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HSNi also has funding commitments that could potentially require its performance in the event of demands by third parties or contingent
events, as follows (in thousands):
The letters of credit (“LOCs”) primarily consist of trade LOCs, which are used for inventory purchases. Trade LOCs are guarantees of
payment based upon the delivery of goods. The surety bonds primarily consist of customs bonds, which relate to the import of merchandise into
the United States.
The purchase obligations primarily relate to cable contracts and include obligations for future cable distribution and commission
guarantees.
NOTE 14—RELATED PARTY TRANSACTIONS
Relationship Between Liberty Media Corporation and HSNi
Spinco Agreement
In connection with the Spin-off, pursuant to a Spinco Assignment and Assumption Agreement (the “Spinco Agreement”), dated as of
August 20, 2008, among HSNi, IAC, Liberty Media Corporation (“Liberty”) and a subsidiary of Liberty that held shares of IAC common stock
and IAC Class B common stock (together with Liberty, the “Liberty Parties”), HSNi (i) assumed from IAC all rights and obligations providing
for post-Spin-off governance and other arrangements at HSNi under the Spinco Agreement, dated May 13, 2008, among IAC, Liberty and
affiliates of Liberty that held shares of IAC common stock and/or Class B common stock at the time such Spinco Agreement was entered into,
and (ii) as required by the Spinco Agreement, entered into a registration rights agreement with the Liberty Parties. Following is a summary of the
material terms of the Spinco Agreement:
Representation of Liberty on the Spinco Boards of Directors
The Spinco Agreement generally provides that so long as Liberty beneficially owns securities of HSNi representing at least 20% of the
total voting power of HSNi’s equity securities, Liberty has the right to nominate up to 20% of the directors serving on HSNi’s Board of
Directors (rounded up to the nearest whole number). Any director nominated by Liberty must be reasonably acceptable to a majority of the
directors on HSNi’s Board who were not nominated by Liberty. All but one of Liberty’s nominees serving on the Board of Directors must
qualify as “independent” under applicable stock exchange rules. In addition, the Nominating Committee of the Board may include only
“Qualified Directors,” namely directors other than any who were nominated by Liberty, are officers or employees of HSNi or were not
nominated by the Nominating Committee of the HSNi Board in their initial election to the Board and for whose election any Liberty Party voted
shares.
Acquisition Restrictions
The Liberty Parties have agreed not to acquire beneficial ownership of any equity securities of HSNi (with specified exceptions) unless:
57
Amount of Commitments Expiration Per Period
Total Amounts
Committed
Less Than
1 Year
1 - 3 Years 3 - 5 Years
More Than
5 Years
Letters of credit and surety bonds
$
32,674
$
32,624
$
50
$
—
$
—
Purchase obligations
99,337
83,467
15,729
141
—
Total commercial commitments
$
132,011
$
116,091
$
15,779
$
141
$
—
•
the acquisition was approved by a majority of the Qualified Directors;
• the acquisition is permitted under the provisions described in “Competing Offers”
below; or
• after giving effect to the acquisition, Liberty’s ownership percentage of the equity securities of HSNi, based on voting power, would
not exceed the Applicable Percentage.