-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GYCZpSbuXGMnWmTucswVVjl8+eV56M11jVNqUSH6cR3bO0Z86iwkLwR2jkUFoNJr fr+I5wEgUU4zyyDvTlfbwQ== 0000950144-95-002999.txt : 19951107 0000950144-95-002999.hdr.sgml : 19951107 ACCESSION NUMBER: 0000950144-95-002999 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951106 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HOME SHOPPING NETWORK INC CENTRAL INDEX KEY: 0000791024 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-CATALOG & MAIL-ORDER HOUSES [5961] IRS NUMBER: 592649518 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09118 FILM NUMBER: 95587640 BUSINESS ADDRESS: STREET 1: 2501 118TH AVE NORTH CITY: ST PETERSBURG STATE: FL ZIP: 33716 BUSINESS PHONE: 8135728585 10-Q 1 HOME SHOPPING NETWORK - FORM 10-Q 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1995 COMMISSION FILE NUMBER 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 33716 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (813) 572-8585 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Total number of shares of outstanding stock (net of 6,986,000 shares of common stock held in treasury) as of November 1, 1995: Common stock.............. 70,680,879 Class B common stock...... 20,000,000
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 PART I -- FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
- ------------------------------------------------------------------------------------------------- THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, --------------------- --------------------- 1995 1994 1995 1994 - ------------------------------------------------------------------------------------------------- (In thousands, except per share data) NET SALES....................................... $239,894 $276,612 $730,163 $824,832 Cost of sales................................... 162,311 178,992 490,402 533,410 -------- -------- -------- -------- Gross profit.................................. 77,583 97,620 239,761 291,422 -------- -------- -------- -------- Operating expenses: Selling and marketing......................... 38,857 36,529 122,437 113,775 Engineering and programming................... 24,399 24,721 73,838 73,754 General and administrative.................... 18,114 18,184 58,497 58,572 Depreciation and amortization................. 11,614 7,594 29,514 20,621 Other charges................................. 5,427 -- 5,427 -- Restructuring charge.......................... -- -- 2,041 -- -------- -------- -------- -------- 98,411 87,028 291,754 266,722 -------- -------- -------- -------- Operating profit (loss).................... (20,828) 10,592 (51,993) 24,700 Other income (expense): Interest income............................... 413 1,696 1,434 8,773 Interest expense.............................. (2,581) (779) (5,858) (4,955) Miscellaneous................................. 344 1,163 3,869 (1,089) Litigation.................................... (3,200) -- (3,200) -- -------- -------- -------- -------- (5,024) 2,080 (3,755) 2,729 -------- -------- -------- -------- Earnings (loss) before income taxes and extraordinary item............................ (25,852) 12,672 (55,748) 27,429 Income tax expense (benefit).................... (8,151) 5,323 (19,512) 11,521 -------- -------- -------- -------- Earnings (loss) before extraordinary item....... (17,701) 7,349 (36,236) 15,908 Extraordinary item -- loss on early extinguishment of long-term obligations, net of taxes...................................... -- (924) -- (924) -------- -------- -------- -------- NET EARNINGS (LOSS)............................. $(17,701) $ 6,425 $(36,236) $ 14,984 ======== ======== ======== ======== Earnings (loss) per common share: Earnings (loss) before extraordinary item..... $ (.20) $ .08 $ (.41) $ .17 Extraordinary item, net....................... -- (.01) -- (.01) -------- -------- -------- -------- Net earnings (loss)........................... $ (.20) $ .07 $ (.41) $ .16 ======== ======== ======== ======== Weighted average shares outstanding............. 90,646 95,053 90,812 95,094 ======== ======== ======== ========
The accompanying notes are an integral part of these statements. 1 3 HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
- ----------------------------------------------------------------------------------------------- SEPTEMBER 30, --------------------- DECEMBER 31, ASSETS 1995 1994 1994 - ----------------------------------------------------------------------------------------------- (In thousands) CURRENT ASSETS Cash and cash equivalents................................ $ 20,438 $ 43,666 $ 33,648 Accounts and notes receivable, net....................... 31,734 44,709 40,841 Income taxes receivable.................................. -- -- 2,816 Inventories, net......................................... 136,822 117,706 118,801 Deferred income taxes.................................... 36,532 23,252 22,108 Other current assets, net................................ 11,789 13,156 10,632 -------- -------- ------------ Total current assets........................... 237,315 242,489 228,846 PROPERTY, PLANT AND EQUIPMENT Computer and broadcast equipment......................... 107,936 105,315 106,144 Buildings and leasehold improvements..................... 75,114 73,698 74,514 Furniture and other equipment............................ 47,397 43,115 46,183 -------- -------- ------------ 230,447 222,128 226,841 Less accumulated depreciation and amortization......... 128,405 112,724 116,697 -------- -------- ------------ 102,042 109,404 110,144 Land..................................................... 17,711 17,915 17,774 Construction in progress................................. 3,940 4,700 3,182 -------- -------- ------------ 123,693 132,019 131,100 OTHER ASSETS Cable distribution fees, net ($33,354, $33,958, and $34,174, respectively, to related parties)............. 94,977 56,644 67,978 Long-term investments ($10,000 in a related party)....... 14,000 10,000 10,000 Other non-current assets................................. 7,719 9,126 8,575 -------- -------- ------------ 116,696 75,770 86,553 -------- -------- ------------ $477,704 $450,278 $446,499 ======== ======== ============
The accompanying notes are an integral part of these statements. 2 4 HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
- ----------------------------------------------------------------------------------------------- SEPTEMBER 30, --------------------- DECEMBER 31, LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994 1994 - ----------------------------------------------------------------------------------------------- (In thousands) CURRENT LIABILITIES Current maturities of long-term obligations.............. $ 1,540 $ 1,710 $ 1,690 Accounts payable......................................... 116,854 99,867 75,264 Income taxes payable..................................... 3,263 5,705 -- Accrued liabilities: Programming fees ($4,322, $36,118 and $26,591, respectively, to related parties)................... 23,457 49,193 50,170 Sales returns.......................................... 9,654 12,677 12,304 Litigation settlements................................. 8,050 14,450 14,450 Sales taxes............................................ 5,172 6,709 7,173 Treasury stock......................................... -- -- 13,109 Other.................................................. 38,399 31,290 31,613 -------- -------- ------------ Total current liabilities...................... 206,389 221,601 205,773 LONG-TERM OBLIGATIONS (net of current maturities)........ 116,040 2,706 27,491 DEFERRED INCOME TAXES.................................... 5,814 6,444 6,792 COMMITMENTS AND CONTINGENCIES............................ -- -- -- STOCKHOLDERS' EQUITY Preferred stock -- $.01 par value; authorized 500,000 shares, no shares issued and outstanding............... -- -- -- Common stock -- $.01 par value; authorized 150,000,000 shares, issued 77,665,879 and 77,515,329 shares at September 30, 1995 and 1994, respectively, and 77,553,329 shares at December 31, 1994................. 777 775 776 Class B -- convertible common stock -- $.01 par value; authorized, issued and outstanding, 20,000,000 shares................................................. 200 200 200 Additional paid-in capital............................... 168,266 166,499 167,463 Retained earnings........................................ 33,324 67,767 69,560 Treasury stock -- 6,986,000 and 3,105,700 common shares at September 30, 1995 and 1994, respectively, and 4,440,700 common shares at December 31, 1994, at cost................................................... (48,718) (14,027) (27,136) Unearned compensation.................................... (4,388) (1,687) (4,420) -------- -------- ------------ 149,461 219,527 206,443 -------- -------- ------------ $477,704 $450,278 $446,499 ======== ======== ============
The accompanying notes are an integral part of these statements. 3 5 HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------ CLASS B CONVERTIBLE ADDITIONAL UNEARNED COMMON COMMON PAID-IN RETAINED TREASURY COMPEN- STOCK STOCK CAPITAL EARNINGS STOCK SATION TOTAL - ------------------------------------------------------------------------------------------------------------------ (In thousands) BALANCE AT JANUARY 1, 1994.......... $762 $ 206 $160,371 $ 52,783 $(14,027) $(3,541) $196,554 Issuance of common stock upon exercise of stock options......... 7 -- 4,288 -- -- -- 4,295 Income tax benefit related to executive stock award program and stock options exercised........... -- -- 1,840 -- -- -- 1,840 Expense related to executive stock award program..................... -- -- -- -- -- 1,854 1,854 Conversion of Class B common stock to common stock................... 6 (6) -- -- -- -- -- Net earnings for the nine months ended September 30, 1994.......... -- -- -- 14,984 -- -- 14,984 ------ ----- -------- -------- -------- -------- -------- BALANCE AT SEPTEMBER 30, 1994....... $775 $ 200 $166,499 $ 67,767 $(14,027) $(1,687) $219,527 ===== ===== ======== ======== ======== ======== ======== BALANCE AT JANUARY 1, 1995.......... $776 $ 200 $167,463 $ 69,560 $(27,136) $(4,420) $206,443 Issuance of common stock upon exercise of stock options......... 1 -- 622 -- -- -- 623 Income tax benefit related to executive stock award program and stock options exercised........... -- -- 181 -- -- -- 181 Expense related to executive stock award program..................... -- -- -- -- -- 531 531 Unearned compensation related to employee equity participation plan.............................. -- -- -- -- -- (1,264 ) (1,264) Expense related to employee equity participation plan................ -- -- -- -- -- 765 765 Purchase of treasury stock, at cost.............................. -- -- -- -- (21,582) -- (21,582) Net loss for the nine months ended September 30, 1995................ -- -- -- (36,236) -- -- (36,236) ---- ----- -------- -------- -------- -------- -------- BALANCE AT SEPTEMBER 30, 1995....... $777 $ 200 $168,266 $ 33,324 $(48,718) $(4,388) $149,461 ==== ===== ======== ======== ======== ======== ========
The accompanying notes are an integral part of these statements. 4 6 HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
- ---------------------------------------------------------------------------------------------- NINE MONTHS ENDED SEPTEMBER 30, ------------------------ 1995 1994 - ---------------------------------------------------------------------------------------------- (In thousands) Cash flows from operating activities: Net earnings (loss)............................................... $(36,236) $ 14,984 Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities: Depreciation and amortization................................ 20,834 18,630 Amortization of cable distribution fees...................... 8,680 1,991 Deferred income taxes........................................ (15,402) 4,157 Loss on disposition of wholly-owned subsidiary............... -- 2,854 Inventory carrying value adjustment.......................... 1,973 (3,155) Change in stock appreciation rights ("SARs") and common stock issued for services provided................................ 1,296 691 Provision for losses on accounts and notes receivable........ (724) 227 Loss on sale of assets....................................... 541 102 Equity in (earnings) losses of unconsolidated affiliates..... 21 (51) Loss on retirement of long term obligations.................. -- 1,491 Change in current assets and liabilities: (Increase) decrease in accounts and interest receivable... 4,516 (9,504) Decrease in income taxes receivable....................... 2,816 -- Increase in inventories................................... (19,994) (3,621) (Increase) decrease in other current assets............... 140 (5,837) Increase in accounts payable.............................. 41,590 11,009 Increase (decrease) in accrued liabilities and income taxes payable........................................... (27,534) 27,882 Increase in cable distribution fees.......................... (35,679) (58,635) Stock purchases for employee benefit plan.................... (1,264) -- -------- --------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES....... (54,426) 3,215 -------- --------- Cash flows from investing activities: Capital expenditures.............................................. (10,247) (13,000) Increase in long-term investments................................. (4,000) -- Proceeds from long-term notes receivable.......................... 2,984 131,587 Increase in intangible assets..................................... (2,378) (3,789) Increase in other non-current assets.............................. (1,004) (5,708) Proceeds from sale of assets...................................... 1,530 2,259 -------- --------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES....... (13,115) 111,349 -------- --------- Cash flows from financing activities: Net borrowings from secured credit facility....................... 90,000 -- Purchases of treasury stock....................................... (34,691) -- Principal payments on long-term obligations....................... (1,601) (110,759) Proceeds from issuance of common stock............................ 623 4,295 -------- --------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES....... 54,331 (106,464) -------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................ (13,210) 8,100 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.................... 33,648 35,566 -------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.......................... $ 20,438 $ 43,666 ======== =========
The accompanying notes are an integral part of these statements. 5 7 HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE A -- BASIS OF PRESENTATION The interim Condensed Consolidated Financial Statements of Home Shopping Network, Inc. and Subsidiaries (the "Company" or "HSN") are unaudited and should be read in conjunction with the audited Consolidated Financial Statements and Notes thereto for the years ended December 31, 1994 and 1993, the four months ended December 31, 1992 and the year ended August 31, 1992. Certain amounts in the Condensed Consolidated Financial Statements for the nine month period ended September 30, 1994, have been reclassified to conform to the 1995 presentation. In the opinion of the Company, all adjustments necessary for a fair presentation of such Condensed Consolidated Financial Statements have been included. Such adjustments consist of normal recurring items and nonrecurring items as discussed in Notes E and F. Interim results are not necessarily indicative of results for a full year. The interim Condensed Consolidated Financial Statements and Notes thereto are presented as permitted by the Securities and Exchange Commission and do not contain certain information included in the Company's annual Consolidated Financial Statements and Notes thereto. NOTE B -- COMMITMENTS AND CONTINGENCIES Litigation A consolidated class action initiated in 1990 is pending against the Company in the Court of Common Pleas of Bucks County, Pennsylvania. The complaints allege violation of the Pennsylvania Unfair Trade Practices and Consumer Protection Law with respect to the Company's pricing practices for diamond and imitation diamond jewelry. Plaintiffs seek compensatory damages of at least $100 per class member, treble damages, attorneys' fees, costs, interest and other relief on behalf of all Pennsylvania residents who purchased any jewelry containing diamonds or imitation diamonds from the Home Shopping Club between December 27, 1984 and May 20, 1991. The Company has reached agreement in principle to settle this case on the following terms. Customers who present adequate proof of purchase during the class period will have the option of receiving a cash payment or a discount certificate for the purchase of HSN merchandise during the following twelve months. Under the proposed settlement agreement, $2.5 million will be the maximum cash payment required from the Company with respect to all costs relating to the settlement, including costs of administration, fees and expenses of the attorneys for the class, cash settlement payments to the class and all other payments. The Company will be entitled to a refund of any cash not used for these purposes. If certificates representing a maximum discount of more than $5.2 million would be issuable under the settlement, the Company has the right to require that the certificates be pro-rated among those who elect to receive them. The settlement is subject to execution of definitive agreements by the parties and approval by the Court, after notice and hearing. During the quarter ended September 30, 1995, the Company accrued a balance sufficient to cover anticipated costs in connection with the resolution of this and other pending litigation. The Company is also involved in various other lawsuits either as plaintiff or defendant. In the opinion of management, the ultimate outcome of these other lawsuits should not have a material impact on the Company's liquidity, results of operations or financial condition. 6 8 HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED) NOTE C -- CREDIT FACILITY The Company's $150.0 million revolving credit facility, was amended on September 28, 1995. The amended credit facility now expires on April 1, 1997, is secured by the capital stock of Home Shopping Club, Inc. ("HSC") and HSN Realty, Inc. ("Realty"), wholly-owned subsidiaries of HSN, and provides the Company with full availability of the facility and increased flexibility with respect to certain of its financial covenants. Borrowings under this facility may be used for general corporate purposes. The interest rate on borrowings under the credit facility is tied to LIBOR plus a margin based on the Company's total borrowings and operating cash flow results. At September 30, 1995, the Company was in compliance with all covenants contained in the credit facility. At November 6, 1995, $120.0 million was outstanding under this facility. Fees relating to the credit facility amendments totaled $2.7 million during the nine months ended September 30, 1995. In addition to the above credit facility, the Company also has a $25.0 million committed bank credit line, secured by the capital stock of HSC and Realty, and a $15.0 million uncommitted unsecured facility. These facilities back letters of credit used exclusively to facilitate inventory importation. At October 31, 1995, outstanding letters of credit amounted to $14.0 million leaving $11.0 million of these bank credit lines available. Outstanding letters of credit are limited to a total of $25.0 million at any time, under the terms of the revolving credit facility discussed above. NOTE D -- INCOME TAXES On May 12, 1995, the Internal Revenue Service ("IRS") completed its examination of the Company's federal income tax returns for fiscal years 1990 and 1991, proposing adjustments resulting in income tax deficiencies of $3.0 million, primarily related to the disallowance of royalty payments made to a previously related party. The Company also made such royalty payments during fiscal years 1992 through early 1993. The deductibility of these payments will also be challenged by the IRS upon audit. The Company has made adequate provision for this issue for all of the above years. The Company continues to maintain that it has meritorious positions regarding the deductibility of these payments and intends to file a refund claim with the IRS for the payment made for years through fiscal 1989 and will contest the assessment for this matter on open tax years. The Company's federal income tax returns for fiscal years ended August 31, 1992, 1993, and 1994 are currently under examination by the IRS. No additional proposed adjustments relating to such years have been brought to management's attention. The Company has incurred tax losses for the nine months ended September 30, 1995 totaling $56.3 million. The Company will carry back $8.9 million to obtain an income tax refund. Any remaining tax loss (presently $47.4 million) would be carried forward and would expire on December 31, 2010. Management believes that it will generate future taxable income sufficient to realize this tax benefit prior to its expiration. This belief is based upon, among other things, merchandising and programming strategies aimed at long-term improvements in sales and operating results, obtaining additional program carriage and increasing market penetration. Accordingly, the Company has recognized an asset related to these carryforwards and no valuation allowance has been provided. NOTE E -- RESTRUCTURING CHARGE During the nine months ended September 30, 1995, the Company recorded a charge of $2.0 million covering employee and other costs related to the closing of its fulfillment center in Reno, Nevada. The restructuring was completed by June 30, 1995. During the nine months ended September 30, 1995, payments totaling $1.3 million were made related to this charge. 7 9 HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED) NOTE F -- OTHER CHARGES During the quarter ended September 30, 1995, the Company recorded $5.4 million in "Other Charges." These consisted of severance pay of $2.0 million related to a reduction in work force, and $2.1 million of payments to the former president and chief executive officer as provided for under his employment agreement in connection with the termination of his employment. In addition, the Company recorded a write-down of inventory totaling $1.3 million to net realizable value based on the planned disposition of Ortho-Vent, Inc., one of its mail order subsidiaries. An additional $2.4 million, related to name lists of Ortho-Vent, Inc. were written off and included in "Depreciation and Amortization." NOTE G -- EARNINGS (LOSS) PER COMMON SHARE Primary earnings (loss) per common share is based on net earnings (loss) divided by the weighted average common shares outstanding giving effect to stock options when dilutive. Fully diluted earnings per share is not materially different from primary earnings per share in any period presented. NOTE H -- STATEMENTS OF CASH FLOWS For purposes of reporting cash flows, cash and cash equivalents include cash and short-term investments. Short-term investments consist primarily of auction preferred shares, money market funds and certificates of deposit with original maturities of less than 91 days. Supplemental disclosures of cash flow information:
-------------------------------------------------------------------------------------- NINE MONTHS ENDED SEPTEMBER 30, ------------------- 1995 1994 -------------------------------------------------------------------------------------- (In thousands) CASH PAID FOR: Interest..................................................... $ 4,363 $ 5,839 Income taxes................................................. 385 15,064 CASH RECEIVED FOR: Income tax refund............................................ 11,006 227
On March 27, 1995, Precision Systems, Inc. ("PSi") repaid $2.7 million, plus accrued interest, of its $5.0 million loan from the Company. Under an agreement between the Company and PSi, the remaining principal balance of the loan has been recorded as a prepayment of future monthly software maintenance payments due PSi by the Company through December 1996. 8 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES GENERAL Home Shopping Network, Inc. (the "Company") is a holding company, the subsidiaries of which conduct the day-to-day operations of the Company's various business activities. The Company's primary business is electronic retailing conducted by Home Shopping Club, Inc. ("HSC"), a wholly-owned subsidiary of the Company. A. CONSOLIDATED RESULTS OF OPERATIONS The following discussion presents the material changes in the consolidated results of operations of the Company which have occurred in the third quarter and first nine months of 1995, compared with the same periods in 1994. Reference should also be made to the Condensed Consolidated Financial Statements included herein. All tables and discussion included herein calculate the percentage changes using actual dollar amounts, versus rounded dollar amounts. NET SALES For the quarter and nine months ended September 30, 1995, net sales for the Company decreased $36.7 million, or 13.3%, to $239.9 million from $276.6 million and $94.7 million, or 11.5%, to $730.2 million from $824.8 million, respectively, compared to the same periods in 1994. Net sales of HSC decreased $49.9 million, or 19.5%, and $130.9 million, or 17.4%, for the quarter and nine months ended September 30, 1995. HSC's sales reflect decreases of 29.2% and 21.1% in the number of packages shipped while the average price per unit sold increased 18.1% and 6.9% for the quarter and nine months ended September 30, 1995, respectively, compared to the same periods in 1994. The decreases in HSC sales were offset by sales increases by the Company's infomercial joint venture, HSN Direct Joint Venture ("HSND"), and wholly-owned subsidiaries, HSN Mail Order, Inc., ("Mail Order") and Vela Research, Inc. ("Vela") totaling $11.5 million and $36.5 million, respectively, for the quarter and nine months ended September 30, 1995. Since September 1994, the Company has appointed new management personnel with expertise in merchandising and has also instituted procedures intended to improve purchasing and other merchandising practices. Management's strategies include offering a greater variety of products, developing strong private label lines, selling higher margin items and offering name brand and other high quality merchandise. Management attributes HSC's decline in net sales for the quarter and nine months ended September 30, 1995, to the impact of the Company's new merchandising and programming strategies. Since June 5, 1995, the Company has operated two full-time networks renamed HSN, the primary network, and Spree! On August 5, 1995, the Company relaunched the HSN network with more scheduled programs and theme related shows, new sets, graphics and music. During the third quarter of 1995, the Company relaunched the Spree! network with a casual, fun format, including new graphics, music and less scheduled programming. These changes, which are ongoing, are designed to eliminate programming redundancies, distinguish the networks and reach a broader range of potential customers. The Company has made significant progress in executing these strategies, which are aimed at long-term improvement in sales by attracting new customers and increasing the frequency of repeat purchases. While management believes the Company's new merchandising and programming strategies will improve both sales and operating results, the fourth quarter of 1995, when compared to the prior year, may continue to be negatively affected by these changes. Management has also instituted additional promotional programs to help increase sales, including no interest and no payments through February 1996 for certain purchases made using the Company's private label credit card. There can be no assurance that these changes will achieve management's intended results. 9 11 For the quarter and nine months ended September 30, 1995, HSC's merchandise return percentage increased to 27.6% from 25.0%, and to 25.6% from 24.5%, respectively, compared to the same periods in 1994. The increase in return rates is attributable, in part, to an increase in average price per unit and, in part, to returns resulting from promotional events. Management expects return rates to remain at higher levels in the fourth quarter when compared to the prior year. Promotional price discounts decreased to 2.4% from 2.7% of HSC sales for the quarter ended September 30, 1995, and increased to 2.9% from 2.6% of HSC sales for the nine months ended September 30, 1995, compared to the same periods in 1994. At September 30, 1995 and 1994, HSC had approximately 4.8 million active members. An active member is defined as a customer that has completed a transaction within the last 18 months or placed an order within the last seven months. In addition, 59.1% of active members have made more than one purchase in the last 18 months, compared to 59.9% at September 30, 1994. Since late 1993, the Company has significantly increased its program carriage and believes that future levels of net sales of HSC will be dependent on the success of the new merchandising and programming strategies in increasing market penetration. Market penetration represents the level of active members within a market. The following table highlights the changes in the estimated unduplicated television household reach of HSN, the Company's primary network, by category for the twelve months ended September 30, 1995:
--------------------------------------------------------------------------------------------- CABLE BROADCAST SATELLITE TOTAL --------------------------------------------------------------------------------------------- (In thousands of households) Households -- September 30, 1994.................... 38,005 23,855 3,750 65,610 Net additions/(deletions)........................... 4,015 (864) -- 3,151 Shift in classification............................. 1,456 (1,456) -- -- Change in Nielsen household counts.................. -- 187 -- 187 ------ --------- --------- ------ Households -- September 30, 1995.................... 43,476 21,722 3,750 68,948 ====== ======= ====== ======
As of September 30, 1995, there were 95.3 million homes in the United States with a television set, 62.1 million basic cable television subscribers and 3.8 million homes with satellite dish receivers. The cable television household growth was achieved through increased cable system carriage of HSC's broadcast signal due to the implementation of "must carry" beginning in September 1993, and the Company's aggressive campaign to obtain contracts for cable carriage of HSC programming. Because HSC programming is now on a cable channel line-up, former broadcast households can more easily access HSC programming. The decrease in broadcast television households was primarily attributable to the shift in classification from broadcast to cable. An additional decrease was due to changes in the composition of the broadcast television station group with which HSC has affiliation agreements. In addition to the households in the above table, approximately 23.3 million cable television households are reached by the Spree! network, of which 15.2 million are on a part-time basis. Of the total cable television households receiving Spree!, 19.8 million also receive HSN. During the remainder of 1995, cable system contracts covering 1.6 million cable subscribers are subject to termination or renewal. This represents 3.8% of the total number of unduplicated cable households receiving HSN. The Company is pursuing both renewals and additional cable television system contracts, but channel availability, competition, cost of carriage and cable re-regulation are some of the factors affecting the negotiations for cable television system contracts. Although management cannot determine the percentage of expiring contracts that will be renewed or the number of households that will be added through new contracts, management believes that a majority of these contracts will be renewed. HSC's market penetration lags behind increases in carriage. As a result of the increase in carriage which began in late 1993, the Company has experienced a decrease in its market penetration. As the new households mature, the Company expects market penetration to improve, but there can be no assurance that this will occur. Beginning in the third quarter of 1995, in connection with the relaunch of its programming networks, 10 12 the Company embarked on a national advertising campaign including television and print media. These efforts are aimed at increasing consumer awareness of HSC programming to improve market penetration. COST OF SALES For the quarter and nine months ended September 30, 1995, cost of sales decreased $16.7 million, or 9.3%, to $162.3 million from $179.0 million and $43.0 million, or 8.1%, to $490.4 million from $533.4 million, respectively, compared to the same periods in 1994. As a percentage of net sales, cost of sales increased to 67.7% from 64.7% and to 67.2% from 64.7% for the quarter and nine months ended September 30, 1995, respectively, compared to the same periods in 1994. Cost of sales of HSC for the quarter and nine months ended September 30, 1995, decreased $25.7 million and $65.5 million, respectively. This was primarily offset by increases in cost of sales by HSND, Mail Order and Vela totaling $7.8 million and $20.6 million, respectively, for the quarter and nine months ended September 30, 1995. As a percentage of HSC's net sales, cost of sales increased to 70.1% from 66.5% and to 69.8% from 66.4%, for the quarter and nine months ended September 30, 1995, compared to the same periods in 1994. The 1995 dollar decreases in consolidated and HSC's cost of sales, compared to the same 1994 periods, relate to the lower sales volumes. The comparative increases in cost of sales percentages relate to warehouse sales and other promotional events. These events offered price discounts and were designed to accommodate the Company's distribution center restructuring and to sell existing merchandise to make room for new merchandise receipts late in the third quarter in preparation for the holiday selling season. OPERATING EXPENSES The following table highlights the operating expense section from the Company's Condensed Consolidated Statements of Operations, including the dollar and percentage changes for the quarter and nine months ended September 30, 1995, compared to the same periods in 1994:
--------------------------------------------------------------------------------------------- THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, 1995 SEPTEMBER 30, 1995 ------------------------ ------------------------ $ $ % $ $ % AMOUNT CHANGE CHANGE AMOUNT CHANGE CHANGE --------------------------------------------------------------------------------------------- (In millions, except %) Selling and marketing................... $38.9 $ 2.4 6.4 % $122.4 $ 8.7 7.6% Engineering and programming............. 24.4 (.3 ) (1.3 ) 73.9 .1 .1 General and administrative.............. 18.1 (.1 ) (.4 ) 58.5 (.1 ) (.1) Depreciation and amortization........... 11.6 4.0 52.9 29.5 8.9 43.1 Other charges........................... 5.4 5.4 100.0 5.4 5.4 100.0 Restructuring charge.................... -- -- -- 2.0 2.0 100.0 ------ ------ ------ ------ $98.4 $11.4 $291.7 $25.0 ====== ===== ====== =====
As a percentage of net sales, these expenses increased to 41.0% from 31.5%, and to 40.0% from 32.3%, respectively, for the quarter and nine months ended September 30, 1995, compared to the same periods in 1994. In August of 1995, management instituted measures aimed at streamlining operations primarily by reducing its work force and other operating expenses. Although these changes resulted in some reduction in individual categories of operating expenses in the quarter ended September 30, 1995 and will result in future reductions to operating expenses, the Company incurred additional costs in the third quarter of 1995 in connection with these measures. See "Other Charges." 11 13 SELLING AND MARKETING For the quarter and nine months ended September 30, 1995, selling and marketing expenses, as a percentage of net sales, increased to 16.2% from 13.2%, and to 16.8% from 13.8%, respectively, compared to the same periods in 1994. The major components of selling and marketing expenses are detailed below, including the dollar and percentage changes for the quarter and nine months ended September 30, 1995, compared to the same periods in 1994:
------------------------------------------------------------------------------------------- THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, 1995 SEPTEMBER 30, 1995 ------------------------ ------------------------ $ $ % $ $ % AMOUNT CHANGE CHANGE AMOUNT CHANGE CHANGE ------------------------------------------------------------------------------------------- (In millions, except %) Telephone, operator and customer service............................. $11.3 $(1.4 ) (11.2 )% $37.3 $(2.1 ) (5.4)% Fees to cable systems operators: Commissions......................... 8.0 (1.2 ) (12.9 ) 22.8 (5.9 ) (20.6) Marketing payments for cable advertising...................... 4.2 .6 18.4 12.8 (5.9 ) (31.7) Performance bonus commissions....... 3.0 (.6 ) (17.9 ) 9.8 4.1 71.9 HSND selling expenses................. .6 -- -- 9.6 9.0 1,593.8
Telephone, operator and customer service expenses are typically related to sales, call volume and the number of packages shipped. For the quarter and nine months ended September 30, 1995, telephone costs decreased due to a $1.4 million rebate for past telephone charges from the Company's long distance telephone carrier in connection with a new contract for telephone services. This contract will also result in lower future telephone rates compared to prior periods. HSC telephone and operator costs decreased $.9 million and $1.3 million for the quarter and nine months ended September 30, 1995, respectively, due to lower call volume. In addition, the sale in the second quarter of 1994 of the Company's former wholly-owned subsidiary, HSN Mistix Corporation ("Mistix"), resulted in a $2.0 million decrease in telephone and operator costs for the nine months ended September 30, 1995. These decreases were primarily offset by increased telephone and operator costs incurred by Mail Order and the Company's telemarketing subsidiary, National Call Center, Inc., totaling $.7 million and $2.4 million for the quarter and nine months ended September 30, 1995, respectively. Management expects HSC operator costs to fluctuate in relation to call and package volume for the remainder of 1995. Customer service costs increased $.1 million and $.4 million for the quarter and nine months ended September 30, 1995, respectively, due to the expansion of customer service operating hours, in March 1995, to seven days a week, twenty-four hours a day. For the quarter and nine months ended September 30, 1995, commissions to cable system operators decreased as a result of the decrease in sales. Marketing payments for cable advertising increased for the quarter ended September 30, 1995 compared to the same period in 1994 due to contractual commitments with certain cable operators. However, such payments which relate primarily to previous contractual commitments, decreased for the nine months ended September 30, 1995. As older agreements expire or are renegotiated and new cable carriage agreements are executed, marketing payments for cable advertising are being replaced by other forms of incentive compensation to cable operators. These include payment of cable distribution fees, as discussed in "Depreciation and Amortization," and performance bonus commissions which require payments based upon HSC attaining certain sales levels in the cable operator's franchise area. Accordingly, marketing payments for cable advertising are expected to decrease, and depreciation and amortization will increase for the remainder of 1995. Performance bonus commissions are expected to fluctuate in relation to sales for the remainder of 1995. In addition, cable operators which have executed affiliation agreements to carry the Company's programming are generally compensated for all sales within their franchise areas, regardless of whether a customer's order results from watching the program via cable, satellite dish, or on a broadcast television station. Thus, with the advent of "must carry," HSC is paying commissions to cable operators in addition to 12 14 the hourly affiliation payments made to broadcast television stations. As a result of the above factors, subject to sales volume, fees paid to cable system operators are expected to remain at higher levels in future periods. Selling and marketing expenses related to HSND, which primarily consist of media and telephone, operator and customer service expenses, are expected to decrease during the remainder of 1995. The remaining net increase in selling and marketing expenses is attributable to promotional expenses incurred in connection with the Company's new programming strategies, increased Mail Order catalog costs and advertising and promotional expenses of the Company's other subsidiary operations. As a result of the Company's promotional program related to its private label credit card, the Company will incur additional interest charges in the fourth quarter. Management believes that total selling and marketing expenses in future periods will be at higher levels as the Company maintains its efforts to increase the number of cable systems carrying the Company's programming and increase market penetration through expanded direct mailings and other advertising, as discussed in "Net Sales." ENGINEERING AND PROGRAMMING For the quarter and nine months ended September 30, 1995, engineering and programming expenses, as a percentage of net sales, increased to 10.2% from 8.9%, and to 10.1% from 8.9%, respectively, compared to the same periods in 1994. The decrease in engineering and programming expenses for the quarter ended September 30, 1995, and increase for the nine months then ended, compared to the same periods in 1994, was due to lower broadcast costs of $1.1 million and $2.3 million, respectively. This was offset by increases totaling $.8 million and $2.2 million for the quarter and nine months ended September 30, 1995, respectively, in production costs incurred in connection with the Company's new programming strategies, as discussed in "Net Sales" and HSND programming costs. Engineering and programming expenses are expected to remain relatively constant for the remainder of 1995. GENERAL AND ADMINISTRATIVE For the quarter and nine months ended September 30, 1995, general and administrative expenses, as a percentage of net sales, increased to 7.6% from 6.6%, and to 8.0% from 7.1%, respectively, compared to the same periods in 1994. For the quarter ended September 30, 1995, decreases in consulting and legal expenses totaling $1.3 million were primarily offset by an increase in expense of $1.1 million in connection with SARs. For the nine months ended September 30, 1995, decreases in legal expense and expense in connection with the Company's executive stock award program totaling $4.3 million were primarily offset by increases in consulting, payroll, expenses in connection with SARs and the Company's employee equity participation plan, and other administrative expenses totaling $4.2 million. Based on savings to be realized in connection with the reduction of the Company's work force, as discussed in Note F to the Condensed Consolidated Financial Statements included herein, management expects general and administrative expenses to decrease for the remainder of 1995. DEPRECIATION AND AMORTIZATION Depreciation and amortization increased primarily due to the amortization of cable distribution fees, which increased $1.8 million and $6.7 million, respectively, for the quarter and nine months ended September 30, 1995. Amortization of these fees is expected to total $12.0 million in 1995 based on existing agreements. This amortization could increase if additional cable contracts are entered into during the remainder of 1995 in connection with renewing or adding long-term cable subscribers, as discussed in "Net Sales." Accordingly, depreciation and amortization will be higher for the remainder of 1995. In addition, amortization expense increased $2.4 million for the quarter and nine months ended September 30, 1995, as capitalized name lists were fully amortized in connection with the pending sale of a division of Mail Order, 13 15 Ortho-Vent, Inc., ("Ortho-Vent") as discussed in Note F to the Condensed Consolidated Financial Statements included herein. OTHER CHARGES The other charges for the quarter and nine months ended September 30, 1995 of $5.4 million consist of severance costs of $2.0 million related to a reduction in work force, and $2.1 million of payments to the former president and chief executive officer as provided for under his employment agreement in connection with the termination of his employment. In addition, the Company recorded a write-down of inventory totaling $1.3 million to net realizable value in connection with the pending sale of Ortho-Vent. See Note F to the Condensed Consolidated Financial Statements, included herein. The sale of Ortho-Vent should not have a significant impact on the Company's net sales or results of operations in future periods. RESTRUCTURING CHARGE The restructuring charge for the nine months ended September 30, 1995, of $2.0 million, represents management's estimate of costs to be incurred in connection with the closing of the Company's Reno, Nevada, distribution center, which was accomplished in June 1995. The decision to close the Reno distribution center was based on an evaluation of the Company's overall distribution strategy. Management believes that consolidation of the Company's distribution facilities will result in better operating efficiencies and improved service to customers. OTHER INCOME (EXPENSE) For the quarter and nine months ended September 30, 1995, the Company had net other expense of $5.0 million and $3.8 million, respectively, compared to net other income of $2.1 million and $2.7 million, respectively, for the same periods in 1994. Interest income decreased $1.3 million and $7.3 million, respectively, for the quarter and nine months ended September 30, 1995, compared to the same periods in 1994, primarily due to the repayment by Silver King Communications, Inc., in August 1994, of its indebtedness to the Company. Interest income is expected to further decrease for the remainder of 1995, compared to 1994. Interest expense increased $1.8 million and $.9 million, respectively, for the quarter and nine months ended September 30, 1995, due to borrowings by the Company under its amended bank facility in late 1994 and the first nine months of 1995. The Company intends to borrow additional amounts during the remainder of 1995. Interest expense for the fourth quarter will show an increase compared to 1994 as a result of these borrowings and higher interest rates. The increases for the quarter and nine months ended September 30, 1995, were partially offset by decreased interest expense as a result of the repayment by the Company, in August 1994, of its Senior Term Loans. For the quarter and nine months ended September 30, 1995, the Company had net miscellaneous income of $.3 million and $3.9 million, respectively, which primarily include the receipt of proceeds from lawsuit settlements of $.4 million and $1.5 million, respectively, royalty income related to HSND of $.1 million and $.9 million, respectively, and a gain of $.6 million on the sale of other assets in the first quarter of 1995. For the quarter and nine months ended September 30, 1994, the Company had net miscellaneous income of $1.2 million and net miscellaneous expense of $1.1 million, respectively, which includes the receipt of proceeds from a lawsuit settlement totaling $.8 million. The nine months ended September 30, 1994 includes a $2.9 million loss on the sale of the common stock of Mistix. Litigation expense for the quarter and nine months ended September 30, 1995, of $3.2 million, represents anticipated costs in connection with the resolution of certain pending litigation. INCOME TAXES The Company's effective tax rates were benefits of (31.5)% and (35.0)% for the quarter and nine months ended September 30, 1995, respectively, and an expense of 42.0% for the quarter and nine months ended 14 16 September 30, 1994. The Company's effective tax rate for these periods differed from the statutory rate due primarily to the amortization of goodwill and other acquired intangible assets relating to acquisitions from prior years, state income taxes and the provision for interest on adjustments proposed by the Internal Revenue Service ("IRS") offset in part by previously disallowed compensation, as discussed in Note D to the Condensed Consolidated Financial Statements included herein. The Company's effective tax rate is expected to vary from the statutory rate for the remainder of 1995. NET EARNINGS (LOSS) The Company had a net loss of $(17.7) million, or $(.20) per share, for the quarter ended September 30, 1995, compared to net earnings of $6.4 million, or $.07 per share, for the quarter ended September 30, 1994. For the nine months ended September 30, 1995, the Company had a net loss of $(36.2) million, or $(.41) per share, compared to net earnings of $15.0 million, or $.16 per share in the same period of 1994. The decreases in net income for the quarter and nine months ended September 30, 1995, were primarily attributable to decreases in net sales of $36.7 million and $94.7 million and decreases in gross profit of $20.0 million and $51.7 million, respectively, compared to the quarter and nine months ended September 30, 1994. As discussed in "Other Charges," the results for the quarter and nine months ended September 30, 1995, included $5.4 million of costs related to severance, SARs and the write-down of inventory. As discussed in "Restructuring Charge," the results for the nine months ended September 30, 1995, include $2.0 million of costs expected to be incurred in connection with the closing of the Company's Reno, Nevada, distribution center. The results for the quarter and nine months ended September 30, 1994, include an extraordinary loss of $(.9) million, or $(.01) per share, on the early extinguishment of long-term obligations. SEASONALITY The Company believes that seasonality does impact its business but not to the same extent it impacts the retail industry in general. B. FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES The following table highlights various balances and ratios from the Condensed Consolidated Financial Statements included herein:
---------------------------------------------------------------------------------------- SEPTEMBER 30, ----------------- DECEMBER 31, 1995 1994 1994 ---------------------------------------------------------------------------------------- Cash and cash equivalents (millions)................ $ 20.4 $ 43.7 $ 33.6 Working capital (millions).......................... $ 30.9 $ 20.9 $ 23.1 Current ratio....................................... 1.15:1 1.09:1 1.11:1 Accounts and notes receivable, net (millions)....... $ 31.7 $ 44.7 $ 40.8 Inventories, net (millions)......................... $136.8 $117.7 $118.8 Inventory turnover for the quarter (annualized for September periods only)........................... 5.31 6.51 6.36 Inventory turnover for nine months (annualized for September periods only)........................... 5.12 6.22 6.36
Cash and cash equivalents totaled $20.4 million at September 30, 1995, compared to $43.7 million at September 30, 1994, and $33.6 million at December 31, 1994. The principal source of cash for the twelve months ended September 30, 1995, was borrowings by the Company under its revolving credit facility. These funds, along with operating funds, were used principally to pay cable distribution fees of $70.8 million, purchase treasury stock, pay settlements to the IRS in the amount of $19.6 million, pay litigation settlements and pay for $15.8 million of capital expenditures. The principal source of cash for the nine months ended September 30, 1995, was borrowings by the Company under its revolving credit facility. These funds were used principally to pay cable distribution fees of $57.9 million, purchase treasury stock, pay litigation settlements and pay for capital expenditures. The net loss 15 17 adjusted for non-cash items totaled $(9.9) million and $(19.0) million for the twelve months and nine months ended September 30, 1995, respectively. Accounts and notes receivable, net, decreased to $31.7 million at September 30, 1995, from $44.7 million at September 30, 1994, and from $40.8 million at December 31, 1994. The primary reason for the decreases is "FlexPay" accounts receivable which totaled $15.2 million at September 30, 1995, compared to $25.8 million at September 30, 1994, and $23.6 million at December 31, 1994. The Company's financing of "FlexPay" accounts receivable has not had a significant impact on its liquidity position. In addition, on March 27, 1995, Precision Systems, Inc. ("PSi") repaid $2.7 million, plus accrued interest, of its $5.0 million loan from the Company. Under an agreement between the Company and PSi, the remaining principal balance of the loan has been recorded as a prepayment of future monthly software maintenance payments due PSi from the Company through December 1996. Inventories, net, increased to $136.8 million at September 30, 1995, from $117.7 million at September 30, 1994, and $118.8 million at December 31, 1994, due to merchandise receipts late in the quarter ended September 30, 1995 in preparation for the holiday selling season. The inventory balance is net of a carrying value adjustment of $20.5 million at September 30, 1995, which represents a decrease from $22.1 million at September 30, 1994, and an increase from $18.8 million at December 31, 1994. Capital expenditures for the nine months ended September 30, 1995, were $10.2 million. The Company estimates capital expenditures will range between $2.0 million and $4.0 million for the remainder of 1995. On September 28, 1995, the Company amended its $150.0 million revolving credit facility. The amended facility is secured by the capital stock of HSC and HSN Realty, Inc. ("Realty"), wholly-owned subsidiaries of the Company, and provides the Company with full availability of the facility and more flexibility with respect to certain of its financial covenants, through April 1, 1997. However, there remain restrictions on repurchases of the Company's common stock based upon future cash flow levels. As of November 6, 1995, $120.0 million was outstanding under this facility. In February 1995, the Company paid $9.6 million, plus interest, in connection with litigation settlements, using borrowings under its bank facility. An additional $5.0 million will be paid in the fourth quarter of 1995 following final court approval of a previously disclosed litigation settlement. During the remainder of 1995, management expects to pay cable distribution fees, totaling $14.3 million, relating to current contracts with cable system operators to carry HSC programming. Of this amount, $4.0 million is payable to a related party. In July 1995, the Company paid $4.0 million for a 20.0% interest in Body By Jake Enterprises, L.L.C. This investment is accounted for under the cost method. In management's opinion, available cash, internally generated funds, the credit facility, and other sources of financing which management believes are readily available, will provide sufficient capital resources to meet the Company's foreseeable needs. As of October 31, 1995, the Company has a $25.0 million committed bank credit line collateralized by the capital stock of HSC and Realty, and a $15.0 million uncommitted unsecured facility. These credit lines back letters of credit which are used exclusively to facilitate inventory imports. Presentation of letters of credit by vendors results in an immediate charge to the Company's account with no interest charges incurred. Outstanding letters of credit, which cannot exceed $25.0 million in total in accordance with the revolving line of credit, amounted to $14.0 million at October 31, 1995, leaving $11.0 million available. For the quarter ended September 30, 1995, the Company did not pay any cash dividends and does not anticipate paying cash dividends in the immediate future. In 1994, the Company's Board of Directors authorized the repurchase of up to an additional $75.0 million of the Company's common stock. In 1994, the Company repurchased 1.3 million shares at a total cost of $13.1 million and in the quarter ended March 31, 1995, the Company repurchased an additional 2.6 million shares at a total additional cost of $21.6 million. Under the terms of its credit facility the Company is restricted from purchasing its common stock until it meets certain cash flow ratios. 16 18 PART II -- OTHER INFORMATION ITEM 1 -- LEGAL PROCEEDINGS On April 26, 1993, four stockholders of the Company filed with the Delaware Chancery Court a purported class action complaint, styled as 7547 Corp. v. Liberty Media Corp., C.A. No. 12956, on behalf of an unspecified class of stockholders of the Company (the "Section 203 Action"). The defendants in the original complaint were Liberty, Liberty Program Investments, Inc. ("LPI"), the Company, and certain current and former directors of the Company (Messrs. Speer, Forstmann, McNamara, Wandler, Chu, James, Ramsey and Roberts). On June 24, 1994, plaintiffs filed an amended complaint which names additional defendants who are past or present directors of the Company (Messrs. Barton, Bennett, Draper, Hogan, Malone, Hindery and McNamee). The gravamen of the amended complaint in the Section 203 action was that, prior to the time when Liberty reached an agreement, arrangement or understanding with RMS Limited Partnership, a Nevada Limited Partnership ("RMS"), to allow Liberty to purchase a controlling equity interest in the Company, the Company's Board and Executive Committee failed to take effective action to approve the proposed transaction and, thereby, failed under Section 203(a)(1) to exempt Liberty from the restrictions under Section 203 on any "business combination" between Liberty and the Company prior to December 4, 1995. As a result, plaintiffs alleged that any business combination involving Liberty, its affiliates or associates, and the Company would require the affirmative vote of 66 2/3% of the outstanding voting stock of the Company which is not owned by Liberty. Plaintiffs also alleged that Liberty's disclosures regarding the effectiveness of the Section 203 exemption by the HSN Executive Committee on December 4, 1992, were false and misleading. Plaintiffs asserted that Liberty disregarded the conflicts of interest held by the members of the HSN Executive Committee on the Section 203 exemption, and that Liberty knew that no valid action had been taken by the Company's Board to exempt Liberty from the restrictions under Section 203. The amended complaint alleged that, by asserting that Liberty was exempt from Section 203, Liberty and the other defendants misrepresented a material fact to all sellers of the Company's stock and holders of the Company's stock after the public announcement of the Liberty/RMS Agreement in Principle on December 7, 1992. Plaintiffs also alleged that the Liberty Tender Offer constituted a prohibited "business combination" under Section 203. Plaintiffs also alleged that the members of the Company's Executive Committee (Messrs. Speer, Wandler and Ramsey) had disabling conflicts of interest which prevented the Company's Executive Committee from taking effective action on December 4, 1992, to exempt Liberty from the restrictions of Section 203. The Company and the individual defendants allegedly aided and abetted Liberty in its asserted scheme to misrepresent its status under Section 203. The individual defendants also allegedly breached their fiduciary duties by failing to correct Liberty's asserted misrepresentation of its exemption from Section 203. Plaintiffs sought a declaratory judgment that Liberty is subject to Section 203, an award of damages to the plaintiff class members who sold the Company's common stock, and equitable relief. On November 16, 1994, the parties reached an agreement to settle the Section 203 Action subject to several conditions. Under the settlement, all claims which were, could have been or in the future might be asserted by any member of the Section 203 Class against any of the defendants or their affiliates, which relate to or arise out of, directly or indirectly, the allegations contained in any complaint filed in the Section 203 Action (the "Section 203 Claims"), would be dismissed with prejudice. In exchange for the foregoing release of the Section 203 Claims, Liberty and the Company have agreed, among other things, that the consummation of any "business combination," as defined in Section 203, prior to December 4, 1995, between the Company, on the one hand, and Liberty or any of its "affiliates" or "associates," on the other hand (a "Qualifying Business Combination"), shall be subject to the prior approval of the Company's board of directors, and the authorization at an annual or special meeting of the Company's stockholders, and not by written consent, by the affirmative vote of the holders of at least a majority of the outstanding voting stock which is not "owned" by Liberty (the "Section 203 Undertaking"). 17 19 The parties to the Section 203 Action also agreed, among other things, that upon the approval by the Delaware Chancery Court of the settlement of the Section 203 Action, (i) the Section 203 Undertaking shall be binding as against any member of the Section 203 Class, which shall include any holder, purchaser or seller of the Company's stock from and after October 12, 1994, through and including December 4, 1995 (a "Subsequent Company Stockholder"); and (ii) so long as Liberty and the Company comply with the Section 203 Undertaking, no member of the Section 203 Class (including any Subsequent Company Stockholder) shall be entitled to assert that any Qualifying Business Combination (a) is required to be separately approved by the Company's stockholders under any provision of Section 203, or (b) is otherwise subject to, conditioned upon, restricted by or prohibited under any provision of Section 203. Liberty also has agreed that, in the event it consummates a "business combination" (as defined in Section 203) with the Company prior to the hearing on the proposed settlement of the Section 203 Action, Liberty will comply with the Section 203 Undertaking. Plaintiffs' counsel in the Section 203 Action petitioned the Court for an award of attorneys' fees and expenses not to exceed $2.6 million. Liberty agreed to pay plaintiffs' counsel such fees and disbursements as may be awarded by the Delaware Chancery Court in the Section 203 Action, and the Company is not responsible for any of the fees or expenses of plaintiffs' counsel in the Section 203 Action. On January 25, 1995, the Delaware Chancery Court approved the settlement of the Section 203 Action. This disclosure is included in this Form 10-Q pursuant to the terms of the above settlement. See Note B to the Condensed Consolidated Financial Statements for information with respect to an agreement in principle to settle a class action pending against the Company in the Court of Common Pleas of Bucks County, Pennsylvania: Mauger v. Home Shopping Network, Inc.; Powell v. Home Shopping Network, Inc. (Case Number 91-6152-20-1). ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K Exhibit 10.39 Third Amendment, dated as of September 28, 1995, to the Second Amended and Restated Credit Agreement. Exhibit 10.40 Letter of Credit Facility dated as of September 28, 1995. Exhibit 27 Financial Data Schedule (SEC use only). 18 20 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. HOME SHOPPING NETWORK, INC. -------------------------------------- (Registrant) Dated November 6, 1995 /s/ DAVID F. DYER - --------------------------------------------- --------------------------------------------- David F. Dyer President and Chief Operating Officer Dated November 6, 1995 /s/ KEVIN J. McKEON - --------------------------------------------- --------------------------------------------- Kevin J. McKeon Senior Vice President, Accounting & Finance and Treasurer (Principal Financial Officer) Dated November 6, 1995 /s/ BRIAN J. FELDMAN - --------------------------------------------- --------------------------------------------- Brian J. Feldman Controller (Chief Accounting Officer)
19 EX-10.39 2 THIRD AMENDMENT TO RESTATED CREDIT AGREEMENT 1 EXHIBIT 10.39 EXECUTION COPY THIRD AMENDMENT, dated as of September 28, 1995, to the SECOND AMENDED AND RESTATED CREDIT AGREEMENT, dated as of August 30, 1994 (as amended by the First Amendment thereto, dated as of March 29, 1995, and as further amended by the Second Amendment thereto, dated as of June 28, 1995, the "Credit Agreement"), among HOME SHOPPING NETWORK, INC., a Delaware corporation, as borrower (the "Company"), HOME SHOPPING CLUB, INC., a Delaware corporation ("HSC"), HSN REALTY, INC., a Delaware corporation ("HSNR"; together with HSC, the "Guarantors"), the banks signatory thereto (individually, a "Bank" and collectively, the "Banks"), LTCB TRUST COMPANY, as Agent, THE BANK OF NEW YORK COMPANY, INC., TORONTO DOMINION [TEXAS], INC. and BANK OF MONTREAL, each as a Co-Agent (each in such capacity, a "Co-Agent"), LTCB TRUST COMPANY, as Administrative Agent for the Banks (in such capacity, the "Administrative Agent"), and LTCB TRUST COMPANY, as collateral agent for the Banks (in such capacity, the "Collateral Agent"). WHEREAS, the Company and each of the Guarantors have requested, and the Banks and the Administrative Agent are willing, to amend certain provisions of the Credit Agreement to provide for (i) increases in the availability of the Commitments of certain Banks, (ii) changes in the rate of interest and certain fees, (iii) additional collateralization of the Company's obligations under the Credit Agreement, including, without limitation, the guarantee of HSNR and a pledge by the Company of a first priority security interest in all its capital stock of HSC and HSNR to the Collateral Agent for the benefit of the Banks, and (iv) certain other matters as provided herein. NOW, THEREFORE, in consideration of the foregoing, and for other good and valuable consideration the receipt of which is hereby acknowledged, the parties hereby agree as follows: Section 1. Certain Defined Terms. Except as expressly set forth in this Third Amendment, terms defined in the Credit Agreement and used herein shall have their respective defined meanings when used herein. Section 2. Amendments to the Credit Agreement. Subject to the fulfillment of the conditions precedent set forth in Section 4 hereof, the Credit Agreement is hereby amended as follows: 2 (a) Section 1.1 of the Credit Agreement is hereby amended by (i) deleting the reference in clause (ii)(a) of the definition of "Applicable Margin" set forth in such Section to "2.125%" and replacing it with "2.50%" and (ii) deleting the reference in clause (ii)(b) of such definition to "1.125%" and replacing it with "1.50%". (b) Section 1.1 of the Credit Agreement is hereby further amended by deleting the definition of "Commitment" and replacing it with the following: "Commitment" shall mean, with respect to any Bank, (a) at any time prior to the Third Amendment Effective Date, the amount set forth opposite such Bank's name on the signature pages of the First Amendment under the caption "Commitment", and (b) at any time on or after the Third Amendment Effective Date, the amount set forth opposite such Bank's name on the signature pages of the Third Amendment under the caption "Commitment" (in either case as reduced from time to time pursuant to Section 2.3 hereof or otherwise). (c) Section 1.1 of the Credit Agreement is hereby further amended by deleting the reference in clause (a) of the definition of "Commitment Termination Date" to "August 30, 1997" and replacing it with "April 1, 1997". (d) Section 1.1 of the Credit Agreement is hereby further amended by deleting the first two rows of the grid appearing in the definition of "Facility Fee Rate" and replacing them with the following:
Effective Total Debt Ratio Facility Fee Rate --------------- ----------------- Greater than 4.00 to 1 0.500% Less than or equal to 4.00 to 1, but greater than or equal to 3.50 to 1 0.375%
(e) Section 1.1 of the Credit Agreement is hereby further amended by inserting the name "HSN Direct, Inc. (except for purposes of Section 9.7)" immediately after the name "HSN -2- 3 Mail Order, Inc." appearing in the sixth line of the definition of "Material Subsidiary". (f) Section 1.1 of the Credit Agreement is hereby further amended by (i) inserting the words ", the Pledge Agreement" immediately after the word "Notes" appearing in the fifth line of the definition of "Obligations" and (ii) inserting the words ", Pledge Agreement" immediately after the word "Notes" appearing in the sixth line of such definition. (g) Section 1.1 of the Credit Agreement is hereby further amended by inserting the words and punctuation ", a limited liability company" immediately after the words "an unincorporated association" appearing in the definition of "Person". (h) Section 1.1 of the Credit Agreement is hereby further amended by adding the following new definitions thereto in the appropriate alphabetical position: "BNY" shall mean The Bank of New York in its capacity as the issuer of trade letters of credit under the BNY L/C Facility. "BNY L/C Facility" shall mean a $25,000,000 committed letter of credit facility, as evidenced by the Letter of Credit Facility Agreement, dated as of September 28, 1995, as amended, supplemented or modified from time to time in accordance with the terms thereof and hereof (the "BNY Facility Agreement"), among HSC, HSN Mail Order and HSN Direct, Inc., Inc., as applicants, the Company and HSNR, as guarantors, BNY, as issuer, The Bank of New York Company, Inc., as a participant, and BNY, as administrative agent. "Collateral Agent" shall mean LTCB Trust Company in its capacity as Collateral Agent under the Pledge Agreement. "Guarantor" shall mean, unless the context provides otherwise, HSC and HSNR; provided that references in this Agreement to (i) "[E]ach of the Company and the Guarantor" shall mean "[E]ach of the Company and each of HSC and HSNR" and (ii) "or the Guarantor" or "and/or the -3- 4 Guarantor" shall mean "or either HSC or HSNR" or "and/or either HSC or HSNR", as the case may be. "HSC" shall mean Home Shopping Club, Inc., a Delaware corporation. "HSNR" shall mean HSN Realty, Inc., a Delaware corporation. "Intercreditor Agreement" shall mean the Intercreditor Agreement, dated as of September 28, 1995, as amended, supplemented or modified from time to time, among the Banks, the Administrative Agent, the Collateral Agent, BNY, The Bank of New York Company, Inc., BNY, as Administrative Agent under the BNY Facility Agreement, and such other parties who from time to time either issue or participate in unreimbursed drawings under Trade Letters of Credit and become party thereto, substantially in the form of Annex D to the Third Amendment. "Pledge Agreement" shall mean the Pledge Agreement, dated as of September 28, 1995, as amended, supplemented or modified from time to time, executed and delivered by the Company in favor of the Collateral Agent, substantially in the form of Annex B to the Third Amendment. "Pledged Securities" shall mean all of the shares of capital stock of HSC and HSNR owned beneficially and of record by the Company, together with all stock certificates, options and rights of any nature that may be issued or granted by HSC and/or HSNR to the Company while this Agreement is in effect. "Third Amendment" shall mean the Third Amendment, dated as of September 28, 1995, to this Agreement. "Third Amendment Effective Date" shall have the meaning assigned to that term in Section 4 of the Third Amendment. "Trade Letters of Credit" shall mean (i) the letters of credit issued under the BNY L/C Facility (or, if the commitments under the BNY Facility Agreement are -4- 5 terminated, the commercial letters of credit issued under a trade letter of credit agreement with the same covenants, events of default and maturity date as this Agreement), (ii) a standby letter of credit (the "Insurance Standby Letter of Credit") issued in substitution for the standby letter of credit issued by The Chase Manhattan Bank, N.A. for the account of the Company in favor of the State of Florida in connection with the Company's self insurance program, the stated amount of which is, as of the Third Amendment Effective Date, $347,879 and (iii) the outstanding letters of credit (but not extensions or replacements thereof) as of the Third Amendment Effective Date issued by The Chase Manhattan Bank, N.A. for the account of HSN Direct, Inc. and the Company listed on Schedule 5 attached hereto. (i) Section 2.7(a) of the Credit Agreement is hereby amended by deleting the words "as originally in effect" appearing in the fifth line thereof. (j) Section 2.8 of the Credit Agreement is hereby amended by (x) inserting "(a)" immediately before the words "The Company" appearing in the first line thereof, (y) deleting each of the references to "(a)", "(b)" and "(c) appearing after the proviso and inserting "(i)", "(ii)" and "(iii)" in lieu thereof and (z) inserting the following new paragraph (b) at the end thereof: (b) If the Company or any of its Subsidiaries shall receive net cash proceeds from (i) any sale, lease, assignment, conveyance, transfer of title or other disposition (a "disposition") of any right or interest in or to property of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible, including, without limitation, any mortgage of real property and any sale/ leaseback, but excluding the disposition of inventory in the ordinary course of business (an "asset disposition"), or (ii) any disposition of any shares, interests, participations or other equivalents (however designated) of capital stock of any of its Subsidiaries (other than HSC and HSNR), any equivalent ownership interests in any of its Subsidiaries which are not organized as corporations and any warrants or options to purchase any of the foregoing (a "stock disposition"), the Company shall, in each such -5- 6 instance, apply 100% of such net cash proceeds in excess of $1,000,000 to prepay the Loans. Each such prepayment shall be made, in the case of any stock disposition involving net cash proceeds of less than $5,000,000, within 90 days after the date of such disposition and, in the case of any asset disposition involving net cash proceeds of less than $5,000,000, within 30 days after the date on which the aggregate net cash proceeds of all asset dispositions equals $5,000,000 and, in the case of any asset disposition or stock disposition involving net cash proceeds of $5,000,000 or more, within 30 days after the date of such disposition and shall be subject to the indemnity provisions of Section 5.4 hereof. Any such prepayment shall not reduce the Commitments as in effect on the Third Amendment Effective Date. For purposes of this Section 2.8(b), "net cash proceeds" shall mean the aggregate cash proceeds received by the Company or any of its Subsidiaries in respect of a disposition (and any cash payments received in respect of promissory notes or other non-cash consideration delivered to the Company or any such Subsidiary in respect of a disposition), less (without duplication) (i) all reasonable fees and expenses incurred by the Company or such Subsidiary that are payable to Persons which are not Affiliates or Subsidiaries of the Company in connection with such disposition, (ii) all taxes attributable to such disposition which are incurred by the Company or such Subsidiary and (iii) the aggregate amount of reserves required in accordance with GAAP to be maintained on the books of the Company or any of its Subsidiaries in order to pay contingent liabilities incurred by the Company or any of its Subsidiaries in respect of such disposition. (k) Section 3.2 of the Credit Agreement is hereby amended by (i) deleting the word "and" appearing at the end of clause (a) thereof, (ii) inserting the word "and" immediately after the semicolon appearing at the end of clause (b) thereof and (iii) by deleting the reference to "2.625%" in the proviso to clause (b) thereof and inserting in lieu thereof "3.0%". (l) Section 4.6 of the Credit Agreement is hereby amended by deleting each reference in the fourth, 16th and 28th lines thereof to "the Guarantor" and replacing it with "such Guarantor". -6- 7 (m) Section 6 of the Credit Agreement is hereby deleted in its entirety and the following is hereby inserted in lieu thereof: Section 6. Guarantee. 6.1 Unconditional Guarantee. For valuable consideration, receipt of which is hereby acknowledged, and to induce the Banks to make Loans to the Company, each of the Guarantors hereby, jointly and severally, unconditionally and irrevocably, guarantees to the Administrative Agent, the Collateral Agent, the Agent, each of the Co-Agents and each of the Banks the payment in full when due (whether at stated maturity, by acceleration or otherwise) of all principal of and interest on each Loan and all other amounts payable by the Company hereunder and under the Notes and all other documents referred to herein or therein, in accordance with the terms hereof and thereof, and, in the case of any extension of time of payment, in whole or in part, that all such amounts shall be paid in full when due (whether at stated maturity, by acceleration or otherwise) in accordance with the terms of such extension. Each of the Guarantors hereby unconditionally agrees that upon default in the payment when due (whether at stated maturity, by acceleration or otherwise) of any of such principal, interest or other amounts, the Guarantors shall forthwith pay and perform the same in the money and funds, at the time, in the place and in the manner provided for such payment in this Agreement, the Notes or other applicable document. 6.2 Validity. Each of the Guarantors hereby agrees that the guarantee provided by this Section 6 is a continuing guarantee of payment and not merely of collection, that it is a primary, independent obligation of each of the Guarantors and that each Guarantor's obligations hereunder shall be joint and several, absolute, unconditional and irrevocable, irrespective of (a) any invalidity, illegality, irregularity or unenforceability of, or defect in or any change in this Agreement, the Notes, the Pledge Agreement or any other document referred to herein or therein, (b) any amendment, modification or waiver of any term or condition of this Agreement or the Notes or the -7- 8 Pledge Agreement or any such other document, or any waiver or consent by the Administrative Agent, the Collateral Agent or any Bank to any departure from the terms hereof or thereof, (c) any sale, exchange, release, surrender, realization upon or other dealings with any security or guarantee for any of the obligations guaranteed hereby (whether now or hereafter granted), (d) any settlement or compromise of such obligations, (e) the absence of any action to demand or enforce any of such obligations against the Company, (f) the recovery of any judgment against the Company or any other Person, or any action to enforce the same, (g) the recovery of any claim under any other guarantee of or security for such obligations or under any applicable insurance, or (h) any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor or surety (other than full and strict compliance with and satisfaction of such liabilities). 6.3 Waivers. Each of the Guarantors hereby waives notice of acceptance of the guarantee provided by this Section 6, notice of the extension of any credit or financial accommodation, notice of the making of any Loan or the incurrence of any other Obligations, notice of any extension of any Commitment Termination Date, demand of payment, filing of claims with a court in the event of bankruptcy of the Company or any other Person, any right to require a proceeding or the filing of a claim first against the Company, any other guarantor, any other Person, any letter of credit, or any security for any of the Obligations, presentment, protest, notice of default, dishonor or nonpayment and any other notice and all demands whatsoever. Each of the Guarantors hereby further waives all setoffs and counterclaims against the Company, the Administrative Agent, the Collateral Agent, the Agent, each of the Co-Agents and each of the Banks. 6.4 Subordination and Subrogation. Each of the Guarantors hereby subordinates all present and future claims, now held or hereafter acquired, against the Company as a creditor or contributor of capital, or otherwise, to the prior and final payment in full to the Banks of all of the Obligations. If, without reference to the provisions of this Section 6.4, either of the Guarantors would at any time -8- 9 be or become entitled to receive any payment on account of any claim against the Company, whether in insolvency, bankruptcy, liquidation or reorganization proceedings, or otherwise, such Guarantor shall and does hereby irrevocably direct that all such payments shall be made directly to the Administrative Agent on account of the Banks until all Obligations shall be paid in full. Should either of the Guarantors receive any such payment, such Guarantor shall receive such amount in trust for the Banks and shall immediately pay over to the Administrative Agent such amount as provided in the preceding sentence. Anything contained in this Section 6 to the contrary notwithstanding, the obligations of each of the Guarantors hereunder shall be limited to a maximum aggregate amount equal to the largest amount that would not render its obligations hereunder subject to avoidance as a fraudulent transfer or conveyance under Section 548 of Title 11 of the United States Code or any applicable provisions of comparable state law (collectively, the "Fraudulent Transfer Laws"), in each case after giving effect to all other liabilities of such Guarantor, contingent or otherwise, that are relevant under the Fraudulent Transfer Laws (specifically excluding, however, any liabilities of such Guarantor in respect of intercompany indebtedness to the Company or other Affiliates of the Company to the extent that such indebtedness would be discharged in an amount equal to the amount paid by such Guarantor hereunder) and after giving effect as assets to the value (as determined under the applicable provisions of the Fraudulent Transfer Laws) of any rights to subrogation or contribution of such Guarantor pursuant to (i) applicable law or (ii) any agreement providing for an equitable allocation among such Guarantor and other Affiliates of Company of obligations arising under guaranties by such parties. Each of the Guarantors further agrees that any rights of subrogation such Guarantor may have against the Company, and any rights of contribution such Guarantor may have against Company, and any rights of contribution such Guarantor may have against the other Guarantor or any other guarantor of the Obligations hereunder, shall be junior and subordinate to any rights the Administrative Agent or the -9- 10 Banks may have against such other Guarantor or any such other guarantor. 6.5 Acceleration. Each of the Guarantors agrees that, as between the Company on the one hand, and the Administrative Agent, the Collateral Agent, the Agent, the Co-Agents and the Banks, on the other hand, the obligations of the Company guaranteed under this Section 6 may be declared to be forthwith due and payable, or may be deemed automatically to have been accelerated, as provided in Section 10 hereof for purposes of this Section 6, notwithstanding any stay, injunction or other prohibition (whether in a bankruptcy proceeding affecting the Company or otherwise) preventing such declaration as against the Company and that, in the event of such declaration or automatic acceleration, such obligations (whether or not due and payable by the Company) shall forthwith become due and payable by such Guarantor for purposes of this Section 6. 6.6 Reinstatement. Each of the Guarantors covenants that the guarantee provided by this Section 6 will not be discharged except by complete and final payment of all of the Obligations and all obligations of the Guarantors arising out of this guarantee. In the event that any payment is made by the Company hereunder or by either of the Guarantors under this guarantee, and is thereafter required to be rescinded or otherwise restored or paid over to the Company, such Guarantor or any other person (whether upon the insolvency or bankruptcy of the Company or either Guarantor or otherwise), each Guarantor's obligations hereunder shall immediately and automatically be reinstated as though such payment had not been made. (n) Section 7.2(b) of the Credit Agreement is hereby amended by deleting the words "date of the Second Amendment" wherever they appear and replacing them with "date of the Third Amendment". (o) Section 7.2 of the Credit Agreement is hereby further amended by deleting the words "and the Guarantor" appearing in the last sentence thereof and replacing them with "and each Guarantor". -10- 11 (p) Section 8.2 of the Credit Agreement is hereby amended by (i) deleting the reference in the first sentence thereof to "March 31, 1995" and replacing it with "June 30, 1995", (ii) inserting the word and punctuation "two-" immediately before the words "Fiscal Quarter" appearing in the first sentence thereof and (iii) deleting the reference in the last sentence thereof to "the Second Amendment" and replacing it with "the Third Amendment". (q) Sections 8.4, 8.5 and 8.6 of the Credit Agreement are hereby amended in their entirety as follows: 8.4. No Breach. Neither the execution and delivery of this Agreement, the Pledge Agreement and the Notes, nor the consummation of the transactions contemplated hereby and thereby, nor the compliance by the Company or either Guarantor with the terms and provisions hereof or thereof will (a) conflict with or result in a breach of, or require any consent or vote of any Person under, the certificate of incorporation or bylaws of the Company or either Guarantor, or any agreement or instrument to which the Company, either Guarantor or any Subsidiary of any thereof is a party or to which it is subject, (b) violate any applicable law, regulation, order, writ, injunction or decree of any court or governmental authority or agency, or (c) constitute a default or, except as set forth in the Pledge Agreement, result in the imposition of any Lien on any of the assets, revenues or other properties of the Company, either Guarantor or any Subsidiary of any thereof under any such Agreement or instrument. 8.5. Corporate Action. The execution, delivery and performance by each of the Company and each Guarantor of this Agreement and the Notes, and the execution, delivery and performance by the Company of the Pledge Agreement, and the consummation of the transactions contemplated hereby and thereby, are within the scope of its corporate powers, and have been duly authorized by all necessary corporate action on the part of each of them. This Agreement constitutes, and each of the Notes, when duly executed and delivered will constitute, the legal, valid and binding obligation of the Company and each Guarantor, and the Pledge Agreement constitutes the legal, valid and binding obligation of the -11- 12 Company, enforceable against each of them, as the case may be, in accordance with their respective terms, except as such enforceability may be limited by (a) bankruptcy, insolvency, reorganization, moratorium or other similar laws of general applicability affecting the enforcement of creditors' rights and (b) the application of general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). 8.6. Approvals. No authorizations, approvals or consents of, and no filings or registrations with, any governmental or regulatory authority or agency are necessary for the execution, delivery of performance by the Company or either Guarantor of this Agreement or the Notes or by the Company of the Pledge Agreement or for the validity or enforceability hereof or thereof, or for the consummation of the transactions contemplated hereby and thereby. (r) Sections 8.7, 8.10 and 8.13 of the Credit Agreement are hereby amended by deleting each reference therein to "the Guarantor" and replacing it with "either Guarantor". (s) Section 8.9(b) of the Credit Agreement is hereby amended by (i) deleting the phrase "Each of the Company, the Guarantor" and replacing it with "Each of the Company, each Guarantor" and (ii) deleting the phrase "by the Company, the Guarantor" and replacing it with "by the Company, either Guarantor". (t) Section 8.11 of the Credit Agreement is hereby amended by deleting the words "the Guarantor" and replacing them with "each Guarantor". (u) Section 8.14 of the Credit Agreement is hereby amended by deleting the words "and the Guarantor" each time they appear in the first sentence thereof and replacing them with "and each Guarantor". (v) Section 8 of the Credit Agreement is hereby amended by adding at the end thereof the following new Section 8.16: -12- 13 8.16. Pledge Agreement. By virtue of the execution and delivery by the Company of the Pledge Agreement, when the stock certificates representing the Pledged Securities owned by the Company are delivered to the Collateral Agent in accordance with the Pledge Agreement, the Collateral Agent will obtain and, so long as the Collateral Agent maintains possession of the certificates representing the Pledged Securities, will have and will continue to have a valid and perfected first priority security interest in such Pledged Securities, for the benefit of the Banks and the parties to the BNY L/C Facility, as security for the repayment and performance in full of the Secured Obligations (as defined in the Pledge Agreement), prior to all other Liens thereon. (w) Section 9.5 of the Credit Agreement is hereby amended by (i) deleting the date "December 31, 1993" in clause (a) thereof and replacing it with "December 31, 1994", (ii) deleting the words "Footnotes D and G" in said clause (a) and replacing them with "Footnotes D and H", (iii) deleting the reference to "Section 9.5(i)" in clause (b) thereof and replacing it with "Section 9.5(j)", (iv) deleting the word "and" appearing immediately after the semicolon at the end of clause (h) thereof, (v) relettering clause (i) thereof as "(j)", (vi) adding a new clause (i) as follows: (i) Liens on property of the Company or its Subsidiaries which secure Indebtedness under the Trade Letters of Credit having an aggregate principal amount not exceeding at any time $40,000,000; provided that such Liens shall be limited to specified items of collateral (and not a general Lien on all assets of the Company or its Subsidiaries); and and (vii) inserting the following phrase immediately before the period appearing after the proviso: , except for the Lien created pursuant to the Pledge Agreement (x) Section 9.11 of the Credit Agreement is hereby amended by deleting each of the provisos in their entirety and inserting the following in lieu thereof: -13- 14 ; provided that (i) the ratio for the four-Fiscal Quarter period ended September 30, 1996 shall be 2.5:1 and (ii) the ratio for the four-Fiscal Quarter period ended December 31, 1996 shall be 3.75:1, and; provided, further, that the covenants in this Section 9.11 shall not be in effect until September 30, 1996. (y) Section 9.13 of the Credit Agreement is hereby amended by (i) deleting the reference to "$175,000,000" and replacing it with "$165,000,000" and (ii) deleting the date "June 30, 1994" appearing in the fifth line thereof and replacing it with "September 30, 1995". (z) Section 9.17 of the Credit Agreement is hereby amended by (i) deleting the word "and" appearing at the end of clause (iv) thereof, (ii) deleting the period appearing at the end of clause (v) thereof and inserting "; and" in lieu thereof and (iii) inserting the following new clause (vi) at the end thereof: (vi) The joint and several liability of HSNR and the Company for the obligations of HSC, HSN Mail Order, Inc. and HSN Direct, Inc. under the BNY L/C Facility or the liability of the Company in connection with the Insurance Standby Letter of Credit. (aa) Section 9.20(a) of the Credit Agreement is hereby amended by deleting the grid set forth therein in its entirety and inserting the following in lieu thereof:
Fiscal Quarter Ending On Minimum Operating Cash Flow --------- --------------------------- September 30, 1995 <$7,000,000> December 31, 1995 <$3,000,000> March 31, 1996 $0 June 30, 1996 $5,000,000
; provided that, for purposes of calculating Operating Cash Flow for the Fiscal Quarter ending on either September 30, 1995 or December 31, 1995, Operating Cash Flow shall be calculated prior to giving effect to up to $7,500,000 in the aggregate of severance and restructuring charges. -14- 15 (bb) Section 9.20(b) of the Credit Agreement is hereby deleted in its entirety and "[Reserved.]" is inserted in lieu thereof. (cc) Section 9.20(c) of the Credit Agreement is hereby deleted in its entirety and the following is inserted in lieu thereof: (c) The Company shall maintain the Total Debt Ratio of the Company and its Subsidiaries on a consolidated basis at less than (i) 5.0:1 at all times from and including September 30, 1996 to and including December 30, 1996, (ii) 4.0:1 at all times from and including December 31, 1996 to and including March 30, 1997 and (iii) 3.0:1 at all times from and including March 31, 1997 to and including April 1, 1997. (dd) Section 9.20(d) of the Credit Agreement is hereby amended by (i) deleting the date "March 31, 1995" and replacing it with "the Third Amendment Effective Date", (ii) deleting the word "and" appearing before "(ii)" and (iii) inserting "and (iii) Indebtedness of the Company and the Guarantors under the BNY L/C Facility and in connection with the Insurance Standby Letter of Credit" immediately after the reference to "Section 9.20(e) hereof" appearing in the parenthetical set forth therein. (ee) Section 9.20(e) of the Credit Agreement is hereby amended by (i) deleting the date "March 31, 1996" appearing in the third line thereof and replacing it with "September 29, 1996" and (ii) deleting the last four entries in the grid contained therein in their entirety and inserting the following in lieu thereof:
Maximum Aggregate Period Principal Amount ------ ----------------- After June 30, 1995 and $105,000,000 at any time prior to the Third Amendment Effective Date
-15- 16 At any time on or after $150,000,000 the Third Amendment Effective Date and on or prior to September 29, 1996
(ff) Section 9.20(f) of the Credit Agreement is hereby amended by (i) deleting the parenthetical phrase "(as hereinafter defined)" appearing in the first sentence thereof, (ii) deleting the last three entries in the grid contained therein in their entirety and inserting the following in lieu thereof:
Period Maximum Aggregate Amount ------ ------------------------ After June 30, 1995 $25,000,000 and on or prior to September 29, 1996
and (iii) deleting the second sentence thereof in its entirety. (gg) Section 9.20(g) of the Credit Agreement is hereby amended by (i) inserting the phrase "unless otherwise provided in this Section 9.20 and" immediately after the first reference to "June 30, 1996," and (ii) inserting the words "or later" immediately after the words "or such earlier" appearing in the 14th line thereof. (hh) Section 9.21 of the Credit Agreement is hereby amended by adding the following proviso at the end thereof: ; provided that, for purposes of calculating current liabilities for any Fiscal Quarter ended on or after September 30, 1995, any amounts due within one year in respect of the principal of the Loans made hereunder shall be excluded. -16- 17 (ii) Section 9 is hereby further amended by adding the following new Sections 9.22 and 9.23: 9.22. Restricted Investments. The Company shall not, and shall not permit either Guarantor or any of its other Subsidiaries to, make any cash investments except for: (i) investments (by way of capital contribution or otherwise) in HSC and other Wholly-Owned Subsidiaries of the Company existing as of the Third Amendment Effective Date and identified on Schedule 4 to this Agreement and HSN Direct, Inc. a Delaware corporation, Vela Research, Inc., a Delaware corporation, HSN Interactive, Inc., a Delaware corporation, and Internet Software, Inc., a California corporation; and (ii) investments in (a) commercial paper rated A-1 or the equivalent thereof by Standard and Poor's Corporation or P-1 or the equivalent thereof by Moody's Investors Service, Inc. and in each case maturing within six months after the date of acquisition thereof,(b) eurodollar time deposits and certificates of deposit with maturities of six months or less from the date of acquisition, and overnight bank deposits, in each case, with any Bank or with any domestic commercial bank having capital and surplus in excess of $100,000,000 and (c) securities issued or fully guaranteed or insured by the United States Government or any agency or instrumentality thereof having maturities of not more than six months from the date of acquisition. 9.23. BNY Facility Agreement. The Company shall not amend, modify, terminate or waive, and shall not permit any of its Subsidiaries to agree to any amendment, modification, termination or waiver of, any of the terms and conditions set forth in the BNY Facility Agreement in a manner that would be more restrictive than the terms and conditions set forth in this Agreement. (jj) Section 10(d) of the Credit Agreement is hereby amended by inserting "or the Pledge Agreement" immediately after -17- 18 the words "the provisions hereof" appearing in the fourth line thereof. (kk) Sections 10(f), (g), (h), (i) and (j) of the Credit Agreement are hereby amended by deleting each reference therein to "the Guarantor" and replacing it with "either Guarantor". (ll) Section 10 of the Credit Agreement is hereby further amended by (i) inserting the word "or" immediately after the semicolon appearing at the end of clause (l) thereof and (ii) adding the following new clause (m): (m) any material provision of the Pledge Agreement or Section 6 of this Agreement shall cease, for any reason, to be in full force and effect, or the Company or either Guarantor shall so assert, or any Lien created by the Pledge Agreement shall cease, for any reason other than a change in applicable law, to be enforceable and of the same effect and priority purported to be created thereby; provided that, in the event any Lien created by the Pledge Agreement shall cease to be enforceable and of the same effect and priority purported to be created thereby solely as a result of a change in applicable law, such unenforceability and effected priority shall not constitute an Event of Default so long as the Company takes all necessary action under such change to restore the enforceability and priority of such Lien and delivers an opinion of counsel to such effect in form and substance satisfactory to the Administrative Agent within 30 days of the effectiveness of such change; (mm) Section 12.1 of the Credit Agreement is hereby amended by (i) inserting "the Collateral Agent," immediately before the words "the Agent" appearing in the second line thereof and (ii) inserting ", the Pledge Agreement" immediately after each reference therein to "this Agreement" appearing therein. (nn) Section 12.2 of the Credit Agreement is hereby amended by inserting "or, in the case of HSNR, at the 'Address for Notices' specified beneath its name on the signature pages of the Third Amendment" immediately after the phrase "below its name on the signature pages hereof" appearing in the seventh and eighth lines thereof. -18- 19 (oo) Section 12.3(b) of the Credit Agreement is hereby amended by inserting the words and punctuation ", the Pledge Agreement" immediately after the words "this Agreement" appearing in the fourth line thereof. (pp) Section 12.4 of the Credit Agreement is hereby amended by (i) inserting the punctuation and words ", the Pledge Agreement" immediately after the words "this Agreement" each time such words appear therein, (ii) deleting the words "or release the Guarantor" appearing in the 21st line thereof and replacing them with "or release either Guarantor", (iii) adding "or release any of the Pledged Securities," immediately before the phrase "in each case without the prior written consent of all the Banks" appearing at the end of clause (a) of the proviso and (iv) inserting "and the Collateral Agent" immediately before the period appearing at the end of the second sentence thereof. (qq) Section 12.6(a) of the Credit Agreement is hereby amended by deleting the words "nor the Guarantor" and replacing them with the words "nor either Guarantor". (rr) Section 12.6(b) of the Credit Agreement is hereby amended by inserting the words "another Bank or" immediately after the words "to any Person other than" appearing in the sixth line thereof. (ss) The last sentence of Section 12.6(c) of the Credit Agreement is hereby amended by (i) deleting the words "or release the Guarantor" appearing in clause (iv) thereof and replacing them with "or release either Guarantor" and (ii) adding "or (v) release any of the Pledged Securities" immediately before the period appearing at the end thereof. (tt) Exhibit A of the Credit Agreement is hereby amended by (i) attaching Annex A hereto thereto as page A-4 and (ii) renumbering page A-4 thereof as page A-5. (uu) The Credit Agreement is further amended by attaching Annex C hereto thereto as Schedule 4. (vv) The Credit Agreement is further amended by attaching Annex F hereto thereto as Schedule 5. -19- 20 (ww) References in the Credit Agreement to "this Agreement" and the words "hereof", "herein", "hereto" and the like, shall refer to the Credit Agreement as amended by the Third Amendment; provided that the words "the date of this Agreement" and "the date hereof" shall continue to refer to the date of the Credit Agreement (being August 30, 1994). (xx) Each reference in the Credit Agreement to the "Notes" or to a "Note" shall, as of the Third Amendment Effective Date, be deemed to include the new Notes issued pursuant to the Third Amendment. (yy) Each reference in Sections 11 and 12.3 of the Credit Agreement to the "Administrative Agent" shall also be deemed to refer to LTCB Trust Company in its capacity as "Collateral Agent" under the Pledge Agreement. Section 3. Representations and Warranties. To induce the Administrative Agent and each Bank to enter into this Third Amendment, each of the Company and the Guarantors hereby represents and warrants that each of the representations and warranties set forth in Section 8 of the Credit Agreement is true, correct and complete on and as of the date of this Third Amendment (whether or not the Third Amendment Effective Date, as defined in Section 4 hereof, occurs), and on and as of the Third Amendment Effective Date, both before and after giving effect to the amendments set forth in Section 2 of this Third Amendment on either such date, as if each reference therein to "this Agreement" were a reference to "this Agreement as amended by the Third Amendment", except that the representations and warranties in the last sentence of Section 8.2 and in Section 8.11 of the Credit Agreement shall, each time when they are made under this Section 3, be deemed to have been amended as provided in Section 2(i) of the Second Amendment and Section 2(p) of this Third Amendment, in the case of Section 8.2, and Section 2(k) of the Second Amendment and Section 2(t) of this Third Amendment, in the case of Section 8.11. Each of the Company and the Guarantors further represents and warrants that, as of the date of this Third Amendment and as of the Third Amendment Effective Date, no Default or Event of Default has occurred and is continuing. Section 4. Conditions to Effectiveness. The amendments set forth in Section 2 of this Third Amendment shall become -20- 21 effective as of the date (the "Third Amendment Effective Date"), as specified by the Administrative Agent, when counterparts hereof shall have been duly executed and delivered by the Majority Banks, each of the Banks whose Commitments are to be increased as of the Third Amendment Effective Date, the Administrative Agent, the Company and each of the Guarantors, and when each of the conditions precedent set forth in this Section 4 shall have been fulfilled to the satisfaction of the Administrative Agent: A. The Administrative Agent shall have received each of the following documents, each of which shall be satisfactory to the Administrative Agent in form and substance: (1) New Notes, substantially in the form of Exhibit A to the Credit Agreement, duly executed and delivered by the Company to the order of each Bank whose Commitment is either increasing or decreasing as of the Third Amendment Effective Date and otherwise appropriately completed, bearing the executed guarantee of each Guarantor, and dated the earliest last date through which interest was paid on the Loans (the "New Notes"). (2) A guarantee, substantially in the form of page A-4 of Exhibit A to the Credit Agreement, as amended hereby, duly executed and delivered by HSNR, of the Company's obligations under each of the Notes that were issued by the Company prior to the Third Amendment Effective Date to a Bank whose Commitment shall not be increased or reduced as of the Third Amendment Effective Date. (3) The Pledge Agreement, substantially in the form of Annex B hereto, duly executed and delivered by the Company. (4) Stock certificates evidencing all of the Pledged Securities, together with an undated stock power for each such certificate executed in blank by a duly authorized officer of the Company and duly -21- 22 completed and executed financing statements on Form UCC-1. (5) Evidence of the fulfillment of all the conditions precedent to the effectiveness of the BNY Facility Agreement and the consummation of the closing contemplated under the BNY L/C Facility. (6) The Intercreditor Agreement, substantially in the form of Annex D hereto, duly executed and delivered by the Banks, the Administrative Agent, the Collateral Agent, BNY, The Bank of New York Company, Inc. and BNY, as Administrative Agent under the BNY Facility Agreement. (7) Certified copies of the certificate of incorporation and by-laws of the Company and each Guarantor and all corporate action and (if necessary) stockholder action taken by the Company and each Guarantor approving this Third Amendment, the Credit Agreement, as amended hereby, and, in the case of the Company, the Pledge Agreement and borrowings by the Company under the Credit Agreement, as amended hereby, the guarantee by each Guarantor hereunder and thereunder and the consummation of the transactions contemplated hereby and thereby (including, without limitation, a certificate setting forth the resolutions of the Boards of Directors of the Company and each Guarantor adopted in respect of the transactions contemplated hereby and thereby). (8) A certificate of each of the Company and each Guarantor in respect of each of the officers (i) who is authorized to sign this Third Amendment or the New Notes or, in the case of HSNR, the guarantees relating to the Notes issued prior to the Third Amendment Effective Date, on its behalf and (ii) who will, until replaced by another officer or officers duly authorized for that purpose, act as its representative for the purposes of signing documents and giving notices and other communications in connection with the Credit Agreement, as amended hereby, and the transactions contemplated thereby and hereby. The Administrative -22- 23 Agent, the Agent, the Co-Agents and the Banks may conclusively rely on such certificate until the Administrative Agent receives notice in writing from the Company or either Guarantor, respectively, to the contrary. (9) Certificates, as of a recent date, from the appropriate authorities for each jurisdiction in which the Company and each Guarantor are incorporated or qualified to do business, as to the good standing of the Company and each Guarantor, respectively, in each such jurisdiction. (10) An opinion of Counsel to the Company and the Guarantors, substantially in the form of Annex E hereto. (11) A certificate of a senior officer of each of the Company and each Guarantor to the effect set forth in Section 4.D of this Third Amendment. (12) Evidence of the payment of the fees provided for in Sections 4.B and 4.C of this Third Amendment, and of all other fees and expenses then payable, including, without limitation, pursuant to Section 12.3 of the Credit Agreement. (13) Evidence of payment (to the extent then payable) of (a) all interest on the Loans outstanding under the Credit Agreement and (b) all facility fees accrued through the Third Amendment Effective Date. (14) Such other documents and information as the Administrative Agent or any Bank may reasonably request, including, without limitation, all requisite governmental approvals and filings. B. The Company shall have paid to the Administrative Agent, for the account of each Bank, a non-refundable amendment fee in an amount equal to 0.25% of the amount of such Bank's Commitment as in effect immediately prior to the Third Amendment Effective Date. -23- 24 C. The Company shall have paid to the Administrative Agent the fees provided for in each of the letters, dated September 13, 1995, executed by the Company and HSC and delivered to the Administrative Agent, at the times specified therein. D. As of such date: (1) No Default or Event of Default shall have occurred and be continuing; and (2) The representations and warranties made by the Company and each of the Guarantors in Section 3 hereof and in any other certificate or other document delivered in connection with this Third Amendment or the Credit Agreement, as amended hereby, shall be true, correct and complete on and as of each such date with the same force and effect as if made on and as of such date. The Administrative Agent will promptly notify the other parties of the occurrence of the Third Amendment Effective Date. Section 5. Miscellaneous. A. This Third Amendment may be executed in any number of counterparts, all of which taken together and when delivered to the Administrative Agent shall constitute one and the same instrument, and any of the parties hereto may execute this Third Amendment by signing any such counterpart. B. Each of the Company and each Guarantor hereby confirms its obligation, pursuant to Section 12.3(a) of the Credit Agreement, to pay all of the Administrative Agent's costs and expenses (including, without limitation, the reasonable fees and expenses of all special counsels to the Administrative Agent to the extent provided in that certain letter agreement, dated September 13, 1995, among the Company, HSC and the Administrative Agent) in connection with this Third Amendment, whether or not the Third Amendment Effective Date occurs. C. THIS THIRD AMENDMENT AND THE CREDIT AGREEMENT AS AMENDED HEREBY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. -24- 25 D. Except as expressly set forth in this Third Amendment, the Credit Agreement as amended prior to the date hereof shall remain unmodified and in full force and effect. E. HSNR HEREBY AGREES THAT: (A) ANY SUIT, ACTION OR PROCEEDING AGAINST HSNR WITH RESPECT TO THIS THIRD AMENDMENT, THE CREDIT AGREEMENT, AS AMENDED HEREBY, THE STOCK PLEDGE, THE LOANS, THE NOTES OR ANY DOCUMENTS RELATED HERETO OR ANY JUDGMENT ENTERED BY ANY COURT IN RESPECT THEREOF MAY BE BROUGHT IN THE SUPREME COURT OF THE STATE OF NEW YORK, COUNTY OF NEW YORK, IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, OR IN ANY STATE OR FEDERAL COURT SITTING IN THE STATE OF FLORIDA (COLLECTIVELY, THE "SUBJECT COURTS"), AS THE ADMINISTRATIVE AGENT, THE AGENT, EITHER CO-AGENT OR ANY BANK MAY ELECT IN ITS SOLE DISCRETION AND HSNR HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF EACH OF THE SUBJECT COURTS FOR THE PURPOSE OF ANY SUCH SUIT, ACTION, PROCEEDING OR JUDGMENT. HSNR HEREBY IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS IN ANY SUIT, ACTION OR PROCEEDING IN ANY OF THE SUBJECT COURTS BY THE MAILING THEREOF BY THE ADMINISTRATIVE AGENT, THE AGENT, THE RESPECTIVE CO-AGENT OR THE RESPECTIVE BANK BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO HSNR ADDRESSED AS PROVIDED IN SECTION 12.2 OF THE CREDIT AGREEMENT, AS AMENDED HEREBY. NOTHING HEREIN SHALL IN ANY WAY BE DEEMED TO LIMIT THE ABILITY OF THE ADMINISTRATIVE AGENT, THE AGENT, EITHER CO-AGENT OR ANY BANK TO SERVE ANY SUCH WRITS, PROCESS OR SUMMONSES IN ANY OTHER MANNER PERMITTED BY APPLICABLE LAW OR TO BRING PROCEEDINGS AGAINST HSNR IN ANY COMPETENT COURT OF ANY OTHER JURISDICTION OR JURISDICTIONS, AND IN SUCH MANNER, AS MAY BE PERMITTED BY APPLICABLE LAW. (B) HSNR HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY SUIT, ACTION OR PROCEEDING IN RESPECT OF THIS THIRD AMENDMENT, THE CREDIT AGREEMENT, AS AMENDED HEREBY, THE NOTES OR ANY OTHER DOCUMENTS IN CONNECTION HEREWITH, ANY OBJECTION TO THE LAYING OF VENUE IN ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY OF THE SUBJECT COURTS, AND, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY CLAIM THAT SUCH SUIT, ACTION OR PROCEEDING IN ANY OF THE SUBJECT COURTS HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. -25- 26 F. By executing this Third Amendment, each Bank irrevocably appoints and authorizes LTCB Trust Company, in its capacity as Collateral Agent under the Pledge Agreement, to act as its agent under the Pledge Agreement with such powers as are specifically delegated to the Collateral Agent by the terms of the Credit Agreement, as amended by this Third Amendment, and the Pledge Agreement, together with such other powers as are reasonably incidental thereto. -26- 27 [THIS PAGE INTENTIONALLY LEFT BLANK] -27- 28 IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment to be duly executed as of the date first above written. HOME SHOPPING NETWORK, INC., as Borrower By ------------------------------------------ Title: HOME SHOPPING CLUB, INC., as a Guarantor By ------------------------------------------ Title: HSN REALTY, INC., as a Guarantor By ------------------------------------------ Title: Address For Notices: ------------------- 11831 30th Court North St. Petersburg, Florida 33716 Telecopier No.: (813) 539-6505 Telephone No.: (813) 572-8585 Attention: Finance Department with a copy to: Legal Department Telecopier No.: (813) 573-0866 The Banks --------- Commitment - ---------- $37,783,333.33 LTCB TRUST COMPANY, as a Bank and as Agent By -------------------------------------------- -28- 29 Title: $21,633,333.33 THE BANK OF NEW YORK COMPANY, INC., as a Bank and as a Co-Agent By -------------------------------------------- Title: $33,933,333.33 TORONTO DOMINION [TEXAS], INC., as a Bank and as a Co-Agent By -------------------------------------------- Title: $25,500,000.00 BANK OF MONTREAL, as a Bank and as a Co-Agent By -------------------------------------------- Title: $11,900,000.00 FIRST UNION NATIONAL BANK OF NORTH CAROLINA By -------------------------------------------- Title: $9,800,000.00 PNC BANK, KENTUCKY, INC. By -------------------------------------------- Title: -29- 30 $9,450,000.00 THE DAIWA BANK, LIMITED By -------------------------------------------- Title: By - -------------------- -------------------------------------------- Total: $150,000,000 Title: The Administrative Agent ------------------------ LTCB TRUST COMPANY, as Administrative Agent By -------------------------------------------- Title: The Collateral Agent -------------------- LTCB TRUST COMPANY, as Collateral Agent By -------------------------------------------- Title: -30- 31 ANNEX A ------- GUARANTEE The undersigned HSN REALTY, INC., a Delaware corporation (the "Guarantor"), hereby unconditionally and irrevocably guarantees the payment in full when due (whether at stated maturity, by acceleration or otherwise) of the principal of and interest on this Note and all other amounts payable hereunder, in accordance with the terms hereof and of Section 6 of the Credit Agreement, and, in the case of any extension of time of payment, in whole or in part, that all such amounts shall be paid in full when due (whether at stated maturity, by acceleration or otherwise) in accordance with the terms of such extension. In addition, the Guarantor hereby unconditionally agrees that upon default in the payment when due (whether at stated maturity, by acceleration or otherwise) of any of such principal, interest or other amounts, the Guarantor shall forthwith pay and perform the same in the money and funds, at the time, in the place and in the manner provided for such payment in the Credit Agreement. This guarantee is a continuing guarantee of payment and not merely of collection; it is a primary, independent obligation of the Guarantor; and the Guarantor's obligations hereunder shall be absolute, unconditional and irrevocable, irrespective of any and all circumstances whatsoever. The Guarantor hereby waives diligence, presentment, protest, notice of default, dishonor or nonpayment and any other notice and all demands whatsoever. The Guarantor hereby further waives all setoffs and counterclaims against the Company, the Administrative Agent, the Agent, each of the Co-Agents and each of the Banks. HSN REALTY, INC. By -------------------------------------------- Title: A-4 32 ANNEX B ------- FORM OF PLEDGE AGREEMENT ------------------------ 33 EXECUTION COPY PLEDGE AGREEMENT PLEDGE AGREEMENT, dated as of September 28, 1995 (as amended, supplemented or modified from time to time, this "Agreement"), made by HOME SHOPPING NETWORK, INC., a Delaware corporation (the "Pledgor"), in favor of LTCB TRUST COMPANY, a New York trust company, as collateral agent (in such capacity, the "Collateral Agent") for (i) the Banks party to the Second Amended and Restated Credit Agreement, dated as of August 30, 1994 (as amended by the First Amendment, dated as of March 29, 1995, as further amended by the Second Amendment, dated as of June 28, 1995, as further amended by the Third Amendment, dated as of September 28, 1995, and as further amended, supplemented or modified from time to time, the "Credit Agreement"), among the Pledgor, as borrower, Home Shopping Club, Inc. ("HSC") and HSN Realty, Inc. ("HSNR"), as guarantors, LTCB Trust Company, as Agent, the Banks and Co-Agents named therein, LTCB Trust Company, as administrative agent, and the Collateral Agent, and (ii) the L/C Issuer and the L/C Participant party to the Letter of Credit Facility Agreement, dated as of September 28, 1995 (as amended, supplemented or modified from time to time, the "BNY Facility Agreement"), among HSC, HSN Mail Order, Inc. and HSN Direct, Inc., as applicants (collectively, the "L/C Applicants"), the Pledgor and HSNR, as guarantors, The Bank of New York, as issuer (the "L/C Issuer"), The Bank of New York Company, Inc., as a participant (the "L/C Participant"), and The Bank of New York, as administrative agent (the "L/C Administrative Agent"). W I T N E S S E T H: WHEREAS, pursuant to the Credit Agreement, the Banks have agreed to make extensions of credit to the Pledgor upon the terms and subject to the conditions set forth therein; WHEREAS, pursuant to the Third Amendment, dated as of September 28, 1995 (the "Third Amendment"), to the Credit Agreement and at the request of the Pledgor, HSC and HSNR, the Banks have agreed to amend certain provisions of the Credit Agreement to provide for (i) increases in the availability of the Commitments (as defined in the Credit Agreement) of certain Banks, (ii) changes in the rate of interest and certain fees, (iii) additional collateralization of the Pledgor's obligations under the 34 Credit Agreement and (iv) certain other matters provided for therein; WHEREAS, pursuant to the BNY Facility Agreement, the L/C Issuer has agreed to issue trade letters of credit (the "Letters of Credit") for the account of the L/C Applicants, and the L/C Participant has agreed to participate in unreimbursed drawings under such Letters of Credit, upon the terms and subject to the terms and conditions set forth therein; WHEREAS, the Pledgor is the legal and beneficial owner of the shares of Pledged Securities (as hereinafter defined) issued by each of the Issuers (as hereinafter defined); and WHEREAS, it is a condition precedent to (i) the agreement of the Banks to provide for the increased availability under the Credit Agreement and the effectiveness of the amendments to the Credit Agreement contemplated by the Third Amendment and (ii) the agreement of the L/C Issuer to issue the Letters of Credit and the L/C Participant to participate in unreimbursed drawings under such Letters of Credit and the effectiveness of the BNY Facility Agreement that the Pledgor shall have executed and delivered this Agreement to the Collateral Agent for the benefit of the Banks, the L/C Issuer and the L/C Participant. NOW, THEREFORE, in consideration of the premises, and other good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, and to induce the Banks to increase the availability of credit under the Credit Agreement and to give effect to the amendments contemplated by the Third Amendment and to induce the L/C Issuer and the L/C Participant to enter into the BNY Facility Agreement, the Pledgor hereby agrees with the Collateral Agent, for the benefit of the Banks, the L/C Issuer and the L/C Participant as follows: SECTION 1. Definitions. (a) Capitalized terms used but not otherwise defined herein shall have the meanings assigned to such terms in the Credit Agreement. (b) The following terms, as used herein, shall have the following meanings: "Collateral" shall have the meaning assigned to such term in Section 2. -2- 35 "Issuers" shall mean Home Shopping Club, Inc. and HSN Realty, Inc., each a Delaware corporation. "Loan Documents" shall mean this Agreement, the Credit Agreement, the Notes, the BNY Facility Agreement and the Letters of Credit. "Pledged Securities" shall have the meaning assigned to such term in Section 2. "Proceeds" shall have the meaning assigned to such term under the UCC and, in any event, shall include (i) any and all proceeds of any guarantee, insurance or indemnity payable to the Pledgor from time to time with respect to any of the Collateral, (ii) any and all payments (in any form whatsoever) made or due and payable to the Pledgor from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Collateral by any governmental authority and (iii) any and all other amounts from time to time paid or payable with respect to or in connection with any of the Collateral, including all dividends or other income from the Pledged Securities, collections thereon or distributions with respect thereto. "Secured Obligations" shall mean, collectively, (a) the principal of and interest (including interest accruing after the date of any filing by the Pledgor of any petition in bankruptcy or the commencement of any bankruptcy, insolvency or similar proceedings with respect to the Pledgor, whether or not allowed as a claim in such proceeding under all applicable law, principles of equity and orders, decisions, judgments and decrees of all courts and arbitrators) on the Loans, the Notes, unreimbursed drawings under the Letters of Credit and the stated amount of all outstanding Letters of Credit under which drawings have not yet been made and all liabilities of the Pledgor from time to time owing to the Collateral Agent, the Administrative Agent, any Bank, the L/C Issuer, the L/C Participant or the L/C Administrative Agent (including all facility and other fees) under or in respect of the Loan Documents; and (b) all other obligations of the Pledgor to the Collateral Agent, the Administrative Agent, any Bank, the L/C Issuer, any L/C Participant or the L/C Administrative Agent under this Agreement and any of the other Loan Documents. -3- 36 "UCC" shall mean the Uniform Commercial Code from time to time in effect in the State of New York. (c) Unless otherwise defined herein or in the Credit Agreement, or unless the context otherwise requires, all terms used herein that are defined in the UCC shall have the meanings therein stated. (d) The words "include," "includes" and "including" as used in this Agreement shall be deemed in each case to be followed by the phrase "without limitation." References to Sections and Schedules shall be deemed references to Sections of and Schedules to this Agreement, unless otherwise specified. SECTION 2. Pledge. As security for the prompt payment and performance in full when due (whether at the stated maturity, by acceleration or otherwise) of the Secured Obligations, the Pledgor hereby hypothecates, pledges, assigns, grants, sets over and delivers to the Collateral Agent, for the benefit of the Banks, the L/C Issuer and the L/C Participant, a continuing first priority security interest in all its right, title and interest in, to and under the following, whether now owned or hereafter acquired: (i) all of the shares of capital stock owned by the Pledgor listed on Schedule 1, and any additional shares of capital stock of each of the Issuers (or successors thereto) obtained in the future by the Pledgor, and, in each case, all stock certificates representing such shares and, in each case, all options, warrants or rights of any nature whatsoever and all stock or other securities which may hereafter be received, receivable or distributed in respect of, or exchanged for, any of the foregoing (all of the foregoing being collectively referred to herein as the "Pledged Securities"); and (ii) subject to the provisions of Section 5, all Proceeds of the Pledged Securities, including all cash or securities at any time and from time to time acquired, receivable or otherwise distributed in respect of, or in exchange for, any of or all such stock (all of the items referred to herein in clauses (i) and (ii) being collectively referred to as the "Collateral"). -4- 37 TO HAVE AND TO HOLD the Collateral, together with all right, title, interest, powers, privileges and preferences pertaining or incidental thereto, unto the Collateral Agent for the benefit of the Banks, the L/C Issuer and the L/C Participant and their successors and assigns, forever; subject, however, to the terms, covenants and conditions hereinafter set forth. SECTION 3. Delivery of Collateral. (a) Contemporaneously with the execution of this Agreement, the Pledgor shall deliver or cause to be delivered to the Collateral Agent (i) any and all certificates and other instruments evidencing the Pledged Securities, along with undated stock powers duly executed in blank (with, if the Collateral Agent so requests, signatures properly guaranteed) or other instruments of transfer covering each such certificate satisfactory to the Collateral Agent and endorsed in blank and such other instruments and documents as the Collateral Agent may reasonably request to effect the purposes contemplated hereby and (ii) any and all certificates or other instruments or documents representing any of the Collateral. (b) If the Pledgor shall become entitled to receive or shall receive any shares of stock (including shares of Pledged Securities acquired after the date of this Agreement), options, warrants, rights or other similar property (including any certificate representing a stock dividend, or any distribution in connection with any recapitalization, reclassification or increase or reduction of capital, or issued in connection with any reorganization of any Issuer) in respect of the Pledged Securities (whether as an addition to, in substitution of, or in exchange for, such Pledged Securities or otherwise), the Pledgor agrees: (i) to accept the same as the agent of the Collateral Agent; (ii) to hold the same in trust on behalf of and for the benefit of the Collateral Agent for the benefit of the Banks, the L/C Issuer and the L/C Participant; and (iii) to deliver any and all certificates or instruments evidencing the same to the Collateral Agent on or before the close of business on the seventh Business Day following the receipt thereof by the Pledgor, in the exact form received, -5- 38 with the endorsement in blank of the Pledgor when necessary and with appropriate undated stock powers duly executed in blank (with, if the Collateral Agent so requests, signatures properly guaranteed), to be held by the Collateral Agent, for the benefit of the Banks, the L/C Issuer and the L/C Participant, subject to the terms of this Agreement, as additional Collateral. SECTION 4. Registration in Nominee Name. Upon the occurrence and during the continuance of an Event of Default and the declaration of acceleration or demand for payment, the Collateral Agent shall have the right (in its sole and absolute discretion and without prior notice to the Pledgor) to transfer to or to register the Pledged Securities in its own name or the name of its nominee, for the benefit of the Banks, the L/C Issuer and the L/C Participant. After any such registration or transfer, the Collateral Agent shall provide notice thereof to the Pledgor. SECTION 5. Voting Rights, etc. (a) Unless and until an Event of Default shall have occurred and be continuing and a declaration of acceleration or demand for payment shall have been made: (i) the Pledgor shall be entitled to exercise any and all voting and/or consensual rights and powers accruing to an owner of the Pledged Securities or any part thereof for any purpose not prohibited by the terms of this Agreement, the Credit Agreement or the BNY Facility Agreement; (ii) the Collateral Agent shall execute and deliver to the Pledgor, or cause to be executed and delivered to the Pledgor, all such proxies, powers of attorney, and other instruments as the Pledgor may reasonably request for the purpose of enabling the Pledgor to exercise the voting and/or consensual rights and powers which it is entitled to exercise pursuant to subparagraph (i) above; and (iii) the Pledgor shall be entitled to receive, subject to the provisions of Section 2, and retain any and all cash dividends paid on the Pledged Securities to the extent and only to the extent that such dividends are not prohibited by the terms and conditions of the Credit Agreement or the BNY -6- 39 Facility Agreement. Except for cash dividends that the Pledgor shall be entitled to receive and retain pursuant to the preceding sentence, all noncash dividends, stock or dividends paid or payable in cash or otherwise in connection with a partial or total liquidation or dissolution, instruments, securities, other distributions in property, return of capital, capital surplus or paid-in surplus or other distributions made on or in respect of Pledged Securities, whether paid or payable in cash or otherwise, whether resulting from a subdivision, combination or reclassification of the outstanding capital stock of any Issuer or from any bankruptcy or reorganization of any Issuer or received in exchange for the Pledged Securities or any part thereof, or in redemption thereof, as a result of any merger, consolidation, acquisition or other exchange of assets to which any Issuer may be a party or otherwise, shall be and become part of the Collateral, and, if received by the Pledgor, shall not be commingled by the Pledgor with any of its other funds or property but shall be held separate and apart therefrom, shall be held in trust for the benefit of the Collateral Agent, for the benefit of the Banks, the L/C Issuer and the L/C Participant, and shall be forthwith delivered to the Collateral Agent in the same form as so received (with any necessary endorsements). (b) Upon the occurrence and during the continuance of an Event of Default, and, in the case of an Event of Default other than one referred to in clause (f), (g) or (h) of Section 10 of the Credit Agreement, if so specified by the Collateral Agent in a notice to the Pledgor, all rights of the Pledgor to exercise the voting and consensual rights and powers which the Pledgor is entitled to exercise pursuant to Section 5(a)(i) shall cease, and all such rights shall thereupon become vested in the Collateral Agent, which shall have the sole and exclusive right and authority to exercise such voting and consensual rights and powers, and the Pledgor shall execute and deliver to the Collateral Agent all such documents and instruments (including proxies) as the Collateral Agent shall reasonably request in order to effect the purposes of this Section 5(b). SECTION 6. Representations; Warranties and Covenants. The Pledgor hereby represents, warrants and covenants to and with the Collateral Agent, the Administrative Agent, each Bank, the -7- 40 L/C Issuer, the L/C Participant and the L/C Administrative Agent that: (a) Except for the security interest granted to the Collateral Agent hereunder and except as expressly permitted by Section 9.7 of the Credit Agreement, the Pledgor (i) is and will at all times continue to be the direct owner, beneficially and of record, of the Pledged Securities, (ii) holds and will at all times continue to hold the Collateral free and clear of all Liens of every kind and nature, (iii) will make no assignment, pledge, hypothecation or transfer of, or create or suffer to exist any Lien on, the Collateral and (iv) subject to Section 5, will cause any and all Collateral, whether for value paid by the Pledgor or otherwise, to be forthwith deposited with the Collateral Agent, for the benefit of the Banks, the L/C Issuer, the L/C Participant and the L/C Administrative Agent, and pledged or assigned hereunder. (b) The Pledgor (i) has, and at all times will have, the right and legal authority to pledge the Collateral in the manner hereby done or contemplated, and (ii) will defend its and the Collateral Agent's respective title and interest thereto or therein against any and all attachments, Liens, claims or other impediments of any nature, however arising, of all Persons whomsoever. (c) No authorization, consent or approval, or other action by, and no notice to or filing with, any governmental authority (including any securities exchange) not previously obtained is required (i) for the pledge by the Pledgor of the Collateral pursuant to this Agreement or the perfection therein of the Collateral Agent's security interest created hereby, other than the filing of appropriate Uniform Commercial Code financing statements in the office of the Secretary of State in each of the States of Delaware and Florida, and in the office of the County Clerk in each of New Castle County, Delaware, and Pinellas County, Florida, (ii) for the execution, delivery or performance of this Agreement by the Pledgor or (iii) for the exercise by the Collateral Agent of the rights provided for in this Agreement or the remedies in respect of the Collateral pursuant to this Agreement, other than compliance with applicable Federal and state securities laws in connection with the acquisition and sale -8- 41 or other disposition of the Pledged Securities in accordance with the terms of this Agreement. (d) By virtue of the execution and delivery by the Pledgor of this Agreement, when the stock certificates representing the Pledged Securities owned by the Pledgor are delivered to the Collateral Agent in accordance with this Agreement, the Collateral Agent will obtain and, so long as the Collateral Agent maintains possession of the certificates representing the Pledged Securities, will have and will continue to have a valid and perfected first priority security interest in such Pledged Securities, for the benefit of the Banks, the L/C Issuer and the L/C Participant, as security for the repayment and performance in full of the Secured Obligations, prior to all other Liens thereon. (e) The Pledged Securities constitute, and at all times will constitute, all of the issued and outstanding shares of capital stock of the Issuers. (f) All of the representations and warranties contained in this Agreement shall survive the execution, delivery and performance of this Agreement. (g) This Agreement constitutes the legal, valid and binding obligation of the Pledgor, enforceable in accordance with its terms (subject as to enforceability to applicable bankruptcy, reorganization, insolvency, moratorium and similar laws affecting creditors' rights generally and to general principles of equity). (h) The execution, delivery and performance in accordance with its respective terms by the Pledgor of this Agreement do not and will not (a) require any governmental approval or any other consent or approval, other than governmental approvals and other consents and approvals that have been obtained, are in full force and effect and are final and not subject to review on appeal or to collateral attack and other than compliance with applicable Federal and state securities laws in connection with the acquisition and sale or other disposition of the Pledged Securities in accordance with the terms of this Agreement, or (b) violate, conflict with, result in a breach of or constitute a default under, or, except as expressly contemplated by this Agreement, result in or require the creation -9- 42 of any Lien upon any assets of the Pledgor under, (i) any contract to which the Pledgor is a party or by which it or its property may be bound or (ii) any applicable law. (i) The Pledged Securities have been duly authorized and validly issued, are fully paid and non- assessable and have been duly and validly pledged hereunder in accordance with applicable law. (j) There are no contractual restrictions upon the voting rights or upon the transfer of any of the shares of the Pledged Securities other than as referred to herein or in the Credit Agreement or the BNY Facility Agreement. (k) The Pledgor represents and warrants that it has made its own arrangements for keeping informed of changes or potential changes affecting the Collateral (including rights to convert, rights to subscribe, payment of dividends, reorganization or other exchanges, tender offers and voting rights), and the Pledgor agrees that neither the Collateral Agent, the Administrative Agent, any Bank, the L/C Issuer, the L/C Participant nor the L/C Administrative Agent shall have any responsibility or liability for informing the Pledgor of any such changes or potential changes. (l) The Pledgor shall not (i) permit or suffer any Issuer to voluntarily dissolve or liquidate, retire any of its capital stock, reduce its capital or merge or consolidate with any other entity if such action would violate the provisions of the Credit Agreement or the BNY Facility Agreement or (ii) vote any of the Pledged Securities in favor of any of the foregoing. (m) The Pledgor shall pay, and save the Collateral Agent, the Administrative Agent, each Bank, the L/C Issuer, the L/C Participant and the L/C Administrative Agent harmless from, any and all liabilities with respect to, or resulting from any delay in paying, any and all stamp, excise, sales or other taxes which may be payable or determined to be payable (i) with respect to any of the Collateral or (ii) in connection with any of the transactions contemplated by this Agreement. SECTION 7. Issuance of Additional Stock. The Pledgor agrees that it will not (a) permit any Issuer to issue any stock -10- 43 or other securities (including warrants, options and other similar agreements), whether in addition to, by stock dividend or other distribution upon, or in substitution for, the Pledged Securities or otherwise (unless such issuance is not prohibited by the Credit Agreement or the BNY Facility Agreement and such stock or other securities are effectively pledged hereunder in a manner reasonably satisfactory to the Collateral Agent) or (b) sell, assign, transfer, exchange or otherwise dispose of, or grant any option with respect to, the Collateral, or create, incur or permit to exist any Lien or option in favor of, or any claim of any Person with respect to, any of the Collateral, or any interest therein, except for the Lien provided for by this Agreement and as otherwise expressly permitted under Section 9.7 of the Credit Agreement. SECTION 8. Remedies Upon Default. (a) If an Event of Default shall have occurred and be continuing and upon the declaration of acceleration or demand for payment, the Collateral Agent, for the benefit of the Banks, the L/C Issuer and the L/C Participant, shall have, in addition to any other rights and except as otherwise provided herein, all of the rights and remedies with respect to the Collateral of a secured party under the UCC. In addition and subject to all applicable law, the Collateral Agent, on behalf of the Banks, the L/C Issuer and the L/C Participant may, and upon the request of the Majority Banks, shall (without any obligation to seek performance of any guarantee or to resort to any other security, right or remedy granted to it under any other instrument or agreement, including the Credit Agreement and/or the BNY Facility Agreement) sell the Collateral, or any part thereof, at public or private sale or at any broker's board or on any securities exchange, for cash, upon credit or for future delivery as the Collateral Agent shall deem appropriate. The Collateral Agent shall be authorized at any such sale (if it deems it advisable to do so) to restrict the prospective bidders or purchasers to persons who will represent and agree that they are purchasing the Collateral for their own account for investment and not with a view to the distribution or sale thereof, and upon consummation of any such sale the Collateral Agent shall have the right to assign, transfer and deliver to the purchaser or purchasers thereof the Collateral so sold. Each such purchaser at any such sale shall hold the property so sold absolutely, free from any claim or right on the part of the Pledgor (other than rights that the Pledgor may have -11- 44 against such purchaser generally and without regard to this Agreement or such sale), and the Pledgor hereby waives (to the extent permitted by law) all rights of redemption, stay and appraisal which the Pledgor may now have or may at any time in the future have under any applicable law now existing or hereafter enacted. (b) The Collateral Agent shall give the Pledgor at least ten Business Days' written notice (which the Pledgor agrees is reasonable notice within the meaning of Section 9-504(3) of the UCC) of the Collateral Agent's intention to make any sale of Collateral. Such notice, in the case of a public sale, shall state the time of and place where such sale is to be made and, in the case of a sale at a broker's board or on a securities exchange, shall state the board or exchange at which such sale is to be made and the day on which the Collateral, or any portion thereof, will first be offered for sale at such board or exchange. Any such public sale shall be held at such time or times within ordinary business hours and at such place or places as the Collateral Agent may fix and state in the notice of such sale. At any such sale, the Collateral, or portion thereof, to be sold may be sold in one lot as an entirety or in separate parcels, as the Collateral Agent may (in its sole and absolute discretion) determine. The Collateral Agent shall not be obligated to make any sale of any Collateral if it shall determine not to do so, regardless of the fact that notice of sale of such Collateral shall have been given. The Collateral Agent may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for sale, and such sale may, without further notice, be made at the time and place to which the same was so adjourned. In case any sale of all or any part of the Collateral is made on credit or for future delivery, the Collateral so sold may be retained by the Collateral Agent until the sale price is paid by the purchaser or purchasers thereof, but the Collateral Agent shall not incur any liability in case any such purchaser or purchasers shall fail to take up and pay for the Collateral so sold and, in case of any such failure, such Collateral may be sold again upon like notice, and in no event shall any portion of the proceeds of any such sale be credited against payment of the costs, expenses and obligations set forth in Section 9 until cash payment for the Collateral so sold has been received by the Collateral Agent. At -12- 45 any private sale of Collateral of a type customarily sold in a recognized market, and at any public sale made pursuant to this Section 8, the Collateral Agent, in its individual capacity, any Bank, the L/C Issuer and the L/C Participant may bid for or purchase, free (to the extent permitted by law) from any equity or right of redemption, stay or appraisal on the part of the Pledgor (all said rights being also hereby waived and released to the extent permitted by law), the Collateral or any part thereof offered for sale and may make payment on account thereof by using any claim then due and payable to the Collateral Agent, in its individual capacity, such Bank, the L/C Issuer or the L/C Participant by the Pledgor under or pursuant to the Credit Agreement or the BNY Facility Agreement, as the case may be, as a credit, up to an amount equal to the amount the Collateral Agent, in its individual capacity, such Bank, the L/C Issuer or the L/C Participant would otherwise be entitled to receive pursuant to Section 9 in connection with such sale, against the purchase price. For purposes hereof, in the case of any such sale pursuant to a written agreement to purchase the Collateral or any portion thereof, the Collateral Agent shall be free to carry out such sale pursuant to such agreement, and the Pledgor shall not be entitled to the return of the Collateral or any portion thereof subject thereto, notwithstanding the fact that after the Collateral Agent shall have entered into such an agreement all Events of Default shall have been remedied and the Secured Obligations paid in full. As an alternative to exercising the power of sale herein conferred upon it, the Collateral Agent may proceed by a suit or suits at law or in equity to foreclose upon the Collateral pursuant this Agreement and to sell the Collateral, or any portion thereof, pursuant to a judgment or decree of a court or courts having competent jurisdiction or pursuant to a proceeding by a court-appointed receiver. (c) If the Collateral Agent shall have instituted any proceeding to enforce any right or remedy hereunder, and such proceeding shall have been discontinued or abandoned for any reason, or shall have been determined adversely to the Collateral Agent, the Collateral Agent shall, subject to any determination in any such proceeding, be restored to its former position hereunder, and thereafter, subject as aforesaid, all rights and remedies of the Collateral Agent shall continue as though no such proceeding had been instituted. -13- 46 SECTION 9. Application of Proceeds of Sale. The proceeds of any sale of, or other realization upon, all or any part of the Collateral pursuant to Section 8, as well as any Collateral consisting of cash, shall be applied by the Collateral Agent as follows: FIRST, to the payment of all costs and expenses reasonably incurred by the Collateral Agent in connection with such sale or otherwise in connection with this Agreement or any of the Secured Obligations, including, without limitation, a reasonable allocation of salaries and wages of officers and employees and related overhead of the Collateral Agent who are involved in such sale, all court costs and the reasonable fees and expenses of its agents and legal counsel, the repayment of all advances plus any interest thereon made hereunder by the Collateral Agent on behalf of the Pledgor and any other costs or expenses reasonably incurred in connection with the exercise of any right or remedy hereunder; SECOND, to the payment in full of the Secured Obligations pro rata as among the holders of the Secured Obligations in accordance with the amounts of monetary Secured Obligations owed to them and outstanding (whether or not then due and payable, at maturity, by acceleration or otherwise) as of the date of such payment, until all the Secured Obligations have been paid in full; and THIRD, any balance remaining to the Pledgor, its successors or assigns, or as a court of competent jurisdiction may otherwise direct. SECTION 10. Collateral Agent Appointed Attorney-in-Fact; Indemnity. (a) The Pledgor hereby appoints the Collateral Agent as its true and lawful agent and attorney-in- fact for the purpose of carrying out the provisions of this Agreement and taking any action and executing any instrument which the Collateral Agent may deem necessary or advisable to accomplish the purposes hereof, in each case upon the occurrence and during the continuance of an Event of Default and the declaration of acceleration or demand for payment, which appointment is irrevocable and -14- 47 coupled with an interest and any proxy or proxies heretofore given by the Pledgor to any other person that is inconsistent herewith are hereby revoked. Without limiting the generality of the foregoing, the Collateral Agent shall have the right, upon the occurrence and during the continuance of an Event of Default and the declaration of acceleration or demand for payment, with full power of substitution either in the Collateral Agent's name or in the name of the Pledgor, to ask for, demand, sue for, collect, receive, receipt and give acquittance for any and all moneys due or to become due under and by virtue of any Collateral, to endorse checks, drafts, orders and other instruments for the payment of money payable to the Pledgor representing any interest or dividend or other distribution payable in respect of the Collateral or any part thereof or on account thereof and to give full discharge for the same, to settle, compromise, prosecute or defend any action, claim or proceeding with respect thereto, and to sell, assign, endorse, pledge, transfer and make any agreement respecting, or otherwise deal with, the same; provided, however, that nothing herein contained shall be construed as requiring or obligating the Collateral Agent, the Administrative Agent, any Bank, the L/C Issuer, the L/C Participant or the L/C Administrative Agent to take any action, including requiring or obligating the Collateral Agent, the Administrative Agent, any Bank, the L/C Issuer, the L/C Participant or the L/C Administrative Agent to make any commitment or to make any inquiry as to the nature or sufficiency of any payment received by the Collateral Agent, the Administrative Agent, any Bank, the L/C Issuer, the L/C Participant or the L/C Administrative Agent or to present or file any claim or notice, or to take any action with respect to the Collateral or any part thereof or the moneys due or to become due in respect thereof or any property covered thereby, and no action taken by the Collateral Agent, the Administrative Agent, any Bank, the L/C Issuer, the L/C Participant or the L/C Administrative Agent or omitted to be taken by any of them with respect to the Collateral or any part thereof shall give rise to any defense, counterclaim or offset in favor of the Pledgor or to any claim or action against the Collateral Agent, the Administrative Agent, any Bank, the L/C Issuer, the L/C Participant or the L/C Administrative Agent in the absence of the gross negligence or willful misconduct of the Collateral Agent, the Administrative Agent, any Bank, the L/C Issuer, the L/C Participant or the L/C Administrative Agent, as the case may -15- 48 be, as shall have been determined in a final, nonappealable judgment of a court of competent jurisdiction. (b) The Pledgor hereby agrees to assume liability for, and does hereby agree to indemnify, protect, save and keep harmless the Collateral Agent and its directors, officers, employees and agents from and against, any and all liabilities, obligations, losses, damages, penalties, claims, actions, suits and reasonable costs and expenses of whatsoever kind or nature, imposed on, incurred by or asserted against the Collateral Agent or its directors, officers, employees or agents, in any way relating to or arising out of this Agreement, including the enforcement hereof, or the acceptance, rejection, ownership, delivery, possession, sale or return of any Collateral (other than by reason of a material breach by the Collateral Agent of its obligations under this Agreement or the respective indemnitees' own gross negligence or willful misconduct and, solely to the extent any such costs, liabilities and expenses do not in any way relate to any representation, warranty or covenant of the Pledgor under this Agreement, or any act or omission by the Pledgor). Without limiting the generality of the foregoing, the Pledgor hereby agrees to reimburse the Collateral Agent for all costs, liabilities or expenses reasonably incurred by it pursuant to any of the duties hereby created or in the exercise of any duty, right, remedy or power herein imposed or conferred upon it (other than any such costs, liabilities and expenses resulting from a material breach by the Collateral Agent of its obligations under this Agreement or the Collateral Agent's gross negligence or willful misconduct and, solely to the extent any such costs, liabilities and expenses do not in any way relate to any representation, warranty or covenant of the Pledgor under this Agreement, or any act or omission by the Pledgor). The obligations of the Pledgor contained in this Section 10(b) shall survive the termination of this Agreement and the discharge of the Pledgor's other obligations hereunder and under the other Loan Documents. SECTION 11. No Waiver; Remedies Cumulative. No failure on the part of the Collateral Agent, the Administrative Agent, any Bank, the L/C Issuer, the L/C Participant or the L/C Administrative Agent to exercise, and no delay in exercising, any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, -16- 49 power or remedy by the Collateral Agent, the Administrative Agent, any Bank, the L/C Issuer, the L/C Participant or the L/C Administrative Agent preclude any other or further exercise thereof or the exercise of any other right, power or remedy. All remedies hereunder are cumulative and are not exclusive of any other remedies provided by law or otherwise. The Collateral Agent, the Administrative Agent, the Banks, the L/C Issuer, the L/C Participant or the L/C Administrative Agent shall not be deemed to have waived any rights hereunder or under any other agreement or instrument unless such waiver shall be in writing and signed by the Collateral Agent. SECTION 12. (a) Securities Act, etc. In view of the position of the Pledgor in relation to the Pledged Securities, or because of other present or future circumstances a question may arise under the Securities Act of 1933, as amended (the "Securities Act"), or any similar or successor Federal securities law (together with the Securities Act, the "Federal Securities Laws") with respect to any disposition of the Pledged Securities permitted hereunder. The Pledgor understands that compliance with the Federal Securities Laws might strictly limit the course of conduct of the Collateral Agent if the Collateral Agent were to attempt to dispose of all or any part of the Pledged Securities, and might also limit the extent to which or the manner in which any subsequent transferee of any Pledged Securities could dispose of the same. Similarly, there may be other legal restrictions or limitations affecting the Collateral Agent in any attempt to dispose of all or part of the Pledged Securities under applicable blue sky or other state securities laws or similar laws analogous in purpose or effect. (b) Anything herein to the contrary notwithstanding, and in view of restrictions specified in paragraph (a) of this Section 12, the Pledgor agrees that, if an Event of Default shall exist under the Credit Agreement, the Collateral Agent may, from time to time, attempt to sell all or any part of the Pledged Securities by means of a private placement, restricting the bidders and prospective purchasers to those who will represent or agree as to their investment intent or method of resale or both in a manner reasonably required by the Collateral Agent to assure compliance with applicable securities laws. In so doing, the Collateral Agent may solicit offers to buy such Pledged Securities or any part thereof, for cash, from a limited number -17- 50 of investors deemed by the Collateral Agent, in its exclusive judgment, to be responsible parties who might be interested in purchasing such Pledged Securities. SECTION 13. Security Interest Absolute; Waivers by Pledgor. (a) All rights of the Collateral Agent, the Administrative Agent, the Banks, the L/C Issuer, the L/C Participant and the L/C Administrative Agent hereunder, the grant of a security interest in the Collateral and all obligations of the Pledgor hereunder, shall be absolute and unconditional irrespective of (i) any lack of validity or enforceability of the Credit Agreement, the BNY Facility Agreement, any other agreement with respect to any of the Secured Obligations or any other agreement or instrument relating to any of the foregoing, (ii) any change in the time, manner or place of payment of, or in any other term of, all or any of the Secured Obligations, or any other amendment or waiver of or any consent to any departure from the Credit Agreement, the BNY Facility Agreement or any other agreement or instrument (other than payment in full of the Secured Obligations or, in the case of rights predicated on the existence of an Event of Default, a cure or waiver of such Event of Default), (iii) any exchange, release or nonperfection of any other collateral, or any release or amendment or waiver of or consent to or departure from any guarantee, for all or any of the Secured Obligations (other than payment in full of the Secured Obligations or, in the case of rights predicated on the existence of an Event of Default, a cure or waiver of such Event of Default), (iv) any failure by the Collateral Agent, the Administrative Agent, any Bank, the L/C Issuer, the L/C Participant or the L/C Administrative Agent to demand payment or performance by the Pledgor and/or either of the L/C Applicants and/or any of the Guarantors (as defined in each of the Credit Agreement and the BNY Facility Agreement) of any of the Secured Obligations or to exercise or enforce any right or remedy in respect thereof or (v) any other circumstance (other than payment in full of the Secured Obligations or, in the case of rights predicated on the existence of an Event of Default, a cure or waiver of such Event of Default) which might otherwise constitute a defense available to, or a discharge of, the Pledgor or any other person in respect of the Secured Obligations or in respect of this Agreement. The Pledgor hereby acknowledges that neither the Collateral Agent, the Administrative Agent, any Bank, the L/C Issuer, the L/C Participant nor the L/C Administrative Agent shall be under any obliga- -18- 51 tion to marshal any assets in favor of the Pledgor or against or in payment of any or all of the Secured Obligations. (b) The Pledgor hereby waives notice of acceptance of this Agreement. The Pledgor further waives presentment and demand for payment of any of the Secured Obligations, protest and notice of dishonor or default with respect to any of the Secured Obligations, and all other notices to which the Pledgor might otherwise be entitled, except as otherwise expressly provided in this Agreement, the Credit Agreement or the BNY Facility Agreement. The Pledgor (to the extent that it may lawfully do so) covenants that it shall not at any time insist upon or plead, or in any manner claim or take the benefit or advance of, any stay (except in connection with a pending appeal), valuation, appraisal, redemption or extension law now or at any time hereafter in force that, but for this waiver, might be applicable to any sale made under any judgment, order or decree based on this Agreement, the Credit Agreement or the BNY Facility Agreement; and the Pledgor (to the extent that it may lawfully do so) hereby expressly waives and relinquishes all benefit and advance of any and all such laws and hereby covenants that it will not hinder, delay or impede the execution of any power in this Agreement or therein granted and delegated to the Collateral Agent, but that it will suffer and permit the execution of every such power as though no such law or laws had been made or enacted. SECTION 14. Duty of Collateral Agent. The Collateral Agent's sole duty with respect to the custody, safekeeping and physical preservation of the Collateral in its possession, under Section 9-207 of the UCC or otherwise, shall be to hold the Collateral for safekeeping and deal with it in the same manner as the Collateral Agent deals with similar securities and property for its own account. To the extent that any of the Collateral is comprised of cash, the Collateral Agent shall have no obligation to invest such funds in any collateral account and may hold the same as demand deposits. None of the Collateral Agent, the Administrative Agent, any Bank, the L/C Issuer, the L/C Participant, the L/C Administrative Agent or any of their respective directors, officers, employees or agents shall be liable for failure to demand, collect or realize upon any of the Collateral or for any delay in doing so or shall be under any obligation to sell or otherwise dispose of any Collateral upon the request of -19- 52 the Pledgor or any other Person or to take any action whatsoever with respect to the Collateral or any part thereof. SECTION 15. Termination. This Agreement, and the assignments, pledges and security interests created or granted hereby, shall terminate with respect to all Collateral, when (i) all the Secured Obligations shall have been paid in full in cash, and (ii) the Commitment Termination Date has passed, in each case, at which time the Collateral Agent shall reassign and deliver to the Pledgor, or to such Person or Persons as the Pledgor shall designate in writing, against receipt, such of the Collateral (if any) as shall not have been sold or otherwise applied by the Collateral Agent pursuant to the terms hereof and shall still be held by it hereunder, in any case, together with appropriate instruments of reassignment and release, all without any recourse to, or warranty whatsoever by, the Collateral Agent, the Administrative Agent, any Bank, the L/C Issuer, the L/C Participant or the L/C Administrative Agent, and at the sole cost and expense of the Pledgor. Upon any termination of any of the security interests or release of any Collateral pursuant to this Section 15, the Collateral Agent will, at the Pledgor's expense, execute and deliver to the Pledgor such documents as the Pledgor shall reasonably request to evidence the termination of the security interests in such Collateral. SECTION 16. Notices. Notices and other communications provided for herein shall be in writing and shall be delivered or mailed (or delivered by facsimile equipment, the receipt of which is promptly confirmed by telephone) addressed, (a) if to the Pledgor, to it at 11831 30th Court North, St. Petersburg, Florida 33716, telecopier number: (813) 539-6505, telephone number: (813) 572-8585, attention: Finance Department, with a copy to Legal Department, telecopier number: (813) 573-0866; and (b) if to the Collateral Agent, to it at the address of the Administrative Agent set forth in or determined pursuant to the Credit Agreement. Except as specifically provided in Section 21, all notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been -20- 53 given at the time determined pursuant to Section 12.2 of the Credit Agreement. SECTION 17. Further Assurances. The Pledgor agrees to do or cause to be done all such further acts, and to execute and deliver, or cause to be executed and delivered, such additional conveyances, stock powers, proxies, assignments, agreements, financing statements and other instruments, at the Pledgor's sole expense, as the Collateral Agent may at any time reasonably request in connection with the administration and enforcement of this Agreement or with respect to the Collateral or any part thereof or in order better to assure and confer unto the Collateral Agent, the Administrative Agent, the Banks, the L/C Issuer, the L/C Participant and the L/C Administrative Agent, their respective rights and remedies hereunder; provided that the Pledgor shall not be obligated under this Section to deliver additional collateral to the Collateral Agent. The Pledgor further agrees that a breach of any of the covenants contained in this Section will cause irreparable injury to the Collateral Agent, the Administrative Agent, the Banks, the L/C Issuer, the L/C Participant and the L/C Administrative Agent that the Collateral Agent, the Administrative Agent, the Banks, the L/C Issuer, the L/C Participant and the L/C Administrative Agent have no adequate remedy at law in respect of such breach and, as a consequence, that each and every covenant contained in this Section shall be specifically enforceable against the Pledgor, and the Pledgor hereby waives and agrees not to assert any defenses against an action for specific performance of such covenants except for a defense that no Event of Default has occurred under the Credit Agreement and/or the BNY Facility Agreement. SECTION 18. Successors and Assigns. In the event of assignment of all or a portion of any of the Indebtedness under the Credit Agreement by a Bank or the BNY Facility Agreement by the L/C Issuer or the L/C Participant, the rights of or on behalf of such Bank, the L/C Issuer or the L/C Participant, as the case may be, hereunder, to the extent applicable to the Indebtedness so assigned, shall be transferred with such Indebtedness and the term "Bank", "L/C Issuer" or "L/C Participant", as the case may be, when used herein shall be deemed to include any such assignee. This Agreement is binding on the Pledgor and its successors but none of them shall be permitted to assign this -21- 54 Agreement, any of its obligations hereunder or any interest herein or in the Collateral, or any part thereof, or otherwise pledge, encumber or grant any option with respect to the Collateral, or any part thereof, or any cash or property held by the Collateral Agent as Collateral under this Agreement except as expressly permitted by this Agreement, the Credit Agreement or the BNY Facility Agreement. SECTION 19. Changes in Writing. Neither this Agreement nor any provision hereof may be changed, waived, discharged or terminated orally, but only by a statement or instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought. Any waiver shall be effective only in the specific instance and for the specific purpose for which made or given. SECTION 20. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO ITS CHOICE OF LAW PRINCIPLES). SECTION 21. Judicial Proceedings; Waiver of Jury. Any judicial proceeding brought against the Pledgor with respect to any claim in any way arising out of, related to or connected with this Agreement may be brought in any court of competent jurisdiction in the City of New York, and, by execution and delivery of this Agreement, the Pledgor (a) accepts, generally and unconditionally, the nonexclusive jurisdiction of such courts and any related appellate court and irrevocably agrees to be bound by any judgment rendered thereby in connection with any such claim, and (b) irrevocably waives any objection it may now or hereafter have as to the venue of any such proceeding brought in such a court or that such a court is an inconvenient forum. The Pledgor hereby waives personal service of process and consents that service of process upon it may be made by certified or registered mail, return receipt requested, at its address specified or determined in accordance with the provisions of Section 16, and service so made shall be deemed completed on the third business day in St. Petersburg, Florida after such service is deposited in the mail. Nothing herein shall affect the right of the Collateral Agent, the Administrative Agent, any Bank, the L/C Issuer, the L/C Participant or the L/C Administrative Agent to serve process in any other manner permitted by law or shall limit the right of the -22- 55 Collateral Agent, the Administrative Agent, any Bank, the L/C Issuer, the L/C Participant or the L/C Administrative Agent to bring proceedings against the Pledgor in the courts of any other jurisdiction. To the extent permitted in accordance with applicable law (including applicable law relating to jurisdiction and venue), any judicial proceeding by the Pledgor against the Collateral Agent, the Administrative Agent, any Bank, the L/C Issuer, the L/C Participant or the L/C Administrative Agent involving any such claim shall be brought only in a court located in the City and State of New York. THE PLEDGOR, THE COLLATERAL AGENT, THE ADMINISTRATIVE AGENT, EACH BANK, THE L/C ISSUER, THE L/C PARTICIPANT AND THE L/C ADMINISTRATIVE AGENT HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING ANY SUCH CLAIM. SECTION 22. Governmental Regulation. The Collateral Agent will not, solely by reason of the execution, delivery and performance (other than the enforcement of remedies) of this Agreement or any other instrument or agreement referred to herein, be subject to the regulation or control of either the Federal Communications Commission, any other Federal regulatory authority or agency regulating the public utilities commission of any state. SECTION 23. Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof in such jurisdiction, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. SECTION 24. Headings. Section headings used herein are for convenience only and are not to affect the construction of, or be taken into consideration in interpreting, this Agreement. SECTION 25. Immunities of the Collateral Agent. The Collateral Agent's performance of its duties hereunder shall in all respects be subject to and governed by the Credit Agreement. Nothing contained herein shall be construed to enlarge the degree of responsibility or discretion or the duty of care to be -23- 56 exercised by the Collateral Agent beyond those expressly set forth in the Credit Agreement. Without limiting the generality of the foregoing, the Pledgor hereby acknowledges and agrees that the Collateral Agent shall, with respect to all of its rights, obligations and duties under this Agreement, be entitled to all of its rights, protections and immunities provided for under Section 11 of the Credit Agreement as fully and to the same extent as if such provisions were set forth in full herein. IN WITNESS WHEREOF, the Pledgor and the Collateral Agent have duly executed this Agreement as of the day and year first above written. HOME SHOPPING NETWORK, INC., as Pledgor By ------------------------------------- Name: Title: LTCB TRUST COMPANY, as Collateral Agent By ------------------------------------- Name: Title: -24- 57 SCHEDULE 1 TO THE PLEDGE AGREEMENT PLEDGED SECURITIES
ISSUER SHARES PLEDGED SHARES AUTHORIZED CERTIFICATE NUMBER(S) PLEDGOR ------ -------------- ----------------- --------------------- ------- Home Shopping Club, Inc. 1,000 1,000 Home Shopping Network,Inc. HSN Realty, Inc. 1,000 1,000 Home Shopping Network,Inc.
-25- 58 ANNEX C ------- SCHEDULE 4 LIST OF WHOLLY-OWNED SUBSIDIARIES OF THE COMPANY AS OF THE THIRD AMENDMENT EFFECTIVE DATE FOR PURPOSES OF SECTION 9.22(i) --------------------------- 59 ANNEX D ------- FORM OF INTERCREDITOR AGREEMENT ------------------------------- 60 ANNEX E ------- Form of Opinion of Counsel to the Company and the Guarantors --------------------------------- EX-10.40 3 LETTER OF CREDIT FACILITY 1 EXHIBIT 10.40 ************************************************************ HOME SHOPPING CLUB, INC. HSN MAIL ORDER, INC. HSN DIRECT, INC., as Applicants HSN REALTY, INC. HOME SHOPPING NETWORK, INC., as Guarantors __________ LETTER OF CREDIT FACILITY AGREEMENT Dated as of September 28, 1995 __________ THE BANK OF NEW YORK, as Issuer __________ THE BANK OF NEW YORK COMPANY, INC., as Participant 2 __________ THE BANK OF NEW YORK, as Administrative Agent __________ ************************************************************ 3 TABLE OF CONTENTS Page ---- Section 1. Definitions and Accounting Matters. . . . . . . . . . . . . 1 1.1. Certain Defined Terms . . . . . . . . . . . . . . . . . . . 1 1.2. Certain Accounting Matters. . . . . . . . . . . . . . . . . 7 Section 2. Letters of Credit . . . . . . . . . . . . . . . . . . . . . 8 2.1. The Letters of Credit . . . . . . . . . . . . . . . . . . . 8 2.2. Commitment Termination Date of the BNY L/C Facility . . . 9 2.3. Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 2.4. Reimbursement for Drawings Under the Letters of Credit; Default Interest; Manner of Payment . . . . . . . . 9 2.5. Immediate Utilization of Commitment . . . . . . . . . . . . 11 2.6. Letter of Credit Participations . . . . . . . . . . . . . . 11 2.7. Set-off; Sharing of Payments, Etc . . . . . . . . . . . . . 13 Section 3. Additional Costs; Taxes . . . . . . . . . . . . . . . . . . 14 3.1. Additional Costs . . . . . . . . . . . . . . . . . . . . . 14 3.2. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Section 4. Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . 15 4.1. Unconditional Guarantee . . . . . . . . . . . . . . . . . . 15 4.2. Validity. . . . . . . . . . . . . . . . . . . . . . . . . . 16 4.3. Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . 16 4.4. Subordination and Subrogation . . . . . . . . . . . . . . . 17 4.5. Acceleration . . . . . . . . . . . . . . . . . . . . . . . 18 4.6. Reinstatement . . . . . . . . . . . . . . . . . . . . . . . 18 Section 5. Conditions Precedent. . . . . . . . . . . . . . . . . . . . 18 5.1. Effectiveness of this Agreement . . . . . . . . . . . . . . 18 5.2. Conditions to Issuance of Letters of Credit . . . . . . . . 19 Section 6. Representations and Warranties. . . . . . . . . . . . . . . 21 6.1. Corporate Existence . . . . . . . . . . . . . . . . . . . . 21 6.2. No Breach . . . . . . . . . . . . . . . . . . . . . . . . . 21 6.3. Corporate Action. . . . . . . . . . . . . . . . . . . . . . 22 6.4. Approvals . . . . . . . . . . . . . . . . . . . . . . . . . 22 6.5. Litigation . . . . . . . . . . . . . . . . . . . . . . . . 22 -i- 4 Page ---- 6.6. Use of Letters of Credit. . . . . . . . . . . . . . . . . 22 6.7. Pari Passu Obligations. . . . . . . . . . . . . . . . . . 22 6.8. Pledge Agreement. . . . . . . . . . . . . . . . . . . . . 23 6.9. Security Interest . . . . . . . . . . . . . . . . . . . . 23 6.10. Investment Company Act . . . . . . . . . . . . . . . . . 23 Section 7. Covenants of each Applicant and each Guarantor. . . . . . 23 7.1. Incorporated Covenants . . . . . . . . . . . . . . . . . 23 7.2. Ranking . . . . . . . . . . . . . . . . . . . . . . . . . 24 7.3. Cash Collateralization . . . . . . . . . . . . . . . . . 24 Section 8. Events of Default . . . . . . . . . . . . . . . . . . . . 24 Section 9. Security Interest . . . . . . . . . . . . . . . . . . . . 26 9.1. Grant of Security Interest . . . . . . . . . . . . . . . 26 9.2. Perfection of Security Interest in the Collateral; Necessary Filings; Notations; Place of Business/Location of Collateral . . . . . . . . . . . . . 26 9.3. Further Assurances . . . . . . . . . . . . . . . . . . . 27 9.4. Actions by the Administrative Agent . . . . . . . . . . . 28 9.5. Rights and Remedies Upon Default. . . . . . . . . . . . . 29 9.6. Release Upon Reimbursement of Drawing . . . . . . . . . . 31 9.7. Waiver by the Applicants . . . . . . . . . . . . . . . . 31 9.8. Purchase By the Administrative Agent, the Issuer or Any Participant . . . . . . . . . . . . . . . . . . . 32 9.9. No Representation; Etc. . . . . . . . . . . . . . . . . . 32 9.10. Remedies . . . . . . . . . . . . . . . . . . . . . . . . 33 9.11. Indemnity . . . . . . . . . . . . . . . . . . . . . . . . 33 9.12. Termination; Release . . . . . . . . . . . . . . . . . . 34 Section 10. The Administrative Agent. . . . . . . . . . . . . . . . . 34 10.1. Appointment, Powers and Immunities. . . . . . . . . . . . 34 10.2. Reliance by the Administrative Agent. . . . . . . . . . . 35 10.3. Defaults. . . . . . . . . . . . . . . . . . . . . . . . . 35 10.4. Other Rights of the Administrative Agent. . . . . . . . . 35 10.5. Indemnification . . . . . . . . . . . . . . . . . . . . . 36 10.6. Non-Reliance on Administrative Agent . . . . . . . . . . 36 10.7. Failure to Act. . . . . . . . . . . . . . . . . . . . . . 37 10.8. Resignation or Removal of Administrative Agent . . . . . 37 10.9. Administrative Agent's Office . . . . . . . . . . . . . . 37 -ii- 5 Page ---- Section 11. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . 38 11.1. Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . 38 11.2. Notices . . . . . . . . . . . . . . . . . . . . . . . . . 38 11.3. Expenses, Etc . . . . . . . . . . . . . . . . . . . . . . 38 11.4. Amendments, Etc . . . . . . . . . . . . . . . . . . . . . 39 11.5. Successors and Assigns. . . . . . . . . . . . . . . . . . 40 11.6. Assignments and Participation . . . . . . . . . . . . . . 40 11.7. Confidentiality . . . . . . . . . . . . . . . . . . . . . 41 11.8. Survival. . . . . . . . . . . . . . . . . . . . . . . . . 42 11.9. Captions. . . . . . . . . . . . . . . . . . . . . . . . . 42 11.10. Counterparts. . . . . . . . . . . . . . . . . . . . . . . 42 11.11. GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . 42 11.12. JURISDICTION. . . . . . . . . . . . . . . . . . . . . . . 42 11.13. The Collateral Agent . . . . . . . . . . . . . . . . . . 43 11.14. Severability. . . . . . . . . . . . . . . . . . . . . . . 43 -iii- 6 SCHEDULE 1 List of Converted Letters of Credit SCHEDULE 2 Place of Business/Location of Collateral EXHIBIT A Form of Letter of Credit Application EXHIBIT B Form of Opinion of Counsel to the Applicants and the Guarantors EXHIBIT C Form of Pledge Agreement EXHIBIT D Form of Intercreditor Agreement -iv- 7 LETTER OF CREDIT FACILITY AGREEMENT LETTER OF CREDIT FACILITY AGREEMENT, dated as of September 28, 1995 (as the same may be amended, modified or supplemented from time to time, this "Agreement"), among HOME SHOPPING CLUB, INC., a Delaware corporation ("HSC"); HSN MAIL ORDER, INC., a Delaware corporation ("HSN Mail Order"); HSN DIRECT, INC., a Delaware corporation ("HSN Direct"; together with HSC and HSN Mail Order, the "Applicants"); HSN REALTY, INC., a Delaware corporation ("HSNR"); HOME SHOPPING NETWORK, INC., a Delaware corporation ("HSN"; together with HSNR, the "Guarantors"); THE BANK OF NEW YORK (the "Issuer"); THE BANK OF NEW YORK COMPANY, INC. (the "Participant"); and THE BANK OF NEW YORK, as Administrative Agent (in such capacity, together with its successors, the "Administrative Agent"). The Applicants have requested, and the Issuer has agreed, to provide the Applicants with a commercial letter of credit facility pursuant to this Letter of Credit Facility Agreement and under the guarantee of the Guarantors in the aggregate principal amount not exceeding $25,000,000 at any one time outstanding upon the terms and conditions hereof. Accordingly, the parties hereto hereby agree as follows: Section 1. Definitions and Accounting Matters. 1.1 Certain Defined Terms. As used herein, the following terms shall have the following meanings (all terms defined in this Section 1 or in other provisions of this Agreement in the singular to have the same meanings when used in the plural and vice versa): "Affiliate" shall mean, with respect to any Person, any other Person (other than a Wholly-Owned Subsidiary of such Person) directly or indirectly controlling, controlled by, or under direct or indirect common control with, such Person. A Person shall be deemed to control another Person if such Person (x) is an officer or director of such other Person, (y) possesses, directly or indirectly, the power to direct or 8 cause the direction of the management and policies of such other Person, whether through the ownership of voting securities, by contract or otherwise or (z) directly or indirectly owns or controls 10% or more of such other Person's capital stock. "Amended Revolving Credit Agreement" shall mean the Existing Revolving Credit Agreement, as amended by the Third Amendment, dated as of even date hereof, and as the same may be further amended, modified or supplemented from time to time, among HSN, as borrower, HSC and HSNR, as guarantors, the banks signatory thereto, LTCB Trust Company, as Agent, the Bank of New York Company, Inc., Toronto Dominion [Texas], Inc. and [Bank of Montreal], each as a co-agent, and LTCB Trust Company, as Administrative Agent for the Banks. "Application" shall mean an application by an Applicant requesting that the Issuer issue a Letter of Credit, such application to be substantially in the form attached hereto as Exhibit A. "Authorized Signatory" shall mean, with respect to any Applicant, such persons whose names, incumbency and signatures shall have been certified to the Issuer pursuant to Section 5.1(b). "Bankruptcy Code" shall mean the federal Bankruptcy Code of the United States, 11 U.S.C. Section 101 et seq., the regulations thereunder and any successor Federal statute and regulations. "Beneficiary" shall mean the beneficiary named in any Letter of Credit. "BNY L/C Facility" shall mean the letter of credit facility established pursuant to this Agreement. "Business Day" shall mean any day on which commercial banks are not authorized or required to close in New York City. "Collateral" shall mean, collectively, (i) all personal property purchased by or for the account of an Applicant with the proceeds of Drawings under the Letters of Credit, whether now or hereafter existing or now owned or hereafter acquired and whether -2- 9 or not subject to Article 9 of the UCC; (ii) any and all shipping documents, warehouse receipts, policies or certificates of insurance and other documents or instruments accompanying or related to Drawings under the Letters of Credit and all property shipped, stored or otherwise disposed of under or pursuant to or in connection with the Letters of Credit, or in any way relating thereto or to any of the Drawings (whether or not such documents, goods or other property be released to such Applicant or upon such Applicant's order and whether or not any such release shall be on trust or bailee receipt); (iii) all rights and causes of action of each Applicant against all parties arising from or in connection with the contract of sale or purchase of the property covered by the Letters of Credit, or any guarantees, agreements or other undertakings (including those in effect between an Applicant and any account party named in the Letter of Credit), credits, policies of insurance or other assurances in connection therewith; and (iv) all "proceeds" (as such term is defined in the UCC) of each of the foregoing. "Collateral Agent" shall mean LTCB Trust Company, in its capacity as Collateral Agent under the Pledge Agreement. "Commitment" shall mean, in the case of the Issuer, the Issuer's commitment to issue Letters of Credit under the BNY L/C Facility in a maximum aggregate stated amount of $25,000,000, and in the case of each Participant, such Participant's commitment to purchase participations in each Letter of Credit. "Commitment Termination Date" shall mean April 1, 1997, or such earlier date as the Commitment shall terminate pursuant to Section 8 hereof. "Default" shall mean an Event of Default or an event which with notice or lapse of time or both would become an Event of Default. "Default Interest" shall mean the interest payable pursuant to Section 2.4(b) on any Unreimbursed Drawing, which interest will accrue from the date such amount is due until the date such amount is paid in full. "Default Rate" is a rate per annum equal to the sum of the Lender's Alternative Base Rate plus the Applicable Margin (as -3- 10 each such term is defined in the Amended Revolving Credit Agreement) plus 2%, calculated on the basis of a 360-day year for the actual number of days elapsed. "Dollars" and "$" shall mean lawful money of the United States of America. "Drawing" shall mean a drawing under a Letter of Credit upon presentation of the documents required by such Letter of Credit. "Effective Date" shall mean the first date on which the conditions set forth in Section 5.1 have been satisfied or waived. "Event of Default" shall have the meaning assigned to that term in Section 8 hereof. "Existing Revolving Credit Agreement" shall mean the Second Amended and Restated Credit Agreement, dated as of August 30, 1994, as amended by the First Amendment thereto, dated as of March 29, 1995, and as further amended by the Second Amendment thereto, dated as of June 28, 1995, among HSN, as borrower, HSC, as guarantor, the banks signatory thereto, LTCB Trust Company, as Agent, The Bank of New York Company, Inc. and Bank of Montreal, each as a co- agent, and LTCB Trust Company, as Administrative Agent for the Banks. "Federal Funds Rate" shall mean, for any day, the rate per annum (rounded upwards, if necessary, to the nearest 1/100th of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day; provided, that (i) if the day for which such rate is to be determined is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day and (ii) if such rate is not so published for any day, the Federal Funds Rate for such day shall be the average rate charged to the Issuer on such day on such transactions as determined by the Issuer. -4- 11 "Fees" shall mean the fees payable by the Applicants, as enumerated in Section 2.3. "Fee Payment Date" shall mean the last Business Day of each of February, May, August and November in each year, the first of which shall be the first such day after the date of this Agreement. "GAAP" shall mean generally accepted accounting principles in the United States of America, consistently applied, as in effect (unless otherwise specified in this Agreement) from time to time. "Indebtedness" shall mean, for any Person (but without duplication): (a) all indebtedness and other obligations of such Person for borrowed money or for the deferred purchase price of property or services (other than trade payables incurred in the ordinary course of business and not overdue by more than 180 days), including, without limitation, all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments; (b) all obligations of such Person under interest rate or currency swaps, caps, collars, floors, options, forward exchange contracts and similar hedging arrangements; (c) the stated amount of all letters of credit issued for the account of such Person and (without duplication) all drafts drawn thereunder, and the aggregate face amount of all banker's acceptances as to which such Person is obligated, other than trade letters of credit issued for the account of such Person in the ordinary course of business pursuant to the terms of which (i) such Person is obligated to reimburse the issuer thereof for any drawing thereunder on the date of such drawing and (ii) no other credit shall be extended thereunder to such Person by such issuer; (d) all obligations of such Person under any Capital Leases (as defined in the Amended Revolving Credit Agreement); -5- 12 (e) all obligations of such Person in connection with employee benefit or similar plans; (f) all obligations of such Person in respect of guarantees, whether direct or indirect (including, without limitation, agreements to "keep well" or otherwise ensure a creditor against loss) with respect to any indebtedness or other obligation of any other Person of the type described in any of clauses (a) through (e) above; (g) all indebtedness or other obligations referred to in any of clauses (a) through (f) above secured by any Lien upon property owned by such Person, whether or not such Person is liable on any such obligation; and (h) all obligations of the Applicants, the Guarantors or any other Subsidiary under the Special Program and/or the Guaranteed Program (each as defined in Schedule 3 to the Amended Revolving Credit Agreement). "Intercreditor Agreement" shall mean the Intercreditor Agreement, dated as of September 28, 1995, as amended, modified or supplemented from time to time, among the Banks party to the Amended Revolving Credit Agreement, the Issuer, the Participants and the Administrative Agents named therein, substantially in the form attached hereto as Exhibit D. "Letter of Credit" shall mean each letter of credit issued by the Issuer pursuant to Section 2.1. "Lien" shall mean, with respect to any asset or other property, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset or property, any agreement to grant any of the foregoing with respect to such asset or property, and the filing of a financing statement or similar recording in any jurisdiction with respect to such asset or property. For all purposes hereunder, any Applicant, either Guarantor or any of their respective Affiliates and Subsidiaries shall be deemed to own subject to a Lien (i) any asset or other property which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such asset or property and (ii) any account receivable transferred by -6- 13 it with recourse (including any such transfer subject to a holdback or similar arrangement that effectively imposes the risk of collectibility on the transferor). "Participant" shall mean, initially, The Bank of New York Company, Inc., and thereafter, each Person that purchases a participation interest in the Commitment pursuant to Section 11.6 hereof. "Participation Percentage" shall mean the percentage set forth opposite each Participant's name on the signature page hereof, as modified from time to time in accordance with Section 11.6. "Person" shall mean an individual, a corporation, a company, a voluntary association, a partnership, a trust, an unincorporated organization, a limited liability company, or a government or any agency, instrumentality or political subdivision thereof. "Pledge Agreement" shall mean the Pledge Agreement, dated as of September 28, 1995, as amended, modified or supplemented from time to time, executed and delivered by HSN in favor of the Collateral Agent, substantially in the form of Exhibit C hereto. "Pledged Securities" shall have the meaning assigned to such term in the Pledge Agreement. "Regulation A" shall mean Regulation A of the Board of Governors of the Federal Reserve System (or any successor), as the same may be amended or supplemented from time to time. "Related Documents" shall mean any Application, the Existing Revolving Credit Agreement, the Amended Revolving Credit Agreement, the Pledge Agreement and the Intercreditor Agreement. "Secured Obligations" shall mean all obligations and liabilities of the Applicants and the Guarantors to the Issuer, the Participants, or the Administrative Agent under this Agreement or any other document relating hereto (as any document may be amended, modified, substituted, extended or renamed), direct or indirect, absolute or contingent, due or to become due, -7- 14 now or hereafter existing, including, without limitation (i) to repay any and all Drawings under the Letters of Credit pursuant to the terms of Section 2.4, (ii) to pay any Default Interest on the amount of any Unreimbursed Drawing, (iii) to repay any amounts advanced by the Issuer, any Participant or the Administrative Agent to the Applicants, together with Default Interest thereon and (iv) to pay all Fees, indemnities and all other amounts due hereunder. "Security Interest" shall mean the security interest in the Collateral granted by the Applicants to the Administrative Agent, for the ratable benefit of the Issuer and all Participants, pursuant to Section 9. "SEC Report" shall mean, with respect to any Person, any document filed, or deemed filed, at any time with the Securities and Exchange Commission (or any successor thereto) by or on behalf of such Person and available to the public. "Stated Amount" shall mean, with respect to any Letter of Credit, the maximum amount which may be drawn under such Letter of Credit by the Beneficiary of such Letter of Credit. "Subsidiary" shall mean any corporation, partnership or other Person of which at least a majority of the outstanding shares of capital stock or other ownership interests ordinarily having, in the absence of contingencies, by the terms thereof voting power to elect a majority of the board of directors or similar governing body of such Person is at the time directly or indirectly owned or controlled by any Applicant, either Guarantor or by any Applicant and/or either Guarantor. "Wholly-Owned Subsidiary" shall mean any Person of which all of such ownership interests, other than directors' qualifying shares, are so owned or controlled. "UCC" shall mean the Uniform Commercial Code, as enacted and in force and effect in the State of New York and the State of Florida. "Unreimbursed Drawing" shall mean any Drawing under a Letter of Credit for which the Applicants do not reimburse the Issuer pursuant to Section 2.4. -8- 15 1.2. Certain Accounting Matters. (a) Unless otherwise disclosed to the Issuer and the Participants in writing at the time of delivery thereof in the manner described in subsection (b) below, all financial statements and certificates and reports as to financial matters required to be delivered to the Issuer and the Participant hereunder shall be prepared in accordance with GAAP applied on a basis consistent with those used in the preparation of the latest financial statements furnished to the Issuer and the Participant hereunder after the date hereof (or, prior to the delivery of the first financial statements furnished to the Issuer and the Participant hereunder, used in the preparation of the audited financial statements incorporated by reference from Section 8.2 of the Amended Revolving Credit Agreement). All calculations made for the purposes of determining compliance with the terms of Sections 9.11, 9.12, 9.13, 9.19, 9.20 and 9.21 of the Amended Revolving Credit Agreement (as incorporated herein by reference) shall, except as otherwise expressly provided herein or therein, be made by application of GAAP applied on a basis consistent with those used in the preparation of the annual or quarterly financial statements then most recently furnished to the Issuer and the Participant pursuant to Section 9.1 (or referred to in Section 8.2 of the Amended Revolving Credit Agreement) of the Amended Revolving Credit Agreement unless (i) HSN shall have objected to determining such compliance on such basis at the time of delivery of such financial statements or (ii) the Participants voting in accordance with Section 11.4 hereof shall so object in writing within 30 days after delivery of such financial statements, in either of which cases such calculations shall be made on a basis consistent with those used in the preparation of the most recent financial statements as to which such objection shall not have been made. (b) HSN shall deliver to the Issuer and the Participant contemporaneously with delivery of any annual or quarterly financial statement under Section 9.1 of the Amended Revolving Credit Agreement a description in reasonable detail of any material variation between the application of accounting principles employed in the preparation of such statement and the application of accounting principles employed in the preparation of the most recently preceding annual or quarterly financial statements as to which no objection shall have been made in -9- 16 accordance with the last sentence of subsection (a) above, and reasonable estimates of the difference between such statements arising as a consequence thereof. Section 2. Letters of Credit. 2.1. The Letters of Credit. (a) Subject to the terms and conditions of this Agreement, the Issuer agrees that it shall issue Letters of Credit so long as the sum of (i) the aggregate Stated Amount of all Letters of Credit outstanding on such date (after giving effect to the requested Letter of Credit) plus (ii) all Unreimbursed Drawings under the Letters of Credit, does not exceed $25,000,000. Whenever any Applicant desires to have the Issuer issue a Letter of Credit, an Authorized Signatory shall so advise the Issuer in writing, with at least one Business Day's notice, by submitting a duly completed Application, and shall provide the Issuer with such information as the Issuer shall require with respect to such request, including, without limitation, the Stated Amount of the Letter of Credit, the tenor of the Letter of Credit, the Beneficiary of the Letter of Credit, the purpose of the Letter of Credit (which shall be a commercial trade transaction) and the proposed form of the Letter of Credit, which form, prior to issuance, must be approved by the Issuer in its sole discretion; provided, however, that if an Applicant ceases to be a Subsidiary of HSN, such corporation shall thereafter no longer be permitted to request the Issuer to issue a Letter of Credit hereunder. Subject to the foregoing, any Applicant may request that the Issuer issue more than one Letter of Credit at any time. (b) The expiration date of any Letter of Credit shall not be later than the earlier of (i) 180 days from the date of issuance of such Letter of Credit or (ii) March 31, 1997. (c) Drawings under each Letter of Credit shall be made only by the Beneficiary named therein and shall be honored by the Issuer pursuant to the provisions of, and on the terms and conditions set forth in, such Letter of Credit. 2.2. Commitment Termination Date of the BNY L/C Facility. The BNY L/C Facility shall terminate and no longer be -10- 17 available to the Applicants, and the Commitment shall terminate, on the Commitment Termination Date. 2.3. Fees. As consideration for issuance of the Letters of Credit and the Commitment of the Participants, the Applicants jointly and severally agree to pay: (a) to the Issuer, for itself and the respective accounts of the Participants, an up-front fee, equal to 1.5% of the amount of the BNY L/C Facility, payable on the Effective Date; (b) to the Issuer, for the respective accounts of the Participants, a facility fee, at a rate per annum equal to the Facility Fee Rate (as defined in the Amended Revolving Credit Agreement), on the unused amounts of the BNY L/C Facility, payable quarterly in arrears on each Fee Payment Date and on the Commitment Termination Date; (c) to the Issuer, an issuance fee, equal to the higher of (i) 0.25% of the Stated Amount, or the amount of any increase in the Stated Amount, of each Letter of Credit or (ii) $50, payable upon the issuance or amendment of such Letter of Credit; (d) to the Issuer, a drawing fee, equal to the higher of (i) 0.25% of the amount of each Drawing under each Letter of Credit or (ii) $50, payable upon the honoring of each Drawing under such Letter of Credit; and (e) to the Issuer, an amendment fee, in addition to the fee listed in (c) above, equal to $25 for each amendment of a Letter of Credit, payable upon the Issuer's amending of such Letter of Credit. 2.4. Reimbursement for Drawings Under the Letters of Credit; Default Interest; Manner of Payment. (a) If the Issuer shall make any payment pursuant to a Drawing under any Letter of Credit, the Applicants jointly and severally agree to reimburse the Issuer a principal sum equal to the amount so drawn on the date of such Drawing; provided, however, that with respect to the Letters of Credit deemed issued -11- 18 under the BNY L/C Facility pursuant to Section 2.5 hereof, HSN and the Applicants shall be jointly and severally liable to reimburse the Issuer for all drawings under such Letters of Credit. The Issuer shall promptly notify the Applicants or the Guarantors of the presentation for payment of any Drawing under any Letter of Credit; provided, however, that the failure of the Issuer to give such notice shall in no way affect, limit or modify the Applicants' joint and several obligation to reimburse the Issuer for the payment of such Drawing. (b) If, for any reason whatsoever other than the Issuer's failure to act under the terms of the Letter of Credit, the Issuer is not reimbursed in full on the same day as any Drawing under a Letter of Credit, the Applicants (and in the case of the Letters of Credit deemed issued pursuant to Section 2.5, HSN) jointly and severally agree to pay to the Issuer Default Interest on any and all amounts (including, without limitation, the Fees and indemnities described in this Agreement) unpaid by the Applicants on the due date thereof, until such amounts are paid, payable on demand, at a rate equal to the Default Rate. (c) All payments made by the Applicants under this Agreement shall be in Dollars and in immediately available funds, without set-off, counterclaim or deduction of any kind, at the Issuer's office and in accordance with the instructions specified under the Issuer's name on the signature page of this Agreement, or at such other place or by such other method as the Issuer from time to time may specify in writing, (i) if the Applicant or a Guarantor receives notice or otherwise learns of payment of a Drawing prior to 12:00 noon (New York City time) on the date of payment of such Drawing, not later than 4:00 p.m. (New York City time) on such day of payment of such Drawing, or (ii) if the Applicant or a Guarantor receives notice or otherwise learns of payment of a Drawing after 12:00 noon on the day of payment of such Drawing, not later than 12:00 noon (New York City time) on the next succeeding Business Day; provided, however, that irrespective of when the Applicant or a Guarantor receives notice or learns of payment of a Drawing, Default Interest shall accrue commencing on the date of payment of such Drawing. If the due date of any payment to be made hereunder would otherwise fall on a day which is not a Business Day, such date shall be extended to the next succeeding Business Day and interest shall be payable -12- 19 for any principal so extended for the period of such extension at a rate equal to the Federal Funds Rate. (d) The obligations of the Applicants under this Agreement shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement, irrespective of any of the following circumstances: (i) any lack of validity or enforceability of any Letter of Credit or all or any of the Related Documents; (ii) any amendment or waiver of, or consent to departure from, this Agreement, any Letter of Credit or all or any of the Related Documents; (iii) the existence of any claim, set-off, defense or other rights which any Applicant or Guarantor may have at any time against the Beneficiary of a Letter of Credit, the Issuer, the Participants or any other Person or entity, whether in connection with this Agreement, such Letter of Credit, the Related Documents, or any unrelated transactions; (iv) any certificate or any other document presented under a Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect whatsoever; (v) payment by the Issuer under a Letter of Credit against presentation of a draft or certificate which does not comply with the terms of such Letter of Credit, provided such payment shall not have constituted gross negligence or willful misconduct on the part of the Issuer; (vi) any act or omission pursuant to the instructions of an Applicant or a Guarantor; or (vii) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing, provided that the same shall not have constituted gross negligence or willful misconduct on the part of the Issuer. -13- 20 2.5. Immediate Utilization of Commitment. Automatically on the Effective Date and without any further action on the part of the Issuer, the letters of credit currently outstanding under the $40,000,000 uncommitted letter of credit facility extended by the Issuer to HSN, HSC and HSN Mail Order, as listed on Schedule 1 hereto, shall become Letters of Credit hereunder, utilizing a portion of the Commitment hereunder equal to the aggregate stated amount of such letters of credit; provided, however, that the aggregate stated amount of the outstanding letters of credit under such facility do not exceed the Commitment hereunder. 2.6. Letter of Credit Participations. (a) Each Participant, by executing this Agreement or purchasing a participation interest pursuant to Section 11.6, hereby irrevocably authorizes the Issuer to issue Letters of Credit, to pay the amount of any draft presented under a Letter of Credit upon presentation of documents which, upon their face, conform to the terms of such Letter of Credit, to receive from the Applicants (or the Guarantors on behalf of the Applicants) reimbursement for Drawings on Letters of Credit, to receive from the Applicants (or the Guarantors on behalf of the Applicants) payment of all Fees, charges and interest, and to take such action on its behalf under the provisions of this Agreement and to exercise such powers and to perform such duties hereunder as are specifically delegated to or required of the Issuer by the terms hereof and thereof, together with such powers as are reasonably incidental thereto. (b) By the issuance of each Letter of Credit and without any further action on the part of the Issuer, the Issuer hereby grants to each Participant, and each Participant hereby acquires from the Issuer, a participation interest equal to such Participant's Participation Percentage of the Commitment, each Letter of Credit and each Unreimbursed Drawing under the Letters of Credit. In consideration and in furtherance of the foregoing, each Participant hereby absolutely and unconditionally agrees to pay, without offset, abatement, withholding or reduction, to the Issuer such Participant's Participation Percentage of each Unreimbursed Drawing. Such liability of each Participant to the Issuer shall be unconditional and without regard to the occurrence of any Event of Default or Default or other -14- 21 noncompliance by the Applicants or the Guarantors with any of their obligations under this Agreement or any Related Document. The Issuer shall give the Participants prompt notice of any Unreimbursed Drawing on the date of such Unreimbursed Drawing; provided, however, that the failure of the Issuer to give such notice shall not, in any way, impair, limit or affect the Participant's obligation to reimburse the Issuer for its Participation Percentage in such Unreimbursed Drawing. Upon receipt of such notice, each Participant shall make available to the Issuer its Participation Percentage of such Unreimbursed Drawing, in immediately available funds, before 3:00 p.m. (New York City time) on the day such notice was given (if such notice was given before 1:00 p.m. (New York City time) on such day), and before 12:00 noon (New York City time) on the next succeeding Business Day (if such notice was given after 1:00 p.m. (New York City time) on such day). Each Participant shall indemnify and hold harmless the Issuer from and against any and all losses, liabilities (including liabilities for penalties), actions, suits, judgments, demands, costs and expenses (including, without limitation, reasonable attorneys' fees and expenses) resulting from any failure on the part of such Participant to provide, or from any delay in providing, the Issuer with its Participation Percentage of the amount of any Unreimbursed Drawing in accordance with this Section 2.6(b), but no Participant shall be so liable for any such failure on the part of any other Participant. If a Participant does not make available to the Issuer such Participant's Participation Percentage of any Unreimbursed Drawing, such Participant shall be required to pay interest to the Issuer on its Participation Percentage of such Unreimbursed Drawing at a rate equal to the overnight Federal Funds Rate until such amount is so paid. Each Participant shall indemnify the Issuer, ratably in accordance with its Participation Percentage, for any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind and nature whatsoever which may be imposed on, incurred by or asserted against the Issuer in any way relating to or arising out of this Agreement or any Letter of Credit or the transactions contemplated hereby. Notwithstanding the foregoing, the Participant shall not be obligated to pay the Issuer for the wrongful payment or disbursement made under the Letter of Credit or any other action or omission of the Issuer which constitutes the gross negligence or willful misconduct of the Issuer. -15- 22 (c) So long as a Participant is not in default in the performance of its obligations under Section 2.6(b), the Issuer shall transfer to such Participant its proportionate share of each reimbursement of, and/or payment of Default Interest on, any Unreimbursed Drawing, based on the proportion that the payments made by such Participant with respect to such Unreimbursed Drawing bears to the total of such Unreimbursed Drawing made by the Issuer under the respective Letter of Credit. (d) If a Participant fails to make any payments under Section 2.6(b), and if any such payments are not made prior to the expiration of five Business Days following notice of such nonpayment given by the Issuer to such Participant, then the Issuer may acquire, or transfer to a third party, in exchange for the sum or sums due from such Participant, such Participant's participation interest hereunder and in the Unreimbursed Drawing, and all other rights of such Participant under this Agreement, without, however, relieving such Participant from any liability for damages, costs and expenses suffered by the Issuer as a result of such failure. The purchaser of any such interest (including the Issuer) shall be deemed to have acquired an interest senior to the interest of such Participant and, accordingly, (i) such purchaser shall be entitled to receive all subsequent payments which the Issuer would otherwise have made hereunder to such Participant and (ii) such Participant shall thereupon cease to be a Participant and shall cease to have any further rights in respect hereof, except that such Participant shall continue to be entitled to be reimbursed for all amounts previously advanced by it not theretofore reimbursed. 2.7. Set-off; Sharing of Payments, Etc. Each Applicant and each Guarantor agrees that, in addition to (and without limitation of) any right of set-off, bankers' lien or counterclaim the Issuer or any Participant may otherwise have, the Issuer and each Participant shall be entitled, at its option, to offset balances held by it in ordinary deposit accounts of any Applicant or either Guarantor at any of its offices, in Dollars or in any other currency, against any principal of or Default Interest on any Secured Obligation hereunder or any other amount payable to the Issuer or any Participant hereunder, which is not paid when due (regardless of whether such balances are then due to any Applicant or either Guarantor), in which case it shall promptly notify the Applicant or the Guarantor, as the case may -16- 23 be; provided that the failure to give such notice shall not affect the validity of such set-off. Each Applicant and each Guarantor agrees that any Participant purchasing a participation (or direct interest) in the Commitment, the Letters of Credit and all Unreimbursed Drawings may exercise all rights of set-off, bankers' lien, counterclaim or similar rights with respect to such participation as fully as if such Participant were a direct issuer of Letters of Credit in the amount of such Participant's Participation Percentage of the Commitment. Nothing contained herein shall require the Issuer or any Participant to exercise any such right or shall affect the right of any such party to exercise, and retain the benefits of exercising, any such right with respect to any other indebtedness or obligation of any Applicant or either Guarantor; provided that to the extent any such party exercises any such right with respect to any other indebtedness or obligation of any Applicant or either Guarantor, it shall also exercise its rights under this Section 2.7 and agrees that the benefits of exercising any such rights shall be shared with the other parties pro rata in the proportion that the unpaid obligations of the Applicant and the Guarantor owing to such party hereunder bear to such other indebtedness or obligation. If under any applicable bankruptcy, insolvency or other similar law, any party receives a secured claim in lieu of a set-off to which this Section 2.7 applies, such party shall, to the extent practicable, exercise its rights in respect of such secured claim in a manner consistent with the rights of the other parties entitled under this Section 2.7 to share in the benefits of any recovery on such secured claim. Section 3. Additional Costs; Taxes. 3.2. Additional Costs. If the Issuer or any Participant is now or hereafter becomes subject to any reserve, special deposit or similar requirement against assets of, deposits with, or for the account of, or credit extended by, the Issuer or any Participant, or any other condition is imposed upon the Issuer or any Participant, which imposes a cost upon the Issuer or such Participant, and the result, in the determination of the Issuer or such Participant, as the case may be, is to increase the cost to the Issuer or any Participant of maintaining the Commitment or paying or funding the payment of a Drawing or an Unreimbursed Drawing under any Letter of Credit hereunder, or to reduce the amount of any sum received or receivable by the -17- 24 Issuer or any Participant hereunder, or reduce the return to the Issuer or such Participant, by an amount determined by the Issuer or such Participant, as the case may be, to be material, the Applicants and the Guarantors jointly and severally agree to pay to the Issuer or such Participant upon demand such amount in respect of such increased cost or reduction as the Issuer or such Participant may determine to be the additional amount or amounts required to compensate the Issuer or such Participant for such increased cost or reduction. In making the determinations contemplated hereunder, the Issuer or any Participant may make such estimates, assumptions, allocations and the like which the Issuer or such Participant, as the case may be, in good faith determines to be appropriate, but the Issuer's or such Participant's selection thereof, and its determinations based thereon, shall be final and binding and conclusive upon the Applicants and the Guarantors. 3.2. Taxes. All payments of Secured Obligations (as used in this Section 3.2, "Payments") shall be made free and clear of, and without deduction by reason of, any and all taxes, duties, assessments, withholdings, retentions or other similar charges whatsoever imposed, levied, collected, withheld or assessed by any jurisdiction or any agency or taxing authority thereof or therein (as used in this Section 3.2, "Taxes"), all of which shall be paid by the Applicants for their own account not later than the date when due. If any Applicant is required by law to deduct or withhold any Taxes from any Payment, such Applicant shall: (a) make such deduction or withholding; (b) pay the amount so deducted or withheld to the appropriate taxing authority not later than the date when due (irrespective of the rate of such deduction or withholding); (c) deliver to the Issuer and the Participants promptly and in any event within 30 days after the date on which such Taxes become due, original tax receipts and other evidence satisfactory to the Issuer and the Participants of the payment when due of the full amount of such Taxes; and (d) pay to the Issuer and the Participants, forthwith upon any request by the Issuer and the Participants, as the case may be, therefor from time to time, such additional amounts as may be necessary so that the Issuer or any Participant receive, free and clear of all Taxes, the full amount of such Payment stated to be due under this Agreement as if no such deduction or withholding had been made. Notwithstanding any provision to the contrary, the Applicants shall not be required to pay to the -18- 25 Issuer or any Participant any increased amounts pursuant to this Section 3.2 on account of Taxes measured by or based upon the overall gross or net income, receipts, capital, net worth, or corporate franchise of the Issuer or such Participant, as the case may be. Without limiting the survival of any other provisions of this Agreement or any Related Document, the obligations of the Applicants under this Section 3.2 shall survive the repayment of all Unreimbursed Drawings, the expiration of all Letters of Credit and the termination of the Commitment and the BNY L/C Facility. Section 4. Guarantee. 4.1. Unconditional Guarantee. For valuable consideration, receipt of which is hereby acknowledged, and to induce the Issuer to issue Letters of Credit and the Issuer and the Participants to provide the BNY L/C Facility, each of the Guarantors hereby, jointly and severally, absolutely, unconditionally and irrevocably, guarantees to the Issuer, all Participants and the Administrative Agent the payment, in full, when due of the principal amount of, and Default Interest on, each Drawing under any Letter of Credit, and all other amounts (including, without limitation, all Fees and indemnities) payable by the Applicants hereunder and in connection with the Letters of Credit and all other documents referred to herein or therein, in accordance with the terms hereof and thereof. Each of the Guarantors hereby unconditionally agrees that upon default in the payment when due of any of such principal amount, Default Interest or other amounts, the Guarantors shall forthwith pay and perform the same in the money and funds, at the time, in the place and in the manner provided for such payment in this Agreement or any other applicable document. 4.2. Validity. Each of the Guarantors hereby agrees that its guarantee provided pursuant to this Section 4 is a continuing guarantee of payment and not merely of collection, that it is a primary, independent obligation of each of the Guarantors and that the Guarantors' obligations hereunder shall be joint and several, absolute, unconditional and irrevocable, irrespective of (a) any invalidity, illegality, irregularity or unenforceability of, or defect in or any change in, this -19- 26 Agreement, the Letters of Credit, the Amended Revolving Credit Agreement, the Pledge Agreement or any other Related Document, (b) any amendment, modification or waiver of any term or condition of this Agreement, the Letters of Credit, the Amended Revolving Credit Agreement, the Pledge Agreement or any other Related Document, or any waiver or consent by the Issuer, the Administrative Agent or any Participant to any departure from the terms hereof or thereof, (c) any sale, exchange, release, surrender, realization upon or other dealings with any security or guarantee for any of the obligations guaranteed hereby (whether now or hereafter granted), (d) any settlement or compromise of such obligations, (e) the absence of any action to demand or enforce any of such obligations against any or all of the Applicants or the other Guarantor, (f) the recovery of any judgment against any or all of the Applicants or any other Person, or any action to enforce the same, (g) the recovery of any claim under any other guarantee of or security for such obligations or under any applicable insurance or (h) any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor or surety (other than full and strict compliance with and satisfaction of such liabilities or, in the case of an Event of Default, the cure or waiver of such Event of Default). 4.3. Waivers. Each of the Guarantors hereby waives notice of acceptance of the guarantee provided by this Section 4, notice of the extension of any credit or financial accommodation, notice of the issuance of any Letter of Credit or the incurrence of any other Secured Obligation, notice of any extension of the Commitment Termination Date, demand of payment, filing of claims with a court in the event of bankruptcy of any Applicant or any other Person, any right to require a proceeding or the filing of a claim first against any Applicant, any other guarantor, any other Person, any letter of credit, or any security for any of the Secured Obligations, presentment, protest, notice of default, dishonor or nonpayment, or release of any Collateral and any other notice and all demands whatsoever. Each of the Guarantors hereby further waives all set-offs and counterclaims against the Applicants, the Issuer, the Administrative Agent and any Participant. 4.4. Subordination and Subrogation. Each of the Guarantors hereby subordinates all present and future claims, now -20- 27 held or hereafter acquired, against any Applicant as a creditor or contributor of capital, or otherwise, to the prior and final payment in full to the Issuer, the Administrative Agent and the Participants of all of the Secured Obligations. If, without reference to the provisions of this Section 4.4, either Guarantor would at any time, upon the occurrence and during the continuance of an Event of Default, be or become entitled to receive any payment on account of any claim against any Applicant, whether in insolvency, bankruptcy, liquidation or reorganization proceedings, or otherwise, such Guarantor shall and does hereby irrevocably direct that all such payments shall be made directly to the Issuer, the Administrative Agent and the Participants until all Secured Obligations shall be paid in full. Should either Guarantor receive any such payment, such Guarantor shall receive such amount in trust for the Issuer, the Administrative Agent and the Participants and shall immediately pay over to the Issuer, the Administrative Agent and the Participants such amount as provided in the preceding sentence. Anything contained in this Section 4 to the contrary notwithstanding, the obligations of each of the Guarantors hereunder shall be limited to a maximum aggregate amount equal to the largest amount that would not render its obligations hereunder subject to avoidance as a fraudulent transfer or conveyance under Section 548 of the Bankruptcy Code or any applicable provisions of comparable state law (collectively, the "Fraudulent Transfer Laws"), in each case after giving effect to all other liabilities of such Guarantor, contingent or otherwise, that are relevant under the Fraudulent Transfer Laws (specifically excluding, however, any liabilities of such Guarantor in respect of intercompany indebtedness to the Applicants or other Affiliates of the Applicants to the extent that such indebtedness would be discharged in an amount equal to the amount paid by such Guarantor hereunder) and after giving effect as assets to the value (as determined under the applicable provisions of the Fraudulent Transfer Laws) of any rights to subrogation or contribution of such Guarantor pursuant to (i) applicable law or (ii) any Agreement providing for an equitable allocation among such Guarantor and other Affiliates of the Applicants of obligations arising under guaranties by such parties. -21- 28 Each of the Guarantors further agrees that any rights of subrogation such Guarantor may have against any Applicant and any rights of contribution such Guarantor may have against any Applicant, and any rights of contribution such Guarantor may have against the other Guarantor or any other guarantor of the Secured Obligations hereunder, shall be junior and subordinate to any rights the Issuer, the Administrative Agent or the Participants may have against such other Guarantor or guarantor. 4.5. Acceleration. Each of the Guarantors agrees that, as between the Applicants on the one hand, and the Issuer, the Administrative Agent and the Participants on the other hand, the obligations of the Applicants guaranteed under this Section 4 may be declared to be forthwith due and payable, notwithstanding any stay, injunction or other prohibition (whether in a bankruptcy proceeding affecting any Applicant or otherwise) preventing such declaration as against any Applicant. 4.6. Reinstatement. Each of the Guarantors covenants that the guarantee provided by this Section 4 will not be discharged except by complete and final payment of all of the Secured Obligations and all obligations of the Guarantors arising out of this guarantee. In the event that any payment is made by the Applicants hereunder or by either Guarantor under this guarantee, and is thereafter required to be rescinded or otherwise restored or paid over to the Applicants, such Guarantor or any other person (whether upon the insolvency or bankruptcy of any Applicant or either Guarantor or otherwise), each Guarantor's obligations hereunder shall immediately and automatically be reinstated as though such payment had not been made. Section 5. Conditions Precedent. 5.1. Effectiveness of this Agreement. The occurrence of the Effective Date and the obligation of the Issuer to issue the Letters of Credit hereunder are subject to the receipt by the Issuer and the Participant, on or before the Effective Date, of each of the following documents, each of which shall be satisfactory in form and substance to the Issuer and the Participant: (a) Certified copies of the certificate of incorporation and by-laws of each Applicant and each -22- 29 Guarantor and all corporate action and (if necessary) stockholder action taken by each Applicant and each Guarantor approving this Agreement and the transactions contemplated hereby (including, without limitation, a certificate setting forth the resolutions of the Boards of Directors of each Applicant and each Guarantor adopted in respect of the transactions contemplated hereby). (b) A certificate of each Applicant and each Guarantor in respect of each of the persons (i) who is authorized to sign this Agreement on its behalf and (ii) who will, until replaced by another person or persons duly authorized for that purpose, act as its representative for the purposes of signing Applications, documents and giving notices and other communications in connection with this Agreement and the transactions contemplated hereby. The Issuer may conclusively rely on such certificate until the Issuer and Administrative Agent receive notice in writing from the Applicants or the Guarantors, as the case may be, to the contrary. (c) Certificates, as of a recent date, from the appropriate authorities for each jurisdiction in which each Applicant and each Guarantor is incorporated or qualified to do business as to the good standing of each Applicant and each Guarantor, respectively, in each such jurisdiction. (d) A certificate of a senior officer of each Applicant and each Guarantor to the effect set forth in the first sentence of Section 5.2 hereof. (e) An opinion of Barry S. Augenbraun, Esq., General Counsel, and H. Steven Holtzman, Esq., Senior Counsel to the Applicants and the Guarantors, substantially in the form of Exhibit B hereto. (f) A certificate of a senior officer of HSN, HSC and HSN Mail Order (i) confirming the termination of the $40,000,000 uncommitted letter of credit facility extended by the Issuer to HSN, HSC and HSN Mail Order and (ii) listing the letters of credit outstanding on the Effective Date under such letter of credit facility. -23- 30 (g) An executed counterpart of the Third Amendment to the Existing Revolving Credit Agreement in form and substance satisfactory to the Issuer and the Participants. (h) An executed counterpart of the Pledge Agreement. (i) A certificate evidencing the payment of all Fees and expenses then payable pursuant to Sections 2.3 and 11.3 hereof and all other fees theretofore agreed between the Applicants, the Issuer and the Participant. (j) Such other documents as the Issuer or the Participants may reasonably request including, without limitation, all requisite governmental approvals and filings. 5.2. Conditions to Issuance of Letters of Credit. The obligation of the Issuer to issue a Letter of Credit to any Applicant and the occurrence of the Effective Date shall be subject to the further conditions that, as of the date of the issuance of such Letters of Credit and after giving effect thereto (and also as of the Effective Date): (a) no Default or Event of Default shall have occurred and be continuing, and no Default or Event of Default shall result from the issuance of such Letter of Credit; (b) the representations and warranties made by each Applicant and each Guarantor in Section 6 hereof and in any other certificate or other document delivered in connection with this Agreement shall be true in all material respects on and as of the date of the issuance of such Letter of Credit (and the Effective Date) with the same force and effect as if made on and as of such date; (c) the representations made by HSN and HSC in Section 8 of the Amended Revolving Credit Agreement shall be true in all material respects on and as of the date of issuance of such Letter of Credit (and the Effective Date) with the same force and effect as if made on and as of such date (including, without limitation, that there shall have occurred no material adverse change since December 31, 1994 in the consolidated financial condition or operations, or -24- 31 the business taken as a whole, of HSN and its consolidated Subsidiaries from that set forth in their financial statements dated as of December 31, 1994, except as disclosed to the Issuer and the Participant in writing prior to the date of this Agreement); (d) the Applicants shall have created and perfected the Security Interest of the Administrative Agent, for the ratable benefit of the Issuer and all Participants, in the Collateral pursuant to Section 9.2(b), and to the extent that the Security Interest may be perfected by possession, the Applicants shall have made such arrangements as shall be satisfactory to the Administrative Agent for the delivery of such types of Collateral to the Administrative Agent for purposes of perfection; (e) the Applicants and the Guarantors shall be in compliance with the covenant contained in Section 9.20(f) of the Amended Revolving Credit Agreement; and (f) the Applicants shall have paid in full all fees and expenses payable pursuant to Sections 2.3 and 11.3 hereof. Each Application for the issuance of a Letter of Credit hereunder made pursuant to Section 2.1 hereof shall constitute a certification by the Applicants and the Guarantors as to the circumstances specified in paragraphs (a), (b), (c), (d) and (e) above (both as of the date of such Application and, unless any Applicant or either Guarantor otherwise notifies the Issuer and the Participants prior to the date of the issuance of such Letter of Credit, as of the date of such Letter of Credit). Section 6. Representations and Warranties. HSN and HSC hereby make the representations and warranties set forth in Sections 8.1 through 8.3, 8.8 through 8.11 and 8.13 through 8.15 of the Amended Revolving Credit Agreement, as in effect on the date hereof, and such representations and warranties are incorporated herein by reference and shall have the same force and effect as if set forth herein in full; provided, however, that any amendments to or waivers of such representations and warranties set forth in the Amended Revolving Credit Agreement shall not constitute amendments of or waivers of such -25- 32 representations and warranties for purposes of this Agreement unless and until such amendments or waivers have been approved in accordance with Section 11.4 hereof. In addition, each of the Applicants and the Guarantors, jointly and severally, represents and warrants to the Issuer, the Administrative Agent and the Participants that: 6.1. Corporate Existence. Each Applicant and each Guarantor (a) is a corporation duly organized and validly existing under the laws of the jurisdiction of its incorporation; (b) has all requisite corporate power, and has all material governmental licenses, authorizations, consents and approvals, necessary to own its assets and carry on its business as presently conducted, and conducts its business in compliance with the requirements set forth in Section 9.3(b) of the Amended Revolving Credit Agreement; and (c) is qualified to do business in all jurisdictions in which the nature of the business conducted by it makes such qualification necessary and where failure so to qualify would have a material adverse effect on its business, financial condition or operations. 6.2. No Breach. Neither the execution and delivery of this Agreement, the Pledge Agreement and the other documents and instruments contemplated hereby and thereby nor the consummation of the transactions contemplated hereby and thereby, nor the compliance by any Applicant or either Guarantor with the terms and provisions hereof or thereof will (a) conflict with or result in a breach of, or require any consent or vote of any Person under, the certificate of incorporation or by-laws of any Applicant or either Guarantor, or any agreement or instrument to which any Applicant, either Guarantor or a Subsidiary of any thereof is a party or to which it is subject, (b) violate any applicable law, regulation, order, writ, injunction or decree of any court or governmental authority or agency or (c) constitute a default or, except as set forth in the Pledge Agreement and in Section 9 hereof, result in the imposition of any Lien on any of the assets, revenues or other properties of any Applicant, either Guarantor or a Subsidiary of any thereof under any such agreement or instrument. 6.3. Corporate Action. The execution, delivery and performance by each Applicant and each Guarantor of this Agreement, and the execution, delivery and performance by HSN of -26- 33 the Pledge Agreement, and the consummation of the transactions contemplated hereby and thereby, are within the scope of its corporate powers, and have been duly authorized by all necessary corporate action on the part of each of them. This Agreement constitutes the legal, valid and binding obligation of each Applicant and each Guarantor, and the Pledge Agreement constitutes the legal, valid and binding obligation of HSN, enforceable against each of them, as the case may be, in accordance with their respective terms, except as such enforceability may be limited by (a) bankruptcy, insolvency, reorganization, moratorium or other similar laws of general applicability affecting the enforcement of creditors' rights and (b) the application of general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). 6.4. Approvals. No authorizations, approvals or consents of, and no filings or registrations with, any governmental or regulatory authority or agency are necessary for the execution, delivery of performance by any Applicant or either Guarantor of this Agreement or any Application or by HSN of the Pledge Agreement or for the validity or enforceability hereof or thereof or for the consummation of the transactions contemplated hereby and thereby. 6.5. Litigation. Except as heretofore disclosed to the Issuer and the Participants in writing or in any SEC Report of HSN delivered to the Issuer and the Participants prior to the date hereof, there is no action, proceeding or investigation by or before any court or any arbitral, governmental or regulatory authority or agency, pending or (to the knowledge of the Applicants or the Guarantors) threatened against any Applicant or either Guarantor or any Subsidiary of any thereof which, if adversely determined, could have a material adverse effect on the financial condition or business of HSN and its consolidated Subsidiaries taken as a whole. 6.6. Use of Letters of Credit. None of the Applicants or the Guarantors nor any Subsidiary of any thereof is engaged principally, or as one of its important activities, in the business of extending credit for the purpose, whether immediate, incidental or ultimate, of buying or carrying margin stock (within the meaning of Regulation U or X of the Board of -27- 34 Governors of the Federal Reserve System) and no part of the proceeds of any Drawing under any Letter of Credit will be used to buy or carry any margin stock. 6.7. Pari Passu Obligations. The Secured Obligations of each Applicant and each Guarantor under this Agreement rank and will rank at least pari passu in all respects with all other unsubordinated Indebtedness of the Applicants and the Guarantors, respectively, except for Indebtedness that is senior solely by operation of applicable law, and except that Indebtedness of the Applicants and the Guarantors secured as permitted by Section 9.5 of the Amended Revolving Credit Agreement ranks senior in right of security with respect to the collateral therefor. 6.8. Pledge Agreement. By virtue of the execution and delivery by HSN of the Pledge Agreement, when the stock certificates representing the Pledged Securities owned by HSN are delivered to the Collateral Agent in accordance with the Pledge Agreement, the Collateral Agent will obtain and, so long as the Collateral Agent maintains possession of the certificates representing the Pledged Securities, will have and will continue to have a valid and perfected first priority security interest in such Pledged Securities, for the benefit of the Banks under the Amended Revolving Credit Agreement, the Issuer and the Participants as security for the repayment and performance in full of the Secured Obligations, prior to all other Liens thereon. 6.9. Security Interest. Each Applicant has, or will have, title to the Collateral free and clear of all Liens, except for the Liens contemplated by this Agreement. 6.10. Investment Company Act. No Applicant nor any Guarantor is, and none is "controlled by", an "investment company" within the meaning of the Investment Company Act of 1940, as amended. Section 7. Covenants of each Applicant and each Guarantor. So long as the Commitment is in effect and until payment in full of all Secured Obligations and the termination of the Commitment, HSN and HSC hereby agree to comply with each of the covenants set forth in Sections 9.1 through 9.7, Sections 9.9 through 9.14, and Sections 9.16 through 9.23 of the Amended -28- 35 Revolving Credit Agreement and such covenants are incorporated herein by reference and shall have the same force and effect as if set forth herein in full; provided, however, that any amendments to a waiver of such covenants set forth in the Amended Revolving Credit Agreement shall not constitute amendments to a waiver of such covenants for purposes of this Agreement unless and until such amendments or waivers have been approved in accordance with Section 11.4 hereof. So long as to Commitment is in effect and until payment in full of all Secured Obligations and the termination of the Commitment, each Applicant and each Guarantor further agrees that: 7.1. Incorporated Covenants. Each Applicant and each Guarantor will comply with the covenants set forth in Sections 9.3 through 9.5, 9.9 and 9.10 of the Amended Revolving Credit Agreement as if such covenants were written, mutatis mutandis, to apply to "each Applicant and each Guarantor" in lieu of "the Company and the Guarantor", and such covenants as so read are hereby incorporated herein by reference and shall have the same force and effect as if set forth herein in full. 7.2. Ranking. a. Each Applicant and each Guarantor will cause the Secured Obligations and any other obligations under this Agreement and each other document now or hereafter entered into with respect hereto or thereto to rank at least pari passu in right of payment and of security with all other unsubordinated Indebtedness of any Applicant or either Guarantor, as the case may be, except that Indebtedness secured by any Lien permitted by Section 9.5 of the Amended Revolving Credit Agreement may rank senior in right of security with respect to the collateral subject to such Lien. Without limiting the generality of the foregoing, each Applicant and each Guarantor covenants, and will take all steps necessary to assure, that its obligations under this Agreement will at all times constitute "Senior Indebtedness" as defined in, and for all purposes of, any indenture or other instrument relating to subordinated debt (and will be entitled to the benefits of the subordination provisions relating thereto). (b) Each Applicant and each Guarantor will cooperate with the Issuer and the Participants and execute such further instruments and documents as the Issuer or any Participant may reasonably request to carry out the intentions of this Section -29- 36 7.2. Without limiting the generality of the foregoing, if any Applicant or either Guarantor hereafter issues or otherwise incurs any subordinated Indebtedness, each of them will execute and cause to be executed such further documents as the Issuer or any Participant may reasonably request to ensure that the obligations of the Applicants and the Guarantors under this Agreement at all times rank senior to such subordinated Indebtedness. (c) Nothing in this Section 7.2 shall be construed so as to limit the ability of any Applicant or either Guarantor to incur any Indebtedness (consistent with paragraphs (a) and (b) above and otherwise permitted by this Agreement) on a basis pari passu with their respective Indebtedness under this Agreement. 7.3. Cash Collateralization. In the event that any Applicant ceases to be a Subsidiary of HSN, then as a condition precedent to the consummation of any sale or disposition of such Applicant, HSN shall provide to the Issuer cash collateral in an amount equal to the aggregate stated amount of all then outstanding Letters of Credit issued for the account of such Applicant. Section 8. Events of Default. If one or more of the following events (herein called "Events of Default") shall be continuing: (a) any Applicant or either Guarantor shall fail to (i) reimburse the Issuer for any Drawing under any Letter of Credit in accordance with Section 2.4(c), or (ii) pay any Default Interest, Fees or other amounts due hereunder within two Business Days of the due date thereof; (b) any representation, warranty or certification made or made herein by incorporation by reference by any Applicant or either Guarantor shall prove to have been false or misleading as of the time made or deemed made; (c) any Applicant or either Guarantor shall default in the performance of any of its obligations under Section 2 hereof, and such default shall continue unremedied for a period of 10 days after the earlier of (x) the date on which such Applicant or such Guarantor obtained knowledge of such -30- 37 default, or (y) the date of notice by the Issuer to the Applicant or such Guarantor of the occurrence of such default; (d) any Lien created by Section 9 of this Agreement shall cease, for any reason other than a change in applicable law, to be enforceable and of the same effect and priority purported to be created thereby; provided that, in the event any Lien created hereunder shall cease to be enforceable and of the same effect and priority purported to be created thereby solely as a result of a change in applicable law, such unenforceability and affected priority shall not constitute an Event of Default so long as the Applicant with respect to the Letter of Credit to which such Lien relates takes all necessary action under such change to restore the enforceability and priority of such Lien and delivers an opinion of counsel to such effect in form and substance satisfactory to the Issuer within 30 days of the effectiveness of such change; or (e) there shall occur any of the Events of Default set forth in Section 10 of the Amended Revolving Credit Agreement (as in effect on the date hereof), all of which are incorporated herein by reference and shall have the same force and effect as if set forth herein in full. Upon the occurrence of (i) an Event of Default (other than an Event of Default specified in Section 10(f), (g) or (h) of the Amended Revolving Credit Agreement (as in effect on the date hereof), the Issuer may and, on the instructions of the Participants holding a majority of the Participation Percentages, shall, declare all Secured Obligations to be immediately due and payable, and/or terminate the Issuer's Commitment to issue any Letters of Credit; and (ii) an Event of Default specified in Section 10(f), (g) or (h) of the Amended Revolving Credit Agreement, all Secured Obligations shall automatically be immediately due and payable, in each case without presentment, demand, protest or other notice of any kind, all of which are expressly waived, and the Issuer's Commitment to issue any Letters of Credit shall automatically and immediately terminate. -31- 38 Section 9. Security Interest. 9.1. Grant of Security Interest. As security for the prompt payment, observance and performance when due of the Secured Obligations, each Applicant hereby grants to the Administrative Agent, for the ratable benefit of the Issuer and all Participants, a continuing first priority security interest in, a continuing Lien upon and/or a right of set-off against all of the Collateral. This Agreement shall constitute a "security agreement" within the meaning of the UCC. 9.2. Perfection of Security Interest in the Collateral; Necessary Filings; Notations; Place of Business/Location of Collateral. (a) At any time and from time to time, upon demand of the Administrative Agent, each Applicant will (i) deliver and pledge (or cause to be delivered and pledged) to the Administrative Agent endorsed and/or accompanied by such further instruments of assignment and transfer in such form and substance as the Administrative Agent may reasonably request, any and all proceeds, shipping documents, warehouse receipts, policies or certificates of insurance, and other documents and/or instruments included in or evidencing or otherwise relating to the Collateral owned or held by such Applicant as the Administrative Agent may specify and (ii) if and to the extent determined by the Administrative Agent to be desirable to protect the interests of the Issuer and all Participants, notify each obligor upon any credit or other obligation included in the Collateral at any time owing to such Applicant, in such manner as the Administrative Agent may specify. (b) All filings, registrations and recordings necessary, appropriate or reasonably requested by the Administrative Agent to create and perfect the Security Interest granted by the Applicants to the Administrative Agent, for the ratable benefit of the Issuer and all Participants, hereby in respect of the Collateral and required to be made on or before the date hereof have been accomplished. When the Collateral consisting of instruments, documents of title and other similar items in which a security interest can be perfected by possession, is delivered to the Administrative Agent in accordance with this Agreement, the Administrative Agent will -32- 39 obtain and, so long as the Administrative Agent maintains possession of such Collateral, will have and will continue to have a valid and perfected first priority security interest in such Collateral, for the benefit of the Issuer and the Participants as security for the repayment and performance in full of the Secured Obligations, prior to all other Liens thereon. The Security Interest granted to the Administrative Agent pursuant to this Section 9 in and to the Collateral constitutes and hereafter will constitute a perfected security interest therein, superior and prior to the rights of all persons therein and subject to no other Liens except Liens which are permitted by, and subject to, Section 9.5 of the Amended Revolving Credit Agreement. (c) Each Applicant will keep and stamp or otherwise mark any and all documents and chattel paper and its individual books and records relating to the Collateral in such manner as the Administrative Agent may reasonably require. (d) Each Applicant represents and warrants to the Administrative Agent that the chief place of business of such Applicant, and the place where such Applicant keeps all of its books and records, is specified in Schedule 2 hereof. All tangible evidence and all receivables, contracts and general intangibles of each Applicant and the only original books of account and records of such Applicant relating thereto are, and will continue to be, kept at such chief place of business, or at such new location for such chief place of business as such Applicant may establish in accordance with the last sentence of this Section 9.2(d). All Collateral (other than personal property received by HSN Direct) of each Applicant is (or, when received by the Applicant, will be) located at one of the locations for such Applicant listed on Schedule 2 hereof, and will remain located at any one of such locations unless the Applicant shall have given the Administrative Agent at least 30 days' prior written notice of its intention to remove the Collateral from such location, clearly describing the proposed new location which shall be in the United States of America. HSN Direct will provide to the Administrative Agent a list of all locations outside the United States where Collateral owned by HSN Direct is or may be located. No Applicant shall establish a new location for its chief place of business nor shall it change its name until (i) it shall have given to the Administrative Agent -33- 40 not less than 30 days' prior written notice of its intention to do so, clearly describing such new location (which shall be in the United States of America) or name, and providing such other information in connection therewith as the Administrative Agent may reasonably request and (ii) with respect to such new location or name, the Applicants shall have taken all actions satisfactory to the Administrative Agent to maintain the perfection and proof of the Security Interest of the Administrative Agent in the Collateral intended to be granted hereby, including, without limitation, obtaining waivers of warehouseman's liens with respect to such new location. 9.3. Further Assurances. Each Applicant will, from time to time and at its own expense, promptly execute, acknowledge, witness and deliver and file and/or record, or cause the execution, acknowledgment, witnessing, delivery, filing and/or recordation of, such specific and further assignment of Collateral and such other documents or instruments, and shall take or cause to be taken such other action as the Administrative Agent may reasonably request for the perfection against such Applicant and all third parties whomsoever of the Security Interest created hereby, or for the continuation and protection thereof, and promptly furnish to the Administrative Agent evidence satisfactory to the Administrative Agent of such action. Without limiting the generality of the foregoing, each Applicant promptly upon the execution and delivery of this Agreement, and at any time and from time to time thereafter upon the request of the Administrative Agent, will execute, acknowledge, witness and deliver such financing and continuation statements, notices and security agreements, make such notations on its records, and take such other action as the Administrative Agent may reasonably request for the purpose of so perfecting, maintaining and protecting such Security Interest and shall cause this Agreement, any amendment or supplement hereto or thereto and each such financing and continuation statement, notice and security agreements to be filed and/or recorded in such manner and in such places as may be required by applicable law or as the Administrative Agent may reasonably request for such purpose. After written notice to the Applicants, each Applicant hereby authorizes the Administrative Agent to effect any filing and/or recording which the Administrative Agent has requested pursuant to this Section 9.3 without the signature of such Applicant, to the extent permitted by applicable law. The Administrative Agent -34- 41 shall give the Applicants written notice subsequent to any such filing and/or recording. 9.4. Actions by the Administrative Agent. The Administrative Agent may, at any time and from time to time, at its option, after having given notice of its intention to do so to the Applicants, perform any act which is undertaken by any of the Applicants to be performed by such Applicant hereunder but which such Applicant shall have failed to perform, and the Administrative Agent may take any other action which the Administrative Agent may deem necessary for the maintenance, preservation or protection of any of the Collateral or the Security Interest therein, and the Administrative Agent is hereby irrevocably appointed attorney-in-fact of each Applicant for this purpose. The Applicants jointly and severally agree to pay, upon the demand of the Administrative Agent all moneys advanced by the Administrative Agent in connection with any of the foregoing, together with interest thereon at the Default Rate hereunder from the date of such advance to the date of the repayment thereof. Such advances shall constitute additional Secured Obligations hereunder. The making of any such advance by the Administrative Agent shall not, however, relieve any Applicant of liability for any default hereunder until the full amount of all such moneys so advanced and such interest thereon shall have been repaid by the Applicants to the Administrative Agent and such default shall have otherwise been cured. 9.5. Rights and Remedies Upon Default. (a) Rights and Remedies Generally. Upon the occurrence and during the continuance of any Event of Default, the Administrative Agent shall have all the rights and remedies of a secured party under the UCC, or other applicable law, including the power of sale upon notice, and all rights provided herein, all of which rights and remedies shall, to the fullest extent permitted by law, be cumulative. (b) Specific Rights and Remedies. Without limiting the generality of the foregoing: (i) After an Event of Default shall have occurred and so long as it shall be continuing, each Applicant will, at the request of the Administrative Agent, cause all payments -35- 42 made under or in respect of all obligations owed to such Applicant to be paid directly to the Administrative Agent. The Administrative Agent shall hold all such payments as additional Collateral hereunder. The Administrative Agent shall not be liable to any Person for any incorrect or improper payment made pursuant to this Section 9.5(b)(i) in the absence of gross negligence or willful misconduct. (ii) Each Applicant hereby constitutes the Administrative Agent its true and lawful attorney, irrevocably and with full power of substitution, in the name of such Applicant or otherwise, upon the occurrence and during the continuance of any Event of Default, (A) to give notice at any time to each account debtor or other obligor of the fact of assignment of the respective account or other obligation under this Agreement, (B) to demand, receive, compromise, sue for, and give acquittance for, any and all moneys and claims for money due and to become due under or arising out of such accounts and other obligations, (C) to endorse any checks or other instruments or orders in connection therewith, (D) to file any claims or take any actions or institute any proceedings which the Administrative Agent may deem to be necessary or advisable in its sole and complete discretion and to compromise, litigate or settle the same and (E) to take any other action which by the terms of this Agreement is to be taken by such Applicant. (iii)(1) Upon the occurrence and during the continuance of any Event of Default, the Administrative Agent may do any one or more of the following acts: (A) exercise all of the rights and remedies of a secured party under the provisions of applicable law; (B) institute legal proceedings for the specific performance of any covenant or agreement herein undertaken by each Applicant or for aid in the execution of any power or remedy herein granted; -36- 43 (C) institute legal proceedings for the sale, under a judgment or decree of any court of competent jurisdiction, of any of the Collateral; (D) institute legal proceedings for the appointment of a receiver or receivers pending foreclosure hereunder or the sale of any of the Collateral under the order of a court of competent jurisdiction or under other legal process; (E) personally, or by agents or attorneys, enter into and upon any premises wherein the Collateral or any part thereof may then be situated and take possession of all or any part thereof or render it unusable; and, without being responsible (except for gross negligence or wilful misconduct) for loss or damage, hold, store, and keep idle, or operate, lease, or otherwise use or permit the use of the same or any part thereof, for such time and upon such terms as the Administrative Agent may deem to be in its best interests, and demand, collect, and retain all hire, earnings and all other sums due and to become due in respect of the same from any party whomsoever, accounting only for net earnings, if any, arising from such use, after charging against all receipts from the use of the same and from any subsequent sale thereof, by court proceedings or pursuant to clause (D) of this Section 9.5(b)(iii)(1) all reasonable costs and expenses of, and damages or losses by reason of, such use and/or sale; and/or (F) personally, or by agents or attorneys, enter upon and into any place wherein the same may then be located, and take possession of any part or all of the Collateral, with or without process of law and without being responsible for loss or damage (except such as results from the Administrative Agent's gross negligence or wilful misconduct), and sell, lease or otherwise dispose of all or any part of the same, free from any and all claims of any Applicant at law, in equity, or otherwise, at one or more public or private sales, in such place or places, at such time or times, for cash or credit and upon such terms as the -37- 44 Administrative Agent may determine, with or without any previous demand or notice to any Applicant or advertisement and demand, and any right or equity of redemption otherwise required by law are hereby waived by each Applicant to the fullest extent permitted by applicable law. The power of sale hereunder shall not be exhausted by one or more sales, and the Administrative Agent may from time to time adjourn any sale to be made pursuant to this Section 9.5. (2) If the Administrative Agent shall demand possession of the Collateral or any part thereof pursuant hereto, each Applicant will, at its own expense, forthwith cause the Collateral or any part thereof designated by the Administrative Agent to be assembled and made available and/or delivered to the Administrative Agent at any place designated by the Administrative Agent. (3) In the event that any mandatory requirement of applicable law shall obligate the Administrative Agent to give prior notice to any Applicant of any of the foregoing acts, each Applicant agrees that a notice sent to each Applicant in writing by certified U.S. mail, return receipt requested, or by facsimile with receipt thereof acknowledged in writing, at least five Business Days before the date of any such act, at each Applicant's address specified on the signature page hereof (or such other address as shall have been notified to the Administrative Agent in writing), shall be deemed to be reasonable notice of such act and, specifically, reasonable notification of the time and place of any public sale hereunder and reasonable notification of the time after which any private sale or other intended disposition to be made hereunder is to be made. (4) The Administrative Agent shall apply the proceeds from the sale or other disposition of the Collateral in accordance with the terms and provisions of this Agreement, and any balance, after payment in full of all Secured Obligations and all other amounts due hereunder, shall be paid to the Applicants. (5) No sale or other disposition of all or any part of the Collateral by the Administrative Agent pursuant to this -38- 45 Section 9.5(b) shall be deemed to relieve any Applicant or either Guarantor of its obligations in respect of the Secured Obligations except to the extent the proceeds thereof are finally and irrevocably applied by the Administrative Agent to the payment of such Secured Obligations. 9.6. Release Upon Reimbursement of Drawing. Upon the reimbursement of a Drawing, the security interest granted pursuant to this Section 9 in the specific items of Collateral related to such Drawing shall be released, without any action by the Administrative Agent. 9.7. Waiver by the Applicants. To the fullest extent permitted by law, each Applicant agrees that it will not at any time insist upon, claim, plead, or take any benefit or advantage of any appraisement, valuation, stay, extension, moratorium, redemption or similar law now or hereafter in force in order to prevent, delay, or hinder the enforcement hereof or the absolute sale of any part of the Collateral or the possession thereof by any purchaser at any sale pursuant to Section 9.5(b)(iii) above; and each Applicant, for itself and all who claim through it, as far as it or they now or hereafter lawfully may do so, hereby waives the benefit of all such laws, and all right to have the Collateral marshaled upon any foreclosure hereof, and agrees that any court having jurisdiction to foreclose this Agreement may order the sale of the Collateral as an entirety. Without limiting the generality of the foregoing, upon the occurrence and during the continuance of an Event of Default, each Applicant hereby: (i) authorizes the Administrative Agent, in its sole discretion and without notice to or demand upon any Applicant or either Guarantor and without otherwise affecting the obligations of any Applicant or either Guarantor hereunder or in respect of the Secured Obligations, from time to time to take and hold other collateral (in addition to the Collateral) for payment of the Secured Obligations, or any part thereof, and to exchange, enforce or release such other collateral or any part thereof and to accept and hold any endorsement or guarantee of payment of the Secured Obligations or any part thereof and to release or substitute either Guarantor, any endorser or guarantor or any other Person granting security for or in any other way obligated upon any Secured Obligations or any part thereof and/or to modify or terminate the terms of subordination of any Indebtedness -39- 46 subordinated to any of the Secured Obligations and (ii) waives and releases any and all right to require the Administrative Agent to collect any of the Secured Obligations from any specific item or items of the Collateral, from the Guarantors, from any other Person liable as guarantor or in any other manner in respect of any of the Secured Obligations or from any other collateral. 9.8. Purchase By the Administrative Agent, the Issuer or Any Participant. At any public or private sale pursuant to Section 9.5(b)(iii) hereof, the Administrative Agent, the Issuer or any Participant or their respective agents may, to the extent permitted by applicable law, bid for and purchase the Collateral offered for sale, make payment on account thereof as hereinafter provided in this Section 9.8, and, upon compliance in full with the terms of such sale, hold, retain, and dispose of such property without further accountability therefor to any Applicant or any other party. In any such sale to any such purchaser, the purchaser may, for the purposes of making payment for the Collateral or any part thereof so purchased, use any claim for the Secured Obligations then due and payable to it as a credit against the purchase price. 9.9 No Representation; Etc. Anything herein contained to the contrary notwithstanding, neither the Administrative Agent nor any of its respective nominees or assignees shall have any obligation or liability by reason of or arising out of this Section 9 to make any inquiry as to the nature or sufficiency of, to present or file any claim with respect to, or to take any action to collect or enforce the payment of, any amounts to which it may be entitled at any time or times by virtue of this Section 9. The Administrative Agent makes no representations or warranties with respect to the Collateral or any part thereof, and the Administrative Agent shall not be chargeable with any obligations or liabilities of any Applicant or any other Person with respect thereto. 9.10. Remedies. Each right, power, and remedy herein specifically granted to the Administrative Agent or otherwise available to it shall be cumulative, and shall be in addition to every other right, power and remedy herein specifically given or now or hereafter existing at law, in equity or otherwise; and each right, power and remedy, whether specifically granted herein -40- 47 or otherwise existing, may be exercised at any time and from time to time as often and in such order as may be deemed expedient by the Administrative Agent in its sole and complete discretion; and the exercise or commencement of exercise of any right, power or remedy shall not be construed as a waiver of the right to exercise, at the same time or thereafter, the same or any other right, power or remedy. No delay or omission by the Administrative Agent in exercising any such right or power, or in pursuing any such remedy, shall impair any such right, power or remedy or be construed to be a waiver of any Default on the part of any Applicant or an acquiescence therein. No waiver by the Administrative Agent of any breach or Default of or by any Applicant hereunder shall be deemed to be a waiver of any other or similar, previous or subsequent breach or Default. 9.11. Indemnity. Each Applicant hereby jointly and severally agrees to assume liability for, and does hereby agree to indemnify, protect, save and keep harmless the Administrative Agent and its agents and servants, from and against, any and all liabilities, obligations, losses, damages, penalties, claims, actions, suits and reasonable costs and expenses (including, without limitation, reasonable attorneys' fees and those referred to in Section 9.5(b)(iii) hereof), of whatsoever kind or nature, imposed on, incurred by or asserted against the Administrative Agent or its agents and servants, in any way relating to or arising out of this Agreement or the manufacture, purchase, acceptance, rejection, ownership, delivery, lease, possession, use, operation, condition, merchantability, fitness, sale, return or other disposition of any Collateral (other than by reason of the respective indemnitees' own gross negligence or wilful misconduct). Without limiting the generality of the foregoing, each Applicant hereby jointly and severally agrees to reimburse the Administrative Agent for all costs, liabilities or expenses reasonably incurred by them pursuant to any of the duties hereby or thereby created or in the exercise of any duty, right, remedy or power herein or therein imposed or conferred upon either of them (other than any such costs, liabilities and expenses resulting from the Administrative Agent's gross negligence or wilful misconduct). The obligations of the Applicants contained in this Section 9.11 shall survive the termination of this Agreement, the expiration of the Commitment and the discharge of the Applicants' Secured Obligations under this Agreement. -41- 48 9.12. Termination; Release. When all the Secured Obligations (other than Secured Obligations in the nature of continuing indemnitees or expense reimbursement obligations not yet due and payable) have been paid in full and have been terminated and the Commitment of the Issuer to issue any Letter of Credit under this Agreement has expired, the obligations under this Section 9 shall terminate. Upon termination of the obligations under this Section 9 or any release of Collateral in accordance with the provisions of this Agreement, the Administrative Agent shall, upon the request and at the expense of the Applicants, forthwith assign, transfer and deliver to the Applicants, against receipt and without recourse to or warranty by the Administrative Agent, such of the Collateral to be released (in the case of a release) as may be in possession of the Administrative Agent and which shall not have been sold or otherwise applied pursuant to the terms hereof, in the order of and at the expense of the Applicants, and proper instruments (including UCC termination statements on Form UCC-3) acknowledging the termination of the obligations under this Section 9 or the release of such Collateral, as the case may be. Section 10. The Administrative Agent. 10.1 Appointment, Powers and Immunities. Each of the Issuer and the Participants hereby irrevocably appoints and authorizes the Administrative Agent to act as its agent hereunder with such powers as are specifically delegated to the Administrative Agent by the terms of this Agreement, together with such other powers as are reasonably incidental thereto. The Administrative Agent (which term as used in this sentence and in Section 10.5 and the first sentence of Section 10.6 hereof shall include reference to its Affiliates and each of the officers, directors, employees and agents of itself and of its Affiliates): (a) shall have no duties or responsibilities except those expressly set forth in this Agreement, and shall not by reason of this Agreement be a trustee or other fiduciary for any of the Issuer or the Participants; (b) shall not be responsible to the Issuer or the Participants for any recitals, statements, representations or warranties contained in this Agreement, or in any certificate or other document referred to or provided for in, or received by any of them under, this Agreement, or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement, any Letter of Credit, any Related -42- 49 Document or any other document referred to or provided for herein or for any failure by the Applicants or any other Person to perform any of its obligations hereunder or thereunder; (c) shall not be required to initiate or conduct any litigation or collection proceedings hereunder, except as provided for under Section 10.3 hereof and (d) shall not be responsible for any action taken or omitted to be taken by it hereunder or under any other document or instrument referred to or provided for herein or in connection herewith, except for its own gross negligence or willful misconduct. The Administrative Agent may employ agents and attorneys-in-fact and shall not be responsible for the negligence or misconduct of any such agents or attorneys-in-fact selected by it in good faith. 10.2. Reliance by the Administrative Agent. The Administrative Agent shall be entitled to rely upon any certification, notice or other communication (including any thereof by telephone, telex, telegram or cable) reasonably believed by it to be genuine and correct and to have been signed or sent by or on behalf of the proper Person or Persons, and upon advice and statements of legal counsel, independent accountants and other experts selected by the Administrative Agent. As to any matters not expressly provided for by this Agreement, the Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder in accordance with instructions signed by the Issuer and the Participants holding a majority of Participation Percentages interest hereunder. 10.3. Defaults. The Administrative Agent shall not be deemed to have knowledge of the occurrence of a Default or an Event of Default unless the Administrative Agent has received notice from the Issuer or any Participant specifying such Default or Event of Default. In the event that the Administrative Agent receives such notice, the Administrative Agent shall give prompt notice thereof to the Issuer and all Participants. The Administrative Agent shall (subject to Section 10.7 and Section 11.4 hereof) take such action with respect to a Default or an Event of Default as shall be directed by the Issuer and the Participants holding a majority of Participation Percentages hereunder; provided, that, unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or -43- 50 Event of Default as it shall deem advisable in the best interests of the Issuer and all Participants. 10.4. Other Rights of the Administrative Agent. With respect to the other rights of the Administrative Agent (and any successor acting as Administrative Agent) in its capacity as a Participant hereunder, the Administrative Agent shall have the same rights and powers hereunder as any other Participant and may exercise the same as though it were not acting as the Administrative Agent and the term "Participant" shall, unless the context otherwise indicates, include the Administrative Agent in its individual capacity. The Participant (and any successor acting as Administrative Agent) and its Affiliates may (without having to account therefor to any Participant) accept deposits from, lend money to and generally engage in any kind of banking, trust or other business with the Applicants and the Guarantors (and any of their respective Affiliates or Subsidiaries) as if it were not acting as the Administrative Agent and the Participant and its Affiliates may accept fees and other consideration from the Applicants and the Guarantors (and any of their respective Affiliates or Subsidiaries) for services in connection with this Agreement or otherwise without having to account for the same to any other Participant. 10.5. Indemnification. Each of the Issuer and the Participants agrees to indemnify the Administrative Agent (to the extent not reimbursed under Section 11.3 hereof, but without limiting the obligations of the Applicants under said Section 11.3), ratably in accordance with their respective Participation Percentages, for any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements (including reasonable attorneys' fees) of any kind and nature whatsoever which may be imposed on, incurred by or asserted against the Administrative Agent in any way relating to or arising out of this Agreement or any other documents contemplated by or referred to herein or the transactions contemplated hereby or the enforcement of any of the terms hereof or of any such other documents, provided that no party shall be liable for any of the foregoing to the extent they arise from the gross negligence or willful misconduct of the Administrative Agent. -44- 51 10.6. Non-Reliance on Administrative Agent. Each of the Issuer and the Participants agrees that it has, independently and without reliance on the Administrative Agent, and based on such documents and information as it has deemed appropriate, made its own credit analysis of the Applicants, the Guarantors and their respective Affiliates and Subsidiaries and its own decision to enter into this Agreement and that it will, independently and without reliance upon the Administrative Agent, and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under this Agreement, the Letters of Credit or any Related Documents. The Administrative Agent shall not be required to keep itself informed as to the performance or observance by the Applicants or the Guarantors of this Agreement or any other document referred to or provided for herein or to inspect the properties or books of the Applicants, the Guarantors or any of their respective Affiliates and Subsidiaries. Except for notices, reports and other documents and information expressly required to be furnished to the Issuer and the Participants by the Administrative Agent hereunder, the Administrative Agent shall not have any duty or responsibility to provide any such party with any credit or other information concerning the affairs, financial condition or business of the Applicants, the Guarantors or any of their respective Affiliates or Subsidiaries which may come into the possession of the Administrative Agent or any of its Affiliates. 10.7. Failure to Act. Except for action expressly required of the Administrative Agent hereunder, the Administrative Agent shall in all cases be fully justified in failing or refusing to act hereunder unless it shall be indemnified to its satisfaction by the Issuer and the Participants against any and all liability and expense (other than that arising from gross negligence or willful misconduct) which may be incurred by it by reason of taking or continuing to take any such action. 10.8. Resignation or Removal of Administrative Agent. Subject to the appointment and acceptance of a successor Administrative Agent as provided below, the Administrative Agent may resign at any time by giving notice thereof to the Issuer, the Participants, the Applicants and the Guarantors, and the Administrative Agent may be removed at any time with or without -45- 52 cause by the Issuer and the Participants holding a majority of Participation Percentages hereunder. Upon any such resignation or removal, the Issuer and the Participants holding a majority of Participation Percentages hereunder shall have the right to appoint a successor Administrative Agent. If no successor Administrative Agent shall have been so appointed by the Issuer and the Participants holding a majority of Participation Percentages hereunder and shall have accepted such appointment within 30 days after the retiring Administrative Agent's giving of notice of resignation or the Issuer's and the Participants' holding a majority of Participation Percentages hereunder removal of the retiring Administrative Agent, then the retiring Administrative Agent may, on behalf of the Issuer and the Participants, appoint a successor Administrative Agent, which shall be a bank which has an office in New York, New York with a combined capital and surplus of at least $100,000,000. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations hereunder. After any retiring Administrative Agent's resignation or removal hereunder as Administrative Agent, the provisions of this Section 10 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as the Administrative Agent. 10.9. Administrative Agent's Office. The Administrative Agent acts initially through its office designated on the signature pages hereof, but may transfer its functions as Administrative Agent to any other office, branch or affiliate of The Bank of New York Company, Inc. at any time by giving prompt, subsequent written notice to each of the other parties to this Agreement. Section 11. Miscellaneous. 11.1. Waiver. No failure on the part of the Issuer, the Administrative Agent or any Participant to exercise, no delay in exercising, and no course of dealing with respect to, any right, power or privilege under this Agreement, any Letter of Credit or any other Related Document shall operate as a waiver -46- 53 thereof; nor shall any single or partial exercise of any right, power or privilege under this Agreement or any Letter of Credit preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The remedies provided herein are cumulative and not exclusive of any remedies provided by law. 11.2. Notices. All notices and other communications provided for herein (including, without limitation, any modifications of, or waivers or consents under, this Agreement) shall be given or made by telex, telecopy, telegraph, cable or in writing and telexed, telecopied, telegraphed, cabled, mailed or delivered to the intended recipient at the "Address for Notices" specified below its name on the signature pages hereof; or, as to any party, at such other address as shall be designated by such party in a notice to each other party. Except as otherwise provided in this Agreement, all such communications shall be deemed to have been duly given when transmitted by telex or telecopier (with receipt confirmed either mechanically or in writing by a person at the office of the recipient), personally delivered or, in the case of a mailed notice, upon receipt, in each case given or addressed as aforesaid. 11.3. Expenses, Etc. The Applicants and the Guarantors jointly and severally agree to pay or reimburse each of the Issuer, the Administrative Agent and the Participants for: (a) all costs and expenses of the Issuer, the Administrative Agent and each Participant (including, without limitation, reasonable attorneys' fees and expenses) in connection with (i) the preparation, negotiation, execution and delivery of this Agreement and the Letters of Credit and any related documents, and (ii) any amendment, modification or waiver of any of the terms of this Agreement or any of the Letters of Credit or any Related Document (whether or not any such amendment, modification or waiver is signed or becomes effective); (b) all reasonable costs and expenses of the Issuer, the Administrative Agent and each Participant (including reasonable attorneys' fees and expenses) in connection with the enforcement of this Agreement, any of the Letters of Credit or any Related Document and protection of the rights -47- 54 of the Issuer, the Administrative Agent and each Participant against any of the Applicants, the Guarantors or any of their respective assets; and (c) all transfer, stamp, documentary and other similar taxes, assessments or charges (including, without limitation, penalties and interest) levied by any governmental or revenue authority in respect of this Agreement, any Letter of Credit or any Related Document. Each Applicant and each Guarantor hereby agrees to indemnify the Issuer, the Administrative Agent and each Participant and their respective Affiliates, directors, officers, employees and agents from, and hold each of them harmless against, any and all losses, liabilities, claims, damages or expenses incurred by any of them arising out of or by reason of any investigation or litigation or other proceedings (including any threatened investigation or litigation or other proceedings) relating to or arising out of this Agreement, or any Related Document of the Issuer and the Participants, or any aspect thereof, or from any actual or proposed use by the Applicants, the Guarantors or any of their respective Affiliates or Subsidiaries of the proceeds of any of the Letters of Credit or from an alleged breach of this Agreement or any Related Document, including, without limitation, the reasonable fees and disbursements of counsel incurred in connection with any such investigation or litigation or other proceedings (but excluding any such losses, liabilities, claims, damages or expenses incurred by reason of the gross negligence or willful misconduct of the Person to be indemnified). 11.4. Amendments, Etc. This Agreement may not be amended, supplemented or modified except in accordance with the provisions of this subsection without the prior written consent of the Participants holding a majority of the Participation Percentages hereunder; provided, however, that, without the consent of each of the Participants, no such amendment, supplement, modification or waiver shall (i) extend any date fixed for the payment of principal of or Default Interest on any Unreimbursed Drawing, (ii) extend the Commitment Terminate Date, (iii) reduce the rate at which either Default Interest is payable thereon or Fees are payable hereunder to a level below the rate at which the Participant is entitled to receive Default Interest or Fees (as the case may be) in respect of such participation, -48- 55 (iv) release either Guarantor from any of its obligations under this Agreement or (v) release any Collateral except as otherwise permitted by this Agreement; and provided, further, that without the consent of the Issuer or the Administrative Agent, as the case may be, the rights and obligations of the Issuer or the Administrative Agent, respectively, may not be amended. 11.5. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. 11.6. Assignments and Participation. (a) Neither any Applicant nor either Guarantor may assign any of its rights or obligations hereunder without the prior written consent of the Issuer, the Administrative Agent and each Participant. (b) Any Participant may assign all, or a portion of its Participation Percentage in the Commitment, the Letters of Credit and Unreimbursed Drawings, without the prior consent of any Applicant or either Guarantor; provided that partial assignments to any Person other than an office, branch or affiliate of the Issuer or any Participant shall be in a principal amount of not less than $5,000,000. Notwithstanding the foregoing or any contrary provision of this Agreement, The Bank of New York Company, Inc. hereby agrees that it will, so long as the Commitment is in effect, hold for its own account a Participation Percentage equal to at least 51%. Upon (A) written notice to the Applicants of an assignment, identifying in detail reasonably satisfactory to the Applicants the proposed assignee and the amount of the Commitment, the Letters of Credit and the Unreimbursed Drawings assigned, (B) payment by the assignor or the assignee to the Administrative Agent, for the Administrative Agent's own account, of a recordation fee of $2,500, (C) the execution of a counterpart signature page to this Agreement, and (D) execution by the assignee of a written instrument binding such assignee to the terms and conditions of the Intercreditor Agreement in form and substance reasonably satisfactory to the R/C Administrative Agent (as defined in the Intercreditor Agreement), the assignee shall have, as of the date of effectiveness of such assignment and to the extent of such assignment, the obligations, rights and benefits of, and shall be -49- 56 deemed for all purposes hereunder, a Participant party hereto holding a Participation Percentage in the Commitment, the Letters of Credit and the Unreimbursed Drawings assigned to it (in addition to the Commitment, the Letters of Credit and the Unreimbursed Drawings theretofore held by such assignee) and the assignor shall be released from such obligations to such extent. (c) Any Participant may sell to one or more other Persons a participation in all or any part of its Participation Percentage in the Commitment, the Letters of Credit and the Unreimbursed Drawings, in which event each such participant shall be entitled to the rights and benefits of the provisions of Sections 2 and 5.1(i) of this Agreement with respect to its participation in such Commitment, Letters of Credit and Unreimbursed Drawings as if (and the Applicants and the Guarantors shall be directly obligated to such Participant under such provisions as if) such participant were a "Participant" for purposes of said Sections, but shall not have any other rights or benefits under this Agreement; provided, that all amounts payable by any Applicant or either Guarantor to the Issuer and any Participant under Section 2 hereof in respect of any Unreimbursed Drawing shall be determined as if the Issuer or any Participant had not sold any participations in such Participation Percentage and as if such Participant were funding all of such Unreimbursed Drawings in the same way that it is funding the portion of such Unreimbursed Drawings in which no participations have been sold. (d) Each Participant that is not organized under the laws of the United States or of any political subdivision thereof agrees that it will deliver to the Applicants on the date it acquires its Participation Percentage hereunder and thereafter as may be required from time to time by applicable law or regulation United States Internal Revenue Service Form 4224 or 1001 (or any successor form) or such other form as from time to time may be required to demonstrate that payments made by any Applicant to the Issuer under this Agreement either are exempt from United States Federal withholding taxes or are payable at a reduced rate (if any) specified in any applicable tax treaty or convention. (e) In addition to the assignments and participations permitted under the foregoing provisions of this Section 11.6, the Issuer or any Participant may assign and pledge all or any portion of its rights hereunder to any Federal Reserve Bank as -50- 57 collateral security pursuant to Regulation A and any Operating Circular issued by such Federal Reserve Bank. No such assignment shall release the Issuer or any Participant from its obligations hereunder. (f) The Issuer or any Participant may furnish any information concerning the Applicants, the Guarantors or any of their respective Affiliates or Subsidiaries in the possession of the Issuer or any Participant from time to time to assignees and participants (including prospective assignees and participants). 11.7. Confidentiality. The Issuer, the Administrative Agent and each Participant acknowledge that certain of the information to be furnished to them pursuant to this Agreement may be non-public information. Each of the Issuer, the Administrative Agent and the Participants hereby agrees that it will keep all information so furnished to it pursuant hereto confidential in accordance with its normal banking procedures and, except in accordance with such procedures, will make no disclosure to any other Person of such information until the same shall have become public, except (i) in connection with matters involving this Agreement (including, without limitation, litigation involving any Applicant or either Guarantor) and with the obligations of the Issuer, the Administrative Agent and each Participant under law or regulation, (ii) pursuant to subpoenas or similar process, (iii) to governmental authorities or examiners, (iv) to independent auditors or counsel, (v) to any parent or corporate Affiliate of the Issuer, the Administrative Agent and any Participant or (vi) to any Participant or proposed participant or assignee or proposed assignee hereunder so long as such participant or proposed participant or assignee or proposed assignee (a) is not in the same general type of business as HSN or any of its Subsidiaries on the date of such disclosure and (b) agrees in writing to accept such information subject to the restrictions provided in this Section 11.7; provided, that in no event shall the Issuer, the Administrative Agent or any Participant be obligated or required to return any materials furnished by the Applicants, the Guarantors or any of their respective Affiliates or Subsidiaries. 11.8. Survival. Without limiting the survival of any other obligations of the Applicants, the Guarantors, the Issuer, the Administrative Agent or any Participant hereunder, the -51- 58 obligations of the Applicants and the Guarantors under Sections 2.4 and 11.3 hereof and the obligations of the Issuer and the Participants under Section 10.5 hereof, shall survive the repayment of the Unreimbursed Drawings, the expiration of the Letters of Credit and the termination of the Commitment and the BNY L/C Facility. 11.9. Captions. Captions and section headings appearing herein are included solely for convenience of reference and are not intended to affect the interpretation of any provision of this Agreement. 11.10. Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and any of the parties hereto may execute this Agreement by signing any such counterpart. 11.11. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. EACH LETTER OF CREDIT SHALL BE SUBJECT TO THE UNIFORM CUSTOMS AND PRACTICE FOR DOCUMENTARY CREDITS (1993 REVISION), INTERNATIONAL CHAMBER OF COMMERCE PUBLICATION NO. 500. AS TO MATTERS NOT GOVERNED BY THE UNIFORM CUSTOMS, EACH LETTER OF CREDIT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. 11.12. JURISDICTION. EACH APPLICANT AND EACH GUARANTOR HEREBY AGREES THAT: (A) ANY SUIT, ACTION OR PROCEEDING AGAINST ANY APPLICANT OR EITHER GUARANTOR WITH RESPECT TO THIS AGREEMENT, THE LETTERS OF CREDIT OR ANY DOCUMENTS RELATED HERETO OR ANY JUDGMENT ENTERED BY ANY COURT IN RESPECT THEREOF MAY BE BROUGHT IN THE SUPREME COURT OF THE STATE OF NEW YORK, COUNTY OF NEW YORK, IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, OR IN ANY STATE OR FEDERAL COURT SITTING IN THE STATE OF FLORIDA (COLLECTIVELY, THE "SUBJECT COURTS"), AS THE ISSUER, THE ADMINISTRATIVE AGENT OR ANY PARTICIPANT MAY ELECT IN ITS SOLE DISCRETION AND EACH APPLICANT AND EACH GUARANTOR HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF EACH OF THE SUBJECT COURTS FOR THE PURPOSE OF ANY SUCH SUIT, -52- 59 ACTION, PROCEEDING OR JUDGMENT. EACH APPLICANT AND EACH GUARANTOR HEREBY IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS IN ANY SUIT, ACTION OR PROCEEDING IN ANY OF THE SUBJECT COURTS BY THE MAILING THEREOF BY THE ISSUER, THE ADMINISTRATIVE AGENT OR ANY PARTICIPANT BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO ANY APPLICANT OR EITHER GUARANTOR, AS THE CASE MAY BE, ADDRESSED AS PROVIDED IN SECTION 11.2 HEREOF. NOTHING HEREIN SHALL IN ANY WAY BE DEEMED TO LIMIT THE ABILITY OF THE ISSUER, THE ADMINISTRATIVE AGENT OR ANY PARTICIPANT TO SERVE ANY SUCH WRITS, PROCESS OR SUMMONSES IN ANY OTHER MANNER PERMITTED BY APPLICABLE LAW OR TO BRING PROCEEDINGS AGAINST ANY APPLICANT OR EITHER GUARANTOR IN ANY COMPETENT COURT OF ANY OTHER JURISDICTION OR JURISDICTIONS, AND IN SUCH MANNER, AS MAY BE PERMITTED BY APPLICABLE LAW. (B) EACH APPLICANT AND EACH GUARANTOR HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY SUIT, ACTION OR PROCEEDING IN RESPECT OF THIS AGREEMENT, THE LETTERS OF CREDIT OR ANY OTHER DOCUMENTS IN CONNECTION HEREWITH, ANY OBJECTION TO THE LAYING OF VENUE IN ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY OF THE SUBJECT COURTS, AND, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY CLAIM THAT SUCH SUIT, ACTION OR PROCEEDING IN ANY OF THE SUBJECT COURTS HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. 11.13. The Collateral Agent. By executing this Agreement, the Issuer and the Participants irrevocably appoint and authorize the Collateral Agent, in its capacity as Collateral Agent under the Pledge Agreement, to act as its agent under the Pledge Agreement with such powers as are specifically delegated to the Collateral Agent by the terms of the Amended Revolving Credit Agreement and the Pledge Agreement, together with such other powers as are reasonably incident thereto. The Issuer and the Participants, hereby agree to the incorporation by reference of Section 11 of the Amended Revolving Credit Agreement in its entirety and agree that each reference in such Section 11 to the "Administrative Agent" shall also be deemed to refer to LTCB Trust Company, in its capacity as Collateral Agent under the Pledge Agreement. 11.14. Severability. Any provision of this Agreement or the Letters of Credit that is prohibited or unenforceable in -53- 60 any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or thereof or affecting the validity or enforceability of such provision in any other jurisdiction. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written. HOME SHOPPING CLUB, INC., as an Applicant By ______________________________ Title: Treasurer 11831 30th Court North St. Petersburg, Florida 33716 Telecopier No.: (813) 539-6505 Telephone No.: (813) 572-8585 Attention: Finance Department with a copy to: "Legal Department" Telecopier No.: (813) 573-0866 -54- 61 HSN MAIL ORDER, INC., as an Applicant By ______________________________ Title: Treasurer 11831 30th Court North St. Petersburg, Florida 33716 Telecopier No.: (813) 539-6505 Telephone No.: (813) 572-8585 Attention: Finance Department with a copy to: "Legal Department" Telecopier No.: (813) 573-0866 HSN DIRECT, INC., as an Applicant By ______________________________ Title: Treasurer 11831 30th Court North St. Petersburg, Florida 33716 Telecopier No.: (813) 539-6505 Telephone No.: (813) 572-8585 Attention: Finance Department with a copy to: "Legal Department" Telecopier No.: (813) 573-0866 -55- 62 HSN REALTY, INC., as a Guarantor By ______________________________ Title: Treasurer 11831 30th Court North St. Petersburg, Florida 33716 Telecopier No.: (813) 539-6505 Telephone No.: (813) 572-8585 Attention: Finance Department with a copy to: "Legal Department" Telecopier No.: (813) 573-0866 HOME SHOPPING NETWORK, INC., as a Guarantor By ______________________________ Title: Treasurer 11831 30th Court North St. Petersburg, Florida 33716 Telecopier No.: (813) 539-6505 Telephone No.: (813) 572-8585 Attention: Finance Department with a copy to: "Legal Department" Telecopier No.: (813) 573-0866 -56- 63 THE BANK OF NEW YORK, as the Issuer By ______________________________ Title: Address for Notices: One Wall Street 16th Floor New York, New York 10286 Telecopier No.: (212) 635-8679 or (212) 635-8634 Telephone No.: (212) 635-8741 Attention: Brian Marshall THE BANK OF NEW YORK, as the Administrative Agent By ______________________________ Title: Address for Notices: One Wall Street 16th Floor New York, New York 10286 Telecopier No.: (212) 635-8679 or (212) 635-8634 Telephone No.: (212) 635-8741 Attention: Brian Marshall -57- 64 PARTICIPANTS Participation Percentage THE BANK OF NEW YORK COMPANY, INC., - ------------------------ as a Participant 100% By ______________________________ Title: Address for Notices: One Wall Street 16th Floor New York, New York 10286 Telecopier No.: (212) 635-8679 or (212) 635-8634 Telephone No.: (212) 635-8741 Attention: Brian Marshall -58- 65 SCHEDULE 1 [List of Converted Letters of Credit] 66 SCHEDULE 2 Place of Business/Location of Collateral Applicants Home Shopping Club, Inc. HSN Mail Order, Inc. HSN Direct, Inc. Principal Place of Business for the Applicants 11831 30th Court North St. Petersburg, Florida 33716 Locations of Collateral 115 Brand Road Salem, Virginia 24156 209 Roosevelt Street Cedar Falls, Iowa 50613 2510 118th Avenue North St. Petersburg, Florida 33716 67 EXHIBIT A [Form of Letter of Credit Application] A-1 68 EXHIBIT B [Form of Opinion of Counsel to the Applicants and the Guarantors] B-1 69 EXHIBIT C [Form of Pledge Agreement] C-1 70 EXHIBIT D [Form of Intercreditor Agreement] D-1 EX-27 4 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q. 1,000 9-MOS DEC-31-1995 JAN-01-1995 SEP-30-1995 20,438 0 31,734 0 136,822 237,315 252,098 128,405 477,704 206,389 116,040 777 0 0 148,684 477,704 730,163 730,163 490,402 490,402 291,754 0 5,858 (55,748) (19,512) (36,236) 0 0 0 (36,236) (.41) (.41)
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