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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES AND EXCHANGE ACT OF 1934.
FOR THE YEAR ENDED DECEMBER 31, 1997
COMMISSION FILE NO. 0-20570
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934.
FOR THE TRANSITION PERIOD FROM____________TO____________
USA NETWORKS, 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.)
152 WEST 57TH STREET, NEW YORK, NEW YORK
(Address of registrant's principal executive offices)
10019
(Zip Code)
(212) 247-5810
(Registrant's telephone number, including area code):
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF NAME OF EXCHANGE
EACH CLASS ON WHICH REGISTERED
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NONE NONE
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SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of March 13, 1998, there were outstanding 102,210,704 shares of Common
Stock and 32,013,616 shares of Class B Common Stock. The aggregate market value
of the voting stock held by non-affiliates of the registrant as of March 13,
1998 was $2,103,696,164.
Assuming the conversion, as of March 13, 1998, of all equity securities of
the registrant and its affiliates convertible into or exchangeable for Common
Stock, the registrant would have had outstanding 259,486,974 shares of Common
Stock with an aggregate market value of $6,843,968,939.
ALL SHARE NUMBERS SET FORTH ABOVE GIVE EFFECT TO THE TWO-FOR-ONE STOCK
SPLIT WHICH BECAME EFFECTIVE FOR HOLDERS OF RECORD AS OF THE CLOSE OF BUSINESS
ON MARCH 12, 1998.
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USA NETWORKS, INC.
FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PAGE NO.
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PART I
Item 1 Business.................................................... 1
Item 2 Properties.................................................. 26
Item 3 Legal Proceedings........................................... 28
Item 4 Submission of Matters to a Vote of Security-Holders......... 30
PART II
Item 5 Market for Registrant's Common Equity and Related
Stockholder Matters....................................... 32
Item 6 Selected Financial Data..................................... 33
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 33
Item 8 Consolidated Financial Statements and Supplementary Data.... 45
Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures................................. 68
PART III
Item 10 Directors and Executive Officers of the Registrant.......... 69
Item 11 Executive Compensation...................................... 71
Item 12 Security Ownership of Certain Beneficial Owners and
Management................................................ 76
Item 13 Certain Relationships and Related Transactions.............. 86
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form
8-K....................................................... 87
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PART I
ITEM 1. BUSINESS
GENERAL
CORPORATE HISTORY
USA Networks, Inc. (the "Company" or "USAi"), formerly known as HSN, Inc.,
is a holding company, the subsidiaries of which are engaged in diversified media
and electronic commerce businesses. The Company was incorporated in July 1986 in
Delaware as Silver King Broadcasting Company, Inc. ("SKBC") as part of a
strategy to broaden the viewership of Home Shopping Network, Inc. ("Home
Shopping"). SKBC subsequently changed its name to HSN Communications, Inc. and
thereafter, to Silver King Communications, Inc. ("Silver King"). On December 28,
1992, Home Shopping, the sole shareholder, distributed the capital stock of
Silver King to Home Shopping's stockholders in the form of a pro-rata tax free
stock dividend.
On December 19 and 20, 1996, the Company consummated mergers with Savoy
Pictures Entertainment, Inc. ("Savoy") (the "Savoy Merger") and Home Shopping
(the "Home Shopping Merger"), respectively (collectively, the "Mergers").
Concurrently with the Mergers, the Company changed its name to HSN, Inc. At
December 31, 1997, the Company owned a controlling interest in Ticketmaster
Group, Inc. ("Ticketmaster"). On March 20, 1998, the Company entered into a
merger agreement with Ticketmaster regarding the acquisition by the Company in a
tax-free merger of the remaining Ticketmaster common stock for .563 of a share
of Common Stock (1.126 shares after giving effect to the Company's two-for-one
stock split as of March 12, 1998). On February 12, 1998, as described below, the
Company acquired USA Networks, a New York general partnership, consisting of
cable television networks USA Network and Sci-Fi Channel, as well as the
domestic television production and distribution businesses of Universal Studios
("USA Networks Studios") from Universal Studios, Inc. ("Universal"), and the
Company changed its name to USA Networks, Inc. (the "Universal Transaction").
Simultaneously with the Universal transaction, the Company renamed its broadcast
television division "USA Broadcasting" (formerly "HSNi Broadcasting"), and its
primary television station group "USA Station Group" (formerly "Silver King").
Following the Universal Transaction, the Company engages in five principal areas
of business:
- Home Shopping, which primarily engages in the electronic retailing
business.
- USA Networks, which operates the USA Network and Sci-Fi Channel cable
networks.
- USA Networks Studios, which produces and distributes television
programming.
- USA Broadcasting, which owns and operates television stations.
- Ticketmaster, which is the leading provider of automated ticketing
services in the U.S.
Unless the context otherwise requires (such as information that is dated as
of a date prior to February 12, 1998), references herein to the Company are to
the Company after giving effect to the Universal Transaction. Share numbers
reflect the Company's two-for-one stock split of the Company's Common Stock and
Class B Common Stock to holders of record as of the close of business on March
12, 1998, unless otherwise specified.
THIS REPORT INCLUDES FORWARD-LOOKING STATEMENTS RELATING TO SUCH MATTERS AS
ANTICIPATED FINANCIAL PERFORMANCE, BUSINESS PROSPECTS, NEW DEVELOPMENTS, NEW
MERCHANDISING STRATEGIES AND SIMILAR MATTERS. A VARIETY OF FACTORS COULD CAUSE
THE COMPANY'S ACTUAL RESULTS AND EXPERIENCE TO DIFFER MATERIALLY FROM THE
ANTICIPATED RESULTS OR OTHER EXPECTATIONS EXPRESSED IN THE COMPANY'S
FORWARD-LOOKING STATEMENTS. THE RISKS AND UNCERTAINTIES THAT MAY AFFECT THE
OPERATIONS, PERFORMANCE, DEVELOPMENT AND RESULTS OF THE COMPANY'S BUSINESS
INCLUDE, BUT ARE NOT LIMITED TO, THE FOLLOWING: MATERIAL ADVERSE CHANGES IN
ECONOMIC CONDITIONS IN THE MARKETS SERVED BY THE COMPANY; FUTURE REGULATORY
ACTIONS AND CONDITIONS IN THE COMPANY'S OPERATING AREAS; COMPETITION FROM
OTHERS; SUCCESSFUL INTEGRATION OF THE COMPANY'S DIVISIONS' MANAGEMENT
STRUCTURES; PRODUCT DEMAND AND MARKET ACCEPTANCE; THE ABILITY TO PROTECT
PROPRIETARY INFORMATION AND TECHNOLOGY OR TO OBTAIN NECESSARY LICENSES ON
COMMERCIALLY REASONABLE TERMS; AND OBTAINING AND RETAINING KEY EXECUTIVES AND
EMPLOYEES.
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UNIVERSAL TRANSACTION
On February 12, 1998, the Company completed its previously announced
acquisition of USA Networks and USA Networks Studios from Universal, an entity
controlled by The Seagram Company Ltd. ("Seagram"). The consideration paid to
Universal included a cash payment of approximately $1.63 billion, a portion of
which ($300 million) has been deferred until no later than June 30, 1998, and an
effective 45.8% interest in the Company (assuming completion of the Liberty
transaction described below) through shares of common stock, par value $.01 per
share, of the Company (the "Common Stock") and Class B common stock, par value
$.01 per share, of the Company (the "Class B Common Stock") and shares ("LLC
Shares") of a newly formed limited liability company ("USANi LLC") which are
exchangeable into shares of Common Stock and Class B Common Stock.
The Investment Agreement, as amended and restated as of December 18, 1997,
among the Company, Home Shopping, Universal and Liberty Media Corporation
("Liberty") (the "Investment Agreement"), relating to the Universal Transaction
also contemplates that, on or prior to June 30, 1998, the Company and Liberty, a
subsidiary of Tele-Communications, Inc. ("TCI"), will complete, prior to June
30, 1998, a transaction that involves a $300 million cash investment by Liberty
in the Company through the purchase of LLC Shares. The Investment Agreement also
provides that the Company, Liberty and Universal, may agree prior to that date
on the acquisition by the Company of as-yet unspecified assets owned or
controlled by Liberty in exchange for LLC Shares, which transaction would reduce
Liberty's cash purchase obligation by 45% of the value of the asset acquisition.
CORPORATE STRUCTURE OF THE COMPANY AND ITS SUBSIDIARIES
USANi LLC. In connection with the Universal Transaction, the Company has
transferred substantially all of its businesses, other than the USA Broadcasting
business and the Company's controlling interest in Ticketmaster, to USANi LLC,
in exchange for LLC Shares. The Company maintains control and management of
USANi LLC, and the businesses held by USANi LLC are managed by the Company in
substantially the same manner as they would be if the Company held them directly
through wholly owned subsidiaries. Universal and Liberty, directly or
indirectly, are the only other beneficial owners of LLC Shares. As long as Barry
Diller continues as the Chief Executive Officer of the Company, these
arrangements will remain in place. After Mr. Diller is no longer Chief Executive
Officer or if Mr. Diller becomes disabled (as defined), Universal and Liberty
will have certain additional rights regarding, among other things, the
management of USANi LLC and the ability to cause the Company to effect a spinoff
or sale of its broadcast assets. These arrangements are set forth in the Amended
and Restated Limited Liability Company Agreement of USANi LLC and the Spinoff
Agreement, each of which is filed as an exhibit to this Report.
Pursuant to an exchange agreement among the parties, dated as of February
12, 1998 (the "LLC Exchange Agreement"), the LLC Shares received by Universal
and Liberty are exchangeable for shares of Common Stock and Class B Common Stock
(in the case of Universal) or Common Stock only (in the case of Liberty). The
Company has the right, subject to certain conditions, to require Liberty to
exchange such shares when, under applicable law (including the regulations of
the Federal Communications Commission (the "FCC")), it is legally permitted to
do so. Universal retains the option, and the Company may not require (other than
in connection with a sale of the Company as provided in the LLC Exchange
Agreement) Universal, to exchange its LLC Shares. In connection with an
exchange, Universal is entitled to elect to receive no more than 73,620,000
shares of Class B Common Stock, with the remaining LLC Shares received at the
closing of the Universal Transaction exchangeable for Common Stock. As discussed
below under "Regulation," because Universal is controlled by a foreign entity
(Seagram), FCC rules and regulations limit the amount of Common Stock and Class
B Common Stock that Universal may own.
Home Shopping Network, Inc. Pursuant to the Home Shopping Merger, Liberty
HSN, Inc., ("Liberty HSN"), an indirect, wholly owned subsidiary of Liberty
retained a 19.9% equity interest (9.2% of the voting power) in Home Shopping, a
subsidiary of the Company in which the Company owns the remaining equity and
voting interests. As of the date hereof, Home Shopping owns a 45.8% interest in
USANi LLC which now holds Home Shopping's former subsidiaries and the new
businesses acquired from Universal. Home Shopping
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has a dual-class common stock structure similar to the Company's. Pursuant to an
exchange agreement, dated as of December 20, 1996 (the "Liberty Exchange
Agreement"), between the Company and Liberty HSN, at such time or from time to
time as Liberty HSN or its permitted transferee is allowed under applicable FCC
regulations to hold additional shares of the Company's stock, Liberty HSN or its
permitted transferee will exchange its Home Shopping Common Stock and its Home
Shopping Class B Common Stock for shares of Common Stock and Class B Common
Stock, respectively, at the applicable conversion ratio. Liberty HSN, however,
is obligated to effect an exchange only after all of its LLC Shares have been
exchanged for shares of Common Stock pursuant to the LLC Exchange Agreement.
Upon completion of the exchange of Liberty HSN's Home Shopping shares, Home
Shopping would become a wholly owned subsidiary of the Company.
OUTSTANDING SHARES AND CONTROLLING STOCKHOLDERS
USAi Capitalization. At March 13, 1998, 102,210,704 shares of Common Stock
and 32,013,616 shares of Class B Common Stock were outstanding. Of these shares,
Liberty HSN owned directly 123,260 shares of Common Stock and 378,322 shares of
Class B Common Stock. At the same date, Mr. Diller, Chairman of the Board and
Chief Executive Officer of the Company, through BDTV INC., BDTV II INC., BDTV
III INC., BDTV IV, INC., his own holdings and a stockholders agreement with
Universal, Liberty, the Company and Seagram (the "Stockholders Agreement"), has
the right to vote approximately 8% or 8,217,236 shares of USAi's outstanding
Common Stock, and approximately 97% or 31,181,726 shares of USAi's outstanding
Class B Common Stock, including shares held by BDTV IV INC., which Mr. Diller
controls. Each share of Class B Common Stock is entitled to ten votes per share
with respect to matters on which Common and Class B stockholders vote as a
single class. As a result, at March 13, 1998, Mr. Diller controls approximately
76% of the outstanding total voting power of the Company. Mr. Diller, subject to
the Stockholders Agreement, is effectively able to control the outcome of nearly
all matters submitted to a vote of the Company's stockholders. Liberty HSN holds
substantially all of the economic interest in, and Mr. Diller holds all of the
voting power in, the shares of USAi stock held by the BDTV entities listed
above.
In connection with the Universal Transaction, certain additional shares
issuable to Liberty HSN pursuant to the Home Shopping Merger were issued. The
Company has no further obligations with respect to such contingent shares.
In the Investment Agreement, the Company granted to Universal and Liberty
certain preemptive rights at $40 per share with respect to future issuances of
Company stock, which rights generally provide that each of Universal and Liberty
may elect to purchase a number of shares of Common Stock (or LLC Shares
convertible into shares of Common Stock or Class B Common Stock, as the case may
be) so that the percentage equity interest such entity owned of the Company
after the Universal Transaction will be the same as before such transaction (in
each case, assuming the exchange of Universal's and Liberty's LLC Shares and of
the Liberty HSN Home Shopping shares). As of the closing of the Universal
Transaction, Universal's preemptive right is exercisable based on a 45%
ownership interest, and Liberty's purchase right is exercisable based on a 21%
ownership interest. The transaction agreements, including the Governance
Agreement and the Stockholders Agreement, contain other limitations on the
ability of Universal and Liberty to take certain actions with respect to the
Company or acquire additional voting securities.
USAi Stock Split. On February 20, 1998, the Board of Directors declared a
two-for-one stock split of the Company's Common Stock and Class B Common Stock,
payable in the form of a dividend to stockholders of record as of the close of
business on March 12, 1998. The 100% stock dividend was paid on March 26, 1998.
All share numbers in this Report give effect to such stock split unless
otherwise noted.
USANi LLC Capitalization. In connection with the Universal Transaction,
USANi LLC issued 15,617,500 Class A LLC Shares to USAi, 105,097,938 Class A LLC
Shares to Home Shopping, 108,654,340 Class B LLC Shares to Universal and 10
Class C LLC Shares to Liberty.
Home Shopping Debentures. On January 23, 1998, Home Shopping called for
redemption of all of its outstanding 5.875% Convertible Subordinated debentures
(the "HSN Debentures"), which were convertible until redemption on March 1, 1998
into shares of Common Stock at a price per share of $13.335, as adjusted for the
two-for-one stock split to holders of record as of the close of business on
March 12, 1998. Effective
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March 1, 1998, all such outstanding debentures ($100 million principal amount)
were converted into shares of Common Stock, in connection with which the Company
issued 7,499,022 shares of Common Stock. These actions have terminated the
Company's and Home Shopping's obligations under the indenture, as supplemented,
relating to the HSN Debentures, other than with respect to the conversion.
Savoy Debentures. At the effective time of the Savoy Merger, Savoy and the
Company entered into a supplemental indenture with the trustee under the
indenture governing Savoy's outstanding 7% Convertible Subordinated Debentures,
due July 1, 2003 (the "Savoy Debentures"), providing for the assumption by the
Company as joint and several obligor of the Savoy Debentures and that each
$1,000 principal amount of the Savoy Debentures is convertible into the amount
of shares of Common Stock that the holder thereof would have been entitled to
receive had such Savoy Debenture been converted into shares of common stock of
Savoy immediately prior to consummation of the Savoy Merger, or 15.05 shares at
$66.43 per share, as adjusted for the two-for-one stock split to holders of
record as of the close of business on March 12, 1998.
PENDING TICKETMASTER MERGER
Ticketmaster Group, Inc. At December 31, 1997, the Company owned a
controlling interest in Ticketmaster. On March 20, 1998, the Company and
Ticketmaster entered into a merger agreement regarding the acquisition by the
Company in a tax-free merger of the remaining Ticketmaster common stock for .563
of a share of Common Stock (1.126 shares after giving effect to the Company's
two-for-one stock split as of March 12, 1998.). The merger agreement was entered
into based upon the recommendation of the Special Committee of the Ticketmaster
Board that had been appointed to consider USAi's merger proposal in October
1997. Consummation of the merger is subject to customary conditions, including
the approval of the merger by Ticketmaster's shareholders. The Company expects
that the merger will be completed in the third quarter of 1998. Based on the
number of shares of Ticketmaster Common Stock outstanding as of March 9, 1998,
USAi expects to issue approximately 15.4 million shares of Common Stock to
Ticketmaster stockholders in connection with the proposed merger. Universal and
Liberty have certain pre-emptive rights which will be exercisable if the merger
with Ticketmaster is consummated.
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DESCRIPTION OF BUSINESSES
HOME SHOPPING NETWORK
Home Shopping, through Home Shopping Club LP ("HSC"), sells a variety of
consumer goods and services by means of live, customer-interactive electronic
retail sales programs which are transmitted via satellite to cable television
systems, affiliated broadcast television stations and satellite dish receivers.
Home Shopping operates two retail sales programs, The Home Shopping Network
("HSN") and America's Store, each 24 hours a day, seven days a week
(collectively the "HSN Services"). The HSN Services are carried by cable
television systems and broadcast television stations throughout the country.
America's Store is available in one-hour segments, which enables broadcast and
cable affiliates to air America's Store in available time slots that would not
otherwise produce revenue for the affiliate.
Home Shopping's retail sales and programming are intended to promote sales
and customer loyalty through a combination of product quality, price and value,
coupled with product information and entertainment. The HSN Services are divided
into segments which are televised live with a host who presents the merchandise,
sometimes with the assistance of a guest representing the product vendor, and
conveys information relating to the product, including price, quality, features
and benefits. Hosts engage callers in live on-air discussions regarding the
currently featured product or the caller's previous experience with Home
Shopping's products. Viewers purchase products by calling a toll-free telephone
number. Home Shopping attempts to stimulate customer loyalty by providing, among
other things, marketing materials such as The Home Shopping Magazine, which
offers discounts on Home Shopping purchases, and features articles on products,
programming and schedules of upcoming shows.
The following table highlights the changes in the estimated unduplicated
television household reach of HSN, Home Shopping's primary service, by category
of access for the year ended December 31, 1997:
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CABLE* BROADCAST SATELLITE* TOTAL
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(In thousands of households)
Households -- December 31, 1996............................ 47,864 19,042 3,788 70,694
Net additions/(deletions).................................. 3,002 (1,291) (1,688) 23
Shift in classification.................................... 496 (496) -- --
Change in Nielsen household counts......................... -- (610) -- (610)
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Households -- December 31, 1997............................ 51,362 16,645 2,100 70,107
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* Households capable of receiving both broadcast and cable transmissions are
included under cable and therefore are excluded from broadcast to present
unduplicated household reach. Cable households included 4.0 million and 2.3
million direct broadcast satellite ("dbs") households at December 31, 1997 and
1996, respectively, and therefore are excluded from satellite.
According to industry sources, as of December 31, 1997, there were 98.0
million homes in the United States with a television set, 65.7 million basic
cable television subscribers and 2.1 million homes with satellite dish
receivers, excluding dbs.
As of December 31, 1997, America's Store reached approximately 10.3 million
cable television households of which 3.8 million were on a part-time basis. Of
the total cable television households receiving America's Store, 8.9 million
also receive HSN.
CUSTOMER SERVICE AND RETURN POLICY
Home Shopping believes that satisfied customers will be loyal and will
purchase merchandise on a regular basis. Accordingly, Home Shopping has customer
service personnel and computerized voice response units (the "VRU") available to
handle calls relating to customer inquiries 24 hours a day, seven days a week.
Generally, any item purchased from Home Shopping may be returned within 30 days
for a full refund of the purchase price, including the original shipping and
handling charges.
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DISTRIBUTION, DATA PROCESSING AND TELECOMMUNICATIONS
Home Shopping's fulfillment subsidiaries store, service and ship
merchandise from warehouses located in Salem, Virginia and Waterloo, Iowa.
During 1997, Home Shopping moved its St. Petersburg, Florida fulfillment
operations and national returns center to Salem, Virginia. Generally,
merchandise is delivered to customers within seven to ten business days of the
receipt by Home Shopping of the customer's payment for an order.
Home Shopping currently operates several Unisys main frame computers and
has extensive computer systems which track purchase orders, inventory, sales,
payments, credit authorization, and delivery of merchandise to customers. During
1997, Home Shopping took steps to upgrade many of its computer systems which
will continue through 1998.
Home Shopping has digital telephone and switching systems and utilizes the
VRU, which allows callers to place their orders by means of touch tone input or
to be transferred to an operator.
PRODUCT PURCHASING AND LIQUIDATION
Home Shopping purchases merchandise made to its specifications, merchandise
from manufacturers' lines, merchandise offered under certain exclusive rights
and overstock inventories of wholesalers. During 1997, Home Shopping continued
to change its purchasing strategy to emphasize price point, variety, newness,
continuity sales, product sourcing and events. The mix of products and source of
such merchandise depends upon a variety of factors including price and
availability. Home Shopping generally does not have long-term commitments with
its vendors, and there are various sources of supply available for each category
of merchandise sold.
Home Shopping's product offerings include: jewelry; hardgoods, which
include fitness products, consumer electronics, collectibles, housewares, and
consumables; health and beauty, which consists primarily of cosmetics;
softgoods, which consist primarily of apparel; and fashion accessories. For
1997, jewelry, hardgoods, health and beauty, softgoods and fashion accessories
accounted for approximately 36.1%, 34.6%, 13.7%, 11.5% and 4.1%, respectively,
of Home Shopping's net sales.
Home Shopping liquidates short lot and returned merchandise through its
liquidation center and three outlet stores located in the Tampa Bay and Orlando
areas. Damaged merchandise is liquidated by Home Shopping through traditional
channels. Since January 1997, Home Shopping has closed three outlet stores and
one liquidation center.
TRANSMISSION AND PROGRAMMING
Home Shopping produces the HSN Services in its studios located in St.
Petersburg, Florida. The Services are distributed to cable television systems,
broadcast television stations, dbs and satellite antenna owners by means of Home
Shopping's satellite uplink facilities to satellite transponders leased by Home
Shopping. Any cable television system, broadcast television station or
individual satellite dish owner in the United States and the Caribbean Islands
equipped with standard satellite receiving facilities is capable of receiving
the HSN Services.
Home Shopping has lease agreements securing full-time use of three
transponders on three domestic communications satellites, although one of those
transponders has been subleased as described below. Each of the transponder
lease agreements grants Home Shopping "protected" rights. When the carrier
provides services to a customer on a "protected" basis, replacement transponders
(i.e., spare or unassigned transponders) on the satellite may be used in the
event the "protected" transponder fails. Should there be no replacement
transponders available, the "protected" customer will displace a "preemptible"
transponder customer on the same satellite. The carrier also maintains a
protection satellite and should a satellite fail completely, all "protected"
transponders would be moved to the protection satellite which is available on a
"first fail, first served" basis.
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Use of the transponder which Home Shopping subleases may, however, be
preempted in order to satisfy the owner's obligations to provide the transponder
to another lessee on the satellite in the event that the other lessee cannot be
restored to service through the use of spare or reserve transponders (the
"Special Termination Right"). As of June 5, 1995, Home Shopping discontinued use
of this satellite transponder for which it has a non-cancelable operating lease
calling for monthly payments of approximately $150,000 through December 31,
2006. In 1996, Home Shopping subleased this satellite transponder for a term of
10 years with an option to cancel after four years. The monthly sublease rental
is in excess of the monthly payment.
A transponder failure that would necessitate a move to another transponder
on the same satellite would not result in any significant interruption of
service to the cable systems and/or television stations which receive the HSN
Services. However, a failure that would necessitate a move to another satellite
may temporarily affect the number of cable systems and/or television stations
which receive the HSN Services (as well as all other programming carried on the
failed satellite) because of the need to install equipment or to reorient earth
stations.
The terms of two of the satellite transponder leases utilized by Home
Shopping are for the life of the satellites, which are projected through 2004.
The term of the third subleased satellite is through December 31, 2006, subject
to earlier implementation of the Special Termination Right.
Home Shopping's access to two transponders pursuant to long-term agreements
would enable it to continue transmission of HSN should either one of the
satellites fail. Although Home Shopping believes it is taking every reasonable
measure to ensure its continued satellite transmission capability, there can be
no assurance that termination or interruption of satellite transmissions will
not occur. Such a termination or interruption of service by one or both of these
satellites could have a material adverse effect on the operations and financial
condition of the Company.
The availability of replacement satellites and transponder time beyond
current leases is dependent on a number of factors over which Home Shopping has
no control, including competition among prospective users for available
transponders and the availability of satellite launching facilities for
replacement satellites.
The FCC grants licenses to construct and operate satellite uplink
facilities which transmit signals to satellites. These licenses are generally
issued without a hearing if suitable frequencies are available. Home Shopping
has been granted two licenses for operation of C-band satellite transmission
facilities and two licenses for operation of KU-band satellite transmission
facilities on a permanent basis in Clearwater and St. Petersburg, Florida.
AFFILIATION AGREEMENTS WITH CABLE OPERATORS
Home Shopping has entered into affiliation agreements with cable system
operators to carry HSN, America's Store, or both services. The agreements have
terms ranging from 3 to 14 years, and obligate the cable operator to assist with
the promotional efforts of Home Shopping by carrying commercials promoting HSN
and America's Store and by distributing Home Shopping's marketing materials to
the cable operator's subscribers. All cable operators receive a commission of 5
percent of the net merchandise sales within the cable operator's franchise area,
regardless of whether the sale originated from a cable or a broadcast household.
With larger, multiple system operators, Home Shopping has agreed to provide
additional compensation, e.g., by purchasing advertising availabilities from
cable operators on other programming networks, by establishing commission
guarantees for the operator, or by making an upfront payment to the operator in
return for commitments to deliver a minimum number of HSN subscribers for a
certain number of years.
AFFILIATION AGREEMENTS WITH TELEVISION STATIONS
Home Shopping has entered into affiliation agreements with television
stations to carry HSN or America's Store. In addition to the 12 owned and
operated full power and 26 low power television stations owned by the Company as
of December 31, 1997, the Company has affiliation agreements with 13 full-time,
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full power stations, 38 part-time, full power stations and 22 low power
stations. The Company has a minority ownership interest in 7 of the full-time,
full power stations. The affiliation agreements have terms ranging from four
weeks to fourteen years. All television station affiliates other than stations
owned by the Company receive an hourly or monthly fixed rate for airing the HSN
services. Full power television signals are carried by cable operators within a
station's coverage area. See "Regulation -- Must-Carry Retransmission Consent"
below. Low power station signals are rarely carried by cable systems.
USA NETWORKS
Acquired by the Company on February 12, 1998 as part of the Universal
Transaction, USA Networks ("USA Networks") operates two domestic
advertiser-supported 24-hour cable television networks -- USA Network and Sci-Fi
Channel.
The USA Network program service began as the MSG Sports Network in 1977. In
1980, it was reorganized into its present form under the USA Network name. Since
that time, it has grown into one of the nation's most widely distributed and
viewed satellite-delivered television networks. According to A.C. Nielsen, as of
December 1997, USA Network is available in approximately 72.3 million U.S.
households (73.7% of the total U.S. homes with televisions). USA Network is a
general entertainment network featuring original series and movies, theatrical
movies, off-network television series and major sporting events, designed to
appeal to the available audiences during particular dayparts. In general, USA
Network's programming is targeted at viewers between the ages of 18 to 54.
Sci-Fi Channel was acquired and launched in 1992. It has been one of the
fastest-growing satellite-delivered networks since its inception. According to
A.C. Nielsen, as of December 1997, Sci-Fi Channel is available in 46.7 million
U.S. households (47.6% of the total U. S. households with televisions). Sci-Fi
Channel features science fiction, horror, fantasy and science-fact oriented
programming. The network's programming is designed to appeal to viewers between
the ages of 18 to 49.
PROGRAMMING AND TRANSMISSION
Presently, USA Network's program line-up features original series, produced
exclusively for USA Network, including the following: La Femme Nikita, Silk
Stalkings and Pacific Blue. USA Network also exhibits approximately 22 movies
produced exclusively for it each year. USA Network's programming includes
off-network series such as Baywatch and Walker, Texas Ranger and major
theatrically-released feature films. USA Network is home to exclusive midweek
coverage of the U.S. Open Tennis Championships and early round coverage of The
Masters and major PGA Tour golf events.
USA Network typically enters into long-term agreements for its major
off-network series programming. Its original series commitments usually start
with less than a full year's commitment, but contain options for further
production over several years. USA Network acquires theatrical films in both
their "network" windows and "pre-syndication" windows. Under these arrangements,
the acquisition of such rights is often concluded many years before the actual
exhibition of the films begins on the network. USA Network's original films
start production less than a year prior to their initial exhibition. USA Network
typically obtains the right to exhibit both its acquired theatrical films and
original films numerous times over multiple year periods.
Sci-Fi Channel's program lineup includes original programs produced
specifically for it, such as Sightings and Mystery Science Theater 3000, as well
as science fiction movies and classic science fiction series, such as The
Twilight Zone, Lost in Space and Quantum Leap. Beginning in September 1998,
Sci-Fi Channel will have the exclusive right to carry the original Star Trek
series. Sci-Fi Channel's programming arrangements for off-network series,
original series, theatrical movies and original movies are similar to those
entered into by USA Network.
USA Network and Sci-Fi Channel each distribute their programming service on
a 24-hour per day, seven day per week basis. Both networks are distributed in
all 50 states and Puerto Rico via satellite for distribution by cable television
operators and other distributors (e.g., direct-to-home satellite distributors).
USA Network and Sci-Fi Channel are distributed to cable television systems,
dbs and satellite antenna owners by means of satellite transponders owned and
leased by Networks. Any cable television system or
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individual satellite dish owner in the United States and its territories and
possessions equipped with standard satellite receiving facilities is capable of
receiving Networks' programs.
Networks has the full-time use of four transponders on two domestic
communications satellites, although one of those transponders has been
subleased. Like Home Shopping, each of the transponders is a "protected"
transponder.
A transponder failure that would necessitate a move to another transponder
on the same satellite would not result in any significant interruption of
service to those that receive Networks' programs. However, a failure that would
necessitate a move to another satellite temporarily may affect the number of
cable systems which receive Networks programs (as well as other programming
carried on the failed satellite) because of the need to install equipment or to
reorient earth stations.
The projected ends of life of the two satellites utilized by Networks are
May, 2004 and March, 2006, respectively.
Networks' control of two different transponders on each of two different
satellites would enable it to continue transmission of its programs should
either one of the satellites fail. Although Networks believes it is taking every
reasonable measure to ensure its continued satellite transmission capability,
there can be no assurance that termination or interruption of satellite
transmission will not occur. Such a termination or interruption of service by
one or both of these satellites could have a material adverse effect on the
operations and financial condition of the Company. The availability of
replacement satellites and transponders is dependent on a number of factors over
which Networks has no control, including competition among prospective users for
available transponders and the availability of satellite launching facilities
for replacement satellites.
Each of the networks enters into agreements with cable operators and other
distributors which agree to carry the programming service, generally as part of
a package with other advertiser-supported programming services. These agreements
are multi-year arrangements in which the distributor pays Networks a fee for
each subscriber to the particular programming service.
CUSTOMERS
USA Network and Sci-Fi Channel derive virtually all of their revenues from
two sources. The first is the per-subscriber fees paid by the cable operators
and other distributors. The second is from the sale of advertising time within
the programming carried on each of the networks. TCI and Time Warner together
represent nearly 40% of USA Network's distribution and more than 30% of the
Sci-Fi Channel's distribution. Networks is currently in negotiations with TCI to
renew its affiliation agreement with respect to carriage of USA Network.
USA NETWORKS STUDIOS
Acquired by the Company on February 12, 1998 as part of the Universal
Transaction, USA Networks Studios ("Studios") produces and distributes
television programs and motion picture films intended for initial exhibition on
television and home video in both domestic and international markets. These
productions include original programming for network television, first-run
syndication through local television stations, pay television, basic cable and
home video and made-for-television movies. Studios also is the exclusive
domestic distributor of the extensive Universal television library. The domestic
distribution operations are headquartered in Los Angeles. Domestic sales offices
are also located in New York, Chicago, Atlanta and Dallas.
Studios' assets include shows currently in production for domestic airing,
including previously aired episodes, and all current development projects. As
part of the Universal Transaction, Universal retained the shows which are
currently being produced for initial airing in international markets and also
retained its feature film and television libraries and its international
distribution operations. Pursuant to a domestic television distribution
agreement, Studios will generally be the exclusive distributor in the U.S. of
television programs with respect to which Universal is retaining, or acquires,
distribution rights. Pursuant to an
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international television distribution agreement, the Company granted Universal a
similar exclusive right regarding the distribution outside the U.S. of
programming owned or controlled by the Company. In both cases, the distributor
receives a distribution fee based on revenues generated. These agreements have
an initial 15-year term.
Studios has produced programming for network television since the early
1950s and remains a major supplier of network programming today. Studios is a
leader in the first-run syndication market, producing in 1997 Hercules: The
Legendary Journeys and Xena: Warrior Princess, both highly-rated programs in
this market. In December 1996, Studios acquired Sally Jessy Raphael and The
Jerry Springer Show when it purchased substantially all of the production assets
of Multimedia Entertainment, Inc. Studios generally retains foreign and
off-network distribution rights for programming originally produced for
television networks. In addition, Studios distributes original television
programming in domestic markets for first-run syndication as well as exhibition
on basic cable and other media.
PRODUCTION
Production generally includes four steps: development, pre-production,
principal photography and post-production. The production/distribution cycle
represents the period of time from development of the property through
distribution and varies depending upon such factors as type of product and
primary form of exhibition. Pursuant to a facilities lease agreement, Studios'
production activities are centered on the Universal production lot. Some
television programs and films are produced, in whole or in part, at other
locations both inside and outside the United States.
Development of television programs and films begins with ideas and concepts
of producers and writers, which form the basis of a television series or film.
Producers and writers are signed to term agreements generally providing Studios
with exclusive use of their services for a term ranging from one to five years
in the case of producers and one to two years in the case of writers. Term
agreements are signed with such talent to develop network comedy and drama and
first-run syndication programming. Term agreements are also signed with actors,
binding them to Studios for a period of time during which Studios attempts to
attach them to a series under development. These term agreements represent a
significant investment for Studios.
In the case of network development, the ideas and concepts developed by
producers and writers are presented to broadcast networks to receive their
approval to develop a "pilot" that could possibly become a commitment from the
network to license a minimum number of episodes based on the pilot. In general,
the production cycle for network programming begins with the presentation of
pilots to network broadcasters in the fall of each year. Each May, networks
release their fall schedules, committing to the series production of pilots,
renewing existing programs and canceling others. Networks typically commit to
seven to thirteen episodes for such new series with options to acquire
additional episodes for a negotiated license fee and twenty-two episodes for a
renewed series. Production on these series begins in June and continues through
March, depending upon the network commitment. The network broadcast season runs
from September through May. Studios incurs production costs throughout the
production cycle up through completion of an episode while networks remit a
portion of the license fees to Studios upon commencement of episodic production
and a portion upon delivery of episodes.
Several of Studios' subsidiary companies are individually and separately
engaged in the development and/or production of television programs. Certain of
these subsidiaries are also signatories to various collective bargaining
agreements within the entertainment industry. The most significant of these are
the agreements with the Writers Guild of America ("WGA"), the Directors Guild of
America ("DGA") and the Screen Actors Guild ("SAG"), which agreements typically
have a term of several years and then require re-negotiation. The current WGA
Agreement expires May 1, 1998, while the current SAG Agreement expires June 30,
1998. Through their labor relations counsel, the affected subsidiaries are
accordingly now involved in industry-wide negotiations with both the WGA and SAG
in order to avoid or minimize any interruptions in those production activities
which are subject to these collective bargaining agreements.
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CUSTOMERS
Studios produces television films for the U.S. broadcast networks for prime
time television exhibition. Certain television films are initially licensed for
network television exhibition in the U.S. and are simultaneously syndicated
outside the U.S. Historically, Studios' customers for network television film
product have been concentrated with the three established major U.S. television
networks -- ABC, CBS and NBC. In recent years, Fox Broadcasting, UPN and the WB
Network have created new networks, decreasing to some extent Studios' dependence
on ABC, CBS and NBC and expanding the outlets for its network product. Revenue
from licensing agreements is recognized in the period that the films are first
available for telecast. Programming consists of various weekly series and "made
for television" feature length films. 1997 network programming includes
returning productions Law & Order, New York Undercover and Something So Right
and initial year productions of Players and The Tom Show. In the initial
telecast season, the network license provides for the production of a minimum
number of episodes, with the network having the option to order additional
episodes for both the current and future television seasons. Network licenses
give the networks the exclusive right to telecast a given series for a period of
time, generally four to five years. The success of any one series may be
influenced by the time period in which the network airs the series, the strength
of the programs against which it competes, promotion of the series by the
network and the overall commitment of the network to the series.
In addition to the broadcast networks, Studios has had a long-standing
relationship with USA Network, Sci-Fi Channel, and Sci-Fi Europe (which is to be
contributed to the joint venture between Universal and the Company), producing
original programming and licensing off-network and off-syndication product.
Studios licenses seven to ten made-for-television movies per year to USA Network
and has produced the original series Weird Science and Campus Cops for the
network. Studios is currently producing the original series Sliders for Sci-Fi
Channel and has licensed 48 previously developed episodes of Sliders that had
originally aired on the Fox Network. Studios has licensed to USA Network
off-syndication episodes of Hercules: The Legendary Journeys and Xena: Warrior
Princess and off-network episodes of New York Undercover that will become
available for broadcast in the fall of 1998.
Studios also produces television film product that is initially syndicated
directly to independent television stations for airing throughout the broadcast
day and to network affiliated stations for non-primetime airing. 1997 first-run
syndication programming includes one hour weekly series including returning
productions of Hercules: The Legendary Journeys and Xena: Warrior Princess as
well as the initial year production of Team Knight Rider and talk shows
including returning productions of Sally Jessy Raphael and The Jerry Springer
Show. Additionally, Studios has entered into an agreement with talk show veteran
Maury Povich to host a talk show that will premiere in the fall of 1998.
Studios licenses television film product to independent stations and
directly to network affiliated stations in return for either a cash license fee,
barter or part-barter and part-cash. Barter syndication is the process whereby
Studios obtains commitments from television stations to broadcast a program in
certain agreed upon time periods. Studios retains advertising time in the
program in lieu of receiving a cash license fee, and sells such retained
advertising time for its own account to national advertisers at rates based on
the projected number of viewers. By placing the program with television stations
throughout the United States, an "ad hoc" network of stations is created to
carry the program. The creation of this ad hoc network of stations, typically
representing a penetration of at least 80% of total U.S. television households,
enables Studios to sell the commercial advertising time through advertising
agencies for sponsors desiring national coverage. The rates charged for this
advertising time are typically lower than rates charged by U.S. broadcast
networks for similar demographics since the networks' coverage of the markets is
generally greater. In order to create this ad hoc network of stations and reach
80% of total U.S. television households, Studios must syndicate its programming
with stations that are owned and operated by the major broadcast networks and
station groups, which are essentially entities which own many stations in the
major broadcast markets across the United States. Without commitments from
broadcast network stations and station groups, the necessary market penetration
may not be achieved which may adversely affect the chances of success in the
first-run syndication market.
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Generally, television films produced for broadcast or cable networks or
barter syndication provide license fees and/or advertising revenues that cover
only a portion of the anticipated production costs. The recoverability of the
balance of the production costs and the realization of profits, if any, is
dependent upon the success of other exploitation including international
syndication licenses, subsequent basic cable and domestic syndication licenses,
releases in the home video market, merchandising and other uses. Pursuant to an
agreement with Universal, Studios has the right to include eligible product in
Universal's international free television output and volume agreements with
television broadcasters in major international territories. These agreements
represent a substantial revenue source for Studios.
DISTRIBUTION
In general, during a series' initial production years (i.e., seasons one to
four), domestic network and international revenues fall short of production
costs. As a result, the series will likely remain in a deficit position until
sold in the domestic syndication market. The series will be available for airing
in the off-network syndication market after a network's exclusivity period ends,
typically the September following the completion of the fourth network season or
the fifth season if the series was a mid-season order. For a successful series,
the syndication sales process generally begins during the third network season.
The price that a series will command in syndication is a function of supply and
demand. Studios syndicated series are sold for cash and/or bartered services
(i.e., advertising time) for a period of at least five years. Barter
transactions have played an increasingly important role in the syndication
process as they can represent a majority of the distributor's syndication
revenue.
Studios will distribute its current programming domestically. In addition,
the Company and Universal have agreed that Studios will have the exclusive right
to distribute domestically Universal's large television library, with
programming dating back to the 1950s and including such series as Alfred
Hitchcock Presents; The Virginian; Marcus Welby, M.D.; Dragnet; Columbo; Kojak;
The Rockford Files; Murder She Wrote; Magnum P.I.; Miami Vice; Coach and
Northern Exposure. Studios also has the exclusive right, with limited
exceptions, to distribute domestically television programming produced by
Universal during the next 15 years.
In addition, the Company and Universal have agreed that Universal will have
the exclusive right to distribute all Studios programming internationally. In
that regard, Universal has recently signed several output and volume agreements
with international television broadcasters that include programming produced by
Studios. In May 1996, Universal signed a free television output and
co-production agreement with Germany's RTL. The ten-year agreement covers all
new and existing product distributed by Universal to RTL, UFA and CLT
broadcasting outlets in Germany and other German-speaking territories and
provides that RTL will co-produce a minimum number of series from Universal and
Studios over the term of the agreement, providing a portion of each series'
production costs. With regard to the output arrangement, RTL has exclusive
first-run free television rights in its territories to carry every series and
television movie made by Universal and Studios during the term of the agreement.
In 1997, Universal signed similar volume agreements in France, Spain, Italy and
the United Kingdom in which the licensor generally committed to license a
minimum number per year of first-run series and first-run television movies
during a specified term in the territory. Pursuant to the terms of the
international distribution agreement between the Company and Universal, the
Company's eligible programming will have the first right to participate in
Universal's international output and volume agreements with international
television broadcasters, including in Germany, France, Spain, Italy and the
United Kingdom.
Studios also produces "direct to video" programming. Studios has licensed a
third party to sell a video of The Jerry Springer Show that contains portions of
previously produced programs that had been edited out when the episodes aired on
television.
USA BROADCASTING
Through subsidiaries described below, the Company controlled, as of
December 31, 1997, 16 full power television broadcast stations, including three
satellite stations. Twelve of the full-power stations comprise the USA Station
Group (formerly "Silver King") and four comprise SF Broadcasting. Additionally,
the
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Company controlled 26 low power ("LPTV") television stations (the "LPTV
Stations") and two low power translators.
USA STATION GROUP
As of December 31, 1997, the USA Station Group served ten of the 16 largest
metropolitan television markets in the United States, and reached approximately
28.3 million television households, which is one of the largest audience reaches
of any owned and operated independent television broadcasting group in the
United States.
As of December 31, 1997, USA Broadcasting wholly owned the following
stations as part of the USA Station Group:
SUMMARY OF USA STATION GROUP MARKETS
- ------------------------------------------------------------------------------------------------------------------
HOUSEHOLDS IN
DESIGNATED LICENSE
TELEVISION CHANNEL METROPOLITAN MARKET AREA DMA EXPIRATION
STATION CITY OF LICENSE NO. AREA SERVED ("DMA")(1) RANK(1) DATE
- ------------------------------------------------------------------------------------------------------------------
WHSE-TV(2)........... Newark, NJ 68 New York, NY 6,755,510 1 6/1/99
WHSI-TV(2)........... Smithtown, NY 67 New York, NY 6,755,510 1 6/1/99
KHSC-TV.............. Ontario, CA 46 Los Angeles, CA 5,009,230 2 12/1/98
WEHS-TV.............. Aurora, IL 60 Chicago, IL 3,140,460 3 12/1/05
WHSP-TV.............. Vineland, NJ 65 Philadelphia, PA 2,659,260 4 6/1/99
WHSH-TV.............. Marlborough, MA 66 Boston, MA 2,174,300 6 4/1/99
KHSX-TV.............. Irving, TX 49 Dallas, TX 1,899,330 8 8/1/98
KHSH-TV.............. Alvin, TX 67 Houston, TX 1,624,340 11 8/1/98
WQHS-TV.............. Cleveland, OH 61 Cleveland, OH 1,469,010 13 10/1/05
WBHS-TV.............. Tampa, FL 50 Tampa/St. Petersburg, FL 1,435,520 15 2/1/05
WYHS-TV.............. Hollywood, FL 69 Miami, FL 1,385,940 16 2/1/05
WHSW-TV(3)........... Baltimore, MD 24 Baltimore, MD 988,040 23 10/1/04
- ---------------
(1) Estimates by Nielsen Marketing Research ("Nielsen") as of January 1998. For
multiple ownership purposes, the FCC attributes only 50% of a market Area of
Dominant Influence ("ADI") reach to UHF stations. Arbitron ADI's, like
Nielsen DMA's, are measurements of television households in television
markets throughout the country. For the Company's purposes, ADI and DMA
measurements do not materially differ.
(2) WHSI-TV operates as a satellite of WHSE-TV and primarily rebroadcasts the
signal of WHSE-TV. Together, the two Stations serve the metropolitan New
York City television market and are considered one station for FCC multiple
ownership purposes.
(3) The Baltimore station was sold in January 1998 for $80 million.
On March 19, 1998, a definitive asset purchase agreement was entered into
by certain entities controlled by the Company and Paxson Communications of
Atlanta-14, Inc. whereby certain entities controlled by the Company have agreed
to buy for $50 million the assets of Television Station WNGM-TV, Channel 34,
Athens, Georgia which serves the Atlanta metropolitan area. Concurrently, in
exchange for a payment to Home Shopping of $15 million, Home Shopping agreed
with Paxson Communications Corporation to consent to the sale by Blackstar
L.L.C. of Station KBSP, Salem, Oregon, and to terminate the Home Shopping
Affiliation Agreement for that station, together with the HSC Affiliation
Agreements for WCCL, New Orleans, Louisiana, and WFBI, Memphis, Tennessee.
As of December 31, 1997, USA Broadcasting and its affiliates held minority
interests in several television stations as described below:
USA Broadcasting owned a 33.44% membership interest in Blackstar L.L.C.
("Blackstar"), the parent company of the licensees of Stations WBSF(TV),
Melbourne, Florida; KBSP-TV, Salem, Oregon; and WBSX(TV), Ann Arbor, Michigan,
which serve all or portions of the metropolitan areas of Orlando, Florida;
Portland, Oregon; and Detroit, Flint and Lansing, Michigan, respectively. All of
these television stations were
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affiliates of Home Shopping and carried Home Shopping programming on a
substantially full-time basis. Blackstar also is the parent company of the
licensee of Station KEVN-TV, Rapid City, South Dakota, and its satellite
station, KIVV-TV, licensed to Lead-Deadwood, South Dakota, both of which are
affiliated with, and carry the programming of, Fox Broadcasting Company ("Fox").
In addition, a member of USA Station Group owns 1,000 shares of nonvoting
preferred stock in Blackstar Communications, Inc., a subsidiary of Blackstar.
Blackstar sold the assets of its Ann Arbor, Michigan station to a third party
effective as of January 28, 1998. Upon the closing of the sale, the Home
Shopping affiliation agreement terminated. Following the termination, USA
Broadcasting has a 45.88% equity interest in Blackstar. Blackstar also has
entered into an agreement to sell the Salem, Oregon station to Paxson
Communications Corporation.
On February 13, 1998, USA Broadcasting entered into a letter of intent with
the other members of Blackstar to acquire all of the membership interests of
Blackstar other than those currently owned by USA Broadcasting for $17 million,
plus $1.5 million as consideration for consulting agreements by two of the
selling members. It is anticipated that a definitive agreement will be entered
into shortly and that the acquisition will close later this year. Upon closing,
USA Broadcasting will have sole ownership of the aforementioned television
stations serving Orlando, Florida and Rapid City, South Dakota.
An affiliate of USA Broadcasting owns a 45% nonvoting common stock interest
in the following entities: Roberts Broadcasting Company, which owns Station
WHSL(TV), East St. Louis, Illinois, serving the St. Louis, Missouri metropolitan
area; Urban Broadcasting Corporation ("Urban"), which owns Station WTMW(TV),
Arlington, Virginia, serving the Washington, D.C. metropolitan area; and Roberts
Broadcasting Company of Denver, which owns Station KTVJ(TV), Boulder, Colorado,
serving the Denver, Colorado metropolitan area. All of these stations carry Home
Shopping programming. Various court actions are pending among various
subsidiaries of the Company involving, among other things, performance issues
concerning the affiliation agreements for each of the aforementioned stations.
On April 26, 1996, Channel 66 of Vallejo, California, Inc. ("Channel 66"),
an entity in which an affiliate of USA Broadcasting holds a 49% nonvoting common
stock interest, consummated the acquisition of Station KPST-TV, Vallejo,
California which serves the San Francisco market.
A subsidiary of USA Broadcasting has an option to purchase a 45% nonvoting
common stock interest in Jovon Broadcasting Company ("Jovon"), the licensee of
Station WJYS(TV), Hammond, Indiana, serving the Chicago, Illinois television
market. Jovon has contested the validity of the option. See "Item 3.
Proceedings." The licensee of WJYS(TV) has filed a petition with the FCC as to
whether the FCC, in a 1996 ruling, intended to rewrite the option to permit a
partial exercise. The Company has opposed that petition. In addition, the
Company is seeking, in a Florida court, action to enforce its rights under the
option.
The Company's 26 LPTV Stations are located in the New York, New York;
Atlanta, Georgia; St. Petersburg, Florida; St. Louis, Missouri; Knoxville,
Tennessee; Minneapolis, Minnesota; New Orleans, Louisiana; Roanoke, Virginia;
Tucson, Arizona; Tulsa, Oklahoma; Wichita, Kansas; Columbus, Ohio; Kansas City,
Missouri; Springfield, Illinois; Huntington, West Virginia; Champaign, Illinois;
Toledo, Ohio; Portsmouth, Virginia; Raleigh, North Carolina; Des Moines, Iowa;
Shreveport, Louisiana; Spokane, Washington; Pensacola, Florida; Birmingham,
Alabama; Mobile, Alabama; and Jacksonville, Florida areas. The Company's LPTV
Stations, for the most part, carry America's Store. The LPTV Stations have an
average coverage radius of 10-12 miles and an average transmitter power of
1,000-2,000 watts. This contrasts with the Company's full-power UHF television
stations, which cover an average radius of 45-55 miles and have an average
transmitter power of 120,000 watts. Each of the LPTV Stations are regarded by
the FCC as having secondary status to full power stations and are subject to
being displaced by changes in full power stations resulting from digital
television allotments.
PROGRAMMING
Each of the USA Station Group stations ("USA Stations"), through the
applicable subsidiaries, has entered into a Television Affiliation Agreement
with Home Shopping pursuant to which each station broadcasts Home Shopping for
approximately 164 hours per week. Available advertising time on the USA Stations
is utilized to promote various Home Shopping subsidiaries and is also sold to
outside commercial
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clients on a per unit fixed rate. Advertising time also is bartered in exchange
for non-Home Shopping programming. Time is available in units of 30 seconds, 60
seconds, 120 seconds, half-hours and hours. As part of its efforts to maximize
the value of the USA Station Group, the Company is continuing to evaluate the
status of the Affiliation Agreements. The Company intends over time, subject to
consideration of the possible impact on Home Shopping on a market by market
basis, to disaffiliate the USA Stations from Home Shopping and develop and
program the stations independently.
The Company is implementing its plans to disaffiliate its station in the
Miami, Florida market in 1998. It intends to replace Home Shopping with
city-centric news, sports and entertainment programming that is a competitive
alternative to the national affiliations of virtually all of the other
commercial television stations in the market. Current plans call for programming
that relates specifically to Southern Florida as well as programming that ties
into the overall sensibility of Miami. Programming agreements already reached
include: a television-rights agreement under which the station will become the
local broadcast television partner of the Miami Heat; a programming agreement
with the Miami Herald for a weekly news/reality series; a programming agreement
with Ocean Drive, an internationally distributed magazine based in Miami; and a
daily live, in-studio children's variety program featuring the exclusive
broadcast in the Miami market of several of the top-ranked Fox Kids Network
programs.
Upon disaffiliation, substantial expenditures would be required to develop
USA Broadcasting programming and promotions on the USA Stations, which, during
this developmental and transitional stage, would not be offset by sufficient
advertising revenues. Additionally, the Company may also incur additional
expenses and cash outflows (including the making of up-front payments), which
could be substantial, in connection with entering into cable distribution
agreements for the purpose of securing carriage of Home Shopping programming
and/or the USA Stations' programming. Furthermore, disaffiliation will disrupt
Home Shopping's ability to reach some of its existing customers which may cause
a reduction in the Company's revenues. The Company believes that the process of
disaffiliation can be successfully managed to minimize these adverse
consequences while maximizing the value of the USA Stations.
There can be no assurance that, if Home Shopping and the USA Stations
disaffiliate, the Company will be successful in its strategy to develop and
broadcast new programming formats, whether on a local or national basis, or that
the Company will be able to find other means of distributing its Home Shopping
programming on favorable terms to the households in the broadcast areas
currently served by USA Stations. The consequences of any of the foregoing
decisions will impact the business, financial condition and results of
operations of the Company.
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SF BROADCASTING
SF Broadcasting consists of SF Multistations, Inc. ("SF Multistations"),
and its wholly owned subsidiaries, which own KHON-TV (together with satellite
stations KAII and KHAW, hereafter collectively referred to as "KHON"), WALA-TV
and WVUE-TV, and SF Broadcasting of Wisconsin, Inc. ("SF Wisconsin") and its
wholly owned subsidiaries, which own WLUK. Savoy Stations, Inc. ("Savoy
Stations"), an indirect wholly owned subsidiary of the Company, owns 50% of the
common equity and 100% of the voting stock of each of SF Wisconsin and SF
Multistations. A subsidiary of Fox Television Stations, Inc. owns 50% of the
common equity of SF Multistations and SF Wisconsin and also owns options,
subject to certain conditions, to convert its non-voting interest into voting
interests. The following table sets forth certain information regarding the
stations owned and operated by SF Broadcasting (the "SF Stations") and the
markets in which they operate:
SUMMARY OF SF BROADCASTING STATION MARKETS
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TELEVISION METROPOLITAN AFFILIATION/ HOUSEHOLDS IN LICENSE
STATION AREA SERVED CHANNEL DMA(1) DMA RANK(1) EXPIRATION DATE
- ----------------------------------------------------------------------------------------------------------------
WVUE-TV.............. New Orleans, LA FOX/8 622,760 41 6/1/05
KHON-TV(2)........... Honolulu, HI(3) FOX/2 380,380 71 2/1/99
KAII-TV(2)........... Wailuku, HI
KHAW-TV(2)........... Hilo, HI
WALA-TV.............. Mobile-Pensacola, AL FOX/10 449,950 62 4/1/05
WLUK-TV.............. Green Bay, WI(3) FOX/11 381,100 70 12/1/05
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(1) Estimated by Nielsen as of January 1998. Rankings are based on the relative
size of a station's market among the 211 generally recognized Designated
Market Areas.
(2) KAII and KHAW operate as satellite stations of KHON-TV and primarily
re-broadcast the signal of KHON. The stations are considered one station for
FCC multiple ownership purposes.
(3) Low power television translators K55D2 and W40AN retransmit stations KHON-TV
and WLUK-TV, respectively.
The SF Stations have long term affiliation agreements with Fox. The Company
is considering its options with respect to the SF Stations, including a possible
sale of the stations.
TICKETMASTER
Unless the context requires, references to "Ticketmaster" include
Ticketmaster Group, Inc., its predecessors and its subsidiaries. References to
the "Managed Businesses" include Ticketmaster's wholly and majority owned
subsidiaries together with Ticketmaster's interest in those unconsolidated joint
ventures in which it acts as managing partner. At March 20, 1997, the Company
and Ticketmaster entered into a merger agreement regarding the acquisition by
the Company in a tax-free merger of the remaining Ticketmaster common stock for
.563 of a share of Common Stock. (1.126 shares after giving effect to the
Company's two-for-one stock split as of March 12, 1998). The merger agreement
was entered into based upon the recommendation of the Special Committee of the
Ticketmaster Board that had been appointed to consider USA1's merger proposal in
October 1997. Consummation of the merger is subject to customary conditions,
including the approval of the merger by Ticketmaster's shareholders. The Company
expects that the merger will be completed in the third quarter of 1998.
Ticketmaster, through the Managed Businesses, is the leading provider of
automated ticketing services in the U.S. with over 3,500 clients, including many
of the country's foremost entertainment facilities and promoters and 77
professional sports franchises. Ticketmaster has established its market position
by providing these clients with comprehensive ticket inventory control and
management, a broad distribution network and dedicated marketing and support
services. Ticket orders are received and fulfilled through operator-staffed call
centers, independent sales outlets remote to the facility box office and
Ticketmaster's World Wide Web site. Revenue is generated principally from
convenience charges received by Ticketmaster for tickets sold on its
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clients' behalf. Ticketmaster generally serves as an exclusive agent for its
clients and typically has no financial risk for unsold tickets. Ticketmaster,
through the Managed Businesses, sold 60.0 million tickets in fiscal 1997, while
generating revenues of $298.5 million.
Ticketmaster plans to continue to broaden its client base to include such
venues as museums, zoos, amusement parks, state and county fairs, and other
locations such as golf courses, ski resorts and trade shows.
Ticketmaster also believes that significant opportunities exist
internationally to attract additional venues in a historically under-penetrated
market for automated ticketing services.
Ticketmaster is continuing to leverage its widely recognized brand name and
logo and extensive distribution capabilities by developing new opportunities in
related areas, such as entertainment information and publishing, merchandising,
advertising, promotional services, and direct marketing. Ticketmaster has also
launched Ticketmaster Online (http://www.ticketmaster.com), its site on the
World Wide Web, designed to promote ticket sales for live events, disseminate
event information and offer transactional and merchandising services.
Ticketmaster Online began transactional services in September 1996 and is
currently processing retail transactions for Ticketmaster and ticketing
transactions for its entire clientele.
Ticketmaster believes that the Ticketmaster System and its extensive
distribution capabilities provide a competitive advantage that enhances
Ticketmaster's ability to attract new clients and maintain its existing client
base.
Through its Managed Businesses, Ticketmaster has a comprehensive domestic
distribution system that includes approximately 2,700 remote sales outlets in 44
states covering many of the major metropolitan areas in the U.S. and 16 domestic
call centers with approximately 1,750 operator positions. Ticketmaster provides
the public with convenient access to tickets and information regarding
entertainment events. Ticket purchasers are assessed a convenience charge for
each ticket sold offsite by Ticketmaster on behalf of its clients. These charges
are negotiated and included in Ticketmaster's contracts with its clients. The
versatility of the Ticketmaster System allows it to be customized to satisfy a
full range of client requirements.
From fiscal 1991 through 1997, the number of tickets sold and revenues for
the Managed Businesses have grown from 29.1 million tickets and $96.1 million of
revenues to 60.0 million tickets and $298.5 million of revenues.
ADDITIONAL SUBSIDIARY BUSINESSES
In addition to diversified media and electronic commerce businesses, the
Company's subsidiaries are involved in other businesses.
Internet Shopping Network LLC ("ISN"), at www.ISN.com, has grown to become
a leading retailer of computer hardware and software on the Internet and offers
over 40,000 products from major manufacturers. ISN is also engaged in exploring
other new digital retailing vehicles. In June 1997, ISN launched First Auction,
at www.firstauction.com, a new commerce site featuring computer, consumer
electronics and Home Shopping merchandise in an online auction format.
National Call Center LP ("NCC") performs direct response telemarketing
services using toll free 800 numbers and provides services on a contractual
basis to third parties using inbound and outbound telemarketing. NCC can perform
any number of related functions, including fulfillment and credit card clearing
services.
Vela Research LP ("Vela") develops and markets high technology audio and
video MPEG compression/decompression products to the cable, broadcast, computer
and telecommunications industries.
INTERNATIONAL VENTURES
International TV Channel Joint Venture. In connection with the Universal
Transaction, the Company entered into a joint venture agreement relating to the
development of international general entertainment television channels,
including the international versions of USA Network, Sci-Fi Channel and
Universal's
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action/adventure channel 13th Street. As part of the agreement, the Latin
American operations of USA and Sci-Fi Channel, Sci-Fi Europe and the
international operations of 13th Street have been contributed to the venture.
Unless the Company elects to have Universal buy out the Company's interest in
the venture, the Company and Universal will be 50-50 partners in the venture,
which is managed by Universal. Under the joint venture agreement, the venture
generally has the exclusive right to develop the international version of
domestic general entertainment channels that are owned or controlled by the
Company or Universal, excluding, for example, channels that feature HSN Services
and local USA Station Group channels. USANi LLC and Universal have each
committed to contribute $100 million in capital to the venture over a number of
years. Additional capital contributions are subject to the Company's election to
maintain its 50% interest or to be diluted based on additional contributions
from Universal. Pursuant to the joint venture agreement, each party is obligated
to present certain international opportunities relating to general entertainment
channel development to the venture, so that the partners may elect whether to
pursue such opportunity in the venture. Under certain circumstances, a "passed"
international opportunity that is subject to these "first offer" provisions may
be pursued by the venture partner outside the venture.
Home Shopping Ventures.
Germany. Home Shopping acquired a 29% interest in Home Order Television
GmbH & Co. KG ("HOT"), a venture based in Munich. HOT broadcasts television
shopping 24 hours per day, 12 of which are devoted to live shopping Monday
through Friday and 16 hours of which are devoted to live shopping on Saturday
and Sunday. HOT is carried via cable and satellite to approximately 12.7 million
full-time equivalent households in Germany and Austria as of December 31, 1997.
Japan. Home Shopping acquired a 30% interest in Jupiter Shop Channel Co;.
Ltd. ("Shop Channel") a venture based in Tokyo. Shop Channel broadcasts
televised shopping 24 hours a day, 18 hours per week of which are devoted to
live shopping. Shop Channel has reached agreements to be available in
approximately 1.5 million full-time equivalent households as of December 31,
1997. Tele-Communications International, Inc., a subsidiary of TCI ("TCI
International") owns a 50% interest in Jupiter Programming Co. Ltd. ("JPC")
which is the 70% shareholder in the venture.
Univision. Home Shopping has entered into an agreement with Univision
Communication, Inc. to form a Spanish and Portuguese language live television
shopping venture focused on North and South American and European markets. Home
Shopping owns a 50.1% interest in the venture. The venture intends to commence
broadcasting three hours per day to East Coast and West Coast markets in the
United States on March 30, 1998.
REGULATION
CURRENT FCC REGULATION -- GENERAL
A substantial portion of the Company's businesses is subject to various
statutes, rules, regulations and orders relating to communications and generally
administered by the FCC. The communications industry, including the operation of
broadcast television stations, cable television systems, satellite distribution
systems and other multichannel distribution systems and, in some respects,
vertically integrated cable programmers, is subject to substantial federal
regulation, particularly pursuant to the Communications Act of 1934, as amended
(the "1934 Act"), the Telecommunications Act of 1996 (the "Telecommunications
Act") and the rules and regulations promulgated thereunder by the FCC. Cable
television systems are also subject to regulation at the state and local level.
The 1934 Act prohibits the operation of television broadcasting stations except
under a license issued by the FCC and empowers the FCC, among other matters, to
issue, renew, revoke and modify broadcast licenses, to determine the location of
stations, to establish areas to be served and to regulate certain aspects of
broadcast and cable programming. The 1934 Act prohibits the assignment of a
broadcast license or the transfer of control of a licensee without prior FCC
approval. If the FCC determines that violations of the 1934 Act or any FCC rule
have occurred, it may impose sanctions ranging from admonishment of a licensee
to license revocation.
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BROADCAST TELEVISION LICENSE GRANT AND RENEWAL
The 1934 Act provides that a broadcast license, including the licenses
controlled by USA Broadcasting, may be granted to any applicant if the public
interest, convenience and necessity would be served thereby, subject to certain
limitations. Television stations operate pursuant to broadcasting licenses that
are usually granted by the FCC for terms of eight years. Television station
licenses are subject to renewal upon application to the FCC, which is required
under the Telecommunications Act to grant the renewal application if it finds
that (i) the station has served the public interest, convenience and necessity;
(ii) there have been no serious violations by the licensee of the 1934 Act or
the rules and regulations of the FCC; and (iii) there have been no other
violations by the licensee of the 1934 Act or the rules and regulations of the
FCC that, when taken together, would constitute a pattern of abuse.
ALIEN OWNERSHIP OF BROADCAST TELEVISION STATIONS
The 1934 Act prohibits the issuance of a broadcast license to, or the
holding of a broadcast license by, any corporation of which more than 20% of the
capital stock is beneficially or nominally owned or voted by non-U.S. citizens
or their representatives or by a foreign government or a representative thereof,
or by any corporation organized under the laws of a foreign country
(collectively, "Aliens"). The 1934 Act also authorizes the FCC, if the FCC
determines that it would be in the public interest, to prohibit the issuance of
a broadcast license to, or the holding of a broadcast license by, any
corporation directly or indirectly controlled by any other corporation of which
more than 25% of the capital stock is beneficially or nominally owned or voted
by Aliens. The FCC has issued interpretations of existing law under which these
restrictions in modified form apply to other forms of business organizations,
including partnerships. Under the relevant provision of the 1934 Act. Universal
is regarded to be an Alien, since it is owned 84% by Seagram, a Canadian
corporation, and 16% by Matsushita Electric Industrial Co. Ltd., a Japanese
corporation. At the Annual Meeting of Stockholders held in February 1998, the
Company's stockholders approved amendments to the Company's certificate of
incorporation to ensure that the Company will continue to be in compliance with
the Alien ownership limitation of the 1934 Act. Universal's equity interest in
the Company to the extent held through the ownership of LLC Shares relating to
USANi LLC, which does not hold any broadcast licenses, is not regarded as an
equity interest in USAi for purposes of the statutory provision regarding Alien
ownership.
MULTIPLE AND CROSS OWNERSHIP
Current FCC regulations impose significant restrictions on certain
positional and ownership interests in broadcast television stations, cable
systems and other media. As a general matter, officers, directors and
stockholders who own 5% or more of the outstanding voting stock of a media
company (except for certain institutional shareholders, who may own up to 10%)
are deemed to have "attributable" interests in the company. Nonvoting
stockholders, minority voting stockholders in companies controlled by a single
majority stockholder, and holders of options, warrants and debt instruments are
generally exempt from attribution under the current rules.
Under the FCC's rules, an individual or entity may hold attributable
interests in an unlimited number of television stations nationwide, subject to
the restriction that no individual or entity may have an attributable interest
in television stations reaching more than 35% of the national television viewing
audience (subject to a 50% discount in the number of television households
attributed to any UHF station). Locally, unless applicable waiver standards are
met, an individual or entity may not hold attributable interests in (i) two
television stations (the "Duopoly Rule"), (ii) radio and television stations,
(iii) broadcast television stations and cable television systems, and (iv)
newspapers and radio or television stations. In addition, the FCC's
"cross-interest" policy generally prohibits the common ownership of an
attributable interest in one media company and certain non-attributable, but
"meaningful" interests, including substantial non-attributable equity interests,
in another media company serving "substantially the same area."
The FCC is conducting a rulemaking proceeding to consider, among other
things, (i) the relaxation, under certain circumstances, of the Duopoly Rule,
and (ii) the codification of the cross-interest policy to the extent it was
applied to limit Liberty's beneficial equity interest in the Company.
Specifically in this regard,
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the FCC has proposed to prohibit the common ownership of an attributable
interest in a media company and a greater than 33% non-attributable equity
interest in another media company in the same market, but has requested comment
on whether a higher or a lower non-attributable equity benchmark would be more
appropriate. It is not possible to predict the extent to which the Duopoly Rule
may be modified or the timing or effect of changes in the cross-interest policy
pursuant to the rulemaking proceeding. The outcome of that proceeding could have
a material effect on the Company.
Liberty's ownership interests in the Company, including its non-voting
ownership interest in the BDTV entities, have been structured to comply with
these regulations, which apply to Liberty because of its other interests in
cable and broadcast assets. In a June 14, 1996 "Memorandum Opinion and Order,"
the FCC concluded that Liberty's beneficial interest in the Company through its
ownership of convertible non-voting common stock of the BDTV entities, as
augmented by an imputed 50% "control" premium, is subject to the cross-interest
policy. The FCC subjected Liberty's ownership interest in the Company to certain
conditions, including that (i) the prior approval of the FCC be obtained for any
increase in Liberty's interest, and (ii) the FCC be notified prior to
consummation of any transaction whereby the aggregate percentage of television
households served by cable systems owned or controlled by TCI in any of USA
Broadcasting's television markets would exceed 50 percent.
On March 12, 1998, acting pursuant to the requirements of the
Telecommunications Act, the FCC commenced a formal inquiry to review all of its
broadcast ownership rules which are not otherwise under review, including the
national audience limitation, the associated 50% discount for UHF stations and
the cable/television cross-ownership rule. It is not possible at this time to
predict what action the FCC may take and how it may affect the Company.
DIGITAL TELEVISION
The FCC has taken a number of steps to implement digital television ("DTV")
service (including high-definition television) in the United States. On February
17, 1998, the FCC adopted a final table of digital channel allotments and rules
for the implementation of DTV. The table of digital allotments provides each
existing television station licensee or permittee with a second broadcast
channel to be used during the transition to DTV, conditioned upon the surrender
of one of the channels at the end of the DTV transition period. The implementing
rules permit broadcasters to use their assigned digital spectrum flexibly to
provide either standard- or high-definition video signals and additional
services, including, for example, data transfer, subscription video, interactive
materials, and audio signals, subject to the requirement that they continue to
provide at least one free, over-the-air television service. The FCC has set a
target date of 2006 for expiration of the transition period, subject to biennial
reviews to evaluate the progress of DTV, including the rate of consumer
acceptance. Conversion to DTV may reduce the geographic reach of the Company's
stations or result in increased interference, with, in either case, a
corresponding loss of population coverage. DTV implementation will impose
additional costs on the Company, primarily due to the capital costs associated
with construction of DTV facilities and increased operating costs both during
and after the transition period. In addition, the Telecommunications Act
requires the FCC to assess and collect a fee for any use of a broadcaster's DTV
channel for which it receives subscription fees or other compensation other than
advertising revenue. The FCC has pending a rulemaking proceeding to implement
this requirement.
The Company continually reviews developments relating to the FCC's DTV
proceedings, and the DTV industry generally. Material developments in this
regard could have a material impact on the Company's businesses. For example, in
the future, certain of the Company's 26 LPTV stations (as well as other LPTV
affiliates of Home Shopping) are likely to be displaced and will have to cease
business operations due to interference to or from new DTV allocations.
CHILDREN'S TELEVISION PROGRAMMING
Pursuant to legislation enacted in 1991, the amount of commercial matter
that may be broadcast during programming designed for children 12 years of age
and younger has been limited to 12 minutes per hour on weekdays and 10.5 minutes
per hour on weekends. In addition, the FCC has adopted a guideline for
processing
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television station renewals under which stations are found to have complied with
the Children's Television Act if they broadcast three hours per week of "core"
children's educational programming, which, among other things, must have as a
significant purpose serving the educational and informational needs of children
16 years of age and under. A television station found not to have complied with
the "core" programming processing guideline could face sanctions, including
monetary fines and the possible non-renewal of its broadcasting license, if it
has not demonstrated compliance with the Children's Television Act in other
ways.
TELEVISION VIOLENCE
The Telecommunications Act of 1996 (the "Telecommunications Act") directed
the broadcast and cable television industries to develop and transmit an
encrypted rating in all video programming that, when used in conjunction with
so-called "V-Chip" technology, would permit the blocking of programs with a
common rating. On March 12, 1998, the FCC voted to accept an industry proposal
providing for a voluntary ratings system of "TV Parental Guidelines" under which
all video programming will be designated in one of six categories in order to
permit the electronic blocking of selected video programming. The FCC has begun
a separate proceeding to address technical issues related to the "V-Chip." The
FCC has directed that all television receiver models with picture screens 13
inches or greater be equipped with "V-Chip" technology under a phased
implementation beginning on July 1, 1999. The Company cannot predict how changes
in the implementation of the ratings system and "V-Chip" technology will affect
the Company's business.
CLOSED CAPTIONING
The FCC's closed captioning rules, which became effective January 1, 1998,
provide for the phased implementation of a universal on-screen captioning
requirement with respect to the vast majority of video programming. The rules
divide programming into two groups: pre-rule programming (which is defined to be
programming that was first published or exhibited on or before January 1, 1998
by any distribution method) and new programming (programming that was first
published or exhibited after that date). Pre-rule programming is subject to no
specific requirements until the first calendar quarter of 2008. In that quarter,
75% of all pre-rule programming actually aired is required to be captioned.
Beginning in the first calendar quarter of 2000, new programming that is not
otherwise exempt from captioning requirements is subject to a series of
quarterly benchmarks, until by January 1, 2006, 95% of all new, non-exempt
programming is to be captioned. These captioning requirements apply to
programming carried on broadcast television stations and cable programming
networks. Although the FCC has provided for exceptions to or exemptions from the
rules under certain circumstances, none applies to any of the current broadcast
or cable programming services of USA Broadcasting, USA Networks or Home Shopping
Network. The FCC will entertain requests for waivers of the rules upon a showing
that compliance would impose an "undue burden".
MUST-CARRY/RETRANSMISSION CONSENT
Pursuant to the Cable Television Consumer Protection and Competition Act of
1992 (the "1992 Act"), television broadcasters are required to make triennial
elections to exercise either certain "must-carry" or "retransmission consent"
rights in connection with their carriage by cable systems in each broadcaster's
local market. By electing must-carry rights, a broadcaster demands carriage on a
specified channel on cable systems within its Area of Dominant Influence
("ADI"), in general as defined by the Arbitron 1991-92 Television Market Guide.
Alternatively, if a broadcaster chooses to exercise retransmission consent
rights, it can prohibit cable systems from carrying its signal or grant the
appropriate cable system the authority to retransmit the broadcast signal for a
fee or other consideration. Home Shopping Network, USA Broadcasting and USA
Networks are affected by the must-carry rules, which were upheld in a 1997 U.S.
Supreme Court ruling. A material change in the must-carry rules, or their
repeal, could have a material impact on the Company's businesses.
CABLE TELEVISION RATE REGULATION
The Telecommunications Act phases out cable rate regulation, except with
respect to the "basic" tier (which must include all local broadcast stations and
public, educational, and governmental access channels
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and must be provided to all subscribers). Both of the HSN services, the USA
Network and the Sci-Fi Channel are "basic" services. Rate regulation of all
non-basic services (including the "expanded basic" tiers that commonly include
satellite-delivered programming networks) will be completely eliminated on March
31, 1999. In the interim, the Telecommunications Act liberalizes the 1992 Act's
definition of "effective competition" to expand the circumstances under which
systems are exempted from rate regulation. The local franchising authorities
("LFAs") remain primarily responsible for regulating the basic tier of cable
service. Furthermore, the Telecommunications Act eliminates the right of an
individual subscriber to bring a rate complaint, providing that any rate
complaint must be filed by an LFA, and then only after the LFA has received
multiple subscriber complaints regarding the rate adjustment in question. Thus,
beyond the basic tier of cable service, which continues to be regulated by the
LFAs, rate regulation of other cable services between now and 1999 will be
triggered only by a valid rate complaint by an LFA, and only in an area where no
effective competition exists. Because the Company's revenues are, to some
degree, affected by changes in cable subscriber rates, increased regulation of
cable subscriber rates, or a reduction in the rates that cable service providers
may charge customers could have a significant impact on the Company's revenues.
REGULATION OF CABLE SYSTEM OPERATORS AFFILIATED WITH VIDEO PROGRAMMING VENDORS
The 1992 Act prohibits a cable operator from engaging in unfair methods of
competition that prevent or significantly hinder competing multichannel video
programming distributors ("MVPD") from providing satellite-delivered programming
to their subscribers. The FCC has adopted regulations to prevent a cable
operator that has an attributable interest (including voting or non-voting stock
ownership of at least 5%) in a programming vendor from exercising improper
influence over the programming vendor in the latter's dealings with competitors
to cable, and to prevent a programmer in which a cable operator has an
attributable interest from discriminating between cable operators and other
MVPDs, including other cable operators.
The FCC's rules may have the effect, in some cases, of requiring vertically
integrated programmers to offer their programming to MVPD competitors of cable
television, and of prohibiting certain exclusive contracts between such
programmers and cable system operators. The rules also permit MVPDs to bring
complaints before the FCC if they are unable to obtain cable programming on
non-discriminatory terms because of "unfair practices" by the programmer.
Pursuant to the 1992 Act, the FCC set a 40% limit on the number of
programming channels on a cable system that may be occupied by video programmers
in which the cable operator has an attributable interest. The Company could be
affected by the 1992 Act as a consequence of Liberty's ownership interests,
directly and through its affiliates, in both cable systems and cable programming
services.
STATE AND LOCAL REGULATION
Cable television systems are generally constructed and operated under
non-exclusive franchises granted by a municipality or other state or local
governmental entity. Franchises are granted for fixed terms and are subject to
periodic renewal. The Cable Communications Policy Act of 1984 places certain
limitations on an LFA's ability to control the operations of a cable operator,
and the courts from time to time have reviewed the constitutionality of several
franchise requirements, often with inconsistent results. The 1992 Act prohibits
exclusive franchises, and allows LFAs to exercise greater control over the
operation of franchised cable television systems, especially in the areas of
customer service and rate regulation. The 1992 Act also allows LFAs to operate
their own multichannel video distribution systems without having to obtain
franchises. Moreover, LFAs are immunized from monetary damage awards arising
from their regulation of cable television systems or their decisions on
franchise grants, renewals, transfers, and amendments.
The terms and conditions of franchises vary materially from jurisdiction to
jurisdiction. Cable franchises generally contain provisions governing time
limitations on the commencement and completion of construction, and governing
conditions of service, including the number of channels, the types of
programming (but not the actual cable programming channels to be carried), and
the provision of free service to schools and certain other public institutions.
The specific terms and conditions of a franchise and the laws and regulations
under which it is granted directly affect the profitability of the cable
television system, and thus the cable television
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system's financial ability to carry programming. Local governmental authorities
also may certify to regulate basic cable rates. Local rate regulation for a
particular system could result in resistance on the part of the cable operator
to the amount of subscriber fees charged by the Company for its programming.
Various proposals have been introduced at the state and local level with
regard to the regulation of cable television systems, and a number of states
have enacted legislation subjecting cable television systems to the jurisdiction
of centralized state governmental agencies. It is not possible to predict the
impact such regulation could have on the businesses of the Company.
PROPOSED CHANGES
The Congress and the FCC have under consideration, and in the future may
consider and adopt, new laws, regulations and policies regarding a wide variety
of matters that could affect, directly or indirectly, the operation, ownership
and profitability of the Company's broadcast stations and broadcast and cable
programming networks. In addition to the changes and proposed changes noted
above, such matters include, for example, the extension of rate regulation for
upper tiers of service past the March 1999 sunset, spectrum use fees, political
advertising rates, potential restrictions on the advertising of certain products
(beer, wine and hard liquor, for example), and the rules and policies to be
applied in enforcing the FCC's equal employment opportunity regulations. Other
matters that could affect the Company's regulated media businesses include
technological innovations and developments generally affecting competition in
the mass communications industry, such as direct radio and television broadcast
satellite service, the continued establishment of wireless cable systems,
digital television and radio technologies, and the advent of telephone company
participation in the provision of video programming service.
OTHER REGULATORY CONSIDERATIONS
The foregoing summary does not purport to be a complete discussion of all
provisions of the Communications Act or other congressional acts or of the
regulations and policies of the FCC. For further information, reference should
be made to the Communications Act, other congressional acts, and regulations and
public notices promulgated from time to time by the FCC. There are additional
regulations and policies of the FCC and other federal agencies that govern
political broadcasts, public affairs programming, equal opportunity employment
and other matters affecting the Company's business and operations.
TRADEMARKS, TRADENAMES AND COPYRIGHTS
The Company has registered and continues to register, when appropriate, its
trade and service marks as they are developed and used, and the Company
vigorously protects its trade and service marks. The Company believes that its
marks are a primary marketing tool for promoting its identity. The Company also
obtains copyrights with respect to its original programming as appropriate.
COMPETITION
HOME SHOPPING NETWORK
Electronic Retailing. The Company's Home Shopping business operates in a
highly competitive environment. It is in direct competition with retail
merchandisers, other electronic retailers, direct marketing retailers such as
mail order companies, companies that sell from catalogs, other discount
retailers and companies that market through computer technology.
Home Shopping and QVC, Inc. ("QVC") are currently the two leading
electronic retailing companies. TCI, which indirectly holds a substantial equity
interest in the Company, currently owns 43% of QVC but has entered into a
stockholders agreement with Comcast Corporation (which owns 57% of QVC) pursuant
to which Comcast Corporation controls the day to day operations of QVC. There
are other companies, some having an affiliation or common ownership with cable
operators, that now market merchandise by means of live television. A number of
other entities are engaged in direct retail sales businesses which utilize
television
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in some form and which target the same markets in which the Company operates.
Home Shopping's competitors are larger and more diversified than the Company, or
are also affiliated with cable operators which have a substantial number of
subscribers. The Company cannot predict the degree of success with which it will
meet competition in the future.
Viewership. Home Shopping also competes for access to its customers and
for audience share and revenue with broadcasters and conventional forms of
entertainment and information, such as programming for network and independent
broadcast television stations, basic and pay cable television services,
satellite master antenna systems, home satellite dishes and home entertainment
centers, newspapers, radio, magazines, outdoor advertising, transit advertising
and direct mail. In particular, the price and availability of programming for
cable television systems affect the availability of these channels for the
Company's HSN Services and the compensation which must be paid to cable
operators for carriage of the HSN Services.
Channel Capacity. In addition, Home Shopping believes that due to a number
of factors, including the development of cable operator owned programming, the
competition for channel capacity has substantially increased. With the advent of
new compression technologies on the horizon, this competition for channel
capacity may substantially decrease, although additional competitors may have
the opportunity to enter the marketplace. No prediction can be made with respect
to the viability of these technologies or the extent to which they will
ultimately impact the availability of channel capacity. A substantial portion of
the Company's businesses are affected by changes in channel capacity and
competition among programming providers for available channel capacity.
USA NETWORKS
Viewership and Advertising Revenue. Networks also competes for access to
its customers and for audience share and revenue with broadcasters and other
forms of entertainment. See "Competition -- Home Shopping -- Viewership." Cable
operators and other distributors only contract to carry a limited number of the
available networks. Therefore, they may decide not to offer a particular network
to their subscribers, or they may package a network with other networks in such
a manner (for example, by charging an additional fee) that only a portion of
their subscribers will receive the service. In addition, there has been
increased consolidation among cable operators, so that USA Network and Sci-Fi
Channel have become increasingly subject to the carriage decisions made by a
small number of operators. This consolidation may reduce the per-subscriber fees
received from cable operators in the future. The consolidation also means that
the loss of any one or more of the major distributors could have a material
adverse impact on the networks. The competition for advertising revenues also
has become more intense as the number of television networks has increased.
While many factors affect advertising rates, ultimately they are dependent on
the numbers and types of viewers which a program attracts. As more networks
compete for viewers, it becomes increasingly difficult to increase or even
maintain a network's number of viewers. Moreover, to do so may require a network
to expend significantly greater amounts of money on programming. Therefore,
increased pressure may be placed on the networks' ability to generate
advertising revenue increases consistent with the increases they have achieved
in the past. Both Networks and USA Broadcasting are affected by competition for
advertising revenues.
Third-Party Programming. The competition for third-party programming is
likely to increase as more networks seek to acquire such programming. In
addition, many networks, including USA Network and Sci-Fi Channel, are
affiliated with companies which produce programming. As a result, non-affiliated
networks may have a diminished capacity to acquire product from production
companies affiliated with other networks. See "Competition -- USA
Broadcasting -- Third-Party Programming" below.
USA BROADCASTING
Viewership and Advertising Revenue. The USA Stations, to the extent they
do not air HSN Services, and the SF Stations also compete for a share of
advertising dollars. A station's share is based in part upon the size of its
viewing audience, in part upon the demographics of those viewers and in part
upon the ability to deliver to an advertising "added" value audience share
primarily on the basis of program popularity, which has a direct effect on
advertising rates. A large amount of the SF Stations' prime time programming is
supplied by
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Fox and their results are totally dependent upon the performance of the
Fox-supplied programs in attracting viewers. Other factors that are material to
a television station's competitive position include signal coverage, local
program acceptance, audience characteristics and assigned broadcast frequency.
These factors will directly impact the USA Stations that develop local
programming other than the HSN Services.
Third-Party Programming. SF Broadcasting also competes for programming,
which involves negotiating with national program distributors or syndicators
that sell first-run and rerun packages of programming. Those stations compete
for exclusive access to those programs against in-market broadcast station
competitors for syndicated products. See "Competition -- Networks -- Third-Party
Programming."
Local Markets. In addition to the above factors, the Company's ownership
of and affiliation with broadcast television stations creates another set of
competitive conditions. These stations compete for television viewers primarily
within local markets. The Company's broadcast television stations are located in
highly competitive markets and compete against both VHF and UHF stations. Due to
technical factors, a UHF television station generally requires greater power and
a higher antenna to secure substantially the same geographical coverage as a VHF
television station. The Company also competes with new entertainment and
shopping networks for carriage on broadcast television stations. The Company
cannot quantify the competitive effect of the foregoing or any other sources of
video programming on any of the Company's affiliated television stations, nor
can it predict whether such competition will have a material adverse effect on
its operations.
USA NETWORKS STUDIOS
Programming. Studios operates in a highly competitive environment. The
production and distribution of television programming are highly competitive
businesses. While television programs and films produced by Studios compete with
all other forms of network and syndication programming, Studios essentially
competes with all other forms of entertainment and leisure activities.
Competition is also faced from other major television studios and independent
producers for creative talent, writers and producers, essential ingredients in
the filmed entertainment business. The profitability of Studios is dependent
upon factors such as public taste that is volatile, shifts in demand, economic
conditions and technological developments.
In 1995, the FCC repealed its financial interest and syndication rules
("fin-syn rules"). The fin-syn rules, which were adopted in 1970 to limit
television network control over television programming and thereby foster the
development of diverse programming sources, had restricted the ability of the
three established, major U.S. televisions networks (i.e., ABC, CBS and NBC) to
own and syndicate television programming. The repeal of the fin-syn rules has
increased in-house production of television programming for the networks' own
use. As a result of the repeal of the fin-syn rules, the industry has become
vertically integrated, with four of the six major broadcast networks being
aligned with a major studio. In addition, two major broadcast networks have
formed their own in-house production units. Mergers and acquisitions of
broadcast networks by studios (e.g., Disney-ABC) have altered the landscape of
the industry. It is possible that this change will have a negative impact on
Studios' business as its network customers are now able to choose between their
own product and Studios' product in making programming decisions.
TICKETMASTER
Ticketmaster competes with facilities, promoters and other potential
clients for the right to distribute their tickets at retail outlets, by
telephone and on the Internet.
For those facilities and promoters which decide to utilize the services of
an automated ticketing company, Ticketmaster competes with many international,
national and regional ticketing systems, such as Telecharge Systems, which is a
division of The Schubert Organization, Inc. and licenses the Ticketron software,
Dillards Ticketing Systems, which is a division of Dillard's Department Stores,
Inc. and which uses its own department stores as ticket outlets, and Destinet
(formerly Mistix Corporation). Several of Ticketmaster's competitors have
operations in multiple locations throughout the U.S., while others compete
principally in one specific geographic location.
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Other companies compete with Ticketmaster by selling stand-alone automated
ticketing systems to enable the facilities to do their own ticketing, including
companies that sell systems under the names Prologue, Artsoft and Lasergate in
the U.S., Bocs in the U.K. and Softix in Australia, New Zealand and Pacific Rim
countries. Ticketmaster has experienced substantial competition for new
accounts. Accordingly, there can be no assurance that prospective clients will
enter into contracts with Ticketmaster rather than Ticketmaster's competitors.
As an alternative to purchasing tickets through Ticketmaster, ticket
purchasers generally may purchase tickets from the facility's box office at
which an event will be held or by season, subscription or group sales directly
from the venue or promoter of the event. Although processed through the
Ticketmaster System, Ticketmaster derives no convenience charge revenue from the
ticket purchasers with respect to those ticket purchases.
EMPLOYEES
As of the close of business on December 31, 1997, the Company employed
approximately 4,750 employees with approximately 4,150 employees employed by
Home Shopping, and approximately 600 employees employed by USA Broadcasting (129
by the USA Station Group and 471 by SF Broadcasting). As a result of the
Universal Transaction, the Company employed approximately 880 additional
employees, with approximately 515 employees employed by Networks and
approximately 366 employees employed by Studios. The Company believes that it
generally has good employee relationships, including in the case of employees
represented by unions and guilds. As of January 31, 1997, Ticketmaster employed
approximately 1,700 full-time employees, 130 part-time administrative employees
and 3,500 part-time telephone operators.
ITEM 2. PROPERTIES
The Company's facilities for its management and operations are generally
adequate for the Company's current and anticipated future needs. In connection
with the Universal Transaction, the Company expects that it will be able to
consolidate some of the facilities used by its different businesses,
particularly in the Los Angeles area. The Company's facilities generally consist
of executive and administrative offices, fulfillment facilities, warehouses,
operations centers, television production and distribution facilities, satellite
transponder sites and sales offices.
All of the Company's leases are at prevailing market (or "most favorable")
rates and, except as noted, with unaffiliated parties, and the Company believes
that the duration of each lease is adequate. The Company believes that its
principal properties, whether owned or leased, are adequate for the purposes for
which they are used and are suitably maintained for such purposes. Most of the
office/studio space is substantially utilized, and where significant excess
space exists, the Company leases or subleases such space to the extent possible.
The Company anticipates no future problems in renewing or obtaining suitable
leases for its principal properties.
CORPORATE
The Company maintains its principal executive offices at Carnegie Hall
Tower, 152 West 57th Street, New York, New York which consist of approximately
29,850 square feet leased by the Company through October 30, 2005 and at The
Water Garden, 2425 Olympic Boulevard, Santa Monica, California which consist of
approximately 25,000 square feet under a lease which expires in 1998.
HOME SHOPPING
Home Shopping owns an approximately 480,000 square foot facility in St.
Petersburg, Florida, which houses its Home Shopping television studios,
broadcast facilities, administrative offices and training facilities.
Home Shopping owns two warehouse-type facilities totaling approximately
84,000 square feet near Home Shopping's main campus in St. Petersburg, Florida.
These facilities have been used for returns processing, retail distribution and
general storage.
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Home Shopping leases a 21,000 square foot facility in Clearwater, Florida
for its video and post production operations.
Home Shopping owns and operates a warehouse consisting of 163,000 square
feet located in Waterloo, Iowa which is used as a fulfillment center.
Home Shopping operates a warehouse located in Salem, Virginia, consisting
of approximately 650,000 square feet which is leased from the City of Salem
Industrial Development Authority. On November 1, 1999, Home Shopping will have
the option to purchase the property for $1.
Home Shopping's retail outlet subsidiary leases four retail stores in the
Tampa Bay and Orlando areas totaling approximately 107,920 square feet.
Home Shopping and its other subsidiaries also lease office space in
California, Colorado and New Jersey.
NETWORKS
The executive offices of Networks are located at 1230 Avenue of the
Americas, New York, New York 10020. Networks leases approximately 168,000 square
feet at this office space pursuant to a lease that continues until March 31,
2005, subject to two five-year options to continue the term. Networks also has
smaller offices in Chicago (sales), Detroit (sales), and Los Angeles (sales and
programming).
Networks also leases approximately 55,000 square feet in a facility in
Jersey City, New Jersey, where Networks has its broadcast operations center.
This space is used to originate and transmit the USA Network and Sci-Fi Channel
signals. Post-production for both networks, including editing, graphics and
duplication, also is performed at this location. The lease for this space
continues through April 30, 2009, and there are options to continue the term
beyond that time.
STUDIOS
Studios conducts its domestic television production and distribution
operations primarily from its executive and administrative offices in Universal
City, California. These offices, totaling approximately 84,000 square feet, are
leased from Universal. Additionally, Studios has four domestic administrative
and sales offices which lease a total of approximately 21,000 square feet.
Production facilities are leased primarily from Universal on its Universal City
lot on an as-needed basis depending upon production schedules. Studios leases
three production facilities in New York, New York totaling approximately 120,000
square feet and an additional production facility in North Hollywood, California
totaling approximately 34,300 square feet.
USA BROADCASTING
The Company owns or leases office, studio and transmitter space for the USA
Station Group stations and SF Stations as follows:
- ----------------------------------------------------------------------------------------------
LOCATION FUNCTION OWNED/LEASED
- ----------------------------------------------------------------------------------------------
Mobile, AL............................. Offices/Studio......................... Leased
Baldwin County, AL..................... Transmitter............................ Owned
Mt. Wilson, CA......................... Transmitter............................ Leased
Ontario, CA............................ Offices/Studio......................... Owned
Riverview, FL.......................... Transmitter............................ Leased
Hollywood, FL.......................... Transmitter............................ Leased
Miramar, FL............................ Offices/Studio......................... Leased
Pensacola, FL.......................... Offices/Studio......................... Leased
Honolulu, HI........................... Offices/Studio/Transmitter............. Leased
Aurora, IL............................. Offices/Studio......................... Leased
Chicago, IL............................ Offices/Studio/Transmitter............. Leased
New Orleans, LA........................ Offices/Studio......................... Owned
Hudson, MA............................. Offices/Studio/Transmitter............. Owned
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- ----------------------------------------------------------------------------------------------
LOCATION FUNCTION OWNED/LEASED
- ----------------------------------------------------------------------------------------------
Newark, NJ............................. Offices/Studio......................... Owned
Newfield, NJ........................... Offices/Studio......................... Owned
Waterford Works, NJ.................... Transmitter............................ Leased
Central Islip, NY...................... Offices/Studio......................... Owned
Middle Island, NY...................... Transmitter............................ Owned
New York, NY........................... Offices/Transmitter.................... Leased
Parma, OH.............................. Offices/Studio/Transmitter............. Leased
Alvin, TX.............................. Offices/Studio......................... Leased
Cedar Hill, TX......................... Transmitter............................ Leased
Irving, TX............................. Offices/Studio......................... Owned
Missouri City, TX...................... Transmitter............................ Leased
Green Bay, WI.......................... Offices/Studio/Transmitter............. Owned
The Company leases the following LPTV transmitter sites:
Atlanta, GA Pensacola, FL
Birmingham, AL Portsmouth, VA
Champaign, IL Raleigh, NC
Columbus, OH Roanoke, VA
Des Moines, IA Shreveport, LA
Huntington, WV Springfield, IL
Jacksonville, FL Spokane, WA
Kansas City, MO St. Louis, MO
Knoxville, TN St. Petersburg, FL
Minneapolis, MN Toledo, OH
Mobile, AL Tulsa, OK
New Orleans, LA Tucson, AZ
New York, NY Wichita, KS
TICKETMASTER
Ticketmaster owns a 70,000 square foot building in West Hollywood,
California, of which approximately 50,000 square feet is used for Ticketmaster's
principal offices. In addition, Ticketmaster, its subsidiaries and affiliates
lease office space in various other cities in the United States and other
countries in which Ticketmaster is actively engaged in business.
ITEM 3. LEGAL PROCEEDINGS
In the ordinary course of business, the Company and its subsidiaries are
party to litigation involving property, personal injury, contract and other
claims. The amounts that may be recovered in these matters may be subject to
insurance coverage and, although there can be no assurance in this regard, are
not expected to be material to the Company's financial position or operations.
Federal Trade Commission Matter. Home Shopping is involved from time
to time in investigations and enforcement actions by consumer protection
agencies and other regulatory authorities. Effective October 2, 1996, the
Federal Trade Commission ("FTC") and Home Shopping and two of its
subsidiaries entered into a consent order under which Home Shopping agreed
that it will not make claims for specified categories of products,
including any claim that any product can cure, treat or prevent illness, or
affect the structure or function of the human body, unless it possesses
competent and reliable scientific evidence to substantiate the claims. The
settlement did not represent an admission of wrongdoing by Home Shopping,
and did not require the payment of any monetary damages. The FTC is
investigating Home Shopping's compliance with the consent order. The FTC
has recently indicated to Home Shopping that it believes Home Shopping has
not complied with the consent order and that it intends to seek monetary
penalties and consumer redress for non-compliance. The Company does not
believe that there
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is a reasonable possibility that the outcome of such action would have a
material adverse effect on the Company's financial condition or results of
operations.
ASCAP Litigation. Networks, along with almost every other
satellite-delivered network, is involved in continuing disputes regarding
the amounts to be paid by it for the performance of copyrighted music from
members of the American Society of Composers, Authors and Publishers
("ASCAP") and by Broadcast Music, Inc. ("BMI"). The payments to be made to
ASCAP will be determined in a "rate court" proceeding under the
jurisdiction of the U.S. District Court in the Southern District of New
York. In the initial phase of this proceeding, it was determined that
Networks must pay ASCAP a specified interim fee, calculated as a percentage
of the gross revenues of each of USA Network and Sci-Fi Channel. This fee
level is subject to upward or downward adjustment in future rate court
proceedings, or as the result of future negotiations, for all payments
subsequent to January 1, 1986 with respect to USA Network and for all
payments subsequent to launch with respect to Sci-Fi Channel. All ASCAP
claims prior to these times have been settled and are final. As to BMI,
Networks has agreed with BMI with respect to certain interim fees to be
paid by both USA Network and Sci-Fi Channel. Subsequent to July 1, 1992 and
subsequent to launch of Sci-Fi Channel, respectively, these interim fees
are subject to upward or downward adjustment, based on a future negotiated
resolution or submission of the issue to BMI's own federal "rate court."
The Company cannot predict the final outcome of these disputes, but does
not believe that it will suffer any material liability as a result thereof.
Ticketmaster Shareholder Litigation. The Company and certain of its
directors (who are also directors of Ticketmaster), along with other
parties (including Ticketmaster), are defendants in three purported class
action lawsuits brought on behalf of Ticketmaster shareholders in state
court in Chicago and Los Angeles: In re Ticketmaster Group, Inc. Securities
Class Action Litigation, 97 CH 13411 (Circuit Court, Cook County, Ill.);
Tiger Options LLC v. Ticketmaster Group, Inc., et al., Case No. BC 180045
(Los Angeles Superior Court); and Bender v. Ticketmaster Group, Inc., et
al., Case No. BC 181006. The complaints in each action generally allege
that the defendants have breached fiduciary duties they allegedly owed to
Ticketmaster shareholders in connection with the Company's October 1997
merger proposal to Ticketmaster, and seek, among other things, injunctive
relief and damages in an unspecified amount. The plaintiffs in all three
litigations agreed to postpone any response by defendants to those
complaints. No discovery or other proceedings have taken place or been
scheduled in any of the actions. The Company believes that the allegations
against the Company and its directors do not have merit.
Jovon Litigation. USA Capital Corporation holds an option to acquire
45% of the stock of Jovon Broadcasting Corporation, licensee of WJYH-TV,
Hammond, Indiana. In a 1996 order, the FCC ruled that the Company could
proceed to exercise its option to acquire 45% of Jovon's stock, but limited
the present exercise of that option to no more than 33% of Jovon's
outstanding stock. Jovon has filed a Petition with the FCC, requesting
reconsideration and a ruling that the option is no longer valid. Certain
entities controlled by the Company filed litigation on May 30, 1997 in the
Circuit Court of Pinellas County, Florida against Jovon seeking declaratory
and injunctive relief to permit the Company to proceed with the exercise of
its option, or, in the alternative, to obtain damages for breach of
contract by Jovon.
Other. In the class action litigation brought by certain former
shareholders of Home Shopping Network, Inc. and styled In re: Home Shopping
Network, Inc. Shareholders Litigation, Consolidated Civil Action No. 15179,
filed in the Court of Chancery of the State of Delaware, and raising claims
against Home Shopping, the Company, TCI, Liberty and certain of the
Company's and Home Shopping's directors, plaintiffs have taken no action
for more than one year, and the Company does not expect to incur any
liability with respect to that action.
MovieFone Litigation. Based on information available to the Company,
as previously disclosed by Ticketmaster, on July 23, 1997, a three-member
tribunal of the American Arbitration Association issued an award in favor
of the claimant MovieFone, Inc., Promofone, Inc. and the Teleticketing Co.
LP (the "MovieFone Entities") and against the respondent Pacer Cats
Corporation, a wholly owned subsidiary of
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Wembley plc and now known as "PCC Management, Inc." The award provides,
among other things, (i) that the respondent shall pay to the claimant
damages aggregating $22,751,250 plus interest and (ii) for injunctive
relief relating to certain conduct of the respondent and its successors and
assigns with respect to the MovieFone Entities' business for a specified
period of time. The award of the American Arbitration Association issued in
favor of MovieFone, Inc., Promofone, Inc. and the Teleticketing Co. LP was
confirmed on November 20, 1997 by the Supreme Court of the State of New
York, County of New York. The foregoing only summarizes certain provisions
of the award, and reference is made to the full text thereof filed as
Exhibit 99.3 to Ticketmaster's From 10-Q for the period ended July 31,
1997.
Although Ticketmaster and its owned entities were not parties to the
arbitration proceeding, in August 1997 Wembley advised Ticketmaster that it
expected to seek indemnification from Ticketmaster for its costs in the
arbitration and some or all of the monetary award against Wembley.
Ticketmaster has advised Wembley that it rejects such claims. In connection
with the sale of the Pacer/CATS/CCS business to Ticketmaster, Wembley
released and covenanted not to sue Ticketmaster in connection with claims
relating to the arbitration proceeding; however, Wembley did retain certain
indemnification rights with respect to Pacer/CATS/CCS and its operations
from April 15, 1994. Ticketmaster has stated that it intends to vigorously
oppose any such claims by Wembley.
No determination, adverse or otherwise, can presently be made as to
the effect, if any, this matter may have on Ticketmaster.
The Company is engaged in various other lawsuits either as plaintiff or
defendant. In the opinion of management, the ultimate outcome of these various
lawsuits should not have a material impact on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
On February 11, 1998, the annual meeting of the Company's stockholders was
held. At the annual meeting, stockholders representing 12,227,647 shares of
Class B Common Stock and 43,701,098 shares of Common Stock were entitled to vote
without giving effect to the Company's two-for-one stock split effective for
holders of record as of the close of business on March 12, 1998. Stockholders
present or in person by proxy, representing 12,227,647 shares of Class B Common
Stock and 41,045,195 shares of Common Stock, voted on the following matters:
The stockholders of both the Common Stock and the Class B Common Stock
voting as a single class approved the Universal Transaction:
NUMBER OF VOTES NUMBER OF VOTES
IN FAVOR AGAINST ABSTENTIONS BROKER NON-VOTES
- --------------- --------------- ----------- ----------------
159,025,488 359,235 44,540 3,892,402
The stockholders of both the Common Stock and the Class B Common Stock
voting as a single class approved the terms of the governance agreement, dated
as of October 19, 1997, among the Company, Universal, Liberty and Mr. Diller:
NUMBER OF VOTES NUMBER OF VOTES
IN FAVOR AGAINST ABSTENTIONS BROKER NON-VOTES
- --------------- --------------- ----------- ----------------
159,023,859 363,008 42,396 3,892,402
The stockholders of the Common Stock and the Class B Common Stock voting as
separate classes approved increases in the authorized capital stock of the
Company:
COMMON STOCK
NUMBER OF VOTES NUMBER OF VOTES
IN FAVOR AGAINST ABSTENTIONS BROKER NON-VOTES
- --------------- --------------- ----------- ----------------
32,614,528 3,774,176 1,446,611 3,209,880
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CLASS B COMMON STOCK
NUMBER OF VOTES NUMBER OF VOTES
IN FAVOR AGAINST ABSTENTIONS BROKER NON-VOTES
- --------------- --------------- ----------- ----------------
122,276,470 -0- -0- -0-
The stockholders of the Common Stock and the Class B Common Stock voting as
a single class approved the cap on foreign ownership of the Company's equity and
voting power.
NUMBER OF VOTES NUMBER OF VOTES
IN FAVOR AGAINST ABSTENTIONS BROKER NON-VOTES
- --------------- --------------- ----------- ----------------
157,853,756 484,392 1,091,115 3,892,402
The stockholders of both the Common Stock and the Class B Common Stock
voting as a single class approved the change in the name of the Company:
NUMBER OF VOTES NUMBER OF VOTES
IN FAVOR AGAINST ABSTENTIONS BROKER NON-VOTES
- --------------- --------------- ----------- ----------------
159,975,036 100,317 36,432 3,209,880
The stockholders of both the Common Stock and the Class B Common Stock
voting as a single class approved the elimination of a precise number of board
members:
NUMBER OF VOTES NUMBER OF VOTES
IN FAVOR AGAINST ABSTENTIONS BROKER NON-VOTES
- --------------- --------------- ----------- ----------------
156,080,910 6,502,195 631,591 106,969
The stockholders of the Common Stock and the Class B Common Stock voting as
a single class approved the provisions relating to the removal of the Company's
Chief Executive Officer from office:
NUMBER OF VOTES NUMBER OF VOTES
IN FAVOR AGAINST ABSTENTIONS BROKER NON-VOTES
- --------------- --------------- ----------- ----------------
149,684,178 9,692,887 52,198 3,892,402
The stockholders elected the following eight directors of the Company to
hold office until the next annual meeting of stockholders or until their
successors have been duly elected:
Elected by holders of Common Stock voting as a separate class:
NUMBER OF VOTES NUMBER OF VOTES
CAST IN FAVOR WITHHELD
--------------- ---------------
Bruce M. Ramer............................... 40,933,412 112,783
William D. Savoy............................. 40,807,537 237,658
Elected by holders of Common Stock and Class B Common Stock voting as a
single class:
NUMBER OF VOTES NUMBER OF VOTES
CAST IN FAVOR WITHHELD
--------------- ---------------
Barry Diller................................. 163,076,996 244,669
Paul G. Allen................................ 163,083,606 238,059
James G. Held................................ 163,084,130 237,535
Victor A. Kaufman............................ 163,084,453 237,212
Gen. H. Norman Schwarzkopf................... 163,207,742 113,723
Richard E. Snyder............................ 163,204,339 112,326
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The stockholders of both the Common Stock and Class B Common Stock voting
as a single class approved the adoption of the Company's 1997 Stock and
Incentive Plan:
NUMBER OF VOTES NUMBER OF VOTES
IN FAVOR AGAINST ABSTENTIONS BROKER NON-VOTES
- --------------- --------------- ----------- ----------------
150,466,311 8,901,497 61,455 3,892,402
The stockholders of both the Common Stock and the Class B Common Stock
voting as a single class ratified the appointment of Ernst & Young LLP as the
Company's Independent Auditors for the years ended December 31, 1997 and 1998:
NUMBER OF VOTES NUMBER OF VOTES
IN FAVOR AGAINST ABSTENTIONS BROKER NON-VOTES
- --------------- --------------- ----------- ----------------
163,255,784 15,217 40,664 10,000
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is quoted on the Nasdaq Stock Markets National
Market ("NASDAQ") (Symbol: USAI after February 15, 1998, HSNI from December 22,
1996 to February 14, 1998, SKTV during the other periods reported below).
On February 20, 1998, the Company's Board of Directors declared a
two-for-one stock split of the Company's Common Stock and Class B Common Stock,
payable in the form of a dividend to stockholders of record as of the close of
business on March 12, 1998. The stock dividend was paid on March 26, 1998. The
following tables reflect the March 1998 dividend.
- --------------------------------------------------------------------------------
HIGH LOW
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1997
First Quarter............................................. $14.50 $10.00
Second Quarter............................................ 17.00 11.13
Third Quarter............................................. 20.50 15.25
Fourth Quarter............................................ 25.78 18.32
YEAR ENDED DECEMBER 31, 1996
First Quarter............................................. $17.38 $13.75
Second Quarter............................................ 17.25 14.00
Third Quarter............................................. 15.25 10.63
Fourth Quarter............................................ 13.25 10.50
The bid prices reported for these periods reflect inter-dealer prices,
without retail markup, markdown or commissions, and may not represent actual
transactions.
There were approximately 37,000 stockholders of record as of March 13,
1998, and the closing price of USAi Common Stock that day was $26.375.
USAi Common Stock began trading on December 28, 1992, on the OTC Electronic
Bulletin Board. On January 19, 1993, USAi Common Stock was listed on the NASDAQ
Small-Cap Market. On August 26, 1993, USAi Common Stock was listed on the NASDAQ
National Market System, which is now The Nasdaq Stock Market.
The Company has paid no cash dividends on its common stock to date and does
not anticipate paying cash dividends in the immediate future. Additionally, the
Company's current loan facilities preclude the payment of dividends.
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ITEM 6. SELECTED FINANCIAL DATA
- ---------------------------------------------------------------------------------------------------------------
YEARS ENDED FOUR MONTHS
DECEMBER 31, ENDED YEARS ENDED AUGUST 31,
CONSOLIDATED STATEMENTS -------------------- DECEMBER 31, ---------------------------
OF OPERATIONS DATA 1997(1) 1996(2) 1995 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------
(In thousands, except per share data)
Net revenues................................ $1,261,749 $75,172 $15,980 $47,918 $46,563 $46,136
Earnings (loss) before cumulative effect of
change in accounting principle(3)......... 13,061 (6,539) (2,882) 115 (899) (6,386)
Net earnings (loss)(4)...................... 13,061 (6,539) (2,882) 115 (3,878) (6,386)
Basic earnings (loss) per common share(5):
Earnings (loss) before cumulative effect
of change in accounting principle....... .12 (.30) (.15) .01 (.05) (.36)
Net earnings (loss)....................... .12 (.30) (.15) .01 (.22) (.36)
Diluted earnings (loss) per common share(5):
Earnings (loss) before cumulative effect
of change in accounting principle....... .12 (.30) (.15) .01 (.05) (.36)
Net earnings (loss)....................... .12 (.30) (.15) .01 (.22) (.36)
- ---------------------------------------------------------------------------------------------------------------
DECEMBER 31, AUGUST 31,
CONSOLIDATED BALANCE ---------------------------------- ------------------------------
SHEET DATA 1997(1) 1996(2) 1995 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------
(In thousands)
Working capital (deficit)................. $ 60,941 $ (24,444) $ 7,553 $ 6,042 $ 1,553 $ 4,423
Total assets.............................. 2,670,796 2,116,232 136,670 142,917 145,488 153,718
Long-term obligations..................... 448,346 271,430 95,980 97,937 114,525 128,210
Stockholders' equity...................... 1,447,354 1,158,749 7,471 9,278 2,614 6,396
- ---------------
(1) The consolidated statement of operations and balance sheet data includes
Ticketmaster Group, Inc. since the acquisition of USAi's interest on July
17, 1997.
(2) As a result of the Mergers, the results of operations for the year ended
December 31, 1996 includes SKTV for the full year and 11 and 12 days of Home
Shopping and Savoy, respectively. The balance sheet reflects purchase
accounting adjustments for the consolidated entity. Commissions of $3.4
million were not paid for 1996 as a result of the Mergers.
(3) In fiscal 1994, the Company adopted Statement of Financial Accounting
Standards No. 109 "Accounting for Income Taxes" ("Statement 109"). The
cumulative effect of the accounting change resulted in a charge of
approximately $3.0 million. Prior years' financial statements were not
restated.
(4) In fiscal 1993, the USA Stations were charged interest expense on the note
payable to HSN Capital Corporation ("HSNCC"), a wholly-owned subsidiary of
Home Shopping, at a rate of 9.5% annum. In fiscal 1994, the Company paid
interest to HSNCC until August 1, 1994 when the Company repaid the long-term
obligation to HSNCC.
(5) Earnings (loss) per common share data reflects the impact of two-for-one
Common Stock and Class B Common Stock dividends approved by the Company on
February 20, 1998, for stockholders of record on March 12, 1998, payable on
March 26, 1998.
ITEM 7. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
USA Networks, Inc. (the "Company" or "USAi") formerly known as HSN, Inc.,
is a holding company, the subsidiaries of which are engaged in diversified media
and electronic commerce businesses. At December 31, 1997, the Company owned a
controlling interest in Ticketmaster. On March 20, 1998, the Company and
Ticketmaster entered into a merger agreement regarding the acquisition by the
Company in a tax-free merger of the remaining Ticketmaster common stock for .563
of a share of Common Stock. (1.126 shares after giving effect to the Company's
two-for-one stock split to the holders of record as of the close of business on
March 12, 1998). The merger agreement was entered into based upon the
recommendation of the Special Committee of the Ticketmaster Board that had been
appointed to consider USAi's merger proposal in
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October 1997. Consummation of the merger is subject to customary conditions,
including the approval of the merger by Ticketmaster's shareholders. The Company
expects that the merger will be completed in the third quarter of 1998. On
February 12, 1998, the Company acquired USA Networks and USA Networks Studios
from Universal (the "Universal Transaction") and changed the Company's name to
USA Networks, Inc. Following the Universal Transaction, the Company's principal
businesses are electronic retailing (through its Home Shopping business), the
operation of cable networks (through its USA Networks businesses), the
production and distribution of television programming (through its USA Networks
Studios), the ownership and operation of television stations (through USA
Broadcasting) and automated ticketing services (through Ticketmaster). During
1996, the Company merged with Savoy and Home Shopping (collectively, the
"Mergers"). The acquisition of the controlling interest in Ticketmaster (the
"Ticketmaster Transaction") and the Mergers were accounted for using the
purchase method of accounting.
Prior to the Universal Transaction and as of December 31, 1997, the
Company's principal areas of business were electronic retailing, ticketing
operations and television broadcasting. The electronic retailing business
operates two services, The Home Shopping Network ("HSN") and America's Store,
through an indirect wholly-owned subsidiary, Home Shopping Club LP ("HSC"). The
ticketing operations business sells over 70 million tickets a year through 2,900
retail center outlets, 25 telephone call centers and an Internet site and is the
leading provider of automated ticketing services in the U.S. The television
broadcasting business owns and operates twelve full-power UHF television
stations (the "USA Stations") and four full-power VHF television stations ("SF
Broadcasting"). Share numbers, earnings per share and conversion ratios reflect
the Company's two-for-one stock split to holders of record at the close of
business on March 12, 1998, unless otherwise noted.
THIS REPORT INCLUDES FORWARD-LOOKING STATEMENTS RELATING TO SUCH MATTERS AS
ANTICIPATED FINANCIAL PERFORMANCE, BUSINESS PROSPECTS, NEW DEVELOPMENTS, NEW
MERCHANDISING STRATEGIES AND SIMILAR MATTERS. A VARIETY OF FACTORS COULD CAUSE
THE COMPANY'S ACTUAL RESULTS AND EXPERIENCE TO DIFFER MATERIALLY FROM THE
ANTICIPATED RESULTS OR OTHER EXPECTATIONS EXPRESSED IN THE COMPANY'S
FORWARD-LOOKING STATEMENTS. THE RISKS AND UNCERTAINTIES THAT MAY AFFECT THE
OPERATIONS, PERFORMANCE, DEVELOPMENT AND RESULTS OF THE COMPANY'S BUSINESS
INCLUDE, BUT ARE NOT LIMITED TO, THE FOLLOWING: MATERIAL ADVERSE CHANGES IN
ECONOMIC CONDITIONS IN THE MARKETS SERVED BY THE COMPANY; FUTURE REGULATORY
ACTIONS AND CONDITIONS IN THE COMPANY'S OPERATING AREAS; COMPETITION FROM
OTHERS; SUCCESSFUL INTEGRATION OF THE COMPANY'S DIVISIONS' MANAGEMENT
STRUCTURES; PRODUCT DEMAND AND MARKET ACCEPTANCE; THE ABILITY TO PROTECT
PROPRIETARY INFORMATION AND TECHNOLOGY OR TO OBTAIN NECESSARY LICENSES ON
COMMERCIALLY REASONABLE TERMS; AND OBTAINING AND RETAINING KEY EXECUTIVES AND
EMPLOYEES.
TRANSACTIONS AFFECTING THE COMPARABILITY OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
During the past two years, the Company has pursued several strategic
initiatives which have resulted in the acquisition and development of several
new businesses. As a result, the following changes should be considered when
comparing the Company's results of operations and financial position. These
include the acquisition of an interest in Ticketmaster in July 1997 and the
acquisition of Home Shopping and Savoy in December 1996. The acquisitions caused
a significant increase in net revenues, operating costs and expenses and
operating profit. To enhance comparability, the discussion of consolidated
results of operation is supplemented, where appropriate, with separate pro forma
financial information that gives effect to the above transactions as if they had
occurred at the beginning of the respective periods presented. The pro forma
information is not necessarily indicative of the revenues and cost of revenues
which would have actually been reported had the Ticketmaster Transaction and the
Mergers occurred at the beginning of the respective periods, nor is it
necessarily indicative of future results.
In February 1998, the Company completed its acquisition of USA Networks and
USA Networks Studios from Universal. In connection with the acquisition, the
Company's existing credit facility was also refinanced with a new $1.6 billion
facility. In March 1998, the Company reached an agreement in principle with
Ticketmaster for a tax-free merger transaction whereby the Company would acquire
the remaining outstand-
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ing common stock of Ticketmaster. See Financial Position, Liquidity and Capital
Resources for additional information.
Reference should be also be made to the Consolidated Financial Statements
and Summary Financial Data included herein.
CONSOLIDATED RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997 VS. YEAR ENDED DECEMBER 31, 1996
NET REVENUES
For the year ended December 31, 1997, total revenues of the Company
increased $1.2 billion compared to 1996 primarily due to increases of $1.0
billion and $156.4 million related to Home Shopping and Ticketmaster,
respectively.
OPERATING COSTS AND EXPENSES
For the year ended December 31, 1997, total operating costs and expenses
increased $1.1 billion compared to 1996 primarily due to increases of $897.6
million and $144.1 million related to Home Shopping and Ticketmaster,
respectively.
OTHER INCOME (EXPENSE), NET
For the year ended December 31, 1997, interest income increased $2.1
million due to higher combined cash balances of the merged entity.
For the year December 31, 1997, interest expense increased $19.7 million
compared to 1996, due to the higher combined debt balance of the merged entity
and non-cash interest expense related to long-term cable distribution and
broadcast fees recorded as a result of the Mergers.
For the year ended December 31, 1997, the Company had net miscellaneous
expense of $11.8 million primarily due to equity losses relating to the
Company's investments in Home Order Television GmbH & Co. and Jupiter Shop
Channel Co;. Ltd.
INCOME TAXES
The Company's effective tax rate of 73% for the year ended December 31,
1997, calculated on earnings before income taxes and minority interest, is
higher than the statutory rate due primarily to the amortization of
non-deductible goodwill and other acquired intangibles, the non-recognition of
benefit for net operating losses of less than 80% owned subsidiaries and state
income taxes. Similarly the Company's effective tax rate is expected to exceed
the statutory rate for 1998.
MINORITY INTEREST
For the year ended December 31, 1997, minority interest represents the
ownership interest of third parties in the net assets and results of operations
of certain consolidated subsidiaries.
PRO FORMA NET REVENUES AND COST OF REVENUES FOR THE YEAR ENDED DECEMBER 31, 1997
VS. PRO FORMA NET REVENUES AND COST OF REVENUES FOR THE YEAR ENDED DECEMBER 31,
1996
The pro forma revenues and cost of revenues for the years ended December
31, 1997 and 1996, have been prepared to show results of the Company for those
periods, as if the Ticketmaster Transaction and the Mergers had occurred at the
beginning of 1997 and 1996. Revenues and cost of revenues specifically related
to
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Savoy's motion picture operations are excluded from the 1996 pro forma amounts
as these activities ceased prior to the Mergers.
For the year ended December 31, 1997, pro forma net revenues for the
Company increased $.1 billion, or 4.4%, to $1.5 billion from $1.4 billion
compared to 1996. For the year ended December 31, 1997, pro forma costs of
revenues increased $1.0 million, or .2%, to $661.4 million from $660.4 million
compared to 1996.
The following discussion provides an analysis of the aforementioned
increases in pro forma revenues and cost of revenues by significant component.
HOME SHOPPING NETWORK
Net sales for Home Shopping increased $22.4 million, or 2.2%, for the year
ended December 31, 1997 compared to 1996. Net sales of HSC, the primary source
of Home Shopping revenues, increased $71.9 million, or 8.0%, for the year ended
December 31, 1997 compared to 1996. HSC's sales reflect an increase of 8.7% in
the number of packages shipped and a decrease of 4.3% in the average price per
unit sold for the year ended December 31, 1997, compared to 1996. The increase
in HSC net sales was offset by planned decreases in net sales of wholly-owned
subsidiaries, HSN Mail Order, Inc. ("Mail Order"), and the retail outlet stores
of $33.8 million and $10.6 million, respectively, compared to 1996.
Management believes that the improved sales for 1997 compared to 1996, were
primarily the result of ongoing changes made to Home Shopping's merchandising
and programming strategies. Management is continuing to take steps to improve
sales by evaluating the mix of products sold, introducing new products,
optimizing the average price per unit, creating programming events, and taking
measures to increase the frequency of customer purchases. There can be no
assurance that the additional changes to Home Shopping's merchandising and
programming strategies will achieve management's intended results.
For the year ended December 31, 1997, HSC's merchandise return percentage
decreased to 22.2% from 23.5% compared to 1996. Management believes that the
lower return rate is primarily attributable to the decrease in the average price
per unit and the mix of products sold, which may vary in 1998.
At December 31, 1997 and 1996, HSC had approximately 4.5 million and 4.7
million active customers, respectively. An active customer is one who has
completed a transaction within the last eighteen months or placed an order
within the last seven months. In addition, 62% of active customers made more
than one purchase in the last eighteen months, compared to 59.6% at December 31,
1996.
In addition, as of December 31, 1997, approximately 10.3 million cable
television households could be reached by America's Store, of which 3.8 million
are on a part-time basis. Of the total cable television households receiving
America's Store, 8.9 million also receive HSN.
During 1998, cable system contracts covering 4.5 million cable subscribers
are subject to termination or renewal. This represents 8.8% of the total number
of unduplicated cable households receiving HSN. The Company is pursuing both
renewals and additional cable television system contracts, but channel
availability, competition, consolidation within the cable industry and cost of
carriage are some of the factors affecting the negotiations for cable television
system contracts. Although management cannot determine the percentage of
expiring contracts that will be renewed or the number of households that will be
added through new contracts, management believes that a majority of these
contracts will be successfully renegotiated.
The Company, as part of its disengagement strategy, has selected its Miami,
Florida station as the initial station which will cease broadcasting HSN and
commence broadcasting its new local programming format in the Spring of 1998.
Management is continuing to evaluate the effects that the disaffiliation will
have on Home Shopping's ability to reach some of its existing customers in the
Miami area including a reduction in revenues or additional expenses to secure
carriage of HSN. The Company believes that the process of disaffiliation can be
successfully managed to minimize adverse consequences. Upon disaffiliation, the
Company plans on
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carrying predominantly its own local programming. There can be no assurance that
the Company will be successful in its strategy to develop and broadcast its new
programming format.
As a percentage of net sales, Home Shopping's cost of sales decreased to
59.3% from 61.7% for the year ended December 31, 1997, compared to 1996. Cost of
sales of HSC increased $24.2 million due to increases in net sales. This was
offset by decreases of $19.9 million and $14.1 million in cost of sales of Mail
Order and the retail outlet stores, respectively, compared to 1996, as a result
of the planned reduction in revenues for these subsidiaries. As a percentage of
HSC's net sales, cost of sales decreased to 60.1% from 62.3% compared to 1996.
These decreases were primarily the result of changes in merchandising and
programming strategies, as discussed above.
TICKETMASTER
For the year ended December 31, 1997, pro forma Ticketmaster revenue
increased $24.4 million, or 7.5% compared to 1996 and can be attributed to
increases in the number of tickets sold and the average per ticket operations
revenue. Ticketmaster's primary source of revenue is ticketing operations which
are primarily comprised of convenience charges which Ticketmaster generates by
providing clients with access to Ticketmaster's extensive distribution
capabilities, including Ticketmaster-owned call centers, an independent network
of sales outlets remote to the client's box office, and non-traditional
distribution channels such as the Internet. Other components of ticket
operations revenue include handling fees attributed to the sale and distribution
of tickets through channels other than remote sales outlets, credit card fee
reimbursements and licensing fees. Through continued acquisitions and growth,
management expects continued increases in ticketing operations revenues.
Other sources of Ticketmaster revenue are relatively consistent, on a pro
forma basis, when comparing 1997 to 1996, and include revenues from concession
control system sales; publications; and merchandising businesses. Concession
inventory control systems and associated service contracts are marketed to movie
theaters, stadiums, arenas and general admission facilities. Ticketmaster
produces and distributes publications, primarily the Live! Magazine, and the
Entertainment Guide included therein, and recognizes revenue from the sale of
subscriptions. The merchandising business, Entertainment To Go, is designed to
leverage Ticketmaster's inbound call center traffic, its database of consumers,
and its relationships with the music and entertainment industries to effectively
sell, at retail prices, music, tour and entertainment related merchandise
products to consumers.
BROADCASTING
For the year ended December 31, 1997, pro forma broadcasting revenue of
$54.1 million and cost of revenue of $6.5 million were consistent when compared
to 1996. Broadcasting operations relates to the operations of SF Broadcasting.
OTHER
For the year ended December 31, 1997, $14.2 million of pro forma other
revenue related primarily to the Savoy motion picture business which was
discontinued in 1996. The costs associated with these revenues were $11.2
million for 1997. The Company does not expect significant additional revenues or
costs from the motion picture business.
YEAR ENDED DECEMBER 31, 1996 VS. FISCAL YEAR ENDED AUGUST 31, 1995
NET REVENUES
BROADCASTING
For the year ended December 31, 1996, broadcasting revenue decreased $1.2
million, or 2.7% to $43.4 million from $44.6 million for the year ended August
31, 1995. This decrease is primarily the result of the elimination of $1.1
million of the USA Station Group's revenue for the 11 days ended December 31,
1996,
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due to the merger with Home Shopping. Revenues from Home Shopping are eliminated
in consolidation as are the same amount of Home Shopping engineering and
programming expenses. The year ended December 31, 1996 also includes $1.5
million of revenue of SF Broadcasting for the 12 days ended December 31, 1996.
HOME SHOPPING
Home Shopping was acquired on December 20, 1996 and, accordingly, $30.6
million of revenue for the 11 day period ended December 31, 1996 is reflected in
total revenues. Home Shopping revenues are generated primarily from the retail
sales of its two services.
OTHER
For the year ended December 31, 1996, other revenue decreased $2.1 million,
or 63.5%, to $1.2 million from $3.4 million for the fiscal year ended August 31,
1995. This decrease primarily is the result of a decrease in production revenue
due to the closing of the Denver Telemation facility in December 1995.
OPERATING EXPENSES
COST OF SALES, SELLING AND MARKETING AND ENGINEERING AND PROGRAMMING
Cost of sales increased $20.4 million for the year ended December 31, 1996
compared to the fiscal year ended August 31, 1995, as a result of the inclusion
of 11 days of Home Shopping. In addition, increases in selling and marketing and
engineering and programming expenses of $5.0 million and $1.8 million,
respectively, also related to 11 days of activity for Home Shopping.
GENERAL AND ADMINISTRATIVE
For the year ended December 31, 1996, general and administrative expenses
increased $3.9 million primarily due to the inclusion of $2.8 million of expense
as a result of the Home Shopping and Savoy mergers. The remaining increase of
$1.1 million is attributable to an equity and bonus compensation arrangement
with the Company's Chairman and Chief Executive Officer, offset by decreases in
payroll due to the restructuring of the Company in 1995.
DEPRECIATION AND AMORTIZATION
The increase in depreciation and amortization of $.8 million for the year
ended December 31, 1996 was primarily due to the inclusion of $1.4 million of
expense as a result of the Mergers. In addition, an increase of $.9 million was
due to goodwill amortization related to the Mergers. These increases were offset
by decreases of $1.5 million, primarily related to the closure and subsequent
sale of fixed assets related to the Denver Telemation facility.
OTHER INCOME (EXPENSE)
For the year ended December 31, 1996, net other expense increased $1.6
million compared to the year ended August 31, 1995. This increase is primarily
due to non-cash interest expense related to the acceleration of upfront bank
fees in anticipation of the refinancing of the Company's debt in early 1997,
offset by decreased interest expense attributable to a reduction in the
Company's long-term debt in 1996. In addition, $.5 million of net interest
expense was due to the inclusion of partial periods for Home Shopping and Savoy.
INCOME TAXES
The Company's effective tax rate is higher than the statutory rate due
primarily to the amortization of goodwill and other acquired intangibles,
certain non-deductible executive compensation and a deduction for
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certain dividends received. In addition, some states require separate company
tax filings which cause state income taxes to be disproportionate with
consolidated earnings.
MINORITY INTEREST
For the year ended December 31, 1996, minority interest represents the
ownership interest of third parties in the net assets and results of operations
of certain consolidated subsidiaries.
FOUR MONTHS ENDED DECEMBER 31, 1995 VS. FOUR MONTHS ENDED DECEMBER 31, 1994
REVENUES
For the four months ended December 31, 1995, net revenue decreased $1.3
million to $16.0 million from $17.3 million when compared to the same period in
1994. The decrease primarily related to the receipt of $1.8 million of
additional fees in fiscal 1995, compared to $.8 million in fiscal 1994 under the
Affiliation Agreements and a decrease of $.4 million due to a reduction in
production revenue. The Company closed the Denver Telemation facility effective
November 1995.
OPERATING EXPENSES
GENERAL AND ADMINISTRATIVE
For the four months ended December 31, 1995, general and administrative
expenses increased $1.7 million to $9.2 million from $7.5 million when compared
to the same period in 1994. An additional $1.1 million is attributable to an
equity and bonus compensation arrangement with the Company's Chairman and Chief
Executive Officer. The remaining increase was due to additional consulting and
legal expenses associated with new executive management.
OTHER
In December 1995, the Company implemented a formal plan to increase
operating efficiency, reduce personnel at the USA Stations and the Company's
corporate offices and close the Denver Telemation facility. As a result, the
Company recorded a $2.6 million charge to operations for the four months ended
December 31, 1995, which included severance costs, facility closure and
non-cancellable lease costs and the write-down of property, plant and equipment.
OTHER INCOME (EXPENSE)
For the four months ended December 31, 1995, interest income increased $.5
million to $.9 million from $.4 million when compared to the same period in
1994. The increase is primarily due to the settlement of the Company's lawsuit
against Urban Broadcasting Corporation ("Urban"). The Company did not recognize
any interest income from a note receivable from Urban in the four month period
ended December 31, 1994 until the settlement was reached and the funds were
received in May 1995.
INCOME TAXES
The Company's effective tax rate for these periods differed from the
statutory rate due primarily to the amortization of goodwill and other acquired
intangible assets relating to acquisitions from prior years, other
non-deductible items, and state income taxes.
SEASONALITY
The Company believes that seasonality does impact its retailing segment but
not to the same extent it impacts the retail industry in general.
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FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $47.7 million for the year
ended December 31, 1997. In addition the Company acquired cash of $89.7 million
in connection with the Ticketmaster Transaction and received capital
contributions of $9.0 million. These cash proceeds were used to pay for capital
expenditures of $45.9 million, pay for long-term investments of $39.8 million
and pay cable distribution fees of $11.9 million. Net earnings adjusted for
non-cash items totaled $145.2 million and working capital increased by $85.4
million for the year ended December 31, 1997.
Consolidated capital expenditures for the year ended December 31, 1997,
relate in part to Home Shopping's plan to improve and expand the capabilities of
its computer systems. Consolidated capital expenditures are expected to range
from $70.0 million to $95.0 million in 1998.
On February 12, 1998, the Company, and certain of its subsidiaries,
including USANi LLC as borrower, entered into a new $1.6 billion credit facility
(the "New Facility") with a $40.0 million sub-limit for letters of credit. The
New Facility was used to finance the Universal Transaction and to refinance the
Company's $275.0 million Revolving Credit Facility (the "HSNi Facility"). The
New Facility consists of a $600.0 million revolving credit facility, a $750.0
million "Tranche A Term Loan" and a $250.0 million "Tranche B Term Loan". The
revolving credit facility and Tranche A Term Loan mature on December 31, 2002
and the Tranche B Term Loan matures on December 31, 2003. The New Facility is
guaranteed by, and secured by stock in, substantially all of the Company's
material subsidiaries. The interest rate on borrowings under the New Facility is
tied to an Alternate Base Rate or the London InterBank Offered Rate, in each
case, plus an applicable margin. As of March 13, 1998, there was $1.4 billion in
outstanding borrowings under the New Facility and $151.7 million was available
for borrowing after taking into account outstanding letters of credit.
On February 12, 1998, the Company completed the Universal Transaction. The
consideration paid to Universal included a cash payment of $1.63 billion. $300.0
million of the cash to be paid to Universal in connection with the Universal
Transaction is deferred until no later than June 30, 1998. The Investment
Agreement relating to the Universal Transaction, also contemplates that, on or
prior to June 30, 1998, the Company and Liberty, will complete a transaction
that involves a $300.0 million cash investment by Liberty in the Company through
the purchase of LLC Shares or, if agreed upon among the Company, Liberty and
Universal, the acquisition by the Company of assets owned or controlled by
Liberty in exchange for LLC Shares. An asset transaction with Liberty will
reduce Liberty's cash purchase obligation by 45% of the value of the assets
acquired.
Pursuant to the Investment Agreement, the Company has granted to Universal
and Liberty preemptive rights with respect to future issuances of USAi Common
Stock and USAi Class B Common Stock, which generally allow Universal and Liberty
the right to maintain an ownership percentage equal to the ownership percentage
such entity held immediately prior to such issuance. In addition, Universal has
certain mandatory purchase obligations with respect to USAi Common Stock (or LLC
shares), and with respect to the pending Ticketmaster Transaction.
In connection with the Universal Transaction, the Company entered into a
joint venture agreement relating to the development of international general
entertainment television channels including international versions of USA
Network, Sci-Fi Channel and Universal's action/adventure channel 13th Street.
Unless the Company elects to have Universal buy out the Company's interest in
the venture, the Company and Universal will be 50-50 partners in the venture,
which will be managed by Universal. USANi LLC and Universal have each committed
to contribute $100 million in capital in the venture over a number of years.
The Company is implementing its plans to disaffiliate its station in the
Miami, Florida market in 1998. The Company will incur expenditures to develop
programming and promotion of this station, which during the development and
transitional stage, may not be offset by sufficient advertising revenues. The
Company may also transition additional USA Stations to the new format in 1998.
The Company believes that process of
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disaffiliation can be successfully managed to minimize adverse consequences and
maximize the value of the USA Stations.
In connection with the Universal Transaction and other strategic
initiatives, the Company anticipates that it will need to invest working capital
in connection with the development and expansion of its overall operations.
The maximum amount available under Ticketmaster's credit agreement was
$165.0 at December 31, 1997 and will decrease to $150.0 million at December 31,
1998. At March 13, 1998, Ticketmaster had $142.0 million in outstanding
borrowings under its credit agreement and $23.0 million was available for
borrowing.
In September 1997, the Company paid $5.0 million of subscriptions payable
related to its investment in HOT. The Company also has certain ongoing funding
obligations relating to the HOT and Shop Channel ventures.
During 1998, management expects to pay cable distribution fees of $25.0
million to $40.0 million, relating to new and current contracts with cable
systems operators to carry Home Shopping's programming.
During the year ended December 31, 1997, the Company received cash proceeds
of $7.2 million from the exercise of 1.0 million options to purchase the
Company's common stock. At March 13, 1998, 10.7 million options to purchase the
Company's common stock were outstanding and exercisable at prices ranging
between $1.00 and $26.19. The exercise of such options would result in a cash
inflow to the Company of $109.7 million.
During July and August 1997, the Company purchased a total of 206,000
shares of Ticketmaster stock in the open market for $3.3 million.
On November 12, 1997, the Company invested $20.0 million for an 11%
interest in City Search, Inc., a company that produces and delivers
comprehensive local city guides on the Internet, providing up-to-date
information regarding arts and entertainment, community activities and events,
recreation, business and news/ sports/weather to consumers in major metropolitan
areas. The funds to make this investment were obtained from borrowings under the
HSNi Facility.
On January 20, 1998, the Company consummated the sale of its Baltimore, MD.
Station for $80.0 million. The Company has also entered into agreements to
acquire three additional television stations serving the Atlanta, GA, Orlando,
FL, and Rapid City, SD markets. The aggregate purchase price for these stations
is approximately $70.0 million.
On January 28, 1998, Blackstar consummated the sale of one of its
television broadcast stations. This resulted in termination of the Company's
affiliation agreement, and changed the Company's ownership to 45%. The Company
also received $1.0 million in cash and $3.0 million in preferred stock in
connection with the disaffiliation. The Company also will receive $15.0 million
in connection with disaffiliations of two other stations.
On January 23, 1998, the Company gave notice that it elected to redeem on
March 1, 1998, at a redemption price of 104.7% of the principal amount, all of
the outstanding Home Shopping Debentures. The Home Shopping Debentures were all
converted by the holders into shares of USAi Common Stock on or prior to the
Redemption Date.
On February 20, 1998, the Company's Board of Directors approved the
declaration of a dividend to its stockholders in the form of a distribution of
one share of USAi common stock for each share of common stock outstanding to
holders of record as of the close of business on March 12, 1998. The payment
date for the dividend was March 26, 1998. The two-for-one stock split also
included an identical stock dividend with respect to the Company's Class B
Common Stock, to be paid in the form of one share of USAi Class B Common Stock
for each share of Class B Stock outstanding as of the close of business on March
12, 1998.
Ticketmaster spent $18.5 million in connection with business acquisitions
using existing funds.
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In management's opinion, available cash, internally generated funds and
available borrowings will provide sufficient capital resources to meet the
Company's foreseeable needs.
During the year ended December 31, 1997, the Company did not pay any cash
dividends, and none are permitted under the Company's existing credit facility.
OTHER MATTERS
The Company is currently working to resolve the potential impact of the
year 2000 on the processing of date-sensitive information by the Company's
computerized information systems. The year 2000 problem is the result of
computer programs being written using two digits (rather than four) to define
the applicable year. Any of the Company's programs that have time-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000, which could result in miscalculations or system failures. Based on
preliminary information, costs of addressing potential problems are not
currently expected to have a material adverse impact on the Company's financial
position, results of operations or cash flows in future periods. However, if the
Company, its customers or vendors are unable to resolve such processing issues
in a timely manner, it could result in a material financial risk. Accordingly,
the Company plans to devote the necessary resources to resolve all significant
year 2000 issues in a timely manner.
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REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
USA Networks, Inc.
We have audited the accompanying consolidated balance sheets of USA
Networks, Inc. (formerly HSN, Inc.) as of December 31, 1997 and 1996, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the years then ended. Our audits also included the financial statement
schedule listed in the Index at Item 14(a). These financial statements and the
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
the financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
USA Networks, Inc. at December 31, 1997 and 1996, and the consolidated results
of its operations and its cash flows for the years then ended, in conformity
with generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
ERNST & YOUNG LLP
New York, New York
March 13, 1998
43
46
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
USA Networks, Inc.
We have audited the accompanying consolidated statements of operations,
stockholders' equity and cash flows of USA Networks, Inc. (formerly HSN, Inc.
and Silver King Communications, Inc.) and subsidiaries for the period September
1, 1995 through December 31, 1995 and for the year ended August 31, 1995. Our
audits also included the financial statement schedule listed in the Index at
Item 14(a). These financial statements and the financial statement schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on the financial statements and the financial statement schedule
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the results of operations of USA Networks, Inc. and
subsidiaries and their cash flows for the period September 1, 1995 through
December 31, 1995, and for the year ended August 31, 1995 in conformity with
generally accepted accounting principles. Also, in our opinion, such financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
DELOITTE & TOUCHE LLP
Tampa, Florida
July 2, 1996
44
47
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
USA NETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------------------------
FOUR MONTHS
YEARS ENDED ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, AUGUST 31,
---------------------- ------------ ----------
1997 1996 1995 1995
- --------------------------------------------------------------------------------------------------
(In thousands, except per share data)
NET REVENUES
Home Shopping............................. $1,037,060 $ 30,588 $ -- $ --
Ticketmaster.............................. 156,378 -- -- --
Broadcasting.............................. 54,138 43,359 15,061 44,563
Other..................................... 14,173 1,225 919 3,355
---------- -------- ------- -------
Total net revenues................ 1,261,749 75,172 15,980 47,918
---------- -------- ------- -------
Operating costs and expenses:
Cost of sales............................. 645,299 20,974 193 614
Selling and marketing..................... 217,358 4,951 -- --
General and administrative................ 129,700 28,254 9,163 24,394
Depreciation and amortization............. 97,024 15,486 4,701 14,674
Engineering and programming............... 77,849 1,812 -- --
Other..................................... -- 83 2,603 --
---------- -------- ------- -------
Total operating costs and
expenses........................ 1,167,230 71,560 16,660 39,682
---------- -------- ------- -------
Operating profit (loss)........... 94,519 3,612 (680) 8,236
Other income (expense):
Interest income........................... 5,313 3,238 888 3,410
Interest expense.......................... (31,579) (11,841) (3,463) (10,963)
Miscellaneous............................. (11,752) 44 -- 570
---------- -------- ------- -------
(38,018) (8,559) (2,575) (6,983)
---------- -------- ------- -------
Earnings (loss) before income taxes and
minority interest......................... 56,501 (4,947) (3,255) 1,253
Income tax (expense) benefit................ (41,051) (1,872) 373 (1,138)
Minority interest........................... (2,389) 280 -- --
---------- -------- ------- -------
NET EARNINGS (LOSS)............... $ 13,061 $ (6,539) $(2,882) $ 115
========== ======== ======= =======
Basic earnings (loss) per common share...... $ .12 $ (.30) $ (.15) $ .01
========== ======== ======= =======
Diluted earnings (loss) per common share.... $ .12 $ (.30) $ (.15) $ .01
========== ======== ======= =======
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
45
48
USA NETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- ----------------------------------------------------------------------------------------
DECEMBER 31,
--------------------------
1997 1996
- ----------------------------------------------------------------------------------------
(In thousands)
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................... $ 116,036 $ 42,606
Accounts and notes receivable (net of an allowance for
doubtful accounts of $3,588 and $2,679, respectively)..... 96,867 56,832
Inventories, net............................................ 151,100 100,527
Deferred income taxes....................................... 39,956 40,842
Other current assets, net................................... 16,723 7,791
---------- ----------
Total current assets.............................. 420,682 248,598
PROPERTY, PLANT AND EQUIPMENT
Computer and broadcast equipment............................ 145,701 95,472
Buildings and leasehold improvements........................ 83,851 63,739
Furniture and other equipment............................... 39,498 20,414
---------- ----------
269,050 179,625
Less accumulated depreciation and amortization.... 120,793 73,959
---------- ----------
148,257 105,666
Land........................................................ 16,602 14,944
Projects in progress........................................ 15,262 1,365
---------- ----------
180,121 121,975
OTHER ASSETS
Intangible assets, net...................................... 1,862,128 1,545,947
Cable distribution fees, net ($46,459, and $40,892 to
related parties, respectively)............................ 111,292 113,594
Long-term investments and notes receivable ($8,353 and
$7,220 in related
parties, respectively).................................... 59,780 47,862
Deferred income taxes....................................... 3,541 1,926
Deferred charges and other, net............................. 33,252 36,330
---------- ----------
2,069,993 1,745,659
---------- ----------
$2,670,796 $2,116,232
========== ==========
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
46
49
USA NETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS -- (CONTINUED)
- ----------------------------------------------------------------------------------------
DECEMBER 31,
--------------------------
1997 1996
- ----------------------------------------------------------------------------------------
(In thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term obligations................. $ 12,918 $ 42,906
Accounts payable............................................ 185,101 95,421
Programming fees ($19,091 and $9,051 to related parties,
respectively)............................................. 43,553 40,717
Other accrued liabilities................................... 118,169 93,998
---------- ----------
Total current liabilities......................... 359,741 273,042
LONG-TERM OBLIGATIONS (net of current maturities)........... 448,346 271,430
OTHER LONG-TERM LIABILITIES, net............................ 43,132 56,875
MINORITY INTEREST........................................... 372,223 356,136
COMMITMENTS AND CONTINGENCIES............................... -- --
STOCKHOLDERS' EQUITY
Preferred stock -- $.01 par value; authorized 15,000,000
shares; no shares issued or outstanding................... -- --
Common stock -- $.01 par value; authorized 800,000,000
shares; issued and outstanding 87,430,586 and 71,985,806
shares, respectively...................................... 874 720
Class B -- convertible common stock -- $.01 par value;
authorized, 200,000,000 shares; issued and outstanding,
24,455,294 and 20,450,112 shares, respectively............ 244 204
Additional paid-in capital.................................. 1,558,037 1,284,815
Accumulated deficit......................................... (103,601) (116,662)
Unearned compensation....................................... (3,202) (5,330)
Note receivable from key executive for common stock
issuance.................................................. (4,998) (4,998)
---------- ----------
1,447,354 1,158,749
---------- ----------
$2,670,796 $2,116,232
========== ==========
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
47
50
USA NETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- ----------------------------------------------------------------------------------------------------------------------------
NOTE
RECEIVABLE
FROM KEY
EXECUTIVE
CLASS B FOR
CONVERTIBLE ADDITIONAL COMMON
COMMON COMMON PAID-IN ACCUMULATED UNEARNED STOCK
STOCK STOCK CAPITAL DEFICIT COMPENSATION ISSUANCE TOTAL
- ----------------------------------------------------------------------------------------------------------------------------
(In thousands)
BALANCE AT AUGUST 31, 1994........ $130 $ 48 $ 109,792 $(107,356) $ -- $ -- $ 2,614
Issuance of common stock upon
exercise of stock options........ -- -- 180 -- -- -- 180
Unearned compensation related to
grant of stock options to key
executive........................ -- -- 3,973 -- (3,973) -- --
Amortization of unearned
compensation related to grant of
stock options to key executive... -- -- -- -- 20 -- 20
Income tax benefit related to
stock options exercised.......... -- -- 421 -- -- -- 421
Issuance of common stock to key
executive........................ 8 -- 9,992 -- -- (4,998) 5,002
Value of common stock in excess of
key executive's purchase price... -- -- 926 -- -- -- 926
Net earnings for year ended August
31, 1995......................... -- -- -- 115 -- -- 115
---- ---- ---------- --------- ------- ------- ----------
BALANCE AT AUGUST 31, 1995........ 138 48 125,284 (107,241) (3,953) (4,998) 9,278
Issuance of common stock upon
exercise of stock options........ 2 -- 186 -- -- -- 188
Amortization of unearned
compensation related to grant of
stock options to key executive... -- -- -- -- 332 -- 332
Income tax benefit related to
stock options exercised.......... -- -- 555 -- -- -- 555
Net loss for four month period
ended December 31, 1995.......... -- -- -- (2,882) -- -- (2,882)
---- ---- ---------- --------- ------- ------- ----------
BALANCE AT DECEMBER 31, 1995...... 140 48 126,025 (110,123) (3,621) (4,998) 7,471
Issuance of common stock upon
exercise of stock options........ 2 -- 1,154 -- -- -- 1,156
Amortization of unearned
compensation related to grant of
stock options to key executive... -- -- -- -- 1,028 -- 1,028
Income tax benefit related to
stock options exercised.......... -- -- 841 -- -- -- 841
Issuance of common stock related
to the Home Shopping Merger...... 494 156 1,044,162 -- -- -- 1,044,812
Issuance of common stock related
to the Savoy Merger.............. 84 -- 112,633 -- -- -- 112,717
Unearned compensation related to
employee equity participation
plan............................. -- -- -- -- (2,737) -- (2,737)
Net loss for year ended December
31, 1996......................... -- -- -- (6,539) -- -- (6,539)
---- ---- ---------- --------- ------- ------- ----------
BALANCE AT DECEMBER 31, 1996...... 720 204 1,284,815 (116,662) (5,330) (4,998) 1,158,749
Issuance of common stock upon
exercise of stock options........ 10 -- 7,217 -- -- -- 7,227
Income tax benefit related to
stock options exercised.......... -- -- 3,372 -- -- -- 3,372
Issuance of stock in connection
with Ticketmaster Transaction.... 144 40 262,633 -- -- -- 262,817
Amortization of unearned
compensation related to grant of
stock options to key executive... -- -- -- -- 995 -- 995
Expense related to executive stock
award program and stock
options.......................... -- -- -- -- 113 -- 113
Expense related to employee equity
participation plan............... -- -- -- -- 1,020 -- 1,020
Net earnings for year ended
December 31, 1997................ -- -- -- 13,061 -- -- 13,061
---- ---- ---------- --------- ------- ------- ----------
BALANCE AT DECEMBER 31, 1997...... $874 $244 $1,558,037 $(103,601) $(3,202) $(4,998) $1,447,354
==== ==== ========== ========= ======= ======= ==========
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
48
51
USA NETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
- --------------------------------------------------------------------------------------------------------------
YEARS ENDED FOUR MONTHS
DECEMBER 31, ENDED YEAR ENDED
------------------- DECEMBER 31, AUGUST 31,
1997 1996 1995 1995
- --------------------------------------------------------------------------------------------------------------
(In thousands)
Cash flows from operating activities:
Net earnings (loss)....................................... $ 13,061 $ (6,539) $(2,882) $ 115
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
Depreciation and amortization........................... 77,679 18,672 4,701 14,674
Deferred income taxes................................... 22,474 418 (710) 219
Amortization of cable distribution fees................. 19,261 -- -- --
Equity in losses of unconsolidated affiliates........... 12,007 367 -- --
Non-cash interest expense............................... 4,218 -- 288 820
Inventory carrying adjustment........................... (8,059) (420) -- --
Amortization of unearned compensation................... 2,128 1,028 332 20
Provision for losses on accounts and notes receivable... 96 23 51 179
(Gain) loss on retirement or sale of fixed assets....... (60) (34) 603 (111)
Minority interest....................................... 2,389 (280) -- --
Non-cash compensation to key executive.................. -- -- -- 926
Changes in current assets and liabilities:
(Increase) decrease in accounts receivable............ (7,107) 511 (841) (2)
(Increase) decrease in inventories.................... (37,443) 9,949 -- --
(Increase) decrease in other current assets........... 988 1,332 (229) (397)
Decrease in accounts payable.......................... (7,371) (11,910) -- --
Increase (decrease) in accrued liabilities............ (35,859) (1,149) 1,269 999
Increase in cable distribution fees..................... (16,912) -- -- --
Decrease in deferred charges and other.................. 6,183 -- -- --
-------- -------- ------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES........... 47,673 11,968 2,582 17,442
-------- -------- ------- --------
Cash flows from investing activities:
Capital expenditures...................................... (45,869) (1,143) (163) (1,703)
Increase in long-term investments and notes receivable
........................................................ (39,844) (8,369) (653) (2,855)
Capital contributions received............................ 9,000 -- -- --
Proceeds from long-term notes receivable.................. 6,048 4,086 999 2,868
Proceeds from sale of fixed assets........................ 2,354 2,345 66 254
(Increase) decrease in other non-current assets........... -- 2,089 -- (260)
Payment for acquisitions, net of cash acquired............ (7,633) -- -- --
Payment of merger costs................................... (6,349) (1,630) -- --
-------- -------- ------- --------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES........................................ (82,293) (2,622) 249 (1,696)
-------- -------- ------- --------
Cash flows from financing activities:
Principal payments on long-term obligations............... (385,329) (39,763) (6,089) (10,475)
Proceeds from issuance of common stock.................... 7,227 1,156 188 5,182
Payment of capitalized bank fees.......................... -- -- -- (283)
Proceeds from debt refinancing............................ 393,949 -- -- --
Distribution to minority shareholders..................... 2,540 -- -- --
Cash acquired in merger................................... 89,663 52,727 -- --
-------- -------- ------- --------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES........................................ 108,050 14,120 (5,901) (5,576)
-------- -------- ------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 73,430 23,466 (3,070) 10,170
Cash and cash equivalents at beginning of period............ 42,606 19,140 22,210 12,040
-------- -------- ------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $116,036 $ 42,606 $19,140 $ 22,210
======== ======== ======= ========
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
49
52
USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- ORGANIZATION
USA Networks, Inc., formerly HSN, Inc. and prior to that Silver King
Communications, Inc. (the "Company" or "USAi") is a holding company, the
subsidiaries of which are engaged in diversified media and electronic commerce
businesses. As of December 31, 1997, the Company's principal businesses were
electronic retailing, ticketing operations and television broadcasting. The
consolidated financial statements include the operations of Ticketmaster Group,
Inc. and subsidiaries ("Ticketmaster"), Savoy Pictures Entertainment, Inc. and
subsidiaries ("Savoy") and Home Shopping Network, Inc. and subsidiaries ("Home
Shopping") from the dates of their acquisitions, as discussed in Note C.
On February 12, 1998, the Company acquired certain assets from Universal
Studios, Inc. (the "Universal Transaction"), increased its authorized common
stock and Class B common stock and changed its name to USA Networks, Inc. See
Note V.
On February 20, 1998, the Company declared and on March 26, 1998, paid, a
two-for-one stock dividend as discussed in Note V. All share data and earnings
per share amounts presented have been adjusted to reflect this dividend.
NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and all wholly-owned and majority owned subsidiaries. All significant
intercompany transactions and accounts have been eliminated.
Investments in which the Company owns a 20%, but not in excess of 50%,
interest and where it can exercise significant influence over the operations of
the investee, are accounted for using the equity method. All other investments
are accounted for using the cost method. The Company periodically evaluates the
recoverability of investments recorded under the cost method and recognizes
losses if a decline in value is determined to be other than temporary.
REVENUES
Revenues from Home Shopping primarily consist of merchandise sales and are
reduced by incentive discounts and sales returns to arrive at net sales.
Revenues are recorded for credit card sales upon transaction authorization, and
for check sales upon receipt of customer payment, which does not vary
significantly from the time goods are shipped. Home Shopping's sales policy
allows merchandise to be returned at the customer's discretion within 30 days of
the date of delivery. Allowances for returned merchandise and other adjustments
are provided based upon past experience.
Revenue from Ticketmaster primarily consists of revenue from ticketing
operations which is recognized as tickets are sold.
Prior to December 20, 1996, television broadcasting revenue was principally
derived from the broadcasting of Home Shopping programming. The Company was
compensated by Home Shopping based on an applicable hourly affiliation rate per
station and, upon reaching certain sales levels, commissions on net sales.
Revenue was recognized as services were provided or when additional commissions
were earned. Subsequent to the Mergers, as discussed in Note C, these
intercompany revenues and expenses are eliminated in consolidation.
Revenues from all other sources are recognized either upon delivery or when
the service is provided.
50
53
USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include
cash and short-term investments. Short-term investments consist primarily of
U.S. Treasury Securities, U.S. Government agencies and certificates of deposit
with original maturities of less than 91 days.
INVENTORIES, NET
Inventories are valued at the lower of cost or market, cost being
determined using the first-in, first-out method. Cost includes freight, certain
warehouse costs and other allocable overhead. Market is determined on the basis
of net realizable value, giving consideration to obsolescence and other factors.
Inventories are presented net of an inventory carrying adjustment of $21.1
million and $27.9 million at December 31, 1997 and 1996, respectively.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, including significant improvements, are
recorded at cost. Repairs and maintenance and any gains or losses on
dispositions are included in operations.
Depreciation and amortization is provided for on a straight-line basis to
allocate the cost of depreciable assets to operations over their estimated
service lives.
- ---------------------------------------------------------------------------------
DEPRECIATION/
ASSET CATEGORY AMORTIZATION PERIOD
- ---------------------------------------------------------------------------------
Computer and broadcast equipment............................ 3 to 13 Years
Buildings................................................... 30 to 40 Years
Leasehold improvements...................................... 4 to 20 Years
Furniture and other equipment............................... 3 to 10 Years
Depreciation and amortization expense on property, plant and equipment was
$26.2 million, $4.3 million, $1.6 million, and $5.3 million for the years ended
December 31, 1997 and 1996, the four months ended December 31, 1995 and the year
ended August 31, 1995, respectively.
LONG-LIVED ASSETS INCLUDING INTANGIBLES
The Company's accounting policy regarding the assessment of the
recoverability of the carrying value of long-lived assets, including property,
plant and equipment, goodwill and other intangibles is to review the carrying
value of the assets if the facts and circumstances suggest that they may be
impaired. If this review indicates that the carrying value will not be
recoverable, as determined based on the undiscounted future cash flows of the
Company, the carrying value is reduced to its estimated fair value.
CABLE DISTRIBUTION FEES
Cable distribution fees relate to upfront fees paid in connection with long
term cable contracts for carriage of Home Shopping's programming. These fees are
amortized to expense on a straight line basis over the terms of the respective
contracts, with original terms from 5 to 15 years. Amortization expense for
cable distribution fees was $19.3 million for the year ended December 31, 1997
and was not significant for the 11 days ending December 31, 1996.
INCOME TAXES
Under Statement of Financial Accounting Standards No. 109 "Accounting for
Income Taxes", deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred
51
54
USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
tax assets and liabilities are measured using enacted tax rates in effect for
the year in which those temporary differences are expected to be recovered or
settled.
EARNINGS (LOSS) PER SHARE
The Company adopted Statement of Financial Accounting Standards No. 128
"Earnings per Share" during the fourth quarter of 1997. In accordance with the
Statement, all prior period earnings per share amounts have been restated.
Basic earnings per share ("Basic EPS") excludes dilution and is computed by
dividing net income by the weighted average number of common shares outstanding
during the period. Diluted earnings per share ("Diluted EPS") reflects the
potential dilution that could occur if stock options and other commitments to
issue common stock were exercised resulting in the issuance of common stock that
then shared in the earnings of the Company.
STOCK-BASED COMPENSATION
The Company is subject to Statement of Financial Accounting Standards No.
123 "Accounting and Disclosure of Stock-Based Compensation" ("SFAS 123"). As
allowed by SFAS 123, the Company accounts for stock-based compensation in
accordance with APB 25, "Accounting for Stock Issued to Employees." In cases
where exercise prices are less than fair value as of the grant date,
compensation is recognized over the vesting period.
Unaudited pro forma financial information, assuming that the Company had
adopted the measurement standards of SFAS 123, is included in Note N.
MINORITY INTEREST
Minority interest represents the ownership interests of third parties in
the net assets and results of operations of certain consolidated subsidiaries.
ACCOUNTING ESTIMATES
Management of the Company is required to make certain estimates and
assumptions during the preparation of consolidated financial statements in
accordance with generally accepted accounting principles. These estimates and
assumptions impact the reported amount of assets and liabilities and disclosures
of contingent assets and liabilities as of the date of the consolidated
financial statements. They also impact the reported amount of net earnings
during any period. Actual results could differ from those estimates.
Significant estimates underlying the accompanying consolidated financial
statements and notes include the inventory carrying adjustment, sales return
accrual, allowance for doubtful accounts, recoverability of intangibles and
other long-lived assets, and various other operating allowances and accruals.
RECENTLY ISSUED PRONOUNCEMENTS
During fiscal 1997, Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS 130") and Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" ("SFAS 131") were issued. SFAS 130 establishes standards
for reporting and display of comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of financial statements. The Company
will adopt SFAS 130 as of the first quarter of 1998. SFAS 131 requires
disclosure of financial and descriptive information about an entity's reportable
operating segments under the "management approach" as defined in the Statement.
The Company will adopt
52
55
USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SFAS 131 as of December 31, 1998. The impact of adoption of these standards on
the Company's financial statements is not expected to be material.
RECLASSIFICATIONS
Certain amounts in the prior years' consolidated financial statements have
been reclassified to conform to the 1997 presentation.
NOTE C -- BUSINESS ACQUISITIONS
In the third quarter of 1997, the Company acquired a controlling interest
in Ticketmaster through the issuance of the Company's common stock to Paul G.
Allen and purchases of Ticketmaster shares in the open market. In connection
with the issuance of new shares to Mr. Allen, the Company also issued shares of
the Company's Class B common stock in accordance with Liberty Media
Corporation's contingent right to receive such shares as part of the Home
Shopping merger in 1996.
The Ticketmaster Transaction has been accounted for using the purchase
method of accounting. The acquisition price of $210.0 million, including
expenses, was preliminarily allocated to the assets and liabilities of
Ticketmaster based on respective values at the acquisition date. The fair market
values of the assets and liabilities acquired are summarized below, along with
the excess of the purchase price over the fair value of net assets, which has
preliminarily been assigned to goodwill and other intangibles:
- ----------------------------------------------------------------------------
TICKETMASTER
- ----------------------------------------------------------------------------
(In thousands)
Current assets.............................................. $140,000
Non-current assets.......................................... 179,000
Goodwill and other intangibles.............................. 190,000
Current liabilities......................................... 130,000
Non-current liabilities, including minority interest........ 169,000
On March 20, 1998, the Company entered into a merger agreement with
Ticketmaster to acquire the remaining interest in Ticketmaster. See Note V.
SAVOY MERGER
On December 19, 1996, USAi consummated the merger with Savoy ("Savoy
Merger") by issuing 8,411,740 shares of USAi common stock in exchange for each
share of outstanding Savoy common stock at a .28 conversion ratio, adjusted for
the March 1998 stock dividend.
HOME SHOPPING MERGER
On December 20, 1996, USAi consummated the merger with Home Shopping (the
"Home Shopping Merger") by issuing shares of USAi Common Stock at a ratio of .90
of a share of USAi Common Stock and 1.08 shares of HSNi Class B Common Stock for
each share of Home Shopping Common Stock and Class B Common Stock, adjusted for
the March 1998 stock dividend, respectively. As a result, 49,331,302 shares of
USAi Common Stock and 15,618,222 shares of HSNi Class B Common Stock were
issued.
Upon consummation of the Home Shopping Merger, and because the Home
Shopping Class B Common Stock is entitled to ten votes per share on matters on
which both classes of common stock vote together as a single class, the Company
owned 80.1% of the equity and 90.8% of the voting power of Home Shopping, and
Liberty HSN owned 19.9% of the equity and 9.2% of the voting power of Home
Shopping. Liberty HSN is an indirect, wholly-owned subsidiary of Liberty, which,
in turn, is a subsidiary of Tele-Communications, Inc. ("TCI").
53
56
USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Mergers have been accounted for using the purchase method of
accounting. The purchase price, including expenses, for the Savoy Merger and the
Home Shopping Merger, which were $113.4 million and $1.2 billion, respectively,
have been allocated to the assets and liabilities acquired based on their
respective fair values at the dates of purchase. The fair value of the assets
and liabilities acquired are summarized below, along with the excess of the
purchase price, including expenses, over the fair value of net assets, which has
been assigned to goodwill and broadcast licenses:
- --------------------------------------------------------------------------------------
SAVOY HOME SHOPPING
- --------------------------------------------------------------------------------------
(In thousands)
Current assets.............................................. $ 36,000 $ 192,000
Non-current assets.......................................... 64,400 257,000
Goodwill and broadcast licenses............................. 307,100 1,197,000
Current liabilities......................................... 63,700 198,000
Non-current liabilities..................................... 230,400 227,000
The following unaudited pro forma condensed consolidated financial
information for the years ended December 31, 1997 and 1996, is presented to show
the results of the Company for the full periods, as if the Ticketmaster
Transaction, including significant acquisitions by Ticketmaster, and the Mergers
occurred at the beginning of the years presented. The pro forma results include
certain adjustments, including increased amortization related to goodwill and
other intangibles, the reduction of cable and broadcast fees for fair value
adjustments related to purchase accounting and the elimination of intercompany
revenues and expenses, and are not necessarily indicative of what the results
would have been had the Ticketmaster Transaction and the Mergers actually
occurred on the aforementioned dates.
- ------------------------------------------------------------------------------------------
YEARS ENDED
DECEMBER 31,
----------------------------
1997 1996
- ------------------------------------------------------------------------------------------
(In thousands, except per
share data)
Net revenues................................................ $1,454,521 $1,392,629
Net earnings (loss)......................................... 10,773 (19,099)
Basic earnings (loss) per common share...................... $ .10 $ (.17)
========== ==========
Diluted earnings (loss) per common share.................... $ .09 $ (.17)
========== ==========
NOTE D -- INTANGIBLE ASSETS
Intangible assets are amortized using the straight-line method and include
the following:
- ------------------------------------------------------------------------------------------
DECEMBER 31,
----------------------------
1997 1996
- ------------------------------------------------------------------------------------------
(In thousands)
Intangible Assets, net:
Goodwill.................................................. $1,520,221 $1,193,322
Broadcast licenses........................................ 312,248 350,118
Purchased user agreements................................. 28,029 --
Other..................................................... 1,630 2,507
---------- ----------
$1,862,128 $1,545,947
========== ==========
Goodwill primarily relates to the excess of purchase price over the fair
value of assets acquired in the Ticketmaster Transaction and the Mergers, as
discussed in Note C, and is net of accumulated amortization of $46.9 million and
$4.1 million at December 31, 1997 and 1996, respectively. Goodwill is generally
amortized over 40 years.
54
57
USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Broadcast licenses represent the costs of acquiring FCC licenses related to
broadcast operations and is net of accumulated amortization of $41.3 million and
$21.5 million as of December 31, 1997 and 1996, respectively. Broadcast licenses
are generally amortized over 40 years.
Purchased user agreements represent the cost of acquiring venue contracts,
are net of accumulated amortization of $3.9 million at December 31, 1997 and are
amortized over the contract terms, generally 2 to 10 years.
Other intangibles are net of accumulated amortization of $67.0 million and
$72.3 million as of December 31, 1997 and 1996, respectively, and are generally
amortized over 3 to 10 years.
NOTE E -- LONG-TERM INVESTMENTS AND NOTES RECEIVABLE
Investments accounted for under the equity method include the following; a
29% interest in both Home Order Television GmbH & Co. KG ("HOT") and its general
partner (collectively the "HOT Interest") and a 30% interest in Jupiter Shop
Channel Co;. Ltd. ("Shop Channel"). At December 31, 1997 and 1996, the Company's
net investment in these ventures was $15.6 million and $11.1 million,
respectively. The HOT Interest is subject to certain restrictions and other
provisions regarding transferability.
The Company also includes in equity investments at December 31, 1997, $6.6
million in investments in unconsolidated affiliate companies and joint ventures
of Ticketmaster. Ticketmaster is the managing general partner of each joint
venture.
The Company has other investments accounted for under the cost method
totaling $25.7 million and $19.0 million at December 31, 1997 and 1996,
respectively.
The Company has notes receivable of $11.9 million and $17.7 million net of
the current portion of $4.5 million and $3.6 million at December 31, 1997 and
1996, respectively. Certain notes receivable are collateralized by stock pledges
and security interests in all of the tangible and intangible assets in the
investee companies to the full extent permitted by law.
NOTE F -- DEFERRED CHARGES AND OTHER ASSETS
Deferred charges and other assets primarily consist of the film library and
broadcast rights acquired in connection with the acquisition of Savoy; satellite
and other deposits acquired in connection with the acquisition of Home Shopping;
and deferred financing costs. Deferred charges and other assets are net of
accumulated amortization of $2.4 million and $4.3 million as of December 31,
1997 and December 31, 1996, respectively.
55
58
USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE G -- LONG-TERM OBLIGATIONS
- ---------------------------------------------------------------------------------
DECEMBER 31,
-------------------
1997 1996
- ---------------------------------------------------------------------------------
(In thousands)
Unsecured $275,000,000 Revolving Credit Facility ("HSNi
Facility"); with a $35,000,000 sub-limit for import
letters of credit, entered into on May 1, 1997, which
matures on May 1, 2002. At the Company's option, the
interest rate on borrowings is tied to the London
Interbank Offered Rate ("LIBOR") or the Alternate Base
Rate ("ABR"), plus an applicable margin. The interest rate
was 6.51% at December 31,1997, and ranged from 6.16% to
8.50% during 1997......................................... $100,000 $ --
Unsecured $100,000,000 5 7/8% Convertible Subordinated
Debentures (the "Home Shopping Debentures") due March 1,
2006 convertible into USAi Common Stock at a conversion
price of $13.34 per share................................. 106,338 107,007
Secured SF Broadcast Facility (the "SF Broadcast Facility");
payable in 20 consecutive quarterly installments
commencing on September 30, 1997. At the Company's option,
the interest rate on borrowings is tied to LIBOR or ABR,
plus an applicable margin The interest rate was 8.095% at
December 31, 1997 and ranged from 7.82% to 8.10% during
1997...................................................... 69,844 92,500
Unsecured $37,782,000 7% Convertible Subordinated Debentures
("Savoy Debentures") due July 1, 2003 convertible into
USAi Common Stock at a conversion price of $66.43 per
share..................................................... 32,915 32,331
Secured Revolving Credit Facility ("Ticketmaster Facility"),
which matures in December 1999. The interest rate is tied
to LIBOR, plus an applicable margin. The interest rate was
6.98% at December 31, 1997 and ranged from 6.63% from
7.31% during 1997......................................... 134,000 --
Term loan, collateralized by a building of Ticketmaster,
principal and interest payable monthly, maturing April 25,
2007; interest rate is 9.2%............................... 8,953 --
Term loan, collateralized by substantially all of the assets
of a Ticketmaster subsidiary, interest and principal
payable monthly, maturing on June 30, 1999. At the
Company's option, the interest rate is tied to LIBOR or
the prime rate, plus an applicable margin. At December 31,
1997, the interest rate was 8.63%......................... 7,500 --
Secured Senior Term Loan -- Tranche A; payable in quarterly
installments and maturing July 31, 2000. At the Company's
option, the interest rate is tied to LIBOR or ABR, plus an
applicable margin......................................... -- 34,704
Secured Senior Term Loan -- Tranche B; payable in quarterly
installments and maturing July 31, 2002. At the Company's
option, the interest rate is tied to LIBOR or ABR, plus an
applicable margin......................................... -- 33,968
12% Convertible Senior Subordinated Note due February 28,
1997, convertible into USAi Common Stock at a conversion
price of $46.43........................................... -- 12,500
Other long-term obligations................................. 1,714 1,326
-------- --------
Total long-term obligations................................. 461,264 314,336
Less current maturities..................................... 12,918 42,906
-------- --------
Long-term obligations, net of current maturities............ $448,346 $271,430
======== ========
56
59
USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Home Shopping Debentures were all converted by the holders into shares
of USAi Common Stock on or prior to March 1, 1998. See Note V.
The SF Broadcast Facility, which expires on June 30, 2002, is secured by
substantially all assets of SF Broadcasting. Restrictions contained in the SF
Broadcast Facility include, but are not limited to, limitations on additional
indebtedness, payment of dividends and the maintenance of various financial
covenants and ratios. Savoy and Fox each made a capital contribution of $19.5
million in 1996 which was used to repay borrowings under the SF Broadcast
Facility.
At December 31, 1997, $160.6 million was available for borrowing under the
HSNi Facility after taking into account outstanding letters of credit. The
Company paid a commitment fee of .1875% on the unused portion of the HSNi
Facility. In connection with the Universal Transaction, the Company entered into
a new facility as discussed in Note V, which replaced the HSNi Facility.
The Savoy Debentures are redeemable at the option of the Company at varying
percentages of the principal amount each year, ranging from 105.25% to 100.75%,
plus applicable interest. In connection with the Savoy Merger, USAi became a
joint and several obligor with respect to the Savoy Debentures.
The Ticketmaster Facility and term loans are subject to certain restrictive
covenants relating to among other things, net worth, cash flows and capital
expenditures. Ticketmaster was in compliance with its restrictive covenants or
has obtained necessary waivers at December 31, 1997. Ticketmaster's credit
agreements impose restrictions on the payment of dividends. At December 31,
1997, $27.0 million was available to Ticketmaster for borrowing under the
Ticketmaster Facility. Maximum available borrowings under this facility will
decrease to $150.0 million at December 31, 1998.
Aggregate contractual maturities of long-term obligations are as follows:
- ------------------------------------------------------------------------------
YEARS ENDING
DECEMBER 31,
- ------------------------------------------------------------------------------
(In thousands)
1998........................................................ $ 12,918
1999........................................................ 156,801
2000........................................................ 15,956
2001........................................................ 18,203
2002........................................................ 109,835
Thereafter.................................................. 146,080
--------
$459,793
========
57
60
USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE H -- INCOME TAXES
A reconciliation of total income tax expense (benefit) to the amounts
computed by applying the statutory federal income tax rate to earnings (loss)
before income taxes is shown as follows:
- -----------------------------------------------------------------------------------------------------
YEARS ENDED FOUR MONTHS YEAR
DECEMBER 31, ENDED ENDED
----------------- DECEMBER 31, AUGUST 31,
1997 1996 1995 1995
- -----------------------------------------------------------------------------------------------------
(In thousands)
Income tax expense (benefit) at the federal statutory
rate of 35% in 1997 and 34% for prior periods....... $19,776 $(1,682) $(1,107) $ 426
Amortization of goodwill and other intangibles........ 13,690 548 61 192
Dividends received deduction.......................... -- -- -- (110)
State income taxes, net of effect of federal tax
benefit............................................. 2,896 581 22 558
Non-deductible portion of executive compensation...... -- 1,385 426 321
Increase (decrease) in valuation allowance for
deferred tax assets................................. 5,471 966 264 (212)
Other, net............................................ (782) 74 (39) (37)
------- ------- ------- ------
Income tax expense (benefit).......................... $41,051 $ 1,872 $ (373) $1,138
======= ======= ======= ======
The components of income tax expense (benefit) are as follows:
- -----------------------------------------------------------------------------------------------------
YEARS ENDED FOUR MONTHS YEAR
DECEMBER 31, ENDED ENDED
----------------- DECEMBER 31, AUGUST 31,
1997 1996 1995 1995
- -----------------------------------------------------------------------------------------------------
(In thousands)
Current income tax expense:
Federal............................................. $21,603 $ 602 $ 104 $ 110
State............................................... 3,029 852 233 809
Foreign............................................. 919 -- -- --
------- ------- ------- ------
Current income tax expense.................. 25,551 1,454 337 919
------- ------- ------- ------
Deferred income tax expense (benefit):
Inventory costing................................... 11,902 (479) -- --
Provision for accrued liabilities................... 1,702 609 (691) --
Depreciation for financial statements in excess of
tax.............................................. 1,339 (276) (201) (608)
Amortization of goodwill and other broadcast related
intangibles...................................... 5,671 (52) (1) 3
Net operating loss carryover........................ (2,889) (1,561) (412) 845
Increase (decrease) in valuation allowance for
deferred tax assets.............................. (1,306) 1,305 264 (212)
Other, net.......................................... (919) 872 331 191
------- ------- ------- ------
Deferred income tax expense (benefit)....... 15,500 418 (710) 219
------- ------- ------- ------
Total income tax expense (benefit).......... $41,051 $ 1,872 $ (373) $1,138
======= ======= ======= ======
58
61
USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of cumulative temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax liabilities at
December 31, 1997 and 1996, are presented below. The valuation allowance
represents items for which it is more likely than not that the tax benefit will
not be realized.
- -----------------------------------------------------------------------------------
DECEMBER 31,
---------------------
1997 1996
- -----------------------------------------------------------------------------------
(In thousands)
Current deferred tax assets:
Net federal operating loss carryforward................... $ 46,291 $ 85,929
Inventory costing......................................... 16,398 30,102
Provision for accrued expenses............................ 6,883 11,310
Amortization of broadcast related intangibles............. 7,995 8,767
Investments in affiliates................................. 2,982 --
Other..................................................... 25,604 17,694
-------- ---------
Total current deferred tax assets................. 106,153 153,802
Less valuation allowance.......................... (66,197) (112,960)
-------- ---------
Net current deferred tax assets................... $ 39,956 $ 40,842
======== =========
Non-current deferred tax assets (liabilities):
Broadcast and cable fee contracts......................... $ 11,787 $ 17,010
Depreciation for tax in excess of financial statements.... (10,450) (8,704)
Amortization of FCC licenses and broadcast related
intangibles............................................ (17,847) (17,734)
Investment in subsidiaries................................ 6,320 --
Other..................................................... 17,068 13,095
-------- ---------
Total non-current deferred tax assets............. 6,878 3,667
Less valuation allowance.......................... (3,337) (1,741)
-------- ---------
Net non-current deferred tax assets............... $ 3,541 $ 1,926
======== =========
The Company recognized income tax deductions related to the issuance of
common stock pursuant to the exercise of stock options for which no compensation
expense was recorded for accounting purposes. The related income tax benefits of
$3.4 million, $.8 million, $.6 million and $.4 million for the years ended
December 31, 1997 and 1996, the four months ended December 31, 1995 and the year
ended August 31, 1995, respectively, were recorded as increases to additional
paid-in capital.
At December 31, 1997 and 1996, the Company has net operating loss
carryforwards ("NOL") for federal income tax purposes of $133.3 million and
$225.0 million, respectively, which are available to offset future federal
taxable income, if any, through 2012. Approximately $99.3 million of the NOL as
of December 31, 1997, are pre-acquisition losses which are subject to certain
tax loss limitations. Accordingly, the Company has established a valuation
allowance for those pre-acquisition losses. Recognition of these tax benefits in
the future periods would be applied as a reduction of goodwill related to the
acquisition.
During 1997, the Internal Revenue Service ("IRS") completed the examination
of Home Shopping's federal income tax returns for fiscal years 1992 through 1994
and assessed Home Shopping additional income tax plus interest. Home Shopping
filed a protest with the IRS regarding the assessment. The protest is currently
pending review by the IRS Appeals Office. Management believes the ultimate
resolution of any tax audits will not have a significant impact on the Company's
consolidated financial statements.
59
62
USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE I -- COMMITMENTS AND CONTINGENCIES
The Company leases satellite transponders, computers, warehouse and office
space, as well as broadcast and production facilities, equipment and services
used in connection with its operations under various operating leases and
contracts, many of which contain escalation clauses.
Future minimum payments under non-cancellable agreements are as follows:
- ----------------------------------------------------------------------------
YEARS ENDING
DECEMBER 31,
- ----------------------------------------------------------------------------
(In thousands)
1998........................................................ $ 38,670
1999........................................................ 36,411
2000........................................................ 34,235
2001........................................................ 34,031
2002........................................................ 25,138
Thereafter.................................................. 24,482
--------
$192,967
========
Expenses charged to operations under these agreements were $37.7 million,
$2.9 million, $.8 million, and $2.7 million for the years ended December 31,
1997 and 1996, the four months ended December 31, 1995, and the year ended
August 31, 1995, respectively.
The Company is required to provide funding, from time to time, for the
operations of its investments in joint ventures accounted for under the equity
method.
NOTE J -- EARNINGS (LOSS) PER SHARE
The following table sets forth the computation of Basic and Diluted EPS.
All share numbers have been adjusted to reflect the Company's two-for-one stock
split to holders of record as of the close of business on March 12, 1998:
- -------------------------------------------------------------------------------------------------
YEARS ENDED FOUR MONTHS
DECEMBER 31, ENDED YEAR ENDED
------------------- DECEMBER 31, AUGUST 31,
1997 1996 1995 1995
- -------------------------------------------------------------------------------------------------
(In thousands, except per share data)
Net earnings (loss)............................ $ 13,061 $(6,539) $(2,882) $ 115
Weighted average shares........................ 104,780 21,572 18,790 18,290
Effect of dilutive securities:
Stock options............................. 7,464 -- -- 166
-------- ------- ------- -------
Adjusted weighted average shares............... 112,244 21,572 18,790 18,456
======== ======= ======= =======
Basic earnings (loss) per share................ $ .12 $ (.30) $ (.15) $ .01
======== ======= ======= =======
Diluted earnings (loss) per share.............. $ .12 $ (.30) $ (.15) $ .01
======== ======= ======= =======
The effect of the Convertible Debentures is excluded from the computation
of Diluted EPS as their effect is antidilutive.
NOTE K -- STOCKHOLDERS' EQUITY
Share numbers and prices reflect the Company's two-for-one stock split to
holders of record as of the close of business on March 12, 1998.
60
63
USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DESCRIPTION OF COMMON STOCK AND CLASS B -- CONVERTIBLE COMMON STOCK
Holders of USAi Common Stock have the right to elect, and the holders of
USAi Class B Common Stock have no vote on, 25% of the entire Board of Directors,
rounded upward to the nearest whole number of directors. As to the election of
the remaining directors, the holders of USAi Class B Common Stock are entitled
to 10 votes for each USAi Class B Common Stock share, and the holders of the
USAi Common Stock are entitled to one vote per share. There are no cumulative
voting rights.
The holders of both classes of the Company's common stock are entitled to
receive ratably such dividends, if any, as may be declared by the Board of
Directors out of funds legally available for the payment of dividends. In the
event of the liquidation, dissolution or winding up of the Company, the holders
of both classes of common stock are entitled to share ratably in all assets of
the Company remaining after provision for payment of liabilities. USAi Class B
Common Stock is convertible at the option of the holder into USAi Common Stock
on a share-for-share basis. Upon conversion, the USAi Class B Common Stock will
be retired and not subject to reissue.
NOTE RECEIVABLE FROM KEY EXECUTIVE FOR COMMON STOCK ISSUANCE
In August 1995, Mr. Barry Diller became Chairman of the Board and Chief
Executive Officer of the Company. In connection with Mr. Diller's employment,
the Company agreed to sell Mr. Diller 883,976 shares of USAi Common Stock
("Diller Shares") at $11.313 per share for cash and a non-recourse promissory
note in the amount of $5.0 million, secured by approximately 530,000 shares of
USAi Common Stock. The promissory note is due on the earlier of (i) the
termination of Mr. Diller's employment, or (ii) September 5, 2007. The Company
recognized $926,138 of compensation expense, with a corresponding increase in
additional paid-in capital, related to the issuance of the Diller Shares. The
compensation expense resulted from the difference in the per share fair market
value of USAi Common Stock and the per share purchase price.
STOCKHOLDERS' AGREEMENT
Mr. Diller, Chairman of the Board and Chief Executive Officer of the
Company, through BDTV, INC., BDTV II, INC., BDTV III, INC., BDTV IV, INC., his
own holdings and pursuant to the Stockholders Agreement, with Universal,
Liberty, the Company and Seagram (the "Stockholders Agreement"), has the right
to vote approximately 8% or 8,217,236 shares of USAi's outstanding common stock,
and approximately 97% or 31,181,726 shares of USAi's outstanding Class B Common
Stock. Each share of Class B Common Stock is entitled to ten votes per share
with respect to matters on which Common and Class B stockholders vote as a
single class. As a result, Mr. Diller controls 76% of the outstanding total
voting power of the Company. Mr. Diller, subject to the Stockholders Agreement,
is effectively able to control the outcome of nearly all matters submitted to a
vote of the Company's stockholders. Liberty HSN holds substantially all of the
economic interest in, and Mr. Diller holds all of the voting power in, the
shares of USAi stock held by the BDTV entities listed above.
In connection with option plans, pending acquisitions and other matters,
244,184,256 shares were reserved.
NOTE L -- LITIGATION
In the ordinary course of business, the Company is engaged in various
lawsuits, including certain class action lawsuits initiated in connection with
the Home Shopping Merger and the Ticketmaster Transaction. In the opinion of
management, the ultimate outcome of the various lawsuits should not have a
material impact on the liquidity, results of operations or financial condition
of the Company.
61
64
USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE M -- BENEFIT PLANS
The Company offers various plans pursuant to Section 401(k) of the Internal
Revenue Code (the "Plans") covering substantially all full-time employees who
are not party to collective bargaining agreements. The Company's share of the
matching employer contributions is set at the discretion of the Board of
Directors or the applicable committee thereof.
In connection with the Home Shopping Merger, the Company has adopted the
Home Shopping Network, Inc. Employee Equity Participation Plan (the "Equity
Plan"). The Equity Plan covers all Home Shopping employees who have completed
one year and at least 1,000 hours of service, are at least 21 years of age, are
not highly compensated as defined in the Equity Plan agreement, and did not hold
options to purchase shares of Home Shopping Common Stock. The Board of Directors
has not made any additional grants under the Equity Plan for any period
subsequent to June 30, 1995.
NOTE N -- STOCK OPTION PLANS
The Company has granted options to purchase common stock under various
stock option plans. In connection with the Mergers, the Company assumed and
converted Home Shopping and Savoy options into options to acquire USAi Common
Stock based on the respective merger exchange ratios, as described in Note C,
including corresponding adjustments to the option exercise price. The following
describes the stock option plans. Share numbers, prices and earnings per share
reflect the Company's two-for-one stock split to holders of record at the close
of business on March 12, 1998.
The Company has outstanding options to employees or consultants of the
Company under several plans (the "Plans") which provide for the grant of options
to purchase the Company's common stock at not less than fair market value on the
date of the grant. The options under the Plans vest ratably, generally over a
range of three to five years from the date of grant and generally expire not
more than 10 years from the date of grant. Three of the Plans have options
available for future grants.
The Company also has outstanding options to outside directors under one
plan (the "Directors Plan") which provides for the grant of options to purchase
the Company's common stock at not less than fair market value on the date of the
grant. The options under the Directors Plan vest ratably, generally over three
years from the date of grant and expire not more than 10 years from the date of
grant.
A summary of changes in outstanding options under the stock option plans
following the Company's two-for-one stock split, is as follows:
- -------------------------------------------------------------------------------------------------------
DECEMBER 31,
-------------------------------------------------- AUGUST 31,
1997 1996 1995 1995
--------------- --------------- -------------- --------------
PRICE PRICE PRICE PRICE
SHARES RANGE SHARES RANGE SHARES RANGE SHARES RANGE
- -------------------------------------------------------------------------------------------------------
(Shares in thousands)
Outstanding at beginning of
period.......................... 22,872 $ 1-74 4,538 $ 1-16 4,594 $1-13 690 $ 1-9
Granted or issued in connection
with mergers................. 11,580 $10-19 18,580 $ 4-74 20 $ 16 4,062 $5-13
Exercised....................... (968) $ 1-16 (238) $ 1-10 (76) $ 1-9 (66) $ 1-9
Cancelled....................... (548) $ 5-74 (8) $11-13 -- -- (92) $ 1
------ ------ ----- -----
OUTSTANDING AT END OF PERIOD...... 32,936 $ 1-74 22,872 $ 1-74 4,538 $1-16 4,594 $ 1-9
====== ====== ===== =====
Options exercisable............... 10,840 6,650 1,228 386
====== ====== ===== =====
Available for grant............... 12,192 3,432 2,079 2,099
====== ====== ===== =====
62
65
USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The weighted average exercise prices during the year ended December 31,
1997, were $18.77, $7.40 and $14.69 for options granted, exercised and
cancelled, respectively. The weighted average fair value of options granted
during the year was $11.81.
The weighted average exercise prices during the year ended December 31,
1996, were $10.76, $4.56 and $12.09 for options granted or issued in connection
with the Mergers, options exercised and options cancelled, respectively. The
weighted average fair value of options granted during the year was $7.92.
- --------------------------------------------------------------------------------------------------------------------
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------ ----------------------------------
WEIGHTED WEIGHTED WEIGHTED
OUTSTANDING AT AVERAGE REMAINING AVERAGE EXERCISABLE AT AVERAGE
RANGE OF EXERCISE PRICE DECEMBER 31, 1997 CONTRACTUAL LIFE EXERCISE PRICE DECEMBER 31, 1997 EXERCISE PRICE
- --------------------------------------------------------------------------------------------------------------------
(In thousands) (In thousands)
$1.00 to $5.00......... 170 3.3 $ 3.12 170 $ 3.12
$5.01 to $10.00........ 14,430 7.9 9.42 7,305 9.40
$10.01 to $15.00....... 5,622 7.8 11.50 2,401 11.56
$15.01 to $20.00....... 12,629 9.5 18.63 879 15.64
Over $20.00............ 85 4.3 44.57 85 44.57
------ ------
32,936 8.4 13.36 10,840 10.56
====== ======
In August 1995, in connection with Mr. Diller's employment, the Company
granted Mr. Diller an option (the "Diller Option") to acquire 3,791,694 shares
of common stock at an exercise price of $11.31 per share. In connection with
granting the Diller Option, the Company recorded unearned compensation of $4.0
million offset by a $4.0 million increase to additional paid-in capital. The
unearned compensation resulted from the difference in the exercise price and
fair market value of the common stock at the date of grant and is being
amortized over the four year vesting period of the options.
Pro forma information regarding net income and earnings per share is
required by Statement 123. The information is determined as if the Company had
accounted for its employee stock options granted subsequent to December 31, 1994
under the fair market value method. The fair value for these options was
estimated at the date of grant using a Black-Scholes option pricing model with
the following weighted-average assumptions for 1997 and the periods prior to
1997: risk-free interest rates of 5.5% and 6.4%, respectively; a dividend yield
of zero; a volatility factor of .713 based on the expected market price of USAi
Common Stock based on historical trends; and a weighted-average expected life of
the options of five years.
The Black-Scholes option valuation model was developed for use in
estimating the fair market value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation models
require the input of highly subjective assumptions including the expected stock
price volatility. Because the Company's employee stock options have
characteristics significantly different from those of traded options and because
changes in the subjective input assumptions can materially affect the fair
market value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its employee
stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows:
- -----------------------------------------------------------------------------------------------
YEARS ENDED FOUR MONTHS
DECEMBER 31, ENDED
------------------ DECEMBER 31,
1997 1996 1995
- -----------------------------------------------------------------------------------------------
Pro forma net loss.......................................... $(4,871) $(21,225) $(6,007)
Pro forma basic and diluted loss per share.................. $ (.05) $ (.98) $ (.32)
63
66
USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
These pro forma amounts may not be representative of future disclosures
since the estimated fair value of stock options is amortized to expense over the
vesting period, and additional options may be granted in future years.
NOTE O -- STATEMENTS OF CASH FLOWS
Supplemental disclosure of cash flow information:
- ----------------------------------------------------------------------------------------------------
YEARS ENDED FOUR MONTHS
DECEMBER 31, ENDED YEAR ENDED
---------------- DECEMBER 31, AUGUST 31,
1997 1996 1995 1995
- ----------------------------------------------------------------------------------------------------
(In thousands)
CASH PAID DURING THE PERIOD FOR:
Interest............................................ $26,798 $8,939 $3,200 $10,000
Income tax payments................................. 21,453 458 100 1,500
Income tax refund................................... 5,822 -- -- --
Supplemental information of non-cash investing and financing activities:
- - During July 1997, the Company acquired an interest in Ticketmaster by issuing
stock as discussed in Note C.
- - During December 1996, the Company acquired Savoy and Home Shopping by issuing
stock as discussed in Note C.
- - During August 1995, in connection with the retention of the Chairman and Chief
Executive Officer, the Company issued 441,988 shares of USAi Common Stock to
its Chairman and Chief Executive Officer in exchange for $2,000 in cash and a
note receivable of $5.0 million.
NOTE P -- RELATED PARTY TRANSACTIONS
As of December 31, 1997, the Company was involved in several agreements
with related parties as follows:
The Company, through its Home Shopping subsidiary, is a partner in Shop
Channel, an entity in which TCI, through a subsidiary, has an indirect ownership
interest. In the ordinary course of business, Home Shopping has sold inventory
to Shop Channel and recorded receivables of $.8 million and $.7 million for
those sales and other services provided at December 31, 1997 and 1996,
respectively. The Company's net investment in Shop Channel was $2.5 million and
$.5 million at December 31, 1997 and 1996, respectively.
The Company has a secured, non-recourse note receivable of $5.0 million
from its Chairman and Chief Executive Officer. See Note K.
The Company entered into a lease agreement with an entity owned by the
Chairman of the Board and Chief Executive Officer of the Company providing for
the use of an aircraft for corporate purposes. The lease has a five-year term
and is terminable by either party on thirty days' notice. In 1997, the Company
paid a total of $2.7 million related to the use of the aircraft.
Prior to the Home Shopping Merger, as discussed in Note C, the Company had
affiliation agreements with Home Shopping for which the Company recorded revenue
of $43.1 million, $14.3 million and $42.5 million for the year ended December
31, 1996, the four months ended December 31, 1995 and the year ended August 31,
1995, respectively. As a result of the Home Shopping Merger, these revenues are
eliminated in consolidation for periods subsequent to the Home Shopping Merger.
64
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USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In the normal course of business, Home Shopping enters into agreements with
the operators of cable television systems and operators of broadcast television
stations for the carriage of Home Shopping programming. Home Shopping has
entered into agreements with a number of cable operators that are affiliates of
TCI. These long-term contracts provide for a minimum subscriber guarantee and
incentive payments based on the number of subscribers. Cash paid by Home
Shopping to TCI and certain of its affiliates under these contracts for cable
commissions and advertising was $9.6 million, $11.9 million and $.8 million for
calendar years 1997 and 1996 and the 11 days subsequent to the Home Shopping
Merger, respectively.
As of December 31, 1997, SKTV, Inc. a wholly-owned subsidiary of the
Company, owned a 33.4% membership interest in Blackstar. Home Shopping currently
maintains broadcast affiliation agreements with stations for which Blackstar is
the parent company. Home Shopping recorded affiliation payments of $4.8 million,
$4.7 million and $.1 million relating to those stations, for calendar years 1997
and 1996 and the 11 days subsequent to the Home Shopping Merger, respectively.
Subsequent to December 31, 1997, Blackstar and the Company entered into a series
of transactions affecting these broadcast stations. See Note V.
NOTE Q -- QUARTERLY RESULTS (UNAUDITED)
- ------------------------------------------------------------------------------------------------------
QUARTER QUARTER QUARTER QUARTER
ENDED ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31,
- ------------------------------------------------------------------------------------------------------
(In thousands, except per share data)
YEAR ENDED DECEMBER 31, 1997
Net revenues................................. $390,257 $326,256 $265,685 $279,551
Operating profit............................. 27,695 22,685 20,730 23,409
Net earnings................................. 3,303 3,516 2,472 3,770
Basic earnings per common share(b)........... .03 .03 .03 .04
Diluted earnings per common share............ .03 .03 .02 .04
YEAR ENDED DECEMBER 31, 1996
Net revenues................................. $ 41,923(a) $ 11,213 $ 10,924 $ 11,112
Operating profit (loss)...................... (1,369)(a) 1,774 1,580 1,627
Net (loss)................................... (5,110)(a) (371) (452) (606)
Basic and diluted (loss) per common
share(b).................................. (.17)(a) (.02) (.03) (.03)
- ---------------
(a) The operating results from the fourth quarter 1996 reflect the impact of the
Mergers discussed in Note C.
(b) Per common shares amounts for the quarters do not add to the annual amount
because of differences in the average common shares outstanding during each
period.
NOTE R -- SIGNIFICANT CUSTOMERS
For the year ended December 31, 1996, four months ended December 31, 1995
and the year ended August 31, 1995, net revenue from a significant customer,
Home Shopping, accounted for 57.3%, 89.5% and 88.7%, respectively, of the
Company's net revenue. As a result of the Mergers described in Note C, Home
Shopping became a subsidiary of the Company and such revenues are eliminated in
consolidation.
NOTE S -- INDUSTRY SEGMENTS
For the year ended December 31, 1997, the Company operated principally in
three industry segments; retailing, ticketing operations, and broadcasting. The
retailing segment consists of Home Shopping, which primarily includes the sale
of merchandise through electronic retailing. The ticketing operations segment
provides automated ticketing services primarily in the United States. The
broadcasting segment includes the operations of 12 broadcast television stations
(including one television satellite station), which currently
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USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
transmit Home Shopping programming and six broadcast television stations
(including two television satellite stations) which are Fox affiliates.
- -------------------------------------------------------------------------------------------------------
YEARS ENDED
DECEMBER 31, FOUR MONTHS YEAR ENDED
----------------------- ENDED AUGUST 31,
1997 1996 DECEMBER 31, 1995 1995
- -------------------------------------------------------------------------------------------------------
(In thousands)
Revenue
Retailing.................................. $1,037,060 $ 30,588 $ -- $ --
Ticketing operations....................... 156,378 -- -- --
Broadcasting............................... 54,138 43,359 15,061 44,563
Other...................................... 14,173 1,225 919 3,355
---------- ---------- -------- --------
$1,261,749 $ 75,172 $ 15,980 $ 47,918
========== ========== ======== ========
Operating profit (loss)
Retailing.................................. $ 98,825 $ (522) $ -- $ --
Ticketing operations....................... 12,241 -- -- --
Broadcasting............................... (8,997) 4,175 30 9,368
Other...................................... (7,550) (41) (710) (1,132)
---------- ---------- -------- --------
$ 94,519 $ 3,612 $ (680) $ 8,236
========== ========== ======== ========
Assets
Retailing.................................. $1,663,509 $1,628,818 $ -- $ --
Ticketing operations....................... 518,273 -- -- --
Broadcasting............................... 365,384 355,926 135,082 140,563
Other...................................... 123,630 131,488 1,588 2,354
---------- ---------- -------- --------
$2,670,796 $2,116,232 $136,670 $142,917
========== ========== ======== ========
Depreciation and amortization
Retailing.................................. $ 65,152 $ 1,871 $ -- $ --
Ticketing operations....................... 13,180 -- -- --
Broadcasting............................... 15,838 13,187 4,531 13,833
Other...................................... 2,854 428 170 841
---------- ---------- -------- --------
$ 97,024 $ 15,486 $ 4,701 $ 14,674
========== ========== ======== ========
Capital expenditures
Retailing.................................. $ 27,812 $ 447 $ -- $ --
Ticketing operations....................... 7,788 -- -- --
Broadcasting............................... 8,262 696 163 998
Other...................................... 2,007 -- -- 705
---------- ---------- -------- --------
$ 45,869 $ 1,143 $ 163 $ 1,703
========== ========== ======== ========
The Company operates principally within the United States. In 1997,
broadcasting revenue was principally derived from the Fox affiliates. Prior to
1997, broadcasting revenue was principally derived from the broadcasting of Home
Shopping programming.
NOTE T -- FINANCIAL INSTRUMENTS
The additional disclosure below of the estimated fair value of financial
instruments was made in accordance with the requirements of Statements of
Financial Accounting Standards No. 107. The estimated fair value amounts have
been determined by the Company using available market information and
appropriate
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USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
valuation methodologies when available. The carrying value of all current assets
and current liabilities approximates fair value due to their short-term nature.
- ------------------------------------------------------------------------------------------------
DECEMBER 31, 1997 DECEMBER 31, 1996
------------------------ ----------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
- ------------------------------------------------------------------------------------------------
(In thousands)
Cash and cash equivalents.................... $ 116,036 $ 116,036 $ 42,606 $ 42,606
Long-term investments........................ 47,926 47,926 30,121 30,121
Long-term obligations........................ (461,264) (461,264) (314,336) (314,336)
NOTE U -- SAVOY SUMMARIZED FINANCIAL INFORMATION (UNAUDITED)
The Company has not prepared separate financial statements and other
disclosures concerning Savoy because management has determined that such
information is not material to holders of the Savoy Debentures, all of which
have been assumed by the Company as a joint and several obligor. The information
presented is reflected at Savoy's historical cost basis.
- ---------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
SUMMARY CONSOLIDATED -----------------------------------
STATEMENTS OF OPERATIONS 1997 1996 1995
- ---------------------------------------------------------------------------------------------
(In thousands)
Net sales............................................... $67,107 $ 117,951 $ 92,599
Cost of sales........................................... 65,200 254,009 164,464
Operating income/(loss)................................. 1,907 (136,058) (71,865)
Net income/(loss)....................................... (5,972) (156,074) (73,744)
- ----------------------------------------------------------------------------------
DECEMBER 31,
SUMMARY CONSOLIDATED --------------------
BALANCE SHEETS 1997 1996
- ----------------------------------------------------------------------------------
(In thousands)
Current assets.............................................. $ 31,898 $ 61,901
Non-current assets.......................................... 289,381 302,195
Current liabilities......................................... 32,836 60,716
Non-current liabilities..................................... 110,470 124,198
Minority interest........................................... 119,427 112,717
NOTE V -- SUBSEQUENT EVENTS (UNAUDITED)
On January 23, 1998, the Company gave notice that it elected to redeem on
March 1, 1998, at a redemption price of 104.7% of the principal amount, all of
the outstanding Home Shopping Debentures. The Home Shopping Debentures were all
converted by the holders into shares of USAi Common Stock on or prior to March
1, 1998.
On January 28, 1998, the Company consummated the sale of its Baltimore
station for $80.0 million.
On February 11, 1998, at the Annual Meeting of Stockholders of the Company,
the stockholders approved an increase in the authorized shares of USAi common
stock from 150,000,000 shares to 800,000,000 shares and USAi Class B common
stock from 30,000,000 shares to 200,000,000 shares.
On February 12, 1998, the Company completed its previously announced
acquisition of USA Networks and USA Networks Studios from Universal, an entity
controlled by The Seagram Company Ltd. ("Seagram"). The consideration paid to
Universal included a cash payment of approximately $1.63 billion, a portion of
which ($300.0 million) has been deferred until no later than June 30, 1998, and
an interest in the Company through shares of USAi Common Stock and USAi Class B
Common Stock and shares of a newly formed
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USA NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
limited liability company which are exchangeable into shares of USAi Common
Stock and USAi Class B Common Stock.
On February 12, 1998, the Company, and certain of its subsidiaries,
including USANi LLC as borrower, entered into a new $1.6 billion credit facility
(the "New Facility") with a $40.0 million sub-limit for letters of credit. The
New Facility was used to finance the Universal Transaction and to refinance the
HSNi Facility. The New Facility consists of a $600.0 million revolving credit
facility, a $750.0 million "Tranche A Term Loan" and a $250.0 million "Tranche B
Term Loan". The revolving credit facility and Tranche A Term Loan mature on
December 31, 2002 and the Tranche B Term Loan matures on December 31, 2003. The
New Facility is guaranteed by, and secured by stock in, substantially all of the
Company's material subsidiaries. The interest rate on borrowings under the New
Facility is tied to an alternate base rate or the London InterBank Rate, in each
case, plus an applicable margin. As of March 13, 1998, there was $1.4 billion in
outstanding borrowings under the New Facility and $151.7 million was available
for borrowing after taking into account outstanding letters of credit.
On February 20, 1998, the Board of Directors declared a two-for-one stock
split of the Company's Common Stock and Class B Common Stock, payable in the
form of a dividend to stockholders of record as of the close of business on
March 12, 1998. The 100% stock dividend was paid on March 26, 1998.
In February 1998, the Company entered into a letter of intent to acquire
the remaining outstanding interest in Blackstar for $17.0 million. In March
1998, Blackstar agreed to sell a television broadcasting station in Salem,
Oregon for $30.0 million. Home Shopping agreed to terminate its affiliation
agreement with the Salem, Oregon station, as well as affiliation agreements with
two other stations, for the payment of $15.0 million. In March 1998, the Company
acquired the assets of Television Station WNGM-TV; Athens, Georgia for $50.0
million, plus working capital.
On March 20, 1998, the Company and Ticketmaster entered into a merger
agreement regarding the acquisition by the Company in a tax-free merger of the
remaining Ticketmaster common stock for .563 of a share of USAi Common Stock.
(1.126 shares after giving effect to Company's two-for-one stock split as of
March 12, 1998). The merger agreement was entered into based upon the
recommendation of the Special Committee of the Ticketmaster Board that had been
appointed to consider USAi's merger proposal in October 1997. Consummation of
the merger is subject to customary conditions, including the approval of the
merger by Ticketmaster's shareholders. The Company expects that the merger will
be completed in the third quarter of 1998. Based on the number of shares of
Ticketmaster Common Stock outstanding as of March 9, 1998, USAi expects to issue
approximately 15.4 million shares of Common Stock to Ticketmaster stockholders
in connection with the proposed merger. Universal and Liberty have certain
preemptive rights which will be exercisable if the merger with Ticketmaster is
consummated.
The Company has guaranteed the principal payments of approximately $11.6
million for the year ended December 31, 1998 in the event that SF Broadcasting
is unable to meet these obligations.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
Not applicable.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
INFORMATION REGARDING DIRECTORS
Barry Diller, age 55, has been a director and the Chairman of the Board and
Chief Executive Officer of USAi since August 24, 1995. He was Chairman of the
Board and Chief Executive Officer of QVC, Inc. from December 1992 through
December 1994. From 1984 to 1992, Mr. Diller served as the Chairman of the Board
and Chief Executive Officer of Fox, Inc. Prior to joining Fox, Inc., Mr. Diller
served for ten years as Chairman of the Board and Chief Executive Officer of
Paramount Pictures Corporation. Mr. Diller is a director and member of the
Executive Committee of Seagram, and serves as a director of Ticketmaster and
Golden Books Family Entertainment, Inc. He also serves on the Board of the
Museum of Television and Radio and is a member of the Board of Councilors for
the University of Southern California's School of Cinema-Television. Mr. Diller
also serves on the Board of Directors for AIDS Project Los Angeles, the
Executive Board for the Medical Sciences of University of California, Los
Angeles and the Board of the Children's Advocacy Center of Manhattan.
Paul G. Allen, 44, has been a director of USAi since July 1997. Mr. Allen
has served as a director and Chairman of the Board of Ticketmaster since
December 1993. Mr. Allen has been a private investor for more than five years,
with interests in a wide variety of companies, many of which focus on multimedia
digital communications such as Asymetrix Corp. and Interval Research
Corporation, of which Mr. Allen is the controlling shareholder and a director.
In addition, Mr. Allen is the Chairman of the Board of Trail Blazers Inc. of the
National Basketball Association and is the owner of the Seattle Seahawks of the
National Football League. Mr. Allen currently serves as a director of Microsoft
Corporation and also serves as a director of various private corporations.
Frank J. Biondi, Jr., 52, has been a director of USAi since the
consummation of the Universal Transaction in February 1998. He has been Chairman
and Chief Executive Officer of Universal since April 1996. Previously, he was
President, Chief Executive Officer and a director of Viacom, Inc., an
entertainment and publishing company. Mr. Biondi is a director of Seagram, The
Bank of New York and Vail Resorts Inc.
Edgar Bronfman, Jr., 42, has been a director of USAi since the consummation
of the Universal Transaction in February 1998. He has been President and Chief
Executive Officer of Seagram since June 1994. Previously, he was President and
Chief Operating Officer of Seagram. Mr. Bronfman is a director of Seagram.
James G. Held, age 48, has been a director of USAi since December 1996 and
served as Vice Chairman from January 1997 to February 1998. He was appointed as
a director of USAi pursuant to the terms of the Home Shopping Merger. He
previously had served as a director of Home Shopping since February 1996. Since
November 1995, Mr. Held has been President and Chief Executive Officer of Home
Shopping. From January 1995 to November 1995, Mr. Held served as President and
Chief Executive Officer of Adrienne Vittadini, Inc., an apparel manufacturer and
retailer. Between September 1993 and January 1995, Mr. Held was a senior
executive of QVC, Inc., first as Senior Vice President in charge of new business
development and later as Executive Vice President of merchandising, sales,
product planning and new business development. For eleven years prior to that,
until September 1993, Mr. Held was employed in different executive positions at
Bloomingdale's, Inc. Mr. Held currently serves as a director of Ticketmaster.
Victor A. Kaufman, age 54, has been a director of USAi since December 1996.
Mr. Kaufman has served in the Office of the Chairman for the Company since
January 27, 1997 and as Chief Financial Officer since November 1, 1997. Prior to
that time, he served as Chairman and Chief Executive Officer of Savoy since
March 1992 and as a director of Savoy since February 1992. Mr. Kaufman was the
founding Chairman and Chief Executive Officer of Tri-Star Pictures, Inc.
("Tri-Star") from 1983 until December 1987, at which time he became President
and Chief Executive Officer of Tri-Star's successor company, Columbia Pictures
Entertainment, Inc. ("Columbia"). He resigned from these positions at the end of
1989 following the
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acquisition of Columbia by Sony USA, Inc. Mr. Kaufman joined Columbia in 1974
and served in a variety of senior positions at Columbia and its affiliates prior
to the founding of Tri-Star.
Robert W. Matschullat, 50, has been a director of USAi since the
consummation of the Universal Transaction in February 1998. He has been Vice
Chairman and Chief Financial Officer of Seagram since October 1995. Previously,
he was Managing Director and Head of Worldwide Investment Banking for Morgan
Stanley & Co., Inc. and a director of Morgan Stanley Group, Inc., investment
bankers. Mr. Matschullat is a director of Seagram and Transamerica Corporation.
Samuel Minzberg, 48, has been a director of USAi since the consummation of
the Universal Transaction in February 1998. He has been President and Chief
Executive Officer of Claridge Inc., a management company, since January 1, 1998.
Previously, he was Chairman of Goodman, Phillips and Vineberg, attorneys at law.
Mr. Minzberg is a director of Koor Industries, Ltd.
William D. Savoy, 33, has served as a director of USAi since July 1997. He
has served as a director of Ticketmaster since September 1994. Mr. Savoy
currently serves as Vice President of Vulcan Ventures, Incorporated, a venture
capital fund wholly owned by Paul Allen, and has served as the President of
Vulcan Northwest Inc., a venture capital firm, since January 1990. Mr. Savoy is
a director of CINET, Inc., Harbinger Corporation, Telescan, Inc. and U.S.
Satellite Broadcasting, Inc.
Gen. H. Norman Schwarzkopf, age 63, has been a director of USAi since
December 1996. He was appointed as a director of USAi pursuant to the terms of
the Home Shopping Merger. He previously had served as a director of Home
Shopping since May 1996. Since his retirement from the military in August 1991,
Gen. Schwarzkopf has been an author and a participant in several television
specials and is currently working with NBC on additional television programs.
From August 1990 to August 1991, he served as Commander-in-Chief, United States
Central Command and Commander of Operations, Desert Shield and Desert Storm.
General Schwarzkopf had 35 years of service with the military. He is also on the
Board of Governors of the Nature Conservancy, Chairman of the Starbright Capital
Campaign, co-founder of the Boggy Creek Gang, a member of the University of
Richmond Board of Trustees, and serves on the Boards of Directors of Borg Warner
Security Corporation, Remington Arms Company, Kuhlman Corporation and Cap CURE,
Association for the Cure of Cancer of the Prostate.
Richard E. Snyder, age 64, has been a director of USAi since December 1996.
He has been Chairman and Chief Executive Officer of Golden Books Family
Entertainment, Inc. since May 1996. Mr. Snyder was the Chairman and Chief
Executive Officer of Simon & Schuster from 1975 to 1994. He is a trustee of The
Presbyterian Hospital and a director of Reliance Group Holdings, Inc.,
Children's Blood Foundation, and the Board of Overseers for University Libraries
of Tufts University. Mr. Snyder is a member of the Council of Foreign Relations,
The Economic Club, Society Fellows, New York Zoological Society, and the Library
Committee of the American Museum of Natural History.
EXECUTIVE OFFICERS
The following sets forth certain information concerning the persons who
currently serve as executive officers of the Company and who do not serve on the
Company's Board of Directors.
Brian J. Feldman, age 38, has served as Controller of USAi since January
27, 1997 and Vice President and Controller of Home Shopping since March 1996. He
served as Controller, Deputy Controller and Assistant Controller for Home
Shopping from May 1989 to March 1996.
Dara Khosrowshahi, age 28, joined USAi March 2, 1998 and serves as Vice
President, Strategic Planning. Prior to joining USAi, from 1991 to 1998, he
worked at Allen & Company Incorporated where he served as a Vice President from
1995 to 1998 and as Director from 1996 to 1998.
Thomas J. Kuhn, age 35, joined USAi on February 9, 1998. Mr. Kuhn serves as
Senior Vice President, General Counsel and Secretary of the Company. Prior to
joining USAi, from 1996 to 1998, he was a partner in the New York City law firm
of Howard, Darby & Levin. From 1989 until 1996, Mr. Kuhn was associated with the
law firm of Wachtell, Lipton, Rosen & Katz in New York City.
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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
For the 1997 fiscal year, no person subject to Section 16 of the Exchange
Act failed to file on a timely basis reports required by such Section.
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION OF OUTSIDE DIRECTORS
Each director who is not an employee of USAi receives an annual retainer of
$30,000 per year. USAi also pays each such director $1,000 for each USAi Board
meeting and each USAi Board committee meeting attended, plus reimbursement for
all reasonable expenses incurred by such director in connection with such
attendance at any meeting of the USAi Board or one of its committees.
Under the USAi Directors' Stock Option Plan (the "Directors' Stock Option
Plan"), directors who are not employees of USAi receive a grant of options to
purchase 5,000 shares of Common Stock upon initial election to office and
thereafter annually on the date of USAi's annual meeting of stockholders at
which the director is re-elected. The exercise price per share of Common Stock
subject to such options is the fair market value of Common Stock on the date of
grant, which is defined as the mean of the high and low sale price on such date
on any stock exchange on which Common Stock is listed or as reported by NASDAQ,
or, in the event that Common Stock is not so listed or reported, as determined
by an investment banking firm selected by the Compensation/Benefits Committee.
Such options vest in increments of 1,667 shares on each of the first two
anniversaries of the date of grant, and 1,666 shares on the third. The options
expire ten years from the date of grant or 120 days from the date that a
director no longer serves on the Board, whichever occurs first. For directors
who became directors on July 17, 1997, the exercise price per share of the
annual grant was $16.375, after adjustment for the two-for-one stock split for
holders of record as of the close of business on March 12, 1998, and for
directors who were re-elected on February 11, 1998 who had served since the last
annual meeting, the grant price was $25.8125.
An Option grant in the amount of 4,500 shares was made in January 1997 to
Gen. Schwarzkopf at an exercise price of $12.78 per share. These options vest
over a two year period and are exercisable for a period of five years from the
date that they vest. The option grant replaces options that were terminated as a
result of the Home Shopping Merger.
On February 20, 1998, Messrs. Allen and Savoy each received a grant of
20,000 options and Gen. Schwarzkopf and Mr. Snyder each received a grant of
10,000 options, after adjustment for the two-for-one stock split, under the 1997
Stock and Annual Incentive Plan (the "1997 Incentive Plan"), all at a grant
price of $24.6875.
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SUMMARY OF EXECUTIVE OFFICER COMPENSATION
The following sets forth the annual and long-term compensation for services
to USAi for the years ended December 31, 1997 and December 31, 1996 and the four
months ended December 31, 1995 and the fiscal year ended August 31, 1995 of
those persons who were, at December 31, 1997, (i) the Chief Executive Officer of
USAi, and (ii) the other four most highly compensated officers of USAi whose
compensation exceeded $100,000 for fiscal year 1997.
SUMMARY COMPENSATION TABLE(1)
ANNUAL COMPENSATION LONG TERM COMPENSATION
------------------------------------------------ ----------------------------------------
OTHER RESTRICTED
FISCAL ANNUAL STOCK STOCK ALL OTHER
YEAR SALARY BONUS COMPENSATION AWARDS OPTIONS COMPENSATION
NAME & PRINCIPAL POSITION (1) $ ($) ($)(2) ($) (#)(3) ($)
------------------------- ------ ------- --------- ------------ ---------- ---------- ------------
Barry Diller................. 1997 0 0 0 0 9,500,000(4) 1,282,343(5)
Chairman and Chief 1996 0 1,618,722(6) 0 0 0 1,280,508(5)(7)
Executive Officer 1995* 0 833,333(6) 0 0 13,220,000(8) 424,892(5)(7)
1995(9) 0 47,945(6) 1,892,401(10) 0 3,791,694(5) 25,200(5)(7)
James G. Held................ 1997 500,000 650,000 0 0 750,000(11) 520(7)
Vice Chairman 1996(12) 19,230 150,000 0 0 2,250,000(11) 520(7)
Victor A. Kaufman............ 1997 500,000 0 0 0 500,000(13) 0
Office of the Chairman and 1996 19,230 0 0 0 346,000(13) 0
Chief Financial Officer(14)
Jed B. Trosper............... 1997 259,134 84,750 129,953(15) 0 300,000 0
Vice President and Chief
Financial Officer(16)
James G. Gallagher........... 1997 215,480 0 33,108(15) 0 0 520(7)
Vice President, General 1996 7,692 0 0 0 31,500 0
Counsel and Secretary(17)
Brian J. Feldman............. 1997 130,361 10,000 0 0 5,000 520(7)
Controller 1996 4,684 0 0 0 21,600(18) 520(7)
- ---------------
(1) Effective January 1, 1996, USAi's fiscal year end was changed from August
31 to the calendar year end. For purposes of the Summary Compensation
Table, "1997" and "1996" refer to the calendar years 1997 and 1996, "1995*"
refers to the four months ended December 31, 1995, and "1995" refers to the
fiscal year ended August 31, 1995.
(2) Disclosure of perquisites and other personal benefits, securities or
property received by each of the Chief Executive Officer and USAi's four
most highly compensated executive officers other than the Chief Executive
Officer (collectively, the "USAi Named Executive Officers") is only
required where the aggregate amount of such compensation exceeded the
lesser of $50,000 or 10% of the total of the USAi Named Executive Officer's
salary and bonus for the year.
(3) These option grants reflect the two-for-one stock split which became
effective for holders of record as of the close of business on March 12,
1998.
(4) This stock option grant includes 9,500,000 shares granted pursuant to the
1997 Incentive Plan.
(5) Mr. Diller was granted options in 1995 to purchase 3,791,694 shares of
Common Stock, vesting over a four-year period, at an exercise price below
the fair market value of Common Stock on the date of grant. USAi has
amortized unearned compensation of $19,046 in 1995, $331,038 in 1995*,
$993,135 in 1996 and $995,856 in 1997. In addition, Mr. Diller has an
interest-free, secured, non-recourse promissory note in the amount of
$4,997,779 payable to USAi which was used to purchase 441,988 shares of
Common Stock. As a result, Mr. Diller has compensation for imputed interest
of $6,154 in 1995, $93,854 in 1995*, $286,373 in 1996 and $286,487 in 1997.
(6) Pursuant to an equity compensation agreement between Mr. Diller and USAi
(the "Equity Compensation Agreement"), Mr. Diller received a bonus payment
of approximately $2.5 million on August 24, 1996. USAi accrued seven days
of this bonus in fiscal 1995 and four months for 1995.
(7) Includes USAi's contributions under its 401(k) Retirement Savings Plan (the
"401(k) Plan"). Pursuant to the 401(k) Plan as in effect through December
31, 1997, the USAi Board could elect to
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match a portion of employee contributions up to a maximum amount of $1,000
per year, which contributions vest in equal installments over a five-year
period.
(8) Includes 1,250,000 options granted to Mr. Diller as a result of completion
of the Home Shopping Merger and the Savoy Merger and also includes
11,970,000 options to purchase Common Stock resulting from the conversion
of options to purchase Home Shopping common stock granted to Mr. Diller in
November 1995 as Chairman of Home Shopping into options to purchase shares
of Common Stock.
(9) Mr. Diller was appointed Chairman of the Board and Chief Executive Officer
of USAi on August 24, 1995.
(10) This figure includes $966,263 in compensation paid to Mr. Diller to fund
his tax liability in connection with his acquisition of certain shares of
Common Stock pursuant to the Equity Compensation Agreement, and $926,138 in
non-cash income to Mr. Diller based upon the difference between the fair
market value of those shares on the date of purchase and the price per
share paid for the Common Stock by Mr. Diller.
(11) Includes 750,000 options granted to Mr. Held pursuant to the 1995 Stock
Incentive Plan and 2,250,000 shares granted pursuant to the 1996 Home
Shopping Network, Inc. Employee Stock Option Plan (the "Home Shopping
Employee Plan") and assumed by USAi pursuant to the terms of the Home
Shopping Merger.
(12) Mr. Held became a Director of USAi in December 1996 and Vice Chairman of
USAi in January 1997, and currently serves as President and Chief Executive
Officer of Home Shopping.
(13) Includes 56,000 vested options to purchase Common Stock assumed by USAi
pursuant to the Savoy Merger. Includes 18,000 vested options to purchase
Common Stock resulting from conversion of options granted pursuant to the
Home Shopping Employee Plan and 50,000 vested options to purchase Common
Stock granted pursuant to the 1995 Stock Incentive Plan. Includes 150,000
shares of Common Stock granted pursuant to the 1995 Stock Incentive Plan
and options to purchase 72,000 shares of Common Stock resulting from the
conversion of options granted pursuant to the Home Shopping Employee Plan.
Also reflects options to purchase 500,000 shares pursuant to the 1997
Incentive Plan.
(14) Mr. Kaufman assumed the position of Chief Financial Officer of USAi on
November 1, 1997.
(15) Represents relocation reimbursements.
(16) Mr. Trosper currently serves as Senior Executive Vice President and Chief
Operating Officer of Home Shopping, and was Chief Financial Officer of USAi
from January 1997 to November 1997.
(17) Mr. Gallagher currently serves as Executive Vice President, General Counsel
and Secretary of Home Shopping, and was Vice President, General Counsel of
USAi from October 14, 1996 to February 11, 1998.
(18) Includes 21,600 options granted under the Home Shopping 1986 Stock Option
Plan for Employees assumed by USAi pursuant to the terms of the Home
Shopping Merger.
OPTION GRANTS
Set forth in the table below is information with respect to options to
purchase Common Stock granted to the USAi Named Executive Officers during the
year ended December 31, 1997. The grants were made under the 1995 Stock
Incentive Plan, the Home Shopping Employee Plan and the 1997 Incentive Plan
(collectively, the "Stock Incentive Plans").
The Stock Incentive Plans are administered by the Compensation/Benefits
Committee, which has the sole discretion to determine the selected officers,
employees and consultants to whom incentive or non-qualified options, SARs,
restricted stock and performance units may be granted. As to such awards, the
Compensation/Benefits Committee also has the sole discretion to determine the
number of shares subject thereto and the type, terms, conditions and
restrictions thereof. The exercise price of an incentive stock option granted
under the Stock Incentive Plans must be at least 100% of the fair market value
of USAi's Common Stock on the date of grant. In addition, options granted under
the Stock Incentive Plans terminate within ten
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years of the date of grant. To date, only non-qualified stock options have been
granted under the Stock Incentive Plans.
OPTION/SAR GRANTS IN LAST FISCAL YEAR(1)
PERCENT POTENTIAL REALIZABLE VALUE
NUMBER OF OF TOTAL AT ASSUMED ANNUAL RATES OF
SECURITIES OPTIONS TO STOCK PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE PRICE OPTION TERMS(4)
OPTIONS GRANTED IN THE PER SHARE EXPIRATION ----------------------------
NAME GRANTED(#)(2) FISCAL YEAR ($/SH)(2) DATE(3) 5%($) 10%($)
- ---- ------------- -------------- -------------- ---------- ------------ ------------
Barry Diller......... 9,500,000 83.5% 19.313 10/20/2007 115,382,511 292,401,937
Chairman and Chief
Executive Officer
James G. Held........ 750,000 6.6% 16.5938 7/23/2007 7,826,790 19,834,623
Vice Chairman(5)
Victor A. Kaufman.... 500,000 4.4% 19.313 10/20/2007 6,072,764 15,389,576
Office of the
Chairman and Chief
Financial
Officer(6)
Jed B. Trosper....... 180,000 1.6% 10.125 1/27/2007 1,146,160 2,904,596
Vice President and 120,000 1.06% 16.5938 7/23/2007 1,252,286 3,173,540
Chief Financial
Officer(7)
James G. Gallagher... 0 -- -- -- -- --
Vice President,
General Counsel and
Secretary(8)
Brian J. Feldman..... 5,000 .05% 12.875 5/07/2007 40,485 102,597
Controller
- ---------------
(1) Under the terms of the Stock Incentive Plans, the Compensation/Benefits
Committee retains discretion, subject to plan limits, to modify the terms of
outstanding options and to reprice such options.
(2) These option grants and the related exercise prices reflect the two-for-one
stock split which became effective for holders of record as of the close of
business on March 12, 1998.
(3) Under the Stock Incentive Plans, the Compensation/Benefits Committee
determines the exercise price, vesting schedule and exercise periods for
option grants made pursuant to those Plans. Options granted during the year
ended December 31, 1997, generally become exercisable in four equal, annual
installments commencing on the first anniversary of the grant date. Each
such option expires ten years from the date of grant.
(4) Potential value is reported net of the option exercise price, but before
taxes associated with exercise. These amounts represent certain assumed
rates of appreciation only. Actual gains, if any, on stock option exercises
are dependent on the future performance of Common Stock, overall stock
market conditions, as well as on the option holders' continued employment
through the vesting period. The amounts reflected in this table may not
necessarily be achieved.
(5) Mr. Held currently serves as President and Chief Executive Officer of Home
Shopping.
(6) Mr. Kaufman assumed the position of Chief Financial Officer of USAi on
November 1, 1997.
(7) Mr. Trosper currently serves as Senior Executive Vice President and Chief
Operating Officer of Home Shopping and previously served as Vice President
and Chief Financial Officer of USAi from January 1997 to November 1997.
(8) Mr. Gallagher currently serves as Executive Vice President, General Counsel
and Secretary of Home Shopping and previously served as Vice President,
General Counsel of USAi from January 27, 1997 to February 20, 1998.
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OPTION EXERCISES
The following table provides information concerning the exercise of stock
options by the USAi Named Executive Officers during the fiscal year ended
December 31, 1997 and the fiscal year-end value of all unexercised options held
by such persons.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES(1)
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS HELD AT IN-THE-MONEY OPTIONS AT
YEAR END(#) YEAR-END($)(2)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ----------- ----------- ------------- ----------- -------------
Barry Diller(3).......... 0 0 8,505,847 18,005,847 131,444,397 192,600,647
Chairman and Chief
Executive Officer
James G. Held(4)......... 0 0 1,125,000 1,875,000 18,343,744 25,210,931
Vice Chairman
Victor A. Kaufman........ 0 0 124,000 722,000 927,250 6,271,500
Office of the
Chairman and
Chief Financial
Officer
Jed B. Trosper(5)........ 0 0 0 300,000 0 3,911,250
Vice President
and Chief Financial
Officer
James G. Gallagher(6).... 0 0 6,300 25,200 92,226 368,903
Vice President, General
Counsel and
Secretary
Brian J. Feldman......... 0 0 14,400 12,200 217,828 160,775
Controller
- ---------------
(1) Reflects the two-for-one stock split which became effective for holders of
record as of the close of business on March 12, 1998.
(2) Represents the difference between the $25.75 closing price of Common Stock
on December 31, 1997 and the exercise price of the options, and does not
include the U.S. federal and state taxes due upon exercise.
(3) Mr. Diller's options consist of options to purchase (i) 1,250,000 shares of
Common Stock granted in 1995 pursuant to the 1995 Stock Incentive Plan, (ii)
3,791,694 shares of Common Stock granted during 1995 pursuant to the Equity
Compensation Agreement, (iii) 11,970,000 shares of Common Stock resulting
from the conversion of options to purchase Home Shopping common stock and
(iv) 9,500,000 shares of Common Stock under the 1997 Incentive Plan (subject
to shareholder approval). One half of each of the options set forth in (i)
through (iii) above were exercisable as of December 31, 1997.
(4) Mr. Held currently serves as President and Chief Executive Officer of Home
Shopping.
(5) Mr. Trosper currently serves as Senior Executive Vice President and Chief
Operating Officer of Home Shopping.
(6) Mr. Gallagher currently serves as Executive Vice President, General Counsel
and Secretary of Home Shopping.
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation/Benefits Committee were Messrs. Savoy and
Ramer until the resignation of Mr. Ramer from the Board of Directors on March
11, 1998, Messrs. Segal and Sheinberg also served on the Compensation/Benefits
Committee during 1997. None of these directors was ever an officer or employee
of USAi or its subsidiaries.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 13, 1998, information relating
to the beneficial ownership of Common Stock by (i) each person known by USAi to
own beneficially more than 5% of the outstanding shares of Common Stock, (ii)
each director, (iii) the Chief Executive Officer of USAi and the other four most
highly compensated executive officers of USAi whose compensation exceeded
$100,000 for fiscal year 1997, and (iv) all executive officers and directors of
USAi as a group:
NAME AND ADDRESS NUMBER OF PERCENT PERCENT OF VOTES
OF BENEFICIAL OWNER SHARES(1) OF CLASS (ALL CLASSES)(2)
------------------- ---------- -------- ----------------
Capital Research & Management Co. &
The Capital Group Companies, Inc. ............... 8,602,360 7.6% 2.0%
333 South Hope Street
Los Angeles, CA 90071
Denver Investment Advisers, LLC.................... 6,950,460 6.2% 1.6%
1225 17th St., 26th Floor
Denver, CO 80202
Tele-Communications, Inc.(3)(4).................... 24,924,986 17.2% 57.6%
5619 DTC Parkway
Englewood, CO
The Seagram Co. Ltd.(5)............................ 13,500,000 9.3% 16.4%
375 Park Avenue
New York, NY 10152
Barry Diller(3)(5)(6).............................. 47,904,823 33.1% 75.9%
Paul Allen(7)...................................... 14,822,014 13.1% 3.4%
Frank J. Biondi(8)(9).............................. 2,700 * *
Edgar J. Bronfman, Jr.(9).......................... 0 * *
Brian J. Feldman(10)............................... 18,092 * *
James G. Gallagher(11)............................. 6,328 * *
James G. Held(12).................................. 1,125,090 * *
Victor A. Kaufman(13).............................. 352,000 * *
Robert W. Matschullat(9)........................... 0 * *
Samuel Minzberg(9)................................. 0 * *
William D. Savoy(14)............................... 29,000 * *
Gen. H. Norman Schwarzkopf(15)..................... 21,334 * *
Richard E. Snyder(16).............................. 3,334 * *
Jed B. Trosper(17)................................. 45,028 * *
All executive officers and directors as a
group (18 persons)............................... 64,329,743 44.6% 79.7%
- ---------------
* The percentage of shares beneficially owned does not exceed 1% of the
class.
Unless otherwise indicated, beneficial owners listed here may be contacted
at USAi's corporate headquarters address, 152 West 57th Street, New York,
NY 10019. The percentage of votes listed
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assumes the conversion of any shares of Class B Common Stock owned by such
listed person, but does not assume the conversion of Class B Common Stock
owned by any other person. Under the rules of the SEC, a person is deemed
to be a "beneficial owner" of a security if that person has or shares
"voting power," which includes the power to vote or to direct the voting of
such security, or "investment power," which includes the power to dispose
of or to direct the disposition of such security. A person is also deemed
to be the beneficial owner of any securities of which that person has the
right to acquire beneficial ownership within 60 days. Under these rules,
more than one person may be deemed to be a beneficial owner of the same
securities and a person may be deemed to be a beneficial owner of
securities as to which that person has no beneficial interest.
(1) The number of shares reflects the two-for-one stock split which became
effective for holders of record at the close of business on March 12, 1998.
(2) The percentage of votes for all classes is based on one vote for each share
of Common Stock and ten votes for each share of Class B Common Stock. These
figures do not include any unissued shares of Common Stock or Class B
Common Stock issuable upon conversion of Liberty HSN's Home Shopping shares
and LLC Shares beneficially owned by Liberty or Seagram.
(3) Liberty, a wholly owned subsidiary of TCI, Universal, Seagram, USAi and Mr.
Diller are parties to a stockholders agreement (the "Stockholders
Agreement") pursuant to which Liberty and Mr. Diller have formed BDTV INC.,
BDTV II INC., BDTV III INC. and BDTV IV INC (together the "BDTV Entities")
which entities hold 4,000,000, 15,618,22, 4,005,182 and 800,000 shares of
Class B Common Stock, respectively. Mr. Diller also owns through
intermediate entities 973,968 shares of Common Stock and options to
purchase 26,511,694 shares of Common Stock, 8,505,847 of which are
currently vested representing 8.6% of the issued and outstanding shares of
Common Stock as of March 13, 1998. Mr. Diller generally has the right to
vote all of the shares of the BDTV Entities and the shares of Common Stock
and Class B Common Stock held by Seagram and Liberty. If the BDTV Entities
converted their beneficially owned Class B Common Stock into Common Stock,
such shares would represent approximately 19.3% of the issued and
outstanding shares of Common Stock.
(4) Consists of beneficial ownership of 24,801,726 shares of Class B Common
Stock held by the BDTV Entities, which may be converted at any time into an
equal number of shares of Common Stock, and 123,260 shares of Common Stock.
These shares are subject to the Stockholders Agreement.
(5) Includes 6,380,000 shares of Class B Common Stock, which may be converted
at any time into an equal number of shares of Common Stock, and 7,120,000
shares of Common Stock as to which Mr. Diller has general voting power and
which are otherwise beneficially owned by Seagram. These shares are subject
to the Stockholders Agreement.
(6) Includes 973,968 shares of Common Stock owned by Mr. Diller, vested options
to purchase 8,505,847 shares of Common Stock, 31,181,726 shares of Class B
Common Stock beneficially owned by the BDTV Entities, which shares are
convertible into Common Stock, and 7,243,260 shares of Common Stock with
respect to which Mr. Diller has general voting authority pursuant to the
Stockholders Agreement may be deemed to be a beneficial owner. Also
includes 22 shares of Common Stock held by the BDTV Entities. Does not
include unvested options to purchase 8,505,847 shares of Common Stock
previously granted to Mr. Diller or unvested options to purchase 9,500,000
shares of Common Stock pursuant to the 1997 Incentive Plan. These shares
are subject to the Stockholders Agreement.
(7) Consists of beneficial ownership of 14,822,014 shares of Common Stock. Does
not reflect unvested options to purchase 10,000 shares of Common Stock
pursuant to the Directors' Stock Option Plan or unvested options to
purchase 20,000 shares pursuant to the 1997 Incentive Plan.
(8) Consists of beneficial ownership of shares owned under a retirement plan.
(9) Has waived the right to receive options under the Directors' Stock Option
Plan.
(10) Consists of beneficial ownership of 3,150 shares of Common Stock and vested
options to purchase 14,400 shares of Common Stock granted pursuant to the
Home Shopping Employee Plan and 542 shares under the Home Shopping Network,
Inc. Retirement Savings Plan (the "Retirement Savings Plan"). Does not
include unvested options to purchase 5,000 shares of Common Stock granted
pursuant to the 1995 Stock Incentive Plan and unvested options to purchase
7,200 shares of Common Stock granted pursuant to the Home Shopping Employee
Plan.
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(11) Consists of vested options to purchase 6,300 shares of Common Stock granted
pursuant to the Home Shopping Employee Plan and 28 shares of Common Stock
under the Retirement Savings Plan. Does not include unvested options to
purchase 25,200 shares of Common Stock pursuant to the Home Shopping
Employee Plan.
(12) Consists of vested options to purchase 1,125,000 shares of Common Stock
granted pursuant to the Home Shopping Employee Plan and 90 shares of Common
Stock under the Retirement Savings Plan. Does not include unvested options
to purchase 1,875,000 shares of Common Stock pursuant to the Home Shopping
Employee Plan.
(13) Consists of 210,000 shares of Common Stock, vested options to purchase
56,000 shares of Common Stock assumed by pursuant to the Savoy Merger,
vested options to purchase 36,000 shares of Common Stock resulting from
conversion of options granted pursuant to the Home Shopping Employee Plan
and vested options to purchase 50,000 shares of Common Stock granted
pursuant to the 1995 Stock Incentive Plan. Does not reflect unvested
options to purchase 150,000 shares of Common Stock granted pursuant to the
1995 Stock Incentive Plan, unvested options to purchase 54,000 shares of
Common Stock resulting from conversion of options granted pursuant to the
Home Shopping Employee Plan or unvested options to purchase 500,000 shares
pursuant to the 1997 Incentive Plan.
(14) Consists of beneficial ownership of 29,000 shares of Common Stock. Does not
reflect unvested options to purchase 10,000 shares of Common Stock pursuant
to the Directors' Stock Option Plan or unvested options to purchase 20,000
shares pursuant to the 1997 Incentive Plan.
(15) Consists of 18,000 vested options to purchase shares of Common Stock
granted under the Home Shopping Employee Plan pursuant to a consulting
agreement with Home Shopping and vested options to purchase 3,334 shares of
Common Stock granted under the Directors' Stock Option. Does not include
unvested options to purchase 16,666 shares of Common Stock pursuant to the
Directors' Stock Option Plan, unvested options to purchase 1,500 shares of
Common Stock under the Home Shopping Directors' Stock Option Plan which
were converted pursuant to the terms of the Home Shopping Merger, unvested
options to purchase 30,000 shares of Common Stock granted under the Home
Shopping Employee Plan pursuant to a consulting agreement with Home
Shopping or unvested options to purchase 10,000 shares pursuant to the
Company's 1997 Incentive Plan.
(16) Consists of 3,334 vested options to purchase shares of Common Stock granted
pursuant to the Directors' Stock Option Plan. Does not reflect unvested
options to purchase 16,666 shares of Common Stock granted pursuant to the
Directors' Stock Option Plan or unvested options to purchase 10,000 shares
under the Company's 1997 Incentive Plan.
(17) Consists of vested options to purchase 45,000 shares of Common Stock
granted pursuant to the 1995 Incentive Plan and 28 shares of Common Stock
under the Retirement Savings Plan. Does not include unvested options to
purchase 135,000 shares of Common Stock pursuant to the 1995 Stock
Incentive Plan or unvested options to purchase 120,000 shares of Common
Stock granted pursuant to the Home Shopping Employee Plan.
The following table sets forth, as of March 13, 1998, information relating
to the beneficial ownership of Class B Common Stock:
NAME AND ADDRESS NUMBER OF PERCENT
OF BENEFICIAL OWNER SHARES(1) OF CLASS(2)
- ------------------- ---------- -----------
Barry Diller(2)............................................. 31,181,726 97.4%
1940 Coldwater Canyon
Beverly Hills, CA 90210
Tele-Communications, Inc.(2)(3)............................. 24,801,726 77.5%
5619 DTC Parkway
Englewood, CO
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NAME AND ADDRESS NUMBER OF PERCENT
OF BENEFICIAL OWNER SHARES(1) OF CLASS(2)
- ------------------- ---------- -----------
BDTV Entities(2)(3)......................................... 24,423,404 76.3%
(includes BDTV, INC., BDTV II INC.
BDTV III INC. and BDTV IV INC.)
2425 Olympic Boulevard
Santa Monica, CA 90404
The Seagram Company Ltd.(4)................................. 6,380,000 19.9%
375 Park Avenue
New York, NY 10152
- ---------------
(1) All or any portion of shares of Class B Common Stock may be converted at any
time into an equal number of shares of Common Stock. The number of shares
reflects the two-for-one stock split which became effective for holders of
record as of the close of business on March 12, 1998.
(2) These figures do not include any unissued shares of Common Stock or Class B
Common Stock issuable upon conversion of Liberty HSN's Home Shopping shares
and LLC shares beneficially owned by Liberty or Seagram.
(3) Liberty, a wholly owned subsidiary of TCI, Universal, Seagram, USAi and Mr.
Diller are parties to the Stockholders Agreement, pursuant to which Liberty
and Mr. Diller have formed the BDTV Entities, which entities hold 4,000,000,
15,618,222, 4,005,182 and 800,000 shares of Class B Common Stock,
respectively. Mr. Diller generally has the right to vote all of the shares
of the BDTV Entities and the shares of Class B Common Stock held by Seagram
and Liberty. TCI disclaims beneficial ownership of all USAi securities held
by Mr. Diller but not any of USAi Securities held by the BDTV Entities. Mr.
Diller owns all of the voting stock of the BDTV Entities and Liberty owns
all of the non-voting stock, which non-voting stock represents in excess of
99% of the equity of the BDTV Entities.
(4) Mr. Diller generally votes all of the shares held by Seagram pursuant to the
terms of the Stockholders Agreement.
PREEMPTIVE RIGHTS
Pursuant to the Investment Agreement, the Company has granted to Universal
and Liberty preemptive rights generally with respect to future issuances of
Common Stock or Class B Common Stock (other than issuances based upon conversion
or exchange of currently outstanding securities), which rights generally permit
these entities to maintain, after giving effect to such issuance and the related
preemptive rights, an ownership percentage (assuming exchange of all of Liberty
HSN's Home Shopping shares and of all exchangeable LLC Shares) equal to the
percentage ownership such entity held immediately prior to such issuance. As of
the date of this Report, Universal's preemptive right is at 45% and Liberty's
preemptive right is at approximately 21%. In addition, Universal has certain
mandatory purchase obligations with respect to USAi stock (or LLC Shares),
including with respect to the pending Ticketmaster proposal. The terms of the
preemptive rights are further described in the Company's Definitive Proxy
Statement with respect to its February 1998 annual meeting, and in the
Investment Agreement and Governance Agreement filed as exhibits to this Report.
STOCKHOLDERS AGREEMENT
General
Universal, Liberty, Mr. Diller, USAi and Seagram are parties to the
Stockholders Agreement, dated October 19, 1997, which governs the ownership,
voting, transfer or other disposition of USAi securities owned by Universal,
Liberty and Mr. Diller (and their respective affiliates) and pursuant to which
Mr. Diller will generally exercise voting control over the equity securities of
USAi held by such persons and certain of their affiliates. The Stockholders
Agreement supersedes as of the Closing, in its entirety, the agreement, dated as
of August 24, 1995, between Mr. Diller and Liberty, as amended by the letter
agreement, dated as of August 25, 1996, relating to the securities of USAi.
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Voting Authority
Pursuant to the Stockholders Agreement, each of Universal and Liberty has
granted to Mr. Diller an irrevocable proxy with respect to all USAi securities
owned by Universal, Liberty and certain of their affiliates for all matters,
except for certain fundamental matters (the "Fundamental Changes"), which
require the consent of each of Mr. Diller, Universal and Liberty. The proxy will
generally remain in effect until the earlier of the date that he is no longer
Chief Executive Officer or such date that Mr. Diller becomes disabled, provided
that Mr. Diller continues to beneficially own at least 5,000,000 shares of
Common Stock (including options to acquire shares of Common Stock, whether or
not exercisable).
Universal, Liberty and Mr. Diller have also agreed to vote all USAi
securities over which they have voting control in favor of the respective
designees of Universal and Liberty (at such time as Liberty is entitled under
the applicable Agreement and the rules and policies of the FCC) to the Board of
Directors, as provided in the Stockholders Agreement and agreements entered into
in connection with the Universal Transaction, including the Investment Agreement
and Governance Agreement (collectively, the "Transaction Agreements"). In
addition, Universal, Liberty and Mr. Diller have each agreed not to consent to
any Fundamental Change to which any other such party entitled to consent thereto
does not consent. Because Liberty is not presently permitted under applicable
FCC rules and regulations to have any designees on the Company's Board of
Directors, it is instead entitled to designate two directors to the Board of
Directors of USANi LLC, which entity does not own or control any of the
Company's broadcast businesses.
Mr. Diller has agreed with Universal that, generally after the date that
Mr. Diller is no longer Chief Executive Officer or such date that Mr. Diller
becomes disabled, and so long as he beneficially owns USAi securities
representing at least 7.5% of the total voting power of the Company (excluding
securities beneficially owned by Universal or Liberty), at Universal's option he
will either vote his shares in his own discretion or in proportion to the vote
of the public stockholders (as defined).
Liberty Conduct Limitations; Board Representation
Liberty has agreed with Universal that it will not beneficially own more
than the greater of (i) 20% of the outstanding USAi securities or (ii) the
percentage of USAi securities beneficially owned by it following the Liberty
Closing (up to 25%), which percentage will be reduced to reflect sales of USAi
equity by Liberty or in the event that Liberty does not exercise its preemptive
right pursuant to the Investment Agreement (provided that if Liberty's initial
ownership percentage is less than 20%, such reduction is calculated as if it
were 20%). Liberty also has agreed with Universal not to propose to the Board of
Directors the acquisition by Liberty, in a merger, tender offer or other
business combination, of the outstanding USAi securities. These restrictions
terminate upon the earlier of such time as Liberty beneficially owns less than
5% of the outstanding USAi securities or the date that Universal beneficially
owns fewer shares than Liberty beneficially owns (the "Standstill Termination
Date").
Liberty has agreed to related restrictions on its conduct, such as:
(i) not seeking to elect directors to the Board of Directors or
otherwise to influence the management of USAi, other than as permitted by
the Transaction Agreements;
(ii) not entering into agreements relating to the voting of USAi
securities, except as permitted by the Stockholders Agreement;
(iii) generally not initiating or proposing any stockholder proposal
in opposition to the recommendation of the USAi Board; and
(iv) not joining with others (other than Universal and Mr. Diller
pursuant to the Transaction Agreements) for the purpose of acquiring,
holding, voting or disposing of any USAi securities.
The foregoing restrictions terminate on the earlier of such time as Liberty
beneficially owns less than 5% of the outstanding USAi securities) or the
Standstill Termination Date.
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Liberty is not permitted to designate for election to the USAi Board more
than two directors, subject to applicable law. This restriction terminates on
the Standstill Termination Date.
Restrictions on Transfers
Generally, until the earlier of the date that Mr. Diller is no longer Chief
Executive Officer or such date that Mr. Diller becomes disabled, neither Liberty
nor Mr. Diller can transfer shares of USAi stock, other than (i) transfers by
Mr. Diller to pay taxes relating to certain USAi incentive compensation and
stock options, (ii) transfers to each party's respective affiliates, (iii)
certain pledges relating to financings and (iv) transfers of options or USAi
stock in connection with "cashless exercises" of Mr. Diller's options. These
restrictions are subject to a number of exceptions (which exceptions are subject
to rights of first refusal as described below), including the following:
(i) after August 24, 2000, Liberty or Mr. Diller may generally sell
all or any portion of their USAi securities;
(ii) generally following the date that Mr. Diller is no longer Chief
Executive Officer or such time as Mr. Diller becomes Disabled, Mr. Diller
may transfer his USAi stock; and
(iii) either stockholder may transfer USAi stock so long as, in the
case of Mr. Diller, Mr. Diller continues to beneficially own at least
1,100,000 shares of USAi securities (including stock options) and, in the
case of Liberty, Liberty continues to beneficially own at least 1,000,000
shares of USAi securities and, in the case of a transfer of the shares of
Class B Common Stock by BDTV or BDTV II (which together hold 19,618,222
shares of Class B Common Stock), after such transfer, Liberty, Universal
and Mr. Diller collectively control 50.1% of the total voting power of the
Company.
Universal has agreed that, until August 24, 2000, it will not transfer
shares of USAi stock (or convert Class B Common Stock into Common Stock) so that
it owns a number of shares with fewer votes than if owned immediately following
the closing of the Universal Transaction, subject to certain exceptions.
Rights of First Refusal and Tag-Along Rights
Each of Universal and Mr. Diller has a right of first refusal with respect
to certain sales of USAi securities by the other party. Liberty's rights in this
regard are secondary to any Universal right of first refusal on transfers by Mr.
Diller. Liberty and Mr. Diller each also generally has a right of first refusal
with respect to certain transfers by the other party. In addition, Universal has
a right of first refusal (subject to Mr. Diller not having exercised his right
of first refusal) with respect to sales by Liberty prior to August 24, 2000 of a
number of shares of USAi stock having the aggregate number of votes represented
by the shares of Common Stock and Class B Common Stock received by Universal at
the closing of the Universal Transaction. Rights of first refusal may be
exercised by the Stockholder or the Stockholder's designee, subject to the terms
of the Stockholders Agreement.
In addition, Mr. Diller has agreed to grant to Liberty a right to "tag
along" (i.e., participate on a pro rata basis) on certain sales of USAi stock by
Mr. Diller. These tag-along rights are subject to a number of exceptions,
including relating to the quantity of shares sold or the permitted transfers
described above.
In the event that Universal transfers a substantial amount of its USAi
stock (more than 50% of its interest as of the closing of the Universal
Transaction or an amount that results in a third party owning (i) a greater
percentage of USAi equity than that owned by (x) Universal and (y) Liberty or
any other stockholder and (ii) at least 25% of the total voting power of the
Company), Universal has granted a tag-along right to each of Liberty and Mr.
Diller.
Under the Governance Agreement, dated as of October 19, 1997, among the
Company, Universal, Liberty and Mr. Diller, transfers of USAi securities by
Universal (whether before or after the date that Mr. Diller is no longer Chief
Executive Officer or such date as Mr. Diller becomes disabled) are subject to a
right of first refusal in favor of USAi (but secondary to the rights of first
refusal provided in the Stockholders Agreement), as long as Universal
beneficially owns at least 20% of the total USAi securities. This right of first
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refusal does not apply to transfers by Universal under the Governance Agreement
that are permitted prior to the Standstill Termination Date.
Put and Call Rights
Universal, Liberty and Mr. Diller have agreed to certain put and call
arrangements, pursuant to which one party has the right to sell (or the other
party has the right to acquire) shares of USAi stock held by another party.
Liberty/Universal Put and Call Rights. Generally, prior to the date that
Mr. Diller is no longer Chief Executive Officer or such date as Mr. Diller
becomes disabled, Universal generally has the right to acquire substantially all
of Liberty's USAi securities in the event that Mr. Diller and Universal agree to
take an action that would constitute one of the Fundamental Changes described in
the Governance Agreement and Liberty has the right to consent to such
Fundamental Change but does not provide its consent. In addition, at any time
after the date that Mr. Diller is no longer Chief Executive Officer or such date
as Mr. Diller becomes disabled, Liberty has the right to require Universal to
purchase substantially all of Liberty's USAi securities, and Universal has the
reciprocal right to elect to acquire such shares. Universal may effect these
acquisitions through a designee. The Stockholders Agreement sets forth
provisions to establish the purchase price and conditions for these
transactions.
Universal also has certain rights and obligations to acquire Liberty's USAi
securities in connection with a permitted business combination (as defined), in
the event that Universal using its best efforts cannot provide Liberty with
tax-free consideration in connection with such a transaction. This provision
effectively means that, after such a transaction, Liberty would not own in
excess of 20% of the outstanding equity of the resulting company.
Diller Put. Following the date that Mr. Diller is no longer Chief
Executive Officer or such date as Mr. Diller becomes disabled (the "Put Event"),
Mr. Diller has the right, during the one-year period following the Put Event, to
require Universal to purchase for cash shares of USAi stock beneficially owned
by Mr. Diller and that were acquired by Mr. Diller from USAi (e.g. pursuant to
the exercise of stock options). If the Put Event occurs prior to the fourth
anniversary of the Closing, the purchase price will be a weighted average market
price for the Common Stock for a period following public announcement of the Put
Event. If the Put Event occurs after that four-year period, but Mr. Diller
exercises his put right within 10 business days of the Put Event, the price will
be based on a weighted average market price of the Common Stock prior to public
announcement of the Put Event. In all other cases, the price per share received
by Mr. Diller will be a weighted average market price for a period immediately
preceding the exercise of the put.
Mr. Diller's put right must be transferred by Universal in the event that
it sells a certain amount of its USAi securities to a third party. Universal's
obligations with respect to the put terminate at the time that Universal no
longer beneficially owns at least 10% of USAi equity. Liberty does not have a
tag-along right with respect to the Put Event exercise.
Transfers of Shares of Class B Common Stock
During the term of the Stockholders Agreement, transfers of shares of Class
B Common Stock are generally prohibited (other than to another stockholder party
or between a stockholder and its affiliates). If a stockholder proposes to
transfer these shares, Mr. Diller is entitled to first swap any shares of Common
Stock he owns for such shares of Class B Common Stock and, thereafter, any other
non-transferring stockholder (with Universal's right preceding Liberty's) may
similarly swap shares of Common Stock for shares of Class B Common Stock
proposed to be transferred. To the extent there remain shares of Class B Common
Stock that the selling stockholder would otherwise transfer to a third party,
such shares must be converted into shares of Common Stock prior to the transfer.
This restriction does not apply to, among other transfers, a transfer by
Universal after the date that Mr. Diller is no longer Chief Executive Officer.
Under the Governance Agreement, a transferee of Universal's shares of Class B
Common Stock must agree to the conduct and securities ownership restrictions
applicable to Universal, if such transferee would own at least 10% of the total
voting power of the Company.
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BDTV Entity Arrangements
Mr. Diller and Liberty will continue to have substantially similar
arrangements with respect to the voting control and ownership of the equity of
BDTV, BDTV II, BDTV III, BDTV IV and any other BDTV entity that may be formed
(collectively, the "BDTV Entities"), which hold a substantial majority of the
total voting power of the Company. These arrangements effectively provide that
Mr. Diller controls the voting of USAi securities held by these entities, other
than with respect to Fundamental Changes, and Liberty retains substantially all
of the equity interest in such entities. If applicable law permits Liberty to
hold directly the shares of USAi stock held by the BDTV Entities, then Liberty
may purchase Mr. Diller's nominal equity interest in these entities for a fixed
price, in which case the shares of USAi stock then held by Liberty would
otherwise be subject to the proxy described above held by Mr. Diller with
respect to Liberty's and Universal's shares of USAi stock pursuant to the
Stockholders Agreement.
Termination of Stockholders Agreement
Universal's rights and obligations under the Stockholders Agreement
generally terminate at such time as Universal no longer beneficially owns at
least 10% of USAi equity.
Mr. Diller's and Liberty's rights and obligations under the Stockholders
Agreement generally terminate (other than with respect to Mr. Diller's put
right) at such time as, in the case of Mr. Diller, he no longer beneficially
owns at least 1,100,000 shares of USAi equity securities, and, in the case of
Liberty, 1,000,000 shares. Certain of Liberty's rights and obligations relating
to its put/call arrangements with Universal and its tag-along rights terminate
when it no longer has the right to consent to Fundamental Changes under the
Governance Agreement. Mr. Diller's rights and obligations (other than with
respect to Mr. Diller's put right) also generally terminate upon the date that
Mr. Diller is no longer Chief Executive Officer or such date as Mr. Diller
becomes disabled.
Transferees of USAi securities as permitted by the Stockholders Agreement
and who would beneficially own in excess of 15% of the total voting power of the
Company generally are not entitled to any rights of the transferring stockholder
under the agreement but are, generally for a certain period of time, subject to
the obligations regarding the election of directors among others. These
transferees must also vote with respect to Fundamental Changes in the manner
agreed upon by the other two stockholders. In addition, a transferee of Liberty
or Mr. Diller who would own that amount of the total voting power of the Company
would also be subject, generally for a certain period of time to the limitations
on acquisitions of additional USAi securities summarized above.
Spinoff Agreement
Universal, Liberty and USAi are parties to the Spinoff Agreement, dated as
of October 19, 1997 (the "Spinoff Agreement"), which generally provides for
interim arrangements relating to management of the USAi and efforts to achieve a
spinoff or sale of USAi's broadcast stations and, in the case of a spinoff,
certain arrangements relating to their respective rights (including preemptive
rights) in USAi resulting from the spinoff. The provisions of the Spinoff
Agreement generally do not become operative until the earlier of the date that
Mr. Diller is no longer Chief Executive Officer or such date as Mr. Diller
becomes disabled.
Liberty and Universal have agreed to use their reasonable best efforts to
cause an interim Chief Executive Officer to be appointed, who is mutually
acceptable to them and is independent of Liberty and Universal. If Universal
elects, within 60 days of the date that Mr. Diller is no longer Chief Executive
Officer or such date as Mr. Diller becomes disabled, to effect a sale of USAi's
broadcast stations, this designated Chief Executive Officer would generally have
a proxy to vote Liberty's USAi stock, at Universal's option (or, if Liberty
beneficially owns a greater percentage of USAi securities than Universal,
Liberty's option), either in such Chief Executive Officer's discretion or in the
same proportion as the public stockholders, pending completion of the station
divestiture.
If Universal elects to complete the station divestiture, Liberty and
Universal (and USAi) have agreed to use best efforts to cause the divestiture to
be structured as a tax-free distribution to USAi's stockholders (the
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"Spinoff"). If a tax-free Spinoff is not available, USAi has agreed to use its
best efforts to sell the stations, except that if the Board of Directors (other
than any designees of Universal or Liberty) determines that a taxable spinoff,
when compared with a sale, represents a superior alternative USAi will
consummate a taxable spinoff. Universal has agreed to reimburse Liberty in
connection with any such taxable spinoff in an amount up to $50 million with
respect to any actual tax liability incurred by Liberty in such a transaction.
If Universal makes the election described above, Liberty has agreed not to
transfer, directly or indirectly, any of its Common Stock or Class B Common
Stock for a period of fourteen months generally after the date that Mr. Diller
is no longer Chief Executive Officer or such date as Mr. Diller becomes disabled
if such transfer would result in Universal and Liberty ceasing to own at least
50.1% of the outstanding USAi voting power (as long as Universal has not
transferred more than 3% of the outstanding USAi securities following the
closing of the Universal Transaction).
USAi has agreed that, subject to the terms of the Spinoff Agreement and its
obligations under the Investment Agreement, so long as (i) Universal
beneficially owns at least 40% of the total equity securities of the USAi and no
other stockholder owns more than the amount owned by Universal, or (ii) Liberty
and Universal together own at least 50.1% of such equity securities, USAi will
use its reasonable best efforts to enable Universal and Liberty to achieve the
purposes of the Spinoff Agreement.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
Employment Contracts
Home Shopping originally entered into a four-year employment agreement with
James G. Held as of November 24, 1995 providing for an annual base salary of not
less than $500,000 and an annual bonus of at least $150,000. On July 23, 1997,
the Compensation/Benefits Committee of the Board of Directors extended Mr.
Held's employment agreement for an additional two years. The amended employment
agreement provides a bonus structure whereby if the EBITDA for USAi and its
subsidiaries in any fiscal year exceeds the target EBITDA, the annual bonus is
increased to $300,000 (the first year) or $350,000 (thereafter) plus 1.25% of
the excess by which the actual EBITDA exceeds the target EBITDA for such fiscal
year. Mr. Held received stock options for 5,000,000 shares of Home Shopping
Network, Inc., which pursuant to the Home Shopping Merger, were converted into
options to purchase 2,250,000 shares of Common Stock at an exercise price of
$9.4445 per share. Those options vest equally over a four-year period and are
exercisable until November 24, 2005. On July 23, 1997, Mr. Held was granted
additional stock options to purchase 750,000 shares of Common Stock at an
exercise price of $16.5937 per share, which vest equally over a four-year period
and are exercisable until July 23, 2007. These option amounts have been adjusted
to reflect the Company's two-for-one stock split for holders of record at the
close of business on March 12, 1998. The agreement provides for differing
vesting and exercise rights upon termination of employment. Home Shopping
reimbursed Mr. Held for relocation expenses and agreed to lend him $1,000,000
for the purpose of purchasing a residence in the Tampa/St. Petersburg area. The
loan bears interest at 5% per annum. On March 31, 1997, $600,000 of the loan was
repaid. In the event that Mr. Held is terminated for any reason, the principal
and any accrued and unpaid interest become due and payable on the first
anniversary of such termination or immediately in the event that the residence
is sold or transferred. Mr. Held is entitled to the use of a luxury automobile
supplied to him by USAi at its expense.
Home Shopping entered into a two-year employment agreement with James G.
Gallagher, dated October 14, 1996, pursuant to which Mr. Gallagher serves as
Executive Vice President, General Counsel and Secretary of Home Shopping. The
agreement with Mr. Gallagher provides for an annual base salary of $200,000 per
year, with increases in accordance with company policy. If Home Shopping
terminates Mr. Gallagher's employment for cause, Home Shopping will pay his
salary until the date of termination. If Home Shopping terminates his employment
without cause (other than as a result of his death or disability), Home Shopping
will pay to Mr. Gallagher his salary until the date of termination and the
amount of salary he would have received during the remainder of the then current
term and will pay medical and other health insurance benefits previously
provided to him during the remainder of the current term. The agreement
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contains an 18-month non-competition provision in the fields of on-line or
electronic retailing. The agreement does not impose any obligations upon a
change of control of USAi.
Home Shopping entered into a three-year employment agreement with Jed B.
Trosper dated January 13, 1997, pursuant to which Mr. Trosper serves as
Executive Vice President -- Chief Operating Officer of Home Shopping. Mr.
Trosper served as Vice President and Chief Financial Officer of USAi from
January 27, 1997 through October 31, 1997. Mr. Trosper receives a salary of
$300,000 which will be increased by $25,000 on October 1, 1998. He received a
one-time signing bonus of $50,000. If Home Shopping terminates Mr. Trosper's
employment for cause, Home Shopping will pay his salary until the date of
termination. If Home Shopping terminates his employment without cause (other
than as a result of his death or disability), Home Shopping will pay to Mr.
Trosper his salary until the date of termination and the amount of salary he
would have received during the remainder of the current term, but in any event
for a minimum of 12 months and will maintain medical and other health insurance
benefits. The agreement contains a 12-month non-competition provision in the
fields of video and electronic retailing. The agreement does not impose any
obligations upon a change of control of USAi.
Equity and Bonus Compensation Agreements and Similar Agreements
Mr. Diller. On October 19, 1997, USAi and Mr. Diller entered into a stock
option grant agreement pursuant to which, in connection with the Universal
Transaction, USAi granted Mr. Diller options to purchase 9,500,000 shares of
Common Stock at an exercise price of $19.3125 per share, as adjusted for the
Company's two-for-one stock split to holders of record as of the close of
business on March 12, 1998. USAi will not record a compensation charge related
to the grant of options because the options were issued at fair market value at
the date of grant. Mr. Diller's options will become exercisable with respect to
25% of the total shares on October 19, 1998 and on each of the next three
anniversaries of such date. Upon a Change of Control (as defined in the Stock
Option grant agreement), all of Mr. Diller's options that have not previously
become exercisable or been terminated will become exercisable.
Mr. Diller has waived any acceleration of his current stock options which
may have been triggered by the Universal Transaction. Mr. Diller's equity
compensation agreement with USAi, dated August 24, 1995 and discussed below,
provides for a gross-up payment to be made to Mr. Diller, if necessary, to
eliminate the effect of the imposition of the excise tax under Section 4999 of
the Code upon payments made to Mr. Diller and imposition of income and excise
taxes on such gross-up payment.
Mr. Diller and USAi are also parties to the Equity and Bonus Compensation
Agreement dated as of August 26, 1995. Under that Agreement, the Company agreed
to sell Mr. Diller 441,988 shares of Common Stock at $11.3125 per share in cash
(the "Initial Diller Shares") and an additional 441,988 shares of Common Stock
for the same per share price (the "Additional Diller Shares") payable by means
of a cash payment of $2,210 and an interest-free, secured, non-recourse
promissory note in the amount of $4,997,779. These amounts have been adjusted as
appropriate to reflect the two-for-one stock split. The promissory note is
secured by the Additional Diller Shares and by that portion of the Initial
Diller Shares having a fair market value on the purchase date of 20% of the
principal amount of the promissory note. In addition, the Company granted
options to Mr. Diller to purchase 3,791,694 post stock split shares of Common
Stock at $11.3125 per share (the "Diller Options"). The Diller Options were
granted in tandem with conditional SARs which become exercisable only in the
event of a change of control of the Company and in lieu of exercise of the
Diller Options. The Initial and Additional Shares and the Diller Options were
issued to Mr. Diller below the adjusted market price of $12.375 on August 24,
1995.
Mr. Diller also was granted a bonus arrangement, contractually independent
from the promissory note, pursuant to which he received a bonus payment of
approximately $2.5 million on August 24, 1996, and was to receive a further such
bonus payment on August 24, 1997, which was deferred. Mr. Diller also received
$966,263 for payment of taxes by Mr. Diller due to the compensation expense
which resulted from the difference in the per share fair market value of Common
Stock and the per share purchase price of the Initial Diller Shares and
Additional Diller Shares.
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Mr. Kaufman. On October 19, 1997, USAi and Mr. Kaufman entered into a
stock option grant agreement pursuant to which, USAi granted Mr. Kaufman options
to purchase 500,000 shares of Common Stock for an exercise price of $19.3125 per
share following the Company's two-for-one split for holders of record as of the
close of business on March 12, 1998, on substantially the same terms and
conditions as Mr. Diller's options granted on such date. Mr. Kaufman also has
waived any acceleration of his current stock options which may have been
triggered by the Universal Transaction.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For a description of the nature of the controlling interests in the
Company, see Item 1 -- General Outstanding Shares and Controlling Stockholders.
In addition, the information set forth in the Company's Definitive Proxy
Statement under the caption "THE ANNUAL MEETING -- Directors and Executive
Officers of HSNi -- Related Party Transactions" is incorporated herein by
reference.
Mr. Diller, the Chairman of the Board and Chief Executive Officer of the
Company and Chairman of the Board of Home Shopping, is the sole holder of the
voting stock of the BDTV Entities. The BDTV Entities hold shares of voting stock
which effectively represent voting control of the Company with respect to all
matters submitted for the vote or consent of stockholders as to which
stockholders vote together as a single class.
As of January 1, 1998, the Company entered into a lease (the "Lease") with
Nineteen Forty CC, Inc. ("Nineteen Forty") under which the Company will lease an
aircraft for use by Mr. Diller and certain Directors and executive officers of
the Company in connection with the Company's business. Nineteen Forty is wholly
owned by Mr. Diller. The Lease provides for monthly rental payments equal to the
monthly operating expenses incurred by Nineteen Forty for operation and
maintenance of the aircraft. The Lease has a five-year term and is terminable by
either party on thirty days' notice. In 1997, the Company paid a total of
$2,686,887 in expenses related to the use of the aircraft, of which $925,415 was
for leasehold improvements. The Company will amortize the amount paid for
leasehold improvements over the five-year term of the Lease. The Company
believes that the terms of the Lease are more favorable to the Company than
those the Company would have received had it leased an aircraft from an
unrelated third party (or purchased and maintained a corporate aircraft).
Relationship between the Company and Universal. Pursuant to the agreements
entered into in connection with the Universal Transaction, the Company and
certain of its subsidiaries have entered into business agreements with Universal
and certain of its subsidiaries relating to, among other things, the domestic
distribution by the Company of Universal-produced television programming and
Universal's library of television programming; the international distribution by
Universal of television programming produced by Studios; long-term arrangements
relating to the use by Studios of Universal's production facilities in Los
Angeles and Orlando, Florida; a joint venture relating to the development of
international general entertainment television channels; and various other
business matters. These agreements are summarized in the Company's Definitive
Proxy Statement under the caption "THE TRANSACTION -- Description of the
Transaction -- Related Agreements -- Ancillary Business Agreements," which
description is incorporated herein by reference.
Universal, through its ownership of Company stock and LLC Shares, is the
Company's largest stockholder (assuming conversion of Universal's LLC Shares
which, under current FCC rules, is not permissible). Messrs. Bronfman,
Matschullat, Biondi and Minzberg are directors of the Company and (other than
Mr. Minzberg) hold director and executive positions with Universal and its
affiliates, including Seagram. These individuals were elected to the Company's
Board of Directors in connection with consummation of the Universal Transaction,
pursuant to the transaction agreements. The Bronfman family, which includes Mr.
Bronfman, holds a controlling interest in Seagram, which holds a controlling
interest in Universal. Other than in their capacities as stockholders and
officers of Seagram or Universal (and as directors and stockholders of the
Company), as applicable, these individuals do not have any direct or indirect
interest in the Universal-Company agreements.
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The Company believes that the business agreements described above and
entered into in connection with the Universal Transaction are all on terms at
least as favorable to the Company as terms that could have been obtained from an
independent third party.
The Company is a party to certain of the transaction agreements, including
the Spinoff Agreement, which agreements are filed as exhibits to this Report and
are summarized in the Company's Definitive Proxy Statement under "THE
TRANSACTION -- Description of the Transaction -- Related Agreements." That
description is incorporated herein by reference. Such agreements were negotiated
on an arm's-length basis prior to the time that Universal held an equity
interest in the Company.
In the ordinary course of business, and otherwise from time to time, the
Company may determine to enter into other agreements with Universal and its
affiliates.
Relationship between the Company and Liberty. The Company in the ordinary
course of business enters into agreements with Liberty and its affiliates
relating to, among other things, the carriage of HSN Programs pursuant to
affiliation agreements and the acquisition of, or other investment in,
businesses related to the Company's businesses. Neither Liberty nor TCI
currently has any members on the Company's Board of Directors; pursuant to the
agreements relating to the Universal Transaction, two designees of Liberty
(Messrs. Hindery and Bennett) are members of the USANi LLC Board of Directors.
Liberty and its affiliates hold a substantial equity interest in the Company,
and Liberty is a party to certain transaction agreements filed as exhibits to
this Report. The Company believes that its business agreements with
Liberty-related entities have been negotiated on an arm's-length basis and
contain terms at least as favorable to the Company as those that could be
obtained from an unaffiliated third party. Neither Liberty nor TCI derives any
benefit from such transactions other than in its capacity as a stockholder of
such other party or the Company, as the case may be.
In the ordinary course of business, and otherwise from time to time, the
Company may determine to enter into other agreements with Liberty and its
affiliates.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) List of Documents filed as part of this Report
(1) -- Consolidated Financial Statements
Report of Independent Auditor -- Ernst & Young LLP.
Independent Auditors' Report -- Deloitte & Touche LLP.
Consolidated Statements of Operations for the Years Ended
December 31, 1997 and 1996, the four months ended December
31, 1995 and the year ended August 31, 1995.
Consolidated Balance Sheets as of December 31, 1997 and
1996.
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1997 and 1996, the four months
ended December 31, 1995 and the year ended August 31, 1995.
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997 and 1996, the four months ended December
31, 1995 and the year ended August 31, 1995.
Notes to Consolidated Financial Statements.
(2) -- Consolidated Financial Statement Schedules
SCHEDULE PAGE
NUMBER NUMBER
- -------- ------
II -- Valuation and Qualifying Accounts........................... 97
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All other financial statements and schedules not listed have been omitted
since the required information is included in the Consolidated Financial
Statements or the notes thereto, or is not applicable or required.
(3) -- Exhibits (numbered in accordance with Item 601 of Regulation
S-K)
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
2.1 -- Agreement and Plan of Exchange and Merger by and among
Silver King Communications, Inc., House Acquisition Corp.,
Home Shopping Network, Inc. and Liberty HSN, Inc. as of
August 25, 1996 filed as Appendix B to the Company's
Definitive Proxy Statement, November 20, 1996 is hereby
incorporated by reference.
2.2 -- Agreement and Plan of Merger by and among Silver King
Communications, Inc., Thames Acquisition Corporation and
Savoy Pictures Entertainment, Inc., as amended and restated
August 13, 1996 filed as Appendix A to the Company's
Definitive Proxy Statement, November 20, 1996, is
incorporated herein by reference.
2.3 -- Investment Agreement among Universal Studios, Inc., HSN,
Inc., Home Shopping Network, Inc. and Liberty Media
Corporation dated as of October 19, 1997, as amended and
restated as of December 18, 1997, filed as Appendix A to the
Company's Definitive Proxy Statement, January 12, 1998, is
incorporated herein by reference.
3.1 -- Restated Certificate of Incorporation of the Registrant
filed as Exhibit 3.1 to the Company's Form 8-K, February 23,
1998 is incorporated herein by reference.
3.2 -- Amended and Restated By-Laws of the Registrant filed as
Exhibit 3.1 to the Company's Form 8-K, January 9, 1998 is
incorporated herein by reference.
4.0 -- Indenture dated as of March 1, 1996, for Home Shopping and
United States Trust Company of New York, as Trustee relating
to Home Shopping's 5.85% Convertible Subordinated Debentures
due March 1, 2006, filed as Exhibit 4.0 to Home Shopping's
Form S-3 Registration No. 333-10511 dated August 20, 1996,
is incorporated herein by reference.
4.1 -- First Supplemental Indenture dated as of December 20, 1996,
among Home Shopping Network, Inc., Silver King
Communications, Inc. and United States Trust Company of New
York, as Trustee filed as Exhibit 4.1 to Home Shopping's
Form 8-K/A, December 19, 1996, is incorporated herein by
reference.
4.2 -- Indenture, dated as of June 25, 1993, for the Savoy 7%
Convertible Subordinated Debentures due July 1, 2003, filed
as Exhibit 4(d) to Savoy's S-1 Registration Statement No.
33-63192, is incorporated herein by reference.
4.3 -- First Supplemental Indenture, dated as of October 24, 1993,
for the Savoy 7% Convertible Debentures due July 1, 2003,
filed as Exhibit 4(e) to Savoy's S-1 Registration Statement
No. 33-70160, is incorporated herein by reference.
4.4 -- Second Supplemental Indenture, dated as of December 17,
1993, for the Savoy 7% Convertible Debentures due July 1,
2003, filed as Exhibit bearing the same title in Savoy's
Form 10-K December 31, 1993, is incorporated herein by
reference.
4.5 -- Third Supplemental Indenture dated as of December 19, 1996
for the Savoy 7% Convertible Debentures due July 1, 2003
filed as Exhibit 4.1 to Savoy's Form 8-K, December 19, 1996,
is incorporated herein by reference.
4.6 -- Form of Common Stock Certificate.
10.1 -- Form of Affiliation Agreements between the Company and Home
Shopping filed as Exhibit 10.2 to the Company's Registration
Statement on Form 10, as amended, is incorporated herein by
reference.
*10.2 -- Form of 1992 Stock Option and Restricted Stock Plan between
the Company and Home Shopping filed as Exhibit 10.6 to the
Company's Registration Statement on Form 8, as amended, is
incorporated herein by reference.
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EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
*10.3 -- Form of Retirement Savings and Employment Stock Ownership
Plan filed as Exhibit 10.8 to the Company's Registration
Statement on Form 8, as amended, is incorporated herein by
reference.
10.4 -- Form of Indemnification Agreement filed as Exhibit 10.10 to
the Company's Registration Statement on Form 10, as amended,
is incorporated herein by reference.
10.5 -- Form of Loan Agreement, as amended, by and between Silver
King Capital Corporation, Inc. and Roberts Broadcasting
Company of Denver filed as Exhibit 10.17 to the Company's
Form 10-K, August 31, 1994, is incorporated herein by
reference.
10.6 -- Form of Shareholder Agreement by and among Silver King
Capital Corporation, Inc., Roberts Broadcasting Company of
Denver, Michael V. Roberts and Steven C. Roberts filed as
Exhibit 10.18 to the Company's Form 10-K, August 31, 1994,
is incorporated herein by reference.
10.7 -- Limited Liability Company Agreement (the "LLC"), Funding
Agreement and Form of First Amendment to LLC, Registration
Rights Agreement and associated documents between the
Company, the Class A Shareholders of Blackstar
Communications, Inc. and Fox Television Stations, Inc. dated
June 27, 1995 and August 18, 1995 filed as Exhibit 10.23 to
the Company's Form 10-K, August 31, 1995, are incorporated
herein by reference.
*10.8 -- 1986 Stock Option Plan for Employees dated August 1, 1986,
filed as Exhibit 10.33 to Home Shopping's Form S-1
Registration Statement No. 33-8560, dated October 15, 1986,
is incorporated herein by reference.
*10.9 -- First, Second, Third and Fourth Amendments to the 1986 Stock
Option Plan for Employees filed as Exhibit 10.31 to Home
Shopping's Annual Report on Form 10-K, December 31, 1993,
are incorporated herein by reference.
*10.10 -- Form of 1990 Executive Stock Award Program dated October 17,
1990, as amended, filed as Exhibit 10.23 to Home Shopping's
Annual Report on Form 10-K, August 31, 1991, is incorporated
herein by reference.
10.11 -- Stock Purchase Agreement by and between Home Shopping and
The National Registry Inc. dated April 28, 1992 filed as
Exhibit 10.29 to Home Shopping's Annual Report on Form 10-K,
August 31, 1992, is incorporated herein by reference.
10.12 -- Credit Card Program Agreement, dated as of February 16,
1994, by and among Home Shopping, participating subsidiaries
and General Electric Capital Corporation filed as Exhibit
10.30 to Home Shopping's Annual Report on Form 10-K,
December 31, 1993, is incorporated herein by reference.
*10.13 -- Home Shopping Network, Inc. Employee Stock Purchase Plan and
Part-Time Employee Stock Purchase Plan filed as Exhibit
10.30 to Home Shopping's Annual Report on Form 10-K for year
ended December 31, 1994, is incorporated herein by
reference.
*10.14 -- Home Shopping Network, Inc. Employee Equity Participation
Plan and Agreement and Declaration of Trust filed as Exhibit
10.31 to Home Shopping's Annual Report on Form 10-K,
December 31, 1994, is incorporated herein by reference.
*10.15 -- Home Shopping Network, Inc. 1996 Stock Option Plan for
Employees filed as Exhibit A to the Home Shopping Definitive
Proxy Statement, March 28, 1996, is incorporated herein by
reference.
*10.16 -- Home Shopping Network, Inc. 1996 Stock Option Plan for
Outside Directors filed as Exhibit B to the Home Shopping
Definitive Proxy Statement, March 28, 1996, is incorporated
herein by reference.
10.17 -- Binding Term Sheet for the Stockholders Agreement dated
August 24, 1995, between Barry Diller and Liberty Media
Corporation and the First Amendment thereto dated August 25,
1996, filed as Appendix I to the Company's Definitive Proxy
Statement, November 20, 1996, are incorporated herein by
reference.
10.18 -- Exchange Agreement dated as of December 20, 1996 by and
between the Registrant and Liberty HSN, Inc. filed as
Exhibit 10.25 to the Company's Form 10-K, December 31, 1996,
is incorporated herein by reference.
89
92
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
*10.19 -- Equity and Bonus Compensation Agreement dated as of August
24, 1995 between Barry Diller and the Registrant filed as
Exhibit 10.26 to the Company's Form 10-K, December 31, 1996,
is incorporated herein by reference.
*10.20 -- Silver King Communications, Inc. 1995 Stock Incentive Plan
filed as Appendix G to the Company's Definitive Proxy
Statement, November 20, 1996, is incorporated herein by
reference.
*10.21 -- Silver King Communications, Inc. Directors' Stock Option
Plan filed as Appendix H to the Company's Definitive Proxy
Statement, November 20, 1996, is incorporated herein by
reference.
*10.22 -- Employment Agreement between the Registrant and Douglas
Binzak dated as of February 13, 1996 filed as Exhibit 10.29
to the Company's Form 10-K, December 31, 1996, is
incorporated herein by reference.
*10.23 -- Employment Agreement between the Registrant and Adam Ware
dated as of May 28, 1996 filed as Exhibit 10.30 to the
Company's Form 10-K, December 31, 1996, is incorporated
herein by reference.
*10.24 -- Employment Agreement between Home Shopping and James G.
Held, dated as of November 24, 1995 filed as Exhibit 10.35
to Home Shopping's Annual Report on Form 10-K, December 31,
1995, is incorporated herein by reference.
*10.25 -- Employment Agreement between Home Shopping and James G.
Gallagher, dated as of October 14, 1996 filed as Exhibit
10.33 to the Company's Form 10-K, December 31, 1996, is
incorporated herein by reference.
10.26 -- Letter Agreement dated April 3, 1996 between Home Shopping
Network, Inc. and Gen. H. Norman Schwarzkopf filed as
Exhibit 10.34 to the Company's Form 10-K, December 31, 1996,
is incorporated herein by reference.
10.27 -- Shareholders Agreement dated December 12, 1996 Relating to
Jupiter Shop Channel Co. Ltd. among Jupiter Programming Co.
Ltd., Home Shopping Network, Inc. and Jupiter Shop Channel
Co. Ltd. filed as Exhibit 10.35 to the Company's Form 10-K,
December 31, 1996, is incorporated herein by reference.
10.28 -- Services and Trademark Licence Agreement dated as of
December 12, 1996 between Home Shopping Network, Inc. and
Jupiter Shop Channel Co. Ltd. filed as Exhibit 10.36 to the
Company's Form 10-K, December 31, 1996, is incorporated
herein by reference.
10.29 -- Purchase and Sale Agreement among Home Shopping Network
GmbH, Home Shopping Network, Inc., Quelle Schickedanz AG &
Co., Mr. Thomas Kirch and Dr. Georg Kofler dated January 16,
1997 filed as Exhibit 10.37 to the Company's Form 10-K,
December 31, 1996, is incorporated herein by reference.
10.30 -- Joint Venture Agreement Between Quelle Schickedanz AG & Co.,
Home Shopping Network, Inc., Home Shopping Network GmbH, Mr.
Thomas Kirch and Dr. Georg Kofler, filed as Exhibit 5.3 to
the Purchase and Sale Agreement filed as Exhibit 10.38 to
the Company's Form 10-K, December 31, 1996, is incorporated
herein by reference.
10.31 -- License Agreement dated as of January 1, 1996 between Ronald
A. Katz Technology Licensing, L.P. and Home Shopping
Network, Inc. filed as Exhibit 10.39 to the Company's Form
10-K, December 31, 1996, is incorporated herein by
reference.
10.32 -- Shareholder Agreement dated as of April 26, 1996 by and
among Channel 66 of Vallejo, California, Inc., Whitehead
Media of California, Inc. and Silver King Capital
Corporation, Inc. filed as Exhibit 10.40 to the Company's
Form 10-K, December 31, 1996, is incorporated herein by
reference.
10.33 -- Loan Agreement dated as of April 26, 1996 by and between SKC
Investments, Inc. and Channel 66 of Vallejo, California,
Inc. filed as Exhibit 10.41 to the Company's Form 10-K,
December 31, 1996, is incorporated herein by reference.
10.34 -- Joint Venture and License Agreement, dated as of June 12,
1992, between Savoy Pictures Entertainment, Inc. and Home
Box Office, Inc. (confidential treatment for portions
thereof granted), filed as an exhibit bearing the same title
in Savoy's S-1 Registration Statement No. 33-57596, is
incorporated herein by reference.
90
93
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.35 -- License Agreement, dated as of June 12, 1992, among Savoy
Pictures Entertainment, Inc. and Home Box Office, Inc.
(confidential treatment of portions thereof granted), filed
as an exhibit bearing the same title in Savoy's S-1
Registration Statement No. 33-57596, is incorporated herein
by reference.
10.36 -- Warrant Agreement, dated as of March 2, 1992, between Savoy
Pictures Entertainment, Inc. and Allen & Company
Incorporated, filed as an exhibit bearing the same title in
Savoy's S-1 Registration Statement No. 33-57596, is
incorporated herein by reference.
10.37 -- Warrant Agreement, dated as of March 2, 1992, between Savoy
Pictures Entertainment, Inc. and GKH Partners, L.P., filed
as an exhibit bearing the same title in Savoy's S-1
Registration Statement No. 33-57596, is incorporated herein
by reference.
10.38 -- Warrant Agreement, dated as of April 20, 1994 between Savoy
and GKH Partners, L.P., filed as an exhibit bearing the same
title in Savoy's Form 10-Q, March 31, 1994, is incorporated
herein by reference.
10.39 -- Subscription and Shareholders Agreement, dated as of October
28, 1994 by and among SF Multistations, Inc., FTS
Investments, Inc. and Savoy Stations, Inc., filed as an
exhibit bearing the same title in Savoy's Form 8-K, August
22, 1995, is incorporated herein by reference.
10.40 -- Subscription and Shareholders Agreement, dated as of October
28, 1994 by and among SF Broadcasting of Wisconsin, Inc.,
FTS Investments, Inc. and Savoy Stations, Inc., as amended,
filed as an exhibit bearing the same title in Savoy's Form
8-K, August 22, 1995, is incorporated herein by reference.
10.41 -- Credit Agreement, dated as of June 1, 1995, among Savoy, the
financial institutions from time to time party thereto and
Chemical Bank as Administrative Agent and Collateral Agent,
filed as Exhibit 10 to Savoy's Form 10-Q, June 30, 1995, is
incorporated herein by reference.
10.42 -- First Amendment and Waiver, dated as of March 11, 1996, to
the Credit Agreement, dated as of June 1, 1995, among Savoy,
the financial institutions party thereto and Chemical Bank,
as Administrative Agent and Collateral Agent, filed as
Exhibit 10(r) to Savoy's Form 10-K, December 31, 1995, is
incorporated herein by reference.
10.43 -- Credit Agreement, dated as of June 30, 1995, among SF
Broadcasting of Green Bay, Inc., SF Broadcasting of Mobile,
Inc., SF Broadcasting of New Orleans, Inc., and SF
Broadcasting of Honolulu, Inc., the financial institutions
from time to time party thereto, Chemical Bank, as
administrative agent and as collateral agent, First Union
National Bank of North Carolina, as managing agent, and The
Bank of New York, Natwest Bank, N.A. and Banque Paribas as
co-agents, filed as an exhibit bearing the same title in
Savoy's Form 8-K, August 22, 1995, is incorporated herein by
reference.
10.44 -- Station Affiliation Agreement, dated as of April 28, 1995,
between Fox Broadcasting Company and SF Broadcasting of
Green Bay, Inc., filed as Exhibit 10(u) to Savoy's Form
10-K, December 31, 1995, is incorporated herein by
reference.
10.45 -- Station Affiliation Agreement, dated as of August 22, 1995,
between Fox Broadcasting Company and SF Broadcasting of
Honolulu, Inc., filed as Exhibit 10(v) to Savoy's Form 10-K,
December 31, 1995, is incorporated herein by reference.
10.46 -- Station Affiliation Agreement, dated as of August 22, 1995,
between Fox Broadcasting Company and SF Broadcasting of
Mobile, Inc., filed as Exhibit 10(w) to Savoy's Form 10-K,
December 31, 1995, is incorporated herein by reference.
10.47 -- Form of Amendment and Waiver to the Credit Agreement, dated
as of June 30, 1995, among SF Broadcasting of New Orleans,
Inc., SF Broadcasting of Mobile, Inc., SF Broadcasting of
Honolulu, Inc. and SF Broadcasting of Green Bay, Inc., as
borrowers, the financial institutions from time to time
party thereto, and The Chase Manhattan Bank (formerly known
as Chemical Bank) (as administrative agent and collateral
agent), filed as Exhibit 10.1 to Savoy's Form 10-Q,
September 30, 1996, is incorporated herein by reference.
*10.48 -- Amended and Restated Stock Option Plan (including form of
Stock Options Agreement) filed as Exhibit 4.1 to Savoy's
Registration Statement No. 33-70740, is incorporated herein
by reference.
91
94
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
*10.49 -- Savoy 1995 Stock Option Plan filed as Exhibit 10(+) to
Savoy's Form 10-K, December 31, 1995, is incorporated herein
by reference.
10.50 -- $1,600,000,000 Credit Agreement dated February 12, 1998
among USA Networks, Inc., USANi LLC, as Borrower, Various
Lenders, The Chase Manhattan Bank as Administrative Agent,
Syndication Agent and Collateral Agent, and Bank of America
National Trust & Savings Association and The Bank of New
York as Co-Documentation Agents.
10.51 -- Form of Governance Agreement among HSN, Inc., Universal
Studios, Inc., Liberty Media Corporation and Barry Diller,
dated as of October 19, 1997, filed as Appendix B to the
Company's Definitive Proxy Statement, January 12, 1998, is
incorporated herein by reference.
10.52 -- Form of Stockholders Agreement among Universal Studios,
Inc., Liberty Media Corporation, Barry Diller, HSN, Inc. and
The Seagram Company Ltd. dated as of October 19, 1997, filed
as Appendix C to the Company's Definitive Proxy Statement,
January 12, 1998, is incorporated herein by reference.
10.53 -- Form of Spinoff Agreement between Liberty Media Corporation
and Universal Studios, Inc. dated as of October 19, 1997,
filed as Appendix D to the Company's Definitive Proxy
Statement, January 12, 1998, is incorporated herein by
reference.
*10.54 -- HSN, Inc. 1997 Stock and Annual Incentive Plan filed as
Appendix F to the Company's Definitive Proxy Statement,
January 12, 1998, is incorporated herein by reference.
*10.55 -- Employment Agreement between Jed B. Trosper and Home
Shopping Network, Inc. dated January 13, 1997.
*10.56 -- Employment Agreement between Thomas J. Kuhn and HSN, Inc.
dated February 9, 1998.
*10.57 -- Employment Agreement between Dara Khosrowshahi and USA
Networks, Inc. dated March , 1998.
*10.58 -- HSN, Inc. Retirement Savings Plan.
10.59 -- Amended and Restated Limited Liability Company Agreement of
USANi LLC dated as of February 12, 1998.
10.60 -- Exchange Agreement dated as of October 19, 1997 by and among
HSN, Inc. (to be renamed USA Networks, Inc.), Universal
Studios, Inc. (and certain of its subsidiaries) and Liberty
Media Corporation (and certain of its subsidiaries).
10.61 -- Agreement and Plan of Merger by and among USA Networks,
Inc., Brick Acquisition Corp. and Ticketmaster Group, Inc.
as of March 20, 1998.
21 -- Subsidiaries of the Company (incorporated as pages 94-96 of
this 1997 Annual Report on Form 10-K).
23.1 -- Consent of Ernst & Young LLP
23.2 -- Consent of Deloitte & Touche LLP
27.1 -- Financial Data Schedule for the year ended December 31, 1997
(for SEC use only)
27.2 -- Financial Data Schedule for the year ended December 31, 1996
-restated (for SEC use only)
27.3 -- Financial Data Schedule for the four months ended December
31, 1995 - restated (for SEC use only)
27.4 -- Financial Data Schedule for the year ended August 31, 1995 -
restated (for SEC use only)
- ---------------
* Reflects management contracts and compensatory plans.
(b) Reports on Form 8-K.
On October 20, 1997, the Company filed a report on Form 8-K containing the
press release announcing execution of the Investment Agreement in connection
with the Universal Transaction.
92
95
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
March 30, 1998
USA NETWORKS, INC.
By: /s/ BARRY DILLER
------------------------------------
Barry Diller
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on March 30, 1998.
SIGNATURE TITLE
--------- -----
/s/ BARRY DILLER Chairman of the Board, Chief Executive Officer
- ----------------------------------------------------- and Director
Barry Diller
/s/ BRIAN J. FELDMAN Controller (Chief Accounting Officer)
- -----------------------------------------------------
Brian J. Feldman
/s/ VICTOR A. KAUFMAN Director, Office of the Chairman and Chief
- ----------------------------------------------------- Financial Officer (Principal financial
Victor A. Kaufman officer)
/s/ PAUL G. ALLEN Director
- -----------------------------------------------------
Paul G. Allen
/s/ FRANK J. BIONDI, JR. Director
- -----------------------------------------------------
Frank J. Biondi, Jr.
/s/ EDGAR BRONFMAN, JR. Director
- -----------------------------------------------------
Edgar Bronfman, Jr.
/s/ JAMES G. HELD Director
- -----------------------------------------------------
James G. Held
/s/ ROBERT W. MATSCHULLAT Director
- -----------------------------------------------------
Robert W. Matschullat
/s/ SAMUEL MINZBERG Director
- -----------------------------------------------------
Samuel Minzberg
/s/ WILLIAM D. SAVOY Director
- -----------------------------------------------------
William D. Savoy
/s/ H. NORMAN SCHWARZKOPF Director
- -----------------------------------------------------
H. Norman Schwarzkopf
Director
- -----------------------------------------------------
Richard E. Snyder
93
96
EXHIBIT 21
LIST OF SUBSIDIARIES OF USA NETWORKS, INC. (FORMERLY HSN, INC.)
A DELAWARE CORPORATION
AS OF MARCH 1, 1998
PLACE OF
SUBSIDIARY ORGANIZATION
---------- -------------
Exception Management Services LLC........................... Delaware
Home Shopping Club LP....................................... Delaware
d/b/a Home Shopping Club
Telemation
Spree
Home Shopping Spree
HSN Spree
HSC Spree
Home Shopping Network
Home Shopping Direct
Home Shopping Network en Espanol............................ Delaware
Home Shopping Network GmbH.................................. Germany
Home Shopping Network, Inc.................................. Delaware
d/b/a Home Shopping Network
The Home Shopping Network
HSN Capital LLC............................................. Nevada
HSN Direct LLC.............................................. Delaware
d/b/a Innovations in Living
HSN Direct
Home Shopping Showcase
HSN Direct Joint Venture
HSN Fulfillment LLC......................................... Delaware
d/b/a HSC Outlet
Home Shopping Network Outlet
HSN Liquidation Center
HSN Wholesale Liquidation
Designer Direct
Home Shopping Values
Private Showing -- Jewelry Values by Mail
HSN Media Merchandise
HSC By Mail
HSN By Mail
Home Shopping By Mail
HSN General Partner LLC..................................... Delaware
HSN Holdings, Inc. ......................................... Delaware
HSN of Nevada LLC........................................... Nevada
HSN Realty LLC.............................................. Delaware
d/b/a HSN Realty of Delaware
HSN Travel LLC.............................................. Delaware
d/b/a Home Shopping Travel
Internet Shopping Network LLC............................... California
MarkeTech Services, Inc..................................... Delaware
National Call Center LP..................................... Delaware
New-U Development LLC....................................... Delaware
New-U Distribution LLC...................................... Delaware
New-U First Run LLC......................................... Delaware
94
97
PLACE OF
SUBSIDIARY ORGANIZATION
---------- -------------
New-U Member, Inc........................................... Delaware
New-U Pictures Development LLC.............................. Delaware
New U Pictures Facilities LLC............................. Delaware
New-U Pictures LLC.......................................... Delaware
New-U Productions LLC....................................... Delaware
New-U Talk Video LLC...................................... Delaware
New-U Studios Holdings, Inc................................. Delaware
New-U Studios LLC........................................... Delaware
New-U Studios, Inc.......................................... Delaware
New-U Talk LLC.............................................. Delaware
New-U Television LLC........................................ Delaware
USA Network General Partnership............................. New York
USA Networks Holdings, Inc.................................. Delaware
USA Partner LLC............................................. Delaware
USANi LLC................................................... Delaware
USANi Sub LLC............................................... Delaware
Vela Research LP............................................ Delaware
Vela Research Holdings LLC................................ Delaware
Miami, USA Broadcasting, Inc................................ Delaware
Miami, USA Broadcasting Productions, Inc.................... Florida
Miami, USA Broadcasting Station Productions, Inc............ Florida
North Central LTPV, Inc..................................... Delaware
Northeast LTPV, Inc......................................... Delaware
Silver King Capital Corporation, Inc........................ Delaware
Silver King Investment Holdings, Inc........................ Delaware
SK Holdings, Inc............................................ Delaware
SKC Investments, Inc........................................ Delaware
SKDA Broadcasting Partnership............................... Delaware
SKFL Broadcasting Partnership............................... Delaware
SKHO Broadcasting Partnership............................... Delaware
SKIL Broadcasting Partnership............................... Delaware
SKLA Broadcasting Partnership............................... Delaware
SKMA Broadcasting Partnership............................... Delaware
SKMD Broadcasting Partnership............................... Delaware
SKNJ Broadcasting Partnership............................... Delaware
SKOH Broadcasting Partnership............................... Delaware
SKTA Broadcasting Partnership............................... Delaware
SKVI Broadcasting Partnership............................... Delaware
South Central LPTV, Inc..................................... Delaware
Southeast LPTV, Inc......................................... Delaware
Telemation, Inc............................................. Delaware
USA Broadcasting, Inc....................................... Delaware
USA Broadcasting Productions, Inc........................... Delaware
USA Station Group, Inc...................................... Delaware
USA Station Group -- LPTV, Inc.............................. Delaware
USA Station Group of Dallas, Inc............................ Delaware
USA Station Group of Hollywood, Florida, Inc................ Delaware
USA Station Group of Houston, Inc........................... Delaware
USA Station Group of Illinois, Inc.......................... Delaware
USA Station Group of Maryland, Inc.......................... Delaware
USA Station Group of Massachusetts, Inc..................... Delaware
95
98
PLACE OF
SUBSIDIARY ORGANIZATION
---------- -------------
USA Station Group of New Jersey, Inc........................ Delaware
USA Station Group of Northern California, Inc............... Delaware
USA Station Group of Ohio, Inc.............................. Delaware
USA Station Group of Southern California, Inc............... Delaware
USA Station Group of Tampa, Inc............................. Delaware
USA Station Group of Vineland, Inc.......................... Delaware
USA Station Group of Virginia, Inc.......................... Delaware
West LPTV, Inc.............................................. Delaware
Bayou Productions, Inc...................................... Delaware
Bison Pictures, Inc......................................... Delaware
Buffalo Development Corporation............................. Delaware
Columbia
Getting Away Productions, Inc............................... Ontario
Getting Away With Murder Productions, Inc................... California
Getting Away With Murder Productions, Inc................... Delaware
Inflammable Productions, Inc................................ Delaware
J&H Productions, Inc........................................ Quebec
Jekyll Productions, Inc..................................... Delaware
Laramie Productions, Inc.................................... Delaware
Mariette Productions Canada, Inc............................ Ontario
Mariette Productions, Inc................................... Delaware
Savoy Pictures Entertainment, Inc........................... Delaware
Savoy Pictures Print Services, Inc.......................... Delaware
Savoy Pictures Television Development, Inc.................. Delaware
Savoy Pictures Television Productions, Inc.................. Delaware
Savoy Pictures Television Programming, Inc.................. Delaware
Savoy Pictures Television, Inc.............................. Delaware
Savoy Pictures, Inc......................................... Delaware
Savoy Pictures, Inc......................................... Massachusetts
Savoy Stations, Inc......................................... Delaware
Savoy Television Holdings, Inc.............................. Delaware
SF Broadcasting of Green Bay, Inc........................... Delaware
SF Broadcasting of Honolulu, Inc............................ Delaware
SF Broadcasting of Mobile, Inc.............................. Delaware
SF Broadcasting of New Orleans, Inc......................... Delaware
SF Broadcasting of Wisconsin, Inc........................... Delaware
SF Green Bay License Subsidiary, Inc........................ Delaware
SF Honolulu License Subsidiary, Inc......................... Delaware
SF Mobile License Subsidiary, Inc........................... Delaware
SF Multistations, Inc....................................... Delaware
SF New Orleans License Subsidiary, Inc...................... Delaware
Simple Plan Productions, Inc................................ Delaware
The Stupids Family Productions, Inc......................... Delaware
The Stupids Productions (Canada), Inc....................... Britain
Thin Line Productions, Inc.................................. Delaware
Without Remorse Productions, Inc............................ Delaware
Zeus Productions, Inc....................................... Delaware
96
99
SCHEDULE II
USA NETWORKS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
BALANCE CHARGES CHARGES BALANCE
AT TO TO AT
BEGINNING COSTS AND OTHER DEDUCTIONS -- END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS(2) DESCRIBE(1) OF PERIOD
- ----------- --------- --------- ----------- ------------- ---------
(IN THOUSANDS)
Allowance for doubtful accounts:
Year ended December 31, 1997....... $2,679 $3,432 $ 813 $(3,336) $3,588
====== ====== ====== ======= ======
Year ended December 31, 1996....... $ 68 $ 23 $2,751 $ (163) $2,679
====== ====== ====== ======= ======
Four months ended December 31,
1995............................ $ 82 $ 51 $ -- $ (65) $ 68
====== ====== ====== ======= ======
Year ended August 31, 1995......... $ 73 $ 179 $ -- $ (170) $ 82
====== ====== ====== ======= ======
- ---------------
(1) Write-off fully reserved accounts receivable.
(2) Amounts relate to mergers with Savoy Pictures Entertainment, Inc. and
subsidiaries, Home Shopping Network, Inc. and subsidiaries for 1996 and the
acquisition of USA Networks, Inc.'s interest in Ticketmaster Group, Inc. in
1997.
97
1
EXHIBIT 4.6
[NUMBER] [SHARES]
USA USA NETWORKS, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
COMMON STOCK
SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP 902984 10 3
THIS CERTIFIES THAT
IN THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, $.01 PAR VALUE PER
SHARE, OF
USA NETWORKS, INC. transferable on the books of the Company by the holder hereof
in person or by his duly authorized attorney upon surrender of this certificate
properly endorsed. This certificate and the shares represented hereby are
issued and shall be held subject to all the provisions of the Certificate of
Incorporation, as now and hereafter amended, and of the Bylaws of the Company
(copies thereof being on file with the Secretary of the Company) and the holder
hereof, by accepting this certificate, expressly assents hereto. This
certificate is not valid unless countersigned and registered by the Transfer
Agent and Registrar.
Witness the seal of the Company and the facsimile signatures of its duly
authorized officers.
Dated:
USA Networks, Inc.
Corporate
SEAL
1966
DELAWARE
/S/ Barry Diller
CHAIRMAN OF THE BOARD /S/ Thomas Kuhn
AND CHIEF EXECUTIVE OFFICER SECRETARY
COUNTERSIGNED AND REGISTERED:
THE BANK OF NEW YORK
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
2
USA NETWORKS, INC.
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO REQUESTS,
A STATEMENT OF THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE,
PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR
SERIES THEREOF AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH
PREFERENCES AND/OR RIGHTS.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- _____________ Custodian ___________
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act __________________
in common (State)
Additional abbreviations may also be used though not in the above list
For value received, __________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
[ ]
_______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
_______________________________________________________________________________
_______________________________________________________________________________
________________________________________________________________________ shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint ___________________________________________
Attorney to transfer the said stock on the books of the within named
Corporation with full power of substitution in the premises.
Dated:
-------------------------
Signature:
_______________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN
EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) guaranteed:
________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY
AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN
ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-15.
1
EXHIBIT 10.50
EXECUTION COPY
CREDIT AGREEMENT
Among
USA NETWORKS, INC.
USANi LLC,
as Borrower
The Lenders Party Hereto
and
BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION,
as Co-Documentation Agent
THE BANK OF NEW YORK,
as Co-Documentation Agent
THE CHASE MANHATTAN BANK,
as Administrative Agent,
Syndication Agent and
Collateral Agent
___________________________
CHASE SECURITIES INC.,
as Arranger
dated as of February 12, 1998
2
TABLE OF CONTENTS
Page
----
ARTICLE I
Definitions
SECTION 1.01. Certain Defined Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.02. Classification of Loans and Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 1.03. Terms Generally; Certain Accounting Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE II
The Credits
SECTION 2.01. Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 2.02. Loans and Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 2.03. Requests for Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 2.04. Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 2.05. Funding of Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 2.06. Interest Elections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 2.07. Termination; Reduction; and Increase of Commitments . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 2.08. Repayment of Loans; Evidence of Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 2.09. Amortization of Term Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 2.10. Prepayment of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 2.11. Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 2.12. Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 2.13. Alternate Rate of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 2.14. Increased Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 2.15. Break Funding Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 2.16. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 2.17. Payments Generally; Pro Rata Treatment; Sharing of Setoffs . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 2.18. Mitigation Obligations; Replacement of Lenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 2.19. Swingline Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
ARTICLE III
Representations and Warranties
SECTION 3.01. Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 3.02. Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 3.03. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 3.04. No Breach or Default, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 3.05. Corporate Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 3.06. Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 3.07. Use of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 3.08. ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 3.09. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 3.10. Credit Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 3.11. Ownership of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 3.12. Status of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
3
SECTION 3.13. Investment Company Act; Public Utility Holding Company Act . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 3.14. Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 3.15. FCC Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 3.16. Pledge Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 3.17. Labor Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 3.18. Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
ARTICLE IV
Conditions Precedent
SECTION 4.01. Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 4.02. Each Credit Event . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
ARTICLE V
Covenants of the Borrower and the Guarantors
SECTION 5.01. Financial Statements; Reports and Other Information . . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 5.02. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 5.03. Legal Existence, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 5.04. Payment of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
SECTION 5.05. Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
SECTION 5.06. Sale and Lease-Back Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
SECTION 5.07. Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
SECTION 5.08. Ranking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 5.09. Business; Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 5.10. Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 5.11. Interest Coverage Test. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 5.12. Total Debt Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 5.13. Fixed Charges Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 5.14. Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
SECTION 5.15. Notification of Incurrence of Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
SECTION 5.16. Mergers and Sale of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
SECTION 5.17. Dispositions of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
SECTION 5.18. Restricted Payments; Restrictions on Ability of Subsidiaries to Pay Dividends . . . . . . . . . . . . 57
SECTION 5.19. Restricted Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
SECTION 5.20. Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
SECTION 5.21. Deleveraging Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
SECTION 5.22. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
SECTION 5.23. Certain Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
SECTION 5.24. Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
SECTION 5.25. Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
SECTION 5.26. Ownership of the Guarantors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
ARTICLE VI
Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
ARTICLE VII
The Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
ARTICLE VIII
Miscellaneous
SECTION 8.01. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
SECTION 8.02. Waivers; Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
SECTION 8.03. Expenses; Indemnity; Damage Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
4
SECTION 8.04. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
SECTION 8.05. Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
SECTION 8.06. Counterparts; Integration; Effectiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
SECTION 8.07. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
SECTION 8.08. Right of Setoff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
SECTION 8.09. Governing Law; Jurisdiction; Consent to Service of Process . . . . . . . . . . . . . . . . . . . . . . 73
SECTION 8.10. WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
SECTION 8.11. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
SECTION 8.12. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
SECTION 8.13. Release of Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
5
Page
----
SCHEDULES:
Schedule 1.01(a) Description of Credit Card Program
Schedule 1.01(b) Non-Guarantor Subsidiaries
Schedule 1.01(c) Material Subsidiaries
Schedule 1.01(d) SF Broadcasting Companies
Schedule 2.01 Lenders and Commitments
Schedule 2.07(e) Term Sheet
Schedule 3.10 Credit Agreements
Schedule 3.15 FCC Matters
Schedule 4.01(i) Sources and Uses
Schedule 5.05 Liens
Schedule 5.07 Indebtedness
Schedule 5.17 Disposition of Assets
Schedule 5.19 Investments
EXHIBITS:
Exhibit A Form of Assignment and Acceptance
Exhibit B Form of Guarantee Agreement
Exhibit C Form of Indemnity, Contribution and Subrogation Agreement
Exhibit D Form of Intercompany Note
Exhibit E Form of Pledge Agreement
Exhibit F Forms of Opinion
Exhibit G Form of Total Debt Ratio Notice
Exhibit H Form of Compliance Certificate
6
CREDIT AGREEMENT dated as of February 12, 1998, among USA
NETWORKS, INC., a Delaware corporation ("USANi"), USANi LLC, a Delaware limited
liability company (the "Borrower"), the LENDERS party hereto, BANK OF AMERICA
NATIONAL TRUST & SAVINGS ASSOCIATION and THE BANK OF NEW YORK, as
codocumentation agents (in such capacity, the "CoDocumentation Agents") and THE
CHASE MANHATTAN BANK, as administrative agent (in such capacity, the
"Administrative Agent") and as collateral agent (in such capacity, the
"Collateral Agent").
Pursuant to the Investment Agreement (such term and each other
capitalized term used but not defined below having the meaning assigned in
Section 1.01), on the Effective Date: (a) USANi, Home Shopping, Universal and
certain of Universal's subsidiaries will contribute to the Borrower the assets
which the Investment Agreement contemplates will be contributed to the Borrower
on the Effective Date; (b) the Borrower will pay to a subsidiary of Universal a
cash amount or other cash distribution not to exceed approximately
$1,633,000,000 (of which $300,000,000 will be deferred until the consummation
of the Liberty Transaction); (c) the Borrower will lend to USANi an amount
sufficient to enable USANi to repay all the outstanding indebtedness and other
obligations under the Existing Credit Agreement, which will be in an aggregate
amount not more than approximately $100,000,000, and USANi will repay all such
amounts in full; (d) the Borrower, USANi and Liberty contemplate a transaction
(the "Liberty Transaction") in which Liberty will after the Effective Date
contribute cash and/or assets to USANi or the Borrower; (e) transaction costs
in an amount not to exceed $30,000,000 will be paid; and (f) the corporate name
of HSN, Inc. will be changed to USA Networks, Inc.
USANi and the Borrower have requested (a) the Lenders to
extend credit to the Borrower in the form of (i) Tranche A Term Loans on the
Effective Date, in an aggregate principal amount not in excess of $750,000,000,
(ii) Tranche B Term Loans on the Effective Date, in an aggregate principal
amount not in excess of $250,000,000, and (iii) Revolving Loans at any time and
from time to time prior to the Revolving Maturity Date, in an aggregate
principal amount at any time outstanding not in excess of $600,000,000, and (b)
the Issuing Bank to extend credit to the Borrower in the form of Letters of
Credit at any time and from time to time prior to the Revolving Maturity Date,
in an aggregate stated amount at any time outstanding not in excess of
$40,000,000.
The Lenders are willing to extend such credit to the Borrower
and the Issuing Bank is willing to issue Letters of Credit for the account of
the Borrower, on the terms and subject to the conditions set forth herein.
Accordingly, the parties hereto agree as follows:
ARTICLE I
Definitions
SECTION 1.01. Certain Defined Terms. As used herein, the
following terms shall have the following meanings:
7
"ABR", when used in reference to any Loan or Borrowing, refers
to whether such Loan, or the Loans comprising such Borrowing, are bearing
interest at a rate determined by reference to the Alternate Base Rate.
"Acquired Assets" shall mean the assets contributed to the
Borrower on the Effective Date pursuant to the Investment Agreement and shall
include, upon the consummation of the Liberty Transaction, the Liberty Assets.
"Adjusted LIBO Rate" shall mean, with respect to any
Eurodollar Borrowing for any Interest Period, an interest rate per annum
(rounded upwards, if necessary, to the next 1/16 of 1%) equal to (a) the LIBO
Rate for such Interest Period multiplied by (b) the Statutory Reserve Rate.
"Administrative Agent" shall have the meaning assigned to such
term in the preamble.
"Administrative Questionnaire" shall mean an Administrative
Questionnaire in a form supplied by the Administrative Agent.
"Affiliate" shall mean, with respect to any Person, any other
Person, directly or indirectly through one or more intermediaries, Controlling,
Controlled by, or under direct or indirect common Control with, such Person.
"Alternate Base Rate" shall mean, for any day, a rate per
annum equal to the greatest of (a) the Prime Rate in effect on such day, (b)
the Base CD Rate in effect on such day plus 1% and (c) the Federal Funds
Effective Rate in effect on such day plus 1/2 of 1%. Any change in the
Alternate Base Rate due to a change in the Prime Rate, the Base CD Rate or the
Federal Funds Effective Rate shall be effective from and including the
effective date of such change in the Prime Rate, the Base CD Rate or the
Federal Funds Effective Rate, respectively.
"Applicable Percentage" shall mean, with respect to any
Revolving Lender, the percentage of the total Revolving Commitments represented
by such Lender's Revolving Commitment. If the Revolving Commitments have
terminated or expired, the Applicable Percentages shall be determined based
upon the Revolving Commitments most recently in effect, giving effect to any
assignments.
"Applicable Rate" shall mean, for any day (a) with respect to
any ABR Loan or Eurodollar Loan that is a Revolving Loan or a Tranche A Term
Loan, as the case may be, the applicable rate per annum set forth below under
the caption "ABR Spread" or "Eurodollar Spread", as the case may be, (b) with
respect to any ABR Loan or Eurodollar Loan that is a Tranche B Term Loan, the
applicable rate per annum set forth below under the caption "Tranche B ABR
Spread" or "Tranche B Eurodollar Spread", as the case may be, and (c) with
respect to the commitment fees payable hereunder, the applicable rate per annum
set forth below under the caption "Commitment Fee Rate", in each case based
upon the Total Debt Ratio as set forth in the Total Debt Ratio Notice most
recently delivered under Section 5.01(g); provided that until the delivery of
the Total Debt Ratio Notice in respect of the Fiscal Quarter ending March 31,
1998 the "Applicable Rate" shall be the applicable rate per annum set forth
below in Category 4:
Tranche B
ABR Eurodollar Tranche B ABR Eurodollar Commitment Fee
Total Debt Ratio: Spread Spread Spread Spread Rate
----------------- ------ ------ ------ ------ ----
Category 1 0% .750% .500% 1.500% .1875%
----------
Less than 2.0 to 1.0
Category 2 0% 1.000% .500% 1.500% .2500%
----------
Greater than or equal to 2.0
to 1.0, but less than 3.0 to
1.0
Category 3 .250% 1.250% .750% 1.750% .3000%
----------
Greater than or equal to 3.0
to 1.0, but less than 4.0 to
1.0
Category 4 .500% 1.500% .750% 1.750% .3750%
----------
Greater than or equal to 4.0
to 1.0
8
For purposes of the foregoing, each change in the Applicable Rate resulting
from a change in the Total Debt Ratio shall be effective during the period
commencing on and including the date of delivery to the Administrative Agent of
the Total Debt Ratio Notice indicating such change and ending on the date
immediately preceding the effective date of the next such change; provided that
the Total Debt Ratio shall be deemed to be in Category 4 (A) at any time that
an Event of Default has occurred and is continuing or (B) if the Borrower fails
to deliver when due the Total Debt Ratio Notice, during the period from the
time when delivery is due until such Total Debt Ratio Notice is delivered.
"Approved Fund" shall mean, with respect to any Lender that is
a fund or other entity that invests in commercial loans, any other fund or
entity that invests in commercial loans and is managed by the same investment
advisor as such Lender or by an Affiliate of such investment advisor.
"Assessment Rate" shall mean, for any day, the annual
assessment rate in effect on such day that is payable by a member of the Bank
Insurance Fund classified as "wellcapitalized" and within supervisory subgroup
"B" (or a comparable successor risk classification) within the meaning of 12
C.F.R. Part 327 (or any successor provision) to the Federal Deposit Insurance
Corporation for insurance by such Corporation of time deposits made in dollars
at the offices of such member in the United States; provided that if, as a
result of any change in any law, rule or regulation, it is no longer possible
to determine the Assessment Rate as aforesaid, then the Assessment Rate shall
be such annual rate as shall be determined by the Administrative Agent to be
representative of the cost of such insurance to the Lenders.
"Asset Sale" shall mean any sale or other disposition
(including any sale and leaseback) or any loss, damage, destruction or
condemnation of any asset or assets of USANi, the Borrower or any of their
respective Subsidiaries, other than (a) any sale or other disposition of
inventory (but not of accounts receivable) in the ordinary course of business,
(b) any sale or other disposition of obsolete assets in the ordinary course of
business, (c) any sale or other disposition of movie rights in the ordinary
course of business on an arm's length basis, (d) any sale or disposition of
television programming rights in the ordinary course of business on an
arm's-length basis, (e) any sale or disposition of WHSW TV, Vela Research,
Inc., Internet Shopping Network, Inc., The National Registry Inc. or Body by
Jake, (f) any sale of any asset under the Program or any Securitization or (g)
any sale or disposition of any of the SF Broadcasting Companies or any sale or
disposition by any of the SF Broadcasting Companies of all or substantially all
of such entity's assets; provided that any such sale or disposition shall
constitute an "Asset Sale" to the extent of any Investments actually made in
such SF Broadcasting Company on or after the Effective Date. For the avoidance
of doubt, the transfer of cash after the Effective Date in an amount not to
exceed $300,000,000 to a subsidiary of Universal pursuant to Section 1.5 of the
Investment Agreement shall not constitute an "Asset Sale". No part of any
series of disposition transactions that the Borrower shall have given notice to
the Administrative Agent it intends to treat as part of an Asset Swap shall
constitute an Asset Sale (it being understood that such notice may be given
even though the Borrower has not yet identified the assets to be purchased or
the terms of any such transaction), except that (i) if the aggregate Net
Proceeds, if any, received by USANi, the Borrower or any of their respective
Subsidiaries in connection with any completed Asset Swap exceeds the aggregate
9
amount of any cash consideration paid by any of them in connection therewith,
then such Asset Swap shall as of the date of such completion constitute an
Asset Sale to the extent of such excess Net Proceeds, and (ii) if USANi, the
Borrower or any of their respective Subsidiaries realize Net Proceeds in one or
more transactions that are intended to constitute part of an Asset Swap and
such Asset Swap is not completed within the time required in order for any such
transaction to qualify as part of an Asset Swap (as provided in the definition
of the term "Asset Swap") then each such transaction shall constitute an Asset
Sale as of the date such completion had been required, provided that the Net
Proceeds in respect of such transaction or transactions shall be deemed to be
the aggregate amount of such Net Proceeds minus, if applicable, the aggregate
amount of cash consideration paid by USANi, the Borrower or any of their
respective Subsidiaries in connection with acquisitions, if any, intended to
constitute part of such Asset Swap that were effected in time to qualify as
part of such Asset Swap.
"Asset Swap" shall mean (a) any direct exchange by SKTV or any
of its subsidiaries of a business primarily engaged in television broadcasting
for a business primarily engaged in television broadcasting or (b) any series
of transactions involving a sale by SKTV or any of its subsidiaries of a
business primarily engaged in television broadcasting combined with
(independently or in conjunction with) the acquisition by SKTV or any of its
subsidiaries of a business primarily engaged in television broadcasting;
provided that:
(i) prior to consummating any such transaction (and prior to
consummating the first of any series of such transactions) the
Borrower shall notify the Administrative Agent of all television
broadcast stations known at the time of notice to be exchanged, sold
or acquired in connection with such transactions and the material
terms of such transactions (it being understood that the Borrower
shall not be required to identify any television broadcasting station
to be exchanged for or acquired in connection with such Asset Swap
until such identity is determined by the Borrower);
(ii) within 12 months after consummating the first of any
series of such transactions, the Borrower shall deliver to the
Administrative Agent copies of detailed summaries of (or, if publicly
filed, copies of) executed contracts with respect to all other
10
transactions involved in such series of transactions exceeding in the
aggregate $10,000,000;
(iii) all transactions involved in any such series of
transactions shall be consummated within the later of (A) 18 months
after consummation of the first transaction in such series and (B) the
date on which all applications to the FCC shall have been acted upon
and any FCC action thereon shall have become final and no longer
subject to any administrative or judicial review; and
(iv) the Borrower shall have complied with Section 5.25.
If all transactions in a series of transactions intended to qualify as an Asset
Swap are not consummated within the relevant period described in clause (iii)
above after the first such related transaction, then none of such transactions
shall be considered to be part of an Asset Swap (except to the extent that the
completed transactions alone would constitute an Asset Swap).
"Assignment and Acceptance" shall mean an assignment and
acceptance entered into by a Lender and an assignee (with the consent of any
party whose consent is required by Section 8.04), and accepted by the
Administrative Agent, in the form of Exhibit A or such other form as shall be
approved by the Administrative Agent.
"Bankruptcy Code" shall mean the Federal Bankruptcy Code of
the United States, 11 U.S.C. Section 101 et seq., as amended from time to time
"Base CD Rate" shall mean the sum of (a) the ThreeMonth
Secondary CD Rate multiplied by the Statutory Reserve Rate plus (b) the
Assessment Rate.
"Board" shall mean the Board of Governors of the Federal
Reserve System of the United States of America (or any successor thereto).
"Borrowing" shall mean (a) Loans of the same Class and Type,
made, converted or continued on the same date and, in the case of Eurodollar
Loans, as to which a single Interest Period is in effect or (b) a Swingline
Loan.
"Borrowing Request" shall mean a request by the Borrower for a
Borrowing in accordance with Section 2.03.
"Business Day" shall mean any day that is not a Saturday,
Sunday or other day on which commercial banks in New York City are authorized
or required by law to remain closed; provided that when used in connection with
a Eurodollar Loan, the term "Business Day" shall also exclude any day on which
banks are not open for dealings in dollar deposits in the London interbank
market.
"Capital Expenditures" shall mean, for any period, all amounts
that would, in accordance with GAAP, be set forth as "capital expenditures" on
the combined consolidated financial statements of the Combined Group for such
period.
"Capital Lease" shall mean any lease or other contractual
arrangement which under GAAP has been or should be recorded as a capital lease.
11
"Capital Lease Obligations" shall mean, for any Person, the
obligations of such Person to pay rent or other amounts under any Capital
Lease, and the amount of such obligations shall be the capitalized amount
thereof determined in accordance with GAAP.
"Change in Law" shall mean (a) the adoption of any law, rule
or regulation after the date of this Agreement, (b) any change in any law, rule
or regulation or in the interpretation or application thereof by any
Governmental Authority after the date of this Agreement or (c) compliance by
any Lender or the Issuing Bank (or, for purposes of Section 2.14(b), by any
lending office of such Lender or by such Lender's or the Issuing Bank's holding
company, if any) with any request, guideline or directive (whether or not
having the force of law) of any Governmental Authority made or issued after the
date of this Agreement.
"Change of Control" shall be deemed to have occurred if:
(a) Barry Diller, Seagram, Seagram through Universal, TCI, TCI
through Liberty (collectively, the "Designated Persons") or any
combination thereof shall fail to maintain Voting Control of USANi;
(b) the Designated Persons, USANi, or any combination thereof
shall fail to maintain Voting Control of the Borrower or shall fail to
own at least 51% of the economic benefit of the equity of the
Borrower;
(c) any change of control (or similar event, however
designated) with respect to USANi, the Borrower or any of their
respective Subsidiaries shall occur (unless otherwise waived) under
and as defined in any indenture or agreement in respect of
Indebtedness to which USANi, the Borrower or any such Subsidiary is a
party if as a result of such change of control or similar event USANi,
the Borrower or any such Subsidiary is required to prepay, repurchase,
redeem or defease such Indebtedness; or
(d) at any time after Barry Diller no longer maintains Voting
Control of USANi or the Borrower, Seagram or Seagram through Universal
shall maintain neither Voting Control of the Borrower nor ownership of
at least 25% of the economic benefit of the equity of the Borrower.
For purposes of this definition, (i) "Voting Control" shall mean (A) control,
directly or indirectly through Wholly Owned Subsidiaries, of at least 51% of
the aggregate voting power of a Person and (B) the ability to elect a majority
of the seats of the board of directors of such Person, (ii) a percentage of the
"voting power" of any Person shall mean the voting power (through ownership of
shares, beneficially or of record, by contract or otherwise) representing at
least such percentage of the aggregate ordinary voting power represented by the
issued and outstanding capital stock of such Person and (iii) "group" shall
mean a group within the meaning of Rule 13d-5 of the Securities Exchange Act of
1934, as amended from time to time.
"Class", when used in reference to any Loan or Borrowing,
refers to whether such Loan, or the Loans comprising such Borrowing, are
Revolving Loans, Tranche A Term Loans, Tranche B Term Loans or Swingline Loans
and, when used in reference to any Commitment, refers to whether such
Commitment is a Revolving Commitment, Tranche A Commitment or Tranche B
Commitment.
12
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
"CoDocumentation Agents" shall have the meaning assigned to
such term in the preamble.
"Collateral Agent" shall have the meaning assigned to such
term in the preamble.
"Combined Group" shall mean, at any time, USANi, the Borrower
and their respective Subsidiaries, other than the SF Broadcasting Companies and
the International Ventures.
"Commitment" shall mean a Revolving Commitment, Tranche A
Commitment or Tranche B Commitment, or any combination thereof (as the context
requires).
"Control" shall mean the possession, directly or indirectly,
of the power to direct or cause the direction of the management or policies of
a Person, whether through the ability to exercise voting power, by contract or
otherwise. A Person shall be deemed to Control another Person if such Person
(i) is an officer or director of such other Person or (ii) directly or
indirectly owns or controls 10% or more of such other Person's capital stock.
"Controlling" and "Controlled" have meanings correlative thereto.
"Core Business" shall mean any of the primary businesses in
which USANi and the Acquired Assets are engaged on the date of this Agreement
(including broadcast programming of SKTV and the Acquired Assets, as it may
change from time to time, and third-party fulfillment business and natural
extensions thereof such as teleservices and information services).
"Credit Parties" shall mean USANi, the Borrower, the other
Guarantors and each other Person that shall have outstanding an Intercompany
Note.
"Default" shall mean an Event of Default or any event or
condition which with notice or lapse of time or both would constitute an Event
of Default.
"dollars" and "$" shall mean lawful money of the United States
of America.
"EBITDA" shall mean, for any period, the sum of the following
for the Combined Group on a combined consolidated basis:
(a) operating profit of such Persons for such period; plus
(b) (to the extent already deducted in arriving at operating
profit) depreciation and amortization expense for such Persons for
such period; plus
(c) (to the extent already deducted in arriving at operating
profit) noncash compensation expense;
all as shown on the combined consolidated financial statements, including the
notes thereto, of the Combined Group for such period, determined in accordance
with GAAP. "EBITDA" for any
13
Subsidiary for any period shall mean the sum for such Subsidiary and its
consolidated subsidiaries of the items set forth in clauses (a), (b) and (c),
all determined on a consolidated basis in accordance with GAAP.
"Effective Date" shall mean the date on which each of the
conditions precedent set forth in Section 4.01 shall have been satisfied.
"Environmental Law" shall have the meaning assigned to such
term in Section 3.14.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time.
"ERISA Affiliate" shall mean any corporation or trade or
business which is a member of the same controlled group of corporations (within
the meaning of Section 414(b) of the Code) as any Credit Party or is under
common control (within the meaning of Section 414(c) of the Code) with any
Credit Party, or, solely for purposes of Section 412 of the Code, is treated as
a single employer under Section 414(b), (c), (m) or (o) of the Code.
"Eurodollar", when used in reference to any Loan or Borrowing,
refers to whether such Loan, or the Loans comprising such Borrowing, are
bearing interest at a rate determined by reference to the Adjusted LIBO Rate.
"Event of Default" shall have the meaning assigned to such
term in Article VI.
"Excluded Taxes" shall mean, with respect to the
Administrative Agent, the Collateral Agent, any Lender, the Issuing Bank or any
other recipient of any payment to be made by or on account of any obligation of
the Borrower hereunder, (a) income or franchise taxes imposed on (or measured
by) its net income by the United States of America, or by the jurisdiction
under the laws of which such recipient is organized or in which its principal
office is located or, in the case of any Lender, in which its applicable
lending office is located, (b) in the case of a Foreign Lender (other than an
assignee pursuant to a request by the Borrower under Section 2.18(b)), any
withholding tax that is in effect and would apply to amounts payable to such
Foreign Lender at the time such Foreign Lender becomes a party to this
Agreement (or designates a new lending office), except to the extent that such
Foreign Lender (or its assignor, if any) was entitled, at the time of
designation of a new lending office (or assignment), to receive additional
amounts from the Borrower with respect to such withholding tax pursuant to
Section 2.16(a) and (c) any withholding tax attributable to a Foreign Lender's
failure to comply with Section 2.16(e).
"Existing Credit Agreement" shall mean the Credit Agreement
dated as of May 1, 1997, among HSN, Inc., the guarantors party thereto, the
lenders party thereto, LTCB Trust Company and The Bank of New York Company,
Inc., as codocumentation agents, and The Chase Manhattan Bank, as
administrative agent.
"FCC" shall mean the Federal Communications Commission of the
United States of America and any successor governmental agency or Governmental
Authority.
"FCC Licenses" shall mean all licenses, permits and
authorizations issued, granted or assigned by the FCC to USANi, the Borrower or
any of their respective Subsidiaries
14
in connection with any of the stations owned by USANi, the Borrower or any of
such Subsidiaries.
"Federal Funds Effective Rate" shall mean, for any day, the
weighted average (rounded upwards, if necessary, to the next 1/100 of 1%) of
the rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published on the next
succeeding Business Day by the Federal Reserve Bank of New York, or, if such
rate is not so published for any day that is a Business Day, the average
(rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations for
such day for such transactions received by the Administrative Agent from three
Federal funds brokers of recognized standing selected by it.
"Financial Officer" shall mean the chief financial officer,
the principal accounting officer, treasurer or controller of a Person.
"Financing Transactions" shall mean the execution, delivery
and performance by each Credit Party of the Loan Documents to which it is to be
a party, the borrowing of Loans, the use of the proceeds thereof and the
issuance of Letters of Credit hereunder.
"Fiscal Quarter" shall mean a period of three consecutive
calendar months commencing on any January 1, April 1, July 1 and October 1 in
any Fiscal Year (or, in the case of Ticketmaster or the SF Broadcasting
Companies, any of the four fiscal quarters comprising their respective Fiscal
Years as determined in accordance with GAAP).
"Fiscal Year" shall mean, for any Credit Party or Subsidiary,
the 12 consecutive calendar month period commencing on January 1 of each
calendar year and ending on December 31 of such calendar year (or, in the case
of Ticketmaster, the 12 calendar month period commencing on February 1 of each
calendar year and ending on January 31 of the succeeding calendar year and, in
the case of the SF Broadcasting Companies, the 52 or 53 week period ending on
the last Sunday of each calendar year and commencing on the Monday immediately
succeeding the last Sunday of the immediately preceding calendar year); and
"Fiscal 1997", "Fiscal 1998", and any other year so designated shall mean the
Fiscal Year ending on December 31 of the indicated calendar year (except as
aforesaid).
"Fixed Charges" shall mean, for any period, Interest Expense
plus, on a combined consolidated basis for the Combined Group, the aggregate
amount of principal payments, Capital Expenditures (excluding Capital
Expenditures by SKTV, the Home Shopping Persons and their respective
subsidiaries), cash payments in connection with purchase accounting
adjustments, taxes, cash payments for programming in excess of programming
expense, and cash dividends and distributions (without duplication) to equity
(other than to any Guarantor) for such period of the Combined Group (including
distributions in respect of tax liabilities and excluding (a) distributions
made on the Effective Date as part of the Transactions and (b) any distribution
required to be made to Universal under the Investment Agreement in connection
with the contribution by Liberty to the Borrower of cash in an amount no less
than the amount of such distribution), determined in accordance with GAAP.
"Foreign Lender" shall mean any Lender that is organized under
the laws of a jurisdiction other than that in which the Borrower is located.
For purposes of this definition, the United States of America, each State
thereof and the District of Columbia shall be deemed to constitute a single
jurisdiction.
15
"Foreign Subsidiary" shall mean any Subsidiary that is
organized under the laws of a jurisdiction other than the United States of
America or any State thereof or the District of Columbia.
"GAAP" shall mean generally accepted accounting principles in
the United States of America, consistently applied, as in effect (unless
otherwise specified in this Agreement) from time to time.
"Governmental Authority" shall mean the government of the
United States of America, any other nation or any political subdivision
thereof, whether state or local, and any agency, authority, instrumentality,
regulatory body, court, central bank or other entity exercising executive,
legislative, judicial, taxing, regulatory or administrative powers or functions
of or pertaining to government.
"Guarantee" of or by any Person (the "guarantor") shall mean
any obligation, contingent or otherwise, of the guarantor guaranteeing or
having the economic effect of guaranteeing any Indebtedness or other obligation
of any other Person (the "primary obligor") in any manner, whether directly or
indirectly, and including any obligation of the guarantor, direct or indirect,
(a) to purchase or pay (or advance or supply funds for the purchase or payment
of) such Indebtedness or other obligation or to purchase (or to advance or
supply funds for the purchase of) any security for the payment thereof, (b) to
purchase or lease property, securities or services for the purpose of assuring
the owner of such Indebtedness or other obligation of the payment thereof, (c)
to maintain working capital, equity capital or any other financial statement
condition or liquidity of the primary obligor so as to enable the primary
obligor to pay such Indebtedness or other obligation or (d) as an account party
in respect of any letter of credit or letter of guaranty issued to support such
Indebtedness or obligation; provided, that the term Guarantee shall not include
endorsements for collection or deposit in the ordinary course of business.
"Guarantee Agreement" shall mean the Guarantee Agreement,
executed and delivered by the Guarantors party thereto in favor of the
Collateral Agent, substantially in the form of Exhibit B.
"Guaranteed Program" shall have the meaning assigned to such
term in Schedule 1.01(a).
"Guarantor" shall mean USANi, each Subsidiary (except for the
Borrower, Foreign Subsidiaries, those subsidiaries listed on Schedule 1.01(b)
and Non-Material Subsidiaries) and any other Person that provides a Guarantee
of the Obligations pursuant to this Agreement. "Guarantors" shall mean all
such entities, collectively.
"Hedging Agreements" shall mean any interest rate protection
agreement, foreign currency exchange agreement, commodity price protection
agreement or other interest or currency exchange rate or commodity price
hedging arrangement.
"Historical and Pro Forma Basis" shall have the meaning
assigned to such term in Section 4.02(d).
"Home Shopping" shall mean Home Shopping Network, Inc., a
Delaware corporation.
16
"Home Shopping Persons" shall mean each Subsidiary of the
Borrower to which assets of Home Shopping are contributed on the Effective
Date.
"Indebtedness" shall mean, for any Person (but without
duplication):
() all indebtedness and other obligations of such Person for
borrowed money or for the deferred purchase price of property or
services (other than trade payables incurred in the ordinary course of
business and not overdue by more than 180 days), including all
obligations of such Person evidenced by bonds, debentures, notes or
other similar instruments;
() all obligations of such Person under Hedging Agreements;
() the stated amount of all letters of credit (including the
Letters of Credit) issued for the account of such Person and (without
duplication) all drafts drawn thereunder, and the aggregate face
amount of all banker's acceptances as to which such Person is
obligated;
() all obligations of such Person under any Capital Leases;
() all obligations of such Person in connection with employee
benefit or similar plans;
() all obligations of such Person in respect of Guarantees,
whether direct or indirect (including agreements to "keep well" or
otherwise ensure a creditor against loss) with respect to any
indebtedness or other obligation of any other Person of the type
described in any of clauses (a) through (e) above;
() all indebtedness or other obligations referred to in any of
clauses (a) through (f) above secured by any Lien upon property owned
by such Person, whether or not such Person is liable on any such
obligation; and
() all obligations of Credit Parties or Subsidiaries under the
Program, to the extent they exceed, in the aggregate for all such
persons, $10,000,000.
Indebtedness shall not include the obligations of USANi, the
Borrower or any Subsidiary to transfer cash to any subsidiary of Universal
pursuant to Section 1.5 of the Investment Agreement.
"Indemnified Taxes" shall mean Taxes other than Excluded
Taxes.
"Indemnity, Contribution and Subrogation Agreement" shall mean
the Indemnity, Contribution and Subrogation Agreement, executed and delivered
by the Borrower and the Guarantors party thereto, substantially in the form of
Exhibit C.
"Information Memorandum" shall mean the Confidential
Information Memorandum dated January 1998 relating to USANi, the Borrower and
the Transactions.
17
"Intercompany Note" shall mean each note substantially in the
form of Exhibit D evidencing advances by USANi, the Borrower or any Subsidiary
to the issuer of such note.
"Interest Election Request" shall mean a request by the
Borrower to convert or continue a Revolving Borrowing or Term Borrowing in
accordance with Section 2.06.
"Interest Expense" shall mean, for any period, the combined
consolidated cash interest expense for such period of the Combined Group,
determined in accordance with GAAP.
"Interest Payment Date" shall mean (a) with respect to any ABR
Loan (other than a Swingline Loan), the last day of each March, June, September
and December, (b) with respect to any Eurodollar Loan, the last day of the
Interest Period applicable to the Borrowing of which such Loan is a part and,
in the case of a Eurodollar Borrowing with an Interest Period of more than
three months' duration, each day prior to the last day of such Interest Period
that occurs at intervals of three months' duration after the first day of such
Interest Period and (c) with respect to any Swingline Loan, the day that such
loan is required to be repaid.
"Interest Period" shall mean with respect to any Eurodollar
Borrowing, the period commencing on the date of such Borrowing and ending on
the numerically corresponding day in the calendar month that is one, two, three
or six months (or, with the consent of each Lender, nine or twelve months)
thereafter, as the Borrower may elect; provided that (a) if any Interest Period
would end on a day other than a Business Day, such Interest Period shall be
extended to the next succeeding Business Day unless, in the case of a
Eurodollar Borrowing only, such next succeeding Business Day would fall in the
next calendar month, in which case such Interest Period shall end on the next
preceding Business Day and (b) any Interest Period pertaining to a Eurodollar
Borrowing that commences on the last Business Day of a calendar month (or on a
day for which there is no numerically corresponding day in the last calendar
month of such Interest Period) shall end on the last Business Day of the last
calendar month of such Interest Period. For purposes hereof, the date of a
Borrowing initially shall be the date on which such Borrowing is made and
thereafter shall be the effective date of the most recent conversion or
continuation of such Borrowing.
"International Ventures" shall mean each Person in which the
Borrower or any Subsidiary shall have made an Investment under Section
5.19(g)(i).
"Investment" shall mean, for any Person, (a) the acquisition
(whether for cash, property, services or otherwise) of capital stock, bonds,
notes, debentures, partnership or other ownership interests or other securities
or obligations of any other Person or any agreement to make any such
acquisition (including any "short sale" or any sale of any securities at a time
when such securities are not owned by the Person entering into such short
sale); (b) the making of any deposit with, or advance, or loan or other
extension of credit to, any other Person (including the purchase of property
from another Person subject to an understanding or agreement, contingent or
otherwise, to resell such property to such Person, but excluding any such
advance, loan or other extension of credit to customers of the Borrower or to
customers of the Borrower's Subsidiaries having a term not exceeding 90 days
arising in the ordinary course of business); (c) the entering into any
Guarantee of, or other contingent obligation with respect to, Indebtedness or
other liability of any other Person and (without duplication) any amount
committed to be advanced, lent or extended to such Person; or (d) the entering
into any Hedging Agreement.
18
"Investment Agreement" shall mean the Investment Agreement
dated as of October 19, 1997, as amended and restated as of December 18, 1997,
among Universal, for itself and on behalf of certain of its subsidiaries,
USANi, Home Shopping and Liberty, for itself and on behalf of certain of its
subsidiaries.
"Issuing Bank" shall mean The Chase Manhattan Bank, in its
capacity as the issuer of Letters of Credit hereunder, and its successors in
such capacity as provided in Section 2.04(i). The Issuing Bank may, in its
discretion, arrange for one or more Letters of Credit to be issued by
Affiliates of the Issuing Bank, in which case the term "Issuing Bank" shall
include any such Affiliate with respect to Letters of Credit issued by such
Affiliate.
"LC Disbursement" shall mean a payment made by the Issuing
Bank pursuant to a Letter of Credit.
"LC Exposure" shall mean, at any time, the sum of (a) the
aggregate undrawn amount of all outstanding Letters of Credit at such time plus
(b) the aggregate amount of all LC Disbursements that have not yet been
reimbursed by or on behalf of the Borrower at such time. The LC Exposure of
any Revolving Lender at any time shall be its Applicable Percentage of the
total LC Exposure at such time.
"Lenders" shall mean (a) the financial institutions listed on
Schedule 2.01 (other than any such financial institution that has ceased to be
a party hereto pursuant to an Assignment and Acceptance) and (b) any financial
institution that has become a party hereto pursuant to an Assignment and
Acceptance or pursuant to Section 2.07(d). Unless the context otherwise
requires, the term "Lenders" includes the Swingline Lender.
"Letter of Credit" shall mean any letter of credit issued
pursuant to this Agreement, and shall include any letter of credit issued under
the Existing Credit Agreement by the Issuing Bank for the account of USANi, the
Borrower or any Subsidiary prior to the Effective Date that remains outstanding
on the Effective Date.
"Liberty" shall mean Liberty Media Corporation, a Delaware
corporation.
"Liberty Assets" shall mean the assets contributed to USANi,
the Borrower or any other Credit Party by Liberty pursuant to Section 1.5(f) of
the Investment Agreement.
"LIBO Rate" shall mean, with respect to any Eurodollar
Borrowing for any Interest Period, the rate appearing on Page 3750 of the Dow
Jones Telerate Service (or on any successor or substitute page of such Service,
or any successor to or substitute for such Service, providing rate quotations
comparable to those currently provided on such page of such Service, as
determined by the Administrative Agent from time to time for purposes of
providing quotations of interest rates applicable to dollar deposits in the
London interbank market) at approximately 11:00 a.m., London time, two Business
Days prior to the commencement of such Interest Period, as the rate for dollar
deposits with a maturity comparable to such Interest Period. In the event that
such rate is not available at such time for any reason, then the "LIBO Rate"
with respect to such Eurodollar Borrowing for such Interest Period shall be the
rate at which dollar deposits of $5,000,000 and for a maturity comparable to
such Interest Period are offered by the principal London office of the
Administrative Agent in immediately available funds in the London interbank
market at approximately 11:00 a.m., London time, two Business Days prior to the
commencement of such Interest Period.
19
"Lien" shall mean, with respect to any asset or other
property, (a) any mortgage, deed of trust, lien, pledge, hypothecation, charge,
security interest or encumbrance of any kind in respect of such asset or
property, any agreement to grant any of the foregoing with respect to such
asset or property, and the filing of a financing statement or similar recording
in any jurisdiction with respect to such asset or property, (b) the interest of
a vendor or a lessor under any conditional sale agreement, Capital Lease or
title retention agreement (or any financing lease having substantially the same
economic effect as any of the foregoing) relating to such asset or property,
(c) any account receivable transferred by it with recourse (including any such
transfer subject to a holdback or similar arrangement that effectively imposes
the risk of collectibility on the transferor) and (d) in the case of
securities, any purchase option, call or similar right of a third party with
respect to such securities.
"Loan Documents" shall mean this Agreement, the Pledge
Agreement, the other Security Documents, the Guarantee Agreement, the
Indemnity, Contribution and Subrogation Agreement, the Letters of Credit, the
letter of credit applications, each Intercompany Note and each amendment,
supplement, modification, consent or waiver of, to or in respect of any of the
foregoing.
"Loans" shall mean the loans made by the Lenders to the
Borrower pursuant to this Agreement.
"Material Adverse Effect" shall mean any material adverse
effect on (a) the business, operations or financial condition of USANi, the
Borrower and their respective Subsidiaries taken as a whole or (b) the ability
of any Credit Party to perform any of its obligations under any of the Loan
Documents.
"Material Subsidiary" means (a) any Subsidiary that directly
or indirectly owns or Controls any other Material Subsidiary, (b) each
Subsidiary identified as a Material Subsidiary on Schedule 1.01(c) that is
designated as a Material Subsidiary under this clause (b), (c) any Subsidiary
designated from time to time by the Borrower as a Material Subsidiary by
written notice to the Administrative Agent and (d) any other Subsidiary (i) the
consolidated EBITDA of which was greater than 5% of the Combined Group's
combined consolidated EBITDA for the period tested for compliance with
Sections 5.11, 5.12 and 5.13 as of the last day of the most recent Fiscal
Quarter for which financial statements have been delivered pursuant to Section
5.01 (or, prior to the first delivery of such financial statements, greater
than 5% of the consolidated EBITDA of the Person in whose financial statements
such Subsidiary is included in the most recent financial statements referred to
in Section 3.02(a)) or (ii) the consolidated tangible assets of which as of the
last day of such Fiscal Quarter were greater than 5% of the Combined Group's
combined consolidated tangible assets as of such date (or, prior to the first
delivery of such financial statements, greater than 5% of the consolidated
tangible assets of the Person in whose financial statements such Subsidiary is
included in the most recent financial statements referred to in Section
3.02(a)). For purposes of making the determinations required by this
definition, EBITDA and assets of Foreign Subsidiaries shall be converted into
dollars at the rates used in preparing the combined consolidated balance sheet
of USANi (or, prior to the first delivery of financial statements pursuant to
Section 5.01, the Person in whose financial statements such Foreign Subsidiary
is included in the most recent financial statements referred to in Section
3.02(a)) included in the applicable financial statements. The Material
Subsidiaries after giving effect to the transactions to occur on the Effective
Date are listed on Schedule 1.01(c).
20
"Material Subsidiary Group" shall mean, at any time, a group
of any two or more Subsidiaries the combined consolidated EBITDA or tangible
assets of which at such time represent more than 10% of the Combined Group's
combined consolidated EBITDA or tangible assets, respectively.
"Moody's" shall mean Moody's Investors Service, Inc.
"Multiemployer Plan" shall mean a plan defined as such in
Section 3(37) of ERISA to which contributions have been made by any Credit
Party or any ERISA Affiliate and which is covered by Title IV of ERISA.
"Net Proceeds" shall mean, with respect to any event, without
duplication, (a) (i) the cash proceeds received in respect of such event,
including any cash received in respect of any non-cash proceeds, but only as
and when received, net of (ii) the sum of all reasonable fees and out-of-pocket
expenses paid by USANi, the Borrower and their respective Subsidiaries to third
parties (other than Affiliates) in connection with such event, and (b) in
connection with any sale or other disposition of any asset or any settlement
by, or receipt of payment in respect of, any property or casualty insurance
claim or condemnation award in respect thereof, (i) the cash proceeds
(including any cash payments received by way of deferred payment of principal
pursuant to a note or installment receivable or purchase price adjustment
receivable or otherwise, but only as and when received, and including any
prepayment amount received in respect of any loan to Savoy Stations, Inc. as
contemplated by Section 5.19(f)) of such sale, settlement or payment, net of
(ii) reasonable and documented attorneys' fees, accountants' fees, investment
banking fees, amounts required to be applied to the repayment of Indebtedness
secured by a Lien expressly permitted hereunder on any asset which is the
subject of such sale, insurance claim or condemnation award in respect thereof,
the proceeds of any such insurance claim or condemnation award to the extent
used or committed for use within six months to replace or repair any assets
subject to loss, damage, destruction or condemnation, any amounts required to
be escrowed or reserved by USANi, the Borrower or their respective Subsidiaries
with respect to liabilities or other obligations retained by USANi, the
Borrower or such Subsidiaries in connection with such sale or disposition,
including any indemnification or purchase price adjustments (provided, that if
and to the extent any such amounts are released to USANi, the Borrower or such
Subsidiaries from escrow or such reserve, such amounts will be treated as Net
Proceeds) and other customary fees and other costs and expenses actually
incurred in connection therewith and net of taxes paid or reasonably estimated
to be payable as a result thereof (after taking into account any tax sharing
arrangements), provided that no proceeds realized in a single transaction or
series of related transactions shall constitute Net Proceeds unless such
proceeds shall exceed $250,000, and no such proceeds shall constitute Net
Proceeds until the aggregate amount of all such proceeds since the Effective
Date shall exceed $10,000,000 (at which time all such proceeds shall constitute
Net Proceeds). Net Proceeds of transactions intended to constitute part of an
Asset Swap shall be deemed to have been received on the date on which such
Asset Swap is completed or, in the case of an Asset Swap that is not completed
as intended, on the date such Asset Swap was required to be completed. "Net
Proceeds" shall exclude the amount of Indebtedness required to be repaid under
the SFB Credit Agreement in connection with any Prepayment Event. In the case
of a Prepayment Event arising at any time under clause (b)(i) of the definition
of "Prepayment Event", Net Proceeds shall be the lesser of (x) the amount
determined as set forth above and (y) the minimum aggregate amount of
reductions to the Term Loans required so that the Total Debt Ratio would be
less than 4.0 to 1.0 at such time on a pro forma basis as if both the
incurrence of Indebtedness under 5.07(j) and such reduction of Term Loans had
occurred on the first day of the period for which EBITDA is tested at such time
in
21
determining the Total Debt Ratio. In the case of a Prepayment Event arising
at any time under clause (b)(ii) of the definition of "Prepayment Event", Net
Proceeds shall be the excess of (I) the aggregate principal amount of
Indebtedness outstanding under Section 5.07(j) after giving effect to such
Prepayment Event over (II) the sum of $250,000,000 and the aggregate amount of
Net Proceeds realized under this sentence in respect of prior Prepayment Events
arising under such clause (b)(ii). In the case of any Asset Sale described in
clause (g) of the definition of "Asset Sale", Net Proceeds shall be the lesser
of (A) the amount determined as set forth above and (B) the aggregate amount of
all Investments actually made in the applicable SF Broadcasting Company on or
after the Effective Date.
"Non-Material Subsidiary" shall mean, at any time, a
Subsidiary that is not a Material Subsidiary.
"Obligations" shall mean all obligations and liabilities of
the Borrower to the Administrative Agent, the Collateral Agent, the Issuing
Bank, and the Lenders (or any of the foregoing) now or in the future existing
under or in connection with any Loan Document or any related document (as any
Loan Document or document may from time to time be respectively amended,
modified, substituted, extended or renewed), direct or indirect, absolute or
contingent, due or to become due, now or hereafter existing, including (a) the
payment of any principal of and interest on the Loans, when and as due, whether
at maturity, by acceleration, upon one or more dates set forth for prepayment
or otherwise, and the payment of any fees, expenses or other amounts under any
Loan Document, (b) each payment required to be made by the Borrower under this
Agreement in respect of any Letter of Credit, when and as due, including
payments in respect of reimbursement of LC Disbursements, interest thereon and
the obligations to provide cash collateral in respect of any Letter of Credit
and (c) all obligations of the Borrower, monetary or otherwise, under any
Hedging Agreement entered into with a Person that is or was a Lender or any of
its Affiliates at the time of entry into such Hedging Agreement.
"Other Taxes" shall mean any and all present or future
transfer, recordation, stamp, documentary, excise, property or similar taxes,
charges or levies (and any interest, penalties or additions relating thereto)
arising from any payment made under any Loan Document or from the execution,
delivery or enforcement of, or otherwise with respect to, any Loan Document.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or
any entity succeeding to any or all of its functions under ERISA.
"Person" shall mean any individual, corporation, company,
association, partnership, trust, joint venture, unincorporated organization,
limited liability company, Governmental Authority or other entity.
"Plan" shall mean an employee benefit or other plan
established or maintained by any Credit Party or any ERISA Affiliate and which
is covered by Title IV of ERISA or Section 412 of the Code, other than a
Multiemployer Plan.
"Pledge Agreement" shall mean the Pledge Agreement, executed
and delivered by USANi, the Borrower and the other Credit Parties party thereto
in favor of the Collateral Agent, substantially in the form of Exhibit E.
22
"Pledged Securities" shall have the meaning assigned to such
term in the Pledge Agreement.
"Prepayment Event" shall mean (a) any Asset Sale and (b) the
incurrence by USANi, the Borrower or any of their respective Subsidiaries of
(i) any Indebtedness under Section 5.07(j)(i) at any time that the Total Debt
Ratio shall be greater than or equal to 4.0 to 1.0 on a pro forma basis as if
such Indebtedness had been incurred on the first day of the period for which
EBITDA is tested at such time in determining the Total Debt Ratio, (ii) any
Indebtedness under Section 5.07(j)(ii) if upon the issuance thereof the
aggregate principal amount of Indebtedness outstanding under Section 5.07(j)
would exceed $250,000,000 or (iii) any other Indebtedness not permitted by
Section 5.07.
"Premises" shall have the meaning assigned to such term in
Section 3.14.
"Prime Rate" shall mean the rate of interest per annum
publicly announced from time to time by The Chase Manhattan Bank as its prime
rate in effect at its principal office in New York City; each change in the
Prime Rate shall be effective from and including the date such change is
publicly announced as being effective.
"Program" shall have the meaning assigned to that term in
Schedule 1.01(a).
"Register" shall have the meaning set forth in Section 8.04.
"Regulation D" shall mean Regulation D of the Board as from
time to time in effect and all official rulings and interpretations thereunder
or thereof.
"Regulation G" shall mean Regulation G of the Board as from
time to time in effect and all official rulings and interpretations thereunder
or thereof.
"Regulation T" shall mean Regulation T of the Board as from
time to time in effect and all official rulings and interpretations thereunder
or thereof.
"Regulation U" shall mean Regulation U of the Board as from
time to time in effect and all official rulings and interpretations thereunder
or thereof.
"Regulation X" shall mean Regulation X of the Board as from
time to time in effect and all official rulings and interpretations thereunder
or thereof.
"Related Parties" shall mean, with respect to any specified
Person, such Person's Affiliates and the respective directors, trustees,
officers, employees, agents and advisors of such Person and such Person's
Affiliates.
"Required Lenders" shall mean, at any time, Lenders having
Revolving Exposures, Term Loans and unused Commitments representing at least
51% of the sum of the total Revolving Exposures, outstanding Term Loans and
unused Commitments at such time.
"Revolving Availability Period" shall mean the period from and
including the Effective Date to but excluding the earlier of the Revolving
Maturity Date and the date of termination of the Revolving Commitments.
23
"Revolving Commitment" shall mean, with respect to each
Lender, the commitment, if any, of such Lender to make Revolving Loans and to
acquire participations in Letters of Credit and Swingline Loans hereunder,
expressed as an amount representing the maximum aggregate amount of such
Lender's Revolving Exposure hereunder, as such commitment may be (a) reduced
from time to time pursuant to Section 2.07 and (b) reduced or increased from
time to time pursuant to assignments by or to such Lender pursuant to Section
8.04. The initial amount of each Lender's Revolving Commitment is set forth on
Schedule 2.01, or in the Assignment and Acceptance pursuant to which such
Lender shall have assumed its Revolving Commitment, as applicable. The initial
aggregate amount of the Lenders' Revolving Commitments is $600,000,000.
"Revolving Exposure" shall mean, with respect to any Lender at
any time, the sum of the outstanding principal amount of such Lender's
Revolving Loans and its LC Exposure and Swingline Exposure at such time.
"Revolving Lender" shall mean a Lender with a Revolving
Commitment or, if the Revolving Commitments have terminated or expired, a
Lender with Revolving Exposure.
"Revolving Loan" shall mean a Loan made pursuant to clause (c)
of Section 2.01.
"Revolving Maturity Date" shall mean December 31, 2002.
"Savoy" shall mean Savoy Pictures Entertainment, Inc., a
Delaware corporation.
"Seagram" shall mean The Seagram Company Ltd., a Canadian
corporation.
"SEC Report" shall mean, with respect to any Person, any
document filed at any time with the Securities and Exchange Commission (or any
successor thereto) by or on behalf of such Person and available to the public.
"Secured Parties" shall mean (a) the Lenders and any Affiliate
of a Lender party to a Hedging Agreement with the Borrower, and any Person that
is or was a Lender or its Affiliate at the time such Person entered into such
Hedging Agreement, (b) the Administrative Agent, (c) the Collateral Agent, (d)
the Issuing Bank and (e) the successors and assigns of the foregoing.
"Securitization" shall mean the transfer or pledge of assets
or interests in credit card receivables of the Home Shopping Persons to a
trust, partnership, corporation or other entity, which transfer or pledge is
funded by Indebtedness of such entity that is nonrecourse to USANi, the
Borrower and their respective Subsidiaries (other than such entity), in whole
or in part by the issuance of instruments or securities that are paid
principally from the cash flow derived from such assets or interests in assets.
"Security Documents" means the Pledge Agreement and each other
security agreement or other instrument or document executed and delivered
thereunder or pursuant to Section 5.25 to secure any of the Obligations.
"SFB Credit Agreement" shall mean the Credit Agreement dated
as of June 30, 1995, among the SF Broadcasting Companies, the lenders party
thereto, The Chase Manhattan
24
Bank, as administrative agent and collateral agent, First Union National Bank of
North Carolina, as managing agent, and The Bank of New York, Fleet Bank, N.A.,
and Banque Paribas as co-agents, as amended, waived, modified and in effect from
time to time.
"SF Broadcasting Companies" shall mean Savoy Stations, Inc., a
Delaware corporation, and each Person listed on Schedule 1.01(d).
"Short-Term Debt" shall mean, for any Person at any time, all
Indebtedness of such Person which would at such time be short-term debt,
whether direct or contingent, under GAAP as in effect on the date of this
Agreement.
"SKTV" shall mean SKTV, Inc., a Delaware corporation.
"Special Program" shall have the meaning assigned to that term
in Schedule 1.01(a).
"S&P" shall mean Standard & Poor's.
"Statutory Reserve Rate" shall mean a fraction (expressed as a
decimal), the numerator of which is the number one and the denominator of which
is the number one minus the aggregate of the maximum reserve percentages
(including any marginal, special, emergency or supplemental reserves) expressed
as a decimal established by the Board to which the Administrative Agent is
subject (a) with respect to the Base CD Rate, for new negotiable nonpersonal
time deposits in dollars of over $100,000 with maturities approximately equal
to three months and (b) with respect to the Adjusted LIBO Rate, for
eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in
Regulation D). Such reserve percentages shall include those imposed pursuant
to Regulation D. Eurodollar Loans shall be deemed to constitute eurocurrency
funding and to be subject to such reserve requirements without benefit of or
credit for proration, exemptions or offsets that may be available from time to
time to any Lender under Regulation D or any comparable regulation. The
Statutory Reserve Rate shall be adjusted automatically on and as of the
effective date of any change in any reserve percentage.
"Subordinated Debentures" shall mean (a) Home Shopping's 57/8%
Convertible Subordinated Debentures due March 1, 2006, and (b) Savoy's 7%
Convertible Subordinated Debentures due July 1, 2003, in each case as amended
or supplemented prior to the date hereof.
"Subordinated Indebtedness" shall mean Indebtedness for
borrowed money of USANi (a) no portion of the principal of which is required to
be repaid, repurchased, defeased or reacquired by USANi or its Affiliates at
any time prior to the date that is 60 days after the Tranche B Maturity Date,
(b) all payments in respect of which are fully subordinated to the prior
payment of the Obligations and (c) the terms of which (including the
subordination terms) have been approved in writing by the Administrative Agent
and the Required Lenders prior to the issuance thereof.
"Subsidiary" shall mean any subsidiary of USANi or the
Borrower and their respective subsidiaries. For purposes of the
representations and warranties made herein on the Effective Date, the term
"Subsidiary" includes each Person included in the Acquired Assets on the
Effective Date and the Home Shopping Persons.
25
"subsidiary" shall mean, with respect to any Person (the
"parent") at any date, any corporation, limited liability company, partnership,
association or other entity the accounts of which would be consolidated with
those of the parent in the parent's consolidated financial statements if such
financial statements were prepared in accordance with GAAP as of such date, as
well as any other corporation, limited liability company, partnership,
association or other entity (a) of which securities or other ownership
interests representing more than 50% of the equity or more than 50% of the
ordinary voting power or, in the case of a partnership, more than 50% of the
general partnership interests are, as of such date, owned, controlled or held,
or (b) that is, as of such date, otherwise Controlled (within the meaning of
the first sentence of the definition of "Control"), by the parent or one or
more subsidiaries of the parent or by the parent and one or more subsidiaries
of the parent.
"Swingline Exposure" shall mean, at any time, the aggregate
principal amount of all Swingline Loans outstanding at such time. The
Swingline Exposure of any Lender at any time shall be its Applicable Percentage
of the total Swingline Exposure at such time.
"Swingline Lender" shall mean The Chase Manhattan Bank, in its
capacity as lender of Swingline Loans hereunder.
"Swingline Loan" shall mean a Loan made pursuant to Section
2.19.
"Taxes" shall mean any and all present or future taxes,
levies, imposts, duties, deductions, charges or withholdings imposed by any
Governmental Authority.
"TCI" shall mean Tele-Communications, Inc., a Delaware
corporation.
"Term Loans" shall mean Tranche A Term Loans and Tranche B
Term Loans.
"ThreeMonth Secondary CD Rate" shall mean, for any day, the
secondary market rate for threemonth certificates of deposit reported as being
in effect on such day (or, if such day is not a Business Day, the next
preceding Business Day) by the Board through the public information telephone
line of the Federal Reserve Bank of New York (which rate will, under the
current practices of the Board, be published in Federal Reserve Statistical
Release H.15(519) during the week following such day) or, if such rate is not
so reported on such day or such next preceding Business Day, the average of the
secondary market quotations for threemonth certificates of deposit of major
money center banks in New York City received at approximately 10:00 a.m., New
York City time, on such day (or, if such day is not a Business Day, on the next
preceding Business Day) by the Administrative Agent from three negotiable
certificate of deposit dealers of recognized standing selected by it.
"Ticketmaster" shall mean Ticketmaster Group, Inc., an
Illinois corporation.
"Total Debt" shall mean, for any Person at any time, all
Indebtedness of such Person and its subsidiaries at such time (including all
long-term senior and subordinated Indebtedness, all Short-Term Debt, the stated
amount of all letters of credit (including the Letters of Credit) issued for
the account of such Person and (without duplication) all unreimbursed draws
thereunder (but excluding trade letters of credit)), as shown on the combined
consolidated quarterly or annual financial statements, including the notes
thereto, of USANi, the Borrower and their respective Subsidiaries delivered for
such period pursuant to Section 5.01 or referred to in Section 3.02.
26
"Total Debt Ratio" shall mean, at any time, the ratio of (a)
Total Debt of the Combined Group on a combined consolidated basis as of such
time to (b) EBITDA for the four Fiscal Quarter period ending as of the last day
of the most recently ended Fiscal Quarter as of such time for which financial
statements have been delivered pursuant to Section 5.01(a) or (b), as EBITDA is
shown in the Total Debt Ratio Notice for such period; provided that in respect
of the Fiscal Quarter ending March 31, 1998, the calculation of EBITDA will be
determined on a pro forma basis as if the Transactions had occurred on January
1, 1998, and provided further that until financial statements shall have been
delivered pursuant to Section 5.01(a) or (b) in respect of four Fiscal Quarter
ends, EBITDA will be determined by multiplying EBITDA for the number of Fiscal
Quarters for which financial statements have been delivered pursuant to Section
5.01(a) or (b) by a fraction, the numerator of which shall be four and the
denominator of which shall be the number of Fiscal Quarters for which financial
statements have been so delivered. At all times prior to delivery of the first
Total Debt Ratio Notice, the Total Debt Ratio shall be deemed to be greater
than 4.0 to 1.0.
"Total Debt Ratio Notice" shall mean each notice provided for
in Section 5.01(g).
"Tranche A Commitment" shall mean, with respect to each
Lender, the commitment, if any, of such Lender to make a Tranche A Term Loan
hereunder on the Effective Date, expressed as an amount representing the
maximum principal amount of the Tranche A Term Loan to be made by such Lender
hereunder, as such commitment may be (a) reduced from time to time pursuant to
Section 2.07 and (b) reduced or increased from time to time pursuant to
assignments by or to such Lender pursuant to Section 8.04. The initial amount
of each Lender's Tranche A Commitment is set forth on Schedule 2.01, or in the
Assignment and Acceptance pursuant to which such Lender shall have assumed its
Tranche A Commitment, as applicable. The initial aggregate amount of the
Lenders' Tranche A Commitments is $750,000,000.
"Tranche A Lender" shall mean a Lender with a Tranche A
Commitment or an outstanding Tranche A Term Loan.
"Tranche A Maturity Date" shall mean December 31, 2002.
"Tranche A Term Loan" shall mean a Loan made pursuant to
clause (a) of Section 2.01.
"Tranche B Commitment" shall mean, with respect to each
Lender, the commitment, if any, of such Lender to make a Tranche B Term Loan
hereunder on the Effective Date, expressed as an amount representing the
maximum principal amount of the Tranche B Term Loan to be made by such Lender
hereunder, as such commitment may be (a) reduced from time to time pursuant to
Section 2.07 and (b) reduced or increased from time to time pursuant to
assignments by or to such Lender pursuant to Section 8.04. The initial amount
of each Lender's Tranche B Commitment is set forth on Schedule 2.01, or in the
Assignment and Acceptance pursuant to which such Lender shall have assumed its
Tranche A Commitment, as applicable. The initial aggregate amount of the
Lenders' Tranche B Commitments is $250,000,000.
"Tranche B Lender" shall mean a Lender with a Tranche B
Commitment or an outstanding Tranche B Term Loan.
"Tranche B Maturity Date" shall mean December 31, 2003.
27
"Tranche B Term Loan" shall mean a Loan made pursuant to
clause (b) of Section 2.01.
"Transactions" shall mean the Financing Transactions, the
transactions described in the preamble and the other transactions contemplated
by the Investment Agreement to be consummated on or prior to the Effective
Date.
"Type", when used in reference to any Loan or Borrowing,
refers to whether the rate of interest on such Loan, or on the Loans comprising
such Borrowing, is determined by reference to the Adjusted LIBO Rate or the
Alternate Base Rate.
"Universal" shall mean Universal Studios, Inc., a Delaware
corporation.
"USANi" shall have the meaning assigned to such term in the
preamble.
"Wholly Owned Subsidiary" shall mean Home Shopping (so long as
all the equity interests in Home Shopping are owned directly or indirectly by
Liberty and/or USANi) and any Person all the ownership interests of which,
other than directors' qualifying shares, are owned or controlled, directly or
indirectly, by USANi or the Borrower.
SECTION 1.02. Classification of Loans and Borrowings. For
purposes of this Agreement, Loans may be classified and referred to by Class
(e.g., a "Revolving Loan") or by Type (e.g., a "Eurodollar Loan") or by Class
and Type (e.g., a "Eurodollar Revolving Loan"). Borrowings also may be
classified and referred to by Class (e.g., a "Revolving Borrowing") or by Type
(e.g., a "Eurodollar Borrowing") or by Class and Type (e.g., a "Eurodollar
Revolving Borrowing").
SECTION 1.03. Terms Generally; Certain Accounting Matters.
(a) The definitions in Section 1.01 shall apply equally to both the singular
and plural forms of the terms defined. Whenever the context may require, any
pronoun shall include the corresponding masculine, feminine and neuter forms.
The words "include", "includes" and "including" shall be deemed to be followed
by the phrase "without limitation". The word "will" shall be construed to have
the same meaning and effect as the word "shall". Unless the context requires
otherwise (i) any definition of or reference to any agreement, instrument or
other document herein shall be construed as referring to such agreement,
instrument or other document as from time to time amended, supplemented or
otherwise modified (subject to any restrictions on such amendments, supplements
or modifications set forth herein or therein), (ii) any reference herein to any
Person shall be construed to include such Person's successors and assigns,
(iii) the words "herein", "hereof" and "hereunder", and words of similar
import, shall be construed to refer to this Agreement in its entirety and not
to any particular provision hereof, (iv) all references herein to Articles,
Sections, Exhibits and Schedules shall be construed to refer to Articles and
Sections of, and Exhibits and Schedules to, this Agreement and (v) the words
"asset" and "property" shall be construed to have the same meaning and effect
and to refer to any and all tangible and intangible assets and properties,
including cash, securities, accounts and contract rights.
(b) Unless otherwise disclosed to the Lenders in writing at
the time of delivery thereof in the manner described in subsection (c) below,
all financial statements and certificates and reports as to financial matters
required to be delivered to the Administrative Agent on behalf of itself and
the Lenders hereunder shall be prepared in accordance with GAAP applied on a
28
basis consistent with those used in the preparation of the latest financial
statements furnished to the Lenders hereunder after the date hereof (or, prior
to the delivery of the first financial statements furnished to the Lenders
hereunder, on a basis consistent with those used in the preparation of the
financial statements referred to in Section 3.02). All calculations made for
the purposes of determining compliance with the terms of Sections 5.11, 5.12,
5.13, 5.14, 5.15, 5.16, 5.17, 5.18, 5.19 and 5.20 shall, except as otherwise
expressly provided herein, be made by application of GAAP applied on a basis
consistent with those used in the preparation of the annual or quarterly
financial statements then most recently furnished to the Lenders pursuant to
Section 5.01 (or referred to in Section 3.02, excluding the SF Broadcasting
Companies) unless (i) the Borrower shall have objected to determining such
compliance on such basis at the time of delivery of such financial statements or
(ii) the Required Lenders shall so object in writing within 30 days after
delivery of such financial statements, in either of which cases such
calculations shall be made on a basis consistent with those used in the
preparation of the most recent financial statements as to which such objection
shall not have been made. For purposes of the preparation of financial
statements or the making of calculations for the purposes of determining
compliance with the terms of Sections 5.11, 5.12, 5.13, 5.14, 5.15, 5.16, 5.17,
5.18, 5.19 and 5.20, the "Fiscal Quarter" or "Fiscal Year" of Ticketmaster or
any SF Broadcasting Company shall be the most recent Fiscal Quarter or four
Fiscal Quarters, as the case may be, of such entity having ended prior to the
relevant Fiscal Quarter or Fiscal Year, as the case may be, of the Borrower.
(c) The Borrower shall deliver to the Administrative Agent,
with sufficient copies for delivery to the Lenders, contemporaneously with
delivery of any annual or quarterly financial statement under Section 5.01 a
description in reasonable detail of any material variation between the
application of accounting principles employed in the preparation of such
statement and the application of accounting principles employed in the
preparation of the most recently preceding annual or quarterly financial
statements as to which no objection shall have been made in accordance with the
second to last sentence of subsection (b) above, and reasonable estimates of
the difference between such statements arising as a consequence thereof.
ARTICLE II
The Credits
SECTION 2.01. Commitments. Subject to the terms and
conditions set forth herein, each Lender agrees (a) to make a Tranche A Term
Loan to the Borrower on the Effective Date in a principal amount not exceeding
its Tranche A Commitment, (b) to make a Tranche B Term Loan to the Borrower on
the Effective Date in a principal amount not exceeding its Tranche B Commitment
and (c) to make Revolving Loans to the Borrower from time to time during the
Revolving Availability Period in an aggregate principal amount that will not
result in such Lender's Revolving Exposure exceeding such Lender's Revolving
Commitment. Within the foregoing limits and subject to the terms and
conditions set forth herein, the Borrower may borrow, prepay and reborrow
Revolving Loans. Amounts repaid in respect of Term Loans may not be
reborrowed.
SECTION 2.02. Loans and Borrowings. (a) Each Loan (other
than a Swingline Loan) shall be made as part of a Borrowing consisting of Loans
of the same Class and Type made by the Lenders ratably in accordance with their
respective Commitments of the applicable Class. The failure of any Lender to
make any Loan required to be made by it shall not
29
relieve any other Lender of its obligations hereunder; provided that the
Commitments of the Lenders are several and no Lender shall be responsible for
any other Lender's failure to make Loans as required.
(b) Subject to Section 2.13, each Revolving Borrowing and
Term Borrowing shall be comprised entirely of ABR Loans or Eurodollar Loans as
the Borrower may request in accordance herewith. Each Swingline Loan shall be
an ABR Loan. Each Lender at its option may make any Eurodollar Loan by causing
any domestic or foreign branch or Affiliate of such Lender to make such Loan;
provided that any exercise of such option shall not affect the obligation of
the Borrower to repay such Loan in accordance with the terms of this Agreement.
(c) At the commencement of each Interest Period for any
Eurodollar Borrowing, such Borrowing shall be in an aggregate amount that is an
integral multiple of $1,000,000 and not less than $5,000,000. At the time that
each ABR Revolving Borrowing is made, such Borrowing shall be in an aggregate
amount that is an integral multiple of $1,000,000 and not less than $5,000,000;
provided that an ABR Revolving Borrowing may be in an aggregate amount that is
equal to the entire unused balance of the total Revolving Commitments. Each
Swingline Loan shall be in an amount that is an integral multiple of $250,000
and not less than $1,000,000. Borrowings of more than one Type and Class may
be outstanding at the same time; provided that there shall not at any time be
more than a total of 15 Eurodollar Borrowings outstanding.
(d) Notwithstanding any other provision of this Agreement,
the Borrower shall not be entitled to request, or to elect to convert or
continue, any Borrowing if the Interest Period requested with respect thereto
would end after the Revolving Maturity Date, Tranche A Maturity Date or Tranche
B Maturity Date, as applicable.
SECTION 2.03. Requests for Borrowings. To request a
Revolving Borrowing or Term Borrowing, the Borrower shall notify the
Administrative Agent of such request by telephone (a) in the case of a
Eurodollar Borrowing, not later than 11:00 a.m., New York City time, three
Business Days before the date of the proposed Borrowing or (b) in the case of
an ABR Borrowing, not later than 11:00 a.m., New York City time, one Business
Day before the date of the proposed Borrowing; provided that any such notice of
an ABR Revolving Borrowing to finance the reimbursement of an LC Disbursement
as contemplated by Section 2.04(e) may be given not later than 10:00 a.m., New
York City time, on the date of the proposed Borrowing. Each such telephonic
Borrowing Request shall be irrevocable and shall be confirmed promptly by hand
delivery or telecopy to the Administrative Agent of a written Borrowing Request
in a form approved by the Administrative Agent and signed by the Borrower.
Each such telephonic and written Borrowing Request shall specify the following
information in compliance with Section 2.02:
(i) whether the requested Borrowing is to be a Revolving
Borrowing, Tranche A Term Borrowing or Tranche B Term Borrowing;
(ii) the aggregate amount of such Borrowing;
(iii) the date of such Borrowing, which shall be a Business
Day;
(iv) whether such Borrowing is to be an ABR Borrowing or a
Eurodollar Borrowing;
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(v) in the case of a Eurodollar Borrowing, the initial
Interest Period to be applicable thereto, which shall be a period
contemplated by the definition of the term "Interest Period"; and
(vi) the location and number of the Borrower's account to
which funds are to be disbursed, which shall comply with the
requirements of Section 2.05.
If no election as to the Type of Borrowing is specified, then the requested
Borrowing shall be an ABR Borrowing. If no Interest Period is specified with
respect to any requested Eurodollar Revolving Borrowing, then the Borrower
shall be deemed to have selected an Interest Period of one month's duration.
Promptly following receipt of a Borrowing Request in accordance with this
Section, the Administrative Agent shall advise each Lender of the details
thereof and of the amount of such Lender's Loan to be made as part of the
requested Borrowing.
SECTION 2.04. Letters of Credit. (a) General. Subject to
the terms and conditions set forth herein, the Borrower may request the
issuance of Letters of Credit for its own account, in a form reasonably
acceptable to the Administrative Agent and the Issuing Bank, at any time and
from time to time during the Revolving Availability Period. In the event of
any inconsistency between the terms and conditions of this Agreement and the
terms and conditions of any form of letter of credit application or other
agreement submitted by the Borrower to, or entered into by the Borrower with,
the Issuing Bank relating to any Letter of Credit, the terms and conditions of
this Agreement shall control.
(b) Notice of Issuance, Amendment, Renewal, Extension;
Certain Conditions. To request the issuance of a Letter of Credit (or the
amendment, renewal or extension of an outstanding Letter of Credit), the
Borrower shall hand deliver or telecopy (or transmit by electronic
communication, if arrangements for doing so have been approved by the Issuing
Bank) to the Issuing Bank and the Administrative Agent (reasonably in advance
of the requested date of issuance, amendment, renewal or extension) a notice
requesting the issuance of a Letter of Credit, or identifying the Letter of
Credit to be amended, renewed or extended, and specifying the date of issuance,
amendment, renewal or extension (which shall be a Business Day), the date on
which such Letter of Credit is to expire (which shall comply with paragraph (c)
of this Section), the amount of such Letter of Credit, the name and address of
the beneficiary thereof and such other information as shall be necessary to
prepare, amend, renew or extend such Letter of Credit. If requested by the
Issuing Bank, the Borrower also shall submit a letter of credit application on
the Issuing Bank's standard form in connection with any request for a Letter of
Credit. A Letter of Credit shall be issued, amended, renewed or extended only
if (and upon issuance, amendment, renewal or extension of each Letter of Credit
the Borrower shall be deemed to represent and warrant that), after giving
effect to such issuance, amendment, renewal or extension (i) the LC Exposure
shall not exceed $40,000,000 and (ii) the total Revolving Exposures shall not
exceed the total Revolving Commitments.
(c) Expiration Date. Each Letter of Credit shall expire at
or prior to the close of business on the earlier of (i) the date one year after
the date of the issuance of such Letter of Credit (or, in the case of any
renewal or extension thereof, one year after such renewal or extension) and
(ii) the date that is five Business Days prior to the Revolving Maturity Date.
(d) Participations. By the issuance of a Letter of Credit
(or an amendment to a Letter of Credit increasing the amount thereof or, in the
case of Letters of Credit outstanding on the Effective Date, upon the
satisfaction or waiver of the conditions set forth in Section 4.01) and without
any further action on the part of the Issuing Bank or the Lenders, the Issuing
Bank
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hereby grants to each Revolving Lender, and each Revolving Lender hereby
acquires from the Issuing Bank, a participation in such Letter of Credit equal
to such Lender's Applicable Percentage of the aggregate amount available to be
drawn under such Letter of Credit. In consideration and in furtherance of the
foregoing, each Revolving Lender hereby absolutely and unconditionally agrees
to pay to the Administrative Agent, for the account of the Issuing Bank, such
Lender's Applicable Percentage of each LC Disbursement made by the Issuing Bank
and not reimbursed by the Borrower on the date due as provided in paragraph (e)
of this Section, or of any reimbursement payment required to be refunded to the
Borrower for any reason. Each Lender acknowledges and agrees that its
obligation to acquire participations pursuant to this paragraph in respect of
Letters of Credit is absolute and unconditional and shall not be affected by
any circumstance whatsoever, including any amendment, renewal or extension of
any Letter of Credit or the occurrence and continuance of a Default or
reduction or termination of the Commitments, and that each such payment shall
be made without any offset, abatement, withholding or reduction whatsoever.
(e) Reimbursement. If the Issuing Bank shall make any LC
Disbursement in respect of a Letter of Credit, the Borrower shall reimburse
such LC Disbursement by paying to the Administrative Agent an amount equal to
such LC Disbursement not later than 12:00 noon, New York City time, on the date
that such LC Disbursement is made, if the Borrower shall have received notice
of such LC Disbursement prior to 9:30 a.m., New York City time, on such date,
or, if such notice has not been received by the Borrower prior to such time on
such date, then not later than 12:00 noon, New York City time, on (i) the
Business Day that the Borrower receives such notice, if such notice is received
prior to 9:30 a.m., New York City time, on the day of receipt, or (ii) the
Business Day immediately following the day that the Borrower receives such
notice, if such notice is not received prior to such time on the day of
receipt; provided that the Borrower may, subject to the conditions to borrowing
set forth herein, request in accordance with Section 2.03 that such payment be
financed with an ABR Revolving Borrowing or Swingline Loan in an equivalent
amount and, to the extent so financed, the Borrower's obligation to make such
payment shall be discharged and replaced with the resulting ABR Revolving
Borrowing or Swingline Loan. If the Borrower fails to make such payment when
due, the Administrative Agent shall notify each Revolving Lender of the
applicable LC Disbursement, the payment then due from the Borrower in respect
thereof and such Lender's Applicable Percentage thereof. Promptly following
receipt of such notice, each Revolving Lender shall pay to the Administrative
Agent its Applicable Percentage of the payment then due from the Borrower, in
the same manner as provided in Section 2.05 with respect to Loans made by such
Lender (and Section 2.05 shall apply, mutatis mutandis, to the payment
obligations of the Revolving Lenders), and the Administrative Agent shall
promptly pay to the Issuing Bank the amounts so received by it from the
Revolving Lenders. Promptly following receipt by the Administrative Agent of
any payment from the Borrower pursuant to this paragraph, the Administrative
Agent shall distribute such payment to the Issuing Bank or, to the extent that
Revolving Lenders have made payments pursuant to this paragraph to reimburse
the Issuing Bank, then to such Lenders and the Issuing Bank as their interests
may appear. Any payment made by a Revolving Lender pursuant to this paragraph
to reimburse the Issuing Bank for any LC Disbursement shall not constitute a
Loan and shall not relieve the Borrower of its obligation to reimburse such LC
Disbursement.
(f) Obligations Absolute. The Borrower's obligation to
reimburse LC Disbursements as provided in paragraph (e) of this Section shall
be absolute, unconditional and irrevocable, and shall be performed strictly in
accordance with the terms of this Agreement under any and all circumstances
whatsoever and irrespective of (i) any lack of validity or enforceability
32
of any Letter of Credit or this Agreement, or any term or provision therein,
(ii) any draft or other document presented under a Letter of Credit proving to
be forged, fraudulent or invalid in any respect or any statement therein being
untrue or inaccurate in any respect, (iii) payment by the Issuing Bank under a
Letter of Credit against presentation of a draft or other document that does not
comply with the terms of such Letter of Credit, or (iv) any other event or
circumstance whatsoever, whether or not similar to any of the foregoing, that
might, but for the provisions of this Section, constitute a legal or equitable
discharge of, or provide a right of setoff against, the Borrower's obligations
hereunder. Neither the Administrative Agent, the Collateral Agent or the
Lenders nor the Issuing Bank, nor any of their Related Parties, shall have any
liability or responsibility by reason of or in connection with the issuance or
transfer of any Letter of Credit or any payment or failure to make any payment
thereunder (irrespective of any of the circumstances referred to in the
preceding sentence), or any error, omission, interruption, loss or delay in
transmission or delivery of any draft, notice or other communication under or
relating to any Letter of Credit (including any document required to make a
drawing thereunder), any error in interpretation of technical terms or any
consequence arising from causes beyond the control of the Issuing Bank; provided
that the foregoing shall not be construed to excuse the Issuing Bank from
liability to the Borrower to the extent of any direct damages (as opposed to
consequential damages, claims in respect of which are hereby waived by the
Borrower to the extent permitted by applicable law) suffered by the Borrower
that are caused by the Issuing Bank's failure to exercise care when determining
whether drafts and other documents presented under a Letter of Credit comply
with the terms thereof. The parties hereto expressly agree that, in the absence
of gross negligence or wilful misconduct on the part of the Issuing Bank (as
finally determined by a court of competent jurisdiction), the Issuing Bank shall
be deemed to have exercised care in each such determination. In furtherance of
the foregoing and without limiting the generality thereof, the parties agree
that, with respect to documents presented which appear on their face to be in
substantial compliance with the terms of a Letter of Credit, the Issuing Bank
may, in its sole discretion, either accept and make payment upon such documents
without responsibility for further investigation, regardless of any notice or
information to the contrary, or refuse to accept and make payment upon such
documents if such documents are not in strict compliance with the terms of such
Letter of Credit.
(g) Disbursement Procedures. The Issuing Bank shall,
promptly following its receipt thereof, examine all documents purporting to
represent a demand for payment under a Letter of Credit. The Issuing Bank
shall promptly notify the Administrative Agent and the Borrower by telephone
(confirmed by telecopy) of such demand for payment and whether the Issuing Bank
has made or will make an LC Disbursement thereunder; provided that any failure
to give or delay in giving such notice shall not relieve the Borrower of its
obligation to reimburse the Issuing Bank and the Revolving Lenders with respect
to any such LC Disbursement.
(h) Interim Interest. If the Issuing Bank shall make any LC
Disbursement, then, unless the Borrower shall reimburse such LC Disbursement in
full on the date such LC Disbursement is made, the unpaid amount thereof shall
bear interest, for each day from and including the date such LC Disbursement is
made to but excluding the date that the Borrower reimburses such LC
Disbursement, at the rate per annum then applicable to ABR Revolving Loans;
provided that, if the Borrower fails to reimburse such LC Disbursement when due
pursuant to paragraph (e) of this Section, then Section 2.12(c) shall apply.
Interest accrued pursuant to this paragraph shall be for the account of the
Issuing Bank, except that interest accrued on and after the date of payment by
any Revolving Lender pursuant to paragraph (e) of this Section to reimburse the
Issuing Bank shall be for the account of such Lender to the extent of such
payment.
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(i) Replacement of the Issuing Bank. The Issuing Bank may be
replaced at any time by written agreement among the Borrower, the
Administrative Agent, the replaced Issuing Bank and the successor Issuing Bank.
The Administrative Agent shall notify the Lenders of any such replacement of
the Issuing Bank. At the time any such replacement shall become effective, the
Borrower shall pay all unpaid fees accrued for the account of the replaced
Issuing Bank pursuant to Section 2.11(b). From and after the effective date of
any such replacement, (i) the successor Issuing Bank shall have all the rights
and obligations of the Issuing Bank under this Agreement with respect to
Letters of Credit to be issued thereafter and (ii) references herein to the
term "Issuing Bank" shall be deemed to refer to such successor or to any
previous Issuing Bank, or to such successor and all previous Issuing Banks, as
the context shall require. After the replacement of an Issuing Bank hereunder,
the replaced Issuing Bank shall remain a party hereto and shall continue to
have all the rights and obligations of an Issuing Bank under this Agreement
with respect to Letters of Credit issued by it prior to such replacement, but
shall not be required to issue additional Letters of Credit.
(j) Cash Collateralization. If any Event of Default shall
occur and be continuing, on the Business Day that the Borrower receives notice
from the Administrative Agent (upon the request of the Required Lenders) or the
Required Lenders (or, if the maturity of the Loans has been accelerated,
Revolving Lenders with LC Exposure representing greater than 50% of the total
LC Exposure) demanding the deposit of cash collateral pursuant to this
paragraph, the Borrower shall deposit in an account with the Administrative
Agent, in the name of the Administrative Agent and for the benefit of the
Lenders, an amount in cash equal to 105% of the LC Exposure as of such date
plus any accrued and unpaid interest thereon; provided that the obligation to
deposit such cash collateral shall become effective immediately, and such
deposit shall become immediately due and payable, without demand or other
notice of any kind, upon the occurrence of any Event of Default with respect to
the Borrower described in clause (e), (f) or (g) of Article VI. Each such
deposit shall be held by the Administrative Agent as collateral for the payment
and performance of the obligations of the Borrower under this Agreement. The
Administrative Agent shall have exclusive dominion and control, including the
exclusive right of withdrawal, over such account. Other than any interest
earned on the investment of such deposits, which investments shall be made at
the option and reasonable discretion of the Administrative Agent and at the
Borrower's risk and expense, such deposits shall not bear interest. Interest
or profits, if any, on such investments shall accumulate in such account.
Moneys in such account shall be applied by the Administrative Agent to
reimburse the Issuing Bank for LC Disbursements for which it has not been
reimbursed and, to the extent not so applied, shall be held for the
satisfaction of the reimbursement obligations of the Borrower for the LC
Exposure at such time or, if the maturity of the Loans has been accelerated (but
subject to the consent of Revolving Lenders with LC Exposure representing
greater than 50% of the total LC Exposure), be applied to satisfy other
obligations of the Borrower under this Agreement. If the Borrower is required
to provide an amount of cash collateral hereunder as a result of the occurrence
of an Event of Default, such amount (to the extent not applied as aforesaid)
shall be returned to the Borrower within three Business Days after all Events of
Default have been cured or waived.
SECTION 2.05. Funding of Borrowings. (a) Each Lender shall
make each Loan to be made by it hereunder on the proposed date thereof by wire
transfer of immediately available funds by 12:00 noon, New York City time, to
the account of the Administrative Agent most recently designated by it for such
purpose by notice to the Lenders; provided that Swingline Loans shall be made
as provided in Section 2.19. The Administrative Agent will make such
34
Loans available to the Borrower by promptly crediting the amounts so received,
in like funds, to an account of the Borrower maintained with the Administrative
Agent in New York City and designated by the Borrower in the applicable
Borrowing Request; provided that ABR Revolving Loans made to finance the
reimbursement of an LC Disbursement as provided in Section 2.04(e) shall be
remitted by the Administrative Agent to the Issuing Bank.
(b) Unless the Administrative Agent shall have received
notice from a Lender prior to the proposed date of any Borrowing that such
Lender will not make available to the Administrative Agent such Lender's share
of such Borrowing, the Administrative Agent may assume that such Lender has
made such share available on such date in accordance with paragraph (a) of this
Section and may, in reliance upon such assumption, make available to the
Borrower a corresponding amount. In such event, if a Lender has not in fact
made its share of the applicable Borrowing available to the Administrative
Agent, then the applicable Lender and the Borrower severally agree to pay to
the Administrative Agent forthwith on demand such corresponding amount with
interest thereon, for each day from and including the date such amount is made
available to the Borrower to but excluding the date of payment to the
Administrative Agent, at (i) in the case of such Lender, the greater of the
Federal Funds Effective Rate and a rate determined by the Administrative Agent
in accordance with banking industry rules on interbank compensation or (ii) in
the case of the Borrower, the interest rate applicable to ABR Loans. If such
Lender pays such amount to the Administrative Agent, then such amount shall
constitute such Lender's Loan included in such Borrowing.
SECTION 2.06. Interest Elections. (a) Each Revolving
Borrowing and Term Borrowing initially shall be of the Type specified in the
applicable Borrowing Request and, in the case of a Eurodollar Borrowing, shall
have an initial Interest Period as specified in such Borrowing Request.
Thereafter, the Borrower may elect to convert such Borrowing to a different
Type or to continue such Borrowing and, in the case of a Eurodollar Borrowing,
may elect Interest Periods therefor, all as provided in this Section. The
Borrower may elect different options with respect to different portions of the
affected Borrowing, in which case each such portion shall be allocated ratably
among the Lenders holding the Loans comprising such Borrowing, and the Loans
comprising each such portion shall be considered a separate Borrowing. This
Section shall not apply to Swingline Borrowings, which may not be converted or
continued.
(b) To make an election pursuant to this Section, the
Borrower shall notify the Administrative Agent of such election by telephone by
the time that a Borrowing Request would be required under Section 2.03 if the
Borrower were requesting a Revolving Borrowing of the Type resulting from such
election to be made on the effective date of such election. Each such
telephonic Interest Election Request shall be irrevocable and shall be
confirmed promptly by hand delivery or telecopy to the Administrative Agent of
a written Interest Election Request in a form approved by the Administrative
Agent and signed by the Borrower.
(c) Each telephonic and written Interest Election Request
shall specify the following information in compliance with Section 2.02 and
paragraph (f) of this Section:
(i) the Borrowing to which such Interest Election Request
applies and, if different options are being elected with respect to
different portions thereof, the portions thereof to be allocated to
each resulting Borrowing (in which case the information to be
specified pursuant to clauses (iii) and (iv) below shall be specified
for each resulting Borrowing);
35
(ii) the effective date of the election made pursuant to such
Interest Election Request, which shall be a Business Day;
(iii) whether the resulting Borrowing is to be an ABR
Borrowing or a Eurodollar Borrowing; and
(iv) if the resulting Borrowing is a Eurodollar Borrowing, the
Interest Period to be applicable thereto after giving effect to such
election, which shall be a period contemplated by the definition of
the term "Interest Period".
If any such Interest Election Request requests a Eurodollar Borrowing but does
not specify an Interest Period, then the Borrower shall be deemed to have
selected an Interest Period of one month's duration.
(d) Promptly following receipt of an Interest Election
Request, the Administrative Agent shall advise each Lender of the details
thereof and of such Lender's portion of each resulting Borrowing.
(e) If the Borrower fails to deliver a timely Interest
Election Request with respect to a Eurodollar Borrowing prior to the end of the
Interest Period applicable thereto, then, unless such Borrowing is repaid as
provided herein, at the end of such Interest Period such Borrowing shall be
converted to an ABR Borrowing. Notwithstanding any contrary provision hereof,
if an Event of Default has occurred and is continuing and the Administrative
Agent, at the request of the Required Lenders, so notifies the Borrower, then,
so long as an Event of Default is continuing (i) no outstanding Borrowing may
be converted to or continued as a Eurodollar Borrowing and (ii) unless repaid,
each Eurodollar Borrowing shall be converted to an ABR Borrowing at the end of
the Interest Period applicable thereto.
(f) A Borrowing of any Class may not be converted to or
continued as a Eurodollar Borrowing if after giving effect thereto (i) the
Interest Period therefor would commence before and end after a date on which
any principal of the Loans of such Class is scheduled to be repaid and (ii) the
sum of the aggregate principal amount of outstanding Eurodollar Borrowings of
such Class with Interest Periods ending on or prior to such scheduled repayment
date plus the aggregate principal amount of outstanding ABR Borrowings of such
Class would be less than the aggregate principal amount of Loans of such Class
required to be repaid on such scheduled repayment date.
SECTION 2.07. Termination; Reduction; and Increase of
Commitments. (a) Unless previously terminated, (i) the Tranche A Commitments
and Tranche B Commitments shall terminate at 5:00 p.m., New York City time, on
the Effective Date and (ii) the Revolving Commitments shall terminate on the
Revolving Maturity Date.
(b) The Borrower may at any time terminate, or from time to
time reduce, the Commitments of any Class; provided that (i) each reduction of
the Commitments of any Class shall be in an amount that is an integral multiple
of $1,000,000 and not less than $5,000,000 and (ii) the Borrower shall not
terminate or reduce the Revolving Commitments if, after giving effect to any
concurrent prepayment of the Revolving Loans in accordance with Section 2.10,
the sum of the Revolving Exposures would exceed the total Revolving
Commitments.
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(c) The Borrower shall notify the Administrative Agent of any
election to terminate or reduce the Commitments under paragraph (b) of this
Section at least three Business Days prior to the effective date of such
termination or reduction, specifying such election and the effective date
thereof. Promptly following receipt of any notice, the Administrative Agent
shall advise the Lenders of the contents thereof. Each notice delivered by the
Borrower pursuant to this Section shall be irrevocable; provided that a notice
of termination of the Revolving Commitments delivered by the Borrower may state
that such notice is conditioned upon the effectiveness of other credit
facilities, in which case such notice may be revoked by the Borrower (by notice
to the Administrative Agent on or prior to the specified effective date) if
such condition is not satisfied. Any termination or reduction of the
Commitments of any Class shall be permanent. Each reduction of the Commitments
of any Class shall be made ratably among the Lenders in accordance with their
respective Commitments of such Class.
(d) On one occasion at any time before February 12, 2000, the
Borrower may, by notice to the Administrative Agent (which shall promptly
deliver a copy to each of the Lenders), request the addition of a new tranche
of Term Loans (the "New Term Loans"). The New Term Loans (i) shall be in an
aggregate principal amount not in excess of $250,000,000, (ii) shall rank pari
passu in right of payment and of security with the Tranche A Term Loans and
shall mature no sooner than the Tranche A Maturity Date, (iii) shall have an
amortization schedule no more accelerated on a proportional basis than the
Tranche A Term Loans and (iv) shall have such pricing as may be agreed by the
Borrower and the Lenders providing such New Term Loans and shall otherwise be
treated hereunder no more favorably than the Tranche A Term Loans, including
for purposes of Section 2.10(c). Such notice shall set forth the requested
amount of New Term Loans, and shall offer each Lender the opportunity to offer
a commitment to provide New Term Loans by giving written notice of such offered
commitment to the Administrative Agent and the Borrower within 10 Business Days
after the date of the Borrower's notice. In the event that, on the 10th
Business Day after the Borrower shall have delivered a notice pursuant to the
first sentence of this paragraph, Lenders shall have provided commitments in an
aggregate amount less than the total amount of the New Term Loans requested by
the Borrower, the Borrower shall have the right to arrange for one or more banks
or other financial institutions (any such bank or other financial institution
being called an "Additional Lender") to extend commitments to provide New Term
Loans in an aggregate amount equal to the unsubscribed amount, provided that
each Additional Lender shall be subject to the approval of the Borrower and the
Administrative Agent (which approval shall not be unreasonably withheld).
Commitments in respect of New Term Loans shall become Commitments under this
Agreement pursuant to an amendment to this Agreement executed by each of USANi,
the Borrower, each Lender agreeing to provide such Commitment, each Additional
Lender, if any, the Issuing Bank and the Administrative Agent, and such
amendments to the other Loan Documents as the Administrative Agent shall
reasonably deem appropriate. The effectiveness of such amendment shall be
subject to the satisfaction on the date thereof and, if different, on the date
on which the New Term Loans are made, of each of the conditions set forth in
paragraphs (b), (c), (d) and (e) of Section 4.02.
(e) On one occasion at any time on or before June 30, 1998,
the Borrower may, by notice to the Administrative Agent (which shall promptly
deliver a copy to each of the Lenders), request the addition of a new tranche
of Term Loans in addition to, and without prejudice to its right to request,
any new tranche of Term Loans under paragraph (d) above (the "Additional New
Term Loans"). The Additional New Term Loans (i) shall be in an aggregate
principal amount not in excess of $205,000,000, (ii) shall reduce the amount of
the Revolving Commitments at any time otherwise available to be utilized in the
form of Revolving Loans, LC
37
Exposure or Swingline Exposure by an amount equal to the aggregate principal
amount of the Additional New Term Loans outstanding at such time, (iii) shall
have terms substantially the same as those set forth in the term sheet contained
in Schedule 2.07(e), (iv) shall have the same Applicable Rates as the Revolving
Loans and (v) shall otherwise be treated hereunder no more favorably than the
Tranche A Term Loans. Such notice shall set forth the requested amount of
Additional New Term Loans, and shall offer each Revolving Lender on a pro rata
basis based upon its proportional share of the Revolving Commitments the
opportunity to offer a commitment to provide Additional New Term Loans by giving
written notice of such offered commitment to the Administrative Agent and the
Borrower within 10 Business Days after the date of the Borrower's notice. In
the event that, on the 10th Business Day after the Borrower shall have delivered
a notice pursuant to the first sentence of this paragraph, Lenders shall have
provided commitments in an aggregate amount less than the total amount of the
Additional New Term Loans requested by the Borrower, the Borrower shall have the
right to arrange for one or more banks or other financial institutions (any such
bank or other financial institution being called an "Additional Lender") or
Lenders to extend commitments to provide Additional New Term Loans in an
aggregate amount equal to the unsubscribed amount, provided that each Additional
Lender shall be subject to the approval of the Borrower and the Administrative
Agent (which approval shall not be unreasonably withheld). Commitments in
respect of Additional New Term Loans shall become Commitments under this
Agreement pursuant to an amendment to this Agreement effecting the Additional
New Term Loans in accordance with this paragraph (e) executed by each of USANi,
the Borrower, each Lender agreeing to provide such Commitment, each Additional
Lender, if any, the Issuing Bank and the Administrative Agent, and such
amendments to the other Loan Documents as the Administrative Agent shall
reasonably deem appropriate. The effectiveness of such amendment shall be
subject to the satisfaction on the date thereof and, if different, on the date
on which the Additional New Term Loans are made, of each of the conditions set
forth in paragraphs (b), (c), (d) and (e) of Section 4.02.
SECTION 2.08. Repayment of Loans; Evidence of Debt. (a) The
Borrower hereby unconditionally promises to pay (i) to the Administrative Agent
for the account of each Lender the then unpaid principal amount of each
Revolving Loan of such Lender on the Revolving Maturity Date, (ii) to the
Administrative Agent for the account of each Lender the then unpaid principal
amount of each Term Loan of such Lender as provided in Section 2.09 and (iii)
to the Swingline Lender the then unpaid principal amount of each Swingline Loan
on the earlier of the Revolving Maturity Date and the first date after such
Swingline Loan is made that is the 15th or last day of a calendar month and is
at least three Business Days after such Swingline Loan is made; provided that
on each date that a Revolving Borrowing is made, the Borrower shall repay all
Swingline Loans then outstanding.
(b) Each Lender shall maintain in accordance with its usual
practice an account or accounts evidencing the indebtedness of the Borrower to
such Lender resulting from each Loan made by such Lender, including the amounts
of principal and interest payable and paid to such Lender from time to time
hereunder.
(c) The Administrative Agent shall maintain accounts in which
it shall record (i) the amount of each Loan made hereunder, the Class and Type
thereof and the Interest Period applicable thereto, (ii) the amount of any
principal or interest due and payable or to become due and payable from the
Borrower to each Lender hereunder and (iii) the amount of any sum received by
the Administrative Agent hereunder for the account of the Lenders and each
Lender's share thereof.
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(d) The entries made in the accounts maintained pursuant to
paragraph (b) or (c) of this Section shall be prima facie evidence of the
existence and amounts of the obligations recorded therein; provided that the
failure of any Lender or the Administrative Agent to maintain such accounts or
any error therein shall not in any manner affect the obligation of the Borrower
to repay the Loans in accordance with the terms of this Agreement.
(e) Any Lender may request that Loans of any Class made by it
be evidenced by a promissory note. In such event, the Borrower shall prepare,
execute and deliver to such Lender a promissory note payable to the order of
such Lender (or, if requested by such Lender, to such Lender and its registered
assigns) and in a form approved by the Administrative Agent. Thereafter, the
Loans evidenced by such promissory note and interest thereon shall at all times
(including after assignment pursuant to Section 8.04) be represented by one or
more promissory notes in such form payable to the order of the payee named
therein (or, if such promissory note is a registered note, to such payee and
its registered assigns).
SECTION 2.09. Amortization of Term Loans. (a) Subject to
adjustment pursuant to paragraph (d) of this Section, the Borrower shall repay
Tranche A Term Borrowings on each date set forth below in the aggregate
principal amount set forth opposite such date:
Date Amount
---- ------
March 31, 1999 18,750,000
June 30, 1999 18,750,000
September 30, 1999 18,750,000
December 31, 1999 18,750,000
March 31, 2000 37,500,000
June 30, 2000 37,500,000
September 30, 2000 37,500,000
December 31, 2000 37,500,000
March 31, 2001 56,250,000
June 30, 2001 56,250,000
September 30, 2001 56,250,000
December 31, 2001 56,250,000
March 31, 2002 75,000,000
June 30, 2002 75,000,000
September 30, 2002 75,000,000
December 31, 2002 75,000,000
(b) Subject to adjustment pursuant to paragraph (d) of this
Section, the Borrower shall repay Tranche B Term Borrowings on each date set
forth below in the aggregate principal amount set forth opposite such date:
Date Amount
---- ------
March 31, 1999 312,500
June 30, 1999 312,500
September 30, 1999 312,500
December 31, 1999 312,500
March 31, 2000 312,500
39
June 30, 2000 312,500
September 30, 2000 312,500
December 31, 2000 312,500
March 31, 2001 312,500
June 30, 2001 312,500
September 30, 2001 312,500
December 31, 2001 312,500
March 31, 2002 312,500
June 30, 2002 312,500
September 30, 2002 312,500
December 31, 2002 312,500
March 31, 2003 61,250,000
June 30, 2003 61,250,000
September 30, 2003 61,250,000
December 31, 2003 61,250,000
(c) To the extent not previously paid, (i) all Tranche A Term
Loans shall be due and payable on the Tranche A Maturity Date and (ii) all
Tranche B Term Loans shall be due and payable on the Tranche B Maturity Date.
(d) If the initial aggregate amount of the Lenders' Term
Commitments of either Class exceeds the aggregate principal amount of Term
Loans of such Class that are made on the Effective Date, then the scheduled
repayments of Term Borrowings of such Class to be made pursuant to this Section
shall be reduced ratably by an aggregate amount equal to such excess. Any
prepayment of a Term Borrowing of either Class shall be applied ratably to
reduce the subsequent scheduled repayments of the Term Borrowings of such Class
to be made pursuant to this Section.
(e) Prior to any repayment of any Term Borrowings of either
Class hereunder, the Borrower shall select the Borrowing or Borrowings of the
applicable Class to be repaid and shall notify the Administrative Agent by
telephone (confirmed by telecopy) of such selection not later than 11:00 a.m.,
New York City time, three Business Days before the scheduled date of such
repayment; provided that each repayment of Term Borrowings of either Class
shall be applied to repay any outstanding ABR Term Borrowings of such Class
before any other Borrowings of such Class. Each repayment of a Borrowing shall
be applied ratably to the Loans included in the repaid Borrowing. Repayments
of Term Borrowings shall be accompanied by accrued interest on the amount
repaid.
SECTION 2.10. Prepayment of Loans. (a) The Borrower shall
have the right at any time and from time to time to prepay any Borrowing in
whole or in part, subject to the requirements of this Section.
(b) In the event and on each occasion that any Net Proceeds
are received by or on behalf of USANi, the Borrower or their respective
Subsidiaries in respect of any Prepayment Event, the Borrower shall, within
seven Business Days after such Net Proceeds are received, prepay Term
Borrowings in an aggregate amount equal to 100% of such Net Proceeds, except in
the case of an Asset Sale of any television station owned by SKTV or any of its
subsidiaries, in which case the Borrower shall, within seven Business Days
after such Net Proceeds are received, prepay Term Borrowings in an aggregate
amount equal to 50% of such Net Proceeds. Concurrently with the occurrence of
any Prepayment Event, the Borrower shall deliver to the
40
Administrative Agent and each Lender a written notice of such occurrence which
shall set forth a calculation of the Net Proceeds received in respect of such
Prepayment Event.
(c) Prior to any optional or mandatory prepayment of
Borrowings hereunder, the Borrower shall select the Borrowing or Borrowings
and, in the case of any optional prepayment, the Class or Classes to be prepaid
and shall specify such selection in the notice of such prepayment pursuant to
paragraph (d) of this Section; provided that each prepayment of Borrowings of
any Class shall be applied to prepay ABR Borrowings of such Class before any
other Borrowings of such Class. In the event of any mandatory prepayment of
Term Borrowings made at a time when Term Borrowings of both Classes remain
outstanding, the Borrower shall select Term Borrowings to be prepaid so that
the aggregate amount of such prepayment is allocated between the Tranche A Term
Borrowings and Tranche B Term Borrowings pro rata based on the aggregate
principal amount of outstanding Borrowings of each such Class. Any Tranche B
Lender may elect, by notice to the Administrative Agent by telephone (confirmed
by telecopy) at least two Business Days prior to the prepayment date, to
decline all or any portion of any prepayment of its Tranche B Term Loans
pursuant to this Section (other than an optional prepayment pursuant to
paragraph (a) of this Section, which may not be declined), in which case the
aggregate amount of the prepayment that would have been applied to prepay
Tranche B Term Loans but was so declined shall be applied to prepay Tranche A
Term Borrowings, provided that, if the Borrower so requests in writing promptly
after notice that any such Tranche B Lender has declined all or any portion of
any prepayment, such declined prepayments shall instead be applied to prepay
Tranche A Term Borrowings and the Tranche B Term Loans of Tranche B Lenders
that did not decline such prepayment allocated pro rata based on the aggregate
principal amount of Tranche A Term Borrowings and such Tranche B Term Loans and
the Administrative Agent shall advise each Tranche B Lender eligible to receive
such an additional prepayment of the amount of such prepayment so reallocated
to such Tranche B Lender and, provided further, that any such Tranche B Lender
may elect, by notice to the Administrative Agent by telephone (confirmed by
telecopy) at least one Business Day prior to the prepayment date, to decline
all or any portion of any prepayment of its Tranche B Term Loans pursuant to
such reallocation, in which case the aggregate amount of the prepayment that
would have been applied to prepay Tranche B Term Loans but was so declined
shall be applied to prepay Tranche A Term Loans.
(d) The Borrower shall notify the Administrative Agent (and,
in the case of prepayment of a Swingline Loan, the Swingline Lender) by
telephone (confirmed by telecopy) of any prepayment hereunder (i) in the case of
prepayment of a Eurodollar Revolving Borrowing, not later than 11:00 a.m., New
York City time, five (or, in the case of an optional prepayment, three) Business
Days before the date of prepayment, (ii) in the case of prepayment of an ABR
Revolving Borrowing, not later than 11:00 a.m., New York City time, three (or,
in the case of an optional prepayment, one) Business Days before the date of
prepayment or (iii) in the case of prepayment of a Swingline Loan, not later
than 12:00 noon, New York City time, on the date of prepayment. Each such
notice shall be irrevocable and shall specify the prepayment date, the principal
amount of each Borrowing or portion thereof to be prepaid and, in the case of a
mandatory prepayment, a reasonably detailed calculation of the amount of such
prepayment; provided that, if a notice of optional prepayment is given in
connection with a conditional notice of termination of the Revolving Commitments
as contemplated by Section 2.07, then such notice of prepayment may be revoked
if such notice of termination is revoked in accordance with Section 2.07.
Promptly following receipt of any such notice (other than a notice relating
solely to Swingline Loans), the Administrative Agent shall advise the Lenders of
the contents thereof. Each partial prepayment of any Borrowing shall be in an
amount that would be permitted in the case of an advance of a Borrowing of the
same Type as provided in Section 2.02, except as
41
necessary to apply fully the required amount of a mandatory prepayment. Each
prepayment of a Borrowing shall be applied ratably to the Loans included in the
prepaid Borrowing. Prepayments shall be accompanied by accrued interest to the
extent required by Section 2.12.
SECTION 2.11. Fees. (a) The Borrower agrees to pay to the
Administrative Agent for the account of each Lender a commitment fee, which
shall accrue at the Applicable Rate on the average daily unused amount of each
Commitment of such Lender during the period from and including the date of this
Agreement, to but excluding the date on which such Commitment terminates.
Accrued commitment fees shall be payable in arrears (i) in the case of
commitment fees in respect of the Revolving Commitments, on the last day of
March, June, September and December of each year and on the date on which the
Revolving Commitments terminate, commencing on the first such date to occur
after the date hereof, and (ii) in the case of commitment fees in respect of
the Tranche A Term Commitments and Tranche B Term Commitments, on the Effective
Date or any earlier date on which such Commitments terminate. All commitment
fees shall be computed on the basis of a year of 360 days and shall be payable
for the actual number of days elapsed (including the first day but excluding
the last day). For purposes of computing commitment fees with respect to
Revolving Commitments, a Revolving Commitment of a Lender shall be deemed to be
used to the extent of the outstanding Revolving Loans and LC Exposure of such
Lender (and the Swingline Exposure of such Lender shall be disregarded for such
purpose). Reduction of the availability of Revolving Commitments as
contemplated by clause (ii) of Section 2.07(e) shall not constitute usage of
such Revolving Commitments for purposes of this Section 2.11(a).
(b) The Borrower agrees to pay (i) to the Administrative
Agent for the account of each Revolving Lender a participation fee with respect
to its participations in Letters of Credit, which shall accrue on the average
daily amount of such Lender's LC Exposure (excluding any portion thereof
attributable to unreimbursed LC Disbursements) during the period from and
including the Effective Date to but excluding the later of the date on which
such Lender's Revolving Commitment terminates and the date on which such Lender
ceases to have any LC Exposure at a rate equal for each date in such period to
(x) in the case of trade Letters of Credit, 40% of the Applicable Rate for
Eurodollar Borrowings on such date and (y) in the case of all other Letters of
Credit, the Applicable Rate for Eurodollar Borrowings on such date, and (ii) to
the Issuing Bank a fronting fee, which shall accrue at the rate or rates per
annum separately agreed upon between the Borrower and the Issuing Bank on the
average daily amount of the LC Exposure (excluding any portion thereof
attributable to unreimbursed LC Disbursements) during the period from and
including the Effective Date to but excluding the later of the date of
termination of the Revolving Commitments and the date on which there ceases to
be any LC Exposure, as well as the Issuing Bank's standard fees with respect to
the issuance, amendment, renewal or extension of any Letter of Credit or
processing of drawings thereunder. Participation fees and fronting fees
accrued through and including the last day of March, June, September and
December of each year shall be payable on the third Business Day following such
last day, commencing on the first such date to occur after the Effective Date;
provided that all such fees shall be payable on the date on which the Revolving
Commitments terminate and any such fees accruing after the date on which the
Revolving Commitments terminate shall be payable on demand. Any other fees
payable to the Issuing Bank pursuant to this paragraph shall be payable within
10 days after demand. All participation fees and fronting fees shall be
computed on the basis of a year of 360 days and shall be payable for the actual
number of days elapsed (including the first day but excluding the last day).
42
(c) The Borrower agrees to pay to the Administrative Agent,
for its own account, fees payable in the amounts and at the times separately
agreed upon between the Borrower and the Administrative Agent.
(d) All fees payable hereunder shall be paid on the dates
due, in immediately available funds, to the Administrative Agent (or to the
Issuing Bank, in the case of fees payable to it) for prompt distribution, in
the case of commitment fees and participation fees, to the Lenders entitled
thereto. Fees paid shall not be refundable under any circumstances.
SECTION 2.12. Interest. (a) The Loans comprising each ABR
Borrowing (including each Swingline Loan) shall bear interest at the Alternate
Base Rate plus the Applicable Rate.
(b) The Loans comprising each Eurodollar Borrowing shall bear
interest at the Adjusted LIBO Rate for the Interest Period in effect for such
Borrowing plus the Applicable Rate.
(c) Notwithstanding the foregoing, if any principal of or
interest on any Loan or LC Disbursement or any fee or other amount payable by
the Borrower hereunder is not paid when due, whether at stated maturity, upon
acceleration or otherwise, such overdue amount shall bear interest, after as
well as before judgment, at a rate per annum equal to (i) in the case of
overdue principal of any Loan, 2% plus the rate otherwise applicable to such
Loan as provided in the preceding paragraphs of this Section or (ii) in the
case of any other amount, 2% plus the rate applicable to ABR Revolving Loans as
provided in paragraph (a) of this Section.
(d) Accrued interest on each Loan shall be payable in arrears
on each Interest Payment Date for such Loan and, in the case of Revolving
Loans, upon termination of the Revolving Commitments; provided that (i)
interest accrued pursuant to paragraph (c) of this Section shall be payable on
demand, (ii) in the event of any repayment or prepayment of any Loan (other
than a prepayment of an ABR Revolving Loan prior to the end of the Revolving
Availability Period), accrued interest on the principal amount repaid or
prepaid shall be payable on the date of such repayment or prepayment and (iii)
in the event of any conversion of any Eurodollar Loan prior to the end of the
current Interest Period therefor, accrued interest on such Loan shall be
payable on the effective date of such conversion.
(e) All interest hereunder shall be computed on the basis of
a year of 360 days, except that interest computed by reference to the Alternate
Base Rate at times when the Alternate Base Rate is based on the Prime Rate
shall be computed on the basis of a year of 365 days (or 366 days in a leap
year), and in each case shall be payable for the actual number of days elapsed
(including the first day but excluding the last day). The applicable Alternate
Base Rate or Adjusted LIBO Rate shall be determined by the Administrative
Agent, and such determination shall be conclusive absent manifest error.
SECTION 2.13. Alternate Rate of Interest. If prior to the
commencement of any Interest Period for a Eurodollar Borrowing:
(a) the Administrative Agent determines (which determination
shall be conclusive absent manifest error) that adequate and
reasonable means do not exist for ascertaining the Adjusted LIBO Rate
for such Interest Period; or
43
(b) the Administrative Agent is advised by the Required
Lenders that the Adjusted LIBO Rate for such Interest Period will not
adequately and fairly reflect the cost to such Lenders (or Lender) of
making or maintaining their Loans (or its Loan) included in such
Borrowing for such Interest Period;
then the Administrative Agent shall give notice thereof to the Borrower and the
Lenders by telephone or telecopy as promptly as practicable thereafter and,
until the Administrative Agent notifies the Borrower and the Lenders that the
circumstances giving rise to such notice no longer exist, (i) any Interest
Election Request that requests the conversion of any Borrowing to, or
continuation of any Borrowing as, a Eurodollar Borrowing shall be ineffective
and (ii) if any Borrowing Request requests a Eurodollar Borrowing, such
Borrowing shall be made as an ABR Borrowing.
SECTION 2.14. Increased Costs. (a) If any Change in Law
shall:
(i) impose, modify or deem applicable any reserve, special
deposit or similar requirement against assets of, deposits with or for
the account of, or credit extended by, any Lender (except any such
reserve requirement reflected in the Adjusted LIBO Rate) or the
Issuing Bank; or
(ii) impose on any Lender or the Issuing Bank or the London
interbank market any other condition affecting this Agreement or
Eurodollar Loans made by such Lender or any Letter of Credit or
participation therein;
and the result of any of the foregoing shall be to increase by an amount deemed
material by such Lender the cost to such Lender of making or maintaining any
Eurodollar Loan (or of maintaining its obligation to make any such Loan) or to
increase the cost to such Lender or the Issuing Bank of participating in,
issuing or maintaining any Letter of Credit or to reduce the amount of any sum
received or receivable by such Lender or the Issuing Bank hereunder (whether of
principal, interest or otherwise) by an amount deemed material by such Lender
or the Issuing Bank, then the Borrower will pay to such Lender or the Issuing
Bank, as the case may be, such additional amount or amounts as will compensate
such Lender or the Issuing Bank, as the case may be, for such additional costs
incurred or reduction suffered.
(b) If any Lender or the Issuing Bank determines that any
Change in Law regarding capital requirements has or would have the effect of
reducing the rate of return on such Lender's or the Issuing Bank's capital or
on the capital of such Lender's or the Issuing Bank's holding company, if any,
as a consequence of this Agreement or the Loans made by, or participations in
Letters of Credit held by, such Lender, or the Letters of Credit issued by the
Issuing Bank, to a level below that which such Lender or the Issuing Bank or
such Lender's or the Issuing Bank's holding company could have achieved but for
such Change in Law (taking into consideration such Lender's or the Issuing
Bank's policies and the policies of such Lender's or the Issuing Bank's holding
company with respect to capital adequacy) by an amount deemed material by such
Lender or the Issuing Bank, then from time to time the Borrower will pay to
such Lender or the Issuing Bank, as the case may be, such additional amount or
amounts as will compensate such Lender or the Issuing Bank or such Lender's or
the Issuing Bank's holding company for any such reduction suffered.
(c) A certificate of a Lender or the Issuing Bank setting
forth the amount or amounts necessary to compensate such Lender or the Issuing
Bank or its holding company, as the case may be, as specified in paragraph (a)
or (b) of this Section shall be delivered to the
44
Borrower and shall be conclusive absent manifest error. The Borrower shall pay
such Lender or the Issuing Bank, as the case may be, the amount shown as due on
any such certificate within 10 days after receipt thereof.
(d) Failure or delay on the part of any Lender or the Issuing
Bank to demand compensation pursuant to this Section shall not constitute a
waiver of such Lender's or the Issuing Bank's right to demand such
compensation; provided that the Borrower shall not be required to compensate a
Lender or the Issuing Bank pursuant to this Section for any increased costs or
reductions incurred more than 270 days prior to the date that such Lender or
the Issuing Bank, as the case may be, notifies the Borrower of the Change in
Law giving rise to such increased costs or reductions and of such Lender's or
the Issuing Bank's intention to claim compensation therefor; provided further
that, if the Change in Law giving rise to such increased costs or reductions is
retroactive, then the 270-day period referred to above shall be extended to
include the period of retroactive effect thereof.
SECTION 2.15. Break Funding Payments. In the event of (a)
the payment of any principal of any Eurodollar Loan other than on the last day
of an Interest Period applicable thereto (including as a result of an Event of
Default), (b) the conversion of any Eurodollar Loan other than on the last day
of the Interest Period applicable thereto, (c) the failure to borrow, convert,
continue or prepay any Revolving Loan or Term Loan on the date specified in any
notice delivered pursuant hereto (regardless of whether such notice may be
revoked under Section 2.10(d) and is revoked in accordance therewith), or (d)
the assignment of any Eurodollar Loan other than on the last day of the
Interest Period applicable thereto as a result of a request by the Borrower
pursuant to Section 2.18, then, in any such event, the Borrower shall
compensate each Lender for the loss, cost and expense attributable to such
event. In the case of a Eurodollar Loan, such loss, cost or expense to any
Lender shall be deemed to include an amount determined by such Lender to be the
excess, if any, of (i) the amount of interest which would have accrued on the
principal amount of such Loan had such event not occurred, at the Adjusted LIBO
Rate that would have been applicable to such Loan, for the period from the date
of such event to the last day of the then current Interest Period therefor (or,
in the case of a failure to borrow, convert or continue, for the period that
would have been the Interest Period for such Loan), over (ii) the amount of
interest which would accrue on such principal amount for such period at the
interest rate which such Lender would bid were it to bid, at the commencement
of such period, for dollar deposits of a comparable amount and period from
other banks in the eurodollar market. A certificate of any Lender setting
forth any amount or amounts that such Lender is entitled to receive pursuant to
this Section shall be delivered to the Borrower and shall be conclusive absent
manifest error. The Borrower shall pay such Lender the amount shown as due on
any such certificate within 10 days after receipt thereof.
SECTION 2.16. Taxes. (a) Any and all payments by or on
account of any obligation of the Borrower hereunder or under any other Loan
Document shall be made free and clear of and without deduction for any
Indemnified Taxes or Other Taxes; provided that if the Borrower shall be
required to deduct any Indemnified Taxes or Other Taxes from such payments,
then (i) the sum payable shall be increased as necessary so that after making
all required deductions (including deductions applicable to additional sums
payable under this Section) the Administrative Agent, the Collateral Agent,
Lender or Issuing Bank (as the case may be) receives an amount equal to the sum
it would have received had no such deductions been made, (ii) the Borrower shall
make such deductions and (iii) the Borrower shall pay the full amount deducted
to the relevant Governmental Authority in accordance with applicable law.
45
(b) In addition, the Borrower shall pay any Other Taxes to
the relevant Governmental Authority in accordance with applicable law.
(c) The Borrower shall indemnify the Administrative Agent,
the Collateral Agent, each Lender and the Issuing Bank, within 10 days after
written demand therefor, for the full amount of any Indemnified Taxes or Other
Taxes paid by the Administrative Agent, the Collateral Agent, such Lender or
the Issuing Bank, as the case may be, on or with respect to any payment by or
on account of any obligation of the Borrower hereunder or under any other Loan
Document (including Indemnified Taxes or Other Taxes imposed or asserted on or
attributable to amounts payable under this Section) and any penalties, interest
and reasonable expenses arising therefrom or with respect thereto, whether or
not such Indemnified Taxes or Other Taxes were correctly or legally imposed or
asserted by the relevant Governmental Authority. A certificate as to the
amount of such payment or liability delivered to the Borrower by a Lender, the
Collateral Agent or the Issuing Bank, or by the Administrative Agent on its own
behalf or on behalf of a Lender, the Collateral Agent or the Issuing Bank,
shall be conclusive absent manifest error.
(d) As soon as practicable after any payment of Indemnified
Taxes or Other Taxes by the Borrower to a Governmental Authority, the Borrower
shall deliver to the Administrative Agent the original or a certified copy of a
receipt issued by such Governmental Authority evidencing such payment, a copy
of the return reporting such payment or other evidence of such payment
reasonably satisfactory to the Administrative Agent.
(e) Any Foreign Lender that is entitled to an exemption from
or reduction of withholding tax under the law of the jurisdiction in which the
Borrower is located, or any treaty to which such jurisdiction is a party, with
respect to payments under this Agreement shall deliver to the Borrower (with a
copy to the Administrative Agent), at the time or times prescribed by
applicable law, such properly completed and executed documentation prescribed
by applicable law or reasonably requested by the Borrower as will permit such
payments to be made without withholding or at a reduced rate, including in the
case of a Foreign Lender claiming exemption from U.S. federal withholding tax
under Section 871(h) or 881(c) of the Code with respect to payments of
"portfolio interest", a Form W-8, or any subsequent versions thereof or
successors thereto, accompanied by a certificate representing that such Foreign
Lender is not a bank for purposes of Section 881(c) of the Code, is not a ten
percent shareholder of the Borrower (within the meaning of 871(h)(3)(B) of the
Code) and is not a controlled foreign corporation related to the Borrower
(within the meaning of Section 864(d)(4) of the Code).
SECTION 2.17. Payments Generally; Pro Rata Treatment; Sharing
of Setoffs. (a) The Borrower shall make each payment required to be made by
it hereunder or under any other Loan Document (whether of principal, interest,
fees or reimbursement of LC Disbursements, or of amounts payable under Section
2.14, 2.15 or 2.16, or otherwise) prior to 12:00 noon, New York City time, on
the date when due, in immediately available funds, without setoff or
counterclaim. Any amounts received after such time on any date may, in the
discretion of the Administrative Agent, be deemed to have been received on the
next succeeding Business Day for purposes of calculating interest thereon. All
such payments shall be made to the Administrative Agent in care of the Loan and
Agency Services Group, One Chase Manhattan Plaza, 8th Floor, New York, New York
10081, except payments to be made directly to the Issuing Bank or Swingline
Lender as expressly provided herein and except that payments pursuant to
Sections 2.14, 2.15, 2.16 and 8.03 shall be made directly to the Persons
entitled thereto and payments pursuant to other Loan Documents shall be made to
the Persons specified therein. The Administrative Agent shall distribute any
such payments received by it for the
46
account of any other Person to the appropriate recipient promptly following
receipt thereof. If any payment under any Loan Document shall be due on a day
that is not a Business Day, the date for payment shall be extended to the next
succeeding Business Day, and, in the case of any payment accruing interest,
interest thereon shall be payable for the period of such extension. All
payments under each Loan Document shall be made in dollars.
(b) If at any time insufficient funds are received by and
available to the Administrative Agent to pay fully all amounts of principal,
unreimbursed LC Disbursements, interest and fees then due hereunder, such funds
shall be applied (i) first, towards payment of interest and fees then due
hereunder, ratably among the parties entitled thereto in accordance with the
amounts of interest and fees then due to such parties, and (ii) second, towards
payment of principal and unreimbursed LC Disbursements then due hereunder,
ratably among the parties entitled thereto in accordance with the amounts of
principal and unreimbursed LC Disbursements then due to such parties.
(c) If any Lender shall, by exercising any right of setoff or
counterclaim or otherwise, obtain payment in respect of any principal of or
interest on any of its Revolving Loans, Term Loans or participations in LC
Disbursements or Swingline Loans resulting in such Lender receiving payment of
a greater proportion of the aggregate amount of its Revolving Loans, Term Loans
and participations in LC Disbursements and Swingline Loans and accrued interest
thereon than the proportion received by any other Lender, then the Lender
receiving such greater proportion shall purchase (for cash at face value)
participations in the Revolving Loans, Term Loans and participations in LC
Disbursements and Swingline Loans of other Lenders to the extent necessary so
that the benefit of all such payments shall be shared by the Lenders ratably in
accordance with the aggregate amount of principal of and accrued interest on
their respective Revolving Loans, Term Loans and participations in LC
Disbursements and Swingline Loans; provided that (i) if any such participations
are purchased and all or any portion of the payment giving rise thereto is
recovered, such participations shall be rescinded and the purchase price
restored to the extent of such recovery, without interest, and (ii) the
provisions of this paragraph shall not be construed to apply to any payment
made by the Borrower pursuant to and in accordance with the express terms of
this Agreement or any payment obtained by a Lender as consideration for the
assignment of or sale of a participation in any of its Loans or participations
in LC Disbursements to any assignee or participant, other than to the Borrower
or any Subsidiary or Affiliate thereof (as to which the provisions of this
paragraph shall apply). The Borrower consents to the foregoing and agrees, to
the extent it may effectively do so under applicable law, that any Lender
acquiring a participation pursuant to the foregoing arrangements may exercise
against the Borrower rights of setoff and counterclaim with respect to such
participation as fully as if such Lender were a direct creditor of the Borrower
in the amount of such participation.
(d) Unless the Administrative Agent shall have received
notice from the Borrower prior to the date on which any payment is due to the
Administrative Agent for the account of the Lenders, the Collateral Agent or
the Issuing Bank hereunder that the Borrower will not make such payment, the
Administrative Agent may assume that the Borrower has made such payment on such
date in accordance herewith and may, in reliance upon such assumption,
distribute to the Lenders, the Collateral Agent or the Issuing Bank, as the
case may be, the amount due. In such event, if the Borrower has not in fact
made such payment, then each of the Lenders or the Issuing Bank, as the case
may be, severally agrees to repay to the Administrative Agent forthwith on
demand the amount so distributed to such Lender, the Collateral Agent or
Issuing Bank with interest thereon, for each day from and including the date
such amount is distributed to it to but excluding the date of payment to the
Administrative Agent, at the greater
47
of the Federal Funds Effective Rate and a rate determined by the Administrative
Agent in accordance with banking industry rules on interbank compensation.
(e) If any Lender shall fail to make any payment required to
be made by it pursuant to Section 2.04(d) or (e), 2.05(b), 2.17(d), 2.19(c) or
8.03(c), then the Administrative Agent may, in its discretion (notwithstanding
any contrary provision hereof), apply any amounts thereafter received by the
Administrative Agent for the account of such Lender to satisfy such Lender's
obligations under such Sections until all such unsatisfied obligations are
fully paid.
SECTION 2.18. Mitigation Obligations; Replacement of Lenders.
(a) If any Lender requests compensation under Section 2.14, or if the Borrower
is required to pay any additional amount to any Lender or any Governmental
Authority for the account of any Lender pursuant to Section 2.16, then such
Lender shall use reasonable efforts to designate a different lending office for
funding or booking its Loans hereunder or to assign its rights and obligations
hereunder to another of its offices, branches or affiliates, if, in the
judgment of such Lender, such designation or assignment (i) would eliminate or
reduce amounts payable pursuant to Section 2.14 or 2.16, as the case may be, in
the future and (ii) would not subject such Lender to any unreimbursed cost or
expense and would not otherwise be disadvantageous to such Lender. The
Borrower hereby agrees to pay all reasonable costs and expenses incurred by any
Lender in connection with any such designation or assignment.
(b) If any Lender requests compensation under Section 2.14,
or if the Borrower is required to pay any additional amount to any Lender or
any Governmental Authority for the account of any Lender pursuant to Section
2.16, or if any Lender defaults in its obligation to fund Loans hereunder, then
the Borrower may, at its sole expense and effort, upon notice to such Lender
and the Administrative Agent, require such Lender to assign and delegate,
without recourse (in accordance with and subject to the restrictions contained
in Section 8.04), all its interests, rights and obligations under this
Agreement to an assignee that shall assume such obligations (which assignee may
be another Lender, if a Lender accepts such assignment); provided that (i) the
Borrower shall have received the prior written consent of the Administrative
Agent (and, if a Revolving Commitment is being assigned, the Issuing Bank and
Swingline Lender), which consent shall not unreasonably be withheld, (ii) such
Lender shall have received payment of an amount equal to the outstanding
principal of its Loans and participations in LC Disbursements and Swingline
Loans, accrued interest thereon, accrued fees and all other amounts payable to
it hereunder, from the assignee (to the extent of such outstanding principal and
accrued interest and fees) or the Borrower (in the case of all other amounts)
and (iii) in the case of any such assignment resulting from a claim for
compensation under Section 2.14 or payments required to be made pursuant to
Section 2.16, such assignment will result in a reduction in such compensation or
payments. A Lender shall not be required to make any such assignment and
delegation if, prior thereto, as a result of a waiver by such Lender or
otherwise, the circumstances entitling the Borrower to require such assignment
and delegation cease to apply.
SECTION 2.19. Swingline Loans. (a) Subject to the terms and
conditions set forth herein, the Swingline Lender agrees to make Swingline
Loans to the Borrower from time to time during the Revolving Availability
Period, in an aggregate principal amount at any time outstanding that will not
result in (i) the aggregate principal amount of outstanding Swingline Loans
exceeding $25,000,000 or (ii) the sum of the total Revolving Exposures
exceeding the total Revolving Commitments; provided that the Swingline Lender
shall not be required to make a Swingline Loan to refinance an outstanding
Swingline Loan. Within the foregoing limits and
48
subject to the terms and conditions set forth herein, the Borrower may borrow,
prepay and reborrow Swingline Loans.
(b) To request a Swingline Loan, the Borrower shall notify
the Administrative Agent of such request by telephone (confirmed by telecopy),
not later than 12:00 noon, New York City time, on the day of a proposed
Swingline Loan. Each such notice shall be irrevocable and shall specify the
requested date (which shall be a Business Day) and amount of the requested
Swingline Loan. The Administrative Agent will promptly advise the Swingline
Lender of any such notice received from the Borrower. The Swingline Lender
shall make each Swingline Loan available to the Borrower by means of a credit
to the general deposit account of the Borrower with the Swingline Lender (or,
in the case of a Swingline Loan made to finance the reimbursement of an LC
Disbursement as provided in Section 2.06(e), by remittance to the Issuing Bank)
by 3:00 p.m., New York City time, on the requested date of such Swingline Loan.
(c) The Swingline Lender may by written notice given to the
Administrative Agent not later than 10:00 a.m., New York City time, on any
Business Day require the Revolving Lenders to acquire participations on such
Business Day in all or a portion of the Swingline Loans outstanding. Such
notice shall specify the aggregate amount of Swingline Loans in which Revolving
Lenders will participate. Promptly upon receipt of such notice, the
Administrative Agent will give notice thereof to each Revolving Lender,
specifying in such notice such Lender's Applicable Percentage of such Swingline
Loan or Loans. Each Revolving Lender hereby absolutely and unconditionally
agrees, upon receipt of notice as provided above, to pay to the Administrative
Agent, for the account of the Swingline Lender, such Lender's Applicable
Percentage of such Swingline Loan or Loans. Each Revolving Lender acknowledges
and agrees that its obligation to acquire participations in Swingline Loans
pursuant to this paragraph is absolute and unconditional and shall not be
affected by any circumstance whatsoever, including the occurrence and
continuance of a Default or reduction or termination of the Commitments, and
that each such payment shall be made without any offset, abatement, withholding
or reduction whatsoever. Each Revolving Lender shall comply with its
obligation under this paragraph by wire transfer of immediately available
funds, in the same manner as provided in Section 2.05 with respect to Loans
made by such Lender (and Section 2.05 shall apply, mutatis mutandis, to the
payment obligations of the Revolving Lenders), and the Administrative Agent
shall promptly pay to the Swingline Lender the amounts so received by it from
the Revolving Lenders. The Administrative Agent shall notify the Borrower of
any participations in any Swingline Loan acquired pursuant to this paragraph,
and thereafter payments in respect of such Swingline Loan shall be made to the
Administrative Agent and not to the Swingline Lender. Any amounts received by
the Swingline Lender from the Borrower (or other party on behalf of the
Borrower) in respect of a Swingline Loan after receipt by the Swingline Lender
of the proceeds of a sale of participations therein shall be promptly remitted
to the Administrative Agent; any such amounts received by the Administrative
Agent shall be promptly remitted by the Administrative Agent to the Revolving
Lenders that shall have made their payments pursuant to this paragraph and to
the Swingline Lender, as their interests may appear. The purchase of
participations in a Swingline Loan pursuant to this paragraph shall not relieve
the Borrower of any default in the payment thereof.
49
ARTICLE III
Representations and Warranties
Each of USANi and the Borrower represents and warrants to the
Administrative Agent, the Collateral Agent, the Issuing Bank and the Lenders
that:
SECTION 3.01. Corporate Existence. Each Credit Party and
each of the Material Subsidiaries (a) is a corporation, a limited partnership
or a limited liability company duly organized and validly existing under the
laws of the jurisdiction of its incorporation or formation; (b) has all
requisite corporate, partnership or company power, and has all material
governmental licenses, authorizations, consents and approvals, necessary to own
its assets and carry on its business as presently conducted, and conducts its
business in compliance with the requirements set forth in Section 5.03; and (c)
is qualified to do business in all jurisdictions in which the nature of the
business conducted by it makes such qualification necessary and where failure
so to qualify would have a Material Adverse Effect.
SECTION 3.02. Financial Condition. (a) Each of (i) the
consolidated balance sheet of USANi and its consolidated subsidiaries as at
December 31, 1996, and the related consolidated statements of income, retained
earnings and changes in financial position of USANi and its consolidated
subsidiaries for the Fiscal Year ended on such date, audited by and with the
opinion thereon of Ernst & Young LLP, the independent auditors of USANi, (ii)
the unaudited consolidated balance sheet of USANi and its consolidated
subsidiaries as at September 30, 1997, and the related consolidated statements
of income, retained earnings and changes in financial position for the
three-Fiscal Quarter period ended on such date and (iii) the financial
statements for USA Networks and Universal Television Group contained in
Appendix H and Appendix I, respectively, of the Proxy Statement of USANi dated
January 12, 1998, each of which has been heretofore furnished to the
Administrative Agent and each of the Lenders, are complete and correct and
fairly present in all material respects the consolidated financial condition of
USANi, USA Networks or Universal Television Group, as the case may be, and its
consolidated subsidiaries as at such dates and the consolidated results of
their operations for such Fiscal Year or period, as the case may be, ended on
such dates, all in accordance with GAAP applied on a consistent basis subject,
in the case of clause (ii), to normal yearend adjustments. Neither USANi nor
USA Networks nor Universal Television Group nor any of their consolidated
subsidiaries had on either such date any material contingent liabilities,
liabilities for taxes, unusual forward or long-term commitments or unrealized
or anticipated losses from any unfavorable commitments, except as referred to
or reflected or provided for in such balance sheets as at such dates. Since
December 31, 1996, there has been no material adverse effect on the business,
operations or financial condition of (A) USANi and its consolidated
Subsidiaries (including the Home Shopping Persons) taken as a whole or (B) the
Acquired Assets (excluding the Home Shopping Persons) taken as a whole (in such
case except as disclosed in any SEC Report of USANi or in the Information
Memorandum delivered to the Lenders prior to the date hereof).
(b) The Borrower has heretofore furnished to the Lenders a
pro forma combined consolidated and a pro forma combining consolidating balance
sheet for USANi, the Borrower and their respective Subsidiaries as of September
30, 1997, prepared giving effect to the Transactions as if the Transactions had
occurred on such date. Such pro forma balance sheets (i) have been prepared in
good faith, (ii) are based on the best information available to USANi and the
Borrower, (iii) accurately reflect all material adjustments believed by the
Borrower and USANi necessary to give effect to the Transactions and (iv) fairly
present, in all material respects, the pro forma financial position of USANi
and the Borrower and such Subsidiaries as of September 30, 1997, as if the
Transactions had occurred on such date. The historical financial
50
information used in the preparation of such pro forma balance sheets was
prepared in accordance with GAAP applied on a consistent basis.
SECTION 3.03. Litigation. Except as heretofore disclosed to
the Lenders in writing or in any SEC Report of USANi delivered to the Lenders
prior to the date hereof, there is no action, proceeding or investigation by or
before any court or any arbitral, governmental or regulatory authority or
agency, pending or (to the knowledge of any Credit Party) threatened against
any such Credit Party or any Subsidiary as to which there is a reasonable
possibility of an adverse determination (i) which, if adversely determined,
could reasonably be expected to have a Material Adverse Effect or (ii) that
involves any of the Loan Documents or the Transactions.
SECTION 3.04. No Breach or Default, etc. Neither the
execution and delivery of each of the Loan Documents, nor the consummation of
the Transactions, nor the compliance by any Credit Party with the terms and
provisions hereof or thereof will (a) conflict with or result in a breach of,
or constitute (alone or with notice or lapse of time or both) a default under,
or give rise to any right to accelerate or to require the prepayment,
repurchase or redemption of any obligation under, or require any consent or
vote of any Person under, the certificate of incorporation or certificate of
formation or bylaws, partnership agreement or operating agreement of any Credit
Party, or any agreement or instrument to which any Credit Party or any
Subsidiary is a party (including employment and affiliation agreements) or to
which it is subject, (b) violate any applicable law, regulation, order, writ,
injunction or decree of any court or Governmental Authority, or (c) constitute
a default or, except as set forth in the Pledge Agreement, result in the
imposition of any Lien on any of the assets, revenues or other properties of
any Credit Party or any Subsidiary under any such agreement or instrument.
SECTION 3.05. Corporate Action. The execution, delivery and
performance by each Credit Party of each of the Loan Documents to which it is a
party, and the consummation of the Transactions, are within the scope of its
corporate, partnership or company powers, and have been duly authorized by all
necessary corporate, company or partnership and, if required, stockholder or
member action on the part of each of them. This Agreement constitutes, and
each of the other Loan Documents, when duly executed and delivered by each
Credit Party thereto will constitute, the legal, valid and binding obligation
of each such Credit Party, enforceable against each of them, in accordance with
their respective terms, except as such enforceability may be limited by (a)
bankruptcy, insolvency, reorganization, moratorium or other similar laws of
general applicability affecting the enforcement of creditors' rights and (b)
the application of general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
SECTION 3.06. Approvals. Except such as have been obtained
or made and are in full force and effect, no authorizations, approvals or
consents of, and no filings or registrations with, any governmental or
regulatory authority or agency are necessary for the execution, delivery of
performance by any Credit Party of any of the Loan Documents or for the
validity or enforceability hereof or thereof, or for the consummation of the
Transactions.
SECTION 3.07. Use of Loans. Neither any Credit Party nor any
Subsidiary is engaged principally, or as one of its important activities, in
the business of extending credit for the purpose, whether immediate, incidental
or ultimate, of buying or carrying margin stock (within the meaning of
Regulation G, T, U or X of the Board) and no part of the proceeds of any Loan
or any Letter of Credit will be used to buy or carry any margin stock.
51
SECTION 3.08. ERISA. Each Credit Party and each ERISA
Affiliate has fulfilled its obligations under the minimum funding standards of
ERISA and the Code with respect to each Plan, are in compliance in all material
respects with the presently applicable provisions of ERISA and the Code and
have not incurred any liability to the PBGC or any Plan or Multiemployer Plan,
other than any such failure, noncompliance or incurrence of liability that
would not be reasonably expected to have a Material Adverse Effect.
SECTION 3.09. Taxes. Each Credit Party and the Subsidiaries
have filed all United States Federal income tax returns and all other material
tax returns which are required to be filed by it and has paid all taxes due
pursuant to such returns or pursuant to any assessment received by any Credit
Party or any Subsidiary. The charges, accruals and reserves on the books of
the Credit Parties and the Subsidiaries in respect of taxes and other
governmental charges are, in the opinion of each Credit Party, adequate.
SECTION 3.10. Credit Agreements. Schedule 3.10 hereto and
all SEC Reports of USANi delivered to the Lenders prior to the date hereof
completely and correctly disclose each credit agreement, loan agreement,
indenture, purchase agreement, Guarantee or other arrangement providing for or
otherwise relating to any extension of credit or commitment for any extension
of credit (other than pursuant to any letter of credit excepted from the
definition of Indebtedness herein under paragraph (c) thereof) to, or Guarantee
by, any Credit Party or any Material Subsidiary the aggregate principal or face
amount of which equals or exceeds (or may equal or exceed) $10,000,000, and
accurately describes the aggregate principal or face amount outstanding and
which may become outstanding under each thereof.
SECTION 3.11. Ownership of Assets. Each Credit Party and
each Material Subsidiary has good and marketable title to all assets (except
assets disposed of in the ordinary course of its business) reflected on the
audited consolidated balance sheet as of December 31, 1996, or on the pro forma
combined consolidated balance sheet as of September 30, 1997, referred to in
Section 3.02, subject to:
(a) no Liens other than such Liens as are listed on Schedule
5.05 or otherwise permitted by Section 5.05 and either (i) listed in
notes to the financial statements delivered pursuant to Section
5.01(a) or (b) or (ii) otherwise communicated to the Lenders in
writing; and
(b) on any date hereafter, dispositions permitted by Section
5.17 and reflected in the financial statements, including any notes
thereto, delivered pursuant to Section 5.01(a) or (b).
SECTION 3.12. Status of Obligations. The obligations of each
Credit Party under this Agreement, the Letters of Credit, the Guarantee
Agreement, each other Loan Document and each other document now or hereafter
entered into with respect hereto or thereto rank and will rank at least pari
passu in all respects with all other senior Indebtedness of such Credit Party,
except that Indebtedness secured by any Lien permitted by Section 5.05 ranks
senior in right of security with respect to the collateral therefor. The
obligations of USANi, the Borrower and each Guarantor (including each
Guarantor's Guarantee) under the Loan Documents are "senior debt" and "senior
indebtedness" (or any other defined term intended to describe Senior
Indebtedness) as defined in, and for all purposes of, any indenture (including
the indentures relating to the Subordinated Debentures) or other instrument
(other than the guarantees by USANi of the Subordinated Debentures) to which
each such party is a party
52
relating to subordinated debt, and the Secured Parties are entitled to the
benefits of the subordination provisions relating thereto.
SECTION 3.13. Investment Company Act; Public Utility Holding
Company Act. (a) Neither the Borrower nor any Guarantor is an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
(b) Neither the Borrower nor any Guarantor is a "holding
company" within the meaning of the Public Utility Holding Company Act of 1935,
as amended.
SECTION 3.14. Environmental Matters. To the best of the
knowledge of each Credit Party, all operations and conditions at or in the
premises which each Credit Party owns, leases or operates (collectively, the
"Premises") comply in all material respects with all Federal, state and local
laws, rules, regulations, codes, ordinances, orders, decrees, judgments,
injunctions, notices or binding agreements relating to environmental matters,
contamination, pollution, waste disposal, hazardous materials, substances or
wastes or industrial hygiene, including such laws, rules, regulations, codes,
ordinances, orders, devices, judgments, injunctions, notices or binding
agreements relating to asbestos and electromagnetic fields (collectively,
"Environmental Laws"). None of the Premises nor any Credit Party has knowledge
of or is subject to any pending or threatened judicial or administrative
proceeding alleging the violation of or liability under any Environmental Law.
SECTION 3.15. FCC Matters. Except as set forth on Schedule
3.15, USANi, the Borrower and their respective Subsidiaries have all licenses,
consents and approvals from the FCC, other applicable Governmental Authorities
and other third parties necessary or advisable to authorize USANi, the Borrower
and such Subsidiaries to consummate the Transactions, to own and operate the
businesses of USANi, the Borrower and such Subsidiaries and to conduct their
operations as contemplated by their business plan, all of which are in full
force and effect, and no action has been taken by the FCC or any other person
or threatened by any competent authority to challenge any such license, consent
or approval or that would otherwise restrain, prevent or otherwise impose
material adverse conditions on the financings contemplated hereby or in the
business, operations or financial condition of USANi, the Borrower and such
Subsidiaries taken as a whole.
SECTION 3.16. Pledge Agreement. By virtue of the execution
and delivery of the Pledge Agreement by the parties thereto, when the Pledged
Securities are delivered to the Collateral Agent in accordance with the Pledge
Agreement, the Collateral Agent will obtain and, so long as the Collateral
Agent maintains possession of the Pledged Securities (and subject to Section
8.13), will have and will continue to have a valid and perfected first priority
security interest in such Pledged Securities, for the benefit of the Secured
Parties, as security for the repayment and performance in full of the
Obligations, prior to all other Liens thereon.
SECTION 3.17. Labor Matters. There are no strikes, lockouts
or slowdowns against any Credit Party or any Subsidiary pending or, to the
knowledge of any Credit Party, threatened. There is no pending (or to the
knowledge of any Credit Party) threatened action, proceeding or investigation
by or before any court or any arbitral, governmental or regulatory authority or
agency against any Credit Party in connection with the Fair Labor Standards Act
or any other applicable Federal, state, local or foreign law dealing with such
matters which, if adversely determined, could have a Material Adverse Effect.
All payments due from any Credit Party or any Subsidiary, or for which any claim
may be made against any Credit Party or any
53
Subsidiary, on account of wages and employee health and welfare insurance and
other benefits, have been paid or accrued as a liability on the books of such
Credit Party or Subsidiary through the end of the most recent fiscal quarter of
such Credit Party or Subsidiary as to which financial statements have been
delivered to the Lenders. The consummation of the Transactions will not give
rise to any right of termination or right of renegotiation on the part of any
union under any collective bargaining agreement to which any Credit Party or
Subsidiary is bound other than rights which, if exercised, could not have a
Material Adverse Effect.
SECTION 3.18. Solvency. Immediately after the consummation
of the Transactions to occur on the Effective Date and immediately following
the making of each Loan and issuing of each Letter of Credit made on the
Effective Date and after giving effect to the application of the proceeds of
such Loans and Letters of Credit, (i) the fair value of the assets of each
Credit Party and each of the Subsidiaries, at a fair valuation, will exceed its
debts and liabilities, subordinated, contingent or otherwise; (ii) the present
fair saleable value of the property of each Credit Party and each of the
Subsidiaries will be greater than the amount that will be required to pay the
probable liability of its debts and other liabilities, subordinated, contingent
or otherwise, as such debts and other liabilities become absolute and matured;
(iii) each Credit Party and each of the Subsidiaries do not intend to incur and
do not believe it will incur debts and liabilities, subordinated, contingent or
otherwise, beyond its ability to pay such debts and liabilities as they become
absolute and matured; and (iv) each Credit Party and each of the Subsidiaries
will not have unreasonably small capital with which to conduct the business in
which it is engaged as such business is now conducted and is proposed to be
conducted following the Effective Date.
ARTICLE IV
Conditions Precedent
SECTION 4.01. Effective Date. The obligations of the Lenders
to make Loans and of the Issuing Bank to issue Letters of Credit hereunder
shall not become effective until the date on which each of the following
conditions is satisfied (or waived in accordance with Section 8.02):
(a) the Administrative Agent shall have received certified
copies of the certificate of incorporation or certificate of formation
and bylaws, operating agreement or partnership agreement of each
Credit Party and all corporate, partnership or company action and, if
necessary, stockholder or member action taken by each Credit Party
approving this Agreement and the other Loan Documents and borrowings
by the Borrower hereunder (including a certificate setting forth the
resolutions of the boards of directors (or equivalent body) of each
Credit Party adopted in respect of the Transactions), all in form and
substance reasonably satisfactory to the Administrative Agent and its
counsel;
(b) the Administrative Agent shall have received a certificate
of each Credit Party in respect of each of the officers (i) who is
authorized to sign this Agreement and the other Loan Documents on its
behalf and (ii) who will, until replaced by another officer or
officers duly authorized for that purpose, act as its representative
for the purposes of signing documents and giving notices and other
communications in connection with this Agreement, the other Loan
Documents and the Transactions, all in
54
form and substance reasonably satisfactory to the Administrative Agent
and its counsel. Each of the Administrative Agent, the Collateral
Agent, the Issuing Bank and the Lenders may conclusively rely on such
certificate until it receives notice in writing from the applicable
Credit Party to the contrary;
(c) The Administrative Agent shall have received such
documents and certificates as the Administrative Agent or its counsel
may reasonably request relating to the organization, existence and
good standing of any Credit Party, the authorization of the
Transactions and any other legal matters relating to any Credit Party,
this Agreement or the Transactions, all in form and substance
satisfactory to the Administrative Agent and its counsel.
(d) the conditions set forth in Section 4.02 shall have been
satisfied and the Administrative Agent shall have received a
certificate of a senior officer of each Credit Party to the effect set
forth in paragraphs (b), (c) and (e) of Section 4.02;
(e) the Administrative Agent shall have received a favorable
written opinion (addressed to the Administrative Agent and the Lenders
and dated the Effective Date) from each of James G. Gallagher, Vice
President, General Counsel and Corporate Secretary of USANi, Wachtell,
Lipton, Rosen & Katz, special counsel to USANi and the Borrower, and
other counsel reasonably satisfactory to the Administrative Agent,
collectively to the effect set forth in Exhibit F;
(f) (i) the Guarantee Agreement shall have been duly executed
by the parties thereto and delivered to the Collateral Agent and shall
be in full force and effect, and (ii) the Indemnity, Subrogation and
Contribution Agreement shall have been duly executed by the parties
thereto and delivered to the Collateral Agent and shall be in full
force and effect;
(g) the Pledge Agreement shall have been duly executed by the
parties thereto and delivered to the Collateral Agent and shall be in
full force and effect, and (i) Intercompany Notes evidencing all
Indebtedness of USANi and Ticketmaster to the Borrower, (ii)
Intercompany Notes evidencing all other Indebtedness outstanding on
the Effective Date under Section 5.07(c) and (iii) all the outstanding
capital stock of or equity interests in the Borrower and each
Guarantor (other than USANi, but including any special purpose Person
formed by the Borrower to hold all the equity interests held by the
Borrower in its Subsidiaries), in each case as of the Effective Date
after giving effect to the Transactions, shall have been duly and
validly pledged thereunder to the Collateral Agent, for the ratable
benefit of the Secured Parties, and certificates representing such
stock or equity interests (except with respect to USA Network, a New
York partnership), and such notes evidencing such Indebtedness,
accompanied by undated stock powers or other instruments of transfer,
endorsed in blank, with respect to such certificates and such notes,
shall be in the actual possession of the Collateral Agent, and the
Collateral Agent shall have received all other documents and
instruments, including Uniform Commercial Code financing statements,
required by law or reasonably requested by the Collateral Agent to be
filed, registered or recorded to create or perfect the Liens intended
to be created under the Pledge Agreement;
(h) the Administrative Agent shall have received counterparts
of this Agreement which, when taken together, bear the signatures of
all the parties hereto;
55
(i) the Administrative Agent shall have received (i) financial
projections for Fiscal Years 19982002 for the Combined Group and (ii)
the financial statements described in Section 3.02(a) and (b),
together with a certificate of a Financial Officer of the Borrower to
the effect that the financial statements described in 3.02(b) fairly
present, in all material respects, the pro forma financial position of
USANi, the Borrower and such Subsidiaries, as of September 30, 1997,
as if the Transactions had occurred on such date, and that the
historical financial information used in the preparation of such pro
forma financial statements was prepared in accordance with GAAP
applied on a consistent basis. The Borrower shall have exercised its
option under the first sentence of Section 1.5(e) of the Investment
Agreement to substitute equity interests in the Borrower for up to
$75,000,000 in cash otherwise payable to a subsidiary of Universal on
the Effective Date and the Lenders shall be reasonably satisfied that
such financial statements and the Transactions are otherwise
consistent with the sources and uses shown on Schedule 4.01(i) and are
not materially inconsistent with the information or projections and
the financial model delivered to the Lenders prior to the date hereof.
USANi and the Borrower shall have also provided such other financial
information as the Lenders may have reasonably requested through the
Administrative Agent in connection with the Transactions;
(j) the Administrative Agent shall have received evidence
reasonably satisfactory to it that the insurance required by Section
5.03(f) is in effect;
(k) the Administrative Agent shall have received evidence
reasonably satisfactory to it that, after giving effect to the
transactions contemplated hereby, the commitments under the Existing
Credit Agreement have been terminated and all loans thereunder have
been repaid or terminated in full, all accrued interest, fees and
other amounts payable thereunder have been paid in full and all Liens
on collateral thereunder have been released;
(l) the Lenders shall have received a certificate of a
Financial Officer of the Borrower, in form and substance reasonably
satisfactory to the Lenders, as to the solvency of USANi, the Borrower
and their respective Subsidiaries on a combined consolidated basis
after giving effect to the Transactions;
(m) the Administrative Agent shall have received (i) copies of
the Investment Agreement and all certificates, opinions and other
documents delivered thereunder and (ii) such other documents as the
Administrative Agent or any Lender may reasonably request in
connection therewith, including all requisite governmental approvals
and filings, if any;
(n) all approvals of Governmental Authorities and third
parties necessary or legally advisable in connection with the
Transactions and the continuing operations of each of USANi, the
Borrower and their respective Subsidiaries (after giving effect to the
Transactions) shall have been obtained, be final and nonappealable
and be in full force and effect, and all applicable waiting periods
shall have expired without any action being taken or threatened by any
competent authority which could restrain, prevent or otherwise impose
adverse conditions on the Transactions or could reasonably be expected
to have a Material Adverse Effect;
56
(o) the Transactions intended to be consummated on the
Effective Date shall have been, or contemporaneously with the initial
funding of Loans on the Effective Date shall be, consummated in
accordance with applicable law and the Investment Agreement and all
related documentation, in each case in the form previously approved by
the Lenders, and otherwise on terms reasonably satisfactory to the
Lenders, and the Lenders shall be satisfied with the Acquired Assets
contributed to the Borrower on the Effective Date. The Lenders shall
be satisfied that the conditions to the obligations of USANi, Home
Shopping and the Borrower set forth in the Investment Agreement shall
have been satisfied without giving effect to waivers or amendments not
approved by the Lenders that are material to the Lenders;
(p) after giving effect to the Transactions, (i) USANi, the
Borrower and their respective Subsidiaries shall have outstanding no
preferred stock and no Indebtedness other than (A) the Loans, (B)
Indebtedness of non-Wholly Owned Subsidiaries set forth on Schedule
5.07, and (C) letters of credit in an aggregate stated amount not in
excess of $25,000,000 issued under USANi's letter of credit facility
with The Bank of New York, and (ii) the Borrower shall have
outstanding no equity interests (or options or warrants for the
purchase thereof) other than as contemplated by the Investment
Agreement;
(q) the Lenders shall be reasonably satisfied with the
sufficiency of the aggregate unused amount of the Revolving
Commitments to meet the ongoing working capital needs of USANi, the
Borrower and their respective Subsidiaries;
(r) the Lenders shall be reasonably satisfied in all respects
with the tax position and the contingent tax and other liabilities of
USANi, the Borrower and their respective Subsidiaries and the plans of
each of them with respect thereto;
(s) the Lenders shall be reasonably satisfied as to the amount
and nature of any environmental and employee health and safety
exposures to which USANi, the Borrower and their respective
Subsidiaries may be subject and the plans of each of them with respect
thereto; and
(t) all legal matters incident to this Agreement, the
Borrowings and extensions of credit hereunder and the other Loan
Documents shall be reasonably satisfactory to the Lenders.
SECTION 4.02. Each Credit Event. The obligation of each
Lender to make a Loan on the occasion of any Borrowing (including the initial
Loans), and of the Issuing Bank to issue, amend, renew or extend any Letter of
Credit, shall be subject to satisfaction of the further conditions that, as of
the date of the making of such Loans and the issuance, amendment, renewal or
extension of such Letters of Credit and after giving effect thereto:
(a) the Administrative Agent shall have received a Borrowing
Request as required by Section 2.03 or, in the case of the issuance of
a Letter of Credit, receipt by the Issuing Bank and Administrative
Agent of a notice requesting the issuance, renewal or extension of
such Letter of Credit, as required by Section 2.04(b);
(b) no Default or Event of Default shall have occurred and be
continuing;
57
(c) the representations and warranties made by each Credit
Party in Article III, in the other Loan Documents and in any other
certificate or other document delivered in connection herewith or
therewith shall be true in all material respects on and as of the date
of the making of such Loans, or the issuance, amendment, renewal or
extension of such Letter of Credit, with the same force and effect as
if made on and as of such date;
(d) the Borrower shall be in compliance with the financial
covenants in this Agreement both before and immediately after the
making of such Loan or the issuance, amendment, renewal or extension
of such Letter of Credit both on an historical basis as of the last
day of the most recent Fiscal Quarter in respect of which financial
statements have been delivered pursuant to Section 5.01(a) or (b) and
on a pro forma basis as if such transaction occurred on the first day
of the period tested as of such day to determine compliance with
Sections 5.11, 5.12 and 5.13 (on an "Historical and Pro Forma Basis");
and
(e) all fees and expenses then payable pursuant to Sections
2.11 and 8.03(a) and all other fees then payable and theretofore
agreed between the Borrower and the Administrative Agent or the
Issuing Bank shall have been paid.
Each Borrowing made pursuant to Section 2.02 and each issuance of a Letter of
Credit made pursuant to Section 2.04 shall constitute a certification by each
Credit Party as to the circumstances specified in paragraphs (b), (c) and (d)
above (both as of the date of such notice and, unless any Credit Party
otherwise notifies the Administrative Agent prior to the date of such Borrowing
or issuance of a Letter of Credit, as of the date of such credit event).
ARTICLE V
Covenants of the Borrower and the Guarantors
Until the Commitments have expired or been terminated and the
principal of and interest on each Loan and all fees payable hereunder shall
have been paid in full and all Letters of Credit shall have expired or
terminated and all LC Disbursements shall have been reimbursed, each of USANi
and the Borrower covenants and agrees with the Lenders that:
SECTION 5.01. Financial Statements; Reports and Other
Information. The Borrower shall deliver to the Administrative Agent, with
sufficient copies for each of the Lenders and the Issuing Bank:
(a) as soon as available and in any event within 60 days after
the end of each of the first three Fiscal Quarters of each Fiscal Year
of the Borrower, unaudited combined consolidated statements of income,
retained earnings and changes in financial position of USANi and the
Borrower and their respective consolidated Subsidiaries (including the
Guarantors) for such period and for the period from the beginning of
such Fiscal Year to the end of such period, and the related combined
consolidated balance sheet as at the end of such period, setting forth
in each case in comparative form the corresponding figures for the
corresponding period in the preceding Fiscal Year (including in each
case, but only with respect to periods commencing after the Effective
Date, combining consolidating (by operating segment) income statements
and balance sheets for USANi, the Borrower and the Material
Subsidiaries) (provided that with respect to corresponding
58
comparative figures with respect to Fiscal 1997, the Borrower shall
only be required to provide pro forma combined consolidated statements
of income), accompanied by a certificate of a Financial Officer of
the Borrower, which certificate shall state that such financial
statements fairly present the combined consolidated financial
condition and results of operations of USANi, the Borrower and such
Subsidiaries, all in accordance with GAAP consistently applied (except
with respect to pro forma financial information, for which such
certificate need only state that the historical financial information
used in the preparation of such pro forma financial information was
prepared in accordance with GAAP consistently applied), as at the end
of and for such period (subject to normal year-end audit adjustments);
(b) as soon as available and in any event within 120 days
after the end of each Fiscal Year of the Borrower, audited combined
consolidated statements of income, retained earnings and changes in
financial position of USANi, the Borrower and their respective
consolidated Subsidiaries (including the Guarantors) for such year and
the related combined consolidated balance sheet as at the end of such
year, setting forth in each case in comparative form the corresponding
figures for the preceding Fiscal Year (including in each case
combining consolidating (by operating segment) income statements and
balance sheets for USANi, the Borrower and the Material Subsidiaries)
(provided that with respect to corresponding comparative figures with
respect to Fiscal Year 1997, the Borrower shall only be required to
provide pro forma combined consolidated statements of income),
accompanied (i) in the case of the combined financial statements, by
an opinion thereon of independent certified public accountants of
recognized national standing (without a "going concern" or like
qualification or exception and without any qualification or exception
as to the scope of such audit), which opinion shall state that such
combined financial statements fairly present the combined consolidated
financial condition and results of operations of USANi, the Borrower
and such Subsidiaries as at the end of and for such Fiscal Year and
(ii) in the case of combining consolidating financial statements, by a
certificate of a Financial Officer of the Borrower, which certificate
shall state that such financial statements fairly present the combined
consolidated financial condition and results of operations of USANi,
the Borrower and such Subsidiaries, all in accordance with GAAP
consistently applied (except with respect to pro forma financial
information, for which such certificate need only state that the
historical financial information used in the preparation of such pro
forma financial information was prepared in accordance with GAAP
consistently applied), as at the end of and for such Fiscal Year
(subject to normal year-end audit adjustments);
(c) promptly upon their becoming available, copies of all
registration statements and regular SEC Reports, if any, which USANi
shall have filed with the Securities and Exchange Commission (or any
governmental agency substituted therefor) or any national securities
exchange;
(d) promptly upon the mailing thereof to the shareholders of
USANi generally, copies of all financial statements, reports and proxy
statements so mailed;
(e) as soon as possible, and in any event within twenty-five
days after any Credit Party knows or has reason to know that any of
the events or conditions specified below with respect to any Plan or
Multiemployer Plan has occurred or exists, a statement signed by a
Financial Officer of the relevant Credit Party setting forth details
respecting
59
such event or condition and the action, if any, which such Credit
Party or its ERISA Affiliate proposes to take with respect thereto
(and a copy of any report or notice required to be filed with or given
to PBGC by any Credit Party or an ERISA Affiliate with respect to such
event or condition):
(i) any reportable event, as defined in Section 4043
of ERISA and the regulations issued thereunder, with respect
to a Plan, as to which PBGC has not by regulation waived the
requirement of Section 4043(a) of ERISA that it be notified
within 30 days of the occurrence of such event (provided that
a failure to meet the minimum funding standard of Section 412
of the Code or Section 302 of ERISA shall be a reportable
event regardless of the issuance of any waivers in accordance
with Section 412(d) of the Code);
(ii) the filing under Section 4041 of ERISA of a
notice of intent to terminate any Plan or the termination of
any Plan;
(iii) the institution by PBGC of proceedings under
Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Plan, or the
receipt by any Credit Party or any ERISA Affiliate of a notice
from a Multiemployer Plan that such action has been taken by
PBGC with respect to such Multiemployer Plan;
(iv) the complete or partial withdrawal by any Credit
Party or any ERISA Affiliate under Title IV of ERISA from a
Multiemployer Plan, or the receipt by any Credit Party or any
ERISA Affiliate of notice from a Multiemployer Plan that is in
reorganization or insolvency pursuant to Section 4241 or 4245
of ERISA or that it intends to terminate or has terminated
under Section 4041A of ERISA; and
(v) the institution of a proceeding by a fiduciary of
any Multiemployer Plan against any Credit Party or any ERISA
Affiliate to enforce Section 515 of ERISA, which proceeding is
not dismissed within 30 days;
(f) promptly after any Credit Party knows or has reason to
know that (i) any Default or any Event of Default has occurred, (ii)
any development that, in the opinion of the senior management of USANi
or the Borrower, could reasonably be expected to result in a Material
Adverse Effect has occurred, (iii) any development relating to any
deleveraging event contemplated by Section 5.21 has occurred or (iv)
any material notice has been delivered or any material event has
occurred under the Investment Agreement or under any of the agreements
entered into in connection therewith, in each case, a notice thereof
describing the same in reasonable detail and the corrective action
taken or proposed to be taken with respect thereto;
(g) not later than (i) 60 days after the last day of each of
the first three Fiscal Quarters of each of the Borrower's Fiscal Years
and (ii) 120 days after the last Fiscal Quarter of each such Fiscal
Year, a notice, executed by a Financial Officer of the Borrower,
substantially in the form of Exhibit G (the "Total Debt Ratio
Notice"), setting forth the Total Debt Ratio for the last day of such
Fiscal Quarter, which notice shall set forth calculations and
computations in sufficient detail to show the amount and nature of
each of the components of the Total Debt Ratio as of such day;
provided that in the case
60
of the Total Debt Ratio Notice delivered with respect to each
Fiscal Quarter specified in clause (i) above, the Borrower shall (if
the final form of either of such Notices is not yet available) deliver
such Notice in a preliminary form within 60 days of the end of such
Fiscal Quarter setting forth all matters required by this paragraph
(g) to be included in the final form thereof as accurately as shall be
possible based upon information available to the Borrower at such
time;
(h) as soon as available and in any event within 10 days after
preparation thereof (but in any event, not later than 90 days after
the commencement of any Fiscal Year), a detailed annual budget of
USANi and the Borrower and their respective consolidated Subsidiaries
(including the Guarantors) for each Fiscal Year commencing with Fiscal
Year 1999, which budget has been prepared in good faith based upon
assumptions believed by the Borrower's senior management to be
reasonable, and to the extent materially different from the most
recently delivered budget, any update of any business plans or
financial projections; and
(i) from time to time such other information regarding the
business, operations or financial condition of USANi, the Borrower or
their respective Subsidiaries (including any Plan or Multiemployer
Plan and any reports or other information required to be filed under
ERISA) as any Lender, the Administrative Agent, the Collateral Agent
or the Issuing Bank may reasonably request through the Administrative
Agent.
The Borrower will furnish to the Administrative Agent, with sufficient copies
for the Lenders and the Issuing Bank, at the time it furnishes each set of
financial statements pursuant to paragraph (a) or (b) above, a certificate of a
Financial Officer of the Borrower, substantially in the form of Exhibit H (i)
to the effect that, to the best of his or her knowledge, after full inquiry, no
Default has occurred and is continuing (or, if any Default has occurred and is
continuing, describing the same in reasonable detail and the corrective action
taken or proposed to be taken with respect thereto), (ii) setting forth in
reasonable detail the computations necessary to determine whether the Credit
Parties are in compliance with Sections 5.11, 5.12, 5.13 and 5.14 as at the end
of the respective Fiscal Quarter or Fiscal Year, (iii) setting forth additions
to the list of Subsidiaries that are Material Subsidiaries contained in the
certificate most recently delivered pursuant to this provision and containing
either (A) a representation that all other Subsidiaries combined do not
constitute a Material Subsidiary Group as at such date or (B) a representation
that all other Subsidiaries do constitute a Material Subsidiary Group as at
such date and either designating additional Subsidiaries as Material
Subsidiaries or providing the Administrative Agent with information relevant to
such designation and (iv) certifying as to the accuracy of any information
provided under Section 1.03(c), if any, in connection with the delivery of such
financial statements. In addition, the Borrower hereby agrees to furnish the
Administrative Agent and the Issuing Bank with an updated notice with respect
to the information specified in clause (iii) of the preceding sentence upon the
occurrence of any event either that has resulted or could result in a
Subsidiary becoming a Material Subsidiary or a group of Subsidiaries becoming a
Material Subsidiary Group or that could make the representation contained in
the most recently delivered certificate furnished pursuant to this Section 5.01
no longer accurate.
SECTION 5.02. Litigation. Without limiting the obligations
of the Borrower under Section 5.01(i), each Credit Party shall promptly give to
each Lender notice of any threat or notice of intention of any person to file
or commence any court or arbitral proceedings or investigations, or proceedings
or investigations before any governmental or regulatory authority or agency,
affecting any Credit Party or any Subsidiary, as to which there is a reasonable
61
probability of an adverse determination and which, if adversely determined,
could have a Material Adverse Effect.
SECTION 5.03. Legal Existence, etc. Each Credit Party will,
and will cause each of its respective Subsidiaries (but in the case of clauses
(a), (d) and (e) of this Section 5.03, only those Subsidiaries which are
Material Subsidiaries) to:
(a) except as permitted by Section 5.16, preserve and maintain
its legal existence and all of its material rights, privileges,
licenses and franchises;
(b) comply with the requirements of all applicable laws,
rules, regulations and orders of Governmental Authorities if failure
to comply with such requirements would have a Material Adverse Effect;
(c) pay and discharge all taxes, assessments and governmental
charges or levies imposed on it or on its income or profits or on any
of its property prior to the date on which penalties attach thereto,
except for any such tax, assessment, charge or levy the payment of
which is being contested in good faith and by proper proceedings and
against which adequate reserves are being maintained in accordance
with GAAP;
(d) maintain all of its properties used or useful in its
business in good working order and condition, ordinary wear and tear
excepted;
(e) keep proper books of record and account in which full,
true and correct entries in conformity with GAAP and all requirements
of law are made of all dealings and transactions in relation to its
business and activities and upon request by the Administrative Agent
permit representatives of any Lender, the Administrative Agent, the
Collateral Agent or the Issuing Bank, during normal business hours, to
examine, copy and make extracts from its books and records, to inspect
its properties, and to discuss its business and financial condition
with its officers, all to the extent reasonably requested by such
person; and
(f) keep insured by financially sound and reputable insurers
all property of a character usually insured by businesses engaged in
the same or similar business similarly situated against loss or damage
of the kinds and in the amounts customarily insured against by such
businesses and carry such other insurance as is usually carried by
such businesses.
SECTION 5.04. Payment of Obligations. Without limiting the
obligations of the Credit Parties under Section 5.03, each Credit Party will,
and will cause each of its respective subsidiaries to, pay and discharge at or
before the date when due, all of their respective material obligations and
other liabilities, including material tax and pension liabilities, except where
such obligations or liabilities are being contested in good faith and by
appropriate proceedings, and maintain, in accordance with GAAP, appropriate
reserves for the accrual of all of the foregoing.
SECTION 5.05. Liens. Neither USANi, the Borrower nor any
Guarantor will, nor will any of them permit any of their respective
subsidiaries to, create, incur, assume or suffer to exist any Lien on any
asset, revenue or other property now or hereafter owned or acquired by it
(including the assets and capital stock acquired as permitted by Sections 5.19
and 5.20), or assign or sell any income or revenues (including accounts
receivable) or rights in respect of any thereof, except:
62
(a) Liens existing on the Effective Date securing Indebtedness
for borrowed money outstanding on the Effective Date and identified in
Schedule 5.05;
(b) any purchase money security interest hereafter created on
any property of any Credit Party or any Subsidiary securing
Indebtedness incurred solely for the purpose of financing all or a
portion of the purchase price of such property; provided that (i)
such Lien (A) is created within six months of the acquisition of such
property, (B) extends to no other property and (C) secures no other
Indebtedness; (ii) the principal amount of Indebtedness secured by
such Lien shall at no time exceed the lesser of (A) the cost to the
owner of the property subject thereto and (B) the fair value of such
property (as determined in good faith by the Board of Directors of
such owner) at the time of the acquisition thereof; (iii) such Lien
does not extend to or in any way encumber any inventory purchased in
the ordinary course of business; and (iv) the aggregate principal
amount of all Indebtedness secured by all such Liens shall not exceed
at any time $30,000,000 less the aggregate principal amount of all
Indebtedness secured by Liens permitted under Section 5.05(k);
(c) carriers', warehousemen's, mechanics', materialmen's,
repairmen's liens or other similar liens arising in the ordinary
course of business of any Credit Party or any Subsidiary and not
overdue for a period of more than 30 days or which are being contested
in good faith and by appropriate proceedings;
(d) Liens in favor of consignors against inventory being sold
on consignment in the ordinary course of business by any Credit Party
or any Subsidiary;
(e) Liens created in substitution for any Liens permitted by
paragraphs (a) and (b) of this Section 5.05; provided that (i) any such
newly-created Lien does not extend to any other or additional property
and (ii) if permitted by such paragraph (a) or (b), does not secure any
other (or additional principal amount of) Indebtedness;
(f) Liens existing on assets at the time of acquisition
thereof or of a Subsidiary owning such assets and not incurred in
anticipation of or in connection with such acquisition;
(g) operating leases and Capital Leases, to the extent the
same would constitute Liens, pursuant to which any Credit Party or its
Subsidiary is lessee, and incurred by such Person in the ordinary
course of its business;
(h) Liens which secure Indebtedness under trade letters of
credit having an aggregate principal amount not exceeding at any time
$35,000,000; provided that such Liens shall be limited to the related
merchandise (and not a general Lien on all assets of any Person);
(i) Liens arising in connection with, or the sale of
receivables under, the Program (as contemplated by paragraph 1 of
Schedule 1.01(a)) or a Securitization in an aggregate amount not
exceeding $200,000,000 of sold receivables outstanding at any time,
limited to the credit card receivables of the Home Shopping Persons
and interests therein, under the Program or in any trust or similar
entity utilized to effect any Securitization, in each case on a
nonrecourse basis to USANi, the Borrower and their respective
Subsidiaries
63
other than to such trust or similar entity (and, in the case of any
Securitization, subject to (i) an average advance rate of 80% or
higher and (ii) the seller's retained residual interest in such
accounts receivable not exceeding $40,000,000 at any time), it being
understood that the grant of security interests described in clauses
(i), (ii), (iii), (v) and (vi) of paragraph 6 of Schedule 1.01(a), to
the extent that such security interests relate to the same property
that is "sold" by any of the Home Shopping Persons under the Program,
as described in paragraph 1 of said Schedule, will not "constitute a
Lien on assets of any Person" for the purposes of this Section 5.05;
(j) Liens arising under the Security Documents in favor of the
Secured Parties;
(k) in addition to Liens otherwise permitted by this Section
5.05, Liens on property of any Credit Party or any of their respective
subsidiaries (i) which secure Indebtedness (other than any Hedging
Agreement) having an aggregate principal amount not exceeding at any
time $30,000,000 less the aggregate principal amount of all
Indebtedness secured by Liens permitted under Section 5.05(b) and (ii)
each of which shall be limited to specified items of collateral (and
not a general Lien on all assets of any Person) having a book value
not greater than 150% of the aggregate principal amount of the
Indebtedness secured by such Lien;
(l) liens for taxes, assessments and governmental charges or
levies (including liens arising under ERISA) to the extent not
required to be paid under Section 5.04;
(m) deposits or pledges to secure the performance of bids,
contracts (other than for borrowed money), statutory obligations,
surety and appeal bonds, performance bonds and other obligations of a
like nature incurred in the ordinary course of business;
(n) pledges or deposits in connection with workmen's
compensation, unemployment insurance and other social security
obligations; and
(o) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business which do not,
individually or in the aggregate, materially detract from the value of
the property subject thereto;
provided, however, that, notwithstanding the foregoing, at no time and under no
circumstances will any of USANi, the Borrower or any of their respective
Subsidiaries create, incur, assume or suffer to exist any Lien on any
Intercompany Note or on any equity interest held by any of them in any of their
Subsidiaries, and all Intercompany Notes and all such equity interests will in
any event be maintained free and clear of all Liens whatsoever, except for the
Liens created pursuant to the Security Documents and the SFB Credit Agreement.
SECTION 5.06. Sale and LeaseBack Transactions. Neither
USANi, the Borrower nor any Guarantor will, nor will any of them permit any of
their respective subsidiaries to, enter into any arrangement, directly or
indirectly, with any Person whereby it shall sell or transfer any property used
or useful in its business, whether now owned or hereafter acquired, and
thereafter rent or lease such property or other property which it intends to
use for substantially the same purpose or purposes as the property being sold
or transferred, except for any such arrangement or arrangements having an
aggregate principal amount not exceeding at any time $20,000,000.
64
SECTION 5.07. Indebtedness. Neither USANi, the Borrower nor
any Guarantor will, nor will any of them permit any of their respective
subsidiaries to, create, incur, assume or permit to exist any Indebtedness
whatsoever except for:
(a) (i) Indebtedness, not under this Agreement, outstanding on
the Effective Date as described in Schedule 5.07, but not any
extension, renewal, refinancing or replacement thereof, (ii)
Indebtedness under the SFB Credit Agreement and any extension,
renewal, refinancing or replacement thereof that does not increase the
outstanding principal amount thereof and that is under terms no less
favorable to the SF Broadcasting Companies and (iii) a Guarantee of
Indebtedness of an SF Broadcasting Company made in accordance with
Section 5.19(c);
(b) Loans or Letters of Credit under this Agreement;
(c) Indebtedness (i) between any of the Borrower, USANi or any
Wholly Owned Subsidiary that is a Guarantor, (ii) of the Borrower,
USANi or any Wholly Owned Subsidiary that is a Guarantor to any
Subsidiary and (iii) at any time that all the common stock of
Ticketmaster is owned by any of the Borrower, USANi, or any Wholly
Owned Subsidiary that is a Guarantor and all such common stock has
been pledged under the Pledge Agreement, between the Borrower and
Ticketmaster, in each case evidenced by an Intercompany Note duly and
validly pledged under the Pledge Agreement for the ratable benefit of
the Secured Parties;
(d) Capital Lease Obligations in an aggregate principal amount
outstanding at any time not in excess of $100,000,000;
(e) Indebtedness of any Guarantor under the Guarantee
Agreement;
(f) the joint and several liability of any of the Home
Shopping Persons and the other "Participating Subsidiaries" identified
in Schedule 1.01(a) under the Program arising in the context of
customary credit card chargebacks, as described in paragraph 4 of said
Schedule, for accounts that are sold without recourse;
(g) the joint and several liability of the Home Shopping
Persons and the other "Participating Subsidiaries" for the obligations
under the Special Program and the Guaranteed Program, but only if and
for so long as the Home Shopping Persons cause the Special Program and
the Guaranteed Program at all times to comply with the requirements of
Section 5.05(k) (including the $30,000,000 and 150% tests set forth
therein) when taken together with all amounts outstanding under
Section 5.05(k) assuming for such purpose with respect to any sold
receivable that the amount of such receivable is the book value
thereof and that the amount of the Indebtedness secured is the
aggregate amount of the obligations under the Special Program and the
Guaranteed Program;
(h) Indebtedness incurred under uncommitted lines of credit or
in connection with trade letters of credit in an aggregate principal
and stated amount at any time outstanding not in excess of
$35,000,000;
(i) Indebtedness (other than Indebtedness permitted by
subsection (k) of this Section) incurred, issued, assumed or acquired
in connection with an acquisition
65
permitted by Section 5.20 in an aggregate amount that, shall
not exceed $500,000,000 in the aggregate, provided that no more than
$200,000,000 aggregate principal amount of such Indebtedness may be
recourse to USANi, the Borrower or any Subsidiary (other than the
acquired Person);
(j) (i) Subordinated Indebtedness in an aggregate amount that,
shall not exceed $250,000,000 and (ii) senior unsecured Indebtedness
of the Borrower or Subordinated Indebtedness, in each case incurred at
any time that the Term Loans have a rating from S&P of BBB- or
better, or a rating from Moody's of Baa3 or better, in an aggregate
amount that, taken together with Indebtedness incurred under clause
(i) of this subsection (j), shall not exceed $500,000,000;
(k) Indebtedness that is (i) assumed or acquired in connection
with an acquisition permitted by Section 5.20(b) and (ii) is
nonrecourse to USANi, the Borrower or any of their respective
Subsidiaries (other than the acquired Person);
(l) other Indebtedness of the Borrower, USANi or any Guarantor
in an aggregate principal amount at any time outstanding not in excess
of $25,000,000; and
(m) Indebtedness of any Subsidiary that is not a Guarantor to
the Borrower, USANi or any Guarantor in an aggregate principle amount
(together with the aggregate amount of dispositions made under Section
5.17(c)(iv) and Investments outstanding under Section 5.19(h)) at any
time outstanding not in excess of $20,000,000.
SECTION 5.08. Ranking. (a) Each Credit Party will cause its
obligations under this Agreement, the Letters of Credit, the Guarantee
Agreement, each other Loan Document and each other document now or hereafter
entered into with respect hereto or thereto to rank at least pari passu in
right of payment and of security with all other senior Indebtedness of such
Credit Party, except that Indebtedness secured by any Lien permitted by Section
5.05 may rank senior in right of security with respect to the collateral
subject to such Lien. Without limiting the generality of the foregoing, USANi,
the Borrower and each Guarantor will take all steps reasonably necessary to
assure that its obligations (including each Guarantor's Guarantee) under the
Loan Documents will at all times constitute "Senior Indebtedness" or "Senior
Debt" (or any other defined term intended to describe senior Indebtedness) as
defined in, and for all purposes of, any indenture (including the indentures
relating to the Subordinated Debentures) or other instrument (other than the
guarantees by USANi of the Subordinated Debentures) to which each such party is
a party relating to subordinated debt (and that the Secured Parties will be
entitled to the benefits of the subordination provisions relating thereto).
(b) Each Credit Party will cooperate with the Administrative
Agent, the Collateral Agent, the Issuing Bank and the Lenders and will execute
such further instruments and documents as any such person may reasonably
request to carry out the intentions of this Section. Without limiting the
generality of the foregoing, if any Credit Party hereafter issues or otherwise
incurs any Subordinated Indebtedness (other than the Subordinated Debentures),
each of them will execute and cause to be executed such further documents as
the Administrative Agent, the Collateral Agent, the Issuing Bank or any Lender
may reasonably request to ensure that the obligations of the Credit Parties
under this Agreement and the Letters of Credit at all times rank senior to such
Subordinated Indebtedness.
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(c) Nothing in this Section shall be construed so as to limit
the ability of such Credit Party to incur any Indebtedness (consistent with
paragraphs (a) and (b) above and otherwise permitted by this Agreement) on a
basis pari passu with its Indebtedness under this Agreement and the Letters of
Credit.
SECTION 5.09. Business; Fiscal Year. Neither USANi, the
Borrower nor any Guarantor will, nor will any of them permit any of their
respective subsidiaries to, make any material change in the nature of its
business from that in which it is engaged on the date of this Agreement or to
engage to any material extent in any business other than a Core Business. No
Credit Party will change its fiscal year from that set forth in the definition
of "Fiscal Year", except that Ticketmaster may change its fiscal year to a year
ending on December 31 of each calendar year.
SECTION 5.10. Transactions with Affiliates. Neither USANi,
the Borrower nor any Guarantor will, nor will any of them permit any of their
respective subsidiaries to, enter into or be a party to any transaction
(including any merger, consolidation or sale of substantially all assets
otherwise permitted by Section 5.16) with any Affiliate of any Credit Party
(other than a Wholly Owned Subsidiary), except upon fair and reasonable terms
no less favorable to such Credit Party or Subsidiary than would obtain in a
comparable arm's-length transaction with a Person not an Affiliate of such
Credit Party. Nothing in this Section 5.10 shall prohibit USANi, the Borrower
or any Guarantor from complying with the provisions of the Investment Agreement
and the agreements listed on Schedule 5.17.
SECTION 5.11. Interest Coverage Test. Neither USANi nor the
Borrower will permit the ratio of EBITDA to Interest Expense for the
four-Fiscal Quarter period ended as of the last day of any Fiscal Quarter
ending during any period set forth below to be less than the ratio set forth
below opposite such period:
Period Ratio
- ------ -----
Effective Date--December 30, 1998 . . . . . . . . . . . . . . . . . . . . . . 2.0 to 1.0
December 31, 1998 and thereafter . . . . . . . . . . . . . . . . . . . . . . 2.5 to 1.0
provided that in respect of the Fiscal Quarter ending March 31, 1998, the
calculations of EBITDA and Interest Expense will be determined on a pro forma
basis as if the Transactions had occurred on January 1, 1998, and provided
further that until financial statements shall have been delivered pursuant to
Section 5.01(a) or (b) in respect of four Fiscal Quarter ends, the foregoing
ratio shall be calculated in respect of all the Fiscal Quarters ending after
the Effective Date in respect of which such financial statements shall have
been delivered.
SECTION 5.12. Total Debt Ratio. Neither USANi nor the
Borrower will at any time on or after the first day on which EBITDA may be
calculated for the Fiscal Quarter ended March 31, 1998, permit the Total Debt
Ratio as of the last day of any Fiscal Quarter period ended during any period
set forth below to be in excess of the ratio set forth below opposite such
period:
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Period Ratio
- ------ -----
Effective Date--June 29, 1999 . . . . . . . . . . . . . . . . . . . . . . . . 5.0 to 1.0
June 30, 1999--December 30, 1999 . . . . . . . . . . . . . . . . . . . . . . 4.5 to 1.0
December 31, 1999 and thereafter . . . . . . . . . . . . . . . . . . . . . . 4.0 to 1.0
SECTION 5.13. Fixed Charges Ratio. Neither USANi nor the
Borrower will permit the ratio of EBITDA to Fixed Charges for the four-Fiscal
Quarter period ended as of the last day of any Fiscal Quarter ending during any
period set forth below to be less than the ratio set forth below opposite such
period:
Period Ratio
------ -----
Effective Date--March 30, 2000 . . . . . . . . . . . . . . . . . . . . . 1.0 to 1.0
March 31, 2000 and thereafter . . . . . . . . . . . . . . . . . . . . . . 1.1 to 1.0
provided that in respect of the Fiscal Quarter ending March 31, 1998, the
calculations of EBITDA and Fixed Charges will be determined on a pro forma
basis as if the Transactions had occurred on January 1, 1998, and provided
further that until financial statements shall have been delivered pursuant to
Section 5.01(a) or (b) in respect of four Fiscal Quarter ends, the foregoing
ratio shall be calculated in respect of all the Fiscal Quarters ending after
the Effective Date in respect of which such financial statements shall have
been delivered.
SECTION 5.14. Capital Expenditures. (a) Neither SKTV nor any
of its subsidiaries will, directly or indirectly (by way of the acquisition of
the securities of a Person or otherwise), make or commit to make any Capital
Expenditure (an "SKTV Capital Expenditure") if upon the making of such SKTV
Capital Expenditure the aggregate amount of SKTV Capital Expenditures in any
Fiscal Year would exceed the amount set forth below as the "SKTV Base Amount"
for such Fiscal Year; provided that the amount of permitted SKTV Capital
Expenditures in any Fiscal Year shall be increased by an amount equal to the
lesser of (i) the total amount of unused permitted SKTV Capital Expenditures
for the immediately preceding Fiscal Year (including the amount of any unused
SKTV Capital Expenditures carried forward to such preceding year pursuant to
this proviso) and (ii) the SKTV Base Amount for the immediately preceding
Fiscal Year:
Fiscal Year SKTV Base Amount
- ----------- ----------------
1998 $ 30,000,000
1999 100,000,000
2000 75,000,000
2001 40,000,000
2002 30,000,000
2003 30,000,000
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(b) Neither the Home Shopping Persons nor any of their
subsidiaries will, directly or indirectly (by way of the acquisition of the
securities of a Person or otherwise), make or commit to make any Capital
Expenditure (an "HSN Capital Expenditure") if upon the making of such HSN
Capital Expenditure the aggregate amount of HSN Capital Expenditures in any
Fiscal Year would exceed the amount set forth below as the "HSN Base Amount"
for such Fiscal Year; provided that the amount of permitted HSN Capital
Expenditures in any Fiscal Year shall be increased by an amount equal to the
lesser of (i) the total amount of unused permitted HSN Capital Expenditures for
the immediately preceding Fiscal Year (including the amount of any unused HSN
Capital Expenditures carried forward to such preceding year pursuant to this
proviso) and (ii) the HSN Base Amount for the immediately preceding Fiscal
Year:
Fiscal Year HSN Base Amount
----------- ---------------
1998 $50,000,000
1999 40,000,000
2000 30,000,000
2001 30,000,000
2002 30,000,000
2003 30,000,000
SECTION 5.15. Notification of Incurrence of Debt. Prior to
the incurrence by USANi, the Borrower, any Guarantor or any of their respective
subsidiaries of Indebtedness (other than Indebtedness under this Agreement) for
borrowed money in excess of $10,000,000 or upon obtaining commitments for such
Indebtedness, in each case as permitted by Section 5.07, the Borrower shall
deliver notice to the Administrative Agent and the Lenders, certifying, on the
basis of its financial statements for the four Fiscal Quarters most recently
ended, USANi's and the Borrower's compliance with Sections 5.11, 5.12, 5.13 and
5.14 under this Agreement both before and immediately after the incurrence of
such Indebtedness or commitment therefor.
SECTION 5.16. Mergers and Sale of Assets. Neither USANi, the
Borrower nor any Guarantor will, nor will any of them permit any Material
Subsidiary or Subsidiaries constituting a Material Subsidiary Group to,
(a) consolidate or merge with or into any other Person, except
that a Guarantor or a Wholly Owned Subsidiary may merge with or
consolidate into USANi, the Borrower or a Wholly Owned Subsidiary that
is a Guarantor and is not a Foreign Subsidiary (provided that USANi,
the Borrower or such Wholly Owned Subsidiary, as the case may
be, shall be the survivor of such merger or consolidation; provided
further that no Subsidiary that is a Guarantor that holds an FCC
license may be a party to any merger or consolidation); or
(b) except as specifically permitted by Section 5.17, sell,
assign, convey, lease, sublet, transfer or otherwise dispose of all or
substantially all of its assets to any Person, whether in a single
transaction or in a series of related transactions, except that a
Guarantor or a Wholly Owned Subsidiary may sell, assign, convey,
lease, sublet, transfer or otherwise dispose of all or substantially
all of its assets to USANi, the Borrower or to a Wholly Owned
Subsidiary that is a Guarantor and is not a Foreign Subsidiary;
69
provided, however, that none of the foregoing transactions shall be permitted
if a Default or an Event of Default has occurred and is continuing or would
result from the consummation of any such transaction.
It is understood and agreed that any consolidation, merger,
sale, assignment, conveyance, letting, subletting, transfer or other
disposition of all or substantially all of the assets of a Non-Material
Subsidiary shall be permitted under this Section, so long as such Non-Material
Subsidiary, together with all other Non-Material Subsidiaries (other than
Non-Material Subsidiaries permitted to be sold or exchanged pursuant to Section
5.17(d)) with respect to which there has been, since the date hereof, a
consolidation, merger, sale, assignment, conveyance, letting, subletting,
transfer or other disposition of all or substantially all of its assets, would
not (in the absence of such transactions) constitute a Material Subsidiary
Group.
SECTION 5.17. Dispositions of Assets. Neither USANi, the
Borrower nor any Guarantor will, nor will any of them permit any Material
Subsidiary to, sell, assign, convey, lease, sublet, transfer, swap, exchange or
otherwise dispose of any of the assets, businesses or other properties of
USANi, the Borrower, any Credit Party or any Material Subsidiary to any Person,
whether in a single transaction or in a series of related transactions, except
for:
(a) sales of inventory (but not of accounts receivable) in the
ordinary course of business of such Credit Party or any Subsidiary;
(b) dispositions of assets in the ordinary course of business
in arm's-length transactions by such Credit Party or any Subsidiary to
the extent such assets either are no longer used or useful to such
Credit Party or such Subsidiary or are promptly replaced by other
assets of at least equivalent usefulness;
(c) any such disposition (i) by any Material Subsidiary that is
a Guarantor to USANi, the Borrower or any Wholly Owned Subsidiary that
is a Guarantor and is not a Foreign Subsidiary, (ii) by USANi or the
Borrower to the Borrower or any Wholly Owned Subsidiary that is a
Guarantor and is not a Foreign Subsidiary, (iii) by any Material
Subsidiary that is not a Guarantor to a Wholly Owned Subsidiary of the
Borrower or (iv) by USANi, the Borrower or a Material Subsidiary to any
Subsidiary (provided that the aggregate fair market value of assets
disposed of pursuant to this clause (iv) (together with the aggregate
amount of Indebtedness outstanding under Section 5.07(m) and
Investments outstanding under Section 5.19(h)) shall not exceed
$20,000,000); provided that no Person shall make any disposition to any
SF Broadcasting Company pursuant to this clause (c);
(d) (i) Asset Swaps involving in the aggregate up to four
television broadcast stations of SKTV or any of its subsidiaries, on
an arm's-length basis for at least fair consideration, or (ii) Asset
Sales by SKTV or any of its subsidiaries of assets having an aggregate
fair market value not in excess of $250,000,000, as determined in good
faith by the board of directors of the Borrower (it being
understood that for purposes of determining compliance with such limit,
any transaction that would constitute an Asset Sale but for its being
intended to constitute part of an Asset Swap under clause (i) shall be
counted as an Asset Sale until such time as such Asset Swap is
completed) for consideration consisting solely of cash, or (iii) any
sale or disposition of any of the SF Broadcasting Companies or any sale
or disposition by any of the SF Broadcasting Companies of all or
substantially all of such entity's assets on an arm's-length basis for
at
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least fair consideration; and in each case pursuant to clauses
(i), (ii) and (iii) subject to the following conditions:
(x) no Default or Event of Default shall have
occurred and be continuing, both before and immediately after
the making of such sale or Asset Swap; and
(y) the Credit Parties shall be in compliance with
Sections 5.11, 5.12, 5.13, 5.14, 5.16, 5.17, 5.18, 5.19 and
5.20 both before and immediately after the making of such sale
or Asset Swap on an Historical and Pro Forma basis.
(e) sales by USANi, the Borrower or any Material Subsidiary of
the shares of capital stock or other equity interests of WHSW TV, Vela
Research LP, Internet Shopping Network LP, The National Registry Inc.,
Body By Jake Enterprise LLC or any other Non-Material Subsidiary, on
an arm's-length basis for at least fair consideration paid solely in
cash, so long as each such other Non-Material Subsidiary, together
with all other Non-Material Subsidiaries (other than Vela Research LP,
Internet Shopping Network LP, and the SF Broadcasting Companies) with
respect to which there has been, since the date of this Agreement,
such a sale, would not (had such sales not been made) constitute a
Material Subsidiary Group;
(f) sales of movie rights in the ordinary course of business
on an arm's-length basis;
(g) sales of programming rights in the ordinary course of
business on an arm's-length basis;
(h) nonrecourse sales of receivables described in Schedule
1.01(a), if transacted in accordance with paragraph 1 thereof, or
pursuant to Section 5.05(i); and
(i) the transactions with Universal or Liberty described in
the agreements listed on Schedule 5.17.
SECTION 5.18. Restricted Payments; Restrictions on Ability of
Subsidiaries to Pay Dividends. (a) Neither USANi, the Borrower nor any
Guarantor will, nor will any of them permit their respective subsidiaries to:
(i) repurchase, redeem or otherwise acquire any of the shares
of capital stock of or any other equity interest in the Borrower, any
Guarantor or any Subsidiary, except that USANi may spend up to
$100,000,000 in the aggregate to repurchase or redeem shares of its
capital stock from time to time at any time that the Total Debt Ratio
is less than 4.0 to 1.0, and in connection therewith the Borrower may
make any purchase of its capital stock required or permitted under
Section 1.6(c) or 1.7(b) of the Investment Agreement as a result of
such repurchase or redemption;
(ii) declare or make, or agree to pay or make, directly or
indirectly, any dividend or other distribution (by reduction of
capital or otherwise), whether in cash, property, securities or a
contribution thereof, with respect to any shares of any class of
capital stock or other equity interest of the Borrower, any Guarantor
or any Subsidiary, except that (A) any Wholly Owned Subsidiary may
declare and pay dividends and make other
71
distributions with respect to its capital stock or other equity
interest to any other Wholly Owned Subsidiary or to USANi or the
Borrower, (B) the Borrower may make cash distributions to its
owners in respect of their ownership interests in the Borrower in
amounts determined in accordance with Section 8.2 of the Operating
Agreement of the Borrower as in effect on the date hereof and (C) the
Borrower may make any payment required by it under Sections 1.5(d) or
1.5(e) of the Investment Agreement; or
(iii) make any optional payment or prepayment on or redemption
or acquisition of any Indebtedness of the Borrower, any Guarantor or
any Subsidiary other than (x) the conversion of Subordinated
Debentures into common equity of USANi required by Section 5.21(a),
(y) the prepayment of Indebtedness of Ticketmaster under credit
facilities existing on the date hereof or the prepayment of
Indebtedness under the SFB Credit Agreement contemplated by Section
5.19(f) and (z) the repurchase, redemption or prepayment of up to
$1,000,000 of other Indebtedness, provided that no Default or Event of
Default shall have occurred and be continuing, both before and
immediately after the making of such repurchase, redemption or
prepayment.
(b) Neither the Borrower nor USANi will, and none of them
will permit any of their respective Subsidiaries to, directly or indirectly,
create or otherwise cause or suffer to exist or become effective any
encumbrance or restriction on the ability of any such Subsidiary to (i) pay any
dividends or make any other distributions on its capital stock or any other
equity interest or (ii) make or repay any loans or advances to USANi, the
Borrower or to the parent of such Subsidiary.
SECTION 5.19. Restricted Investments. Neither USANi, the
Borrower nor any Guarantor will, nor will any of them permit any of their
respective subsidiaries to, make any Investments, except for:
(a) (i) Investments in any Wholly Owned Subsidiary that is a
Guarantor, which Guarantor exists as of the Effective Date and is
identified on Schedule 5.19 and (ii) Investments in any other Wholly
Owned Subsidiary that is a Guarantor created or acquired after the
Effective Date to be solely engaged in a Core Business; provided that
the aggregate principal amount of such Investments referred to in this
paragraph (a)(ii) together with Investments referred to in paragraphs
(e) and (g)(ii) below shall not exceed $125,000,000;
(b) loans or advances between any of USANi, the Borrower and
any Wholly Owned Subsidiary that is a Guarantor or loans or advances
made by the Borrower to Ticketmaster, provided that any such loans or
advances shall be evidenced by an Intercompany Note duly and validly
pledged under the Pledge Agreement to the Collateral Agent for the
ratable benefit of the Secured Parties;
(c) (i) the Guarantee by the Borrower of Indebtedness of an SF
Broadcasting Company incurred to finance improvements on a property in
Hawaii and secured by a mortgage on such property and improvements and
(ii) other Guarantees by the Borrower of Indebtedness of any SF
Broadcasting Company in an aggregate amount not to exceed $20,000,000;
(d) Investments in (i) commercial paper rated A-1 or the
equivalent thereof by S&P or P-1 or the equivalent thereof by Moody's
and in each case maturing within six
72
months after the date of acquisition thereof, (ii) debt securities
issued by any corporation incorporated in the United States of America
or any state thereof that has a short-term credit rating of at
least A-1 or the equivalent thereof by S&P or P-1 or the equivalent
thereof by Moody's and in each case maturing within six months after
the date of acquisition thereof, (iii) eurodollar time deposits,
certificates of deposit and bankers' acceptance with maturities of six
months or less from the date of acquisition, and overnight bank
deposits, in each case, with any Lender or with any domestic commercial
bank having capital and surplus in excess of $100,000,000, (iv) tax
exempt securities rated MIG1 or the equivalent thereof by Moody's with
maturities of six months or less from the date of acquisition, (v)
securities issued or fully guaranteed or insured by the United States
Government or any agency or instrumentality thereof having maturities
of not more than six months from the date of acquisition and (vi)
Hedging Agreements entered into for bona fide hedging purposes and not
for speculation; and
(e) Investments made after the date hereof in any joint
venture, partnership or any other entity solely engaged or to be
solely engaged in a Core Business, or in any SF Broadcasting Company,
in an aggregate principal amount for all such Investments (together
with Investments referred to in paragraphs (a)(ii) above and (g)(ii)
below) not in excess of $125,000,000 (provided that Investments made
in the SF Broadcasting Companies under this paragraph (e) (other than
as a result of a Guarantee under paragraph (c) above being drawn upon)
shall not exceed $20,000,000);
(f) a loan by the Borrower to Savoy Stations, Inc. in an
aggregate principal amount not to exceed $70,000,000 that is
guaranteed by, and secured by a pledge of all the equity interests in,
each of the SF Broadcasting Companies that is or owns an operating
subsidiary, provided that (i) the commitments under the SFB Credit
Agreement shall have been terminated, all loans and letters of credit
thereunder shall have been repaid or terminated in full, all accrued
interest, fees and other amounts payable thereunder shall have been
paid in full and all Liens on collateral thereunder shall have been
released and (ii) the documentation for such loan shall require that
all net proceeds (determined on the same basis as Net Proceeds) of
any sale of Savoy Stations, Inc. or any asset of Savoy Stations, Inc.
or any of its subsidiaries shall be required to be paid to the Borrower
to be applied as a prepayment of such loan;
(g)(i) Investments in international operations of subsidiaries
or joint ventures of the Borrower required to be made under agreements
existing on the date of this Agreement and described in Schedule 5.19
in an aggregate amount not to exceed $50,000,000 and (ii)
international Investments in a Core Business in an aggregate amount
(together with Investments referred to in paragraphs (a)(ii) and (e)
above) not to exceed $125,000,000 (provided that no Investments shall
be made in the SF Broadcasting Companies under this paragraph (g));
and
(h) Investments made after the Effective Date in any
Subsidiary that is not a Guarantor in an aggregate amount (together
with the aggregate amount of dispositions made under Section
5.17(c)(iv) and Indebtedness outstanding under Section 5.07(m)) not to
exceed $20,000,000.
Each Investment made under paragraph (a), (e), (f) or (g) is subject to the
following conditions:
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(i) no Default or Event of Default having occurred and be
continuing, both before and immediately after the making of such
Investment; and
(ii) the Credit Parties being in compliance with Sections
5.11, 5.12, 5.13, 5.14, 5.16, 5.17, 5.18, 5.19, 5.20 and 5.25 both
before and immediately after the making of such Investment on an
Historical and Pro Forma Basis.
It is understood and agreed that any acquisitions made pursuant to Section 5.20
will not constitute an Investment for purposes of this Section.
Notwithstanding anything in this Section to the contrary, it is understood that
if any Guarantee permitted by paragraph (c) of this Section shall be drawn upon
and remain unreimbursed, such unreimbursed amount shall be counted toward the
aggregate $125,000,000 limit applicable to paragraphs (a)(ii), (e) and (g)(ii)
of this Section.
SECTION 5.20. Acquisitions. Neither USANi, the Borrower nor
any Guarantor will, nor will any of them permit any of their respective
subsidiaries to, purchase, lease or otherwise acquire (in one or in a series of
transactions) (whether for cash, property, services or assumption or
acquisition of debt) any assets or properties, or any class of capital stock,
of any other Person outside the ordinary course of business, except for:
(a) any nonhostile acquisition (i.e., any acquisition that is
neither subject to an unsolicited tender offer that is subject to the
provisions of the Williams Act nor subject to any unsolicited merger
offer not approved by the board of directors of the target company at
the time of the initial public announcement thereof) for consideration
consisting in whole or part of cash or noncash consideration, in which
the aggregate consideration thereof paid or delivered by the Borrower
or any Guarantor (including the fair market value of any noncash
consideration (other than (A) any Indebtedness incurred, issued,
assumed or acquired pursuant to Section 5.07(i) and (B) any capital
stock or other equity interests of the Borrower, any Guarantor or any
of their respective Subsidiaries) issued as part of such
consideration) shall not exceed $200,000,000 in the aggregate for all
such acquisitions; provided, however, that any such acquisitions are
subject to the following conditions:
(i) in the case of any assumed or acquired
Indebtedness, such Indebtedness shall only be secured by Liens
permitted under Section 5.05(f);
(ii) no Default or Event of Default shall have
occurred and be continuing, both before and immediately after
the making of such acquisition; and
(iii) the Credit Parties shall be in compliance with
Sections 5.11, 5.12, 5.13, 5.14, 5.16, 5.17, 5.18, 5.19, 5.20
and 5.25 both before and immediately after the making of such
acquisition on an Historical and Pro Forma Basis; and
(b) any acquisition for consideration consisting solely of
capital stock of USANi or the Borrower; provided that the conditions
set forth in clauses (a)(i), (ii) and (iii) above are satisfied with
respect to such acquisition; and
(c) any acquisition consented to in writing by the Required
Lenders.
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It is understood and agreed that any Investments made pursuant to Section 5.19
will not constitute an acquisition for purposes of clause (a) of this Section.
It is further understood and agreed that (x) no transaction constituting part
of any completed Asset Swap shall be counted in determining compliance with the
limit set forth in paragraph (a), except to the extent that the aggregate cash
consideration paid by USANi, the Borrower or any of their respective
Subsidiaries in connection with such Asset Swap shall exceed the aggregate Net
Proceeds received by them in such Asset Swap and (y) any acquisition of a
business primarily engaged in television broadcasting shall not be counted in
determining compliance with the limit set forth in paragraph (a) to the extent
the aggregate cost of all such acquisitions on or after the date of the sale of
WHSW TV does not exceed the proceeds of the sale of WHSW TV.
SECTION 5.21. Deleveraging Events. (a) USANi shall cause
Home Shopping to give notice of the redemption of all its 5-7/8% Convertible
Subordinated Debentures due March 1, 2006 as soon as practicable.
(b) USANi shall use its reasonable best efforts to complete
as soon as practicable its acquisition of all the equity interests of
Ticketmaster not presently owned by USANi on terms acceptable to the directors
of USANi.
(c) USANi shall use its reasonable best efforts (subject to
price, market conditions and the fiduciary duty of its directors) to sell
$200,000,000 of common stock of USANi prior to the date that is four months
after the Effective Date.
SECTION 5.22. Use of Proceeds. The Borrower shall use (a)
the proceeds of the Term Loans solely to pay on the Effective Date a portion of
the cash amount to be paid to Universal or a subsidiary of Universal under the
Investment Agreement, (b) the proceeds of any New Term Loans or Additional New
Term Loans borrowed as contemplated by Section 2.07 as provided in the
amendment effecting such Term Loans, (c) the proceeds of the Revolving Loans
and Swingline Loans solely to provide for general corporate purposes (including
working capital needs), and (d) the Letters of Credit solely to provide for its
general corporate purposes, in each case in compliance with all applicable
legal and regulatory requirements, including Regulations G, T, U and X of the
Board, the Securities Act of 1933, as amended, the Securities Exchange Act of
1934, as amended, and the regulations thereunder. Neither the Administrative
Agent, the Collateral Agent, the Issuing Bank nor any Lender shall have any
responsibility for any use of the proceeds of the Loans or the Letters of
Credit.
SECTION 5.23. Certain Agreements. Neither, USANi, the
Borrower nor any Guarantor will amend, modify, terminate or waive, nor will any
of them permit any of their respective subsidiaries to agree to any amendment,
modification, termination or waiver of any material agreement of such Person
(including the Investment Agreement, the agreements attached as exhibits
thereto and the Subordinated Debentures), if such amendment, modification,
termination or waiver would reasonably be expected to have a Material Adverse
Effect.
SECTION 5.24. Compliance with Laws. Each Credit Party and
each respective subsidiary thereof will comply with all applicable laws, rules
and regulations, and all orders (including ERISA, margin regulations and
Environmental Laws) of any Governmental Authority applicable to it or any of
its Premises, property, business, operations or transactions to the extent
noncompliance could reasonably be expected to result in (a) a Material Adverse
Effect or (b) a Default or an Event of Default.
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SECTION 5.25. Further Assurances. (a) Each Credit Party
will promptly execute any documents, financing statements, agreements or
instruments, and take all further actions (including, if applicable, filing
Uniform Commercial Code and other financing statements) that may be required
under applicable law, or that the Required Lenders, the Administrative Agent,
the Collateral Agent or the Issuing Bank may reasonably request, in order to
effectuate the pledges and security interests contemplated by this Agreement
and the other Loan Documents and in order to grant, preserve, protect or
perfect the validity or first priority of pledges and security interests
created, intended to be created or to be created by this Agreement or the other
Loan Documents.
(b) In connection with the creation or acquisition of any
Material Subsidiary or with any Subsidiary becoming a Material Subsidiary (i)
USANi and the Borrower will cause such Subsidiary (unless such Subsidiary is a
Foreign Subsidiary) to become a party to the Guarantee Agreement and the
Indemnity, Subrogation and Contribution Agreement within ten Business Days
after such Subsidiary is formed or becomes a Material Subsidiary or
substantially simultaneously with the acquisition of any Material Subsidiary
(unless ownership interests in such Subsidiary are held by a third party whose
consent is required or advisable for such actions and such consent is not
reasonably obtainable) and (ii) if any shares of capital stock, other equity
interests or Indebtedness of such Subsidiary are owned by or on behalf of the
Borrower or any Guarantor, the Borrower will cause such shares and promissory
notes evidencing such Indebtedness to be pledged pursuant to the Pledge
Agreement within ten Business Days after such Subsidiary is formed or becomes a
Material Subsidiary or substantially simultaneously with the acquisition of any
Material Subsidiary (except that, if such Subsidiary is a Foreign Subsidiary,
shares of common stock of such Subsidiary to be pledged pursuant to the Pledge
Agreement shall be limited to 65% of the outstanding shares of common stock of
such Subsidiary).
(c) If at any time the Subsidiaries (other than Foreign
Subsidiaries and Subsidiaries listed on Schedule 1.01(b)) that are not Material
Subsidiaries would constitute a Material Subsidiary Group, the Borrower (or, if
the Borrower has failed to do so within 10 days of its provision of any
certificate required under the last paragraph of Section 5.01 disclosing the
existence of such a situation, the Administrative Agent) shall designate
sufficient Subsidiaries as Material Subsidiaries so that the remaining
Subsidiaries that are not Material Subsidiaries (other than Foreign
Subsidiaries) would not constitute a Material Subsidiary Group.
(d) The Borrower may at any time with respect to any Material
Subsidiary that became a Material Subsidiary under paragraph (c) above or under
clause (c) or (d) of the definition of "Material Subsidiary" by written notice
to the Administrative Agent provide that such Subsidiary shall not be a
Material Subsidiary if (i) such Subsidiary does not meet the tests set forth in
such clause (d) as of the last day of the most recent Fiscal Quarter for which
financial statements have been delivered pursuant to Section 5.01 at such time
and (ii) the removal of such Subsidiary as a Material Subsidiary does not
result in a requirement under such paragraph (c) to designate another
Subsidiary as a Material Subsidiary.
(e) In the event that USANi, the Borrower or any Subsidiary
conveys, sells, leases, assigns, transfers or otherwise disposes of all or any
portion of any of the capital stock, other equity interests, assets or property
of USANi, the Borrower or any of the Subsidiaries in a transaction not
prohibited by this Agreement, or in the event the Borrower shall so request
with respect to any Guarantor that is not a Material Subsidiary, the
Administrative Agent and the Collateral Agent shall promptly (and the Lenders
hereby authorize the Administrative Agent and
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the Collateral Agent to) take such action and execute any such documents as may
be reasonably requested by the Borrower and at the Borrower's expense to release
any Liens created by any Loan Document in respect of such capital stock, equity
interests, assets or property and, in the case of a disposition of all or
substantially all the capital stock, equity interests or assets of any Guarantor
or the requested release of any Guarantor that is not a Material Subsidiary,
terminate such Guarantor's obligations under the Guarantee Agreement and the
Indemnity, Subrogation and Contribution Agreement. In addition, the
Administrative Agent and the Collateral Agent agree to take such actions as are
reasonably requested by the Borrower and at the Borrower's expense to terminate
the Liens and security interests created by the Loan Documents when all the
Obligations are paid in full and all Letters of Credit and Commitments are
terminated. Any representation, warranty or covenant contained in any Loan
Document relating to any such capital stock, equity interests, assets, property
or Subsidiary shall no longer be deemed to be made once such capital stock,
equity interests, assets or property is conveyed, sold, leased, assigned,
transferred or disposed of.
SECTION 5.26. Ownership of the Guarantors. (a) Subject to
Section 5.17(d) or (e), USANi and the Borrower, respectively, agree at all
times to own, directly or indirectly through Wholly Owned Subsidiaries, both
beneficially and of record and free and clear of all Liens (other than Liens
arising under the Pledge Agreement in favor of the Collateral Agent for the
benefit of the Secured Parties), and control 100% of the capital stock or other
equity interests of each of their Subsidiaries that is a Guarantor.
(b) Promptly upon any Subsidiary holding a low power
television license acquiring a full power television license, (i) USANi and the
Borrower will cause such Subsidiary to become a party to the Guarantee
Agreement and the Indemnity, Subrogation and Contribution Agreement and (ii) if
any shares of capital stock, other equity interests or Indebtedness of such
Subsidiary are owned by or on behalf of any Credit Party, the Borrower will
cause such shares and promissory notes evidencing such Indebtedness to be
pledged pursuant to the Pledge Agreement (except that, if such Subsidiary is a
Foreign Subsidiary, shares of common stock of such Subsidiary to be pledged
pursuant to the Pledge Agreement may be limited to 65% of the outstanding
shares of common stock of such Subsidiary).
ARTICLE VI
Events of Default
If one or more of the following events (herein called "Events
of Default" shall occur and be continuing:
(a) (i) the Borrower shall fail to pay the principal of any
Loan or shall fail to make any reimbursement with respect to any LC
Disbursement when and as the same shall become due and payable,
whether at the due date thereof or at a date fixed for prepayment
thereof or by acceleration thereof or otherwise; or (ii) any Credit
Party shall fail to pay any interest on any Loan or LC Disbursement or
any fee or other amount payable by it hereunder (other than an amount
referred to in clause (a)(i) above) or under any other Loan Document
more than two Business Days after the date when and as the same shall
become due and payable, whether at the due date thereof or at a date
fixed for prepayment thereof or by acceleration thereof or otherwise;
or
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(b) (i) any Credit Party or any Subsidiary shall default in
the payment when due (after giving effect to all applicable grace
periods provided for in the documents relating to such Indebtedness,
without regard to any waiver thereof) of any amount of principal of or
interest on or any other amount payable in connection with any of its
Indebtedness not specified in clause (a) above in an aggregate
principal amount of $10,000,000 or more; or (ii) any event specified
in any note, agreement, indenture or other document evidencing or
relating to any such Indebtedness shall occur if (after giving effect
to all applicable grace periods provided for in the documents relating
to such Indebtedness, without regard to any waiver thereof) the effect
of such event is to cause, or to permit the holder or holders of such
Indebtedness (or a trustee or agent on behalf of such holder or
holders) to cause, such Indebtedness to become due prior to its stated
maturity; or
(c) any representation, warranty or certification made or
deemed made herein or in any other Loan Document by any Credit Party,
or any certificate furnished to any Lender, the Administrative Agent,
the Collateral Agent or the Issuing Bank pursuant to the provisions
hereof or the other Loan Documents, shall prove to have been false or
misleading as of the time made or deemed made or furnished in any
material respect and, if the Credit Parties and the Required Lenders
agree that the effects of such false or misleading representation,
warranty or certification are curable, such effects shall not have
been cured to the reasonable satisfaction of the Required Lenders
within 10 days after the earlier of (i) the date on which any Credit
Party obtained knowledge that such representation, warranty or
certification was so false or misleading or (ii) the date of notice by
the Administrative Agent, the Collateral Agent or the Issuing Bank to
the relevant Credit Party that such representation, warranty or
certification was so false or misleading; or
(d) any Credit Party shall default in the performance of any
of its obligations under Article V (other than under any of Sections
5.01(a), 5.01(b), 5.01(c), 5.01(d), 5.01(f)(iii), 5.01(f)(iv),
5.01(g), 5.01(h), 5.02, 5.03(b), 5.03(c), 5.03(d), 5.03(e), 5.03(f),
5.04, 5.15 and 5.25); or any Credit Party shall default in the
performance of any of its other obligations in this Agreement or any
other Loan Document, including any of Sections 5.01(a), 5.01(b),
5.01(c), 5.01(d), 5.01(f)(iii), 5.01(f)(iv), 5.01(g), 5.01(h), 5.02,
5.03(b), 5.03(c), 5.03(d), 5.03(e), 5.03(f), 5.04, 5.15 and 5.25,
(not governed by any other provision in this Article VI) and such
default shall continue unremedied for a period of 10 days after the
earlier of (i) the date on which any Financial Officer of USANi or the
Borrower obtained knowledge of such default or (ii) the date of notice
by the Administrative Agent, the Collateral Agent or the Issuing Bank
to the relevant Credit Party of the occurrence of such default; or
(e) any Credit Party, any Material Subsidiary or Subsidiaries
constituting a Material Subsidiary Group shall admit in writing its
inability to, or be generally unable to, pay its debts as such debts
become due; or
(f) any Credit Party, any Material Subsidiary or Subsidiaries
constituting a Material Subsidiary Group shall (i) apply for or
consent to the appointment of, or the taking of possession by, a
receiver, custodian, trustee or liquidator of itself or of all or a
substantial part of its assets, (ii) make a general assignment for the
benefit of its creditors, (iii) commence a voluntary case under the
Bankruptcy Code (as now or hereafter in effect), (iv) file a petition
seeking to take advantage of any other law relating to bankruptcy,
insolvency, reorganization, creditor or debtor rights, winding-up, or
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composition or readjustment of debts, (v) take any corporate,
partnership or company action for the purpose of effecting any of the
foregoing; provided that an event specified in clauses (i) through (v)
above shall be deemed to have occurred (whether at one time or
cumulatively over a period of time after the date hereof) with respect
to a Material Subsidiary Group at the time when such an event shall
have occurred with respect to all Subsidiaries constituting such
Material Subsidiary Group; or
(g) a proceeding or case shall be commenced, without the
application or consent of any Credit Party, any Material Subsidiary or
all Subsidiaries constituting a Material Subsidiary Group in any court
of competent jurisdiction, seeking (i) its liquidation,
reorganization, dissolution or winding-up, or the composition or
readjustment of its debts, including the filing of an involuntary
petition under the Bankruptcy Code, (ii) the appointment of a trustee,
receiver, custodian, liquidator or the like of such Credit Party or
Subsidiary or of all or any substantial part of its assets, or (iii)
similar relief in respect of such Credit Party or Subsidiary under any
law relating to bankruptcy, insolvency, reorganization, creditor or
debtor rights, winding-up, or composition or adjustment of debts, and,
in each case, such proceeding or case shall continue undismissed, or
an order, judgment or decree approving or ordering any of the
foregoing shall be entered and shall not be vacated or dismissed
within 60 days; or an order for relief against such Credit Party or
Subsidiary shall be entered in an involuntary case under any
applicable bankruptcy code; provided that an event specified in
clauses (i) through (iii) above or the preceding subclause shall be
deemed to have occurred with respect to a Material Subsidiary Group at
the time when such an event shall have occurred (whether at one time
or cumulatively over a period of time after the date hereof) with
respect to all Subsidiaries constituting such Material Subsidiary
Group; or
(h) a judgment or judgments for the payment of money in excess
of $10,000,000 (in excess of available insurance as to which the
insurer has acknowledged in writing its obligation to cover such
liability) in the aggregate shall be rendered by a court or courts
against any Credit Party and/or any of its Subsidiaries and the same
shall not be discharged (or provision shall not be made for such
discharge), or a stay of execution thereof shall not be procured,
within 30 days from the date of entry thereof (or, if later, by the
date on which such judgment specified that payment is due), and the
relevant Credit Party or Subsidiary shall not, within said period of
30 days (or by such later date on which payment is due, as aforesaid),
or such longer period during which execution of the same shall have
been stayed, appeal therefrom and cause the execution thereof to be
stayed during such appeal; or
(i) an event or condition specified in Section 5.01(e) shall
occur or exist with respect to any Plan or Multiemployer Plan and, as
a result of such event or condition, together with all other such
events or conditions, any Credit Party or any ERISA Affiliate shall
incur a liability to a Plan, a Multiemployer Plan or the PBGC (or any
combination of the foregoing) which is (or, in the case of a liability
incurred by an ERISA Affiliate, is reasonably likely to be) a
liability of a Credit Party that is, in the determination of the
Required Lenders, material in relation to the consolidated financial
position of the Borrower and its consolidated Subsidiaries; or
(j) there shall occur a Change of Control; or
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(k) the Guarantee Agreement shall cease, for any reason, to be
in full force and effect, or any Credit Party shall assert in writing
or in any legal proceeding that any obligation thereunder is not a
legal, valid, binding and enforceable obligation; or
(l) any material provision of the Pledge Agreement or any
other Security Document shall cease, for any reason, to be in full
force and effect, or any Person shall so assert in writing or in any
legal proceeding, or any Lien created by the Pledge Agreement or any
other Security Document shall cease, for any reason other than a
change in applicable law, to be enforceable and of the same effect and
priority purported to be created thereby; provided that, in the event
any Lien created by the Pledge Agreement or any other Security
Document shall cease to be enforceable and of the same effect and
priority purported to be created thereby solely as a result of a
change in applicable law, such unenforceability and effected priority
shall not constitute an Event of Default so long as the Borrower takes
all necessary action in respect of such change to restore the
enforceability and priority of such Lien and delivers an opinion of
counsel to such effect in form and substance reasonably satisfactory
to the Administrative Agent, the Collateral Agent and the Issuing Bank
within 30 days of the effectiveness of such change; and
(m) (i) any FCC License applicable to any full power
television broadcast station owned by USANi, the Borrower or any of
their respective Subsidiaries shall be canceled, terminated,
rescinded, annulled, forfeited, suspended or revoked, shall fail to be
renewed or shall no longer be in full force and effect other than any
FCC License that is replaced with new authorizations for digital
facilities, (ii) USANi, the Borrower or any such Subsidiary shall for
any other reason fail to have all authorizations, permits, licenses
and approvals material to the continued operation of its full power
television broadcast stations as presently operated, (iii) in any
renewal or revocation proceeding involving any FCC License, any
administrative law judge of the FCC (or successor to the functions of
an administrative law judge of the FCC) shall have issued an initial
decision to the effect that USANi, the Borrower or any such Subsidiary
lacks the qualifications to hold any FCC License, and such initial
decision shall not have been timely appealed or shall otherwise have
become an order that is final and no longer subject to further
administrative or judicial review or such administrative law judge or
successor shall issue a favorable determination on such matter, which
determination shall subsequently be reversed on appeal or (iv) any
full power television broadcast station shall fail for any period to
maintain any broadcast signal or shall fail for any period to maintain
any broadcast signal without either material interference or requiring
the use of any equipment other than ordinary consumer television
antennae and receivers by households aggregating at least 80% of the
households normally able to receive such station's broadcast signal
without either material interference or the use of any equipment other
than ordinary consumer television antennae and receivers; and in the
case of clause (i), (ii), (iii) or (iv), such occurrence could
reasonably be expected to result in a Material Adverse Effect;
THEREUPON: (A) in the case of an Event of Default other than one referred to
in clause (f) or (g) of this Article VI where any petition has been filed, the
Administrative Agent, with the consent of the Required Lenders, may and, upon
request of the Required Lenders, shall, by notice to the Borrower, terminate
the Commitments and/or declare the principal amount then outstanding of, and
the accrued interest on, the Loans and all other amounts payable by the
Borrower and the Guarantors hereunder and under any other Loan Documents to be
forthwith
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due and payable, whereupon such amounts shall be immediately due and payable
without presentment, demand, diligence, protest or other formalities of any
kind, all of which are hereby expressly waived by the Credit Parties; and (B) in
the case of the occurrence of an Event of Default referred to in clause (f) or
(g) of this Article VI where any petition has been filed, the Commitments shall
be automatically terminated and the principal amount then outstanding of, and
the accrued interest on, the Loans and all other amounts payable by the Borrower
and the Guarantors hereunder and under any other Loan Documents shall become
automatically immediately due and payable without presentment, demand, protest
or other formalities of any kind, all of which are hereby expressly waived by
the Credit Parties.
ARTICLE VII
The Agents
Each of the Lenders and the Issuing Bank hereby irrevocably
appoints the Administrative Agent and the Collateral Agent (in each such
capacity, the "Agent") as its agent and authorizes the Agent to take such
actions on its behalf and to exercise such powers as are delegated to the Agent
by the terms of the Loan Documents, together with such actions and powers as
are reasonably incidental thereto.
The bank serving as the Agent hereunder shall have the same
rights and powers in its capacity as a Lender as any other Lender and may
exercise the same as though it were not the Agent, and such bank and its
Affiliates may accept deposits from, lend money to and generally engage in any
kind of business with USANi, the Borrower or their respective Subsidiaries or
other Affiliate thereof as if it were not the Agent hereunder.
The Agent shall not have any duties or obligations except
those expressly set forth in the Loan Documents. Without limiting the
generality of the foregoing, (a) the Agent shall not be subject to any
fiduciary or other implied duties, regardless of whether a Default has occurred
and is continuing, (b) the Agent shall not have any duty to take any
discretionary action or exercise any discretionary powers, except discretionary
rights and powers expressly contemplated by the Loan Documents that the Agent
is required to exercise in writing by the Required Lenders (or such other
number or percentage of the Lenders as shall be necessary under the
circumstances as provided in Section 8.02), and (c) except as expressly set
forth in the Loan Documents, the Agent shall not have any duty to disclose, and
shall not be liable for the failure to disclose, any information relating to
USANi, the Borrower or their respective Subsidiaries that is communicated to or
obtained by the bank serving as Agent or any of its Affiliates in any capacity.
The Agent shall not be liable for any action taken or not taken by it with the
consent or at the request of the Required Lenders (or such other number or
percentage of the Lenders as shall be necessary under the circumstances as
provided in Section 8.02) or in the absence of its own gross negligence or
wilful misconduct. The Agent shall not be deemed to have knowledge of any
Default unless and until written notice thereof is given to the Agent by USANi,
the Borrower or a Lender, and the Agent shall not be responsible for or have
any duty to ascertain or inquire into (i) any statement, warranty or
representation made in or in connection with any Loan Document, (ii) the
contents of any certificate, report or other document delivered thereunder or
in connection therewith, (iii) the performance or observance of any of the
covenants, agreements or other terms or conditions set forth in any Loan
Document, (iv) the validity, enforceability, effectiveness or genuineness of
any Loan Document or any other agreement, instrument or document, or (v) the
satisfaction of any condition set forth in
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Article IV or elsewhere in any Loan Document, other than to confirm receipt of
items expressly required to be delivered to the Agent.
The Agent shall be entitled to rely upon, and shall not incur
any liability for relying upon, any notice, request, certificate, consent,
statement, instrument, document or other writing believed by it to be genuine
and to have been signed or sent by the proper Person. The Agent also may rely
upon any statement made to it orally or by telephone and believed by it to be
made by the proper Person, and shall not incur any liability for relying
thereon. The Agent may consult with legal counsel (who may be counsel for
USANi or the Borrower), independent accountants and other experts selected by
it, and shall not be liable for any action taken or not taken by it in
accordance with the advice of any such counsel, accountants or experts.
The Agent may perform any and all its duties and exercise its
rights and powers by or through any one or more subagents appointed by the
Agent. The Agent and any such subagent may perform any and all its duties and
exercise its rights and powers through their respective Related Parties. The
exculpatory provisions of the preceding paragraphs shall apply to any such
subagent and to the Related Parties of each Agent and any such subagent, and
shall apply to their respective activities in connection with the syndication
of the credit facilities provided for herein as well as activities as Agent.
Subject to the appointment and acceptance of a successor
Administrative Agent or Collateral Agent, as the case may be, as provided in
this paragraph, the Administrative Agent or Collateral Agent may resign at any
time by notifying the Lenders, the Issuing Bank and the Borrower. Upon any
such resignation, the Required Lenders shall have the right, in consultation
with the Borrower, to appoint a successor. If no successor shall have been so
appointed by the Required Lenders and shall have accepted such appointment
within 30 days after the retiring Agent gives notice of its resignation, then
the retiring Agent may, on behalf of the Lenders and the Issuing Bank, appoint
a successor Agent which shall be a bank with an office in New York, New York,
or an Affiliate of any such bank. Upon the acceptance of its appointment as
Agent hereunder by a successor, such successor shall succeed to and become
vested with all the rights, powers, privileges and duties of the retiring
Agent, and the retiring Agent shall be discharged from its duties and
obligations hereunder. The fees payable by the Borrower to a successor Agent
shall be the same as those payable to its predecessor unless otherwise agreed
between the Borrower and such successor. After the Agent's resignation
hereunder, the provisions of this Article and Section 8.03 shall continue in
effect for the benefit of such retiring Agent, its subagents and their
respective Related Parties in respect of any actions taken or omitted to be
taken by any of them while it was acting as Agent.
Each Lender acknowledges that it has, independently and
without reliance upon the Agent or any other Lender and based on such documents
and information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement. Each Lender also acknowledges that it
will, independently and without reliance upon the Agent or any other Lender and
based on such documents and information as it shall from time to time deem
appropriate, continue to make its own decisions in taking or not taking action
under or based upon this Agreement, any other Loan Document or related
agreement or any document furnished hereunder or thereunder.
Each of the parties to this Agreement hereby acknowledges that
the CoDocumentation Agents do not have any obligations in their capacity as
such under this
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Agreement or any other Loan Document and that none of them nor any of their
directors, officers, agents or employees shall have any liability hereunder or
thereunder.
ARTICLE VIII
Miscellaneous
SECTION 8.01. Notices. Except in the case of notices and
other communications expressly permitted to be given by telephone, all notices
and other communications provided for herein shall be in writing and shall be
delivered by hand or overnight courier service, mailed by certified or
registered mail or sent by telecopy, as follows:
(a) if to USANi or the Borrower, to it at USA Networks, Inc.,
152 West 57th Street, 38th Floor, New York, New York 10019, Attention
of Chief Financial Officer (Telecopy No. (212) 247-5778);
(b) if to the Administrative Agent, Swingline Lender or the
Issuing Bank, to The Chase Manhattan Bank, Loan and Agency Services
Group, One Chase Manhattan, 8th Floor, New York, New York 10081,
Attention of Janet Belden (Telecopy No. (212) 5525658), with a copy to
The Chase Manhattan Bank, 270 Park Avenue, New York 10017, Attention
of Mitch Gervis (Telecopy No. 270-4584);
(c) if to the Collateral Agent, to The Chase Manhattan Bank,
Loan and Agency Services Group, One Chase Manhattan, 8th Floor, New
York, New York 10081, Attention of Janet Belden (Telecopy No. (212)
5525658);
(d) if to any other Lender, to it at its address (or telecopy
number) set forth in its Administrative Questionnaire.
Any party hereto may change its address or telecopy number for notices and
other communications hereunder by notice to the other parties hereto. All
notices and other communications given to any party hereto in accordance with
the provisions of this Agreement shall be deemed to have been given on the date
of receipt.
SECTION 8.02. Waivers; Amendments. (a) No failure or delay
by the Administrative Agent, the Collateral Agent, the Issuing Bank or any
Lender in exercising any right or power hereunder or under any other Loan
Document shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right or power, or any abandonment or discontinuance of
steps to enforce such a right or power, preclude any other or further exercise
thereof or the exercise of any other right or power. The rights and remedies
of the Administrative Agent, the Collateral Agent, the Issuing Bank and the
Lenders hereunder and under the other Loan Documents are cumulative and are not
exclusive of any rights or remedies that they would otherwise have. No waiver
of any provision of any Loan Document or consent to any departure by any Credit
Party therefrom shall in any event be effective unless the same shall be
permitted by paragraph (b) of this Section, and then such waiver or consent
shall be effective only in the specific instance and for the purpose for which
given. Without limiting the generality of the foregoing, the making of a Loan
or issuance of a Letter of Credit shall not be construed as a waiver of any
Default, regardless of whether the Administrative Agent, the
83
Collateral Agent, any Lender or the Issuing Bank may have had notice or
knowledge of such Default at the time.
(b) Neither this Agreement nor any other Loan Document nor
any provision hereof or thereof may be waived, amended or modified except, in
the case of this Agreement, pursuant to an agreement or agreements in writing
entered into by USANi, the Borrower and the Required Lenders (except as
provided in Section 2.07(d) or (e)) or, in the case of any other Loan Document,
pursuant to an agreement or agreements in writing entered into by the
Administrative Agent and the Collateral Agent, as applicable, and the Credit
Party or Credit Parties that are parties thereto, in each case with the consent
of the Required Lenders; provided that no such agreement shall (i) increase the
Commitment of any Lender without the written consent of such Lender, (ii)
reduce the principal amount of any Loan or LC Disbursement or reduce the rate
of interest thereon, or reduce any fees payable hereunder, without the written
consent of each Lender affected thereby, (iii) postpone the scheduled date of
payment of the principal amount of any Loan or LC Disbursement, or any interest
thereon, or any fees payable hereunder, or reduce the amount of, waive or
excuse any such payment, or postpone the scheduled date of expiration of any
Commitment, without the written consent of each Lender affected thereby, (iv)
change Section 2.17(b) or (c) in a manner that would alter the pro rata sharing
of payments required thereby, without the written consent of each Lender, (v)
change any of the provisions of this Section or the definition of "Required
Lenders" or any other provision of any Loan Document specifying the number or
percentage of Lenders (or Lenders of any Class) required to waive, amend or
modify any rights thereunder or make any determination or grant any consent
thereunder, without the written consent of each Lender (or each Lender of such
Class, as the case may be), (vi) release any Guarantor from its Guarantee under
the Guarantee Agreement (except as expressly provided in the Guarantee
Agreement), or limit its liability in respect of such Guarantee, without the
written consent of each Lender, (vii) release any substantial part of the
Pledged Securities and other collateral thereunder from the Liens of the Pledge
Agreement and the other Security Documents, without the written consent of each
Lender (except as expressly provided in the Security Documents), (viii) change
any provisions of any Loan Document in a manner that by its terms adversely
affects the rights in respect of payments due to Lenders holding Loans of any
Class differently than those holding Loans of any other Class, without the
written consent of Lenders holding a majority in interest of the outstanding
Loans and unused Commitments of each affected Class or (ix) change the rights
of the Tranche B Lenders to decline mandatory prepayments as provided in
Section 2.10, without the written consent of Tranche B Lenders holding a
majority of the outstanding Tranche B Loans; provided further that (A) no such
agreement shall amend, modify or otherwise affect the rights or duties of the
Administrative Agent, the Collateral Agent, the Swingline Lender or the Issuing
Bank without the prior written consent of the Administrative Agent, the
Collateral Agent, the Swingline Lender or the Issuing Bank, as the case may be,
and (B) any waiver, amendment or modification of this Agreement that by its
terms affects the rights or duties under this Agreement of the Revolving
Lenders (but not the Tranche A Lenders and Tranche B Lenders), the Tranche A
Lenders (but not the Revolving Lenders and Tranche B Lenders) or the Tranche B
Lenders (but not the Revolving Lenders and Tranche A Lenders) may be effected by
an agreement or agreements in writing entered into by USANi, the Borrower and
the requisite percentage in interest of the affected Class of Lenders.
SECTION 8.03. Expenses; Indemnity; Damage Waiver. (a) The
Borrower shall pay (i) all reasonable outofpocket expenses incurred by the
Administrative Agent and the Collateral Agent and their respective Affiliates,
including the reasonable fees, charges and disbursements of counsel, in
connection with the syndication of the credit facilities provided for
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herein, the preparation and administration of the Loan Documents or any
amendments, modifications or waivers of the provisions thereof (whether or not
the transactions contemplated hereby or thereby shall be consummated), (ii) all
reasonable outof-pocket expenses incurred by the Issuing Bank in connection with
the issuance, amendment, renewal or extension of any Letter of Credit or any
demand for payment thereunder and (iii) all out-of-pocket expenses incurred by
the Administrative Agent, the Collateral Agent, the Issuing Bank or any Lender,
including the reasonable fees, charges and disbursements of any counsel for the
Administrative Agent, the Collateral Agent, the Issuing Bank or any Lender, in
connection with the enforcement or, in connection with workout negotiations in
which the Borrower is participating, the protection of its rights in connection
with the Loan Documents, including its rights under this Section, or in
connection with the Loans made or Letters of Credit issued hereunder, including
all such out-ofpocket expenses incurred during any workout, restructuring or
negotiations in respect of such Loans or Letters of Credit.
(b) The Borrower shall indemnify the Administrative Agent,
the Collateral Agent, the Issuing Bank and each Lender, and each Related Party
of any of the foregoing Persons (each such Person being called an "Indemnitee")
against, and hold each Indemnitee harmless from, any and all losses, claims,
damages, liabilities and related expenses, including the reasonable fees,
charges and disbursements of any counsel for any Indemnitee, incurred by or
asserted against any Indemnitee arising out of, in connection with, or as a
result of (i) the execution or delivery of any Loan Document or any other
agreement or instrument contemplated hereby, the performance by the parties to
the Loan Documents of their respective obligations thereunder or the
consummation of the Transactions or any other transactions contemplated hereby,
(ii) any Loan or Letter of Credit or the use of the proceeds therefrom
(including any refusal by the Issuing Bank to honor a demand for payment under
a Letter of Credit if the documents presented in connection with such demand do
not strictly comply with the terms of such Letter of Credit), (iii) any
environmental liability related in any way to USANi, the Borrower or their
respective Subsidiaries, or (iv) any actual or prospective claim, litigation,
investigation or proceeding relating to any of the foregoing, whether based on
contract, tort or any other theory and regardless of whether any Indemnitee is
a party thereto; provided that such indemnity shall not, as to any Indemnitee,
be available to the extent that such losses, claims, damages, liabilities or
related expenses are determined by a court of competent jurisdiction by final
and nonappealable judgment to have resulted from the gross negligence or wilful
misconduct of such Indemnitee.
(c) To the extent that the Borrower fails to pay any amount
required to be paid by it to the Administrative Agent, the Collateral Agent,
the Swingline Lender or the Issuing Bank under paragraph (a) or (b) of this
Section, each Lender severally agrees to pay to the Administrative Agent, the
Collateral Agent, the Swingline Lender or the Issuing Bank, as the case may be,
such Lender's pro rata share (determined as of the time that the applicable
unreimbursed expense or indemnity payment is sought) of such unpaid amount;
provided that the unreimbursed expense or indemnified loss, claim, damage,
liability or related expense, as the case may be, was incurred by or asserted
against the Administrative Agent, the Collateral Agent, the Swingline Lender or
the Issuing Bank in its capacity as such. For purposes hereof, a Lender's "pro
rata share" shall be determined based upon its share of the sum of the total
Revolving Exposures, outstanding Term Loans and unused Commitments at the time.
(d) To the extent permitted by applicable law, neither USANi
nor the Borrower shall assert, and each hereby waives, any claim against any
Indemnitee, on any theory of liability, for special, indirect, consequential or
punitive damages (as opposed to direct or actual
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damages) arising out of, in connection with, or as a result of, this Agreement
or any agreement or instrument contemplated hereby, the Transactions, any Loan
or Letter of Credit or the use of the proceeds thereof.
(e) All amounts due under this Section shall be payable
promptly after written demand therefor.
SECTION 8.04. Successors and Assigns. (a) The provisions of
this Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns permitted hereby (including
any Affiliate of the Issuing Bank that issues any Letter of Credit), except
that the Borrower may not assign or otherwise transfer any of its rights or
obligations hereunder without the prior written consent of each Lender (and any
attempted assignment or transfer by the Borrower without such consent shall be
null and void); provided only the Required Lenders will be required to approve
an assignment the sole effect of which is to change the organizational form of
the Borrower. Nothing in this Agreement, expressed or implied, shall be
construed to confer upon any Person (other than the parties hereto, their
respective successors and assigns permitted hereby (including any Affiliate of
the Issuing Bank that issues any Letter of Credit) and, to the extent expressly
contemplated hereby, the Related Parties of each of the Administrative Agent,
the Issuing Bank, the Collateral Agent and the Lenders) any legal or equitable
right, remedy or claim under or by reason of this Agreement.
(b) Any Lender may assign to one or more assignees all or a
portion of its rights and obligations under this Agreement (including all or a
portion of its Commitment and the Loans at the time owing to it); provided that
(i) except in the case of an assignment to a Lender or an Affiliate or Approved
Fund of a Lender, each of the Borrower and the Administrative Agent (and, in
the case of an assignment of all or a portion of a Revolving Commitment or any
Lender's obligations in respect of its LC Exposure or Swingline Exposure, the
Issuing Bank and the Swingline Lender) must give their prior written consent to
such assignment (which consent shall not be unreasonably withheld), (ii) except
in the case of an assignment to a Lender or an Affiliate or Approved Fund of a
Lender or an assignment of the entire remaining amount of the assigning
Lender's Commitment or Loans, the amount of the Commitment or Loans of the
assigning Lender subject to each such assignment (determined as of the date the
Assignment and Acceptance with respect to such assignment is delivered to the
Administrative Agent) shall not be less than $10,000,000 unless each of the
Borrower and the Administrative Agent otherwise consent, (iii) each partial
assignment shall be made as an assignment of a proportionate part of all the
assigning Lender's rights and obligations under this Agreement, except that
this clause (iii) shall not be construed to prohibit the assignment of a
proportionate part of all the assigning Lender's rights and obligations in
respect of one Class of Commitments or Loans, (iv) the parties to each
assignment shall execute and deliver to the Administrative Agent an Assignment
and Acceptance, together with a processing and recordation fee of $3,500, and
(v) the assignee, if it shall not be a Lender, shall deliver to the
Administrative Agent an Administrative Questionnaire; and provided further that
any consent of the Borrower otherwise required under this paragraph shall not be
required if an Event of Default has occurred and is continuing. Subject to
acceptance and recording thereof pursuant to paragraph (d) of this Section, from
and after the effective date specified in each Assignment and Acceptance the
assignee thereunder shall be a party hereto and, to the extent of the interest
assigned by such Assignment and Acceptance, have the rights and obligations of a
Lender under this Agreement, and the assigning Lender thereunder shall, to the
extent of the interest assigned by such Assignment and Acceptance, be released
from its obligations under this Agreement (and, in the case of an Assignment and
Acceptance covering all of the assigning Lender's rights and
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obligations under this Agreement, such Lender shall cease to be a party hereto
but shall continue to be entitled to the benefits of Sections 2.14, 2.15, 2.16
and 8.03). Any assignment or transfer by a Lender of rights or obligations
under this Agreement that does not comply with this paragraph shall be treated
for purposes of this Agreement as a sale by such Lender of a participation in
such rights and obligations in accordance with paragraph (e) of this Section.
(c) The Administrative Agent, acting for this purpose as an
agent of the Borrower, shall maintain at one of its offices in The City of New
York a copy of each Assignment and Acceptance delivered to it and a register
for the recordation of the names and addresses of the Lenders, and the
Commitment of, and principal amount of the Loans and LC Disbursements owing to,
each Lender pursuant to the terms hereof from time to time (the "Register").
The entries in the Register shall be conclusive, and USANi, the Borrower, the
Administrative Agent, the Collateral Agent, the Issuing Bank and the Lenders
may treat each Person whose name is recorded in the Register pursuant to the
terms hereof as a Lender hereunder for all purposes of this Agreement,
notwithstanding notice to the contrary. The Register shall be available for
inspection by the Borrower, the Collateral Agent, the Issuing Bank and any
Lender, at any reasonable time and from time to time upon reasonable prior
notice.
(d) Upon its receipt of a duly completed Assignment and
Acceptance executed by an assigning Lender and an assignee, the assignee's
completed Administrative Questionnaire (unless the assignee shall already be a
Lender hereunder), the processing and recordation fee referred to in paragraph
(b) of this Section and any written consent to such assignment required by
paragraph (b) of this Section, the Administrative Agent shall accept such
Assignment and Acceptance and record the information contained therein in the
Register. No assignment shall be effective for purposes of this Agreement
unless it has been recorded in the Register as provided in this paragraph.
(e) Any Lender may, without the consent of the Borrower, the
Administrative Agent, the Collateral Agent, the Swingline Lender or the Issuing
Bank, sell participations to one or more banks or other entities (a
"Participant") in all or a portion of such Lender's rights and obligations under
this Agreement (including all or a portion of its Commitment and the Loans owing
to it); provided that (i) such Lender's obligations under this Agreement shall
remain unchanged, (ii) such Lender shall remain solely responsible to the other
parties hereto for the performance of such obligations and (iii) USANi, the
Borrower, the Administrative Agent, the Collateral Agent, the Issuing Bank and
the other Lenders shall continue to deal solely and directly with such Lender in
connection with such Lender's rights and obligations under this Agreement. Any
agreement or instrument pursuant to which a Lender sells such a participation
shall provide that such Lender shall retain the sole right to enforce the Loan
Documents and to approve any amendment, modification or waiver of any provision
of the Loan Documents; provided that such agreement or instrument may provide
that such Lender will not, without the consent of the Participant, agree to any
amendment, modification or waiver described in the first proviso to Section
8.02(b) that affects such Participant. Subject to paragraph (f) of this
Section, the Borrower agrees that each Participant shall be entitled to the
benefits of Sections 2.14, 2.15 and 2.16 to the same extent as if it were a
Lender and had acquired its interest by assignment pursuant to paragraph (b) of
this Section. To the extent permitted by law, each Participant also shall be
entitled to the benefits of Section 8.08 as though it were a Lender, provided
such Participant agrees to be subject to Section 2.17(c) as though it were a
Lender.
(f) A Participant shall not be entitled to receive any
greater payment under Section 2.14 or 2.15 than the applicable Lender would
have been entitled to receive with respect
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to the participation sold to such Participant, unless the sale of the
participation to such Participant is made with the Borrower's prior written
consent. A Participant that would be a Foreign Lender if it were a Lender shall
not be entitled to the benefits of Section 2.16 unless the Borrower is notified
of the participation sold to such Participant and such Participant agrees, for
the benefit of the Borrower, to comply with Section 2.16(e) as though it were a
Lender.
(g) Any Lender may at any time pledge or assign a security
interest in all or any portion of its rights under this Agreement to secure
obligations of such Lender, including any pledge or assignment to secure
obligations to a Federal Reserve Bank, and this Section shall not apply to any
such pledge or assignment of a security interest; provided that no such pledge
or assignment of a security interest shall release a Lender from any of its
obligations hereunder or substitute any such pledgee or assignee for such
Lender as a party hereto.
SECTION 8.05. Survival. All covenants, agreements,
representations and warranties made by the Credit Parties in the Loan Documents
and in the certificates or other instruments delivered in connection with or
pursuant to this Agreement or any other Loan Document shall be considered to
have been relied upon by the other parties hereto and shall survive the
execution and delivery of the Loan Documents and the making of any Loans and
issuance of any Letters of Credit, regardless of any investigation made by any
such other party or on its behalf and notwithstanding that the Administrative
Agent, the Collateral Agent, the Issuing Bank or any Lender may have had notice
or knowledge of any Default or incorrect representation or warranty at the time
any credit is extended hereunder, and shall continue in full force and effect
as long as the principal of or any accrued interest on any Loan or any fee or
any other amount payable under this Agreement is outstanding and unpaid or any
Letter of Credit is outstanding and so long as the Commitments have not expired
or terminated. The provisions of Sections 2.14, 2.15, 2.16 and 8.03 and
Article VII shall survive and remain in full force and effect regardless of the
consummation of the transactions contemplated hereby, the repayment of the
Loans, the expiration or termination of the Letters of Credit and the
Commitments or the termination of this Agreement or any provision hereof.
SECTION 8.06. Counterparts; Integration; Effectiveness. This
Agreement may be executed in counterparts (and by different parties hereto on
different counterparts), each of which shall constitute an original, but all of
which when taken together shall constitute a single contract. This Agreement,
the other Loan Document and any separate letter agreements with respect to fees
payable to the Administrative Agent constitute the entire contract among the
parties relating to the subject matter hereof and supersede any and all
previous agreements and understandings, oral or written, relating to the
subject matter hereof. Except as provided in Section 4.01, this Agreement
shall become effective when it shall have been executed by the Administrative
Agent and when the Administrative Agent shall have received counterparts hereof
which, when taken together, bear the signatures of each of the other parties
hereto, and thereafter shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns. Delivery of an
executed counterpart of a signature page of this Agreement by telecopy shall be
effective as delivery of a manually executed counterpart of this Agreement.
SECTION 8.07. Severability. Any provision of this Agreement
held to be invalid, illegal or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such invalidity, illegality
or unenforceability without affecting the validity, legality and enforceability
of the remaining provisions hereof; and the invalidity of a particular
provision in a particular jurisdiction shall not invalidate such provision in
any other jurisdiction.
88
SECTION 8.08. Right of Setoff. If an Event of Default shall
have occurred and be continuing, each Lender and each of its Affiliates is
hereby authorized at any time and from time to time, to the fullest extent
permitted by law, to set off and apply any and all deposits (general or
special, time or demand, provisional or final) at any time held and other
obligations at any time owing by such Lender or Affiliate to or for the credit
or the account of the Borrower against any of and all the obligations of the
Borrower now or hereafter existing under this Agreement held by such Lender,
irrespective of whether or not such Lender shall have made any demand under
this Agreement and although such obligations may be unmatured. The rights of
each Lender under this Section are in addition to other rights and remedies
(including other rights of setoff) which such Lender may have.
SECTION 8.09. Governing Law; Jurisdiction; Consent to Service
of Process. (a) This Agreement shall be construed in accordance with and
governed by the law of the State of New York.
(b) Each of USANi and the Borrower hereby irrevocably and
unconditionally submits, for itself and its property, to the nonexclusive
jurisdiction of the Supreme Court of the State of New York sitting in New York
County and of the United States District Court of the Southern District of New
York, and any appellate court from any thereof, in any action or proceeding
arising out of or relating to any Loan Document, or for recognition or
enforcement of any judgment, and each of the parties hereto hereby irrevocably
and unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in such New York State or, to the extent
permitted by law, in such Federal court. Each of the parties hereto agrees
that a final judgment in any such action or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on the judgment or in any other
manner provided by law. Nothing in this Agreement or any other Loan Document
shall affect any right that the Administrative Agent, the Collateral Agent, the
Issuing Bank or any Lender may otherwise have to bring any action or proceeding
relating to this Agreement or any other Loan Document against USANi, the
Borrower or its properties in the courts of any jurisdiction.
(c) Each of USANi and the Borrower hereby irrevocably and
unconditionally waives, to the fullest extent it may legally and effectively do
so, any objection which it may now or hereafter have to the laying of venue of
any suit, action or proceeding arising out of or relating to this Agreement or
any other Loan Document in any court referred to in paragraph (b) of this
Section. Each of the parties hereto hereby irrevocably waives, to the fullest
extent permitted by law, the defense of an inconvenient forum to the
maintenance of such action or proceeding in any such court.
(d) Each party to this Agreement irrevocably consents to
service of process in the manner provided for notices in Section 8.01. Nothing
in this Agreement or any other Loan Document will affect the right of any party
to this Agreement to serve process in any other manner permitted by law.
SECTION 8.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY
HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING
OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER
THEORY). EACH PARTY
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HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER
PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT,
IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B)
ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER
INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION.
SECTION 8.11. Headings. Article and Section headings and the
Table of Contents used herein are for convenience of reference only, are not
part of this Agreement and shall not affect the construction of, or be taken
into consideration in interpreting, this Agreement.
SECTION 8.12. Confidentiality. Each of the Administrative
Agent, the Collateral Agent, the Issuing Bank and the Lenders agrees to
maintain the confidentiality of the Information (as defined below), except that
Information may be disclosed (a) to its and its Affiliates' directors,
officers, employees and agents, including accountants, legal counsel and other
advisors or to any direct or indirect contractual counterparty in swap
agreements or such contractual counterparty's professional advisor (it being
understood that the Persons to whom such disclosure is made will be informed of
the confidential nature of such Information and instructed to keep such
Information confidential), (b) to the extent requested by any regulatory
authority (after prompt prior written notice if reasonably practicable of such
request or requirement so that a protective order or other appropriate remedy
may be sought), (c) to the extent required by applicable laws or regulations or
by any subpoena or similar legal process (after prompt prior written notice if
reasonably practicable of such request or requirement so that a protective order
or other appropriate remedy may be sought), (d) to any other party to this
Agreement, (e) in connection with the exercise of any remedies hereunder or any
suit, action or proceeding relating to this Agreement or any other Loan Document
or the enforcement of rights hereunder or thereunder, (f) subject to an
agreement containing provisions substantially the same as those of this Section,
to any assignee of or Participant in, or any prospective assignee of or
Participant in, any of its rights or obligations under this Agreement, (g) with
the consent of the Borrower or (h) to the extent such Information (i) becomes
publicly available other than as a result of a breach of this Section or (ii)
becomes available to the Administrative Agent, the Collateral Agent, the Issuing
Bank or any Lender on a nonconfidential basis from a source other than USANi or
the Borrower not known to be subject to confidentiality restrictions. For the
purposes of this Section, "Information" means all information received from
USANi or the Borrower relating to USANi or the Borrower or its business, other
than any such information that is available to the Administrative Agent, the
Collateral Agent, the Issuing Bank or any Lender on a nonconfidential basis
prior to disclosure by USANi or the Borrower from a source not known to be
subject to confidentiality restrictions; provided that, in the case of
information received from USANi or the Borrower after the date hereof, such
information is clearly identified at the time of delivery as confidential. Any
Person required to maintain the confidentiality of Information as provided in
this Section shall be considered to have complied with its obligation to do so
if such Person has exercised the same degree of care to maintain the
confidentiality of such Information as such Person would accord to its own
confidential information.
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SECTION 8.13. Release of Liens. If at any time each of the
Term Loans has a rating from S&P of BBB- or better and a rating from Moody's of
Baa3 or better, the Collateral Agent shall promptly (and the Lenders hereby
authorize the Collateral Agent to) upon the request of the Borrower take such
action and execute such documents as may be reasonably requested by the
Borrower and at the Borrower's expense to release all the Liens created under
the Security Documents and shall surrender to or upon the order of the Borrower
all Pledged Securities then held by the Collateral Agent. In the event any
Term Loans shall at any time thereafter cease to be rated BBB- or better by S&P
and Baa3 or better by Moody's, USANi and the Borrower shall immediately take,
and shall cause their respective Subsidiaries immediately to take, all actions
required to grant to the Collateral Agent for the ratable benefit of the
Secured Parties a first priority security interest in and pledge of all the
assets that would at such time have been required to be pledged under the
Security Documents absent the effect of the first sentence of this Section.
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.
USA NETWORKS, INC.,
by _________________________
Name: James G. Gallagher
Title: Vice President and
Assistant Secretary
USANi LLC,
by _________________________
Name: H. Steven Holtzman
Title: Assistant Secretary
THE CHASE MANHATTAN BANK, individually
and as Administrative Agent,
Collateral Agent and Issuing Bank,
by _________________________
Name:
Title:
1
EXHIBIT 10.55
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into as of the13th
day of January, 1997, (the "Effective Date") by and between Jed B. Trosper (the
"Employee") and Home Shopping Network, Inc. (the "Company").
WHEREAS, the Company through its divisions or subsidiaries desires to
employ the Employee; and
WHEREAS, the Employee is desirous of being employed by the Company and
committing to serve the Company on the terms herein provided.
NOW, THEREFORE, in consideration of the forgoing and of the respective
covenants and agreements of the parties herein contained, the parties agree as
follows:
1. Position, Responsibilities and Term of Employment.
1.01 Employment and Duties. Subject to the terms and
conditions of this Agreement, the Company agrees to employ the Employee to
perform the duties of Executive Vice President-Chief Financial Officer ("CFO")
of the Company, and Vice President and CFO of HSN, Inc., and the Employee
accepts such employment and agrees to perform in a diligent, careful and proper
manner such reasonable responsibilities and duties commensurate with such
position as may be assigned to Employee by the officers or other designees of
the Company commencing January 13, 1997 (the "Commencement Date"). Employee
acknowledges that his job responsibilities may be revised from time to time at
the direction of management of the Company. During the term and as long as
employment with the Company continues, Employee shall comply with the Company's
policies and procedures as in effect from time to time.
1.02 Term. Subject to the provisions of this Agreement, the
term of this Agreement shall commence upon the Effective Date and shall continue
until December 31, 1999 (the "Term"), unless sooner terminated as provided in
paragraph 4.
2. Compensation.
2.01 Signing Bonus. Upon execution hereof by both parties, the
Company shall pay to Employee a net Fifty Thousand Dollars ($50,000) as a one
time signing bonus.
2.02 Salary. From and after the Commencement Date through
September 30, 1997, the Company shall pay Employee a salary at the rate of Two
Hundred Seventy-five Thousand Dollars ($275,000) per year. Commencing on each of
October 1, 1997 and October 1, 1998, Employee shall receive a salary increase of
$25,000 per year. Salary may be reviewed during the Term of this Agreement in
accordance with Company policy and adjusted accordingly hereunder. Employee
shall be paid once every two (2) weeks or in such other regular periodic
installments, at least as frequently as monthly, as salary payments are
generally made by the Company to its employees.
1
2
2.03 Severance. In the event that this Employment Agreement is
not renewed following the end of the Term, Employee shall be entitled to payment
of severance in the amount of annual base salary for the twelve months preceding
expiration of the Employment Agreement.
2.04 Participation in Benefit Plans.
(a) The Employee shall be entitled to participate in, or
receive benefits under, any of Company's employee benefit plans solely in
accordance with the terms of such plans and, as applicable, in the discretion of
management. In addition, Employee shall be granted options to purchase Ninety
Thousand (90,000) shares of HSN, Inc.'s common stock pursuant to the HSN, Inc.
1995 Stock Incentive Plan (the "Plan"). Such options shall be reflected in a
separate agreement which will, in accordance with the Plan, which shall provide,
among other things, the terms set forth below, and shall govern all rights and
obligations with respect to the vesting and expiration of such options.
(b) Upon involuntary termination of Employee's employment with
the Company for any reason other than death, disability or for Cause, all stock
options granted to Employee shall vest immediately.
2.05 Vacation Days. The Employee shall be entitled to four
weeks of paid vacation per year which shall accrue and be available in
accordance with Company policy. Employee shall receive paid holidays and sick
days in accordance with the Company's policies and procedures.
2.06 Bonus Plans. The Employee shall be eligible to
participate in the Company's bonus plans, as the same may exist, commencing
fiscal year 1997.
2.07 Deductions. All amounts payable under this Agreement
shall be subject to such deductions as may from time to time be required to be
made pursuant to law or governmental regulation or by agreement with or consent
of Employee.
3. Moving Expenses. The Company shall pay the broker's commission on
the sale of Employee's home, temporary living expenses up to one hundred eighty
(180) days, the packing and shipping of Employee's household goods, including up
to two cars, from current home to new home, and two house-hunting trips prior to
the Commencement Date. Company will also pay all normal and customary closing
costs for Employee's new and old homes. Normal and customary closing costs
include but are not limited to: legal fees, stamp taxes, transfer taxes,
inspections, loan application fees, engineering survey, title company fees,
brokerage commissions and moving expenses.
4. Termination by Company for Any Reason.
4.01 Termination for Cause. Employee's employment under this
Agreement may be terminated by the Company, prior to expiration of the Term, for
Cause upon at least 30 days prior written notice. The term "Cause" shall mean
only one or more of the following: (i) Employee's conviction by a court of
competent jurisdiction (which conviction, through lapse of time or otherwise, is
not subject to appeal) of any felony, fraud or business crime; (ii) Employee's
possession or use of illegal drugs or prohibited substance, or Employee's
excessive drinking of alcoholic beverages that impairs his ability to perform
his duties under this Agreement; (iii) Employee's commission of a tort
2
3
or act of fraud upon the Company; (iv) a breach by Employee of any of the
covenants made by Employee in Sections 5 and 6 hereof; or (v) Employee's
continuous failure or refusal to perform his duties under this Agreement after
written notice from Employer with sixty (60) days for Employee to cure such
performance deficiencies. If the Company terminates this Agreement for Cause,
the Company shall pay to Employee his salary under this Agreement, until the
date of termination specified in the Company's notice of termination.
4.02 Termination without Cause. If the Company terminates this
Agreement without Cause (other than as a result of Employee's death or
disability), Company shall (A) pay to Employee as liquidated damages and not as
a penalty, (1) Employee's salary under this Agreement until the date of
termination and (2) the amount of salary Employee would have received under this
Agreement during the remainder of the then current Term if this Agreement had
not been terminated, but in no event shall such payment be for a period of less
than twelve (12) months and (B) maintain or pay the cost of maintaining during
the remainder of the then current Term all medical and other health insurance
benefits and coverage previously provided to Employee by the Company. Payment of
such salary amounts shall be made periodically as described in Section 2.02.
Employee shall be required to mitigate the amount of any payment provided for in
this paragraph 4.02 by seeking other employment or otherwise, and the amount of
any such payment shall be reduced by any compensation received by Employee as a
result of his employment by any other person, firm or corporation. As a
condition precedent to receipt of such damages, Employee shall be required, at
the time of termination, to execute a general release and waiver in favor of the
Company. In the event of termination of employment without cause, the Employer
shall be required to provide Employee with excellent job references.
4.03 Disability. In the event that Employee shall be
physically or mentally disabled so as not to be able to perform his duties
pursuant to this Agreement for any period of three months or more, the Company
shall have the right to terminate Employee's employment upon written notice of
such termination to Employee, whereupon the Company shall continue to pay
Employee his salary under this Agreement until the date of termination specified
in Company's notice of termination.
4.04 Death. This Agreement shall terminate upon the date of
death of Employee, and the Company shall be obligated to pay to the Employee's
estate his salary under this Agreement until the end of the calendar month in
which his death occurred. In the event of Employee's death, the Company shall be
required to provide on a timely basis full disclosure to Employee's spouse of
all benefits to which she would be entitled, including but not limited to,
exercise of stock options.
5. Covenant and Confidential Information.
(a) Non-Competition. During Employee's employment with the
Company and for twelve (12) months thereafter , the Employee shall not, directly
or indirectly, on behalf of the Employee or on behalf of or with any other
person, enterprise or entity, in any individual or representative capacity,
engage or participate in any business that is in competition with any subsidiary
or affiliate of Home Shopping Network, Inc. in the United States of America in
the fields of video or electronic retailing. The Employee's obligations under
this paragraph shall continue during the Term and for the period after the
Term set forth above, and shall not, for any reason, cease upon termination of
the Employee's employment with the Company. The Employee's obligations under
this paragraph shall
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become null and void if the Employee's discharge from the Company is determined
in accordance with Section 9.06 hereof to be a wrongful discharge.
(b) Non-Solicitation. Employee shall not, during the twelve
(12) months following Employee's termination of employment with the Company ,
solicit the employment of any employee of the Company or its subsidiaries on
behalf of any other person, firm, corporation, entity or business organization,
or otherwise interfere with the employment relationship between any employee of
the Company and the Company.
(c) Confidential Information.
(i) Definition. "Confidential Information" means any
information that relates to or is used in the business or operations of the
Company or any of its Affiliates and that is not generally known to the public,
or that is competitively sensitive to the Company or any of its Affiliates,
including without limitation, customer lists, marketing methods, merchandise
sources, methods of merchandising deemed proprietary by the Company, product and
assortment selection, sales and price lists, product research or data, vendors,
contractors, financial information, business plans and methods or other trade
secrets of the Company, and all information that the Company or any of its
Affiliates is required to keep confidential pursuant to any confidentiality or
non-disclosure agreement or that is otherwise delivered to the Company or any of
its Affiliates in confidence. Confidential Information includes information in
any form whatsoever, including without limitation oral information, any notes,
documents, files, records and information in any other written form, any
magnetic, electric, digital and other recording medium, and any products,
equipment, technology and any other tangible object.
(ii) Confidentiality Obligation. The Employee shall
preserve and protect the confidentiality of all Confidential Information and
shall not, without the prior written consent of an executive officer of the
Company or except as required in the course of the Employee's employment with
the Company, (i) remove any Confidential Information from the Company's premises
or disclose, make available or transmit in any manner any Confidential
Information to any other person, enterprise or entity, or (ii) use, directly or
indirectly, any Confidential Information for the Employee's own benefit or for
the benefit of any other person, enterprise or entity. The Employee's
obligations under this Paragraph 5(c)(ii) shall continue during the Term and
indefinitely after the term, and shall not, for any reason, cease upon
termination of the Employee's employment with the Company (whether by wrongful
discharge or otherwise).
(d) Proprietary Rights; Assignment. All Employee Developments
shall be made for hire by the Employee for the Company. "Employee Developments"
means any idea, discovery, invention, design, method, technique, improvement,
enhancement, development, computer program, machine, algorithm or other work or
authorship that (A) relates to the business or operations of the Company or any
of its Affiliates, or (B) results from or is suggested by any undertaking
assigned to the Employee or work performed by the Employee for or on behalf of
the Company or any of its Affiliates, whether created alone or with others,
during or after working hours. All Confidential Information and all Employee
Developments shall remain the sole property of the Company and its Affiliates.
The Employee shall acquire no proprietary interest in any Confidential
Information or Employee Developments developed or acquired during the term. To
the extent the Employee may, by operation of law or otherwise, acquire any
right, title or interest in or to any Confidential Information or Employee
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Development, the Employee hereby assigns to the Company all such proprietary
rights. The Employee shall, both during and after the Term, upon the Company's
request, promptly execute and deliver to the Company all such assignments,
certificates and instruments, and shall promptly perform such other acts, as the
Company may from time to time in its discretion deem necessary or desirable to
evidence, establish, maintain, perfect, protect, enforce or defend the Company's
rights in Confidential Information and Company Developments.
(e) Remedies for Breach. Employee expressly agrees and
understands that the remedy at law for any breach by Employee of this Paragraph
5 will be inadequate and that damages flowing from such breach are not usually
susceptible to being measured in monetary terms. Accordingly, it is acknowledged
that upon Employee's violation of any provision of this Paragraph 5, the Company
shall be entitled to obtain from any court of competent jurisdiction (including
without limitation in Pinellas or Hillsborough County, Florida) immediate
injunctive relief and obtain a temporary order restraining any threatened or
further breach as well as an equitable accounting of all profits or benefits
arising out of such violation. Nothing in this Paragraph 5 shall be deemed to
limit the Company's remedies at law or in equity for any breach by Employee of
any of the provisions of this Paragraph 5 which may be pursued by or available
to the Company.
(f) Tolling of Periods. In the event Employee shall violate
any provision of this Paragraph 5 as to which there is a specific time period
during which Employee is prohibited from taking certain actions or from engaging
in certain activities, as set forth in such provision, then, such violation
shall toll the running of such time period from the date of such violation until
such violation shall cease.
(g) Acknowledgment. Employee has carefully considered the
nature and extent of the restrictions upon Employee and the rights and remedies
conferred upon the Company under this Paragraph 5, and Employee acknowledges and
agrees that the same are reasonable in time and territory, are designed to
eliminate competition, which otherwise would be unfair to the Company, do not
stifle the inherent skill and experience of Employee, would not operate as a bar
to Employee's sole means of support, are fully required to protect the
legitimate interests of the Company, do not confer a benefit upon the Company
disproportionate to the detriment to Employee and are material provisions
without which the Company would not employ Employee pursuant to this Agreement.
6. Time to be Devoted by Employee. Employee agrees to devote
substantially all of his business time, attention, efforts and abilities to the
business of the Company and to use his best efforts to promote the interests of
the Company.
7. Delivery of Materials. Employee agrees that upon the termination of
his employment he will deliver to the Company all documents, papers, materials
and other property of the Company relating to its affairs which may then be in
his possession or under his control.
8. Assignment.
This Agreement and the rights and obligations of the parties
hereto shall bind and inure to the benefit of each of the parties hereto but,
except as to any such successor or assignee of the Company, neither this
Agreement nor any rights or benefits hereunder may be assigned by the Company or
the Employee.
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9. Miscellaneous.
9.01 Entire Agreement. This Agreement embodies the entire
agreement and understanding between the Company and Employee relating to the
subject matter hereof. This Agreement supersedes and cancels all prior
agreements between Company and Employee, whether written or oral, relating to
the employment of Employee.
9.02 Governing Law. This Agreement shall be construed in
accordance with, and governed for all purposes by, the laws of the State of
Florida.
9.03 Notice. Any notice, request, or instruction to be given
hereunder shall be in writing and shall be deemed given when personally
delivered or three days after being sent by United States certified mail,
postage prepaid, with return receipt requested to, the parties at their
respective addresses set forth below:
(a) To the Company: Home Shopping Network, Inc.
2501 118th Avenue North
St. Petersburg, FL 33716
Attn: Legal Department
(b) To the Employee: Jed B. Trosper
4805 Woodmere Rd.
Tampa, FL 33609
9.04 Severability. If any paragraph, subparagraph or provision
hereof is found for any reason whatsoever to be invalid or inoperative, that
paragraph, subparagraph or provision shall be deemed severable and shall not
affect the force and validity of any other provision of this Agreement. If any
covenant herein is determined by a court to be overly broad thereby making the
covenant unenforceable, the parties agree and it is their desire that such court
shall substitute a reasonable judicially enforceable limitation in place of the
offensive part of the covenant and that as so modified the covenant shall be as
fully enforceable as if set forth herein by the parties themselves in the
modified form. The covenants of Employee in this Agreement shall each be
construed as an agreement independent of any other provision in this Agreement,
and the existence of any claim or cause of action of Employee against the
Company, whether predicated on this Agreement or otherwise, shall not constitute
a defense to the enforcement by the Company of the covenants in this Agreement.
9.05 Amendment and Waiver. This Agreement may not be amended,
supplemented or waived except by a writing signed by the party against which
such amendment or waiver is to be enforced. The Waiver by any party of a breach
of any provision of this Agreement shall not operate to, or be construed as a
waiver of, any other breach of that provision nor as a waiver of any breach of
another provision.
9.06 Arbitration of Dispute. Except as set forth in Section 5,
any controversy or claim arising out of or relating to this Agreement or to the
breach thereof or to Employee's employment
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by the Company (other than claims expressly excluded by statute) shall be
settled exclusively by binding arbitration conducted in the City of Tampa,
Florida in accordance with the commercial rules of the American Arbitration
Association then in effect (the "Rules"), by a single, independent arbitrator
selected by the Company and Employee. If the parties can not agree on an
arbitrator, within thirty (30) days of the commencement of an arbitration
proceeding hereunder, either party may request that the American Arbitration
Association select a candidate, with experience in employment law, in accordance
with the Rules. The decision of the arbitrator shall be final and binding.
Judgment upon the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. The cost of any arbitration proceeding conducted
hereunder shall be borne equally between Employee and the Company unless
otherwise determined by the arbitrator. By signing this Agreement, Employee
agrees that all disputes, except as set forth in the first sentence hereof, will
be decided by mutual arbitration, and Employee is giving up any right to a jury
trial or court trial.
9.07 Survival of Rights and Obligations. All rights and
obligations of the Employee or the Company arising during the term of this
Agreement shall continue to have full force and effect after the date that this
Agreement terminates or expires.
9.08 Confidentiality. The parties agree that confidentiality
is an important element of this Agreement and that neither party will disclose
its terms to another employee or other third party, except that the Company may
disclose this Agreement to such of its employees it deems necessary or otherwise
as may be required by any securities law or other law or regulation.
9.09 Counterparts. This Agreement may be executed in two
counterparts, each of which is an original but which shall together constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties have entered into this Agreement as of
the Effective Date.
EMPLOYEE HOME SHOPPING NETWORK, INC.
/s/ Jed B. Trosper By: /s/ James G. Gallagher
- ------------------------ ------------------------
Jed B. Trosper
Name:
----------------------
Title:
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EXHIBIT 10.56
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into by and
between Thomas J. Kuhn ("Executive") and HSN, Inc., a Delaware corporation (the
"Company"), and is effective February 9, 1998 (the "Effective Date").
WHEREAS, the Company desires to establish its right to the
services of Executive, in the capacity described below, on the terms and
conditions hereinafter set forth, and Executive is willing to accept such
employment on such terms and conditions.
NOW, THEREFORE, in consideration of the mutual agreements
hereinafter set forth, Executive and the Company have agreed and do hereby agree
as follows:
1. EMPLOYMENT. The Company agrees to employ Executive as Senior Vice President,
General Counsel and Secretary of the Company, and Executive accepts and agrees
to such employment. During Executive's employment with the Company, Executive
shall do and perform all services and acts necessary or advisable to fulfill the
duties and responsibilities as are commensurate and consistent with his position
and shall render such services on the terms set forth herein. Executive shall
have supervision and day-to-day operating authority over the legal affairs of
the Company (including, without limitation, the legal aspects of the Company's
mergers, acquisitions and dispositions) and such other business and legal
affairs as the parties may mutually agree. During Executive's employment with
the Company, Executive shall report directly to the Chief Financial Officer
and/or the senior executive officer who has responsibility for corporate staff
functions or the Chief Executive Officer of the Company (and/or any other
officer of the Company as may be agreed upon mutually by Executive and the
Company) (hereinafter referred to as the "Reporting Officer"). Executive shall
have such powers and duties with respect to the Company as may reasonably be
assigned to him by the Board or the Reporting Officer, to the extent consistent
with his position and status as set forth above. Executive agrees to devote all
of his working time, attention and efforts to the Company. Executive's principal
place of employment shall be the Company's offices in New York City.
2. TERM OF AGREEMENT. The term ("Term") of this Agreement shall commence on the
Effective Date and shall continue for a period of four years, unless sooner
terminated in accordance with the provisions of Section 4 hereof. The Company
and Executive agree to negotiate in good faith an extension of the Term
commencing nine months prior to the expiration of the Term. If the Company and
Executive are unable to reach agreement upon an extension of the Term by six
months prior to the expiration of the Term, Executive shall be permitted to
spend a reasonable portion of his working time pursuing other employment
opportunities, provided that such employment shall not commence until after
expiration of the Term.
3. COMPENSATION.
(a) BASE SALARY. The Company shall pay Executive an annual base salary
at the rate of $450,000 per year (the "Base Salary"), payable in equal biweekly
installments or at such other time or times as Executive and the Company shall
agree. The Base Salary shall be subject to a discretionary increase, as
determined by a review by the Company 24 months after the Effective Date, but
shall not be decreased from the rate in effect at any time and from time to time
during the Term. For all purposes under this Agreement, the term "Base Salary"
shall refer to Base Salary, including increases, if any, made from time to time.
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(b) DISCRETIONARY BONUS. During the Term, Executive shall be eligible
to participate in the Company's annual incentive bonus plan or program
(including, without limitation, any profit sharing or similar bonus programs or
arrangements of the Company in effect from time to time) applicable to peer
corporate executives of the Company, on a basis no less favorable than that
provided to peer corporate executives of the Company.
(c) STOCK OPTIONS. In consideration of Executive's entering into this
Agreement and as an inducement to join the Company, Executive shall be granted
non-qualified stock options (the "Options") to purchase 100,000 shares of the
common stock, par value $.0l per share, of the Company (the "Common Stock"),
subject to the approval of the Compensation Committee of the Board. The date of
grant of the Options shall be the Effective Date. The exercise price of the
Options shall equal the closing price of the Common Stock on the Effective Date.
Such Options shall vest and become exercisable in four equal installments on the
anniversary of the Effective Date in each of 1999, 2000, 2001 and 2002, provided
that the Options shall become 100% vested and exercisable upon a Change in
Control (as such term is defined in the Company's stock incentive plan under
which the Options are granted); and the Options shall expire upon the earlier to
occur of (i) ten years from the Effective Date (the "Option Term") or (ii)
except as otherwise provided in Section 4 below, 90 days following the
termination of Executive's employment with the Company.
(d) FRINGE BENEFITS. During the Term, Executive shall be entitled to
participate in any fringe, welfare, health and life insurance and pension
benefit and incentive programs as may be adopted from time to time by the
Company on the same basis as that provided to peer corporate executives of the
Company. Without limiting the generality of the foregoing, Executive shall be
entitled to the following benefits:
(i) Car Allowance. During the Term, the Company shall provide
Executive with a car allowance to cover the cost of purchasing or
leasing a suitable vehicle and the cost of insuring and maintaining
such vehicle in the aggregate amount of $750 per month plus reasonable
costs for parking the vehicle in a garage in New York City in close
proximity to the Company's offices.
(ii) Computer, etc. The Company will provide Executive with a
home facsimile machine, a lap-top computer and a cellular phone for
home and travel use during the Term.
(iii) Reimbursement for Business Expenses. During the Term,
the Company shall reimburse Executive for all reasonable and necessary
expenses incurred by Executive in performing his duties for the
Company, including, without limitation, first class hotel and travel
accommodations on all commercial carriers for travel related to the
business of the Company and entertainment expenses consistent with
Executive's position in the Company.
(iv) Vacation. During the Term, Executive shall be entitled to
four weeks of paid vacation per year, or such longer period as may be
provided by the Company, in accordance with the plans, policies,
programs and practices of the Company applicable to peer corporate
executives of the Company generally.
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(v) Office and Support Staff. During the Term, Executive shall
be entitled to an office in New York City and an executive assistant of
his choice.
4. TERMINATION OF EXECUTIVE'S EMPLOYMENT.
(a) DEATH. In the event Executive's employment hereunder is terminated
by reason of Executive's death, (i) the Company shall pay Executive's designated
beneficiary or beneficiaries within 30 days of his death his Base Salary through
the end of the year in which death occurs in a lump sum in cash; (ii) all
outstanding equity incentive awards (including, without limitation, the Options)
which are vested and which have not been exercised by Executive shall remain
exercisable for a period of one year following the date of Executive's death or,
if earlier, until the end of the Option Term; and (iii) the Company shall pay
Executive's designated beneficiary or beneficiaries within 30 days of his death
in a lump sum in cash any Accrued Obligations (as defined in subparagraph 4(f)
below).
(b) DISABILITY. If, as a result of Executive's incapacity due to
physical or mental illness ("Disability"), Executive shall have been absent from
the full-time performance of his duties with the Company for a period of four
consecutive months and, within 30 days after written notice is provided to him
by the Company, he shall not have returned to the full-time performance of his
duties, Executive's employment under this Agreement may be terminated by the
Company or Executive for Disability. During any period prior to such termination
during which Executive is absent from the full-time performance of his duties
with the Company due to Disability, the Company shall continue to pay Executive
his Base Salary at the rate in effect at the commencement of such period of
Disability, offset by any amounts payable to Executive under any disability
insurance plan or policy provided by the Company. Upon termination of
Executive's employment for Disability, (i) the Company shall pay Executive
within 30 days of his Disability his Base Salary through the end of the Term in
a lump sum in cash, offset by any amounts payable to Executive under any
disability insurance plan or policy provided by the Company; (ii) all
outstanding equity incentive awards (including, without limitation, the Options)
which are vested and which have not been exercised by Executive shall remain
exercisable for a period of one year following the date of Executive's
Disability or, if earlier, until the end of the Option Term; and (iii) the
Company shall pay Executive within 30 days of his Disability in a lump sum cash
any Accrued Obligations (as defined in subparagraph 4(f) below).
(c) TERMINATION FOR CAUSE. The Company may terminate Executive's
employment under this Agreement for Cause at any time prior to expiration of the
Term. As used herein, "Cause" shall mean: (i) the plea of guilty to, or
conviction for, the commission of a felony offense by Executive; provided,
however, that after indictment, the Company may suspend Executive from the
rendition of services, but without limiting or modifying in any other way the
Company's obligations under this Agreement; (ii) a material breach by Executive
of a fiduciary duty owed to the Company; (iii) a material breach by Executive of
any of the covenants made by him in Section 5 hereof; or (iv) the willful and
gross neglect by Executive of the material duties required by the Agreement.
Executive shall not be deemed to have been terminated for Cause unless and until
the Board or the Executive Committee of the Board, as the case may be, after
providing Executive with the opportunity to (i) be heard by the Reporting
Officer and (ii) cure fully, if possible, any such material breach, or willful
and gross negligence to the satisfaction of the Board or the Executive Committee
in its sole judgment, finds in good faith that Executive is
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guilty of the conduct described herein. In the event of termination for Cause,
this Agreement shall terminate without further obligation by the Company, except
for payment of amounts of Base Salary and any fringe benefits accrued through
the date of such termination.
(d) TERMINATION BY THE COMPANY OTHER THAN FOR DEATH, DISABILITY OR
CAUSE OR BY EXECUTIVE FOR GOOD REASON. If Executive's employment is terminated
by the Company for any reason other than Executive's death or Disability or for
Cause, or Executive terminates his employment for Good Reason (as defined
below), then (i) the Company shall pay Executive within 30 days of the date of
such termination the then present value of his Base Salary through the end of
the Term in a lump sum in cash; (ii) the Options shall immediately vest and any
then outstanding Options held by Executive shall remain exercisable for a period
of one year from the date of such termination or, if earlier, until the end of
the Option Term; and (iii) the Company shall pay Executive within 30 days of the
date of such termination in a lump sum cash any Accrued Obligations (as defined
in subparagraph 4(f) below). As used herein, "Good Reason" shall mean the
occurrence of any of the following: (i) the Company's material breach of any of
the provisions of this Agreement; (ii) any material adverse alteration in
Executive's title, position, status, duties, level of reporting or
responsibilities with the Company (which includes, without limitation, Executive
being required to report to the general counsel of a company of which the
Company is a controlled subsidiary); and (iii) any relocation of Executive's
office outside of the New York metropolitan area.
(e) MITIGATION; OFFSET. In no event shall Executive be required to seek
other employment or take any other action by way of mitigation of the amounts
payable under Section 4 hereof, provided that if Executive obtains other
employment during the Term, the amount of any payment or benefit provided for
under Section 4 hereof which has been paid to Executive shall be refunded to the
Company by Executive in an amount equal to any compensation earned by Executive
as a result of employment with or services provided to another employer after
the date of Executive's termination of employment and prior to the otherwise
applicable expiration of the Term.
(f) ACCRUED OBLIGATIONS. As used in this Agreement, "Accrued
Obligations" shall mean the sum of (i) any portion of Executive's Base Salary
through the date of death, Disability or termination, as the case may be, which
has not yet been paid; (ii) any compensation previously deferred by Executive
(together with any interest or earnings thereon) that has not yet been paid; and
(iii) any accrued but unpaid bonuses or other accrued incentive compensation as
of the date of death, Disability or termination, as the case may be.
5. CONFIDENTIAL INFORMATION.
(a) CONFIDENTIALITY. Executive acknowledges that in his employment
hereunder he will occupy a position of trust and confidence. Executive shall
not, except as may be required to perform his duties hereunder or as required by
applicable law, without limitation in time or until such information shall have
become public other than by Executive's unauthorized disclosure, disclose to
others or use, whether directly or indirectly, any Confidential Information
regarding the Company or any of its respective subsidiaries. "Confidential
Information" shall mean information about the Company or any of its respective
subsidiaries, and their respective clients and customers that is not disclosed
by the Company or any of its respective subsidiaries for financial reporting
purposes and that was learned by Executive in the course of his
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employment by the Company or any of its respective subsidiaries, including
(without limitation) any proprietary knowledge, trade secrets, data, formulae,
information and client and customer lists and all papers, resumes, and records
(including computer records) of the documents containing such Confidential
Information. Executive acknowledges that such Confidential Information is
specialized, unique in nature and of great value to the Company and its
respective subsidiaries, and that such information gives the Company and its
respective subsidiaries a competitive advantage. Executive agrees to deliver or
return to the Company, at the Company's request at any time or upon termination
or expiration of his employment or as soon thereafter as possible, all
documents, computer tapes and disks, records, lists, data, drawings, prints,
notes and written information (and all copies thereof) furnished by the Company
and its respective subsidiaries or prepared by Executive in the course of his
employment by the Company and its respective subsidiaries.
(b) NON-SOLICITATION OF EMPLOYEES. Executive recognizes that he will
possess confidential information about other employees of the Company and its
respective subsidiaries relating to their education, experience, skills,
abilities, compensation and benefits, and inter-personal relationships with
suppliers to and customers of the Company and its respective subsidiaries.
Executive recognizes that the information he will possess about these other
employees is not generally known, is of substantial value to the Company and its
respective subsidiaries in developing their respective businesses and in
securing and retaining customers, and will be acquired by him because of his
business position with the Company. Executive agrees that, during the Term (and
for a period of 12 months beyond the expiration of the Term), he will not,
directly or indirectly, solicit or recruit any employee of the Company or any of
its respective subsidiaries for the purpose of being employed by him or by any
business, individual, partnership, firm, corporation or other entity on whose
behalf he is acting as an agent, representative or employee and that he will not
convey any such confidential information or trade secrets about other employees
of the Company or any of its respective subsidiaries to any other person except
within the scope of Executive's duties hereunder.
(c) SURVIVAL OF PROVISIONS. The obligations contained in this Section 5
shall, to the extent provided in this Section 5, survive the termination or
expiration of Executive's employment with the Company and, as applicable, shall
be fully enforceable thereafter in accordance with the terms of this Agreement.
If it is determined by a court of competent jurisdiction in any state that any
restriction in this Section 5 is excessive in duration or scope or is
unreasonable or unenforceable under the laws of that state, it is the intention
of the parties that such restriction may be modified or amended by the court to
render it enforceable to the maximum extent permitted by the law of that state.
6. NOTICES. All notices and other communications under this Agreement shall be
in writing and shall be given by first-class mail, certified or registered with
return receipt requested or hand delivery acknowledged in writing by the
recipient personally, and shall be deemed to have been duly given three days
after mailing or immediately upon duly acknowledged hand delivery to the
respective persons named below:
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If to the Company: HSN, Inc.
Carnegie Hall Tower
152 West 57th Street
New York, New York 10019
Attention: Office of the Chairman
If to Executive: Thomas J. Kuhn
309 East 52nd Street
New York, New York 10022
Either party may change such party's address for notices by notice duly given
pursuant hereto.
7. TERMINATION OF PRIOR AGREEMENTS. This Agreement constitutes the entire
agreement between the parties and terminates and supersedes any and all prior
agreements and understandings among the parties with respect to Executive's
employment and compensation by the Company. The Company acknowledges and agrees
that neither Executive nor anyone acting on his behalf has made, and is not
making, and in executing this Agreement, the Company has not relied upon, any
representations, promises or inducements except to the extent the same is
expressly set forth in this Agreement.
8. ASSIGNMENT; SUCCESSORS. This Agreement is personal in its nature and none of
the parties hereto shall, without the consent of the others, assign or transfer
this Agreement or any rights or obligations hereunder, provided that, in the
event of the merger, consolidation, transfer, or sale of all or substantially
all of the assets of the Company with or to any other individual or entity, this
Agreement shall, subject to the provisions hereof, be binding upon and inure to
the benefit of such successor and such successor shall discharge and perform all
the promises, covenants, duties, and obligations of the Company hereunder, and
all references herein to the "Company" shall refer to such successor.
9. GOVERNING LAW. This Agreement and the legal relations thus created between
the parties hereto shall be governed by and construed under and in accordance
with the laws of the State of New York.
10. WITHHOLDING. The Company shall make such deductions and withhold such
amounts from each payment made to Executive hereunder as may be required from
time to time by law, governmental regulation or order.
11. HEADINGS. Section headings in this Agreement are included herein for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose.
12. WAIVER; MODIFICATION. Failure to insist upon strict compliance with any of
the terms, covenants, or conditions hereof shall not be deemed a waiver of such
term, covenant, or condition, nor shall any waiver or relinquishment of, or
failure to insist upon strict compliance with, any right or power hereunder at
any one or more times be deemed a waiver or relinquishment of such right or
power at any other time or times. This Agreement shall not be modified in any
respect except by a writing executed by each party hereto.
13. SEVERABILITY. In the event that a court of competent jurisdiction determines
that any portion of this Agreement is in violation of any law or public policy,
only the portions of this Agreement that violate such law or public policy shall
be stricken. All portions of this Agree-
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ment that do not violate any statute or public policy shall continue in full
force and effect. Further, any court order striking any portion of this
Agreement shall modify the stricken terms as narrowly as possible to give as
much effect as possible to the intentions of the parties under this Agreement.
14. INDEMNIFICATION. The Company shall indemnify and hold Executive harmless for
acts and omissions in his capacity as an officer, director or employee of the
Company to the maximum extent permitted under applicable law; provided, however,
that neither the Company, nor any of its respective subsidiaries shall indemnify
Executive for any losses incurred by Executive as a result of acts described in
Section 4(c) of this Agreement.
15. COUNTERPARTS. This Agreement may be executed in several counterparts, each
of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
IN WITNESS WHEREOF, the Company has caused this Agreement to
be executed and delivered by its duly authorized officer and Executive has
executed and delivered this Agreement on January 12, 1998
HSN, Inc.
/s/ Victor Kaufman
------------------------------------------
By: VICTOR KAUFMAN
Office of the Chairman, HSN, Inc.
and Chief Financial Officer
/s/ Thomas J. Kuhn
------------------------------------------
THOMAS J. KUHN
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EXHIBIT 10.57
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into by and between
Dara Khosrowshahi ("Executive") and USA Networks, Inc., a Delaware corporation
(the "Company"), and is effective March 2, 1998 (the "Effective Date").
WHEREAS, the Company desires to establish its right to the services of
Executive, in the capacity described below, on the terms and conditions
hereinafter set forth, and Executive is willing to accept such employment on
such terms and conditions.
NOW, THEREFORE, in consideration of the mutual agreements hereinafter
set forth, Executive and the Company have agreed and do hereby agree as follows:
1. EMPLOYMENT. The Company agrees to employ Executive as Vice President -
Strategic Planning of the Company, and Executive accepts and agrees to such
employment. During Executive's employment with the Company, Executive shall do
and perform all services and acts necessary or advisable to fulfill the duties
and responsibilities as are commensurate and consistent with his position and
shall render such services on the terms set forth herein. During Executive's
employment with the Company, Executive shall report directly to the Chief
Financial Officer and/or the senior executive officer who has responsibility for
corporate staff functions (such person(s) as from time to time may be designated
by the Company, hereinafter referred to as the "Reporting Officer"). Executive
shall have such powers and duties with respect to the Company as may reasonably
be assigned to him by the Board or the Reporting Officer, to the extent
consistent with his position and status as set forth above. Executive agrees to
devote all of his working time, attention and efforts to the Company and to
perform the duties of his position in accordance with the Company's policies as
in effect from time to time. Executive's principal place of employment shall be
the Company's offices in New York City; however, Executive's position shall
require frequent long-distance travel on Company business.
2. TERM OF AGREEMENT. The term ("Term") of this Agreement shall commence
on the Effective Date and shall continue for a period of three years, unless
sooner terminated in accordance a ace with the provisions of Section 4 hereof.
3. COMPENSATION.
(a) BASE SALARY. The Company shall pay Executive an annual base salary
at the rate of $300,000 per year (the "Base Salary"), payable in equal biweekly
installments or in accordance with the Company's payroll practice as in effect
from time to time. The Base Salary shall be subject to a discretionary increase,
as determined by a review by the Company 18 months after the Effective Date, but
shall not be decreased from the rate in effect at any time and from time to time
during the Term. For all purposes under this Agreement, the term "Base Salary"
shall refer to Base Salary, including increases, if any, made from time to time.
(b) DISCRETIONARY BONUS. During the Term, Executive shall be eligible
to participate in the Company's annual incentive bonus plan or program
applicable to peer corporate executives of the Company, on a basis no less
favorable than that provided to peer corporate executives of the Company.
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(c) STOCK OPTION. In consideration of Executive's entering into this
Agreement and as an inducement to join the Company, Executive shall be granted
under the Company's 1997 Stock and Annual Incentive Plan (the "Plan") a
non-qualified stock option (the "Option") to purchase 60,000 shares of the
common stock, par value $.01 per share, of the Company (the "Common Stock"). The
date of grant of the Option shall be the Effective Date. The exercise price of
the Option shall equal the last reported sales price of the Common Stock on the
date preceding the Effective Date. Such Option shall vest and become exercisable
in four equal installments on the anniversary of the Effective Date in each of
1999, 2000, 2001 and 2002, provided that the Option shall become 100% vested and
exercisable upon a Change in Control (as such term is defined in the Plan). The
Option shall expire upon the earlier to occur of (i) ten years from the
Effective Date (the "Option Term") or (ii) except as otherwise provided in
Section 4 below, 90 days following the termination of Executive's employment
with the Company.
(d) BENEFITS. During the Term, Executive shall be entitled to
participate in any fringe, welfare, health and life insurance and pension
benefit and incentive programs as may be adopted from time to time by the
Company on the same basis as that provided to peer corporate executives of the
Company. Without limiting the generality of the foregoing, Executive shall be
entitled to the following benefits:
(i) Reimbursement for Business Expenses. During the Term, the
Company shall reimburse Executive for all reasonable and necessary
expenses incurred by Executive in performing his duties for the
Company, including, without limitation, expenses for travel related to
the business of the Company and entertainment expenses on the same
basis as peer executives in accordance with the Company's policies.
(ii) Vacation. During the Term, Executive shall be entitled to
four weeks of paid vacation per year, or such longer period as may be
provided by the Company, in accordance with the plans, policies,
programs and practices of the Company applicable to peer corporate
executives of the Company generally.
4. TERMINATION OF EXECUTIVE'S EMPLOYMENT.
(a) DEATH. In the event Executive's employment hereunder is terminated
by reason of Executive's death, (i) the Company shall pay Executive's designated
beneficiary or beneficiaries within 30 days of his death his Base Salary through
the end of the month in which death occurs in a lump sum in cash; (ii) all
outstanding equity incentive awards (including, without limitation, the Option)
which are vested and which have not been exercised by Executive shall remain
exercisable for a period of one year following the date of Executive's death or,
if earlier, until the end of the applicable option term; and (iii) the Company
shall pay Executive's designated beneficiary or beneficiaries within 30 days of
his death in a lump sum in cash any Accrued Obligations (as defined in
subparagraph 4(f) below).
(b) DISABILITY. If, as a result of Executive's incapacity due to
physical or mental illness ("Disability"), Executive shall have been absent from
the full-time performance of his duties with the Company for a period of four
consecutive months and, within 30 days after written notice is provided to him
by the Company, he shall not have retuned to the full-time performance of his
duties, Executive's employment under this Agreement may be terminated by the
Company or Executive for Disability. During any period prior to such termination
during which
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Executive is absent from the full-time performance of his duties with the
Company due to Disability, the Company shall continue to pay Executive his Base
Salary at the rate in effect at the commencement of such period of Disability,
offset by any amounts payable to Executive under any disability insurance plan
or policy provided by the Company. Upon termination of Executive's employment
for Disability, (i) the Company shall pay Executive within 30 days of his
Disability his Base Salary through the end of the month in which termination
occurs in a lump sum is cash, offset by any amounts payable to Executive under
any disability insurance plan or policy provided by the Company; (ii) all
outstanding equity incentive awards (including, without limitation, the Option)
which are vested and which have not been exercised by Executive shall remain
exercisable for a period of one year following the date of Executive's
Disability or, if earlier, until the end of the applicable option term; and
(iii) the Company shall pay Executive within 30 days of this Disability in a
lump sum in cash any Accrued Obligations (as defined in subparagraph 4(f)
below).
(c) TERMINATION FOR CAUSE. The Company may terminate Executive's
employment under this Agreement for Cause at any time prior to the expiration of
the Term. As used herein, "Cause" shall mean: (i) the plea of guilty to, or
conviction for, the commission of a felony offense by Executive; provided,
however, that after indictment, the Company may suspend Executive from the
rendition of services, but without limiting or modifying in any other way the
Company's obligations under this Agreement; (ii) a material breach by Executive
of a fiduciary duty owed to the Company; (iii) a material breach by Executive of
any of the covenants made by him in Section 5 hereof; or (iv) the willfull and
gross neglect by Executive of the material duties required by the Agreement. In
the event of termination for Cause, this Agreement shall terminate without
further obligation by the Company, except for the payment of any Accrued
Obligations (as defined in subparagraph 4(f) below).
(d) TERMINATION BY THE COMPANY OTHER THAN FOR DEATH, DISABILITY OR
CAUSE OR BY EXECUTIVE FOR GOOD REASON. If Executive's employment is terminated
by the Company for any reason other than Executive's death or Disability or for
Cause, or Executive terminates his employment for Good Reason (as defined
below), then (i) the Company shall pay Executive within 30 days of the date of
such termination the then present value of his Base Salary through the end of
the Term in a lump sum in cash; (ii) the Option shall immediately vest and any
then outstanding portion of the Option held by Executive shall remain
exercisable for a period of one year from the date of such termination or, if
earlier, until the end of the Option Term; and (iii) the Company shall pay
Executive within 30 days of the date of such termination in a lump sum cash any
Accrued Obligations (as defined in subparagraph 4(f) below). As used herein,
"Good Reason" shall mean the occurrence of any of the following: (i) the
Company's material breach of any of the provisions of this Agreement; (ii) any
material adverse alteration in Executive's title, position, status, duties,
level of reporting or responsibilities with the Company and (iii) any relocation
of Executive's office outside of the New York metropolitan area.
(e) MITIGATION; OFFSET. In no event shall Executive be required to seek
other employment or take any other action by way of mitigation of the amounts
payable under Section 4 hereof, provided that if Executive obtains other
employment during the Term, the amount of any payment or benefit provided for
under Section 4 hereof which has been paid to Executive shall be refunded to the
Company by Executive in an amount equal to any compensation earned
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by Executive as a result of employment with or services provided to another
employer after the date of Executive's termination of employment and prior to
the otherwise applicable expiration of the Term.
(f) ACCRUED OBLIGATIONS. As used in this Agreement, "Accrued
Obligations" shall mean the sum of (i) any portion of Executive's Base Salary
through the date of death, Disability or termination, as the case may be, which
has not yet been paid; (ii) any compensation previously deferred by Executive
(together with any interest or earnings thereon) that has not yet been paid; and
(iii) any accrued but unpaid bonuses or other accrued incentive compensation as
of the date of death, Disability or termination, as the case may be.
5. CONFIDENTIAL INFORMATION/NON-SOLICITATION.
(a) CONFIDENTIALITY. Executive acknowledges that in his employment
hereunder he will occupy a position of trust and confidence. Executive shall
not, except as may be required to perform his duties hereunder or as required by
applicable law, without limitation in time or until such information shall have
become public other than by Executive's unauthorized disclosure, disclose to
others or use, whether directly or indirectly, any Confidential Information
regarding the Company or any of its respective subsidiaries. "Confidential
Information" shall mean information about the Company or any of its respective
subsidiaries, and their respective clients and customers that is not disclosed
by the Company or any of its respective subsidiaries for financial reporting
purposes and that was learned by Executive in the course of his employment by
the Company or any of its respective subsidiaries, including (without
limitation) any proprietary knowledge, trade secrets, data, formulae,
information and client and customer lists and all papers, resumes, and records
(including computer records) of the documents containing such Confidential
Information. Executive acknowledges that such Confidential Information is
specialized, unique in nature and of great value to the Company and its
respective subsidiaries, and that such information gives the Company and its
respective subsidiaries a competitive advantage. Executive agrees to deliver or
return to the Company, at the Company's request at any time or upon termination
or expiration of his employment or as soon thereafter as possible, all
documents, computer tapes and disks, records, lists, data, drawings, prints,
notes and written information (and all copies thereof) furnished by the Company
and its respective subsidiaries or prepared by Executive in the course of his
employment by the Company and its respective subsidiaries.
(b) NON-SOLICITATION OF EMPLOYEES. Executive recognizes that he will
possess confidential information about other employees of the Company and its
respective subsidiaries relating to their education, experience, skills,
abilities, compensation and benefits, and inter-personal relationships with
suppliers to and customers of the Company and its respective subsidiaries.
Executive recognizes that the information he will possess about these other
employees is not generally known, is of substantial value to the Company and its
respective subsidiaries in developing their respective businesses and in
securing and retaining customers, and will be acquired by him because of his
business position with the Company. Executive agrees that, during the Term (and
for a period of 12 months beyond the expiration of the Term), he will not,
directly or indirectly, solicit or recruit any employee of the Company or any of
its respective subsidiaries for the purpose of being employed by him or by any
business, individual, partnership, firm, corporation or other entity on whose
behalf he is acting as an agent, representative or em-
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ployee and that he will not convey any such confidential information or trade
secrets about other employees of the Company or any of its respective
subsidiaries to any other person except within the scope of Executive's duties
hereunder.
(c) SURVIVAL OF PROVISIONS. The obligations contained in this Section 5
shall, to the extent provided in this Section 5, survive the termination or
expiration of Executive's employment with the Company and, as applicable, shall
be fully enforceable thereafter in accordance with the terms of this Agreement.
If it is determined by a court of competent jurisdiction in any state that any
restriction in this Section 5 is excessive in duration or scope or is
unreasonable or unenforceable under the laws of that state, it is the intention
of the parties that such restriction may be modified or amended by the court to
render it enforceable to the maximum extent permitted by the law of that state.
6. NOTICES. All notices and other communications under this Agreement shall
be in writing and shall be given by first-class mail, certified or registered
with return receipt requested or hand delivery acknowledged in writing by the
recipient personally, and shall be deemed to have been duly given three days
after mailing or immediately upon duly acknowledged hand delivery to the
respective persons named below:
If to the Company: USA Networks, Inc.
Carnegie Hall Tower
152 West 57th Street
New York, New York 10019
Attention: General Counsel
If to Executive: Dara Khosrowshahi
134 West 11th Street, Apt. #2
New York, New York 10011
Either party may change such party's address for notices by notice duly given
pursuant hereto.
7. TERMINATION OF PRIOR AGREEMENTS. This Agreement constitutes the entire
agreement between the parties and terminates and supersedes any and all prior
agreements and understandings among the parties with respect to Executive's
employment and compensation by the Company. The Company acknowledges and agrees
that neither Executive nor anyone acting on his behalf has made, and is not
making, and in executing this Agreement, the Company has not relied upon, any
representations, promises or inducements except to the extent the same is
expressly set forth in this Agreement.
8. ASSIGNMENT; SUCCESSORS. This Agreement is personal in its nature and none
of the parties hereto shall, without the consent of the others, assign or
transfer this Agreement or any rights or obligations hereunder, provided that,
in the event of the merger, consolidation, transfer, or sale of all or
substantially all of the assets of the Company with or to any other individual
or entity, this Agreement shall, subject to the provisions hereof, be binding
upon and inure to the benefit of such successor and such successor shall
discharge and perform all the promises, covenants, duties, and obligations of
the Company hereunder, and all references herein to the "Company" shall refer
to such successor.
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9. GOVERNING LAW. This Agreement and the legal relations thus created between
the parties hereto shall be governed by and construed under and in accordance
with the internal laws of the State of New York.
10. WITHHOLDING. The Company shall make such deductions and withhold such
amounts from each payment made to Executive hereunder as may be required from
time to time by law, governmental regulation or order.
11. HEADINGS. Section headings in this Agreement are included herein for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose.
12. WAIVER; MODIFICATION. Failure to insist upon strict compliance with any of
the terms, covenants, or conditions hereof shall not be deemed a waiver of such
term, covenant, or condition, nor shall any waiver or relinquishment of, or
failure to insist upon strict compliance with, any right or power hereunder at
any one or more times be deemed a waiver or relinquishment of such right or
power at any other time or times. This Agreement shall not be modified in any
respect except by a writing executed by each party hereto.
13. SEVERABILITY. In the event that a court of competent jurisdiction
determines that any portion of this Agreement is in violation of any law or
public policy, only the portions of this Agreement that violate such law or
public policy shall be stricken. All portions of this Agreement that do not
violate any statute or public policy shall continue in full force and effect.
Further, any court order striking any portion of this Agreement shall modify the
stricken terms as narrowly as possible to give as much effect as possible to the
intentions of the parties under this Agreement.
14. INDEMNIFICATION. The Company shall indemnify and hold Executive harmless
for acts and omissions in his capacity as an officer, director or employee of
the Company to the maximum extent permitted under applicable law; provided,
however, that neither the Company, nor any of its respective subsidiaries shall
indemnify Executive for any losses incurred by Executive as a result of acts
described in Section 4(c) of this Agreement.
15. COUNTERPARTS. This Agreement may be executed in several counterparts, each
of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
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IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
and delivered by its duly authorized officer and Executive has executed and
delivered this Agreement on March 16, 1998.
USA NETWORKS, INC.
--------------------------------------
By: Thomas J. Kuhn
Senior Vice President and
General Counsel
--------------------------------------
DARA KHOSROWSHAHI
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EXHIBIT 10.58
HSN, INC. RETIREMENT SAVINGS PLAN
(Amended and restated effective as of January 1, 1998)
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TABLE OF CONTENTS
PAGE
----
ARTICLE I DEFINITIONS..................................................1
ARTICLE II SERVICE.....................................................16
ARTICLE III ELIGIBILITY.................................................23
ARTICLE IV CONTRIBUTIONS...............................................25
ARTICLE V VESTING AND FORFEITURES.....................................40
ARTICLE VI ALLOCATION..................................................43
ARTICLE VII DISTRIBUTIONS...............................................46
ARTICLE VIII VOTING AND OTHER RIGHTS.....................................64
ARTICLE IX PAYMENT OF BENEFITS.........................................68
ARTICLE X ADMINISTRATION OF THE PLAN..................................69
ARTICLE XI FUNDING OF PLAN.............................................76
ARTICLE XII AMENDMENT OF THE PLAN.......................................78
ARTICLE XIII TERMINATION OF THE PLAN.....................................80
ARTICLE XIV PROVISIONS RELATING TO TOP-HEAVY PLAN.......................81
ARTICLE XV MISCELLANEOUS...............................................89
ARTICLE XVI ADOPTION OF PLAN BY AFFILIATE...............................91
EXHIBIT A SPECIAL RULES REGARDING SILVER KING ACCOUNTS...............A-1
EXHIBIT B SPECIAL RULES REGARDING COMPANY STOCK......................B-1
EXHIBIT C PROCEDURES REGARDING QUALIFIED DOMESTIC
RELATIONS ORDERS...........................................C-1
EXHIBIT D HSN, INC. RETIREMENT SAVINGS PLAN
ADOPTION AGREEMENT.........................................D-1
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PREFACE
It is the purpose of this Plan to provide a means of providing
retirement and other benefits to employees of HSN, inc. and certain related
companies and to permit employees a means to save for their retirement.
The Plan was originally established as the Home Shopping Network, Inc.
Retirement Savings and Employee Stock Ownership Plan, effective February 1, 1990
and was subsequently amended and restated effective as of January 1, 1994 and
renamed the Home Shopping Network, Inc. Retirement Savings Plan. The Plan is now
amended and restated in the form set forth herein effective January 1, 1998 and
renamed the HSN, inc. Retirement Savings Plan. The benefits of Members who do
not perform an Hour of Eligibility Service on or after January 1, 1998 shall be
governed by the provisions of the Plan in effect as of the day such Members
incurred a Termination of Employment.
The accounts of participants in the Silver King Communications, Inc.
401(k) Retirement Savings Plan shall be transferred to the Plan effective
January 1, 1998, and the benefits of such participants who do not perform an
Hour of Eligibility Service on or after January 1, 1998 shall be governed by the
provisions of Silver King Communications, Inc. 401(k) Retirement Savings Plan in
effect as of the day such participants incurred a Termination of Employment.
The Plan herein set forth and its related Trust are hereby designated
as constituting parts of a plan and trust intended to qualify under Section
401(a) of the Internal
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Revenue Code of 1986, as amended, and to be exempt from federal income taxation
under Section 501(a) of the Internal Revenue Code of 1986, as amended.
This Plan, which is a profit-sharing plan, provides for an Internal
Revenue Code Section 401(k) feature.
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ARTICLE I
DEFINITIONS
The following words and terms as used in this Plan shall have the
meanings set forth below, unless a different meaning is clearly required by the
context:
1.1 Account. The total of subaccounts maintained by the Trustee to
record the interest of a Member in the Plan, including the Salary Reduction
Contribution Account, the Matching Contribution Account, the Profit Sharing
Account, the QNEC Account, the Employee Rollover Account and if applicable, the
Silver King Employer Contribution Account, the Silver King Employee Contribution
Account and the Silver King Rollover Account.
1.2 Accrued Benefit. The net value of all assets, earned or accrued,
allocated to a Member's Account.
1.3 Affiliate. The Company and any other entity affiliated with the
Company within the meaning of Section 414(b) of the Code with respect to members
of the controlled group of corporations, Section 414(c) of the Code with respect
to trades or businesses under common control with the Company, Section 414(m) of
the Code with respect to affiliated service groups and any other entity required
to be aggregated with the Company under Section 414(o) of the Code, except for
the purposes of applying the provisions hereof with respect to the limitations
on benefits, Section 415(h) of the Code shall apply. No entity shall be treated
as an Affiliate for any period during which it is not part of the controlled
group, under common control or otherwise required to be aggregated under Section
414 of the Code, except as may otherwise be determined by the Board and set
forth in resolutions of the Board.
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1.4 Beneficiary. (a) If the Member is married at the time of his or her
death, the Member's Spouse, unless such Spouse does not survive the Member or a
different bene ficiary is designated by the Participant or former Participant
and consented to by the Spouse in accordance with the provisions of Section 7.7
hereof and Exhibit A.
(b) If the Member is not married at the time of his or her death,
such person(s) as he or she shall designate in accordance with the provisions of
Article VII hereof, or, if the Member shall die without leaving a designated
beneficiary, his or her estate.
1.5 Benefit Starting Date. The first day for which an amount is payable
(i.e., the date on which all events have occurred which entitle the Participant
to such benefits) without regard to administrative delay and not the actual
payment date.
1.6 Board. The Board of Directors of the Company or a duly authorized
committee thereof.
1.7 Childrearing Absence. Any period of absence of an Eligible Employee
(i) by reason of the pregnancy of such Employee, (ii) by reason of the birth of
a child of such Employee, (iii) by reason of the placement of a child with such
Employee in connection with the adoption of such child by such Employee, or (iv)
for purposes of caring for such child for a period beginning immediately
following such birth or placement. Childrearing Absences shall be granted in
accordance with such policies as may, from time to time, be adopted by the
Employer, and none of the provisions of this Plan shall be construed to afford
any Employee any rights other than in accordance with such policies.
1.8 Code. The Internal Revenue Code of 1986, as amended.
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1.9 Committee. The committee appointed by the Company for the purpose
of administering the Plan on its behalf as set forth in Article X.
1.10 Company. HSN, inc. and any successor by merger, consolidation,
purchase or otherwise.
1.11 Company Stock. Common stock of HSN, inc., $.01 par value.
1.12 Company Stock Fund. An investment vehicle under the Plan which is
intended to invest primarily in Company Stock.
1.13 Compensation. For any Plan Year, all cash compensation for
services paid by an Employer to an Employee while a Participant during the Plan
Year and except as specifically set forth below, reflected on his or her W-2 for
such year including salary, bonuses commissions, and overtime pay, as well as
contributions by an Employer on behalf of a Participant pursuant to a salary
reduction agreement between an Employer and a Participant under Code Section
401(k) or 125, if any. Compensation for any Plan Year shall exclude: (1) all
noncash compensation and any contributions by the Employer to, or benefits paid
under, this Plan or any other pension, profit-sharing, fringe benefit, group
insurance (including, without limitation, life insurance or health insurance) or
other employee welfare plan (including, without limitation, severance or
disability) or any deferred compensation arrangement (other than any salary
reductions under Code Sections 401(k) and 125); (2) amounts paid under any
relocation plan of the Employer; (3) income on the exercise of a nonstatutory
stock option or any other type of stock award; (4) income on the disqualifying
disposition of shares acquired under any stock option plan or stock purchase
plan of the Employer or any other type of stock award; (5) all items
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of imputed income; (6) amounts paid pursuant to any long term compensation plan
maintained by the Employer; (7) cash prizes and awards; (8) automobile
allowances; (9) meal allowances and (10) travel expenses and allowances.
Compensation for any Plan Year shall not exceed one hundred sixty thousand
dollars ($160,000), as adjusted for cost-of-living increases, in accordance with
Section 401(a)(17) of the Code. With respect to any short Plan Year,
Compensation shall not exceed the foregoing limit multiplied by a fraction, the
numerator of which is the number of months in the short Plan Year and the
denominator of which is twelve (12).
1.14 Disability. A Participant will be deemed to have a Disability for
purposes of the Plan if he or she is incapable of engaging in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment which can be expected to result in death or which has lasted or can
be expected to last for a continuous period of not less than twelve (12) months.
The performance and degree of such impairment shall be supported by medical
evidence, including, if the Committee decides in its sole discretion, a medical
examination of the Participant by a physician selected by the Committee.
1.15 Effective Date. February 1, 1990.
1.16 Elective Deferrals. The sum of:
(a) Any salary reduction contribution under a qualified cash or
deferred arrangement (as defined in Code Section 401(k)) to the extent not
includable in gross income for the taxable year under Code Section 402(e)(3)
(determined without regard to the limitation set forth in Code Section 402(g));
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(b) Any salary reduction contribution to the extent not includable
in gross income for the taxable year under Code Section 402(h)(1)(B) (determined
without regard to the limitation set forth in Code Section 402(g)); and
(c) Any salary reduction contribution to purchase an annuity
contract under Code Section 403(b) under a salary reduction agreement (within
the meaning of Code Section 3121(a)(5)(D)), provided that the limitation set
forth in Section 4.1(f) hereof shall be adjusted for any such contribution to
the extent set forth in Code Sections 402(g)(4) and (8).
1.17 Eligible Employee. Any Employee of the Employer other than (a) an
Employee whose employment is governed by the terms of a collective bargaining
agreement between Employee representatives (within the meaning of Code Section
7701(a)(46)) and the Employer (except to the extent that the collective
bargaining agreement expressly provides for the inclusion of such Employees),
(b) a "leased employee," as such term is defined under Code Section 414(n), or
(c) a nonresident alien who receives no earned income (within the meaning of
Code Section 911(d)(2)) from the Employer which constitutes income from sources
within the United States (within the meaning of Code Section 861(a)(3)). An
individual classified by the Employer at the time services are provided as
either an independent contractor or an individual who is not classified by the
Employer as an Employee but who provides services to the Employer through
another entity shall not be eligible to participate in this Plan during the
period that the individual is so initially classified, even if such individual
is later retroactively reclassified as an employee during all or any part of
such period pursuant to applicable law or otherwise.
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1.18 Employee. Any individual employed by an Employer, as used herein,
including any "leased employee," as such term is defined under Code Section
414(n). The term "Employee," as used herein, shall exclude any other agent or
independent contractor.
1.19 Employee Rollover Account. The Participant's subaccount with
respect to rollovers to this Plan pursuant to Section 4.7 and earnings and
losses thereon.
1.20 Employer. The Company and any entity that is or hereafter becomes
a Member Company.
1.21 Employment Commencement Date. The first day on which an Employee
is credited by an Employer with an Hour of Eligibility Service or Hour of
Vesting Service, as applicable.
1.22 ERISA. Employee Retirement Income Security Act of 1974, as
amended.
1.23 Fair Market Value. With respect to a specified date, the closing
price of a share of Company Stock as reported for the preceding trading day on
the principal national securities exchange in the United States on which it is
then traded, or, if Company Stock is not traded on the any national securities
exchange, as quoted on an automated quotation system sponsored by the National
Association of Securities Dealers, or if the sales of the Company Stock shall
not have been reported on such date, on the first day prior thereto on which the
Company Stock was reported or quoted. With respect to investments other than
investments in Company Stock, Fair Market Value shall be determined by the
entity maintaining the applicable Investment Fund, in accordance with generally
accepted valuation methods and practices.
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1.24 Highly Compensated Employee. (a) Any Employee who, during the Plan
Year or the preceding Plan Year:
(i) if the Employer is a corporation, owned (or is considered
as owning within the meaning of Section 318 of the Code) at any time during
the current or preceding Plan Year more than five percent (5%) of the
outstanding stock of the Employer or stock possessing more than five percent
(5%) of the total combined voting power of all stock of the Employer (a "5
Percent Owner") or if the Employer is not a corporation, owned at any time
during the current or preceding Plan Year more than five percent (5%) of the
capital or profit interest in the Employer; or
(ii) received Section 414 Compensation from the Employer and
Affiliates in excess of eighty thousand dollars ($80,000), as adjusted by
the Secretary of the Treasury, in the preceding Plan Year.
1.25 Highly Compensated Group. (a) With respect to an Employer for any
Plan Year, the group of all Highly Compensated Employees.
(b) Prior to determining the Highly Compensated Group, Code
Sections 414(b), (c), (m) and (o) shall be applied.
(c) Persons who are nonresident aliens and who receive no earned
income (within the meaning of Code Section 911(d)(2)) from the Employer or
Affiliates which constitutes income from sources within the United States
(within the meaning of Code Section 861(a)(3)) shall not be treated as Employees
for purposes of determining the Highly Compensated Group.
1.26 Investment Fund. One of the funds designated by the Committee for
investment of contributions made to the Plan.
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1.27 Leave of Absence. Any absence approved by the Employer, other than
absence which qualifies as a Childrearing Absence or a Military Leave of
Absence, including, but not limited to, sick or disability leave.
1.28 Limitation Year. The Plan Year.
1.29 Matching Contribution. A contribution made pursuant to Section 4.2
hereof as a result of a Salary Reduction Contribution made pursuant to Section
4.1 hereof.
1.30 Matching Contribution Account. The Member's subaccount with
respect to contributions made by the Employer pursuant to Section 4.2 hereof and
the earnings and losses thereon.
1.31 Member. A Participant, a Terminated Participant or a Retired
Participant who has an Accrued Benefit under the Plan or an individual who (i)
was a participant in a plan which was merged into the Plan and (ii) has an
Account balance under the Plan.
1.32 Member Company. The Company and any entity that is or hereafter
becomes an Affiliate and assumes the obligations of the Plan and Trust by vote
of its board of directors (or of its equivalent body) and with the consent of
the Board. If the Plan is only adopted by a Member Company with regard to
certain divisions, only those divisions shall be deemed the Member Company and
the other divisions of such Member Company shall not be deemed to be Member
Companies hereunder.
1.33 Military Leave of Absence. Absence of an Employee in military
service for the United States of America, provided that the Employee returns to
the employ of the
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Employer prior to the end of any period prescribed by the laws of the United
States during which he or she has reemployment rights with the Employer; and
provided further that such military service and the Employee's subsequent return
to employment with the Employer satisfy the requirements for guaranteed
reemployment under the Selective Services Act, the Uniform Services Employment
and Reemployment Act or any similar law then existing. Notwithstanding any
provision of this Plan to the contrary, contributions, benefits and service
credit with respect to qualified military service will be provided in accordance
with Section 414(u) of the Code.
1.34 Named Fiduciary. The Committee except where the Member (or
Beneficiary thereof) or the Trustee shall be a "named fiduciary" with respect to
the vote or tender of Company Stock as set forth in Section 8.4.
1.35 Non Highly Compensated Group. That group of Participants who are
not included in the Highly Compensated Group.
1.36 Normal Retirement Age. The Member's attainment of age sixty-five
(65).
1.37 Normal Retirement Date. The first day of the month coinciding with
or immediately following the Member's attainment of Normal Retirement Age.
1.38 Participant. Any Employee who shall have become a Participant in
the Plan in accordance with the provisions of Article III hereof, and whose
participation shall not have ceased. A Participant's participation shall cease
upon his or her ceasing to be an Eligible Employee. The term Participant shall
not include Retired Participants and Terminated Participants.
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1.39 Plan. The HSN, inc. Retirement Savings Plan, as herein set forth
and as hereafter amended.
1.40 Plan Administrator. The Company.
1.41 Plan Year. A period of twelve (12) months beginning on January 1st
and ending on the following December 31st.
1.42 Profit Sharing Account. The Participant's subaccount with respect
to Profit Sharing Contributions by the Employer pursuant to Section 4.5 hereof
and earnings and losses thereon.
1.43 Profit Sharing Contributions. A contribution made pursuant to
Section 4.5 hereof.
1.44 QNEC Account. The Participant's subaccount with respect to QNECs
by the Employer pursuant to Section 4.4 hereof and earnings and losses thereon.
1.45 QNECs. Qualified non-elective contributions made pursuant to
Section 4.4 used to satisfy the Actual Deferral Percentage Test described in
Section 4.1(b) or the Actual Contribution Percentage Test described in Section
4.3.
1.46 Reemployment Commencement Date. The first day on which an Employee
is credited with an Hour of Eligibility Service after a Break in Service or an
Hour of Vesting Service after a Period of Severance, as applicable.
1.47 Restatement Date. January 1, 1998.
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1.48 Retired Participant. A former Participant who has retired on or
after Normal Retirement Age and is eligible to receive benefits under the Plan.
1.49 Salary Reduction Contribution. A contribution made pursuant to
Section 4.1 hereof.
1.50 Salary Reduction Contribution Account. The Participant's
subaccount with respect to contributions by the Employer pursuant to Section 4.1
hereof and the earnings thereon.
1.51 Section 414 Compensation. In the case of employees other than
employees within the meaning of Section 401(c)(1) of the Code,"wages" as defined
in Section 3401(a) of the Code for purposes of income tax withholding at the
source but determined without regard to any rules that limit the remuneration
included in wages based on the nature or location of the employment or the
services performed (such as the exception for agricultural labor in Section
3401(a)(2) of the Code). Section 414 Compensation shall be determined without
regard to the exclusions in Code Sections 125, 402(e)(3) and 402(h)(1)(B) and
shall be measured based on compensation actually paid or made available to a
Participant during the measuring period and not on an accrued basis. For
purposes of Section 4.1(c) and Section 4.3(c), Section 414 Compensation for any
Plan Year shall not exceed one hundred sixty thousand dollars ($160,000), as
adjusted for cost-of-living increases, in accordance with Section 401(a)(17) of
the Code, and with respect to any short Plan Year, Section 414 Compensation
shall not exceed the foregoing limit multiplied by a fraction, the numerator of
which is the number of months in the short Plan Year and the denominator of
which is twelve (12).
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1.52 Silver King Account. The total of the following subaccounts
maintained by the Trustee to record the interest of a Member with respect to
amounts transferred from the Silver King Plan to the Plan:
(a) Silver King Employee Contribution Account. The subaccount with
respect to elective deferrals and qualified non-elective contributions and
earnings and losses thereon, made on behalf of a Silver King Participant to the
Silver King Plan prior to January 1, 1998 and transferred to this Plan, and
earnings and losses thereon.
(b) Silver King Employer Contribution Account. The subaccount with
respect to matching contributions and earnings and losses thereon, made on
behalf of a Silver King Participant to the Silver King Plan prior to January 1,
1998, and transferred to this Plan, and earnings and losses thereon.
(c) Silver King Rollover Account. The subaccount with respect to
rollover contributions, and earnings and losses thereon, made on behalf of a
Silver King Participant to the Silver King Plan prior to January 1, 1998, and
transferred to this Plan, and earnings and losses thereon.
1.53 Silver King Participant. Any person who was a participant in the
Silver King Plan and whose account thereunder was transferred to the Plan
pursuant to the merger of the Silver King Plan into the Plan.
1.54 Silver King Plan. The Silver King Communications, Inc. 401(k)
Retirement Savings Plan, originally effective January 1, 1993.
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1.55 Spouse. A Participant's legal spouse.
1.56 Terminated Participant. A Participant who has ceased to be an
Employee prior to his or her Normal Retirement Age for any reason other than
death and who is eligible to receive benefits under the Plan
1.57 Termination. An amendment to the Plan expressly terminating the
Plan.
1.58 Termination of Employment. Separation from the employment of all
Employers and Affiliates for any reason, including, but not limited to,
retirement, death, dis ability, resignation or dismissal with or without cause.
Where an Employee enters upon an authorized Leave of Absence or layoff,
Termination of Employment shall not be deemed to occur until his or her Leave of
Absence expires without immediate reemployment, or in the case of layoff, he or
she is not rehired within the time established by the Committee in accordance
with the general policy of the Employer. Where an Employee is on a Military
Leave of Absence, Termination of Employment shall not be deemed to occur unless
and until the Employee fails to return to employment prior to the end of the
period during which is right to reemployment is protected by the Selective
Service Act, or Uniform Services Employment and Reemployment Act or any similar
law then existing. In the event that an Employee is transferred from one
Employer or Affiliate to another Employer or Affiliate, the Employee will not be
deemed to have incurred a Termination of Employment until he or she is no longer
employed by any Employer or Affiliate. In the event the Employer or an Affiliate
sells some or all of its assets, any Employee who in connection with, or as a
result of, such sale becomes employed by the acquirer of such assets shall not,
for purposes of Article VII hereof and only for such purposes, be deemed to have
incurred a Termination of Employment unless and until the Employee is no longer
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employed by such acquirer or any entity thereafter acquiring the aforesaid
assets, provided that the foregoing shall not apply to the extent that the
disposition is covered by subsection (iii) or subsection (iv) of Section 7.10(a)
hereof or at any time at or after the disposition at which the Participant has
attained age fifty-nine and one-half (59-1/2). For purposes of the foregoing
sentence, and only for such purposes, a sale of stock of an Employer or
Affiliate shall be within the meaning of the term "assets."
1.59 Trust. The Trust adopted by the Company under the trust agreement
with the Trustee, which is established to hold and invest contributions made
under the Plan, as amended from time to time.
1.60 Trustee. Such person or persons or corporation appointed and
acting as Trustee or successor Trustee of the Trust under the trust agreement.
1.61 Trust Fund. All assets of whatsoever kind or nature, including all
property and income, held from time to time by the Trustee under the Trust.
1.62 Valuation Date. Each business day or such other dates as the
Committee may determine in accordance with its rules and procedures.
1.63 Value. The Member's Accrued Benefit with regard to his or her
Account.
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Construction
The masculine gender where appearing in this Plan shall be deemed to
include the feminine gender, unless the context clearly indicates to the
contrary. Where appropriate, words used in the singular include the plural and
the plural includes the singular. The words "hereof," "herein," "hereunder" and
other similar compounds of the word "here" shall mean and refer to this entire
Plan, not to any particular provision or section.
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ARTICLE II
SERVICE
2.1 Hours of Eligibility Service. "Hours of Eligibility Service" means
hours for which an Employee is or will be directly or indirectly compensated by
the Employer or any Affiliate for the performance of duties, including overtime
(but only actual hours worked irrespective of premium pay) and hours for which a
back pay award is made (without offset for mitigation of damages). It shall also
include hours for which the Employee is or will be directly or indirectly
compensated by the Employer or any Affiliate for reasons other than for the
performance of duties, including, but not limited to, sick days, disability,
vacation, holidays, jury duty, layoff, military duty or Leave of Absence, but
not in excess of five hundred and one (501) hours for any continuous period of
nonworking time for which the Employee is compensated. In addition, the Employee
shall be credited for Hours of Eligibility Service during a Military Leave of
Absence to the extent required by law. Hours of Eligibility Service shall not be
credited for any hours for which an Employee is directly or indirectly paid
under a plan maintained solely for the purpose of complying with applicable
worker's compensation, unemployment compensation or disability laws. No Hour of
Eligibility Service shall be credited with regard to any Employee for any period
prior to the date the entity by which he or she is employed became or becomes an
Employer except as specifically provided in the adoption agreement of the entity
and then only as so specifically provided. Notwithstanding the foregoing, Hours
of Eligibility Service shall be credited with regard to an Employee's prior
hours of service with Silver King Communications, Inc. to the extent such hours
of service were credited under the Silver King Plan.
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2.2 Guidelines. For purposes of determining Hours of Eligibility
Service ("Hours"), the following guidelines shall be applied:
(a) Hours of Eligibility Service credited as a result of an award,
agreement or payment for back pay shall be credited to the Employee for the
computation period or periods to which the award, agreement or payment pertains
rather than the computation period in which the award, agreement or payment is
made. If an Employee has previously been credited with an Hour of Eligibility
Service for any hour of work, he or she shall not be entitled to be credited for
a second hour under any back pay award or agreement.
(b) For purposes of crediting Hours of Eligibility Service during
which an Employee did not perform duties for the Employer or an Affiliate,
subject to the limitations of Section 2.1, Hours of Eligibility Service shall be
determined as follows:
(i) if payments are calculated on the basis of units of time,
the Hours of Eligibility Service credited shall be equal to the number of
Employee's regularly scheduled working hours in such unit of time;
(ii) if payments are not calculated on the basis of units of
time, the number of Hours of Eligibility Service to be credited shall be
equal to the amount of the payment divided by the Employee's most recent
hourly rate of compensation for the performance of duties; and
(iii) if no payments were made, the Hours of Eligibility
Service credited, if any, shall be at the time rate of eight (8) Hours of
Eligibility Service per workday.
(c) Notwithstanding anything in this Plan, an Employee shall be
credited with Hours of Eligibility Service if required by any federal law,
including, without limitation, the Family and Medical Leave Act; the nature and
extent of such credit shall be determined under such law.
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(d) Employees compensated on other than an hourly basis and for
whom hours are not required to be counted and recorded by any other federal law,
such as the Fair Labor Standards Act, shall be credited with ten (10) Hours of
Eligibility Service for any day during which the Employee is credited with one
(1) Hour of Eligibility Service.
(e) Hours of Eligibility Service shall not be credited for payments
which were made solely to reimburse an Employee for medical or medically related
expenses incurred by the Employee, nor for extra pay for any period for which
Hours of Eligibility Service have previously been credited, such as extra pay in
lieu of vacation.
(f) When necessary, Hours of Eligibility Service completed prior to
the Effective Date shall be determined from such records as the Employer has
maintained in the past, making reasonable approximations where necessary. If
these records are insufficient to make an approximation, a reasonable estimate
of Hours of Eligibility Service to be credited will be made.
(g) Hours of Eligibility Service will be credited in accordance
with the requirements of Section 2530.200b-2 of the Department of Labor
Regulations, as hereafter amended or superseded.
2.3 Continuous Service. "Continuous Service" means a Participant's most
recent period of uninterrupted service with the Employer or any Affiliate prior
to his or her retirement or Termination of Employment, if earlier. Continuous
Service shall not be broken in any Plan Year in which an Employee completes more
than five hundred (500) Hours of Eligibility Service. Continuous Service will be
considered broken in any Plan Year in which an
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Employee completes five hundred (500) or less Hours of Eligibility Service. For
purposes of determining Continuous Service, and only for such purpose, Hours of
Eligibility Service shall also include hours during which the Employee is on a
Leave of Absence and, subject to Section 2.4 hereof, hours during which the
Employee is on a Childrearing Absence.
2.4 Childrearing Absence. For the purpose of determining whether an
Employee's Continuous Service is broken under Section 2.3, and only for such
purpose, an Employee who incurs a Childrearing Absence shall be credited with
Hours of Eligibility Service for the period of such absence equal to either (i)
the Hours of Eligibility Service that would have been credited to such Employee
but for such Childrearing Absence, or (ii) if the Hours of Eligibility Service
to be credited to such Employee pursuant to the preceding clause (i) cannot be
determined, eight (8) Hours of Eligibility Service for each normal workday of
absence; provided, however, that in no event shall any Employee be credited with
more than five hundred and one (501) Hours of Eligibility Service under this
Section 2.4. Hours of Eligibility Service credited under this Section 2.4 shall
be credited only to the Plan Year in which an Employee's Childrearing Absence
begins, if, and to the extent, such Employee would be prevented from incurring a
one-year Break in Service in such Plan Year solely as a result of the treatment
of such Childrearing Absence as Hours of Eligibility Service, and in all other
cases, to the Plan Year immediately following the Plan Year in which such
Childrearing Absence begins.
2.5 Break in Service. A Break in Service will occur in any Plan Year in
which an Employee's Continuous Service is broken. If any Employee whose
Continuous Service is broken is subsequently reemployed, his or her prior Years
of Service shall be reinstated if and only if:
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(i) the Employee had met the requirements for a vested benefit
under the Plan at the time of his or her Break in Service; or
(ii) the number of his or her consecutive one-year Breaks in
Service from the time his or her prior Continuous Service is deemed broken
to the date of his or her reemployment does not exceed the greater of (A)
five (5) or (B) the aggregate number of Years of Service credited to such
Employee for the period prior to the time his or her Continuous Service was
broken.
2.6 Year of Service. A Year of Service shall mean a twelve (12)
consecutive month period commencing on an Employee's Employment Commencement
Date or Reemployment Commencement Date or any anniversary thereof, during which
the Employee is credited with at least one thousand (1,000) Hours of Eligibility
Service.
2.7 Hours of Vesting Service. "Hours of Vesting Service" means each
hour for which an Employee is or will be directly or indirectly compensated by
an Employer or an Affiliate for the performance of duties, including overtime
(but only actual hours worked irrespective of premium pay. Notwithstanding the
foregoing, Hours of Vesting Service shall be credited with regard to an
Employee's prior hours of service with Silver King Communications, Inc. to the
extent such hours of service were credited under the Silver King Plan.
2.8 Period of Service. A period commencing on the Employee's (i)
Employment Commencement Date or (ii) Reemployment Commencement Date, whichever
is applicable, and ending on the Severance from Service Date, as defined below.
A Period of Service includes a Period of Severance, as defined below, of less
than twelve (12) consecutive months; provided, however, that if an Employee is
absent from service on the date immediately preceding his or her Severance from
Service Date, as defined below, his or her Period of Severance shall be included
in his or her Period of Service only if he or she again performs an
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Hour of Vesting Service within twelve (12) months after the commencement of such
absence. An Employee's Period of Service shall include the period of such
Employee's Military Leave of Absence. If an Employee is reemployed by the
Employer after a One Year Period of Severance, as defined below, his or her
prior Period of Service shall be reinstated if:
(a) the Employee had met the requirements for a vested benefit
under the Plan at the time of the Employee's Severance from Service Date, and
(b) the number of the Employee's consecutive One Year Periods of
Severance immediately prior to the Employee's Reemployment Commencement Date
does not exceed the greater of (i) five (5) or (ii) the aggregate number of
years of the Employee's Period of Service prior to his or her Period of
Severance.
2.9 Severance. (a) Period of Severance. A period of time commencing on
the Severance from Service Date and ending on the date the Employee again
performs an Hour of Vesting Service. An Employee shall not suffer a Period of
Severance due to a Military Leave of Absence to the extent required by law.
(b) One Year Period of Severance. A Period of Severance of at least
twelve (12) consecutive months.
(c) Severance from Service Date. The earlier of (i) the date an
Employee quits, retires, is discharged or dies, or (ii) the first anniversary of
the first date of a period in which an Employee is continuously absent from
service (with or without pay) with the Employer for any reason other than
quitting, retirement, discharge or death.
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(d) Childrearing Absence. For purposes of Section 2.9, the
Severance from Service Date of an Employee who incurs a Childrearing Absence
that extends beyond the first anniversary of the first date of such Childrearing
Absence is the second anniversary of the first date of absence and the period
between the first and second anniversary will be treated as neither a Period of
Severance nor a Period of Service.
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ARTICLE III
ELIGIBILITY
3.1 Present Employees. Each present Participant shall continue to be a
Participant in the Plan. Each present Silver King Participant who was an active
participant in the Silver King Plan and employed by Silver King Communications,
Inc. or an Affiliate thereof on the date immediately prior to the Restatement
Date and who becomes an Eligible Employee on the Restatement Date shall become a
Participant in the Plan on the Restatement Date. Any other Eligible Employee
shall be eligible to become a Participant in the Plan on the Restatement Date,
provided he or she has (a) completed the earlier of (i) at least one thousand
(1,000) Hours of Eligibility Service in a period not exceeding the twelve (12)
consecutive month period commencing on an Employee's Employment Commencement
Date or Reemployment Commencement Date or any anniversary thereof or (ii)
completed a Year of Service, and (b) attained age twenty-one (21).
3.2 Future Employees. Each future Employee and each current Employee
who is not eligible to become a Participant in accordance with Section 3.1
hereof shall become a Participant in the Plan on the first day of the calendar
quarter coinciding with or next following the date on which he or she (a)
completes the earlier of (i) at least one thousand (1,000) Hours of Eligibility
Service in a period not exceeding the twelve (12) consecutive month period
commencing on an Employee's Employment Commencement Date or Reemployment
Commencement Date or any anniversary thereof or (ii) a Year of Service, and (b)
attains age twenty-one (21).
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3.3 Reemployment. Any Member or Silver King Participant who is
reemployed and who satisfies the requirements of Section 2.5 shall become a
Participant in the Plan as of the date of his or her Reemployment Commencement
Date. An Employee who is reemployed but who is not eligible to become a
Participant in accordance with Section 3.2 shall not be eligible to become a
Participant until he or she satisfies the requirements of Section 3.2 based on
his or her Reemployment Commencement Date.
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ARTICLE IV
CONTRIBUTIONS
4.1 Salary Reduction Contribution. Subject to (f) below and the other
provisions of this Article IV, a Participant may enter into an agreement with
his or her Employer to have the Employer make contributions to the Participant's
Salary Reduction Contribution Account on behalf of the Participant for such Plan
Year, in accordance with Code Section 401(k), of one percent (1%) to sixteen
percent (16%) of his or her Compensation, in whole percentages, earned during
such Plan Year while a Participant. Such contributions shall reduce the amount
of Compensation otherwise payable to the Participant thereafter. With regard to
such contributions the following rules shall apply:
(a) Any agreement by a Participant shall be on a form acceptable to
the Committee in accordance with its rules and regulations, including the
following:
(i) A Participant may elect to make or change his or her
contribution rate with regard to future Compensation as of the first day of
the calendar quarter (or such other times as the Committee shall prescribe)
following such election, by giving sufficient prior written notice to the
Plan Administrator on a form provided by the Committee for such purpose. The
Committee may establish or change, in accordance with its rules and
regulations and in a consistent manner, the foregoing period of prior
written notice.
(ii) A Participant may elect to terminate his or her salary
reduction agreement with regard to future Compensation effective as of the
first day of the following payroll period (or such other times as the
Committee shall prescribe), by giving sufficient prior written notice to the
Plan Administrator on a form provided by the Committee for such purpose. The
Committee may establish or change, in accordance with its rules and
regulations and in a consistent manner, the foregoing period of prior
written notice.
(iii) For purposes of this Section 4.1(a), an election may, to
the extent permitted by the Committee and by applicable law, be made by
paper, telephonic or electronic means.
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(b) The contributions under this Section 4.1 on behalf of the
Highly Compensated Group in any Plan Year shall not exceed the maximum amount so
that the "Actual Deferral Percentage," as determined pursuant to (c) below, for
the Highly Compensated Group for the current Plan Year does not exceed the
Actual Deferral Percentage for the Non Highly Compensated Group for the current
Plan Year by the greater of:
(i) one hundred and twenty-five percent (125%); or
(ii) the lesser of two (2) percentage points or two hundred
percent (200%).
Notwithstanding the foregoing, to the extent the Company so elects
under Section 401(k)(3)(A) of the Code, this Section 4.1(b) may be applied using
the Actual Deferral Percentage for the Non Highly Compensated Group for the
preceding Plan Year rather than the current Plan Year; provided that if such an
election is made, it may be changed only to the extent permitted under Code
Section 401(k)(3)(A) and any regulations or other published guidance thereunder.
(c) The Actual Deferral Percentage with regard to each of the
Highly Compensated Group and the Non Highly Compensated Group shall be the
average of the percentages (calculated separately for each Participant in each
such group) of (i) divided by (ii), subject to (iii), where (i), (ii) and (iii)
are as follows:
(i) for the applicable Plan Year, the sum of (a) the Employer's
contributions for each Participant to each Participant's Salary Reduction
Contribution Account, (b) subject to paragraph (h) below, the Matching
Contributions for each Participant to each Participant's Matching
Contribution Account, and (c) the QNECs, if any, for each Participant to
each Participant's QNEC Account;
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(ii) the Participant's Section 414 Compensation for the
applicable Plan Year; and
(iii) the Actual Deferral Percentage of a member of the Highly
Compensated Group shall be determined by treating all cash or deferred
arrangements under which the member of the Highly Compensated Group is
eligible (other than those that may not be permissively aggregated) as a
single arrangement.
(d) (i) Excess Contributions shall mean with respect to any Plan
Year, the excess of (1) the aggregate amount of the Employer's contributions
made pursuant to this Section 4.1 actually paid over to the Trust Fund on
behalf to the Highly Compensated Group for such Plan Year, over (2) the
maximum amount of such contributions permitted under (b) above. Reductions
shall be determined by reducing contributions made pursuant to this Section
4.1 hereof, on behalf of members of the Highly Compensated Group in order of
the dollar amounts of Salary Reduction Contributions beginning with the
largest of such dollar amounts of Salary Reduction Contributions, as
adjusted as reduction takes place.
(ii) The Excess Contribution for any Plan Year (and any income
allocable to such Excess Contributions) shall be distributed before the last
day of the next Plan Year to the members of the Highly Compensated Group on
the basis of the respective portions of the Excess Contributions
attributable to each such member, provided that any such amounts not
distributed before March 15 of the next Plan Year will be subject to an
excise tax on the Employer under Code Section 4979. The amount of Excess
Contributions that may be distributed under this paragraph shall be reduced
by any Excess Deferrals (as defined in Section 4.1(g)) previously
distributed with respect to such Participant for the Plan Year.
(iii) The method used for computing income or loss allocable to
Excess Contributions shall be the method set forth in Section 6.9 hereof.
Notwithstanding the foregoing, there shall be no income allocable to Excess
Contributions during the period between the end of the Plan Year and the
date of distribution of the Excess Contributions.
(e) All determinations and procedures with regard to the matters
covered by paragraphs (b), (c) and (d) of this Section 4.1 shall be made in
accordance with Code Section 401(k)(3) and Treasury Regulation Section
1.401(k)-1(b).
(f) Notwithstanding anything else herein, the amount to be
contributed for any calendar year on behalf of any Participant pursuant to an
agreement under (a) above shall
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not exceed ten thousand dollars ($10,000), as adjusted for calendar years after
1998 by the Secretary of Treasury in accordance with Code Section 402(g)(5) (the
"Elective Limitation").
(g) If contributions of Elective Deferrals on behalf of a
Participant for any calendar year are in excess of the Elective Limitation for
such calendar year, the excess amount ("Excess Deferrals") shall be treated as
follows:
(i) not later than March 1st of the next calendar year, the
Participant may allocate the amount of such Excess Deferrals among the plans
under which the deferrals were made and may notify each such plan the
portion allocated to it;
(ii) not later than April 15th of the next calendar year, the
Employer may distribute to the Participant the amount of Excess Deferrals
allocated to it under (i) above, and any income or loss allocable to such
amount, which shall be computed based on the method set forth in Section 6.9
hereof.
In the event Excess Deferrals were made to the Plan without
consideration of contributions to any other plans, such amounts shall be
distributed pursuant to subparagraph (ii) without regard to whether any election
under subparagraph (i) is made.
(h) In satisfying the Actual Deferral Percentage Test set forth
above, Matching Contributions may be treated as if they were contributions to
the Participant's Salary Reduction Account pursuant to Section 4.1 hereof,
provided that the requirements of Code Regulation Section 1.401(k)-1(b)(5) are
satisfied. If used to satisfy the Actual Deferral Percentage Test, such Matching
Contributions shall not be used to help other Matching Contributions satisfy the
Actual Contribution Percentage Test (as described in Section 401(m)(2) of the
Code), set forth in Section 4.3 hereof except as otherwise permitted by
applicable law.
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(i) For purposes of satisfying the Actual Deferral Percentage Test
of paragraph (c), all elective contributions that are made under two or more
plans that are aggregated for purposes of Code Section 401(a)(4) or 410(b)
(other than Code Section 410(b)(2)(A)(ii)) shall be treated as made under a
single plan and if two or more plans are permissively aggregated for purposes of
Code Section 401(k), the aggregated plans must also satisfy Code Sections
401(a)(4) and 410(b) as though they were a single plan.
4.2 Matching Contributions. (a) For each Plan Year, with respect to
each Participant who is entitled to make and who makes Salary Reduction
Contributions pursuant to Section 4.1 hereof, the Employer shall contribute to
the Plan with respect to each payroll period an amount equal to fifty percent
(50%) of such Participant's Salary Reduction Contributions during such payroll
period contributed by the Participant with respect to the first six percent (6%)
of such Participant's Compensation earned while a Participant during the Plan
Year.
(b) In addition to the Matching Contributions made pursuant to Section
4.2(a), for each Plan Year, with respect to each Participant who is entitled to
make and who makes Salary Reduction Contributions pursuant to Section 4.1
hereof, additional Matching Contributions may be made by the Employer as
follows:
(i) With respect to each Participant that has made Salary
Reduction Contributions for such Plan Year equal to at least three percent
(3%) of his or her Compensation earned while a Participant during the Plan
Year, the Employer shall contribute additional Matching Contributions to the
Plan on behalf of such Participant equal to (A) one hundred percent (100%)
of such Participant's Salary Reduction Contributions during the Plan Year,
up to the lesser of (x) five hundred and twenty dollars ($520) and (y) six
percent (6%) of the Participant's Compensation earned while a Participant
during the Plan Year, minus (B) the amount of any Matching Contributions
made to the Plan on behalf of such Participant pursuant to Section 4.2(a);
and
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(ii) the Employer, in its sole and absolute discretion, may
contribute additional Matching Contributions to the Plan in an amount equal
to a designated percentage of such Participant's Salary Reduction
Contribution, as designated by the Employer for the applicable Plan Year. In
connection with the designation of any percentage for the purpose of making
additional Matching Contributions pursuant to this paragraph (ii), the
Employer in its sole and absolute discretion, may limit the Matching
Contribution by placing a total dollar or percentage limit on the Matching
Contribution.
Notwithstanding the foregoing, no Matching Contribution will be
made for any Participant pursuant to this Section 4.2(b) for any Plan Year
unless he or she is employed by the Employer on the last day of the Plan Year.
(c) In the event of the return of any Excess Contribution or Excess
Deferral to a Participant, no Matching Contribution pursuant to (a) and (b)
above shall be made and, if made prior to a determination of Excess Contribution
or Excess Deferral, shall be forfeited.
4.3 Actual Contribution Percentage. (a) The Matching Contributions on
behalf of the Highly Compensated Group in any Plan Year shall not exceed the
maximum amount so that the "Actual Contribution Percentage," as determined
pursuant to (c) below, for the Highly Compensated Group for the current Plan
Year does not exceed the Actual Contribution Percentage for the Non Highly
Compensated Group for the current Plan Year, by the greater of:
(i) one hundred and twenty-five percent (125%); or
(ii) subject to (b) below, the lesser of two (2) percentage
points or two hundred percent (200%).
Notwithstanding the foregoing, to the extent the Company so elects
under Section 401(m)(2)(A) of the Code, this Section 4.3(a) may be applied using
the Actual Contribution Percentage for the Non Highly Compensated Group for the
preceding Plan Year
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rather than the current Plan Year; provided that if such an election is made, it
may be changed only to the extent permitted under Code Section 401(m)(2)(A) and
any regulations or other published guidance thereunder.
(b) If the Actual Deferral Percentage test set forth in Section
4.1(b) hereof is satisfied pursuant to Section 4.1(b)(ii) and not satisfied
pursuant to Section 4.1(b)(i), then Section 4.3(a)(ii) may be used to satisfy
the Actual Contribution Percentage test only to the extent that either the
"aggregate limit" is not violated or such use is otherwise permitted by
applicable law. The aggregate limit is the greater of:
(i) The sum of:
(A) one hundred and twenty-five percent (125%) of the
greater of (x) the Actual Deferral Percentage of the Non Highly
Compensated Group or (y) the Actual Contribution Percentage of the
Non Highly Compensated Group; and
(B) two (2) percentage points plus the lesser of (x) or
(y) above, but in no event greater than two hundred percent (200%)
of the lesser of (x) or (y) above; or
(ii) The sum of:
(A) one hundred and twenty-five percent (125%) of the
lesser of (x) the Actual Deferral Percentage of the Non Highly
Compensated Group or (y) the Actual Contribution Percentage of the
Non Highly Compensated Group; and
(B) two (2) percentage points plus the greater of (x) or
(y) above, but in no event greater than two hundred percent (200%)
of the greater of (x) or (y) above.
In the event that the conditions of (i) above for consideration of the
aggregate limit are satisfied and the aggregate limit is exceeded, the Actual
Deferral Percentage and the
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Actual Contribution Percentage of Participants who are Highly Compensated
Employees shall be reduced in the following order until the aggregate limit is
reached:
(A) Unmatched Salary Reduction Contributions (and any
income allocable to such contributions); and
(B) Matched Salary Reduction Contributions and the
related Matching Contributions proportionately (and any income
allocable to such contributions).
The contributions and income shall be distributed within the respective
time periods for distribution of Excess Contributions and Excess Aggregate
Contributions. Income shall be calculated as requested for each and the order of
distribution among the Participants who are Highly Compensated Employees shall
be as specified for each.
(c) The Actual Contribution Percentage for a specified group of
Participants for a Plan Year shall be the average of the Contribution Percentage
of each Participant in such group, where such Contribution Percentage shall be
equal to the ratio of:
(i) the Matching Contributions to the Plan Year on behalf of
each Participant for the applicable Plan Year (other than those that cannot
be considered as a result of Section 4.1(h) above), plus to the extent
permitted under Code Regulation Section 1.401(m)-1(b)(5), some or all of the
contributions under Section 4.1; and
(ii) the Participant's Section 414 Compensation for the
applicable Plan Year.
(d) (i) Excess Aggregate Contributions shall mean with respect to
any Plan Year, the excess of (1) the aggregate amount of contributions made
pursuant to Section 4.2 or 4.3 actually paid over to the Trust on behalf of
the Highly Compensated Group for such Plan Year, over (2) the maximum amount
of such contributions permitted under the preceding paragraph (b).
Reductions shall be determined by reducing contributions made on behalf of
members of the Highly Compensated Group in order of the dollar amounts of
Matching Contributions beginning with the largest of such dollar amounts of
Matching Contributions, as adjusted as reduction takes place.
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(ii) The Excess Aggregate Contributions for any Plan Year (and
any income allocable to such contributions) shall be distributed before the
last day of the next Plan Year to the members of the Highly Compensated
Group on the respective portions of the Excess Aggregate Contributions
attributable to each such member, provided that any such amounts not
distributed before March 15 of the next Plan Year will be subject to an
excise tax on the Employer under Code Section 4979. The amount of Excess
Aggregate Contributions to be distributed to an Employee for a Plan Year
shall be reduced by Excess Aggregate Contributions previously distributed to
the Employee for the taxable year ending within the Plan Year and Excess
Aggregate Contributions to be distributed to an Employee for a taxable year
shall be reduced by the Excess Aggregate Contributions previously
distributed for the Plan Year beginning in such taxable year. As an
alternative to the distribution of Excess Aggregate Contributions described
above, the Employer may, in its sole discretion, elect to forfeit Matching
Contributions (and any income allocable to such Matching Contributions) that
are not vested (determined without regard to any increase in vesting that
may occur after the date of the forfeiture) in order to correct Excess
Aggregate Contributions.
(iii) The method used for computing income or loss allocable to
Excess Aggregate Contributions shall be the method set forth in Section 6.9
hereof. There shall be no income allocable to Excess Aggregate Contributions
during the period between the end of the Plan Year and the date of
distribution of the Excess Aggregate Contributions.
(e) All determinations and procedures with regard to the matters
covered by paragraphs (a), (b), (c) and (d) of this Section 4.3 shall be made in
accordance with Code Section 401(m) and Treasury Regulation Section 1.401(m)-1.
4.4 Qualified Non-Elective Contributions. Within twelve (12) months
after the close of the Plan Year (or within such greater time if permitted by
the Internal Revenue Service), the Employer, in its sole discretion, may make
QNECs on behalf of members of the Non Highly Compensated Group to the QNEC
Account in an amount sufficient to satisfy one of the tests set forth in Section
4.1(b) or Section 4.3(b). QNECs shall be allocated to the Non Highly Compensated
Group starting with the Participant with the lowest Compensation for the testing
period until such Participant has reached the limitation under Section 4.8
hereof and
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progressing thereafter in similar manner in reverse order of Compensation until
such QNECs are fully utilized.
4.5 Profit Sharing Contributions. (a) If the Employer elects, in its
sole and absolute discretion, to make contributions to the Plan for the Plan
Year other than that pursuant to Section 4.2, the Employer shall contribute to
the Profit Sharing Account of each Participant employed by the Employer, an
amount equal to such percentage of Compensation as may be determined by the
Employer in its sole and absolute discretion; provided that no contribution
shall be made to such Account for any Participant for such Plan Year unless he
or she is employed by the Employer on the last day of the Plan Year. Such
contributions shall be allocated to each Participant based on the proportion of
the Participant's Compensation for the Plan Year to the Compensation for all
Participants employed by the Employer for the Plan Year who are eligible to have
an allocation made to their Profit Sharing Account pursuant to this Section 4.5.
(b) Notwithstanding the provisions of paragraph (a) above, in the
event the limitations set forth herein cause the Plan to fail to satisfy for any
Plan Year the requirements of Code Section 410(b) and the regulations thereunder
because of the exclusion of certain Participants as being deemed to be
benefitting under the Plan, based on the allocation in paragraph (a) then the
Employer contributions under paragraph (a) shall be allocated for such Plan Year
as of the last day of the Plan Year among all Participants who were employed on
the last day of the Plan Year.
4.6 Time of Contributions. Contributions shall be made for each Plan
Year within the time permitted by law.
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4.7 Rollovers. With respect to any Eligible Employee, rollovers to this
Plan from another plan qualified under Section 401(a) of the Code, whether
directly or through an individual retirement account, are permitted, provided
(i) that they are permitted under the Code, (ii) that they are made on a timely
basis as required by the Code, and (iii) that evidence satisfactory to the
Committee as to the foregoing is furnished to the Committee. Any amount rolled
over to the Plan shall be fully vested and nonforfeitable and shall be credited
to a separate Employee Rollover Account for the Employee which account shall
share in the allocation of the net annual income of the Fund.
4.8 Limitations on Contributions. (a) Section 415 of the Code is
incorporated by reference into the Plan, and notwithstanding anything herein
shall override any Plan provision to the contrary. Contributions and other
annual additions under the Plan are subject to the limitations of Section 415 of
the Code. Section 414 Compensation, as defined in Section 1.51 shall be used for
purposes of the limitations imposed by Code Section 415.
(b) If as a result of reasonable error in estimating a
Participant's Section 414 Compensation, or as a result of such other
circumstances as may be permitted under applicable Treasury Regulations, the
annual additions, as defined in Code Section 415(c)(2), to a Participant's
Account shall in any Plan Year exceed the maximum permitted under Code Section
415, the Committee shall, pursuant to the provisions of Section 1.415-6(b)(6) of
the Treasury Regulations (or any successor provision thereto), treat the excess
amounts as follows:
(i) Pursuant to the provisions of Section 1.415-6(b)(6)(ii)
of the Treasury Regulations, the excess amounts attributable to Profit
Sharing Contributions, Matching Contributions and QNECs shall be used to
reduce Profit Sharing Contributions, Matching Contributions and QNECs for
the next Limitation Year (and succeeding
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Limitation Years, as necessary) for that Participant if that Participant is
covered by the Plan as of the end of the Limitation Year.
(ii) If the Participant is not covered by the Plan as of the
end of the Limitation Year, then the excess amounts attributable to Profit
Sharing Contributions, Matching Contributions and QNECs shall be held
unallocated in a suspense account for the Limitation Year and allocated and
reallocated in the next Limitation Year (and succeeding Limitation Years, as
necessary) to all of the remaining Participants in the Plan before any
Profit Sharing Contributions, Matching Contributions and QNECs which would
constitute annual additions are made to the Plan for such Limitation Year.
(iii) Excess amounts attributable to Profit Sharing
Contributions, Matching Contributions and QNECs may not be distributed to
Participants or former Participants.
(iv) Excess amounts attributable to Salary Reduction
Contributions and any earnings thereon shall be distributed to the
Participant pursuant to the provisions of Section 1.415-6(b)(6)(iv) of the
Treasury Regulations.
(c) Notwithstanding anything herein to the contrary, in the event
the annual additions on behalf of a Participant in any Limitation Year exceeds
the limitation of Code Section 415, such annual additions shall be reduced by
reducing contributions to this Plan, and if any excess then still exists, by
limiting or reducing contributions to another plan of the Employer, or any other
entity aggregated under Section 415(h) of the Code, qualified under Section
401(a) of the Code. In the event that contributions to this Plan are reduced
pursuant to the preceding sentence, Matching Contributions shall be reduced
first to eliminate the excess, then Profit Sharing Contributions, then QNECS,
and if any excess then still exists, Salary Reduction Contributions pursuant to
Section 4.1 hereof shall then be reduced to eliminate the excess.
(d) In no event shall the contributions by the Employer under this
Article IV, when combined with amounts contributed pursuant to Section 4.1
hereof and any other plan of the Employer qualified under Section 401(a) of the
Code be in excess of the
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amounts deductible pursuant to Section 404(a)(3) of the Code, or the Section of
any future Code provision limiting deductions to profit-sharing plans.
4.9 Investment of Contributions. (a) Subject to the rules of the
Committee, a Member (or, in the event of the Member's death, the Member's
Beneficiary) may elect to have his or her Account and future contributions made
on his or her behalf to such Account, invested in such percentages as permitted
by the Committee in one or more of the Investment Funds, which shall be funds
maintained or established by a bank, trust company, insurance company, mutual
fund or investment company, designated by the Committee as Investment Funds
under this Section 4.9. Of the designated Investment Funds, there shall be at
least three (3) Investment Funds (each of which provides a broad range of
investment alternatives as contemplated under Section 404(c) of ERISA and the
regulations thereunder) and the Company Stock Fund. From time to time the
Committee may designate additional Investment Funds, withdraw the designation of
Investment Funds or change designated Investment Funds.
(b) Upon enrollment or upon request of the Committee, each Member
shall elect in writing filed with the Committee the manner in which his or her
Account and future contributions made on his or her behalf to such Account, are
to be invested (unless specifically permitted by the Committee, an investment
election shall apply consistently to each subaccount and future contributions to
such Account shall be invested in the same manner and proportion).
Notwithstanding the foregoing, if a mutual fund or separate account is
designated by the Committee as a vehicle for investing contributions and the
mutual fund company or insurance company maintaining the mutual fund or separate
account or a third party administrator permits telephonic elections of the
manner in which a Member's Account and future contributions made
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on behalf of him or her are invested, the Committee may provide for such
telephonic elections. If no election is made (whether in writing or by
telephonic or electronic transmission), the Member's Account and future
contributions shall be invested in a guaranteed interest fund or money market
fund, or if there is more than one such fund or no such fund which has been so,
the Fund designated by the Committee for such investments. If the Member (or, in
the event of the Member's death, the Member's Beneficiary) fails to change his
or her election, the previous investment election shall remain effective until
the Member (or Beneficiary) affirmatively changes his or her investment
election. Subject to the provisions of the governing documents of the Investment
Funds involved, if there is a change in designated Investment Funds and a Member
(or in the event of the Member's death, the Member's Beneficiary) does not make
a new election, he or she will be deemed to have designated investment in the
designated Investment Funds most similar to those previously elected and in the
same proportion as previously elected. Subject to any limitations imposed by the
Investment Funds, a Member (or in the event of the Member's death, the Member's
Beneficiary) may change his or her election of designated Investment Funds with
regard to future contributions and current Account Values as of the first day of
any calendar quarter (or at such additional times as may be permitted by the
Committee) by filing a new written election with the Committee at such times as
may be prescribed by the Committee and with such prior notice as specified by
the Committee in advance of the date the change is to become effective or, if
telephonic elections with a mutual fund or separate account permitted, with such
notice as required by the mutual fund company or insurance company. Subject to
the rules of the Investment Funds and the Committee, including, without
limitation, rules restricting the availability of transfers and setting minimum
or maximum amounts that may be transferred and when transfers are permitted, a
Member (or in the event of the Member's
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death, the Member's Beneficiary) may transfer all or a part of his or her
Account from one Investment Fund to another Investment Fund in such percentages
as permitted by the Committee. All elections and transfers shall be subject to
rules established by the Committee and by the bank, trust company, mutual fund
or investment company maintaining the fund.
(c) With respect to a Member's Account, each Member (or, in the
event of the Member's death, the Member's Beneficiary) shall be solely
responsible for his or her investments under the Plan. The fact that an
Investment Fund is available under the Plan shall not be considered an
investment recommendation. The Employer intends that this Plan conform to
Section 404(c) of ERISA and Department of Labor Regulation Section 2550.404c-1
and that the Plan and Trust are operated and administered in accordance with
such provisions. With respect to any investment election or other direction by a
Member (or, in the event of the Member's death, the Member's Beneficiary), none
of the Trustee, the Plan Administrator, the Committee or the Employer shall be
under any duty to question any such direction of a Member (or, in the event of
the Member's death, the Member's Beneficiary). The Trustee shall comply as
promptly as is practicable with the directions given by a Member or by a
Beneficiary in accordance with the terms of the Plan. None of the Trustee, the
Plan Administrator, the Committee or the Employer shall be responsible or liable
for any loss or expense which may arise from or result from compliance with any
directions from the Member (or, in the event of the Member's death, the Member's
Beneficiary).
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ARTICLE V
VESTING AND FORFEITURES
5.1 Vesting of Interest of Participant in Trust Fund. (a) A Member
shall be fully vested in his or her Salary Reduction Contribution Account, QNEC
Account, Employee Rollover Account, Silver King Employee Contribution Account
and Silver King Rollover Account at all times and such Account balances shall at
all times be nonforfeitable.
(b) The portion of a Member's Accrued Benefit in his or her
Matching Contribution Account, Profit Sharing Account and Silver King Employer
Contribution Account which shall become vested and nonforfeitable shall be based
on his or her number of years of his or her Period of Service according to the
following schedule:
Number of Years Nonforfeitable
in Period of Service Percentage
-------------------- --------------
Less than 1................................... 0%
1 but less than 2............................. 20%
2 but less than 3............................. 40%
3 but less than 4............................. 60%
4 but less than 5............................. 80%
5 or more..................................... 100%
Notwithstanding the foregoing provisions, if any Member shall, while an
Employee, attain his or her Normal Retirement Age or shall die or incur (and
satisfy all of the requirements for) a Disability while he or she is an
Employee, the Member's entire interest in his or her Account shall become
nonforfeitable.
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(c) Notwithstanding the foregoing, all participants in the Silver
King Plan who were actively employed by Silver King Communications, Inc. on
December 1, 1995 shall be fully vested in his or her Account.
5.2 Forfeitures. In the event a Member incurs a Termination of
Employment, any portion of the Member's Matching Contribution Account, Profit
Sharing Account and Silver King Employer Contribution Account to which he or she
is not then entitled pursuant to Section 5.1(b) hereof shall be forfeited (a
"Forfeiture"). A Forfeiture shall be deemed to take place at the following time:
(a) If the Member has no vested interest in any of his or her
Accounts, the Forfeiture shall take place in the Plan Year in which his or her
Termination of Employment occurs. In such case, the Member shall be deemed to
have a distribution of his or her zero Account Value at the time of his or her
Termination of Employment.
(b) If the Member has any vested interest in any of his or her
Accounts, the Forfeiture shall take place in the Plan Year in which occurs the
earlier of (i) completion of the distribution of the Member's benefits or (ii)
incurrence by the Member of his or her fifth (5th) consecutive one-year Period
of Severance.
5.3 Restoration of Forfeitures. (a) If an Employee whose Matching
Contribution Account, Profit Sharing Account and Silver King Employer
Contribution Account was forfeited in its entirety pursuant to Section 5.2 above
again becomes employed by an Employer or an Affiliate before he or she incurs
his or her fifth (5th) consecutive One Year
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Period of Severance, the amount of his or her Forfeiture shall be restored to
his or her Matching Contribution Account, Profit Sharing Account and Silver King
Employer Contribution Account.
(b) If an Employee who received a distribution of less than all of
his or her Matching Contribution Account, Profit Sharing Account and Silver King
Employer Contribution Account is again employed by an Employer or an Affiliate
before he or she incurs his or her fifth (5th) consecutive One Year Period of
Severance and repays to the Plan, prior to the earlier of his or her incurring
his or her fifth (5th) consecutive One Year Period of Severance or five (5)
years after the first day on which he or she is reemployed by an Employer or an
Affiliate, the amount of his or her previous distribution, if any, the amount of
his or her Forfeitures shall be restored to his or her Matching Contribution
Account, Profit Sharing Account and Silver King Employer Contribution Account.
5.4 Use of Forfeitures. Forfeitures, if any, shall be first allocated
to the Accounts of Participants entitled to a restoration of their interests in
the Plan and the remainder of such Forfeitures shall be used to reduce future
contributions by the Employer.
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ARTICLE VI
ALLOCATION
6.1 Salary Reduction Contribution Accounts. Salary Reduction
Contributions shall be allocated to the Salary Reduction Contribution Account of
each Participant who entered into a salary reduction agreement pursuant to which
such contributions were made.
6.2 Matching Contribution Accounts. Matching Contributions for any Plan
Year shall be allocated to the Matching Contribution Account of each Participant
for whom such contributions have been made pursuant to Section 4.2 hereof in the
amount of the Matching Contributions for each Participant.
6.3 QNEC Account. Contributions to the QNEC Account, if any, shall be
allocated to the Accounts of the Participants for whom QNECs have been made
pursuant to Section 4.4 hereof in the amount of the QNECs for such Participant.
6.4 Profit Sharing Accounts. Profit Sharing Contributions for any Plan
Year shall be allocated to the Profit Sharing Account of each Participant for
whom such contributions have been made pursuant to Section 4.5 hereof in the
amount of the Profit Sharing Contributions for each Participant.
6.5 Employee Rollover Account. Rollover contributions shall be
allocated to the Employee Rollover Account of the Participant who made the
rollover contribution to the Plan.
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6.6 Silver King Employee Contribution Account. Elective deferrals and
qualified non-elective contributions transferred to the Plan pursuant to the
merger of the Silver King Plan into the Plan shall be allocated to the Silver
King Employee Contribution Account of the Member for whom such contributions
were made to the Silver King Plan.
6.7 Silver King Employer Contribution Account. Employer contributions
transferred to the Plan pursuant to the merger of the Silver King Plan into the
Plan shall be allocated to the Silver King Employer Contribution Account of the
Member for whom such contributions were made to the Silver King Plan.
6.8 Silver King Rollover Account. Rollover contributions transferred to
the Plan pursuant to the merger of the Silver King Plan into the Plan shall be
allocated to the Silver King Rollover Account of the Member for whom such
contributions were made to the Silver King Plan.
6.9 Valuation of the Trust Fund. The Trust Fund shall be valued at Fair
Market Value by the Trustee at each Valuation Date, with appropriate allocations
and adjustments for any items of income, expenses, gains and losses, and all
other transactions for the Plan Year. The net income thus arrived at, exclusive
of forfeitures (and net income thereon), shall be allocated on a basis of
Account balances and in a fair and nondiscriminatory manner which shall reflect
the interests of the Participants during such Plan Year in the Investment Funds
and in the Trust Fund. In addition, the Account of each Participant shall bear
any fees of the Trustee or Investment Fund charged with regard to maintaining
his or her or her Account that are not paid by the Employer. The interest of
each Participant in the Company Stock Fund shall be expressed as units of the
Investment Fund as of a Valuation Date and shall be determined by
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using unit accounting. The interest of each Participant in the Investment Funds
(other than the Company Stock Fund) shall be expressed in accordance with the
valuation methods and practices of the entity maintaining the Investment Fund.
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ARTICLE VII
DISTRIBUTIONS
7.1 General Rule. Except as otherwise provided in this Article or
prohibited by law, a Member's vested Account balance under the Plan shall be
available to the Member for distribution at any time after any of the following:
(a) the Member's retirement at or after his or her Normal
Retirement Age;
(b) the Member's death or Disability;
(c) the Member's Termination of Employment; or
(d) as set forth in Section 7.3 below; or
(e) solely to the extent permitted under Section 7.13 hereof, the
Member's attainment of age fifty-nine and one-half (59-1/2) regardless of
whether the Member had a Termination of Employment.
Such distribution shall be made to the Member on or as soon as
administratively feasible (and in accordance with the Plan's administrative
procedures) following the first day of the calendar month following the Benefit
Starting Date requested in writing by the Member. The Benefit Starting Date may
not be more than ninety (90) days after such request and, except as provided
below, may not be less than thirty (30) days after such request. The Member's
distribution shall be based on the Value on the last Valuation Date prior to the
date of actual distribution (and any contributions made since that Valuation
Date), provided that no distribution
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may be made until the Committee has provided the Participant with a notice as to
his or her rights and benefits under the Plan not more than ninety (90) days or
less than thirty (30) days prior to the Member's Benefit Starting Date.
Notwithstanding the foregoing, a Member may elect a Benefit Starting Date
earlier than thirty (30) days, but no less than seven (7) days, after receiving
such notice from the Committee, provided that:
(i) the Participant has been clearly informed that he or she
has a right to a period of at least thirty (30) days after receiving the
notice to consider the decision of whether or not to elect a distribution;
(ii) the Member, after receiving the notice, affirmatively
elects a distribution; and
(iii) in the case of a Silver King Participant who is married,
the consent of the Silver King Participant's Spouse is obtained in
accordance with Section 7.7 and Exhibit A if the form of benefit with
respect to the Silver King Participant's Silver King Account is not made in
the normal form for married Participants as provided in Exhibit A.
Until the Benefit Starting Date, the Member's Account shall be retained
in the Trust Fund and revalued pursuant to Section 6.9 hereof. Between the
Benefit Starting Date and the actual date on which distribution commences, the
Member's Account shall be revalued pursuant to Section 6.9 hereof and,
therefore, shall continue to share in gains and losses.
7.2 Form of Retirement Benefit Distributions. Subject to Exhibit A, a
Member shall have the vested portion of his or her Account balance under the
Plan distributed in a lump sum payment consisting of (i) cash equal to the Fair
Market Value of his or her interest in the Investment Funds (including, if
elected by the Member, his or her interest in the Company Stock Fund) and (ii)
if elected by the Member, Company Stock representing all or a portion of his or
her interest in the Company Stock Fund. Fractional shares of Company Stock shall
be
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aggregated to create whole shares of Company Stock, which shall be distributed
in the form of whole shares of Company Stock, if the Member elects to receive
all or a portion of his or her interest in the Company Stock Fund in Company
Stock. Notwithstanding the foregoing, cash shall be distributed in lieu of
excess fractional shares of Company Stock.
7.3 Required Commencement Date. (a) Notwithstanding the foregoing,
except as otherwise permitted by law, the payment of benefits to a Member shall
begin not later than the April 1st following the end of the calendar year in
which the Participant has both attained age seventy and one-half (70-1/2), and
retired from service with the Employer. Notwithstanding the foregoing, the
payment of benefits to a Participant who is a 5-percent owner, as defined in
Section 416 of the Code, and who is in the employ of the Employer shall begin
not later than the April 1st following the end of the calendar year in which the
Participant attains age seventy and one-half (70-1/2). Unless otherwise timely
elected by the Participant, the Benefit Starting Date shall be the last
Valuation Date coinciding with or immediately preceding the aforesaid April 1st.
Such last Valuation Date shall be deemed the Benefit Starting Date. For purposes
of this Section 7.3, the life expectancy of the Participant and the
Participant's designated beneficiary may be recalculated annually.
(b) Notwithstanding the foregoing, a Participant, other than a
Terminated Participant or Retired Participant, shall be entitled to commence
receiving minimum distributions under the Plan pursuant to Section 401(a)(9) of
the Plan, not later than the April 1st following the end of the calendar year in
which the Participant attains age seventy and one-half (70 1/2). Notwithstanding
any other provision to the contrary, a Terminated Participant or Retired
Participant shall be entitled to receive distributions as provided under Section
7.2 of the Plan.
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(c) A Participant who attained age 70-1/2 before January 1, 1997
and commenced distributions pursuant to Code Section 401(a)(9) on a date on or
before January 1, 1997, but who remained employed by the Employer after such
date, may affirmatively elect, subject to the terms of any applicable qualified
domestic relations order as defined in Section 414(p) of the Code, to cease
receiving such distributions at any time prior to the earlier of the
Participant's Termination of Employment or December 31, 1999. Any election made
pursuant to this Section 7.3(c) shall be made by giving prior written notice to
the Plan Administrator on a form provided by the Committee for such a purpose.
This Section 7.3(c) is intended to comply with the requirements of Internal
Revenue Service Notice 97-75 and shall therefore be interpreted in accordance
with such Notice and any subsequent guidance or modifications issued by the
Internal Revenue Service regarding Internal Revenue Service Notice 97-75.
(d) This Section and the Plan shall be interpreted and administered
in accordance with Code Section 401(a)(9) and the regulations thereunder
(including without limitation, Proposed Treasury Regulation Section
1.401(a)(9)-2).
7.4 Death of a Participant. Subject to Exhibit A, in the event that a
Member dies prior to his or her Benefit Starting Date, the Value of such
Member's Account shall be distributed to such Member's Beneficiary in a lump sum
as soon as administratively feasible after the Valuation Date coinciding with or
next following the Member's death. Notwithstanding the foregoing, if a Member is
married on the date of his or her death and dies prior to his or her Benefit
Starting Date, the Value of such Member's Account shall be distributed to such
Member's Spouse in a lump sum as soon as administratively feasible after the
Valuation Date coinciding with or next following the Member's death, unless such
Member had, with the
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consent (obtained in accordance with the provisions of Section 7.7 hereof) of
his or her Spouse at the time of his or her death, designated another
Beneficiary.
7.5 Proof of Death and Right of Beneficiary. The Committee may require
and rely upon such proof of death and such evidence of the right of any
Beneficiary to receive the undistributed vested Value of the Account of a
deceased Member as the Committee may deem proper, and its determination of death
and of the right of such Beneficiary to receive payments shall be conclusive.
7.6 Limitation on Payments. Notwithstanding anything else in this Plan
to the contrary, the payment of benefits with respect to a deceased Member shall
be made in accordance with Code Section 401(a)(9) and the regulations
thereunder. All benefits payable under the Plan shall be subject to the
following limitations and rules which shall in no event expand the requirements
and limitations on benefit payments set forth elsewhere herein:
(a) In no event shall the payment of benefits under any form of
benefit elected by a Member extend over a period which exceeds the longest of:
(i) the life of the Member;
(ii) the lives of the Member and his or her Beneficiary, if
any;
(iii) the life expectancy of the Member; or
(iv) the joint life expectancies of the Member and his or her
Beneficiary, if any.
(b) Notwithstanding anything else in this Plan to the contrary, the
payment of any death benefit payable to any Beneficiary of a Member shall be
subject to the
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rules and restrictions of Code Section 401(a)(9) and the regulations thereunder
(including, without limitation, Proposed Treasury Regulation Section
1.401(a)(9)-2) which restrictions shall not expand the requirements of Section
7.2 and Section 7.4 hereof with regard to a payment upon death:
(i) If the Member dies after his or her required beginning
date under Code Section 401(a)(9) and the regulations thereunder or after
his or her benefits have irrevocably commenced (the "Commencement Date"),
such death benefit must be distributed to the Beneficiary under a method
that is at least as rapid as the method under which distributions were being
made to the Member as of the date of the Member's death;
(ii) If the Member dies before his or her Commencement Date
and the Beneficiary is not a designated Beneficiary within the meaning of
Code Section 401(a)(9), the entire interest of the Member must be
distributed over a period which does not exceed five (5) years from the
December 31st of the calendar year in which such Member's death occurred;
(iii) Except as provided in (iv) below, if a Member's interest
is payable to, or for the benefit of, a designated Beneficiary (other than
such Member's Spouse), such portion may be distributed over a period which
does not exceed the life, or life expectancy, of such designated
Beneficiary, provided that distribution of such portion must commence not
later than December 31st of the calendar year immediately following the
calendar year in which the Member's death occurred or such later date as may
be permitted under applicable Treasury regulations;
(iv) If the Member dies before his or her Commencement Date
and any portion of such Member's interest is payable to, or for the benefit
of, such Member's Spouse as designated Beneficiary, distribution of such
portion must commence no later than the later of the period specified in
(iii) above or the December 31st of the calendar year in which the Member
would have attained age seventy and one-half (70-1/2);
(v) In the event that a Member shall have designated his or
her Spouse as designated Beneficiary and such Spouse shall die after the
death of the Member and before the commencement of distributions to such
Spouse, the Member's Spouse shall be substituted for the Member in applying
the provisions of this subsection (v), but only for the purpose of
determining the period over which payment of benefits may be made;
(vi) For purposes of this Section 7.6 the life expectancy of a
Member and his or her Spouse may be recalculated no more frequently than
annually; and
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(vii) For purposes of this Section 7.6, and in accordance with
applicable Treasury regulations, any death benefit to a Member's child shall
be treated as if it had been paid to such Member's surviving Spouse if such
amount will become payable to such surviving Spouse upon such child's
reaching the age of majority (or upon the occurrence of such other event as
may be designated by applicable Treasury regulations).
7.7 Consent of Spouse. Whenever the terms of this Plan require that the
consent of a Member's Spouse be obtained, such consent shall be valid only if it
is in writing, contains an acknowledgment by such Spouse of the effect of such
consent, designates a Beneficiary which may not be changed without the consent
of the Spouse (unless such consent specifically permits designation by the
Member without any requirement of further consent of the Spouse) and is
witnessed either by a representative of the Plan or by a notary public;
provided, however, that the consent of a Member's Spouse shall not be required
in the event that the Member establishes to the satisfaction of the Plan
representative that he or she has no Spouse, that such Spouse cannot be located,
or under such other circumstances as may be permitted under applicable Treasury
regulations. Any consent of a Member's Spouse obtained in accordance with the
provision of this Section 7.7 shall be revocable by the Member during his or her
lifetime without the consent of the Member's Spouse. Unless a Qualified Domestic
Relations Order, as defined in Section 414(p) of the Code, requires otherwise, a
Spouse's consent shall not be required (and, hence, shall for purposes of this
Plan be deemed given) if the Participant is legally separated or the Participant
has been abandoned (within the meaning of local law) and the Participant has a
court order to such effect.
7.8 Cash-Outs. Notwithstanding any other provision of this Plan, if a
Member's vested Account Value is equal to or less than three thousand five
hundred dollars ($3,500) at the time of his or her Termination of Employment and
at all times thereafter prior to
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distribution, such vested Account Value shall be distributed in the form of a
lump sum distribution without the consent of the Participant as soon as
administratively feasible. Notwithstanding the foregoing, with regard to any
Member who incurs a Termination of Employment on or after January 1, 1998 (and
to the extent permitted by applicable guidance from the Secretary of Treasury,
Members who incurred a Termination of Employment prior thereto), if the Member's
vested Account balance is equal to or less than five thousand dollars ($5,000)
at the time of his or her Termination of Employment and at all times thereafter
prior to distribution, such vested Account balance shall be distributed in the
form of a lump sum distribution (in the form set forth in Section 7.2 hereof)
without the consent of the Member as soon as administratively feasible.
7.9 Required Distributions. Notwithstanding anything else herein, a
Member shall be eligible to receive payment, or to commence payment, under the
Plan of his or her benefits no later than sixty (60) days after the end of the
Plan Year in which the latest of the following occurs:
(i) the Member's attainment of age sixty-five (65);
(ii) the tenth (10th) anniversary of the year in which the
Member began participation in the Plan; or
(iii) the Member's Termination of Employment.
7.10 Limit on Distribution from Salary Reduction Contribution Accounts
QNEC Accounts and Silver King Employee Contribution Accounts.
(a) Notwithstanding anything else herein and without expanding the
rights with regard to distributions otherwise set forth herein, no distribution
shall be made from a
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Participant's Salary Reduction Contribution Account, QNEC Account or Silver King
Employee Contribution Account prior to:
(i) Separation from service, death or Disability of the
Member;
(ii) Termination of the Plan without establishment or
maintenance of another defined contribution plan (other than an employer
stock ownership plan as defined in Code Section 4975(e)(7));
(iii) The disposition by the Employer of substantially all of
the assets (within the meaning of Code Section 409(d)(2)) used by the
Employer in a trade or business of the Employer, but only with respect to an
Employee who continues employment with the corporation acquiring the assets;
(iv) The disposition by an Employer of its interest in a
subsidiary (within the meaning of Code Section 409(d)(3)), but only with
respect to an Employee who continues employment with such subsidiary;
(v) The attainment of age fifty-nine and one-half (59-1/2) by
the Participant; or
(vi) In the case of the Salary Reduction Contribution Account
and Silver King Employee Contribution Account, a Participant experiencing a
Hardship, as defined in Section 7.11 below.
(b) With regard to subparts (ii), (iii) and (iv) of paragraph (a)
above, any distribution made by reason of one of such events must be a lump sum
distribution (as defined in Code Section 402(e)(4) without regard to clauses
(i), (ii), (iii) and (iv) of subparagraph (A), subparagraph (B) or subparagraph
(H) thereof). With regard to subparts (ii) and (iii) of paragraph (a) above,
such event shall be deemed covered by such subpart only if the Employer
continues to maintain the Plan after the disposition. The foregoing limitations
on distributions are intended to comply with the requirements of Code Section
401(k)(2)(B) and shall therefore be interpreted in accordance with such Code
Section and the regulations thereunder.
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7.11 In-Service Distributions for Hardship. (a) In the event of
Hardship (as hereinafter defined), a Participant shall have the right to
withdraw, up to the amount of the Hardship, all or a part of his or her Salary
Reduction Contribution Account and Silver King Employee Contribution Account
(but not in excess of the actual contributions on his or her behalf to such
Accounts), upon such prior written notice to the Committee as the Committee may
require in accordance with its rules and regulations.
(b) For the purposes of this Section 7.11, a Participant shall
experience a "Hardship" if, and only if, such Participant experiences an
immediate and heavy financial need (as defined in (c) below) and the withdrawal
is necessary to satisfy the financial need of the Participant (as defined in (d)
below).
(c) A Participant will be deemed to experience an immediate and
heavy financial need if, and only if, he or she needs the withdrawal for one of
the following reasons:
(i) to pay for expenses for medical care described in Code
Section 213(d) previously incurred by the Participant, the Participant's
Spouse, or any dependents of the Participant, or necessary for these persons
to obtain medical care described in Code Section 213(d);
(ii) to pay costs directly related to the purchase of a
principal residence for the Participant (excluding mortgage payments);
(iii) to pay tuition and related educational fees, including
room and board expenses, for the next twelve (12) months of post-secondary
education for the Participant, or the Participant's Spouse, children or
dependents;
(iv) to pay amounts necessary to prevent the eviction of the
Participant from the Participant's principal residence or foreclosure on the
mortgage of that residence; or
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(v) such other financial needs as may be specifically
promulgated by the Internal Revenue Service.
(d) A withdrawal will be deemed necessary to satisfy the financial
need of a Participant if, and only if:
(i) The withdrawal is not in excess of the amount of the
immediate and heavy financial need of the Participant. The amount of an
immediate and heavy financial need may include any amounts necessary to pay
any federal, state or local income taxes or penalties reasonably anticipated
to result from the distribution.
(ii) The Participant has obtained all distributions, other
than Hardship distributions, and all nontaxable loans currently available
under all plans maintained by the Employer.
(e) In the event the Participant makes a withdrawal pursuant to
this Section 7.11, then:
(i) The Participant shall be suspended from making Salary
Reduction Contributions pursuant to Section 4.1 hereof pre-tax elective or
after-tax voluntary contributions to any other qualified or nonqualified
plan maintained by the Employer (which shall be deemed to include all
qualified and nonqualified plans of deferred compensation, other than the
mandatory employee contribution portion of a defined benefit plan, stock
option, stock purchase or similar plan, but shall not include health or
welfare benefit plans) for twelve (12) months following the withdrawal; and
(ii) In the taxable year following the withdrawal, the
Participant's Salary Reduction Contributions under this Plan and any other
permitted pre-tax elective contribution to any other plan maintained by the
Employer may not be greater than the excess of the applicable limit under
Code Section 402(g) for such next taxable year less the amount of such
Participant's Salary Reduction Contributions hereunder and any other
permitted pre-tax elective contributions to any other plan maintained by
the Employer for the taxable year of the Hardship distribution.
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(f) No withdrawal shall be for less than two hundred dollars
($200). Only one withdrawal may be made in any twelve (12) consecutive month
period. All withdrawals shall be on the basis of the Value of the Participant's
Salary Reduction Contribution Account and Silver King Employee Contribution
Account on the Valuation Date that is at least thirty (30) days after the
request for withdrawal is made. The Committee may establish rules and
regulations, which do not discriminate in favor of officers, stockholders and
Highly Compensated Employees, as to procedures, forms and required notice
periods for withdrawal requests.
7.12 Distribution of Rollover Contributions. A Participant shall, at
any time, have the right to withdraw any or all amounts in his or her Employee
Rollover Account and Silver King Rollover Account, upon such prior written
notice, as prescribed by the Committee, to the Committee.
7.13 In-Service Distributions On or After Age 59-1/2. (a) A Participant
shall have the right to receive in-service distributions from the vested portion
of his or her Account on or after his or her attainment of age fifty-nine and
one-half (59-1/2), upon such prior written notice, as prescribed by the
Committee, to the Committee.
(b) Any in-service distribution by a Silver King Participant from
any portion of his or her Silver King Account shall require the consent
(obtained in accordance with the provisions of Section 7.7 hereof and Exhibit A)
of the Silver King Participant's Spouse.
7.14 Loans to Participants. (a) Upon application of any Participant
employed by the Employer or any person covered by paragraph (e) below (a
"Borrower") to the Committee,
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the Committee shall direct the Trustee to make a loan or loans to such Borrower
from the Loan Available Account (as defined in paragraph (f) below) of the
Borrower. The minimum amount of any loan shall be five hundred dollars ($500).
All such loans shall (i) be adequately secured, (ii) bear interest at the
prevailing commercial rate determined by the Committee based on a review of
prevailing commercial rates in the Employer's geographical region, (iii) be
subject to such charges as imposed by the Committee in accordance with a uniform
nondiscriminatory policy and (iv) be repaid within a specified period not longer
than five (5) years in substantially level amortized payments by means of
payroll deduction (not less frequently than quarterly), provided that such
period may exceed five (5) years (but may not exceed fifteen (15) years, if the
loan is used to acquire any dwelling unit which within a reasonable time is to
be used (determined at the time the loan is made) as the principal residence of
the Participant; and further provided that all loans made to Participants while
actively employed by the Employer shall become immediately due and payable
within ninety (90) days following Termination of Employment unless paragraph (e)
of this Section 7.14 is applicable. Loan repayments will be suspended under this
Plan as permitted under Section 414(u)(4) of the Code. Any loan shall be subject
to such additional acceleration provisions as shall be determined by the
Committee to be commercially reasonable. In no event shall the total of any such
loan or loans to any Borrower from the Plan and any Section 401(a) Plan required
to be aggregated with this Plan pursuant to Code Section 72(p) exceed the least
of (i) $50,000, less the excess (if any) of (A) the highest amount of loans
outstanding within the twelve (12) month period ending on the day prior to the
date the loan is made over (B) the outstanding balance of loans outstanding on
the date the loan is made, or (ii) fifty percent (50%) of the vested Account of
the Borrower under the Plan. Only two (2) loans (including any loan outstanding
pursuant to paragraph (j) hereof) to a Participant
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may be outstanding simultaneously; provided, however, that one (1) of the two
(2) loans must be used to acquire any dwelling unit which within a reasonable
time is to be used (determined at the time the loan is made) as the principal
residence of the Participant and that one (1) of the two (2) loans must be used
as a general purpose loan. Notwithstanding the foregoing, a loan shall not be
deemed outstanding if all or a portion of it is to be used (determined at the
time the loan is made) to repay an existing loan under the Plan to such same
Participant.
(b) As security for such loan or loans, the Borrower shall pledge
the portion of his or her Loan Available Account represented by the loan and
earnings thereon. Loans to Participants shall be repaid through salary
deductions made on a level basis during each applicable pay period. In the event
that the Borrower does not repay any loan or the interest thereon within the
time and upon the schedules set forth in the promissory note representing the
loan, the Committee shall deduct the total amount of the loan outstanding, and
any interest and other charges then due and owing, from any payment or
distribution from the Borrower's Loan Available Account securing the loan to
which such Borrower may be entitled under the terms of the Plan. If under the
terms of the Plan, payment or distribution is not then permitted, the Borrower
will have a deemed distribution for tax purposes, but the loan will remain
outstanding and the Committee shall deduct the total amount of the loan
outstanding, and any interest and other charges then due and owing, from the
portion of the Borrower's Loan Available Account securing the loan as soon as a
distribution or withdrawal is then permitted at law from such portion of the
Loan Available Account (without regard to limitations in the Plan that are
narrower than required by the Code) Any loan hereunder shall be considered an
investment of the Participant's Loan Available Account and Participants may
elect the Investment Fund or Investment Funds from which such loan shall be
made. In the event no such election is made,
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any such loan shall reduce the investment of the Participant in each respective
Investment Fund, on a proportionate basis. When a loan is repaid, the repayment
shall be invested in the manner and same proportion that the Participant had
previously elected for his Account and which is currently in effect pursuant to
Article 4.
(c) In the event any loan remains outstanding at the time a
distribution (other than an additional loan) is otherwise scheduled to occur and
such distribution would reduce the prescribed security for, or otherwise violate
limitations with regard to the loan, then the amount of the distribution will be
reduced by all or a portion of the outstanding loans to prevent such reduction.
(d) A loan may be prepaid in full or part at any time, but any
prepayment shall be applied to the last payments due on the loan.
(e) Any "party in interest" as defined in ERISA Section 3(14) who
is a Terminated Participant or Retired Participant with an Account balance under
the Plan shall have the right to receive a loan from the Plan.
(f) Loan Available Account is defined for purposes of this Section
7.14 as the Participant's Silver King Employee Contribution Account, if any, and
then the Salary Reduction Contribution Account.
(g) No loan shall be made in the event that the interest rate
required to be charged pursuant to (a)(ii) of this Section 7.14 would violate
any applicable usury law.
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(h) The Committee shall administer this Section 7.14 pursuant to
the foregoing and such additional rules and regulations as it shall promulgate
in accordance with Code Section 72(p) and Department of Labor Regulation Section
2550.408b-1.
(i) Any loan to a Silver King Participant who is married as of the
date of the loan and all or part of whose Silver King Account will be held as
security for a loan hereunder shall require the consent (obtained in accordance
with the provisions of Section 7.7 and Exhibit A hereof within ninety (90) days
prior to the date of the loan) of the Member's Spouse to (i) the making of such
loan and (ii) any potential reduction of the benefits payable to or with respect
to such Member in the event of nonpayment of such loan. Such consent of a
Member's Spouse shall be required in the event of any renegotiation, extension,
renewal or other revisions of a loan to a Member.
(j) Notwithstanding the foregoing, a Silver King Participant who
immediately prior to becoming a Member had a loan (or loans) outstanding under
the Silver King Plan shall be entitled to keep such loan (or loans) outstanding
under the Plan until the loan (or loans) is repaid pursuant to the terms of the
Silver King Plan as in effect on January 1, 1998, to the extent such terms are
applicable. Notwithstanding the foregoing, repayment of principal and interest
on a loan made under the terms of the Silver King Plan shall be credited to the
applicable Silver King Account established for such Silver King Participant.
7.15 Unclaimed Payments. In the event that all, or any portion, of the
distribution payable to a Member or his or her Beneficiary hereunder shall, at
the expiration of five (5) years after it shall become payable, remain unpaid
solely by reason of the inability of the Plan Administrator, after sending a
registered letter, return receipt requested, to the last known
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address, and after requesting the cooperation of the Social Security
Administration to ascertain the whereabouts of such Member or his or her
Beneficiary, the amount so distributable shall be deposited into a suspense
account.
In the event a Member or Beneficiary is located subsequent to his or
her benefit being forfeited, such benefit shall be restored by the Employer.
7.16 Rollover Provisions. (a) Notwithstanding any provision of the Plan
to the contrary that would otherwise limit a Distributee's election under this
Section, a Distributee may elect, at the time and in the manner prescribed by
the Plan Administrator, to have any portion of an Eligible Rollover Distribution
paid directly to an Eligible Retirement Plan specified by the Distributee in a
Direct Rollover. The Committee shall have the authority to set minimums and
maximums with respect to Eligible Rollover Distributions and adopt other
guidelines and administrative procedures that are necessary or desirable to
administer the direct rollover rules under this Section.
(b) An "Eligible Rollover Distribution" is any distribution of all
or any portion of the balance to the credit of the Distributee, except that an
Eligible Rollover Distribution does not include: any distribution that is one of
a series of substantially equal periodic payments (not less frequently than
annually) made for the life (or life expectancy) of the Distributee or the joint
lives (or joint life expectancies) of the Distributee or the Distributee's
designated Beneficiary, or for a specified period of ten years or more; any
distribution to the extent such distribution is required under section 401(a)(9)
of the Code; and the portion of any distribution that is not includable in gross
income (determined without regard to the exclusion for net unrealized
appreciation with respect to Company Stock).
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(c) An "Eligible Retirement Plan" is an individual retirement
account described in Section 408(a) of the Code, an individual retirement
annuity described in Section 408(b) of the Code, an annuity plan described in
Section 403(a) of the Code, or a qualified trust described in Section 401(a) of
the Code, that accepts the Distributee's Eligible Rollover Dis tribution.
However, in the case of an Eligible Rollover Distribution to the surviving
Spouse, an Eligible Retirement Plan is an individual retirement account or
individual retirement annuity.
(d) A "Distributee" includes an Employee or former Employee. In
addition, the Employee's or former Employee's surviving Spouse and the
Employee's or former Employee's Spouse or former Spouse who is the alternate
payee under a qualified domestic relations order, as defined in Section 414(p)
of the Code, are Distributees with regard to the interest of the Spouse or
former Spouse.
(e) A "Direct Rollover" is a payment by the Plan to the Eligible
Retirement Plan specified by the Distributee.
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ARTICLE VIII
VOTING AND OTHER RIGHTS
8.1 Voting of Company Stock. Each Member (or, in the event of the
Member's death, the Member's Beneficiary) shall be entitled to instruct the
Trustee as to the manner in which the Company Stock held in the Company Stock
Fund attributable to the Member's Account shall be voted on each matter brought
before an annual or special stockholders' meeting of the Company. Before each
such meeting of stockholders, the Company shall cause to be furnished to each
Member (or, in the event of the Member's death, the Member's Beneficiary) a copy
of all proxy solicitation material, together with a form requesting confidential
instructions to be given to the Trustee on how the Company Stock attributable to
the Member's Account shall be voted on each such matter. Upon timely receipt of
such instructions, the Trustee shall on each such matter vote such Company Stock
as instructed. The instructions received by the Trustee from Members (or
Beneficiaries, as the case may be) shall be held by the Trustee in confidence
and shall not be divulged or released to any person, including officers or
employees of the Company or any Affiliate. Where no such voting instructions
have been received by the Trustee, the Trustee shall vote such Company Stock as
to which timely instructions were not received by the Trustee in the same
proportion as it votes shares of Company Stock as to which timely instructions
were received by the Trustee in accordance with ERISA.
8.2 Tender and Exchange Offers on Company Stock. (a) Each Member (or,
in the event of the Member's death, the Member's Beneficiary) shall have the
right, based upon the Company Stock held in the Company Stock Fund attributable
to the Member's Account, to direct
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the Trustee in writing as to the manner in which to respond to a tender or
exchange offer for such Company Stock and the Trustee shall tender or not tender
such Company Stock for each Member's Account based upon such instructions. The
Company shall utilize its best efforts to timely distribute or cause to be
distributed to each Member (or Beneficiary, as the case may be) such identical
written information (if any) as will be distributed to stockholders of the
Company in connection with any such tender or exchange offer and a tender or
exchange offer instruction form for return to the Trustee or its designee.
(b) The form described in (a) above shall show the number of full
shares of Company Stock attributable to the Member's Account (whether or not
vested) and shall provide a means for him or her or her to (i) instruct the
Trustee whether or not to tender such shares and (ii) specify the Investment
Fund under the Plan in which the proceeds of any sale shall be invested in the
event such shares are sold pursuant to the tender offer. Such form shall also
advise each Member with an investment in the Company Stock Fund that, in the
event the Trustee is not provided with tender or exchange instructions, the
Trustee shall not tender or exchange shares of Company Stock as to which timely
instructions were not received by the Trustee. Such form shall further advise
that, in the event a Member's Company Stock is sold and the Member has not
specified the Investment Fund in which the proceeds shall be invested, such
proceeds shall be invested in a guaranteed interest account or a money market
fund, until a further investment election is made by the Member pursuant to the
Plan. Except for the foregoing, the Company shall not provide to the Member any
information or guidance not provided to all stockholders. Upon receipt of such
instructions, the Trustee shall tender or not tender (or withdraw from tender)
or exchange such Company Stock in accordance with such instructions, and the
Trustee shall not to tender or exchange any such shares of Company Stock
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as to which timely instructions were not received by the Trustee. Except as may
be required by law, instruction forms received from the Member shall be retained
by the Trustee and shall not be provided to the Company or to any officer or
employee thereof or to any other person.
8.3 Procedures of the Company With Respect to Voting and Tender
Instructions. In implementing the foregoing procedures, the Company will act
fairly, in the best interests of each Member, and in a manner which will not
impose undue pressure on any Member as to what tender or exchange offer
instructions he or she or she should give to the Trustee. The giving of an
instruction to the Trustee to tender or exchange Company Stock shall not be
deemed to constitute withdrawal or suspension from the Plan or forfeiture of any
portion of a Member's interest in the Plan. Accounts shall be adjusted
appropriately to reflect the Trustee's execution of their instructions, or if no
instructions were received, no adjustment shall be made to the extent the
Trustee does not tender or exchange any such shares of Company Stock as to which
timely instructions were not received by the Trustee. Proceeds resulting from
the sale of any Company Stock shall be invested in the Investment Fund specified
by the Member in his or her or her instructions to the Trustee and, in the
absence of such instructions, such proceeds shall be invested in the money
market fund, until a further investment election is made by the Member pursuant
to the Plan.
8.4 Member Deemed Named Fiduciary. Notwithstanding anything in the Plan
to the contrary, each Member is, for purposes of this Section, hereby designated
a "named fiduciary", within the meaning of Section 402(a)(1) of ERISA, with
regard to his or her Account.
8.5 Confidentiality. It is intended that the Company Stock Fund is
administered and operated in accordance with Section 404(c) of ERISA and the
regulations
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thereunder. For such purposes, the Trustee shall be the identified fiduciary and
shall be responsible for, without limitation, the implementation and monitoring
of confidentiality procedures.
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ARTICLE IX
PAYMENT OF BENEFITS
9.1 Payments for Incompetent Persons. If the Committee shall find that
any person to whom a benefit is payable under the Plan is unable to care for his
or her affairs because of illness or accident, any payment due (unless a prior
claim therefor shall have been made by a duly appointed guardian, committee or
other legal representative) may be paid to the Spouse, child, grandchild,
parent, brother or sister of such person, or to any person deemed by the
Committee to have incurred expense for such person otherwise entitled to
payment. Any such payment shall be a complete discharge of any liability under
the Plan therefor.
9.2 Spendthrift. No benefit payable at any time under the Plan shall be
subject in any manner to alienation, anticipation, sale, transfer, assignment,
pledge, attachment or encumbrance of any kind. No benefit and no fund
established in connection with the Plan shall in any manner be subject to the
debts or liabilities of any person entitled to such benefit. This Section 9.2
shall also apply to the creation, assignment or recognition of a right to any
benefit payable with respect to a Member pursuant to a domestic relations order,
unless such order is determined to be a "qualified domestic relations order," as
defined in Section 414(p) of the Code, or any domestic relations order entered
before January 1, 1985. The procedures with regard to "qualified domestic
relations orders" are annexed hereto as Exhibit C. Notwithstanding anything
herein to the contrary, the provisions of this Section 9.2 shall not apply to
any offset of a Participant's benefits provided under the Plan against an amount
that the Participant is ordered or required to pay to the Plan under any of the
circumstances set forth in Section 401(a)(13)(C) of the Code and Sections
206(d)(4) and 206(d)(5) of ERISA.
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ARTICLE X
ADMINISTRATION OF THE PLAN
10.1 Plan Administrator. The general administration of the Plan on
behalf of the Plan Administrator shall be placed in a Committee of not less than
two (2) members. The members of the Committee shall be appointed by the Board or
a duly appointed committee thereof and each such member shall serve at the
pleasure of such Board.
10.2 Appointment to and Resignation From the Committee. Any person
appointed to be a member of the Committee shall signify his or her acceptance in
writing to the Board which appointed him or her. Any member of the Committee may
resign by delivering his or her written resignation to the Board which appointed
him or her. Such resignation shall become effective upon delivery or at any
later date specified therein.
10.3 Reimbursement of Expenses of Committee. The Plan shall pay or
reimburse the members of the Committee for all reasonable expenses incurred
unless the Employer shall pay or reimburse the members of the Committee for such
expenses.
10.4 Action by Majority of the Committee. A majority of the members of
the Committee at the time in office may do any act which the Plan authorizes or
requires the Committee to do, and the action of such majority of the members
expressed from time to time by a vote at a meeting, or in writing without a
meeting, shall constitute the action of the Committee and shall have the same
effect for all purposes as if assented to by all the members.
10.5 Internal Structure of Committee. The members of the Committee
shall elect from their number a Chairman and shall appoint a Secretary, who need
not be a member of
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the Committee. The Committee may appoint such subcommittees with such powers as
it shall determine and may authorize one or more members of the Committee or any
agent to execute or deliver any instrument or make any payment in its behalf.
10.6 Powers of the Committee. Subject to the limitations of the Plan,
the Committee may make such rules and regulations as it deems necessary or
proper for the adminis tration of the Plan and the transaction of business
thereunder; may interpret the Plan; may decide on questions as to the
eligibility of any person to receive benefits and the amount of such benefits;
may authorize the payment of benefits in such manner and at such times as it may
determine; may prescribe forms or telephonic or electronic means to be used for
making various elections under the Plan, for designating beneficiaries or for
changing or revoking such designations, for applying for benefits and for any
other purposes of the Plan, which prescribed forms in all cases must be executed
and filed with the Committee (unless the Committee shall otherwise determine)
and may take such other action or make such determinations in accordance with
the Plan as it deems appropriate. To the extent that the form or method
prescribed by the Committee to be used in the operation and administration of
the Plan does not conflict with the terms and provisions of the Plan, such form
shall be evidence of (i) the Committee's interpretation, construction and
administration of this Plan and (ii) decisions or rules made by the Committee
pursuant to the authority granted to the Committee under the Plan.
10.7 Actions of the Committee to be Uniform; Regular Personnel Policies
to be Followed. Any discretionary actions to be taken under this Plan by the
Committee with respect to the classification of the Employees, contributions, or
benefits shall be uniform in their nature and applicable to all Employees
similarly situated. With respect to service with the Employer,
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leaves of absence and other similar matters, the Committee shall administer the
Plan in accordance with the Employer's regular personnel policies at the time in
effect.
10.8 Decisions of Committee are Binding. The decisions of the
Committee with respect to any matter it is empowered to act on shall be made in
the Committee's sole discretion and shall be final, conclusive and binding on
all persons, based on the Plan documents. In carrying out its functions under
the Plan, the Committee shall endeavor to act by general rules so as to
administer the Plan in a uniform and nondiscriminatory manner as to all persons
similarly situated.
10.9 Spouse's Consent. In addition to when such consent is expressly
required by the terms of this Plan, the Committee may in its sole discretion
also require the written consent of the Employee's Spouse to any other election
or revocation of election made under this Plan before such election or
revocation shall be effective.
10.10 Delegation of Authority. The Committee may delegate any and all
of its powers and responsibilities hereunder to other persons by formal
resolution filed with and accepted by the Board of Directors. Any such
delegation shall not be effective until it is accepted by the Board and the
persons designated and may be rescinded at any time by written notice from the
Committee to the person to whom the delegation is made.
10.11 Multiple Fiduciary Capacities. Any person or group of persons may
serve in more than one fiduciary capacity with respect to the Plan.
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10.12 Retention of Professional Assistance. The Committee may employ
such legal counsel, accountants, actuaries and other persons as may be required
in carrying out the provisions of the Plan.
10.13 Reliance on Various Documents. The members of the Committee and
the Employer and its officers, trustees and directors shall be entitled to rely
upon all tables, valu ations, certificates and reports furnished by the Plan
actuary, upon all certificates and reports made by any accountant selected by
the Committee, and upon all opinions given by any legal counsel selected by the
Committee. The members of the Committee and the Employer and its officers,
trustees and directors shall be fully protected in respect of any action taken
or suffered by them in good faith in reliance upon any such actuary, accountant
or counsel, and all action so taken or suffered shall be conclusive upon all
parties.
10.14 Accounts and Records. The Committee shall maintain such accounts
and records regarding the fiscal and other transactions of the Plan and such
other data as may be required to carry out its functions under the Plan and to
comply with all applicable laws. The Committee shall report annually to the
Board on the financial condition and administrative operation of the Plan for
the preceding year.
10.15 Compliance with Applicable Law. The Company shall be deemed the
Plan Administrator for the purposes of any applicable law and shall be
responsible for the preparation and filing of any required returns, reports,
statements or other filings with appropriate governmental agencies. The Company
shall also be responsible for the preparation and delivery of information to
persons entitled to such information under any applicable law.
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10.16 Liability. The functions of the Committee, the Board, and the
Employer under the Plan are fiduciary in nature and each shall be carried out
solely in the interest of the Participants and other persons entitled to
benefits under the Plan for the exclusive purpose of providing the benefits
under the Plan (and for the defraying of reasonable expenses of administering
the Plan). The Committee, the Board, and the Employer shall carry out their
respective functions in accordance with the terms of the Plan with the care,
skill, prudence and diligence under the circumstances then prevailing that a
prudent man acting in a like capacity and familiar with such matters would use
in the conduct of an enterprise of a like character and with like aims. No
member of the Committee and no officer, director, to employee of the Employer
shall be liable for any action or inaction with respect to his or her functions
under the Plan unless such action or inaction is adjudicated to be a breach of
the fiduciary standard of conduct set forth above. Further, no member of the
Committee shall be personally liable merely by virtue of any instrument executed
by him or her or on his or her behalf as a member of the Committee.
10.17 Indemnification. The Company shall indemnify to the full extent
permitted by law and the Company's Certificate of Incorporation and by-laws, and
to the extent not covered by insurance, its officers and directors (and any
employee involved in carrying out the functions of the Company under the Plan)
and each member of the Committee against any expenses, including amounts paid in
settlement of a liability, which are reasonably incurred in connection with any
legal action to which such person is a party by reason of his or her duties or
responsibilities with respect to the Plan except with regard to any matters as
to which he or she shall be adjudged in such action to be liable for gross
negligence or willful misconduct in the performance of his or her duty as a
fiduciary. Any indemnification by the Employer shall be at the Employer's
expense and shall not be deemed an expense of the Plan.
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10.18 Section 16(b) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). Solely to the extent required under Section 16(b) of the
Exchange Act, all elections and transactions under the Plan by persons subject
to Section 16 of the Exchange Act involving shares of Company Stock are intended
to comply with all exemptive conditions under Rule 16b-3 promulgated under the
Exchange Act. The Committee may establish and adopt written administrative
guidelines designed to facilitate compliance with Section 16(b) of the Exchange
Act, as it may deem necessary or proper for the administration and operation of
the Plan.
10.19 Claims Procedure. If an Employee, Member or Beneficiary
("Claimant") is denied benefits under the Plan, the Committee shall notify the
Claimant in writing of the denial of the claim within ninety (90) days after the
claim has been made provided that in the event of special circumstances such
period may be extended to one hundred eighty (180) days. In such event the
Claimant shall be notified in writing of such extension. Such notice shall set
forth:
(a) the specific reason or reasons for the denial;
(b) specific reference to pertinent plan provisions on which the
denial is based;
(c) a description of any additional material or information
necessary for the Claimant to perfect the claim and an explanation of why such
material or information is necessary; and
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(d) appropriate information as to the steps to be taken if the
Claimant wishes to submit his or her claim for review.
Any request for review of a claim must be made in writing to the
Committee within sixty (60) days after receipt of the Committee's notice. The
claim will then be reviewed by the full Committee. A Claimant or his or her duly
authorized representative may:
(a) review pertinent documents; and
(b) submit issues and comments in writing.
If the Committee deems it appropriate, it may hold a hearing as to a
claim. If a hearing is held, the Claimant shall be entitled to be represented by
counsel. The decision of the Committee shall be made within sixty (60) days
after receipt of the request unless special circumstances (such as the need to
hold a hearing) require an extension of time; in any event such decision shall
be rendered not later than one hundred twenty (120) days after receipt of the
request for review. Written notice of any special circumstance requiring an
extension shall be sent to the Claimant. If the decision on review is not sent
to the Claimant within the appropriate time, it shall be deemed denied on
review. All interpretations, determinations and decisions of the Committee with
respect to any claim shall be made by the Committee in its sole discretion based
on the Plan and documents presented to it and shall be final, conclusive and
binding.
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ARTICLE XI
FUNDING OF PLAN
11.1 Media of Funding. A Trustee has been appointed to hold the assets
of the Trust Fund. The Plan shall be funded through one or more funds and
invested in stocks, securities, bonds, mortgages, insurance or annuity
contracts, real estate or any other legal investment; provided that all such
investments shall be the property of the Trustee.
11.2 Trust Fund to be for the Exclusive Benefit of Members. The
contributions of the Employer to the Trust Fund shall be for the exclusive
benefit of Members, and no part of the assets of such Trust Fund shall revert to
the Employer.
11.3 Interests of Members in Trust Fund. No Member shall have any
right, title, or interest in any part of the assets of any Trust Fund except as
and to the extent expressly provided in the Plan.
11.4 Payment Instructions from Committee. The Trustee shall make
payments from the Trust Fund upon the receipt of written instructions from the
Committee to the person or persons designated by the Committee as entitled under
the terms of the Plan to such payment. Any payment instructions from the
Committee to the Trustee shall warrant that such payment is being made either to
a person entitled to benefits or payments under the Plan or to pay the expenses
of the Plan.
11.5 Investment and Control of Trust Fund. The investment of the assets
comprising the Trust Fund shall be the responsibility of the Trustee, subject
to, and except as otherwise provided by the terms and provisions of Section 4.10
hereof and of the Trust
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Agreement (including any provision for appointment of an investment manager, as
defined in Section 3(38) of ERISA, for all or any portion of the Trust Fund).
The Company shall have no responsibility with respect to control and management
of the Trust Fund except to the extent expressly provided in the Trust
Agreement.
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ARTICLE XII
AMENDMENT OF THE PLAN
12.1 Company May Amend Plan. Subject to the provisions of this Article
XII, the Company by action of the Board (or a duly authorized committee
thereof), in accordance with the by-laws of the Company, reserves the right at
any time, and from time to time, to modify and amend any or all of the
provisions of the Plan.
12.2 Retroactive Amendments. Except as otherwise provided herein, no
modification or amendment may be made which shall have any retroactive effect so
as to deprive any Member or other person of any vested benefits under the Plan.
A modification or amendment may retroactively reduce benefits if expressly
permitted by any applicable law or if such modification or amendment is
necessary to bring the Plan into conformity with the requirements of Section
401(a) of the Code or other applicable provisions of the Code.
12.3 Amendment Affecting Vesting Provisions. No amendment shall reduce
the extent to which a Participant would be vested in his or her retirement
income if the Participant's employment were to terminate as of the date of the
amendment and no amendment which modifies the method or criteria used to
determine to what extent a Participant would be vested in his or her retirement
income if his or her employment were to terminate and no amendment which
modifies the method or criteria used to determine to what extent a Participant
would be vested shall become effective with respect to a Participant with at
least three (3) years in a Period of Service for vesting purposes unless the
Participant is permitted to elect to have the extent of his or her vesting
determined without regard to such amendment. The Committee shall offer the
election referred to in the preceding sentence no later than sixty (60) days
after the latest
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of the adoption of the amendment, the amendment's effective date, or the date
the Participant is notified of the amendment.
12.4 No Diversion of Fund. No modification or amendment of the Plan
shall cause or permit any part of the assets comprising the Fund to be diverted
to purposes other than for the exclusive benefit of Members and others entitled
to benefits under the Plan or for the payment of expenses of the Plan.
12.5 Reversion to Employer. No modification or amendment shall cause or
permit any part of the assets comprising the Fund to revert to or become the
property of the Employer prior to the satisfaction of all liabilities under the
Plan to Members and others entitled to benefits hereunder. Following the
satisfaction of all liabilities under the Plan to Participants and others
entitled to benefits hereunder and payment of Plan expenses, any remaining
assets shall be distributed to the Employer to the extent, and only to the
extent, permitted under the Code.
12.6 Mergers, Consolidations and Transfers. The Plan shall not be
merged or consolidated, in whole or in part, with any other plan, nor shall any
assets or liabilities of the Plan be transferred to any other plan unless the
benefit that would be payable to any affected Member under such plan if it
terminated immediately after the merger, consolidation or transfer, is equal to
or greater than the benefit that would be payable to the affected Member under
this Plan if it had terminated immediately before the merger, consolidation or
transfer.
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ARTICLE XIII
TERMINATION OF THE PLAN
13.1 Right to Terminate. The Company (on behalf of itself and Member
Companies) by action of its Board (or a duly authorized committee thereof), on
behalf of the Company and the Employer, shall have the right in accordance with
the by-laws of the Company, anything herein to the contrary notwithstanding, to
terminate, or completely discontinue contributions under, the Plan at any time.
13.2 Termination of Plan. In the event that the Plan is terminated for
any reason, or contributions are completely discontinued, the rights of all
Members to benefits accrued under the Plan as of the date of such termination,
to the extent then funded, shall be nonforfeitable; and the assets of the Plan
shall be allocated by the Committee. After providing for the expenses of the
Plan, the assets remaining in the Trust shall in the discretion of the Committee
be either continued in the Trust until paid out in accordance with the
provisions of the Plan or distributed to the Members and Beneficiaries (unless
the Plan is continued by a successor to the Employer), with any remaining assets
to be distributed to the Employer.
13.3 Partial Termination. The Plan may be partially terminated by the
Employer, or by operation of law, with respect to a group of Members without
causing the termination of the Plan as a whole. In the event of such a partial
termination, the Accounts of the Members involved in the partial termination
shall, to the extent then funded, be fully vested and nonforfeitable.
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ARTICLE XIV
PROVISIONS RELATING TO TOP-HEAVY PLAN
14.1 Applicability. The provisions of this Article XIV shall apply to
any Plan Year if, as of the applicable Determination Date, the Plan constitutes
a Top-Heavy Plan.
14.2 Definitions. The definitions apply to this Article XIV and unless
otherwise specifically stated in another section hereof do not apply to any
other section of this Plan.
(a) Determination Date. With respect to each Plan Year, the
Determination Date shall be the final day of the immediately preceding Plan
Year; provided, however, that with regard to the Plan's initial Plan Year the
"Determination Date" shall be the last day of the first Plan Year.
(b) Key Employee. "Key Employee" shall mean any Employee who, at
any time during the Plan Year as of which a determination is made or any of the
four (4) preceding Plan Years, is (in accordance with Code Section 416(i) and
the regulations promulgated thereunder):
(i) an officer of an Employer or any Affiliate whose annual
compensation during any such Plan Year exceeds fifty percent (50%) of the
maximum dollar limitation under Code Section 415(b)(1)(A) as in effect for
the calendar year of the Determination Date, provided that no more than
fifty (50) employees (or, if lesser, the greater of three (3) or ten (10)
percent of the employees) shall be treated as officers;
(ii) one of the ten (10) Employees of the Employer or any
Affiliate owning or considered as owning (within the meaning of Section 318
of the Code) the largest interests in the Employer or such Affiliate,
excluding, however, any Employee who earns less than the maximum dollar
limitation under Section 415(c)(1)(A)
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as in effect for the calendar year of the Determination Date, provided that
for the purposes of this paragraph (b), if two (2) Employees have the same
interest in the Employer or an Affiliate, the Employee whose annual
compensation from the Employer or such Affiliate is greater shall be treated
as having the greater interest;
(iii) an Employee who owns (or is considered as owning within
the meaning of Section 318 of the Code) more than five percent (5%) of the
outstanding stock of the Employer or stock possessing more than five percent
(5%) of the total combined voting power of all stock of the Employer; or
(iv) an Employee who (i) owns (or is considered as owning
within the meaning of Section 318 of the Code) more than one percent (1%) of
the outstanding stock of the Employer or more than one percent (1%) of the
total combined voting power of all stock of the Employer and (ii) who
receives annual compensation from the Employer or any Affiliate in excess of
one hundred fifty thousand dollars ($150,000).
(v) for the purpose of applying Section 318 of the Code
under paragraphs (b), (c) and (d) of this subsection (b), the phrase "50
percent" in Section 318(a)(2) of the Code shall be replaced by the phrase "5
percent."
(c) Aggregated Plans. "Aggregated Plans" shall mean all plans of
the Employer or any Affiliate (1) that are qualified under Code Section 401(a)
and (b) in which a Key Employee is a participant, and (2) all other plans of the
Employer or any Affiliate that enable any plan described in clause (1) above to
meet the requirements of Code Section 401(a)(4) or 410 (the "Required
Aggregation Group"). The Required Aggregation Group shall include each plan
which satisfies the requirements of the preceding sentence, whether or not any
such plan is terminated. In addition, the term "Aggregated Plans" shall include
any plan of the Employer or any Affiliate which is not required to be included
in the Required Aggregation Group, provided that the resulting group, taken as a
whole, continues to meet the requirements of Code Sections 401(a)(4) and 410
(the "Permissive Aggregation Group"). The Committee may elect to exclude as an
Aggregated Plan any plan in the Permissive Aggregation Group that is a
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collectively bargained plan, if the necessary information as to participants and
benefits with respect to such plan is not available.
(d) Top-Heavy Plan. The Plan shall constitute a "Top-Heavy Plan"
for any Plan Year if, as of the applicable Determination Date, the sum of (a)
the accounts of Key Employees under any Aggregate Plan that is of a defined
contribution type and (b) the present value of the cumulative accrued benefits
of Key Employees under any Aggregate Plan that is of a defined benefit type
exceeds sixty percent (60%) of the sum of (a) the accounts of all Employees
under any Aggregate Plan that is of a defined contribution type and (b) the
present value of the cumulative accrued benefits of all Employees under any
Aggregate Plan that is of a defined benefit type. The above determinations shall
be made in accordance with Code Section 416(g).
(e) Super Top-Heavy Plan. The Plan shall constitute a "Super
Top-Heavy Plan" for any Plan Year if, as of the Applicable Determination Date,
the sum of (a) the accounts of Key Employees under any Aggregate Plan that is of
a defined contribution type and (b) the present value of the cumulative accrued
benefits of Key Employees under any Aggregate Plan that is of a defined benefit
type exceeds ninety percent (90%) of the sum of (a) the accounts of all
Employees under any Aggregate Plan that is of a defined contribution type and
(b) the present value of the cumulative accrued benefits of all Employees under
any Aggregate Plan that is of a defined benefit type. The above determinations
shall be made in accordance with Code Sections 416(g) and 416(h)(2)(B).
(f) Rules for Determining Accrued Benefits and Accounts. In
determining the present value of accrued benefits for Aggregated Plans of the
defined benefit
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variety and accounts for Aggregated Plans of the defined contribution variety,
the following rules shall prevail:
(i) The accrued benefit for each current Employee shall be
computed as if the Employee voluntarily terminated service as of the
Determination Date.
(ii) The interest rate to be used shall be the interest rate
in the defined benefit plan maintained by the Company, if any, and
post-retirement mortality shall be determined based on the mortality table
used by such defined benefit plan for post-retirement mortality assumptions.
There shall be no assumption as to pre-retirement mortality or future
increases in cost of living.
(iii) If a qualified joint and survivor annuity within the
meaning of Code Section 401(a)(11) is the normal form of benefit, for
purposes of determining the present value of the accrued benefit, the Spouse
of the Member shall be assumed to be the same age as the Member.
(iv) The present value shall reflect a benefit payable
commencing at Normal Retirement Age (or attained age, if later), provided
that if the Plan provides for a nonproportional subsidy, the benefit shall
be assumed to commence at the age at which the benefit is most valuable.
(v) The Matching Contribution Account, Profit Sharing
Contribution Account, QNEC Account and Silver King Employer Contribution
Account shall be determined as of the most recent valuation occurring within
the twelve (12) month period ending on the Determination Date.
(vi) An adjustment shall be made for any contributions due
as of the Determination Date. Such adjustment shall be the amount of any
contributions actually made after the valuation date but before the
Determination Date, except that for the first Plan Year such adjustment
shall also reflect the amount of any contributions made after the
Determination Date that are allocated as of a date in the first Plan Year.
(vii) The accrued benefit or account balance with respect to
any Employee shall be increased by the aggregate distributions made to such
Employee from any Aggregated Plan during the five (5) year period ending on
the Determination Date; provided, however, that any distribution made after
a valuation date but prior to the Determination Date shall not be counted as
a distribution to the extent already included as of the valuation date.
(viii) Any Employee contributions, whether voluntary or
mandatory, shall be included. However, amounts attributable to tax
deductible qualified employee contributions shall not be considered to be a
part of the account.
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(ix) With respect to unrelated rollovers and plan-to-plan
transfers (ones which are both initiated by the Employee and made from a
plan maintained by one employer to a plan maintained by another employer),
if this Plan provides for rollovers or plan-to-plan transfers, it shall
always consider such rollovers or plan-to-plan transfers as a distribution
for the purpose of this Article XIV. If this Plan is the plan accepting such
rollovers or plan-to-plan transfers, it shall not consider such rollovers or
plan-to-plan transfers as part of the account.
(x) With respect to related rollovers and plan-to-plan
transfers (ones either not initiated by the Employee or made to a plan
maintained by the same employer), if this Plan provides the rollover or
plan-to-plan transfer, it shall not be counted as a distribution for
purposes of this Article XIV. If this Plan is the plan accepting such
rollover or plan-to-plan transfer, it shall consider such rollover or
plan-to-plan transfer as part of the Employee's account, irrespective of the
date on which such rollover or plan-to-plan transfer is accepted.
(xi) For purposes of determining whether the employer is the
same employer under (i) and (j) an Employer and all Affiliates shall be
treated as the same employer.
(xii) For purposes of this Article XIV, a Beneficiary of any
deceased Employee shall be considered a Participant hereunder.
(xiii) Notwithstanding anything herein to the contrary, no
individual shall be counted as an Employee or Participant for the purposes
of this Article XIV if such individual has not performed services for the
Employer or an Affiliate at any time during the five (5) year period ending
on a Determination Date.
(g) Top-Heavy Plan Year. "Top-Heavy Plan Year" shall mean a Plan
Year in which a one year Period of Service is accrued by the Top-Heavy
Participant provided that no Plan Year shall be classified as a Top-Heavy Plan
Year if in such Plan Year the Plan was not a Top-Heavy Plan.
(h) Top-Heavy Participant. "Top-Heavy Participant" shall mean each
Participant and any Employee who is excluded from being a Participant (or who
accrued no benefit) because his or her compensation was less than a stated
amount or any Employee who is
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excluded from being a Participant because of a failure to make mandatory
employee contributions.
(i) Testing Period. "Testing Period" shall mean, with respect
to a Top-Heavy Participant, the five (5) consecutive Top-Heavy Plan Years of
employment of such Top-Heavy Participant by the Employer or any Affiliate during
which the aggregate Top-Heavy Compensation paid by the Employer or any Affiliate
to such Top-Heavy Participant was the highest, or if the Plan was a Top-Heavy
Plan for less than five (5) Top-Heavy Plan Years, the number of Top-Heavy Plan
Years. Exclusion of a Plan Year as a Top-Heavy Plan Year because a one year
Period of Service was not accrued or because of subparagraph (h) above shall not
be deemed to break the consecutiveness of the surrounding Top-Heavy Plan Years.
(j) Top-Heavy Compensation. "Top-Heavy Compensation" shall mean
compensation as defined in Treasury Regulation Section 1.415-2(d).
14.3 Minimum Contribution. (a) Subject to paragraphs (c) and (d) below,
for each Plan Year during which the Plan constitutes a Top-Heavy Plan, any
Employer contributions made under the Plan shall be allocated to assure that
each Top-Heavy Participant, other than a Key Employee, who is employed on the
last day of the Plan Year (and without regard to whether such Participant was
credited with a one year Period of Service for such Plan Year) is credited with
a benefit for such Plan Year under the Plan and any other defined contribution
plan of the Employer no less than the lesser of (i) three percent (3%) of such
Top-Heavy Participant's Top-Heavy Compensation for such Plan Year, or (ii) if
the greatest percentage of Top-Heavy Compensation contributed by the Employer on
behalf of a Key Employee during such Plan Year is less than three percent (3%),
the greatest percentage of such Top-Heavy Participant's Top-
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Heavy Compensation contributed for a Key Employee. In determining the benefit
credited to any Participant during any Plan Year, all Employer contributions
made hereof shall be included.
(b) The minimum contribution referred to in (a) above (except with
regard to Key Employees) shall not include any Employee contributions, nor
amounts treated as Employer contributions pursuant to a salary reduction
arrangement permitted by Code Section 401(k), except for purposes of determining
the greatest percentage of Top-Heavy Compensation allocated on behalf of Key
Employees.
(c) If the Top-Heavy Participant (other than a Key Employee) is
also a participant in a qualified defined benefit plan or any other defined
contribution plan of the Employer, the additional contribution due under (a)
above shall be reduced by the actuarial equivalent of the benefits derived by
the Top-Heavy Participant under such defined benefit plan calculated on the
basis of the actuarial assumptions of the Plan, or by the amount of the
contributions under the defined contribution plan.
(d) If the Top-Heavy Participant (other than a Key Employee) is
also a participant in a qualified defined benefit plan or any other defined
contribution plan that constitutes a Top-Heavy Plan, no minimum contribution
under this Section 14.3 shall be required, unless otherwise required by Treasury
Regulation Section 1.416-1.
14.4 Section 415 Adjustments. In the event the Plan is a Top-Heavy Plan
for any Plan Year, each Top-Heavy Participant shall be credited for such Plan
Year with a benefit not less than the lesser of four percent (4%) or the amount
tdetermined under the Section
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14.3(a)(ii) hereof; provided, however, if the Plan is a Super Top-Heavy Plan for
such Plan Year, 1.0 shall be substituted for 1.25 in applying Code Section
415(e).
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ARTICLE XV
MISCELLANEOUS
15.1 Rights of Employees. Nothing herein contained shall be deemed to
give any Employee the right to be retained in the service of the Employer or to
interfere with the right of the Employer to discharge such Employee at any time,
nor shall it be deemed to give the Employer the right to require the Employee to
remain in its service, nor shall it interfere with the Employee's right to
terminate his or her service at any time.
15.2 Deductibility. All contributions under the Plan are expressly
conditioned upon the deductibility of such contributions under Section 404 of
the Code and to the extent the deduction is disallowed, shall be returned to the
Employer within one year after the disallowance of the deduction. A contribution
which is not deductible in the current taxable year of the Employer but may be
deducted in the taxable years of the Employer subsequent to the year in respect
of which it is made, shall not be considered to be disallowed.
15.3 Mistake in Fact. In the case of a contribution which is made by
the Employer under mistake of fact, such contribution may be returned to the
Employer within one year after the payment of the contribution.
15.4 Plan Qualification. Contributions to the Plan are conditioned on
the initial qualification of the Plan under Section 401(a) and 401(k) of the
Code, and if the Plan is found not to so qualify, contributions made in respect
of any period subsequent to the effective date of the disqualification shall be
returned to the contributor within one (1) year after the denial of such
qualification.
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15.5 Headings. The headings of the Plan are inserted for convenience of
reference only and shall have no effect upon the meaning of the provisions
hereof.
15.6 Use of Words. Whenever used in this instrument, a masculine
pronoun shall be deemed to include the masculine and feminine gender, and a
singular word shall be deemed to include the singular and plural, in all cases
where the context so requires.
15.7 Applicability of State Law. If any determination is to be made
with respect to the Plan under applicable state law, the laws of the State of
Florida shall apply.
15.8 Adjustments for Changes in Capital Structure. The existence of
this Plan shall not affect in any way the right or power of the Board or the
stockholders of the Company to make or authorize any adjustment,
recapitalization, reorganization or other change in the Company's capital
structure or its business, any merger, consolidation or separation, including a
spin-off, or other distribution of stock or property of the Company or
Affiliates, any issue of bonds, debentures, preferred or prior preference stock
ahead of or affecting Company Stock, the authorization or issuance of
additional shares of Common Stock, the dissolution or liquidation of the
Company or Affiliates, any sale or transfer of all or part of its assets or
business or any other corporate act or proceeding. In the event of any change
in the capital structure or business of the Company by reason of any stock
dividend or extraordinary dividend, stock split or reverse stock split,
recapitalization, reorganization, merger, consolidation, spin-off or exchange
of shares, distribution with respect to its outstanding Company Stock or
capital stock other than Company Stock, reclassification of its capital stock,
any sale or transfer of all or part of the Company's assets or business, or any
similar change affecting the Company's capital structure or business and the
Committee determines an adjustment is appropriate under this Plan, then the
aggregate number and kind of shares which thereafter may be issued under this
Plan, the number and kind of shares or other property (including cash) held
under this Plan shall be appropriately adjusted consistent with such change in
such manner as the Committee may deem equitable to prevent substantial dilution
or enlargement of the rights granted to, or available for, Members under this
Plan or as otherwise necessary to reflect the change, and any such adjustment
determined by the Committee in good faith shall be binding and conclusive on
the Company and all Members, Beneficiaries and employees and their respective
heirs, executors, administrators, successors and assigns.
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ARTICLE XVI
ADOPTION OF PLAN BY AFFILIATE
16.1 Purpose of Article. The purpose of this Article is to describe the
terms and conditions under which an Affiliate may adopt, and become a Member
Company under, the Plan and Trust for the benefit of its eligible employees.
16.2 Execution of Adoption Agreement. Any Affiliate may, with the
written consent of the Board of Directors of the Company, become a Member
Company under the Plan and Trust by adopting the Plan as a Member Company by
resolution of its board of directors (or a duly authorized committee thereof) or
by executing an Adoption Agreement under which:
(a) The Member Company shall agree to be bound by all the
provisions of the Plan and Trust in the manner set forth herein and any
amendments thereto.
(b) The Member Company shall agree to pay its share of the
contributions to, and expenses of, the Plan and Trust as they may be determined
from time to time in the manner specified herein.
(c) The Member Company shall agree to provide the Company,
Committee and Trustee with full, complete, and timely information on all matters
necessary to them in the operation of the Plan and Trust.
16.3 Participation in the Plan. (a) In the event of the adoption of the
Plan and Trust by an Affiliate, the Affiliate shall become a Member Company and
all the terms and conditions of the Plan and Trust as set forth hereunder shall
apply to the participation under the
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Plan of such Affiliate and its employees in the manner as set forth herein for a
Member Company and its employees; notwithstanding the above, the following
rights are specifically reserved to the Company:
(i) The right to designate a Member Company as set forth
herein;
(ii) The right to appoint the members of the Committee, as
set forth herein, is specifically reserved to the Company so long as the
Company participates under the Plan; provided that a Member Company may
appoint an advisory committee of such composition and size as it may
determine to advise the Committee on any matters affecting such Member
Company or its employees who are Participants under the Plan. The Committee
shall be entitled to rely upon any information furnished it by the Member
Company or its employees who are Participants under the Plan. The Committee
shall be entitled to rely upon any information furnished it by the Member
Company appointing such advisory committee, but in no event shall the
existence of such advisory committee modify or otherwise limit any of the
powers or duties of the Committee under the Plan;
(iii) The right to direct, appoint, remove, approve the
accounts of, or otherwise deal with the Trustee, as set forth herein, is
specifically reserved to the Company so long as the Company participates
under the Plan;
(iv) The right to amend the Plan and Trust, as set forth
herein, is specifically reserved to the Company so long as the Company
participates under the Plan; and any such amendment, unless otherwise
specified herein, shall be fully binding with respect to such participation
by any Member Company; provided that this reservation shall in no event be
construed to prevent any Member Company from terminating at any time, in the
manner set forth herein, its participation as a Member Company under the
Plan.
(b) In the operation of the Plan with respect to a Member Company,
the term "Effective Date" shall mean such date specified in such Member
Company's Adoption Agreement.
(c) A Member Company may specify in such Member Company's Adoption
Agreement or resolutions the applicable provisions for recognition of Years of
Service
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or Periods of Service, as applicable, for such Member Company for eligibility,
vesting and benefit purposes.
16.4 Termination by a Member Company. Any Member Company may by action
of its board of directors (or a duly authorized committee thereof) in accordance
with the by-laws of such Member Company, at any time elect to terminate its
participation under the Plan in the manner set forth herein, or any Member
Company may elect at any time by appropriate amendment or action affecting only
its own status hereunder to disassociate itself from this Plan and Trust but to
continue the Plan and the portion of the Trust as it pertains to itself and its
employees as an entity separate and distinct from this Plan and Trust.
Termination of the participation of any Member Company, or disassociation, shall
not affect the participation in the Plan of any other Member Company nor
terminate the Plan or Trust with respect to them and their employees; provided
that, if the Company shall terminate its participation in the Plan, or
disassociate itself, then each remaining Member Company shall make such
arrangements and take such action as may be necessary to assume the duties of
the Company in providing for the operation and continued administration of the
Plan and Trust as the same pertains to the Member Company.
16.5 Member Company Plan Expenses. Each Member Company shall be liable
for and shall pay at least annually to the Company its fair share of the
expenses of operating the Plan and Trust, including its share of any Trustee's
fees. The amount of such charges to each Member Company shall be determined by
the Committee in its sole discretion; provided that, except with respect to
charges incurred solely on account of a particular Member Company, a Member
Company shall not be charged for a greater portion of any expenses of Plan
operation
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than the ratio that the number of Members who are or were its employees bears to
the total of all Members nor for a greater proportion of any Trustee's fees than
the ratio that the portion of the Trust Fund pertaining to Members who are or
were its Employees bears to the total Trust Fund.
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EXHIBIT A
SPECIAL RULES REGARDING SILVER KING ACCOUNTS
The following provisions apply solely to the Silver King Account and
are subject to, without limitation, Sections 7.1, 7.3, 7.5, 7.6, 7.7, 7.8, 7.9
and 7.10 of the Plan.
1.1 Forms of Distribution.
(a) Except with regard to the automatic cash-out provision under
Section 7.8 of the Plan, the normal form of benefit with respect to the Member's
Silver King Account under the Plan (A) for an unmarried Silver King Participant,
shall be a life annuity, payable for the life of the Silver King Participant,
and (B) for a Silver King Participant who is married on the Benefit Starting
Date, shall be a Joint and Survivor Annuity described in Section 1.2 below. A
Silver King Participant shall receive his or her normal form of benefit with
respect to his or her Silver King Account, unless he or she elects an optional
form of benefit described in Section 1.1(b).
(b) In lieu of receiving the normal form of benefit referred to in
Section 1.1(a) above, a Silver King Participant may elect, subject to waiver and
spousal consent requirements described herein, to receive his or her benefits
with respect to his or her Silver King Account in one of the following optional
forms:
(i) a cash lump sum; or
(ii) a Silver King Participant may direct the Trustee to
purchase, with the Silver King Participant's Silver King Account balance, an
annuity from an insurance company, of such type offered under the Silver
King Plan, providing monthly payments over the Silver King Participant's
lifetime or life expectancy, with or without a period certain and with or
without payments to the Silver King Participant's Spouse or
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Beneficiary over the Spouse's or Beneficiary's lifetime after the Silver
King Participant's death.
(c) Any election by a Silver King Participant may be revoked prior
to his or her Benefit Starting Date.
1.2 Joint and Survivor Annuity.
(a) The Joint and Survivor Annuity benefit is the actuarial
equivalent of a life annuity benefit payable to a Silver King Participant based
on the Value of the Silver King Participant's Silver King Account. Such Joint
and Survivor Annuity shall be payable to the Silver King Participant during his
or her lifetime after his or her Benefit Starting Date with fifty percent (50%)
of such reduced benefit continued to the Silver King Participant's Spouse for
the duration of the Spouse's lifetime after the death of the Silver King
Participant. No payments will be made after the death of both the Silver King
Participant and his or her Spouse.
(b) The Committee shall, no less than thirty (30) days and no more
than ninety (90) days prior to the Benefit Starting Date, provide each married
Silver King Participant a written explanation of: (i) the terms and conditions
of the Joint and Survivor Annuity; (ii) the Silver King Participant's rights to
make and the effect of an election to waive the Joint and Survivor Annuity form
of benefit; (iii) the rights of the Silver King Participant's Spouse; and (iv)
the right to revoke (and the effect of) a previous election to waive the Joint
and Survivor Annuity.
(c) The retirement benefit payable to a Silver King Participant
described in Sections 1.1(a) and 1.1(b)(ii) is the amount purchasable by the
funds in the Silver King Participant's Silver King Account as of the Valuation
Date immediately prior to the
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commencement of benefits. In determining the annuity contract to purchase, the
Committee shall have no obligation to obtain the most favorable rate available
or for the financial stability of the insurance company issuing the policy. Once
such policy is issued, the Silver King Participant shall look solely to the
insurance company issuing such annuity for payment of his or her benefits.
1.3 Whenever the terms of this Exhibit A require that the consent of a
Silver King Participant's Spouse be obtained, such consent shall be valid only
if given in accordance with Section 7.7 of the Plan.
1.4 Death of a Silver King Participant.
(a) Death Prior to Commencement of Benefits. If a Silver King
Participant shall die prior to his or her Benefit Starting Date, the Silver King
Participant's Silver King Account shall be distributed to such Silver King
Participant's Spouse (or other Beneficiary designated with the consent of his or
her Spouse (if any) in accordance with Section 7.7 of the Plan) as follows:
(i) Married Participants. If such Silver King Participant is
married at the time of his or her death, the Silver King Participant's
Silver King Account balance shall be applied to provide monthly benefits for
the life of the Silver King Participant's surviving Spouse commencing in one
hundred percent (100%) annuity form, subject to Section 7.6 of the Plan, at
any time the Spouse elects after the death of the Silver King Participant.
Notwithstanding the foregoing, each Silver King Participant's surviving
Spouse may elect to receive the Silver King Account balance that is payable
to him or her in a form permitted under Section 1.1(b) instead of a one
hundred percent (100%) annuity form.
(ii) Unmarried Participants. If such Silver King Participant
is not married at the time of his or her death, the Silver King
Participant's Silver King Account balance shall be distributed to the
Beneficiary or Beneficiaries of the Silver King Participant in a cash lump
sum in such proportion as designated by the Silver King
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Participant soon as administratively feasible after the Beneficiary's
election to receive a distribution, but no later than the last day of the
year following the year of the Silver King Participant's death. Each such
Beneficiary may elect to receive the portion of such Silver King
Participant's Silver King Account Balance that is payable to him or her in a
form permitted under Section 1.1(b) instead of a cash lump sum.
(iii) The foregoing Section 1.3(a)(i) shall not apply if the
Silver King Participant had, prior to his or her death, with the consent
(obtained in accordance with the provisions of Sections 7.7 of the Plan and
Section 1.3(e) hereof) of his or her Spouse at the time of his or her death,
designated another Beneficiary to receive that portion of his or her Account
that would otherwise be payable to his or her Spouse. In such event, the
Silver King Participant's Silver King Account balance shall be distributed
to such Beneficiary in accordance with paragraph (ii) above.
(b) Death After Commencement of Benefits. In the event that a
Silver King Participant dies on or after his or her Benefit Starting Date, his
or her surviving Spouse or other Beneficiary (designated with the consent of his
or her Spouse (if any) in accordance with Section 7.7 of the Plan) shall receive
such benefits, if any, as are provided pursuant to the form of benefit being
received by the Silver King Participant with respect to his or her Silver King
Account at the time of his or her death, provided that the portion of the
remaining payment shall be paid in a lump sum on the last day of the calendar
year following the year of the Silver King Participant's death (or at any time
earlier elected by the Beneficiary), unless the Silver King Participant has
elected to receive an annuity in which case the benefits shall be paid in
accordance with Section 1.3(a)(i) hereof.
(c) Annuity. If a Silver King Participant or Beneficiary receiving
an annuity dies, death benefits, if any, shall be paid in accordance with the
terms of the annuity.
(d) Death Before Payment. If a Spouse entitled to receive benefits
hereunder as a result of the previous death of the Silver King Participant dies
prior to commencement of such benefit or purchase of the annuity if benefits are
to be paid as such, the
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value of the Silver King Account allocable to the Spouse or other Beneficiary
shall be paid to the estate of such Spouse or other Beneficiary.
(e) Rules Relating to Designation of Beneficiaries. Notwithstanding
anything else herein, the following rules apply to a married Silver King
Participant with respect to his Silver King Account. No married Silver King
Participant may elect a nonspousal Beneficiary for his or her death benefit
payable to his or her Spouse pursuant to (a) above prior to the beginning of the
Plan Year in which the Participant attains age thirty-five (35), except that a
Participant who incurs a Termination of Employment prior to such Plan Year may
elect a Beneficiary other than his or her Spouse at any time after his or her
Termination of Employment. In the event such terminated Participant later
returns to employment and again becomes a Participant in the Plan, such election
made prior to the Plan Year in which he or she attains age thirty-five (35)
shall only apply to nonforfeitable amounts accrued at the time of the original
election (and earnings thereon). A Beneficiary other than the Spouse may not be
elected with regard to the Silver King Participant's Silver King Account until
the first day of the Plan Year in which the Participant attains age thirty-five
(35). Notwithstanding the foregoing, a Silver King Participant may elect a
Beneficiary other than his or her Spouse with respect to his Silver King Account
prior to the beginning of the Plan Year in which the Silver King Participant
attains age thirty-five (35), provided that such election shall become invalid
as of the first day of the Plan Year in which the Participant attains age
thirty-five (35). Unless any election made hereunder specifies a secondary
Beneficiary, if the designated Beneficiary predeceases the Participant, the
election shall be null and void and a new election shall be required to be made
in order to elect a Beneficiary other than a Silver King Participant's Spouse.
If a Silver King Participant's Spouse
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at the time of his or her death is not the same as the Spouse who consented to
an election of a nonspousal Beneficiary, such consent shall be null and void.
(f) An election of a nonspousal Beneficiary is revocable by the
Silver King Participant at any time before his or her death, without the consent
of his or her Spouse.
1.5 Silver King Employees Who Attained Age 70-1/2 Prior to January 1,
1997. Notwithstanding any other provision to the contrary, a Silver King
Participant who attained age 70-1/2 before January 1, 1997 and commenced
distributions pursuant to Code Section 401(a)(9) on a date on or before January
1, 1997, but who remained employed by the Employer after such date, may make an
affirmative election, pursuant to Section 7.3(c), to cease receiving
distributions, provided such election complies with either (a), (b) or (c)
below.
(a) A Silver King Participant may elect, pursuant to Section
7.3(c), to cease receiving such distributions, and no spousal consent shall be
required when distributions recommence to the Silver King Participant if:
(i) payments recommence to the Silver King Participant in the
same distribution form and with the same Beneficiary as in effect prior to
the cessation of payments to the Silver King Participant;
(ii) the individual who was the Silver King Participant's
Spouse on the Benefit Starting Date prior to the cessation of distributions
executed a general consent within the meaning of Treasury Regulation Section
1.401(a)-20, A-31; or
(iii) the individual who was the Silver King Participant's
Spouse on the Benefit Starting Date executed a specific consent to waive a
Joint and Survivor Annuity within the meaning of Treasury Regulation Section
1.401(a)-20, A-31, and the Silver King Participant is not married to that
individual when distributions recommence.
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(b) A Silver King Participant may elect, pursuant to Section
7.3(c), to cease receiving such distributions, provided that the consent of the
individual who was the Silver King Participant's Spouse on the Benefit Starting
Date is required prior to recommencement of distributions if the Silver King
Participant elects to recommence benefits either in a different form than the
form in which his or her benefits were being distributed prior to the cessation
of distributions or with a different Beneficiary and if:
(i) the original form was a Joint and Survivor Annuity, or
(ii) the individual who was the Silver King Participant's
Spouse on the Benefit Starting Date originally executed a specific consent
to waive a Joint and Survivor Annuity and the Silver King Participant is
still married to that individual when distributions recommence.
(c) A Silver King Participant may elect, pursuant to Section
7.3(c), to cease receiving distributions, and no spousal consent is required for
the Silver King Participant to make such an election unless such distributions
are being paid in the form of a Joint and Survivor Annuity. Where such
distributions are being paid in the form of a Joint and Survivor Annuity, the
individual who was the Silver King Participant's Spouse on the original Benefit
Starting Date must consent to the Silver King Participant's election to cease
receiving distributions and the Spouse's consent must acknowledge the effect of
the election. A new Benefit Starting Date shall exist for the Silver King
Participant upon his or her recommencement of distributions. If the Silver King
Participant shall die prior to his new Benefit Starting Date, his or her
benefits under the Plan shall be distributed pursuant to Section 1.4 of this
Exhibit A.
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EXHIBIT B
SPECIAL RULES REGARDING COMPANY STOCK
UNDER THE FORMER EMPLOYEE STOCK OWNERSHIP
COMPONENT OF THE PLAN
With respect to Company Stock held by the employee stock ownership
component of the Plan prior to January 1, 1998, the provisions in effect under
the Home Shopping Network, Inc. Retirement Savings and Employee Stock Ownership
Plan, adopted on October 19, 1990 and as subsequently amended, is hereby
incorporated by reference, including, without limitation, the provisions
relating to the diversification election under Code Section 401(a)(28)(B), the
right to demand Company Stock under Code Section 409(h), and, to the extent that
the Company Stock is not readily tradable on an established market, the right of
first refusal and put option requirements.
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EXHIBIT C
PROCEDURES REGARDING QUALIFIED DOMESTIC RELATIONS ORDERS
Section 1. General
The Plan shall pay benefits to the person or persons named in a
Qualified Domestic Relations Order, as defined in Section 2 below, in the amount
and to the extent provided in such order. Payment of benefits pursuant to a
Qualified Domestic Relations Order shall not be considered a violation of the
prohibition against assignment and alienation contained in Section 9.2 of the
Plan.
Section 2 Qualified Domestic Relations Orders
In order to constitute a Qualified Domestic Relations Order, the order
must meet all of the following requirements:
(a) The order must create or recognize the existence of the right
of an Alternate Payee, as defined in Section 8, to, or must
assign to an Alternate Payee the right to, receive all or a
portion of the benefits payable under the Plan with respect to
a Member.
(b) The order must constitute a judgment, decree or order
(including approval of a property settlement agreement) which
relates to the provision of child support, alimony payments or
property rights to a Spouse, former Spouse, child or other
dependent of a Member, made pursuant to a state domestic
relations law (including a community property law).
(c) The order must specify the following information:
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(1) the name and last known mailing address (if any) of
the Member and the name and mailing address of each
Alternate Payee covered by the order,
(2) the amount or percentage of the Member's benefits to
be paid by the Plan to each Alternate Payee, or the
manner in which such amount or percentage shall be
determined,
(3) the number of payments or periods to which such order
applies, and
(4) the name of each Plan to which the order applies.
(d) The order must not require the Plan to provide any type or
form of benefit, or any option, not otherwise provided under
the terms of this Plan, nor require the Plan to provide
increased benefits (determined on the basis of actuarial
value) nor require the payment of benefits to an Alternate
Payee which are required to be paid to an Alternate Payee
under a previous Qualified Domestic Relations Order.
Notwithstanding the foregoing, the order may require the
payment of benefits to an Alternate Payee while the Member is
still employed; provided, however, payments are not required
to be made before the earlier of (i) the date on which the
Member is entitled to a distribution under the Plan or (ii)
the later of age 50 or the earliest date on which the Member
would begin receiving benefits under the Plan if he or she
separated from service. Payments may be required in
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any form in which such benefits may be paid under the Plan to
the Member, except in the form of a joint and survivor annuity
with respect to the Alternate Payee and his or her or her
subsequent Spouse.
Section 3. Payments During Member's Employment
In the event the Qualified Domestic Relations Order requires payments
to be made to the Alternate Payee while the Member is employed, payments shall
be computed as if the Member had retired on the date on which payments under the
order are to begin.
Section 4. Procedures
Upon receipt of any domestic relations order by the Plan, the Committee
shall take the following steps:
(a) The Committee shall promptly notify the Member and any
Alternate Payee named in such order of the receipt of a
domestic relations order and the Plan's procedures for
determining whether such order is a Qualified Domestic
Relations Order, as defined in Section 2 above. The notice to
the Alternate Payee shall include a statement that he or she
is entitled to designate a representative for receipt of
copies of any notices that are sent to the Alternate Payee
with respect to a domestic relations order. The notice shall
be sent to the Member and Alternate Payee at the address
specified in the order, or if none is specified, at the
address of the Member or Alternate Payee last known to the
Committee.
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(b) Within a reasonable period of time after receipt of such
order, the Committee shall determine whether such order is a
Qualified Domestic Relations Order, in accordance with the
provisions of Section 2 above, and notify the Member and each
Alternate Payee of such determination. In making its
determination, the Committee may seek the advice of legal
counsel as to whether the order meets the requirements of
Section 2 hereof and may, but shall not be required to, invite
written or oral arguments by the Member and the Alternate
Payee or their representatives.
(c) Pending the Committee's determination of whether a domestic
relations order is a Qualified Domestic Relations Order, the
Committee shall instruct the Trustee to segregate in a
separate account the amounts which would be payable to the
Alternate Payee during such period if the order is a Qualified
Domestic Relations Order. If within 18 months from the date on
which the first payment would be required to be made under the
Qualified Domestic Relations Order, it is determined that the
Order is a Qualified Domestic Relations Order, the Plan shall
pay the segregated amounts, including any interest thereon, to
the person or persons entitled thereto pursuant to the terms
of the Qualified Domestic Relations Order. If it is determined
that an order is not a Qualified Domestic Relations Order or
the issue as to whether an order is a Qualified Domestic
Relations Order is not resolved within the aforesaid 18 month
period, the Plan shall pay the segregated amounts to the
person or persons entitled to such amounts in the absence of
the order. If it is subsequently determined that
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an order is a Qualified Domestic Relations Order, the Plan
shall pay benefits subsequent to the determination in
accordance with the order. If action is taken in accordance
with this subparagraph, the Plan's obligation to the Member
and each Alternate Payee shall be discharged to the extent of
any payment made pursuant to the Qualified Domestic Relations
Order.
Section 5. Relationship to Other Plan Provisions
To the extent provided in the Qualified Domestic Relations Order, the
Plan shall treat the former Spouse of a Member as the Spouse of the Member for
purposes of the Plan to the extent, and only to the extent, a Spouse has rights
pursuant to Sections 205 of ERISA and Sections 401(a)(11) and 417 of the Code
and any Spouse of the Member shall not be treated as a Spouse of the Member for
such purposes.
Section 6. Beneficiary Status
Each Alternate Payee shall be treated as a Beneficiary under the Plan,
with all the rights accorded to other Beneficiaries under the terms hereof and
as otherwise provided by law. Section 7. Definition
"Alternate Payee" means the Member's Spouse, former Spouse, child or
other dependent of the Member who is recognized as having a right to receive
all, or a portion of, the benefits payable under the Plan with respect to that
Member.
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EXHIBIT D
HSN, INC. RETIREMENT SAVINGS PLAN
ADOPTION AGREEMENT OF
WHEREAS, ____________________ (hereinafter referred to as the
"Employer") is desirous of adopting the HSN, inc. Retirement Savings Plan and
its related trust (hereinafter referred to as the "Plan" and "Trust");
WHEREAS, it is appropriate that the Employer acknowledge its adoption
of the Plan and Trust;
NOW, THEREFORE, subject to the conditions set forth below, the Employer
agrees to be bound by each and all of the provisions of the Plan and Trust.
The Employer hereby agrees that the following shall apply, but not by
way of limitation, with respect to its participation under the Plan:
A. All the terms and conditions of the Plan and Trust shall apply to
the participation under the Plan of the Employer and its employees in the manner
set forth therein.
B. The Employer shall provide the Committee and Trustees under the Plan
with full, complete, and timely information on all matters necessary to them in
the operation of the Plan and Trust.
C. The Employer may at any time elect to terminate its participation
under the Plan in the manner set forth therein, or the Employer may elect at any
time by appropriate
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113
amendment or action affecting only its own status thereunder to disassociate
itself from the Plan and Trust but to continue the Plan and the portion of the
Trust as it pertains to itself and its employees as an entity separate and
distinct from this Plan and Trust.
D. The Employer shall be liable for and shall pay at least annually its
fair share of the expenses of operating the Plan and Trust, including its share
of any Trustee's fees, pursuant to Article XVI of the Plan.
HSN, inc. hereby consents to the above.
IN WITNESS WHEREOF, this Adoption Agreement has been executed this day
of 199 .
(EMPLOYER)
By:
-----------------------------------------
Title:
--------------------------------------
HSN, inc.
By:
-----------------------------------------
Title:
--------------------------------------
D-2
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Exhibit 10.59
================================================================================
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
USANi LLC
================================================================================
2
TABLE OF CONTENTS
Page
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ARTICLE I
DEFINED TERMS
Section 1.1 Definitions................................ 1
Section 1.2 Headings................................... 8
ARTICLE II
FORMATION AND TERM
Section 2.1 Formation.................................. 9
Section 2.2 Name....................................... 9
Section 2.3 Term....................................... 9
Section 2.4 Registered Agent and Office................ 9
Section 2.5 Principal Place of Business................ 9
Section 2.6 Qualification in Other Jurisdictions....... 9
ARTICLE III
PURPOSE AND POWERS OF THE COMPANY
Section 3.1 Purpose.................................... 10
Section 3.2 Powers of the Company...................... 10
ARTICLE IV
MEMBERS
Section 4.1 Members.................................... 10
Section 4.2 Powers of Members.......................... 10
Section 4.3 Member's Share............................. 10
Section 4.4 Classes.................................... 10
Section 4.5 Partition.................................. 11
Section 4.6 Resignation................................ 11
Section 4.7 Member Meetings............................ 11
Section 4.8 Voting..................................... 11
Section 4.9 Quorum..................................... 11
Section 4.10 Notice of Meetings......................... 12
Section 4.11 Action Without a Meeting................... 12
Section 4.12 Fundamental Changes........................ 12
3
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ARTICLE V
MANAGEMENT
Section 5.1 Manager.................................... 14
Section 5.2 Duties, Number, Designation and Term of
Directors.................................. 15
Section 5.3 Resignation of Directors................... 16
Section 5.4 Vacancies on the Company Board............. 16
Section 5.5 Removal of a Director...................... 16
Section 5.6 Committees of Directors.................... 17
Section 5.7 Meetings of the Company Board.............. 17
Section 5.8 Quorum of a Company Board Meeting.......... 17
Section 5.9 Compensation of Directors.................. 17
Section 5.10 Action Without Company Board Meeting....... 18
Section 5.11 Officers................................... 18
ARTICLE VI
SHARES AND CAPITAL ACCOUNTS
Section 6.1 Capital Contributions...................... 18
Section 6.2 Status of Capital Contributions............ 19
Section 6.3 Capital Accounts........................... 19
Section 6.4 Advances................................... 20
Section 6.5 Redemption, Exchange, Transfer............. 20
ARTICLE VII
ALLOCATIONS
Section 7.1 Profits and Losses......................... 20
Section 7.2 Allocation Rules........................... 20
Section 7.3 Priority Allocations....................... 21
Section 7.4 Tax Allocations; Section 704(c) of the Code. 22
ARTICLE VIII
DISTRIBUTIONS
Section 8.1 Distributions; Special Distribution........ 23
Section 8.2 Mandatory Distributions.................... 23
Section 8.3 Limitations on Distribution................ 23
Section 8.4 Tax Loans to HSNi.......................... 23
Section 8.5 Intercompany Transfer of Funds............. 23
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ARTICLE IX
BOOKS AND RECORDS
Section 9.1 Books, Records and Financial Statements.... 24
Section 9.2 Accounting Method.......................... 25
Section 9.3 Annual Audit............................... 25
ARTICLE X
TAX MATTERS
Section 10.1 Tax Matters................................ 26
Section 10.2 Right to Make Section 754 Election......... 26
Section 10.3 Section 709 Election....................... 26
Section 10.4 Taxation as Partnership.................... 27
ARTICLE XI
LIABILITY, EXCULPATION AND INDEMNIFICATION
Section 11.1 Liability.................................. 27
Section 11.2 Exculpation................................ 27
Section 11.3 Fiduciary Duty............................. 27
Section 11.4 Indemnification............................ 27
Section 11.5 Expenses................................... 28
Section 11.6 Insurance.................................. 28
Section 11.7 Outside Businesses......................... 28
Section 11.8 Third-Party Beneficiaries.................. 28
ARTICLE XII
ADDITIONAL MEMBERS
Section 12.1 Admission.................................. 29
Section 12.2 Allocations................................ 29
ARTICLE XIII
ASSIGNMENTS
Section 13.1 Assignments of Shares Generally............ 29
Section 13.2 Recognition of Assignment by the Company... 30
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ARTICLE XIV
DISSOLUTION, LIQUIDATION AND TERMINATION
Section 14.1 No Dissolution............................. 30
Section 14.2 Events Causing Dissolution................. 30
Section 14.3 Liquidation................................ 30
Section 14.4 Termination................................ 31
Section 14.5 Claims of the Members...................... 31
ARTICLE XV
MISCELLANEOUS
Section 15.1 Notices.................................... 31
Section 15.2 Formation Expenses......................... 31
Section 15.3 Failure to Pursue Remedies................. 31
Section 15.4 Cumulative Remedies........................ 31
Section 15.5 Binding Effect............................. 32
Section 15.6 Interpretation............................. 32
Section 15.7 Severability............................... 32
Section 15.8 Counterparts............................... 32
Section 15.9 Integration................................ 32
Section 15.10 Governing Law.............................. 32
Section 15.11 Confidentiality............................ 33
ARTICLE XVI
AMENDMENTS
Section 16.1 Amendments................................. 33
SCHEDULE A MEMBERS
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AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT
OF
USANi LLC
This Amended and Restated Limited Liability Company Agreement (this
"Agreement") of USANi LLC (the "Company"), dated and effective as of February
12, 1998, is entered into among USA Networks, Inc., a Delaware corporation
(formerly known as HSN, Inc., "HSNi"), Home Shopping Network, Inc., a Delaware
corporation and direct subsidiary of HSNi ("Home Shopping"), Universal Studios,
Inc., a Delaware corporation ("Universal"), on behalf of USA Networks Partner,
Inc., a Delaware corporation ("Universal Sub"), and certain of its newly formed
and wholly owned subsidiaries listed on Schedule A to this Agreement, and
Liberty Media Corporation, a Delaware corporation ("Liberty"), on behalf of
Liberty HSN LLC Holdings, Inc., a Delaware corporation ("Liberty Sub") and
certain of its newly formed and wholly owned subsidiaries listed on Schedule A
to this Agreement, as members (the "Members"), and Mr. Barry Diller ("Mr.
Diller") (for purposes of Sections 4.12 and 5.1 of this Agreement).
WHEREAS, Universal, HSNi, Home Shopping and Liberty have entered
into an Investment Agreement, dated as of October 19, 1997, as amended and
restated as of December 18, 1997, pursuant to which HSNi, Home Shopping,
Universal and Liberty agreed to form a limited liability company to own and
operate USA Networks, an unincorporated joint venture (the "Partnership"), and
the domestic production and distribution business of Universal ("UTV") and
substantially all of the non-broadcast-related assets of HSNi (the "Investment
Agreement");
WHEREAS, the Investment Agreement contemplates the formation of a
limited liability company which is referred to therein as the "LLC";
WHEREAS, on January 26, 1998, HSNi formed the LLC and entered into a
limited liability company agreement relating to the LLC; and
WHEREAS, this Agreement amends and restates in its entirety such
limited liability company agreement;
NOW, THEREFORE, in consideration of the agreements and obligations
set forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Members hereby form a limited
liability company pursuant to and in accordance with the Delaware Limited
Liability Company Act (6 Del.C. ss.18-101, et seq.), as amended from time to
time (the "Delaware Act"), as provided herein, and hereby agree as follows:
ARTICLE I
DEFINED TERMS
Section 1.1 Definitions. Unless the context otherwise requires, the
terms defined in this Article I shall, for the purposes of this Agreement, have
the meanings herein specified.
7
"Acquired Partnership Interest" shall have the meaning set forth in
the Investment Agreement.
"Additional Shares" shall mean any Share that is acquired after the
Initial Capital Contributions.
"Adjusted Capital Account Deficit" shall mean, with respect to any
Member, the deficit balance, if any, in such Member's Capital Account as of the
end of the relevant Fiscal Year, after giving effect to the following
adjustments:
(a) Credit to such Capital Account any amounts which such Member is
deemed to be obligated to restore pursuant to the penultimate sentence of
either of Treasury Regulation ss.ss.1.704-2(g)(1) or 1.704-2(i)(5); and
(b) Debit to such Capital Account the items described in Treasury
Regulation ss.ss.1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) and
1.704-1(b)(2)(ii)(d)(6).
The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the provisions of Treasury Regulation ss.1.704-1(b)(2)(ii)(d) and
shall be interpreted consistently therewith.
"Adjusted Taxable Income" shall mean LLC Taxable Income; provided,
however, that if the HSNi Group has a net taxable loss for federal income tax
purposes for a taxable year, LLC Taxable Income shall be reduced (but not below
zero) by an amount equal to the net tax loss of the HSNi Group for federal
income tax purposes for such year divided by one minus the Ratio; provided,
however, that if such net tax loss of the HSNi Group exceeds the Loss Limit,
then any net tax loss in excess of the Loss Limit shall be taken into account in
determining the HSNi Group's taxable income for purposes of this provision for
the subsequent years and, provided, further, that if the HSNi Group has net
taxable income for federal income tax purposes for the year (taking into account
any prior year net loss in excess of the Loss Limit), for this purpose LLC
Taxable Income shall be increased by the product of (a) any net income of the
HSNi Group for the year and (b) a fraction, the numerator of which is one and
the denominator of which is one minus the Ratio (such net income to be taken
into account only to the extent prior year net losses were previously taken into
account in calculation of Adjusted Taxable Income hereunder and not previously
offset by inclusions of prior year net income of the HSNi Group).
"Affiliate" shall mean, with respect to any Person, any direct or
indirect subsidiary of such Person, any other Person that directly or through
one or more intermediaries, is controlled by, or is under common control with,
the specified Person, and, if such a Person is an individual, any member of the
immediate family (including parents, spouse and children) of such individual and
any trust whose principal beneficiary is such individual or one or more members
of such immediate family and any person who is controlled by any such member or
trust. As used in this definition, the term "control" (including with
correlative meanings, "controlled by" and "under common control with") shall
mean possession, directly or indirectly, of power to direct or cause the
direction of management or policies, whether through ownership of securities or
partnership or other ownership interests, by contract or otherwise.
Notwithstanding the foregoing, for purposes of this Agreement (i) HSNi and its
Subsidiaries (including the Company) shall not be deemed to be Affiliates of
Universal, Diller and Liberty, (ii) Universal and its Subsidiaries shall not be
deemed to be
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Affiliates of HSNi, Diller and Liberty, (iii) Liberty and its Subsidiaries shall
not be deemed to be Affiliates of HSNi, Diller, Universal, (iv) Matsushita
Electric Industrial Co., Ltd. ("MEI") shall not be deemed to be an Affiliate of
Universal or any Subsidiary of Universal so long as MEI does not materially
increase its influence over Universal following the date hereof, and (v) natural
persons shall not be deemed to be Affiliates other than of an individual.
"Agreement" shall have the meaning set forth in the recitals hereof.
"Assign" and "Assignment" shall have the meanings set forth in
Section 13.1 hereof.
"Capital Account" shall mean, with respect to any Member and any
Share, the account maintained for such Member and such Share in accordance with
the provisions of Section 6.3 hereof.
"Capital Contribution" shall mean, with respect to any Member and
any Share, the aggregate amount of cash and the initial Gross Asset Value of any
property (other than cash) contributed to the Company pursuant to Section 6.1
hereof with respect to such Share, net of any liabilities of such Member that
are assumed by the Company in connection with such contribution or that are
secured by property so contributed, and shall include the Initial Capital
Contribution and any Subsequent Capital Contribution.
"CEO" shall mean the Chief Executive Officer of HSNi or any
successor entity.
"Certificate" shall mean the Certificate of Formation of the Company
and any and all amendments thereto and restatements thereof filed on behalf of
the Company with the office of the Secretary of State of the State of Delaware
pursuant to the Delaware Act.
"Class A Share," "Class B Share" and "Class C Share" shall have the
respective meanings set forth in Section 4.4 hereof.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, or any corresponding United States federal tax statute enacted
after the date of this Agreement. A reference to a specific section (ss.) of the
Code refers not only to such specific section but also to any corresponding
provision of any United States federal tax statute enacted after the date of
this Agreement, as such specific section or corresponding provision is in effect
on the date of application of the provisions of this Agreement containing such
reference.
"Company" shall have the meaning set forth in the preamble hereto.
"Company Board" shall have the meaning set forth in Section 5.2
hereof.
"Company CEO" shall have the meaning set forth in Section 5.1
hereof.
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"Company Minimum Gain" shall mean "partnership minimum gain" of the
Company within the meaning of Treasury Regulation ss.1.704-2(b)(2) and shall be
computed in accordance with Treasury Regulation ss.1.704-2(d).
"Covered Person" shall mean any Officer or director of the Company
or its Affiliates (but shall not include an officer, director or employee of
HSNi, Home Shopping, Universal, or Liberty or their respective Affiliates who is
not an Officer of the Company or its Affiliates).
"Delaware Act" shall have the meaning set forth in the preamble
hereof.
"Depreciation" shall mean, for each Fiscal Year or other period, an
amount equal to the depreciation, amortization or other cost recovery deduction
allowable with respect to an asset for such Fiscal Year or other period;
provided, however, that, if the Gross Asset Value of an asset differs from its
adjusted basis for United States federal income tax purposes at the beginning of
such Fiscal Year or other period, Depreciation shall be an amount that bears the
same ratio to such beginning Gross Asset Value as the United States federal
income tax depreciation, amortization or other cost recovery deduction with
respect to such asset for such Fiscal Year or other period bears to such
beginning adjusted tax basis; and provided, further, that if the United States
federal income tax depreciation, amortization or other cost recovery deduction
for such Fiscal Year or other period is zero, Depreciation shall be determined
with reference to such beginning Gross Asset Value using any reasonable method
selected by the Members; and provided, further, that with respect to any
goodwill that is not amortizable under the Code (including with respect to the
Owned Partnership Interest), there shall be no Depreciation.
"Distributions" shall mean distributions of cash or other property
made by the Company with respect to the Class A Shares, Class B Shares or the
Class C Shares. Distributions shall not mean payments of cash or other property
to holders of Shares for reasons other than their ownership of such Shares.
"Economic Percentage Interest," with respect to any Member, shall
mean the number of Class A Shares, Class B Shares and/or Class C Shares owned by
such Member divided by the sum of the total number of Shares in the Company
(expressed as a percentage of one hundred percent rounded to the nearest
one-thousandth of percent).
"Economic Risk of Loss" shall have the meaning set forth in Treasury
Regulation ss.1.752-2.
"Excess Cash" shall mean cash held by an entity (including from the
proceeds of borrowings) on the last business day of each month which is
reasonably determined by such entity not to be needed by such entity to fund its
operations or repay indebtedness owed by such entity during the immediately
succeeding month.
"Fiscal Year" shall mean (a) the period commencing upon the date of
this Agreement and ending on December 31, 1998, (b) any subsequent twelve-month
period commencing on January 1 and ending on December 31, (c) any other
twelve-month period required by the Code or the Treasury Regulations to be used
as the taxable year of the
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Company or (d) any portion of the periods described in clauses (a), (b) or (c)
of this sentence for which the Company is required to allocate Profits, Losses
and other items of Company income, gain, loss or deduction pursuant to Article
VII hereof.
"Foreign Ownership Restriction" means any applicable restrictions of
a Governmental Authority on foreign ownership or foreign control of the Company
or the Shares, the breach of which, or non-compliance with which, could result
in the loss, or failure to secure the renewal or reinstatement, of any license
or franchise of any Governmental Authority held by the Company or any of its
Subsidiaries to conduct any portion of the business of the Company or such
Subsidiary.
"GAAP" means generally accepted accounting principles in the United
States.
"Governance Agreement" means that certain Governance Agreement,
dated as of October 19, 1997, among Universal, HSNi, Mr. Diller and Liberty,
which sets forth certain terms and conditions concerning Universal's, Mr.
Diller's and Liberty's relationships with HSNi and certain matters relating to
the securities of HSNi.
"Governmental Authority" means any nation or government, any state
or other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Gross Asset Value" means, with respect to any asset, such asset's
adjusted basis for United States federal income tax purposes, except as follows:
(a) the initial Gross Asset Value of any asset contributed by a
Member to the Company shall be the gross fair market value of such asset,
as determined by mutual agreement of the Members;
(b) the Gross Asset Value of all Company assets shall be adjusted to
equal their respective gross fair market values, as determined by mutual
agreement of the Members, as of the following times: (i) immediately prior
to the acquisition of an additional Share in the Company by any new or
existing Member in exchange for more than a de minimis Capital
Contribution; (ii) immediately prior to the distribution by the Company to
a Member of more than a de minimis amount of Company assets in redemption
of a Share in the Company; and (iii) the liquidation of the Company within
the meaning of Treasury Regulation ss.1.704-1(b)(2)(ii)(g); and
(c) the Gross Asset Value of any Company asset distributed to any
Member shall be the gross fair market value of such asset on the date of
distribution, as determined by mutual agreement of the Members.
If the Gross Asset Value of an asset has been determined or adjusted
pursuant to paragraph (a) or paragraph (b) above, such Gross Asset Value shall
thereafter be adjusted by the Depreciation taken into account with respect to
such asset for purposes of computing Profits and Losses.
"Home Shopping" shall have the meaning set forth in the preamble
hereof.
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"HSNi" shall have the meaning set forth in the preamble hereof.
"HSNi Board" means the Board of Directors of HSNi.
"HSNi Board Vacancy" shall have the meaning set forth in Section
5.2(b) hereof.
"HSNi Designees" shall have the meaning set forth in Section 5.2(b)
hereof.
"HSNi Group" means the "affiliated group" (within the meaning of
Section 1504(a) of the Code) of which HSNi is the common parent (including any
continuation of such group under the rules of Section 1.1502-75(d) of the
Treasury Regulations).
"HSNi Members" shall mean HSNi and its Affiliates (including Home
Shopping) who may be Members of the Company.
"Initial Capital Contributions" shall have the meaning set forth in
Section 6.1 hereof.
"Initial Liberty Contribution" shall have the meaning set forth in
Section 6.1 hereof.
"Interest Rate" shall have the meaning set forth in the Investment
Agreement.
"Investment Agreement" shall have the meaning set forth in the
recitals hereof.
"LLC Taxable Income" shall mean the taxable income of the Company,
determined in accordance with Section 703(a) of the Code (but including, for
this purpose, all items of income, gain, loss or deduction required to be stated
separately pursuant to Section 703(a)(1) of the Code).
"Liberty" shall have the meaning set forth in the preamble hereof.
"Liberty Designees" shall have the meaning set forth in Section
5.2(b) hereof.
"Liberty Members" shall mean Liberty and its Affiliates who may be
Members of the Company.
"Loss Limit" shall mean LLC Taxable Income multiplied by one minus
the Ratio.
"Manager" shall have the meaning set forth in Section 5.1 hereof.
"Member" shall mean any Person named as a member of the Company in
the preamble hereof and on Schedule A hereto and includes any Person who
acquires a Share pursuant to the provisions of this Agreement. For purposes of
the Delaware Act, the Members shall constitute three (3) classes or groups of
members.
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"Member Minimum Gain" means an amount, with respect to each Member
Nonrecourse Liability, determined in accordance with Treasury Regulation
ss.1.704-2(i)(3).
"Member Nonrecourse Deductions" shall mean "partner nonrecourse
deductions" within the meaning of Treasury Regulation ss.ss.1.704-2(i)(1) and
1.704-2(i)(2).
"Member Nonrecourse Liability" shall mean "partner nonrecourse debt"
or "partner nonrecourse liability" within the meaning of Treasury Regulation
ss.1.704-2(b)(4).
"Mr. Diller" shall have the meaning set forth in the preamble
hereof.
"Officers" means those Persons appointed by the Manager to manage
the day-to-day affairs of the Company pursuant to Section 5.12 hereof.
"Owned Partnership Interest" shall have the meaning set forth in the
Investment Agreement.
"Person" includes any individual, corporation, association,
partnership (general or limited), joint venture, trust, estate, limited
liability company or other legal entity or organization.
"Profits" and "Losses" means, for each Fiscal Year, an amount equal
to the Company's taxable income or loss for such Fiscal Year, determined in
accordance with ss.703(a) of the Code (but including in taxable income or loss,
for this purpose, all items of income, gain, loss or deduction required to be
stated separately pursuant to ss.703(a)(1) of the Code), with the following
adjustments:
(a) any income of the Company exempt from federal income tax and not
otherwise taken into account in computing Profits or Losses pursuant to
this definition shall be added to such taxable income or loss;
(b) any expenditures of the Company described in ss.705(a)(2)(B) of
the Code (or treated as expenditures described in ss.705(a)(2)(B) of the
Code pursuant to Treasury Regulation ss.1.704-1(b)(2)(iv)(i)) and not
otherwise taken into account in computing Profits or Losses pursuant to
this definition shall be subtracted from such taxable income or loss;
(c) in the event the Gross Asset Value of any Company asset is
adjusted in accordance with paragraph (b) or paragraph (c) of the
definition of "Gross Asset Value" above, the amount of such adjustment
shall be taken into account as gain or loss from the disposition of such
asset for purposes of computing Profits or Losses;
(d) gain or loss resulting from any disposition of any asset of the
Company with respect to which gain or loss is recognized for federal
income tax purposes shall be computed by reference to the Gross Asset
Value of the asset disposed of, notwithstanding that the adjusted tax
basis of such asset differs from its Gross Asset Value; and
(e) in lieu of the depreciation, amortization and other cost
recovery deductions taken into account in computing such taxable income or
loss, there shall be
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taken into account Depreciation for such Fiscal Year or other period,
computed in accordance with the definition of "Depreciation" above.
"Ratio" shall mean HSNi Group's combined Economic Percentage
Interest.
"Regulated Subsidiaries" shall have the meaning set forth in the
Investment Agreement.
"Share" shall mean a unit of limited liability company interest
owned by a Member in the Company which represents, in respect of any Class A
Share, Class B Share or Class C Share, a right to allocations of the profits and
losses of the Company, a right to participate in certain voting and/or
management rights and a right to receive distributions as provided in Article
VIII or Section 14.3(c) hereof, in each case in accordance with the provisions
of this Agreement and the Delaware Act.
"Subsequent Capital Contribution" shall have the meaning set forth
in Section 6.1 hereof.
"Subsidiaries" shall mean, with respect to any Person, each of the
direct or indirect subsidiaries of such Person.
"Tax Matters Partner" shall have the meaning set forth in Section
10.1(a) hereof.
"Tax Rate" shall mean the highest marginal federal and applicable
state corporate income tax rates (giving effect to the deductibility, if any, of
state income taxes for federal income tax purposes) in effect for the taxable
year.
"Total Voting Power" means the total number of votes represented by
the Class A Shares, Class B Shares and Class C Shares when voting together as a
single class, with each Share entitled to one vote.
"Treasury Regulations" means the income tax regulations, including
temporary regulations, promulgated under the Code, as such regulations may be
amended from time to time (including corresponding provisions of succeeding
regulations).
"Universal" shall have the meaning set forth in the preamble hereof.
"Universal Designees" shall have the meaning set forth in Section
5.2(b) hereof.
"Universal Members" shall mean the Affiliates of Universal who may
be Members of the Company from time to time.
"Universal Sub" shall have the meaning set forth in the preamble
hereof.
Section 1.2 Headings. The headings and subheadings in this Agreement
are included for convenience and identification only and are in no way intended
to describe, interpret, define or limit the scope, extent or intent of this
Agreement or any provision hereof.
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ARTICLE II
FORMATION AND TERM
Section 2.1 Formation. (a) Subject to the filing of the Certificate
with the Office of the Secretary of State of the State of Delaware as provided
in Section 2.3, the Members hereby form the Company as a limited liability
company under and pursuant to the provisions of the Delaware Act, and agree that
the rights, duties and liabilities of the Members shall be as provided in the
Act, except as otherwise provided herein.
(b) Upon the execution of this Agreement or a counterpart of this
Agreement and the making of the Initial Capital Contributions or Initial Liberty
Contribution contemplated by Section 6.1(a), the HSNi Members, Universal Members
and Liberty Members shall be admitted as Members of the Company with the number
and type of Shares reflected on Schedule A.
(c) The name and mailing address of each Member and the amount of
such Member's Initial Capital Contribution shall be listed on Schedule A
attached hereto.
(d) HSNi, by its duly authorized officers, is hereby designated an
authorized person, within the meaning of the Delaware Act, to execute, deliver
and file, or cause the execution, delivery and filing of the Certificate. The
Secretary of the Company and any assistant secretary are hereby designated as
authorized Persons, within the meaning of the Delaware Act, to execute, deliver
and file, or cause the execution, delivery and filing of, all certificates,
notices or other instruments (and any amendments and/or restatements thereof)
required or permitted by the Delaware Act to be filed in the office of the
Secretary of State of Delaware and any other certificates, notices or other
instruments (and any amendments and/or restatements thereof) necessary for the
Company to qualify to do business in a jurisdiction in which the Company may
wish to conduct business.
Section 2.2 Name. The name of the Company shall be "USANi LLC."
Section 2.3 Term. The term of the Company shall commence on the date
the Certificate is filed in the office of the Secretary of State of the State of
Delaware, which shall be the date hereof, and shall continue perpetually unless
the Company is dissolved pursuant to Section 14.2, which dissolution shall be
carried out pursuant to the Delaware Act and the provisions of this Agreement.
Section 2.4 Registered Agent and Office. The Company's registered
agent and office in Delaware shall be the Corporation Trust Company, Corporation
Trust Center, 1209 Orange Street in the City of Wilmington, County of New
Castle.
Section 2.5 Principal Place of Business. The principal place of
business of the Company shall be in the State of California or such other
location as the Company Board may designate from time to time and embody in a
writing to be filed with the records of the Company.
Section 2.6 Qualification in Other Jurisdictions. The Officers shall
cause the Company to be qualified, formed or registered under assumed or
fictitious name statutes or similar laws in any jurisdiction in which the
Company transacts business and such
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qualification, formation or registration is necessary or appropriate for the
transaction of such business.
ARTICLE III
PURPOSE AND POWERS OF THE COMPANY
Section 3.1 Purpose. The Company is formed for the object and
purpose of, and the nature of the business to be conducted and promoted by the
Company is, engaging in any lawful act or activity for which limited liability
companies may be formed under the Delaware Act.
Section 3.2 Powers of the Company. The Company shall have the power
and authority to take any and all actions necessary, appropriate, proper,
advisable, incidental or convenient to or for the furtherance of the purpose set
forth in Section 3.1.
ARTICLE IV
MEMBERS
Section 4.1 Members. The name and mailing address of each Member and
the number and class of Shares owned thereby shall be listed on Schedule A
attached hereto. The Secretary or other designated Officer shall be required to
update Schedule A from time to time as necessary to accurately reflect changes
in address and/or the ownership of Shares. Any amendment or revision to Schedule
A made to reflect an action taken in accordance with this Agreement shall not be
deemed an amendment to this Agreement. Any reference in this Agreement to
Schedule A shall be deemed to be a reference to Schedule A as amended and in
effect from time to time. No Person, whether or not such Person holds any
Shares, shall be deemed a Member of the Company hereunder or under the Delaware
Act unless approved as such pursuant to the provisions of Article XIII of this
Agreement.
Section 4.2 Powers of Members. The Members shall have the power to
exercise any and all rights or powers granted to the Members pursuant to the
express terms of this Agreement. Members shall not have the authority to bind
the Company by virtue of their status as Members.
Section 4.3 Member's Share. A Member's Shares shall for all purposes
be personal property. No holder of a Share or Member shall have any interest in
specific Company assets or property, including any assets or property
contributed to the Company by such Member as part of any Capital Contribution.
Section 4.4 Classes. (a) The Shares shall be divided between Class A
Shares, Class B Shares and Class C Shares.
(b) The Class A Shares, Class B Shares and Class C Shares may not be
subdivided, and each of such Shares shall have identical rights and terms in all
respects except as specifically set forth in this Article IV and Article V of
this Agreement. Subject
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to the rights and obligations of the Manager and the Company Board, the Class A
Shares, Class B Shares and Class C Shares shall have all management and voting
rights (subject to Section 4.12), all rights to any allocation of Profits and
Losses by the LLC and provided for under the Delaware Act and all rights to
distributions as may be authorized under this Agreement and under the Delaware
Act.
(c) Upon exchange of Class B or Class C Shares for shares of HSNi
stock pursuant to the Exchange Agreement (as defined in the Investment
Agreement) such Class B or Class C Shares shall automatically be converted into
an equal number of Class A Shares.
(d) Class A Shares, Class B Shares and Class C Shares shall be
securities governed by Article 8 of the Uniform Commercial Code as in effect in
the State of New York.
Section 4.5 Partition. Each Member waives any and all rights that it
may have to maintain an action for partition of the Company's property.
Section 4.6 Resignation. A Member shall cease to be a Member at the
time such Member ceases to own any Shares. Shares are redeemable only pursuant
to Sections 1.7 and 6.2(c) of the Investment Agreement.
Section 4.7 Member Meetings. (a) A meeting of Members for the
designation of directors, and for such other business as may be stated in the
notice of the meeting, shall be held at least annually at such date, time and
place as is determined by the Manager. At each annual meeting, the Members shall
designate directors in accordance with Section 5.2(b) and they may transact such
other business as shall be stated in the notice of the meeting.
(b) Special meetings of the Members for any purpose or purposes may
be called only by the Manager or by a resolution of the Company Board.
Section 4.8 Voting. Each Member entitled to vote in accordance with
the terms of this Agreement may vote in person or by proxy. The Members shall be
entitled to vote only on the matters set forth in Section 4.12 and to the other
rights expressly set forth herein, including designating their respective
designees to the Company Board. Except in the case of designation of directors
and unless otherwise provided for by this Agreement, all matters to be decided
by the Members shall be decided by an affirmative vote (or consent in writing)
of the majority of the Total Voting Power of the holders of the Class A Shares,
Class B Shares and Class C Shares, voting together as a single class, and no
matter may be decided without such affirmative vote or consent in writing.
Section 4.9 Quorum. Except as otherwise required by law, the
presence, in person or by proxy, of a majority of the holders of the Class A
Shares, Class B Shares and Class C Shares shall constitute a quorum at all
meetings of the Members. In case a quorum shall not be present at any meeting,
Members holding a majority of the Total Voting Power held by Members represented
thereat, in person or by proxy, shall have the power to adjourn the meeting from
time to time, without notice other than announcement at the meeting, until the
requisite amount of Shares shall be present. At any such adjourned meeting at
which the requisite amount of Shares shall be represented, any business may be
transacted that might have been transacted at the meeting as originally noticed.
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Section 4.10 Notice of Meetings. Written notice, stating the place,
date and time of the meeting, shall be given to each Member, at such Member's
address as it appears on the records of the Company, not less than two business
days before the date of the meeting (except that notice to any Member may be
waived in writing by such Member).
Section 4.11 Action Without a Meeting. Any action required or
permitted to be taken at any annual or special meeting of Members may be taken
without a meeting, without prior notice and without a vote, if a consent in
writing, setting forth the action so taken, shall be signed by the number of
Members as would be required to take such action at a meeting, notice of such
action shall be given to those Members who have not so consented in writing to
such action without a meeting and such written consent is filed with the minutes
of proceedings of the Members.
Section 4.12 Fundamental Changes. Notwithstanding anything to the
contrary contained in this Agreement, for so long as Mr. Diller, Universal (on
behalf of the Class B Shares) or Liberty (on behalf of the Class C Shares),
respectively, has rights to approve Fundamental Changes under Section 2.04 of
the Governance Agreement, the following matters (each a "Fundamental Change")
shall require the prior approval of Mr. Diller, Universal (on behalf of the
Class B Shares) and Liberty (on behalf of the Class C Shares), respectively, and
the Company shall not take any of the actions set forth below prior to such
approval (provided that approval by a Member of a Fundamental Change pursuant to
Section 2.04 of the Governance Agreement shall constitute approval of the
correlative matters under this Section 4.12):
(a) Any transaction that would subject the Company or any Subsidiary
to Foreign Ownership Restrictions; provided that the matter set forth in
this clause (a) will not constitute a "Fundamental Change" with respect to
Liberty and Mr. Diller and shall not require their approval.
(b) Any transaction not in the ordinary course of business,
launching new or additional channels or engaging in any new field of
business, in any case, which will result in or will have a reasonable
likelihood of resulting in, such Member or any Affiliate thereof being
required under law to divest itself of all or any part of its Shares or
Parent Common Shares (as defined in the Investment Agreement), or any
interest therein, or any other material assets of such Member, or which
will render such Member's continued ownership of such securities,
interests or assets illegal or subject to the imposition of a fine or
penalty or which will impose material additional restrictions or
limitations on Universal's, Liberty's or their respective Affiliates' (as
defined in the Governance Agreement) full rights of ownership (including,
without limitation, voting) thereof or therein.
(c) Acquisition or disposition (including pledges), directly or
indirectly, by the Company or any of its Subsidiaries of any assets
(including debt and/or equity securities), or business (by merger,
consolidation or otherwise), provided that the transactions contemplated
by the Investment Agreement, including the matters contemplated by Section
9.14 of the Investment Agreement (to the extent conducted in all material
respects in accordance with the letter agreement relating to such matters
dated as of the date of the Investment Agreement among Liberty, Universal
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and the Company, as such agreement may be amended or modified), shall not
require the prior approval of Liberty pursuant to this Section 4.12, the
grant or issuance of any debt or equity securities of the Company or any
of its Subsidiaries (other than in any of the foregoing as contemplated by
this Agreement, the Investment Agreement and the Exchange Agreement), the
redemption, repurchase or reacquisition of any debt or equity securities
of the Company or any of its Subsidiaries (other than as contemplated by
this Agreement, the Investment Agreement and the Exchange Agreement) by
the Company or any such Subsidiary, or the incurrence of any indebtedness,
or any combination of the foregoing, in any such case, in one transaction
or a series of transactions in a six-month period, with a value of 10% or
more of the market value of the Total Equity Securities (as defined in the
Governance Agreement) at the time of such transaction, provided that the
prepayment, redemption, repurchase or conversion of prepayable, callable,
redeemable or convertible securities (including Shares) in accordance with
the terms thereof shall not be a transaction subject to this paragraph
(c).
(d) For a five-year period following the Closing (as defined in the
Investment Agreement), disposition of any interest in the Partnership (as
defined in the Investment Agreement) or, other than in the ordinary course
of business, its assets, directly or indirectly (by merger, consolidation
or otherwise), provided that the matters set forth in this paragraph (d)
will not constitute a "Fundamental Change" with respect to Liberty and
shall not require its approval unless it otherwise would constitute a
"Fundamental Change" under one of the other items of this Section 4.12
with respect to which Liberty's consent is required.
(e) Disposition or issuance (including pledges), directly or
indirectly, by the Company of any Shares or Additional Shares except as
contemplated by this Agreement, the Investment Agreement, the Governance
Agreement, the Stockholders Agreement and the Exchange Agreement or
pledges in connection with the financings.
(f) Voluntarily commencing any liquidation, dissolution or winding
up of the Company or any material Subsidiary.
(g) Engagement by the Company in any line of business other than
media, communications and entertainment products, services and
programming, and electronics retailing, or other businesses engaged in by
the Company and HSNi and its Subsidiaries as of the closing date or as
contemplated by the Investment Agreement, provided that the Company shall
not engage in theme park, arcade or film exhibition businesses so long as
Universal is restricted from competing in such lines of businesses under
non-compete or similar agreements in effect on the date hereof and such
agreements would be applicable to the Company by virtue of Universal's
ownership therein, provided that the matters set forth in the foregoing
proviso shall not constitute a "Fundamental Change" with respect to
Liberty and shall not require its approval unless it otherwise would
constitute a "Fundamental Change" under one of the other items of this
Section 4.12 with respect to which Liberty's consent is required.
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(h) Settlement of any litigation, arbitration or other proceeding
which is other than in the ordinary course of business and which involves
any material restriction on the conduct of business by the Company or such
Member or any of their respective Affiliates or the continued ownership of
assets by the Company or such Member of any of their respective
Affiliates.
(i) Engagement in any transaction (other than contemplated by the
Investment Agreement) between the Company and its Affiliates (excluding
Mr. Diller, HSNi, Universal and Liberty), on the one hand, and Mr. Diller,
HSNi, Universal or Liberty, and their respective Affiliates, on the other
hand, subject to the exceptions relating to the size of the proposed
transaction and except for those transactions which are otherwise on an
arm's-length basis.
(j) Entering into any agreement with any holder of Shares in such
Member's capacity as such which grants such Member approval rights similar
in type and magnitude to those set forth in this Section 4.12.
(k) Entering into any transaction that could reasonably be expected
to impede HSNi's ability to engage in the Spinoff (as defined in the
Governance Agreement) or cause it to be taxable.
(l) Material amendment to the certificate of formation.
(m) Any non-ministerial actions taken by the Tax Matters Partner
pursuant to Section 10.01 or in connection with any income tax audit of
any tax return of the Company, the filing of any amended return or claim
for refund in connection with any item of income, gain, loss, deduction or
credit, in each case, materially adversely affecting the tax liability of
a Member, or any administrative or judicial proceedings arising out of or
in connection with any such audit, amended return, claim for refund or
denial of such claim; provided, however, that the foregoing shall require
the prior approval of the affected Member or Members only.
Notwithstanding anything to the contrary, Universal and Liberty shall be
entitled to exercise the matters set forth in paragraphs (b), (f) and (i) above,
which shall continue to be "Fundamental Changes" as provided in Section 4.12
with respect to Universal or Liberty so long as Universal or Liberty, as the
case may be, is not legally permitted to exchange all of its Shares for Parent
Common Shares and Universal or Liberty, as the case may be, continues to own
such Shares.
ARTICLE V
MANAGEMENT
Section 5.1 Manager. In accordance with Section 18-402 of the
Delaware Act, management of the Company shall be vested in the manager of the
Company (the "Manager"). The business and affairs of the Company shall be
managed exclusively by and under the direction of the Manager, subject to the
control of the Board of Directors and the Members to the extent set forth in
Section 4.12. So long as Mr. Diller is the Manager, the Manager shall also be
the Chief Executive Officer of the Company and Chairman of the
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Company Board (the "Company CEO") and shall have such powers and authority
relative to the Company as does the CEO relative to HSNi. Mr. Diller shall be
the Manager and Company CEO and shall retain such positions until the CEO
Termination Date (as defined in the Governance Agreement) or Mr. Diller is
Disabled (as defined in the Governance Agreement). Immediately following the CEO
Termination Date or if Mr. Diller is Disabled, the Manager (and the Company CEO)
shall be designated by Universal (or, at Universal's option, a Universal Member
shall be the Managing Member and shall designate the Company CEO); provided that
(i) Universal and Liberty and their respective Affiliates then Beneficially Own
Equity Securities representing at least 40% of the total voting power of the
Total Equity Securities (each as defined in the Governance Agreement) and (ii)
no shareholder of HSNi (other than Universal or Liberty and their respective
Affiliates) Beneficially Owns Equity Securities representing a greater
percentage of the total voting power of the Total Equity Securities than the
total voting power of the Total Equity Securities represented by the Equity
Securities Beneficially owned by Universal and Liberty and their Affiliates.
Notwithstanding the preceding sentence, if the conditions in clauses (i) and
(ii) of the proviso above are satisfied and the excess, if any, of the
percentage (expressed as a whole number) of the total voting power of the Total
Equity Securities that the Equity Securities Beneficially owned by Liberty and
its Affiliates represents minus the percentage (expressed as a whole number) of
the total voting power of the Total Equity Securities that the Equity Securities
Beneficially Owned by Universal and its Affiliates represents is greater than
five (5), then the Manager (and the Company CEO) shall instead be designated by
Liberty or, at Liberty's option, a Liberty Member shall be the Managing Member
and shall designate the Company CEO. If neither Universal nor Liberty is then
entitled to designate the Manager in accordance with this provision, then the
Manager (and the Company CEO) shall be designated by HSNi.
Section 5.2 Duties, Number, Designation and Term of Directors. (a)
The business and affairs of the Company shall be managed under the direction of
a Board of Directors of the Company (the "Company Board") consisting of a number
of directors equal to the number of directors constituting the HSNi Board;
provided, however, that if Liberty would be entitled to designate directors to
the HSNi Board pursuant to the terms of the Governance Agreement but such
representation on the HSNi Board by Liberty is not permitted by applicable law,
the number of directors of the Company Board shall be increased by one or two
until such time as Liberty is so entitled to designate one or two directors of
HSNi pursuant to the Governance Agreement and such representation would be
permitted by applicable law. Except as to matters delegated to Officers of the
Company, the approval of the Company Board shall be required for any action or
decision of the Company customarily reserved to a board of directors. The power
of the Company Board to approve such actions and decisions shall be exclusive to
the Company Board, and no Officer may take any action or make any decision
referred to in the foregoing sentence without the approval of the Company Board,
if such approval is required.
(b) The directors shall consist, at all times, of (i) Class A
directors, consisting of the HSNi Designees who are the same persons as the
directors of the HSNi Board (other than Satisfactory Nominees and Liberty
Directors (as such terms are defined in the Governance Agreement), if any) (the
"HSNi Designees"), (ii) Class B directors, consisting of a number of directors
selected by Universal (the "Universal Designees") and equal to the number of
Satisfactory Nominees that Universal is entitled to designate to the HSNi Board
pursuant to the terms of the Governance Agreement and (iii) Class C directors,
consisting of a number of directors selected by Liberty ("Liberty Designees")
equal to the number of
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Liberty Directors that Liberty would be entitled to designate to the HSNi Board
pursuant to the terms of the Governance Agreement (without regard to whether
such representation is permitted by applicable law). Universal shall designate
the Persons who are Satisfactory Nominees as the Class B directors and Liberty
shall designate the Persons who are Liberty Directors as the Class C directors,
in each case for so long as such Persons are also serving as directors on the
HSNi Board. In the event that Universal or Liberty is entitled to designate a
director on the HSNi Board but such position is not filled by Universal's or
Liberty's nominees (whether due to a legal limitation on the number of directors
such Person may designate or otherwise) (an "HSNi Board Vacancy"), Universal or
Liberty, as the case may be, shall be entitled to designate as directors such
additional number of individuals, subject to the definitions of Satisfactory
Nominee or Liberty Director. In the event that the HSNi Board Vacancy is
subsequently filled by Universal's or Liberty's designee, such entity shall
cause the resignation from the Company Board of the individuals designated
pursuant to the preceding sentence and to designate its HSNi Director to the
Company Board.
(c) Directors shall be designated to serve until the earlier of (i)
the designation and qualification of his or her successor, (ii) removal of such
director in accordance with Section 5.5 of this Agreement or (iii) such
director's death.
(d) Unless otherwise specified herein, any action or decision of the
Company Board, whether at a meeting of the Company Board or by written consent,
may only be taken if approved unanimously by the HSNi Designees, the Universal
Designees and the Liberty Designees; provided, however, that in the event any
action is deadlocked because of a failure to receive unanimous approval by the
Company Board, the Chairman of the Board shall have the power and authority to
break the deadlock by approving or rejecting such action and the affirmative
vote of the Chairman of the Board shall be deemed to be the unanimous vote of
the Company Board. Nothing in this Section shall affect the right of each Member
to approve or reject any Fundamental Change in accordance with Section 4.12.
(e) Committees of the Company Board will not be used in a manner
that usurps the overall responsibility of the Company Board pursuant to this
Agreement.
Section 5.3 Resignation of Directors. Any director, other than the
Company CEO prior to the date he ceases for any reason to be CEO or becomes
Disabled, may resign at any time. Such resignation shall be made in writing, and
shall take effect at the time specified therein, and, if no time be specified,
at the time of its receipt by the Chairman of the Board, the CEO or the
Secretary. The acceptance of a resignation shall not be necessary to make it
effective.
Section 5.4 Vacancies on the Company Board. Upon any removal,
resignation, death or disability of any member of the Company Board, the Member
who designated such Company Board member shall designate a replacement in
accordance with Section 5.2.
Section 5.5 Removal of a Director. (a) An HSNi Designee may be
removed only upon, and shall be removed effective upon, the removal or
resignation of such Designee from the HSNi Board.
(b) Any Universal Designee may be removed either for or without
cause at any time, but only by the holders of a majority of the Class B Shares
in a writing to such
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effect; provided that Universal shall also cause such designee to be removed
from the HSNi Board pursuant to the Governance Agreement. A Universal Designee
shall be removed from the Company Board effective upon the removal for cause of
such Universal Designee from the HSNi Board.
(c) Any Liberty Designee may be removed either for or without cause
at any time, but only by the holders of a majority of the Class C Shares in a
writing to such effect; provided that, to the extent such Liberty Designee is
then serving as a Liberty Director, Liberty shall also cause such designee to be
removed from the HSNi Board pursuant to the Governance Agreement. A Liberty
Designee shall be removed from the Company Board effective upon the removal for
cause of such Liberty Designee from the HSNi Board.
Section 5.6 Committees of Directors. The Company Board may, by
resolution or resolutions of the Company Board, designate one or more
committees, each committee to consist of two or more directors of the Company.
Any such committee, to the extent provided in the resolution of the Company
Board establishing such committee, shall have and may exercise all the powers
and authority of the Company Board in the management of the business and affairs
of the Company.
Section 5.7 Meetings of the Company Board. The newly designated
directors may hold their first meeting for the purpose of organization and the
transaction of business, if a quorum be present, immediately after the formation
of the Company, or the time and place of such meeting may be fixed by consent of
all the directors. Regular meetings of the Company Board may be held without
notice (provided that directors were advised of the date and time of such
regular meeting at least the minimum number of days that would constitute notice
under Section 4.10 hereof) at such places and times as shall be determined from
time to time by resolution of the Company Board. Special meetings of the Company
Board may be called by the Chairman of the Board or a majority of the directors,
upon at least one day's notice to each director (except that notice to any
director may be waived in writing by such director), and shall be held at such
place or places as may be determined by the Company Board, or as shall be stated
in the call of the meeting. Where appropriate and practicable in the judgment of
the Manager, immediately prior to or following each regular or special meeting
of the HSNi Board of Directors, a separate special or regular meeting of the
Company Board shall be held. Copies of agendas and minutes of all meetings of
the Company Board shall be distributed to all directors. Members of the Company
Board, or any committee designated by the Company Board, may participate in any
meeting of the Company Board or any committee thereof by means of a conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and such participation in a
meeting shall constitute presence in person at the meeting.
Section 5.8 Quorum of a Company Board Meeting. The presence in
person of a majority of the directors shall constitute a quorum for the
transaction of business. If at any meeting of the Company Board there shall be
less than a quorum present, a majority of those present may adjourn the meeting
from time to time until a quorum is obtained, and no further notice thereof need
be given other than by announcement at the meeting which shall be so adjourned.
Section 5.9 Compensation of Directors. Directors shall not receive
any stated salary for their services as directors or as members of committees of
the Company
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Board, but by resolution adopted by the Company Board, a fixed fee and expenses
of attendance may be allowed for attendance at each meeting. Nothing herein
contained shall be construed to preclude any director from serving the Company
in any other capacity as an Officer, agent or otherwise, and receiving
compensation therefor or from serving a Member in the capacity of officer, agent
or otherwise and receiving compensation therefor.
Section 5.10 Action Without Company Board Meeting. Any action
required or permitted to be taken at any meeting of the Company Board or of any
committee thereof may be taken without a meeting if a written consent thereto is
signed by the number and type of directors as would be required to take such
action at a meeting, and such written consent is filed with the minutes of
proceedings of the Company Board or such committee.
Section 5.11 Officers. (a) In addition to the Company CEO, the
Officers of the Company shall be a Chairman of the Board and a Secretary and
such other officers as may be established by the Manager, all of whom shall be
appointed by the Manager and shall hold office until their successors are duly
appointed. Subject to Sections 4.12 and 5.1 of this Agreement, the Company CEO
shall be responsible for managing the business of the Company and shall have
such powers and authority relative to the Company as does the CEO of HSNi
relative to HSNi. In addition, the Manager may appoint such Assistant
Secretaries and Assistant Treasurers as it deems proper. The Manager may also
establish additional or alternate offices of the Company as it deems advisable,
and such offices shall be filled with such Officers, who shall perform such
duties and serve such terms, as the Manager shall determine from time to time.
(i) The Chairman of the Board. The Manager (or, in the case of a
Member Manager, its designee) shall be the Chairman of the Board and shall
preside at all meetings of the Company Board and shall have such powers
and authority relative to the Company as does the Chairman of the Board of
HSNi relative to HSNi.
(ii) Secretary. The Secretary shall record all the proceedings of
the meetings of the Company Board, any committees thereof and the Members
in a book to be kept for that purpose, and shall perform such other duties
as may be assigned to him or her by the Company Board or the Manager.
(iii) Assistant Treasurers and Assistant Secretaries. Assistant
Treasurers and Assistant Secretaries, if any, shall be elected and shall
have such powers and shall perform such duties as shall be assigned to
them, respectively, by the Manager.
(b) Subject to Sections 4.12 and 5.1, officers shall have the
exclusive authority to conduct the day-to-day affairs of the Company. In no
event may an Officer take any action for which approval is required under
Section 4.12 in the absence of such approval.
ARTICLE VI
SHARES AND CAPITAL ACCOUNTS
Section 6.1 Capital Contributions. (a) Upon formation of the
Company, and, in the case of Liberty, no later than June 30, 1998 pursuant to
Section 1.5(f) of the
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Investment Agreement, each Member shall contribute to the capital of the Company
(each, an "Initial Capital Contribution") the consideration set forth opposite
the Member's name on Schedule A attached hereto in the form indicated thereon
and in respect of the relevant number of Shares indicated thereon. The agreed
value of the Initial Capital Contributions shall be as set forth on Schedule A.
In addition, upon formation of the Company, Liberty shall contribute to the
capital of the Company a nominal contribution to be mutually agreed upon by
HSNi, Universal and Liberty (the "Initial Liberty Contribution").
(b) Notwithstanding the other provisions of this Section, no Member
shall make any Capital Contributions to the Company other than the Initial
Capital Contributions, provided that Members holding Class A Shares, Class B
Shares and Class C Shares may make additional Capital Contributions in cash or
shares of HSNi Class B or common stock in exchange for additional shares of the
same class of Shares such Member holds prior to such Capital Contribution (any
such Capital Contribution, a "Subsequent Capital Contribution") to the Company
as contemplated by, and subject to the conditions and limitations contained in
the Investment Agreement, the Governance Agreement and the Stockholders
Agreement, including Sections 1.7, 1.8 and 6.1(c) of the Investment Agreement,
Section 1.01(h) of the Governance Agreement and Section 4.4(f) of the
Stockholders Agreement. At the time any Subsequent Capital Contributions are
made, Schedule A shall be revised to reflect such contributions.
Section 6.2 Status of Capital Contributions. (a) No Member shall
receive any interest, salary or drawing with respect to its Capital
Contributions or its Capital Account or for services rendered on behalf of the
Company or otherwise in its capacity as a Member, except as otherwise
specifically provided in this Agreement with respect to allocations and
distributions.
(b) Except as otherwise provided herein and by the Delaware Act, the
Members shall be liable only to make their Capital Contributions pursuant to
Section 6.1 hereof, and no Member shall be required to lend any funds to the
Company or, after a Member's Capital Contributions have been fully paid pursuant
to Section 6.1 hereof, to make any additional Capital Contributions to the
Company except as provided herein or therein. Other than as provided herein or
under the Delaware Act, no Member shall have any personal liability for the
payment of any Capital Contribution of any other Member.
Section 6.3 Capital Accounts. (a) An individual Capital Account
shall be established and maintained for each Member by class of Share.
(b) The Capital Account of each Member by class of Share shall be
maintained in accordance with the following provisions:
(i) to such Member's Capital Account there shall be credited such
Member's Capital Contributions, Profits allocated to such Member under
Sections 7.1 and 7.2 hereof and the amount of any Company liabilities that
are assumed by such Member or that are secured by any Company assets
distributed to such Member;
(ii) to such Member's Capital Account there shall be debited the
amount of cash and the Gross Asset Value of any Company assets transferred
to such Member in a Distribution pursuant to any provision of this
Agreement, Losses allocated to such Member under Sections 7.1 and 7.2
hereof and the amount of any liabilities
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of such Member that are assumed by the Company (other than liabilities
taken into account in determining a Member's Capital Contribution); and
(iii) in determining the amount of any liability for purposes of
this subsection (b), there shall be taken into account Section 752(c) of
the Code and any other applicable provisions of the Code and the Treasury
Regulations.
Section 6.4 Advances. Subject to Article 5 of the Investment
Agreement, if any Member shall advance any funds to the Company in excess of its
Capital Contributions, the amount of such advance shall neither increase its
Capital Account nor entitle it to any increase in its share of the Distributions
of the Company. Subject to Article 5 of the Investment Agreement and Section
4.12 of this Agreement, the amount of any such advance shall be a debt
obligation of the Company to such Member and shall be repaid to it by the
Company with such interest rate, conditions and terms as mutually agreed upon by
such Member and the Manager. Any such advance shall be payable and collectible
only out of Company assets, and the other Members shall not be personally
obligated to repay any part thereof. No Person who makes any nonrecourse loan to
the Company shall have or acquire, as a result of making such loan, any direct
or indirect interest in the profits, capital or property of the Company, other
than as a creditor.
Section 6.5 Redemption, Exchange, Transfer. Subject in addition to
Section 4.4 hereof, Shares shall be redeemable, exchangeable and transferable
only in accordance with the Investment Agreement and the Exchange Agreement (as
defined therein). The Company and the Members shall take all actions necessary
to effect the terms of the Investment Agreement as they relate to Shares (LLC
Shares, as defined in the Investment Agreement), including, without limitation,
the terms of Articles 6 and 7 thereof.
ARTICLE VII
ALLOCATIONS
Section 7.1 Profits and Losses. (a) Subject to the allocation rules
of Section 7.2 hereof, Profits for any Fiscal Year shall be allocated among the
Members in proportion to their respective Economic Percentage Interests.
(b) Subject to the allocation rules of Section 7.2 hereof, Losses
for any Fiscal Year shall be allocated among the Members in proportion to their
Economic Percentage Interests.
Section 7.2 Allocation Rules. (a) In the event there is a change in
the respective Economic Percentage Interests of Members during the year, the
Profits (or Losses) allocated to the Members for each Fiscal Year during which
there is a change in the respective Economic Percentage Interests of Members
during the year shall be allocated among the Members in proportion to the
Economic Percentage Interests during such Fiscal Year in accordance with ss.706
of the Code, using any convention permitted by law and selected by the Company
Board.
(b) For purposes of determining the Profits, Losses or any other
items allocable to any period, Profits, Losses and any such other items shall be
determined on a
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daily, monthly or other basis, as determined by the Company Board using any
method that is permissible under Section 706 of the Code and the Treasury
Regulations thereunder.
(c) Except as otherwise provided in this Agreement, all items of
Company income, gain, loss, deduction, credit and any other allocations not
otherwise provided for shall be divided among the Members in the same
proportions as they share Profits and Losses for the Fiscal Year in question.
(d) The Members are aware of the income tax consequences of the
allocations made by this Article VII and hereby agree to be bound by the
provisions of this Article VII in reporting their shares of Company income,
gain, loss, deduction and credit for income tax purposes.
Section 7.3 Priority Allocations. The following allocations shall be
made in the following order of priority:
(a) Minimum Gain Chargeback. Notwithstanding any other provision of
this Section 7.3, if there is a net decrease in Company Minimum Gain
during any Fiscal Year, each Member shall be specially allocated items of
Company income and gain for such year (and, if necessary, subsequent
years) equal to such Member's share of the net decrease in Company Minimum
Gain, determined in accordance with Treasury Regulation Section
1.704-2(g)(2); provided that a Member shall not be subject to this Section
7.3(a) to the extent that an exception is provided by Treasury Regulation
Section 1.704-2(f)(2)-(5). This Section 7.3(a) is intended to comply with
the minimum gain chargeback requirement in Treasury Regulation Section
1.704-2(f) and shall be interpreted consistently therewith.
(b) Member Nonrecourse Liability Minimum Gain Chargeback.
Notwithstanding any other provision of this Section 7.3 except Section
7.3(a), if there is a net decrease in Member Minimum Gain attributable to
a Member Nonrecourse Liability during any Fiscal Year, each Member who has
a share of the Member Minimum Gain attributable to such Member Nonrecourse
Liability (determined in accordance with Treasury Regulation Section
1.704-2(i)(5)) as of the beginning of the year shall be specially
allocated items of Company income and gain for such year (and, if
necessary, subsequent years) equal to such Member's share of the net
decrease in Member Minimum Gain attributable to such Member Nonrecourse
Liability. A Member's share of the net decrease in Member Minimum Gain
shall be determined in accordance with Treasury Regulation Section
1.704-2(i)(4); provided that a Member shall not be subject to this
provision to the extent that an exception is provided by Treasury
Regulation Section 1.704-2(i)(4). This Section 7.3(b) is intended to
comply with the minimum gain chargeback requirement in Treasury Regulation
Section 1.704-2(i)(4) and shall be interpreted consistently therewith.
(c) Qualified Income Offset. In the event any Member unexpectedly
receives any adjustments, allocations or distributions described in
Treasury Regulation Sections 1.704-1(b)(2)(ii)(d)(4),
1.704-1(b)(2)(ii)(d)(5) or 1.704-1(b)(2)(ii)(d)(6), items of Company
income and gain (consisting of a pro rata portion of each item of Company
income, including gross income, and gain for the Fiscal Year) shall be
specially allocated to each such Member in an amount and manner sufficient
to eliminate, to the extent required by the Treasury Regulation, the
Adjusted Capital
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Account Deficit of such Member created by such adjustments, allocations or
distributions as quickly as possible; provided that an allocation pursuant
to this Section 7.3(c) shall be made if and only to the extent that such
Member would have an Adjusted Capital Account Deficit after all other
allocations provided for in this Section 7.3 have been tentatively made as
if this Section 7.3(c) were not in this Agreement. This Section 7.3(c) is
intended to comply with the qualified income offset requirement in
Treasury Regulation Section 1.704-1(b)(2)(ii)(d) and shall be interpreted
consistently therewith.
(d) Gross Income Allocation. In the event any Member has a deficit
Capital Account at the end of any Fiscal Year that is in excess of the sum
of (i) the amount such Member is obligated to restore pursuant to the
terms of this Agreement or otherwise, and (ii) the amount such Member is
deemed to be obligated to restore pursuant to the penultimate sentence of
each of Treasury Regulation Sections 1.704-2(g)(1) and 1.704-2(i)(5), each
such Member shall be specially allocated items of Company income and gain
in the amount of such excess as quickly as possible, provided that an
allocation pursuant to this Section 7.3(d) shall be made if and only to
the extent that such Member would have a deficit Capital Account in excess
of such sum after all other allocations provided for in this Section 7.3
have been tentatively made as if Section 7.3(c) and this Section 7.3(d)
were not in this Agreement.
(e) Member Nonrecourse Deductions. If any Member bears the Economic
Risk of Loss with respect to a Member Nonrecourse Liability, any Member
Nonrecourse Deductions for any Fiscal Year shall be specially allocated to
the Member who bears the Economic Risk of Loss with respect to the Member
Nonrecourse Liability to which such Member Nonrecourse Deductions are
attributable in accordance with Treasury Regulation Section 1.704-2(i).
(f) Deductions under Section 709 of the Code for amortization of
amounts paid or incurred to organize the Company or, in the case of
liquidation of the Company prior to the end of the amortization period
specified in Section 709 of the Code, deductions under Section 165 for the
previously unrecovered portion of such amounts, shall be specially
allocated to the Member who paid or incurred such amounts and such
Member's Capital Account shall be credited for amounts paid or incurred by
such Member.
Section 7.4 Tax Allocations; Section 704(c) of the Code. (a) In
accordance with Section 704(c) of the Code and the Treasury Regulations
thereunder, income, gain, loss and deduction with respect to any property
contributed to the capital of the Company shall, solely for income tax purposes,
be allocated among the Members so as to take account of any variation between
the adjusted basis of such property to the Company for United States federal
income tax purposes and its initial Gross Asset Value (computed in accordance
with paragraph (a) of the definition of "Gross Asset Value" contained in Section
1.1 hereof). Such variation shall be taken into account under the "traditional
method" of Treasury Regulation Section 1.704-3(b). For these purposes the Owned
Partnership Interest and the Acquired Partnership Interest shall be treated as
separate assets.
(b) In the event the Gross Asset Value of any Company asset is
adjusted pursuant to paragraph (b) of the definition of "Gross Asset Value"
contained in Section 1.1 hereof, subsequent allocations of income, gain, loss
and deduction with respect to such asset
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shall, solely for income tax purposes, take account of any variation between the
adjusted basis of such asset for United States federal income tax purposes and
its Gross Asset Value in the same manner as under ss.704(c) of the Code and the
Treasury Regulations thereunder.
(c) Allocations pursuant to this Section 7.4 are solely for purposes
of United States federal, state and local taxes, and shall not affect, or in any
way be taken into account in computing, any Member's Capital Account or share of
Profits, Losses, other items or distributions pursuant to any provision of this
Agreement.
ARTICLE VIII
DISTRIBUTIONS
Section 8.1 Distributions; Special Distribution. The Manager may, by
resolution, at any regular or special meeting, declare and make pro rata
Distributions in accordance with the Members' respective Economic Percentage
Interests of cash and, subject to paragraphs (i) and (l) of Section 4.12,
property, in each case in proportion to the respective Economic Percentage
Interests at such times as it deems appropriate, at its sole discretion;
provided, however, that (except in respect of Distributions required by Section
8.2 below) any Distribution may only be paid in connection with a related
distribution by HSNi to its stockholders in an aggregate amount equal to the
proceeds to HSNi of such Distribution; and provided, further, that the form of
consideration shall be the same for all Classes (e.g., each Member will receive
a pro rata interest in the assets being distributed).
Section 8.2 Mandatory Distributions. Notwithstanding Section 8.1,
the Company shall make a Distribution to the Members with respect to each
taxable year of the Company, within 60 days after the close of such taxable
year, in an aggregate amount equal to the product of the Adjusted Taxable Income
multiplied by the Tax Rate. Such Distribution shall be made to all Members in
accordance with their respective Economic Percentage Interests.
Section 8.3 Limitations on Distribution. Notwithstanding any
provision to the contrary contained in this Agreement, the Company shall not
make any Distribution if such Distribution would violate Section 18-607 of the
Delaware Act or other applicable law, but shall instead make such Distribution
as soon as practicable after the making of such Distribution would not cause
such violation.
Section 8.4 Tax Loans to HSNi. If the LLC Taxable Income for any
year is a loss and the HSNi Group has positive taxable income for such year,
then HSNi shall be entitled to an interest-free loan from the LLC equal to the
HSNi Group's taxable income (but not in excess of the LLC Taxable Loss
multiplied by one minus the Ratio) multiplied by the Tax Rate and divided by one
minus the Ratio, and the repayment of such loan will reflect the cumulative net
income or loss of the Company and the HSNi Group for that year and subsequent
years.
Section 8.5 Intercompany Transfer of Funds. (a) The Company shall
keep records of all movement of funds between the Company and its Subsidiaries,
on the one hand, and HSNi and its Subsidiaries which are not also Subsidiaries
of the Company ("Non-LLC Subs"), on the other hand. HSNi shall cause all Excess
Cash held by HSNi and its
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Subsidiaries from time to time to be transferred to the Company in accordance
with the terms of this Section 8.5 and Article 5 of the Investment Agreement.
(b) Except as otherwise provided in Section 5.4 of the Investment
Agreement and Section 8.5(d) of this Agreement, all transfers of funds from the
Company to HSNi and Non-LLC Subs (other than distributions on, or redemptions
of, the Class A Shares or payment of interest on indebtedness owed or assumed by
the Company) shall either be (i) evidenced by a demand note from the recipient
of such funds payable to the Company or (ii) applied to repay indebtedness owed
by the Company to such recipient.
(c) Except as otherwise provided in Section 5.4 of the Investment
Agreement and Section 8.5(d) of this Agreement, all transfers of funds from HSNi
and Non-LLC Subs (other than contributions of capital in connection with the
acquisition of the Class A Shares or payment of interest on indebtedness owed to
the Company) shall either be (i) evidenced by a demand note from the Company
payable to the transferor of such funds or (ii) applied to repay indebtedness
owed by such transferor to the Company.
(d) The provisions of paragraphs (b) and (c) above shall not apply
to the payments of funds described in clauses (i) through (iv) of Section 5.4 of
the Investment Agreement. HSNi shall cause any transactions between the Company,
on the one hand, and the Non-LLC Subs, on the other hand, to be (i) on terms in
the aggregate which are no less favorable to the Company than the terms which
the Company would have received in a transaction with an unaffiliated third
party or (ii) on an allocated cost basis.
(e) The outstanding demand notes referred to in paragraphs (b) and
(c) above shall bear interest at the Interest Rate from time to time and
interest shall be payable monthly in arrears.
ARTICLE IX
BOOKS AND RECORDS
Section 9.1 Books, Records and Financial Statements. (a) The Company
shall at all times maintain, at its principal place of business, separate books
of account for the Company that shall show a true and accurate record of all
costs and expenses incurred, all charges made, all credits made and received and
all income derived in connection with the operation of the Company in accordance
with GAAP consistently applied, and, to the extent inconsistent therewith, in
accordance with this Agreement. Such books of account, together with a copy of
this Agreement and the Certificate, shall at all times be maintained at the
principal place of business of the Company and shall be open to inspection and
examination at reasonable times by each Member and its duly authorized
representatives for any purpose reasonably related to such Member's interest in
the Company.
(b) The Officers shall prepare and maintain, or cause to be prepared
and maintained, the books of account of the Company. The following financial
information, prepared in accordance with GAAP (or, in the case of item (v), in
accordance with United States federal income tax principles) and applied on a
basis consistent with prior periods, which shall be audited and certified to by
an independent certified public accountant (who may be the independent certified
public accountant for HSNi and its Affiliates), shall be
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transmitted by the Company to each Member as soon as reasonably practicable and
in no event later than ninety (90) days after the close of each Fiscal Year:
(i) balance sheet of the Company as of the beginning and close of
such Fiscal Year;
(ii) statement of profits and losses for such Fiscal Year;
(iii) statement of each Member's Capital Account as of the close of
such Fiscal Year, and changes therein during such Fiscal Year;
(iv) statement of the Company's cash flows during such Fiscal Year;
and
(v) a statement indicating such Member's share of each item of the
Company income, gain, loss, deduction or credit for such Fiscal Year for
income tax purposes, which statement shall include or consist of a
Schedule K-1 to the Company's Internal Revenue Service Form 1065 (or any
corresponding schedule to any successor form) for such Fiscal Year.
(c) Following the end of each of the Company's four fiscal quarters,
the Company shall prepare and provide to each Member on a reasonably timely
basis in order to permit each Member to comply with its public reporting
requirements an unaudited balance sheet of the Company with respect to such
quarter, a statement of the profits and losses of the Company for such quarter
and a statement of cash flows during such quarter, each of which shall be
prepared in accordance with GAAP, applied on a basis consistent with prior
periods. To the extent that, with respect to the first four fiscal quarters of
the Company, the Company cannot provide final financial statements with respect
to such fiscal quarter on a reasonably timely basis for a Member to comply with
its reporting obligations, the Company shall provide estimates on a reasonably
timely basis to permit such compliance. Except as provided in the next
paragraph, a Member shall not disclose any of the information provided pursuant
to this paragraph prior to the earlier of (i) immediately following the time
such information is made publicly available by HSNi, and (ii) the date HSNi is
required to file its quarterly report on Form 10-Q or its annual report on Form
10-K with respect to the fourth quarter, as the case may be, containing such
information.
(d) To the extent that a Member is required pursuant to its public
reporting requirements to disclose the quarterly financial information described
in paragraph (c) prior to the date described in the last sentence thereof, a
Member may use such information or estimates in its required public disclosure,
provided that such disclosure does not result in the financial information
relating to the Company being separately identifiable or determinable from such
disclosure.
Section 9.2 Accounting Method. For both financial and tax reporting
purposes and for purposes of determining Profits and Losses, the books and
records of the Company shall be kept on the accrual method of accounting and
shall reflect all Company transactions and be appropriate and adequate for the
Company's business.
Section 9.3 Annual Audit. The financial statements of the Company
shall be audited by an independent certified public accountant, selected by the
HSNi Board, with
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such audit to be accompanied by a report of such accountant containing its
opinion. The cost of such audit shall be an expense of the Company.
ARTICLE X
TAX MATTERS
Section 10.1 Tax Matters. (a) The "Tax Matters Partner" of the
Company for purposes of ss.6231(a)(7) of the Code shall have the power to manage
and control, on behalf of the Company, any administrative proceeding at the
Company level with the Internal Revenue Service or any other taxing authority
relating to the determination of any item of Company income, gain, loss,
deduction or credit for United States federal, state, local or foreign income or
franchise tax purposes. The Tax Matters Partner shall take such action as may be
reasonably necessary to constitute each other Member a "notice partner" within
the meaning of ss.6231(a)(8) of the Code. The Tax Matters Partner shall cause to
be prepared for each taxable year of the Company the federal, state and local
tax returns and information returns, if any, which the Company is required to
file, copies of which returns shall be made available by the Company at least 30
days prior to filing for inspection, examination, and approval by any Member or
any of its representatives during reasonable business hours, and all of such
persons shall be entitled to make copies or extracts thereof. The Members shall
provide any comments on such returns to the Tax Matters Partner within 15 days
after their being made available to the Members. Where the Members are required
to file federal, state or local income tax returns by reason of their interest
in the Company, the Tax Matters Partner shall cause them to be furnished with
the relevant returns filed by the Company. The Tax Matters Partner shall notify
each other Member of all material matters that come to its attention in its
capacity as Tax Matters Partner. The Tax Matters Partner shall be Home Shopping
while Mr. Diller is the Manager and, thereafter, the Tax Matters Partner shall
be a designee of the Manager. The Tax Matters Partner shall not have the
authority to bind any of the Members, including with respect to any extension of
any statute of limitations.
(b) The Company shall, within ten (10) days of the receipt of any
notice from the Internal Revenue Service or any state, local or foreign tax
authority in any administrative proceeding at the Company level relating to the
determination of any Company item of income, gain, loss, deduction or credit,
mail a copy of such notice to each Member.
Section 10.2 Right to Make Section 754 Election. The Company Board
may, in its sole discretion, make or apply for permission with the Commissioner
of the Internal Revenue Service to revoke, on behalf of the Company, an election
in accordance with ss.754 of the Code, so as to adjust the basis of Company
property in the case of a distribution of property within the meaning of ss.734
of the Code, and in the case of a transfer of a Company interest within the
meaning of ss.743 of the Code. Each Member shall, upon request of the Company,
supply the information necessary to give effect to such an election.
Section 10.3 Section 709 Election. The Tax Matters Partner shall
cause the Company to file, with the Company's Internal Revenue Service Form 1065
for the taxable year in which the Company begins business, an election under
ss.709 of the Code (meeting
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the requirements of Treasury Regulation ss.1.709-1(c)) to amortize its
organizational expenses over 60 months. Each Member agrees to (i) treat any
amounts paid or incurred by such Member to organize the Company as deferred
expenses of the Company that are subject to ss.709 of the Code and (ii) maintain
records of any such amounts that are sufficiently detailed to enable the Company
to file an election meeting the requirements of Treasury Regulation
ss.1.709-1(c).
Section 10.4 Taxation as Partnership. The Company shall be treated
as a partnership for United States federal, state, local and foreign tax
purposes and will make any necessary elections to achieve such status.
ARTICLE XI
LIABILITY, EXCULPATION AND INDEMNIFICATION
Section 11.1 Liability. Except as otherwise provided by the Delaware
Act, the debts, obligations and liabilities of the Company, whether arising in
contract, tort or otherwise, shall be solely the debts, obligations and
liabilities of the Company, and no Covered Person or Member shall be obligated
personally for any such debt, obligation or liability of the Company solely by
reason of being a Covered Person or Member. Except as expressly provided herein,
no Member in its capacity as such, shall have liability to the Company, any
other Member or the creditors of the Company.
Section 11.2 Exculpation. (a) No Covered Person shall be liable to
the Company or any other Covered Person for any loss, damage or claim incurred
by reason of any act or omission performed or omitted by such Covered Person in
good faith on behalf of the Company and in a manner reasonably believed to be
within the scope of authority conferred on such Covered Person by this
Agreement, the Company Board or an appropriate Officer or employee of the
Company, except that a Covered Person shall be liable for any such loss, damage
or claim incurred by reason of such Covered Person's gross negligence, fraud or
willful misconduct.
(b) A Covered Person shall be fully protected in relying in good
faith upon the records of the Company and upon such information, opinions,
reports or statements presented to the Company by any Person as to matters the
Covered Person reasonably believes are within such other Person's professional
or expert competence, including information, opinions, reports or statements as
to the value and amount of the assets, liabilities, Profits or Losses or any
other facts pertinent to the existence and amount of assets from which
distributions to Members might properly be paid.
Section 11.3 Fiduciary Duty. To the extent that, at law or in
equity, a Covered Person has duties (including fiduciary duties) and liabilities
relating thereto to the Company or to any Member, a Covered Person acting under
this Agreement shall not be liable to the Company or to any Member for its good
faith acts or omissions in reliance on the provisions of this Agreement. The
provisions of this Agreement, to the extent that they restrict the duties and
liabilities of a Covered Person otherwise existing at law or in equity, are
agreed by the parties hereto to replace such other duties and liabilities of
such Covered Person.
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Section 11.4 Indemnification. To the fullest extent permitted by
applicable law, a Covered Person shall be entitled to indemnification from the
Company for any loss, damage or claim incurred by such Covered Person by reason
of any act or omission performed or omitted by such Covered Person in good faith
on behalf of the Company and in a manner reasonably believed to be within the
scope of authority conferred on such Covered Person by this Agreement, except
that no Covered Person shall be entitled to be indemnified in respect of any
loss, damage or claim incurred by such Covered Person by reason of gross
negligence, fraud or willful misconduct with respect to such acts or omissions;
provided, however, that any indemnity under this Section shall be provided out
of and to the extent of Company assets only, and no Covered Person shall have
any personal liability on account thereof.
Section 11.5 Expenses. To the fullest extent permitted by applicable
law, reasonable expenses (including reasonable legal fees) incurred by a Covered
Person in defending any claim, demand, action, suit or proceeding shall, from
time to time, be advanced by the Company prior to the final disposition of such
claim, demand, action, suit or proceeding upon receipt by the Company of an
undertaking by or on behalf of the Covered Person to repay such amount if it
shall be determined that the Covered Person is not entitled to be indemnified as
authorized in Section 11.4 hereof.
Section 11.6 Insurance. The Company may purchase and maintain
insurance, to the extent and in such amounts as the Company Board by resolution
shall deem reasonable or appropriate, on behalf of Covered Persons and such
other Persons as the Company Board by resolution shall determine, against any
liability that may be asserted against or expenses that may be incurred by any
such Person in connection with the activities of the Company or such
indemnities, regardless of whether the Company would have the power to indemnify
such Person against such liability under the provisions of this Agreement. The
Members and the Company may enter into indemnity contracts with Covered Persons
and such other Persons as the Company Board shall determine and adopt written
procedures pursuant to which arrangements are made for the advancement of
expenses and the funding of obligations under Section 11.5 hereof and containing
such other procedures regarding indemnification as are appropriate.
Section 11.7 Outside Businesses. Any Member (including any Member
that is the Manager) or Affiliate thereof may engage in or possess an interest
in other business ventures of any nature or description, independently or with
others, similar or dissimilar to the business of the Company, and the Company
and the Members shall have no rights by virtue of this Agreement in and to such
independent ventures or the income or profits derived therefrom, and the pursuit
of any such venture, even if competitive with the business of the Company, shall
not be deemed wrongful or improper. No Member or Affiliate thereof shall be
obligated to present any particular investment opportunity to the Company even
if such opportunity is of a character that, if presented to the Company, could
be taken by the Company, and any Member or Affiliate thereof shall have the
right to take for its own account (individually or as a partner or fiduciary) or
to recommend to others any such particular investment opportunity. The
provisions of this Section 11.7 shall not in any way limit, modify or amend the
terms of any noncompetition, license or employment agreement that may be entered
into between the Company and any Member, which terms shall be binding on the
parties thereto.
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Section 11.8 Third-Party Beneficiaries. There shall be no
third-party beneficiaries of this Agreement.
ARTICLE XII
ADDITIONAL MEMBERS
Section 12.1 Admission. Except as provided in Section 2.1(b),
Article VI or Section 13.1, the Company may not admit any new Members and may
issue no new Class A Shares, Class B Shares or Class C Shares.
Section 12.2 Allocations. Additional Shares shall not be entitled to
any retroactive allocation of the Company's income, gains, losses, deductions,
credits or other items; provided that, subject to the restrictions of ss.706(d)
of the Code, Additional Shares shall be entitled to their respective share of
the Company's income, gains, losses, deductions, credits and other items arising
under contracts entered into before the effective date of the issuance of any
Additional Shares to the extent that such income, gains, losses, deductions,
credits and other items arise after such effective date. To the extent
consistent with ss.706(d) of the Code and Treasury Regulations promulgated
thereunder, the Company's books may be closed at the time Additional Shares are
admitted (as though the Company's tax year had ended) or the Company may credit
to the Additional Shares pro rata allocations of the Company's income, gains,
losses, deductions, credits and other items for that portion of the Company's
Fiscal Year after the effective date of the issuance of the Additional Shares.
ARTICLE XIII
ASSIGNMENTS
Section 13.1 Assignments of Shares Generally. Except as permitted by
the Investment Agreement and the Exchange Agreement, a Member may not, directly
or indirectly, sell, assign, transfer, pledge, hypothecate, mortgage or dispose
of, by gift or otherwise, or in any way encumber ("Assign," and such act, an
"Assignment") all or any part of the Shares or Additional Shares owned by such
Member without the consent of the holders of the Class A Shares, Class B Shares
and Class C Shares and any attempt to do so shall be void ab initio to the
maximum extent permitted by law; provided, however, that a merger or
consolidation between a Member and a member of its Group (as defined in the
Exchange Agreement) shall not be deemed to be an Assignment of any of the Shares
or Additional Shares owned by such Member and that a merger or consolidation in
which Universal, HSNi (or Home Shopping Network) or Liberty is a constituent
corporation shall not be deemed to be an Assignment of any Shares or Additional
Shares Beneficially Owned by such person (provided in each case that a
significant purpose of any such transaction is not to avoid the provisions of
this Agreement and provided that the surviving corporation agrees to be bound by
the terms of this Agreement then applicable to such Member). Any assignment of a
Share permitted under this Section 13.1 shall not be effective until the
assignee has been admitted as a Member of the Company which shall be when the
assignee has executed a counterpart to this Agreement and is reflected as a
Member of the Company on Schedule A hereto. Notwithstanding any other provision
of this Agreement, the Members
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expressly agree that the transactions contemplated by that certain credit
agreement among the Company, certain Affiliates of the Company and the lenders
thereunder, with Chase Securities, Inc. as Arranger, in connection with
consummation of the transactions contemplated by the Investment Agreement, which
include the incurrence of certain indebtedness and the issuance of certain
guarantees and pledges (including of the Class A Shares), or in connection with
any replacement facility, shall not constitute an Assignment or otherwise
violate this Agreement.
Section 13.2 Recognition of Assignment by the Company. No Assignment
of Shares or Additional Shares in violation of Section 13.1 shall be valid or
effective, and neither the Company nor the Members shall recognize the same for
the purpose of making allocations or Distributions. Neither the Company nor the
Members shall incur any liability as a result of refusing to make any such
allocations or Distributions with respect to Assigned Shares in violation of
Section 13.1.
ARTICLE XIV
DISSOLUTION, LIQUIDATION AND TERMINATION
Section 14.1 No Dissolution. The death, retirement, resignation,
expulsion, bankruptcy or dissolution of any Member or the occurrence of any
other event that terminates the continued membership of a Member in the Company
shall not, in and of itself, cause the dissolution of the Company. In such
event, the business of the Company shall be continued by the remaining Members.
Section 14.2 Events Causing Dissolution. The Company shall be
dissolved and its affairs shall be wound up upon the occurrence of any of the
following events:
(a) the written consent of the holders of a majority of each of the
Class A Shares, the Class B Shares and the Class C Shares; or
(b) the entry of a decree of judicial dissolution under Section
18-802 of the Delaware Act.
Section 14.3 Liquidation. Upon dissolution of the Company, the
Person or Persons approved by the Members to carry out the winding up of the
Company shall immediately commence to wind up the Company's affairs; provided,
however, that a reasonable time shall be allowed for the orderly liquidation of
the assets of the Company and the satisfaction of liabilities to creditors so as
to enable the Members to minimize the normal losses attendant upon a
liquidation. The Members shall continue to share Profits and Losses during
liquidation as specified in Article VII hereof. The proceeds of liquidation
shall be distributed in the following order and priority:
(a) to secured creditors of the Company whether or not they are
Members and to unsecured creditors that are not Members, to the extent
otherwise permitted by law, in satisfaction of the liabilities of the
Company (whether by payment or the making of reasonable provision for
payment thereof);
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(b) to unsecured creditors of the Company that are Members, to the
extent otherwise permitted by law, in satisfaction of the liabilities of
the Company (whether by payment or the making of reasonable provision for
payment thereof); and
(c) to the holders of the Class A Shares, the Class B Shares and the
Class C Shares on a pro rata basis in accordance with their respective
Economic Percentage Interests.
Section 14.4 Termination. The Company shall terminate when all of
the assets of the Company, after payment, or due provision for all debts,
liabilities and obligations, of the Company shall have been distributed to the
Members in the manner provided for in this Article XIV and the Certificate shall
have been canceled in the manner required by the Delaware Act.
Section 14.5 Claims of the Members. The Members and former Members
shall look solely to the Company's assets for the return of their Capital
Contributions, and if the assets of the Company remaining after payment of or
due provision for all debts, liabilities and obligations of the Company are
insufficient to return such Capital Contributions, the Members and former
Members shall have no recourse against the Company or any other Member.
ARTICLE XV
MISCELLANEOUS
Section 15.1 Notices. All notices provided for in this Agreement
shall be in writing, duly signed by the party giving such notice, and shall be
hand delivered, faxed or mailed by registered or certified mail or overnight
courier service, as follows:
(a) if given to the Company, to the address (and, if applicable, fax
number) specified in Section 2.5 hereof to the attention of the General
Counsel of the Company (or, if there be none, to the General Counsel of
HSNi); or
(b) if given to any Member, to the person and at the address (and,
if applicable, fax number) set forth opposite its name on Schedule A
attached hereto, or at such other address (and, if applicable, fax number)
as such Member may hereafter designate by written notice to the Company.
All such notices shall be deemed to have been given when received.
Section 15.2 Formation Expenses. Each party shall pay its own
expenses incurred in connection with the formation of the Company.
Section 15.3 Failure to Pursue Remedies. The failure of any party to
seek redress for violation of, or to insist upon the strict performance of, any
provision of this Agreement shall not prevent a subsequent act, which would have
originally constituted a violation, from having the effect of an original
violation.
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Section 15.4 Cumulative Remedies. The rights and remedies provided
by this Agreement are cumulative and the use of any one right or remedy by any
party shall not preclude or waive its right to use any or all other remedies.
Said rights and remedies are given in addition to any other rights the parties
may have by law, statute, ordinance or otherwise.
Section 15.5 Binding Effect. This Agreement shall be binding upon
and inure to the benefit of all of the parties and, to the extent permitted by
this Agreement, their successors, legal representatives and assigns.
Section 15.6 Interpretation. All references herein to "Articles,"
"Sections" and "Paragraphs" shall refer to corresponding provisions of this
Agreement. Whenever the words "include," "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation." The words "hereof," "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement. All terms defined in this
Agreement shall have the defined meanings when used in any certificate or other
document made or delivered pursuant hereto unless otherwise defined therein. The
definitions contained in this Agreement are applicable to the singular as well
as the plural forms of such terms and to the masculine as well as to the
feminine and neuter genders of such term. Any agreement, instrument or statute
defined or referred to herein or in any agreement or instrument that is referred
to herein means such agreement, instrument or statute as from time to time
amended, modified or supplemented, including (in the case of agreements or
instruments) by waiver or consent in writing and (in the case of statutes) by
succession of comparable successor statutes and references to all attachments
thereto and instruments incorporated therein. References to a Person are also to
its permitted successors and assigns. It is the intent of the parties hereto
that this Agreement shall be an effectuation of certain terms of the Investment
Agreement consistent with such terms of the Investment Agreement and that the
provisions of this Agreement should be interpreted to give effect to the
Investment Agreement.
Section 15.7 Severability. The invalidity or unenforceability of any
particular provision of this Agreement shall not affect the other provisions
hereof, and this Agreement shall be construed in all respects as if such invalid
or unenforceable provision were omitted.
Section 15.8 Counterparts. This Agreement may be executed in any
number of counterparts with the same effect as if all parties hereto had signed
the same document. All counterparts shall be construed together and shall
constitute one instrument.
Section 15.9 Integration. This Agreement constitutes the entire
agreement among the parties hereto pertaining to the subject matter hereof and
supersedes all prior agreements and understandings pertaining thereto other than
the Exchange Agreement (including the related letter agreement), the Investment
Agreement and the agreements referred to therein (including the Stockholders
Agreement). Notwithstanding anything to the contrary contained herein, this
Agreement shall not alter any of HSNi's, Universal or Liberty's indemnification
obligations under the Investment Agreement or their respective obligations to
make Capital Contributions to the Company pursuant to the Investment Agreement.
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Section 15.10 Governing Law. This Agreement and the rights of the
parties hereunder shall be interpreted in accordance with the laws of the State
of Delaware, and all rights and remedies shall be governed by such laws without
regard to principles of conflict of laws.
Section 15.11 Confidentiality. Each Member expressly acknowledges
that such Member will receive confidential and proprietary information relating
to the Company, including, without limitation, information relating to the
Company's financial condition and business plans, and that the disclosure of
such confidential information to a third party would cause irreparable injury to
the Company. Except with the prior written consent of the Company or as required
by law, no Member shall disclose any such information to a third party (other
than on a "need to know" basis to any Affiliate or any employee, agent or
representative of such Member or its Affiliates (each of whom shall agree to
maintain the confidentiality of such information)), and each Member shall use
reasonable efforts to preserve the confidentiality of such information.
ARTICLE XVI
AMENDMENTS
Section 16.1 Amendments. Subject to approval pursuant to Section
4.12 of this Agreement, any amendment to this Agreement shall be adopted and be
effective as an amendment hereto if approved by the affirmative vote of 85% of
the Total Voting Power of the holders of the Class A Shares, the Class B Shares
and the Class C Shares, voting together as a single class, except that any
amendment which would adversely affect the rights or obligations of any Member
shall be approved by such Member.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above stated.
MEMBERS:
HSN, INC.
By: /s/ James G. Gallagher
-------------------------------
Name: James G. Gallagher
Title: Vice President
HOME SHOPPING NETWORK, INC.
By: /s/ James G. Held
-------------------------------
Name: James G. Held
Title: President and Chief
Executive Officer
UNIVERSAL STUDIOS, INC.
By: Brian C. Mulligan
-------------------------------
Name: Brian C. Mulligan
Title: Senior Vice President
LIBERTY MEDIA CORPORATION
By: /s/ Robert R. Bennett
-------------------------------
Name: Robert R. Bennett
Title: President and CEO
BARRY DILLER, for purposes of Sections
4.12 and 5.1 of this Agreement
/s/ Barry Diller
----------------------------------
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Exhibit 10.60
EXCHANGE AGREEMENT
DATED AS OF OCTOBER 19, 1997
BY AND AMONG
HSN, INC.,
(to be renamed
USA Networks, Inc.)
UNIVERSAL STUDIOS, INC.
(and certain of its subsidiaries)
AND
LIBERTY MEDIA CORPORATION
(and certain of its subsidiaries)
2
TABLE OF CONTENTS
Page
----
ARTICLE 1 DEFINITIONS........................................... 1
SECTION 1.1 Defined Terms...................................... 1
SECTION 1.2 Additional Defined Terms........................... 6
ARTICLE 2 EXCHANGE OF SHARES; TRANSFER OF SHARES................ 7
SECTION 2.1 Right to Exchange the LLC Shares................... 7
SECTION 2.2 Disputes Concerning Occurrence of an Issuance
Event and Available HSN Amount.................... 10
SECTION 2.3 Mechanics of the Exchange......................... 10
SECTION 2.4 Sale Transaction.................................. 12
SECTION 2.5 Transfer Restrictions............................. 14
ARTICLE 3 EXCHANGE RATE ADJUSTMENTS............................ 15
SECTION 3.1 Exchange Rate Adjustments......................... 15
SECTION 3.2 Notice of Adjustment.............................. 19
SECTION 3.3 Notice of Certain Transactions.................... 19
SECTION 3.4 Exchange Rate Adjustments for Actions of the LLC.. 20
SECTION 3.5 Limitation on Adjustments to Exchange Rate........ 20
ARTICLE 4 GENERAL REPRESENTATIONS AND WARRANTIES OF HSN AND
EACH HOLDER.......................................... 20
SECTION 4.1 Representations and Warranties of HSN............. 20
SECTION 4.2 Representations and Warranties of Universal and
Liberty........................................... 21
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF HSN WITH RESPECT
TO EACH EXCHANGE..................................... 22
SECTION 5.1 Organization and Qualification.................... 22
SECTION 5.2 Authorization of the Exchange..................... 22
SECTION 5.3 Validity of HSN Shares, etc....................... 22
SECTION 5.4 No Approvals or Notices Required; No Conflict
with Instruments.................................. 23
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Page
----
ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF THE HOLDER WITH
RESPECT TO EACH EXCHANGE............................. 24
SECTION 6.5 Ownership and Validity of LLC Shares.............. 24
SECTION 6.6 No Approvals or Notices Required; No Conflict
with Instruments.................................. 25
SECTION 6.3 No Liabilities of Universal Sub and Group Newco... 25
ARTICLE 7 COVENANTS AND OTHER AGREEMENTS....................... 26
SECTION 7.1 Notification of Issuance Event.................... 26
SECTION 7.2 Reservation of HSN Stock.......................... 26
SECTION 7.3 Certain Obligations Upon Insolvency or Bankruptcy
of LLC............................................ 26
SECTION 7.4 Reasonable Efforts................................ 27
SECTION 7.5 Notification of Certain Matters................... 28
SECTION 7.6 Additional Covenants.............................. 28
ARTICLE 8 MISCELLANEOUS........................................ 30
SECTION 8.1 Further Assurances................................ 30
SECTION 8.2 Expenses.......................................... 30
SECTION 8.3 Notices........................................... 30
SECTION 8.4 Entire Agreement.................................. 31
SECTION 8.5 Assignment; Binding Effect; Benefit............... 31
SECTION 8.6 Amendment ........................................ 32
SECTION 8.7 Extension; Waiver................................. 32
SECTION 8.8 Survival ......................................... 32
SECTION 8.9 Tax Interpretation ............................... 32
SECTION 8.10 General Interpretation ........................... 32
SECTION 8.11 Severability ..................................... 33
SECTION 8.12 Counterparts ..................................... 33
SECTION 8.13 Applicable Law ................................... 33
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EXCHANGE AGREEMENT
EXCHANGE AGREEMENT, dated as of October 19, 1997, by and among HSN,
INC., a Delaware corporation ("HSN"), UNIVERSAL STUDIOS, INC. (for itself and on
behalf of Universal Sub and the Universal Newcos), a Delaware corporation
("Universal"), and LIBERTY MEDIA CORPORATION (for itself and on behalf of the
Liberty Newcos), a Delaware corporation ("Liberty").
RECITALS
WHEREAS, HSN, Universal and Liberty have entered into an Investment
Agreement, dated as of the date hereof (the "Investment Agreement"), pursuant to
which, among other things, subject to the terms and conditions contained
therein, Universal will acquire (i) shares of HSN Common Stock, par value $.01
per share ("HSN Common Stock"), and/or HSN Class B Common Stock, par value $.01
per share ("HSN Class B Stock" and, together with the HSN Common Stock, "HSN
Stock"), and (ii) Class B shares of USAN LLC, a Delaware limited liability
company to be formed in connection with consummation of the transactions
contemplated by the Investment Agreement ("LLC", and such shares, "Class B LLC
Shares"), which may be exchanged from time to time pursuant to the terms hereof
and of the Investment Agreement for shares of HSN Common Stock or HSN Class B
Common Stock;
WHEREAS, pursuant to the Investment Agreement (or any amendment
thereto), Liberty will, at the Holder Closing (as defined in the Investment
Agreement), contribute cash or other assets to HSN or the LLC in exchange for
shares of HSN Common Stock and/or Class C shares of the LLC ("Class C LLC
Shares" and, together with the Class B LLC Shares, the "LLC Shares"), which
shares will be mandatorily exchangeable, subject to the terms and conditions
hereof, into shares of HSN Common Stock;
WHEREAS, the parties hereto desire to establish in this Agreement
certain rights and obligations relating to the exchange of LLC Shares for shares
of HSN Stock (as described in Article 6 of the Investment Agreement) and other
matters relating to the LLC Shares; and
WHEREAS, the parties have entered into this Agreement in connection
with the execution and delivery of the Investment Agreement;
NOW, THEREFORE, in consideration of the premises and the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto agree, effective, with respect to Universal and HSN, upon the
Closing Date and, with respect to Liberty, upon the Holder Closing (as defined
in the Investment Agreement), as follows:
ARTICLE 1
DEFINITIONS
Section 1.1 Defined Terms. The definitions set forth in this Article
shall apply to the following terms when used with initial capital letters in
this Agreement.
5
"Agreement to Transfer" shall mean an agreement by a holder of LLC
Shares to transfer, directly or indirectly, the HSN Stock to be issued upon an
Exchange to one or more third parties who are entitled or otherwise permitted to
Own (in accordance with the Governance Agreement, Stockholders Agreement and FCC
Regulations) such HSN Stock (including in connection with a public offering of
HSN Stock effected pursuant to a Group's demand and piggyback registration
rights under the Stockholders Agreement).
"Available HSN Amount" shall mean, as of the date of determination,
the number equal to the difference between (i) the maximum number of shares of
HSN Stock which a holder of LLC Shares would, under the FCC Regulations then in
effect, then be permitted to Own (in accordance with FCC Regulations), and (ii)
the number of shares of HSN Stock then Owned (for purposes of the FCC
Regulations) by such holder of LLC Shares, giving effect to the voting power of
the stock Owned or to be Owned by such holder (and including all shares of HSN
Stock held by the entities known as "BDTV Entities").
"Business Day" shall mean any day other than a Saturday, Sunday or a
day on which banking institutions in the City of New York, New York are
authorized or obligated by law or executive order to remain closed.
"Closing Date" shall mean the date of closing of the transactions
with Universal contemplated by the Investment Agreement.
"Closing Price" shall mean, on any Trading Day, (i) the last sale
price (or, if no sale price is reported on that Trading Day, the average of the
closing bid and asked prices) of a share of HSN Common Stock on the Nasdaq
National Market on such Trading Day, or (ii) if the primary trading market for
the HSN Common Stock is not the Nasdaq National Market, then the closing sale
price regular way on such Trading Day, or, in case no such sale takes place on
such Trading Day, the reported closing bid price regular way on such Trading
Day, in each case on the principal exchange on which such stock is traded, or
(iii) if the Closing Price on such Trading Day is not available pursuant to one
of the methods specified above, then the average of the bid and asked prices for
the HSN Common Stock on such Trading Day as furnished by any New York Stock
Exchange member firm selected from time to time by the HSN Board of Directors
for that purpose.
"Contingent Shares" shall mean the shares of HSN Class B Stock (or
other securities) which HSN is obligated to issue to Liberty HSN, Inc. pursuant
to Section 2(d) and Exhibit A of the Agreement and Plan of Exchange and Merger,
dated as of August 25, 1996, by and among House Acquisition Corp., Home Shopping
Network, Inc. and Liberty HSN.
"Convertible Securities" shall mean rights, options, warrants and
other securities which are exercisable or exchangeable for or convertible into
shares of capital stock of any Person at the option of the holder thereof;
provided, however, that the term Convertible Securities shall not include the
HSN Class B Stock.
"Current Market Price" on the Determination Date for any issuance of
rights, warrants or options or any distribution in respect of which the Current
Market Price is being calculated, shall mean the average of the daily Closing
Prices of the HSN Common Stock for the shortest of:
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(a) the period of 20 consecutive Trading Days commencing 30 Trading
Days before such Determination Date,
(b) the period commencing on the date next succeeding the first
public announcement of the issuance of rights, warrants or options or the
distribution in respect of which the Current Market Price is being
calculated and ending on the last full Trading Day before such
Determination Date, and
(c) the period, if any, commencing on the date next succeeding the
Ex-Dividend Date with respect to the next preceding issuance of rights,
warrants or options or distribution for which an adjustment is required by
the provisions of Section 3.1(a)(i)(4), 3.1(b) or 3.1(c), and ending on
the last full Trading Day before such Determination Date.
If the record date for an issuance of rights, warrants or options or
a distribution for which an adjustment is required by the provisions of Section
3.1(a)(i)(4), or Section 3.1(b) or (c) (the "preceding adjustment event")
precedes the record date for the issuance or distribution in respect of which
the Current Market Price is being calculated and the Ex-Dividend Date for such
preceding adjustment event is on or after the Determination Date for the
issuance or distribution in respect of which the Current Market Price is being
calculated, then the Current Market Price shall be adjusted by deducting
therefrom the fair market value (on the record date for the issuance or
distribution in respect of which the Current Market Price is being calculated),
as determined in good faith by the HSN Board of Directors, of the capital stock,
rights, warrants or options, assets or debt securities issued or distributed in
respect of each share of HSN Common Stock in such preceding adjustment event.
Further, in the event that the Ex-Dividend Date (or in the case of a
subdivision, combination or reclassification, the effective date with respect
thereto) with respect to a dividend, subdivision, combination or
reclassification to which Section 3.1(a)(i)(1), Section 3.1(a)(i)(2), Section
3.1(a)(i)(3) or Section 3.1(a)(i)(5) applies occurs during the period applicable
for calculating the Current Market Price, then the Current Market Price shall be
calculated for such period in a manner determined in good faith by the HSN Board
of Directors to reflect the impact of such dividend, subdivision, combination or
reclassification on the Closing Prices of the HSN Common Stock during such
period.
"Determination Date" for any issuance of rights, warrants or options
or any dividend or distribution to which Section 3.1(b) or (c) applies shall
mean the earlier of (i) the record date for the determination of stockholders
entitled to receive the rights, warrants or options or the dividend or
distribution to which such paragraph applies and (ii) the Ex-Dividend Date for
such rights, warrants or options or dividend or distribution.
"Exchange" shall mean an exchange of LLC Shares for shares of HSN
Stock pursuant to Section 2.1, including a merger or exchange described in
Section 2.1(a)(iii).
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder.
"Exchange Notice" shall mean the written notice required to be
delivered to notify HSN or an Eligible Holder, as the case may be, of the
exercise of an Exchange Right.
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"Exchange Rate" shall mean the kind and amount of securities, assets
or other property that as of any date are issuable or deliverable upon exchange
of a Class B LLC Share or Class C LLC Share, as the case may be. The Exchange
Rate shall initially be one share of HSN Common Stock (or, in the case of
Universal, one share of HSN Common Stock or HSN Class B Stock as determined in
accordance with the Investment Agreement) per LLC Share. The Exchange Rate shall
be subject to adjustment, from time to time, as set forth in Article 3 of this
Agreement. In the event that pursuant to Article 3, the LLC Shares become
exchangeable for more than one class or series of capital stock of HSN or
another Person, the term "Exchange Rate," when used with respect to any such
class or series, shall mean the number or fraction of shares or other units of
such capital stock that as of any date would be issuable upon exchange of an LLC
Share.
"Exchange Right" shall mean the right of a Group or HSN, as the case
may be, to effect an Exchange pursuant to Section 2.1.
"Ex-Dividend Date" shall mean the date on which "ex-dividend"
trading commences for a dividend, an issuance of rights, warrants or options or
a distribution to which any of Section 3.1(a), (b), or (c) applies, in the
Nasdaq National Market or on the principal exchange on which the HSN Common
Stock is then quoted or traded.
"FCC" shall mean the Federal Communications Commission or any
successor regulatory agency.
"FCC Regulations" shall mean as of the applicable date,
collectively, all federal communications statutes and all rules, regulations,
orders, decrees and policies (including the FCC's Memorandum Opinion and Order
released March 11, 1996 and its Memorandum Opinion and Order released June 14,
1996) of the FCC as then in effect, and any interpretations or waivers thereof
or modifications thereto.
"Foreign Ownership Limitation" shall mean the maximum aggregate
percentage of the capital stock of HSN that may be Owned or voted by or for the
account of Non-U.S. Persons under Section 310(b) of the Communications Act of
1934, as amended, to the extent and for so long as such section (or any
successor provision) is applicable.
"Governance Agreement" shall mean the governance agreement among
HSN, Universal, Liberty and Mr. Diller, dated as of the date hereof (or any
successor agreement).
"Group" shall mean the Universal Group or the Liberty Group.
"Holder Closing" shall have the meaning provided in the Investment
Agreement.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, and the rules and regulations thereunder.
"Issuance Event" shall mean the occurrence of any event or the
existence of any fact or circumstance which would permit, under applicable FCC
Regulations, a Group (together with any affiliates, to the extent applicable
under law) to Own a greater number of shares of HSN Stock than such Group
(together with any affiliates, to the extent applicable under law) Owns as of
the date of such determination. For purposes of this Agreement, an
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Issuance Event which occurs (i) as a result of an order of the FCC, shall be
deemed to occur on the date that any such order becomes final and
non-appealable, or (ii) as a result of a change in law or regulation of the FCC,
shall be deemed to occur on the date such law or regulation was promulgated,
enacted or adopted or, if later, the date such law or regulation becomes
effective.
"Liberty Group" shall mean, collectively, Liberty and the Liberty
Newcos, if any.
"Liberty HSN" shall mean Liberty HSN, Inc., a Colorado corporation
and a wholly-owned subsidiary of Liberty.
"Liberty HSN Exchange Shares" shall mean the shares of HSN Common
Stock and HSN Class B Common Stock issuable in connection with that certain
exchange agreement, dated as of December 20, 1996, by and between HSN and
Liberty HSN (the "Liberty Exchange Agreement").
"Liberty Newco" shall mean each wholly-owned subsidiary of Liberty
or of an Affiliate of Liberty formed solely for the purpose of acquiring an
equity interest in the LLC, which entity shall not, so long as it holds LLC
Shares, engage in any other business other than the transactions contemplated by
the Investment Agreement, the Stockholders Agreement and related agreements
(including this Agreement); provided that prior to the Holder Closing, Liberty
and HSN shall agree in good faith as to the appropriate number of Liberty Newcos
in order to permit HSN to exercise its rights under Section 2.1(b) from time to
time.
"Newco" shall mean a Universal Newco or a Liberty Newco.
"Non-U.S. Persons or Entities" shall mean any foreign government or
the representative thereof, any alien or the representative of any alien or any
corporation organized under the laws of any foreign country or a foreign
government or a representative thereof, as those terms are used in 47 U.S.C. ss.
310(b) (or any successor provision).
"Other Property" shall mean any security (other than HSN Common
Stock or HSN Class B Stock), assets or other property deliverable upon the
surrender of LLC Shares for Exchange in accordance with this Agreement.
"Own" shall mean record, beneficial or other ownership, direct or
indirect, of securities which are attributable to a Person or otherwise owned by
a Person in accordance with applicable FCC Regulations. The terms "Ownership"
and "Owner" shall have correlative meanings.
"Person" shall mean any individual, corporation, partnership, joint
venture, association, joint stock company, limited liability company, trust,
unincorporated organization, government or agency or political subdivision
thereof, or other entity, whether acting in an individual, fiduciary or other
capacity.
"Redemption Securities" shall mean securities of an issuer other
than HSN that are distributed by HSN in payment, in whole or in part, of the
call, redemption, exchange or other acquisition price for Redeemable Capital
Stock.
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"Restrictive Condition" means any limitation or restriction imposed
on a Person as a result of such Person's acquisition of HSN Stock upon an
Exchange, or the imposition of any restriction or limitation of the type
referred to in clause (i) of Section 7.6(a) or any requirement that such Person
dispose or divest of any HSN Stock or interest therein (including any interest
in the entities known as the BDTV Entities) in connection with or as a result of
such Exchange.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended,
and the rules and regulations thereunder.
"Stockholders Agreement" shall mean the stockholders agreement among
HSN, The Seagram Company Ltd., Universal, Liberty and Mr. Diller, dated as of
the date hereof (or any successor agreement).
"Trading Day" shall mean a day on which the primary trading market
for the HSN Common Stock is open for the transaction of business.
"Universal Group" shall mean Universal, Universal Sub and the
Universal Newcos.
"Universal Newco" shall mean each wholly-owned subsidiary of
Universal or of an Affiliate of Universal formed solely for the purpose of
acquiring an equity interest in the LLC, which entity shall not, so long as it
holds LLC Shares, engage in any other business other than the transactions
contemplated by the Investment Agreement, the Stockholders Agreement and related
agreements (including this Agreement).
"Universal Sub" shall mean the entity described in Section 1.5 of
the Investment Agreement and otherwise complying with the requirements of the
definition of Universal Newco.
SECTION 1.2 Additional Defined Terms. The following additional terms
listed below shall have the meanings ascribed thereto in the Section (or other
provisions hereof) indicated opposite such term:
Term Section
---- -------
Additional Contingent Right 7.3
Adjustment Event 3.2
Class B LLC Shares Recitals
Class C LLC Shares Recitals
Contract 5.4(d)
Contract Consent 5.4(c)
Contract Notice 5.4(c)
Exchange Date 2.3(d)
Governmental Consent 5.4(b)
Governmental Entity 5.4(b)
Governmental Filing 5.4(b)
HSN Introduction
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HSN Bylaws 5.1
HSN Charter 5.1
HSN Class B Stock Recitals
HSN Common Stock Recitals
HSN Preferred Stock 4.1(a)
HSN Stock Recitals
Investment Agreement Recitals
Liberty Introduction
Liberty Exchange Agreement 2.1(a)
Liberty HSN Exchange Shares 2.1(a)
LLC Recitals
LLC Shares Recitals
NASD 5.3
Redeemable Capital Stock 3.1(a)(ii)
Redemption Event 3.1(d)
Sale Transaction 2.4(a)
Tendered Exchange Shares 2.4(c)
Transferee 2.4(c)
Universal Introduction
Violation 5.4(d)
ARTICLE 2
EXCHANGE OF SHARES; TRANSFER OF SHARES
SECTION 2.1 Right to Exchange the LLC Shares. (a) (i) Universal
Group Right. The Universal Group shall have the right, from time to time,
subject to the terms and conditions of this Agreement, to exchange a number of
LLC Shares at the then applicable Exchange Rate (as of the Exchange Date (as
defined below)), rounded down to the nearest whole number, for shares of HSN
Stock, so long as, after giving effect to such issuance, the Foreign Ownership
Limitation would not be exceeded and Universal (or its permitted transferee) is
otherwise permitted by law to Own such shares. Universal shall also be entitled
to receive upon such Exchange the kind and amount of Other Property (other than
shares of HSN Stock) for which such LLC Shares are then exchangeable pursuant to
Article 3 hereof. Subject to the provisions of the Investment Agreement,
Universal shall be entitled to elect whether to receive shares of HSN Common
Stock or HSN Class B Stock in connection with such exchange.
(ii) Liberty Group Right. At such time, or from time to time, that
Liberty is entitled or otherwise permitted to Own additional shares of HSN Stock
in accordance with paragraph (c) of this Section 2.1, the Liberty Group shall
have the right, subject to the terms and conditions of this Agreement, to
exchange a number of LLC Shares at the then applicable Exchange Rate (as of the
Exchange Date), rounded down to the nearest whole number, for shares of HSN
Common Stock which would result in the issuance to such holder of a number of
shares of HSN Common Stock no greater than the then Available HSN Amount.
Liberty shall also be entitled to receive upon such Exchange the kind and amount
of Other Property (other than shares of HSN Stock) for which such LLC Shares are
then exchangeable pursuant to Article 3 hereof.
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(iii) Alternative Merger. With respect to any exchange provided for
in this Agreement, Universal or Liberty, as the case may be, may, in lieu of
such exchange, effect a transaction intended to qualify as a tax-free
reorganization under Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), of a member or members of the Universal Group or the
Liberty Group, as the case may be, that owns LLC Shares by either (A) merging
such member or members of the Universal Group or the Liberty Group, as the case
may be (other than Universal or Liberty), with and into HSN (or, subject to
HSN's consent, which consent shall not be unreasonably withheld and shall be
exercised in good faith, with any direct wholly owned subsidiary of HSN) or (B)
exchanging all of the issued and outstanding stock of such member or members of
the Universal Group or the Liberty Group, as the case may be, for a number of
shares of HSN Common Stock (or, in the case of Universal, shares of HSN Class B
Stock as described in this Section), in the case of clause (A) or (B) as
provided in this paragraph. It shall be a condition to HSN's obligation to
effect any such merger or exchange that the representations set forth in Section
6.3 are true and correct, and the party hereto electing to effect such merger or
exchange shall have agreed to indemnify HSN with respect to any liabilities of
the Group member (regardless of materiality) pursuant to a customary
indemnification agreement reasonably satisfactory to HSN. In the event that such
condition cannot be satisfied, then Universal or Liberty, as the case may be,
shall not be entitled to the right described in this paragraph and such exchange
shall be effected as otherwise provided in this Agreement.
In the case of a merger or exchange described in this paragraph, the
Exchange Rate for each outstanding share of stock of the member of the
respective Group shall be calculated by dividing the number of LLC Shares owned
by such member of the respective Group by the number of shares of stock of such
member issued and outstanding. The Exchange Rate shall be adjusted as
contemplated by the definition thereof to include Other Property as applicable.
HSN shall take all reasonable actions to cause any merger pursuant
to clause (A) above to qualify as a statutory merger under state law and shall
make all required tax filings in connection with such merger.
(b) (i) At such time as Liberty is entitled or otherwise permitted
to Own additional Shares of HSN Stock in accordance with paragraph (c) of this
Section 2.1, but following the issuance or expiration of the Contingent Shares
and prior to the exchange of any Liberty HSN Exchange Shares, HSN and Liberty
shall be obligated, subject to the terms and conditions of this Agreement, to
exchange a number of LLC Shares held by the Liberty Group at the then applicable
Exchange Rate (as of the Exchange Date) for shares of HSN Common Stock, rounded
down to the nearest whole number, which would result in the issuance to such
holder of a number of shares of HSN Common Stock up to the then Available HSN
Amount. Any Exchange described in this Section shall be effected by means of the
merger described in Section 2.1(a)(iii) and shall be subject to paragraph (d)
below, provided that if such Exchange would not satisfy the condition set forth
in paragraph (d)(i)(A) below, HSN may elect to effect such Exchange in any
reasonable manner to the extent that HSN agrees to indemnify Liberty for any
taxable income recognized by it as a result of such other manner of Exchange
(compared to an Exchange under Section 2.1(a)(iii)), on terms reasonably
acceptable to Liberty. Such holder shall also be entitled to receive upon such
Exchange, the kind and amount of Other Property (other than shares of HSN Stock)
for which such LLC Shares are then exchangeable pursuant to Article 3 hereof.
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(ii) In the event that the exchange with the Liberty Group described
in this paragraph is with a Liberty Newco, HSN shall only be permitted to effect
such exchange with respect to all LLC Shares held by any single Liberty Newco.
(iii) HSN shall have the option, which may be exercised at any time
or from time to time, after the issuance or expiration of all Contingent Shares,
to suspend the mandatory exchange described in this paragraph as well as Liberty
HSN's right to exchange the Liberty HSN Exchange Shares in connection with a
future issuance of shares of HSN Stock in order to permit HSN to purchase or
redeem (in compliance with applicable law, including the FCC Regulations) up to
10 million shares of HSN Stock, which suspension shall remain in effect as long
as HSN continues to make diligent efforts to effect such purchase or redemption
and to complete such repurchases as promptly as reasonably practicable.
(c) A Group shall be deemed to be entitled or otherwise permitted to
own additional shares of HSN Stock (i) upon the occurrence of an Issuance Event
or (ii) in connection with an Agreement to Transfer; provided that in the case
of clause (ii), all conditions to such transfer (other than the issuance of the
applicable number of shares of HSN Stock and other than any conditions which are
capable of being satisfied only at the closing of such transfer) have been
satisfied or waived by the applicable parties. In the case of an Exchange in
connection with an Agreement to Transfer, such holder shall be deemed to be
entitled or otherwise permitted to Own the number of shares of HSN Stock subject
to such agreement and which the applicable Transferee is entitled or otherwise
permitted to Own.
(d) (i) It shall be a condition to the obligation of the Liberty
Group to consummate an Exchange that is mandatory pursuant to this Agreement
(including under subsection (b) above) that:
(A) only in the case of an Exchange described in Section
2.1(a)(iii), that such Exchange not be taxable to such holder; provided,
however, (x) that to the extent that the taxability of such Exchange was
caused by or resulted from (1) any action or inaction by a member of the
Liberty Group or any controlled affiliate thereof (other than any action
or inaction specifically contemplated or required by the Investment
Agreement, the Stockholders Agreement or this Agreement), or (2) the laws
and regulations in effect as of the Closing Date, then such holder shall
not be entitled to assert the failure of this condition; and (y) in the
case of a Sale Transaction, the only condition under this clause (A) shall
be that HSN and any other party to such transaction comply with the
applicable requirements set forth in Section 2.4 regarding tax matters;
and
(B) such Exchange not result in the creation or imposition of
any Restrictive Condition with respect to any member of the Liberty Group
or with respect to any shares received in the Exchange.
(ii) It shall be a condition to the obligation of the Universal
Group to consummate an Exchange that is mandatory pursuant to Section 2.4 of
this Agreement that:
(A) HSN has complied with the covenants set forth in Section
2.4 regarding tax matters; and
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(B) such Exchange not result in the creation or imposition of
any Restrictive Condition with respect to any member of the Universal
Group or with respect to any shares received in the Exchange.
(e) HSN's right and obligation to effect an Exchange shall be
deferred to the extent that the number of shares of HSN Stock which would then
otherwise be required to be issued to a Group upon such Exchange is less than
25,000 (which number shall be adjusted to give effect to any stock splits,
reverse splits, recapitalizations or the like); provided, however, that any such
LLC Shares not then required to be exchanged as a result of the provisions of
this paragraph shall be exchanged at such time as such number of shares of HSN
Stock issuable upon the Exchange of all LLC Shares then required or permitted to
be exchanged equals or exceeds such number, at which time, subject to the other
conditions herein, the parties shall execute each such Exchange. The deferral
set forth in this paragraph shall not be applicable in the event that upon the
Exchange of all of the outstanding LLC Shares by a Group, such holder would be
entitled to receive in the aggregate less than 25,000 shares of HSN Stock.
SECTION 2.2 Disputes Concerning Occurrence of an Issuance Event and
Available HSN Amount. The determination of whether or not a holder is entitled
or otherwise permitted to Own additional shares of HSN Stock and the
determination of the Available HSN Amount issuable to the applicable holder,
shall be made in the good faith reasonable determination of the Person
exercising the Exchange Right based upon FCC Regulations. In the event of any
dispute between HSN and a holder of LLC Shares with respect to whether a holder
is entitled or otherwise permitted to Own additional shares of HSN Stock or the
determination of the Available HSN Amount issuable to such holder, such dispute
shall be resolved by delivery to HSN and such holder of a written opinion
addressed to each of HSN and such holder (which opinion shall be in form and
substance reasonably satisfactory to HSN and such holder and shall not be
subject to material qualifications or limitations) of counsel to HSN
specializing in FCC matters as to the matters that are the subject of any such
dispute. Such opinion shall be delivered within 10 Business Days after notice by
either HSN or such holder to the other party that the matter is outstanding and
has not been resolved between them. In the event that no such opinion is
delivered within 10 Business Days after such notice, the matter shall be
resolved in favor of such holder.
SECTION 2.3 Mechanics of the Exchange. (a) A Group may exercise the
Exchange Right set forth in Section 2.1(a) above by delivering an Exchange
Notice to HSN. Subject to the terms and conditions thereof, HSN shall exercise
the Exchange Right set forth in Section 2.1(b) above by delivering an Exchange
Notice to the Liberty Group. If HSN delivers the Exchange Notice, such notice
shall set forth in reasonable detail the facts and circumstances which have
entitled or otherwise permitted such holder to Own additional shares of HSN
Stock, the Available HSN Amount, a brief description of the method used to
calculate such amount and the Exchange Rate in effect at such time. If a holder
delivers the Exchange Notice, such notice shall include the same information, to
the extent known by such holder, and shall also set forth whether the holder
elects to effect the Exchange under Section 2.1(a)(iii) and the number of LLC
Shares such holder desires to exchange or that are Owned by the member.
Universal shall in its Exchange Notice indicate the number and type of shares of
HSN Stock Universal requests be issued in respect of such Exchange. Each
Exchange Notice shall be irrevocable, and upon receipt of an Exchange Notice and
satisfaction of the conditions to such Exchange, HSN and such holder shall be
obligated to effect such Exchange.
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(b) Subject to the resolution of any disputes pursuant to Section
2.2 and subject to Section 2.1(d) and (e), as promptly as practicable following
receipt or delivery by HSN of an Exchange Notice, each of HSN and the applicable
holder shall, and shall cause each of its respective subsidiaries and the
officers, directors and employees of such Person and such Person's subsidiaries
to, (i) make any and all required applications or filings with, and seek any
required authorizations, consents, approvals, waivers, licenses, franchises,
permits or certificates from, any governmental or regulatory agencies
(including, but not limited to, with the FCC and under the HSR Act), (ii) use
all reasonable efforts to obtain any and all such authorizations, consents,
approvals, waivers, licenses, franchises, permits or certificates and the
expiration or termination of any applicable waiting period under the HSR Act, in
each case, which are reasonably necessary in connection with the applicable
Exchange, and (iii) use reasonable efforts to cooperate with, and express its
support for, such other party's efforts to obtain any such authorizations,
consents, approvals, waivers, licenses, franchises, permits and certificates and
the expiration or termination of any applicable waiting period under the HSR
Act. Upon receipt of such authorizations, consents, approvals, waivers, license,
franchises, permits or certificates or the expiration or termination of such
waiting period, as the case may be, HSN or the holder, as the case may be, shall
notify the other of such receipt, expiration or termination. Within 5 Business
Days of the receipt of any required authorizations, consents, approvals,
waivers, licenses, franchises, permits or certificates and the termination or
expiration of any applicable waiting period under the HSR Act has terminated,
and all required filings, notifications, registrations and qualifications with
federal, state, and local governmental and regulatory authorities have been
obtained, such holder of the LLC Shares specified (or the shares of the member
of the Group, if applicable) in the applicable Exchange Notice shall surrender
for exchange the appropriate stock certificate(s) pursuant to Section 2.3(c)
hereof.
(c) At such time as all required consents, approvals, waivers and
terminations described in Section 2.3(b) have been obtained or waived and
provided that the conditions set forth in Section 2.2(e) have been satisfied (if
applicable), the holder shall surrender such holder's certificate or
certificates for the LLC Shares (or the shares of the member of the Group, if
applicable) to be exchanged, with appropriate stock powers attached, duly
endorsed, at the office of HSN or any transfer agent for HSN's stock, together
with a written notice to HSN that such holder is exchanging all or a specified
number of LLC Shares (or the shares of the member of the Group, if applicable),
represented by such certificate or certificates and stating the name or names in
which such holder desires the certificate or certificates for HSN Stock, to be
issued. Promptly thereafter, HSN shall (i) issue and deliver to such holder or
such holder's nominee or nominees, a certificate or certificates representing
the HSN Stock to be issued, conveyed and delivered to such holder pursuant to
Section 2.1, with any necessary documentary or transfer tax stamps duly affixed
and canceled, dated the applicable Exchange Date (as defined below), and such
certificates shall be issued to and registered in the name of the applicable
holder or in such other name as such holder shall request, and, (ii) if
applicable, file a certificate of merger. Certificates representing HSN Stock
include appropriate legends based on federal and state securities laws.
(d) Each Exchange shall be deemed to have been effected at the close
of business on the date (the "Exchange Date") of receipt by HSN or any such
transfer agent of the certificate or certificates and notice referred to in
paragraph (c) above and, in any case, no later than five Business Days after all
applicable conditions to such Exchange have been satisfied or upon the filing of
a certificate of merger, if applicable. Each Exchange shall be at the Exchange
Rate in effect immediately prior to the close of business on the Exchange
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Date. If any transfer is involved in the issuance or delivery of any certificate
or certificates for shares of HSN Stock in a name other than that of the
registered holder of the LLC Shares (or the shares of the member of the Group,
if applicable), surrendered for exchange, such holder shall also deliver to HSN
a sum sufficient to pay all stock transfer taxes, if any, payable in respect of
such transfer or evidence satisfactory to HSN that such stock transfer taxes
have been paid. Except as provided above, HSN shall pay any issue, stamp or
other similar tax in respect of such issuance or delivery.
(e) The Person or Persons entitled to receive the shares of HSN
Stock issuable on such Exchange shall be treated for all purposes as the record
holder or holders of such shares of HSN Stock, as of the close of business on
the Exchange Date; provided, however, that no surrender of LLC Shares (or the
shares of the member of the Group, if applicable) on any date when the stock
transfer books of HSN are closed for any purpose shall be effective to
constitute the Person or Persons entitled to receive the shares of HSN Stock,
deliverable upon such Exchange as the record holder(s) of such shares of HSN
Stock, on such date, but such surrender shall be effective (assuming all other
requirements for the valid Exchange of such shares have been satisfied) to
constitute such Person or Persons as the record holder(s) of such shares of HSN
Stock for all purposes as of the opening of business on the next succeeding day
on which such stock transfer books are open, and such Exchange shall be at the
Exchange Rate in effect on the Exchange Date as if the stock transfer books of
HSN had not been closed on such date. Without limiting the first sentence of
this paragraph (e), as of the close of business on an Exchange Date, the rights
and obligations of the holder of the applicable LLC Shares, as a holder thereof,
shall cease (other than with respect to such holder's right to receive the
applicable number of shares of HSN Stock and its obligation to deliver the
applicable certificate(s) for shares of HSN Stock as provided herein).
(f) Holders of LLC Shares at the close of business on a record date
for any payment of declared dividends or distributions on such shares shall be
entitled to receive the dividend payable on such shares on the corresponding
dividend payment date notwithstanding the effective Exchange of such shares
following such record date and prior to the corresponding dividend payment date;
provided that in the event of a merger under Section 2.1(a)(iii), the holder of
the stock of such member shall be entitled to such dividend or distribution.
(g) If LLC Shares represented by a certificate surrendered for
exchange are exchanged in part only, then simultaneously with any such Exchange,
HSN shall cause the LLC to issue and deliver to the registered holder, without
charge therefor, a new certificate or certificates representing in the aggregate
the number of unexchanged shares.
SECTION 2.4 Sale Transaction. (a) Subject to applicable law, each of
the Universal Group and the Liberty Group agrees to immediately exercise its
option with respect to an Exchange provided for in this Article 2 with respect
to all LLC Shares held by any member of its Group simultaneously with the
consummation of a merger, consolidation or amalgamation between HSN and another
entity (other than an affiliate of HSN) in which HSN is acquired by such other
entity or a person who controls such entity, other than a subsidiary of HSN (a
"Sale Transaction"); provided that if such Sale Transaction can be effected as
to the applicable holders as a tax-free exchange involving a merger or exchange
of shares of members of the Universal Group (other than Universal) or Liberty
Group (other than Liberty), as the case may be, the Sale Transaction shall be
structured in such
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manner in lieu of such members exercising the option to effect an Exchange and,
in lieu of receiving shares of HSN Stock upon consummation of an Exchange, such
Persons shall be entitled to receive the type and amount of consideration that
such Persons would have received had such Exchange been consummated immediately
prior to the Sale Transaction, unless the alternative structure described in
this paragraph would materially adversely affect the ability of HSN to
consummate such Sale Transaction. In the case of a Sale Transaction which
provides for holders of HSN Stock to elect the form of consideration, HSN shall
make reasonable provision so that holders of LLC Shares may similarly make such
election, to the same extent that would be the case had such holder held shares
of HSN Stock immediately prior to the time of such election.
(b) To the extent that a member of the Universal Group or the
Liberty Group is not permitted by law (including FCC Regulations) to take the
actions described in paragraph (a) above, in connection with a Sale Transaction,
the Exchange Rate shall, upon consummation of such transaction, be adjusted to
reflect the right to receive for each share of HSN Stock issuable pursuant to
this Article 2, the same consideration per share to be received by the holders
of HSN Common Stock in the Sale Transaction.
(c) If a tender offer or exchange offer has been commenced for HSN
Common Stock (other than by HSN or a subsidiary of HSN) and, to the extent
permissible under the terms of the Governance Agreement, either Universal or
Liberty wishes to tender their respective LLC Shares or the stock of Universal
Sub, the Universal Newcos, or the Liberty Newcos, as the case may be, in such
tender or exchange offer, Universal or Liberty may at its option, either: (i)
simultaneously tender its shares of HSN Stock received pursuant to an Exchange
("Tendered Exchange Shares") to the exchange agent in such tender offer and
exercise its right to exchange LLC Shares for such shares in accordance with the
provisions of Section 2.1 (a) and the terms of this Agreement; provided that any
such exercise shall be conditioned on, and subject to, the consummation of such
tender offer; provided, further, that in the event that fewer than all Tendered
Exchange Shares are purchased in the tender offer, the exchange shall only occur
with respect to such Tendered Exchange Shares that are purchased in the tender
offer and the remaining Tendered Exchange Shares shall be returned to Universal
or Liberty, as the case may be, or (ii) transfer such LLC Shares or the stock of
Universal Sub, the Universal Newcos or the Liberty Newcos, as the case may be,
to a person or entity (the "Transferee") which (A) is not considered to be a
foreign owner for purposes of the FCC alien ownership rules and who would
otherwise be permitted to lawfully hold the shares of HSN Stock underlying the
right to effect the Exchange and (B) agrees to be bound by the terms of this
Agreement, and such Transferee shall exercise such Exchange right immediately
prior to the closing of the tender offer solely for purposes of participating in
such tender offer and pay the proceeds to Universal or Liberty, as the case may
be. In the case of clause (ii) above, in the event that less than all the HSN
Stock represented by the exchanged LLC Shares are purchased in such tender offer
or the tender offer is not consummated, at HSN's election, either (x) the
Transferee shall exchange with HSN such shares of HSN Stock not purchased in the
tender offer for a number of LLC Shares (based on the Exchange Rate and which
LLC Shares shall have the same terms as the original right contained herein),
and HSN shall deliver such shares and issue such replacement right to exchange
to the Transferee and the Transferee shall transfer such LLC Shares and related
right to exchange to Universal or Liberty, as the case may be, or (y) permit
Universal or Liberty, as the case may be, to hold the LLC Shares not purchased
in the tender offer.
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(d) In connection with any of the transactions described in this
Section 2.4 with respect to which HSN is a party to any agreement or contract
relating thereto, HSN shall require that effective provision be made in any such
transaction agreements or otherwise so that the provisions set forth herein
relating to any LLC Shares that are not exchanged in connection with such
transaction pursuant to paragraph (a) of this Section shall be entitled to the
same rights of Exchange as provided herein, as nearly as reasonably may be
practicable, to any other securities and assets deliverable upon an Exchange.
The resulting or surviving corporation of any such transaction shall expressly
assume the obligation to deliver, upon the exercise of an Exchange, such
securities, cash or other assets as the holders of LLC Shares shall be entitled
to receive pursuant to the provisions hereof, and to make provision for the
protection of the exchange of LLC Shares as provided in the preceding sentence.
SECTION 2.5 Transfer Restrictions. (a) Except as otherwise set forth
in this Article 2 in connection with an Exchange, the rights and obligations of
each Group to effect an Exchange shall not be transferable by any member of such
Group.
(b) (i) Except as permitted pursuant to Section 2.3(a), Universal
shall not sell or otherwise transfer any of its shares in Universal Sub or any
Universal Newco while such entity holds LLC Shares (other than to another member
of such Group) (provided that a merger or consolidation not in violation of with
the Governance Agreement in which Universal is a constituent corporation shall
be deemed not to be the transfer of shares beneficially owned by Universal if a
significant purpose of such transaction is not to avoid the provisions of this
Agreement), and Liberty shall not sell or otherwise transfer any of its shares
in any Liberty Newco while such entity holds LLC Shares (other than to another
member of such Group).
(ii) Except in connection with the exercise of a right or obligation
to exchange LLC Shares (or shares of a member of the Universal Group or the
Liberty Group) (including pursuant to a transfer provided for in Sections 2.4(a)
and (c)), or the hypothecation, pledge or creation of a lien or security
interest in LLC Shares by HSN or its affiliates (including Home Shopping
Network, Inc.), except as specifically contemplated by the Investment Agreement,
none of HSN, Home Shopping Network, Inc., any Universal Newco, Liberty or any
Liberty Newco shall directly or indirectly transfer, pledge or create a lien or
security interest in their respective LLC Shares to any other person or entity.
The parties agree that any attempt to make or create such transfer, pledge, lien
or security interest shall be null and void and of no force and effect. The
foregoing notwithstanding, Universal or Liberty (so long as, in the case of
Liberty, such pledge does not impair HSN's right to cause an Exchange
hereunder), may pledge LLC Shares in connection with a bona fide financing,
provided that the pledgee agrees with HSN to effect an Exchange promptly upon
any foreclosure of such pledge and is permitted to Own such shares of HSN Stock.
(iii) Notwithstanding paragraphs (i) and (ii), a holder may transfer
shares of the members of its Group so long as, after giving effect to such
transfer, such member continues to be a controlled member of the Group and the
transfer is not otherwise in violation of the Stockholders Agreement or the
Governance Agreement. Any such transfer shall be deemed an action taken by the
applicable holder, including for purposes of the tax matters in this Agreement.
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(c) Without limiting the foregoing, HSN shall cooperate with each of
the Universal Group and Liberty Group to ensure that, by virtue of holding LLC
Shares, neither Universal nor Liberty is disadvantaged in connection with a Sale
Transaction or tender or exchange offer by virtue of holding LLC Shares.
ARTICLE 3
EXCHANGE RATE ADJUSTMENTS
SECTION 3.1 Exchange Rate Adjustments. Subject to Section 3.5
hereof, the Exchange Rate shall be subject to adjustment from time to time as
provided below in this Section 3.1.
(a) (i) If HSN shall, after the Closing Date:
(1) pay a stock dividend or make a distribution on the outstanding
shares of HSN Common Stock in shares of HSN Common Stock,
(2) subdivide or split the outstanding shares of HSN Common Stock
into a greater number of shares,
(3) combine the outstanding shares of HSN Common Stock into a
smaller number of shares,
(4) pay a dividend or make a distribution on the outstanding
shares of HSN Common Stock in shares of its capital stock
(other than HSN Common Stock, or rights, warrants or options
for its capital stock), or
(5) issue by reclassification of its outstanding shares of HSN
Common Stock (other than a reclassification by way of merger
or binding share exchange that is subject to Section 3.2) any
shares of its capital stock (other than rights, warrants or
options for its capital stock),
then, in any such event, the Exchange Rate, in effect immediately prior to the
opening of business on the record date for determination of stockholders
entitled to receive such dividend or distribution or the effective date of such
subdivision, split, combination or reclassification, as the case may be, shall
be adjusted so that the holder of LLC Shares shall thereafter be entitled to
receive, upon exchange of such shares, the number of shares of HSN Common Stock
(or, in the case of permitted election by Universal pursuant to Section 2.1(a)
and the Investment Agreement, HSN Class B Stock) or other capital stock (or a
combination of the foregoing) of HSN which such holder would have owned or been
entitled or otherwise permitted to receive immediately following such event if
such holder had exchanged its LLC Shares immediately prior to the record date
for, or effective date of, as applicable, such event.
(ii) Notwithstanding the foregoing, if an event listed in clause (4)
or (5) above would result in the LLC Shares being exchangeable for shares or
units (or a fraction thereof) of more than one class or series of capital stock
of HSN and any such class or
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series of capital stock provides by its terms a right in favor of HSN to call,
redeem, exchange or otherwise acquire all of the outstanding shares or units of
such class or series (such class or series of capital stock being herein
referred to as "Redeemable Capital Stock") for consideration that may include
Redemption Securities, then the Exchange Rate shall not be adjusted pursuant to
this subparagraph (a) and in lieu thereof, the holders of such LLC Shares shall
be entitled to the rights contemplated by paragraph (c) with the same effect as
if the dividend or distribution of such Redeemable Capital Stock or the issuance
of the additional class or series of such Redeemable Capital Stock by
reclassification had been a distribution of assets of HSN to which such
paragraph (c) is applicable.
(iii) The adjustment contemplated by this paragraph (a) shall be
made successively whenever any event listed above shall occur. For a dividend or
distribution, the adjustment shall become effective at the opening of business
on the Business Day next following the record date for such dividend or
distribution. For a subdivision, split, combination or reclassification, the
adjustment shall become effective immediately after the effectiveness of such
subdivision, split, combination or reclassification.
(iv) If after an adjustment pursuant to this paragraph (a) a holder
of LLC Shares would be entitled to receive upon exchange thereof shares of two
or more classes or series of capital stock of HSN, the Exchange Rate shall
thereafter be subject to adjustment upon the occurrence of an action
contemplated by this Section 3.1 taken with respect to any such class or series
of capital stock other than HSN Common Stock on terms comparable to those
applicable to the HSN Common Stock pursuant to this Section 3.1.
(b) (i) Subject to Section 3.5 hereof, if HSN shall, after the
Closing Date, distribute rights, warrants or options to all or substantially all
holders of its outstanding shares of HSN Common Stock and/or HSN Class B Stock
entitling them (for a period not exceeding 45 days from the record date referred
to below) to subscribe for or purchase shares of HSN Common Stock (or
Convertible Securities for shares of HSN Common Stock) at a price per share (or
having an exercise, exchange or conversion price per share, after adding thereto
an allocable portion of the exercise price of the right, warrant or option to
purchase such Convertible Securities, computed on the basis of the maximum
number of shares of HSN Common Stock issuable upon exercise, exchange or
conversion of such Convertible Securities) less than the Current Market Price on
the applicable Determination Date, then, in any such event, the Exchange Rate
shall be adjusted by multiplying such exchange rate in effect immediately prior
to the opening of business on the record date for the determination of
stockholders entitled to receive such distribution by a fraction, of which the
numerator shall be the number of shares of HSN Common Stock outstanding on such
record date plus the number of additional shares of HSN Common Stock so offered
pursuant to such rights, warrants or options to the holders of HSN Common Stock
(and to holders of Convertible Securities for shares of HSN Common Stock) for
subscription or purchase (or into which the Convertible Securities for shares of
HSN Common Stock so offered are exercisable, exchangeable or convertible), and
of which the denominator shall be the number of shares of HSN Common Stock
outstanding on such record date plus the number of additional shares of HSN
Common Stock which the aggregate offering price of the total number of shares of
HSN Common Stock so offered (or the aggregate exercise, exchange or conversion
price of the Convertible Securities for shares of HSN Common Stock so offered,
after adding thereto the aggregate exercise price of the rights, warrants or
options to purchase such Convertible Securities) to the holders of HSN Common
Stock (and
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to such holders of Convertible Securities for shares of HSN Common Stock) would
purchase at such Current Market Price.
(ii) The adjustment contemplated by this paragraph (b) shall be made
successively whenever any such rights, warrants or options are distributed, and
shall become effective immediately after the record date for the determination
of stockholders entitled to receive such distribution. If all of the shares of
HSN Common Stock (or all of the Convertible Securities for shares of HSN Common
Stock) subject to such rights, warrants or options have not been issued when
such rights, warrants or options expire (or, in the case of rights, warrants or
options to purchase Convertible Securities for shares of HSN Common Stock which
have been exercised, if all of the shares of HSN Common Stock issuable upon
exercise, exchange or conversion of such Convertible Securities have not been
issued prior to the expiration of the exercise, exchange or conversion right
thereof), then the Exchange Rate shall promptly be readjusted to the Exchange
Rate which would then be in effect had the adjustment upon the issuance of such
rights, warrants or options been made on the basis of the actual number of
shares of HSN Common Stock (or such Convertible Securities) issued upon the
exercise of such rights, warrants or options (or the exercise, exchange or
conversion of such Convertible Securities).
(iii) No adjustment shall be made under this paragraph (b) if the
adjusted Exchange Rate would be lower than the Exchange Rate in effect
immediately prior to such adjustment, other than in the case of an adjustment
pursuant to the last sentence of paragraph (b)(ii). The adjustment pursuant to
this paragraph in respect of any one event offered to holders of both HSN Common
Stock and HSN Class B Stock shall be made only once.
(c) (i) Subject to Section 3.5 hereof, if HSN shall, after the
Closing Date, (x) pay a dividend or make a distribution to all or substantially
all holders of its outstanding shares of HSN Common Stock and/or HSN Class B
Stock of any assets (including cash) or debt securities or any rights, warrants
or options to purchase securities (excluding dividends or distributions referred
to in paragraph (a) (except as otherwise provided in clause (y) of this
sentence) and distributions of rights, warrants or options referred to in
paragraph (b)), or (y) pay a dividend or make a distribution to all or
substantially all holders of its outstanding shares of HSN Common Stock and/or
HSN Class B Stock of Redeemable Capital Stock, or issue Redeemable Capital Stock
by reclassification of the HSN Common Stock and/or HSN Class B Stock, and
pursuant to paragraph (a) such Redeemable Capital Stock is to be treated the
same as a distribution of assets of HSN subject to this paragraph (c), then, in
any such event, from and after the record date for determining the holders of
HSN Common Stock and HSN Class B Stock entitled to receive such dividend or
distribution, a holder of LLC Shares that exchanges such shares in accordance
with the provisions of this Agreement will upon such Exchange be entitled to
receive, in addition to the shares of HSN Common Stock or HSN Class B Stock for
which such shares are then exchangeable, the kind and amount of assets or debt
securities or rights, warrants or options to purchase securities comprising such
dividend or distribution that such holder would have received if such holder had
exchanged such LLC Shares immediately prior to the record date for determining
the holders of HSN Common Stock or HSN Class B Stock entitled to receive such
distribution. The adjustment pursuant to this paragraph in respect of any one
event offered to holders of both HSN Common Stock and HSN Class B Stock shall be
made only once.
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(ii) The adjustment pursuant to the foregoing provisions of this
paragraph (c) shall be made successively whenever any dividend or distribution
or reclassification to which this paragraph (c) applies is made, and shall
become effective immediately after (x) in the case of a dividend or
distribution, the record date for the determination of stockholders entitled to
receive such dividend or distribution or (y) in the case of a reclassification,
the effective date of such reclassification.
(d) In the event that a holder of LLC Shares would be entitled to
receive upon exercise of an Exchange pursuant to this Agreement any Redeemable
Capital Stock and HSN redeems, exchanges or otherwise acquires all of the
outstanding shares or other units of such Redeemable Capital Stock (such event
being a "Redemption Event"), then, from and after the effective date of such
Redemption Event, the holders of LLC Shares then outstanding shall be entitled
to receive upon the Exchange of such shares (in addition to the consideration
such holders are otherwise entitled to receive pursuant to this Agreement), in
lieu of shares or any units of such Redeemable Capital Stock, the kind and
amount of securities, cash or other assets receivable upon the Redemption Event
(less any consideration paid to HSN by a holder of HSN Stock in connection with
such holders' receipt of Redemption Securities upon such Redemption Event (other
than the surrender of shares of Redeemable Capital Stock)) by a holder of the
number of shares or units of such Redeemable Capital Stock for which such LLC
Shares could have been exchanged immediately prior to the effective date of such
Redemption Event (assuming, to the extent applicable, that such holder failed to
exercise any rights of election with respect thereto and received per share or
unit of such Redeemable Capital Stock the kind and amount of securities, cash or
other assets received per share or unit by a plurality of the non-electing
shares or units of such Redeemable Capital Stock) (as such type and amount of
securities may be adjusted in accordance with this Agreement to reflect events
or actions subsequent to the Redemption Event), and from and after the effective
date of such Redemption Event the holders of LLC Shares shall have no other
exchange rights under these provisions with respect to such Redeemable Capital
Stock.
(e) If this Section 3.1 shall require that an adjustment be made to
the Exchange Rate, such adjustment shall apply to any Exchange effected after
the record date for the event which requires such adjustment notwithstanding
that such Exchange is effected prior to the occurrence of the event which
requires such adjustment.
(f) All adjustments to the Exchange Rate shall be calculated to the
nearest 1/1000th of a share. No adjustment in either such exchange rate shall be
required unless such adjustment would require an increase or decrease of at
least one percent therein; provided, however, that any adjustment which by
reason of this paragraph (f) is not required to be made shall be carried forward
and taken into account in any subsequent adjustment. No adjustment need be made
for a change in the par value of the HSN Common Stock and/or HSN Class B Stock.
To the extent the LLC Shares become exchangeable for cash, no adjustment need be
made thereafter as to the cash and no interest shall accrue on such cash, except
to the extent (as required under applicable law or otherwise) such cash is to be
held separate for the benefit of the holder, in which case the cash shall be
placed in an interest-bearing account with such interest for the benefit of the
holder.
(g) HSN shall be entitled, to the extent permitted by law, to make
such increases in the Exchange Rate, in addition to those referred to above in
this Section 3.1, as HSN determines to be advisable in order that any stock
dividends, subdivisions of shares,
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reclassification or combination of shares, distribution of rights, options or
warrants to purchase stock or securities, or a distribution of other assets
hereafter made by HSN to its stockholders shall not be taxable.
(h) There shall be no adjustment to the Exchange Rate in the event
of the issuance of any stock or other securities or assets of HSN in a
reorganization, acquisition or other similar transaction, except as specifically
provided in this Section 3.1 or, if applicable, Section 3.2. In the event this
Section 3.1 requires adjustments to the Exchange Rate under more than one of
paragraph (a), (b) or (c), and the record dates for the dividends or
distributions giving rise to such adjustments shall occur on the same date, then
such adjustments shall be made by applying first, the provisions of paragraph
(a), second, the provisions of paragraph (c) and third, the provisions of
paragraph (b).
SECTION 3.2 Notice of Adjustment. Whenever the Exchange Rate is
adjusted as provided in Section 3.1 or 3.4 (an "Adjustment Event"), HSN shall:
(a) compute the adjusted Exchange Rate in accordance herewith and
prepare a certificate signed by an officer of HSN setting forth the adjusted
Exchange Rate, the method of calculation thereof and the facts requiring such
adjustment and upon which such adjustment is based, all in reasonable detail;
and
(b) promptly mail a copy of such certificate and a notice to the
holders of the outstanding LLC Shares.
The notice of adjustment and such certificate shall be mailed at or prior to the
time HSN mails an interim statement, if any, to its stockholders covering the
fiscal quarter during which the facts requiring such adjustment occurred, but in
any event within 45 days following the end of such fiscal quarter; provided that
if an Adjustment Event occurs following delivery of an Exchange Notice but prior
to the Exchange Date, HSN shall mail the notice of adjustment as soon as
practicable following the Adjustment Event but in no event later than five days
prior to the applicable Exchange Date.
SECTION 3.3 Notice of Certain Transactions. In case, at any time
while any of the LLC Shares are outstanding,
(a) HSN takes any action which would require an adjustment to the
Exchange Rate;
(b) HSN shall authorize (i) any consolidation, merger or binding
share exchange to which HSN is a party, for which approval of the stockholders
of HSN is required or (ii) the sale or transfer of all or substantially all of
the assets of HSN (including any Sale Transaction); or
(c) HSN shall authorize the voluntary dissolution, liquidation or
winding up of HSN or HSN is the subject of an involuntary dissolution,
liquidation or winding up;
then HSN shall cause to be filed at each office or agency maintained for the
purpose of exchange of LLC Shares and shall cause to be mailed to each holder of
LLC Shares at its last address as it shall appear on the stock register, at
least 10 days before the record date (or other date set for definitive action if
there shall be no record date), a notice stating the
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action or event for which such notice is being given and the record date for (or
such other date) and the anticipated effective date of such action or event;
provided, however, that any notice required hereunder shall in any event be
given no later than the time that notice is given to the holders of HSN Common
Stock or HSN Class B Stock.
SECTION 3.4 Exchange Rate Adjustments for Actions of the LLC. In the
event of the occurrence of any of the transactions or other events described in
paragraphs (a)-(d) of Section 3.1 or in Section 2.4(a) with respect to the LLC
Shares, or otherwise affecting the LLC, the Exchange Rate shall be appropriately
adjusted in the manner contemplated by Sections 3.1 and 2.4(a), mutatis
mutandis, so that each holder's LLC Shares thereafter shall become exchangeable
for the kind and amount of HSN Stock or Other Property, upon the Exchange of
such holder's LLC Shares, that such holder would have received had such holder
exchanged all of its LLC Shares pursuant to this Agreement immediately prior to
the applicable Determination Date (or other comparable date) for such
transaction or other event. In addition to its obligation to adjust the Exchange
Rates, HSN's other rights and obligations set forth in Sections 3.1, 3.2 and 3.3
shall also apply to the extent applicable in the event of an adjustment pursuant
to this Section 3.4. HSN agrees that it will not cause or permit to occur any
such transaction or other event which would result in any adjustment to the
Exchange Rate unless the terms of the agreement relating to such transaction or
other event include obligations of the applicable parties consistent with the
foregoing. The provisions of this paragraph shall apply similarly to successive
transactions or other events to which this paragraph would otherwise be
applicable.
SECTION 3.5 Limitation on Adjustments to Exchange Rate. The
covenants set forth in Sections 6.2 and 6.4 of the Investment Agreement shall
take priority over the adjustments to the Exchange Rate and other actions set
forth in this Article 3. With respect to any action, event or circumstance that
is covered by Section 6.2 or Section 6.4 of the Investment Agreement, HSN shall
have no obligation hereunder (and the Exchange Rate shall not be adjusted)
provided that HSN and the LLC comply with the terms of Sections 6.2 and 6.4 of
the Investment Agreement.
ARTICLE 4
GENERAL REPRESENTATIONS AND WARRANTIES OF
HSN AND EACH HOLDER
SECTION 4.1 Representations and Warranties of HSN. HSN hereby
represents and warrants:
(a) As of the date hereof, the authorized capital stock of HSN
consists of (a) 150,000,000 shares of HSN Common Stock and 30,000,000 shares of
HSN Class B Stock, and (b) 15,000,000 shares of preferred stock, par value $.01
per share, of HSN (the "HSN Preferred Stock"), none of which have been
designated as to class or series. At the close of business on August 8, 1997,
(i) 43,526,372 shares of HSN Common Stock were issued and outstanding and
12,227,647 shares of HSN Class B Stock were issued and outstanding, all of which
are validly issued, fully paid and nonassessable and not subject to any
preemptive rights and (ii) no shares of HSN Common Stock were held in treasury
by HSN or by subsidiaries of HSN. The statements in Section 3.2 of the
Investment Agreement with respect to the number of outstanding options and other
rights to purchase or acquire
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HSN Common Stock or HSN Class B Stock are true and complete in all material
respects as of the date reflected therein. As of the date hereof, no shares of
HSN Preferred Stock were issued or outstanding.
(b) HSN has all necessary corporate power and authority to execute
and deliver this Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement by HSN and the consummation by HSN of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action on the part of HSN, and no other corporate proceedings on the
part of HSN are necessary to authorize this Agreement or consummate the
transactions contemplated hereby.
(c) This Agreement has been duly and validly executed and delivered
by HSN and, assuming the due authorization, execution and delivery by the other
parties hereto, constitutes the legal and binding obligation of HSN, enforceable
against HSN in accordance with its terms, subject to (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting or relating to
creditors rights generally and (ii) the availability of injunctive relief and
other equitable remedies.
(d) The execution, delivery and performance of this Agreement by HSN
(with or without the giving of notice, the lapse of time, or both): (i) do not
require any notices, reports or other filings to be made by HSN with any public
or governmental authority; (ii) do not require the consent of any third party
(including any governmental or regulatory authority); (iii) will not conflict
with any provision of the HSN Charter or the HSN By-Laws; (iv) will not violate
or result in a breach of, or contravene any law, judgment, order, ordinance,
injunction, decree, rule, regulation or ruling of any court or governmental
instrumentality applicable to HSN; and (v) violate or result in the breach of
any material Contract, except for such matters that would not have a material
adverse effect on the transactions contemplated hereby.
SECTION 4.2 Representations and Warranties of Universal and Liberty.
Each of Universal and Liberty, with respect to itself and each member of its
respective Group, hereby represents and warrants:
(a) It has all necessary corporate power and authority to execute
and deliver this Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement by it, and the consummation by it and the members of its Group of
the transactions contemplated hereby have been duly and validly authorized by
all necessary corporate action on the part of it and the members of its Group,
and no other corporate proceedings on the part of it and the members of its
Group are necessary to authorize this Agreement or to consummate the
transactions contemplated hereby.
(b) This Agreement has been duly and validly executed and delivered
by it and, assuming the due authorization, execution and delivery by the other
parties hereto, constitutes the legal and binding obligation of it and the
members of its Group, enforceable against it and the members of its Group in
accordance with its terms, subject to (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting or relating to
creditors rights generally and (ii) the availability of injunctive relief and
other equitable remedies.
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(c) The execution, delivery and performance of this Agreement by it
and the members of its Group (with or without the giving of notice, the lapse of
time, or both): (i) do not require any notices, reports or other filings to be
made by it or the members of its Group with any public or governmental
authority; (ii) do not require the consent of any third party (including any
governmental or regulatory authority); (iii) will not conflict with any
provision of the Certificate of Incorporation or By-Laws of it or any member of
its Group; (iv) will not violate or result in a breach of, or contravene any
law, judgment, order, ordinance, injunction, decree, rule, regulation or ruling
of any court or governmental instrumentality applicable to it or the members of
its Group; and (v) violate or result in the breach of any material Contract
(applying such term to such Group), except for such matters that would not have
a material adverse effect on the transactions contemplated hereby.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF
HSN WITH RESPECT TO EACH EXCHANGE
With respect to each Exchange, HSN shall be deemed to have made, as
of the applicable Exchange Date, the following representations and warranties to
each holder effecting such Exchange:
SECTION 5.1 Organization and Qualification. HSN (i) is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation; (ii) has all requisite corporate power and
authority to carry on its business as it is now conducted and to own, lease and
operate the properties it now owns, leases or operates at the places currently
located and in the manner currently used and operated and (iii) is duly
qualified or licensed and in good standing to do business in each jurisdiction
in which the properties owned, leased or operated by it or the nature of the
business conducted by it makes such qualification or license necessary, except,
in the case of clause (iii) where the failure to be so qualified or licensed, or
in good standing would not have a material adverse effect on the business,
assets or condition (financial or otherwise) of HSN and its subsidiaries, taken
as a whole. HSN has delivered or made available to such holder true and complete
copies of its certificate of incorporation and by-laws, each as amended to date
and currently in effect (respectively, the "HSN Charter" and the "HSN Bylaws").
The HSN Charter and the HSN Bylaws are in full force and effect and neither HSN
nor the LLC is in violation of its respective organizational documents.
SECTION 5.2 Authorization of the Exchange. The consummation of such
Exchange by HSN has been duly and validly authorized by the board of directors
of HSN and by any necessary action of the HSN stockholders. HSN has full
corporate power and authority to perform its obligations under this Agreement
with respect to such Exchange and to consummate such Exchange. No other
corporate proceedings on the part of HSN or any of its subsidiaries are
necessary to authorize the consummation of such Exchange.
SECTION 5.3 Validity of HSN Shares, etc. The shares of HSN Common
Stock and/or HSN Class B Stock to be issued by HSN to such holder pursuant to
such Exchange, upon issuance and delivery in accordance with the terms and
conditions of this Agreement, will be duly authorized, validly issued, fully
paid and non-assessable, and will be free of any liens, claims, charges,
security interests, preemptive rights, pledges, voting
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or stockholder agreements, options or encumbrances of any kind whatsoever (other
than any of the foregoing arising under the Investment Agreement, the Governance
Agreement, Stockholders Agreement or any Federal or state securities laws), will
not be issued in violation of any preemptive rights and will vest in such holder
full rights with respect thereto, including the right to vote such shares of HSN
Stock on all matters properly presented to the stockholders of HSN to the extent
set forth in the HSN Charter. The issuance of the shares of HSN Stock will not
violate the rules, regulations and requirements of the National Association of
Securities Dealers, Inc. ("NASD") or of the principal exchange or trading market
on which the HSN Common Stock is then quoted or traded (including, without
limitation the NASD policies set forth in Section 6(i) and (j) of Part III of
Schedule D of the NASD By-Laws and the Policy of the Board of Governors with
respect to Voting Rights set forth in Part III of Schedule D of the NASD By-Laws
or any similar policies of such other exchange or trading market).
SECTION 5.4 No Approvals or Notices Required; No Conflict with
Instruments. The performance by HSN of its obligations under this Agreement in
connection with such Exchange and the consummation of the transactions
contemplated by such Exchange, including the issuance of HSN Stock in such
Exchange, will not:
(a) conflict with or violate the HSN Charter or the HSN Bylaws or
the organizational documents of the LLC or any other subsidiary of HSN, in
each case as amended to date;
(b) require any consent, approval, order or authorization of or
other action by any court, administrative agency or commission or other
governmental authority or instrumentality, foreign, United States federal,
state or local (each such entity a "Governmental Entity" and each such
action a "Governmental Consent") or any registration, qualification,
declaration or filing with or notice to any Governmental Entity (a
"Governmental Filing"), in each case on the part of or with respect to HSN
or the LLC or any other subsidiary of HSN, other than (i) such as have
been obtained or made or (ii) the absence or omission of which would,
either individually or in the aggregate, have a material adverse effect on
the applicable Exchange or otherwise with respect to the transactions
contemplated hereby or on the business, assets, results of operations or
financial condition of HSN and its subsidiaries, taken as a whole;
(c) require, on the part of HSN or the LLC or any other subsidiary
of HSN, any consent by or approval of (a "Contract Consent") or notice to
(a "Contract Notice") any other person or entity (other than a
Governmental Entity), other than (i) such as have been obtained or made or
(ii) the absence or omission of which would, either individually or in the
aggregate, have a material adverse effect on the transactions contemplated
hereby or on the business, assets, results of operations or financial
condition of HSN and its subsidiaries, taken as a whole;
(d) conflict with, result in any violation or breach of or default
(with or without notice or lapse of time, or both) under, or give rise to
a right of termination, cancellation or acceleration of any obligation or
the loss of any material benefit under or the creation of any lien,
security interest, pledge, charge, claim, option, right to acquire,
restriction on transfer, voting restriction or agreement, or any other
restriction or encumbrance of any nature whatsoever on any assets pursuant
to (any
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such conflict, violation, breach, default, right of termination,
cancellation or acceleration, loss or creation, a "Violation") any
"Contract" (which term shall mean and include any note, bond, indenture,
mortgage, deed of trust, lease, franchise, permit, authorization, license,
contract, instrument, employee benefit plan or practice, or other
agreement, obligation, commitment or concession of any nature) to which
HSN or the LLC or any other subsidiary of HSN is a party, by which HSN,
the LLC or any other subsidiary of HSN or any of their respective assets
or properties is bound or pursuant to which HSN or the LLC or any other
subsidiary of HSN is entitled to any rights or benefits, except for such
Violations which would not, either individually or in the aggregate, have
a material adverse effect on the applicable Exchange or otherwise with
respect to transactions contemplated hereby or on the business, assets,
results of operations or financial condition of HSN and its subsidiaries,
taken as a whole; or
(e) result in a Violation of, under or pursuant to any law, rule,
regulation, order, judgment or decree applicable to HSN or the LLC or any
other subsidiary of HSN or by which any of their respective properties or
assets are bound, except for such Violations which would not, either
individually or in the aggregate, have a material adverse effect on the
applicable Exchange or otherwise with respect to the transactions
contemplated hereby.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF THE HOLDER
WITH RESPECT TO EACH EXCHANGE
As of each Exchange Date, the holder who is seeking or required to
exchange its LLC Shares (or with respect to which the merger or exchange
described in Section 2.1(a)(iii) is elected) shall be deemed to have made the
following representations and warranties to HSN; provided that it shall be a
condition to HSN's obligation to effect any such Exchange in connection with an
Agreement to Transfer that the applicable Transferee and Transferor pursuant to
Section 2.3 shall be deemed to have made to HSN the representations set forth in
paragraphs (a)-(e) of Section 6.2 (as such matters relate to, and taking into
account, such Transferee's ownership of HSN Stock or LLC Shares in connection
with the Exchange):
SECTION 6.1 Ownership and Validity of LLC Shares. Such holder owns,
and following such Exchange, HSN will own beneficially and of record the
applicable LLC Shares, free of any liens, claims, charges, security interests,
pledges, voting or stockholder agreements, encumbrances or equities (other than
any of the foregoing arising under this Agreement, the Investment Agreement, the
Governance Agreement, or the Stockholders Agreement or any Federal or state
securities laws or as may be due to an action of HSN). Universal and Liberty
also hereby make, with respect to each member of its respective Group which is
participating in such Exchange (whether through ownership of LLC Shares or in
the event shares of such entity are being exchanged or converted pursuant to
Section 2.1(a)(iii)), the representations and warranties contained in the
preceding sentence, subject to the same exceptions contained therein.
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SECTION 6.2 No Approvals or Notices Required; No Conflict with
Instruments. The consummation of such Exchange will not:
(a) if applicable, conflict with or violate such holder's (or its
Group members') organizational documents;
(b) require any Governmental Consent or Governmental Filing, in each
case on the part of or with respect to each of such holder or any member
of its Group, other than (i) such as have been obtained or made or (ii)
the absence or omission of which would, either individually or in the
aggregate, have a material adverse effect on such Exchange or otherwise
with respect to the transactions contemplated hereby;
(c) require, on the part of such holder or any member of its Group
any Contract Consent or Contract Notice (in each case, applying such terms
to such Group), other than (i) such as have been obtained or made or (ii)
the absence or omission of which would, either individually or in the
aggregate, have a material adverse effect on such Exchange or otherwise
with respect to the transactions contemplated hereby;
(d) conflict with or result in any Violation of any Contract to
which such holder or any member of its Group is a party, or by which such
holder or any of its Group, or any of its respective assets or properties
are bound, except for such Violations which would not, either individually
or in the aggregate, have a material adverse effect on such Exchange or
otherwise with respect to the transactions contemplated hereby; or
(e) result in a Violation of, under or pursuant to any law, rule,
regulation, order, judgment or decree applicable to such holder or any
member of its Group or by which any of its respective properties or assets
are bound, except for such Violations which would not, either individually
or in the aggregate, have a material adverse effect on such Exchange or
otherwise with respect to the transactions contemplated hereby;
provided that any such representation pursuant to this Section 6.2 by a holder
in connection with an Agreement to Transfer shall take into account the
transactions contemplated to occur with such Transferee.
SECTION 6.3 No Liabilities of Universal Sub and Group Newco. In the
case of a merger or exchange pursuant to Section 2.1(a)(iii), Universal (with
respect to Universal Sub and each Universal Newco, to the extent participating
in such Exchange) and Liberty (with respect to each Liberty Newco, to the extent
participating in such Exchange) hereby represents and warrants that (a) none of
such Newcos (or Universal Sub, if applicable) has any liabilities of any kind
whatsoever, whether absolute or contingent, matured or unmatured, liquidated or
unliquidated, accrued or unaccrued, known or unknown, whenever arising, other
than the obligation to consummate the transactions contemplated by the Exchange,
and other than liabilities (i) that are immaterial and (ii) as to which HSN has
a reasonable likelihood of being fully indemnified by the applicable Group
pursuant to the contemplated indemnification agreement referred to in Section
2.1(a)(iii), (b) upon consummation of such Exchange, neither the LLC nor HSN
shall have any obligation or liability in
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respect of any liabilities of such entities other than those described in the
preceding clause (a) that are covered by the agreement described in clause
(a)(ii), (c) upon consummation of the Exchange, HSN shall own all of the capital
stock of such entity (or, in the event of an Exchange under Section 2.1(a)(iii),
all such capital stock shall have been exchanged), free of any liens, claims,
charges, security interests, preemptive rights, voting or stockholder
agreements, options or encumbrances of any kind whatsoever (other than any of
the foregoing under the Investment Agreement, the Governance Agreement,
Stockholders Agreement or any Federal or state securities laws, and (d) the
shares of the capital stock of such entity are duly authorized, validly issued,
fully paid and non-assessable and will result in HSN having full rights with
respect thereto. The representations and warranties in this Section 6.3 shall
survive consummation of the Exchange and be subject to the indemnification
agreement referred to in Section 2.1(a)(iii).
ARTICLE 7
COVENANTS AND OTHER AGREEMENTS
For so long as there remain outstanding any LLC Shares, the parties
covenant and agree as follows:
SECTION 7.1 Notification of Issuance Event. At any time HSN or any
of its subsidiaries or a holder (i) plans or proposes to take any action which
has resulted, or is reasonably likely to result, in an Issuance Event or (ii)
becomes aware of any event, fact or circumstance which results in an Issuance
Event, HSN or the holder, respectively, shall (x) in the case of clause (i),
prior to taking such action and (y) in the case of clause (ii), promptly upon
becoming so aware, give notice of such Issuance Event to each holder of LLC
Shares or HSN, as the case may be, which notice shall set forth in reasonable
detail the facts, circumstances or events which will result or have resulted, as
the case may be, in the occurrence of such Issuance Event. No notice shall be
required pursuant to this Section 7.1 unless the number of shares issuable
pursuant to such Issuance Event, together with any other shares which are then
issuable in accordance with this Agreement, meet the threshold set forth in
Section 2.1(e).
SECTION 7.2 Reservation of HSN Stock. HSN agrees to at all times
reserve and keep available, free from preemptive rights, out of the aggregate of
its authorized but unissued HSN Common Stock and HSN Class B Stock (assuming
Universal would elect to receive the maximum number of shares of HSN Class B
Stock permitted hereunder), for the purpose of effecting any Exchange pursuant
to this Agreement, the full number of shares of HSN Common Stock and HSN Class B
Stock, then deliverable upon the Exchange of all then outstanding LLC Shares
(based on the assumption in the preceding parenthetical), and shall reserve an
additional number of shares of HSN Common Stock equal to the number of shares
issuable upon the conversion of shares of HSN Class B Stock issuable pursuant to
this Agreement.
SECTION 7.3 Certain Obligations Upon Insolvency or Bankruptcy of
LLC. In the event that the LLC should become insolvent or, within the meaning of
any federal or state bankruptcy law, commence a voluntary case or consent to the
entry of any order of
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relief or for the appointment of any custodian for its property or a court of
competent jurisdiction enters an order or decree for relief against the LLC
appointing a custodian or ordering its liquidation, and Liberty or Universal
determines in good faith that the equity of the LLC is reasonably likely to be
impaired or extinguished in connection therewith, then upon the request of
Liberty or Universal, its rights under this Agreement shall be converted into
the deferred right to receive from HSN the number of shares of HSN Common Stock
(or, in the case of Universal, of HSN Class B Stock) which Liberty or Universal,
as the case may be, would then have had the right to acquire upon the Exchange
of all of its LLC Shares then outstanding (such deferred right, the "Additional
Contingent Right"). The terms and conditions of the Additional Contingent Right
shall reflect, to the extent practicable and permitted by applicable law, the
terms of this Agreement as well as other provisions to ensure, to the greatest
extent practicable, that such holders will be able to exchange their LLC Shares
as contemplated by this Agreement or otherwise receive the number of shares of
HSN Stock or Other Property to which they would be entitled hereunder.
SECTION 7.4 Reasonable Efforts. (a) Subject to the terms and
conditions of this Agreement and applicable law, in connection with an Exchange,
each of the holder exercising an Exchange and HSN shall use its reasonable
efforts to take, or cause to be taken, all actions, and do, or cause to be done,
all things reasonably necessary, proper or advisable to consummate and make
effective such Exchange as soon as reasonably practicable following the receipt
or delivery by HSN of an Exchange Notice, including such actions or things as
HSN or such holder may reasonably request in order to cause the consummation of
an Exchange following the receipt or delivery by HSN of an Exchange Notice.
Without limiting the generality of the foregoing, such holder and HSN shall (and
shall cause their respective subsidiaries, and use their reasonable efforts to
cause their respective affiliates, directors, officers, employees, agents,
attorneys, accountants and representatives, to) consult and fully cooperate with
and provide reasonable assistance to each other in (i) obtaining all necessary
Governmental Consents and Contract Consents, and giving all necessary Contract
Notices to, and making all necessary Governmental Filings and other necessary
filings with and applications and submissions to, any Governmental Entity or
other person or entity; (ii) lifting any permanent or preliminary injunction or
restraining order or other similar order issued or entered by any court or
Governmental Entity in connection with an Exchange; (iii) providing all such
information about such party, its subsidiaries and its officers, directors,
partners and affiliates and making all applications and filings as may be
necessary or reasonably requested in connection with any of the foregoing; and
(iv) in general, consummating and making effective the transactions contemplated
hereby; provided, however, that, in order to obtain any such Consent, or the
lifting of any injunction or order referred to in clauses (i) and (ii) of this
sentence, neither such holder nor HSN shall be required to (x) pay any
consideration, to divest itself of any of, or otherwise rearrange the
composition of, its assets or to agree to any conditions or requirements which
could reasonably be expected to be materially adverse or burdensome to its
respective businesses, assets, financial condition or results of operations, or
(y) amend, or agree to amend, in any material respect any Contract. Prior to
making any application to, or filing with any Governmental Entity or other
person or entity in connection with an Exchange, each of HSN and the applicable
holder shall provide the other party with drafts thereof and afford the other
party a reasonable opportunity to comment on such drafts.
(b) In addition to the foregoing paragraph (a), HSN shall take such
reasonable action which may be necessary in order that (i) it may validly and
legally deliver fully paid and nonassessable shares of HSN Common Stock or HSN
Class B Stock upon
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any surrender of LLC Shares or shares of a Newco, as applicable, for exchange
pursuant to this Agreement, (ii) the delivery of shares of HSN Common Stock and
HSN Class B Stock in accordance with this Agreement is exempt from the
registration or qualification requirements of the Securities Act and applicable
state securities laws or, if no such exemption is available, that the offer and
Exchange of such shares of HSN Common Stock and HSN Class B Stock have been duly
registered or qualified under the Securities Act and applicable state securities
laws, (iii) the shares of HSN Common Stock (including the shares of HSN Common
Stock issuable upon conversion of any shares of HSN Class B Stock), delivered
upon such Exchange are listed for trading on the Nasdaq National Market or on a
national securities exchange (upon official notice of issuance) and (iv) the
shares of HSN Common Stock or HSN Class B Stock, as applicable, delivered upon
such Exchange are free of preemptive rights and any liens or adverse claims
(other than any of the foregoing created or caused by the Person receiving such
shares in such Exchange).
SECTION 7.5 Notification of Certain Matters. HSN shall give prompt
notice to each of Universal and Liberty so long as its Group holds LLC Shares,
and each holder of LLC Shares shall give prompt notice to HSN, of the
occurrence, or failure to occur, of any event, which occurrence or failure to
occur would be likely to cause (a) any representation or warranty to be made as
of an applicable Exchange Date to be untrue or inaccurate in any material
respect, (b) any material failure of HSN or such holder of LLC Shares, as the
case may be, or of any officer, director, employee or agent thereof, to comply
with or satisfy any covenant or agreement to be complied with or satisfied by it
under this Agreement or (c) the failure to be satisfied of any condition to
HSN's or such holder's respective obligations to consummate an Exchange.
Notwithstanding the foregoing, the delivery of any notice pursuant to this
Section shall not limit or otherwise affect the remedies available hereunder to
the party receiving such notice.
SECTION 7.6 Additional Covenants. (a) Notwithstanding any other
provision of this Agreement to the contrary (but excluding actions specifically
contemplated by this Agreement, the Investment Agreement and the agreements
contemplated thereby), and in addition to the rights granted to the holders of
LLC Shares pursuant to this Agreement and any other voting rights granted by law
to the holders of the LLC Shares, without the consent of Universal and Liberty,
to the extent such party is affected by the matter (which consent, in the case
of clauses (ii) through (iv) below, will not be unreasonably withheld), HSN will
not (and will not cause or permit any of its subsidiaries to) cause or permit
the LLC or any of its subsidiaries to take any action that would, or could
reasonably be expected to, or fail to take any action which failure would or
could reasonably be expected to:
(i) make the ownership by any holder of the LLC Shares or any
other material assets of such holder unlawful or result in a violation of
any law, rule, regulation, order or decree (including the FCC Regulations)
or impose material additional restrictions or limitations on such holder's
full rights of ownership of the LLC Shares or the ownership of its other
material assets or the operation of its businesses (provided that for
purposes of the foregoing with respect to the Liberty Group, to the extent
that a condition, restriction or limitation upon HSN or LLC or their
respective subsidiaries relates to or is based upon or would arise as a
result of, any action or the consummation of a transaction by the Liberty
Group, such condition, restriction or limitation shall be deemed to be
such a condition, restriction or limitation on such Group (regardless of
whether it is a party to or otherwise would
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be legally obligated thereby) to the extent that the taking of an action
or the consummation of a transaction by the Liberty Group would result in
the entities known as the BDTV Entities, HSN, or any of their respective
subsidiaries being in breach or violation of any law, rule, regulation,
order or decree or otherwise causing such rule, regulation, order or
decree to terminate or expire or would otherwise result in the Liberty
Group's ownership of LLC Shares or any other material assets being illegal
or in violation of any law, rule, regulation, order or decree);
(ii) cause the Exchange (but only with respect to an Exchange
by merger as described in Section 2.1(a)(iii)) of LLC Shares for shares of
HSN Stock and/or Redeemable Capital Stock or Redemption Securities to be a
taxable transaction to the holder thereof (to the extent not otherwise
taxable) or from and after the time, if any, at which a merger can no
longer be effected as a tax-free transaction (to the extent not otherwise
taxable), cause an Exchange under Section 2.1(a)(iii)(B) to be a taxable
transaction to the holder thereof (to the extent not otherwise taxable);
(iii) result in LLC being unable to pay its debts as they
become due or becoming insolvent; or
(iv) otherwise restrict, impair, limit or otherwise adversely
affect the right or ability of a holder of LLC Shares at any time to
exercise an Exchange under this Agreement (but excluding repurchases of
shares of HSN equity securities).
provided, however, that with respect to clause (ii) hereof, if (x) such Exchange
is taxable to a holder of LLC Shares as a result of (1) any action or failure to
act by such holder (other than as required by the Investment Agreement, the
Stockholders Agreement or this Agreement), (2) the laws and regulations in
effect at the Closing Date or (3) any difference in the tax position of a member
of the Universal Group or the Liberty Group relative to the tax position of
Universal or Liberty, respectively, or (y) in the case of a Sale Transaction,
HSN and any other party to such transaction have complied with the applicable
terms of Section 2.4 regarding tax matters, then compliance with the covenants
set forth in such clause (ii) shall be deemed waived by such holder of LLC
Shares and provided, further, that with respect to the covenants set forth in
clause (i) hereof, such covenants shall not apply to any such consequence that
would be suffered or otherwise incurred by a holder of LLC Shares, solely as a
result of such holder being subject to additional or different regulatory
restrictions and limitations than those applicable to Liberty or Universal, as
the case may be.
(b) If, other than in connection with a Sale Transaction, a
mandatory Exchange which is effected by a merger pursuant to Section 2.1(a)(iii)
is taxable to the applicable member of the Liberty Group as a result of any
action taken by HSN (but not due to an action or unreasonable inaction by the
Liberty Group, or any action of HSN contemplated by the Investment Agreement and
the agreements contemplated thereby) after the Closing Date, HSN acknowledges
and agrees that it shall be obligated to provide to such holder upon such
Exchange, a number of additional shares of HSN Common Stock sufficient on an
after-tax basis to pay any such resulting tax; provided, however, that HSN shall
have no obligation under this paragraph (b) to the extent such Exchange is
taxable to a holder solely as a result of any difference in the tax position of
such holder relative to the tax position of Liberty.
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(c) HSN shall not become a party and shall not permit any of its
subsidiaries to become a party to any transaction with respect to the foregoing
unless the terms of the agreements relating to such transaction include
obligations of the applicable parties consistent with this Section 7.6.
ARTICLE 8
MISCELLANEOUS
SECTION 8.1 Further Assurances. From and after the Closing Date,
each of HSN, Universal, Liberty and each member of their respective Group shall,
at any time and from time to time, make, execute and deliver, or cause to be
made, executed and delivered, such instruments, agreements, consents and
assurances and take or cause to be taken all such actions as may reasonably be
requested by any other party hereto to effect the purposes and intent of this
Agreement.
SECTION 8.2 Expenses. Except as otherwise provided herein, all costs
and expenses, including, without limitation, fees and disbursements of counsel,
financial advisors and accountants, incurred in connection with this Agreement
and the transactions contemplated hereby shall be paid by the party incurring
such costs and expenses, whether or not any Exchange shall occur.
SECTION 8.3 Notices. All notices, requests, demands, waivers and
other communications required or permitted to be given under this Agreement
shall be in writing and shall be deemed to have been duly given on (i) the day
on which delivered personally or by telecopy (with prompt confirmation by mail)
during a Business Day to the appropriate location listed as the address below,
(ii) three Business Days after the posting thereof by United States registered
or certified first class mail, return receipt requested, with postage and fees
prepaid or (iii) one Business Day after deposit thereof for overnight delivery.
Such notices, requests, demands, waivers or other communications shall be
addressed as follows:
(a) if to HSN to:
HSN, Inc.
152 West 57th Street
New York, NY 10019
Attention: General Counsel
Telecopier No.: (212) 247-5811
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, NY 10019-5150
Attention: Pamela S. Seymon, Esq.
Telecopier No.: (212) 403-2000
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(b) if to a member of the Liberty Group, to:
Liberty Media Corporation
8101 East Prentice Avenue, Suite 500
Englewood, Colorado 80111
Attention: President
Telecopier No.: (303) 721-5415
with a copy to:
Baker & Botts, L.L.P.
599 Lexington Avenue
New York, New York 10022
Attention: Frederick H. McGrath Esq.
Telecopier No.: (212) 705-5125
(c) if to a member of the Universal Group, to:
Universal Studios, Inc.
100 Universal City Plaza
Universal City, CA 91608
Attention: Karen Randall, Esq.
Telecopier No.: (818) 866-3444
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10117
Attention: John G. Finley, Esq.
Telecopier No.: (212) 455-2502;
or to such other person or address as any party shall specify by notice in
writing to the other party.
SECTION 8.4 Entire Agreement. This Agreement (including the
documents referred to herein), together with the Investment Agreement and the
Liberty Exchange Agreement (as amended by the letter agreement dated as of the
date hereof), constitutes the entire agreement between the parties and
supersedes all prior agreements and understandings, oral and written, between
the parties with respect to the subject matter hereof.
SECTION 8.5 Assignment; Binding Effect; Benefit. Neither this
Agreement nor any of the rights, benefits or obligations hereunder may be
assigned by HSN without the prior written consent of, in the case of an
assignment by Universal or Liberty, HSN, and, in the case of an assignment by
HSN, each Group that holds LLC Shares at such time. This Agreement will be
binding upon, inure to the benefit of and be enforceable by the parties and
their respective successors and assigns. Nothing in this Agreement, expressed or
implied, is intended to confer on any person other than the parties or their
respective successors and assigns, any rights, remedies, obligations or
liabilities under or by
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reason of this Agreement. No assignment permitted hereunder shall be effective
until the assignee shall have agreed in writing to be bound by the terms of this
Agreement.
SECTION 8.6 Amendment. Any provision of this Agreement may be
amended if, and only if, such amendment is in writing and signed by the party or
parties whose rights or obligations hereunder are affected by such amendment.
Any amendment by HSN shall be authorized by a majority of the Board of Directors
of HSN, excluding for this purpose any director who is a nominee of Universal or
Liberty if such Person is a party to such amendment.
SECTION 8.7 Extension; Waiver. In connection with an Exchange, a
holder exercising its Exchange, or HSN may, to the extent legally allowed, (i)
extend the time specified herein for the performance of any of the obligations
of the other Person, (ii) waive any inaccuracies in the representations and
warranties of the other Person contained herein or in any document delivered
pursuant hereto, (iii) waive compliance by the other Person with any of the
agreements or covenants of such other Person contained herein or (iv) waive any
condition to such waiving Person's obligation to consummate such Exchange to any
of such waiving Person's other obligations under this Agreement. Any agreement
on the part of HSN or such holder to any such extension or waiver shall be valid
only if set forth in a written instrument signed on behalf of such Person. Any
such extension or waiver by any Person shall be binding on such Person but not
on any other Person entitled to the benefits of the provision of this Agreement
affected unless such other Person also has agreed to such extension or waiver.
No such waiver shall constitute a waiver of, or estoppel with respect to, any
subsequent or other breach or failure to comply strictly with the provisions of
this Agreement. The failure of any Person to insist on strict compliance with
this Agreement or to assert any of its rights or remedies hereunder or with
respect hereto shall not constitute a waiver of such rights or remedies in the
future. Whenever this Agreement requires or permits consent or approval by any
Person, such consent or approval shall be effective if given in writing in a
manner consistent with the requirements for a waiver of compliance as set forth
in this Section 8.7. To the extent that a waiver by HSN affects or is otherwise
sought by Universal or Liberty, as the case may be, any director who is a
nominee of such Person shall not participate in the approval by the Board of
Directors of HSN of such waiver.
SECTION 8.8 Survival. The covenants and agreements in Articles 2, 3,
and 7 and elsewhere in this Agreement shall survive with respect to each holder
until all of the LLC Shares held by its Group have been exchanged for HSN Stock.
SECTION 8.9 Tax Interpretation. Whenever it is necessary for
purposes of this Agreement to determine whether an Exchange is taxable or
tax-free, such determination shall be made with respect to the Code. For
purposes of this Agreement, a Person's "tax position" shall not include or take
into account any offsets against any tax which are peculiar to such Person (such
as tax credits, loss carry-overs, and current losses). References to taxes or
taxable relating to an Exchange (including pursuant to Section 2.1(a)(iii)), or
otherwise involving a Newco, shall refer to the taxes actually incurred by, or
the taxability of such Exchange to, such entity and its direct and indirect
shareholders assuming for these purposes that such Newco has the corporate
characteristics relevant for tax purposes of Universal or Liberty, as the case
may be.
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SECTION 8.10 General Interpretation. When a reference is made in
this Agreement to Sections, Articles or Schedules, such reference shall be to a
Section, Article or Schedule (as the case may be) of this Agreement unless
otherwise indicated. When a reference is made in this Agreement to a "party" or
"parties", such reference shall be to a party or parties to this Agreement
unless otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include",
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation". The use of any gender herein shall
be deemed to be or include the other genders and the use of the singular herein
shall be deemed to be or include the plural (and vice versa), wherever
appropriate. The use of the words "hereof", "herein", "hereunder" and words of
similar import shall refer to this entire Agreement, and not to any particular
article, section, subsection, clause, paragraph or other subdivision of this
Agreement, unless the context clearly indicates otherwise. Notwithstanding
anything herein to the contrary, for purposes of this Agreement, (i) HSN shall
not be deemed to be a subsidiary or an affiliate of Universal or Liberty, (ii)
Matsushita Electric Industrial Co., Ltd. ("MEI") shall not be considered an
affiliate of Universal or any subsidiary of Universal so long as MEI does not
materially increase its influence over Universal following the date hereof, and
(iii) the subsidiaries, directors, officers, employees and affiliates of HSN
shall not be deemed to be subsidiaries, directors, officers, employees or
affiliates of Universal or Liberty.
SECTION 8.11 Severability. If any provision of this Agreement or the
application thereof to any person or circumstance is held by a court of
competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions hereof, or the application of such provision to persons or
circumstances other than those as to which it has been held invalid or
unenforceable, shall remain in full force and effect and shall in no way be
affected, impaired or invalidated thereby, provided that, if any provision
hereof or the application thereof shall be so held to be invalid, void or
unenforceable by a court of competent jurisdiction, then such court may
substitute therefor a suitable and equitable provision in order to carry out, so
far as may be valid and enforceable, the intent and purpose of the invalid, void
or unenforceable provision. To the extent that any provision shall be judicially
unenforceable in any one or more states, such provision shall not be affected
with respect to any other state, each provision with respect to each state being
construed as several and independent.
SECTION 8.12 Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed to be an original, and all of which
together shall be deemed to be one and the same instrument.
SECTION 8.13 Applicable Law. This Agreement and the legal relations
between the parties shall be governed by and construed in accordance with the
laws of the State of Delaware, without regard to the conflict of laws rules
thereof.
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IN WITNESS WHEREOF, the parties hereto have executed this Exchange
Agreement as of the date first above written.
HSN, INC.
By: /s/ James G. Gallagher
-------------------------------------
Name: James G. Gallagher
Title: Vice President
UNIVERSAL STUDIOS, INC.
By: /s/ Brian C. Mulligan
-------------------------------------
Name: Brian C. Mulligan
Title: Senior Vice President
LIBERTY MEDIA CORPORATION
By: /s/ Robert R. Bennett
-------------------------------------
Name: Robert R. Bennett
Title: President and Chief Executive
Officer
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EXHIBIT 10.61
[EXECUTION COPY]
===============================================================================
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
USA NETWORKS, INC.,
BRICK ACQUISITION CORP.
AND
TICKETMASTER GROUP, INC.
AS OF MARCH 20, 1998
===============================================================================
2
TABLE OF CONTENTS
PAGE
----
ARTICLE 1 THE MERGER....................................................................... 2
Section 1.1. The Merger ................................................................. 2
Section 1.2. Effective Time of the Merger ............................................... 2
Section 1.3. Closing .................................................................... 2
Section 1.4. Effects of the Merger ...................................................... 2
Section 1.5. Certificate of Incorporation and Bylaws of Surviving Corporation ........... 2
ARTICLE 2 EFFECT OF THE MERGER ON THE CAPITAL STOCK OF
THE CONSTITUENT CORPORATIONS; EXCHANGE OF
CERTIFICATES..................................................................... 3
Section 2.1. Effect of Merger on Capital Stock........................................... 3
(a) Capital Stock of Sub.................................................... 3
(b) Treatment of Certain Shares of Company Common Stock..................... 3
(c) Exchange Ratio for Company Common
Stock................................................................. 3
(d) Adjustment of Exchange Ratio for Dilution and Other
Matters.............. ................................................ 3
Section 2.2. Exchange of Certificates.................................................... 4
(a) Exchange Agent.......................................................... 4
(b) Exchange Procedures..................................................... 4
(c) Distributions with Respect to Unsurrendered
Certificates.......................................................... 5
(d) No Further Ownership Rights in Company Common
Stock................................................................. 5
(e) No Issuance of Fractional Shares........................................ 5
(f) Termination of Exchange Fund............................................ 6
(g) No Liability............................................................ 7
(h) Lost, Stolen or Destroyed Certificates.................................. 7
Section 2.3. Stock Options............................................................... 7
Section 2.4. Taking of Necessary Action; Further Action.................................. 7
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE
COMPANY........................................... .............................. 8
Section 3.1. Organization and Qualification; Subsidiaries................................ 8
Section 3.2. Certificate of Incorporation and Bylaws..................................... 9
Section 3.3. Capitalization.............................................................. 9
Section 3.4. Authority Relative to this Agreement; Board Approval........................ 10
Section 3.5. No Conflict; Required Filings and Consents.................................. 10
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PAGE
----
Section 3.6. Compliance; Permits......................................................... 11
Section 3.7. SEC Filings; Financial Statements........................................... 12
Section 3.8. Absence of Certain Changes or Events........................................ 13
Section 3.9. Absence of Litigation....................................................... 13
Section 3.10. Registration Statement; Proxy Statement..................................... 13
Section 3.11. Brokers..................................................................... 14
Section 3.12. Opinion of Financial Advisor................................................ 14
Section 3.13. Employee Benefit Plans...................................................... 14
Section 3.14. Tax Matters................................................................. 15
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF PARENT AND
SUB........................................ ...................................... 15
Section 4.1. Organization and Qualification; Subsidiaries................................ 15
Section 4.2. Certificate of Incorporation and Bylaws..................................... 16
Section 4.3. Capitalization.............................................................. 16
Section 4.4. Authority Relative to this Agreement; Board Approval........................ 17
Section 4.5. No Conflict; Required Filings and Consents.................................. 18
Section 4.6. Compliance; Permits......................................................... 18
Section 4.7. SEC Filings; Financial Statements........................................... 19
Section 4.8. Absence of Certain Changes or Events........................................ 20
Section 4.9. Absence of Litigation....................................................... 20
Section 4.10. Registration Statement; Proxy Statement..................................... 20
Section 4.11. Brokers..................................................................... 21
Section 4.12. Opinion of Financial Advisor................................................ 21
Section 4.13. Interim Operations of Sub................................................... 21
Section 4.14. Employee Benefit Plans...................................................... 21
Section 4.15. Tax Matters................................................................. 22
ARTICLE 5 CONDUCT AND TRANSACTIONS PRIOR TO EFFECTIVE TIME; ADDITIONAL
AGREEMENTS................. ...................................................... 22
Section 5.1. Information and Access...................................................... 22
Section 5.2. Conduct of Business of the Company.......................................... 22
Section 5.3. Conduct of Business of Parent............................................... 25
Section 5.4. Preparation of S-4 and Proxy Statement; Other Filings....................... 26
Section 5.5. Letter of Independent Auditors.............................................. 26
Section 5.6. Shareholders Meeting........................................................ 27
Section 5.7. Agreements to Take Reasonable Action........................................ 27
Section 5.8. Consents.................................................................... 28
Section 5.9. NASDAQ Quotation............................................................ 28
Section 5.10. Affiliates.................................................................. 28
Section 5.11. Indemnification and Insurance............................................... 28
Section 5.12. Notification of Certain Matters............................................. 28
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PAGE
----
Section 5.13. Employee Agreements......................................................... 29
Section 5.14. Reorganization.............................................................. 29
ARTICLE 6 CONDITIONS
PRECEDENT......................................................................... 29
Section 6.1. Conditions to Each Party's Obligation to Effect the Merger.................. 29
(a) Shareholder Approval ................................................... 29
(b) Effectiveness of the S-4 ............................................... 29
(c) Governmental Entity Approvals .......................................... 29
(d) No Injunctions or Restraints; Illegality ............................... 29
(e) NASDAQ Quotation ....................................................... 30
Section 6.2. Conditions of Obligations of Parent and Sub................................. 30
(a) Representations and Warranties.......................................... 30
(b) Performance of Obligations of the Company............................... 30
(c) Consents................................................................ 30
(d) Tax Opinion............................................................. 30
Section 6.3. Conditions of Obligations of the Company.................................... 31
(a) Representations and Warranties ......................................... 31
(b) Performance of Obligations of Parent and Sub............................ 31
(c) Consents ............................................................... 31
(d) Tax Opinion ............................................................ 31
(e) Officer of Parent ...................................................... 31
ARTICLE 7 TERMINATION....................................................................... 32
Section 7.1. Termination................................................................. 32
Section 7.2. Effect of Termination....................................................... 33
Section 7.3. Fees and Expenses........................................................... 33
ARTICLE 8 GENERAL PROVISIONS................................................................ 33
Section 8.1. Amendment................................................................... 33
Section 8.2. Extension; Waiver........................................................... 33
Section 8.3. Nonsurvival of Representations, Warranties and
Agreements...................... ........................................ 34
Section 8.4. Entire Agreement............................................................ 34
Section 8.5. Severability................................................................ 34
Section 8.6. Notices..................................................................... 34
Section 8.7. Headings.................................................................... 35
Section 8.8. Counterparts................................................................ 35
Section 8.9. Benefits; Assignment........................................................ 36
Section 8.10. Governing Law............................................................... 36
EXHIBIT A Form of Company Affiliate Letter
-iii-
5
INDEX OF DEFINED TERMS
Term Section
---- -------
"Agreement"............................................................................. Preamble
"Approvals"............................................................................. Section 3.1
"Approved Matter"....................................................................... Section 3.1
"Blue Sky Laws"......................................................................... Section 4.5(b)
"Business Day".......................................................................... Section 1.3
"Certificates".......................................................................... Section 2.2(b)
"Closing"............................................................................... Section 1.3
"Closing Date".......................................................................... Section 1.3
"Code".................................................................................. Recitals
"Common Shares Trust"................................................................... Section 2.2(e)(iii)
"Commonly Controlled Entity"............................................................ Section 3.13(a)
"Company"............................................................................... Preamble
"Company Banker"........................................................................ Section 3.11
"Company Benefit Plans"................................................................. Section 3.13(a)
"Company Common Stock".................................................................. Recitals
"Company Disclosure Letter"............................................................. Section 3.3
"Company Option"........................................................................ Section 2.3
"Company Permits"....................................................................... Section 3.6(b)
"Company SEC Reports"................................................................... Section 3.7(a)
"Confidentiality Agreement"............................................................. Section 5.1
"Constituent Corporations".............................................................. Section 1.1
"Cooperation Agreement" ................................................................ Recitals
"Effective Time"........................................................................ Section 1.2
"ERISA"................................................................................. Section 3.13(a)
"ERISA Plan"............................................................................ Section 3.13(a)
"Excess Shares"......................................................................... Section 2.2(e)(ii)
"Exchange Act".......................................................................... Section 3.5(b)
"Exchange Agent"........................................................................ Section 2.2(a)
"Exchange Fund"......................................................................... Section 2.2(a)
"Exchange Ratio"........................................................................ Section 2.1(c)
"GAAP".................................................................................. Section 3.7(b)
"Governmental Entity"................................................................... Section 3.5(b)
"Illinois Articles of Merger"........................................................... Section 1.2
"Illinois Certificate of Merger"........................................................ Section 1.2
"Illinois Statute"...................................................................... Recitals
"Investment Agreement".................................................................. Section 5.3
"Liberty"............................................................................... Section 5.3
"Material Adverse Effect"............................................................... Section 3.1, 4.1
"Merger"................................................................................ Recitals
"Multiemployer Plan".................................................................... Section 3.13(a)
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"NASD".................................................................................. Section 2.2(e)(iii)
"Ordinary Venue Contracts".............................................................. Section 5.2
"Other Filings"......................................................................... Section 5.4
"Parent"................................................................................ Preamble
"Parent Banker"......................................................................... Section 4.11
"Parent Benefit Plans".................................................................. Section 4.14(a)
"Parent Class B Common Stock"........................................................... Section 4.3
"Parent Common Shares".................................................................. Section 4.3
"Parent Common Stock"................................................................... Section 2.1(c)
"Parent Disclosure Letter".............................................................. Section 4.3
"Parent ERISA Plan"..................................................................... Section 4.14(a)
"Parent Permits"........................................................................ Section 4.6(b)
"Parent Preferred Stock"................................................................ Section 4.3
"Parent Proxy Statement"................................................................ Section 4.3
"Parent SEC Reports".................................................................... Section 4.7(a)
"Proxy Statement"....................................................................... Section 3.5(b)
"Rosen Option".......................................................................... Section 2.3
"S-4"................................................................................... Section 3.10
"SEC"................................................................................... Section 3.1
"Securities Act"........................................................................ Section 3.7(a)
"Shareholders Meeting".................................................................. Section 3.10
"Special Committee"..................................................................... Recitals
"Stock Plan"............................................................................ Section 2.3
"Sub"................................................................................... Preamble
"Sub Common Stock"...................................................................... Section 2.1(a)
"subsidiary"............................................................................ Section 3.1
"Surviving Corporation"................................................................. Section 1.1
"Surviving Corporation Common Stock".................................................... Section 2.1(a)
"Transactions".......................................................................... Recitals
"Universal"............................................................................. Section 5.3
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7
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is dated
as of March 20, 1998, by and among USA NETWORKS, INC., a Delaware corporation
("Parent"), BRICK ACQUISITION CORP., an Illinois corporation and a wholly owned
subsidiary of Parent ("Sub"), and TICKETMASTER GROUP, INC., an Illinois
corporation (the "Company").
RECITALS:
A. The Boards of Directors of Parent, Sub and the Company have
each 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, pursuant to the terms and subject to the conditions of
this Agreement and the Business Corporation Act of the State of Illinois (the
"Illinois Statute"), and each deems the Merger advisable and in the best
interests of each corporation. A Special Committee of the Board of Directors of
the Company (the "Special Committee") has determined that the Merger is fair to,
and in the best interests of, the holders of shares of common stock, no par
value, of the Company ("Company Common Stock"), other than Parent and its
subsidiaries, and has recommended to the Board of Directors of the Company that
it approve the terms and conditions of the Merger, including this Agreement. The
Disinterested Directors (as defined in Section 5/7.85 of the Illinois Statute)
of the Company have approved the terms and conditions of the Merger.
B. Each of Parent, Sub and the Company desires to make certain
representations, warranties, covenants and agreements in connection with the
Merger.
C. For federal income tax purposes, it is intended that the Merger
and the transactions contemplated thereby qualify as a reorganization under the
provisions of Section 368(a) of the United States Internal Revenue Code of 1986,
as amended (the "Code").
D. It was a condition, which condition was satisfied, to the
willingness of Parent and Sub to enter into this Agreement and to consummate the
transactions contemplated hereby (the "Transactions"), including the acquisition
of the stock of the Company in the Merger from the Company's shareholders,
including the Chief Executive Officer, that the Chief Executive Officer of the
Company entered into that certain agreement with Parent, dated March 9, 1998
(the "Cooperation Agreement"), pursuant to which, among other things, such
individual agreed not to compete with, or to solicit customers of, the Company
from and after the expiration of his current employment agreement with the
Company and to cooperate with the Company and Parent to provide for an orderly
transition to a new Chief Executive Officer of the Company.
NOW, THEREFORE, in consideration of the premises and mutual
covenants and agreements contained in this Agreement, the parties agree as
follows:
8
ARTICLE 1
THE MERGER
SECTION 1.1 THE MERGER. Upon the terms and subject to the
conditions of this Agreement and in accordance with the Illinois Statute, at the
Effective Time, Parent shall cause Sub to be merged with and into the Company.
Following the Merger, the Company shall continue as the surviving corporation
(the "Surviving Corporation") and the separate corporate existence of Sub shall
cease. Sub and the Company are collectively referred to as the "Constituent
Corporations."
SECTION 1.2. EFFECTIVE TIME OF THE MERGER. Subject to the
provisions of this Agreement, the Merger shall become effective (the "Effective
Time") upon the filing of properly executed articles of merger (the "Illinois
Articles of Merger") with, and the issuance of a certificate of merger (the
"Illinois Certificate of Merger") by, the Secretary of State of the State of
Illinois in accordance with the Illinois Statute. The Effective Time shall be
the time of the Closing as set forth in Section 1.3.
SECTION 1.3. CLOSING. Unless this Agreement shall have been
terminated pursuant to Section 7.1, the closing of the Merger (the "Closing")
will take place at 10:00 a.m. on a date (the "Closing Date") to be mutually
agreed upon by the parties, which date shall be no later than the third Business
Day after satisfaction of the latest to occur of the conditions set forth in
Sections 6.1 (other than Section 6.1(d)), 6.2(b) (other than the delivery of the
officers' certificate referred to therein), 6.2(c), 6.3(b) (other than the
delivery of the officers' certificate referred to therein), and 6.3(c), unless
another date is agreed to in writing by the parties. The Closing shall take
place at the offices of Wachtell, Lipton, Rosen & Katz, 51 West 52nd Street, New
York, New York 10019, unless another place is agreed to in writing by the
parties. As used in this Agreement, "Business Day" shall mean any day, other
than a Saturday, Sunday or legal holiday on which banks are permitted to close
in the City and State of New York, the State of Delaware or the State of
Illinois.
SECTION 1.4. EFFECTS OF THE MERGER. At the Effective Time: (a) the
separate existence of Sub shall cease and Sub shall be merged with and into the
Company, with the result that the Company shall be the Surviving Corporation,
and (b) the Merger shall have all of the effects provided by the Illinois
Statute.
SECTION 1.5. CERTIFICATE OF INCORPORATION AND BYLAWS OF SURVIVING
CORPORATION. At the Effective Time, (a) the certificate of incorporation of Sub
shall be the certificate of incorporation of the Surviving Corporation until
altered, amended or repealed as provided in the Illinois Statute; (b) the bylaws
of Sub shall become the bylaws of the Surviving Corporation until altered,
amended or repealed as provided in the Illinois Statute or in the certificate of
incorporation or bylaws of the Surviving Corporation; (c) the directors of Sub
shall become the initial directors of the Surviving Corporation, such directors
to hold office from the Effective Time until their respective successors are
duly elected or appointed as provided in the certificate of incorporation and
bylaws of the Surviving Corporation; and (d) the officers of the Company
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shall continue as the officers of the Surviving Corporation until such time as
their respective successors are duly elected as provided in the bylaws of the
Surviving Corporation.
ARTICLE 2
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
SECTION 2.1 EFFECT OF MERGER ON CAPITAL STOCK. At the Effective
Time, subject and pursuant to the terms of this Agreement, by virtue of the
Merger and without any action on the part of the Constituent Corporations or the
holders of any shares of capital stock of the Constituent Corporations:
(a) Capital Stock of Sub. Each issued and outstanding share of the
common stock, $.01 par value per share, of Sub ("Sub Common Stock") shall
be converted into one validly issued, fully paid and nonassessable share
of common stock, $.01 par value per share, of the Surviving Corporation
("Surviving Corporation Common Stock"). Each stock certificate of Sub
evidencing ownership of any such shares shall continue to evidence
ownership of such shares of Surviving Corporation Common Stock.
(b) Treatment of Certain Shares of Company Common Stock. Each
share of Company Common Stock that is owned by the Company as treasury
stock and each share of Company Common Stock that is owned by Parent, Sub
or any other wholly owned subsidiary of Parent shall not be cancelled and
retired and shall be treated as provided in Section 2.1(c).
(c) Exchange Ratio for Company Common Stock. Each share of
Company Common Stock issued and outstanding immediately prior to the
Effective Time (other than shares of Company Common Stock held by
shareholders who properly demand dissenters' rights in accordance with
Section 5/11.70 of the Illinois Statute), shall, subject to Section
2.1(d), be converted into the right to receive 1.126 of a fully paid and
nonassessable share of common stock, $.01 par value per share, of Parent
("Parent Common Stock") (the "Exchange Ratio"). At the Effective Time,
all such shares of Company Common Stock shall no longer be outstanding,
and shall automatically be cancelled and retired and cease to exist, and
each holder of a certificate representing any such shares shall cease to
have any rights with respect thereto, except the right to receive the
shares of Parent Common Stock to be issued in consideration therefor upon
the surrender of such certificate in accordance with Section 2.2, without
interest. No fractional shares of Parent Common Stock shall be issued;
and, in lieu thereof, a cash payment shall be made pursuant to Section
2.2(e).
(d) Adjustment of Exchange Ratio for Dilution and Other Matters.
If, between the date of this Agreement and the Effective Time, the
outstanding shares of Parent Common Stock shall have been changed into a
different number of shares or a different class by reason of any
reclassification, recapitalization, split-up, stock dividend, stock
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combination, exchange of shares, readjustment or otherwise, then the
Exchange Ratio, as the case may be, shall be correspondingly adjusted.
Without otherwise limiting the foregoing, the Exchange Ratio of 1.126 set
forth in paragraph (c) above gives effect to the two-for-one stock split
declared by the Company on February 20, 1998, with respect to the Parent
Common Shares (as defined in Section 4.3).
SECTION 2.2. EXCHANGE OF CERTIFICATES.
(a) Exchange Agent. Prior to the Closing Date, Parent shall select
a bank or trust company reasonably acceptable to the Company to act as exchange
agent (the "Exchange Agent") in the Merger. Prior to the Effective Time, Parent
shall deposit with the Exchange Agent, for the benefit of the holders of shares
of Company Common Stock, for exchange in accordance with this Article 2,
certificates representing the shares of Parent Common Stock (such shares of
Parent Common Stock, together with any dividends or distributions with respect
thereto, the "Exchange Fund") issuable pursuant to Section 2.1(c) at the
Effective Time in exchange for outstanding shares of Company Common Stock, which
shall include such shares of Parent Common Stock to be sold by the Exchange
Agent pursuant to Section 2.2(e).
(b) Exchange Procedures. As soon as practicable after the
Effective Time, Parent shall instruct the Exchange Agent to mail to each holder
of record (other than the Company, Parent, Sub and any wholly owned subsidiary
of the Company) of a certificate or certificates which immediately prior to the
Effective Time represented issued and outstanding shares of Company Common Stock
(collectively, the "Certificates") whose shares were converted into the right to
receive Parent Common Stock pursuant to Section 2.1(c), (i) a letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent and shall be in such form and have such other
provisions as Parent and the Company may reasonably specify) and (ii)
instructions for use in effecting the surrender of the Certificates in exchange
for certificates representing Parent Common Stock and any cash in lieu of
fractional shares of Parent Common Stock. Upon surrender of a Certificate for
cancellation to the Exchange Agent, together with a duly executed letter of
transmittal and such other documents as may be reasonably required by the
Exchange Agent, the holder of such Certificate shall be entitled to receive in
exchange therefor a certificate representing that number of whole shares of
Parent Common Stock which such holder has the right to receive pursuant to the
provisions of this Article 2 and any cash in lieu of fractional shares of Parent
Common Stock, and the Certificate so surrendered shall forthwith be cancelled.
In the event of a transfer of ownership of shares of Company Common Stock which
is not registered on the transfer records of the Company, a certificate
representing the proper number of shares of Parent Common Stock and any cash in
lieu of fractional shares of Parent Common Stock may be issued and paid to a
transferee if the Certificate representing such Company Common Stock is
presented to the Exchange Agent, accompanied by all documents required to
evidence and effect such transfer and by evidence that any applicable stock
transfer taxes have been paid. Until surrendered as contemplated by this Section
2.2, each Certificate shall be deemed, on and after the Effective Time, to
represent only the right to receive upon such surrender the certificate
representing shares of Parent Common Stock and cash in lieu of any fractional
shares of Parent Common Stock as contemplated by this Article 2 and the Illinois
-4-
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Statute. The consideration to be issued in the Merger will be delivered by the
Exchange Agent as promptly as practicable following surrender of a Certificate
and any other required documents. No interest will be payable on such
consideration regardless of any delay in making payments.
(c) Distributions with Respect to Unsurrendered Certificates. No
dividends or other distributions declared or made after the Effective Time with
respect to Parent Common Stock with a record date after the Effective Time shall
be paid to the holder of any unsurrendered Certificate with respect to the
shares of Parent Common Stock represented thereby, and no cash payment in lieu
of fractional shares shall be paid to any such holder pursuant to Section 2.2(e)
until the holder of record of such Certificate shall surrender such Certificate.
Subject to the effect, if any, of applicable laws, following surrender of any
such Certificate, there shall be paid to the record holder of the certificates
representing whole shares of Parent Common Stock issued in exchange therefor or
such holder's transferee pursuant to Section 2.2(e), without interest, (i) at
the time of such surrender, the amount of any cash payable in lieu of a
fractional share of Parent Common Stock to which such holder is entitled
pursuant to Section 2.2(e) and the amount of dividends or other distributions on
Parent Common Stock with a record date after the Effective Time theretofore paid
with respect to such whole shares of Parent Common Stock, and (ii) at the
appropriate payment date, the amount of dividends or other distributions on
Parent Common Stock with a record date after the Effective Time but prior to
surrender and a payment date subsequent to surrender payable with respect to
such whole shares of Parent Common Stock.
(d) No Further Ownership Rights in Company Common Stock. All
shares of Parent Common Stock issued upon the surrender for exchange of shares
of Company Common Stock in accordance with the terms of this Article 2 (plus any
cash paid pursuant to Section 2.2(c) or 2.2(e)) shall be deemed to have been
issued (and paid) in full satisfaction of all rights pertaining to such shares
of Company Common Stock. From and after the Effective Time, the stock transfer
books of the Company shall be closed with respect to the shares of Company
Common Stock, and there shall be no further registration of transfers on the
stock transfer books of the Company or the Surviving Corporation of the shares
of Company Common Stock which were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Certificates are presented to the
Surviving Corporation for any reason, they shall be cancelled and exchanged as
provided in this Article 2.
(e) No Issuance of Fractional Shares.
(i) No certificates or scrip for fractional shares of Parent
Common Stock shall be issued upon the surrender for exchange of
Certificates, and such fractional share interests will not entitle the
owner thereof to vote or to any rights of a shareholder of Parent.
(ii) As promptly as practicable following the Effective Time,
the Exchange Agent shall determine the excess of (A) the number of full
shares of Parent Common Stock delivered to the Exchange Agent by Parent
pursuant to Section 2.2(a) over (B) the aggregate number of full shares
of Parent Common Stock to be distributed to holders
-5-
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of Company Common Stock pursuant to Section 2.2(b) (such excess, the
"Excess Shares"). As soon after the Effective Time as practicable, the
Exchange Agent, as agent for the holders of Company Common Stock, shall
sell the Excess Shares at then prevailing prices in the
over-the-counter market, all in the manner provided in clause (iii) of
this Section 2.2(e).
(iii) The sale of the Excess Shares by the Exchange Agent
shall be executed in the over-the-counter market through one or more
member firms of the National Association of Securities Dealers, Inc.
(the "NASD") and shall be executed in round lots to the extent
practicable. Until the net proceeds of such sale or sales have been
distributed to the holders of Company Common Stock, the Exchange Agent
will hold such proceeds in trust for the holders of Company Common
Stock (the "Common Shares Trust"). Parent shall pay all commissions,
transfer taxes and other out-of-pocket transaction costs, including the
expenses and compensation of the Exchange Agent incurred in connection
with such sale of the Excess Shares. The Exchange Agent shall determine
the portion of the Common Shares Trust to which each holder of Company
Common Stock shall be entitled, if any, by multiplying the amount of
the aggregate net proceeds comprising the Common Shares Trust by a
fraction, the numerator of which is the amount of the fractional share
interest to which such holder of Company Common Stock is entitled and
the denominator of which is the aggregate amount of fractional share
interests to which all holders of Company Common Stock are entitled.
(iv) As soon as practicable after the determination of the
amount of cash, if any, to be paid to the holders of Company Common
Stock in lieu of any fractional share interests and subject to clause
(v) of this Section 2.2(e), the Exchange Agent shall make available
such amounts to such holders of Company Common Stock.
(v) Parent or the Exchange Agent shall be entitled to deduct
and withhold from the consideration otherwise payable pursuant to this
Agreement to any holder of shares of Company Common Stock such amounts
as Parent or the Exchange Agent is required to deduct and withhold with
respect to the making of such payment under the Code, or any provision
of state, local or foreign tax law. To the extent that amounts are so
withheld by Parent or the Exchange Agent, such withheld amounts shall
be treated for all purposes of this Agreement as having been paid to
the holder of the shares of Company Common Stock in respect of which
such deduction and withholding was made by Parent or the Exchange
Agent.
(f) Termination of Exchange Fund. Any portion of the Exchange Fund
and Common Shares Trust which remains undistributed to the shareholders of the
Company for 12 months after the Effective Time shall be delivered to Parent,
upon demand, and any former shareholders of the Company who have not theretofore
complied with this Article 2 shall thereafter look only to Parent for payment of
their claim for Parent Common Stock, any cash in lieu of fractional shares of
Parent Common Stock and any dividends or distributions with respect to Parent
Common Stock.
-6-
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(g) No Liability. Neither the Exchange Agent, Parent, Sub nor the
Company shall be liable to any holder of shares of Company Common Stock or
Parent Common Stock, as the case may be, for shares (or dividends or
distributions with respect thereto) from the Exchange Fund or cash from the
Common Shares Trust delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
(h) Lost, Stolen or Destroyed Certificates. In the event any
Certificates evidencing shares of Company Common Stock shall have been lost,
stolen or destroyed, the holder of such lost, stolen or destroyed Certificate(s)
shall execute an affidavit of that fact upon request. The holder of any such
lost, stolen or destroyed Certificate(s) shall also deliver a reasonable
indemnity against any claim that may be made against Parent or the Exchange
Agent with respect to the Certificate(s) alleged to have been lost, stolen or
destroyed. The affidavit and any indemnity which may be required hereunder shall
be delivered to the Exchange Agent, who shall be responsible for making payment
for such lost, stolen or destroyed Certificate(s).
SECTION 2.3. STOCK OPTIONS. At the Effective Time, the Company's
obligation with respect to each outstanding option (each, a "Company Option") to
purchase shares of Company Common Stock issued pursuant to the Company's Stock
Plan (the "Stock Plan") and (unless otherwise elected by the optionee pursuant
to the terms of an individual agreement) pursuant to the Stock Option Agreement,
dated as of December 15, 1993, between the Company and Fredric D. Rosen (the
"Rosen Option"), as amended in the manner described in the following sentence,
shall be assumed by Parent. The Company Options so assumed by Parent shall
continue to have, and be subject to, the same terms and conditions as set forth
in the Stock Plan and the Rosen Option and the agreements pursuant to which such
Company Options were issued as in effect immediately prior to the Effective
Time, which plan, agreements and Rosen Option shall be assumed by Parent, except
that (in accordance with the applicable provisions of such plan and Rosen Option
and subject to any other rights that a holder of Company Options may have) (a)
each such Company Option shall be exercisable for that number of whole shares of
Parent Common Stock equal to the product of that number of shares of Company
Common Stock covered by such Company Option immediately prior to the Effective
Time multiplied by the Exchange Ratio and rounded up to the nearest whole number
of shares of Parent Common Stock, and (b) the exercise price per share of Parent
Common Stock shall equal the exercise price per share of Company Common Stock in
effect immediately prior to the Effective Time divided by the Exchange Ratio.
The adjustment provided herein with respect to any Company Options which are
"Incentive Stock Options" (as defined in Section 422 of the Code) shall be and
is intended to be effected in a manner which is consistent with Section 424(a)
of the Code. Parent shall reserve for issuance the number of shares of Parent
Common Stock that will become issuable upon the exercise of such Company Options
pursuant to this Section 2.3.
SECTION 2.4. TAKING OF NECESSARY ACTION; FURTHER ACTION. If, at any
time after the Effective Time, any such further action is necessary or desirable
to carry out the purposes of this Agreement or to vest, perfect or confirm of
record or otherwise establish in the Surviving Corporation full right, title and
interest in, to or under any of the assets, property, rights, privileges, powers
and franchises of the Company and Sub, the officers and directors of the
-7-
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Surviving Corporation are fully authorized in the name and on behalf of each of
the Constituent Corporations or otherwise to take all such lawful and necessary
or desirable action.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Sub as
follows:
ORGANIZATION AND QUALIFICATION; SUBSIDIARIES. Each of the Company and
its "Significant Subsidiaries" (as such term is defined in Regulation S-X
promulgated by the Securities and Exchange Commission (the "SEC")) is a
corporation or other entity duly incorporated or organized, validly existing
and, as applicable, in good standing under the laws of the jurisdiction of its
incorporation or organization and has the requisite corporate or other power and
authority to own, lease and operate its assets and properties and to carry on
its business as it is now being conducted. Each of the Company and its
subsidiaries is in possession of all franchises, grants, authorizations,
licenses, permits, easements, consents, certificates, approvals and orders
("Approvals") necessary to own, lease and operate the properties it purports to
own, operate or lease and to carry on its business as it is now being conducted,
except where the failure to have such Approvals would not, individually or in
the aggregate, have a Material Adverse Effect (as defined below). Each of the
Company and its subsidiaries is, as applicable, duly qualified or licensed as a
foreign corporation to do business, and is in good standing, in each
jurisdiction where the character of the properties owned, leased or operated by
it or the nature of its business makes such qualification or licensing
necessary, except for such failures to be so duly qualified or licensed and in
good standing that would not, either individually or in the aggregate, have a
Material Adverse Effect. When used in this Article 3 or elsewhere in this
Agreement in connection with the Company or any of its subsidiaries, the term
"Material Adverse Effect" means any change, event or effect that is materially
adverse to the business, financial condition or results of operations of the
Company and its subsidiaries taken as a whole, excluding (i) any changes or
effects resulting from any matter, which matter was expressly approved by the
Board of Directors of the Company following the date hereof unless, with respect
to such matter, both directors of the Company who are also executive officers of
Parent either voted against or abstained from voting (such matter and related
contemplated transactions, an "Approved Matter") and (ii) changes in general
economic conditions in the economy as a whole. Other than wholly owned
subsidiaries and except as disclosed in the Company SEC Reports or Section 3.1
of the Company Disclosure Letter, the Company does not directly or indirectly
own any equity or similar interest in, or any interest convertible or
exchangeable or exercisable for any equity or similar interest in, any
corporation, partnership, limited liability company, joint venture or other
business, association or entity. As used in this Agreement, "subsidiary" with
respect to any person shall mean any entity which such person has the ability to
control the voting power thereof, either through ownership of equity interests
or otherwise, provided that under no circumstances shall the Company and its
subsidiaries be deemed to be subsidiaries of Parent.
-8-
15
SECTION 3.2. CERTIFICATE OF INCORPORATION AND BYLAWS. The Company has
previously furnished or made available to Parent a complete and correct copy of
its Articles of Incorporation and Bylaws as amended to date. Such Articles of
Incorporation and bylaws are in full force and effect. Neither the Company nor
any of its Significant Subsidiaries is in violation of any of the provisions of
its certificate of incorporation or bylaws or equivalent organizational
documents.
SECTION 3.3. CAPITALIZATION. The authorized capital stock of the
Company consists of 80,000,000 shares of Company Common Stock and 20,000,000
shares of Company Preferred Stock. At the close of business on March 9, 1998,
(a) 26,176,265 shares of Company Common Stock were issued and outstanding, all
of which are validly issued, fully paid and nonassessable, and not subject to
preemptive rights, (b) of the amount referred to in clause (a) above, no shares
of Company Common Stock were held in treasury by the Company or by wholly owned
subsidiaries of the Company, (c) options to purchase 2,658,086 and 1,331,340
shares of Company Common Stock were outstanding under the Stock Plan and the
Rosen Option, and (d) 237,346 shares of Company Common Stock were reserved for
issuance to the former owners of the Company's Canadian subsidiary. As of the
date hereof, no shares of Company Preferred Stock were issued or outstanding. No
change in such capitalization has occurred between March 9, 1998 and the date
hereof, except (i) the issuance of shares of Company Common Stock pursuant to
the exercise of outstanding options and (ii) as contemplated by this Agreement.
Except as set forth in this Section 3.3 or as disclosed in Section 3.3 of the
disclosure letter delivered by the Company to Parent (the "Company Disclosure
Letter"), as of the date of this Agreement, there are no options, warrants or
other rights, agreements, or commitments, in each case to which the Company or
any of its subsidiaries is a party, of any character relating to the issued or
unissued capital stock of the Company or any of its subsidiaries or obligating
the Company or any of its subsidiaries to issue or sell any shares of capital
stock of, or other equity interests in, the Company or any of its subsidiaries.
All shares of Company Common Stock subject to issuance as aforesaid, upon
issuance on the terms and conditions specified in the instruments pursuant to
which they are issuable, shall be duly authorized, validly issued, fully paid
and nonassessable and not subject to preemptive rights. Except as set forth in
Section 3.3 of the Company Disclosure Letter, there are no obligations,
contingent or otherwise, of the Company or any of its subsidiaries to
repurchase, redeem or otherwise acquire any shares of Company Common Stock or
the capital stock of any subsidiary or to provide funds to or make any material
investment (in the form of a loan, capital contribution or otherwise) in any
such subsidiary or any other entity other than guarantees of obligations of
subsidiaries entered into in the ordinary course of business. All of the
outstanding equity interests of each of the Company's subsidiaries are duly
authorized, validly issued, and, where applicable, fully paid and nonassessable,
and, except as set forth in Section 3.3 of the Company Disclosure Letter or (in
the case of subsidiaries of the Company only) for such matters as would not,
individually or in the aggregate, have a Material Adverse Effect, all such
shares are owned by the Company or another subsidiary free and clear of all
security interests, liens, claims, pledges, agreements, limitations in the
Company's voting rights, charges or other encumbrances of any nature whatsoever.
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SECTION 3.4. AUTHORITY RELATIVE TO THIS AGREEMENT; BOARD APPROVAL.
(a) The Company has all necessary corporate power and authority to
execute and deliver this Agreement and to perform its obligations hereunder and,
subject to obtaining the approval of the shareholders of the Company of this
Agreement, to consummate the Transactions. The execution and delivery of this
Agreement by the Company and the consummation by the Company of the Transactions
have been duly and validly authorized by all necessary corporate action on the
part of the Company and no other corporate proceedings on the part of the
Company are necessary to authorize this Agreement or to consummate the
Transactions so contemplated (other than, with respect to the Merger, the
approval and adoption of this Agreement by the vote of shareholders of the
Company owning at least a majority of the outstanding shares of Company Common
Stock in accordance with the Illinois Statute and the Company's Articles of
Incorporation and Bylaws, which vote is the only vote required to consummate the
Transactions under the Company's Articles of Incorporation and the Illinois
Statute). This Agreement has been duly and validly executed and delivered by the
Company and, assuming the due authorization, execution and delivery by Parent
and Sub, constitutes the legal and binding obligation of the Company,
enforceable against the Company in accordance with its terms, subject to (i)
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting or relating to creditors rights generally and (ii) the availability of
injunctive relief and other equitable remedies. The Company has taken all
appropriate actions so that the restrictions on business combinations contained
in Section 5/11.75 of the Illinois Statute will not apply to Parent or Sub and
their respective affiliates and associates with respect to or as a result of
this Agreement or the Transactions.
(b) The Board of Directors of the Company based on the recommendation
of the Special Committee (which recommendation was a condition to the approval
of the Company's Board of Directors set forth in clause (i) of this sentence)
has, prior to this Agreement, (i) approved this Agreement and the Transactions
(including for purposes of the Illinois Statute), (ii) determined that the
Transactions are fair to and in the best interests of the shareholders of the
Company and (iii) recommended that the shareholders of the Company approve this
Agreement and the Transactions. This Agreement and the Transactions have been
approved by the vote of at least two-thirds of the Disinterested Directors (as
defined in Section 5/7.85 of the Illinois Statute), and no vote of Company
shareholders pursuant to Section 5/7.85 of the Illinois Statute is required in
connection with the Transactions.
SECTION 3.5. NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement by the Company do not, and the
performance of its obligations hereunder and the consummation of the
Transactions by the Company will not, (i) conflict with or violate the
certificate of incorporation, bylaws or equivalent organizational documents of
the Company or any of its subsidiaries; (ii) subject to obtaining the approval
of the Company's shareholders of this Agreement in accordance with the Illinois
Statute and the Company's Articles of Incorporation and Bylaws and compliance
with the requirements set forth in Section 3.5(b), conflict with or violate any
law, rule, regulation, order, judgment or decree applicable to the Company or
any of its subsidiaries or by which any of their
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respective properties is bound or affected; or (iii) except as set forth in
Section 3.5 of the Company Disclosure Letter, result in any breach of or
constitute a default (or an event that with notice or lapse of time or both
would become a default) under, or alter the rights or obligations of any third
party or the Company or its subsidiaries under, or give to others any rights of
termination, amendment, acceleration, increased payments or cancellation of, or
result in the creation of a lien or other encumbrance on any of the properties
or assets of the Company or any of its subsidiaries pursuant to, any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which the Company or any of its subsidiaries
is a party or by which the Company or any of its subsidiaries or any of their
respective properties are bound or affected, except, in the case of clauses (ii)
and (iii) above, for any such conflicts, violations, breaches, defaults or other
alterations or occurrences that would not prevent or delay consummation of the
Merger in any material respect, or otherwise prevent the Company from performing
its obligations under this Agreement in any material respect, and would not
have, individually or in the aggregate, a Material Adverse Effect. Section 3.5
of the Company Disclosure Letter lists all material consents, waivers and
approvals under any agreements, contracts, licenses or leases required to be
obtained by the Company or its subsidiaries in connection with the consummation
of the Transactions.
(b) The execution and delivery of this Agreement by the Company do
not, and the performance of its obligations hereunder and the consummation of
the Transactions by the Company will not, require any consent, approval,
authorization or permit of, or registration or filing with or notification to,
any court, administrative agency, commission, governmental or regulatory
authority, domestic or foreign (a "Governmental Entity"), except (i) the filing
of documents to satisfy the applicable requirements, if any, of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and state takeover laws,
(ii) the filing with the SEC of a proxy statement and prospectus in definitive
form relating to the Shareholders Meeting (the "Proxy Statement"), (iii) the
filing of the Illinois Articles of Merger with, and the issuance of the Illinois
Certificate of Merger by, the Secretary of State of the State of Illinois, (iv)
filings under the rules and regulations of the NASD, or (v) where the failure to
obtain such consents, approvals, authorizations or permits, or to make such
filings or notifications (A) would not prevent or delay consummation of the
Merger in any material respect or otherwise prevent or delay in any material
respect the Company from performing its obligations under this Agreement or (B)
would not, individually or in the aggregate, have a Material Adverse Effect.
SECTION 3.6. COMPLIANCE; PERMITS.
(a) Except as set forth in Section 3.6 or 3.9 of the Company
Disclosure Letter, neither the Company nor any of its subsidiaries is in
conflict with, or in default or violation (i) of, any law, rule, regulation,
order, judgment or decree applicable to the Company or any of its subsidiaries
or by which any of their respective properties is bound, or (ii) whether after
the giving of notice or passage of time or both, of, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which the Company or any of its subsidiaries is a
party or by which the Company or any of its subsidiaries or any of their
respective properties is bound, except for any conflicts, defaults or violations
which do not and would not have, individually or in the aggregate, a Material
Adverse Effect.
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(b) The Company and its subsidiaries hold all permits, licenses,
variances, exemptions, orders and approvals from Governmental Entities which are
material to operation of the business of the Company and its subsidiaries taken
as a whole (collectively, the "Company Permits"). The Company and its
subsidiaries are in compliance with the terms of the Company Permits, except
where the failure to so comply would not, individually or in the aggregate, have
a Material Adverse Effect.
SECTION 3.7. SEC FILINGS; FINANCIAL STATEMENTS.
(a) The Company has made available to Parent a correct and complete
copy of each report, schedule, registration statement (but only such
registration statements that have become effective prior to the date hereof) and
definitive proxy statement filed by the Company with the SEC on or since the
date of its initial public offering and prior to the date of this Agreement (the
"Company SEC Reports"), which are all the forms, reports and documents required
to be filed by the Company with the SEC since such date. As of their respective
dates, the Company SEC Reports and any forms, reports and other documents filed
by the Company with the SEC after the date of this Agreement (i) complied or
will comply in all material respects with the requirements of the Securities Act
of 1933, as amended (the "Securities Act"), or the Exchange Act, as the case may
be, and the rules and regulations of the SEC thereunder applicable thereto, and
(ii) did not at the time they were filed (or if amended or superseded by a
filing prior to the date of this Agreement then on the date of such filing) or
will not at the time they are filed contain any untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
made, in light of the circumstances under which they were made, not misleading,
provided, however, that no representation is made with respect to information
included in the Company SEC Reports that was provided in writing by Parent or
Sub. None of the Company's subsidiaries is required to file any reports or other
documents with the SEC.
(b) Each of the consolidated financial statements (including, in each
case, any related notes thereto) contained in the Company SEC Reports complied
as to form in all material respects with applicable accounting requirements and
with the published rules and regulations of the SEC with respect thereto, had
been prepared in accordance with generally accepted accounting principles
("GAAP") applied on a consistent basis throughout the periods involved (except
as may be indicated in the notes thereto or, in the case of the unaudited
statements, as permitted by Form 10-Q or the Exchange Act regulations
promulgated by the SEC), and each fairly presented the consolidated financial
position of the Company and its consolidated subsidiaries in all material
respects as at the respective dates thereof and the consolidated results of its
operations and cash flows for the periods indicated (subject, in the case of the
unaudited interim financial statements, to normal audit adjustments which were
not and are not expected, individually or in the aggregate, to be material in
amount).
(c) Neither the Company nor any of its subsidiaries has any
liabilities (absolute, accrued, contingent or otherwise) of a nature required to
be disclosed on a balance sheet or in the related notes to the consolidated
financial statements prepared in accordance with GAAP which are, individually or
in the aggregate, material to the business, results of operations or financial
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condition of the Company and its subsidiaries taken as a whole, except
liabilities (i) set forth in Section 3.7 of the Company Disclosure Letter or the
Company SEC Reports filed with the SEC prior to the date of this Agreement or
provided for in the Company's balance sheet (and related notes thereto) as of
January 31, 1997 filed in the Company SEC Reports, or (ii) incurred since
January 31, 1997 in the ordinary course of business, none of which are material
to the business, results of operations or financial condition of the Company and
its subsidiaries, taken as a whole or (iii) arising out of or incurred in
connection with (x) this Agreement or the transactions contemplated hereby or
(y) an Approved Matter.
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 or disclosed in the Company SEC Reports, since January 31, 1997, (a)
the Company and its subsidiaries have, in all material respects, 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 Section
5.2(b)(i)-(iv), (vii), (x), (xi), (xii) (but with respect to this clause, only
since October 31, 1997) and (xiii), and (b) there has not been (i) any
transaction, commitment, dispute or other event or condition (financial or
otherwise) of any character (whether or not in the ordinary course of business),
individually or in the aggregate, having or which could reasonably be expected
to have a Material Adverse Effect, or (ii) any material change by the Company in
its accounting methods, principles or practices except as required by concurrent
changes in GAAP.
SECTION 3.9. ABSENCE OF LITIGATION. Except as disclosed in the
Company SEC Reports or Section 3.9 of the Company Disclosure Letter, there are
no claims, actions, suits, investigations or proceedings pending or, to the best
knowledge of the Company, threatened against the Company or any of its
subsidiaries, before any court, arbitrator or administrative, governmental or
regulatory authority or body, domestic or foreign, that, individually or in the
aggregate, would, or reasonably could be expected to, have a Material Adverse
Effect, nor is there any judgment, decree, injunction, rule or order of any
Governmental Entity or arbitrator outstanding against the Company or any of its
subsidiaries (a) having or which would, or reasonably could be expected to, have
a Material Adverse Effect or (b) which seeks to restrain, enjoin or delay
consummation of any of the Transactions.
SECTION 3.10. REGISTRATION STATEMENT; PROXY STATEMENT. None of the
information supplied or to be supplied by the Company for inclusion or
incorporation by reference in (a) the registration statement on Form S-4 to be
filed with the SEC by Parent in connection with the issuance of the Parent
Common Stock in or as a result of the Merger (the "S-4") will, at the time the
S-4 is filed with the SEC and at the time it becomes effective under the
Securities Act, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are made,
not misleading; and (b) the Proxy Statement will, at the date the Proxy
Statement is mailed to the shareholders of the Company, at the time of the
shareholders meeting of the Company (the "Shareholders Meeting") in connection
with the Transactions and as of the Effective Time, contain any untrue statement
of a material fact or omit to state any material fact necessary in order to make
the statements made, in light of the circumstances under which they are made,
not misleading, provided, however, that no
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representation is made with respect to information included in the Proxy
Statement that was provided in writing by Parent or Sub. The Proxy Statement
will comply as to form in all material respects with the provisions of the
Exchange Act and the rules and regulations promulgated by the SEC thereunder.
SECTION 3.11. BROKERS. Except as set forth in Section 3.11 of the
Company Disclosure Schedule, no broker, finder or investment banker (other than
Salomon Smith Barney (f/k/a Salomon Brothers Inc) (the "Company Banker")) is
entitled to any brokerage, finder's or other fee or commission in connection
with the Merger and the Transactions based upon arrangements made by or on
behalf of the Company. The Company has heretofore furnished to Parent a complete
copy of all agreements between the Company and the Company Banker pursuant to
which such firm would be entitled to any payment relating to the Merger and the
Transactions.
SECTION 3.12. OPINION OF FINANCIAL ADVISOR. The Special Committee and
the Company's Board of Directors have received the written opinion, dated March
9, 1998, of the Company Banker that, as of March 9, 1998, the Exchange Ratio is
fair to the holders of Company Common Stock (other than Parent or any subsidiary
of Parent) from a financial point of view, a copy of which opinion will be
delivered to Parent.
SECTION 3.13. EMPLOYEE BENEFIT PLANS.
(a) The Company has delivered or made available to Parent prior to
the execution of this Agreement true and complete copies (or, in the case of
bonus or other incentive plans, summaries thereof) of all material pension,
retirement, profit-sharing, deferred compensation, stock option, employee stock
ownership, severance pay, vacation, bonus or other material incentive plans, all
other material written employee programs, arrangements or agreements, whether
arrived at through collective bargaining or otherwise, all material medical,
vision, dental or other health plans, all life insurance plans and all other
material employee benefit plans or fringe benefit plans, including, without
limitation, all "employee benefit plans" as that term is defined in Section 3(3)
of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
currently adopted, maintained by, sponsored in whole or in part by, or
contributed to by the Company or any entity required to be aggregated with the
Company pursuant to Section 414 of the Code (each, a "Commonly Controlled
Entity") for the benefit of current or former employees, retirees, dependents,
spouses, directors, independent contractors or other beneficiaries and under
which current or former employees, retirees, dependents, spouses, directors,
independent contractors or other beneficiaries are eligible to participate
(collectively, the "Company Benefit Plans"). Any of the Company Benefit Plans
which is an "employee pension benefit plan," as that term is defined in Section
3(2) of ERISA, is referred to herein as an "ERISA Plan." No Company Benefit Plan
is or has been a multiemployer plan within the meaning of Section 3(37) of ERISA
(a "Multiemployer Plan").
(b) All Company Benefit Plans are in compliance with the applicable
terms of ERISA and the Code and any other applicable laws, rules and regulations
the breach or violation of which could result in a Material Adverse Effect.
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(c) No ERISA Plan is subject to Title IV or Section 302 of ERISA, and
no circumstances exist that could result in material liability to the Company
under Title IV or Section 302 of ERISA.
(d) Except as set forth in Section 3.13 of the Company Disclosure
Letter, as described in any Company SEC Reports or as provided under the Stock
Plan or any related agreement and the Rosen Option, neither the execution and
delivery of this Agreement nor the consummation of the Transactions (or any
termination of employment in connection with the Transactions) will (i) result
in any material payment becoming due to any current or former director or
employee of the Company or any of its affiliates from the Company or any of its
affiliates under any Company Benefit Plan or otherwise, (ii) materially increase
any benefits otherwise payable under any Company Benefit Plan or (iii) result in
any acceleration of the time of payment or vesting of any such benefits to any
material extent.
SECTION 3.14. TAX MATTERS. Neither the Company nor any of its
subsidiaries has taken or agreed to take any action (including in connection
with the Transactions) that would prevent the Merger from constituting a
reorganization qualifying under the provisions of Section 368(a) of the Code.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Parent and Sub jointly and severally represent and warrant to the
Company, as follows:
SECTION 4.1 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES. Each of
Parent and its Significant Subsidiaries is a corporation or other entity duly
organized, validly existing and, as applicable, in good standing under the laws
of the jurisdiction of its incorporation or organization and has the requisite
corporate or other power and authority to own, lease and operate its assets and
properties and to carry on its business as it is now being conducted. Each of
Parent and its subsidiaries is in possession of all Approvals necessary to own,
lease and operate the properties it purports to own, operate or lease and to
carry on its business as it is now being conducted, except where the failure to
have such Approvals would not, individually or in the aggregate, have a Material
Adverse Effect (as defined below). Each of Parent and its subsidiaries is, as
applicable, duly qualified or licensed as a foreign corporation or other entity
to do business, and is in good standing, in each jurisdiction where the
character of the properties owned, leased or operated by it or the nature of its
business makes such qualification or licensing necessary, except for such
failures to be so duly qualified or licensed and in good standing that would
not, either individually or in the aggregate, have a Material Adverse Effect.
When used in this Article 4 or elsewhere in connection with Parent or any of its
subsidiaries, the term "Material Adverse Effect" means any change, event or
effect that is materially adverse to the business, financial condition or
results of operations of Parent and its subsidiaries (including USANi LLC, a
Delaware limited liability company) taken as a whole, excluding changes in
general economic conditions in the economy as a whole. Other than wholly owned
subsidiaries and except as dis-
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closed in the Parent SEC Reports (as defined in Section 4.7(a)) or Section 5.3
of the Parent Disclosure Letter, Parent does not directly or indirectly own any
equity or similar interest in, or any interest convertible or exchangeable or
exercisable for any equity or similar interest in, any corporation, partnership,
limited liability company, joint venture or other business, association or
entity.
SECTION 4.2. CERTIFICATE OF INCORPORATION AND BYLAWS. Parent has
previously furnished to the Company a complete and correct copy of its
Certificate of Incorporation and Bylaws as amended to date. Such certificate of
incorporation and bylaws are in full force and effect. Neither Parent nor any of
its Significant Subsidiaries is in violation of any of the provisions of its
certificate of incorporation or bylaws or equivalent organizational documents.
SECTION 4.3. CAPITALIZATION. In each case without giving effect to
the 2-for-1 stock split declared by Parent on February 20, 1998, as of the date
hereof, the authorized capital stock of Parent consists of (a) 800,000,000
shares of Parent Common Stock and 200,000,000 shares of Class B common stock,
par value $.01 per share, of Parent ("Parent Class B Common Stock" and, together
with the Parent Common Stock, the "Parent Common Shares") and (b) 15,000,000
shares of preferred stock, par value $.01 per share, of Parent ("Parent
Preferred Stock"), none of which have been designated as to class or series. At
the close of business on March 11, 1998, (i) 51,089,631 shares of Parent Common
Stock were issued and outstanding and 16,006,808 shares of Parent Class B Common
Stock were issued and outstanding, all of which Parent Common Stock and Parent
Class B Common Stock are validly issued, fully paid and nonassessable and,
except as disclosed in the Parent proxy statement dated January 12, 1998 (the
"Parent Proxy Statement"), not subject to any preemptive rights, (ii) no shares
of Parent Common Stock were held in treasury by Parent or by subsidiaries of
Parent, (iii) shares of USANi LLC exchangeable into 54,327,175 Parent Common
Shares were outstanding, and (iv) Home Shopping Network, Inc. shares
exchangeable into 7,905,016 shares of Parent Common Stock and 399,136 shares of
Parent Class B Common Stock were outstanding. At the close of business on March
2, 1998, options to purchase 17,499,297 shares of Parent Common Stock were
outstanding under Parent's 1997 Stock and Annual Incentive Plan, 1995 Stock
Incentive Plan, 1992 Stock Option and Restricted Stock Plan, Stock Option Plan
for Outside Directors, other Company stock option plans described in documents
incorporated by reference in the Parent SEC Reports, and under equity
compensation arrangements. Except as set forth in Section 4.3 of the Parent
Disclosure Letter, no change in such capitalization has occurred between March
2, 1998 and the date hereof, except for issuances of Parent Common Stock upon
exercise, conversion or exchange of the outstanding securities referenced in
this Section 4.3. As of the date hereof, no shares of Parent Preferred Stock
were issued or outstanding. The authorized capital stock of Sub consists of
100,000,000 shares of Sub Common Stock. As of the date hereof, 1,000 shares of
Sub Common Stock are issued and outstanding. All of the outstanding shares of
Parent's and Sub's respective capital stock have been duly authorized and
validly issued and are fully paid and nonassessable. Except as set forth in this
Section 4.3, the Parent Proxy Statement or as disclosed in the disclosure letter
delivered by Parent to the Company (the "Parent Disclosure Letter"), as of the
date of this Agreement, there are no options, warrants or other rights,
agreements, or commitments, in each case, to which Parent or any of its
subsidiaries is a party, of any character relating to the issued or unissued
capital stock of Parent or any of its subsidiaries or obligating Parent or
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any of its subsidiaries to issue or sell any shares of capital stock of, or
other equity interests in, Parent or any of its subsidiaries. All shares of
Parent Common Stock subject to issuance as aforesaid, upon issuance on the terms
and conditions specified in the instruments pursuant to which they are issuable,
shall, and the shares of Parent Common Stock to be issued pursuant to the Merger
will be, duly authorized, validly issued, fully paid and nonassessable and not
subject to preemptive rights, except as set forth in the Parent Proxy Statement.
Except as set forth in the Parent Proxy Statement or Section 4.3 of the Parent
Disclosure Letter, there are no obligations, contingent or otherwise, of Parent
or any of its subsidiaries to repurchase, redeem or otherwise acquire any shares
of Parent Common Stock or the capital stock of any subsidiary or to provide
funds to or make any material investment (in the form of a loan, capital
contribution or otherwise) in any such subsidiary or any other entity other than
guarantees of obligations of subsidiaries entered into in the ordinary course of
business. All of the outstanding equity interests (other than directors'
qualifying shares) of each of Parent's subsidiaries are duly authorized, validly
issued, and, where applicable, fully paid and nonassessable and, except as set
forth in the Parent Proxy Statement or for such matters as would not,
individually or in the aggregate, have a Material Adverse Effect, all such
shares (other than directors' qualifying shares) are owned by Parent or another
subsidiary. The shares of Surviving Corporation Common Stock to be issued in the
Merger will, upon issuance, be validly issued, fully paid, nonassessable and
free and clear of all security interests, liens, claims, pledges, agreements,
limitations in the holder's voting rights, charges or other encumbrances of any
nature whatsoever (in each case to which the Surviving Corporation is a party).
SECTION 4.4. AUTHORITY RELATIVE TO THIS AGREEMENT; BOARD APPROVAL.
(a) Each of Parent and Sub has all necessary corporate power and
authority to execute and deliver this Agreement, and to perform its obligations
hereunder and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement by Parent and Sub and the consummation by Parent
and Sub of the Transactions have been duly and validly authorized by all
necessary corporate action on the part of Parent and Sub and no other corporate
proceedings on the part of Parent or Sub are necessary to authorize this
Agreement, or to consummate the Transactions (other than the approval of the
NASD listing application with respect to the issuance of shares of Parent Common
Stock in the Merger). This Agreement has been duly and validly executed and
delivered by Parent and Sub and, assuming the due authorization, execution and
delivery by the Company, constitutes the legal and binding obligations of Parent
and Sub, enforceable against Parent and Sub in accordance with its terms,
subject to (i) bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting or relating to creditors rights generally and (ii) the
availability of injunctive relief and other equitable remedies.
(b) The Board of Directors of Parent has (i) approved this Agreement
and the Transactions and (ii) determined that the Transactions are fair to and
in the best interests of the shareholders of Parent. No vote of Parent
shareholders is required in connection with the Transactions.
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SECTION 4.5. NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement by Parent and Sub do
not, and the performance of their respective obligations hereunder and the
consummation of the Transactions by Parent and Sub will not, (i) conflict with
or violate the certificate of incorporation, bylaws or equivalent organizational
documents of Parent or any of its subsidiaries; (ii) subject to compliance with
the requirements set forth in Section 4.5(b), conflict with or violate any law,
rule, regulation, order, judgment or decree applicable to Parent or any of its
subsidiaries or by which their respective properties are bound or affected; or
(iii) result in any breach of or constitute a default (or an event that with
notice or lapse of time or both would become a default) under, or alter the
rights or obligations of any third party or Parent or its subsidiaries under, or
give to others any rights of termination, amendment, acceleration, increased
payments or cancellation of, or result in the creation of a lien or other
encumbrance on any of the properties or assets of Parent or any of its
subsidiaries pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which Parent or any of its subsidiaries is a party or by which Parent or any
of its subsidiaries or any of their respective properties are bound or affected,
except in the cases of clauses (ii) and (iii) above, for any such conflicts,
violations, breaches, defaults or other alterations or occurrences that would
not prevent or delay consummation of the Merger in any material respect, or
otherwise prevent Parent and Sub from performing their respective obligations
under this Agreement in any material respect, and would not have, individually
or in the aggregate, a Material Adverse Effect. Section 4.5(a) of the Parent
Disclosure Letter lists all material consents, waivers and approvals under any
agreements, contracts, licenses or leases required to be obtained by Parent or
its subsidiaries in connection with the consummation of the Transactions.
(b) The execution and delivery of this Agreement by Parent and Sub do
not, and the performance of their respective obligations hereunder and the
consummation of the Transactions by Parent and Sub will not, require any
consent, approval, authorization or permit of, or registration or filing with or
notification to, any Governmental Entity except (i) the filing of documents to
satisfy the applicable requirements, if any, of the Exchange Act and state
takeover laws, (ii) the filing with the SEC of the Proxy Statement and the
declaration of effectiveness of the S-4 by the SEC, (iii) the filing of the
Illinois Articles of Merger with, and the issuance of the Illinois Certificate
of Merger by, the Secretary of State of the State of Illinois, (iv) filings
under the rules and regulations of the NASD, (v) filings under state securities
laws ("Blue Sky Laws"), and (vii) where the failure to obtain such consents,
approvals, authorizations or permits, or to make such filings or notifications
(A) would not prevent or delay consummation of the Merger in any material
respect or otherwise prevent or delay in any material respect Parent or Sub from
performing their respective obligations under this Agreement or (B) would not,
individually or in the aggregate, have a Material Adverse Effect.
SECTION 4.6. COMPLIANCE; PERMITS.
(a) Except as disclosed in Section 4.6 or Section 4.9 of the Parent
Disclosure Letter, neither Parent nor any of its subsidiaries is in conflict
with, or in default or violation (i) of, any law, rule, regulation, order,
judgment or decree applicable to Parent or any of its
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subsidiaries or by which any of their respective properties is bound, or (ii)
whether after the giving of notice or passage of time or both, of, any note,
bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which Parent or any of its
subsidiaries is a party or by which Parent or any of its subsidiaries or any of
their respective properties is bound, except for any such conflicts, defaults or
violations which do not and would not have, individually or in the aggregate, a
Material Adverse Effect.
(b) Parent and its subsidiaries hold all permits, licenses,
variances, exemptions, orders and approvals from Governmental Entities which are
material to the operation of the business of Parent and its subsidiaries taken
as a whole (collectively, the "Parent Permits"). Parent and its subsidiaries are
in compliance with the terms of the Parent Permits, except where the failure to
so comply would not, individually or in the aggregate, have a Material Adverse
Effect.
SECTION 4.7. SEC FILINGS; FINANCIAL STATEMENTS.
(a) Parent has made available to the Company a correct and complete
copy of each report, schedule, registration statement and definitive proxy
statement filed by Parent with the SEC on or after January 1, 1997 and prior to
the date of this Agreement (the "Parent SEC Reports"), which are all the forms,
reports and documents required to be filed by Parent with the SEC since January
1, 1997. As of their respective dates, the Parent SEC Reports and any forms,
reports and other documents filed by Parent and Sub after the date of this
Agreement (i) complied or will comply in all material respects with the
requirements of the Securities Act or the Exchange Act, as the case may be, and
the rules and regulations of the SEC thereunder applicable thereto, and (ii) did
not at the time they were filed (or if amended or superseded by a filing prior
to the date of this Agreement then on the date of such filing) or will not at
the time they are filed contain any untrue statement of a material fact or omit
to state a material fact necessary in order to make the statements made, in
light of the circumstances under which they were made, not misleading, provided,
however, that no representation is made with respect to information included in
the Parent SEC Reports that was provided in writing by the Company. None of
Parent's subsidiaries is required to file any reports or other documents with
the SEC.
(b) Each of the consolidated financial statements (including, in each
case, any related notes thereto) contained in the Parent SEC Reports complied as
to form in all material respects with applicable accounting requirements and
with the published rules and regulations of the SEC with respect thereto, had
been prepared in accordance with GAAP applied on a consistent basis throughout
the periods involved (except as may be indicated in the notes thereto or, in the
case of the unaudited statements, as permitted by Form 10-Q or the Exchange Act
regulations promulgated by the SEC) and each fairly presented the consolidated
financial position of Parent and its consolidated subsidiaries in all material
respects as at the respective dates thereof and the consolidated results of its
operations and cash flows for the periods indicated (subject, in the case of the
unaudited interim financial statements, to normal audit adjustments which were
not and are not expected, individually or in the aggregate, to be material in
amount).
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(c) Except as disclosed in Section 4.7 of the Parent Disclosure
Letter, neither Parent nor any of its subsidiaries has any liabilities
(absolute, accrued, contingent or otherwise) of a nature required to be
disclosed on a balance sheet or in the related notes to the consolidated
financial statements prepared in accordance with GAAP which are, individually or
in the aggregate, material to the business, results of operations or financial
condition of Parent and its subsidiaries taken as a whole, except liabilities
(i) set forth in the Parent SEC Reports filed with the SEC prior to the date of
this Agreement or provided for in Parent's balance sheet (and related notes
thereto) as of December 31, 1996 filed in the Parent SEC Reports or (ii)
incurred since December 31, 1996 in the ordinary course of business, none of
which are material to the business, results of operations or financial condition
of Parent and its subsidiaries, taken as a whole.
SECTION 4.8. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as
disclosed in the Parent SEC Reports or in Section 4.8 of the Parent Disclosure
Letter or as contemplated by this Agreement, since December 31, 1996, (a) Parent
and its subsidiaries have, in all material respects, 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 Section 5.3(b)(i)-(iv), and (b)
there has not been (i) any transaction, commitment, dispute or other event or
condition (financial or otherwise) of any character (whether or not in the
ordinary course of business), individually or in the aggregate, having or which
could reasonably be expected to have a Material Adverse Effect or (ii) any
material change by Parent in its accounting methods, principles or practices
except as required by concurrent changes in GAAP.
SECTION 4.9. ABSENCE OF LITIGATION. Except as disclosed in Section
4.9 of the Parent Disclosure Letter or the Parent SEC Reports, there are no
claims, actions, suits, investigations or proceedings pending or, to the best
knowledge of Parent, threatened against Parent or any of its subsidiaries before
any court, arbitrator or administrative, governmental or regulatory authority or
body, domestic or foreign, that, individually or in the aggregate, would, or
could reasonably be expected to, have a Material Adverse Effect, nor is there
any judgment, decree, injunction, rule or order of any Governmental Entity or
arbitrator outstanding against Parent or any of its subsidiaries (a) having or
which would, or could reasonably be expected to, have a Material Adverse Effect
or (b) which seeks to restrain, enjoin or delay consummation of any of the
Transactions.
SECTION 4.10. REGISTRATION STATEMENT; PROXY STATEMENT. None of the
information supplied or to be supplied by Parent for inclusion or incorporation
by reference in the S-4 will, at the time the S-4 is filed with the SEC and at
the time it becomes effective under the Securities Act, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading, provided, however,
that no representation is made with respect to information included in the S-4
that was provided in writing by the Company. The Proxy Statement will comply as
to form in all material respects with the provisions of the Exchange Act and the
rules and regulations promulgated by the SEC thereunder, and the S-4 will comply
as to form in all material respects with the provisions of the Securities Act
and the rules and regulations promulgated by the SEC thereunder.
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SECTION 4.11. BROKERS. No broker, finder or investment banker (other
than Allen & Company Incorporated ("Parent Banker")) is entitled to any
brokerage, finder's or other fee or commission in connection with the Merger and
the transactions contemplated by this Agreement based upon arrangements made by
or on behalf of Parent or Sub.
SECTION 4.12. OPINION OF FINANCIAL ADVISOR. In connection with its
March 13, 1998 approval of the Transactions, Parent's Board of Directors has
received the oral opinion of Parent Banker that, as of March 13, 1998, the
Exchange Ratio for each share of Company Common Stock (other than shares owned
by Parent and its subsidiaries) is fair to Parent from a financial point of
view, which opinion will be confirmed in writing, a copy of which will be
delivered to the Company.
SECTION 4.13. INTERIM OPERATIONS OF SUB. Sub is a direct wholly owned
subsidiary of Parent and was formed solely for the purpose of engaging in the
Transactions, has engaged in no other business activities and has conducted its
operations only as contemplated hereby.
SECTION 4.14. EMPLOYEE BENEFIT PLANS.
(a) Parent will deliver or make available to the Company as soon as
practicable after the execution of this Agreement true and complete copies (or,
in the case of bonus or other incentive plans, summaries thereof) of all
material pension, retirement, profit-sharing, deferred compensation, stock
option, employee stock ownership, severance pay, vacation, bonus or other
material incentive plans, all other material written employee programs,
arrangements or agreements, whether arrived at through collective bargaining or
otherwise, all material medical, vision, dental or other health plans, all life
insurance plans and all other material employee benefit plans or fringe benefit
plans, including, without limitation, all "employee benefit plans" as that term
is defined in Section 3(3) of ERISA, currently adopted, maintained by, sponsored
in whole or in part by, or contributed to by Parent or any Commonly Controlled
Entity of Parent for the benefit of current or former employees, retirees,
dependents, spouses, directors, independent contractors or other beneficiaries
and under which current or former employees, retirees, dependents, spouses,
directors, independent contractors or other beneficiaries are eligible to
participate (collectively, the "Parent Benefit Plans"). Any of the Parent
Benefit Plans which is an "employee pension benefit plan," as that term is
defined in Section 3(2) of ERISA, is referred to herein as a "Parent ERISA
Plan." Except as set forth in Section 4.14 of the Parent Disclosure Letter, no
Parent Benefit Plan is or has been a Multiemployer Plan within the meaning of
Section 3(37) of ERISA.
(b) All Parent Benefit Plans are in compliance with the applicable
terms of ERISA and the Code and any other applicable laws, rules and regulations
the breach or violation of which could result in a Material Adverse Effect.
(c) No parent ERISA Plan is subject to Title IV or Section 302 of
ERISA and no circumstances exist that could result in material liability to
Parent under Title IV or Section 302 of ERISA.
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(d) Neither the execution and delivery of this Agreement nor the
consummation of the Transactions (or any termination of employment in connection
with the Transactions) will (i) result in any material payment becoming due to
any current or former director or employee of Parent or any of its affiliates
from Parent or any of its affiliates under any Parent Benefit Plan or otherwise,
(ii) materially increase any benefits otherwise payable under any Parent Benefit
Plan, or (iii) result in any acceleration of the time of payment or vesting of
any such benefits to any material extent.
SECTION 4.15. TAX MATTERS. Neither Parent nor any of its affiliates
has taken or agreed to take any action (including in connection with the
Transactions) that would prevent the Merger from constituting a reorganization
qualifying under the provisions of Section 368(a) of the Code.
ARTICLE 5
CONDUCT AND TRANSACTIONS PRIOR TO
EFFECTIVE TIME; ADDITIONAL AGREEMENTS
SECTION 5.1 INFORMATION AND ACCESS. From the date of this Agreement
and continuing until the Effective Time, the Company and Parent each agrees as
to itself and its subsidiaries that it shall afford and, with respect to clause
(b) below, shall cause its independent auditors to afford, (a) to the officers,
independent auditors, counsel and other representatives of the other reasonable
access to its and its subsidiaries' properties, books, records (including tax
returns filed and those in preparation) and executives and personnel in order
that the other may have a full opportunity to make such investigation as it
reasonably desires to make of the other, and, in the case of access to the
Company's executives and personnel, to plan and provide for the Merger and for
the future direction of the Company, and (b) to the independent auditors of the
other, reasonable access to the audit work papers and other records of its
independent auditors. No investigation pursuant to this Section 5.1 shall affect
or otherwise obviate or diminish any representations and warranties of any party
or conditions to the obligations of any party. Promptly following the date
hereof, the Company will deliver to Parent a complete copy of its current
operating budget. Except as required by law or stock exchange or NASD
regulation, any information furnished pursuant to this Section 5.1 shall be
treated confidentially by such party, its officers, independent accountants and
other representatives and advisors (except for such information as has otherwise
been made public (other than by reason of a violation of this Section 5.1)),
subject, in the case of information furnished to Parent, to any limitations in
the letter agreement, dated as of February 9, 1998, between Parent and the
Company (the "Confidentiality Agreement").
SECTION 5.2. CONDUCT OF BUSINESS OF THE COMPANY. Except as
contemplated by this Agreement (including Section 5.2 of the Company Disclosure
Letter) or with respect to Approved Matters, and excluding transactions between
the Company and its wholly owned subsidiaries or between such subsidiaries,
during the period from the date of this Agreement and continuing until the
Effective Time or until the termination of this Agreement pursuant to
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Section 7.1, (a) the Company and its subsidiaries shall conduct their respective
businesses in the ordinary and usual course consistent with past practice
(including, without limitation, with respect to the terms of any new arena or
venue contracts or renewals of existing arena or venue contracts (such
contracts, "Ordinary Venue Contracts"), or financial expenditures), and (b)
neither the Company nor any of its subsidiaries shall without the prior written
consent of Parent:
(i) declare, set aside or pay any dividends on or make any
other distribution in respect of any of its capital stock, except
dividends or distributions declared and paid by a subsidiary of the
Company only to the Company or another subsidiary of the Company;
(ii) split, combine or reclassify any of its capital stock or
issue or authorize or propose the issuance or authorization of any
other securities in respect of, in lieu of, or in substitution for
shares of its capital stock or repurchase, redeem or otherwise acquire
any shares of its capital stock;
(iii) issue, deliver, pledge, encumber or sell, or authorize
or propose the issuance, delivery, pledge, encumbrance or sale of, or
purchase or propose the purchase of, any shares of its capital stock or
securities convertible into, or rights, warrants or options to acquire,
any such shares of capital stock or other convertible securities (other
than the issuance of such capital stock to the Company or a wholly
owned subsidiary of the Company, or upon the exercise or conversion of
outstanding options or warrants in accordance with the Stock Plan or
the Rosen Option in effect on the date of this Agreement or other
convertible or exchangeable securities outstanding on the date hereof,
in each case in accordance with its present terms), authorize or
propose any change in its equity capitalization, or amend any of the
financial or other economic terms of such securities or the financial
or other economic terms of any agreement relating to such securities;
(iv) amend its Articles of Incorporation or Bylaws in any
manner;
(v) take any action that would or could reasonably be
expected to result in any of its representations and warranties set
forth in this Agreement being untrue or in any of the conditions to the
Merger set forth in Article not being satisfied;
(vi) merge or consolidate with any other person, or acquire
any assets or capital stock of any other person, other than
acquisitions of assets in the ordinary course of business, such as for
inventory or relating to the ordinary operations of the Company;
(vii) incur any indebtedness or guarantee any indebtedness of
another person or increase the indebtedness outstanding under any
current agreement relating to indebtedness, other than trade payables,
or as disclosed on Section 5.2 of the Company Disclosure Letter, in
each case in the ordinary course of business;
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(viii) make or authorize any capital expenditures of the
Company and its subsidiaries taken as a whole, other than capital
expenditures permitted pursuant to Section 5.2 of Company Disclosure
Letter;
(ix) except as may be required by changes in applicable law
or GAAP, change any method, practice or principle of accounting;
(x) enter into any new employment agreements, or increase
the compensation of any employee or officer of the Company or any of
its subsidiaries (including entering into any bonus, severance or
consulting agreement or other employee benefits arrangement or
agreement pursuant to which such person has the right to any form of
compensation from the Company or any of its subsidiaries), other than
(A) with the prior consent of Parent, which consent will not be
unreasonably withheld, or (B) as required by law or by written
agreements in effect on the date hereof with such person, or otherwise
amend in any material respect any existing agreements with any such
person or use its discretion to materially amend any Company Benefit
Plan or accelerate the vesting or any payment under any Company Benefit
Plan;
(xi) enter into any transaction with any officer or director
of the Company or its subsidiaries, other than as provided for in the
terms of any agreement in effect on or prior to the date hereof and
described in the Company Disclosure Letter;
(xii) enter into, amend in any material respect or waive any
material rights under or terminate any material agreement to which the
Company or any of its subsidiaries is a party, it being agreed that any
Ordinary Venue Contract with less than $2,000,000 in financial
commitments or guarantees by the Company or its subsidiaries over five
years shall not be deemed material with respect to the entering into of
a new or amending or extending an existing agreement;
(xiii) settle or otherwise compromise any material litigation,
arbitration or other judicial or administrative dispute or proceeding
relating to the Company or any of its subsidiaries; or
(xiv) authorize or enter into any contract, agreement,
commitment or arrangement to do any of the foregoing.
With respect to any matter requiring the consent of Parent under this
Section 5.2, the Company shall provide Parent with a summary of the deal terms,
and Parent shall have five business days to discuss the matter with
representatives of the Company and to indicate whether it consents to such
matter. If Parent does not respond by the close of business on the fifth
business day after it receives the notice hereunder, then such matter shall be
deemed to have been consented to, and the Company may proceed on the basis of
the terms described to Parent in the notice. If Parent advises the Company that
it does not consent to such matter in such time period, the Company shall not
take such action.
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SECTION 5.3. CONDUCT OF BUSINESS OF PARENT. Except as contemplated by
this Agreement (including the Parent Disclosure Letter), and the Parent Proxy
Statement or the Investment Agreement, as amended and restated as of December
18, 1997, among Parent, Universal Studios, Inc. ("Universal"), Home Shopping
Network, Inc., and Liberty Media Corporation ("Liberty") (the "Investment
Agreement") and excluding transactions between Parent and its wholly owned
subsidiaries or between such subsidiaries, during the period from the date of
this Agreement and continuing until the Effective Time or until the termination
of this Agreement pursuant to Section 7.1, (a) Parent and its subsidiaries shall
conduct their respective businesses in the ordinary and usual course consistent
with past practice, and (b) neither Parent nor any of its subsidiaries shall
without the prior written consent of the Company:
(i) declare, set aside or pay any dividends on or make any
other distribution in respect of any of its capital stock, except the
2-for-1 stock split declared by Parent on February 20, 1998, or
dividends or distributions declared and paid by a subsidiary of Parent
only to Parent or another subsidiary of Parent;
(ii) split, combine or reclassify any of its capital stock or
issue or authorize or propose the issuance or authorization of any
other securities in respect of, in lieu of or in substitution for
shares of its capital stock, except for the 2-for-1 stock split
declared by Parent on February 20, 1998 or repurchase, redeem or
otherwise acquire any shares of its capital stock;
(iii) except for the 2-for-1 stock split declared by Parent on
February 20, 1998, issue, deliver, pledge, encumber or sell, or
authorize or propose the issuance, delivery, pledge, encumbrance or
sale of, or purchase or propose the purchase of, any shares of its
capital stock or securities convertible into, or rights, warrants or
options to acquire, any such shares of capital stock or other
convertible securities (other than (A) the issuance of such capital
stock to Parent or another wholly owned subsidiary of Parent, or upon
the exercise or conversion of options or other convertible or
exchangeable securities outstanding on the date of this Agreement or
which Parent is obligated to issue pursuant to the Investment Agreement
and related agreements with Universal and Liberty, or (B) the granting
of options or stock to employees in the ordinary course of business and
the issuance of Parent Common Stock upon exercise thereof) or authorize
or propose any change in its equity capitalization;
(iv) amend its Certificate of Incorporation in any manner or
amend its Bylaws in any material respect;
(v) take any action that would or could reasonably be
expected to result in any of its representations and warranties set
forth in this Agreement being untrue or in any of the conditions to the
Merger set forth in Article 6 not being satisfied; or
(vi) authorize or enter into any contract, agreement,
commitment or arrangement to do any of the foregoing.
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SECTION 5.4. PREPARATION OF S-4 AND PROXY STATEMENT; OTHER FILINGS.
As promptly as practicable after the date of this Agreement, Parent and the
Company shall prepare and file with the SEC a preliminary Proxy Statement in
form and substance reasonably satisfactory to each of Parent and the Company and
Parent shall prepare and file with the SEC the S-4, in which the Proxy Statement
(or portion thereof) will be included as part of a prospectus. Each of Parent
and the Company shall use its reasonable best efforts to respond to any comments
of the SEC, to have the S-4 declared effective under the Securities Act as
promptly as practicable after such filing and to cause the Proxy Statement
approved by the SEC to be mailed to the Company's shareholders at the earliest
practicable time. As promptly as practicable after the date of this Agreement,
Parent and the Company shall prepare and file any other filings required under
the Exchange Act, the Securities Act or any other federal or Blue Sky Laws
relating to the Merger and the Transactions, including, without limitation or
under state takeover laws (the "Other Filings"). The Company and Parent will
notify the other party promptly of the receipt of any comments from the SEC or
its staff and of any request by the SEC or its staff or any other government
officials for amendments or supplements to the S-4, the Proxy Statement or any
Other Filing or for additional information, and will supply the other with
copies of all correspondence between it or any of its representatives, on the
one hand, and the SEC, or its staff or any other government officials, on the
other hand, with respect to the S-4, the Proxy Statement, the Merger or any
Other Filing. The Proxy Statement, the S-4 and the Other Filings shall comply in
all material respects with all applicable requirements of law. Whenever any
event occurs which is required to be set forth in an amendment or supplement to
the Proxy Statement, the S-4 or any Other Filing, Parent or the Company, as the
case may be, shall promptly inform the other party of such occurrence and
cooperate in filing with the SEC or its staff or any other government officials,
and/or mailing to shareholders of the Company, such amendment or supplement. The
Proxy Statement shall include, subject to applicable fiduciary duties (based on
advice of outside counsel to the Special Committee), the recommendations of the
Board of Directors of the Company in favor of approval of this Agreement and the
Transactions; provided, that the Board of Directors of the Company will not
recommend approval of this Agreement and the Transactions without the
recommendation of the Special Committee. The Company and Parent each shall
promptly provide the other (or its counsel) copies of all filings made by it
with any Governmental Entity in connection with this Agreement and the
Transactions. Parent shall take all necessary actions to cause the shares of
Parent Common Stock issuable in connection with the Stock Plan and the Rosen
Option (to the extent not exercised at or prior to the Effective Time) to be
registered under the Securities Act. Prior to the Effective Time, the Company
shall take appropriate action so that Parent's assumption of the Stock Plan as
of the Effective Time shall be effective.
SECTION 5.5. LETTER OF INDEPENDENT AUDITORS. The Company and Parent
shall use all reasonable efforts to cause to be delivered to the other "comfort"
letters of Ernst & Young LLP, the Company's independent auditors, and KPMG Peat
Marwick LLP, the Company's previous independent auditors, and of Ernst & Young
LLP, Parent's independent auditors, in each case dated and delivered the date on
which the S-4 shall become effective and as of the Effective Time, and addressed
to the Boards of Directors of the Company and Parent, in form and substance
reasonably satisfactory to the other and customary in scope and substance for
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letters delivered by independent auditors in connection with registration
statements similar to the S-4.
SECTION 5.6. SHAREHOLDERS MEETING. The Company shall call its
Shareholders Meeting to be held as promptly as practicable for the purpose of
voting upon this Agreement. The Company shall use its reasonable best efforts to
hold the Shareholders Meeting on the date as soon as practicable after the date
on which the S-4 becomes effective. At the Shareholders Meeting, Parent agrees
to vote, or cause to be voted, all shares of Company Common Stock beneficially
owned by it in favor of the Transactions and approval of this Agreement.
SECTION 5.7. AGREEMENTS TO TAKE REASONABLE ACTION.
(a) The parties shall take, and shall cause their respective
subsidiaries to take, all reasonable actions necessary to comply promptly with
all legal requirements which may be imposed on them with respect to the Merger
and shall take all reasonable actions necessary to cooperate promptly with and
furnish information to the other parties in connection with any such
requirements imposed upon them or any of their subsidiaries in connection with
the Merger. Each party shall take, and shall cause its subsidiaries to take, all
reasonable actions necessary (i) to obtain (and will take all reasonable actions
necessary to promptly cooperate with the other parties in obtaining) any
clearance, consent, authorization, order or approval of, or any exemption by,
any Governmental Entity, or other third party, required to be obtained or made
by it (or by the other parties or any of their respective subsidiaries) in
connection with the Transactions or the taking of any action contemplated by
this Agreement; (ii) to lift, rescind or mitigate the effect of any injunction
or restraining order or other order adversely affecting its ability to
consummate the Transactions; (iii) to fulfill all conditions applicable to the
parties pursuant to this Agreement; and (iv) to prevent, with respect to a
threatened or pending temporary, preliminary or permanent injunction or other
order, decree or ruling or statute, rule, regulation or executive order, the
entry, enactment or promulgation thereof, as the case may be; provided, however,
that with respect to clauses (i) through (iv) above, the parties will take only
such curative measures (such as licensing and divestiture) as the parties
determine to be reasonable.
(b) Subject to the terms and conditions of this Agreement, each of
the parties shall use all reasonable efforts to take, or cause to be taken, all
actions and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
as promptly as practicable the Transactions, subject to the appropriate approval
of the shareholders of the Company. Upon the request of Parent, the Company
will, and will use its reasonable efforts to cause its officers to, cooperate
with a designated search committee of officers and/or directors of Parent
appointed by Parent to identify an appropriate successor Chief Executive Officer
for the Company in connection with the Merger. In the event that Parent believes
that the Company is not in compliance with the foregoing, Parent shall provide
written notice to the non-employee directors of the Company so that the Company
may so comply by taking such action as such directors deem appropriate in their
good faith judgment.
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SECTION 5.8. CONSENTS. Parent, Sub and the Company shall each use all
reasonable efforts to obtain the consent and approval of, or effect the
notification of or filing with, each person or authority whose consent or
approval is required in order to permit the consummation of the Merger and the
Transactions and to enable the Surviving Corporation to conduct and operate the
business of the Company and its subsidiaries substantially as presently
conducted and as contemplated to be conducted.
SECTION 5.9. NASDAQ QUOTATION. Parent shall use its reasonable best
efforts to cause the shares of Parent Common Stock issuable to the shareholders
of the Company in the Merger to be eligible for quotation on the NASD National
Market (or other national market or exchange on which Parent Common Stock is
then traded or quoted) prior to the Effective Time.
SECTION 5.10. AFFILIATES. At least ten Business Days prior to the
date of the Shareholders Meeting, the Company shall deliver to Parent a list of
names and addresses of those persons who were, at the record date for the
Company Shareholders Meeting, "affiliates" of the Company within the meaning of
Rule 145 under the Securities Act. The Company shall use its reasonable efforts
to deliver or cause to be delivered to Parent, prior to the Effective Time, from
each of the affiliates of the Company identified in the foregoing list,
agreements substantially in the form attached to this Agreement as Exhibit A.
SECTION 5.11. INDEMNIFICATION AND INSURANCE. Parent shall cause the
Surviving Corporation to maintain in effect, for a period of six years after the
Effective Time, the current provisions regarding indemnification of officers and
directors (including with respect to advancement of expenses) contained in the
Articles of Incorporation and Bylaws of the Company. Upon the Effective Time,
Parent shall assume all of the obligations of the Company under the Company's
existing indemnification agreements with each of the existing and former
directors and officers of the Company, as such agreements relate to the
indemnification of such persons for expenses and liabilities arising from facts
or events which occurred on or before the Effective Time or relating to the
Merger or Transactions. In addition, Parent agrees to provide to the current
directors and officers of the Company the maximum indemnification protection
(including with respect to advancement of expenses) permitted under the Illinois
Statute. Parent agrees to cause the Company to have in effect, as of the
Effective Time and covering the six-year period following the Effective Time,
for the benefit of the Company's current and former directors and officers,
insurance in the same amount and on substantially the same terms as the
Company's current directors' and officers' policies with respect to acts or
omissions occurring on or prior to the Effective Time.
SECTION 5.12. NOTIFICATION OF CERTAIN MATTERS. Each of the Company,
Parent and Sub shall give prompt notice to the other such parties of the
occurrence, or failure to occur, of any event, which occurrence or failure to
occur would be likely to cause (a) any representation or warranty contained in
this Agreement to be untrue or inaccurate in any material respect at any time
from the date of this Agreement to the Effective Time, or (b) any material
failure of the Company, Parent, or Sub as the case may be, or of any officer,
director, employee or agent thereof, to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it under this
Agreement. Notwithstanding the foregoing, the delivery of any notice
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pursuant to this Section shall not limit or otherwise affect the remedies
available hereunder to the party receiving such notice.
SECTION 5.13. EMPLOYEE AGREEMENTS. From and after the Effective Time,
Parent shall cause the Surviving Corporation to fulfill all written employment,
severance, termination, consulting and retirement agreements, as in effect on
the date hereof, to which the Company or any of its subsidiaries is a party,
pursuant to the terms thereof and applicable law.
SECTION 5.14. REORGANIZATION. From and after the date hereof, each of
Parent and the Company and their respective subsidiaries shall not, and shall
use reasonable efforts to cause their affiliates not to, take any action, or
fail to take any action, that would jeopardize qualification of the Merger as a
reorganization within the meaning of Section 368(a) of the Code or enter into
any contract, agreement, commitment or arrangement that would have such effect.
ARTICLE 6
CONDITIONS PRECEDENT
SECTION EXCHANGE 6.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT
THE MERGER. The respective obligations of each party to effect the Merger are
subject to the satisfaction prior to the Closing Date of the following
conditions:
(a) Shareholder Approval. This Agreement shall have been approved
and adopted by the requisite vote of the shareholders of the Company, in
accordance with all applicable provisions of the Illinois Statute.
(b) Effectiveness of the S-4. The S-4 shall have been declared
effective by the SEC under the Securities Act and shall not be the subject
of any stop order or proceeding by the SEC seeking a stop order.
(c) Governmental Entity Approvals. All other material
authorizations, consents, orders or approvals of, or declarations or
filings with, or expiration of waiting periods imposed by, any
Governmental Entity necessary for the Merger and the consummation of the
Transactions shall have been filed, expired or been obtained, other than
those that, individually or in the aggregate, the failure to be filed,
expired or obtained would not, in the reasonable opinion of Parent, have a
Material Adverse Effect on the Company or Parent.
(d) No Injunctions or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal restraint or
prohibition preventing the consummation of the Merger or the other
Transactions shall be in effect, nor shall any proceeding brought by an
administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign, seeking any of the foregoing be
pending or threatened; and there shall not be any action taken, or any
statute, rule, regulation or order (whether
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temporary, preliminary or permanent) enacted, entered or enforced which
makes the consummation of the Merger or the other Transactions illegal
or prevents or prohibits the Merger or the other Transactions.
(e) NASDAQ Quotation. The shares of Parent Common Stock issuable
to the holders of the Company Common Stock pursuant to the Merger shall
have been authorized for quotation on the NASD National Market (or other
national market or exchange on which Parent Common Stock is then traded
or quoted), upon official notice of issuance.
SECTION 6.2. CONDITIONS OF OBLIGATIONS OF PARENT AND SUB. The
obligations of Parent and Sub to effect the Merger are subject to the
satisfaction of the following additional conditions, unless waived in writing by
Parent:
(a) Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement shall be true and
correct or, in the case of representations and warranties not containing
any materiality qualifier, including, without limitation, "Material
Adverse Effect," shall be true and correct in all material respects (i)
as of the date hereof and (ii) as of the Closing Date, as though made on
and as of the Closing Date (provided, that in the cases of clauses (i)
and (ii), any such representation and warranty made as of a specific date
shall be true and correct as of such specific date), and Parent shall
have received certificates to such effect signed by the Chief Executive
Officer or the Chief Financial Officer of the Company with respect to
Company matters.
(b) Performance of Obligations of the Company. The Company shall
have performed in all material respects all of its respective obligations
and covenants, taken as a whole, required to be performed by it under
this Agreement prior to or as of the Closing Date, and Parent shall have
received a certificate to such effect signed by the Chief Executive
Officer or the Chief Financial Officer of the Company.
(c) Consents. Parent and Sub shall have received duly executed
copies of all material third-party consents and approvals contemplated by
this Agreement or the Company Disclosure Letter to be obtained by the
Company in form and substance reasonably satisfactory to Parent and Sub,
except those consents the failure to so receive would not, individually
or in the aggregate, have a Material Adverse Effect on the Company.
(d) Tax Opinion. Parent and Sub shall have received the opinion,
dated the Closing Date, of Wachtell, Lipton, Rosen & Katz, special
counsel to Parent, based upon customary representations, to the effect
that (i) the Merger will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code, and that
each of the Company, Sub and Parent will be a party to that
reorganization within the meaning of Section 368(b) of the Code, and (ii)
no taxable gain or loss will be recognized, for federal income tax
purposes, by shareholders of the Company who exchange Company Common
Stock for shares of Parent Common Stock pursuant to the Merger (except
with respect to cash received in lieu of fractional shares).
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37
SECTION 6.3. CONDITIONS OF OBLIGATIONS OF THE COMPANY. The
obligation of the Company to effect the Merger is subject to the satisfaction of
the following conditions, unless waived in writing by the Company:
(a) Representations and Warranties. The representations and
warranties of Parent and Sub set forth in this Agreement shall be true
and correct or, in the case of representations and warranties not
containing any materiality qualifier, including, without limitation,
"Material Adverse Effect," shall be true and correct in all material
respects (i) as of the date hereof and (ii) as of the Closing Date, as
though made on and as of the Closing Date (provided, that in the cases of
clauses (i) and (ii), any such representation and warranty made as of a
specific date shall be true and correct as of such specific date), and
the Company shall have received certificates to such effect signed by a
senior executive officer of Parent and of Sub to such effect with respect
to Parent matters and Sub matters, respectively.
(b) Performance of Obligations of Parent and Sub. Each of Parent
and Sub shall have performed in all material respects all of their
respective obligations and covenants, taken as a whole, required to be
performed by such party under this Agreement prior to or as of the
Closing Date, and the Company shall have received certificates to such
effect signed by a senior executive officer of Parent and of Sub with
respect to Parent and Sub matters, respectively.
(c) Consents. The Company shall have received duly executed copies
of all material third-party consents and approvals contemplated by this
Agreement and the Parent Disclosure Letter to be obtained by Parent in
form and substance reasonably satisfactory to the Company, except those
consents the failure to so receive, would not, individually or in the
aggregate, have a Material Adverse Effect on Parent.
(d) Tax Opinion. The Company shall have received the opinion,
dated the Closing Date, of Shearman & Sterling, special counsel to the
Company, based upon customary representations, to the effect that (i) the
Merger will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code, and that
each of the Company, Sub and Parent will be a party to that
reorganization within the meaning of Section 368(b) of the Code, and (ii)
no taxable gain or loss will be recognized, for federal income tax
purposes, by shareholders of the Company who exchange Company Common
Stock for shares of Parent Common Stock pursuant to the Merger (except
with respect to cash received in lieu of fractional shares).
(e) Officer of Parent. Mr. Barry Diller shall continue to be the
Chief Executive Officer of Parent.
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38
ARTICLE 7
TERMINATION
SECTION 7.1 TERMINATION. This Agreement may be terminated at any
time prior to the Effective Time of the Merger, whether before or after approval
of the Merger by the shareholders of the Company:
(a) by mutual written consent duly authorized by the Boards of
Directors of Parent and the Company based on the recommendation of the
Special Committee;
(b) by either Parent or the Company if the Merger shall not have
been consummated by December 31, 1998 (provided, that the right to
terminate this Agreement under this Section 7.1(b) 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);
(c) by either Parent or the Company, if (i) a court of competent
jurisdiction or other Governmental Entity shall have issued an order,
decree or ruling or taken any other action, in any case having the effect
of permanently restraining, enjoining or otherwise prohibiting the Merger,
which order, decree or ruling is final and nonappealable or (ii) a
governmental, regulatory or administrative agency or commission shall seek
to enjoin the Merger and the terminating party reasonably believes that
the time period required to resolve such governmental action and the
related uncertainty is reasonably likely to have a Material Adverse Effect
on either Parent or the Company;
(d) by either Parent or the Company, if the required approvals of
the shareholders of the Company contemplated by this Agreement shall not
have been obtained by reason of the failure to obtain the required vote
upon a vote taken at a Shareholders Meeting or at any adjournment thereof
(provided, that the right to terminate this Agreement under this Section
7.1(d) shall not be available to any party where the failure to obtain
shareholder approval of such party shall have been caused by the action or
failure to act of such party in breach of this Agreement);
(e) by Parent, if the Board of Directors of the Company acting on
the recommendation of the Special Committee shall have withdrawn or
modified its recommendation concerning the Merger in accordance with
Section 5.4 hereof;
(f) by the Company, upon a breach of any representation, warranty,
covenant or agreement on the part of Parent set forth in this Agreement,
or if any representation or warranty of Parent shall have become untrue,
in either case such that the conditions set forth in Section 6.3(a) or
Section 6.3(b) would not be satisfied as of the time of such breach or as
of the time such representation or warranty shall have become untrue,
provided, that if such inaccuracy in Parent's representations and
warranties or breach by Parent is curable by Parent through the
exercise of its reasonable efforts and for so long
-32-
39
as Parent continues to exercise such reasonable efforts, the Company may
not terminate this Agreement under this Section 7.1(f); or
(g) by Parent, upon a breach of any representation, warranty,
covenant or agreement on the part of the Company set forth in this
Agreement, or if any representation or warranty of the Company shall have
become untrue, in either case such that the conditions set forth in
Section 6.2(a) or Section 6.2(b) would not be satisfied as of the time of
such breach or as of the time such representation or warranty shall have
become untrue, provided, that if such inaccuracy in the Company's
representations and warranties or breach by the Company is curable by the
Company through the exercise of its reasonable efforts and for so long as
the Company continues to exercise such reasonable efforts, Parent may not
terminate this Agreement under this Section 7.1(g).
SECTION 7.2. EFFECT OF TERMINATION. In the event of the termination
of this Agreement as provided in Section 7.1, this Agreement shall be of no
further force or effect, except (a) as set forth in the last sentence of Section
5.1, this Section 7.2, Section 7.3, and Article 8, each of which shall survive
the termination of this Agreement, and (b) nothing herein shall relieve any
party from liability for any breach of this Agreement.
SECTION 7.3. FEES AND EXPENSES. All fees and expenses incurred in
connection with this Agreement and the Transactions shall be paid by the party
incurring such expenses, whether or not the Merger is consummated.
ARTICLE 8
GENERAL PROVISIONS
SECTION 8.1 AMENDMENT. This Agreement (including the Exhibits and
disclosure letters hereto) may be amended prior to the Effective Time by Parent,
Sub and the Company, by action taken by the Board of Directors of Parent and the
Board of Directors of the Company (provided, that no amendment shall be approved
by the Board of Directors of the Company unless such amendment shall have been
recommended by the Special Committee and, if required by law, approved by the
disinterested directors of the Company), at any time before or after approval of
the Merger by the shareholders of the Company but, after any such approval, no
amendment shall be made which by law requires further approval by such
shareholders without such further approval. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties.
SECTION 8.2. EXTENSION; WAIVER. At any time prior to the Effective
Time (whether before or after approval of the shareholders of the Company),
Parent and the Company may (a) extend the time for the performance of any of the
obligations or other acts of the other parties, (b) waive any inaccuracies in
the representations and warranties contained in this Agreement or in any
document delivered pursuant to this Agreement and (c) waive compliance with any
of the agreements or conditions contained in this Agreement. Any extension or
waiver on behalf of the Company shall be taken only upon the recommendation of
the Special
-33-
40
Committee (and, if required by law, by the disinterested directors of the
Company). Any agreement on the part of a party to any such extension or waiver
shall be valid only if set forth in an instrument in writing signed on behalf of
such party.
SECTION 8.3. NONSURVIVAL OF REPRESENTATIONS, WARRANTIES AND
AGREEMENTS. All representations, warranties and agreements in this Agreement or
in any instrument or certificate delivered pursuant to this Agreement shall be
deemed to be conditions to the Merger and shall not survive the Merger, except
for the agreements contained in Sections 2.2 (exchange of Certificates), 2.3
(Company Options), 2.4 (further assurances), 5.11 (indemnification), 5.13
(employee agreements) and 5.14 (reorganization), each of which shall survive the
Merger.
SECTION 8.4. ENTIRE AGREEMENT. This Agreement (including the
Exhibits and disclosure letters hereto) and the Confidentiality Agreement
contain the entire agreement among all of the parties with respect to the
subject matter hereof and supersede all prior arrangements and understandings,
both written and oral, with respect thereto, but shall not supersede any
agreements among any group of the parties hereto entered into on or after the
date hereof. In this regard, the breach of the Cooperation Agreement in and of
itself shall not be deemed to be a breach of this Agreement.
SECTION 8.5. SEVERABILITY. It is the desire and intent of the
parties that the provisions of this Agreement be enforced to the fullest extent
permissible under the law and public policies applied in each jurisdiction in
which enforcement is sought. Accordingly, in the event that any provision of
this Agreement would be held in any jurisdiction to be invalid, prohibited or
unenforceable for any reason, such provision, as to such jurisdiction, shall be
ineffective, without invalidating the remaining provisions of this Agreement or
affecting the validity or enforceability of such provision in any other
jurisdiction. Notwithstanding the foregoing, if such provision could be more
narrowly drawn so as not to be invalid, prohibited or unenforceable in such
jurisdiction, it shall, as to such jurisdiction, be so narrowly drawn, without
invalidating the remaining provisions of this Agreement or affecting the
validity or enforceability of such provision in any other jurisdiction.
SECTION 8.6. NOTICES. All notices and other communications pursuant
to this Agreement shall be in writing and shall be deemed to be sufficient if
contained in a written instrument and shall be deemed given if delivered
personally, telecopied, sent by nationally recognized, overnight courier or
mailed by registered or certified mail (return receipt requested), postage
prepaid, to the parties at the following addresses (or at such other address for
a party as shall be specified by like notice):
(a) if to Parent or Sub, to:
USA Networks, Inc.
152 West 57th Street
New York, NY 10019
Attention: General Counsel
Telecopier: (212) 582-9291;
-34-
41
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, NY 10019-5150
Attention: Pamela S. Seymon, Esq.
Telecopier: (212) 403-2000
(b) if to the Company, to:
Ticketmaster Group, Inc.
8800 Sunset Boulevard
West Hollywood, CA 90069
Attention: Ned S. Goldstein, General Counsel
Telecopier: 310-360-6512;
with a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, NY 10022
Attention: Faith Grossnickle, Esq.
Telecopier: (212) 848-7179;
and to:
Neal, Gerber & Eisenberg
2 North LaSalle Street
Chicago, IL 60602
Attention: Charles E. Gerber, Esq.
Telecopier: (312) 269-1747
All such notices and other communications shall be deemed to have been received
(a) in the case of personal delivery, on the date of such delivery, (b) in the
case of a telecopy, when the party receiving such telecopy shall have confirmed
receipt of the communication, (c) in the case of delivery by nationally
recognized overnight courier, on the Business Day following dispatch and (d) in
the case of mailing, on the third Business Day following such mailing.
SECTION 8.7. HEADINGS. The headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 8.8. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same agreement
and shall become
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42
effective when one or more counterparts have been signed by each of the parties
and delivered to the other parties, it being understood that all parties need
not sign the same counterpart.
SECTION 8.9. BENEFITS; ASSIGNMENT. This Agreement is not intended to
confer upon any person other than the parties any rights or remedies hereunder
and shall not be assigned by operation of law or otherwise; provided, however,
that the officers and directors of the Company are intended beneficiaries of the
covenants and agreements contained in Section 5.11, the Company employees having
the agreements described in Section 5.13 and the holders of Company Options
described in Section 2.3, provided, that such assignment shall not alter the
treatment of the Merger under the Code for Company shareholders, and the Company
shall execute any amendment to this Agreement necessary to provide the benefits
of this Agreement to any such assignee.
SECTION 8.10. GOVERNING LAW. This Agreement 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
might otherwise govern under applicable principles of conflicts of law, provided
that any matter relating to the fiduciary matters affecting the Company and its
board of directors or to the mechanics and legal consequences of the Merger
shall be governed by Illinois law.
-36-
43
IN WITNESS WHEREOF, the parties have caused this Agreement to be
signed by their respective officers thereinto duly authorized, as of the date
first written above.
USA NETWORKS, INC.
By:
------------------------------------
Name: Thomas J. Kuhn
Title: Senior Vice President
and General Counsel
BRICK ACQUISITION CORP.
By:
------------------------------------
Name: Thomas J. Kuhn
Title: President
TICKETMASTER GROUP, INC.
By:
------------------------------------
Name:
Title:
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF MERGER]
-37-
44
EXHIBIT A
FORM OF COMPANY AFFILIATE LETTER
USA Networks, Inc.
152 West 57th Street
New York, NY 10019
Gentlemen:
I have been advised that as of the date of this letter I may be
deemed to be an "affiliate" of Ticketmaster Group, Inc., an Illinois corporation
(the "Company"), as the term "affiliate" is defined for purposes of paragraphs
(c) and (d) of Rule 145 of the rules and regulations (the "Rules and
Regulations") of the Securities and Exchange Commission (the "Commission") under
the Securities Act of 1933, as amended (the "Act"). Pursuant to the terms of the
Agreement and Plan of Merger dated as of March 20, 1998 (the "Agreement"), by
and among USA Networks, Inc., a Delaware corporation ("Parent"), Brick
Acquisition Corp., an Illinois corporation ("Sub"), and the Company, Sub will be
merged with and into the Company (the "Merger").
As a result of the Merger, I may receive shares of common stock, par
value $.01 per share, of Parent ("Parent Securities"). I would receive such
shares in exchange for shares (or options for shares) owned by me of common
stock, no par value per share, of the Company.
I represent, warrant and covenant to Parent that in the event I
receive any Parent Securities as a result of the Merger:
1. I shall not make any sale, transfer, assignment or other
disposition of the Parent Securities in violation of the Act or the Rules
and Regulations.
2. I have carefully read this letter and the Agreement and discussed
the requirements of such documents and other applicable limitations upon
my ability to sell, transfer, assign or otherwise dispose of Parent
Securities, to the extent I felt necessary, with my counsel or counsel for
the Company.
3. I have been advised that the issuance of Parent Securities to me
pursuant to the Merger has been registered with the Commission under the
Act on a Registration Statement on Form S-4. However, I have also been
advised that, because at the time the Merger is submitted for a vote of
the shareholders of the Company, (a) I may be deemed to be an affiliate of
the Company and (b) the distribution by me of the Parent Securities has
not been registered under the Act, I may not sell, transfer, assign or
otherwise dispose of Parent Securities issued to me in the Merger unless
(i) such sale, transfer, assignment or other disposition is made in
conformity with the volume and other limitations of Rule 145 promulgated
by the Commission under the Act, (ii) such sale, transfer, assignment or
other disposition has been registered under the Act or (iii) in the
opinion of counsel reasonably acceptable to Parent, such sale, transfer,
assignment or other disposition is otherwise exempt from registration
under the Act.
A-1
45
4. I understand that Parent is under no obligation to register the
sale, transfer, assignment or other disposition of Parent Securities by me
or on my behalf under the Act or to take any other action necessary in
order to make compliance with an exemption from such registration
available solely as a result of the Merger.
5. I also understand that there will be placed on the certificates
for the Parent Securities issued to me or any substitutions therefor, a
legend stating in substance:
THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, APPLIED. THE SHARES REPRESENTED BY THIS
CERTIFICATE MAY ONLY BE TRANSFERRED IN ACCORDANCE WITH THE TERMS OF
AN AGREEMENT DATED [ ] BETWEEN THE REGISTERED HOLDER HEREOF AND USA
NETWORKS, INC., A COPY OF WHICH AGREEMENT IS ON FILE AT THE
PRINCIPAL OFFICES OF USA NETWORKS, INC.
6. I also understand that unless a sale or transfer is made in
conformity with the provisions of Rule 145, or pursuant to a registration
statement, Parent reserves the right to put the following legend on
certificates issued to any transferee:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AND WERE ACQUIRED FROM A PERSON WHO
RECEIVED SUCH SHARES IN A TRANSACTION TO WHICH RULE 145 PROMULGATED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, APPLIED. THE SHARES
HAVE BEEN ACQUIRED BY THE HOLDER NOT WITH A VIEW TO, OR FOR RESALE
IN CONNECTION WITH, ANY DISTRIBUTION THEREOF WITHIN THE MEANING OF
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED
OR OTHERWISE TRANSFERRED EXCEPT IN ACCORDANCE WITH AN EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS
AMENDED.
It is understood and agreed that the legends set forth in paragraphs
5 and 6 above shall be removed by delivery of substitute certificates without
such legend if the undersigned shall have delivered to Parent a copy of a letter
from the staff of the Commission, or an opinion of counsel reasonably
satisfactory to Parent in form and substance reasonably satisfactory to Parent,
to the effect that such legend is not required for purposes of the Act.
A-2
46
Execution of this letter should not be considered an admission on my
part that I am an "affiliate" of the Company as described in the first paragraph
of this letter, or as a waiver of any rights I may have to object to any claim
that I am such an affiliate on or after the date of this letter.
Very truly yours,
-----------------------------------------
Name:
Accepted this____ day of
________________, 1998, by
USA NETWORKS, INC.
By
---------------------------------
Name:
Title:
A-3
1
Exhibit 23.1
CONSENT OF ERNST & YOUNG LLP
We consent to the incorporation by reference in the Registration Statement on
Form S-8 of USA Networks, Inc., formerly known as HSN, Inc., pertaining to the
HSN, Inc. 1997 Stock and Annual Incentive Plan and the HSN, Inc. Retirement
Savings Plan of our report dated March 13, 1998, with respect to the
consolidated financial statements and schedule of USA Networks, Inc. included
in the Annual Report (Form 10-K) for the year ended December 31, 1997, filed
with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
New York, New York
March 25, 1998
1
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in a Registration Statement of USA
Networks, Inc. (formerly HSN, Inc. and Silver King Communications, Inc.) on
Form S-8, pertaining to HSN, Inc. 1997 Stock and Annual Incentive Plan, and in
a Registration Statement on Form S-8, pertaining to HSN, Inc. Retirement
Savings Plan, of our report dated July 2, 1996 appearing in this Annual Report
on Form 10-K of USA Networks, Inc. for the year ended December 31, 1997.
DELOITTE & TOUCHE LLP
Tampa, Florida
March 30, 1998
5
1,000
YEAR
DEC-31-1997
JUN-01-1997
DEC-31-1997
116,036
0
96,867
0
151,100
420,682
300,914
120,793
2,670,796
359,741
448,346
0
0
874
1,446,480
2,670,796
1,261,749
1,261,749
645,299
645,299
521,931
0
31,579
56,501
41,051
13,061
0
0
0
13,061
.12
.12
5
1,000
YEAR
DEC-31-1996
JAN-01-1996
DEC-31-1996
42,606
0
56,832
0
100,527
248,598
195,934
73,959
2,116,232
273,042
271,430
0
0
720
1,158,029
2,116,232
75,172
75,172
20,974
20,974
50,586
0
11,841
(4,947)
1,872
(6,539)
0
0
0
(6,537)
(.30)
(.30)
5
1,000
4-MOS
DEC-31-1995
SEP-01-1995
DEC-31-1995
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
15,980
15,980
193
193
16,467
0
3,463
(3,255)
(373)
(2,882)
0
0
0
(2,882)
(.15)
(.15)
5
1,000
YEAR
AUG-31-1995
JUL-01-1994
AUG-31-1995
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
47,918
47,918
614
614
39,068
0
10,963
1,253
1,138
115
0
0
0
115
.01
.01
