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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED JANUARY 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM ___________________ TO ___________________
COMMISSION FILE NO. 0-14999
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QVC NETWORK, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 23-2414041
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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GOSHEN CORPORATE PARK
WEST CHESTER, PENNSYLVANIA 19380
(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code: (610) 430-1000
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes _X_ No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of the
registrant, computed by reference to the price at which the stock was sold as of
the close of trading on March 31, 1994, was $839,806,539.
The number of shares outstanding of the registrant's Common Stock (net of
shares held in treasury), as of March 31, 1994 was:
Common Stock ($.01 par value) -- 39,904,097 shares
DOCUMENTS INCORPORATED BY REFERENCE:
The registrant's definitive proxy statement in connection with the 1994
Annual Meeting of Shareholders to be filed with the Securities and Exchange
Commission (the 'Commission') within 120 days after the end of the fiscal year
ended January 31, 1994, is incorporated by reference in Part III of the Annual
Report on Form 10-K.
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TABLE OF CONTENTS
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PART I
Item 1. Business....................................................................................... 4
Item 2. Properties..................................................................................... 13
Item 3. Legal Proceedings.............................................................................. 13
Item 4. Submission of Matters to a Vote of Security Holders............................................ 16
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.......................... 17
Item 6. Selected Financial Data........................................................................ 18
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.......... 18
Item 8. Financial Statements and Supplementary Data.................................................... 25
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........... 49
PART III
Item 10. Directors and Executive Officers of the Registrant............................................. 49
Item 11. Executive Compensation......................................................................... 49
Item 12. Security Ownership of Certain Beneficial Owners and Management................................. 49
Item 13. Certain Relationships and Related Transactions................................................. 49
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K................................ 49
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PART I
ITEM 1 -- BUSINESS
QVC Network, Inc. ('QVC,' 'QVC, Inc.,' or the 'Company,' which terms, as
used herein, include its consolidated subsidiaries unless the context indicates
otherwise) is a Delaware corporation with principal and executive offices at
Goshen Corporate Park, West Chester, Pennsylvania, 19380, telephone (610)
430-1000. The Company was incorporated on June 13, 1986.
RECENT DEVELOPMENTS
On September 20, 1993, the Company made a letter proposal to Paramount
Communications Inc. ('Paramount') to combine Paramount and QVC in a cash and
stock-for-stock exchange. On October 27, 1993, the Company commenced a cash
tender offer for 51% of the outstanding common shares of Paramount, at a price
of $80 per share. If QVC's tender offer was successful, the Company then planned
to begin a second-step merger under which each remaining Paramount share would
be exchanged for QVC Common Stock. Viacom Inc. ('Viacom'), which had previously
made a proposal to Paramount to combine Paramount and Viacom in a cash and
stock-for-stock exchange, announced a matching cash tender offer for 51% of the
outstanding common shares of Paramount, at a price of $80 per share. On or about
November 6, 1993, Viacom increased to $85 per share its cash tender offer for
51% of the outstanding common shares of Paramount. On November 12, 1993, the
Company announced an increase to $90 per share of its cash tender offer for 51%
of the outstanding common shares of Paramount. Each increased cash bid was
accompanied by a revised mixture of the securities to be issued in exchange for
each remaining Paramount share in the proposed second-step merger. The Company
and Viacom extended the initial expiration dates of their tender offers until
December 1, 1993, and November 24, 1993, respectively.
On November 24, 1993, the Court of Chancery of the State of Delaware in and
for New Castle County (the 'Delaware Chancery Court') granted the Company's
motion for preliminary injunction, thereby preventing Viacom from completing its
tender offer on that date. The Company had commenced a legal action on October
21, 1993, against Viacom, Paramount and certain Paramount directors, seeking to
compel Paramount's Board of Directors to give QVC's proposed merger with
Paramount equal consideration with Viacom's proposed merger with Paramount. See
'ITEM 3 -- LEGAL PROCEEDINGS.' On appeal by Paramount and Viacom, the Supreme
Court of the State of Delaware (the 'Delaware Supreme Court'), on December 9,
1993, upheld the lower court's injunction order.
On December 23, 1993, the Company announced an increase to $92 per share of
its cash tender offer for 50.1% of the outstanding common shares of Paramount.
QVC's further amended tender offer was due to expire on January 7, 1994. On or
about January 7, 1994, Viacom increased to $107 per share its cash tender offer
for 50.1% of the outstanding common shares of Paramount. On February 1, 1994,
the Company announced an increase to $104 per share of its cash tender offer for
50.1% of the outstanding common shares of Paramount. Each increased cash bid was
accompanied by a revised mixture of the securities to be issued in exchange for
each remaining Paramount share in the proposed second-step merger. The
expiration date (as extended) for each party's final tender offer was February
14, 1994.
On February 15, 1994, the Company had not received the minimum condition in
its tender offer for 50.1% of the outstanding common stock of Paramount as of
the expiration of its tender offer. Upon Paramount informing the Company that
Viacom had received the minimum condition in its tender offer prior to the
expiration date, had taken the action required by its merger agreement with
Paramount and had delivered to Paramount a completion certificate pursuant to
its bidding procedures, the Company, pursuant to its obligations under the
QVC-Paramount Exemption Agreement, terminated its own tender offer. The
heretofore described proposed mergers and tender offers for Paramount gave rise
to litigation. For a description of the litigation involving the Company,
Paramount and Viacom, see 'ITEM 3 -- LEGAL PROCEEDINGS.'
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In connection with the financing of the Company's proposed acquisition of
Paramount, the Company and BellSouth Corporation ('BellSouth') entered into a
Memorandum of Understanding, dated as of November 11, 1993, pursuant to which,
among other things, if the Company's efforts to acquire Paramount were
terminated or abandoned, BellSouth would have an option to purchase directly
from the Company, during the six-month period following such termination or
abandonment, 8,627,934 shares of Common Stock of the Company for an aggregate
purchase price of $517,676,040. The Company also entered into a Commitment
Letter, dated November 11, 1993, with Comcast Corporation ('Comcast'), Cox
Enterprises, Inc. ('Cox') and Advance Publications, Inc., ('Advance'), pursuant
to which, among other things, if the Company terminated or abandoned its
interest in pursuing the acquisition of Paramount, then each of Cox and Advance
would be entitled to purchase 2,833,333 shares of QVC Common Stock for an
aggregate purchase price of $170,000,000. In accordance with the foregoing
terms, the Company, BellSouth, Advance and Cox entered into a Stock Option
Agreement, dated as of February 15, 1994, pursuant to which the Company granted
to BellSouth, Cox and Advance the above-described options to purchase QVC Common
Stock. These options will be exercisable during the period (the 'Option Period')
commencing on the date of the Company's public announcement of termination
(February 15, 1994) and will end on the later of the date that is (i) August 15,
1994, or (ii) if approval of the stockholders of the Company of the issuance of
these options to BellSouth, Advance and Cox is required, ten (10) business days
after the stockholders vote with respect to such matter (whether or not such
approval is received). The options will be exercisable by BellSouth, Cox and
Advance in whole only at any time during the Option Period.
On November 5, 1993, the Company announced that Home Shopping Network, Inc.
('HSN') and the Company agreed to terminate negotiations on a proposed merger of
HSN and the Company. The Company had made a letter proposal to HSN on July 12,
1993, to combine HSN and the Company in a stock-for-stock transaction. See
'Competition.' The proposed merger with HSN gave rise to litigation. For a
description of the litigation involving the Company and HSN, see 'ITEM 3 --
LEGAL PROCEEDINGS.'
During the fiscal year ended January 31, 1994, the Company formed joint
ventures to bring electronic retailing to the United Kingdom and Mexico. In the
United Kingdom, 'QVC--The Shopping Channel' was launched on October 1, 1993, by
the Company and British Sky Broadcasting Limited ('BSkyB'). British subscribers
receive QVC programming 24 hours a day, seven days a week, 364 days a year. In
Mexico, 'CVC Telemercado Alameda' (home shopping channel) was launched on
November 15, 1993, by the Company and Grupo Televisa, S.A. de C.V. ('Grupo
Televisa'). Unlike the QVC programming in the United States, CVC, a Spanish
language program, is primarily distributed through broadcast channels (as
opposed to cable or satellite).
On February 17, 1994, the Company announced a proposed major corporate
restructuring in order to better accommodate the Company's current and future
growth. The Company further announced plans, subject to shareholder approval, to
change its corporate name to 'QVC, Inc.' and in the interim, that name is used
by the Company as a registered trade name. Under the new corporate structure,
the Company will provide managerial and financial support for all of the
Company's operating groups. Tax planning, bank relationships, financial
statement preparation, investor relations and monetary controls, as well as
legal services and corporate communications, will all be managed internally. The
Company will be the corporate structure to oversee the development of a variety
of divisions, all of which will contribute to the previously established goal of
creating a multimedia company. The principal operating unit under QVC, Inc. will
be QVC-Electronic Retailing. The Company also announced the appointment of
Douglas S. Briggs to the new position of President -- QVC Electronic Retailing
and the retirement of Michael C. Boyd as President of the Company.
GENERAL
QVC is a nationwide general merchandise retailer, operating as one of the
two leading televised shopping retailers in the United States. Through its
merchandise-focused television programs (the 'QVC Service'), QVC sells a wide
variety of products directly to consumers. The products are
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described and demonstrated live by program hosts, and orders are placed directly
with QVC by viewers who call a toll-free '800' telephone number. QVC television
programming is produced at the Company's facilities and is broadcast nationally
via satellite to affiliated local cable system operators ('Program Carriers')
who have entered into carriage agreements (the 'Affiliation Agreements') with
the Company and who retransmit the QVC programming to their subscribers.
The QVC Service currently reaches approximately 80% of all cable television
subscribers in the United States. QVC's main channel (the 'Primary Channel'), as
of January 31, 1994, is transmitted live on a 7-day-a-week, 24-hour-a-day basis,
to approximately 44 million cable television homes and on a part-time basis to
approximately 3 million additional cable television homes. In addition, the QVC
Service can be received at any time by approximately 3 million home satellite
dish users.
Program Carriers receive monthly cash payments from the Company equal to 5%
of the net sales generated from the Program Carriers' respective service areas
and, in the past, have been issued substantial equity securities by the Company
in return for commitments to carry the QVC Service. QVC has also developed
certain incentive programs, including various forms of marketing, launch and
equipment purchase support, that are directed toward Program Carriers.
The number of homes receiving the QVC Service has grown from an average of
approximately 11 million in fiscal 1987 (the first full year of operations) to
an average of approximately 49.3 million in fiscal 1993. In addition, the
approximate net sales per Full-Time Equivalent home has increased from $13 in
fiscal 1987 to $27 in fiscal 1993. Full-Time Equivalent homes equal the total
number of cable homes receiving the QVC Service 24-hours-a-day plus one-third of
the part-time cable homes plus one-half of the satellite dish homes. A major
portion of the growth in the Company's cable television homes and revenues in
fiscal 1989, 1990 and 1991 was due to the Company's acquisition of CVN
Companies, Inc. ('CVN') in October 1989. While the Company continues to seek
further opportunities to increase the number of subscribers receiving the QVC
Service, it is unlikely that the number of subscribers receiving the QVC Service
will continue to grow at rates comparable to prior periods. Continued growth in
the Company's revenue will increasingly depend on greater penetration (i.e., the
addition of new customers from homes already reached by the QVC Service), as
well as continued growth in repeat sales to existing customers. To a lesser
extent, some revenue growth will be derived from an increase in the number of
homes receiving the QVC Service. The historical growth in the Company's revenue
and net sales per Full-Time Equivalent subscriber has been achieved over a
relatively short operating history. No assurance can be given that continued
growth of comparable levels can be achieved or that the Company's historical
levels of repeat sales can be maintained.
The QVC program schedule consists of one-hour and multi-hour program
segments. Each program segment has a theme devoted to a particular category of
product or lifestyle. From time to time, QVC broadcasts special program segments
devoted to merchandise associated with a particular celebrity, geographical
region or seasonal interest. During both regular and special program segments,
program hosts talk to viewers live on the air, and viewers are also given
opportunities to win prizes in the form of credits which may be applied toward
future purchases. Each QVC product presentation averages approximately five
minutes, resulting in approximately 80,000 merchandise presentations annually on
the Primary Channel.
The QVC Service provides viewers with the convenience of shopping at home
combined with a broad range of products priced to represent good value. QVC
selects all products presented on its programs, stocks the merchandise,
processes all orders and ships from its own distribution centers. Merchandise
offered by QVC includes jewelry, housewares, apparel, electronics, collectibles,
toys and cosmetics. During the fiscal year ended January 31, 1994, jewelry
accounted for approximately 42% of the Company's sales. Unlike some retailers
which focus primarily on national brands, a majority of the Company's revenue is
generated from sales of private brand or non-branded products. QVC's use of live
television enables program hosts to actively describe and demonstrate QVC's
merchandise, which the Company believes is more effective than the static
display of products used by traditional retailers and the still photographs used
by catalog retailers. In addition, the Company is able to introduce
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products on a nationwide basis more quickly than most retailers because the QVC
Service is broadcast nationally and customer response is immediate.
During the fiscal year ended January 31, 1994, approximately 89% of all
payments for purchases were made with a major credit card or the Company's
private label credit card. The Company's policy is to ship merchandise promptly,
typically within two to three days after receipt of an order. The Company offers
a return policy which permits customers to return within 30 days any merchandise
purchased from the Company for a full refund of the purchase price and original
shipping charges. During the fiscal year ended January 31, 1994, the Company
experienced an average return rate of approximately 21% of gross sales. An
integrated data-processing system maintains customer records, controls
inventory, facilitates credit checks and payments, and processes customer
orders.
CVN, which the Company acquired in October 1989, produced a televised
home-shopping program that was transmitted to approximately 23 million cable
television subscribers. In March 1990, the CVN program was discontinued and the
QVC Service was transmitted in its place on those cable systems not already
transmitting the QVC Service to their subscribers. By consolidating the two
televised-shopping operations, the Company has been able to achieve certain
economies in the combined companies' administrative and service functions,
including data processing, merchandising and general corporate functions.
THE QVC SERVICE
The QVC Service is designed to create a friendly sales environment. The
Company utilizes a number of sets and props to create settings in keeping with
the themes of the various segments. The sets include living room, kitchen,
outdoor and multi-purpose sets. Typically, only one product is displayed at a
time. The program host describes the use, quality, features and price of the
product. Program host dialogue is relaxed and attempts to avoid high-pressure
sales tactics. While the product is being displayed, the retail value or
manufacturer's suggested price of the product and the lower price at which a
viewer may purchase the product are both shown. From time to time, an
introductory or special price may be displayed. The shipping and handling
charges are also shown. Viewers place orders to purchase merchandise by calling
a toll-free telephone number. The Company maintains approximately 2,300 WATS
telephone lines at its Pennsylvania, Virginia and Texas order-taking and
customer service facilities. The Company uses automatic call distributing
equipment to distribute calls to its operators.
Millions of the cable television subscribers who receive the QVC Service
have been sent membership cards and promotional materials. Each person placing
an order with the Company is also given a membership number as is each person
requesting such a number. Membership numbers are used to speed order-taking and
credit authorization.
The Company has experienced greater sales growth in the fashion segment
than in most other product categories. Accordingly, in October 1991, the Company
introduced The Fashion Channel program on its secondary channel (the 'Secondary
Channel'). The Fashion Channel features fashion apparel, jewelry, cosmetics and
accessories, and, as of January 31, 1994, is transmitted on a full-time basis to
approximately 6.1 million cable television homes and on a part-time basis to an
additional 3.7 million cable television homes, nearly all of whom also receive
the Primary Channel.
The Company plans to launch a shopping channel, 'Q2,' in late spring, 1994.
Q2 will initially begin service on the weekends, targeting busy, active people
who want information and products to make the most of their leisure time. Q2
will be a strong editorial authority, featuring experts in each category, with
regularly scheduled programs. Q2 is aimed at active men as well as women.
Products will be offered in seven categories: sports, health and beauty, family
life, the home, entertainment, style, and travel. Over 32 million homes will be
able to receive Q2 under the terms of pre-existing carriages commitments,
current carriage and new contracts with cable television system operators.
Approximately half of these homes are expected to get Q2 by the end of 1994 and
a large majority will receive the service by the end of 1996.
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The Company also plans to launch 'On Q.' Initially running during weekdays,
On Q will focus on current trends. In addition to adult and children's clothing,
On Q will also offer accessories, jewelry and cosmetics. On Q will feature
current designers, affordable and disposable clothes, and cutting edge products.
Q2 and On Q will replace The Fashion Channel on the Secondary Channel.
During the fiscal year ended January 31, 1994, approximately 3.7 million
viewers made purchases from QVC, of which approximately 2.1 million made
multiple purchases.
During the fiscal year ended January 31, 1994, the Company launched two
international shopping channels, 'QVC--The Shopping Channel' in the United
Kingdom and 'CVC Telemercado Alameda' in Mexico. See 'Recent Developments'.
MARKETING
The QVC Service employs a variety of interrelated techniques for marketing
the products sold on the air, including, among others, segmentation, special
programming, 'on the air' conversations and games, introductory pricing for new
products and different credit plans.
Program Segments. The core of the Primary Channel programming consists of
hourly program segments during which merchandise fitting within the theme of the
program segment is displayed, described and demonstrated by a program host.
Among the more than 100 program segments that regularly appear on the Primary
Channel are program segments based on themes such as 'Look your Best,'
'Collector's Corner,' 'Fun and Leisure,' 'Now You're Cooking,' 'Around the
House,' 'The QVC Fashion Fair' and 'Make Life Easier.' QVC program segments are
generally life-style oriented. QVC informs its viewers of the schedule for
particular program segments by publishing a weekly schedule, as well as with
cable guide listings and on-air announcements. By providing viewers with a
weekly schedule, QVC allows viewers to tune in during program segments of
particular interest to them. The weekly schedule also allows viewers the option
of videotaping QVC program segments for viewing and shopping at a more
convenient time, during which customers may order any item still in stock.
Special Program Segments. The Primary Channel also broadcasts special
program segments from time to time as part of its programming schedule. These
program segments may be devoted to celebrity marketing, such as 'Baseball
Collectibles with Hank Aaron,' 'Joan Rivers Classics Collection' or 'Marie
Osmond's Collector Dolls,' or concentrate on a specialized theme, such as 'Back
to School Special,' 'The Gold Rush' and 'Gifts for Mother's Day.'
Games and Promotion. During regular and special program segments, in
addition to displaying and describing products, program hosts engage in 'on the
air' telephone conversations with viewers. For example, from time to time,
callers are selected to play a word game in order to win merchandise credits and
viewers are encouraged to send in postcards to enter a weekly sweepstakes. The
Company believes that 'on the air' conversations and games increase viewer
interest in the QVC Service in a cost efficient manner.
Introductory Pricing. Another element of QVC's marketing approach is
introductory pricing for new products. Approximately 200 new products are
introduced each week on the Primary Channel, many of which are offered to
customers at an initial discount to their regular prices to encourage customers
to place orders during the introductory period.
Credit Programs. The Company believes that the QVC Easy-Pay Plan and the
Company's revolving credit card program, both introduced in 1990, have
contributed to the Company's increased sales. The Company offers customers the
Easy-Pay Plan option only on selected items. The Easy-Pay Plan permits customers
to pay for such selected items in several monthly installments. When the Easy-
Pay Plan is selected by the customer, the item purchased is shipped after the
first payment is billed to the customer's credit card. The customer's credit
card is subsequently billed up to four additional monthly installments until the
total purchase price of the product has been received by the Company.
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QVC's revolving credit card program permits customers to charge purchases to the
Company's own credit card. The accounts receivable from the revolving credit
card program are purchased (with recourse) and serviced by an unrelated third
party.
PRODUCTS
The Company sells a variety of consumer products and accessories including
jewelry, apparel and accessories, housewares, collectibles, electronics, toys
and cosmetics. The Company obtains products from domestic and foreign
manufacturers and wholesalers and is often able to make purchases on favorable
terms based on the volume of the transactions. One of the Company's strategies
is to have products produced to its specifications or designed exclusively for
sale by the Company. In addition, the Company intends to continue introducing
new products and product lines. The Company is not dependent upon any one
particular supplier for any significant portion of its inventory. For the fiscal
year ended January 31, 1994, jewelry, apparel and accessories, housewares,
electronics, collectibles and other products accounted for approximately 42%,
18%, 12%, 9%, 8% and 11%, respectively, of the Company's sales.
DIAMONIQUE
The Company manufactures a proprietary line of simulated gemstone jewelry
sold under the trademark 'Diamonique.' For the fiscal year ended January 31,
1994, sales of Diamonique products manufactured by the Company were
approximately $59.8 million, or 4.9% of net revenue for such period. Because the
Company manufactures Diamonique products, profit margins on that product line
are substantially higher than the margins resulting from the sale of the
Company's products as a whole.
AGREEMENT WITH JCPENNEY TELEVISION SHOPPING CHANNEL, INC.
On May 16, 1991, the Company and JCPenney Television Shopping Channel, Inc.
('JCPTV') entered into an agreement (the 'JCPenney Agreement') which granted to
QVC a renewable one-year license of JCPTV's right to use the cable channel time
provided to JCPTV under JCPTV's affiliation agreements with its Program Carriers
and terminated a prior arrangement with JCPTV which authorized JCPTV to
distribute its programming to Program Carriers under certain of QVC's
Affiliation Agreements. As a result of the JCPenney Agreement, the Company
acquired the ability to transmit the Primary Channel to 3.5 million additional
cable television homes and to transmit the Secondary Channel to 5.9 million
cable television homes. In return for the licenses granted under the JCPenney
Agreement, QVC is obligated to pay JCPTV a fee based on net sales to subscribers
covered by JCPTV's affiliation agreements. The JCPenney Agreement was the
subject of litigation, which was settled by the parties in July, 1993. For a
description of this litigation, see 'ITEM 3 -- LEGAL PROCEEDINGS.'
The JCPenney Agreement may be terminated by JCPTV upon 60 days' notice
prior to each anniversary date and in the event JCPTV sells its interests in the
affiliation agreements. Under the JCPenney Agreement, QVC has a right of first
refusal to acquire JCPTV's interests in such affiliation agreements, subject to
any rights that may be accorded to Shop Television Network, Inc. ('STN'), either
by judicial action or agreement with JCPTV. See 'ITEM 3 -- LEGAL PROCEEDINGS.'
DISTRIBUTION AND DATA PROCESSING
QVC ships merchandise to its customers promptly from its distribution
centers at West Chester, Pennsylvania, Lancaster, Pennsylvania and Suffolk,
Virginia, typically within two to three working days after receipt of an order
for which payment is made by credit card and within two to three working days
after receipt of a check for orders paid by check. Delivery is usually made by
United Parcel Service or, for certain lightweight packages, by the United States
Postal Service. The Company currently ships selected products having a purchase
price greater than $200 by Federal Express, with the customer paying only the
normal shipping and handling charge. For an additional charge, a
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customer may have most other products shipped by Federal Express or United
Parcel Service's air service.
The Company has several interconnected computer systems. The input from
approximately 880 order entry terminals and approximately 360 customer service
terminals in the Pennsylvania, Virginia and Texas facilities is processed by a
fault-tolerant Stratus computer system. Purchasing, receiving, inventory
management, order fulfillment and financial reporting functions are performed by
multi-processor IBM and Teradata computer systems.
QVC SERVICE TRANSMISSION
The QVC Service signal is transmitted via two exclusive, protected,
non-preemptible transponders on communications satellites. Each communications
satellite has a number of separate transponders. 'Protected' status means that,
in the event of transponder failure, QVC's signal will be transferred to a spare
transponder or, if none is available, to a preemptible transponder located on
the same satellite or, in certain cases, to a transponder on another satellite
owned by the same lessor if one is available at the time of the failure.
'Non-preemptible' status means that the transponder cannot be preempted in favor
of a user of a 'protected' transponder that has failed. The Company has never
had an interruption in programming due to transponder failure and believes that
because it has the exclusive use of two protected, non-preemptible transponders,
such interruption is unlikely to occur. There can be no assurance, however, that
there will not be an interruption or termination of satellite transmission due
to transponder failure. Such interruption or termination could have a material
adverse effect on QVC.
PROGRAM CARRIERS
QVC's business is highly dependent on its affiliation with Program Carriers
for the transmission of the QVC Service to cable television homes.
QVC has entered into Affiliation Agreements with Program Carriers to carry
the QVC Service on their cable systems generally as part of the basic cable
television service. There are no additional charges to the subscribers for
distribution of the QVC Service except in an insignificant number of cases. In
return for carrying the QVC Service on their cable systems, each Program Carrier
receives five percent (5%) of the net sales of merchandise sold to customers
located in the Program Carrier's service area. QVC paid commissions to Program
Carriers of $9.0 million in the fiscal year ended January 31, 1989, $19.9
million in the fiscal year ended January 31, 1990 (including three months of
payments on sales by CVN), $36.0 million in the fiscal year ended January 31,
1991, $46.8 million in the fiscal year ended January 31, 1992, $57.7 million in
the fiscal year ended January 31, 1993, and $65.4 million in the fiscal year
ended January 31, 1994. If not renewed, Affiliation Agreements (not including
JCPTV's affiliation agreements) covering approximately 44% of the homes to which
the QVC Service is transmitted will expire by the year 1995, approximately 13%
will expire between 1996 and 2000, and the balance will expire between 2001 and
2005. The terms of most Affiliation Agreements are automatically renewable for
one-year terms unless terminated by either party on at least 90 days' notice
prior to the end of the term. Affiliation Agreements covering most of the
Company's cable television homes can be terminated in the sixth year of their
respective terms by the Program Carrier unless the Program Carrier earns a
specified minimum level of sales commissions. The Company's sales are currently
at levels that would meet such minimum requirements. The Affiliation Agreements
provide for the Program Carrier to broadcast commercials regarding the QVC
Service on other channels and to distribute the Company's advertising material
to subscribers.
Renewal of these Affiliation Agreements on favorable terms is dependent
upon QVC's ability to negotiate successfully with Program Carriers. The QVC
Service competes for cable channels with competitive programming as well as
alternative programming supplied by a variety of other well-established sources,
including news, public affairs, entertainment and sports programmers. The loss
of a significant number of cable television homes because of termination or
non-renewal of Affiliation Agreements would have a material adverse effect on
the Company. To induce Program Carriers to
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enter into or extend Affiliation Agreements or to increase the number of cable
television homes under existing Affiliation Agreements, the Company has
developed other incentive programs, including various forms of marketing, launch
and equipment purchase support, and has in the past issued to Program Carriers
substantial equity securities at nominal prices. The Company will attempt to
continue to recruit additional Program Carriers and seek to enlarge the audience
for the QVC Service.
Program Carriers and their affiliates own in the aggregate almost half of
the Company's outstanding Common Stock. Liberty Media Corporation ('Liberty'),
Comcast, Time Warner Inc. ('Time Warner'), and their respective affiliates, in
addition to being major Program Carriers, are significant shareholders of the
Company. In addition, two representatives of Liberty and one representative of
Time Warner served on QVC's Board of Directors for part of the fiscal year ended
January 31, 1994, and two representatives of Comcast currently serve on QVC's
Board of Directors. Moreover, pursuant to a July 16, 1993 Stockholders'
Agreement, Liberty and Comcast, together with Mr. Barry Diller, Chairman and
Chief Executive Officer of the Company, are part of a group formed to control
the future direction of the Company and the scope of its business. Because
Program Carriers, in addition to their share ownership, are and will continue to
be the suppliers of an essential service to QVC and thus have contractual and
business relationships with QVC, their interests may not always coincide with
the interests of other shareholders of the Company.
GOVERNMENT REGULATIONS
The Federal Communications Commission (the 'FCC') does not directly
regulate programming services like those offered by the Company, which are
provided by means of certain types of satellites such as those used by the
Company. The FCC does, however, exercise regulatory authority over the
satellites and uplink facilities which transmit programming.
The FCC grants licenses to construct and operate uplink equipment, which
transmits signals to satellites. The FCC has granted permanent licenses subject
to periodic reviews to the Company for its uplink facilities (and for backup
equipment of certain of these facilities) at sufficient power levels for
transmission of the QVC Service.
The FCC has jurisdiction over satellite service and facility providers.
Regarding the satellites from which the Company obtains transponder capacity,
the FCC presently exercises licensing authority but does not regulate the rates,
terms or conditions of service provided by these facilities. Pursuant to its
residual statutory authority, the FCC could, however, alter the regulatory
obligations applicable to satellite service providers.
On October 4, 1992, Congress enacted the Cable Television Consumer
Protection and Competition Act of 1992 (the 'Cable Act'). Pursuant to the Cable
Act, the FCC made a determination that broadcast television stations that are
predominantly utilized for the transmission of sales presentations or program
length commercials serve the public interest, convenience and necessity and are,
therefore, eligible for mandatory carriage ('must carry') by cable systems. A
United States District Court has held that the must carry provisions of the
Cable Act are constitutional. This decision has been appealed to the United
States Supreme Court. The Company has experienced increased competition on those
cable systems that have limited channel capacity as a result of the must-carry
legislation.
In accordance with the Cable Act's directive to establish reasonable limits
on the number of channels on a cable system that can be occupied by a video
programmer in which a cable operator has an attributable interest, the FCC
recently adopted vertical ownership restrictions which, effective January 10,
1994, prohibit (subject to certain exemptions) a cable system operator from
holding attributable interests in video programmers collectively occupying more
than 40% of the channel capacity of its cable system. The restrictions on
channel occupancy do not apply to channel capacity in excess of 75 channels. For
purposes of calculating the 40% benchmark, the FCC defines 'attributable
interest' as it defines the term for purposes of applying its broadcast
cross-ownership restrictions.
11
<PAGE>
TRADEMARKS, SERVICE MARKS AND TRADENAMES
The Company has registered its trademarks and service marks and will
continue to do so as they are developed or acquired. The Company vigorously
protects such marks and believes that there is substantial goodwill associated
with them. Among these marks, the most important are the service mark 'QVC' and
the trademark 'Diamonique.' However, the Company believes that the loss of
either or both of these marks would not have a material adverse effect on the
business of QVC.
COMPETITION
The Company operates in a highly competitive environment. As a general
merchandise retailer, the Company competes for consumer expenditures and
interest with the entire retail industry, including department, discount,
warehouse and specialty stores, mail order and other direct sellers, shopping
center and mall tenants and conventional free-standing stores, many of which are
connected in chain or franchise systems. On television, it is also in
competition with other satellite-transmitted programs, especially
televised-shopping programs, for channel space and viewer loyalty. The Company
believes that most Program Carriers will not be willing to devote more than two
channels to televised shopping and may allocate only one until digital
compression is utilized on a large-scale basis several years in the future. Many
systems have limited channel capacity and may be precluded from adding any new
programs at the present time. The development and utilization of digital
compression is expected to provide Program Carriers with greater channel
capacity thereby increasing the opportunity for the QVC Service, in addition to
other home shopping programs, to be broadcast on additional channels.
The Company's principal competition in the televised-shopping field is HSN.
The sales of the Company and HSN, when added together, account for substantially
all televised-shopping sales. On February 12, 1993, Liberty, which is a
significant shareholder of the Company as well as part of a group formed to
control the future direction of the Company and the scope of its business,
consummated a transaction pursuant to which Liberty acquired a controlling
interest in HSN. Immediately following the closing, Liberty delivered a merger
proposal to the HSN Board of Directors. Subsequently, Liberty withdrew that
proposal. On April 19, 1993, Liberty announced its intention to commence a cash
tender offer to purchase up to 15 million shares of HSN common stock at a price
of $7.00 per share. See 'ITEM 3 -- LEGAL PROCEEDINGS.'
During the fiscal year ended January 31, 1994, merger discussions between
the Company and HSN were initiated and subsequently terminated. See 'Recent
Developments.'
The Company's principal competitors in the general retailing field are
larger or more diversified than the Company. The Company believes that it is
able to compete effectively by offering its customers a wide range of quality
merchandise at a savings with a high degree of convenience and customer service.
SEASONALITY
The Company's business is seasonal in nature, with its major selling season
during the last quarter of the calendar year. Net revenue for the fourth quarter
of the fiscal year ended January 31, 1994 accounted for approximately 30% of the
Company's annual net revenue.
EMPLOYEES
As of January 31, 1994, the Company had approximately 3,700 full-time
employees and 800 part-time employees. None of the Company's employees are
covered by a collective bargaining agreement. The Company considers its employee
relations to be good.
BUSINESS DEVELOPMENT
The Company is considering further development of activities in which it is
now engaged and investment in and development of activities in which it is not
currently engaged. These activities may include expansion of the Company's
existing lines of business and service, exploring new lines of
12
<PAGE>
business outside the scope of the Company's present televised shopping services,
participation in emerging new technologies and possible new businesses. See
'Recent Developments' and 'The QVC Service.'
ITEM 2 -- PROPERTIES
In 1986, the Company purchased a building situated on 21 acres of land in
West Chester, Pennsylvania, which now consists of approximately 266,000 square
feet. This facility contains the television studios for production and
transmission of the QVC Service, telecommunications center, general offices, and
the Company's jewelry warehouse and shipping facilities. The Company also leases
an approximately 38,000 square foot building in West Chester, Pennsylvania, as
additional office space. The lease expires in June 1995 and is subject to one
five-year renewal option.
The Company owns an approximately 200,000 square foot warehouse in
Lancaster, Pennsylvania. The Company owns approximately eight acres of
unimproved land adjoining the warehouse location. In 1989, QVC leased a 130,000
square foot warehouse in Lancaster, Pennsylvania, for the processing and storage
of returned products. The lease expires in August 1995. In 1994, the Company
renewed a five-year lease for a 30,000 square foot facility in Horsham,
Pennsylvania, for a new jewelry production facility.
The Company owns a 782,000 square foot distribution facility in Suffolk,
Virginia. Such facility is subject to a first mortgage granted to Northwestern
National Life Insurance Company.
The Company also owns a 70,000 square foot telecommunications facility in
San Antonio, Texas, and a 50,000 square foot, state-of-the-art
telecommunications center in Chesapeake, Virginia, which was officially opened
on October 17, 1993.
The Company leases an approximately 2,600 square foot facility in
Englewood, Colorado, for use by its Affiliate Relations Department. The lease
expires in June 1995.
The Company also has an exclusive license to use and occupy, on a full-time
basis, a portion of certain television programming facilities (two studios,
control, edit and graphics rooms, and dressing rooms) and certain office space
and a nonexclusive license to use all common areas thereof, in Long Island City,
New York. The license agreement expires in September 1995, unless extended by
the Company.
The Company operates four retail outlet stores located in shopping centers
in Frazer, Drexel Hill and Lancaster, Pennsylvania, and Wilmington, Delaware,
for the sale of excess merchandise. The Company leases the store premises under
operating lease agreements expiring at various dates through 1998.
The Company leases certain of its data processing equipment and some of its
telecommunications and warehouse equipment. In addition, the Company has service
agreements for its satellite transponders.
ITEM 3 -- LEGAL PROCEEDINGS
On March 28, 1991, STN filed an action against J.C. Penney Company, Inc.
('JCP'), JCPTV and the Company in the Superior Court of the State of California
for the County of Los Angeles. The action purportedly arose out of the
negotiation and execution of the JCPenney Agreement. See 'Agreement with
JCPenney Television Shopping Channel, Inc.' Pursuant to a second amended
complaint, STN alleged, among other things, that JCPTV breached a separate
agreement between STN and JCPTV by, among other things, licensing JCPTV's
affiliation agreements to the Company via the JCPenney Agreement. STN also
alleged that the Company, in connection with the alleged breaches by JCPTV,
tortuously interfered with contract, engaged in unfair competition and committed
violations of California's Cartwright Act. The second amended complaint sought
specific performance of contract, declaratory and injunctive relief and damages
in excess of $200.0 million, as well as unspecified punitive and exemplary
damages, treble damages, interest and attorneys' fees from JCP, JCPTV and the
Company. JCP and JCPTV filed a related cross-action against STN and Michael
Rosen ('Rosen').
13
<PAGE>
In February 1992, STN filed a Voluntary Petition for Bankruptcy under Chapter 11
of the United States Bankruptcy Code in the United States Bankruptcy Court for
the Central District of California (the 'Bankruptcy Court'). On or about July 9,
1993, STN, JCP, JCPTV, Rosen and the Company executed a Settlement Agreement and
Mutual Release, pursuant to which the parties agreed to settle all pending
litigation between them. The settlement required dismissal of all pending
litigation, payment of approximately $8.8 million to STN, and repurchase by STN
of all its shares held by JCP for an agreed price, and was subject to the
approval of the Bankruptcy Court. On or about August 3, 1993, the Bankruptcy
Court entered an order approving the settlement agreement (the 'Bankruptcy
Order'). The Bankruptcy Order also provided that if the STN bankruptcy is
dismissed, the Bankruptcy Order would remain in full force and effect as a final
order of the Bankruptcy Court. JCPTV and the Company executed an Amendment to
the JCPenney Agreement, pursuant to which (1) JCPTV and the Company divided the
payment of the approximately $8.8 million to STN between them and (2) certain
termination rights of JCPTV were eliminated. This Amendment became effective
upon the signing of the Bankruptcy Order. Under the terms of an agreement
between the Company and JCPTV, the Company was responsible for the payment of
approximately $3.8 million of the settlement payment to STN.
On or about July 19, 1993, the Company was served with a copy of a Third
Consolidated Amended and Supplemental Class Action Complaint ('Third Complaint')
in certain litigation pending in the Delaware Chancery Court ('HSN State
Action'). That litigation was purportedly instituted in February of 1993 as a
class action by certain current and former shareholders of HSN, against HSN,
Liberty, Liberty Program Investments, Inc. ('Liberty Program Investments'), Roy
Speer ('Speer'), RMS Limited Partnership ('RMS'), John C. Malone ('Malone'),
Peter R. Barton ('Barton'), Robert R. Bennett ('Bennett'), John M. Draper,
Gerald F. Hogan ('Hogan'), Anthony Forstmann ('Forstmann'), John J. McNamara
('McNamara') and Les R. Wandler ('Wandler'). The litigation challenges Liberty's
purchase, in February of 1993, of RMS's 20 million shares of HSN Class B common
stock for $58 million in cash and 4 million shares of Liberty Class A common
stock (the 'RMS Sale'), and Liberty's April 19, 1993 tender offer for 15 million
shares of HSN common stock at a price of $7 per share (the 'Liberty Tender
Offer'). Plaintiffs allege, among other things, violations of Delaware corporate
law, breaches of fiduciary duties to minority shareholders, inadequate and
misleading disclosure of information to HSN's public shareholders, and
unfairness of stock sale prices, in connection with the RMS Sale and the Liberty
Tender Offer. The Third Complaint joined the Company as an additional defendant,
alleging only that the Company had aided and abetted Liberty's breaches of
fiduciary duties to HSN's public shareholders in connection with the Company's
July 12, 1993 letter proposal to HSN to combine HSN and the Company in a
stock-for-stock transaction (the 'Proposed HSN Merger'). The Third Complaint
seeks class certification, declaratory and injunctive relief, compensatory
damages in an amount to be determined upon proof submitted to the court, an
accounting of benefits and profits, costs and disbursements, counsel and expert
fees, and interest. Plaintiffs seek to rescind the Liberty Tender Offer, to
impose a constructive trust for the benefit of the alleged class on the proceeds
from the RMS Sale, and to enjoin consummation of the Proposed HSN Merger. Prior
to the filing of the Third Complaint (and before QVC was named as a defendant),
plaintiffs had moved for a preliminary injunction against the Liberty Tender
Offer, which motion was denied on May 19, 1993. None of the prior claims on
which plaintiffs had moved for a preliminary injunction (which raised questions
of tender offer disclosure and compliance with the Delaware state anti-takeover
statute) involved QVC. After the Third Complaint was filed, plaintiffs issued
document requests to the defendants, including QVC. The Company responded by
producing a limited number of publicly available documents and objecting to
further document production as premature. The Company's time to respond to the
Third Complaint has been extended indefinitely.
On or about July 21, 1993, the Company was served with a copy of a Summons
and Complaint that was filed by Gerda Bartnik, Gerda Bartnik as attorney-in-fact
for Christa Weckermann, Gerda Bartnik as custodian for minor Richard Bartnik,
Michael Feder, David Arazie and Jonathan Greenwald, against HSN, Liberty, the
Company, Speer, Wandler, Malone, Barton, Bennett, Hogan, Forstmann and McNamara,
in the United States District Court for the District of Delaware (the 'Delaware
Federal Court'). On or about July 26, 1993, and in mid-August, 1993, the Company
was served with Complaints that were separately filed by Meny Beriro and
Lawrence G. Metzger, respectively, against
14
<PAGE>
HSN, Liberty, the Company, Speer, Wandler, Malone, Barton, Bennett, Hogan,
Forstmann and McNamara, in the Delaware Federal Court. In these three
shareholder actions in Delaware Federal Court (collectively, the 'HSN Federal
Action'), the plaintiffs claim to be former HSN shareholders who sold their HSN
stock in the Liberty Tender Offer. The lawsuits challenge the RMS Sale and the
Liberty Tender Offer, and allege violations of Section 10(b) and Rule 10b-5, as
well as Sections 20, 20A and 14(e), of the Securities Exchange Act, and
negligent misrepresentation. The Company was named as a defendant in all three
actions only for allegedly aiding and abetting Liberty's violations of Section
10(b) and Rule 10b-5. Plaintiffs in the HSN Federal Action seek class
certification, declaratory relief, compensatory damages, counsel fees, interests
and costs. The parties jointly filed a motion to consolidate the HSN Federal
Action, along with a scheduling order similar to the one filed in the HSN State
Action. The Delaware Federal Court signed both orders on or about September 3,
1993, and the HSN Federal Action became a consolidated action captioned under
the Bartnik complaint. A scheduling conference was held on December 16, 1993,
and the court subsequently entered a scheduling order on December 29, 1993 (the
'Scheduling Order'). Pursuant to the Scheduling Order, the plaintiffs filed a
consolidated amended complaint on February 15, 1994. On March 15, 1994, the
Company filed a motion to dismiss the complaint as to QVC for failure to state a
claim on which relief may be granted. In light of settlement-related
negotiations (discussed below), the Company and the named plaintiffs in the HSN
Federal Action entered into a stipulation, which was entered as an order of the
court on or about April 15, 1994, extending plaintiffs' time to respond to QVC's
motion to dismiss.
Management believes that the allegations against the Company in the HSN
State Action and the HSN Federal Action (collectively, the 'HSN Shareholder
Actions') are unfounded and intends to defend against the HSN Shareholder
Actions vigorously.
On November 5, 1993, the Company announced that HSN and the Company agreed
to terminate negotiations on the Proposed HSN Merger.
Plaintiffs in the HSN Shareholder Actions and the Liberty defendants
(Liberty, Liberty Program Investments, Malone, Barton, Bennett and Draper)
executed a Memorandum of Understanding dated as of December 31, 1993, and
amended February 7, 1994 (the 'MOU'), setting forth an agreement in principle
regarding a global settlement of the HSN Shareholder Actions for a total
consideration of $13,000,000 (plus $200,000 to cover the expenses of
administering the settlement). Pursuant to the MOU, the settlement would be
funded by Liberty, who would still have the right to seek contribution from any
of the defendants in the HSN Shareholder Actions. The Company did not have an
opportunity by December 31, 1993, to consider whether to join the settlement.
The parties to the MOU and QVC are currently negotiating with respect to a
revised MOU pursuant to which, among other things, QVC would join in the
proposed settlement of the HSN Shareholder Actions.
On or about September 8, 1993, the Federal Trade Commission ('FTC')
requested additional information on the Proposed HSN Merger. Such request
extended the waiting period under the Hart-Scott-Rodino antitrust law until 20
days after the requested information was provided. On November 5, 1993 (after
the Company and HSN ended their merger discussions), the Company withdrew the
Premerger Notification and Report Form it had previously filed with the
Antitrust Division of the Department of Justice and the FTC pursuant to the
Hart-Scott-Rodino antitrust law with respect to the Proposed HSN Merger.
In September, 1993, the Company was named a defendant in an action
commenced by Viacom International Inc. ('Viacom International'), a subsidiary of
Viacom, in the United States District Court for the Southern District of New
York (the 'Viacom Action'). Viacom International also named Tele-Communications,
Inc. ('TCI'), Liberty, Satellite Services, Inc., Encore Media Corp., and Netlink
USA as defendants. An amended complaint was filed on November 9, 1993, which
added Comcast as a defendant. Comcast was subsequently dismissed as a defendant.
As it relates to QVC, the Viacom Action challenges the Company's bid to acquire
Paramount, alleging that a QVC acquisition of Paramount would substantially
lessen competition in violation of the Clayton Act and would constitute tortious
interference with agreements between Paramount and Viacom. (As previously set
forth, Viacom acquired Paramount in a cash and stock-for-stock exchange.) The
Company filed an answer to the amended complaint denying the complaint's
material allegations and asserting various
15
<PAGE>
affirmative defenses. Management believes that these claims are without merit
and intends to defend against such action vigorously.
On October 21, 1993, the Company commenced legal action in the Delaware
Chancery Court against Viacom, Paramount and certain Paramount directors for
breach of fiduciary duty in failing to give fair treatment to QVC's proposed
merger with Paramount, while granting undue advantages to Viacom and Viacom's
proposed merger with Paramount (the 'QVC Action'). The Company sought to compel
Paramount's Board of Directors to give QVC's proposal equal consideration with
Viacom's proposal. The Company also sought to invalidate certain 'lockup'
agreements and share purchase options given by Paramount to Viacom, which would
make a merger with anyone other than Viacom more costly and difficult. On
November 16, 1993, the Delaware Chancery Court held a hearing on the QVC Action.
On November 24, 1993, the court issued a Memorandum Opinion granting the
Company's motion for a preliminary injunction against Paramount's poison pill
rights plan and other anti-takeover mechanisms being used to preclude the
Paramount shareholders from accepting the Company's then $90 cash tender offer
for approximately 51% of Paramount's shares. See 'Recent Developments.' The
court also struck down the stock option lock-up (currently worth approximately
$500 million) granted by the Paramount Board of Directors to Viacom on September
12, 1993. The court found that the Paramount directors had failed to discharge
their fiduciary duties (a) to seek the best available transaction under
applicable case law and (b) to adequately inform themselves as to the QVC offer.
The court did not enjoin the $100 million termination fee; however, the Company
waived the condition to its offer requiring that such fee be enjoined. The
Delaware Chancery Court's decision was appealed by Paramount and Viacom to the
Delaware Supreme Court. The Delaware Supreme Court held a hearing on December 9,
1993, and, on the same day, affirmed the injunction granted by the Delaware
Chancery Court against the Paramount Board of Directors prohibiting the
directors from favoring the management-sponsored Viacom bid for Paramount. The
injunction affirmed by the appellate court prohibited the Paramount directors
from using the anti-takeover poison pill rights plan in favor of Viacom and
enjoined the lock-up stock option that the Paramount directors gave to Viacom.
On February 4, 1994, the Delaware Supreme Court issued a formal opinion in
support of its December 9, 1993 order. On December 21, 1993, Viacom filed a
motion to dismiss the Company's complaint against it.
On November 5, 1993, the FTC requested additional information on the
Company's proposed business combination with Paramount. Such request extended
the waiting period under the Hart-Scott-Rodino antitrust law until 10 days after
the requested information was provided. On November 15, 1993, the FTC accepted
for public comment a proposed consent order with TCI and Liberty and granted
termination of the Hart-Scott-Rodino waiting period applicable to the Company's
proposed acquisition of Paramount.
On February 15, 1994, the Company terminated its tender offer for 50.1% of
the outstanding common stock of Paramount because it did not receive the minimum
condition in such tender offer by the February 14, 1994 deadline and because
Viacom had received the minimum condition in its tender offer by that deadline,
had taken the action required by its merger agreement with Paramount and had
delivered to Paramount a completion certificate pursuant to its bidding
procedures. See 'Recent Developments.'
The Company has also been named as a defendant in various legal proceedings
arising in the ordinary course of business. Although the outcome of these
matters cannot be determined, in the opinion of management, disposition of these
proceedings will not have a material effect on the Company's financial position.
ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of the fiscal year
ended January 31, 1994, to a vote of security holders through the solicitation
of proxies or otherwise.
16
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PART II
ITEM 5 -- MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock of the Company is traded on the National Association of
Securities Dealers, Inc. ('NASD') Automated Quotation National Market System
under the symbol 'QVCN.' The following table sets forth the high and low bid
information of the Company's Common Stock as reported by the NASD for each
quarter of the past two fiscal years.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
JANUARY 31, 1993
- ----------------------------------------------------------------------
<S> <C> <C>
February 1, 1992 -- April 30, 1992.................................... $ 20 1/2 $ 16 1/2
May 1, 1992 -- July 31, 1992.......................................... 24 1/4 16 1/4
August 1, 1992 -- October 31, 1992.................................... 24 1/4 16 1/4
November 1, 1992 -- January 31, 1993.................................. 42 1/4 20 1/8
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
JANUARY 31, 1994
- ----------------------------------------------------------------------
<S> <C> <C>
February 1, 1993 -- April 30, 1993.................................... $ 60 1/2 $ 38 1/4
May 1, 1993 -- July 31, 1993.......................................... 73 51 3/4
August 1, 1993 -- October 31, 1993.................................... 70 1/4 52 3/4
November 1, 1993 -- January 31, 1994.................................. 58 3/4 37
</TABLE>
On March 31, 1994, the closing sales price of the Company's Common Stock
was $36 3/8. There is no established market for the Series B Preferred Stock,
the Series C Preferred Stock or the Series D Preferred Stock of the Company. For
the purposes of determining the market value of voting securities held by
non-affiliates as of the close of business on March 31, 1994, it has been
assumed that the market value of shares of Series B Preferred Stock, Series C
Preferred Stock and Series D Preferred Stock is the market price of the number
of shares into which such Preferred Stock will be convertible.
As of March 31, 1994, there were approximately 4,600 holders of record of
the Company's Common Stock, 4 holders of the Company's Series B Preferred Stock,
10 holders of the Company's Series C Preferred Stock and 2 holders of Series D
Preferred Stock. There are also 10,000 shares of Series A Preferred Stock
designated but, as of March 31, 1994, none were outstanding. All shares of the
Class B Common Stock of the Company previously outstanding have been redeemed or
converted into shares of Common Stock.
On April 18, 1989, the Board of Directors of the Company established a
quarterly cash dividend policy for shares of QVC Common Stock. At that time, the
Board declared an initial dividend of $.10 per share of Common Stock to
stockholders of record as of May 26, 1989. On June 23, 1989, September 26, 1989
and January 22, 1990 dividends of $.10 per share of Common Stock were paid to
holders of record on May 26, 1989, September 12, 1989, and January 2, 1990,
respectively. On March 13, 1990, the Board of Directors of the Company suspended
the quarterly cash dividend policy.
17
<PAGE>
ITEM 6 -- SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JANUARY 31,
-------------------------------------------------------------------
1994 1993 1992 1991 1990
------------- ------------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Summary Statements of Operations Data
Net revenue............................... $ 1,222,104 $ 1,070,587 $ 921,804 $ 776,029 $ 453,325
------------- ------------- ----------- ----------- -----------
Income (loss) before extraordinary item
and cumulative effect of a change in
accounting
principle.............................. $ 55,311 $ 56,588 $ 21,733 $ (16,985) $ 6,347
------------- ------------- ----------- ----------- -----------
Net income (loss)......................... $ 59,301 $ 55,092 $ 19,625 $ (16,985) $ 6,347
------------- ------------- ----------- ----------- -----------
Income (loss) per share:
Primary:
Income (loss) before extraordinary item
and cumulative effect of a change in
accounting principle................ $ 1.10 $ 1.32 $ .68 $ (.98) $ .35
------------- ------------- ----------- ----------- -----------
Net income (loss)...................... $ 1.18 $ 1.29 $ .61 $ (.98) $ .35
------------- ------------- ----------- ----------- -----------
Fully diluted:
Income (loss) before extraordinary item
and cumulative effect of a change in
accounting principle................ $ 1.10 $ 1.27 $ .67 $ (.98) $ .35
------------- ------------- ----------- ----------- -----------
Net income (loss)...................... $ 1.18 $ 1.24 $ .61 $ (.98) $ .35
------------- ------------- ----------- ----------- -----------
Cash dividends per Common
share.................................. $ -- $ -- $ -- $ -- $ .30
------------- ------------- ----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
------------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Summary Balance Sheet Data at January 31,
Total assets.............................. $ 878,160 $ 699,695 $ 714,539 $ 740,183 $ 768,221
------------- ------------- ----------- ----------- -----------
Long-term debt............................ $ 7,044 $ 7,586 $ 152,461 $ 366,688 $ 396,233
------------- ------------- ----------- ----------- -----------
</TABLE>
ITEM 7 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Company is a retailer of a wide range of consumer products which are
marketed and sold primarily by merchandise-focused televised-shopping programs.
The average number of homes receiving the QVC Service was:
<TABLE>
<CAPTION>
FISCAL YEAR
-------------------------------
1993 1992 1991
--------- --------- ---------
(IN MILLIONS, EXCEPT DOLLAR AMOUNTS)
<S> <C> <C> <C>
Cable homes -- 24 hours per day...................................... 43.3 40.4 36.4
Cable homes -- part-time............................................. 3.0 2.9 3.8
Satellite dish homes (estimated)..................................... 3.0 3.0 3.0
--------- --------- ---------
Total........................................................... 49.3 46.3 43.2
--------- --------- ---------
--------- --------- ---------
Full-time equivalent homes ('FTE')................................... 45.8 42.9 39.2
--------- --------- ---------
--------- --------- ---------
QVC net sales per FTE home........................................... $ 26.56 $ 24.85 $ 23.37
--------- --------- ---------
--------- --------- ---------
</TABLE>
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<PAGE>
FTE homes equal the total number of cable homes receiving the QVC Service
24 hours per day plus one-third of the part-time cable homes plus one-half of
the satellite dish homes. This calculation reflects the Company's estimate of
the relative value to the Company of part-time homes and satellite dish homes
compared to full-time homes. QVC net sales excludes non-merchandise revenue.
The increase in the number of homes receiving the QVC Service in fiscal
1993 is due to growth in the number of homes in existing cable systems. In
fiscal 1992, the growth in the number of homes reflects the full year's effect
of the homes obtained under a license agreement with JCPenney Television
Shopping Channel, Inc. ('JCPTV') in 1991 and growth in the number of homes in
existing cable systems.
Net revenue and operating income have increased since 1991 due to the
increase in the number of homes receiving the QVC Service and, to a lesser
extent, an increase in net sales to existing subscribers. It is unlikely that
the number of homes receiving the QVC Service will continue to grow at rates
comparable to prior periods, given that the QVC Service is already received by
approximately 80% of all of the cable television homes in the United States. As
relative growth in the number of homes declines, future growth in sales will
depend increasingly on continued additions of new customers from homes already
receiving the QVC Service and continued growth in repeat sales to existing
customers.
Operating profit margins have improved since fiscal 1991 largely as a
result of variable costs not growing in proportion to increases in revenue,
general and administrative costs not increasing as much as the revenue increase
and the relatively fixed nature of depreciation and amortization.
RESULTS OF OPERATIONS
The following table sets forth the Company's statements of operations
expressed as a percentage of net revenue:
<TABLE>
<CAPTION>
FISCAL YEAR
-------------------------------
1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
Net revenue............................................................. 100.0% 100.0% 100.0%
Cost of goods sold...................................................... 59.2 58.1 58.0
--------- --------- ---------
Gross profit............................................................ 40.8 41.9 42.0
--------- --------- ---------
Operating expenses:
Variable costs........................................................ 14.0 15.0 15.8
General and administrative............................................ 10.9 11.5 12.0
Depreciation.......................................................... 1.4 1.6 1.8
Amortization of intangible assets..................................... 2.1 2.8 3.2
--------- --------- ---------
28.4 30.9 32.8
--------- --------- ---------
Operating income........................................................ 12.4 11.0 9.2
--------- --------- ---------
Other income (expense):
Costs of Paramount tender offer....................................... (2.8) -- --
Losses from joint ventures............................................ (0.9) -- --
Interest expense...................................................... (0.1) (1.7) (4.2)
Interest income....................................................... 0.9 0.8 0.8
--------- --------- ---------
(2.9) (0.9) (3.4)
--------- --------- ---------
Income before income taxes, extraordinary item and cumulative effect of
a change in accounting principle...................................... 9.5 10.1 5.8
Income tax provision.................................................... (4.9) (4.9) (3.4)
--------- --------- ---------
Income before extraordinary item and cumulative effect of a change in
accounting principle.................................................. 4.6 5.2 2.4
Extraordinary item, net of tax benefit.................................. -- (0.1) (0.3)
Cumulative effect of a change in accounting for income
taxes................................................................. 0.3 -- --
--------- --------- ---------
Net income.............................................................. 4.9% 5.1% 2.1%
--------- --------- ---------
--------- --------- ---------
</TABLE>
19
<PAGE>
NET REVENUE AND GROSS PROFIT
Net revenue in 1993 was $1.22 billion, an increase of 14.2% over the net
revenue in the prior year. Net revenue in 1992 of $1.07 billion was 16.1% over
the $921.8 million in net revenue in 1991. In 1993, the sales increase was due
to the 6.8% increase in the average number of homes receiving the QVC Service as
well as the 6.9% increase in net sales per FTE home. The sales increase in 1992
was due to the 9.4% increase in the average number of homes receiving the QVC
Service and the 6.3% increase in net sales per FTE home.
Net revenue in 1993 included $26.2 million of net sales from The QVC
Fashion Channel to 8.1 million FTE homes compared to $29.7 million of net sales
to 7.3 million FTE homes in 1992. In 1991, net revenue included $7.9 million of
net sales from the secondary channel to 8.1 million FTE homes.
The Company is starting a new shopping service, consisting of On Q and Q2,
which are scheduled to be launched in the spring of 1994 to replace The QVC
Fashion Channel. On Q will be QVC's new fashion service for younger adults and
will broadcast weekdays. Q2 is being designed for the audience that has not yet
purchased from traditional home-shopping formats and will broadcast on weekends.
The Company has two credit programs, the QVC Easy-Pay Plan and the QVC
revolving credit card program. The Company offers customers the Easy-Pay Plan
option only on selected items. The Easy-Pay Plan permits customers to pay for
such selected items in several monthly installments. When the Easy-Pay Plan is
selected by the customer, the item purchased is shipped after the first payment
is billed to the customer's credit card. The customer's credit card is
subsequently billed up to four additional monthly installments until the total
purchase price of the product has been received by the Company. QVC's revolving
credit card program permits customers to charge purchases on the Company's own
credit card. The accounts receivable from the revolving credit card program are
purchased (with recourse) and serviced by an unrelated third party. Sales under
these credit programs amounted to 40.8%, 40.3% and 39.7% of net revenue for
1993, 1992 and 1991, respectively. The loss provision for uncollectible accounts
under these credit programs amounted to $22.3 million, $25.6 million and $25.2
million in 1993, 1992 and 1991, respectively.
The sales mix for the past three years by product category as a percentage
of net sales has been:
<TABLE>
<CAPTION>
FISCAL YEAR
-------------------------------
1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
Jewelry................................................................ 41.9% 43.0% 45.7%
Apparel and accessories................................................ 17.8 17.4 14.6
Housewares............................................................. 12.0 12.3 14.2
Electronics............................................................ 8.6 8.1 8.4
Collectibles........................................................... 8.4 8.0 8.0
Other.................................................................. 11.3 11.2 9.1
--------- --------- ---------
100.0% 100.0% 100.0%
--------- --------- ---------
--------- --------- ---------
</TABLE>
Gross profit for 1993 was $498.9 million, or 40.8% of net revenue, compared
to $448.7 million, or 41.9% of net revenue, in 1992 and $387.2 million, or 42.0%
of net revenue, in 1991. The principal reason for the increased amounts of gross
profit was the increased sales volume. The decrease in the 1993 gross profit
percentage was due to increased shipping and handling charges, higher gold
prices and a higher return rate on sales.
20
<PAGE>
VARIABLE COSTS
Variable costs totaled $171.2 million, $160.4 million and $145.3 million
for fiscal years 1993, 1992 and 1991, respectively. The major components of this
expense classification are detailed below, expressed in amounts and as a
percentage of net revenue (dollars in millions):
<TABLE>
<CAPTION>
FISCAL YEAR
----------------------------------------------------------------
1993 1992 1991
-------------------- -------------------- --------------------
$ % $ % $ %
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Order processing and customer service................ 63.4 5.2 60.1 5.6 56.4 6.1
Commissions and license fees......................... 65.4 5.4 57.7 5.4 46.8 5.1
Provision for doubtful accounts...................... 24.8 2.0 27.7 2.6 28.7 3.1
Credit card processing fees.......................... 17.6 1.4 14.9 1.4 13.4 1.5
--------- --------- --------- --------- --------- ---------
171.2 14.0 160.4 15.0 145.3 15.8
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
Order processing and customer service expenses decreased as a percentage of
net revenue since 1991 due to greater utilization of the Company's automated
ordering system which gives customers the option to place orders by using their
touchtone telephone instead of speaking to a telemarketing operator. Commissions
and license fees increased as a percentage of net sales in 1992 as a result of
fees paid for sales to the homes obtained under the license agreement with
JCPTV. The provision for doubtful accounts as a percentage of net revenue
decreased since 1991 due to continued improvement in the collection experience
of QVC's revolving credit card program. Credit card processing fees as a
percentage of net revenue have remained relatively stable over the three years.
GENERAL AND ADMINISTRATIVE
In 1993, general and administrative expenses totaled $132.7 million, or
10.9% of net revenue, compared to $123.6 million, or 11.5% of net revenue, in
1992 and $110.7 million, or 12.0% of net revenue, in 1991. The major components
of general and administrative expenses are detailed below, expressed in amounts
and as a percentage of net revenue (dollars in millions):
<TABLE>
<CAPTION>
FISCAL YEAR
----------------------------------------------------------------
1993 1992 1991
-------------------- -------------------- --------------------
$ % $ % $ %
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Administration....................................... 50.3 4.1 43.2 4.0 34.0 3.7
Advertising and marketing............................ 28.2 2.3 33.4 3.1 35.4 3.8
Data processing...................................... 17.4 1.4 18.3 1.7 19.3 2.1
Broadcasting......................................... 20.3 1.7 15.3 1.4 10.8 1.2
Merchandising and programming........................ 10.8 0.9 8.0 0.8 5.8 0.6
Occupancy costs...................................... 5.7 0.5 5.4 0.5 5.4 0.6
--------- --------- --------- --------- --------- ---------
132.7 10.9 123.6 11.5 110.7 12.0
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
The increase in administration expenses in 1993 is due principally to the
$3.8 million settlement of the STN litigation. The litigation arose out of the
negotiation and execution of an agreement between the Company and JCPTV pursuant
to which JCPTV granted the Company a renewable one-year license of JCPTV's right
to use the cable channel time provided to JCPTV under affiliation agreements
with its program carriers. The remaining increase in administration expenses can
largely be attributed to higher personnel costs. In 1992, administration
expenses also increased due to higher personnel costs, including $4.9 million
related to 160,000 shares of Common Stock granted as an executive stock award to
Mr. Barry Diller who became Chairman of the Board and Chief Executive Officer in
January 1993. The 1992 personnel costs also include the $2.2 million current
value of the ten-year consulting agreement with Mr. Joseph Segel, former
Chairman of the Board and Chief Executive Officer.
Advertising and marketing expenses decreased in 1993 due to a reduction in
credits granted to customers and, to a lesser extent, fewer promotional mailings
to cable subscribers. In 1992, these
21
<PAGE>
expenses decreased due to the discontinuation of the Company's mail order
catalog as well as fewer promotional mailings to QVC customers. Data processing
costs decreased in 1993 due to a reduction in outside consulting costs. The
decrease in these expenses in 1992 was due to the purchase of mainframe computer
equipment which was previously leased. Broadcasting costs increased in 1993 due
to higher transponder fees to broadcast the QVC Service and The QVC Fashion
Channel as well as higher costs to enhance the on-air presentation. In 1992, the
increase in these expenses related to broadcasting The QVC Fashion Channel for a
full year for sixteen hours a day versus four months for eight hours a day in
1991. Merchandising and programming expenses in 1993 increased due to additional
personnel needed to sustain the Company's sales growth. In 1992, the increase
was due to the full year broadcasting of The QVC Fashion Channel. Occupancy
costs increased slightly in 1993 due to the additional maintenance required on
the Company's new telecommunications facilities in Texas and Virginia.
DEPRECIATION AND AMORTIZATION
Depreciation expense has remained relatively constant since 1991.
Amortization expense decreased in 1993 due to the reduction in amortization of
debt placement fees as a result of the repayments of the Senior term loan during
fiscal 1992 and the first quarter of fiscal 1993.
OPERATING INCOME
Operating income was $152.2 million in fiscal 1993, $118.2 million in
fiscal 1992, and $84.4 million in fiscal 1991. The increase in operating income
is due primarily to the additional gross profit arising from higher revenue and
the fixed nature of depreciation and amortization.
COSTS OF PARAMOUNT TENDER OFFER
On February 15, 1994, the Company terminated its cash tender offer for 50.1
percent of the Common Stock of Paramount Communications Inc. The costs incurred
on the tender offer totaled $34.8 million and were expensed in the fourth
quarter of 1993. The majority of these expenses were bank fees. The Company had
a $3.25 billion loan commitment available from November 19, 1993 to February 15,
1994 to help fund the cash portion of the tender offer.
LOSSES FROM JOINT VENTURES
During 1993, the Company entered into four joint ventures which resulted in
combined losses of $11.4 million. The most significant joint ventures are those
formed with BSkyB and Grupo Televisa. BSkyB and the Company formed a joint
venture to bring electronic retailing to the United Kingdom. On October 1, 1993,
BSkyB and the Company launched 'QVC -- The Shopping Channel.' A majority of
consumers subscribing to BSkyB's service are now able to receive the new QVC
service -- approximately 1.8 million homes. In addition, approximately .4
million cable homes receive the program. The agreement with BSkyB requires,
among other things, that the Company provide all funding to the joint venture
until it is profitable. The Company will then recover all prior funding before
any profits are shared. During the four months of 1993, QVC -The Shopping
Channel operations resulted in a $8.9 million loss, which was recorded by the
Company, including $630,000 amortization of capitalized start-up costs.
On November 15, 1993, the Company and Grupo Televisa began broadcasting
'CVC' in Mexico. CVC is distributed through broadcast television, cable
television and satellite dishes to approximately 7.3 million FTE homes. The
Company's 50% share of CVC's operations resulted in a $1.8 million loss in 1993,
including $266,000 amortization of capitalized start-up costs.
The Company also entered a joint venture with Tribune Entertainment Company
and Regal Communications to produce and distribute 'Can We Shop' with Joan
Rivers. 'Can We Shop' first aired on January 17, 1994 and is a one-hour Monday
through Friday television show through which merchandise is sold. The Company's
share of the operating loss amounted to $386,000 in 1993.
22
<PAGE>
The Company made a one third investment in Fridays Holdings, L.P. for the
purpose of establishing or acquiring businesses in the communications field as
well as developing information products. The Company recorded a $300,000 loss in
association with this partnership.
INTEREST EXPENSE
The major factor contributing to the reduced interest expense in 1993 and
1992 was $13.8 million and $13.2 million, respectively, of lower interest
expense on the Senior term loan which was retired during the 1993 first quarter.
The conversion in October 1992 of a $30.0 million convertible subordinated note
into 1.7 million shares of Common Stock also contributed to the lower interest
expense.
INTEREST INCOME
The Company has experienced higher interest income since 1991 on its
revolving charge card due to higher average account balances as well as an
increase in the number of customer accounts. This increase, however, was offset
by lower interest income on temporary cash investments.
INCOME TAX PROVISION
Effective February 1, 1993, the Company changed its method of accounting
for income taxes as required by Statement of Financial Accounting Standards No.
109, 'Accounting for Income Taxes' ('SFAS 109'). Under the asset and liability
method of SFAS 109, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to temporary differences between the
financial statement carrying amounts of existing assets and liabilities, and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
Company previously used the asset and liability method of SFAS 96. Under SFAS
96, the consideration of future events in calculating deferred taxes was not
permitted. Under SFAS 109, the effect on the deferred tax assets and liabilities
because of the change in federal tax rates incorporated in the Revenue
Reconciliation Act of 1993 was recognized in the third quarter of fiscal 1993,
the period in which the enactment date falls. The cumulative effect of
approximately $4.0 million resulting from the change in the method of accounting
for income taxes to SFAS 109 was included in the Consolidated Statements of
Operations in the first quarter of 1993.
EXTRAORDINARY ITEM
During fiscal 1992 and 1991, the Company prepaid $86.3 million and $98.1
million, respectively, of its Senior term loan. As a result, amortization of
debt placement fees was accelerated and reported as an extraordinary item, net
of tax benefit, of $1.5 million in fiscal 1992 and $2.1 million in fiscal 1991.
NET INCOME
Net income for 1993 was $59.3 million compared to $55.1 million in 1992 and
$19.6 million in 1991. The changes in net income resulted from the factors
discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal source of working capital is internally-generated
cash flow from operations. In fiscal 1993, net cash provided by operating
activities totaled $73.3 million compared to $101.4 million and $137.0 million
in fiscal 1992 and 1991, respectively. Net cash provided by operations in 1993
and 1992 was reduced by a net increase in working capital items of $36.2 million
and $33.6 million, respectively. The net change in working capital items in both
years was due principally to an increase in accounts receivable representing
deposits with a third party related to the Company's revolving credit card. In
1991, net cash provided by operations was increased by a net decrease in working
capital items of $40.1 million. The net decrease in working capital items was
due
23
<PAGE>
principally to an increase in accrued liabilities of $48.0 million principally
from increases in accrued income taxes of $13.0 million and in reserve for
repurchase of uncollectible accounts under the Company's credit card program of
$8.2 million.
The Company's capital expenditures totaled $24.6 million in 1993 compared
to $21.1 million in 1992 and $11.9 million in 1991. In 1993, capital
expenditures were principally for the construction of a new telecommunications
facility in Chesapeake, Virginia, which replaced a leased facility, additions
for computer equipment and software, and other equipment. Capital expenditures
in 1992 were principally for computer equipment and software, and the
construction and equipping of a telecommunications facility in San Antonio,
Texas. In fiscal 1991, capital expenditures were principally for studio,
computer and other equipment. The Company expects that annual capital
expenditures for current operations will approximate the 1993 level for the next
year.
The Company has an agreement with an unrelated third party which provides
for the sale and servicing of accounts receivable originating from the Company's
revolving credit card. The Company remains obligated to repurchase uncollectible
accounts pursuant to the recourse provisions of the agreement and is required to
maintain a specified percentage of all outstanding receivables transferred under
the program as a deposit with the third party to secure its obligations under
the agreement.
The Company has a $60.0 million bank revolving credit facility to finance
operations as well as to fund letters of credit for merchandise purchases.
Interest on outstanding amounts under this agreement is payable at the bank's
prime rate or other interest rate options. A commitment fee of .25% is payable
on the unused portion of the revolving credit facility. The credit agreement
requires the Company to maintain certain ratios for total liabilities to
shareholders' equity and for coverage of fixed charges. The Company borrowed
$20.0 million under the facility in March 1993 and retired the remaining balance
on its Senior term loan. All amounts borrowed under the facility were repaid
from net cash provided by operating activities during the 1993 first quarter.
Outstanding letters of credit totaled approximately $7.8 million at January 31,
1994.
The Company had working capital at January 31, 1994 of $101.8 million
compared to $7.3 million at January 31, 1993. The principal reason for the
increase in working capital during 1993 was cash flows from operating activities
as well as the increase in the current deferred tax asset of $24.7 million
arising from the adoption of SFAS 109. The current ratio was 1.3 at January 31,
1994 compared to 1.0 at January 31, 1993. Long-term debt to total capitalization
was 1.2% at January 31, 1994, compared to 1.6% at the prior year end due to the
increase in retained earnings from the current year's operating results.
During the first quarter of 1993, the Company filed a registration
statement on Form S-3 for up to $400.0 million of debt securities and up to 5.0
million shares of Common Stock. Substantially all of the net proceeds of any
offering would be used for general corporate purposes, including investment in
or development of activities in which the Company is not currently engaged.
However, this registration statement was never declared effective by the
Securities and Exchange Commission.
The Company believes that its present capital resources and future
operations will result in adequate financial resources to fund all capital
expenditures.
EFFECTS OF INFLATION
Inflation has not had a significant impact on the results of the Company's
operations.
24
<PAGE>
ITEM 8 -- FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Independent Auditors' Report............................................................................... 26
Consolidated Balance Sheets at January 31, 1994 and 1993................................................... 27
Consolidated Statements of Operations for the years ended January 31, 1994, January 31, 1993 and January
31, 1992................................................................................................. 28
Consolidated Statements of Cash Flows for the years ended January 31, 1994, January 31, 1993 and January
31, 1992................................................................................................. 29
Consolidated Statement of Shareholders' Equity for the years ended January 31, 1994, January 31, 1993 and
January 31, 1992......................................................................................... 30
Notes to Consolidated Financial Statements................................................................. 31
Schedules II, VIII and X to the Consolidated Financial Statements.......................................... 59
</TABLE>
25
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
QVC, Inc.:
We have audited the consolidated financial statements of QVC, Inc. and
subsidiaries as listed in the accompanying index. In connection with our audits
of the consolidated financial statements, we have also audited the financial
statement schedules as listed in the accompanying index. These consolidated
financial statements and financial statement schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedules based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of QVC, Inc.
and subsidiaries as of January 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the years in the three-year period
ended January 31, 1994, in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedules, when
considered in relation to the basic consolidated financial statements taken as a
whole, present fairly, in all material respects, the information set forth
therein.
As discussed in notes 1 and 13 to the consolidated financial statements,
the Company changed its method of accounting for income taxes in 1993 to adopt
the provisions of the Financial Accounting Standards Board's Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes.
KPMG PEAT MARWICK
Philadelphia, Pennsylvania
March 4, 1994
26
<PAGE>
QVC, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 31,
------------------------
1994 1993
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................................. $ 15,873 $ 4,279
Accounts receivable, less allowance for doubtful accounts of $52,759 in 1994 and
$21,316 in 1993 (Note 2)........................................................... 183,162 97,008
Inventories........................................................................... 148,208 118,712
Deferred taxes (Note 13).............................................................. 59,749 10,680
Prepaid expenses...................................................................... 5,536 3,716
----------- -----------
Total current assets............................................................... 412,528 234,395
Property, plant and equipment (Note 3).................................................. 80,579 72,863
Cable television distribution rights (Note 4)........................................... 99,579 115,248
Other assets (Note 5)................................................................... 33,664 9,028
Excess of cost over acquired net assets, less accumulated amortization of $43,551 in
1994 and $33,710 in 1993.............................................................. 251,810 268,161
----------- -----------
Total assets....................................................................... $ 878,160 $ 699,695
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt (Note 7)......................................... $ 3,114 $ 24,073
Accounts payable-trade................................................................ 81,594 51,622
Accrued liabilities (Note 6).......................................................... 225,989 151,358
----------- -----------
Total current liabilities.......................................................... 310,697 227,053
Long-term debt, less current maturities (Note 7)........................................ 7,044 7,586
----------- -----------
Total liabilities.................................................................. 317,741 234,639
----------- -----------
Commitments and contingencies (Notes 8 and 14)
Shareholders' equity (Notes 9 and 10):
Convertible Preferred Stock, par value $.10........................................... 56 93
Common Stock, par value $.01.......................................................... 399 357
Additional paid-in capital............................................................ 446,027 409,970
Retained earnings..................................................................... 113,937 54,636
----------- -----------
Total shareholders' equity......................................................... 560,419 465,056
----------- -----------
Total liabilities and shareholders' equity......................................... $ 878,160 $ 699,695
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
27
<PAGE>
QVC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR
-----------------------------------
1993 1992 1991
----------- ----------- ---------
<S> <C> <C> <C>
Net revenue................................................................. $ 1,222,104 $ 1,070,587 $ 921,804
Cost of goods sold.......................................................... 723,175 621,840 534,650
----------- ----------- ---------
Gross profit................................................................ 498,929 448,747 387,154
----------- ----------- ---------
Operating expenses:
Variable costs............................................................ 171,242 160,420 145,348
General and administrative................................................ 132,743 123,604 110,747
Depreciation.............................................................. 16,682 17,105 16,679
Amortization of intangible assets......................................... 26,019 29,420 29,983
----------- ----------- ---------
346,686 330,549 302,757
----------- ----------- ---------
Operating income............................................................ 152,243 118,198 84,397
----------- ----------- ---------
Other income (expense):
Costs of Paramount tender offer (Note 16)................................. (34,800) -- --
Losses from joint ventures (Note 5)....................................... (11,432) -- --
Interest expense.......................................................... (1,590) (18,364) (38,979)
Interest income........................................................... 10,865 8,834 7,480
----------- ----------- ---------
(36,957) (9,530) (31,499)
----------- ----------- ---------
Income before income taxes, extraordinary item and cumulative effect of a
change in accounting principle............................................ 115,286 108,668 52,898
Income tax provision (Note 13).............................................. (59,975) (52,080) (31,165)
----------- ----------- ---------
Income before extraordinary item and cumulative effect of a change in
accounting principle...................................................... 55,311 56,588 21,733
Extraordinary item -- loss on extinguishment of debt, net of tax benefit
(Note 5).................................................................. -- (1,496) (2,108)
Cumulative effect of a change in accounting for income taxes (Note 13)...... 3,990 -- --
----------- ----------- ---------
Net income.................................................................. $ 59,301 $ 55,092 $ 19,625
----------- ----------- ---------
----------- ----------- ---------
Income per share (Note 11):
Primary:
Income before extraordinary item and cumulative effect of a change in
accounting principle.................................................. $ 1.10 $ 1.32 $ .68
Extraordinary item, net of tax benefit.................................. -- (.03) (.07)
Cumulative effect of a change in accounting for income taxes............ .08 -- --
----------- ----------- ---------
Net income.............................................................. $ 1.18 $ 1.29 $ .61
----------- ----------- ---------
----------- ----------- ---------
Fully diluted:
Income before extraordinary item and cumulative effect of a change in
accounting principle.................................................. $ 1.10 $ 1.27 $ .67
Extraordinary item, net of tax benefit.................................. -- (.03) (.06)
Cumulative effect of a change in accounting for income taxes............ .08 -- --
----------- ----------- ---------
Net income.............................................................. $ 1.18 $ 1.24 $ .61
----------- ----------- ---------
----------- ----------- ---------
Weighted average number of common and common equivalent shares used in
computing income per share:
Primary................................................................... 50,062 43,890 31,959
----------- ----------- ---------
----------- ----------- ---------
Fully diluted............................................................. 50,205 45,386 38,313
----------- ----------- ---------
----------- ----------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
28
<PAGE>
QVC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR
-----------------------------------
1993 1992 1991
--------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................................ $ 59,301 $ 55,092 $ 19,625
Adjustments for non-cash items included in net income:
Cumulative effect of a change in accounting for income taxes........... (3,990) -- --
Loss on extinguishment of debt......................................... -- 2,720 3,838
Losses from joint ventures............................................. 11,432 -- --
Depreciation........................................................... 16,682 17,105 16,679
Amortization of intangible assets...................................... 26,019 29,420 29,983
Grant of executive stock award......................................... -- 4,869 --
Provision for income taxes not requiring a cash outlay................. 3,366 20,275 15,800
Interest incurred but not paid......................................... -- 96 9,199
Issuance of Common Stock under Standby Equity
Agreement........................................................... -- -- 614
Losses on termination of capitalized lease and sales of fixed assets... 190 90 464
Changes in other non-current assets....................................... (3,458) 5,303 642
Effects of changes in working capital items (Note 15)..................... (36,239) (33,557) 40,107
--------- ----------- -----------
Net cash provided by operating activities................................. 73,303 101,413 136,951
--------- ----------- -----------
Cash flows from investing activities:
Capital expenditures...................................................... (24,588) (21,137) (11,870)
Investments in and advances to joint ventures............................. (22,626) -- --
Proceeds from sales of property, plant and equipment...................... -- 28 9,010
Adjustments to purchase price of CVN Companies, Inc....................... -- 5 (230)
Changes in other non-current assets....................................... (347) (494) 330
--------- ----------- -----------
Net cash used in investing activities..................................... (47,561) (21,598) (2,760)
--------- ----------- -----------
Cash flows from financing activities:
Payments under Senior term loan........................................... (21,000) (135,297) (128,101)
Principal payments under capitalized leases, mortgages and other debt..... (502) (5,300) (12,905)
Borrowings under revolving credit facilities.............................. 20,000 -- 40,414
Payments against revolving credit facilities.............................. (20,000) -- (40,414)
Proceeds from exercise of stock options and other......................... 1,169 16,687 891
Net proceeds from sale of Common Stock.................................... -- -- 51,082
Proceeds from exercise of warrants........................................ 6,185 11,570 --
Payment of unsecured note payable......................................... -- -- (31,444)
--------- ----------- -----------
Net cash used in financing activities..................................... (14,148) (112,340) (120,477)
--------- ----------- -----------
Net increase (decrease) in cash and cash equivalents........................ 11,594 (32,525) 13,714
Cash and cash equivalents at beginning of year.............................. 4,279 36,804 23,090
--------- ----------- -----------
Cash and cash equivalents at end of year.................................... $ 15,873 $ 4,279 $ 36,804
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
29
<PAGE>
QVC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
CONVERTIBLE ADDITIONAL RETAINED
PREFERRED COMMON PAID-IN EARNINGS TREASURY
STOCK STOCK CAPITAL (DEFICIT) STOCK TOTAL
--------------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance January 31, 1991...................... $ 125 $ 176 $ 228,628 $ (20,081) $ (68) $ 208,780
Net income for year......................... -- -- -- 19,625 -- 19,625
Income tax benefit resulting from certain
capital stock transactions................ -- -- 11,500 -- -- 11,500
Proceeds from the exercise of employee stock
options................................... -- -- 893 -- -- 893
Issuance of Common Stock under Standby
Equity Agreement.......................... -- 1 613 -- -- 614
Excess of value assigned over amount
received for Series B Convertible
Preferred Stock........................... -- -- (239) -- -- (239)
Issuance of shares of Common Stock and
warrants in lieu of cash interest
payments.................................. -- 2 2,998 -- -- 3,000
Purchases of Treasury Stock................. -- -- -- -- (2) (2)
Net proceeds from public offering of Common
Stock..................................... -- 37 51,045 -- -- 51,082
Common Stock exchanged to retire unsecured
note payable.............................. -- 23 31,422 -- -- 31,445
Conversion of shares........................ (11) 11 -- -- -- --
Adjustments to warrants exchanged and Common
Stock issued in connection with the CVN
acquisition............................... -- -- (912) -- -- (912)
----- ----- ----------- --------- ----------- ---------
Balance January 31, 1992...................... 114 250 325,948 (456) (70) 325,786
----- ----- ----------- --------- ----------- ---------
Net income for year......................... -- -- -- 55,092 -- 55,092
Income tax benefit resulting from capital
stock transactions, exercise of stock
options and net operating loss
carryforward.............................. -- -- 22,312 -- -- 22,312
Proceeds from the exercise of employee stock
options................................... -- 13 16,708 -- (31) 16,690
Proceeds from exercise of warrants.......... -- 11 11,559 -- -- 11,570
Grant of executive stock award.............. -- 2 4,867 -- -- 4,869
Convertible subordinated note exchanged for
Common Stock, net of unamortized debt
placement fees of $1,260.................. -- 17 28,723 -- -- 28,740
Common Stock issued in warrant exchange
offer (Note 10)........................... -- 68 91,394 -- (91,462) --
Conversion of shares........................ (20) 20 -- -- -- --
Purchases of Treasury Stock................. -- -- -- -- (3) (3)
Retirement of Treasury Stock................ (1) (24) (91,541) -- 91,566 --
----- ----- ----------- --------- ----------- ---------
Balance January 31, 1993...................... 93 357 409,970 54,636 -- 465,056
----- ----- ----------- --------- ----------- ---------
Net income for year -- -- -- 59,301 -- 59,301
Income tax benefit resulting from cumulative
effect of a change in accounting for
income
taxes..................................... -- -- 27,053 -- -- 27,053
Income tax benefit resulting from exercise
of stock options.......................... -- -- 1,655 -- -- 1,655
Proceeds from exercise of employee stock
options................................... -- 1 1,168 -- -- 1,169
Proceeds from exercise of warrants.......... -- 4 6,181 -- -- 6,185
Conversion of shares........................ (37) 37 -- -- -- --
----- ----- ----------- --------- ----------- ---------
Balance January, 31, 1994..................... $ 56 $ 399 $ 446,027 $ 113,937 $ -- $ 560,419
----- ----- ----------- --------- ----------- ---------
----- ----- ----------- --------- ----------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
30
<PAGE>
QVC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION.
The consolidated financial statements include the accounts of the Company
and all subsidiaries. Investments in the Company's joint ventures (50% or less
owned) are accounted for under the equity method. All significant intercompany
accounts and transactions are eliminated in consolidation.
FISCAL YEAR.
The Company's fiscal year ends on January 31. Fiscal years are designated
in the financial statements and notes by the calendar year in which the fiscal
year commences.
CASH AND CASH EQUIVALENTS.
All highly-liquid debt instruments purchased with a maturity of three
months or less are classified as cash equivalents. The carrying amounts reported
in the balance sheet for cash and cash equivalents approximate those assets'
fair value.
INVENTORIES.
Inventories, consisting primarily of products held for sale, are stated at
the lower of cost or market. Cost is determined by the average cost method which
approximates the first-in, first-out method.
PROPERTY, PLANT AND EQUIPMENT.
The costs of property, plant and equipment are capitalized and depreciated
over their estimated useful lives using the straight-line method. When assets
are sold or retired, the cost and accumulated depreciation are removed from the
accounts and any gain or loss is included in income. The costs of maintenance
and repairs are charged to expense as incurred.
EXCESS OF COST OVER ACQUIRED NET ASSETS.
The excess of cost over acquired net assets is amortized over thirty years
using the straight-line method.
TRANSLATION OF FOREIGN CURRENCIES.
All balance sheet items for foreign operations are translated at the
current exchange rate as of the balance sheet date, and income and expense items
are translated at average currency exchange rates for the year. Exchange gains
and losses resulting from foreign currency transactions are included in losses
from joint ventures.
NET SALES AND RETURNS.
Revenue is recognized at time of shipment to customers. The Company's
policy is to allow customers to return merchandise for full credit up to thirty
days after date of shipment. An allowance for returned merchandise is provided
as a percentage of sales based on historical experience. The return provision
was approximately 21, 19, and 18 percent of sales in fiscal 1993, 1992 and 1991,
respectively.
31
<PAGE>
CAPITALIZATION OF START-UP COSTS.
The Company capitalizes all direct incremental costs incurred prior to
operations for new broadcast ventures. These costs are amortized over a period
of eighteen months starting at the commencement of broadcast operations.
INCOME TAXES.
Effective February 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes ('SFAS 109'). The
cumulative effect of the change in the method of accounting for income taxes was
included in the first quarter of 1993 Consolidated Statements of Operations and
Shareholders' Equity. Prior years' financial statements were not restated. Under
the asset and liability method of SFAS 109, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. Under SFAS 109, the effect of a change in tax rates on deferred tax
assets and liabilities is recognized in income in the period that includes the
enactment date.
The Company previously used the asset and liability method under SFAS 96.
Under the asset and liability method of SFAS 96, deferred tax assets and
liabilities were recognized for all events that had been recognized in the
financial statements. Under SFAS 96, the future tax consequences of recovering
assets or settling liabilities at their financial statement carrying amounts
were considered in calculating deferred taxes. Generally, SFAS 96 prohibited
consideration of any other future events in calculating deferred taxes.
NOTE 2 -- ACCOUNTS RECEIVABLE
The Company has an agreement with an unrelated third party which provides
for the sale and servicing of accounts receivable originating from the Company's
revolving credit card. The Company sold accounts receivable at face value of
$418.2 million, $392.7 million and $290.4 million under this agreement in fiscal
1993, 1992 and 1991, respectively. The Company remains obligated to repurchase
uncollectible accounts pursuant to the recourse provisions of the agreement and
is required to maintain a specified percentage of all outstanding receivables
transferred under the program as a deposit with the third party to secure its
obligations under the agreement. The Company is required to pay certain finance
and servicing fees which are offset by finance charges on customer account
balances. The net amount of this finance charge income is included as interest
income and is comprised of the following (in millions):
<TABLE>
<CAPTION>
FISCAL YEAR
-------------------------------
1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
Finance charges on customer account balances............................... $ 26.2 $ 23.2 $ 20.0
--------- --------- ---------
Funding fees............................................................... 8.7 8.1 7.7
Service fees............................................................... 10.5 9.5 9.4
--------- --------- ---------
19.2 17.6 17.1
--------- --------- ---------
Net finance income......................................................... $ 7.0 $ 5.6 $ 2.9
--------- --------- ---------
--------- --------- ---------
</TABLE>
32
<PAGE>
The uncollected balances of accounts receivable sold under this program are
$201.2 million and $180.3 million at January 31, 1994 and 1993, respectively, of
which $170.1 million and $71.5 million represent deposits under the agreement
and are included in accounts receivable. The total reserve balances maintained
for the repurchase of uncollectible accounts are $55.7 million and $42.6 million
at January 31, 1994 and 1993, respectively. Approximately $8.6 million and $25.7
million of the reserve balances are included in accrued liabilities at January
31, 1994 and 1993, respectively; the remaining balances are included with
allowance for doubtful accounts.
Receivables sold under this agreement are considered financial instruments
with off-balance sheet risk as defined in Statement of Financial Accounting
Standards No. 105.
NOTE 3 -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
JANUARY 31, ESTIMATED
------------------------ USEFUL
1994 1993 LIFE
----------- ----------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Land...................................................... $ 3,977 $ 3,228 --
Buildings and improvements................................ 50,627 45,385 20-30 years
Furniture and other equipment............................. 33,866 30,246 3- 8 years
Broadcast equipment....................................... 8,942 12,478 5- 7 years
Computer equipment and software........................... 20,005 18,047 3- 5 years
Construction in progress.................................. 1,684 482 --
----------- -----------
119,101 109,866
Less -- accumulated depreciation.......................... (38,522) (37,003)
----------- -----------
Net property, plant and equipment......................... $ 80,579 $ 72,863
----------- -----------
----------- -----------
</TABLE>
In July 1993, the Company completed construction of a 50,000 square foot
telecommunications center in Chesapeake, Virginia for a total cost of
approximately $6.9 million. This new telecommunications center replaced a
facility that was leased.
NOTE 4 -- CABLE TELEVISION DISTRIBUTION RIGHTS
Cable television distribution rights consist of the following:
<TABLE>
<CAPTION>
JANUARY 31,
------------------------
1994 1993
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cable television distribution rights...................................... $ 162,142 $ 166,082
Less -- accumulated amortization.......................................... (62,563) (50,834)
----------- -----------
Net cable television distribution rights.................................. $ 99,579 $ 115,248
----------- -----------
----------- -----------
</TABLE>
The amounts assigned to cable television distribution rights arose
principally from excess fair values assigned, as determined by independent
appraisals, to Convertible Preferred Stock issued to cable system operators in
exchange for distribution agreements.
33
<PAGE>
Cable television distribution rights are amortized by the straight-line
method over the lives of the individual agreements. The remaining weighted
average life for all cable television distribution rights is approximately 10
years at January 31, 1994.
NOTE 5 -- OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
JANUARY 31,
--------------------
1994 1993
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Deferred taxes (Note 13)..................................................... $ 17,265 $ 7,120
Investments in and advances to joint ventures, net of accumulated losses..... 11,194 --
Start-up costs............................................................... 3,459 --
</TABLE>
<TABLE>
<S> <C> <C>
Satellite transponder rights................................................. 1,000 1,000
Debt placement fees.......................................................... 162 15,292
Other........................................................................ 1,072 1,475
--------- ---------
34,152 24,887
Less -- accumulated amortization............................................. (488) (15,859)
--------- ---------
Net other assets............................................................. $ 33,664 $ 9,028
--------- ---------
--------- ---------
</TABLE>
During fiscal 1993, the Company established electronic retailing program
service in England ('QVC -- The Shopping Channel') and Mexico ('CVC'), through
joint venture agreements with British Sky Broadcasting Limited and Grupo
Televisa, S.A. de C.V., respectively. The joint venture in England began
broadcasting on October 1, 1993 and the joint venture in Mexico began
broadcasting on November 15, 1993. The joint venture agreement in England
requires, among other things, that the Company provide all funding to the joint
venture until it is profitable. The Company will then recover all prior funding
before any profits are shared. Accordingly, for 1993, the Company has included
100% of the loss on operations of this venture in the Consolidated Statements of
Operations. The operating results of the joint venture in Mexico are shared
equally by the partners.
Summarized financial information for 'QVC -- The Shopping Channel' and
'CVC' on a 100% basis as of and for the period ended January 31, 1994 follows
(unaudited -- in thousands):
<TABLE>
<CAPTION>
QVC -- THE
SHOPPING CHANNEL CVC
----------------- ---------
<S> <C> <C>
Current assets.......................................................... $ 5,608 $ 9,687
Property, plant and equipment, net...................................... 1,645 1,665
Unamortized start-up costs.............................................. 2,205 1,650
Current liabilities..................................................... 4,181 9,507
Net revenue............................................................. 2,994 2,316
Gross profit............................................................ 514 248
Loss.................................................................... (8,943) (3,606)
</TABLE>
In fiscal 1993, the Company also entered a joint venture with Tribune
Entertainment Company and Regal Communications to form QRT Enterprises ('QRT').
QRT produces and syndicates 'Can We Shop' with Joan Rivers, which commenced
broadcasting January 17, 1994. 'Can We Shop' is a
34
<PAGE>
one-hour, Monday through Friday television show through which merchandise is
sold. The Company's one-third share of QRT's operating loss amounted to
$386,000 in 1993.
In fiscal 1993, the Company made a $3.8 million investment in Friday
Holdings, L.P., a limited partnership. The limited partnership's purpose is to
establish or acquire businesses in the communications field and to develop
information products. The Company's one-third share of Friday Holdings'
operating loss amounted to $300,000 in 1993.
During the year, the Company also capitalized $3.5 million in costs
relating to Q2, a new televised shopping/programming service, scheduled to be
launched in the spring of 1994 in the United States. The capitalized start-up
costs will be amortized over eighteen months starting at the commencement of
broadcast operations.
Debt placement fees on the Senior term loan arising out of the CVN
acquisition have been amortized over the expected life of the debt using the
effective interest rate method. On March 5, 1993, the Company retired the Senior
term loan. Debt placement fees of $15.1 million associated with the Senior term
loan were fully amortized and the cost and accumulated amortization were removed
from the accounts. During fiscal 1992, the Company prepaid $86.3 million of the
Senior term loan. As a result, the amortization of debt placement fees of $2.7
million was accelerated and reported as an extraordinary loss of $1.5 million,
net of $1.2 million income tax benefit. During fiscal 1991, the Company prepaid
$98.1 million of the Senior term loan and the amortization of debt placement
fees of $3.8 million was accelerated and reported as an extraordinary loss of
$2.1 million, net of $1.7 million income tax benefit.
NOTE 6 -- ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
JANUARY 31,
------------------------
1994 1993
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Income taxes (Note 13).................................................... $ 80,879 $ 25,889
Reserve for uncollectible accounts under revolving credit program (Note
2)...................................................................... 8,636 25,699
Non-inventory accounts payable............................................ 35,452 26,418
Accrued compensation and benefits......................................... 13,996 13,035
Sales and other taxes..................................................... 11,324 12,079
Allowance for sales returns............................................... 17,787 11,344
Other..................................................................... 57,915 36,894
----------- -----------
$ 225,989 $ 151,358
----------- -----------
----------- -----------
</TABLE>
35
<PAGE>
NOTE 7 -- LONG-TERM DEBT
Aggregate amounts of outstanding long-term debt consist of the following:
<TABLE>
<CAPTION>
JANUARY 31,
--------------------
1994 1993
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
10.4% Mortgage notes payable in monthly installments
until 1998................................................................. $ 10,158 $ 10,659
Senior term loan............................................................. -- 21,000
--------- ---------
10,158 31,659
Less -- current portion...................................................... (3,114) (24,073)
--------- ---------
$ 7,044 $ 7,586
--------- ---------
--------- ---------
</TABLE>
The Company has a $60.0 million bank revolving credit facility to finance
operations as well as to fund letters of credit for merchandise purchases.
Interest on outstanding amounts under this agreement is payable at the bank's
prime rate or other interest rate options. A commitment fee of .25% is payable
on the unused portion of the revolving credit facility. The credit agreement
requires the Company to maintain certain ratios for total liabilities to
shareholders' equity and for coverage of fixed charges. The Company borrowed
$20.0 million under the facility in March 1993 and retired the remaining balance
on the Senior term loan. All amounts borrowed under the facility were repaid
from net cash provided by operating activities during the first quarter of 1993.
Outstanding letters of credit totaled approximately $7.8 million at January 31,
1994.
The interest rate on the outstanding balance of the Senior term loan was
4.4% at January 31, 1993.
Maturities of the 10.4% mortgage notes payable for the five years
subsequent to January 31, 1994 are $3,114,000 in 1994; $601,000 in 1995;
$666,000 in 1996; $739,000 in 1997 and $5,038,000 in 1998.
NOTE 8 -- LEASES AND TRANSPONDER SERVICE AGREEMENTS
Future minimum payments under all non-cancellable operating leases and
transponder service agreements with initial terms of one year or more at January
31, 1994 consist of the following (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR
- -------------------------------------------------------------------------------------
<S> <C>
1994................................................................................. $8,029
1995................................................................................. 6,405
1996................................................................................. 5,450
1997................................................................................. 5,173
1998................................................................................. 5,287
Thereafter........................................................................... 34,001
---------
Total $64,345
---------
---------
</TABLE>
Expense for operating leases, principally for data processing equipment and
facilities, and for transponder service agreements amounted to $11,280,000,
$12,895,000 and $13,047,000 in fiscal years 1993, 1992 and 1991, respectively.
In November 1992, the Company started to transmit the QVC program on a
protected, non-preemptible transponder on the C-4 Satellite at a monthly cost
that averages $224,000 over the term of the twelve-year agreement.
36
<PAGE>
In December 1992, the Company started to transmit The QVC Fashion Channel
on a protected non-preemptible transponder on the C-3 Satellite at a cost of
$205,000 per month over the term of the twelve-year agreement.
NOTE 9 -- CAPITAL STOCK
The Company has 175,000,000 shares of Common Stock authorized. There were
39,895,447 shares outstanding at January 31, 1994 and 35,734,062 shares
outstanding at January 31, 1993. The reasons for the increase in the number of
shares of Common Stock outstanding were the conversion of Convertible Preferred
Stock (3,659,040), the exercise of warrants (408,908) and the exercise of
employee stock options (93,437).
The following table summarizes the convertible preferred shares at January
31, 1994 and 1993 (in thousands):
<TABLE>
<CAPTION>
SHARES AUTHORIZED SHARES OUTSTANDING PAR VALUE
----------------- -------------------- --------------------
1994 AND 1993 1994 1993 1994 1993
----------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Series A............................................. 10 -- -- $ -- $ --
Series B............................................. 1,000 28 55 3 6
Series C............................................. 1,000 531 788 53 79
Series D............................................. 300 1 83 -- 8
--------- ---------
$ 56 $ 93
--------- ---------
--------- ---------
</TABLE>
The shares of Convertible Preferred Stock were issued to cable system
operators in connection with their signing or extending cable television
distribution agreements in prior years.
CONVERTIBILITY.
Each share of Series B, Series C and Series D Convertible Preferred Stock
is convertible into ten shares of Common Stock.
VOTING RIGHTS.
The holders of the Common Stock are empowered to elect two directors of the
Company as a class. The holders of each class of stock are entitled to cast one
vote per share for the election of the remaining directors of the Company.
LIQUIDATION.
Upon the dissolution and liquidation of the Company, the assets remaining
after the payment of all debts and liabilities of the Company shall be
distributed first to the holders of the Series B Convertible Preferred Stock at
$10.00 per share. To the extent available, the holders of Series C Convertible
Preferred Stock will then receive $10.00 per share followed by Series D
Convertible Preferred Stock holders at $15.00 per share. The balance, if any,
will be paid to the holders of the Common Stock share-for-share.
37
<PAGE>
NOTE 10 -- STOCK OPTIONS, WARRANTS AND AWARDS
The following table summarizes shares of Common Stock reserved for issuance
for outstanding stock options and warrants:
<TABLE>
<CAPTION>
AVERAGE
EXERCISE PRICE
JANUARY 31, AT JANUARY 31,
---------------------------- --------------------
1994 1993 1994 1993 EXPIRATION DATE
------------- ------------- --------- --------- -------------------
<S> <C> <C> <C> <C> <C>
Qualified stock options.................. 1,751,800 1,717,462 $ 30.56 $ 28.94 11/1996-01/2004
Non-qualified stock options.............. 6,275,500 6,279,600 32.83 32.33 04/2000-07/2003
Warrants issued in connection with 1987
debt financing......................... 310,000 310,000 10.00 10.00 04/1994
Warrants issued in connection with
Convertible subordinated debt.......... 1,600,000 1,600,000 17.49 17.49 10/1995
Warrants exchanged for CVN Series 2
Warrants............................... -- 408,908 -- 15.13 --
Warrants issued with Common Stock in lieu
of cash interest expense............... 100,000 100,000 13.35 13.35 04/1996-10/1996
------------- -------------
Total reserved shares............... 10,037,300 10,415,970
------------- -------------
------------- -------------
</TABLE>
The Company has Incentive Stock Option Plans ('ISO Plans'), under which
options may be granted to key managerial employees to purchase up to 10,300,000
shares of Common Stock. The ISO Plans are administered by the Executive
Compensation Committee appointed by the Company's Board of Directors. The
Committee has the authority to determine optionees, the number of shares to be
covered by each option and certain other terms and conditions of the grant. The
ISO Plans require that the exercise price of options be equal to or greater than
the fair market value of the stock at the time of grant, and the term of any
option cannot exceed ten years. Options issued under the 1990 Non-Qualified
Stock Option Plan and the 1993 Qualified Stock Option Plan vest ratably over
four years, commencing one year from the date of the grant of the option and
qualified and non-qualified options under all other ISO Plans, except where
noted below, vest ratably over three years, commencing on the date of grant.
In connection with obtaining a portion of the proposed financing for the
cash tender offer for Paramount Communications Inc. (Note 16), the Company
granted BellSouth Corporation, Advance Publications, Inc. and Cox Enterprises,
Inc. options to purchase an aggregate of 14.3 million shares of
Common Stock at $60.00 per share. The options were granted at the termination of
the QVC/Paramount tender offer on February 15, 1994 and are exercisable until
the later of August 15, 1994 or ten business days after stockholders of the
Company vote with respect to such grant of options.
On December 9, 1992, the Company and two of its principal shareholders
(Comcast Corporation and Liberty Media Corporation) announced an agreement
pursuant to which Mr. Barry Diller would become Chairman of the Board and Chief
Executive Officer. In connection with this agreement, the Company granted Mr.
Diller 160,000 shares of Common Stock. The value of the shares on the date of
grant ($4.9 million) was charged to general and administrative expense in fiscal
1992. Also in connection with this agreement, the Company granted to Mr. Diller
stock options covering 6,000,000 shares of Common Stock. All of the options have
a five-year term. One-half of these options ('base options') have an exercise
price of $30.43; the other one-half ('scaled options') have an exercise price
equal to $30.43 per share increased by 13 percent per annum until December 9,
1994 and thereafter by 15 percent per annum compounded annually. The exercise
price on any unexercised scaled options increases annually. One-half of the base
options and one-half of the scaled options
38
<PAGE>
became exercisable December 9, 1993 and the balance become exercisable December
9, 1994. The exercise date can be accelerated upon certain events.
In August 1991, the Company granted to Mr. Joseph M. Segel, then Chairman
and Chief Executive Officer, non-qualified stock options covering 600,000 shares
of Common Stock at an exercise price of $15.90. One-half of these options vested
on the first anniversary of the date of grant and the balance was to vest on the
second anniversary of the date of grant. On December 9, 1992, the Board of
Directors and the Executive Compensation Committee approved the acceleration of
the vesting of the second half of these options to December 1992, in order to
allow Mr. Segel to realize their value in 1992. The Board and the Executive
Compensation Committee also accelerated an additional 50,000 options under ISO
Plans for Mr. Segel that were scheduled to vest in 1993 and 1994.
On December 9, 1992, the Board agreed to enter into a consulting and
severance arrangement with Mr. Segel whereby he would serve as a consultant to
the Company for a period of ten years after his retirement in January 1993 at an
annual salary of $240,000 and, as incentive to Mr. Segel to accept employment as
a consultant, granted to Mr. Segel, pursuant to the 1992 Qualified Incentive
Stock Option Plan, 100,000 options to purchase shares of Common Stock,
exercisable at $30.43 per share. These options vest ratably over a period of
five years. The present value of the ten-year consulting and severance
arrangement with Mr. Segel of $2.2 million was expensed in fiscal 1992.
The Board also approved entering into three-year (five-year in the case of
Michael C. Boyd, former President of the Company) employment agreements for nine
senior Company executives, pursuant to which, among other things, the executives
would be entitled to compensation at their current salaries and eligible for
bonus and incentive compensation programs as may be maintained from time to time
during the term of the agreement. As incentive to enter into the employment
agreements, the Board granted to these executives, pursuant to the 1992 Stock
Option Plan, an aggregate 1,450,000 options to purchase Common Stock exercisable
at $30.43 per share. Options granted under the 1992 Qualified Incentive Stock
Option Plan vest ratably over three years (five years in the case of Mr. Boyd).
In February 1994, Mr. Boyd retired from the Company and entered into a
consulting agreement. Accordingly, the present value of his employment agreement
of $1.3 million was expensed in fiscal 1993.
39
<PAGE>
A summary of changes in outstanding options under the ISO Plans is as
follows:
<TABLE>
<CAPTION>
NON-QUALIFIED OPTION
QUALIFIED OPTION SHARES SHARES
------------------------ ------------------------
OUTSTANDING EXERCISABLE OUTSTANDING EXERCISABLE PRICE RANGE
----------- ----------- ----------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
Balance at January 31, 1991............. 590,112 504,737 630,000 85,000 $ 5.00 -- $17.25
Granted................................. 5,000 1,250 607,500 -- 12.13 -- 15.90
Cancelled............................... (26,500) (19,000) (11,000) (1,375) 5.00 -- 16.00
Became exercisable...................... -- 49,625 -- 144,875 5.00 -- 16.00
Exercised............................... (65,825) (65,825) (26,000) (26,000) 5.00 -- 13.00
----------- ----------- ----------- -----------
Balance at January 31, 1992............. 502,787 470,787 1,200,500 202,500 5.00 -- 17.25
Granted................................. 1,582,000 351,167 6,010,000 -- 19.00 -- 38.86
Cancelled............................... (1,750) (1,750) (11,000) (3,500) 5.00 -- 16.00
Became exercisable...................... -- 29,500 -- 796,375 5.00 -- 16.00
Exercised............................... (365,575) (365,575) (919,900) (919,900) 5.00 -- 17.25
----------- ----------- ----------- -----------
Balance at January 31, 1993............. 1,717,462 484,129 6,279,600 75,475 5.00 -- 38.86
Granted................................. 106,000 1,250 50,000 -- 39.88 -- 70.75
Cancelled............................... (5,575) (5,575) (26,750) (3,000) 5.00 -- 23.25
Became exercisable...................... -- 370,416 -- 3,095,250 5.00 -- 34.39
Exercised............................... (66,087) (66,087) (27,350) (27,350) 5.00 -- 23.25
----------- ----------- ----------- -----------
Balance at January 31, 1994............. 1,751,800 784,133 6,275,500 3,140,375 $ 5.00 -- $70.75
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
In December, 1992, the Company offered to exchange warrants into shares of
Common Stock equivalent in value to the difference between the warrant exercise
price and the market price ($37.75) at the time of the offer. Warrants that
would have been exercisable for 7,061,005 shares were extinguished in this offer
and the Company issued 4,367,690 net shares of Common Stock. The warrant holders
were able to effect the exchange several ways. The net effect on the number of
shares of Common Stock outstanding after the exchange was the same. A total of
3,893,962 warrants were exercised by delivering to the Company 1,424,404
previously issued shares of Common Stock valued at the market price ($37.75). A
total of 2,492,017 warrants were exercised for $37,692,000, the proceeds of
which were used to purchase from the warrant holders 998,457 shares of Common
Stock at market. A total of 675,026 warrants were exchanged for 404,572 shares
of Common Stock with an aggregate value equal to the difference between the
market price and the exercise price. Warrant holders of an aggregate 2,418,908
shares declined the offer. Since this warrant exchange was treated as a non-cash
financing transaction, it is not reflected on the Consolidated Statements of
Cash Flows.
40
<PAGE>
NOTE 11 -- INCOME PER SHARE
The Company computes income per share using the modified treasury stock
method. The following table presents the information needed to compute net
income per share for fiscal years 1993, 1992 and 1991 (in thousands, except per
share data):
<TABLE>
<CAPTION>
1993 1992 1991
------------------------ ------------------------ ------------------------
PRIMARY FULLY DILUTED PRIMARY FULLY DILUTED PRIMARY FULLY DILUTED
--------- ------------- --------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
INCOME:
Income before extraordinary item and
cumulative effect of a change in
accounting principle.................. $ 55,311 $ 55,311 $ 56,588 $ 56,588 $ 21,733 $ 21,733
Add -- Imputed income from interest
savings, net of tax, on assumed
retirement of debt with remaining
proceeds from assumed exercise of
warrants and options.................. -- -- 1,452 1,239 -- 3,896
--------- ------------- --------- ------------- --------- -------------
Adjusted income before extraordinary
item and cumulative effect of a change
in accounting principle............... 55,311 55,311 58,040 57,827 21,733 25,629
Extraordinary item -- loss on
extinguishment of debt, net of tax
benefit............................... -- -- (1,496) (1,496) (2,108) (2,108)
Cumulative effect of a change in
accounting for income taxes........... 3,990 3,990 -- -- -- --
--------- ------------- --------- ------------- --------- -------------
Adjusted net income..................... $ 59,301 $ 59,301 $ 56,544 $ 56,331 $ 19,625 $ 23,521
--------- ------------- --------- ------------- --------- -------------
--------- ------------- --------- ------------- --------- -------------
SHARES:
Weighted average number of common shares
outstanding........................... 37,845 37,845 27,885 27,885 19,750 19,750
Add -- Common equivalent shares assuming
conversion of Series B, C and D
Convertible Preferred Stock........... 7,387 7,387 10,340 10,340 12,209 12,209
Add -- Common equivalent shares assuming
conversion of subordinated note at
beginning of fiscal year.............. -- -- -- 1,280 -- 1,704
Add -- Common shares assumed to be
outstanding from exercise of warrants
and options........................... 10,184 10,180 12,812 10,517 -- 11,925
Less -- Assumed purchase of Common Stock
from proceeds of exercise of warrants
and options........................... (5,354) (5,207) (7,147) (4,636) -- (7,275)
--------- ------------- --------- ------------- --------- -------------
50,062 50,205 43,890 45,386 31,959 38,313
--------- ------------- --------- ------------- --------- -------------
--------- ------------- --------- ------------- --------- -------------
INCOME PER SHARE:
Income before extraordinary item and
cumulative effect of a change in
accounting principle.................. $ 1.10 $ 1.10 $ 1.32 $ 1.27 $ .68 $ .67
Extraordinary item, net of tax
benefit............................... -- -- (.03) (.03) (.07) (.06)
Cumulative effect of a change in
accounting for income taxes........... .08 .08 -- -- -- --
--------- ------------- --------- ------------- --------- -------------
Net income.............................. $ 1.18 $ 1.18 $ 1.29 $ 1.24 $ .61 $ .61
--------- ------------- --------- ------------- --------- -------------
--------- ------------- --------- ------------- --------- -------------
</TABLE>
41
<PAGE>
PRO FORMA NET INCOME PER SHARE
On a pro forma basis, net income for fiscal 1991 would have been $22.9
million, or $.64 per share, assuming the Company's October 1991 public offering
of Common Stock and the related retirement of long-term debt as well as the
exchange of Common Stock with Liberty Media Corporation in satisfaction of
one-half of the unsecured note payable occurred as of the beginning of the year.
The pro forma computation assumes adjustments have been made to interest expense
attributable to the reduction of the long-term debt, net of income tax effect.
It also assumes that the shares issued in connection with the public offering
and the exchange were outstanding from the beginning of the period.
NOTE 12 -- RETIREMENT AND SAVINGS PLANS
The Company has a defined contribution Employee Retirement Plan which
covers substantially all of the Company's employees after completion of one year
of service. The Company's contribution under the Plan is equal to 3.0% of
eligible employees' salaries. The costs of this Plan charged to expenses were
$2,202,000, $2,177,000, and $1,664,000 in fiscal years 1993, 1992 and 1991,
respectively.
In addition, the Company sponsors a 401(k) Savings Plan which permits
employees to make contributions to the Savings Plan on a pre-tax salary
reduction basis in accordance with the Internal Revenue Code. Substantially all
full-time employees are eligible to participate after completion of one year of
service. The Company matches a portion of the voluntary employee contributions.
The costs of this Savings Plan charged to expenses were $2,053,000, $1,501,000,
and $812,000 in fiscal years 1993, 1992 and 1991, respectively.
NOTE 13 -- INCOME TAXES
Effective February 1, 1993, the Company changed its method of accounting
for income taxes as required by SFAS 109. The cumulative effect of this change
in accounting was to increase the net income of the first quarter of fiscal 1993
by approximately $4.0 million, which is reported separately in the Consolidated
Statements of Operations. Prior year's financial statements have not been
restated to reflect the provisions of SFAS 109.
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR
-------------------------------
1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
Current
Federal.......................................................... $ 66,366 $ 49,770 $ 19,394
State............................................................ 21,710 19,810 11,771
--------- --------- ---------
Total............................................................ 8,076 69,580 31,165
--------- --------- ---------
Deferred
Federal.......................................................... (23,159) (17,500) --
State............................................................ (4,942) -- --
--------- --------- ---------
Total............................................................ (28,101) (17,500) --
--------- --------- ---------
Total provision.................................................... $ 59,975 $ 52,080 $ 31,165
--------- --------- ---------
--------- --------- ---------
</TABLE>
42
<PAGE>
NOTE 13 -- INCOME TAXES -- (CONTINUED)
Total income tax expense differs from the amounts computed by applying the
U.S. federal income tax rate of 35.0% for fiscal 1993 and 34.0% for fiscal 1992
and 1991 to income before income taxes and extraordinary item as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
-------------------------------
1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
Provision at statutory rate.................................................... 35.0% 34.0% 34.0%
State income taxes, net of federal tax benefit................................. 14.5 12.0 14.7
Amortization of intangibles not deductible for tax purposes.................... 3.0 3.2 6.7
Net operating loss carryforward................................................ -- -- (1.2)
Other.......................................................................... (.5) (1.3) 4.7
--------- --------- ---------
Total income tax expense....................................................... 52.0% 47.9% 58.9%
--------- --------- ---------
--------- --------- ---------
</TABLE>
Deferred income taxes reflect the net effects of temporary differences
between the value of assets and liabilities and their tax bases and the benefit
of existing net operating loss carryforwards. Significant components of the net
deferred tax assets as of January 31, 1994 and 1993 follow (in thousands):
<TABLE>
<CAPTION>
JANUARY 31,
--------------------
1994 1993
--------- ---------
<S> <C> <C>
Deferred tax assets:
Accounts receivable, principally due to the allowance for doubtful accounts and related
reserves for uncollectible accounts under the Company's revolving credit program...... $ 25,715 $ 15,985
Inventories, principally due to obsolescence reserves and additional costs of inventories
for tax purposes pursuant to the Tax Reform Act of 1986............................... 7,497 6,801
Allowance for sales returns.............................................................. 7,625 3,857
Executive stock award.................................................................... -- 1,655
Costs associated with the terminated Paramount tender offer.............................. 14,964 --
Costs associated with cable television distribution rights............................... 26,619 2,813
Other.................................................................................... 7,061 (363)
--------- ---------
Total gross deferred tax assets.......................................................... 89,481 30,748
Less: Valuation allowance................................................................ (12,467) --
Less -- amounts not recognized due to SFAS 96 limitations on carrybacks of future net
deductible amounts and carryforwards of alternative minimum tax credits............... -- (12,948)
--------- ---------
Net deferred tax assets.................................................................. $ 77,014 $ 17,800
--------- ---------
--------- ---------
</TABLE>
Of the total net additional deferred tax asset recorded at the time of the
adoption of SFAS 109, approximately $27.0 million was credited to additional
paid-in capital and approximately $6.5 million was credited to the excess of
cost over acquired net assets. The net increase in the deferred tax asset during
fiscal 1993 differs from the deferred benefit component of the current year's
tax provision primarily due to the recognition of a portion of the net operating
loss carryforwards.
43
<PAGE>
NOTE 13 -- INCOME TAXES -- (CONTINUED)
Deferred tax assets were not recorded as of January 31, 1993 for state
income tax purposes since the Company's income is principally allocable to
states that do not permit carrybacks that would give rise to refundable taxes.
In addition, no deferred tax assets were recorded for federal or state tax
purposes in fiscal 1991 since refundable taxes could not be generated from
carrying back future net deductible amounts under the requirements of SFAS 96.
The increase in the deferred tax asset for fiscal 1992 differs from the
deferred benefit component of the current year tax provision because portions of
the deferred tax provision recorded were allocated to additional paid-in capital
or the excess of cost over acquired net assets.
The valuation allowance for deferred tax assets as of February 1, 1993 was
$12.2 million. The net change in the valuation allowance for fiscal 1993 was an
increase of $255,000. Approximately $6.0 million of the valuation allowance will
result in a credit to additional paid-in capital when it becomes more likely
than not that certain deductions associated with cable television distribution
rights will be realizable.
The following table summarizes the nature of certain tax benefits realized
that reduced taxes payable but were not credited to the tax provision (in
thousands):
<TABLE>
<CAPTION>
ADDITIONAL PAID-IN EXCESS OF COST OVER
CAPITAL ACQUIRED NET ASSETS
-------------------- --------------------
SOURCE OF TAX BENEFIT 1993 1992 1993 1992
- --------------------------------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Exercise of employee stock options............................. $ 1,655 $ 12,366 $ -- $ --
Net operating loss carryforward and other deductions arising
from equity transactions..................................... -- 6,967 -- --
Realization of tax benefits associated with temporary
differences in CVN acquisition............................... -- -- 6,510 5,086
Alternative minimum tax credit carryforward generated from
equity related deductions.................................... -- 2,979 -- --
--------- --------- --------- ---------
$ 1,655 $ 22,312 $ 6,510 $ 5,086
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
In 1993, the tax benefits realized from net operating loss carryforwards of $6.6
million reduced taxes payable and were credited to deferred tax assets.
As of January 31, 1994, the Company has a net operating loss carryforward
of $634,000 available to reduce future federal taxable income. There are no
other credits or loss carryforwards available as of the end of fiscal 1993.
NOTE 14 -- LITIGATION
In July 1993, Shop Television Network, Inc. ('STN'), J.C. Penney Company,
Inc. ('JCP'), JCPenney Television Shopping Channel Inc. ('JCPTV'), Michael Rosen
and the Company settled the litigation that STN had brought in the Superior
Court of the State of California for the County of Los Angeles in 1991, in
connection with the negotiation and execution of an agreement dated May 16,
1991, between the Company and JCPTV. The settlement requires dismissal of all
pending litigation between the parties, payment of approximately $8.8 million to
STN, and repurchase by STN of all its shares held by JCP for an agreed price.
JCPTV and the Company agreed to divide the settlement payment to STN between
them, with the Company being responsible for the payment of approximately $3.8
million of such settlement payment. This amount was included as a charge in
general and administrative expenses in the second quarter of fiscal 1993.
44
<PAGE>
NOTE 14 -- LITIGATION -- (CONTINUED)
In July 1993, the Company was joined as a defendant in actions filed in
state and federal court in Delaware by certain shareholders of Home Shopping
Network, Inc. ('HSN') against HSN, Liberty Media Corporation ('Liberty'),
Liberty Program Investments, Inc., RMS Limited Partnership
('RMS'), and certain individual directors and officers of HSN. The actions
challenge Liberty's purchase of HSN Class A and Class B common stock from RMS,
Liberty's tender offer for 15.0 million shares of HSN Common Stock as well as
the Company's July 12, 1993 letter proposal to HSN to combine HSN and the
Company in a stock-for-stock transaction (the 'Proposed HSN Merger'). The
actions allege that the Company aided and abetted breaches of fiduciary duties
in connection with the Proposed HSN Merger, as well as violations of certain
regulations of the Securities Exchange Act. Plaintiffs seek class certification,
declaratory and injunctive relief, compensatory damages, counsel fees, interest
and costs. Management believes that the allegations against the Company in these
shareholder lawsuits are unfounded and intends to defend against such actions
vigorously. On November 5, 1993, the Company and HSN announced their mutual
agreement to terminate negotiations on the Proposed HSN Merger. The Company's
time to respond to the complaint in the state action was extended indefinitely.
In March, 1994, the Company filed a motion to dismiss the complaint in the
federal action. The parties are currently engaged in settlement discussions.
In September 1993, Viacom International Inc. ('Viacom International'), a
subsidiary of Viacom Inc. ('Viacom'), brought an action against the Company,
Tele-Communications, Inc., Liberty, Satellite Services, Inc., Encore Media
Corp., and Netlink USA, challenging the Company's September 20, 1993 proposal to
Paramount Communications Inc. ('Paramount') to combine Paramount and the Company
in a cash and stock-for-stock exchange. Viacom International amended its
complaint in November, 1993, adding Comcast Corporation ('Comcast') as an
additional defendant. The Company filed an answer to the amended complaint on
November 19, 1993. Comcast was subsequently dismissed as a defendant. Management
believes that the allegations against the Company in Viacom International's
action are unfounded and intends to defend against such action vigorously. On
February 15, 1994, the Company terminated its tender offer for 50.1% of
Paramount Common Stock.
In October 1993, the Company commenced legal action in the Delaware
Chancery Court against Viacom, Paramount and certain Paramount directors for
breach of fiduciary duties in failing to give fair treatment to the Company's
merger proposal while granting undue advantages to Viacom's merger proposal. The
Company sought to compel Paramount's board to give the two merger proposals
equal consideration and also sought to invalidate certain 'lockup' agreements
and share purchase options given by Paramount to Viacom. Following a hearing,
the Court, on November 24, 1993, granted the Company's motion for a preliminary
injunction against Paramount's poison pill rights plan and certain other
anti-takeover mechanisms being used to preclude the Paramount shareholders from
accepting the Company's cash tender offer for approximately 50.1% of Paramount's
shares. On appeal by Paramount and Viacom, the Delaware Supreme court affirmed
the injunction granted by the Delaware Chancery Court on December 9, 1993, and
issued a formal opinion in support of its ruling on February 4, 1994. On
December 21, 1993, Viacom filed a motion to dismiss the Company's complaint
against it. On February 15, 1994, the Company terminated its tender offer for
Paramount's Common Stock.
The Company has also been named as a defendant in various legal proceedings
arising in the ordinary course of business. Although the outcome of these
matters cannot be determined, in the opinion of management, disposition of these
proceedings will not have a material effect on the Company's financial position.
45
<PAGE>
NOTE 15 -- SUPPLEMENTAL INFORMATION ON CONSOLIDATED STATEMENTS OF CASH FLOWS
An analysis of changes in working capital items follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR
---------------------------------
1993 1992 1991
---------- ---------- ---------
<S> <C> <C> <C>
Increase in accounts receivable.................................. $ (86,154) $ (29,029) $ (6,006)
Increase in inventories.......................................... (29,496) (9,784) (8,428)
Increase in deferred taxes....................................... (24,389) (10,680) --
Increase in prepaid expenses..................................... (1,820) (450) (732)
Increase in accounts payable -- trade............................ 29,972 11,312 7,245
Increase in accrued liabilities.................................. 75,648 5,074 48,028
---------- ---------- ---------
$ (36,239) $ (33,557) $ 40,107
---------- ---------- ---------
---------- ---------- ---------
Supplemental cash flow information:
Interest paid.................................................. $ 1,369 $ 20,512 $ 30,397
Income taxes paid.............................................. 31,841 37,944 1,351
</TABLE>
In fiscal year 1993, the Company did not enter into any non-cash financing
transactions. In fiscal years 1992 and 1991, the following non-cash financing
transactions were entered into by the Company (dollars in thousands).
<TABLE>
<S> <C>
1992
Issuance of 1,704,546 shares of Common Stock in prepayment of Convertible subordinated
note, net of $1,260 debt placement fees.................................................. $28,740
Exercise of 3,893,962 warrants through deliverance of 1,424,404 shares of Common Stock at
market value............................................................................. 53,771
Exercise of 2,492,017 warrants for $37,692 with simultaneous repurchase of 998,457 shares
of Common Stock at market value.......................................................... 37,692
Issuance of 404,572 shares of Common Stock in exchange for 675,026 warrants, representing
the aggregate difference between the market price and the exercise price................. 15,273
Exercise of stock options through deliverance of 800 shares of Common Stock at market
value.................................................................................... 31
</TABLE>
<TABLE>
<S> <C>
1991
Issuance of an aggregate of 243,522 shares of Common Stock and 100,000 warrants to Comcast
Financial Corporation in lieu of cash interest expense................................... 3,000
Issuance of 75,075 shares of Common Stock to the Standby Investors in consideration for
signing the Standby Equity Agreement..................................................... 614
Issuance of 2,269,552 shares of Common Stock to Liberty Media Corporation in exchange for
one-half of the outstanding balance of an unsecured note payable......................... 31,445
Adjustment to the number of shares of Common Stock assumed issued to holders of certain CVN
Series 2 Warrants from 3,377,949 to 3,410,843 (at market value).......................... 526
Adjustment to the number of new QVC Warrants assumed exchanged for certain CVN Series 2
Warrants from 6,822,767 to 6,469,913 (value based on an independent appraisal)........... (1,438)
</TABLE>
46
<PAGE>
NOTE 16 -- PARAMOUNT TENDER OFFER
On October 27, 1993, the Company made an $80.00 cash tender offer for 50.1
percent of the outstanding common shares of Paramount. This tender offer was
amended several times during the bidding process against Viacom for Paramount.
On February 1, 1994, the Company amended its cash
tender offer to $104 per share. The Company offered approximately $6.4 billion
in cash for 61.7 million Paramount common shares. The proposed cash tender offer
would have been funded through a $3.25 billion bank loan commitment and proposed
capital contributions to the Company of $1.5 billion from BellSouth Corporation
and $0.5 billion each from Advance Publications, Cox Enterprises and Comcast
Corporation. On February 15, 1994, Paramount notified the Company that Viacom
received the minimum condition in its tender offer and had delivered to
Paramount a completion certificate pursuant to the bidding procedures.
Accordingly, the Company terminated its tender offer for 50.1 percent of the
Common Stock of Paramount. The costs incurred on the tender offer, comprised
principally of bank fees and legal and advisory fees, totaled $34.8 million
which were expensed in the fourth quarter of 1993. The $3.25 billion bank loan
commitment expired on February 15, 1994 upon the termination of the tender
offer.
NOTE 17 -- QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(IN THOUSANDS, EXCEPT AS TO PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL 1993 FIRST SECOND THIRD FOURTH
- -------------------------------------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net revenue......................................................... $ 273,232 $ 262,438 $ 313,945 $ 372,489
Gross profit........................................................ 113,773 107,938 128,902 148,316
Income before income taxes and cumulative effect of a change in
accounting principle (1).......................................... 34,546 26,137 42,732 11,871
Income tax provision................................................ (16,925) (12,810) (21,215) (9,025)
Income before cumulative effect of a change in accounting
principle......................................................... 17,621 13,327 21,517 2,846
Cumulative effect of change in accounting principle (2)............. 3,990 -- -- --
Net income.......................................................... 21,611 13,327 21,517 2,846
Income per share (3):
Primary
Income before cumulative effect of a change in accounting
principle..................................................... .36 .26 .42 .06
Net income...................................................... .44 .26 .42 .06
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1992 FIRST SECOND THIRD FOURTH
- -------------------------------------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net revenue......................................................... $ 233,168 $ 221,253 $ 274,332 $ 341,834
Gross profit........................................................ 100,354 94,259 115,501 138,633
Income before income taxes and extraordinary item................... 22,917 15,905 31,468 38,378
Income tax provision................................................ (11,425) (7,190) (15,105) (18,360)
Income before extraordinary item.................................... 11,492 8,715 16,363 20,018
Extraordinary item, net of tax benefit (4).......................... (348) -- -- (1,148)
Net income.......................................................... 11,144 8,715 16,363 18,870
Income per share (5)(6):
Primary
Income before extraordinary item................................ .29 .22 .40 .44
Net income...................................................... .28 .22 .40 .42
Fully-diluted
Income before extraordinary item................................ .29 .22 .40 .42
Net income...................................................... .28 .22 .40 .40
</TABLE>
- ------------------
(1) Fourth quarter amount includes a charge of $34.8 million related to the
Paramount tender offer (Note 16).
(2) Amount represents the cumulative effect of adopting SFAS 109.
47
<PAGE>
NOTE 17 -- QUARTERLY FINANCIAL INFORMATION (UNAUDITED) -- (CONTINUED)
(IN THOUSANDS, EXCEPT AS TO PER SHARE DATA)
(3) Fully diluted earnings per share for all periods are not presented since
they are the same as the primary earnings per share.
(4) Amounts represent accelerated amortization of debt placement fees, net of
income tax benefits, due to prepayments of the Senior term loan (Note 5).
(5) The sum of the quarterly per share amounts does not equal the annual amount
due to the substantial changes in the number of shares throughout the year.
(6) In the fourth quarter of fiscal 1992, the modified treasury stock method of
computing earnings per share resulted in a fully-diluted computation with a
lower amount than the primary computation.
This is due primarily to using the year-end closing share price for the
fully-diluted computation versus the average share price for the fourth
quarter. The year-end closing price was $40.50 versus a fourth quarter
average of $32.92.
48
<PAGE>
ITEM 9 -- CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE MATTERS
The Company had no disagreements on accounting or financial disclosure
matters with its independent auditors, nor did it change auditors during the
fiscal year ended January 31, 1994.
PART III
The information called for by Item 10 -- 'Directors and Executive Officers
of the Registrant,' Item 11 -- 'Executive Compensation,' Item 12 -- 'Security
Ownership of Certain Beneficial Owners and Management' and Item 13 -- 'Certain
Relationships and Related Transactions' is incorporated herein by reference to
the Company's definitive proxy statement to be filed pursuant to SEC Regulation
14A with respect to the 1994 Annual Meeting of Shareholders.
PART IV
ITEM 14 -- EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<S> <C> <C>
(a) (1) The response to this item is contained in the Index to Financial Statements on page 25 hereof.
(2) The following financial schedules as of January 31, 1994 or for the years ended January 31, 1994,
January 31, 1993 and January 31, 1992 are submitted herewith on pages 59, 60 and 61 of this report:
Schedule II -- Accounts Receivable from Related Parties and Underwriters, Promoters and Employees
Other Than Related Parties
Schedule VIII -- Valuation and Qualifying Accounts
Schedule X -- Supplementary Income Statement Information
All other schedules are omitted because they are not applicable or the required information is shown
in the financial statements or notes thereto.
The report of the Company's independent auditors with respect to the above listed financial
statement schedules appears on page 26 of this report.
(3) The Exhibits set forth in the following index of Exhibits are filed as a part of this report.
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
3.1 Restated Certificate of Incorporation of the Company, filed as Exhibit 3.1 to the
Company's Form S-1 Registration Statement No. 33-9345 dated October 8, 1986, is
incorporated by reference herein.
3.2 Amendment to the Restated Certificate of Incorporation of the Company dated September
9, 1986, filed as Exhibit 3.2 to the Company's Form S-1 Registration Statement No.
33-9345 dated October 8, 1986, is incorporated by reference herein.
3.3 Amendment to the Restated Certificate of Incorporation of the Company dated August 13,
1987, filed as Exhibit 3.3 to the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended July 31, 1987, is incorporated by reference herein.
3.4 Amendment to the Restated Certificate of Incorporation of the Company dated July 17,
1991, filed as Exhibit 3.4 to the Company's Form S-1 Registration Statement No.
33-42092 dated August 13, 1992, is incorporated by reference herein.
3.5 Amendment to the Restated Certificate of Incorporation of the Company, dated June 29,
1993, filed as Exhibit 3.1 to the Company's Current Report on Form 8-K dated July 1,
1993, is incorporated by reference herein.
3.6 Amended and Restated By-Laws of the Company.
4.0 The Company, by signing this Report, agrees to furnish the Securities and Exchange
Commission, upon its request, a copy of any instrument which defines the rights of
holders of long-term debt of the Company.
4.1 Certificate of Stock Designation of the Company dated June 27, 1987, filed as Exhibit
4.1 to the Company's Annual Report on Form 10-K for the fiscal year ended January 31,
1989, is incorporated by reference herein.
4.2 Certificate of Stock Designation of the Company dated May 11, 1988, filed as Exhibit
4.2 to the Company's Annual Report on Form 10-K for the fiscal year ended January 31,
1989, is incorporated by reference herein.
4.3 Certificate of Stock Designation of the Company dated August 4, 1989, filed as Exhibit
4.3 to the Company's Form S-4 Registration Statement No. 33-31486 dated October 10,
1989, is incorporated by reference herein.
4.4 Certificate of Stock Designation of the Company dated March 1, 1990, filed as Exhibit
4.4 to the Company's Annual Report on Form 10-K for the fiscal year ended January 31,
1990, is incorporated by reference herein.
4.5 Form of Common Stock Purchase Warrant of the Company, filed as Exhibit 4.5 to the
Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1990, is
incorporated by reference herein.
10.1* 1986 Incentive Stock Option Plan of the Company, filed as Exhibit 1.4 to the Company's
Form S-1 Registration Statement No. 33-9345 dated October 8, 1986, is incorporated by
reference herein.
10.2* 1986 Non-Qualified Incentive Stock Option Plan of the Company, filed as Exhibit 28 to
the Company's S-8 Registration Statement No. 33-32523 dated December 11, 1989, is
incorporated by reference herein.
</TABLE>
50
<PAGE>
<TABLE>
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10.3* 1987 Incentive Stock Option Plan of the Company, filed as Exhibit 10.21 to the
Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1987, is
incorporated by reference herein.
10.4* 1988 Incentive Stock Option Plan of the Company, filed as Exhibit 10.4 to the
Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1989, is
incorporated by reference herein.
10.5* 1990 Non-Qualified Incentive Stock Option Plan of the Company, filed as Exhibit 10.6
to the Company's Annual Report on Form 10-K for the fiscal year ended January 31,
1990, is incorporated by reference herein.
10.6* 1991 Non-Qualified Stock Option of the Company, as amended, filed as Exhibit 10.6 to
the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1993,
is incorporated by reference herein.
10.7* 1992 Qualified Incentive Stock Option Plan of the Company, filed as Exhibit 10.7 to
the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1993,
is incorporated by reference herein.
10.8 Form of Equity Participation Agreement, filed as Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 1987, is
incorporated by reference herein.
10.9 Form of Affiliation Agreement, filed as Exhibit 10.2 to the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended July 31, 1987, is incorporated by reference
herein.
10.10 Warrant Agreement between the Company and Safeguard Scientifics, Inc. dated April 29,
1987, filed as Exhibit 10.23 to the Company's Annual Report on Form 10-K for the
fiscal year ended January 31, 1987, is incorporated by reference herein.
10.11 Warrant Agreement between the Company and Fidelity Bank, National Association, dated
April 29, 1987, filed as Exhibit 10.29 to the Company's Annual Report on Form 10-K for
the fiscal year ended January 31, 1987, is incorporated by reference herein.
10.12 Note and Warrant Purchase Agreement, dated October 31, 1989, between the Company and
Comcast Financial Corporation, filed as Exhibit 2.3 to the Current Report on Form 8-K
dated November 14, 1989, is incorporated by reference herein.
10.13 Promissory Note and related mortgage documents dated August 31, 1988, between CVN
Distribution Co. and Northwestern National Life Insurance Company, filed as Exhibit
10.12 of the Annual Report on Form 10-K of CVN Companies, Inc. for the fiscal year
ended August 31, 1988, is incorporated by reference herein.
10.14 Restated Promissory Note of CVN Direct Marketing Corp. issued to Northwestern National
Life Insurance Company and The North Atlantic Life Insurance Company of America, filed
as Exhibit 10.23 to the Company's Annual Report on Form 10-K for the fiscal year ended
January 31, 1991, is incorporated by reference herein.
10.15 Form of Affiliation Agreement of CVN Companies, Inc., filed as Exhibit 10.23 to the
Current Report on Form 8-K of CVN Companies, Inc. dated June 30, 1987 and filed on
July 14, 1987, is incorporated by reference herein.
</TABLE>
51
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10.16 Form of Addendum to QVC Affiliation Agreement, filed as Exhibit 10.30 to the Company's
Annual Report on Form 10-K for the fiscal year ended January 31, 1990, is incorporated
by reference herein.
10.17 Form of Addendum to CVN Affiliation Agreement, filed as Exhibit 10.31 to the Company's
Annual Report on Form 10-K for the fiscal year ended January 31, 1990, is incorporated
by reference herein.
10.18 Form of Equity Participation Agreement in conjunction with 10-Year Extension to
Affiliation Agreement(s), filed as Exhibit 10.32 to the Company's Annual Report on
Form 10-K for the fiscal year ended January 31, 1990, is incorporated by reference
herein.
10.19 Agreement and Plan of Merger, dated as of July 9, 1989, as amended as of September 29,
1989, between and among CVN Companies, Inc., the Company and QVC Acquisition Corp.,
filed as Exhibit 2 to the Company's Form S-4 Registration Statement No. 33-31486 dated
October 10, 1989, is incorporated by reference herein.
10.20 C-3 Satellite Transponder Service Agreement between the Company and GE American
Communications, Inc. dated May 15, 1989, filed as Exhibit 10.35 to the Company's
Annual Report on Form 10-K for the fiscal year ended January 31, 1990, is incorporated
by reference herein. (Certain portions of this agreement are subject to Confidential
Treatment pursuant to the Securities and Exchange Commission's order dated June,
1990).
10.21 C-4 Satellite Transponder Service Agreement dated July 10, 1989, between CVN
Companies, Inc. and GE American Communications, Inc. dated July 10, 1989, filed as
Exhibit 10.36 to the Company's Annual Report on Form 10-K for the fiscal year ended
January 31, 1990, is incorporated by reference herein. (Certain portions of this
agreement are subject to Confidential Treatment pursuant to the Securities and
Exchange Commission's order dated June, 1990).
10.22 License Agreement between JCPenney Television Shopping Channel, Inc. and the Company
dated May 16, 1991, filed as Exhibit 10 to the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended April 30, 1991, is incorporated by reference herein.
(Certain portions of this agreement are subject to Confidential Treatment pursuant to
the Securities and Exchange Commission's order dated August 19, 1991).
10.23 Agreement between Liberty Program Investments, Inc. and the Company dated August 12,
1991, filed as Exhibit 10.44 to the Company's Form S-1 Registration Statement No.
33-42092 dated August 13, 1991, is incorporated by reference herein.
10.24* Employment Agreement dated as of October 1, 1991, between the Company and Joseph M.
Segel, filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended October 31, 1991, is incorporated by reference herein.
10.25* Amendment to Employment Agreement dated as of December 9, 1992, between the Company
and Joseph M. Segel, filed as Exhibit 28.2 to the Company's Current Report on Form 8-K
filed on January 21, 1993, as amended by Form 8 filed on January 27, 1993, is
incorporated by reference herein.
</TABLE>
52
<PAGE>
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<S> <C> <C> <C>
10.26* Employment Agreement dated as of December 9, 1992, between the Company and Michael C.
Boyd, filed as Exhibit 28.1 to the Company's Current Report on Form 8-K filed on
February 10, 1993, is incorporated by reference herein.
10.27* Employment Agreement dated as of December 9, 1992, between the Company and William F.
Costello, filed as Exhibit 28.2 to the Company's Current Report on Form 8-K filed on
February 10, 1993, is incorporated by reference herein.
10.28* Employment Agreement dated as of December 9, 1992, between the Company and Douglas S.
Briggs, filed as Exhibit 28.3 to the Company's Current Report on Form 8-K filed on
February 10, 1993, is incorporated by reference herein.
10.29* Employment Agreement dated as of December 9, 1992, between the Company and Thomas
Downs, filed as Exhibit 28.4 to the Company's Current Report on Form 8-K filed on
February 10, 1993, is incorporated by reference herein.
10.30* Employment Agreement dated as of December 9, 1992, between the Company and Ronald D.
Giles, filed as Exhibit 28.5 to the Company's Current Report on Form 8-K filed on
February 10, 1993, is incorporated by reference herein.
10.31* Employment Agreement dated as of December 9, 1992, between the Company and Neal S.
Grabell, filed as Exhibit 28.6 to the Company's Current Report on Form 8-K filed on
February 10, 1993, is incorporated by reference herein.
10.32* Employment Agreement dated as of December 9, 1992, between the Company and John F.
Link, filed as Exhibit 28.7 to the Company's Current Report on Form 8-K filed on
February 10, 1993, is incorporated by reference herein.
10.33* Employment Agreement dated as of December 9, 1992, between the Company and Gary F.
Mathern, filed as Exhibit 28.8 to the Company's Current Report on Form 8-K filed on
February 10, 1993, is incorporated by reference herein.
10.34* Employment Agreement dated as of December 9, 1992, between the Company and D. Bruce
Sellers, filed as Exhibit 28.9 to the Company's Current Report on Form 8-K filed on
February 10, 1993, is incorporated by reference herein.
10.35 Credit Agreement dated as of March 5, 1993, between the Company and The Bank of New
York, filed as Exhibit 10.40 to the Company's Annual Report on Form 10-K for the
fiscal year ended January 31, 1993, is incorporated by reference herein.
10.36* Equity Compensation Agreement dated as of December 9, 1992, between the Company and
Barry Diller, filed as Exhibit 10.41 to the Company's Annual Report on Form 10-K for
the fiscal year ended January 31, 1993, is incorporated by reference herein.
</TABLE>
53
<PAGE>
<TABLE>
<S> <C> <C> <C>
10.37 Settlement Agreement and Mutual Release, among Shop Television Network, Inc., a
Delaware corporation, J.C. Penney Company, Inc., a Delaware corporation, JCPenney
Television Shopping Channel, Inc., a Delaware corporation, Michael Rosen and the
Company, filed as Exhibit 28.1 to the Company's Current Report on Form 8-K filed on
August 4, 1993, is incorporated by reference herein.
10.38 Amendment to the License Agreement, dated May 16, 1991, between JCPenney Television
Shopping Channel, Inc. and the Company, filed as Exhibit 28.2 to the Company's Current
Report on Form 8-K filed on August 4, 1993, is incorporated by reference herein.
10.39 Schedule 13D (Amendment No. 3), filed as Exhibit 28.3 to the Schedule 13D (Amendment
No. 3) of Comcast Corporation, Liberty Media Corporation and Barry Diller filed on
August 4, 1993, is incorporated by reference herein.
10.40 Amended and Restated Credit Card Programs Agreement dated as of July 13, 1992, among
the Company, CVN Companies, Inc., and General Electric Capital Corporation, filed as
Exhibit 28 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
July 31, 1993, is incorporated by reference herein. (Certain portions of this
agreement are subject to Confidential Treatment pursuant to the Securities and
Exchange Commission's order dated October 26, 1993).
10.41 Stockholders Agreement, dated July 16, 1993, among Liberty Media Corporation, Comcast
Corporation, Arrow Investments, L.P. and certain affiliates and subsidiaries of such
parties, filed as Exhibit (c)(2) to the Tender Offer Statement on Schedule 14D-1 of
the Company, Comcast Corporation and Liberty Media Corporation filed on October 27,
1993, is incorporated by reference herein.
10.42 Commitment Letter, dated November 11, 1993, by and among the Company, Comcast
Corporation, Cox Enterprises, Inc. and Advance Publications, Inc., filed as Exhibit
(c)(10) to Amendment No. 6 to the Tender Offer Statement on Schedule 14D-1 of the
Company, Comcast Corporation, Liberty Media Corporation and BellSouth Corporation
filed on November 12, 1993, is incorporated by reference herein.
10.43 Memorandum of Understanding, dated November 11, 1993, by and between the Company and
BellSouth Corporation, filed as Exhibit (c)(11) to Amendment No. 6 to the Tender Offer
Statement on Schedule 14D-1 of the Company, Comcast Corporation, Liberty Media
Corporation and BellSouth Corporation filed on November 12, 1993, is incorporated by
reference herein.
10.44 Liberty-QVC Agreement, dated November 11, 1993, by and between the Company and Liberty
Media Corporation, filed as Exhibit (c)(12) to Amendment No. 6 to the Tender Offer
Statement on Schedule 14D-1 of the Company, Comcast Corporation, Liberty Media
Corporation and BellSouth Corporation filed on November 12, 1993, is incorporated by
reference herein.
</TABLE>
54
<PAGE>
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<S> <C> <C> <C>
10.45 Agreement Containing Consent Order and Interim Agreement, dated November 12, 1993,
among the Federal Trade Commission, Liberty Media Corporation and Tele-Communications,
Inc., filed as Exhibit (c)(15) to Amendment No. 9 to the Tender Offer Statement on
Schedule 14D-1 of the Company, Comcast Corporation and BellSouth Corporation filed on
November 18, 1993, is incorporated by reference herein.
10.46 BellSouth Commitment Letter, dated November 19, 1993, by and between BellSouth
Corporation and the Company, filed as Exhibit (c)(16) to Amendment No. 10 to the
Tender Offer Statement on Schedule 14D-1 of the Company, Comcast Corporation and
BellSouth Corporation filed on November 22, 1993, is incorporated by reference herein.
10.47 Agreement and Plan of Merger between Paramount Communications Inc. and the Company,
dated as of December 22, 1993, filed as Exhibit (c)(23) to Amendment No. 21 to the
Tender Offer Statement on Schedule 14D-1 of the Company, Comcast Corporation and
BellSouth Corporation filed on December 23, 1993, is incorporated by reference herein.
10.48 First Amendment, dated as of December 27, 1993, to Agreement and Plan of Merger
between Paramount Communications Inc. and the Company, filed as Exhibit (c)(26) to
Amendment No. 23 to the Tender Offer Statement on Schedule 14D-1 of the Company,
Comcast Corporation and BellSouth Corporation filed on December 28, 1993, is
incorporated by reference herein.
10.49* Employment Agreement, dated July 20, 1993, among QVC Network, Inc., Q2 Corporation and
Candice Carpenter (without exhibits).
10.50* Employment Agreement, dated August 16, 1993, between QVC Network, Inc., and William J.
Schereck, Jr.
10.51 Joint Venture Agreement, dated as of November 8, 1993, among Grupo Televisa, S.A. de
C.V., Television Independiente de Mexico, S.A. de C.V., QVC Network, Inc., QVC Mexico,
Inc., and Telemercado Alameda,
S. de R.L. de C.V. (without exhibits).
10.52 Joint Venture Agreement, dated October 11, 1993, among QVC Network, Inc., QVC Britain,
British Sky Broadcasting Limited, Precis (1192) Limited and QVC (without exhibits).
(Certain portions of this Exhibit are subject to an Application for Confidential
Treatment pursuant to Rule 24b-2).
10.53 License Agreement, dated as of March 15, 1994, between Silvercup Studios Associates
Limited Partnership and Q2 Inc. (without exhibits).
10.54 Stock Option Agreement, dated as of February 15, 1994, among QVC Network, Inc., Cox
Enterprises, Inc., Advance Publications, Inc., and BellSouth Corporation (without
exhibits).
21. Subsidiaries of the Registrant.
23. Consent of Independent Auditors.
99.1 Letter dated July 12, 1993, from the Company, addressed to Home Shopping Network,
Inc., filed as Exhibit 99.1 to the Company's Current Report on Form 8-K filed on July
13, 1993, is incorporated by reference herein.
</TABLE>
55
<PAGE>
<TABLE>
<S> <C> <C> <C>
99.2 Letter dated July 12, 1993, from Liberty Media Corporation addressed to the Board of
Directors of the Company, filed as Exhibit 99.2 to the Company's Current Report on
Form 8-K filed on July 13, 1993, is incorporated by reference herein.
99.3 Offer to Purchase, dated October 27, 1993, from the Company to the common stockholders
of Paramount Communications Inc., filed as Exhibit (a)(1) to the Tender Offer
Statement on Schedule 14D-1 of the Company, Comcast Corporation and Liberty Media
Corporation filed on October 27, 1993, is incorporated by reference herein.
99.4 Letter of Transmittal, dated October 27, 1993, from the Company to the common
stockholders of Paramount Communications Inc., filed as Exhibit (a)(2) to the Tender
Offer Statement on Schedule 14D-1 of the Company, Comcast Corporation and Liberty
Media Corporation filed on October 27, 1993, is incorporated by reference herein.
99.5 First Amended and Supplemental Complaint in QVC Network, Inc. v. Paramount
Communications, Inc., C.A. No. 13208 (filed October 28, 1993, Delaware Chancery
Court), filed as Exhibit (c)(5) to Amendment No. 1 to the Tender Offer Statement on
Schedule 14D-1 of the Company, Comcast Corporation and Liberty Media Corporation filed
on October 29, 1993, is incorporated by reference herein.
99.6 Supplement to the Offer to Purchase, dated November 12, 1993, filed as Exhibit (a)(17)
to Amendment No. 6 to the Tender Offer Statement on Schedule 14D-1 of the Company,
Comcast Corporation, Liberty Media Corporation and BellSouth Corporation filed on
November 12, 1993, is incorporated by reference herein.
99.7 Revised Letter of Transmittal, filed as Exhibit (a)(18) to Amendment No. 6 to the
Tender Offer Statement on Schedule 14D-1 of the Company, Comcast Corporation, Liberty
Media Corporation and BellSouth Corporation filed on November 12, 1993, is
incorporated by reference herein.
99.8 Amended Complaint in Viacom International, Inc. v. Tele-Communications, Inc., et al,
dated November 9, 1993 (U.S. District Court, Southern District of New York), filed as
Exhibit (a)(26) to Amendment No. 8 to the Tender Offer Statement on Schedule 14D-1 of
the Company, Comcast Corporation and BellSouth Corporation filed on November 16, 1993,
is incorporated by reference herein.
99.9 Memorandum Opinion and Preliminary Injunction Order in QVC Network, Inc. v. Paramount
Communications, Inc., C.A. No. 13208, both dated November 24, 1993, entered by
Delaware Chancery Court, filed as Exhibit (c)(17) to Amendment No. 13 to the Tender
Offer Statement on Schedule 14D-1 of the Company, Comcast Corporation and BellSouth
Corporation filed on November 26, 1993, is incorporated by reference herein.
99.10 Revised Memorandum Opinion, dated November 26, 1993, in QVC Network, Inc. v. Paramount
Communications, Inc., C.A. No. 13208, entered by Delaware Chancery Court, filed as
Exhibit (c)(18) to Amendment No. 14 to the Tender Offer Statement on Schedule 14D-1 of
the Company, Comcast Corporation and BellSouth Corporation filed on December 2, 1993,
is incorporated by reference herein.
</TABLE>
56
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<TABLE>
<S> <C> <C> <C>
99.11 Order, dated December 9, 1993, in Paramount Communications Inc. v. QVC Network, Inc.,
C.A. No. 13208, entered by Delaware Supreme Court, filed as Exhibit (c)(19) to
Amendment No. 15 to the Tender Offer Statement on Schedule 14D-1 of the Company,
Comcast Corporation and Liberty Media Corporation filed on December 10, 1993, is
incorporated by reference herein.
99.12 Second Supplement to the Offer to Purchase, dated December 23, 1993, filed as Exhibit
(a)(46) to Amendment No. 21 to the Tender Offer Statement on Schedule 14D-1 of the
Company, Comcast Corporation and BellSouth Corporation filed on December 23, 1993, is
incorporated by reference herein.
99.13 Second Revised Letter of Transmittal, filed as Exhibit (a)(47) to Amendment No. 21 to
the Tender Offer Statement on Schedule 14D-1 of the Company, Comcast Corporation and
BellSouth Corporation filed on December 23, 1993, is incorporated by reference herein.
99.14 Third Supplement to the Offer to Purchase, dated January 31, 1994, filed as Exhibit
(a)(67) to Amendment No. 34 to the Tender Offer Statement on Schedule 14D-1 of the
Company, Comcast Corporation and BellSouth Corporation filed on February 1, 1994, is
incorporated by reference herein.
99.15 Third Revised Letter of Transmittal, filed as Exhibit (a)(68) to Amendment No. 34 to
the Tender Offer Statement on Schedule 14D-1 of the Company, Comcast Corporation and
BellSouth Corporation filed on February 1, 1994, is incorporated by reference herein.
99.16 Opinion, dated February 4, 1994, in Paramount Communications Inc. v. QVC Network,
Inc., C.A. No. 13208, entered by Delaware Supreme Court, filed as Exhibit (c)(33) to
Amendment No. 37 to the Tender Offer Statement on Schedule 14D-1 of the Company,
Comcast Corporation and BellSouth Corporation filed on February 7, 1994, is
incorporated by reference herein.
</TABLE>
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* A management contract or compensatory plan or arrangement required to be filed
pursuant to Item 14(c).
(b) During the fiscal quarter ended January 31, 1994, no Current Reports on Form
8-K were filed.
57
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused the report to be signed on
its behalf by the undersigned, thereunto duly authorized.
QVC NETWORK, INC.
By: _________/s/_Barry Diller_________
Barry Diller
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE AND TITLE DATE
- ------------------------------------------------------------------ -----------------
<S> <C>
/s/ Barry Diller April 19, 1994
Barry Diller, Chairman of the Board
and Chief Executive Officer
(Principal Executive Officer)
/s/ William F. Costello April 19, 1994
William F. Costello, Executive Vice
President, Chief Financial Officer and Director
(Principal Financial Officer)
/s/ J. Bruce Llewellyn April 19, 1994
J. Bruce Llewellyn, Director
/s/ Brian L. Roberts April 19, 1994
Brian L. Roberts, Director
/s/ Ralph J. Roberts April 19, 1994
Ralph J. Roberts, Director
/s/ Joseph M. Segel April 19, 1994
Joseph M. Segel, Director
</TABLE>
58
<PAGE>
SCHEDULE II
AMOUNTS RECEIVABLE FROM RELATED PARTIES AND
UNDERWRITERS,PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
(in thousands)
<TABLE>
<CAPTION>
DEDUCTIONS BALANCE AT
BALANCE AT -------------------------- END OF PERIOD
BEGINNING AMOUNTS AMOUNTS ------------------------
NAME OF DEBTOR OF PERIOD ADDITIONS COLLECTED WRITTEN-OFF CURRENT NOT CURRENT
- ------------------------------------------------ ----------- ----------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Year Ended January 31, 1992
Peter Barton, unsecured 8% note receivable
due on demand........................... $ 98 $ 6 $ -- $ -- $ 104 $ --
----------- ----------- ----------- ------ ----------- -----------
Year Ended January 31, 1993
Peter Barton, unsecured 8% note receivable
due on demand........................... $ 104 $ -- $ 104 $ -- $ -- $ --
----------- ----------- ----------- ------ ----------- -----------
Year ended January 31, 1994
Candice Carpenter, unsecured, prime plus
one percent note receivable due in
installments until May 31, 1998......... $ -- $ 257 $ -- $ -- $ 257 $ --
----------- ----------- ----------- ------ ----------- -----------
</TABLE>
59
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SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
ADDITIONS ADDITIONS
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OTHER PERIOD
- ---------------------------------- ----------- ----------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended January 31,
1992...................... $ 8,214 $ 14,501 $ -- $ (7,260)(A) $ -- $ 15,455
Year ended January 31,
1993...................... $ 15,455 $ 17,506 $ 1,250(C) $ (12,895)(A) $ -- $ 21,316
Year ended January 31,
1994...................... $ 21,316 $ 24,765 $ -- $ (7,971)(A) $ 14,649 $ 52,759
Inventory obsolescence reserve:
Year ended January 31,
1992...................... $ 8,387 $ 16,465 $ -- $ (12,141)(B) $ -- $ 12,711
Year ended January 31,
1993...................... $ 12,711 $ 17,809 $ -- $ (14,312)(B) $ -- $ 16,208
Year ended January 31,
1994...................... $ 16,208 $ 20,000 $ -- $ (21,186)(B) $ -- $ 15,022
Reserve for uncollectible
accounts under revolving credit
program:
Year ended January 31,
1992...................... $ 11,769 $ 14,175 $ -- $ (5,970)(A) $ -- $ 19,974
Year ended January 31,
1993...................... $ 19,974 $ 10,159 $ -- $ (4,434)(A) $ -- $ 25,699
Year ended January 31,
1994...................... $ 25,699 $ -- $ -- $ (2,414)(A) $ (14,649(D) $ 8,636
</TABLE>
- ------------------
<TABLE>
<S> <C>
(A) Accounts written-off as uncollectible, net of recoveries.
(B) Written off as obsolete.
(C) Reserve for interest on note receivable transferred from accrued liabilities.
(D) Transfer to allowance for doubtful accounts
</TABLE>
60
<PAGE>
SUPPLEMENTARY INCOME STATEMENT INFORMATION
(in thousands)
<TABLE>
<CAPTION>
CHARGED TO
ITEM COSTS AND EXPENSES
- --------- ------------------
<S> <C>
Advertising costs:
Year ended January 31, 1992.................. $ 35,407
Year ended January 31, 1993.................. $ 33,419
Year ended January 31, 1994.................. $ 28,172
</TABLE>
61
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EXHIBIT 3.6
QVC NETWORK, INC.
BY-LAWS
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office shall be in the City
of Wilmington, County of New Castle, State of Delaware. The registered agent in
charge thereof shall be Corporation Service Company.
Section 2. Other Offices. The corporation may also have offices at such
other places, both within and without the State of Delaware, as the Board of
Directors may from time to time determine or the business of the corporation may
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meeting. Meetings of stockholders may be held at such
place, either within or without the State of Delaware, as shall be designated
from time to time by the Board of Directors and stated in the notice of the
meeting. If the place of meeting is not designated in the notice, the meeting
shall be held at the corporation's registered office.
Section 2. Annual Meeting. The annual meeting of stockholders shall be
held following the end of the corporation's fiscal year on a date and at a time
specified by the Board of Directors and stated in the notice of the meeting for
the purpose of electing directors and transacting such other business as may
properly be brought before the meeting. If the election of directors shall not
be held on the day designated by the Board of Directors for any annual meeting,
or at any adjournment thereof, the Board of Directors shall cause the election
to be held at a special meeting of stockholders as soon thereafter as is
convenient.
Section 3. Special Meetings. Special meetings of the stockholders, for any
purpose or purposes, unless otherwise prescribed by statute or by the
certificate of incorporation, may be called by the Chairman of the Board of
Directors and shall be called by the Chairman or Secretary at the request in
writing of a majority of the Board of Directors, or at the request in writing of
stockholders owning majority in amount of the shares of stock issued and
outstanding and entitled to vote as of the date of such request. Such request
shall state the purpose or purposes of the proposed meeting.
Section 4. Notices. Written notice stating the place, date and hour of the
meeting, and in the case of a special meeting the purpose or purposes thereof,
shall be given to each stockholder entitled to vote at such meeting not less
than ten nor more than sixty days before the date of the meeting either
personally or by mail or telegraph, addressed to each stockholder at such
stockholder's address as it appears on the records of the corporation. If
mailed, such notice shall be deemed to be delivered three business days after
being deposited in the United States mail so addressed, with postage thereon
prepaid. If notice be by telegram, such notice shall be deemed to be delivered
when the telegram is delivered to the telegraph company.
Section 5. Adjourned Meetings. When a meeting is adjourned to another time
or place, notice of the adjourned meeting need not be given if the time and
place thereof are announced at the meeting at which the adjournment is taken, if
the adjournment is for not more than thirty (30) days, and if no new record date
is fixed for the adjourned meeting. At the adjourned meeting the corporation may
transact any business which might have been transacted at the original meeting.
Section 6. Quorum. The holders of a majority of the shares of stock issued
and outstanding and entitled to vote thereat, present in person or represented
by proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business, except as otherwise provided by law or by the
certificate of incorporation. If, however, such quorum shall not be present or
represented at any
1
<PAGE>
meeting of the stockholders, the stockholders entitled to vote thereat, present
in person or represented by proxy, shall have power to adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present or represented. At such adjourned meeting at which a
quorum shall be present or represented, any business may be transacted which
might have been transacted at the meeting as originally notified.
Section 7. The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
Section 8. Judges of Election. The Board of Directors, or if the board
shall not have made the appointment, the chairman presiding at any meeting of
stockholders, shall have the power to appoint two or more persons to act as
judges, to receive, canvass, and report the votes cast by the stockholders at
such meeting, but no candidate for director shall be appointed as a judge at any
meeting.
Section 9. Voting. Unless otherwise provided in the certificate of
incorporation, each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder, but no proxy shall be voted after
three years from its date, unless the proxy provides for a longer period. Except
where the transfer books of the corporation have been closed or a date has been
fixed as a record date for the determination of its stockholders entitled to
vote, no share of stock shall be voted at any election for directors which has
been transferred on the books of the corporation within ten (10) days next
preceding such election of directors. No corporate action requiring shareholder
approval, including the election or removal of directors, may occur without the
affirmative vote of the holders of a majority of the shares then entitled to
vote. Election of directors need not be by written ballot.
Section 10. Action Without a Meeting. Any action required or permitted to
be taken at any annual or special meeting of stockholders of the corporation,
may be taken without a meeting, without prior notice and without a vote, if a
consent in writing, setting forth the action so taken, shall be signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted; provided that prompt
notice of the taking of such action shall be given to those stockholders who
have not so consented in writing to such action.
ARTICLE III
DIRECTORS
Section 1. Number and Term. The business and affairs of the corporation
shall managed by a board of not less than six nor more than twelve directors,
the precise number to be determined by resolution of the board of directors or
by the stockholders at the annual meeting. Two directors shall be elected only
by the holders of shares of Common Stock and the rest of the directors by the
holders of all shares of stock without regard to class. The directors shall be
elected at the annual meeting of the stockholders, except as provided in Section
2 of this Article, and each director elected shall serve for a term of one year
from the date of election and until a successor is elected and qualified or
until the director's earlier resignation or removal. Directors need not be
stockholders.
Section 2. Vacancies. Vacancies and newly created directorships resulting
from any increase in the authorized number of directors may be filled by a
majority of the directors then in office, though less than a quorum, or by a
sole remaining director, and the directors so chosen shall hold office until
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the next annual election and until their successors are duly elected and shall
qualify, unless sooner displaced.
Section 3. Resignation or Removal. Any director may at any time resign by
delivering to the Board of Directors his resignation in writing, to take effect
no later than ten days thereafter. Any director may at any time be removed
effective immediately, with or without cause, by the vote, either in person or
represented by proxy, of a majority of the shares of stock issued and
outstanding and entitled to vote at a special meeting held for such purpose or
by the written consent of a majority of the shares of stock issued and
outstanding; provided that if such director is elected by the holders of a
particular class of stock, such director may be removed by the vote of a
majority of the shares of that class or by the written consent of a majority of
the shares of that class.
Section 4. Regular Meetings. Regular meetings of the Board of Directors
shall be held quarterly at such time and place and on such dates as shall be
determined by the Chairman of the Board of Directors.
Section 5. Special Meetings. Special meetings of the Board of Directors
may be called by or at the request of the Chairman of the Board of Directors or
on the written request of any three directors. The Chairman of the Board of
Directors shall have the right to fix the time, place and date of each special
meeting.
Section 6. Notice. At least one day's prior written notice of any meeting
of the Board of Directors shall be given, either personally or by mail,
telegraph or courier service, addressed to each director at his address as it
appears on the records of the corporation. If mailed such notice shall be deemed
to be delivered three days after being deposited in the United States mail so
addressed, with postage thereon prepaid. If notice be by telegram or courier
service, such notice shall be deemed to be delivered when the telegram or notice
is delivered to the telegraph company or courier service.
Section 7. Quorum. At all meetings of the Board of Directors a majority of
the directors then serving shall constitute a quorum for the transaction of
business and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the Board of Directors. If a quorum
shall not be present at any meeting of the Board of Directors, the directors
present thereat may adjourn the meeting from time to time, without notice other
than announcement at the meeting, until a quorum shall be present. A director
present at a meeting shall be counted in determining the presence of a quorum,
regardless of whether a contract or transaction between the corporation and such
director or between the corporation and any other corporation, partnership,
association, or other organization in which such director is a director or
officer, or has a financial interest, is authorized or considered at such
meeting.
Section 8. Action Without a Meeting. Any action required or permitted to
be taken at any meeting of the Board of Directors, or of any committee thereof,
may be taken without a meeting, if all members of the Board or committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the Board or committee.
Section 9. Meetings by Conference Telephone. Members of the Board of
Directors, or any committee thereof, may participate in a meeting of the Board
of Directors, or such committee, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation in a meeting shall
constitute presence in person at such meeting.
Section 10. Committees. The Board of Directors may, by resolution adopted
by a majority of the whole Board, designate one or more committees, each
committee to consist of two or more directors, and to have such name or title
determined by the Board. The Board may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. In the absence or disqualification of a
member of a committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not such person or persons constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of any such absent or disqualified member.
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Any such committee, to the extent provided in such resolution, shall have
and may exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the corporation and may authorize the
seal of the corporation to be affixed to all papers which may require it; but no
such committee shall have the power or authority to amend the certificate of
incorporation, adopt an agreement of merger or consolidation, recommend to the
stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, recommend to the stockholders a dissolution
of the corporation or a revocation of a dissolution, or amend the by-laws of the
corporation; and, unless the resolution expressly so provides, no such committee
shall have the power or authority to declare a dividend or to authorize the
issuance of stock. Such committee or committees shall have such name or names as
may be determined from time to time by resolution adopted by the board of
directors.
Section 11. Compensation of Directors. The Board of Directors shall have
the authority to fix the compensation of directors. The directors may be paid a
fixed sum and/or their expenses, if any, of attendance for attendance at each
meeting of the Board of Directors or a stated salary as director. No such
payment shall preclude any director from serving the corporation in any other
capacity and receiving compensation therefor. Members of special or standing
committees may be allowed like compensation for attending committee meetings.
ARTICLE IV
OFFICERS
Section 1. Designation. The officers of the corporation shall consist of a
Chairman of the Board, one or more Vice Presidents (the number and designation
of which to be determined from time to time by the Board of Directors), a
Secretary and a Treasurer. The Board of Directors may also choose as additional
officers a Vice Chairman of the Board, a President and such other officers,
assistant officers and agents as it may deem necessary, who shall hold their
offices for such terms and shall exercise such powers and perform such duties as
shall be determined from time to time by the Chairman of the Board.
Section 2. Salaries. The salaries of all officers and agents of the
corporation shall be fixed by the Board of Directors.
Section 3. Election and Term of Office. The Chairman of the Board shall be
elected by the Board of Directors at the first meeting of the Board of Directors
following the stockholders' annual meeting, and serve for a term of one (1) year
and until a successor is elected by the Board. The other officers of the
corporation shall also be appointed by the Board of Directors for a term of one
(1) year. Any officer appointed by the Board may be removed, with or without
cause, at any time by the Chairman of the Board. The Chairman of the Board,
however, may only be removed by the affirmative vote of 60% of all directors. An
officer may resign at any time upon written notice to the corporation. Each
officer shall hold his office until his or her successor is appointed or until
his or her earlier resignation or removal.
Section 4. The Chairman of the Board. The Chairman of the Board shall be
elected by the Board of Directors from their own number; the Chairman shall
preside at all meetings of the stockholders and of the Board of Directors, shall
be the chief executive officer of the corporation, shall have general and active
management of the business of the corporation and shall see that all orders and
resolutions of the Board of Directors are carried into effect; the Chairman may
remove and replace, in the Chairman's sole discretion, the officers of the
corporation; the Chairman shall be empowered to sign all certificates, contracts
and other instruments of the corporation which may be authorized by the Board of
Directors; and the Chairman shall have such other duties and shall supervise
such matters as may be designated to him by the Board of Directors.
Section 5. The President. In the event the Board of Directors shall elect
a President, the President shall perform any and all duties assigned to him by
the Board or directed by the Chairman of the Board or as are incident to the
office of the President of a corporation.
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Section 6. The Vice-President. In the absence of the President or in the
event of his inability or refusal to act, the Vice-President (or in the event
there be more than one Vice-President, the Vice-Presidents in the order
designated by the directors, or in the absence of any designation, then in the
order of their election) shall perform the duties of the President and, when so
acting, shall have all the powers of and be subject to all the restrictions upon
the President. The Vice-Presidents shall perform such other duties and have such
other powers as may from time to time be assigned to them by the Chairman of the
Board or the Board of Directors.
Section 7. The Secretary. The Secretary shall attend all meetings of the
Board of Directors and stockholders and record all the proceedings thereat in a
book to be kept for that purpose and shall perform like duties for the
committees of the Board of Directors. The Secretary shall give, or cause to be
given, all notices in accordance with the provisions of these By-Laws or as
required by law; and shall have custody of the corporate records and of the seal
of the corporation and shall have authority to affix the same to any instrument
requiring it and, when so affixed, it may be attested by the signature of the
Secretary; shall keep at the registered office or at the principal place of
business of the corporation a record of the stockholders of the corporation,
giving the names and addresses of all such stockholders (which addresses shall
be furnished to the Secretary by such stockholders) and the number and class of
the shares held by each; the Secretary shall have general charge of the stock
transfer books of the corporation; and in general the Secretary shall perform
all duties as from time to time may be assigned to him by the Chairman of the
Board or by the Board of Directors.
Section 8. The Treasurer. The Treasurer shall have the custody of the
corporate funds and securities and shall keep, or cause to be kept, correct and
complete books of account, including full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the corporation in
such depositories as may be designated by the Board of Directors; shall disburse
the funds of the corporation as may be ordered by the Chairman of the Board or
the Board of Directors, taking proper vouchers for such disbursements; shall
render to the Chairman of the Board and the Board of Directors, when the Board
so requires, an account of all transactions and of the financial condition of
the corporation; and, in general, shall perform all the duties incident to the
office of Treasurer and such other duties as may be assigned from time to time
by the Chairman of the Board or by the Board of Directors. If required by the
Board of Directors, the Treasurer shall give the corporation a bond (which shall
be renewed every six years) in such sum and with such surety or sureties as
shall be satisfactory to the Board of Directors for the faithful performance of
the duties of the Treasurer's office and for the restoration to the corporation,
in case of the Treasurer's death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in the possession or control of the Treasurer belonging to the corporation.
Section 9. Assistant Officers. The assistant secretaries and assistant
treasurers in the order determined by the Board of Directors (or if there be no
such determination, then in the order of their election) shall, in the absence
of the Secretary or the Treasurer as the case may be or in the event of their
inability or refusal to act, perform the duties and exercise the powers of the
Secretary or Treasurer, as the case may be, and shall perform such other duties
and have such other powers as the Chairman of the Board or the Board of
Directors may from time to time prescribe.
ARTICLE V
CERTIFICATES OF STOCK
Section 1. Signature by Officers. Every holder of stock in the corporation
shall be entitled to have a certificate, signed by, or in the name of the
corporation by, the Chairman of the Board, the President or a Vice-President and
by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant
Secretary of the corporation, certifying the number of shares owned by the
stockholder in the corporation.
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Section 2. Facsimile Signature. Any of or all the signatures on the
certificate may be facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the corporation with the same effect
as if such person were such officer, transfer agent or registrar at the date of
issue.
Section 3. Lost Certificates. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or such person's legal representative, to advertise the sale in
such manner as it shall require and/or to give the corporation a bond in such
sum as it may direct as indemnity against any claim that may be made against the
corporation with respect to the certificate alleged to have been lost, stolen or
destroyed.
Section 4. Transfer of Stock. Upon surrender to the corporation or the
transfer agent of the corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
Section 5. Closing of Transfer Books or Fixing of Record Date. The Board
of Directors may close the stock transfer books of the corporation for a period
of no more than sixty (60) nor less than ten (10) days preceding the date: (i)
of any meeting of stockholders; (ii) for payment of any dividend; (iii) for the
allotment of rights; or (iv) when any change or conversion or exchange of
capital stock shall go into effect, or for a period of no more than sixty (60)
nor less than ten (10) days in connection with obtaining the consent of
stockholders for any purpose. In lieu of closing the stock transfer books as
aforesaid, the Board of Directors may fix in advance a date of no more than
sixty (60) nor less than ten (10) days preceding the date: (i) of any dividend;
(ii) for the allotment of rights; (iii) when any change or conversion or
exchange of capital stock shall go into effect; or (iv) in connection with
obtaining such consent, as a record date for the determination of the
stockholders entitled to notice of, and to vote at, any such meeting, and any
adjournment thereof, or entitled to receive payment of any such dividend, or to
any such allotment of rights, or to exercise the rights in respect of any
change, conversion or exchange of capital stock, or to give such consent, and in
such case such stockholders, and only such stockholders, as shall be
stockholders of record on the date so fixed shall be entitled to such notice of,
and to vote at, such meeting and any adjournment thereof, or to receive payment
of such dividend, or to receive such allotment of rights, or to exercise such
rights, or to give such consent as the case may be notwithstanding any transfer
of any stock on the books of the corporation after any such record date fixed as
aforesaid.
Section 6. Registered Stockholders. The corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and shall not be
bound to recognize any equitable or other claim to or interest in such share or
shares on the part of any other person, whether or not it shall have express or
other notice thereof, except as otherwise provided by the laws of the State of
Delaware.
ARTICLE VI
DIVIDENDS
Section 1. Declaration of Dividends. Dividends upon the capital stock of
the corporation, subject to the provisions of the certificate of incorporation,
if any, may be declared by the Board of Directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock, subject to the provisions of the certificate of
incorporation.
Section 2. Reserves. Before payment of any dividend, there may be set
aside out of any funds of the corporation available for dividends such sum or
sums as the directors from time to time, in their
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absolute discretion, think proper as a reserve or reserves to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any
property of the corporation, or for such other purpose as the directors shall
think conducive to the interest of the corporation, and the directors may modify
or abolish any such reserve in the manner in which it was created.
ARTICLE VII
GENERAL PROVISIONS
Section 1. Annual Statement. The board of directors shall present at each
annual meeting, and at any special meeting of the stockholders when called for
by vote of the stockholders, a full and clear statement of the business and
conditions of the corporation.
Section 2. Checks. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
Section 3. Fiscal Year. The fiscal year of the corporation shall be fixed
by resolution of the Board of Directors.
Section 4. Seal. The corporate seal shall have inscribed thereon the name
of the corporation, the year of its organization and the words 'Corporate Seal,
Delaware'. The seal may be used by causing it, or a facsimile thereof, to be
impressed or affixed or reproduced or otherwise.
Section 5. Indemnification. The corporation shall indemnify its officers,
directors, employees and agents to the fullest extent permitted by the General
Corporation Law of Delaware. With regard to a breach of fiduciary duty by a
director, no director shall be personally liable for monetary damages to the
corporation or its stockholders to the full extent permitted pursuant to Section
102(b)(7) of the General Corporation Law of Delaware.
Section 6. Waiver of Notice. Whenever any notice is required to be given
by law or under the provisions of the certificate of incorporation or of these
by-laws, a waiver thereof, in writing, signed by the person or persons entitled
to said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE VIII
AMENDMENTS
Section 1. These By-Laws may be altered, amended or repealed and new
by-laws may be adopted by the Board of Directors, at any regular or special
meeting. The power to adopt, amend or repeal By-Laws conferred upon the Board of
Directors shall not divest or limit the power of the stockholders to adopt,
amend or repeal By-Laws.
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EXHIBIT 10.49
July 20, 1993
Ms. Candice Carpenter
c/o Michael J. Dougherty, Esq.
Richards & O'Neil
885 Third Avenue
New York, NY 10022-4873
Dear Candice:
This letter will confirm the agreement among QVC Network, Inc., a Delaware
corporation ('QVC'), Q2 Corporation, a New York corporation ('Q2' or the
'Corporation') and Candice Carpenter ('Carpenter' or 'you') that Q2 hereby
employs Carpenter and Carpenter agrees to be employed by Q2 on the following
terms and conditions for a term commencing on July 20, 1993 and ending on August
31, 1996 (the 'Term'), unless earlier terminated as set forth below.
1. Employment, Duties and Responsibilities. You shall serve as President
of Q2 and shall be the principal operating officer responsible for the
management of the overall business of Q2, including the employment and
termination of staff, which shall report to you. You shall be subject to the
authority and direction of the Board of Directors of the Corporation and shall
report to the Chief Executive Officer of QVC. You shall perform your duties
faithfully and to the best of your ability and agree to devote your full working
time to such duties. Your principal place of employment shall be New York, New
York, and you will travel for business purposes to the extent necessary or
appropriate to perform your duties hereunder.
2. Compensation. As the sole compensation for your employment by Q2, the
following shall apply:
a. Base Salary. You shall be paid a base salary (the 'Base Salary')
at the rate of Two Hundred and Fifty Thousand Dollars ($250,000) per annum
for the period commencing on July 20, 1993 and ending on August 31, 1994,
Three Hundred Thousand Dollars ($300,000) per annum for the period
September 1, 1994 to August 31, 1995, and Three Hundred and Fifty Thousand
Dollars ($350,000) for the period September 1, 1995 to August 31, 1996, in
accordance with the regular payroll practices of Q2.
b. Special First Year Bonuses. You shall be paid four bonuses (the
'First Year Bonuses') of $56,250 each, payable on the first day of August,
1993, November, 1993, February, 1994 and May, 1994.
c. Annual Bonus. You shall be paid an annual bonus (the 'Annual
Bonus') for each fiscal year of the Corporation during the Term. The Annual
Bonus shall be an amount determined at the discretion of the Corporation,
but in no event less than the difference between (x) the Minimum Amount (as
defined below) minus (y) the aggregate of Annual Bonuses paid with respect
to prior fiscal years, if any.
(i) The 'Minimum Amount' shall be the lesser of (a) twenty-five
percent (25%) of the amount by which the Corporation's Operating Income
(as defined below) as of the end of any fiscal year exceeds twenty
percent (20%) of the Corporation's weighted average Investment Capital
(as defined below) for such year, if any, or (b) one percent (1%) of the
Corporation's Operating Income as of the end of such year.
(ii) The 'Operating Income' of the Corporation shall be the
cumulative earnings of the Corporation from continuing operations from
the date of the commencement of the Term to the end of the applicable
fiscal year before any deduction for any income taxes or other taxes
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measured by income and before any non-operating gains or losses or
extraordinary items, determined in accordance with generally accepted
accounting principles consistently applied.
(iii) The 'Investment Capital' of the Corporation shall be the
aggregate of shareholder equity of the Corporation and intercompany debt
of the Corporation as reflected on the balance sheet of the Corporation,
but without reduction for operating losses, less any amounts paid (or
value transferred) at any time prior to the conclusion of such fiscal
year (including prior to commencement of such fiscal year) as return of
capital or as dividends or other distributions to shareholders in
respect of their stock holdings or other payments to or for the benefit
of shareholders other than for value received (including for services
rendered).
(iv) The Annual Bonus, if any, shall be paid within thirty (30)
days after the submission by certified public accountants of the audited
financial statements of QVC Network, Inc. for the prior fiscal year.
d. Final Bonus. On or before May 31, 1998, you will be paid a bonus
(the 'Final Bonus') in an amount equal to the difference between (i) one
percent (1%) of the fair market value of Q2 (the 'FMV') on January 31,
1998, and (ii) the aggregate amounts of the Annual Bonuses paid to you
pursuant to Section 2.c. hereof. For the purposes of this Section 2.d., the
FMV shall be determined by multiplying (x) the quotient of (A) the
cumulative Operating Income of Q2 for the period beginning February 1, 1996
and ending January 31, 1998 divided (B) by two (2), by (y) ten (10).
e. Stock Options. You shall be awarded, on the commencement of your
employment, options to purchase fifty thousand (50,000) shares of the
Common Stock of QVC Network, Inc. on the terms and conditions attached
hereto as Exhibit A.
f. Benefits. You shall be eligible to participate in such life,
health and disability insurance, pension, 401-k and other benefit plans to
the same extent as officers of QVC Network, Inc.
g. Relocation. You shall receive relocation reimbursement as if you
were a transferred employee in accordance with the provisions of Exhibit B
attached hereto. In addition you will receive a payment as described in
Exhibit C attached hereto.
3. Termination. This Agreement may be terminated at any time prior to the
end of the Term:
a. By the Corporation on the death or disability of Carpenter. A
disability shall be a physical or mental condition that prevents Carpenter
from performing her duties for at least ninety (90) consecutive days (or
for one hundred and eighty (180) days within any 365-day period).
b. By the Corporation for Cause. 'Cause' shall be (i) after notice,
the willful failure of Carpenter to substantially perform her duties
hereunder, (ii) fraud, embezzlement or other serious misconduct by
Carpenter against the Corporation or its affiliates, and (iii) the
conviction of Carpenter of a felony.
c. By Carpenter for Good Reason. 'Good Reason' means (i) a breach of
this Agreement by Q2, (ii) a termination of the business of Q2, (iii) the
business office of Q2 is other than in New York, New York, or the Los
Angeles, California metropolitan area. Carpenter may not terminate this
Agreement except for Good Reason.
4. Rights Upon Termination.
a. Termination for Death or Disability. Upon a termination for the death
or disability of Carpenter, Q2 will pay Carpenter, within thirty (30) days after
such termination, accrued but unpaid Base Salary and accrued but unpaid First
Year Bonuses.
b. Termination for Cause. Upon a termination for Cause, Q2 will pay
Carpenter, within thirty (30) days after such termination, accrued but unpaid
Base Salary.
c. Termination Without Cause or for Good Reason. Upon a termination by Q2
without Cause or by Carpenter for Good Reason, Q2 will pay Carpenter (i) unpaid
Base Salary for the remaining Term,
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within thirty (30) days after such termination, (ii) unpaid First Year Bonuses,
within thirty (30) days after such termination, (iii) the benefits set forth in
Section 2.f. hereof for the remaining Term, (iv) unpaid Annual Bonus for the
remaining Term (to be paid at such times as they would have been paid had there
not been a termination), and (v) unpaid Final Bonus (to be paid at such time as
it would have been paid had there not been a termination).
5. Restrictions.
a. (i) During the Term, Carpenter shall not, gratuitously or otherwise,
perform any work for, or render services to, any individual, firm or company
other than the Corporation, unless approved in advance in writing by the
Corporation.
(ii) Carpenter shall not, except (a) as required by law, or (b) in the
proper performance of her obligations hereunder, disclose to any person, firm,
corporation, association or other entity (each a 'Person'), any Non-Public
Information (as defined below) for any reason or purpose whatsoever, nor shall
Carpenter make use of any of such Non-Public Information for her own purpose or
for the benefit of any Person, except the Corporation or its subsidiaries or
affiliates. For purposes of this Agreement, the term 'Non-Public Information'
shall mean the terms and conditions of this Agreement or any information
relating to the methods, practices, customers, vendors, trade secrets,
confidential information of the Corporation or any of its subsidiaries or
affiliates, their clients, customers, or business contacts or the business
conducted by them or proposed to be conducted by them that Carpenter may acquire
or has acquired by reason of her association with the Corporation or any of its
subsidiaries or affiliates, except for (x) information which is in the public
domain at the time of receipt hereof by Carpenter, (y) information which, after
receipt thereof by Carpenter, becomes part of the public domain through no
improper act or omission of Carpenter, and (z) information which was lawfully
within Carpenter's possession prior to the initial commencement of Carpenters'
association with the Corporation or any of its subsidiaries or affiliates.
(iii) In consideration of Carpenter's employment by Corporation, Carpenter
agrees as follows: During the Restricted Period (as defined below), Carpenter
shall not, without the prior written authorization of Corporation, directly or
indirectly, engage in any activities which are or could be construed to be
competitive with Corporation, nor shall Carpenter render services or participate
in any manner or engage in any manner of business within the United States and
elsewhere where Corporation or any of its affiliated entities conducts its
business, on Carpenter's own behalf, or for or on behalf of any person, form or
entity whose business involves or is related to the direct response marketing or
solicitation of the sale of goods or services by cable television, television,
radio or other broadcast media, whether such services are rendered or such
solicitation is made as a principal, partner, officer, director, agent,
employee, representative, consultant, independent contractor or otherwise. For
purposes of this Agreement, the term 'Restrictive Period' shall mean the one (1)
year period of time after the termination of Carpenter's employment with
Corporation, for any reason whatsoever.
b. The Corporation and Carpenter agree that Carpenter's obligations under
this paragraph 5 are of a special and unique character which gives them a
peculiar value, and the Corporation cannot be reasonably or adequately
compensated in damages in an action at law in the event Carpenter breaches such
obligations. Carpenter, therefore expressly agrees that, in addition to any
other rights or remedies which the Corporation may possess, the Corporation
shall be entitled to injunctive relief and other equitable relief to prevent a
breach of this paragraph 5 by Carpenter, including but not limited to a
temporary restraining order or preliminary injunction from any court of
competent jurisdiction restraining any threatened or actual violation. Carpenter
hereby consents to the entry of such an order and injunctive relief and waives
the making of a bond as a condition for obtaining such relief. Such rights shall
be cumulative and in addition to any other legal or equitable rights and
remedies the Corporation may have.
c. This paragraph 5 shall survive the expiration or termination of this
Agreement.
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6. Prior Employment. Carpenter warrants and represents that she has the
full and complete ability to enter into this Agreement and she is not subject to
any restrictions on her employment which would impair her ability to perform the
services hereunder.
7. Reimbursement of Expenses. The Corporation shall reimburse Carpenter
for all reasonable and necessary out-of-pocket expenses actually incurred by
Carpenter in the performance of her duties hereunder, including, without
limitation, expenses for travel and other miscellaneous business expenses;
provided, however, that Carpenter shall submit to the Corporation written
itemized expense reports and such additional substantiation and justification as
the Corporation may reasonably request.
8. Severability. Should any portion of this Agreement be held to be void,
invalid or unenforceable, such decision shall not affect the validity or
enforceability of the remainder of the Agreement, and the remaining provisions
herein shall be effective as though such invalid or unenforceable provision had
not been included herein. If such invalidity or unenforceability is caused by
the length of any period of time, the geographic scope of any provision, or the
breadth of activities covered by any provision, then the period of time,
geographic scope or breadth of activities, or all of them, shall be reduced to
the extent necessary to cure such invalidity or unenforceability. Paragraph
5.a.(iii) of this Agreement shall be construed and enforced to the maximum
extent permitted by law.
9. Benefit of Agreement; Assignment; Beneficiary. This Agreement shall
inure to the benefit of and be binding upon Corporation and its successors and
assigns. This Agreement shall also inure to the benefit of, and be enforceable
by, Carpenter and Carpenter's personal or legal representatives, executors,
administrators, successors, heirs, distributors, devisees and legatees. Neither
this Agreement nor any rights or interests herein or created hereby may be
assigned or otherwise transferred voluntarily or involuntarily by Carpenter.
10. Notices. Any notice required or permitted hereunder shall be in
writing and addressed (a) to Corporation, at its principal office, with a copy
to QVC Network, Inc., attn: General Counsel, Goshen Corporate Park, West
Chester, Pennsylvania 19380; and (b) to Carpenter, at her then principal
residence identified in Corporation's records.
11. Entire Agreement; Amendment. This Agreement contains the entire
agreement of the parties and supersedes any and all prior agreements and
understandings, whether written or oral, between the parties with respect to
Carpenter's employment. This Agreement may not be changed or modified except by
an instrument in writing signed by both parties hereto.
12. Waiver. The waiver by either party of a breach of any provision of
this Agreement shall not operate or be construed as a continuing waiver or as a
consent to or waiver of any subsequent breach hereof.
13. Governing Law. This Agreement shall be governed by, and construed and
interpreted in accordance with, New York law.
14. Survivorship. The respective rights and obligations of the parties
under this Agreement shall survive any termination of this Agreement to the
extent necessary to the intended preservation of such rights and obligations.
15. Headings. The paragraph headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement or give full notice thereof.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement under
their respective hands as of the day and year first above written.
QVC NETWORK, INC.
By: __________________________________
Title: _______________________________
Q2 CORPORATION
By: __________________________________
Title: _______________________________
ACCEPTED AND AGREED this
20th day of July, 1993:
______________________________________
Candice Carpenter
5
<PAGE>
EXHIBIT 10.50
August 16, 1993
Mr. William J. Schereck, Jr.
206 Whispering Pine Drive
West Chester, PA 19380
Dear Bill:
This Agreement will confirm that QVC Network, Inc. ('QVC' or the
'Corporation') hereby employs William J. Schereck, Jr. (hereinafter 'Schereck'
or 'you') and Schereck agrees to be employed by QVC on the following terms and
conditions for a term commencing on July 2, 1993 and ending on the third
succeeding anniversary date (the 'Term'), unless earlier terminated as set forth
below.
1. Employment, Duties and Responsibilities. You are engaged hereunder as
Executive Vice President -- Broadcast Operations and Engineering and you agree
to perform the duties and services incident to that position, or such other or
further duties and services as may be required by the Corporation. You shall
devote your full business time, attention, energies and best efforts to the
performance of your duties hereunder and to the promotion of the business and
interests of the Corporation.
2. Compensation. As the sole compensation for your employment by QVC, the
following shall apply:
a. Base Salary. You shall be paid a base salary (the 'Base Salary')
at the rate of Two Hundred Thousand Dollars ($200,000) per annum for the
first year of the Term, which shall be increased each year of the Term,
commencing as of the beginning of the second year of the Term, by an amount
equal to the percentage increase in the 'Consumer Price Index' (as
hereafter defined). Such increase adjustment shall be accomplished by
multiplying the Base Salary by a fraction, the numerator of which shall be
the Consumer Price Index figure published most recently prior to the first
calendar month of the respective year for which the increase adjustment is
to be made, and the denominator of which shall be the Consumer Price Index
figure published most recently prior to the calendar month in which the
Term commences. 'Consumer Price Index' shall mean the Consumer Price Index
for All Urban Consumers, Philadelphia, PA -- NJ, All Items (1982-84=100)
published by the Bureau of Labor Statistics of the United States Department
of Labor, provided that if such Index is no longer published at regular
periods, then any similar reports released by any other bureau, department
or agency of the United States government, at regular periods, for
substantially similar purposes shall be used. The Base Salary shall be paid
in accordance with the regular payroll practices of QVC.
b. Bonus. You shall be eligible to receive a bonus, which may be paid
to you at the sole discretion of the Corporation.
c. Stock Options. You shall be eligible to receive stock options,
which may be granted to you at the sole discretion of the Corporation.
d. Benefits. You shall be eligible to participate in such life,
health and disability insurance, pension, 401-k and other benefit plans to
the same extent as officers of QVC.
e. Relocation. You shall be eligible to receive relocation
reimbursement in accordance with the provisions of Exhibit A attached
hereto.
f. Car Allowance. You shall receive a car allowance to the same
extent as Executive Vice Presidents of the Corporation.
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3. Termination. This Agreement may be terminated at any time prior to the
end of the Term:
a. By the Corporation on your death or disability. A disability shall
be a physical or mental condition that prevents you from performing your
duties for at least ninety (90) consecutive days (or for one hundred and
eighty (180) days within any 365-day period).
b. By the Corporation for Cause. 'Cause' shall be (i) your willful
failure to substantially perform your duties hereunder, (ii) fraud,
embezzlement or other serious misconduct by you against the Corporation or
its affiliates, and (iii) your conviction of a felony.
4. Rights Upon Termination.
a. Termination for Death or Disability. Upon a termination for your death
or disability, QVC will pay you accrued but unpaid Base Salary.
b. Termination for Cause. Upon a termination for Cause, QVC will pay you
accrued but unpaid Base Salary.
c. Termination Without Cause. Upon a termination by QVC without Cause, QVC
will pay you (i) unpaid Base Salary for the remaining Term, and (ii) the
benefits set forth in Section 2.d. hereof for the remaining Term.
5. Restrictions.
a. (i) During the Term, Schereck shall not, gratuitously or otherwise,
perform any work for, or render services to, any individual, firm or company
other than the Corporation, unless approved in advance in writing by the
Corporation.
(ii) Schereck shall not, except (a) as required by law, or (b) in the
proper performance of his obligations hereunder, disclose to any person, firm,
corporation, association or other entity (each a 'Person'), any Non-Public
Information (as defined below) for any reason or purpose whatsoever, nor shall
Schereck make use of any of such Non-Public Information for his own purpose or
for the benefit of any Person, except the Corporation or its subsidiaries or
affiliates. For purposes of this Agreement, the term 'Non-Public Information'
shall mean the existence of this Agreement and the terms and conditions of this
Agreement or any information relating to the Corporation or any of its
subsidiaries or affiliates, their clients, customers, or business contacts or
the business conducted by them or proposed to be conducted by them that Schereck
may acquire or has acquired by reason of his association with the Corporation or
any of its subsidiaries or affiliates, except for (x) information which is in
the public domain at the time of receipt hereof by Schereck, (y) information
which, after receipt thereof by Schereck, becomes part of the public domain
through no improper act or omission of Schereck, and (z) information which was
lawfully within Schereck's possession prior to the initial commencement of
Schereck' association with the Corporation or any of its subsidiaries or
affiliates.
(iii) In consideration of Schereck's employment by Corporation, Schereck
agrees as follows: During the Restricted Period (as defined below), Schereck
shall not, without the prior written authorization of Corporation, directly or
indirectly, engage in any activities which are or could be construed to be
competitive with Corporation, nor shall Schereck render services or participate
in any manner or engage in any manner of business within the United States and
elsewhere where Corporation or any of its affiliated entities conducts its
business, on Schereck's own behalf, or for or on behalf of any person, form or
entity whose business involves or is related to the direct response marketing or
solicitation of the sale of goods or services by cable television, television,
radio or other broadcast media, whether such services are rendered or such
solicitation is made as a principal, partner, officer, director, agent,
employee, representative, consultant, independent contractor or otherwise.
For purposes of this Agreement, the term 'Restricted Period' shall mean
the one (1) year period of time after the termination of Schereck's
employment with Corporation, for any reason whatsoever.
b. The Corporation and Schereck agree that Schereck's obligations under
this paragraph 5 are of a special and unique character which gives them a
peculiar value, and the Corporation cannot be
2
<PAGE>
reasonably or adequately compensated in damages in an action at law in the event
Schereck breaches such obligations. Schereck, therefore expressly agrees that,
in addition to any other rights or remedies which the Corporation may possess,
the Corporation shall be entitled to injunctive relief and other equitable
relief to prevent a breach of this paragraph 5 by Schereck, including but not
limited to a temporary restraining order or preliminary injunction from any
court of competent jurisdiction restraining any threatened or actual violation.
Schereck hereby consents to the entry of such an order and injunctive relief and
waives the making of a bond as a condition for obtaining such relief. Such
rights shall be cumulative and in addition to any other legal or equitable
rights and remedies the Corporation may have.
c. This paragraph 5 shall survive the expiration or termination of this
Agreement.
6. Prior Employment. Schereck warrants and represents that he has the full
and complete ability to enter into this Agreement and he is not subject to any
restrictions on his employment which would impair his ability to perform the
services hereunder.
7. Reimbursement of Expenses. The Corporation shall reimburse Schereck for
all reasonable and necessary out-of-pocket expenses actually incurred by
Schereck in the performance of his duties hereunder, including, without
limitation, expenses for travel and other miscellaneous business expenses;
provided, however, that Schereck shall submit to the Corporation written
itemized expense reports and such additional substantiation and justification as
the Corporation may reasonably request.
8. Severability. Should any portion of this Agreement be held to be void,
invalid or unenforceable, such decision shall not affect the validity or
enforceability of the remainder of the Agreement, and the remaining provisions
herein shall be effective as though such invalid or unenforceable provision had
not been included herein. If such invalidity or unenforceability is caused by
the length of any period of time, the geographic scope of any provision, or the
breadth of activities covered by any provision, then the period of time,
geographic scope or breadth of activities, or all of them, shall be reduced to
the extent necessary to cure such invalidity or unenforceability. Paragraph
5.a.(iii) of this Agreement shall be construed and enforced to the maximum
extent permitted by law.
9. Benefit of Agreement; Assignment; Beneficiary. This Agreement shall
inure to the benefit of and be binding upon Corporation and its successors and
assigns. This Agreement shall also inure to the benefit of, and be enforceable
by, Schereck and Schereck's personal or legal representatives, executors,
administrators, successors, heirs, distributors, devisees and legatees. Neither
this Agreement nor any rights or interests herein or created hereby may be
assigned or otherwise transferred voluntarily or involuntarily by Schereck.
10. Notices. Any notice required or permitted hereunder shall be in
writing and addressed (a) to Corporation, at its principal office, with a copy
to QVC Network, Inc., attn: General Counsel, Goshen Corporate Park, West
Chester, Pennsylvania 19380; and (b) to Schereck, at his then principal
residence identified in Corporation's records.
11. Entire Agreement; Amendment. This Agreement contains the entire
agreement of the parties and supersedes any and all prior agreements and
understandings, whether written or oral, between the parties with respect to
Schereck's employment; except that the parties acknowledge that Schereck
executed, on May 25, 1993, the QVC Network, Inc. and Subsidiaries Employee
Agreement. This Agreement may not be changed or modified except by an instrument
in writing signed by both parties hereto.
12. Waiver. The waiver by either party of a breach of any provision of
this Agreement shall not operate or be construed as a continuing waiver or as a
consent to or waiver of any subsequent breach hereof.
13. Governing Law. This Agreement shall be governed by, and construed and
interpreted in accordance with the laws of the Commonwealth of Pennsylvania.
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<PAGE>
14. Survivorship. The respective rights and obligations of the parties
under this Agreement shall survive any termination of this Agreement to the
extent necessary to the intended preservation of such rights and obligations.
15. Headings. The paragraph headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement or give full notice thereof.
Please sign below to evidence your acceptance of the terms of this letter
agreement and that you intend to be legally bound by its terms.
Very truly yours,
QVC NETWORK, INC.
By: __________________________________
Printed Name: ________________________
Title: _______________________________
ACCEPTED AND AGREED this
__ day of ___________, 1993:
______________________________________
William J. Schereck, Jr.
4
<PAGE>
EXHIBIT 10.51
- --------------------------------------------------------------------------------
JOINT VENTURE AGREEMENT,
DATED AS OF NOVEMBER 8, 1993,
AMONG
GRUPO TELEVISA, S.A. DE C.V.,
TELEVISION INDEPENDIENTE DE MEXICO, S.A. DE C.V.,
QVC NETWORK, INC.,
QVC MEXICO, INC., AND
TELEMERCADO ALAMEDA, S. DE R. L . DE C.V.
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
ARTICLE I
ORGANIZATION OF THE COMPANY
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C> <C>
Section 1.1. Formation of the Company................................................................... 2
Section 1.2. Organizational Documents; Member Resolutions............................................... 2
Section 1.3. Purpose.................................................................................... 2
Section 1.4. Duration................................................................................... 3
</TABLE>
ARTICLE II
CAPITAL SUBSCRIPTION
<TABLE>
<S> <C> <C>
Section 2.1. Initial Subscription for Company Social Parts.............................................. 3
Section 2.2. Additional Capital Contributions........................................................... 4
Section 2.3. Company Social Parts; Ownership Percentages................................................ 6
</TABLE>
ARTICLE III
ADDITIONAL COMMITMENTS
<TABLE>
<S> <C> <C>
Section 3.1. Provision of General Overhead.............................................................. 7
Section 3.2. Provision of Business Operations or Services............................................... 8
Section 3.3. Provision of GT Television Stations or GT Cable Systems.................................... 9
Section 3.4. Provision of QVC Product................................................................... 11
</TABLE>
ARTICLE IV
GOVERNANCE
<TABLE>
<S> <C> <C>
Section 4.1. Initial Board of Managers.................................................................. 12
Section 4.2. Election of the Board of Managers.......................................................... 13
Section 4.3. Removal and Replacement of Managers........................................................ 13
Section 4.4. Meetings of Board of Managers.............................................................. 14
Section 4.5. Officers................................................................................... 17
Section 4.6. Authority of the Board of Managers......................................................... 17
Section 4.7. Matters Requiring Unanimous Approval....................................................... 17
Section 4.8. Independent Public Accountant.............................................................. 21
Section 4.9. Fiscal Year; Financial Statements; Tax Information......................................... 21
</TABLE>
ARTICLE V
TRANSFER PROVISIONS
<TABLE>
<S> <C> <C>
Section 5.1. Prohibition on Transfers................................................................... 22
</TABLE>
<PAGE>
ARTICLE VI
COVENANTS CONCERNING COMPETITION
<TABLE>
<S> <C> <C>
Section 6.1. Business; Territory........................................................................ 25
Section 6.2. First Opportunity.......................................................................... 25
Section 6.3. Certain Rights............................................................................. 28
Section 6.4. Termination................................................................................ 30
</TABLE>
ARTICLE VII
EXPANSION BEYOND THE UNITED MEXICAN STATES
<TABLE>
<S> <C> <C>
Section 7.1. Best Efforts............................................................................... 30
Section 7.2. United States Expansion.................................................................... 30
</TABLE>
ARTICLE VIII
REPRESENTATION AND WARRANTIES
<TABLE>
<S> <C> <C>
Section 8.1. Representations and Warranties............................................................. 31
</TABLE>
ARTICLE IX
MISCELLANEOUS
<TABLE>
<S> <C> <C>
Section 9.1. Entire Agreement........................................................................... 33
Section 9.2. Assignments................................................................................ 33
Section 9.3. Jurisdiction; Venue; Service of Process.................................................... 34
Section 9.4. Notification............................................................................... 34
Section 9.5. Indemnification............................................................................ 36
Section 9.6. Guarantee.................................................................................. 36
Section 9.7. Invalidity................................................................................. 37
Section 9.8. Amendments and Waivers..................................................................... 37
Section 9.9. Counterparts............................................................................... 37
Section 9.10. Further Actions............................................................................ 37
Section 9.11. Publicity.................................................................................. 37
Section 9.12. Specific Performance....................................................................... 38
Section 9.13. Section and Other Headings................................................................. 38
Section 9.14. Governing Law.............................................................................. 38
Section 9.15. Attorneys' Fees; Costs and Expenses........................................................ 38
</TABLE>
EXHIBITS
<TABLE>
<S> <C>
Estatutos and Member Resolutions (Spanish and English versions)..................................... Exhibit A
Initial Business Plan............................................................................... Exhibit B
Form of Representation Letter for Transfer of Minority Interest in Shareholder Equity Securities.... Exhibit C
Infomercial Agreements with G Televisa or its Affiliates effective prior to ?????................... Exhibit D
</TABLE>
SCHEDULES
<TABLE>
<S> <C>
Initial Capital Contributions -- Value Units....................................................... Schedule 1
</TABLE>
<PAGE>
EXECUTION COPY
JOINT VENTURE AGREEMENT
THIS JOINT VENTURE AGREEMENT, dated and effective as of November 8, 1993
(this 'Agreement'), by and among Grupo Televisa, S.A. de C.V., a limited
liability company established under the laws of the United Mexican States ('G
Televisa'), Television Independiente de Mexico, S.A. de C.V., a limited
liability company established under the laws of the United Mexican States and an
indirect wholly-owned subsidiary of G Televisa ('GT Sub'), QVC Network, Inc., a
corporation organized under the laws of the State of Delaware ('QVC'), QVC
Mexico, Inc., a corporation organized under the laws of the State of Delaware
and an indirect wholly-owned subsidiary of QVC ('QVC Sub') and Telemercado
Alameda, S. de R.L. de C.V., a limited liability company under the Sociedad de
Responsabilidad Limitada, with variable capital form, under the laws of the
United Mexican States (the 'Company'). GT Sub and QVC Sub are sometimes
collectively referred to herein as 'Members' and individually as a 'Member'.
RECITALS:
WHEREAS, subject to the terms and conditions of this Agreement, G Televisa,
as the owner and operator of television networks, television stations, cable
networks, and cable systems in the United Mexican States, and QVC, as the owner
and operator of a cable television network in the United States, desire to
create and operate jointly a Television and Cable Shopping Business (as defined
in Section 6.1 hereof), initially in the United Mexican States and thereafter in
other Spanish-speaking (including Spain and the United States) and
Portuguese-speaking markets (including Brazil);
WHEREAS, G Televisa and QVC desire to contribute certain expertise,
facilities, assets and capital to a Television and Cable Shopping Business; and
WHEREAS, G Televisa (through GT Sub) and QVC (through QVC Sub) desire to
organize, establish and capitalize the Company as a new limited liability
company under the Sociedad de Responsabilidad Limitada, with variable capital
corporate form under the laws of the United Mexican States (which will be named
'Telemercado Alameda, S. de R.L. de C.V.') through which the Television and
Cable Shopping Business will be conducted in accordance with the terms and
conditions of this Agreement.
NOW, THEREFORE, in consideration of the promises herein contained and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, and intending to be legally bound hereby, each of the
parties hereto agrees as follows:
ARTICLE I
ORGANIZATION OF THE COMPANY
Section 1.1 Formation of the Company. As of the date hereof, the Members
shall establish the Company as a limited liability company under the Sociedad de
Responsabilidad Limitada, with variable capital corporate form, in accordance
with the laws of the United Mexican States (the 'Law'). (The time that the
Company shall be duly established under the Law shall be referred to herein as
the 'Effective Time'.)
Section 1.2 Organizational Documents; Member Resolutions. (a) The
Company's Estatutos immediately following the Effective Time shall be as set
forth in Exhibit A attached to this Agreement, as they may be amended from time
to time in accordance with clause (x) of paragraph (b) of Article Sixteenth
thereof and Section 4.7(a)(x) hereof (the 'Estatutos'). Notwithstanding anything
herein or in the Estatutos to the contrary, to the extent that any provision of
the Estatutos conflicts with, or otherwise is inconsistent with, any provision
of this Agreement with respect to any matter, or this
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<PAGE>
Agreement covers any matter that is not covered in the Estatutos, the provisions
of this Agreement with respect to such matter shall control and shall be binding
upon each of the parties hereto.
(b) Simultaneously with the Effective Time, the Members shall cause a
members meeting to be held in accordance with the Estatutos, and at such members
meeting, each Member shall vote in favor of the resolutions in the form set
forth in Exhibit A attached to this Agreement.
Section 1.3 Purpose. The purpose of the Company shall be to: (i) establish
and operate, directly through the Company or indirectly through one or more
Subsidiaries (as defined below) of the Company, a Television and Cable Shopping
Business initially in the United Mexican States and thereafter in other
Spanish-speaking markets (including, without limitation, Spain and, subject to
the terms and conditions hereof, the United States) and Portuguese-speaking
markets (including, without limitation, Brazil) in accordance with a business
plan of the Company to be initially adopted by unanimous written approval of the
Members as of the date hereof as set forth in Exhibit 8 attached to this
Agreement (such initial business plan, as it may be amended from time to time in
accordance with Section 4.7(a)(i) hereof, the 'Business Plan') and subject to
the terms and conditions of this Agreement; and (ii) engage in any and all other
conduct, activities or businesses which are consistent with, and directly or
indirectly related to, the attainment of the purposes set forth in clause (i)
hereof (including, without limitation, acquiring all intellectual property
rights that are necessary for the Company and its Subsidiaries to conduct a
Television and Cable Shopping Business consistent with the Business Plan).
Notwithstanding anything herein to the contrary, neither the Company nor any of
its Subsidiaries shall own or operate any means of broadcast or means or
facilities of product distribution other than the Television and Cable Shopping
Business in the Territory. As used herein, the term 'Subsidiary' of any entity
or person shall mean any corporation at least 50% of whose voting securities, or
any partnership, joint venture or other entity at least 50% of whose total
equity interest, is directly or indirectly owned by such entity or person.
Section 1.4 Duration. The duration of the Company shall be limited,
subject to the terms and conditions of the Estatutos and this Agreement.
ARTICLE II
CAPITAL SUBSCRIPTION
Section 2.1 Initial Subscription for Company Social Parts. (a) GT Sub
hereby agrees to subscribe for, purchase and accept such number of Value Units
set forth on Schedule 1 attached hereto (as defined herein) that is the New
Mexican peso equivalent of U.S.$3,550,000.00 at the time such payment is made
representing a 100% undivided ownership interest in and to the Class A Social
Part (the 'Class A Social Part'; the term 'Class A Social Part' shall refer
herein to any Series 'A-I' fixed capital contribution to the Company and any
Series 'A-II' variable capital contribution to the Company) of the Company at
the Effective Time. QVC Sub hereby agrees to subscribe for, purchase and accept
such number of Value Units set forth on Schedule 1 attached hereto that is the
New Mexican peso equivalent of U.S.$3,550,000.00 at the time such payment is
made representing a 100% undivided ownership interest in and to the Class B
Social Part (the 'Class B Social Part'; the Class A Social Part and the Class B
Social Part are sometimes individually referred to herein as the 'Company Social
Part' and collectively as the 'Company Social Parts'; the term 'Class B Social
Part' shall refer herein to any Series 'B-I' fixed capital contribution to the
Company and any Series 'B-II' variable capital contribution to the Company), of
the Company at the Effective Time. In consideration of the issuance of the Value
Units in respect of each Company Social Part, each Member shall pay
U.S.$3,550,000.00 in cash by delivering to the Company the amount of the
aggregate subscription price for the Value Units in respect of each Company
Social Part to be purchased hereby (which number of Value Units shall be based
on NP$1.00 per Value Unit (the 'Initial Subscription Price')). As used herein,
each 'Value Unit' shall represent each NP$1.00 of capital contributed by each
Member to the Company in accordance with the terms and conditions of this
Agreement and the Estatutos. Notwithstanding anything herein to the contrary,
(i) each Value Unit held by a Member represents an undivided interest in the
Company Social Part held by such Member equal to the quotient
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<PAGE>
(expressed as a percentage) of NP$1.00 divided by the aggregate capital
contributions made by such Member in accordance with terms of this Agreement and
the Estatutos, (ii) for any purpose hereunder and the Estatutos, all
distributions and other payments made in accordance with Section 4.7(a)(v)
hereof or otherwise in respect of each Member's equity ownership interest in the
Company shall be based on the percentage ownership held by such Member in the
total outstanding Value Units, without regard to the Company Social Part to
which any Value Unit may relate and (iii) each Member shall be entitled to cast
one vote per Value Unit at any ordinary or extraordinary meeting of the Members.
(b) Each of GT Sub and QVC Sub represents and warrants to each other party
hereto that it is purchasing any Value Units in respect of any Company Social
Part that it purchases pursuant to this Agreement or otherwise for investment
purposes only and not with a view to the resale of such Value Units (or any part
thereof or interest therein) in violation of any applicable securities laws.
Section 2.2 Additional Capital Contributions. (a) Each Member agrees to
make equal contributions to the capital of the Company from time to time in
accordance with a schedule (the 'Contribution Schedule') set forth in the
Business Plan and identified therein as the 'Contribution Schedule' and at such
other times as and when agreed upon and called for by the Board of Managers
pursuant to Section 4.7(a)(vi) hereof and as otherwise in accordance with the
Estatutos; provided, however, that neither Member shall be required to make
contributions pursuant to this Section 2.2(a) unless the other Member shall
concurrently be making its contribution pursuant to this Section 2.2(a). All
capital contributions made pursuant to this Section 2.2(a) shall be in the form
of cash unless otherwise authorized by the Board of Managers. Each Member shall
cause the Board of Managers to take all such actions as are necessary or
advisable to cause the additional capital contributions to be made in accordance
with the Contribution Schedule to the extent set forth therein. The capital
contributions required to be made pursuant to this Section 2.2(a) shall be made
in the form of additional subscriptions for Value Units in respect of the
Company Social Part held by such Member at such subscription price per Value
Unit as set forth in the applicable resolutions authorizing any such additional
subscriptions (or, if applicable, Section 2.2(b) hereof). Except as set forth in
Section 2.2(b) hereof, GT Sub shall subscribe for Value Units in respect of the
Class A Social Part and QVC Sub shall subscribe for Value Units in respect of
the Class B Social Part. The subscription price for any Value Units in respect
of any Company Social Part subscribed for and purchased pursuant to this
Agreement shall be allocated between capital and surplus on the appropriate
books and records of the Company as set forth in the applicable resolutions
authorizing any such additional subscriptions.
(b) If at any time any Member shall fail to timely make any capital
contribution to the Company which such Member is required to make under this
Agreement (including, without limitation, Sections 2.1, 2.2(a) and 6.2(c)
hereof) within the 15 day period provided in the Estatutos, such Member failing
to make such capital contribution shall be deemed to be a 'Non-Contributing
Member', the other Member of the Company shall be deemed to be a 'Contributing
Member' and the Non-Contributing Member shall be deemed to have irrevocably
waived its preferential rights under the Estatutos to subscribe for the
additional Value Units in respect of its Company Social Part being offered to it
pursuant to such capital subscription. In such event, the Contributing Member
may, at its election, as a non-exclusive remedy of the Company and the
Contributing Member for such failure, (A) notify the Secretary of the Board of
Managers of the Company prior to the expiration of the additional 15 day period
provided for in the Estatutos that it shall make the capital contribution
required to be made by the Contributing Member (if not already contributed by
the Contributing Member) and make the capital contribution required to be made
by the Non-Contributing Member and receive an amount of Value Units in the
Company Social Part corresponding to its class equal to the aggregate value of
the aggregate capital contributed by such Contributing Member in respect of both
such capital contributions, in each case at a subscription price per Value Unit
equal to the Initial Subscription Price, (B) so long as such failure is
continuing, make a loan ('Default Loan') to the Company in an amount equal to
all or any part of the amount which the Non-Contributing Member failed to
contribute to the Company, plus the amount that the Contributing Member was
required to contribute to the Company (which, if already paid, shall be deemed
to be part of such Default Loan) or (C) not make any capital contribution or
Default Loans. Any Default Loan shall bear interest from the date the proceeds
of such
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Default Loan are advanced at a rate per annum equal to the prime rate publicly
announced by Chase Manhattan Bank N.A. in the United States from time to time,
plus 50% and shall be due on demand. The parties hereto agree that, in addition
to recourse against the Company for the Default Loan and any other remedies
available to the Contributing Member, the Contributing Member shall have direct
recourse against the Non-Contributing Member for payment of, and such
Non-Contributing Member hereby agrees to pay, the lesser of (1) the outstanding
principal amount of, and accrued and unpaid interest on, such Default Loan from
time to time, or (2) one-half of the original principal amount of, and accrued
and unpaid interest on, such Default Loan. Any amounts paid to the Contributing
Member on account of any Default Loan shall be applied first to pay accrued and
unpaid interest on such Default Loan and then to the outstanding principal of
such Default Loan. All costs and expenses (including reasonable attorney's fees
and expenses) incurred by the Company or its Subsidiary or the Contributing
Member or its Affiliates (as defined in Section 3.1 hereof) in connection with
the making of any Default Loan (or the enforcement thereof) shall be reimbursed
in full upon demand by the Non-Contributing Member.
(c) Except as expressly provided in Section 2.2(a) and Section 6.2(c)
hereof, neither QVC, G Televisa, the Members nor any of their respective
Affiliates shall have any obligation or commitment to make any further
contributions to the capital of, or investment in, the Company, regardless of
the needs of the Company.
Section 2.3 Company Social Parts; Ownership Percentages. (a) Except as
expressly provided otherwise in the Estatutos or this Agreement (including,
without limitation, the last sentence of Section 2.1(a) hereof), each of the
Company Social Parts (including, without limitation, the Value Units in respect
thereof) shall be identical and shall entitle the holders thereof to the same
rights and privileges.
(b) Except as otherwise expressly agreed upon by each of the parties hereto
or as expressly provided in Sections 2.2(b) and 5.1 hereof, at all times that
the Company shall be in existence, (i) G Televisa, or a direct or indirect
wholly-owned Subsidiary of G Televisa (a 'G Televisa Wholly-Owned Corporation'),
shall beneficially own 100 of the Class A Social Part (including all of the
Value Units in respect of the Class A Social Part) and (ii) QVC Sub shall
beneficially own 100% of the outstanding Class B Social Part (including all of
the Value Units in respect of the Class B Social Part). Each of the parties
hereto shall not, and G Televisa and QVC each shall cause their respective
Wholly-Owned Corporations (as defined below) not to, take any action or fail to
take any action which would be inconsistent with the immediately preceding
sentence. As used herein, (A) the term 'QVC Wholly-Owned Corporation' shall mean
any direct or indirect wholly-owned Subsidiary of QVC and (B) the term
'Wholly-Owned Corporation' shall mean individually and collectively any G
Televisa Wholly-Owned Corporation or any QVC Wholly-Owned Corporation.
ARTICLE III
ADDITIONAL COMMITMENTS
Section 3.1 Provision of General Overhead. (a) Subject to Section 3.1(b)
hereof, in the event that the Board of Managers of the Company from time to time
determines that G Televisa, QVC, or any of their respective Affiliates has fixed
assets or other items that are included in the category of 'general overhead'
(such fixed assets, other items or personnel are collectively referred to herein
as 'Administrative Support Assets') which may be used by the Company or any of
its Subsidiaries in a manner consistent with the Business Plan, G Televisa and
QVC shall, and shall cause their respective Affiliates to, make available to the
Company or any of its Subsidiaries such Administrative Support Assets for so
long as the Board of Managers determines that the use by the Company or any of
its Subsidiaries of such Administrative Support Assets is consistent with the
Business Plan.
(b) G Televisa and QVC shall not, and shall cause their respective
Affiliates not to, charge the Company or any of its Subsidiaries or otherwise
demand payment from the Company as a result of the use by the Company or any of
its Subsidiaries of any Administrative Support Assets in accordance with this
Section 3.1; provided, however, if the use by the Company or any of its
Subsidiaries of any
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Administrative Support Assets would require G Televisa, QVC or any of their
respective Affiliates to incur any incremental out-of-pocket expense in order to
satisfy the requirements of the Company or any of its Subsidiaries in its usage
of such Administrative Support Assets, G Televisa, QVC and their respective
Affiliates, as applicable, shall not have any obligation to make available to
the Company or any of its Subsidiaries such Administrative Support Assets
pursuant to Section 3.1(a) unless the Company has agreed previously to fully
reimburse the entire amount of such incremental out-of-pocket expense, plus
seven percent (7%) of such incremental out-of-pocket expense (it being agreed
that such incremental out-of-pocket expenses shall not include any income or
other taxes (including penalties), levies or other similar governmental charges
(collectively, 'Taxes') imposed on or incurred by, G Televisa, QVC or any of
their respective Affiliates in connection with the provision by any of them of
Administrative Support Assets to the Company or any of its Subsidiaries). As
used herein, the term Affiliate' of any person or entity shall mean any person
or entity that is, directly or indirectly controlled by the person or entity in
question, and for purposes of this definition of Affiliate, the term 'control',
when used with respect to any person or entity, means the power to direct the
management and policies of such person or entity, whether through the direct or
indirect ownership of voting securities, by contract or otherwise.
Section 3.2 Provision of Business Operations or Services. In the event
that the Board of Managers determines that G Televisa, QVC or any of their
respective Affiliates have any business operations or services ('Business
Operations or Services') that would be of value to the Company in conducting its
business activities (including, without limitation, inbound telemarketing or
product fulfillment, but excluding any GT Television Station and GT Cable System
(each as defined in Section 3.3(a) hereof) or any QVC Product (as defined in
Section 3.4(b) hereof)) in a manner consistent with the Business Plan, G
Televisa and QVC shall, and shall cause their respective Affiliates to, make
available such Business Operations or Services to the Company or any of its
Subsidiaries so that the Company or any of its Subsidiaries may utilize such
Business Operations or Services as contemplated by the Board of Managers for so
long as the Board of Managers of the Company considers such determination to
continue to be correct; provided, however, G Televisa, QVC and their respective
Affiliates shall not have any obligation to make available any Business
Operations or Services, or receive any charges or payments therefor, unless the
Company shall have previously agreed to pay G Televisa, QVC or such Affiliate,
as applicable, the Charge Amount for such Business Operations or Services as
provided below. With respect to any Business Operations or Services as to which
the Company has entered into such an agreement, for each Calendar Month (as
defined below), G Televisa and QVC shall, and shall cause their respective
Affiliates to, charge the Company for its utilization of any Business Operations
or Services an amount (the 'Charge Amount') equal to the lowest rate charged by
G Televisa, QVC or any of their respective Affiliates, as the case may be,
during such Calendar Month to any other customer or user of such Business
Operation or Services that is not an Affiliate of G Televisa, QVC or any of
their respective Affiliates, as the case may be; provided, however, that if
there is no such other customer or user of such Business Operation or Services,
the Charge Amount shall be the average actual per unit cost to G Televisa, QVC
or any of their respective Affiliates, as the case may be, during such Calendar
Month, plus seven percent (7%) of such average actual per unit cost to G
Televisa, QVC or any of their respective Affiliates, as the case may be (it
being agreed that the Charge Amount shall not include any Taxes imposed on, or
incurred by, G Televisa, QVC or any of their respective Affiliates in connection
with the provision by any of them of Business Services or Operations to the
Company or any of its Subsidiaries). Within 10 days after the end of each
calendar month (each such calendar month is herein referred to as a 'Calendar
Month') commencing in respect of the Calendar Month ending November 30, 1993
(which for purposes hereof shall include the period from the Effective Time
through November 30, 1993), G Televisa and QVC shall deliver to the Company an
invoice setting forth the Charge Amount for such Calendar Month and specifying
in reasonable detail the basis for calculating such Charge Amount, executed by a
senior executive officer of G Televisa or QVC, as the case may be, and the
Company shall pay to G Televisa, QVC, or their respective Affiliates, as the
case may be (as designated in such invoice), the Charge Amount for such Calendar
Month within 5 Business Days (as defined below) of its receipt of such invoice.
As used herein, the term 'Business Day' shall mean a day other than
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Saturday, Sunday or other day on which commercial banks in New York City or
Mexico City are authorized or required by law to close.
Section 3.3 Provision of GT Television Stations or GT Cable
Systems. (a) Subject to the terms and conditions of this Section 3.3, the
parties hereto contemplate that the Company shall provide at least one
twenty-four hour schedule of shopping programs via satellite delivery initially
to GT Television Stations and GT Cable Systems made available to the Company or
any of its Subsidiaries at G Televisa's sole selection and discretion. In the
event that G Televisa consents in writing to the use by the Company or any of
its Subsidiaries of any broadcast television station or cable system now or
hereafter owned or operated by G Televisa or any of its Affiliates in the United
Mexican States or elsewhere in the Territory (as defined in Section 6.1 hereof)
(any such television station shall herein be referred to as a 'GT Television
Station' and any such cable system shall herein be referred to as a 'GT Cable
System'), to transmit any television shopping programs produced by the Company
or any of its Subsidiaries, the Company shall be required to pay, as
compensation for the use of such GT Television Station or GT Cable System by the
Company or any of its Subsidiaries, an amount (the 'Compensation Amount') equal
to five percent (5%) of Net Sales (as defined below); provided, however, such
percentage of Net Sales shall be adjusted to an amount agreed upon in good faith
between the Chief Executive Officer of G Televisa and the Chief Executive
Officer of QVC if, after a period of one year following the Effective Time, the
actual expense experience of the Company and its Subsidiaries in their conduct
of a Television and Cable Shopping Business in the United Mexican States is
substantially different from QVC's actual expense experience in its conduct of a
Television and Cable Shopping Business in the United States. If the Company or
any of its Subsidiaries agrees to transmit any television shopping programs
produced by the Company or any of its Subsidiaries via any broadcast television
station or cable system other than GT Television Station or a GT Cable System,
it is acknowledged and agreed that the Company and its Subsidiaries shall be
exclusively liable for the entire amount charged by such broadcast television
station or cable system for such use by any of them. With respect to any
Calendar Month or other period and any GT Television Station or GT Cable System,
the term 'Net Sales' shall mean (A) the aggregate gross sales of the Company and
its Subsidiaries for such Calendar Month or other period (which shall not
include the aggregate actual shipping and handling costs charged by the Company
and its Subsidiaries to their respective customers), less (B) the aggregate
returns for such Calendar Month or other period of the Company and its
Subsidiaries for such Calendar Month or other period, in the case of clauses (A)
and (B) hereof, which are attributable to sales to the customers of the Company
and its Subsidiaries through its television shopping programs residing in the
coverage area served by such GT Television Station or GT Cable System, as
applicable. Net Sales shall be determined on an accrual basis in accordance with
generally accepted accounting principles in the United Mexican States ('Mexican
GAAP'), consistently applied throughout the periods involved.
(b) With respect to each GT Television Station or GT Cable System used by
the Company, the Company shall, within five Business Days after each Calendar
Month, pay to G Televisa or its Affiliates, whichever owns or operates such GT
Television Station or GT Cable System, the Compensation Amount for such Calendar
Month applicable to such GT Television Station or GT Cable System, as the case
may be.
(c) The Company shall deliver to G Televisa, no later than 60 days after
each calendar year, a written report, prepared by the Independent Public
Accountant (as defined in Section 4.8 hereof) in which the Independent Public
Accountant confirms that the aggregate Compensation Amount paid by the Company
pursuant to Section 3.3(b) hereof in respect of such calendar year complies with
the requirements of Section 3.3(a) hereof.
(d) QVC and QVC Sub each hereby acknowledges and agrees that,
notwithstanding anything in this Agreement to the contrary, (i) nothing in this
Section 3.3 shall be construed as an obligation of, or a commitment by, G
Televisa or any of its Affiliates to make available to the Company or any of its
Subsidiaries any GT Television Station or GT Cable System, and (ii) whether or
not G Televisa or any of its Affiliates will make available to the Company or
any of its Subsidiaries, any GT Television Station or GT Cable System shall be
at G Televisa's sole selection and discretion.
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Section 3.4 Provision of QVC Product. (a) If the Company or any of its
Subsidiaries from time to time elects to purchase product for sale (the 'Sourced
QVC Product') in its televised shopping program which is obtained from supply
sources provided by, or made available to the Company or any of its Subsidiaries
through QVC or any of its Affiliates, QVC shall, and shall cause its Affiliates
to, cause such product to be sold to the Company or any of its Subsidiaries at
the lowest price then being offered by the applicable supply source to QVC or
any of its Affiliates and without any commission or other remuneration being
paid or payable to QVC or any of its Affiliates in connection with, or as a
result of, such sale to the Company or any of its Subsidiaries. QVC shall, and
shall cause its Affiliates to, use their respective reasonable efforts to ensure
that any QVC Sourced Product sold to the Company or any of its Subsidiaries
pursuant to this Section 3.4(a) shall be of at least the same quality as the QVC
Sourced Product purchased by QVC or its Affiliates and at no greater price than
QVC or its Affiliates pay for such QVC Sourced Product.
(b) If the Company or any of its Subsidiaries from time to time elects to
purchase product for sale (the 'Owned QVC Product', and collectively with
Sourced QVC Product, the 'QVC Product') in its televised shopping program which
is owned by QVC or any of its Affiliates, QVC shall, and shall cause its
Affiliates to, charge the Company or any of its Subsidiaries for such Owned QVC
Product an amount equal to (i) all shipping and handling costs and excise duties
(but specifically excluding any other Taxes (including, without limitation, any
income taxes) actually incurred by QVC or its Affiliates in connection with the
delivery to the Company or its Subsidiaries by QVC or its Affiliates of such
Owned QVC Product, plus (ii) an amount which shall be no greater than the price
that QVC or such Affiliates, as the case may be, paid to the vendor for such
Owned QVC Product, plus (iii) seven percent (7%) of the amount determined
pursuant to clause (ii) hereof; Provided, however, that the Company and its
Subsidiaries shall not have any obligation to pay to QVC or any of its
Affiliates any amounts set forth in clause (i) hereof unless and until QVC shall
have delivered to the Company an invoice which specifies, in reasonable detail,
the basis for calculating such amounts set forth in clause (i) hereof (including
copies of all shipping and related invoices), executed by a senior executive
officer of QVC. To the extent that the Company or any of its Subsidiaries elects
from time to time to purchase from QVC or any of its Affiliates any Owned QVC
Product pursuant to this Section 3.4(b), QVC shall not, and shall cause its
Affiliates not to, deliver to the Company or any such Affiliates, or otherwise
take any steps to transfer title to the Company or such Subsidiaries with
respect thereto, until the Company or its Subsidiaries shall have sold such
Owned QVC Product to its customers.
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ARTICLE IV
GOVERNANCE
Section 4.1 Initial Board of Managers. Immediately following the Effective
Time, the Members, as the sole members of the Company, shall elect a Board of
Managers of the Company, consisting of four managers, with two managers
designated as 'Class A Managers' to be elected by the holder of the Class A
Social Part, and two managers designated as 'Class B Managers' to be elected by
the holder of the Class B Social Part. (Any Class A Manager or Class B Manager
duly elected and qualified in accordance with the terms hereof is sometimes
referred to herein as a 'Manager'). Such initial Board of Managers of the
Company shall consist of the following persons:
CLASS A MANAGERS
Othon Velez
Jaime Escandon
CLASS B MANAGERS
Barry Diller
Michael C. Boyd
Such Managers shall serve on the Board of Managers of the Company until their
respective successors are duly elected and qualified in accordance with the
provisions of the Estatutos. The holders of a majority of the Value Units of
either class of Company Social Part shall be entitled from time to time to
designate for each Manager duly elected by them in accordance with the Estatutos
an alternate who shall be entitled to serve as a Manager in the absence of such
Manager. Such Members shall deliver a written notice to the other Members
listing any person who has been designated as an alternate and such Members may,
from time to time, replace any alternate previously designated by them by
delivering written notice to the other Members listing the name of the alternate
being replaced and the name of the person who has been designated as the new
alternate.
Section 4.2 Election of the Board of Managers. (a) Upon each subsequent
election of Managers, in accordance with the Estatutos, the holders of a
majority of the Value Units in respect of the Class A Social Part shall vote
such Value Units for two Class A Managers, and the holders of a majority of the
Value Units in respect of the Class B Social Part shall vote such Value Units
for two Class B Managers, so that the Board of Managers of the Company shall be
composed of four Managers. Class A Managers may be elected only by the vote of
the holders of a majority of the Value Units in respect of the Class A Social
Part, and Class B Managers may be elected only by the vote of the holders of a
majority of Value Units in respect of the Class B Social Part, in each case in
accordance with the provisions of the Estatutos. Each Member agrees to cause
each Class A Manager or Class B Manager, as the case may be, to observe the
terms of this Agreement.
(b) No Manager (or alternate for a Manager) shall be entitled to payment by
or reimbursement from the Company for any compensation, fees (including
attendance fees) or other amounts relating to his membership on the Board of
Managers of the Company or the performance of his duties in connection
therewith; provided, however, that the Company shall indemnify and hold harmless
each Manager (or alternate for a Manager) from and against any and all
liabilities, obligations, losses, damages, penalties, costs and expenses
(including reasonable attorneys' fees and expenses) which may be imposed on or
incurred by such Manager (or such alternate) in connection with any legal action
brought by a third party against such Manager (or such alternate) in his
capacity as a Manager, except that the Company shall not be liable for any
portion of any such amount to the extent that it results from the gross
negligence or willful misconduct of such Manager (or such alternate).
Section 4.3 Removal and Replacement of Managers. (a) Any Manager of any
class may be removed from the Board of Managers, with or without cause, upon,
and only upon, the affirmative vote
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of the holders of a majority of the Value Units in respect of the Company Social
Part of the corresponding class in accordance with this Section 4.3.
(b) In the event any Class A Manager or any Class B Manager is unwilling or
unable to serve as such or is removed in accordance with subsection (a) of this
Section 4.3 or a vacancy occurs for any reason whatsoever, then the holders of a
majority of the Value Units in respect of the relevant class of Company Social
Parts shall elect the successor to or replacement of the relevant Class A
Manager or Class B Manager, as the case may be.
Section 4.4 Meetings of Board of Managers. (a) Regular meetings of the
Board of Managers of the Company shall be held at least once semiannually, and
special meetings of the Board of Managers of the Company may be called by any
Manager when such Manager deems a meeting of the Board of Managers of the
Company necessary or advisable. Notice of any regular or special meeting of the
Board of Managers of the Company shall be given by the President and Chief
Executive Officer of the Company (in the case of a regular meeting) and by the
Manager calling such meeting (in the case of a special meeting) by telephone or
written notice to all Managers (and alternates) no less than five days and no
more than 30 days before such meeting. A quorum for any meeting of the Board of
Managers of the Company shall be at least one Class A Manager and one Class B
Manager (hereinafter, a 'Quorum of the Board'). No action may be taken by the
Board of Managers at any meeting unless a Quorum of the Board is present at the
time such action is taken. Each Member shall cause its corresponding class of
Managers (or any alternate for any such Manager) to be present at each duly
called meeting of the Board of Managers of the Company so that such Manager (or
alternate) shall be deemed present for the entire duration of such meeting for
purposes of determining whether a Quorum of the Board exists. Members of the
Board of Managers of the Company may participate in a meeting of the Board of
Managers of the Company by means of a conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
subsection (a) shall constitute presence in person at such meeting. Each Member
shall be present at each duly called ordinary or extraordinary shareholders
meeting of the Company so that such Member shall be deemed to be present for the
entire duration of such members meeting for purposes of determining whether a
quorum exists at such members meeting in accordance with paragraphs (j) or (k)
of Article Seventeeth of the Estatutos.
(b) Except with respect to a Significant Matter (as defined in Section 4.7
hereof) and as may be required by the Estatutos or the Law, any resolution or
other action of the Board of Managers shall be adopted or taken only by the
affirmative vote of at least a majority of the Managers present at a meeting at
which a Quorum of the Board exists, except that at least one Class A Manager and
at least one Class B Manager shall have voted affirmatively on such resolution
or other action; provided, however, that with respect to any resolution or other
action by the Board of Managers of the Company relating to any action to be
taken on behalf of, or determination to be made by, the Board of Managers or the
Company pursuant to, or as contemplated by, this Agreement regarding any matter
relating to G Televisa, QVC or their respective Affiliates (including the
enforcement by the Company of any provisions hereof), such resolution or other
action shall be adopted by the affirmative vote of a majority of those Managers
present, acting in good faith, who have not been elected by the party or its
Affiliates to which the subject matter is related.
(c) Any action required or permitted to be taken at any meeting of the
Board of Managers of the Company may be taken without a meeting if all of the
members of the Board of Managers of the Company consent in writing to the taking
of such action.
(d) In the event that with respect to any proposed resolution or other
action of the Board of Managers of the Company (other than such proposed
resolution or other action relating to a Significant Matter) there exists a
deadlock, either G Televisa or QVC may give a written notice to the other of the
existence of such deadlock regarding such proposed resolution or other action.
Such notice shall specify in reasonable detail the nature of the issue giving
rise to such deadlock. The Chief Executive Officer of the party receiving such
notice of such deadlock shall promptly arrange for a meeting with the Chief
Executive Officer of the party sending such notice for the purpose of resolving
such
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deadlock. The meeting shall be held within 20 days from the date such notice of
such deadlock is given. If such deadlock is not resolved within 30 days from the
date such notice of such deadlock is given, then G Televisa or QVC may demand in
writing that such deadlock shall be submitted to an arbitration proceeding to
resolve conclusively such deadlock in accordance with, and subject to the terms
and conditions set forth in, this Section 4.4(d). Each of the parties hereto
agrees that the arbitration proceeding contemplated by this Section 4.4(d) shall
be such party's sole and exclusive forum for the resolution of any such
deadlock, provided that such party shall be entitled to enforce such arbitration
decision in any court of competent jurisdiction as described below. Any
arbitration proceeding for the resolution of such deadlock shall be finally and
conclusively decided in accordance with the rules of arbitration in effect on
the date hereof (the 'Rules') of the American Arbitration Association (the
'AAA'). Such arbitration proceeding shall be mediated by a panel of three
arbitrators, each chosen in the following manner: G Televisa and QVC each shall
select a person within 30 days from the date of G Televisa's or QVC's demand for
arbitration; the third arbitrator shall be selected by the arbitrators selected
by G Televisa and QVC (and such third arbitrator shall be a person with
experience in the matter that is the subject of such deadlock); and if either
party fails to select its arbitrator within such 30 day period or if the two
arbitrators selected by both parties fail, within the 30 day period from the
date of their selection, to make a selection of a third arbitrator, then the AAA
shall appoint the arbitrator that was not nominated by the failing party, or
shall appoint the third arbitrator, as the case may be, in accordance with the
Rules. (The arbitrators so chosen are referred to herein as the 'Arbitrators').
Consistent with the Rules, the Arbitrators shall be responsible for formulating
their own evidentiary rules for the arbitration, including whether their
determination shall be made solely by written submission, oral testimony or any
combination thereof and shall determine all other matters relating to the
arbitration, except that the arbitration proceeding (i) shall take place in
Mexico City, (ii) shall be governed procedurally by the Rules and (iii) shall be
governed by the applicable laws of the United Mexican States with respect to the
substantive issues relating to such deadlock between the parties. The
Arbitrators shall submit their findings within 30 days of the announcement by
the Arbitrators of the process to be followed in reaching their determination.
The findings of the Arbitrators, and any order issued (including, without
limitation, any order of specific performance) or decision or judgment entered
pursuant to such arbitration proceeding, shall be deemed final and binding upon
each of the parties hereto and may be entered and enforced in any court of
competent jurisdiction. Each party hereto agrees to submit to the jurisdiction
of any such court for purposes of the enforcement of any such order, decision or
judgment and hereby expressly waives any appeal or defense to which it may be
entitled. The fees and expenses of the Arbitrators shall be paid by the party
against whom the Arbitrators shall have rendered their determination, and the
Arbitrators shall be entitled to require such party to pay the reasonable fees
and expenses of the other party's attorneys.
Section 4.5 Officers. The day-to-day operations of the Company and its
Subsidiaries and the implementation of the Business Plan shall be the
responsibility of the officers of the Company acting subject to Section 4.7
hereof and the direction and oversight of the Board of Managers. Following the
election of the initial Board of Managers of the Company by the Members pursuant
to Section 4.1 hereof, except for the President and Chief Executive Officer of
the Company (who shall be selected and hired by the Board of Managers of the
Company in accordance with Section 4.7(a)(xi) hereof), the officers of the
Company shall consist of the persons designated by the Board of Managers of the
Company, and such persons shall serve in the offices designated by the Board of
Managers of the Company until their respective successors are duly appointed by
the Board of Managers of the Company. The Company and its Subsidiaries shall
have at their own expense such officers as are necessary for the Company and its
Subsidiaries to carry out the Business Plan.
Section 4.6 Authority of the Board of Managers. The Board of Managers of
the Company shall have and exercise all of the powers belonging or pertaining to
the Company in accordance with this Article IV, except only as to such matters
which pursuant to the Law or the Estatutos require the action of the Members.
All actions and decisions by the Company shall be made by the Board of Managers
of the Company (except for any matter that shall, subject to Section 4.7 hereof,
be expressly delegated to the officers of the Company by resolution of the Board
of Managers).
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Section 4.7 Matters Requiring Unanimous Approval. (a) Notwithstanding
anything to the contrary contained in this Agreement, the Estatutos or as
permitted under the Law, no act shall be taken, sum expended, or obligation
incurred by the Company or any of its Subsidiaries with respect to the matters
set forth below (individually, a 'Significant Matter', and collectively, the
'Significant Matters'), unless such action, expense or obligation shall have
been previously approved by all of the members of the Board of Managers of the
Company or all of the Members:
(i) adoption of the Business Plan and amending or modifying the
Business Plan;
(ii) approval of an annual budget (such approved annual budget, as
amended from time to time in accordance with this clause (ii), the
'Approved Annual Budget') for the operation of the Company and its
Subsidiaries and amending or modifying any such Approved Annual Budget;
(iii) determination of whether or not to consummate (x) any material
transaction involving the Company or any of its Subsidiaries or (y) any
material agreement or other instrument which, in the case of subclause (x)
or (y), is not in the ordinary course of business of the Company and its
subsidiaries and is not contemplated by the Business Plan or the Approved
Annual Budget;
(iv) determination of whether or not to take any action which would
result in a material increase in (x) the total expenditures of the Company
and its Subsidiaries or the expenditures for any major category of
expenditures set forth in the Business Plan or the Approved Annual Budget,
in each case, in excess of the amount set forth in the Business Plan or the
Approved Annual Budget, as applicable, or (y) the aggregate amount of
indebtedness of the Company and its Subsidiaries (which shall include any
guarantee of payment of the obligation of a third party) in excess of the
amount set forth in the Business Plan or the Approved Annual Budget, as
applicable;
(v) determination of whether or not to (x) declare or pay any
dividends in respect of any Company Social Part (or any Value Unit in
respect thereof) or other equity security of the Company or any
non-wholly-owned Subsidiary of the Company, (y) directly or indirectly,
purchase or otherwise acquire, redeem or retire, in whole or in part, any
class of capital stock of the Company or any non-wholly-owned Subsidiary of
the Company or any warrants, options or similar agreements to acquire any
Company Social Part (or any Value Unit in respect thereof) or other equity
security of the Company or any non-wholly-owned Subsidiary of the Company
or (z) directly or indirectly make any other distribution of cash, property
or obligations of the Company or any of its Subsidiaries or any equity
security of the Company in respect of, or on account of, any Company Social
Part (or any Value Unit in respect thereof) or other equity security of the
Company or any non-wholly-owned Subsidiary of the Company;
(vi) subject to Section 2.2(b) hereof, determination of whether or not
to (x) issue any Company Social Part (or any Value Units in respect
thereof), any other equity security of the Company (including, without
limitation, any other class of a social part) or any class of capital stock
of any of its Subsidiaries, (y) issue, grant or otherwise enter into an
agreement or arrangement to provide for, an appreciation right, phantom
equity interest or similar right, interest or security with a value derived
from, or based on, the value of any Company Social Part (or any Value Units
in respect thereof), any other equity security of the Company (including,
without limitation, any other class of a social part) or any class of
capital stock of any of its Subsidiaries or the profits, results of
operation or cash flow of the Company or any of its Subsidiaries or (z)
issue, grant or otherwise enter into an agreement or arrangement to provide
for, options or warrants or other rights, interests or securities
convertible into or exchangeable for any shares of any Company Social Part
(or any Value Units in respect thereof), any other equity security of the
Company (including, without limitation, any other class of a social part)
or any class of capital stock of any of its Subsidiaries or any rights,
interests or securities referred to in subclause (y) hereof;
(vii) determination of whether or not to consummate a public offering
of any debt or equity securities of the Company or any of its Subsidiaries
or to register under any applicable securities law any such debt or equity
securities of the Company or any of its Subsidiaries;
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(viii) taking any action, including the filing of a petition, with
respect to (x) the bankruptcy, insolvency, reorganization, dissolution or
any similar occurrence of the Company or any of its Subsidiaries or (y) a
liquidation or any other occurrence which might result in a termination of
the Company or any of its Subsidiaries;
(ix) the determination of any matter relating to a material
transaction between the Company and any Member or any Affiliate or
'associate' (as such term is defined in Rule 12b-2 under the Securities
Exchange Act of 1934, as amended) of such Member which is not contemplated
by this Agreement, the Business Plan or the Approved Annual Budget;
provided, however, that notwithstanding anything herein to the contrary,
after the occurrence of a Default Event (as defined below), (A) the
Contributing Member in respect of such Default Event may from time to time
make a loan or capital contribution to, or an equity investment in, the
Company with the prior approval of holders of at least a majority of the
total outstanding Value Units, without regard to the Company Social Part to
which any Value Unit may relate so long as the requirements of Article
Fourteenth of the Estatutos have been satisfied with respect thereto, and
(B) the determination of any matter relating to any transaction between the
Company and such Contributing Member or any Affiliate or associate of such
Contributing Member shall not be deemed a Significant Matter for the
Company and shall be permitted so long as such transaction is on terms and
conditions which are no less favorable to the Company than the terms and
conditions which would apply in a similar transaction with a person or
entity other than such contributing Member or such Affiliate or associate
of such contributing Member;
(x) approval and adoption of any amendment to the Estatutos or this
Agreement;
(xi) the determination to hire, replace or involuntarily terminate the
President and Chief Executive officer of the Company who shall be an
experienced and competent executive knowledgeable in the marketing of
product in the United Mexican States and who speaks fluent Spanish;
(xii) determinations concerning the Independent Public Accountant (as
defined in Section 4.8 hereof) and any other independent public accountants
of the Company's Subsidiaries, in each case, pursuant to Section 4.8
hereof; and
(xiii) the determination of whether or not to make any investment or
capital contribution in, or purchase of, any debt or equity security of, or
other interest or right in, any person or entity (other than cash
equivalents) which is not contemplated by the Business Plan or the Approved
Annual Budget.
As used herein, a 'Default Event' shall be deemed to have occurred if (A) G
Televisa or any G Televisa Wholly-Owned Corporation is a Non-Contributing Member
or (B) QVC or any QVC Wholly-Owned Corporation is a Non-Contributing Member,
unless, in the case of clause (A) or (B) hereof, the Contributing Member with
respect thereto elects that such Default Event shall not constitute a 'Default
Event' for any purpose under this Agreement; it being understood that, with
respect to the Company, there may be only one Default Event, which shall be the
first Default Event to occur.
(b) In the event that with respect to any proposed resolution or other
action relating to any Significant Matter there exists a deadlock, either G
Televisa or QVC may give a written notice to the other of the existence of a
deadlock relating to such Significant Matter. Such notice shall specify in
reasonable detail the nature of issue giving rise to such deadlock, and the
Chief Executive Officer of the party receiving such notice shall promptly
arrange for a meeting with the Chief Executive Officer of the party sending such
notice for the purpose of resolving such deadlock. Such meeting shall be held
within 20 days from the date such notice is given, and at such meeting, the
Chief Executive Officers of QVC and G Televisa shall resolve the matter which is
the subject of Such deadlock or otherwise resolve such deadlock by means of a
liquidation of the Company or a sale of the outstanding equity of the Company to
any person or entity (including-G Televisa, QVC or any of their respective
Affiliates).
Section 4.8 Independent Public Accountant. The Mexico City office of
Coopers & Lybrand shall be the independent public accountant of the Company,
unless the Board of Managers shall
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determine in accordance with Section 4.7(a)(xii) hereof to change the Company's
independent public accountant, in which case, the Board of Managers shall select
from the Mexico City office of one of the 'big 5' independent public accounting
firms in the United States (Coopers & Lybrand, or such other independent public
accountant for the Company selected by the Board of Managers in accordance with
Section 4.7(a)(xii) hereof shall herein be referred to as the 'Independent
Public Accountant'). Unless the Board of Managers of the Company otherwise
determines in accordance with Section 4.7(a)(xii) hereof, the independent public
accountants for the Company's Subsidiaries conducting business outside of the
United Mexican States shall be the offices of Coopers & Lybrand where such
business is conducted.
Section 4.9 Fiscal Year; Financial Statements; Tax Information. (a) The
fiscal year of the Company shall be the calendar year ending December 31.
(b) As soon as reasonably possible and in any event within 30 days after
the end of each fiscal quarter of each fiscal year of the Company, the Company
shall deliver (i) to G Televisa and QVC copies of the unaudited consolidated
financial statements of the Company and its Subsidiaries as of the end of such
fiscal quarter, for such fiscal quarter and for the beginning of such fiscal
year to the end of such fiscal quarter, as applicable, prepared in accordance
with Mexican GAAP consistently applied throughout the periods involved and (ii)
to QVC copies of such unaudited consolidated financial statements, prepared in
accordance with generally accepted accounting principles in the United States
('U.S. GAAP'), consistently applied throughout the periods involved (the 'U.S.
GAAP Unaudited Financial Statements'). QVC hereby agrees to reimburse the
Company and its Subsidiaries for all fees and expenses (including, without
limitation, accountants' fees and disbursements) incurred by any of them in
connection with the preparation and delivery of such U.S. GAAP Unaudited
Financial Statements.
(c) As soon as reasonably possible and in any event within 60 days after
the end of each fiscal year of the Company, the Company shall deliver (i) to G
Televisa and QVC copies of the audited consolidated financial statements of the
Company and its Subsidiaries as of the end of such fiscal year and for such
fiscal year, as applicable, prepared in accordance with Mexican GAAP
consistently applied throughout the periods involved and certified by the
Independent Public Accountant and (ii) to QVC copies of such audited
consolidated financial statements prepared in accordance with U.S. GAAP,
consistently applied throughout the periods involved and certified by the
Independent Public Accountant (the 'U.S. GAAP Audited Financial Statements). QVC
hereby agrees to reimburse the Company and its Subsidiaries for all fees and
expenses (including, without limitation, accountants' fees and disbursements)
incurred by any of them in connection with the preparation and delivery of such
U.S. GAAP Audited Financial Statements.
(d) The Company shall furnish to G Televisa, QVC and their respective
Affiliates copies of all tax returns, reports or forms filed by the Company and
its Subsidiaries with any governmental authority and such other information
relating to the Company and its Subsidiaries, as G Televisa, QVC or any such
Affiliate may request (at the expense of the party requesting such copies), for
financial reporting and accounting matters, the preparation and filing of any
tax returns, reports or forms or the defense of any tax claim, assessment or
litigation. The Company shall prepare any United States income tax returns
required to be filed at the request and expense of QVC, and under the direction
and supervision of QVC, after consultation with, and the approval of, G
Televisa, which approval shall not unreasonably be withheld. QVC is designated
as the 'tax matters partner' for the Company as defined in Section 6231(a)(7) of
the United States federal Internal Revenue Code of 1986, as amended.
(e) The parties hereto intend that the Company be treated as a partnership
for United States federal income tax purposes and agree not to take any United
States tax position inconsistent with such treatment, except to the extent such
treatment would be required by applicable law. Notwithstanding the foregoing,
the parties recognize that the Company will be taxed as a corporation for
purposes of the laws of the United Mexican States, agree that such treatment
will not be considered to be inconsistent with the parties' undertakings in the
immediately preceding sentence and further agree not to take any position
inconsistent with such treatment for purposes of the laws of the United Mexican
States.
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ARTICLE V
TRANSFER PROVISIONS
Section 5.1 Prohibition on Transfers. (a) No Member shall, directly or
indirectly, sell (whether by involuntary or judicial sale or otherwise), assign,
transfer, grant a security interest in, pledge, encumber, hypothecate, give (by
bequest, gift or appointment) or otherwise (voluntarily or by operation of law)
dispose of (any of the foregoing is herein referred to as a 'Transfer') any
Company Social Part, any Value Unit in respect thereof or any other equity
security of the Company (collectively, 'Company Equity Securities') to any
person or entity other than G Televisa or any G Televisa Wholly-Owned
Corporation, unless the Member making such Transfer has obtained in advance of
such Transfer a written consent to such Transfer from the other Member, which
consent may be withheld at the sole discretion of such other Member. If any
Member Transfers its Company Equity Securities in accordance with this Section
5.1(a), such Transfer shall be effective from and after the date the transferee
delivers to each of the parties hereto a written instrument, acceptable in form
and substance to each of the parties hereto, in which such transferee agrees to
be bound by the provisions of this Agreement as if it were an original signatory
to this Agreement.
(b) (i) Subject to subparagraph (ii) of this Section 5.1(b), G Televisa and
QVC shall not, and shall cause their respective Wholly-Owned Corporations not
to, directly or indirectly, Transfer any class of capital stock of GT Sub or QVC
Sub or any other equity security of GT Sub or QVC Sub (collectively, the
'Shareholder Equity Securities') to any person or entity other than G Televisa,
QVC or any Wholly-Owned Corporation, unless G Televisa (if G Televisa or a G
Televisa Wholly-Owned Corporation is making such Transfer) or QVC (if QVC or a
QVC Wholly-Owned Corporation is making such Transfer) has obtained in advance of
such Transfer a written consent to such Transfer from the other party, which
consent may be withheld at the sole discretion of the other party.
(ii) Eighteen months after the Effective Date, if G Televisa, QVC or any
Wholly-Owned Corporation desires to Transfer all or any portion of the
Shareholder Equity Securities held by it, G Televisa and QVC shall not, and
shall cause their respective Wholly-Owned Corporation not to, directly or
indirectly, Transfer any such Shareholder Equity Securities to any person or
entity, other than G Televisa, QVC or any Wholly-Owned Corporation, unless (A) G
Televisa (if G Televisa or a G Televisa Wholly-Owned Corporation desires to make
such Transfer) delivers a written instrument to QVC in the form of Exhibit C
attached to this Agreement pursuant to which G Televisa represents and warrants
to QVC that, after giving effect to such proposed Transfer, G Televisa and the G
Televisa Wholly-Owned Corporations shall own, in the aggregate, a majority of
the issued and outstanding Shareholder Equity Securities of GT Sub and a
majority of the total voting power of all classes of capital stock of GT Sub
entitled to vote generally in the election of the Board of Directors of GT Sub
and shall otherwise control GT Sub (including, without limitation, having the
absolute power and authority to elect a majority of the directors of GT Sub and
to direct the management and policies of GT Sub with respect to any issue or
matter) or (B) QVC (if QVC or a QVC Wholly-Owned Corporation desires to make
such Transfer) delivers a written instrument to G Televisa in the form of
Exhibit C attached to this Agreement pursuant to which QVC represents and
warrants to G Televisa that, after giving effect to such proposed Transfer, QVC
and the QVC Wholly-Owned Corporations shall own, in the aggregate, a majority of
the issued and outstanding Shareholder Equity Securities of QVC Sub and a
majority of the total voting power of all classes of capital stock of QVC Sub
entitled to vote generally in the election of the Board of Directors of QVC Sub
and shall otherwise control QVC Sub (including, without limitation, having the
absolute power and authority to elect a majority of the directors of QVC Sub and
to direct the management and policies of QVC Sub with respect to any issue or
matter).
(c) In the event that a Transfer of any Company Equity Securities or
Shareholder Equity Securities has taken place in violation of the provisions of
this Section 5.1, such Transfer shall be void and of no effect, no distribution
of any kind shall be paid by the Company, GT Sub or QVC Sub, as applicable, to
the proposed transferee of such void Transfer in respect of any such securities
(all such
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dividends and distributions being deemed waived), and the voting rights of such
securities on any matter whatsoever shall remain vested in the transferor.
(d) The Company shall cause all certificates representing any Company
Social Part (or any Value Unit in respect thereof) or any other Company Equity
Security, and each of GT Sub and QVC Sub shall cause all certificates
representing its Shareholder Equity Securities, to bear the following legend:
'The securities represented by this certificate are subject to
restrictions on transfer and certain other provisions set forth in the
Estatutos of Telemercado Alameda, S. de R.L. de C.V.'
(e) Notwithstanding anything in this Agreement to the contrary, nothing in
this Agreement shall be construed as prohibiting, restricting, hindering or
otherwise adversely affecting any Transfer of any direct or indirect interest in
G Televisa or QVC.
ARTICLE VI
COVENANTS CONCERNING COMPETITION
Section 6.1 Business. Territory. As used herein, the term 'Television and
Cable Shopping Business' shall mean the business of a Spanish or Portuguese
language television and cable retail shopping service, and the term 'Territory'
shall mean the United Mexican States and the remainder of the Spanish-speaking
world (including, without limitation, Spain and the 50 states of the United
States and all of its territories and possessions (the 'United States')) and the
Portuguese-speaking world (including, without limitation, Brazil).
Section 6.2 First Opportunity. (a) Subject to Section 7.2 hereof, G
Televisa and QVC shall not, and shall cause their respective Affiliates not to,
directly or indirectly, own any interest or engage or participate in, or act as
a broker, agent, advisor, consultant or provide any assistance to, any
Television and Cable Shopping Business in the Territory, otherwise than as
expressly permitted in this Agreement or without first permitting the Company to
exploit the opportunity related thereto on the terms and conditions provided
below.
(b) Subject to Section 7.2 hereof, if G Televisa, QVC or any of their
respective Affiliates intends, directly or indirectly, to own any interest or
engage or participate in, act as a broker, agent, advisor, consultant or provide
any assistance to, any Television and Cable Shopping Business in the Territory,
such party (the 'Offeror') shall, or shall cause its Affiliate to, first offer
to the Company to exploit the opportunity related thereto by delivering written
notice thereof, including specifying in reasonable detail the material terms and
conditions of such prospective opportunity (the 'Notice') in accordance with
Section 9.4 hereof to the other party (the 'Recipient'). The Recipient shall
have 15 days after the Offeror gives the Notice within which to decide whether
or not the Company should exploit such prospective opportunity and to give
notice to the Offeror in accordance with Section 9.4 hereof of the Recipient's
decision. The Recipient shall have only the right to elect to have the Company
exploit the entire opportunity set forth in the Notice on substantially the same
terms available to the Offeror, and the failure to give any notice in accordance
with Section 9.4 within such 15 days, or any response other than an unqualified
election to have the Company exploit such opportunity shall constitute an
election not to have the Company exploit such opportunity If the Recipient does
not notify the Offeror that it wishes to have the Company exploit such
opportunity prior to the end of the 15th day on which such notice is given, the
offeror and its Affiliates may pursue such opportunity for their own accounts.
However, if the material terms and conditions of such opportunity change from
the material terms and conditions that the Recipient failed to elect to have the
Company exploit, the opportunity shall again be offered to the Company by
delivering to the Recipient the Notice as set forth above, except that the
Recipient shall have only 10 days after receiving the Notice within which to
give notice to the Offeror in accordance with Section 9.4 hereof that the
Company should exploit such opportunity. The immediately preceding sentence
shall continue to apply to subsequent changes in the material terms and
conditions of such opportunity until the transactions to effectuate such
opportunity shall have been consummated.
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(c) If the Recipient elects to have the Company exploit the opportunity
presented by the Offeror pursuant to subsection (b) of this Section 6.2, each of
G Televisa and QVC shall cause to be contributed from time to time to the
capital of the Company an equal amount of funds from each of the Members so that
the Company shall have the ability to fully exploit such opportunity as
contemplated by the terms and conditions thereof, but only to the extent such
amounts to be contributed are consistent with the related Notice. With respect
to any such opportunity to be exploited by the Company, each of the parties
hereto shall cause the Business Plan (including the Capital Schedule) and the
Approved Annual Budget to be amended to enable the Company to so fully exploit
such opportunity.
(d) Notwithstanding anything in this Agreement to the contrary each of the
parties hereto agrees and acknowledges that the provisions of this Section 6.2
are not intended to, and shall not, in any way prohibit or restrict G Televisa
or its Affiliates for their own accounts from, directly or indirectly owning any
interest or engaging or participating in, act as a broker, agent, advisor,
consultant or provide any assistance to, (i) any existing or future arrangements
or agreements for the manufacture, distribution or sales of product through
Direct Response Marketing (as defined below) or through retail distribution in
the Territory or (ii) the distribution or sales of product through Infomercials
(as defined below) in the Territory provided that any distribution Agreements
pursuant to which G Televisa or any of its Affiliates has the right to
distribute or sell products through such Infomercials shall have become
effective prior to the date hereof (which agreements are listed on Exhibit D
attached hereto). With respect to any such Infomercial distribution agreements
which become effective on or after the date hereof, any distribution or sales of
product by G Televisa or its Affiliates pursuant thereto shall be deemed to be
within the definition of Television and Cable Shopping Business, and,
accordingly such distribution or sales of products by G Televisa or its
Affiliates in the Territory shall be subject to the restrictions set forth in
Sections 6.2(b) and (c) hereof. As used herein, (A) the term 'Infomercial' shall
mean a spot transmitted by television, radio or by other broadcast media of more
than two (2) minutes in duration during which a product or services is offered
for sale or a solicitation for an offer for sale is made, and an individual is
requested to respond to such Offer or solicitation by mail, telephone or other
means, including without limitation, by electronic means and (B) the term
'Direct Response Marketing' shall mean the promotion of the sale of a product or
service by means of a spot transmitted by television that is two (2) minutes or
less in duration, radio, mail, catalogues, magazines, newspapers, telemarketing,
billboards, other forms of outdoor advertising or any other method or media by
which an individual is requested to respond by mail, telephone or other means,
including, without limitation, by electronic means, to an offer or a
solicitation of an offer for the sale of a product or service; provided,
however, that the term 'Direct Response Marketing' shall not include the
Television and Shopping Business.
(e) Notwithstanding anything in this Agreement to the contrary, each of the
parties hereto agrees and acknowledges that the provisions of this Section 6.2
are not intended to, and shall not, in any way prohibit or restrict G Televisa,
QVC or any of their respective Affiliates, from, directly or indirectly, (i)
owning a passive investment in not more than five percent (5%) of the
outstanding shares of any class of capital stock or units of beneficial interest
of any entity, whether or not it competes with the Company or any of its
Subsidiaries or otherwise engages or participates in the Television and Cable
Shopping Business in the Territory; (ii) owning any interest or engaging or
participating in, or acting as broker, agent, advisor, consultant or providing
any assistance to (A) the Univision Network, the Galavision Network or their
respective related stations and other means of broadcast, in each case subject
to Section 7.2 hereof, (B) any means of television or cable broadcast, (C) any
satellite or common carrier facility with respect to which G Televisa, QVC or
any of their respective Affiliates has no direct or indirect control over or
interest in the content of what is being transmitted by such telecommunications
facility, or (D) any business, activity or investment vehicle outside of the
Territory (or within any area in the Territory in accordance with the terms and
conditions of this Agreement), which incidentally is received in the Territory
(or any other area of the Territory), it being understood that G Televisa, QVC
or any of their respective Affiliates may derive revenues or other benefits for
its own account with respect to such incidental reception or (iii) selling
television or cable advertising
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time or program time to third parties (except as specifically provided in
Section 6.2(d) hereof with respect to Infomercials).
Section 6.3 Certain Rights.
(a) QVC shall, and shall cause its Affiliates to, use their respective
reasonable efforts to cause the Company (directly or through one or more
Subsidiaries) to acquire the right to distribute all product through all means
or facilities in the Territory, including Infomercials, Direct Response
Marketing and retail distribution, provided that QVC and its Affiliates shall
not be obligated to incur any incremental out-of-pocket expenses in connection
therewith unless the Company has agreed to promptly reimburse QVC or such
Affiliates as the case may be, for such expenses.
(b) If QVC or any of its Affiliates acquires for any of their respective
accounts the right to distribute any product through any means or facilities,
QVC shall, and shall cause its Affiliates to, use their respective reasonable
efforts in connection with any such acquisition to permit the Company to acquire
the right to distribute such product through all means or facilities in the
Territory, provided that QVC and its Affiliates shall not be obligated to incur
any incremental out-of-pocket expenses in connection therewith unless the
Company has agreed to promptly reimburse QVC or such Affiliates, as the case may
be, for such expenses.
(c) Each of QVC and QVC Sub hereby acknowledges that G Televisa and its
Affiliates, directly or indirectly, own, and may hereafter own or acquire,
interests in the business of product distribution through means of Infomercials,
Direct Response Marketing and retail distribution. Except as specifically
provided in Section 6.2(d) hereof with respect to Infomercials, nothing herein
shall prohibit or restrict G Televisa and its Affiliates from engaging or
participating in such business. To the extent that the Company or any of its
Subsidiaries from time to time acquires any distribution rights to distribute
any product anywhere in the United Mexican States, QVC, QVC Sub, G Televisa and
GT Sub shall each cause the Company and its Subsidiaries to use exclusively (i)
media facilities owned or operated directly or indirectly by G Televisa or its
Affiliates, including, without limitation, broadcast television, radio, cable
television, magazine publishing, newspaper publishing and outdoor advertising
(collectively, 'Media Facilities'), to advertise and promote such product and
(ii) the retail distribution facilities owned or operated, directly or
indirectly, by G Televisa or its Affiliates for the retail distribution of such
product. To the extent that the Company or any of its Subsidiaries from time to
time acquires any rights to distribute any product in any market in the
Territory (other than the United Mexican States), QVC, QVC Sub, G Televisa and
GT Sub shall each cause the Company and its Subsidiaries to offer to G Televisa
and its Affiliates the exclusive right to (i) advertise and promote such product
in such area by means of Media Facilities owned or operated directly or
indirectly by G Televisa or its Affiliates in such area and (ii) distribute such
product through retail distribution facilities owned or operated directly or
indirectly by G Televisa or its Affiliates in such area. G Televisa shall have
30 days after the Company gives G Televisa written notice of such offer to
accept such offer by the Company. If G Televisa fails to accept such offer on a
timely basis by written notice to the Company, the Company may, and may permit
others to, advertise, promote and distribute such product on terms and
conditions no less favorable to the Company and its Subsidiaries than those as
set forth in such notice.
(d) In connection with the use by the Company or any of its Subsidiaries of
the Media Facilities or retail distribution facilities of G Televisa or any of
its Affiliates pursuant to subsection (c) of this Section 6.3 for any Calendar
Month, G Televisa shall, and shall cause its Affiliates to, charge the Company
for the use of such facilities an amount (the 'Facilities Charge Amount') no
greater than the lowest rate charged by G Televisa or its Affiliates, as the
case may be, during such Calendar Month to any other customer or user of such
facilities that is not an Affiliate of G Televisa. Each of the parties hereto
agrees and acknowledges that such rate currently charged by G Televisa and its
Affiliates in the case of Mexican television facilities is currently 35% of
sales for Infomercial and Direct Response Marketing advertising and promotion.
Within 10 days after the end of each Calendar Month commencing in respect of the
Calendar Month ending November 30, 1993 (which for purposes hereof shall include
the period from the Effective Time through November 30, 1993), G Televisa shall
deliver
17
<PAGE>
to the Company an invoice setting forth the Facilities Charge Amount for such
Calendar Month and specifying in reasonable detail the basis for calculating
such Facilities Charge Amount, executed by a senior executive officer of G
Televisa, and the Company shall pay to G Televisa or its Affiliates (as
designated in such invoice) the Facilities Charge Amount for such Calendar Month
within five Business Days of its receipt of such invoice.
Section 6.4 Termination. Notwithstanding anything in this Agreement to the
contrary, the provisions set forth in Sections 6.2 and 6.3 hereof shall remain
in full force and effect for the entire Territory for the period commencing on
the date hereof and ending on December 31, 1996, and thereafter, such provisions
shall terminate with respect to each country in the Territory if (a) the Company
or any of its subsidiaries does not have a Television and Cable Shopping
Business with substantial operations in such country and (b) G Televisa or QVC,
as the case may be, shall have consented (which consent shall not be
unreasonably withheld) in writing to the written request of the other that the
provisions set forth in Sections 6.2 and 6.3 hereof shall terminate with respect
to such country. In the event of the termination of the provisions set forth in
Sections 6.2 and 6.3 hereof with respect to any country as provided in this
Section 6.4, such provisions with respect to such country shall forthwith become
void and have no effect, and there shall be no liability on the part of any
party hereto with respect to such provision with the sole exception that nothing
contained in this Section 6.4 shall in any way relieve any party from liability
for any breach of the provisions set forth in Section 6.2 and 6.3 hereof for the
period prior to the effective date of the termination thereof.
ARTICLE VII
EXPANSION BEYOND THE UNITED MEXICAN STATES
Section 7.1 Best Efforts. Subject to the provisions of Section 6.2 hereof
and consistent with the Business Plan and the Approved Annual Budget, each of
the parties hereto agrees to use its best efforts to expand the Television and
Cable Shopping Business of the Company and its Subsidiaries from the United
Mexican States into the countries which constitute the remainder of the
Territory. Consistent with the foregoing, the Company may, from time to time,
enter into new business ventures or form alliances with other individuals or
entities in connection with the Company's expansion into such other countries in
the Territory to the extent that the Board of Managers of the Company determines
that its entering into such new business ventures and the formation of such
alliances is necessary to accomplish the Company's strategic goal of expansion
beyond the United Mexican States and to satisfy any applicable regulatory
requirements relating thereto.
Section 7.2 United States Expansion. Each of QVC and QVC Sub hereby
acknowledges and agrees that G Televisa and its Affiliates are parties to
certain agreements (as such agreements may be amended from time to time, the
'Subject Agreements') with Mr. A. Jerrold Perenchio ('Perenchio') and
Corporation Venezolana de Television (Venevision) C.A., a Venezuelan corporation
('Venevision'; and collectively with Perenchio, the 'U.S. Partners') pursuant to
which G Televisa is required ('First Opportunity Requirements') to first offer
to the U.S. Partners the opportunity to participate in the ownership and
operation of a Television and Cable Shopping Business in the United States
(other than Puerto Rico) prior to G Televisa or any of G Televisa's Affiliates
pursuing such opportunity for their own account or in participation with other
persons or entities. Until the First Opportunity Requirements set forth in the
Subject Agreements no longer remain applicable to the ownership and operation by
the Company or any of its Subsidiaries of a Television and Cable Shopping
Business in the United States, if the Board of Managers determines to expand the
Company's Television and Cable Shopping Business into the United States (other
than Puerto Rico), each of the parties hereto agrees to cause the Company to
first offer to each of the U.S. Partners in accordance with the terms and
conditions of the Subject Agreements the opportunity to participate in the
Subsidiary ('Newco') to be formed by the Company to conduct the Company's
operation in the United States such that Venevision and G Televisa may each own,
directly or indirectly, one-eighth of the outstanding equity of Newco, Perenchio
may own, directly or indirectly, one-fourth of the outstanding equity of Newco,
and QVC may own, directly or indirectly, one-half of the outstanding equity of
18
<PAGE>
Newco. In the event that any U.S. Partner elects not to participate in Newco,
each of the parties hereto agrees that G Televisa shall be entitled to own,
directly or indirectly, the share of the outstanding equity of Newco offered to
such U.S. Partner pursuant to the immediately preceding sentence.
ARTICLE VIII
REPRESENTATIONS AND WARRANTIES
Section 8.1 Representations and Warranties. Each party hereto represents
and warrants to each other party hereto that:
(a) it has the requisite corporate power and authority to execute and
deliver this Agreement and all other instruments and documents executed and
delivered by it in connection herewith, to carry out its obligations
hereunder and thereunder and to consummate each of the transactions
contemplated hereby and thereby;
(b) the execution, delivery and performance of this Agreement and all
other instruments and documents executed and delivered by it in connection
herewith and the consummation Of each of the transactions contemplated
hereby and thereby have been duly authorized by its Board of Directors, and
no other corporate proceedings on its part are necessary to authorize this
Agreement and such other instruments and documents or to consummate
transactions so contemplated;
(c) this Agreement and all other instruments and documents executed
and delivered by it in connection herewith have been duly executed and
delivered by it and, assuming this Agreement and such other instruments and
documents constitute a valid and binding obligation of each other party
hereto or thereto, constitutes a valid and binding obligation of it,
enforceable against it in accordance with their respective terms, except to
the extent such enforceability may be limited by bankruptcy, insolvency,
moratorium or other similar laws affecting or relating to the enforcement
of creditors' rights generally and is subject to the general principles of
equity;
(d) neither the execution, delivery and performance of this Agreement
and all other instruments and documents executed and delivered by it in
connection herewith by it nor the consummation by it of the transactions
contemplated hereby or thereby nor compliance by it with any of the
provisions hereof or thereof will (i) conflict with or result in any breach
or violation of any provisions of its articles of incorporation or by-laws,
(ii) require on its part any filing with, notification to, or permit,
authorization, consent or approval of, any governmental body or authority
or any other entity (except any filings under the Foreign Investment Act of
Mexico) or (iii) constitute (with or without notice or lapse of time or
both) a breach, violation or default, create a lien or other encumbrance or
give rise to any right of renegotiation or termination, amendment,
cancellation, acceleration or prepayment under (A) any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, lease,
license, contract, agreement or other instrument or obligation to which it
or any of its Subsidiaries is a party or by which any of their respective
properties or assets may be bound or subject or (B) any order, writ,
injunction, decree, statute, rule or regulation, governmental permit or
license applicable to it or any of its Subsidiaries or any of their
respective material properties or assets; and
(e) no broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection herewith or
the transactions contemplated hereby based upon arrangements made by or on
behalf of it.
ARTICLE IX
MISCELLANEOUS
Section 9.1 Entire Agreement. The express provisions Of this Agreement and
the exhibits attached to this Agreement, constitute the entire agreement among
the parties hereto and their
19
<PAGE>
respective Affiliates, and supersede all other agreements and understandings,
both written and oral, among the parties hereto and their respective Affiliates,
or any of them (including, without limitation, the letter of intent, dated April
21, 1993, between G Televisa and QVC), with respect to the subject matter hereof
and thereof. No implied agreements shall be deemed to exist with respect to such
subject matter. All references to sections and subsections shall be deemed
references to such part of this Agreement, unless the context shall otherwise
require.
Section 9.2 Assignments. Neither this Agreement nor any rights or
obligations hereunder may be assigned or delegated by any of the parties hereto,
in whole or in part, whether voluntarily, by operation of law or otherwise to
any person or entity, unless the party hereto making such proposed assignment or
delegation has previously obtained the consent of each other party hereto, which
consent may be withheld at the sole discretion of such other party, except that
GT Sub may, in connection with the Transfer of its Company Equity Securities in
accordance with Section 5.1(a) hereof, assign its rights hereunder and delegate
its obligations hereunder to G Televisa or any G Televisa Wholly-Owned
Corporation. If any party hereto assigns or delegates any of its rights or
obligations hereunder in accordance with the immediately preceding sentence,
such assignment or delegation of such rights or obligations shall be effective
from and after the date that the assignee delivers to each of the parties hereto
a written instrument, acceptable in form and substance to each of the parties
hereto, in which such assignee agrees to be bound by the provisions hereof with
respect to such rights or obligations as if it were an original signatory to
this Agreement, and upon the effectiveness of such assignment or delegation of
such rights or obligations, the assignor thereof shall be deemed to be released
by each of the parties hereto from such obligations hereunder, it being agreed
that the respective obligations of G Televisa and QVC under Section 9.6 hereof
shall remain in full force and effect, notwithstanding any such assignment or
delegation by GT Sub or QVC Sub in accordance with this Section 9.2. Any
attempted assignment or delegation in violation of this prohibition shall be
null and void. Subject to the foregoing, all of the terms and provisions hereof
shall be binding upon, and inure to the benefit of, the permitted successors and
assigns of the parties hereto Nothing contained herein, express or implied, is
intended to confer on any person or entity other than the parties hereto or
their respective permitted successors and assigns, any rights, remedies,
obligations or liabilities under or by reason of this Agreement.
Section 9.3 Jurisdiction; Venue; Service of Process. Each of the parties
hereto irrevocably submits to the jurisdiction of (i) any competent courts
located in the United Mexican States, Federal District, or (ii) the federal
courts of the United States of America in any action or proceeding brought by
any party hereto against any other party hereto arising out of or relating to
this Agreement or the transactions contemplated hereby, and irrevocably agrees
that any such action or proceeding may be heard and determined in any of such
courts. Each of the parties hereto irrevocably and expressly waives, to the
fullest extent it may effectively do so, the defense of any preferential
jurisdictions to which it may be entitled by reason of its present or future
domicile or the defense of an inconvenient forum, in each case, to the
maintenance of any such action or proceeding. Each of the parties hereto
consents to the service of copies of the summons and complaint and any other
process which may be served in any such action or proceeding by the mailing or
delivering of a copy of such process to such party at its address specified in
or pursuant to Section 9.4. Each of the parties hereto agrees that a final
judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. The parties agree and acknowledge that this Section 9.3 is
subject to Section 4.4(d).
Section 9.4 Notification. All notices and other communications required or
permitted hereunder shall be in writing, shall be deemed duly given upon actual
receipt, and shall be delivered (a) in person, (b) by registered or certified
mail (air mail if addressed to an address outside of the country in which
mailed), postage prepaid, return receipt requested, (c) by a generally
recognized overnight courier service which provides written acknowledgement by
the addressee of receipt, or (d) by facsimile or other generally accepted means
of electronic transmission (provided that a copy of any notice delivered
pursuant to this clause (d) shall also be sent pursuant to clause (b)),
addressed as follows:
20
<PAGE>
(i) if to QVC or QVC Sub:
QVC Network, Inc.
Goshen Corporate Park
West Chester, PA 19380
Attn: General Counsel
Telecopier: (215) 438-2380
with copies to:
Willkie Farr & Gallaghere
153 East 53rd Street
New York, New York 10022
Attn: Daniel D. Rubino, Esq.
Telecopier: (212) 752-2991
and
Sanchez-Mejorada, Velasco y Valencia
Paseo de la Reforma 450
Losas de Chapultepec
11000 Mexico, D.F.
Mexico
Attn: Carlos R. Valencia Barrera
Telecopier: (011)(525) 202-8222
(ii) if to G Televisa or GT Sub:
Grupo Televisa, S.A. de C.V.
Avenida Chapultepec No. 28
06724 Mexico, D.F.
Attn: Lic. Javier Mondragon Alarcon
Telecopier: (011)(525) 709-1053
with copies to:
Univisa, Inc.
2121 Avenue of the Stars, Suite 3300
Los Angeles, California 90067
Attn: Lawrence Dam, Esq.
Telecopier: (310) 286-1615;
Santamarina y Steta
'Edificio Omega'
Campos Eliseos 345-2 Piso
Col. Chapultepec Polanco
11560 Mexico D.F.
Attn: Lic. Alberto Saavedra
Telecopier: (011)(525) 280-6226;
and
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004-1980
Attn: Joseph A. Stern, Esq.
Telecopier: (212) 747-1526
or to such other addresses as may be specified by like notice to the other
parties.
21
<PAGE>
Section 9.5 Indemnification. Each of the parties (an 'Indemnifying Party')
indemnifies each of the other parties, their respective Affiliates, the
officers, directors, shareholders, agents, employees and attorneys of each of
the other parties and their respective Affiliates, and their respective heirs,
administrators, successors and assigns, and agrees to hold each of them
harmless, from and against any and all Losses which any of them may incur or
suffer, or which may be asserted against or imposed on any of them, directly or
indirectly, arising out of, as a result of or based upon any inaccuracy in or
breach or nonperformance of any of the representations, warranties, covenants or
agreements made by the Indemnifying Party in this Agreement. As used in this
Agreement, 'Losses' refers to any and all liability, losses, costs,
deficiencies, damages, demands, claims, actions, judgments, causes of action and
expenses (including, without limitation, attorneys' and accountants' fees, costs
incurred to investigate or defend, and costs incurred to enforce the provisions
hereof).
Section 9.6 Guarantee. (a) G Televisa hereby (i) irrevocably and
unconditionally guarantees the full and prompt performance and observance by GT
Sub of its covenants and obligations under this Agreement, (ii) agrees to be
responsible for any breach by GT Sub of GT Sub's representations, warranties,
covenants and agreements contained herein, and (iii) waives any legal and
equitable defenses that might constitute grounds for relieving G Televisa of any
of its obligations under this Section 9.6(a).
(b) QVC hereby (i) irrevocably and unconditionally guarantees the full and
prompt performance and observance by QVC Sub of its covenants and obligations
under this Agreement, (ii) agrees to be responsible for any breach by QVC Sub of
QVC Sub's representations, warranties, covenants and agreements contained
herein, and (iii) waives any legal and equitable defenses that might constitute
grounds for relieving QVC of any of its obligations under this Section 9.6(b).
Section 9.7 Invalidity. If any provision of this Agreement is too broad to
permit enforcement to its full extent such provision shall nevertheless be
enforced to the maximum extent permitted by law, and each party agrees that such
provisions may be judicially modified accordingly in any proceeding brought to
enforce this Agreement. If any portion Of this Agreement shall be held to be
indefinite, invalid or otherwise entirely unenforceable, the entire Agreement
shall not fail on account thereof. The balance of this Agreement shall continue
in full force and effect.
Section 9.8 Amendments and Waivers. No modification, amendment,
termination or waiver of any provision of this Agreement, nor consent to any
departure therefrom, shall in any event be effective unless the same shall be in
writing and signed by each of the parties hereto, and then such waiver or
consent shall be effective only in the specific instance and for the purpose for
which given. Neither any course of dealing nor any failure or delay on the part
of any of the parties hereto in exercising any right, power or privilege
hereunder shall impair any such power, right or privilege or operate as a waiver
thereof or as a waiver or acquiescence in any default, nor shall any single or
partial exercise thereof preclude any other or further exercise of any other
right, power or privilege. No notice to or demand on any of the parties hereto
in any case shall entitle such party hereto to any other or further notice or
demand in the same, similar or other circumstances.
Section 9.9 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more counterparts have been signed by each
party hereto and delivered to each party hereto.
Section 9.10 Further Actions. Subject to the terms and conditions of this
Agreement, each of the parties hereto agrees to use all commercially reasonable
efforts to take, or cause to be taken, all action necessary, proper or advisable
to consummate and make effective the transactions contemplated by this
Agreement.
Section 9.11 Publicity. Each of G Televisa, GT Sub, QVC and QVC Sub will
coordinate, and none of G Televisa, GT Sub, QVC and QVC Sub will issue, or allow
the issuance of, any press release, publicity statement, letter to shareholders
or other public notice relating to this Agreement or the transactions
contemplated hereby without the concurrence of the other parties hereto.
Notwithstanding the foregoing, each of G Televisa, GT Sub, QVC and QVC Sub may
issue such press release, publicity
22
<PAGE>
statement, letter to shareholders or other public notice if it believes, based
upon the advice of such party's counsel, that the issuance thereof is required
by applicable law, rule or stock exchange regulation, provided, however, to the
extent reasonably practicable within the requirements of the law, rule or stock
exchange regulation, such party shall give the other parties hereto the
opportunity to review and comment on any such press release, publicity statement
letter or notice and shall revise it to the extent reasonably practicable within
the requirements of the applicable law, rule or stock exchange regulation to
reflect their concern.
Section 9.12 Specific Performance. The parties hereto hereby acknowledge
that each party hereto would suffer irreparable injury and would not have an
adequate remedy at law for money damages if the provisions of this Agreement
(including, without limitation, Articles V, VI and VII hereof) were not
performed in accordance with their terms. Each party hereto agrees that the
other parties hereto shall be entitled to specific enforcement of the terms of
this Agreement in addition to any other remedy to which they are entitled, at
law or in equity. Furthermore, if any action or proceeding shall be instituted
to enforce the provisions hereof, any party against whom such action or
proceeding is brought hereby waives the claim or defense therein that there is
an adequate remedy at law, and agrees not to urge in any such action or
proceeding the claim or defense that such remedy at law exists.
Section 9.13 Section and Other Headings. Section titles are for
descriptive purposes only and shall not control or alter the meaning of this
Agreement as set forth in the text.
Section 9.14 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the United Mexican States applicable to
contracts made and performed in the United Mexican States, without regard to
conflict of laws principles thereof.
Section 9.15 Attorneys' Fees; Costs and Expenses. (a) In any action or
proceeding brought to enforce any provision of this Agreement, or where any
provision hereof is validly asserted as a defense, the successful party shall be
entitled to recover reasonable attorneys' fees in addition to its cost and
expense and any other available remedy.
(b) Each party hereto shall bear its own fees and expenses in connection
with the negotiation, preparation, execution, delivery and performance of this
Agreement and any agreements instruments or documents executed or delivered in
connection herewith.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
GRUPO TELEVISA, S.A. DE C.V.
By: ________________________________________
Name: Mr. Alejandro Sada Olivares
Title: Group Vice President
TELEVISION INDEPENDIENTE DE MEXICO, S.A. DE
C.V.
By: ________________________________________
Name: Mr. Alberto Orozco Estrada
Title: Corporate General Comptroller
QVC NETWORK, INC.
By: ________________________________________
Name: Neal S. Grabell
Title: Senior Vice President
23
<PAGE>
QVC MEXICO, INC.
By: ________________________________________
Name: Neal S. Grabell
Title: Senior Vice President
TELEMERCADO ALAMEDA, S. DE R.L. DE C.V.
By: ________________________________________
Name: Francisco Cortina
Title: President
24
<PAGE>
EXHIBIT 10.52
(Certain portions of this Exhibit are subject to an Application for
Confidential Treatment pursuant to Rule 24b-2)
<PAGE>
CERTAIN PORTIONS OF THIS AGREEMENT ARE SUBJECT TO AN APPLICATION FOR
CONFIDENTIAL TREATMENT PURSUANT TO RULE 24b-2
QVC NETWORK, INC.
and
QVC BRITAIN
and
BRITISH SKY BROADCASTING LIMITED
and
PRECIS (1192) LIMITED
and
QVC
- ----------------------------------------------------------------------------
JOINT VENTURE AGREEMENT
- ----------------------------------------------------------------------------
Allen Allen & Hemsley
Bucklersbury House
3 Queen Victoria Street
LONDON EC4N 8EL
Ref: LON:412057:BMW
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. DEFINITIONS AND INTERPRETATION..................................... 1
1.1 Definitions................................................... 1
1.2 Interpretation................................................ 8
2. THE VENTURE........................................................ 9
2.1 Formation..................................................... 9
2.2 The Closing................................................... 10
2.3 Principal Office.............................................. 11
2.4 Purpose....................................................... 11
2.5 Term.......................................................... 11
2.6 Early Termination............................................. 11
3. MANAGEMENT AND OPERATIONS OF THE VENTURE............................ 11
3.1 Board of Directors............................................ 11
3.2 Designation................................................... 12
3.3 Decision-Making............................................... 12
3.4 Meetings of the Board of Directors............................ 12
3.5 Actions Requiring Board Approval.............................. 13
3.6 Annual Budget Approval........................................ 16
3.7 Officer and Senior Executives................................. 17
3.8 Other Employees and Services.................................. 17
3.9 Insurance..................................................... 17
3.10 Venture Funds................................................. 17
3.11 Shareholder and Parent Covenants.............................. l8
4. TRANSACTIONS BETWEEN THE VENTURERS AND THE VENTURE.................. 18
4.1 Renewal of Contracts Between a Venturer and the Venture...... 18
4.2 Termination of Contracts Between a Venturer and the Venture.. 18
4.3 Consideration of Transactions with the Venture............... 18
4.4 Payment of Fees and Expenses................................. 18
4.5 Venture Obligations.......................................... 19
4.6 Venture Payments............................................. 19
5. BORROWINGS BY, AND FUNDING OF, THE VENTURE.......................... 19
5.1 Funding to the Break Even Date............................... 19
5.2 Repayment of Funding Loans; Dividend Policies................ 21
5.3 Funding After the Break Even Date............................ 21
5.4 Funding Loan by Affiliate.................................... 22
6. ACCOUNTING AND TAXATION............................................. 22
6.1 Financial Year............................................... 22
6.2 Maintenance of Books and Records............................. 22
6.3 Access to Books of Account................................... 22
6.4 Financial Statements......................................... 23
6.5 Taxation..................................................... 24
</TABLE>
<PAGE>
(ii)
<TABLE>
<S> <C> <C>
7. RESTRICTIONS ON DISPOSITION OF VENTURE INTERESTS.................... 25
7.1 Prohibition on Direct Disposition of Venture Interests........ 25
7.2 Subsidiary Status............................................. 26
7.3 Effect of Prohibited Dispositions............................. 26
8. EVENTS OF DEFAULT: CONSEQUENCES AND REMEDIES; SPECIAL
TERMINATION EVENTS.................................................. 27
8.1 Events of Default............................................. 27
8.2 Termination of Venture........................................ 27
8.3 Additional Remedies........................................... 28
9. BUSINESS OF THE VENTURE............................................. 28
9.1 Restrictive Provisions........................................ 28
9.2 Other Activities; Right to compete............................ 30
9.3 Acknowledgments............................................... 30
9.4 Additional QVC Covenants...................................... 31
9.5 Additional BSkyB Covenants.................................... 31
9.6 Covenants of the Venturers.................................... 31
9.7 Transponder................................................... 31
9.8 Sub-Lease of Premises......................................... 32
9.9 Hiring Restrictions........................................... 34
9.10 Rights and Remedies Upon Breach............................... 35
9.11 Reasonableness; Severability.................................. 35
9.12 Confidential Information...................................... 35
10. TERMINATION OF THE VENTURE.......................................... 36
10.1 Termination.................................................. 36
10.2 Consequences of a Termination................................ 36
10.3 * ................................................. 37
11. REPRESENTATIONS AND WARRANTIES...................................... 37
11.1 Representations and Warranties............................... 37
11.2 Additional Representations................................... 38
11.3 Survival..................................................... 38
12. MISCELLANEOUS....................................................... 39
12.1 Entire Agreement; Construction............................... 39
12.2 Governing Law................................................ 39
12.3 Third Party Beneficiaries.................................... 39
12.4 Expenses..................................................... 39
12.5 Waivers and Amendments....................................... 39
12.6 Notices...................................................... 40
12.7 Counterparts................................................. 40
12.8 Severability................................................. 41
12.9 Successors and Assigns....................................... 41
12.10 No Right of Set-Off.......................................... 41
12.11 Headings; Clause References.................................. 41
12.12 No Partnership............................................... 41
12.13 Restrictive Trade Practices Act.............................. 41
</TABLE>
__________
* Subject to Application for Confidential Treatment pursuant to Rule 24b-2.
<PAGE>
(iii)
<TABLE>
<S> <C> <C>
12.14 Conflicts with Ancillary Agreements.......................... 41
12.15 Conflicts with Memorandum of Association and Articles of
Association.................................................. 41
12.16 Termination.................................................. 42
</TABLE>
<PAGE>
THIS JOINT VENTURE AGREEMENT is made the 11th day of October 1993
AMONG:
1. QVC NETWORK, INC., a company duly organised under the
laws of Delaware with its registered office at Goshen
Corporate Park, West Chester, Pennsylvania ("QVC");
2. QVC BRITAIN, an unlimited company registered in and
incorporated under the laws of England, number 2825241 c/o
Willkie Farr & Gallagher, Dauntsey House, 4B Frederick's
Place, London, EC2R 8AB ("QVC Sub");
3. BRITISH SKY BROADCASTING LIMITED, a limited company
registered in and duly organised and incorporated in
England, number 2247735 of 6 Centaurs Business Park, Grant
Way, Isleworth, Middlesex, TW7 5QD, United Kingdom
("BSkyB");
4. PRECIS (1192) LIMITED, a limited company registered in
and duly organised and incorporated in England, number
280711 of 6 Centaurs Business Park, Grant Way, Isleworth,
Middlesex, TW7 5QD, United Kingdom ("BSkyB Sub"); and
(QVC Sub and BSkyB Sub may herein be individually
referred to as a "Venturer" and collectively referred to as
the "Venturers")
5. QVC, an unlimited company incorporated in and duly
organised under the laws of England, registered no. 2807164,
with its registered office at or to be at MarcoPolo House,
Queenstown Road, London SW8, United Kinqdom (the "Venture").
WHEREAS:
A. The parties desire to participate in the Venture for
the purpose of engaging in the business of owning and
operating a Home Shopping Channel as a
direct-to-the-consumer retail television network (the
"Service") serving cable and satellite dish homes within the
United Kingdom, the Republic of Ireland, the Isle of Man and
the Channel Isles (collectively, the ("Territory") and to be
encrypted using VideoCrypt technology.
B. Direct-to-home distribution to dish houses will be
provided by means of the Service being included within
BSkyB's "Basic Tier" which has launched as an encrypted
service as from 1st October 1993.
C. BSkyB leases an Astra transponder from *
which it has agreed to provide to the Venture via the Transponder
Sub-Lease (and also to provide uplinking and related services)
* .
D. The business of the Venture is to be run from certain
premises currently leased by BSkyB and known as "MarcoPolo
House", Queenstown Road, London (the "Premises") which
premises are to be sub-leased by BSkyB to the Venture
at cost.
E. QVC has agreed to provide funding to the Venture
subject to the Agreed Cap until the Break Even Date as
hereafter provided.
NOW, THEREFORE, in consideration of the premises and other
covenants and conditions contained herein, the parties
hereto agree as follows:
1. DEFINITIONS AND INTERPRETATION
1.1 Definitions
In this Agreement, the following terms have the following
meanings (terms defined in the singular to include the
plural and vice versa):
__________
* Subject to Application for Confidential Treatment pursuant to Rule 24b-2.
<PAGE>
2
"A Directors" has the meaning ascribed to that term in
Clause 3.2.
"A Shares" has the meaning ascribed to that term in Clause
2.1(a).
"Accountants" means the independent chartered accountants
and registered auditors of the Venture.
"Additional Term" has the meaning ascribed to that term in
Clause 2.5.
"Affiliate" means, with respect to any specified Person, any
other Person who or which, directly or indirectly through
one or more intermediaries, Controls, is Controlled by such
specified Person. Notwithstanding the foregoing, (i) neither
the Venture nor any Person Controlled by the Venture shall
be deemed to be an "Affiliate" of any Venturer or of any
Affiliate of a Venturer, and (ii) no Venturer or any Affiliate
thereof shall be deemed to be an "Affiliate" of any other
Venturer or any Affiliate thereof by virtue of its equity
ownership in the Venture.
"Agents" has the meaning ascribed to that term in
Clause 9.12.
"Agreement" means this Agreement as it may from time to time
be amended, supplemented or otherwise modified in accordance
with the terms hereof.
"Agreed Cap" means * .
"Ancillary Agreements" means the Sub-Leases, the DTH
Distribution Agreement and the Transponder Sub-Lease.
"Annual Budget" means, for any Financial Year of the
Venture, either (i) the budget and projected cash flow
statement for the Venture for such Financial Year, as
approved by the Board of Directors, or (ii) the budget and
projected cash flow statement deemed to be the Annual Budget
pursuant to Clause 3.6(c) for such Financial Year, in either
case, conforming in form to the 1994 Annual Budget and
containing information in all categories included in the
1994 Annual Budget, as amended or modified from time to time
pursuant to Clause 3.6. Unless the context otherwise
requires, references to the Annual Budget shall be deemed to
be references to the Annual Budget then in effect.
"Astra Transponder" means the transponder on the Astra lA
satellite, the Astra lB satellite or the Astra 1C satellite
that BSkyB has identified for the purposes of transmitting
the Service or any replacement satellite access to which is
provided by SES.
"B Directors" has the meaning ascribed to that term in
Clause 3.2.
"B Shares" has the meaning ascribed to that term in
Clause 2.1(a).
"Bank Base Rate" means the base rate of Midland Bank PLC or
if such bank is no longer in existence, such other bank as
shall be determined in good faith by the Board of Directors.
"Bankruptcy Proceeding" means, with respect to any specified
Person, any case, proceeding or other action under any
existing or future law of any jurisdiction relating to
bankruptcy, insolvency, reorganization or relief of debtors,
seeking to have an order for relief entered with respect to
such Person, or seeking to adjudicate such Person a bankrupt
or insolvent or seeking appointment of a receiver, trustee,
custodian or similar official for such Person or for all or
any substantial part of such Person's assets.
"Board of Directors" or "Board" has the meaning ascribed to
that term in Clause 3.1.
__________
* Subject to Application for Confidential Treatment pursuant to Rule 24b-2.
<PAGE>
3
"Breaching Venturer" has the meaning ascribed to that term
in Clause 8.2.
"Break Even Date" means the date agreed between the parties
(or failing such agreement as determined by the Accountants
who in making such determination shall be deemed to be
acting as experts and not as arbitrators) being the last day
of a Fiscal Quarter when:
(i) for that and the preceding Fiscal Quarter, the Venture
has achieved positive net cash flow on a monthly basis; and
(ii) the Venture can operate as a viable going concern
without funding support from the Venturers.
"Budget Certificate" has the meaning ascribed to that term
in Clause 5.1(b).
"Business" means (i) the ownership and operation of the
Service in the Territory, (ii) the Hard Encryption of the
Service and the distribution thereof by satellite feed to
viewers via satellite, cable and such other means or media
as to the Venturers seems fit (subject to applicable
regulatory requirements), (iii) such other functions as
shall be approved by the Board of Directors and (iv) all
functions incidental thereto including the ownership, lease
and operation of real and personal property acquired in
connection with the foregoing and the entering into and
execution of agreements in connection with the foregoing.
"Business Day" means any day except a Saturday, Sunday or
other day on which commercial banks in London, England or
Philadelphia, Pennsylvania are authorised by law to close.
"CEO/MD" has the meaning ascribed to that term in
Clause 3.7.
"CFO" has the meaning ascribed to that term in Clause 3.7.
"Channel" has the same meaning as "Service".
"Claimant Company" has the meaning ascribed to that term in
Clause 6.5 (b)(i).
"Classes" has the meaning ascribed to that term in
Clause 3.2.
"Closing" has the meaning ascribed to that term in
Clause 2.1.
"Commitment Increase" has the meaning ascribed to that term
in Clause 3.6(c).
"Confidential Information" means (i) the existence, and
terms of, this Agreement, (ii) all business and technical
information relating to the Business that is proprietary to
the Venture or otherwise not available to the general public
and (iii) all trade secrets, technologies and know-how of
either Venturer in the areas of its expertise including,
without limitation, QVC's know-how in home shopping and
direct marketing and BSkyB's know-how in programming for and
distribution to United Kingdom audiences, encryption and
BSkyB's subscriber base (including but not limited to
subscriber names and addresses) provided however that such
Confidential Information shall not include, with respect to
any Venturer desiring to disclose any information, any
information that (A) has become generally available to the
public other than as a result of a disclosure by such
Venturer, its Affiliates or its Agents in breach of Clause
9.12, (B) has been independently developed by such Venturer
or an Affiliate of such Venturer without violating any
obligations owed to the Venture or (C) was or becomes
available to such Venturer or an Affiliate of such Venturer
on a non-confidential basis from a third party having no
obligation of confidentiality to a Venturer or the Venture
and which has not itself received such information directly
or indirectly in breach of any such obligation of
confidentiality.
<PAGE>
4
"Consortium Provisions" has the meaning ascribed to that
term in Clause 6.5(b).
"Control" means, as to any Person, the power to direct or
cause the direction of the management and policies of such
Person, whether through the ownership of voting securities,
by contract or otherwise. The term "Controlled" has a
correlative meaning.
"Defaulted Fundlng Loan" has the meaning ascribed to that
term in Clause 8.1(a).
"Deficit" has the meaning ascribed to that term in
Clause 5.1(b).
"Direct Employees Costs" has the meaning ascribed to that
term in Clause 9.4(a).
"Directors" has the meaning ascribed to that term in
Clause 3.2.
"Disposition" means any sale, assignment, alienation, gift,
exchange, conveyance, transfer, pledge, hypothecation,
granting of a security interest (including a floating
charge) or other disposition or attempted disposition
whatsoever, whether voluntary or involuntary. The term
"Dispose" means to make a Disposition.
"Dollar" or "$" means lawful currency of the United States
of America.
"DTH" means the delivery of audio and video signals via
high-powered Hard Encrypted satellite transmission to owners
or lessees of television receive-only home satellite earth
stations for private non-commercial dwelling unit reception.
"DTH Distribution Agreement" means the DTH Distribution
Agreement between the Venture and BSkyB, substantially in
the form of Exhibit F hereto, as it may from time to time be
amended or modified in accordance with the terms hereof or
thereof.
"EC" means the European Economic Community.
"Event of Default" has the meaning ascribed to that term in
Clause 8.1.
"Fair Market Value" means, as to any equity interest in the
Venture or other property, the price at which a willing
seller would sell and a willing buyer would buy such
property having full knowledge of the facts, in an
arm's-length transaction without time constraints, and
without being under any compulsion to buy or sell.
"Financial Statements" has the meaning ascribed to that term
in Clause 3.6(b).
"Financial Year" means the annual reference period for
accounting for and maintaining records of the transactions
of the Venture.
"First Lease" has the meaning ascribed to that term in
Clause 9.8(a).
"First Venturer" has the meaning ascribed to that term in
Clause 9.1(b).
"Fiscal Quarter" or "Quarter" means each 3 month period
ending on the last day of each of September, December, March
and June during the Term and the period of 3 months or less
which terminates on the last day of the Term.
"Funding Date" means any date on which Funding Loans are
required to be made by QVC pursuant to this Agreement and
without limiting the generality of the foregoing includes
any date on which Funding Loans are due for repayment and
profits are not available to make such repayment.
"Funding Event of Default" has the meaning ascribed to that
term in Clause 8.1(a).
<PAGE>
5
"Funding Loan" means a funding loan made or to be made by
QVC or any of its Affiliates to the Venture pursuant to
Clauses 2.2 and 5.1.
"Funding Loan Note" means a promissory note issued by the
Venture to QVC (or any QVC Affiliate having made a Funding
Loan) in respect of a Funding Loan the form attached
hereto as Exhibit E or in such other form as QVC and the
Venture may agree from time to time.
"Funding Notice" has the meaning ascribed to that term in
Clause 5.3(a).
"GAAP" means such generally accepted accounting principles
as are applied in, and would be generally acceptable in the
United Kingdom as of the date of the financial statement or
other document with respect to which the term is used.
"Governmental Authority" means any federal, state, municipal
or other governmental department, commission, board, bureau,
agency or instrumentality of the United States of America or
any state thereof, or any government or governmental,
supernational or state agency or regulatory body of the
United Kingdom, Ireland or the EC.
"Guarantee Payment" means any payment made by QVC pursuant
to the terms of the Transponder Sub-Lease Guarantee or the
Sub-Lease Guarantee.
"Hard Encryption" means encryption using the videocrypt
technology that is descrambled by subscribers in the
Territory by means of a single "smart card" viewing card and
"Hard Encrypted" has a correspondinq meaning.
"Indebtedness" for Borrowed Money" means:
(i) obligations for borrowed money (whether secured or
unsecured);
(ii) obligations representing the deferred purchase price of
property or services other than accounts payable arising in
the ordinary course of business;
(iii) obligations in respect of operating or capital leases
entered into other than in the ordinary course of business,
whether or not such obligations would be required to be
shown as a liability on a balance sheet under GAAP; and
(iv) any guarantee or other obligations having the economic
effect of a guarantee in respect of any obligations referred
to in sub-paragraphs (i), (ii) or (iii) above.
"Initial Term" has the meaning ascribed to that term in
Clause 2.5.
"Landlord" has the meaning set out in Clause 9.8(a).
"Liens" means any pledges, security interests, charges,
restrictions on or conditions to transfer, voting or
exercise or enjoyment of any right or beneficial interest,
options, rights of first refusal and other liens, claims,
encumbrances, restrictions and equities of any nature
whatsoever.
"Material Adverse Effect" means any effect which is or is
reasonably likely to be materially adverse to the business
of the Venture or the relevant Venturer and its
subsidiaries, taken as a whole (including the continued
conduct of the operation thereof in substantially the manner
currently conducted), or to the assets or liabilities of the
business or financial condition or results of operations of
the Venture or the relevant Venturer and its subsidiaries,
taken as a whole, or to the transactions (including
performance thereof) contemplated by this Agreement and the
Ancillary Agreements.
<PAGE>
6
"1994 Annual Budget" has the meaning ascribed to that term
in Clause 3.6(a).
"New Business" has the meaning ascribed to that term in
Clause 9.1(b).
"Non-Breaching Venturer" has the meaning ascribed to that
term in Clause 8.2.
"Non-Funding Venturer" has the meaning ascribed to that term
in Clause 8.1.
"Offer Notice" has the meaning ascribed to that term in
Clause 9.1(c).
"Offered Terms" has the meaning ascribed to that term in
Clause 9.1(c).
"Operating Plan" has the meaning ascribed to that term in
Clause 2.4.
"Operational Start Date" has the meaning ascribed to that
term in Clause 9.7(a).
"Parent" means:
(i) QVC, in the case of QVC Sub; or
(ii) BSkyB, in the case of BSkyB Sub.
"Percentage Share" means, with respect to any Venturer at
any date, the number of Shares registered in the name of
such Venturer divided by the total number of Shares then in
issue, expressed as a percentage that is rounded to the
nearest 1/1000 (being 50% as at the date of this Agreement).
"Person" means any individual, corporation, partnership,
firm, joint venture, association, joint-stock company,
trust, estate, unincorporated organization, governmental or
regulatory body or other entity.
"Pound" or ("British Pound") means lawful currency of the
United Kingdom.
"Premises" has the meaning ascribed to that term in Clause 9.8(a).
"Prior Years' Contracts" has the meaning ascribed to that
term in Clause 3.6(c).
"Proposed Annual Budget" has the meaning ascribed to that
term in Clause 3.6(b).
"QVC's Annual Funding Obligation" has the meaning ascribed
to that term in Clause 5.1 (b)
"QVC Payment Balance" means, at any time, the aggregate of
all Funding Loans and Guarantee Payments (not repaid at that
time, unless repaid from the issue of further Funding Loan
Notes) made by QVC or any QVC Affiliate to (in the case of
Funding Loans) or on behalf of (in the case of Guarantee
Payments) the Venture.
"Reserve Fund" has the meaning ascribed to that term in
Clause 8.2.
"Restricted Program Service" has the meaning ascribed to
that term in Clause 9.1 (a).
"Restrictive Covenants" has the meaning ascribed to that
term in Clause 9.10.
"Second Lease" has the meaning ascribed to that term in
Clause 9.8(a).
"Second Venturer" has the meaning ascribed to that term in
Clause 9.1(b).
<PAGE>
7
"Section 247 Election" has the meaning ascribed to that term
in Clause 6.5(c).
"Service" has the meaning ascribed to that term in Recital A.
* shall have the meaning referred to in Recital C.
"Shares" has the meaning ascribed to that term in Clause
2.1(a)(i).
"SMS" means the subscriber management system operated by
BSkyB's Subsidiary, Sky Subscriber Services Limited, and
which carries out functions including subscriber phone
contact, enablement and disenablement, complaints handling
and billing;
"Sub-Leases" has the meaning ascribed to that term in Clause
9.8(a).
"Sub-Lease Guarantee" has the meaning ascribed to that term
in Clause 2.2.
"Subscribers" means all Persons to whom the Service is
distributed by any television distribution system.
__________
* Subject to Application for Confidential Treatment pursuant to Rule 24b-2.
<PAGE>
"Subsidiary" has the meaning attributed to it by Section 736
of the Companies Act 1985 but, for the avoidance of doubt,
as if all references therein to companies included any body
corporate, wherever incorporated.
"Successor" means, with respect to any former Parent, the
current Parent which is the direct or indirect transferee of
such former Parent's equity interest in a Venturer.
"Tax Loss" has the meaning ascribed to that term in Clause
6.5 (b)(i).
"Term" has the meaning ascribed thereto in Clause 2.5.
"Termination Events" has the meaning ascribed to that term
in Clause 10.1.
"Territory" has the meaning ascribed to that term in Recital A.
"Transponder Footprint" means the reception footprint of the
Astra Transponder (being the area in which domestic
reception of signals from the Astra Transponder are received
of a quality regarded as normal broadcast reception quality
and as further indicated in the Transponder Lease).
"Transponder Lease" means the lease of usage of an Astra
Transponder from SES, directly or indirectly, in the form or
substantially in the form referred to in Clause 9.7.
"Transponder Sub-Lease" has the meaning ascribed to that
term in Clause 9.7.
"Transponder Sub-Lease Guarantee" has the meaning ascribed
to that term in Clause 2.2(vi).
"Venture Interest" means and includes a Venturer's entire
equity and debt (or other) interest in the Venture,
including:
(i) its Shares and Percentage Shares;
(ii) all its interest in and rights under this Agreement; and
(iii) all rights or claims of any kind in respect of any of
the foregoing;
<PAGE>
8
but shall exclude in the case of QVC the QVC Payment Balance
and Funding Loan Notes.
"Winding Up" has the meaning ascribed thereto in Clause 10.3.
1.2 Interpretation
In this Agreement (and in any document that states in
substance that it is governed by the rules of interpretation
contained herein, except as expressly provided therein):
(i) a reference to a Person includes, unless the context
otherwise requires, its permitted Assignees;
(ii) a reference in such document to a law includes any
amendment, modification or replacement to such law;
(iii) accounting terms used in such document have the
meanings assigned to them by generally accepted accounting
principles applied on a consistent basis by the accounting
entity to which they refer;
(iv) references to any document, instrument or agreement:
(A) shall be deemed to include all appendices, exhibits,
schedules and other attachments thereto and all documents,
instruments or agreements issued or executed in replacement
thereof; and
(B) means such document, instrument or agreement, or
replacement thereto, as amended, modified and supplemented
from time to time in accordance with its terms and as the
same is in effect at any given time;
(v) unless otherwise specified, the words "hereof", "herein"
and "hereunder" and words of similar import when used in
such document shall refer to such document as a whole and
not to any particular provision of such document;
(vi) the words "include" and "including" and words of
similar import when used in such document are not limiting
and shall be construed to be followed by the words "without
limitation", whether or not they are in fact followed by
such words;
(vii) the word "during" when used in such document with
respect to a period of time shall be construed to mean
commencing at the beginning of such period and continuing
until the end of such period;
(viii) all time explicitly or implicitly referenced in such
document shall be deemed to be Greenwich Mean Time;
(ix) all amounts required to be paid by any party pursuant
to such document to any other party thereunder shall, unless
otherwise specified in such document, be paid in such freely
transferable coin or currency of the United Kingdom or the
United States of America, as the case may be, as at the time
of payment shall be legal tender for the payment of public
and private debts, or shall be paid by banker's draft or
certified check, as the case may be, by wire transfer to an
account located in the United Kingdom or the United States,
as the case may be, as such party may specify by notice to
the other party(s):
<PAGE>
9
(x) if any payment under such document is required to be
made on a day other than a Business Day, the date of payment
shall be extended to the next Business Day;
(xi) except as otherwise specifically provided in such
document, each party thereto shall, at its own cost and
expense, obey and comply with all applicable laws, as they
may pertain to each party's performance of its obligations
under such document; and
(xii) the parties to such document shall execute and deliver
all further documents and perform all further acts that may
be reasonably necessary to consummate the transactions
contemplated by such document.
2. THE VENTURE
2.1 Formation
(a) Prior to the closing of the transactions contemplated
hereby (the "Closing"):
(i) BSkyB and QVC shall cause the Venture:
(A) to be incorporated as an unlimited company under the
Companies Act 1985; and
(B) to have an authorised share capital of (British
Pounds) 100 divided into 100 shares of one pound each
("Shares") consisting of a class of 50 A shares par
value one pound per share ("A Shares") and a class of
50 B shares par value one pound per share ("B Shares").
The Memorandum of Association and the Articles of
Association substantially in the forms in which they
will be adopted by the Venture and filed with the
Registrar of Companies immediately after the Closing are
attached hereto as Exhibits B-1 and B-2; and
(ii) (A) QVC shall procure that QVC Sub shall subscribe and
pay for 1 A Share for a consideration
of British Pound 1; and
(B) BSkyB shall procure that BSkyB Sub shall subscribe and
pay for 1 B Share for a consideration of
British Pound 1.
(b) For the purposes of this Agreement all acts done by QVC
Sub (or Funding Loans made by an Affiliate of QVC) shall be
as effective as if done by QVC and references to requiring
such acts to be done by QVC shall be construed accordingly,
PROVIDED THAT if not done, QVC shall be liable for such
breach. For the purposes of this Agreement all acts done by
BSkyB Sub shall be as effective as if done by BSkyB and
references to requiring such acts to be done by BSkyB shall
be construed accordingly, PROVIDED THAT if not done, BSkyB
shall be liable for such breach. For the avoidance of doubt
(and without derogating from Clause 12.3) the provisions of
this Clause 2.1(b) shall be for the benefit of QVC, QVC Sub,
BSkyB and BSkyB Sub and no other person shall be entitled to
rely thereon.
(c) Prior to the Closing, (x) the persons designated as A
Directors by QVC and the persons designated as B Directors
by BSkyB pursuant to Clause 3.2 shall be duly appointed as
Directors of the Venture, subject to their signing a consent
to act as such, and the Venturers shall procure that any
other persons then holding office as a Director of the
Venture shall resign and (y) a meeting of the Board of
Directors shall be held at which:
<PAGE>
10
(i) the applications for Shares referred to in Clause 2.1
(a)(ii) shall be approved, the allotment and issue of the
Shares applied for shall be approved, share certificates
shall accordingly be issued to QVC Sub and BSkyB Sub as
appropriate and their names shall be entered in the
Register of Members of the Venture as the respective
owners of the Shares so allotted to them;
(ii) the Board of Directors shall approve the entering
into of, and the performance of the transactions
contemplated by, this Agreement and each of the Ancillary
Agreements;
(iii) Neal Grabell and Richard Brooke shall be appointed
joint Company Secretaries of the Venture;
(iv) Arthur Andersen & Co. shall be appointed as Accountants
to the Venture:
(v) Midland Bank PLC shall be appointed as bankers to the
Venture, for the purposes of Clause 3.10;
(vi) the accounting reference date of the Venture shall be
altered to June 30 so that the first accounting reference
period of the Venture shall end on June 30. 1994: and
(vii) the address of the Premises shall be confirmed as the
registered office of the Venture.
2.2 The Closing
The following actions shall take place at or prior to
Closing:
(i) QVC shall make a Funding Loan in accordance with Clause
5.1 representing in the aggregate any amounts due (giving
effect to any and all Funding Loans made prior to such
Closing) on the date thereof as set forth in the Budget
Certificate with respect to the 1994 Annual Budget;
(ii) the Venture and BSkyB shall execute and deliver the DTH
Distribution Agreement PROVIDED THAT the parties agree that
if for any reason the Videocrypt encryption technology shall
not be available to the Venture or shall fail to function
properly, then until such time as BSkyB shall nominate and
provide an alternate encryption technology acceptable to QVC
(which acceptance shall not be unreasonably withheld) the
Venture shall be entitled to broadcast the Channel
unencrypted or "in the clear" until such encryption becomes
available;
(iii) the Venture shall execute the Sub-Leases PROVIDED THAT
if the landlord's consent has not been obtained by the date
of this Agreement or if the Sub-Leases are not ready for
execution the Venture shall occupy the Premises as licensee
of BSkyB in accordance with Clause 9.8;
(iv) QVC shall execute the Sub-Lease Guarantee (as contained
in the Sub-Leases);
(v) the Venture shall execute the Transponder Sub-Lease; and
(vi) QVC shall execute the Transponder Sub-Lease Guarantee
(as contained in the Transponder Sub-Lease).
<PAGE>
11
2.3 Principal Office
The principal office of the Venture shall be located at the
Premises, or such other place as the Board of Directors
shall designate from time to time. The books and records of
the Venture shall be kept and maintained at the principal
office of the Venture.
2.4 Purpose
The Venture will be for the purpose of carrying on and
expanding the Business. The Venture has all powers
necessary, desirable or convenient, or which the Board of
Directors deems necessary, desirable or convenient, and may
engage in any and all activities necessary, desirable or
convenient, or which the Board of Directors deems necessary,
desirable or convenient, to accomplish the purposes of the
Venture or consistent with the furtherance thereof. The
initial operating plan for the Venture that has been
approved by the Venturers (the "Operating Plan") is attached
hereto as Exhibit C.
2.5 Term
Subject to Clause 2.6 and to Clause 10, the Venture shall
continue in existence for an initial term commencing on 1
July 1993 and ending on 30 June 2003 (the "Initial Term")
PROVIDED HOWEVER that the Venture shall continue in
existence for additional five year terms (the "Additional
Term(s)") after the expiration of the Initial Term or any
subsequent Additional Term unless, not less than one hundred
and eighty (180) days prior to the expiration of such term,
the Board of Directors elects to terminate the Venture. (As
used herein, "Term" means the Initial Term and, if
applicable, any Additional Term(s) referred to
collectively.)
2.6 Early Termination
(a) Either Venturer may elect to terminate this Agreement if
by 1st April, 1994 the "Operational Start Date" shall not
have occurred under the Transponder Sub-lease by delivering
a written notice to such effect to the other Venturer within
thirty (30) days after such date and the Venture shall
terminate on delivery of such notice.
(b) If the EC Commission or the Office of Fair Trading or
other competent body shall require any modification or
change in the terms of this Agreement or any of the
Ancillary Agreements or the manner in which the Business is
conducted that, in the reasonable judgment of a Venturer
(taking into account possible means to overcome such
modification or change), has a Material Adverse Effect on
the benefits to be derived from the Venture by such Venturer
and its Affiliates, such Venturer may elect to terminate
this Agreement by delivering a written notice to such effect
to the other Venturer within ninety (90) days after becoming
aware of such requirement.
3. MANAGEMENT AND OPERATIONS OF THE VENTURE
3.1 Board of Directors
Except as otherwise provided herein, the Venture shall be
managed by its Board of Directors (the "Board of Directors")
pursuant to the provisions of this Agreement and, except as
aforesaid, the Board of Directors has and shall exercise
full power and discretion and exclusive and final authority
with respect to the management of the affairs of the Venture
for the accomplishment of its purposes.
<PAGE>
12
3.2 Designation
The Board of Directors initially shall have six members
("Directors") consisting of two classes ("Classes") of three
Directors each ("A Directors" and "B Directors"). Prior to
the Closing, QVC Sub shall designate by written notice to
BSkyB Sub three persons (one of whom shall be Barry Diller
so long as he is employed in any capacity by QVC or any of
its Affiliates) to serve as the initial A Directors of the
Venture and BSkyB shall designate by written notice to QVC
three persons (one of whom shall be Sam Chisholm so long as
his services are made available to BSkyB or any of its
Affiliates) to serve as the initial B Directors of the
Venture. Except as required above with respect to Messrs.
Diller and Chisholm, thereafter:
(i) QVC Sub shall have the right from time to time to remove
or replace any such A Director and to fill any vacancies
arising from the death or resignation of any such A
Director, in each case by written notice to the other
Venturer and to the Venture setting forth such action and
designating any such new A Directors; and
(ii) BSkyB Sub shall have the right from time to time to
remove or replace any B Director and to fill any vacancies
arising from the death or resignation of any B Director, in
each case by written notice to the other Venturer and to the
Venture setting forth such action and designating any such
new B Directors.
3.3 Decision-Making
The presence at any meeting of the Board of Directors of at
least one Director from each Class shall constitute a quorum
for the transaction of business. Each Class of Directors
shall be entitled collectively to one vote on all matters
and the transaction of any business at any meeting shall
require the affirmative vote of each Class of Directors. The
vote of each Class shall be determined by agreement among
the Directors of such Class present at the meeting or,
failing such agreement, by the majority vote of such
Directors. If the Directors of a Class present at a meeting
cannot determine the vote of their Class on a matter before
the meeting by agreement or majority vote (and the Directors
of the other Class are entitled to vote), their Class shall
be deemed to have cast such vote on such matter so as to
create a unanimous vote of both Classes.
3.4 Meetings of the Board of Directors
(a) The Board of Directors shall hold regular meetings to
review, among other things:
(i) the Annual Budget and balance sheet of the Venture;
(ii) the expenditure and revenue levels of the Venture; and
(iii) the allocations made and services provided by the
Affiliates of each Parent to the Venture;
such meetings shall take place no less frequently than
quarterly, at such times as shall be designated by any
Director (and reasonably satisfactory to the other
Directors) no later than ten (10) days in advance of any
such meeting PROVIDED HOWEVER that regular meetings may be
held more frequently during the start-up period of the
Venture, as determined bY the Board of Directors.
(b) Meetings other than regular meetings may be called by
any Director and may be held at any time, upon:
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13
(i) five Business Days' prior written notice with respect to
meetings at which Directors are expected to attend at a
single location, subject to a Director not electing to
participate in person in accordance with Clause 3.4(d); and
(ii) two Business Days' prior written notice with respect to
conference telephone or similar communications meetings;
in each case given by or to any A Director by or to any B Director.
(c) Except to the extent otherwise agreed from time to time
by the Board of Directors, all meetings shall be held at the
Premises. Any A Director may waive, on behalf of the other A
Directors, and any B Director may waive, on behalf of the
other B Directors, notice of a meeting, in writing, before,
at or after the meeting. The attendance of any A Director at
a meeting of the Board of Directors shall constitute a
waiver of notice of such meeting by the other A Directors
and the attendance of any B Director at any meeting of the
Board of Directors shall constitute a waiver of notice of
such meeting by the other B Directors, except where a
Director attends a meeting for the express purpose of
objecting to the transaction of any business because the
meeting is not properly called or convened.
(d) Directors may participate in a meeting of the Board of
Directors by means of conference telephone or similar
communications equipment through which all persons
participating in the meeting can hear each other, and
participation by such means shall constitute attendance in
person at such meeting.
(e) Any action to be taken by the Board of Directors may be
taken without a meeting of the Board of Directors by written
consent of a majority of the Directors of each Class.
(f) All actions by the Board of Directors shall be reflected
in minutes of the meeting or conference telephone call or
similar communications, which minutes will be furnished to
each Venturer within ten Business Days after the date of
such meeting. Subject to the provisions of this Agreement,
the Board of Directors may regulate its proceedings as the
Board of Directors determines.
(g) Each of the A Directors and each of the B Directors may
communicate to the Venturer appointing him (and the Parent
of such Venturer) any information acquired by him in
relation to the Venture, subject always to the Venturers'
duty of confidentiality contained in Clause 9.12.
3.5 Actions Requiring Board Approval
The following actions shall not be authorized or taken by
the Venture without approval of the Board of Directors:
(i) approval of the Annual Budget as set forth in Clause 3.6;
(ii) any change in the Business of the Venture;
(iii) the incurrence by the Venture or any of its
subsidiaries of any Indebtedness for Borrowed Money (other
than Indebtedness for Borrowed Money (x) relating to any
contract, agreement, commitment or arrangement that has been
approved by the Board of Directors or (y) consistent with or
contemplated by, or approved in connection with the approval
of, the Annual Budget, or the entering into of any contract,
agreement, commitment or arrangement to effect the
foregoing);
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14
(iv) the grant by the Venture of any security or additional
security for (x) any Indebtedness for Borrowed Money of the
Venture or (y) the performance of any other material
obligation of the Venture, other than liens granted to trade
creditors in the ordinary course of business;
(v) the making by the Venture of any guarantee of any
obligation of any Person;
(vi) all Funding Loan requests in addition to those required
pursuant to Clause 5.1;
(vii) any repayment of Funding Loans other than repayments
required pursuant to Clause 5.2;
(viii) the issue of any Shares or any obligation convertible
into Shares or the grant of any option or right to acquire
any of the foregoing;
(ix) any amendment or modification of the Memorandum of
Association or the Articles of Association;
(x) the entering into of any contract, agreement, commitment
or arrangement in respect of any transaction between the
Venture and any Venturer or any Affiliate of any Venturer
(other than to the Ancillary Agreements) relating to:
(a) matters covered by Clause 4; and
(b) any matters the terms of which have been expressly
approved under the provisions of Clause 9;
(xi) the making by the Venture of any loans, or advances in
the nature of loans in excess of British Pounds 5,000, to any
other entity (other than advance payments or prepayments of
amounts payable under contracts consistent with or contemplated
by, or approved in connection with the approval of, the Annual
Budget) other than in the ordinary course of business;
(xii) the authorization of the payment of any dividend or
other distribution with respect to, or the repurchase of,
any Shares;
(xiii) the making of (or commitment to make) any
discretionary expenditures by the Venture in any Financial
Year that are not consistent with or contemplated by, or
approved in connection with the approval of, the Annual
Budget and which are in excess of British Pounds 100,000 in
the aggregate for all such unbudgeted discretionary
expenditures in such Financial Year;
(xiv) the making of (or binding commitment to make) any
capital expenditure (in a single transaction or a series of
related transactions) in excess of British Pounds 10,000 whether
or not approved in connection with the approval of the Annual
Budget;
(xv) the Disposition by the Venture of assets which have an
aggregate Fair Market Value in excess of British Pounds 10,000 or
a book value in excess of British Pounds 10,000, in each case
for any one Disposition or related series of Dispositions in any
Financial Year, except, in either case for (and excluding
from any determination as to whether such British Pounds 10,000
limit has been or would be exceeded) (x) Dispositions consistent
with or contemplated by, or approved in connection with the
approval of, the Annual Budget and (y) Dispositions in the
ordinary course of business;
(xvi) the acquisition by the Venture, by purchase or
otherwise, of any business (including the purchase of any
interest in or equity securities of any business or
<PAGE>
15
the purchase of the assets of any business as an entirety or
substantially an entirety), or the entering into of any
agreement, commitment or arrangement to make any such
acquisition;
(xvii) the appointment or removal of the Accountants, or
auditors or principal outside counsel for the Venture;
(xviii) the commencement or abandonment by the Venture of
any litigation or arbitration involving matters outside the
ordinary course of business or the settlement of any
litigation or arbitration as to the Venture which (x)
involves a dispute in excess of British Pounds 25,000
or (y) has been brought or commenced by or against
any Governmental Authority PROVIDED HOWEVER that the
CEO/MD has the right to commence or abandon any litigation
or arbitration prior to the receipt of Board approval
in the event that time is of the essence in such
litigation or arbitration subject to the
commencement or abandonment of such litigation being
submitted to the Board of Directors for ratification as
promptly as possible thereafter;
(xix) the voluntary commencement of any liquidation,
dissolution or winding-up of the affairs of the Venture;
(xx) the commencement of any legal proceedings or the taking
of any action or other preparatory steps for the winding up
or dissolution of the Venture, or for the appointment of a
liquidator, trustee, receiver, administrative receiver or
similar officer in relation to the Venture or over the whole
or any part of the undertaking, assets, rights or revenues
of the Venture;
(xxi) the execution by the Venture of any contract (other
than any employment contract, bonus plan or contract
relating to employee benefit plans or programs) involving
aggregate expenditures in a Financial Year by the Venture of
more than British Pounds 50,000 other than contracts consistent
with or contemplated by or approved in connection with the
approval of the Annual Budget;
(xxii) the entering into of contracts, agreements,
commitments or arrangements of the Venture (other than
relating to matters covered by Clause 3.5(xiv)) for a term
(including possible extensions or renewals of the term
thereof at the option of the other party thereto) greater
than one year, other than contracts, agreements, commitments
or arrangements involving expenditures of not more than
British Pounds 100,000 in any one year;
(xxiii) the entering into of any employment contract which
has a term in excess of one year or which provides for
compensation to any employee of the Venture (including
bonuses) in excess of British Pounds 50,000 per annum;
(xxiv) the adoption by the Venture of (i) bonus or employee
benefit plans or programs, (ii) any material amendment to or
change in any such plans or programs or (iii) awards of
bonuses or other incentive compensation under such plans;
(xxv) the entering into of any collective bargaining
agreement regarding or otherwise affecting employees of the
Venture or the commencement of negotiations with any
collective bargaining unit;
(xxvi) the election or modification of (i) the Financial
Year of the Venture or (ii) any material tax or accounting
practices or policies;
(xxvii) any other significant action relating to the
Venture's financial statements, accounting practices or
policies, tax returns or elections for tax purposes;
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16
(xxviii) the admission of a new Venturer to the Venture,
including the identity of the new Venturer and the terms of
any sale of a Venture Interest to the new Venturers;
(xxix) the adoption by the Venture of any trademark, service
mark or trade name or the filing by the Venture of an
application to register any trade mark, service mark or
trade name; and
(xxx) any material amendment or modifications of any
contract, agreement, commitment or arrangement required to
be approved by the Board of Directors pursuant to this
Clause 3.5.
3.6 Annual Budget Approval
(a) The Annual Budget for the first Financial Year of the
Venture ending on June 30 1994 attached hereto as Exhibit D
as in the Exhibit List (the "1994 Annual Budget") is
incorporated herein for reference and is hereby ratified by
the Venture as the initial Annual Budget of the Venture.
(b) The CFO shall submit to the Board of Directors at least
sixty (60) days prior to the start of each Financial Year
beginning with the Financial Year ended June 30, 1995:
(i) a proposed budget and projected cash flow statement for
the Venture for such ensuing Financial Year
(collectively, the "Proposed Annual Budget"), in
substantially the same form and containing substantially
all of the information contained in the 1994 Annual
Budget; and
(ii) a draft Budget Certificate relating to the Proposed
Annual Budget. The Proposed Annual Budget shall be
prepared on a basis consistent with the Venture's
Financial Statements and GAAP, except as noted therein.
The Proposed Annual Budget shall be subject to the
approval of the Board of Directors.
(c) If by the first day of any Financial Year beginning with
the Financial Year ended June 30, 1995 an Annual Budget for
such year shall not have been adopted by the Board of
Directors, then:
(i) the Annual Budget in effect for the preceding Financial
Year of the Venture, as adjusted by the CFO to reflect:
(I) increases of all revenue, disbursement and expense
items by the greater of (x) the increase in the RPI
during the prior year and (y) 10%; and
(II) in addition to clause (I), any increases
("Commitment Increases") required to satisfy
commitments under contracts or agreements that
were entered into in a prior year ("Prior Year's
Contracts") PROVIDED HOWEVER that, if such adjusted
Annual Budget includes a Commitment Increase, any
payment in the preceding year's Annual Budget
required under the related Prior Year's Contract
shall not be increased and included in such
adjusted Annual Budget as contemplated by
sub-clause (I) above;
shall become the Annual Budget (and shall be deemed to be
the approved Annual Budget) for the then-current
Financial Year; and
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17
(ii) the Budget certificate for such Annual Budget shall be
revised accordingly as provided in Clause 5.1.
The Board of Directors may ratify any Annual Budget deemed
to be in effect pursuant to this Clause 3.6(c). Any action
taken, or authorized to be taken, by the Board of Directors
which is inconsistent with the Annual Budget shall be deemed
to amend the Annual Budget.
(d) Each Annual Budget shall be capable of amendment or
modification by the Board of Directors.
(e) The Venturers shall procure that the CFO shall provide
to QVC's accountants such additional information as is
reasonably required for them to modify the proposed Annual
Budget to United States GAAP for QVC's United States
reporting purposes. For the avoidance of doubt, the official
annual budget shall be the version compiled according to
GAAP.
3.7 Officer and Senior Executives
The Venture shall have a Chief Executive Officer/Managing
Director (the "CEO/MD"), a Chief Financial Officer (the
"CFO"), and such other officers and senior executives as the
Board of Directors shall determine. The officers shall have
such powers as may be delegated to them from time to time by
the Board of Directors.
(a) The CEO/MD shall be mutually selected by the Venturers,
and the Venturers shall cause the appointment of such CEO/MD
by the Board of Directors. The terms of employment of the
CEO/MD shall be approved by the Board of Directors. The
CEO/MD shall report to and shall be subject to direction and
removal by the Board of Directors. Except as otherwise
provided in this Clause, the CEO/MD has the right to
terminate the employment of the other executives of the
Venture.
(b) The CFO shall be mutually selected by the Venturers, and
the Venturers shall cause the appointment of such CFO by the
Board of Directors. The terms of employment of the CFO shall
be determined by the Board of Directors. The CFO shall
report to and be subject to the direction of the CEO/MD. The
CFO shall be appointed by and subject to removal by the
Board of Directors.
3.8 Other Employees and Services
The Venture shall operate as an independent entity and shall
hire its own employees. Employees of the Venture shall have
such compensation and benefits as shall be approved by the
Board of Directors.
3.9 Insurance
The Venture shall maintain insurance in such amounts (within
the limits of the Annual Budget), with such deductibles and
against such risks as may be customary for like businesses
and properties and as the Board of Directors deems
appropriate for the Business. The Venturers shall be named
as additional insureds on all liability insurance policies
of the Venture.
3.10 Venture Funds
The funds of the Venture shall be deposited in such bank
accounts of the Venture or invested in such investments of
the Venture as shall be designated by the Board. Withdrawals
from any such bank account shall be made only in the regular
course of business of the Venture upon the signature of such
person or persons as the Board shall
<PAGE>
18
determine. Venture funds shall not be commingled with those
of any other Person. If either Venturer or any of such
Venturer's Affiliates receives any funds to which the
Venture is entitled under any Ancillary Agreement or
otherwise such funds shall promptly (and, in any event,
within five Business Days upon knowledge of receipt thereof)
be remitted to the Venture and deposited in a Venture bank
account.
3.11 Shareholder and Parent Covenants
Each Venturer and Parent shall exercise all its powers to
ensure that:
(i) the Venture shall:
(a) comply with the provisions of and conditions attaching
to the non-domestic satellite licence granted to the
Venture;
(b) comply with the terms of each Ancillary Agreement; and
(c) not take any action which might lead to the withdrawal
or revocation of the non-domestic satellite licence; and
(ii) no action is taken by it or its Affiliates which might
result in the revocation or withdrawal of the non-domestic
satellite licence granted to the Venture.
4. TRANSACTIONS BETWEEN THE VENTURERS AND THE VENTURE
4.1 Renewal ot Contracts Between a Venturer and the Venture
If any contract, agreement, commitment or arrangement
between the Venture and any Venturer or any Affiliate of
such Venturer expires or terminates, the Venturer that is
not a party thereto (or whose Affiliate is not a party
thereto) shall, in its sole discretion, after good faith
consultation with the other Venturer, determine whether the
Venture shall renew such contract, agreement, commitment or
arrangement, and the terms of such renewal.
4.2 Termination of Contracts Between a Venturer and the Venture
If any contract, agreement, commitment or arrangement in
respect of any transaction between the Venture and either
Venturer or any Affiliate of such Venturer is terminable at
any time by the Venture, the Venturer that is not a party
thereto (or whose Affiliate is not a party thereto) may
determine, in its sole discretion, after good faith
consultation with the other Venturer, to cause the Venture
to exercise such right of termination in accordance with and
subject to the terms thereof.
4.3 Consideration of Transactions with the Venture
If a Venturer or any of its Affiliates offers to provide
services, goods or facilities to the Venture on a basis
comparable to the basis on which such services, goods or
facilities are proposed to be provided by an independent
third party, the Venture shall give favourable consideration
to purchasing such services, goods or facilities from such
Venturer or Affiliate, as the case may be.
4.4 Payment of Fees and Expenses
Except as expressly provided in this Agreement or any
Ancillary Agreement or as expressly approved by the Board of
Directors, no Venturer shall be reimbursed for any of its
overhead or general or administrative expenses attributable
to the Venture, nor shall salaries, fees, commissions or
other compensation be paid by the Venture to any Venturer or
to any Affiliate of a Venturer for services rendered to the
Venture.
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19
4.5 Venture Obligations
If any obligation in this Agreement or the Ancillary
Agreements is expressed to be an obligation of the Venture,
it shall also be an obligation of each Venturer to the other
to take all steps within its power to cause the Venture to
perform such obligation. The obligations of each Venturer
shall include the obligation to exercise the voting rights
attaching to the Shares registered in its name from time to
time to give effect to such obligation, and the obligation
to procure that the Directors of the Venture appointed by
such Venturer shall, so far as not inconsistent with their
fiduciary duties to the Venture, cause the Venture to
perform such obligation.
4.6 Venture Payments
All payments by the Venture to a Venturer shall be in Pounds
except as otherwise expressly provided herein or in any
Ancillary Agreement.
5. BORROWINGS BY, AND FUNDING OF, THE VENTURE
5.1 Funding to the Break Even Date
(a) Prior to the Break Even Date, QVC agrees to make or
cause to be made all Funding Loans called for pursuant to
this Agreement PROVIDED HOWEVER that QVC shall not be
required to make any Funding Loan or any portion thereof
(other than pursuant to Clause 5.1(g)) to the extent that,
after giving effect thereto, the QVC Payment Balance would
exceed the amount of the Agreed Cap (without derogating from
QVC's liability to make Funding Loans up to the Agreed Cap).
Funding Loans shall:
(i) *
(ii) be subordinated to all other creditors of the Venture
but shall rank prior to any distribution to any Venturer in
respect of such Venturer's Venture Interest;
(iii) rank for repayment on the winding up of the Venture in
accordance with Clause 10.3; and
(iv) be evidenced by zero coupon Funding Loan Notes in the
form set out in Exhibit E.
(b) Following the approval (or deemed approval) by the Board
of Directors of each Annual Budget after the 1994 Annual
Budget, the CFO shall cause a copy thereof to be delivered
to each Venturer, and shall, if the projected cash flow
statement included in such Annual Budget reflects a negative
cash flow for any period (a "Deficit"), prepare and
distribute to each Venturer a certificate (the "Budget
Certificate") setting forth, based on the Annual Budget for
such Financial Year:
(i) the amount of the Deficit to be funded through Funding
Loans;
(ii) the Funding Date or Funding Dates, which shall be
monthly in advance, on which such Funding Loans will be
required to be made; and
(iii) the aggregate amount of the Funding Loans required to
be made on each such Funding Date(s). The Budget Certificate
with respect to the 1994 Annual Budget is attached thereto
as Exhibit D.
__________
* Subject to Application for Confidential Treatment pursuant to Rule 24b-2.
<PAGE>
20
Subject to the terms of Clause 5.3, prior to the Break Even
Date QVC shall make Funding Loans during the Financial Year
covered by the Annual Budget in an aggregate amount equal to
the Deficit ("QVC's Annual Funding Obligation") on the basis
set forth in this Clause 5.
(c) In the event that during any Financial Year the Board of
Directors amends or is deemed to have amended the Annual
Budget then in effect (including any change in QVC's Annual
Funding Obligation), the CFO shall promptly issue a revised
Budget Certificate for such Financial Year (or remainder
thereof). Subject to the terms of Clause 5.3, QVC shall
prior to the Break Even Date make all Funding Loans as and
when called for by any Budget Certificate as in effect from
time to time.
(d) Subject to the terms of Clause 5.3, the CFO may increase
or decrease the aggregate amount of the Funding Loans
required to be made on any Funding Date, up to a maximum
adjustment of 10% for each such Funding Loan, by giving
written notice thereof (together with a revised Budget
Certificate for the remainder of the Financial Year) no
later than five Business Days prior to such Funding Date
PROVIDED HOWEVER that no such adjustment by the CFO shall
affect QVC's Annual Funding Obligation.
(e) Should the conduct of the Business of the Venture at any
time prior to the Break Even Date result in the incurrence
of losses or a Deficit greater than allowed in the Budget
for the Financial Year in which the loss is incurred or as
at the last preceding Funding Date ("Extraordinary
Shortfall") and should the Venture be unable to obtain from
its bankers funding for such amount without requiring the
furnishing of guarantees, letters of comfort or other
guarantees from its shareholders, then subject to the terms
of Clause 5.3 QVC shall make a further Funding Loan to the
Venture equal to the amount of the Extraordinary Shortfall.
In case there is any dispute as to the amount of such
Extraordinary Shortfall, a statement by the Accountants
shall be conclusive as to such amount and the parties shall
co-operate in aiding the Accountants to issue such statement
within two (2) Business Days of any Venturer deciding that
there has been an Extraordinary Shortfall (or in any event
on request by the CEO/MD or the CFO) and the date on which
the Accountants issue such certificate (or the parties
otherwise decide the amount of an Extraordinary Shortfall)
shall be deemed to be a Funding Date for the purposes of
this Clause 5.1. In giving such certificate the Accountants
shall act as experts and not arbitrators and their
determination shall be final and binding on the parties
hereto.
(f) Subject to the terms of Clause 5.3, on each date that a
Funding Loan becomes due for repayment the Venture shall
consider to what extent the Funding Loan is repayable out of
profits in accordance with Clause 5.2 below or otherwise
under the terms of this Agreement and QVC shall, if required
by the Venture, make further Funding Loans on the terms set
out in Clause 5.1 to enable the Venture to fund the Deficit
and repayment of the Funding Loans or Loans then due for
repayment which shall be repaid.
(g) Subject to the terms of Clause 5.3, on each Funding Date
QVC shall make a Funding Loan to the Venture in immediately
available funds in an amount equal to the aggregate amount
of the Funding Loans due on such Funding Date. In addition
to any other remedies provided herein, any such Funding Loan
not made on the Funding Date shall accrue interest at the
rate of 3% over the Bank Base Rate for the period commencing
on the date such payment was due until the day such payment
is paid.
(h) All Funding Loans shall be made in Pounds by wire
transfer or other direct funds transfer of immediately
available funds to the bank account of the Venture specified
in the applicable notice from the Board of Directors.
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21
(i) QVC shall not be permitted to set-off or appropriate and
apply against its Funding Loans any credits, indebtedness or
claims, in each case whether direct or indirect, absolute or
contingent, matured or unmatured at any time owed by the
Venture to QVC under any Ancillary Agreement or otherwise.
(j) In determining for the purpose of this Clause whether the
QVC Payment Balance after giving effect to a proposed
Funding Loan would exceed the Agreed Cap, the Agreed Cap
shall be deemed to be increased by an amount equal to the
discount element of any Funding Loan which has been repaid
from the issue of further Funding Loan Notes in accordance
with Clause 5.1(f).
5.2 Repayment of Funding Loans; Dividend Policies
(a) If in respect of any Fiscal Quarter the Venture has
profits available for distribution (within the meaning of
Part VIII of the Companies Act) and available cash, being
cash balances after:
(i) the provision of working capital to finance the
continuing operations and internal growth of the Business;
and
(ii) transfers to cash reserves consistent with the normal
commercial requirements of businesses similar to those
carried on by the Venture;
the Venturers (and, without requiring any financial
commitment, their respective Parents) shall procure that an
amount equivalent to the lower of the distributable profits
and the available cash shall be applied in the following
order of priority:
(A) repayment of Funding Loans as and when they fall due
for repayment to QVC or its Affiliate making such Funding
Loan; and
(B) the payment of cash dividends to the maximum level
possible within 3 months after the end of such Fiscal
Quarter;
(b) in deciding whether in respect of any Fiscal Quarter the
Venture had or has profits available for distribution the
parties hereto shall procure that the Accountants shall
certify whether such profits are available or not and the
amount thereof (if any). In giving such certificate the
Accountants shall act as experts and not arbitrators and
their determination shall be final and binding on the
parties hereto.
5.3 Funding After the Break Even Date
For the avoidance of doubt notwithstanding anything
contained in this Agreement or any other agreement between
any of the parties hereto, QVC's obligation to make Funding
Loans (save only as required to repay outstanding Funding
Loans) and Guarantee Payments shall only exist prior to the
Break Even Date and shall at all times be subject to the QVC
Payment Balance not exceeding the Agreed Cap after giving
effect to any proposed Funding Loan or Guarantee Payment
PROVIDED THAT in determining for the purpose of this Clause
whether the QVC Payment Balance after giving effect to a
proposed Funding Loan would exceed the Agreed Cap, the
Agreed Cap shall be deemed to be increased by an amount
equal to the discount element of any Funding Loan which has
been repaid from the issue of further Funding Loans in
accordance with Clause 5.1(f). Upon the earlier of (a) the
Break Even Date or (b) the date upon which the QVC Payment
Balance equals or exceeds the Agreed Cap, the funding of the
Venture shall be as agreed between the Venturers PROVIDED
FURTHER THAT:
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22
(a) in the event that the Venturers are unable to agree on
the funding of the Venture either Venturer may give to the
other notice in writing (a "Funding Notice") and if the
Venturers shall not have agreed as to the on-going funding
of the Venture by the expiration of twenty-one (21) days
after the giving of a Funding Notice, either Venturer shall
be entitled to terminate the Venture by giving a further
written notice to the other; and
(b) nothing shall make any Venturer, Parent or its nominated
Directors liable in any way for repayment of outstanding
Funding Loans to QVC.
5.4 Funding Loan by Affiliate
Any Funding Loan required to be made hereunder by QVC may,
at the election of QVC, be made by an Affiliate of QVC.
6. ACCOUNTING AND TAXATION
6.1 Financial Year
(a) The books and records of the Venture shall be kept on an
accrual basis and the Financial Year of the Venture for
financial accounting and tax purposes shall be
July 1 - June 30.
(b) The Venture shall if requested by QVC cause to be
prepared and made available to QVC such financial statements
and other reports and shall take any other action as QVC may
reasonably require by reason of the fact that QVC's fiscal
year is February 1 - January 31.
6.2 Maintenance of Books and Records
At all times during the continuance of the Venture, the CFO
shall keep or cause to be kept, at the principal office
referred to in Clause 2.3, full and complete books of
account. The books of account shall be maintained as
required by law and in a manner that provides sufficient
assurance that:
(a) transactions of the Venture are executed in accordance
with the general or specific authorization of the Board of
Directors consistent with the provisions of this Agreement
and the Ancillary Agreements;
(b) transactions of the Venture are recorded in such form
and manner as will (x) permit preparation of United Kingdom
and United States federal, state and local corporation,
income and franchise tax returns and information returns by
the Venture and the Venturers in accordance with this
Agreement and as required by law, and as needed to
accommodate QVC's fiscal year, (y) permit preparation of the
Venture's financial statements in accordance with GAAP, and
(z) maintain accountability for the Venture's assets; and
(c) recorded assets are compared with the existing assets at
reasonable intervals and appropriate action is taken with
respect to any difference.
6.3 Access to Books of Account
Notwithstanding any other provision of this Agreement (but
subject to Clause 9.12), each Venturer has the right upon
reasonable advance notice at all reasonable times during
usual business hours to (i) audit, examine and make copies
of the books of account of the Venture, (ii) visit the
facilities of the Venture and (iii) discuss the affairs of
the Venture with its officers, employees, attorneys,
accountants, customers and suppliers PROVIDED HOWEVER that
such audit, examination and/or visit shall be conducted in
such a manner
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23
as not to interfere unreasonably with the business of the
Venture. Such right may be exercised through any agent or
employee of such Venturer designated in writing by it or by
independent certified public accountants or counsel
designated in writing by such Venturer. Each Venturer shall
bear all expenses incurred in any examination made for such
Venturer's account.
6.4 Financial Statements
(a) Annual Statements
As soon as practicable following the end of each Financial
Year, but in any event within ninety (90) days after the end
of the Financial Year, the CFO shall prepare and deliver to
each Venturer an audited balance sheet of the Venture as at
the end of such Financial Year, and audited statements of
income (loss) and changes in financial position of the
Venture for such Financial Year, each prepared in accordance
with GAAP and accompanied by the Accountants' report
thereon.
(b) Quarterly Statements
As soon as possible following the end of each Fiscal
Quarter, but in any event within twenty (20) Business Days
after the end of each such quarter, the CFO shall prepare
and deliver to each Venturer unaudited statements of income
(loss) and changes in financial position of the Venture for
such Fiscal Quarter and for the year to date and an
unaudited balance sheet of the Venture, together with:
(i) a reconciliation of actual and budgeted results at
budgeted cost code level:
(ii) modified balance sheet and changes in financial position;
(iii) cash utilisation report;
(iv) stock control report;
(v) selling data for each main product line;
(vi) a certificate of the CFO to the effect that such
financial statements have been prepared under his
supervision and that, although such financial statements do
not contain the footnotes and other disclosures required by
GAAP, such financial statements, in his judgment, fairly
present in all material respects the interim results of
operations and financial position of the Venture for the
period and as of the date indicated, subject to normal audit
adjustments; and
(vii) any reasonable information that may be required by
QVC's United States accountants to enable the reports or
accounts to be adjusted to reflect US GAAP or to comply with
United States tax and statutory reporting.
At such time, the CFO shall also prepare and deliver to each
Venturer current forecasts of year-end results of the
Venture.
<PAGE>
24
(c) Monthly Statements
As soon as possible following the end of each month, but in
any event within 15 Business Days after the end of each such
month, the CFO shall prepare and deliver to each Venturer
unaudited profit and loss statements of the Venture for such
month, together with a reconciliation of actual and budgeted
results.
(d) Other Information
At the request of any Venturer, the CFO shall prepare and
deliver to each Venturer, as soon as practicable following
such request, any additional financial information and
statements as such Venturer shall from time to time
reasonably request.
6.5 Taxation
(a) Except as otherwise provided herein, all tax elections
by the Venture shall be determined by the Board of Directors
except where law provides that the election shall be made by
the Venturers. The CFO shall prepare and file or cause to be
prepared and filed all tax returns required to be filed by
the Venture. The CFO shall submit copies of such tax returns
to the Venturers for their review at least fifteen (15)
Business Days prior to the due date for filing such returns.
Such returns shall be filed only after the Venturers have
approved such returns (such approval not to be unreasonably
withheld).
(b) (i) If the Venture has a trading loss or other amount
(hereinafter, a "Tax Loss") which, pursuant to Sections 402
through 413 of the Income and Corporation Taxes Act 1988
(hereinafter, the "Consortium Provisions") may be
surrendered to a Venturer or an Affiliate of a Venturer
(hereinafter, the "Claimant Company") by way of a consortium
claim, the Venture shall, subject to the consent of each
Venturer, surrender such portion, not to exceed such
Venturer's Percentage Share, of such Tax Loss to the
Claimant Company as may be requested by such Venturer. The
Claimant Company shall make (or, if the Claimant Company is
an Affiliate of a Venturer, such Venturer shall cause the
Claimant Company to make) a payment to the Venture in an
amount equal to the product of the rate of United Kingdom
corporation tax in effect for the relevant Financial Year of
the Claimant Company (or the average rate calculated on a
time basis where more than one such rate is applicable in
respect of the relevant Financial Year) and the amount of
the surrendered Tax Loss.
(ii) If a Venturer or an Affiliate of a Venturer has a Tax
Loss which, pursuant to the Consortium Provisions, may be
surrendered to the Venture, such Venturer may, at its
election and subject to the consent of the other Venturer,
surrender or cause the surrender of all or a portion of such
Tax Loss to the Venture. The Venture shall make a payment to
the Person surrendering the Tax Loss in an amount equal to
the product of the United Kingdom corporation tax rate in
effect for the relevant Financial Year of the Venture (or
the average rate calculated on a time basis where more than
one such rate is applicable in respect of the relevant
Financial Year) and the amount of the surrendered Tax Loss.
(iii) Any payment required pursuant to paragraph (i) or (ii)
above shall be made nine months after the end of the
relevant accounting period of the party to which the Tax
Loss is surrendered. Appropriate adjusting payments shall be
made in the event that the amount of the
<PAGE>
25
surrendered Tax Loss is adjusted by the Inland Revenue
(including adjustments in the nature of total or partial
disallowance of (x) the surrendered Tax Loss or (y) the
application of consortium relief). In the case of a Tax Loss
surrendered to the Venture pursuant to paragraph (ii) above,
the Venturer which surrenders (or whose Affiliate surrenders)
the Tax Loss shall indemnify and hold harmless the Venture
from and against any interest and penalties payable as a
result of any adjustment made by the Inland Revenue.
(iv) If a Tax Loss is surrendered to the Venture pursuant to
paragraph (ii) above, then for United States federal income
tax purposes, the amount of United Kingdom corporation taxes
deemed to have been paid by the Venture for the relevant
accounting period allocated to QVC shall equal (x) QVC's
Percentage Share of the amount of United Kingdom corporation
taxes which would have been payable by the Venture absent
surrender of the Tax Loss minus (y) the amount of United
Kingdom corporation tax liability saved by the Venture for
the relevant period as a result of Tax Losses surrendered to
the Venture by QVC or its Affiliates.
(v) QVC shall at all times ensure that its Subsidiary QVC Sub
owns its entire Shares in the Venture and that QVC Sub is at
all times a UK resident company for tax purposes.
(c) The Venturers agree to jointly make an election under
Section 247 of the Income and Corporation Taxes Act 1988
(the election permitted under such provision being referred
to herein as the "Section 247 Election") with respect to
dividends paid by the Venture PROVIDED HOWEVER that unless
the Venturer receiving the dividend payment elects to the
contrary (in which case the Section 247 Election shall apply
with respect to any dividend payment to such Venturer and
the Venture shall not account for advance corporation tax
with respect to such dividend payment to such Venturer), the
Venture shall cause such Section 247 Election not to apply
with respect to any dividend payment and the Venture shall
account to the Inland Revenue for advance corporation tax
with respect to dividends in accord with Schedule 13 of the
Income and Corporation Taxes Act 1988. The Venturers agree
to jointly make the Section 247 Election with the Venture
with respect to any payments of interest made by the Venture
to the Venturers.
(d) All references herein to provisions of the Income and
Corporation Taxes Act 1988 shall be deemed to include
references to any successor provisions thereto.
7. RESTRICTIONS ON DISPOSITION OF VENTURE INTERESTS
7.1 Prohibition on Direct Disposition of Venture Interests
(a) BSkyB agrees with respect to BSkyB Sub and QVC agrees
with respect to QVC Sub that, except as otherwise provided
in Clause 7.3:
(i) BSkyB Sub and QVC Sub shall at all times be and
remain the record and beneficial owner of the Shares
purchased by it pursuant to Clause 2.1(a) and of any new
Shares which may hereafter be issued to it by the Venture;
<PAGE>
26
(ii) it will not Dispose of all or any portion of its
Venture Interest or any of such Venturer's rights or
interests under this Agreement (including without limitation
such Venturer's rights to participate in the management of
the Venture); and
(iii) it will not enter into any agreement which gives any
other Person any voting or other rights with respect to such
Venturer's Venture Interest.
(b) QVC and any QVC Affiliate having made a Funding Loan
shall not dispose of all or any portion of the Funding Loans
outstanding to it (including its Funding Loan Note or any
other note evidencing a Funding Loan).
7.2 Subsidiary Status
QVC agrees that:
(i) QVC Sub will at all times remain a Subsidiary of QVC;
(ii) the occurrence of any event which results in QVC Sub
ceasing to be a Subsidiary of QVC shall be deemed to
constitute a Disposition by QVC of its interest in the
Venture in violation of the terms of this Agreement; and
(iii) it will procure that QVC Sub shall at all times fully
comply with its obligations under this Agreement.
BSkyB agrees that:
(i) BSkyB Sub will at all times remain a Subsidiary of BSkyB;
(ii) the occurrence of any event which results in BSkyB Sub
ceasing to be a Subsidiary of BSkyB shall be deemed to
constitute a Disposition by BSkyB of its interest in the
Venture in violation of the terms of this Agreement; and
(iii) it will procure that BSkyB Sub shall at all times
fully comply with its obligations under this Agreement.
7.3 Effect of Prohibited Dispositions
No actual or purported Disposition of:
(a) any Shares or of all or any portion of a Venture Interest; or
(b) the QVC Payment Balance (or any part thereof) (including
any Funding Loan Notes) (except in connection with any
"blanket" bona fide security interest granted by QVC to a
financing entity in the ordinary course of such financing
entity's financing business,
nor any right with respect thereto, whether voluntary or
involuntary, in violation of any provision of this Agreement
shall be valid or effective to grant to any other Person any
right, title or interest in or to such Shares or Venture
Interest (or portion thereof) and the Venturers agree that
all Shares and Funding Loan Notes shall bear an appropriate
legend setting forth such restriction.
<PAGE>
27
8. EVENTS OF DEFAULT: CONSEQUENCES AND REMEDIES; SPECIAL TERMINATION
EVENTS
8.1 Events of Default
An "Event of Default" means, with respect to a Venturer, the
occurrence of any of the following:
(a) the failure by QVC (the "Non-Funding Venturer") to make
any Funding Loan required pursuant to Clause 2.2(b) or
Clause 5.1 when due (a "Defaulted Funding Loan") and such
failure continues for a period of five (5) Business Days
after receipt of notice from BSkyB that such Funding Loan
(or any portion thereof) is overdue (a "Funding Event of
Default") PROVIDED THAT QVC shall not be required to make
any Funding Loan or any portion thereof in excess of the
Agreed Cap as adjusted in accordance with Clause
5.1(f) above;
(b) the Disposition of a Venturer's Shares or all or any
portion of such Venturer's Venture Interest except as
permitted by this Agreement PROVIDED HOWEVER that no Event
of Default shall be considered to have occurred for thirty
(30) days following the involuntary encumbrance of all or
any part of such Shares or Venture Interest if during such
30-day period such Venturer acts diligently to, and does,
remove any such encumbrance, including, but not limited to,
by effecting the posting of a bond to prevent foreclosure
where necessary;
(c) the Disposition by the Parent of a Venturer of all or
any part of such Parent's interest (equity or other) in such
Venturer;
(d) the failure by a Venturer to perform any other material
obligation to be performed by such Venturer hereunder or the
violation by such Venturer of any other material term or
condition hereof, which failure or violation continues for
ten (10) Business Days after written notice thereof from the
other Venturer PROVIDED HOWEVER that with respect to any
failure or violation which if not a failure to pay money:
(i) if such failure or violation is curable but is of such a
nature that it cannot reasonably be cured within such ten
(10) Business Day period; and
(ii) such Venturer in good faith begins efforts to cure such
failure or violation within such ten (10) Business Day
period and continues diligently to do so;
then in such case such Venturer has a reasonable additional
period thereafter to effect the cure.
8.2 Termination of Venture
Upon the occurrence and during the continuance of an Event
of Default, the Venturer not responsible for such Event of
Default (the "Non-Breaching Venturer") may at any time, by
written notice to the Venturer responsible for such Event of
Default (the "Breaching Venturer") elect to terminate the
Venture in which event the Venture shall be liquidated and
dissolved in accordance with Clause 10. If such election is
made, the amount of all damages, losses, costs and expenses
incurred or suffered by the Non-Breaching Venturer as a
result of the Event of Default shall be deducted from any
amounts otherwise payable to the Breaching Venturer in
connection with such liquidation and dissolution and such
amount shall be paid to the Non-Breaching Venturer. To the
extent that the amount of any such damages, losses, and
costs and expenses are uncertain, the Venture shall
establish a reserve fund (a "Reserve Fund") into which shall
be deposited funds equal to
<PAGE>
28
the Non-Breaching Venturer's bona fide estimate of such
amounts. In the event that the Breaching Venturer disagrees
with the amount of such estimate, the amount of such
estimate shall be determined by an independent appraiser who
shall be mutually selected by the Venturers. The Breaching
Venturer shall bear all fees and costs with respect to the
use of such independent appraiser PROVIDED HOWEVER that in
the event that the appraiser determines that the
Non-Breaching Venturer's estimate with respect to the amount
of damages, losses, costs and expenses suffered by the
Non-Breaching Venturer (a) exceeds the appraiser's estimate
by more than 10%, the Non-Breaching Venturer shall bear all
fees and costs with respect to the use of such appraiser or
(b) exceeds the appraiser's estimate by more than 5% but
less than 10%, the Venturers shall equally share the fees
and costs with respect to the use of such appraiser. All
monies placed in the Reserve Fund shall be deducted from any
amounts otherwise payable to the Breaching Venturer in
connection with such liquidation and dissolution. Upon a
final settlement of the amount of such damages, losses,
costs and expenses, the Non-Breaching Venturer shall
receive all amounts due to it from the Reserve Fund pursuant
to the second sentence of this Clause 8.2. In the event that
any monies remain in the Reserve Fund after the
Non-Breaching Venturer has been paid in full, such monies
shall be paid to the Breaching Venturer (to the extent
otherwise distributable to him pursuant to the terms of
Clause 10). Notwithstanding any other provision of this
Agreement, in the event that the only Event of Default is an
Event of Default under Clause 8.1(a), QVC shall in no event
be liable for damages in excess of an amount equal to the
Agreed Cap minus the QVC Payment Balance as of the date of
the Event of Default.
8.3 Additional Remedies
Notwithstanding any provision of Clause 8.2 to the contrary,
the foregoing provisions of this Clause 8 shall be in
addition to and not in limitation of any other rights or
remedies that the Venture or the Non-Breaching Venturer may
have against the Breaching Venturer or its Affiliates at law
or in equity, pursuant to statute or regulation or otherwise
and the Venture and the Non-Breaching Venturer shall be
entitled to recover from the Breaching Venturer in an
appropriate proceeding any damages incurred by either of
them in connection with such Event of Default.
9. BUSINESS OF THE VENTURE
9.1 Restrictive Provisions
(a) Each Venturer and Parent covenants and agrees that
during the Term, except as permitted under this Clause 9.1,
it will not, directly or indirectly:
(i) operate, own any interest in or participate in the
profits of a program service similar in theme or content to
the Service and distributed in any language via television
in any form, whether pay, free-to-air, satellite or
terrestrially delivered, directed at audiences in the
Territory (a "Restricted Program Service") except through
the Venture; and
(ii) become or remain interested in any Person (other than
the Venture) engaged in a Restricted Program Service in any
capacity, including, without limitation, as a shareholder,
director, partner, principal, employee, agent or consultant.
(b) Without derogating from Clause 9.1(a), each Venturer and
Parent covenants and agrees that during the Term, except as
permitted under this Clause 9.1, it (the "First
Participant") will not, directly or indirectly:
(i) operate, own any interest in or participate in the
profits of a program service similar in theme or content to
the Service and distributed in any language via television
in any form, whether pay, free-to-air, satellite or
<PAGE>
29
terrestrially delivered, directed at audiences in the
Transponder Footprint (a "Restricted European Program
Service") except through the Venture or a venture structure
that complies with Clause 9.1 (c));
(ii) become or remain interested in any Person (other than
the Venture or a venture structure which complies with
Clause 9.1(c)) engaged in a Restricted European Program
Service in any capacity, including, without limitation, as a
shareholder, director, partner, principal, employee, agent
or consultant:
(a "New Business") except as set out in Clause 9.1(c) or as
otherwise approved by the other Venturer ("Second
Participant").
(c) a proposal for a New Business complies with the
provisions of this Clause 9.1(c) if:
(i) the only equity holders are BSkyB and QVC (or their
respective Affiliates) (each a "Participant") in equal
shares together with such other Persons as BSkyB and QVC
mutually approve;
(ii) each Participant bears 50% of the new venture's
investment costs and no Participant receives any percentage
of gross sales (other than equally with the other
Participant) and no Participant is entitled to interest on
recoupment of capital expenditure incurred except pari passu
with the other Participant;
(iii) the First Participant gives to the Second Participant
notice in writing (an "Offer Notice") setting out a business
plan and other terms in respect of the New Business that
comply with sub-paragraph (ii) above ("Offered Terms"). The
Offered Terms shall in all respects be bona fide arms length
terms capable of acceptance by the Second Participant and
not providing any rights or benefits to the First
Participant inconsistent with sub-paragraph (ii) above;
(iv) if the Second Participant does not accept the Offered
Terms within 28 days of the date on which the Offer Notice is
given to it, the First Participant shall be free to proceed
on the Offered Terms with another Person but shall not
proceed on terms more favourable to any other Person without
giving a fresh Offer Notice to the Second Participant in
accordance with this Clause 9.1(c); and
(v) if the First Participant having given an Offer Notice to
the Second Participant (the terms of which Offer Notice are
not accepted by the Second Participant) shall not conclude
terms with another Person (or commence in its own right a
business being no broader than as specified in the Offer
Notice) within 3 months of the date on which an Offer Notice
is given, the First Participant may not commence the New
Business without giving a further Offer Notice in accordance
with this Clause 9.1(c).
(d) BSkyB shall not be in violation of this Clause 9.1 by
virtue of:
(i) BSkyB's ownership and operation of its subscriber
management system based at Livingston, Scotland;
(ii) BSkyB distributing any program service as part of
the Basic Tier (or any other tier or package or programming)
SAVE THAT BSkyB shall
<PAGE>
30
only distribute a program service directly competitive with
the Channel if they are judged by a court or similar
regulatory authority of competent jurisdiction to be in
violation of any applicable law or regulation;
(iii) BSkyB selling and promoting premiums and other
merchandise and Sky-branded goods (whether or not such goods
are advertised on BSkyB's programme services) which premiums,
merchandise and goods are intended to promote the business
of BSkyB;
(iv) BSkyB carrying advertisements on air whereby viewers
are invited to call telephone numbers or make other responses
to obtain goods or services which are advertised (subject to
applicable ITC advertising regulations or standards).
(e) QVC shall not be in violation of this Clause 9.1 as a
result of its Spanish or Portuguese language broadcast
services conducted or to be conducted pursuant to its
agreement with Grupo Televiso.
(f) Any Venturer, either alone or in combination with any
other Person, without violating any provision of this
Agreement or any duty of such Venturer to the Venture or any
other Venturer and without incurring any obligation or
liability to the Venture or any other Venturer, may engage
in activities that would otherwise be prohibited pursuant to
Clause 9.1 if:
(i) such Venturer has given written notice to the other
Venturer specifying the nature of such activities; and
(ii) such Venturer receives the written approval of the
other Venturer specifically authorizing such Venturer to
exploit such activities outside of the Venture.
9.2 Other Activities; Right to compete
Any Venturer, and any Affiliate of any Venturer, may,
subject only to the express provisions of this Clause 9,
engage, directly or indirectly (including without limitation
through and by means of an equity or profits interest in any
other Person), in other businesses or Ventures of any nature
or description, without regard to whether such businesses or
Ventures are or may be deemed to be competitive with the
Business. Any term of this Agreement to the contrary
notwithstanding (other than and subject only to the express
provisions of this Clause 9), no Venturer or any Affiliate
of any Venturer shall be obligated to present or offer to
the Venture any particular investment or business
opportunity, regardless of whether the Venture could take
advantage of such opportunity if it were presented to the
Venture, but may avail itself of any such opportunity for
its own behalf. Except to the extent otherwise expressly
prohibited or required by this Agreement, each Venturer and
its Affiliates has the right to act in any manner it
believes to be in its own best interests without regard to
the interests of the Venture.
9.3 Acknowledgments
The parties agree and acknowledge that:
(a) all trademarks, copyrights, patents, trade secrets,
"trade dress" and other similar proprietary rights, property
and information now or hereafter owned by QVC and used by
the Venture shall remain the sole property of QVC but shall
wherever possible be made available to the Venture during
the term of the Venture on the basis that the Venture shall
acquire no property rights or goodwill therein other
<PAGE>
31
than the right to use the same during the term of the
Venture as licensee of QVC provided, however, that upon
termination of the Venture BSkyB and its Affiliates shall
not use the initials "QVC" alone or in conjunction with any
other words in any form; and
(b) all proprietary and intellectual property rights in and
to the SMS and the database of Subscribers shall remain the
exclusive property of BSkyB and notwithstanding anything
else in this Agreement in no circumstances shall BSkyB be
under any liability to disclose the identity or addresses of
Subscribers.
9.4 Additional QVC Covenants
(a) *
(b) QVC shall make available, and shall cause its Affiliates
to make available, to the Venture, in the form of a license
at no cost (other than copying, shipping and conversion
costs), any on-air IDs that are produced for any programming
service of QVC or its Affiliated entities or licensees in the
United States or elsewhere in the world.
9.5 Additional BSkyB Covenants
(a) *
(b) BSkyB agrees to provide uplinking services at cost to
the Venture.
(c) BSkyB agrees to provide the following administrative
services at cost to the Venture: office space, computer
services, finance, payroll and traffic.
9.6 Covenants of the Venturers
BSkyB hereby agrees that, during the Term, each of BSkyB and
BSkyB Sub shall remain a limited company under the Companies
Act 1985. QVC hereby agrees that, during the Term, QVC Sub
shall remain a company under the Companies Act 1985.
9.7 Transponder
(a) BSkyB shall provide an Astra Transponder to the Venture
* . Such provision will be achieved by BSkyB
sub-leasing an Astra Transponder to the Venture in
accordance with a sub-lease ("the Transponder Sub-lease")
attached hereto as Exhibit J. A copy of the terms of the
head lease of the Astra transponder (the "Transponder
Lease") has been supplied to the Venture and to QVC, which
shall each be deemed to have full knowledge of its contents
and shall raise no requisition, enquiry or objection in
relation to it. The Venture as from the Operational Start
Date (as defined in the Transponder Lease) shall (x)
__________
* Subject to Application for Confidential Treatment pursuant to Rule 24b-2.
<PAGE>
32
pay the rent and other moneys payable under the Transponder
Sub-Lease to BSkyB or at QVC's election, directly to *
PROVIDED THAT where payment is made direct reasonable prior
notice shall be given to BSkyB to avoid multiplicity of
payment and (y) observe and perform the covenants on the
part of the lessee and the conditions contained in the
Transponder Lease and (z) indemnify BSkyB and QVC against
all claims, demands, proceedings, damages, costs and
expenses arising out of or incidental to their breach,
non-observance or non-performance by the Venture. QVC shall
join in the Transponder Sub-Lease to give the guarantee
therein. The parties shall use all reasonable endeavours to
obtain, and will pay the incidental costs for obtaining,
* consent to the sub-lease and QVC shall ensure that
the Venture shall co-operate in obtaining such consent by
supplying such information and references as may reasonably
be required. The Venture shall indemnify BSkyB and QVC
against all or any costs, claims, demands and losses
incurred or suffered by BSkyB or QVC as a result of the use
of the Transponder by the Venture as sub-lessee.
(b) QVC hereby guarantees to BSkyB that the Venture shall
make all payments due to BSkyB under Schedule VI of the
Transponder Sub-Lease (including payments due pursuant to
any indemnity) or at QVC's election, directly to *
PROVIDED THAT where payment is made direct reasonable prior
notice shall be given to BSkyB to avoid multiplicity of
payment, in either case, on the due dates and in the event
of any failure by the Venture to make any such payments QVC
will on demand make payments to BSkyB on a full indemnity
basis PROVIDED THAT any payments made by QVC pursuant to
such guarantee shall be treated as Funding Loans to the
Venture and QVC's aggregate liability under the said
guarantee shall not exceed the Agreed Cap less the QVC
Payment Balance. For the avoidance of doubt, QVC shall have
no further liability under such guarantee from the earlier
of:
(i) the termination of this Agreement, the Venture or the
Transponder Sub-Lease (whichever shall first occur);
(ii) the QVC Payment Balance equalling or exceeding the
Agreed Cap; and
(iii) the Break Even Date.
(c) On the termination of the Transponder Sub-Lease for any
reason the Astra Transponder shall revert to BSkyB.
(d) BSkyB represents and warrants to QVC that:
(i) BSkyB has negotiated the terms of the head lease with *
on a fair basis and that there is no cross subsidisation
between that lease and any other lease of transponder
capacity by BSkyB PROVIDED THAT BSkyB has disclosed to QVC
the arrangements between * and BSkyB in the event that
BSkyB uses an alternate satellite system for digital
transmission; and
(ii) all necessary consents, approvals and permits have been
or will be obtained in connection with the execution of the
Transponder Sub-Lease.
9.8 Sub-Lease of Premises
(a) The main business premises of the Venture shall be at
Block A MarcoPolo House, Queenstown Road, London, SW8 (the
"First Premises") and the adjoining Arches Nos 94 to 96
inclusive) and part Arch 93 Queenstown Road, London, SW8
(the "Second Premises") (the First Premises and the Second
Premises
__________
* Subject to Application for Confidential Treatment pursuant to Rule 24b-2.
<PAGE>
33
together called the "Premises"). The First Premises are
currently held by BSkyB under a Lease dated 23 December 1988
between Universities Superannuation Scheme Limited (the
"Landlord") (1) and British Satellite Broadcasting Limited
(BSkyB's former name) (2) (the "First Lease") and the Second
Premises are currently held under a lease dated 1 October
1992 between the Landlord (1) and BSkyB (2) (the "Second
Lease") (the First Lease and the Second Lease together
called the "Leases"). The parties shall do all things
reasonably required of them to ensure that the Venture shall
take a sub-lease of each of the First Premises and the
Second Premises in the form of the draft sub-leases attached
hereto as Exhibits G and H, respectively (the "Sub-Leases").
(b) The term of the Sub-Lease of the First Premises shall
commence on 24 June 1993 and expire on the day before the
expiry of the term of the First Lease and the term of the
Second Lease shall commence on 24 June 1993 and expire on
the day before the expiry of the term of the Second Lease.
(c) QVC shall guarantee the payments of the Venture
thereunder in the terms of the guarantee contained in the
Sub-Leases.
(d) BSkyB shall at the cost of the Venture use all
reasonable endeavours to obtain the reversioner's licence to
the grant of the Sub-Leases. QVC shall provide all necessary
information and lend all assistance as may reasonably be
required to obtain the licences. The Venture shall join in
the licences to covenant direct with the Landlord to observe
and perform the covenants on the part of the Venture
contained in the Sub-Leases.
(e) From 24 June 1993 BSkyB shall permit the Venture to
occupy the Premises as licensee only and the Venture shall
with effect from the 24 June 1993:
(i) pay to BSkyB a licence fee equal to the rents reserved by
and other amounts due to the Landlord pursuant to the
Sub-Leases on the dates due for the payment of such rents
and other amounts pursuant to the Sub-Leases;
(ii) pay and discharge all rates and other outgoings and
insurance premiums in respect of the Premises and all
charges for gas, electricity, water, telephones and other
services consumed on the Premises (apportioned on a daily
basis) (or in the absence of direct assessment on the
Venture will reimburse BSkyB on demand for any such
outgoings or charges);
(iii) observe and perform all covenants and conditions on
the part of the tenant contained in the Sub-Leases as if the
same had been granted and shall indemnify BSkyB for any loss
suffered as a result of any breach, non-observance or
non-performance of such covenants and conditions; and
(iv) assume all third party public liability and employer's
liability risks attached to the occupation and use of the
Premises and keep BSkyB indemnified in respect of any claim
arising out of such risks.
(f) In the event that the requisite reversioner's licences to
the grant of the Sub-Leases has not been granted by the
date six (6) months after the date of this Agreement BSkyB
shall at the request of the Venture apply to the court for
an order declaring that the reversioner's licences have been
unreasonably withheld or delayed.
<PAGE>
34
(g) Each of the Sub-Leases shall be granted on the date
seven days after the date of the relevant reversioner's
licence (or an order of the court declaring that such
licence has been unreasonably withheld) provided that if
such licence has not been granted (or order made) by the
date nine months after the date of this Agreement the
Sub-Leases shall forthwith be completed in any event.
(h) Copies of the Leases have been supplied to the Venture
and the Venture shall accept BSkyB's title to the grant of
the Sub-Leases without any objection requisition or enquiry
PROVIDED THAT BSkyB shall not have knowingly done or
permitted to be done anything which adversely affects the
title between the date hereof and completion of the
Sub-Lease. Within one month of the date hereof BSkyB shall
furnish to QVC or QVC's solicitors evidence reasonably
satisfactory to QVC that the charge referred to in entries
numbers 1 and 2 of the Charges Register of BSkyB's title
number TGL14416 has been released.
(i) The Venture shall indemnify BSkyB and QVC against all or
any costs, claims, demands and losses incurred or suffered
by BSkyB or QVC as a result of:
(i) the occupation of the Premises by the Venture as
licensee; and/or
(ii) the completion of the grant of the Sub-Leases,
pursuant to the Agreement without in either case the
requisite consent or licence of the reversioner pursuant to
the Leases.
(j) QVC hereby guarantees to BSkyB that the Venture shall make
all rent payments due to BSkyB under the Sub-Leases
(including payments due pursuant to any indemnity) or at
QVC's election, directly to * PROVIDED THAT where payment
is made direct reasonable prior notice shall be given to
BSkyB to avoid multiplicity of payment, in either case, on
the due dates, and in the event of any failure by the
Venture to make any such payments QVC will on demand make
payments to BSkyB on a full indemnity basis PROVIDED THAT
any payments made by QVC pursuant to such guarantee shall be
treated as Funding Loans to the Venture and QVC's aggregate
liability under the said guarantee shall not exceed the
amount of the Agreed Cap less the QVC Payment Balance. For
the avoidance of doubt, QVC shall have no further liability
under the said guarantee from the earlier of:
(i) the termination of this Agreement, the Venture or the
Sub-Leases (whichever shall first occur); and
(ii) the QVC Payment Balance equalling or exceeding the
Agreed Cap; and
(iii) the Break Even Date.
(k) BSkyB shall have the right to remove from the Premises
such equipment as shall not reasonably be required for the
conduct of the Business in the reasonable discretion of the
Venture.
9.9 Hiring Restrictions
Each Venturer covenants and agrees that during the Term such
Venturer shall not, and shall cause each of its Affiliates
not to, solicit, directly or indirectly, any of the
Venture's employees (other than employees who have
previously been employed by such Venturer) to leave the
employ of the Venture or otherwise interfere with the
relationship of the Venture with any Person employed by the
Venture. Notwithstanding anything to the
__________
* Subject to Application for Confidential Treatment pursuant to Rule 24b-2.
<PAGE>
35
contrary contained herein, the Board of Directors may grant
exceptions to the restrictions contained in this Clause 9.9
on a case by case basis.
9.10 Rights and Remedies Upon Breach
If a party (either directly or by virtue of the activities
of any of its Affiliates) breaches, or threatens to commit a
breach of, any of the provisions of Clauses 9.1, 9.9 or 9.12
(collectively, the "Restrictive Covenants"), the other
parties and the Venture shall each have the following rights
and remedies, each of which rights and remedies shall be
independent of the others and severally enforceable, and
each of which is in addition to, and not in lieu of, any
other rights and remedies available to such parties or the
Venture under law or in equity:
(a) the right and remedy to have the Restrictive Covenants
specifically enforced by any court having jurisdiction, it
being acknowledged and agreed that any such breach or
threatened breach will cause irreparable injury to such
other party's Venture Interest and the Venture and that
money damages will not provide an adequate remedy to such
other party or the Venture; and
(b) the right and remedy to require such party to account
for and pay over to the Venture, all compensation, profits,
monies, accruals, increments or other benefits derived or
received by such Venturer or any of its Affiliates as the
result of any transactions constituting a breach of the
Restrictive Covenants.
Nothing in this Clause 9.10 shall be construed to limit the
right of any party or the Venture to collect money damages
in the event of a breach of any Restrictive Covenant.
9.11 Reasonableness; Severability
(a) Each of the parties acknowledges and agrees that the
Restrictive Covenants are reasonable and valid in scope
(geographical, temporal and otherwise) and in all other
respects and that it shall not raise any issue of
reasonableness as a defence in any proceeding to enforce any
such Restrictive Covenants.
(b) In the event that any court or other competent
regulatory authority determines that any of the Restrictive
Covenants, or any part thereof, is unenforceable against any
party because of the duration or scope (geographic or
otherwise) of such provision, but would be valid if some
part thereof were deleted or the duration or scope thereof
were reduced, such restrictions shall apply with such
modifications as shall be necessary to make them effective
with the maximum competitive restraint and consent to such
revision is hereby granted.
9.12 Confidential Information
Each Venturer, Parent and its Affiliates:
(i) shall use any and all Confidential Information only for
purposes of the Venture and shall not use such Confidential
Information for the benefit of or in connection with any
other business or enterprise of such Venturer or any of its
Affiliates; and
(ii) shall, and shall cause its and their respective
officers, directors, employees, attorneys, accountants and
agents (collectively "Agents"), to keep secret and retain in
strictest confidence any and all Confidential Information,
and shall not disclose such Confidential Information, and
shall cause its Agents not to disclose such Confidential
Information, to any Person other than such Venturer, its
Affiliates, the Venture or their respective Agents, except
for such disclosures as may be required by law, disclosures
to such Venturer's counsel, or disclosures
<PAGE>
36
pursuant to any listing agreement with, or the rules or
regulations of, any national securities exchange on which
securities of such Venturer or any such Affiliate are listed
or traded (in which event the Venturer making such
disclosure or whose Affiliates or Agents are making such
disclosure shall so notify the other Venturer as promptly as
practicable (and if possible, prior to making such
disclosure) and shall seek confidential treatment of such
information) as may be necessary to establish or enforce its
rights hereunder. The obligations under this Clause 9.12
shall survive the termination of the Venture, any Venturer's
withdrawal therefrom and any Person ceasing to be an
Affiliate of a Venturer for a period of three (3) years. Any
press release concerning the formation or operation of the
Venture must be approved by the Board of Directors prior to
release.
10. TERMINATION OF THE VENTURE
10.1 Termination
Termination of this Agreement shall take place upon the
first to occur of the following:
(i) the mutual agreement of the Venturers to terminate the Venture;
(ii) any termination of the Venture in accordance with Clauses 2.5 or 2.6;
(iii) any termination of the Venture in accordance with Clause 5.3(a);
(iv) any termination of the Venture in accordance with Clause 8.2; or
(v) (x) the commencement by either Venturer or its Parent of
any Bankruptcy Proceeding; (y) the making by either Venturer
of a general assignment for the benefit of its creditors; or
(z) the commencement against either Venturer or its Parent
of any Bankruptcy Proceeding which either:
(A) results in the entry of an order for relief or any such
adjudication or appointment; or
(B) remains undismissed, undischarged or unbonded for a
period of sixty (60) days;
(vi) if the Astra Transponder is unavailable for in excess
of sixty (60) days and either no back-up or alternative
transponder or other delivery system acceptable to each
Venturer (such acceptance not to be unreasonably withheld)
is made available to the Venture during that time PROVIDED
THAT before exercising such right to terminate the Venture
shall have regard to the cable distribution of the Channel:
(vii) withdrawal of any license or consent materially
necessary for the conduct of the Business;
(the events set forth in (i) - (vii) of this Clause shall be
collectively referred to herein as "Termination Events").
10.2 Consequences of a Termination
(a) Upon the occurrence of any Termination Event, the
Venture shall be liquidated and dissolved in accordance with
the applicable provisions of the laws of England and Wales.
In such event, the Venturers hereby agree to take all such
steps as shall be reasonably necessary to ensure that the
Venture is voluntarily wound-up promptly and that the
liquidator shall be an independent chartered accountant to
be appointed by agreement between the Venturers or, in the
event
<PAGE>
37
of default of such agreement, on the application of either
Venturer by the then current, President of the Institute of
Chartered Accountants of England and Wales. Unless the Break
Even Date has occurred QVC agrees that, in the event of a
liquidation or dissolution of the Venture, if the Board of
Directors of the Venture is unable to make the
Statutory-Declaration of solvency required by Section 89 of
the Insolvency Act 1986 or would have been unable to make
such Declaration had it been proposed to wind the Venture up
voluntarily, QVC shall forthwith make such non-returnable
capital contributions to the Venture as shall be necessary
to enable the Board of Directors to make such Declaration
PROVIDED THAT the amount of such contribution shall not
exceed an amount which when added to the QVC Payment
Balance, exceeds the Agreed Cap.
(b) The Parties hereby agree that each of the Ancillary
Agreements shall terminate upon the dissolution of the
Venture PROVIDED HOWEVER that no termination of any
Ancillary Agreement shall relieve any party thereto of any
of its obligations or liabilities thereunder arising prior
to (including, without limitation, any obligations or
liabilities arising out of or based upon transactions or
events occurring prior to) the date of such termination.
10.3 *
11. REPRESENTATIONS AND WARRANTIES
11.1 Representations and Warranties
In order to induce each other to enter into this Agreement
and to perform its obligations hereunder, each party hereby
severally represents and warrants to each other party that:
(a) it is a corporation duly organized and validly existing
under the laws of the jurisdiction of its incorporation and
it has all corporate power and authority necessary to carry
on its business as it is now being conducted, to enter into
this Agreement and to perform its obligations hereunder;
(b) all corporate and other proceedings required to be taken
by or on behalf of such Venturer to authorize it to enter
into and carry out this Agreement have been duly taken, and
this Agreement has been duly executed and delivered by, and
constitutes a legal, valid and binding obligation of, such
Venturer, enforceable aqainst such Venturer in accordance
with its terms except:
__________
* Subject to Application for Confidential Treatment pursuant to Rule 24b-2.
<PAGE>
38
(i) as such enforceability may be limited by bankruptcy,
insolvency, or other similar laws affecting the enforcement
of creditors rights generally; and
(ii) to the extent that equitable remedies, such as
injunctive relief or specific performance, are within the
discretion of courts of competent jurisdiction;
(c) the execution and delivery of this Agreement, the
performance by such Venturer of its terms, and the
consummation of the transactions contemplated hereby, will
not conflict with, or result in any violation of, or default
or loss of a benefit under, or permit the acceleration of
any obligation under:
(i) the certificate of incorporation, articles of association,
by-laws or memorandum of association (or comparable
instruments with different names) of such Venturer;
(ii) any contract, agreement or commitment of such Venturer;
or
(iii) any permit, concession, grant, franchise, license,
judgment, order, decree, statute, law, ordinance, rule or
regulation (excluding any UK or EC competition laws, rules
and regulations) applicable to such Venturer or to its
respective properties, other than such conflicts,
violations, defaults or losses which do not and will not,
individually or in the aggregate, have a material adverse
effect on the business or financial condition of such
Venturer or the ability of such Venturer to consummate the
transactions contemplated hereby;
(d) no consent, approval, order, or authorization of, or
registration, declaration or filing with, any Governmental
Authority is required in connection with the execution and
delivery of this Agreement by such Venturer or the
consummation by such Venturer of the transactions
contemplated hereby; and
(e) All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried on by
such Venturer or its Affiliates directly with the other
Venturer or Affiliates thereof and without the intervention
of any person who, either as a result of any act of such
Venturer or otherwise to the knowledge of such Venturer, has
or will have a valid claim against any of the Venturers or
their Affiliates for a finder's fee, brokerage commission or
other like payment with respect to this Agreement or such
transactions.
11.2 Additional Representatlons
In order to induce BSkyB to enter into this Agreement and to
perform its obligations hereunder, QVC hereby represents and
warrants to BSkyB that QVC Sub is a Subsidiary of QVC. In
order to induce QVC to enter into this Agreement and to
perform its obligations hereunder, BSkyB hereby represents
and warrants to QVC that BSkyB Sub is a SubsidiarY of BSkvB.
11.3 Survival
The representations and warranties contained in this
Agreement shall survive the termination of this Agreement
and any investigation made by or on behalf of any of the
parties hereto at any time with respect thereto.
<PAGE>
39
12. MISCELLANEOUS
12.1 Entire Agreement; Construction
This Agreement, together with the Ancillary Agreements and
the other Exhibits and Annexures hereto (and any other
agreements expressly contemplated hereby or thereby),
constitute the entire agreement and understanding and
supersede all other prior agreements and understandings,
both written and oral, between the Venturers or their
Affiliates or any of them with respect to the subject matter
hereof (including without limitation the Heads of Agreement
signed between BSkyB and QVC in Los Angeles, California, USA
on 5 June 1993 and the amendment thereto signed between
BSkyB and QVC on 17 August 1993, copies of which are
attached hereto as Exhibit K). In construing this Agreement,
none of the parties hereto shall have any term or provision
construed against such party solely by reason of such party
having drafted the same.
12.2 Governing Law
This Agreement shall be governed by and construed in
accordance with the laws of England and Wales and each party
hereby consents to the non-exclusive jurisdiction of the
Courts of England and Wales.
12.3 Third Party Beneficiaries
None of the provisions of this Agreement, including, without
limitation, Clause 10, shall be for the benefit of or
enforceable by any third party, including, without
limitation, any creditor of the Venture or of any Venturer.
No such third party shall obtain any right under any
provision of this Agreement or shall by reason of any such
provision make any claim in respect of any debt, liability,
or obligation (or otherwise) against the Venture or any of
the Venturers.
12.4 Expenses
Each party hereto shall assume and pay its own expenses
incidental to the negotiation and execution of this
Agreement, the preparation for carrying it into effect and
the consummation of the transactions contemplated hereby.
Without limiting the generality of the foregoing, each
Venturer shall pay all legal and accounting fees, and other
fees to consultants and advisers incurred by it, including,
if any, brokers' or investment banking fees relating to this
Agreement and such transactions and shall indemnify and hold
the Venture and the other Venturer free and harmless from
any of such expenses and fees. It is understood and agreed
that no legal fees or accounting fees for services rendered
relating to this Agreement shall be paid or assumed by the
Venture.
12.5 Waivers and Amendments
This Agreement may be amended, superseded, cancelled,
renewed or extended and the terms hereof may be waived, only
by a written instrument signed by both Venturers, or, in the
case of a waiver, by the Venturer waiving compliance. Except
where a specific period for action or inaction is provided
herein, no failure on the part of any Venturer to exercise,
and no delay on the part of a Venturer in exercising, any
right, power or privilege hereunder shall operate as a
waiver thereof; nor shall any waiver on the part of a
Venturer of any such right, power or privilege, or any
single or partial exercise of any such right, power or
privilege, preclude any other or further exercise thereof or
the exercise of any other right, power or privilege.
<PAGE>
40
12.6 Notices
All notices, requests, demands, and other communications
required or permitted to be given or delivered under or by
reason of the provisions of this Agreement shall be in
writing and shall be given by certified or registered mail,
postage prepaid, or delivered by hand or by nationally
recognized air courier services or in the form of telegram,
directed to the address or telecopy number of such Person
set forth below:
If to the Venture, to:
MarcoPolo House
Queenstown Road
London SW8 4NQ
Attn: Peter Ridsdale
Telecopy number: (44.71) 627 6103
with a copy to:
all other Persons specified in this notice section
If to BSkyB or BSkyB Sub:
6 Centaurs Business Park
Grant Way
Isleworth
Middlesex TW7 5QD
Telecopy number: (44.71) 705 3008
Attn: Chris Mackenzie
with a copy to:
Telecopy number: (44.71) 705 3254
Attn: Deanna Bates
If to QVC or QVC Sub:
Goshen Corporate Park
West Chester
Pennsylvania 19380
Telecopy number: (215) 430 2380
Attn: Michael Boyd and Neal Grabell
Any such notice shall become effective seven (7) Business
Days after posting in the United States Mail or the United
Kingdom Mail as aforesaid or, in the case of notices
delivered by hand, air courier service or telegram, when
received as confirmed by receipt or other confirmation
signed by the receiving party. A party serving notice by
post shall use its best endeavours to copy the receiving
party by telecopy. From time to time any party hereto may
designate a new address or telecopy number for purposes of
notice hereunder by notice to the other party hereto.
12.7 Counterparts
This Agreement may be executed in any number of
counterparts, each of which shall be an original and all of
which shall together constitute one and the same instrument.
It shall not be necessary for any counterpart to bear the
signature of all parties hereto.
<PAGE>
41
12.8 Severability
If any provision of this Agreement, or the application of
such provision to any Person or circumstance, shall be held
invalid, the remainder of this Agreement or the application
of such provision to other Persons or circumstances shall
not be affected thereby; provided, however, that the parties
shall negotiate in good faith worth respect to an equitable
modification of the provision or application thereof held to
be invalid. To the extent that it may effectively do so
under applicable law, each party hereto hereby waives any
provision of law which renders any provision of this
Agreement invalid, illegal or unenforceable in any respect.
12.9 Successors and Assigns
Except as otherwise specifically provided in this Agreement,
this Agreement shall be binding upon and inure to the
benefit of the Venturers, and their legal representatives,
successors and assigns.
12.10 No Right of Set-Off
No Venturer shall be entitled to offset against any of its
financial obligations to the Venture under this Agreement,
any obligation owed to it or any of its Affiliates by any
other Venturer or any of such other Venturer's Affiliates.
12.11 Headings; Clause References
The Clause headings contained in this Agreement are for
reference purposes only and are to be given no effect in the
construction or interpretation of this Agreement. All Clause
and paragraph references contain herein shall refer to this
Agreement unless otherwise specified.
12.12 No Partnership
Nothing contained herein shall be deemed to create any
relationship of partnership or agency, nor shall any similar
relationship be deemed to exist by virtue of this Agreement
between any of BSkyB or any of its Affiliates on the one
hand and QVC or any of its Affiliates on the other.
12.13 Restrictive Trade Practices Act
No provisions of this Agreement or of any agreement or
arrangement of which it forms part, by virtue of which the
agreement constituted by all of the foregoing is subject to
registration (if such be the case) under the Restrictive
Trade Practices Act 1976 and 1977, shall take effect until
the day after particulars of such agreement have been
furnished to the Director General of Fair Trading pursuant
to Clause 24 of the Restrictive Trade Practices Act 1976.
12.14 Conflicts with Ancilliary Agreements
In the event of any conflict between the terms and
provisions of this Agreement and those contained in any
Ancillary Agreement, the terms and provisions of this
Agreement shall govern.
12.15 Conflicts with Memorandum of Association and Articles
of Association
In the event of any conflict between the terms and
provisions of this Agreement and those contained in the
Memorandum of Association and Articles of Association of the
Venture, the terms and provisions of this Agreement shall
govern.
<PAGE>
42
12.16 Termination
This Agreement (including the provisions of Clause 9) shall
terminate upon the consummation of the dissolution of the
Venture PROVIDED HOWEVER that no termination of this
Agreement shall relieve either Venturer of any liability
under this Agreement prior to (including, without
limitation, any obligations or liabilities arising out of or
based upon transactions or events occurring prior to) the
date of such termination.
AS WITNESS the hands of the respective duly authorized
officers of each of the parties hereto on the date first
above written.
SIGNED By QVC NETWORK, INC. )
by MICHAEL C BOYD in the )
presence of: ) MICHAEL C BOYD
Ann Leinhauser DIRECTOR PRESIDENT AND
CHIEF OPERATING OFFICER
Title
SIGNED by BRITISH SKY )
BROADCASTING LIMITED )
by RICHARD BROOKE in the )
presence of: ) RICHARD BROOKE
Michael Stern SECRETARY
Title
SIGNED by PRECIS (1192) )
LIMITED by CHRISTOPHER MACKENZIE)
in the presence of: ) CHRISTOPHER MACKENZIE
Michael Stern ) DIRECTOR
) Title
SIGNED by QVC BRITAIN ) MICHAEL C BOYD
by MICHAEL C BOYD and NEAL S ) NEAL S GRABELL
GRABELL in the presence of: )
)
Ann Leinhauser ) DIRECTORS
) Title
SIGNED By QVC by CHRISTOPHER )
MACKENZIE in the presence of: )
) CHRISTOPHER MACKENZIE
Michael Stern ) DIRECTOR
) Title
<PAGE>
43
EXHIBITS
A. Exhibit B-1 -- Memorandum of Association.
B. Exhibit B-2 -- Articles of Association.
C. Exhibit C -- Five Year Operating Plan.
D. Exhibit D -- 1994 Annual Budget.
E. Exhibit E -- Funding Loan Note.
F. Exhibit F -- DTH Distribution Agreement.
G. Exhibit G -- the Sub-Lease (in respect of the First Lease).
H-I. Exhibit H -- the Sub-Lease (in respect of the Second Lease).
J-K. Exhibit J -- Transponder Sub-Lease.
L. Exhibit K -- Heads of Agreement (with amendment).
<PAGE>
EXHIBIT 10.53
LICENSE AGREEMENT
This License Agreement (the 'Agreement') is made as of the 15th day of
March, 1994 by and between Silvercup Studios Associates Limited Partnership
('Silvercup'), a Connecticut Limited Partnership, authorized to do business in
the state of New York, with its principal offices located at 42-22 22nd Street,
Long Island City, in the County of Queens, City of New York, State of New York,
11101, and Q2 Inc. ('Q2') a New York corporation with offices presently located
at 745 Fifth Avenue, Suite 2403, New York, New York 10151.
WHEREAS, Silvercup presently occupies and is empowered to grant licenses
for the use of the building located at 42-22 22nd Street, Long Island City, New
York 11101 a/k/a/ the Silvercup Studios (the 'Building'); and
WHEREAS, at the Building, Silvercup provides broadcast and cable televison
programming facilities including, but not limited to, studio, control, edit and
storage facilities on a twenty-four hour per day, seven (7) day per week basis
for use by broadcast and cable television programmers (collectively the
'Programming Facilities'); and
WHEREAS, Silvercup wishes to allow Q2 to use and occupy a portion of the
Programming Facilities ('the Q2 Programming Facilities') on the terms and
conditions hereinafter set forth; and
WHEREAS, at the Building, Silvercup also provides office space for use by,
among others, the entities utilizing the Programming Facilities (the 'Office
Space'); and
WHEREAS, Silvercup wishes to allow Q2 to use and occupy a portion of the
Office Space (the 'Q2 Office Space') on the terms and conditions hereinafter set
forth.
NOW, THEREFORE, in consideration of the foregoing and the mutual promises
and agreements contained herein, the parties, intending to be legally bound,
hereby agree as follows:
1. License.
Silvercup hereby grants to Q2: a) an exclusive license to use and occupy on
a twenty-four hour per day, seven day per week basis, (i) the Q2 Programming
Facilities which will consist of Studio 9 as shown on Exhibit 'A' (the
'Studio'), control, edit and graphics rooms located on the second floor of the
Building as shown on Exhibit 'B' (collectively, the 'C, E & G Rooms'), including
the control room equipment as shown on Exhibit 'C' ('Control Equipment'), edit
equipment as shown on Exhibit 'D'('Edit Equipment'), graphics equipment as shown
on Exhibit 'E' ('Graphics Equipment'), Studio 8 for storage as shown on Exhbit
'A' ('Show Control'), dressing rooms on mezzanine level as shown on Exhibit F
and (ii) the Q2 Office Space consisting of the entire third floor, excluding
only the caretaker's apartment as shown on Exhibit 'G', and b) a non-exclusive
licenses to use all public areas in, near, adjacent or related to the Building
which are reasonably necessary to enable Q2 to derive the benefits of the
license granted hereunder ('Common Areas'). All of the Exhibits referred to in
this Paragraph 1 are attached to and made a part of this Agreement. Control
Equipment, Edit Equipment and Graphics Equipment are sometimes hereinafter
collectively referred to as 'Programming Equipment'. The exclusive and
non-exclusive licenses will sometimes hereinafter collectively be referred to as
the 'License'.
2. Term.
The initial term ('Initial Term') of this Agreement will commence on March
15, 1994 ('Commencement Date') and expire at midnight on September 14, 1995
('Expiration Date'), unless sooner terminated in accordance with this Agreement.
Q2 will have the right to extend the Initial Term for one period of nine (9)
months and fifteen (15) days and then two consecutive one (1) year terms (each
such extension will hereinafter be referred to as a 'Subsequent Term'), upon
notice to Silvercup at least ninety (90) days prior to the end of the Initial
Term or any Subsequent Term being extended, as the case may be. If extended,
this Agreement will continue during each Subsequent Term upon the same terms and
conditions set forth herein, except as may otherwise be expressly provided in
this
1
<PAGE>
Agreement. The Initial Term and any and all Subsequent Terms will be referred to
herein as the 'Term'.
3. License Fee.
A. Q2 will pay the following monthly license fee ('License Fee') to
Silvercup for the License and all other rights granted to Q2 and services to be
performed by Silvercup hereunder: (i) During the Initial Term, two hundred
sixty-nine thousand ($269,000.00) dollars per month, (ii) During Subsequent
Terms, if any, the License Fee shall increase by five (5%) percent during each
twelve month period in accordance with the schedule attached hereto as Exhibit
H. Such payment will be made in advance to Silvercup at its address set forth
above on the dates indicated on Exhibit H attached hereto. The first of such
payments shall be made by check made payable to Silvercup Studios, Inc. on
behalf of Silvercup to be endorsed to the order of Silvercup. The License Fee
will commence on the Commencement Date. If the Term ends on a day other than the
last day of a License Month (as hereinafter defined), then the License Fee for
such fractional License Month will be prorated on the basis of 1/30th of the
monthly License Fee for each day of such fractional License Month. License Month
shall mean a period commencing on a specific date and ending on a date in the
succeeding month which is one day prior to the specific period commencement date
except for the period commencing June 15, 1996 and ending June 30, 1996 in which
the proration during such period shall be based on 1/15th of the License Fee set
forth for such period on Exhibit H. The parties acknowledge that the time
periods set forth in this Agreement for the purpose of calculation of the
License Fee increases does not correspond directly to the time period
constituting Subsequent Terms hereunder.
B. During the Term, in addition to the License Fee set forth in Paragraph
3A, above, Q2 will reimburse Silvercup in an amount equal to fifteen (15%)
percent of any and all increases in Real Estate Taxes (as defined below) or
Payments in Lieu of Real Estate Taxes covering the real property located in
Queens County, City of New York, and designated as Block 427, Lots 27 and 60 on
the Tax Map, above the Real Estate Taxes for the 1994-1995 fiscal tax year,
whether any such increase results from a higher tax rate or an increase in the
assessed valuation of the property, or both. 'Real Estate Taxes' shall mean (a)
real estate taxes and assessments, whether general or special, transit taxes,
business improvement district charges, levied or assessed against the land on
which the building is located and the Building, by any governmental authority
and (b) all water and sewer rents, meter charges, taxes and frontage assessed or
imposed against the Building. Real Estate Taxes shall not include any penalties,
fines, fees or interest charges arising out of the Real Estate Taxes and any
federal, state, municipal, city or other income, profit, franchise, capital
stock, estate or inheritance tax. All such payments will be appropriately
pro-rated for any partial fiscal years in which the Initial Term or Subsequent
Term, as applicable, will commence or expire based on the number of days during
the then current term of the Agreement as such total bears to 365. Within sixty
(60) days after its receipt of the tax bills for each fiscal tax year,
subsequent to the 1994-95 fiscal year, during the Term and with proof of payment
of such Real Estate Tax, Silvercup wil provide notice of such increases to Q2
specifying the method of calculation of amounts due hereunder. Such notice will
be accompanied by a copy of the applicable tax bill and such proof of payment.
Amounts due hereunder will be payable by Q2 in twelve equal monthly installments
commencing with the next License Fee payment made pursuant to Paragraph 3A,
above, after receipt of such notice. Silvercup will immediately pay to Q2 the
pro rata portion of any Real Estate Tax refunds for any period during the Term,
net of expenses reasonably incurred by Silvercup in contesting Real Estate Taxes
related to such refund, received by Silvercup or, at Q2's option, will credit
such amount against the License Fee. In no event will Q2 be responsible for any
payments of penalties, interest, fines or fees resulting from Silvercup's
failure to timely file returns required and pay any taxes applicable to it.
C. The License Fee payable by Q2 pursuant to this Agreement includes, inter
alia, reimbursement to Silvercup for its cost of supplying and furnishing
electrical service. During the Term, if the rates for supplying the Building
with electricity published by the utility or municipality supplying the Building
with same, shall be increased or decreased over the rates in effect as of the
Commencement Date, Q2 shall reimburse Silvercup or be credited, as the case may
be, fifteen (15%) percent of such increase or
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decrease. Within sixty (60) days of the earlier of its receipt of a rate
increase or decrease from the utility or municipality supplying electrical
service, or its receipt of a bill reflecting any such rate change, Silvercup
will provide a copy of such notice or bill to Q2 along with the commencement
date of same. Within fifteen (15) days of receipt by Q2 of each such notice or
bill and specification of the method of calculation of amounts due hereunder and
proof thereof, payment or credit, as applicable, shall be made in an amount
equal to fifteen percent (15%) of adjusted rate multiplied by the current usage
as indicated on the bill less the immediately preceding rate multiplied by the
current usage as indicated on the bill.
D. In the event that Silvercup will, at any time during the Term of this
Agreement, construct an addition or expansion on to the Building the percentages
set forth in Subparagraphs 3A and B, above, shall be equitably adjusted to
reflect Real Estate Taxes and electricity attributable to such expansion or
addition. In the event Q2 and Silvercup are unable to agree as to the
calculation of such percentages, the matter shall be submitted to arbitration in
New York City, New York, which arbitration the parties agree shall be final and
binding as to these matters. American Arbitration Association rules shall apply
to such arbitration.
4. Alterations.
A. Silvercup will, at its sole expense, provide (i) all materials,
construction, installation and other work necessary for the use of operational
Q2 Programming Facilities, as follows: (a) all work, materials and equipment set
forth in Exhibits B, C, D E, F and G, (b) incandescent lighting instruments,
dimmers and bulbs (which bulbs are to be replaced upon burnout by and at the
expense of Q2) as set forth in Exhibit 'I' attached hereto (c) will arrange with
a recognized and qualified third party provider for two fiber optic lines from
the Building to what is commonly known in the New York Metropolitan Area
television industry as 'the Switch', WTN or any other comparable designation
selected by Q2 (the 'Fiber Optics'), and (d) a wall construction with a basic
pipe lighting grid in Show Control creating an area for use by Q2 as an MOS
insert stage as per Exhibit 'J', and (ii) the Q2 Office Space in broom clean
condition, with Silvercup's standard HVAC distribution installation, as
presently exists in Studio 42. Q2 at its expense will arrange with Silvercup or
a third party for the demolition of the Q2 Office Space, other than in Studio
34. In addition, Silvercup will install in a portion of the Q2 Office Space,
i.e., Silvercup's existing Studio 34, as shown in Exhibit 'G', ten (10) picture
windows in appearance similar to those located, as of the date of this
Agreement, in Studio 42 in the Building (the 'Windows'). Q2 will contribute
$50,000 towards Silvercup's purchase and installation of the Windows, payable
upon completion of installation of the Windows. Other than as expressly set
forth in this Paragraph 4, the Q2 Office Space will be delivered in 'as-is'
condition. Silvercup will use its best efforts to ensure that its obligrations
under this Paragraph 4 will be fulfilled at the earliest time taking into
consideration weather, material availability, occupancy by Q2 and other possible
delays beyond Silvercup's control. If the Programming Facilities are not fully
installed and operational by the Commencement Date, Silvercup will, at no
additional cost to Q2, provide exclusive use to Q2 of a 40 foot truck from
All-Mobile Video Inc., or similar mobile unit (the 'VD Truck') which will be
fully equipped with programming equipment in good and operating working order
comparable to that described in Paragraph 1, above by April 6, 1994.
B. Q2, at its sole cost and expense, will be responsible for the
construction of storage units in the Show Control space and the build out of the
Q2 Office Space. Such installations will at all times be and remain the property
of Q2 and may be removed by Q2 at any time during or upon the expiration of
earlier termination of this Agreement. Q2 will have the right at any time during
the Term to establish return video capabilities in the Q2 Programming Facilities
and Q2 Office Space at its sole expense and to install its own telephone switch
at the Building. Such installation and equipment shall be located within the
space licensed hereunder. Q2 shall have the right to install, at its own
expense, a satellite dish, having a diameter of approximately four feet, on the
roof of the Buiding without charge, at a location designed by Silvercup. The
location of said satellite dish will be changed by Q2 at the reasonable request
of Silvercup, at Q2's expense.
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C. At the commencement of the Term, the Q2 Office Space will be in the
process of being altered by Q2 and not immediately available for Q2's use.
Silvercup, at no additional expense to Q2, will provide Studio 42 as presently
constituted and shown on the attached Exhibt K for temporary office space for
Q2's exclusive use until May 31, 1994. Silvercup will provide electric current
to one location in Studio 42 from which Q2 may arrange distribution of electric
current to outlets throughout Studio 42.
D. Notwithstanding anything to the contrary contained in this Agreement, in
the event the control, edit and graphic rooms and Programming Equipment are not
operational by September 15, 1994, Q2 may, at its option, terminate this
Agreement by giving Silvercup notice on or before September 20, 1994 of such
termination and this Agreement will cease and end without the payment by Q2 of
the early termination fee as set forth in Paragraph 14 below, and without any
further liability on the part of Q2, except for amounts due and owing hereunder
at the time of such termination.
5. Relocation.
Silvercup will have the right to cause the broadcast production of Q2's
programming to be relocated from Studio 9 to Studio 2 (as shown on Exhibit A
attached hereto) and Show Control to be relocated from Studio to an equivalent
storage area having the same or greater floor area, located on the north side of
the Building (collectively the 'Relocation') provided that Silvercup will: a)
provide to Q2 and Q2 will receive written notice of such Relocation at least
five (5) months prior to the date of Relocation which notice will specify a
schedule for the Relocation, b) bear the full cost and expense of the relocation
of the physical contents and other property belonging to or used by Q2 and
located in Studio 9 and Show Control, including strike and reset, c) provide Q2
Show Control space and Control Room adjacent to the relocated studio, and E and
G Rooms of the same or greater floor area at such location on the first or
second floors as designated by Silvercup, and d) schedule and execute the
Relocation without interruption of the then current programming broadcast
schedule, except to the extent of one interruption of up to 120 seconds.
Silvercup and Q2 will execute an amendment to this Agreement confirming the
Relocation prior to the Relocation. Upon completion of the Relocation, this
Agreement will cease to cover the areas from which Q2 was relocated and shall
automatically thereafter cover the areas to which Q2 has been relocated on the
same terms and conditions in this Agreement in effect immediately before the
relocation. Relocation space will also be referred to herein as 'Q2 Programming
Facilities'.
6. Maintenance, Repair and Replacement.
Except as otherwise set forth in this Agreement, Silvercup will be
responsible, at its sole expense, for the maintenance, operation and repair of
the Building, including, but not limited to Common Areas, bathrooms and
hallways, and those areas set under license to Q2. The maintenance will include,
but is not limited to, janitorial services and trash removal for Q2's C, E, & G
rooms and Q2 Office Space. Q2 will provide daily cleaning of Studio 9 and Show
Control and will remove and place trash from those areas to the location
designated by Silvercup for collection by Silvercup. Q2 will pay Silvercup for
trash removal from the Q2 Show Control and Studio areas at its standard rate
then being charged other licensees, or users of the Building. Silvercup will
keep the Building, including all mechanical systems, structural and
non-structural components thereof, in good condition, working order and repair
throughout the Term. Silvercup will use its best efforts to promptly provide any
required or necessary repairs, maintenance or replacements without interruption
of Q2's broadcast programming schedule. Silvercup agrees to provide at all times
during the Term, at no additional expense to Q2, back-up equipment in good
condition and working order as shown on Exhibit L attached hereto. In the event
that Silvercup fails to provide fully operating back-up equipment as set forth
on Exhibit L within one-half ( 1/2) hour of failure of any such piece of
equipment, Q2 may arrange with a third party for the same and deduct expenses
incurred by Q2 in connecting therewith from the License Fee. In the event that
Silvercup does not promptly provide any required or necessary repairs,
maintenance or replacements, other than as set forth in the foregoing sentence,
Q2 may arrange with a third party for the same and, with Silvercup's consent,
may deduct expenses incurred in connection therewith from the License Fee.
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In the event that Q2 and Silvercup shall be unable to agree upon such deduction
or the amount of any such deduction, the parties agree to submit the matter to
arbitration in New York, New York under the rules of the American Arbitration
Association. The determination of the arbitrators shall be final and binding on
the parties.
7. Utilities.
Provided Q2 is not in default of the terms of this Agreement, Silvercup
will provide, at no additional charge, all utilities, including, but not limited
to, electricity, water and HVAC, on all days and hours during the Term. However,
Silvercup shall not be responsible to Q2 in the event Con Edison or other
providers of electricity or water shall fail to provide such utility to the
Building, other than due to the acts or omissions of Silvercup.
8. Security.
Silvercup will, at its sole expense, provide one security person
twenty-four (24) hour per day, seven (7) days per week for the Building at the
main lobby located on 22nd Street as shown in Exhibit A attached hereto. All
other entrances to the Building will be locked except when in use by Silvercup
personnel or by other occupants of the Building.
9. Control Room.
Upon written request of Silvercup, Q2 may, at its discretion, agree
effective only in writing, to permit Silvercup to use the Q2 control room and
Control Equipment on a temporary basis. In that event, Silvercup will pay to Q2
an amount equal to the daily rate charged by Silvercup to other users of similar
space, or such other fee as may be agreed upon in advance by Q2 and Silvercup.
Q2 will invoice Silvercup and payment will be made by Silvercup to Q2, within
thirty (30) days of the use date either by check or by deduction from the
License Fee, as agreed upon in advance by the parties.
10. Non-Studio Broadcast.
A. If Q2 desires to broadcast its programming from the roof of the Building
('Roof') or other areas in and about the Building, excluding those areas
licensed hereunder ('Other Areas'), Silvercup will use its best efforts to
accommodate the request. If Q2 uses the Roof for broadcast purposes or if Q2
uses Other Areas for broadcast purposes, Q2 will pay to Silvercup the standard
daily rate being charged by Silvercup to other users of the Roof or Other Areas.
Silvercup will invoice Q2 for amounts, if any, due under this Paragraph 10A at
the end of the month of actual use and payment will be due within thirty (30)
days of receipt of such invoice. In the event Q2 uses the Roof or Other Areas,
such use shall be solely at the risk of Q2 and Silvercup makes no representation
that such use shall be permitted or proper use in accordance with the laws of
the city and/or state of New York or any other governmental authority having
jurisdiction over such location.
B. If Q2 shall desire to use technical programming equipment (such as the
Programming Equipment) or facilities outside of the Building, Silvercup is
hereby granted the right to furnish such programming equipment or facilities on
the same terms and conditions as those being offered by the supplier offering to
provide such programming equipment or facilities to Q2, provided that Silvercup
exercises its right to furnish such programming equipment and facilities within
four (4) hours of Q2's notice to Silvercup, which notice may be oral or written.
In the event Silvercup's response is not received by Q2 in writing signed by an
authorized representative of Silvercup within said four (4) hour period, Q2
shall be free to have such programming components or facilities furnished by any
other supplier. Notwithstanding the foregoing, in the event that circumstances
exist such that a four (4) hour turnaround time is not practicable, in Q2's sole
determination, for Q2 to accomplish its needs, Silvercup need not be notified by
Q2 and Silvercup shall not have the right to match such other offer at Q2 may
accept any Silvercup offer. Further, anything in this Article 10B to the
contrary notwithstanding, Q2 shall have the absolute right not to use Silvercup
to furnish such programming equipment or facilities, if Q2 determines, in its
sole and absolute discretion, that Silvercup is not
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qualified to provide same. Q2's determinations under this Subparagraph 10B shall
be final and binding upon the parties. Excluded from the provision of this
Subparagraph 10B are tapes provided by third parties to Q2.
11. Parking.
Employees, guests and invitees of Q2 shall have the same right to park in
the Building's parking lot located across the street from the Building, on a
non-exclusive 'first come, first serve' basis, as all other licensees, and
visitors of the Building. Silvercup acknowledges that the Building's parking lot
is currently leased by Silvercup from the City of New York under a lease which
is cancellable by the City of New York on thirty (30) days notice.
12. Transportation Allowance.
Silvercup will contribute one-half (1/2) of the cost, but in no event more
than ten thousand ($10,000.00) dollars per each twelve month period during the
Term, commencing on the Commencement Date, towards Q2's use of a bus, van, or
similar multi-person vehicle as and for transportaion of Q2's personnel from the
Building to a location, and during such hours during the Term as may be
determined by Q2. Such amounts shall be due and payable by Silvercup to Q2 on a
monthly basis (1/12 of the annual amount) commencing on the first of the month
after receipt of an invoice therefor and shall be due to Q2 without further
invoice therefor on the first of each month thereafter during each such twelve
month period. Any use of such multi-perosn vehicle shall be, as between Q2 and
Silvercup, contracted for solely in the name of Q2.
13. Twenty-Four (24) Hour Service.
Silvercup will provide its standard building maintenance, security and
studio services in no event less than as enumerated on Exhibit 'M', twenty-four
(24) hours per day, seven (7) days per week. Silvercup employees, agents and
contractors performing such services will not be deemed for any purposes
whatsoever to be Q2 employees.
14. Early Termination.
A. Q2 will have the right to terminate this Agreement early, without cause,
upon the following terms and conditions: a) at any time after the end of the
first six (6) months of the Initial Term but prior to the end of the twelfth
month of the Initial Term by forwarding written notice to Silvercup of Q2's
intention to terminate at least ninety (90) days prior to such termination,
accompanied by the payment to Silvercup of a termination fee of $618,000 which
sum is to be reduced by the sum of $51,500 for each month that Q2 does not
terminate this Agreement after six (6) months and up to twelve (12) months
(i.e., if Q2 terminates as of the twelfth month, the fee to be paid is $309,000;
and b) at any time after the end of the first twelve (12) months of the Initial
Term but prior to the Expiration Date by forwarding written notice to Silvercup
of Q2's intention to terminate at least ninety (90) days prior to such
termination accompanied by payment to Silvercup of a termination fee of $309,000
which sum is to be reduced by the sum of $51,500 for each month that Q2 does not
terminate this Agreement after twelve (12) months and up to eighteen (18) months
(i.e., if Q2 terminates after the fifteenth month, the fee to be paid is
$154,500). The right to early termination provided for in Subparagraph 14A is
only available to Q2 provided Q2 shall cease broadcasting for a period of one
year from the date of such termination.
B. If Q2 extends the Initial Term or any Subsequent Term of this Agreement
pursuant to Paragraph 2, above, Q2 will have the similar right to terminate this
Agreement during each Subsequent Term by providing written notice to Silvercup
at least ninety (90) days prior to such termination accompanied by the payment
to Silvercup of a termination fee of $50,000.
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15. Signage and Publicity.
Q2 may install signs inside and outside the Building, with the prior
written approval of Silvercup, provided that such signs comply with all
applicable New York City rules and regulations. Neither party will issue any
publicity or press release regarding the other party or such party's activities
hereunder without first obtaining the prior written consent of such other party.
16. Default.
A. If Q2 defaults in fulfilling any of the covenants of this Agreement or
if this Agreement is rejected under Article 365 of Title II of the U.S. Code
(hereinafter referred to as the 'Bankruptcy Code') or any similar or successor
provisions; then, in any one or more of such events, upon Silvercup serving a
written (i) eight (8) day notice for monetary default and (ii) thirty (30) day
notice for non-monetary default specifying the nature of such default, and upon
the expiration of the applicable notice period, if Q2 will have failed to remedy
such default, or if such default shall be non-monetary and of a nature that the
same cannot be completely remedied within such thirty (30) day period, and if Q2
will have diligently commenced during such default within such thirty (30) day
period and shall not thereafter with reasonable diligence and in good faith
proceed to remedy or cure such default, then this Agreement and the Term
hereunder will end and expire and Q2 will then quit and surrender the Q2
Programming Facilities and Office Space licensed hereunder to Silvercup or if Q2
shall fail to quit and surrender, Silvercup may without notice reenter the Q2
Programming Facilities and Q2 Office Space by force or otherwise and remove Q2's
effects and hold such Q2 Programming Facilities and Q2 Office Space as if this
Agreement had not been made. Such termination shall not relieve the obligations
of Q2 hereunder. The curative periods herein set forth shall include Saturdays,
Sundays, or public holidays under the laws of the State of New York.
B. In the event that this Agreement is rejected by Silvercup under Article
365(h) of the Bankruptcy Code or similar provision contained in the Bankruptcy
Code, then Q2 shall be afforded the same rights as if Q2 were a lessee of the Q2
Programming Facilities and Q2 Office Space. Notwithstanding the terms and
conditions of this Paragraph 16, in the event that Silvercup serves a notice of
non-monetary default upon Q2, and Q2 shall dispute such determination, the
parties agree to submit such dispute for settlement to the American Arbitration
Association in New York, New York and all cure periods set forth above will be
tolled and will not commence until ten (10) days after receipt by Q2 of the
arbitrator's decision that Q2 is in default. The parties agree that such
arbitrator's determination shall be final and binding.
17. Restoration of Premises.
At the expiration of the Term, Q2 shall restore the Q2 Programming
Facilities and Q2 Office Space, at the option of Silvercup, to the state and
condition of such facilities at the commencement of this Agreement reasonable
wear and tear and damage by fire or other casualty not occurring through the
negligence of Q2 or its employees excepted. Q2 shall have the right to remove
all personal property, trade fixtures, apparatus and improvements belonging to
or installed by Q2 provided that any damage caused to the Building by such
removal be repaired at Q2's expense. Any improvements, or alterations may remain
without restoration of the space to its original condition upon the written
consent of Silvercup.
18. Advanced Payment.
A. Q2 will deposit with Martin B. Epstein, Esq. ('Escrowee') by check made
payable to Silvercup Studios Inc. on behalf of Silvercup to be endorsed to the
order of Martin B. Epstein, as attorney, upon full execution of this Agreement,
the sum of $618,000 as an advance payment for Q2's obligations hereunder
including but not limited to the termination fee provided for in Paragraph 14
('Advanced Payment'). Commencing on September 1, 1994, Silvercup will credit Q2
$34,333 per month toward the License Fee and other obligations due from Q2 to
Silvercup until such time as $412,000 will have been credited to Q2 and $206,000
will remain as an Advance Payment against
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obligations of Q2 due to Silvercup at the expiration of the Term as shown on
Exhibit H. If Q2 defaults in respect of any of the terms, provisions and
conditions of this Agreement, after expiration of all cure periods and provided
that Silvercup has properly terminated this Agreement, Silvercup may use, apply
or retain the whole or any part of the Advance Payment to the extent required
for the payment of any License Fee or any other sum as to which Q2 is in default
or for any sum which Silvercup may reasonably expend or reasonably be required
to expend by reason of Q2's default. In the event that Q2 will faithfully comply
with all of the terms and conditions of this Agreement, the portion of the
Advance Payment which has not been credited against the License Fee, increased
by five (5%) percent per year for each 12 month period that has occurred after
the Initial Term, and after deduction of any applicable termination fee,
pursuant to Paragraph 14, and estimated restoration charges as provided in
Paragraph 17 in an amount which shall be equal the average of one estimate
provided by each party for the cost of such restoration, will be credited
against the License Fee for the last month of use and within thirty (30) days
after Q2 has vacated the Q2 Programming Facilities and Q2 Office Space, the
parties hereto will adjust all money due and owing.
B. The Escrowee shall hold the Advance Payment in a separate escrow account
at National Westminster Bank, Scarsdale, New York which account shall earn
interest payable by said bank on such accounts, which interest shall belong to
Silvercup. The Advance Payment shall be disbursed by Escrowee to Silvercup, from
time to time, on the basis of a requisition signed by an officer of its
corporate general partner, which shall state: (a) that funds have been expended
by Silvercup in connection with the Q2 Programming Facilities and Q2 Office
Space; (b) the nature of such expenditure and (c) the amount of such expenditure
along with an invoice therefor. Upon receipt of such requisition and invoice,
Escrowee, without determining the accuracy or validity thereof, may issue checks
equal to the amount of such expenditure until all of the Advance Payment, and
any interest earned thereon has been disbursed.
In the event the Advance Payment and interest earned thereon has not been
fully disbursed by the end of the Term, it shall be paid over to Q2.
The Parties acknowledge that the Escrowee is holding the Advance Payment
for Q2's account, for all other purposes Escrowee is acting as a Stakeholder at
their request and for their convenience, and that Escrowee shall not be liable
to either party for any act or omission on its part unless taken or suffered in
bad faith or in willful disregard of this Agreement or involving gross
negligence on the part of Escrowee. Q2 and Silvercup, jointly and severally,
agree to defend, indemnify and hold Escrowee harmless from and against all
costs, claims, and expenses (including reasonable attorney's fees) incurred in
connection with the performance of Escrowee's duties hereunder, except with
respect to actions or omissions taken or suffered by Escrowee in bad faith or in
willful disregard of this Agreement or involving gross negligence on the part of
Escrowee.
Escrowee may act or refrain from acting in respect of any matter referred
to herein in full reliance upon and with the advice of counsel which may be
selected by him and shall be fully protected in so acting or refraining from
action upon the advice of such counsel.
Escrowee shall be permitted to act as counsel for Silvercup in any dispute
as to the disbursement of the Advance Payment or any other dispute between the
parties whether or not Escrowee is in possession of the Advance Payment and
continues to act as Escrowee.
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19. Notices.
All notices and other communications hereunder will be in writing and will
be deemed given when delivered personally, by reputable overnight courier or by
facsimile transmission or on the third succeeding business day after being
mailed by registered or certified mail, return-receipt requested to the
appropriate party at its address below (or such other address for such party as
will be specified by notice delivered pursuant hereto):
<TABLE>
<S> <C>
If to Silvercup: Silvercup Studios, Inc.
42-22 22nd Street
Long Island City, New York 11101
Attn: Alan or Stuart Suna
with a copy to: Martin B. Epstein, Esq.
50 Main Street, Suite 1000
White Plains, New York 10606
If to Q2: Q2 Inc.
42-22 22nd Street
Long Island City, New York 11101
Attn: Ann Sardini, Chief Financial Officer
and
Clayton Gsell, V.P. Broadcast Operations
with a copy to: Q2 Inc.
c/o QVC Network, Inc.
1365 Enterprise Drive
West Chester, Pennsylvania 19380
Attn: Neal S. Grabell, General Counsel
</TABLE>
20. Representations and Warranties.
A. Q2 represents, warrants and covenants to Silvercup, its successors and
permitted assigns that (i) it is a corporation in good standing, duly organized
and validly existing under the law of its state of incorporation and is
authorized to do business in the state of New York, (ii) it has the power and
authority to own its own assets and to carry on its business as now being
conducted, (iii) it has the power to execute, deliver and perform this
Agreement, and (iv) the execution, delivery and performance by it of this
Agreement has been duly authorized by all requisite corporate action and will
not violate or contravene any provision of law applicable to it, any order of
any court or other agency of the United States or any state thereof applicable
to it, its certificate of incorporation or by-laws or any provision of any
agreement or instrument to which it is a party or by which it is bound.
B. Silvercup represents, warrants and covenants to Q2 its successors and
permitted assigns that:
(i) It is a limited partnership in good standing, duly organized and
validly existing under the laws of Connecticut and is authorized to do business
in the State of New York;
(ii) It has the power and authority to own its own assets and to carry on
its business as now being conducted;
(iii) It has the power to execute, deliver and perform this Agreement;
(iv) The execution, delivery and performance by it of this Agreement has
been duly authorized by all requisite action of its general partner, which
general partner has been duly authorized to enter into this Agreement on its
behalf, and will not violate or contravene any provision of law applicable to
it, any order of any court or other agency of the United States or any state
thereof applicable to it, its certificate or any provision of any agreement or
instrument to which it is a party or by which it is bound;
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(v) Any and all construction, alterations, repairs, replacements or other
work to be performed by Silvercup under this Agreement will be performed in a
good, workmanlike and timely manner in accordance with this Agreement, and the
Programming Equipment will be in good working order in accordance with this
Agreement;
(vi) Silvercup has entered into or will enter into a valid and binding
written agreement with All Mobile Video Inc. regarding its obligations relating
to providing Programming Equipment and VD Truck as set forth in this Agreement;
(vii) There are no existing tax abatements for the Building or real
property on which the Building is situated which are scheduled to or will expire
during the Term;
(viii) All Real Estate Taxes and assessments due and owing to any
governmental authority by Silvercup in connection with the Building or the real
property on which the Building is situated have been paid in full;
(ix) Silvercup has and will maintain during the Term, all licenses and
permits required or hereafter requested to permit Q2's use and occupancy of the
Q2 Programming Facilities for the purpose contemplated herein;
(x) To the best of Silvercup's knowledge, there are no changes pending in
laws, ordinances or regulations that would adversely affect the current
operation of the Building;
(xi) Silvercup is not a party to a union contract or collective bargaining
agreement;
(xii) Other than Crossland Savings FSB, a federal stock savings bank having
an address at 211 Montague Street, Brooklyn, New York; the Bank of New York, a
banking corporation having an address at 21 West Street, New York, New York as
successor to Long Island Trust Co., a trustee pursuant to that certain indenture
of mortgage and trust -- Series B dated as of July 1, 1981 as amended; New York
City Industrial Development Agency, a corporate governmental agency existing
under the laws of the State of New York having an address at 110 William Street,
New York, New York; Financial Services Corporation of New York City, a New York
not-for-profit corporation having an address at 110 Williams Street, New York,
New York; Citytrust, a Connecticut bank and trust company having an address at
961 Main Street, Bridgeport, Connecticut; the City of New York, a municipal
corporation of the State of New York having an address at City Hall, New York,
New York; New York Job Development Authority with offices at 603 Third Avenue,
New York, New York, and their respective successors or assigns there are no
mortgages or ground leases encumbering the Building or the land on which it is
situated.
(xiii) Attached hereto as Exhibit N is a copy of the current Certificate of
Occupancy for the Building which has not been revoked, modified or amended;
(xiv) The Building and only the Building is designated on the Tax Map of
the City of New York, County of Queens as Block 427, Lots 27 and 60.
(xv) Attached hereto as Exhibit O are true and correct copies of pages 8,
9, 24, 25, 26 and 27 of the Silvercup Studios Associates Limited Partnership
Agreement which empower the general partner to enter into this Agreement.
C. The representations, warranties and covenants contained in Subparagraphs
20A and 20B shall survive the expiration or earlier termination of this
Agreement.
21. Indemnification.
Each party to this Agreement hereby agrees to indemnify, defend and hold
harmless the other party, its parent, subsidiaries, affiliates and partners and
each of their respective officers, directors, agents, employees, successors and
permitted assigns from and against any and all claims, causes of action,
liabilities, damages and expenses, including reasonable attorneys' fees, arising
by reason of, or in connection with, any of the following, whether or not any
such claim is based on principals of contract law or tort or any other principal
of law; (a) the breach, default or failure of a party to this
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Agreement of any provisions of this Agreement, including, but not limited to the
representations and warranties contained herein, or of any of such party's
duties hereunder or at law; and (b) the acts or omissions of a party to this
Agreement or of any of its servants, agents, employees or contractors, in
connection with the performance of this Agreement. This indemnification
provision shall survive the expiration of earlier termination of this Agreement.
22. Subordination.
A. This Agreement, and all rights of Q2 hereunder, are and shall be subject
and subordinate in all respects to all present and future ground leases, and
underlying leases and/or grants of term of the land and/or Building or the
portion thereof in which the Q2 Programming Facilities and Q2 Office Space are
or will be located in whole or in part now or hereafter existing ('Superior
Leases') and to all mortgages and building loan agreements which may now or
hereafter affect the land and/or the Building and/or any of such leases
('Superior Mortgages') whether or not the Superior Leases or Superior Mortgages
shall also cover other lands and/or buildings, to each and every advance made or
hereafter to be made under the Superior Mortgages and to all renewals,
modifications, replacements and extensions of the Superior Leases and Superior
Mortgages and spreaders, and consolidations of the Superior Mortgages. This
Subparagraph 22A shall be self-operative and no further instrument of
subordination shall be required.
B. In confirmation of each subordination, Q2 shall promptly execute and
deliver at its own cost, such instrument, in recordable form that Silvercup may
reasonably require to evidence such subordination.
C. Promptly upon execution of this Agreement, Silvercup agrees to use its
best efforts in obtaining from each and every holder of a Superior Lease or
Superior Mortgage a non-disturbance agreement which shall provide that Q2 shall
not be divested or in any way affected by foreclosure or other default
proceedings under such Superior Lease and/or Superior Mortgage so long as Q2
shall not be in default under the terms of this Agreement.
23. Eminent Domain.
If the whole of the Building or the Q2 Programming Facilities or Q2 Office
Space, or so much thereof that the remainder will not be sufficient for the
continued operation of Q2's business as contemplated hereunder, will be taken by
power of eminent domain or condemned by any competent authority for any public
or quasi-public use or purpose, then, and in that event, the Term will cease and
terminate, effective on the date on which the title will vest in the condemnor.
Silvercup will have no claim for any portion of any License Fee or any payments
due or which may become due under this Agreement by Q2. Q2 hereby waives the
right to make a claim as licensee or otherwise in such condemnation proceedings,
except its right to recover from the condemning authority such compensation as
may be separately awarded or recovered by Q2 in Q2's own right on account of any
damages to Q2's business by reason of the condemnation or loss which Q2 might be
put in removing Q2's furniture, fixtures, equipment and other personal property.
24. No Broker.
Both Silvercup and Q2 represent to each other that no broker or finder
brought about this Agreement and each party agrees to indemnify and hold the
other harmless from claims made by any broker or finder claiming through such
party.
25. Quiet Enjoyment.
Silvercup covenants that it has the right and authority to enter into this
Agreement and that subject to covenants, easements and restrictions of record
and any applicable zoning, building and other ordinances or requirements of the
City of New York, Q2 may peaceably and quietly have, hold and enjoy the Q2
Programming Facilities and Q2 Office Space provided that Q2 perform and fulfills
all the terms and conditions of this Agreement.
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26. Assignment.
This Agreement is binding upon the parties and their respective successors
and assigns. Neither party may assign or transfer this agreement or any rights
or obligations hereunder without the prior written consent of the other party
except Q2 may, without the prior written consent of Silvercup, permit the Q2
Programming Facilities and Q2 Office Space to be used and occupied by, or may
assign this Agreement or any rights or obligations under this Agreement to a
parent, subsidiary or affiliate of Q2 or its parent, provided that: a) Q2 will
remain liable under this Agreement, b) the transferee, if any, will expressly
assume Q2's obligations under this Agreement, and c) the facilities licensed
hereunder will be used solely as provided for in this Agreement.
27. Casualty Damage.
A. If the Building or the Q2 Programming Facilities or Q2 Office Space
and/or access thereto shall be partially or totally damaged or destroyed by fire
or other casualty, then Silvercup shall, subject to its rights under this
Paragraph 27, repair the damage and restore and rebuild the Building, the Q2
Programming Facilities or Q2 Office Space or access thereto at its expense as
nearly as may be reasonably practical to its condition and character immediately
prior to such damage or destruction, with reasonable diligence after notice to
it of the damage or destruction.
B. If the Q2 Programming Facilities or Q2 Office Space and/or access
thereto shall be partially or totally damaged or destroyed by fire or other
casualty not attributable to the fault, negligence or misuse thereof by Q2, its
agents or employees the License Fee and other fees payable hereunder shall be
abated to the extent that the Q2 Programming Facilities or Q2 Office Space shall
have been rendered unusable from the date of such damage or destruction to the
date that damage shall be substantially repaired or restored or rebuilt. Should
Q2 reoccupy a portion of the Q2 Programming Facilities or Q2 Office Space during
the period that the repair, restoration, or rebuilding is in progress and prior
to the date that the same are made completely usable, fees allocable to such
portion shall be payable by Q2 from the date of such use to the date the Q2
Programming Facilities or Q2 Office Space are made usable.
C. Notwithstanding the foregoing to the contrary, in case of substantial
damage or destruction of the Q2 Programming Facilities or Q2 Office Space, Q2
may terminate this Agreement by notice to Silvercup at least thirty (30) days
prior to the effective date of such termination, if Silvercup fails to commence
restoration work to the Q2 Programming Facilities or Q2 Office Space and access
thereto, within ninety (90) days after the damage occurs, fails to substantially
complete such work within one hundred eighty (180) days after commencing the
same, or such additional time as may be reasonably necessary due to strikes,
labor troubles, shortages of equipment or materials, government requirements or
other causes beyond Silvercup's reasonable control. Such termination rights are
cumulative.
D. Notwithstanding the foregoing to the contrary, Silvercup may elect not
to perform restoration work and instead terminate this Agreement by notifying Q2
in writing of such termination within ninety (90) days after the date of such
damage, but Silvercup may so elect only if the Building shall be damaged by fire
or other casualty or cause (whether or not the Q2 Programming Facilities and/or
Q2 Office Space are affected) such that (a) repairs cannot reasonably be
completed within one hundred eighty (180) days after being commenced without the
payment of overtime or other premiums, (b) any Superior Lease and/or Superior
Mortgage holder shall require that the insurance proceeds, or any portion
thereof be used to retire the mortgage debt (or shall terminate the ground
lease, as the case may be), (c) the damage is not fully covered by Silvercup's
insurance policies, or (d) the proceeds of the insurance are inadequate to
restore the Building and its systems to its condition prior to the casualty.
E. No damages, compensation or claim shall be payable by Silvercup for
inconvenience, loss of business or annoyance arising from any repair or
restoration of any portion of the Q2 Programming Facilities and Q2 Office Space
or of the Building pursuant to this Paragraph 27. Silvercup shall use its best
efforts to effect such repair or restoration promptly and in such manner as not
to unreasonably interfere with Q2's use and occupancy. Notwithstanding anything
herein to the contrary, in the event that the Q2 Programming Facilities or Q2
Office Space shall be partially or totally damaged or
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destroyed by fire or other casualty, then Silvercup shall use its efforts to
relocate the Q2 Programming Facilities and Q2 Office Space as the case may be,
to other comparable portions of the Building.
F. Silvercup will not carry insurance of any kind on Q2's personal
property, and, except as provided by law or for its breach of any of its
obligations hereunder, shall not be obligated to repair any damage thereto or
replace the same unless not covered by insurance and caused by the negligence of
Silvercup, its agents, contractors, or employees.
G. Notwithstanding any of the foregoing provisions of this Paragraph 27,
if Silvercup or the lessor of any Superior Lease or the holder of any Superior
Mortgage shall be unable to collect all of the insurance proceeds (including
rent insurance proceeds) applicable to damage or destruction of the Building by
fire or other cause, by reason of some action or inaction on the part of Q2 or
any of its employees, agents or contractors, then, without prejudice to any
other remedies which may be available against Q2, the abatement of Q2's rents
provided for in Subparagraph 27B shall not be effective to the extent of the
uncollected insurance proceeds.
28. Insurance.
A. Q2's Liability Insurance.
(i) Q2 shall purchase and maintain such insurance as will protect it
from claims set forth below which may arise out of or result from its
operations under this Agreement, whether such operations be by itself or by
any subcontractor or by anyone directly or indirectly employed by any of
them, or by any one for whose acts, any of them may be liable:
(a) Claims under Workers' or Workmen's Compensation, Disability
Benefit and other similar employee benefit acts;
(b) Claims for damages for occupational bodily injury, sickness
or disease, or death of Q2's employees;
(c) Claims for damages because of bodily injury, sickness or
disease, or death of any person other than its employees;
(d) Claims for damages insured by professional broadcasters
liability insurance which coverage shall include claims for
libel, slander, defamation of character, invasion of
privacy, infringement of copyright, unfair competition and
which claims are sustained by any person as a result of an
offense directly or indirectly related to the employment of
such person by Q2;
(e) Claims for damages, because of injury to or destruction of
tangible property of Q2 and others, including loss of use
resulting therefrom; and
(f) Claims for damages because of bodily injury or death of any
person or property damage arising out of the ownership,
maintenance or use of any motor vehicle owned, by Q2,
hired, non-owned.
(ii) The insurance required by Sub-Paragraphs 28(A)(i)(a) and (b)
shall be written for not less than any limits or liability specified by
statute. The insurance required by Subparagraph A(i)(c) through (f),
inclusive shall be written for not less than limits of twenty million
dollars ($20,000,000) per occurrence/aggregate.
(iii) The insurance required by this Paragraph shall include
contractual liability insurance applicable to Q2's obligations under the
indemnification provisions of this Agreement.
(iv) The Certificates of Insurance acceptable to Silvercup shall be
filed with Silvercup prior to commencment of the term. The Certificate
shall contain the provision that coverage afforded under the policies will
not be canceled until at least thirty (30) days prior written notice has
been given to Silvercup.
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B. Q2's Property Insurance -- Q2 shall, during the Term, purchase and
maintain property insurance on all scenery, costumes, electrical, lighting and
sound equipment, furniture, furnishings, fixtures, improvements, appurtenances,
lighting and musical material, inventory, and all other properties and material
owned, rented, licensed or brought into the studio facilities of Silvercup by
Q2, its subcontractors or others. Q2 acknowleges that Silvercup will not carry
insurance on any such property and agrees that Silvercup will have no obligation
to repair any damage thereto or to replace any of such property. Such insurance
shall be for the full replacement value of such property. This insurance shall
include the interest of Q2, its subcontractors, and Silvercup, if any, and shall
insure against the perils of fire and extended coverage and shall include 'all
risk' insurance for physical loss or damage including, but not limited to,
without duplication of coverage, theft, vandalism and malicious mischief.
C. Silvercup's Insurance -- Silvercup shall maintain during the Term
comprehensive general liability insurance with combined single limits of not
less than eleven million dollars ($11,000,000) for public liability, bodily
injury, sickness, disease or death and for damage or injury to or destruction of
property, including loss of use thereof, for any one occurrence. Silvercup shall
also maintain during the Term primary, non-contributory insurance on the
Building against so-called 'all risk' in an amount equal to the full insurable
replacement value of the Building. Silvercup shall also maintain workers
compensation and employer's liability insurance and such other coverages as
required by law. Evidence of all such insurance coverage shall be provided to Q2
within seven (7) days of commencement date including a provision of notice of
cancellation to Q2, Att: Ann Sardini, Chief Finanical Officer at the address set
forth above with a copy to Q2 Inc., c/o QVC Network, Inc. 1365 Enterprise Drive,
West Chester, PA 19380 Att: Neal Grabell, General Counsel.
D. Q2 and Silvercup waive all rights against each other and their
respective subcontractors, agents and employees each of the other for damages
caused by fire or other perils to the extent covered by the insurance obtained
pursuant to this Agreement or any other property insurance applicable to the
personal property being insured herein.
E. Q2, at its option, may purchase and maintain such insurance as will
insure against loss of use or loss of profit due to fire or other hazards,
however caused.
F. On general liability policies of insurance, Silvercup and All Mobile
Video Inc., shall be named as an addtional insured. On policies of property
insurance required hereunder Silvercup and All Mobile Video, Inc. shall be named
as an additional insured as respects any property owned by them.
29. Force Majeure.
If Silvercup or Q2 is delayed at any time in the performance of its
obligations hereunder by any act or neglect of the other party or its employees,
contractors or agents or by labor disputes, fire, unusual delay in
transportation, adverse weather conditions, unavoidable casualties or any cause
beyond such parties' reasonable control, the time for its performance shall be
equitably adjusted and such party shall use its best efforts to seek reasonable
alternatives if this provision shall be relied upon.
30. Q2's Compliance with Laws, Etc.
A. Q2, at its own cost and expense, shall promptly comply with all present
and future laws, orders and regulations of all state, Federal, Municipal and
local governments, departments, commissions and boards and any direction of any
public officer pursuant to law and all orders, rules and regulations of the New
York Board of Fire Underwriters or the Insurance Service Office or any similar
body which shall impose any violations, order or duty upon Silvercup or Q2 with
respect to the Q2 Programming Facilities or Q2 Office Space as a result of Q2's
use or manner of use thereof.
B. Q2 shall not do or permit any act or thing to be done in or to the Q2
Programming Facilities or Q2 Office Space which is contrary to law, or which
will invalidate or be in conflict with public liability, fire or other policies
of insurance at any time carried by or for the benefit of Silvercup.
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C. Q2 shall not keep anything in the Q2 Programming Facilities or Q2 Office
Space, except as permitted by the Fire Department, Board of Fire Underwriters,
Fire Insurance Rating Organization and other authority having jurisdiction and
then only in such manner and such quantity so as not to increase the rate of
fire insurance applicable to the Building, nor use the Q2 Programmable
Facilities and Q2 office space in a manner which will increase the insurance
rates for the Builiding. If by reason of Q2's failure to comply, Silvercup shall
receive an increase in its fire insurance or other insurance premiums, such
increase will be paid to Silvercup by Q2.
31. Mechanic's Liens.
If any mechanic's lien is filed against the Building for addtions,
alterations or improvements made by Q2 or materials furnished to Q2 in
connection therewith, the same shall be discharged by Q2 within 30 days
thereafter, at Q2's expense, by filing the bond required by law or otherwise.
32. Silvercup's Exculpation.
A. Neither Silvercup nor any agent or employee of Silvercup shall be liable
to Q2, its employees, agents, contractors, licensees, parent or affiliated
companies for any injury or damage to Q2 or to any other persons for any damage
to, or loss (by theft, vandalism or otherwise) of, any property of Q2 and/or of
any other person, irrespective of the cause (unless caused by the negligence of
Silvercup, its agents or employees) of such injury, damage or loss, including
without limitations that caused by water regardless of its source, from
electrical interruptions and/or failure of the Fiber Optics or other utilities
or communication media so that Q2 is unable to broadcast.
B. Silvercup shall not be liable in any event for loss of or damage to, any
property entrusted to any of Silvercup's employees or agents by Q2 without
Silvercup's specific written consent.
C. Silvercup shall not be liable for the security or physical safety of Q2,
its employees, agents or visitors to the Building or land except that it shall
provide security personnel as provided in this Agreement.
D. In the event of a breach of this Agreement by Silvercup, Q2's damages
shall not include consequential damages and/or loss of profit as a result of
Silvercup's acts.
33. Q2's Licenses and Permits.
Q2, at its own cost and expense, shall obtain all licenses and permits in
connection with its use of the Q2 Programming Facilities and Q2 Office Space and
broadcasting or transmissions via the Fiber Optics.
34. Q2's Right to Cure Default of Silvercup.
In the event Silvercup shall be in default under the terms of any Superior
Lease or Superior Mortgage, and the holder of such Superior Lease or Superior
Mortgage shall institute a proceeding in which Q2 is made a party in order to
abrogate or terminate this Agreement, Q2 shall have the right to cure such
default, if it is monetary in nature by payment to the holder of such Superior
Lease or Superior Mortgage and deduct such sum paid to cure the default from the
next License Fee payments due hereunder.
35. Miscellaneous Provisions.
A. This Agreement and the Exhibits hereto incorporate and supersede all
prior negotiations, agreement and understandings, oral or written, contain all
warranties and representations made by either party, and set forth the entire
understanding of the parties with respect to the subject matter hereof, and will
not be modified, waived or rescinded, in whole or in part, except in a writing
executed by the parties.
B. This Agreement will be construed in accordance with the laws of the
State of New York.
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C. Should any part of this Agreement for any reason be declared invalid,
void or unenforceable by a court or governmental agency of competent
jurisdiction, such decision will not affect the validity of any remaining
portion hereof and the balance of this Agreement will be enforced as if such
invalid, void or unenforceable provision had not been included herein.
D. No failure or delay on the part of either party in exercising any power
or right under this Agreement operates as a waiver, nor does any single or
partial exercise of any power or right preclude any other or further exercise or
the exercise of any other power or right. No waiver by a party of any provision
of this Agreement, or of any breach or default is effective unless in writing
and signed by the parties.
E. This Agreement may be executed in one or more counterparts, each of
which when so executed and delivered will be deemed an original, and all of
which together will constitute one and the same instrument.
F. The Exhibits and Schedule referred to herein and attached hereto are
incorporated herein by this reference.
G. The captions inserted in this Agreement are inserted only as a matter of
convenience and for reference and in no way, define, limit or describe the scope
of this Agreement nor the intent of any provision hereof.
H. Nothing contained in this Agreement shall be deemed or constructed to
create a partnership or joint venture between the parties. Q2 shall not in any
way be responsible for the debts, losses, obligations or duties of Silvercup
regarding the Building, Q2 Programming Facilities, Q2 Office Space or otherwise.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
SILVERCUP STUDIOS ASSOCIATES, LIMITED PARTNERSHIP
SILVERCUP STUDIOS, INC., GENERAL PARTNER
By: __________________________________
Title: ___________Secretary___________
Q2 INC.
By: __________________________________
Title: ______________CFO______________
AS TO PARAGRAPH 18 ONLY
______________________________________
Martin B. Epstein, Escrowee
AS TO PARAGRAPH 20(xv) ONLY
Certified as true and correct
______________________________________
Alan Suna, Individually
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EXHIBIT 10.54
EXECUTION COPY
STOCK OPTION AGREEMENT dated as of February 15, 1994 (this 'Stock Option
Agreement'), among QVC NETWORK, INC., a Delaware corporation (the 'Company'),
COX ENTERPRISES, INC., a Delaware corporation ('Cox'), ADVANCE PUBLICATIONS,
INC., a New York corporation ('Advance'), and BELLSOUTH CORPORATION, a Georgia
corporation ('BellSouth', and Cox, Advance and BellSouth each individually a
'Purchaser').
WHEREAS the Company had proposed to acquire (the 'Acquisition') Paramount
Communications Inc., a Delaware corporation; and
WHEREAS the Acquisition has been abandoned, and each Purchaser wishes to
have the option to acquire from the Company shares of the Company's Common
Stock, par value $.01 per share (the 'Common Stock'), as provided in this Stock
Option Agreement.
NOW, THEREFORE, in consideration of the representations, warranties and
agreements herein contained, the parties hereto agree as follows:
1. Grant of Options. The Company hereby grants to (i) BellSouth an
irrevocable option (the 'BellSouth Option') to purchase 8,627,934 shares of
Common Stock (the 'BellSouth Optioned Shares') for a purchase price of
$517,676,040 (the 'BellSouth Purchase Price'), (ii) Cox an irrevocable option
(the 'Cox Option') to purchase 2,833,333 shares of Common Stock (the 'Cox
Optioned Shares') for a purchase price of $170,000,000 (the 'Cox Purchase
Price') and (iii) Advance an irrevocable option (the 'Advance Option') to
purchase 2,833,333 shares of Common Stock (the 'Advance Optioned Shares') for a
Purchase Price of $170,000,000 (the 'Advance Purchase Price'). The period during
which the BellSouth Option, the Cox Option or the Advance Option may be
exercised (the 'Option Period') shall begin on the date hereof and shall end
(the 'Option Expiration Date') at 5:00 p.m. on the later of the date that is (i)
August 15, 1994, or (ii) if receipt of the approval of the stockholders of the
Company of the issuance of the BellSouth Optioned Shares, the Cox Optioned
Shares or the Advance Optioned Shares is required pursuant to Section 5(i) of
Part III of Schedule D of the By-laws of the National Association of Securities
Dealers, Inc. (the 'Stockholder Approval'), ten Business Days after the
stockholders vote with respect to such matter (whether or not such approval is
received, and provided that consummation of a Closing (as defined in Section
2(a)) shall remain subject to satisfaction of all conditions contained herein,
including, without limitation, the conditions contained in Sections 8(iv) and
9(v)).
2. Exercise of the Options; Termination. (a) BellSouth, Cox or Advance may
exercise the BellSouth Option, Cox Option or Advance Option, as the case may be,
in whole only at any time during the Option Period. In the event that BellSouth,
Cox or Advance wishes to exercise the BellSouth Option, the Cox Option or the
Advance Option, as the case may be, such exercising party shall give written
notice thereof (the date of such notice being the 'Notice Date') to the Company
and the closing in connection therewith (a 'Closing') shall take place at the
offices of Wachtell, Lipton, Rosen Katz, 51 West 52nd Street, New York, N.Y.
10019, on a date (subject to the provisions of paragraph (b) below) not later
than the later of ten Business Days following the Notice Date or two Business
Days following the satisfaction or waiver of the Closing conditions contained in
Sections 8 and 9 of this Stock Option Agreement; provided, however, that
(subject to the provisions of paragraph (b) below) if a Closing does not occur
before the tenth Business Day after the Option Expiration Date (the 'Option
Termination Date'), the BellSouth Option, the Cox Option or the Advance Option,
as the case may be, shall automatically terminate on such date and the parties
with respect to whom such termination has occurred shall have no further rights
or obligations hereunder.
(b) To the extent that the condition to BellSouth's obligation to purchase
the BellSouth Optioned Shares set forth in Section 8(vii) hereof (the 'MFJ
Condition') has not been satisfied, the Closing with respect thereto (but not
the Option Period) may be delayed by BellSouth (if BellSouth has given the
written notice of exercise described above during the Option Period) until the
tenth Business Day after satisfaction of the MFJ Condition, and the consummation
of the exercise of the BellSouth Option may be conditioned upon satisfaction of
the MFJ Condition; provided, however, that if the Company
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fulfills its obligations pursuant to Section 6(c) hereof and BellSouth
nevertheless is unable to acquire the BellSouth Optioned Shares as a result of
the failure of the MFJ Condition to be satisfied on or prior to February 15,
1996, then the BellSouth Option shall automatically be terminated on such date
and the Closing with respect thereto shall not occur (the 'MFJ Option
Termination Date'). BellSouth agrees to provide the Company prompt written
notice of the receipt of approval, waiver or other resolution of any MFJ
problems, with the date for the Closing then being the 10th Business Day after
the day such notice is given. The term 'Business Day' shall mean any day of the
year other than a day on which banks are required or authorized to be closed in
the City of New York.
(c) On the Option Expiration Date, if the BellSouth Option, the Cox Option,
or the Advance Option, as the case may be, has not been exercised on or before
such date, or upon termination of the Bellsouth Option, the Cox Option or the
Advance Option, as the case may be, on the Option Termination Date or the MFJ
Option Termination Date, the terms of this Stock Option Agreement shall
thereafter become void and have no effect as to the Company and the Purchaser
with respect to whom such termination or expiration occurs, and no such party
shall have any liability to the other such party hereto or directors or officers
in respect thereof, except for the obligations set forth in Section 6(f), and
except that nothing herein will relieve any party from liability for any breach
of this Stock Option Agreement (except a non-wilful breach of the
representations and warranties in Sections 4 and 5, in which case termination of
this Stock Option Agreement shall be the sole remedy) prior to such termination
.
3. Payment of Purchase Price and Delivery of Certificates for Optioned
Shares. At a Closing of the BellSouth Option, the Cox Option or the Advance
Option, as the case may be, (i) BellSouth will pay the Company the BellSouth
Purchase Price, Cox will pay the Company the Cox Purchase Price and Advance will
pay the Company the Advance Purchase Price, in each case by wire or intrabank
transfer in immediately available funds to an account or accounts designated by
the Company as far in advance of such Closing as is reasonably practicable and
(ii) the Company will deliver to BellSouth, Cox or Advance, as the case may be,
a duly executed certificate or certificates representing the BellSouth Optioned
Shares, Cox Optioned Shares or Advance Optioned Shares, as the case may be,
registered in the name of BellSouth, Cox or Advance, as the case may be, in the
denominations designated by BellSouth, Cox or Advance, as the case may be, in
its notice of exercise.
4. Representations and Warranties of Company. The Company hereby makes the
following representations and warranties to each Purchaser (except the
representation and warranty set forth in paragraph (o), which is for the sole
benefit of BellSouth):
(a) Corporate Existence. The Company and each corporation which is a
'significant subsidiary' as defined in Regulation S-X under the Securities
Act of 1993, as amended (the 'Securities Act'), of the Company (a
'Significant Subsidiary') is a corporation duly organized, validly existing
and in good standing under the laws of the state of its incorporation and
has full corporate power and authority to own and operate its properties
and conduct its business as now conducted by it. Each of the Company and
each Significant Subsidiary is duly qualified as a foreign corporation to
transact business and is in good standing in each jurisdiction in which
such corporation owns or leases substantial properties or in which the
conduct of its business requires such qualification and in which failure of
such corporation to be so qualified and in good standing would have a
material adverse effect upon the business, financial condition or results
of operations of the Company and its consolidated subsidiaries considered
as a whole.
(b) Authorization; Enforcement. The Company has full corporate power
and authority to execute and deliver this Stock Option Agreement and
(subject to obtaining the Stockholder Approval) to perform its obligations
hereunder in accordance with its terms. The Company has taken all necessary
corporate action to authorize the execution and delivery of this Stock
Option Agreement and (other than obtaining the Stockholder Approval) the
consummation of the transactions contemplated hereby. This Stock Option
Agreement is a valid and legally binding obligation of the Company,
enforceable in accordance with its terms (assuming due authorization,
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execution and delivery by each Purchaser), subject to bankruptcy,
insolvency, reorganization and other laws affecting creditors' rights
generally and to general equity principles.
(c) Compliance with Law. (i) Neither the Company nor any Significant
Subsidiary has received notice, nor believes that it is in violation of any
statute, regulation or order of, or any restriction imposed by, the United
States of America, any state, municipality or other political subdivision
having jurisdiction over it or any agency thereof, in respect of the
conduct of its business or the ownership of its properties, that is
expected to have a material adverse effect on the business, financial
condition or results of operations of the Company and its consolidated
subsidiaries considered as a whole.
(ii) Subject to expiration or early termination of the
applicable waiting period under the HSR Act (as defined in paragraph
(e) of this Section 4), the execution and delivery by the Company of
this Stock Option Agreement does not, and the performance by the
Company of its obli gations hereunder and the transactions
contemplated hereby will not, violate any provision of any material
law or regulation, or any existing writ or decree of any court or
governmental authority applicable to it.
(d) Compliance with Obliqations. (i) Neither the Company nor any
Significant Subsidiary is in violation of or in default under any
obligation, agreement, covenant or condition contained in its Certificate
of Incorporation or By-laws, or in any contract, lease or other instrument
to which it is a party (or which is binding on it or its assets), other
than for such violations or defaults the occurrence of which would not have
a material adverse effect on the business, financial condition or results
of operations of the Company and its consolidated subsidiaries considered
as a whole.
(ii) The execution and delivery by the Company of this Stock Option
Agreement does not, and the performance by the Company of its
obligations hereunder and the transactions contemplated hereby will not,
violate, conflict with or constitute a breach of, or a default under,
its Restated Certificate of Incorporation or By-laws, or any other
material agreement or instrument to which it is a party (or which is
binding on it or its assets) and will not result in the creation of any
lien on, or security interest in, any of its assets.
(e) Consents and Approvals. All consents, approvals, authorizations
and orders (other than (i) under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the 'HSR Act') and (ii) Stockholder
Approval) required for the Company to execute and deliver this Stock Option
Agreement and to consummate the transactions contemplated hereby have been
obtained.
(f) Exchange Act Reports. Each of the Company's (i) Annual Reports on
Form 10-K, for the fiscal years ended after January 31, 1990, (ii)
Quarterly Reports on Form 10-Q for the current fiscal year and (iii) proxy
statement for the most recently called annual meeting (collectively, the
'SEC Documents'), has been duly and timely filed, and when filed was in
substantial compliance with the requirements of the Securities Exchange Act
of 1934 and the applicable rules and regulations of the Securities and
Exchange Commission thereunder (the 'Exchange Act'). Each of the SEC
Documents was complete and correct in all material respects as of its date
and, as of its date, did not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
(g) Financial Condition. The consolidated balance sheets of the
Company and its consolidated subsidiaries as of (i) January 31, 1990, 1991
and 1992, and (ii) October 31, 1993, together with consolidated statements
of operations, shareholders' equity and cash flows for the fiscal year then
ended in the case of (i) above, or the three months and nine months then
ended, in the case of (ii) above, contained in the SEC Documents and, in
the case of (i) above, certified by KPMB Peat Marwick, fairly present the
financial condition of the Company and its consolidated subsidiaries and
the results of their operations and changes in financial position as of the
dates and for the periods referred to and have been prepared in accordance
with generally accepted accounting principles in the United States
consistently applied (except, in the case of (ii) above,
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that the consolidated financial statements have been prepared in
accordance with Exchange Act Form 10-Q and do not necessarily reflect all
normal audit adjustments throughout the periods involved).
(h) Litigation. Except as disclosed in the SEC Documents or as
otherwise disclosed in writing to each Purchaser and identified as an
exception to this representation, there is no legal action, suit,
investigation or proceeding pending or, to the knowledge of the Company,
threatened against or affecting the Company or any of its subsidiaries or
the assets of any of them which is expected by the Company to materially
and adversely affect the business, financial condition or results of
operations of the Company and its consolidated subsidiaries considered as a
whole, or its ability to perform or observe any obligation or condition
under this Stock Option Agreement.
(i) Material Adverse Change. Except as disclosed in the SEC Documents
or as otherwise disclosed in writing to each Purchaser prior to the
exercise of the BellSouth Option, Cox Option or Advance Option, as the case
may be, there has been no material adverse change in the business,
financial condition, results of operations or prospects, of the Company and
its consolidated subsidiaries since October 31, 1993, it being understood
that the incurrence and payment of fees and expenses related to the
Acquisition shall not give rise to or result in a breach of this
representation.
(j) Governmental Investigations. To the knowledge of the Company,
except as disclosed to each Purchaser in writing and identified as an
exception to this representation, there are no pending or threatened
governmental investigations or proceedings against the Company or any of
its controlled affiliates or against any officers, directors or employees
of the Company or any of its controlled affiliates, related to possible
violations of any material Federal, state or local law.
(k) Outstanding Capital Stock. As of the date hereof, the authorized
capital stock of the Company consists of 175,000,000 shares of Common Stock
and 5,000,000 shares of Preferred Stock, par value $.10 per share. As of
February 28, 1994, 27,788 shares of Series B Preferred Stock, 530,757
shares of Series C Preferred Stock, 938 shares of Series D Preferred Stock
and 39,902,822 shares of Common Stock were validly issued and outstanding,
fully paid and nonassessable. The Company is the sole beneficial owner of
all of the outstanding capital stock of each Significant Subsidiary and has
good and valid title to all shares of such outstanding capital stock, free
and clear of all liens and encumbrances, and all shares of such outstanding
capital stock are duly authorized and validly issued and outstanding, fully
paid and nonassessable. Except for the rights set forth in the Stockholders
Agreement (as defined in Section 6(e)) and the Understanding Among
Stockholders (as defined in Section 8(viii)), there are no preemptive or
similar rights in respect of the capital stock of the Company or any
Significant Subsidiary. The Company has previously delivered to each
Purchaser true, complete and correct copies of the Restated Certificate of
Incorporation and By-laws of the Company, which are in full force and
effect on the date hereof. Except as provided in this Stock Option
Agreement and the Liberty-QVC Agreement dated as of November 11, 1993 (the
'Repurchase Agreement'), between the Company and Liberty Media Corporation
('Liberty'), as disclosed in the SEC Documents, or as disclosed to each
Purchaser in writing and identified as an exception to this representation,
there are no outstanding options, warrants, agreements, convertible or
exchangeable securities or other commitments pursuant to which the Company
or any Significant Subsidiary is obligated to issue, sell, purchase,
repurchase, return or redeem any shares of capital stock or other
securities of the Company or any Significant Subsidiary and there are not
any securities of the Company or any Significant Subsidiary reserved for
such purpose.
(l) Common Stock. The BellSouth Optioned Shares, the Cox Optioned
Shares and the Advance Optioned Shares to be issued in accordance with the
terms of this Stock Option Agreement have been duly authorized; upon
issuance to the Purchasers as provided hereunder, such shares will be
validly issued, fully paid and nonassessable; and such shares are not
subject to any preemptive or similar rights.
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(m) Nasdaq National Market. The outstanding Common Stock has been
included for quotation in the Nasdaq National Market. The Company's
agreement with the NASD with respect thereto is in full force and effect
and no action has been taken or threatened by the NASD with respect to the
suspension from trading of the Common Stock.
(n) Securities Act Registration. Assuming the accuracy of the
representation contained in paragraph (g) of Section 5 with respect to the
applicable Purchaser, the issuance and sale of the BellSouth Optioned
Shares, the Cox Optioned Shares and the Advance Optioned Shares, as the
case may be, will be exempt from the registration and prospectus delivery
requirements of the Securities Act.
(o) MFJ Activities. Set forth on Exhibit 1 is a complete list, as of
the date hereof, of (i) all interLATA transmission facilities and services
(including, without limitation, satellite uplink facilities, satellite
transponders, receive-only earth stations and 800 numbers) and (ii) any
activities which constitute the manufacture or distribution of
telecommunications equipment or the manufacture of customer premises
equipment (but not the distribution of customer premises equipment)
(collectively, 'MFJ Activities'), owned or provided by the Company or any
of its subsidiaries. Neither the Company nor any of its subsidiaries
directly or indirectly, engages or participates, alone or with any
individual or entity, whether as a principal, agent, reseller,
representative, consultant or independent contractor, in any MFJ Activity,
other than activities listed on Exhibit 1. For purposes of this Stock
Option Agreement, 'interLATA' means telecommunications between a point or
points located in one LATA, or within one service area of an independent
telephone company associated with that LATA, and a point or points located
in one or more LATAs or points outside a LATA, in each case as LATAs and
associated telephone company areas have been approved in the Modification
of Final Judgment entered August 24, 1982, by the U.S. District Court of
the District of Columbia (the 'MFJ'). BellSouth acknowledges that the
Company has no expertise in MFJ matters and that the Company's knowledge
with respect to MFJ matters consists solely of BellSouth's descriptions of
such matters.
5. Representations and Warranties of Each Purchaser. Each Purchaser hereby
severally with respect to itself only, and not jointly, makes the following
representations and warranties to the Company (except that the representation
and warranty contained in paragraph (i) is made solely by BellSouth):
(a) Corporate Existence. Such Purchaser is a corporation, duly
organized, validly existing and in good standing under the laws of its
state of incorporation.
(b) Authorization; Enforcement. Such Purchaser has full power and
authority to execute and deliver this Stock Option Agreement, and to
perform its obligations under and as contemplated by this Stock Option
Agreement in accordance with its terms. Such Purchaser has taken all
necessary action to authorize the execution and delivery of this Stock
Option Agreement and the transactions contemplated hereby. This Stock
Option Agreement is a valid and legally binding obligation of such
Purchaser, enforceable in accordance with its terms (assuming due
authorization, execution and delivery by the Company), subject to
bankruptcy, insolvency, reorganization and other laws affecting creditors'
rights generally and to general equity principles.
(c) Compliance with Law. (i) Such Purchaser has not received notice,
and does not believe, that it is in violation of any statute, regulation or
order of, or any restriction imposed by, the United States of America, any
state, municipality or political subdivision having jurisdiction over it or
any agency thereof, in respect of the conduct of its business or the
ownership of its properties, that it expects to materially and adversely
affect the ability of the Purchaser to consummate the transactions
contemplated by this Stock Option Agreement.
(ii) Subject to the consents and approvals listed in paragraph
(e) of this Section 5, the execution and delivery by such Purchaser
of this Stock Option Agreement does not, and the performance by such
Purchaser of its obligations and the transactions
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contemplated hereby will not, violate any provision of any material
law or regulation, or any existing writ or decree of any court or
governmental authority applicable to it.
(d) Compliance with Obligations. (i) Such Purchaser is not in
violation of or in default under any obligation, agreement, covenant or
condition contained in its organizational documents or by-laws, or in any
contract, lease or other instrument to which it is a party (or which is
binding on its assets), other than such violations or defaults the
occurrence of which would not materially and adversely affect such
Purchaser's ability to consummate the transactions contemplated by this
Stock Option Agreement.
(ii) The execution and delivery by such Purchaser of this Stock
Option Agreement does not, and the performance by such Purchaser of its
obligations hereunder and the transactions contemplated hereby will not,
violate, conflict with or constitute a breach of, or a default under,
any charter or similar instrument, or any other material agreement or
instrument to which it is a party or which is binding on it or its
assets.
(e) Consents and Approvals. All consents, approvals, authorizations
and orders (other than (i) under the HSR Act, (ii) with respect to
BellSouth, matters related to the MFJ and (iii) the Stockholder Approval)
of governmental or other third parties required for such Purchaser to
execute and deliver this Stock Option Agreement, and to consummate the
transactions contemplated hereby have been obtained.
(f) Litigation. There is no legal action, suit, investigation or
proceeding pending or, to the knowledge of such Purchaser, threatened
against or affecting such Purchaser or any of its subsidiaries or the
assets of any of them which is expected by such Purchaser materially and
adversely to affect its ability to perform or observe any obligation or
condition under, or consummate the transactions contemplated by, this Stock
Option Agreement.
(g) Status and Investment Intent. Such Purchaser is an 'accredited
investor' within the meaning of Regulation D under the Securities Act, and
it is purchasing the securities hereunder for its own account and (subject
to its property being at all times within its control) not with a view to
any resale, distribution or other disposition thereof.
(h) Governmental Investigation. To the knowledge of such Purchaser
there are no pending or threatened governmental investigations or
proceedings against it or any of its controlled affiliates or against any
officers, directors or employees of such Purchaser or any of its controlled
affiliates which are expected by such Purchaser to materially and adversely
affect its ability to perform or observe any obligation or condition under
this Stock Option Agreement.
(i) MFJ Activity. BellSouth represents that, to its knowledge,
neither the Company nor any of its subsidiaries, directly or indirectly
engages or participates, alone or with any individual or entity, as a
principal, agent, reseller, representative, consultant or independent
contractor, in any MFJ Activity, other than activities listed on Exhibit 1.
BellSouth further represents that, to its knowledge, the Company's
implementation of its Q-2 programming will not result in the Company
engaging or participating, alone or with any individual or entity, as a
principal, agent, reseller, representative, consultant or independent
contractor, in any MFJ Activity. The parties acknowledge that BellSouth's
representations hereunder are made in reliance upon the truthfulness and
completeness of the responses to the questions BellSouth has asked the
Company.
6. Covenants of the Parties. Each of the Company and each Purchaser makes
the following covenants applicable to it (provided, however, that paragraphs
(c), (d), (e), (i) and (m) are made only between and for the benefit of the
Company and BellSouth, and that paragraph (k) is made only between and for the
benefit of the Company and each of Cox or Advance, as the case may be):
(a) Stockholder Approval. As promptly as practicable (which may be as
late as the Company's next annual stockholders meeting), the Company shall
call a stockholders meeting to obtain Stockholder Approval for the issuance
of the BellSouth Optioned Shares, the Cox Optioned
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Shares and the Advance Optioned Shares and shall use its reasonable best
efforts to obtain the Stockholder Approval.
(b) Reservation of Common Stock. The Company shall reserve and keep
available out of its authorized but unissued shares of Common Stock the
full number of the BellSouth Optioned Shares, the Cox Optioned Shares and
the Advance Optioned Shares.
(c) Satisfaction of MFJ Condition. Exhibit 2 sets forth the steps
that the Company is required to take to permit BellSouth to purchase the
BellSouth Optioned Shares pursuant to this Stock Option Agreement in
compliance with the MFJ (the 'MFJ Transactions'). As promptly as
practicable, the Company and BellSouth shall use their reasonable best
efforts to permit BellSouth to make the investments contemplated hereby
(including acquiring the BellSouth Optioned Shares pursuant to the terms of
this Stock Option Agreement or participating in certain acquisitions and
joint ventures as contemplated by Section 6(g)) without violation of the
MFJ. Without limiting the foregoing, the Company agrees to effectuate the
MFJ Transactions promptly, and in any event within one year of the date
hereof.
(d) Other MFJ Related Activities. So long as (i) the Option Period
has not expired, (ii) BellSouth has exercised the BellSouth Option to
acquire the BellSouth Optioned Shares and is attempting in good faith to
cause the satisfaction of all conditions to Closing with respect to such
exercise, including the MFJ Condition, or (iii) BellSouth continues to own
at least 2,588,380 shares of Common Stock (as adjusted consistently with
the provisions of Section 7), the Company will avoid engaging in new
activities in a manner that would, in BellSouth's good faith judgment,
based upon the written advice of counsel (which may be internal corporate
counsel), advance written notice of which has been provided to the Company,
result in a potential violation of the MFJ, as applicable to BellSouth,
subject to BellSouth's obligation to make all reasonable efforts to permit
the Company to undertake an activity it wishes to pursue without any such
violation. In connection with the Company's obligation to avoid conducting
new activities in a manner that would result in a violation of the MFJ,
such activities may be conducted in a separate entity in which BellSouth
owns no interest (or otherwise structured to BellSouth's reasonable
satisfaction) so long as (i) BellSouth shall have been given a reasonable
opportunity (including obtaining the Company's reasonable cooperation) to
take steps to conduct such potentially violative activities (or a portion
thereof, to the extent reasonable) in the Company in a manner or to the
extent permitted by the MFJ and (ii) the Company will have the right to
reacquire such activities from such other entity if such potentially
violative activities are no longer prohibited by the MFJ; provided,
however, that the reservation of such reacquisition right does not result
in a material economic detriment to the Company.
(e) Open Market Purchases. After BellSouth becomes a party to the
Stockholders Agreement dated as of July 16, 1993, among Comcast Corporation
('Comcast'), Arrow Investments, L.P. ('Arrow'), Liberty and Barry Diller
(the 'Stockholders Agreement') and so long as Comcast, Liberty, Arrow or
BellSouth, as the case may be, remains an Eligible Stockholder thereunder,
the Company will not take any action to (i) block or prevent open market
purchases by such Eligible Stockholder (or Liberty, if it has become a
party to the Stockholders Agreement pursuant to Section 5 of the Repurchase
Agreement) of shares of Common Stock so long as such entity's total fully
diluted voting power of the Company does not exceed 35% of the fully
diluted outstanding voting power of the Company or (ii) discriminate
against such Eligible Stockholder (or Liberty, if it has become a party to
the Stockholders Agreement pursuant to Section 5 of the Repurchase
Agreement) as a stockholder or deprive BellSouth, Comcast or Arrow (or
Liberty, if it has become a party to the Stockholders Agreement pursuant to
Section 5 of the Repurchase Agreement) of full rights as a stockholder of
the Company.
(f) Additional Information and Confidentiality. Prior to the
termination of this Stock Option Agreement with respect to a Purchaser, the
Company agrees to provide such Purchaser with all information which such
Purchaser may reasonably request concerning the Company's business,
financial condition and prospects. Such Purchaser agrees to keep all such
information
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(and other confidential information previously supplied to such
Purchaser) confidential and not to use such information other than in
connection with its investment hereunder or to disclose any such
information to any third party unless (i) it receives the express written
consent of the Company, (ii) such information otherwise is or becomes
publicly available (except where such Purchaser knows that such
information became publicly available as a result of a breach of any
confidentiality arrangement) or (iii) in its reasonable judgment it is
required by applicable law to do so, and then only to the extent it is so
required, in each case, to the extent practicable, only after notice to
and consultation with the Company. In the event that this Stock Option
Agreement is terminated, such Purchaser shall forthwith return to the
Company or destroy all information (including all copies of any documents)
obtained by such Purchaser and required to be kept confidential pursuant
to this paragraph.
(g) Certain Acquisitions and Ventures. For a period of 18 months from
the date hereof, if the Company proposes to invest in, acquire or form all
or part of an originator, owner or other producer of programming or content
(including, without limitation, a film studio, network, film library or
television programming producer) in a transaction valued at greater than
$250 million, if this Stock Option Agreement has not terminated with
respect to a Purchaser or such Purchaser has acquired shares of Common
Stock pursuant to this Stock Option Agreement, the Company will give such
Purchaser along with Comcast (and Liberty, if it has become a party to the
Stockholder's Agreement pursuant to Section 5 of the Repurchase Agreement),
to the extent the Company requires third party financing in connection with
such transaction, a preferential opportunity to participate meaningfully in
any such transaction on an arm's-length basis and will negotiate in good
faith concerning any such party's participation therein. In connection with
the foregoing but subject to the obligations of BellSouth and the Company
set forth in Section 6(c) hereof, none of Comcast, Cox, Advance, Liberty or
BellSouth shall be entitled to any such preferential opportunity, to the
extent it is not legally permitted to participate in the relevant
transaction.
(h) Certain Consents and Approvals. Each of the Company and such
Purchaser shall use its reasonable efforts to obtain, or to assist the
other in obtaining, as soon as practicable (i) expiration or early
termination of the applicable waiting period under the HSR Act and (ii) all
other governmental approvals required in connection with the transactions
contemplated by this Stock Option Agreement.
(i) Operations in Ordinary Course. From the date hereof until the
Closing hereunder with respect to BellSouth or termination of this Stock
Option Agreement with respect to BellSouth, except for those actions
consented to by BellSouth in advance in writing, the Company shall conduct
its business in the ordinary course and substantially in accordance with
past practice. For purposes of this covenant, any actions that under the
Company's practices existing on the date hereof are taken or authorized to
be taken by the executive officers of the Company without approval of the
Board of Directors shall constitute ordinary course. In addition, any
action taken by the Company with the approval of the Eligible Stockholders
(as defined in the Stockholders Agreement) or its Board of Directors shall
be deemed to be in the ordinary course and substantially in accordance with
past practice if the Eligible Stockholders or the directors designated by
the Eligible Stockholders voted in favor of such action pursuant to and in
compliance with Paragraph 3(a) of the Understanding Among Stockholders (as
defined in Section 8(viii)).
(j) Transfers; Restrictive Legend. Each Purchaser acknowledges that
the shares of Common Stock to be issued pursuant to this Stock Option
Agreement have not been registered under the Securities Act and may be sold
or disposed of in the absence of such registration only pursuant to an
exemption from such registration. The certificates evidencing shares of
Common Stock to be issued pursuant to this Stock Option Agreement shall
bear the following legend until such time as such Purchaser or any
transferee thereof delivers an opinion of counsel reasonably acceptable to
the Company to the effect that such legend is no longer required:
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THESE SECURITIES WERE SOLD IN A PRIVATE PLACEMENT, WITHOUT
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE
OFFERED OR SOLD ONLY IF REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
IF AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
In addition, certificates evidencing the BellSouth Optioned Shares shall
bear the following additional legend:
THESE SECURITIES MAY BE SUBJECT TO THE RESTRICTIONS CONTAINED IN THE
STOCKHOLDERS AGREEMENT DATED AS OF JULY 16, 1993, AMONG THE SIGNATORIES
THERETO, AS MAY BE AMENDED FROM TIME TO TIME, COPIES OF WHICH MAY BE
OBTAINED WITHOUT CHARGE FROM THE SECRETARY OF QVC NETWORK, INC.
(k) Obtaining Consents. At any time from the date hereof, if any
legally imposed condition exists to the issuance of Common Stock pursuant
to the Cox Option or the Advance Option, Cox or Advance may notify the
Company that it intends to exercise the Cox Option or the Advance Option,
as applicable, upon the satisfaction of any such legally imposed condition
and request that the Company use its reasonable efforts to assist Cox or
Advance in satisfying such condition (including cooperating with the
preparation of, or participating in, any governmental filing or application
required to be made by Cox or Advance); provided, however, that (i) any
such request by Cox or Advance shall not obligate Cox or Advance to
exercise the Cox Option or the Advance Option, as applicable, and (ii) if
Cox or Advance elects not to exercise the Cox Option or the Advance Option,
as the case may be, such Purchaser shall indemnify the Company for the
costs and expenses incurred by the Company in taking any action requested
by such Purchaser pursuant to this paragraph that would not have been
otherwise required under this Stock Option Agreement. Any such condition
shall not extend the Option Termination Date.
(l) Cooperation. The parties shall cooperate with one another in
determining whether any action by or in respect of, or filing with, any
governmental body, agency, official or authority is required, or any
actions, consents, approvals or waivers are required to be obtained from
parties to any material contracts, in connection with the consummation of
the transactions contemplated by this Stock Option Agreement. Subject to
the terms and conditions of this Stock Option Agreement, the Company and
each Purchaser agree to use their reasonable best efforts to take, or cause
to be taken, all actions and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and implement, as soon as reasonably practicable, the
transactions contemplated by this Stock Option Agreement.
(m) Stockholders Agreement. At the Closing of the BellSouth Option,
BellSouth agrees to become a party to the Stockholders Agreement in
accordance with the terms of the Understanding Among Stockholders.
(n) Registration Rights. The Company will use reasonable efforts to
provide each of Advance and Cox, if such entity purchases shares of Common
Stock pursuant to its option hereunder, with one demand registration of
such shares purchased hereunder (or a portion thereof, but not less than
25% of the shares so purchased), subject to such selling entity entering
into a registration rights agreement reasonably acceptable to the Company.
Such registration rights shall not be transferable and may be exercised at
any time after the first anniversary of the purchase of shares hereunder
and not after the third anniversary thereof. The entity requesting
registration shall bear all of the Company's expenses in connection with
the registration and sale of such entity's shares.
7. Adjustments Upon Changes in Capitalization. If on or after the date of
this Stock Option Agreement there shall occur any stock dividend, stock split,
recapitalization, combination or exchange of shares, merger, consolidation,
reorganization or other change or transaction of or by the Company as a result
of which (i) shares of any class of stock, other securities, cash or other
property would have been issued in respect of the BellSouth Optioned Shares, the
Cox Optioned Shares or the Advance
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Optioned Shares had such shares been outstanding at such time (the 'Additional
Property') or (ii) the Common Stock issuable as the BellSouth Optioned Shares,
the Cox Optioned Shares or the Advance Optioned Shares shall be changed into
the same or a different number of shares of the same or another
class of stock or other securities (the 'New Optioned Securities'), then, upon
the Closing of the acquisition of the BellSouth Optioned Shares, the Cox
Optioned Shares or the Advance Optioned Shares, BellSouth, Cox or Advance, as
the case may be, shall receive for the BellSouth Purchase Price, Cox Purchase
Price or the Advance Purchase Price payable upon such Closing (x) in the case of
clause (i) above, the BellSouth Optioned Shares, the Cox Optioned Shares or the
Advance Optioned Shares plus the Additional Property and (y) in the case of
clause (ii) above, the New Optioned Securities.
8. Conditions to Obligations of each Purchaser. The obligations of each
Purchaser to consummate a Closing after the exercise of the BellSouth Option,
the Cox Option or the Advance Option, as the case may be, are, at the option of
such Purchaser, subject to the satisfaction of the following conditions
precedent (except the conditions precedent contained in paragraphs (vii) and
(viii) are for the sole benefit of BellSouth):
(i) Representations and Warranties. The representations and
warranties made by the Company in this Stock Option Agreement shall have
been true and correct when made and, except for the representations set
forth in paragraphs (c), (d), (f), (g), (h), (i), (j), (m) and (o) of
Section 4 (the 'Exercise Representations'), shall be true and correct on
the date of Closing as though such representations and warranties were made
on and as of such date, and the Exercise Representations (except, with
respect to Cox and Advance, paragraph (o) of Section 4) shall have been
true and correct on the date the BellSouth Option, Cox Option or Advance
Option, as the case may be, was exercised (except that, in each case,
representations and warranties that are made as of a specific date need be
true and correct only as of such date).
(ii) Compliance with Agreements and Conditions. The Company shall
have performed and complied in all material respects with all agreements,
obligations and conditions required by this Stock Option Agreement to be
performed or complied with by the Company at or before the date of Closing
(unless such agreement, obligation or condition was not for the benefit of
the relevant Purchaser).
(iii) Litigation. There shall not then be in effect any order
enjoining or restraining the acquisition of the BellSouth Optioned Shares,
the Cox Optioned Shares or the Advance Optioned Shares, as the case may be,
or the other transactions contemplated by this Stock Option Agreement, and
there shall not then be threatened or instituted any action or proceeding
by any governmental body or agency with respect to the acquisition of the
BellSouth Optioned Shares, the Cox Optioned Shares or the Advance Optioned
Shares or the other transactions contemplated by this Stock Option
Agreement.
(iv) Stockholder Approval. To the extent required in connection with
the purchase of the BellSouth Optioned Shares, the Cox Optioned Shares or
the Advance Optioned Shares pursuant to the terms of this Stock Option
Agreement, the Company shall have received the Stockholder Approval.
(v) Certificate. Such Purchaser shall have received a certificate
executed on behalf of the Company by an executive officer acceptable to the
Purchaser and dated the date of Closing, to the effect that the conditions
set forth in clauses (i), (ii) and (iv) above have been satisfied.
(vi) Requisite Approvals. The Company and such Purchaser shall have
obtained all requisite consents or approvals from each Federal, state and
any other governmental agency, authority or regulatory body necessary in
order to permit the acquisition and sale and issuance of the BellSouth
Optioned Shares, the Cox Optioned Shares or the Advance Optioned Shares, as
the case may be, and the consummation of the other transactions
contemplated under this Stock Option Agreement, and all HSR Act and other
governmental waiting periods applicable to such transactions shall have
expired.
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(vii) MFJ Condition. The Company shall have effected the MFJ
Transactions and BellSouth shall have concluded, in its good faith judgment
based upon the written advice of counsel (which may be internal corporate
counsel) that BellSouth's acquisition of the BellSouth Optioned Shares as
contemplated by this Stock Option Agreement would not result in a potential
violation of the MFJ.
(viii) Performance of Understanding Among Stockholders. Liberty Media
Corporation, Comcast and Arrow Investments, L.P. shall have performed all their
obligations pursuant to the Understanding Among Stockholders dated as of
November 11, 1993, among BellSouth and such parties (the 'Understanding Among
Stockholders'); BellSouth shall, concurrently with the Closing of the BellSouth
Option, become a party to the Stockholders Agreement as contemplated by the
Understanding Among Stockholders; and the Stockholders Agreement shall,
concurrently with the Closing of the BellSouth Option, be amended as
contemplated by the Understanding Among Stockholders in connection with a
purchase of BellSouth Optioned Shares pursuant to this Stock Option Agreement.
9. Conditions to Obligations of the Company. The obligations of the
Company to consummate a Closing after the exercise by a Purchaser of the
BellSouth Option, the Cox Option or the Advance Option, as the case may be, are,
at the option of the Company, subject to the satisfaction of the following
conditions precedent:
(i) Representations and Warranties. The representations and
warranties made by such Purchaser in this Stock Option Agreement shall have
been true and correct when made, and shall be true and correct on the date
of Closing as though such representations and warranties were made on and
as of such date (except that representations and warranties that are made
as of a specific date need be true and correct only as of such date).
(ii) Compliance with Agreements and Conditions. Such Purchaser shall
have performed and complied in all material respects with all agreements,
obligations and conditions required by this Stock Option Agreement to be
performed or complied with by such Purchaser at or before the date of
Closing.
(iii) Litigation. There shall not then be in effect any order
enjoining or restraining the sale and issuance of the BellSouth Optioned
Shares, the Cox Optioned Shares or the Advance Optioned Shares, as the case
may be, or the other transactions contemplated by this Stock Option
Agreement, and there shall not then be threatened or instituted any action
or proceeding by any governmental body or agency with respect to the sale
and issuance of the BellSouth Optioned Shares, the Cox Optioned Shares or
the Advance Optioned Shares, as the case may be, or the other transactions
contemplated by this Stock Option Agreement.
(iv) Certificate. The Company shall have received a certificate
executed on behalf of such Purchaser by an executive officer acceptable to
the Company to the effect that the conditions set forth in clauses (i) and
(ii) above have been satisfied.
(v) Stockholder Approval. To the extent required in connection with
the sale and issuance of the BellSouth Optioned Shares, the Cox Optioned
Shares or the Advance Optioned Shares, as the case may be, pursuant to the
terms of this Stock Option Agreement, the Company shall have received the
Stockholder Approval.
(vi) Requisite Approvals. The Company and such Purchaser shall have
obtained all requisite consents or approvals from each Federal, state and
any other governmental agency, authority or regulatory body necessary in
order to permit the acquisition and sale and issuance of the BellSouth
Optioned Shares, the Cox Optioned Shares or the Advance Optioned Shares, as
the case may be, and the consummation of the other transactions
contemplated by this Stock Option Agreement, and all HSR Act and other
governmental waiting periods applicable to such transactions shall have
expired.
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10. Further Assurances. If a Purchaser shall exercise the BellSouth
Option, the Cox Option or the Advance Option, as the case may be, in accordance
with the terms of this Stock Option Agreement, from time to time and without
additional consideration the Company will execute and deliver, or cause to be
executed and delivered, such additional or further transfers, assignments,
endorsements, and other instruments as such Purchaser may reasonably request for
the purpose of effectively transferring
ownership of the BellSouth Optioned Shares, the Cox Optioned Shares or the
Advance Optioned Shares, as the case may be, to such Purchaser as contemplated
by this Stock Option Agreement.
11. Assignment. Neither this Stock Option Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any party without the
prior written consent of the other party, except that a Purchaser may assign, in
its sole discretion, any or all of its rights, interests and obligations
hereunder to any direct or indirect wholly-owned subsidiary of such Purchaser;
provided, however, that at all times such entity remains a direct or indirect
wholly-owned subsidiary of such Purchaser. Subject to the preceding sentence,
this Stock Option Agreement will be binding upon, inure to the benefit of and be
enforceable by the parties and their respective successors and assigns.
12. General Provisions. (a) Specific Performance. The parties hereto
acknowledge that damages would be an inadequate remedy for any breach of the
provisions of this Stock Option Agreement and agree that the obligations of the
parties hereunder shall be specifically enforceable.
(b) Expenses. Whether or not the BellSouth Option, the Cox Option or the
Advance Option is exercised, all costs and expenses incurred in connection with
this Stock Option Agreement and the transactions contemplated hereby shall be
paid by the party incurring such expense.
(c) Amendments. This Stock Option Agreement may not be amended except by
an instrument in writing signed by each of the parties hereto.
(d) Notices. All notices and other communications hereunder shall be
validly given or served, as the case may be, if in writing and delivered
personally or mailed by registered or certified mail (return receipt requested)
or sent by facsimile to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
(i) if to the Company, to:
QVC Network, Inc.
1365 Enterprise Drive
Goshen Corporate Park
West Chester, PA 19380
Attention: Neal S. Grabell, Esq.
Senior Vice President and General
Counsel;
Fax: (610) 430-2380
With a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York NY 10019
Attention: Pamela S. Seymon, Esq.
Fax: (212) 403-2000
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(ii) if to BellSouth, to:
BellSouth Corporation
1155 Peachtree Street, N.E.
Atlanta, GA 30367-6000
Attention: Walter H. Alford, Esq.
Fax: (404) 249-5908
With a copy to:
Cravath, Swaine & Moore
825 Eighth Avenue
Worldwide Plaza
New York, New York 10019
Attention: Philip A. Gelston, Esq.
Fax: (212) 474-3700
(iii) if to Cox, to:
Cox Enterprises, Inc.
1400 Lake Hearn Drive
Atlanta, GA 30319
Attention: John R. Dillon
Fax: (404) 843-5104
With a copy to:
Dow, Lohnes & Albertson
1255 Twenty-Third Street
Washington, DC 20037
Attention: Stuart Sheldon, Esq.
Fax: (202) 857-2900
(iv) if to Advance:
Advance Publications, Inc.
c/o Newark Morning Ledger Co.
Star-Ledger Plaza
Newark, NJ 07101
Attention: Donald E. Newhouse
Fax: (201) 621-2604
With a copy to:
Sabin, Bermant & Gould
350 Madison Avenue
New York, NY 10017
Attention: Craig D. Holleman, Esq.
Fax: (212) 692-4406
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(e) Interpretation. When a reference is made in this Stock Option
Agreement to Sections or Exhibits, such reference shall be to a Section or
Exhibit to this Stock Option Agreement unless otherwise indicated. The headings
contained in this Stock Option Agreement are for reference purposes only and
shall not affect in any way the meaning or interpretation of this Stock Option
Agreement.
(f) Counterparts. This Stock Optlon Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same agreement,
and shall become effective when one or more of the counterparts have been signed
by each of the parties and delivered to the other parties, it being understood
that all parties need not sign the same counterpart.
(g) Entire Agreement; Third-Party Beneficiaries. This Stock Option
Agreement (including the documents and instruments referred to herein and
Exhibits 3, 4 and 5 and the agreements referred to therein) (i) constitutes the
entire agreement and supersedes all prior agreements and understandings
(including, without limitation, the Memorandum of Understanding dated November
11, 1993, between BellSouth and the Company, the Commitment Letter dated
November 19, 1993, between BellSouth and the Company and the Equity Commitment
Letter dated November 11, 1993, among Comcast, the Company, Cox and Advance,
each as heretofore amended), both written and oral, among the parties with
respect to the subject matter hereof and (ii) is not intended to confer upon any
person other than the parties hereto any rights or obligations hereunder, except
with respect to (x) paragraphs (e) and (g) of Section 6, which are for the
explicit benefit of the persons mentioned therein and (y) paragraph (m) of
Section 6, which is for the benefit of the Eligible Stockholders, and such
paragraphs may not be amended, waived or altered to the detriment of any person
benefiting therefrom without the written consent of such person.
(h) SUBMISSION TO JURISDICTION; CONSENT TO SERVICE OF PROCESS. WITH RESPECT
TO ANY CLAIM ARISING OUT OF, OR RELATED TO THE TRANSACTIONS CONTEMPLATED BY THIS
STOCK OPTION AGREEMENT, (A) THE COMPANY AND EACH PURCHASER EACH IRREVOCABLY
SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND
THE UNITED STATES DISTRICT COURT LOCATED IN THE BOROUGH OF MANHATTAN IN NEW YORK
CITY, AND (B) THE COMPANY AND EACH PURCHASER EACH IRREVOCABLY WAIVES ANY
OBJECTION WHICH IT MAY HAVE AT ANY TIME TO THE LAYING OF VENUE OF ANY SUIT,
ACTION OR PROCEEDING ARISING OUT OF, OR RELATING TO THE TRANSACTIONS
CONTEMPLATED BY, THIS STOCK OPTION AGREEMENT, BROUGHT IN ANY SUCH COURT,
IRREVOCABLY WAIVES ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN
ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM AND FURTHER IRREVOCABLY
WAIVES THE RIGHT TO OBJECT, WITH RESPECT TO SUCH SUIT, ACTION OR PROCEEDING
BROUGHT IN ANY SUCH COURT, THAT SUCH COURT DOES NOT HAVE JURISDICTION OVER SUCH
PARTY. THE COMPANY AND EACH PURCHASER EACH AGREES THAT SERVICE OF PROCESS UPON I
IN ANY SUCH SUIT, ACTION OR PROCEEDING SHALL BE DEEMED IN EVERY RESPECT
EFFECTIVE SERVICE OF PROCESS UPON IT IF GIVEN IN THE MANNER SET FORTH IN SECTION
12(d); PROVIDED, HOWEVER, THAT SUCH SERVICE SHALL NOT BE EFFECTIVE IF MADE ONLY
BY FACSIMILE.
(i) GOVERNING LAW. THIS STOCK OPTION AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK,
REGARDLESS OF THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES
OF CONFLICTS OF LAWS THEREOF.
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IN WITNESS WHEREOF, the Company and each Purchaser have caused this Stock
Option Agreement to be signed by their respective officers thereunto duly
authorized, all as of the date first written above.
QVC NETWORK, INC.,
by ___________________________________
Name:
Title:
BELLSOUTH CORPORATION,
by ___________________________________
Name:
Title:
COX ENTERPRISES, INC.,
by ___________________________________
Name:
Title:
ADVANCE PUBLICATIONS, INC.,
by ___________________________________
Name:
Title:
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EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Domestic Subsidiaries:
BANKRUPTCY, INC.
BPL, INC.
CABLE SHOPPING MALL, INC.
C.O.M.B. -- VCA, INC.
C-S MARKETING, INC.
CVN-ASC II, INC.
CVN COLORADO, INC.
CVN COMPANIES, INC.
CVN DIRECT MARKETING CORP.
CVN DISTRIBUTION CO., INC.
CVN MANAGEMENT, INC.
CVN-MICHIGAN, INC.
CVN-ST. LOUIS, INC.
CVN TV CO.
CVN-W, INC.
DIAMONIQUE CORPORATION
DIAMONIQUE (PENNSYLVANIA) CORPORATION
Q2 INC.
QVC BRITAIN I, INC.
QVC BRITAIN II, INC.
QVC BRITAIN III, INC.
QVC CHESAPEAKE, INC.
QVC DELAWARE, INC.
QVC HOLDINGS, INC.
QVC INTERNATIONAL INC.
QVC MEXICO, INC.
QVC MEXICO II, INC.
QVC MEXICO III, INC.
QVC NETWORK OF COLORADO, INC.
QVC OF THAILAND, INC.
QVC-QRT, INC.
QVC SAN ANTONIO, INC.
Foreign Subsidiaries:
QVC, an unlimited company registered and incorporated under the laws of England,
No. 2807164
QVC BRITAIN, an unlimited company registered and incorporated under the laws of
England, No. 2825241
QVC DE MEXICO, a Mexican company
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EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
QVC, Inc.:
We consent to the incorporation by reference in the registration statements
(Nos. 33-32523, 33-43447 and 33-56100) on form S-8, and in the registration
statement (No. 33-44817) on form S-3 of QVC, Inc. of our report dated March 4,
1994, related to the consolidated balance sheets of QVC, Inc. and subsidiaries
as of January 31, 1994 and 1993, and the related consolidated statements of
operations, shareholders' equity and cash flows and related schedules for each
of the years in the three-year period ended January 31, 1994, which report
appears in the January 31, 1994 annual report on form 10-K of QVC, Inc.
Our report refers to a change in accounting for income taxes.
Philadelphia, Pennsylvania
April 19, 1994
