrument or commitment to which HSN is a party or by which it is bound, other than the approvals of regulatory authorities which will be applied for, or (vi) except for the filing of UCC-1 financing statements and notices, if any, require any filing with, notice to, consent or approval of, or any other action to be taken with respect to, any regulatory authority, other than the approvals of regulatory authorities which have been previously obtained. Section 8.10. True Sale. HSN and each Participating Subsidiary represents and warrants that it is the intent of each of them that (a) the sale and transfer to GE Capital by HSN or any Participating Subsidiary of the Accounts and Indebtedness pursuant to this Agreement and (b) the payment by GE Capital to HSN or any Participating Subsidiary of the purchase price pursuant to Section 2.03 of this Agreement, should be characterized as a sale transaction (and not as a loan transaction). In addition, each of HSN and each Participating Subsidiary represents and warrants that it shall account for the transactions contemplated pursuant to this Agreement as a sale transaction and not a loan transaction. Section 8.11. HSN Covenants. HSN and each Participating Subsidiary covenants and agrees that, until the end of the term of this Agreement: (a) Compliance with Law. With respect to each Account and Indebtedness, except where such failure to comply would not have a material adverse effect on HSN's and/or any Participating Subsidiary's business, operations, or financial or other condition, the Accounts or the value thereof, the Indebtedness or the value thereof, GE Capital's Lien in and to the Accounts and the Indebtedness, or the priority of such Lien (i) every action taken by HSN or a Participating Subsidiary, (ii) every action taken by HSN or a Participating Subsidiary in connection with each sale of Merchandise resulting in an Account or 41 42 Indebtedness, (iii) every contract, agreement, or other action of HSN or a Participating Subsidiary with respect to insurance (including, without limitation, credit insurance), and (iv) all Account Documentation, complies with all federal, state, and local statutes, regulations, ordinances, or administrative rulings. (b) Accounts. Each item of Indebtedness purchased by GE Capital (and, to the extent applicable, each Account pursuant to which such Indebtedness is incurred) (i) is owned by HSN or the relevant Participating Subsidiary free and clear of any and all Liens in favor of any Person other than GE Capital; (ii) arises in connection with a bona fide final sale (subject only to HSN's return policy and customer guarantee policy) and delivery of Merchandise by HSN or the relevant Participating Subsidiary in the ordinary course of its business; (iii) is for a liquidated amount as stated in the Account Documentation relating thereto; (iv) is authorized and created in accordance with this Agreement and the Operating Procedures; (v) is valid and enforceable against the Account Debtor in accordance with its terms, except as such enforcement may be limited by applicable bankruptcy, moratorium, reorganization, or other laws affecting the rights of creditors generally or by general principles of equity (whether or not a proceeding is brought in a court of law or equity); (vi) is not subject to any defense, deduction, offset, or counterclaim, other than as contemplated by clause (v) above, (vii) is for Merchandise which includes items that are new and unused, are otherwise covered by a manufacturer's warranty as if new at the time of sale or that are returned to any Participating Subsidiary and restored to such Participating Subsidiary's inventory for resale as new and unused to the extent permitted by law or are inventory items that have been refurbished in accordance with such Participating Subsidiary's normal policy and are not covered by a manufacturer's warranty; (viii) is not in excess of the amount of credit approved and authorized by GE Capital for such Account Debtor; and (ix) is not evidenced by Unidentifiable Media. (c) Maintenance of Existence and Conduct of Business. HSN and each Participating Subsidiary shall do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence. (d) Books and Records. HSN shall keep adequate records and books of account with respect to its business activities, in which proper entries, reflecting all of HSN's and each Participating Subsidiary's financial transactions, are made in accordance with GAAP. (e) Litigation. HSN shall notify GE Capital in writing, promptly upon learning thereof, of any litigation involving amounts in excess of five percent (5%) of HSN's consolidated tangible net worth in the aggregate for related claims, against HSN, whether or not the claims shall be considered by HSN to be covered by insurance if HSN has determined that there is a reasonable likelihood that the 42 43 claims will succeed on the merits, and of the institution of any suit or administrative proceeding against any Person that, if adversely determined, would have a material adverse effect on HSN's business, operations, or financial or other condition, the Accounts or the value thereof, the Indebtedness or the value thereof, GE Capital's Lien in and to the Accounts and the Indebtedness, or the priority of such Lien. (f) Adverse Transactions. Except in the ordinary course of business and in accordance with HSN's previous practices, neither HSN nor any Participating Subsidiary shall permit or agree to any extension, compromise, or settlement, or make any changes or modification of any kind or nature with respect to any Account, including any of the terms relating thereto. Neither HSN nor any Participating Subsidiary shall enter into any agreement, which at the time such agreement is entered into, has a material adverse effect on the business, operations, property, or financial or other condition of HSN the Accounts or the value thereof, the Indebtedness or the value thereof, GE Capital's Lien in and to the Accounts and Indebtedness, or the priority of such Lien. (g) Liens. Upon the purchase by GE Capital of Accounts and Indebtedness pursuant to Section 2.02, GE Capital shall have good and marketable title to such Accounts and Indebtedness. Neither HSN nor any Participating Subsidiary shall not create or permit any Lien, in and to the Accounts or Indebtedness in which GE Capital has an interest hereunder, except presently existing or hereafter created Liens in favor of GE Capital and Liens created by or through GE Capital. (h) Sales of Accounts and Indebtedness. Except as specifically provided in Section 2.02 neither HSN nor any Participating Subsidiary shall not sell, transfer, convey, or otherwise dispose of any Accounts or Indebtedness other than Accounts and Indebtedness that GE Capital declines to purchase hereunder. (i) Delivery. A Participating Subsidiary has delivered all Merchandise covered by each Account, and the Account Debtor has accepted or is willing to accept such delivery, unless the Account Debtor has specifically requested that an item of Merchandise in such Participating Subsidiary's inventory not be delivered, subject to such Participating Subsidiary's return and direct delivery policies. (j) Services. Such Participating Subsidiary shall provide and maintain reasonable services, in accordance with its customary practices, with respect to the Merchandise covered by an Account and shall comply with all of its warranties and other obligations with respect to the Merchandise, the sale of which has been charged to an Account. 43 44 (k) Adjustments. Each credit adjustment slip delivered by HSN to GE Capital represents a bona fide adjustment by a Participating Subsidiary of a credit sale for which GE Capital has accepted the sales slip. (l) No Surcharge. A Participating Subsidiary has not, by reason of the credit nature of the sale provided by the Program, charged such customer a greater total sale price for any purchase that is described on a Charge Slip than Merchant would have charged, and the customer would have paid, if the customer had paid the total sale price in full at the time of purchase. (m) Obligations. A Participating Subsidiary has fulfilled all of its obligations to Account Debtors under the terms of all credit card sales of Merchandise. (n) Advertisements. A Participating Subsidiary's advertisements that refer to credit terms and payment terms are in conformity with standard credit card regulations and promotional programs approved by GE Capital as provided for pursuant to Section 3.04 hereof. (o) Insurance. HSN maintains insurance policies with insurers in such amounts and insuring it against such types of loss or damage as are customarily maintained by corporations engaged in similar businesses with respect to its property. (p) No Defaults. HSN shall be and shall remain current and not in a condition of default which creates a right of acceleration in any lender or creditor on or under any material loan, credit agreement or instrument of indebtedness, including but not limited to lines of credit, and no event shall occur or shall have occurred which will result in HSN being in a condition of default which creates a right of acceleration in any lender or creditor on or under any such loans, credit agreement or instrument. (q) Reports. HSN shall provide to GE Capital, as soon as available but not less than ninety (90) days after the end of the relevant account period in the case of reports for quarterly periods other than year end and one hundred twenty (120) days after the end of the relevant account period for year end reports, (i) unaudited consolidated quarterly financial reports and (ii) audited consolidated annual financial reports, which financial reports shall be prepared in accordance with GAAP. (r) Credit Instruments. HSN and each Participating Subsidiary acknowledges and agrees that due to time constraints, GE Capital has not had the opportunity to review credit agreements, indentures, notes and other debt instruments to which the aggregate amount of funds outstanding from HSN and/or 44 45 a Participating Subsidiary under each such credit agreement, indenture, note or other debt instrument individually equals or exceeds Two Million Dollars ($2,000,000), if any, to which any of HSN and/or the Participating Subsidiaries is a party (the "Material Credit Agreements"). Accordingly, HSN and each Participating Subsidiary covenants and agrees that it will promptly (but in no event later than three (3) days after the date hereof) provide GE Capital with true and correct copies of all Material Credit Agreements, including, without limitations, that certain credit agreement dated as of February 4, 1993 among HSN Home Shopping Club, Inc., LTCB Trust Company, as Agent, and the Banks named therein (the "LTCB Credit Agreement"). ARTICLE IX REPRESENTATIONS AND WARRANTIES OF GE CAPITAL To induce HSN and the Participating Subsidiaries to sell Accounts and Indebtedness, GE Capital makes the following representations, warranties and covenants to HSN and the Participating Subsidiaries, each and all of which shall survive the execution and delivery of this Agreement, and each and all of which shall be deemed to be restated and remade on each date on which HSN and/or the Participating Subsidiaries sells Accounts and/or Indebtedness: Section 9.01. Corporate Existence. GE Capital (a) is a corporation duly organized, validly existing, and in good standing under the laws of the state of its incorporation, with its principal place of business as indicated in the first paragraph of this Agreement; (b) is duly qualified as a foreign corporation and in good standing under the laws of each jurisdiction where its ownership or lease of property or the conduct of its business requires such qualification; (c) has the requisite corporate power and authority and the legal right to own, pledge, mortgage, and operate its properties, to lease the properties it operates under lease, and to conduct its business as now, heretofore, and proposed to be conducted; (d) has all necessary licenses, permits, consents, or approvals from or by, and has made all necessary filings with, and has given all necessary notices to, all governmental authorities having jurisdiction, to the extent required for such ownership, lease, operation, and conduct; and (e) is in compliance with its articles of incorporation, bylaws or other similar organizational documents. Section 9.02. Corporate Power; Authorization; Enforceable Obligations. The execution, delivery, and performance of this Agreement by GE Capital and all instruments and documents to be delivered by GE Capital pursuant to this Agreement, and the creation of all Liens provided for herein: (a) are within GE Capital's corporate power; (b) have been duly authorized by all necessary or proper corporate action, including the consent of shareholders where required; (c) are not in contravention of any provision of GE Capital's articles of 45 46 incorporation, bylaws or other similar organizational documents; (d) will not violate any law or regulation or any order or decree of any court or governmental instrumentality applicable to GE Capital; (e) will not conflict with or result in the breach of, or constitute a default under, any indenture, mortgage, deed of trust, lease, agreement, or other instrument to which GE Capital is a party or by which GE Capital or any of its property is bound; and (f) do not require of GE Capital any filing or registration with or the consent or approval of any governmental body, agency, authority, or any other Person which has not been made or obtained previously. This Agreement has been duly executed and delivered by GE Capital and constitutes the legal, valid, and binding obligation of GE Capital, enforceable against GE Capital in accordance with its terms, except as such enforcement may be limited by applicable bankruptcy, moratorium, reorganization, or other laws affecting the rights of creditors generally or by general principles of equity (whether or not a proceeding is brought in a court of law or equity). Section 9.03. Solvency. GE Capital is Solvent. Section 9.04. No Default. GE Capital is not in default with respect to any material contract, agreement, document, lease, or other instrument to which it or any subsidiary of it is a party or by which GE Capital or any or its property may be bound, where such default would have a material adverse effect on the business, operations, property, or financial or other condition of GE Capital. Section 9.05. No Burdensome Restrictions. No contract, lease, agreement, or other instrument to which GE Capital is a party or is bound and no provision of applicable law or governmental regulation materially and adversely affects or may be reasonably likely to so affect the business, operations, property, or financial or other condition of GE Capital. Section 9. 06 Full Disclosure. No information contained in this Agreement or any other agreement or writing executed or issued by GE Capital or any statement furnished by or on behalf of GE Capital in connection with this Agreement or any other agreement or writing executed or issued in connection with this Agreement contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained herein or therein not misleading, which would have a material adverse effect on GE Capital's business, operations, or financial or other condition. Section 9.07. GE Capital Covenants. GE Capital covenants and agrees that, until the end of the term of this Agreement: (a) Maintenance of Existence and Conduct of Business. GE Capital shall do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence. 46 47 (b) Compliance with Law. GE Capital's own actions and the actions of Persons on its behalf (or failures to act where any of the foregoing has a duty to act under this Agreement), shall comply with all federal, state, and local laws, statutes, ordinances, rules, regulations, orders and rulings. Without limiting the generality of the foregoing, GE Capital shall additionally be obligated to cause all Accounts, Indebtedness, Credit Agreements, periodic billing statements, other Account Documentation, any other documents utilized by GE Capital, insurance (to the extent of limitations on finance charges thereon), finance charges, and credit procedures to comply with those laws, statutes, ordinances, rules, regulations, orders and rulings during the term of this Agreement, including, but not limited to, so-called truth-in-lending or usury laws that may from time to time be effect, which obligation shall include from time to time providing HSN with revisions to credit procedures, Credit Agreements, periodic billing statements, other Account Documentation and any other documents utilized by GE Capital so that they so comply. GE Capital shall not be responsible for noncompliance pursuant to this Section 9.07 where noncompliance is a result of HSN's or any Participating Subsidiary's failure to comply with any such matters, to the extent HSN or any Participating Subsidiary is required by this Agreement to so comply. (c) Books and Records. GE Capital shall keep adequate records and books of account with respect to its business activities, in which proper entries, reflecting all of GE Capital's financial transactions, are made in accordance with GAAP. ARTICLE X FINANCIAL STATEMENTS AND INFORMATION Section 10.01. Reports and Notices. As long as this Agreement remains in effect, (i) HSN (x) shall deliver to GE Capital in addition to the financial reports required pursuant to this Agreement such other information respecting the Accounts or the value thereof, the Indebtedness or the value thereof as GE Capital may, from time to time, reasonably request and (y) upon request, meet with the appropriate personnel of GE Capital on not more than a quarterly basis to discuss information contained in HSN's unaudited consolidated quarterly financial reports, audited annual financial reports and any additional information relating to such documents as GE Capital may reasonably request and (ii) in the event that the debt rating of GE Capital's senior debt from both Moody's and Standard & Poor's is less than A, GE Capital shall (x) deliver to HSN such information respecting the Accounts or the value thereof and the Indebtedness or the value thereof as HSN may, from time to time, reasonably request and (y) meet with the appropriate personnel of HSN on not more than a quarterly basis to discuss information contained in GE Capital's unaudited consolidated quarterly financial reports, 47 48 audited annual financial reports and any additional information relating to such documents as HSN may reasonably request. ARTICLE XI INDEMNIFICATION Section 11.01. Indemnification by HSN. HSN agrees to protect, indemnify, and hold harmless GE Capital, its subsidiaries, and affiliated companies, and the employees, officers, and directors thereof, against any and all liabilities, costs, and expenses (including reasonable attorneys' fees and expenses), judgments, damages, claims, demands, offsets, defenses, counterclaims, actions, or proceedings by whomsoever asserted, including, but not limited to, (i) the Account Debtors or other Persons responsible for the payment of Accounts sold by HSN or any Participating Subsidiary hereunder, (ii) any person or persons who prosecute or defend any proceedings as representatives of or on behalf of a class or interest group, (iii) any governmental instrumentality, or (iv) any other third party, arising out of, connected with or resulting from: (a) credit card sales of Merchandise; (b) any transaction, contract, understanding, promise, representation, or any other relationship, actual, asserted, or alleged, between HSN, any Participating Subsidiary and any Account Debtor relating to an Account; (c) any Merchandise the purchase of which was financed by an Account; (d) any other act by HSN or any Participating Subsidiary or its employees, officers, directors, shareholders, agents or any independent contractors hired by HSN, or omission by HSN where there was a duty to act, relating to an Account or items of Indebtedness sold under an Account; (e) any claim, demand, allegation, offset, defense, or counterclaim which, if true or proven, would constitute a breach under (a)-(d) of this Section 11.01; (f) any communication (written or otherwise) with any Account Debtor or otherwise, which communication inaccurately describes any term of this Agreement or the status of this Agreement; or (g) any breach by HSN or any Participating Subsidiary of any of the terms, covenants, representations, warranties, conditions precedent, or other provisions contained in this Agreement or any other instrument or document delivered by HSN or any Participating Subsidiary to GE Capital in connection herewith or therewith, or any event, act or omission that would be such a breach if any term, covenant, representation, warranty, condition precedent, or other provision did not contain a requirement of materiality; provided, however, that excluded from the foregoing indemnity shall be any liability, cost, expense, judgment, damage, claim, demand, offset, defense, counterclaim, action or proceeding, to the extent the same arises out of or results from any violation by GE Capital, its subsidiaries or affiliated companies of law, this Agreement, any Credit Agreement or any agreement, understanding or promise 48 49 between GE Capital and any Account Debtor relating to such Account Debtor's Account. Section 11.02. Indemnification by GE Capital. GE Capital agrees to protect, indemnify, and hold harmless HSN, its subsidiaries, and affiliated companies, and the employees, officers, and directors thereof, against any and all liabilities, costs, and expenses (including reasonable attorneys' fees and expenses), judgments, damages, claims, demands, offsets, defenses, counterclaims, actions, or proceedings by whomsoever asserted, including, but not limited to, (i) the Account Debtors or other Persons responsible for the payment of Accounts sold by HSN or any Participating Subsidiary hereunder, (ii) any person or persons who prosecute or defend any proceedings as representatives of or on behalf of a class or interest group, (iii) any governmental instrumentality, or (iv) any other third party, arising out of, connected with or resulting from: (a) any breach by GE Capital of any of the terms, representations, warranties, covenants or other provisions of this Agreement, or any event, act or omission that would be such a breach if any term, covenant, representation, warranty, or other provision did not contain a requirement of materiality, including without limitation in connection with the performance of GE Capital's duties pursuant to Section 3.01 hereof, (b) any communication (written or otherwise) with any Account Debtor or otherwise, which communication inaccurately describes any term of this Agreement or the status of this Agreement or (c) any act by GE Capital or its employees, officers, directors, shareholders, agents or licensees or any independent contractors hired by GE Capital, or omission by GE Capital where there was a duty to act, including without limitation acts or omissions by GE Capital as attorney-in-fact for HSN and/or the Participating Subsidiaries and any violation of insurance laws arising from documentation or procedures provided by GE Capital and any regulatory investigations or proceedings in connection therewith relating to an Account or items of Indebtedness sold under an Account, or any claim, demand, allegations, offset, defense, or counterclaim which, if true or proven, would constitute such act or omission or a violation of applicable law hereof, or if there would be such a violation if such covenant, representation, or warranty did not contain a requirement of materiality; provided, however, that excluded from the foregoing indemnity shall be any liability, cost, expense, judgment, damage, claim, demand, offset, defense, counterclaim, action or proceeding to the extent the same arises out of or results from any violation by HSN, its subsidiaries and affiliated companies of law, this Agreement, any Credit Agreement or any agreement, understanding or promise between HSN or its Participating Subsidiaries and any Account Debtor relating to such Account Debtor's Account. Section 11.03. Defense of Claims. In the event that any legal proceeding shall be instituted or that any claim or demand shall be asserted by any Person in respect of which payment may be sought by one party hereto from another pursuant to this Article XI, the party seeking indemnification shall promptly 49 50 cause written notice of the assertion of any such claim or demand of which it has knowledge to be forwarded to the other party, which shall have the right, to the extent of its indemnification, at its option and at its own expense, to be represented by counsel of its choice and to defend against, negotiate, settle, or otherwise deal with any proceeding, claim, or demand which is related to any loss, liability, damage, or deficiency indemnified against hereunder. The parties hereto agree to cooperate fully with the defense, negotiation, or settlement of any such legal proceeding, claim or demand. Section 11.04. Payment of Indemnified Amounts. After any final judgment or award shall have been rendered by a court, arbitration board, or administrative agency of competent jurisdiction, or a settlement agreed to by both parties shall have been consummated, the party seeking indemnification shall forward to the other party notice of any sums due and owing by it with respect to such matter with reasonable itemized support documentation therefor, and such party shall be required to pay all of the sums so owing to the party seeking indemnification within thirty (30) days after the date of such notice. ARTICLE XII TERM/TERMINATION Section 12.01. Term. This Agreement shall continue in full force and effect until five (5) years from the date of the full execution hereof (the "Initial Term") and shall be automatically renewed for successive two (2) year terms ("Renewal Term(s)"), unless terminated as provided in other provisions of this Agreement. Section 12.02. Termination by HSN. (a) HSN, in its individual capacity, may terminate this Agreement, such termination to be effective as of the final day of the Initial Term or any Renewal Term, by giving GE Capital at least one hundred eighty (180) days written notice prior to the final day of the Initial Term or any Renewal Term. (b) Notwithstanding anything to the contrary contained in Section 2.02, HSN may terminate this Agreement by giving GE Capital written notice within ninety (90) days of receipt of notification under Section 2.02(c)(ii) that GE Capital elected not to increase the Maximum Indebtedness, and such termination shall be effective four (4) months after the date of such termination notice. (c) HSN may terminate this Agreement without notice if an Event of Default as provided in Section 13.04 hereof shall occur and continue past the applicable grace period, if any. 50 51 (d) In the event GE Capital materially breaches its obligations under this Agreement, and after notice to GE Capital and such breach remains uncured for a period of thirty (30) days, then HSN may terminate this Agreement by giving GE Capital ten (10) days written notice. Section 12.03. Termination by GE Capital. (a) GE Capital may terminate this Agreement as of the final day of the Initial Term or any Renewal Term, by giving HSN at least one hundred eighty (180) days written notice prior to the final day of the Initial Term or any Renewal Term. (b) GE Capital may terminate this Agreement without notice if an Event of Default as provided in Section 13.01 hereof shall occur and continue past the applicable grace period if any, including that set forth in Section 13.02 hereof. (c) In the event HSN materially breaches its obligations under this Agreement, and after notice to HSN and such breach remains uncured for a period of thirty (30) days, then GE Capital may terminate this Agreement by giving HSN ten (10) days written notice. (d) Subject to the provisions of Section 2.08, GE Capital shall terminate this Agreement in the event the conditions specified in Section 5.01(e) shall not have been satisfied within the time period specified in such Section 5.01(e). Section 12.04. Survival of Obligations Upon Termination of Financing Arrangement. Except as otherwise expressly provided herein, no termination or cancellation (regardless of cause or procedure) of this Agreement shall in any way affect or impair the powers, obligations, duties, rights and liabilities of HSN, any Participating Subsidiary or GE Capital relating to any transaction or event occurring prior to such termination. All undertakings, agreements, covenants, warranties, representations, and indemnities contained herein shall survive such termination or cancellation, except as specifically provided herein to the contrary. Without in any way limiting the generality of the foregoing, upon such termination, HSN shall continue to be liable for the fees provided for or referred to in Section 12.07 hereof, for RPR Indebtedness to the extent specified in Section 2.04 hereof until such time as (i) there is no Indebtedness owned by GE Capital or (ii) HSN repurchases Accounts and Indebtedness from GE Capital pursuant to Sections 12.05 and 12.06 hereof, whichever shall occur earlier and for the fees provided for in Article VII hereof. 51 52 Section 12.05. Repurchase of Accounts. Upon any termination (other than a termination pursuant to Section 12.02(b), (c) or (d)) HSN shall have the option to repurchase on the date of termination, after having given sixty (60) days' prior written notice, all Accounts and Indebtedness existing on the date of such repurchase for an amount in cash equal to one hundred two percent (102%) of the Aggregate Investment then outstanding (including accrued and unpaid finance charges thereon) together with all other amounts then due GE Capital under this Agreement. In the event of a termination pursuant to Section 12.02(b), (c) or (d) HSN shall have the option to repurchase all Accounts and Indebtedness existing on the date of such repurchase for an amount in cash equal to one hundred percent (100%) of the Aggregate Investment then outstanding (including accrued and unpaid finance charges thereon), together with all other amounts then due GE Capital under this Agreement. If HSN repurchases as set forth above, GE Capital's obligation to perform the servicing activities specified in Article III hereof shall be terminated as of the date of such repurchase. Upon any such repurchase, GE Capital shall assign to HSN all of its right, title, and interest in and to such Accounts and Indebtedness, free and clear of any and all Liens created by or through GE Capital, and with a warranty from GE Capital to such effect, but without any other warranty or recourse, and the ownership interest of GE Capital in such Indebtedness shall be terminated. GE Capital shall provide to HSN such information as is reasonable and customary in order to assist HSN in determining whether or not to exercise such option. In addition, upon such exercise the parties hereto agree to reasonably cooperate and take any reasonable action to facilitate such transfer of Accounts and Indebtedness. The option granted by this Section shall terminate on the earlier of (i) the effective date of any expiration or termination of this Agreement or (ii) the date on which HSN delivers to GE Capital a notice that HSN does not intend to exercise such option. GE Capital shall, upon receipt of full payment of the purchase price for the Accounts, provide to any purchaser of Accounts under this Section a master file computer tape listing all purchased Accounts. Section 12.06. Services Only Option. Beginning with the thirty-first month after the Effective Date, HSN shall have the option upon six (6) months written notice to GE Capital, to repurchase, and GE Capital will service, all Accounts and Indebtedness existing on the date of such repurchase for an amount in cash equal to one hundred percent (100%) of the Aggregate Investment then outstanding (including accrued and unpaid finance charges thereon), together with all amounts then due GE Capital under this Agreement. If HSN exercises its option under this Section 12.06, GE Capital shall continue to perform all of its servicing activities specified in Article III hereof as requested by HSN and HSN shall pay to GE Capital a fee for such services to be determined by the parties hereto. Upon such exercise, GE Capital shall assign to HSN all of its right, title and interest in and to the Accounts and Indebtedness, free and clear of any and all Liens created by or through GE Capital, and with a warranty from GE Capital to such effect, but 52 53 without any other warranty or recourse, and the ownership interest of GE Capital in such Indebtedness shall be terminated. GE Capital shall provide to HSN such information as is reasonable and customary in order to assist HSN in determining whether or not to exercise such option. In addition, upon such exercise the parties hereto agree to reasonably cooperate and take any reasonable action to facilitate such transfer of Accounts and Indebtedness. The option granted by this Section shall terminate on the earlier of (i) the effective date of any expiration or termination of this Agreement or (ii) the date on which HSN delivers to GE Capital a notice that HSN does not intend to exercise such option. GE Capital shall, upon receipt of full payment of the purchase price for the Accounts, provide to any purchaser of Accounts under this Section a master file computer tape listing all purchased Accounts. Section 12.07. Liquidation. If this Agreement terminates and HSN chooses not to repurchase all Accounts and Indebtedness from GE Capital pursuant to Section 12.05 or 12.06, (i) HSN shall continue to pay or be credited for (as applicable) amounts due to GE Capital pursuant to Sections 4.01(b), (c) and (d), 7.01(b), (c) and (d),and 7.02(c)(ii) hereof until such time as GE Capital no longer owns any Accounts, (ii) GE Capital shall have the right, in addition to and retaining all other rights it may have under this Agreement or applicable law, to liquidate the Accounts in any lawful manner including, without limitation, transferring the Accounts or any part thereof to a third party and/or issuing a replacement or substitute card, provided, however, the Accounts shall not be transferred to a third party that is a competitor of HSN and, provided further that any such third party agrees to be bound by the confidentiality provision of this Agreement as if it was a party hereto and (iii) during such liquidation, GE Capital may use HSN's name in communicating with existing Account Debtors that the Account is not owned by HSN and that GE Capital or some third party is the owner of such Account provided that such usage shall be made in accordance with this Agreement. HSN agrees to cooperate with GE Capital and take any action reasonably requested by GE Capital to effectuate such liquidation in an orderly manner. In addition, HSN shall pay to GE Capital as of each month-end until such time as all Accounts are liquidated, a fee in the amount of (i) $1.65 times the number of Active Accounts for that month plus (ii) .81% of Average Aggregate Investment, provided that HSN shall not be obligated to pay such fee to GE Capital in the event that HSN terminates this Agreement pursuant to Section 12.02(b), (c) or (d) hereof. ARTICLE XIII EVENTS OF DEFAULT; RIGHTS AND REMEDIES Section 13.01. Events of Default, HSN. The occurrence of any one or more of the following events (regardless of the reason therefor) shall constitute an "Event of Default" hereunder: 53 54 (a) HSN or any Participating Subsidiary shall fail to make any payment of any amount due pursuant to this Agreement when due and payable, and the same shall remain unremedied for a period of five (5) days after HSN shall have received written demand therefor from GE Capital. (b) HSN or any Participating Subsidiary shall fail or neglect to perform, keep, or observe any of the terms, provisions, conditions, or covenants contained in this Agreement and such failure or neglect shall remain unremedied for a period of thirty (30) days (ten (10) days with respect to Section 8.12) after notice thereof from GE Capital is received by HSN. (c) Any representation, warranty or statement made or delivered by HSN, any of the Participating Subsidiaries or any of their officers, employees, or agents to GE Capital under or pursuant to this Agreement, shall not be true and correct in any material respect as of the date when made or if applicable, restated and remade, and HSN or any of the Participating Subsidiaries (as the case may be), fails within thirty (30) days after notice thereof by GE Capital to HSN or any of the Participating Subsidiaries (as the case may be), to correct the underlying basis which causes the representation, warranty or statement to be untrue (and cures any losses incurred by GE Capital as a result of its reliance on such false representation or warranty), provided that in the case of Section 8.04, the thirty (30) day cure period shall not apply. (d) (i) Any of the Accounts, Indebtedness or Account Documentation in which GE Capital has an interest hereunder shall be lost, stolen, damaged, destroyed, sold, encumbered, attached, seized, levied upon, or subjected to a writ or distress warrant, other than by, through, or while in the possession of GE Capital, and such action shall have a material adverse effect on the business operations, property, or financial or other condition of HSN, the Accounts or the value thereof, the Indebtedness or the value thereof, GE Capital's Lien in and to the Accounts or Indebtedness, or the priority of such Liens' (ii) any of the Accounts or Indebtedness shall come within the possession of any receiver, trustee, custodian, or assignee for the benefit of creditors of HSN or any Participating Subsidiary that has generated at least ten percent (10%) of HSN's total sales for the immediately preceding twelve (12) month period (a "Material Participating Subsidiary"); (iii) any Person shall apply for the appointment of a receiver, trustee or custodian for the Accounts, the Indebtedness, or any other assets of HSN or any Material Participating Subsidiary and such application shall not have been dismissed within thirty (30) days; provided, however, that from the time such application is filed until such time, if any, as it may be dismissed, GE Capital shall be relieved of its obligation to purchase Accounts and Indebtedness pursuant to Section 2.01 hereof; (iv) HSN or any Material Participating Subsidiary shall have concealed, removed, or permitted to be concealed or removed, any part of its property, with intent to hinder, delay, or 54 55 defraud its creditors or made or suffered a transfer of any of its material property which is fraudulent under bankruptcy, fraudulent conveyance, or other similar law; or (v) any dissolution, termination of existence, or lack of Solvency shall occur with respect to HSN or any Material Participating Subsidiary. (e) A case or proceeding shall have been commenced against HSN or any Material Participating Subsidiary in a court having jurisdiction in the premises seeking a decree or order (i) for relief in respect of HSN or any Material Participating Subsidiary pursuant to the Bankruptcy Code or any other applicable state or foreign bankruptcy or other similar law, (ii) appointing custodian, receiver, liquidator, assignee, trustee, or sequestrator (or similar official) of HSN or any Material Participating Subsidiary or of any substantial part of their respective properties, (iii) ordering the winding-up or liquidation of the affairs of HSN or any Material Participating Subsidiary, (iv) enjoining, restraining, or in any way preventing HSN or any Material Participating Subsidiary from conducting all or any material part of its business affairs in the ordinary course, or concerning failure to pay any federal, state or local tax or other debt of HSN shall be entered and shall not be vacated, discharged, stayed or dismissed within thirty (30) days from the date of entry thereof. (f) HSN or any Material Participating Subsidiary shall (i) file a petition seeking relief pursuant to the Bankruptcy Code or any other applicable state or foreign bankruptcy or other similar law, (ii) consent to the institution of proceedings pursuant thereto or to the filing of any such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, or sequestrator (or similar official) of HSN or any Material Participating Subsidiary or of any substantial part of its properties, (iii) fail generally to pay its debts as such debts become due, or (iv) take corporate action in furtherance of any such action. (g) Except for a voluntary settlement of those claims as shown in Schedule 13.01(g) of this Agreement in an aggregate amount not in excess of Sixteen Million Dollars ($16,000,000), final judgment or judgments for the payment of money in excess of five percent (5%) of the consolidated tangible net worth of HSN shall be rendered against HSN or any Participating Subsidiary and the same shall not be, either (i) covered by insurance or the insurer shall not have accepted liability therefor or (ii) vacated, stayed, bonded, paid, or discharged for a period of thirty (30) days. (h) There shall be any material adverse change in the operations, assets, condition (financial or otherwise), or business of HSN, the Accounts or the value thereof, the Indebtedness or the value thereof, GE Capital's Lien in and to the Accounts or the Indebtedness, or the priority of such Lien. 55 56 Section 13.02. Remedies, GE Capital. If any Event of Default set forth in Section 13.01 above shall have occurred and be continuing: (a) GE Capital, in its discretion, upon ten (10) days' notice to HSN may (i) terminate this Agreement with respect to further sales of Accounts and Indebtedness (in which case those provisions of Article XII applicable to termination shall become effective) and/or (ii) declare all Obligations to be forthwith due and payable, whereupon all Obligations shall become due and payable, without presentment, demand, protest, or further notice of any kind, all of which are expressly waived by HSN and the Participating Subsidiaries, in which case GE Capital shall have the right, at any time and from time to time thereafter, in its discretion, without notice thereof to HSN or any Participating Subsidiary, (A) to enforce payment of the Obligations and collect, by legal proceedings or otherwise, the Accounts and Indebtedness in the name of GE Capital and/or HSN or any Participating Subsidiary and (B) to take control, in any manner, of any item of payment for, or proceeds of, the Accounts or Indebtedness. Notwithstanding the foregoing, in the event of an Event of Default under Section 13.01(e) or (f) hereof, this Agreement shall be deemed to be automatically terminated with respect to further sales of Accounts and Indebtedness, and all Obligations shall be automatically deemed forthwith due and payable, without any further action by GE Capital. (b) In addition to remedies available to a secured party under the UCC, GE Capital, in its discretion, may exercise any one or more of the rights and remedies accruing to a secured party under the UCC of the relevant state or states and any other applicable law upon default by a debtor. (c) Any notice required to be given by GE Capital of a sale, lease, or other disposition of the Accounts and Indebtedness, or any other intended action by GE Capital, deposited in the United States mail, postage prepaid and duly addressed to HSN at its principal place of business set forth in Section 14.08 hereof not less than fifteen (15) days prior to action, shall constitute commercially reasonable and fair notice to HSN thereof. GE Capital may, in its sole discretion, postpone or adjourn any sale of the Accounts or Indebtedness, or any part thereof, from time to time by an announcement at the time and place of sale or by announcement at the time and place of such postponed or adjourned sale, without being required to give a new notice of sale. Each of HSN and the Participating Subsidiaries agrees that GE Capital has no obligation to preserve rights against prior parties to the Accounts and Indebtedness. Section 13.03. Waivers by HSN. Except as otherwise provided for in this Agreement, HSN and each Participating Subsidiary waives (a) presentment, demand, and protest, and notice of presentment, dishonor, protest, default, nonpayment, maturity, release, compromise, settlement, extension, or renewal of any or all commercial paper, accounts, accounts receivable, contract rights, documents, choses in action, instruments, chattel paper, commercial paper and 56 57 guarantees at any time held by GE Capital on which HSN or any Participating Subsidiary may in any way be liable or any bond or security which might be required by any court prior to allowing GE Capital to exercise any of GE Capital's remedies, and (c) the benefit of all valuation, appraisal, and exemption laws. HSN and each Participating Subsidiary acknowledges that it has been advised by counsel of its choice with respect to this Agreement and the transactions evidenced by this Agreement. Section 13.04. Events of Default, GE Capital. The occurrence of any one or more of the following events (regardless of the reason therefor) shall constitute an "Event of Default" hereunder: (a) GE Capital shall fail to make any payment of any amount due pursuant to this Agreement when due and payable, and the same shall remain unremedied for a period of five (5) days after HSN shall have made written demand therefor. (b) GE Capital shall fail or neglect to perform, keep, or observe any of the terms, provisions, conditions, or covenants contained in this Agreement and such failure or neglect shall remain unremedied for a period of thirty (30) days after notice thereof by HSN to GE Capital. (c) Any representation or warranty by GE Capital in this Agreement shall not be true and correct in any material respect as of the date when made or reaffirmed and GE Capital fails within thirty (30) days after notice thereof by HSN to GE Capital, to correct the underlying basis which causes the representation or warranty to be untrue, provided that in the case of Section 9.03, the thirty (30) day cure period shall not apply. (d) (i) Any Person shall apply for the appointment of a receiver, trustee or custodian for GE Capital and such application shall not have been dismissed within thirty (30) days, or (ii) any dissolution, termination of existence, or insolvency shall occur with respect to GE Capital. (e) A case or proceeding shall have been commenced against GE Capital in a court having jurisdiction in the premises seeking a decree or order (i) for relief in respect of GE Capital pursuant to the Bankruptcy Code or any other applicable state or foreign bankruptcy or other similar law, (ii) appointing custodian, receiver, liquidator, assignee, trustee, or sequestrator (or similar official) of GE Capital or of any substantial part of its properties, (iii) ordering the winding-up or liquidation of the affairs of GE Capital, (iv) enjoining, restraining, or in any way preventing GE Capital from conducting all or any material part of its business affairs in the ordinary course, or concerning failure to pay any federal, state or local 57 58 tax or other debt of GE Capital shall be entered and shall not be vacated, discharged, or stayed within thirty (30) days from the date of entry thereof. (f) GE Capital shall (i) file a petition seeking relief pursuant to the Bankruptcy Code or any other applicable state or foreign bankruptcy or other similar law, (ii) consent to the institution of proceedings pursuant thereto or to the filing of any such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, or sequestrator (or similar official) of GE Capital or of any substantial part of its properties, (iii) fail generally to pay its debts as such debts become due, or (iv) take corporate action in furtherance of any such action. (g) Final judgment or judgments for the payment of money in excess of five percent (5%) of the consolidated tangible net worth of GE Capital shall be rendered against GE Capital and the same shall not be, either (i) covered by insurance or the insurer shall not have accepted liability therefor or (ii) vacated, stayed, bonded, paid, or discharged for a period of (30) days. (h) There shall any material adverse change in the operations, assets, condition (financial or otherwise) or business of GE Capital. Section 13.05. Remedies, HSN. If any Event of Default set forth in Section 13.04 above shall have occurred and be continuing past any applicable grace period, if any, HSN, in its discretion, without notice, may terminate this Agreement with respect to further sales of Accounts and Indebtedness (in which case those provisions of Article XII applicable to termination shall become effective). ARTICLE XIV MISCELLANEOUS Section 14.01. Complete Agreement; Modification of Agreement; Sale of Interest. This Agreement constitutes the complete agreement between the parties with respect to the subject matter hereof and may not be modified, altered, or amended, except by an agreement in writing duly executed by authorized representatives of GE Capital and HSN. No party hereto may sell, assign, transfer or delegate any of its rights, titles, interests, remedies, powers and duties hereunder without the prior written consent of the other parties hereto, which consent shall not be unreasonably withheld. Each of the Participating Subsidiaries agree that any modification, alteration, amendment or approval agreed to or provided by HSN with respect to this Agreement shall be deemed agreed to or provided by each such Participating Subsidiary. 58 59 Section 14.02. No Waiver. Either party's failure, at any time or times, to require performance by the other party of any provisions of this Agreement shall not waive, affect, or diminish any right of such party thereafter to demand strict compliance and performance therewith. Any suspension or waiver by GE Capital of an Event of Default shall not suspend, waive, or affect any other Event of Default, whether the same is prior or subsequent thereto and whether of the same or of a different type. None of the undertakings, agreements, warranties, covenants, and representations of HSN or any Participating Subsidiary contained in this Agreement and no Event of Default pursuant to this Agreement shall be deemed to have been suspended or waived by GE Capital, unless such suspension or waiver is by an instrument in writing signed by an officer of GE Capital and directed to the appropriate Person specifying such suspension or waiver. Section 14.03. Remedies. Each party's rights and remedies pursuant to this Agreement shall be cumulative and nonexclusive of any other rights and remedies which such party may have pursuant to any other agreement, by operation of law, or otherwise. Section 14.04. Waiver of Jury Trial. The parties hereto waive all right to trial by jury in any action or proceeding to enforce or defend any rights hereunder. Section 14.05. Severability. Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law; if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. Section 14.06. Parties. This Agreement shall be binding upon, and inure to the benefit of, the successors of each party hereto and the permitted assigns of GE Capital and HSN. Section 14.07. Governing Law. This Agreement and the obligations arising pursuant hereto shall, in all respects, including all matters of construction, validity, and performance, be governed by, and construed in accordance with, the laws of the State of New York (other than conflicts of law provisions thereof) applicable to contracts made and performed in such state and any applicable laws of the United States of America. HSN and each Participating Subsidiary agrees to submit to personal jurisdiction and to waive any objection as to venue of the federal or state courts in the County of New York, State of New York. Service of process on HSN or any Participating Subsidiary in any action arising out of or relating to this Agreement shall be effective upon receipt thereof if sent or 59 60 delivered to HSN in accordance with Section 14.08 hereof. Nothing herein shall preclude either party from bringing suit or taking other legal action in any other jurisdiction. Section 14.08. Notices. Except as otherwise provided herein, whenever it is provided herein that any notice, demand, request, consent, approval, declaration, or other communication shall or may be given to or served upon any of the parties by another, or whenever any of the parties desires to give or serve upon another communication with respect to this Agreement, each such notice, demand, request, consent, approval, declaration, or other communication shall be in writing and either shall be delivered in person with receipt acknowledged or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows (and if notice is transmitted by mail, a copy thereof shall be transmitted by electronic facsimile to the telephone number indicated below): (a) If to GE Capital, at: General Electric Capital Corporation 1221 Post Road East Westport, Connecticut 06880 Attention: Manager, Northern Business Group Facsimile: (203) 226-8634 With copies to: General Electric Capital Corporation 260 Long Ridge Road Stamford, Connecticut 06927 Attention: Counsel, Retailer Financial Services Facsimile: (203) 961-5149 (b) If to HSN, or any Participating Subsidiary at: Home Shopping Network, Inc. 2501 118th Avenue North St. Petersburg, Florida 33716 Attention: Senior Vice President-Finance Facsimile: (813) 539-6505 60 61 with copies to: Home Shopping Network, Inc. 2501 118th Avenue North St. Petersburg, Florida 33716 Attention: General Counsel Facsimile: (813) 573-0866 or at such other address as may be substituted by notice given as herein provided. The giving of any notice required pursuant hereto may be waived in writing by the party entitled to receive such notice. Every notice, demand, request, consent, approval, declaration, or other communication pursuant hereto shall be deemed to have been duly given or served on the date on which personally delivered, with receipt acknowledged, or five (5) Business Days after the same shall have been deposited in the United States mail (and a copy sent by electronic facsimile). Failure or delay in delivering copies of any notice, demand, request, consent, approval, declaration, or other communication to the Persons designated above to receive copies shall in no way adversely effect the effectiveness of such notice, demand, request, consent, approval, declaration, or other communication. Section 14.09. Securitization/Participation. Subject to the rights of HSN under this Agreement, including but not limited to Sections 12.05 and 12.06, GE Capital shall have the right to securitize or participate all or any portion of the Accounts at any time. Section 14.10. Confidentiality. All material and information supplied by one party to the other party hereunder or supplied to either party by Account Debtors or applicants for credit, including but not limited to the terms and provisions of this Agreement, information concerning either party's market plans, objectives, financial results, customer or Account Debtor names or buying patterns, addresses, financial character and proposed store locations are confidential and proprietary ("Confidential Information"). Confidential Information shall be used by each party solely in the exercise of its rights and performance of its obligations pursuant to the Agreement, except that HSN may use information about its customers in the ordinary conduct of its business. Specifically, GE Capital shall not solicit, advertise to or otherwise promote products, goods or services to HSN customers except as specifically permitted in this Agreement. Each party shall receive Confidential Information in confidence and not disclose Confidential Information to any third party, except as may be necessary to exercise its rights and perform its obligations pursuant to this Agreement, and except as may be agreed upon in writing by the other party, or as otherwise as required by 61 62 law or required to be made to governmental agencies, and except that HSN may use information about its customers in the ordinary conduct of its business. Upon written request specifying the materials to be returned or upon the termination of this Agreement, each party shall use its best efforts to return to the other party such Confidential Information in its possession or control. Confidential Information shall not include information in the public domain (other than as a result of a breach in the foregoing restriction) and information lawfully obtained from a third party. Section 14.11. Section Titles. The Section Titles contained in this Agreement are and shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreement between the parties hereto. Section 14.12. Counterparts. This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which, when so executed, shall be deemed an original, but all such counterparts shall constitute but one and the same instrument. Section 14.13. Failures to Perform. In the event that either HSN or any Participating Subsidiary or GE Capital is obligated under this Agreement to do an act on a particular date or within a particular number of days and, after taking reasonable precautions, as a result of a circumstance beyond the reasonable precautions, as a result of a circumstance beyond the reasonable control of such party (e.g., computer or telecommunications breakdown), such party is unable to perform such act when due, such party shall not be deemed in breach of this Agreement if such party shall in lieu thereof do such act as promptly as practicable, provided that such party shall take all reasonable steps to perform such act by alternate means and shall use its best efforts to cure such circumstances which are within its control. Section 14.14. Customized Credit Programs. Each of HSN and each Participating Subsidiary agrees that it will not make available, or enter into the provisions of any customized private label credit program other than (i) credit provided in connection with the Program hereunder, (ii) credit provided by generally accepted multipurpose or charge cards such as American Express, Mastercard, Visa and Discover and (iii) secured cards and debit cards. In addition, each of HSN and each Participating Subsidiary agrees that (i) during a period of fifteen (15) months following the termination of the Program it shall not sponsor, endorse or replicate a customized private label credit program, whether internal or external and (ii) during a period of twelve (12) months following such termination will not communicate with any Account Debtor regarding any proposed customized private label credit program. 62 63 Section 14.15 Participating Subsidiaries. A Participating Subsidiary shall become subject to, and have the rights and obligations provided to Participating Subsidiaries pursuant to this Agreement, when (i) GE Capital and HSN shall have mutually agreed to include such Participating Subsidiary in this Agreement, (ii) GE Capital shall have received from such Participating Subsidiary a copy of this Agreement executed and delivered by such Participating Subsidiary and (iii) GE Capital shall have a perfected first priority security interest in the collateral provided to GE Capital by such Participating Subsidiary pursuant to Article VI of this Agreement. Each Participating Subsidiary agrees (i) to the appointment of HSN as its agent for all purposes of this Agreement, (ii) any action taken by HSN with respect to this Agreement shall be deemed taken by such Participating Subsidiary and (iii) to reimburse HSN its pro-rata portion of any fees or amounts paid by HSN to GE Capital pursuant to the terms of this Agreement. HSN hereby subordinates any claim it may have against any Participating Subsidiary pursuant to the immediately preceding sentence to the payment in full of all Obligations. IN WITNESS WHEREOF, this Agreement has been duly executed as of the day and year first above written. GENERAL ELECTRIC CAPITAL CORPORATION By: ---------------------------------- Name: -------------------------------- Title: ------------------------------- HOME SHOPPING NETWORK, INC. By: ----------------------------------- Name: --------------------------------- Title: -------------------------------- 63 64 HSN TOURS, INC. By: ----------------------------------- Name: --------------------------------- Title: -------------------------------- HSN MAIL ORDER, INC. By: ----------------------------------- Name: --------------------------------- Title: -------------------------------- WORLD REZ, INC. By: ----------------------------------- Name: --------------------------------- Title: -------------------------------- HOME SHOPPING CLUB, INC. By: ----------------------------------- Name: --------------------------------- Title: -------------------------------- 64 65 HOME SHOPPING CLUB OUTLET OF CLEARWATER, INC. By: ----------------------------------- Name: --------------------------------- Title: -------------------------------- HOME SHOPPING CLUB OUTLET OF TAMPA, INC. By: ----------------------------------- Name: --------------------------------- Title: -------------------------------- HOME SHOPPING CLUB OUTLET OF ORLANDO, INC. By: ----------------------------------- Name: --------------------------------- Title: -------------------------------- HOME SHOPPING CLUB OUTLET OF SOUTH ORLANDO INC. By: ----------------------------------- Name: --------------------------------- Title: -------------------------------- 65 66 HOME SHOPPING CLUB OUTLET OF ST. PETERSBURG INC. By: ----------------------------------- Name: --------------------------------- Title: -------------------------------- HOME SHOPPING CLUB OUTLET OF WEST TAMPA, INC. By: ----------------------------------- Name: --------------------------------- Title: -------------------------------- HOME SHOPPING CLUB OUTLET OF BRANDON, INC. By: ----------------------------------- Name: --------------------------------- Title: -------------------------------- 66 EX-10.31 10 HSN STOCK OPTION PLAN 1 EXHIBIT 10.31 2 HOME SHOPPING NETWORK, INC. FIRST AMENDMENT TO THE 1986 STOCK OPTION PLAN FOR EMPLOYEES This is the First Amendment to the 1986 Stock Option Plan for Employees (the "Plan") of Home Shopping Network, Inc. (the "Corporation"), a Delaware corporation with its principal offices in Clearwater, Florida. Paragraph IV of the Plan is hereby amended to read as follows: IV Shares Subject to the Plan The aggregate number of shares of Common Stock with respect to which Options and SARs may be granted shall not exceed 2,200,000 shares of Common Stock (the "Reserved Shares"), subject to the adjustment in accordance with Section IX of the Plan. In the event that any Option or SAR expires, lapses or otherwise terminates prior to being fully exercised, any shares of Common Stock allocable to the unexercised portion of such Option or SAR may again be made subject to an Option or SAR. Dated this 21st day of November, 1986. 3 HOME SHOPPING NETWORK, INC. SECOND AMENDMENT TO THE 1986 STOCK OPTION PLAN FOR EMPLOYEES This is the Second Amendment to the 1986 Stock Option Plan for Employees (the "Plan") of Home Shopping Network, Inc. (the "Corporation"), a Delaware corporation with its principal offices in Clearwater, Florida. Paragraph IV of the Plan is hereby amended to read as follows: IV Shares Subject to the Plan The aggregate number of shares of Common Stock with respect to which Options and SARs may be granted shall not exceed 10,000,000 shares of Common Stock (the "Reserved Shares"), subject to the adjustment in accordance with Section IX of the Plan. In the event that any Option or SAR expires, lapses or otherwise terminates prior to being fully exercised, any shares of Common Stock allocable to the unexercised portion of such Option or SAR may again be made subject to an Option or SAR. Dated this 14th day of July, 1987. 4 HOME SHOPPING NETWORK, INC. THIRD AMENDMENT TO THE 1986 STOCK OPTION PLAN FOR EMPLOYEES This is the Third Amendment to the 1986 Stock Option Plan for Employees ("the Plan") of Home Shopping Network, Inc., a Delaware corporation (the "Corporation"), with its principal offices in St. Petersburg, Florida. Section (vi) of Paragraph (b) of Article VI of the Plan is hereby amended to read as follows: (vi) The Committee may, in its sole discretion, cancel options granted to an employee whose employment has been terminated for cause. Upon the termination of employment other than for cause, options granted under the Plan shall be cancelled only to the extent that such options were not exercisable as of the date of such termination. The effective date of this amendment shall be August 1, 1986, the effective date of the Plan. Adopted this 26th day of September 1988 by the Compensation/Benefits Committee of the Board of Directors of Home Shopping Network, Inc. 5 EXHIBIT 10.31 HOME SHOPPING NETWORK, INC. FOURTH AMENDMENT TO THE 1986 STOCK OPTION PLAN FOR EMPLOYEES This is the Fourth Amendment to the 1986 Stock Option Plan for Employees (the "Plan") of Home Shopping Network, Inc., a Delaware corporation (the "Corporation"), with its principal offices in St. Petersburg, Florida. 1. All references in the Plan to Section 422A of the Code shall be changed to Section 422 of the Code. 2. Section (iii) of Paragraph (d) of Article VI of the Plan is hereby amended to read as follows: (iii) An Incentive Stock Option shall not be exercisable while there is outstanding (within the meaning of former Subsection 422A(c)(7) of the Code) any other "Incentive Stock Option," within the meaning of Subsection 422(b) of the Code, which was granted before the granting of the Incentive Stock Option to the grantee to purchase stock in the Corporation; provided, however, that the foregoing clause requiring that Incentive Stock Options be exercised sequentially shall not apply to Incentive Stock options granted after the date of this Fourth Amendment, which Incentive Stock Options may be exercised without regard to previously granted and still outstanding Incentive Stock Options. 3. Section (iv) of Paragraph (d) of Article VI of the Plan is hereby amended to read as follows: (iv) An optionee may hold and exercise more than one Incentive Stock Option, but only on the terms and subject to the restrictions hereafter set forth. The aggregate fair market value (determined as of the time an Incentive Stock Option is granted) of the Common Stock with respect to which Incentive Stock Options are exercisable for the first time by any employee in any calendar year under the Plan and under all other Incentive Stock Option plans of the Corporation and any parent and subsidiary corporations of the Corporation (as those terms are defined in Section 425 of the Internal Revenue Code of 1986, as amended) shall not exceed $100,000. 6 The effective date of this amendment shall be the date adopted. Adopted this 16th day of June, 1992 by the Compensation/Benefits Committee of Home Shopping Network, Inc. EX-10.32 11 HSN EMPLOYMENT AGREEMENT 1 EXHIBIT A EXHIBIT 10.32 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT dated as of February 23, 1993 between HOME SHOPPING NETWORK, INC., a Delaware corporation (the "Company"), and GERALD F. HOGAN ("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 the date hereof (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 terms 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. 2 (iii) At any time upon giving written notice of such termination to Executive and by paying Executive in a lump sum upon such termination an amount equal to (x) 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 Agreement plus (y) 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 on]y 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 construed by reference to the effect of the relevant action or omission on the Company and its subsidiaries taken as a whole. 2 3 (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. 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 of such termination. 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, 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 the applicable Company plan or program 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 in such plan 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 amount paid or payable to Executive in respect of the immediately preceding fiscal year of the Company. (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 (i) the assignment to the Executive of any duties inconsistent in any respect with the Executive's position (including status, offices, titles and reporting 3 4 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; (ii) 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; (iii) any purported termination by the Company of the Executive's employment otherwise than as expressly permitted by this Agreement; (iv) any failure by the Company to comply with and satisfy Section 13 of this Agreement; or (v) failure to reelect Executive as a member of the Board of Directors or the removal of Executive as a member of such Board. 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. (c) 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 breach of this Agreement by the Company, the Company shall pay to Executive in a lump sum upon such termination an amount in cash equal to (i) all Annual Base Salary that has accrued in favor of Executive as of the date of termination, to the extent unpaid or delivered, (ii) 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 (iii) the Remainder Bonus. (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 the expenses incurred prior to such termination, including, without limitation, relocation expense incurred pursuant to Section 5(c) and Schedule 5(c)), Section 12 (SARs) 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 be deemed to have occurred as of the date upon which either (x) Liberty Media Corporation 4 5 ("Liberty", which term shall include any successor corporation, partnership or other entity formed as a result of or in connection with any pro rata distribution of securities or the right to acquire securities to the holders of securities of Liberty, provided that the condition of clause (y) of this Section 1(g) hereof continues to be satisfied) ceases to be the sole "beneficial owner" (within the meaning of Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) of Voting Securities (as hereinafter defined) having a majority of the outstanding Voting Power (as hereinafter defined) of the Company or (y) the individuals and entities beneficially own Voting Securities of Liberty on the date of this Agreement cease to beneficially own Voting Securities having a majority of the outstanding Voting Power of Liberty. As used herein, the following terms shall have the following meanings: (i) "Voting Securities" shall mean any securities of the Company or Liberty, as the case may be, entitled, or which may be entitled, to vote on matters submitted to stockholders generally (whether or not entitled to vote generally in the election of directors), or securities which are convertible into, or exercisable or exchangeable for such Voting Securities, whether or not subject to the passage of time or any contingency; and (ii) "Voting Power" shall mean the number of votes available to be cast (determined by reference to the maximum number of votes entitled to be cast by the holders of such Voting Securities (or by the holders of any other Voting Securities into which such Voting Securities may be convertible, exercisable or exchangeable for, whichever yields the highest number of votes) upon any matter submitted to stockholders where the holders of all Voting Securities vote together as a single class) by the holders of Voting Securities. (h) Continuation of Certain Benefits. In the event Executive's employment is terminated for any reason other than for Cause, 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. 5 6 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. 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 engagement 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. 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 shall be paid on a semi-monthly basis. (b) Annual Bonus. In addition to Annual Base Salary, if the Compensation Committee of the Board of Directors of the Company adopts an annual bonus program for its executive employees generally, the Executive shall be entitled to participate in such program and be paid on an annual basis such bonus amount ("Annual Bonus") as determined by such Committee. (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). (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, 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 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 6 7 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 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 Code (as hereinafter defined). (f) Certain Reduction of Payments by the Company. (i) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any reduction required under this Section 4(f) (a "Payment") would be nondeductible by the Company for Federal income tax purposes because of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), then the aggregate present value of all Payments shall be reduced (but not below zero) such that such aggregate present value of Payments equals the Reduced Amount. The "Reduced Amount" shall be an amount expressed in present value which maximizes the aggregate present value of Payments without causing any Payment to be nondeductible by the Company because of Section 280G of the Code. For purposes of this Section 4(f), present value shall be determined in accordance with Section 280G(d)(4) of the Code. (ii) All determinations required to be made under this Section 4(f) shall be made by the Company's regular independent accounting and auditing firm (the 7 8 "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the Date of Termination. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, the Executive shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). Any such determination by the Accounting Firm shall be binding upon the Company and the Executive. All fees and expenses of the Accounting Firm shall be borne by the Company. The Executive shall determine which and how much of the Payments shall be eliminated or reduced consistent with the requirements of this Section 4(f), provided that, if the Executive does not make such determination within ten business days of the receipt of the calculations made by the Accounting Firm, the Company shall elect which and how much of the Payments shall be eliminated or reduced consistent with the requirements of this Section 4(f) and shall notify the Executive promptly of such election. Within Five business days thereafter, the Company shall pay to or distribute to or for the benefit of the Executive such Payments as are then due to the Executive and shall promptly pay to or distribute to or for the benefit of the Executive such Payments as become due to the Executive. (iii) As a result of the uncertainty in the application of Section 280G of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Payments will have been made by the Company which should have not been made ("Overpayment") or that additional Payments which will have not been made by the Company could have been made ("Underpayment"), in each case, consistent with the calculations required to be made hereunder. In the event that the Accounting Firm determines that an Overpayment has been made, any such Overpayment shall be treated for all purposes as a loan to the Executive which the Executive shall repay to the Company together with interest at the applicable Federal rate provided for in Section 7872(f)(2) of the Code; provided, however, that no amount shall be payable by the Executive to the Company (or if paid by the Executive to the Company shall be returned to the Executive) if an to the extent such payment would not reduce the amount which is subject to taxation under Section 4999 of the Code. In the event that the Accounting Firm determines that an Underpayment has occurred, any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive together with interest at the applicable Federal rate provided for in section 7872(f)(2) of the Code. 5. Expenses; Relocation Expenses. (a) During the Employment Term, the Executive shall be entitled to receive prompt reimbursement for all reasonable expense incurred by the Executive in accordance with the policies, practices and procedures of the Company. (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 8 9 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. (c) The Company shall provide Executive with the benefits (financial and otherwise) of the Company's relocation policy (a description of which is set forth in Schedule 5(c) to this Agreement) with respect to the sale of Executive's principle residence occupied prior to his relocation to the Tampa, Florida area. 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 schedule 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 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 (the "NASDAQ System") to the extent of an aggregate of 5% of the amount 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; 9 10 (c) information disclosed to Executive by any third party; or (d) information developed independently by Executive subsequent to 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. 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: Legal Department (b) If to be given to Executive: 1416 Brightwaters Boulevard., N.E. St. Petersburg, Florida 33704 10 11 With a separate copy to: Baker & Botts, L.L.P. 885 Third Avenue New York, New York 10020 Attention: Jerome H. Kern, Esq. or to such other address as a party may request by notice given in accordance with this Section 11. 12. Stock Appreciation Rights. (a) The Company hereby grants to Executive Stock Appreciation Rights ("SARs") with respect to 984,876 (the "Total Number of SARs") 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 SARs granted hereunder shall vest over a four-year period as follows: one-fourth of the Total Number of SARs shall vest and become exercisable by Executive on each anniversary of the Effective Date, commencing with February 23, 1994, such that the Total Number of SARs will be fully vested on February 23, 1997, unless such vesting is accelerated pursuant to Section 12(c) hereof. The SARs granted to Executive hereunder are not granted under, and are not subject to the provisions of, any stock incentive, bonus or other plan of the Company. (b) SARs granted hereunder may be exercised, in whole or in part and at any time or from time to time, during the period commencing with the vesting of such SARs and ending on February 23, 2003, unless earlier terminated in accordance with Section 12(c) hereof. SARs may be exercised by delivery to the Company of a written notice specifying the whole number of shares of Common Stock as to which SARs are being exercised; provided, however, that in the event the Company ceases to be a Public Company (as hereinafter defined) Executive may not exercise SARs on more than three separate occasions, and SARs may not be exercised more than once in any fiscal year of the Company during the period in which the Company is not a Public Company. Upon the valid exercise of SARs, Executive shall be entitled to receive from the Company cash or, so long as the Company is a Public Company, shares of the Company's Common Stock (valued at the Fair Market Value (as hereinafter defined) thereof) equal to the excess of (i) the Fair Market Value of each share of Common Stock with respect to which such SARs have been exercised over (ii) $8.25 per share (the "Strike Price"). (c) Upon termination of Executive's employment hereunder, all SARs that have theretofore vested and not been exercised shall remain exercisable for a period of one year after the effective date of the termination of Executive's employment with the Company (the "Termination Date") and shall thereafter terminate to the extent not exercised. In the event of the termination of Executive's employment by the Company other than for Cause, or termination of Executive's employment by Executive for Good Reason, all unvested SARs shall vest 11 12 immediately upon such termination and shall remain exercisable for a period of one year following the Termination Date, and shall thereafter terminate to the extent not exercised. In the event of a Change in Control, whether or not Executive has elected to terminate his employment hereunder pursuant to Section 1 (d) hereof, all vested SARs shall vest immediately prior to such Change in Control, such that Executive may exercise all such SARs no later than the time at which the Change in Control becomes effective, and such SARs shall remain exercisable for a period of one year following termination of Executive's employment (provided that Executive terminates his employment within the twelve-month period referred to in Section 1(d)), and shall thereafter terminate to the extent not exercised. In the event Executive's employment is terminated as a result of his death or disability, all SARS that become vested upon such event or that have theretofore vested shall remain exercisable by Executive or his designated beneficiary or beneficiaries for a period of one year after the Termination Date and notice of such expiration to Executive, his designated beneficiary, if any, or his executor, as the case may be, and shall thereafter terminate to the extent not exercised. Notwithstanding anything contained in this subsection (c), no SAR shall be exercisable after February 23, 2003. (d) the Fair Market Value of a share of Common Stock shall be determined on the date of exercise of an SAR, and the date of exercise of such SAR shall mean the date on which the Company shall have received written notice from Executive of the exercise of such SAR; provided, however, that any such notice given by Executive by personal delivery or facsimile transmission shall be deemed received by the Company at the time of such delivery or transmission. The "Fair Market Value" of a share of Common Stock shall be either (x) if the Company is a Public Company on the date of exercise, the Reference Price (as hereinafter defined) of a share of Common Stock, determined for the trading day preceding such date, or (y) if the Company is not a Public Company on the date of exercise, the Per Share Value (as hereinafter defined) of a share of Common Stock as of the date of exercise. The "Reference Price" of a share of Common Stock shall be (i) the closing price of a share of Common Stock for such trading day on the principal exchange on which the Common Stock is listed, or (ii) if the Common Stock is not listed on any national securities exchange, the closing price (or if none, the average of the high and low bid prices) of a share of Common Stock on such trading day in the over-the-counter market, as reported by the NASDAQ system. The "Per Share Value" of a Share of Common Stock shall be determined as of the applicable Appraisal Date (as hereinafter defined) and shall equal the quotient of the Appraised Value (as hereinafter defined) of the Company divided by the sum of (x) the total number of shares of Common Stock outstanding on such Appraisal Date on a Fully Diluted Basis (as hereinafter defined) and (y) the total number of SARs. The Appraised Value of the Company shall be as agreed to by the Company and Executive prior to the 31st day following the applicable Appraisal Date. In the event that they have not reached agreement by such date notwithstanding their respective good faith efforts to do so (each being required to negotiate in good faith with the other at least for five (5) business days), then the Company and Executive shall each designate a Qualified Appraiser (as hereinafter defined) as promptly as practicable, but in no event more than ten (10) days thereafter, which Qualified Appraisers shall be retained by the Company to determine the Appraised Value of the 12 13 Company as of the applicable Appraisal Date. Each Qualified Appraiser shall submit its written determination of the Appraised Value of the Company to the Company and Executive within 45 days after the date of its retention. If the higher determination of the two Qualified Appraisers is not greater than 110% of the lower determination, the Appraised Value of the Company shall be the average of such two determinations. If the higher determination is greater than 110% of the lower determination, then such two Qualified Appraisers shall jointly select within ten (10) days after the date on which the later of such two determinations was delivered a third Qualified Appraiser to be retained by the Company. Such third Qualified Appraiser shall deliver its written determination of the Appraised Value of the Company as of the applicable Appraisal Date within 30 days after its retention, and the Appraised Value of the Company shall be the average of the two closest determinations or, if there are not two closest determinations, the average of all three determinations. The Company shall pay all fees and expenses relating to the determination of the Appraised Value, including the fees and expenses of all Qualified Appraisers (including the Qualified Appraiser selected by Executive). For purposes of this Section 12(d), the following terms shall have the following meanings. (i) "Appraisal Date": The date of exercise of the SARs. (ii) "Appraised Value": As of the applicable Appraisal Date, the fair market value of the Company on a going concern (whether as a sale of stock or assets) or liquidation basis (whichever method would yield the highest valuation). The fair market value of the Company on a going concern basis shall take into account such considerations (including but not limited to tax considerations which are specific to a sale of assets versus a sale of stock) as would customarily affect the price at which a willing seller would sell and a willing buyer would buy a comparable business as a going concerning in an arm's length transaction. The fair market value of the Company on a liquidation basis shall take into account tax liabilities that would be incurred on liquidation assuming the most tax efficient and practical plan of liquidation. (iii) "Fully Diluted Basis": All shares of Common Stock outstanding on the date of determination, together with shares of Common Stock issuable upon the conversion, exercise or exchange of securities of the Company which are convertible into, or exercisable or exchangeable for, Common Stock, without regard to whether such securities have vested or are then convertible, exercisable or exchangeable. (iv) "Public Company": The Company shall be deemed to be a Public Company for so long as (i) the Common Stock is registered under Section 12 of the Exchange Act and (ii) the Common Stock is regularly traded on a national securities exchange or quoted by the NASDAQ System. (v) "Qualified Appraiser": A nationally recognized investment banking firm with substantial experience as of the applicable Appraisal Date in valuing significant communications properties including cable television programming entities. 13 14 (e) 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 SARs granted hereunder and/or (ii) the Strike Price, in such manner as the Board of Directors may deem reasonable and appropriate, provided, however, that the number of shares subject to the SARs granted hereunder shall always be a whole number. (f) The grant of SARs hereunder shall not affect in any way the right or power of the Company to make reclassification, 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. (g) The amount of cash payable at any time by the Company upon the valid exercise of SARs granted hereunder shall not in any way be reserved or held in trust by the Company. Executive shall not have any rights against the Company in respect of payment of such amount of cash other than the rights of an unsecured general creditor of the Company. The amount of cash payable upon the valid exercise of SARs hereunder shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, and shall not in any manner be liable or subject to the debts, contracts, liabilities, engagements or torts of Executive or of any designated beneficiary or personal representative. (h) The SARs granted to Executive hereunder are not transferable, except to a designated beneficiary or beneficiaries upon Executive's death, and may only be exercised by Executive during his lifetime. Without limiting the generality of the foregoing and except as provided herein, the SARs granted hereunder may not be assigned, transferred, pledged or hypothecated in any way (whether by operation of law or otherwise) and are not subject to execution, attachment or similar process. Except as provided herein, any attempted assignment, transfer, pledge of hypothecation of, or levy, attachment or similar process upon, any SARs shall be null and void and without force or effect. 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. (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 of the business and/or 14 15 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 15 16 of the 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. IN WITNESS WHEREOF, this Agreement has been executed as of the day and year first above written.
ATTEST: HOME SHOPPING NETWORK, INC. - ---------------- By: /s/ VIVIAN J. CARR Name: ------------------ Title: Name: Vivian Carr Title: Secretary ---------------------- Gerald F. Hogan
16 17 of the 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. IN WITNESS WHEREOF, this Agreement has been executed as of the day and year first above written.
ATTEST: HOME SHOPPING NETWORK, INC. By: - ------------------- ------------------------ Name: Name: Title: Title: /s/ Gerald F. Hogan --------------------------- Gerald F. Hogan
16 18 Schedule 5(c) In accordance with the Home Shopping Network, Inc. ("HSN") policy and practice in such matters, the following will apply in the sale of Executive's home at 3801 Topside Road, Knoxville, Tennessee: 1. The Guaranteed Sales Price, based on appraised value, shall be $1,100,000.00. HSN will guarantee Executive this price. HSN reserves the right to review and approve/disapprove or modify any offers received by the realtor, Dean Smith Realty of Knoxville, TN. If HSN accepts or directs Executive to accept an offer which is less than the appraised value, HSN will reimburse Executive for the amount of the difference between the Guaranteed Sales Price and offer price, less the monies it has paid towards the amortization of Executive's mortgage. 2. Monthly mortgage payments = $7,465.00. HSN will remit these payments to the first mortgage holder by the fifth day of each month. Upon the sale of Executive's property, HSN will be reimbursed by Executive for any mortgage amortization occurring during the period that HSN made such payments. 3. Maintenance. It is recognized that the property must be properly maintained while for sale. HSN will reimburse Executive for this expense at the rate of $250.00 per month. 4. Insurance which provides appropriate protection against loss from fire, theft, vandalism, weather, etc. will be maintained in Executive's name, and HSN will reimburse Executive for such amounts during the period prior to sale. The annual cost of $2,836.00 will be paid by HSN. Executive will reimburse HSN for any insurance refunds made at the closing. 5. Mr. Edward Vaughn will serve as agent on behalf of HSN to receive and review with Executive all offers presented by Executive's realtors and, if appropriate, to adjust the asking price for the property. 6. The foregoing agreements shall remain in effect during the Employment Term and shall survive termination of the Agreement; provided, however, that in the event Executive terminated his employment other than in accordance with Section 1(d) of the Agreement, Executive shall be required to reimburse HSN for the amounts paid on Executive's behalf pursuant to Sections 2, 3 and 4 of this Schedule 5(c).
17 EX-10.33 12 HSN RETIREMENT SAVINGS PLAN 1 EXHIBIT 10.33 HOME SHOPPING NETWORK, INC. RETIREMENT SAVINGS AND EMPLOYEE STOCK OWNERSHIP PLAN 2 3.3 EFFECTIVE DATE OF PARTICIPATION 28 3.4 DETERMINATION OF ELIGIBILITY 28 3.5 TERMINATION OF ELIGIBILITY 29 3.6 OMISSION OF ELIGIBLE EMPLOYEE 29 3.7 INCLUSION OF INELIGIBLE EMPLOYEE 29 3.8 ELECTION NOT TO PARTICIPATE 30 ARTICLE IV CONTRIBUTION AND ALLOCATION 4.1 FORMULA FOR DETERMINING EMPLOYER'S CONTRIBUTION 30 4.2 PARTICIPANT'S SALARY REDUCTION ELECTION 31 4.3 TIME OF PAYMENT OF EMPLOYER'S CONTRIBUTION 36 4.4 ALLOCATION OF CONTRIBUTION, FORFEITURES AND EARNINGS 36 4.5 ACTUAL DEFERRAL PERCENTAGE TESTS 43 4.6 ADJUSTMENT TO ACTUAL DEFERRAL PERCENTAGE TESTS 46 4.7 ACTUAL CONTRIBUTION PERCENTAGE TESTS 48 4.8 ADJUSTMENT TO ACTUAL CONTRIBUTION PERCENTAGE TESTS 51 4.9 MAXIMUM ANNUAL ADDITIONS 54 4.10 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS 60 4.11 TRANSFERS FROM QUALIFIED PLANS 61 4.12 DIRECTED INVESTMENT ACCOUNT 64 3 ARTICLE V FUNDING AND INVESTMENT POLICY 5.1 INVESTMENT POLICY 65 5.2 APPLICATION OF CASH 66 5.3 LOANS TO THE TRUST 66 ARTICLE VI VALUATIONS 6.1 VALUATION OF THE TRUST FUND 68 6.2 METHOD OF VALUATION 68 ARTICLE VII DETERMINATION AND DISTRIBUTION OF BENEFITS 7.1 DETERMINATION OF BENEFITS UPON RETIREMENT 68 7.2 DETERMINATION OF BENEFITS UPON DEATH 69 7.3 DETERMINATION OF BENEFITS IN EVENT OF DISABILITY 70 7.4 DETERMINATION OF BENEFITS UPON TERMINATION 71 7.5 DISTRIBUTION OF BENEFITS 75 7.6 HOW PLAN BENEFIT WILL BE DISTRIBUTED 79 7.7 DISTRIBUTION FOR MINOR BENEFICIARY 80 7.8 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN 80 7.9 RIGHT OF FIRST REFUSALS 81 7.10 STOCK CERTIFICATE LEGEND 82 7.11 PUT OPTION 83 4 7.12 NONTERMINABLE PROTECTIONS AND RIGHTS 85 7.13 PRE-RETIREMENT DISTRIBUTION 85 7.14 ADVANCE DISTRIBUTION FOR HARDSHIP 86 7.15 LIMITATIONS ON BENEFITS AND DISTRIBUTIONS 88 ARTICLE VIII AMENDMENT, TERMINATION AND MERGERS 8.1 AMENDMENT 88 8.2 TERMINATION 89 8.3 MERGER OR CONSOLIDATION 90 ARTICLE IX MISCELLANEOUS 9.1 PARTICIPANT'S RIGHTS 90 9.2 ALIENATION 90 9.3 CONSTRUCTION OF PLAN 91 9.4 GENDER AND NUMBER 91 9.5 LEGAL ACTION 92 9.6 PROHIBITION AGAINST DIVERSION OF FUNDS 92 9.7 BONDING 92 9.8 EMPLOYER'S AND TRUSTEE'S PROTECTIVE CLAUSE 93 9.9 INSURER'S PROTECTIVE CLAUSE 93 9.10 RECEIPT AND RELEASE FOR PAYMENTS 93 9.11 ACTION BY THE EMPLOYER 93 5 9.12 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY 94 9.13 HEADINGS 94 9.14 APPROVAL BY INTERNAL REVENUE SERVICE 95 9.15 UNIFORMITY 95 9.16 SECURITIES AND EXCHANGE COMMISSION APPROVAL 95 9.17 VOTING COMPANY STOCK 96 6 HOME SHOPPING NETWORK, INC. RETIREMENT SAVINGS AND EMPLOYEE STOCK OWNERSHIP PLAN THIS PLAN, hereby adopted this 19th day of October, 1990, by Home Shopping Network, Inc. (herein referred to as the "Employer"). W I T N E S S E T H: WHEREAS, the Employer heretofore established a Profit Sharing Plan effective February 1, 1990 (hereinafter called the "Effective Date"), known as Home Shopping Network, Inc. Retirement Savings Plan and which Plan shall hereinafter be known as Home Shopping Network, Inc. Retirement Savings and Employee Stock Ownership Plan in recognition of the contribution made to its successful operation by its employees and for the exclusive benefit of its eligible employees; and WHEREAS, under the terms of the Profit Sharing Plan, the Employer has the ability to amend the Profit Sharing Plan, provided the Trustee joins in such amendment if the provisions of the Profit Sharing Plan affecting the Trustee are amended; and WHEREAS, the Employer desires to amend the Profit Sharing Plan to enable its eligible employees to acquire a proprietary interest in capital stock of the Employer; and WHEREAS, contributions to the Plan will be made by the Employer and such contributions made to the trust will be invested primarily in the capital stock of the Employer; NOW, THEREFORE, effective February 1, 1990, except as otherwise provided, the Employer in accordance with the provisions of the Profit Sharing Plan pertaining to amendments thereof, hereby modify, amend and restate the Profit Sharing Plan in its entirety as an Employee Stock Ownership Plan (ESOP) as defined in Section 4975(e) (7) of the Internal Revenue Code, known as Home Shopping Network, Inc. Retirement Savings and Employee Stock Ownership Plan (hereinafter referred to as the "Plan"), to provide as follows: i 7 ARTICLE I DEFINITIONS 1.1 "Act" means the Employee Retirement Income Security Act of 1974, as it may be amended from time to time. 1.2 "Administrator" means the person designated by the Employer pursuant to Section 2.4 to administer the Plan on behalf of the Employer. 1.3 "Affiliated Employer" means the Employer and any corporation which is a member of a controlled group of corporations (as defined in Code Section 414(b)) which includes the Employer; any trade or business (whether or not incorporated) which is under common control (as defined in Code Section 414(c)) with the Employer; any organization (whether or not incorporated) which is a member of an affiliated service group (as defined in Code Section 414(m)) which includes the Employer; and any other entity required to be aggregated with the Employer pursuant to Regulations under Code Section 414 (o). 1.4 "Aggregate Account" means, with respect to each Participant, the value of all accounts maintained on behalf of a Participant, whether attributable to Employer or Employee contributions, subject to the provisions of Section 2.2. 1.5 "Anniversary Date" means December 31. 1.6 "Authorized Leave of Absence" means an unpaid temporary cessation from active employment with the Employer pursuant to a nondiscriminatory policy, whether occasioned by illness, military service, or any other reason. 1.7 "Beneficiary" means the person to whom the share of a deceased Participant's total account is payable, subject to the restrictions of Sections 7.2 and 7.5. 1.8 "Code" means the Internal Revenue Code of 1986, as amended or replaced from time to time. 1.9 "Company Stock" means common stock issued by the Employer (or by a corporation which is a member of the controlled group of corporations of which the Employer is a member) which is readily tradeable on an established securities market. If there is no common stock which meets the foregoing requirement, the term "Company Stock" means common stock issued by the Employer (or by a corporation which is a member of the same controlled group) having a combination of voting power and dividend rights equal to or in excess of: (A) that class of common stock of the Employer (or of any other such corporation) having the greatest voting power, and (B) that class of stock of the Employer (or of any other such corporation) having the greatest dividend rights. 1 8 Noncallable preferred stock shall be deemed to be "Company Stock" if such stock is convertible at any time into stock which constitutes "Company Stock" hereunder and if such conversion is at a conversion price which (as of the date of the acquisition by the Trust) is reasonable. For purposes of the preceding sentence, pursuant to Regulations, preferred stock shall be treated as noncallable if after the call there will be a reasonable opportunity for a conversion which meets the requirements of the preceding sentence. 1.10 "Company Stock Account" means the account established pursuant to Section 4.1(b) to receive matching contributions and which is intended to be invested primarily in Company Stock. A separate accounting shall be maintained with respect to that portion of the Company Stock Account attributable to Elective Contributions and Non-Elective Contributions. 1.11 "Compensation" with respect to any Participant means such Participant's regular salary and wages paid by the Employer for a Plan Year, but excluding overtime, commissions and bonuses. Amounts contributed by the Employer under the within Plan, except for an Employee's Compensation that is deferred pursuant to Section 4.2, and any non-taxable fringe benefits shall not be considered as Compensation. For purposes of this Section, the determination of Compensation shall be made by including salary reduction contributions made on behalf of an Employee to a plan maintained under Code Section 125. For a Participant's initial year of participation, Compensation shall be recognized for the entire Plan Year. Compensation in excess of $200,000 shall be disregarded. Such amount shall be adjusted at the same time and in such manner as permitted under Code Section 415(d). In applying this limitation, the family group of a Highly Compensated Participant who is subject to the Family Member aggregation rules of Code Section 414(q) (6) because such Participant is either a "five percent owner" of the Employer or one of the ten (10) Highly Compensated Employees paid the greatest "415 Compensation" during the year, shall be treated as a single Participant, except that for this purpose Family Members shall include only the affected Participant's spouse and any lineal descendants who have not attained age nineteen (19) before the close of the year. If, as a result of the application of such rules the adjusted $200,000 limitation is exceeded, then the 2 9 limitation shall be prorated among the affected Family Members in proportion to each such Family Member's Compensation prior to the application of this limitation. For Plan Years beginning prior to January 1, 1989, the $200,000 limit (without regard to Family Member aggregation) shall apply only for Top Heavy Plan Years and shall not be adjusted. 1.12 "Contract" or "Policy" means a life insurance policy or annuity contract (group or individual) issued by the insurer as elected. 1.13 "Current Obligations" means Trust obligations arising from extension of credit to the Trust and payable in cash within (1) year from the date an Employer contribution is due. 1.14 "Deferred Compensation" with respect to any Participant means that portion of the Participant's total Compensation which has been contributed to the Plan in accordance with the Participant's deferral election pursuant to Section 4.2. 1.15 "Early Retirement Date" means the first day of the month (prior to the Normal Retirement Date) coinciding with or following the date on which a Participant or Former Participant attains age 55 and has completed at least a 7-year period of service. A Former Participant who terminates employment after satisfying the service requirement for Early Retirement and who thereafter reaches the age requirement contained herein shall be entitled to receive his benefits under this Plan. 1.16 "Elective Contribution" means the Employer's contributions to the Plan that are made pursuant to the Participant's deferral election provided in Section 4.2. In addition, any Employer Qualified Non-Elective Contribution made pursuant to Section 4.6 shall be considered an Elective Contribution for purposes of the Plan. Any such contributions deemed to be Elective Contributions shall be subject to the requirements of Sections 4.2(b) and 4.2(c) and shall further be required to satisfy the discrimination requirements of Regulation 1.401(k)-1(b) (3), the provisions of which are specifically incorporated herein by reference. 3 10 1.17 "Eligible Employee" means any full-time Employee working 30 hours or more per week. Employees whose employment is governed by the terms of a collective bargaining agreement between Employee representatives (within the meaning of Code Section 7701(a) (46)) and the Employer under which retirement benefits were the subject of good faith bargaining between the parties, unless such agreement expressly provides for such coverage in this Plan, will not be eligible to participate in this Plan. 1.18 "Employee" means any person who is employed by the Employer or Affiliated Employer, but excludes any person who is an independent contractor. Employee shall include Leased Employees within the meaning of Code Sections 414(n) (2) and 414(o) (2) unless such Leased Employees are covered by a plan described in Code Section 414(n) (5) and such Leased Employees do not constitute more than 20% of the recipient's non-highly compensated work force. 1.19 "Employer" means Home Shopping Network, Inc. and any successor which shall maintain this Plan; and any predecessor which has maintained this Plan. The Employer is a corporation with principal offices in the State of Florida. 1.20 "Excess Aggregate Contributions" means, with respect to any Plan Year, the excess of the aggregate amount of the Employer matching contributions made pursuant to Section 4.1(b) and any qualified non-elective contributions or elective deferrals taken into account pursuant to Section 4.7(c) on behalf of Highly Compensated Participants for such Plan Year, over the maximum amount of such contributions permitted under the limitations of Section 4.7(a). 1.21 "Excess Contributions" means, with respect to a Plan Year, the excess of Elective Contributions made on behalf of Highly Compensated Participants for the Plan Year over the maximum amount of such contributions permitted under Section 4.5(a). Excess Contributions shall be treated as an "annual addition" pursuant to Section 4.9(b). 1.22 "Excess Deferred Compensation" means, with respect to any taxable year of a Participant, the excess of the aggregate amount of such Participant's Deferred Compensation and the elective deferrals pursuant to Section 4.2(f) actually made on behalf of such Participant for such taxable year, over the dollar limitation provided for in Code Section 402(g), which is incorporated herein by reference. Excess Deferred Compensation shall be treated as an "annual addition" pursuant to Section 4 11 4.9(c). 1.23 "ESOP" means an employee stock ownership plan that meets the requirements of Code Section 4975(e) (7) and Regulation 54.4975-11. 1.24 "Exempt Loan" means a loan made to the Plan by a disqualified person or a loan to the Plan which is guaranteed by a disqualified person and which satisfies the requirements of Section 2550.408b-3 of the Department of Labor Regulations, Section 54.4975-7(b) of the Treasury Regulations and Section 5.3 hereof. 1.25 "Family Member" means, with respect to an affected Participant, such Participant's spouse, such Participant's lineal descendants and ascendants and their spouses, all as described in Code Section 414 (q) (6) (B). 1.26 "Fiduciary" means any person who (a) exercises any discretionary authority or discretionary control respecting management of the Plan or exercises any authority or control respecting management or disposition of its assets, (b) renders investment advice for a fee or other compensation, direct or indirect, with respect to any monies or other property of the Plan or has any authority or responsibility to do so, or (c) has any discretionary authority or discretionary responsibility in the administration of the Plan, including, but not limited to, the Trustee, the Employer and its representative body, and the Administrator. 1.27 "Fiscal Year" means the Employer's accounting year of 12 months commencing on September 1st of each year and ending the following August 31st. 1.28 "Forfeiture" means that portion of a Participant's Account that is not Vested, and occurs on the earlier of: (a) the distribution of the entire Vested portion of a Participant's Account, or (b) the last day of the Plan Year in which the Participant incurs a five-year Period of Severance. Furthermore, for purposes of paragraph (a) above, in the case of a Terminated Participant whose Vested benefit is zero, such Terminated Participant shall be deemed to have received a distribution of his Vested benefit upon his termination of employment. Restoration of such amounts shall occur pursuant to Section 7.4. In addition, the term Forfeiture shall also include amounts deemed to be Forfeitures pursuant to any other provision of this Plan. 5 12 1.29 "Former Participant" means a person who has been a Participant, but who has ceased to be a Participant for any reason. 1.30 "415 Compensation" means compensation as defined in Section 4.9(d). 1.31 "414(s) Compensation" with respect to any Employee means his Deferred Compensation plus "415 Compensation" paid during a Plan Year. The amount of "414(s) Compensation" with respect to any Employee shall include "414(s) Compensation" during the entire twelve (12) month period ending on the last day of such Plan Year. For purposes of this Section, the determination of "414(s) Compensation" shall be made by including salary reduction contributions made on behalf of an Employee to a plan maintained under Code Section 125. "414(s) Compensation" in excess of $200,000 shall be disregarded. Such amount shall be adjusted at the same time and in such manner as permitted under Code Section 415(d). However, for Plan Years beginning prior to January 1, 1989, the $200,000 limit shall apply only for Top Heavy Plan Years and shall not be adjusted. 1.32 "Highly Compensated Employee" means an Employee described in Code Section 414(q) and the Regulations thereunder, and generally means an Employee who performed services for the Employer during the "determination year" and is in one or more of the following groups: (a) Employees who at any time during the "determination year" or "look-back year" were "five percent owners" as defined in Section 1.38(c). (b) Employees who received "415 Compensation" during the "look-back year" from the Employer in excess of $75,000. (c) Employees who received "415 Compensation" during the "look-back year" from the Employer in excess of $50,000 and were in the Top Paid Group of Employees for the Plan Year. (d) Employees who during the "look-back year" were officers of the Employer (as that term is defined within the meaning of the Regulations under Code Section 416) and received "415 Compensation" during the 6 13 "look-back year" from the Employer greater than 50 percent of the limit in effect under Code Section 415(b) (1) (A) for any such Plan Year. The number of officers shall be limited to the lesser of (i) 50 employees; or (ii) the greater of 3 employees or 10 percent of all employees. For the purpose of determining the number of officers, Employees described in Section 1.63(a), (b), (c) and (d) shall be excluded, but such Employees shall still be considered for the purpose of identifying the particular Employees who are officers. If the Employer does not have at least one officer whose annual "415 Compensation" is in excess of 50 percent of the Code Section 415(b) (1) (A) limit, then the highest paid officer of the Employer will be treated as a Highly Compensated Employee. (e) Employees who are in the group consisting of the 100 Employees paid the greatest "415 Compensation" during the "determination year" and are also described in (b), (c) or (d) above when these paragraphs are modified to substitute "determination year" for "look-back year". The "look-back year" shall be the calendar year ending with or within the Plan Year for which testing is being performed, and the "determination year" (if applicable) shall be the period of time, if any, which extends beyond the "look-back year" and ends on the last day of the Plan Year for which testing is being performed (the "lag period"). If the "lag period" is less than twelve months long, the dollar threshold amounts specified in (b), (c) and (d) above shall be prorated based upon the number of months in the "lag period". For purposes of this Section, the determination of "415 Compensation" shall be based only on "415 Compensation" which is actually paid and shall be made by including amounts that would otherwise be excluded from a Participant's gross income by reason of the application of Code Sections 125, 402(a) (8), 402(h) (1) (B) and, in the case of Employer contributions made pursuant to a salary reduction agreement, by including amounts that would otherwise be excluded from a Participant's gross income by reason of the application of Code Section 403(b). Additionally, the dollar threshold amounts specified in (b) and (c) above shall be adjusted at such time and in such manner as is provided in Regulations. In the case of such an adjustment, the dollar limits which shall be applied are those for the calendar year in which the "determination year" or "look-back year" begins. 7 14 In determining who is a Highly Compensated Employee, Employees who are non-resident aliens and who received no earned income (within the meaning of Code Section 911(d) (2)) from the Employer constituting United States source income within the meaning of Code Section 861(a) (3) shall not be treated as Employees. Additionally, all Affiliated Employers shall be taken into account as a single employer and Leased Employees within the meaning of Code Sections 414(n) (2) and 414(o) (2) shall be considered Employees unless such Leased Employees are covered by a plan described in Code Section 414 (n) (5) and are not covered in any qualified plan maintained by the Employer. The exclusion of Leased Employees for this purpose shall be applied on a uniform and consistent basis for all of the Employer's retirement plans. Highly Compensated Former Employees shall be treated as Highly Compensated Employees without regard to whether they performed services during the "determination year". 1.33 "Highly Compensated Former Employee" means a former Employee who had a separation year prior to the "determination year" and was a Highly Compensated Employee in the year of separation from service or in any "determination year" after attaining age 55. Notwithstanding the foregoing, an Employee who separated from service prior to 1987 will be treated as a Highly Compensated Former Employee only if during the separation year (or year preceding the separation year) or any year after the Employee attains age 55 (or the last year ending before the Employee's 55th birthday), the Employee either received "415 Compensation" in excess of $50,000 or was a "five percent owner". For purposes of this Section, "determination year", "415 Compensation" and "five percent owner" shall be determined in accordance with Section 1.32. Highly Compensated Former Employees shall be treated as Highly Compensated Employees. The method set forth in this Section for determining who is a "Highly Compensated Former Employee" shall be applied on a uniform and consistent basis for all purposes for which the Code Section 414(q) definition is applicable. 1.34 "Highly Compensated Participant" means any Highly Compensated Employee who is eligible to participate in the Plan. 1.35 "Hour of Service" means each hour for which an Employee is directly or indirectly compensated or entitled to compensation by the Employer for the performance of duties within the meaning of Department of Labor Regulation 2530.200b-2(a) (1). 1.36 "Income" means the income allocable to "excess amounts" which shall equal the sum of the allocable gain or loss for the "applicable computation period" and the allocable gain or loss 8 15 for the period between the end of the "applicable computation period" and the date of distribution ("gap period"). The income allocable to "excess amounts" for the "applicable computation period" and the "gap period" is calculated separately and is determined by multiplying the income for the "applicable computation period" or the "gap period" by a fraction. The numerator of the fraction is the "excess amount" for the "applicable computation period". The denominator of the fraction is the total "account balance" attributable to "Employer contributions" as of the end of the "applicable computation period" or the "gap period", reduced by the gain allocable to such total amount for the "applicable computation period" or the "gap period" and increased by the loss allocable to such total amount for the "applicable computation period" or the "gap period". The provisions of this Section shall be applied: (a) For purposes of Section 4.2(f), by substituting: (1) "Excess Deferred Compensation" for "excess amounts"; (2) "taxable year of the Participant" for "applicable computation period"; (3) "Deferred Compensation" for "Employer contributions"; and (4) "Participant's Elective Account" for "account balance". (b) For purposes of Section 4.6(a), by substituting: (1) "Excess Contributions" for "excess amount"; (2) "Plan Year" for "applicable computation period'' ; (3) "Elective Contributions" for "Employer contributions"; and (4) "Participant's Elective Account" for "account balance". (c) For purposes of Section 4.8(a), by substituting: 9 16 (1) "Excess Aggregate Contributions" for "excess amounts"; (2) "Plan Year" for "applicable computation period"; (3) "Employer matching contributions made pursuant to Section 4.1(b) and any qualified non-elective contributions or elective deferrals taken into account pursuant to Section 4.7(c)" for "Employer contributions"; and (4) "Participant's Account" for "account balance". In lieu of the "fractional method" described above, a "safe harbor method" may be used to calculate the allocable Income for the "gap period". Under such "safe harbor method", allocable Income for the "gap period" shall be deemed to equal ten percent (10%) of the Income allocable to "excess amounts" for the "applicable computation period" multiplied by the number of calendar months in the "gap period". For purposes of determining the number of calendar months in the "gap period", a distribution occurring on or before the fifteenth day of the month shall be treated as having been made on the last day of the preceding month and a distribution occurring after such fifteenth day shall be treated as having been made on the first day of the next subsequent month. Income allocable to any distribution of Excess Deferred Compensation on or before the last day of the taxable year of the Participant shall be calculated from the first day of the taxable year of the Participant to the date on which the distribution is made pursuant to either the "fractional method" or the "safe harbor method". Notwithstanding the above, for "applicable computation periods" which began in 1987, Income during the "gap period" shall not be taken into account. 1.37 "Investment Manager" means an entity that (a) has the power to manage, acquire, or dispose of Plan assets and (b) acknowledges fiduciary responsibility to the Plan in writing. Such entity must be a person, firm, or corporation registered as an investment adviser under the Investment Advisers Act of 1940, a bank, or an insurance company. 10 17 1.38 "Key Employee" means an Employee as defined in Code Section 416(i) and the Regulations thereunder. Generally, any Employee or former Employee (as well as each of his Beneficiaries) is considered a Key Employee if he, at any time during the Plan Year that contains the "Determination Date" or any of the preceding four (4) Plan Years, has been included in one of the following categories: (a) an officer of the Employer (as that term is defined within the meaning of the Regulations under Code Section 416) having annual "415 Compensation" greater than 50 percent of the amount in effect under Code Section 415(b) (1) (A) for any such Plan Year. (b) one of the ten employees having annual "415 Compensation" from the Employer for a Plan Year greater than the dollar limitation in effect under Code Section 415(c) (1) (A) for the calendar year in which such Plan Year ends and owning (or considered as owning within the meaning of Code Section 318) both more than one-half percent interest and the largest interests in the Employer. (c) a "five percent owner" of the Employer. "Five percent owner" means any person who owns (or is considered as owning within the meaning of Code Section 318) more than five percent (5%) of the outstanding stock of the Employer or stock possessing more than five percent (5%) of the total combined voting power of all stock of the Employer or, in the case of an unincorporated business, any person who owns more than five percent (5%) of the capital or profits interest in the Employer. In determining percentage ownership hereunder, employers that would otherwise be aggregated under Code Sections 414(b), (c), (m) and (o) shall be treated as separate employers. (d) a "one percent owner" of the Employer having an annual "415 Compensation" from the Employer of more than $150,000. "One percent owner" means any person who owns (or is considered as owning within the meaning of Code Section 318) more than one percent (1%) of the outstanding stock of the Employer or stock possessing more than one percent (1%) of the total combined voting power of all stock of the Employer or, in the case of an unincorporated business, any person who owns more than one percent (1%) of the capital or profits interest in the Employer. In determining percentage 11 18 ownership hereunder, employers that would otherwise be aggregated under Code Sections 414(b), (c), (m) and (o) shall be treated as separate employers. However, in determining whether an individual has "415 Compensation" of more than $150,000, "415 Compensation" from each employer required to be aggregated under Code Sections 414(b), (c), (m) and (o) shall be taken into account. For purposes of this Section, the determination of "415 Compensation" shall be based only on "415 Compensation" which is actually paid and shall be made by including amounts that would otherwise be excluded from a Participant's gross income by reason of the application of Code Sections 125, 402(a) (8), 402(h) (1) (B) and, in the case of Employer contributions made pursuant to a salary reduction agreement, by including amounts that would otherwise be excluded from a Participant's gross income by reason of the application of Code Section 403(b). 1.39 "Late Retirement Date" means the first day of the month coinciding with or next following a Participant's actual Retirement Date after having reached his Normal Retirement Date. 1.40 "Leased Employee" means any person (other than an Employee of the recipient) who pursuant to an agreement between the recipient and any other person ("leasing organization") has performed services for the recipient (or for the recipient and related persons determined in accordance with Code Section 414(n) (6)) on a substantially full time basis for a period of at least one year, and such services are of a type historically performed by employees in the business field of the recipient employer. Contributions or benefits provided a Leased Employee by the leasing organization which are attributable to services performed for the recipient employer shall be treated as provided by the recipient employer. A Leased Employee shall not be considered an Employee of the recipient if: (a) such employee is covered by a money purchase pension plan providing: (1) a non-integrated employer contribution rate of at least 10% of compensation, as defined in Code Section 415(c) (3), but including amounts contributed pursuant to a salary reduction agreement which are excludable from the employee's gross income under Code Sections 125, 402(a) (8), 402(h) or 403(b); 12 19 (2) immediate participation; and (3) full and immediate vesting. (b) Leased Employees do not constitute more than 20% of the recipient's non-highly compensated work force. 1.41 "Maternity or Paternity Leave of Absence" means, for Plan Years beginning after December 31, 1984, an absence from work for any period by reason of the Employee's pregnancy, adoption of such child, or any absence for the purpose of caring for such child for a period immediately following such birth or placement. 1.42 "Net Profit" means with respect to any Fiscal Year the Employer's net income or profit for such Fiscal Year determined upon the basis of the Employer's books of account in accordance with generally accepted accounting principles, without any reduction for taxes based upon income, or for contributions made by the Employer to this Plan. 1.43 "Non-Elective Contribution" means the Employer's contributions to the Plan excluding, however, contributions made pursuant to the Participant's deferral election provided for in Section 4.2 and any Qualified Non-Elective Contribution. 1.44 "Non-Highly Compensated Participant" means any Participant who is neither a Highly Compensated Employee nor a Family Member. 1.45 "Non-Key Employee" means any Employee or former Employee (and his Beneficiaries) who is not a Key Employee. 1.46 "Normal Retirement Date" means the first day of the month coinciding with or next following the Participant's Normal Retirement Age (65th birthday). A Participant shall become fully Vested in his Account upon attaining his Normal Retirement Age. 1.47 "Other Investments Account" means the account of a Participant which is credited with his share of the net gain (or loss) of the Plan and Employer contributions in other than Company Stock and which is debited with payments made to pay for Company Stock. A separate accounting shall be maintained with respect to that portion of the Other Investments Account attributable to Elective Contributions and Non-Elective Contributions. 13 20 1.48 "Participant" means any Eligible Employee who participates in the Plan as provided in Sections 3.2 and 3.3, and has not for any reason become ineligible to participate further in the Plan. 1.49 "Participant's Account" means the account established and maintained by the Administrator for each Participant with respect to his total interest in the Plan and Trust resulting from the Employer's Non-Elective Contributions. A separate accounting shall be maintained with respect to that portion of the Participant's Account attributable to Employer matching contributions made pursuant to Section 4.1(b) and Employer discretionary contributions made pursuant to Section 4.1(c). 1.50 "Participant's Combined Account" means the total aggregate amount of each Participant's Elective Account and Participant's Account. 1.51 "Participant's Elective Account" means the account established and maintained by the Administrator for each Participant with respect to his total interest in the Plan and Trust resulting from the Employer's Elective Contributions. A separate accounting shall be maintained with respect to that portion of the Participant's Elective Account attributable to Elective Contributions pursuant to Section 4.2 and any Employer Qualified Non-Elective Contributions. 1.52 "Period of Service" (a) Special Definitions (1) "Employment Commencement Date" means the date on which the Employee first performs an Hour of Service for the Employer. (2) "Date of Absence" means the first date of a period in which the Employee remains absent from service with the Employer (with or without pay) for any reason other than a quit, discharge, retirement, or death. For example, such absence may be due to vacation, holiday, sickness, disability, Authorized Leave of Absence, Maternity or Paternity Leave of Absence, or layoff. (3) "Severance from Service Date" means the earlier of (a) the date the Employee quits, retires, is discharged, or dies, or (b) the first anniversary of a Date of Absence. However, in the case of a Maternity or Paternity Absence, if the Employee is absent beyond the first anniversary of his first 14 21 Date of Absence, his Severance from Service Date shall mean the second anniversary of such date of Absences. The period between the first and second anniversaries is neither a period of service nor a Period of Severance. This rule applies to Maternity and Paternity Absences beginning on or after the first day of the first Plan Year after December 31, 1984. (4) "Period of Severance" means the period of time commencing on the Severance from Service Date and ending on the date on which the Employee again performs an Hour of Service for the Employer. (5) "Reemployment Commencement Date" means the first date, following a Period of Severance which is not required to be taken into account as a Period of Service, on which the Employee performs an Hour of Service for the Employer. (6) "Adjusted Employment Commencement Date" means the date reached by counting forward from the initial Employment Commencement Date by the number of days contained in the aggregated Periods of Severance which are not required to be taken into account as a Period of Service. (b) "Period of Service" shall mean a period of service, assuming 365 days equal one year, commencing on the Employee's Adjusted Employment Commencement Date and ending on his Severance from Service Date. Days of Service shall include all days within a Period of Severance if the Employee: (1) Severs from service by reason of a quit, discharge, or retirement and then performs an Hour of Service within 12 months of his Severance from Service Date; or (2) Severs from service by reason of a quit, discharge, or retirement within 12 months of a Date of Absence and then performs an Hour of Service also within 12 months of that Date of Absence. Service with any Affiliated Employer shall be recognized. 1.53 "Plan means this instrument, including all amendments thereto. 15 22 1.54 "Plan Year" means the Plan's accounting year of twelve (12) months commencing on January 1st of each year and ending the following December 31st, except for the first Plan Year which commenced February 1, 1990. 1.55 "Qualified Non-Elective Contribution" means the Employer's contributions to the Plan that are made pursuant to Section 4.6. Such contributions shall be considered an Elective Contribution for the purposes of the Plan and used to satisfy the "Actual Deferral Percentage" tests. In addition, the Employer's contributions to the Plan that are made pursuant to Section 4.8(g) which are used to satisfy the "Actual Contribution Percentage" tests shall be considered Qualified Non-Elective Contributions and be subject to the provisions of Sections 4.2(b) and 4.2(c). 1.56 "Regulation" means the Income Tax Regulations as promulgated by the Secretary of the Treasury or his delegate, and as amended from time to time. 1.57 "Retired Participant" means a person who has been a Participant, but who has become entitled to retirement benefits under the Plan. 1.58 "Retirement Date" means the date as of which a Participant retires for reasons other than Total and Permanent Disability, whether such retirement occurs on a Participant's Normal Retirement Date, Early or Late Retirement Date (see Section 7.1). 1.59 "Super Top Heavy Plan" means a plan described in Section 2.2(b). 1.60 "Terminated Participant" means a person who has been a Participant, but whose employment has been terminated other than by death, Total and Permanent Disability or retirement. 1.61 "Top Heavy Plan" means a plan described in Section 2.2(a). 1.62 "Top Heavy Plan Year" means a Plan Year commencing after December 31, 1983 during which the Plan is a Top Heavy Plan. 1.63 "Top Paid Group" means the top 20 percent of Employees who performed services for the Employer during the applicable year, ranked according to the amount of "415 Compensation" (determined for this purpose in accordance with Section 1.32) received from the Employer during such year. All Affiliated Employers shall be taken into account as a single employer, and Leased Employees within the meaning of Code Sections 414(n) (2) and 414 (o) (2) shall be considered Employees unless such Leased Employees are covered by a plan described in Code Section 414(n) (5) and are not covered in any qualified plan maintained by the Employer. Employees who are non-resident aliens and who received no earned income (within the meaning of Code Section 911(d) (2)) from the Employer constituting United States source 16 23 income within the meaning of Code Section 861 (a) (3) shall not be treated as Employees. Additionally, for the purpose of determining the number of active Employees in any year, the following additional Employees shall also be excluded; however, such Employees shall still be considered for the purpose of identifying the particular Employees in the Top Paid Group: (a) Employees with less than six (6) months of service; (b) Employees who normally work less than 17 1/2 hours per week; (c) Employees who normally work less than six (6) months during a year; and (d) Employees who have not yet attained age 21. In addition, if 90 percent or more of the Employees of the Employer are covered under agreements the Secretary of Labor finds to be collective bargaining agreements between Employee representatives and the Employer, and the Plan covers only Employees who are not covered under such agreements, then Employees covered by such agreements shall be excluded from both the total number of active Employees as well as from the identification of particular Employees in the Top Paid Group. The foregoing exclusions set forth in this Section shall be applied on a uniform and consistent basis for all purposes for which the Code Section 414(q) definition is applicable. 1.64 "Total and Permanent Disability" means a physical or mental condition of a Participant resulting from bodily injury, disease, or mental disorder which renders him incapable of continuing his usual and customary employment with the Employer. The disability of a Participant shall be determined by a licensed physician chosen by the Administrator. The determination shall be applied uniformly to all Participants. 1.65 "Trustee" means the person or entity named as trustee herein or in any separate trust forming a part of this Plan, and any successors. 1.66 "Trust Fund" means the assets of the Plan and Trust as the same shall exist from time to time. 1.67 "Unallocated Company Stock Suspense Account" means an account containing Company Stock acquired with the proceeds of an Exempt Loan and which has not been released from such account and allocated to the Participants' Company Stock Accounts. 1.68 "Vested" means the nonforfeitable portion of any account maintained on behalf of a Participant. 17 24 ARTICLE II TOP HEAVY AND ADMINISTRATION 2.1 TOP HEAVY PLAN REQUIREMENTS For any Top Heavy Plan Year, the Plan shall provide the special vesting requirements of Code Section 416(b) pursuant to Section 7.4 of the Plan and the special minimum allocation requirements of Code Section 416(c) pursuant to Section 4.4 of the Plan. 2.2 DETERMINATION OF TOP HEAVY STATUS (a) This Plan shall be a Top Heavy Plan for any Plan Year commencing after December 31, 1983 in which, as of the Determination Date, (1) the Present Value of Accrued Benefits of Key Employees and (2) the sum of the Aggregate Accounts of Key Employees under this Plan and all plans of an Aggregation Group, exceeds sixty percent (60%) of the Present Value of Accrued Benefits and the Aggregate Accounts of all Key and Non-Key Employees under this Plan and all plans of an Aggregation Group. If any Participant is a Non-Key Employee for any Plan Year, but such Participant was a Key Employee for any prior Plan Year, such Participant's Present Value of Accrued Benefit and/or Aggregate Account balance shall not be taken into account for purposes of determining whether this Plan is a Top Heavy or Super Top Heavy Plan (or whether any Aggregation Group which includes this Plan is a Top Heavy Group). In addition, for Plan Years beginning after December 31, 1984, if a Participant or Former Participant has not performed any services for any Employer maintaining the Plan at any time during the five year period ending on the Determination Date, any accrued benefit for such Participant or Former Participant shall not be taken into account for the purposes of determining whether this Plan is a Top Heavy or Super Top Heavy Plan. (b) This Plan shall be a Super Top Heavy Plan for any Plan Year commencing after December 31, 1983 in which, as of the Determination Date, (1) the Present Value of Accrued Benefits of Key Employees and (2) the sum of the Aggregate Accounts of Key Employees under this Plan and all plans of an Aggregation Group, exceeds ninety percent (90%) of the Present Value of Accrued Benefits and the Aggregate Accounts of all Key and Non-Key Employees under this Plan and all plans of an Aggregation Group. 18 25 (c) Aggregate Account: A Participant's Aggregate Account as of the Determination Date is the sum of: (1) his Participant's Combined Account balance as of the most recent valuation occurring within a twelve (12) month period ending on the Determination Date; (2) an adjustment for any contributions due as of the Determination Date. Such adjustment shall be the amount of any contributions actually made after the valuation date but due on or before the Determination Date, except for the first Plan Year when such adjustment shall also reflect the amount of any contributions made after the Determination Date that are allocated as of a date in that first Plan Year; (3) any Plan distributions made within the Plan Year that includes the Determination Date or within the four (4) preceding Plan Years. However, in the case of distributions made after the valuation date and prior to the Determination Date, such distributions are not included as distributions for top heavy purposes to the extent that such distributions are already included in the Participant's Aggregate Account balance as of the valuation date. Notwithstanding anything herein to the contrary, all distributions, including distributions made prior to January 1, 1984, and distributions under a terminated plan which if it had not been terminated would have been required to be included in an Aggregation Group, will be counted. Further, distributions from the Plan (including the cash value of life insurance policies) of a Participant's account balance because of death shall be treated as a distribution for the purposes of this paragraph. (4) any Employee contributions. 19 26 (c) Aggregate Account: A Participant's Aggregate Account as of the Determination Date is the sum of: (1) his Participant's Combined Account balance as of the most recent valuation occurring within a twelve (12) month period ending on the Determination Date; (2) an adjustment for any contributions due as of the Determination Date. Such adjustment shall be the amount of any contributions actually made after the valuation date but due on or before the Determination Date, except for the first Plan Year when such adjustment shall also reflect the amount of any contributions made after the Determination Date that are allocated as of a date in that first Plan Year; (3) any Plan distributions made within the Plan Year that includes the Determination Date or within the four (4) preceding Plan Years. However, in the case of distributions made after the valuation date and prior to the Determination Date, such distributions are not included as distributions for top heavy purposes to the extent that such distributions are already included in the Participant's Aggregate Account balance as of the valuation date. Notwithstanding anything herein to the contrary, all distributions, including distributions made prior to January 1, 1984, and distributions under a terminated plan which if it had not been terminated would have been required to be included in an Aggregation Group, will be counted. Further, distributions from the Plan (including the cash value of life insurance policies) of a Participant's account balance because of death shall be treated as a distribution for the purposes of this paragraph. (4) any Employee contributions. However, amounts attributable to tax deductible qualified voluntary employee contributions shall not be considered to be a part of the Participant's Aggregate Account balance. 19 27 (5) with respect to unrelated rollovers and plan-to-plan transfers (ones which are both initiated by the Employee and made from a plan maintained by one employer to a plan maintained by another employer), if this Plan provides the rollovers or plan-to-plan transfers, it shall always consider such rollovers or plan-to-plan transfers as a distribution for the purposes of this Section. If this Plan is the plan accepting such rollovers or plan-to-plan transfers, it shall not consider such rollovers or plan-to-plan transfers accepted after December 31, 1983 as part of the Participant's Aggregate Account balance. However, rollovers or plan-to-plan transfers accepted prior to January 1, 1984 shall be considered as part of the Participant's Aggregate Account balance. (6) with respect to related rollovers and plan-to-plan transfers (ones either not initiated by the Employee or made to a plan maintained by the same employer), if this Plan provides the rollover or plan-to-plan transfer, it shall not be counted as a distribution for purposes of this Section. If this Plan is the plan accepting such rollover or plan-to-plan transfer, it shall consider such rollover or plan-to-plan transfer as part of the Participant's Aggregate Account balance, irrespective of the date on which such rollover or plan-to-plan transfer is accepted. (7) For the purposes of determining whether two employers are to be treated as the same employer in (5) and (6) above, all employers aggregated under Code Section 414(b), (c), (m) and (o) are treated as the same employer. (d) "Aggregation Group" means either a Required Aggregation Group or a Permissive Aggregation Group as hereinafter determined. (1) Required Aggregation Group: In determining a Required Aggregation Group hereunder, each plan of the Employer in which a Key Employee is a participant in the Plan Year containing the Determination Date or any of the four preceding Plan Years, and each other plan of the Employer which enables any plan in which a Key Employee 20 28 participates to meet the requirements of Code Sections 401(a) (4) or 410, will be required to be aggregated. Such group shall be known as a Required Aggregation Group. In the case of a Required Aggregation Group, each plan in the group will be considered a Top Heavy Plan if the Required Aggregation Group is a Top Heavy Group. No plan in the Required Aggregation Group will be considered a Top Heavy Plan if the Required Aggregation Group is not a Top Heavy Group. (2) Permissive Aggregation Group: The Employer may also include any other plan not required to be included in the Required Aggregation Group, provided the resulting group, taken as a whole, would continue to satisfy the provisions of Code Sections 401(a) (4) and 410. Such group shall be known as a Permissive Aggregation Group. In the case of a Permissive Aggregation Group, only a plan that is part of the Required Aggregation Group will be considered a Top Heavy Plan if the Permissive Aggregation Group is a Top Heavy Group. No plan in the Permissive Aggregation Group will be considered a Top Heavy Plan if the Permissive Aggregation Group is not a Top Heavy Group. (3) Only those plans of the Employer in which the Determination Dates fall within the same calendar year shall be aggregated in order to determine whether such plans are Top Heavy Plans. (4) An Aggregation Group shall include any terminated plan of the Employer if it was maintained within the last five (5) years ending on the Determination Date. (e) "Determination Date" means (a) the last day of the preceding Plan Year, or (b) in the case of the first Plan Year, the last day of such Plan Year. (f) Present Value of Accrued Benefit: In the case of a defined benefit plan, the Present Value of Accrued Benefit for a Participant other than a Key Employee, shall be as determined using the single accrual method used for all plans of the Employer and 21 29 Affiliated Employers, or if no such single method exists, using a method which results in benefits accruing not more rapidly than the slowest accrual rate permitted under Code Section 411 (b) (1) (C). The determination of the Present Value of Accrued Benefit shall be determined as of the most recent valuation date that falls within or ends with the 12-month period ending on the Determination Date except as provided in Code Section 416 and the Regulations thereunder for the first and second plan years of a defined benefit plan. (g) "Top Heavy Group" means an Aggregation Group in which, as of the Determination Date, the sum of: (1) the Present Value of Accrued Benefits of Key Employees under all defined benefit plans included in the group, and (2) the Aggregate Accounts of Key Employees under all defined contribution plans included in the group, exceeds sixty percent (60%) of a similar sum determined for all Participants. 2.3 POWERS AND RESPONSIBILITIES OF THE EMPLOYER (a) The Employer shall be empowered to appoint and remove the Trustee and the Administrator from time to time as it deems necessary for the proper administration of the Plan to assure that the Plan is being operated for the exclusive benefit of the Participants and their Beneficiaries in accordance with the terms of the Plan, the Code, and the Act. (b) The Employer shall establish a "funding policy and method", i.e., it shall determine whether the Plan has a short run need for liquidity (e.g., to pay benefits) or whether liquidity is a long run goal and investment growth (and stability of same) is a more current need, or shall appoint a qualified person to do so. The Employer or its delegate shall communicate such needs and goals to the Trustee, who shall coordinate such Plan needs with its investment policy. The communication of such a "funding policy and method" shall not, however, constitute a directive to the Trustee as to investment of the Trust Funds. Such "funding policy and method" shall be consistent with the objectives of this Plan and with the requirements of Title I of the Act. 22 30 (c) The Employer shall periodically review the performance of any Fiduciary or other person to whom duties have been delegated or allocated by it under the provisions of this Plan or pursuant to procedures established hereunder. This requirement may be satisfied by formal periodic review by the Employer or by a qualified person specifically designated by the Employer, through day-to-day conduct and evaluation, or through other appropriate ways. (d) The Employer will furnish Plan Fiduciaries and Participants with notices and information statements when voting rights must be exercised pursuant to Section 9.17. 2.4 DESIGNATION OF ADMINISTRATIVE AUTHORITY The Employer shall appoint one or more Administrators. Any person, including, but not limited to, the Employees of the Employer, shall be eligible to serve as an Administrator. Any person so appointed shall signify his acceptance by filing written acceptance with the Employer. An Administrator may resign by delivering his written resignation to the Employer or be removed by the Employer by delivery of written notice of removal, to take effect at a date specified therein, or upon delivery to the Administrator if no date is specified. The Employer, upon the resignation or removal of an Administrator, shall promptly designate in writing a successor to this position. If the Employer does not appoint an Administrator, the Employer will function as the Administrator. 2.5 ALLOCATION AND DELEGATION OF RESPONSIBILITIES If more than one person is appointed as Administrator, the responsibilities of each Administrator may be specified by the Employer and accepted in writing by each Administrator. In the event that no such delegation is made by the Employer, the Administrators may allocate the responsibilities among themselves, in which event the Administrators shall notify the Employer and the Trustee in writing of such action and specify the responsibilities of each Administrator. The Trustee thereafter shall accept and rely upon any documents executed by the appropriate Administrator until such time as the Employer or the Administrators file with the Trustee a written revocation of such designation. 2.6 POWERS AND DUTIES OF THE ADMINISTRATOR The primary responsibility of the Administrator is to administer the Plan for the exclusive benefit of the Participants and their Beneficiaries, subject to the specific terms of the 23 31 Plan. The Administrator shall administer the Plan in accordance with its terms and shall have the power and discretion to construe the terms of the Plan and to determine all questions arising in connection with the administration, interpretation, and application of the Plan. Any such determination by the Administrator shall be conclusive and binding upon all persons. The Administrator may establish procedures, correct any defect, supply any information, or reconcile any inconsistency in such manner and to such extent as shall be deemed necessary or advisable to carry out the purpose of the Plan; provided, however, that any procedure, discretionary act, interpretation or construction shall be done in a nondiscriminatory manner based upon uniform principles consistently applied and shall be consistent with the intent that the Plan shall continue to be deemed a qualified plan under the terms of Code Section 401(a), and shall comply with the terms of the Act and all regulations issued pursuant thereto. The Administrator shall have all powers necessary or appropriate to accomplish his duties under this Plan. The Administrator shall be charged with the duties of the general administration of the Plan, including, but not limited to, the following: (a) the discretion to determine all questions relating to the eligibility of Employees to participate or remain a Participant hereunder and to receive benefits under the Plan; (b) to compute, certify, and direct the Trustee with respect to the amount and the kind of benefits to which any Participant shall be entitled hereunder; (c) to authorize and direct the Trustee with respect to all nondiscretionary or otherwise directed disbursements from the Trust; (d) to maintain all necessary records for the administration of the Plan; (e) to interpret the provisions of the Plan and to make and publish such rules for regulation of the Plan as are consistent with the terms hereof; (f) to determine the size and type of any Contract to be purchased from any insurer, and to designate the insurer from which such Contract shall be purchased; 24 32 (g) to compute and certify to the Employer and to the Trustee from time to time the sums of money necessary or desirable to be contributed to the Plan; (h) to consult with the Employer and the Trustee regarding the short and long-term liquidity needs of the Plan in order that the Trustee can exercise any investment discretion in a manner designed to accomplish specific objectives; (i) to prepare and implement a procedure to notify Eligible Employees that they may elect to have a portion of their Compensation deferred or paid to them in cash; (j) to establish and communicate to Participants a procedure, which includes at least three (3) investment options pursuant to Regulations, for allowing each Participant to direct the Trustee as to the investment of his Company Stock Account pursuant to Section 4.12; (k) to establish and communicate to Participants a procedure and method to insure that each Participant will vote Company Stock allocated to such Participant's Company Stock Account pursuant to Section 9.17; (l) to assist any Participant regarding his rights, benefits, or elections available under the Plan. 2.7 RECORDS AND REPORTS The Administrator shall keep a record of all actions taken and shall keep all other books of account, records, and other data that may be necessary for proper administration of the Plan and shall be responsible for supplying all information and reports to the Internal Revenue Service, Department of Labor, Participants, Beneficiaries and others as required by law. 25 33 2.8 APPOINTMENT OF ADVISERS The Administrator, or the Trustee with the consent of the Administrator, may appoint counsel, specialists, advisers, and other persons as the Administrator or the Trustee deems necessary or desirable in connection with the administration of this Plan. 2.9 INFORMATION FROM EMPLOYER To enable the Administrator to perform his functions, the Employer shall supply full and timely information to the Administrator on all matters relating to the Compensation of all Participants, their Hours of Service, their Years of Service, their retirement, death, disability, or termination of employment, and such other pertinent facts as the Administrator may require; and the Administrator shall advise the Trustee of such of the foregoing facts as may be pertinent to the Trustee's duties under the Plan. The Administrator may rely upon such information as is supplied by the Employer and shall have no duty or responsibility to verify such information. 2.10 PAYMENT OF EXPENSES All expenses of administration may be paid out of the Trust Fund unless paid by the Employer. Such expenses shall include any expenses incident to the functioning of the Administrator, including, but not limited to, fees of accountants, counsel, and other specialists and their agents, and other costs of administering the Plan. Until paid, the expenses shall constitute a liability of the Trust Fund. However, the Employer may reimburse the Trust Fund for any administration expense incurred. Any administration expense paid to the Trust Fund as a reimbursement shall not be considered an Employer contribution. 2.11 MAJORITY ACTIONS Except where there has been an allocation and delegation of administrative authority pursuant to Section 2.5, if there shall be more than one Administrator, they shall act by a majority of their number, but may authorize one or more of them to sign all papers on their behalf. 2.12 CLAIMS PROCEDURE Claims for benefits under the Plan may be filed with the Administrator on forms supplied by the Employer. Written notice of the disposition of a claim shall be furnished to the claimant within 90 days after the application is filed. In the event the claim is denied, the reasons for the denial shall be specifically set forth in the notice in language calculated to be understood by the claimant, pertinent provisions of the Plan 26 34 shall be cited, and, where appropriate, an explanation as to how the claimant can perfect the claim will be provided. In addition, the claimant shall be furnished with an explanation of the Plan's claims review procedure. 2.13 CLAIMS REVIEW PROCEDURE Any Employee, former Employee, or Beneficiary of either, who has been denied a benefit by a decision of the Administrator pursuant to Section 2.12 shall be entitled to request the Administrator to give further consideration to his claim by filing with the Administrator (on a form which may be obtained from the Administrator) a request for a hearing. Such request, together with a written statement of the reasons why the claimant believes his claim should be allowed, shall be filed with the Administrator no later than 60 days after receipt of the written notification provided for in Section 2.12. The Administrator shall then conduct a hearing within the next 60 days, at which the claimant may be represented by an attorney or any other representative of his choosing and at which the claimant shall have an opportunity to submit written and oral evidence and arguments in support of his claim. At the hearing (or prior thereto upon 5 business days written notice to the Administrator) the claimant or his representative shall have an opportunity to review all documents in the possession of the Administrator which are pertinent to the claim at issue and its disallowance. Either the claimant or the Administrator may cause a court reporter to attend the hearing and record the proceedings. In such event, a complete written transcript of the proceedings shall be furnished to both parties by the court reporter. The full expense of any such court reporter and such transcripts shall be borne by the party causing the court reporter to attend the hearing. A final decision as to the allowance of the claim shall be made by the Administrator within 60 days of receipt of the appeal (unless there has been an extension of 60 days due to special circumstances, provided the delay and the special circumstances occasioning it are communicated to the claimant within the 60 day period). Such communication shall be written in a manner calculated to be understood by the claimant and shall include specific reasons for the decision and specific references to the pertinent Plan provisions on which the decision is based. 27 35 ARTICLE III ELIGIBILITY 3.1 CONDITIONS OF ELIGIBILITY Any Eligible Employee who has completed 12 Months of Service and has attained age 21 shall be eligible to participate hereunder as of the date he has satisfied such requirements. However, any Employee who was a Participant in the Plan prior to the effective date of this amendment and restatement shall continue to participate in the Plan. The Employer shall give each prospective Eligible Employee written notice of his eligibility to participate in the Plan prior to the close of the Plan Year in which he first becomes an Eligible Employee. For purposes of this Section, an Eligible Employee will be deemed to have completed 12 Months of Service if he is in the employ of the Employer at any time 12 months after his employment commencement date. Employment commencement date shall be the first day that he is entitled to be credited with an Hour of Service for the performance of duty. 3.2 APPLICATION FOR PARTICIPATION In order to become a Participant in the 401(k) Profit Sharing Plan portion hereunder, each Eligible Employee shall make application to the Employer for participation in the Plan and agree to the terms hereof. Upon the acceptance of any benefits under this Plan, such Employee shall automatically be deemed to have made application and shall be bound by the terms and conditions of the Plan and all amendments hereto. 3.3 EFFECTIVE DATE OF PARTICIPATION An Eligible Employee shall become a Participant effective as of the earlier of the first day of the Plan Year or the first day of the seventh month of such Plan Year coinciding with or next following the date such Employee met the eligibility requirements of Section 3.1, provided said Employee was still employed as of such date (or if not employed on such date, as of the date of rehire). 3.4 DETERMINATION OF ELIGIBILITY The Administrator shall determine the eligibility of each Employee for participation in the Plan based upon information furnished by the Employer. Such determination shall be conclusive and binding upon all persons, as long as the same is made pursuant to the Plan and the Act. Such determination shall be subject to review per Section 2.13. 28 36 3.5 TERMINATION OF ELIGIBILITY (a) In the event a Participant shall go from a classification of an Eligible Employee to an ineligible Employee, such Former Participant shall continue to vest in his interest in the Plan according to his total Period of Service, completed while a noneligible Employee, until such time as his Participant's Account shall be forfeited or distributed pursuant to the terms of the Plan. Additionally, his interest in the Plan shall continue to share in the earnings of the Trust Fund. (b) In the event a Participant is no longer a member of an eligible class of Employees and becomes ineligible to participate but has not incurred a 1-Year Period of Severance, such Employee will participate immediately upon returning to an eligible class of Employees. If such Participant incurs a 1-Year Period of Severance, eligibility will be determined under the break in service rules of the Plan. (c) In the event an Employee who is not a member of an eligible class of Employees becomes a member of an eligible class, such Employee will participate immediately if such Employee has satisfied the minimum age and service requirements and would have otherwise previously become a Participant. 3.6 OMISSION OF ELIGIBLE EMPLOYEE If, in any Plan Year, any Employee who should be included as a Participant in the Plan is erroneously omitted and discovery of such omission is not made until after a contribution by his Employer for the year has been made, the Employer shall make a subsequent contribution with respect to the omitted Employee in the amount which the said Employer would have contributed with respect to him had he not been omitted. Such contribution shall be made regardless of whether or not it is deductible in whole or in part in any taxable year under applicable provisions of the Code. 3.7 INCLUSION OF INELIGIBLE EMPLOYEE If, in any Plan Year, any person who should not have been included as a Participant in the Plan is erroneously included and discovery of such incorrect inclusion is not made until after a contribution for the year has been made, the Employer shall not be entitled to recover the contribution made with respect to the ineligible person regardless of whether or not a deduction is allowable with respect to such contribution. 29 37 In such event, the amount contributed with respect to the ineligible person shall constitute a Forfeiture (except for Deferred Compensation which shall be distributed to the ineligible person) for the Plan Year in which the discovery is made. 3.8 ELECTION NOT TO PARTICIPATE An Employee may, subject to the approval of the Employer, elect voluntarily not to participate in the Plan. The election not to participate must be communicated to the Employer, in writing, at least thirty (30) days before the beginning of a Plan Year. ARTICLE IV CONTRIBUTION AND ALLOCATION 4.1 FORMULA FOR DETERMINING EMPLOYER' S CONTRIBUTION For each Plan Year, the Employer shall contribute to the Plan: (a) The amount of the total salary reduction elections of all Participants made pursuant to Section 4.2(a), which amount shall be deemed an Employer's Elective Contribution. (b) On behalf of each Participant who is eligible to share in matching contributions for the Plan Year: (1) Before January 1, 1991, a matching contribution equal to 25% of each such Participant's Deferred Compensation, which amount shall be deemed an Employer's Non-Elective Contribution. Except, however, in applying the matching contribution percentage specified above, only salary reductions up to 6% of Compensation shall be considered, provided that the Employer shall not make a matching contribution which exceeds $500 for any Participant in a Plan Year. (2) On and after January 1, 1991, a matching contribution equal to 100% of each such Participant's Deferred Compensation, which amount shall be deemed an Employer's Non-Elective Contribution. Except, however, in applying the matching contribution percentage specified above, only salary reductions up to $520 shall be considered. Notwithstanding the above, no matching contribution shall be made with respect to a participant's (1) Excess Deferred Compensation or (2) Excess Contributions, except for recharacterized amounts. Furthermore, no matching contributions shall be credited or allocated to a Participant to the extent such amount would exceed the maximum allowed under the Actual Contribution Percentage Test of Code Section 401 (m). 30 38 (c) A discretionary amount out of its current or accumulated Net Profit, which amount shall be deemed an Employer's Non-Elective Contribution. (d) Notwithstanding the foregoing, however, the Employer's contributions for any Plan Year shall not exceed the maximum amount allowable as a deduction to the Employer under the provisions of Code Section 404. All contributions by the Employer shall be made in cash, Company Stock or in such property as is acceptable to the Trustee. (e) Except, however, to the extent necessary to provide the top heavy minimum allocations, the Employer shall make a contribution even if it exceeds current or accumulated Net Profit or the amount which is deductible under Code Section 404. 4.2 PARTICIPANT'S SALARY REDUCTION ELECTION (a) Each Participant may elect to defer from 1% to 16% of his Compensation which would have been received in the Plan Year, but for the deferral election. A deferral election (or modification of an earlier election) may not be made with respect to Compensation which is currently available on or before the date the Participant executed such election. Additionally, each Participant may elect to defer and have allocated for a Plan Year all or a portion of any cash bonus attributable to services performed by the Participant for the Employer during such Plan Year and which would have been received by the Participant on or before two and one half months following the end of the Plan Year but for the deferral election. A deferral election may not be made with respect to cash bonuses which are currently available on or before the date the Participant executed such election. Notwithstanding the foregoing, cash bonuses attributable to services performed by the Participant during a Plan Year but which are to be paid to the Participant later than two and one-half months after the close of such Plan Year will be subjected to whatever deferral election is in effect at the time such cash bonus would have otherwise been received. The amount by which Compensation and/or cash bonuses are reduced shall be that Participant's Deferred Compensation and be treated as an Employer Elective Contribution and allocated to that Participant's Elective Account. 31 39 (b) The balance in each Participant's Elective Account shall be fully Vested at all times and shall not be subject to Forfeiture for any reason. (c) Amounts held in the Participant's Elective Account may not be distributable earlier than: (1) a Participant's termination of employment, Total and Permanent Disability, or death; (2) a Participant's attainment of age 59 1/2; (3) the termination of the Plan without the existence at the time of Plan termination of another defined contribution plan (other than an employee stock ownership plan as defined in Code Section 4975(e) (7)) or the establishment of a successor defined contribution plan (other than an employee stock ownership plan as defined in Code Section 4975(e) (7)) by the Employer or an Affiliated Employer within the period ending twelve months after distribution of all assets from the Plan maintained by the Employer; (4) the date of disposition by the Employer to an entity that is not an Affiliated Employer of substantially all of the assets (within the meaning of Code Section 409(d) (2)) used in a trade or business of such corporation if such corporation continues to maintain this Plan after the disposition with respect to a Participant who continues employment with the corporation acquiring such assets; (5) the date of disposition by the Employer or an Affiliated Employer who maintains the Plan of its interest in a subsidiary (within the meaning of Code Section 409(d) (3)) to an entity which is not an Affiliated Employer but only with respect to a Participant who continues employment with such subsidiary; or (6) the proven financial hardship of a Participant, subject to the limitations of Section 7.14. (d) In any Plan Year beginning after December 31, 1987, a Participant's Deferred Compensation made under this Plan and all other plans, 32 40 contracts or arrangements of the Employer maintaining this Plan shall not exceed, during any taxable year, the limitation imposed by Code Section 402(g), as in effect at the beginning of such taxable year. This dollar limitation shall be adjusted annually pursuant to the method provided in Code Section 415(d) in accordance with Regulations. (e) In the event a Participant has received a hardship distribution from his Participant's Elective Account pursuant to the "Safe Harbor Resources Test" of Section 6.11 or pursuant to Regulation 1.401(k)-1(d)(2) (iii) (B) from any other plan maintained by the Employer, then such Participant shall not be permitted to elect to have Deferred Compensation contributed to the Plan on his behalf for a period of twelve (12) months following the receipt of the distribution. Furthermore, the dollar limitation under Code Section 402 (g) shall be reduced, with respect to the Participant's taxable year following the taxable year in which the hardship distribution was made, by the amount of such Participant's Deferred Compensation, if any, pursuant to this Plan (and any other plan maintained by the Employer) for the taxable year of the hardship distribution. (f) If a Participant's Deferred Compensation under this Plan together with any elective deferrals (as defined in Regulation 1.402(g)-1(b)) under another qualified cash or deferred arrangement (as defined in Code Section 401(k)), a simplified employee pension (as defined in Code Section 408(k)), a salary reduction arrangement (within the meaning of Code Section 3121 (a) (5) (D)), a deferred compensation plan under Code Section 457, or a trust described in Code Section 501(c) (18) cumulatively exceed the limitation imposed by Code Section 402(g) (as adjusted annually in accordance with the method provided in Code Section 415(d) pursuant to Regulations) for such Participant's taxable year, the Participant may, not later than March 1 following the close of his taxable year, notify the Administrator in writing of such excess and request that his Deferred Compensation under this Plan be reduced by an amount specified by the Participant. In such event, the Administrator may direct the Trustee to distribute such excess amount (and any Income allocable to such excess amount) to the Participant not later than the first April 15th following the close of the Participant's taxable year. Distributions in accordance 33 41 with this paragraph may be made for any taxable year of the Participant which begins after December 31, 1986. Any distribution of less than the entire amount of Excess Deferred Compensation and Income shall be treated as a pro rata distribution of Excess Deferred Compensation and Income. The amount distributed shall not exceed the Participant's Deferred Compensation under the Plan for the taxable year. Any distribution on or before the last day of the Participant's taxable year must satisfy each of the following conditions: (1) the Participant shall designate the distribution as Excess Deferred Compensation; (2) the distribution must be made after the date on which the Plan received the Excess Deferred Compensation; and (3) the Plan must designate the distribution as a distribution of Excess Deferred Compensation. (g) Notwithstanding Section 4.2(f) above, a Participant's Excess Deferred Compensation shall be reduced, but not below zero, by any distribution of Excess Contributions pursuant to Section 4.6(a) for the Plan Year beginning with or within the taxable year of the Participant. (h) At Normal Retirement Date, or such other date when the Participant shall be entitled to receive benefits, the fair market value of the Participant's Elective Account shall be used to provide additional benefits to the Participant or his Beneficiary. (i) All amounts allocated to a Participant's Elective Account shall be maintained in a separate Directed Investment Account as provided in Section 4.12 (c). (j) Employer Elective Contributions made pursuant to this Section may be segregated into a separate account for each Participant in a federally insured savings account, certificate of deposit in a bank or savings and loan association, money market certificate, or other short-term debt security acceptable to the Trustee until such time as the allocations pursuant to Section 4.4 have been made. 34 42 (k) The Employer and the Administrator shall implement the salary reduction elections provided for herein in accordance with the following: (1) A Participant may commence making elective deferrals to the Plan only after first satisfying the eligibility and participation requirements specified in Article III. However, the Participant must make his initial salary deferral election within a reasonable time, not to exceed thirty (30) days, after entering the Plan pursuant to Section 3.3. If the Participant fails to make an initial salary deferral election within such time, then such Participant may thereafter make an election in accordance with the rules governing modifications. The Participant shall make such an election by entering into a written salary reduction agreement with the Employer and filing such agreement with the Administrator. Such election shall initially be effective beginning with the pay period following the acceptance of the salary reduction agreement by the Administrator, shall not have retroactive effect and shall remain in force until revoked. (2) A Participant may modify a prior election during the Plan Year and concurrently make a new election by filing a written notice with the Administrator within a reasonable time before the pay period for which such modification is to be effective. However, modifications to a salary deferral election shall only be permitted semi-annually, during election periods established by the Administrator prior to the first day of a Plan Year and the first day of the seventh month of a Plan Year. Any modification shall not have retroactive effect and shall remain in force until revoked. (3) A Participant may elect to prospectively revoke his salary reduction agreement in its entirety at any time during the Plan Year by providing the Administrator with thirty (30) days written notice of such revocation (or upon such shorter notice period as may be acceptable to the Administrator). Such revocation shall become effective as of the beginning of the first pay 35 43 period coincident with or next following the expiration of the notice period. Furthermore, the termination of the Participant's employment, or the cessation of participation for any reason, shall be deemed to revoke any salary reduction agreement then in effect, effective immediately following the close of the pay period within which such termination or cessation occurs. 4.3 TIME OF PAYMENT OF EMPLOYER'S CONTRIBUTION Employer contributions will be paid in cash, Company Stock or other property as the Employer may from time to time determine. Company Stock and other property will be valued at their then fair market value. The Employer shall generally pay to the Trustee its contribution to the Plan for each Plan Year, within the time prescribed by law, including extensions of time, for the filing of the Employer's federal income tax return for the Fiscal Year. However, Employer Elective Contributions accumulated through payroll deductions shall be paid to the Trustee as of the earliest date on which such contributions can reasonably be segregated from the Employer's general assets, but in any event within ninety (90) days from the date on which such amounts would otherwise have been payable to the Participant in cash. The provisions of Department of Labor regulations 2510.3-102 are incorporated herein by reference. Furthermore, any additional Employer contributions which are allocable to the Participant's Elective Account for a Plan Year shall be paid to the Plan no later than the twelve-month period immediately following the close of such Plan Year. 4.4 ALLOCATION OF CONTRIBUTION, FORFEITURES AND EARNINGS (a) The Administrator shall establish and maintain an account in the name of each Participant to which the Administrator shall credit as of each Anniversary Date all amounts allocated to each such Participant as set forth herein. (b) The Employer shall provide the Administrator with all information required by the Administrator to make a proper allocation of the Employer's contributions for each Plan Year. Within a reasonable period of time after the date of receipt by the Administrator of such information, the Administrator shall allocate such contribution as follows: 36 44 (1) With respect to the Employer's Elective Contribution made pursuant to Section 4.1(a), to each Participant's Elective Account in an amount equal to each such Participant's Deferred Compensation for the year. (2) With respect to the Employer's Non-Elective Contribution made pursuant to Section 4.1(b), to each Participant's Account in accordance with Section 4.1(b). Any Participant actively employed during the Plan Year shall be eligible to share in the matching contribution for the Plan Year. (3) With respect to the Employer's Non-Elective Contribution made pursuant to Section 4.1(c), to each Participant's Account in the same proportion that each such Participant's Compensation for the year bears to the total Compensation of all Participants for such year. Only Participants who are actively employed on the last day of the Plan Year shall be eligible to share in the discretionary contribution for the year. (c) The Company Stock Account of each Participant shall be credited as of each Anniversary Date with his allocable share of Company Stock (including fractional shares) purchased and paid for by the Plan or contributed in kind by the Employer. Stock dividends on Company Stock held in his Company Stock Account shall be credited to his Company Stock Account when paid. Cash dividends on Company Stock held in his Company Stock Account shall, in the sole discretion of the Administrator, either be credited to his Other Investments Account when paid or be used to repay an Exempt Loan; provided, however, that when cash dividends are used to repay an Exempt Loan, Company Stock shall be released from the Unallocated Company Stock Suspense Account and allocated to the Participant's Company Stock Account pursuant to Section 4.4(e) and, provided further, that Company Stock allocated to the Participant's Company Stock Account shall have a fair market value not less than the amount of cash dividends which would have been allocated to such Participant's Other Investments Account for the 37 45 year. Company Stock acquired by the Plan with the proceeds of an Exempt Loan shall only be allocated to each Participant's Company Stock Account upon release from the Unallocated Company Stock Suspense Account as provided in Section 4.4(e) herein. Company Stock acquired with the proceeds of an Exempt Loan shall be an asset of the Trust Fund and maintained in the Unallocated Company Stock Suspense Account. (d) As of each Anniversary Date or other valuation date, before allocation of Employer contributions, any earnings or losses (net appreciation or net depreciation) of the Trust Fund shall be allocated to each Participant's and Former Participant's nonsegregated accounts (other than each Participant's Company Stock Account) in proportion to the following allocation base: (1) the account balance as of the last valuation date, less (2) withdrawals since the last valuation date, plus (3) one-half of the total salary reduction elections contributed since the last valuation date. Cash dividends on Company Stock allocated to each Participant's or Former Participant's nonsegregated accounts after the first month of the Plan Year shall not share in any earnings or losses of the Trust Fund for such year. However, the Administrator may direct that cash dividends on Company Stock allocated to each Participant's or Former Participant's Company Stock Account made after a valuation date be segregated into a separate account for each Participant in a federally insured savings account, certificate of deposit in a bank or savings and loan association, money market certificate, or other short term debt security acceptable to the Trustee until such time as the allocations pursuant to this Plan have been made, at which time they may remain segregated or be invested as part of the general Trust Fund, or such cash dividends be distributed pursuant to Section 7.5(c). Earnings or losses include the increase (or decrease) in the fair market value of assets of the Trust Fund (other than Company Stock in the Participants' Company Stock Accounts) since the preceding Anniversary Date. Earnings or losses do not include the interest paid under any installment contract for the purchase of Company Stock by the Trust Fund or on any loan used by the Trust Fund to purchase Company Stock, 38 46 nor does it include income received by the Trust Fund with respect to Company Stock acquired with the proceeds of an Exempt Loan to the extent such income is used to repay the loan; all income received by the Trust Fund from Company Stock acquired with the proceeds of an Exempt Loan may, at the discretion of the Administrator, be used to repay such loan. Participants' transfers from other qualified plans deposited in the general Trust Fund after a valuation date shall not share in any earnings and losses (net appreciation or net depreciation) of the Trust Fund for such period. Each segregated account maintained on behalf of a Participant shall be credited or charged with its separate earnings and losses. (e) All Company Stock acquired by the Plan with the proceeds of an Exempt Loan must be added to and maintained in the Unallocated Company Stock Suspense Account. Such Company Stock shall be released and withdrawn from that account as if all Company Stock in that account were encumbered. For each Plan Year during the duration of the loan, the number of shares of Company Stock released shall equal the number of encumbered shares held immediately before release for the current Plan Year multiplied by a fraction, the numerator of which is the amount of principal and interest paid for the Plan Year and the denominator of which is the sum of the numerator plus the principal and interest to be paid for all future Plan Years. As of each Anniversary Date, the Plan must consistently allocate to each Participant's Account, in the same manner as Employer discretionary contributions pursuant to Section 4.1(c) are allocated, non-monetary units (shares and fractional shares of Company Stock) representing each Participant's interest in Company Stock withdrawn from the Unallocated Company Stock Suspense Account. However, Company Stock released from the Unallocated Company Stock Suspense Account with cash dividends pursuant to Section 4.4(c) shall be allocated to each Participant's account in the same proportion that each such Participant's number of shares of Company Stock sharing in such cash dividends bears to the total number of shares of all Participants' Company Stock sharing in such cash dividends. Income earned with respect to Company Stock in the Unallocated Company Stock Suspense Account shall be used, at the discretion of the Administrator, to repay the Exempt Loan used to purchase such Company 39 47 Stock. Company Stock released from the Unallocated Company Stock Suspense Account with such income, and any income which is not so used, must be allocated as income of the Plan. (f) As of each Anniversary Date any amounts which became Forfeitures since the last Anniversary Date shall first be made available to reinstate previously forfeited account balances of Former Participants, if any, in accordance with Section 7.4(g). The remaining Forfeitures, if any, shall be used to reduce the contribution of the Employer hereunder for the Plan Year in which such Forfeitures occur in the following manner: (1) Forfeitures attributable to Employer matching contributions made pursuant to Section 4.1(b) shall be used to reduce the Employer's contribution for the Plan Year in which such Forfeitures occur. (2) Forfeitures attributable to Employer discretionary contributions made pursuant to Section 4.1(c) shall be used to reduce the Employer's contribution for the Plan Year in which such Forfeitures occur. (g) For any Top Heavy Plan Year, Non-Key Employees not otherwise eligible to share in the allocation of contributions as provided above, shall receive the minimum allocation provided for in Section 4.4(i) if eligible pursuant to the provisions of Section 4.4(k). (h) Notwithstanding the foregoing, Participants who are not actively employed on the last day of the Plan Year due to Retirement (Early, Normal or Late), Total and Permanent Disability or death shall share in the allocation of contributions for that Plan Year. (i) Minimum Allocations Required for Top Heavy Plan Years: Notwithstanding the foregoing, for any Top Heavy Plan Year, the sum of the Employer's contributions allocated to the Participant's Combined Account of each Non-Key Employee shall be equal to at least three percent (3%) of such Non-Key Employee's "415 Compensation" (reduced by contributions and forfeitures, if any, allocated to each Non-Key Employee in any defined contribution plan included with this 40 48 plan in a Required Aggregation Group). However, if (i) the sum of the Employer's contributions allocated to the Participant's Combined Account of each Key Employee for such Top Heavy Plan Year is less than three percent (3%) of each Key Employee's "415 Compensation" and (ii) this Plan is not required to be included in an Aggregation Group to enable a defined benefit plan to meet the requirements of Code Section 401(a) (4) or 410, the sum of the Employer's contributions allocated to the Participant's Combined Account of each Non-Key Employee shall be equal to the largest percentage allocated to the Participant's Combined Account of any Key Employee. However, in determining whether a Non-Key Employee has received the required minimum allocation, such Non-Key Employee's Deferred Compensation and matching contributions needed to satisfy the "Actual Contribution Percentage" tests pursuant to Section 4.7(a) shall not be taken into account. However, no such minimum allocation shall be required in this Plan for any Non-Key Employee who participates in another defined contribution plan subject to Code Section 412 providing such benefits included with this Plan in a Required Aggregation Group. (j) For purposes of the minimum allocations set forth above, the percentage allocated to the Participant's Combined Account of any Key Employee shall be equal to the ratio of the sum of the Employer's contributions allocated on behalf of such Key Employee divided by the "415 Compensation" for such Key Employee. (k) For any Top Heavy Plan Year, the minimum allocations set forth above shall be allocated to the Participant's Combined Account of all Non-Key Employees who are Participants and who are employed by the Employer on the last day of the Plan Year, including Non-Key Employees who have (1) failed to complete a Year of Service; and (2) declined to make mandatory contributions (if required) or, in the case of a cash or deferred arrangement, elective contributions to the Plan. (1) For the purposes of this Section, "415 Compensation" shall be limited to $200,000 (unless adjusted in such manner as permitted under Code Section 415 (d)). However, for Plan Years beginning prior to 41 49 January 1, 1989, the $200,000 limit shall apply only for Top Heavy Plan Years and shall not be adjusted. (m) Notwithstanding anything herein to the contrary, Participants who terminated employment for any reason during the Plan Year shall share in the salary reduction contributions made by the Employer for the year of termination without regard to the Hours of Service credited. (n) If a Former Participant is reemployed after a five-year Period of Severance, then separate accounts shall be maintained as follows: (1) one account for nonforfeitable benefits attributable to service before the Period of Severance; and (2) one account representing his status in the Plan attributable to service after the Period of Severance. (o) Notwithstanding anything to the contrary, for Plan Years beginning after December 31, 1989, if this is a Plan that would otherwise fail to meet the requirements of Code Sections 401 (a) (26), 410 (b) (1) or 410(b) (2) (A) (i) and the Regulations thereunder because Employer contributions have not been allocated to a sufficient number or percentage of Participants for a Plan Year, then the following rules shall apply: (1) The group of Participants eligible to share in the Employer's contribution for the Plan Year shall be expanded to include the minimum number of Participants who would not otherwise be eligible as are necessary to satisfy the applicable test specified above. The specific Participants who shall become eligible under the terms of this paragraph shall be those who are actively employed on the last day of the Plan Year and, when compared to similarly situated Participants, have completed the greatest number of Hours of Service in the Plan Year. (2) If after application of paragraph (1) above, the applicable test is still not satisfied, then the group of Participants eligible to share in the Employer's contribution for the Plan Year shall be further expanded to include the minimum 42 50 number of Participants who are not actively employed on the last day of the Plan Year as are necessary to satisfy the applicable test. The specific Participants who shall become eligible to share shall be those Participants, when compared to similarly situated Participants, who have completed the greatest number of Hours of Service in the Plan Year before terminating employment. (3) Nothing in this Section shall permit the reduction of a Participant's accrued benefit. Therefore any amounts that have previously been allocated to Participants may not be reallocated to satisfy these requirements. In such event, the Employer shall make an additional contribution equal to the amount such affected Participants would have received had they been included in the allocations, even if it exceeds the amount which would be deductible under Code Section 404. Any adjustment to the allocations pursuant to this paragraph shall be considered a retroactive amendment adopted by the last day of the Plan Year. 4.5 ACTUAL DEFERRAL PERCENTAGE TESTS (a) Maximum Annual Allocation: For each Plan Year beginning after December 31, 1986, the annual allocation derived from Employer Elective Contributions to a Participant's Elective Account shall satisfy one of the following tests: (1) The "Actual Deferral Percentage" for the Highly Compensated Participant group shall not be more than the "Actual Deferral Percentage" of the Non-Highly Compensated Participant group multiplied by 1.25, or (2) The excess of the "Actual Deferral Percentage" for the Highly Compensated Participant group over the "Actual Deferral Percentage" for the Non-Highly Compensated Participant group shall not be more than two percentage points. Additionally, the "Actual Deferral Percentage" for the Highly Compensated Participant group shall not exceed the "Actual Deferral Percentage" for the Non-Highly Compensated Participant group multiplied by 2. The provisions of Code Section 401 (k) (3) and Regulation 1.401(k)-1(b) are incorporated herein by reference. 43 51 However, for Plan Years beginning after December 31, 1988, in order to prevent the multiple use of the alternative method described in (2) above and in Code Section 401(m) (9) (A), any Highly Compensated Participant eligible to make elective deferrals pursuant to Section 4.2 and to make Employee contributions or to receive matching contributions under this Plan or under any other plan maintained by the Employer or an Affiliated Employer shall have his actual contribution ratio reduced pursuant to Regulation 1.401(m)-2, the provisions of which are incorporated herein by reference. (b) For the purposes of this Section "Actual Deferral Percentage" means, with respect to the Highly Compensated Participant group and Non-Highly Compensated Participant group for a Plan Year, the average of the ratios, calculated separately for each Participant in such group, of the amount of Employer Elective Contributions allocated to each Participant's Elective Account for such Plan Year (including all or any portion of cash bonuses which may be deferred pursuant to Section 4.2(a)), to such Participant's "414(s) Compensation" for such Plan Year. The actual deferral ratio for each Participant and the "Actual Deferral Percentage" for each group shall be calculated to the nearest one-hundredth of one percent for Plan Years beginning after December 31, 1988. Employer Elective Contributions allocated to each Non-Highly Compensated Participant's Elective Account shall be reduced by Excess Deferred Compensation to the extent such excess amounts are made under this Plan or any other plan maintained by the Employer. (c) For the purpose of determining the actual deferral ratio of a Highly Compensated Employee who is subject to the Family Member aggregation rules of Code Section 414 (q) (6) because such Participant is either a "five percent owner" of the Employer or one of the ten (10) Highly Compensated Employees paid the greatest "415 Compensation" during the year, the following shall apply: (1) The combined actual deferral ratio for the family group (which shall be treated as one Highly Compensated Participant) shall be the greater of: (i) the ratio determined by aggregating Employer Elective Contributions and 44 52 "414(s) Compensation" of all eligible Family Members who are Highly Compensated Participants without regard to family aggregation; and (ii) the ratio determined by aggregating Employer Elective Contributions and "414(s) Compensation" of all eligible Family Members (including Highly Compensated Participants). However, in applying the $200,000 limit to "414(s) Compensation", for Plan Years beginning after December 31, 1988, Family Members shall include only the affected Employee's spouse and any lineal descendants who have not attained age 19 before the close of the Plan Year. (2) The Employer Elective Contributions and "414(s) Compensation" of all Family Members shall be disregarded for purposes of determining the "Actual Deferral Percentage" of the Non-Highly Compensated Participant group except to the extent taken into account in paragraph (1) above. (3) If a Participant is required to be aggregated as a member of more than one family group in a plan, all Participants who are members of those family groups that include the Participant are aggregated as one family group in accordance with paragraphs (1) and (2) above. (d) For the purposes of Sections 4.5(a) and 4.6, a Highly Compensated Participant and a Non-Highly Compensated Participant shall include any Employee eligible to make a deferral election pursuant to Section 4.2, whether or not such deferral election was made or suspended pursuant to Section 4.2. 45 53 4.6 ADJUSTMENT TO ACTUAL DEFERRAL PERCENTAGE TESTS In the event that the initial allocations of the Employer's Elective Contributions made pursuant to Section 4.4 do not satisfy one of the tests set forth in Section 4.5(a) for Plan Years beginning after December 31, 1986, the Administrator shall adjust Excess Contributions pursuant to the opt ions set forth below: (a) On or before the fifteenth day of the third month following the end of each Plan Year, the Highly Compensated Participant having the highest actual deferral ratio shall have his portion of Excess Contributions distributed to him until one of the tests set forth in Section 4.5(a) is satisfied, or until his actual deferral ratio equal the actual deferral ratio of the Highly Compensated Participant having the second highest actual deferral ratio. This process shall continue until one of the tests set forth in Section 4.5(a) is satisfied. For each Highly Compensated Participant, the amount of Excess Contributions is equal to the Elective Contributions on behalf of such Highly Compensated Participant determined prior to the application of this paragraph) minus the amount determined by multiplying the Highly Compensated Participant's actual deferral ratio (determined after application of this paragraph by his "414(s) Compensation". However, in determining the amount of 46 54 4.6 ADJUSTMENT TO ACTUAL DEFERRAL PERCENTAGE TESTS In the event that the initial allocations of the Employer's Elective Contributions made pursuant to Section 4.4 do not satisfy one of the tests set forth in Section 4.5(a) for Plan Years beginning after December 31, 1986, the Administrator shall adjust Excess Contributions pursuant to the opt ions set forth below: (a) On or before the fifteenth day of the third month following the end of each Plan Year, the Highly Compensated Participant having the highest actual deferral ratio shall have his portion of Excess Contributions distributed to him until one of the tests set forth in Section 4.5(a) is satisfied, or until his actual deferral ratio equals the actual deferral ratio of the Highly Compensated Participant having the second highest actual deferral ratio. This process shall continue until one of the tests set forth in Section 4.5(a) is satisfied. For each Highly Compensated Participant, the amount of Excess Contributions is equal to the Elective Contributions on behalf of such Highly Compensated Participant (determined prior to the application of this paragraph) minus the amount determined by multiplying the Highly Compensated Participant's actual deferral ratio (determined after application of this paragraph by his "414(s) Compensation". However, in determining the amount of 46 55 Excess Contributions to be distributed with respect to an affected Highly Compensated Participant as determined herein, such amount shall be reduced by any Excess Deferred Compensation previously distributed to such affected Highly Compensated Participant for his taxable year ending with or within such Plan Year. (1) With respect to the distribution of Excess Contributions pursuant to (a) above, such distribution: (i) may be postponed but not later than the close of the Plan Year following the Plan Year to which they are allocable; (ii) shall be made first from unmatched Deferred Compensation and, thereafter, simultaneously from Deferred Compensation which is matched and matching contributions which relate to such Deferred Compensation. However, any such matching contributions which are not Vested shall be forfeited in lieu of being distributed; (iii) shall be adjusted for Income; and (iv) shall be designated by the Employer as a distribution of Excess Contributions (and Income). (2) Any distribution of less than the entire amount of Excess Contributions shall be treated as a pro rata distribution of Excess Contributions and Income. (3) The determination and correction of Excess Contributions of a Highly Compensated Participant whose actual deferral ratio is determined under the family aggregation rules shall be accomplished as follows: (i) If the actual deferral ratio for the Highly Compensated Participant is determined in accordance with Section 4.5(c) (1) (ii), then the actual deferral ratio shall be reduced as required herein and the Excess Contributions for the family unit shall be allocated among the Family Members in proportion to the Elective Contributions of each Family Member that were combined to determine the group actual deferral ratio. 47 56 (ii) If the actual deferral ratio for the Highly Compensated Participant is determined under Section 4.5(c) (1) (i), then the actual deferral ratio shall first be reduced as required herein, but not below the actual deferral ratio of the group of Family Members who are not Highly Compensated Participants without regard to family aggregation. The Excess Contributions resulting from this initial reduction shall be allocated (in proportion to Elective Contributions) among the Highly Compensated Participants whose Elective Contributions were combined to determine the actual deferral ratio. If further reduction is still required, then Excess Contributions resulting from this further reduction shall be determined by taking into account the contributions of all Family Members and shall be allocated among them in proportion to their respective Elective Contributions. (b) Within twelve (12) months after the end of the Plan Year, the Employer may make a special Qualified Non-Elective Contribution on behalf of Non-Highly Compensated Participants in an amount sufficient to satisfy one of the tests set forth in Section 4.5(a). Such contribution shall be allocated to the Participant's Elective Account of each Non-Highly Compensated Participant in the same proportion that each Non-Highly Compensated Participant's Compensation for the year bears to the total Compensation of all Non-Highly Compensated Participants. 4.7 ACTUAL CONTRIBUTION PERCENTAGE TESTS (a) The "Actual Contribution Percentage" for Plan Years beginning after December 31, 1986 for the Highly Compensated Participant group shall not exceed the greater of: (1) 125 percent of such percentage for the Non-Highly Compensated Participant group; or (2) the lesser of 200 percent of such percentage for the Non-Highly Compensated Participant group, or such percentage for the Non-Highly Compensated Participant group plus 2 percentage points. However, for Plan Years beginning after December 31, 1988, to prevent the multiple use of 48 57 the alternative method described in this paragraph and Code Section 401 (m) (9) (A), any Highly Compensated Participant eligible to make elective deferrals pursuant to Section 4.2 or any other cash or deferred arrangement maintained by the Employer or an Affiliated Employer and to make Employee contributions or to receive matching contributions under this Plan or under any other plan maintained by the Employer or an Affiliated Employer shall have his actual contribution ratio reduced pursuant to Regulation 1.401(m)-2. The provisions of Code Section 401(m) and Regulations 1.401(m)-1(b) and 1.401(m)-2 are incorporated herein by reference. (b) For the purposes of this Section and Section 4.8, "Actual Contribution Percentage" for a Plan Year means, with respect to the Highly Compensated Participant group and Non-Highly Compensated Participant group, the average of the ratios (calculated separately for each Participant in each group) of: (1) the sum of Employer matching contributions made pursuant to Section 4.1(b) on behalf of each such Participant for such Plan Year; to (2) the Participant's "414(s) Compensation" for such Plan Year. (c) For purposes of determining the "Actual Contribution Percentage" and the amount of Excess Aggregate Contributions pursuant to Section 4.8(d), only Employer matching contributions contributed to the Plan prior to the end of the succeeding Plan Year shall be considered. In addition, the Administrator may elect to take into account, with respect to Employees eligible to have Employer matching contributions pursuant to Section 4.1(b) allocated to their accounts, elective deferrals (as defined in Regulation 1.402(g)-1(b)) and qualified non-elective contributions (as defined in Code Section 401 (m) (4) (C)) contributed to any plan maintained by the Employer. Such elective deferrals and qualified non-elective contributions shall be treated as Employer matching contributions subject to Regulation 1.401(m)-1(b)(2) which is incorporated herein by reference. However, for Plan Years beginning after December 31, 1988, the Plan Year must be the same as the plan year of the plan to which 49 58 the elective deferrals and the qualified non-elective contributions are made. (d) For the purpose of determining the actual contribution ratio of a Highly Compensated Employee who is subject to the Family Member aggregation rules of Code Section 414(q) (6) because such Employee is either a "five percent owner" of the Employer or one of the ten (10) Highly Compensated Employees paid the greatest "415 Compensation" during the year, the following shall apply: (1) The combined actual contribution ratio for the family group (which shall be treated as one Highly Compensated Participant) shall be the greater of: (i) the ratio determined by aggregating Employer matching contributions made pursuant to Section 4.1(b) and "414(s) Compensation" of all eligible Family Members who are Highly Compensated Participants without regard to family aggregation; and (ii) the ratio determined by aggregating Employer matching contributions made pursuant to Section 4.1(b) and "414(s) Compensation" of all eligible Family Members (including Highly Compensated Participants). However, in applying the $200,000 limit to "414(s) Compensations for Plan Years beginning after December 31, 1988, Family Members shall include only the affected Employee's spouse and any lineal descendants who have not attained age 19 before the close of the Plan Year. (2) The Employer matching contributions made pursuant to Section 4.1(b) and "414(s) Compensation" of all Family Members shall be disregarded for purposes of determining the "Actual Contribution Percentage" of the Non-Highly Compensated Participant group except to the extent taken into account in paragraph (1) above. (3) If a Participant is required to be aggregated as a member of more than one family group in a plan, all Participants who are members of those family groups that include the Participant are aggregated as one family group in accordance with paragraphs (1) and (2) above. 50 59 4.8 ADJUSTMENT TO ACTUAL CONTRIBUTION PERCENTAGE TESTS (a) In the event that, for Plan Years beginning after December 31, 1986, the "Actual Contribution Percentage" for the Highly Compensated Participant group exceeds the "Actual Contribution Percentage" for the Non-Highly Compensated Participant group by more than the amount permitted by Section 4.7(a), the Administrator (on or before the fifteenth day of the third month following the end of the Plan Year, but in no event later than the close of the following Plan Year) shall direct the Trustee to distribute to the Highly Compensated Participant having the highest actual contribution ratio, his Vested 51 60 4.8 ADJUSTMENT TO ACTUAL CONTRIBUTION PERCENTAGE TESTS (a) In the event that, for Plan Years beginning after December 31, 1986, the "Actual Contribution Percentage" for the Highly Compensated Participant group exceeds the "Actual Contribution Percentage" for the Non-Highly Compensated Participant group pursuant to Section 4.7(a), the Administrator (on or before the fifteenth day of the third month following the end of the Plan Year, but in no event later than the close of the following Plan Year) shall direct the Trustee to distribute to the Highly Compensated Participant having the highest actual contribution ratio, his Vested 51 61 portion of Excess Aggregate Contributions (and Income allocable to such contributions) or, if forfeitable, forfeit such non-Vested Excess Aggregate Contributions attributable to Employer matching contributions (and Income allocable to such Forfeitures) until either one of the tests set forth in Section 4.7(a) is satisfied, or until his actual contribution ratio equals the actual contribution ratio of the Highly Compensated Participant having the second highest actual contribution ratio. This process shall continue until one of the tests set forth in Section 4.7(a) is satisfied. The distribution and/or Forfeiture of Excess Aggregate Contributions shall be made in the following order: (1) Employer matching contributions distributed and/or forfeited pursuant to Section 4.6(a) (1); (2) Remaining Employer matching contributions. (b) Any distribution and/or Forfeiture of less than the entire amount of Excess Aggregate Contributions (and Income) shall be treated as a pro rata distribution and/or Forfeiture of Excess Aggregate Contributions and Income. Distribution of Excess Aggregate Contributions shall be designated by the Employer as a distribution of Excess Aggregate Contributions (and Income). Forfeitures of Excess Aggregate Contributions shall be treated in accordance with Section 4.4. (c) Excess Aggregate Contributions, including forfeited matching contributions, shall be treated as Employer contributions for purposes of Code Sections 404 and 415 even if distributed from the Plan. (d) For each Highly Compensated Participant, the amount of Excess Aggregate Contributions is equal to the total Employer matching contributions made pursuant to Section 4.1(b) and any qualified non-elective contributions or elective deferrals taken into account pursuant to Section 4.7(c) on behalf of the Highly Compensated Participant (determined prior to the application of this paragraph) minus the amount determined by multiplying the Highly Compensated Participant's actual contribution ratio (determined after application of this paragraph) by his "414(s) Compensation". The actual contribution ratio must be rounded to the nearest one-hundredth of one percent for 52 62 Plan Years beginning after December 31, 1988. In no case shall the amount of Excess Aggregate Contribution with respect to any Highly Compensated Participant exceed the amount of Employer matching contributions made pursuant to Section 4.1(b) and any qualified non-elective contributions or elective deferrals taken into account pursuant to Section 4.7(c) on behalf of such Highly Compensated participant for such Plan Year. (e) The determination of the amount of Excess Aggregate Contributions with respect to any Plan Year shall be made after first determining the Excess Contributions, if any, to be treated as voluntary Employee contributions due to recharacterization for the plan year of any other qualified cash or deferred arrangement (as defined in Code Section 401(k)) maintained by the Employer that ends with or within the Plan Year. (f) The determination and correction of Excess Aggregate Contributions of a Highly Compensated Participant whose actual contribution ratio is determined under the family aggregation rules shall be accomplished as follows: (1) If the actual contribution ratio for the Highly Compensated Participant is determined in accordance with Section 4.7(d) (1) (ii), then the actual contribution ratio shall be reduced and the Excess Aggregate Contributions for the family unit shall be allocated among the Family Members in proportion to the sum of Employer matching contributions made pursuant to Section 4.1(b) and any qualified non-elective contributions or elective deferrals taken into account pursuant to Section 4.7(c) of each Family Member that were combined to determine the group actual contribution ratio. (2) If the actual contribution ratio for the Highly Compensated participant is determined under,Section 4.7(d) (1) (i), then the actual contribution ratio shall first be reduced, as required herein, but not below the actual contribution ratio of the group of Family Members who are not Highly Compensated participants without regard to family aggregation. The Excess Aggregate Contributions resulting from this initial reduction shall be allocated among the 53 63 Highly Compensated Participants whose Employer matching contributions made pursuant to Section 4.1(b) and any qualified non-elective contributions or elective deferrals taken into account pursuant to Section 4.7(c) were combined to determine the actual contribution ratio. If further reduction is still required, then Excess Aggregate Contributions resulting from this further reduction shall be determined by taking into account the contributions of all Family Members and shall be allocated among them in proportion to their respective Employer matching contributions made pursuant to Section 4.1(b) and any qualified non-elective contributions or elective deferrals taken into account pursuant to Section 4.7(c). (g) Notwithstanding the above, within twelve (12) months after the end of the Plan Year, the Employer may make a special Qualified Non-Elective Contribution on behalf of Non-Highly Compensated Participants in an amount sufficient to satisfy one of the tests set forth in section 4.7(a). Such contribution shall be allocated to the Participant's Elective Account of each Non- Highly Compensated Participant in the same proportion that each Non-Highly Compensated Participant's Compensation for the year bears to the total Compensation of all Non-Highly Compensated Participants. A separate accounting shall be maintained for the purpose of excluding such contributions from the "Actual Deferral Percentage" tests pursuant to Section 4.5(a). 4.9 MAXIMUM ANNUAL ADDITIONS (a) Notwithstanding the foregoing, the maximum "annual additions" credited to a Participant's accounts for any "limitation year" shall equal the lesser of: (1) $30,000 (or, if greater, one-fourth of the dollar limitation in effect under Code Section 415(b) (1) (A)) or (2) twenty-five percent (25%) of the Participant's "415 Compensation" for such "limitation year". 54 64 (b) For purposes of applying the limitations of Code Section 415, "annual additions" means the sum credited to a Participant's accounts for any "limitation year" of (1) Employer contributions, (2) Employee contributions for "limitation years" beginning after December 31, 1986, (3) forfeitures, (4) amounts allocated, after March 31, 1984, to an individual medical account, as defined in Code Section 415(1) (2) which is part of a pension or annuity plan maintained by the Employer and (5) amounts derived from contributions paid or accrued after December 31, 1985, in taxable years ending after such date, which are attributable to post-retirement medical benefits allocated to the separate account of a key employee (as defined in Code Section 419A(d) (3)) under a welfare benefit plan (as defined in Code Section 419(e)) maintained by the Employer. Except, however, the "415 Compensation" percentage limitation referred to in paragraph (a) (2) above shall not apply to: (1) any contribution for medical benefits (within the meaning of Code Section 419A(f) (2)) after separation from service which is otherwise treated as an "annual addition", or (2) any amount under Code Section 415(1) (1). (c) For purposes of applying the limitations of Code Section 415, the following are not "annual additions": (1) the transfer of funds from one qualified plan to another and (2) provided no more than one-third of the Employer contributions for the year are allocated to Highly Compensated Participants, Forfeitures of Company Stock purchased with the proceeds of an Exempt Loan and Employer contributions applied to the payment of interest on an Exempt Loan. In addition, the following are not Employee contributions for the purposes of Section 4.9(c) (2): (1) rollover contributions (as defined in Code Sections 402 (a) (5), 403(a) (4) , 403(b) (8) and 408 (d) (3); (2) repayments of loans made to a participant from the Plan; (3) repayments of distributions received by an Employee pursuant to Code Section 411(a) (7) (B) (cash- outs); (4) repayments of distributions received 55 65 one-third of the Employer's contributions for the year are allocated to Highly Compensated Participants. In applying this limitation, the family group of a Highly Compensated Participant who is subject to the Family Member aggregation rules of Code Section 414(q) (6) shall be determined pursuant to Regulations. (b) For purposes of applying the limitations of Code Section 415, "annual additions" means the sum credited to a Participant's accounts for any "limitation year" of (1) Employer contributions, (2) Employee contributions for "limitation years" beginning after December 31, 1986, (3) forfeitures, (4) amounts allocated, after March 31, 1984, to an individual medical account, as defined in Code Section 415(1) (2) which is part of a pension or annuity plan maintained by the Employer and (5) amounts derived from contributions paid or accrued after December 31, 1985, in taxable years ending after such date, which are attributable to post-retirement medical benefits allocated to the separate account of a key employee (as defined in Code Section 419A(d) (3)) under a welfare benefit plan (as defined in Code Section 419(e)) maintained by the Employer. Except, however, the "415 Compensation" percentage limitation referred to in paragraph (a) (2) above shall not apply to: (1) any contribution for medical benefits (within the meaning of Code Section 419A(f) (2)) after separation from service which is otherwise treated as an "annual addition", or (2) any amount otherwise treated as an "annual addition" under Code Section 415(1) (1). (c) For purposes of applying the limitations of Code Section 415, the following are not "annual additions": (1) the transfer of funds from one qualified plan to another and (2) provided no more than one-third of the Employer contributions for the year are allocated to Highly Compensated Participants, Forfeitures of Company Stock purchased with the proceeds of an Exempt Loan and Employer contributions applied to the payment of interest on an Exempt Loan. In addition, the following are not Employee contributions for the purposes of Section 4.9(c) (2): (1) rollover contributions (as defined in Code Sections 402 (a) (5), 403(a) (4) , 403 (b) (8) and 408 (d) (3)); (2) repayments of loans made to a Participant from the Plan; (3) repayments of distributions received by an Employee pursuant to Code Section 411 (a) (7) (B) (cash-outs); (4) repayments of distributions received 55 66 by an Employee pursuant to Code Section 411(a) (3) (D) (mandatory contributions); and (5) Employee contributions to a simplified employee pension excludable from gross income under Code Section 408 (k) (6) (d) For purposes of applying the limitations of Code Section 415, "415 Compensation" shall include the Participant's wages, salaries, fees for professional service and other amounts for personal services actually rendered in the course of employment with an Employer maintaining the Plan (including, but not limited to, commissions paid salesmen, compensation for services on the basis of a percentage of profits, commissions on insurance premiums, tips and bonuses and in the case of a Participant who is an Employee within the meaning of Code Section 401(c) (1) and the regulations thereunder, the Participant's earned income (as described in Code Section 401(c) (2) and the regulations thereunder)) paid during the "limitation year". "415 Compensation" shall exclude (1) (A) contributions made by the Employer to a plan of deferred compensation to the extent that, before the application of the Code Section 415 limitations to the Plan, the contributions are not includable in the gross income of the Employee for the taxable year in which contributed, (B) contributions made by the Employer to a plan of deferred compensation to the extent that all or a portion of such contributions are recharacterized as a voluntary Employee contribution, (C) Employer contributions made on behalf of an Employee to a simplified employee pension plan described in Code Section 408(k) to the extent such contributions are excludable from the Employee's gross income, (D) any distributions from a plan of deferred compensation regardless of whether such amounts are includable in the gross income of the Employee when distributed except any amounts received by an Employee pursuant to an unfunded non-qualified plan to the extent such amounts are includable in the gross income of the Employee; (2) amounts realized from the exercise of a non-qualified stock option or when restricted stock (or property) held by an Employee either becomes freely transferable or is no longer subject to a substantial risk of forfeiture; (3) amounts realized from the sale, exchange or other disposition of stock acquired under a qualified stock option; and (4) other amounts which 56 67 receive special tax benefits, such as premiums for group term life insurance (but only to the extent that the premiums are not includable in the gross income of the Employee), or contributions made by the Employer (whether or not under a salary reduction agreement) towards the purchase of any annuity contract described in Code Section 403(b) (whether or not the contributions are excludable from the gross income of the Employee). For the purposes of this Section, the determination of "415 Compensation" shall be made by not including amounts that would otherwise be excluded from a Participant's gross income by reason of the application of Code Sections 125, 402 (a) (8), 402(h) (1) (B) and, in the case of Employer contributions made pursuant to a salary reduction agreement, Code Section 403(b). (e) For purposes of applying the limitations of Code Section 415, the "limitation year" shall be the Plan Year. (f) The dollar limitation under Code Section 415(b) (1) (A) stated in paragraph (a) (1) above shall be adjusted annually as provided in Code Section 415(d) pursuant to the Regulations. The adjusted limitation is effective as of January 1st of each calendar year and is applicable to "limitation years" ending with or within that calendar year. (g) For the purpose of this Section, all qualified defined benefit plans (whether terminated or not) ever maintained by the Employer shall be treated as one defined benefit plan, and all qualified defined contribution plans (whether terminated or not) ever maintained by the Employer shall be treated as one defined contribution plan. (h) For the purpose of this Section, if the Employer is a member of a controlled group of corporations, trades or businesses under common control (as defined by Code Section 1563(a) or Code Section 414(b) and (c) as modified by Code Section 415(h)), is a member of an affiliated service group (as defined by Code Section 414(m)), or is a member of a group of entities required to be aggregated pursuant to Regulations under Code Section 414(o), all Employees of such Employers shall be considered to be employed by a single Employer. 57 68 (i) For the purpose of this Section, if this Plan is a Code Section 413(c) plan, all Employers of a Participant who maintain this Plan will be considered to be a single Employer. (j) (1) If a Participant participates in more than one defined contribution plan maintained by the Employer which have different Anniversary Dates, the maximum "annual additions" under this Plan shall equal the maximum "annual additions" for the "limitation year" minus any "annual additions" previously credited to such Participant's accounts during the "limitation year". (2) If a Participant participates in both a defined contribution plan subject to Code Section 412 and a defined contribution plan not subject to Code Section 412 maintained by the Employer which have the same Anniversary Date, "annual additions" will be credited to the Participant's accounts under the defined contribution plan subject to Code Section 412 prior to crediting "annual additions" to the Participant's accounts under the defined contribution plan not subject to Code Section 412. (3) If a Participant participates in more than one defined contribution plan not subject to Code Section 412 maintained by the Employer which have the same Anniversary Date, the maximum "annual additions" under this Plan shall equal the product of (A) the maximum "annual additions" for the "limitation year" minus any "annual additions" previously credited under subparagraphs (1) or (2) above, multiplied by (B) a fraction (i) the numerator of which is the "annual additions" which would be credited to such Participant's accounts under this Plan without regard to the limitations of Code Section 415 and (ii) the denominator of which is such "annual additions" for all plans described in this subparagraph. (k) If an Employee is (or has been) a Participant in one or more defined benefit plans and one or more defined contribution plans maintained by the Employer, the sum of the defined benefit plan fraction and the defined contribution plan fraction for any "limitation year" may not exceed 1.0. 58 69 (1) The defined benefit plan fraction for any "limitation year" is a fraction, the numerator of which is the sum of the Participant's projected annual benefits under all the defined benefit plans (whether or not terminated) maintained by the Employer, and the denominator of which is the lesser of 125 percent of the dollar limitation determined for the "limitation year" under Code Sections 415(b) and (d) or 140 percent of the highest average compensation, including any adjustments under Code Section 415(b). Notwithstanding the above, if the Participant was a Participant as of the first day of the first "limitation year" beginning after December 31, 1986, in one or more defined benefit plans maintained by the Employer which were in existence on May 6, 1986, the denominator of this fraction will not be less than 125 percent of the sum of the annual benefits under such plans which the Participant had accrued as of the close of the last "limitation year" beginning before January 1, 1987, disregarding any changes in the terms and conditions of the plan after May 5, 1986. The preceding sentence applies only if the defined benefit plans individually and in the aggregate satisfied the requirements of Code Section 415 for all "limitation years" beginning before January 1, 1987. (m) The defined contribution plan fraction for any "limitation year" is a fraction, the numerator of which is the sum of the annual additions to the Participant's Account under all the defined contribution plans (whether or not terminated) maintained by the Employer for the current and all prior "limitation years" (including the annual additions attributable to the Participant's nondeductible Employee contributions to all defined benefit plans, whether or not terminated, maintained by the Employer, and the annual additions attributable to all welfare benefit funds, as defined in Code Section 419(e), and individual medical accounts, as defined in Code Section 415(1) (2), maintained by the Employer), and the denominator of which is the sum of the maximum aggregate amounts for the current and all prior "limitation years" of service with the Employer (regardless of whether a defined contribution plan was maintained by the Employer). The maximum aggregate amount in any "limitation year" is the lesser of 125 percent of the dollar limitation determined under Code Sections 415(b) and (d) in effect under Code Section 415(c) (1) (A) or 35 percent of the Participant's Compensation for such year. 59 70 If the Employee was a Participant as of the end of the first day of the first "limitation year" beginning after December 31, 1986, in one or more defined contribution plans maintained by the Employer which were in existence on May 6, 1986, the numerator of this fraction will be adjusted if the sum of this fraction and the defined benefit fraction would otherwise exceed 1.0 under the terms of this Plan. Under the adjustment, an amount equal to the product of (1) the excess of the sum of the fractions over 1.0 times (2) the denominator of this fraction, will be permanently subtracted from the numerator of this fraction. The adjustment is calculated using the fractions as they would be computed as of the end of the last "limitation year" beginning before January 1, 1987, and disregarding any changes in the terms and conditions of the Plan made after May 6, 1986, but using the Code Section 415 limitation applicable to the first "limitation year" beginning on or after January 1, 1987. The annual addition for any "limitation year" beginning before January 1, 1987 shall not be recomputed to treat all Employee contributions as annual additions. (n) Notwithstanding the foregoing, for any "limitation year" in which the Plan is a Top Heavy Plan, 100% shall be substituted for 125% in Sections 4.9(1) and 4.9(m) unless the extra minimum allocation is being provided pursuant to Section 4.4# However, for any "limitation year" in which the Plan is a Super Top Heavy Plan, 100% shall be substituted for 125% in any event. (o) Notwithstanding anything contained in this Section to the contrary, the limitations, adjustments and other requirements prescribed in this Section shall at all times comply with the provisions of Code Section 415 and the Regulations thereunder, the terms of which are specifically incorporated herein by reference. 4.10 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS (a) If, as a result of a reasonable error in estimating a Participant's Compensation or other facts and circumstances to which Regulation 1.415-6(b) (6) shall be applicable, the "annual additions" under this Plan would cause the maximum "annual additions" to be exceeded for any Participant, the Administrator shall (1) return any voluntary Employee contributions credited for the "limitation year" to the extent that 60 71 the return would reduce the "excess amount" in the Participant's accounts (2) hold any "excess amount" remaining after the return of any voluntary Employee contributions in a "Section 415 suspense account" (3) use the "Section 415 suspense account" in the next "limitation year" (and succeeding "limitation years" if necessary) to reduce Employer contributions for that Participant if that Participant is covered by the Plan as of the end of the "limitation year", or if the Participant is not so covered, allocate and reallocate the "Section 415 suspense account" in the next "limitation year" (and succeeding "limitation years" if necessary) to all Participants in the Plan before any Employer or Employee contributions which would constitute "annual additions" are made to the Plan for such. "limitation year" (4) reduce Employer contributions to the Plan for such "limitation year" by the amount of the "Section 415 suspense account" allocated and reallocated during such "limitation year". (b) For purposes of this Article, "excess amount" for any Participant for a "limitation year" shall mean the excess, if any, of (1) the "annual additions" which would be credited to his account under the terms of the Plan without regard to the limitations of Code Section 415 over (2) the maximum "annual additions" determined pursuant to Section 4.9. (c) For purposes of this Section, "Section 415 suspense account" shall mean an unallocated account equal to the sum of "excess amounts" for all Participants in the Plan during the "limitation year". The "Section 415 suspense account" shall not share in any earnings or losses of the Trust Fund. (d) The Plan may not distribute "excess amounts", other than voluntary Employee contributions, to Participants or Former Participants. 4.11 TRANSFERS FROM QUALIFIED PLANS (a) With the consent of the Administrator, amounts may be transferred from other qualified plans by Employees, provided that the trust from which such funds are transferred permits the transfer to be made and the transfer will not jeopardize the tax exempt status of the Plan or Trust or create adverse tax consequences for the Employer. The amounts transferred shall be set up in a separate account herein referred 61 72 to as a "Participant's Rollover Account". Such account shall be fully Vested at all times and shall not be subject to Forfeiture for any reason. (b) Amounts in a Participant's Rollover Account shall be held by the Trustee pursuant to the provisions of this Plan and may not be withdrawn by, or distributed to the Participant, in whole or in part, except as provided in Paragraphs (c) and (d) of this Section. (c) Except as permitted by Regulations (including Regulation 1.411 (d) -4), amounts attributable to elective contributions (as defined in Regulation 1.401(k)-1(g) (4)), including amounts treated as elective contributions, which are transferred from another qualified plan in a plan-to-plan transfer shall be subject to the distribution limitations provided for in Regulation 1.401(k)-1(d). (d) At Normal Retirement Date, or such other date when the Participant or his Beneficiary shall be entitled to receive benefits, the fair market value of the Participant's Rollover Account shall be used to provide additional benefits to the Participant or his Beneficiary. Any distributions of amounts held in a Participant's Rollover Account shall be made in a manner which is consistent with and satisfies the provisions of Section 7.5, including, but not limited to, all notice and consent requirements of Code Section 411(a) (11) and the Regulations thereunder. Furthermore, such amounts shall be considered as part of a Participant's benefit in determining whether an involuntary cash-out of benefits without Participant consent may be made. (e) The Administrator may direct that employee transfers made after a valuation date be segregated into a separate account for each Participant in a federally insured savings account, certificate of deposit in a bank or savings and loan association, money market certificate, or other short term debt security acceptable to the Trustee until such time as the allocations pursuant to this Plan have been made, at which time they may remain segregated or be invested as part of the general Trust Fund, to be determined by the Administrator. 62 73 (f) For purposes of this Section, the term "qualified plan" shall mean any tax qualified plan under Code Section 401 (a). The term "amounts transferred from other qualified plans" shall mean: (i) amounts transferred to this Plan directly from another qualified plan; (ii) lump-sum distributions received by an Employee from another qualified plan which are eligible for tax free rollover to a qualified plan and which are transferred by the Employee to this Plan within sixty (60) days following his receipt thereof; (iii) amounts transferred to this Plan from a conduit individual retirement account provided that the conduit individual retirement account has no assets other than assets which (A) were previously distributed to the Employee by another qualified plan as a lump-sum distribution (B) were eligible for tax-free rollover to a qualified plan and (C) were deposited in such conduit individual retirement account within sixty (60) days of receipt thereof and other than earnings on said assets; and (iv) amounts distributed to the Employee from a conduit individual retirement account meeting the requirements of clause (iii) above, and transferred by the Employee to this Plan within sixty (60) days of his receipt thereof from such conduit individual retirement account. (g) Prior to accepting any transfers to which this Section applies, the Administrator may require the Employee to establish that the amounts to be transferred to this Plan meet the requirements of this Section and may also require the Employee to provide an opinion of counsel satisfactory to the Employer that the amounts to be transferred meet the requirements of this Section. (h) This Plan shall not accept any direct or indirect transfers (as that term is defined and interpreted under Code Section 401(a) (11) and the Regulations thereunder) from a defined benefit plan, money purchase plan (including a target benefit plan), stock bonus or profit sharing plan which would otherwise have provided for a life annuity form of payment to the Participant. (i) Notwithstanding anything herein to the contrary, a transfer directly to this Plan from another qualified plan (or a transaction having the effect of such a transfer) shall only be permitted if it will not 63 74 result in the elimination or reduction of any "Section 411(d) (6) protected benefit" as described in Section 8.1. 4.12 DIRECTED INVESTMENT ACCOUNT (a) Each "Qualified Participant", for Plan Years beginning after December 31, 1986, may elect within ninety (90) days after the close of each Plan Year during the "Qualified Election Period" to direct the Trustee in writing as to the investment of 25 percent of the total number of shares of Company Stock acquired by or contributed to the Plan that have ever been allocated to such "Qualified Participant's" Company Stock Account (reduced by the number of shares of Company Stock previously invested pursuant to a prior election). In the case of the election year in which the Participant can make his last election, the preceding sentence shall be applied by substituting "50 percent" for "25 percent". If the "Qualified Participant" elects to direct the Trustee as to the investment of his Company Stock Account, such direction shall be effective no later than 180 days after the close of the Plan Year to which such direction applies. Notwithstanding the above, if the fair market value (determined pursuant to Section 6.1 at the Plan valuation date immediately preceding the first day on which a "Qualified Participant" is eligible to make an election) of Company Stock acquired by or contributed to the Plan and allocated to a "Qualified Participant's" Company Stock Account is $500 or less, then such Company Stock shall not be subject to this paragraph. For purposes of determining whether the fair market value exceeds $500, Company Stock held in accounts of all employee stock ownership plans (as defined in Code Section 4975(e) (7)) and tax credit employee stock ownership plans (as defined in Code Section 409(a)) maintained by the Employer or any Affiliated Employer shall be considered as held by the Plan. (b) For the purposes of this Section the following definitions shall apply: (1) "Qualified Participant" means any Participant or Former Participant who has completed ten (10) Plan Years of Service as a Participant and has attained age 55. 64 75 (2) "Qualified Election Period" means the six (6) Plan Year period beginning with the later of (i) the first Plan Year in which the Participant first became a "Qualified Participant", or (ii) the first Plan Year beginning after December 31, 1986. (c) A separate Directed Investment Account shall be established for each Participant who has directed an investment. Transfers between the Participant's regular account and his Directed Investment Account shall be charged and credited as the case may be to each account. The Directed Investment Account shall not share in Trust Fund earnings, but it shall be charged or credited as appropriate with the net earnings, gains, losses and expenses as well as any appreciation or depreciation in market value during each Plan Year attributable to such account. ARTICLE V FUNDING AND INVESTMENT POLICY 5.1 INVESTMENT POLICY (a) The Plan is designed to invest primarily in Company Stock. (b) With due regard to subparagraph (a) above, the Administrator may also direct the Trustee to invest funds under the Plan in other property described in the Trust or in life insurance policies to the extent permitted by subparagraph (c) below, or the Trustee may hold such funds in cash or cash equivalents. (c) With due regard to subparagraph (a) above, the Administrator may also direct the Trustee to invest funds under the Plan in insurance policies on the life of any "keyman" Employee. The proceeds of a "keyman" insurance policy may not be used for the repayment of any indebtedness owed by the Plan which is secured by Company Stock. In the event any "keyman" insurance is purchased by the Trustee, the premiums paid thereon during any Plan Year, net of any policy dividends and increases in cash surrender values, shall be treated as the cost of Plan investment and any death benefit or cash surrender value received shall be treated as proceeds from an investment of the Plan. 65 76 (d) The Plan may not obligate itself to acquire Company Stock from a particular holder thereof at an indefinite time determined upon the happening of an event such as the death of the holder. (e) The Plan may not obligate itself to acquire Company Stock under a put option binding upon the Plan. However, at the time a put option is exercised, the Plan may be given an option to assume the rights and obligations of the Employer under a put option binding upon the Employer. (f) All purchases of Company Stock shall be made at a price which, in the judgment of the Administrator, does not exceed the fair market value thereof. All sales of Company Stock shall be made at a price which, in the judgment of the Administrator, is not less than the fair market value thereof. The valuation rules set forth in Article VI shall be applicable. 5.2 APPLICATION OF CASH Employer contributions in cash and other cash received by the Trust Fund shall first be applied to pay any Current Obligations of the Trust Fund. 5.3 LOANS TO THE TRUST (a) The Plan may borrow money for any lawful purpose, provided the proceeds of an Exempt Loan are used within a reasonable time after receipt only for any or all of the following purposes: (1) To acquire Company Stock. (2) To repay such loan. (3) To repay a prior Exempt Loan. (b) All loans to the Trust which are made or guaranteed by a disqualified person must satisfy all requirements applicable to Exempt Loans including but not limited to the following: (1) The loan must be at a reasonable rate of interest; (2) Any collateral pledged to the creditor by the Plan shall consist only of the Company Stock purchased with the borrowed funds; 66 77 (3) Under the terms of the loan, any pledge of Company Stock shall provide for the release of shares so pledged on a pro-rata basis pursuant to Section 4.4(e); (4) Under the terms of the loan, the creditor shall have no recourse against the Plan except with respect to such collateral, earnings attributable to such collateral, Employer contributions (other than contributions of Company Stock) that are made to meet Current Obligations and earnings attributable to such contributions; (5) The loan must be for a specific term and may not be payable at the demand of any person, except in the case of default; (6) In the event of default upon an Exempt Loan, the value of the Trust Fund transferred in satisfaction of the Exempt Loan shall not exceed the amount of default. If the lender is a disqualified person, an Exempt Loan shall provide for a transfer of Trust Funds upon default only upon and to the extent of the failure of the Plan to meet the payment schedule of the Exempt Loan; (7) Exempt Loan payments during a Plan Year must not exceed an amount equal to: (A) the sum, over all Plan Years, of all contributions and cash dividends paid by the Employer to the Plan with respect to such Exempt Loan and earnings on such Employer contributions and cash dividends, less (B) the sum of the Exempt Loan payments in all preceding Plan Years. A separate accounting shall be maintained for such Employer contributions, cash dividends and earnings until the Exempt Loan is repaid. (c) For purposes of this Section, the term "disqualified person " means a person who is a Fiduciary, a person providing services to the Plan, an Employer any of whose Employees are covered by the Plan, an employee organization any of whose members are covered by the Plan, an owner, direct or indirect, of 50% or more of the total combined voting power of all classes of voting stock or of the total value of all classes of the stock, or an officer, director, 10% or more shareholder, or a highly compensated Employee. 67 78 ARTICLE VI VALUATIONS 6.1 VALUATION OF THE TRUST FUND The Administrator shall direct the Trustee, as of each Anniversary Date, and at such other date or dates deemed necessary by the Administrator, herein called "valuation date", to determine the net worth of the assets comprising the Trust Fund as it exists on the "valuation date" prior to taking into consideration any contribution to be allocated for that Plan Year. In determining such net worth, the Trustee shall value the assets comprising the Trust Fund at their fair market value as of the "valuation date" and shall deduct all expenses for which the Trustee has not yet obtained reimbursement from the Employer or the Trust Fund. 6.2 METHOD OF VALUATION Valuations must be made in good faith and based on all relevant factors for determining the fair market value of securities. In the case of a transaction between a Plan and a disqualified person, value must be determined as of the date of the transaction. For all other Plan purposes, value must be determined as of the most recent "valuation date" under the Plan. An independent appraisal will not in itself be a good faith determination of value in the case of a transaction between the Plan and a disqualified person. However, in other cases, a determination of fair market value based on at least an annual appraisal independently arrived at by a person who customarily makes such appraisals and who is independent of any party to the transaction will be deemed to be a good faith determination of value. Company Stock not readily tradeable on an established securities market shall be valued by an independent appraiser meeting requirements similar to the requirements of the Regulations prescribed under Code Section 170 (a) (1). ARTICLE VII DETERMINATION AND DISTRIBUTION OF BENEFITS 7.1 DETERMINATION OF BENEFITS UPON RETIREMENT Every Participant may terminate his employment with the Employer and retire for the purposes hereof on his Normal Retirement Date or Early Retirement Date. Upon such Normal Retirement Date or Early Retirement Date, all amounts credited to such Participant's Combined Account shall become distributable. However, a Participant may postpone the termination of his employment with the Employer to a later date, in which event the participation of such Participant in the Plan, including the right to receive allocations pursuant to Section 4.4, shall continue until his Late Retirement Date. Upon a Participant's 68 79 Retirement Date, or as soon thereafter as is practicable, the Trustee shall distribute all amounts credited to such Participant's Combined Account in accordance with Sections 7.5 and 7.6. 7.2 DETERMINATION OF BENEFITS UPON DEATH (a) Upon the death of a Participant before his Retirement Date or other termination of his employment, all amounts credited to such Participant's Combined Account shall become fully Vested. The Administrator shall direct the Trustee, in accordance with the provisions of Sections 7.5 and 7.6, to distribute the value of the deceased Participant's accounts to the Participant's Beneficiary. Distribution to the Participant's Beneficiary shall commence not later than one (1) year after the close of the Plan Year in which such Participant's death occurs. (b) Upon the death of a Former Participant, the Administrator shall direct the Trustee, in accordance with the provisions of Sections 7.5 and 7.6, to distribute any remaining amounts credited to the accounts of a deceased Former Participant to such Former Participant's Beneficiary. (c) The Administrator may require such proper proof of death and such evidence of the right of any person to receive payment of the value of the account of a deceased Participant or Former Participant as the Administrator may deem desirable. The Administrator's determination of death and of the right of any person to receive payment shall be conclusive. (d) The Beneficiary of the death benefit payable pursuant to this Section shall be the Participant's spouse. Except, however, the Participant may designate a Beneficiary other than his spouse if: (1) the spouse has waived the right to be the Participant's Beneficiary, or (2) the Participant is legally separated or has been abandoned (within the meaning of local law) and the Participant has a court order to such effect (and there is no "qualified domestic relations order" as defined in Code Section 414(p) which provides otherwise), or 69 80 (3) the Participant has no spouse, or (4) the spouse cannot be located. In such event, the designation of a Beneficiary shall be made on a form satisfactory to the Administrator. A Participant may at any time revoke his designation of a Beneficiary or change his Beneficiary by filing written notice of such revocation or change with the Administrator. However, the Participant's spouse must again consent in writing to any change in Beneficiary unless the original consent acknowledged that the spouse had the right to limit consent only to a specific Beneficiary and that the spouse voluntarily elected to relinquish such right. In the event no valid designation of Beneficiary exists at the time of the Participant's death, the death benefit shall be payable to his estate. (e) Any consent by the Participant's spouse to waive any rights to the death benefit must be in writing, must acknowledge the effect of such waiver, and be witnessed by a Plan representative or a notary public. Further, the spouse's consent must be irrevocable and must acknowledge the specific nonspouse Beneficiary. 7.3 DETERMINATION OF BENEFITS IN EVENT OF DISABILITY In the event of a Participant's Total and Permanent Disability prior to his Retirement Date or other termination of his employment, all amounts credited to such Participant's Combined Account shall become fully Vested. In the event of a Participant's Total and Permanent Disability, the Trustee, in accordance with the provisions of Sections 7.5 and 7.6, shall distribute to such Participant all amounts credited to such Participant's Combined Account as though he had retired. Distribution to such Participant shall commence not later than one (1) year after the close of the Plan Year in which such Participant's Total and Permanent Disability occurs. 70 81 7.4 DETERMINATION OF BENEFITS UPON TERMINATION (a) On or before the Anniversary Date coinciding with or subsequent to the termination of a Participant's employment for any reason other than death, Total and Permanent Disability or retirement, the Administrator may direct the Trustee to segregate the amount of the Vested portion of such Terminated Participant's Combined Account and invest the aggregate amount thereof in a separate, federally insured savings account, certificate of deposit, common or collective trust fund of a bank or a deferred annuity. In the event the Vested portion of a Participant's Combined Account is not segregated, the amount shall remain in a separate account for the Terminated Participant and share in allocations pursuant to Section 4.4 until such time as a distribution is made to the Terminated Participant. If a portion of a Participant's Account is forfeited, Company Stock allocated to the Participant's Company Stock Account must be forfeited only after the Participant's Other Investments Account has been depleted. If interest in more than one class of Company Stock has been allocated to a Participant's Account, the Participant must be treated as forfeiting the same proportion of each such class. Distribution of the funds due to a Terminated Participant shall be made on the occurrence of an event which would result in the distribution had the Terminated Participant remained in the employ of the Employer (upon the Participant's death, Total and Permanent Disability, Early or Normal Retirement). However, at the election of the Participant, the Administrator shall direct the Trustee to cause the entire Vested portion of the Terminated Participant's Combined Account to be payable to such Terminated Participant. Distribution to a Participant shall not include any Company Stock acquired with the proceeds of an Exempt Loan until the close of the Plan Year in which such loan is repaid in full. Any distribution under this paragraph shall be made in a manner which is consistent with and satisfies the provisions of Sections 7.5 and 7.6, including, but not limited to, all notice and consent requirements of Code Section 411(a) (11) and the Regulations thereunder. The Participant may choose to have the Vested amount determined as either the amount valued as of the 71 82 preceding valuation date plus deferrals made after that date or as the balance in his account as of the subsequent valuation date. If the value of a Terminated Participant's Vested benefit derived from Employer and Employee contributions does not exceed $3,500 and has never exceeded $3,500 at the time of any prior distribution, the Administrator shall direct the Trustee to cause the entire Vested benefit to be paid to such Participant in a single lump sum. For purposes of this Section 7.4, if the value of a Terminated Participant's Vested benefit is zero, the Terminated Participant shall be deemed to have received a distribution of such Vested benefit. (b) The Vested portion of any Participant's Account shall be a percentage of the total amount credited to his Participant's Account determined on the basis of the Participant's number of Years of Service according to the following schedule:
Vesting Schedule Period of Service (Years) Percentage 3 20 % 4 40 % 5 60 % 6 80 % 7 100 %
(c) Notwithstanding the vesting schedule provided for in paragraph (b) above, for any Top Heavy Plan Year, the Vested portion of the Participant's Account of any Participant who has an Hour of Service after the Plan becomes top heavy shall be a percentage of the total amount credited to his Participant's Account determined on the basis of the Participant's number of Years of Service according to the following schedule:
Vesting Schedule Period of Service (Years) Percentage 2 20 % 3 40 % 4 60 % 5 80 % 6 100 %
72 83 If in any subsequent Plan Year, the Plan ceases to be a Top Heavy Plan, the Administrator shall revert to the vesting schedule in effect before this Plan became a Top Heavy Plan. Any such reversion shall be treated as a Plan amendment pursuant to the terms of the Plan. (d) Notwithstanding the vesting schedule above, the Vested percentage of a Participant's Account shall not be less than the Vested percentage attained as of the later of the effective date or adoption date of this amendment and restatement. (e) Notwithstanding the vesting schedule above, upon the complete discontinuance of the Employer's contributions to the Plan or upon any full or partial termination of the Plan, all amounts credited to the account of any affected Participant shall become 100% Vested and shall not thereafter be subject to Forfeiture. (f) The computation of a Participant's nonforfeitable percentage of his interest in the Plan shall not be reduced as the result of any direct or indirect amendment to this Article. In the event that the Plan is amended to change or modify any vesting schedule, a Participant with at least a three-year Period of Service as of the expiration date of the election period may elect to have his nonforfeitable percentage computed under the Plan without regard to such amendment. If a Participant fails to make such election, then such Participant shall be subject to the new vesting schedule. The Participant's election period shall commence on the adoption date of the amendment and shall end 60 days after the latest of: (l) the adoption date of the amendment, (2) the effective date of the amendment, or (3) the date the Participant receives written notice of the amendment from the Employer or Administrator. (g) (1) If any Former Participant shall be reemployed by the Employer, he shall continue to participate in the Plan in the same manner as if such termination had not occurred. 73 84 (2) If any Former Participant shall be reemployed by the Employer before a five-year Period of Severance occurs, and such Former Participant had received, or was deemed to have received, a distribution of his entire Vested interest prior to his reemployment, his forfeited account shall be reinstated only if he repays the full amount distributed to him before the earlier of five (5) years after the first date on which the Participant is subsequently reemployed by the Employer or the close of the first five-year Period of Severance commencing after the distribution, or in the event of a deemed distribution, upon the reemployment of such Former Participant. If a distribution occurs for any reason other than a separation from service, the time for repayment may not end earlier than five (5) years after the date of separation. In the event the Former Participant does repay the full amount distributed to him, or in the event of a deemed distribution, the undistributed portion of the Participant's Account must be restored in full, unadjusted by any gains or losses occurring subsequent to the Anniversary Date or valuation date coinciding with or preceding his termination. The source for such reinstatement shall first be any Forfeitures occurring during the year. If such source is insufficient, then the Employer shall contribute an amount which is sufficient to restore any such forfeited Accounts provided, however, that if a discretionary contribution is made for such year pursuant to Section 4.1(c), such contribution shall first be applied to restore any such Accounts and the remainder shall be allocated in accordance with Section 4.4. (3) If any Former Participant is reemployed after a 1-year Period of Severance has occurred, his Period of Service shall include service prior to his 1-year Period of Severance subject to the following rules: (i) If a Former Participant has a 1-year Period of Severance, his service before and after the Period of Severance shall be used for computing his Period of Service only after he has been employed for a 1-year Period of Service following the date of his reemployment with the Employer; 74 85 (ii) Any Former Participant who under the Plan does not have a nonforfeitable right to any interest in the Plan resulting from Employer contributions shall lose credits otherwise allowable under (i) above if the number of consecutive 1-year Periods of Severance equal or exceed the greater of (A) five (5) or (B) the aggregate number of years in his Period of Service before such Severance; (iii) After a five-year Period of Severance, a Former Participant's Vested Account balance attributable to service before that Period of Severance shall not be increased as a result of service after that Period of Severance. 7.5 DISTRIBUTION OF BENEFITS (a) The Administrator, pursuant to the election of the Participant (or if no election has been made prior to the Participant's death, by his Beneficiary), shall direct the Trustee to distribute to a Participant or his Beneficiary any amount to which he is entitled under the Plan in one lump-sum payment. (b) Any distribution to a Participant who has a benefit which exceeds, or has ever exceeded, $3,500 at the time of any prior distribution shall require such Participant's consent if such distribution occurs prior to the later of his Normal Retirement Age or age 62. With regard to this required consent: (1) The Participant must be informed of his right to defer receipt of the distribution. If a Participant fails to consent, it shall be deemed an election to defer the distribution of any benefit. However, any election to defer the receipt of benefits shall not apply with respect to distributions which are required under Section 7.5(e). (2) Notice of the rights specified under this paragraph shall be provided no less than 30 days and no more than 90 days before the first day on which all events have occurred which entitle the Participant to such benefit. 75 86 (3) Written consent of the Participant to the distribution must not be made before the Participant receives the notice and must not be made more than 90 days before the first day on which all events have occurred which entitle the Participant to such benefit. (4) No consent shall be valid if a significant detriment is imposed under the Plan on any Participant who does not consent to the distribution. (c) Notwithstanding anything herein to the contrary, cash dividends on shares of Company Stock allocable to Participants' Company Stock Accounts may be paid pursuant to Section 4.4(d) to Participants or their Beneficiaries within 90 days after the close of the Plan Year in which the dividend is paid. (d) Any part of a Participant's benefit which is retained in the Plan after the Anniversary Date on which his participation ends will continue to be treated as a Company Stock Account or as an Other Investments Account (subject to Section 7.4(a)) as provided in Article IV. However, neither account will be credited with any further Employer contributions. (e) Notwithstanding any provision in the Plan to the contrary, the distribution of a Participant's benefits made on or after January 1, 1985 shall be made in accordance with the following requirements and shall otherwise comply with Code Section 401(a) (9) and the Regulations thereunder (including Regulation 1.401(a) (9)-2), the provisions of which are incorporated herein by reference: (1) A Participant's benefits shall be distributed to him not later than April 1st of the calendar year following the later of (i) the calendar year in which the Participant attains age 70 1/2 or (ii) the calendar year in which the Participant retires, provided, however, that this clause (ii) shall not apply in the case of a Participant who is a "five (5) percent owner" at any time during the five (5) Plan Year period ending in the calendar year in which he attains age 70 1/2 or, in the case of a Participant who becomes a "five (5) percent owner" during any 76 87 subsequent Plan Year, clause (ii) shall no longer apply and the required beginning date shall be the April 1st of the calendar year following the calendar year in which such subsequent Plan Year ends. Notwithstanding the foregoing, clause (ii) above shall not apply to any Participant unless the Participant had attained age 70 1/2 before January 1, 1988 and was not a "five (5) percent owner" at any time during the Plan Year ending with or within the calendar year in which the Participant attained age 66 1/2 or any subsequent Plan Year. (2) Distributions to a Participant and his Beneficiaries shall only be made in accordance with the incidental death benefit requirements of Code Section 401(a) (9) (G) and the Regulations thereunder. (f) Notwithstanding any provision in the Plan to the contrary, distributions upon the death of a Participant made on or after January l, 1985 shall be made in accordance with the following requirements and shall otherwise comply with Code Section 401(a) (9) and the Regulations thereunder. If it is determined pursuant to Regulations that the distribution of a Participant's interest has begun and the Participant dies before his entire interest has been distributed to him, the remaining portion of such interest shall be distributed at least as rapidly as under the method of distribution selected pursuant to Section 7.5 as of his date of death. If a Participant dies before he has begun to receive any distributions of his interest under the Plan or before distributions are deemed to have begun pursuant to Regulations, then his death benefit shall be distributed to his Beneficiaries by December 31st of the calendar year in which the fifth anniversary of his date of death occurs. (g) Except as limited by Sections 7.5 and 7.6, whenever the Trustee is to make a distribution on or as of an Anniversary Date, the distribution may be made on such date or as soon thereafter as is practicable, but in no event later than 180 days after the Anniversary Date. However, unless a Former Participant elects in writing to-defer the receipt of benefits (such election may not result in a death benefit that is more than incidental), the payment of benefits shall occur not later than the 60th day after the close of the Plan Year in which the latest of the following events occurs: 77 88 (1) the date on which the Participant attains the earlier of age 65 or the Normal Retirement Age specified herein; (2) the 10th anniversary of the year in which the Participant commenced participation in the Plan; or (3) the date the Participant terminates his service with the Employer. (h) The restrictions imposed by this Section shall not apply if a Participant has, prior to January 1, 1984, made a written designation to have his retirement benefit paid in an alternative method acceptable under Code Section 401(a) as in effect prior to the enactment of the Tax Equity and Fiscal Responsibility Act of 1982. Any such written designation made by a Participant shall be binding upon the Plan Administrator notwithstanding any contrary provision of Section 7.5. (i) Subject to the spouse's right of consent afforded under the Plan, the restrictions imposed by this Section shall not apply if a Participant has, prior to January 1, 1984, made a written designation to have his death benefits paid in an alternative method acceptable under Code Section 401(a) as in effect prior to the enactment of the Tax Equity and Fiscal Responsibility Act of 1982. (j) If a distribution is made at a time when a Participant is not fully Vested in his Participant's Account and the Participant may increase the Vested percentage in such account: (1) a separate account shall be established for the Participant's interest in the Plan as of the time of the distribution; and (2) at any relevant time, the Participant's Vested portion of the separate account shall be equal to an amount ("X") determined by the formula: 78 89 X equals P(AB plus (R x D)) - (R x D) For purposes of applying the formula: P is the Vested percentage at the relevant time, AB is the account balance at the relevant time, D is the amount of distribution, and R is the ratio of the account balance at the relevant time to the account balance after distribution. 7.6 HOW PLAN BENEFIT WILL BE DISTRIBUTED (a) Distribution of a Participant's benefit may be made in cash or Company Stock or both, provided, however, that if a Participant or Beneficiary so demands, such benefit (other than Company Stock reinvested pursuant to Section 4.12(a)) shall be distributed only in the form of Company Stock. Prior to making a distribution of benefits, the Administrator shall advise the Participant or his Beneficiary, in writing, of the right to demand that benefits be distributed solely in Company Stock. (b) If a Participant or Beneficiary demands that benefits be distributed solely in Company Stock, distribution of a Participant's benefit will be made entirely in whole shares or other units of Company Stock. Any balance in a Participant's Other Investments Account will be applied to acquire for distribution the maximum number of whole shares or other units of Company Stock at the then fair market value. Any fractional unit value unexpended will be distributed in cash. If Company Stock is not available for purchase by the Trustee, then the Trustee shall hold such balance until Company Stock is acquired and then make such distribution, subject to Sections 7.5(g) and 7.5(e). (c) The Trustee will make distribution from the Trust only on instructions from the Administrator. (d) Notwithstanding anything contained herein to the contrary, if the Employer's charter or by-laws restrict ownership of substantially all shares of Company Stock to Employees and the Trust Fund, as described in Code Section 409(h) (2), the Administrator shall distribute a Participant's Combined Account entirely in cash without granting the Participant the right to demand distribution in shares of Company Stock. 79 90 (e) Except as otherwise provided herein, Company Stock distributed by the Trustee may be restricted as to sale or transfer by the by-laws or articles of incorporation of the Employer, provided restrictions are applicable to all Company Stock of the same class. If a Participant is required to offer the sale of his Company Stock to the Employer before offering to sell his Company Stock to a third party, in no event may the Employer pay a price less than that offered to the distributee by another potential buyer making a bona fide offer and in no event shall the Trustee pay a price less than the fair market value of the Company Stock. (f) If Company Stock acquired with the proceeds of an Exempt Loan (described in Section 5.3 hereof) is available for distribution and consists of more than one class, a Participant or his Beneficiary must receive substantially the same proportion of each such class. 7.7 DISTRIBUTION FOR MINOR BENEFICIARY In the event a distribution is to be made to a minor, then the Administrator may direct that such distribution be paid to the legal guardian, or if none, to a parent of such Beneficiary or a responsible adult with whom the Beneficiary maintains his residence, or to the custodian for such Beneficiary under the Uniform Gift to Minors Act or Gift to Minors Act, if such is permitted by the laws of the state in which said Beneficiary resides. Such a payment to the legal guardian, custodian or parent of a minor Beneficiary shall fully discharge the Trustee, Employer, and Plan from further liability on account thereof. 7.8 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN In the event that all, or any portion, of the distribution payable to a Participant or his Beneficiary hereunder shall, at the later of the Participant's attainment of age 62 or his Normal Retirement Age, remain unpaid solely by reason of the inability of the Administrator, after sending a registered letter, return receipt requested, to the last known address, and after further diligent effort, to ascertain the whereabouts of such Participant or his Beneficiary, the amount so distributable shall be treated as a Forfeiture pursuant to the Plan. In the event a Participant or Beneficiary is located subsequent to his benefit being reallocated, such benefit shall be restored. 80 91 7.9 RIGHT OF FIRST REFUSALS (a) If any Participant, his Beneficiary or any other person to whom shares of Company Stock are distributed from the Plan (the "Selling Participant") shall, at any time, desire to sell some or all of such shares (the "Offered Shares") to a third party (the "Third Party"), the Selling Participant shall give written notice of such desire to the Employer and the Administrator, which notice shall contain the number of shares offered for sale, the proposed terms of the sale and the names and addresses of both the Selling Participant and Third Party. Both the Trust Fund and the Employer shall each have the right of first refusal for a period of fourteen (14) days from the date the Selling Participant gives such written notice to the Employer and the Administrator (such fourteen (14) day period to run concurrently against the Trust Fund and the Employer) to acquire the Offered Shares. As between the Trust Fund and the Employer, the Trust Fund shall have priority to acquire the shares pursuant to the right of first refusal. The selling price and terms shall be the same as offered by the Third Party. (b) If the Trust Fund and the Employer do not exercise their right of first refusal within the required fourteen (14) day period provided above, the Selling Participant shall have the right, at any time following the expiration of such fourteen (14) day period, to dispose of the Offered Shares to the Third Party; provided, however, that (i) no disposition shall be made to the Third Party on terms more favorable to the Third Party than those set forth in the written notice delivered by the Selling Participant above, and (ii) if such disposition shall not be made to a third party on the terms offered to the Employer and the Trust Fund, the offered Shares shall again be subject to the right of first refusal set forth above. (c) The closing pursuant to the exercise of the right of first refusal under Section 7.9(a) above shall take place at such place agreed upon between the Administrator and the Selling Participant, but not later than ten (10) days after the Employer or the Trust Fund shall have notified the Selling Participant of the exercise of the right of first refusal. At such closing, the Selling Participant shall deliver certificates representing the Offered Shares duly endorsed in blank for transfer, or with stock powers 81 92 attached duly executed in blank with all required transfer tax stamps attached or provided for, and the Employer or the Trust Fund shall deliver the purchase price, or an appropriate portion thereof, to the Selling Participant. (d) Except as provided in this paragraph (d), no Company Stock acquired with the proceeds of an Exempt Loan complying with the requirements of Section 5.3 hereof shall be subject to a right of first refusal. Company Stock acquired with the proceeds of an Exempt Loan, which is distributed to a Participant or Beneficiary, shall be subject to the right of first refusal provided for in paragraph (a) of this Section only so long as the Company Stock is not publicly traded. The term "publicly traded" refers to a securities exchange registered under Section 6 of the Securities Exchange Act of 1934 (15 U.S.C. 78f) or that is quoted on a system sponsored by a national securities association registered under Section 15A (b) of the Securities Exchange Act (15 U.S.C. 780). In addition, in the case of Company Stock which was acquired with the proceeds of a loan described in Section 5.3, the selling price and other terms under the right must not be less favorable to the seller than the greater of the value of the security determined under Regulation 54.4975-11(d) (5), or the purchase price and other terms offered by a buyer (other than the Employer or the Trust Fund), making a good faith offer to purchase the security. The right of first refusal must lapse no later than fourteen (14) days after the security holder gives notice to the holder of the right that an offer by a third party to purchase the security has been made. The right of first refusal shall comply with the provisions of paragraphs (a), (b) and (c) of this Section, except to the extent those provisions may conflict with the provisions of this paragraph. 7.10 STOCK CERTIFICATE LEGEND Certificates for shares distributed pursuant to the Plan shall contain the following legend: "The shares represented by this certificate are transferable only upon compliance with the terms of HOME SHOPPING NETWORK, INC. RETIREMENT SAVINGS AND EMPLOYEE STOCK OWNERSHIP PLAN effective as of February 1, 1990, which grants to Home Shopping Network, Inc. a right of first refusal, a copy of said Plan being on file in the office of the Company." 82 93 7.11 PUT OPTION (a) If Company Stock which was not acquired with the proceeds of an Exempt Loan is distributed to a Participant and such Company Stock is not readily tradeable on an established securities market, a Participant has a right to require the Employer to repurchase the Company Stock distributed to such Participant under a fair valuation formula. Such Stock shall be subject to the provisions of Section 7.11(c). (b) Company Stock which is acquired with the proceeds of an Exempt Loan and which is not publicly traded when distributed, or if it is subject to a trading limitation when distributed, must be subject to a put option. For purposes of this paragraph, a "trading limitation" on a Company Stock is a restriction under any Federal or State securities law or any regulation thereunder, or an agreement (not prohibited by Section 7.12) affecting the Company Stock which would make the Company Stock not as freely tradeable as stock not subject to such restriction. (c) The put option must be exercisable only by a Participant, by the Participant's donees, or by a person (including an estate or its distributee) to whom the Company Stock passes by reason of a Participant's death. (Under this paragraph Participant or Former Participant means a Participant or Former Participant and the beneficiaries of the Participant or Former Participant under the Plan.) The put option must permit a Participant to put the Company Stock to the Employer. Under no circumstances may the put option bind the Plan. However, it shall grant the Plan an option to assume the rights and obligations of the Employer at the time that the put option is exercised. If it is known at the time a loan is made that Federal or State law will be violated by the Employer's honoring such put option, the put option must permit the Company Stock to be put, in a manner consistent with such law, to a third party (e.g., an affiliate of the Employer or a shareholder other than the Plan) that has substantial net worth at the time the loan is made and whose net worth is reasonably expected to remain substantial. The put option shall commence as of the day following the date the Company Stock is distributed to the Former Participant and end 60 days thereafter and if not exercised within such 60-day period, an additional 60-day option shall commence on the first 83 94 day of the fifth month of the Plan Year next following the date the stock was distributed to the Former Participant (or such other 60-day period as provided in regulations promulgated by the Secretary of the Treasury). However, in the case of Company Stock that is publicly traded without restrictions when distributed but ceases to be so traded within either of the 60-day periods described herein after distribution, the Employer must notify each holder of such Company Stock in writing on or before the tenth day after the date the Company Stock ceases to be so traded that for the remainder of the applicable 60-day period the Company Stock is subject to the put option. The number of days between the tenth day and the date on which notice is actually given, if later than the tenth day, must be added to the duration of the put option. The notice must inform distributees of the term of the put options that they are to hold. The terms must satisfy the requirements of this paragraph. The put option is exercised by the holder notifying the Employer in writing that the put option is being exercised; the notice shall state the name and address of the holder and the number of shares to be sold. The period during which a put option is exercisable does not include any time when a distributee is unable to exercise it because the party bound by the put option is prohibited from honoring it by applicable Federal or State law. The price at which a put option must be exercisable is the value of the Company Stock determined in accordance with Section 6.2. Payment under the put option involving a "Total Distribution" shall be paid in substantially equal monthly, quarterly, semiannual or annual installments over a period certain beginning not later than thirty (30) days after the exercise of the put option and not extending beyond (5) years. The deferral of payment is reasonable if adequate security and a reasonable interest rate on the unpaid amounts are provided. The amount to be paid under the put option involving installment distributions must be paid not later than thirty (30) days after the exercise of the put option. Payment under a put option must not be restricted by the provisions of a loan or any other arrangement, including the terms of the Employer's articles of incorporation, unless so required by applicable state law. 84 95 For purposes of this Section, "Total Distribution" means a distribution to a Participant or his Beneficiary within one taxable year of the entire Vested Participant's Combined Account. (d) An arrangement involving the Plan that creates a put option must not provide for the issuance of put options other than as provided under this Section. The Plan (and the Trust Fund) must not otherwise obligate itself to acquire Company Stock from a particular holder thereof at an indefinite time determined upon the happening of an event such as the death of the holder. 7.12 NONTERMINABLE PROTECTIONS AND RIGHTS No Company Stock, except as provided in Section 7.9(d) and Section 7.11(b), acquired with the proceeds of a loan described in Section 5.3 hereof may be subject to a put, call, or other option, or buy-sell or similar arrangement when held by and when distributed from the Trust Fund, whether or not the Plan is then an ESOP. The protections and rights granted in this Section are nonterminable, and such protections and rights shall continue to exist under the terms of this Plan so long as any Company Stock acquired with the proceeds of a loan described in Section 5.3 hereof is held by the Trust Fund or by any Participant or other person for whose benefit such protections and rights have been created, and neither the repayment of such loan nor the failure of the Plan to be an ESOP, nor an amendment of the Plan shall cause a termination of said protections and rights. 7.13 PRE-RETIREMENT DISTRIBUTION At such time as a Participant shall have attained the age of 59 1/2 years, the Administrator, at the election of the Participant, shall direct the Trustee to distribute all or a portion of the amount then credited to the accounts maintained on behalf of the Participant. However, no distribution from the Participant's Account shall occur prior to 100% vesting. In the event that the Administrator makes such a distribution, the Participant shall continue to be eligible to participate in the Plan on the same basis as any other Employee. Any distribution made pursuant to this Section shall be made in a manner consistent with Sections 7.5 and 7.6, including, but not limited to, all notice and consent requirements of Code Section 411(a) (11) and the Regulations thereunder. Notwithstanding the above, pre-retirement distributions from a Participant's Elective Account shall not be permitted prior to the Participant attaining age 59 1/2 except as otherwise permitted under the terms of the Plan. 85 96 7.14 ADVANCE DISTRIBUTION FOR HARDSHIP (a) The Administrator, at the election of the Participant, shall direct the Trustee to distribute to any Participant in any one Plan Year up to the lesser of 100% of his Participant's Elective Account valued as of the last Anniversary Date or other valuation date or the amount necessary to satisfy the immediate and heavy financial need of the Participant. Any distribution made pursuant to this Section shall be deemed to be made as of the first day of the Plan Year or, if later, the valuation date immediately preceding the date of distribution, and the Participant's Elective Account shall be reduced accordingly. The determination of whether an immediate and heavy financial need exists shall be based on all relevant facts and circumstances. A need shall not be disqualified because it was reasonably foreseeable or voluntarily incurred. Withdrawal under this Section shall be authorized, for example, if the distribution is on account of: (1) Medical expenses described in Code Section 213(d) incurred by the Participant, his spouse, or any of his dependents (as defined in Code Section 152); (2) Funeral expenses for a member of the Participant's family; (3) The purchase (excluding mortgage payments) of a principal residence for the Participant; (4) Payment of tuition for the next semester or quarter of post-secondary education for the Participant, his spouse, children, or dependents; or (5) The need to prevent the eviction of the Participant from his principal residence or foreclosure on the mortgage of the Participant's principal residence. (b) No distribution shall be made pursuant to this Section unless the Administrator determines that either the "Safe Harbor Resources Test" or the "Facts and Circumstances Resources Test" is satisfied. The "Safe Harbor Resources Test" is not satisfied unless the Administrator, based upon the Participant's representation and such other facts as are known to the Administrator, determines that all of the following conditions are satisfied: 86 97 (1) The distribution is not in excess of the amount of the immediate and heavy financial need of the Participant; (2) The Participant has obtained all distributions, other than hardship distributions, and all nontaxable loans currently available under all plans maintained by the Employer; (3) The Plan, and all other plans maintained by the Employer, provide that the Participant's elective deferrals and voluntary Employee contributions will be suspended for at least twelve (12) months after receipt of the hardship distribution; and (4) The Plan, and all other plans maintained by the Employer, provide that the Participant may not make elective deferrals for the Participant's taxable year immediately following the taxable year of the hardship distribution in excess of the applicable limit under Code Section 402(g) for such next taxable year less the amount of such Participant's elective deferrals for the taxable year of the hardship distribution. (c) The "Facts and Circumstances Resources Test" is not satisfied unless the Administrator determines, based upon all relevant facts and circumstances, that the amount to be distributed is not in excess of the amount required to relieve the financial need and that such need cannot be satisfied from other resources reasonably available to the Participant. For this purpose, the Participant's resources shall be deemed to include those assets of his spouse and minor children that are reasonably available to the Participant. A distribution may be treated as necessary to satisfy a financial need if the Administrator relies upon the Participant's representation that the need cannot be relieved: (1) Through reimbursement or compensation by insurance or otherwise; (2) By reasonable liquidation of the Participant's assets, to the extent such liquidation would not itself cause an immediate and heavy financial need; 87 98 (3) By cessation of elective deferrals under the Plan; or (4) By other distributions or loans from any other qualified retirement plan, or by borrowing from commercial sources on reasonable commercial terms. (d) Notwithstanding the above, for Plan Years beginning after December 31, 1988, distributions from the Participant's Elective Account pursuant to this Section shall be limited solely to the Participant's Deferred Compensation and any income allocable thereto credited to the Participant's Elective Account as of December 31, 1988. (e) Any distribution made pursuant to this Section shall be made in a manner which is consistent with and satisfies the provisions of Sections 7.5 and 7.6, including, but not limited to, all notice and consent requirements of Code Section 411(a) (11) and the Regulations thereunder. 7.15 LIMITATIONS ON BENEFITS AND DISTRIBUTIONS All rights and benefits, including elections, provided to a Participant in this Plan shall be subject to the rights afforded to any "alternate payee" under a "qualified domestic relations order." Furthermore, a distribution to an "alternate payee" shall be permitted if such distribution is authorized by a "qualified domestic relations order," even if the affected Participant has not reached the "earliest retirement age" under the Plan. For the purposes of this Section, "alternate payee," "qualified domestic relations order" and "earliest retirement age" shall have the meaning set forth under Code Section 414 (p). ARTICLE VIII AMENDMENT, TERMINATION AND MERGERS 8.1 AMENDMENT (a) The Employer shall have the right at any time to amend the Plan, subject to the limitations of this Section. However, any amendment which affects the rights, duties or responsibilities of the Trustee and Administrator may only be made with the Trustee's and Administrator's written consent. Any such amendment shall become effective as provided therein upon its execution. The Trustee shall not be required to execute any such amendment unless the Trust provisions contained herein are a part of the Plan and the amendment affects the duties of the Trustee hereunder. 88 99 (b) No amendment to the Plan shall be effective if it authorizes or permits any part of the Trust Fund (other than such part as is required to pay taxes and administration expenses) to be used for or diverted to any purpose other than for the exclusive benefit of the Participants or their Beneficiaries or estates; or causes any reduction in the amount credited to the account of any Participant; or causes or permits any portion of the Trust Fund to revert to or become property of the Employer. (c) Except as permitted by Regulations, no Plan amendment or transaction having the effect of a Plan amendment (such as a merger, plan transfer or similar transaction) shall be effective if it eliminates or reduces any "Section 411(d) (6) protected benefit" or adds or modifies conditions relating to "Section 411(d) (6) protected benefits" the result of which is a further restriction on such benefit unless such protected benefits are preserved with respect to benefits accrued as of the later of the adoption date or effective date of the amendment. "Section 411(d) (6) protected benefits" are benefits described in Code Section 411 (d) (6) (A), early retirement benefits and retirement-type subsidies, and optional forms of benefit. In addition, no such amendment shall have the effect of terminating the protections and rights set forth in Section 7.12, unless such termination shall then be permitted under the applicable provisions of the Code and Regulations; such a termination is currently expressly prohibited by Regulation 54.4975-11(a) (3) (ii). 8.2 TERMINATION (a) The Employer shall have the right at any time to terminate the Plan by delivering to the Trustee and Administrator written notice of such termination. Upon any full or partial termination, all amounts credited to the affected Participants' Combined Accounts shall become 100% Vested as provided in Section 7.4 and shall not thereafter be subject to forfeiture, and all unallocated amounts shall be allocated to the accounts of all Participants in accordance with the provisions hereof. 89 100 (b) Upon the full termination of the Plan, the Employer shall direct the distribution of the assets of the Trust Fund to Participants in a manner which is consistent with and satisfies the provisions of Sections 7.5 and 7.6. Except as permitted by Regulations, the termination of the Plan shall not result in the reduction of "Section 411(d) (6) protected benefits" in accordance with Section 8.1(c). 8.3 MERGER OR CONSOLIDATION This Plan and Trust may be merged or consolidated with, or its assets and/or liabilities may be transferred to any other plan and trust only if the benefits which would be received by a Participant of this Plan, in the event of a termination of the plan immediately after such transfer, merger or consolidation, are at least equal to the benefits the Participant would have received if the Plan had terminated immediately before the transfer, merger or consolidation, and such transfer, merger or consolidation does not otherwise result in the elimination or reduction of any "Section 411(d) (6) protected benefits" in accordance with Section 8.1(c). ARTICLE IX MISCELLANEOUS 9.1 PARTICIPANT'S RIGHTS This Plan shall not be deemed to constitute a contract between the Employer and any Participant or to be a consideration or an inducement for the employment of any Participant or Employee. Nothing contained in this Plan shall be deemed to give any Participant or Employee the right to be retained in the service of the Employer or to interfere with the right of the Employer to discharge any Participant or Employee at any time regardless of the effect which such discharge shall have upon him as a Participant of this Plan. 9.2 ALIENATION (a) Subject to the exceptions provided below, no benefit which shall be payable out of the Trust Fund to any person (including a Participant or his Beneficiary) shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or charge, and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, or charge the same shall be void; and no such benefit shall in any manner be liable for, or subject to, the debts, contracts, liabilities, engagements, or torts of any such person, nor shall it be subject to attachment 90 101 or legal process for or against such person, and the same shall not be recognized by the Trustee, except to such extent as may be required by law. (b) This provision shall not apply to the extent a Participant or Beneficiary is indebted to the Plan, as a result of a loan from the Plan. At the time a distribution is to be made to or for a Participant's or Beneficiary's benefit, such proportion of the amount distributed as shall equal such loan indebtedness shall be paid by the Trustee to the Trustee or the Administrator, at the direction of the Administrator, to apply against or discharge such loan indebtedness. Prior to making a payment, however, the Participant or Beneficiary must be given written notice by the Administrator that such loan indebtedness is to be so paid in whole or part from his Participant's Combined Account. If the Participant or Beneficiary does not agree that the loan indebtedness is a valid claim against his Vested Participant's Combined Account, he shall be entitled to a review of the validity of the claim in accordance with procedures provided in Sections 2.12 and 2.13. (c) This provision shall not apply to a "qualified domestic relations order" defined in Code Section 414(p), and those other domestic relations orders permitted to be so treated by the Administrator under the provisions of the Retirement Equity Act of 1984. The Administrator shall establish a written procedure to determine the qualified status of domestic relations orders and to administer distributions under such qualified orders. Further, to the extent provided under a "qualified domestic relations order", a former spouse of a Participant shall be treated as the spouse or surviving spouse for all purposes under the Plan. 9.3 CONSTRUCTION OF PLAN This Plan and Trust shall be construed and enforced according to the Act and the laws of the State of Florida, other than its laws respecting choice of law, to the extent not preempted by the Act. 9. 4 GENDER AND NUMBER Wherever any words are used herein in the masculine, feminine or neuter gender, they shall be construed as though they were also used in another gender in all cases where they would so apply, and whenever any words are used herein in the singular or plural form, they shall be construed as though they were also used in the other form in all cases where they would so apply. 91 102 9.5 LEGAL ACTION In the event any claim, suit, or proceeding is brought regarding the Trust and/or Plan established hereunder to which the Trustee or the Administrator may be a party, and such claim, suit, or proceeding is resolved in favor of the Trustee or Administrator, they shall be entitled to be reimbursed from the Trust Fund for any and all costs, attorney's fees, and other expenses pertaining thereto incurred by them for which they shall have become liable. 9.6 PROHIBITION AGAINST DIVERSION OF FUNDS (a) Except as provided below and otherwise specifically permitted by law, it shall be impossible by operation of the Plan or of the Trust, by termination of either, by power of revocation or amendment, by the happening of any contingency, by collateral arrangement or by any other means, for any part of the corpus or income of any trust fund maintained pursuant to the Plan or any funds contributed thereto to be used for, or diverted to, purposes other than the exclusive benefit of Participants, Retired Participants, or their Beneficiaries. (b) In the event the Employer shall make an excessive contribution under a mistake of fact pursuant to Act Section 403(c) (2) (A), the Employer may demand repayment of such excessive contribution at any time within one (1) year following the time of payment and the Trustees shall return such amount to the Employer within the one (1) year period. Earnings of the Plan attributable to the excess contributions may not be returned to the Employer but any losses attributable thereto must reduce the amount so returned. 9.7 BONDING Every Fiduciary, except a bank or an insurance company, unless exempted by the Act and regulations thereunder, shall be bonded in an amount not less than 10% of the amount of the funds such Fiduciary handles; provided, however, that the minimum bond shall be $1,000 and the maximum bond, $500,000. The amount of funds handled shall be determined at the beginning of each Plan Year by the amount of funds handled by such person, group, or class to be covered and their predecessors, if any, during the preceding Plan Year, or if there is no preceding Plan Year, then by the amount of the funds to be handled during the then current year. The bond shall provide protection to the Plan against any loss by reason of acts of fraud or dishonesty by the Fiduciary alone or in connivance with others. The surety shall be a 92 103 corporate surety company (as such term is used in Act Section 412(a) (2)), and the bond shall be in a form approved by the Secretary of Labor. Notwithstanding anything in the Plan to the contrary, the cost of such bonds shall be an expense of and may, at the election of the Administrator, be paid from the Trust Fund or by the Employer. 9.8 EMPLOYER'S AND TRUSTEE'S PROTECTIVE CLAUSE Neither the Employer nor the Trustee, nor their successors, shall be responsible for the validity of any Contract issued hereunder or for the failure on the part of the insurer to make payments provided by any such Contract, or for the action of any person which may delay payment or render a Contract null and void or unenforceable in whole or in part. 9.9 INSURER'S PROTECTIVE CLAUSE Any insurer who shall issue Contracts hereunder shall not have any responsibility for the validity of this Plan or for the tax aspects of this Plan. The insurer shall be protected in acting in accordance with any written direction of the Trustee, and shall have no duty to see to the application of any funds paid to the Trustee, nor be required to question any actions directed by the Trustee. Regardless of any provision of this Plan, the insurer shall not be required to take or permit any action or allow any benefit or privilege contrary to the terms of any Contract which it issues hereunder, or the rules of the insurer. 9.10 RECEIPT AND RELEASE FOR PAYMENTS Any payment to any Participant, his legal representative, Beneficiary, or to any guardian or committee appointed for such Participant or Beneficiary in accordance with the provisions of the Plan, shall, to the extent thereof, be in full satisfaction of all claims hereunder against the Trustee and the Employer, either of whom may require such Participant, legal representative, Beneficiary, guardian or committee, as a condition precedent to such payment, to execute a receipt and release thereof in such form as shall be determined by the Trustee or Employer. 9.11 ACTION BY THE EMPLOYER Whenever the Employer under the terms of the Plan is permitted or required to do or perform any act or matter or thing, it shall be done and performed by a person duly authorized by its legally constituted authority. 93 104 9.12 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY The "named Fiduciaries" of this Plan are (1) the Employer, (2) the Administrator and (3) the Trustee. The named Fiduciaries shall have only those specific powers, duties, responsibilities, and obligations as are specifically given them under the Plan. In general, the Employer shall have the sole responsibility for making the contributions provided for under Section 4.1; and shall have the sole authority to appoint and remove the Trustee and the Administrator; to formulate the Plan's "funding policy and method"; and to amend or terminate, in whole or in part, the Plan. The Administrator shall have the sole responsibility for the administration of the Plan, which responsibility is specifically described in the Plan. The Trustee shall have the sole responsibility of management of the assets held under the Trust, except those assets, the management of which has been assigned to an Investment Manager, who shall be solely responsible for the management of the assets assigned to it, all as specifically provided in the Plan. Each named Fiduciary warrants that any directions given, information furnished, or action taken by it shall be in accordance with the provisions of the Plan, authorizing or providing for such direction, information or action. Furthermore, each named Fiduciary may rely upon any such direction, information or action of another named Fiduciary as being proper under the Plan, and is not required under the Plan to inquire into the propriety of any such direction, information or action. It is intended under the Plan that each named Fiduciary shall be responsible for the proper exercise of its own powers, duties, responsibilities and obligations under the Plan. No named Fiduciary shall guarantee the Trust Fund in any manner against investment loss or depreciation in asset value. Any person or group may serve in more than one Fiduciary capacity. In the furtherance of their responsibilities hereunder, the "named Fiduciaries" shall be empowered to interpret the Plan and Trust and to resolve ambiguities, inconsistencies and omissions, which findings shall be binding, final and conclusive. 9.13 HEADINGS The headings and subheadings of this Plan have been inserted for convenience of reference and are to be ignored in any construction of the provisions hereof. 94 105 9.14 APPROVAL BY INTERNAL REVENUE SERVICE (a) Notwithstanding anything herein to the contrary, contributions to this Plan are conditioned upon the initial qualification of the Plan under Code Section 401. If the Plan receives an adverse determination with respect to its initial qualification, then the Plan may return such contributions to the Employer within one year after such determination, provided the application for the determination is made by the time prescribed by law for filing the Employer's return for the taxable year in which the Plan was adopted, or such later date as the Secretary of the Treasury may prescribe. (b) Notwithstanding any provisions to the contrary, except Sections 3.6, 3.7, and 4.1(e), any contribution by the Employer to the Trust Fund is conditioned upon the deductibility of the contribution by the Employer under the Code and, to the extent any such deduction is disallowed, the Employer may, within one (1) year following the disallowance of the deduction, demand repayment of such disallowed contribution and the Trustee shall return such contribution within one (1) year following the disallowance. Earnings of the Plan attributable to the excess contribution may not be returned to the Employer, but any losses attributable thereto must reduce the amount so returned. 9.15 UNIFORMITY All provisions of this Plan shall be interpreted and applied in a uniform, nondiscriminatory manner. In the event of any conflict between the terms of this Plan and any Contract purchased hereunder, the Plan provisions shall control. 9.16 SECURITIES AND EXCHANGE COMMISSION APPROVAL The Employer may request an interpretative letter from the Securities and Exchange Commission stating that the transfers of Company Stock contemplated hereunder do not involve transactions requiring a registration of such Company Stock under the Securities Act of 1933. In the event that a favorable interpretative letter is not obtained, the Employer reserves the right to amend the Plan and Trust retroactively to their Effective Dates in order to obtain a favorable interpretative letter or to terminate the Plan. 95 106 9.17 VOTING COMPANY STOCK The Trustee shall vote all Company Stock held by it as part of the Plan assets. Provided, however, that if any agreement entered into by the Trust provides for voting of any shares of Company Stock pledged as security for any obligation of the Plan, then such shares of Company Stock shall be voted in accordance with such agreement. The Trustee shall not vote Company Stock which a Participant or Beneficiary is authorized to vote, pursuant to this Section, but which right he fails to exercise. Notwithstanding the foregoing, if the Employer has a registration-type class of securities, each Participant or Beneficiary shall be entitled to direct the Trustee as to the manner in which the Company Stock which is allocated to the Company Stock Account of such Participant or Beneficiary is to be voted. If the Employer does not have a registration-type class of securities, each Participant or Beneficiary in the Plan shall be entitled to direct the Trustee as to the manner in which voting rights on shares of Company Stock which are allocated to the Company Stock Account of such Participant or Beneficiary are to be exercised with respect to any corporate matter which involves the voting of such shares with respect to the approval or disapproval of any corporate merger or consolidation, recapitalization, reclassification, liquidation, dissolution, sale of substantially all assets of a trade or business, or such similar transaction as prescribed in Regulations. For purposes of this Section the term "registration-type class of securities" means: (A) a class of securities required to be registered under Section 12 of the Securities Exchange Act of 1934; and (B) a class of securities which would be required to be so registered except for the exemption from registration provided in subsection (g) (2) (H) of such Section 12. If the Employer does not have a registration-type class of securities and the by-laws of the Employer require the Plan to vote on an issue in a manner that reflects a one-man, one-vote philosophy, each Participant or Beneficiary shall be entitled to cast one vote on an issue and the Trustee shall vote the shares held by the Plan in proportion to the results of the votes cast on the issue by the Participants and Beneficiaries. 96 107 9.17 VOTING COMPANY STOCK The Trustee shall vote all Company Stock held by it as part of the Plan assets. Provided, however, that if any agreement entered into by the Trust provides for voting of any shares of Company Stock pledged as security for any obligation of the Plan, then such shares of Company Stock shall be voted in accordance with such agreement. The Trustee shall not vote Company Stock which a Participant or Beneficiary, pursuant to this Section, fails to exercise. Notwithstanding the foregoing, if the Employer has a registration-type class of securities, each Participant or Beneficiary shall be entitled to direct the Trustees as to the manner in which the Company Stock which is allocated to the Company Stock Account of such Participant or Beneficiary is to be voted. If the Employer does not have a registration-type class of securities, each Participant or Beneficiary in the Plan shall be entitled to direct the Trustee as to the manner in which voting rights on shares of Company Stock which are allocated to the Company Stock Account of such Participant or Beneficiary are to be exercised with respect to any corporate matter which involves the voting of such shares with respect to the approval or disapproval of any corporate merger or consolidation, recapitalization, reclassification, liquidation, dissolution, sale of substantially all assets of a trade or business, or such similar transaction as prescribed in Regulations. For purposes of this Section the term "registration-type class of securities" means: (A) a class of securities required to be registered under Section 12 of the Securities Exchange Act of 1934; and (B) a class of securities which would be required to be so registered except for the exemption from registration provided in subsection (g) (2) (H) of such Section 12. If the Employer does not have a registration-type class of securities and the by-laws of the Employer require the Plan to vote an issue in a manner that reflects a one-man, one-vote philosophy, each Participant or Beneficiary shall be entitled to cast one vote on an issue and the Trustee shall vote the shares held by the Plan in proportion to the results of the votes cast on the issue by the Participants and Beneficiaries. 96 108 IN WITNESS WHEREOF, this Plan has been executed the day and year first above written. Home Shopping Network, Inc. By ------------------------ EMPLOYER ATTEST -------------------- 97 109 First Amendment To Home Shopping Network, Inc. Retirement Savings and Employee Stock ownership Plan THIS First Amendment to the Home Shopping Network, Inc. Retirement Savings and Employee Stock ownership Plan is hereby entered into by Home Shopping Network, Inc., a Delaware corporation, as Employer. WHEREAS, by Agreement effective February 1, 1990, the Employer did adopt the Home Shopping Network, Inc. Retirement Savings and Employee Stock ownership Plan; and WHEREAS, the Employer now desires to amend the Plan to include overtime in the definition of compensation, to change the definition of "Eligible Employee," to allow Rollover Accounts to be available for hardship withdrawals, to clarify how a Terminated Participants accounts will be valued upon condition that such amendment does not cause the tax-exempt status of the Plan to be revoked by the Internal Revenue service. NOW THEREFORE, in consideration of the premises and the covenants and conditions hereinafter set forth, it is agreed as follows: Pages 2, 4, 71, 72 and 86 shall be removed and replaced by the revised pages 2, 4, 71, 72, and 86 attached hereto. IN WITNESS WHEREOF, this First Amendment to Home Shopping Network, Inc. Retirement Savings and Employee Stock Ownership Plan has been executed on the date indicated below, but effective for all purposes as of January 1, 1992. Home Shopping Network, Inc. Employer Attest: By: ------------------- By: Date: 3/17/92 ------------------------ ------------------- Secretary 110 Noncallable preferred stock shall be deemed to be "Company Stock" if such stock is convertible at any time into stock which constitutes "Company Stock" hereunder and If such conversion is at a conversion price which (as of the date of the acquisition by the Trust) is reasonable. For purposes of the preceding sentence, pursuant to Regulations, preferred stock shall be treated as noncallable if after the call there will be a reasonable opportunity for a conversion which meets the requirements of the preceding sentence. 1.10 "Company Stock Account" means the account established pursuant to Section 4.1(b) to receive matching contributions and which is intended to be invested primarily in Company Stock. A separate accounting shall be maintained with respect to that portion of the Company Stock Account attributable to Elective Contributions and Non-Elective Contributions. 1.11 "Compensation" with respect to any Participant means such Participant's total salary and wages paid by the Employer for a Plan Year, including overtime, but excluding commissions and bonuses. Amounts contributed by the Employer under the within Plan, except for an Employee's Compensation that is deferred pursuant to Section 4.2, and any non-taxable fringe benefits shall not be considered as Compensation. For purposes of this Section, the determination of Compensation shall be made by including salary reduction contributions made on behalf of an Employee to a plan maintained under Code Section 125. For a Participant's initial year of participation, Compensation shall be recognized for the entire Plan Year. Compensation in excess of $200,000 shall be disregarded. Such amount shall be adjusted at the same time and in such manner as permitted under Code Section 415(d). In applying this limitation, the family group of a Highly Compensated Participant who is subject to the Family Member aggregation rules of Code Section 414 (q)(6) because such Participant is either a "five percent owner" of the Employer or one of the ten (10) Highly Compensated Employees paid the greatest "415 compensation" during the year, shall be treated as a single Participant, except that for this purpose Family Members shall include only the affected Participant's spouse and any lineal descendants who have not attained age nineteen (19) before the close of the year. If, as a result of the application of such rules the adjusted $200,000 limitation is exceeded, then the First Amendment Effective: January 1, 1992 2 111 1.17 "Eligible Employee" means any Employee. Employees whose employment is governed by the terms of a collective bargaining agreement between Employee representatives (within the meaning of code section 7701(a)(46) and the Employer under which retirement benefits were the subject of good faith bargaining between the parties, unless such agreement expressly provides for such coverage in this Plan, will not be eligible to participate in this Plan. 1.18 "Employee" means any person who is employed by the Employer or affiliated Employer, but excludes any person who is an independent contractor. Employee shall include Leased Employees within the meaning of code sections 414(n)(2) and 414(o)(2) unless such Leased Employees are covered by a plan described in Code section 414(n)(5) and such Leased Employees do not constitute more than 20% of the recipient's non-highly compensated work force. 1.19 "Employer" means Home shopping Network, Inc. and any successor which shall maintain this Plan; and any predecessors which has maintained this Plan. The Employer is a corporation with principal offices in the state of Florida. 1.20 "Excess Aggregate Contributions" means, with respect to any Plan Year, the excess of the aggregate amount of the Employer matching contributions made pursuant to Section 4.1(b) and any qualified non-elective contributions or elective deferrals taken into account pursuant to Section 4.7(c) on behalf of Highly compensated participants for such Plan Year, over the maximum amount of such contributions permitted under the limitations of Section 4.7(a). 1.21 "Excess Contributions" means, with respect to a Plan Year, the excess of Elective contributions made on behalf of Highly compensated Participants for the Plan Year over the maximum amount of such contributions permitted under section 4.5(a). Excess contributions shall be treated as an "annual addition" pursuant to section 4.9(b). 1.22 "Excess Deferred Compensation" means, with respect to any taxable year of a participant, the excess of the aggregate amount of such participant's Deferred compensation and the elective deferrals pursuant to Section 4.2(f) actually made on behalf of such participant for such taxable year, over the dollar limitation provided for in Code Section 402(g), which is incorporated herein by reference. Excess deferred compensation shall be treated as an "annual addition" pursuant to Section First Amendment Effective: January 1, 1992 4 112 7.4 DETERMINATION OF BENEFITS UPON TERMINATION (a) On or before the Anniversary Date coinciding with or subsequent to the termination of a Participant's employment for any reason other than death, Total and Permanent Disability or retirement, the Administrator may direct the Trustee to segregate the amount of the Vested portion of such Terminated Participant's Combined Account and invest the aggregate amount thereof in a separate, federally insured savings account, certificate of deposit, common or collective trust fund of a bank or a deferred annuity. In the event the Vested portion of a Participant's Combined Account is not segregated, the amount shall remain in a separate account for the Terminated Participant and share in allocations pursuant to Section 4.4 until such time as a distribution is made to the Terminated Participant. If a portion of a Participant's Account is forfeited, Company Stock allocated to the Participant's Company Stock Account must be forfeited only after the Participant's Other Investment Account has been depleted. If interest in more than one class of Company Stock has been allocated to a Participant's Account, the Participant must be treated as forfeiting the same proportion of each such class. Distribution of the funds due to a Terminated Participant shall be made on the occurrence of an event which would result in the distribution had the Terminated Participant remained in the employ of the Employer (upon the Participant's death, Total and Permanent Disability, Early or Normal Retirement). However, at the election of the Participant, the Administrator shall direct the Trustee to cause the entire Vested portion of the Terminated Participant's Combined Account to be payable to such Terminated Participant. Distribution to a Participant shall not include any Common Stock acquired with the proceeds of an Exempt Loan until the close of the Plan Year in which such loan is repaid in full. Any distribution under this paragraph shall be made in a manner which is consistent with and satisfies the provisions of Section 7.5 and 7.6, including, but not limited to, all notice and consent requirements of Code Section 411(a)(11) and the Regulations thereunder. The Participant will be entitled to the Vested balance of his account valued as of the valuation date following his date of termination. However, in the event of a hardship by the Terminated Participant or his Beneficiary, the Administrator may authorize a distribution of the Terminated Participant's Vested account valued as of First Amendment Effective: January 1, 1992 71 113 the preceding valuation date plus deferrals made after that date. If the value of a Terminated Participant's Vested benefit derived from Employer and Employee contributions does not exceed $3,500 and has never exceeded $3,500 at the time of any prior distribution, the Administrator shall direct the Trustee to cause the entire Vested benefit to be paid to such Participant in a single lump sum. For purposes of this Section 7.4, if the value of a Terminated Participant's Vested benefit is zero, the Terminated Participant shall be deemed to have received a distribution of such Vested benefit. (b) The Vested portion of any Participant's Account shall be a percentage of the total amount credited to his Participant's Account determined on the basis of the Participant's number of Years of Service according to the following schedule:
Vesting Schedule Period of Service (Years) Percentage 3 20 % 4 40 % 5 60 % 6 80 % 7 100 %
(c) Notwithstanding the vesting schedule provided for in paragraph (b) above, for any Top Heavy Plan Year, the Vested portion of the Participant's Account of any Participant who has an Hour of Service after the Plan becomes top heavy shall be a percentage of the total amount credited to his Participant's Account determined on the basis of the Participant's number of Years of Service according to the following schedule:
Vesting Schedule Period of Service (Years) Percentage 2 20 % 3 40 % 4 60 % 5 80 %
First Amendment Effective: January 1, 1992 72 114 7.14 ADVANCE DISTRIBUTION FOR HARDSHIP (a) The Administrator, at the election of the Participant, shall direct the Trustee to distribute to any Participant in any one Plan Year up to the lesser of 100% of his Participant's Elective Account and participant's Rollover Account valued as of the last Anniversary Date or other valuation date or the amount necessary to satisfy the immediate and heavy financial need of the Participant. Any distribution made pursuant to this section shall be deemed to be made as of the first day of the Plan Year or, if later, the valuation date immediately preceding the date of the distribution, and the Participant's Elective Account and Participant'S Rollover Account shall be reduced accordingly. The determination of whether an immediate and heavy financial need exists shall be based on all relevant facts and circumstances. A need shall not be disqualified because it was reasonably foreseeable or voluntarily incurred. withdrawal under this Section shall be authorized, for example, if the distribution is on account of: (1) Medical expenses described in Code Section 213(d) incurred by the participant, his spouse, or any of his dependents (as defined in Code Section 152); (2) Funeral expenses for a member of the Participant's family; (3) The purchase (excluding mortgage payments) of a principal resident for participant; (4) Payment of tuition for the next semester or quarter of post-secondary education for the participant, his spouse, children, or dependents, or (5) The need to prevent the eviction of the participant from his principal residence or foreclosure on the mortgage of the participant's principal residence. (b) No distribution shall be made pursuant to this section unless the Administrator determines that either the "Safe Harbor Resources Test" or the "Facts and Circumstances Resources Test" is satisfied. The "Safe Harbor Resources Test" is not satisfied unless the Administrator, based upon the participant's representation and such other facts as are known to the Administrator, determines that all of the following conditions are satisfied:. First Amendment Effective: January 1, 1992 86 115 Second Amendment To Home Shopping Network, Inc. Retirement Savings and Employee Stock Ownership Plan THIS Second Amendment to the Home Shopping Network, Inc. Retirement Savings and Employee Stock Ownership Plan is hereby entered into by Home Shopping Network, Inc., a Florida corporation, as Employer. WHEREAS, by Agreement effective February 1, 1990, the Employer did adopt the Home Shopping Network, Inc. Retirement Savings and Employee Stock Ownership Plan; and WHEREAS, by First Amendment effective January 1, 1992, the Employer amended the Plan to include overtime in the definition of compensation, to change the definition of "Eligible Employee," to allow Rollover Accounts to be available for hardship withdrawals, and to clarify how a Terminated participant's accounts will be valued; and WHEREAS, the Employer now desires to amend the Plan to provide a "safe-harbor" definition of "414(s) Compensation, to clarify that the Employer matching contribution and ESOP contribution will be allocated in Company Stock and to clarify that Voting Rights will be extended only to the ESOP portion of the Employer Contribution, upon condition that such amendment does not cause the tax-exempt status of the Plan to be revoked by the internal Revenue Service. NOW THEREFORE, in consideration of the premises and the covenants and conditions hereinafter set forth, it is agreed as follows: Pages 2, 6 and 96 shall be removed and replaced by the revised pages 2, 6 and 96, attached hereto. IN WITNESS WHEREOF, this Second Amendment to the Home Shopping Network, Inc. Retirement Savings and Employee Stock ownership Plan has been executed on the date indicated below, but effective for all purposes as of January 1, 1992. Home Shopping Network, Inc. Employer Attest: By: -------------------------- By: /s/ H. Steven Holtzman Date: January 1, 1992 -------------------------- ------------------------ Secretary H. Steven Holtzman, Assistant Secretary 116 1.29 "Former Participant" means a person who has been a Participant, but who has ceased to be a Participant for any reason. 1.30 "415 Compensation" means compensation as defined in section 4.9(d). 1.31 "414(s) Compensation" with respect to any Employee means: (a) his Deferred Compensation; (b) "415 Compensation" paid during a Plan Year; (c) amounts described in Code Section 104(a)(3)1 105(a) 105(h) (relating to medical reimbursements), to the extent these are includable in gross income; (d) amounts paid or reimbursed by the Employer for moving expenses, but only to the extent that, at the time of the payment, it is reasonable to believe that these amounts are not deductible by the Employee under Code Section 217; (e) the value of a nonqualified stock option granted to an Employee, but only to the extent that the value of option is includible in the gross income of the Employee for taxable year in which granted; (f) the amount includable in the gross income of an Employee upon making the election described in Code Section 83(b); and (g) the amount includable in the gross income of an Employee by reason of the granting of stock or lapsing of restrictions on such stock pursuant to Code Section 83(a). For purposes of this Section, the determination of "414(s) Compensation" shall be made by including salary reduction contributions made on behalf of an Employee to a plan maintained under Code Section 125. "414(s) Compensation" in excess of $200,000 shall be disregarded. Such amount shall be adjusted at the same time and in such manner as permitted under Code Section 415 (d). However, for such Plan Years beginning prior to January 1, 1989, the $200,000 limit shall apply only for Top Heavy Plan Years and shall not be adjusted. 1.32 "Highly Compensated Employee" means an Employee described in Code Section 414(q) and the Regulations thereunder, and generally means an Employee who performs services for the Employer during the "determination year" and is in one or more of the following groups: (a) Employees who at any time during the "determination-year" or "look-back year" were "five percent owners as defined in Section 1.38(c). (b) Employees who received "415 Compensation" during the "look-back year" from the Employer in excess of $75,000. (c) Employees who received "415 Compensation" during the "look-back year" from the Employer in excess of $50,000 and were in the Top Paid Group of Employees for the Plan Year. (d) Employees who during the "look-back year" were officers of the Employer (as that term is defined within the meaning of the Regulations under Code Section 416) and received "415 Compensation" during the Second Amendment Effective: January 1, 1992 6 117 9.17 VOTING COMPANY STOCK The Trustee shall vote all Company Stock held by it as part of the Plan assets. Provided, however, that if any agreement entered into by the Trust provides for voting of any shares of Company Stock pledged as security for any obligation of the Plan, then such shares of Company Stock shall be voted in accordance with such agreement. The Trustee shall not vote Company Stock which a participant or Beneficiary is authorized to vote, pursuant to this Section, but which right he fails to exercise. Notwithstanding the foregoing, if the Employer has a registration-type class of securities, each Participant or Beneficiary shall be entitled to direct the Trustee as to the manner in which the Company Stock which is allocated to the ESOP portion of the Company Stock Account of such Participant or Beneficiary is to be voted. If the Participant or Beneficiary does not exercise his right to vote, then the Trustee shall vote these shares allocated to the ESOP portion of the Company Stock Account pro rata to the voted shares. The Trustee shall vote all Company Stock allocated to the matching portion of the Company Stock Account. If the Employer does not have a registration-type class of securities, each Participant or Beneficiary in the Plan shall be entitled to direct the Trustee as to the manner in which voting rights on shares of Company Stock which are allocated to the ESOP portion of the Company Stock Account of such Participant or Beneficiary are to be exercised with respect to any corporate matter which involves the voting of such shares allocated to the ESOP portion of the Company Stock Account with respect to the approval or disapproval of any corporate merger or consolidation, recapitalization, reclassification, liquidation, dissolution. sale of substantially all assets of a trade or business, or such similar transaction as prescribed in Regulations. For purposes of this Section the term "registration-type class of securities" means: (A) a class of securities required to be registered under Section 12 of the Securities Exchange Act of 1934; and (B) a class of securities which would be required to be so registered except for the exemption from registration provided in subsection (g) (2) (H) of such Section 12. If the Employer does not have a registration-type class of securities and the by-laws of the Employer require the Plan to vote on an issue in a manner that reflects a one-man, one-vote philosophy, each Participant or Beneficiary shall be entitled to cast one vote on an issue and the Trustee shall vote the shares held by the Plan in proportion to the results of the votes cast on the issue by the Participants and Beneficiaries, except that the Trustee shall vote all Company Stock allocated to the matching portion of the Company Stock Account. Second Amendment Effective: January 1, 1992 96 118 SECOND AMENDMENT TO HOME SHOPPING NETWORK, INC. RETIREMENT SAVINGS AND EMPLOYEE STOCK OWNERSHIP PLAN ThIS SECOND AMENDMENT TO THE HOME SHOPPING NETWORK, INC. RETIREMENT SAVINGS AND EMPLOYEE STOCK OWNERSHIP PLAN is hereby entered into by Home Shopping Network, Inc., a Florida corporation, as Employer. WHEREAS, by Agreement effective February 1, 1990, the Employer did adopt the Home Shopping Network, Inc. Retirement Savings and Stock Ownership Plan, which Plan was amended effective January 1, 1992, by that certain First Amendment to Home Shopping Network, Inc. Retirement Savings and Employee Stock Ownership Plan; and WHEREAS, the Employer now desires to further amend the Plan to provide for certain limitations to amendments to the Contribution and Allocation provisions of Article IV. NOW, THEREFORE, in consideration of the premises and the covenants and conditions hereinafter set forth, it is agreed as follows: "4.13 SPECIAL PROVISION REGARDING AMENDMENTS TO THIS ARTICLE IV Notwithstanding any provision in this Plan to the contrary, no amendment to this Article IV may be made more often than once every six months, other than to comport with changes in the Code, the Employee Retirement Income Security Act, or the rules thereunder." IN WITNESS WHEREOF, this Second Amendment to the Home Shopping Network, Inc. Retirement Savings and Employee Stock Ownership Plan has been executed on the date indicated below, and shall be effective for all purposes as of such date. ATTEST: HOME SHOPPING NETWORK, INC. Employer By: By: ---------------------- ---------------------- Secretary Date: June 26, 1992 -------------------- 119 Third Amendment To Home Shopping Network, Inc. Retirement Savings and Employee Stock Ownership Plan THIS Third Amendment to the Home Shopping Network, Inc. Retirement Savings and Employee Stock Ownership Plan is hereby entered into by Home Shopping Network, Inc., a Florida corporation, as Employer. WHEREAS, by Agreement effective February 1, 1990, the Employer did adopt the Home Shopping Network, Inc. Retirement Savings and Employee Stock Ownership Plan; and WHEREAS, by First Amendment effective January 1, 1992, the Employer amended the Plan to include overtime in the definition of Compensation, to change the definition of "Eligible Employee," to allow Rollover Accounts to be available for hardship withdrawals, and to clarify how a Terminated Participant's accounts will be valued; and WHEREAS, by Second Amendment effective January 1, 1992, the Employer amended the Plan to provide a "safe-harbor" definition of "414(s) Compensation, to clarify that the Employer matching contribution and ESOP contribution will be allocated in Company Stock and to clarify that Voting Rights will be extended only to the ESOP portion of the Employer Contribution, and WHEREAS, the Employer-now desires to further amend the Plan by adopting the Model Language under Revenue Procedure 93-12, upon condition that such amendment does not cause the tax-exempt status of the Plan to be revoked by the Internal Revenue Service. NOW THEREFORE, in consideration of the premises and the covenants and conditions hereinafter set forth, it is agreed as follows: The Model Language wider Revenue Procedure 93-12 shall be appended hereto and made part of the Plan. IN WITNESS WHEREOF, this Third Amendment to the Home Shopping Network, Inc. Retirement Savings and Employee Stock Ownership Plan has been executed on the date indicated below, but effective for all purposes as of January 1, 1993. 120 EXHIBIT 10.33 CONTINUED TRUST AGREEMENT 121 HOME SHOPPING NETWORK, INC. RETIREMENT SAVINGS PROGRAM TRUST AGREEMENT 122 TABLE OF CONTENTS ARTICLE I TRUSTEES AND TRUST FUND 1.1 NAME OF TRUST 1 ARTICLE II PLAN 2.1 DELIVERY OF PLAN TO TRUSTEE 2 ARTICLE III ADMINISTRATOR 3.1 NOTIFICATION OF NAME OF ADMINISTRATOR 2 ARTICLE IV CONTRIBUTIONS 4.1 RECEIPT OF CONTRIBUTION 3 ARTICLE V TRUSTEE 5.1 BASIC RESPONSIBILITIES OF THE TRUSTEE 3 5.2 INVESTMENT POWERS AND DUTIES OF THE TRUSTEE 4 5.3 OTHER POWERS OF THE TRUSTEE 4 5.4 DUTIES OF THE TRUSTEE REGARDING PAYMENTS 7 123 5.5 TRUSTEE'S COMPENSATION AND EXPENSES AND TAXES 7 5.6. ANNUAL REPORT OF THE TRUSTEE 8 5.7 AUDIT 8 5.8 RESIGNATION, REMOVAL AND SUCCESSION OF TRUSTEE 9 5.9 TRANSFER OF INTEREST 10 5.10 EMPLOYER SECURITIES AND REAL PROPERTY 11 ARTICLE VI AMENDMENT, TERMINATION AND MERGERS 6.1 AMENDMENT 11 6.2 TERMINATION 12 6.3 MERGER OR CONSOLIDATION 12 ARTICLE VII MISCELLANEOUS 7.1 QUALIFIED TRUST 12 7.2 CONSTRUCTION OF AGREEMENT 12 7.3 GENDER AND NUMBER 13 7.4 LEGAL ACTION 13 7.5 BONDING 13 7.6 HEADINGS 13 7.7 IRREVOCABILITY OF TRUST 13 124 HOME SHOPPING NETWORK, INC. RETIREMENT SAVINGS PROGRAM TRUST AGREEMENT THIS AGREEMENT, hereby made and entered into this 31 day of January, 1990, by and between Home Shopping Network, Inc. (herein referred to as the "Employer") and Leslie R. Wandler, James N. Lawless, J. Michael Reardon, Debra K. Neighbers, and Ronald J. DiDonato (herein referred to as the "Trustee"). W I T N E S S E T H: WHEREAS, the Employer has concurrently herewith adopted a Profit Sharing Plan known as the Home shopping Network, Inc. Retirement Savings Program (herein referred to as the Plan); and WHEREAS, under the terms of the Plan, funds will from time to time be contributed to the Trustees (herein referred to as the "Trustee"), which funds as and when received by the Trustee, will constitute a trust fund to be held by said Trustee under the Plan for the benefit of the participantS or their Beneficiaries; and WHEREAS, the Employer desires the Trustee to hold and administer such funds and the Trustee is willing to hold and administer such funds pursuant to the terms of this Agreement; NOW, THEREFORE, for and in consideration of the premises and of the mutual covenants herein contained, the Employer and the Trustee do hereby covenant and agree as follows: ARTICLE I TRUSTEES AND TRUST FUND 1.1 NAME OF TRUST (a) This Trust shall be entitled the "Home Shopping Network, Inc. Retirement Savings Program, Trust Agreement" (hereinafter referred to as the "Trust"), and shall carry into effect the provisions of the Plan created concurrently herewith and forming a part hereof. All of the definitions in such Plan are hereby incorporated herein by reference. The Trustee hereby agrees to act as Trustee of the Trust, and to take, hold, invest, administer and distribute in accordance with the following provisions, any and all contributions and assets paid or delivered to the Trustee pursuant to the Plan. 1 125 (b) All of the assets at any time held hereunder by the Trustee are hereinafter referred to collectively as the "Trust Fund". All right, title and interest in. and to the assets of the Trust Fund shall be at all times, vested exclusively in the Trustee. (c) The Trustee shall receive, take and hold any contributions paid to the Trustee by the Employer in cash or in other property acceptable to the Trustee. All contributions so received together with the income therefrom and any other increment thereon shall be held managed and administered by the Trustee pursuant to the terms of this Agreement without distinction between principal and income and without liability for the payment of interest thereon. The Trustee shall not be responsible for the collection of any contributions to the Plan. ARTICLE II PLAN 2.1 DELIVERY OF PLAN TO TRUSTEE The Employer shall deliver to the Trustee a copy of the Plan and of any amendment thereto for convenience of reference, but rights, powers, titles, duties, discretions and immunities of the Trustee shall be governed solely by this instrument without reference to the Plan. ARTICLE III ADMINISTRATOR 3.1 NOTIFICATION OF NAME OF ADMINISTRATOR (a) The Plan provides for the appointment of an Administrator or Administrators (herein referred to as the "Administrator"), to administer the Plan. The Employer shall notify the Trustee in writing of the name of the Administrator, and of any change in the identity of such Administrator. Until notified of the change, the Trustee shall be fully protected in acting upon the assumption that the identity of the Administrator has not been changed. (b) All directions by the Administrator to the Trustee shall be in writing signed by such Administrator. (c) The Employer shall furnish to the Trustee a specimen signature of the Administrator or Administrators at the time he or they are appointed. 2 126 (d) The Administrator shall have sole responsibility for determining the existence, non-existence, nature and amount of the rights and interests of all persons, in the Trust Fund. ARTICLE IV CONTRIBUTIONS 4.1 RECEIPT OF CONTRIBUTION The Trustee shall receive all contributions paid in cash or other property acceptable to the Trustee, and all contributions so received together with the income therefrom and any increment thereon shall be held, managed and administered by the Trustee pursuant to this Agreement without distinction between principal and income. The Trustee shall have no duty to require any contributions to be made to the Trustee by the Employer or to determine that the amounts received comply with the Plan, or to determine that the Trust Fund is adequate to provide the benefits payable pursuant to the Plan. ARTICLE V TRUSTEE 5.1 BASIC RESPONSIBILITIES OF THE TRUSTEE The Trustee shall have the following categories of responsibilities: (a) Consistent with the "funding policy and method" determined by the Employer, to invest, manage, and control the Plan assets subject, however, to the direction of an Investment Manager if the Employer should appoint such manager as to all or a portion of the assets of the Plan in accordance with the provisions of the Plan; (b) At the direction of the Administrator, to pay benefits required under the Plan to be paid to Participants, or, in the event of their death, to their Beneficiaries; (c) To maintain records of receipts and disbursements and furnish to the Employer and/or Administrator for each Plan Year a written annual report per Section 5.6; and (d) If there shall be more than one Trustee, they shall act by a majority of their number, but may authorize one or more of them to sign papers on their behalf. 3 127 5.2 INVESTMENT POWERS AND DUTIES OF THE TRUSTEE (a) The Trustee shall invest and reinvest the Trust Fund to keep the Trust Fund invested without distinction between principal and income and in such securities or property, real or personal, wherever situated, as the Trustee shall deem advisable, including, but not limited to, stocks, common or preferred, bonds and other evidences of indebtedness or ownership, and real estate or any interest therein. The Trustee shall at all times in making investments of the Trust Fund consider, among other factors, the short and long-term financial needs of the Plan on the basis-of information furnished by the Employer. In making such investments, the Trustee shall not be restricted to securities or other property of the character expressly authorized by the applicable law for trust investments; however, the Trustee shall give due regard to any limitations imposed by the Code or the Act so that at all times the Plan may qualify as a qualified Profit Sharing Plan and Trust. (b) The Trustee may employ a bank or trust company pursuant to the terms of its usual and customary bank agency agreement, under which the duties of such bank or trust company shall be of a custodial, clerical and record-keeping nature. (c) The Trustee may from time to time with the consent of the Employer transfer to a common collective, or pooled trust fund maintained by any corporate Trustee hereunder, all or such part of the Trust Fund as the Trustee may deem advisable, and such part or all of the Trust Fund so transferred shall be subject to all the terms and provisions of the common, collective, or pooled trust fund which contemplate the commingling for investment purposes of such trust assets with trust assets of other trusts. The Trustee may, from time to time with the consent of the Employer, withdraw from such common, collective, or pooled trust fund all or such part of the Trust Fund as the Trustee may deem advisable. 5.3 OTHER POWERS OF THE TRUSTEE The Trustee, in addition to all powers and authorities under common law, statutory authority, including the Act, and other provisions of the Plan, shall have the following powers and authorities, to be exercised in the Trustee's sole discretion: 4 128 (a) To purchase, or subscribe for, any securities or other property and to retain the same. In conjunction with the purchase of securities, margin accounts may be opened and maintained; (b) To sell, exchange, convey, transfer, grant options to purchase, or otherwise dispose of any securities or other property held by the Trustee, by private contract or at public auction. No person dealing with the Trustee shall be bound to see to the application of the purchase money or to inquire into the validity, expediency, or propriety of any such sale or other disposition, with or without advertisement; (c) To vote upon any stocks, bonds, or other securities; to give general or special proxies or powers of attorney with or without power of substitution; to exercise any conversion privileges, subscription rights or other options, and to make any payments incidental thereto; to oppose, or to consent to, or otherwise participate in, corporate reorganizations or other changes affecting corporate securities, and to delegate discretionary powers, and to pay any assessments or charges in connection therewith; and generally to exercise any of the powers of an owner with respect to stocks, bonds, securities, or other property; (d) To cause any securities or other property to be registered in the Trustee' s own name or in the name of one or more of the Trustee's nominees, and to hold any investments in bearer form, but the books and records of the Trustee shall at all times show that all such investments are part of the Trust Fund; (e) To borrow or raise money for the purposes of the Plan in such amount, and upon such terms and conditions, as the Trustee shall deem advisable; and for any sum so borrowed, to issue a promissory note as Trustee, and to secure the repayment thereof by pledging all, or any part, of the Trust Fund; and no person lending money to the Trustee shall be bound to see to the application of the money lent or to inquire into the validity, expediency, or propriety of any borrowing; 5 129 (f) To keep such portion of the Trust Fund in cash or cash balances as the Trustee may, from time to time, deem to be in the best interests of the Plan, without liability for interest thereon; (g) To accept and retain for such time as the Trustee may deem advisable any securities or other property received or acquired as Trustee hereunder, whether or not such securities or other property would normally be purchased as investments hereunder; (h) To make, execute, acknowledge, and deliver any and all documents of transfer and conveyance and any and all other instruments that may be necessary or appropriate to carry out the powers herein granted; (i) To settle, compromise, or submit to arbitration any claims, debts, or damages due or owing to or from the Plan, to commence or defend suits or legal or administrative proceedings, and to represent the Plan in all suits and legal and administrative proceedings; (j) To employ suitable agents and counsel and to pay their reasonable expenses and compensation, and such agent or counsel may or may not be agent or counsel for the Employer; (k) To apply for and procure from responsible insurance companies, to be selected by the Administrator, as an investment of the Trust Fund such annuity, or other Contracts (on the life of any participant) as the Administrator shall deem proper; to exercise, at any time or from time to time, whatever rights and privileges may be granted under such annuity, or other Contracts; to collect, receive, and settle for the proceeds of all such annuity or other Contracts as and when entitled to do so under the provisions thereof; (1) To invest funds of the Trust in time deposits or savings accounts bearing a reasonable rate of interest in the Trustee'S bank; (m) To invest in Treasury Bills and other forms of United States government obligations; 6 130 (n) To sell, purchase and acquire put or call options if the options are traded on and purchased through a national securities exchange registered under the securities Exchange Act of 1934, as amended, or, if the options are not traced on a national securities exchange, are guaranteed by a member firm of the New York Stock Exchange; (o) To deposit monies in federally insured savings accounts or certificates of deposit in banks or savings and loan associations; (p) To pool all or any of the Trust Fund, from time to time, with assets belonging to any other qualified employee pension benefit trust created by the Employer or an affiliated company of the Employer, and to commingle such assets and make joint or common investments and carry joint accounts on behalf of this Plan and such other trust or trusts, allocating undivided shares or interests in such investments or accounts or any pooled assets of the two or more trusts in accordance with their respective interests; (q) To do all such acts and exercise all such rights and privileges, although not specifically mentioned herein, as the Trustee may deem necessary to carry out the purposes of the Plan. 5.4 DUTIES OF THE TRUSTEE REGARDING PAYMENTS At the direction of the Administrator, the Trustee shall, from time to time, in accordance with the terms of the Plan, make payments out of the Trust Fund. The Trustee shall not be responsible in any way for the application of such payments. 5.5 TRUSTEE'S COMPENSATION AND EXPENSES AND TAXES The Trustee shall be paid such reasonable compensation as shall from time to time be agreed upon in writing by the Employer and the Trustee. An individual serving as Trustee who already receives full-time pay from the Employer shall not receive compensation from the Plan. In addition, the Trustee shall be reimbursed for any reasonable expenses, including reasonable counsel fees incurred by it as Trustee. Such compensation and expenses shall be paid from the Trust Fund unless paid or advanced by the Employer. All taxes of any kind and all kinds whatsoever that may be levied or assessed under existing or future laws upon, or in respect of, the Trust Fund or the income thereof, shall be paid from the Trust Fund. 7 131 5. 6 ANNUAL REPORT OF THE TRUSTEE Within a reasonable period of time after the later of the Anniversary Date or receipt of the Employer's contribution for each Plan Year, the Trustee shall furnish to the Employer and Administrator a written statement of account with respect to the Plan Year for which such contribution was made setting forth: (a) the net income, or loss, of the Trust Fund; (b) the gains, or losses, realized by the Trust Fund upon sales or other disposition of the assets; (c) the increase, or decrease, in the value of the Trust Fund; (d) all payments and distributions made from the Trust Fund; and (e) such further information as the Trustee and/or Administrator deems appropriate. The Employer, forthwith upon its receipt of each such statement of account, shall acknowledge receipt thereof in writing and advise the Trustee and/or Administrator of its approval or disapproval thereof. Failure by the Employer to disapprove any such statement of account within thirty (30) days after its receipt thereof shall be deemed an approval thereof. The approval by the Employer of any statement of account shall be binding as to all matters embraced therein as between the Employer and the Trustee to the same extent as if the account of the Trustee had been settled by judgment or decree in an action for a judicial settlement of its account in a court of competent jurisdiction in which the Trustee, the Employer and all persons having or claiming an interest in the Plan were parties; provided, however, that nothing herein contained shall deprive the Trustee of its right to have its accounts judicially settled if the Trustee so desires. 5.7 AUDIT (a) If an audit of the Plan's records shall be required by the Act and the regulations thereunder for any Plan Year, the Administrator shall direct the Trustee to engage on behalf of all Participants an independent qualified public accountant for that purpose. Such accountant shall, after an audit of the books and records of the Plan in accordance with generally accepted auditing standards, within a 8 132 reasonable period after the close of the Plan Year, furnish to the Administrator and the Trustee a report of his audit setting forth his opinion as to whether any statements, schedulers or lists that are required by Act Section 103 or the Secretary of Labor to be filed with the Plan's annual report, are presented fairly in conformity with generally accepted accounting principles applied consistently. All auditing and accounting fees shall be an expense of and may, at the election of the Administrator, be paid from the Trust Fund. (b) If some or all of the information necessary to enable the Administrator to comply with Act Section 103 is maintained by a bank, insurance company, or similar institution, regulated and supervised and subject to periodic examination by a state or federal agency, it shall transmit and certify the accuracy of that information to the Administrator as provided in Act Section 103(b) within one hundred twenty (120) days after the end of the Plan Year or by such other date as may be prescribed under regulations of the Secretary of Labor. 5.8 RESIGNATION, REMOVAL AND SUCCESSION OF TRUSTEE (a) The Trustee may resign at any time by delivering to the Employer, at least thirty (30) days before its effective date, a written notice of his resignation. (b) The Employer may remove the Trustee by mailing by registered or certified mail, addressed to such Trustee at his last known address, at least thirty (30) days before its effective date, a written notice of his removal. (c) Upon the death, resignation, incapacity, or removal of any Trustee, a successor may be appointed by the Employer; and such successor, upon accepting such appointment in writing and delivering same to the Employer, shall, without further act, become vested with all the estate, rights, powers, discretions, and duties of his predecessor with like respect as if he were originally named as a Trustee herein. Until such a successor is appointed, the remaining Trustee or Trustees shall have full authority to act under the terms of the Plan. 9 133 (d) The Employer may designate one or more successors prior to the death, resignation, incapacity, or removal of a Trustee. In the event a successor is so designated by the Employer and accepts such designation, the successor shall, without further act, become vested with all the estate, rights, powers, discretions, and duties of his predecessor with the like effect as if he were originally named as Trustee herein immediately upon the death, resignation, incapacity, or removal of his predecessor. (e) Whenever any Trustee hereunder ceases to serve as such, he shall furnish to the Employer and Administrator a written statement of account with respect to the portion of the Plan Year during which he served as Trustee. This statement shall be either (i) included as part of the annual statement of account for the Plan Year required under section 5.6 or (ii) set forth in a special statement. Any such special statement of account should be rendered to the Employer no later than the due date of the annual statement of account for the Plan Year. The procedures set forth in section 5.6 for the approval by the Employer of annual statements of account shall apply to any special statement of account rendered hereunder and approval by the Employer of any such special statement in the manner provided in Section 5.6 shall have the same effect upon the statement as the Employer's approval of an annual statement of account. No successor to the Trustee shall have any duty or responsibility to investigate the acts or transactions of any predecessor who has rendered all statements of account required by section 5.6 and this subparagraph. 5. 9 TRANSFER OF INTEREST The Trustee, on behalf of any participant, may accept funds transferred from another trust forming part of a pension, profit sharing, or stock bonus plan meeting the requirements of Code section 401(a) or a "conduit" Individual Retirement Account for the account of a participant under this Plan, provided the conditionS precedent to such transfer set forth in the Plan are satisfied. In the event of such a transfer under this Plan, the Trustee shall maintain a separate, nonforfeitable "Participant's Rollover Account" for the amount transferred. In addition, any such transfer may only be made if it does not result in the elimination of any "Section 411(d) (6) protected benefits" as described in section 6.1. The Trustee may act upon the direction of the Administrator without determining the facts concerning a transfer. 10 134 5.10 EMPLOYER SECURITIES AND REAL PROPERTY The Trustee shall be empowered to acquire and hold "qualifying Employer securities" and "qualifying Employer real property," as those terms are defined in the Act, provided, however, that the Trustee shall not be permitted to acquire any qualifying Employer securities or qualifying Employer real property if, immediately after the acquisition of such securities or property, the fair market value of all qualifying Employer securities and qualifying Employer real property held by the Trustee hereunder should amount to more than 100% of the fair market value of all the assets in the Trust Fund. ARTICLE VI AMENDMENT, TERMINATION AND MERGERS 6.1 AMENDMENT (a) The Employer shall have the right at any time to amend this Agreement. However, no such amendment which affects the rights, duties or responsibilities of the Trustee and Administrator may. be made without the Trustee's and Administrator's written consent. Any such amendment shall become effective as provided therein upon its execution. The Trustee shall not be required to execute any such amendment unless the amendment affects the duties of the Trustee hereunder. (b) No amendment to this Agreement shall be effective if it authorizes or permits any part of the Trust Fund (other than such part as is required to pay taxes and administration expenses) to be used for or diverted to any purpose other than for the exclusive benefit of the participants or their Beneficiaries or estates; or cause any reduction in the amount credited to the account of any participant; or cause or permit any portion of the Trust Fund to revert to or become property of the Employer. (c) Except as permitted by Regulations (including Regulation 1.411 (d)-4), no amendment to this Agreement or transaction having the effect of an amendment to this Agreement (such as a merger, plan transfer or similar transaction) shall be effective if it eliminates or reduces any Section 411(d) (6) protected benefit. or adds or modifies conditions relating to "section 411 (d) (6) protected benefits" the result of which is a further restriction on such benefit unless such protected benefits are preserved with respect to benefits accrued as of the later of the 11 135 execution date or effective date of the amendment. "Section 411(d) (6) protected benefits are benefits described in Code section 411 (d) (6) (A), early retirement benefits and, retirement-type subsidies, and optional forms of benefit. 6.2 TERMINATION This Agreement and the Trust created hereby will terminate as to the Employer in the case of complete distribution of the Trust Fund held for the benefit of the Participants pursuant to the Plan. Such distribution will be at the time and manner determined by the Administrator pursuant to the requirements of the Plan with written instructions to the Trustee. Except as permitted by Regulations, the termination of the Plan shall not result in the reduction of "Section 411(d) (6) protected benefits" in accordance with section 6.1 (c). 6.3 MERGER OR CONSOLIDATION This Trust may be merged or consolidated with, or its assets and/or liabilities may be transferred to any other trust only if the benefits which would be received by a participant of the Employer Plan, in the event of a termination of the Plan immediately after such transfer, merger or consolidation are at least equal to the benefits the Participant would have received if the Plan had terminated immediately before the transfer, merger or consolidation, and such transfer, merger or consolidation does not otherwise result in the elimination or reduction of any "Section 411(d) (6) protected benefits" in accordance with Section 6.1(c). ARTICLE VII MISCELLANEOUS 7.1 QUALIFIED TRUST The Trust is hereby designated as constituting a part of the Plan which is intended to continue to qualify and to be tax exempt under Section 401(a) and section 501(a), respectively, of the Code, and of the Act, as amended from time to time. Until advised otherwise, the Trustee may conclusively presume that this Trust is qualified under section 501(a) of the Code as amended from time to time, and that this Trust is exempt from federal income taxes. 7.2 CONSTRUCTION OF AGREEMENT This Trust shall be construed and enforced according to the Act and the laws of the State of Florida, other than its laws respecting choice of law, to the extent not pre-empted by the Act. 12 136 7.3 GENDER AND NUMBER Wherever any words are used herein in the masculine, feminine or neuter gender, they shall be construed as though they were also used in another gender in all cases where they would so apply, and whenever any words are used herein in the singular or plural form, they shall be construed as though they were also used in the other form in all cases where they would so apply. 7.4 LEGAL ACTION In the event any claim, suit, or proceeding is brought regarding the Trust and/or Plan established hereunder to which Trustee or tee Administrator may be a party, and such claim, for any and all costs, attorney's fees, and other expenses pertaining thereto incurred by them for which they shall have become liable. 7.5 BONDING Every Fiduciary, except a bank or an insurance company, exempted by the Act and regulations thereunder, shall be bonded in an amount not less than 10% of the amount of the funds fiduciary handles; provided, however, that the minimum bond shall be $1,000 and the maximum bond, $500,000. The amount of funds handled shall be determined at the beginning of each Plan Year by the amount of funds handled by such person, group, or class to be covered and their predecessors, if any, during the preceding Plan Year, or if there is no preceding Plan Year, then the amount of the funds to be handled during the then current year. The bond shall provide protection to the Plan against any loss by reason of acts of fraud or dishonesty by the Fiduciary alone or in connivance with others. The surety shall be a corporate surety company (as such term is used in Act section 412(a) (2)), and the bond shall be in a form approved by-the Secretary of Labor. Notwithstanding anything in the Plan to the contrary, the cost of such bonds shall be an expense of and may, at the election of the Administrator, be paid from the Trust Fund or by the Employer. 7.6 HEADINGS The headings and Subheadings of this Plan have been inserted for convenience of reference and are to be ignored in any construction of the provisions hereof. 7.7 IRREVOCABILITY OF TRUST All contributions made by the Employer shall be irrevocable, and no part of the corpus of the Trust Fund nor any income therefrom shall revert to the Employer or be used for or 13 137 diverted to purposes other than for the exclusive benefit of the Participants and their Beneficiaries, except as provided by law, as provided in the Plan. 14 138 IN WITNESS WHEREOF, this Trust has been executed the day and year first above written. Home Shopping Network, Inc. By ----------------------- Employer ATTEST ------------------- ----------------------- TRUSTEE ----------------------- TRUSTEE ----------------------- TRUSTEE ----------------------- TRUSTEE ----------------------- TRUSTEE 15 139 INVESTMENT MANAGEMENT AGREEMENT HOME SHOPPING NETWORK, INC. RETIREMENT SAVINGS PROGRAM SHORT TERM FIXED INCOME FUND The undersigned, presently acting as Trustees ("Trustees") under a certain instrument dated the 31st day of January 1990 ("Instrument") establishing the Home Shopping Network, Inc. Retirement Savings Program Short Term Fixed Income Fund's ("Fund") wish to open and maintain an account with Chase Bank of Florida, N.A. ("Bank") and to appoint the Bank as Investment Manager to advise, invest and reinvest the assets held therein. The Bank will act under the following terms and conditions: 1. The Bank will open an Investment Management Account ("Account") in the name of the Fund and hold therein upon the teas herein set forth, all such cash, securities and other property as shall be received and accepted from time to time by the Bank for the Account subject to its authority as Investment Manager as hereinafter provided. 2. The Bank, as Investment Manager, shall advise the Trustees regarding the investment of the securities and cash in the account in such securities or other property in which the Trustees are permitted to invest under the provisions of 140 the Instrument; provided, however, that the Trustees may, at any time and from time to time, direct the approximate percentage or percentages of the Account to be invested in any one or more classes of securities. No Options, Futures, Puts/Calls, commodities or Margin accounts are permitted. 3. Without limitation of the foregoing provisions of this Agreement, the Bank is authorized and empowered, with the consent of the trustees: A. To collect and receive all monies and other property paid or distributed in respect of the property held in the Account or realized on the sale or other disposition of such property. B. To purchase, receive or subscribe for any securities or other property and to retain such securities or other property. C. To sell for cash, convert, redeem, exchange for other securities or other property, to enter into standby agreements for future investment, either with or without a standby fee, or otherwise to dispose of any 141 securities or other property at any time held by it. D. To exercise any conversion privilege and/or subscription right available in connection with any securities or other property at any time held by it; to oppose or to consent to the reorganization, consolidation, merger, or readjustment of the finances of any corporation, company or association, or to the sale, mortgage, pledge or lease of the property of any corporation, company or association any of the securities of which may at any time be held by it and to do any act with reference thereto, including the exercise of options, the making of agreements or subscriptions and the payment of expenses, assessments or subscriptions, which may be necessary or advisable in connection therewith, and to hold and retain any securities or other property which it may so acquire; and to deposit any property with any protective; reorganization or similar committee, and to pay or agree to pay part of the expenses and compensation of any such committee and any assessments levied with respect to property so deposited. 142 E. To exercise, personally or by general or by limited power of attorney, any right, including the right to vote, appurtenant to any securities or other property held by it at any time. F. To hold part or all of the Account in cash or cash equivalents. G. To transfer, at any time and from time to time, such part or all of the Account as it shall deem advisable to THE CHASE BANK OF FLORIDA, N.A. (National Association) as trustee of any trust "Collective Trust") which has been qualified under section 401(a) and is exempt under Section 501 (a) of the Internal Revenue Code of 1954, now or hereafter maintained by it as a medium for the collective investment of funds of pension, profit sharing or other employee benefit plans, and to withdraw any part or all of thee Account so transferred. To the extent of the interest of the Account in any Collective Trust the terms of the agreement or declaration of trust establishing such Collective Trust shall be a part of this 143 Account and of the Instrument as if set forth in full herein, and any assets transferred to any Collective Trust shall be held, invested and administered in accordance with such agreement or declaration of trust, which shall be controlling notwithstanding any contrary provision of this Agreement or the Instrument. Without limitation of the foregoing, the time and manner of withdrawals from any Collective Trust shall be established in the discretion of the trustee of the Collective Trust. H. To register any securities held by it hereunder in its own name or in the name of a nominee with or without the addition of words indicating that such securities are held in a fiduciary capacity and to hold any securities in bearer form and to deposit any securities or other property in a depository or a clearing corporation. I. To deposits funds with the Bank in interest bearing accounts subject to the Trustee's directions. 144 j. To employ suitable agents, counsel and advisors. Including investment advisors which may, but need not be, affiliates of The Chase Manhattan Bank, N.A. K. Generally to do all reasonable acts, whether or not expressly authorized, which the Bank may reasonably deem necessary or desirable for the protection of the Account. L. To open a noninterest bearing account for the purpose of depositing those funds withheld for payment of taxes as authorized by the beneficiaries at time of distribution, monies to be forwarded to IRS. 4. With respect to those securities and transactions as to which the Bank offers this service, the proceeds from the sale of securities will be credited to the Account on the contractual settlement date and the cost of such securities purchased will be debited to the Account on the contractual settlement date. The Bank may reverse any such credits and debits if the transaction with respect to which they were made fails to settle within a reasonable period, determined by the Bank in its discretion, after the contractual 145 settlement date, except that if the Bank delivers securities which are returned by the recipient thereof, the Bank may reverse any such credit: and debits at any time. With respect to securities or transactions as to which the Bank does not offer this service, the proceed: from the sale of securities will be credited to the Account on the date such proceeds are received by the Bank, and the cost of such securities purchased will be debited to the Account on the date securities are received by the Bank. As to both sales and purchases, funds availability will be based on the type of funds that were utilized in the trade settlement, including, but not limited to, same day availability for federal funds and next business day availability for clearing house funds. 5. The Bank shall be paid compensation in accordance with its published schedule of compensation in effect from time to time. 6. The Bank shall render from time to time to the Trustees, but at least monthly and within 90 days after the termination of the Account, a statement of the transactions with respect to the Account and if no written objection to any such statement 146 is made by the Trustee: within 60 days after the mailing of such statement by the Bank, the Trustees shall be deemed irrevocably to have approved such statement as an "Account stated" and all matters set forth therein. 7. This Agreement may be amended at any time or from time to time by a written agreement between the Bank and the Trustees. 8. The Bank shall from time to time make payments out of the Account to such persons, including the Trustees or any one of them, in such amounts and for such purposes as may be specified in the directions of the Trustees or of such one or more of them as may be permitted to give such directions pursuant to the Instrument. The Bank shall be fully protected in relying upon a certification of any Trustee or Trustees so authorized under the instrument with respect to any instruction, direction or approval of the Trustees, and protected also in relying upon a certification of the Trustees, as to the identity of the Trustee or Trustees so authorized, and in continuing to rely upon such certification until a subsequent certification is filed with the Bank. The Bank shall be fully protected in acting upon any instrument, certificate, or paper believed by 147 it to be genuine and to be signed or presented by the proper person or persons, and the Bank shall be under no duty to make any investigation or inquiry as to any statement contained in any such writing but may accept the same as conclusive evidence of the truth and accuracy of the statements therein contained. The bank may also in its discretion accept instructions or directives from the Trustee or Trustees so authorized, orally, or by telephone, telegraph or cable, which the Bank believes to be genuine and on which the Bank shall act in "good faith". The Bank shall not be liable for executing, failing to execute, or for any mistake in the execution of any such directions or instruction, on which it has acted in good faith. The Bank shall not be liable for the proper application of any part of the Account if payments are made in accordance with the written directions of the Trustees as herein provided. 9. The Trustees and the Fund agree to hold the Bank harmless from all liability, loss, and expenses arising from claims of third parties that may be asserted, and from taxes and other governmental charges and related expenses that may be assessed or imposed with respect to the Account or any 148 property in it or against the Bank by reason of any action taken or omitted by it pursuant to written instructions or written authorizations received from the Trustees. 10. The Account may be terminated at any time by the Trustees or the Bank and upon such termination, the Bank shall transfer and deliver to the Trustees or on their order the assets then held in the Account, after reserving such funds for any outstanding fees and liabilities (including those for purchases and sales directed by the Trustees) which it may have incurred in connection with the Account according to it's fee schedule then in effect. 11. The rights, powers and authorities and the duties and responsibilities of the Bank as custodian and as provided in this Agreement, and the Bank shall have only such duties with respect to the Fund a: are specified herein and under EISA and Florida law. 12. The Bank hereby acknowledges that it is an Investment Manager as defined under the Employee Retirement Income Security Act of 1974 ("ERISA") and acknowledges that, as such Investment Manager 149 acting under this Agreement, it is a fiduciary with respect to the Fund. The Trustees shall provide the Bank with such written instructions regarding the funding policy and investment policy of the Fund as shall be necessary or appropriate in order to permit the Bank to beet its fiduciary responsibilities as such Investment Manager under ERISA, and to the extent permitted by ERISA the Bank shall have no liability or responsibility for any act or omission by it on the basis of such instructions. 13. This Agreement and the Account created hereby shall be construed, regulated and administered under the laws of the State of Florida or the laws of the United States, as applicable. 14. This account shall be known as the Home Shopping Network, Inc. Retirement Savings Program Short Term Fixed Income Fund. 15. This Agreement shall be executed in any number of counterparts, each one of which shall be deemed to be the original although the others shall not be produced. 150 IN WITNESS WHEREOF, this Agreement has been duly executed a: of _____ day of ____________ 1990. Trustees of the Fund - ---------------------------- - ---------------------------- - ---------------------------- - ---------------------------- The Chase Bank of Florida (National Association) By ---------------------- Vice President Dated ------------------- 151 I, the undersigned duly elected, qualified and acting Secretary of Home Shopping Network, Inc. Corporation organized and existing under the laws of the State of Florida hereby certify that a meeting of the Home Retirement Savings Plan said Corporation duly held January 31st, 1990 the following resolutions were duly adopted: BE IT RESOLVED, that The form of the ERISA Investment Advisory Agreement with The Chase Bank of Florida, N.A. presented to this meeting hereby is approved: Any * one of the following duly authorized officers of agents of this Corporation (is) are authorized to execute said Agreement on behalf of this Corporation and to give instructions to said Bank pursuant to said Agreement, namely: ** Chief Financial Officer & ; ------------------------- Treasurer *Insert the word "one" or "two" as desired. **Insert title or titles of the officer (or officers) and the agent (or agents) authorized. The Secretary of this Corporation is authorized to certify to said Bank under the seal of this Corporation (a) a copy of these resolutions together with the names and signatures of the officer(s) or the agent(s) of this Corporation authorized to execute said Agreement and to give instructions pursuant thereto; and (b) in case of each 152 subsequent change in the individual holding any such office or authority, such fact and the name and signature of the new officer(s) or agent(s), and until said Bank has actually received such written notice and has had a reasonable opportunity to act upon it, said Bank shall be authorized to act in pursuance of these resolutions even though these resolutions may have been changed. I further certify that 1. The following are officers or agents of this Corporation and have their signatures placed opposite their respective names: Name Office Signature ------------ ------------ ------------ Executive VP/ J. Michael Reardon Chief Operating /s/ J. Michael Reardon ------------------ Officer ---------------------- --------------- Edward Vaughn, Jr. Senior VP, /s/ Edward Vaughn, Jr. ------------------ Human Resources ---------------------- --------------- Nando DiFilippo, Jr. Secretary /s/ Nando DiFilippo, Jr. -------------------- ---------------------- Leslie R. Wandler Agent /s/ Leslie R. Wandler -------------------- ---------------------- 2. The foregoing resolutions are in full force and effect and are not contrary to' the Charter or By- Laws of this Corporation and the annexed ERISA Investment Advisory Agreement is identical with the form of the Corporate Investment Advisory Agreement Presented to said meeting and approved by the AFORESAID RESOLUTION. 153 IN WITNESS WHEREOF, I have hereunto set my hand and affixed the Corporate Seal of this Corporation this 31st day of January , 1990 Secretary ----------------------- *Other Officer ------------------ (CORPORATE SEAL) *If the Secretary is himself authorized to sign instructions the above certification must also be signed by an additional officer of the Corporation. (This form of affidavit is for use in the United States.) State of Florida ) ) ss.: County of Pinellas ) On this 31st day of January, 1990, in said County of Pinellas before me, personally came Nando DiFilippo, Jr. before me, personally came Leslie R. Wandler to me known to be the person described in and who executed the foregoing certificate, and acknowledged to me that he/she executed the same; and being by me duly sworn, did depose and say that he/she is 154 Secretary of Home Shopping Network. Inc; that as such officer he keeps the corporate minute books and seal of said corporation and that the foregoing certificate is true to his/her own knowledge. ------------------------ (NOTORIAL SEAL) N0TARY PUBLIC, STATE OF FLORIDA MY COMMISSION EXPIRES: AUG. 11. 1993 BONDED THRU NOTARY PUBLIC UNDERWRITERS; 155 January 25, 1990 GUIDELINES FOR INVESTMENT OF HOME SHOPPING NETWORK 401K PLAN FUNDS FIRST QUARTER 1990 This policy guideline has been approved by ------------------------ EMPLOYER CONTRIBUTION
Current Objectives Long Term Ranges Home Shopping Network (HSN) 90% 85 - 90% Treasury stock U.S. Gov't. Money Market Fund 10% 10 - 15%
If, through market changes, the Borne Shopping Network stock represents (more than _____% reduce to _____% (less than _____% raise to _____%
EMPLOYEE CONTRIBUTION Current Objectives Long Term Ranges Short Term Fixed Income 100% 100% (Fund A)
DEPOSIT AND WITHDRAWAL PRIORITIES Deposits: All deposits should be made under the following priorities: Withdrawals: All withdrawals should be made under the following priorities: 156 DEPOSIT TIMING
Employer Employee Initial Contribution: HSN Fund A When Received 85% 100% Following Quarter 5%
Monthly and Semi-Monthly Contributions: Fully deposit as received in order to bring in line with current policy objectives. Note: The guidelines will as heretofore be reviewed quarterly for both appropriateness and adjustments. EX-11 13 HSN COMPUTATION OF NET EARNINGS 1 EXHIBIT 11 HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES COMPUTATION OF NET EARNINGS (LOSS) PER SHARE
FOUR MONTHS YEARS ENDED AUGUST YEAR ENDED ENDED 31, DECEMBER 31, DECEMBER 31, ------------------- 1993 1992 1992 1991 ------------ ------------ ------- ------- (In thousands, except per share amounts) PRIMARY EARNINGS (LOSS) PER SHARE: Weighted average shares outstanding Common Stock.......................................... 67,802 63,698 63,394 63,292 Class B Common Stock.................................. 23,390 24,160 24,160 24,160 Shares assumed to be issued upon the exercise of common stock options under the treasury stock method......... -- 728 274 -- Shares assumed to be issued upon the conversion of Convertible Debentures................................ -- 2,529 2,427 -- ------------ ------------ ------- ------- 91,192 91,115 90,255 87,452 ------------ ------------ ------- ------- ------------ ------------ ------- ------- Earnings (loss) before extraordinary item............... $(15,539) $ 5,140 $37,405 $(9,599) Interest expense adjustment(2).......................... -- 191 575 -- ------------ ------------ ------- ------- Earnings (loss) before extraordinary item............... (15,539) 5,331 37,980 (9,599) Extraordinary item, net of taxes........................ (7,242) -- (112) 654 ------------ ------------ ------- ------- Net earnings (loss)..................................... $(22,781) $ 5,331 $37,868 $(8,945) ------------ ------------ ------- ------- ------------ ------------ ------- ------- Earnings (loss) per share before extraordinary item..... $ (.18) $ .06 $ .42 $ (.11) Extraordinary item per share, net of taxes.............. (.08) -- -- .01 ------------ ------------ ------- ------- Net earnings (loss) per share........................... $ (.26) $ .06 $ .42 $ (.10) ------------ ------------ ------- ------- ------------ ------------ ------- ------- FULLY DILUTED EARNINGS (LOSS) PER SHARE:(1) Weighted average shares outstanding Common Stock.......................................... 67,802 63,698 63,394 63,292 Class B Common Stock.................................. 23,390 24,160 24,160 24,160 Shares assumed to be issued upon the exercise of common stock options under the treasury stock or modified treasury stock method................................. 2,182 2,033 376 248 Shares assumed to be issued upon the conversion of Convertible Debentures................................ 938 2,529 2,427 2,794 ------------ ------------ ------- ------- 94,312 92,420 90,357 90,494 ------------ ------------ ------- ------- ------------ ------------ ------- ------- Earnings (loss) before extraordinary item............... $(15,539) $ 5,140 $37,405 $(9,599) Interest expense adjustment(2).......................... 205 191 575 665 ------------ ------------ ------- ------- Earnings (loss) before extraordinary item............... (15,334) 5,331 37,980 (8,934) Extraordinary item, net of taxes........................ (7,242) -- (112) 654 ------------ ------------ ------- ------- Net earnings (loss)..................................... $(22,576) $ 5,331 $37,868 $(8,280) ------------ ------------ ------- ------- ------------ ------------ ------- ------- Earnings (loss) per share before extraordinary item..... $ (.16) $ .06 $ .42 $ (.10) Extraordinary item per share, net of taxes.............. (.08) -- -- .01 ------------ ------------ ------- ------- Net earnings (loss) per share........................... $ (.24) $ .06 $ .42 $ (.09) ------------ ------------ ------- ------- ------------ ------------ ------- -------
- --------------- (1) 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 four months ended December 31, 1992 and the year ended August 31, 1992 and are antidilutive for the years ended December 31, 1993 and August 31, 1991 (decrease the loss per share), they are not required to be presented elsewhere in this Form 10-K. (2) Interest expense, net of taxes, that would not have been incurred had conversion of the Convertible Debentures taken place at the beginning of the period. 24 EX-13 14 HSN ANNUAL REPORT 1 Management's Discussion and Analysis of Financial Condition and Results of Operations HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES GENERAL Home Shopping Network, Inc. (the "Company") is a holding company, the subsidiaries of which conduct the day-to-day operations of the Company's various business activities. The Company's primary business is electronic retailing conducted by Home Shopping Club, Inc. ("HSC"), a wholly-owned subsidiary of the Company. As discussed in Note A to the Consolidated Financial Statements, included herein, on July 13, 1993, the Company elected to change its year end from August 31 to December 31. This change was made effective January 1, 1993. The following discussion presents the material changes in the consolidated results of operations of the Company which have occurred between the year ended December 31, 1993, and the fiscal year ended August 31, 1992, along with material changes between the four months ended December 31, 1992 and 1991 and the fiscal years ended August 31, 1992 and 1991. Reference should also be made to the Consolidated Financial Statements and Summary Financial Data included herein. As discussed in Note I to the Consolidated Financial Statements, included herein, on July 31, 1992 and December 28, 1992, the Company distributed the capital stock of its former wholly-owned subsidiaries, Precision Systems, Inc. ("PSi") and Silver King Communications, Inc. ("SKC"), respectively, as stock dividends to the Company's stockholders. As noted below, these distributions affect the comparison of revenues and expenses for the year ended December 31, 1993 versus the fiscal year ended August 31, 1992 and for the four months ended December 31, 1992 versus the four months ended December 31, 1991. In addition, the distribution of SKC affects the comparison of financial position, liquidity and capital resources at December 31, 1993 versus August 31, 1992. All tables and discussion included herein calculate the percentage changes using actual dollar amounts, versus rounded dollar amounts. YEAR ENDED DECEMBER 31, 1993 VS. FISCAL YEAR ENDED AUGUST 31, 1992 NET SALES HSC's retail sales programs are transmitted twenty-four hours a day, seven days a week, via satellite to cable television systems, affiliated broadcast television stations and satellite dish receivers. HSC produces three separate retail sales programs, HSN 1, HSN 2, and HSN Spree. HSN 1 is carried by cable television systems throughout the country and is the original HSC programming network. HSN 2 is carried by independent broadcast television stations. HSN 2 is also carried by cable television systems which primarily retransmit the broadcast television signal of one of the broadcast television stations carrying HSN 2. HSN Spree is carried primarily on a part-time basis by both cable television systems and broadcast television stations. For the year ended December 31, 1993, net sales decreased $51.2 million, or 4.6%, to $1.047 billion from $1.098 billion for the fiscal year ended August 31, 1992. Net sales of HSC decreased $43.8 million, or 4.3%, for the year ended December 31, 1993, reflecting a 22.7% decrease in the number of packages shipped while the average price per unit sold increased 29.4% compared to the fiscal year ended August 31, 1992. On a consolidated basis, $20.4 million of the net sales decrease was due to the distribution by the Company of the capital stock of PSi and SKC. These declines were somewhat offset by an increase in sales attributable to the Company's mail order subsidiary, HSN Mail Order, Inc. ("Mail Order") of $3.5 million and a $6.9 million increase in sales through the Company's retail outlets for the year ended December 31, 1993. After consideration of the distributions of SKC and PSi, net sales for the year ended December 31, 1993, declined 2.9% compared to the fiscal year ended August 31, 1992. The decline in sales for the year ended December 31, 1993, primarily occurred during the first quarter of the year. Management believes that this decline was attributable to the same factors that resulted in lower sales in the latter part of 1992, including the weak economy and a possible decline in viewership due to programming competition. The Company also made certain format and policy changes beginning in September 1992 which also may have contributed to this decline. These changes included, among other things, the visual display of shipping and handling charges on the television screen, greater program segmentation, higher priced merchandise in categories 21 2 which typically carry a higher return percentage, changes in merchandise offerings, and other show format changes. During April 1993, the Company held a week long "Big Top" sales event, primarily to liquidate certain merchandise. See "Cost of Sales." While additional sales volume was generated during this event, sales levels were lower in the second quarter of 1993 than in 1992 and this trend continued through the beginning of the third quarter of 1993. In the latter part of the third quarter through the end of 1993, however, sales levels increased, and these sales increases have continued in the early part of 1994. A significant reason for the sales increase during this period was the addition of new cable subscribers beginning in September 1993 as a result of the "must carry" provisions of the cable re-regulation law, as further discussed below. Although sales increased in the latter part of 1993 and early 1994, they are compared to a period which reflected a sales decrease. Nonetheless, management believes that recent sales levels have been positively affected by improvements initiated during 1993 in the merchandising management and sales philosophy of HSC. Although there can be no assurance that this trend will continue, management is maintaining its efforts to stimulate sales through ongoing programs which include increased availability of the "FlexPay" program to customers, as further discussed in Note A3 to the Consolidated Financial Statements included herein, changes in show host training and scheduling, enhanced use of promotional selling events, and the introduction of a private label credit card in early 1994. For the year ended December 31, 1993, the merchandise return percentage increased to 22.4% from 20.3%, compared to the fiscal year ended August 31, 1992. In addition, the higher rate of returns has continued into the early part of 1994. The primary reason for the higher return percentage was increased sales in higher priced jewelry and electronics merchandise categories which typically experience higher rates of return than other merchandise categories. Management is currently evaluating the product mix in an attempt to reduce the merchandise return rate. However, a change in product mix, if and when implemented, could also have an effect on sales volume. The Company believes that future levels of net sales of HSC will be dependent, in large part, on increases in program carriage, market penetration and further improvements in merchandising management. Program carriage is defined as the number of cable systems and broadcast television stations that carry HSC programming. Market penetration represents the level of active purchasers within a market. Cable television systems and affiliated broadcast television stations broadcast HSC programming under affiliation agreements with varying original terms. The Company seeks to increase the number of cable television systems and broadcast television stations that televise HSC programming while evaluating the expected profitability of each contract. During the twelve months ended December 31, 1993, cable television households capable of receiving HSC programming increased by approximately 6.3 million, or 22.9%, to approximately 33.8 million unduplicated cable households. This growth was achieved primarily through increased cable system carriage of signals transmitted by the Company's broadcast affiliates due to the implementation of the "must carry" provisions of the cable re-regulation law beginning in September 1993. As a result, the number of homes classified as cable television households increased and the number of broadcast households declined. Because HSC programming is now on a cable channel line-up, these former broadcast households can now more easily access the HSC programming. During the same period, broadcast television households, in areas unduplicated by HSC cable television households, decreased by approximately 3.7 million, or 12.5%, to 25.9 million households. This decrease was primarily attributable to the shift in classification of 5.8 million households from broadcast to cable. This decrease was offset by an increase of 1.7 million broadcast television households due to changes in the composition of HSC's affiliated broadcast television station group and an increase of .4 million households in the updated Nielsen household counts in the areas in which HSC broadcasts. Broadcast affiliation agreements generally call for fixed hourly payments to stations for broadcasting HSC's programming and, with proper notice, with the exception of SKC, are generally cancelable or provide for adjustments in the hourly rate paid, at HSC's or the affiliated station's option. In addition, as of December 31, 1993, HSC's programming was available to approximately 3.1 million households with satellite dish receivers. Approximately 6.3 million cable subscribers, or approximately 18.8% of the total number of unduplicated cable households receiving HSC programming, are subject to termination or renewal during 1994. The Company is pursuing both renewals and additional cable television system contracts, but channel availability, competition, cost of carriage and cable re-regulation are some of the factors affecting cable television system contracts. Although management cannot determine the percentage of expiring contracts that will be renewed or the number of 22 3 households that will be added through new contracts, management is optimistic that a majority of the contracts will be renewed. During the year ended December 31, 1993, the Company continued several incentive programs designed to increase the total number of cable subscribers able to receive HSC programming and to increase penetration in both cable and broadcast television markets. Overall, as a result of these incentive programs and the "must carry" provisions of the cable re-regulation law, as discussed below, program carriage levels increased during 1993, however, market penetration levels weakened somewhat. Management believes that one reason for the weakened market penetration is that market penetration typically lags behind increases in program carriage. As most of the increase in program carriage levels occurred during the latter part of 1993, management expects some improvement in market penetration in 1994. Programs to increase carriage included the placement of advertising with cable operators. Management believes that providing advertising revenue or other forms of incentive compensation to cable operators is a factor in securing program carriage. The purchases of cable advertising time resulted in an increase in marketing payments for the year ended December 31, 1993, compared to the fiscal year ended August 31, 1992. Programs to increase market penetration included buyer incentives which provide Club Members with discounts on merchandise purchased from HSC. For example, the Company targets existing Club Members through the "Bargaineer" magazine which, among other features, offers discounts on HSC purchases and provides a schedule of HSC's retail sales television programs. On October 5, 1992, Congress enacted a cable re-regulation law which, among other things, contains "must carry" provisions which mandate that cable companies within a broadcast television station's reach, retransmit its signal. The new law was challenged in the courts, and the United States Supreme Court has heard arguments but has not yet ruled on the constitutionality of the law. On July 2, 1993, the Federal Communications Commission voted to extend "must carry" rules to broadcast television stations with shop-at-home formats. "Must carry" requirements went into effect on October 6, 1993, and the Company has experienced a growth in carriage as previously discussed. If "must carry" is ruled unconstitutional, a portion of this growth in cable carriage may be reversed. The Company is considering a variety of strategies to further increase carriage of HSC programming and is evaluating the impact of the "must carry" provisions on its broadcast relationships. The cable re-regulation act and its interpretation, which is still forthcoming, will have a broad impact upon the Company and its ability to contract new program carriage. The Company is aggressively pursuing new contracts for program carriage in the event "must carry" is ruled unconstitutional. The Company is engaged in discussions with programming and cable entities to explore other new business opportunities. The pursuit of these potential business opportunities may include the creation of new business entities, development and distribution of broadcast and cable television programming, changes in the Company's broadcast relationships and/or expansion in the carriage of the Company's programming by operators of cable television systems. There can be no assurances that the Company will be able to reach agreements with the necessary parties to pursue these business opportunities. As in the past, the Company intends to continue to explore ways to develop and enhance its business. Accordingly, it will continue to discuss various business opportunities with media, cable programming, broadcast television, cable television, retail and entertainment entities. COST OF SALES For the year ended December 31, 1993, cost of sales increased $12.7 million, or 1.8%, to $704.0 million from $691.3 million for the fiscal year ended August 31, 1992. As a percentage of net sales, cost of sales increased to 67.3% from 63.0% for the year ended December 31, 1993, compared to the fiscal year ended August 31, 1992. Cost of sales of HSC increased $21.0 million for the year ended December 31, 1993. The increases in consolidated and HSC's cost of sales and cost of sales percentage relate primarily to the liquidation of certain inventory at less than cost, due to a change in management's merchandising philosophy as further discussed below. In addition, consolidated cost of sales was affected by a decrease of $15.4 million as a result of the distribution by the Company of the capital stock of SKC and PSi, as previously discussed. The remaining change in cost of sales for the year ended December 31, 1993, compared to the fiscal year ended August 31, 1992, is primarily attributable to Mail Order and the Company's retail outlets, which had an increase in cost of sales of $2.4 million and $5.0 million, respectively. 23 4 In connection with the change in management's merchandising philosophy, the Company made an additional provision of $20.1 million to HSC's inventory reserve in February 1993. During April 1993, the Company held a week long "Big Top" sales event, primarily featuring products sold on a liquidation basis, which provided additional sales volume. Due to the promotional nature of this event, the cost of sales percentage for products featured during this event was higher than typically experienced. The liquidation of this merchandise continued during the second and third quarters resulting in higher than usual cost of sales percentages during these periods. The above mentioned liquidation and an increase in the inventory reserve during 1993 adversely affected cost of sales. As a result of changes instituted by new management and ownership, with the aid of outside retail consultants, along with the growth in cable households as previously discussed, the Company realized improvements in sales and gross profits in the latter part of 1993 and the beginning of 1994. OPERATING EXPENSES For the year ended December 31, 1993, operating expenses increased $25.2 million, or 7.8%, to $349.5 million from $324.3 million for the fiscal year ended August 31, 1992. As a percentage of net sales, these expenses increased to 33.4% from 29.5% compared to the fiscal year ended August 31, 1992. The following table highlights the operating expense section from the Company's Consolidated Statements of Operations, including the dollar and percentage changes for the year ended December 31, 1993, compared to the fiscal year ended August 31, 1992:
------------------------------------------------------------------------------------------ OPERATING EXPENSES YEARS ENDED ------------------------------------------------ DECEMBER 31, AUGUST 31, $ % 1993 1992 CHANGE CHANGE ------------------------------------------------------------------------------------------ (In millions, except %) Selling and marketing................... $138.1 $135.8 $ 2.3 1.7 % Engineering and programming............. 93.7 54.5 39.2 71.9 General and administrative.............. 93.5 87.1 6.4 7.4 Depreciation and amortization........... 24.2 46.9 (22.7 ) (48.4 ) ------------ ---------- ------ $349.5 $324.3 $25.2 ------------ ---------- ------ ------------ ---------- ------
"Must carry" legislation, as discussed in "Net Sales," is expected to result in increases in certain operating expenses related to cable and broadcast carriage in dollars, however, as a percentage of sales, the effect is not currently determinable. SELLING AND MARKETING For the year ended December 31, 1993, selling and marketing expenses increased $2.3 million, or 1.7%, to $138.1 million from $135.8 million for the fiscal year ended August 31, 1992. As a percentage of net sales, these expenses increased to 13.2% from 12.4% compared to the fiscal year ended August 31, 1992. The major components of selling and marketing expenses are detailed below, including the dollar and percentage changes for the year ended December 31, 1993 compared to the fiscal year ended August 31, 1992:
----------------------------------------------------------------------------------------- CERTAIN SELLING AND MARKETING EXPENSES YEARS ENDED ---------------------------------------------- DECEMBER 31, AUGUST 31, $ % 1993 1992 CHANGE CHANGE ----------------------------------------------------------------------------------------- (In millions, except %) Telephone, operator and customer service................................ $ 48.5 $ 47.0 $1.5 3.2 % Commissions to cable system operators.... 33.9 34.4 (.5) (1.4 ) Marketing payments for cable advertising............................ 30.7 26.8 3.9 14.5
24 5 Telephone, operator and customer service expenses are typically related to sales and order volume. However, for the year ended December 31, 1993 compared to the fiscal year ended August 31, 1992, these expenses were higher primarily due to telephone credits totaling $2.1 million received from the Company's long distance carrier and lower salary costs in the fiscal year ended August 31, 1992. These expenses are expected to fluctuate in relation to sales and order volume in future periods. For the year ended December 31, 1993, commissions to cable system operators decreased as a result of lower sales volume, compared to the fiscal year ended August 31, 1992, and are expected generally to fluctuate in relation to sales in future periods. Marketing payments for cable advertising increased for the year ended December 31, 1993, due to previous contractual commitments for cable advertising purchases in conjunction with the Company's attempt to increase market penetration. However, as discussed in "Net Sales," market penetration weakened somewhat during 1993. The Company is seeking other alternatives to cable advertising to increase market penetration in the future. In addition, selling and marketing expenses for the year ended December 31, 1993 decreased as a result of the curtailment of the inhouse production portion of the Company's infomercial operations which had selling and marketing expenses of $2.1 million for the fiscal year ended August 31, 1992. The remaining net decrease in selling and marketing expenses is attributable to the Company's other subsidiary operations. Management believes that total selling and marketing expenses in future periods will be at higher levels as the Company maintains its efforts to increase the number of cable systems carrying HSC programming, increase market penetration and develop new electronic retailing opportunities. In addition, these expenses will increase as program carriage increases, as discussed in "Net Sales." ENGINEERING AND PROGRAMMING For the year ended December 31, 1993, engineering and programming expenses increased $39.2 million, or 71.9%, to $93.7 million from $54.5 million for the fiscal year ended August 31, 1992. As a percentage of net sales, these expenses increased to 9.0% from 5.0% compared to the fiscal year ended August 31, 1992. The increase was primarily attributable to the expense of $41.1 million incurred under the affiliation agreement with SKC during the year ended December 31, 1993. After the SKC stock distribution, as previously discussed, SKC continues to broadcast HSC's retail sales programs under affiliation agreements. HSC pays an affiliation fee to SKC, as previously discussed, based on hourly rates and, upon reaching certain sales levels, commissions on net sales. Accordingly, broadcast costs will continue to be at these higher levels in 1994. Moreover, as the Company develops new programming and telemarketing opportunities and attempts to expand its broadcast television reach for existing programming, these expenses are expected to increase in future periods. GENERAL AND ADMINISTRATIVE For the year ended December 31, 1993, general and administrative expenses increased $6.4 million, or 7.4%, to $93.5 million from $87.1 million for the fiscal year ended August 31, 1992. As a percentage of net sales, these expenses increased to 8.9% from 7.9% compared to the fiscal year ended August 31, 1992. For the year ended December 31, 1993, legal, accounting, consulting and stockholder relations expenses increased $12.5 million primarily in connection with recent litigation, the acquisition, in February 1993, of a controlling interest in the Company by a wholly-owned subsidiary of Liberty Media Corporation, and the merger proposal by QVC, Inc. Additional expenses of $12.7 million, in connection with the Company's executive stock award program, stock appreciation rights granted in 1993, increased salary expense, repairs and maintenance and administrative expenses, were incurred in the year ended December 31, 1993, compared to the fiscal year ended August 31, 1992. Management expects general and administrative expenses to decrease in 1994. The above increases were partially offset by decreases in certain general and administrative expenses primarily attributable to the distribution of the capital stock of SKC and PSi, as previously discussed, which reduced general and administrative expenses by $15.1 million for the year ended December 31, 1993, compared to the fiscal year ended August 31, 1992. In addition, equipment rental expense decreased $3.6 million for the year ended December 31, 1993, compared to the fiscal year ended August 31, 1992, relating to new operating leases for computer equipment with more favorable terms. 25 6 DEPRECIATION AND AMORTIZATION For the year ended December 31, 1993, depreciation and amortization decreased $22.7 million, or 48.4%, to $24.2 million from $46.9 million for the fiscal year ended August 31, 1992. The decrease was primarily attributable to the distribution of the capital stock of SKC and PSi, as previously discussed, which resulted in a reduction of depreciation and amortization of $23.4 million for the year ended December 31, 1993, compared to the fiscal year ended August 31, 1992. Depreciation and amortization is expected to be somewhat higher in 1994. OTHER INCOME (EXPENSE) For the year ended December 31, 1993, net other expense decreased $5.1 million to $12.6 million from $17.7 million for the fiscal year ended August 31, 1992. Interest income increased $12.8 million for the year ended December 31, 1993, relating to a note receivable as a result of the distribution of the capital stock of SKC, as discussed in Note B to the Consolidated Financial Statements included herein. Interest income relating to this note receivable will decrease slightly in 1994. This increase was offset by a $3.5 million decrease in interest earned on available cash due to lower cash balances and interest rates. Interest expense decreased $11.4 million for the year ended December 31, 1993, primarily relating to the redemption and refinancing of the Company's 11 3/4% Senior Notes (the "Senior Notes"), as discussed in "Financial Position, Liquidity and Capital Resources." As a result of the redemptions and refinancings, interest expense is expected to remain at this lower level in 1994, and in subsequent years, subject to interest rate fluctuations. The above mentioned decreases in net other expense are partially offset by litigation settlements totalling $13.0 million during 1993 and an increase in miscellaneous expense for the quarter ended March 31, 1993, primarily due to nonrecurring costs which include $2.6 million of inventory contributed to charity as a result of the change in management's merchandising philosophy regarding the types of merchandise sold on HSC. INCOME TAXES The Company's effective tax rate was a benefit of (20.6)% for the year ended December 31, 1993, and an expense of 42.0% for the fiscal year ended August 31, 1992. The Company's effective tax rate for these periods differed from the statutory rate due primarily to the amortization of goodwill and other acquired intangible assets relating to acquisitions from prior years, state income taxes and the provision for interest on adjustments proposed by the Internal Revenue Service ("IRS"), as discussed in Note E to the Consolidated Financial Statements included herein. The Company's effective tax rate is expected to vary from the statutory rate in 1994, primarily for the above mentioned reasons. EXTRAORDINARY ITEM -- LOSS ON EARLY EXTINGUISHMENT OF LONG-TERM OBLIGATIONS As discussed in "Financial Position, Liquidity and Capital Resources," and Note D to the Consolidated Financial Statements included herein, the Company refinanced and retired $100.0 million and $43.3 million of the outstanding balance of the Senior Notes on February 19, 1993, and April 15, 1993, respectively. In addition, the Company also retired the remaining $16.9 million principal balance of its 5 1/2% Convertible Subordinated Debentures (the "Debentures") on May 11, 1993. The Company also purchased and retired $4.0 million and $.1 million of Senior Notes and Debentures, respectively, during the fiscal year ended August 31, 1992. These transactions resulted in an extraordinary item -- loss on early extinguishment of long-term obligations, net of taxes for the year ended December 31, 1993, and the fiscal year ended August 31, 1992. NET EARNINGS (LOSS) The Company had a net loss of $(22.8) million, or $(.26) per share, for the year ended December 31, 1993, compared to net earnings of $37.3 million, or $.42 per share, for the fiscal year ended August 31, 1992. The loss for the year ended December 31, 1993, was primarily attributable to the following factors: decrease in net sales of $51.2 million compared to the fiscal year ended August 31, 1992; the liquidation of a portion of the Company's inventory at less than cost, the increase in the inventory reserve, as discussed in "Cost of Sales" and the litigation settlements, as discussed in "Other Income (Expense)" and Note H to the Consolidated Financial Statements 26 7 included herein. For the year ended December 31, 1993, the results include an extraordinary loss of $(7.2) million, or $(.08) per share, compared to an extraordinary loss of $(.1) million, with no per share effect, for the fiscal year ended August 31, 1992. FOUR MONTHS ENDED DECEMBER 31, 1992 (AUDITED) VS. FOUR MONTHS ENDED DECEMBER 31, 1991 (UNAUDITED) NET SALES For the four months ended December 31, 1992, net sales decreased $29.4 million, or 7.6%, to $357.2 million from $386.6 million for the four months ended December 31, 1991. Net sales of HSC decreased $26.2 million, or 7.4%, for the four months ended December 31, 1992. This decline reflected a decrease in the number of packages shipped while the average price per unit sold increased slightly compared to the four months ended December 31, 1991. Management believes this decline in sales was attributable to the weak economy, uncertainty in buyers' confidence levels caused by the November 1992 elections and a possible decline in viewership due to programming competition. The Company also made certain format and policy changes in the beginning of the four month period in 1992, which also may have contributed to this decline. These changes included, among other factors, the visual display of shipping and handling charges on the television screen, greater program segmentation, higher priced merchandise in categories which typically carry a higher return percentage, changes in merchandise offerings, and other format changes. In an effort to stimulate merchandise sales during the four months, the Company instituted HSC customer incentive programs, which included increased sales discounts and reduced shipping and handling charges. These programs which may have stimulated sales for the period, nevertheless resulted in a net sales and gross profit decrease of approximately $8.3 million. These programs were subsequently curtailed. In addition, net sales decreased $5.9 million due to the distribution by the Company of the capital stock of PSi. The above net sales decreases were offset in part by increases in sales relating to the Company's other subsidiary operations. Merchandise returns for the four months ended December 31, 1992, remained relatively constant as a percentage of sales decreasing to 20.0% from 20.3% compared to the four months ended December 31, 1991. COST OF SALES For the four months ended December 31, 1992, cost of sales decreased $12.0 million, or 4.9%, to $232.5 million from $244.5 million for the four months ended December 31, 1991. As a percentage of net sales, cost of sales increased to 65.1% from 63.2% compared to the same period last year. Cost of sales of HSC decreased $6.4 million. In addition, consolidated cost of sales was affected by a decrease of $4.9 million for the four months ended December 31, 1992, as a result of the distribution by the Company of the capital stock of PSi. The balance of the change in cost of sales compared to the same period last year relates to the Company's other subsidiary operations. The increase in cost of sales percentage and the corresponding decrease in gross profit as a percentage of net sales is primarily attributable to an increase in cost of sales percentage of HSC which was related to the institution of incentive programs, offering increased sales discounts and reduced shipping and handling charges, which had a negative impact on gross profit and net sales of HSC, as discussed in "Net Sales." OPERATING EXPENSES For the four months ended December 31, 1992, operating expenses decreased $2.0 million, or 1.8%, to $107.1 million from $109.1 million for the four months ended December 31, 1991. As a percentage of net sales, these expenses increased to 30.0% from 28.2% compared to the four months ended December 31, 1991. 27 8 The following table highlights the operating expense section from the Company's Consolidated Statements of Operations, including the dollar and percentage changes for the four months ended December 31, 1992, compared to the four months ended December 31, 1991:
------------------------------------------------------------------------------------------- OPERATING EXPENSES FOUR MONTHS ENDED DECEMBER 31, ------------------------------------------- 1991 $ % 1992 UNAUDITED CHANGE CHANGE ------------------------------------------------------------------------------------------- (In millions, except %) Selling and marketing......................... $ 45.3 $ 45.0 $ .3 0.6% Engineering and programming................... 18.1 17.8 .3 2.0 General and administrative.................... 29.3 31.3 (2.0 ) (6.3) Depreciation and amortization................. 14.4 15.0 (.6 ) (4.2) ------ --------- ------ $107.1 $ 109.1 $(2.0 ) ------ --------- ------ ------ --------- ------
SELLING AND MARKETING For the four months ended December 31, 1992, selling and marketing expenses increased $.3 million, or 0.6%, to $45.3 million from $45.0 million for the four months ended December 31, 1991. As a percentage of net sales, these expenses increased to 12.7% from 11.6% compared to the four months ended December 31, 1991. The major components of selling and marketing expenses are detailed below including the dollar and percentage changes for the four months ended December 31, 1992, compared to the four months ended December 31, 1991:
------------------------------------------------------------------------------------------- CERTAIN SELLING AND MARKETING EXPENSES FOUR MONTHS ENDED DECEMBER 31, ------------------------------------------ 1991 $ % 1992 UNAUDITED CHANGE CHANGE ------------------------------------------------------------------------------------------- (In millions, except %) Telephone, operator and customer service....... $16.2 $14.2 $2.0 14.1% Commissions to cable system operators.......... 11.2 12.1 (.9) (7.4) Marketing payments for cable advertising....... 9.0 8.9 .1 1.1
Telephone, operator and customer service expenses are typically related to sales and order volume. However, for the four months ended December 31, 1992, compared to the same period last year, these expenses were higher due to a rate reduction and a volume discount credit totaling $2.1 million received from the Company's long distance carrier in the four months ended December 31, 1991 and increased rates during the four months ended December 31, 1992. Commissions to cable system operators decreased as a result of lower sales volume. Marketing payments for cable advertising increased slightly for the four months ended December 31, 1992. The remaining changes in selling and marketing expenses for the four months ended December 31, 1992, primarily relate to the in-house production portion of its infomercial operations which had selling and marketing expenses of $.8 million for the four months ended December 31, 1991, and which were discontinued in May 1992. The remaining change relates primarily to other subsidiary operations. ENGINEERING AND PROGRAMMING For the four months ended December 31, 1992, engineering and programming expenses increased $.3 million, or 2.0%, to $18.1 million from $17.8 million for the four months ended December 31, 1991. As a percentage of net sales, these expenses increased to 5.1% from 4.6% compared to the four months ended December 31, 1991. 28 9 GENERAL AND ADMINISTRATIVE For the four months ended December 31, 1992, general and administrative expenses decreased $2.0 million, or 6.3%, to $29.3 million from $31.3 million for the four months ended December 31, 1991. As a percentage of net sales, these expenses increased to 8.2% from 8.1% compared to the four months ended December 31, 1991. Equipment rent expense decreased $.9 million compared to the same period in 1991 relating to new operating leases for computer equipment with more favorable terms. Additional savings of $.9 million were realized as a result of the curtailment of subsidiary operations in the infomercial and 800/900 telemarketing businesses in May 1992. DEPRECIATION AND AMORTIZATION For the four months ended December 31, 1992, depreciation and amortization decreased $.6 million, or 4.2%, to $14.4 million from $15.0 million for the four months ended December 31, 1991. The decrease was primarily attributable to a decrease in depreciation expense of $.6 million due to the distribution by the Company of the capital stock of PSi. OTHER INCOME (EXPENSE) For the four months ended December 31, 1992, net other expense increased $.2 million to $6.1 million from $5.9 million for the four months ended December 31, 1991. The increase was primarily attributable to an increase in charitable contributions of $.1 million relating to disaster relief efforts. In addition, miscellaneous expenses, primarily related to other subsidiary operations, increased approximately $.6 million. These expense increases were offset by a decrease in interest expense of approximately $.9 million related to the redemption of $37.5 million of Senior Notes on October 15, 1992, as discussed in "Financial Position, Liquidity and Capital Resources." INCOME TAXES The Company's effective tax rate was 55.1% for the four months ended December 31, 1992, and 42.0% for the four months ended December 31, 1991. The Company's effective tax rate for the four months ended December 31, 1992, differed from the statutory rate due primarily to the distribution of the capital stock of SKC, as discussed in Note I to the Consolidated Financial Statements included herein, 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 E to the Consolidated Financial Statements included herein. NET EARNINGS The Company had net earnings of $5.1 million, or $.06 per share, for the four months ended December 31, 1992, compared to net earnings of $15.7 million, or $.18 per share, for the four months ended December 31, 1991. The decrease in net earnings was primarily attributable to a decrease in net sales of $29.4 million compared to the four months ended December 31, 1991, as discussed in "Net Sales." FISCAL YEAR ENDED AUGUST 31, 1992 VS. FISCAL YEAR ENDED AUGUST 31, 1991 NET SALES For the year ended August 31, 1992, net sales increased $19.2 million, or 1.8%, to $1.098 billion from $1.079 billion in fiscal 1991. Net sales of HSC increased $24.8 million for the year ended August 31, 1992 primarily due to an increase in the average price per unit sold while the number of packages shipped remained relatively constant compared to fiscal 1991. In addition, sales of the Company's former subsidiary, PSi, increased $2.6 million to $13.0 million for the year ended August 31, 1992 primarily relating to a contract for the purchase of its proprietary voice processing platform. The above net sales increases were reduced by a decrease in sales by Mail Order of $8.7 million for the year ended August 31, 1992. This decrease in sales volume relates to the discontinuance of two catalogs during the fourth quarter of fiscal 1991. See "Depreciation and Amortization." The balance of the change in sales compared to fiscal 1991 relates to the Company's other subsidiary operations. Merchandise returns for the year ended August 31, 29 10 1992, increased as a percentage of sales to 20.3% from 19.6% compared to fiscal 1991. This increase primarily relates to a change in product mix to categories which typically have a higher merchandise return percentage and a higher gross profit percentage, as discussed below. COST OF SALES For the year ended August 31, 1992, cost of sales increased $2.2 million, or 0.3%, to $691.3 million from $689.1 million for fiscal 1991. As a percentage of net sales, cost of sales in fiscal 1992 decreased to 63.0% from 63.9% compared to fiscal 1991. This decrease in cost of sales percentage and the corresponding increase in gross profit as a percentage of net sales was primarily attributable to an increase in sales by HSC of products in categories which typically carry a higher gross profit. The volume of merchandise liquidated through wholesale channels and the Company's retail outlets increased $2.1 million, or 12.8%, in fiscal 1992 but cost of sales for liquidated merchandise decreased $3.6 million to $38.8 million compared to $42.4 million in fiscal 1991 resulting in higher margins. In addition, cost of sales for PSi increased $4.1 million in fiscal 1992 resulting in a decrease in gross margin of $1.5 million. The above changes in cost of sales amounts were offset by a decrease in cost of sales of Mail Order of $6.7 million and a corresponding decrease in gross margin of $2.0 million in fiscal 1992 compared to fiscal 1991 which relates to the discontinuance of two catalogs during the fourth quarter of fiscal 1991 as previously discussed. The remaining increase was attributable to the Company's other subsidiaries. OPERATING EXPENSES For the year ended August 31, 1992, operating expenses decreased $.5 million, or 0.2%, to $324.3 million from $324.8 million for fiscal 1991. As a percentage of net sales, these expenses decreased to 29.5% from 30.1% compared to fiscal 1991. The following table highlights the operating expense section from the Company's Consolidated Statements of Operations, including the dollar and percentage changes for the year ended August 31, 1992, compared to the year ended August 31, 1991:
------------------------------------------------------------------------------------------- OPERATING EXPENSES YEARS ENDED AUGUST 31, ----------------------------------------- $ % 1992 1991 CHANGE CHANGE ------------------------------------------------------------------------------------------- (In millions, except %) Selling and marketing........................... $135.8 $132.0 $ 3.8 2.9% Engineering and programming..................... 54.5 50.5 4.0 7.8 General and administrative...................... 87.1 91.1 (4.0 ) (4.4) Depreciation and amortization................... 46.9 51.2 (4.3 ) (8.5) ------ ------ ------ $324.3 $324.8 $( .5 ) ------ ------ ------ ------ ------ ------
SELLING AND MARKETING For the year ended August 31, 1992, selling and marketing expenses increased $3.8 million, or 2.9%, to $135.8 million from $132.0 million for fiscal 1991. As a percentage of net sales, these expenses increased to 12.4% from 12.2% compared to fiscal 1991. 30 11 The major components of selling and marketing expenses are detailed below including the dollar and percentage changes for the year ended August 31, 1992 compared to the year ended August 31, 1991:
------------------------------------------------------------------------------------------- CERTAIN SELLING AND MARKETING EXPENSES YEARS ENDED AUGUST 31, --------------------------------------- $ % 1992 1991 CHANGE CHANGE ------------------------------------------------------------------------------------------- (In millions, except %) Telephone, operator and customer service.......... $47.0 $46.4 $ .6 1.3% Commissions to cable system operators............. 34.4 32.8 1.6 4.9 Marketing payments for cable advertising.......... 26.8 23.6 3.2 13.6
Telephone, operator and customer service expenses are typically related to sales and order volume. For the year ended August 31, 1992 compared to fiscal 1991, these expenses increased at a rate lower than the sales increase primarily because customer call volume increases were offset by telephone rate reductions from the Company's long distance carrier and lower salary costs in fiscal 1992. These cost comparisons were relatively unaffected by the telephone credits received from the Company's long distance carrier of $2.1 million and $2.2 million in fiscal 1992 and fiscal 1991, respectively. Commissions to cable system operators increased at a lower rate than in fiscal 1991. Marketing payments for cable advertising increased at a higher rate than sales for the year ended August 31, 1992, primarily due to cable contracts negotiated over the previous three years in a highly competitive environment. However, these payments increased at a lower rate than in fiscal 1991. The remaining changes in selling and marketing expenses for the year ended August 31, 1992, primarily related to the Company's infomercial operations which commenced during the fourth quarter of fiscal 1991. In the third quarter of fiscal 1992, the Company substantially curtailed the in-house production portion of its infomercial operations which had selling and marketing expenses of $2.1 million for the year ended August 31, 1992. Additional decreases in selling and marketing of $2.4 million resulted from more focused efforts in direct mail and print media advertising including reduced costs relating to certain subsidiary companies. ENGINEERING AND PROGRAMMING For the year ended August 31, 1992, engineering and programming expenses increased $4.0 million, or 7.8%, to $54.5 million from $50.5 million for fiscal 1991. As a percentage of net sales, these expenses increased to 5.0% from 4.7% compared to fiscal 1991. The primary cause for this increase was additional satellite and operating costs relating to the Company's 24-hour infomercial channel, and the costs associated with the curtailment of the in-house production of infomercials. These costs totaled $3.1 million for the year ended August 31, 1992. By the end of calendar year 1992, the lease for the infomercial transponder expired and all broadcasting of infomercials ceased. In addition, engineering and programming expenses increased $2.7 million, compared to fiscal 1991, as a result of increased costs to support technological upgrades and develop new telemarketing opportunities. These increases were partially offset by decreases related to payments to broadcast television stations under affiliation agreements of $1.8 million for the year ended August 31, 1992 compared to fiscal 1991. GENERAL AND ADMINISTRATIVE For the year ended August 31, 1992, general and administrative expenses decreased $4.0 million, or 4.4%, to $87.1 million from $91.1 million for fiscal 1991. As a percentage of net sales, these expenses decreased to 7.9% from 8.4% compared to fiscal 1991. For the year ended August 31, 1992, legal fees decreased $1.8 million compared to fiscal 1991. Additional legal fees were incurred in fiscal 1991 in connection with litigation that was settled in that year. Mail Order general and administrative expenses decreased $2.4 million, compared to fiscal 1991, as a result of the discontinuance of two catalogs in the fourth quarter of fiscal 1991. A further reduction of $1.5 million related to the disposition of the 31 12 Company's remaining pharmacy operations, $.8 million of which resulted from its sale in the first quarter of fiscal 1991. The above decreases were partially offset by increases in equipment rent expense of $.8 million for the year ended August 31, 1992. Additional expenses were incurred by subsidiary operations in the infomercial and 800/900 telemarketing businesses which totaled $1.3 million for the year ended August 31, 1992. These subsidiary operations were substantially curtailed during the third quarter of fiscal 1992. The remaining difference in general and administrative expenses relates primarily to the Company's other subsidiary operations. DEPRECIATION AND AMORTIZATION For the year ended August 31, 1992, depreciation and amortization decreased $4.3 million, or 8.5%, to $46.9 million from $51.2 million for fiscal 1991. The decrease was primarily attributable to the discontinuance of two catalogs by Mail Order in the fourth quarter of fiscal 1991. This resulted in decreased mailing list amortization of $9.3 million for the year ended August 31, 1992. This decrease was partially offset by increased depreciation expense of $3.5 million for the year ended August 31, 1992, compared to fiscal 1991, primarily due to capital asset additions. OTHER INCOME (EXPENSE) For the year ended August 31, 1992, net other expense decreased $40.7 million to $17.7 million for the year ended August 31, 1992 from $58.4 million for fiscal 1991. The decrease was primarily attributable to litigation settlements amounting to $33.0 million recorded in the second quarter of fiscal 1991. Additionally, in the fourth quarter of fiscal 1991, the Company established a reserve of $6.2 million representing the entire amount lent to Skypix Corporation and Northwest Starscan Limited Partnership. These are more fully discussed in Notes H and A5, to the Consolidated Financial Statements included herein. INCOME TAXES The Company's effective tax rate was 42.0% for the year ended August 31, 1992, compared to 256.9% for fiscal 1991. For both fiscal years, the Company's effective tax rate was higher than the statutory rate due primarily to the amortization of goodwill and other acquired intangible assets relating to acquisitions from prior years. In addition, during fiscal 1991 the Company increased its income tax provision by $10.4 million to account for the potential impact of certain adjustments proposed by the IRS as discussed in Note E to the Consolidated Financial Statements included herein. EXTRAORDINARY ITEM -- EXTINGUISHMENT OF LONG-TERM OBLIGATIONS During the years ended August 31, 1992 and 1991, the Company purchased and retired long-term obligations prior to scheduled maturity and recognized extraordinary gains and losses as detailed in Note D to the Consolidated Financial Statements included herein. NET EARNINGS (LOSS) The Company had net earnings of $37.3 million, or $.42 per share, for the year ended August 31, 1992, compared to a net loss of $(8.9) million, or $(.10) per share, for fiscal 1991. The loss for the year ended August 31, 1991 was the result of the factors discussed above, primarily: the litigation settlements; additions to the income tax reserve; provision to reserve all amounts lent to Skypix Corporation and Northwest Starscan Limited Partnership; and increased amortization of mailing lists relating to the discontinuance of two Mail Order catalogs. For the year ended August 31, 1992, the results included an extraordinary after-tax loss of $(.1) million, with no per share effect, while the results for the year ended August 31, 1991 included an extraordinary after-tax gain of $.7 million, or $.01 per share from the purchase and retirement of long-term obligations prior to scheduled maturity. SEASONALITY The Company believes that seasonality does impact its business but not to the same extent it impacts the retail industry in general. 32 13 FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES The following table highlights various balances and ratios from the Consolidated Financial Statements included herein:
----------------------------------------------------------------------------------------- DECEMBER 31, AUGUST 31, DECEMBER 31, 1992 1992 1993 ----------------------------------------------------------------------------------------- Working capital (millions)............... $ 8.1 $ 38.5 $ 47.0 Current ratio............................ 1.04:1 1.28:1 1.30:1 Inventories, net (millions).............. $ 110.9 $ 119.1 $ 113.7 Annual inventory turnover................ 6.12 5.56 6.06
The decrease in working capital from December 31, 1992, to December 31, 1993, primarily relates to the net loss, adjusted for non-cash items, of $31.0 million which was offset by a net reduction of $78.3 million in long-term obligations, capital expenditures and increases in intangible assets of $17.5 million. The decrease in working capital from August 31, 1992 to December 31, 1993, primarily relates to the net loss adjusted for non-cash items of $52.6 million which was offset by a net reduction of $91.6 million of long-term obligations, capital expenditures and increases in intangible assets of $27.9 million and $5.2 million in cash contributed to SKC as part of the distribution. In the twelve and sixteen month periods mentioned above, decreases were partially offset by proceeds of $31.9 million and $33.7 million, respectively, from the issuance of common stock upon the exercise of employee and cable operator stock options. Inventories decreased to $110.9 million at December 31, 1993, from $119.1 million at December 31, 1992, and from $113.7 million at August 31, 1992. The inventory balance is net of a reserve of $25.2 million at December 31, 1993, which represents an increase from $13.1 million and $13.3 million at December 31, 1992 and August 31, 1992, respectively. This increase relates primarily to the change in management's sales and merchandising philosophy as discussed in "Cost of Sales." The increase in the gross inventory balance at December 31, 1993, over December 31, 1992 was not considered significant, and generally lower levels are expected in the early part of 1994. Capital expenditures for the year ended December 31, 1993, were approximately $17.6 million. These expenditures were primarily for additional telecommunications equipment, technological upgrades and development of telemarketing opportunities. The Company estimates capital expenditures will range between $10.0 and $15.0 million in 1994. The Company provided the remaining $2.8 million of the $10.0 million investment in The National Registry Inc. during 1993. The Company's working capital needs and capital expenditure requirements for the year ended December 31, 1993, were met from funds provided by operations. Surplus funds were invested in short-term investments. In accordance with the terms of the indenture governing the Senior Notes, the Company redeemed, as a mandatory sinking fund payment, $37.5 million principal amount of Senior Notes on October 15, 1992. This payment was satisfied by a cash redemption at 100 percent of the principal amount, plus accrued interest to the redemption date. Management used available cash from internally generated funds of $27.5 million and borrowed $10.0 million, at a 4.75% interest rate, from available unsecured bank credit facilities to satisfy this requirement. This $10.0 million borrowing was repaid on December 16, 1992. On December 18, 1992, the Company entered into a $60.0 million unsecured senior term loan facility, $25.0 million of which matures on each of June 15, 1994, and June 15, 1995, and $10.0 million of which matures on December 15, 1995. On the same date, the Company also entered into a $40.0 million unsecured senior revolving credit facility having a three year term. This three year facility amended and restated in its entirety the Company's previous $50.0 million senior unsecured revolving credit facility. On February 4, 1993, the Company entered into a $50.0 million senior unsecured term loan facility, $25.0 million of which matures on each of January 31, 1997, and January 31, 1998. Both term loans and the revolver carry an interest rate on borrowings tied to the London Interbank Offered Rate ("LIBOR"), the Federal Funds Rate, or the Prime Rate, plus an applicable margin, at the Company's option. 33 14 As discussed in Note D to the Consolidated Financial Statements included herein, during 1993, the Company redeemed and refinanced the remaining balances of Senior Notes and Debentures through use of available working capital and $140.0 million of the above mentioned bank financing agreements. These early retirements of the Senior Notes and Debentures reduced interest expense in 1993 compared to the fiscal year ended August 31, 1992, by reducing the interest rate on the outstanding balances mentioned above. In addition to the $150.0 million bank financing described above, as of February 28, 1994, the Company had $25.0 million of bank credit lines which back letters of credit and which are used exclusively to facilitate inventory importation. Presentation of letters of credit by vendors results in an immediate charge to the Company's account with no interest charges incurred. Outstanding letters of credit amounted to $14.3 million at February 28, 1994, leaving $10.7 million available. Although the Company had an operating loss for the year ended December 31, 1993 compared to an operating profit for the fiscal year ended August 31, 1992, the Company believes that its recurring working capital needs and capital expenditure requirements will continue to be met primarily through internally generated funds. In addition, the Company's portion of litigation settlements, for which $13.0 million has been accrued, is expected to be paid in 1994 from internally generated funds. The Company also intends to use available cash or bank facilities to meet the $25.0 million senior term loan principal payment due on June 15, 1994. At February 28, 1994, the Company had available $40.0 million of unsecured bank facilities, as discussed above. For the year ended December 31, 1993, the Company did not pay any cash dividends. However, on December 28, 1992, the Company distributed the capital stock of SKC to the Company's stockholders, in the form of a pro rata stock dividend. The distribution also included Telemation, Inc., formerly a wholly-owned subsidiary of the Company that operates video production and post-production facilities, the capital stock of which was contributed to SKC prior to the distribution. On the distribution date, intercompany indebtedness in the amount of $135.2 million owed by SKC to the Company was converted into a secured long-term senior loan, bearing interest at 9.5%. The transaction resulted in a stock dividend with a book value of $10.0 million. Prior to the distribution, SKC accounted for less than 1% of the Company's consolidated net sales and approximately 30% of consolidated total assets. However, after the distribution, the Company's consolidated total assets decreased less than 4.5%. This distribution did not materially affect the liquidity position of the Company. At February 28, 1994, approximately 1.2 million options to purchase the Company's common stock were outstanding and exercisable at prices ranging between $3.25 and $14.75. The exercise of such stock options, would result in a cash inflow of $7.2 million to the Company. 34 15 INDEPENDENT AUDITORS' REPORTS 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, 1993 and 1992 and the related consolidated statements of operations, stockholders' equity, and cash flows for the year ended December 31, 1993 and the four months ended December 31, 1992. 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, 1993 and 1992, and the results of their operations and their cash flows for the year ended December 31, 1993 and the four months ended December 31, 1992 in conformity with generally accepted accounting principles. February 15, 1994 St. Petersburg, Florida The Board of Directors Home Shopping Network, Inc. We have audited the accompanying consolidated balance sheet of Home Shopping Network, Inc. and subsidiaries (the "Company") as of August 31, 1992 and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the two years in the period ended August 31, 1992. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these 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, such consolidated financial statements present fairly, in all material respects, the financial position of the Company at August 31, 1992 and the results of its operations and its cash flows for each of the two years in the period ended August 31, 1992 in conformity with generally accepted accounting principles. As discussed in Note H to the consolidated financial statements, the Company is a defendant in a lawsuit styled Allweiss v. HSN, et.al. and has been asked to provide documents in connection with investigations of matters relating to the Company by the Securities and Exchange Commission and a federal grand jury. The ultimate outcome of these matters cannot presently be determined. Accordingly, no provision for any loss, if any, that may result upon resolution of these matters has been made in the accompanying consolidated financial statements. Tampa, Florida October 15, 1992 (February 15, 1994 as to Note H to the consolidated financial statements) 35 16 Consolidated Balance Sheets HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
- ------------------------------------------------------------------------------------------------------------------ DECEMBER 31, -------------------------- August 31, ASSETS 1993 1992 1992 - ------------------------------------------------------------------------------------------------------------------ (In thousands) CURRENT ASSETS Cash and cash equivalents.......................................... $ 35,566 $ 19,421 $ 53,548 Accounts receivable (net of an allowance for doubtful accounts of $1,627, $1,798 and $2,233, respectively)......................... 27,849 13,140 11,444 Note and interest receivable from related party.................... 5,707 4,211 -- Inventories, net................................................... 110,930 119,053 113,651 Deferred income taxes.............................................. 29,279 15,605 16,149 Other, net......................................................... 8,070 6,895 7,094 ---------- -------- ---------- Total current assets....................................... 217,401 178,325 201,886 PROPERTY, PLANT AND EQUIPMENT, AT COST Computer and broadcast equipment................................... 107,439 98,403 151,359 Buildings and leasehold improvements............................... 71,283 70,012 89,686 Furniture and other equipment...................................... 48,091 43,866 45,529 ---------- -------- ---------- 226,813 212,281 286,574 Less accumulated depreciation and amortization............. 105,777 85,924 137,481 ---------- -------- ---------- 121,036 126,357 149,093 Land............................................................... 17,708 16,417 19,650 Construction in progress........................................... 2,626 3,219 18,678 ---------- -------- ---------- 141,370 145,993 187,421 OTHER ASSETS Note receivable from related party (net of current maturity)....... 126,597 130,961 -- Long-term investments.............................................. 10,000 7,225 10,845 Intangible assets, net............................................. 2,658 8,022 100,969 Other assets and notes receivable.................................. 3,117 7,387 18,549 ---------- -------- ---------- 142,372 153,595 130,363 ---------- -------- ---------- $ 501,143 $477,913 $519,670 ---------- -------- ---------- ---------- -------- ---------- - ------------------------------------------------------------------------------------------------------------------ LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------------------------------------------------------------------------------------ CURRENT LIABILITIES Current maturities of long-term obligations........................ $ 25,345 $ 3,564 $ 27,979 Accounts payable................................................... 88,858 62,175 48,725 Income taxes payable............................................... 15,586 22,252 20,115 Accrued liabilities: Litigation settlements........................................... 16,000 -- -- Sales returns.................................................... 13,632 12,338 11,416 Sales taxes...................................................... 9,481 9,137 8,959 Interest......................................................... 1,210 4,219 8,405 Other............................................................ 39,236 26,147 29,283 ---------- -------- ---------- Total current liabilities.................................. 209,348 139,832 154,882 LONG-TERM OBLIGATIONS (net of current maturities).................. 86,927 159,190 172,856 DEFERRED INCOME TAXES.............................................. 8,314 8,742 21,603 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 76,172,890 and 67,148,326 at December 31, 1993 and 1992, respectively, and 66,740,955 at August 31, 1992.................. 762 671 667 Class B -- convertible common stock -- $.01 par value; authorized, issued and outstanding, 20,559,456 shares at December 31, 1993 and 24,159,456 shares at both December 31, 1992, and August 31, 1992............................................................. 206 242 242 Additional paid-in capital......................................... 160,371 115,846 112,254 Retained earnings.................................................. 52,783 75,564 80,424 Treasury stock -- 3,105,700 common shares, at cost................. (14,027) (14,027) (14,027) Unearned compensation.............................................. (3,541) (8,147) (9,231) ---------- -------- ---------- 196,554 170,149 170,329 ---------- -------- ---------- $ 501,143 $477,913 $519,670 ---------- -------- ---------- ---------- -------- ----------
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 36 17 Consolidated Statements of Operations HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
- -------------------------------------------------------------------------------------------------------- FOUR MONTHS YEAR ENDED ENDED YEARS ENDED AUGUST 31, DECEMBER 31, DECEMBER 31, ----------------------- 1993 1992 1992 1991 - --------------------------------------------------------------------------------------------------------- (In thousands, except per share data) NET SALES........................................ $ 1,046,580 $357,166 $1,097,787 $1,078,547 Cost of sales.................................... 704,040 232,530 691,328 689,149 ------------ ------------ ---------- ---------- Gross profit............................ 342,540 124,636 406,459 389,398 ------------ ------------ ---------- ---------- Operating expenses: Selling and marketing.......................... 138,092 45,248 135,794 131,960 Engineering and programming.................... 93,686 18,144 54,501 50,564 General and administrative..................... 93,539 29,309 87,068 91,064 Depreciation and amortization.................. 24,172 14,366 46,894 51,240 ------------ ------------ ---------- ---------- 349,489 107,067 324,257 324,828 ------------ ------------ ---------- ---------- Operating profit (loss)................. (6,949 ) 17,569 82,202 64,570 Other income (expense): Interest income................................ 13,655 1,142 4,384 4,750 Interest expense............................... (10,863 ) (6,651) (22,299) (23,176) Miscellaneous.................................. (2,410 ) (614) 205 (7,028) Litigation settlements......................... (13,000 ) -- -- (33,000) ------------ ------------ ---------- ---------- (12,618 ) (6,123) (17,710) (58,454) ------------ ------------ ---------- ---------- Earnings (loss) before income taxes and extraordinary item............................. (19,567 ) 11,446 64,492 6,116 Income tax expense (benefit)..................... (4,028 ) 6,306 27,087 15,715 ------------ ------------ ---------- ---------- Earnings (loss) before extraordinary item........ (15,539 ) 5,140 37,405 (9,599) Extraordinary item -- gain (loss) on early extinguishment of long-term obligations (net of tax expense (benefit) of $(4,395), $-0-, $(82) and $451, respectively)........................ (7,242 ) -- (112) 654 ------------ ------------ ---------- ---------- NET EARNINGS (LOSS).............................. $ (22,781 ) $ 5,140 $ 37,293 $ (8,945) ------------ ------------ ---------- ---------- ------------ ------------ ---------- ---------- Earnings (loss) per common share: Earnings (loss) before extraordinary item...... $ (.18 ) $ .06 $ .42 $ (.11) Extraordinary item, net........................ (.08 ) -- -- .01 ------------ ------------ ---------- ---------- Net earnings (loss)............................ $ (.26 ) $ .06 $ .42 $ (.10) ------------ ------------ ---------- ---------- ------------ ------------ ---------- ----------
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 37 18 Consolidated Statements of Stockholders' Equity HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------------------------------------------------- CLASS B CONVERTIBLE ADDITIONAL UNEARNED COMMON COMMON PAID-IN RETAINED TREASURY COMPEN- STOCK STOCK CAPITAL EARNINGS STOCK SATION TOTAL - --------------------------------------------------------------------------------------------------------------------------- (In thousands) BALANCE AT AUGUST 31, 1990............. $ 661 $ 242 $ 91,841 $ 88,655 $ (3,918) $ -- $ 177,481 Issuance of common stock upon exercise of stock options..................... -- -- 256 -- -- -- 256 Issuance of common stock upon conversion of debentures............. -- -- 5 -- -- -- 5 Issuance of common stock in connection with employee stock bonus plan....... -- -- 11 -- -- -- 11 Unearned compensation related to executive stock award program........ -- -- 15,299 -- -- (15,299 ) -- Income tax benefit related to stock options exercised.................... -- -- 294 -- -- -- 294 Expense related to executive stock award program........................ -- -- -- -- -- 2,846 2,846 Purchases of treasury stock, at cost... -- -- -- -- (10,109) -- (10,109) Net loss for the year ended August 31, 1991................................. -- -- -- (8,945) -- -- (8,945) ----- ----- --------- --------- --------- ------- --------- BALANCE AT AUGUST 31, 1991............. 661 242 107,706 79,710 (14,027) (12,453 ) 161,839 Issuance of common stock upon exercise of stock options..................... 6 -- 3,555 -- -- -- 3,561 Issuance of common stock upon conversion of debentures............. -- -- 146 -- -- -- 146 Issuance of common stock in connection with employee stock bonus plan....... -- -- 9 -- -- -- 9 Unearned compensation related to executive stock award program........ -- -- 232 -- -- (232 ) -- Income tax benefit related to executive stock award program and stock options exercised............................ -- -- 606 -- -- -- 606 Expense related to executive stock award program........................ -- -- -- -- -- 3,454 3,454 Dividend issued in the form of common stock of a wholly-owned subsidiary... -- -- -- (36,579) -- -- (36,579) Net earnings for the year ended August 31, 1992............................. -- -- -- 37,293 -- -- 37,293 ------ ----- ---------- --------- --------- -------- --------- BALANCE AT AUGUST 31, 1992............. 667 242 112,254 80,424 (14,027) (9,231 ) 170,329 Issuance of common stock upon exercise of stock options..................... 4 -- 1,854 -- -- -- 1,858 Income tax benefit related to executive stock award program, stock options exercised and stock dividends........ -- -- 1,738 -- -- -- 1,738 Expense related to executive stock award program........................ -- -- -- -- -- 1,084 1,084 Dividend issued in the form of common stock of a wholly-owned subsidiary... -- -- -- (10,000) -- -- (10,000) Net earnings for the four months ended December 31, 1992.................... -- -- -- 5,140 -- -- 5,140 ------ ----- ---------- --------- --------- -------- --------- 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 ------ ----- ---------- --------- --------- -------- --------- ------ ----- ---------- --------- --------- -------- ---------
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 38 19 Consolidated Statements of Cash Flows HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
- ------------------------------------------------------------------------------------------------------------------ FOUR MONTHS YEAR ENDED ENDED YEARS ENDED AUGUST 31, DECEMBER 31, DECEMBER 31, ------------------------- 1993 1992 1992 1991 - ------------------------------------------------------------------------------------------------------------------ (In thousands) Cash flows from operating activities: Net earnings (loss)................................. $ (22,781) $ 5,140 $ 37,293 $ (8,945) Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Depreciation and amortization..................... 24,172 14,366 46,894 51,240 Provision for losses on accounts and note receivable...................................... (171) (436) 34 6,893 (Gain) loss on sale of assets..................... (277) 56 124 411 Non-cash interest income.......................... -- -- (968) -- Loss (gain) on retirement of long-term obligations..................................... 11,637 -- 194 (1,105) Inventory reserve................................. 12,179 (257) 5,171 2,210 Deferred income taxes............................. (14,102) (479) 11,902 (18,771) Common stock issued for services provided......... 8,449 1,084 3,463 2,857 Liquidation of joint venture operation............ 722 -- -- -- Equity in losses of unconsolidated affiliates..... 589 31 99 -- Change in current assets and liabilities: Increase in accounts receivable................. (15,753) (2,569) (11,529) (2,756) Increase in interest receivable from related party......................................... (1,039) -- -- -- (Increase) decrease in inventories.............. (4,056) (5,179) (5,467) 24,476 (Increase) decrease in other current assets..... (1,175) (351) 1,840 (5,819) Increase (decrease) in accounts payable......... 26,683 13,450 (17,362) (7,622) Increase (decrease) in accrued liabilities and income taxes payable.......................... 29,923 (2,037) (26,583) 48,707 ------------ ------------- -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES..... 55,000 22,819 45,105 91,776 ------------ ------------- -------- -------- Cash flows from investing activities: Capital expenditures................................ (15,491) (9,939) (35,973) (52,936) Proceeds from sale of assets........................ 548 93 410 497 Increase in intangible assets....................... (2,057) (433) (1,830) (6,439) Increase in long-term investments................... (2,775) (1,515) (5,710) -- (Increase) decrease in notes receivable and other... 683 (4,439) (3,432) (4,507) Proceeds from long-term notes receivable............ 4,892 454 2,231 653 ------------ ------------- -------- -------- NET CASH USED IN INVESTING ACTIVITIES......... (14,200) (15,779) (44,304) (62,732) ------------ ------------- -------- -------- Cash flows from financing activities: Principal payments on and redemptions of long-term obligations....................................... (206,506) (47,776) (7,432) (16,230) Proceeds from unsecured credit facilities........... 150,000 10,000 -- -- Proceeds from issuance of common stock.............. 31,851 1,858 3,561 256 Cash portion of dividend............................ -- (5,249) (4,971) -- Purchases of treasury stock......................... -- -- -- (10,109) ------------ ------------- -------- -------- NET CASH USED IN FINANCING ACTIVITIES......... (24,655) (41,167) (8,842) (26,083) ------------ ------------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS......................................... 16,145 (34,127) (8,041) 2,961 Cash and cash equivalents at beginning of period...... 19,421 53,548 61,589 58,628 ------------ ------------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD............ $ 35,566 $ 19,421 $ 53,548 $ 61,589 ------------ ------------- -------- -------- ------------ ------------- -------- --------
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 39 20 Notes to Consolidated Financial Statements HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES 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. On July 13, 1993, the Company elected to change its annual reporting period from a year ending August 31 to a year ending December 31, effective January 1, 1993. The change in year end was made following the acquisition of voting control of the Company by a wholly-owned subsidiary of Liberty Media Corporation, a Delaware corporation ("Liberty"), which reports its financial position and results of operations using a December 31 year end. 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. Certain amounts in the consolidated financial statements for the fiscal years ended August 31, 1992 and 1991 have been reclassified to conform to the 1993 presentation. 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 commercial paper, auction preferred shares, repurchase agreements and certificates of deposit with original maturities of less than 91 days. 3. ACCOUNTS RECEIVABLE In October 1992, HSN implemented 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 totalled $15,547,000 and $4,673,000 at December 31, 1993 and 1992, respectively. 4. INVENTORIES, NET Inventories, consisting of products held for sale, 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 replacement cost or net realizable value, giving consideration to obsolescence and other factors. Inventories are presented net of a reserve of $25,246,000, $13,067,000 and $13,324,000 at December 31, 1993, December 31, 1992 and August 31, 1992, respectively. 5. OTHER CURRENT ASSETS, NET The Company lent $6,200,000 to Skypix Corporation and Northwest Starscan Limited Partnership during the fiscal year ended August 31, 1991. The promissory note evidencing the loan was due August 31, 1992, and was in default, prompting legal action by the Company in fiscal 1992. The provision to reserve the note was included in miscellaneous expense in the fiscal year ended August 31, 1991 Consolidated Statement of Operations. 40 21 6. PROPERTY, PLANT AND EQUIPMENT, AND DEPRECIATION Property, plant and equipment, including significant improvements, are stated at cost. Repairs and maintenance and any gains or losses on dispositions are included in operations. Depreciation is provided on a straight-line basis to allocate the cost of depreciable assets to operations over their estimated service lives as follows:
- ------------------------------------------------------------------------------------------------- ORIGINAL PERIOD ASSET CATEGORY OF DEPRECIATION - ------------------------------------------------------------------------------------------------- Computer and broadcast equipment............................................... 6 to 13 Years Buildings...................................................................... 30 to 40 Years Leasehold improvements......................................................... 4 to 13 Years Furniture and other equipment.................................................. 3 to 10 Years
Depreciation expense was $21,911,000 for the year ended December 31, 1993. Depreciation expense for the four months ended December 31, 1992, and the fiscal years ended August 31, 1992 and 1991, was $9,706,000, $32,653,000 and $29,133,000, 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. 7. INTANGIBLE ASSETS AND AMORTIZATION Intangible assets include the historical costs associated with the acquisition of the following assets which are amortized using the straight-line method over their estimated lives:
- ---------------------------------------------------------------------------------------------------- DECEMBER 31, ORIGINAL ------------------- AUGUST 31, PERIOD OF ASSET CATEGORY 1993 1992 1992 AMORTIZATION - ---------------------------------------------------------------------------------------------------- (In thousands) Mailing lists................................... $ 9,938 $ 7,883 $ 21,225 2 to 4 Years Goodwill........................................ 3,900 3,900 13,630 30 Years Satellite transponder rights.................... 3,508 3,508 3,508 5 to 7 Years Other........................................... 1,789 1,787 4,089 2 to 10 Years Long-term obligations' issue costs.............. -- 9,895 9,895 10 to 15 Years Identified intangibles acquired................. -- -- 68,427 10 Years Federal Communications Commission ("FCC") licenses...................................... -- -- 65,794 30 Years ------- ------- ----------- 19,135 26,973 186,568 Accumulated Amortization........................ 16,477 18,951 85,599 ------- ------- ----------- $ 2,658 $ 8,022 $ 100,969 ------- ------- ----------- ------- ------- -----------
All identified intangibles and FCC licenses were assets of Silver King Communications, Inc. ("SKC"), formerly a wholly-owned subsidiary of the Company. The capital stock of SKC was distributed to the Company's shareholders in December 1992. See Note I. In 1993, in connection with the refinancing and retirement of the Company's 11 3/4% Senior Notes ("Senior Notes") and 5 1/2% Convertible Subordinated Debentures ("Debentures"), the long-term obligations' issue costs were included in the calculation of the extraordinary loss on early extinguishment of long-term obligations. See Note D. Amortization expense was $2,261,000 for the year ended December 31, 1993. Amortization expense for the four months ended December 31, 1992, and the fiscal years ended August 31, 1992 and 1991, was $4,660,000, $14,241,000 and $22,107,000, respectively. 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. The Company's sales policy allows merchandise to be returned at the customers' discretion, generally up to 30 days. An allowance for returned merchandise is provided based upon past experience. 41 22 9. INCOME TAXES In the consolidated financial statements as of and prior to December 31, 1992, deferred income taxes have been provided using the deferred method for those items of revenue and expense which were recognized for financial reporting purposes in different periods than for income tax purposes. Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standard No. 109, "Accounting for Income Taxes" ("Statement 109"). The cumulative effect of this change in method of accounting for income taxes was immaterial and was included as a reduction of income tax expense in the Consolidated Statement of Operations for the year ended December 31, 1993. The valuation allowance on the date of adoption of Statement 109 was $744,000. Prior years' consolidated financial statements were not restated to apply the provisions of Statement 109. The current year effect of the accounting change was immaterial. 10. EARNINGS (LOSS) PER SHARE Weighted average common shares outstanding were 91,192,000 for the year ended December 31, 1993. Weighted average shares for the four months ended December 31, 1992, and the fiscal years ended August 31, 1992 and 1991, were 91,115,000, 90,255,000 and 87,452,000, respectively. The weighted average shares outstanding have been increased by the dilutive effect of certain stock options and convertible debt for the four months ended December 31, 1992 and the year ended August 31, 1992. For the years ended December 31, 1993 and August 31, 1991, the loss per common share is calculated by dividing the net loss by the weighted average number of all shares of common stock outstanding. The stock options and convertible debt are not considered in these calculations due to their antidilutive effect. The number of common shares outstanding at December 31, 1993 and 1992, and August 31, 1992, net of 3,105,700 common shares held in treasury, was 73,067,190, 64,042,626 and 63,635,255, respectively. NOTE B - NOTE RECEIVABLE FROM RELATED PARTY On December 28, 1992, intercompany indebtedness in an amount of $135,172,000 owed by SKC was converted into a secured long-term senior loan between SKC and a wholly-owned subsidiary of the Company pursuant to a loan agreement (the "Loan Agreement"), evidenced by a promissory note (the "Note"), bearing interest on the unpaid principal amount at a rate of 9.5% per annum. The terms of the Note are governed by the Loan Agreement and the liability evidenced thereby is secured by substantially all of SKC's assets. The Note is payable in equal monthly installments of principal and interest over fifteen years. The Note provides that the principal amount and the payment schedule of the loan may be adjusted to increase or decrease payments over the remaining term of the loan to reflect certain liabilities pursuant to a Tax Sharing Agreement, which was entered into in connection with the distribution of the capital stock of SKC, as discussed in Note I. The Loan Agreement contains certain restrictive covenants and default provisions. So long as any indebtedness is outstanding under the Loan Agreement, each SKC station is required to maintain an affiliation agreement with HSC to carry the Company's programming, as discussed in Note G. Interest income earned on the Note was $12,765,000 for the year ended December 31, 1993. NOTE C - LONG-TERM INVESTMENTS Long-term investments accounted for under the cost method at December 31, 1993 and 1992 and August 31, 1992 consisted of 100,000 shares of Series A Preferred Stock, $.01 par value, of The National Registry Inc. ("NRI"), a public company involved in developing technology and advanced applications for identity verification systems. NRI is a related party. The total purchase price of the NRI shares was $10,000,000. See Note L. The Series A Preferred Stock is non-voting, convertible to 6,000,000 shares of NRI common stock upon the occurrence of certain events, and contains certain liquidation preferences. At August 31, 1992, long-term investments also included $5,135,000 of non-voting common and preferred stock in three privately held broadcast television companies which televise the Company's programs on a full-time basis. These shares were transferred to SKC in connection with the distribution of the capital stock of SKC during 1992, as discussed in Note I. 42 23 NOTE D - LONG-TERM OBLIGATIONS AND CREDIT FACILITIES
- ---------------------------------------------------------------------------------------------------- DECEMBER 31, --------------------- AUGUST 31, 1993 1992 1992 - ---------------------------------------------------------------------------------------------------- (In thousands) Unsecured Senior Term Loan ("Senior Term Loan"), with $25,000,000 due on both June 15, 1994 and 1995, and $10,000,000 due December 15, 1995. The interest rate, which was 5.4375%, is tied to the London Interbank Offered Rate ("LIBOR") plus an applicable margin adjustment.............. $ 60,000 $ -- $ -- Unsecured Senior Term Loan ("Senior Term Loan"), with $25,000,000 due on both January 31, 1997 and 1998. The interest rate, which was 5.5%, is tied to LIBOR plus an applicable margin adjustment................................ 50,000 -- -- Unsecured $40,000,000 Revolving Credit Facility ("Revolving Credit Facility"), dated December 18, 1992, which expires December 18, 1995. Amounts borrowed can be used for any general corporate purposes, and the interest rate is tied to LIBOR, Federal Funds Rate or the Prime Rate, plus an applicable margin, at the Company's option.................. -- -- -- Unsecured 11 3/4% Senior Notes due October 15, 1996, with interest payable semi-annually with mandatory sinking fund payments sufficient to retire the principal amount of $37,500,000 annually, commencing October 15, 1992. The balance of Senior Notes was redeemed by the Company in 1993, as discussed below.......................................... -- 143,252 180,752 Unsecured 5 1/2% Convertible Subordinated Debentures due April 22, 2002, with interest payable annually with mandatory sinking fund payments sufficient to retire the principal amount of $10,000,000 annually, commencing April 22, 1995. The balance of Debentures was redeemed by the Company in 1993, as discussed below.................................... -- 16,915 16,915 Industrial development revenue bonds financed through a third party with payments ranging from $313,000 to $316,000 per year including interest at 8%, due semi-annually in May and November through 1999....................................... 1,455 1,640 1,810 Capitalized lease obligations and other long-term obligations................................................. 817 947 1,358 -------- -------- ------------ Total long-term obligations.............................. 112,272 162,754 200,835 Less current portion................................... 25,345 3,564 27,979 -------- -------- ------------ $ 86,927 $159,190 $172,856 -------- -------- ------------ -------- -------- ------------
Aggregate contractual maturities of long-term obligations are as follows:
------------------------------------------------------------------------------- YEARS ENDING DECEMBER 31, ------------------------------------------------------------------------------- (In thousands) 1994........................................................... $ 25,345 1995........................................................... 35,252 1996........................................................... 244 1997........................................................... 25,871 1998........................................................... 25,270 Thereafter..................................................... 290 -------------- $112,272 -------------- --------------
43 24 During the year ended December 31, 1993, $15,000 of Debentures were converted into 2,293 shares of common stock. During the year ended August 31, 1992 and 1991, $150,000 and $5,000 of Debentures were converted into 21,276 and 709 shares of common stock, respectively. The Company recognized extraordinary gains (losses) on the early extinguishment of its long-term obligations as follows:
- ---------------------------------------------------------------------------------------------------- YEARS ENDED AUGUST YEAR ENDED 31, DECEMBER 31, -------------------- 1993 1992 1991 - ---------------------------------------------------------------------------------------------------- (In thousands) Total extinguished........................................... $160,152 $4,050 $17,141 -------------- ------ ------- -------------- ------ ------- Pre-tax gain (loss) net of discounts......................... $(11,637) $ (194) $ 1,105 Income tax expense (benefit)................................. (4,395) (82) 451 -------------- ------ ------- Extraordinary gain (loss).................................... $ (7,242) $ (112) $ 654 -------------- ------ ------- -------------- ------ -------
There was no early extinguishment of long-term obligations during the four months ended December 31, 1992. The Company also has an additional $25,000,000 of unsecured bank credit lines, which back letters of credit, used exclusively to facilitate inventory importation. Presentation of these letters of credit by vendors results in an immediate charge to the Company's account with no interest charges incurred. At December 31, 1993, outstanding letters of credit amounted to $8,921,000 leaving $16,079,000 of these bank credit lines available. In December 1992 and February 1993, the Company entered into a $60,000,000 Senior Term Loan, a $50,000,000 Senior Term Loan and a $40,000,000 Revolving Credit Facility. Under these Senior Term Loans and Revolving Credit Facility, the interest rate on borrowings is tied to LIBOR, the Federal Funds Rate, or the Prime Rate, plus an applicable margin, at the Company's option. Restrictions contained in the Senior Term Loans and Revolving Credit Facility include, but are not limited to, limitations on the encumbrance and disposition of assets and the maintenance of various financial covenants and ratios. In 1993, the Company entered into interest rate exchange agreements with certain financial institutions to limit its exposure from interest rate volatility. These agreements have notional principal amounts totalling $115,000,000, of which $25,000,000, $35,000,000 and $30,000,000 of the Senior Term Loans, have interest rate caps if LIBOR exceeds 6% until June 1994, 6% until June 1995 and 7% until October 1995, respectively. The interest rate exchange agreement relating to the Revolving Credit Facility has a notional principal amount of $25,000,000 capped if LIBOR exceeds 6% until April 1994. The three month LIBOR rate at December 31, 1993 was 3.3125%. In February and April 1993, the Company drew $140,000,000 under the above mentioned bank financing agreements. These proceeds, together with available working capital, were used to retire $143,252,000 principal amount of the Senior Notes at 104%, plus accrued interest to the redemption date. During August and September 1993, the Company repaid $30,000,000 of the outstanding balance on the Revolving Credit Facility. On May 11, 1993, the Company retired the remaining $16,900,000 principal balance of the Debentures at 101.83% of the principal amount, plus accrued interest to the redemption date using available working capital. 44 25 NOTE E - 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:
- ------------------------------------------------------------------------------------------------------------- FOUR MONTHS YEARS ENDED YEAR ENDED ENDED AUGUST 31, DECEMBER 31, DECEMBER 31, --------------------- 1993 1992 1992 1991 - ------------------------------------------------------------------------------------------------------------- (In thousands) Income tax expense (benefit) at the federal statutory rate of 35% for 1993 and 34% for all other periods (effect of rate change in 1993 to 35% was $(196))............................................ $ (6,848) $ 3,892 $21,927 $ 2,079 Amortization and write-off of goodwill and other acquired intangibles and interest on adjustments proposed by the Internal Revenue Service ("IRS")... 1,582 503 2,923 2,751 State income taxes, net of effect of federal tax benefit............................................ 71 275 1,728 378 Executive compensation in excess of $1 million....... 688 -- -- -- Distribution of SKC capital stock.................... -- 1,500 -- -- Provision recorded for adjustments proposed by the IRS................................................ -- -- -- 10,382 Other, net........................................... 479 136 509 125 ------------ ------------ ------- ------- $ (4,028) $ 6,306 $27,087 $15,715 ------------ ------------ ------- ------- ------------ ------------ ------- -------
The Company's effective tax expense (benefit) rate was (20.6)% for the year ended December 31, 1993; 55.1% for the four months ended December 31, 1992; and 42.0% and 256.9% for the years ended August 31, 1992 and 1991, respectively. The components of income tax expense (benefit) attributable to operations are as follows:
- ------------------------------------------------------------------------------------------------------------- FOUR MONTHS YEARS ENDED YEAR ENDED ENDED AUGUST 31, DECEMBER 31, DECEMBER 31, ----------------------- 1993 1992 1992 1991 - ------------------------------------------------------------------------------------------------------------- (In thousands) INCOME TAXES CURRENTLY PAYABLE: Federal............................................. $ 8,753 $ 6,392 $14,065 $ 32,723 State............................................... 870 594 1,727 2,057 ------------ ------------ ------- -------- 9,623 6,986 15,792 34,780 ------------ ------------ ------- -------- DEFERRED INCOME TAXES: Depreciation for tax in excess of (less than) financial statements.............................. 55 (1,221) (1,538) 1,587 Sales returns and allowances........................ (471) (314) 264 (341) Amortization of acquired intangible assets.......... 47 322 1,048 950 Provision for accrued liabilities................... (1,363) 218 (472) (1,897) Inventory costing................................... (4,057) (22) 427 (1,071) Litigation settlements.............................. (4,550) -- 11,399 (11,399) Deferred compensation............................... (907) 310 (561) (968) State income taxes.................................. (618) (45) 588 (979) Installment sales................................... (5) (35) (47) 144 Amortization of long-term obligation issue costs....................................... (718) 236 20 617 Capitalized costs of mailing lists.................. 38 (70) (161) (1,851) Sales tax accrual................................... 24 (77) (1) 151 Provision for uncollectible amounts................. (351) (17) (18) (3,936) Deferred start up costs............................. -- 9 5 181 Charitable contribution carryover................... (910) -- -- -- Valuation allowance................................. 135 -- -- -- Other, net.......................................... -- 26 342 (253) ------------ ------------ ------- -------- (13,651) (680) 11,295 (19,065) ------------ ------------ ------- -------- $ (4,028) $ 6,306 $27,087 $ 15,715 ------------ ------------ ------- -------- ------------ ------------ ------- --------
Additionally, the Company recorded an extraordinary item, gain (loss) on early extinguishment of long-term obligations, net of the income tax effect. See Note D. 45 26 The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below:
- ----------------------------------------------------------------------------------------------- DECEMBER 31, 1993 - ----------------------------------------------------------------------------------------------- (In thousands) Deferred tax assets: Inventory costing............................................................. $ 7,248 Provision for accrued liabilities............................................. 4,731 Sales returns and allowances.................................................. 4,669 Litigation settlements........................................................ 4,550 Provision for uncollectible amounts........................................... 3,193 Deferred compensation......................................................... 2,100 Sales tax reserve............................................................. 1,549 Charitable contribution carryover............................................. 910 Other......................................................................... 329 ------------- Net deferred tax assets.................................................... $29,279 ------------- ------------- Deferred tax liabilities (assets): State income taxes............................................................ $ (958) Investment in unconsolidated subsidiaries..................................... (238) Installment sale.............................................................. (182) Other......................................................................... (685) ------------- (2,063) Less valuation allowance...................................................... 879 ------------- (1,184) Depreciation for tax in excess of financial statements........................ 6,933 Amortization of acquired intangible assets.................................... 1,622 Capitalized costs of mailing lists............................................ 535 Other......................................................................... 408 ------------- Net deferred tax liabilities............................................... $ 8,314 ------------- -------------
The Company had taxable income and pre-tax book income (loss) for the periods presented as follows: - --------------------------------------------------------------------------------
FOUR MONTHS YEARS ENDED AUGUST YEAR ENDED ENDED 31, DECEMBER 31, DECEMBER 31, ------------------- 1993 1992 1992 1991 - -------------------------------------------------------------------------------------------------- (In thousands) Taxable income............................. $ 8,207 $ 17,591 $34,740 $60,249 Pre-tax book income (loss)................. (31,204) 11,446 64,298 7,221
The primary differences between taxable income and pre-tax book income (loss) are detailed above. In addition to these reconciling items, the Company recognized income tax deductions relating to the issuance of common stock pursuant to the 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 paid-in capital. During the year ended December 31, 1993, the Company incurred Common Stock Deductions of $31,697,000. Common Stock Deductions for the four months ended December 31, 1992, and the fiscal years ended August 31, 1992 and 1991, were $4,718,000, $1,696,000 and $820,000, 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 46 27 there will be no 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). Management believes the existing net deductible temporary differences will reverse during periods in which the Company generates net taxable income or a net operating loss that would be carried back to prior taxable years. There can be no assurance, however, that the Company will generate any earnings or any specific level of continuing earnings. During fiscal 1991, the IRS completed its examination of the Company's federal income tax returns for fiscal years 1987 and 1986. The IRS proposed various adjustments, the most significant of which include the Company's amortization of acquired FCC broadcast licenses and other broadcasting related intangible assets. During 1993, the IRS completed its examination of the Company's federal income tax returns for fiscal years 1989 and 1988, proposing adjustments amounting to $10,886,000, not including interest thereon. The IRS did not propose any significant adjustments other than those relating to the issues currently under protest for fiscal years 1987 and 1986, including the Company's amortization of acquired FCC broadcast licenses and other broadcasting related intangible assets and the deduction of royalty payments to a related party. The IRS asserted that such royalty payments were not reasonable and were not made on the basis of arm's length dealings. Management believes that the Company has valid positions relating to its exposure and intends to vigorously defend its interests. The Company has protested all proposed adjustments to the Appellate Division of the IRS. Management of the Company believes that the ultimate resolution of these matters will not have a material effect on the results of operations of the Company, although the Company's cash position may be adversely affected. During fiscal 1991, the Company increased its income tax provision by $10,382,000 to reflect management's estimate of the potential liability relating to the proposed IRS adjustments for all fiscal years through 1991. Subsequently, the Company has accrued additional amounts to reflect management's estimate of the Company's potential liability which relate to all proposed adjustments, including the acquired intangibles, through December 31, 1993. The IRS' position, if upheld to the full extent of the proposed adjustments, would exceed the Company's accrual and, thus, would impact future results of operations of the Company by $18,233,000. On February 9, 1994, the IRS announced a comprehensive settlement initiative covering most of the intangibles issues currently being contested by taxpayers. The offer will not be made to all affected taxpayers and taxpayers to whom the offer is extended will not be required to accept the offer. The intangibles issues currently being protested by the Company are subject to this settlement initiative. At this time, it is not certain whether the IRS will make a settlement offer to the Company, nor whether the Company would accept such an offer if made. If such an offer is made and accepted by the Company, management believes the resulting assessment would not exceed the accrual for such proposed adjustments. NOTE F - DEFINED CONTRIBUTION RETIREMENT PLAN 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 year ended December 31, 1993, were $667,000. Contributions for the four months ended December 31, 1992 and the fiscal years ended August 31, 1992 and 1991, were $300,000, $618,200 and $279,300, respectively. In October 1990, the Board of Directors authorized the adoption of the Employee Stock Ownership Plan ("ESOP") which provides for contributions of shares of common stock to the ESOP in amounts as authorized by the Board of Directors. To date, no common stock has been contributed to the ESOP. 47 28 NOTE G - COMMITMENTS AND CONTINGENCIES The Company leases warehouse space, computer and broadcast equipment, and equipment used in connection with its operations under various operating leases. Future minimum payments under noncancellable operating leases are as follows:
------------------------------------------------------------------------------ YEARS ENDING DECEMBER 31, ------------------------------------------------------------------------------ (In thousands) 1994......................................................... $12,919 1995......................................................... 11,051 1996......................................................... 10,712 1997......................................................... 10,646 1998......................................................... 6,214 Thereafter................................................... 32,064 --------------- $83,606 --------------- ---------------
Rent and lease expenses charged to operations were $15,185,000 for the year ended December 31, 1993. Rent and lease expense for the four months ended December 31, 1992, and the fiscal years ended August 31, 1992 and 1991, were $6,611,000, $20,278,000 and $18,603,000, respectively. During March 1986, the Company entered into a five-year employment agreement, as amended, with the former Chairman of the Board, which was automatically renewed in 1991 for a three-year term. The employment agreement provided for a minimum base salary, which as of December 31, 1992, was set at $500,000, and the use of a Company car. On August 11, 1993, upon resignation as Chairman of the Board and as a Director of the Company, prior to the scheduled termination of employment under the agreement, the former Chairman commenced a five-year consultancy and non-competition arrangement with the Company during which period he will be paid his minimum base annual salary of $500,000 per year. In 1990, the Company entered into a four-year consulting and noncompetition agreement with a former President, effective upon his resignation on December 31, 1990, which calls for payments of $300,000 per year. During February 1993, the Company entered into a four-year employment agreement with the Company's President and Chief Executive Officer, which is automatically renewable for successive one year terms unless either party provides 180 days written notice. The employment agreement provides for an annual base salary of not less than $500,000, inclusion in any bonus program established for executives of the Company, and inclusion in any benefit programs provided to employees of the Company. Termination of the agreement by the Company other than for cause will result in payment of the annual base salary amount that would have been payable had employment continued until the expiration of the employment term plus any annual bonus for the year of termination. The employment agreement also provides for annual paid vacation, reimbursement for relocation expenses and a minimum sales price for the officer's prior residence and Stock Appreciation Rights ("SARs") as further discussed in Note K. In addition, termination of employment following a change in control of the Company may result in entitlement to all unpaid compensation through the term of the contract. In connection with capital improvements, the Company had commitments for capital expenditures of $4,500,000 at December 31, 1993. On December 28, 1992, HSC entered into affiliation agreements with SKC which provide for SKC's stations to broadcast 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; however, as long as any indebtedness is outstanding under the Loan Agreement between SKC and HSN, SKC is required to maintain affiliation agreements with HSC. See Note B. The affiliation agreements are cancellable with eighteen months written notice prior to the end of any scheduled term. HSC pays an affiliation fee to SKC based on hourly rates and, upon reaching certain sales levels, commissions on net sales. Affiliation payments made to SKC for the year ended December 31, 1993, were $41,135,000. The Company entered into license and maintenance agreements with its former wholly-owned subsidiary, Precision Systems, Inc. ("PSi") beginning in 1993. Under the agreements HSN paid PSi $3,545,000 for 48 29 maintenance services in 1993 and a one-time license fee of $2,000,000. The maintenance agreement, which was amended in 1994, has a term through December 31, 1994, but can be renewed at HSN's option for additional one, three or five year periods. The Company has also provided a $5,000,000 unsecured line of credit to PSi. The line of credit bears interest at the rate of prime plus 1%, and is due three years from the distribution date, July 31, 1992, or one year from the date of the first draw, whichever is earlier. No draws were made under this agreement through December 1993. Restrictions in the line of credit include, but are not limited to, payment of dividends on, or the redemption of, capital stock of PSi and the incurrence of senior debt. The Company has entered into an agreement for telephone services with MCI Telecommunications Corporation ("MCI") for a term of three years ending in November 1996. The agreement calls for monthly and quarterly minimum payments of $800,000 and $3,150,000, respectively, to be entitled to discounted rates. 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 made payments of $18,418,000 to MCI for phone services during the year ended December 31, 1993 and would have exceeded the above mentioned minimums. The Company uses the same policies in making the above commitments as it does for on-balance sheet instruments. The Company controls its risk through approvals, limits, covenants and monitoring procedures. NOTE H - LITIGATION On April 1, 1993, Mr. Allen P. Allweiss, a former executive vice president and general counsel of the Company, filed a lawsuit styled Allweiss v. HSN, et.al., in the Circuit Court of the Sixth Judicial Circuit of the State of Florida for Pinellas County (Case No. 93-1176CI13), against the Company, Roy M. Speer, Francis Santangelo, Liberty, Gerald F. Hogan and John M. Draper complaining about, among other things, his February 24, 1993 termination from the Company (the "Allweiss Suit"). The Allweiss Suit as amended alleges violation of the Florida retaliatory discharge statute, civil theft, conversion, breach of contract, and conspiracy related to his termination from the Company and his rights under the Company's 1986 Stock Option Plan for employees and the Company's 1990 Executive Stock Award Program. Mr. Allweiss also alleges that he was injured by reason of a pattern of criminal activities. Mr. Allweiss seeks unspecified damages, including treble damages. The Company has filed a counterclaim against Mr. Allweiss alleging breach of fiduciary duty, legal malpractice, and breach of a confidentiality agreement. Discovery began in late 1993. No evaluation of the likelihood of an unfavorable outcome can be made at this time. No range of potential loss or recovery has been included in the consolidated financial statements. The Company believes that it has meritorious defenses and intends to continue vigorously defending this action and pursuing its counterclaim. On December 27, 1990, a customer of HSC filed an amended class action complaint against the Company styled Mauger v. Home Shopping Network, Inc., in the Court of Common Pleas, Philadelphia County, Pennsylvania. Plaintiff alleged violation of the Pennsylvania Unfair Trade Practices and Consumer Protection Law in relation to the Company's pricing practices with respect to diamond and imitation diamond jewelry. Plaintiff seeks certification of the class, compensatory damages or $100 per class member, treble damages, attorney's fees, costs, interest and other relief. Plaintiff claims that the diamond ring she purchased from HSC was not of the same value stated in an appraisal provided to the customer. On June 22, 1991, another customer of HSC filed a class action complaint against the Company, styled Powell v. Home Shopping Network, Inc., making similar allegations concerning jewelry purchased from HSC and seeking similar relief. On April 19, 1993, the Mauger and Powell cases were consolidated in the Court of Common Pleas of Bucks County, Pennsylvania (Case No. 91-6152-20-1). On May 4, 1993, the Court entered an order granting the plaintiffs' motion for class certification and declared the plaintiffs to be class representatives and the class to be "all Pennsylvania residents who purchased any jewelry containing diamonds or imitation diamonds from Home Shopping Network, Inc.'s subsidiary Home Shopping Club, Inc. between December 27, 1984 and May 20, 1991." On July 23, 1993 the court denied the Company's motion for interlocutory appeal of the May 4, 1993 order. The Company believes that it has meritorious defenses and intends to continue vigorously defending this action. 49 30 The Company has been informed that the Securities and Exchange Commission has entered a formal order of investigation involving matters relating to, among other things, certain of the Company's SEC filings and other public disclosures. The Company has furnished documents in connection with this investigation and is cooperating in the investigation while maintaining its legal privileges, including the attorney/client privilege. This is a nonpublic investigation and the scope of the investigation is confidential. The Company has been advised that this inquiry should not be construed as an indication by the Commission or its staff that any violations of law have occurred, nor should it be considered a reflection upon any person, entity or security. The Company has been informed that a federal grand jury impaneled in the Middle District of Florida is investigating matters relating to the Company. The Company has furnished documents in connection with this investigation and has taken action to protect its legal privileges in these proceedings, including the attorney/client privilege. Information related to the scope of matters occurring before the grand jury is confidential. The Company has been advised by the federal government that the Company is not a target, at this time, of the grand jury investigation. On December 30, 1993, the parties to the following lawsuits (the "Florida Federal Securities Actions"), which assert claims relating to, among other things, the adequacy of HSN disclosures in certain public filings in 1992 and 1993, reached an agreement in principle to settle these cases: Michael Goldstein v. Roy M. Speer and Home Shopping Network, Inc., United States District Court for the Middle District of Florida, Tampa Division, Civil Action No. 93-602-CIV-T-23B Milton Partners, L.P. v. Roy M. Speer and Home Shopping Network, Inc., United States District Court for the Middle District of Florida, Tampa Division, Civil Action No. 93-608-CIV-T-15C International Gemmological Institute, Inc., et al. v. Home Shopping Network, Inc., Roy M. Speer, Franklin J. Chu, John J. McNamara, Michael V. Roberts, and Edward Vaughn, United States District Court for the Middle District of Florida, Tampa Division, Civil Action No. 93-610-CIV-T-21B Arnold Jerome Sussman, et al. v. Home Shopping Network, Inc., Roy M. Speer and RMS Limited Partnership, United States District Court for the Middle District of Florida, Tampa Division, Civil Action No. 93-613-CIV-T-17B Irving Kas, on behalf of himself and all others similarly situated v. Home Shopping Network, Inc., Roy M. Speer, individually and as a General Partner of RMS Limited Partnership, Les R. Wandler, Franklin J. Chu, Fernando DiFilippo, Lowell Paxson, and RMS Limited Partnership, United States District Court for the Middle District of Florida, Tampa Division, Civil Action No. 93-621-CIV-T-15A Benjamin Kirsch v. Roy M. Speer and Home Shopping Network, Inc., United States District Court for the Middle District of Florida, Tampa Division, Civil Action No. 93-623-CIV-T-23A Jonathan Greenwald v. Roy M. Speer and Home Shopping Network, Inc., United States District Court for the Middle District of Florida, Tampa Division, Civil Action No. 93-624-CIV-T-17B Sherwin Newborn, on behalf of himself and all others similarly situated v. Home Shopping Network, Inc., Roy M. Speer and RMS Limited Partnership, United States District Court for the Middle District of Florida, Tampa Division, Civil Action No. 93-681-CIV-T-17A Mike and Natalie Magula v. Home Shopping Network, Inc., Roy M. Speer, individually and as a General Partner of RMS Limited Partnership, Les R. Wandler, Franklin J. Chu, Fernando DiFilippo, Lowell Paxson, and RMS Limited Partnership, United States District Court for the Middle District of Florida, Tampa Division, Civil Action No. 93-679-CIV-T-21C Pursuant to the terms of the settlement of the Florida Federal Securities Actions, the Company will make a net contribution of $8,600,000 toward a total settlement fund of $9,600,000. Any attorneys' fees awarded by the Court to the plaintiffs' attorneys will be paid out of the $9,600,000 settlement fund. The settlement of the Florida Federal Securities Actions is conditioned on, among other things, Court approval after notice to the shareholders and a hearing on the fairness of the settlement. 50 31 On December 31, 1993, an agreement in principle was reached to settle the following lawsuits in which the Company, Liberty and others are parties: In re Home Shopping Network, Inc. Shareholders Litigation, Court of Chancery of the State of Delaware in and for the County of New Castle, Civil Action No. 12868 (consolidated) Bartnik, et al. v. Home Shopping Network, Inc., et al., United States District Court for the District of Delaware, C.A. No. 93-336/347/406/480-MMS-Consolidated The actions concern, among other things, breaches of fiduciary duty relating to the change in control, tender offers and merger proposal relating to the Company. The Company does not anticipate having to contribute to the settlement fund or pay any of the plaintiffs' attorneys' fees or expenses. The settlement of these actions is conditioned on, among other things, Court approval after notice to the shareholders and a hearing on the fairness of the settlement. On January 19, 1994, the plaintiffs dismissed without prejudice the lawsuit entitled Mizell, et al. v. Speer, et al., C.A. No. 93-000494-CI-020, which at the time was pending in the Circuit Court for Pinellas County, Florida. On or about February 8, 1994, the Company, with the approval of the special litigation committee of its Board of Directors, signed an agreement in principle to settle the lawsuit entitled 7547 Corp., et al. v. Roy M. Speer, et al., Case Nos. 92-1966-CIV-T-15A and 92-2045-CIV-T-99C (consolidated), currently pending in the United States District Court for the Middle District of Florida. Pursuant to the terms of the settlement, Roy M. Speer, the Company's former Chairman of the Board and Chief Executive Officer, has agreed to pay the Company $2,000,000 and to pay the Company an additional $1,000,000 to partially fund the $9,600,000 settlement in the Florida Federal Securities Actions. The Company has agreed to pay Western Hemisphere, Inc. ("Western"), the successor to Pioneer Data Processing, Inc. ("Pioneer"), $4,500,000 in exchange for releases and cancellation or acquisition of a 1985 license agreement involving the Company and Pioneer. The Company also has agreed to pay such attorneys' fees as may be awarded by the Court to the plaintiffs' counsel. This settlement is conditioned on, among other things, Court approval after notice to the shareholders and a hearing on the fairness of the settlement. The Company has accrued $13,000,000, at December 31, 1993, to cover anticipated costs and expenses related to the above matters as well as the costs and expenses associated with the settlement of an unrelated claim. The Company and certain of its officers and directors were defendants in certain class actions suits filed in connection with the issuance of statements regarding its common stock. On October 15, 1991, the Court approved the settlement of $18,000,000 to be paid by the Company. On September 15, 1991, the court approved the settlement of $15,000,000 to be paid by the Company in connection with two separate purported class action suits that had been filed against the Company in the Court of Chancery of the State of Delaware. The complaints concerned actions taken by the Company in connection with a suit pending against Drexel Burnham Lambert, Incorporated regarding the Company's Debentures. During fiscal 1992, the balance of all amounts accrued in fiscal 1991 totaling $33,000,000 relating to the two settlements mentioned above was paid. The Company is engaged 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 financial condition or results of operations. NOTE I - 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 holder into shares of common stock of the Company on a share-for-share basis. Upon conversion of the Class B common stock, the Class B shares so converted are retired and not subject to reissue. 51 32 In October 1993, RMS Limited Partnership, a Nevada limited partnership ("RMS"), converted 3,600,000 shares of Class B common stock into shares of common stock, on a share-for-share basis. After the conversion, there were 20,559,456 shares of Class B common stock outstanding. Because there are less than 22,800,000 shares of Class B common stock outstanding after this conversion, the holders of the Class B common stock will now vote together with the holders of common stock on all matters submitted to stockholders. The Class B common stock shareholders are entitled to cast ten votes per share on all matters, except that they have no vote in the election of 25% of the Board of Directors to be elected by the common stock shareholders. Subsequent to December 31, 1993, RMS converted 559,456 additional shares of Class B common stock to shares of common stock. On December 28, 1992, the Company distributed the capital stock of SKC to the Company's stockholders of record on December 24, 1992, in the form of a pro rata stock dividend. The distribution also included Telemation, Inc., formerly a wholly-owned subsidiary of HSN that operates video production and post-production facilities, the capital stock of which was contributed to SKC prior to the distribution. The stockholders' of HSN received one share of SKC common stock for each ten shares of HSN common stock held at the close of business on December 24, 1992. In connection with this distribution, intercompany indebtedness in the amount of $135,172,000 was converted into a secured long-term Senior Loan, as discussed in Note B, and remaining intercompany indebtedness in the amount of $93,120,000 was forgiven resulting in SKC having a net book value at the date of distribution of $10,000,000. The distribution reduced stockholders' equity at December 31, 1992, by $10,000,000, consisting of net operating assets of $4,751,000 and cash and cash equivalents of $5,249,000. Property, plant and equipment with a net book value of $41,516,000 and identified intangible assets and FCC licenses, as discussed in Note A7, with a net book value of $88,720,000 were the major assets held by SKC at the time of the stock distribution. SKC's assets and capabilities were an integral part of HSC's operations and were used almost exclusively for HSC programming. Accordingly, at the time of the distribution, HSC and SKC entered into affiliation agreements, as discussed in Note G providing, among other things, parameters for SKC's carriage of HSC programming, HSC's payment to SKC for such carriage and renewal or extension of the affiliation agreements. Payments made by HSC under the affiliation agreements provide SKC sufficient cash flow to fund the payments of principal and interest on the Note evidencing the secured long-term Senior Loan, as discussed in Note B. The distribution of the capital stock of SKC was a taxable transaction. The Company recognized a gain for income tax purposes in an amount equal to the difference between the fair market value of the SKC capital stock distributed and the Company's basis in such SKC capital stock. This gain resulted in additional income tax expense of $1,500,000 which was recorded during the four months ended December 31, 1992. This gain will be affected by the final settlement of the IRS examination, as discussed in Note E. In accordance with a Tax Sharing Agreement, entered into in connection with the distribution of SKC, HSN is responsible for paying all taxes related to SKC's operations for periods through December 28, 1992. Accordingly, any liability associated with the IRS examination through that date, as discussed in Note E, will be the responsibility of HSN and not SKC. On July 31, 1992, the Company distributed the capital stock of PSi to the Company's stockholders of record on July 30, 1992, in the form of a tax-free, pro rata stock dividend. The stockholders of HSN received one share of PSi common stock for each ten shares of HSN common stock held at the close of business on July 30, 1992. The distribution reduced stockholders' equity in the year ended August 31, 1992, by $36,579,000, consisting of net operating assets of $31,579,000 and cash of $5,000,000. The Company's Board of Directors has authorized the repurchase of up to $20,000,000 of its common stock. To date, the Company has purchased 3,105,700 shares at a total cost of $14,027,000. The Company, subject to market conditions and cash availability, may continue to repurchase its shares within the limits adopted by the Board. NOTE J - CHANGE IN CONTROL On February 11, 1993, Liberty acquired 20,000,000 shares of the Company's Class B common stock, from RMS in exchange for $58,000,000 in cash and 8,000,000 shares (adjusted for a 2 for 1 stock dividend), of Liberty Class A common stock, par value $1.00 per share (the "Liberty Class A Common Stock"). In addition, on the acquisition date, RMS granted an irrevocable assignable option (the "Option") to Liberty to purchase from RMS 52 33 2,000,000 shares ("Subject Shares") of Class B common stock of SKC for $2,000,000 plus interest from February 11, 1993. The Option may be exercised, in whole but not in part, within 2 years and may be extended upon certain conditions requiring government approvals. Upon exercise of the Option and purchase of the Subject Shares, Liberty or any assignee under the Option would effectively control SKC by virtue of the voting power of the Subject Shares. The 20,000,000 shares of Class B common stock purchased by Liberty, in addition to the 616,300 shares of HSN common stock acquired by Liberty prior to February 11, 1993, represented approximately 23.3% of the beneficial ownership interest in the Company's equity at February 28, 1993. In addition, because the Class B common stock is generally entitled to ten votes per share, the aggregate of all such shares represented approximately 65.6% of the beneficial ownership interest in the voting rights of the Company. These percentage amounts do not reflect the common stock purchased in the tender offer or the conversion of the Class B common stock discussed below. On April 23, 1993, Liberty commenced a tender offer to purchase up to 15,000,000 shares of HSN common stock at $7.00 per share. During the period of the tender offer, which expired on May 20, 1993, 23,266,306 shares of HSN common stock were tendered. Consistent with its rights under the federal securities laws, Liberty elected to purchase an additional 1,296,602 of these shares. This acquisition of 16,296,602 shares of HSN common stock increased Liberty's beneficial ownership interest in HSN's equity to approximately 41.5% and in its voting rights to approximately 70.8% at May 21, 1993. In connection with Liberty's acquisition, RMS agreed to convert its remaining 4,159,456 shares of Class B common stock into shares of common stock, 3,600,000 of which were converted prior to December 31, 1993, the remainder of which were converted to common stock subsequent to year end. After taking into account the conversions prior to December 31, 1993, Liberty's beneficial ownership and voting rights were approximately 39.4% and 77.8%, respectively, at December 31, 1993. NOTE K - STOCK OPTIONS AND AWARDS The Company has granted options to purchase common stock under option plans as follows: The 1986 Cable Operators Stock Option Plan, as amended, provided for the issuance of options to purchase common stock at the fair market value at date of grant in exchange for entering into affiliation agreements to carry the Company's programming for up to seven years. During 1992, all options under the 1986 plan expired. The 1987 Cable Operators Stock Option Plan, as amended, provides 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. The options vest and expire over various periods with all options expiring by June 1, 1994. 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 vest and become exercisable annually and equally over five years beginning one year from the date of grant, and expire five years from the date they vest and become exercisable. 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 and become exercisable equally over two years beginning on the date of grant. All options expire five years from the date they vest and become exercisable. 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. 53 34 A summary of changes in outstanding options, under the stock option plans are as follows:
- -------------------------------------------------------------------------------------------------------- STOCK OPTION PLANS ---------------------------------------------------- CABLE OUTSIDE OPERATORS EMPLOYEES DIRECTORS TOTAL - -------------------------------------------------------------------------------------------------------- (In thousands, except exercise price) Authorized -- September 1, 1986................... 15,000 2,400 630 18,030 Authorized -- Year ended August 31, 1987.......... 12,500 7,600 -- 20,100 Authorized -- Year ended August 31, 1992.......... -- -- 1,000 1,000 ---------- ----------- ----------- ----------- Total authorized........................ 27,500 10,000 1,630 39,130 ---------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- Outstanding -- August 31, 1990.................... 7,236 2,922 450 10,608 Granted......................................... -- 1,155 180 1,335 Exercised....................................... -- (46) -- (46) Canceled........................................ (2,234 ) (737) (120) (3,091) ---------- ----------- ----------- ----------- Outstanding -- August 31, 1991.................... 5,002 3,294 510 8,806 Granted......................................... -- 540 180 720 Exercised....................................... (234 ) (286) (60) (580) Canceled........................................ (432 ) (543) -- (975) ---------- ----------- ----------- ----------- Outstanding -- August 31, 1992.................... 4,336 3,005 630 7,971 Granted......................................... -- 145 -- 145 Exercised....................................... (11 ) (66) (330) (407) Canceled........................................ -- (150) -- (150) ---------- ----------- ----------- ----------- Outstanding -- December 31, 1992.................. 4,325 2,934 300 7,559 Granted......................................... 49 1,063 180 1,292 Exercised....................................... (3,305 ) (1,781) (216) (5,302) Canceled........................................ (524 ) (115) (54) (693) ---------- ----------- ----------- ----------- Outstanding -- December 31, 1993.................. 545 2,101 210 2,856 ---------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- Options exercisable............................... 545 691 60 1,296 ---------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- Exercise price.................................... $5.56-6.49 $3.25-14.63 $5.45-14.75 ---------- ----------- ----------- ---------- ----------- -----------
As of December 31, 1993, the Company had 29,533,000 shares of common stock available for grant under the above option plans. During the year ended December 31, 1993, 5,302,000 shares of common stock were issued in connection with the exercise of these stock options for which the Company received $31,197,000 in cash. During 1993 the Company issued 120,000 shares of common stock in connection with the exercise of stock options for outside consultants not included in the above chart, for which the Company received $654,000 in cash. In addition, at December 31, 1993, stock options for 120,000 shares were outstanding and exercisable by two former outside consultants. All of the exercise prices were adjusted as of July 31, 1992 and December 28, 1992, for options outstanding at such dates, to reflect the distributions of PSi and SKC, respectively, to the stockholders of the Company as more fully discussed in Note I. 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 the former Chairman of the Board and a former President of the Company. The Company will not issue any additional shares of stock in connection with the Program. The rights of such individuals in shares granted under the Program vest over a five year period and 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. 54 35 In fiscal 1991, in consideration of past performance and contributions to the Company, and a non-compete and confidentiality agreement, the former Chairman of the Board and a former President of the Company transferred 2,200,000 shares of common stock, owned by them individually, to a former officer and director of the Company, who resigned in September 1990. No shares of common stock were issued by the Company to the former officer and director. A portion of the shares was transferred to an escrow account which will be distributed to the former officer and director pursuant to an escrow agreement which was subsequently amended. In connection with both of these programs funded by the former Chairman of the Board and a former President of the Company, the Company recorded $15,299,000 of unearned compensation in fiscal 1991 and a corresponding amount to additional paid-in capital based on the price of the shares at the grant dates. The amount amortized and expensed relating to the compensation earned was $5,615,000 for the year ended December 31, 1993, $1,084,000 for the four months ended December 31, 1992, and $3,454,000 and $2,846,000 for the years ended August 31, 1992 and 1991, respectively. In 1993, the President and Chief Executive Officer of HSN received SARs with respect to 984,876 shares of the Company's common stock at an exercise price of $8.25 per share. The SARs vest over a four year period and are exercisable until February 23, 2003. The SARs will vest upon termination of employment other than for cause and will be exercisable for up to one year following the termination of employment. In the event of a change in ownership control of the Company, all unvested SARs will vest immediately prior to the change in control and shall remain exercisable for a one year period. SARs not exercised will expire to the extent not exercised. The SARs may be exercised for cash or, so long as the Company is a public company, for shares of the Company's common stock equal to the excess of the fair market value of each share of common stock over $8.25 at the exercise date. The SARs also will vest in the event of death or disability. Compensation expense recognized by the Company for the SARs during the year ended December 31, 1993 was $2,800,000. NOTE L - RELATED PARTY TRANSACTIONS 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 are 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. 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 Western, which provided for continuing monthly payments of 1% of HSC's gross profit, as defined. 2. Property: The Company leased three properties from a partnership controlled by the former Chairman and a former President of the Company. Payments were $26,000 per month, plus sales tax. In July and September of 1991, the Company purchased these properties for a total of $2,300,000. 3. Commissions on inventory: Certain inventory in the form of returned merchandise, rejects and small lot saleable inventory were disposed of through 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. 55 36 The following summarizes these transactions:
- -------------------------------------------------------------------------------------------------- FOUR MONTHS YEARS ENDED YEAR ENDED ENDED AUGUST 31, DECEMBER 31, DECEMBER 31, ---------------- 1993 1992 1992 1991 - -------------------------------------------------------------------------------------------------- (In thousands) Computer software license agreement.............. $297 $ 1,176 $3,502 $3,286 Commissions on inventory......................... 561 456 1,469 1,615 Property: Lease payments................................. -- -- -- 311 Purchase price................................. -- -- 250 2,050
As of December 31, 1993, in connection with a litigation settlement as discussed in Note H, the Company has a $4,500,000 liability recorded to Western. This amount relates to cancellation of the computer software license agreement, the arrangement 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 has agreed to pay HSN $3,000,000, which is recorded in accounts receivable, as of December 31, 1993. Prior to the SKC distribution, the Company was a non-voting common stockholder in a corporation which owns a television station that carries HSN programming. A former member of the Company's Board of Directors is a significant owner of this same corporation. During fiscal 1989, the Company funded construction of the television station through a 12.8% interest-bearing note, to be amortized over seven years beginning in April 1991, with monthly payments of $69,000. The amount due under this note was $3,294,000 at August 31, 1992. In connection with the distribution of the capital stock of SKC, the note and the Company's investment in the corporation were transferred to SKC prior to December 31, 1992. See Note I. Also, the Company paid $1,549,000, $504,300, $1,553,000 and $1,596,000 under an affiliation agreement with the television station for the year ended December 31, 1993, the four months ended December 31, 1992 and the fiscal years ended August 31, 1992 and 1991, respectively. During 1991, the Company engaged two firms in consulting capacities which had one officer each that was on the Company's Board of Directors until February 1993. Fees paid pursuant to these engagements totaled $126,000 for the year ended December 31, 1993, $34,000 for the four months ended December 31, 1992, and $100,000 for each of the years ended August 31, 1992 and 1991. 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 provided office space to NRI which was valued at $200,000 for the year ended December 31, 1993. The Chairman and Chief Executive Officer of NRI was appointed to the Board of Directors of the Company on April 30, 1992. HSN and NRI also share two other common board members. See Note C. The Company has entered into an agreement with PSi that provides for the Company to extend a $5,000,000 line of credit, as discussed in Note G. The Company purchased certain equipment 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 and $1,521,300 and $2,250,000, respectively, for the four months ended December 31, 1992. The former Chairman of HSN owns a controlling position in PSi's outstanding stock as of December 31, 1993. 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 the former Chairman of the Company. HSC has entered into certain affiliation agreements with cable operators which are wholly or partially owned by either Liberty or Tele-Communications, Inc. Certain officers of these companies served, or continue to serve, on the Company's Board of Directors. Payments made under the affiliation agreements were $4,053,000 for the year ended December 31, 1993. 56 37 In addition, the general partner of certain cable systems which carry the Company's programming, was appointed to HSN's Board of Directors in July 1993. Liberty also has an ownership interest in these cable systems. A total of $247,000 was paid for the year ended December 31, 1993 for such cable agreements. NOTE M - CONSOLIDATED STATEMENTS OF CASH FLOWS Supplemental disclosure of cash flow information:
- -------------------------------------------------------------------------------------------------- FOUR MONTHS YEARS ENDED AUGUST YEAR ENDED ENDED 31, DECEMBER 31, DECEMBER 31, ------------------- 1993 1992 1992 1991 - -------------------------------------------------------------------------------------------------- (In thousands) Cash paid during the period for: Interest..................................... $ 13,872 $ 10,837 $22,995 $24,709 Income taxes................................. 515 4,648 14,854 20,330
Supplemental information of non-cash investing and financing activities: - - On December 28, 1992, the Company distributed the common stock of SKC to the Company's stockholders, in the form of a taxable pro rata stock dividend. See Note I. - - On July 31, 1992, the Company distributed the common stock of PSi to the Company's stockholders in the form of a tax-free, pro rata stock dividend. See Note I. - - As more fully discussed in Note K, the Company recorded the constructive receipt of common stock valued at $15,299,000 from the former Chairman of the Board and a former President of the Company to be used in conjunction with various stock award plans. - - Additional shares of common stock were issued upon the conversion of Debentures, as more fully discussed in Note D. 57 38 NOTE N - QUARTERLY RESULTS (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------- QUARTER QUARTER QUARTER QUARTER ENDED ENDED ENDED ENDED MARCH 31,(A) JUNE 30,(A) SEPTEMBER 30, DECEMBER 31, - ------------------------------------------------------------------------------------------------------------- (In thousands, except per share data) YEAR ENDED DECEMBER 31, 1993 Net sales................................... $239,421 $ 250,264 $ 260,462 $296,433 Gross profit................................ 61,540(c) 87,541 90,122 103,337 Earnings (loss) before extraordinary item... (16,980) 2,001 1,115 (1,675)(d) Net earnings (loss)......................... (23,823) 1,602 1,115 (1,675) Earnings (loss) per common share: Before extraordinary item................. (.19) .02 .01 (.02) Net earnings (loss)....................... (.27) .02 .01 (.02) YEAR ENDED DECEMBER 31, 1992(A) Net sales................................... $275,442 $ 257,499 $ 261,662 $273,768 Gross profit................................ 102,723 94,913 97,323 94,034 Earnings before extraordinary item.......... 8,999 6,518 6,969 4,297 Net earnings................................ 9,000 6,471 6,969 4,297 Earnings per common share: Before extraordinary item................. .10 .07 .08 .05 Net earnings.............................. .10 .07 .08 .05
- -------------------------------------------------------------------------------------------------------------------- QUARTER MONTH ENDED QUARTER QUARTER QUARTER ENDED AUGUST ENDED ENDED ENDED JUNE 30, 31, NOVEMBER 30, FEBRUARY 28, MAY 31, 1993(B) 1992 - -------------------------------------------------------------------------------------------------------------------- (In thousands, except per share data) PERIODS SUBSEQUENT TO AUGUST 31, 1992 Net sales................................ $265,796 $ 244,044 $ 260,157 $76,854 -- Gross profit............................. 94,829 60,529(c) 93,052 25,307 -- Earnings before extraordinary item....... 5,828 (20,040) 6,158 (1,785 ) -- Net earnings (loss)...................... 5,828 (26,883) 5,759 (1,785 ) -- Earnings (loss) per common share: Before extraordinary item.............. .07 (.23) .07 (.02 ) -- Net earnings (loss).................... .07 (.31) .07 (.02 ) -- YEAR ENDED AUGUST 31, 1992 Net sales................................ $291,756 $ 275,460 $ 269,315 -- $261,256 Gross profit............................. 107,849 101,134 101,119 -- 96,357 Earnings before extraordinary item....... 13,095 7,881 9,013 -- 7,416 Net earnings............................. 13,095 7,816 8,966 -- 7,416 Earnings per common share: Before extraordinary item.............. .15 .09 .10 -- .08 Net earnings........................... .15 .09 .10 -- .08
(a) The quarters in the year ended December 31, 1992 and the quarters ended March 31, 1993 and June 30, 1993 are shown for comparative purposes only. (b) The month ended June 30, 1993 is shown in connection with the transition for the change in year end from August 31 to December 31, as discussed in Note A. (c) During February 1993, the Company established an inventory reserve of $22,700,000. Of this reserve, $20,100,000 affected gross profit and $2,600,000 was charged to miscellaneous expense. (d) In the fourth quarter of 1993, the Company charged $13,000,000 to other income (expense) for the settlement of various lawsuits. See Note H. The difference between earnings (loss) before extraordinary item and net earnings (loss) in each quarter represents gains (losses) from early extinguishment of long-term obligations. See Note D. 58 39 The Company believes that seasonality does impact its business, but not to the same extent it impacts the retail industry in general. NOTE O - FINANCIAL INSTRUMENTS As discussed in Note G, the Company is obligated to provide PSi with a $5,000,000 unsecured line of credit. If the Company funds this line of credit and PSi fails to perform according to the terms of the contract, the Company is exposed to certain losses. 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.
- ---------------------------------------------------------------------------------------------------- DECEMBER 31, 1993 DECEMBER 31, 1992 --------------------- --------------------- CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE - ---------------------------------------------------------------------------------------------------- (In thousands) Cash and cash equivalents............................ $ 35,566 $ 35,566 $ 19,421 $ 19,421 Note and interest receivable from related party...... 132,304 132,304 135,172 135,172 Other assets and notes receivable.................... 3,117 3,117 7,387 7,387 Long-term investment................................. 10,000 18,000 7,225 24,000 Long-term obligations................................ (112,272) (112,272) (162,754) (168,778)
The carrying value of cash and cash equivalents, note and interest receivable from related party, and other assets and notes receivable are a reasonable estimate of their fair value. The estimate of the fair value of the long-term investment was based on quoted market prices of NRI's common stock. The Company owns a large percentage of the outstanding equity in NRI. The dilutive effect on the quoted market rate has not been factored into the fair market value of the investment, and as such, the fair market value may not equal liquidation value. The fair value of the Company's long-term obligations at December 31, 1993 approximates the carrying value, as interest rates for similar issues of debt, have not changed substantially during 1993. At December 31, 1992, the fair value is estimated based on the actual amount paid to retire the debt during the refinancing and retirement of the debt as discussed in Note D. 59 40 - -------------------------------------------------------------------------------- SUMMARY FINANCIAL DATA (In thousands, except per share data) - --------------------------------------------------------------------------------
FOUR MONTHS SUMMARY CONSOLIDATED YEAR ENDED ENDED YEARS ENDED AUGUST 31, STATEMENTS OF OPERATIONS DECEMBER 31, DECEMBER 31, ------------------------------------------------------ DATA 1993 1992 1992 1991 1990 1989 - ----------------------------------------------------------------------------------------------------------------- Net sales.................. $1,046,580 $357,166 $1,097,787 $1,078,547 $1,008,272 $774,342 Gross profit............... 342,540(4) 124,636 406,459 389,398 374,908 293,433 Operating profit (loss).... (6,949) 17,569 82,202 64,570(2) 74,720 9,199(1) Earnings (loss) before extraordinary item....... (15,539)(5) 5,140 37,405 (9,599)(2) 32,464 (22,075)(1) Net earnings (loss)........ (22,781) 5,140 37,293 (8,945)(2) 38,754 (14,939)(1) Earnings (loss) per common share: Earnings (loss) before extraordinary item....... (.18) .06 .42 (.11)(2) .35 (.25)(1) Net earnings (loss)........ (.26) .06 .42 (.10)(2) .42 (.17)(1) Weighted average common shares outstanding....... 91,192 91,115 90,255 87,452 95,736 89,483
- ----------------------------------------------------------------------------------------------------------------- DECEMBER 31, AUGUST 31, SUMMARY CONSOLIDATED --------------------- ------------------------------------------- BALANCE SHEET DATA 1993 1992 1992 1991 1990 1989 - ----------------------------------------------------------------------------------------------------------------- Working capital.......................... $ 8,053 $ 38,493 $ 47,004 $ 52,868 $ 98,006 $115,545 Total assets............................. 501,143 477,913 519,670 565,036 556,236 533,929 Unsecured Senior Term Loans.............. 85,000(3) -- -- -- -- -- 11% Senior Notes due October 15, 1996.... -- 140,000(3) 153,252(3) 184,752 190,678 223,300 5% Convertible Subordinated Debentures due April 22, 2002..................... -- 16,915 16,915 17,115 28,335 54,745 Other long-term obligations.............. 1,927 2,276 2,689 3,175 6,096 6,760 Stockholders' equity..................... 196,554 170,149 170,329 161,839 177,481 139,885
(1) During the fourth quarter of fiscal 1989, the Company recorded $28,000,000 in pre-tax non-recurring special charges. (2) During fiscal 1991, the Company recorded $44,500,000 in pre-tax non-recurring special charges as discussed in Notes A-5 and H. Additionally, the Company increased its income tax provision $10,382,000 relating to certain adjustments proposed by the Internal Revenue Service as discussed in Note E. (3) At December 31, 1993 and 1992, $25,000,000 and $3,200,000, respectively, and $27,500,000 at August 31, 1992, was classified as current reflecting management's ability and intent to satisfy a portion of the debt from funds provided from operations. See Note D. (4) The gross profit declined from 37.0%, for the fiscal year ended August 31, 1992, to 32.7%, for the year ended December 31, 1993. 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. See Note H. 60 41 - -------------------------------------------------------------------------------- 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).
----------------------------------------------------------------------------------------------------- HIGH LOW ----------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 1993 Quarter ended November 30....................................................... $ 6.38 $ 4.25 Quarter ended February 28....................................................... 9.00 4.88 Quarter ended May 31............................................................ 8.63 4.13 Month ended June 30............................................................. 12.88 7.50 Quarter ended September 30...................................................... 14.75 10.63 Quarter ended December 31....................................................... 15.38 10.50 YEAR ENDED AUGUST 31, 1992 Quarter ended November 30....................................................... 7.13 5.00 Quarter ended February 28....................................................... 8.88 4.88 Quarter ended May 31............................................................ 8.63 5.25 Quarter ended August 31......................................................... 6.38 5.13 YEAR ENDED AUGUST 31, 1991 Quarter ended November 30....................................................... 5.75 3.00 Quarter ended February 28....................................................... 5.25 3.38 Quarter ended May 31............................................................ 7.63 4.50 Quarter ended August 31......................................................... 6.50 4.25
The closing price per share as of February 28, 1994 was $13.25 and there were 8,836 stockholders of record as of that date. 61 42 BOARD OF DIRECTORS: Gerald F. Hogan President and Chief Executive Officer Home Shopping Network, Inc. Robert R. Bennett, Chairman Senior Vice President, Treasurer and Secretary Liberty Media Corporation Englewood, Colorado John M. Draper Senior Vice President and General Counsel Liberty Media Corporation Englewood, Colorado Leo J. Hindery, Jr. Managing General Partner InterMedia Partners San Francisco, California J. Anthony Forstmann Chairman of the Board The National Registry Inc. St. Petersburg, Florida George C. McNamee Chairman First Albany Companies, Inc. Albany, New York OFFICERS: Gerald F. Hogan President and Chief Executive Officer Honore A. LeBrun, III Executive Vice President Affiliate Sales and Marketing J. Michael Reardon Executive Vice President Operations Stella L. Tavilla Executive Vice President Management Information Systems Peter M. Kern Senior Vice President Strategic Development and Corporate Finance Kevin J. McKeon Senior Vice President Accounting and Finance and Treasurer Edward M. Vaughn, Jr. Senior Vice President Human Resources Michael W.D. McMullen President HSN International Division Robert F. Buccos Vice President Budgeting and Strategic Planning Todd Cralley Vice President Broadcast Affiliates M. Wade Downs Vice President Corporate Research and Analysis Peter J. Hardy Vice President New Business Development Judith K. Jourdan Vice President Application Services David W. Swanson Vice President Technical Services Brian J. Feldman Controller HOME SHOPPING CLUB, INC. L. Douglas Bailey President HOME SHOPPING CLUB OUTLETS, INC. J. Michael Reardon President HSN CREDIT CORPORATION P. A. Bauer President HSN FULFILLMENT, INC. Ronald J. DiDonato President HSN INSURANCE, INC. Suzanne B. Morrow President HSN MAIL ORDER, INC. John W. Pence President CORPORATE INFORMATION: CORPORATE HEADQUARTERS 2501 - 118th Avenue North St. Petersburg, Florida 33716-1900 The Company's main telephone number is (813)572-8585. STOCK EXCHANGE Home Shopping Network, Inc. is listed on the New York Stock Exchange. The ticker symbol is HSN. TRANSFER AGENT/ REGISTRAR Bank of New York 101 Barclay Street New York, New York 10286 INDEPENDENT AUDITORS KPMG Peat Marwick EX-21 15 HSN LIST OF SUBSIDIARIES 1 EXHIBIT 21 LIST OF SUBSIDIARIES OF HOME SHOPPING NETWORK, INC. A DELAWARE CORPORATION AS OF MARCH 1, 1994
STATE OF SUBSIDIARY INCORPORATION - ----------------------------------------------------------------------------------------- ------------- Cable Call Center, Inc................................................................... Delaware Citrus Office Supply, Inc................................................................ Florida Home Shopping Club, Inc.................................................................. Delaware d/b/a Home Shopping Club Telemation Home Shopping Club Outlet of Brandon, Inc................................................ Delaware Home Shopping Club Outlet of Clearwater, Inc............................................. Delaware Home Shopping Club Outlet of New Port Richey, Inc........................................ Delaware Home Shopping Club Outlet of Orlando, Inc................................................ Delaware Home Shopping Club Outlet of South Orlando, Inc.......................................... Delaware Home Shopping Club Outlet of St. Petersburg, Inc......................................... Delaware Home Shopping Club Outlet of Tampa, Inc.................................................. Delaware Home Shopping Club Outlet of West Tampa, Inc............................................. Delaware Home Shopping Club Outlets, Inc.......................................................... Delaware Home Shopping Network Entertainment, Inc................................................. Delaware Home Shopping Services, Inc.............................................................. Delaware d/b/a Home Shopping Services of Delaware, Inc. Home Shopping Showcase, Inc.............................................................. Delaware d/b/a Innovations in Hiring HSN Auto Mart, Inc....................................................................... Florida HSN Aviation, Inc........................................................................ Delaware HSN Brokers, Inc......................................................................... Delaware HSN Capital Corporation.................................................................. Nevada HSN Cosmetics, Inc....................................................................... Delaware HSN Credit Corporation................................................................... Delaware HSN Entertainment Events, Inc............................................................ Delaware HSN Entertainment Holding Company, Inc................................................... Delaware HSN Entertainment Joint Ventures, Inc.................................................... Delaware d/b/a Star Product Group HSN Entertainment Joint Ventures II, Inc................................................. Delaware d/b/a Pacific Media Ventures HSN Financial Corporation, Inc........................................................... Delaware HSN Fulfillment, Inc..................................................................... Delaware HSN Fulfillment of Iowa, Inc............................................................. Delaware HSN Fulfillment of Nevada, Inc........................................................... Delaware HSN Fulfillment of Virginia, Inc......................................................... Delaware HSN Health Assist, Inc................................................................... Delaware HSN Health Services, Inc................................................................. Delaware HSN Holdings, Inc........................................................................ Delaware HSN Insurance, Inc....................................................................... Florida HSN Lifeway Health Products, Inc......................................................... Delaware d/b/a Interactive Merchandising HSN Liquidation, Inc..................................................................... Delaware HSN Liquidation, Inc. of Florida......................................................... Delaware HSN Liquidation, Inc. of Iowa............................................................ Delaware HSN Liquidation, Inc. of Nevada.......................................................... Delaware HSN Liquidation, Inc. of Virginia........................................................ Delaware HSN Mail Order, Inc...................................................................... Delaware d/b/a Designer Direct Thomas Oak & Sons Ortho-Vent Division, Inc. Home Shopping Values Private Showing -- Jewelry Values by Mail HSN Media Merchandise Heroes Collector's Club
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STATE OF SUBSIDIARY INCORPORATION - ----------------------------------------------------------------------------------------- ------------- HSN Mistix Corporation................................................................... Delaware d/b/a HSN Teleseat Rocky Mountain Teleseat HSN Products, Inc........................................................................ Delaware HSN Realty, Inc.......................................................................... Delaware d/b/a HSN Realty of Delaware, Inc. HSN Redi-Med, Inc........................................................................ Delaware HSN Technology Center, Inc............................................................... Delaware HSN Tours, Inc........................................................................... Delaware d/b/a Home Shopping Tours HSN Transportation, Inc.................................................................. Delaware HSN Travel, Inc.......................................................................... Delaware HSN Trucking, Inc........................................................................ Delaware MarkeTechs Services, Inc................................................................. Delaware Vela Research, Inc....................................................................... Delaware National Call Center, Inc................................................................ Delaware National Ticket Network, Inc............................................................. Colorado Ortho-Vent, Inc.......................................................................... Delaware World Rez, Inc........................................................................... Delaware d/b/a Home Shopping Travel World Rez, Inc. of Delaware
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