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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NO. 0-20570
SILVER KING COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 59-2712887
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2425 OLYMPIC BOULEVARD, SANTA MONICA, CALIFORNIA 90404
(Address of principal executive offices) (Zip Code)
(310) 247-7905
(Registrant's telephone number, including area code)
12425 28TH STREET, NORTH, ST. PETERSBURG, FLORIDA 33716
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X . No ____.
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common stock as of the latest
practicable date.
Total number of shares of outstanding Common Stock as of August 5, 1996:
Common Stock.............................................................. 7,075,332
Class B Common Stock...................................................... 2,415,945
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PART 1 -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SILVER KING COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
------------------- -------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1996 1995 1996 1995
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
REVENUE
Broadcasting.............................................. $ 10,658 $ 10,680 $ 21,388 $ 21,197
Production................................................ 266 830 648 1,628
------- ------- ------- -------
Net revenue..................................... 10,924 11,510 22,036 22,825
COSTS AND EXPENSES
Cost of production........................................ 65 134 193 271
General and administrative................................ 5,875 5,566 11,774 11,079
Depreciation and amortization............................. 3,404 3,669 6,862 7,361
------- ------- ------- -------
Total costs and expenses........................ 9,344 9,369 18,829 18,711
------- ------- ------- -------
Operating profit................................ 1,580 2,141 3,207 4,114
OTHER INCOME (EXPENSES)
Interest income........................................... 591 2,205 1,210 2,544
Interest expense.......................................... (2,221) (2,799) (4,633) (5,609)
Dividend income........................................... -- -- -- 463
Miscellaneous............................................. 194 (2) 331 (58)
------- ------- ------- -------
Total other income (expense).................... (1,436) (596) (3,092) (2,660)
------- ------- ------- -------
Income before income taxes................................ 144 1,545 115 1,454
Income tax provision...................................... (596) (725) (1,173) (481)
------- ------- ------- -------
Net income (loss)......................................... $ (452) $ 820 $ (1,058) $ 973
PER SHARE OF COMMON STOCK:
NET INCOME (LOSS) PER COMMON SHARE........................ $ (.05) $ .09 $ (.11) $ .11
======= ======= ======= =======
WEIGHTED AVERAGE SHARES OUTSTANDING....................... 9,484 8,916 9,471 8,910
======= ======= ======= =======
The accompanying notes are an integral part of these financial statements.
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SILVER KING COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
JUNE 30, DECEMBER 31,
1996 1995
--------- ------------
(IN THOUSANDS)
ASSETS
CURRENT ASSETS
Cash and cash equivalents.................................................... $ 19,837 $ 19,140
Accounts receivable, net..................................................... 283 1,402
Notes receivable............................................................. 3,164 2,835
Other assets................................................................. 632 1,199
Deferred income taxes........................................................ 1,614 1,797
--------- ---------
Total current assets................................................ 25,530 26,373
PROPERTY, PLANT AND EQUIPMENT, AT COST
Computer and broadcast equipment............................................. 73,674 76,033
Buildings and leasehold improvements......................................... 18,313 19,520
Furniture and other equipment................................................ 1,918 2,991
--------- ---------
93,905 98,544
Less accumulated depreciation....................................... (71,698) (72,851)
--------- ---------
22,207 25,693
Land......................................................................... 2,158 3,334
Construction in progress..................................................... 158 244
--------- ---------
Net property plant and equipment.................................... 24,523 29,271
OTHER ASSETS
Intangible assets, net....................................................... 55,305 59,984
Capitalized bank fees, net................................................... 2,872 3,293
Notes receivable, net of current............................................. 17,321 12,188
Long-term investments........................................................ 5,140 5,135
Other........................................................................ 755 426
--------- ---------
Total other assets.................................................. 81,393 81,026
--------- ---------
$ 131,446 $ 136,670
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term obligations.................................. $ 12,819 $ 12,456
Accrued liabilities
Payroll and payroll taxes.................................................. 2,507 1,315
Rent....................................................................... 617 722
Interest................................................................... 1,381 777
Other...................................................................... 1,455 2,217
Restructuring.............................................................. 401 1,333
--------- ---------
Total current liabilities........................................... 19,180 18,820
DEFERRED INCOME TAXES........................................................ 14,595 14,399
LONG-TERM OBLIGATIONS, NET OF CURRENT MATURITIES............................. 89,480 95,980
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock -- $.01 par value; 50,000 shares authorized, no shares issued
and outstanding............................................................ -- --
Common stock -- $.01 par value, 30,000,000 shares authorized, 7,075,332 and
6,996,332 shares issued and outstanding, respectively...................... 71 70
Class B convertible common stock -- $.01 par value; 2,415,945 shares
authorized, issued, and outstanding........................................ 24 24
Additional paid-in capital................................................... 127,401 126,119
Note receivable from Key Executive for common stock issuance................. (4,998) (4,998)
Deficit...................................................................... (111,181) (110,123)
Unearned compensation........................................................ (3,126) (3,621)
--------- ---------
Total stockholders' equity.......................................... 8,191 7,471
--------- ---------
$ 131,446 $ 136,670
========= =========
The accompanying notes are an integral part of these financial statements.
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SILVER KING COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
NOTE
RECEIVABLE
COMMON FROM
STOCK CLASS B KEY EXECUTIVE
$0.01 CONVERTIBLE ADDITIONAL FOR COMMON
PAR COMMON PAID-IN STOCK UNEARNED
VALUE STOCK CAPITAL ISSUANCE DEFICIT COMPENSATION TOTAL
------ ----------- ---------- ------------- --------- ------------ -------
(IN THOUSANDS)
BALANCE ON JANUARY 1,
1996................ $ 70 $24 $ 126,119 $(4,998) $(110,123) $ (3,621) $ 7,471
Issuance of common
stock upon exercise
of stock options.... 1 -- 695 -- -- -- 696
Income tax benefit
relating to stock
options exercised... -- -- 587 -- -- -- 587
Amortization of
unearned
compensation related
to grant of stock
options to Key
Executive........... -- -- -- -- -- 495 495
Net loss for the
quarter ended June
30,
1996................ -- -- -- -- (1,058) -- (1,058)
---- ----
---
------ ---------- -------- ----- ---------- -------- ---- --------
BALANCE ON JUNE 30,
1996................ $ 71 $24 $ 127,401 $(4,998) $(111,181) $ (3,126) $ 8,191
====== =========== ========== ============= ========== ============ ========
The accompanying notes are an integral part of these financial statements.
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SILVER KING COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED
-------------------
JUNE 30, JUNE 30,
1996 1995
-------- --------
(IN THOUSANDS)
CASH FLOWS -- OPERATING ACTIVITIES:
Net income (loss).......................................................... $ (1,058) $ 973
Adjustments to reconcile net earnings (loss) to net cash provided by (used
in) operating activities
Depreciation and amortization............................................ 6,862 7,361
Non-cash interest expense................................................ 420 411
Provision for losses on accounts receivable.............................. 73 14
Amortization of unearned compensation related to grant of stock options
to Key Executive...................................................... 495 --
(Gain) loss on retirement or sale of fixed assets........................ (196) 58
Deferred income taxes.................................................... 966 151
(Increase) decrease in other assets...................................... 25 (5)
Changes in current assets and liabilities:
Decrease in accounts receivable.......................................... 1,047 2,187
Decrease in other current assets......................................... 567 212
Increase in current liabilities.......................................... 750 89
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES............................. 9,951 11,451
CASH FLOWS -- INVESTING ACTIVITIES:
Capital expenditures..................................................... (311) (914)
Proceeds from sale of fixed assets....................................... 2,320 --
Payment of merger costs.................................................. (622) --
Long-term investments.................................................... (5) --
Proceeds from long-term notes receivable................................. 2,502 2,338
Investment in long-term notes receivable................................. (7,696) (1,600)
------- -------
NET CASH USED IN INVESTING ACTIVITIES................................. (3,812) (176)
CASH FLOWS -- FINANCING ACTIVITIES:
Principal payments on long-term obligations.............................. (6,138) (5,238)
Proceeds from exercise of stock options.................................. 696 30
------- -------
NET CASH USED IN FINANCING ACTIVITIES................................. (5,442) (5,208)
------- -------
INCREASE IN CASH AND CASH EQUIVALENTS...................................... 697 6,067
Cash and cash equivalents at beginning of period........................... 19,140 12,554
------- -------
Cash and cash equivalents at end of period................................. $ 19,837 $ 18,621
======= =======
The accompanying notes are an integral part of these financial statements.
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SILVER KING COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- ORGANIZATION AND DISTRIBUTION
In July 1986, Silver King Broadcasting Company, Inc. ("SKBC") was
incorporated in Delaware and began acquiring UHF television stations. SKBC was
formed as part of a strategy to broaden the viewership of the retail sales
programming produced by Home Shopping Club, Inc. ("HSC"), a wholly-owned
subsidiary of Home Shopping Network, Inc. ("HSN") and a leader in the electronic
retailing industry. HSC sells a variety of consumer goods and services by means
of HSC's live, customer-interactive retail sales programming, which is received
on a full-time or part-time basis by broadcast television stations, cable
television systems and satellite dish receivers. SKBC subsequently changed its
name to HSN Communications, Inc. ("HSNC") and, on August 25, 1992, HSNC changed
its name to Silver King Communications, Inc. ("SKC" when referring to the parent
company alone, but when referring to SKC and/or one or more of its direct or
indirect wholly-owned subsidiaries, the "Company"). Currently, the Company owns
and operates 12 independent full-power UHF television stations, including one
television satellite station (the "Stations"), which affiliate with and
primarily broadcast HSC retail sales programming. The Stations serve eight of
the 13 largest metropolitan television markets in the United States. As of March
31, 1996, the Stations reached approximately 29.0 million television households,
which is one of the largest audience reaches of any owned and operated
independent television broadcasting group in the United States.
In addition, the Company owns 26 low power television ("LPTV") stations
that broadcast HSC retail sales programming. The Company and HSC entered into a
Master Low Power Television Affiliation Agreement as of May 1, 1996 covering all
26 LPTV stations. The Company will be paid up to $550,000 annually under the
agreement.
On December 28, 1992 (the "Distribution Date"), HSN distributed the capital
stock (the "Distribution") of the Company to HSN's stockholders of record as of
December 24, 1992 (the "Record Date"), in the form of a pro-rata stock dividend.
The capital stock of Telemation, Inc. ("Telemation") was contributed to SKC
prior to the Distribution. Telemation is a video production and post-production
company providing a full range of communications services to corporations and
advertising agencies, and Telemation also produces television shows and videos
for the entertainment industry.
The Distribution resulted in 100% of the outstanding shares of the
Company's Common Stock and the Company's Class B Common Stock being distributed
to holders of HSN Common Stock and HSN Class B Common Stock on a pro-rata basis
as of the Record Date.
Roy M. Speer indirectly controls the Company through the ownership, by RMS
Limited Partnership ("RMSLP"), a Nevada limited partnership, of 100% of the
Company's Class B Common Stock. On February 11, 1993, RMSLP entered into an
agreement granting an assignable option to purchase 2,000,000 shares of its
Class B Common Stock in the Company to Liberty Media Corporation ("Liberty"),
controlling Shareholder of HSN. This agreement was subsequently amended on
September 23, 1994, and Liberty retained its option to purchase 2,000,000
shares. Liberty and Barry Diller entered into an agreement pursuant to which
Liberty and Mr. Diller have formed Silver Management Company ("SMC") to which
Liberty intends to assign the option. On March 6, 1996, the Federal
Communications Commission ("FCC") granted its approval of the transfer of
control of SKC from Mr. Speer to SMC by the proposed consummation of the option.
However, the FCC attached certain conditions to the grant and also adopted a
stay order released on the same day as the grant delaying the effectiveness of
the grant until the agency completed an investigation of allegations raised
against SKC by Urban Broadcasting Corporation ("Urban") that questioned SKC's
qualifications as an FCC licensee. SMC filed a pleading requesting that the FCC
delete or modify one of the conditions to the grant which required prior FCC
approval if Liberty's parent company, Tele-Communications, Inc. ("TCI"),
materially increases its cable systems' percentage of subscribers in any of the
11 markets served by the Company's Stations. In a Memorandum Opinion and Order
and Notice of Apparent Liability released June 14, 1996, the FCC lifted the stay
order on its approval of the transfer of control applications and deleted the
condition to the grant requiring FCC approval if Liberty's parent company, TCI,
materially
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SILVER KING COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
increases its cable systems' percentage of subscribers in any of the 11 markets
served by the Company's Stations. The ruling provides that the FCC must be
notified at any time TCI acquires subscribers representing more than 50% of the
television households in a Company Station market. The FCC also fined Urban
$25,000 for abdicating control of its station, WTMW (TV), Arlington, Virginia,
to the Company during the station construction period. The Company was fined
$150,000 for assuming unauthorized control of the station during the
construction period and for violating the FCC's duopoly rules during that time
period as a result of the signal overlap between WTMW (TV) and the Company's
Baltimore, Maryland Station, WHSW-TV, notwithstanding the agency's ruling that
control of WTMW (TV) reverted back to Urban at the time the station commenced
operations. The FCC also required that certain aspects of the contracts between
Urban and the Company, as Urban's lender and a shareholder, be reformed. If a
sale pursuant to exercise of the option is consummated between RMSLP and SMC,
Mr. Speer will no longer control the Company. See "Note D -- Subsequent Events"
regarding the exercise of such option by SMC.
The Company has changed its fiscal year end from August 31st to December
31st effective January 1, 1996.
NOTE B -- BASIS OF PRESENTATION
The accompanying Condensed Consolidated Financial Statements include the
accounts of SKC and all subsidiaries, all of which are wholly-owned. All
intercompany transactions and accounts have been eliminated. The Condensed
Consolidated Financial Statements are unaudited and should be read in
conjunction with the audited Consolidated Financial Statements and notes thereto
for the transition Form 10-Q for the period ended December 31, 1995.
In the opinion of management, all adjustments necessary for a fair
presentation of such Condensed Consolidated Financial Statements have been
included. Such adjustments consist only of normal recurring items. Interim
results are not necessarily indicative of results for a full year. The 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 as discussed above.
NOTE C -- LITIGATION
On May 22, 1995, Silver King Broadcasting of Virginia, Inc. ("SKVA"), a
wholly-owned subsidiary of the Company, and Urban Broadcasting Corporation
("Urban") and its principals settled a lawsuit relating to Urban's default on a
note receivable of $10.5 million to SKVA. Pursuant to the settlement, SKVA
received approximately $3.5 million on May 23, 1995, consisting of $1.8 million
in interest income and $1.7 million in principal on SKVA's $10.5 million loan to
Urban. The principal balance of the receivable on December 31, 1995 was $8.1
million. Additionally, SKVA forgave approximately $.1 million of interest under
the terms of the settlement and Urban dismissed its $6.5 million Amended
Counterclaim. Urban remained obligated to repay the outstanding principal
balance of approximately $8.8 million over the remaining term of the loan.
On July 3, 1995, Urban and Theodore M. White, the President, sole director
and owner of all the voting stock of Urban, separately filed voluntary Chapter
11 bankruptcy petitions. On September 26, 1995, the bankruptcy court entered a
final cash collateral order with respect to the Urban bankruptcy executed by
Urban and SKVA that lasted until December 31, 1995 and will continue thereafter
for successive periods of three months unless Urban or SKVA gives 30 days'
notice of termination prior to the end of any such three-month period. To date,
no such notice has been provided. Accordingly, the final cash collateral order
shall remain in effect at least until September 30, 1996. Under the cash
collateral order, the escrow agreement SKVA and Urban entered into pursuant to
the settlement of SKVA's lawsuit against Urban remains in effect. Under the
escrow agreement, HSC makes affiliation payments due Urban under its affiliation
agreement with HSC into an escrow account. The escrow agents thereafter disburse
the proceeds to SKVA in an amount equal to the loan payment due SKVA from Urban,
and any remaining proceeds are disbursed to Urban. As of August 1,
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SILVER KING COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1996, Urban is current on its loan payment obligations and the remaining
principal balance is $7.3 million. On June 24, 1996, the Court approved the
disclosure statements of both Urban and the Official Committee of Unsecured
Creditors. A hearing on confirmation of both plans of reorganization has been
scheduled for September 5-6, 1996.
NOTE D -- SUBSEQUENT EVENTS
On August 13, 1996, the Company was informed that Liberty had assigned the
option relating to 2,000,000 shares of the Company's Class B Common Stock to SMC
and that SMC had exercised such option (see Note A -- Organization and
Distribution). As a result of this exercise, Mr. Speer no longer indirectly
controls the Company, and the Company is controlled by SMC.
On August 13, 1996, the Company entered into an Amendment to the merger
agreement entered into as of November 27, 1995 among the Company, Savoy Pictures
Entertainment, Inc. and a subsidiary of the Company. See Item 5 in this Form
10-Q for additional information concerning the terms and the status of the
Merger.
NOTE E -- RESTRUCTURING
In 1995, the Company accrued $2.0 million in restructuring charges (the
"Restructuring"), which related to termination benefits (including severance and
out placement assistance) and $.1 million for the estimated charge to relocate
the corporate headquarters to Los Angeles, California. The total number of
employees to be terminated related to this Restructuring is 95. The actual
termination benefits paid and charged against the accrual as of June 30, 1996
are approximately $1.6 million. There were no adjustments to the original $2.0
million accrual for the Restructuring during the transition period.
NOTE F -- RECLASSIFICATIONS
Certain amounts in the Company's balance sheet have been reclassified to
reflect more recent information than was available when the transition Form 10-Q
for the period ended December 31, 1995 was filed.
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SILVER KING COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
A. RESULTS OF OPERATIONS
The following is a discussion of material changes in the consolidated
results of operations of Silver King Communications, Inc. and its subsidiaries
("SKC" when referring to the parent company alone, but when referring to SKC
and/or one or more of its direct or indirect wholly-owned subsidiaries, the
"Company") which occurred in the three and six months ended June 30, 1996
compared to the three and six months ended June 30, 1995. The Company's primary
business is the operation of 12 independent full-power television stations which
primarily broadcast Home Shopping Club ("HSC") retail sales programming.
THREE AND SIX MONTHS ENDED JUNE 30, 1996 VS. THREE AND SIX MONTHS ENDED JUNE 30,
1995
The operations and financial position of the Company will not be indicative
of future financial results or conditions if one or both of the Savoy and HSN
transactions discussed in Note A of the financial statements is consummated.
NET REVENUE
Net revenue decreased $.6 million to $10.9 million in the three months
ended June 30, 1996 from $11.5 million in the three months ended June 30, 1995.
Net revenue decreased $.8 million to $22 million in the six months ended June
30, 1996 from $22.8 million in the six months ended June 30, 1995. The decrease
for both three and six months ended June 30, 1996 primarily relates to the
closing of the Denver Telemation facility in December 1995.
Each of the Company's Stations and then-owned LPTV stations entered into
Affiliation Agreements with HSC on the Distribution Date. The Company has since
entered into a Master Low Power Television Affiliation Agreement with HSC
covering all 26 of its LPTV stations. The Affiliation Agreements with the
Stations, which provide for payment to the Stations of a minimum affiliation fee
for carriage of HSC programming, are the primary source of the Company's
revenue. Station revenue can exceed the hourly affiliation fee if HSC's net
sales credited to the Stations meet certain criteria. The Affiliation
Agreements, as amended November 30, 1995, provide for the broadcast by each
Station of HSC's electronic retail sales programming for 159 hours per week and
the availability to the Stations of two and one-half minutes of broadcast time
each hour. Each Affiliation Agreement has an initial term of five years and is
renewable for two additional five-year terms at each Station's sole option. The
Affiliation Agreements are cancelable by the Stations with 18 months' written
notice prior to the end of any scheduled term. The Company and HSC have amended
the Affiliation Agreements to extend the date by which the Stations must give
notice of nonrenewal with respect to the next five-year term from June 28, 1996
until December 28, 1996. Under the Affiliation Agreements, each Station has nine
hours per week available for non-HSC programming, which are currently used for
one hour Monday through Friday and four hours each Sunday morning for the
broadcast of issue-responsive, children's, ethnic, religious and/or paid
informational programming. Additionally, under the Affiliation Agreements, the
Stations may use two and one-half minutes of each broadcast hour for advertising
inserts and public service programming. Each Station may also preempt HSC
programming for an additional three hours per week (i.e., 156 hours per year)
subject to forfeiture of twice the applicable hourly affiliation fee provided
for in such Station's Affiliation Agreement. Notwithstanding anything else to
the contrary, a Station may also preempt any amount of HSC programming for
public interest reasons and in such event, such Station will forfeit twice the
hourly affiliation fee for such preemption period.
The Station Affiliation Agreements provide for higher compensation to the
Stations if a Station's Compensation Amount, which is based upon a formula
involving HSC's net sales credited to the Station, exceeds the minimum
affiliation fee based upon that Station's hourly affiliation rate. The
determination is made on an annual basis within 30 days of each anniversary of
the Affiliation Agreements. As a result of the
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SILVER KING COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
July 2, 1993 Federal Communications Commission ruling that television stations
with home shopping formats are eligible for "must carry" status, the Company
believes that its Stations increased their viewership due to an increase in the
number of cable systems that carried the Stations. Management believes this
increased viewership, to some degree, increased the sales by HSC credited to the
Stations during calendar year 1994, resulting in a portion of the additional
affiliation fees received by the Company in January 1995. Based upon reported
HSC sales performance for calendar year 1995, the Company received $.8 million
of additional affiliation fees in January 1996 accrued in December 1995 for
sales by HSC credited to the Stations in calendar year 1995.
GENERAL AND ADMINISTRATIVE
General and administrative expenses increased $.3 million to $5.9 million
in the three months ended June 30, 1996 from $5.6 million in the three months
ended June 30, 1995 and increased $.7 million to $11.8 million in the six months
ended June 30, 1996 from $11.1 million in the six months ended June 30, 1995.
The Company recognized for the three and six months ended June 30, 1996
approximately $.9 million and $1.8 million, respectively of charges under the
terms of the Equity and Bonus Compensation Agreement (the "Agreement") between
the Company and its Chairman, Barry Diller. The increase in compensation for the
three months and six months ended June 30, 1996 was offset by decreases of $.8
million and $1.6 million, respectively in payroll expenses due to the
Restructuring which took place in December 1995. The remaining increase for the
three and six months ended June 30, 1996 is primarily due to additional
consulting and legal expenses associated with the terms of the Agreement. The
Company has recently hired certain experienced broadcast executives which will
increase general and administrative expenses in future periods.
In the event one or both of the Savoy Merger and the acquisition of certain
shares of the capital stock of HSN are not consummated, transaction costs of
approximately $4.0 million will be charged to operations and will increase
general and administrative expenses.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization decreased $.3 million to $3.4 million in the
three months ended June 30, 1996 from $3.7 million in the three months ended
June 30, 1995 and decreased $.5 million to $6.9 million in the six months ended
June 30, 1996 from $7.4 million in the six months ended June 30, 1995. The
decrease for the three and six months ended June 30, 1996 was primarily due to
the closure of the Denver Telemation facility in December 1995. The Company sold
many of the assets of Telemation thereby decreasing the depreciation expense for
the first six months of 1996.
OTHER INCOME (EXPENSE)
Other expense increased $.8 million to $1.4 million in the three months
ended June 30, 1996 from $.6 million in the three months ended June 30, 1995 and
increased $.4 million to $3.1 million in the six months ended June 30, 1996 from
$2.7 million in the six months ended June 30, 1995. The increases for the three
and six months ended June 30, 1996 are principally a result of the recognition
in the prior year of additional interest income in May 1995 related to the
settlement of the Company's lawsuit against Urban Broadcasting Corporation
("Urban") as discussed in Note C of the financial statements which offset
interest expense.
INCOME TAXES
The Company's effective tax rate for periods presented differed from the
statutory rate due primarily to the amortization of goodwill and other acquired
intangible assets relating to acquisitions from prior years, other nondeductible
items, and state income taxes.
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SILVER KING COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
State taxes are more significant than federal taxes for the Company as some
of the Company's subsidiaries generate taxable income while others generate net
operating losses. For federal tax purposes, the net operating losses offset the
taxable income as the corporations file a consolidated federal tax return.
B. FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $6.4 million as of June 30, 1996,
compared with working capital of $7.6 million as of December 31, 1995.
The Company historically has generated sufficient cash flow to fund its
operating, investing and financing activities.
The Company has used its internally generated cash flow for investing
activities to fund capital expenditures and investments in television
broadcasting companies controlled by FCC-recognized minority groups. During the
quarter ended June 30, 1996, the Company had capital expenditures of
approximately $.3 million. The Company expects to fund additional expenditures
of approximately $.7 million during the 1996 calender year, although the Company
has no contractual commitments with any parties.
The Company has used its internally generated cash flow for financing
activities to service principal obligations under its Credit Agreement with
Chemical Bank and other named Lenders (the "Bank Group"). During the six months
ended June 30, 1996, the Company paid approximately $6.1 million of principal
obligations to the Bank Group and expects to pay approximately $8.6 million
during the remainder of 1996, including a mandatory prepayment as a result of
the sale of the corporate headquarters building. Under certain conditions, the
Company's Borrowing Group, which consists of all Company entities with the
exception of SKC, Silver King Investment Holdings, Inc., Thames Acquisition
Corp. (which will be merged into Savoy if such transaction is consummated) and
SKC Investments, Inc., is required to fund mandatory principal prepayments in
advance of scheduled principal payments to the Bank Group. The Borrowing Group
may at any time fund optional principal prepayments in satisfaction of mandatory
principal prepayments or in advance of scheduled principal payments to the Bank
Group.
Based on current projections, the Company expects that all operating,
investing and financing activities for calendar year 1996 will be met from
either internally generated cash flow or available cash. However, in the event
that these projections are not met, the Borrowing Group has a revolving credit
facility available from the Bank Group of $15.0 million.
On, June 26, 1996, the Company sold its corporate headquarters building in
St. Petersburg, Florida for $2.3 million, net of expenses, all of which was held
in a cash collateral account for purposes of the mandatory prepayment to the
Bank Group. The Company recorded a gain on the sale of the building of
approximately $.2 million.
On April 26, 1996, an entity in which the Company holds a 49% nonvoting
common stock interest consummated the acquisition of Station KPST-TV, Vallejo,
California which serves the San Francisco market. SKC Investments, Inc., a
subsidiary of the Company, loaned the purchasing entity $7.9 million on similar
terms to other loans of this nature to finance the acquisition. On August 1,
1996, the Company funded an additional $.7 million and may fund an additional
$.3 million for construction of a new studio.
On May 8, 1996, the Company received a prepayment of approximately $1.4
million in full satisfaction of the note receivable from RBC. The Company still
retains a 45% nonvoting convertible common stock interest in RBC. In addition,
during the six months ended June 30, 1996, collections from other notes
receivable were $1.1 million.
10
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SILVER KING COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
C. OTHER SIGNIFICANT MATTERS
The Company has an option to purchase a 45% nonvoting common stock interest
in Station WJYS(TV), Hammond, Indiana, serving the Chicago, Illinois television
market. In a Memorandum Opinion and Order and Notice of Apparent Liability
released June 14, 1996, the FCC ruled that, consistent with FCC regulations and
policies, the Company may exercise that portion of the option which will provide
it with a 33% nonvoting common stock interest in Station WJYS(TV). The Company
has a loan agreement with the station licensee and the FCC also required that
certain aspects of the loan documents between the licensee of WJYS(TV) and the
Company be reformed. The licensee of WJYS(TV) has filed a petition with the FCC
requesting clarification as to whether the agency intended to rewrite the option
to permit a partial exercise and argues that if it did so intend, the FCC lacked
the authority to do so. The Company has opposed that petition.
In a Memorandum Opinion issued May 14, 1996, the U.S. Court of Appeals for
the Ninth Circuit refused to enforce an order of the National Labor Relations
Board certifying the National Association of Broadcast Employees and Technicians
as the collective bargaining agent of the employees of the Company's Ontario,
California broadcast and Telemation facilities.
The Company and HSC entered into a Master Low Power Television Affiliation
Agreement as of May 1, 1996 covering all of the Company's LPTV stations. The
Company will be paid up to $550,000 annually under the agreement.
11
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PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
See Part I, Item 1. Financial Statements. Note C -- Litigation
ITEM 5. OTHER INFORMATION.
On August 13, 1996, the Company, Savoy and Thames Acquisition Corp. ("Sub")
entered into an Amendment ("Amendment No. 2") to the Merger Agreement.
Pursuant to, and subject to the terms and conditions of, the Merger
Agreement as amended by Amendment No. 2, each issued and outstanding share of
Common Stock of Savoy ("Savoy Common Stock"), other than shares owned by the
Company, Sub or any other wholly owned subsidiary of the Company, will be, upon
consummation of the Merger, converted into the right to receive 0.14 of a fully
paid and nonassessable share of common stock, $.01 par value per share, of the
Company ("Company Common Stock"). Pursuant to Amendment No. 2, the Company and
Savoy agreed to reduce the exchange ratio from 0.20 to 0.14 of a share of the
Company Common Stock for each share of Savoy Common Stock in light of, among
other things, the recent performance of Savoy's four television stations. No
fractional shares of Company Common Stock will be issued upon consummation of
the Merger; in lieu thereof, a cash payment will be made.
The Boards of Directors of the Company and Savoy each have, by a unanimous
vote of those directors voting, approved Amendment No. 2 and recommended that
the Company's and Savoy's stockholders, respectively, vote in favor of the
Merger Agreement, as amended, and the transactions contemplated thereby.
In addition, Amendment No. 2 extended to December 31, 1996 (subject to
extension in certain circumstances) the date after which the Merger Agreement
may be terminated by either the Company or Savoy.
The foregoing description of the Merger Agreement, as amended, is qualified
in its entirety by reference to the text of the Merger Agreement and Amendment
No. 2. The text of the Merger Agreement (which was filed as Exhibit 3.2 to the
Company's Form 8-K dated November 27, 1995) and Amendment No. 2 (which is
attached hereto as Exhibit 2.1) is incorporated herein by reference.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
2.1 Amendment No. 2 to the Agreement and Plan of Merger, dated as of August 13, 1996
among Savoy Pictures Entertainment, Inc, Silver King Communications, Inc and
Thames Acquisition Corp.
10.1 Waiver, dated as of December 14, 1995, to the Credit Agreement by and between the
Company and Chemical Bank and other participating lenders.
10.2 Second Amendment and Waiver, dated as of June 6, 1996, to the Credit Agreement by
and between the Company and Chemical Bank and other participating lenders.
10.3 Agreement, dated as of June 6, 1996, by and between SKC Investments, Inc. and
Chemical Bank.
10.4 Master Low Power Television Affiliation Agreement, dated as of May 1, 1996, by and
between the Company and Home Shopping Club, Inc.
27 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
The Company filed a report on Form 8-K on July 2, 1996 providing its
audited consolidated financial statements for the four-month transition period
ended December 31, 1995 together with an independent auditors' report with
respect to such statements.
12
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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.
SILVER KING COMMUNICATIONS, INC.
--------------------------------------
(Registrant)
Date: August 14, 1996
/s/ JAMES J. MILLER
--------------------------------------
James J. Miller
Acting Chief Financial Officer
Vice President and Controller
13
1
EXHIBIT 2.1
Conformed Copy
AMENDMENT
AMENDMENT, dated as of August 13, 1996 (this "Amendment"), to
the Agreement and Plan of Merger, by and among Silver King Communications, Inc.
("Parent"), Thames Acquisition Corp. ("Sub") and Savoy Pictures Entertainment,
Inc. (the "Company"), dated as of November 27, 1995, as heretofore amended (the
"Merger Agreement").
W I T N E S S E T H :
WHEREAS, pursuant to the Merger Agreement, Parent, Sub and the
Company have approved the terms and conditions of the business combination
between Parent and the Company to be effected by the merger (the "Merger") of
Sub with and into the Company; and
WHEREAS, Parent, Sub and the Company have agreed that certain
provisions of the Merger Agreement be amended in the manner provided for in
this Amendment.
NOW, THEREFORE, the parties hereto hereby agree as follows:
I. Defined Terms. Terms defined in the Merger Agreement and
used herein shall have the meanings given to them in the Merger Agreement.
II. Amendments to Merger Agreement.
1. Definitions. As used in the Merger Agreement, (a)
the term "Agreement" shall mean the initial merger agreement among the parties
hereto, dated as of November 27, 1995, and any and all amendments thereto
entered into on or prior to the date hereof, (b) the term "Merger" shall mean
the merger of Sub with and into the Company pursuant to the terms and
conditions of the Agreement (as amended as of the date hereof), (c) the term
"Company Voting Agreement" shall mean the voting agreement among certain
stockholders of the Company listed on Annex A of the Agreement and Parent, as
such agreement has been amended as of the date hereof, (d) the term "Parent
Voting Agreement" shall mean the voting agreement among certain stockholders of
Parent listed on Annex B of the Agreement and the Company, as such agreement
has been amended as of the date hereof and (e) the terms "Company SEC Reports"
and "Parent SEC Reports" shall mean each report, schedule, registration
statement and definitive proxy statement filed by the Company or Parent,
2
as the case may be, with the SEC on or after March 1, 1993 and prior to August
13, 1996.
2. Amendment to Article 2. The first sentence of
Section 2.1(c) of the Merger Agreement is hereby amended by deleting it in its
entirety and substituting in lieu thereof the following:
"Each share of common stock, $.01 par value per
share, of the Company ("Company Common Stock"), issued and
outstanding (including Company Restricted Stock, pursuant to
Section 2.3(b)) immediately prior to the Effective Time (other
than shares of Company Common Stock to be cancelled pursuant
to Section 2.1(b)), shall be converted into the right to
receive 0.14 of a fully paid and nonassessable share of common
stock, $.01 par value per share, of Parent ("Parent Common
Stock") (subject, in the case of Company Restricted Stock, to
Section 2.3(b)) (the "Exchange Ratio")."
3. Amendment to Article 3. (a) Section 3.8 of the
Merger Agreement is hereby amended by deleting the text thereof in its entirety
and replacing such text with the following:
"SECTION 3.8. ABSENCE OF CERTAIN CHANGES OR EVENTS.
Except as set forth in Section 3.8 of the Company Disclosure
Letter, contemplated by this Agreement, disclosed in the
Company SEC Reports or disclosed to Parent as referred to in
Section 3.18 hereto, (a) since September 30, 1995, the Company
and its subsidiaries have conducted their businesses only in
the ordinary course and in a manner consistent with past
practice and have not taken any of the actions set forth in
paragraphs (a) through (j) of Section 5.2, and (b) there has
not been (i) since August 13, 1996 and excluding in addition
the matters set forth in Schedule A or the proximate
consequences thereof, any event or condition (financial or
otherwise) of any character, individually or in the aggregate,
significantly impairing or which could reasonably be expected
to significantly impair the long-term value of the Company (it
being understood that this standard is very substantially in
excess of a Material Adverse Effect), or (ii) since September
30, 1995, any material change by the Company in its accounting
methods, principles or practices except as required by
concurrent changes in GAAP."
-2-
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(b) Article 3 of the Merger Agreement is further amended by
adding the following text after the conclusion of Section 3.17:
"SECTION 3.18. DISCLOSURE. On or prior to August
13, 1996, the Company has fully and accurately in all respects
disclosed to Parent all material information regarding the
business, financial and operating condition of the Company,
including any such information known by the Chairman of the
Board and Chief Executive Officer or Chief Operating Officer
of the Company, and Dan W. Lufkin, a director of the Company.
The historical financial information relating to the Company
set forth in Schedule 3.18 hereto is, to the knowledge of the
Company and such individuals as of August 13, 1996, true and
complete in all material respects, and the projected financial
information set forth in Schedule 3.18 reflects the best good
faith estimate, as of such date, of the Company and such
individuals. As of August 13, 1996, neither the Company nor
any such individuals has knowledge of any other condition,
circumstance or event relating to the Company, not so
disclosed to Parent, that would, individually or in the
aggregate, have a Material Adverse Effect."
4. Amendment to Article 5. Section 5.5 of the Merger Agreement
is hereby amended by adding the following sentence as the last sentence
thereof:
"Without limiting the generality of the foregoing, Parent and
the Company agree to re-file the preliminary Proxy Statement
with the SEC and to respond to any comments from the SEC, in
each case as promptly as reasonably practicable."
5. Amendment to Article 7. Section 7.1 of the Merger Agreement
is hereby amended by deleting subsection (b) thereof in its entirety and
replacing such subsection with the following text:
"(b) by either Parent or the Company, if the Merger shall not
have been consummated by December 31, 1996, provided that such
date may be extended by either party if the definitive Proxy
Statement is not mailed to stockholders of Parent and the
Company by November 15, 1996 due to events related to the
transaction relating to Home Shopping Network, Inc. ("HSN")
-3-
4
referred to in the Parent Disclosure Letter (or another
transaction involving the capital stock of HSN) (the "HSN
Transaction") to be described in the preliminary Proxy
Statement, by such number of days after November 15, 1996
until the definitive Proxy Statement is so mailed, and
provided further that the right to terminate this Agreement
under this Section 7.1(b) (or to extend the termination date
pursuant to the preceding clause) shall not be available to
any party whose action or failure to act has been the cause of
or resulted in the failure of the Merger to occur on or before
such date and such action or failure to act constitutes a
breach of this Agreement;".
6. Amendment to Article 6. Section 6.2(a) of the Merger
Agreement is hereby amended by adding the following text after the text "as
though made on and as of the Closing Date":
", provided that the representations and warranties in Section
3.6(a) shall exclude the matters set forth in Schedule A and
the proximate consequences thereof and, provided further, that
the representations and warranties in Sections 3.7(c) and 3.9
as they relate to the operations of the Company's business in
the ordinary course shall be read as of the Closing Date
without reference to any materiality standard set forth
therein and shall be true and correct except to the extent
their failure to be so true and correct shall not
significantly impair, or could reasonably be expected to
significantly impair, the long-term value of the Company (it
being understood that this standard is very substantially in
excess of a Material Adverse Effect)".
7. Parent Disclosure Letter. References in the Parent Disclosure
Letter to the Exchange Agreement and related transactions shall be deemed to
include any HSN Transaction.
III. General.
1. No Other Amendments. Except as expressly amended,
modified and supplemented hereby, the provisions of the Merger Agreement are
and shall remain in full force and effect.
2. Governing Law; Counterparts. (a) This Amendment
shall be governed by, and construed in accordance with, the laws of the State
of Delaware applicable to contracts made and to be performed therein, without
giving effect to laws that
-4-
5
might otherwise govern under applicable principles of conflicts of law.
(b) This Amendment may be executed by one or more of the parties to
this Agreement on any number of separate counterparts, and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument.
- 5 -
6
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their respective proper and duly authorized
officers as of the day and year first above written.
SILVER KING COMMUNICATIONS, INC.
By: /s/ Barry Diller
-----------------------------------
Title: Chief Executive Officer
--------------------------------
THAMES ACQUISITION CORP.
By: /s/ Michael Drayer
-----------------------------------
Title: Vice President
--------------------------------
SAVOY PICTURES ENTERTAINMENT, INC.
By: /s/ Lewis J. Korman
-----------------------------------
Title: President
--------------------------------
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EXHIBIT 10.1
EXECUTION COPY
WAIVER dated as of December 14, 1995 (this "Waiver") to
the Credit Agreement dated as of August 1, 1994, as amended as
of August 31, 1994 (the "Credit Agreement"), among SILVER KING
COMMUNICATIONS, INC., a Delaware corporation ("Holdings"),
SKTV, INC., a Delaware corporation and a wholly owned
subsidiary of Holdings (the "Borrower"), the financial
institutions party thereto (the "Lenders") and CHEMICAL BANK,
a New York banking corporation, as administrative agent (in
such capacity, the "Administrative Agent") and as collateral
agent (in such capacity, the "Collateral Agent") for the
Lenders.
Holdings and certain other Persons wish to consummate certain
transactions hereinafter described (collectively, the "Control Transactions")
which would result in a Change of Control (such term and each other term used
but not defined herein shall have the meaning assigned thereto in the Credit
Agreement) under the Credit Agreement by virtue of one or both of Barry Diller
and Tele-Communications, Inc., a Delaware Corporation ("TCI"), (collectively,
the "Reporting Persons") acquiring control of Holdings.
On August 29, 1995, the Reporting Persons filed a Schedule 13D under
the Securities and Exchange Act of 1934, attached as Exhibit A hereto (as
amended to the date hereof, the "Schedule 13D"), in respect of the common
stock, par value $.01 per share of Holdings (the "Common Stock"). According to
the Schedule 13D, the Reporting Persons constitute a "group" for purposes of
Rule 13d-5 under the Securities Exchange Act of 1934, as amended, with respect
to their beneficial ownership of Common Stock.
TCI currently holds 61,630 shares of Common Stock and Liberty Media
Corporation, a Delaware corporation and a wholly owned subsidiary of TCI
("Liberty"), holds a transferable option to purchase 2,000,000 share of
Holdings' Class B Common Stock, par value $.01 per share ("Class B Stock"),
from RMS Limited Partnership, a Nevada limited partnership and the controlling
shareholder of Holdings ("RMS"), at a current exercise price of $1.50 per share
(the "Class B Option").
Pursuant to a definitive term sheet, dated as of August 24, 1995 (the
"Equity Compensation Agreement", attached as an exhibit to the Schedule 13D),
Barry Diller (a) acquired beneficial ownership of 220,994 shares of Common
Stock at a purchase price of $22.625 per share paid in cash, (b) acquired
beneficial ownership of 220,994 additional shares of Common Stock at a purchase
price of $22.625 per share paid by delivery of a non-interest bearing
promissory note of Barry Diller plus the sum of $2,210 in cash, (c) acquired
certain options to purchase up to
1,895,847 shares of Common Stock at an exercise price of $22.625 per share (the
"Options"), and (d) became the Chairman of the Board and Chief Executive
Officer of Holdings.
Barry Diller and Liberty have entered into an agreement, dated as of
August 24, 1995, with respect to their ownership of the equity securities of
Holdings (the "Stockholders Agreement", attached as an exhibit to the Schedule
13D). Pursuant to the Stockholders Agreement, Liberty and Barry Diller have
formed an entity (the "Silver Company"), to which Liberty will contribute the
Class B Option as well as an amount in cash equal to the aggregate exercise
price thereof, and Barry Diller will contribute an amount of cash to be agreed
upon. Barry Diller will initially hold a common equity interest in the Silver
Company constituting all of the voting stock of the Silver Company, and Liberty
will hold a convertible nonvoting common equity interest. Barry Diller will
control the equity securities of Holdings held by Silver Company, except that,
subject to applicable law, the approval of both Liberty
2
2
and Barry Diller will be required in connection with certain Fundamental
Matters (as set forth in the Stockholders Agreement). The Stockholders
Agreement also provides that Barry Diller is entitled to exercise voting
authority and authority to act by written consent over all securities of
Holdings owned by any of the Reporting Persons and certain of their affiliates
on all matters submitted to a vote of the Holdings' stockholders or by which
the Holdings' stockholders may act by written consent. In connection
therewith, Liberty will provide Barry Diller with a conditional proxy, which
proxy shall be valid for the full term of the Stockholders Agreement and will
be irrevocable.
Barry Diller and Holdings have filed all necessary applications with
the Federal Communications Commission for transfer of control of Holdings to
Silver Company. Upon receipt of such approval and other regulatory approvals
as may be required, Barry Diller intends to cause the exercise of the Class B
Option and to acquire voting control of Holdings. Following the exercise of
the Class B Option, subject to applicable law, Barry Diller will have the right
to cause the election of a majority of the Board of Directors of Holdings.
Pursuant to the terms of the Class B Option, upon exercise, the holder
may elect to require RMS to convert all shares of Class B Stock owned by it
which are not subject to the Class B Option into Common Stock. As a result,
fewer than 2,280,000 shares of Class B Stock would be outstanding, and,
pursuant to Holdings' Restated Certificate of Incorporation, the Reporting
Persons believe that the holders of the Class B Stock would vote with the
holders of the Common Stock as a single class on substantially all matters
presented to the stockholders of Holdings, with each share of Class B Stock
entitled to cast 10 votes upon matters considered for approval at any meeting
of stockholders.
Assuming that Barry Diller and Liberty exercise the Class B Option and
elect to require the holder of the remaining 415,945 shares of Class B Stock to
convert such shares into Common Stock, the securities of Holdings beneficially
owned by the Reporting Persons (not including the Options, none of which is
currently vested and none of which is currently exercisable or becomes
exercisable in the next 60 days) would constitute approximately 75% of the
voting power of the outstanding equity securities of Holdings.
On November 27, 1995, Holdings entered into certain agreements
pursuant to which it has agreed to acquire control of Home Shopping Network,
Inc. In connection with these transactions, Holdings will issue additional
Common Stock and Class B Stock and the Reporting Persons entered into an
amendment to the Stockholders Agreement, all as described in an Amendment to
the Schedule 13D, attached as part of Exhibit A hereto (the "Amendment").
The Control Transactions are more fully described in the Schedule 13D
(including the Amendment), which is attached hereto and incorporated herein by
reference.
The Administrative Agent, the Collateral Agent and the Lenders party
hereto are willing, on the terms, subject to the conditions and to the extent
set forth below, to grant such waivers.
In consideration of the premises and the agreements, provisions and
covenants herein contained, the parties hereto hereby agree, on the terms and
subject to the conditions set forth herein, as follows:
SECTION 1. Waiver. The Administrative Agent, the Collateral Agent
and the Lenders party hereto hereby waive any Event of Default that will result
pursuant to clause (m) of Article VII by
3
3
virtue of the Reporting Persons acquiring control of Holdings upon the
consummation of any or all of the Control Transactions as described above and
in the Schedule 13D. The Borrower explicitly acknowledges that, except as set
forth in the preceding sentence, such clause (m) of Article VII and each other
provision of the Credit Agreement remain in full force and effect, including
with respect to any other or subsequent Change of Control (including any
acquisition of control by any person or group other than one or more of the
Reporting Persons) that may occur.
SECTION 2. Representations and Warranties. The Borrower represents
and warrants to each of the Lenders and the Administrative Agent and the
Collateral Agent that:
(a) Before and after giving effect to this Waiver, the
representations and warranties set forth in Article III of the Credit
Agreement are true and correct in all material respects with the same
effect as if made on the date hereof, except to the extent such
representations and warranties expressly relate to an earlier date.
(b) Before and after giving effect to this Waiver, no Event
of Default or Default has occurred and is continuing.
SECTION 3. Condition to Effectiveness. This Waiver shall become
effective as of the date first above written when the Administrative Agent
shall have received counterparts of this Waiver that, when taken together, bear
the signatures of the Borrower, the Collateral Agent and Lenders holding Loans
and unused Commitments representing greater than 66-2/3% of the sum of (a) the
aggregate principal amount of the Loans outstanding at such time and (b) the
aggregate unused Commitments at such time.
SECTION 4. Credit Agreement. Except as specifically stated herein,
the provisions of the Credit Agreement are and shall remain in full force and
effect. As used therein, the terms "Agreement", "herein", "hereunder",
"hereinafter", "hereto", "hereof" and words of similar import shall, unless the
context otherwise requires, refer to the Credit Agreement as modified hereby.
SECTION 5. APPLICABLE LAW. THIS WAIVER SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 6. Counterparts. This Waiver may be executed in two or more
counterparts, each of which shall constitute an original but all of which when
taken together shall constitute but one contract.
4
4
SECTION 7. Expenses. The Borrower agrees to reimburse the
Administrative Agent for its reasonable out-of- pocket expenses in connection
with this Waiver, including the reasonable fees, charges and disbursements of
Cravath, Swaine & Moore, counsel for the Administrative Agent.
IN WITNESS WHEREOF, the parties hereto have caused this Waiver to be
duly executed by their respective authorized officers as of the day and year
first written above.
SILVER KING COMMUNICATIONS, INC.,
by /s/ Steven H. Grant
----------------------------------
Name: Steven H. Grant
Title: Executive Vice President
SKTV, INC.,
by
/s/ Michael Drayer
----------------------------------
Name: Michael Drayer
Title: Vice President
CHEMICAL BANK, as a Lender, as
Administrative Agent and as Collateral Agent,
by
/s/ John J. Huber III
---------------------------------
Name: John J. Huber III
Title: Managing Director
THE BANK OF NEW YORK,
by
/s/ Wade Layton
---------------------------------
Name: Wade Layton
Title: Vice President
5
5
FIRST UNION NATIONAL BANK OF NORTH
CAROLINA,
by
-----------------------------------
Name:
Title:
THE LONG-TERM CREDIT BANK OF
JAPAN, LTD.,
by
/s/ John J. Sullivan
-----------------------------------
Name: John J. Sullivan
Title: Joint General Manager
MERRILL LYNCH SENIOR FLOATING RATE
FUND, INC.,
by
/s/ John W. Fraser
-----------------------------------
Name: John W. Fraser
Title: Authorized Signatory
VAN KAMPEN AMERICAN CAPITAL PRIME RATE
INCOME TRUST,
by
/s/ Jeffrey W. Maillet
-----------------------------------
Name: Jeffrey W. Maillet
Title: Senior Vice President-
Portfolio Manager
PRIME INCOME TRUST,
by
-----------------------------------
Name:
Title:
6
6
CERES FINANCE LTD.,
by CHANCELLOR SENIOR SECURED
MANAGEMENT, INC., as Financial
Manager
by /s/ Christopher A. Bondy
---------------------------
Name: Christopher A. Bondy
Title: Vice President
CREDITANSTALT BANKVERIEN,
by /s/ Bob Biringer
-------------------------------
Name: Bob Biringer
Title: Senior Vice President
CREDITANSTALT BANKVERIEN,
by /s/ Scott Kray
-------------------------------
Name: Scott Kray
Title: Senior Associate
MERRIL LYNCH PRIME RATE PROTFOLIO,
by MERRIL LYNCH ASSET
MANAGEMENT, L.P., as
Investment Advisor,
by /s/ John W. Fraser
-------------------------------
Name: John W. Fraser
Title: Authorized Signatory
RESTRUCTURED OBLIGATIONS BACKED BY
SENIOR ASSETS B.V.,
by CHANCELLOR SENIOR SECURED
MANAGEMENT, INC., as Portfolio
Advisor,
by /s/ Christopher A. Bondy
----------------------------
Name: Christopher A. Bony
Title: Vice President
7
STICHTING RESTRUCTURED OBLIGATIONS
BACKED BY SENIOR ASSETS 2 (ROSA 2),
by CHANCELLOR SENIOR SECURED
MANAGEMENT, INC., as Portfolio
Advisor,
by /s/ Christopher A. Bondy
----------------------------
Name: Christopher A. Bondy
Title: Vice President
1
EXHIBIT 10.2
EXECUTION COPY
SECOND AMENDMENT AND WAIVER dated as of June
6, 1996 (this "Amendment"), to the Credit Agreement
dated as of August 1, 1994, as amended as of August
31, 1994 (the "Credit Agreement"), among SILVER KING
COMMUNICATIONS, INC., a Delaware corporation
("Holdings"), SKTV, INC., a Delaware corporation and
a wholly owned subsidiary of Holdings (the
"Borrower"), the financial institutions party thereto
(the "Lenders") and CHEMICAL BANK, a New York banking
corporation, as administrative agent for the Lenders
(in such capacity, the "Administrative Agent") and as
collateral agent for the Lenders (in such capacity,
the "Collateral Agent").
A. Silver King Capital Corporation, Inc., a Delaware corporation and
a wholly owned subsidiary of the Borrower ("SKCC"), wishes to consummate
certain transactions hereinafter described (collectively, the "Channel 66
Transactions"), which are not currently permitted under the Credit Agreement.
Silver King Broadcasting of Northern California, Inc., a wholly owned
subsidiary of the Borrower ("Silver King California"), was party to a
Memorandum of Understanding, a copy of which is annexed hereto (the "Memorandum
of Understanding"), with Whitehead Communications, Inc., relating to the
acquisition (the "Acquisition") of KPST-TV, Vallejo, California ("KPST-TV")
from Pan Pacific Television, Inc. All Silver King California's material rights
and obligations under the Memorandum of Understanding have been assigned to,
and assumed by, SKCC and, as described below, SKC Investments, Inc., a Delaware
corporation and a wholly owned subsidiary of Holdings ("SKCI"). Pursuant to
the Memorandum of Understanding, Channel 66 of Vallejo, California, Inc.
("Channel 66") has been formed as a Delaware corporation with one class of
voting stock, comprising 51% of the equity of Channel 66, which is owned by
Whitehead Media of California, Inc. ("Whitehead") and one class of convertible
nonvoting stock (convertible into voting stock), comprising 49% of the equity
of Channel 66, which is owned by SKCC. SKCC proposes to make a loan to SKCI in
the approximate amount of $4,900,000 (the "SKCI Loan"), of which $1,400,000
will be made from Allowable Investment Proceeds as defined in the Credit
Agreement; SKCI, in turn, proposes to make a loan to Channel 66 in the
approximate amount of $8,900,000
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(the "Channel 66 Loan"), the proceeds of which will be utilized to finance the
Acquisition, acquire or construct new studio facilities and provide working
capital. The Channel 66 Loan will be secured by a pledge of Whitehead's 51%
interest in Channel 66. Substantially simultaneously with the closing of the
Acquisition, Channel 66 will enter into an affiliation agreement with Home
Shopping Club, Inc.
B. The Memorandum of Understanding provides that, under certain
circumstances and at certain times, (i) Whitehead will have the rights to put
its shares in Channel 66 to SKCC and to otherwise be compensated for the
transfer of such shares in connection with a foreclosure of the Channel 66 Loan
(collectively, the "Whitehead Put Rights") and (ii) SKCC will have the right to
purchase Whitehead's shares in Channel 66 (the "SK Call Rights"), in each case
for a price equal to 51% of the excess of the appraised value of KPST-TV over
its liabilities. All rights and obligations of SKCC in respect of the
Whitehead Put Rights and the SK Call Rights will be assigned to, and assumed
by, SKCI (the "Put-Call Assumption") and SKCC will have no further liability or
obligation in connection therewith.
C. Holdings and the Borrower wish to change their fiscal year to a
fiscal year ending December 31.
D. Holdings and the Borrower wish to amend the definition of EBITDA
in the Credit Agreement to change the treatment of Capital Investment Payments.
E. The Borrower has requested that the Lenders consent to a deferral
in the payment of preferred stock dividends by Blackstar Communications, Inc.
to the Borrower or its subsidiaries.
F. Pursuant to a pre-existing contractual commitment to
Roberts Broadcasting Company ("Roberts"), SKCC may be required to pledge its
shares of stock in Roberts (the "Roberts Stock") to secure third party
financing obtained by Roberts, and accordingly has requested that the Roberts
Stock be released as Collateral under the Pledge Agreement in order to permit
such pledge.
G. In connection with the foregoing, the Borrower and Holdings have
requested that the Lenders enter into this Amendment in order to amend and to
waive certain provisions of the Credit Agreement, and the Lenders are willing
to
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enter into this Amendment, subject to the terms and conditions set forth
herein. Capitalized terms used and not otherwise defined herein shall have the
meanings assigned to them in the Credit Agreement.
Accordingly, in consideration of the mutual agreements contained in
this Amendment and other good and valuable consideration, the sufficiency and
receipt of which are hereby acknowledged, the parties hereto hereby agree as
follows:
SECTION 1. Amendments of Credit Agreement. Upon the effectiveness of
this Amendment in accordance with Section 4 hereof:
(a) Amendment to Section 1.01. Section 1.01 of the Credit Agreement
shall be amended as set forth below:
(i) The definition of " Allowable Investments" shall be amended by
inserting immediately after the reference to "fiscal year" the words "or
period, as the case may be".
(ii) The definition of "EBITDA" shall be amended by deleting the
words "(including Capital Investment Payments)", and inserting,
immediately following the semi-colon after "extraordinary losses", the
words "and plus the amount of Capital Investment Payments not in excess of
$75,000 for any fiscal quarter;".
(iii) The definition of " Excess Cash Flow" shall be amended by (x)
deleting the words "for any fiscal year ending on or after August 31,
1995, EBITDA for such fiscal year" and inserting in place thereof the
words "for the fiscal year ending August 31, 1995, for the period from and
including September 1, 1995, to and including December 31, 1996, and for
any fiscal year ending on or after December 31, 1997, EBITDA for such
fiscal period" and (y) deleting the word "year" at the end of such
definition and inserting in place thereof the word "period".
(iv) The definition of "Excess Cash Flow Percentage" shall be amended
by adding immediately after each reference therein to "fiscal year" the
words "(or other period in respect of which Excess Cash Flow is
computed)".
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(v) The following definition shall be added in proper alphabetical
order:
"Stub Period" shall mean the fiscal period from and including
September 1, 1995, through and including December 31, 1995."
(b) Amendment to Section 2.13(c). Paragraph (c) of Section 2.13 of
the Credit Agreement shall be amended to read in its entirety as follows:
"(c) No later than 110 days after the end of each fiscal year of the
Borrower ending on or after December 31, 1996, the Borrower shall prepay
outstanding Loans in accordance with Section 2.13(d) in an aggregate
principal amount equal to the Excess Cash Flow Percentage of Excess Cash
Flow for such fiscal year or, in the case of the fiscal year ended
December 31, 1996, for the period from and including September 1, 1995
through and including December 31, 1996, minus the sum of (a) prepayments
of Term Loans during such period or fiscal year pursuant to Section 2.12
and (b) prepayments of Revolving Loans during such period or fiscal year
pursuant to Section 2.12 but only to the extent that such Revolving Loans
cannot by their terms be redrawn or reborrowed."
(c) Amendment to Section 5.04. Section 5.04 of the Credit Agreement
shall be amended by inserting the words "and after the end of the Stub Period"
in paragraphs (a), (g) and (f) immediately after the first references therein
to "fiscal year" and by inserting the words "or Stub Period" after each other
reference to "fiscal year" or "year" in paragraphs (a) and (b).
(d) Amendment to Section 5.09. Section 5.09 of the Credit Agreement
shall be amended by deleting the reference to "August 31" and inserting in
place thereof a reference to "December 31".
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(e) Amendment of Section 6.12. The table appearing on Section 6.12
of the Credit Agreement shall be amended to read in its entirety as follows:
"From and Including: To and Including: Ratio:
------------------- ----------------- ------
October 1, 1995 September 30, 1996 4.75 to 1.00
October 1, 1996 September 30, 1997 4.25 to 1.00
October 1, 1997 September 30, 1998 4.00 to 1.00
October 1, 1998 Thereafter 3.50 to 1.00"
(f) Amendment to Section 6.13. The table appearing on Section 6.13
of the Credit Agreement shall be amended to read in its entirety as follows:
"From and Including: To and Including: Ratio:
------------------- ----------------- ------
October 1, 1995 September 30, 1996 2.50 to 1.00
October 1, 1996 September 30, 1997 2.75 to 1.00
October 1, 1997 Thereafter 3.00 to 1.00"
(g) Amendment to Section 6.14. Section 6.14 of the Credit Agreement
shall be amended by deleting the reference to "August 31, 1997" and inserting
in place thereof "September 30, 1997", and by deleting the reference to
"September 1, 1997" and inserting in place thereof "October 1, 1997".
SECTION 2. Fiscal Quarters. Each reference in the Credit Agreement to
a fiscal quarter or to fiscal quarters of Holdings or the Borrower (including
in respect of fiscal quarters ending prior to the Effective Date) shall be
deemed to refer to fiscal quarters ending on March 31, June 30, September 30
and December 31 of each year. The Borrower will prepare and deliver to the
Administrative Agent and the Lenders, no later than ten days after the date on
which the conditions to effectiveness set forth in Section 4 hereof have been
satisfied, audited financial statements for the Stub Period and unaudited
financial statements for the fiscal quarter ended March 31, 1996, in each case
in accordance with the requirements of Section 5.04. For purposes of the
Credit Agreement, such financial statements (and delivery thereof at the time
required hereby) shall be deemed to have been required by and timely delivered
pursuant to Section 5.04, in lieu of other financial statements covering such
periods.
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SECTION 3. Waivers. (a) The Lenders hereby waive, subject to the
conditions set forth below, compliance with the provisions of Sections 6.01 and
6.04 of the Credit Agreement to the extent, and only to the extent, necessary
to permit (i) SKCC to acquire 49% of the stock of Channel 66 as contemplated by
the Memorandum of Understanding, (ii) SKCC to make the SKCI Loan and (iii) SKCI
to make the Channel 66 Loan. The foregoing waiver shall not constitute a
waiver with respect to any purchase or acquisition by the Borrower or its
Subsidiaries of any of Whitehead's shares in Channel 66, and any such purchase
or acquisition will accordingly require the prior written consent of the
Required Lenders. The foregoing waiver is specifically conditioned on (w) all
the shares of Channel 66 at any time owned or acquired by the Borrower, SKCC or
any other Subsidiary of the Borrower being pledged to the Lenders under the
Pledge Agreement, (x) the SKCI Loan being evidenced by a note which is pledged
to the Lenders under the Pledge Agreement at the time the SKCI Loan is made,
(y) SKCI having entered into an agreement with the Administrative Agent, for
the benefit of the Lenders, in form and substance satisfactory to the
Administrative Agent, pursuant to which SKCI agrees not to sell, transfer or
otherwise dispose of, or pledge or hypothecate, the Channel 66 Loan or any
interest therein or promissory note relating thereto, until the earlier of the
repayment in full of the SKCI Loan or the termination of the Credit Agreement
and the repayment of all the Obligations and (z) the Put-Call Assumption, in
form and substance satisfactory to the Administrative Agent, having been
entered into by SKCC and SKCI and consented to by Whitehead and becoming
effective.
(b) The Lenders hereby waive compliance with the provisions of
Section 5.13 of the Credit Agreement to the extent, and only to the extent,
necessary to permit the Borrower to agree to the deferral, for such period as
the Borrower shall determine, of the payment of Blackstar Dividend Income.
(c) The Lenders hereby consent to the release of the Roberts Stock as
Collateral under the Pledge Agreement for the sole purpose of permitting the
Roberts Stock to be pledged to third-party lenders to Roberts pursuant to the
requirements of the Shareholder Agreement dated April 28, 1989, among Roberts
and certain stockholders thereof, including SKCC; provided, however, that such
Roberts Stock shall promptly be repledged by SKCC under the Pledge
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Agreement in the event it is no longer required to be pledged to, or is
released from the pledge in favor of, such third party lenders to Roberts.
SECTION 4. Conditions to Effectiveness. This Amendment shall become
effective, retroactively to December 31, 1995, on the first date (the
"Effective Date") on which (x) the Administrative Agent shall have received
counterparts of this Amendment which, when taken together, bear the signatures
of Holdings, the Borrower and Lenders holding Loans and unused Commitments
representing at least 66 2/3% of the sum of (A) the aggregate principal amount
of the Loans outstanding at such time and (B) the aggregate unused Commitments
at such time and (y) the conditions to the waiver set forth in Section 3(a)
have been satisfied.
SECTION 5. Representations and Warranties. Each of Holdings and the
Borrower represents and warrants to the Administrative Agent, the Collateral
Agent and each of the Lenders that:
(a) This Amendment, and the Credit Agreement as amended hereby, have
been duly authorized, executed and delivered by them and constitute their
legal, valid and binding obligations enforceable in accordance with their
terms except as such enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or other laws affecting the
enforcement of creditors' rights generally, or by general equity
principles, including but not limited to principles governing the
availability of the remedies of specific performance and injunctive
relief.
(b) The representations and warranties set forth in Article III of
the Credit Agreement and in the other Loan Documents, after giving effect
to this Amendment, are true and correct in all material respects with the
same effect as if made on the date hereof, except to the extent such
representations and warranties expressly relate to an earlier date, in
which case they were true and correct in all material respects on and as
of such earlier date.
(c) After giving effect to this Amendment, no Default or Event of
Default has occurred and is continuing.
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For purposes of the foregoing representations, references to the
Credit Agreement shall mean the Credit Agreement as amended hereby.
SECTION 6. Credit Agreement. Except as specifically amended or waived
hereby, the Credit Agreement shall continue in full force and effect in
accordance with the provisions thereof as in existence on the date hereof.
After the date hereof, any reference to the Credit Agreement shall mean the
Credit Agreement as amended hereby.
SECTION 7. APPLICABLE LAW. THIS AMENDMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
SECTION 8. Counterparts. This Amendment may be executed in two or
more counterparts, each of which shall constitute an original, but all of which
when taken together shall constitute but one contract.
SECTION 9. Expenses. Holdings and the Borrower agree to reimburse the
Administrative Agent and the Collateral Agent for their reasonable
out-of-pocket expenses in connection with this Amendment, including the
reasonable
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fees, charges and disbursements of Cravath, Swaine & Moore, counsel for the
Administrative Agent and the Collateral Agent.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed by their respective authorized officers as of the day and year
first written above.
SILVER KING COMMUNICATIONS, INC.,
by
/s/ Michael Drayer
-----------------------------
Name: Michael Drayer
Title: Executive Vice President
SKTV, INC.,
by
/s/ Steven H. Grant
---------------------------
Name: Steven H. Grant
Title: President
CHEMICAL BANK, as a Lender, as
Administrative Agent and as
Collateral Agent,
by
/s/ Judith E. Smith
-------------------------------
Name: Judith E. Smith
Title: Vice President
THE BANK OF NEW YORK,
by
/s/ Wade Layton
-------------------------------
Name: Wade Layton
Title: Vice President
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FIRST UNION NATIONAL BANK OF NORTH
CAROLINA,
by
/s/ J.R. Reed
-----------------------------------
Name:
Title: SVP
THE LONG-TERM CREDIT BANK OF
JAPAN, LTD.,
by
/s/ John J. Sullivan
-----------------------------------
Name: John J. Sullivan
Title: Joint General Manager
MERRILL LYNCH SENIOR FLOATING RATE
FUND, INC.,
by
-----------------------------------
Name:
Title:
VAN KAMPEN AMERICAN CAPITAL PRIME RATE
INCOME TRUST,
by
/s/ Jeffrey W. Maillet
-----------------------------------
Name: Jeffrey W. Maillet
Title: Senior Vice President-
Portfolio Manager
PRIME INCOME TRUST,
by
-----------------------------------
Name:
Title:
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CERES FINANCE LTD.,
by CHANCELLOR SENIOR SECURED
MANAGEMENT, INC., as Financial
Manager
by /s/ Darren R. Riley
---------------------------
Name: Darren P. Riley
Title: DIRECTOR
CREDITANSTALT BANKVERIEN,
by /s/ Joseph P. Longosz
-------------------------------
Name: Joseph P. Longosz
Title: Vice President
CREDITANSTALT BANKVERIEN,
by /s/ Scott Kray
------------------------------
Name: Scott Krayer
Title: Senior Vice President
MERRIL LYNCH PRIME RATE PROTFOLIO,
by MERRIL LYNCH ASSET
MANAGEMENT, L.P., as
Investment Advisor,
by
-------------------------------
Name:
Title:
RESTRUCTURED OBLIGATIONS BACKED BY
SENIOR ASSETS B.V.,
by CHANCELLOR SENIOR SECURED
MANAGEMENT, INC., as
Portfolio Advisor,
by
----------------------------
Name:
Title:
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STICHTING RESTRUCTURED OBLIGATIONS
BACKED BY SENIOR ASSETS 2 (ROSA 2),
by CHANCELLOR SENIOR SECURED
MANAGEMENT, INC., as
Portfolio Advisor,
by
----------------------------
Name:
Title:
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ING CAPITAL ADVISORS, INC.,
by
/s/ Michael D. Hatley
-----------------------------------------
Name: Michael D. Hatley
Title: Vice President & Portfolio Manager
1
EXHIBIT 10.3
EXECUTION COPY
AGREEMENT dated as of June 6, 1996, between
SKC INVESTMENTS, INC. ("SKCI") and CHEMICAL BANK
("Chemical"), as Administrative Agent and Collateral
Agent for the Lenders under the Credit Agreement
referred to below.
Reference is made to (i) the Credit Agreement dated as of August 1,
1994, as amended as of August 31, 1994 (the "Credit Agreement"), among Silver
King Communications, Inc. ("Holdings"), SKTV, Inc., a wholly owned subsidiary
of Holdings (the "Borrower"), the financial institutions party thereto (the
"Lenders") and Chemical, as administrative agent and collateral agent for the
Lenders, and (ii) the Second Amendment and Waiver to the Credit Agreement (the
"Amendment") dated as of June 6, 1996, among Holdings, the Borrower, the
Lenders and Chemical. Capitalized terms used herein and not otherwise defined
herein shall have the meanings assigned to them in the Amendment and Credit
Agreement.
Silver King Capital Corporation, Inc., a Delaware corporation and
wholly owned subsidiary of the Borrower ("SKCC"), wishes to consummate the
Channel 66 Transactions, described in the Amendment, which are not currently
permitted under the Credit Agreement. Section 3(a) of the Amendment, which
waives certain provisions of the Credit Agreement to the extent necessary to
permit Holdings, the Borrower and SKCC to engage in the Channel 66
Transactions, is specifically conditioned on, among other things, the agreement
of SKCI set forth herein.
Accordingly, SKCI agrees, for the benefit of the Lenders, from time to
time under the Credit Agreement, not to sell, transfer or otherwise dispose of,
or pledge, hypothecate or otherwise encumber, the Channel 66 Loan or any
interest therein or promissory note relating thereto, until the earlier of the
repayment in full of the SKCI Loan or the termination of the Credit Agreement
and the repayment in full of all the Obligations.
This Agreement may be executed in any number of counterparts, each of
which shall be an original but all of which, when taken together, shall
constitute but one instrument. Delivery of an executed counterpart of a
signature page of this Agreement by facsimile transmission shall be as
effective as delivery of a manually executed counterpart of this Agreement.
This Agreement shall be
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construed in accordance with and governed by the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers as of the day and year
first above written.
SKC INVESTMENTS, INC.,
by
/s/ Steven H. Grant
------------------------
Name: Steven H. Grant
Title: Secretary/Treasurer
CHEMICAL BANK, as
Administrative Agent and
Collateral Agent, on behalf of
the Lenders,
by
/s/ Judith E. Smith
---------------------------
Name: Judith E. Smith
Title: Vice President
1
EXHIBIT 10.4
MASTER LOW POWER TELEVISION AFFILIATION AGREEMENT
-------------------------------------------------
This MASTER LOW POWER TELEVISION AFFILIATION AGREEMENT ("Affiliation
Agreement") is entered into effective as of May 1, 1996 by and between HOME
SHOPPING CLUB, INC. ("HSC") and SILVER KING COMMUNICATIONS, INC. ("Silver
King") relating to the broadcast by Silver King's beneficially owned Low Power
Television Stations (the "Stations") of HSC's daily television broadcast
program services known as SPREE! and HOME SHOPPING NETWORK for the presentation
and sale of products, as such programming may be revised from time to time at
the sole discretion of HSC (hereinafter an "HSC Program Service" or "HSC
Program Services," as applicable).
RECITALS
I. HSC has previously entered into affiliation agreements with the Stations
set forth on Schedule A.
II. Silver King also beneficially owns certain Stations set forth on Schedule
B that previously have not entered into affiliation agreements for
carriage of an HSC Program Service.
III. Silver King and HSC desire to enter into this Affiliation Agreement to
provide that Stations will carry an HSC Programming Service under the
terms set forth below.
Now therefore, HSC and Silver King agree as follows:
1. RECITALS. The Recitals are true and correct and are hereby made a
part of this Affiliation Agreement.
2. PROGRAMMING. Silver King has determined that the public interest,
convenience and necessity would be served by broadcast by its Stations of the
HSC Program Services. Therefore, HSC will offer Stations the HSC Program
Services as set forth in Schedule C to be broadcast on a network basis in the
Nielsen Station Index Designated Market Area ("DMA") in the communities that
the Stations are licensed by the Federal Communications Commission ("FCC") to
serve. HSC reserves the right to air portions or all of HSC Program Services
programming on other low power or full power television stations located within
and without each Station's DMA. Silver King understands and agrees that HSC
may switch any Station's programming service from an HSC Program Service to
another HSC programming service, and HSC may also authorize carriage of any
programming service delivered by HSC by any means of transmission, including
broadcast television, cable television, secondary transmissions, direct
broadcast satellite service, private or master antenna cable service or similar
video or audio transmission services which serve communities located within a
Station's DMA.
3. SCHEDULE. Each of the Stations shall, subject to the rights set
forth under Section 5 below, broadcast the HSC Program Services, as available,
24 hours per day, seven days per week, 364 days per year.
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4. BROADCAST IN ENTIRETY. Silver King agrees to broadcast the designated
HSC Program Services in their entirety without any editing, delay, addition,
alteration or deletion, including without limitation all network
identifications, all promotional material (except promotional material which
each Station, in its sole discretion, determines would be inconsistent with the
public interest), all copyright notices, all credits and billings, and any
other proprietary material of any kind or nature included therein. Each Station
shall have the right to insert station identification announcements,
commercials as permitted herein . If each Station carries both the audio and
the video portions of an HSC Program Service (whether compressed or not),
Silver King shall be entitled to full compensation as set forth in this
Agreement for such carriage.
5. STATION PROGRAMMING TIME. HSC agrees to make available to Station a
minimum of four (4) minutes in each hour of the SPREE! HSC Program Service and
a minimum of two (2) minutes in each hour of the Home Shopping Network HSC
Program Service broadcast by Stations for use by Stations for the broadcast of
commercials, news, or public affairs programming. This number of minutes may
be amended by HSC and Silver King's mutual agreement from time to time. Silver
King agrees that commercials other than those offered to Station by HSC or any
of HSC's affiliates will not solicit direct response orders by a viewer in
writing or by telephone unless carriage of such commercials is preapproved in
writing by HSC.
6. COMPENSATION.
a. Within forty-five (45) days following the end of each
month, HSC will compensate Silver King for broadcast by the Stations' HSC
Program Services in the amount of $45,833.33 (amounting to a total annual
payment of approximately $550,000). Silver King shall submit to HSC within
thirty (30) business days after the end of each calendar month, upon forms
acceptable to HSC, reports confirming each Station's broadcast of an HSC
Program Service during the calendar month prior to the date of such report in
accordance with the terms of this Agreement.
b. In the event that any Station incurs an outage (i.e.,
a Station is unable to deliver the audio and video portions of any HSC Program
Service at full FCC authorized power and broadcast a picture and sound quality
that complies with FCC broadcast engineering standards) which was within Silver
King's reasonable control and Silver King failed to act in good faith to remedy
the outage, then the payment to Silver King shall be proportionately adjusted
based on the number of Stations covered under this Affiliation Agreement to
reflect the length of each outage. Any outage of a period of 12 hours or more
shall be considered an outage of a full day. Any outage of a period of less
than 12 hours shall not be counted.
7. TERM; RENEWALS. This Agreement shall become effective at 12:01 a.m.
on May 1, 1996, and it shall continue until 11:59 p.m. on April 30, 2000.
8. PROGRAM DELIVERY. HSC will deliver the HSC Program Services by means
of one (1) or more domestic communications satellites or as otherwise agreed
upon between the parties to each Station's processing equipment, and each
Station shall be obligated to process and broadcast an HSC
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Program Service over its facilities. HSC shall give Silver King ninety (90)
days advance written notice of any proposed change of satellite transmission.
9. PROMOTION. HSC and Station agree to promote the broadcast of the HSC
Program Service in a cooperative manner. Silver King agrees that, to the
extent it deems consistent with the public interest, convenience and necessity,
it will promote the HSC Program Services in each Station's DMA. Such promotion
may include, without limitation, on-the-air television or radio promotion,
billboards and newspapers or other printed advertisements, announcements or
other local publicity.
10. SERVICE MARKS. Silver King hereby acknowledges that HSC is a licensee
of Home Shopping Network, Inc. ("HSN") with rights to sublicense the following
trademarks, service marks and trade names: HSN, HSC, HOME SHOPPING NETWORK,
HOME SHOPPING CLUB, SPREE, HOME SHOPPING SPREE, SPREE!, HSC1, HSC2, HSN1, HSN2,
and SPENDABLE KA$H (collectively, the "trademarks"). Station hereby
acknowledges that the trademarks are the property of HSN and that use of said
trademarks by Silver King in connection with broadcasts by the Stations and any
trademarks hereafter developed by HSN and used by Stations shall inure to the
benefit of HSN. Silver King and Stations, in connection with broadcasts by the
Stations, shall have the right to develop and distribute promotional materials
incorporating such trademarks, provided, however, that any such promotional
material (other than material obtained from HSC pursuant to this Agreement)
shall clearly identify the trademarks as the property of HSN through the symbol
"SM" or its legal equivalent and language identifying HSN as the owner thereof;
and if requested by HSC, any use of the trademarks in specimens must be
submitted in representative form for HSN's or HSC's prior written approval.
11. FAILURE OF PERFORMANCE. Neither Silver King nor HSC shall incur any
liability hereunder because of HSC's failure to deliver or any Station's
failure to broadcast an HSC Program Service due to labor disputes, satellite
transmission problems beyond HSC's control, satellite reception problems beyond
a Station's control, or other causes beyond the control of HSC or a Station.
12. CHANGES IN STATION FACILITIES. Silver King shall, within five (5) days
of filing of any application with the Federal Communications Commission with
respect to a Station, notify HSC in writing of any change in its transmitter
location, power, community of license, or frequency and will notify HSC five
(5) days prior to any planned change in hours of operation. In addition,
Silver King shall notify HSC within twenty-four (24) hours of any change in a
Station's operating power, transmitter or antenna, or any cessation of a
Station's broadcast operations, whether voluntary or involuntary.
13. TRANSFER AND ASSIGNMENT. Silver King shall notify HSC within five (5)
days of the filing of any application with the FCC seeking the FCC's consent to
the transfer of control of any Station or the assignment of a Station's
license. Except for transfer of control and assignment of licenses governed by
Section 73.3540(f) of the FCC's current Rules and Regulations (or any successor
provision thereto), HSC may terminate this Agreement as of the effective date
of a transfer of control or assignment. Upon HSC's request, Silver King agrees
that, prior to the effective date of any such transfer of control or
assignment, it shall procure and deliver to HSC, in a form satisfactory to
HSC, the agreement of the transferee or assignee to enter into an affiliation
agreement with HSC.
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14. LIMITATION ON USE OF HSC PROGRAM SERVICE. Silver King shall not
authorize, cause, permit or enable anything to be done whereby an HSC Program
Service provided pursuant to this Agreement may be used for any purpose other
than broadcasting by a Station to that Station's DMA, which broadcast is
intended for free over-the-air reception by the general public (but which may
in turn be retransmitted by one or more cable systems). Silver King agrees
that neither it nor the Stations will tape, record or otherwise duplicate an
HSC Program Service for rebroadcast as promotional material without first
securing HSC's prior written consent thereto.
15. LICENSES. Silver King represents that each Station shall maintain
such licenses and authorizations, including performing rights licenses as now
are or hereafter may be in general use and necessary for that Station's
broadcast of an HSC Program Service. HSC will clear at the source any music in
the repertory of ASCAP and BMI used on the HSC Program Services, thereby
licensing the broadcasting of such music in such programs over the Stations.
HSC shall be responsible for all music rights payments that may be required,
other than music performance rights, with respect to any of the HSC Program
Services. Silver King shall be responsible for all music license requirements
for any commercial or other material inserted by the Stations and not supplied
by HSC or any of its affiliates.
16. RIGHT OF REFUSAL. Nothing herein contained shall be construed to
prevent or hinder a Station from rejecting or refusing such portions of an HSC
Program Service which that Station reasonably believes to be unsatisfactory or
unsuitable or contrary to the public interest or from substituting a program
which in a Station's opinion is of greater local or national importance. Silver
King shall notify HSC, by the end of the calendar month in which any such
rejection or substitution occurs, of such occurrence.
17. RIGHT TO ENTER INTO AGREEMENT. HSC and Silver King each represents
and warrants to the other that it has the authority to enter into this
Agreement and that there are no restrictions, agreements, or limitations on its
ability to perform all its obligations thereunder.
18. LIABILITY FOR TAXES. HSC shall not be liable for any use, sales,
excise, income, franchise, corporate or similar taxes which may be imposed upon
or assessed against Silver King or any Station by virtue of the broadcast of an
HSC Program Service. It is understood and agreed by the parties hereto that
televised sales of product and merchandise are by HSC and not Silver King, and
HSC shall be responsible for the collection and payment of all sales and/or use
tax with respect to such sales, where applicable.
19. AMENDMENT AND WAIVERS. No provision hereof shall be changed or
modified except by a written agreement signed by HSC and Silver King. No
provisions hereof may be waived unless such waiver is in writing and is signed
by the party against whom the waiver is asserted. No such waiver shall be
deemed to be a waiver of any preceding or succeeding breach of the same or of
any other provisions.
20. INDEMNIFICATION. HSC shall indemnify, defend and hold Silver King
harmless against and from all claims, damages, liabilities, costs and expenses
arising out of a Station's broadcast of an HSC Program Service in accordance
with this Agreement, provided that Silver King notifies HSC
4
5
promptly (within thirty (30) days of Silver King's awareness) of any claim or
litigation to which this indemnity shall apply, and cooperates fully with HSC
in the defense or settlement of such claims or litigation; and provided further
that this indemnity shall not extend to any action or proceeding by or before
the FCC relating to a Station's broadcast of an HSC Program Service. Silver
King shall indemnify, defend and hold HSC harmless from all claims, damages,
liabilities, costs and expenses arising out of any actions by a Station related
to that Station's programming operations and any actions by a Station unrelated
to this Agreement.
21. NOTICE. Any notice required to be given hereunder shall be in writing
and sent via United States mail to the appropriate party at the following
address, or at such other address as may be given by notice hereunder or by
delivering to such party in person at such address:
TO HSC: With a copy (which shall not constitute notice) to:
Home Shopping Network, Inc. Legal Department
Broadcast Affiliations Home Shopping Network, Inc.
Attn: Nory LeBrun P.O. Box 9090
Executive Vice President Clearwater, Florida 34618-9090
P.O. Box 9090
Clearwater, Florida 34618-9090
TO SILVER KING: With a copy (which shall not constitute notice) to:
Silver King Communications, Inc. Silver King Communications, Inc.
Attn: Chief Financial Officer Attn: General Counsel
2425 Olympic Blvd. 12425 28th Street North
Santa Monica, California 90404 St. Petersburg, Florida 33716
Where notice is sent by United States mail under this Agreement, it shall be
effective three (3) business days after the date of mailing; and, if delivered
by facsimile, by overnight service, or in person, such notice shall be
effective when so delivered.
22. GOVERNING LAW. The obligations of Silver King, the Stations and HSC
are subject to applicable federal, state and local law, rules and regulations,
including but not limited to, the Communications Act of 1934, as amended, and
the Rules and Regulations of the FCC; and this Agreement, its interpretation,
performance or any breach thereof, shall be construed in accordance with, and
all questions with respect hereto shall be determined by such federal laws and
by the laws of the State of Florida, as applicable.
23. DISCONTINUANCE OF SERVICE. HSC agrees to notify Silver King of any
decision to discontinue an HSC Program Service being aired by one or more of
the Stations within ten (10) days of such decision, and such service shall be
simultaneously replaced with another HSC programming service as provided in
Section 2 hereof. HSC agrees to notify Silver King at least 90 days prior to
discontinuation of all HSC Program Services, and in such event, this
Affiliation Agreement shall
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terminate following expiration of the 90 day notice period.
24. HEADINGS. The headings of the sections of this Agreement are for
convenience only and shall not in any way effect the interpretation hereof.
25. APPROVAL BY HSN. Notwithstanding anything to the foregoing, this
Agreement between HSC and Silver King is expressly conditioned on the approval
of HSN, and neither HSC nor Silver King shall have any right to terminate this
Agreement except as provided in this Agreement, to take any action which may
result in such termination under the terms of the Agreement except as permitted
by this Agreement, or to make any substantial modification in this Agreement
without the express prior written consent of HSN.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the date first above written.
HSC: SILVER KING:
HOME SHOPPING CLUB, INC. SILVER KING COMMUNICATIONS, INC.
on behalf of itself and the Stations set forth in
Schedule C hereof.
By: /s/ H.A. LeBrun By: /s/ Michael Drayer
------------------------------ ------------------------------
H. A. LeBrun Michael Drayer
Its Executive Vice President Its Executive Vice President
------------------------------ -------------------------------
Agreed and Consented to by:
HOME SHOPPING NETWORK, INC.
By:/s/ Kevin J. McKeon
------------------------------
Kevin J. McKeon
Its Executive Vice President, Chief
-----------------------------
Financial Officer & Treasurer
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Schedule A
----------
Stations With HSC Affiliation Agreements
----------------------------------------
Atlanta, W24AL
Columbus, W13BN
Huntington, W17BH
Kansas City, K26CR
Knoxville, W56CM
Minneapolis, K35CY
New Orleans, K14IE
New York, W60AI*
Springfield, W33AY
St. Louis, K21OD
St. Petersburg, W24BF
Tucson, K21CX
Wichita, K15DD
*Note: the New York LPTV station is paid as part of the full power
stations' fee
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8
Schedule B
----------
Stations Without HSC Affiliation Agreements
-------------------------------------------
Birmingham, W34BI
Champaign, W39BH
Des Moines, K41DD
Jacksonville, W36AJ
Mobile, W52BF
Pensacola, W3lBB
Portsmouth, W56CS
Raleigh, W58CD
Roanoke, W56CP
Shreveport, K67FD
Spokane, K14IF
Toledo, W64BM
Tulsa, K39CW
8
9
Schedule C
Stations HSC Program Service Carried by Stations
-------- ---------------------------------------
Atlanta, W24AL SPREE!
Birmingham, W34BI SPREE!
Champaign, W39BH SPREE!
Columbus, W13BN SPREE!
Des Moines, K41DD SPREE!
Huntington, W17BH SPREE!
Jacksonville, W36AJ SPREE!
Kansas City, K26CR SPREE!
Knoxville, W56CM HSN
Minneapolis, K35CY SPREE!
Mobile, W52BF SPREE!
New Orleans, K14IE SPREE!
New York, W60AI* SPREE!
Pensacola, W3lBB SPREE!
Portsmouth, W56CS SPREE!
Raleigh, W58CD SPREE!
Roanoke, W56CP SPREE!
Shreveport, K67FD SPREE!
Spokane, K14IF SPREE!
Springfield, W33AY SPREE!
St. Louis, K21OD SPREE!
St. Petersburg, W24BF SPREE!
Toledo, W64BM SPREE!
Tucson, K21CX SPREE!
Tulsa, K39CW SPREE!
Wichita, K15DD SPREE!
*Note: the New York LPTV station paid as part of the full
power stations' fee and does not receive compensation
under this Affiliation Agreement. In the event that
the New York full power stations cease to carry any
HSC Program Service, the parties agree that they
shall negotiate in good faith with respect to the
compensation to be paid to the New York LPTV station.
9
5
6-MOS
DEC-31-1996
JAN-01-1996
JUN-30-1996
19,837
0
379
96
0
25,530
96,221
71,698
131,446
19,180
0
0
0
95
8,096
131,446
0
22,036
0
193
18,636
73
4,633
115
1,173
(1,058)
0
0
0
(1,058)
(.11)
0
