The Second Amended and Restated 2008 Stock and Annual Incentive Plan, as amended (the "Plan"), authorizes the issuance of 8.0 million shares of HSNi common stock for new awards granted by HSNi. The purpose of the Plan is to assist HSNi in attracting, retaining and motivating officers, employees, directors and consultants, and to provide HSNi with the ability to provide incentives more directly linked to the profitability of HSNi's business and increases in shareholder value. As of March 31, 2012, there were approximately 3.1 million shares of common stock available for grants under the Plan.

HSNi can grant restricted stock units ("RSUs"), stock options, stock appreciation rights ("SARs"), dividend equivalents and other stock-based awards under the Plan. Stock-based awards have a maximum term of 10 years. The exercise price of options and SARs granted under the Plan is required to be at or above the fair market value of HSNi's stock on the date of grant. RSUs have rights to receive dividend equivalents that vest at the same time the underlying RSUs vest once the requisite service has been rendered. HSNi elects to issue shares of its common stock for RSU vestings and SAR exercises net of the employees' minimum tax withholding obligation. The payments made by HSNi to the taxing authorities for these taxes were $11.6 million and $4.0 million for the three months ended March 31, 2012 and 2011, respectively.

During the three months ended March 31, 2012, HSNi granted approximately 241,000 RSUs and 339,000 SARs. The RSUs have a weighted average fair value of $35.68 and they primarily vest after three years. The SARs have a weighted average exercise price of $35.63, have a fair value of $12.94 and primarily vest ratably over three years. The following are the assumptions used in the Black-Scholes option pricing model to value SARs for the three months ended March 31, 2012: volatility factor of 46.51%, risk-free interest rate of 0.92%, expected term of 5 years and a dividend yield of 1.40%. Also during the three months ended March 31, 2012, HSNi granted approximately 26,528 options under the HSN, Inc. 2010 Employee Stock Purchase Plan ("ESPP") which had a weighted average fair value of $11.53. The following are the assumptions used in the Black-Scholes option pricing model to value options granted under the ESPP for the three months ended March 31, 2012: volatility factor of 59.70%, risk-free interest rate of 0.06%, expected term of six months and a dividend yield of 1.36%.

During the first quarter of 2010, HSNi implemented a performance-based equity compensation program for certain key members of Cornerstone's management. The amount payable is based on the extent to which certain pre-established performance goals for Cornerstone are achieved during the three-year period ending December 31, 2012. The amount earned pursuant to the award will be measured at the end of the requisite service period and is expected to be settled in shares of HSNi common stock. These equity awards are accounted for as liabilities which are remeasured each reporting period based on the probability of achievement of the performance conditions. As of March 31, 2012, a liability of approximately $13.8 million was recorded for these awards.