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Exhibit 99.36
[CONFORMED COPY]
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)
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TABLE OF CONTENTS
Page
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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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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.
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"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 ▇▇. ▇▇▇▇▇▇, 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 ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ 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 ▇▇. ▇▇▇▇▇▇, 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
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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 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.
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: General Counsel
Telecopier No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
Wachtell, Lipton, ▇▇▇▇▇ & ▇▇▇▇
▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Telecopier No.: (▇▇▇) ▇▇▇-▇▇▇▇
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(b) if to a member of the Liberty Group, to:
Liberty Media Corporation
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: President
Telecopier No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇ & ▇▇▇▇▇, L.L.P.
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Esq.
Telecopier No.: (▇▇▇) ▇▇▇-▇▇▇▇
(c) if to a member of the Universal Group, to:
Universal Studios, Inc.
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇, Esq.
Telecopier No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Telecopier No.: (▇▇▇) ▇▇▇-▇▇▇▇;
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/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
-------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Title: Vice President
UNIVERSAL STUDIOS, INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
-------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: Senior Vice President
LIBERTY MEDIA CORPORATION
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: President and Chief Executive
Officer
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