<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 1994
----------------
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------- --------
Commission File No. 0-14999
----------------
QVC, INC.
----------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 23-2414041
- - --------------------------------- ---------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1365 Enterprise Drive, West Chester, PA 19380
------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(610) 701-1000
-------------------------------------------------------------------
(Registrant's telephone number, including area code)
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
- -
The number of shares outstanding of the registrant's common stock (net
of shares held in treasury) as of October 31, 1994, was:
Common Stock ($.01 par value) -- 40,906,497 shares
<PAGE> 2
QVC, INC.
INDEX
Part I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Consolidated Balance Sheets........................ 3
Consolidated Statements of Operations.............. 4
Consolidated Statements of Cash Flows.............. 5
Consolidated Statement of Shareholders' Equity..... 6
Notes to Consolidated Financial Statements......... 7
Management's Discussion and Analysis of Financial
Condition and Results of Operations........... 14
Part II - OTHER INFORMATION
Item 1: Legal Proceedings.......................... 22
Item 5: Other Information.......................... 25
Item 6: Exhibits and Reports on Form 8-K........... 26
Signatures.......................................... 27
</TABLE>
<PAGE> 3
QVC, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
October 31, January 31,
1994 1994
---------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 80,790 $ 15,873
Accounts receivable, less allowance for
doubtful accounts of $67,671 at October
31, 1994 and $52,759 at January 31, 1994 193,540 183,162
Inventories 198,012 148,208
Deferred taxes 56,748 59,749
Prepaid expenses 8,238 5,536
---------- -----------
Total current assets 537,328 412,528
Property, plant and equipment, at cost, less
accumulated depreciation 89,739 80,579
Cable television distribution rights, net 99,729 99,579
Other assets, net 38,086 33,664
Excess of cost over acquired net assets 244,475 251,810
---------- -----------
Total assets $1,009,357 $878,160
---------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 3,158 $ 3,114
Accounts payable-trade 130,801 81,594
Accrued liabilities 264,286 225,989
---------- -----------
Total current liabilities 398,245 310,697
Long-term debt, less current maturities 6,599 7,044
---------- -----------
Total liabilities 404,844 317,741
---------- -----------
Shareholders' equity:
Convertible Preferred Stock, par value $.10 50 56
Common Stock, par value $.01 409 399
Additional paid-in capital 451,659 446,027
Retained earnings 152,193 113,937
Foreign currency translation adjustments 202 -
---------- -----------
Total shareholders' equity 604,513 560,419
---------- -----------
Total liabilities and shareholders' equity $1,009,357 $878,160
---------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 4
QVC, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended Nine months ended
October 31, October 31,
-------------------- ---------------------
1994 1993 1994 1993
------ -------- ------- --------
<S> <C> <C> <C> <C>
Net revenue $364,467 $313,945 $964,185 $849,615
Cost of goods sold 223,165 185,043 588,292 499,002
-------- -------- -------- --------
Gross profit 141,302 128,902 375,893 350,613
-------- -------- -------- --------
Operating expenses:
Variable costs 46,869 43,976 126,920 121,277
General and administrative 45,314 31,532 114,523 98,372
Depreciation 4,636 4,175 13,154 12,278
Amortization of intangible assets 8,349 6,453 20,894 19,609
-------- -------- -------- --------
105,168 86,136 275,491 251,536
-------- -------- -------- --------
Operating income 36,134 42,766 100,402 99,077
-------- -------- -------- --------
Other income (expense):
Losses from joint ventures (7,677) (2,118) (27,248) (2,118)
Interest income 4,434 2,430 12,333 7,698
Interest expense (345) (346) (1,046) (1,242)
-------- -------- -------- --------
(3,588) (34) (15,961) 4,338
-------- -------- -------- --------
Income before income taxes and cumulative
effect of a change in accounting principle 32,546 42,732 84,441 103,415
Income tax provision (18,080) (21,215) (46,185) (50,950)
-------- -------- -------- --------
Income before cumulative effect of a change
in accounting principle 14,466 21,517 38,256 52,465
Cumulative effect of a change in accounting
for income taxes - - - 3,990
-------- -------- -------- --------
Net income $ 14,466 $ 21,517 $ 38,256 $ 56,455
-------- -------- -------- --------
Income per share:
Income before cumulative effect of a
change in accounting principle $ .29 $ .42 $ .78 $ 1.04
Cumulative effect of a change in
accounting for income taxes - - - .08
-------- -------- -------- --------
Net income $ .29 $ .42 $ .78 $ 1.12
-------- -------- -------- --------
Weighted average number of common and
common equivalent shares 48,945 50,680 48,901 50,582
-------- -------- -------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 5
QVC, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
Nine months ended
October 31,
-----------------
1994 1993
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 38,256 $ 56,455
Adjustments to reconcile net income to net
cash provided by operating activities:
(Increase) decrease in deferred taxes (3,005) 4,303
Cumulative effect of a change in accounting
for income taxes - (3,990)
Depreciation 13,154 12,278
Amortization of intangible assets 20,894 19,609
Losses from joint ventures 27,248 2,118
Losses on sales of equipment 450 -
Deferral of Q2 start-up costs (7,985) (144)
Effects of changes in working capital items* 27,621 (31,756)
-------- --------
Net cash provided by operating activities 116,633 58,873
-------- --------
Cash flows from investing activities:
Capital expenditures (26,627) (19,531)
Expenditures for cable television
distribution rights (11,569) -
Changes in other assets (423) (819)
Investments in and advances to joint ventures (22,196) (13,312)
Proceeds from sales of equipment 3,864 -
-------- --------
Net cash used in investing activities (56,951) (33,662)
-------- --------
Cash flows from financing activities:
Borrowings under revolving credit facilities - 20,000
Payments against revolving credit facilities - (20,000)
Principal payments under other debt (401) (374)
Payments under Senior term loan - (21,000)
Proceeds from exercise of stock options 2,536 983
Proceeds from exercise of warrants 3,100 6,185
-------- --------
Net cash provided by (used in) financing activities 5,235 (14,206)
-------- --------
Net increase in cash and cash equivalents 64,917 11,005
Cash and cash equivalents at beginning of period 15,873 4,279
-------- --------
Cash and cash equivalents at end of period $ 80,790 $ 15,284
-------- --------
* Analysis of effects of changes in working
capital items:
Increase in accounts receivable $(10,378) $(29,887)
Increase in inventories (49,804) (46,406)
Decrease (increase) in deferred taxes 3,001 (9,812)
Increase in prepaid expenses (2,702) (5,532)
Increase in accounts payable 49,207 29,514
Increase in accrued liabilities 38,297 30,367
-------- --------
$ 27,621 $(31,756)
-------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 6
QVC, INC. AND SUBSIDIARIES
Consolidated Statement of Shareholders' Equity
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------
Additional Foreign
Convertible Common Paid-in Retained Currency
Preferred Stock Stock Capital Earnings Translation Total
- - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance January 31, 1994 $ 56 $399 $446,027 $113,937 $ - $560,419
Net income for period - - - 38,256 - 38,256
Proceeds from exercise of
warrants - 3 3,097 - - 3,100
Proceeds from the exercise of
employee stock options - 1 2,535 - - 2,536
Conversion of shares (6) 6 - - - -
Foreign currency translation adjustments - - - - 202 202
---- ---- -------- -------- ---- --------
Balance October 31, 1994 $ 50 $409 $451,659 $152,193 $202 $604,513
---- ---- -------- -------- ---- --------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 7
QVC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Note 1 - BASIS OF PRESENTATION
The interim consolidated financial statements are unaudited and should
be read in conjunction with the audited consolidated financial statements and
notes thereto for the years ended January 31, 1994 and 1993.
In the opinion of QVC, Inc. (the "Company"), all adjustments necessary
for a fair presentation of such consolidated financial statements have been
included. Such adjustments principally consist of normal recurring items.
Interim results are not necessarily indicative of results for a full year.
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.
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies followed by the Company are set forth in Note 1
to the Company's consolidated financial statements in the QVC, Inc. Annual
Report on Form 10-K for the fiscal year ended January 31, 1994.
Note 3 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
October 31, January 31,
1994 1994
---------- ----------
(in thousands)
<S> <C> <C>
Land $ 7,818 $ 3,977
Buildings and improvements 57,317 50,627
Furniture and other equipment 34,384 33,866
Broadcast equipment 10,163 8,942
Computer equipment and software 19,288 20,005
Construction in progress 295 1,684
-------- --------
129,265 119,101
Less - accumulated depreciation (39,526) (38,522)
-------- --------
Net property, plant and equipment $ 89,739 $ 80,579
-------- --------
</TABLE>
In October 1994, the Company purchased a 600,000 square foot office and
warehouse facility in West Chester, Pennsylvania for a total cost of
approximately $9.6 million. It is anticipated that some of the operations
located in other facilities will be transferred to this building.
<PAGE> 8
Note 4 - OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
October 31, January 31,
1994 1994
---------- ----------
(in thousands)
<S> <C> <C>
Deferred taxes (Note 6) $ 20,271 $ 17,265
Investments in and advances to
joint ventures, net of
accumulated losses 6,345 11,194
Start-up costs 11,444 3,459
Satellite transponder rights 1,000 1,000
Other 1,496 1,234
-------- --------
40,556 34,152
Less - accumulated amortization (2,470) (488)
-------- --------
Net other assets $ 38,086 $ 33,664
-------- --------
</TABLE>
During fiscal 1993, the Company established electronic retailing program
service in the United Kingdom ("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 the United Kingdom
began broadcasting on October 1, 1993, and the joint venture in Mexico began
broadcasting on November 15, 1993. The joint venture agreement in the United
Kingdom 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, 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 follows (in thousands):
<TABLE>
<CAPTION>
October 31, 1994 January 31, 1994
------------------------ -----------------------
QVC - The QVC - The
Shopping Channel CVC Shopping Channel CVC
---------------- ------- ---------------- ------
<S> <C> <C> <C> <C>
Current assets $10,912 $14,512 $5,608 $9,687
Property, plant and equipment, net 2,599 2,282 1,645 1,665
Unamortized start-up costs 865 630 2,205 1,650
Current liabilities 9,053 17,085 4,181 9,507
</TABLE>
<TABLE>
<CAPTION>
Three months ended October 31, 1994 Nine months ended October 31, 1994
----------------------------------- ----------------------------------
QVC-The QVC-The
Shopping Channel CVC Shopping Channel CVC
---------------- ---------- ---------------- ------------
<S> <C> <C> <C> <C>
Net revenue $8,082 $ 9,467 $15,699 $ 21,116
Gross profit 3,222 3,198 5,406 5,979
Loss (5,720) (2,290) (20,015) (8,537)
</TABLE>
During the month of October 1993, "QVC - The Shopping Channel"
experienced net sales of $487,000, gross profit of $87,000 and a net loss of
$2.1 million.
<PAGE> 9
In fiscal 1993, the Company also entered a joint venture with Tribune
Entertainment Company and Regal Communications to form QRT Enterprises ("QRT").
QRT produced and syndicated "Can We Shop" with Joan Rivers, which commenced
broadcasting January 17, 1994. On June 15, 1994, QRT announced plans to cease
the venture with the last show broadcasted on July 15. 1994. "Can We Shop" was
a one-hour, Monday through Friday television show through which merchandise was
sold.
The Company has made a $4.4 million investment in Friday Holdings, L.P.,
a limited partnership ("Friday Holdings"). The limited partnership's purpose
was to establish or acquire businesses in the communications field and to
develop information products. This partnership is currently being liquidated.
The Company's share of gains (losses) from joint ventures during the
three and nine months ended October 31, 1994 follows (in thousands):
<TABLE>
<CAPTION>
Three months Nine Months
------------ -----------
<S> <C> <C>
QVC - The Shopping Channel $ (5,720) $ (20,015)
CVC (1,145) (4,268)
QRT 138 (1,115)
Friday Holdings (900) (1,800)
Other (50) (50)
-------- ---------
$ (7,677) $ (27,248)
-------- ---------
</TABLE>
The Company capitalized $11.4 million of costs relating to the start-up
of Q2, a new televised shopping/programming service, which fully launched on
August 1, 1994 in the United States. The capitalized start-up costs are being
amortized over eighteen months. Total amortization for the quarter ended
October 31, 1994 was $1.9 million.
Note 5 - CAPITAL STOCK
The Company has 175,000,000 shares of Common Stock authorized. There
were 40,906,497 shares outstanding at October 31, 1994 and 39,895,447 shares
outstanding at January 31, 1994. The increase in the number of shares of Common
Stock outstanding is the result of the exercise of warrants (310,000), the
exercise of employee stock options (105,000) and the conversion of Convertible
Preferred Stock (596,050).
The following table summarizes the number of Convertible Preferred
shares at October 31, 1994 and January 31, 1994 (in thousands):
<TABLE>
<CAPTION>
October 31, 1994 January 31, 1994
Shares ---------------------- ----------------------
Authorized Outstanding Par Value Outstanding Par Value
---------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Series A 10 - $ - - $ -
Series B 1,000 18 2 28 3
Series C 1,000 481 48 531 53
Series D 300 - - 1 -
---- ----
$ 50 $ 56
---- ----
</TABLE>
Note 6 - INCOME TAXES
The Company adopted the principles of Statement of Financial Accounting
Standards No. 109 ("SFAS 109") to account for income taxes in the first quarter
of fiscal 1993. The cumulative effect of adopting SFAS 109 was to increase net
income by approximately $4.0 million in the first quarter of fiscal 1993. The
provisions
<PAGE> 10
for income taxes for the three months and nine months ended October 31, 1994
and 1993 are based on the estimated annual effective tax rate after considering
the federal and state statutory rates, amortization of intangibles arising from
the CVN acquisition, which is not deductible for tax purposes, and the fact
that the losses from joint ventures provide no state income tax benefit.
In 1994, the Company received notice that the Internal Revenue Service
("IRS") has completed its examinations of the Company's federal income tax
returns through fiscal 1991. As a result of the examination, the IRS has
proposed adjustments that relate primarily to the amortization of cable
television distribution rights, that would result in a potential tax liability
for those years in excess of $56.0 million. The Company intends to vigorously
contest these proposed adjustments. While it is not possible at this time to
predict the outcome of these actions, it is the opinion of management, after
reviewing the matter with outside counsel, that this matter will be resolved
without having a material effect on the Company's financial position.
Note 7 - INCOME PER SHARE
The Company computes income per share using the modified treasury stock
method. The following table presents the computation of net income per share
for the three and nine months ended October 31, 1994 and 1993 (in thousands,
except per share amounts).
<TABLE>
<CAPTION>
Three Months Ended October 31, Nine Months Ended October 31,
------------------------------ -----------------------------
1994 1993 1994 1993
Income: ---- ---- ---- ----
<S> <C> <C> <C> <C>
Income before cumulative effect of
a change in accounting for
income taxes $14,466 $21,517 $38,256 $52,465
Cumulative effect of a change in
accounting for income taxes - - - 3,990
------- ------- ------- -------
Net income $14,466 $21,517 $38,256 $56,455
------- ------- ------- -------
Shares:
Weighted average number of common
shares outstanding 40,713 38,855 40,320 37,235
Add - common equivalent shares
assuming conversion of Series B,
Series C and Series D Convertible
Preferred Stock 5,145 6,508 5,414 7,922
Add - Common shares assumed to be
outstanding from exercise of warrants
and options 9,665 10,093 9,746 10,282
Less - Assumed purchase of Common Stock
from proceeds of exercise of warrants
and options (6,578) (4,776) (6,579) (4,857)
------- ------- ------- -------
48,945 50,680 48,901 50,582
------- ------- ------- -------
Income per share:
Income before cumulative effect of
a change in accounting principle $ .29 $ .42 $ .78 $ 1.04
Cumulative effect of a change in
accounting for income taxes - - - .08
------- ------- ------- -------
Net income $ .29 $ .42 $ .78 $ 1.12
------- ------- ------- -------
</TABLE>
<PAGE> 11
Note 8 - SUPPLEMENTAL INFORMATION ON CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine months ended
October 31,
------------------
1994 1993
---- ----
(in thousands)
<S> <C> <C>
Supplemental cash flow information:
Interest paid $ 855 $ 1,099
Income taxes paid 207 32,414
</TABLE>
During the nine months ended October 31, 1993, the only non-cash
investing and financing activity was the $202,000 foreign currency translation
adjustments related to investments in foreign joint ventures.
Note 9 - ACQUISITION BY COMCAST CORPORATION AND LIBERTY MEDIA CORPORATION
On August 4, 1994, the Company, Comcast Corporation ("Comcast"),
Liberty Media Corporation ("Liberty") and a company wholly owned by Comcast and
Liberty ("Holdings") entered into a definitive merger agreement pursuant to
which Holdings will acquire QVC and thereafter QVC will merge with a subsidiary
of Holdings. On August 11, 1994, Holdings commenced a tender offer for all
shares of stock of QVC at a cash price of $46 per share of QVC Common Stock and
$460 per share of QVC Convertible Preferred Stock. The total cost of the
acquisition for the QVC Stock not owned by Comcast or Liberty will be in excess
of $1.4 billion. Comcast and Liberty have agreed to fund a total of
approximately $303 million of the acquisition with the balance to be provided
through debt financing which, after the merger, will be an obligation of QVC.
Following the acquisition, Comcast and Liberty will own approximately 57% and
43%, respectively, of Holdings, which will own 100% of QVC.
Note 10 - LITIGATION
As previously reported to the Securities and Exchange Commission, the
Company has been named as a defendant in certain actions filed in state and
federal courts in Delaware arising out of Liberty's prior acquisitions of
shares of Home Shopping Network, Inc. ("HSN") and the Company's July 1993
letter proposal to HSN to combine HSN and the Company in a stock-for-stock
transaction (the "HSN Actions"). The plaintiffs and defendants to the HSN
Actions have executed a Memorandum of Understanding (the "MOU") setting forth
an agreement in principle for the settlement of the HSN Actions for a total
consideration of $13 million (plus $200,000 to cover administrative expenses),
all of which is to be funded by Liberty. In May 1994, the Company became a
party to a revised MOU. Under the revised MOU, the Company is not required to
pay any portion of the proposed settlement fund or the administrative expenses
of the settlement.
On August 19, 1994, plaintiffs and defendants in the HSN Actions
entered into a stipulation in connection with the contemplated settlement of
such actions (the "Delaware Settlement"), which was then filed with the Delaware
courts. On November 18, 1994,
<PAGE> 12
the parties entered into a revised Stipulation (the "Revised Stipulation"),
which was then filed with the Delaware courts. The Revised Stipulation
continues to provide for the Delaware Settlement, but also provides for the
settlement of a separate related action (the "Related Action") brought in
Delaware Chancery Court against Liberty and certain other defendants in the HSN
Actions (but not the Company). The Revised Stipulation provides that
settlement of the Related Action and the Delaware Settlement are not dependent
on each other.
Pursuant to the Delaware Settlement, three subclasses of plaintiffs
would be certified for settlement purposes. Members of two of the three
subclasses will have the right to opt out of the Delaware Settlement
pursuant to procedures set forth in the Revised Stipulation. The Delaware
Settlement contemplates that Liberty will create a settlement fund of $13.2
million (plus interest from December 31, 1993) and that the net proceeds of the
settlement fund will be distributed to the eligible members of the two
subclasses who do not opt out of the settlement in accordance with a proposed
plan of distribution. QVC is not required to pay any portion of the settlement
fund.
Consummation of the proposed Delaware Settlement is subject to a number
of conditions, including (i) obtaining final approval from the Delaware courts,
(ii) the number of shares opting out of the settlement not exceeding a
confidential, predetermined ceiling, and (iii) the dismissal of the HSN Actions
by the Delaware courts with prejudice and the release of claims in the HSN
Actions. If approved by the Delaware courts, the Delaware Settlement would
result in the dismissal with prejudice of the HSN Actions and the release of
all claims in the HSN Actions. The Delaware courts have scheduled hearings on
the proposed Delaware Settlement to be held on January 24, 1995.
In October 1993, the Company brought an action in Delaware Chancery
Court against Viacom Inc. ("Viacom"), Paramount Communications Inc.
("Paramount") and certain Paramount directors for breach of fiduciary duty in
failing to give fair treatment to the Company's merger proposal while granting
undue advantages to Viacom's merger proposal. In November 1993, the court
granted the Company's motion for a preliminary injunction against certain
anti-takeover mechanisms being used to preclude the Paramount shareholders from
accepting the Company's cash tender offer for Paramount shares. This
injunction was affirmed by the Delaware Supreme Court in December 1993. Viacom
subsequently filed a motion to dismiss the Company's complaint. Paramount's
time to respond to
<PAGE> 13
the complaint has been extended to January 26, 1995.
In July 1994, after the announcement that Comcast and Liberty would
make a joint offer to purchase all of the outstanding shares of stock of the
Company, eight putative class action lawsuits (the "Consolidated Action") were
filed by certain shareholders of the Company in Delaware Chancery Court on
behalf of a purported class consisting of all public shareholders of the
Company. The defendants in the Consolidated Action include the Company and
directors of the Company. Plaintiffs alleged, among other things, that the
defendants breached their fiduciary duties when considering the Comcast offer
in that they failed to take all possible steps to seek out and encourage the
best offer for the Company. Plaintiffs sought, among other things, an
injunction ordering the defendants to auction the Company and an award of
unspecified compensatory damages to the members of the plaintiff class.
In early August 1994, Comcast and Liberty were joined as defendants in
the Consolidated Action. On August 5, 1994, the parties reached an agreement in
principle providing for the settlement and dismissal with prejudice of the
Consolidated Action. The agreement in principle provides, among other things,
that an affiliate of Comcast and Liberty will commence a tender offer to
purchase all of the outstanding shares of QVC Common Stock for $46 per share in
cash, to be followed by a merger in which the remaining holders of QVC Common
Stock will receive $46 per share in cash. The agreement in principle also
provides that all defendants deny that any of them have committed or threatened
to commit any violations of law or breaches of duty; that plaintiffs ' counsel
will apply to the court for an award of fees (to be paid by the Company in the
event that the offer and merger are consummated) in an amount to be agreed among
plaintiffs and defendants; and that the terms of the settlement are subject to
court approval in all respects. In the event of court approval, all claims
against defendants (and certain others) that were or could have been asserted in
the settled Consolidated Action will be dismissed with prejudice and released,
and shareholders of the Company who may have had such claims at any time from
June 29, 1994 through the effective date of the merger, will be barred from
asserting them in the future. Prior to the time that court approval for the
settlement described above is sought, shareholders of the Company who are
members of the class on behalf of whom the action is brought will receive
written notice of the terms of the settlement and the claims to be settled,
released, dismissed and barred.
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.
<PAGE> 14
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 by merchandise-focused televised-shopping programs. The
average number of homes receiving the QVC Service was (in millions, except
dollar amounts):
<TABLE>
<CAPTION>
Three months ended Nine months ended
October 31, October 31,
------------------- --------------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cable homes - 24 hours per day 46.0 43.6 45.2 43.1
Cable homes - part-time 3.1 3.0 3.0 2.9
Satellite dish homes (estimated) 3.0 3.0 3.0 3.0
---- ---- ---- ----
Total 52.1 49.6 51.2 49.0
---- ---- ---- ----
Full-time equivalent homes ("FTE") 48.5 46.1 47.7 45.6
QVC net sales per FTE home $ 7.48 $ 6.79 $20.14 $18.58
</TABLE>
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 and
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 and net sales associated with the Company's infomercial division,
QDirect.
Net revenue increased in the first nine months of fiscal 1994 due to the
increase in the number of homes receiving the QVC Service as well as 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 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 declined during the quarter largely as a
result of a decrease in the gross margin percentage primarily due to reduced
sales of higher margin jewelry products as well as increases in general and
administrative expense and amortization expense associated with the launch of
Q2 on August 1, 1994. Prior to August, the Company capitalized all Q2
start-up costs which totaled $11.4 million. These costs are being amortized
over eighteen months. Total amortization of Q2 start-up costs was $1.9
million during the third quarter of 1994.
<PAGE> 15
Results of Operations
The following table sets forth the Company's Consolidated Statements of
Operations expressed as a percentage of net revenue:
<TABLE>
<CAPTION>
Three months Nine months
ended October 31, ended October 31,
----------------- -----------------
1994 1993 1994 1993
----- ----- ----- -----
<S> <C> <C> <C> <C>
Net revenue 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 61.2 58.9 61.0 58.7%
----- ----- ----- -----
Gross profit 38.8 41.1 39.0 41.3
----- ----- ----- -----
Operating expenses:
Variable costs 12.9 14.0 13.1 14.3
General and administrative 12.4 10.0 11.9 11.6
Depreciation 1.3 1.3 1.4 1.4
Amortization of intangible assets 2.3 2.1 2.2 2.3
----- ----- ----- -----
28.9 27.4 28.6 29.6
----- ----- ----- -----
Operating income 9.9 13.7 10.4 11.7
----- ----- ----- -----
Other income (expense):
Losses from joint ventures (2.1) (0.7) (2.8) (0.2)
Interest income 1.2 0.8 1.3 0.9
Interest expense (0.1) (0.1) (0.1) (0.2)
----- ----- ----- -----
(1.0) - (1.6) 0.5
----- ----- ----- -----
Income before income taxes and cumulative
effect of a change in accounting principle 8.9 13.7 8.8 12.2
Income tax provision (4.9) (6.8) (4.8) (6.0)
----- ----- ----- -----
Income before cumulative effect of a change
in accounting principle 4.0 6.9 4.0 6.2
Cumulative effect of a change in accounting
for income taxes - - - 0.4
----- ----- ----- -----
Net income 4.0% 6.9% 4.0% 6.6%
----- ----- ----- -----
</TABLE>
Net Revenue and Gross Profit
Net revenue for the three months ended October 31, 1994 was $364.5
million, an increase of 16.1% over the $313.9 million net revenue in the prior
year's quarter. During the nine months of 1994, net revenue was $964.2 million
compared to $849.6 million in the prior period which was an increase of 13.5%.
The sales increase during the third quarter was due to the 5.2% increase in the
average number of homes receiving the QVC Service and, to a greater extent, the
10.2% increase in net sales per FTE home. For the nine months ending October
31, 1994, the sales increase was due to the 4.6% increase in the average number
of homes receiving the QVC Service as well as the 8.4% increase in net sales per
FTE home.
Net revenue for the three month and nine month periods in 1994 includes
$2.2 million and $7.3 million, respectively, of net sales from the Company's
second channel, consisting of The QVC Fashion Channel, onQ and Q2, to 9.8
million and 9.3 million FTE homes, respectively, as compared to net sales from
The QVC Fashion Channel of $5.7 million and $20.4 million, respectively, for
the same three month and nine month periods in 1993 to 7.8 million FTE homes.
The Company launched a new shopping service on the second channel in August
1994, currently consisting primarily of Q2 and onQ, which is expected to
completely replace The QVC Fashion Channel by mid-December 1994. Q2 is designed
for the audience that has not yet purchased from traditional home-shopping
formats and is currently broadcast 24 hours a day Thursday through Sunday. onQ
is QVC's new fashion service for younger adults and is currently broadcast 24
hours a day two days a week. QVC is currently phasing out onQ programming on
the second channel and replacing it with Q2 programming, which the Company
anticipates will air seven days a week on the second channel by the end of
fiscal 1994. The Company believes that the decline in sales from the second
channel during the nine months ended October 31, 1994, is due to the change in
the format of the programming featured on the second channel for which a market
has not yet had time to develop.
<PAGE> 16
The Company anticipates that Q2 will be on the air seven days a week by the
end of fiscal 1994.
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 option
only on selected items. The Easy-Pay Plan permits customers to pay for such
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 41.9% and 41.0% of net revenue for the three months ended
October 31, 1994 and 1993, respectively. For the nine months ended October 31,
1994 and 1993, sales under these programs were 42.9% and 39.8% of net revenue,
respectively. Sales under these credit programs increased as a percentage of
total sales in the current quarter and nine months primarily because of more
sales under the Easy-Pay Plan. The loss provision for uncollectible accounts
under these credits programs amounted to $4.3 million in the current quarter
compared with $5.7 million in the prior year and $13.0 million in the first nine
months of 1994 compared to $15.8 million in the prior year.
The sales mix by product category as a percentage of net sales was as
follows:
<TABLE>
<CAPTION>
Three months Nine months
ended October 31, ended October 31,
----------------- -----------------
1994 1993 1994 1993
------ ------ ------ ------
<S> <C> <C> <C> <C>
Jewelry 35.7% 42.7% 38.8% 42.7%
Apparel and accessories 22.6 19.2 20.2 18.6
Housewares 12.7 11.0 12.3 11.3
Electronics 9.4 6.8 8.6 7.3
Collectibles 7.9 8.6 7.3 8.8
Other 11.7 11.7 12.8 11.3
----- ----- ----- -----
100.0% 100.0% 100.0% 100.0%
----- ----- ----- -----
</TABLE>
Gross profit for the quarter ended October 31, 1994 was $141.3 million,
or 38.8% of net revenue, compared to $128.9 million, or 41.1% of net revenue in
the prior year. For the nine months of 1994, gross profit was $375.9 million or
39.0% of net revenue compared to $350.6 million or 41.3% of net revenue in the
prior year. The principal reason for the increases in gross profit was the
increased sales volume. The decrease in the gross profit percentage in 1994 was
principally due to reduced sales of higher-margin jewelry products and stronger
sales of the Company's promotional Today's Special Value items which sell below
normal gross profit margins. Increased costs in 1994 of shipping and handling
the product that were not reflected in the charge to the customer also
contributed to the decrease in the gross profit percentage.
Variable Costs
Variable costs totaled $46.9 million and $44.0 million for the third
quarter of 1994 and 1993, respectively, and $126.9 million and $121.3 million
for the nine months of 1994 and 1993, respectively. The major components of
this expense classification are detailed below, expressed in amounts and as a
percentage of net revenue (dollars in millions):
<PAGE> 17
<TABLE>
<CAPTION>
Three months ended October 31, Nine months ended October 31,
------------------------------ -----------------------------
1994 1993 1994 1993
----------- ------------ ------------ ------------
$ % $ % $ % $ %
--- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Order processing and
customer service 17.7 4.9 16.4 5.2 48.5 5.0 45.7 5.4
Commissions and license fees 19.2 5.3 17.1 5.5 50.3 5.2 45.7 5.4
Provision for doubtful accounts 4.8 1.3 6.0 1.9 14.3 1.5 17.7 2.1
Credit card processing fees 5.2 1.4 4.5 1.4 13.8 1.4 12.2 1.4
---- ---- ---- ---- ----- ---- ----- ----
46.9 12.9 44.0 14.0 126.9 13.1 121.3 14.3
---- ---- ---- ---- ----- ---- ----- ----
</TABLE>
Order processing and customer service expenses increased as a result of
the higher sales volume. These expenses decreased as a percentage of net
revenue in 1994 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. In 1994, commissions
and license fees increased in amount as a result of the higher sales volume and
decreased as a percentage of net revenue as a result of a reduction of sales to
homes obtained under the license agreement with JCPTV. The provision for
doubtful accounts as a percentage of net revenue decreased in 1994 due to an
improvement in collection experience of QVC's revolving credit card program.
Credit card processing fees as a percentage of net revenue have remained stable.
General and Administrative
During the third quarter of 1994, general and administrative expenses
totaled $45.3 million, or 12.4% of net revenue compared to $31.5 million, or
10.0% of net revenue, in the prior year. For the nine months of 1994, general
and administrative expenses total $114.5 million or 11.9% of net revenue,
compared to $98.4 million or 11.6% of net revenue in the prior year. 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>
Three months Nine months
ended October 31, ended October 31,
---------------------------- -----------------------------
1994 1993 1994 1993
----------- ------------- ------------ -------------
$ % $ % $ % $ %
--- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Administration 14.5 4.0 11.4 3.6 38.8 4.0 38.2 4.5
Advertising and marketing 9.9 2.7 6.5 2.0 24.9 2.6 19.9 2.3
Data processing 5.2 1.4 4.3 1.4 14.5 1.5 13.3 1.6
Broadcasting 8.3 2.3 5.1 1.6 19.3 2.0 15.0 1.8
Merchandising and programming 6.0 1.6 2.8 0.9 12.7 1.3 7.9 0.9
Occupancy costs 1.4 0.4 1.4 0.5 4.3 0.5 4.1 0.5
---- ---- ---- ---- ----- ---- ----- ----
45.3 12.4 31.5 10.0 114.5 11.9 98.4 11.6
---- ---- ---- ---- ----- ---- ----- ----
</TABLE>
The increase in administration expenses during the third quarter of 1994
is principally the result of administrative costs of Q2 operations including
$2.7 million of severance and relocation costs related to the Company's decision
to consolidate the second channel services of Q2 and onQ into Q2. The remaining
increase in administrative expenses for 1994 are due to higher personnel costs.
Included in the administration expenses for the nine months ended October 31,
1993 was the $3.8 million settlement of the Shop Television Network, Inc.
litigation. Advertising and marketing expenses increased in 1994 due to
increased mailings of program guides, increases in consumer advertising as well
as increases in the costs of advertising the Company's televised-shopping
program on cable systems. Also contributing to the increase are costs related
to the Company's infomercial
<PAGE> 18
division, QDirect, for the purchase of media time. Data processing costs
increased in 1994 due to higher manpower costs associated with information
systems staffing. Broadcasting costs increased in the third quarter and
nine months of 1994 due to the launch of Q2 on August 1, 1994 and, to a lesser
extent, higher costs to enhance QVC's on-air presentation. The increase in
merchandising and programming expenses during the third quarter of 1994
reflects the launch of Q2, additional personnel needed to sustain QVC's sales
growth and additional personnel costs related to the Company's QDirect
division.
Depreciation and Amortization
Depreciation expense increased in 1994 due to the depreciation
recognized on the current year's plant and equipment additions. Amortization
expense increased in the 1994 third quarter due to the amortization of Q2
start-up costs of $1.9 million. These costs are being amortized over an
eighteen-month period. For the nine months of 1994, the increase in
amortization due to the Q2 start-up costs was partially offset due to the
reduction in amortization of debt placement fees as a result of the repayment of
the Senior term loan during the first quarter of 1993.
Operating Income
Operating income was $36.1 million during the third quarter of 1994
compared to $42.8 million in the prior year. For the nine months ended October
31, 1994, operating income was $100.4 million compared to $99.1 million in the
prior year. The decrease in operating income in the third quarter is due
primarily to the decrease in the gross margin percentage primarily due to
reduced sales of higher- margin jewelry products as well as increases in
operating expenses associated with the Q2 service. For the nine months ended
October 31, 1994, the increased gross profit resulting from the increased sales
volume offset higher operating expenses.
Losses from Joint Ventures
During 1993, the Company entered into four joint ventures which resulted in
combined losses of $7.8 million during the third quarter of 1994 and $27.2
million during the nine months of 1994. The most significant joint ventures
are those formed with British Sky Broadcasting Limited ("BSkyB") and Grupo
Televisa, S.A. de C.V. 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 all consumers
subscribing to BSkyB's service are now able to receive the new QVC service. QVC
- - - The Shopping Channel is distributed to approximately 2.7 million FTE homes.
The agreement with BSkyB requires, among other things, that the Company
provide all funding to the venture until it is profitable. The Company will
then recover all prior funding before any profits are shared. During the
three months ended October 31, 1994, QVC - The Shopping Channel operations
resulted in a $5.7 million loss, which was recorded by the Company, including
$472,000 amortization of capitalized start-up costs. For the nine months of
1994, the channel's operations resulted in a $20.0 million loss, including
$1.4 million amortization of capitalized start-up costs. During the month of
October 1993, QVC - The Shopping Channel incurred a loss of $2.1 million,
representing the first month of operations.
On November 15, 1993, the Company and Grupo Televisa, S.A. de C.V. began
broadcasting "CVC" in Mexico. CVC is distributed through broadcast television,
cable television and satellite dishes to approximately 6.6 million FTE homes.
The Company's 50% share of CVC's losses resulted in a $1.1 million and $4.3
million during the three months and nine months ended October 31, 1994,
respectively. Included in the losses were amortization of capitalized start-up
costs of $153,000 and $465,000 for the three and nine month periods,
respectively.
<PAGE> 19
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. On June 15, 1994,
QRT announced plans to cease the venture with the last show broadcasted on July
15, 1994. "Can We Shop" was a one-hour, Monday through Friday television show
through which merchandise was sold. The Company's share of the operating loss
in 1994 amounted to $1.1 million.
The Company made a one-third investment in Friday 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 $900,000 loss
and $1.8 million loss for the three and nine months ended October 31, 1994,
respectively, in association with this partnership. This partnership is
currently being liquidated.
Interest Expense
Interest expense has remained relatively constant.
Interest Income
The Company experienced higher interest income on its revolving charge
card due to higher average account balances as well as an increase in the number
of customer accounts. The Company also experienced higher interest income on
temporary cash investments.
Income Tax Provision
The Company adopted the principles of Statement of Financial Accounting
Standards No. 109 ("SFAS 109") to account for income taxes in the first quarter
of fiscal 1993. The provisions for income taxes for the three and nine months
ended October 31, 1994 and 1993 are based on the estimated annual effective tax
rate after considering the federal and state statutory rates, amortization of
intangibles arising from the CVN acquisition which is not deductible for tax
purposes, and the fact that the joint venture operations provide no state income
tax benefit.
Cumulative Effect of a Change in Accounting Principle
Effective February 1, 1993, the Company changed its method of accounting
for income taxes as required by SFAS 109, "Accounting for Income Taxes". This
statement superseded SFAS 96, which was adopted by the Company in fiscal 1988.
The cumulative effect of adopting SFAS 109 was to increase net income by
approximately $4.0 million in the first quarter of fiscal 1993.
Net Income
Net income for the third quarter of 1994 was $14.5 million compared to
net income of $21.5 million in the prior year. For the nine months ended
October 31, 1994, net income was $38.3 million compared to $56.5 million in the
prior year. 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. For the nine months ended
October 31, 1994, net cash provided by operating activities totaled $116.6
million. Net cash provided by operations was increased by the decrease in
working capital items of $27.6 million in 1994.
<PAGE> 20
The Company's capital expenditures during the nine months of 1994
totaled $26.6 million, principally for the purchase of a new office and
warehouse facility in West Chester, Pennsylvania, broadcast equipment and
computer equipment and software.
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 .15%
is currently payable on the unused portion of the revolving credit facility.
The commitment fee was reduced from .25% on March 30, 1994. The credit
agreement requires the Company to maintain certain ratios for total liabilities
to shareholders' equity and for coverage of fixed charges. No amounts have been
borrowed under this agreement in 1994. Outstanding letters of credit totaled
$6.3 million at October 31, 1994.
Working capital at October 31, 1994 was $139.1 million compared to
$101.8 million at January 31, 1994. The current ratio was 1.3 at October 31,
1994 compared to 1.3 at January 31, 1994. Long-term debt to total
capitalization was 1.1% at October 31, 1994.
During the first quarter of 1994, the Company entered into affiliation
agreements with various cable system operators for carriage of the Company's new
shopping service, Q2. The cable system operators will receive compensation from
the Company which is dependent upon the number of additional subscribers and the
launch date of Q2 on the cable system. During the nine months ended October 31,
1994, the Company has paid $11.6 million in connection with the new affiliation
agreements.
On August 4, 1994, Comcast Corporation ("Comcast"), Liberty Media
Corporation ("Liberty"), a wholly owned subsidiary of Comcast and Liberty
("Holdings") and the Company entered into a Merger Agreement (the "Merger
Agreement"), providing for the acquisition of QVC, Inc. by Holdings. Pursuant
to the Merger Agreement, Holdings commenced a tender offer to purchase all the
outstanding shares of Common and Preferred stock of QVC, Inc. for $46 and $460
per share, respectively (the "Offer"). Following the successful completion of
the Offer and the satisfaction of the other conditions set forth in the Merger
Agreement, a wholly owned subsidiary of Holdings will merge with and into QVC,
Inc. with QVC, Inc. continuing as the surviving corporation (the "Merger").
The total cost of the acquisition of the QVC stock not currently owned
by Comcast or Liberty will be in excess of $1.4 billion. Comcast and Liberty
have agreed to fund approximately $303 million of the acquisition, with the
balance to be provided through debt financing which, after the Merger, will be
the obligation of QVC. Following the consummation of the Merger, which is
subject to financing, governmental approval and certain other conditions,
Comcast and Liberty will own approximately 57% and 43%, respectively, of
Holdings, which will own 100% of QVC, and Holdings will be managed by Comcast.
<PAGE> 21
The Company will be highly leveraged, primarily as a result of the debt
incurred in connection with the Merger. The Company's ability to make
scheduled payments or to refinance its obligations with respect to its
indebtedness depends on its financial and operating performance, which, in turn,
is subject to prevailing economic conditions and to financial, business and
other factors beyond its control. There can be no assurance that the Company's
operating results will continue to be sufficient for payment of the Company's
indebtedness.
The Company believes that its present capital resources and future
operations will result in adequate financial resources to fund all future
interest and debt payments existing as of October 31, 1994, as well as capital
expenditures.
Effects of Inflation
Inflation has not had a significant impact on the results of the
Company's operations.
<PAGE> 22
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
As previously reported by QVC, Inc. (the "Company" or "QVC") in its
Annual Report on Form 10-K for the fiscal year ended January 31, 1994, and its
Quarterly Reports on Form 10-Q for the quarters ended April 30, 1994, and July
31, 1994, filed with the Securities and Exchange Commission (the
"Commission"), the Company has been named as a defendant in certain actions
filed in the state and federal courts in Delaware (the "Delaware Courts")
arising out of Liberty Media Corporation's ("Liberty") prior acquisitions of
shares of Home Shopping Network, Inc. ("HSN") and the Company's July 1993
letter proposal to HSN to combine HSN and the Company in a stock- for-stock
transaction (the "HSN Actions").
As also previously reported, the plaintiffs and defendants other than
the Company had entered into a Memorandum of Understanding (the "MOU") setting
forth an agreement in principle for the settlement of the HSN Actions for a
total consideration of $13 million (plus $200,000 to cover administrative
expenses), all of which was to be funded by Liberty. In May 1994, the
Company became a party to a revised MOU. Under the terms of the revised MOU,
the Company was not required to pay any portion of the proposed settlement
fund or the administrative expenses of the settlement. As also previously
reported, on August 19, 1994, plaintiffs and defendants in the HSN Actions
entered into a stipulation in connection with the contemplated settlement of
such actions (the "Delaware Settlement") and thereafter filed the stipulation
with the Delaware Courts.
On November 18, 1994, the parties to the HSN Actions entered into a
revised Stipulation (the "Revised Stipulation") and thereafter filed the
Revised Stipulation with the Delaware Courts. The Revised Stipulation
continues to provide for the Delaware Settlement. The Revised Stipulation also
provides for the settlement of a separate related action brought in the
Delaware Chancery Court against Liberty and certain other defendants in the HSN
Actions (but not QVC) which, among other things, alleges that Liberty's prior
tender offer for shares of HSN (the "Liberty Tender Offer") violated Section
203 of the Delaware Corporation Law (the "Section 203 Action"). The Revised
Stipulation provides that, while the settlement of the Section 203 Action and
the Delaware Settlement are being presented in a coordinated manner, they are
not dependent on each other.
Pursuant to the Delaware Settlement, the following classes would be
certified for settlement purposes: (i) all record or
<PAGE> 23
beneficial owners of HSN common stock (the "HSN Shares") from and including
December 4, 1992 through and including November 5, 1993; (ii) all sellers of
HSN Shares in the Liberty Tender Offer; and (iii) all sellers of HSN Shares
from and including March 30, 1993 through and including July 12, 1993. Members
of the subclasses described in items (ii) and (iii) immediately above have the
right to opt out of the Delaware Settlement pursuant to procedures set forth in
the Revised Stipulation. The Delaware Settlement contemplates that Liberty
will create a settlement fund of $13.2 million (plus interest thereon from
December 31, 1993) and that the net proceeds of the settlement fund will be
distributed to the eligible members of the subclasses described in items (ii)
and (iii) above who do not opt out of the Delaware Settlement in accordance
with a plan of distribution to be approved by the Delaware Courts. QVC is not
required to pay any portion of the settlement fund.
The consummation of the proposed Delaware Settlement is subject to a
number of conditions, including (i) obtaining a final order of approval of the
Delaware Settlement from the Delaware Courts, (ii) the number of shares opting
out of the settlement not exceeding a confidential, predetermined ceiling, and
(iii) the dismissal of the HSN Actions by the Delaware Courts with prejudice
and the release of the HSN/Federal Actions Settled Claims (as that term is
defined in the Revised Stipulation). If approved by the Delaware Courts, the
Delaware Settlement would result in the dismissal with prejudice of each of the
HSN Actions and the release of all HSN/Federal Actions Settled Claims by all
members of the plaintiff subclasses described above who do not opt out of the
Delaware Settlement. The Delaware Courts have issued scheduling orders
providing for, among other things, the hearings on the proposed Delaware
Settlement to be held on January 24, 1995.
The Company has denied, and continues to deny, that it has committed
any violations of law or breaches of duty as alleged by the plaintiffs in the
HSN Actions, and entered into the Delaware Settlement to eliminate the
distraction, burden and expense of continued litigation.
The foregoing descriptions of the HSN Actions and the Delaware
Settlement do not purport to be a complete summary of all terms and provisions
thereof and are qualified in their entirety by reference to the pleadings and
filings in those actions, including the Revised Stipulation.
As also previously reported, in October 1993, the Company brought an
action in the Delaware Chancery Court against Viacom Inc. ("Viacom"), Paramount
Communications Inc. ("Paramount") and certain Paramount directors for breach of
fiduciary duty in failing to give fair treatment to QVC's proposal to merge
with Paramount while granting undue advantages to Viacom's merger proposal. In
November 1993, the court granted the Company's motion for a preliminary
injunction against certain anti-takeover mechanisms being used to preclude the
Paramount shareholders from accepting the Company's cash tender offer for
Paramount shares. This
<PAGE> 24
injunction was affirmed by the Delaware Supreme Court in December 1993. Viacom
subsequently filed a motion to dismiss the Company's complaint, which is
pending. Paramount's time to respond to the complaint has been extended to on
or about January 26, 1995. In February, 1994, the Company terminated its
efforts to acquire Paramount, and Viacom eventually acquired Paramount in a
cash and stock-for-stock exchange.
As previously reported in QVC's Quarterly Report on Form 10-Q for the
quarter ended July 31, 1994, filed with the Commission, in July 1994, eight
putative class action lawsuits were filed by certain shareholders of the
Company in the Delaware Chancery Court against the Company and directors of the
Company, and subsequently consolidated by the court (the "Consolidated
Action"). Plaintiffs alleged, among other things, that the defendants breached
their fiduciary duties when considering the joint offer made by Comcast
Corporation ("Comcast") and Liberty to purchase all of the outstanding shares
of stock of the Company (see Item 5 below), by failing to take all possible
steps to seek out and encourage the best offer for the Company. Plaintiffs
sought, among other things, an injunction ordering the defendants to auction
the Company and an award of unspecified compensatory damages to the members of
the plaintiff class. In early August 1994, Comcast and Liberty were informed
by plaintiffs'counsel that they would be joined as defendants in the
Consolidated Action.
On August 5, 1994, the parties reached an agreement in principle
providing for the settlement and dismissal with prejudice of the Consolidated
Action, subject to court approval, and certain other terms and conditions,
including, among other things, the commencement by Comcast and Liberty of an
all cash tender offer at $46 per share of QVC Common Stock, subject to the
approval of the Board of Directors of the Company. The agreement in principle
also provides that all defendants deny that any of them have committed or
threatened to commit any violations of law or breaches of duty; that
plaintiffs' counsel will apply to the court for an award of fees (to be paid by
the Company in the event that the offer and merger are consummated) in an
amount to be agreed among plaintiffs and defendants; and that the terms of the
settlement are subject to court approval in all respects. In the event of
court approval, all claims against defendants (and certain others) that were or
could have been asserted in the Consolidated Action will be dismissed with
prejudice and released, and shareholders of the Company, who may have had such
claims at any time from June 29, 1994 through the effective date of the merger,
will be barred from asserting them in the future. Prior to the time that court
approval for the settlement described above is sought, shareholders of the
Company who are members of the class on behalf of whom the action is brought
will receive written notice of the terms of the settlement and the claims to be
settled, released, dismissed and barred.
On August 24, 1994, the Federal Trade Commission ("FTC") requested
from Comcast and the Company additional information on
<PAGE> 25
the proposed transactions involving the Company and Comcast (see Item 5 below).
The Company responded to the FTC's request on or about November 15, 1994. The
required waiting period under the Hart-Scott-Rodino antitrust law has expired.
However, Comcast and Liberty's parent, Tele-Communications, Inc., ("TCI"),
have agreed to provide ten days' notice to the FTC prior to consummating the
tender offer for stock of QVC. Comcast and TCI have not yet determined when
they intend to give such notice. In addition, there can be no assurance as to
what action, if any, the FTC intends to take if such notice is given.
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 5. OTHER INFORMATION.
In July 1994, Comcast and Liberty made a joint proposal to acquire, for $44
cash per share of QVC Common Stock, the approximately 65% of QVC shares that
Comcast and Liberty collectively did not already own. On August 4, 1994, the
Company entered into a merger agreement ("Merger Agreement") with Comcast,
Liberty and a wholly owned subsidiary of Comcast and Liberty ("Holdings"),
pursuant to which Holdings would acquire QVC. On or about August 11, 1994,
pursuant to the Merger Agreement, Holdings commenced a cash tender offer to
purchase all outstanding shares of QVC Common Stock at a price of $46 per share
and all outstanding shares of QVC Preferred Stock at a price of $460 per share
("Tender Offer"). Following the successful completion of the Tender Offer and
the satisfaction of the other conditions set forth in the Merger Agreement, a
wholly owned subsidiary of Holdings will merge with QVC and any remaining
shares of QVC will be converted into cash at the same price as offered in the
Tender Offer (the "Merger"). Holdings has extended its Tender Offer for the
Company to December 16, 1994.
The total cost of the acquisition of the QVC stock not currently owned
by Comcast or Liberty will be in excess of $1.4 billion. Comcast and Liberty
have agreed to fund approximately $303 million of the acquisition, with the
balance to be provided through debt financing, which, after the Merger, will be
the obligation of QVC. Following the consummation of the Merger, which is
subject to financing, governmental approval and certain other conditions,
Comcast and Liberty will own approximately 57% and 43%, respectively, of
Holdings, which will own 100% of QVC, and Holdings will be managed by Comcast.
See Schedule 14D-9 (including the Exhibits thereto), which was filed
with the Commission on behalf of the Company on August 11, 1994, and the
amendments thereto, which are incorporated by reference hereby.
<PAGE> 26
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a. Exhibits.
99. Stipulation and Agreement of Compromise and Settlement in
In re Home Shopping Network, Inc. Shareholders
Litigation, 7547 Corp., et al. v. Liberty Media
Corporation, et al., and Gerda Bartnik, et al. v. Home
Shopping Network, Inc., et al., filed on November 18,
1994, with the Delaware Court of Chancery and the United
States District Court for the District of Delaware
(without exhibits).
b. Reports on Form 8-K.
During the fiscal quarter ended October 31, 1994, no Current Reports
on Form 8-K were filed.
<PAGE> 27
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
QVC, INC.
(Registrant)
/s/ Barry Diller
---------------------------
Barry Diller
Chairman and
Chief Executive Officer
/s/ William F. Costello
----------------------------
William F. Costello
Executive Vice President
and Chief Financial Officer
Dated: December 14, 1994
<PAGE> 28
INDEX OF EXHIBITS
Exhibit No. Description
- - ----------- -----------
99. Stipulation and Agreement of Compromise and Settlement in In
re Home Shopping Network, Inc. Shareholders Litigation, 7547
Corp., et al. v. Liberty Media Corporation, et al., and
Gerda Bartnik, et al. v. Home Shopping Network, Inc., et
al., filed on November 18, 1994, with the Delaware Court of
Chancery and the United States District Court for the
District of Delaware (without exhibits).
<PAGE> 1
EXHIBIT 99
<PAGE> 2
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
<TABLE>
<S> <C> <C>
IN RE HOME SHOPPING ) Consolidated Civil
NETWORK, INC. SHAREHOLDERS ) Action NO. 12868
LITIGATION )
</TABLE>
- - ------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
7547 CORP., ET AL., )
)
Plaintiffs, )
)
V. ) Civil Action No. 12956
)
LIBERTY MEDIA CORPORATION, )
ET AL., )
)
Defendants. )
</TABLE>
- - --------------------------------------------------------------------------------
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
<TABLE>
<S> <C> <C> <C>
GERDA BARTNIK, ET AL., )
)
Plaintiffs, )
) Civil Action Nos. 93-336/347/406/
V. ) 480-MMS Consolidated
)
HOME SHOPPING NETWORK, )
INC., ET AL., )
)
Defendants. )
</TABLE>
STIPULATION AND AGREEMENT
OF COMPROMISE AND SETTLEMENT
<PAGE> 3
The parties to the above-captioned actions, by and through their
respective attorneys, have entered into the following Stipulation and Agreement
of Compromise and Settlement (the "Stipulation") subject to the approval of the
respective Courts:
WHEREAS,
A. Home Shopping Network, Inc. ("HSN") is a Delaware
corporation with its principal executive offices in St. Petersburg, Florida.
HSN is a holding company with subsidiaries that sell a variety of consumer
products by means of live, customer-interactive televised sales programs, known
as the "Home Shopping Club." HSN had, as of November 1992, approximately 64
million shares of common stock issued and outstanding (the "HSN Shares") held
by approximately 9,562 stockholders of record. HSN also had outstanding, as of
November 1992, approximately 24 million shares of Class B common stock (the
"HSN Class B Shares"), all of which were held by RMS Limited Partnership, a
Nevada limited partnership ("RMS"). Roy M. Speer, the CEO of HSN and the
chairman of the HSN board of directors (the "HSN Board"), was the non-managing
general partner of RMS. By virtue of his control over the HSN Class B Shares,
Speer controlled HSN.
B. Liberty Media Corporation ("Liberty") is a Delaware
corporation with its principal executive offices in Denver, Colorado. Liberty
is in the cable television and cable programming business. Liberty Program
Investments, Inc. ("LPI") is a Wyoming corporation and an indirect wholly owned
subsidiary of Liberty. Unless otherwise specified, Liberty and LPI are
referred to herein as "Liberty".
-2-
<PAGE> 4
C. QVC Network, Inc. ("QVC") is a Delaware corporation with its
principal executive offices in West Chester, Pennsylvania. QVC is engaged in
the business of television programming services and operates a leading
televised shopping retailer. Liberty, Comcast Corporation, a Pennsylvania
corporation ("Comcast"), and Barry Diller, the chairman and CEO of QVC, each
own outstanding QVC shares that, if combined, represent approximately a 39%
interest in QVC. Since January 1993, Liberty has owned greater than 20% of the
outstanding shares of QVC stock. Since the institution of the above-captioned
actions, QVC has changed its name to QVC, Inc. On August 4, 1994, Liberty and
Comcast entered into a merger agreement with QVC which contemplates the
acquisition of QVC by a jointly owned affiliate of Liberty and Comcast.
D. Speer proposed on or about December 2, 1992 to Dr. John C.
Malone, the chairman of Liberty, that Liberty acquire control over HSN by
purchasing a substantial amount of the HSN Class B Shares owned by RMS. Malone
and Speer agreed to meet on December 4, 1992 to discuss a possible transaction.
E. Liberty and HSN contend that actions on December 4, 1992 by
the HSN Board of Directors and/or the HSN Executive Committee caused HSN to
exempt Liberty from the restrictions on any "business combination," as defined
in Section 203 of the Delaware General Corporation Law, 8 Del. C. Section 203
("Section 203"), between HSN and Liberty.
F. Speer and Malone testified in their depositions that, during
their ensuing negotiations on December 4, 1992, Speer and Malone were unable to
reach any agreement or understanding regarding the terms of the proposed
transaction, and they
-3-
<PAGE> 5
agreed to resume their negotiations on December 5, 1992. Speer and Malone
testified in their depositions that, following further negotiations between
Speer and Malone on December 5, 1992, Liberty and RMS entered into an agreement
in principle, dated December 4, 1992, whereby Liberty agreed to purchase from
RMS 20 million HSN Class B Shares for $60 million in cash and four million
shares of Liberty Class A common stock (the "Agreement in Principle"). The
Agreement in Principle also provided that, upon Liberty's request, RMS would
convert its remaining HSN Class B Shares into HSN Shares, as permitted under
HSN's certificate of incorporation. On December 11, 1992, Liberty filed with
the Securities and Exchange Commission (the "SEC") a Schedule 13D relating to
HSN which stated that Liberty had no "present plans or proposals" for a merger
involving HSN, but reserved the right to change its intentions in this regard.
G. On February 11, 1993, following certain amendments to
the Agreement in Principle and various regulatory approvals, Liberty acquired 20
million HSN Class B Shares from RMS upon the payment of $58 million in cash and
the issuance to RMS of four million shares of Liberty Class A common stock (the
"RMS Stock Purchase"). Liberty contends that the consideration issued by
Liberty to RMS was worth about $9 per HSN Class B Share at the time of the RMS
Stock Purchase. Following the RMS Stock Purchase, Liberty controlled
approximately 23 percent of HSN's outstanding equity securities and
approximately 65 percent of the voting power of HSN's outstanding stock.
H. In connection with the RMS Stock Purchase, Speer
resigned as CEO of HSN (although he remained chairman of the HSN Board) and Les
R. Wandler, Franklin
-4-
<PAGE> 6
J. Chu, J. Anthony Forstmann, Thomas A. James, John J. McNamara, William J.
Ramsey and Michael V. Roberts resigned as members of the HSN Board.
Immediately thereafter, Speer, then the sole remaining HSN director, appointed
J. Anthony Forstmann and John J. McNamara to fill two of the vacancies on the
HSN Board in accordance with HSN's by-laws. Speer then appointed John C.
Malone, Peter R. Barton, Liberty's President and CEO, Robert R. Bennett, a
Liberty Senior Vice President, and John M. Draper, Liberty's general counsel
and a Liberty Senior Vice President, to fill the remaining vacancies on the HSN
Board.
I. After the RMS Stock Purchase, RMS continued to own
approximately four million HSN Class B Shares, subject to an agreement between
RMS and Liberty that RMS would convert such HSN Class B Shares into HSN Shares
from time-to-time at the request of Liberty or before any sale or pledge of
such shares by RMS. Under the HSN certificate of incorporation, if the total
number of outstanding HSN Class B Shares falls below 22.8 million (an event
that Liberty could trigger pursuant to its agreement with RMS), the HSN Shares
and the HSN Class B Shares vote together as a single class on any fundamental
corporate transaction involving HSN, including a merger proposal. As a result
of the RMS Stock Sale, Liberty contends that it owned sufficient HSN Class B
Shares to dictate the outcome of any vote by the HSN stockholders in which the
holders of HSN Shares and HSN Class B shares would vote together as a single
class. Accordingly, in the event the number of outstanding HSN Class B Shares
fell below 22.8 million, Liberty contends that it could approve any such
fundamental corporate transaction
-5-
<PAGE> 7
involving HSN subject to a single class vote without regard to the vote of the
other holders of HSN Shares.
J. Immediately after the closing of the RMS Stock Purchase on
February 11, 1993, Liberty delivered a merger proposal to the HSN Board which
contemplated the acquisition by Liberty of all HSN Shares not already owned by
Liberty for a package of cash and stock valued by Liberty at $9 per share (the
"Initial Merger Proposal"). In an amendment, dated February 16, 1993, to its
Schedule 13D relating to HSN, Liberty stated that, aside from the Initial
Merger Proposal, Liberty had no other plan or proposal for a merger involving
HSN, but reserved the right to change its intentions in this regard.
K. In response to the Initial Merger Proposal, the HSN
Board appointed a special committee of HSN directors, who were not employees of
either HSN or Liberty, to review and consider the Initial Merger Proposal and,
if appropriate, to negotiate the terms and conditions of any merger agreement
between HSN and Liberty (the "Special Committee"). The Special Committee,
which initially consisted of Forstmann and McNamara, retained First Boston
Corporation ("First Boston") and Baker & McKenzie to supply, respectively,
financial and legal advice regarding the Initial Merger Proposal.
L. Following the announcement in February 1993 of the
Initial Merger Proposal, putative class action lawsuits entitled Arazie v. John
C. Malone, et al., C. A. No. 12868 (Del. Ch.); Feder v. John C. Malone, et
al., C.A. No. 12869 (Del. Ch.); DCA Grantor Trust and Jonathan Greenwald v.
Home Shopping Network, Inc., et al., C. A. No. 12870 (Del. Ch.); Steinberg, et
al. v. John C. Malone, et al., C.A. No. 12871 (Del. Ch.);
-6-
<PAGE> 8
Laccetti v. Roy M. Speer, et al., C.A. No. 12873 (Del. Ch.); Renner v. John C.
Malone. et al., C.A. No. 12875 (Del. Ch.); Lucas v. John C. Malone. et al.,
C.A. No. 12877 (Del. Ch.); and Greer, et al, v. John C. Malone. et al., C.A.
No. 12878 (Del. Ch.) were filed in the Court of Chancery for the State of
Delaware, in and for New Castle County (the "Delaware Chancery Court"), on
behalf of unspecified classes of HSN stockholders. Pursuant to orders approved
by the Delaware Chancery Court on February 19, 1993 and March 15, 1993, these
eight actions were consolidated for all purposes under the caption In re Home
Shopping Network, Inc. Shareholders Litigation, Cons. C.A. No. 12868 (the
"HSN Stockholder Action"). The original defendants in the HSN Stockholder
Action included Liberty, Malone, Barton, Bennett, Draper, Speer, RMS, Wandler
and HSN.
M. Plaintiffs in the HSN Stockholder Action originally
alleged that the Initial Merger Proposal was fundamentally unfair to the public
stockholders of HSN, that the consideration to be received by HSN stockholders
under the Initial Merger Proposal did not represent the fair value of HSN
Shares, and that the HSN directors breached their fiduciary duties in
responding to, and Liberty breached its fiduciary duties in connection with
making, the Initial Merger Proposal. Plaintiffs further asserted that the
Initial Merger Proposal was not the result of arm's-length negotiations and was
not based upon any independent appraisal of the value of the HSN Shares, HSN's
assets or business, but was fixed arbitrarily by defendants as part of an
alleged plan to enable Liberty to seize HSN's valuable businesses, assets and
market potential at the lowest possible price and to obtain benefits
disproportionate with those to be received by HSN's public shareholders through
the proposed merger. Plaintiffs alleged that, in announcing the Initial Merger
Proposal,
-7-
<PAGE> 9
defendants failed to disclose the full extent of the future earnings potential
of HSN and its expected increase in profitability, as well as the current value
of its assets. In addition, plaintiffs alleged that Speer and RMS breached
their fiduciary duties to the HSN stockholders in approving and consummating
the RMS Stock Purchase, and that Liberty aided and abetted their supposed
breaches of fiduciary duty. Plaintiffs sought to enjoin consummation of the
Initial Merger Proposal, to recover unspecified money damages and to rescind
the RMS Stock Purchase.
N. On February 23, 1993, Liberty advised the Special
Committee that the Initial Merger Proposal had been revised to provide that
each HSN Share would be converted into the right to receive from Liberty $5.50
in cash and one-tenth of a share of Liberty Class A common stock, a package of
cash and securities Liberty valued at approximately $8.50 (the "Revised Merger
Proposal"). In an amendment, dated February 24, 1993, to its Schedule 13D
relating to HSN, Liberty stated that, aside from the Revised Merger Proposal,
Liberty had "no present plans or proposals" for a merger involving HSN but
reserved the right to change its intentions in this regard.
O. On March 30, 1993, Malone and other representatives of
Liberty met with Diller, other representatives of QVC and representatives of
Comcast to discuss generally the possible acquisition by QVC of an interest in
HSN. According to deposition testimony by representatives of Liberty and QVC,
(i) the participants did not discuss any specific terms, plans or proposals
regarding a possible transaction by QVC which related to HSN; (ii) at the
conclusion of the meeting, the participants understood that there was no
agreement, plan, understanding or expectation between Liberty and QVC regarding
a
-8-
<PAGE> 10
possible transaction relating to HSN; (iii) during a meeting on or about April
5, 1993, counsel for Liberty and QVC confirmed that there was no agreement,
plan, understanding or expectation between Liberty and QVC regarding a possible
transaction relating to HSN; and (iv) as of that time, there was no plan,
agreement, understanding or expectation that discussions with respect to such a
possible transaction would occur in the future.
P. On April 9, 1993, Liberty withdrew the Revised Merger
Proposal. Liberty advised the Special Committee that Liberty was withdrawing
the Revised Merger Proposal because of uncertainties arising as a result of
allegations of improprieties in transactions between HSN and certain of its
affiliates, as well as certain legal actions and claims asserted against HSN,
all of which were expected by Liberty to cause a delay in consummating the
Revised Merger Proposal. Following the withdrawal of the Revised Merger
Proposal, the HSN Board dissolved the Special Committee. In an amendment,
dated April 12, 1993 to its Schedule 13D relating to HSN, Liberty stated that
it had no "present plans or proposals" which related to an extraordinary
corporate transaction involving HSN but reserved the right to change its
intentions in this regard.
Q. By mid-April 1993, certain of HSN's reported results had
declined and widespread allegations of and government investigations into
possible improprieties by certain senior HSN officers were continuing. Liberty
has stated that, because it continued to believe in the fundamental soundness
of HSN's business and in the ability of new management to improve HSN's
prospects, Liberty determined in mid-April to commence a tender offer for HSN
Shares to demonstrate Liberty's confidence in the continuing viability of HSN.
On April 19, 1993, Liberty issued a press release disclosing its intention
-9-
<PAGE> 11
to commence a partial tender offer at $7 per HSN Share to acquire up to 15
million HSN Shares. In an amendment, dated April 19, 1993, to its Schedule 13D
relating to HSN, Liberty stated that it had no "current plans or proposals"
relating to a merger involving HSN but reserved the right to change its
intentions in this regard.
R. On April 23, 1993, Liberty commenced a partial tender offer to
purchase up to 15 million HSN Shares at $7 per share (the "Liberty Tender
Offer"). Liberty's offer to purchase HSN Shares pursuant to the Liberty Tender
Offer, dated April 23, 1993 (the "Offer to Purchase"), stated that (i) Liberty
has no present plans or proposals for a merger involving HSN but that Liberty
reserved the right to change its intentions in this regard, and (ii) other than
the negotiations between Liberty and Speer regarding the RMS Stock Purchase and
the communications relating to the Initial Merger Proposal and the Revised
Merger Proposal, there had been no contacts or negotiations between Liberty and
HSN concerning a merger involving HSN.
S. Following the commencement of the Liberty Tender Offer, the
HSN Board formed another Special Committee, again consisting of non-management
directors Forstmann and McNamara, to review the Liberty Tender Offer and make
certain recommendations to the HSN Board. The Special Committee once again
retained First Boston and Baker & McKenzie to provide financial and legal
advice.
T. Plaintiffs in the HSN Stockholder Action amended their
complaint on April 26, 1993 and named as defendants the persons and entities
named in the original complaint, as well as LPI, Forstmann, McNamara and Gerald
F. Hogan (who was recruited by Liberty to become the CEO and a director of HSN
after the RMS Stock
-10-
<PAGE> 12
Purchase). The amended and supplemental complaint in the HSN Stockholder
Action restated the core allegations of the original complaint and included the
further allegations that, among other things; (i) the Liberty Tender Offer was
coercive, contained an unfair price, was timed manipulatively to take advantage
of a recent drop in the price of HSN Shares due to the recently disclosed
adverse financial results of HSN, various public disclosures concerning
allegedly questionable transactions involving HSN, and the withdrawal of the
Revised Merger Proposal by Liberty; (ii) the HSN directors breached their
fiduciary duties of due care, candor and loyalty by failing to protect HSN's
public stockholders from the Liberty Tender Offer; and (iii) Liberty's
disclosures in the Offer to Purchase were false and misleading.
U. As to the alleged disclosure violations by Liberty in its
Offer to Purchase, plaintiffs in the HSN Stockholder Action asserted that the
reasons given by Liberty for its withdrawal of the Revised Merger Proposal
(e.g., the likely delay in the consummation of the Revised Merger Proposal)
were false and misleading. Plaintiffs alleged that, through its supposedly
active involvement in the day-to-day business of HSN following the RMS Stock
Purchase, Liberty knew of the allegations of improprieties which Liberty
ultimately used as a basis for its withdrawal of the Revised Merger Proposal,
yet took advantage of the drop in the market price of HSN stock caused by the
disclosure of this previously known information to announce the Liberty Tender
Offer at $7 per share. Additionally, plaintiffs asserted that Liberty failed
to disclose in its Offer to Purchase, among other things, the nature of the
purported "uncertainties" relating to the allegations of improper business
practices at HSN, the supposedly forecasted outcome of the
-11-
<PAGE> 13
"uncertainties" and the implications for HSN or its shareholders flowing from
the "uncertainties."
V. In the amended and supplemental complaint filed with the
Delaware Chancery Court on April 26, 1993, plaintiffs in the HSN Stockholder
Action sought, in addition to the relief sought in their original complaint,
rescission of the RMS Stock Purchase, an injunction preventing consummation of
the Liberty Tender Offer, an order enjoining defendants from taking any action
to eliminate the supposedly separate class voting rights of the holders of HSN
Shares and HSN Class B Shares on any business combination involving HSN, and
unspecified money damages.
W. In their briefs in support of their motion to enjoin the
closing of the Liberty Tender Offer, plaintiffs in the HSN Stockholder Action
attacked disclosures made by Liberty in the Offer to Purchase and by HSN (and
allegedly Liberty) in a Solicitation/Recommendation Statement that was mailed
to HSN stockholders on May 6, 1993 (the "Schedule 14D-9"). Plaintiffs argued
that (i) Liberty, through its Offer to Purchase, misled HSN's stockholders into
believing that the Liberty Tender Offer was the only realistic opportunity for
HSN stockholders to dispose of their HSN Shares at an above-market price
because of HSN's bleak future; (ii) Liberty, through the Offer to Purchase,
made false or misleading disclosures concerning its reasons for withdrawing the
Revised Merger Proposal; (iii) Liberty and HSN, through the Offer to Purchase
and the Schedule 14D-9, misled HSN stockholders by suggesting that, under HSN's
certificate of incorporation, owners of the HSN Shares and HSN Class B stock
would vote together on any fundamental corporate transaction involving HSN,
including a merger proposal; and
-12-
<PAGE> 14
(iv) the Schedule 14D-9 misleadingly portrayed the activities of the HSN
Board and the HSN Special Committee in connection with the Liberty Tender
Offer.
X. On April 26, 1993, four HSN stockholders commenced an action
in the Delaware Chancery Court on behalf of a putative class of HSN
stockholders (other than defendants) styled as 7547 Corp. v. LIBERTY Media
Corporation, C.A. No. 12956 (the "Section 203 Action"). The defendants in the
Section 203 Action are Liberty, LPI, HSN, Speer, Wandler, Chu, Forstmann,
James, McNamara, Ramsey and Roberts. Plaintiffs in the Section 203 Action
allege that, prior to the time Liberty became an "interested stockholder" of
HSN (within the meaning of Section 203), no effective action was taken by the
HSN Board to exempt Liberty from the restrictions imposed by Section 203 on any
"business combination" between HSN and Liberty. Plaintiffs in the Section 203
Action contend that, as a non-exempt "interested stockholder" of HSN, Liberty
was proposing to engage in a prohibited "business combination" within the
meaning of Section 203 by purchasing additional HSN Shares through the Liberty
Tender Offer. Plaintiffs in the Section 203 Action alternatively allege that
the HSN directors breached their fiduciary duties in granting an exemption from
Section 203 to Liberty, and that any such exemption is defective and invalid
because the HSN directors failed to exercise their independent judgment due to
Speer's control over all of the HSN directors in December 1992. Plaintiffs in
the Section 203 Action additionally assert that Liberty's Offer to Purchase
contained certain misrepresentations and omissions relating, among other
things, to Liberty's status as an "interested stockholder" under Section 203,
to Liberty's ability to engage in a "business combination" with HSN prior to
December 1995, and to the actions
-13-
<PAGE> 15
taken by the HSN Executive Committee to exempt Liberty from the restrictions on
"business combinations" under Section 203. Plaintiffs in the Section 203
Action initially sought to enjoin the Liberty Tender Offer, as well as to
obtain declaratory relief regarding Liberty's alleged status under Section 203
as a non-exempt "interested stockholder" of HSN, unspecified money damages and
an injunction prohibiting Liberty from engaging in any "business combination,"
as defined in Section 203, with HSN until December 1995.
Y. On May 3, 1993, McNamara resigned from the HSN Board. Because
HSN's by-laws provided that any committee of the HSN Board must consist of at
least two members, McNamara's resignation reduced the Special Committee to a
single member and thus precluded the Special Committee from taking further
action with regard to the Liberty Tender Offer. Although First Boston was
advised by Baker & McKenzie that the Special Committee could no longer
function, HSN requested that First Boston present its report on the financial
terms of the Liberty Tender Offer to the HSN Board on May 5, 1993, which it
did. At the May 5, 1993 meeting, the HSN directors recognized that five out of
six members of the HSN Board had a conflict of interest regarding the Liberty
Tender Offer because of their relationships at that time with Liberty. The HSN
Board then directed HSN's management to disseminate to HSN's stockholders the
Schedule 14D-9, as required under the Exchange Act, explaining that the HSN
Board was unable to take a position on the Liberty Tender Offer. The HSN
Schedule 14D-9 also disclosed the reasons for the Special Committee's inability
to take a position on or to evaluate the Liberty Tender Offer, summarized First
Boston's presentation to the HSN Board on May
-14-
<PAGE> 16
5, 1993, and explained that none of HSN's officers or directors intended to
tender their HSN Shares into the Liberty Tender Offer.
Z. On May 10, 1993, plaintiffs in the HSN Stockholder Action
moved for leave to file a second amended and supplemental complaint in
connection with their motion to enjoin preliminarily the Liberty Tender Offer.
The second amended complaint restated the allegations of the first amended
complaint and set forth additional allegations against Liberty regarding its
supposed failure to disclose material information in connection with the
Liberty Tender Offer. Plaintiffs in the HSN Stockholder Action also asserted
that defendants violated Section 211 of the General Corporation Law of the
State of Delaware, 8 Del. C. Section 211 ("Section 211"), by not holding an
annual meeting of HSN stockholders within the time requirements set forth in
Section 211. Plaintiffs also asserted that the Schedule 14D-9 failed to
inform HSN stockholders that (i) HSN management had determined that recent
disclosures regarding supposed improprieties involving HSN would not have a
materially negative impact on HSN's business operations or future financial
performance, and (ii) pursuant to HSN's articles of incorporation, Liberty
could not effectuate a merger of HSN without a separate vote by the holders of
HSN Shares.
AA. For purposes of plaintiffs' motions in the HSN Stockholder
Action and the Section 203 Action to preliminarily enjoin the Liberty Tender
Offer, the Delaware Chancery Court, following expedited discovery and a
hearing, considered certain of the claims of plaintiffs in both actions. On
May 19, 1993, the Delaware Chancery Court issued a memorandum opinion denying
plaintiffs' motions to enjoin the Liberty Tender Offer. In In re Home Shopping
Network, Inc. Shareholders Litig.; 7547 Corp., et al., v.
-15-
<PAGE> 17
Liberty Media Corporation, et al., Cons. C.A. No. 12868, C.A. No. 12956,
Chandler, V.C. (Del. Ch. May 19, 1993), the Delaware Chancery Court found that
plaintiffs in the action had not shown a reasonable probability of success on
the merits as to the claims before the Court for purposes of the motion to
warrant the issuance of a preliminary injunction. As to the motion by
plaintiffs in the Section 203 Action to enjoin preliminarily the Liberty Tender
Offer, the Delaware Chancery Court concluded preliminarily that the Liberty
Tender Offer was not a "business combination" within the meaning of Section 203
and the Delaware Chancery Court did not reach the issue of whether Liberty
received an exemption from Section 203. At the close of the Liberty Tender
Offer on May 20, 1993, the holders of 23,257,850 HSN Shares had tendered their
stock to LPI. Liberty completed the purchase of 16,296,602 HSN Shares on June
1, 1993, pursuant to the Liberty Tender Offer, for $7 per HSN Share.
AB. In an amendment, dated June 1, 1993, to its Schedule 13D
relating to HSN, Liberty stated that it had no "present plans or proposals" for
a merger involving HSN but reserved the right to change its intentions in this
regard.
AC. On June 16, 1993, the Delaware Chancery Court granted leave
for plaintiffs in the HSN Stockholder Action to file their second amended and
supplemental complaint.
AD. On or about June 30, 1993, the FCC provided over-the-air home
shopping stations, like HSN, with the conditional right to be carried on local
cable television systems under the "must-carry" provisions of the Cable TV
Consumer Protection
-16-
<PAGE> 18
Act of 1992. Following the announcement of the FCC ruling, there was an
increase in the price of HSN Shares.
AE. On July 1, 1993, representatives of Liberty, QVC and Comcast
(and their respective legal advisors) met to discuss the terms of a proposed
stockholders agreement relating to the securities of QVC held by Liberty,
Comcast and Diller. Defendants in the Delaware Federal Action assert that no
discussion took place during the July 1, 1993 meeting concerning any plan or
proposal to merge QVC and HSN.
AF. On or about July 2, 1993, representatives of Liberty, QVC and
Comcast discussed a proposal by QVC to merge HSN and QVC. According to
deposition testimony by representatives of Liberty and QVC, (i) the
participants reached a preliminary understanding that, subject to numerous
conditions, QVC was prepared to propose that QVC and HSN engage in a business
combination whereby QVC stockholders would exchange each share of QVC stock for
five HSN Shares and an additional security, the value of which was tied to
certain contingent liabilities of HSN; (ii) the parties understood at this time
that they had no agreement relating to the QVC-HSN merger proposal and that QVC
was not prepared to make the proposal until Liberty and QVC had resolved such
conditions, including finalizing a stockholders agreement relating to QVC,
determining which parties would own specific amounts of HSN Class B Shares,
resolving various legal issues relating to the QVC-HSN merger proposal, and
preparing and executing definitive documents relating to the QVC-HSN merger
proposal; (iii) subsequent to July 2, 1993 and through on or about July 12,
1993, Liberty and QVC continued their discussions regarding a possible business
combination between QVC and HSN; and (iv) on or about July 12,
-17-
<PAGE> 19
1993, Liberty and QVC reached agreement with respect to Liberty's support of
the QVC Merger Proposal and the various other conditions to the making of such
proposal that they had been discussing.
AG. On July 12, 1993, QVC and Liberty publicly announced that QVC
had delivered a merger proposal to HSN which, among other things, contemplated
the merger of a newly formed, wholly owned subsidiary of HSN with and into QVC,
and the conversion of each outstanding share of QVC common stock into five HSN
Shares and an additional security, the value of which was tied to certain
contingent liabilities of HSN (the "QVC Merger Proposal").
AH. Following the public disclosure of the QVC Merger Proposal,
plaintiffs in the HSN Stockholder Action moved for leave to file a third
consolidated amended and supplemental class action complaint, and leave was
granted on July 14, 1993. In addition to restating the allegations against the
persons and entities named as defendants in the second amended complaint,
plaintiffs in the HSN Stockholder Action added QVC as a defendant and alleged
that the financial terms described within the QVC Merger Proposal were unfair
to HSN's public stockholders. Plaintiffs asserted in the third amended
complaint that the proposed QVC-HSN merger was a de facto acquisition of HSN
by Liberty, aided and abetted by QVC, that would provide disproportionate
benefits to Liberty and QVC stockholders. In addition to the relief sought in
the second amended complaint, plaintiffs sought in the third amended complaint
to rescind the Liberty Tender Offer and to enjoin consummation of the
transaction contemplated by the QVC Merger Proposal.
-18-
<PAGE> 20
AI. Following the announcement on July 12, 1993 of the QVC Merger
Proposal, three putative class action lawsuits entitled Gerda Bartnik, et al.
v. Home Shopping Network, Inc. et al., C. A. No. 93-336 (D. Del.); Beriro v.
Home Shopping Network, Inc., et al., C. A. No. 93-347 (D. Del.); and Metzger
v. Home Shopping Network, et al., C.A. No. 93-406 (D. Del.) were filed in the
U.S. District Court for the District of Delaware (the "Delaware Federal
Court"). The three complaints were consolidated for all purposes by order of
the Delaware Federal Court on September 14, 1993. On December 16, 1993, three
additional putative class action lawsuits entitled Kern Option Company v.
Liberty Media Corporation, et al., C.A. No. 93-N-1557 (D. Colo.); Lucas v.
Liberty Media Corporation, et al., C.A. No. 93-N-1596 (D. Colo.); and Barish
v. Liberty Media Corporation, et al., C. A. No. 93-N-1629 (D. Colo.) that had
been filed in, consolidated by and transferred from the United States District
Court for the District of Colorado were for all purposes consolidated by the
Delaware Federal Court with the above-mentioned proceedings under the caption
Bartnik, et al. v. Home Shopping Network. Inc., et al., C.A. Nos.
93-336/347/406/480-MMS-Consolidated (D. Del.) (the "Delaware Federal Action").
The defendants in the Delaware Federal Action include Liberty, LPI, Malone,
Barton, Bennett, QVC, HSN, Hogan, Forstmann, McNamara, Speer and Wandler.
AJ. Plaintiffs in the Delaware Federal Action alleged, among other
things, that defendants other than QVC had violated the federal securities
laws, including Sections 10(b) and 14(e) of the Exchange Act, and Rule 10b-5
promulgated thereunder, as well as state law on negligent misrepresentation, as
a result of an alleged scheme to induce
-19-
<PAGE> 21
members of the plaintiff class to sell HSN Shares during the class period at
artificially depressed prices. Liberty, Malone, Barton and Hogan were alleged
to have liability to the members of the putative class due to their control
over HSN and the company's disclosures, and Liberty's purchases and Speer's
sales of HSN stock without the disclosure of material, non-public information.
Plaintiffs sought unspecified damages on behalf of a putative class consisting
of all purchasers of HSN Shares prior to April 9, 1993 who thereafter sold such
shares on public exchanges prior to July 12, 1993 or in the Liberty Tender
Offer. QVC was named in a single count in the complaint as an aider and
abetter of violations of Section 10(b) and Rule 10b-5 by certain of the other
defendants.
AK. Plaintiffs in the Delaware Federal Action alleged that,
between April 9, 1993 and July 12, 1993, defendants failed to disclose their
"plans and expectations" for a merger of HSN and QVC. Plaintiffs also alleged
that (i) the non-QVC defendants made disclosures between April-July 1993
containing misleading, incomplete and overly negative statements regarding the
business activities and prospects of HSN which had the effect of artificially
depressing the price of HSN Shares; (ii) defendants allegedly misled sellers of
HSN Shares by failing to disclose defendants' favorable expectations regarding
the anticipated improvement of HSN's business prospects and stock price which
would result from the FCC ruling on June 30, 1993 regarding the "must carry"
standards as applied to televised shopping channels; (iii) Liberty and HSN
supposedly misled the HSN stockholders by making incorrect disclosures
(particularly in connection with the Liberty Tender Offer) regarding Liberty's
ability to control the HSN stockholder vote on certain fundamental corporate
transactions; and (iv) QVC made certain statements between March
-20-
<PAGE> 22
and June 1993 in which it failed to disclose the alleged plan concerning a
business combination with HSN. Plaintiffs in the Delaware Federal Action
assert that the foregoing misleading statements and omissions (i) allowed
Liberty to purchase HSN Shares in the Liberty Tender Offer at an artificially
depressed price, and (ii) injured open market sellers of HSN Shares between
April 9, 1993 and July 12, 1993 by causing an artificial depression in the
price of HSN Shares during that period. Following the filing of the complaint
in the Delaware Federal Action, plaintiffs in the HSN Stockholder Action and
the Delaware Federal Action conducted coordinated discovery involving the
defendants in both proceedings.
AL. QVC withdrew the QVC Merger Proposal on November 5, 1993.
AM. At various times during August-December 1993, counsel to
plaintiffs, defendants and their respective advisors in the HSN/Federal Actions
conducted numerous meetings and arm's-length negotiations regarding the
possible settlement of such lawsuits. On December 31, 1993, plaintiffs and the
Liberty Defendants in the HSN Stockholder Action and the Delaware Federal
Action entered into a memorandum of understanding in connection with a
contemplated settlement of such actions which, according to the parties to the
memorandum of understanding, also contemplated the dismissal with prejudice of
the claims then asserted in the Section 203 Action on terms to be negotiated by
the parties to the Section 203 Action. The initial memorandum of understanding
was amended on February 7, 1994 only to add all defendants to the HSN
Stockholder Action and the Delaware Federal Action other than QVC to the
proposed settlement (the "Initial MOU").
-21-
<PAGE> 23
Plaintiffs in the Section 203 Action were not parties to the December 31, 1993
memorandum of understanding or to the Initial MOU.
AN. The parties to the Initial MOU agreed in principle and subject
to the approval of the Delaware Chancery Court and the Delaware Federal Court
(the "Delaware Courts") that Liberty pay the sum of $13 million, plus interest
accrued at the rate of five percent (5%) per annum from December 31, 1993, in
full settlement of any and all claims whatsoever which had been or could have
been made in the HSN Stockholder Action, the Section 203 Action and the
Delaware Federal Action by all members of a plaintiff class (other than
defendants) consisting of (i) all record and beneficial owners of HSN Shares
during the period beginning on and including December 7, 1992 through and
including November 5, 1993 (the date QVC withdrew the QVC Merger Proposal);
(ii) all sellers of HSN Shares in the Liberty Tender Offer (the "Tender
Subclass"); and (iii) all sellers of HSN Shares during the period beginning on
and including March 30, 1993 through and including July 12, 1993 (the "Seller
Subclass") (collectively, the "Original Plaintiff Class"). The Initial MOU
also provided that Liberty would pay the sum of $200,000, plus interest at the
rate of 5% per annum from December 31, 1993, for the costs and expenses
incurred in providing notice and administering the settlement. The Initial MOU
contemplated that the net proceeds of the settlement fund would be distributed
to the members of the Tender Subclass and the Seller Subclass in accordance
with a method of loss calculation and plan of allocation to be developed by
plaintiffs' counsel and approved by the Delaware Courts in the HSN Stockholder
Action and the Delaware Federal Action. As set forth in the Initial MOU, the
proposed settlement was subject to a number of conditions, including: (i)
-22-
<PAGE> 24
the completion by plaintiffs' counsel of additional discovery to confirm that
the proposed settlement is in the best interests of the Original Plaintiff
Class; (ii) the consolidation of the Section 203 Action and the HSN Stockholder
Action for purposes of the proposed settlement; and (iii) following notice to
the Original Plaintiff Class, final approval of the proposed settlement by the
Delaware Courts in accordance with the terms of a settlement stipulation to be
executed by the parties. The plaintiffs who were parties to the Initial MOU
assert that they contemplated that, in the event of (i) the consolidation of
the HSN Stockholder Action, and (ii) the finalization of a separate settlement
acceptable to plaintiffs in the Section 203 Action, the proposed settlement of
the HSN/Federal Action and the foreseen separate settlement of the Section 203
Action would result in the dismissal with prejudice of the HSN Stockholder
Action, the Section 203 Action and the Delaware Federal Action, and a complete
release of all claims that had been, or could have been, or in the future might
be asserted by any member of the Original Plaintiff Class against any of the
defendants in such proceedings or their affiliates based upon the allegations,
transactions, matters or occurrences, representations or omissions set forth,
referred or related in any way to the complaints in the HSN Stockholder Action,
the Section 203 Action and the Delaware Federal Action; provided that the
release of any claims by all record and beneficial owners of HSN Shares during
the period beginning on and including July 12, 1993 through and including
November 5, 1993 would be limited to all claims which relate in any manner to
the QVC Merger Proposal.
AO. In conjunction with the proposed settlement of the Delaware
Federal Action, the HSN Stockholder Action, the Florida Derivative Action
(as hereinafter
-23-
<PAGE> 25
defined), and the Florida Federal Actions (as hereinafter defined), certain
defendants in those lawsuits agreed through their attorneys on February 8, 1994
that, upon the final consummation of the proposed settlements in all such
actions, all such parties will release each other as to any claims for
contribution relating to the claims actually asserted in those proceedings (the
"Release Agreement"). The parties to the Release Agreement are HSN, Speer,
Wandler, Chu, Forstmann, Hogan, James, McNamara, Ramsey, Roberts, RMS, Liberty,
LPI, Malone, Barton, Bennett, and Draper.
AP. On February 15, 1994, plaintiffs in the Delaware Federal Action
filed a consolidated and amended class action complaint which restated and
expanded the factual allegations set forth in the original complaint. As to
the QVC Merger Proposal, plaintiffs further alleged in the amended complaint
that Liberty had an undisclosed plan during 1993 to acquire control of HSN in
order to solidify its base in the cable shopping business, and then to reap the
benefits of a consolidation of HSN and QVC by using its alleged control over
HSN and QVC to cause a merger of the two companies. Plaintiffs claim that,
although Liberty bad plans and/or expectations to combine QVC and HSN, Liberty
stated publicly on several occasions from December 1992 through the
announcement of the QVC Merger Proposal on July 12, 1993 that it had no plans
or proposals involving a merger of HSN. Thus, plaintiffs claim that Liberty
and the other defendants failed to disclose their plans regarding a merger or
combination of QVC and HSN, and their statements misled the investing public
and the financial markets by maintaining that no such plan existed until the
announcement of the QVC Merger Proposal on July 12, 1993. As with the prior
operative complaint in the Delaware Federal Action, QVC was named in a single
count
-24-
<PAGE> 26
solely as an aider and abetter of violations of Section 10(b) and Rule 10b-5 by
certain of the other defendants.
AQ. Despite discussions between Liberty and the plaintiffs in the
Section 203 Action which first took place in late-January 1994 contemplating
the settlement of the Section 203 Action, the negotiating parties were unable
by late-February 1994 to reach an agreement regarding the separate settlement
of the Section 203 Action and the proposed consolidation of that action with
the HSN Stockholder Action. Accordingly, the parties to the HSN/Federal
Actions state that they negotiated between March and May 1994 a memorandum of
understanding providing for the settlement of the HSN/Federal Actions which,
in their view, also would have excluded the claims theretofore asserted
exclusively by plaintiffs in the Section 203 Action.
AR. On March 15, 1994, QVC filed a motion pursuant to Rules
12(b)(6) and 9(b) of the Federal Rules of Civil Procedure to dismiss the
Delaware Federal Action as to it for failure to state a claim upon which relief
could be granted ("QVC's Motion to Dismiss"). In addition, QVC's Motion to
Dismiss noted that the United States Supreme Court was expected to issue a
ruling on the question of whether private parties such as the plaintiffs in the
Delaware Federal Action had a right of action for aiding and abetting
violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule
10b-5 promulgated thereunder. As the only claim in the Delaware Federal Action
alleged against QVC was a Section 10(b)/Rule 10b-5 aiding and abetting claim,
QVC asked for dismissal of such action on this threshold ground in the event
that the Supreme Court determined that no such private right of action existed.
Subsequent to the filing of QVC's Motion to
-25-
<PAGE> 27
Dismiss, the Supreme Court ruled that no private right of action for aiding and
abetting liability under Section 10(b) and Rule 10b-5 existed. See Central
Bank of Denver, v. First Interstate Bank of Denver, N.A., 114 S. Ct. 1439, 128
L. Ed. 2d 119, 62 U.S.L.W. 4230 (1994).
AS. On May 11, 1994, plaintiffs and all defendants in the HSN
Stockholder Action and Delaware Federal Action entered into a memorandum of
understanding (the "Final MOU") in connection with the contemplated settlement
of such actions. Plaintiffs in the Section 203 Action are not parties to the
Final MOU.
AT. As in the Initial MOU, the Final MOU contemplates that
defendants in the HSN Stockholder Action and Delaware Federal Action, and their
affiliates, will obtain a release of certain claims from a plaintiff class in
exchange for the creation by Liberty of a $13 million fund and the distribution
of the net proceeds of the settlement fund to the members of the Tender
Subclass and the Seller Subclass who participate in the settlement. The
primary substantive difference between the Initial MOU and the Final MOU is
that the settlement of the HSN/Federal Actions will affect the rights of all
holders of HSN Shares during the period beginning on and including December 4,
1992 -- instead of December 7, 1992, as provided in the Initial MOU -- through
and including November 5, 1993 (collectively, the "Holder Subclass"). In the
view of the parties to the Final MOU, the release of claims by members of the
Holder Subclass, the Tender Subclass and the Seller Subclass would have
excluded the claims theretofore asserted exclusively by plaintiffs in the
Section 203 Action.
-26-
<PAGE> 28
AU. On June 24, 1994, plaintiffs in the Section 203 Action filed
an amended complaint which, in addition to the persons and entities named as
defendants in the original complaint, named Barton, Bennett, Draper, Hogan,
Malone, Leo J. Hindery, Jr. and George C. McNamee as defendants. The persons
named as additional defendants in the amended complaint are past or present
directors of HSN who, in addition to certain of the original defendants,
allegedly committed or aided and abetted the alleged wrongdoing. Defendants in
the Section 203 Action understand that, with the exception of defendants and
their affiliates, the putative plaintiff classes in the Section 203 Action
consist of (i) all sellers of HSN Shares subsequent to December 4, 1992; and
(ii) all holders of HSN Shares at any time since December 4, 1992 (including
all current holders of HSN Shares).
AV. The gravamen of the amended complaint in the Section 203
Action is that, prior to the time when Liberty reached an agreement,
arrangement or understanding with RMS to allow Liberty to purchase a
controlling equity interest in HSN, the HSN Board and the HSN Executive
Committee failed to take effective action to approve the proposed transaction
and, thereby, failed under Section 203(a)(1) to exempt Liberty from the
restrictions under Section 203 on any "business combination" between Liberty
and HSN prior to December 4, 1995.
AW. Plaintiffs in the Section 203 Action further contend that any
exemption of Liberty by the HSN Board on December 4, 1992 was ineffective under
Delaware law because, contrary to the requirements of 8 Del. C. Section
141(i), the HSN directors did not conduct a teleconference in which all of the
directors participated.
-27-
<PAGE> 29
Plaintiffs assert that, following the receipt of comments from an attorney
representing Liberty on January 4, 1993, (i) HSN realized that the actions by
the members of the HSN Board on December 4, 1992 were insufficient under 8 Del.
C. Section 141(i) to exempt Liberty from Section 203; (ii) someone prepared
(for the first time) the minutes for a meeting of the HSN Executive Committee
on December 4, 1992 which contained language for the resolutions of the
directors suggested by Liberty's attorney; and (iii) Liberty determined to rely
as the basis for its exemption under Section 203 upon the purported action by
the HSN Executive Committee on December 4, 1992. Consequently, plaintiffs
contend that Liberty is not exempt from Section 203 and, accordingly, could not
effect a "business combination" involving HSN prior to December 4, 1995 in the
absence of the supermajority vote which would be required under Section
203(a)(3).
AX. Plaintiffs in the Section 203 Action allege that Liberty's
disclosures regarding the effectiveness of the Section 203 exemption by the HSN
Executive Committee on December 4, 1992 were false and misleading. In
particular, plaintiffs assert that Liberty disregarded the conflicts of
interest held by the members of the HSN Executive Committee on the Section 203
exemption, and that Liberty knew that no valid action had been taken by the HSN
Board to exempt Liberty from the restrictions under Section 203. The amended
complaint in the Section 203 Action alleges that, by asserting that Liberty was
exempt from Section 203, Liberty and the other defendants misrepresented a
material fact to all sellers of HSN Shares after the public announcement of the
Agreement in Principle on December 7, 1992 (including the members of the Tender
Subclass and the Seller Subclass), as well as to the present holders of HSN
Shares. Plaintiffs also allege
-28-
<PAGE> 30
that the Liberty Tender Offer constituted a prohibited "business combination"
under Section 203.
AY. Plaintiffs in the Section 203 Action assert that the members
of the HSN Executive Committee (Speer, Wandler and Ramsey) had disabling
conflicts of interest which prevented the HSN Executive Committee from taking
effective action on December 4, 1992 to exempt Liberty from the restrictions of
Section 203. HSN and the individual defendants allegedly aided and abetted
Liberty in its asserted scheme to misrepresent its status under Section 203.
The individual defendants also allegedly breached their fiduciary duties by
failing to correct Liberty's asserted misrepresentation of its exemption from
Section 203.
AZ. Plaintiffs in the Section 203 Action seek a declaratory
judgment that Liberty is subject to Section 203, an award of damages to the
plaintiff class members who sold their HSN Shares, and equitable relief.
BA. On August 22, 1994, the parties to the HSN/Federal Actions
filed a joint stipulation with the Delaware Courts providing for the proposed
dismissal of the HSN/Federal Actions in accordance with the general terms of
the Final MOU.
BB. During early-October 1994, counsel for plaintiffs in the
Section 203 Action and Liberty discussed settlement of the Section 203 Action
which led to an agreement in principle for the proposed settlement of the
Section 203 Action. As a result of the settlement of the Section 203 Action,
the parties to the proposed settlement of the HSN/Federal Actions revised the
provisions for the release of claims in the manner set forth herein.
-29-
<PAGE> 31
BC. The parties to the Section 203 Action have agreed that all
claims which were, could have been or in the future might be asserted by any
member of the Section 203 Class against any of the Named Defendants or
Defendants' Affiliates (as defined below), which relate to or arise out of,
directly or indirectly, the allegations contained in any complaint filed in the
Section 203 Action, would be dismissed with prejudice. In exchange for and
upon the Effective Date of the foregoing release of the Section 203 Claims (as
defined below) as to the Named Defendants and Defendants' Affiliates, Liberty
and HSN have agreed, among other things, that, as defined in Section 203, the
consummation of any "business combination" prior to December 4, 1995 between
HSN, on the one hand, and Liberty or any of its "affiliates" or "associates,"
on the other hand (a "Qualifying Business Combination"), shall be subject to
the prior approval of the HSN board of directors and the authorization at an
annual or special meeting of the HSN stockholders, and not by written consent,
by the affirmative vote of the holders of at least a majority of the
outstanding HSN voting stock which is not "owned" by Liberty (the "Section 203
Undertaking"). The parties to the Section 203 Action also agreed that, upon
the approval by the Delaware Chancery Court of the settlement of the Section
203 Action, (i) the Section 203 Undertaking shall be binding as against any
member of the Section 203 Class, which shall include any record or beneficial
owner, purchaser or seller of HSN stock from and after November 17, 1994
through and including December 4, 1995 (a "Subsequent HSN Stockholder"); (ii)
so long as Liberty and HSN comply with the Section 203 Undertaking, no member
of the Section 203 Class (including any Subsequent HSN Stockholder) shall be
entitled to assert that any Qualifying Business Combination (a) is
-30-
<PAGE> 32
required to be separately approved by the HSN stockholders under any provision
of Section 203, or (b) is otherwise subject to, conditioned upon, restricted by
or prohibited under any provision of Section 203; (iii) the resolution of any
claim or contention by Liberty, HSN, any member of the Section 203 Class (which
includes any Subsequent HSN Stockholder) or any other person or entity
regarding the occurrence of a Qualifying Business Combination, or the
application or interpretation of the Section 203 Undertaking, shall be
submitted for resolution to the exclusive jurisdiction of the Delaware Chancery
Court; (iv) within five (5) business days after each of the entry of the
Chancery Court Scheduling Order for the Section 203 Action and the Effective
Date of the settlement of the Section 203 Action, Liberty and HSN shall issue
coordinated press releases, in the forms reasonably acceptable to plaintiffs'
counsel in the Section 203 Action, disclosing (as appropriate) the Section 203
Undertaking, the terms of the proposed settlement of the Section 203 Action and
the effectiveness of the settlement of the Section 203 Action; and (v) HSN
shall disclose the Section 203 Undertaking in all filings with the SEC on Form
10-Q or Form 10-K until December 4, 1995. Liberty also has agreed that, in the
event it consummates a "business combination" (as defined in Section 203) with
HSN prior to the hearing on the proposed settlement of the Section 203 Action,
Liberty will comply with the Section 203 Undertaking. Liberty acknowledges
that, at all times subsequent to the commencement of the Section 203 Action,
Liberty has taken into account the pendency of the Section 203 Action in
examining Liberty's alternatives for its business relationship with HSN.
-31-
<PAGE> 33
BD. Counsel for the plaintiffs in the respective Delaware Actions,
through discovery, inspection of documents produced by defendants and third
parties, and depositions of parties and witnesses, have conducted a thorough
examination into and evaluation of the facts and law relating to the matters
set forth in their respective complaints in the Delaware Actions. Plaintiffs'
counsel and the Representative Plaintiffs in the respective Delaware Actions,
in consultation with their respective attorneys, separately have concluded that
there are obstacles to overcome in establishing liability and damages in their
respective cases.
BE. The plaintiffs in the respective Delaware Actions have agreed
to the settlement of their respective proceedings, pursuant to the provisions
of this Stipulation (the "Settlements"), after considering: (i) the substantial
benefits that the plaintiffs in the respective Delaware Actions and other
members of the various subclasses which they represent will receive from the
respective Settlements; (ii) the attendant risks of litigation especially in
complex actions such as these, as well as the difficulties and delays inherent
in such litigation; (iii) the desirability of permitting this Stipulation to be
consummated according to its terms; and (iv) the respective conclusions of
plaintiffs in the respective Delaware Actions and their counsel that the
respective settlements confer a substantial benefit upon the members of the
various subclasses and are fair, reasonable, adequate and in the best interests
of the respective subclasses which they represent.
BF. The defendants in the Delaware Actions deny any and all
liability, fault or wrongdoing whatsoever with respect to any and all facts and
claims alleged or which could have been alleged in the complaints in such
proceedings and continue to deny
-32-
<PAGE> 34
each and all of the claims and contentions alleged by plaintiffs in the
Delaware Actions but consider it desirable that the Delaware Actions be settled
and dismissed with prejudice according to this Stipulation because the
Settlements will, if approved: (i) halt the substantial expense, inconvenience
and distraction of continued litigation of the plaintiffs' claims; (ii) finally
put to rest those claims; and (iii) confer a substantial benefit upon members
of the Class.
BG. The negotiations among Liberty, the other defendants and
plaintiffs in the HSN Stockholder Action and the Delaware Federal Action, on
the one hand, and the Section 203 Action, on the other hand, which resulted in
the agreements in principle to settle such lawsuits were conducted separately
and at different times. The settlements of the HSN/Federal Actions, on the one
hand, and the settlement of the Section 203 Action, on the other hand, are not
dependent on each other. As discussed below, the Orders and Final Judgments to
be entered in the HSN/Federal Actions shall provide that the Section 203 Claims
shall not be dismissed as to, or released by, any member of the Chancery
Settlement Class or the Federal Settlement Class, and, accordingly, the Section
203 Claims shall not be affected by the dismissal of the HSN/Federal Actions or
the release of the HSN/Federal Actions Settled Claims pursuant to the
Stipulation. In the event that the settlement of the HSN/Federal Action
becomes effective, and regardless of whether the settlement of the Section 203
Action becomes effective, the full amount of the Net Settlement Fund will be
distributed to the eligible members of the Tender Subclass and the Seller
Subclass, but neither the members of the Section 203 Seller Subclass (as
defined below) nor the members of the Section 203 Class who held, purchased or
sold HSN Shares
-33-
<PAGE> 35
after July 12, 1993 will receive any distribution from the Net Settlement Fund
except to the extent they may have a right to receive distributions as eligible
members of the Tender Subclass or the Seller Subclass. The parties to the
Section 203 Action have agreed that the settlement of that lawsuit, on the
terms described herein, is not dependent upon the approval by the Delaware
Courts of the settlement of the HSN/Federal Actions. The HSN Stockholder
Action, the Delaware Federal Action and the Section 203 Action have not been
consolidated and, in the event all of the Settlements do not become effective,
the lawsuits will proceed independently, absent further order by the Delaware
Courts. The parties to the HSN/Federal Actions and the Section 203 Action have
agreed to coordinate the presentation to the Delaware Courts of the proposed
Settlements in order to expedite the delivery of the benefits of the
Settlements to the beneficiaries thereof, to reduce the potential costs of
notice and administering the Settlements to the beneficiaries thereof, and to
simplify the Settlements of the lawsuits, except that the Section 203 Action
plaintiffs and their lawyers will not appear in the Delaware Federal Action.
NOW, THEREFORE, IT IS HEREBY STIPULATED AND AGREED, subject to
approval by the Delaware Federal Court, pursuant to Rule 23 of the Federal
Rules of Civil Procedure, and subject to approval by the Delaware Chancery
Court, pursuant to Rule 23 of the Rules of the Delaware Chancery Court, as
follows:
A. DEFINITIONS:
1. "Administration Fund" means a total of Two Hundred
Thousand Dollars ($200,000) in cash, plus interest accrued at the rate of five
percent (5%) per annum from December 31, 1993 to the date of payment by
Liberty to an account
-34-
<PAGE> 36
designated by Settlement Coordinating Counsel (as hereinafter defined) to cover
the costs and expenses incurred in providing notice of the Settlements to Class
members and in administering the Settlements (regardless of whether the
Settlements are consummated).
2. "Chancery Class" means (collectively) all members of
the Holder Subclass and the Tender Subclass.
3. "Chancery Settlement Class" means (collectively) all
members of the Tender Subclass who do not timely and validly exclude themselves
from the settlement of the HSN Stockholder Action and all members of the Holder
Subclass.
4. "Class" means all persons who qualify as members of
the Holder Subclass, the Tender Subclass, the Seller Subclass and/or the
Section 203 Class.
5. "Defendants' Affiliates" means (collectively) the
families, parent entities, affiliates, associates or subsidiaries of any of the
Named Defendants and each and all of their respective past, present and future
officers, directors, agents, employees, attorneys, representatives,
consultants, accountants, engineers, advisors, investment advisors, investment
bankers, financial advisors, commercial bankers, insurers, trustees, general or
limited partners and partnerships, heirs, executors, personal representatives,
estates, administrators, predecessors, successors, assigns and any other person
or entity acting for or on behalf of any of the Named Defendants in connection
with any HSN/Federal Actions Settled Claims or Section 203 Action Settled
Claims.
6. "Delaware Actions" means the HSN Stockholder Action,
the Delaware Federal Action and the Section 203 Action.
-35-
<PAGE> 37
7. "Delaware Courts" means the Delaware Federal Court
and the Delaware Chancery Court.
8. "Delaware Federal Action" refers collectively to the
lawsuits styled as Gerda Bartnik, et al. v. Home Shopping Network, Inc., et
al., C.A. No. 93-336 (D. Del.); Beriro v. Home Shopping Network, Inc., et al.,
C.A. No. 93-347 (D. Del.); and Metzger v. Home Shopping Network, et al., C.A.
No. 93-406 (D. Del.); as well as Kern Option Company v. Liberty Media
Corporation. et al., C.A. No. 93-N-1557 (D. Colo.); Lucas v. Liberty Media
Corporation. et al., C.A. No. 93-N-1629 (D. Colo.); and Barish v. Liberty
Media Corporation. et al., C.A. No. 93-N-1629 (such latter three actions
consolidated as Kern Option Company, Inc., et al. v. Liberty Media Corporation,
et al., C.A. No. 93-C-1557 (D. Colo.) and transferred on consent to the
Delaware Federal Court under the caption Kern Option Company, et al. v. Liberty
Media Corporation. et al., C.A. No. 93-480); all of the foregoing lawsuits
having been consolidated by the Delaware Federal Court into a single proceeding
styled as Bartnik, et al. v. Home Shopping Network, Inc., et al., C.A. Nos.
93-336/347/406/480-MMS-Consolidated.
9. "Effective Date," or the date upon which the
settlement of any of the Delaware Actions becomes "effective," means (i) as to
the HSN/Federal Actions, the later of the dates on which all orders of the
Delaware Courts approving the settlements of each of the HSN/Federal Actions
become final and no longer subject to further appeal or review, whether by
exhaustion of any possible appeal, lapse of time or otherwise (the "HSN/Federal
Actions Effective Date"); and (ii) as to the Section 203 Action, the date on
which the order of the Delaware Chancery Court approving the settlement of the
Section
-36-
<PAGE> 38
203 Action becomes final and no longer subject to further appeal or review
whether by exhaustion of any possible appeal, lapse of time or otherwise (the
"Section 203 Action Effective Date").
10. "Eligible Class Member" means any member of the
Seller Subclass and/or the Tender Subclass who (i) has not timely and validly
excluded himself, herself or itself from the Settlements of the HSN/Federal
Actions; (ii) who has filed a timely and valid Proof of Claim and Release form
pursuant to the Joint Notice, and (iii) whose claim has been allowed by the
Delaware Courts.
11. "Federal Action Settled Claims" means any and all
claims, demands, rights, liabilities, suits, actions or causes of action,
damages, losses, obligations, judgments, matters and issues of any kind or
nature whatsoever, whether asserted or unasserted, known or unknown, contingent
or absolute, suspected or unsuspected, disclosed or undisclosed, hidden or
concealed, matured or unmatured, which have been, could have been, or in the
future can or might be asserted in the Delaware Federal Action or in any court,
tribunal or proceeding (including, but not limited to, any claims arising under
federal or state law) by any member of the Federal Settlement Class against any
of the Named Defendants and/or Defendants' Affiliates, whether individual,
class, derivative, representative, legal, equitable or any other type or in any
other capacity, and which have arisen, could have arisen, arise now, or
hereafter arise out of or relate in any manner to the allegations, facts,
events, transactions, acts, occurrences, statements, representations,
misrepresentations, omissions, or any other matter, thing or cause whatsoever,
or any series thereof, embraced, involved, set forth, or otherwise referred or
related, directly or
-37-
<PAGE> 39
indirectly, in or to any of the complaints filed at any time in the Delaware
Federal Action (collectively, "Claims"); provided however, that the release of
Claims by the Federal Settlement Class shall not include any of the Section 203
Claims.
12. "Federal Settlement Class" means (collectively) all
members of the Tender Subclass and/or the Seller Subclass who do not timely and
validly exclude themselves from the settlement of the Delaware Federal Action.
13. "Florida Derivative Action" means 7547 Corp., et al
v. Speer et al., Cases No. 92-1966-CIV-T-15A and 90-2045-CIV-T-99C
(Consolidated) (M.D. Fla.) currently pending before the United States District
Court for Middle District of Florida, (the "Florida Federal Court").
14. "Florida Federal Action" means the action, pending
before the Florida Federal Court, styled as Goldstein v. Speer, Consol. Case
No. 93-602-CIV-T-25(B).
15. "Holder Subclass" means all record or beneficial
owners of HSN common stock during the period beginning on and including
December 4, 1992 through and including November 5, 1993, including any and all
of their respective successors in interest, predecessors, representatives,
trustees, executors, administrators, heirs, assigns or transferees, immediate
and remote, and any person or entity acting for or on behalf of, or claiming
under any of them, and each of them, and excluding the Named Defendants and
their affiliates.
16. "HSN" means Home Shopping Network, Inc., a Delaware
corporation, as well as its predecessors and successors.
-38-
<PAGE> 40
17. "HSN/Federal Actions" refers collectively to the HSN
Stockholder Action and the Delaware Federal Action.
18. "HSN/Federal Actions Settled Claims" means the
Federal Action Settled Claims and the HSN Stockholder Action Settled Claims.
19. "HSN Stockholder Action" refers collectively to the
lawsuits styled as Arazie v. John C. Malone, et al., C.A. No. 12868 (Del.
Ch.); Feder v. John C. Malone, et al., C.A. No. 12869 (Del. Ch.); DCA Grantor
Trust and Jonathan Greenwald v. Home Shopping Network. Inc., et al. C.A. No.
12870 (Del. Ch.); Steinberg, et al. v. John C. Malone, et al., C.A. No. 12871
(Del. Ch.); Laccetti v. Roy M. Speer. et al., C.A. No. 12873 (Del. Ch.);
Renner v. John C. Malone, et al., C.A. No. 12875 (Del. Ch.); Lucas v. John C.
Malone, et al., C.A. No. 12877 (Del. Ch.); and Greer, et al. v. John C.
Malone, et al., C.A. No. 12878 (Del. Ch.), which have been consolidated in the
Delaware Chancery Court under the title In re Home Shopping Network, Inc.
Shareholders Litigation, Cons. C.A. No. 12868.
20. "HSN Stockholder Action Settled Claims" means any and
all claims, demands, rights, liabilities, suits, actions or causes of action,
damages, losses, obligations, judgments, matters and issues of any kind or
nature whatsoever, whether asserted or unasserted, known or unknown, contingent
or absolute, suspected or unsuspected, disclosed or undisclosed, hidden or
concealed, matured or unmatured, which have been, could have been, or in the
future can or might be asserted in the HSN Stockholder Action or in any court,
tribunal or proceeding (including, but not limited to, any claims arising under
federal or state law) by any member of the Chancery Settlement
-39-
<PAGE> 41
Class against any of the Named Defendants and/or Defendants' Affiliates,
whether individual, class, derivative, representative, legal, equitable or any
other type or in any other capacity, and which have arisen, could have arisen,
arise now, or hereafter arise out of or relate in any manner to the
allegations, facts, events, transactions, acts, occurrences, statements,
representations, misrepresentations, omissions, any other matter, thing or cause
whatsoever, or any series thereof, embraced, involved, set forth, or otherwise
referred or related, directly or indirectly, in or to any of the complaints
filed at any time in the HSN Stockholder Action (collectively, "Claims");
provided however, that (i) the release of Claims by all members of the Holder
Subclass who were record or beneficial owners of HSN Shares during the period
beginning on and including July 12, 1993 through and including November 5, 1993
shall be limited to all Claims which relate in any manner to the QVC Merger
Proposal; and (ii) the release of Claims by the Chancery Settlement Class shall
not include any of the Section 203 Claims.
21. "Joint Notice" means the Notice of Pendency of Class
Actions, Class Action Determination, Proposed Settlement of Class Actions,
Settlement Hearings and Right to Appear, in substantially the form attached
hereto as Exhibit D, to be distributed to the members of the Class in
connection with the proposed settlement of the Delaware Actions.
22. Unless otherwise specified herein, "Liberty" means
Liberty Media Corporation, a Delaware corporation, and LPI, as well as their
respective predecessors and successors.
-40-
<PAGE> 42
23. "Liberty Defendants" means (collectively) Liberty,
LPI, John C. Malone, Peter R. Barton, Robert R. Bennett and John M. Draper.
24. "LPI" means Liberty Program Investments, Inc., a
Wyoming corporation and an indirect wholly-owned subsidiary of Liberty, as well
as its predecessors and successors.
25. "Named Defendants" refers collectively to Liberty,
LPI, John C. Malone, Peter R. Barton, Robert R. Bennett, John M. Draper, HSN,
Roy M. Speer, RMS, Les R. Wandler, Gerald F. Hogan, J. Anthony Forstmann, John
J. McNamara, Franklin J. Chu, Thomas A. James, William J. Ramsey, Michael V.
Roberts, Leo J. Hindery, Jr., George C. McNamee and QVC.
26. "Net Settlement Fund" means the amount of the
Settlement Fund less (i) the amount of expenses, disbursements and attorneys'
fees awarded by the Delaware Courts to plaintiffs and to plaintiffs' counsel in
the HSN Stockholder Action and the Delaware Federal Action in connection with
the settlement of such actions, and (ii) the amounts approved by the Delaware
Courts for notice and administration of the Settlements that exceed the
Administration Fund.
27. "Payment" means payment of cash, as required by this
Stipulation, from the Settlement Fund to Eligible Class Members.
28. "Plan of Distribution" means the plan and formula
pursuant to which the Net Settlement Fund shall be distributed to Eligible
Class Members after payment of the expenses of notice and administration of
this Stipulation that exceed the amount of the Administration Fund (as herein
defined) and such fees and disbursements as
-41-
<PAGE> 43
may be awarded by the Delaware Courts to plaintiffs and plaintiffs' counsel in
the HSN Stockholder Action and the Delaware Federal Action. The Plan of
Distribution is attached hereto as Exhibit I.
29. "QVC" means QVC Network, Inc., a Delaware
corporation, as well as its predecessors and successors.
30. "QVC Merger Proposal" means the proposal to combine
QVC and HSN delivered by QVC to HSN on or about July 12, 1993.
31. "Representative Plaintiffs" refers to the persons
named as plaintiffs in the respective complaints pending in the HSN Stockholder
Action, the Delaware Federal Action or the Section 203 Action, as the case may
be, as of the date hereof. DCA Grantor Trust was dismissed as a party
plaintiff from the HSN Stockholder Action on May 18, 1993.
32. "RMS" means RMS Limited Partnership, a Nevada limited
partnership, as well as its predecessors and successors.
33. "Section 203 Action" refers to the action styled as
7547 Corp. et al. v. Liberty Media Corp., C.A. No. 12956, currently pending
before the Delaware Chancery Court.
34. "Section 203 Action Settled Claims" means any and all
claims, demands, rights, liabilities, suits, actions or causes of action,
damages, losses, obligations, judgments, matters and issues of any kind or
nature whatsoever, whether asserted or unasserted, known or unknown, contingent
or absolute, suspected or unsuspected, disclosed or undisclosed, hidden or
concealed, matured or unmatured, which have been, could have
-42-
<PAGE> 44
been, or in the future can or might be asserted in the Section 203 Action or in
any court, tribunal or proceeding (including, but not limited to, any claims
arising under federal or state law) by any members of the Section 203 Class
against any of the Named Defendants or any of Defendants' Affiliates, whether
individual, class, derivative, representative, legal, equitable or any other
type or in any other capacity, and which have arisen, could have arisen, arise
now, or hereafter arise out of or relate in any manner to the allegations,
facts, events, transactions, acts, occurrences, statements, representations,
misrepresentations, omissions, or any other matter, thing or cause whatsoever,
or any series thereof, embraced, involved, set forth, or otherwise referred or
related, directly or indirectly, in or to any of the complaints filed at any
time in the Section 203 Action.
35. "Section 203 Claims" refers to the claims asserted by
plaintiffs in the Section 203 Action in their second amended and supplemental
complaint, filed on June 24, 1994 (Dkt. 72 in the Section 203 Action).
36. "Section 203 Class" means (i) all record or
beneficial owners of HSN common stock during the period beginning on and
including December 4, 1992 through and including November 16, 1994; (ii) all
persons who sold HSN common stock during the period beginning on and including
December 4, 1992 through and including November 16, 1994 (including the members
of the Tender Subclass and the Seller Subclass); (iii) all persons who
purchased HSN common stock during the period beginning on and including
December 4, 1992 through and including November 16, 1994; and (iv) all record
or beneficial owners, purchasers or sellers of HSN common stock during the
period beginning on and including November 17, 1994 through and including
December
-43-
<PAGE> 45
4, 1995 (a "Subsequent HSN Stockholder"), in each case including any and all of
their respective successors in interest, predecessors, representatives,
trustees, executors, administrators, heirs, assigns or transferees, immediate
and remote, and any person or entity acting for or on behalf of, or claiming
under any of them, and each of them, and excluding the Named Defendants and
their affiliates.
37. "Section 203 Seller Subclass" means all persons who
sold HSN common stock during the period beginning on and including December 4,
1992 through and including March 29, 1993, including any and all of their
respective successors in interest, predecessors, representatives, trustees,
executors, administrators, heirs, assigns or transferees, immediate and remote,
and any person or entity acting for or on behalf of, or claiming under any of
them, and each of them and excluding the Named Defendants and their affiliates.
38. "Seller Class" means all members of the Tender
Subclass and the Seller Subclass.
39. "Seller Settlement Class" means all members of the
Tender Subclass and the Seller Subclass who do not timely and validly exclude
themselves from the settlement of the Delaware Federal Action.
40. "Seller Subclass" means all persons who sold HSN
common stock during the period beginning on and including March 30, 1993
through and including July 12, 1993 (other than the members of the Tender
Subclass), including any and all of their respective successors in interest,
predecessors, representatives, trustees, executors, administrators, heirs,
assigns or transferees, immediate and remote, and any person or
-44-
<PAGE> 46
entity acting for or on behalf of, or claiming under any of them, and each of
them and excluding the Named Defendants and their affiliates.
41. "Settled Claims" means any and all of the HSN
Stockholder Action Settled Claims, the Section 203 Action Settled Claims and
the Federal Action Settled Claims.
42. "Settlements" means the coordinated settlement of the
HSN Stockholder Action, the Section 203 Action and the Delaware Federal Action
in accordance with the terms of this Stipulation.
43. "Settlement Amount" means a total of Thirteen Million
Dollars ($13,000,000) in cash, plus interest accrued at the rate of five
percent (5%) per annum from December 31, 1993 to the Effective Date.
44. "Settlement Class" means collectively the members of
the Chancery Settlement Class, the Section 203 Class and the Federal Settlement
Class, as herein defined.
45. "Settlement Coordinating Counsel" means the firm of
Chimicles, Jacobsen & Tikellis.
46. "Settlement Fund" means the Settlement Amount and
the Administration Fund.
47. "Stipulation" means the Stipulation And Agreement Of
Compromise And Settlement, dated November 16, 1994, relating to the proposed
Settlements of the Delaware Actions.
-45-
<PAGE> 47
48. "Tender Subclass" means all sellers of HSN common
stock to Liberty in the Liberty Tender Offer, including any and all of their
respective successors in interest, predecessors, representatives, trustees,
executors, administrators, heirs, assigns or transferees, immediate and remote,
and any person or entity acting for or on behalf of, or claiming under any of
them, and each of them, and excluding the Named Defendants and their
affiliates.
B. THE DELAWARE COURTS' ORDERS WITH RESPECT TO CLASS
CERTIFICATION, NOTICE AND THE SETTLEMENT HEARINGS.
1. With the exception that this provision is not
applicable to the Delaware Federal Action as to the Section 203 Action, within
one business day following execution of this Stipulation, (a) the parties to
the Delaware Actions shall request the Delaware Chancery Court and the Delaware
Federal Court to enter orders, substantially in the form attached hereto as
Exhibits A and B (the "Chancery Court Scheduling Orders") and Exhibit C (the
"Federal Court Scheduling Order"); and (b) given the settlement of the
HSN/Federal Actions subject to the Delaware Courts' approval on notice to all
interested persons, the plaintiffs in the Section 203 Action shall execute a
stipulation staying all activities relating to their motion to intervene in the
HSN Stockholder Action pending the outcome of the Settlements.
2. (A) At the Chancery Court Settlement Hearing for the
HSN Stockholder Action, the parties to the HSN Stockholder Action shall urge
the Delaware Chancery Court to finally approve the settlement of the HSN
Stockholder Action, and to dismiss the HSN Stockholder Action with prejudice in
accordance with the Order and Final Judgment attached hereto as Exhibit F.
-46-
<PAGE> 48
(B) At the Chancery Court Settlement Hearing for
the Section 203 Action, the parties to the Section 203 Action shall urge the
Delaware Chancery Court to finally approve the settlement of the Section 203
Action, and to dismiss the Section 203 Action with prejudice in accordance with
the Order and Final Judgment attached hereto as Exhibit G.
3. At the Federal Court Settlement Hearing, the parties
to the Delaware Federal Action shall urge the Delaware Federal Court to approve
the settlement of the Delaware Federal Action and to dismiss the Delaware
Federal Action with prejudice in accordance with the Order and Final Judgment
attached hereto as Exhibit H.
4. All costs incurred in identifying and notifying by
mail the members of the Class of the Settlements, including the printing and
copying of the Joint Notice, and all costs associated with publication of the
Summary Notice as set forth in the Chancery Court Scheduling Orders, will be
paid from the Settlement Fund (as defined above).
C. JUDGMENTS TO BE ENTERED BY THE DELAWARE COURTS APPROVING THE
SETTLEMENTS.
Upon the approvals by the Delaware Chancery Court and the Delaware
Federal Court of the Settlements of the HSN/Federal Actions, the parties to
such actions shall jointly request that judgments be entered by both the
Delaware Chancery Court substantially in the form of Exhibit F hereto, and the
Delaware Federal Court substantially in the form of Exhibit H hereto to cause,
among other things, the full and final compromise, settlement, release and
dismissal with prejudice of the HSN/Federal Actions Settled Claims by any and
all members of the Chancery Settlement Class and the Federal
-47-
<PAGE> 49
Settlement Class. Upon the approval of the settlement of the Section 203
Action, the parties to such action shall jointly request that a judgment be
entered by the Delaware Chancery Court substantially in the form of Exhibit G
hereto to cause, among other things, the full and final compromise, settlement,
release and dismissal with prejudice of the Section 203 Action Settled Claims
by any and all members of the Section 203 Class (including any Subsequent HSN
Stockholder).
D. CREATION OF THE SETTLEMENT AMOUNT.
Within five (5) business days of the Effective Date of the
HSN/Federal Actions, Liberty will deposit the Settlement Amount in immediately
available funds to an account designated by Settlement Coordinating Counsel.
E. DISTRIBUTION OF SETTLEMENT FUND.
1. The Settlement Coordinating Counsel or its designee,
subject to the supervision, direction and approval of the Delaware Courts,
shall administer and calculate the claims submitted by members of the Tender
Subclass and the Seller Subclass, and shall oversee distributions of the Net
Settlement Fund to Eligible Class Members in accordance with the Plan of
Distribution as approved by the Delaware Courts.
2. After the Effective Date of the Settlements of the
HSN/Federal Actions, and in accordance with the Plan of Distribution approved
by the Delaware Chancery Court and the Delaware Federal Court, the Settlement
Coordinating Counsel or its designee shall distribute pro rata up to the amount
of demonstrated loss, and to the extent the Net Settlement Fund is insufficient
to pay such losses, in the proportion that each Eligible Class Member's
demonstrated loss bears to the total demonstrated loss of all
-48-
<PAGE> 50
Eligible Class Members, the Net Settlement Fund to all Eligible Class Members
who establish that they sustained loss in accordance with the Plan of
Distribution.
3. The Named Defendants and Defendants' Affiliates shall
have no responsibility for, interest in, or liability whatsoever with respect
to the investment or distribution of the Settlement Fund or the processing of
claims or any loss incurred by Settlement Coordinating Counsel or its designees
in connection therewith.
4. On and after the HSN/Federal Actions Effective Date,
the Settlement Fund shall be applied, subject to the approval of the Delaware
Courts, as follows:
a. To pay all unpaid costs and expenses incurred
in connection with providing notice of the
Settlements to members of the Class, locating
Class members, administering and distributing
the Settlement Fund, and processing Proof of
Claims and Release forms;
b. To pay the attorneys' fees, costs and
expenses of plaintiffs in the HSN/Federal
Actions, including the fees and costs of
experts and consultants of plaintiffs in the
HSN/Federal Actions, if and only to the
extent allowed by the Delaware Courts; and
c. To pay the claims of all Eligible Class
Members and such other amounts as the
Delaware Courts may
-49-
<PAGE> 51
approve pursuant to the Plan of Distribution
or otherwise.
5. The parties to the HSN/Federal Actions have agreed to
proceed with settlement of the HSN/Federal Actions regardless of whether the
proposed settlement of the Section 203 Action does not become effective for any
reason. In the event the settlement of the HSN/Federal Actions becomes
effective and regardless of whether the settlement of the Section 203 Action
becomes effective, the full amount of the Net Settlement Fund will be
distributed to the Eligible Class Members from the Tender Subclass and/or the
Seller Subclass, pursuant to a Plan of Distribution approved by the Delaware
Courts, but neither the members of the Section 203 Seller Subclass nor the
members of the Section 203 Class who held, purchased or sold HSN Shares after
July 12, 1993 will receive any distribution from the Net Settlement Fund. The
parties to the Section 203 Action have agreed that the settlement of that
lawsuit, on the terms described herein, is not dependent upon the approval by
the Delaware Courts of the settlement of the HSN/Federal Actions.
6. Concurrently with submission of this Stipulation to
the Delaware Courts, the plaintiffs in the HSN/Federal Actions are submitting,
in the form attached hereto as Exhibit I, a proposed Plan of Distribution of
the Settlement Fund to the Delaware Courts for their approval, upon notice to
the Class. It is agreed by the parties to this Stipulation that the proposed
Plan of Distribution of the Settlement Fund is not part of this Stipulation and
is to be considered by the Delaware Courts separately from the Delaware Courts'
consideration of the fairness, reasonableness and adequacy of the
-50-
<PAGE> 52
Settlements set forth in this Stipulation and any orders or proceedings
relating thereto shall not operate to terminate or cancel this Stipulation or
affect its finality.
7. Defendants in the Delaware Actions will take no
position as to the Plan of Distribution.
8. Upon the deposit of the Settlement Amount, in
accordance with this Stipulation, to an account designated by Settlement
Coordinating Counsel, all rights of Liberty in or to the Settlement Fund
shall be absolutely and forever extinguished.
9. All interest earned on the Settlement Fund shall
inure to the benefit of the Eligible Class Members except as to such amount as
may be attributed to the fees and expenses of plaintiffs' counsel in the
HSN/Federal Actions and expenses associated with class notice and fund
administration.
F. ATTORNEYS' FEES AND EXPENSES.
1. Counsel for plaintiffs in the HSN/Federal Actions
intend to file one or more petitions in the Delaware Chancery Court and the
Delaware Federal Court for an award(s), in an aggregate amount not to exceed
30% of the Settlement Fund on the HSN/Federal Actions Effective Date, of
attorneys' fees and for the reimbursement of reasonable costs and expenses
incurred in the prosecution of the HSN/Federal Actions. Any such fees,
expenses and interest awarded in the HSN/Federal Actions will be paid solely
out of the Settlement Fund prior to any distribution therefrom to the Eligible
Class Members.
2. Counsel for plaintiffs in the Section 203 Action
intend to file a petition in the Delaware Chancery Court for an award, in an
amount not to exceed $2.5
-51-
<PAGE> 53
million, of attorneys' fees, plus reimbursement of reasonable costs and
expenses incurred in the prosecution of the Section 203 Action in an amount not
to exceed $100,000.00. Subject to the terms of this Stipulation, Liberty has
agreed to the reasonableness of the application and has agreed to pay to Morris
and Morris, on behalf of all plaintiffs' counsel in the Section 203 Action,
such fees and disbursements as may be awarded by the Delaware Chancery Court in
the Section 203 Action so that the amount available for distribution to the
Eligible Class Members will not be reduced by any award of fees and expenses to
plaintiffs' counsel in the Section 203 Action.
3. Defendants in the Delaware Actions will not object to
the foregoing application(s) for fees and expenses or request for post-award
interest thereon by plaintiffs' counsel in the respective Delaware Actions
provided, however, that no other application shall be made to the Delaware
Courts by any member of the Class or their counsel for an award of additional
attorneys' fees and/or expenses with regard to the Settlements or the Settled
Claims.
4 . Any attorneys' fees and expenses awarded by the Delaware
Courts to plaintiffs' counsel in the HSN Stockholder Action and the Delaware
Federal Action, or in the Section 203 Action, shall be payable five (5)
business days after the order granting such award in such action has become
final and no longer subject to further appeal on review, whether by exhaustion
of any possible appeal, lapse of time or otherwise.
5. (A) In the event plaintiffs' counsel in the
HSN/Federal Actions are awarded attorneys' fees and reimbursement of expenses
by either or both of the Delaware Courts and an appeal or appeals are taken
with respect to such award or
-52-
<PAGE> 54
awards, the amount(s) of any attorneys' fees and/or expenses awarded by the
Delaware Courts shall accrue interest for the benefit of plaintiffs' counsel in
the HSN/Federal Actions at the same rate earned by the Settlement Fund, to be
paid from the Settlement Fund, from the time of such award(s) until such time
as any such appeals are resolved and plaintiffs' counsel in the HSN/Federal
Actions obtain a final order directing payment of such attorneys' fees and/or
expenses which is no longer subject to further appeal or review, whether by
exhaustion of any possible appeal, lapse of time or otherwise.
(B) In the event plaintiffs' counsel in the
Section 203 Action are awarded attorneys' fees and reimbursement of expenses by
the Delaware Chancery Court and an appeal or appeals are taken with respect to
such award or awards, the amount(s) of any attorneys' fees and/or expenses
awarded by the Delaware Chancery Court shall accrue interest for the benefit of
plaintiffs' counsel in the Section 203 Action at the rate of five percent per
annum, to be paid by Liberty, from the time of such award(s) until such time as
any such appeals are resolved and plaintiffs' counsel in the Section 203 Action
obtain a final order directing payment of such attorneys' fees and/or expenses
which is no longer subject to further appeal or review, whether by exhaustion
of any possible appeal, lapse of time or otherwise.
6. Except as provided in this Stipulation, the Named
Defendants shall bear no other expenses, costs, damages or fees alleged or
incurred by any named plaintiffs in the HSN/Federal Actions and/or the Section
203 Action, by any member of the Class or by any of their attorneys, experts,
advisors, agents or representatives.
-53-
<PAGE> 55
7. The procedure for and the allowance or disallowance
by the Delaware Courts of any applications by any of the plaintiffs' counsel in
the HSN/Federal Actions or the Section 203 Action for attorneys' fees, costs,
expenses and interest (including the fees and costs of experts and consultants)
are not part of this Stipulation, and any order or proceeding relating thereto,
shall not operate to terminate or cancel this Stipulation or affect its
finality.
G. OPTION TO TERMINATE, CONDITIONS OF SETTLEMENT, EFFECT OF
DISAPPROVAL, CANCELLATION AND TERMINATION.
1. Within five (5) business days following the initial
determination by Settlement Coordinating Counsel or its designee that the
Opt-Out Ceiling (as hereinafter defined) has been exceeded, Settlement
Coordinating Counsel or its designee shall provide written notification to
counsel for each of the Named Defendants that the Opt-Out Ceiling has been
exceeded (the "Ceiling Notification"). Any of the Named Defendants thereupon
shall have the right to withdraw from the settlement of the HSN/Federal Actions
if such defendant provides written notification to all signatories to the
Stipulation of such defendant's intent to withdraw pursuant to this provision
within ten (10) business days of such defendant's receipt of the Ceiling
Notification. The Opt-Out Ceiling is exceeded if members of the Tender
Subclass and/or the Seller Subclass, who sold in the Liberty Tender Offer
and/or during the Seller Subclass Period, in the aggregate, greater than the
number of shares set forth in a confidential stipulation between the parties to
the HSN/Federal Actions, dated August 25, 1994, file valid and timely requests
for exclusion from the settlement of the HSN/Federal Actions pursuant to the
Joint Notice (the "Opt-Out Ceiling"). Settlement Coordinating Counsel or its
designee shall supply written
-54-
<PAGE> 56
notice to the Named Defendants' counsel as to the identity of the holders of
HSN Shares, the number of HSN Shares and such additional information and
documents as may be requested by the Named Defendants with respect to members
of the Class who opt-out of the settlement of the HSN/Federal Actions.
2. (A) Each of the parties to the HSN/Federal Actions
shall also have the option to withdraw from the settlement of the HSN/Federal
Actions if any of the following conditions occur:
a. there is no HSN/Federal Actions Effective
Date within twelve (12) months of execution of this Stipulation; or
b. the Named Defendants in the HSN/Federal
Actions determine that the dismissal of the HSN/Federal Actions, in accordance
with this Stipulation, will not result in the dismissal and release with
prejudice of the HSN/Federal Actions Settled Claims substantially in accordance
with the Orders and Final Judgments attached hereto as Exhibits F and H; or
c. any party to the HSN/Federal Actions makes a
timely election to withdraw from the proposed settlement of such action because
of (i) the Delaware Chancery Court's failure to enter the Chancery Court
Scheduling Order in such action, or (ii) the Delaware Federal Court's failure
to enter the Federal Court Scheduling Order, as provided for in Exhibits A and
C hereto, within ninety (90) days of the execution of this Stipulation.
-55-
<PAGE> 57
(B) Each of the parties to the Section 203 Action
shall have the option to withdraw from the settlement of the Section 203 Action
if any of the following conditions occur:
a. there is no Section 203 Action
Effective Date within twelve (12) months of execution of this Stipulation; or
b. the Named Defendants in the Section
203 Action determine that the dismissal of the Section 203 Action, in
accordance with this Stipulation, will not result in the dismissal and release
with prejudice of the Section 203 Action Settled Claims substantially in
accordance with the Order and Final Judgment attached hereto as Exhibit G; or
c. any party to the Section 203 Action
makes a timely election to withdraw from the proposed settlement of such action
because of the Delaware Chancery Court's failure to enter the Chancery Court
Scheduling Order in such action, as provided for in Exhibit B, within ninety
(90) days of the execution of this Stipulation.
3. (A) In the event that (i) the Delaware
Chancery Court does not enter the judgment substantially in the form of Exhibit
F hereto, or before becoming final any such judgment is materially altered,
whether on reconsideration, appeal or otherwise, or (ii) the Delaware Federal
Court does not enter the judgment substantially in the form of Exhibit H
hereto, before becoming final such judgment is materially altered, whether on
reconsideration, appeal or otherwise, any party to the HSN/Federal Actions,
within thirty (30) days from the date of such event, may withdraw from the
settlement of the HSN/Federal Actions by providing written notice to all other
parties to such proceeding
-56-
<PAGE> 58
of his or its intent not to proceed with the terms and conditions of this
Stipulation. Such notice may be provided on behalf of such party to this
Stipulation by his or its counsel. Notwithstanding the foregoing, if the
settlement of the HSN/Federal Actions is otherwise approved, neither the award
nor a modification nor reversal on appeal of (1) any amount of fees, costs,
expenses and interest awarded by the Delaware Chancery Court and/or the
Delaware Federal Court to plaintiffs and/or plaintiffs' counsel in the
HSN/Federal Actions, or (2) the proposed Plan of Distribution shall constitute
a basis for withdrawing from the Stipulation.
(B) In the event that the Delaware Chancery Court
does not enter the judgment substantially in the form of Exhibit G hereto, or
before becoming final any such judgment is materially altered, whether on
reconsideration, appeal or otherwise, before becoming final such judgment is
materially altered, whether on reconsideration, appeal or otherwise, any party
to the Section 203 Action, within thirty (30) days from the date of such event,
may withdraw from the settlement of the Section 203 Action by providing written
notice to all other parties to such proceeding of his or its intent not to
proceed with the terms and conditions of this Stipulation. Such notice may be
provided on behalf of such party to this Stipulation by his or its counsel.
Notwithstanding the foregoing, if the settlement of the Section 203 Action is
otherwise approved, neither the award nor a modification or reversal on appeal
of (1) any amount of fees, costs, expenses and interest awarded by the Delaware
Chancery Court to plaintiffs and/or plaintiffs' counsel in the Section 203
Action, or (2) the proposed Plan of Distribution shall constitute a basis for
withdrawing from the Stipulation.
-57-
<PAGE> 59
4. Any dispute as to whether a proper or timely
election to withdraw from this Stipulation has occurred shall be submitted, as
appropriate, to the Delaware Chancery Court and/or the Delaware Federal Court
for resolution.
5. In the event Liberty withdraws from the
Stipulation pursuant to Subsection (G)(1) or (G)(2) or G(3) of this
Stipulation, or if this Stipulation is terminated or canceled or fails to
become effective for any reason, then within ten (10) business days after
written notice of such withdrawal or termination is sent by Liberty to all
parties hereto, the Settlement Fund and/or the Administration Fund, plus all
interest earned thereon, less any costs of notice and administration incurred
pursuant to Section H through the date of such notice, shall be refunded to
Kevin G. Abrams, Esquire, Richards, Layton & Finger, One Rodney Square, P.O.
Box 551, Wilmington, Delaware 19899, for distribution to persons who made such
payments to the Settlement Fund and/or the Administration Fund. In such event,
the parties to this Stipulation and their respective predecessors and
successors shall be deemed to have reverted to their respective status as of
the date and time immediately prior to the execution of this Stipulation and
they shall proceed in all respects as if this Stipulation and related orders
have not been executed.
6. With the exception that no action by the
Delaware Federal Court has or can have any effect upon the Section 203 Action,
in the event any of the Settlements proposed herein, including any amendment as
may be ordered by Delaware Chancery Court and/or the Delaware Federal Court
with the consent of the parties, is not approved by the Delaware Chancery Court
and/or the Delaware Federal Court, or the Chancery Court and/or the Delaware
Federal Court approves the settlement of the
-58-
<PAGE> 60
HSN/Federal Actions but such approval is reversed or vacated on appeal and such
order reversing or vacating the settlement becomes final by lapse of time or
otherwise, of if any of the conditions to such settlement are not fulfilled,
then (except as to the provisions of paragraphs H(2), K(3) and K(14) herein)
the settlement(s) proposed herein as to such action(s) shall be of no further
force or effect, and the provisions of the Stipulation relating to such
action(s) and any amendment thereof shall be null and void and without
prejudice to any party hereto, and each party shall be restored to his, her or
its respective position as it existed in such action prior to the execution of
the Stipulation.
H. NOTICE AND ADMINISTRATION FUND.
1. Liberty shall establish the Administration
Fund within five (5) business days of the approval by the Delaware Courts of
the Scheduling Orders in substantially the form attached as Exhibits A and C
hereto. Without the requirement of any order by the Delaware Courts, the
Settlement Coordinating Counsel or its designee shall disburse monies from the
Administration Fund for expenses and costs incurred by Settlement Coordinating
Counsel or its designees in connection with notice and administration of the
Settlements.
2. If the Effective Date does not occur, or if
this Stipulation is terminated or canceled for any reason, the plaintiffs in
the Delaware Actions, including their counsel, shall have no obligation to
repay any amounts already disbursed out of the Administration Fund. Any
expenses incurred but not yet paid shall be paid from the Administration Fund.
-59-
<PAGE> 61
3. After the Effective Date and upon completion
of the claims administration process, any balance then remaining in the
Administration Fund less expenses incurred by it but not yet paid shall be made
part of the Settlement Fund.
I. WORK PRODUCT.
Except pursuant to a court order, the plaintiffs, and each of
them, and on behalf of all persons engaged by them to assist them in the
prosecution of any of the Delaware Actions, including, but not limited to,
their counsel, attorneys, experts, accountants and agents, agree that they
shall provide no information, documentation or analysis which concerns or
relates to any of the Delaware Actions or is based upon or consisting of their
work product, documents or information provided by the Named Defendants to any
person who requests exclusion from either the Tender Subclass or the Seller
Subclass or in connection with the prosecution of any of the Settled Claims.
J. PRESERVATION OF CONFIDENTIAL INFORMATION.
The Representative Plaintiffs in the Delaware Actions, and
each of them, for themselves and on behalf of all persons engaged by them to
assist them in the prosecution of any of the Delaware Actions, including, but
not limited to, their counsel, attorneys, experts, accountants and agents,
agree, to the extent permitted by law, that all agreements made during the
course of any of the Delaware Actions, relating to the confidentiality of
information, including certain confidentiality stipulations executed by various
parties, shall survive the Settlements except to the extent that (i) any such
person is ordered to do otherwise pursuant to court order, or (ii) the Delaware
Chancery Court has entered an order removing a confidentiality designation.
-60-
<PAGE> 62
K. MISCELLANEOUS PROVISIONS.
1. With the exception that this provision is not
applicable to the Delaware Federal Action as to the Section 203 Action, all of
the exhibits attached hereto (collectively, the "Exhibits") are hereby
incorporated by this reference as though fully set forth herein.
2. This Stipulation or any provision thereof may
be amended or modified or waived in whole or in part only by a written
instrument signed by all parties to this Stipulation or their
successors-in-interest.
3. The provisions contained in this Stipulation
shall not be deemed a presumption, a concession or an admission by any of the
Named Defendants of any fault, liability or wrongdoing as to any facts or
claims alleged or asserted in the Delaware Actions, or any other actions or
proceedings, and shall not be interpreted, construed, deemed, invoked, offered,
or received in evidence or otherwise used by any person in these or any other
actions or proceedings, whether civil, criminal, or administrative.
4. The waiver by one party of any breach of this
Stipulation by any other party shall not be deemed a waiver of any other prior
or subsequent breach of this Stipulation.
5. This Stipulation and its Exhibits constitute the
entire agreement among these parties, and no representations, warranties or
inducements have been made to any party concerning this Stipulation or the
Exhibits other than the representations, warranties, and covenants contained
and memorialized in such documents.
-61-
<PAGE> 63
6. This Stipulation may be executed in one or
more counterparts. All executed counterparts and each of them shall be deemed
to be one in the same instrument. Counsel for the parties to this Stipulation
shall exchange among themselves original signed counterparts and a confirmed
set of executed counterparts shall be filed with the Delaware Chancery Court
and the Delaware Federal Court except that documents relating only to the
Section 203 Action shall not be deemed to be filed in the Delaware Federal
Action.
7. This Stipulation shall be binding upon, and
inure to the benefit of, the successors and assigns of the parties hereto.
8. Plaintiffs and their counsel in the
respective Delaware Actions represent and warrant as to their respective
actions that none of plaintiffs' claims or causes of action referred to in
their respective complaints in the Delaware Actions or which constitute Settled
Claims have been assigned, encumbered or in any manner transferred in whole or
in part.
9. All terms of this Stipulation and the
Exhibits hereto shall be governed by and interpreted according to the
substantive laws of the State of Delaware, without regard to conflicts of law
principles.
10. With the exception that plaintiffs and their
lawyers in the Section 203 Action shall not appear or participate in the
Delaware Federal Action, all parties shall use their best efforts to perform
all terms of this Stipulation and to undertake all actions or filings necessary
or appropriate to the implementation thereof.
-62-
<PAGE> 64
11. It is expressly understood that, if the
settlement of the HSN/Federal Actions is approved by the Delaware Courts and
there should be any funds undistributed for any reason, no portion thereof
shall be returned to any of the Named Defendants, and plaintiffs shall
distribute any remaining funds in accordance with the Plan of Distribution to
be approved by the Delaware Courts.
12. With the exception that plaintiffs and their
lawyers in the Section 203 Action shall not appear or participate in the
Delaware Federal Action, subject to the terms of this Stipulation, the parties
shall undertake all appropriate efforts to secure, solely for purposes of the
Settlements, certification of the Class and the subclasses set forth herein,
and to secure the designation by the Delaware Courts of some or all of the
Representative Plaintiffs as appropriate representatives of the Class and/or
one or more of the subclasses set forth herein.
13. Settlement Coordinating Counsel may, at its
option, recommend for approval by the Delaware Courts or either of them, a
claims administrator (the "Claims Administrator"). The Claims Administrator
shall administer the Settlements as set forth in this Stipulation under the
direction of Settlement Coordinating Counsel. Settlement Coordinating Counsel
is hereby authorized to provide for payment of reasonable costs of notice and
administration from the funds to be placed in escrow as set forth in paragraph
B of the Stipulation. Settlement Coordinating Counsel are also hereby
authorized to make any quarterly or annual tax payments required with respect
to any amounts paid under the terms of the Stipulation by Liberty and the
amounts shall be treated
-63-
<PAGE> 65
for the purposes of payment of taxes as a "Qualified Settlement Fund" as that
term is used in the United States Income Tax Code, pursuant to Treasury
Regulation Section 1.468B-1.
14. Except as provided in paragraph K(15) below,
the preambles set forth in this Stipulation are for background and definitional
purposes only and are not intended to be either a concession or admission by
any party to the Delaware Actions.
15. As to the Section 203 Action, the parties to
the Section 203 Action agree that paragraph BC of this Stipulation sets forth
certain of the terms of their agreement to settle the Section 203 Action and,
accordingly, paragraph BC of this Stipulation is deemed a part of the
substantive agreement portion of this Stipulation as to them as if set forth in
full herein.
IN WITNESS WHEREOF, the parties hereto have caused this
Stipulation to be executed, by their duly authorized attorneys.
<TABLE>
<S> <C>
/s/ IRVING MORRIS
-----------------
Of Counsel: Irving Morris # 233
Morris and Morris
Joel C. Feffer 1105 North Market Street
Wechsler Skirnick Harwood Halebian Wilmington, DE 19801
& Feffer (302) 426-0400
555 Madison Avenue Attorneys for Plaintiffs in the
New York, New York 10022 Section 203 Action (who are neither
(212) 935-7400 appearing nor participating in the
Delaware Federal Action)
</TABLE>
-64-
<PAGE> 66
<TABLE>
<S> <C>
/s/ PAMELA S. TIKELLIS
----------------------
Of Counsel: Pamela S. Tikellis # 2172
Robert J. Kriner, Jr. # 2546
Daniel W. Krasner Chimicles Jacobsen & Tikellis
David A.P. Brower One Rodney Square
Wolf Haldenstein Adler Freeman P. O. Box 1035
& Herz Wilmington, DE 19899
270 Madison Avenue (302) 656-2500
New York, NY 10016 Co-Lead Counsel for Plaintiffs in the
(212) 545-4600 HSN Federal Actions
/s/ JOSEPH A. ROSENTHAL
-----------------------
Of Counsel: Joseph A. Rosenthal # 234
Norman M. Monhait # 1040
Jonathan M. Plasse Rosenthal, Monhait, Gross & Goddess
Goodkind Labaton Rudoff & First Federal Plaza, Suite 214
Sucharow P. O. Box 1070
100 Park Avenue Wilmington, DE 19899
12th Floor (302) 656-4433
New York, NY 10017 Delaware Liaison Counsel for
(212) 907-0700 Plaintiffs in the HSN Stockholder
Action
/s/ KEVIN G. ABRAMS
-------------------
Of Counsel: Kevin G. Abrams # 2375
Matthew E. Fischer # 3092
Bertram Perkel Richards, Layton & Finger
Baker & Botts One Rodney Square
885 Third Avenue P.O. Box 551
New York, New York 10022 Wilmington, DE 19899
(212) 705-5000 (302) 658-6541
Attorneys for Defendants Liberty
Media Corporation, Liberty Program
Investments, Inc., John C. Malone,
Peter R. Barton, Robert R. Bennett
and John M. Draper
</TABLE>
-65-
<PAGE> 67
<TABLE>
<S> <C>
/s/ ROBERT K. PAYSON
--------------------
Of Counsel: Robert K. Payson # 274
Potter Anderson & Corroon
Michael R. Smith 350 Delaware Trust Building
King & Spalding P.O. Box 951
191 Peachtree St., N.E. Wilmington, DE 19899
Atlanta, GA 10022 (302) 658-6771
(404) 572-4600 Attorneys for Defendants Home
Shopping Network, Inc., Gerald F.
Hogan, J. Anthony Forstmann, John J.
McNamara. Leo J. Hindery, Jr. and
George C. McNamee
/s/ CLARK W. FURLOW
-------------------
Of Counsel: Clark W. Furlow # 1030
Smith Katzenstein & Furlow
Frank C. Razzano P.O. Box 410
Deborah Kravitz 1220 Market Building
Camhy Karlinsky Stein Razzano & Wilmington, DE 19899
Rubin (302) 652-8400
West Tower, Suite 812 Attorneys for Defendants Roy Speer,
1100 New York Ave., N.W. Les R. Wandler, RMS Limited
Washington, DC 20005 Partnership, Franklin J. Chu,
(202) 408-7600 Thomas A. James, William J. Ramsey
and Michael V. Roberts
/s/ WILLIAM D. JOHNSTON
-----------------------
Of Counsel: William D. Johnston # 2123
Young Conaway Stargatt & Taylor
Paul Vizcarrondo Rodney Square North
Ralph M. Levene P.O. Box 391
Wachtell, Lipton, Rosen & Katz Wilmington, DE 19899
51 W. 52nd Street (302) 571-6679
New York, NY 10019 Attorneys for Defendant QVC
(212) 403-1000 Network, Inc.
Dated: November 16, 1994
</TABLE>
-66-
