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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(D)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
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QVC, INC.
(NAME OF SUBJECT COMPANY)
QVC, INC.
(NAME OF PERSON(S) FILING STATEMENT)
COMMON STOCK, PAR VALUE $.01 PER SHARE
SERIES B PREFERRED STOCK, PAR VALUE $.10 PER SHARE
SERIES C PREFERRED STOCK, PAR VALUE $.10 PER SHARE
(TITLE OF CLASS OF SECURITIES)
747262 10 3
(ONLY WITH RESPECT TO THE COMMON STOCK)
(CUSIP NUMBER OF CLASS OF SECURITIES)
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NEAL S. GRABELL, ESQ.
SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
QVC, INC.
1365 ENTERPRISE DRIVE
WEST CHESTER, PENNSYLVANIA 19380
(610) 430-1000
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE
NOTICE AND COMMUNICATIONS ON BEHALF OF THE PERSON(S) FILING STATEMENT)
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WITH A COPY TO:
PAMELA S. SEYMON, ESQ.
WACHTELL, LIPTON, ROSEN & KATZ
51 WEST 52ND STREET
NEW YORK, NEW YORK 10019
(212) 403-1000
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This Amendment No. 1 amends and restates the Solicitation/Recommendation
Statement on Schedule 14D-9 of QVC, Inc., as filed with the Securities and
Exchange Commission on August 11, 1994, with respect to the Offer (as described
herein and therein).
ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is QVC, Inc., a Delaware corporation (the
"Company"). The address of the principal executive offices of the Company is
1365 Enterprise Drive, West Chester, Pennsylvania 19380. The titles of the
classes of equity securities to which this Statement relates are the shares of
the Company's Common Stock, par value $.01 per share (the "Common Shares"), the
shares of the Company's Series B Preferred Stock, par value $.10 per share, and
the shares of the Company's Series C Preferred Stock, par value $.10 per share
(such shares of Preferred Stock, collectively, being the "Preferred Shares," and
together with the Common Shares, the "Shares" or the "QVC Stock").
ITEM 2. TENDER OFFER OF THE BIDDER.
This Statement relates to the tender offer made by QVC Programming
Holdings, Inc., a Delaware corporation (the "Purchaser") to be wholly owned by
Comcast Corporation, a Pennsylvania corporation ("Comcast"), and Liberty Media
Corporation, a Delaware corporation ("Liberty," and, together with Comcast, the
"Parent Purchasers") and a wholly owned subsidiary of Tele-Communications, Inc.,
a Delaware corporation ("TCI"), to purchase all outstanding Shares at a price of
$46 per Common Share (the "Common Share Offer Price") and $460 per Preferred
Share (the "Preferred Share Offer Price"), in each case net to the seller in
cash, without interest thereon, upon the terms and subject to the conditions set
forth in the Offer to Purchase, dated August 11, 1994 (the "Offer to Purchase")
and the related Letter of Transmittal (which together constitute the "Offer"),
copies of which are filed as exhibits hereto and are incorporated herein by
reference. The Offer is disclosed in a Tender Offer Statement on Schedule 14D-1
(the "Schedule 14D-1") filed with the Securities and Exchange Commission (the
"Commission") on August 11, 1994 (as amended August 12, 1994). The address of
the principal executive offices of Comcast and the Purchaser, as reported in the
Schedule 14D-1, is 1500 Market Street, Philadelphia, Pennsylvania 19102. The
address of the principal executive offices of TCI, as reported in the Schedule
14D-1, is 5619 DTC Parkway, Englewood, Colorado 80111.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and business address of the Company, which is the person
filing this Statement, are set forth in Item 1 above.
(b) Except as described herein, to the knowledge of the Company, as of the
date hereof there are no material contracts, agreements, arrangements or
understandings (other than in the ordinary course of business), or any
potential or actual conflicts of interest between the Company or its
affiliates and the Company, its executive officers, directors or
affiliates or Comcast, TCI, the Purchaser or their executive officers,
directors or affiliates.
(I) CERTAIN ARRANGEMENTS WITH COMCAST, LIBERTY AND THE PURCHASER.
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of August 4, 1994 (the "Merger Agreement"), among the Parent Purchasers, the
Purchaser (formerly named Comcast QMerger, Inc.) and the Company. The Merger
Agreement provides, among other things, that upon the terms and subject to the
conditions thereof, and in accordance with the provisions of the General
Corporation Law of the State of Delaware (the "DGCL") and the Certificate of
Incorporation and By-Laws of the Company, a wholly owned subsidiary of the
Purchaser ("MergerCo") will be merged with and into the Company (the "Merger")
as soon as practicable following the consummation of the Offer and the
satisfaction or waiver of certain other conditions, but not prior to October 21,
1994, with each share of QVC Stock issued and outstanding immediately prior to
the effective time of the Merger (other than shares of QVC Stock held in the
treasury of the Company or held by any wholly owned subsidiary thereof and
shares of QVC Stock held by the Purchaser and MergerCo or any of its
subsidiaries, which shall be cancelled and extinguished without any conversion
thereof and without any payment made with respect thereto, and other than
Dissenting Shares (as defined in the Merger Agreement))being, by virtue of the
Merger and without any action on the part of the
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holder thereof, converted into the right to receive an amount in cash, without
interest, equal to the Common Share Offer Price or Preferred Share Offer Price,
as the case may be (the "Merger Consideration").
In connection with the Offer and the Merger, and the entering into of the
Merger Agreement, the Parent Purchasers have entered into agreements relating to
the voting and disposition of equity securities of the Company. In addition, Mr.
Barry Diller, the Chairman of the Board and Chief Executive Officer of the
Company, has entered into an agreement with Comcast relating to the Common
Shares and certain stock options beneficially owned by him and certain of his
affiliates and relating to his voting as a director of the Company. These
agreements are summarized in Item 3(b)(iii) below.
(II) CONTACTS BETWEEN THE COMPANY AND THE PARENT PURCHASERS.
On December 7, 1992, Liberty filed a Premerger Notification and Report Form
with the Department of Justice (the "DOJ") and the Federal Trade Commission (the
"FTC") to acquire a controlling interest in Home Shopping Network, Inc. ("HSN")
and received a Request for Additional Information from the DOJ on January 6,
1993. After the parties complied with that request, the DOJ granted early
termination of the second waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), on February 11, 1993.
Thereafter, Liberty acquired a controlling interest in HSN, the Company's
principal television-shopping competitor. Liberty also delivered a merger
proposal to the Board of Directors of HSN which it subsequently withdrew.
Thereafter, Liberty announced that it purchased additional shares of common
stock of HSN pursuant to a cash tender offer.
On July 12, 1993, the Company made a proposal to HSN to combine HSN and the
Company in a stock-for-stock transaction. In connection with the proposed
combination of HSN and the Company, the Company filed a Premerger Notification
and Report Form with the DOJ and the FTC. On September 8, 1993, the FTC issued
Requests for Additional Information regarding the proposed combination. On
November 5, 1993, the Company announced that HSN and the Company had agreed to
terminate negotiations on the proposed merger. On that day, the Company withdrew
its Premerger Notification and Report Form with respect to the proposed merger
with HSN, without having complied with the related Request for Additional
Information.
Following an announcement of the execution of a merger agreement by Viacom
Inc. ("Viacom") and Paramount Communications, Inc., then a publicly-held
Delaware corporation ("Paramount"), on September 20, 1993, the Company delivered
a proposal to Paramount to combine the Company and Paramount (the "Paramount
Combination") in a merger in which each share of Paramount's outstanding common
stock would be converted into the right to receive $30 in cash and .893 Common
Shares. The Paramount Combination was subject to the negotiation and execution
of a definitive merger agreement between the Company and Paramount, the approval
of the stockholders of the Company and Paramount and the receipt of all
necessary regulatory and other approvals.
On October 27, 1993, following unsuccessful efforts to negotiate with
Paramount regarding the Paramount Combination, the Company (with Comcast and
Liberty as co-bidders) made an $80 cash tender offer for 50.1% of the
outstanding common shares of Paramount and proposed entering into a merger
transaction with Paramount pursuant to which Paramount shares not tendered in
the tender offer would be converted into equity securities of the Company. The
tender offer and the second-step merger proposal were amended several times
during the bidding process against Viacom for Paramount. In the last round of
bidding, on February 1, 1994, the Company amended its cash tender offer to $104
per share and amended the consideration proposed for the subsequent merger.
Pursuant to the February 1 offer, the Company offered approximately $6.4 billion
in cash for approximately 61.7 million Paramount common shares (50.1% of the
common stock of Paramount) with the balance of the Paramount shares to be
exchanged for the Company's securities in the proposed merger. The proposed
transaction would have been funded through a $3.25 billion bank loan commitment
and purchases of equity securities from the Company of $1.5 billion by BellSouth
Corporation ("BellSouth") and $0.5 billion each by Advance Publications, Inc.
("Advance"), Cox Enterprises, Inc. ("Cox") and Comcast. On February 15, 1994,
the then current expiration date of each of the Company's and Viacom's tender
offers for Paramount, the Company was advised that Viacom had received tenders
sufficient to satisfy the minimum condition in its tender offer and, in
accordance with the bidding procedures agreed to by Paramount, the Company and
Viacom, the Company terminated its tender offer. The
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costs incurred on the tender offer, comprised principally of bank fees and legal
and advisory fees, totaled $34.8 million which were expenses in the fourth
quarter of 1993. The $3.25 billion bank loan commitment expired on February 15,
1994 upon the termination of the tender offer.
In connection with the contemplated financing of the Company's proposed
acquisition of Paramount, the Company and BellSouth entered into a Memorandum of
Understanding, dated as of November 11, 1993 (the "Memorandum of
Understanding"), pursuant to which, among other things, if the Company's efforts
to acquire Paramount were terminated or abandoned, BellSouth would have an
option to purchase directly from the Company, during the six-month period
following such termination or abandonment, 8,627,934 Common Shares at $60 per
share, for an aggregate purchase price of $517,676,040. The Company also entered
into a Commitment Letter, dated November 11, 1993, with Comcast, Cox and
Advance, pursuant to which, among other things, if the Company terminated or
abandoned its interest in pursuing the acquisition of Paramount, then each of
Cox and Advance, during the six-month period following such termination or
abandonment, would be entitled to purchase 2,833,333 Common Shares at $60 per
share, for an aggregate purchase price of $170,000,000.
In connection with the proposed acquisition of Paramount, each of Liberty,
Comcast, Arrow Investments, L.P., an affiliate of Mr. Diller ("Arrow"), Cox,
Advance and BellSouth entered into an Agreement Among Stockholders dated as of
November 11, 1993 (the "Agreement Among Stockholders"), pursuant to which each
agreed to vote all shares of Company voting securities in favor of the issuance
of Company securities as contemplated by the equity commitment letter and the
Memorandum of Understanding and in favor of a merger with Paramount.
In connection with the tender offer for Paramount, on October 22, 1993 the
Company filed a Premerger Notification and Report Form with the DOJ and the FTC.
On November 5, 1993, the FTC, pursuant to the HSR Act, issued Requests for
Additional Information, relevant to the proposed purchase of Paramount shares
pursuant to the Company's tender offer for Paramount to each of the Company and
five directors of the Company, namely Barry Diller, John C. Malone, Peter R.
Barton, Ralph J. Roberts and Brian L. Roberts. Following certain discussions
between representatives of the Company, Liberty, and TCI, and the staff of the
FTC, on November 11, 1993, Liberty and TCI entered into an Agreement Containing
Consent Order (the "Consent Order") with the staff of the Bureau of Competition
of the FTC and an Interim Agreement (the "Interim Agreement") relating thereto
with the General Counsel of the FTC. Pursuant to the Interim Agreement, on
November 15, 1993, the waiting period under the HSR Act was terminated.
The Consent Order contemplated that, if the Company consummated the
Paramount acquisition, Liberty and TCI would divest all of their ownership
interests in the Company within eighteen months of the date the Consent Order
became final. Pursuant to the Consent Order, Liberty and TCI agreed that if the
Paramount acquisition were consummated they would not, until such divestiture
was completed, enter into any agreements with the Company or Paramount that
grant Liberty or TCI any exclusive rights to exhibit recently released
theatrical motion pictures after Paramount's then current contract with Time
Warner Inc. or Home Box Office, Inc. terminates.
Pursuant to the Consent Order, if the Paramount acquisition had been
consummated, for a period beginning on the date the Consent Order became final,
and ending three years after such divestiture of Liberty's and TCI's interests
in the Company was completed, Liberty and TCI would not have been permitted to
acquire, without prior FTC approval, any equity interest in, or assets in excess
of specified values of, the Company, Paramount or certain other entities.
Because the Company later terminated its efforts to acquire Paramount, Liberty
and TCI generally were not obligated to comply with the terms of the Consent
Order.
The Interim Agreement provided that until certain events specified therein
occurred, TCI would not (a) exercise direction of or control over, directly or
indirectly, the operations or management of the Company or Paramount, (b)
exercise any voting rights or agreements, directly or indirectly, pursuant to
Liberty's ownership in the Company or (c) participate in any change in the
composition of the management of the Company or Paramount; provided, however,
that Liberty and TCI could vote their ownership interests in the Company in
favor of the acquisition of Paramount and the transactions providing financing
by entities other than Liberty and TCI for such acquisition. Liberty and TCI
also agreed that (a) the officers, directors or
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employees of Liberty or TCI who were then members of the boards of directors of
the Company or Paramount would resign such membership, and (b) no officer,
director, or employee of Liberty or TCI would serve on such boards until the
first to occur of the specified events described in the previous sentence.
Effective November 11, 1993, Liberty's representatives on the Company's board of
directors, John Malone and Peter Barton, resigned their positions.
On November 11, 1993, Liberty and the Company entered into an agreement,
acknowledged and agreed to by TCI (the "Liberty-QVC Agreement"), pursuant to
which, if the Paramount acquisition had been consummated, Liberty would have had
the right to require the Company to purchase up to the equivalent of all Shares
held by Liberty and certain related entities that so elected (other than shares
to be sold to Comcast and Arrow pursuant to certain parity rights under the
Stockholders Agreement, dated as of July 16, 1993, among Comcast, Liberty, Mr.
Diller and certain of their affiliates (the "Stockholders Agreement") and the
Liberty-QVC Agreement) for $60 per Common Share equivalent in cash or
immediately available funds. The Company had the option, in lieu of paying $60
per share, to require Liberty to sell the shares to a third party in a manner
reasonably acceptable to each of Liberty and the Company, in which case the
Company would have been obligated to reimburse Liberty in cash to the extent
that Liberty received aggregate net proceeds in such sale averaging less than
$60 per Common Share equivalent.
Pursuant to the Liberty-QVC Agreement, Liberty no longer had any rights or
obligations under or was otherwise subject to any of the terms of the
Stockholders Agreement, except with respect to the parity rights of Comcast and
an affiliate of Mr. Diller as were provided in the Liberty-QVC Agreement and the
Stockholders Agreement. In connection with the Company's termination of the
Paramount acquisition and withdrawal of the HSR filing with respect thereto,
under the Liberty/QVC Agreement, Liberty had the right, exercisable within
ninety days of the termination, to be reinstated as a party to the Stockholders
Agreement, subject to and in accordance with the terms thereof as in effect on
November 11, 1993 and as altered by the Agreement Among Stockholders (as defined
below) and Understanding Among Stockholders (as defined below) and the
Memorandum of Understanding.
In accordance with the foregoing terms, the Company, BellSouth, Advance and
Cox entered into a Stock Option Agreement, dated as of February 15, 1994 (the
"Stock Option Agreement"), pursuant to which the Company granted to BellSouth,
Cox and Advance the above-described options to purchase Common Shares. These
options became exercisable on the date of the Company's public announcement of
termination of its efforts to acquire Paramount (February 15, 1994) and will
terminate, if not exercised, on August 15, 1994. References in this Schedule
14D-9 to fully diluted shares assume that none of such options, which are
exercisable at $60 per Common Share, are exercised.
Additionally, under the Stock Option Agreement, BellSouth agreed that if it
purchases Common Shares pursuant thereto, it will become a party to the
Stockholders Agreement in accordance with the terms of the Understanding Among
Stockholders, dated as of November 11, 1993 (the "Understanding Among
Stockholders"), among BellSouth, Liberty, Comcast and Arrow. The Stock Option
Agreement further provides that, after BellSouth becomes a party to the
Stockholders Agreement, so long as Comcast, Arrow or BellSouth remains an
eligible stockholder thereunder, the Company will not take any action to (i)
block or prevent open market purchases by such eligible stockholder of Common
Shares so long as such entity's total fully diluted voting power of the Company
does not exceed 35% of the fully diluted outstanding voting power of the Company
or (ii) discriminate against such eligible stockholder as a stockholder or
deprive BellSouth, Comcast or Arrow of full rights as a stockholder of the
Company.
Contemporaneously with the execution of the Stock Option Agreement, Comcast
and Liberty entered into an Acknowledgement and Agreement dated as of February
15, 1994, pursuant to which Comcast and Liberty acknowledged and agreed to the
foregoing provisions of the Stock Option Agreement and further agreed that such
provisions modified and replaced the stock option provisions of the Memorandum
of Understanding.
Comcast, Liberty, BellSouth, Advance, Arrow and Cox also entered into a
Letter Agreement dated as of February 15, 1994, pursuant to which the parties
agreed that the Agreement Among Stockholders dated November 11, 1993 (whereby
each of them had agreed, among other things, to vote all of their voting shares,
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if any, in favor of any merger with Paramount and the issuance of securities in
connection therewith) was terminated except that (i) each of Comcast, Liberty
and Arrow would be required to vote all of its equity voting securities of the
Company in favor of the issuance of the Common Shares pursuant to the Stock
Option Agreement and (ii) each of Comcast, Liberty, Arrow and BellSouth would
remain bound by the provision of the Agreement Among Stockholders acknowledging
the Liberty-QVC Agreement.
Copies of the Stockholders Agreement, the Memorandum of Understanding, the
Consent Order, the Interim Agreement, the Liberty-QVC Agreement, the Stock
Option Agreement, the Understanding Among Stockholders and the Acknowledgement
and Agreement have been previously filed as exhibits to and described in reports
on Schedule 13D by Barry Diller, Comcast and/or Liberty.
In April 1994, Mr. Diller informed Ralph J. Roberts, Chairman of the Board
of Directors of Comcast, and Brian L. Roberts, President of Comcast, both of
whom are directors of the Company, that the Company was exploring the
possibility of a transaction with CBS Inc. ("CBS") involving a business
combination of the Company and CBS (the "CBS Transaction"). In connection with
this matter, Comcast retained Lazard Freres & Co. ("Lazard") to act as its
financial advisor. During the period from April through early July 1994, Comcast
and its advisors and the Company and its advisors met on various dates to
discuss the financial terms, business prospects and other aspects of the
potential CBS Transaction. The parties also discussed, at various times, the
ways in which Comcast's investment in the Company could be restructured or
otherwise altered in connection with the CBS Transaction, including alterations
intended to enable the surviving entity to comply with the Communications Act of
1934 (the "Communications Act") and the rules and regulations thereunder and
other applicable rules and regulations.
The Company initially considered a proposed transaction in which the
Company would acquire CBS and CBS would place its licensed broadcast activities
and non-licensed/non-broadcast businesses in separate subsidiaries, with
representatives of Comcast having representation only on the board of directors
of the non-licensed/non-broadcast subsidiary. After several weeks of
discussions, the Company and Comcast were unable to reach any agreement or
understanding with regard to such transaction, and Comcast advised the Company
it was opposed to any transaction with CBS that would not provide an opportunity
for Comcast to have a significant role in the future direction of the continuing
entity.
The Company then considered other structures relating to a proposed
business combination involving it and CBS, including a merger in which CBS would
acquire all of the outstanding QVC Stock. On June 30, 1994, the Company and CBS
announced that they were in discussions regarding a possible business
combination and were close to reaching an agreement in which the Company would
be merged into CBS, with the stockholders of the Company receiving a combination
of voting and nonvoting securities of the combined entity (the "Proposed CBS
Merger"). The Company provided its Board of Directors (including the Comcast
representatives), as well as Lazard and Liberty, with various documentation and
other information relating to this transaction, and Mr. Diller and the Company's
advisors discussed the transaction on various dates in early July 1994 with
Messrs. Ralph and Brian Roberts, as well as advisors to representatives of
Comcast and Liberty. On July 8, 1994, the Company sent a package of materials,
including complete drafts of the definitive documentation in connection with the
Proposed CBS Merger to the Board of Directors of the Company (including the
Comcast representatives), as well as to Liberty and to Comcast's financial and
legal advisors, in advance of a meeting of the Board of Directors scheduled for
July 13, 1994 to approve the Proposed CBS Merger.
In connection with the Proposed CBS Merger, Liberty and Time Warner Inc.
("Time Warner"), another significant stockholder of the Company, were asked to
sign agreements obligating them to vote in favor of the Proposed CBS Merger. In
addition, in order to comply with the Communications Act and the rules and
regulations of the Federal Communications Commission (the "FCC"), it was
contemplated that Liberty would accept a proportionate amount of nonvoting
securities of CBS greater than that proposed to be provided to other QVC
stockholders in exchange for its QVC Stock, and the Company was to relinquish
certain rights to repurchase QVC Stock held by Liberty and its affiliates. In
addition, Liberty and TCI were to grant Mr. Diller a proxy with respect to the
voting of their stock in the combined entity for a period of 10 years or
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until such earlier time as they would be permitted to vote greater than 5% of
the combined entity's securities under applicable law.
Late in the afternoon on July 12, 1994, Messrs. Ralph and Brian Roberts
delivered to Mr. Diller a letter proposing Comcast acquire all outstanding
shares of QVC Stock in exchange for $37 in cash and $7 of a new class of Comcast
convertible exchangeable preferred stock (the "Comcast Proposal") per share of
QVC Stock (on a common equivalent basis). Among other things, the letter stated
that Comcast did not believe the Proposed CBS Merger was in the best interests
of the shareholders of Comcast, summarized the Comcast Proposal, indicated that
financing for the transaction was readily obtainable, and requested that the
Company's Board of Directors defer consideration of the Proposed CBS Merger.
Comcast's letter also asked the Company's Board of Directors to form a special
committee to deal with its proposal.
Later on July 12, 1994, CBS, having been informed of the Comcast Proposal,
advised the Company that it was no longer interested in pursuing the Proposed
CBS Merger and the Company issued the following press release:
QVC has received an unexpected merger proposal from Comcast
Corporation. In its proposal, Comcast stated that QVC shareholders would
receive $37 per share in cash and $7 per share in Comcast 7 1/2%
convertible exchangeable preferred stock, convertible into Comcast common
stock ("CMCSK") at $21 per share. The QVC Board of Directors will consider
the Comcast proposal at the special meeting to be held tomorrow which was
originally scheduled to approve the previously announced merger between QVC
and CBS.
Barry Diller, Chairman and Chief Executive Officer of QVC, Inc. said,
"All the ironies aside, I said at the outset that if someone else wanted to
bid for QVC, we would, of course, deal with it. And we will, with the only
consideration being the best interests of the QVC shareholder."
On July 13, 1994, the Board of Directors of the Company met to discuss the
Comcast Proposal and the decision by CBS to terminate the Proposed CBS Merger.
Messrs. Ralph and Brian Roberts described the terms of the Comcast Proposal to
the Board of Directors and stated that, in view of the decision by CBS not to
pursue the Proposed CBS Merger, they were withdrawing their request for the
formation of a special committee of the Company's directors. After Messrs. Ralph
and Brian Roberts left the meeting, the remaining directors met with the
Company's legal and financial advisors to discuss the Comcast Proposal and the
procedures to be followed to maximize stockholder value. Later that day, the
Company advised Comcast that the Company's Board of Directors had authorized
management to engage in further discussions regarding the Comcast Proposal and
would proceed expeditiously with negotiation of definitive documentation. At the
same time, the Company indicated that it did not believe the consideration
offered by Comcast was sufficiently high to preempt the possibility that
alternatives to the Comcast Proposal would result in greater stockholder value.
The Board of Directors authorized the Company, together with its advisors, to
explore and consider other available means of maximizing stockholder value. On
July 13, 1994, the Company issued the following press release:
QVC, Inc. announced that in response to yesterday's merger proposal
from Comcast Corporation, the QVC Board of Directors has authorized
management, together with its advisors, to negotiate with Comcast and to
explore alternatives in order to maximize shareholder value.
Over the course of the next three weeks, the Company and its financial
advisors contacted a significant number of companies in the cable, programming,
retail, telephone and other industries to inquire whether such companies had an
interest in a transaction with the Company that would maximize stockholder
value; entered into confidentiality agreements and delivered certain information
to various entities that expressed an interest in exploring the possibility of a
transaction involving the Company; discussed its business and prospects with
companies that expressed an interest in possible transactions; and otherwise
sought and considered various transactions involving a sale or merger of the
Company or remaining independent. None of the discussions with third parties
other than the Parent Purchasers resulted in the receipt of a proposal for a
transaction alternative to the Comcast Proposal. In addition, the Company
entered into negotiations with Comcast
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regarding the Comcast Proposal and on July 19, 1994, Comcast delivered to the
Company a draft of a proposed merger agreement.
On July 21, 1994, a representative of and advisors to Liberty and Comcast
met with advisors to the Company to present a revised proposal (the
"Comcast/Liberty Proposal"), pursuant to which Liberty and Comcast together
would acquire all of the outstanding equity securities of the Company for $44 in
cash per share (on a common equivalent basis) in a tender offer followed by a
merger. On July 22, 1994 Comcast delivered to the Company a revised draft of a
merger agreement. From July 21, 1994 until August 3, 1994, the Company's legal
and financial advisors held discussions with the Parent Purchasers' legal and
financial advisors and indicated that the price proposed to be paid by the
Parent Purchasers was insufficient and that, unless the Parent Purchasers
offered to increase the price proposed to be paid, it was not prepared to enter
into a merger agreement at $44 per share.
On August 3, 1994, the Parent Purchasers advised the Company that they
would consider a transaction involving an increase in the consideration to be
paid in the Comcast/Liberty Proposal to $46 in cash per share (on a common
equivalent basis), provided, among other things, that the Company would agree to
certain limitations regarding solicitation and negotiation of alternative
transactions not involving the Parent Purchasers and would agree to pay a
break-up fee under certain circumstances, and that Mr. Diller would agree to
support the revised Comcast/Liberty Proposal and to terminate the Stockholders
Agreement which, among other things, provided him certain participation rights
in any acquisitions of any Shares by Comcast.
On August 4, 1994, the Company, the Parent Purchasers and the Purchaser
entered into the Merger Agreement, and certain of the parties entered into
certain other agreements described in Item 3(b)(iii) below.
(III) CERTAIN AGREEMENTS RELATING TO THE COMPANY AND THE OFFER.
The Merger Agreement.
The following is a description of certain provisions of the Merger
Agreement. Such description does not purport to be complete and is qualified in
its entirety by reference to the Merger Agreement, a copy of which is filed as
an exhibit hereto.
The Offer. The Merger Agreement provides that the obligation of the
Purchaser to consummate the Offer and to accept for payment and purchase the
Shares tendered pursuant to the Offer shall be subject only to the conditions
set forth in the Merger Agreement, which are described below under the caption
"Conditions to the Offer." The Parent Purchasers and the Purchaser have agreed
in the Merger Agreement that, without the prior written consent of the Company,
the Purchaser will not make any change in the terms or conditions of the Offer
that is adverse to the holders of the QVC Stock, change the form of
consideration to be paid in the Offer, decrease the price per Share payable in
the Offer or the number of Shares sought in the Offer, waive the Minimum
Condition (as defined below under the caption "Conditions to the Offer" ) or
impose conditions to the Offer in addition to those set forth in the Merger
Agreement.
Conditions to the Offer. The Merger Agreement provides that,
notwithstanding any other provision of the Offer, the Purchaser shall not be
required to accept for payment, purchase or pay for, any Shares tendered
pursuant to the Offer and, subject to the terms of the Merger Agreement, the
Purchaser may terminate the Offer if, (i) the number of Shares tendered and not
properly withdrawn prior to the expiration date of the Offer (the "Expiration
Date"), together with the Shares agreed to be contributed by Comcast and Liberty
to the Purchaser pursuant to the letter agreement dated August 4, 1994 among
Comcast, Liberty and TCI (the "Comcast-Liberty Agreement"), represents less than
a majority of the Common Shares outstanding on a fully diluted basis (the
"Minimum Condition"), (ii) the Purchaser shall not have obtained sufficient
financing on terms satisfactory to it to purchase all of the outstanding Shares
pursuant to the Offer, consummate the Merger and pay related fees and expenses,
(iii) the waiting periods applicable to the Offer, the acquisition by the Parent
Purchasers of the shares of the Purchaser and the transactions contemplated by
the Comcast-Liberty Agreement (described below) under the HSR Act shall not have
expired or been terminated, provided that prior to December 31, 1994, the
Purchaser may not terminate the Offer by reason of nonsatisfaction of the
condition described in this clause (iii) and is required to extend the Offer in
such event
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(except that such provision will not prohibit the Purchaser from terminating the
Offer by reason of nonsatisfaction of any other condition), (iv) the Purchaser
shall not be satisfied that it has received all consents as are required from
the FCC for consent to the transfer of control of certain FCC licenses, or (v)
at any time on or after August 4, 1994 and prior to the acceptance for payment
of Shares, any of the following conditions exist:
(a) there shall be instituted or pending any action or proceeding by any
government or governmental authority or agency, domestic or foreign, or
by any other person, domestic or foreign, before any court or
governmental authority or agency, domestic or foreign, (i) challenging
or seeking to make illegal, to delay materially or otherwise directly or
indirectly to restrain or prohibit the making of the Offer, the
acceptance for payment of or payment for some of or all the Shares by
the Purchaser or the consummation by the Purchaser of the Merger,
seeking to obtain material damages or imposing any material adverse
conditions in connection therewith or otherwise directly or indirectly
relating to the transactions contemplated by the Offer or the Merger,
(ii) seeking to restrain or prohibit the exercise of full rights of
ownership or operation by the Purchaser or its affiliates of all or any
portion of the business or assets of the Company and its subsidiaries,
taken as a whole, or of the Purchaser or any of its affiliates, or to
compel the Purchaser or any of its affiliates to dispose of or hold
separate all or any material portion of the business or assets of the
Company and its subsidiaries, taken as a whole, or of the Purchaser or
any of its affiliates, (iii) seeking to impose limitations on the
ability of the Purchaser or any of its affiliates effectively to
exercise full rights of ownership of the Shares, including, without
limitation, the right to vote any Shares acquired or owned by the
Purchaser or any of its affiliates on all matters properly presented to
the Company's stockholders, or (iv) seeking to require divestiture by
the Purchaser or any of its affiliates of any Shares;
(b) there shall be any action taken, or any statute, rule, regulation,
injunction, order or decree proposed, enacted, enforced, promulgated,
issued or deemed applicable to the Offer, the acceptance for payment of
or payment for any Shares or the Merger, by any court, government or
governmental authority or agency, domestic, foreign or supranational,
other than the application of the waiting period provisions of the HSR
Act to the Offer or the Merger, that, in the reasonable judgment of the
Purchaser, might, directly or indirectly, result in any of the
consequences referred to in clauses (i) through (iv) or paragraph (a)
above;
(c) the Company shall have breached or failed to perform in any material
respect any of its covenants or agreements under the Merger Agreement
which has not been cured, or any of the representations and warranties
of the Company set forth in the Merger Agreement shall not be true in
any material respect when made or at any time prior to consummation of
the Offer as if made at and as of such time, in each case and shall
continue to be untrue; or
(d) the Merger Agreement shall have been terminated in accordance with its
terms;
which, in the reasonable judgment of the Purchaser in any such case, and
regardless of the circumstances giving rise to any such condition, makes it
inadvisable to proceed with such acceptance for payment or payment.
The Merger. The Merger Agreement provides that, upon the terms and subject
to the conditions thereof, at the time at which the Company and the Purchaser
file articles of merger with the Secretary of State of the State of Delaware and
make all other filings or recordings required by the DGCL in connection with the
Merger, the Purchaser will cause MergerCo to be merged with and into the Company
in accordance with the DGCL. The Merger shall become effective at such time (but
not prior to October 21, 1994) as the Certificate of Merger is duly filed with
the Secretary of State of the State of Delaware or at such later time as is
specified in the Certificate of Merger (the "Effective Time"). As a result of
the Merger, the separate corporate existence of MergerCo will cease and the
Company will be the Surviving Corporation (as defined in the Merger Agreement).
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<PAGE> 10
At the Effective Time, (i) each issued and outstanding Share held in the
treasury of the Company or held by any wholly owned subsidiary thereof, or owned
by the Purchaser and MergerCo or any of its subsidiaries shall be canceled, and
no payment shall be made with respect thereto; (ii) each Share outstanding
immediately prior to the Effective Time shall, other than as provided in (i)
above and other than any Dissenting Shares, be converted into the right to
receive the Merger Consideration; (iii) each share of common stock of MergerCo
outstanding immediately prior to the Effective Time shall be converted into and
become one share of common stock of the Surviving Corporation; and (iv) each
outstanding QVC Stock Option (as defined in the Merger Agreement), whether or
not exercisable, shall be canceled and the holder thereof shall be entitled to
receive, and shall receive, cash in an amount equal to the difference between
$46 and the per share exercise price thereof, multiplied by the number of shares
issuable pursuant to such option, provided, that if such QVC Stock Option was
not issued pursuant to an employee benefit plan meeting the requirements
described in Rule 16b-3 of the Securities and Exchange Act of 1934, as amended
(the "Exchange Act"), and is held by a person subject to the short swing profit
recovery provisions of Section 16(b) of the Exchange Act, such QVC Stock Option
will not be canceled at the Effective Time and will remain an obligation of the
Surviving Corporation and will remain enforceable in accordance with the terms
thereof.
The Merger Agreement provides that the Dissenting Shares will not be
converted into or represent the right to receive the Merger Consideration.
Holders of such shares will be entitled to receive payment of the appraised
value of such shares of QVC Stock held by them in accordance with the provisions
of the DGCL, except that all Dissenting Shares held by stockholders who fail to
perfect or who effectively withdraw, forfeit or lose their rights to appraisal
of such shares of QVC Stock under the DGCL will thereupon be deemed to have been
converted into and to have become exchangeable, as of the Effective Time, for
the right to receive, without any interest thereon, the Merger Consideration,
upon surrender of the certificate or certificates that formerly evidenced such
shares of QVC Stock.
The Merger Agreement provides that, at the Effective Time, the certificate
of incorporation of MergerCo will be the certificate of incorporation of the
Surviving Corporation, except that the name of the Surviving Corporation will be
"QVC, Inc." and except for certain changes that may be necessary or appropriate
for the Merger and the transactions contemplated by the Merger Agreement to
qualify as a reclassification under the DGCL.
Agreements of the Purchaser and the Company. The Merger Agreement provides
that effective upon acceptance for payment of any Shares by Purchaser, the
Purchaser shall be entitled to designate the number of directors, rounded up to
the next whole number, on the Company's Board of Directors that equals the
product of (i) the total number of directors on the Board of Directors of the
Company (giving effect to the election of any additional directors described in
this paragraph) and (ii) the percentage that the number of Shares owned by the
Purchaser, the Parent Purchasers or any of their respective wholly owned
subsidiaries (including Shares accepted for payment) bears to the total number
of Shares outstanding, and the Company has agreed to take all action necessary
to cause the Purchaser's designees (the "Purchaser Designees") to be elected or
appointed to the Board of Directors of the Company, including, without
limitation, increasing the number of directors or seeking and accepting
resignations of its incumbent directors. At such times, QVC will use its best
efforts to cause individuals designated by Purchaser to constitute the same
percentage as such individuals represent on the Board of (x) each committee of
the Board (other than any committee of the Board established to take action
under this Agreement), (y) each board of directors of each QVC subsidiary and
(z) each committee of each such board (in each case rounded up to the next whole
number). Notwithstanding the foregoing, until such time as the Purchaser
acquires a majority of the outstanding Common Shares on a fully-diluted basis,
the Company will use its reasonable best efforts to ensure that all of the
members of the Board of Directors and such boards and committees of the Company
and each of the Company's subsidiaries as of August 4, 1994 who are not
employees of the Company remain members of the Board of Directors of the Company
and such boards and committees until the Effective Time. Following the election
or appointment of the Purchaser Designees and prior to the Effective Time, any
amendment or termination of the Merger Agreement (see "Amendment" and
"Termination"), or grant of extension or waiver by the Company will require the
concurrence of a majority of the Company's directors then in office who were
directors on
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August 4, 1994, or are directors (other than the Purchaser Designees) designated
by such persons to fill any vacancy.
The Purchaser has advised the Company that it currently intends to
designate one or more of the executive officers of Comcast and TCI (but with
respect to any executive officers of TCI, any such designation shall only be
until the Merger is consummated) listed in Schedule II and the person listed in
Schedule III to the Offer to Purchase to serve as directors of the Company. The
Purchaser has advised the Company that all of such persons have consented to act
as directors of the Company. Certain information with respect to such
individuals is contained in Schedules II and III to the Offer to Purchase. For
certain additional information regarding the Company and the persons listed
above, see Annex B hereto which is incorporated herein by reference. The
foregoing information contained in Annex B being mailed to stockholders herewith
is being provided in accordance with the requirements of Section 14(f) of the
Exchange Act and Rule 14f-1 thereunder.
Pursuant to the Merger Agreement, if required by applicable law to
consummate the Merger, the Company will cause a meeting of its stockholders (the
"Company Stockholder Meeting") to be duly called and held as soon as practicable
after consummation of the Offer for the purpose of voting on the adoption of the
Merger Agreement and approval of the Merger. The Merger Agreement provides that
the Company will, as promptly as practicable after consummation of the Offer,
prepare and file (if necessary) with the Commission under the Exchange Act a
proxy statement relating to the Company Stockholder Meeting (the "Proxy
Statement"). The Company has agreed, subject to the fiduciary duties of its
Board of Directors on the basis of advice of independent counsel, to use its
best efforts to obtain the necessary approvals by its stockholders of the Merger
Agreement and the Merger. The Purchaser and the Parent Purchasers have agreed to
vote all Shares acquired in the Offer, or heretofore owned, in favor of the
Merger. Notwithstanding anything in the foregoing to the contrary, in the event
the Purchaser, the Parent Purchasers, MergerCo and/or any direct or indirect
subsidiary thereof, acquire at least 90% of the outstanding shares of each class
of capital stock of the Company, the Parent Purchasers and the Company have
agreed to take all necessary and appropriate action to cause the Merger to
become effective as promptly as practicable after the expiration of the Offer
and the satisfaction or waiver of the conditions set forth under "Conditions to
the Offer," without a meeting of the Company's Stockholders, in accordance with
Section 253 of the DGCL.
Certain Covenants of the Company, the Parent Purchasers and the
Purchaser. The Company has agreed that, prior to the Effective Time unless the
Purchaser consents, which consent shall not be unreasonably withheld, the
Company will not amend or otherwise change its certificate of incorporation or
bylaws; in addition, the Company has agreed that, prior to the Effective Time,
unless the Purchaser consents, which consent shall not be unreasonably withheld,
each of the Company and its respective subsidiaries (each, a "Subsidiary") will
not (a) conduct its business in any manner other than in the ordinary course of
business consistent with past practice; (b) issue, grant, sell, pledge, redeem
or acquire for value (i) any of its securities, including options thereon (other
than the issuance of equity securities upon the conversion of outstanding
convertible securities or in connection with a dividend reinvestment plan or by
an employee benefit plan of the Company or the exercise of options or warrants
outstanding as of the date of the Merger Agreement) or (ii) any material assets,
except for sales of assets in the ordinary course of business; (c) declare, set
aside, make or pay any dividend or other distribution with respect to any of its
capital stock, except dividends declared and paid by a subsidiary of the Company
only to the Company, or subdivide, reclassify, recapitalize, split, combine or
exchange any of its shares of capital stock (other than in connection with the
exercise of currently outstanding options or warrants); (d) incur any material
amount of indebtedness for borrowed money or make any loans or advances, except
borrowings under existing bank lines of credit in the ordinary course of
business; (e) increase the compensation payable or to become payable to its
executive officers or employees, except for increases in the ordinary course of
business in accordance with past practices, or grant any severance or
termination pay to, or enter into any employment or severance agreement with any
director or executive officer of it or any of its subsidiaries, or establish,
adopt, enter into or amend in any material respect or take action to accelerate
rights or benefits under any collective bargaining agreement or any employee
benefit plan, agreement or policy; (f) take any action, other than reasonable
and usual actions in the ordinary course of business and consistent with past
practice, with respect to accounting policies or procedures (including tax
accounting policies and procedures); (g) acquire by merger or consolidation, or
by purchase of
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assets, or by any other manner, any material business; (h) mortgage or otherwise
encumber or subject to any lien any of its properties or assets that are
material to the Company and its subsidiaries taken as a whole, except for liens
in connection with indebtedness incurred in connection with the Merger as
permitted by clause (d) above; or (i) authorize any of, or commit or agree to
take any of, the foregoing actions.
Pursuant to the Merger Agreement, the Company has agreed that it will not,
and will not permit any of its subsidiaries, or its or its subsidiaries'
officers, directors, employees, agents or representatives (including, without
limitation, any investment banker, attorney or accountant retained by it) to,
initiate, solicit or encourage, directly or indirectly, any inquiries or the
making of any proposal with respect to an Alternative Transaction (as defined
below), engage in any discussions or negotiations concerning, or provide to any
other person any information or data relating to the Company or its subsidiaries
for the purposes of, or otherwise cooperate in any way with or assist or
participate in, facilitate or encourage, any inquiries or the making of any
proposal which constitutes, or may reasonably be expected to lead to, a proposal
to seek or effect an Alternative Transaction, or agree to or endorse any
Alternative Transaction; provided that the Company or its Board of Directors
will not be prohibited from (i) taking and disclosing to its stockholders a
position contemplated by Rule 14e-2 under the Exchange Act or (ii) making any
disclosure to its stockholders that, in the judgment of its Board of Directors
in accordance with, and based upon the advice of, outside counsel, is required
under applicable law; and provided further that (x) the Board of Directors of
the Company on behalf of the Company may upon the unsolicited request of a third
party furnish information or data (including, without limitation, confidential
information or data) relating to the Company for the purposes of an Alternative
Transaction and participate in negotiations with a person making an unsolicited
proposal regarding an Alternative Transaction and (y) following receipt of a
proposal for an Alternative Transaction, the Board of Directors of the Company
may withdraw or modify its recommendation relating to the Offer or the Merger to
the extent that it determines in good faith in accordance with, and based upon
the advice of, outside counsel that such action is necessary or appropriate in
order for the Board of Directors of the Company to act in a manner that is
consistent with its fiduciary obligations under applicable law. The Company has
agreed to promptly advise the Purchaser of, and communicate the terms of, any
proposal it may receive, or any inquiries it receives which may reasonably be
expected to lead to a proposal, and the identity of the person making it; prior
to taking any such action, if the Company intends to participate in any such
discussion or negotiation or provide any such information to any such third
party, it shall give reasonable notice to the Purchaser and shall consult, and
thereafter shall continue to consult, with the Purchaser. If the Company is
required by this provision to give notice of a request, Alternative Transaction
proposal or inquiry, it shall keep the Purchaser reasonably informed of the
status and details of any such request, Alternative Transaction, inquiry or
proposal (or any amendment to any proposal). "Alternative Transaction" means a
transaction or series of related transactions (other than the Transactions)
resulting in (a) any change of control of the Company, (b) any merger or
consolidation of the Company in which another person acquires 25% or more of the
aggregate voting power of all voting securities of the Company or the surviving
corporation, as the case may be, (c) any tender offer or exchange offer for, or
any acquisitions of, any securities of the Company which, if consummated, would
result in another person owning 25% or more of the aggregate voting power of all
voting securities of the Company or (d) any sale or other disposition of assets
of the Company or any of its subsidiaries if the Fair Market Value of such
assets exceeds 25% of the aggregate Fair Market Value of the assets of the
Company and its subsidiaries taken as a whole before giving effect to such sale
or other disposition. "Fair Market Value" of any assets or securities means the
fair market value of such assets or securities, as determined by the Board of
Directors of the Company in good faith.
The Parent Purchasers, the Purchaser and the Company have each agreed that
from and after the Effective Time, the Surviving Corporation will indemnify,
defend and hold harmless the present and former officers and directors of the
Company (collectively, the "Indemnified Parties") against all losses, expenses,
claims, damages, liabilities or amounts that are paid in settlement of, with the
approval of the Surviving Corporation (which approval shall not unreasonably be
withheld), or otherwise in connection with any claim, action, suit, proceeding
or investigation based in whole or in part on the fact that such person is or
was a director or officer of the Company and arising out of actions or omissions
occurring at or prior to the Effective Time (including, without limitation, the
transactions contemplated by the Merger Agreement), in each case to the full
extent permitted under the DGCL (and shall pay any expenses in advance of the
final
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disposition of any such action or proceeding to each Indemnified Party to the
fullest extent permitted under the DGCL), upon receipt from the Indemnified
Party to whom expenses are advanced of any undertaking to repay such advances
required under the DGCL. In addition, for three years after the Effective Time,
the Surviving Corporation will provide officers' and directors' liability
insurance in respect of facts or events occurring prior to the Effective Time
covering each such person currently covered by the Company's officers' and
directors' liability insurance policy of at least the same coverage and amount
on terms and conditions no less advantageous than those of such policy in effect
on the date of the Merger Agreement. The Surviving Corporation will not be
obligated to pay premiums in excess of 200% of the amount per annum that the
Company currently pays for such insurance.
For a period of two years after the Effective Time, the Purchaser and the
Parent Purchasers will cause the Surviving Corporation to maintain employee
compensation and benefit plans programs and policies and fringe benefits
(including post-employment welfare benefits) that, in the aggregate, are no less
favorable than those provided to employees of the Company and its subsidiaries,
as applicable, as in effect on the date of the Merger Agreement, and will cause
the Surviving Corporation to provide severence pay and benefits no less
favorable than those provided by the Company. Immediately prior to consummation
of the Offer, the Purchaser has agreed to establish with a trustee satisfactory
to the Company and the Purchaser, a "Rabbi" trust, in a form reasonably
acceptable to the Company and shall deposit in such trust cash in an amount
sufficient to satisfy all obligations under QVC Stock Options. Comcast and
Liberty have agreed to cause the Purchaser and the Surviving Corporation to
perform their respective obligations under the Merger Agreement and to be
jointly and severally liable for any breach of any representation, warranty,
covenant or agreement of the Purchaser and for any breach of the covenant
described in this sentence.
Representations and Warranties. The Merger Agreement contains customary
representations and warranties of the parties thereto, including representations
by the Company as to the absence of certain changes or events concerning its
business, compliance with law, employee benefit plans, taxes and other matters.
Conditions to Certain Obligations. The obligations of the Company, the
Parent Purchasers and the Purchaser to consummate the Merger are subject to the
satisfaction of the following conditions: (i) if required by the DGCL, the
Merger Agreement and the Merger shall have been approved and adopted by the
requisite vote of the stockholders of the Company; (ii) no governmental entity
or federal or state court of competent jurisdiction shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation, executive order,
decree, injunction or other order (whether temporary, preliminary or permanent)
which is in effect and which materially restricts, prevents or prohibits
consummation of the Merger or any transaction contemplated by the Merger
Agreement, provided, however, that the parties will use their reasonable efforts
to cause any such decree, judgement, injunction or other order to be vacated or
lifted, (iii) other than the filing of merger documents in accordance with the
DGCL, all authorizations, consents, waivers, orders or approvals required to be
obtained, and all filings, notices or declarations required to be made prior to
the consummation of the Merger and the transactions contemplated by the Merger
Agreement shall have been obtained and made, except for such authorizations,
consents, waivers, orders, approvals, filings, notices or declarations the
failure to obtain or make which would not have a material adverse effect, at or
after the Effective Time, on the business, results of operations or financial
condition (as existing immediately prior to the consummation of the Merger) of
the Company and its subsidiaries, taken as a whole; and (iv) the Purchaser shall
have purchased Shares pursuant to the Offer.
Termination. The Merger Agreement may be terminated at any time prior to
the Effective Time, whether before or after approval of the Merger Agreement by
the stockholders of the Company, (i) by mutual consent of the Company and the
Purchaser; (ii) prior to the purchase of Shares pursuant to the Offer, (A) by
either the Company or the Purchaser upon termination of the Offer by reason of
the non-occurence of a condition described under "Conditions to the Offer," (B)
by the Purchaser if the Company shall breach any covenant or agreement on its
part or if any representation or warranty of the Company shall have become
untrue, in either case such that such breach or untruth is incapable of being
cured by February 28, 1995, or (C) by the Company upon a breach of any
representation, warranty, agreement or covenant on the part of the Purchaser or
the Parent Purchasers which (other than the covenant relating to the
establishment of a "Rabbi"
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trust described above) has not been cured (and cannot reasonably be expected to
be cured before February 28, 1995) and will prevent or delay consummation of the
Merger by or beyond February 28, 1995; or (iii) by either the Company or the
Purchaser if (A) the Merger or the Offer has not been consummated before
February 28, 1995, unless, in the case of termination by the Purchaser, the
Purchaser shall not have purchased Shares pursuant to the Offer by reason of any
failure of the Purchaser or the Parent Purchasers to fulfill its obligations
under the Merger Agreement, (B) if any permanent injunction or action by any
governmental entity preventing the consummation of the Merger shall have become
final and nonappealable, or (C) the Board of Directors of the Company shall
withdraw, modify or change its recommendation so that it is not in favor of the
Merger Agreement, the Offer or the Merger or shall have resolved to do any of
the foregoing or the Board of Directors of the Company shall have recommended or
resolved to recommend to its stockholders an Alternative Transaction, provided,
that in the case of any such termination by the Company or the Purchaser
pursuant to the provisions described in this clause (C), with such termination
it pays to the Purchaser an amount of $55,000,000, which amount is inclusive of
all expenses of the Purchaser and the Parent Purchasers.
Fees and Expenses. The Merger Agreement provides that the Company, the
Parent Purchasers and the Purchaser shall each bear all expenses incurred by it
in connection with the Merger Agreement and the transactions contemplated
thereby except that all costs and expenses relating to printing and mailing the
Proxy Statement will be borne equally by the Company and the Purchaser.
Amendment and Waivers. Any provision of the Merger Agreement may be
amended or waived prior to the Effective Time if, and only if, such amendment or
waiver is in writing and signed, (i) in the case of an amendment, by the
Company, the Parent Purchasers and the Purchaser or (ii) in the case of a
waiver, by the party or parties to be bound thereby. After the adoption of the
Merger Agreement by the stockholders of the Company, no amendment, which under
applicable law may not be made without the approval of the stockholders of the
Company, may be made without such approval.
The Stockholder Letter Agreement.
The following is a description of certain provisions of the Stockholder
Letter Agreement (as defined below). Such description does not purport to be
complete and is qualified in its entirety by reference to the Stockholder Letter
Agreement, a copy of which is filed as an exhibit hereto.
In connection with the Offer and the Merger, Comcast, Mr. Diller and Arrow
entered into a letter agreement, dated as of August 4, 1994 (the "Stockholder
Letter Agreement"), pursuant to which Mr. Diller agreed to vote, as a director
of the Company, in favor of the Merger Agreement and the transactions
contemplated thereby, provided that there is not then a bona fide transaction
proposed to the Company or its stockholders which would result in consideration
to the Company's stockholders greater than $46 per share (or such higher price
then offered by Comcast and Liberty if they increase the $46 price provided in
the Merger Agreement) and further subject to Mr. Diller's fiduciary obligations
as a member of the Board of Directors.
The Stockholder Letter Agreement further provides that, until the earlier
of consummation of the Merger or termination of the Merger Agreement, Mr. Diller
and certain of his affiliates (the "Arrow Group") will not (i) sell, transfer,
pledge, assign or otherwise dispose of, or agree to sell, transfer, pledge,
assign or otherwise dispose of, any equity securities of the Company or certain
options therefor (the "Options," and together with such equity securities, the
"QVC Securities") held by such parties except to tender Shares pursuant to the
Offer (provided that the Arrow Group may dispose of such securities to the
Company in order to effect a cashless exercise of options); (ii) deposit any QVC
Securities owned by them into a voting trust or grant a proxy or enter into a
voting agreement with respect to such QVC Securities; (iii) agree with any third
party to exercise any voting rights with respect to such QVC Securities, except
as described in the following two sentences; or (iv) seek or solicit any of the
foregoing, other than as permitted (as a director of the Company) under the
Merger Agreement. The Arrow Group also agreed to tender, upon the request of
Comcast, pursuant to and in accordance with the terms of the Offer, all Common
Shares owned by it. Upon the request of Comcast, Mr. Diller will exercise all of
the then exercisable Options provided that arrangements satisfactory to Mr.
Diller for the financing of the exercise and the purchase of the Shares by
Comcast have been made.
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Pursuant to the Stockholder Letter Agreement, unless each Common Share
owned by the Arrow Group has been tendered pursuant to the Offer, the Arrow
Group will cause each Share that it then owns or has power to vote to be voted
(i) at the Company stockholder meeting to approve the Merger, for the approval
and adoption of the Merger Agreement and the Merger and (ii) against any
recapitalization, merger, business combination, or similar transaction involving
the Company unless Comcast or Liberty consents.
As provided in the Stockholder Letter Agreement, the provisions of the
preceding two paragraphs will not apply (i) upon the first to occur of (A) the
last day on which to tender into a tender or exchange offer which would result
in consideration to stockholders of the Company greater than $46 per share (or
such higher price then offered by Comcast and Liberty if they increase the $46
price provided in the Merger Agreement) (a "Superior Offer") (subject to the
subsequent condition that such Superior Offer is consummated) and (B) the fifth
business day after any person or entity has made a Superior Offer which has not
been matched by Comcast and Liberty (subject to the subsequent condition that
such Superior Offer is consummated) or (ii) to the extent it could result in any
violation of or liability under the federal securities laws.
Pursuant to the Stockholder Letter Agreement, until the earlier of
consummation of the Merger or termination of the Merger Agreement, neither Mr.
Diller nor Arrow will, directly or indirectly, initiate, solicit or encourage
any person concerning the making of any proposal with respect to an Alternative
Transaction, other than as permitted (as a director of the Company) under the
Merger Agreement.
Pursuant to the Stockholder Letter Agreement, Comcast agreed to cause the
Company and the Surviving Corporation to fulfill and completely discharge all
obligations under the Options. Comcast also agreed that, upon consummation of
the Offer, unless otherwise agreed to by Mr. Diller, Mr. Diller's employment
under his current equity compensation agreement with the Company will continue
until at least December 12, 1994 and they agreed that Mr. Diller may perform his
services to the Company as provided by such compensation agreement on a
non-exclusive basis and without minimum time requirements but that he will be
reasonably available to facilitate the transition, and that the Company will
continue to pay all expenses incurred by Mr. Diller at least through December
12, 1994 on a basis consistent with past practice. In addition, each of Comcast
and Mr. Diller agreed that, upon termination of Mr. Diller's employment, Comcast
will cause the Company to execute for the benefit of Mr. Diller and the entities
included in the Arrow Group, and, provided that Mr. Diller has been paid all
amounts due in respect of the Options and his employment (including payment of
Mr. Diller's expenses), Mr. Diller will execute for the benefit of the Company,
general releases in a form mutually agreed to by the parties.
Pursuant to the Stockholder Letter Agreement, the parties thereto agreed to
terminate, subject to the absence or waiver of any inconsistent agreements, the
Stockholders Agreement without any further obligation thereunder and to release
each other from any claim of whatever nature arising out of or under the
Stockholders Agreement; provided, however, that if the Merger Agreement is
terminated, the Stockholders Agreement and such claims will be restored, and
such termination will be of no effect, effective as of August 4, 1994.
The Stockholder Letter Agreement will terminate automatically and
simultaneously with the Merger Agreement in accordance with its terms, except
for the agreements described in the preceding graph which will survive any such
termination if Comcast, together with any other party, acquires control of a
majority of the outstanding voting stock or a majority of the Board of Directors
of the Company.
The Comcast-Liberty Agreement.
The following is a description of certain provisions of the Comcast-Liberty
Agreement, as described in the Schedule 14D-1. Such description does not purport
to be complete and is qualified in its entirety by reference to the
Comcast-Liberty Agreement, a copy of which is filed as an exhibit hereto.
Pursuant to the Comcast-Liberty Agreement, the Parent Purchasers amended
their offer from $44 per Common Share and $440 per Preferred Share to $46 per
Common Share and $460 per Preferred Share. In connection with the
Comcast/Liberty Proposal, the Parent Purchasers agreed to contribute to the
Purchaser their respective holdings in QVC Stock. Comcast also agreed to
contribute to the Purchaser an amount of cash approximately equal to (i) $267
million plus (ii) the amount necessary to exercise all warrants to acquire
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Common Shares that it agreed to simultaneously contribute to the Purchaser.
Liberty agreed to contribute approximately $20 million in cash to the Purchaser.
Following the Merger, Comcast and Liberty will own approximately 57.4% and
42.6%, respectively, of the Purchaser. In addition, the Parent Purchasers agreed
to work together to arrange debt financing for the remaining cost of the
acquisition and to cause the Company to waive any remaining rights it may have
pursuant to certain Company repurchase rights under certain affiliation
agreements. The Parent Purchasers also agreed to vote all of their respective
Common Shares in favor of the Merger.
Pursuant to the Comcast-Liberty Agreement, the Management Committee of the
Surviving Corporation will be comprised of three representatives appointed by
Comcast who shall be reasonably acceptable to Liberty and two representatives
appointed by Liberty who shall be reasonably acceptable to Comcast. The
day-to-day operations of the Surviving Corporation will be managed by Comcast.
However, neither the Surviving Corporation nor the Company will, subject to
certain exceptions, engage in certain transactions or take certain actions
unless approved in advance by Liberty, including: (i) any action which would
result in the Surviving Corporation, conducting, participating in or making
certain investments in a business other than its principal businesses; (ii)
transactions not in the ordinary course of business; (iii) the disposition, by
the Surviving Corporation not in its ordinary course of business, of a material
amount of its assets; (iv) the merger or consolidation or the dissolution or
liquidation of the Surviving Corporation or the Company; (v) amendments to the
Surviving Corporation's Certificate of Incorporation or By-Laws; (vi) the
issuance or purchase of any shares of the capital stock or other equity
securities of the Surviving Corporation or the Company; (vii) the amendment or
modification of any outstanding options, warrants or rights to acquire shares of
capital stock or other securities of the Surviving Corporation; (viii) the
filing by the Surviving Corporation of a petition under the Bankruptcy Act or
any other insolvency law, or the admission in writing of its bankruptcy,
insolvency or general inability to pay its debts; (ix) the commencement or
settlement of litigation or arbitration which is material to the Surviving
Corporation other than in the ordinary course of business; (x) entering into by
the Surviving Corporation of material contracts not connected with carrying on
its principal business; and (xi) certain transactions between the Surviving
Corporation and Comcast. Upon consummation of the Merger, Comcast and TCI have
agreed to cooperate in good faith to cause the Surviving Corporation and HSN to
pursue jointly business opportunities outside the United States and Canada.
Following consummation of the Merger, neither Comcast nor Liberty (nor the
directors, officers, members of the Management Committee, employees or agents of
the Surviving Corporation or any subsidiary who are also directors, officers,
employees or agents of either Comcast or Liberty) will be obligated to present
any corporate opportunity to the Surviving Corporation or its subsidiaries.
Following the Merger, each of Comcast and Liberty will have the right to
three demand registrations to have their shares of the Surviving Corporation
registered under the Securities Act of 1933. Such demand registration rights
will be subject to the right of first refusal of the other party, at a price to
be determined by three investment bankers based upon a projected initial
secondary public offering price of the Surviving Corporation's common stock. Any
other transfers will be subject to the other party's right of first refusal
except that a change in control of Liberty, Comcast or certain affiliates
thereof will not trigger such rights of first refusal.
Unless Liberty, through the exercise of its demand registration rights,
shall have been the party which first caused the Surviving Corporation's common
stock to be registered under the Exchange Act, then Liberty may at any time
during the 60-day period following the fifth anniversary of the Merger (or if
not previously exercised, at any time during the 60-day period following each of
the sixth, seventh, eighth, and ninth anniversary of the Merger) exercise its
exit rights as described below.
Liberty may exercise its exit rights by delivering written notice to
Comcast, whereupon Liberty and Comcast will seek to agree upon the fair market
value of the Surviving Corporation on a going concern or a liquidation basis,
whichever is higher. If they are unable to agree upon a fair market value, then
each of Liberty and Comcast will appoint an independent appraiser to determine
such value. If the amount of the higher of the two is greater than 110% of the
lower, then a third independent appraiser designated by the first two appraisers
will be retained and deliver its appraisal. The final appraisal will be the
average of the closest two appraisals.
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Comcast will have the right to purchase all of the common stock of the
Surviving Corporation held by Liberty at a price equal to the fraction of the
fair market value of the Surviving Corporation represented by such common stock
as a percentage of the fully diluted common stock of the Surviving Corporation.
Comcast may pay Liberty for such shares in cash, a Comcast promissory note
maturing not more than three years after issuance, or Comcast equity securities.
If Comcast fails to purchase the shares of the Surviving Corporation held
by Liberty by the time agreed, then Liberty will have the right to purchase the
shares of the Surviving Corporation held by Comcast on the same terms on which
Liberty's shares of the Surviving Corporation were offered to Comcast.
If Liberty fails to purchase the shares of the Surviving Corporation held
by Comcast by the time agreed, then Liberty and Comcast will use their best
efforts to sell the Surviving Corporation in a sale in which Liberty, Comcast or
any of their respective affiliates may be purchasers.
Liberty and Comcast will use all reasonable efforts to consummate any
purchase and sale in the most tax efficient method available.
(IV) ARRANGEMENTS BETWEEN THE COMPANY AND CERTAIN OF ITS DIRECTORS,
EXECUTIVE OFFICERS OR AFFILIATES.
Certain contracts, agreements, arrangements and understandings between the
Company or its affiliates and certain of its directors, executive officers or
affiliates are described at pages 6 through 11 and pages 20 through 24 of the
Company's Proxy Statement dated May 31, 1994 relating to its 1994 Annual Meeting
of Stockholders (the "1994 Proxy Statement") and in Annex B. A copy of the 1994
Proxy Statement is attached as an exhibit hereto and the portions thereof
referred to herein are incorporated herein by reference. Annex B is attached
hereto and incorporated herein by reference. See "The Merger Agreement -- The
Merger" under Item 3(b)(iii) above for a description of the treatment of
employee stock options in the Merger.
In July 1994 the Company paid Comcast approximately $2.1 million in
connection with Comcast beginning to carry certain of the Company's programming
to certain of its cable television subscribers.
In April 1994, Comcast exercised warrants to purchase 310,000 Common Shares
for $10.00 per share.
From prior to February 1992 to the present, Comcast, TCI and Liberty have
distributed the Company's television programming to their cable television
systems subscribers under the provisions of affiliation agreements with the
Company. Pursuant to the affiliation agreements, the Company has paid Comcast,
TCI and Liberty commissions of 5% of net sales by the Company to residents of
the areas served by such entity's cable television systems. Such payments have
been in the approximate amounts of $3.2 million and $10.8 million to Comcast
(and its affiliates) and TCI and Liberty (and their affiliates), respectively,
in the Company's fiscal year ended January 31, 1993; $3.5 million and $12.4
million to Comcast (and its affiliates) and TCI and Liberty (and their
affiliates), respectively, in the fiscal year ended January 31, 1994; and $1.3
million and $5.0 million to Comcast (and its affiliates) and TCI and Liberty
(and their affiliates), respectively, in the period from February 1, 1994
through July 31, 1994.
In July 1993, the Company and Liberty entered into a letter agreement
regarding the distribution of the Company's television programming to cable
television system subscribers of Liberty and its affiliates. The letter
agreement provided for the distribution of the Company's primary programming to
701,000 cable television subscribers and for the distribution of certain of the
Company's secondary programming to 10,000,000 cable television subscribers. In
the event the cable television distribution is not provided to the number of
subscribers or during the term provided, the Company has the right to redeem
from Liberty up to 571,480 Common Shares based on the amount of distribution
provided. See "The Comcast-Liberty Agreement" under Item 3(b)(iii) for a
description of the treatment of certain Company repurchase rights.
Brian Roberts, the President and a director of Comcast, has served as a
director of the Company since October 1987 and Ralph Roberts, the Chairman of
the Board of Comcast, has served as a director of the Company since June 1991.
Peter Barton, executive vice president of TCI, served as a director of the
Company
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from December 1989 to November 1993 and John Malone, the President and a
director of TCI, served as a director of the Company from June 1991 to November
1993.
On December 23, 1992, the Company extended an offer to all of the holders
(the "Warrantholders") of warrants (the "Warrants") to purchase Common Shares to
convert any or all of the Company's 9,479,913 outstanding Warrants into Shares.
Pursuant to the terms of such offer, the Company offered, at the Warrantholder's
election, (i) to issue to the Warrantholder, in exchange for the Warrantholder's
Warrants, Common Shares with an aggregate value (each share being valued at
$37.75 per share, representing a market based average stock price at such time
(the "Conversion Price")) equal to the difference between the Conversion Price
and the price at which the Warrants were exercisable (the "Exercise Price"),
multiplied by the number of Common Shares into which the Warrants were
exercisable, or (ii) if the Warrantholder elected to exercise its Warrants by
making payment of the Exercise Price in cash and delivery of the Warrant
certificate, to issue the number of Common Shares into which such Warrants were
exercisable and to repurchase from the Warrantholder, at the Conversion Price,
all of the Common Shares that could be purchased using only (and all of) the
proceeds of the payment by the Warrantholder of the Exercise Price. In
connection with an election described in (ii) above, the Company also offered to
accept payment of the Exercise Price in Common Shares valued at the Conversion
Price. As a result of acceptance of such offer by Liberty and its affiliates,
the Company issued 2,467,349 additional Common Shares to Liberty and its
affiliates upon the exercise or exchange of Warrants to purchase 3,890,274
Common Shares.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(A) RECOMMENDATION.
At a meeting held on August 4, 1994, the Board of Directors of the Company,
other than Messrs. Ralph and Brian Roberts, who did not participate in the Board
of Directors' deliberations and decisions in connection with the Comcast/Liberty
Offer, by a unanimous vote of such directors, approved the Merger Agreement and
the transactions contemplated thereby, including the Offer and the Merger, and
determined that the transactions contemplated by the Merger Agreement (the
"Transactions"), including the Offer and the Merger, are fair to, and in the
best interests of, the Company and its stockholders (other than Comcast, Liberty
and their affiliates).
THE BOARD OF DIRECTORS OF THE COMPANY (OTHER THAN THOSE DIRECTORS WHO ARE
REPRESENTATIVES OF COMCAST WHO EXPRESS NO OPINION AS TO THE FOLLOWING MATTERS)
RECOMMENDS THAT STOCKHOLDERS APPROVE AND ADOPT THE MERGER AGREEMENT AND THE
TRANSACTIONS AND THAT THE STOCKHOLDERS ACCEPT THE OFFER AND TENDER ALL OF THEIR
SHARES PURSUANT TO THE OFFER.
Copies of a letter to stockholders communicating the Board's determination
and recommendation and of a press release relating thereto are filed as exhibits
hereto and are incorporated herein by reference.
(B) REASONS FOR THE BOARD'S RECOMMENDATION; FAIRNESS OF THE OFFER AND THE
MERGER.
Reasons for Recommendation.
See Item 3(b) for a description of certain events preceding the Board of
Directors' consideration of the Offer and the Merger.
Prior to reaching its conclusions, the Board received presentations from,
and reviewed the Offer and the Merger with, management of the Company as well as
the Company's financial advisor, Allen & Company Incorporated ("Allen"). In
reaching its conclusions, the Board considered a number of factors, including,
but not limited to, the following:
(i) The Board's belief, based on its familiarity with the Company's
business, its current financial condition and results of operations and
its future prospects, and the current and anticipated developments in
the Company's industry, that the consideration to be received by the
Company's stockholders (other than Comcast, Liberty and their
affiliates) in the Offer and Merger fairly reflects the Company's
intrinsic value.
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(ii) The oral and written presentations made by the Company's management
and Allen to the Board of Directors at the meeting held on August 4,
1994 as to various financial and other considerations deemed relevant to
the Board's evaluation of the Offer and the Merger, including a review
of (A) trends in the cable programming and electronic retailing
industries, (B) the business prospects and financial condition of the
Company, (C) historical business information and financial results of
the Company, (D) nonpublic financial and operating results of the
Company, (E) financial projections and the 1994 budget prepared by the
Company's management, (F) information obtained from meetings with senior
management of the Company, (G) the trading range of the Common Shares,
(H) public financial information of comparable companies in the cable
programming and specialty retailing industries, (I) public financial and
transaction information related to comparable mergers and acquisitions,
and (J) the terms and conditions of the Merger Agreement and related
documents.
(iii) The opinion of Allen that the consideration to be received by the
Company's stockholders pursuant to the Merger Agreement, is fair to such
stockholders (other than Comcast and Liberty) from a financial point of
view. A copy of the written opinion of Allen to that effect, which sets
forth the matters considered, assumptions made and limits of its review,
is attached as Annex A hereto and is incorporated herein by reference.
Stockholders are urged to read the opinion carefully. In the course of
arriving at its opinion and presenting it to the Board of Directors,
Allen analyzed the terms of the Offer and Merger, the Company's
historical results, present condition and prospects, the trading history
of the Common Shares related to selected public announcements regarding
the Company, the trading history of the Common Shares compared to that
of comparable companies and other market indices, the stock price and
market multiples of the Common Shares compared to those of selected
cable programmers and selected specialty retailers, discounted cash flow
analyses based on managements' financial forecast and the premiums and
multiples paid in comparable all cash and cash and stock transactions.
In considering Allen's opinion, the Board was aware that Allen will
become entitled to the fee described in Item 5 in accordance with the
terms of its engagement by the Company upon consummation of the Offer
and of certain other matters described in Item 5.
(iv) The limited number of conditions to the Purchaser's obligation to
consummate the Offer. In this regard, the Board was aware of the fact
that in the event the Purchaser is unable to consummate the Offer at any
scheduled expiration thereof due to the fact that the waiting periods
under the HSR Act applicable to the Offer and the Merger have not
expired or been terminated, the Purchaser will not be entitled to
terminate the Offer prior to December 31, 1994, and has agreed to extend
the Offer until such time in such event. The Board also considered that
the conditions to the consummation of the Offer may not be amended in
any manner adverse to the holders of QVC Stock and no other conditions
other than those specified in Annex I to the Merger Agreement may be
imposed without the consent of the Company. The Board was also aware of
the fact that the Offer is subject to financing.
(v) The possible alternatives to a sale of the Company, including a self
tender offer for a portion of the QVC Stock or other possible
restructuring alternatives.
(vi) The provisions of the Merger Agreement relating to Alternative
Transactions, including the following:
(A) Although the Company is not permitted to initiate, solicit or
encourage any inquiries or the making of any proposal in connection
with an Alternative Transaction, engage in any discussions or
negotiations concerning, or provide information relating to it or
its subsidiaries for the purposes of, or otherwise facilitate or
encourage any inquiries or the making of any proposal which
constitutes, or may reasonably be expected to lead to, a proposal
to effect an Alternative Transaction, the Board of Directors of the
Company may furnish information to, and participate in negotiations
with, third parties making unsolicited requests or proposals
regarding Alternative Transactions and, following receipt of a
proposal for an Alternative
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Transaction, the Board may withdraw or modify its
recommendation regarding the Offer and the Merger, to the
extent it determines in good faith in accordance with, and
based upon the advice of, outside counsel that such action is
necessary or appropriate in order for the Board of Directors to
act in a manner that is consistent with its fiduciary
obligations under applicable law.
(B) The Company must advise Purchaser of, and communicate to Purchaser
the terms of, any such proposal it may receive or any such
inquiries that the Company receives which may be reasonably
expected to lead to a proposal and the identity of the person
making such proposal, and, thereafter, if the Company intends to
participate in discussions or negotiations or provide information
to any such person, the Company must give reasonable notice to
Purchaser and consult with Purchaser and must thereafter keep
Purchaser reasonably informed of the status and details of any such
request, Alternative Transaction, inquiry or proposal (or any
amendment to any proposal).
(C) Each of the Company and the Purchaser has the right to terminate
the Merger Agreement at any time if the Company's Board of
Directors withdraws, modifies or changes its recommendation so
that it is not in favor of the Merger Agreement, the Offer or the
Merger or resolves to do so, or if the Company's Board of Directors
recommends or resolves to recommend to stockholders an Alternative
Transaction, and upon such termination the Company must pay the
Purchaser $55,000,000, which amount is inclusive of all expenses of
the Purchaser and the Parent Purchasers.
The Board concluded that, as a result of these provisions, the Merger
Agreement should not significantly deter an interested third party from
proposing to the Company, and pursuing, an Alternative Transaction with
the Company and that such provisions are reasonable in light of the
benefits of the Offer and the Merger and the size of the payment in
comparison to such fees in comparable transactions.
(vii) The per share value of the consideration to be received for the
shares of QVC Stock in the Offer was substantially more certain than the
consideration originally offered in the original Comcast Proposal
because it is an all cash offer, and is higher than the consideration
offered in the original Comcast Proposal and in the prior
Comcast/Liberty Proposal.
(viii) The Board of Directors considered the relationship between the
consideration to be received by stockholders as a result of the Offer
and the Merger and the historical market prices and recent trading
activity of the Common Shares, and the fact that the Offer and the
Merger will enable the Company's stockholders to realize a substantial
premium over $32 3/8, the closing market price of the Common Shares on
June 29, 1994, immediately prior to press reports of the Proposed CBS
Merger. The Board was aware that the Common Shares had traded as high as
$72.50 in 1993. The Board noted, however, that the price of Common
Shares on June 29, 1994 represented, in Allen's opinion, a
representative market price of the Common Shares.
(ix) The fact that no party other than the Parent Purchasers had indicated
interest in pursuing and the ability to effect, a business combination
with the Company, even though the Comcast Proposal was publicly
announced more than three weeks prior to the signing of the Merger
Agreement at which time the Company also publicly announced that it
would explore alternatives to maximize stockholder value and, in this
regard, both Allen and the Company's management had contacted a
substantial number of possible interested parties to seek proposals for
a business combination. In view of the large percentage of QVC Stock
held by Comcast, Liberty and their affiliates, the Board did not believe
it was likely that further efforts or additional time would produce an
alternative proposal involving consideration greater than that to be
paid in the Offer and Merger.
(x) The Board also recognized that, following consummation of the Offer
and the Merger, the current stockholders of the Company will no longer
be able to participate in any increases or decreases in the value of the
Company's businesses and properties. The Board concluded, however, that
this
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consideration did not justify foregoing the opportunity for
stockholders to receive an immediate and substantial cash purchase
price for their Shares.
The Board considered each of the factors listed above, in addition to the
terms and conditions of the Merger Agreement, during the course of their
deliberations prior to entering into the Merger Agreement in light of their
knowledge of the business and operations of the Company and their business
judgment. The Board believed that each of these factors supported the Board's
conclusions. In view of the wide variety of factors considered, the Board did
not find it practicable to, and did not, quantify or otherwise attempt to assign
relative weights to the specific factors considered in making their
determination.
Messrs. Ralph and Brian Roberts did not participate in the deliberations or
decisions relating to the Merger Agreement and the engagement of Allen;
therefore, the Board did not consider it necessary to retain an unaffiliated
representative to act solely on behalf of the public stockholders of the Company
for the purpose of negotiating the terms of the Merger Agreement or preparing a
report concerning the fairness to such stockholders of the consideration to be
received in the Offer and the Merger. The Merger Agreement was unanimously
approved by the directors of the Company other than Messrs. Ralph and Brian
Roberts.
The Board recognized that the Merger is not structured to require the
approval of a majority of the unaffiliated stockholders of the Company. As of
June 30, 1994 there were 55,707,577 Common Shares outstanding (on a fully
diluted basis). The Board further recognized that, given the ownership of QVC
Stock by the Parent Purchasers and their affiliates, satisfaction of the Minimum
Condition will occur if only 8,969,988 Common Shares (on a fully diluted basis)
are tendered in the Offer (significantly less than a majority of the Common
Shares (on a fully diluted basis) not held by TCI, the Parent Purchasers or
their affiliates). In addition, pursuant to the Stockholder Letter Agreement,
Mr. Diller has agreed, subject to certain conditions, to tender 1,000,000 shares
of Common Stock owned by him pursuant to the Offer, and, if requested by Comcast
and upon satisfaction of certain additional conditions, to exercise Options to
purchase 3,000,000 shares of Common Stock held by him and to tender such
3,000,000 shares pursuant to the Offer. As a result, the Purchaser, if it
purchases such number of Shares, would have sufficient voting power to approve
the Merger without the affirmative vote of any other stockholder of the Company.
OPINION OF FINANCIAL ADVISOR
On August 4, 1994, Allen delivered its written opinion to the Company's
Board of Directors to the effect that the consideration to be received by the
holders of QVC Stock and certain of the Company's stock options pursuant to the
Merger Agreement is fair to such holders, other than Comcast and Liberty, from a
financial point of view. A copy of Allen's opinion is attached hereto as Annex
A. The summary of the opinion set forth herein is qualified in its entirety by
Annex A which is incorporated herein by reference. Stockholders are urged to
read this opinion in its entirety for a description of the assumptions made,
matters considered and procedures followed by Allen. The consideration to be
paid pursuant to the Offer and Merger was determined by negotiations on behalf
of the Company and the Parent Purchasers and was not determined by Allen. In
arriving at its opinion, Allen reviewed, among other things, certain publicly
available business and financial information related to the Company. Allen also
reviewed certain other information provided to it by the Company, including
financial forecasts of the Company, and met with the management of the Company
to discuss its business and prospects. Allen also considered, among other
things, such other information, financial studies, analyses and investigations
and financial, economic and market criteria as it deemed relevant. No
limitations were imposed by the Board upon Allen with respect to the
investigations made or the procedures followed by Allen in rendering its
opinion, and the Company and the members of management cooperated fully with
Allen in connection with its investigation. Allen actively sought third parties
who might be interested in acquiring the Company in the course of its engagement
and assisted the Company in evaluating other alternative transactions.
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In delivering its opinion and making its presentation to the Board of
Directors, Allen discussed certain financial and comparative analyses and other
matters it deemed relevant. Among various financial analyses that Allen
discussed were:
(i) Multiple of Sales Comparison. Allen prepared a market multiple
comparison comparing the Company's ratio of total market
capitalization (defined as market value of the Company's equity plus
net debt) to its latest twelve months sales (the "LTM Sales Ratio")
to the average LTM Sales Ratio for groups of publicly traded cable
programming companies (included in such group were Gaylord
Entertainment Company, International Family Entertainment, Inc. and
Turner Broadcasting System, Inc. (the "Cable Programming Companies"))
and publicly traded specialty retailing companies (included in such
group were Blockbuster Entertainment Corporation, The Home Depot,
Inc., Lowe's Companies, Inc., Melville Corporation, Price/Costco,
Inc. and Toys 'R' Us, Inc. (the "Specialty Retailing Companies")).
The comparisons were made as of June 29, 1994; July 12, 1994; and
August 2, 1994 (collectively, the "Comparison Dates") (assuming for
the Company on August 2, 1994, that the common equivalent equity
value of the Shares was $46 per share). The analysis showed that the
LTM Sales Ratio for the Company, the Cable Programming Companies (on
average) and the Speciality Retailing Companies (on average),
respectively, were: (a) as of June 29, 1994: 1.26, 3.22, and 1.24;
(b) as of July 12, 1994: 1.40, 3.17 and 1.27; and (c) as of August 2,
1994: 1.79, 3.18 and 1.24.
(ii) Multiple of Operating Cash Flow Comparison. Allen prepared a market
multiple comparison comparing the Company's ratio of total market
capitalization to its latest twelve months earnings before interest,
taxes, depreciation and amortization (the "Cash Flow Ratio") to the
average Cash Flow Ratio for the Cable Programming Companies and the
Specialty Retailing Companies as of the Comparison Dates (assuming
for the Company on August 2, 1994, that the common equivalent equity
value of the Shares was $46 per share). The analysis showed that the
Cash Flow Ratio for the Company, the Cable Programming Companies (on
average) and the Speciality Retailing Companies (on average),
respectively, were: (a) as of June 29, 1994: 8.0, 19.3 and 10.5; (b)
as of July 12, 1994: 8.9, 19.1 and 10.8; and (c) as of August 2,
1994: 11.4, 19.2 and 10.7.
(iii) Multiple of Earnings Per Share Comparison. Allen prepared a market
multiple comparison comparing the Company's ratio of the market value
of its equity to its latest twelve months earnings per share (the
"EPS Ratio") to the average EPS Ratio for the Cable Programming
Companies and the Specialty Retailing Companies as of the Comparison
Dates (assuming for the Company on August 2, 1994, that the common
equivalent equity value of the Shares was $46 per share). The
analysis showed that the EPS Ratio for the Company, the Cable
Programming Companies (on average) and the Speciality Retailing
Companies (on average), respectively, were: (a) as of June 29, 1994:
21.3, 38.5 and 23.1; (b) as of July 12, 1994: 23.6, 38.0 and 23.6;
and (c) as of August 2, 1994: 30.2, 37.4 and 24.0.
(iv) Multiple of 1994 Estimated Earnings Per Share Comparison. Allen
prepared a market multiple comparison comparing the Company's ratio
of the market value of its equity to its estimated 1994 earnings per
share (the "1994 Estimated EPS Ratio") to the average 1994 Estimated
EPS Ratio for the Cable Programming Companies and the Specialty
Retailing Companies as of the Comparison Dates (assuming for the
Company on August 2, 1994, that the common equivalent equity value of
the Shares was $46 per share). The analysis showed that the 1994
Estimated EPS Ratio for the Company, the Cable Programming Companies
(on average) and the Speciality Retailing Companies (on average),
respectively, were: (a) as of June 29, 1994: 20.2, 19.7 and 18.3; (b)
as of July 12, 1994: 22.4, 19.3 and 18.7; and (c) as of August 2,
1994: 28.7, 19.0 and 19.0. The foregoing excluded the Company's
startup costs with respect to its Q2 project. Including such startup
costs, the Company's 1994 Estimated EPS Ratio on each of the
Comparison Dates, in chronological order, would have been: 24.2, 26.9
and 34.3, respectively.
With respect to the foregoing four comparative analyses, Allen's analysis
stated that, for the Comparison Dates, the Company traded at multiples closely
related to the Specialty Retailing Companies, that as of
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June 29, 1994, the Company traded at an LTM Sales Ratio, a Cash Flow Ratio, an
EPS Ratio and a 1994 Estimated EPS Ratio (collectively, the "Comparison Ratios")
within the range of the Specialty Retailing Companies (although the 1994
Estimated EPS Ratio exceeded the average for both Specialty Retailing Companies
and Cable Programming Companies), and that as of July 12, 1994 and August 2,
1994, based on the comparisons described above, the Company's share prices
traded at Comparison Ratios that were higher (except in one case) than the range
for Specialty Retailing Companies.
(v) Discounted Cash Flow Analysis. Allen analyzed the net present value
of the future unleveraged free cash flows of the Company based on
financial projections prepared, and capital structure assumptions
provided, by the management of the Company. Allen added to the present
value of the free cash flows the terminal value of the Company based on
multiples of the projected 1999 earnings before interest, taxes,
depreciation and amortization ("EBITDA"), discounted at the same rates
as were applied to discount the free cash flows. Discount rates ranging
from 15% to 25% and multiples of EBITDA ranging from 7.0 to 9.0 were
applied. Allen's analysis reflected that a price of $46 per share was in
line with its discounted cash flow analysis for the Company.
(vi) Other Factors Considered. Allen reviewed recent trends in the Common
Share prices and trading volume in the Common Shares. Allen also (a)
compared the recent trend in Common Share prices versus various market
indices, (b) compared market reaction in the price of the Common Shares
relating to selected public announcements, (c) studied the above
analyses and determined relevant dates for purposes of determining a
representative value of the Common Shares, (d) compared the premium of
the price offered in the Offer and the Merger over various recent market
prices for the Common Shares, as well as a comparison of the premium to
be paid in the Offer to premiums paid in selected cash merger
transactions, and (d) the multiples to sales, EBITDA, net income and
book value offered to the Company in the Offer compared to those
multiples in selected merger transactions involving companies in
generally comparable industries.
Some of the foregoing analyses used projections provided by management of
the Company, which Allen assumed to be reasonably prepared on a basis reflecting
the best currently available judgments of the management of the Company as to
the future financial performance of the Company. Allen did not make or seek to
obtain appraisals of the Company's assets in connection with its analysis of the
valuation of the Company.
A copy of Allen's opinion and written presentation to the Company's Board
of Directors have been filed as exhibits to this Schedule 14D-9 and to the Rule
13e-3 Transaction Statement on Schedule 13E-3 filed by the Company, Comcast, TCI
and the Purchaser (the "Schedule 13E-3") with the Commission. Copies will be
made available for inspection and copying at the principal executive offices of
the Company during regular business hours by any interested stockholder of the
Company, or his representative who has been so designated in writing. The
summary set forth above does not purport to be a complete description of either
Allen's analyses, including those set forth as exhibits to this Schedule 14D-9
and to the Schedule 13E-3, or Allen's presentations to the Company's Board of
Directors. Allen believes that its analyses must be considered as a whole and
that selecting portions of its analyses and of the factors considered by it,
without considering all factors and analyses, could create an incomplete view of
the processes underlying its opinion. The preparation of a fairness opinion is a
complex process and not necessarily susceptible to partial analyses or summary
description. In its analyses, Allen made numerous assumptions with respect to
industry performance, general business and economic conditions and other
matters, many of which are beyond the Company's control. Any estimates contained
therein are not necessarily indicative of actual values, which may be
significantly more or less favorable than as set forth therein. Estimates of
value of companies do not purport to be appraisals or necessarily reflect the
prices at which companies may actually be sold. Because such estimates are
inherently subject to uncertainty, none of the Company, the Purchaser, Allen or
any other person assumes responsibility for their accuracy.
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ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The Company has retained Allen as the Company's financial advisor in
connection with the Merger, the Offer and other matters arising in connection
therewith pursuant to an engagement letter dated August 4, 1994 (the "Engagement
Letter") between the Company and Allen. The Engagement Letter provides, among
other things, that upon the earlier to occur of the consummation of the Offer or
such earlier time as Allen and the Company may agree, the Company will pay to
Allen a fee equal to $10.3 million. In addition, the Company has agreed to
reimburse Allen for its reasonable out-of-pocket expenses, including reasonable
travel and legal expenses, and to indemnify Allen against certain liabilities.
In the event of the consummation of an alternative transaction to that
contemplated by the Merger Agreement, the Company has agreed to pay Allen a fee
in an amount to be agreed upon by Allen and the Company.
The Company's Board of Directors selected Allen as its financial advisor
because Allen is an internationally recognized investment banking firm and
regularly engages in the valuation of businesses and their securities in
connection with mergers and acquisitions. Allen has particular expertise and
experience in the cable and media industries. Allen also represented the Company
as its financial advisor in connection with the Company's attempted acquisition
of Paramount and provided financial advisory services to the Company in
connection with the CBS Transaction. Paul A. Gould, a managing director of
Allen, has served as a director of Liberty since December 1991. Mr. Gould
remains a director of Liberty following the business combination transaction in
which Liberty became a wholly owned subsidiary of TCI. Allen acted as dealer
manager for a tender offer made by Liberty for HSN in 1993. In addition, as a
part of its investment banking and securities trading business, Allen holds
positions in and trades in the securities of the Company, Comcast and TCI from
time to time, and has previously held positions in and traded in the securities
of Liberty.
Neither the Company nor any person acting on its behalf has retained any
other person to make solicitations or recommendations to stockholders on its
behalf concerning the Offer.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) On July 11, 1994, Thomas Downs, an executive vice president of the
Company, exercised options to purchase 3,750 Common Shares at an exercise price
of $5 per share and sold such shares on such date at a price of $35.75 per
share. Except as otherwise set forth in this Schedule 14D-9, no other
transactions in the Shares have been effected during the past 60 days by the
Company or, to the Company's knowledge, by any executive officer, director,
affiliate or subsidiary of the Company.
(b) To the best of the Company's knowledge, all of its executive officers,
directors, affiliates or subsidiaries (other than the Parent Purchasers, TCI,
the Purchaser and their affiliates) currently intend to tender all Shares which
are held of record or beneficially owned by such persons pursuant to the Offer,
other than Shares, if any, held by such persons which, if tendered, could cause
such person to incur liability under the provisions of Section 16(b) of the
Exchange Act.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) Except as described in Item 3(b), no negotiation is being undertaken or
is underway by the Company in response to the Offer which relates to or would
result in (i) an extraordinary transaction, such as a merger or reorganization,
involving the Company or any subsidiary of the Company, (ii) a purchase, sale or
transfer of a material amount of assets by the Company or any subsidiary of the
Company, (iii) a tender offer for or other acquisition of securities by or of
the Company or (iv) any material change in the present capitalization or
dividend policy of the Company.
(b) Except as described under Item 3 and Item 4, there are no transactions,
board resolutions, agreements in principle or signed contracts in response to
the Offer which relate to or would result in one or more of the matters referred
to in paragraph (a) of this Item 7.
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ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
(A) SECTION 203.
As a Delaware corporation, the Company is subject to section 203 ("Section
203") of the DGCL. Section 203 would prevent an "Interested Stockholder"
(generally defined as a person beneficially owning 15% or more of a
corporation's voting stock) from engaging in a "Business Combination" (as
defined in Section 203) with a Delaware corporation for three years following
the date such person became an Interested Stockholder unless: (i) before such
person became an Interested Stockholder, the board of directors of the
corporation approved the transaction in which the Interested Stockholder became
an Interested Stockholder or approved the Business Combination, (ii) upon
consummation of the transaction which resulted in the Interested Stockholder
becoming an Interested Stockholder, the Interested Stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced (excluding for purposes of determining the number of
shares outstanding stock held by directors who are also officers and by employee
stock ownership plans that do not allow plan participants to determine
confidentially whether to tender shares), or (iii) following the transaction in
which such person became an Interested Stockholder, the Business Combination is
(x) approved by the board of directors of the corporation and (y) authorized at
a meeting of stockholders by the affirmative vote of the holders of at least
66- 2/3% of the outstanding voting stock of the corporation not owned by the
Interested Stockholder. In accordance with the provisions of the Company's
Certificate of Incorporation and Section 203, the Board has approved the Merger
Agreement and the Purchaser's, Comcast's, TCI's and Liberty's acquisition of
Shares pursuant to the Offer and the Merger and has approved the Stockholder
Letter Agreement and the Comcast-Liberty Agreement and the transactions
contemplated by each of the foregoing and, therefore, the restrictions of
Section 203 are inapplicable to the Merger and the related transactions.
(B) CERTAIN LEGAL PROCEEDINGS.
The Company and certain of its officers and directors are named as
defendants in eight lawsuits brought by purported shareholders of the Company,
on behalf of a purported class consisting of all public shareholders of the
Company. All of the lawsuits have been consolidated under the caption In re QVC
Inc. Shareholders Litigation, Consolidated Civil Action No. 13590 (Court of
Chancery, New Castle County, State of Delaware). The designated amended
complaint in the Consolidated Action names the Company and its directors as
defendants and alleges, among other things, that the defendants have breached or
will breach their fiduciary duties in connection with consideration of the offer
from Comcast and in connection with any sale of the Company. As relief, the
complaint seeks an order of the court requiring defendants to among other things
conduct an "active auction" of the Company; "ensure that no conflicts of
interest exist between the director defendants' own interest and their fiduciary
obligation to maximize shareholder value"; "take all appropriate steps to
enhance the Company's value and attractiveness as a merger/acquisition
candidate"; and to "prevent the Company from taking any further steps to make
the acquisition of the Company by a third party less desirable." The complaint
further seeks damages in an unspecified amount.
On August 5, 1994, counsel for plaintiffs in the above-described litigation
entered into an agreement in principle described in a memorandum of
understanding with counsel for defendants (as well as Comcast and Liberty)
contemplating the settlement of the Consolidated Action. The terms of the
proposed settlement provide, among other things, that "an affiliate of Comcast
and Liberty will commence, as promptly as practicable, a tender offer" for all
shares of QVC at $46 per share, to be followed by a merger in which the holders
of QVC Stock, other than Comcast and Liberty, will receive $46 per Common Share.
The memorandum 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 litigation will be
dismissed with prejudice and released, and all such shareholders of the Company
who may have had such claims by the Company's stockholders, at any time from
June 29, 1994 through the effective date of the Merger, will be barred from
25
<PAGE> 26
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.
(C) FCC APPROVALS.
The Company holds licenses issued by the FCC for the operation of
communication facilities, including three satellite earth stations. The
Communications Act and applicable FCC regulations require prior FCC approval for
the transfer or deemed transfer of control of companies holding FCC licenses.
Applications must be filed with the FCC seeking such approval. The
Communications Act requires that the FCC find that the proposed transfer would
serve the public interest, convenience and necessity as a prerequisite to
granting its approval. The FCC may also require that the transferee demonstrate
that it possesses the requisite legal, financial, technical and other
qualifications to operate the licensed facilities in order for the transfer to
be approved.
In order for the Purchaser to consummate the Offer and the Merger, prior
FCC approval will be required. The Purchaser has stated that it intends to file
with the FCC, as soon as practicable, applications seeking FCC approval to take
control of the Company. There can be no assurance that the FCC will grant such
approval or that, if granted, such FCC approval will be on terms and conditions
acceptable to the Purchaser.
The Purchaser has also stated that it intends to file with the FCC a
request for special temporary authority to permit the Offer and the Merger to be
consummated prior to the receipt of FCC approvals of the transfer of control
applications. Although in the past the FCC generally has expedited its
consideration of such requests, the Purchaser cannot predict how long the FCC's
consideration of the Purchaser's request will take.
The obligation of the Purchaser to consummate the Offer is conditioned
upon, among other things, the Purchaser being satisfied that it has received all
consents as are required from the FCC to the transfer of control of certain of
the Company's FCC licenses. See "The Merger Agreement -- Conditions of the
Offer" in Item 3b(iii).
(D) ANTITRUST.
Under the HSR Act and the rules that have been promulgated thereunder by
the Federal Trade Commission (the "FTC"), certain acquisition transactions may
not be consummated unless certain information has been furnished to the
Antitrust Division of the Department of Justice (the "Antitrust Division") and
the FTC and certain waiting period requirements have been satisfied. The
purchase of Shares pursuant to the Offer, the acquisition by the Parent
Purchasers of the shares of the Purchaser, and the contribution of Shares to the
Purchaser pursuant to the Comcast-Liberty Agreement, are subject to such
requirements.
Pursuant to the requirements of the HSR Act, Comcast, Liberty and the
Company filed the required Notification and Report Forms with the Antitrust
Division and the FTC on August 9, 1994. As a result, the waiting period
applicable to the purchase of Shares pursuant to the Offer is to expire at 11:59
P.M., New York City time, on Wednesday, August 24, 1994. Also, the waiting
periods applicable to the acquisition by the Parent Purchasers of the shares of
the Purchaser, and the contribution of Shares to the Purchaser pursuant to the
Comcast-Liberty Agreement, are expected to expire at 11:59 P.M., New York City
time, on Thursday, September 8, 1994. However, prior to such dates, the
Antitrust Division or the FTC may extend the waiting periods by requesting
additional information or documentary material relevant to the acquisitions. If
such a request is made, the waiting period will be extended, in the case of the
Offer, until 11:59 P.M., New York City time, on the tenth day after substantial
compliance by the Purchaser with such request. In the case of the acquisition by
the Parent Purchaser of the shares of the Purchaser, and the contribution of
Shares to the Purchaser, if such a request is made the waiting period will be
extended until 11:59 P.M., New York City time, on the twentieth day after
substantial compliance by each of the parties that receives such a request.
Thereafter, such waiting periods can be extended only by court order. A request
is being made pursuant to the HSR Act for early termination of the applied
waiting periods. There can be no assurance, however, that the waiting periods
will be terminated early.
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<PAGE> 27
The Antitrust Division and the FTC frequently scrutinize the legality under
the antitrust laws of transactions. At any time before or after the consummation
of any such transactions, the Antitrust Division or the FTC could take such
action under the antitrust laws as it deems necessary or desirable in the public
interest, including seeking to enjoin the purchase of Shares pursuant to the
Offer or seeking divestiture of the Shares so acquired or divestiture of
substantial assets of the Purchaser or the Company. Private parties may also
bring legal actions under the antitrust laws. There can be no assurance that a
challenge to the Offer on antitrust grounds will not be made, or if such a
challenge is made, what the result will be.
See Item 3(b)(iii) "The Merger Agreement -- Conditions to the Offer" for
certain conditions to the Offer, including conditions with respect to litigation
and certain governmental actions. See Item 3(b)(ii) for a discussion of certain
issues relating to antitrust regulation that arose in prior transactions.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
Exhibit 1 -- Offer to Purchase, dated August 11, 1994.
Exhibit 2 -- Letter of Transmittal.
Exhibit 3** -- Proxy Statement dated May 31, 1994 relating to QVC,
Inc.'s 1994 Annual Meeting of Stockholders.
Exhibit 4** -- Agreement and Plan of Merger, dated as of August 4, 1994,
among QVC, Inc., Comcast Corporation, Liberty Media
Corporation and Comcast QMerger, Inc. (now known as QVC
Programming Holdings, Inc.).
Exhibit 5** -- Letter Agreement, dated as of August 4, 1994, among
Comcast Corporation, Barry Diller and Arrow Investments,
L.P.
Exhibit 6** -- Letter Agreement, dated as of August 4, 1994, among
Comcast Corporation, Liberty Media Corporation and
Tele-Communications, Inc.
Exhibit 7** -- Letter to Stockholders of QVC, Inc. dated August 11,
1994.*
Exhibit 8** -- Press Release issued by QVC, Inc., Comcast Corporation
and Liberty Media Corporation on August 5, 1994.
Exhibit 9** -- Opinion of Allen & Company Incorporated dated August 4,
1994.*
Exhibit 10** -- Report of Allen & Company Incorporated to the Board of
Directors of QVC, Inc. dated August 4, 1994.
Exhibit 11** -- Engagement Letter, dated August 4, 1994, between QVC,
Inc. and Allen & Company Incorporated (including the
related Indemnity Letter).
- ---------------
* Included with Schedule 14D-9 mailed to Stockholders.
** Previously filed.
27
<PAGE> 28
SIGNATURE
After reasonable inquiry and to the best of its knowledge and belief, the
undersigned certifies that the information set forth in this statement is true,
complete and correct.
<TABLE>
<S> <C>
QVC, INC.
Dated: August 12, 1994 By: /s/ NEAL S. GRABELL
Neal S. Grabell
Senior Vice President, General
Counsel & Secretary
</TABLE>
28
<PAGE> 29
ANNEX A
[ALLEN & COMPANY INCORPORATED LETTERHEAD]
August 4, 1994
The Board of Directors
QVC, Inc.
Goshen Corporate Park
West Chester, PA 19380
Dear Members of the Board:
You have requested our opinion, as of this date, as to the fairness, from a
financial point of view, to the holders of the outstanding shares of Common
Stock, par value $.01 per share (the "QVC Common Stock"), of QVC, Inc. (the
"Company"), QVC Preferred Stock and QVC Options (as such terms are hereinafter
defined), of the consideration to be received by such holders in connection with
the proposed Offer and Merger hereinafter referred to.
Pursuant to the Agreement and Plan of Merger (the "Merger Agreement"),
dated as of August 4, 1994, among the Company, Comcast Corporation, a
Pennsylvania corporation ("Comcast"), Liberty Media Corporation, a Delaware
corporation ("Liberty"), and Comcast Qmerger, Inc., a Delaware corporation
("MergerCo"), the Company, and a wholly owned subsidiary of MergerCo will enter
into a business combination transaction pursuant to which, on the terms and
subject to the conditions contained in the Merger Agreement, MergerCo will
commence a tender offer (the "Offer") to purchase for cash any and all shares of
QVC Common Stock as well as the Company's Series B Preferred Stock, Series C
Preferred Stock and Series D Preferred Stock, par value $.10 per share
(collectively, the "QVC Preferred Stock" and together with the QVC Common Stock,
the "QVC Stock"). Pursuant to the Offer, among other things, MergerCo will offer
to pay net to the seller in cash and without interest, (i) $46.00 per share of
QVC Common Stock issued and outstanding and (ii) $460.00 per share of QVC
Preferred Stock. The Merger Agreement provides that following the completion of
the Offer, a wholly owned subsidiary of MergerCo will be merged with and into
the Company (the "Merger") in accordance with the applicable provisions of
Delaware law and the terms of the Merger Agreement. Pursuant to the Merger
Agreement, QVC Stock not tendered to MergerCo pursuant to the Offer that remains
issued and outstanding immediately prior to the effective time of the Merger
would be converted into the right to receive the consideration payable pursuant
to the Offer for such QVC Stock.
In addition, in connection with the Merger, the Company's obligations with
respect to each outstanding stock option granted pursuant to the Company's
employee stock option plans and certain other stock options (collectively, the
"QVC Options") will, except in certain circumstances, be satisfied by paying to
holders of such options an amount in cash equal to $46.00 for each share of QVC
Common Stock underlying each such option, less the exercise price of each such
option.
In arriving at our opinion, we have among other things:
(i) reviewed the terms and conditions of the Merger Agreement and the
agreements and instruments referred to therein;
(ii) analyzed certain historical business and financial information
relating to the Company, including the Annual Reports to Stockholders
and Annual Reports on Form 10-K of the Company for each of the fiscal
years ended January 31, 1990 through 1994, and the Quarterly Reports
on Form 10-Q of the Company for the same fiscal years and for the
quarter ended April 30, 1994;
(iii) reviewed certain financial forecasts and other data provided to us by
the Company relating to its business, earnings, assets and prospects;
(iv) conducted discussions with members of the senior management of the
Company with respect to the
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<PAGE> 30
financial condition, business, operations, strategic objectives and
prospects of the Company;
(v) reviewed public information with respect to certain other companies
in lines of businesses we believe to be comparable in whole or in
part to the businesses of the Company;
(vi) compared the financial terms of certain business combinations
involving companies in lines of businesses comparable to the Company
with the financial terms of the Merger Agreement;
(vii) reviewed the trading history of QVC Common Stock, including its
performance in comparison to market indices and to selected
companies in comparable businesses;
(viii) reviewed certain stock market data and financial information
relating to selected public companies which we deemed generally
comparable to the Company; and
(ix) conducted such other financial analyses and investigations as we
deemed necessary or appropriate for the purposes of the opinion
expressed herein.
We have been advised that drafts of the Offer to Purchase and certain other
documents that may be prepared for use in connection with the proposed Offer and
the Merger Agreement are not yet available, and thus we have not been able to
review such documents in connection with our opinion.
In rendering our opinion, we have assumed and relied upon the accuracy and
completeness of the financial and other information provided by the Company to
us and the representations contained in the Merger Agreement, and we have not
undertaken any independent verification of such information or any independent
valuation or appraisal of any of the assets of the Company. With respect to the
financial forecasts referred to above, we have assumed that they have been
reasonably prepared on a basis reflecting the best currently available judgments
of the management of the Company as to the future financial performance of the
Company. Furthermore, our opinions are based on economic, monetary and market
conditions existing on this date.
We acted as financial advisor to the Company in connection with this
transaction and will receive a fee for our services. We have also performed
investment banking services for the Company in the past. Our opinion does not,
however, constitute a recommendation of the Merger over any other alternative
transactions which may be available to the Company. Paul A. Gould, a managing
director of our firm, serves as a director of Liberty. As a part of our
investment banking business, we hold positions in and trade in the securities of
the Company, Comcast and Liberty from time to time.
Our engagement and the opinions expressed herein are solely for the benefit
of the Company's Board of Directors and are not on behalf of, and are not
intended to confer rights or remedies upon, either Comcast or Liberty, any
stockholders of the Company or any other person other than the Company's Board
of Directors. Furthermore, the opinion rendered herein does not constitute a
recommendation by our firm that any stockholder of the Company vote to approve
the Merger or accept the Offer.
Based on and subject to the foregoing and such other factors as we deemed
relevant, we are of the opinion that, as of this date, the consideration to be
received by the holders of QVC Stock and QVC Options pursuant to the Merger
Agreement is fair to such holders, other than Comcast and Liberty, from a
financial point of view.
Very truly yours,
ALLEN & COMPANY INCORPORATED
By: /s/ Enrique F. Senior
--------------------------------------
Enrique F. Senior
Managing Director
A-2
<PAGE> 31
ANNEX B
QVC, INC.
1365 ENTERPRISE DRIVE
WEST CHESTER, PENNSYLVANIA 19380
INFORMATION STATEMENT PURSUANT TO
SECTION 14(F) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULE 14F-1 THEREUNDER
This Information Statement is being mailed on or about August 12, 1994 as
part of the Company's Solicitation/Recommendation Statement on Schedule 14D-9
(the "Schedule 14D-9") to the holders of record of the Shares at the close of
business on August 11, 1994. You are receiving this Information Statement in
connection with the possible election of persons designated by the Purchaser to
a majority of the seats on the Board of Directors of the Company (the "Board").
The Merger Agreement requires the Company, at the request of the Purchaser, to
take all action necessary to cause the Purchaser's designees (the "Purchaser
Designees") to be elected or appointed to the Board under the circumstances
described therein. This Information Statement is required by Section 14(f) of
the Exchange Act and Rule 14f-1 thereunder. See "Board of Directors -- Right to
Designate Directors; The Purchaser Designees."
You are urged to read this Information Statement carefully. You are not,
however, required to take any action. Capitalized terms used and not otherwise
defined therein shall have the meaning set forth in the Schedule 14D-9.
Pursuant to the Merger Agreement, the Purchaser commenced the Offer on
August 11, 1994. The Offer is scheduled to expire at 12:00 midnight on September
8, 1994, New York City time, at which time, upon the expiration of the Offer, if
all conditions of the Offer have been satisfied or waived, the Purchaser has
informed the Company that it intends to purchase all Shares validly tendered
pursuant to the Offer and not withdrawn.
The information contained in this Information Statement concerning Parent,
the Parent Purchasers and the Purchaser has been furnished to the Company by
Parent and the Parent Purchasers, and the Company assumes no responsibility for
the accuracy or completeness of such information.
GENERAL
As of July 31, 1994, there were 40,265,392 shares of Common Stock, par
value $.01 per share (the "Common Shares") 27,788 shares of Series B Preferred
Stock, par value $.01 per share (the "Series B Preferred Stock") and 530,757
shares of Series C Preferred Stock, par value $.01 per share (the "Series C
Preferred Stock") outstanding and entitled to vote (such shares of Preferred
Stock, collectively, being referred to as "Preferred Shares", and together with
the Common Shares, the "Shares" or the "QVC Stock"). The voting rights of Common
Shares, Series B Preferred Stock and Series C Preferred Stock are as follows:
(i) as to the election of directors, two directors are elected by the holders of
Common Shares as a class, each share being entitled to cast one vote in the
election of each such director, and the holders of the Shares are entitled to
cast one vote per share for the election of each of the remaining directors; and
(ii) as to all other matters to be voted on at a meeting of shareholders, the
holders of Shares shall be entitled to one vote on each matter for each Share.
The Board currently consists of 8 members with no vacancies. Each director holds
office until such director's earlier resignation or removal.
BOARD OF DIRECTORS
RIGHT TO DESIGNATE DIRECTORS; THE PURCHASER DESIGNEES
The Merger Agreement provides that effective upon acceptance for payment of
any Shares by Purchaser, the Purchaser shall be entitled to designate the number
of directors, rounded up to the next whole number, on the Board that equals the
product of (i) the total number of directors on the Board (giving effect to the
election of any additional directors described in this paragraph) and (ii) the
percentage that the number of Shares owned by the Purchaser, the Parent
Purchasers or any of their respective wholly owned subsidiaries
B-1
<PAGE> 32
(including Shares accepted for payment) bears to the total number of Shares
outstanding, and the Company has agreed to take all action necessary to cause
the Purchaser's Designees to be elected or appointed to the Board, including,
without limitation, increasing the number of directors or seeking and accepting
resignations of its incumbent directors. At such times, QVC will use its best
efforts to cause individuals designated by Purchaser to constitute the same
percentage as such individuals represent on the Board of (x) each committee of
the Board (other than any committee of the Board established to take action
under this Agreement), (y) each board of directors of each QVC subsidiary and
(z) each committee of each such board (in each case rounded up to the next whole
number). Notwithstanding the foregoing, until such time as the Purchaser
acquires a majority of the outstanding Common Shares on a fully-diluted basis,
the Company will use its reasonable best efforts to ensure that all of the
members of the Board and such boards and committees of the Company and each of
the Company's subsidiaries as of August 4, 1994 who are not employees of the
Company remain members of the Board and such boards and committees until the
Effective Time. Following the election or appointment of the Purchaser Designees
and prior to the Effective Time, any amendment or termination of the Merger
Agreement or grant of extension or waiver by the Company will require the
concurrence of a majority of the Company's directors then in office who were
directors on August 4, 1994, or are directors (other than the Purchaser
Designees) designated by such persons to fill any vacancy.
The Purchaser has advised the Company that it currently intends to
designate one or more of the executive officers of Comcast and TCI (but with
respect to any executive officers of TCI, by such designation shall only be
until the merger is consummated) listed in Schedule II to the Offer to Purchase
and the person listed in Schedule III to the Offer to Purchase which is
incorporated herein by reference. The Purchaser has advised the Company that all
of such persons have consented to act as directors of the Company.
DIRECTORS AND OFFICERS OF THE COMPANY
The Company's Board is comprised of eight (8) directors: William F.
Costello, Barry Diller, J. Bruce Llewellyn, Bruce M. Ramer, Brian L. Roberts,
Ralph J. Roberts, Joseph M. Segel and Linda J. Wachner. During the fiscal year
ended January 31, 1994, Peter Barton, Michael C. Boyd, Edwin Hamowy, Melvin
Jacobs and John Malone also served as directors of the Company. Mr. Barton, Mr.
Boyd, Mr. Hamowy and Dr. Malone resigned in November 1993, February 1994, July
1993 and November 1993, respectively. Mr. Jacobs died in September 1993.
Each director is elected at an annual meeting of shareholders for a term
ending at the next annual meeting of shareholders and until a successor is duly
elected and qualified. Under the provisions of the respective certificates of
designation by which each of the series of Preferred Shares were established,
the holders of Preferred Shares of the Company have the right to vote for all
but two directors of the Company, which two directors are elected solely by the
holders of Common Shares.
William F. Costello, age 48, has served as a director, Executive Vice
President and Chief Financial Officer of the Company since December 1989. He
also served as Treasurer of the Company from December 1989 to September 1992.
Mr. Costello was an independent management and financial consultant from 1988
until he joined the Company. Prior thereto he was employed by Best Products Co.,
Inc. where he served as President, Chief Operating Officer and a director from
March 1988 to November 1988, as Executive Vice President and Chief Financial
Officer from March 1987 to March 1988, and as Senior Vice President and Chief
Financial Officer from 1985 to 1987.
Barry Diller, age 52, has been a director and the Chairman and Chief
Executive Officer of the Company since January 1993. From 1984 to 1992 he served
as the Chairman and Chief Executive Officer of Fox, Inc. Prior to joining Fox,
Mr. Diller served for ten years as Chairman and Chief Executive Officer of Gulf
+ Western's (now Paramount Communications) Paramount Pictures Corporation. Mr.
Diller serves on the Boards of the Museum of Television and Radio and the
California Institute of the Arts. He is a member of the Board of Councilors for
the University of Southern California's School of Cinema-Television. Mr. Diller
is a member of the Executive Committee. Mr. Diller is a member of a group that
has jointly filed a Schedule 13D with respect to the beneficial ownership of
securities of the Company. See "Certain Transactions and Business Relationships"
below.
B-2
<PAGE> 33
J. Bruce Llewellyn, age 67, has served as a director of the Company since
June 1990. Mr. Llewellyn has been the Chairman of the Board and Chief Executive
Officer of The Philadelphia Coca-Cola Bottling Company for more than five years.
He is also Chairman of the Board and Chief Executive Officer of The Coca-Cola
Bottling Company of Wilmington, Inc., Queen City Broadcasting, Inc. and Garden
State Cablevision, Inc. Mr. Llewellyn serves as a director of Coors,
Incorporated and Chemical Bank. Mr. Llewellyn is a member of the Audit
Committee.
Bruce M. Ramer, age 61, has served as a director of the Company since May
1994. Mr. Ramer has been a principal of the law firm of Gang, Tyre, Ramer &
Brown, Inc., for more than five years. He is a member of the Board of Directors
of Rebuild L.A., LA 2000 Partnership, and Coalition of Los Angeles. Mr. Ramer is
also Executive Director of the Entertainment Law Institute, Law Center of the
University of Southern California, a member of the Board of Councilors,
University of Southern California Law School, and a member of the Board of
Trustees of Loyola Marymount University. Mr. Ramer is a member of the Executive
Compensation Committee. See "Certain Transactions and Business Relationships"
below.
Brian L. Roberts, age 35, has served as a director of the Company since
October 1987. He has been the President of Comcast Corporation ("Comcast"), a
publicly owned communications company, since February 1990. Prior thereto, Mr.
Roberts had been Executive Vice President of Comcast since June 1987, and had
been a Vice President of Comcast since September 1981. Previously, he served in
various capacities with Comcast Cable Communications, Inc., a division of
Comcast, for more than five years. He is a director of Comcast, Turner
Broadcasting System, Inc., Storer Communications, Inc. and Comcast Cellular
Corporation. Mr. Roberts is the son of Ralph J. Roberts, a director. Mr. Roberts
is a member of the Executive Committee. Comcast is a member of a group that has
jointly filed a Schedule 13D with respect to the beneficial ownership of
securities of the Company. See "Certain Transactions and Business Relationships"
below.
Ralph J. Roberts, age 74, has served as a director of the Company since
June 1991. Mr. Roberts has been a director and the Chairman of the Board of
Directors of Comcast for more than five years. He has also been the President
and a director of Sural, a privately-held investment company, for more than five
years. Prior to February 7, 1990, Mr. Roberts was President of Comcast. Mr.
Roberts is also a director of Storer Communications, Inc. and Comcast Cellular
Corporation. Mr. Roberts is the father of Brian L. Roberts, a director. Mr.
Roberts is a member of the Executive Compensation Committee. Comcast is a member
of a group that has jointly filed a Schedule 13D with respect to the beneficial
ownership of securities of the Corporation. See "Certain Transactions and
Business Relationships" below.
Joseph M. Segel, age 63, has served as a director of the Company since June
1986 and as Chairman Emeritus since January 1993. He served as Chairman, Chief
Executive Officer and a director of the Company from June 1986 to January 1993.
From June 1986 to November 1986 and from December 1987 to July 1989, Mr. Segel
also served as President of the Company. Mr. Segel was the founder of the
Franklin Mint Corporation, and served as its President from 1964 to 1971 and was
its Chairman from 1971 to 1973. He retired in 1973 and continued as a consultant
to the Franklin Mint Corporation from 1974 to 1985. From 1970 to 1990, Mr. Segel
was, and since 1993, he has been, a principal shareholder of Le Mirador, a hotel
and international conference center in Switzerland. Mr. Segel is a member of the
Audit Committee.
Linda J. Wachner, age 48, has served as a director of the Company since May
1994. Mrs. Wachner has been the Chairman, President and Chief Executive Officer
of Warnaco Inc., a publicly owned apparel company, for more than five years. She
is also Chairman and Chief Executive Officer of Authentic Fitness Corporation.
Mrs. Wachner serves as a director of The Travelers Inc., Castle & Cooke Homes,
Inc. and the New York City Partnership. She currently serves on the Policy
Committee of The Business Roundtable, the Board of Trustees of The Aspen
Institute and Carnegie Hall and the Board of Overseers of Memorial Sloan-
Kettering Cancer Center. She is a member of the Council on Foreign Relations. In
1991, Mrs. Wachner was reappointed by President Bush to the Advisory Committee
for Trade Policy Negotiations, on which she also served under President Reagan.
She also served on Mayor Rudolph Giuliani's Transition Team and currently serves
on the Mayor's Appointment Advisory Committee. Mrs. Wachner is a member of the
Audit Committee.
During the fiscal year ended January 31, 1994, the Board of Directors held
nine meetings and took one action by unanimous written consent. All of the
incumbent directors attended at least 75% of the aggregate of
B-3
<PAGE> 34
the total number of meetings of the Board and committees of the Board on which
they served which were held during their terms of office.
During the fiscal year ended January 31, 1994, the Executive Committee,
which presently consists of Mr. Diller and Mr. B. Roberts, took one action by
unanimous written consent and did not otherwise meet. Except with respect to
certain extraordinary acts, the Executive Committee may exercise all of the
power and authority of the Board in the management of the Company.
During the fiscal year ended January 31, 1994, the Executive Compensation
Committee, which presently consists of Mr. Ramer and Mr. R. Roberts, held no
meetings. The Executive Compensation Committee considers recommendations of the
Company's management regarding compensation and fringe benefits of the senior
executives of the Company, determines whether the recommendations of management
are consistent with general policies, practices and compensation scales
established by the Board, considers management's proposals regarding incentive
stock option grants and their consistency with policies established by the Board
and, in general, administers the Company's stock option plans.
During the fiscal year ended January 31, 1994, the Audit Committee, which
presently consists of Mr. Llewellyn, Mr. Segel and Mrs. Wachner, held two
meetings. The Audit Committee recommends the appointment of auditors, consults
with management and the auditors on matters relating to internal financial
controls and procedures and reviews the results of the examination of the
independent public accountants.
The Executive Committee selected candidates as nominees for election by the
shareholders to the Board. Shareholders who wish to suggest qualified candidates
should write to Neal S. Grabell, Secretary of the Company, at 1365 Enterprise
Drive, West Chester, Pennsylvania, 19380, stating in detail the candidate's
qualifications for consideration.
EXECUTIVE OFFICERS
In addition to the executive officers of the Company listed above who are
also directors or nominees for director, other executive officers of the
Company, their ages and business experience during the past five years are as
follows:
Douglas S. Briggs, age 47, served as Senior Vice President -- Marketing
Planning from September 1986 to December 1987 when he was promoted to Executive
Vice President -- Programming. He served as Executive Vice
President -- Electronic Retailing from January 1993 to February 1994. In
February 1994, he became President -- QVC Electronic Retailing.
Candice M. Carpenter, age 42, has served as President of Q2, Inc. a
wholly-owned subsidiary of the Company, since July 1993. Prior to joining the
Company, Ms. Carpenter was President of Time-Warner Video and Time-Life
Television from 1989 to July 1993. Ms. Carpenter was Vice President, Consumer
Marketing at American Express Company, Travel Related Services, from 1983 to
1989.
Thomas G. Downs, age 53, served as Senior Vice President -- Fulfillment
from 1987 to December 1989. He was Executive Vice President -- Fulfillment from
December 1989 to January 1991 and Executive Vice President -- Customer Service
from February 1991 to February 1994. In February 1994, he became Executive Vice
President -- Operations and Services.
Neal S. Grabell, age 39, has served as the General Counsel, Senior Vice
President and Secretary of the Company since 1987. Mr. Grabell is also Of
Counsel to the law firm of Bolger, Picker, Hankin & Tannenbaum.
James G. Held, age 44, served as Senior Vice President -- New Business
Development of the Company from September 1993 to February 1994, when he was
promoted to his current position of Executive Vice President -- QVC
Merchandising. From 1983 to 1993, Mr. Held held a series of positions with
Bloomingdale's, most recently as Senior Vice President/General Merchandise
Manager -- Home Textiles.
John F. Link, Jr., age 52, served as Senior Vice President of Information
Systems and Data Communications from 1989 to August 1990, when he was promoted
to Executive Vice President --
B-4
<PAGE> 35
Information Systems and Telecommunications. In February 1994, he became
Executive Vice President -- Information Technology and Chief Information
Officer. From 1964 to 1989, Mr. Link held a series of positions with Sun
Company, Inc., most recently as Director of Information Systems Services.
Robert J. Perkins, age 47, has served as President of QDirect, since March
1994. Prior to joining the Company, Mr. Perkins served as Senior Vice President
of Marketing at Pizza Hut from March 1991 to March 1994. From 1985 to 1991, Mr.
Perkins held a series of positions within the Chiat/Day advertising
organization, most recently as President and Chief Operating Officer of its New
York office. Mr. Perkins also started a diet marketing subsidiary
Perkins/Butler, for Chiat/Day.
William J. Schereck, Jr., age 48, served as Executive Vice
President -- International of the Company from December 1993 to February 1994,
when he was appointed to his current position of President -- International.
From 1990 to December 1993, Mr. Schereck served as Vice President, Cable
Affiliates for Fox Broadcasting Company and from 1985 to 1990 he held a series
of positions with WMSN, a television station in Madison, Wisconsin, most
recently as General Manager.
The Board of Directors appoints officers each year and from time to time as
necessary.
B-5
<PAGE> 36
EXECUTIVE COMPENSATION
The following table sets forth the annual and long-term compensation for
the Company's Chief Executive Officer and the four highest paid executive
officers, as well as the total compensation paid to each individual for the
Company's fiscal years ended January 31, 1994 ("fiscal 1993"), 1993 ("fiscal
1992"), and 1992 ("fiscal 1991"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-----------------------------------------
AWARDS
------------------------ PAYOUTS
ANNUAL COMPENSATION SECURITIES ---------------
------------------------------------- RESTRICTED UNDERLYING LONG-TERM
NAME AND OTHER ANNUAL STOCK OPTIONS INCENTIVE PLAN ALL OTHER
PRINCIPAL FISCAL SALARY BONUS COMPENSATION(1) AWARD($) GRANTED PAYOUTS COMPENSATION
POSITION YEAR ($) ($) ($) ($) (#) ($) ($)(2)
- -------------------------- ------ -------- --------- ---------------- ----------- ------------ --------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Barry Diller(3) 1993 500,000 -- -- -- -- -- --
Chairman and Chief 1992 20,833 4,868,800(4) -- -- 6,000,000 -- --
Executive Officer 1991 -- -- -- -- -- -- --
Douglas S. Briggs 1993 235,000 450,000 -- -- -- -- 16,044
President, Electronic 1992 215,000 235,000 -- -- 275,000 -- 12,408
Retailing 1991 190,417 205,000 -- -- -- -- --
Michael C. Boyd(5) 1993 290,000 290,000 -- -- -- -- 16,069
President and Chief 1992 270,000 290,000 -- -- 250,000 -- 13,921
Operating Officer 1991 239,583 260,000 -- -- -- -- --
William F. Costello 1993 250,000 300,000 -- -- -- -- 16,069
Executive Vice President 1992 236,667 250,000 -- -- 250,000 -- 13,021
and Chief Financial 1991 212,500 230,000 -- -- -- -- --
Officer
Thomas G. Downs 1993 192,500 215,000 -- -- -- -- 14,769
Executive Vice 1992 188,125 192,500 -- -- 150,000 -- 12,189
President,
Operations and Services 1991 164,583 185,000 -- -- -- -- --
</TABLE>
- ------------------------------
(1) Perquisites and personal benefits did not exceed in the aggregate the lesser
of $50,000 or 10% of such officer's annual salary and bonus.
(2) Represents contributions made pursuant to the Company's Retirement Plan and
matching contributions made pursuant to the Company's 401(k) Savings Plan.
In the fiscal year ended January 31, 1994, amount includes for the five
named executives (a) contributions to the Company's Retirement Plan of $0,
$7,050, $7,075, $7,075 and $5,775, respectively; and (b) matching
contributions to the Company's 401(k) Savings Plan of $8,994 for each
executive except Barry Diller. Under revised proxy rules, this information
is not required for fiscal 1991.
(3) On January 18, 1993, upon retirement of Joseph M. Segel, Barry Diller became
Chairman and Chief Executive Officer at an annual salary of $500,000.
(4) Represents the dollar value as of December 9, 1992, of 160,000 shares
granted as an Executive Stock Award to Barry Diller on that date as an
incentive to become Chairman and Chief Executive Officer of the Company.
(5) In February 1994, Michael C. Boyd resigned as President and Chief Operating
Officer of the Company.
Note: The symbol "--" means the Company paid no such compensation.
B-6
<PAGE> 37
AGGREGATED OPTIONS EXERCISED IN FISCAL 1993
AND FYE 1993 OPTION VALUES
The following table sets forth information regarding stock options
exercised and unexercised by the named officers in fiscal year 1993.
<TABLE>
<CAPTION>
UNEXERCISED OPTIONS AT FYE 1993
-------------------------------------------------------------------
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING IN-THE-MONEY
SHARES UNEXERCISED OPTIONS OPTIONS(1)
ACQUIRED VALUE ------------------------------- -------------------------------
ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
NAME (#) ($) (#) (#) ($) ($)
- ------------------------------ ------------ ---------- ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Barry Diller
Chairman and Chief Executive
Officer -- -- 3,000,000 3,000,000 33,795,000 28,065,000
Douglas S. Briggs
President, Electronic
Retailing 10,688 523,712 143,750 143,750 2,252,500 2,252,500
Michael C. Boyd
President and Chief
Operating Officer -- -- 124,583 175,417 2,739,579 2,602,921
William F. Costello
Executive Vice President and
Chief Financial Officer -- -- 157,500 143,750 2,791,250 2,365,000
Thomas G. Downs
Executive Vice President,
Operations and Services 3,000 115,875 78,750 78,750 1,164,000 1,164,000
</TABLE>
- ------------------------------
(1) The value of the unexercised options is based on the difference between the
closing price of the Company's Common Shares on January 31, 1994 ($44.00)
and the exercise price of the options.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than ten percent of a registered
class of the Company's equity securities, to file with the Commission initial
reports of ownership and reports of changes in ownership of Common Shares and
other equity securities of the Company. Officers, directors and greater than ten
percent shareholders are required by the rules and regulations promulgated by
the Commission under the Exchange Act to furnish the Company with copies of all
Section 16(a) forms that they file.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended January 31, 1994, all
Section 16(a) filing requirements applicable to its executive officers,
directors and greater than ten percent beneficial owners were complied with,
other than Mr. Llewellyn who failed to file a Form 5 in a timely manner with
respect to a sale of 1,700 Common Shares.
EMPLOYMENT AGREEMENTS
BARRY DILLER
Barry Diller has been Chairman of the Board and Chief Executive Officer of
the Company since January 18, 1993, when Joseph M. Segel retired from such
positions. At that time, the Company entered into an Equity Compensation
Agreement (the "Compensation Agreement") with Mr. Diller and Arrow Investments,
L.P., a Delaware limited partnership indirectly controlled by Mr. Diller
("Arrow"), in connection with Mr. Diller's serving the Company as Chairman of
the Board and Chief Executive Officer. Under the Compensation Agreement, Mr.
Diller was granted 160,000 (the "Bonus Shares") Common Shares. The Bonus Shares
are not subject to forfeiture. The Compensation Agreement also provides Mr.
Diller with certain "base options" (options to purchase 3,000,000 Common Shares
at $30.43 per share, the market price on December 9, 1992, the date of grant)
and certain "scaled options" (options to purchase an additional
B-7
<PAGE> 38
3,000,000 Common Shares at $30.43 per share, increased at the rate of 13% per
annum during the first two years of the Compensation Agreement, and thereafter
at the rate of 15% per annum, in each case compounded annually). One-half of the
base options and one-half of the scaled options became exercisable on December
9, 1993, and the remaining base options and scaled options become exercisable on
December 9, 1994.
The exercisability of the base options and the scaled options will be
accelerated in the event of (1) the termination of Mr. Diller's employment with
the Company as a result of death or disability, (2) the termination of Mr.
Diller's employment with the Company other than for Cause (as defined in the
Compensation Agreement), or (3) Mr. Diller's voluntary termination of employment
with the Company for good reason (as defined in the Compensation Agreement). All
options, whether or not currently exercisable, will expire and cease to be
exercisable upon the earlier of (i) December 9, 1997, or (ii) the date of the
termination of Mr. Diller's employment for cause, or upon his voluntary
termination of employment with the Company other than for good reason. The
number of shares subject to the options, as well as the exercise price of the
options, will be equitably adjusted in the event of any stock split, stock
dividend, reclassification or other change in the outstanding Common Shares, any
consolidation, merger, sale of substantially all of the assets and business of
the Company or other similar events. The Compensation Agreement also provides
for specific adjustments to the scaled options exercise price in the event of
any issuance of Common Shares at a price per share below fair market value,
subject to certain exceptions. The Company also agreed to use all reasonable
efforts to effect a registration of Common Shares owned by Mr. Diller upon his
request.
Mr. Diller receives an annual salary of $500,000.
JOSEPH M. SEGEL
On January 18, 1993, the Company entered into a new employment agreement
with Joseph M. Segel for his services as Chairman-Emeritus and as a consultant
of the Company. The agreement has a term of 10 years and provides for a fee of
$240,000 per year. The agreement provides that the Company may terminate Mr.
Segel's services at any time for cause (as defined in the agreement). In
addition, Mr. Segel may terminate the agreement on account of a material breach
by the Company of its obligations thereunder. In that event, Mr. Segel would be
entitled to continue to receive compensation under the agreement for the
remainder of its term. In the event the agreement is terminated by reason of Mr.
Segel's disability (as defined in the agreement), Mr. Segel would continue to
receive 50% of his fees for the remainder of the term.
MICHAEL C. BOYD, WILLIAM F. COSTELLO, DOUGLAS S. BRIGGS AND THOMAS G. DOWNS
On December 9, 1992, the Company entered into employment agreements with
Michael C. Boyd, William F. Costello, Douglas S. Briggs and Thomas G. Downs,
agreeing to employ them as President and Chief Operating Officer, Executive Vice
President -- Finance and Chief Financial Officer, Executive Vice President,
Programming, and Executive Vice President, Customer Services, respectively. Mr.
Boyd's agreement was for a term of five years and provided for an annual base
salary of $290,000. On February 17, 1994, Mr. Boyd resigned from his position as
President and Chief Operating Officer of the Company and became consultant to
the Company under the terms of the agreement. Mr. Briggs' title subsequently
changed to Executive Vice President, Electronic Retailing, and on February 17,
1994, Mr. Briggs was appointed to the new position of President, QVC Electronic
Retailing. Mr. Down's title was changed to Executive Vice President, Operations
and Services. Mr. Costello's, Mr. Briggs' and Mr. Downs' agreements are for
terms of three years each, commencing on January 1, 1993, and provide for annual
base salaries of $250,000, $235,000 and $192,500, respectively, subject to
annual upward review at the discretion of the Company. Mr Briggs, Mr. Costello
and Mr. Downs have had their annual base salaries increased to $350,000,
$300,000 and $215,000, respectively, and, under subsequent agreements, Mr.
Briggs and Mr. Costello have had the terms of their employment agreements
extended to December 31, 1998, and December 31, 1996, respectively. Mr. Briggs,
Mr. Costello and Mr. Downs will continue to be eligible for and participate in
such bonus and incentive compensation programs as are generally provided to
other executive officers of the Company.
Each agreement provides that the Company may terminate the officer's
employment at any time for cause (as defined in the agreement), and the officer
has the right to terminate his employment with the
B-8
<PAGE> 39
Company at any time for good reason (as defined in the agreement). In the event
of a termination of the agreement by the Company for cause, or by the officer
without good reason, or by reason of the officer's death or disability, the
Company is required to pay the officer the amounts of base salary, bonus or
other compensation earned but not paid prior to the effective date of the
termination. In the event the officer's employment is terminated by the officer
for good reason, or by the Company other than for cause, death or disability,
the Company must pay the officer, in addition to the amounts described in the
preceding sentence, full acceleration of his base salary for the remainder of
the term of the agreement, a pro rata portion of all bonus compensation to which
he would have been entitled for the year of termination, assuming full
satisfaction of performance objectives, and continuation during the term of the
agreement of all benefits and perquisites provided under the agreement.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended January 31, 1994, the Executive Compensation
Committee was composed of Dr. Malone and Mr. R. Roberts. On March 29, 1994, Mr.
B. Roberts became a member of the Executive Compensation Committee. Dr. Malone
resigned as a director of the Company as a member of the Executive Committee and
as a member of the Executive Compensation Committee on November 11, 1993. Dr.
Malone is Chairman of the Board of Liberty Media Corporation ("Liberty Media"),
and Mr. B. Roberts and Mr. R. Roberts are the President and the Chairman of the
Board of Comcast, respectively. Each cable system operator which broadcasts the
Company's program, including Comcast and Liberty Media and their respective
affiliates, has entered into an Affiliation Agreement with the Company,
providing that the cable system operator will receive a percentage of net sales
within its service area in return for transmitting the Company's program as part
of the cable system operator's basic cable service. The current commission rate
is five percent. See "Certain Transactions and Business Relationships."
COMPENSATION OF DIRECTORS
Members of the Board of Directors who are employed by the Company are not
separately compensated for serving on the Board of Directors. The directors who
are not employed by the Company are compensated at the rate of $10,000 per
annum, $1,000 per meeting of the Board of Directors and $750 per meeting of
Committees of the Board of Directors. Directors' expenses related to their
attendance at meetings of the Board of Directors are paid by the Company. Mr.
Costello, Mr. Diller and Mr. Segel are employees of the Company and do not
receive any compensation as directors. Mr. Boyd was an employee of the Company
and did not receive any compensation as a director. For a description of the
directors' compensation, see "Employment Agreements" above.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following tables set forth information, as of July 31, 1994, with
respect to ownership of Common Shares, Series B Preferred Stock and Series C
Preferred Stock of the Company (the only classes of outstanding voting
securities of the Company) by each person who is known to the Company to be the
beneficial owner of more than five percent of the Company's outstanding Common
Shares, Series B Preferred Stock and Series C Preferred Stock. Statements
regarding beneficial ownership are based upon information furnished by the
transfer agent and contained in Schedule 13Ds filed with the Securities and
Exchange Commission (the "Commission"). Unless otherwise indicated below, each
shareholder has sole voting and dispositive power with respect to all shares
beneficially owned.
B-9
<PAGE> 40
COMMON SHARES
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT
BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
- ------------------------------ ---------------------- --------
<S> <C> <C>
Comcast Corporation and 18,883,801(1) 40.7%(2)
Liberty Media Corporation
c/o Davis, Polk & Wardwell
450 Lexington Avenue
New York, NY 10017
Comcast Corporation and 12,627,934(3) 27.6%(2)
Barry Diller
c/o Davis, Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Advance Publications, Inc. 2,958,333(4) 6.9%(2)
and its affiliates
950 Fingerboard Road
Staten Island, New York 10305
BellSouth Corporation 8,627,934(5) 17.6%(2)
1155 Peachtree Street, N.E.
Atlanta, Georgia 30367
Comcast Corporation 8,627,934(6) 20.2%(2)
and its affiliates
1500 Market Street
Philadelphia, PA 19102
Cox Enterprises, Inc. 2,833,333(7) 6.6%(2)
1400 Lake Hearn Drive
Atlanta, Georgia 30319
Barry Diller 4,000,000(8) 9.2%(2)
1940 Coldwater Canyon
Beverly Hills, California
90210
Liberty Media Corporation 10,255,867(9) 23.3%(2)
and its affiliates
8101 E. Prentice Avenue
Englewood, Colorado 80111
Time Warner Inc. 4,062,218(10) 10.0%(2)
and its affiliates
Time & Life Building
New York, New York 10020
</TABLE>
- ------------------------------
(1) In Schedule 13D filings with the Commission, Comcast and Liberty Media have
reported that they each have shared voting and dispositive power to all
shares beneficially owned by the group. See "Certain Transactions and
Business Relationships" below. Includes 8,627,934 shares beneficially owned
by Comcast and 10,255,867 shares beneficially by Liberty Media. Comcast's
shares include 72,050 shares of Series C Preferred, which are presently
convertible into 720,5000 shares of Common Stock, and warrants to purchase
1,700,000 shares of Common Stock, which are presently exercisable. Liberty
Media's shares include 372,866 shares of Series B and Series C Preferred
Stock presently convertible into 3,728,660 shares of Common Stock.
B-10
<PAGE> 41
(2) Under the terms of Rule 13d-3 ("Rule 13d-3") promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), the
shares of Series B Preferred Stock and Series C Preferred Stock that are
presently convertible or convertible within 60 days after July 31, 1994
into Common Shares, options to purchase Common Shares and warrants to
purchase Common Shares that are presently exercisable or exercisable within
60 days after July 31, 1994, which are owned by each individual are deemed
to be outstanding for purposes of computing the percentage of Common Shares
owned by that individual. Therefore, each percentage is computed based on
the sum of (i) the 40,265,392 Common Shares actually outstanding as of July
31, 1994, (ii) the number of Common Shares into which shares of Series B
Preferred Stock and Series C Preferred Stock are presently convertible or
convertible within 60 days after July 31, 1994, and (iii) warrants to
purchase Common Shares, as the case may be, owned by that individual or
entity whose percentage of share ownership is being computed, but not
taking account of the conversion of shares of Series B Preferred Stock and
Series C Preferred Stock or the exercise of warrants or options by any
other person or entity. Without taking into consideration ownership of
shares of Series B Preferred Stock or Series C Preferred Stock and warrants
to purchase Common Shares, Advance Publications, Inc., BellSouth
Corporation, Comcast and its affiliates, Cox Enterprises, Inc., Liberty
Media and its affiliates, and Time Warner, Inc. and its affiliates own .3%,
0%, 15.4%, 0%, 2.5% and 9.6%, respectively, of the Common Shares actually
outstanding as of July 31, 1994.
(3) In Schedule 13D filings with the Commission, Comcast and Barry Diller have
reported that they have agreed to act as a group for the purpose of voting
their securities of the Company and that they each have shared voting and
dispositive power as to all shares beneficially owned by the group. See
"Certain Transactions and Business Relationships" below. Includes 8,627,934
shares beneficially owned by Comcast and 4,000,000 shares beneficially
owned by Mr. Diller. Comcast's shares include 72,050 shares of Series C
Preferred Stock, which are presently convertible into 720,500 Common
Shares, and warrants to purchase 1,700,000 Common Shares, which are
presently exercisable. Mr. Diller's shares include options to purchase
3,000,000 Common Shares, which are presently exercisable, but does not
include options to purchase 3,000,000 Common Shares, which are not
presently exercisable or exercisable within 60 days after July 31, 1994.
(4) Includes an option to purchase 2,833,333 Common Shares which is exercisable
within 60 days after July 31, 1994.
(5) Consists solely of an option to purchase 8,627,934 Common Shares which is
exercisable within 60 days after July 31, 1994.
(6) In Schedule 13D filings with the Commission, Comcast and Liberty Media have
reported that they have agreed to act as a group for the purpose of voting
their securities of the Company and that they each have shared voting and
dispositive power as to all shares beneficially owned by the group. See
footnote 1 above and "Certain Transactions and Business Relationships"
below. In Schedule 13D filings with the Commission, Comcast has reported
that it has shared voting and dispositive power with Barry Diller with
regard to all shares beneficially owned by the group. See footnote 3 above
and "Certain Transactions and Business Relationships" below. Includes
72,050 shares of Series C Preferred Stock presently convertible into
720,500 Common Shares and warrants to purchase 1,700,000 Common Shares.
(7) Consists solely of an option to purchase 2,833,333 Common Shares which is
exercisable within 60 days after July 31, 1994.
(8) Includes options to purchase 3,000,000 Common Shares, which are presently
exercisable, but does not include options to purchase 3,000,000 Common
Shares, which are not presently exercisable or exercisable within 60 days
after July 31, 1994.
(9) In Schedule 13D filings with the Commission, Comcast and Liberty Media have
reported that they have agreed to act as a group for the purpose of voting
their securities of the Company and that they each have shared voting and
dispositive power as to all shares beneficially owned by the group. See
footnote 1 above and "Certain Transactions and Business Relationships"
below. In a Schedule 13D filing with the Commission on May 19, 1994,
Liberty Media reported that it no longer has shared voting and
B-11
<PAGE> 42
dispositive power with Comcast and Barry Diller with regard to all shares
beneficially owned by the three of them. See "Certain Transactions and Business
Relationships" below. Includes 372,866 shares of Series B and Series C Preferred
Stock presently convertible into 3,728,660 Common Shares.
(10) Includes 21,250 shares of Series C Preferred Stock presently convertible
into 212,500 Common Shares.
SERIES B PREFERRED STOCK
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT
BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
- ---------------------------- --------------------- ---------
<S> <C> <C>
Comcast Corporation and 17,922(1) 64.5%
Liberty Media Corporation
c/o Davis, Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Liberty Media Corporation 17,922(1) 64.5%
and its affiliates
8101 E. Prentice Avenue
Englewood, Colorado 80111
Viacom Cablevision Inc. 9,398 33.9%
5924 Stoneridge Drive
Pleasonton, CA 94566
</TABLE>
- ---------------
(1) In Schedule 13D filings with the Commission, Comcast and Liberty Media have
reported that they have shared voting and dispositive power to all shares
beneficially owned by the group. See "Certain Transactions and Business
Relationships" below.
B-12
<PAGE> 43
SERIES C PREFERRED STOCK
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT
BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
- ---------------------------- --------------------- ---------
<S> <C> <C>
Comcast Corporation and 444,916(1) 83.8%
Liberty Media Corporation
c/o Davis, Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Comcast Corporation 72,050(2) 13.6%
and Barry Diller
c/o Davis, Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Comcast Corporation 72,050(2) 13.6%
and its affiliates
1500 Market Street
Philadelphia, PA 19102
Liberty Media Corporation 372,866 70.3%
and its affiliates
8101 E. Prentice Avenue
Englewood, Colorado 80111
Viacom Cablevision, Inc. 49,300 9.3%
5924 Stoneridge Drive
Pleasonton, CA 94566
</TABLE>
- ------------------------------
(1) In Schedule 13D filings with the Commission, Comcast and Liberty Media have
reported that they have shared voting and dispositive power to all shares
beneficially owned by the group. See "Certain Transactions and Business
Relationships below."
(2) In Schedule 13D filings with the Commission, Comcast and Barry Diller have
reported that they have agreed to act as a group for the purpose of voting
their securities of the Company and that they each have shared voting and
dispositive power as to all shares beneficially owned by the group. See
"Certain Transactions and Business Relationships" below. Includes 72,050
shares of Series C Preferred Stock beneficially owned by Comcast.
B-13
<PAGE> 44
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth information as of July 31, 1994, with
respect to the ownership of the Company's Common Shares by each director,
nominee for director and by all directors and officers as a group. Unless
otherwise indicated, each person has sole voting power and sole investment
power.
<TABLE>
<CAPTION>
NAME OF DIRECTOR OR AMOUNT AND NATURE OF PERCENT
NOMINEE FOR DIRECTOR BENEFICIAL OWNERSHIP(1) OF CLASS
- ---------------------------- ------------------------ ---------
<S> <C> <C>
William F. Costello 167,500(2)(3) *
Barry Diller 4,000,000(4) 9.2%(2)
J. Bruce Llewellyn 0 *
Bruce M. Ramer 0 *
Brian L. Roberts 750(5) *
Ralph J. Roberts 5,000(5) *
Joseph M. Segel 120,000(2)(6) *
Linda J. Wachner 0 *
All directors and executive
officers as a group
(16 persons)(7)(8) 4,714,754(2) 10.8%(2)
</TABLE>
- ------------------------------
* Less than 1%.
(1) Statements with respect to beneficial ownership are based upon information
furnished by each director and officer.
(2) Under the terms of Rule 13d-3, the stock options to purchase Common Shares
which are presently exercisable or exercisable within 60 days after July 31,
1994 and owned by each individual are deemed to be outstanding for purposes
of computing the percentage of Common Shares owned by that individual.
Therefore, each percentage is computed based on a total number of Common
Shares actually outstanding as of July 31, 1994 and the number of options to
purchase Common Shares owned by that individual whose percentage of
ownership is being considered but not taking account of the conversion of
shares of Series B Preferred Stock and Series C Preferred Stock, the
exercise of warrants or options or the conversion of convertible debt by any
other person or entity.
(3) Consists of stock options to purchase 167,500 of Common Shares which are
presently exercisable or exercisable within 60 days after July 31, 1994.
(4) Includes stock options to purchase 3,000,000 Common Shares which are
presently exercisable or exercisable within 60 days after July 31, 1994. The
shares are owned by Arrow Investments, L.P. and Arrow Investments, Inc. and
Mr. Diller is deemed to have beneficial ownership of such shares by virtue
of his control of such entities. In Schedule 13D filings with the
Commission, Comcast and Mr. Diller have reported that they have agreed to
act as a group for the purpose of voting their securities of the Company and
that they each have shared voting and dispositive power as to all 12,627,934
Common Shares beneficially owned by the group. See "Certain Transactions and
Business Relationships" below.
(5) Brian L. Roberts and Ralph J. Roberts disclaim beneficial ownership of
shares, warrants to purchase shares and debt convertible into shares owned
by Comcast and its affiliates.
(6) Mr. Segel disclaims beneficial ownership of 200 shares owned by Mrs. Segel.
Includes 100,000 shares owned jointly by Mr. and Mrs. Segel and stock
options to purchase 20,000 Common Shares which are presently exercisable or
exercisable within 60 days after July 31, 1994.
(7) Includes all executive officers and directors as of July 31, 1994.
(8) Includes stock options to purchase 3,587,916 Common Shares which are
presently exercisable or exercisable within 60 days after July 31, 1994.
No directors or executive officers are beneficial owners of shares of
Series B Preferred Stock or Series C Preferred Stock or warrants to purchase
Common Shares.
B-14
<PAGE> 45
CERTAIN TRANSACTIONS AND BUSINESS RELATIONSHIPS
The Commission requires disclosure of certain business transactions or
relationships between the Company and other organizations with which any of the
Company's directors or executive officers is affiliated as an owner, partner,
director or executive officer. From time to time, the Company has engaged in
transactions with or has used products or services of organizations with which
directors or executive officers of the Company are affiliated when it has been
appropriate and reasonable, and it is expected that the Company will continue to
do so.
On December 1, 1992, Comcast and Liberty Media, both significant
shareholders of the Company, formed a group (the "Comcast-Liberty Group") and
entered into an agreement (the "Participation Agreement") setting forth their
collective plans and proposals with respect to the Company.
On December 9, 1992, the Board of Directors of the Company unanimously
approved the terms of a proposed summary term sheet (the "Summary Term Sheet"),
pursuant to which (subject to certain conditions) (i) Barry Diller would obtain
a significant equity position in the Company from Liberty Media and Joseph M.
Segel and his wife and become Chairman of the Board and Chief Executive Officer
of the Company, (ii) Comcast, Liberty Media and Mr. Diller would enter into a
Stockholders Agreement (the "Stockholders Agreement") pursuant to which Comcast,
Liberty Media and Mr. Diller would agree to act together with respect to
purchases, dispositions and voting of the Company's securities, and (iii) Mr.
Diller would be granted, subject to his entering into an employment agreement
with the Company, 160,000 Common Shares, options to purchase 3,000,000 Common
Shares at $30.43 per share and options to purchase an additional 3,000,000
Common Shares at the market price plus an amount equal to 10% of the market
price plus an agreed upon rate approximating the rate of inflation per year.
Pursuant to agreements entered into on December 9, 1992, on December 11,
1992, Mr. Diller purchased an aggregate of 420,000 Common Shares from Mr. Segel
and his wife for an aggregate purchase price of $12.6 million in cash, and on
January 15, 1993, Mr. Diller purchased an additional 420,000 Common Shares from
Liberty Media for $12.6 million in cash.
On January 18, 1993, Mr. Diller became Chairman of the Board and Chief
Executive Officer of the Company, and Mr. Segel retired from such positions. The
Company entered into the Compensation Agreement with Mr. Diller and Arrow in
connection with Mr. Diller's serving the Company as Chairman of the Board and
Chief Executive Officer. For a description of the terms of that agreement, see
"Executive Compensation -- Employment Agreements -- Mr. Barry Diller" above.
On July 16, 1993, Comcast, Liberty Media, Arrow Investments, L.P. and Arrow
Investments, Inc. (collectively, "Arrow"), and certain affiliates of the
foregoing persons (collectively, the "QVC 13D Group"), which collectively own
approximately 34.7% of the voting power of the currently outstanding voting
securities of the Company, entered into a Stockholders Agreement (the
"Stockholders Agreement") which sets forth the terms and conditions that the QVC
13D Group has agreed to be subject to with respect to the Company and "QVC
Securities" (which is referred to in the Stockholders Agreement as "Company
Securities" and is used herein as such term is defined therein). Pursuant to the
Stockholders Agreement, all QVC Securities held by the QVC 13D Group are subject
to the provisions thereof, which governs the manner of all dispositions,
acquisitions and voting of QVC Securities by the QVC 13D Group. Such agreement
provides, among other things, that (i) the QVC 13D Group must hold certain
specified amounts of the outstanding Voting Stock in order to maintain certain
rights under the Stockholders Agreement (which provision does not apply to Arrow
so long as Mr. Diller is Chairman of the Board and Chief Executive Officer of
the Company), (ii) all Voting Stock held by the QVC 13D Group will be voted for
the election of a slate of directors approved by the QVC 13D Group (with each
member of the QVC 13D Group being entitled to designate an equal number of
Stockholder Designees (as defined therein) included in such slate) and (iii)
each member of the QVC 13D Group shall use its reasonable best efforts to reach
agreement with the other members of the QVC 13D Group as to the voting of all
Shares on all matters presented to the Company's stockholders and to vote or to
use its reasonable best efforts to cause each Stockholder Designee to cast his
vote on all matters presented to the Company's Board of Directors in accordance
with such agreement, subject, with respect to director action, to directors'
fiduciary duties to the Company's stockholders; otherwise, each member of the
QVC 13D
B-15
<PAGE> 46
Group shall vote in the manner agreed to by at least two of the three members of
the QVC 13D Group; provided, however, that (x) if there are only two Eligible
Stockholders (as defined therein) and they cannot reach a unanimous decision,
each member of the QVC 13D Group may vote in the manner it chooses and (y) if
there is only one Eligible Stockholder, each member of the QVC 13D Group shall
be bound to vote all QVC Securities as instructed by such Eligible Stockholder.
Subject to certain limited exceptions set forth in the Stockholders
Agreement, in the event Mr. Diller disagrees in good faith with Comcast and
Liberty Media as to any matter presented to a vote of the Board of Directors or
stockholders of the Company, Mr. Diller has the right to declare a deadlock and
initiate an auction process whereby Arrow, on the one hand, and Comcast and
Liberty Media, on the other hand, may bid on the entire interest in the Company
held by the other, with the winning bidder having six months to complete the
resulting purchase transaction. Comcast and Liberty Media also have the right to
purchase Arrow's entire interest in the Company upon Mr. Diller's death or
disability at its Fair Market Value (as defined in the Stockholders Agreement).
The Stockholders Agreement contains a number of restrictions on the ability
of the QVC 13D Group to dispose of and acquire QVC Securities and certain rights
of the QVC 13D Group to participate in any such disposition or acquisition by
another member of the QVC 13D Group.
The Stockholders Agreement will terminate upon the earlier of (i) the 100th
anniversary of the date of the Stockholders Agreement and (ii) the dissolution
or liquidation of the Company.
The description herein of the Stockholders Agreement is qualified in its
entirety by reference to such agreement, a copy of which is an Exhibit to the
Schedule 13D of Comcast, Liberty Media and Mr. Diller filed with the Commission
in July 1993, and the amendments thereto, each of which is incorporated by
reference herein.
On May 19, 1994, Liberty Media filed a Schedule 13D (Amendment No. 25) with
the Commission, in which it states that it no longer may be deemed to constitute
a "group" with Comcast and Mr. Diller for purposes of Rule 13d-5 under the
Securities Exchange Act of 1934 (the "Exchange Act") with respect to the
respective beneficial ownership of Liberty Media, Comcast and Mr. Diller of the
Common Shares of the Company. As a result of the expiration of the 90-day period
following the termination of the Company's bid for Paramount Communications
Inc., within which Liberty Media was entitled to elect to be reinstated as an
Eligible Stockholder under the Stockholders Agreement and Liberty Media's
decision not to be so reinstated, Liberty Media no longer may be deemed to
constitute a "group" with Comcast and Mr. Diller for purposes of Rule 13d-5
under the Exchange Act with respect to the respective beneficial ownership of
the Common Shares of Liberty Media, Comcast and Mr. Diller. Except for Mr.
Diller's options pursuant to the Liberty-QVC Agreement and the Stockholders
Agreement to purchase from Liberty Media the equivalent of 1,627,934 shares of
Common Shares, Liberty Media no longer has any contract, agreement or
understanding with Comcast or Mr. Diller with respect to the disposition or
voting of the outstanding equity securities of the Company. As a result, except
as noted in its Schedule 13D filing, Liberty Media has sole voting and
dispositive power with respect to all 10,255,867 Common Shares beneficially
owned by it and no longer has any rights or obligations under the Stockholders
Agreement.
Pursuant to the Stock Option Agreement, BellSouth has agreed that if it
purchases Common Shares pursuant thereto, BellSouth will become a party to the
Stockholders Agreement in accordance with the terms of the Understanding Among
Stockholders. The Stock Option Agreement, among other things, provides (as
contemplated by the Memorandum of Understanding) that after BellSouth becomes a
party to the Stockholders Agreement, so long as Comcast, Arrow, Liberty Media or
BellSouth remains an Eligible Stockholder (as defined in the Stockholders
Agreement), the Company will not take any action to (i) block or prevent open
market purchases by such Eligible Stockholder or Liberty Media (if it has become
a party to the Stockholders Agreement under the terms of the Liberty-QVC
Agreement) of Common Shares so long as such entity's total fully diluted voting
power of the Company does not exceed thirty-five percent of the fully diluted
outstanding voting power of the Company or (ii) discriminate against such
Eligible Stockholder or Liberty Media (if it has become a party to the
Stockholders Agreement pursuant to the Liberty-QVC Agreement) as a stockholder
or deprive BellSouth, Comcast, Arrow or Liberty Media (if it has become a
B-16
<PAGE> 47
party to the Stockholders Agreement pursuant to the Liberty-QVC Agreement) of
full rights as a stockholder of the Company.
Under the Stock Option Agreement, the Company, BellSouth, Cox and Advance
also agreed that, for a period of 18 months from February 15, 1994, if the
Company proposes to invest in, acquire or form all or part of an originator,
owner or other producer of programming or content (including, without
limitation, a film studio, network, film library or television programming
producer) in a transaction valued at greater than $250 million, and if the Stock
Option Agreement has not terminated with respect to the applicable purchaser
thereunder or such purchaser has acquired Common Shares pursuant to the Stock
Option Agreement, the Company will give such purchaser along with Comcast, (and
Liberty Media, if it has become a party to the Stockholders Agreement), to the
extent the Company requires third party financing in connection with such
transaction, a preferential opportunity, subject to applicable law, to
participate meaningfully in any such transaction on an arm's-length basis and
will negotiate in good faith concerning any such party's participation therein.
None of BellSouth, Comcast and Liberty Media will be entitled to any such
preferential opportunity, however, to the extent it is not legally permitted to
participate in the relevant transaction. Contemporaneously with the execution of
the Stock Option Agreement, Comcast and Liberty Media entered into an
Acknowledgement and Agreement dated as of February 15, 1994, pursuant to which
Comcast and Liberty Media acknowledged and agreed to the foregoing provisions of
the Stock Option Agreement and further agreed that such provisions modified and
replaced the $500 million stock option provisions of the Memorandum of
Understanding.
Comcast, Liberty Media, BellSouth, Advance, Arrow and Cox entered into a
Letter Agreement dated as of February 15, 1994, pursuant to which the parties
agreed that the Agreement Among Stockholders (whereby each of them agreed to
vote all of their shares of voting securities of the Company, if any, in favor
of any merger with Paramount and the issuance of securities in connection
therewith) was terminated except that (i) each of Comcast, Liberty Media and
Arrow will be required to vote all of its equity securities of the Company (to
the extent such securities are entitled to vote with respect thereto) in favor
of the issuance of the shares of Common Shares pursuant to the Stock Option
Agreement and (ii) each of Comcast, Liberty Media, Arrow and BellSouth remains
bound by the provision of the Agreement Among Stockholders acknowledging the
Liberty-QVC Agreement.
On August 4, 1994 Comcast, Mr. Diller and Arrow Investments, L.P. entered
into a letter agreement (the "Stockholder Letter Agreement") which provides
that, subject to certain conditions, the Stockholders Agreement will terminate
without any further obligations thereunder. The Stockholder Letter Agreement,
subject to certain conditions and exceptions, provides among other things, that
Mr. Diller will vote, as director of the Company, in favor of the Merger
Agreement and the transactions contemplated thereby, that the Shares owned by
Mr. Diller and Arrow will be tendered pursuant to the Offer and will be voted in
favor of the Merger and that the Shares held by Mr. Diller and Arrow will not be
transferred other than pursuant to the Offer. The Stockholder Letter Agreement
is described in Item 3 of the Schedule 14d-9 ("Item 3") to which this is
attached.
As described in Item 3, the Comcast-Liberty Agreement was also entered into
on August 4, 1994. Pursuant to the Comcast-Liberty Agreement, among other
things, the Parent Purchasers amended their offer from $44 per Common Share and
$440 per Preferred Share to $46 per Common Share and $460 per Preferred Share.
The Parent Purchasers also agreed to contribute to the Purchaser their
respective holdings in QVC Stock and agreed to vote all of their respective
Common Shares in favor of the Merger.
Brian L. Roberts and Ralph J. Roberts, directors of the Company, are
President and Chairman of the Board, respectively, of Comcast.
The law firm of Gang, Tyre, Ramer & Brown, Inc., of which Mr. Ramer is a
principal, has represented Mr. Diller in his individual capacity. Mr. Ramer and
Mr. Diller are directors of the Company.
Each cable system operator which broadcasts the Company's program,
including Comcast, Liberty Media, Time Warner Inc. and their respective
affiliates, has entered into an Affiliation Agreement with the Company,
providing that the cable system operator will receive a percentage of net sales
within its service area
B-17
<PAGE> 48
in return for transmitting the Company's program as part of the cable system
operator's basic cable service. The current commission rate is five percent.
The Company has agreed that any future transaction between the Company and
any officer, director, key employee or a shareholder owning at least 10% of the
outstanding capital stock of the Company, or an affiliate of any such person,
will be approved by a majority of the disinterested directors of the Company and
will be on terms no less favorable to the Company than could be obtained from an
unaffiliated third party.
On October 31, 1989, the Company obtained a loan from Comcast Financial
Corporation, an affiliate of Comcast, in the principal amount of $30 million to
be used to provide a portion of the financing of the merger of QVC Acquisition
Corp. with and into CVN Companies, Inc., whereby CVN Companies, Inc. became a
wholly-owned subsidiary of the Company. Comcast Financial Corporation received a
convertible promissory note (the "Convertible Note") in an equal principal
amount and QVC Common Shares purchase warrants. Interest for the first year of
the Convertible Note was paid in advance by the issuance by the Company to
Comcast Financial Corporation of 1,000,000 Common Share purchase warrants.
Interest for the second year was paid by the issuance by the Company to Comcast
Financial Corporation of warrants to purchase Common Shares and Common Shares.
On October 31, 1992, Comcast Financial Corporation converted the Convertible
Note into 1,704,546 Common Shares.
On January 31, 1990, the Company obtained a loan from TCI Development
Corporation in the principal amount of $50 million under an agreement entered
into at the time of the acquisition of CVN Companies, Inc. The proceeds of the
loan were used to repay the first term loan installment due under the Credit
Agreement entered into at the time of the acquisition of CVN Companies, Inc. In
1991, TCI Development Corporation assigned the promissory note evidencing such
loan to Liberty Media. In satisfaction of such note, concurrently with the
closing of the public offering of the Company's Common Shares in October 1991,
the Company (i) paid to Liberty Media approximately one-half of the outstanding
principal and interest of the note from the proceeds of such public offering,
(ii) issued to Liberty Media 2,269,552 Common Shares, and (iii) waived certain
rights to repurchase 400,000 Common Shares at $1.00 per share from Liberty
Media, which rights resulted from the carriage shortfall of an affiliate of
Liberty Media under its Affiliation Agreement with the Company.
On December 23, 1992, the Company extended an offer (the "Offer") to all of
the holders (the "Warrantholders") of warrants (the "Warrants") to purchase
Common Shares to convert any or all of the Company's 9,479,913 outstanding
Warrants into Common Shares. Pursuant to the terms of the Offer, the Company
offered, at the Warrantholder's election, (i) to issue to the Warrantholder, in
exchange for the Warrantholder's Warrants, Common Shares with an aggregate value
(each share being valued at $37.75 per share, representing the average of the
closing prices on the NASDAQ National Market System for the Common Shares for
the five trading days ending December 22, 1992 (the "Conversion Price")) equal
to the difference between the Conversion Price and the price at which the
Warrants were exercisable (the "Exercise Price"), multiplied by the number of
shares of Common Stock into which the Warrants were exercisable, or (ii) if the
Warrantholder elected to exercise its Warrants by making payment of the Exercise
Price in cash and delivery of the Warrant certificate, to issue the number of
Common Shares into which such Warrants were exercisable and repurchase from the
Warrantholder, at the Conversion Price, all of the Common Shares that could be
purchased using all of the proceeds of the payment by the Warrantholder of the
Exercise Price. In connection with election (ii) described above, the Company
also offered to accept payment of the Exercise Price in shares of Common Shares
valued at the Conversion Price. As a result of acceptances of the Offer by
Liberty Media, Time Warner, Inc. and other Warrantholders (but not including
Comcast), the Company has issued an aggregate of 6,790,551 Common Shares
(consisting of 6,385,979 shares issuable upon exercise of Warrants and 404,572
shares issuable upon exchange of Warrants), has repurchased 998,457 Common
Shares (with $37,692,000 cash proceeds received as a result of the exercise of
Warrants) and accepted 1,424,404 Common Shares as payment of the Exercise Price
for certain Warrants, for a net issuance by the Company of 4,367,691 shares.
Immediately following the consummation of the Offer, Warrants to purchase
2,418,908 Common Shares remained outstanding. Assuming that all such Warrants
were exercised, the Company would have received approximately $38,604,000 in
aggregate gross proceeds.
B-18
<PAGE> 49
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
- -------------- ----------------------------------------------------------------- -----------
<S> <C> <C> <C>
Exhibit 1 -- Offer to Purchase, dated August 11, 1994.........................
Exhibit 2 -- Letter of Transmittal............................................
Exhibit 3** -- Proxy Statement dated May 31, 1994 relating to QVC, Inc.'s 1994
Annual Meeting of Stockholders...................................
Exhibit 4** -- Agreement and Plan of Merger, dated as of August 4, 1994, among
QVC, Inc., Comcast Corporation, Liberty Media Corporation and
Comcast QMerger, Inc. (now known as QVC Programming Holdings,
Inc.)............................................................
Exhibit 5** -- Letter Agreement, dated as of August 4, 1994, among Comcast
Corporation, Barry Diller and Arrow Investments, L.P.............
Exhibit 6** -- Letter Agreement, dated as of August 4, 1994, among Comcast
Corporation, Liberty Media Corporation and Tele-Communications,
Inc..............................................................
Exhibit 7** -- Letter to Stockholders of QVC, Inc. dated August 11, 1994.*......
Exhibit 8** -- Press Release issued by QVC, Inc., Comcast Corporation and
Liberty Media Corporation on August 5, 1994......................
Exhibit 9** -- Opinion of Allen & Company Incorporated dated August 4, 1994.*...
Exhibit 10** -- Report of Allen & Company Incorporated to the Board of Directors
of QVC, Inc. dated August 4, 1994.
Exhibit 11** -- Engagement Letter, dated August 4, 1994, between QVC, Inc. and
Allen & Company Incorporated (including the related Indemnity
Letter)..........................................................
</TABLE>
- ---------------
* Included with Schedule 14D-9 mailed to Stockholders.
** Previously filed.
<PAGE> 1
EXHIBIT 1
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK,
SERIES B PREFERRED STOCK AND
SERIES C PREFERRED STOCK
OF
QVC, INC.
AT
$46 NET PER SHARE OF COMMON STOCK AND
$460 NET PER SHARE OF PREFERRED STOCK
BY
QVC PROGRAMMING HOLDINGS, INC.
THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME,
ON THURSDAY, SEPTEMBER 8, 1994, UNLESS THE OFFER IS EXTENDED.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (i) THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION DATE SHARES (THE "SHARES") OF
COMMON STOCK, PAR VALUE $.01 PER SHARE (THE "COMMON STOCK"), AND SERIES B
PREFERRED STOCK AND SERIES C PREFERRED STOCK, EACH PAR VALUE $.10 PER SHARE
(TOGETHER, THE "PREFERRED STOCK") OF QVC, INC. (THE "COMPANY") WHICH, TOGETHER
WITH THE 18,883,801 FULLY DILUTED SHARES AGREED TO BE CONTRIBUTED BY COMCAST
CORPORATION ("COMCAST") AND LIBERTY MEDIA CORPORATION ("LIBERTY") (OR ANY
WHOLLY-OWNED SUBSIDIARY THEREOF) TO QVC PROGRAMMING HOLDINGS, INC. (THE
"PURCHASER"), PURSUANT TO THE JOINT BIDDING AGREEMENT DESCRIBED HEREIN,
REPRESENT AT LEAST A MAJORITY OF THE OUTSTANDING SHARES OF COMMON STOCK,
CALCULATED ON A FULLY DILUTED BASIS, AND (ii) THE PURCHASER HAVING OBTAINED
SUFFICIENT FINANCING ON TERMS SATISFACTORY TO IT TO PURCHASE ALL OF THE
OUTSTANDING SHARES PURSUANT TO THE OFFER, CONSUMMATE THE MERGER (AS DESCRIBED
HEREIN) AND PAY RELATED FEES AND EXPENSES. SEE "THE TENDER OFFER -- 10. CERTAIN
CONDITIONS OF THE OFFER".
------------------------
THE BOARD OF DIRECTORS OF THE COMPANY (OTHER THAN DIRECTORS AFFILIATED WITH
COMCAST) HAS UNANIMOUSLY DETERMINED THAT THE OFFER AND THE MERGER DESCRIBED
HEREIN ARE FAIR TO AND IN THE BEST INTERESTS OF THE COMPANY'S STOCKHOLDERS
(OTHER THAN COMCAST AND LIBERTY AND THEIR AFFILIATES) AND APPROVED THE OFFER AND
THE MERGER, AND RECOMMENDS THAT THE COMPANY'S STOCKHOLDERS ACCEPT THE OFFER AND
APPROVE THE MERGER.
------------------------
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED
IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
------------------------
IMPORTANT
Any stockholder desiring to tender Shares should either (1) complete and
sign the Letter of Transmittal (or facsimile thereof) in accordance with the
instructions in the Letter of Transmittal and deliver it with the certificate(s)
representing tendered Shares and all other required documents to the Depositary
or, in the case of shares of Common Stock, tender such Shares pursuant to the
procedures for book-entry transfer set forth in "The Tender
Offer -- 3. Procedures for Tendering Shares" or (2) request his or her broker,
dealer, commercial bank, trust company or other nominee to effect the
transaction for him or her. A stockholder having Shares registered in the name
of a broker, dealer, commercial bank, trust company or other nominee must
contact such person if he or she desires to tender such Shares.
Any stockholder who desires to tender Shares and whose certificates
representing such Shares are not immediately available or who cannot comply with
the procedures for book-entry transfer on a timely basis may tender such Shares
pursuant to the guaranteed delivery procedure set forth in "The Tender
Offer -- 3. Procedures for Tendering Shares".
Questions and requests for assistance or additional copies of this Offer to
Purchase and the Letter of Transmittal may be directed to the Information Agent
or the Dealer Manager at their respective addresses and telephone numbers set
forth on the back cover of this Offer to Purchase. Additional copies of this
Offer to Purchase, the Letter of Transmittal and the Notice of Guaranteed
Delivery may also be obtained from brokers, dealers, commercial banks or trust
companies.
------------------------
The Dealer Manager for the Offer is:
LAZARD FRERES & CO.
August 11, 1994
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C>
INTRODUCTION.......................................................................... 1
SPECIAL FACTORS....................................................................... 4
Background of the Transaction....................................................... 4
Purpose of the Transaction.......................................................... 15
Fairness of the Transaction......................................................... 15
Opinions and Reports of Financial Advisors.......................................... 18
Plans for the Company After the Merger.............................................. 24
Interests of Certain Persons in the Transaction..................................... 26
The Merger Agreement................................................................ 30
Dissenters Rights................................................................... 35
Certain Tax Consequences............................................................ 38
Certain Effects of the Transaction.................................................. 38
Financing of the Transaction........................................................ 40
Certain Litigation.................................................................. 40
THE TENDER OFFER...................................................................... 41
1. Terms of the Offer.............................................................. 41
2. Acceptance for Payment and Payment.............................................. 41
3. Procedure for Tendering Shares.................................................. 42
4. Withdrawal Rights............................................................... 44
5. Price Range of Shares; Dividends................................................ 45
6. Certain Information Concerning the Company...................................... 46
7. Certain Information Concerning the Purchaser and Parent Purchasers.............. 48
8. Dividends and Distributions..................................................... 52
9. Extension of Tender Period; Termination; Amendment.............................. 53
10. Certain Conditions of the Offer................................................. 54
11. Certain Legal Matters; Regulatory Approvals..................................... 55
12. Fees and Expenses............................................................... 57
13. Miscellaneous................................................................... 58
Schedule I -- Certain Information Regarding the Directors and Executive Officers of the
Company
Schedule II -- Certain Information Regarding the Directors and Executive Officers of the
Purchaser and the Parent Purchasers
Schedule III -- Certain Information Regarding an Additional Officer of Comcast and the
Purchaser
Annex A -- Opinion of Allen & Company Incorporated
Annex B -- Section 262 of the Delaware General Corporation Law
Annex C -- QVC, Inc. and Subsidiaries -- Selected Financial Information
</TABLE>
i
<PAGE> 3
To the Holders of Common Stock,
Series B Preferred Stock and
Series C Preferred Stock of
QVC, Inc.:
INTRODUCTION
QVC Programming Holdings, Inc., a Delaware corporation (the "Purchaser") to
be wholly owned by Comcast Corporation, a Pennsylvania corporation ("Comcast"),
and Liberty Media Corporation, a Delaware corporation ("Liberty" and, together
with Comcast, the "Parent Purchasers") and a wholly-owned subsidiary of
Tele-Communications, Inc., a Delaware corporation ("TCI"), hereby offers to
purchase all outstanding shares (the "Shares") of Common Stock, $.01 par value
per share (the "Common Stock"), and Series B Preferred Stock and Series C
Preferred Stock, each par value $.10 per share (together, the "Preferred Stock")
of QVC, Inc., a Delaware corporation (the "Company"), at $46 per share of Common
Stock and $460 per share of Preferred Stock, net to the seller in cash, without
interest thereon, upon the terms and subject to the conditions set forth in this
Offer to Purchase and in the related Letter of Transmittal (which together
constitute the "Offer"). Tendering stockholders will not be obligated to pay
brokerage fees or commissions or, except as set forth in Instruction 6 of the
Letter of Transmittal, stock transfer taxes on the purchase of Shares pursuant
to the Offer. The Purchaser will pay all charges and expenses of Lazard Freres &
Co. (in such capacity, the "Dealer Manager"), The Bank of New York (the
"Depositary") and D.F. King & Co., Inc. (the "Information Agent") incurred in
connection with the Offer.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (i) THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION DATE (AS DEFINED HEREIN)
SHARES WHICH, TOGETHER WITH THE 18,883,801 FULLY DILUTED SHARES (AS DEFINED
HEREIN) AGREED TO BE CONTRIBUTED BY THE PARENT PURCHASERS (OR ANY WHOLLY-OWNED
SUBSIDIARY THEREOF) TO THE PURCHASER PURSUANT TO THE JOINT BIDDING AGREEMENT
DESCRIBED BELOW, REPRESENT AT LEAST A MAJORITY OF THE OUTSTANDING SHARES OF
COMMON STOCK, ON A FULLY DILUTED BASIS (THE "MINIMUM TENDER CONDITION") AND (ii)
THE PURCHASER HAVING OBTAINED SUFFICIENT FINANCING ON TERMS SATISFACTORY TO IT
TO PURCHASE ALL OF THE OUTSTANDING SHARES PURSUANT TO THE OFFER, CONSUMMATE THE
MERGER AND PAY RELATED FEES AND EXPENSES (THE "FINANCING CONDITION"). SEE "THE
TENDER OFFER -- 10. CERTAIN CONDITIONS OF THE OFFER".
THE BOARD OF DIRECTORS OF THE COMPANY (THE "BOARD") (OTHER THAN DIRECTORS
AFFILIATED WITH COMCAST) HAS UNANIMOUSLY DETERMINED THAT THE OFFER AND THE
MERGER DESCRIBED HEREIN ARE FAIR TO AND IN THE BEST INTERESTS OF THE COMPANY'S
STOCKHOLDERS (OTHER THAN THE PARENT PURCHASERS AND THEIR AFFILIATES) AND
APPROVED THE OFFER AND THE MERGER AND RECOMMENDS THAT THE COMPANY'S STOCKHOLDERS
ACCEPT THE OFFER AND APPROVE THE MERGER.
ALLEN & COMPANY INCORPORATED ("ALLEN & COMPANY" OR "ALLEN"), FINANCIAL
ADVISOR TO THE COMPANY, HAS DELIVERED AN OPINION TO THE BOARD TO THE EFFECT THAT
THE CONSIDERATION TO BE RECEIVED BY THE STOCKHOLDERS (OTHER THAN THE PARENT
PURCHASERS) OF THE COMPANY IN THE OFFER AND MERGER DESCRIBED HEREIN IS FAIR TO
SUCH STOCKHOLDERS FROM A FINANCIAL POINT OF VIEW. SEE "SPECIAL
FACTORS -- OPINIONS AND REPORTS OF FINANCIAL ADVISORS".
The Offer is being made pursuant to an Agreement and Plan of Merger dated
as of August 4, 1994 (the "Merger Agreement") among the Company, the Parent
Purchasers and the Purchaser. The Merger Agreement provides, among other things,
that as promptly as practicable (but not before October 21, 1994) after the
satisfaction or, if permissible, waiver of the conditions set forth therein,
including the purchase of Shares pursuant to the Offer, a wholly owned
subsidiary of the Purchaser ("MergerCo") will be merged with and into the
Company (the "Merger" and, together with the Offer, the "Transaction"), with the
Company
<PAGE> 4
continuing as the surviving corporation (the "Surviving Corporation"). Pursuant
to the Merger, each outstanding Share (other than Shares held in the treasury of
the Company or any wholly-owned subsidiary thereof or owned by the Purchaser and
MergerCo or any of its subsidiaries or Shares held by Remaining Stockholders (as
defined below) exercising appraisal rights) will be converted into a right to
receive $46 (in the case of shares of Common Stock) or $460 (in the case of
shares of Preferred Stock) in cash or any higher price that may be paid per
share of Common Stock or Preferred Stock, as the case may be, in the Offer,
without interest. See "Special Factors -- The Merger Agreement".
Under the Delaware General Corporation Law (the "GCL"), if the Purchaser
owns, following the contribution of 18,883,801 Fully Diluted Shares by the
Parent Purchasers to the Purchaser pursuant to the Joint Bidding Agreement
described below under "Special Factors -- Background" (the "Parent
Contribution") and the consummation of the Offer (or through other purchases
thereafter), at least 90% of the outstanding shares of each class of stock of
the Company, the Purchaser would be able to (and pursuant to the Merger
Agreement has agreed that it will) approve a merger of the Company without a
vote of the Board or other stockholders. Otherwise, under the GCL and the
Company's Certificate of Incorporation, a merger of the Company would require
the approval of the Board and the holders of Shares representing a majority of
the votes entitled to be cast. The Company's Board of Directors has approved the
Merger. If the Purchaser owns, following the Parent Contribution and the
consummation of the Offer or otherwise, Shares representing at least a majority
of the total number of Fully Diluted Shares, the Purchaser would have sufficient
voting power to (and pursuant to the Merger Agreement has agreed that it will)
approve a merger of the Company without the affirmative vote of any other
stockholder of the Company. Such actions could, under the GCL and the Company's
Certificate of Incorporation, be taken by written consent without a meeting and
without a vote of the other stockholders of the Company. As used in this Offer
to Purchase, the term "Fully Diluted Shares" means Shares of Common Stock
assuming conversion of all securities convertible into Common Stock and exercise
of all options or warrants to purchase Common Stock, but excludes options to
purchase an aggregate of 14,294,600 shares of Common Stock held by BellSouth
Corporation ("BellSouth"), Advance Publications, Inc. ("Advance") and Cox
Enterprises, Inc. ("Cox") exercisable at $60 per share.
According to the Company, as of June 30, 1994, there were outstanding
40,226,197 shares of Common Stock, employee stock options ("Options") to
purchase 8,194,650 shares of Common Stock, warrants to purchase 1,700,000 shares
of Common Stock and 558,673 shares of Preferred Stock. Each share of Preferred
Stock is convertible into 10 shares of Common Stock and entitles the holder
thereof to one vote per share, together with holders of Common Stock, on all
matters requiring a vote of stockholders (other than the election of two
directors elected by holders of Common Stock).
Based upon the foregoing, the Purchaser believes that as of June 30, 1994,
there were outstanding approximately 55,707,577 Fully Diluted Shares. Subsequent
to the Parent Contribution, the Purchaser will beneficially own 18,833,801 Fully
Diluted Shares. Accordingly, the Purchaser believes that the Minimum Tender
Condition will be satisfied if approximately 8,969,988 shares of Common Stock
are validly tendered pursuant to the Offer and not withdrawn prior to Expiration
Date.
According to the Company, as of July 31, 1994, all executive officers and
directors of the Company as a group beneficially owned 1,126,838 shares of
Common Stock and held Options that were exercisable presently or within the next
60 days to purchase 3,590,666 shares of Common Stock, together representing 8.5%
of the Fully Diluted Shares. The Purchaser has been advised by the Company that,
to the best of the Company's knowledge, all of the Company's executive officers
and directors not affiliated with Comcast, other than those individuals, if any,
for whom the tender of Shares would cause them to incur liability under the
provisions of Section 16(b) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), currently intend to tender all Shares owned by them
pursuant to the Offer. See "Special Factors -- Interests of Certain Persons in
the Transaction." Pursuant to the Stockholder Letter Agreement described below
under "Special Factors -- Background," Mr. Barry Diller, Chairman of the Board
and Chief Executive Officer of the Company, has agreed, subject to certain
conditions, to tender 1,000,000 shares of Common Stock owned by him pursuant to
the Offer, and, if requested by Comcast and upon satisfaction of certain
additional conditions, to exercise Options to purchase 3,000,000 shares of
Common Stock held by him and to tender such 3,000,000 shares pursuant to the
Offer.
2
<PAGE> 5
As of August 8, 1994, all executive officers and directors of Comcast and
TCI (Comcast and TCI, together the "Joint Bidders") as a group beneficially
owned 34,025 shares of Common Stock (and such executive officers and directors
have advised the Purchaser that they will tender all Shares owned by them
pursuant to the Offer). In addition, TCI beneficially owns 332,772 Fully Diluted
Shares, or 0.6% of the Fully Diluted Shares, which Shares are in addition to the
Shares Liberty has agreed to contribute to Purchaser in the Parent Contribution.
TCI has advised the Purchaser that it will tender its Shares pursuant to the
Offer or, if TCI, Liberty and Comcast mutually agree, to contribute a portion of
such Shares to the Purchaser in lieu of the cash contribution required by
Liberty pursuant to the Joint Bidding Agreement (as defined herein).
The total amount of funds required by the Purchaser to purchase all of the
Fully Diluted Shares pursuant to the Offer and to pay related fees and expenses
is estimated to be $1.42 billion. See "Special Factors -- Financing the
Transaction".
The information contained in this Offer to Purchase concerning the Company,
including, without limitation, financial information and information about the
deliberations of the Board in connection with the Transaction and the opinion of
Allen & Company, the Company's financial advisor, was supplied by the Company.
None of the Joint Bidders or any of their affiliates takes any responsibility
for the accuracy of such information.
Stockholders are urged to read this Offer to Purchase and the related
Letter of Transmittal carefully before deciding whether to tender their Shares.
3
<PAGE> 6
SPECIAL FACTORS
BACKGROUND OF THE TRANSACTION
Prior to December 1, 1992, Comcast, which was a founding stockholder of the
Company, and Liberty were two of the largest stockholders of the Company with
each having two representatives on the Board.
On December 1, 1992, Comcast and Liberty formed a group (the
"Comcast-Liberty Group") and entered into an agreement (the "Participation
Agreement") setting forth their collective plans and proposals with respect to
the Company. Following the formation of the Comcast-Liberty Group, Comcast and
Liberty collectively beneficially owned approximately 53% of the outstanding
Common Stock (assuming the exercise and/or conversion of certain warrants and
Preferred Stock held by Liberty and Comcast). At such time, representatives of
the Comcast-Liberty Group met with the Board to discuss such Group's plans and
presented to the Company its proposal to obtain majority representation on the
Board in order to effectuate an orderly change of control. At its regularly
scheduled meeting on December 7, 1992, the Board decided not to take any action
with respect to such proposal other than to agree to continue its consideration.
The Participation Agreement provided, among other things, that Comcast and
Liberty would seek to obtain majority representation on the Board through such
methods as they would mutually agree. If necessary, each of Comcast and Liberty
would, subject to the expiration of any applicable waiting periods and receipt
of any necessary consents and approvals, convert such shares of Preferred Stock
and exercise such warrants then owned by them as would be necessary to become
the collective owners of a majority of the outstanding voting stock of the
Company. Comcast and Liberty also agreed to take such additional steps as they
would mutually agree in order to gain majority representation on the Board. Each
of Comcast and Liberty agreed to vote all shares of voting stock of the Company
beneficially owned by it in favor of the nominees to the Board proposed by the
other person, so that Comcast and Liberty would obtain equal representation on
the Board. In addition, the Participation Agreement required Comcast and Liberty
to vote all shares of voting stock of the Company beneficially owned by each of
them in such manner as they would agree in respect of matters, other than the
election of directors, presented to the stockholders.
The Participation Agreement further provided that at such time as
representatives of Comcast and Liberty constituted a majority of the Board (the
"Control Time") and all required consents, approvals and other matters had been
received, the member of the Comcast-Liberty Group (the "Greater Party") owning
the greater number of the shares of Common Stock, Preferred Stock and warrants
to purchase shares of Common Stock (collectively, the "Company Securities")
would be required to sell, and the member of the Comcast-Liberty Group (the
"Lesser Party") owning the lesser number of the Company Securities would be
required to purchase, at any time prior to December 15, 1993, such number of the
Company Securities (the "Parity Securities") on a Common Stock equivalent basis
as would be required to equalize the Lesser Party's equity ownership in the
Company with that of the Greater Party on a Common Stock equivalent basis. In
the event that the Lesser Party received all required consents, approvals and
other matters, but the Control Time had not occurred by December 15, 1993, then
during the period between December 15 and December 31, 1993 the Lesser Party
would be entitled to require the Greater Party to sell the Parity Securities to
it and the Greater Party would have the right to require the Lesser Party to
purchase such Parity Securities from it. The purchase price of any Parity
Securities would be $22 per share of Common Stock equivalent (less any exercise
price in the case of warrants), plus interest thereon at the "prime rate" as
determined from time to time by The Bank of New York from the date of the
Participation Agreement until the closing date of the purchase of the Parity
Securities.
On December 9, 1992, representatives of the Comcast-Liberty Group met with
members of the Executive Committee of the Board and discussed the terms of a
proposed summary term sheet (the "Summary Term Sheet"), pursuant to which, among
other things, (i) Barry Diller would purchase a significant equity position in
the Company from Liberty, Mr. Joseph M. Segel and Mr. Segel's wife, and would
replace Mr. Segel as Chairman of the Board and Chief Executive Officer of the
Company, (ii) Comcast, Liberty and Mr. Diller (collectively, the "Group") would
enter into a stockholders agreement pursuant to which Comcast, Liberty and Mr.
Diller would agree to act together with respect to purchases, dispositions and
4
<PAGE> 7
voting of the Company Securities and (iii) the Company would grant to Mr.
Diller, subject to his entering into an employment arrangement with the Company,
160,000 shares of Common Stock and options to purchase an additional 6,000,000
shares of Common Stock. Later that day, each of the Executive Committee and the
Compensation Committee of the Board, as well as the Board, unanimously approved
the terms of the Summary Term Sheet applicable to the Company.
The members of the Group agreed in principle to the terms outlined in the
Summary Term Sheet for the purpose of effecting an orderly change in control of
the Company and believed that by obtaining majority representation on the Board,
coupled with Mr. Diller's leadership in the roles of Chairman of the Board and
Chief Executive Officer of the Company, the Group would be able to control the
future direction of the Company and the scope of its business in such a way as
to maximize the value of the Company for the benefit of all of its stockholders.
At that time, the members of the Group believed that their objectives of
expanding the Company's existing lines of business, exploring new lines of
business, taking fuller advantage of emerging new technologies in the cable
television industry, and exploring the possibility of increasing the Company's
leverage in order to provide additional funds to improve and expand present
services, for the possible acquisition of other programming businesses in the
cable television industry and in order to effect a possible recapitalization of
the Company, would enhance the value of the Company to its stockholders.
In the Summary Term Sheet the parties agreed in principle that all voting
securities of the Company held by the Group would be voted for the election of
directors approved by each member of the Group (with each such member being
entitled to designate an equal number of persons to the Board) and otherwise in
the manner agreed to by at least two of the three members of the Group. In
addition, the Summary Term Sheet provided that, at any time between December 9,
1994 and December 9, 1997, but following the exercise of certain of his options
to purchase Common Stock, Mr. Diller would be entitled to purchase shares of
Common Stock from each of Comcast and Liberty as necessary to equalize his
ownership of Common Stock on a fully diluted basis with that of each of Comcast
and Liberty at a price per Share of Common Stock equal to the then current
exercise price for certain of his options which had exercise prices that
increased over time (options with increasing exercise prices being referred to
herein as the "Scaled Options"). As described below, the Summary Term Sheet was
later superseded by the Compensation Agreement (as defined herein) and the
Stockholders Agreement (as defined herein).
Pursuant to agreements entered into on December 9, 1992, Mr. Diller
purchased an aggregate of 420,000 shares of Common Stock from Mr. Segel and his
wife for an aggregate purchase price of $12.6 million in cash and, following
expiration of the waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act") applicable to such
purchase, on January 15, 1993, he purchased, through an affiliated entity, an
additional 420,000 shares of Common Stock from Liberty for $12.6 million in
cash.
On December 23, 1992, the Company extended an offer to all of the holders
(the "Warrantholders") of warrants (the "Warrants") to purchase Common Shares to
convert any or all of the Company's 9,479,913 outstanding Warrants into Shares.
Pursuant to the terms of such offer, the Company offered, at the Warrantholder's
election, (i) to issue to the Warrantholder, in exchange for the Warrantholder's
Warrants, Common Shares with an aggregate value (each share being valued at
$37.75 per share, representing a market based average stock price at such time
(the "Conversion Price")) equal to the difference between the Conversion Price
and the price at which the Warrants were exercisable (the "Exercise Price"),
multiplied by the number of Common Shares into which the Warrants were
exercisable, or (ii) if the Warrantholder elected to exercise its Warrants by
making payment of the Exercise Price in cash and delivery of the Warrant
certificate, to issue the number of Common Shares into which such Warrants were
exercisable and to repurchase from the Warrantholder, at the Conversion Price,
all of the Common Shares that could be purchased using all of the proceeds of
the payment by the Warrantholder of the Exercise Price. In connection with an
election described in (ii) above, the Company also offered to accept payment of
the Exercise Price in Common Shares valued at the Conversion Price. As a result
of acceptance of such offer by Liberty and its affiliates, the Company issued an
additional 2,475,434 Common Shares to Liberty and its affiliates upon the
exercise or exchange of Warrants to purchase 3,903,764 Common Shares. Comcast
did not exercise any of its Warrants in connection with the Company's offer.
5
<PAGE> 8
As contemplated by the Summary Term Sheet, on January 18, 1993, Mr. Diller
became Chairman of the Board and Chief Executive Officer of the Company. In
connection with Mr. Diller's serving in these positions, the Company entered
into an Equity Compensation Agreement, dated as of December 9, 1992 (the
"Compensation Agreement"), with Mr. Diller and Arrow Investments, L.P., a
limited partnership indirectly controlled by Mr. Diller through Arrow
Investments, Inc. ("Arrow"), under which Mr. Diller was granted 160,000 shares
of Common Stock and options to purchase an additional 6,000,000 shares of Common
Stock. One-half of the options became exercisable on December 9, 1993, and the
remaining options will become exercisable on December 9, 1994. The
exercisability of the options can be accelerated in the event of (1) the
termination of Mr. Diller's employment with the Company as a result of death or
disability, (2) the termination of Mr. Diller's employment with the Company
other than for Cause (as defined in the Compensation Agreement) or (3) Mr.
Diller's voluntary termination of employment with the Company for Good Reason
(as defined in the Compensation Agreement). All of the options, whether or not
currently exercisable, will expire and cease to be exercisable upon the
termination of Mr. Diller's employment for Cause, or upon his voluntary
termination of employment with the Company other than for Good Reason. All of
the options have a maximum term of five years from the date of grant.
In connection with its acquisition of a controlling interest in Home
Shopping Network, Inc. ("HSN"), the Company's principal television-shopping
competitor, on December 7, 1992, Liberty filed a Premerger Notification and
Report Form under the HSR Act with the Department of Justice (the "DOJ") and the
Federal Trade Commission (the "FTC"). Liberty subsequently received a Request
for Additional Information from the DOJ on January 6, 1993. Following compliance
with such request, the DOJ granted early termination of the second waiting
period under the HSR Act on February 11, 1993. Upon closing such acquisition,
Liberty also delivered a merger proposal to the Board of Directors of HSN. This
merger proposal was withdrawn on April 9, 1993 because of the uncertainties
concerning the proposed merger. On April 19, 1993, Liberty announced its
intention to commence a cash tender offer to purchase up to 15,000,000 shares of
the common stock of HSN at a price of $7 per share. On May 20, 1993, Liberty
accepted for purchase and purchased 16,296,602 shares of the common stock of HSN
tendered to it in the tender offer. Following consummation of such tender offer,
Liberty beneficially owned approximately 40% of the outstanding equity
securities of HSN, which shares represented in excess of 70% of the outstanding
voting power of HSN.
On July 12, 1993, the Company made a proposal to HSN to combine HSN and the
Company in a stock-for-stock transaction (the "HSN Proposal"). In connection
with the proposed combination of HSN and the Company, the Company filed a
Premerger Notification and Report Form under the HSR Act with the DOJ and the
FTC. On September 8, 1993, the FTC issued Requests for Additional Information
regarding the proposed combination. In connection with the HSN Proposal, Liberty
indicated that it would support the Company's proposed transaction with HSN.
As contemplated by the Summary Term Sheet, Comcast, Liberty, Arrow and
certain affiliates and subsidiaries of such parties (the "Parties") entered into
a Stockholders Agreement, dated as of July 16, 1993 (the "Stockholders
Agreement"), which superseded, with limited exceptions, specified therein, the
Participation Agreement and the Summary Term Sheet. The Stockholders Agreement
provided that all securities of the Company (or, if the HSN Proposal were
consummated, all HSN securities) held by the Parties would be subject to the
Stockholders Agreement, which would govern the manner of all dispositions,
acquisitions and voting of such securities by the Parties. Such agreement
provided, among other things, that (i) the Parties would have to hold certain
minimum amounts of the outstanding voting stock (as defined therein) in order to
maintain certain rights under the Stockholders Agreement (which provision would
not apply to Mr. Diller so long as he was Chairman of the Board and Chief
Executive Officer of the Company), (ii) all voting stock held by the Parties
would be voted for the election of a slate of directors approved by the Parties
(with each Party entitled to designate an equal number of directors (such
directors being referred to as the "Stockholder Designees")) and (iii) each
Party would use such Party's reasonable best efforts to come to agreement with
the other Parties as to the voting of all voting stock on all matters presented
to the Company's stockholders and to vote or to use its reasonable best efforts
to cause each Stockholder Designee to cast his vote on all matters presented to
the Board in accordance with such agreement, subject, with respect to director
action, to director's fiduciary duties to the Company's stockholders; otherwise
each Party would vote in the manner
6
<PAGE> 9
agreed to by at least two of the three Parties; provided, however, that (i) if
there were only two Eligible Stockholders (as defined therein) and they could
not reach a unanimous decision, each Party would be entitled to vote in the
manner it chose and (ii) if there was only one Eligible Stockholder, all Parties
would be bound to vote all Company Securities as instructed by such Eligible
Stockholder.
Following an announcement of the entering into a merger agreement by Viacom
Inc. ("Viacom") and Paramount Communications, Inc., then a publicly-held
Delaware corporation ("Paramount"), on September 20, 1993, the Company delivered
a proposal to Paramount to combine the Company and Paramount (the "Paramount
Combination") in a merger in which each share of Paramount's outstanding common
stock would be converted into the right to receive $30 in cash and .893 shares
of the Company's Common Stock. The Paramount Combination was subject to the
negotiation and execution of a definitive merger agreement between the Company
and Paramount, the approval of the stockholders of the Company and Paramount and
the receipt of all necessary regulatory and other approvals.
In light of the proposed Paramount Combination, the Company requested the
Independent Committee of HSN's Board of Directors formed to evaluate the HSN
Proposal to expand the scope of its evaluation to take into account the
Paramount Combination.
On October 27, 1993, following unsuccessful efforts to negotiate with
Paramount regarding the Paramount Combination, the Company made a cash tender
offer (the "Paramount Offer") at $80 per share for 50.1% of the outstanding
common shares of Paramount, which was to be followed by a second step merger
pursuant to which Paramount shares not tendered in the tender offer would be
converted into equity securities of the Company. This tender offer and the
second step merger proposal were amended several times during the pendency of a
competing tender offer by Viacom for Paramount in connection with their previous
merger agreement. In the last round of the bidding, on February 1, 1994, the
Company amended the Paramount Offer to increase the cash price per share
proposed to be paid in the Paramount Offer to $104 and amended the proposed
consideration for the subsequent merger. Under the terms of the Company's final
amendment to the Paramount Offer, the Company offered approximately $6.4 billion
in cash for 61.7 million Paramount common shares (50.1% of the outstanding
common stock of Paramount), with the balance of the Paramount shares to be
exchanged for the Company's securities in the proposed merger. The Paramount
Offer would have been funded through a $3.25 billion bank loan commitment and
purchases of the Company's equity securities for $1.5 billion by BellSouth and
$0.5 billion by each of Advance, Cox and Comcast. On February 15, 1994, the then
current expiration date of the Paramount Offer and Viacom's offer, the Company
was advised that Viacom had received tenders for a majority of the Paramount
common shares in satisfaction of the minimum condition in its tender offer. In
accordance with the bidding procedures agreed to by Paramount, the Company and
Viacom, on such date the Company terminated the Paramount Offer. The costs
incurred by the Company in connection with the Paramount Combination and the
Paramount Offer, comprised principally of bank fees and legal and advisory fees,
totaled $34.8 million which were expenses in the fourth quarter of 1993. The
$3.25 billion bank loan commitment expired on February 15, 1994 upon the
termination of the Paramount Offer.
On November 5, 1993, the Company announced that HSN and the Company had
agreed to terminate negotiations on the proposed merger of HSN and the Company.
On that day, the Company withdrew its Premerger Notification and Report Form
with respect to the proposed merger with HSN, without having complied with the
Request for Additional Information which had been issued by the FTC on September
8, 1993.
In connection with the contemplated financing of the Company's proposed
acquisition of Paramount, the Company and BellSouth entered into a Memorandum of
Understanding, dated as of November 11, 1993 (the "Memorandum of
Understanding"), pursuant to which, among other things, if the Company's efforts
to acquire Paramount were terminated or abandoned, BellSouth would have an
option to purchase directly from the Company, during the six-month period
following such termination or abandonment, 8,627,934 shares of Common Stock at
$60 per share, for an aggregate purchase price of $517,676,040. The Company also
entered into a Commitment Letter, dated November 11, 1993 (the "Commitment
Letter"), with Comcast, Cox and Advance, pursuant to which, among other things,
each of Cox and Advance would be entitled to purchase
7
<PAGE> 10
2,833,333 shares of Common Stock at $60 per share, for an aggregate purchase
price of $170,000,000 which right was exercisable at any time until six months
after the Company terminated or abandoned its interest in pursuing the
acquisition of Paramount.
In connection with the Paramount Offer, each of Liberty, Comcast, Arrow,
Cox, Advance and BellSouth entered into an Agreement Among Stockholders dated as
of November 11, 1993 (the "Agreement Among Stockholders"), pursuant to which
each agreed to vote all shares of Company voting securities held, if any, in
favor of the issuance of Company securities as contemplated by the Commitment
Letter and the Memorandum of Understanding and in favor of a merger with
Paramount as contemplated by the Paramount Offer.
In connection with the Paramount Offer, on October 22, 1993 the Company
filed a Premerger Notification and Report Form with the DOJ and the FTC. On
November 5, 1993, the FTC, pursuant to the HSR Act, issued Requests for
Additional Information, relevant to the proposed purchase of Paramount shares
pursuant to the Paramount Offer to each of the Company and five directors of the
Company, namely Barry Diller, John C. Malone (an officer and director of
Liberty), Peter R. Barton (also an officer and director of Liberty), Ralph J.
Roberts and Brian L. Roberts (each an officer and director of Comcast).
Following certain discussions between representatives of the Company, Liberty,
and TCI, and the staff of the FTC, on November 11, 1993 Liberty and TCI entered
into an Agreement Containing Consent Order (the "Consent Order") with the staff
of the Bureau of Competition of the FTC and an Interim Agreement (the "Interim
Agreement") relating thereto with the General Counsel of the FTC. Pursuant to
the Interim Agreement, on November 15, 1993, the waiting period under the HSR
Act was terminated.
The Consent Order contemplated that, if the Company consummated the
Paramount acquisition, Liberty and TCI would divest all of their ownership
interests in the Company within eighteen months of the date the Consent Order
became final. Pursuant to the Consent Order, Liberty and TCI agreed that if the
Paramount acquisition were consummated they would not, until such divestiture
was completed, enter into any agreements with the Company or Paramount that
grant Liberty or TCI any exclusive rights to exhibit recently released
theatrical motion pictures after Paramount's then current contract with Time
Warner Inc. ("Time Warner")or Home Box Office, Inc. terminated.
Pursuant to the Consent Order, if the Paramount acquisition had been
consummated, for a period beginning on the date the Consent Order became final
and ending three years after such divestiture of Liberty's and TCI's interests
in the Company was completed, Liberty and TCI would not have been permitted to
acquire, without prior FTC approval, any equity interest in, or assets in excess
of specified values of, the Company, Paramount or certain other entities.
Because the Company later terminated its efforts to acquire Paramount, Liberty
and TCI generally were not obligated to comply with the terms of the Consent
Order.
The Interim Agreement provided that until certain events specified therein
occurred, TCI would not (a) exercise direction of or control over, directly or
indirectly, the operations or management of the Company or Paramount, (b)
exercise any voting rights or agreements, directly or indirectly, pursuant to
Liberty's ownership in the Company or (c) participate in any change in the
composition of the management of the Company or Paramount; provided, however,
that Liberty and TCI could vote their ownership interests in the Company in
favor of the acquisition of Paramount and the transactions providing financing
by entities other than Liberty and TCI for such acquisition. Liberty and TCI
also agreed that (a) the officers, directors or employees of Liberty or TCI who
were then members of the boards of directors of the Company or Paramount would
resign such membership, and (b) no officer, director, or employee of Liberty or
TCI would serve on such boards until the first to occur of the specified events
described in the previous sentence. Effective November 11, 1993, Liberty's
representatives on the Board, John Malone and Peter Barton, resigned their
positions.
On November 11, 1993, Liberty and the Company entered into an agreement,
acknowledged and agreed to by TCI (the "Liberty-QVC Agreement"), pursuant to
which, if the Paramount acquisition had been consummated, Liberty would have had
the right to require the Company to purchase up to the equivalent of all Company
Securities held by Liberty (the "Current Shares") and any Liberty Related Entity
(as defined in the Liberty-QVC Agreement) that so elected (other than shares to
be sold to Comcast and Arrow pursuant to their parity rights under the
Stockholders Agreement and the Liberty-QVC Agreement) for $60 per share of
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<PAGE> 11
Common Stock equivalent in cash. The Company had the option, in lieu of paying
$60 per share, to require Liberty to sell the shares to a third party in a
manner reasonably acceptable to each of Liberty and the Company, in which case
the Company would have been obligated to reimburse Liberty in cash to the extent
that Liberty received aggregate net proceeds in such sale averaging less than
$60 per share of Common Stock equivalent.
Pursuant to the Liberty-QVC Agreement, Liberty no longer had any rights or
obligations under or was otherwise subject to any of the terms of the
Stockholders Agreement, except with respect to the parity rights of Comcast and
Arrow Investments as were provided in the Liberty-QVC Agreement and the
Stockholders Agreement. In connection with the Company's termination of the
Paramount Offer on February 15, 1994 and withdrawal of the HSR filing with
respect thereto, under the Liberty-QVC Agreement, Liberty had the right,
exercisable within ninety days of the termination, to be reinstated as a party
to the Stockholders Agreement, subject to and in accordance with the terms
thereof as in effect on November 11, 1993 and as altered by the Agreement Among
Stockholders and Understanding Among Stockholders (as defined below) and the
Memorandum of Understanding.
In accordance with the Liberty-QVC Agreement, on November 16, 1993, Comcast
purchased from Liberty 1,690,041 shares of Common Stock at an average price per
share of $18.615, in settlement of its rights to purchase Parity Securities
under the Participation Agreement and the Stockholders Agreement.
In accordance with the Memorandum of Understanding and the Commitment
Letter, the Company, BellSouth, Advance and Cox entered into a Stock Option
Agreement, dated as of February 15, 1994 (the "Stock Option Agreement"),
pursuant to which the Company granted to BellSouth, Cox and Advance the
above-described options to purchase shares of Common Stock. These options became
exercisable on the date of the Company's public announcement of termination of
the tender offer for Paramount (February 15, 1994) and will terminate, if not
exercised, on August 15, 1994.
Additionally, under the Stock Option Agreement, BellSouth agreed that if it
purchases shares of Common Stock pursuant thereto, it will become a party to the
Stockholders Agreement in accordance with the terms of the Understanding Among
Stockholders, dated as of November 11, 1993, among BellSouth, Liberty, Comcast
and Arrow (the "Understanding Among Stockholders"). Pursuant to the Stock Option
Agreement, the Company agreed that if BellSouth becomes a party to the
Stockholders Agreement, so long as Comcast, Arrow or BellSouth remains an
Eligible Stockholder (as defined in the Stockholders Agreement), the Company
will not take any action to (i) block or prevent open market purchases by such
Eligible Stockholder of shares of Common Stock so long as such entity's total
fully diluted voting power of the Company does not exceed 35% of the fully
diluted outstanding voting power of the Company or (ii) discriminate against
such Eligible Stockholder or deprive BellSouth, Comcast or Arrow of full rights
as a stockholder of the Company.
Contemporaneously with the execution of the Stock Option Agreement, Comcast
and Liberty entered into an Acknowledgement and Agreement dated as of February
15, 1994, pursuant to which Comcast and Liberty acknowledged and agreed to the
foregoing provisions of the Stock Option Agreement and further agreed that such
provisions modified and replaced the $500 million stock option provisions of the
Memorandum of Understanding.
Comcast, Liberty, BellSouth, Advance, Arrow and Cox also entered into a
Letter Agreement dated as of February 15, 1994, pursuant to which the parties
agreed that the Agreement Among Stockholders (whereby each of them had agreed to
vote all of their voting shares, if any, in favor of any merger with Paramount
and the issuance of securities in connection therewith) was terminated except
that (i) each of Comcast, Liberty and Arrow would be required to vote all of its
equity voting securities of the Company in favor of the issuance of the shares
of Common Stock pursuant to the Stock Option Agreement and (ii) each of Comcast,
Liberty, Arrow and BellSouth would remain bound by the provision of the
Agreement Among Stockholders acknowledging the Liberty-QVC Agreement.
Copies of the Participation Agreement, the Summary Term Sheet, the
Compensation Agreement, the Stockholders Agreement, the Memorandum of
Understanding, the Commitment Letter, the Agreement
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<PAGE> 12
Among Stockholders, the Consent Order, the Interim Agreement, the Liberty-QVC
Agreement, the Stock Option Agreement, the Understanding Among Stockholders and
the Acknowledgement and Agreement have been previously filed as exhibits to and
described in reports on Schedule 13D relating to securities of the Company by
Barry Diller, Comcast and/or Liberty.
On May 19, 1994, Liberty filed an amendment to its Report on Schedule 13D
relating to its ownership of Common Stock stating, among other things, that it
no longer may be deemed part of the Group with Comcast and Mr. Diller for
purposes of Rule 13d-5 under the Exchange Act as a result of the expiration of
the 90-day period following the termination of the Paramount Offer, within which
Liberty was entitled to elect to be reinstated as an Eligible Stockholder under
the Stockholders Agreement. Except for Mr. Diller's options pursuant to the
Liberty-QVC Agreement and the Stockholders Agreement to purchase from Liberty
the equivalent of 1,627,934 shares of Common Stock, Liberty stated that it no
longer had any contract, agreement or understanding with Comcast or Mr. Diller
with respect to the disposition or voting of the outstanding equity securities
of the Company.
In April 1994, Mr. Diller informed Ralph J. Roberts, Chairman of the Board
of Directors of Comcast, and Brian L. Roberts, President of Comcast, that the
Company was exploring the possibility of acquiring CBS, Inc. ("CBS"). Comcast
retained Lazard Freres & Co. ("Lazard") to act as its financial advisor in
connection with this matter. In late May, the Company, through its legal
advisors, discussed with Comcast and its financial and legal advisors a proposal
under which the Company would acquire CBS, CBS would place its licensed
broadcast activities and non-licensed/non-broadcast businesses in separate
subsidiaries with Comcast having representation on the Board of Directors of the
non-licensed/non-broadcast subsidiary. In addition, under this proposal certain
activities of the broadcast subsidiary would have been subject to the approval
of the Board of Directors of the non-broadcast subsidiary. After several weeks
of discussions, the Company and Comcast were unable to reach any agreement or
understanding with regard to the proposal referred to above, and Comcast advised
the Company it was opposed to any transaction with CBS that would not provide an
opportunity for Comcast to have a significant role in the future direction of
the continuing entity.
On June 30, 1994, the Company and CBS announced that the companies were in
discussions regarding a possible business combination and were close to reaching
an agreement under which the Company would be merged into CBS with the
shareholders of the Company receiving a combination of voting and non-voting
securities of the combined entity (the "CBS Proposal").
In connection with the CBS Proposal, Liberty and Time Warner, another
significant stockholder of the Company, were asked to sign agreements obligating
them to vote in favor of the CBS Proposal. In addition, in order to comply with
the Communications Act and the rules and regulations of the FCC, it was
contemplated that Liberty would accept a proportionate amount of nonvoting
securities of CBS greater than that proposed to be provided to other
stockholders of the Company in exchange for its Shares, and such proposal also
contemplated that the Company would relinquish certain rights to repurchase
Shares held by Liberty and its affiliates. In addition, Liberty and TCI were to
grant Mr. Diller a proxy with respect to the voting of their stock in the
combined entity for a period of 10 years or until such earlier time as they
would be permitted to vote greater than 5% of the combined entity's securities
under applicable law.
Subsequent to the announcement by the Company and CBS relating to the CBS
Proposal, Comcast met with its financial and legal advisors to review its
position under the CBS Proposal and to discuss various alternatives. On July 9,
1994, Ralph J. and Brian L. Roberts received copies of the proposed merger
agreement with CBS and other related agreements. Based on a review of the draft
agreements and due to certain regulatory restrictions limiting Comcast's voting
interests in the combined entity to 4.9%, and limiting Comcast's ability to have
its representatives participate on the board of directors of the combined
entity, Comcast concluded that the terms of the proposed merger of CBS and the
Company would be adverse to Comcast's interests.
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<PAGE> 13
On July 12, 1994, the Board of Directors of Comcast met in New York City
and considered and authorized a proposal, pursuant to which Comcast would
acquire the Company for $44 per share (on a common stock equivalent basis),
consisting of $37 in cash and $7 of a new class of Comcast convertible
exchangeable preferred stock (the "Comcast Proposal"). Late that afternoon Ralph
J. and Brian L. Roberts delivered a letter to Mr. Diller, the text of which read
as follows:
July 12, 1994
Mr. Barry Diller
Chairman of the Board and
Chief Executive Officer
QVC, Inc.
West Chester, PA 19380
Dear Barry:
As one of the founding shareholders of QVC, we have been strong supporters
of your efforts to grow and expand QVC's business as it represents an important
element of our future diversification and programming strategy.
We feel that you have been a powerful and positive force at QVC and we have
supported all the initiatives you have undertaken since you first joined QVC 18
months ago. Today, in fact, QVC is a proven franchise with an outstanding track
record and a bright future.
However, as we have repeatedly expressed to you, the proposal to sell QVC
to CBS is of great concern to us as it represents a fundamental departure from
our strategic view of QVC's future. We do not believe that the CBS proposal is
in the best interests of Comcast's shareholders.
Therefore, we are proposing an acquisition of QVC by Comcast on terms far
more attractive to QVC's stockholders than the transaction proposed by CBS. For
us, a combination of Comcast and QVC makes excellent strategic sense and helps
fulfill our long-standing vision to build a strong programming capability.
Under our proposal, Comcast would acquire all of the outstanding shares of
QVC for a combination of cash and Comcast securities having a combined value of
$44 per common share, which represents a 23% premium over the July 12, 1994
closing market price of QVC's common stock.
Each outstanding share of QVC's common stock (other than shares held by
Comcast) would be converted into $37 in cash and $7 of a new series of Comcast
7.5% convertible exchangeable preferred stock, convertible into Comcast common
stock (CMCSK) at $21 per share. Comcast would have the right to substitute cash
for all or any part of the convertible shares.
All outstanding shares of QVC's preferred stock (other than shares held by
Comcast) would be treated in the merger as if such shares had been converted
into QVC common stock prior to the merger. All QVC options would either be
cashed out or rolled over into Comcast stock options on a basis that would
preserve the in-the-money value of the options.
We have been advised by The Bank of New York that they are highly confident
that they could obtain commitments from lenders for a senior credit facility in
the amount of $1,000,000,000. Comcast and its financial advisor, Lazard Freres &
Co., believe that the balance of the cash requirements are readily obtainable.
The transaction we offer QVC shareholders would be subject only to
execution of a definitive merger agreement and to our review of the same
information as that which was provided to CBS. We are prepared to enter into a
merger agreement substantially similar to the agreement proposed by CBS
(including the same representations, warranties and financing condition) except
that Comcast would not require that any breakup fees be paid to us if QVC
receives a superior acquisition proposal.
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<PAGE> 14
As a matter of good corporate governance, we feel that consideration of the
Comcast and CBS proposals should be deferred by the Board of Directors and that
the proposals should be submitted to a special committee of independent QVC
directors for their evaluation and recommendation. We believe that the committee
should have its own independent financial advisors and legal counsel. We are
prepared to move expeditiously to work with them and you to ensure that this is
an orderly and fair process.
We are confident that you will recognize that our decision confirms our
high regard for your leadership of QVC. Indeed, you have begun to build QVC into
a recognizable "brand" and have assembled a highly talented senior management
team. We would be pleased if you chose to remain as QVC's chief executive and
work with us to develop QVC to its fullest.
We look forward to sitting down with you to discuss our proposal.
Respectfully submitted,
<TABLE>
<S> <C>
/s/ Ralph /s/ Brian
----------------- -----------------
Ralph J. Roberts Brian L. Roberts
Chairman President
</TABLE>
------------------------
On July 13, 1994, Ralph J. and Brian L. Roberts and their counsel attended
a meeting of the Board in New York City and at such meeting discussed the
Comcast Proposal and the decision by CBS to terminate the CBS Proposal. Ralph J.
and Brian L. Roberts described the terms of the Comcast Proposal to the Board of
Directors and stated that, in view of the decision by CBS not to pursue the CBS
Proposal, they were withdrawing their request for the formation of a special
committee of the Company's directors. After Ralph J. and Brian L. Roberts left
the meeting, the remaining directors met with the Company's legal and financial
advisors to discuss the Comcast Proposal and the procedures to be followed to
maximize stockholder value. Following the conclusion of the meeting, the Company
issued the following press release:
QVC, Inc. announced that in response to yesterday's merger proposal from
Comcast Corporation, the QVC Board of Directors has authorized management,
together with its advisors, to negotiate with Comcast and to explore
alternatives in order to maximize shareholder value.
On July 19, 1994, Comcast delivered to the Company a form of proposed
merger agreement.
Upon review of the Comcast Proposal, Liberty determined that the Comcast
Proposal would be a taxable transaction to Liberty which would result in Liberty
incurring significant tax liability in connection with the acquisition of its
Company Securities by Comcast in accordance with the Comcast Proposal. Because
of the adverse tax consequences to Liberty if the Comcast Proposal were
consummated, Liberty determined that, although the Comcast Proposal would have
provided it with an immediate cash return on its investment, the transactions
contemplated by the Comcast Proposal might not be in the best interests of
Liberty and its stockholders.
Following the making of the Comcast Proposal, Liberty and Comcast began
discussions regarding various alternative transactions which would be tax-free
to Liberty (or result in significantly less tax liability), while also enabling
Liberty to maintain a direct or indirect interest in the Company.
Representatives of Comcast and Liberty met in New York City on July 18, 19 and
20 to negotiate the terms of a proposed joint acquisition of the Company. On
July 21, 1994, the Parent Purchasers executed a joint bidding agreement (the
"First Joint Bidding Agreement"). Pursuant to the First Joint Bidding Agreement,
the Parent Purchasers agreed to jointly acquire all outstanding equity
securities of the Company at a price of $44 in cash per share on a common stock
equivalent basis, with financing to be arranged in the future. In connection
with this offer, the Parent Purchasers agreed to make available shares of the
Company's capital stock (or rights to acquire such shares) held by them to a
mutually acceptable entity or entities for purposes of the offer. In addition,
Comcast agreed to contribute to such entity or entities an amount of cash equal
to (i) $229 million plus (ii) the amount necessary to exercise all warrants to
acquire shares of Common Stock held by Comcast (unless Comcast has exercised
such warrants prior to such contribution) to finance the purchase of such
securities. The First Joint
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<PAGE> 15
Bidding Agreement contemplated that the Company would be the surviving
corporation in the transaction and would be owned 57.4% by Comcast and 42.6% by
Liberty.
On July 19, 1994 Comcast also met with its financial and legal advisors to
discuss alternative all-cash transactions, one in which Time Warner, a
significant stockholder of the Company, would retain a 10% interest in the
Company and one in which Time Warner would sell its entire interest in the
Company. Under the former structure, the equity interests in the Company would
be represented by Comcast (51%), Liberty (39%) and Time Warner (10%) and under
the latter structure the equity interests in the Company would be represented by
Comcast (56%) and Liberty (44%). Following a discussion of such alternatives
with Liberty, Comcast met with Time Warner to explore its interest in joining in
or otherwise supporting an acquisition of the Company by Comcast, Liberty and
Time Warner.
On July 21, 1994, a representative of, and legal and financial advisors
for, the Parent Purchasers met with the Company's legal and financial advisors
to deliver the all cash offer of $44 per share (on a common stock equivalent
basis). On July 22, 1994, Comcast delivered to the Company a revised draft of
the proposed merger agreement reflecting, among other things, the proposed joint
acquisition by means of a first step tender offer and a second step merger. From
July 21, 1994 until August 3, 1994, the Company's legal and financial advisors
held discussions with the Parent Purchasers' legal and financial advisors and
indicated that the price proposed to be paid by the Parent Purchasers was
insufficient and that, unless the Parent Purchasers offered to increase the
price proposed to be paid, it was not prepared to enter into a merger agreement
at $44 per share (on a common stock equivalent basis).
On August 3, 1994, the Parent Purchasers advised the Company that they
would consider a transaction involving an increase in the consideration to be
paid to the Company's stockholders to $46 in cash per share (on a common stock
equivalent basis), provided, among other things, that the Company would agree to
certain limitations regarding solicitation and negotiation of alternative
transactions not involving the Parent Purchasers and would agree to pay a
break-up fee under certain circumstances, and that Mr. Diller would agree to
support the Parent Purchasers' proposal and to terminate the Stockholders
Agreement.
On August 4, 1994, representatives of Comcast, Liberty and TCI executed a
revised letter agreement (the "Joint Bidding Agreement"), which superseded the
First Joint Bidding Agreement in its entirety, and pursuant to the Joint Bidding
Agreement, Comcast and Liberty agreed to amend their offer to raise the offer
price from $44 per share of Common Stock to $46 per share of Common Stock and
from $440 per share of Preferred Stock to $460 per share of Preferred Stock. In
connection with this offer, the Parent Purchasers agreed to contribute to the
Purchaser their respective Company securities, consisting of an aggregate of
18,883,801 Fully Diluted Shares. Comcast also agreed to contribute to the
Purchaser an amount of cash approximately equal to (i) $267 million plus (ii)
the amount necessary to exercise all warrants to acquire shares of Common Stock
that it agreed to simultaneously contribute to the Purchaser (approximately $29
million). Liberty agreed to contribute approximately $20 million in cash to the
Purchaser. Following the Merger, Comcast and Liberty will own approximately
57.4% and 42.6%, respectively, of the Purchaser. In addition, the Parent
Purchasers agreed to work together to arrange debt financing for the remaining
cost of the acquisition and, in connection with the consummation of the Merger,
to cause the Company to waive any remaining rights it may have pursuant to the
Company Repurchase Rights (as defined in the Stockholders Agreement) under the
Stockholders Agreement and certain affiliation agreements between each of
Comcast and Liberty and the Company. The Parent Purchasers and TCI also agreed
to vote all of their respective shares of Common Stock in favor of the Merger.
For a further description of the Joint Bidding Agreement, see "-- Plans for the
Company After the Merger."
Also on August 4, 1994, Comcast, Liberty, the Purchaser and the Company
executed the Merger Agreement.
In connection with the Offer and the Merger, Comcast, Mr. Diller and Arrow
entered into a letter agreement, dated as of August 4, 1994 (the "Stockholder
Letter Agreement"). Pursuant to the Stockholder Letter Agreement, Mr. Diller
agreed to vote, as a director of the Company, in favor of the Merger Agreement
and the transactions contemplated thereby, provided that there is not then a
bona fide transaction proposed to the Company or its stockholders which would
result in consideration to the Company's stockholders of more
13
<PAGE> 16
than $46 per share of Common Stock (or such higher price then offered by Comcast
and Liberty if they increase the $46 per share of Common Stock price provided in
the Merger Agreement) and further subject to Mr. Diller's fiduciary obligations
as a member of the Board.
The Stockholder Letter Agreement further provides that, until the earlier
of consummation of the Merger or termination of the Merger Agreement, Mr. Diller
and Arrow will not (i) sell, transfer, pledge, assign or otherwise dispose of,
or agree to sell, transfer, pledge, assign or otherwise dispose of, any equity
securities of the Company or certain options therefor (the "Arrow Options", and
together with such equity securities, the "Arrow Securities") held by such
parties except to tender Shares pursuant to the Offer (provided that the Arrow
Group may dispose of such securities to the Company in order to effect a
cashless exercise of options); (ii) deposit any Arrow Securities owned by them
into a voting trust or grant a proxy or enter into a voting agreement with
respect to such Arrow Securities; (iii) agree with any third party to exercise
any voting rights with respect to such Arrow Securities, except as described in
the following two sentences; or (iv) seek or solicit any of the foregoing, other
than as permitted (as a director of the Company) under the Merger Agreement. The
Arrow Group also agreed to tender upon the request of Comcast, pursuant to and
in accordance with the terms of the Offer, all shares of Common Stock owned by
it. Upon the request of Comcast, Mr. Diller agreed to exercise all of the then
exercisable options, provided, among other things, that arrangements
satisfactory to Mr. Diller for the financing of the exercise and the purchase of
the Shares by Comcast will have been made.
Pursuant to the Stockholder Letter Agreement, unless each share of Common
Stock owned by the Arrow Group has been tendered pursuant to the Offer, the
Arrow Group will cause each Share that it then owns or has power to vote to be
voted (i) at the Company stockholder meeting to approve the Merger, for the
approval and adoption of the Merger Agreement and the Merger and (ii) against
any recapitalization, merger, business combination, or similar transaction
involving the Company unless Comcast or Liberty consents.
As provided in the Stockholder Letter Agreement, the provisions of the
preceding two paragraphs will not apply (i) upon the first to occur of (A) the
last day on which to tender into a tender or exchange offer which would result
in consideration to stockholders of the Company greater than $46 per share of
Common Stock (or such higher price then offered by Comcast and Liberty if they
increase the $46 price per share of Common Stock provided in the Merger
Agreement) (a "Superior Offer") (subject to the subsequent condition that such
Superior Offer is consummated) and (B) the fifth business day after any person
or entity has made a Superior Offer which has not been matched by Comcast and
Liberty (subject to the subsequent condition that such Superior Offer is
consummated) or (ii) to the extent it could result in any violation of or
liability under the federal securities law.
Pursuant to the Stockholder Letter Agreement, until the earlier of
consummation of the Merger or termination of the Merger Agreement, neither Mr.
Diller nor Arrow will, directly or indirectly, initiate, solicit or encourage
any person concerning the making of any proposal with respect to an Alternative
Transaction (as defined in the Merger Agreement), other than as permitted (as a
director of the Company) under the Merger Agreement.
Pursuant to the Stockholder Letter Agreement, Comcast agreed to cause the
Company and the Surviving Corporation to fulfill and completely discharge all
obligations under the Arrow Options. Comcast and Mr. Diller also agreed that (i)
upon consummation of the Offer, unless otherwise agreed to by Mr. Diller, Mr.
Diller's employment under his current compensation agreement will continue until
at least December 12, 1994, (ii) Mr. Diller may perform such services to the
Company as provided by such compensation agreement on a non-exclusive basis and
without minimum time requirements but that he will be reasonably available to
facilitate the transition, (iii) the Company will continue to pay all expenses
incurred by Mr. Diller at least through December 12, 1994, on a basis consistent
with past practice, and (iv) upon termination of Mr. Diller's employment,
Comcast will cause the Company to execute for the benefit of Mr. Diller and the
Arrow Group, and, provided that Mr. Diller has been paid all amounts due in
respect of the Arrow Options and his employment (including payment of Mr.
Diller's expenses), Mr. Diller will execute for the benefit of the Company,
general releases in a form mutually agreed to by the parties.
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The Stockholder Letter Agreement provides that, subject to the absence or
waiver of any inconsistent agreements, the Stockholders Agreement will terminate
without any further obligation thereunder and to release each other from any
claim of whatever nature arising out of or under the Stockholders Agreement,
provided, that if the Merger Agreement is terminated, the Stockholders Agreement
and such claims will be restored, and such termination will be of no effect,
effective as of August 4, 1994.
The Stockholder Letter Agreement will terminate automatically and
simultaneously with the Merger Agreement in accordance with its terms, except
for the agreements described in the preceding paragraph which will survive any
such termination if Comcast, together with any other Party, acquires control of
a majority of the outstanding voting stock or a majority of the Board.
PURPOSE OF THE TRANSACTION
The purpose of the Offer is to acquire control of, and the entire equity
interest in, the Company. The purpose of the Merger is to acquire all
outstanding Shares not tendered and purchased pursuant to the Offer. The
acquisition of the publicly-held Shares of the Company has been structured as a
cash tender offer followed by a cash merger in order to provide a prompt and
orderly transfer of ownership of the Company from the public stockholders to the
Purchaser and to enable the unaffiliated stockholders to promptly receive the
cash payments they are entitled to receive for all of their Shares pursuant to
the Offer and the Merger.
FAIRNESS OF THE TRANSACTION
The Company. At a meeting held on August 4, 1994, the Board, other than
Ralph J. and Brian L. Roberts, who did not participate in the Board's
deliberations and decisions in connection with the Offer, by a unanimous vote of
such directors, approved the Merger Agreement and the transactions contemplated
thereby, including the Offer and the Merger, and determined that the
transactions contemplated by the Merger Agreement, including the Offer and the
Merger, are fair to, and in the best interests of, the Company and its
stockholders (other than Comcast, Liberty and their affiliates).
THE BOARD OF DIRECTORS OF THE COMPANY (OTHER THAN THOSE DIRECTORS WHO ARE
REPRESENTATIVES OF COMCAST WHO EXPRESS NO OPINION AS TO THE FOLLOWING MATTERS)
RECOMMENDS THAT STOCKHOLDERS APPROVE AND ADOPT THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT AND THAT THE STOCKHOLDERS
ACCEPT THE OFFER AND TENDER ALL OF THEIR SHARES PURSUANT TO THE OFFER.
Reasons for Recommendation.
Prior to reaching its conclusions, the Board received presentations from,
and reviewed the Offer and the Merger with, management of the Company as well as
the Company's financial advisor, Allen. In reaching its conclusions, the Board
considered a number of factors, including, but not limited to, the following:
(i) The Board's belief, based on its familiarity with the Company's
business, its current financial condition and results of operations
and its future prospects, and the current and anticipated
developments in the Company's industry, that the consideration to be
received by the Company's stockholders (other than Comcast, Liberty
and their affiliates) in the Offer and Merger fairly reflects the
Company's intrinsic value.
(ii) The oral and written presentations made by the Company's management
and Allen to the Board at the meeting held on August 4, 1994 as to
various financial and other considerations deemed relevant to the
Board's evaluation of the Offer and the Merger, including a review of
(A) trends in the cable programming and electronic retailing
industries, (B) the business prospects and financial condition of the
Company, (C) historical business information and financial results of
the Company, (D) nonpublic financial and operating results of the
Company, (E) financial projections and the 1994 budget prepared by
the Company's management, (F) information obtained from meetings with
senior management of the Company, (G) the trading range of the shares
of Common Stock, (H) public financial information of comparable
companies in the cable programming and specialty retailing
industries, (I) public financial and transaction information related
to
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<PAGE> 18
comparable mergers and acquisitions, and (J) the terms and
conditions of the Merger Agreement and related documents.
(iii) The opinion of Allen that the consideration to be received by the
Company's stockholders pursuant to the Merger Agreement, is fair to
such stockholders (other than Comcast and Liberty) from a financial
point of view. A copy of the written opinion of Allen to that effect,
which sets forth the matters considered, assumptions made and limits
of its review, is attached as Annex A hereto and is incorporated
herein by reference. Stockholders are urged to read the opinion
carefully. In the course of arriving at its opinion and presenting it
to the Board, Allen analyzed the terms of the Offer and Merger, the
Company's historical results, present condition and prospects, the
trading history of the Common Stock related to selected public
announcements regarding the Company, the trading history of the
shares of Common Stock compared to that of comparable companies and
other market indices, the stock price and market multiples of the
shares of Common Stock compared to those of selected cable
programmers and selected specialty retailers, the discounted cash
flow value per share of the Common Stock based on managements'
financial forecast and the premiums and multiples paid in comparable
all cash and cash and stock transactions. In considering Allen's
opinion, the Board was aware that Allen will become entitled to the
fee described below in accordance with the terms of its engagement by
the Company upon consummation of the Offer.
(iv) The limited number of conditions to the Purchaser's obligation to
consummate the Offer. In this regard, the Board was aware of the fact
that in the event the Purchaser is unable to consummate the Offer at
any scheduled expiration thereof due to the fact that the waiting
periods under the HSR Act applicable to the Offer and the Merger have
not expired or been terminated, the Purchaser will not be entitled to
terminate the Offer prior to December 31, 1994, and has agreed to
extend the Offer until such time in such event. The Board also
considered that the conditions to the consummation of the Offer may
not be amended in any manner adverse to the holders of Shares and no
other conditions other than those specified in Annex I to the Merger
Agreement may be imposed without the consent of the Company. The
Board was also aware of the fact that the Offer is subject to
financing.
(v) The possible alternatives to a sale of the Company, including a self
tender offer for a portion of the Shares or other possible
restructuring alternatives.
(vi) The provisions of the Merger Agreement relating to Alternative
Transactions (as defined therein and described under "-- The Merger
Agreement"), including the following:
(A) Although the Company is not permitted to initiate, solicit or
encourage any inquiries or the making of any proposal in connection
with an Alternative Transaction, engage in any discussions or
negotiations concerning, or provide information relating to it or
its subsidiaries for the purposes of, or otherwise facilitate or
encourage any inquiries or the making of any proposal which
constitutes, or may reasonably be expected to lead to, a proposal
to effect an Alternative Transaction, the Board of Directors of the
Company may furnish information to, and participate in negotiations
with, third parties making unsolicited requests or proposals
regarding Alternative Transactions and, following receipt of a
proposal for an Alternative Transaction, the Board may withdraw or
modify its recommendation regarding the Offer and the Merger, to
the extent it determines in good faith in accordance with, and
based upon the advice of, outside counsel that such action is
necessary or appropriate in order for the Board of Directors to
act in a manner that is consistent with its fiduciary obligations
under applicable law.
(B) The Company must advise Purchaser of, and communicate to Purchaser
the terms of, any such proposal it may receive or any such
inquiries that the Company receives which may be reasonably
expected to lead to a proposal and the identity of the person
making such proposal, and, thereafter, if the Company intends to
participate in discussions or negotiations or provide information
to any such person, the Company must give reasonable notice to
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<PAGE> 19
Purchaser and consult with Purchaser and must thereafter keep
Purchaser reasonably informed of the status and details of any
such request, Alternative Transaction, inquiry or proposal (or
any amendment to any proposal).
(C) Each of the Company and the Purchaser has the right to
terminate the Merger Agreement at any time if the Company's
Board of Directors withdraws, modifies or changes its
recommendation so that it is not in favor of the Merger
Agreement, the Offer or the Merger or resolves to do so, or if
the Company's Board of Directors recommends or resolves to
recommend to stockholders an Alternative Transaction, and upon
such termination the Company must pay the Purchaser
$55,000,000, which amount is inclusive of all expenses of
the Purchaser and the Parent Purchasers.
The Board concluded that, as a result of these provisions, the
Merger Agreement should not significantly deter an interested third
party from proposing to the Company, and pursuing, an Alternative
Transaction with the Company and that such provisions are
reasonable in light of the benefits of the Offer and the Merger and
the size of the payment in comparison to such fees in comparable
transactions.
(vii) The per share value of the consideration to be received for the
Shares in the Offer was substantially more certain than the
consideration originally offered in the Comcast Proposal because it
is an all cash offer, and is higher than the consideration offered
in the Comcast Proposal and in the Comcast/Liberty Proposal.
(viii) The Board considered the relationship between the consideration to
be received by stockholders as a result of the Offer and the Merger
and the historical market prices and recent trading activity of the
shares of Common Stock, and the fact that the Offer and the Merger
will enable the Company's stockholders to realize a substantial
premium over the closing market price of the shares of Common Stock
on June 29, 1994, immediately prior to press reports of the CBS
Proposal. The Board was aware that the shares of Common Stock had
traded as high as $72.50 in 1993. The Board noted, however, that the
price of shares of Common Stock on June 29, 1994 represented, in
Allen's opinion, a representative market price of the shares of
Common Stock.
(ix) The fact that no party other than the Parent Purchasers had
indicated interest in pursuing, and the ability to effect, a
business combination with the Company, even though the Comcast
Proposal was publicly announced more than three weeks prior to the
signing of the Merger Agreement at which time the Company also
publicly announced that it would explore alternatives to maximize
stockholder value and, in this regard, both Allen and the Company's
management had contacted a substantial number of possible
interested parties to seek proposals for a business combination.
In view of the large percentage of Shares (and warrants to
purchase Shares) held by Comcast, Liberty and their affiliates,
the Board did not believe it was likely that further efforts or
additional time would produce an alternative proposal involving
consideration greater than that to be paid in the Offer and Merger.
(x) The Board also recognized that, following consummation of the Offer
and the Merger, the current stockholders of the Company will no
longer be able to participate in any increases or decreases in the
value of the Company's businesses and properties. The Board
concluded, however, that this consideration did not justify
foregoing the opportunity for stockholders to receive an immediate
and substantial cash purchas price for their Shares.
The Board considered each of the factors listed above, in addition to the
terms and conditions of the Merger Agreement, during the course of their
deliberations prior to entering into the Merger Agreement in light of their
knowledge of the business and operations of the Company and their business
judgment. The Board believed that each of these factors supported the Board's
conclusions. In view of the wide variety of factors considered, the Board did
not find it practicable to, and did not, quantify or otherwise attempt to assign
relative weights to the specific factors considered in making their
determination.
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<PAGE> 20
Ralph J. and Brian L. Roberts did not participate in the deliberations or
decisions relating to the Merger Agreement and the engagement of Allen;
therefore, the Board did not consider it necessary to retain an unaffiliated
representative to act solely on behalf of the public shareholders of the Company
for the purpose of negotiating the terms of the Merger Agreement or preparing a
report concerning the fairness to such shareholders of the consideration to be
received in the Offer and the Merger. The Merger Agreement was unanimously
approved by the directors of the Company other than Ralph J. and Brian L.
Roberts.
The Board recognized that the Merger is not structured to require the
approval of a majority of the unaffiliated stockholders of the Company. The
Board further recognized that, given the ownership of Fully Diluted Shares by
the Parent Purchasers, satisfaction of the Minimum Tender Condition will occur
if only 8,969,988 Fully Diluted Shares (on a fully diluted basis) are tendered
in the Offer (which number is significantly less than a majority of the Common
Shares (on a fully diluted basis) not held by TCI, the Parent Purchasers or
their affiliates). As a result, the Purchaser, if it purchases such number of
Shares, would have sufficient voting power to approve the Merger without the
affirmative vote of any other stockholder of the Company.
Comcast and Liberty. Comcast and Liberty have each concluded that the
Transaction is fair to the stockholders of the Company (other than the Purchaser
and its affiliates) based upon the following factors: (i) the conclusions and
recommendations of the Board; (ii) the written opinion of Allen & Company dated
August 4, 1994 to the Board (and not for the benefit of the Parent Purchasers,
their affiliates the stockholders of the Company or any other person) to the
effect that the consideration to be received by the stockholders of the Company
in the Transaction is fair to such stockholders, other than Comcast and Liberty
from a financial point of view; (iii) the factors referred to above as having
been taken into account by the Board; (iv) the premium represented by the offer
price over the historical market prices of the Common Stock, both prior to the
announcement of the CBS Proposal and prior to the announcement of the Proposed
Transaction; (v) Comcast's and Liberty's respective valuations of the
consideration offered by CBS in connection with the CBS Proposal; (vi) the
various analyses of Lazard described under "-- Opinions and Reports of Financial
Advisors" and (vii) the fact that the offer price and the other terms of the
Merger Agreement were the result of arm's-length negotiations with the Company
and its advisors. Comcast and Liberty did not find it practicable to, and did
not, quantify or otherwise attach relative weights to the specific factors
considered by the Board. However, Comcast and Liberty each gave significant
weight to all the factors discussed in (i) through (vii) above.
OPINIONS AND REPORTS OF FINANCIAL ADVISORS
Opinion of Allen & Company. On August 4, 1994, Allen delivered its written
opinion to the Board to the effect that the consideration to be received by the
holders of Shares and certain of the Company's stock options pursuant to the
Merger Agreement is fair to such holders, other than Comcast and Liberty, from a
financial point of view. A copy of Allen's opinion is attached hereto as Annex
A. The summary of the opinion set forth herein is qualified in its entirety by
Annex A which is incorporated herein by reference. Stockholders are urged to
read this opinion in its entirety for a description of the assumptions made,
matters considered and procedures followed by Allen. The consideration to be
paid pursuant to the Offer and Merger was determined by negotiations on behalf
of the Company and the Parent Purchasers and was not determined by Allen. In
arriving at its opinion, Allen reviewed, among other things, certain publicly
available business and financial information related to the Company. Allen also
reviewed certain other information provided to it by the Company, including
financial forecasts of the Company, and met with the management of the Company
to discuss its business and prospects. Allen also considered, among other
things, such other information, financial studies, analyses and investigations
and financial, economic and market criteria as it deemed relevant. No
limitations were imposed by the Board upon Allen with respect to the
investigations made or the procedures followed by Allen in rendering its
opinion, and the Company and the members of management cooperated fully with
Allen in connection with its investigation. Allen actively sought third parties
who might be interested in acquiring the Company in the course of its engagement
and assisted the Company in evaluating other alternative transactions.
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<PAGE> 21
In delivering its opinion and making its presentation to the Board, Allen
discussed certain financial and comparative analyses and other matters it deemed
relevant. Among various financial analyses that Allen discussed were:
(i) Multiple of Sales Comparison. Allen prepared a market multiple
comparison comparing the Company's ratio of total market
capitalization (defined as market value of the Company's equity plus
net debt) to its latest twelve months sales (the "LTM Sales Ratio")
to the average LTM Sales Ratio for groups of publicly traded cable
programming companies (included in such group were Gaylord
Entertainment Company, International Family Entertainment, Inc. and
Turner Broadcasting System, Inc. (the "Cable Programming Companies"))
and publicly traded specialty retailing companies (included in such
group were Blockbuster Entertainment Corporation, The Home Depot,
Inc., Lowe's Companies, Inc., Melville Corporation, Price/Costco,
Inc. and Toys 'R' Us, Inc. (the "Specialty Retailing Companies")).
The comparisons were made as of June 29, 1994; July 12, 1994; and
August 2, 1994 (collectively, the "Comparison Dates") (assuming for
the Company on August 2, 1994, that the common equivalent equity
value of the Shares was $46 per share). The analysis showed that the
LTM Sale Ratio for the Company, the Cable Programming Companies (on
average) and the Speciality Retailing Companies (on average),
respectively, were: (a) as of June 29, 1994: 1.26, 3.22, and 1.24;
(b) as of July 12, 1994: 1.40, 3.17 and 1.27; and (c) as of August
2, 1994: 1.79, 3.18 and 1.24.
(ii) Multiple of Operating Cash Flow Comparison. Allen prepared a market
multiple comparison comparing the Company's ratio of total market
capitalization to its latest twelve months earnings before interest,
taxes, depreciation and amortization (the "Cash Flow Ratio") to the
average Cash Flow Ratio for the Cable Programming Companies and the
Specialty Retailing Companies as of the Comparison Dates (assuming
for the Company on August 2, 1994, that the common equivalent equity
value of the Shares was $46 per share). The analysis showed that the
Cash Flow Ratio for the Company, the Cable Programming Companies (on
average) and the Speciality Retailing Companies (on average),
respectively, were: (a) as of June 29, 1994: 8.0, 19.3 and 10.5; (b)
as of July 12, 1994: 8.9, 19.1 and 10.8; and (c) as of August 2,
1994: 11.4, 19.2 and 10.7.
(iii) Multiple of Earnings Per Share Comparison. Allen prepared a market
multiple comparison comparing the Company's ratio of the market value
of its equity to its latest twelve months earnings per share (the
"EPS Ratio") to the average EPS Ratio for the Cable Programming
Companies and the Specialty Retailing Companies as of the Comparison
Dates (assuming for the Company on August 2, 1994, that the common
equivalent equity value of the Shares was $46 per share). The
analysis showed that the EPS Ratio for the Company, the Cable
Programming Companies (on average) and the Speciality Retailing
Companies (on average), respectively, were: (a) as of June 29, 1994:
21.3, 38.5 and 23.1; (b) as of July 12, 1994: 23.6, 38.0 and 23.6;
and (c) as of August 2, 1994: 30.2, 37.4 and 24.0.
(iv) Multiple of 1994 Estimated Earnings Per Share Comparison. Allen
prepared a market multiple comparison comparing the Company's ratio
of the market value of its equity to its estimated 1994 earnings per
share (the "1994 Estimated EPS Ratio") to the average 1994 Estimated
EPS Ratio for the Cable Programming Companies and the Specialty
Retailing Companies as of the Comparison Dates (assuming for the
Company on August 2, 1994, that the common equivalent equity value of
the Shares was $46 per share). The analysis showed that the 1994
Estimated EPS Ratio for the Company, the Cable Programming Companies
(on average) and the Speciality Retailing Companies (on average),
respectively, were: (a) as of June 29, 1994: 20.2, 19.7 and 18.3; (b)
as of July 12, 1994: 22.4, 19.3 and 18.7; and (c) as of August 2,
1994: 28.7, 19.0 and 19.0. The foregoing excluded the Company's
startup costs with respect to its Q2 project. Including such startup
costs, the Company's 1994 Estimated EPS Ratio on each of the
Comparison Dates, in chronological order, would have been: 24.2, 26.9
and 34.3, respectively.
With respect to the foregoing four comparative analyses, Allen's analysis
stated that, for the Comparison Dates, the Company traded at multiples closely
related to the Specialty Retailing Companies, that as of
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<PAGE> 22
June 29, 1994, the Company traded at an LTM Sales Ratio, a Cash Flow Ratio, an
EPS Ratio and a 1994 Estimated EPS Ratio (collectively, the "Comparison Ratios")
within the range of the Specialty Retailing Companies (although the 1994
Estimated EPS Ratio exceeded the average for both Specialty Retailing Companies
and Cable Programming Companies), and that as of July 12, 1994 and August 2,
1994, based on the comparisons described above, the Company's share prices
traded at Comparison Ratios that were higher (except in one case) than the range
for Specialty Retailing Companies.
(v) Discounted Cash Flow Analysis. Allen analyzed the net present value
of the future unleveraged free cash flows of the Company based on
financial projections prepared, and capital structure assumptions
provided, by the management of the Company. Allen added to the present
value of the free cash flows the terminal value of the Company based
on multiples of the projected 1999 earnings before interest, taxes,
depreciation and amortization ("EBITDA"), discounted at the same rates
as were applied to discount the free cash flows. Discount rates
ranging from 15% to 25% and multiples of EBITDA ranging from 7.0 to
9.0 were applied. Allen's analysis reflected that a price of $46 per
share was in line with its discounted cash flow analysis for the
Company.
(vi) Other Factors Considered. Allen reviewed recent trends in the shares
of Common Stock prices and trading volume in the shares of Common
Stock. Allen also (a) compared the recent trend in shares of Common
Stock prices versus various market indices, (b) compared market
reaction in the price of the shares of Common Stock relating to
selected public announcements, (c) studied the above analyses and
determined relevant dates for purposes of determining a representative
value of the shares of Common Stock, (d) compared the premium of the
price offered in the Offer and the Merger over various recent market
prices for the shares of Common Stock, as well as a comparison of the
premium to be paid in the Offer to premiums paid in selected cash
merger transactions, and (d) the multiples to sales, EBITDA, net
income and book value offered to the Company in the Offer compared
to those multiples in selected merger transactions involving
companies in generally comparable industries.
Some of the foregoing analyses used projections provided by management of
the Company, which Allen assumed to be reasonably prepared on a basis reflecting
the best currently available judgments of the management of the Company as to
the future financial performance of the Company. Allen did not make or seek to
obtain appraisals of the Company's assets in connection with its analysis of the
valuation of the Company.
Copies of Allen's written opinion and written presentation to the Board
have been filed as exhibits to the Rule 13e-3 Transaction Statement on Schedule
13E-3 filed by the Company, the Parent Purchasers and the Purchaser (together
with exhibits thereto, the "Schedule 13E-3") with the Securities and Exchange
Commission (the "Commission"). Copies will be made available for inspection and
copying at the principal executive offices of the Company during regular
business hours by any interested stockholder of the Company, or his
representative who has been so designated in writing. The summary set forth
above does not purport to be a complete description of either Allen's analyses,
including those set forth as exhibits to the Schedule 13E-3, or Allen's
presentations to the Board. Allen believes that its analyses must be considered
as a whole and that selecting portions of its analyses and of the factors
considered by it, without considering all factors and analyses, could create an
incomplete view of the processes underlying its opinion. The preparation of a
fairness opinion is a complex process and not necessarily susceptible to partial
analyses or summary description. In its analyses, Allen made numerous
assumptions with respect to industry performance, general business and economic
conditions and other matters, many of which are beyond the Company's control.
Any estimates contained therein are not necessarily indicative of actual values,
which may be significantly more or less favorable than as set forth therein.
Estimates of value of companies do not purport to be appraisals or necessarily
reflect the prices at which companies may actually be sold. Because such
estimates are inherently subject to uncertainty, none of the Company, the
Purchaser, Allen or any other person assumes responsibility for their accuracy.
The Company has retained Allen as the Company's financial advisor in
connection with the Merger, the Offer and other matters arising in connection
therewith pursuant to an engagement letter dated August 4, 1994
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<PAGE> 23
(the "Engagement Letter") between the Company and Allen. The Engagement Letter
provides, among other things, that upon the earlier to occur of the consummation
of the Offer or such earlier time as Allen and the Company may agree, the
Company will pay to Allen a fee equal to $10.3 million. In addition, the Company
has agreed to reimburse Allen for its reasonable out-of-pocket expenses,
including reasonable travel and legal expenses, and to indemnify Allen against
certain liabilities. In the event of the consummation of an alternative
transaction to that contemplated by the Merger Agreement, the Company has agreed
to pay Allen a fee in an amount to be agreed upon by Allen and the Company.
The Board selected Allen as its financial advisor because Allen is an
internationally recognized investment banking firm and regularly engages in the
valuation of businesses and their securities in connection with mergers and
acquisitions. Allen has particular expertise and experience in the cable and
media industries. Allen also represented the Company as its financial advisor in
connection with the Company's attempted acquisition of Paramount Communications
Inc. and provided financial advisory services to the Company in connection with
its consideration of a possible business combination with CBS. Paul A. Gould, a
managing director of Allen, has served as a director of Liberty since December
1991. Mr. Gould remains a director of Liberty following the business combination
transaction in which Liberty became a wholly owned subsidiary of TCI. Allen
acted as dealer manager for a tender offer made by Liberty for HSN in 1993. In
addition, as a part of its investment banking and securities trading business,
Allen holds positions in and trades in the securities of the Company, Comcast
and TCI from time to time, and has previously held positions in and traded the
securities of Liberty.
Neither the Company nor any person acting on its behalf has retained any
other person to make solicitations or recommendations to stockholders on its
behalf concerning the Offer.
Opinions and Report of Lazard. Lazard has delivered its written opinion
(the "August 4 Lazard Opinion") dated August 4, 1994 addressed to the Board of
Directors of Comcast that, as of such date, based upon the procedures and
subject to the assumptions described therein, the consideration to be paid by
Comcast in the Transaction is fair, from a financial point of view, to Comcast.
In addition, Lazard has delivered its written opinion (the "July 12 Lazard
Opinion", and, together with the August 4 Lazard Opinion, the "Lazard Opinions")
dated July 12, 1994 addressed to the Board of Directors of Comcast that, as of
such date, based upon the procedures and subject to the assumptions described
therein, the consideration to be paid by Comcast in the Proposed Transaction is
fair, from a financial point of view, to Comcast.
The Board of Directors of Comcast has not requested or received any opinion
from Lazard as to the fairness, from a financial point of view, of the
consideration to be paid in the Transaction or the Proposed Transaction to the
stockholders of the Company. THE LAZARD OPINIONS ARE DIRECTED ONLY TO THE
FAIRNESS, FROM A FINANCIAL POINT OF VIEW, TO COMCAST OF THE TRANSACTION AND THE
PROPOSED TRANSACTION, RESPECTIVELY, AND DO NOT GO TO THE FAIRNESS, FROM A
FINANCIAL POINT OF VIEW, OF THE CONSIDERATION TO BE RECEIVED BY THE STOCKHOLDERS
OF THE COMPANY IN THE TRANSACTION OR PROPOSED TRANSACTION, RESPECTIVELY, OR
CONSTITUTE RECOMMENDATIONS TO ANY STOCKHOLDER OF THE COMPANY TO TENDER ITS
SHARES. The Lazard Opinions were delivered solely for the benefit of the Board
of Directors of Comcast and were not on behalf of, and were not intended to
confer rights or remedies upon, the Company or Liberty, or any stockholders of
Comcast, the Company or Liberty, or any other person other than the Board of
Directors of Comcast. Lazard was not requested to pass upon the fairness of the
terms of the Merger Agreement or any terms of any proposed financing of the
Transaction or the Proposed Transaction. Consideration of these terms was not
necessary by Lazard to an evaluation of the fairness to Comcast of the
consideration to be paid. Lazard was not requested to and did not recommend to
the Board of Directors of Comcast the form or amount of the consideration to be
paid to stockholders of the Company in the Transaction or the Proposed
Transaction, which (in the case of the Transaction) were determined through
negotiations between Comcast, Liberty and the Company and their respective
advisors.
The full text of the Lazard Opinions, which set forth assumptions made,
matters considered and limits on the review undertaken, are available for
inspection and copying at the principal executive office of Comcast during its
regular business hours by any interested equity security holder of the Company
or his or her representative who has been so designated in writing. In addition,
copies of the Lazard Opinions have been filed with the Commission as exhibits to
the Schedule 13E-3, and may be inspected, copied and obtained in
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the manner specified in "The Tender Offer -- 6. Certain Information Concerning
the Company." The summaries of the Lazard Opinions set forth herein are
qualified in their entirety by reference to the full texts thereof.
August 4 Lazard Opinion. In rendering the August 4 Lazard Opinion, Lazard
among other things: (i) reviewed the Merger Agreement and the financial terms of
the Transaction set forth therein; (ii) reviewed certain publicly available
historical business and financial information relating to Comcast and the
Company; (iii) held discussions with the senior management of Comcast concerning
Comcast's objectives in pursuing the Transaction, its intended method of
financing the Transaction and certain other matters; (iv) reviewed certain
publicly available information with respect to certain other companies in lines
of business they believe to be comparable to those of Comcast and the Company;
(v) reviewed the financial terms of certain recent business combinations
involving companies in lines of business they believe to be comparable to those
of Comcast, and the Company, and in other industries generally; (vi) analyzed
the pro forma financial impact of the Transaction on Comcast; (vii) reviewed the
historical stock prices and trading volumes of Comcast's common stock and the
Common Stock; and (viii) conducted such other financial studies, analyses and
investigations as they deemed appropriate.
July 12 Lazard Opinion. In rendering the July 12 Lazard Opinion, Lazard
among other things: (i) reviewed the proposed terms of the Proposed Transaction
as outlined in the offer letter dated July 12, 1994 from Comcast to the Company
(see "-- Background of the Transaction"); (ii) reviewed certain publicly
available historical business and financial information relating to Comcast and
the Company; (iii) held discussions with the senior management of Comcast
concerning Comcast's objectives in pursuing the Proposed Transaction, its
intended method of financing the Proposed Transaction and certain other matters;
(iv) reviewed certain publicly available information with respect to certain
other companies in lines of businesses they believe to be comparable to the
businesses of Comcast and the Company; (v) reviewed the financial terms of
certain recent business combinations involving companies in lines of businesses
they believe to be comparable to those of Comcast and the Company, and in other
industries generally; (vi) analyzed the pro forma financial impact of the
Proposed Transaction on Comcast; (vii) reviewed the historical stock prices and
trading volumes of Comcast's common stock and the Common Stock; and (viii)
conducted such other financial studies, analyses and investigations as they
deemed appropriate.
The Lazard Report. In connection with the delivery of the July 12 Lazard
Opinion, Lazard prepared a report, dated July 12, 1994 (the "Lazard Report").
The Lazard Report included an outline of a proposed transaction structure
whereby Comcast would acquire the Company, an analysis of the structure of the
CBS Proposal (see "-- Background of the Transaction"), a valuation of the CBS
Proposal and a valuation of the Company. Certain of the analyses included in the
Lazard Report were based in part on financial projections provided by Comcast.
The Lazard Report was prepared solely for internal use and not with a view
to public disclosure or compliance with the published guidelines of the
Commission or the American Institute of Certified Public Accountants regarding
projections, and were not prepared with the assistance of, or reviewed by,
independent accountants. The information contained in the Lazard Report is
included in this Offer to Purchase solely because such report was furnished by
Lazard to Comcast. While presented with numerical specificity, such reports, and
the analyses included therein (including the projections provided to Lazard
contained therein), are based upon a variety of assumptions relating to the
businesses of the Company, industry performance, general business and economic
conditions and other matters and are subject to significant uncertainties and
contingencies, many of which are beyond the Company's control, and, therefore,
such report and analyses are inherently imprecise and there can be no assurance
that any valuations therein could be realized. None of the Purchaser, the Parent
Purchasers, the Company or Lazard assumes any responsibility for the validity,
reasonableness, accuracy or completeness of any of the Lazard Report.
No limitations were placed by Comcast or Lazard with respect to the
investigations made or the procedures followed by Lazard. Lazard is an
internationally recognized investment banking firm and regularly engages in the
valuation of businesses and their securities in connection with mergers and
acquisitions. Lazard has from time to time provided financial advice and
services to Comcast, but in selecting Lazard, Comcast
22
<PAGE> 25
considered primarily Lazard's general reputation and expertise. See "The Tender
Offer -- 12. Fees and Other Expenses" for a description of the terms of Lazard's
engagement by Comcast.
The summary of the Lazard Report set forth below does not purport to be a
complete description of the Lazard Report or the analyses performed, or the
matters considered by Lazard in arriving at the Lazard Opinions, and is
qualified in full by reference to the full text of the Lazard Report. Lazard
believes that its reports must be considered as a whole and that selecting
portions of its report and of the factors considered by it could create an
incomplete view as to the results of the Lazard Report and the Lazard Opinions.
The full text of the Lazard Report is available for inspection and copying at
the principal executive office of Comcast during its regular business hours by
any interested equity security holder of the Company or his or her
representative who has been so designated in writing. In addition, a copy of the
Lazard Report has been filed as an exhibit to the Schedule 13E-3 and may be
inspected, copied and obtained in the manner specified in "The Tender
Offer -- 6. Certain Information Concerning the Company".
The Lazard Report outlined a transaction structure for Comcast to acquire
all the outstanding Shares not already owned by Comcast for a consideration of
$45.00 per share consisting of $38.00 per share in cash and $7.00 per share in a
newly-formed class of convertible exchangeable preferred stock of Comcast. The
convertible exchangeable preferred stock was proposed to have a 7.5% annual
dividend and to be convertible into Comcast's Class A Special Common Stock at a
conversion price of $21.00 per share. The Lazard Report proposed potential
sources and uses of funds in the transaction. The Lazard Report also contained
an overview of the CBS Proposal, including estimated proceeds to stockholders of
both CBS and the Company, a blended multiple analysis and stock trading history.
In addition, the report included a valuation of the Company. Lazard outlined the
Company's present general operations and certain projects to be launched in
1994. Lazard incorporated projections of the Company's revenues, expenses,
capital expenditures and cash flows through 1999 as provided by Comcast. The
report also included a range of discounted cash flow values and internal rates
of return based upon varying assumptions, an analysis of the implied trading
multiples at various stock prices, the Company's stock trading history, a
summary of market statistics for comparable public companies and summaries of
recent research reports on the Company prepared by other parties. The following
describes Lazard's analysis as delivered to the Board of Directors of Comcast on
June 12, 1994.
Summary Valuation Results. Lazard prepared summary valuation results
indicating unlevered discounted cash flow values per share at EBITDA exit
multiples of 8.0x and 9.0x, at discount rates of 14.0% and 15.0% and with
revenue growth rates of 10.0%, 12.5% and 15.0% (the "Respective Revenue Growth
Rates"). At an EBITDA exit multiple of 8.0x, the discounted cash flow values per
share (i) at a discount rate of 14% were $38.60, $47.54, and $57.07, and (ii) at
a discount rate of 15% were $37.09, $45.66, and $54.82, at the Respective
Revenue Growth Rates. At an EBITDA exit multiple of 9.0x, the discounted cash
flow values per share (i) at a discount rate of 14% were $42.25, $52.07, and
$62.63, and (ii) at a discount rate of 15% was $40.58, $50.02, and $60.14, at
the Respective Revenue Growth Rates.
Lazard also indicated the leveraged pre-tax internal rate of return,
assuming a $1.1 billion equity investment including the value of the Company's
Shares already owned by Comcast, at EBITDA exit multiples of 8.0x, 9.0x, 10.0x
and 11.0x (the "Respective EBITDA Exit Multiples") and at purchase prices per
share ranging from $40.00 to $55.00. At $40.00 per share, the leveraged pre-tax
internal rate of return ranged from 27.8% to 37.8% at the Respective EBITDA Exit
Multiples. At $45.00 per share, the leveraged pre-tax internal rate of return
ranged from 20.8% to 30.3% at the Respective EBITDA Exit Multiples. At $50.00
per share, the leveraged pre-tax internal rate of return ranged from 15.7% to
24.8% at the Respective EBITDA Exit Multiples. At $55.00 per share, the
leveraged pre-tax internal rate of return ranged form 11.6% to 20.4% at the
Respective EBITDA Exit Multiples.
Analysis at Various Stock Prices ("AVP"). Lazard prepared an analysis of
the relationship of various hypothetical share prices for the Shares ranging
from $35.00 to $55.00 to (i) the price on June 27, 1994, (ii) the high price
during the 52 week period prior to the date of the report and (iii) the low
price during the 52 week period prior to the date of the report. Lazard also
prepared an analysis of the implied multiples of such range of share prices.
23
<PAGE> 26
At a per share price of $45.00, the AVP reflected market capitalization as
a multiple of revenues of 1.7x for the latest twelve months, of 1.5x for
projected 1994 results, and of 1.4x for projected 1995 results.
At a per share price of $45.00, the AVP reflected market capitalization as
a multiple of EBITDA of 10.9x for the latest twelve months, of 11.1x for
projected 1994 results, and of 9.4x for projected 1995 results.
At a per share price of $45.00, the AVP reflected market capitalization as
a multiple of earnings before interest and taxes ("EBIT") of 14.0x for the
latest twelve months, of 14.4 for projected 1994 results, and of 11.8x for
projected 1995 results.
At a per share price of $45.00, the AVP reflected adjusted market value as
a multiple of net income of 44.7x for the latest twelve months and 32.0x for
projected 1994 results.
Stock Price Analysis. Lazard examined the history of the daily trading
prices of the Shares for the one year period from July 2, 1993 to July 11, 1994
and for the five year period from July 7, 1989 to July 11, 1994.
Comparable Companies Analysis. Using publicly available information,
Lazard prepared an analysis of selected financial data for companies in
businesses which Lazard believes to be comparable to the Company's. Although
such companies are similar to the Company in some respects, none of such
companies possess characteristics identical to those of the Company. Financial
data reviewed for these companies included, but was not limited to, revenues,
EBITDA, EBIT and net income, for the periods of the latest twelve months,
projected 1994 results and projected 1995 results.
Based on projected 1994 results, the market capitalization of the
comparable companies to: (a) revenues ranged from 0.9x to 3.5x, (b) EBITDA
ranged from 9.3x to 15.0x, (c) EBIT ranged from 11.7x to 17.7x. The
price-to-earnings multiples of the comparable companies on projected 1994
results ranged from 17.6x to 27.2x.
Other Information. In the course of their reports to the Boards of
Directors of Old TCI and Liberty as to the fairness of the TCI/Liberty Merger to
the respective stockholders of each of Old TCI and Liberty, CS First Boston
Corporation and Merrill Lynch Pierce Fenner & Smith Incorporated each estimated
the value of the two companies' respective component assets and businesses. In
assigning values to publicly traded, non-control investments (or, in the case of
non-publicly traded securities which are convertible into or exercisable or
exchangeable for publicly traded securities, the equivalent publicly traded
securities), such as Liberty's minority equity interest in the Company, such
investment advisors principally relied on the market price of such publicly
traded securities as of particular dates, and did not prepare any specific
report, opinion or appraisal for Old TCI or Liberty as to the overall value of
the Company or Liberty's interest therein.
PLANS FOR THE COMPANY AFTER THE MERGER
In connection with its consideration of the Offer, the Purchaser has made a
preliminary review, and will continue to review, on the basis of available
information, various possible business strategies that it might consider upon
completion of the Transaction. Upon completion of the Offer, the Purchaser
intends to conduct a detailed review of the Company and its assets, businesses,
operations, properties, policies (including dividend policies), corporate
structure, capitalization and the responsibilities and qualifications of the
Company's management and personnel and consider what, if any, changes the
Purchaser deems desirable in light of the circumstances which then exist.
Pursuant to the Joint Bidding Agreement, the equity interests in the
Surviving Corporation will be owned 57.4% by Comcast and 42.6% by Liberty. The
management committee of the board of directors of the Surviving Corporation will
be comprised of three representatives appointed by Comcast who shall be
reasonably acceptable to Liberty and two representatives appointed by Liberty
who shall be reasonably acceptable to Comcast. The day-to-day operations of the
Surviving Corporation will be managed by Comcast. However, neither the Surviving
Corporation nor the Company will, subject to certain exceptions, engage in
certain transactions or take certain actions unless approved in advance by
Liberty, including: (i) any action which would result in the Surviving
Corporation, conducting, participating in or making certain investments in a
business other than the marketing of goods or services over electronic media
(other than principally entertainment programming) and activities ancillary
thereto or vertically integrated therewith;
24
<PAGE> 27
(ii) transactions not in the ordinary course of business; (iii) the disposition,
by the Surviving Corporation not in its ordinary course of business, of a
material amount of its assets; (iv) the merger or consolidation or the
dissolution or liquidation of the Surviving Corporation or the Company; (v)
amendments to the Surviving Corporation's Certificate of Incorporation or
By-Laws; (vi) the issuance or purchase of any shares of the capital stock or
other equity securities of the Surviving Corporation or the Company; (vii) the
amendment or modification of any outstanding options, warrants or rights to
acquire shares of capital stock or other securities of the Surviving
Corporation; (viii) the filing by the Surviving Corporation of a petition under
the Bankruptcy Act or any other insolvency law, or the admission in writing of
its bankruptcy, insolvency or general inability to pay its debts; (ix) the
commencement or settlement of litigation or arbitration which is material to the
Purchaser other than in the ordinary course of business; (x) entering into by
the Purchaser of material contracts not connected with carrying on its principal
business; and (xi) certain transactions between the Purchaser and Comcast. Upon
consummation of the Merger, Comcast and TCI have agreed to cooperate in good
faith to cause the Surviving Corporation and HSN to pursue jointly business
opportunities outside the United States and Canada. Following consummation of
the Merger, neither Comcast nor Liberty (nor the directors, officers, members of
the Management Committee, employees or agents of the Surviving Corporation or
any subsidiary who are also directors, officers, employees or agents of either
Comcast or Liberty) will be obligated to present any corporate opportunity to
the Surviving Corporation or its subsidiaries.
Following the Merger, each of Comcast and Liberty will have the right to
three demand registrations to have their shares of the Purchaser registered
under the Securities Act of 1933, as amended (the "Securities Act"). Such demand
registration rights will be subject to the right of first refusal of the other
party, at a price to be determined by three investment bankers based upon a
projected initial secondary public offering price of the Purchaser's common
stock. Any other transfers will be subject to the other party's right of first
refusal except that a change in control of Liberty, Comcast or certain
affiliates thereof will not trigger such rights of first refusal.
Unless Liberty, through the exercise of its demand registration rights,
shall have been the party which first caused the Purchaser's common stock to be
registered under the Exchange Act, then Liberty may at any time during the
60-day period following the fifth anniversary of the Merger (or if not
previously exercised, at any time during the 60-day period following each of the
sixth, seventh, eighth, and ninth anniversary of the Merger) exercise its exit
rights as described below and in the Joint Bidding Agreement.
Liberty may exercise its exit rights by delivering written notice to
Comcast, whereupon Liberty and Comcast will seek to agree upon the fair market
value of the Purchaser on a going concern or a liquidation basis, whichever is
higher. If they are unable to agree upon a fair market value, then each of
Liberty and Comcast will appoint an independent appraiser to determine such
value. If the amount of the higher of the two appraisers is greater than 110% of
the lower, then a third independent appraiser designated by the first two
appraisers will be retained and deliver its appraisal. The final appraisal will
be the average of the closest two appraisals.
Comcast shall have the right to purchase all of the common stock of the
Purchaser held by Liberty at a price equal to the fraction of the fair market
value of the Purchaser represented by such common stock as a percentage of the
fully diluted common stock of the Purchaser. Comcast may pay Liberty for such
shares in cash, a Comcast promissory note maturing not more than three years
after issuance, or Comcast equity securities. In certain circumstances, Comcast
may be required to pay Liberty in Comcast equity securities.
If Comcast fails to purchase the shares of the Purchaser held by Liberty in
accordance with the terms of The Joint Bidding Agreement, then Liberty shall
have the right to purchase the shares of the Purchaser held by Comcast on the
same terms on which Liberty's shares of the Purchaser were offered to Comcast.
If Liberty fails to purchase the shares of the Purchaser held by Comcast by
the time agreed, then Liberty and Comcast will use their best efforts to sell
the Purchaser in a sale in which Liberty, Comcast or any of their respective
affiliates may be purchasers.
Liberty and Comcast have also agreed to use all reasonable efforts to
consummate any purchase and sale in the most tax efficient method available.
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<PAGE> 28
Except as described above or elsewhere in this Offer to Purchase, the
Purchaser has no present plans or proposals that would relate to or result in an
extraordinary corporate transaction involving the Company or any of its
subsidiaries (such as a merger, reorganization, liquidation, relocation of any
operations or sale or other transfer of a material amount of assets), any change
in the Company's Board of Directors or management, any material change in the
Company's capitalization or dividend policy or any other material change in the
Company's corporate structure or business.
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTION
In considering the recommendations of the Board, stockholders of the
Company should be aware that certain members of the Board have certain interests
that present actual or potential conflicts of interest in connection with the
Transaction. The Board was aware of these actual or potential conflicts of
interest and considered them along with other matters described under
"-- Fairness of the Transaction".
The Joint Bidders and their affiliates beneficially own approximately 34.5%
of the Fully Diluted Shares, and as result of such ownership the Joint Bidders
may be deemed to control the Company. Of the 18,883,801 Fully Diluted Shares
beneficially owned by the Parent Purchasers, 8,627,934 are held by Comcast
(6,207,434 shares of Common Stock, 72,050 shares of Preferred Stock and warrants
to purchase 1,700,000 of Common Stock, or 15.5% of the Fully Diluted Shares) and
10,255,867 are held by Liberty (6,527,207 shares of Common Stock and 372,866
shares of Preferred Stock, or 18.4% of the Fully Diluted Shares). In addition,
Old TCI (as defined under "The Tender Offer -- 7. Certain Information Concerning
the Purchaser and the Parent Purchasers") beneficially owns 332,772 Fully
Diluted Shares (153,552 shares of Common Stock and 17,922 shares of Preferred
Stock, or 0.6% of the Fully Diluted Shares).
Brian L. Roberts, the President and a director of Comcast, has served as a
director of the Company since October 1987 and Ralph J. Roberts, the Chairman of
the Board of Comcast, has served as a director of the Company since June 1991.
Peter Barton, the President and a director of Liberty and Executive Vice
President of TCI, served as a director of the Company from December 1989 to
November 1993 and John Malone, the President and a director of TCI, served as a
director of the Company from June 1991 to November 1993.
Paul A. Gould, a managing director of Allen, has served as a director of
Liberty since December 1991. Mr. Gould remains a director of Liberty following
the business combination transaction in which Liberty became a wholly owned
subsidiary of TCI. Allen acted as dealer manager for a partial tender offer made
by Liberty for HSN in 1993. In addition, as a part of its investment banking and
securities trading business, Allen holds positions in and trades in the
securities of the Company, Comcast, and TCI from time to time, and has
previously held positions in and traded in the securities of Liberty.
J. Bruce Llewellyn, a director of the Company, is Chairman of the Board and
Chief Executive Officer of Garden State Cablevision, Inc., the general partner
and owner of approximately 20% of the equity of Garden State Cablevision, L.P.
("Garden State"). A subsidiary of Comcast is a limited partner of Garden State
and owns approximately 40% of the equity of Garden State.
In 1987 Satellite Services Inc. ("SSI"), a wholly-owned subsidiary of TCI,
entered into an Affiliation Agreement with CVN Companies, Inc. ("CVN") to
distribute the CVN programming to cable television subscribers of TCI, its
subsidiaries and certain affiliates (the "TCI Affiliates"), for a term of seven
years. In connection with the merger of the Company with CVN, in 1989 SSI
entered into an Addendum to Affiliation Agreement extending the term of such
Affiliation Agreement to 2004. Such Affiliation Agreement, as extended, provides
for the distribution of programming to a minimum of 4,519,435 cable television
subscribers for the remainder of the term. Such Affiliation Agreement also
provides for the payment of a 5% commission to the TCI Affiliates on net sales
of the Company's merchandise sold in the zip code areas served by the TCI
Affiliates. The remedy for failure to meet the carriage requirements under such
Affiliation Agreement as extended is a pro rata repurchase by the Company, at
$1.00 per share, of up to 372,866 shares of Preferred Stock issued to the TCI
Affiliates pursuant to certain agreements between certain subsidiaries and
affiliates of TCI and the Company. Such Affiliation Agreement, as extended, also
provides for specific performance in the event of certain failures to satisfy
such carriage requirements.
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<PAGE> 29
In June 1987 SSI also entered into an Affiliation Agreement with QVC
(providing for a similar commission payment) for the distribution of QVC
programming to cable television subscribers of TCI Affiliates. The original term
of the agreement was for seven years subject to one year renewal terms. The
current term of the Agreement expires in June 1995.
On July 26, 1993, Liberty and the Company entered into a letter agreement
(the "Q2 Agreement") pursuant to which Liberty agreed to use its reasonable best
efforts to cause the TCI Affiliates to carry the Q2 service to a minimum of
10,000,000 cable television subscribers by July 26, 1996, such carriage to
continue for seven years from commencement. The terms of the Q2 Agreement also
require the TCI Affiliates to transmit the QVC service to an additional 701,000
cable television subscribers by July 26, 1995. One remedy for failure to meet
the carriage requirements under the Q2 Agreement is the pro rata repurchase by
the Company from Liberty of up to 571,480 shares of Common Stock at $1.00 per
share.
Cable systems operated by TCI subsidiaries and its affiliates representing
approximately 10.5 million of approximately 14 million of the cable subscribers
served by all of such systems distribute the QVC service to approximately 8.8
million cable television subscribers and the Q2 service to approximately 290,000
cable television subscribers. During the calendar year 1993 and the seven month
period from January 1 to July 31, 1994, respectively, such systems received an
aggregate of approximately $12 million and $8.5 million in commissions for sales
of the Company's merchandise.
In connection with Equity Participation Agreements dated June 26, 1987 and
October 26, 1989 respectively, Comcast entered into an Affiliation Agreement
with the Company dated June 26, 1987 (the "Comcast Affiliation Agreement") and
an Addendum to the Comcast Affiliation Agreement dated October 26, 1989 (the
"Addendum"). The Comcast Affiliation Agreement provides for the payment of a 5%
commission to Comcast on net sales of the Company's merchandise sold in the zip
code areas served by Comcast. The Addendum extends the term of the Comcast
Affiliation Agreement from June 26, 1994 through June 26, 2004 and requires
Comcast to distribute the QVC service to a minimum of 1,441,000 cable
subscribers for the remainder of the term. In connection with the Comcast
Affiliation Agreement, the Company paid to Comcast and its subsidiaries
approximately $3.2 million in respect of the fiscal year ended January 31, 1993,
$3.5 million in respect of the fiscal year ended January 31, 1994 and $1.3
million in respect of the period from February 1, 1994 through July 31, 1994.
The remedies under the Addendum for the failure to meet minimum carriage
requirements include specific performance or a reacquisition of Shares issued
pursuant to the Equity Participation Agreements, pro rata basis, based on the
difference between the number of minimum committed subscribers and the number of
actual subscribers receiving the QVC service and on the length of time
subscribers received the QVC service.
In addition to the Comcast Affiliation Agreement and the Addendum, Comcast
and the Company executed a Charter Affiliation Agreement dated May 1, 1994 (the
"CAA") governing Comcast's carriage of the Q2 service. Under the CAA, Comcast
has agreed to distribute both the QVC and the Q2 service to a minimum of 85% of
its subscriber base by December 31, 1998 (the "Minimum Carriage Commitment") in
exchange for Q2 launch incentives totalling approximately $10 million. The
remedy for failure to meet the Minimum Carriage Commitment by December 31, 1998
is a pro rata return of the launch incentives. The CAA further provides that
once a system commences carriage of QVC and/or Q2 that system must continue to
carry the service in question through the remainder of the term. The remedy for
failure to continue carriage of a service once launched in a system is specific
performance.
In addition, in the Joint Bidding Agreement Comcast and Liberty have
agreed, in connection with the consummation of the Merger, to cause the Company
to waive any remaining rights it may have pursuant to the Company Repurchase
Rights (or any similar contingent right of the Company to reacquire shares of
its capital stock) with respect to all shares of capital stock of the Company
(or rights to acquire such shares) currently held by Liberty, TCI or Comcast (or
any of their respective direct and indirect subsidiaries and affiliates).
Comcast currently distributes the QVC service to 2,670,259 subscribers and
the Q2 service to 428,662 subscribers.
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<PAGE> 30
According to the Company, as of July 31, 1994, all executive officers and
directors of the Company as a group beneficially owned 1,126,838 shares of
Common Stock and held Options to purchase an aggregate of 7,385,000 shares of
Common Stock. If the Transaction is consummated, such persons will receive an
aggregate of $51,834,548 in cash for their shares of Common Stock and, in
addition, an aggregate of $88,788,500 in respect of the cash-out of their
Options, assuming all Options are actually cashed out and assuming 3,000,000
scaled price options held by Mr. Diller are cashed out as of December 9, 1994,
the first date on which the last 1,500,000 of such Options become exercisable.
See "-- The Merger Agreement" for a discussion of the treatment of Options in
the Merger.
According to the Company, the following table sets forth, as of July 31,
1994, the number of shares of Common Stock and Options owned by, the percentage
of Fully Diluted Shares beneficially owned by, and the aggregate amounts to be
received in connection with the Transaction (in the case of Options, net of the
exercise price) by, each executive officer and director of the Company who owns
any Common Stock or Options and all executive officers and directors of the
Company as a group. Other than the individuals named below, no executive officer
or director of the Company owns any Shares or Options.
<TABLE>
<CAPTION>
PERCENT OF TOTAL CASH
NAME OF DIRECTOR CLASS AMOUNT TO BE
OR EXECUTIVE SHARES OF BENEFICIALLY RECEIVED IN
OFFICER OF THE COMPANY COMMON STOCK OPTIONS OWNED THE TRANSACTION
----------------------- ------------ --------- ------------ ---------------
<S> <C> <C> <C> <C>
Douglas Briggs.......................... 20,888 387,500 1.01% $ 6,253,348
Candice Carpenter....................... 0 50,000 0.12 0
William Costello........................ 0 361,250 0.89 6,141,250
Thomas Downs............................ 0 153,750 0.38 2,489,250
Barry Diller(1)......................... 1,000,000 6,000,000 15.14 114,130,000
Neal Grabell............................ 200 160,000 0.40 2,699,700
James Held.............................. 0 10,000 0.02 0
John Link............................... 0 152,500 0.38 2,438,000
Brian L. Roberts........................ 750 0 0.002 34,500
Ralph J. Roberts........................ 5,000 0 0.01 230,000
William Schereck........................ 0 10,000 0.02 50,000
Joseph Segel............................ 100,000 100,000 0.50 6,157,000
------------ --------- ------ ---------------
1,126,838 7,385,000 17.88% $ 140,623,048
</TABLE>
- ---------------
(1) The calculation of the cash amount to be received by Barry Diller assumes
the exercise of his 3,000,000 scaled options on 12/9/94.
On July 11, 1994, Thomas Downs exercised options to purchase 3,750 shares
of Common Stock at an exercise price of $5 per share and sold those shares on
such date at a price of $35.75 per share.
As of August 8, 1994, all executive officers and directors of the Joint
Bidders as a group beneficially owned an aggregate of 34,025 shares of Common
Stock. If the Transaction is consummated, such persons will receive an aggregate
of $1,505,150 in cash for such shares.
The following table sets forth, as of August 8, 1994, the number of shares
of Common Stock and the percentage of Fully Diluted Shares owned by, and the
aggregate amounts to be received by, each executive officer and director of the
Joint Bidders who owns any Common Stock and all executive officers and directors
of the Joint Bidders as a group pursuant to the Transaction. Other than the
individuals named below, no executive officer or director of the Joint Bidders
owns any Shares.
28
<PAGE> 31
<TABLE>
<CAPTION>
TOTAL
NAME OF DIRECTOR SHARES PERCENT OF CASH
OR EXECUTIVE OF CLASS AMOUNT
OFFICER OF THE COMMON BENEFICIALLY TO BE
JOINT BIDDERS STOCK OWNED RECEIVED
- ---------------- ------- ------------ ----------
<S> <C> <C> <C>
Peter R. Barton........................................ 2,975 0.007% $ 136,850
Bob Magness............................................ 3,750 0.009 172,500
Fred A. Vierra......................................... 50 0.000 2,300
Ralph J. Roberts....................................... 5,000 0.01 230,000
Brian L. Roberts....................................... 750 0.002 34,500
Daniel Aaron........................................... 1,500 0.004 69,000
Irving A. Wechsler..................................... 12,000 0.03 552,000
Sheldon M. Bonovitz.................................... 1,500 0.004 69,000
Suzanne F. Roberts..................................... 5,000 0.01 230,000
Anne Wexler............................................ 500 0.001 23,000
Robert B. Clasen....................................... 1,000 0.002 46,000
======== ========== =========
34,025 0.08% $1,565,150
</TABLE>
In June 1992, the Company repurchased 1,970 shares of Common Stock at a
repurchase price of $0.38 per share, for a total repurchase amount of $752.30.
In July 1992, the Company repurchased 310 shares of Common Stock at a repurchase
price of $1.00 per share, for a total repurchase amount of $310.00. The total
amount of shares of Common Stock repurchased by the Company during the second
quarter of fiscal year ending January 31, 1993, was 2,280 at an average price of
$0.47 per share, for a total repurchase amount of $1,062.30.
In October 1992, Comcast converted a $30 million convertible note of the
Company (which had been called by the Company) into 1,704,546 shares of Common
Stock at an average price of $17.60 per share. Such conversion was the only
transaction in the Common Stock by the Company, the Purchaser or its affiliates
during the third quarter of the fiscal year ending January 31, 1993.
On December 23, 1992, the Company extended an offer to all of the holders
(the "Warrantholders") of warrants (the "Warrants") to purchase shares of Common
Stock to convert any or all of the Company's 9,479,913 outstanding Warrants into
Shares. Pursuant to the terms of such offer, the Company offered, at the
Warrantholder's election, (i) to issue to the Warrantholder, in exchange for the
Warrantholder's Warrants, shares of Common Stock with an aggregate value (each
share being valued at $37.75 per share, representing a market based average
stock price at such time (the "Conversion Price")) equal to the difference
between the Conversion Price and the price at which the Warrants were
exercisable (the "Exercise Price"), multiplied by the number of shares of Common
Stock into which the Warrants were exercisable, or (ii) if the Warrantholder
elected to exercise its Warrants by making payment of the Exercise Price in cash
and delivery of the Warrant certificate, to issue the number of shares of Common
Stock into which such Warrants were exercisable and to repurchase from the
Warrantholder, at the Conversion Price, all of the shares of Common Stock that
could be purchased using all of the proceeds of the payment by the Warrantholder
of the Exercise Price. In connection with an election described in (ii) above,
the Company also offered to accept payment of the Exercise Price in shares of
Common Stock valued at the Conversion Price. As a result of acceptance of such
offer by Liberty and its affiliates, the Company issued 2,475,434 additional
shares of Common Stock to Liberty and its affiliates upon the exercise or
exchange of Warrants to purchase 3,903,764 Common Shares. Comcast did not
exercise any of its Warrants in connection with the Company's offer.
In January 1993, the Company repurchased 290 shares of Common Stock at a
repurchase price of $1.00 per share, for a total repurchase amount of $290.00.
Also in January 1993, the Company repurchased 800 shares of Common Stock at a
repurchase price of $38.125 per share, for a total repurchase amount of
$30,500.00. The total amount of shares repurchased by the Company during the
fourth quarter of fiscal year ending January 31, 1993 was 1,090 at an average
price of $28.25 per share, for a total repurchase amount of $30,790.00.
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<PAGE> 32
On November 15, 1993 Comcast purchased 1,690,041 shares of Common Stock
from Liberty at an average price per share of $18.615 per share.
In December 1993, the Company repurchased 380 shares of Common Stock at a
repurchase price of $1.00 per share, for a total repurchase amount of $380.00.
In January 1994, the Company repurchased 350 shares of Common Stock at a
repurchase price of $1.00 per share, for a total repurchase amount of $350.00.
The total amount of shares purchased by the Company, the Purchaser or its
affiliates during the fourth quarter of fiscal year ending January 31, 1994 was
1,690,041 at an average price of $18.607 per share.
In April 1994, Comcast exercised warrants to purchase 310,000 Common Shares
for $10.00 per share.
On April 29, 1994, Comcast exercised warrants to purchase 310,000 shares of
Common Stock at an average price of $10.00 per share. Such exercise was the only
transaction in the Common Stock by the Company, the Purchaser or its affiliates
during the first quarter of the fiscal year ending January 31, 1995.
In July 1994, the Company repurchased 310 shares of Common Stock at a
repurchase price of $1.00 per share, for a total repurchase price of $310.00 per
share. Such repurchase was the only transaction in the Common Stock by the
Company, the Purchaser or its affiliates during the second quarter of the fiscal
year ending January 31, 1995 to date.
In July 1994 the Company paid Comcast approximately $2.1 million in
connection with Comcast beginning to carry certain of the Company's secondary
programs to certain of its cable television subscribers.
In addition, from time to time holders of shares of Preferred Stock have
converted such shares into Common Stock. On July 28, 1994, 128 shares of
Preferred Stock were converted into 1,280 shares of Common Stock.
THE MERGER AGREEMENT
The following is a summary of the Merger Agreement, a copy of which is
filed as an Exhibit to the Schedule 14D-1 described below in "The Tender
Offer -- 13. Miscellaneous". Such summary is qualified in its entirety by
reference to the Merger Agreement.
The Offer. The Merger Agreement provides that the obligation of the
Purchaser to consummate the Offer and to accept for payment and purchase the
Shares tendered pursuant to the Offer shall be subject only to the conditions
set forth in the Merger Agreement, which are described under "The Tender
Offer -- 10. Certain Conditions of the Offer". Comcast, Liberty and the
Purchaser have agreed in the Merger Agreement that, without the prior written
consent of the Company, the Purchaser will not make any change in the terms or
conditions of the Offer that is adverse to the holders of the Shares, change the
form of consideration to be paid in the Offer, decrease the price per Share
payable in the Offer or the number of Shares sought in the Offer, waive the
Minimum Condition or impose conditions to the Offer in addition to those set
forth in the Merger Agreement, add additional conditions to the Offer, or make
any other change in the terms or conditions of the Offer which is adverse to the
holders of Shares.
The Merger. The Merger Agreement provides that, upon the terms and subject
to the conditions thereof, at the time at which the Company and the Purchaser
file articles of merger with the Secretary of State of the State of Delaware and
make all other filings or recordings required by the GCL in connection with the
Merger, the Purchaser will cause MergerCo to be merged with and into the Company
in accordance with the GCL. The Merger shall become effective at such time (but
not prior to October 21, 1994) as the Certificates of Merger are duly filed with
the Secretary of State of the State of Delaware or at such later time as is
specified in the Certificates of Merger (the "Effective Time"). As a result of
the Merger, the separate corporate existence of MergerCo will cease and the
Company will be the Surviving Corporation.
At the Effective Time, (i) each issued and outstanding Share held in the
treasury of the Company, or held by any wholly owned subsidiary thereof, or
owned by the Purchaser and MergerCo or any of its subsidiaries shall be
canceled, and no payment shall be made with respect thereto; (ii) each Share
outstanding immediately prior to the Effective Time shall, other than as
provided in (i) above and other than any Dissenting Shares (as defined below),
be converted into the right to receive $46 (in the case of shares of
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<PAGE> 33
Common Stock) or $460 (in the case of shares of Preferred Stock) in cash or any
higher price per share of Common Stock or Preferred Stock, as the case may be,
that may be paid pursuant to the Offer, without interest (the "Merger
Consideration"); (iii) each share of common stock of MergerCo then outstanding
shall be converted into and become one share of common stock of the Surviving
Corporation; and (iv) each outstanding Option, whether or not exercisable, shall
be canceled and the holder thereof shall be entitled to receive, and shall
receive, cash in an amount equal to the difference between $46 and the per share
exercise price thereof, multiplied by the number of shares issuable pursuant to
such Option, provided, that if such Option was not issued pursuant to an
employee benefit plan meeting the requirements described in Rule 16b-3 of the
Exchange Act, and is held by a person subject to the short swing profit recovery
provisions of Section 16(b) of the Exchange Act, such Option shall not be
canceled at the Effective Time and shall remain an obligation of the Surviving
Corporation and shall remain enforceable in accordance with the terms thereof.
The Merger Agreement provides that Shares that are outstanding immediately
prior to the Effective Time and which are held by stockholders who shall have
not voted in favor of the Merger or consented thereto in writing and who shall
be entitled to and shall have demanded properly in writing appraisal for such
shares in accordance with Section 262 of the GCL and who shall not have
withdrawn such demand or otherwise have forfeited appraisal rights
(collectively, the "Dissenting Shares") shall not be converted into or represent
the right to receive the Merger Consideration. Such stockholders shall be
entitled to receive payment of the appraised value of such Shares held by them
in accordance with the provisions of the GCL, except that all Dissenting Shares
held by stockholders who shall have failed to perfect or who effectively shall
have withdrawn, forfeited or lost their rights to appraisal of such Shares under
the GCL shall thereupon be deemed to have been converted into and to have become
exchangeable, as of the Effective Time, for the right to receive, without any
interest thereon, the Merger Consideration, upon surrender of the certificate or
certificates that formerly evidenced such Shares.
The Merger Agreement provides that, at the Effective Time, the certificate
of incorporation of MergerCo will be the certificate of incorporation of the
Surviving Corporation, except that the name of the Surviving Corporation shall
be "QVC, Inc." and except for certain changes that may be necessary or
appropriate for the Merger and the transactions contemplated by the Merger
Agreement to qualify as a reclassification under the GCL. The bylaws of the
Surviving Corporation will be the bylaws of MergerCo until such time as they are
amended in accordance with applicable law.
Agreements of the Purchaser and the Company. The Merger Agreement provides
that effective upon acceptance for payment of any Shares by Purchaser, the
Purchaser shall be entitled to designate the number of directors, rounded up to
the next whole number, on the Company's Board that equals the product of (i) the
total number of directors on the Board of Directors of the Company (giving
effect to the election of any additional directors described in this paragraph)
and (ii) the percentage that the number of Shares owned by the Purchaser, the
Parent Purchasers or any of their respective wholly owned subsidiaries
(including Shares accepted for payment) bears to the total number of Shares
outstanding, and the Company has agreed to take all action necessary to cause
the Purchaser's designees (the "Purchaser Designees") to be elected or appointed
to the Board of Directors of the Company, including, without limitation,
increasing the number of directors or seeking and accepting resignations of its
incumbent directors. Notwithstanding the foregoing, until such time as the
Purchaser acquires a majority of the outstanding Common Shares on a fully
diluted basis, the Company will use its reasonable best efforts to ensure that
all of the members of the Board of Directors and such boards and committees of
the Company and each of the Company's subsidiaries as of August 4, 1994 who are
not employees of the Company shall remain members of the Board of Directors of
the Company and such boards and committees until the Effective Time. Following
the election or appointment of the Purchaser Designees and prior to the
Effective Time, any amendment or termination of the Merger Agreement (see
"-- Termination" and "-- Amendment"), grant of extension or waiver by the
Company will require the concurrence of a majority of the Company's directors
then in office who are directors on the date of the Merger Agreement, or are
directors (other than the Purchaser Designees) designated by such persons to
fill any vacancy.
The Purchaser has advised the Company that it currently intends to
designate one or more of the executive officers listed in Schedule II hereto and
the person listed in Schedule III hereto to serve as directors
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<PAGE> 34
of the Company (but with respect to any executive officers of TCI, any such
designations shall only be until the Merger is consummated). All of such persons
have consented to act as directors of the Company. The foregoing information and
certain other information contained in this Offer to Purchase and Schedules II
and III hereto and in the Company's Solicitation/Recommendation Statement on
Schedule 14D-9 being mailed to stockholders herewith is being provided in
accordance with the requirements of Section 14(f) of the Exchange Act and Rule
14f-1 thereunder.
Pursuant to the Merger Agreement, if required by applicable law to
consummate the Merger, the Company will cause a meeting of its stockholders (the
"Company Stockholder Meeting") to be duly called and held as soon as practicable
after consummation of the Offer for the purpose of voting on the adoption of the
Merger Agreement and approval of the Merger. The Merger Agreement provides that
the Company will, as promptly as practicable after consummation of the Offer,
prepare and file (if necessary) with the Commission under the Exchange Act a
proxy statement relating to the Company Stockholder Meeting (the "Proxy
Statement"). The Company has agreed, subject to the fiduciary duties of its
Board of Directors on the basis of advice of independent counsel, to use its
best efforts to obtain the necessary approvals by its stockholders of the Merger
Agreement and the Merger. The Purchaser and the Parent Purchasers have agreed to
vote all Shares acquired in the Offer, or heretofore owned, in favor of the
Merger. The Purchaser and the Parent Purchasers have agreed to vote all Shares
acquired in the Offer, or heretofore owned, in favor of the Merger.
Notwithstanding anything in the foregoing to the contrary, in the event that the
Purchaser, the Parent Purchasers, MergerCo and/or any direct or indirect
wholly-owned subsidiaries thereof acquire at least 90% of the outstanding shares
of each class of capital stock of the Company, the Parent Purchasers and the
Company have agreed to take all necessary and appropriate action to cause the
Merger to become effective as promptly as practicable after the expiration of
the Offer and the satisfaction or waiver of the conditions set forth under "The
Tender Offer -- 10. Certain Conditions of the Offer," without a meeting of the
Company's Stockholders, in accordance with Section 253 of the GCL.
Certain Covenants of the Company, the Parent Purchasers and the
Purchaser. The Company has agreed that, prior to the Effective Time, unless the
Purchaser consents in writing, which consent shall not be unreasonably withheld,
the Company will not amend or otherwise change its Certificate of Incorporation
or Bylaws; in addition, the Company has agreed that, prior to the Effective Time
unless the Purchaser consents in writing, which consent shall not be
unreasonably withheld, each of the Company and its respective subsidiaries
(each, a "Subsidiary") will not (a) conduct its business in any manner other
than in the ordinary course of business consistent with past practice; (b)
except as disclosed in the Company's disclosure schedule to the Merger
Agreement, issue, grant, sell, pledge, redeem or acquire for value (i) any of
its securities, including options thereon (other than the issuance of equity
securities upon the conversion of outstanding convertible securities or in
connection with a dividend reinvestment plan or by an employee benefit plan of
the Company or the exercise of options or warrants outstanding as of the date of
the Merger Agreement) or (ii) any material assets, except for sales of assets in
the ordinary course of business; (c) declare, set aside, make or pay any
dividend or other distribution with respect to any of its capital stock, except
dividends declared and paid by a subsidiary of the Company only to the Company,
or subdivide, re-classify, recapitalize, split, combine or exchange any of its
shares of capital stock (other than in connection with the exercise of currently
outstanding options or warrants); (d) incur any material amount of indebtedness
for borrowed money or make any loans or advances, except borrowings under
existing bank lines of credit in the ordinary course of business; (e) increase
the compensation payable or to become payable to its executive officers or
employees, except for increases in the ordinary course of business in accordance
with past practices, or grant any severance or termination pay to, or enter into
any employment or severance agreement with any director or executive officer of
it or any of its subsidiaries, or establish, adopt, enter into or amend in any
material respect or take action to accelerate any rights or benefits under any
collective bargaining agreement or any employee benefit plan, agreement or
policy; (f) take any action, other than reasonable and usual actions in the
ordinary course of business and consistent with past practice, with respect to
accounting policies or procedures (including tax accounting policies and
procedures); (g) acquire by merger or consolidation, or by purchase of assets,
or by any other manner, any material business; (h) mortgage or otherwise
encumber or subject to any lien any of its properties or assets that are
material to the Company and its subsidiaries taken as a whole, except for liens
in connection with
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<PAGE> 35
indebtedness incurred in connection with the Merger as permitted by clause (d)
above; or (i) authorize any of, or commit or agree to take any of, the foregoing
actions.
Pursuant to the Merger Agreement, the Company has agreed that it will not,
and will not permit any of its subsidiaries, or its subsidiaries' officers,
directors, employees, agents or representatives (including, without limitation,
any investment banker, attorney or accountant retained by it) to, initiate,
solicit or encourage, directly or indirectly, any inquiries or the making of any
proposal with respect to an Alternative Transaction (as defined below), engage
in any discussions or negotiations concerning, or provide to any other person
any information or data relating to the Company or its subsidiaries for the
purposes of, or otherwise cooperate in any way with or assist or participate in,
facilitate or encourage, any inquiries or the making of any proposal which
constitutes, or may reasonably be expected to lead to, a proposal to seek or
effect an Alternative Transaction, or agree to or endorse any Alternative
Transaction; provided that the Company or its Board of Directors will not be
prohibited from (i) taking and disclosing to its stockholders a position
contemplated by Rule 14e-2 under the Exchange Act or (ii) making any disclosure
to its stockholders that, in the judgment of its Board of Directors in
accordance with, and based upon the advice of, outside counsel, is required
under applicable law; and provided further that (x) the Board of Directors of
the Company on behalf of the Company may upon the unsolicited request of a third
party furnish information or data (including, without limitation, confidential
information or data) relating to the Company for the purposes of an Alternative
Transaction and participate in negotiations with a person making an unsolicited
proposal regarding an Alternative Transaction and (y) following receipt of a
proposal for an Alternative Transaction, the Board of Directors of the Company
may withdraw or modify its recommendation relating to the Offer or the Merger to
the extent that it determines in good faith in accordance with, and based upon
the advice of, outside counsel that such action is necessary or appropriate in
order for the Board of Directors of the Company to act in a manner that is
consistent with its fiduciary obligations under applicable law. The Company has
agreed to promptly advise the Purchaser of, and communicate the terms of, any
proposal it may receive, or any inquiries it receives which may reasonably be
expected to lead to a proposal, and the identity of the person making it; prior
to taking any such action, if the Company intends to participate in any such
discussion or negotiation or provide any such information to any such third
party, it shall give reasonable notice to the Purchaser and shall consult, and
thereafter shall continue to consult, with the Purchaser. If the Company is
required by this provision to give notice of a request, Alternative Transaction
proposal or inquiry, it shall keep the Purchaser reasonably informed of the
status and details of any such request, Alternative Transaction, inquiry or
proposal (or any amendment to any proposal). "Alternative Transaction" means a
transaction or series of related transactions (other than the Transactions)
resulting in (a) any change of control of the Company, (b) any merger or
consolidation of the Company in which another person acquires 25% or more of the
aggregate voting power of all voting securities of the Company or the surviving
corporation, as the case may be, (c) any tender offer or exchange offer for, or
any acquisitions of, any securities of the Company which, if consummated, would
result in another person owning 25% or more of the aggregate voting power of all
voting securities of the Company or (d) any sale or other disposition of assets
of the Company or any of its subsidiaries if the Fair Market Value of such
assets exceeds 25% of the aggregate Fair Market Value of the assets of the
Company and its subsidiaries taken as a whole before giving effect to such sale
or other disposition. "Fair Market Value" of any assets or securities means the
fair market value of such assets or securities, as determined by the Board of
Directors of the Company in good faith.
The Parent Purchasers, the Purchaser and the Company have each agreed that
from and after the Effective Time, the Surviving Corporation will indemnify,
defend and hold harmless the present and former officers and directors of the
Company (collectively, the "Indemnified Parties") against all losses, expenses,
claims, damages, liabilities or amounts that are paid in settlement of, with the
approval of the Surviving Corporation (which approval shall not unreasonably be
withheld), or otherwise in connection with any claim, action, suit, proceeding
or investigation based in whole or in part on the fact that such person is or
was a director or officer of the Company and arising out of actions or omissions
occurring at or prior to the Effective Time (including, without limitation, the
transactions contemplated by the Merger Agreement), in each case to the full
extent permitted under the GCL (and shall pay any expenses in advance of the
final disposition of any such action or proceeding to each Indemnified Party to
the fullest extent permitted under the GCL), upon receipt from the Indemnified
Party to whom expenses are advanced of any undertaking to repay such advances
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<PAGE> 36
required under the GCL. In addition, for three years after the Effective Time,
the Surviving Corporation will provide officers' and directors' liability
insurance in respect of facts or events occurring prior to the Effective Time
covering each such person currently covered by the Company's officers' and
directors' liability insurance policy of at least the same coverage and amount
on terms and conditions no less advantageous than those of such policy in effect
on the date of the Merger Agreement. The Surviving Corporation will not be
obligated to pay premiums in excess of 200% of the amount per annum that the
Company currently pays for such insurance.
For a period of two years after the Effective Time, the Purchaser and the
Parent Purchasers will cause the Surviving Corporation to maintain employee
compensation and benefit plans, programs and policies and fringe benefits
(including post-employment welfare benefits) that, in the aggregate, are no less
favorable than those provided to employees of the Company and its subsidiaries,
as applicable, as in effect on the date of the Merger Agreement, and will cause
the Surviving Corporation to provide severance pay and benefits no less
favorable than those provided by the Company and its subsidiaries as of the date
of the Merger Agreement. Immediately prior to consummation of the Offer, the
Purchaser has agreed to establish with a trustee satisfactory to the Company and
the Purchaser, a "Rabbi" trust, in a form reasonably acceptable to the Company
and shall deposit in such trust cash in an amount sufficient to satisfy all
obligations under the Options. Comcast and Liberty have agreed to cause the
Purchaser and the surviving corporation to perform their respective obligations
under the Merger Agreement and to be jointly and severally liable for any breach
of any representation, warranty, covenant or agreement of the Purchaser and for
any breach of the covenant described in this sentence by the Purchaser.
Representations and Warranties. The Merger Agreement contains customary
representations and warranties of the parties thereto, including representations
by the Company as to the absence of certain changes or events concerning its
respective business, compliance with law, employee benefit plans, taxes and
other matters.
Conditions to Certain Obligations. The obligations of the Company, the
Parent Purchasers and the Purchaser to consummate the Merger are subject to the
satisfaction at or prior to the Effective Time of the following conditions: (i)
if required by the GCL, the Merger Agreement and the Merger shall have been
approved and adopted by the requisite vote of the stockholders of the Company;
(ii) no governmental entity or federal or state court of competent jurisdiction
shall have enacted, issued, promulgated, enforced or entered any statute, rule,
regulation, executive order, decree, injunction or other order (whether
temporary, preliminary or permanent) which is in effect and which materially
restricts, prevents or prohibits consummation of the Merger or any transaction
contemplated by the Merger Agreement, provided, however, that the parties will
use their reasonable efforts to cause any such decree, judgment, injunction or
other order to be vacated or lifted, (iii) other than the filing of merger
documents in accordance with the GCL, all authorizations, consents, waivers,
orders or approvals required to be obtained, and all filings, notices or
declarations required to be made prior to the consummation of the Merger and the
transactions contemplated by the Merger Agreement shall have been obtained and
made, except for such authorizations, consents, waivers, orders, approvals,
filings, notices or declarations the failure to obtain or make which would not
have a material adverse effect, at or after the Effective Time, on the business,
results of operations or financial condition (as existing immediately prior to
the consummation of the Merger) of the Company and its subsidiaries, taken as a
whole; and (iv) the Purchaser shall have purchased Shares pursuant to the Offer.
Termination. The Merger Agreement may be terminated at any time prior to
the Effective Time, whether before or after approval of the Merger Agreement and
the Merger by the stockholders of the Company, (i) by mutual consent of the
Company and the Purchaser; (ii) prior to the purchase of Shares pursuant to the
Offer, (A) by either the Company or the Purchaser upon termination of the Offer
by reason of the non-occurrence of a condition described under "The Tender Offer
- -- 10. Certain Conditions to the Offer", (B) by the Purchaser if the Company
shall breach any covenant or agreement on its part which has not been cured or
if any representation or warranty of the Company shall have become untrue, in
either case such that such breach or untruth is incapable of being cured by
February 28, 1995, or (C) by the Company in the event of a breach of any
representation, warranty, agreement or covenant on the part of the Purchaser or
the Parent Purchasers which has not been cured (and cannot reasonably be
expected to be cured before February 28,
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<PAGE> 37
1995) and will prevent or delay consummation of the Merger by or beyond February
28, 1995 (other than the covenant relating to the establishment of a "Rabbi"
trust described above); or (iii) by either the Company or the Purchaser if (A)
the Merger or the Offer has not been consummated before February 28, 1995,
unless, in the case of termination by the Purchaser, the Purchaser shall not
have purchased Shares pursuant to the Offer by reason of any failure of the
Purchaser or the Parent Purchasers to fulfill its obligations under the Merger
Agreement, (B) if any permanent injunction or action by any governmental entity
preventing the consummation of the Merger shall have become final and
nonappealable, or (C) the Board of Directors of the Company shall withdraw,
modify or change its recommendation so that it is not in favor of the Merger
Agreement, the Offer or the Merger or shall have resolved to do any of the
foregoing or the Board of Directors of the Company shall have recommended or
resolved to recommend to its stockholders an Alternative Transaction, provided,
that in the case of any such termination by the Company or the Purchaser
pursuant to the provisions described in this clause (C), the Company pays to the
Purchaser an amount of $55,000,000, which amount is inclusive of all expenses of
the Purchaser and the Parent Purchasers.
Fees and Expenses. The Merger Agreement provides that the Company, the
Parent Purchasers and the Purchaser shall each bear all expenses incurred by it
in connection with the Merger Agreement and the transactions contemplated
thereby except that all costs and expenses relating to printing and mailing the
Proxy Statement will be borne equally by the Company and the Purchaser.
Amendment and Waivers. Any provision of the Merger Agreement may be
amended or waived prior to the Effective Time if, and only if, such amendment or
waiver is in writing and signed, (i) in the case of an amendment, by the
Company, the Parent Purchasers and the Purchaser or (ii) in the case of a
waiver, by the party or parties to be bound thereby. After the adoption of the
Merger Agreement by the stockholders of the Company, no amendment, which under
applicable law may not be made without the approval of the stockholders of the
Company, will be made without such approval.
DISSENTERS RIGHTS
Under Section 262 of the GCL, any holder of Shares at the Effective Time (a
"Remaining Stockholder") who does not wish to accept the per Share cash
consideration pursuant to the Merger has the right to seek an appraisal and be
paid the "fair value" of its Shares at the Effective Time (exclusive of any
element of value arising from the accomplishment or expectation of the Merger)
judicially determined and paid to them in cash provided that such holder
complies with the provisions of such Section 262 of the GCL.
The following is a brief summary of the statutory procedures to be followed
by a Remaining Stockholder in order to dissent from the Merger and perfect
appraisal rights under Delaware law. THIS SUMMARY IS NOT INTENDED TO BE COMPLETE
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SECTION 262 OF THE GCL, THE
TEXT OF WHICH IS SET FORTH IN ANNEX B HERETO. ANY REMAINING STOCKHOLDER
CONSIDERING DEMANDING APPRAISAL IS ADVISED TO CONSULT LEGAL COUNSEL. APPRAISAL
RIGHTS WILL NOT BE AVAILABLE UNLESS AND UNTIL THE MERGER (OR A SIMILAR BUSINESS
COMBINATION) IS CONSUMMATED.
Remaining Stockholders of record who desire to exercise their appraisal
rights must fully satisfy all of the following conditions. A written demand for
appraisal of Shares must be delivered to the Secretary of the Company (x) before
the taking of the vote on the approval and adoption of the Merger Agreement if
the Merger is not being effected as a "short-form" merger but, rather, is being
consummated following approval thereof at a meeting of the Company's
stockholders (a "long-form merger") or (y) within 20 days after the date that
the Surviving Corporation mails to the Remaining Stockholders a notice (the
"Notice of Merger") to the effect that the Merger is effective and that
appraisal rights are available (and includes in such notice a copy of Section
262 of the GCL and any other information required thereby) if the Merger is
being effected as a "short-form" merger without a vote or meeting of the
Company's stockholders. If the Merger is effected as a "long-form" merger, this
written demand for appraisal of Shares must be in addition to and separate from
any proxy or vote abstaining from or against the approval and adoption of the
Merger Agreement and, neither voting against, abstaining from voting, nor
failing to vote on the Merger Agreement will constitute a demand for appraisal
within the meaning of Section 262 of the GCL. In the case of a "long-form"
merger, any stockholder seeking appraisal rights must hold the Shares for which
appraisal is sought on the date of the
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making of the demand, continuously hold such Shares through the Effective Time,
and otherwise comply with the provisions of Section 262 of the GCL.
In the case of both a "short-form" and a "long-form" merger, a demand for
appraisal must be executed by or for the stockholder of record, fully and
correctly, as such stockholder's name appears on the stock certificates. If
Shares are owned of record in a fiduciary capacity, such as by a trustee,
guardian or custodian, such demand must be executed by the fiduciary. If Shares
are owned of record by more than one person, as in a joint tenancy or tenancy in
common, such demand must be executed by all joint owners. An authorized agent,
including an agent for two or more joint owners, may execute the demand for
appraisal for a stockholder of record; however, the agent must identify the
record owner and expressly disclose the fact that in exercising the demand, he
is acting as agent for the record owner.
A record owner, such as a broker, who holds Shares as a nominee for others,
may exercise appraisal rights with respect to the Shares held for all or less
than all beneficial owners of Shares as to which the holder is the record owner.
In such case the written demand must set forth the number of Shares covered by
such demand. Where the number of Shares is not expressly stated, the demand will
be presumed to cover all Shares outstanding in the name of such record owner.
Beneficial owners who are not record owners and who intend to exercise appraisal
rights should instruct the record owner to comply strictly with the statutory
requirements with respect to the exercise of appraisal rights before the date of
any meeting of stockholders of the Company called to approve the Merger in the
case of a "long-form" merger and within 20 days following the mailing of the
Notice of Merger in the case of a "short-form" merger.
Remaining stockholders who elect to exercise appraisal rights must mail or
deliver their written demands to: Secretary, QVC, Inc., Goshen Corporate Park,
West Chester, Pennsylvania 19380. The written demand for appraisal should
specify the stockholder's name and mailing address, the number of Shares covered
by the demand and that the stockholder is thereby demanding appraisal of such
Shares. In the case of a "long-form" merger, the Company must, within ten days
after the Effective Time, provide notice of the Effective Time to all
stockholders who have complied with Section 262 of the GCL and have not voted
for approval and adoption of the Merger Agreement.
In the case of a "long-form" merger, Remaining Stockholders electing to
exercise their appraisal rights under Section 262 must not vote for the approval
and adoption of the Merger Agreement or consent thereto in writing. Voting in
favor of the approval and adoption of the Merger Agreement, or delivering a
proxy in connection with the stockholders meeting called to approve the Merger
Agreement (unless the proxy votes against, or expressly abstains from the vote
on, the approval and adoption of the Merger Agreement), will constitute a waiver
of the stockholder's right of appraisal and will nullify any written demand for
appraisal submitted by the stockholder.
Regardless of whether the Merger is effected as a "long-form" merger or a
"short-form" merger, within 120 days after the Effective Time, either the
Company or any stockholder who has complied with the required conditions of
Section 262 and who is otherwise entitled to appraisal rights may file a
petition in the Delaware Court of Chancery demanding a determination of the fair
value of the Shares of the dissenting stockholders. If a petition for an
appraisal is timely filed, after a hearing on such petition, the Delaware Court
of Chancery will determine which stockholders are entitled to appraisal rights
and thereafter will appraise the Shares owned by such stockholders, determining
the fair value of such Shares, exclusive of any element of value arising from
the accomplishment or expectation of the Merger, together with a fair rate of
interest to be paid, if any, upon the amount determined to be the fair value. In
determining fair value, the Delaware Court of Chancery is to take into account
all relevant factors. In Weinberger v. UOP, Inc., et al., the Delaware Supreme
Court discussed the factors that could be considered in determining fair value
in an appraisal proceeding, stating that "proof of value by any techniques or
methods which are generally considered acceptable in the financial community and
otherwise admissible in court" should be considered and that "[f]air price
obviously requires consideration of all relevant factors involving the value of
a company." The Delaware Supreme Court stated that in making this determination
of fair value the court must consider "market value, asset value, dividends,
earning prospects, the nature of the enterprise and any other facts which were
known or which could be ascertained as of the date of merger which throw any
light on future prospects of the merged corporation..."
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The Delaware Supreme Court has construed Section 262 of the GCL to mean that
"elements of future value, including the nature of the enterprise, which are
known or susceptible of proof as of the date of the merger and not the product
of speculation, may be considered." However, the court noted that Section 262
provides that fair value is to be determined "exclusive of any element of value
arising from the accomplishment or expectation of the merger."
Remaining Stockholders who in the future consider seeking appraisal should
have in mind that the fair value of their Shares determined under Section 262
could be more than, the same as, or less than the per Share cash consideration
pursuant to the Merger if they do seek appraisal of their Shares, and that
opinions of investment banking firms as to fairness from a financial point of
view are not necessarily opinions as to fair value under Section 262 of the GCL.
Moreover, the Parent Purchasers intend to cause the Surviving Corporation to
argue in any appraisal proceeding that, for purposes thereof, the "fair value"
of the Shares is less than that paid in the Offer. The cost of the appraisal
proceeding may be determined by the Delaware Court of Chancery and taxed upon
the parties as the Delaware Court of Chancery deems equitable in the
circumstances. Upon application of a dissenting stockholder, the Delaware Court
of Chancery may order that all or a portion of the expenses incurred by any
dissenting stockholder in connection with the appraisal proceeding, including,
without limitation, reasonable attorneys' fees and the fees and expenses of
experts, be charged pro rata against the value of all Shares entitled to
appraisal. In the absence of such determination or assessment, each party bears
its own expenses.
Any Remaining Stockholder who has duly demanded appraisal in compliance
with Section 262 of the GCL will not, after the Effective Time, be entitled to
vote for any purpose the Shares subject to such demand or to receive payment of
dividends or other distributions on such Shares, except for dividends or other
distributions payable to stockholders of record at a date prior to the Effective
Time.
At any time within 60 days after the Effective Time, any former holder of
Shares shall have the right to withdraw his or her demand for appraisal and to
accept the per Share cash consideration pursuant to the Merger. After this
period, such holder may withdraw his or her demand for appraisal only with the
consent of the Surviving Corporation. If no petition for appraisal is filed with
the Delaware Court of Chancery within 120 days after the Effective Time,
stockholders' rights to appraisal shall cease and all stockholders shall be
entitled to receive the per Share cash consideration pursuant to the Merger.
Inasmuch as the Company has no obligation to file such a petition, and the
Parent Purchasers have no present intention to cause or permit the Surviving
Corporation to do so, any stockholder who desires such a petition to be filed is
advised to file it on a timely basis. However, no petition timely filed in the
Delaware Court of Chancery demanding appraisal shall be dismissed as to any
stockholder without the approval of the Delaware Court of Chancery, and such
approval may be conditioned upon such terms as the Delaware Court of Chancery
deems just.
Failure to take any required step in connection with the exercise of
appraisal rights may result in the termination or waiver of such rights.
APPRAISAL RIGHTS CANNOT BE EXERCISED AT THIS TIME. THE INFORMATION SET
FORTH ABOVE IS FOR INFORMATIONAL PURPOSES ONLY WITH RESPECT TO ALTERNATIVES
AVAILABLE TO STOCKHOLDERS IF THE MERGER (OR ANY SIMILAR BUSINESS COMBINATION) IS
CONSUMMATED. STOCKHOLDERS WHO WILL BE ENTITLED TO APPRAISAL RIGHTS IN CONNECTION
WITH THE MERGER (OR SIMILAR BUSINESS COMBINATION) WILL RECEIVE ADDITIONAL
INFORMATION CONCERNING APPRAISAL RIGHTS AND THE PROCEDURES TO BE FOLLOWED IN
CONNECTION THEREWITH BEFORE SUCH STOCKHOLDERS HAVE TO TAKE ANY ACTION RELATING
THERETO.
STOCKHOLDERS WHO SELL SHARES IN THE OFFER WILL NOT BE ENTITLED TO EXERCISE
APPRAISAL RIGHTS WITH RESPECT THERETO BUT, RATHER, WILL RECEIVE THE PRICE PAID
IN THE OFFER THEREFOR.
In addition, the Merger will have to comply with other applicable
procedural and substantive requirements of Delaware law, including any duties to
other stockholders imposed upon a controlling or, if applicable, majority
stockholder. Several recent decisions by the Delaware courts, which may or may
not apply to the
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Merger, have held that a controlling stockholder of a company involved in a
merger has a fiduciary duty to other stockholders which requires that the merger
be "entirely fair" to such other stockholders. In determining whether a merger
is fair to minority stockholders, Delaware courts have considered, among other
things, the type and amount of the consideration to be received by the
stockholders and whether there was fair dealing among the parties. The Delaware
Supreme Court stated in Weinberger that, although the remedy ordinarily
available in a merger that is found not to be "fair" to minority stockholders is
the right to appraisal described above, such appraisal remedy may not be
adequate "in certain cases, particularly where fraud, misrepresentation,
self-dealing, deliberate waste of corporate assets, or gross and palpable
overreaching are involved", and that in such cases the Delaware Chancery Court
would be free to fashion any form of appropriate relief.
CERTAIN TAX CONSEQUENCES
Sales of Common Stock by stockholders of the Company pursuant to the Offer
and the receipt of cash in exchange for Common Stock pursuant to the Merger will
be taxable transactions for federal income tax purposes and may also be taxable
transactions under applicable state and local and other tax laws.
In general, a stockholder will recognize gain or loss equal to the
difference between the adjusted tax basis of his or her Common Stock and the
amount of cash received in exchange therefor. Such gain or loss will be capital
gain or loss if the Common Stock is a capital asset in the hands of the
stockholder and will be long-term gain or loss if the holding period for the
Common Stock is more than one year as of the date of the sale of such Common
Stock, which would be the date the Offer is consummated or the Effective Time,
as the case may be.
The foregoing discussion may not apply to (i) Shares acquired pursuant to
the exercise of employee stock options or other compensation arrangements with
the Company, (ii) the sale or exchange of Preferred Stock or (iii) to
stockholders who are not citizens or residents of the United States or who are
otherwise subject to special tax treatment under the Internal Revenue Code of
1986, as amended (the "Code").
To the extent that the Company or its subsidiaries owns or leases real
property in New York State, New York City or other jurisdictions having similar
real property transfer taxes, the New York State Real Property Gains Tax, the
New York State Real Estate Transfer Tax, the New York City Real Property
Transfer Tax or other similar transfer taxes may apply to the sale or exchange
of Shares by a stockholder pursuant to the Offer or the Merger. Although the
Purchaser has agreed to pay any such taxes on behalf of the stockholders, such
payment may be treated as additional consideration paid for the Shares. In such
case, the amount of such additional consideration would be offset by treatment
of the taxes as additional selling expenses incurred by the stockholder.
Accordingly, the payment of such taxes by the Purchaser should have no effect on
the amount of gain or loss recognized by a stockholder.
The tax discussion set forth above is included for general information
only. Due to the individual nature of tax consequences, stockholders are urged
to consult their tax advisors as to the specific tax consequences to them of the
Offer and the Merger, including the effects of applicable state, local or other
tax laws.
CERTAIN EFFECTS OF THE TRANSACTION
Consummation of the Transaction will terminate the equity interest of the
Company's stockholders other than the Purchaser and its affiliates. Following
the Merger, the interest of the Parent Purchasers in the Company's net book
value and net income will increase to 100%. The Parent Purchasers, as the sole
indirect stockholders of the Company, will thereafter benefit from any increases
in the value of the Company and also bear the risk of any decreases in the value
of the Company's operations.
Stockholders of the Company whose Shares are tendered and purchased will
receive cash for all their Shares at the Offer price and will avoid brokerage
and similar commissions. However, such stockholders will sustain the detriment
of foregoing any participation in any possible increase in the value of the
Shares. See "The Tender Offer -- 6. Certain Information Concerning the
Company -- Certain Projections" for a discussion of certain projections of the
Company's future financial performance.
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The purchase of Shares pursuant to the Offer will reduce the number of
shares of Common Stock that might otherwise trade publicly and may reduce the
number of holders of Common Stock, which could adversely affect the liquidity
and market value of the remaining Common Stock held by stockholders other than
the Purchaser. The Purchaser cannot predict whether the reduction in the number
of shares of Common Stock that might otherwise trade publicly would have an
adverse or beneficial effect on the market price for or marketability of the
Common Stock or whether it would cause future market prices to be greater or
less than the Offer price. There is currently no established trading market for
the Preferred Stock. See "The Tender Offer -- 5. Price Range of Shares;
Dividends".
Depending upon the number of shares of Common Stock purchased pursuant to
the Offer, the Common Stock may no longer meet the standards for continued
inclusion in the National Association of Securities Dealers, Inc. Automated
Quotation System/National Market System (the "NASDAQ NMS"). If, as a result of
the purchase of Common Stock pursuant to the Offer, the Common Stock no longer
meets the criteria for continuing inclusion in the NASDAQ NMS, the market for
the Common Stock could be adversely affected. According to the published
guidelines of the NASDAQ NMS, the Common Stock would not meet the criteria for
continued inclusion in the NASDAQ NMS if, among other things, the number of
publicly-held shares of Common Stock were less than 200,000, the aggregate
market value of the publicly-held shares of Common Stock were less than
$2,000,000 or there were less than two market makers for the shares of Common
Stock. If these standards were not met, quotations might continue to be
published in the over-the-counter "additional list" or one of the "local lists"
unless, as set forth in the published guidelines of the NASDAQ NMS, the number
of publicly-held shares of Common Stock (excluding shares of Common Stock held
by officers, directors and beneficial owners of more than 10% of the shares of
Common Stock) were less than 100,000, there were fewer than 300 holders in
total, or there were not at least one market maker for the Common Stock. If the
Common Stock is no longer eligible for NASDAQ NMS quotation, quotations might
still be available from other sources.
The extent of the public market for the Common Stock and availability of
such quotations would, however, depend upon such factors as the number of
holders and/or the aggregate market value of the publicly-held shares of Common
Stock at such time, the interest in maintaining a market in the Common Stock on
the part of securities firms, the possible termination of registration of the
Common Stock under the Exchange Act, and other factors.
The shares of Common Stock are currently "margin securities" under the
regulations of the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board"), which has the effect, among other things, of allowing
brokers to extend credit on the collateral of such shares. Depending upon
factors similar to those described above regarding listing and market
quotations, the shares of Common Stock might no longer constitute "margin
securities" for the purposes of the Federal Reserve Board's margin regulations
and, therefore, could no longer be used as collateral for loans made by brokers.
The Common Stock is currently registered under the Exchange Act. Such
registration may be terminated upon application of the Company to the Commission
if the Common Stock is not listed on a national securities exchange and there
are less than 300 holders of record. Termination of the registration of the
Common Stock under the Exchange Act would substantially reduce the information
required to be furnished by the Company to holders of Common Stock and to the
Commission and would make certain of the provisions of the Exchange Act, such as
the short-swing profit recovery provisions of Section 16(b), the requirement of
furnishing a proxy or information statement in connection with stockholder
action and the related requirement of an annual report to stockholders and the
requirements of Rule 13e-3 under the Exchange Act with respect to "going
private" transactions, no longer applicable with respect to the Common Stock.
Furthermore, "affiliates" of the Company and persons holding "restricted
securities" of the Company may be deprived of the ability to dispose of shares
of Common Stock pursuant to Rule 144 promulgated under the Securities Act. If
registration of the Shares under the Exchange Act were terminated, the Common
Stock would no longer be included on the Federal Reserve Board's list of "margin
securities" or eligible for listing or NASDAQ NMS reporting. The Purchaser
intends to seek to cause the Company to terminate registration of the Common
Stock under the Exchange Act as soon after consummation of the Offer as the
requirements for termination of registration of the Common Stock are met.
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FINANCING OF THE TRANSACTION
The total amount of funds required by the Purchaser to purchase all of the
Fully Diluted Shares pursuant to the Offer and to pay related fees and expenses
is estimated to be approximately $1.42 billion. The Purchaser expects that it
will obtain such funds from (i) capital contributions to the Purchaser by
Comcast and Liberty, (ii) borrowings from various commercial banks and (iii) the
issuance of subordinated debt securities. Pursuant to the Joint Bidding
Agreement, Comcast has agreed to contribute to the Purchaser an amount of cash
equal to (i) $267 million plus (ii) $29 million, which represents the amount
necessary to exercise all warrants to acquire shares of Common Stock held by
Comcast (unless Comcast has exercised such warrants prior to such contribution)
to finance the purchase of Shares and Liberty has agreed to contribute to the
Purchaser $20 million in cash.
Comcast has received a letter dated July 12, 1994 from The Bank of New York
("BNY") indicating that BNY is highly confident that it could obtain commitments
from lenders for a senior secured debt facility of up to $1 billion to be made
available to finance a portion of the payment obligations arising out of the
Transaction. Comcast and Liberty are in discussions with a group of banks
including BNY concerning the financing required to consummate the Transaction.
The Offer is conditioned upon, among other things, satisfaction of the
Financing Condition. See "The Tender Offer -- 10. Certain Conditions of the
Offer."
It is anticipated that the borrowings described above will be refinanced or
repaid from funds generated internally by the Purchaser (including, after
consummation of the Merger, funds generated by the Company).
CERTAIN LITIGATION
In July 1994, after the announcement that the Parent Purchasers would make
a joint offer to purchase all of the outstanding Shares of the Company, 8
putative class action lawsuits were filed by certain shareholders of the Company
in the Delaware Court of Chancery on behalf of a purported class consisting of
all public shareholders of the Company. These actions were consolidated under
the caption In Re QVC, Inc. Shareholders Litigation, Consolidated Civil Action
No. 13590 (Court of Chancery, New Castle County, State of Delaware) (the
"Consolidated Action"). The defendants in the Consolidated Action include the
Company and directors of the Company. Plaintiffs allege, 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.
During early August, counsel for the shareholder plaintiffs advised counsel
for Liberty that they were preparing to amend the operative complaint to name
Comcast and Liberty as defendants in the Consolidated Action. On August 3 and 4,
1994, plaintiffs' counsel engaged in direct negotiations with counsel for
Liberty with respect to a proposed increase in the consideration to be paid to
the Company's public shareholders as well as the accelerated payment of such
consideration in the Parent Purchasers' proposal, and with respect to settling
the Consolidated Action. The negotiations culminated in an agreement in
principle providing for the settlement of the Consolidated Action, subject to
court approval, and certain terms and conditions including, among other things,
the commencement by Comcast and Liberty of an all cash tender offer at $46 per
share of Common Stock, subject to the approval of the Board.
On August 5, 1994, counsel for plaintiffs, defendants, Comcast and Liberty
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 the Parent Purchasers will commence a
tender offer to purchase all of the outstanding shares of Common Stock for $46
per share in cash, to be followed by a merger in which the remaining holders of
Common Stock will receive $46 per share in cash. Further, any fees and expenses
awarded to plaintiffs' counsel will be paid by the Company on behalf of all
defendants in the event that the offer and merger are consummated.
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THE TENDER OFFER
1. Terms of the Offer. Upon the terms and subject to the conditions set
forth in the Offer (including, if the Offer is extended or amended, the terms
and conditions of such extension or amendment), the Purchaser will accept for
payment and pay for all Shares that are validly tendered and not withdrawn by
the Expiration Date as provided under "-- 4. Withdrawal Rights". The term
"Expiration Date" shall mean 12:00 Midnight, New York City time, on Thursday,
September 8, 1994, unless the Purchaser, in its sole discretion (subject to the
terms of the Merger Agreement), shall have extended the period of time during
which the Offer is open, in which event the term "Expiration Date" shall mean
the latest time and date at which the Offer, as so extended by the Purchaser,
shall expire. Pursuant to the Merger Agreement, the Purchaser will extend the
Offer in the event that the waiting periods under the HSR Act described below
shall not have expired or been terminated at the Expiration Date, provided that
the Purchaser is not obligated to extend the Offer beyond December 31, 1994. For
purposes of this Offer to Purchase, "Common Shares" means the shares of Common
Stock and "Preferred Shares" means the shares of Preferred Stock.
The Offer is subject to certain conditions set forth under "-- 10. Certain
Conditions of the Offer", including satisfaction of the Minimum Tender
Condition, satisfaction of the Financing Condition and expiration or termination
of the waiting periods under the HSR Act applicable to the Purchaser's
acquisition of Shares pursuant to the Offer, the acquisition by the Parent
Purchasers of the shares of Purchaser and the Parent Contribution. If any such
condition is not satisfied, the Purchaser may (subject to the terms of the
Merger Agreement) (i) terminate the Offer and return all tendered Shares to
tendering stockholders, (ii) extend the Offer and, subject to withdrawal rights
as set forth under "-- 4. Withdrawal Rights", retain all such Shares until the
expiration of the Offer as so extended, (iii) waive such condition and, subject
to any requirement to extend the period of time during which the Offer is open,
purchase all Shares validly tendered by the Expiration Date and not withdrawn
(provided, that pursuant to the Merger Agreement, the Purchaser has agreed that
it will not, without the prior written consent of the Company, waive the Minimum
Condition or make any change in the terms or conditions of the Offer that is
adverse to the holders of Shares (see "Special Factors -- The Merger
Agreement -- The Offer")) or (iv) delay acceptance for payment or payment for
Shares, subject to applicable law, until satisfaction or waiver of the
conditions to the Offer. For a description of the Purchaser's right to extend
the period of time during which the Offer is open and to amend, delay or
terminate the Offer, see "-- 9. Extension of Tender Period; Termination;
Amendment".
The Company has provided the Purchaser with the Company's stockholder list
and security position listings for the purpose of disseminating the Offer to
holders of Shares. This Offer to Purchase and the related Letter of Transmittal
and other relevant materials will be mailed to record holders of Shares and will
be furnished to brokers, banks and similar persons whose names, or the names of
whose nominees, appear on the stockholder list or, if applicable, who are listed
as participants in a clearing agency's security position listing for subsequent
transmittal to beneficial owners of Shares.
2. Acceptance for Payment and Payment. Upon the terms and subject to the
conditions of the Offer (including, if the Offer is extended or amended, the
terms and conditions of such extension or amendment), the Purchaser will accept
for payment and pay for all Shares validly tendered and not withdrawn by the
Expiration Date as soon as practicable after the later of (i) the Expiration
Date and (ii) the satisfaction or waiver of the conditions set forth under
"-- 10. Certain Conditions of the Offer". In addition, the Purchaser reserves
the right, in its sole discretion and subject to applicable law (including
applicable rules of the Commission), to delay the acceptance for payment or
payment for Shares in order to comply in whole or in part with any applicable
law. For a description of the Purchaser's right to terminate the Offer and not
accept for payment or pay for Shares or to delay acceptance for payment or
payment for Shares, see "-- 9. Extension of Tender Period; Termination;
Amendment".
For purposes of the Offer, the Purchaser shall be deemed to have accepted
for payment tendered Shares if, as and when the Purchaser gives oral or written
notice to the Depositary of its acceptance of such Shares for payment pursuant
to the Offer. Payment for Shares accepted for payment pursuant to the Offer will
be made by deposit of the purchase price with the Depositary, which will act as
agent for the tendering stockholders for the purpose of receiving payments from
the Purchaser and transmitting such payments to tendering
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stockholders. In all cases, payment for Shares accepted for payment pursuant to
the Offer will be made only after timely receipt by the Depositary of
certificates for such Shares or, in the case of Common Shares, of a confirmation
of a book-entry transfer of such Common Shares into the Depositary's account at
one of the Book-Entry Transfer Facilities (as defined under "-- 3. Procedure for
Tendering Shares"), a properly completed and duly executed Letter of Transmittal
(or facsimile thereof) and any other required documents. For a description of
the procedure for tendering Shares pursuant to the Offer, see "-- 3. Procedure
for Tendering Shares". Accordingly, payment may be made to tendering
stockholders at different times if delivery of the Shares and other required
documents occur at different times. Under no circumstances will interest be paid
by the Purchaser on the consideration paid for Shares pursuant to the Offer,
regardless of any delay in making such payment.
If the Purchaser increases the consideration to be paid for shares of
Common Stock or Preferred Stock pursuant to the Offer, the Purchaser will pay
such increased consideration for all shares of Common Stock or Preferred Stock,
as the case may be, purchased pursuant to the Offer.
The Purchaser reserves the right to transfer or assign, in whole or from
time to time in part, to one or more of its affiliates the right to purchase
Shares tendered pursuant to the Offer, but any such transfer or assignment will
not relieve the Purchaser of its obligations under the Offer or prejudice the
rights of tendering stockholders to receive payment for Shares validly tendered
and accepted for payment.
If any tendered Shares are not purchased pursuant to the Offer for any
reason, or if certificates are submitted for more Shares than are tendered,
certificates for such unpurchased or untendered Shares will be returned (or, in
the case of Common Shares tendered by book-entry transfer into the Depositary's
account at a Book-Entry Transfer Facility pursuant to the Offer, see "-- 3.
Procedure for Tendering Shares," such Common Shares will be credited to an
account maintained at such Book-Entry Transfer Facility), without expense to the
tendering stockholder, as promptly as practicable following the expiration or
termination of the Offer.
3. Procedure for Tendering Shares. To tender Shares pursuant to the Offer,
either (a) a properly completed and duly executed Letter of Transmittal (or
facsimile thereof) and any other documents required by the Letter of Transmittal
(including, if applicable, any required signature guarantees) must be received
by the Depositary by the Expiration Date at one of its addresses set forth on
the back cover of this Offer to Purchase and either (i) certificates for the
Shares to be tendered must be received by the Depositary at one of such
addresses or (ii) in the case of Common Shares, such Common Shares must be
delivered pursuant to the procedures for book-entry transfer described below
(and a confirmation of such delivery received by the Depositary including an
Agent's Message if the tendering stockholder has not delivered a Letter of
Transmittal), in each case by the Expiration Date, or (b) the guaranteed
delivery procedure described below must be complied with. The term "Agent's
Message" means a message, transmitted by a Book-Entry Transfer Facility (as
hereinafter defined) to and received by the Depositary and forming a part of a
book-entry confirmation, which states that such Book-Entry Transfer Facility has
received an express acknowledgement from the participant in such Book-Entry
Transfer Facility tendering the Common Shares which are the subject of such
book-entry confirmation, that such participant has received and agrees to be
bound by the Letter of Transmittal and that the Company may enforce such
agreement against such participant.
The Depositary will establish an account with respect to the Common Shares
at The Depository Trust Company, Midwest Securities Trust Company and
Philadelphia Depository Trust Company (collectively referred to as the
"Book-Entry Transfer Facilities") for purposes of the Offer within two business
days after the date of this Offer to Purchase, and any financial institution
that is a participant in the system of any Book-Entry Transfer Facility may make
delivery of Common Shares by causing such Book-Entry Transfer Facility to
transfer such Common Shares into the Depositary's account in accordance with the
procedures of such Book-Entry Transfer Facility. However, although delivery of
Common Shares may be effected through book-entry transfer, the Letter of
Transmittal (or facsimile thereof) properly completed and duly executed together
with any required signature guarantees or an Agent's Message and any other
required documents must, in any case, be received by the Depositary at one of
its addresses set forth on the back cover of this Offer to Purchase by the
Expiration Date, or the guaranteed delivery procedure described below must be
complied with. Delivery
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of the Letter of Transmittal and any other required documents to a Book-Entry
Transfer Facility does not constitute delivery to the Depositary.
THE PREFERRED SHARES ARE NOT ELIGIBLE FOR ADMISSION TO THE BOOK-ENTRY
TRANSFER FACILITIES AND DELIVERY OF PREFERRED SHARES MAY NOT BE EFFECTED BY
BOOK-ENTRY TRANSFER.
Except as otherwise provided below, all signatures on a Letter of
Transmittal must be guaranteed by a firm which is a member of a registered
national securities exchange or the National Association of Securities Dealers,
Inc., or by a commercial bank or trust company having an office or correspondent
in the United States (an "Eligible Institution"). Signatures on a Letter of
Transmittal need not be guaranteed (a) if the Letter of Transmittal is signed by
the registered holder of the Shares tendered therewith and such holder has not
completed either the box entitled "Special Payment Instructions" or the box
entitled "Special Delivery Instructions" on the Letter of Transmittal or (b) if
such Shares are tendered for the account of an Eligible Institution. See
Instructions 1 and 5 to the Letter of Transmittal. If the certificates are
registered in the name of a person other than the signer of the Letter of
Transmittal or if payment is to be made or certificates for Shares not accepted
for payment or not tendered are to be returned to a person other than the
registered holder, then the tendered certificates must be endorsed or
accompanied by appropriate stock powers, in either case signed exactly as the
name or names of the registered owner or owners appears on the certificates,
with the signatures on the certificates or stock powers guaranteed as described
above. See Instruction 5 to the Letter of Transmittal.
If certificates for Shares are forwarded separately to the Depositary, the
Letter of Transmittal (or a facsimile thereof) properly completed and duly
executed must accompany each such delivery.
If a stockholder desires to tender Shares pursuant to the Offer and cannot
deliver such Shares and all other required documents to the Depositary by the
Expiration Date, or, in the case of Common Shares, such stockholder cannot
complete the procedure for delivery by book-entry transfer on a timely basis,
such Shares may nevertheless be tendered if all of the following conditions are
met:
(i) such tender is made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery substantially in the form provided by the Purchaser is received by
the Depositary (as provided below) by the Expiration Date; and
(iii) the certificates for such tendered Shares (or, in the case of
Common Shares, a confirmation of a book-entry transfer of such Common
Shares into the Depositary's account at one of the Book-Entry Transfer
Facilities), together with a properly completed and duly executed Letter of
Transmittal (or facsimile thereof) with any required signature guarantee or
an Agent's Message and any other documents required by the Letter of
Transmittal, are received by the Depositary within five trading days on the
NASDAQ NMS after the date of execution of the Notice of Guaranteed
Delivery.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted
by telegram, telex, facsimile transmission or mail to the Depositary and must
include a signature guarantee by an Eligible Institution in the form set forth
in such Notice.
THE METHOD OF DELIVERY OF SHARES AND ALL OTHER REQUIRED DOCUMENTS,
INCLUDING THROUGH BOOK-ENTRY TRANSFER FACILITIES, IS AT THE OPTION AND RISK OF
THE TENDERING STOCKHOLDER AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN
ACTUALLY RECEIVED BY THE DEPOSITARY. IF CERTIFICATES FOR SHARES ARE SENT BY
MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS
RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY
DELIVERY.
Under the federal income tax laws, the Depositary may be required to
withhold 31% of the amount of any payments made to certain stockholders pursuant
to the Offer or the Merger unless the tendering stockholder, and, if applicable
each other payee, provides the Depositary with such stockholder's or payee's
correct taxpayer identification number and certifies that such stockholder or
payee is not subject to backup federal income tax withholding by completing the
Substitute Form W-9 included in the Letter of Transmittal. Please see
Instruction 8 to the Letter of Transmittal for additional information regarding
backup withholding.
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<PAGE> 46
In addition, the Depositary will withhold 10% of the amount of any payments
made to foreign stockholders under Section 1445 of the Code unless the
Depositary receives from the Company the documentation necessary to avoid the
withholding tax applicable to transfers of interests in a "United States real
property holding corporation" as defined in Section 897 of the Code. There can
be no assurance that the necessary documentation will be obtained. Non-foreign
stockholders who want to be assured of avoiding withholding under Section 1445
regardless of whether the necessary documentation is obtained from the Company
must certify under penalties of perjury their non-foreign status by completing
the Section 1445 Certification included in the Letter of Transmittal. Please see
Instruction 9 to the Letter of Transmittal for additional information regarding
withholding under Section 1445 of the Code.
By executing a Letter of Transmittal, a tendering stockholder irrevocably
appoints designees of the Purchaser as such stockholder's proxy in the manner
set forth in the Letter of Transmittal to the full extent of such stockholder's
rights with respect to the Shares tendered by such stockholder and accepted for
payment by the Purchaser (and any and all other Shares or other securities
issued or issuable in respect of such Shares on or after August 4, 1994). All
such proxies shall be irrevocable and coupled with an interest in the tendered
Shares. Such appointment is effective only upon the acceptance for payment of
such Shares by the Purchaser. Upon such acceptance for payment, all prior
proxies and consents granted by such stockholder with respect to such Shares and
other securities will, without further action, be revoked, and no subsequent
proxies may be given nor subsequent written consents executed by such
stockholder (and, if given or executed, will not be deemed to be effective).
Such designees of the Purchaser will, with respect to such Shares and other
securities, be empowered to exercise all voting and other rights of such
stockholder as they, in their sole discretion, may deem proper at any annual,
special or adjourned meeting of the Company's stockholders, by written consent
or otherwise. The Purchaser reserves the right to require that, in order for
Shares to be validly tendered, immediately upon the Purchaser's acceptance for
payment of such Shares, the Purchaser is able to exercise full voting rights
with respect to such Shares and other securities (including voting at any
meeting of stockholders then scheduled or acting by written consent without a
meeting).
The tender of Shares pursuant to any one of the procedures described above
will constitute an agreement between the tendering stockholder and the Purchaser
upon the terms and subject to the conditions of the Offer.
All questions as to the form of documents and the validity, eligibility
(including time of receipt) and acceptance for payment of any tender of Shares
will be determined by the Purchaser, in its sole discretion, which determination
shall be final and binding. The Purchaser reserves the absolute right to reject
any or all tenders of Shares determined by it not to be in proper form or the
acceptance for payment of or payment for which may, in the opinion of the
Purchaser's counsel, be unlawful. The Purchaser also reserves the absolute right
to waive any defect or irregularity in any tender of Shares. The Purchaser's
interpretation of the terms and conditions of the Offer (including the Letter of
Transmittal and the Instructions thereto) will be final and binding. None of the
Purchaser, the Dealer Manager, the Depositary, the Information Agent or any
other person will be under any duty to give notification of any defect or
irregularity in tenders or incur any liability for failure to give any such
notification.
4. Withdrawal Rights. Tenders of Shares made pursuant to the Offer may be
withdrawn at any time prior to the Expiration Date. Thereafter, such tenders are
irrevocable, except that they may be withdrawn after October 9, 1994 unless
theretofore accepted for payment as provided in this Offer to Purchase. If the
Purchaser extends the period of time during which the Offer is open, is delayed
in accepting for payment or paying for Shares or is unable to accept for payment
or pay for Shares pursuant to the Offer for any reason, then, without prejudice
to the Purchaser's rights under the Offer, the Depositary may, on behalf of the
Purchaser, retain all Shares tendered, and such Shares may not be withdrawn
except as otherwise provided in this Section 4.
To be effective, a written, telegraphic, telex or facsimile transmission
notice of withdrawal must be timely received by the Depositary at one of its
addresses set forth on the back cover of this Offer to Purchase and must specify
the name of the person who tendered the Shares to be withdrawn. If certificates
representing the Shares to be withdrawn have been delivered or otherwise
identified to the Depositary, a signed notice of
44
<PAGE> 47
withdrawal with (except in the case of Shares tendered by an Eligible
Institution) signatures guaranteed by an Eligible Institution must be submitted
prior to the release of such Shares. In addition, such notice must specify, in
the case of Shares tendered by delivery of certificates, the name of the
registered holder (if different from that of the tendering stockholder) and the
serial numbers shown on the particular certificates evidencing the Shares to be
withdrawn or, in the case of Common Shares tendered by book-entry transfer, the
name and number of the account at one of the Book-Entry Transfer Facilities to
be credited with the withdrawn Common Shares.
Withdrawals may not be rescinded, and Shares withdrawn will thereafter be
deemed not validly tendered for purposes of the Offer. However, withdrawn Shares
may be retendered by again following one of the procedures described under
"-- 3. Procedure for Tendering Shares" at any time prior to the Expiration Date.
All questions as to the form and validity (including time of receipt) of
any notice of withdrawal will be determined by the Purchaser, in its sole
discretion, which determination shall be final and binding. None of the
Purchaser, the Dealer Manager, the Depositary, the Information Agent or any
other person will be under any duty to give notification of any defect or
irregularity in any notice of withdrawal or incur any liability for failure to
give any such notification.
5. Price Range of Shares; Dividends. The Common Shares are traded in the
over-the-counter market and are quoted on the NASDAQ NMS. The following table
sets forth for the periods indicated the high and low sale prices per Common
Share as reported on the NASDAQ NMS, as reported in the Company's Annual Report
on Form 10-K for the year ended January 31, 1994 (the "Company 10-K") with
respect to the fiscal years ended January 31, 1993 and 1994, and thereafter as
reported in published financial sources. There is currently no established
trading market for the Preferred Shares. The Company has not declared or paid
any cash dividends with respect to any Shares for the periods indicated.
<TABLE>
<CAPTION>
PRICE PER
COMMON SHARE
-------------
HIGH LOW
---- ----
<S> <C> <C>
Feb. 1, 1992 - April 30, 1992........................................ $20 1/2 $16 1/2
May 1, 1992 - July 31, 1992.......................................... 24 1/4 16 1/4
Aug. 1, 1992 - Oct. 30, 1992......................................... 24 1/4 16 1/4
Nov. 1, 1992 - Jan. 31, 1993......................................... 42 1/4 20 1/8
Feb. 1, 1993 - April 30, 1993........................................ 60 1/2 38 1/4
May 1, 1993 - July 31, 1993.......................................... 73 51 3/4
Aug. 1, 1993 - Oct. 30, 1993......................................... 70 1/4 52 3/4
Nov. 1, 1993 - Jan. 31, 1994......................................... 58 3/4 37
Feb. 1, 1994 - April 30, 1994........................................ 52 3/4 34
May 1, 1994 - July 31, 1994.......................................... 46 1/4 29 1/2
Aug. 1, 1994 - Aug. 10, 1994......................................... 45 1/4 44
</TABLE>
On August 10, 1994, the last full day of trading prior to the commencement
of the Offer, the last reported sales price per share of Common Stock on the
NASDAQ NMS was $44 7/8.
STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR THE COMMON
STOCK.
According to the Company, as of July 31, 1994, there were 4,908 record
holders of the Common Stock and 14 record holders of the Preferred Stock.
On October 1, 1991, the Company sold 3,250,000 shares of Common Stock to
the public in an underwritten offering at a price of $14 5/8 per share with
aggregate proceeds to the Company of $45,028,750, net of underwriting discounts.
On October 10, 1991, the Company sold an additional 487,500 shares of Common
Stock pursuant to overallotment arrangements with the underwriters at a price of
$14 5/8 per share with the aggregate proceeds to the Company of $6,754,312.50,
net of underwriting discounts.
45
<PAGE> 48
6. Certain Information Concerning the Company. The Company was
incorporated in 1986 under the laws of the State of Delaware. The principal
office of the Company is located at 1365 Enterprise Drive, West Chester,
Pennsylvania 19380.
The Company is a nationwide general merchandise retailer, operating as one
of the leading televised shopping retailers in the United States. Through its
merchandise-focused television program (the "QVC Service"), the Company sells a
wide variety of products directly to consumers. The products are described and
demonstrated live by program hosts, and orders are placed directly with the
Company by viewers who call a toll-free "800" telephone number. The Company's
television programming is produced at the Company's facilities and is broadcast
nationally via satellite to affiliated local cable system operators who have
entered into carriage agreements with the Company and who retransmit the
Company's programming to their subscribers.
The QVC Service currently reaches approximately 80% of all cable television
subscribers in the United States. The Company's main channel (the "Primary
Channel"), as of January 31, 1994, is transmitted live on a 7-day-a-week,
24-hour-a-day basis, to approximately 44 million cable television homes and on a
part-time basis to approximately 3 million additional cable television homes. In
addition, the QVC Service can be received at any time by approximately 3 million
home satellite dish users.
The following selected financial data relating to the Company and its
subsidiaries has been taken or derived from the audited financial statements
contained in the Company 10-K and the unaudited financial statements contained
in the Company's Quarterly Reports on Form 10-Q for its fiscal quarters ended
April 30, 1994 and 1993 (the "Company 10-Qs"). More comprehensive financial
information is included in the Company 10-K and the Company 10-Qs and the other
documents filed by the Company with the Commission, and the financial data set
forth below is qualified in its entirety by reference to such reports and other
documents including the financial statements contained therein. Such reports and
other documents may be examined and copies may be obtained from the offices of
the Commission in the manner set forth below. A copy of the financial statements
set forth in the Company 10-K and the Company's Quarterly Report on Form 10-Q
for its fiscal quarter ended April 30, 1993 is reproduced as Annex C hereto.
46
<PAGE> 49
QVC, INC.
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND RATIOS)
<TABLE>
<CAPTION>
AT AND FOR THE AT AND FOR THE
THREE MONTHS ENDED FISCAL YEAR ENDED
APRIL 30, JANUARY 31,
---------------------- ------------------------------------
1994 1993 1994 1993 1992
-------- -------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net revenue...................... $296,441 $273,232 $1,222,104 $1,070,587 $921,804
Income before extraordinary item
and cumulative effect of
change in accounting
principle..................... 12,063 17,621 55,311 56,588 21,733
Net income....................... 12,063 21,611 59,301 55,092 19,625
Income per common share:
Primary:
Income before extraordinary
item and cumulative effect
of change in accounting
principle................... .25 .36 1.10 1.32 .68
Net income.................... .25 .44 1.18 1.29 .61
Fully diluted:
Income before extraordinary
item........................ .25 .36 1.10 1.27 .67
Net income.................... .25 .44 1.18 1.24 .61
Cash dividends per common
share......................... -- -- -- -- --
Balance Sheet Data:
Total assets..................... 871,970 736,574 878,160 699,695 714,539
Long-term debt, less current
maturities.................... 6,900 7,456 7,044 7,586 152,461
Supplementary Data:
Ratio of earnings to fixed
charges....................... 21.96x 21.92x 23.45x 4.88x 1.99x
Book value per common share...... $ 12.57 $ 11.42 $ 12.32 $ 10.34 $ 8.96
</TABLE>
The name, business address, principal occupation or employment, five year
employment history and citizenship of each director and executive officer of the
Company and certain other information are set forth in Schedule I hereto.
The information concerning the Company contained herein (including Schedule
I hereto) has been taken from or is based upon reports and other documents on
file with the Commission or otherwise publicly available. Although the Purchaser
does not have any knowledge that would indicate that any statements contained
herein based upon such reports and documents are untrue, the Purchaser does not
take any responsibility for the accuracy or completeness of the information
contained in such reports and other documents or for any failure by the Company
to disclose events that may have occurred and may affect the significance or
accuracy of any such information but that are unknown to the Purchaser.
The Company is subject to the informational requirements of the Exchange
Act and in accordance therewith files periodic reports, proxy statements and
other information with the Commission relating to its business, financial
condition and other matters. The Company is required to disclose in such proxy
statements certain information, as of particular dates, concerning the Company's
directors and officers, their remuneration, stock options granted to them, the
principal holders of the Company's securities and any material interest of such
persons in transactions with the Company. Such reports, proxy statements and
other information may be inspected at the public reference facilities maintained
by the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549 and should also be available for inspection and copying at the regional
offices of the Commission in New York (Jacob K. Javits Federal Building, 26
Federal Plaza, New York, New
47
<PAGE> 50
York 10278) and Chicago (Everett McKinley Dirksen Building, 219 South Dearborn
Street, Chicago, Illinois 60604). Copies of such material can also be obtained
from the Public Reference Section of the Commission in Washington, D.C. 20549,
at prescribed rates.
CERTAIN PROJECTIONS
The Company does not as a matter of course make public any forecasts as to
its future financial performance.
The Company has provided the Parent Purchasers with certain information,
including non-public information, concerning the Company and its subsidiaries.
Such information included, among other things, the Company's projections of
consolidated net revenue, EBITDA and net income for the Company for each of the
fiscal years 1994 through 1997.
The information provided to the Parent Purchasers by the Company (the
"Projections") discloses, among other things, the following:
QVC, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FORECAST FISCAL 1994-1997
(000'S)
<TABLE>
<CAPTION>
FORECAST FORECAST FORECAST FORECAST
FY '94 FY '95 FY'96 FY'97
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net Revenue............................... $1,367,486 $1,620,796 $2,052,253 $2,421,425
EBITDA.................................... 201,620 261,567 356,076 424,660
Net Income (Loss)......................... $ 65,244 $ 96,121 $ 153,558 $ 188,995
</TABLE>
The Projections reflect consolidated net revenue, EBITDA and net income on
a stand-alone basis and without reflecting any synergies from the acquisition of
the Company by the Parent Purchasers.
THE PROJECTIONS WERE PREPARED SOLELY FOR INTERNAL USE AND NOT WITH A VIEW
TO PUBLIC DISCLOSURE OR COMPLIANCE WITH THE PUBLISHED GUIDELINES OF THE
COMMISSION OR THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS REGARDING
PROJECTIONS AND WERE NOT PREPARED WITH THE ASSISTANCE OF, OR REVIEWED BY,
INDEPENDENT ACCOUNTANTS. SUCH PROJECTIONS ARE INCLUDED BY THE PURCHASER AND THE
PARENT PURCHASERS IN THIS OFFER TO PURCHASE SOLELY BECAUSE SUCH INFORMATION WAS
FURNISHED TO THE PURCHASER AND THE PARENT PURCHASERS. NONE OF THE PURCHASER, THE
PARENT PURCHASERS, OR ANY PARTY TO WHOM THE PROJECTIONS WERE PROVIDED ASSUMES
ANY RESPONSIBILITY FOR THE VALIDITY, REASONABLENESS, ACCURACY OR COMPLETENESS OF
THE PROJECTIONS. WHILE PRESENTED WITH NUMERICAL SPECIFICITY, THE PROJECTIONS ARE
BASED ON A VARIETY OF ASSUMPTIONS RELATING TO THE BUSINESSES OF THE COMPANY,
INDUSTRY PERFORMANCE, GENERAL BUSINESS AND ECONOMIC CONDITIONS AND OTHER MATTERS
WHICH ARE SUBJECT TO SIGNIFICANT UNCERTAINTIES AND CONTINGENCIES, MANY OF WHICH
ARE BEYOND THE COMPANY'S CONTROL, AND, THEREFORE, SUCH PROJECTIONS ARE
INHERENTLY IMPRECISE AND THERE CAN BE NO ASSURANCE THAT THEY WILL BE REALIZED.
ALSO, ACTUAL FUTURE RESULTS MAY VARY MATERIALLY FROM THOSE SHOWN IN THE
PROJECTIONS. NONE OF THE PURCHASER, THE PARENT PURCHASERS OR THE COMPANY IS
UNDER ANY OBLIGATION TO OR HAS ANY INTENTION TO UPDATE THE PROJECTIONS AT ANY
FUTURE TIME.
7. Certain Information Concerning the Purchaser and Parent Purchasers. The
Purchaser is a Delaware corporation incorporated on July 18, 1994 and to date
has engaged in no activities other than those incident to its formation, the
execution and delivery of the Merger Agreement and the commencement of the
Offer. The Purchaser will be owned jointly by the Parent Purchasers. The
principal executive offices of the Purchaser are located at 1500 Market Street,
Philadelphia, PA 19102-2148.
Comcast Corporation and its subsidiaries are principally engaged in the
development, management and operation of cable and cellular telephone
communications systems. Comcast's consolidated and affiliated cable operations
served more than 2,600,000 subscribers and passed approximately 4,200,000 homes
as of December 31, 1993. In addition, Comcast owns a 19.9% interest in Heritage
Communications, Inc., a cable
48
<PAGE> 51
communications company serving approximately 1,000,000 subscribers and passing
approximately 1,700,000 homes, a 40% interest in Garden State Cablevision L.P.,
a cable communications company serving approximately 192,000 subscribers and
passing approximately 284,000 homes and cable television and telecommunications
investments in the United Kingdom. Comcast provides cellular telephone
communications services pursuant to licenses granted by the FCC in markets with
a population of over 7,400,000, including the area in and around the city of
Philadelphia, Pennsylvania, the State of Delaware and in a significant portion
of the state of New Jersey. Comcast holds interests in, among other things,
Nextel Communications, Inc., a specialized mobile radio licensee developing an
enhanced service capability, Teleport Communications Group, a company that
provides fiber optic networks and point to point digital communication links
between telecommunications-intensive business and long distance carriers.
Comcast was organized in 1969 under the laws of the Commonwealth of Pennsylvania
and has its principal executive offices at 1500 Market Street, Philadelphia,
Pennsylvania 19102-2148. Sural Corporation ("Sural"), a Delaware corporation
controlled by Ralph J. Roberts, Chairman of the Board of Directors of Comcast,
with its principal offices located at 1105 N. Market Street, Wilmington,
Delaware, 19801, is a holding company that owns shares of Comcast constituting
approximately 78% of the voting power of Comcast.
On June 19, 1994, Comcast announced its agreement to purchase from Rogers
Communications, Inc. ("RCI") the U.S. cable television and alternative access
operations of Maclean Hunter Limited for approximately $1.3 billion in cash,
subject to certain purchase price adjustments. Maclean Hunter Limited's U.S.
cable operations include systems in New Jersey, Michigan and Florida, and
provide service to approximately 550,000 cable subscribers. The purchase is
subject to certain governmental and other approvals.
On August 4, 1994, Liberty and Tele-Communications, Inc., a Delaware
corporation now known as TCI Communications, Inc. ("Old TCI"), consummated a
business combination transaction (the "TCI/Liberty Merger") in which each of
Liberty and Old TCI became wholly-owned subsidiaries of a newly formed holding
company, which subsequently changed its name to Tele-Communications, Inc. (as
used in this Offer to Purchase, "TCI"). Accordingly, the business currently
conducted by TCI is the business previously conducted by its wholly-owned
subsidiaries, Liberty and old TCI, prior to the TCI/Liberty Merger. TCI's
principal executive offices are located at Terrace Tower II, 5619 DTC Parkway,
Englewood, CO 80111.
Old TCI is a Delaware corporation organized in 1968. Old TCI and its
predecessor companies have been principally engaged in the acquisition,
development and operation of cable television systems since the early 1950's.
TCI believes that, measured by the number of basic subscribers, TCI is the
largest provider of basic cable television services in the United States. At
December 31, 1993, Old TCI, through its subsidiaries and affiliates, operated
cable television systems throughout the continental United States and Hawaii.
Systems owned by Old TCI provided basic service to approximately 10.7 million
subscribers and premium services to approximately 10.3 million subscribers at
that date. A basic subscriber may subscribe to one or more premium services and
the number of premium subscribers represents the total number of such
subscriptions to premium services. The foregoing information does not include
any subscriber data related to cable television systems in which Old TCI had at
such date an investment accounted for by the equity method or the cost method.
On August 8, 1994, TCI and TeleCable Corporation ("TeleCable") announced
that they had entered into a definitive merger agreement, whereby TeleCable will
be merged into TCI. TeleCable's stockholders will receive 41,666,667 shares of
TCI Class A Common Stock plus $300,000,000 liquidation value of a TCI
convertible preferred stock, paying a dividend of 5.5%, which is convertible at
the option of its holders into 10,000,000 shares of TCI Class A Common Stock and
is redeemable by TCI after five years. TeleCable, a privately held entity,
operates cable systems in 15 states with approximately 740,000 subscribers.
Liberty was incorporated in Delaware in 1990 and became a public company in
1991 following the contribution by Old TCI of certain cable television
programming interests and cable television systems pursuant to a restructuring
plan and the completion of an exchange offer with its stockholders. Liberty,
through its subsidiaries and affiliates, is an operator of cable television
systems and a provider of satellite-delivered video entertainment, information
and home shopping programming services to various video distribution media
including cable television systems, broadcast television stations and home
satellite dish owners. Cable television systems in which Liberty has a direct or
indirect ownership interest provided basic
49
<PAGE> 52
cable television services to approximately 3.2 million subscribers and premium
services to approximately 2.6 million subscribers as of December 31, 1993, of
which approximately 160,000 and 127,000 of such subscribers for basic cable
television services and premium services, respectively, are attributable to
systems which are held by consolidated subsidiaries of Liberty. Included in the
foregoing numbers of subscribers to basic cable television services and premium
services in which Liberty has a direct or indirect ownership interest are
approximately 828,000 and 783,000 subscribers, respectively, which are also
included in such subscriber numbers reported for Old TCI above. The various
programming and programming related businesses in which Liberty has interests
include two national and fourteen regional sports networks and national
entertainment services such as Encore, Home Shopping Club, QVC, Black
Entertainment Television, Court TV, The Family Channel, Starz! and X*PRESS.
On July 11, 1994, Rainbow Program Enterprises purchased a 49.9% general
partnership interest in American Movie Classics Company ("AMC") from Liberty
under the terms of a buy-sell provision contained in the AMC partnership
agreement. Liberty received cash proceeds of $180,429,000 in such transaction.
The following selected financial data relating to Comcast and its
subsidiaries has been taken or derived from the audited financial statements
contained in Comcast's Annual Report on Form 10-K for the year ended December
31, 1993, and the unaudited financial statements contained in its Quarterly
Report on Form 10-Q for the quarters ended March 31, 1994 and 1993. More
comprehensive financial information is included in such Annual Reports and
Quarterly Reports and the other documents filed by Comcast with the Commission,
and the financial data set forth below is qualified in its entirety by reference
to such reports and other documents including the financial statements contained
therein. Such reports and other documents may be examined and copies may be
obtained from the offices of the Commission in the same manner as set forth with
respect to the Company under "-- 6. Certain Information Concerning the Company".
50
<PAGE> 53
COMCAST CORPORATION
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE FOR THE
THREE MONTHS ENDED FISCAL YEAR ENDED
MARCH 31, DECEMBER 31,
----------------------- ------------------------------------
1994(1) 1993(1) 1993(1) 1992(1) 1991(1)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Service income..................... $ 328,703 $ 325,225 $1,338,228 $ 900,345 $ 721,000
Operating income................... 64,275 58,657 264,896 165,106 144,951
Equity in net losses of
affiliates...................... (9,646) (6,371) (28,872) (104,306) (83,366)
Loss before extraordinary items and
cumulative effect of accounting
changes......................... (15,777) (23,856) (98,871) (217,935) (155,572)
Extraordinary items................ (11,580) -- (17,620) (52,297) --
Cumulative effect of accounting
changes......................... -- (742,734) (742,734) -- --
Net loss........................... (27,357) (766,590) (859,225) (270,232) (155,572)
Loss per share before extraordinary
items and cumulative effect of
accounting changes(2)........... (.07) (.12) (.46) (1.08) (.87)
Extraordinary items per share(2)... (.05) -- (.08) (.26) --
Cumulative effect of accounting
changes per share(2)............ -- (3.62) (3.47) -- --
Net loss per share(2).............. (.12) (3.74) (4.01) (1.34) (.87)
Cash dividends declared per
share(2)........................ .0233 .0233 .0933 .0933 .0933
Balance Sheet Data:
Total assets....................... $4,763,206 $4,607,058 $4,948,276 $4,271,898 $2,793,584
Working capital.................... 138,573 218,889 182,005 36,886 381,183
Long-term debt..................... 3,918,429 4,015,239 4,162,915 3,973,514 2,452,912
Stockholders' equity
(deficiency).................... (701,902) (818,944) (870,531) (181,641) 19,480
Supplementary Financial Data:
Operating income before
depreciation and
amortization(3)................. 141,520 146,330 606,396 397,153 309,250
Net cash provided by operating
activities(4)................... 62,192 87,069 345,892 252,297 176,228
</TABLE>
- ---------------
(1) See "Management's Discussion and Analysis of Financial Condition and Results
of Operations" contained in Comcast's Annual Report on Form 10-K for the
year ended December 31, 1993 and in Comcast's Quarterly Report on Form 10-Q
for the quarterly period ended March 31, 1994 for a discussion of events
which affect the comparability of the information reflected in the above
selected financial data.
(2) As adjusted for Comcast's three-for-two stock split effective February 2,
1994.
(3) Generally referred to in Comcast's businesses as "operating cash flow."
(4) Represents net cash provided by operating activities as presented in
Comcast's Consolidated Statement of Cash Flows contained in Comcast's Annual
Report on Form 10-K for the year ended December 31, 1993 and in Comcast's
Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1994.
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<PAGE> 54
The name, business address, principal occupation or employment, five year
employment history and citizenship of each director and executive officer of the
Purchaser and the Parent Purchasers and certain other information are set forth
in Schedule II hereto.
Except as provided in the Merger Agreement and as otherwise described in
this Offer to Purchase, none of the Joint Bidders or their affiliates nor, to
the best knowledge of the Purchaser, any of the persons listed in Schedules I or
II to this Offer to Purchase, has any material contract, arrangement,
understanding or relationship with any other person with respect to any
securities of the Company, including, but not limited to, any contract,
arrangement, understanding or relationship concerning the transfer or voting of
such securities, finder's fees, joint ventures, loan or option arrangements,
puts or calls, guarantees of loans, guarantees of profits, division of profits
or loss or the giving or withholding of proxies. Except as set forth in this
Offer to Purchase, since January 1, 1991, none of the Joint Bidders or their
affiliates nor, to the best knowledge of the Purchaser, any of the persons
listed in Schedules I or II hereto, has had any material business relationship
or transaction with the Company or any of its executive officers, directors, or
affiliates that is required to be reported under the rules and regulations of
the Commission applicable to the Offer. Except as set forth in this Offer to
Purchase, since January 1, 1991, there have been no contracts, negotiations or
transactions concerning a merger, consolidation or acquisition, tender offer or
other acquisition of securities, an election of directors or a sale or other
transfer of a material amount of assets between the Joint Bidders, any of their
respective subsidiaries or, to the best knowledge of the Purchaser, any of the
persons listed in Schedules I or II to this Offer to Purchase or any of the
Company's affiliates other than the Joint Bidders, or any person not affiliated
with the Company who would have a direct interest in such matters, on the one
hand, and the Company or its affiliates, on the other hand.
Information contained herein with respect to Comcast, Liberty and TCI and
their respective executive officers, directors and controlling persons is given
solely by such person, and no other person has responsibility for the accuracy
or completeness of information supplied by such other persons.
Comcast and TCI are subject to the informational requirements of the
Exchange Act and in accordance therewith files periodic reports, proxy
statements and other information with the Commission relating to its business,
financial condition and other matters. Each of Comcast and TCI is required to
disclose in such proxy statements certain information, as of particular dates,
concerning its directors and officers, their remuneration, stock options granted
to them, the principal holders of its securities and any material interests of
such persons in transactions with such person. Such reports, proxy statements
and other information should be available for inspection and copying at the
offices of the Commission in the same manner as set forth with respect to the
Company under "-- 6. Certain Information Concerning the Company".
8. Dividends and Distributions. If on or after August 4, 1994, the Company
should (i) split, combine or otherwise change any of the Shares or its
capitalization, (ii) acquire or otherwise cause a reduction in the number of
outstanding Shares of any class or (iii) issue or sell any additional Shares
(other than shares of Common Stock issued pursuant to and in accordance with the
terms in effect on August 4, 1994 of employee stock options and convertible
securities outstanding prior to such date), shares of any other class or series
of capital stock, other voting securities or any securities convertible into, or
options, rights, or warrants, conditional or otherwise, to acquire, any of the
foregoing, then, without prejudice to the Purchaser's rights described under
"-- 10. Certain Conditions of the Offer", the Purchaser may, in its sole
discretion, make such adjustments in the purchase price and other terms of the
Offer as it deems appropriate including the number or type of securities to be
purchased.
If, on or after August 4, 1994, the Company should declare or pay (or set a
record date with respect to the payment of) any dividend on any Shares or any
distribution with respect to any Shares (including the issuance of additional
Shares or other securities or rights to purchase of any securities) that is
payable or distributable to stockholders of record on a date prior to the
transfer to the name of the Purchaser or its nominee or transferee on the
Company's stock transfer records of the Shares purchased pursuant to the Offer,
then, without prejudice to the Purchaser's rights as described under "-- 10.
Certain Conditions of the Offer", (i) the purchase price per share of Common
Stock or Preferred Stock, as the case may be, payable by the Purchaser pursuant
to the Offer will be reduced to the extent of any such cash dividend or
distribution and
52
<PAGE> 55
(ii) the whole of any such non-cash dividend or distribution to be received by
the tendering stockholders will (a) be received and held by the tendering
stockholders for the account of the Purchaser and will be required to be
promptly remitted and transferred by each tendering stockholder to the
Depositary for the account of the Purchaser, accompanied by appropriate
documentation of transfer, or (b) at the direction of the Purchaser, be
exercised for the benefit of the Purchaser, in which case the proceeds of such
exercise will promptly be remitted to the Purchaser. Pending such remittance and
subject to applicable law, the Purchaser will be entitled to all rights and
privileges as owner of any such non-cash dividend or distribution or proceeds
thereof and may withhold the entire purchase price or deduct from the purchase
price the amount or value thereof, as determined by the Purchaser in its sole
discretion.
9. Extension of Tender Period; Termination; Amendment. The Purchaser
reserves the right, at any time or from time to time, in its sole discretion and
regardless of whether or not any of the conditions specified under "-- 10.
Certain Conditions of the Offer" shall have been satisfied (but subject to the
provisions of the Merger Agreement), (i) to extend the period of time during
which the Offer is open and thereby delay acceptance for payment of, and the
payment for, any Shares by giving oral or written notice of such extension to
the Depositary and by making a public announcement of such extension or (ii) to
amend the Offer in any respect by making a public announcement of such
amendment. There can be no assurance that the Purchaser will exercise its right
to extend or amend the Offer.
If the Purchaser decreases the number of Common Shares or Preferred Shares
being sought or increases or decreases the consideration to be paid for any
Shares pursuant to the Offer and the Offer is scheduled to expire at any time
before the expiration of a period of 10 business days from, and including, the
date that notice of such increase or decrease is first published, sent or given
in the manner specified below, the Offer will be extended until the expiration
of such period of 10 business days. If the Purchaser makes a material change in
the terms of the Offer (other than a change in price or percentage of securities
sought) or in the information concerning the Offer, or waives a material
condition of the Offer, the Purchaser will extend the Offer, if required by
applicable law, for a period sufficient to allow stockholders to consider the
amended terms of the Offer. In a published release, the Commission has stated
that in its view an offer must remain open for a minimum period of time
following a material change in the terms of such offer and that the waiver of a
condition such as the Minimum Tender Condition is a material change in the terms
of an offer. The release states that an offer should remain open for a minimum
of five business days from the date the material change is first published, sent
or given to securityholders, and that if material changes are made with respect
to information that approaches the significance of price and share levels, a
minimum of 10 business days may be required to allow adequate dissemination and
investor response. The term "business day" shall mean any day other than
Saturday, Sunday or a federal holiday and shall consist of the time period from
12:01 A.M. through 12:00 Midnight, New York City time.
The Purchaser also reserves the right, in its sole discretion (but subject
to the provisions of the Merger Agreement), in the event any of the conditions
specified under "-- 10. Certain Conditions of the Offer" shall not have been
satisfied and so long as Shares have not theretofore been accepted for payment,
to delay (except as otherwise required by applicable law) acceptance for payment
of or payment for Shares or to terminate the Offer and not accept for payment or
pay for Shares.
If the Purchaser extends the period of time during which the Offer is open,
is delayed in accepting for payment or paying for Shares or is unable to accept
for payment or pay for Shares pursuant to the Offer for any reason, then,
without prejudice to the Purchaser's rights under the Offer, the Depositary may,
on behalf of the Purchaser, retain all Shares tendered, and such Shares may not
be withdrawn except as otherwise provided under "-- 4. Withdrawal Rights". The
reservation by the Purchaser of the right to delay acceptance for payment of or
payment for Shares is subject to applicable law, which requires that the
Purchaser pay the consideration offered or return the Shares deposited by or on
behalf of stockholders promptly after the termination or withdrawal of the
Offer.
Any extension, termination or amendment of the Offer will be followed as
promptly as practicable by a public announcement thereof. Without limiting the
manner in which the Purchaser may choose to make any public announcement, the
Purchaser will have no obligation (except as otherwise required by applicable
law)
53
<PAGE> 56
to publish, advertise or otherwise communicate any such public announcement
other than by making a release to the Dow Jones News Service. In the case of an
extension of the Offer, the Purchaser will make a public announcement of such
extension no later than 9:00 A.M., New York City time, on the next business day
after the previously scheduled Expiration Date.
10. Certain Conditions of the Offer. Notwithstanding any other provision
of the Offer, the Purchaser shall not be required to accept for payment or pay
for any Shares, and may terminate the Offer as provided in under "-- 9.
Extension of Tender Period; Termination; Amendment", if prior to the acceptance
for payment of any Shares (i) the Minimum Tender Condition shall not have been
satisfied, (ii) the Financing Condition shall not have been satisfied, (iii) the
waiting periods under the HSR Act applicable to the Purchaser's acquisition of
Shares pursuant to the Offer, the acquisition by the Parent Purchasers of the
shares of the Purchaser and the Parent Contribution shall not have expired or
been terminated, provided that prior to December 31, 1994, the Purchaser shall
not terminate the Offer by reason of nonsatisfaction of the condition in this
clause (iii) and will extend the Offer in such event (it being understood that
this provision shall not prohibit the Purchaser from terminating the Offer or
failing to extend the Offer by reason of the nonsatisfaction of any other
condition of the Offer), (iv) the Purchaser shall not be satisfied that it has
received all consents as are required from the FCC for consent to the transfer
of control of the FCC licenses listed in the QVC Disclosure Schedule to the
Merger Agreement or (v) at any time on or after August 4, 1994, and prior to the
acceptance for payment of Shares, any of the following conditions exist:
(a) there shall be, instituted or pending any action or proceeding by
any government or governmental authority or agency, domestic or foreign, or
by any other person, domestic or foreign, before any court or governmental
authority or agency, domestic or foreign, (i) challenging or seeking to
make illegal, to delay materially or otherwise directly or indirectly to
restrain or prohibit the making of the Offer, the acceptance for payment of
or payment for some of or all the Shares by the Purchaser or the
consummation by the Purchaser of the Merger, seeking to obtain material
damages or imposing any material adverse conditions in connection therewith
or otherwise directly or indirectly relating to the transactions
contemplated by the Offer or the Merger, (ii) seeking to restrain or
prohibit the exercise of full rights of ownership or operation by the
Purchaser or its affiliates of all or any portion of the business or assets
of the Company and its subsidiaries, taken as a whole, or of the Purchaser
or any of its affiliates, or to compel the Purchaser or any of its
affiliates to dispose of or hold separate all or any material portion of
the business or assets of the Company and its subsidiaries, taken as a
whole, or of the Purchaser or any of its affiliates, (iii) seeking to
impose limitations on the ability of the Purchaser or any of its affiliates
effectively to exercise full rights of ownership of the Shares, including,
without limitation, the right to vote any Shares acquired or owned by the
Purchaser or any of its affiliates on all matters properly presented to the
Company's stockholders or (iv) seeking to require divestiture by the
Purchaser or any of its affiliates of any Shares; or
(b) there shall be any action taken, or any statute, rule, regulation,
injunction, order or decree proposed, enacted, enforced, promulgated,
issued or deemed applicable to the Offer, the acceptance for payment of or
payment for Shares or the Merger, by any court, government or governmental
authority or agency, domestic, foreign or supranational, other than the
application of the waiting period provisions of the HSR Act to the Offer or
the Merger, that, in the reasonable judgment of the Purchaser, might
directly or indirectly, result in any of the consequences referred to in
clauses (i) through (iv) of paragraph (a) above; or
(c) the Company shall have breached or failed to perform in any
material respect any of its covenants or agreements under the Merger
Agreement which has not been cured, or any of the representations and
warranties of the Company set forth in the Merger Agreement shall not be
true in any material respect when made or at any time prior to consummation
of the Offer as if made at and as of such time, in each case and shall
continue to be untrue; or
(d) the Merger Agreement shall have been terminated in accordance with
its terms;
54
<PAGE> 57
which, in the reasonable judgment of the Purchaser, in any such case, and
regardless of the circumstances giving rise to any such condition, makes it
inadvisable to proceed with such acceptance for payment or payment.
The foregoing conditions are for the sole benefit of the Purchaser and may
be asserted by the Purchaser in its sole discretion regardless of the
circumstances (including any action or omission by the Purchaser) giving rise to
any such conditions or may be waived by the Purchaser in its sole discretion in
whole at any time or in part from time to time. The failure by the Purchaser at
any time to exercise its rights under any of the foregoing conditions shall not
be deemed a waiver of any such right; the waiver of any such right with respect
to particular facts and circumstances shall not be deemed a waiver with respect
to any other facts and circumstances, and each such right shall be deemed an
ongoing right which may be asserted at any time or from time to time. Any
determination by the Purchaser concerning the events described in this Section
will be final and binding upon all parties.
11. Certain Legal Matters; Regulatory Approvals.
(a) General. Based on its examination of publicly available information
filed by the Company with the Commission and other publicly available
information concerning the Company, except as described below the Purchaser is
not aware of any governmental license or regulatory permit that appears to be
material to the Company's business that might be adversely affected by the
Purchaser's acquisition of Shares as contemplated herein or of any approval or
other action by any government or governmental administrative or regulatory
authority or agency, domestic or foreign, that would be required for the
acquisition or ownership of Shares by the Purchaser as contemplated herein.
Should any such approval or other action be required, the Purchaser currently
contemplates that, except as described below under "State Takeover Statutes",
such approval or other action will be sought. Except as described under
"Antitrust" and "FCC Approvals", there is, however, no current intent to delay
the purchase of Shares tendered pursuant to the Offer pending the outcome of any
such matter. The Purchaser is unable to predict whether it may determine that it
is required to delay the acceptance for payment of or payment for Shares
tendered pursuant to the Offer pending the outcome of any such matter. There can
be no assurance that any such approval or other action, if needed, would be
obtained or would be obtained without substantial conditions or that if such
approvals were not obtained or such other actions were not taken adverse
consequences might not result to the Company's business or certain parts of the
Company's business might not have to be disposed of, any of which could cause
the Purchaser to elect to terminate the Offer without the purchase of Shares
thereunder. The Purchaser's obligation under the Offer to accept for payment and
pay for Shares is subject to certain conditions. See "-- 10. Certain Conditions
of the Offer".
(b) State Takeover Statutes. A number of states have adopted laws which
purport, to varying degrees, to apply to attempts to acquire corporations that
are incorporated in, or which have substantial assets, stockholders, principal
executive offices or principal places of business or whose business operations
otherwise have substantial economic effects in, such states. The Company,
directly or through subsidiaries, conducts business in a number of states
throughout the United States, some of which have enacted such laws. Except as
described herein, the Purchaser does not know whether any of these laws will, by
their terms, apply to the Offer or any merger or other business combination
between the Purchaser or any of its affiliates and the Company and has not
complied with any such laws. To the extent that certain provisions of these laws
purport to apply to the Offer or any such merger or other business combination,
the Purchaser believes that there are reasonable bases for contesting such laws.
In 1982, in Edgar v. MITE Corp., the Supreme Court of the United States
invalidated on constitutional grounds the Illinois Business Takeover Statute
which, as a matter of state securities law, made takeovers of corporations
meeting certain requirements more difficult. However, in 1987 in CTS Corp. v.
Dynamics Corp. of America, the Supreme Court held that the State of Indiana
could, as a matter of corporate law, constitutionally disqualify a potential
acquiror from voting shares of a target corporation without the prior approval
of the remaining stockholders where, among other things, the corporation is
incorporated in, and has a substantial number of stockholders in, the state.
55
<PAGE> 58
If any government official or third party should seek to apply any state
takeover law to the Offer or any merger or other business combination between
the Purchaser or any of its affiliates and the Company, the Purchaser will take
such action as then appears desirable, which action may include challenging the
applicability or validity of such statute in appropriate court proceedings. In
the event it is asserted that one or more state takeover statutes is applicable
to the Offer or any such merger or other business combination and an appropriate
court does not determine that it is inapplicable or invalid as applied to the
Offer or any such merger or other business combination, the Purchaser might be
required to file certain information with, or to receive approvals from, the
relevant state authorities or holders of Shares, and the Purchaser might be
unable to accept for payment or pay for Shares tendered pursuant to the Offer,
or be delayed in continuing or consummating the Offer or any such merger or
other business combination. In such case, the Purchaser may not be obligated to
accept for payment or pay for any tendered Shares. See "-- 10. Certain
Conditions of the Offer".
Notice will be filed with the Pennsylvania Securities Commission which will
contain substantial additional information about the Offer, which notice will be
available for inspection at the Commission's principal office at 1010 N. Seventh
Street, 2nd Floor, Harrisburg, PA 17102, during business hours. The filing of
the notice shall not be interpreted to imply that the Pennsylvania Takeover
Disclosure Law applies to this transaction.
(c) Antitrust. Under the HSR Act and the rules that have been promulgated
thereunder by the FTC, certain acquisition transactions may not be consummated
unless certain information has been furnished to the Antitrust Division of the
Department of Justice (the "Antitrust Division") and the FTC and certain waiting
period requirements have been satisfied. The purchase of Shares pursuant to the
Offer, the acquisition by the Parent Purchasers of the shares of the Purchaser
and the Parent Contribution are subject to such requirements. Therefore,
notwithstanding the expiration of the respective waiting periods under the HSR
Act in respect of Liberty's prior filing to acquire up to 49.9% of the Company's
outstanding securities and Comcast's prior filing to acquire up to 24.9% of such
securities, Liberty and Comcast will not be permitted to consummate the Offer
until expiration of the waiting period of the HSR Act in respect of such
transactions.
Pursuant to the requirements of the HSR Act, Comcast, Liberty and the
Company filed the required Notification and Report Forms with the Antitrust
Division and the FTC on August 9, 1994. As a result, the waiting period
applicable to the purchase of Shares pursuant to the Offer is expected to expire
at 11:59 P.M., New York City time, on Wednesday, August 24, 1994. However, the
waiting periods applicable to the acquisition by the Parent Purchasers of the
shares of the Purchaser and the Parent Contribution are expected to expire at
11:59 P.M., New York City time, on Thursday, September 8, 1994. Prior to such
dates, the Antitrust Division or the FTC may extend the waiting periods by
requesting additional information or documentary material relevant to the
acquisitions. If such a request is made, the waiting period will be extended, in
the case of the Offer, until 11:59 P.M., New York City time, on the tenth day
after substantial compliance by the Purchaser with such request. In the case of
the acquisition by the Parent Purchasers of the shares of the Purchaser, and the
Parent Contribution, if such a request is made the waiting period will be
extended until 11:59 P.M., New York City time, on the twentieth day after
substantial compliance by each of the parties that receives such a request.
Thereafter, such waiting periods can be extended only by court order.
A request is being made pursuant to the HSR Act for early termination of
the applicable waiting periods. There can be no assurance, however, that the
waiting periods will be terminated early. Shares will not be accepted for
payment or paid for pursuant to the Offer until the expiration or earlier
termination of the applicable waiting periods under the HSR Act. See "-- 10.
Certain Conditions of the Offer". Any extension of the waiting periods will not
give rise to any withdrawal rights not otherwise provided for by applicable law.
See "-- 4. Withdrawal Rights". Subject to the rights described under "-- 4.
Withdrawal Rights", any extension of the waiting periods will not give rise to
any withdrawal rights not otherwise provided for by applicable law. If the
Purchaser's acquisition of Shares is delayed pursuant to a request by the
Antitrust Division or the FTC for additional information or documentary material
pursuant to the HSR Act, the Offer may (and pursuant to Merger Agreement prior
to December 31, 1994 the Offer will) be extended.
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<PAGE> 59
The Antitrust Division and the FTC frequently scrutinize the legality under
the antitrust laws of transactions notified under the HSR Act. At any time
before or after the consummation of any such transactions, the Antitrust
Division or the FTC could take such action under the antitrust laws as it deems
necessary or desirable in the public interest, including seeking to enjoin the
purchase of Shares pursuant to the Offer or seeking divestiture of the Shares so
acquired or divestiture of substantial assets of the Purchaser or the Company.
Private parties may also bring legal actions under the antitrust laws. The
Purchaser does not believe that the consummation of the Offer will result in a
violation of any applicable antitrust laws. However, there can be no assurance
that a challenge to the Offer on antitrust grounds will not be made, or if such
a challenge is made, what the result will be. See "-- 10. Certain Conditions of
the Offer" for certain conditions to the Offer, including conditions with
respect to litigation and certain governmental actions.
(d) FCC Approvals. The Company holds licenses issued by the FCC for the
operation of communication facilities, including three satellite earth stations.
The Communications Act and applicable FCC regulations require prior FCC approval
for the transfer or deemed transfer of control of companies holding FCC
licenses. Applications must be filed with the FCC seeking such approval. The
Communications Act requires that the FCC find that the proposed transfer would
serve the public interest, convenience and necessity as a prerequisite to
granting its approval. The FCC may also require that the transferees demonstrate
that it possesses the requisite legal, financial, technical and other
qualifications to operate the licensed facilities in order for the transfer to
be approved.
In order for the Purchaser to consummate the Offer and the Merger, prior
FCC approval will be required. The Purchaser intends to file with the FCC, as
soon as practicable, applications seeking FCC approval to take control of the
Company. There can be no assurance that the FCC will grant such approval or
that, if granted, such FCC approval will be on terms and conditions acceptable
to the Purchaser.
The Purchaser also intends to file with the FCC a request for special
temporary authority to permit the Offer and the Merger to be consummated prior
to the receipt of FCC approvals of the transfer of control applications.
Although in the past the FCC generally has expedited its consideration of such
requests, the Purchaser cannot predict how long the FCC's consideration of the
Purchaser's request will take.
The obligation of the Purchaser to consummate the Offer is conditioned
upon, among other things, the Purchaser being satisfied that it has received all
consents as are required from the FCC for consent to the transfer of control of
certain of the Company's FCC licenses. See "-- 10. Certain Conditions of the
Offer."
The Cable Television Consumer Protection and Competition Act of 1992
directed the FCC to "prescribe rules and regulations establishing reasonable
limits on the number of channels on a cable system that can be occupied by a
video programmer in which a cable operator has an attributable interest." 47
U.S.C. sec. 533(f)(1)(B). Accordingly, the FCC recently adopted "vertical
ownership" restrictions which, effective January 10, 1994, prohibit (subject to
certain exemptions) a cable system operator from holding attributable interests
in video programmers collectively occupying more than 40% of the channel
capacity of its cable systems. The restrictions on channel occupancy do not
apply to channel capacity in excess of 75 channels. For purposes of calculating
the 40% benchmark, the FCC defines "attributable interest" as it defines the
term for purposes of applying its broadcast cross-ownership restrictions.
12. Fees and Expenses. Lazard is acting as financial advisor to Comcast
and is acting as Dealer Manager in connection with the Offer. Comcast has agreed
to pay Lazard as compensation for its services as financial advisor in
connection with the Transaction and as Dealer Manager in connection with the
Offer a fee of $7,500,000. Comcast has agreed to pay Lazard $1,000,000 of such
fee upon the public announcement of any acquisition by Comcast (by merger or
otherwise) of all or a substantial portion of the Company, and the balance of
such fee, $6,500,000, upon the acquisition by Comcast of at least a majority of
Common Shares. Comcast has agreed to indemnify Lazard and its affiliates against
certain liabilities, including certain liabilities under the federal securities
laws.
The Purchaser has retained D.F. King & Co., Inc. to act as the Information
Agent and The Bank of New York to act as the Depositary in connection with the
Offer. The Information Agent may contact holders of Shares by mail, telephone,
telex, telegraph and personal interviews and may request brokers, dealers and
57
<PAGE> 60
other nominee stockholders to forward materials relating to the Offer to
beneficial owners. The Information Agent and the Depositary each will receive
reasonable and customary compensation for their respective services, will be
reimbursed for certain reasonable out-of-pocket expenses and will be indemnified
against certain liabilities in connection therewith, including certain
liabilities under the federal securities laws.
The Purchaser will not pay any fees or commissions to any broker or dealer
or any other person (other than the Dealer Manager, the Information Agent and
the Depository) for soliciting tenders of Shares pursuant to the Offer. Brokers,
dealers, commercial banks and trust companies will, upon request, be reimbursed
by the Purchaser for reasonable and necessary costs and expenses incurred by
them in forwarding materials to their customers.
It is estimated that the expenses incurred in connection with the
Transaction will be approximately as set forth below:
<TABLE>
<S> <C>
Filing Fees............................................. $ 219,409
Dealer Manager/Financial Advisory Fees.................. 18,000,000
Information Agent Fees.................................. 7,500
Depositary Fees......................................... 41,000
Legal Fees.............................................. 8,000,000
Accounting Fees......................................... 5,000
Printing and Mailing Costs.............................. 200,000
Miscellaneous........................................... 50,000
-----------
Total......................................... $26,522,909
==========
</TABLE>
All costs and expenses incurred by Comcast, Liberty and TCI in connection
with the Joint Bidding Agreement and the transactions contemplated thereby
(other than costs and expenses related to the cash contribution agreed to be
made by each of the Parent Purchasers to the Purchaser, which shall be paid by
such Parent Purchaser) shall be paid or reimbursed by QVC following the Merger,
or if the Merger is not consummated, then by the party incurring such expenses.
13. Miscellaneous. The Offer is not being made to, nor will tenders be
accepted from or on behalf of, holders of Shares in any jurisdiction in which
the making of the Offer or acceptance thereof would not be in compliance with
the laws of such jurisdiction. However, the Purchaser may, in its discretion,
take such action as it may deem necessary to make the Offer in any such
jurisdiction and extend the Offer to holders of Shares in such jurisdiction.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION ON BEHALF OF THE PURCHASER NOT CONTAINED IN THIS OFFER TO
PURCHASE OR IN THE LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.
The Purchaser has filed with the Commission a Tender Offer Statement on
Schedule 14D-1, together with exhibits thereto (the "Schedule 14D-1"), pursuant
to Rule 14d-3 of the General Rules and Regulations under the Exchange Act, and
the Schedule 13E-3, each furnishing certain additional information with respect
to the Transaction. By filing the Schedule 13E-3 none of the joint signatories
thereto concedes that Rule 13E-3 is applicable to the Transaction. The Schedule
14D-1, the Schedule 13E-3 and any amendments thereto, including exhibits, may be
examined and copies may be obtained from the offices of the Commission in the
manner set forth under "-- 6. Certain Information Concerning the Company"
(except that such information will not be available at the regional offices of
the Commission).
58
<PAGE> 61
SCHEDULE I
QVC, INC.
Set forth below are the name, business address and present principal
occupation or employment, and material occupations, positions, offices or
employments for the past five years of each director and executive officer of
the Company. Except as otherwise noted, the business address of each such person
is c/o QVC, Inc., 1365 Enterprise Drive, West Chester, PA 19380, and such person
is a United States citizen. In addition, except as otherwise noted, each
executive officer of the Company has been employed by the Company in the
positions listed below during the last five years. This information has been
taken from and is based upon reports and other documents on file with the
Commission or otherwise publicly available.
<TABLE>
<CAPTION>
PRINCIPAL BUSINESS
OR ORGANIZATION IN MATERIAL OCCUPATIONS,
WHICH SUCH POSITIONS, OFFICES OR
PRINCIPAL OCCUPATION EMPLOYMENT IS EMPLOYMENTS FOR THE PAST
NAME AND BUSINESS ADDRESS CONDUCTED FIVE YEARS
- --------------------- -------------------------- -------------------- --------------------------
<S> <C> <C> <C>
Douglas Briggs Executive Vice President The Company Mr. Briggs has been
and President of QVC Executive Vice President
Electronic Retailing and President of QVC
Electronic Retailing since
February 1994. From
January 1993 to February
1994, he was Executive
Vice President --
Electronic Retailing. From
December 1987 until
January 1993, Mr. Briggs
was Executive Vice
President -- Programming.
Candice M. Carpenter President -- Q2, Inc. The Company Ms. Carpenter has been
President of Q2, Inc., a
wholly-owned subsidiary of
the Company, since July
1993. Prior thereto, Ms.
Carpenter was President of
Time-Warner Video and
Time-Life Television from
1989 to July 1993.
William F. Costello Executive Vice President The Company Mr. Costello has been
-- Finance and Chief Director, Executive Vice
Financial Officer of the President -- Finance and
Company Chief Financial Officer of
the Company since December
1989. Mr. Costello was
also Treasurer of the
Company from December 1989
to September 1992. Prior
thereto, he was an
independent management and
financial consultant from
1988 until December 1989.
Barry Diller Chairman, Chief The Company Mr. Diller has been
Executive Officer and Chairman of the Board, the
Director of the Chief Executive Officer
Company and a Director of the
company since January 18,
1993. From 1984 to 1992,
Mr. Diller was Chairman of
the Board, a Director and
Chief Executive Officer of
Fox, Inc.
</TABLE>
<PAGE> 62
<TABLE>
<CAPTION>
PRINCIPAL BUSINESS
OR ORGANIZATION IN MATERIAL OCCUPATIONS,
WHICH SUCH POSITIONS, OFFICES OR
PRINCIPAL OCCUPATION EMPLOYMENT IS EMPLOYMENTS FOR THE PAST
NAME AND BUSINESS ADDRESS CONDUCTED FIVE YEARS
- --------------------- -------------------------- -------------------- --------------------------
<S> <C> <C> <C>
Thomas Downs Executive Vice The Company Mr. Downs has been
President -- Operations Executive Vice
and Services of the President -- Operations
Company and Services since
February 1994. Prior
thereto, Mr. Downs was
Executive Vice
President -- Customer
Service from February 1991
to February 1994,
Executive Vice
President -- Fulfillment
from December 1989 to
January 1991 and Senior
Vice President --
Fulfillment from 1987
to December 1989.
Neal S. Grabell Senior Vice President, The Company Mr. Grabell has been
General Counsel and Senior Vice President,
Secretary of the General Counsel and
Company Secretary of the Company
since 1987. Mr. Grabell is
of counsel to the law firm
Bolger, Picker, Hankin &
Tannenbaum.
James G. Held Executive Vice-President The Company Mr. Held has been
of QVC Merchandising Executive Vice President
of QVC Merchandising since
February 1994. Prior
thereto, he was Senior
Vice President of New
Business Development of
the Company from September
1993 to February 1994.
Prior thereto, he served
in a series of positions
with Bloomingdale's from
1983 to September 1993.
John F. Link Executive Vice The Company Mr. Link has been
President -- Information Executive Vice
Systems and President -- Information
Telecommunications and Systems and
Chief Information Officer Telecommunications and
of the Company Chief Information Officer
since February 1994. He
was Executive Vice
President of Information
Systems and
Telecommunications from
August 1990 to February
1994 and Senior Vice
President of Information
Systems and Data
Communications of the
Company since 1989. From
1964 to 1989, Mr. Link
held various positions
with Sun Company, Inc.
</TABLE>
I-2
<PAGE> 63
<TABLE>
<CAPTION>
PRINCIPAL BUSINESS
OR ORGANIZATION IN MATERIAL OCCUPATIONS,
WHICH SUCH POSITIONS, OFFICES OR
PRINCIPAL OCCUPATION EMPLOYMENT IS EMPLOYMENTS FOR THE PAST
NAME AND BUSINESS ADDRESS CONDUCTED FIVE YEARS
- --------------------- -------------------------- -------------------- --------------------------
<S> <C> <C> <C>
J. Bruce Llewellyn Chairman of the Board Soft drink bottler Mr. Llewellyn has been a
and Chief Executive and distributor Director of the Company
Officer of The since June 1990. Mr.
Philadelphia Llewellyn has been
Coca-Cola Bottling Chairman of the Board and
Company Chief Executive Officer of
Rubin, Baum, Levin, the Philadelphia Coca-Cola
Constant & Friedman Bottling Company for more
30 Rockefeller Plaza than five years. Mr.
29th Floor Llewellyn also serves as
New York, NY 10012 Chairman of the Board and
Chief Executive Officer of
The Coca-Cola Bottling
Company of Wilmington,
Inc., Queen City
Broadcasting, Inc. and
Garden State Cablevision,
Inc.
Robert J. Perkins President of Q Direct The Company Mr. Perkins has served as
President of Q Direct
since March 1994. Mr.
Perkins served as Senior
Vice President of
Marketing of Pizza Hut
from March 1991 to March
1994. From 1985 to 1991,
Mr. Perkins held a series
of positions within the
Chiat/Day advertising
organization.
Bruce M. Ramer Director, Principal of law Law Firm Mr. Ramer has been a
firm of Gang, Tyre, Director of the Company
Ramer & Brown, Inc. since May 1994. Mr. Ramer
6400 Sunset Building has been a principal of
Los Angeles, CA 90028 the law firm of Gang,
Tyre, Ramer & Brown, Inc.
for more than five years.
Ralph J. Roberts Chairman of the Board Comcast Mr. Roberts has been a
of Directors and Director of the Company
Director of Comcast since June 1991. Mr.
1500 Market Street Roberts has been Chairman
Philadelphia, PA of the Board of Directors
19102-2148 and a Director of Comcast
for more than five years.
Mr. Roberts has also been
President and a Director
of Sural for more than
five years. Prior to
February 7, 1990, Mr.
Roberts was President of
Comcast. Mr. Roberts is
also a Director of Storer
Communications, Inc.
</TABLE>
I-3
<PAGE> 64
<TABLE>
<CAPTION>
PRINCIPAL BUSINESS
OR ORGANIZATION IN MATERIAL OCCUPATIONS,
WHICH SUCH POSITIONS, OFFICES OR
PRINCIPAL OCCUPATION EMPLOYMENT IS EMPLOYMENTS FOR THE PAST
NAME AND BUSINESS ADDRESS CONDUCTED FIVE YEARS
- --------------------- -------------------------- -------------------- --------------------------
<S> <C> <C> <C>
Brian L. Roberts President and Director of Comcast Mr. Roberts has been a
Comcast Director of the Company
1500 Market Street since October 1987.
Philadelphia, PA Mr. Roberts has served as
19102-2148 President of Comcast since
February 1990. Prior
thereto, Mr. Roberts was
Executive Vice President
of Comcast since June 1987
and a Vice President of
Comcast since September
1986. Previously, he
served in various
capacities with Comcast
Cable Communications, a
division of Comcast which
operates Comcast's cable
communications business,
for more than five years.
Mr. Roberts also serves as
Vice President and a
Director of Sural. Mr.
Roberts is also a Director
of Turner Broadcasting
System, Inc. and Storer
Communications, Inc.
William J. Schereck President -- International The Company Mr. Schereck served as
Executive Vice
President -- International
of the Company from
December 1993 to February
1994, when he was
appointed to his current
position of President -
International. From 1990
to December 1993, Mr.
Schereck served as Vice
President, Cable
Affiliates for Fox
Broadcasting Company and
from 1985 to 1990 he held
a series of positions with
WMSN, a television station
in Madison, Wisconsin.
Joseph M. Segel Director and Chairman The Company Mr. Segel has been a
Emeritus of the Director of the Company
Company since 1986 and Chairman
Emeritus of the Company
since January 1993. Mr.
Segel was Chairman, Chief
Executive Officer and a
Director of the Company
from June 1986 to January
1993. From June 1986 to
November 1986 and from
December 1987 to July
1989, Mr. Segel was
President of the Company.
</TABLE>
I-4
<PAGE> 65
<TABLE>
<CAPTION>
PRINCIPAL BUSINESS
OR ORGANIZATION IN MATERIAL OCCUPATIONS,
WHICH SUCH POSITIONS, OFFICES OR
PRINCIPAL OCCUPATION EMPLOYMENT IS EMPLOYMENTS FOR THE PAST
NAME AND BUSINESS ADDRESS CONDUCTED FIVE YEARS
- --------------------- -------------------------- -------------------- --------------------------
<S> <C> <C> <C>
Linda J. Wachner Chairman, President and Apparel Company Mrs. Wachner has been a
Chief Executive Director of the Company
Officer of Warnaco since May 1994. She has
Inc. been Chairman, President
90 Park Avenue and Chief Executive
New York, NY 10016 Officer of Warnaco Inc.,
a publicly-owned apparel
company, for more than
five years. She is also
Chairman and Chief
Executive Officer of
Authentic Fitness
Corporation.
</TABLE>
I-5
<PAGE> 66
SCHEDULE II
COMCAST CORPORATION AND QVC PROGRAMMING HOLDINGS, INC.
Set forth below are the name, business address and present principal
occupation or employment, and material occupations, positions, offices or
employments for the past five years of each director, executive officer and
controlling person, and age of each executive officer, of Comcast, the Purchaser
and Sural. Except as otherwise noted, the business address of each such person
is c/o Comcast Corporation, 1500 Market Street, Philadelphia, PA 19102, and such
person is a United States citizen. In addition, except as otherwise noted, each
executive officer of Comcast, the Purchaser or Sural has been employed by
Comcast, the Purchaser or Sural, respectively, in the positions listed below
during the last five years.
<TABLE>
<CAPTION>
PRINCIPAL BUSINESS
OR ORGANIZATION IN MATERIAL OCCUPATIONS,
WHICH SUCH POSITIONS, OFFICES OR
PRINCIPAL OCCUPATION EMPLOYMENT IS EMPLOYMENTS FOR THE PAST
NAME AND BUSINESS ADDRESS CONDUCTED FIVE YEARS; AGE
- --------------------- -------------------------- -------------------- --------------------------
<S> <C> <C> <C>
Ralph J. Roberts Chairman of Board of Comcast Mr. Roberts has served as
Directors and Director Chairman of the Board of
of Comcast; Chairman of Directors and a Director
Board of Directors and of Comcast for more than
Director of the five years. He has been
Purchaser; President and the President and a
Director of Sural Director of Sural for more
than five years. Mr.
Roberts is also a Director
of the Company and Storer
Communications, Inc. Age
74.
Julian A. Brodsky Vice Chairman of Board of Comcast Mr. Brodsky has served as
Directors and Director Vice Chairman of the Board
of Comcast; Vice of Directors and a
Chairman of Board of Director of Comcast for
Directors and Director, more than five years. He
Assistant Secretary and has served as Treasurer
Assistant Treasurer of and Director of Sural for
the Purchaser; Treasurer more than five years. Mr.
and Director of Sural Brodsky is also a Director
of Nextel Communications,
Inc., Stor Communications,
Inc. and RBB Fund, Inc.
Age 61.
</TABLE>
II-1
<PAGE> 67
<TABLE>
<CAPTION>
PRINCIPAL BUSINESS
OR ORGANIZATION IN MATERIAL OCCUPATIONS,
WHICH SUCH POSITIONS, OFFICES OR
PRINCIPAL OCCUPATION EMPLOYMENT IS EMPLOYMENTS FOR THE PAST
NAME AND BUSINESS ADDRESS CONDUCTED FIVE YEARS; AGE
- --------------------- -------------------------- -------------------- --------------------------
<S> <C> <C> <C>
Brian L. Roberts President and Director of Comcast Mr. Roberts was elected to
Comcast; President and the Board of Directors in
Director of the June 1988 and was elected
Purchaser; Vice President of Comcast in
President and Director February 1990. Mr. Roberts
of Sural had been Executive Vice
President of Comcast since
June 1987 and had been a
Vice President of Comcast
since September 1986.
Previously, he served in
various capacities with
Comcast Cable
Communications, a division
of Comcast which operates
Comcast's cable
communications business
for more than five years.
Mr. Roberts serves as Vice
President and a Director
of Sural. Mr. Roberts is
also a Director of Turner
Broadcasting System, Inc.,
the Company and Storer
Communications, Inc.
Age 35.
John R. Alchin Senior Vice President and Comcast Mr. Alchin joined Comcast
(citizen Treasurer of Comcast; in January 1990 as Vice
of Australia) Senior Vice President President and Treasurer
and Treasurer of the and in February 1990 was
Purchaser elected Senior Vice
President. Prior to
joining Comcast, Mr.
Alchin held various
executive positions with
Toronto Dominion Bank for
more than five years,
including Managing
Director, Merchant Banking
Group. Age 46.
Thomas G. Baxter Senior Vice President of Comcast Mr. Baxter was elected
Comcast and President of Senior Vice President of
Comcast Cable Comcast in February 1990.
Communications, Inc. As of January 1, 1990, Mr.
Baxter was named Vice
President of Comcast and
President of Comcast Cable
Communications. Mr. Baxter
had been a Vice President
of Comcast Cable since
1985. Age 47.
</TABLE>
II-2
<PAGE> 68
<TABLE>
<CAPTION>
PRINCIPAL BUSINESS
OR ORGANIZATION IN MATERIAL OCCUPATIONS,
WHICH SUCH POSITIONS, OFFICES OR
PRINCIPAL OCCUPATION EMPLOYMENT IS EMPLOYMENTS FOR THE PAST
NAME AND BUSINESS ADDRESS CONDUCTED FIVE YEARS; AGE
- --------------------- -------------------------- -------------------- --------------------------
<S> <C> <C> <C>
Lawrence S. Smith Senior Vice President Comcast Mr. Smith was elected
-- Accounting and Senior Vice President of
Administration of Comcast in February 1990.
Comcast; Senior In April 1988, Mr. Smith
Vice President -- joined Comcast as Vice
Accounting and President -- Accounting
Administration of the and Administration. Mr.
Purchaser Smith is the Principal
Accounting Officer of
Comcast. Prior to joining
Comcast, Mr. Smith served
as Senior Vice President,
Finance of Advanta Corp.,
a financial services
holding company, from
1986. Previously, Mr.
Smith was a partner with
Arthur Andersen & Co. for
more than five years. Age
46.
Stanley L. Wang Senior Vice President, Comcast Mr. Wang was elected
General Counsel and Senior Vice President of
Secretary of Comcast; Comcast in February 1990.
Director, Senior Vice Previously, Mr. Wang
President and Secretary served as Vice President
of the Purchaser and General Counsel of
Comcast for more than five
years. Mr. Wang was also
named Secretary of Comcast
in Spring 1989. Mr. Wang
continues to serve as
General Counsel. Mr. Wang
is a Director of Storer
Communications, Inc. Age
53.
C. Stephen Backstrom Vice President -- Taxation Comcast Mr. Backstrom has been
of Comcast; Vice Vice President -- Taxation
President -- Taxation of of Comcast for more than
the Purchaser the past five years. Age
50.
Robert B. Clasen Senior Vice President of Comcast Mr. Clasen joined Comcast
Comcast and Chairman of in January 1993 as Senior
Comcast International Vice President and
Holdings, Inc. Chairman of Comcast
International, a division
of Comcast which owns,
develops and operates
Comcast's international
investments. From February
to December 1992, Mr.
Clasen was a consultant to
Comcast International, and
from February to November
1991, he was a Senior Vice
President of McCaw
Cellular Communications,
Inc. and President of
McCaw's western region.
From 1984 to 1991, he
served in various
executive positions with
Comcast, including Senior
Vice President. Age 49.
</TABLE>
II-3
<PAGE> 69
<TABLE>
<CAPTION>
PRINCIPAL BUSINESS
OR ORGANIZATION IN MATERIAL OCCUPATIONS,
WHICH SUCH POSITIONS, OFFICES OR
PRINCIPAL OCCUPATION EMPLOYMENT IS EMPLOYMENTS FOR THE PAST
NAME AND BUSINESS ADDRESS CONDUCTED FIVE YEARS; AGE
- --------------------- -------------------------- -------------------- --------------------------
<S> <C> <C> <C>
Donald A. Harris Senior Vice President of Comcast Mr. Harris joined Comcast
Comcast and President of in March 1992 as Vice
Comcast Cellular President of Comcast and
Communications, Inc. President of Comcast
Cellular Communications, a
division of Comcast which
operates Comcast's
cellular telephone
business. In February
1993, Mr. Harris was
elected Senior Vice
President. Prior to
joining Comcast, Mr.
Harris held various
executive positions with
PacTel Cellular for more
than five years, including
most recently General
Manager of PacTel's Los
Angeles, California
cellular business. Mr.
Harris is also a Director
of Nextel, Inc. Age 41.
Daniel Aaron Director of Comcast Comcast Mr. Aaron has served as a
Director of Comcast for
more than five years. He
served as Vice Chairman of
the Board of Directors for
more than five years until
his retirement in February
1991. He continues to
serve as a consultant to
Comcast.
Gustave G. Amsterdam Director, Attorney Law Firm Mr. Amsterdam has been a
1845 Walnut Street Director of Comcast for
Suite 2390 more than five years. Mr.
Philadelphia, PA Amsterdam was, for more
19103 than five years, Chairman
of the Board of Bankers
Securities Corporation, a
mercantile, real estate
management and operating
company.
Sheldon M. Bonovitz Director, Partner in law Law Firm Mr. Bonovitz has been a
firm of Duane, Morris Director of Comcast for
& Heckscher more than five years. Mr.
4200 One Liberty Place Bonovitz has been an
Philadelphia, PA attorney specializing in
tax matters with the law
firm of Duane, Morris &
Heckscher, in which firm
he is a partner, for more
than five years. Mr.
Bonovitz is also a
Director of Castle Energy
Corporation and Surgical
Laser Technologies, Inc.
</TABLE>
II-4
<PAGE> 70
<TABLE>
<CAPTION>
PRINCIPAL BUSINESS
OR ORGANIZATION IN MATERIAL OCCUPATIONS,
WHICH SUCH POSITIONS, OFFICES OR
PRINCIPAL OCCUPATION EMPLOYMENT IS EMPLOYMENTS FOR THE PAST
NAME AND BUSINESS ADDRESS CONDUCTED FIVE YEARS; AGE
- --------------------- -------------------------- -------------------- --------------------------
<S> <C> <C> <C>
Joseph L. Castle, II Director, President of Independent oil and Mr. Castle has been a
Castle Energy Corp. gas refining Director of Comcast for
One Valley Square exploration and more than five years. Mr.
Suite 101 production Castle has been, for more
Blue Bell, PA 19422 company, which than five years, a
also manages oil financial consultant and
and gas limited is the President, Chief
partnerships Executive Officer and a
Director of Castle Energy
Corporation, an
independent oil and gas
refining, exploration and
production company which
also manages oil and gas
limited partnerships. Mr.
Castle is also a Director
of Reading Company,
Charming Shoppes, Inc. and
Independence Capital
Management, Inc., a
subsidiary of Penn Mutual
Life Insurance Company,
Inc.
Bernard C. Watson Director, President of Private Foundation Dr. Watson has been a
William Penn Director of Comcast for
Foundation more than five years. Dr.
One Valley Square Watson has been President
Suite 101 and Chief Executive
12 Township Line Road, Officer of the William
Blue Bell, PA 19422 Penn Foundation for more
than five years. Dr.
Watson also serves as a
Director of First Fidelity
Bancorporation, First
Fidelity Bank and Comcast
Cablevision of
Philadelphia, Inc.
Irving A. Wechsler Director, Partner in Accounting Firm Mr. Wechsler has been a
Wechsler, Myers & Director of Comcast for
Walsh, Certified Public more than five years, a
Accountants partner in the firm of
One Oliver Plaza Wechsler, Myers & Walsh,
Pittsburgh, PA 15222 Certified Public
Accountants, in
Pittsburgh, Pennsylvania.
Anne Wexler Director, Chairman of Consulting firm Ms. Wexler has been a
The Wexler Group specializing Director of Comcast since
1317 F. Street N.W. government March 1991 and has been
Suite 600 relations Chairman of the Wexler
Washington, DC 20004 Group, a consulting firm
specializing in government
relations and public
affairs, which is an
operating unit of Hill and
Knowlton Public Affairs
Worldwide, for more than
five years. Ms. Wexler is
also a Director of
American Cyanamid Company,
the Continental
Corporation and the New
England Electric System.
</TABLE>
II-5
<PAGE> 71
<TABLE>
<CAPTION>
PRINCIPAL BUSINESS
OR ORGANIZATION IN MATERIAL OCCUPATIONS,
WHICH SUCH POSITIONS, OFFICES OR
PRINCIPAL OCCUPATION EMPLOYMENT IS EMPLOYMENTS FOR THE PAST
NAME AND BUSINESS ADDRESS CONDUCTED FIVE YEARS; AGE
- ------------------ ----------------------- ------------------- -------------------------
<S> <C> <C> <C>
Suzanne F. Roberts Vice President and Holding Company Ms. Roberts has been a
Director of Sural Vice President and
1375 Fairview Road Director of Sural for
Coatesville, PA 19107 more than five years.
</TABLE>
II-6
<PAGE> 72
TELE-COMMUNICATIONS, INC.
Set forth below are the name, business address and present principal
occupation or employment, and material occupations, positions, offices or
employments for the past five years of each director and executive officer of
TCI. Except as otherwise noted, the business address of each such person is c/o
Tele-Communications, Inc., 5619 DTC Parkway, Englewood, CO 80111, and such
person is a United States citizen. In addition, except as otherwise noted, each
executive officer of Liberty has been employed by Liberty in the positions
listed below during the last five years.
<TABLE>
<CAPTION>
PRINCIPAL BUSINESS
OR ORGANIZATION IN MATERIAL OCCUPATIONS,
WHICH SUCH POSITIONS, OFFICES OR
PRINCIPAL OCCUPATION EMPLOYMENT IS EMPLOYMENTS FOR THE PAST
NAME AND BUSINESS ADDRESS CONDUCTED FIVE YEARS; AGE
- --------------------- -------------------------- -------------------- --------------------------
<S> <C> <C> <C>
Bob Magness Chairman of the Board TCI Mr. Magness has been
and Director of TCI Chairman of the Board and
a Director of TCI and its
predecessors since 1973.
Mr. Magness has been a
Director of Liberty since
1990. Mr. Magness is also
a Director of Turner
Broadcasting System, Inc.
and Republic Pictures
Corporation.
John C. Malone President, Chief TCI Dr. Malone has served as
Executive Officer and President and Director of
Director of TCI TCI and its predecessors
since 1973. Dr. Malone has
also been Chairman of the
Board and a Director of
Liberty since 1990. Dr.
Malone is also a Director
of Turner Broadcasting
System, Inc., The Bank of
New York Company, Inc.,
QVC and BET. Age 53.
Donne F. Fisher Executive Vice President, TCI Executive Vice President
Treasurer and Director of TCI and its
of TCI predecessors since
December of 1991; was
previously Senior Vice
President of TCI and its
predecessors since 1982
and Treasurer since 1970;
Vice President, Treasurer
and a director of most of
TCI's subsidiaries. Age
56.
John W. Gallivan Director of TCI Newspaper publishing Chairman of the Board of
Chairman of the Board Kearns-Tribune
Kearns-Tribune Corporation, a newspaper
Corporation publishing company.
400 Tribune Building
Salt Lake City, UT
84111
</TABLE>
II-7
<PAGE> 73
<TABLE>
<CAPTION>
PRINCIPAL BUSINESS
OR ORGANIZATION IN MATERIAL OCCUPATIONS,
WHICH SUCH POSITIONS, OFFICES OR
PRINCIPAL OCCUPATION EMPLOYMENT IS EMPLOYMENTS FOR THE PAST
NAME AND BUSINESS ADDRESS CONDUCTED FIVE YEARS; AGE
- --------------------- -------------------------- -------------------- --------------------------
<S> <C> <C> <C>
Anthony Lee Coelho Director of TCI Investment Services President and Chief
President and CEO of Executive Officer of
Wertheim Schroder Wertheim Schroder
Investment Services, Investment Services;
Inc. Managing Director of
787 7th Avenue, Wertheim Schroder & Co.,
5th Floor Incorporated; was formerly
New York, NY 10019 U.S. Representative from
California from January
1979 through June 1989 and
the Majority Whip of the
U.S. House of
Representatives from
December 1986 through June
1989.
Kim Magness Director of TCI Ranching and horse Manages family business
Magness family breeding interests, mostly in
business interests, ranching and breeding
principally in ranching Arabian horses, and is
and breeding Arabian Chairman and President of
horses; a company developing
1470 South Quebec liners for irrigation
Way, #148 canals.
Denver, CO 80231
Robert A. Naify Director of TCI Motion Picture President of The Todd-AO
President and CEO of Industry Corporation.
Todd-AO Corporation
172 Golden Gate Avenue
San Francisco, CA
94102
Jerome H. Kern Director of TCI; Senior Law Senior partner of Baker &
Partner in Baker & Botts, L.L.P., a law firm
Botts, L.L.P. located in New York, New
885 Third Avenue, York, since September
Suite 1900 1992. Mr. Kern was a
New York, NY 10022 senior partner of the Law
Offices of Jerome H. Kern
from January 1, 1992 to
September 1, 1992 and
prior to that, was a
senior partner of the law
firm of Shea & Gould from
1986 through December 31,
1991.
</TABLE>
II-8
<PAGE> 74
<TABLE>
<CAPTION>
PRINCIPAL BUSINESS
OR ORGANIZATION IN MATERIAL OCCUPATIONS,
WHICH SUCH POSITIONS, OFFICES OR
PRINCIPAL OCCUPATION EMPLOYMENT IS EMPLOYMENTS FOR THE PAST
NAME AND BUSINESS ADDRESS CONDUCTED FIVE YEARS; AGE
- --------------------- -------------------------- -------------------- --------------------------
<S> <C> <C> <C>
Stephen M. Brett Executive Vice President, TCI Executive Vice President,
Secretary and General Secretary and General
Counsel of TCI Counsel of TCI since
August 1994. Senior Vice
President and General
Counsel of TCI from
December of 1991 to August
1994. From August of 1988
through December of 1991,
was Executive Vice
President -- Legal and
Secretary of United Artist
Entertainment Company
("UAE") and its
predecessor, United
Artists Communications,
Inc. ("UACI"). Age 53.
Brendan R. Clouston Executive Vice President TCI Executive Vice President
of TCI of TCI since August 1994.
Executive Vice President
and Chief Operating
Officer of TCI and its
predecessors from March
1992 until August 1994.
Previously Senior Vice
President of TCI since
December of 1991. From
January of 1987 through
December of 1991, held
various executive
positions with UAE and
UACI, most recently
Executive Vice President
and Chief Financial
Officer.
Age 41.
Larry E. Romrell Executive Vice President TCI Executive Vice President
of TCI of TCI since August 1994.
Senior Vice President of
TCI from 1991 until August
1994. From 1972 to the
present held various
executive positions with
WestMarc Communications,
Inc. ("WestMarc"), and is
currently president and
Chief Executive Officer of
WestMarc, a wholly-owned
subsidiary of TCI. Age 54.
J.C. Sparkman Executive Vice President TCI Executive Vice President
of TCI of TCI and its
predecessors since 1987.
Age 62.
</TABLE>
II-9
<PAGE> 75
<TABLE>
<CAPTION>
PRINCIPAL BUSINESS
OR ORGANIZATION IN MATERIAL OCCUPATIONS,
WHICH SUCH POSITIONS, OFFICES OR
PRINCIPAL OCCUPATION EMPLOYMENT IS EMPLOYMENTS FOR THE PAST
NAME AND BUSINESS ADDRESS CONDUCTED FIVE YEARS; AGE
- --------------------- -------------------------- -------------------- --------------------------
<S> <C> <C> <C>
Peter R. Barton Executive Vice President TCI Executive Vice President
of TCI of TCI since August 1994
and a Director and
President of Liberty since
1990; Senior Vice
President of TCI from 1988
until March 1991, and
President of Cable Value
Network from 1986 to 1988,
during which time he was
also a consultant to TCI.
Mr. Barton is also a
Director of BET Holdings,
Inc. Age 43.
R.E. Turner Director of TCI Cable television and Chairman of the Board and
Chairman of the Board entertainment President of Turner
and President of programming Broadcasting System, Inc.
Turner Broadcasting since 1970.
System, Inc. since
1970
One CNN Center,
14th Fl. North
Atlanta, GA 30303
Fred A. Vierra Executive Vice President TCI Executive Vice President
of TCI of TCI and its
predecessors since
December of 1991. Was
President and Chief
Operating Officer of UAE
from May of 1989 through
December of 1991;
President and Chief
Operating Officer of
United Cable Television
Corporation from 1982 to
May of 1989. Age 63.
</TABLE>
II-10
<PAGE> 76
SCHEDULE III
Set forth below is the name, business address and present principal
occupation or employment, and material occupations, positions, offices or
employments for the past five years and age of Arthur R. Block. Mr. Block's
business address is c/o Comcast Corporation, 1500 Market Street, Philadelphia,
PA 19107, and Mr. Block is a United States citizen.
<TABLE>
<CAPTION>
PRINCIPAL BUSINESS
OR ORGANIZATION IN MATERIAL OCCUPATIONS,
WHICH SUCH POSITIONS, OFFICES OR
PRINCIPAL OCCUPATION EMPLOYMENT IS EMPLOYMENTS FOR THE PAST
NAME AND BUSINESS ADDRESS CONDUCTED FIVE YEARS; AGE
- --------------------- -------------------------- -------------------- --------------------------
<S> <C> <C> <C>
Arthur R. Block Vice President, Deputy Comcast Mr. Block has been Deputy
General Counsel and General Counsel and
Assistant Secretary of Assistant Secretary of
Comcast; Vice President, Comcast for more than five
Assistant Secretary and years, and Vice President
Assistant Treasurer of of Comcast since December
the Purchaser 1993. Age 39.
</TABLE>
III-1
<PAGE> 77
ANNEX A
August 4, 1994
The Board of Directors
QVC, Inc.
Goshen Corporate Park
West Chester, PA 19380
Dear Members of the Board:
You have requested our opinion, as of this date, as to the fairness, from a
financial point of view, to the holders of the outstanding shares of Common
Stock, par value $.01 per share (the "QVC Common Stock"), of QVC, Inc. (the
"Company"), QVC Preferred Stock and QVC Options (as such terms are hereinafter
defined), of the consideration to be received by such holders in connection with
the proposed Offer and Merger hereinafter referred to.
Pursuant to the Agreement and Plan of Merger (the "Merger Agreement"),
dated as of August 4, 1994, among the Company, Comcast Corporation, a
Pennsylvania corporation ("Comcast"), Liberty Media Corporation, a Delaware
corporation ("Liberty"), and Comcast Qmerger, Inc., a Delaware corporation
("MergerCo"), the Company, and a wholly owned subsidiary of MergerCo will enter
into a business combination transaction pursuant to which, on the terms and
subject to the conditions contained in the Merger Agreement, MergerCo will
commence a tender offer (the "Offer") to purchase for cash any and all shares of
QVC Common Stock as well as the Company's Series B Preferred Stock, Series C
Preferred Stock and Series D Preferred Stock, par value $.10 per share
(collectively the "QVC Preferred Stock" and together with the QVC Common Stock,
the "QVC Stock"). Pursuant to the Offer, among other things, MergerCo will offer
to pay net to the seller in cash and without interest, (i) $46.00 per share of
QVC Common Stock issued and outstanding and (ii) $460.00 per share of QVC
Preferred Stock. The Merger Agreement provides that following the completion of
the Offer, a wholly owned subsidiary of MergerCo will be merged with and into
the Company (the "Merger") in accordance with the applicable provisions of
Delaware law and the terms of the Merger Agreement. Pursuant to the Merger
Agreement, QVC Stock not tendered to MergerCo pursuant to the Offer that remains
issued and outstanding immediately prior to the effective time of the Merger
would be converted into the right to receive the consideration payable pursuant
to the Offer for such QVC Stock.
In addition, in connection with the Merger, the Company's obligations with
respect to each outstanding stock option granted pursuant to the Company's
employee stock option plans and certain other stock options (collectively, the
"QVC Options") will, except in certain circumstances, be satisfied by paying to
holders of such options an amount in cash equal to $46.00 for each share of QVC
Common Stock underlying each such option, less the exercise price of each such
option.
In arriving at our opinion, we have among other things:
(i) reviewed the terms and conditions of the Merger Agreement and the
agreements and instruments referred to therein;
(ii) analyzed certain historical business and financial information
relating to the Company, including the Annual Reports to Stockholders
and Annual Reports on Form 10-K of the Company for each of the fiscal
years ended January 31, 1990 through 1994, and the Quarterly Reports
on Form 10-Q of the Company for the same fiscal years and for the
quarter ended April 30, 1994;
(iii) reviewed certain financial forecasts and other data provided to us by
the Company relating to its business, earnings, assets and prospects;
A-1
<PAGE> 78
(iv) conducted discussions with members of the senior management of the
Company with respect to the financial condition, business,
operations, strategic objectives and prospects of the Company;
(v) reviewed public information with respect to certain other
companies in lines of businesses we believe to be comparable in
whole or in part to the businesses of the Company;
(vi) compared the financial terms of certain business combinations
involving companies in lines of businesses comparable to the Company
with the financial terms of the Merger Agreement;
(vii) reviewed the trading history of QVC Common Stock, including its
performance in comparison to market indices and to selected
companies in comparable businesses;
(viii) reviewed certain stock market data and financial information
relating to selected public companies which we deemed generally
comparable to the Company; and
(ix) conducted such other financial analyses and investigations as we
deemed necessary or appropriate for the purposes of the opinion
expressed herein.
We have been advised that drafts of the Offer to Purchase and certain other
documents that may be prepared for use in connection with the proposed Offer and
the Merger Agreement are not yet available, and thus we have not been able to
review such documents in connection with our opinion.
In rendering our opinion, we have assumed and relied upon the accuracy and
completeness of the financial and other information provided by the Company to
us and the representations contained in the Merger Agreement, and we have not
undertaken any independent verification of such information or any independent
valuation or appraisal of any of the assets of the Company. With respect to the
financial forecasts referred to above, we have assumed that they have been
reasonably prepared on a basis reflecting the best currently available judgments
of the management of the Company as to the future financial performance of the
Company. Furthermore, our opinions are based on economic, monetary and market
conditions existing on this date.
We acted as financial advisor to the Company in connection with this
transaction and will receive a fee for our services. We have also performed
investment banking services for the Company in the past. Our opinion does not,
however, constitute a recommendation of the Merger over any other alternative
transactions which may be available to the Company. Paul A. Gould, a managing
director of our firm, serves as a director of Liberty. As a part of our
investment banking business, we hold positions in and trade in the securities of
the Company, Comcast and Liberty from time to time.
Our engagement and the opinions expressed herein are solely for the benefit
of the Company's Board of Directors and are not on behalf of, and are not
intended to confer rights or remedies upon, either Comcast or Liberty, any
stockholders of the Company or any other person other than the Company's Board
of Directors. Furthermore, the opinion rendered herein does not constitute a
recommendation by our firm that any stockholder of the Company vote to approve
the Merger or accept the Offer.
Based on and subject to the foregoing and such other factors as we deemed
relevant, we are of the opinion that, as of this date, the consideration to be
received by the holders of QVC Stock and QVC Options pursuant to the Merger
Agreement is fair to such holders, other than Comcast and Liberty, from a
financial point of view.
Very truly yours,
ALLEN & COMPANY INCORPORATED
By: /s/ Enrique F. Senior
--------------------------------------
Enrique F. Senior
Managing Director
A-2
<PAGE> 79
ANNEX B
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
262. APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to sec. 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of his shares of stock under the circumstances described in
subsections (b) and (c) of this section. As used in this section, the word
"stockholder" means a holder of record of stock in a stock corporation and also
a member of record of a nonstock corporation; the words "stock" and "share" mean
and include what is ordinarily meant by those words and also membership or
membership interest of a member of a nonstock corporation.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effective pursuant to sec. 251, 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock which, at
the record date fixed to determine the stockholders entitled to receive
notice of and to vote at the meeting of stockholders to act upon the
agreement of merger or consolidation, were either (i) listed on a national
securities exchange or designated as a national market system security on
an interdealer quotation system by the National Association of Securities
Dealers, Inc. or (ii) held of record by more than 2,000 stockholders; and
further provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger
did not require for its approval the vote of the stockholders of the
surviving corporation as provided in subsection (f) of sec. 251 of this
title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
sec.sec. 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation;
b. Shares of stock of any other corporation which at the effective
date of the merger or consolidation will be either listed on a national
securities exchange or designated as a national market system security
on an interdealer quotation system by the National Association of
Securities Dealers, Inc. or held of record by more than 2,000
stockholders;
c. Cash in lieu of fractional shares of the corporations described
in the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock and cash in lieu of
fractional shares described in the foregoing subparagraphs a., b. and c.
of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec. 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger of consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a
B-1
<PAGE> 80
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsections (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of his shares
shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if its reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to sec. 228
or sec. 253 of this title, the surviving or resulting corporation, either
before the effective date of the merger or consolidation or within 10 days
thereafter, shall notify each of the stockholders entitled to appraisal
rights of the effective date of the merger or consolidation and that
appraisal rights are available for any or all of the shares of the
constituent corporation, and shall include in such notice or a copy of this
section. The notice shall be sent by certified or registered mail, return
receipt requested, addressed to the stockholder at his address as it
appears on the records of the corporation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of the
notice, demand in writing from the surviving or resulting corporation the
appraisal of his shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of his shares.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown
B-2
<PAGE> 81
on the list at the addresses therein stated. Such notice shall also be given by
1 or more publications at least 1 week before the day of the hearing, in a
newspaper of general circulation published in the City of Wilmington, Delaware
or such publication as the Court deems advisable. The forms of the notices by
mail and by publication shall be approved by the Court, and the costs thereof
shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded a
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow the money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata gainst the value of all of
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
B-3
<PAGE> 82
ANNEX C
QVC, INC. AND SUBSIDIARIES
SELECTED FINANCIAL INFORMATION
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial Information Extracted from 1994 Form 10-K Annual Report
Independent Auditors' Report.................................................... C-2
Consolidated Balance Sheets at January 31, 1994 and 1993........................ C-3
Consolidated Statements of Operations of the fiscal years 1993, 1992 and 1991... C-4
Consolidated Statements of Cash Flows for the fiscal years 1993, 1992 and
1991........................................................................... C-5
Consolidated Statements of Shareholders' Equity for the fiscal years ended
January 31, 1994, January 31, 1993 and January 31, 1992........................ C-6
Notes to Consolidated Financial Statements...................................... C-7
Schedules II, VIII and X to the Consolidated Financial Statements............... C-25
Management Discussion and Analysis of Financial Condition and Results of
Operations..................................................................... C-28
Interim Financial Information Extracted from Form 10-Q for the fiscal quarter Ended
April 30, 1994
Consolidated Unaudited Balance Sheets at April 30, 1994 and January 31, 1994.... C-35
Consolidated Statements of Operations (unaudited) for the three months ended
April 30, 1994 and 1993........................................................ C-36
Consolidated Statements of Cash Flows (unaudited) for the three months ended
April 30, 1994 and 1993........................................................ C-37
Consolidated Statement of Shareholders' Equity (unaudited) for the three months
ended April 30, 1994........................................................... C-38
Notes to Consolidated Financial Statements (unaudited).......................... C-39
Management's Discussion and Analysis of Financial Condition and Results of
Operations..................................................................... C-43
</TABLE>
C-1
<PAGE> 83
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
QVC, INC.:
We have audited the consolidated financial statements of QVC, Inc. and
subsidiaries as listed in the accompanying index. In connection with our audits
of the consolidated financial statements, we have also audited the financial
statement schedules as listed in the accompanying index. These consolidated
financial statements and financial statement schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedules based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of QVC, Inc.
and subsidiaries as of January 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the years in the three-year period
ended January 31, 1994, in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedules, when
considered in relation to the basic consolidated financial statements taken as a
whole, present fairly, in all material respects, the information set forth
therein.
As discussed in notes 1 and 13 to the consolidated financial statements,
the Company changed its method of accounting for income taxes in 1993 to adopt
the provisions of the Financial Accounting Standards Board's Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes.
KPMG PEAT MARWICK
Philadelphia, Pennsylvania
March 4, 1994
C-2
<PAGE> 84
QVC, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 31,
--------------------
1994 1993
-------- --------
<S> <C> <C>
A S S E T S
Current assets:
Cash and cash equivalents................................. $ 15,873 $ 4,279
Accounts receivable, less allowance for doubtful accounts
of $52,759 in 1994 and $21,316 in 1993 (Note 2)......... 183,162 97,008
Inventories............................................... 148,208 118,712
Deferred taxes (Note 13).................................. 59,749 10,680
Prepaid expenses.......................................... 5,536 3,716
-------- --------
Total current assets...................................... 412,528 234,395
Property, plant and equipment (Note 3)......................... 80,579 72,863
Cable television distribution rights (Note 4).................. 99,579 115,248
Other assets (Note 5).......................................... 33,664 9,028
Excess of cost over acquired net assets, less accumulated
amortization of $43,551 in 1994 and $33,710 in 1993.......... 251,810 268,161
-------- --------
Total assets.............................................. $878,160 $699,695
======== ========
L I A B I L I T I E S A N D S H A R E H O L D E R S' E Q U I T Y
Current liabilities:
Current maturities of long-term debt (Note 7)............. $ 3,114 $ 24,073
Accounts payable-trade.................................... 81,594 51,622
Accrued liabilities (Note 6).............................. 225,989 151,358
-------- --------
Total current liabilities................................. 310,697 227,053
Long-term debt, less current maturities (Note 7)............... 7,044 7,586
-------- --------
Total liabilities......................................... 317,741 234,639
-------- --------
Commitments and contingencies (Notes 8 and 14)
Shareholders' equity (Notes 9 and 10):
Convertible Preferred Stock, par value $.10............... 56 93
Common Stock, par value $.01.............................. 399 357
Additional paid-in capital................................ 446,027 409,970
Retained earnings......................................... 113,937 54,636
-------- --------
Total shareholders' equity................................ 560,419 465,056
-------- --------
Total liabilities and shareholders' equity................ $878,160 $699,695
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
C-3
<PAGE> 85
QVC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR
------------------------------------
1993 1992 1991
---------- ---------- --------
<S> <C> <C> <C>
Net revenue......................................................... $1,222,104 $1,070,587 $921,804
Cost of goods sold.................................................. 723,175 621,840 534,650
---------- ---------- --------
Gross profit........................................................ 498,929 448,747 387,154
---------- ---------- --------
Operating expenses:
Variable costs.................................................. 171,242 160,420 145,348
General and administrative...................................... 132,743 123,604 110,747
Depreciation.................................................... 16,682 17,105 16,679
Amortization of intangible assets............................... 26,019 29,420 29,983
---------- ---------- --------
346,686 330,549 302,757
---------- ---------- --------
Operating income.................................................... 152,243 118,198 84,397
---------- ---------- --------
Other income (expense):
Costs of Paramount tender offer (Note 16)....................... (34,800) -- --
Losses from joint ventures (Note 5)............................. (11,432) -- --
Interest expense................................................ (1,590) (18,364) (38,979)
Interest income................................................. 10,865 8,834 7,480
---------- ---------- --------
(36,957) (9,530) (31,499)
---------- ---------- --------
Income before income taxes, extraordinary item and cumulative effect
of a change in accounting principle............................... 115,286 108,668 52,898
Income tax provision (Note 13)...................................... (59,975) (52,080) (31,165)
---------- ---------- --------
Income before extraordinary item and cumulative effect of a change
in accounting principle........................................... 55,311 56,588 21,733
Extraordinary item--loss on extinguishment of debt, net of
tax benefit (Note 5).............................................. -- (1,496) (2,108)
Cumulative effect of a change in accounting for income taxes (Note
13)............................................................... 3,990 -- --
---------- ---------- --------
Net income.......................................................... $ 59,301 $ 55,092 $ 19,625
========== ========== =========
Income per share (Note 11):
Primary:
Income before extraordinary item and cumulative effect of a
change in accounting principle............................. $ 1.10 $ 1.32 $ .68
Extraordinary item, net of tax benefit........................ -- (.03) (.07)
Cumulative effect of a change in accounting for income
taxes...................................................... .08 -- --
========== ========== =========
Net income.................................................... $ 1.18 $ 1.29 $ .61
========== ========== =========
Fully diluted:
Income before extraordinary item and cumulative effect of a
change in accounting principle............................. $ 1.10 $ 1.27 $ .67
Extraordinary item, net of tax benefit........................ -- (.03) (.06)
Cumulative effect of a change in accounting for income
taxes...................................................... .08 -- --
---------- ---------- --------
Net income.................................................... $ 1.18 $ 1.24 $ .61
========== ========== =========
Weighted average number of common and common equivalent shares used
in computing income per share:
Primary......................................................... 50,062 43,890 31,959
========== ========== =========
Fully diluted................................................... 50,205 45,386 38,313
========== ========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
C-4
<PAGE> 86
QVC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR
----------------------------------
1993 1992 1991
-------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income....................................................... $ 59,301 $ 55,092 $ 19,625
Adjustments for non-cash items included in net income:
Cumulative effect of a change in accounting for income
taxes..................................................... (3,990) -- --
Loss on extinguishment of debt.............................. -- 2,720 3,838
Losses from joint ventures.................................. 11,432 -- --
Depreciation................................................ 16,682 17,105 16,679
Amortization of intangible assets........................... 26,019 29,420 29,983
Grant of executive stock award.............................. -- 4,869 --
Provision for income taxes not requiring a cash outlay...... 3,366 20,275 15,800
Interest incurred but not paid.............................. -- 96 9,199
Issuance of Common Stock under Standby Equity Agreement..... -- -- 614
Losses on termination of capitalized lease and sales of
fixed assets.............................................. 190 90 464
Changes in other non-current assets.............................. (3,458) 5,303 642
Effects of changes in working capital items (Note 15)............ (36,239) (33,557) 40,107
-------- --------- ---------
Net cash provided by operating activities........................ 73,303 101,413 136,951
-------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................................. (24,588) (21,137) (11,870)
Investments in and advances to joint ventures.................... (22,626) -- --
Proceeds from sales of property, plant and equipment............. -- 28 9,010
Adjustments to purchase price of CVN Companies, Inc.............. -- 5 (230)
Changes in other non-current assets.............................. (347) (494) 330
-------- --------- ---------
Net cash used in investing activities............................ (47,561) (21,598) (2,760)
-------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments under Senior term loan.................................. (21,000) (135,297) (128,101)
Principal payments under capitalized leases, mortgages and other
debt........................................................... (502) (5,300) (12,905)
Borrowings under revolving credit facilities..................... 20,000 -- 40,414
Payments against revolving credit facilities..................... (20,000) -- (40,414)
Proceeds from exercise of stock options and other................ 1,169 16,687 891
Net proceeds from sale of Common Stock........................... -- -- 51,082
Proceeds from exercise of warrants............................... 6,185 11,570 --
Payment of unsecured note payable................................ -- -- (31,444)
-------- --------- ---------
Net cash used in financing activities............................ (14,148) (112,340) (120,477)
-------- --------- ---------
Net increase (decrease) in cash and cash equivalents................. 11,594 (32,525) 13,714
Cash and cash equivalents at beginning of year....................... 4,279 36,804 23,090
-------- --------- ---------
Cash and cash equivalents at end of year............................. $ 15,873 $ 4,279 $ 36,804
======== ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
C-5
<PAGE> 87
QVC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
CONVERTIBLE ADDITIONAL RETAINED
PREFERRED COMMON PAID-IN EARNINGS TREASURY
STOCK STOCK CAPITAL (DEFICIT) STOCK TOTAL
----------- ------ ---------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance January 31, 1991...................... $ 125 $176 $228,628 $(20,081) $ (68) $208,780
Net income for year......................... -- -- -- 19,625 -- 19,625
Income tax benefit resulting from certain
capital stock transactions................ -- -- 11,500 -- -- 11,500
Proceeds from the exercise of employee stock
options................................... -- -- 893 -- -- 893
Issuance of Common Stock under Standby
Equity Agreement.......................... -- 1 613 -- -- 614
Excess of value assigned over amount
received for Series B Convertible
Preferred Stock............................. -- -- (239) -- -- (239)
Issuance of shares of Common Stock and
warrants in lieu of cash interest
payments.................................. -- 2 2,998 -- -- 3,000
Purchases of Treasury Stock................. -- -- -- -- (2) (2)
Net proceeds from public offering of Common
Stock..................................... -- 37 51,045 -- -- 51,082
Common Stock exchanged to retire unsecured
note payable.............................. -- 23 31,422 -- -- 31,445
Conversion of shares........................ (11) 11 -- -- -- --
Adjustments to warrants exchanged and Common
Stock issued in connection with the CVN
acquisition............................... -- -- (912) -- -- (912)
----- ---- -------- -------- -------- --------
Balance January 31, 1992...................... 114 250 325,948 (456) (70) 325,786
----- ---- -------- -------- -------- --------
Net income for year......................... -- -- -- 55,092 -- 55,092
Income tax benefit resulting from capital
stock transactions, exercise of stock
options and net operating loss
carryforward.............................. -- -- 22,312 -- -- 22,312
Proceeds from the exercise of employee stock
options................................... -- 13 16,708 -- (31) 16,690
Proceeds from exercise of warrants.......... -- 11 11,559 -- -- 11,570
Grant of executive stock award.............. -- 2 4,867 -- -- 4,869
Convertible subordinated note exchanged for
Common Stock, net of unamortized debt
placement fees of $1,260.................. -- 17 28,723 -- -- 28,740
Common Stock issued in warrant exchange
offer (Note 10)........................... -- 68 91,394 -- (91,462) --
Conversion of shares........................ (20) 20 -- -- -- --
Purchases of Treasury Stock................. -- -- -- -- (3) (3)
Retirement of Treasury Stock................ (1) (24) (91,541) -- 91,566 --
----- ---- --------- -------- -------- --------
Balance January 31, 1993...................... 93 357 409,970 54,636 -- 465,056
----- ---- -------- -------- -------- --------
Net income for year......................... -- -- -- 59,301 -- 59,301
Income tax benefit resulting from cumulative
effect of a change in accounting for
income taxes.............................. -- -- 27,053 -- -- 27,053
Income tax benefit resulting from exercise
of stock options.......................... -- -- 1,655 -- -- 1,655
Proceeds from the exercise of employee stock
options................................... -- 1 1,168 -- -- 1,169
Proceeds from exercise of warrants.......... -- 4 6,181 -- -- 6,185
Conversion of shares........................ (37) 37 -- -- -- --
----- ---- -------- -------- -------- --------
Balance January 31, 1994...................... $ 56 $399 $446,027 $113,937 $ -- $560,419
===== ==== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
C-6
<PAGE> 88
QVC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation.
The consolidated financial statements include the accounts of the Company
and all subsidiaries. Investments in the Company's joint ventures (50% or less
owned) are accounted for under the equity method. All significant intercompany
accounts and transactions are eliminated in consolidation.
Fiscal Year.
The Company's fiscal year ends on January 31. Fiscal years are designated
in the financial statements and notes by the calendar year in which the fiscal
year commences.
Cash and Cash Equivalents.
All highly-liquid debt instruments purchased with a maturity of three
months or less are classified as cash equivalents. The carrying amounts reported
in the balance sheet for cash and cash equivalents approximate the fair value of
those assets.
Inventories.
Inventories, consisting primarily of products held for sale, are stated at
the lower of cost or market. Cost is determined by the average cost method which
approximates the first-in, first-out method.
Property, Plant and Equipment.
The cost of property, plant and equipment is capitalized and depreciated
over their estimated useful lives using the straight-line method. When assets
are sold or retired, the cost and accumulated depreciation are removed from the
accounts and any gain or loss is included in income. The cost of maintenance and
repairs is charged to expense as incurred.
Excess of Cost Over Acquired Net Assets.
The excess of cost over acquired net assets is amortized over thirty years
using the straight-line method.
Translation of Foreign Currencies.
All balance sheet items for foreign operations are translated at the
current exchange rate as of the balance sheet date, and income and expense items
are translated at average currency exchange rates for the year. Exchange gains
and losses resulting from foreign currency transactions are included in losses
from joint ventures.
Net Sales and Returns.
Revenue is recognized at time of shipment to customers. The Company's
policy is to allow customers to return merchandise for full credit up to thirty
days after date of shipment. An allowance for returned merchandise is provided
as a percentage of sales based on historical experience. The return provision
was approximately 21, 19, and 18 percent of sales in fiscal 1993, 1992 and 1991,
respectively.
Capitalization of Start-Up Costs.
The Company capitalizes all direct incremental costs incurred prior to
operations for new broadcast ventures. These costs are amortized over a period
of eighteen months starting at the commencement of broadcast operations.
C-7
<PAGE> 89
QVC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Income Taxes.
Effective February 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes ("SFAS 109"). The
cumulative effect of the change in the method of accounting for income taxes was
included in the first quarter of 1993 Consolidated Statements of Operations and
Shareholders' Equity. Prior years' financial statements were not restated. Under
the asset and liability method of SFAS 109, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. Under SFAS 109, the effect of a change in tax rates on deferred tax
assets and liabilities is recognized in income in the period that includes the
enactment date.
The Company previously used the asset and liability method under SFAS 96.
Under the asset and liability method of SFAS 96, deferred tax assets and
liabilities were recognized for all events that had been recognized in the
financial statements. Under SFAS 96, the future tax consequences of recovering
assets or settling liabilities at their financial statement carrying amounts
were considered in calculating deferred taxes. Generally, SFAS 96 prohibited
consideration of any other future events in calculating deferred taxes.
NOTE 2 -- ACCOUNTS RECEIVABLE
The Company has an agreement with an unrelated third party which provides
for the sale and servicing of accounts receivable originating from the Company's
revolving credit card. The Company sold accounts receivable at face value of
$418.2 million, $392.7 million and $290.4 million under this agreement in fiscal
1993, 1992 and 1991, respectively. The Company remains obligated to repurchase
uncollectible accounts pursuant to the recourse provisions of the agreement and
is required to maintain a specified percentage of all outstanding receivables
transferred under the program as a deposit with the third party to secure its
obligations under the agreement. The Company is required to pay certain finance
and servicing fees which are offset by finance charges on customer account
balances. The net amount of this finance charge income is included as interest
income and is comprised of the following (in millions):
<TABLE>
<CAPTION>
FISCAL YEAR
-----------------------
1993 1992 1991
----- ----- -----
<S> <C> <C> <C>
Finance charges on customer account balances................... $26.2 $23.2 $20.0
----- ----- -----
Funding fees................................................... 8.7 8.1 7.7
Service fees................................................... 10.5 9.5 9.4
----- ----- -----
19.2 17.6 17.1
----- ----- -----
Net finance income............................................. $ 7.0 $ 5.6 $ 2.9
===== ===== =====
</TABLE>
The uncollected balances of accounts receivable sold under this program are
$201.2 million and $180.3 million at January 31, 1994 and 1993, respectively, of
which $170.1 million and $71.5 million represent deposits under the agreement
and are included in accounts receivable. The total reserve balances maintained
for the repurchase of uncollectible accounts are $55.7 million and $42.6 million
at January 31, 1994 and 1993, respectively. Approximately $8.6 million and $25.7
million of the reserve balances are included in accrued liabilities at January
31, 1994 and 1993, respectively; the remaining balances are included with
allowance for doubtful accounts.
C-8
<PAGE> 90
QVC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- ACCOUNTS RECEIVABLE -- (CONTINUED)
Receivables sold under this agreement are considered financial instruments
with off-balance sheet risk as defined in Statement of Financial Accounting
Standards No. 105.
NOTE 3 -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
JANUARY 31, ESTIMATED
-------------------------------- USEFUL
1994 1993 LIFE
-------------- -------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Land................................. $ 3,977 $ 3,228 --
20 -- 30
Buildings and improvements........... 50,627 45,385 years
Furniture and other equipment........ 33,866 30,246 3 -- 8 years
Broadcast equipment.................. 8,942 12,478 5 -- 7 years
Computer equipment and software...... 20,005 18,047 3 -- 5 years
Construction in progress............. 1,684 482 --
-------------- --------------
119,101 109,866
Less -- accumulated depreciation..... (38,522) (37,003)
-------------- --------------
Net property, plant and equipment.... $ 80,579 $ 72,863
============== ==============
</TABLE>
In July 1993, the Company completed construction of a 50,000 square foot
telecommunications center in Chesapeake, Virginia for a total cost of
approximately $6.9 million. This new telecommunications center replaced a
facility that was leased.
NOTE 4 -- CABLE TELEVISION DISTRIBUTION RIGHTS
Cable television distribution rights consist of the following:
<TABLE>
<CAPTION>
JANUARY 31,
--------------------
1994 1993
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Cable television distribution rights............................ $162,142 $166,082
Less -- accumulated amortization................................ (62,563) (50,834)
-------- --------
Net cable television distribution rights........................ $ 99,579 $115,248
======== ========
</TABLE>
The amounts assigned to cable television distribution rights arose
principally from excess fair values assigned, as determined by independent
appraisals, to Convertible Preferred Stock issued to cable system operators in
exchange for distribution agreements.
Cable television distribution rights are amortized by the straight-line
method over the lives of the individual agreements. The remaining weighted
average life for all cable television distribution rights is approximately 10
years at January 31, 1994.
C-9
<PAGE> 91
QVC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 -- OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
JANUARY 31,
-------------------
1994 1993
------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred taxes (Note 13)......................................... $17,265 $ 7,120
Investments in and advances to joint ventures, net of accumulated
losses......................................................... 11,194 --
Start-up costs................................................... 3,459 --
Satellite transponder rights..................................... 1,000 1,000
Debt placement fees.............................................. 162 15,292
Other............................................................ 1,072 1,475
------- --------
34,152 24,887
Less -- accumulated amortization................................. (488) (15,859)
------- --------
Net other assets................................................. $33,664 $ 9,028
======= ========
</TABLE>
During fiscal 1993, the Company established electronic retailing program
service in England ("QVC -- The Shopping Channel") and Mexico ("CVC"), through
joint venture agreements with British Sky Broadcasting Limited and Grupo
Televisa, S.A. de C.V., respectively. The joint venture in England began
broadcasting on October 1, 1993 and the joint venture in Mexico began
broadcasting on November 15, 1993. The joint venture agreement in England
requires, among other things, that the Company provide all funding to the joint
venture until it is profitable. The Company will then recover all prior funding,
before any profits are shared. Accordingly, for 1993, the Company has included
100% of the loss on operations of this venture in the Consolidated Statements of
Operations. The operating results of the joint venture in Mexico are shared
equally by the partners.
Summarized financial information for "QVC -- The Shopping Channel" and
"CVC" on a 100% basis as of and for the period ended January 31, 1994 follows
(unaudited -- in thousands):
<TABLE>
<CAPTION>
QVC -- THE
SHOPPING CHANNEL CVC
---------------- -------
<S> <C> <C>
Current assets.............................................. $ 5,608 $ 9,687
Property, plant and equipment, net.......................... 1,645 1,665
Unamortized start-up costs.................................. 2,205 1,650
Current liabilities......................................... 4,181 9,507
Net revenue................................................. 2,994 2,316
Gross profit................................................ 514 248
Loss........................................................ (8,943) (3,606)
</TABLE>
In fiscal 1993, the Company also entered a joint venture with Tribune
Entertainment Company and Regal Communications to form QRT Enterprises ("QRT").
QRT produces and syndicates "Can We Shop" with Joan Rivers, which commenced
broadcasting January 17, 1994. "Can We Shop" is a one-hour, Monday through
Friday television show through which merchandise is sold. The Company's
one-third share of QRT's operating loss amounted to $386,000 in 1993.
In fiscal 1993, the Company made a $3.8 million investment in Friday
Holdings, L.P., a limited partnership. The limited partnership's purpose is to
establish or acquire businesses in the communications field and to develop
information products. The Company's one-third share of Friday Holdings'
operating loss amounted to $300,000 in 1993.
C-10
<PAGE> 92
QVC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 -- OTHER ASSETS -- (CONTINUED)
During the year, the Company also capitalized $3.5 million in costs
relating to Q2, a new televised shopping/programming service, scheduled to be
launched in the spring of 1994 in the United States. The capitalized start-up
costs will be amortized over eighteen months starting at the commencement of
broadcast operations.
Debt placement fees on the Senior term loan arising out of the CVN
acquisition have been amortized over the expected life of the debt using the
effective interest rate method. On March 5, 1993, the Company retired the Senior
term loan. Debt placement fees of $15.1 million associated with the Senior term
loan were fully amortized and the cost and accumulated amortization were removed
from the accounts. During fiscal 1992, the Company prepaid $86.3 million of the
Senior term loan. As a result, the amortization of debt placement fees of $2.7
million was accelerated and reported as an extraordinary loss of $1.5 million,
net of $1.2 million income tax benefit. During fiscal 1991, the Company prepaid
$98.1 million of the Senior term loan, and the amortization of debt placement
fees of $3.8 million was accelerated and reported as an extraordinary loss of
$2.1 million, net of $1.7 million income tax benefit.
NOTE 6 -- ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
JANUARY 31,
--------------------
1994 1993
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Income taxes (Note 13).......................................... $ 80,879 $ 25,889
Reserve for uncollectible accounts under revolving credit
program (Note 2).............................................. 8,636 25,699
Non-inventory accounts payable.................................. 35,452 26,418
Accrued compensation and benefits............................... 13,996 13,035
Sales and other taxes........................................... 11,324 12,079
Allowance for sales returns..................................... 17,787 11,344
Other........................................................... 57,915 36,894
-------- --------
$225,989 $151,358
======== ========
</TABLE>
NOTE 7 -- LONG-TERM DEBT
Aggregate amounts of outstanding long-term debt consist of the following:
<TABLE>
<CAPTION>
JANUARY 31,
------------------
1994 1993
------- ------
(IN THOUSANDS)
<S> <C> <C>
10.4% Mortgage notes payable in monthly installments until 1998... $10,158 $10,659
Senior term loan.................................................. -- 21,000
------- -------
10,158 31,659
Less -- current portion........................................... (3,114) (24,073)
------- -------
$ 7,044 $ 7,586
======= =======
</TABLE>
The Company has a $60.0 million bank revolving credit facility to finance
operations as well as to fund letters of credit for merchandise purchases.
Interest on outstanding amounts under this agreement is payable at the bank's
prime rate or other interest rate options. A commitment fee of .25% is payable
on the unused portion of the revolving credit facility. The credit agreement
requires the Company to maintain certain ratios
C-11
<PAGE> 93
QVC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 -- LONG-TERM DEBT -- (CONTINUED)
for total liabilities to shareholders' equity and for coverage of fixed charges.
The Company borrowed $20.0 million under the facility in March 1993 and retired
the remaining balance on the Senior term loan. All amounts borrowed under the
facility were repaid from net cash provided by operating activities during the
first quarter of 1993. Outstanding letters of credit totaled approximately $7.8
million at January 31, 1994.
The interest rate on the outstanding balance of the Senior term loan was
4.4% at January 31, 1993.
Maturities of the 10.4% mortgage notes payable for the five years
subsequent to January 31, 1994 are $3,114,000 in 1994; $601,000 in 1995;
$666,000 in 1996; $739,000 in 1997 and $5,038,000 in 1998.
NOTE 8 -- LEASES AND TRANSPONDER SERVICE AGREEMENTS
Future minimum payments under all non-cancellable operating leases and
transponder service agreements with initial terms of one year or more at January
31, 1994 consist of the following (in thousands):
<TABLE>
<S> <C>
Fiscal Year
1994............................................................... $ 8,029
1995............................................................... 6,405
1996............................................................... 5,450
1997............................................................... 5,173
1998............................................................... 5,287
Thereafter......................................................... 34,001
-------
Total......................................................... $64,345
=======
</TABLE>
Expense for operating leases, principally for data processing equipment and
facilities, and for transponder service agreements amounted to $11,280,000,
$12,895,000 and $13,047,000 in fiscal years 1993, 1992 and 1991, respectively.
In November 1992, the Company started to transmit the QVC program on a
protected, non-preemptible transponder on the C-4 Satellite at a monthly cost
that averages $224,000 over the term of the twelve-year agreement.
In December 1992, the Company started to transmit The QVC Fashion Channel
on a protected non-preemptible transponder on the C-3 Satellite at a cost of
$205,000 per month over the term of the twelve-year agreement.
NOTE 9 -- CAPITAL STOCK
The Company has 175,000,000 shares of Common Stock authorized. There were
39,895,447 shares outstanding at January 31, 1994 and 35,734,062 shares
outstanding at January 31, 1993. The reasons for the increase in the number of
shares of Common Stock outstanding were the conversion of Convertible Preferred
Stock (3,659,040), the exercise of warrants (408,908) and the exercise of
employee stock options (93,437).
C-12
<PAGE> 94
QVC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9 -- CAPITAL STOCK -- (CONTINUED)
The following table summarizes the convertible preferred shares at January
31, 1994 and 1993 (in thousands):
<TABLE>
<CAPTION>
SHARES SHARES
AUTHORIZED OUTSTANDING PAR VALUE
------------- --------------- -------------
1994 AND 1993 1994 1993 1994 1993
------------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Series A............................ 10 -- -- $-- $--
Series B............................ 1,000 28 55 3 6
Series C............................ 1,000 531 788 53 79
Series D............................ 300 1 83 -- 8
---- ----
$56 $93
==== ====
</TABLE>
The shares of Convertible Preferred Stock were issued to cable system
operators in connection with their signing or extending cable television
distribution agreements in prior years.
CONVERTIBILITY.
Each share of Series B, Series C and Series D Convertible Preferred Stock
is convertible into ten shares of Common Stock.
VOTING RIGHTS.
The holders of the Common Stock are empowered to elect two directors of the
Company as a class. The holders of each class of stock are entitled to cast one
vote per share for the election of the remaining directors of the Company.
LIQUIDATION.
Upon the dissolution and liquidation of the Company, the assets remaining
after the payment of all debts and liabilities of the Company shall be
distributed first to the holders of the Series B Convertible Preferred Stock at
$10.00 per share. To the extent available, the holders of Series C Convertible
Preferred Stock will then receive $10.00 per share followed by Series D
Convertible Preferred Stock holders at $15.00 per share. The balance, if any,
will be paid to the holders of the Common Stock share-for-share.
C-13
<PAGE> 95
QVC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10 -- STOCK OPTIONS, WARRANTS AND AWARDS
The following table summarizes shares of Common Stock reserved for issuance
for outstanding stock options and warrants:
<TABLE>
<CAPTION>
AVERAGE
EXERCISE PRICE
JANUARY 31, AT JANUARY 31,
------------------------ ------------------
1994 1993 1994 1993 EXPIRATION DATE
---------- ---------- ------- ------- ----------------
<S> <C> <C> <C> <C> <C>
Qualified stock options.......... 1,751,800 1,717,462 $30.56 $28.94 11/1996-01/2004
Non-qualified stock options...... 6,275,500 6,279,600 32.83 32.33 04/2000-07/2003
Warrants issued in connection
with 1987 debt financing....... 310,000 310,000 10.00 10.00 04/1994
Warrants issued in connection
with Convertible subordinated
debt........................... 1,600,000 1,600,000 17.49 17.49 10/1995
Warrants exchanged for CVN Series
2 Warrants..................... -- 408,908 -- 15.13 --
Warrants issued with Common Stock
in lieu of cash interest
expense........................ 100,000 100,000 13.35 13.35 04/1996-10/1996
---------- ----------
Total reserved shares........ 10,037,300 10,415,970
========== ==========
</TABLE>
The Company has Incentive Stock Option Plans ("ISO Plans") under which
options may be granted to key managerial employees to purchase up to 10,300,000
shares of Common Stock. The ISO Plans are administered by the Executive
Compensation Committee appointed by the Company's Board of Directors. The
Committee has the authority to determine optionees, the number of shares to be
covered by each option and certain other terms and conditions of the grant. The
ISO Plans require that the exercise price of options be equal to or greater than
the fair market value of the stock at the time of grant, and the term of any
option cannot exceed ten years. Options issued under the 1990 Non-Qualified
Stock Option Plan and the 1993 Qualified Stock Option Plan vest ratably over
four years, commencing one year from the date of the grant of the option, and
qualified and non-qualified options under all other ISO Plans, except where
noted below, vest ratably over three years, commencing on the date of grant.
In connection with obtaining a portion of the proposed financing for the
cash tender offer for Paramount Communications Inc. (Note 16), the Company
granted BellSouth Corporation, Advance Publications, Inc. and Cox Enterprises,
Inc. options to purchase an aggregate of 14.3 million shares of Common Stock at
$60.00 per share. The options were granted at the termination of the
QVC/Paramount tender offer on February 15, 1994 and are exercisable until the
later of August 15, 1994 or ten business days after stockholders of the Company
vote with respect to such grant of options.
On December 9, 1992, the Company and two of its principal shareholders
(Comcast Corporation and Liberty Media Corporation) announced an agreement
pursuant to which Mr. Barry Diller would become Chairman of the Board and Chief
Executive Officer. In connection with this agreement, the Company granted Mr.
Diller 160,000 shares of Common Stock. The value of the shares on the date of
grant ($4.9 million) was charged to general and administrative expense in fiscal
1992. Also in connection with this agreement, the Company granted to Mr. Diller
stock options covering 6,000,000 shares of Common Stock. All of the options have
a five-year term. One-half of these options ("base options") has an exercise
price of $30.43; the other one-half ("scaled options") has an exercise price
equal to $30.43 per share increased by 13 percent per annum until December 9,
1994 and thereafter by 15 percent per annum compounded annually. The exercise
price on any unexercised scaled options increases annually. One-half of the base
options and one-half of the scaled options became exercisable December 9, 1993
and the balance become exercisable December 9, 1994. The exercise date can be
accelerated upon certain events.
C-14
<PAGE> 96
QVC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10 -- STOCK OPTIONS, WARRANTS AND AWARDS -- (CONTINUED)
In August 1991, the Company granted to Mr. Joseph M. Segel, then Chairman
and Chief Executive Officer, non-qualified stock options covering 600,000 shares
of Common Stock at an exercise price of $15.90. One-half of these options vested
on the first anniversary of the date of grant and the balance was to vest on the
second anniversary of the date of grant. On December 9, 1992, the Board of
Directors and the Executive Compensation Committee approved the acceleration of
the vesting of the second half of these options to December 1992, in order to
allow Mr. Segel to realize their value in 1992. The Board and the Executive
Compensation Committee also accelerated an additional 50,000 options under ISO
Plans for Mr. Segel that were scheduled to vest in 1993 and 1994.
On December 9, 1992, the Board agreed to enter into a consulting and
severance arrangement with Mr. Segel whereby he would serve as a consultant to
the Company for a period of ten years after his retirement in January 1993 at an
annual salary of $240,000 and, as incentive to Mr. Segel to accept employment as
a consultant, granted to Mr. Segel, pursuant to the 1992 Qualified Incentive
Stock Option Plan, 100,000 options to purchase shares of Common Stock,
exercisable at $30.43 per share. These options vest ratably over a period of
five years. The present value of the ten-year consulting and severance
arrangement with Mr. Segel of $2.2 million was expensed in fiscal 1992.
The Board also approved entering into three-year (five-year in the case of
Michael C. Boyd, former President of the Company) employment agreements for nine
senior Company executives, pursuant to which, among other things, the executives
would be entitled to compensation at their current salaries and eligible for
bonus and incentive compensation programs as may be maintained from time to time
during the term of the agreement. As incentive to enter into the employment
agreements, the Board granted to these executives, pursuant to the 1992 Stock
Option Plan, an aggregate 1,450,000 options to purchase Common Stock exercisable
at $30.43 per share. Options granted under the 1992 Qualified Incentives Stock
Option Plan vest ratably over three years (five years in the case of Mr. Boyd).
In February 1994, Mr. Boyd retired from the Company and entered into a
consulting agreement. Accordingly, the present value of his employment agreement
of $1.3 million was expensed in fiscal 1993.
A summary of changes in outstanding options under the ISO Plans is as
follows:
<TABLE>
<CAPTION>
NON-QUALIFIED OPTION
QUALIFIED OPTION SHARES SHARES
------------------------- -------------------------
OUTSTANDING EXERCISABLE OUTSTANDING EXERCISABLE PRICE RANGE
----------- ----------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Balance at January 31, 1991............... 590,112 504,737 630,000 85,000 $5.00 -- $17.25
Granted................................... 5,000 1,250 607,500 -- 12.13 -- 15.90
Cancelled................................. (26,500) (19,000) (11,000) (1,375) 5.00 -- 16.00
Became exercisable........................ -- 49,625 -- 144,875 5.00 -- 16.00
Exercised................................. (65,825) (65,825) (26,000) (26,000) 5.00 -- 13.00
----------- ----------- ----------- -----------
Balance at January 31, 1992............... 502,787 470,787 1,200,500 202,500 5.00 -- 17.25
Granted................................... 1,582,000 351,167 6,010,000 -- 19.00 -- 38.86
Cancelled................................. (1,750) (1,750) (11,000) (3,500) 5.00 -- 16.00
Became exercisable........................ -- 29,500 -- 796,375 5.00 -- 16.00
Exercised................................. (365,575) (365,575) (919,900) (919,900) 5.00 -- 17.25
----------- ----------- ----------- -----------
Balance at January 31, 1993............... 1,717,462 484,129 6,279,600 75,475 5.00 -- 38.86
Granted................................... 106,000 1,250 50,000 -- 39.88 -- 70.75
Cancelled................................. (5,575) (5,575) (26,750) (3,000) 5.00 -- 23.25
Became exercisable........................ -- 370,416 -- 3,095,250 5.00 -- 34.39
Exercised................................. (66,087) (66,087) (27,350) (27,350) 5.00 -- 23.25
----------- ----------- ----------- -----------
Balance at January 31, 1994............... 1,751,800 784,133 6,275,500 3,140,375 $5.00 -- $70.75
=========== =========== =========== ===========
</TABLE>
C-15
<PAGE> 97
QVC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10 -- STOCK OPTIONS, WARRANTS AND AWARDS -- (CONTINUED)
In December, 1992, the Company offered to exchange warrants into shares of
Common Stock equivalent in value to the difference between the warrant exercise
price and the market price ($37.75) at the time of the offer. Warrants that
would have been exercisable for 7,061,005 shares were extinguished in this offer
and the Company issued 4,367,690 net shares of Common Stock. The warrant holders
were able to effect the exchange several ways. The net effect on the number of
shares of Common Stock outstanding after the exchange was the same. A total of
3,893,962 warrants was exercised by delivering to the Company 1,424,404
previously issued shares of Common Stock valued at the market price ($37.75). A
total of 2,492,017 warrants were exercised for $37,692,000, the proceeds of
which were used to purchase from the warrant holders 998,457 shares of Common
Stock at market. A total of 675,026 warrants was exchanged for 404,572 shares of
Common Stock with an aggregate value equal to the difference between the market
price and the exercise price. Warrant holders of an aggregate 2,418,908 shares
declined the offer. Since this warrant exchange was treated as a non-cash
financing transaction, it is not reflected on the Consolidated Statements of
Cash Flows.
C-16
<PAGE> 98
QVC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 11 -- INCOME PER SHARE
The Company computes income per share using the modified treasury stock
method. The following table presents the information needed to compute net
income per share for fiscal years 1993, 1992 and 1991 (in thousands, except per
share data):
<TABLE>
<CAPTION>
1993 1992 1991
------------------ ------------------ ------------------
FULLY FULLY FULLY
PRIMARY DILUTED PRIMARY DILUTED PRIMARY DILUTED
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
INCOME:
Income before extraordinary item and
cumulative effect of a change in accounting
principle.................................. $55,311 $55,311 $56,588 $56,588 $21,733 $21,733
Add -- Imputed income from interest savings,
net of tax, on assumed retirement of debt
with remaining proceeds from assumed
exercise of warrants and options........... -- -- 1,452 1,239 -- 3,896
------- ------- ------- ------- ------- -------
Adjusted income before extraordinary item and
cumulative effect of a change in accounting
principle.................................. 55,311 55,311 58,040 57,827 21,733 25,629
Extraordinary item -- loss on extinguishment
of debt, net of tax benefit................ -- -- (1,496) (1,496) (2,108) (2,108)
Cumulative effect of a change in accounting
for income taxes........................... 3,990 3,990 -- -- -- --
------- ------- ------- ------- ------- -------
Adjusted net income.......................... $59,301 $59,301 $56,544 $56,331 $19,625 $23,521
======= ======= ======= ======= ======= =======
SHARES:
Weighted average number of common shares
outstanding................................ 37,845 37,845 27,885 27,885 19,750 19,750
Add -- Common equivalent shares assuming
conversion of Series B, C and D Convertible
Preferred Preferred Stock.................. 7,387 7,387 10,340 10,340 12,209 12,209
Add -- Common equivalent shares assuming
conversion of subordinated note at
beginning of fiscal year................... -- -- -- 1,280 -- 1,704
Add -- Common shares assumed to be
outstanding from exercise of warrants and
options.................................... 10,184 10,180 12,812 10,517 -- 11,925
Less -- Assumed purchase of Common Stock from
proceeds of exercise of warrants and
options.................................... (5,354) (5,207) (7,147) (4,636) -- (7,275)
------- ------- ------- ------- ------- -------
50,062 50,205 43,890 45,386 31,959 38,313
======= ======= ======= ======= ======= =======
INCOME PER SHARE:
Income before extraordinary item and
cumulative effect of a change in accounting
principle.................................. $ 1.10 $ 1.10 $ 1.32 $ 1.27 $ .68 $ .67
Extraordinary item, net of tax benefit....... -- -- (.03) (.03) (.07) (.06)
Cumulative effect of a change in accounting
for income taxes........................... .08 .08 -- -- -- --
------- ------- ------- ------- ------- -------
Net income................................... $ 1.18 $ 1.18 $ 1.29 $ 1.24 $ .61 $ .61
======= ======= ======= ======= ======= =======
</TABLE>
PRO FORMA NET INCOME PER SHARE
On a pro forma basis, net income for fiscal 1991 would have been $22.9
million, or $.64 per share, assuming the Company's October 1991 public offering
of Common Stock and the related retirement of long-term debt as well as the
exchange of Common Stock with Liberty Media Corporation in satisfaction of one-
C-17
<PAGE> 99
QVC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 11 -- INCOME PER SHARE -- (CONTINUED)
half of the unsecured note payable occurred as of the beginning of the year. The
pro forma computation assumes adjustments have been made to interest expense
attributable to the reduction of the long-term debt, net of income tax effect.
It also assumes that the shares issued in connection with the public offering
and the exchange were outstanding from the beginning of the period.
NOTE 12 -- RETIREMENT AND SAVINGS PLANS
The Company has a defined contribution Employee Retirement Plan which
covers substantially all of the Company's employees after completion of one year
of service. The Company's contribution under the Plan is equal to 3.0% of
eligible employees' salaries. The costs of this Plan charged to expenses were
$2,202,000, $2,177,000, and $1,664,000 in fiscal years 1993, 1992 and 1991,
respectively.
In addition, the Company sponsors a 401(k) Savings Plan which permits
employees to make contributions to the Savings Plan on a pre-tax salary
reduction basis in accordance with the Internal Revenue Code. Substantially all
full-time employees are eligible to participate after completion of one year of
service. The Company matches a portion of the voluntary employee contributions.
The costs of this Savings Plan charged to expenses were $2,053,000, $1,501,000,
and $812,000 in fiscal years 1993, 1992 and 1991, respectively.
NOTE 13 -- INCOME TAXES
Effective February 1, 1993, the Company changed its method of accounting
for income taxes as required by SFAS 109. The cumulative effect of this change
in accounting was to increase the net income of the first quarter of fiscal 1993
by approximately $4.0 million, which is reported separately in the Consolidated
Statements of Operations. Prior year's financial statements have not been
restated to reflect the provisions of SFAS 109.
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR
-------------------------------
1993 1992 1991
-------- -------- -------
<S> <C> <C> <C>
Current
Federal.............................................. $ 66,366 $ 49,770 $19,394
State................................................ 21,710 19,810 11,771
-------- -------- -------
Total........................................ 88,076 69,580 31,165
-------- -------- -------
Deferred Federal....................................... (23,159) (17,500) --
State................................................ (4,942) -- --
-------- -------- -------
Total........................................ (28,101) (17,500) --
-------- -------- -------
Total provision........................................ $ 59,975 $ 52,080 $31,165
======== ======== =======
</TABLE>
C-18
<PAGE> 100
QVC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 13 -- INCOME TAXES -- (CONTINUED)
Total income tax expense differs from the amounts computed by applying the
U.S. federal income tax rate of 35.0% for fiscal 1993 and 34.0% for fiscal 1992
and 1991 to income before income taxes and extraordinary item as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
--------------------------
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Provision at statutory rate........................... 35.0% 34.0% 34.0%
State income taxes, net of federal tax benefit........ 14.5 12.0 14.7
Amortization of intangibles not deductible for tax
purposes............................................ 3.0 3.2 6.7
Net operating loss carryforward....................... -- -- (1.2)
Other................................................. (.5 ) (1.3) 4.7
---- ---- ----
Total income tax expense.............................. 52.0% 47.9% 58.9%
==== ==== ====
</TABLE>
Deferred income taxes reflect the net effects of temporary differences
between the value of assets and liabilities and their tax bases and the benefit
of existing net operating loss carryforwards. Significant components of the net
deferred tax assets as of January 31, 1994 and 1993 follow (in thousands):
<TABLE>
<CAPTION>
JANUARY 31,
-----------------------
1994 1993
-------- --------
<S> <C> <C>
Deferred tax assets:
Accounts receivable, principally due to the allowance for doubtful
accounts and related reserves for uncollectible accounts under
the Company's revolving credit program......................... $ 25,715 $ 15,985
Inventories, principally due to obsolescence reserves and
additional costs of inventories for tax purposes pursuant to
the Tax Reform Act of 1986..................................... 7,497 6,801
Allowance for sales returns....................................... 7,625 3,857
Executive stock award............................................. -- 1,655
Costs associated with the terminated Paramount tender offer....... 14,964 --
Costs associated with cable television distribution rights........ 26,619 2,813
Other............................................................. 7,061 (363)
-------- --------
Total gross deferred tax assets................................... 89,481 30,748
Less: Valuation allowance......................................... (12,467) --
Less -- amounts not recognized due to SFAS 96 limitations on
carrybacks of future net deductible amounts and carryforwards
of alternative minimum tax credits............................. -- (12,948)
-------- --------
Net deferred tax assets........................................... $ 77,014 $ 17,800
======== ========
</TABLE>
Of the total net additional deferred tax asset recorded at the time of the
adoption of SFAS 109, approximately $27.0 million was credited to additional
paid-in capital and approximately $6.5 million was credited to the excess of
cost over acquired net assets. The net increase in the deferred tax asset during
fiscal 1993 differs from the deferred benefit component of the current year's
tax provision primarily due to the recognition of a portion of the net operating
loss carryforwards.
Deferred tax assets were not recorded as of January 31, 1993 for state
income tax purposes since the Company's income is principally allocable to
states that do not permit carrybacks that would give rise to refundable taxes.
In addition, no deferred tax assets were recorded for federal or state tax
purposes in fiscal
C-19
<PAGE> 101
QVC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 13 -- INCOME TAXES -- (CONTINUED)
1991 since refundable taxes could not be generated from carrying back future net
deductible amounts under the requirements of SFAS 96.
The increase in the deferred tax asset for fiscal 1992 differs from the
deferred benefit component of the current year tax provision because portions of
the deferred tax provision recorded were allocated to additional paid-in capital
or the excess of cost over acquired net assets.
The valuation allowance for deferred tax assets as of February 1, 1993 was
$12.2 million. The net change in the valuation allowance for fiscal 1993 was an
increase of $255,000. Approximately $6.0 million of the valuation allowance will
result in a credit to additional paid-in capital when it becomes more likely
than not that certain deductions associated with cable television distribution
rights will be realizable.
The following table summarizes the nature of certain tax benefits realized
that reduced taxes payable but were not credited to the tax provision (in
thousands):
<TABLE>
<CAPTION>
EXCESS OF COST
OVER
ADDITIONAL PAID-IN ACQUIRED NET
CAPITAL ASSETS
------------------- ------------------
SOURCE OF TAX BENEFIT 1993 1992 1993 1992
- --------------------------------------------------- ------ ------- ------ ------
<S> <C> <C> <C> <C>
Exercise of employee stock options................. $1,655 $12,366 $ -- $ --
Net operating loss carryforward and other
deductions arising from equity transactions...... -- 6,967 -- --
Realization of tax benefits associated with
temporary differences in CVN acquisition......... -- -- 6,510 5,086
Alternative minimum tax credit carryforward
generated from equity related deductions......... -- 2,979 -- --
------ ------- ------ ------
$1,655 $22,312 $6,510 $5,086
====== ======= ====== ======
</TABLE>
In 1993, the tax benefits realized from net operating loss carryforwards of $6.6
million reduced taxes payable and were credited to deferred tax assets.
As of January 31, 1994, the Company has a net operating loss carryforward
of $634,000 available to reduce future federal taxable income. There are no
other credits or loss carryforwards available as of the end of fiscal 1993.
NOTE 14 -- LITIGATION
In July 1993, Shop Television Network, Inc. ("STN"), J.C. Penney Company,
Inc. ("JCP"), JCPenney Television Shopping Channel Inc. ("JCPTV"), Michael Rosen
and the Company settled the litigation that STN had brought in the Superior
Court of the State of California for the County of Los Angeles in 1991, in
connection with the negotiation and execution of an agreement dated May 16,
1991, between the Company and JCPTV. The settlement requires dismissal of all
pending litigation between the parties, payment of approximately $8.8 million to
STN, and repurchase by STN of all its shares held by JCP for an agreed price.
JCPTV and the Company agreed to divide the settlement payment to STN between
them, with the Company being responsible for the payment of approximately $3.8
million of such settlement payment. This amount was included as a charge in
general and administrative expenses in the second quarter of fiscal 1993.
In July 1993, the Company was joined as a defendant in actions filed in
state and federal court in Delaware by certain shareholders of Home Shopping
Network, Inc. ("HSN") against HSN, Liberty Media Corporation ("Liberty"),
Liberty Program Investments, Inc., RMS Limited Partnership ("RMS"), and certain
individual directors and officers of HSN. The actions challenge Liberty's
purchase of HSN Class A
C-20
<PAGE> 102
QVC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 14 -- LITIGATION -- (CONTINUED)
and Class B Common Stock from RMS, Liberty's tender offer for 15.0 million
shares of HSN Common Stock as well as the Company's July 12, 1993 letter
proposal to HSN to combine HSN and the Company in a stock-for-stock transaction
(the "Proposed HSN Merger"). The actions allege that the Company aided and
abetted breaches of fiduciary duties in connection with the Proposed HSN Merger,
as well as violations of certain regulations of the Securities Exchange Act.
Plaintiffs seek class certification, declaratory and injunctive relief,
compensatory damages, counsel fees, interest and costs. Management believes that
the allegations against the Company in these shareholder lawsuits are unfounded
and intends to defend against such actions vigorously. On November 5, 1993, the
Company and HSN announced their mutual agreement to terminate negotiations on
the Proposed HSN Merger. The Company's time to respond to the complaint in the
state action was extended indefinitely. In March 1994, the Company filed a
motion to dismiss the complaint in the federal action. The parties are currently
engaged in settlement discussions.
In September 1993, Viacom International Inc. ("Viacom International"), a
subsidiary of Viacom Inc. ("Viacom"), brought an action against the Company,
Tele-Communications, Inc., Liberty, Satellite Services, Inc., Encore Media
Corp., and Netlink USA, challenging the Company's September 20, 1993 proposal to
Paramount Communications Inc. ("Paramount") to combine Paramount and the Company
in a cash and stock-for-stock exchange. Viacom International amended its
complaint in November, 1993, adding Comcast Corporation ("Comcast") as an
additional defendant. The Company filed an answer to the amended complaint on
November 19, 1993. Comcast was subsequently dismissed as a defendant. Management
believes that the allegations against the Company in Viacom International's
action are unfounded and intends to defend against such action vigorously. On
February 15, 1994, the Company terminated its tender offer for 50.1% of
Paramount Common Stock.
In October 1993, the Company commenced legal action in the Delaware
Chancery Court against Viacom, Paramount and certain Paramount directors for
breach of fiduciary duties in failing to give fair treatment to the Company's
merger proposal while granting undue advantages to Viacom's merger proposal. The
Company sought to compel Paramount's board to give the two merger proposals
equal consideration and also sought to invalidate certain "lockup" agreements
and share purchase options given by Paramount to Viacom. Following a hearing,
the Court, on November 24, 1993, granted the Company's motion for a preliminary
injunction against Paramount's poison pill rights plan and certain other
anti-takeover mechanisms being used to preclude the Paramount shareholders from
accepting the Company's cash tender offer for approximately 50.1% of Paramount's
shares. On appeal by Paramount and Viacom, the Delaware Supreme court affirmed
the injunction granted by the Delaware Chancery Court on December 9, 1993, and
issued a formal opinion in support of its ruling on February 4, 1994. On
December 21, 1993, Viacom filed a motion to dismiss the Company's complaint
against it. On February 15, 1994, the Company terminated its tender offer for
Paramount's Common Stock.
The Company has also been named as a defendant in various legal proceedings
arising in the ordinary course of business. Although the outcome of these
matters cannot be determined, in the opinion of management, disposition of these
proceedings will not have a material effect on the Company's financial position.
C-21
<PAGE> 103
QVC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 15 -- SUPPLEMENTAL INFORMATION ON CONSOLIDATED STATEMENTS OF CASH FLOWS
An analysis of changes in working capital items follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR
-------------------------------------
1993 1992 1991
-------- -------- -------
<S> <C> <C> <C>
Increase in accounts receivable......................... $(86,154) $(29,029) $(6,006)
Increase in inventories................................. (29,496) (9,784) (8,428)
Increase in deferred taxes.............................. (24,389) (10,680) --
Increase in prepaid expenses............................ (1,820) (450) (732)
Increase in accounts payable -- trade................... 29,972 11,312 7,245
Increase in accrued liabilities......................... 75,648 5,074 48,028
-------- -------- -------
$(36,239) $(33,557) $40,107
======== ======== =======
Supplemental cash flow information:
Interest paid...................................... $ 1,369 $ 20,512 $30,397
Income taxes paid.................................. 31,841 37,944 1,351
</TABLE>
In fiscal year 1993, the Company did not enter into any non-cash financing
transactions. In fiscal years 1992 and 1991, the following non-cash financing
transactions were entered into by the Company (dollars in thousands).
<TABLE>
<S> <C>
1992
Issuance of 1,704,546 shares of Common Stock in prepayment of Convertible
subordinated note, net of $1,260 debt placement fees............................. $28,740
Exercise of 3,893,962 warrants through deliverance of 1,424,404 shares of Common
Stock at market value............................................................ 53,771
Exercise of 2,492,017 warrants for $37,692 with simultaneous repurchase of 998,457
shares of Common Stock at market value........................................... 37,692
Issuance of 404,572 shares of Common Stock in exchange for 675,026 warrants,
representing the aggregate difference between the market price and the exercise
price............................................................................ 15,273
Exercise of stock options through deliverance of 800 shares of Common Stock at
market value..................................................................... 31
1991
Issuance of an aggregate of 243,522 shares of Common Stock and 100,000 warrants to
Comcast Financial Corporation in lieu of cash interest expense................... $ 3,000
Issuance of 75,075 shares of Common Stock to the Standby Investors in consideration
for signing the Standby Equity Agreement......................................... 614
Issuance of 2,269,552 shares of Common Stock to Liberty Media Corporation in
exchange for one-half of the outstanding balance of an unsecured note payable.... 31,445
Adjustment to the number of shares of Common Stock assumed issued to holders of
certain CVN Series 2 Warrants from 3,377,949 to 3,410,843 (at market value)...... 526
Adjustment to the number of new QVC Warrants assumed exchanged for certain CVN
Series 2 Warrants from 6,822,767 to 6,469,913 (value based on an independent
appraisal)....................................................................... (1,438)
</TABLE>
NOTE 16 -- PARAMOUNT TENDER OFFER
On October 27, 1993, the Company made an $80.00 cash tender offer for 50.1
percent of the outstanding common shares of Paramount. This tender offer was
amended several times during the bidding process against Viacom for Paramount.
On February 1, 1994, the Company amended its cash tender offer to $104 per
share.
C-22
<PAGE> 104
QVC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 16 -- PARAMOUNT TENDER OFFER -- (CONTINUED)
The Company offered approximately $6.4 billion in cash for 61.7 million
Paramount common shares. The proposed cash tender offer would have been funded
through a $3.25 billion bank loan commitment and proposed capital contributions
to the Company of $1.5 billion from BellSouth Corporation and $0.5 billion each
from Advance Publications, Cox Enterprises and Comcast Corporation. On February
15, 1994, Paramount notified the Company that Viacom received the minimum
condition in its tender offer and had delivered to Paramount a completion
certificate pursuant to the bidding procedures. Accordingly, the Company
terminated its tender offer for 50.1 percent of the Common Stock of Paramount.
The costs incurred on the tender offer, comprised principally of bank fees and
legal and advisory fees, totaled $34.8 million which were expensed in the fourth
quarter of 1993. The $3.25 billion bank loan commitment expired on February 15,
1994 upon the termination of the tender offer.
NOTE 17 -- QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(IN THOUSANDS, EXCEPT AS TO PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL 1993
--------------------------------------------
FIRST SECOND THIRD FOURTH
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net revenue......................................... $273,232 $262,438 $313,945 $372,489
Gross profit........................................ 113,773 107,938 128,902 148,316
Income before income taxes and cumulative effect of
a change in accounting principle(1)............... 34,546 26,137 42,732 11,871
Income tax provision................................ (16,925) (12,810) (21,215) (9,025)
Income before cumulative effect of a change in
accounting principle.............................. 17,621 13,327 21,517 2,846
Cumulative effect of a change in accounting
principle(2)...................................... 3,990 -- -- --
Net income.......................................... 21,611 13,327 21,517 2,846
Income per share(3):
Primary
Income before cumulative effect of a change
in accounting principle................... .36 .26 .42 .06
Net income................................... .44 .26 .42 .06
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1992
--------------------------------------------
FIRST SECOND THIRD FOURTH
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net revenue......................................... $233,168 $221,253 $274,332 $341,834
Gross profit........................................ 100,354 94,259 115,501 138,633
Income before income taxes and extraordinary item... 22,917 15,905 31,468 38,378
Income tax provision................................ (11,425) (7,190) (15,105) (18,360)
Income before extraordinary item.................... 11,492 8,715 16,363 20,018
Extraordinary item, net of tax benefit (4).......... (348) -- -- (1,148)
Net income.......................................... 11,144 8,715 16,363 18,870
Income per share(5)(6):
Primary
Income before extraordinary item............. .29 .22 .40 .44
Net income................................... .28 .22 .40 .42
Fully-diluted
Income before extraordinary item............. .29 .22 .40 .42
Net income................................... .28 .22 .40 .40
</TABLE>
C-23
<PAGE> 105
QVC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 17 -- QUARTERLY FINANCIAL INFORMATION (UNAUDITED) -- (CONTINUED)
(IN THOUSANDS, EXCEPT AS TO PER SHARE DATA)
- ---------------
(1) Fourth quarter amount includes a charge of $34.8 million related to the
Paramount tender offer (Note 16).
(2) Amount represents the cumulative effect of adopting SFAS 109.
(3) Fully diluted earnings per share for all periods are not presented since
they are the same as the primary earnings per share.
(4) Amounts represent accelerated amortization of debt placement fees, net of
income tax benefits, due to prepayments of the Senior term loan (Note 5).
(5) The sum of the quarterly per share amounts does not equal the annual amount
due to the substantial changes in the number of shares throughout the year.
(6) In the fourth quarter of fiscal 1992, the modified treasury stock method of
computing earnings per share resulted in a fully-diluted computation with a
lower amount than the primary computation.
This is due primarily to using the year-end closing share price for the
fully-diluted computation versus the average share price for the fourth
quarter. The year-end closing price was $40.50 versus a fourth quarter
average of $32.92.
C-24
<PAGE> 106
SCHEDULE II
AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT
BALANCE DEDUCTIONS END OF PERIOD
AT ------------------------ ------------------
BEGINNING AMOUNTS AMOUNTS NOT
NAME OF DEBTOR OF PERIOD ADDITIONS COLLECTED WRITTEN-OFF CURRENT CURRENT
- --------------------------------------- --------- --------- --------- ----------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Year Ended January 31, 1992
Peter Barton, unsecured 8% note
receivable due on demand........ $ 98 $ 6 $ -- $-- $ 104 $--
--------- --------- --------- --- ------- -------
Year Ended January 31, 1993
Peter Barton, unsecured 8% note
receivable due on demand........ $ 104 $ -- $ 104 $-- $ -- $--
--------- --------- --------- --- ------- -------
Year ended January 31, 1994
Candice Carpenter, unsecured,
prime plus one percent note
receivable due in installments
until May 31, 1998.............. $ -- $ 257 $ -- $-- $ 257 $--
--------- --------- --------- --- ------- -------
</TABLE>
C-25
<PAGE> 107
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS ADDITIONS
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OTHER PERIOD
- ------------------------------------ ---------- ---------- ---------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended January 31, 1992..... $ 8,214 $ 14,501 $ -- $ (7,260)(A) $ -- $ 15,455
Year ended January 31, 1993..... $ 15,455 $ 17,506 $ 1,250(C) $ (12,895)(A) $ -- $ 21,316
Year ended January 31, 1994..... $ 21,316 $ 24,765 $ -- $ (7,971)(A) $ 14,649 $ 52,759
Inventory obsolescence reserve:
Year ended January 31, 1992..... $ 8,387 $ 16,465 $ -- $ (12,141)(B) $ -- $ 12,711
Year ended January 31, 1993..... $ 12,711 $ 17,809 $ -- $ (14,312)(B) $ -- $ 16,208
Year ended January 31, 1994..... $ 16,208 $ 20,000 $ -- $ (21,186)(B) $ -- $ 15,022
Reserve for uncollectible accounts
under revolving credit program:
Year ended January 31, 1992..... $ 11,769 $ 14,175 $ -- $ (5,970)(A) $ -- $ 19,974
Year ended January 31, 1993..... $ 19,974 $ 10,159 $ -- $ (4,434)(A) $ -- $ 25,699
Year ended January 31, 1994..... $ 25,699 $ -- $ -- $ (2,414)(A) $ (14,649)(D) $ 8,636
</TABLE>
- ---------------
(A) Accounts written-off as uncollectible, net of recoveries.
(B) Written-off as obsolete.
(C) Reserve for interest on note receivable transferred from accrued
liabilities.
(D) Transfer to allowance for doubtful accounts
C-26
<PAGE> 108
SCHEDULE X
SUPPLEMENTARY INCOME STATEMENT INFORMATION
(IN THOUSANDS)
<TABLE>
<CAPTION>
CHARGED TO
ITEM COSTS
AND
EXPENSES
----------
<S> <C>
Advertising costs:
Year ended January 31, 1992.................................................. $ 35,407
Year ended January 31, 1993.................................................. $ 33,419
Year ended January 31, 1994.................................................. $ 28,172
</TABLE>
C-27
<PAGE> 109
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company is a retailer of a wide range of consumer products which are
marketed and sold primarily by merchandise-focused televised-shopping programs.
The average number of homes receiving the QVC Service was:
<TABLE>
<CAPTION>
FISCAL YEAR
--------------------------------
1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
(IN MILLIONS, EXCEPT DOLLAR
AMOUNTS)
Cable homes -- 24 hours per day....................... 43.3 40.4 36.4
Cable homes -- part-time.............................. 3.0 2.9 3.8
Satellite dish homes (estimated)...................... 3.0 3.0 3.0
------ ------ ------
Total............................................ 49.3 46.3 43.2
====== ====== ======
Full-time equivalent homes ("FTE").................... 45.8 42.9 39.2
====== ====== ======
QVC net sales per FTE home............................ $26.56 $24.85 $23.37
====== ====== ======
</TABLE>
FTE homes equal the total number of cable homes receiving the QVC Service
24 hours per day plus one-third of the part-time cable homes plus one-half of
the satellite dish homes. This calculation reflects the Company's estimate of
the relative value to the Company of part-time homes and satellite dish homes
compared to full-time homes. QVC net sales excludes non-merchandise revenue.
The increase in the number of homes receiving the QVC Service in fiscal
1993 is due to growth in the number of homes in existing cable systems. In
fiscal 1992, the growth in the number of homes reflects the full year's effect
of the homes obtained under a license agreement with JCPenney Television
Shopping Channel, Inc. ("JCPTV") in 1991 and growth in the number of homes in
existing cable systems.
Net revenue and operating income have increased since 1991 due to the
increase in the number of homes receiving the QVC Service and, to a lesser
extent, an increase in net sales to existing subscribers. It is unlikely that
the number of homes receiving the QVC Service will continue to grow at rates
comparable to prior periods, given that the QVC Service is already received by
approximately 80% of all of the cable television homes in the United States. As
relative growth in the number of homes declines, future growth in sales will
depend increasingly on continued additions of new customers from homes already
receiving the QVC Service and continued growth in repeat sales to existing
customers.
Operating profit margins have improved since fiscal 1991 largely as a
result of variable costs not growing in proportion to increases in revenue,
general and administrative costs not increasing as much as the revenue increase,
and the relatively fixed nature of depreciation and amortization.
C-28
<PAGE> 110
RESULTS OF OPERATIONS
The following table sets forth the Company's Consolidated Statements of
Operations expressed as a percentage of net revenue:
<TABLE>
<CAPTION>
FISCAL YEAR
--------------------------
1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Net revenue.............................................. 100.0% 100.0% 100.0%
Cost of goods sold....................................... 59.2 58.1 58.0
------ ------ ------
Gross profit............................................. 40.8 41.9 42.0
------ ------ ------
Operating expenses:
Variable costs...................................... 14.0 15.0 15.8
General and administrative.......................... 10.9 11.5 12.0
Depreciation........................................ 1.4 1.6 1.8
Amortization of intangible assets................... 2.1 2.8 3.2
------ ------ ------
28.4 30.9 32.8
------ ------ ------
Operating income......................................... 12.4 11.0 9.2
------ ------ ------
Other income (expense):
Costs of Paramount tender offer..................... (2.8) -- --
Losses from joint ventures.......................... (0.9) -- --
Interest expense.................................... (0.1) (1.7) (4.2)
Interest income..................................... 0.9 0.8 0.8
------ ------ ------
(2.9) (0.9) (3.4)
------ ------ ------
Income before income taxes, extraordinary item and
cumulative effect of a change in accounting
principle.............................................. 9.5 10.1 5.8
Income tax provision..................................... (4.9) (4.9) (3.4)
------ ------ ------
Income before extraordinary item and cumulative effect of
a change in accounting principle....................... 4.6 5.2 2.4
Extraordinary item, net of tax benefit................... -- (0.1) (0.3)
Cumulative effect of a change in accounting for income
taxes.................................................. 0.3 -- --
------ ------ ------
Net income............................................... 4.9% 5.1% 2.1%
====== ====== ======
</TABLE>
NET REVENUE AND GROSS PROFIT
Net revenue in 1993 was $1.22 billion, an increase of 14.2% over the net
revenue in the prior year. Net revenue in 1992 of $1.07 billion was 16.1% over
the $921.8 million in net revenue in 1991. In 1993, the sales increase was due
to the 6.8% increase in the average number of homes receiving the QVC Service as
well as the 6.9% increase in net sales per FTE home. The sales increase in 1992
was due to the 9.4% increase in the average number of homes receiving the QVC
Service and the 6.3% increase in net sales per FTE home.
Net revenue in 1993 included $26.2 million of net sales from The QVC
Fashion Channel to 8.1 million FTE homes compared to $29.7 million of net sales
to 7.3 million FTE homes in 1992. In 1991, net revenue included $7.9 million of
net sales from the secondary channel to 8.1 million FTE homes.
The Company is starting a new shopping service, consisting of on Q and Q2,
which is scheduled to be launched in the spring of 1994 to replace The QVC
Fashion Channel. On Q will be QVC's new fashion service for younger adults and
will broadcast weekdays. Q2 is being designed for the audience that has not yet
purchased from traditional home-shopping formats and will broadcast on weekends.
The Company has two credit programs, the QVC Easy-Pay Plan and the QVC
revolving credit card program. The Company offers customers the Easy-Pay Plan
option only on selected items. The Easy-Pay Plan permits customers to pay for
such selected items in several monthly installments. When the Easy-Pay Plan is
C-29
<PAGE> 111
selected by the customer, the item purchased is shipped after the first payment
is billed to the customer's credit card. The customer's credit card is
subsequently billed up to four additional monthly installments until the total
purchase price of the product has been received by the Company. QVC's revolving
credit card program permits customers to charge purchases on the Company's own
credit card. The accounts receivable from the revolving credit card program are
purchased (with recourse) and serviced by an unrelated third party. Sales under
these credit programs amounted to 40.8%, 40.3% and 39.7% of net revenue for
1993, 1992 and 1991, respectively. The loss provision for uncollectible accounts
under these credit programs amounted to $22.3 million, $25.6 million and $25.2
million in 1993, 1992 and 1991, respectively.
The sales mix for the past three years by product category as a percentage
of net sales has been:
<TABLE>
<CAPTION>
FISCAL YEAR
--------------------------
1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Jewelry.................................................. 41.9% 43.0% 45.7%
Apparel and accessories.................................. 17.8 17.4 14.6
Housewares............................................... 12.0 12.3 14.2
Electronics.............................................. 8.6 8.1 8.4
Collectibles............................................. 8.4 8.0 8.0
Other.................................................... 11.3 11.2 9.1
------ ------ ------
100.0% 100.0% 100.0%
====== ====== ======
</TABLE>
Gross profit for 1993 was $498.9 million, or 40.8% of net revenue, compared
to $448.7 million, or 41.9% of net revenue, in 1992 and $387.2 million, or 42.0%
of net revenue, in 1991. The principal reason for the increased amounts of gross
profit was the increased sales volume. The decrease in the 1993 gross profit
percentage was due to increased shipping and handling charges, higher gold
prices and a higher return rate on sales.
VARIABLE COSTS
Variable costs totaled $171.2 million, $160.4 million and $145.3 million
for fiscal years 1993, 1992 and 1991, respectively. The major components of this
expense classification are detailed below, expressed in amounts and as a
percentage of net revenue (dollars in millions):
<TABLE>
<CAPTION>
FISCAL YEAR
-----------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1993 1992 1993
------------- ------------- -------------
<CAPTION>
$ % $ % $ %
----- ---- ----- ---- ----- ----
<S> <C> <C> <C> <C> <C> <C>
Order processing and customer service........ 63.4 5.2 60.1 5.6 56.4 6.1
Commissions and license fees................. 65.4 5.4 57.7 5.4 46.8 5.1
Provision for doubtful accounts.............. 24.8 2.0 27.7 2.6 28.7 3.1
Credit card processing fees.................. 17.6 1.4 14.9 1.4 13.4 1.5
----- ---- ----- ---- ----- ----
171.2 14.0 160.4 15.0 145.3 15.8
===== ==== ===== ==== ===== ====
</TABLE>
Order processing and customer service expenses decreased as a percentage of
net revenue since 1991 due to greater utilization of the Company's automated
ordering system, which gives customers the option to place orders by using their
touchtone telephone instead of speaking to a telemarketing operator. Commissions
and license fees increased as a percentage of net sales in 1992 as a result of
fees paid for sales to the homes obtained under the license agreement with
JCPTV. The provision for doubtful accounts as a percentage of net revenue
decreased since 1991 due to continued improvement in the collection experience
of QVC's revolving credit card program. Credit card processing fees as a
percentage of net revenue have remained relatively stable over the three years.
C-30
<PAGE> 112
GENERAL AND ADMINISTRATIVE
In 1993, general and administrative expenses totaled $132.7 million, or
10.9% of net revenue, compared to $123.6 million, or 11.5% of net revenue, in
1992 and $110.7 million, or 12.0% of net revenue, in 1991. The major components
of general and administrative expenses are detailed below, expressed in amounts
and as a percentage of net revenue (dollars in millions):
<TABLE>
<CAPTION>
FISCAL YEAR
-----------------------------------------------
1993 1992 1993
------------- ------------- -------------
$ % $ % $ %
----- ---- ----- ---- ----- ----
<S> <C> <C> <C> <C> <C> <C>
Administration............................... 50.3 4.1 43.2 4.0 34.0 3.7
Advertising and marketing.................... 28.2 2.3 33.4 3.1 35.4 3.8
Data processing.............................. 17.4 1.4 18.3 1.7 19.3 2.1
Broadcasting................................. 20.3 1.7 15.3 1.4 10.8 1.2
Merchandising and programming................ 10.8 0.9 8.0 0.8 5.8 0.6
Occupancy costs.............................. 5.7 0.5 5.4 0.5 5.4 0.6
----- ---- ----- ---- ----- ----
132.7 10.9 123.6 11.5 110.7 12.0
===== ==== ===== ==== ===== ====
</TABLE>
The increase in administration expenses in 1993 is due principally to the
$3.8 million settlement of the STN litigation. The litigation arose out of the
negotiation and execution of an agreement between the Company and JCPTV pursuant
to which JCPTV granted the Company a renewable one-year license of JCPTV's right
to use the cable channel time provided to JCPTV under affiliation agreements
with its program carriers. The remaining increase in administration expenses can
largely be attributed to higher personnel costs. In 1992, administration
expenses also increased due to higher personnel costs, including $4.9 million
related to 160,000 shares of Common Stock granted as an executive stock award to
Mr. Barry Diller, who became Chairman of the Board and Chief Executive Officer
in January 1993. The 1992 personnel costs also include the $2.2 million current
value of the ten-year consulting agreement with Mr. Joseph Segel, former
Chairman of the Board and Chief Executive Officer.
Advertising and marketing expenses decreased in 1993 due to a reduction in
credits granted to customers and, to a lesser extent, fewer promotional mailings
to cable subscribers. In 1992, these expenses decreased due to the
discontinuation of the Company's mail order catalog as well as fewer promotional
mailings to QVC customers. Data processing costs decreased in 1993 due to a
reduction in outside consulting costs. The decrease in these expenses in 1992
was due to the purchase of mainframe computer equipment which was previously
leased. Broadcasting costs increased in 1993 due to higher transponder fees to
broadcast the QVC Service and The QVC Fashion Channel as well as higher costs to
enhance the on-air presentation. In 1992, the increase in these expenses related
to broadcasting The QVC Fashion Channel for a full year for sixteen hours a day
versus four months for eight hours a day in 1991. Merchandising and programming
expenses in 1993 increased due to additional personnel needed to sustain the
Company's sales growth. In 1992, the increase was due to the full year
broadcasting of The QVC Fashion Channel. Occupancy costs increased slightly in
1993 due to the additional maintenance required on the Company's new
telecommunications facilities in Texas and Virginia.
DEPRECIATION AND AMORTIZATION
Depreciation expense has remained relatively constant since 1991.
Amortization expense decreased in 1993 due to the reduction in amortization of
debt placement fees as a result of the repayments of the Senior Term Loan during
fiscal 1992 and the first quarter of fiscal 1993.
OPERATING INCOME
Operating income was $152.2 million in fiscal 1993, $118.2 million in
fiscal 1992, and $84.4 million in fiscal 1991. The increase in operating income
is due primarily to the additional gross profit arising from higher revenue and
the fixed nature of depreciation and amortization.
C-31
<PAGE> 113
COSTS OF PARAMOUNT TENDER OFFER
On February 15, 1994, the Company terminated its cash tender offer for 50.1
percent of the Common Stock of Paramount Communications Inc. The costs incurred
on the tender offer totaled $34.8 million which were expensed in the fourth
quarter of 1993. The majority of these expenses were bank fees. The Company had
a $3.25 billion loan commitment available from November 19, 1993 to February 15,
1994 to help fund the cash portion of the tender offer.
LOSSES FROM JOINT VENTURES
During 1993, the Company entered into four joint ventures which resulted in
combined losses of $11.4 million. The most significant joint ventures are those
formed with BSkyB and Grupo Televisa. BSkyB and the Company formed a joint
venture to bring electronic retailing to the United Kingdom. On October 1, 1993,
BSkyB and the Company launched "QVC -- The Shopping Channel." A majority of
consumers subscribing to BSkyB's service are now able to receive the new QVC
service -- approximately 1.8 million homes. In addition, approximately .4
million cable homes receive the program. The agreement with BSkyB requires,
among other things, that the Company provide all funding to the joint venture
until it is profitable. The Company will then recover all prior funding before
any profits are shared. During the four months of 1993, QVC -The Shopping
Channel operations resulted in a $8.9 million loss, which was recorded by the
Company, including $630,000 amortization of capitalized start-up costs.
On November 15, 1993, the Company and Grupo Televisa began broadcasting
"CVC" in Mexico. CVC is distributed through broadcast television, cable
television and satellite dishes to approximately 7.3 million FTE homes. The
Company's 50% share of CVC's operations resulted in a $1.8 million loss in 1993,
including $266,000 amortization of capitalized start-up costs.
The Company also entered a joint venture with Tribune Entertainment Company
and Regal Communications to produce and distribute "Can We Shop" with Joan
Rivers. "Can We Shop" first aired on January 17, 1994 and is a one-hour Monday
through Friday television show through which merchandise is sold. The Company's
share of the operating loss amounted to $386,000 in 1993.
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 $300,000 loss in
association with this partnership.
INTEREST EXPENSE
The major factor contributing to the reduced interest expense in 1993 and
1992 was $13.8 million and $13.2 million, respectively, of lower interest
expense on the Senior term loan which was retired during the 1993 first quarter.
The conversion in October 1992 of a $30.0 million convertible subordinated note
into 1.7 million shares of Common Stock also contributed to the lower interest
expense.
INTEREST INCOME
The Company has experienced higher interest income since 1991 on its
revolving charge card due to higher average account balances as well as an
increase in the number of customer accounts. This increase, however, was offset
by lower interest income on temporary cash investments.
INCOME TAX PROVISION
Effective February 1, 1993, the Company changed its method of accounting
for income taxes as required by Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" ("SFAS 109"). Under the asset and liability
method of SFAS 109, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to temporary differences between the
financial statement carrying amounts of existing assets and liabilities, and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
Company previously used the asset and liability
C-32
<PAGE> 114
method of SFAS 96. Under SFAS 96, the consideration of future events in
calculating deferred taxes was not permitted. Under SFAS 109, the effect on the
deferred tax assets and liabilities, because of the change in federal tax rates
incorporated in the Revenue Reconciliation Act of 1993, was recognized in the
third quarter of fiscal 1993, the period in which the enactment date falls. The
cumulative effect of approximately $4.0 million resulting from the change in the
method of accounting for income taxes to SFAS 109 was included in the
Consolidated Statements of Operations in the first quarter of 1993.
EXTRAORDINARY ITEM
During fiscal 1992 and 1991, the Company prepaid $86.3 million and $98.1
million, respectively, of its Senior term loan. As a result, amortization of
debt placement fees was accelerated and reported as an extraordinary item, net
of tax benefit, of $1.5 million in fiscal 1992 and $2.1 million in fiscal 1991.
NET INCOME
Net income for 1993 was $59.3 million compared to $55.1 million in 1992 and
$19.6 million in 1991. The changes in net income resulted from the factors
discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal source of working capital is internally-generated
cash flow from operations. In fiscal 1993, net cash provided by operating
activities totaled $73.3 million compared to $101.4 million and $137.0 million
in fiscal 1992 and 1991, respectively. Net cash provided by operations in 1993
and 1992 was reduced by a net increase in working capital items of $36.2 million
and $33.6 million, respectively. The net change in working capital items in both
years was due principally to an increase in accounts receivable representing
deposits with a third party related to the Company's revolving credit card. In
1991, net cash provided by operations was increased by a net decrease in working
capital items of $40.1 million. The net decrease in working capital items was
due principally to an increase in accrued liabilities of $48.0 million
principally from increases in accrued income taxes of $13.0 million and in
reserve for repurchase of uncollectible accounts under the Company's credit card
program of $8.2 million.
The Company's capital expenditures totaled $24.6 million in 1993 compared
to $21.1 million in 1992 and $11.9 million in 1991. In 1993, capital
expenditures were principally for the construction of a new telecommunications
facility in Chesapeake, Virginia, which replaced a leased facility, additions
for computer equipment and software, and other equipment. Capital expenditures
in 1992 were principally for computer equipment and software, and the
construction and equipping of a telecommunications facility in San Antonio,
Texas. In fiscal 1991, capital expenditures were principally for studio,
computer and other equipment. The Company expects that annual capital
expenditures for current operations will approximate the 1993 level for the next
year.
The Company has an agreement with an unrelated third party which provides
for the sale and servicing of accounts receivable originating from the Company's
revolving credit card. The Company remains obligated to repurchase uncollectible
accounts pursuant to the recourse provisions of the agreement and is required to
maintain a specified percentage of all outstanding receivables transferred under
the program as a deposit with the third party to secure its obligations under
the agreement.
The Company has a $60.0 million bank revolving credit facility to finance
operations as well as to fund letters of credit for merchandise purchases.
Interest on outstanding amounts under this agreement is payable at the bank's
prime rate or other interest rate options. A commitment fee of .25% is payable
on the unused portion of the revolving credit facility. The credit agreement
requires the Company to maintain certain ratios for total liabilities to
shareholders' equity and for coverage of fixed charges. The Company borrowed
$20.0 million under the facility in March 1993 and retired the remaining balance
on its Senior term loan. All amounts borrowed under the facility were repaid
from net cash provided by operating activities during the 1993 first quarter.
Outstanding letters of credit totaled approximately $7.8 million at January 31,
1994.
C-33
<PAGE> 115
The Company had working capital at January 31, 1994 of $101.8 million
compared to $7.3 million at January 31, 1993. The principal reason for the
increase in working capital during 1993 was cash flows from operating activities
as well as the increase in the current deferred tax asset of $24.7 million
arising from the adoption of SFAS 109. The current ratio was 1.3 at January 31,
1994 compared to 1.0 at January 31, 1993. Long-term debt to total capitalization
was 1.2% at January 31, 1994, compared to 1.6% at the prior year end due to the
increase in retained earnings from the current year's operating results.
During the first quarter of 1993, the Company filed a registration
statement on Form S-3 for up to $400.0 million of debt securities and up to 5.0
million shares of Common Stock. Substantially all of the net proceeds of any
offering would be used for general corporate purposes, including investment in
or development of activities in which the Company is not currently engaged.
However, this registration statement was never declared effective by the
Securities and Exchange Commission.
The Company believes that its present capital resources and future
operations will result in adequate financial resources to fund all capital
expenditures.
EFFECTS OF INFLATION
Inflation has not had a significant impact on the results of the Company's
operations.
C-34
<PAGE> 116
QVC, INC. AND SUBSIDIARIES
CONSOLIDATED UNAUDITED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
APRIL 30, JANUARY 31,
1994 1994
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................................... $ 20,105 $ 15,873
Accounts receivable, less allowance for doubtful accounts of
$61,609 at April 30, 1994 and $52,759 at January 31, 1994... 170,009 183,162
Inventories.................................................... 156,602 148,208
Deferred taxes................................................. 58,815 59,749
Prepaid expenses............................................... 7,872 5,536
----------- -----------
Total current assets................................... 413,403 412,528
Property, plant and equipment, at cost, less accumulated
depreciation................................................... 79,098 80,579
Cable television distribution rights, net........................ 95,911 99,579
Other assets, net................................................ 34,193 33,664
Excess of cost over acquired net assets.......................... 249,365 251,810
----------- -----------
Total assets........................................... $ 871,970 $ 878,160
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt........................... $ 3,128 $ 3,114
Accounts payable-trade......................................... 69,667 81,594
Accrued liabilities............................................ 216,629 225,989
----------- -----------
Total current liabilities.............................. 289,424 310,697
Long-term debt, less current maturities.......................... 6,900 7,044
----------- -----------
Total liabilities...................................... 296,324 317,741
=========== ===========
Shareholders' equity:
Convertible Preferred Stock, par value $.10.................... 56 56
Common Stock, par value $.01................................... 402 399
Additional paid-in capital..................................... 449,188 446,027
Retained earnings.............................................. 126,000 113,937
----------- -----------
Total shareholders' equity............................. 575,646 560,419
----------- -----------
Total liabilities and shareholders' equity............. $ 871,970 $ 878,160
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
C-35
<PAGE> 117
QVC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
APRIL 30,
---------------------
1994 1993
-------- --------
<S> <C> <C>
Net revenue............................................................ $296,441 $273,232
Cost of goods sold..................................................... 180,812 159,459
-------- --------
Gross profit................................................. 115,629 113,773
-------- --------
Operating expenses:
Variable costs....................................................... 40,037 40,130
General and administrative........................................... 32,291 30,570
Depreciation......................................................... 4,242 3,966
Amortization of intangible assets.................................... 6,205 6,680
-------- --------
82,775 81,346
-------- --------
Operating income....................................................... 32,854 32,427
-------- --------
Other income (expense):
Losses from joint ventures........................................... (10,013) --
Interest expense..................................................... (358) (544)
Interest income...................................................... 3,900 2,663
-------- --------
(6,471) 2,119
-------- --------
Income before income taxes and cumulative effect of a change in
accounting principle................................................. 26,383 34,546
Income tax provision................................................... (14,320) (16,925)
-------- --------
Income before cumulative effect of a change in accounting principle.... 12,063 17,621
Cumulative effect of a change in accounting for income taxes........... -- 3,990
-------- --------
Net income................................................... $ 12,063 $ 21,611
-------- --------
Income per share:
Income before cumulative effect of a change in accounting
principle......................................................... $ .25 $ .36
Cumulative effect of a change in accounting for income taxes......... -- .08
-------- --------
Net income................................................... $ .25 $ .44
======== ========
Weighted average number of common and common equivalent shares......... 48,627 49,556
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
C-36
<PAGE> 118
QVC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
APRIL 30,
--------------------
1994 1993
-------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income............................................................ $ 12,063 $21,611
Adjustments to reconcile net income to net cash provided by operating
activities:
(Increase) decrease in deferred taxes.............................. (1,127) 1,523
Cumulative effect of a change in accounting for income taxes....... -- (3,990)
Depreciation....................................................... 4,242 3,966
Amortization of intangible assets.................................. 6,205 6,680
Losses from joint ventures......................................... 10,013 --
Changes in other non-current assets................................... (3,051) 1,017
Effects of changes in working capital items*.......................... (17,930) 2,374
-------- -------
Net cash provided by operating activities..................... 10,415 33,181
-------- -------
Cash flows from investing activities:
Capital expenditures.................................................. (2,761) (4,078)
Changes in other assets............................................... (100) --
Investments in and advances to joint ventures......................... (6,356) --
-------- -------
Net cash used in investing activities......................... (9,217) (4,078)
-------- -------
Cash flows from financing activities:
Borrowings under revolving credit facilities.......................... -- 20,000
Payments against revolving credit facilities.......................... -- (20,000)
Principal payments under capitalized leases and other debt............ (130) (130)
Payments under Senior term loan....................................... -- (21,000)
Proceeds from exercise of stock options............................... 64 560
Proceeds from exercise of warrants.................................... 3,100 --
-------- -------
Net cash provided by (used in) financing activities........... 3,034 (20,570)
-------- -------
Net increase in cash and cash equivalents............................... 4,232 8,533
Cash and cash equivalents at beginning of period........................ 15,873 4,279
-------- -------
Cash and cash equivalents at end of period.............................. $ 20,105 $12,812
======== =======
*Analysis of effects of changes in working capital items:
Decrease in accounts receivable....................................... $ 13,153 $ 8,216
Increase in inventories............................................... (8,394) (10,272)
Decrease (increase) in deferred taxes................................. 934 (3,215)
Increase in prepaid expenses.......................................... (2,336) (1,140)
(Decrease) increase in accounts payable............................... (11,928) 2,725
(Decrease) increase in accrued liabilities............................ (9,359) 6,060
-------- -------
$(17,930) $ 2,374
======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
C-37
<PAGE> 119
QVC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
CONVERTIBLE ADDITIONAL
PREFERRED COMMON PAID-IN RETAINED
STOCK STOCK CAPITAL EARNINGS TOTAL
----------- ------ ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance January 31, 1994..................... $56 $399 $ 446,027 $113,937 $560,419
Net income for period........................ -- -- -- 12,063 12,063
Proceeds from exercise of warrants........... -- 3 3,097 -- 3,100
Proceeds from the exercise of employee stock
options.................................... -- -- 64 -- 64
--- ------ ---------- -------- --------
Balance April 30, 1994....................... $56 $402 $ 449,188 $126,000 $575,646
=== ====== ========== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
C-38
<PAGE> 120
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 -- OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
APRIL 30, JANUARY 31,
1994 1994
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Deferred taxes (Note 5)............................................ $ 18,392 $17,265
Investments in and advances to joint ventures, net of accumulated
losses........................................................... 7,537 11,194
Start-up costs..................................................... 6,510 3,459
Satellite transponder rights....................................... 1,000 1,000
Debt placement fees................................................ 162 162
Other.............................................................. 1,014 1,072
--------- -----------
34,615 34,152
Less -- accumulated amortization................................... (422) (488)
--------- -----------
Net other assets................................................... $ 34,193 $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.
C-39
<PAGE> 121
QVC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Summarized financial information for "QVC -- The Shopping Channel" and
"CVC" on a 100% basis as of and for the quarter ended April 30, 1994 follows (in
thousands):
<TABLE>
<CAPTION>
QVC
THE SHOPPING CHANNEL CVC
-------------------- -------
<S> <C> <C>
Current assets......................................... $ 7,087 $ 7,718
Property, plant and equipment, net..................... 1,945 1,783
Unamortized start-up costs............................. 1,732 1,272
Current liabilities.................................... 6,773 8,540
Net revenue............................................ 3,069 4,689
Gross profit........................................... 634 809
Loss................................................... (7,199) (3,266)
</TABLE>
In fiscal 1993, the Company also entered a joint venture with Tribune
Entertainment Company and Regal Communications to form QRT Enterprises ("QRT").
QRT produces and syndicates "Can We Shop" with Joan Rivers, which commenced
broadcasting January 17, 1994. "Can We Shop" is a one-hour, Monday through
Friday television show through which merchandise is sold. The Company's
one-third share of QRT's operating loss amounted to $831,000 during the first
quarter of fiscal 1994.
The Company has made a $3.9 million investment in Friday Holdings, L.P., a
limited partnership. The limited partnership's purpose is to establish or
acquire businesses in the communications field and to develop information
products. The Company's one-third share of Friday Holdings' operating loss
amounted to $350,000 in the first quarter of fiscal 1994.
The Company has capitalized $6.5 million in costs relating to Q2, a new
televised shopping/programming service, scheduled to be launched in the third
quarter of fiscal 1994 in the United States. The capitalized start-up costs will
be amortized over eighteen months starting at the commencement of broadcast
operations.
NOTE 4 -- CAPITAL STOCK
The Company has 175,000,000 shares of Common Stock authorized. There were
40,214,097 shares outstanding at April 30, 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) and the
exercise of employee stock options (8,650).
The following table summarizes the number of Convertible Preferred shares
at April 30, 1994 and January 31, 1994 (in thousands):
<TABLE>
<CAPTION>
SHARES
AUTHORIZED OUTSTANDING PAR VALUE
---------- ----------- ---------
<S> <C> <C> <C>
Series A........................................... 10 -- $--
Series B........................................... 1,000 28 3
Series C........................................... 1,000 531 53
Series D........................................... 300 1 --
---
$56
=======
</TABLE>
NOTE 5 -- 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 three-months ended April 30, 1993.
The provisions for income taxes for the three months ended April 30, 1994 and
1993 are based
C-40
<PAGE> 122
QVC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
on the estimated 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 losses from foreign
joint ventures provide no state income tax benefit.
During the three months ended April 30, 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 financial impact on the Company.
NOTE 6 -- INCOME PER SHARE
The Company computes income per share using the modified treasury stock
method. Accordingly, primary earnings per share for the first quarter of fiscal
1994 were computed by dividing the net income by the 45,572,000 weighted average
number of outstanding shares of Common Stock and Common shares assumed to be
issued upon the conversion of the Convertible Preferred Stock plus the net
3,055,000 shares assumed to be outstanding from the exercise of options and
warrants. Primary earnings per share for the three months ended April 30, 1993
were computed by dividing the net income by the 45,007,000 weighted average
number of outstanding shares of Common Stock and Common shares assumed to be
issued upon the conversion of the Convertible Preferred Stock plus the net
4,549,000 shares assumed to be outstanding from exercise of options and
warrants. Fully-diluted earnings per share for both periods are not presented
because they would not differ from the primary earnings per share.
NOTE 7 -- SUPPLEMENTAL INFORMATION ON CONSOLIDATED STATEMENTS
OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
APRIL 30,
-----------------
1994 1993
---- ------
(IN THOUSANDS)
<S> <C> <C>
Supplemental cash flow information:
Interest paid................................................... $321 $ 561
Income taxes paid............................................... 20 4,393
</TABLE>
NOTE 8 -- LITIGATION
As previously reported in the Company's Annual Report on Form 10-K for the
fiscal year ended January 31, 1994 ("Form 10-K"), filed with the Securities and
Exchange Commission on April 20, 1994, the Company has been named as a defendant
in certain actions filed in state and federal courts in Delaware 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"). The plaintiffs and other defendants to the HSN Actions have executed
a Memorandum of Understanding (the "MOU") dated as of December 31, 1993, and
amended February 7, 1994, setting forth an agreement in principle for the
settlement of the HSN Actions for a total consideration of $13.0 million (plus
$200,000 to cover administrative expenses), all of which is to be funded by
Liberty. In early May 1994, the Company joined in the proposed settlement of the
HSN Actions by becoming a party to a revised MOU. Under the revised MOU, QVC is
not required to pay any portion of the proposed settlement fund. The proposed
settlement is subject to the parties' obtaining the approval of the Delaware
courts.
C-41
<PAGE> 123
QVC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In September 1993, Viacom International Inc. ("Viacom International"), a
subsidiary of Viacom Inc. ("Viacom"), brought an action in New York federal
court against the Company, Tele-Communications, Inc., Liberty, Satellite
Services, Inc., Encore Media Corp., and Netlink USA, challenging the Company's
September 1993 proposal to Paramount Communications Inc. ("Paramount") to
combine Paramount and QVC in a cash and stock-for-stock exchange. Viacom
International amended its complaint in November 1993 to add Comcast Corporation
("Comcast") as a defendant. Comcast was subsequently dismissed as a defendant.
The Company filed an answer to the amended complaint in November 1993. On
February 15, 1994, the Company terminated its tender offer for 50.1% of
Paramount Common Stock. All claims against the Company were dismissed by court
order filed on May 3, 1994.
In October 1993, the Company brought an action in Delaware Chancery Court
against Viacom, 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. The
Company sought to compel Paramount's board to give the two merger proposals
equal consideration and also sought to invalidate certain "lockup" agreements
and share purchase options given by Paramount to Viacom. In November 1993, the
court granted the Company's motion for a preliminary injunction against
Paramount's poison pill rights plan and certain other anti-takeover mechanisms
being used to preclude the Paramount shareholders from accepting the Company's
cash tender offer for 50.1% of Paramount Common Stock. On appeal by Paramount
and Viacom, the Delaware Supreme Court affirmed the lower court's injunction on
December 9, 1993, and subsequently issued a formal opinion in support of its
ruling. On December 21, 1993, Viacom filed a motion to dismiss the Company's
complaint against it. Paramount's time to respond to the Company's complaint has
been extended to June 27, 1994.
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.
C-42
<PAGE> 124
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:
<TABLE>
<CAPTION>
APRIL 30,
-----------------
1994 1993
----- -----
(IN MILLIONS,
EXCEPT DOLLAR
AMOUNTS)
<S> <C> <C>
Cable homes -- 24 hours per day.................................... 44.5 42.5
Cable homes -- part-time........................................... 2.9 2.8
Satellite dish homes (estimated)................................... 3.0 3.0
----- -----
Total.................................................... 50.4 48.3
===== =====
Full-time equivalent homes ("FTE")................................. 47.0 44.9
----- -----
QVC net sales per FTE home......................................... $6.29 $6.06
===== =====
</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 exclude non-merchandise revenue.
Net revenue increased in the first three 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 increased slightly over the prior year's quarter as the
increase in the gross profit resulting from the higher sales volume was
partially offset by higher operating expenses.
C-43
<PAGE> 125
RESULTS OF OPERATIONS
Three months ended April 30, 1994 compared to three months ended April 30,
1993.
The following table sets forth the Company's Consolidated Statements of
Operations expressed as a percentage of net revenue:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
APRIL 30,
-----------------
1994 1993
----- -----
<S> <C> <C>
Net revenue........................................................ 100.0% 100.0%
Cost of goods sold................................................. 61.0 58.4
----- -----
Gross profit....................................................... 39.0 41.6
----- -----
Operating expenses:
Variable costs................................................... 13.5 14.7
General and administrative....................................... 10.9 11.2
Depreciation..................................................... 1.4 1.5
Amortization of intangible assets................................ 2.1 2.4
----- -----
27.9 29.8
----- -----
Operating income................................................... 11.1 11.8
Other income (expense):
Losses from joint ventures....................................... (3.4) --
Interest expense................................................. (0.1) (0.2)
Interest income.................................................. 1.3 1.0
----- -----
(2.2) 0.8
----- -----
Income before income taxes and cumulative effect of a change in
accounting principle............................................. 8.9 12.6
Income tax provision............................................... (4.8) (6.2)
----- -----
Income before cumulative effect of a change in accounting
principle........................................................ 4.1 6.4
Cumulative effect of a change in accounting for income taxes....... -- 1.5
----- -----
Net income......................................................... 4.1% 7.9%
===== =====
</TABLE>
NET REVENUE AND GROSS PROFIT
Net revenue for the three months ended April 30, 1994 was $296.4 million,
an increase of 8.5% over the $273.2 million net revenue in the prior year's
quarter. The sales increase was due to the 4.7% increase in the average number
of homes receiving the QVC Service as well as the 3.8% increase in net sales per
FTE home.
Net revenue in the first quarter of 1994 includes $2.8 million of net sales
from The QVC Fashion Channel to 8.7 million homes compared to $7.9 million of
net sales to 7.5 million FTE homes in 1992. The Company is starting a new
shopping service, consisting of onQ and Q2, which is going to replace The QVC
Fashion Channel. onQ is QVC's new fashion service for younger adults and will
broadcast weekdays. In May 1994, onQ started broadcasting sixteen hours of live
programming on Monday and nine hours of live programming on Thursday. Q2 is
being designed for the audience that has not yet purchased from traditional
home-shopping formats and will broadcast weekends. The Company anticipates that
onQ and Q2 will be fully operational, seven days a week, by the third quarter 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
selected items in several monthly installments. When the Easy-Pay Plan is
selected by the customer, the item purchased is shipped after the first payment
is billed to the customer's credit card. The customer's credit card is
subsequently billed up to four additional monthly installments until the total
purchase price of the product has been received by the Company. QVC's revolving
credit card program permits customers to charge purchases on the Company's own
credit card. The accounts receivable
C-44
<PAGE> 126
from the revolving credit card program are purchased (with recourse) and
serviced by an unrelated third party. Sales under these credit programs amounted
to 42.9% and 38.3% of net revenue for the three months ended April 30, 1994 and
1993, respectively. Sales under these credit programs increased as a percentage
of total sales in the current quarter because of more sales under the Easy-Pay
Plan. The loss provision for uncollectible accounts under these credit programs
amounted to $5.2 million in the current period compared with $6.0 million in the
prior year.
The sales mix by product category as a percentage of net sales was as
follows:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
APRIL 30,
-----------------
1994 1993
----- -----
<S> <C> <C>
Jewelry............................................................ 38.9% 40.4%
Apparel and accessories............................................ 18.4 19.4
Housewares......................................................... 14.4 12.2
Electronics........................................................ 6.9 7.7
Collectibles....................................................... 7.0 9.0
Other.............................................................. 14.4 11.3
----- -----
100.0% 100.0%
===== =====
</TABLE>
Gross profit for the quarter ended April 30, 1994 was $115.6 million, or
39.0% of net revenue, compared to $113.8 million, or 41.6% of net revenue in the
prior year. The principal reason for the increase in gross profit was the
increased sales volume. The decrease in the gross profit percentage in 1994 was
principally due to the effect of higher gold prices on jewelry product profit
margins and, to a lesser extent, stronger sales of the Company's promotional
Today's Special Value items which sell below our normal gross profit margins.
VARIABLE COSTS
Variable costs totaled $40.0 million and $40.1 million for the first
quarter 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):
<TABLE>
<CAPTION>
THREE MONTHS ENDED APRIL 30,
-------------------------------
1994 1993
------------- -------------
$ % $ %
---- ---- ---- ----
<S> <C> <C> <C> <C>
Order processing and customer service................... 14.9 5.0 14.7 5.4
Commissions and license fees............................ 15.3 5.2 14.7 5.4
Provision for doubtful accounts......................... 5.6 1.9 6.8 2.5
Credit card processing fees............................. 4.2 1.4 3.9 1.4
---- ---- ---- ----
40.0 13.5 40.1 14.7
==== ==== ==== ====
</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 touch-tone 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 first quarter of 1994, general and administrative expenses
totaled $32.3 million, or 10.9% of net revenue compared to $30.6 million, or
11.2% of net revenue, in the prior year. The major components of
C-45
<PAGE> 127
general and administrative expenses are detailed below, expressed in amounts and
as a percentage of net revenue (dollars in millions).
<TABLE>
<CAPTION>
THREE MONTHS ENDED APRIL 30,
----------------------------
1994 1993
------------ ------------
$ % $ %
---- ---- ---- ----
<S> <C> <C> <C> <C>
Administration............................................. 10.7 3.6 10.7 3.9
Advertising and marketing.................................. 7.3 2.5 6.8 2.5
Data processing............................................ 4.1 1.4 4.3 1.6
Broadcasting............................................... 5.6 1.9 4.8 1.8
Merchandising and programming.............................. 3.2 1.0 2.6 0.9
Occupancy costs............................................ 1.4 0.5 1.4 0.5
---- ---- ---- ----
32.3 10.9 30.6 11.2
==== ==== ==== ====
</TABLE>
The increase in advertising and marketing expenses during the first quarter
of 1994 reflects additional promotional mailings to QVC customers. Data
processing costs decreased slightly due to the purchase of computer equipment
that was previously leased by the Company. The increase in broadcasting expenses
reflects the higher costs to enhance the on-air presentation. Merchandising and
programming expenses increased due to additional personnel needed to sustain the
Company's sales growth.
DEPRECIATION AND AMORTIZATION
Depreciation expense has remained constant in 1994 compared to the prior
year. Amortization expense decreased 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 of $32.9 million was slightly higher than last year's
$32.4 million as the higher gross profit resulting from the sales volume was
partially offset by higher operating expenses.
LOSSES FROM JOINT VENTURE
During 1993, the Company entered into four joint ventures which resulted in
combined losses of $10.0 million during the first quarter 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 -- approximately 2.0 million homes. In addition,
approximately .5 million cable homes receive the program. The agreement with
BSkyB requires, among other things, that the Company provide all funding to the
joint venture until it is profitable. The Company will then recover all prior
funding before any profits are shared. During the first quarter of 1994,
QVC -- The Shopping Channel operations resulted in a $7.2 million loss, which
was recorded by the Company, including $472,000 amortization of capitalized
start-up costs.
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 7.3 million FTE homes.
The Company's 50% share of CVC's operations resulted in a $1.6 million loss
during the first quarter, including $319,000 amortization of capitalized
start-up costs.
The Company also entered a joint venture with Tribune Entertainment Company
and Regal Communications to produce and distribute "Can We Shop" with Joan
Rivers. "Can We Shop" first aired on January 17, 1994 and is a one-hour, Monday
through Friday television show through which merchandise is sold. The Company's
share of the operating loss amounted to $831,000 during the 1994 first quarter.
C-46
<PAGE> 128
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 $350,000 loss in
association with this partnership.
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 its
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 months ended April
30, 1994 and 1993 are based on the estimated 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 foreign joint ventures provide no state income tax benefit.
CUMULATIVE EFFECT OF 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 supersedes 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 first quarter of 1994 was $12.1 million compared to net
income of $21.6 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 three months ended April 30, 1994, net cash
provided by operating activities totaled $10.4 million. Net cash provided by
operations was decreased by the increase in working capital items of $17.9
million in 1994.
The Company's capital expenditures during the first quarter of 1994 totaled
$2.8 million, principally for broadcast equipment and computer 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. Outstanding letters of credit totaled $9.2
million at April 30, 1994.
C-47
<PAGE> 129
Working capital at April 30, 1994 was $124.0 million compared to working
capital of $101.8 million at January 31, 1994. The current ratio was 1.4 at
April 30, 1994 compared to 1.3 at January 31, 1994. Long-term debt to total
capitalization was 1.2% at April 30, 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. The Company estimates that the cost of
these cable television distribution rights will approximate $40.0 million during
the remainder of fiscal 1994, which will be funded from the Company's free cash
flow.
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 as well as capital expenditures.
EFFECTS OF INFLATION
Inflation has not had a significant impact on the results of the Company's
operations.
C-48
<PAGE> 130
Facsimile copies of the Letter of Transmittal will be accepted. The Letter
of Transmittal and certificates for Shares and any other required documents
should be sent to the Depositary at one of the addresses set forth below:
The Depositary:
THE BANK OF NEW YORK
(For Information Call (800) 507-9357)
<TABLE>
<S> <C> <C>
By Mail: By Facsimile: By Hand or Overnight Courier:
Tender & Exchange Dept. (212) 815-6213 Tender & Exchange Dept.
P.O. Box 11248 101 Barclay Street
Church Street Station Confirm by telephone Receive and Deliver Window
New York, NY 10286-1248 (800) 507-9357 New York, NY 10286
</TABLE>
Questions or requests for assistance or additional copies of this Offer to
Purchase and the Letter of Transmittal may be directed to the Information Agent
or the Dealer Manager at their respective addresses and telephone numbers set
forth below. Stockholders may also contact their broker, dealer, commercial bank
or trust company for assistance concerning the Offer.
The Information Agent is:
D.F. KING & CO., INC.
<TABLE>
<S> <C> <C>
135 South LaSalle Street 77 Water Street 9841 Airport Boulevard
Chicago, Illinois 60603 New York, New York 10005 Los Angeles, California 90045
(312) 236-5881 (collect) (212) 269-5550 (collect) (213) 215-3860 (collect)
</TABLE>
OR
CALL TOLL-FREE (800) 735-3591
The Dealer Manager for the Offer is:
LAZARD FRERES & CO.
One Rockefeller Plaza
New York, New York 10020
(212) 632-6000
(call collect)
August 11, 1994
<PAGE> 1
EXHIBIT 2
LETTER OF TRANSMITTAL
TO TENDER SHARES
OF
COMMON STOCK,
SERIES B PREFERRED STOCK
AND
SERIES C PREFERRED STOCK
OF
QVC, INC.
PURSUANT TO THE OFFER TO PURCHASE
DATED AUGUST 11, 1994
OF
QVC PROGRAMMING HOLDINGS, INC.
THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON
THURSDAY, SEPTEMBER 8, 1994, UNLESS THE OFFER IS EXTENDED.
To: The Bank of New York, DEPOSITARY
<TABLE>
<S> <C> <C>
By Mail: By Facsimile Transmission: By Hand or Overnight Courier:
Tender & Exchange (212) 815-6213 Tender & Exchange
Department Department
P.O. Box 11248 Confirm by Telephone: 101 Barclay Street
Church Street Station (800) 507-9357 Receive and Deliver Window
New York, NY 10286-1248 New York, NY 10286
</TABLE>
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSIONS OF INSTRUCTIONS VIA A FACSIMILE TRANSMISSION TO A
NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
This Letter of Transmittal is to be used by stockholders if certificates
for Shares (as defined below) are to be forwarded herewith or, unless an Agent's
Message (as defined in the Offer to Purchase) is utilized, if delivery of Common
Shares is to be made by book-entry transfer to the Depositary's account at The
Depository Trust Company, Midwest Securities Trust Company or Philadelphia
Depository Trust Company (hereinafter collectively referred to as the "Book-
Entry Transfer Facilities") pursuant to the procedures set forth under "The
Tender Offer -- 3. Procedure for Tendering Shares" in the Offer to Purchase
dated August 11, 1994. Stockholders who tender Common Shares by book-entry
transfer are referred to herein as "Book-Entry Stockholders."
Holders of Shares whose certificates for such Shares (the "Share
Certificates") are not immediately available or who cannot deliver their Share
Certificates and all other documents required hereby to the Depositary on or
prior to the Expiration Date (as defined in the Offer to Purchase) or who cannot
complete the procedures for book-entry transfer on a timely basis, must tender
their Shares pursuant to the guaranteed delivery procedure set forth under "The
Tender Offer -- 3. Procedure for Tendering Shares" in the Offer to Purchase. See
Instruction 2.
<PAGE> 2
- --------------------------------------------------------------------------------
DESCRIPTION OF SHARES TENDERED
- --------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES)
OF REGISTERED HOLDER(S)
(PLEASE FILL IN, IF BLANK,
EXACTLY AS NAME(S) APPEAR(S)
ON SHARE CERTIFICATE(S))
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
SHARE CERTIFICATE(S) AND SHARE(S) TENDERED
(ATTACH ADDITIONAL LIST IF NECESSARY)
- ---------------------------------------------------------------------------------------------------------
CLASS AND SERIES TOTAL NUMBER
SHARE OF SHARES OF SHARES NUMBER OF
CERTIFICATE REPRESENTED BY REPRESENTED BY SHARES
NUMBER(S)* SHARE CERTIFICATE(S) SHARE CERTIFICATE(S)* TENDERED**
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
TOTAL SHARES OF COMMON STOCK........................
------------------------
TOTAL SHARES OF SERIES B PREFERRED STOCK............
------------------------
TOTAL SHARES OF SERIES C PREFERRED STOCK............
- ---------------------------------------------------------------------------------------------------------
* NEED NOT BE COMPLETED BY STOCKHOLDERS TENDERING BY BOOK-ENTRY TRANSFER.
** UNLESS OTHERWISE INDICATED, IT WILL BE ASSUMED THAT ALL SHARES REPRESENTED BY ANY CERTIFICATES
DELIVERED TO THE DEPOSITARY ARE BEING TENDERED. SEE INSTRUCTION 4.
- ---------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: SIGNATURES MUST BE PROVIDED ON THE INSIDE AND REVERSE BACK COVER
PLEASE READ ACCOMPANYING INSTRUCTIONS CAREFULLY
<TABLE>
<S> <C> <C>
/ / CHECK HERE IF TENDERED COMMON SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER TO THE
DEPOSITARY'S ACCOUNT AT ONE OF THE BOOK-ENTRY TRANSFER FACILITIES AND COMPLETE THE FOLLOWING:
Name of Tendering Institution....................................................................
Account No.....................................................................................at
/ / The Depository Trust Company
/ / Midwest Securities Trust Company
/ / Philadelphia Depository Trust Company
Transaction Code No. ............................................................................
/ / CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY
PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE FOLLOWING. PLEASE ENCLOSE A PHOTOCOPY OF SUCH
NOTICE OF GUARANTEED DELIVERY:
Name(s) of Registered Stockholder(s).............................................................
Window Ticket Number (if any): ..................................................................
Date of Execution of Notice of Guaranteed Delivery...............................................
Name of Institution which Guaranteed Delivery....................................................
</TABLE>
------------------------
<PAGE> 3
Ladies and Gentlemen:
The undersigned hereby tenders to QVC Programming Holdings, Inc., a
Delaware corporation (the "Purchaser") to be wholly owned by Comcast
Corporation, a Pennsylvania corporation ("Comcast") and Liberty Media
Corporation, a Delaware corporation ("Liberty" and, together with Comcast, the
"Parent Purchasers") and a wholly-owned subsidiary of Tele-Communications, Inc.,
the above-described shares (the "Shares") of Common Stock, $.01 par value per
share (the "Common Stock"), and Series B Preferred Stock and Series C Preferred
Stock, each $.10 par value per share (together, the "Preferred Stock"), of QVC,
Inc., a Delaware corporation (the "Company"), pursuant to the Purchaser's offer
to purchase all outstanding Shares at a price of $46 per share of Common Stock
and $460 per share of Preferred Stock, net to the seller in cash, without
interest thereon, upon the terms and subject to the conditions set forth in the
Offer to Purchase dated August 11, 1994, receipt of which is hereby
acknowledged, and in this Letter of Transmittal (which together constitute the
"Offer"). For purposes of this Letter of Transmittal, "Common Shares" means the
Shares of Common Stock and "Preferred Shares" means the Shares of Preferred
Stock. The Purchaser reserves the right to transfer or assign, in whole or from
time to time in part, to one or more of its subsidiaries or affiliates the right
to purchase any or all Shares tendered pursuant to the Offer.
Subject to, and effective upon, acceptance for payment of and payment for
the Shares tendered herewith in accordance with the terms and subject to the
conditions of the Offer, the undersigned hereby sells, assigns and transfers to,
or upon the order of, the Purchaser all right, title and interest in and to all
the Shares that are being tendered hereby (and any and all other Shares or other
securities issued or issuable in respect thereof on or after August 4, 1994) and
any and all dividends thereon or distributions with respect thereto and
irrevocably appoints the Depositary the true and lawful agent, attorney-in-fact
and proxy of the undersigned to the full extent of the undersigned rights with
respect to the Shares (and all such other Shares or securities), with full power
of substitution (such power of attorney and proxy being deemed to be an
irrevocable power coupled with an interest), to (a) deliver Share Certificates
for such Shares (and all such other Shares and securities), or, in the case of
Common Shares, transfer ownership of such Common Shares (and all such other
Common Shares or securities) on the account books maintained by any of the
Book-Entry Transfer Facilities, together, in any such case, with all
accompanying evidences of transfer and authenticity, to or upon the order of the
Purchaser upon receipt by the Depositary, or as the undersigned's agent, of the
purchase price, (b) present such Shares for transfer on the books of the Company
and (c) receive all benefits and otherwise exercise all rights of beneficial
ownership of such Shares, all in accordance with the terms of the Offer.
The undersigned hereby irrevocably appoints Brian L. Roberts, John R.
Alchin and Stanley L. Wang and each of them, the attorneys-in-fact and proxies
of the undersigned, each with full power of substitution, to exercise all voting
and other rights of the undersigned in such manner as each such attorney and
proxy or his substitute shall in his sole discretion deem proper, with respect
to all of the Shares tendered hereby which have been accepted for payment by the
Purchaser prior to the time of any vote or other action for which the
undersigned is entitled to vote at any meeting of stockholders (whether annual
or special and whether or not an adjourned meeting), by written consent or
otherwise. This power of attorney and proxy is coupled with an interest in the
Company and in the Shares and is irrevocable and is granted in consideration of,
and is effective upon, the acceptance for payment of such Shares by the
Purchaser in accordance with the terms of the Offer. Such acceptance for payment
shall revoke, without further action, any other power of attorney or proxy
granted by the undersigned at any time with respect to such Shares and no
subsequent powers of attorneys or proxies will be given (and if given will be
deemed not to be effective) with respect thereto by the undersigned. The
undersigned understands that the Purchaser reserves the right to require that,
in order for such Shares to be deemed validly tendered, immediately upon the
Purchaser's acceptance for payment of such Shares, the Purchaser is able to
exercise full voting rights with respect to such Shares and other securities,
including voting at any meeting of stockholders.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the Shares
tendered hereby and that when the same are accepted for payment by the
Purchaser, the Purchaser will acquire good and unencumbered title thereto, free
and clear of all liens, restrictions, charges and encumbrances and not subject
to any adverse claims. The undersigned will, upon request, execute and deliver
any additional documents deemed by the Depositary or the Purchaser to be
necessary or desirable to complete the sale, assignment and transfer of the
Shares tendered hereby. In addition, the undersigned will promptly remit and
transfer to the Depositary for the account of the Purchaser any and all other
distributions in respect of the Shares tendered hereby, accompanied by
appropriate documentation of transfer and, pending such remittance or
appropriate assurance thereof, the Purchaser shall be entitled to all rights and
privileges as owner of any such distributions, and may withhold the entire
purchase price or deduct from the purchase price of Shares tendered hereby, the
amount or value thereof, as determined by the Purchaser in its sole discretion.
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned, and any obligation of the undersigned
hereunder shall be binding upon the heirs, personal representatives, successors
and assigns of the undersigned. Except as stated in the Offer, this tender is
irrevocable.
The undersigned understands that tenders of Shares pursuant to any one of
the procedures described under "The Tender Offer -- 3. Procedure for Tendering
Shares" in the Offer to Purchase and in the instructions hereto will constitute
a binding agreement between the undersigned and the Purchaser upon the terms and
subject to the conditions of the Offer.
<PAGE> 4
Unless otherwise indicated herein under "Special Payment Instructions,"
please issue the check for the purchase price and/or return any Share
Certificates not tendered or accepted for payment in the name(s) of the
undersigned. Similarly, unless otherwise indicated under "Special Delivery
Instructions," please mail the check for the purchase price and/or return any
Share Certificates not tendered or accepted for payment (and accompanying
documents, as appropriate) to the undersigned at the address shown below the
undersigned's signature. In the event that both the "Special Delivery
Instructions" and the "Special Payment Instructions" are completed, please issue
the check for the purchase price and/or return any Share Certificates not
tendered or accepted for payment in the name(s) of, and deliver said check
and/or return certificates to, the person or persons so indicated. Stockholders
tendering Common Shares by book-entry transfer may request that any Common
Shares not accepted for payment be returned by crediting such account maintained
at such Book-Entry Transfer Facility as such stockholder may designate by making
an appropriate entry under "Special Payment Instructions." The undersigned
recognizes that the Purchaser has no obligation pursuant to the "Special Payment
Instructions" to transfer any Shares from the name of the registered holder
thereof if the Purchaser does not accept for payment any of such Shares.
<PAGE> 5
SPECIAL PAYMENT INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7)
To be completed ONLY if the check for the purchase price of Shares
purchased or Shares Certificates not tendered or not purchased are to be issued
in the name of someone other than the undersigned, or if Common Shares tendered
by book-entry transfer that are not purchased are to be returned by credit to an
account at one of the Book-Entry Transfer Facilities other than that designated
above.
Issue check and/or certificates to:
Name............................................................................
(Please Print)
Address.........................................................................
...............................................................................
(Zip Code)
................................................................................
(Taxpayer Identification No. or Social Security No.)
(See Substitute Form W-9 below)
/ / Credit unpurchased Common Shares tendered by book-entry transfer to the
account set forth below:
Name of Account Party...........................................................
Account No. ................................................................. at
/ / The Depository Trust Company
/ / Midwest Securities Trust Company
/ / Philadelphia Depository Trust Company
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7)
To be completed ONLY if the check for the purchase price of Shares
purchased or Shares Certificates not tendered or not purchased are to be mailed
to someone other than the undersigned or to the undersigned at an address other
than that shown below the undersigned's signature(s).
Mail check and/or certificates to:
Name............................................................................
(Please Print)
Address.........................................................................
...............................................................................
(Zip Code)
................................................................................
(Taxpayer Identification No. or Social Security No.)
<PAGE> 6
<TABLE>
<C> <S> <C>
SIGN HERE
(PLEASE COMPLETE SUBSTITUTE FORM W-9 BELOW)
............................................................................
Signature(s) of Owner(s)
............................................................................
Dated................................................................., 1994
Name(s) ....................................................................
(Please Print)
............................................................................
Capacity (full title) ......................................................
Address ....................................................................
............................................................................
............................................................................
(Include Zip Code)
Area Code and Telephone No. ................................................
Tax Identification or Social Security No. ..................................
(See Substitute Form W-9 on Reverse Side)
(Must be signed by registered holder(s) exactly as name(s) appear(s) on stock certificate(s) or on
a security position listing or by person(s) authorized to become registered holder(s) by
certificates and documents transmitted herewith. If signature is by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a
fiduciary or representative capacity, please set forth full title and see Instruction 5.)
Guarantee of Signature(s)
(If required -- See Instructions 1 and 5)
Name of Firm ...............................................................
Authorized Signature .......................................................
Name .......................................................................
Address ....................................................................
Area Code and Telephone Number .............................................
Dated................................................................., 1994
</TABLE>
<PAGE> 7
TO BE COMPLETED BY ALL TENDERING STOCKHOLDERS
(SEE INSTRUCTION 8)
PAYER'S NAME: THE BANK OF NEW YORK
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
SUBSTITUTE PART I -- PLEASE PROVIDE YOUR ----------------------------------
FORM W-9 TIN IN THE BOX AT THE RIGHT AND Social Security Number
DEPARTMENT OF THE CERTIFY BY SIGNING AND DATING or
TREASURY INTERNAL BELOW. ----------------------------------
REVENUE SERVICE Employer Identification Number
PAYER'S REQUEST FOR
TAXPAYER IDENTIFICATION
NUMBER (TIN)
</TABLE>
- --------------------------------------------------------------------------------
PART II
- --------------------------------------------------------------------------------
CERTIFICATION -- Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct taxpayer identification number
(or I am waiting for a number to be issued to me);
(2) I am not subject to backup withholding because (a) I am exempt from backup
withholding, or (b) I have not been notified by the Internal Revenue
Service ("IRS") that I am subject to backup withholding as a result of a
failure to report all interest or dividends, or (c) the IRS has notified
me that I am no longer subject to backup withholding.
CERTIFICATION INSTRUCTIONS -- You must cross out item (2) above if you
have been notified by the IRS that you are currently subject to backup
withholding because of underreporting interest or dividends on your tax
return. However, if after being notified by the IRS that you were subject
to backup withholding you received another notification from the IRS that
you are no longer subject to backup withholding, do not cross out such
item (2).
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SIGNATURE_________________________________ DATE______________,1994/ PART III
Awaiting TIN / /
</TABLE>
- --------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW
THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 3 OF
SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (1) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office
or (2) I intend to mail or deliver an application in the near future. I
understand that if I do not provide a taxpayer identification number by
the time of payment, 31% of all reportable payments made to me will be
withheld, but that such amounts will be refunded to me if I then provide a
Taxpayer Identification Number within sixty (60) days.
Signature____________________________________Date _________________________
<PAGE> 8
SECTION 1445 CERTIFICATION
A. FORM FOR INDIVIDUAL TRANSFERORS
Section 1445 of the Internal Revenue Code provides that a transferee
(buyer) of a U.S. real property interest must withhold tax if the transferor
(seller) is a foreign person. To inform the transferee (buyer) that withholding
of tax is not required upon my disposition of a U.S. real property interest, I,
, hereby certify the following:
1. I am not a nonresident alien for purposes of U.S. income taxation;
2. My U.S. taxpayer identifying number (Social Security number) is
.
3. My home address is:
--------------------------------------------------------
I understand that this certification may be disclosed to the Internal
Revenue Service by the transferee and that any false statement I have made here
could be punished by fine, imprisonment, or both.
Under penalties of perjury I declare that I have examined this
certification and to the best of my knowledge and belief it is true, correct,
and complete.
SIGNATURE DATE , 1994
B. FORM FOR ENTITY TRANSFERORS
Section 1445 of the Internal Revenue Code provides that a transferee of a
U.S. real property interest must withhold tax if the transferor is a foreign
person. To inform the transferee that withholding of tax is not required upon
the disposition of a U.S. real property interest by it, the undersigned hereby
certifies on behalf of the following information with respect to
it:
1. It is not a foreign corporation, foreign partnership, foreign trust, or
foreign estate (as those terms are defined in the Internal Revenue Code
and Income Tax Regulations).
2. U.S. employer identification number: .
3. Office address:
- --------------------------------------------------------------------------------
It is understood that this certification may be disclosed to the Internal
Revenue Service by transferee and that any false statement contained herein
could be punished by fine, imprisonment or both.
Under penalties of perjury I declare that I have examined this
certification and to the best of my knowledge and belief it is true, correct and
complete, and I further declare that I have authority to sign this document on
behalf of the aforementioned entity.
SIGNATURE DATE , 1994
TITLE
NOTE: SEE INSTRUCTION 9 FOR INFORMATION REGARDING THIS FORM.
<PAGE> 9
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. Guarantee of Signatures. Except as otherwise provided below, all
signatures on this Letter of Transmittal must be guaranteed by a firm which is a
member of a registered national securities exchange or the National Association
of Securities Dealers, Inc., or by a commercial bank or trust company having an
office or correspondent in the United States (an "Eligible Institution").
Signatures on this Letter of Transmittal need not be guaranteed (a) if this
Letter of Transmittal is signed by the registered holder(s) of the Shares (which
term, in the case of Common Shares and for purposes of this document, shall
include any participant in one of the Book-Entry Transfer Facilities whose name
appears on a security position listing as the owner of Common Shares) tendered
herewith and such holder(s) have not completed the instruction entitled "Special
Payment Instructions" on this Letter of Transmittal or (b) if such Shares are
tendered for the account of an Eligible Institution. See Instruction 5.
2. Delivery of Letter of Transmittal and Shares. This Letter of Transmittal
is to be used either if Share Certificates are to be forwarded herewith or,
unless an Agent's Message (as defined in the Offer to Purchase), is utilized, if
delivery of Common Shares is to be made by book-entry transfer pursuant to the
procedures set forth in "The Tender Offer -- 3. Procedures for Tendering
Shares". Share Certificates, or a confirmation of a book-entry transfer into the
Depositary's account at one of the Book-Entry Transfer Facilities of all Common
Shares delivered electronically, as well as a properly completed and duly
executed Letter of Transmittal (or facsimile thereof), or an Agent's Message,
and any other documents required by this Letter of Transmittal, must be received
by the Depositary at one of its addresses set forth on the front page of this
Letter of Transmittal by the Expiration Date. Stockholders whose Share
Certificates are not immediately available or who cannot deliver their Share
Certificates and all other required documents to the Depositary by the
Expiration Date or, in the case of stockholders who hold Common Shares, who
cannot complete the procedures for delivery by book-entry transfer on a timely
basis, must tender their Shares pursuant to the guaranteed delivery procedure
set forth in "The Tender Offer -- 3. Procedures for Tendering Shares". Pursuant
to such procedure: (a) such tender must be made by or through an Eligible
Institution, (b) a properly completed and duly executed Notice of Guaranteed
Delivery substantially in the form provided by the Purchaser must be received by
the Depositary by the Expiration Date and (c) the Share Certificates or a
confirmation of a book-entry transfer into the Depositary's account at one of
the Book-Entry Transfer Facilities of all Common Shares delivered
electronically, as well as a properly completed and duly executed Letter of
Transmittal (or facsimile thereof) (or, in the case of a book-entry delivery, an
Agent's Message) and any other documents required by this Letter of Transmittal,
must be received by the Depositary on the National Association of Securities
Dealers, Inc. Automatic Quotation System/National Market System within five
trading days after the date of execution of such Notice of Guaranteed Delivery,
all as provided in "The Tender Offer -- 3. Procedures for Tendering Shares". If
Shares are forwarded separately to the Depositary, each must be accompanied by a
duly executed Letter of Transmittal (or facsimile thereof).
THE PREFERRED SHARES ARE NOT ELIGIBLE FOR ADMISSION TO THE BOOK-ENTRY
TRANSFER FACILITIES AND DELIVERY OF PREFERRED SHARES MAY NOT BE EFFECTED BY
BOOK-ENTRY TRANSFER.
The method of delivery of Share Certificates, this Letter of Transmittal
and all other required documents including in the case of Common Shares, through
Book-Entry Transfer Facilities, is at the option and sole risk of the tendering
stockholder and the delivery will be deemed made only when actually received by
the Depositary. If delivery is by mail, registered mail with return receipt
requested, properly issued, is recommended. In all cases, sufficient time should
be allowed to ensure timely delivery.
No alternative, conditional or contingent tenders will be accepted, and no
fractional Shares will be purchased. By executing this Letter of Transmittal (or
facsimile thereof), the tendering stockholder waives any right to receive any
notice of the acceptance for payment of the Shares.
3. Inadequate Space. If the space provided herein is inadequate, the
certificate numbers and/or the number of Shares and any other required
information should be listed on a separate schedule attached hereto and
separately signed on each page thereof in the same manner as this Letter of
Transmittal is signed.
4. Partial Tenders (not applicable to stockholders who tender by book-entry
transfer). If fewer than all the Shares represented by any certificate delivered
to the Depositary are to be tendered, fill in the number of Shares which are to
be tendered in the box entitled "Number of Shares Tendered". In such case, a new
certificate for the remainder of the Shares represented by the old certificate
will be sent to the person(s) signing this Letter of Transmittal, unless
otherwise provided in the appropriate box on this Letter of Transmittal, as
promptly as practicable following the expiration or termination of the Offer.
All Shares represented by certificates delivered to the Depositary will be
deemed to have been tendered unless otherwise indicated.
5. Signatures on Letter of Transmittal; Stock Powers and Endorsements. If
this Letter of Transmittal is signed by the registered holder(s) of the Shares
tendered hereby, the signature(s) must correspond with the name(s) as written on
the face of the certificates without alteration, enlargement or any change
whatsoever.
If any of the Shares tendered hereby are held of record by two or more
persons, all such persons must sign this Letter of Transmittal.
If any of the Shares tendered hereby are registered in different names on
different certificates, it will be necessary to complete, sign and submit as
many separate Letters of Transmittal as there are different registrations of
certificates.
<PAGE> 10
If this Letter of Transmittal is signed by the registered holder(s) of the
Shares tendered hereby, no endorsements of certificates or separate stock powers
are required unless payment of the purchase price is to be made, or Shares not
tendered or not purchased are to be returned, in the name of any person other
than the registered holder(s). Signatures on any such certificates or stock
powers must be guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of the Shares tendered hereby, certificates must be
endorsed or accompanied by appropriate stock powers, in either case, signed
exactly as the name(s) of the registered holder(s) appear(s) on the certificates
for such Shares. Signature(s) on any such certificates or stock powers must be
guaranteed by an Eligible Institution.
If this Letter of Transmittal or any certificate or stock power is signed
by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
such person should so indicate when signing, and proper evidence satisfactory to
the Purchaser of the authority of such person so to act must be submitted.
6. Stock Transfer Taxes. Except as noted in this Instruction 6, the
Purchaser will pay any stock transfer taxes with respect to the sale and
transfer of any Shares to it or its order pursuant to the Offer. If, however,
payment of the purchase price is to be made to, or Shares not tendered or not
purchased are to be returned in the name of, any person other than the
registered holder(s), or if a transfer tax is imposed for any reason other than
the sale or transfer of Shares to the Purchaser pursuant to the Offer, then the
amount of any stock transfer taxes (whether imposed on the registered holder(s),
such other person or otherwise) will be deducted from the purchase price unless
satisfactory evidence of the payment of such taxes, or exemption therefrom, is
submitted herewith.
Except as provided in this Instruction 6, it will not be necessary for
Transfer Tax Stamps to be affixed to the certificates listed in this Letter of
Transmittal.
7. Special Payment and Delivery Instructions. If the check for the purchase
price of any Shares purchased is to be issued, or any Shares not tendered or not
purchased are to be returned, in the name of a person other than the person(s)
signing this Letter of Transmittal or if the check or any certificates for
Shares not tendered or not purchased are to be mailed to someone other than the
person(s) signing this Letter of Transmittal or to the person(s) signing this
Letter of Transmittal at an address other than that shown above, the appropriate
boxes on this Letter of Transmittal should be completed. Stockholders tendering
Common Shares by book-entry transfer may request that Common Shares not
purchased be credited to such account at any of the Book-Entry Transfer
Facilities as such stockholder may designate under "Special Payment
Instructions". If no such instructions are given, any such Common Shares not
purchased will be returned by crediting the account at the Book-Entry Transfer
Facilities designated above.
8. Substitute Form W-9. Under the federal income tax laws, the Depositary
will be required to withhold 31% of the amount of any payments made to certain
stockholders pursuant to the Offer. In order to avoid such backup withholding,
each tendering stockholder, and, if applicable, each other payee, must provide
the Depositary with such stockholder's or payee's correct taxpayer
identification number and certify that such stockholder or payee is not subject
to such backup withholding by completing the Substitute Form W-9 set forth
above. In general, if a stockholder or payee is an individual, the taxpayer
identification number is the Social Security number of such individual. If the
Depositary is not provided with the correct taxpayer identification number, the
stockholder or payee may be subject to a $50 penalty imposed by the Internal
Revenue Service. Certain stockholders or payees (including, among others, all
corporations and certain foreign individuals) are not subject to these backup
withholding and reporting requirements. In order to satisfy the Depositary that
a foreign individual qualifies as an exempt recipient, such stockholder or payee
must submit a statement, signed under penalties of perjury, attesting to that
individual's exempt status. Such statements can be obtained from the Depositary.
For further information concerning backup withholding and instructions for
completing the Substitute Form W-9 (including how to obtain a taxpayer
identification number if you do not have one and how to complete the Substitute
Form W-9 if Shares are held in more than one name), consult the enclosed
Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9.
Failure to complete the Substitute Form W-9 will not, by itself, cause
Shares to be deemed invalidly tendered, but may require the Depositary to
withhold 31% of the amount of any payments made pursuant to the Offer. Backup
withholding is not an additional federal income tax. Rather, the federal income
tax liability of a person subject to backup withholding will be reduced by the
amount of tax withheld. If withholding results in an overpayment of taxes, a
refund may be obtained provided that the required information is furnished to
the Internal Revenue Service.
NOTE: FAILURE TO COMPLETE AND RETURN THE SUBSTITUTE FORM W-9 MAY RESULT IN
BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER.
PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
9. Withholding Under Section 1445. In addition to any applicable backup
withholding, under Section 1445 of the Internal Revenue Code of 1986, as amended
(the "Code"), the Depositary will withhold 10% of the amount of any payments
made to foreign stockholders unless the Depositary receives from the Company the
documentation necessary to avoid the withholding tax applicable to transfers of
interest in a "United States real property holding corporation" as defined in
Section 897 of the Code. There can be no assurance that the necessary
documentation will be obtained. Non-foreign stockholders who want to be assured
of avoiding withholding under Section 1445 regardless of whether the necessary
documentation is obtained from the Company must certify, under penalties of
perjury, their non-foreign status by completing the Section 1445 Certification
included in this Letter of Transmittal. Individuals should complete Form A and
entities should complete Form B of the Section 1445 Certification.
<PAGE> 11
Failure to complete the Section 1445 Certification will not, by itself,
cause Shares to be deemed invalidly tendered, but may require the Depositary to
withhold 10% of the amount of any payments made pursuant to the offer. Any
amounts withheld under Section 1445 will be allowed as a credit against such
stockholder's United States federal income tax liability and may entitle such
stockholder to a refund, provided that the Internal Revenue Service determines
that the Company is not a "United States real property holding corporation" and
the required information is furnished to it.
NOTE: FAILURE TO COMPLETE AND RETURN THE SECTION 1445 CERTIFICATION MAY
RESULT IN WITHHOLDING OF 10% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER.
10. Requests for Assistance or Additional Copies. Requests for assistance
or additional copies of the Offer to Purchase and this Letter of Transmittal may
be obtained from the Information Agent or Dealer Manager at their respective
addresses or telephone numbers set forth below.
11. Lost, Destroyed or Stolen Certificates. If any certificate(s)
representing Shares has been lost, destroyed or stolen, the stockholder should
promptly notify the Depositary. Instructions will then be given as to what steps
must be taken to obtain a replacement certificate(s). The Letter of Transmittal
and related documents cannot be processed until the procedures for replacing
such missing certificate(s) have been followed.
Facsimile copies of the Letter of Transmittal, properly completed and duly
executed, will be accepted. The Letter of Transmittal, certificates of Shares
and any other required documents should be sent or delivered by each stockholder
of the Company or his broker, dealer, commercial bank, trust company or other
nominee to the Depositary at one of its addresses set forth below:
The Depositary for the Offer is:
THE BANK OF NEW YORK
<TABLE>
<S> <C> <C>
By Mail: By Facsimile Transmission: By Hand or Overnight Courier:
Tender & Exchange (212) 815-6213 Tender & Exchange
Department Confirm by Telephone: Department
P.O. Box 11248 (800) 507-9357 101 Barclay Street
Church Street Station Receive and Deliver
New York, NY 10286-1248 Window
New York, New York 10286
</TABLE>
Questions and requests for assistance may be directed to the Information
Agent or the Dealer Manager at their respective addresses and telephone numbers
listed below. Additional copies of this Offer to Purchase, the Letter of
Transmittal and other tender offer materials may be obtained from the
Information Agent as set forth below, and will be furnished promptly at the
Company's expense. You may also contact your broker, dealer, commercial bank,
trust company or other nominee for assistance concerning this Offer.
The Information Agent for the Offer is:
D.F. KING & CO., INC.
77 Water Street
New York, New York 10005
(212) 269-5550 (Collect)
(800) 735-3591 (Toll-Free)
The Dealer Manager for the Offer is:
LAZARD FRERES & CO.
One Rockefeller Plaza
New York, New York 10020
(212) 632-6000 (call collect)
<PAGE> 12
GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9
HOW TO OBTAIN A TAXPAYER IDENTIFICATION NUMBER. -- If you do not have a
taxpayer identification number or don't know your number, apply for one
immediately. To apply, obtain FORM SS-5, Application for a Social Security Card
(for individuals), from your local office of the Social Security Administration,
or FORM SS-4, Application for Employer Identification Number (for businesses and
all other entities), from your local IRS office.
PAYEES AND PAYMENTS EXEMPT FROM BACKUP WITHHOLDING. -- Payees specifically
exempted from backup withholding on ALL payments include the following:
(1) A corporation.
(2) An organization exempt from tax under Section 501(a), or an IRA, or a
custodial account under section 403(b)(7).
(3) The United States or any of its agencies or instrumentalities.
(4) A state, the District of Columbia, a possession of the United States,
or any of their political subdivisions or instrumentalities.
(5) A foreign government or any of its political subdivisions, agencies or
instrumentalities.
(6) An international organization or any of its agencies or
instrumentalities.
(7) A foreign central bank of issue.
(8) A registered dealer in securities or commodities registered in the U.S.
or a possession of the U.S.
(9) A real estate investment trust.
(10) An entity registered at all times during the tax year under the
Investment Company Act of 1940.
(11) A common trust fund operated by a bank under section 584(a).
(12) A financial institution.
Payments of dividends and patronage dividends generally not subject to
backup withholding also include the following:
- Payments to nonresident aliens subject to withholding under section 1441.
- Payments to partnerships not engaged in trade or business in the U.S. and
that have at least one nonresident partner.
- Payments of patronage dividends not paid in money.
- Payments made by certain foreign organizations.
- Payments made to a nominee.
Payments of interest generally not subject to backup withholding include
the following:
- Payments of interest on obligations issued by individuals.
NOTE: You may be subject to backup withholding if this interest is $600 or
more and is paid in the course of the payer's trade or business and you have
not provided your correct taxpayer identification number to the payer.
- Payments of tax-exempt interest (including exempt-interest dividends
under section 852).
- Payments described in section 6049(b)(5) to nonresident aliens.
- Payments on tax-free covenant bonds under section 1451.
- Payments made by certain foreign organizations.
- Payments made to a nominee.
Exempt payees described above should file Form W-9 to avoid possible
erroneous backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR
TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, SIGN AND
DATE THE FORM AND RETURN IT TO THE PAYER.
Payments that are not subject to information reporting are also not subject
to backup withholding. For details, see sections 6041, 6041A(a), 6042, 6044,
6045, 6049, 6050A, and 6050N, and their regulations.
PENALTIES
FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER. -- If you fail to
furnish your correct taxpayer identification number to a requester, you are
subject to a penalty of $50 for each such failure unless your failure is due to
reasonable cause and not to willful neglect.
CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. -- If you
make a false statement with no reasonable basis that results in no backup
withholding, you are subject to a $500 penalty.
CRIMINAL PENALTY FOR FALSIFYING INFORMATION. -- Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
PRIVACY ACT NOTICE. -- Section 6109 requires most recipients of dividends,
interest, or other payments to furnish their correct taxpayer identification
number to persons who must file information returns with the IRS. The IRS uses
the numbers for identification purposes and to help verify the
<PAGE> 13
accuracy of your tax return. You must provide your taxpayer identification
number whether or not you are required to file a tax return. Payers must
generally withhold 31% of taxable interest, dividends, and certain other
payments to a payee who does not furnish a taxpayer identification number to a
payer. Certain penalties may also apply.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL
REVENUE SERVICE.
WHAT NAME AND NUMBER TO GIVE THE REQUESTER
<TABLE>
<C> <S> <C>
---------------------------------------------------------------
GIVE THE NAME AND
FOR THIS TYPE OF ACCOUNT: SOCIAL SECURITY
NUMBER OF:
- ---------------------------------------------------------------
1. Individual The individual
2. Two or more individuals (joint The actual owner of
account) the account or, if
combined funds, the
first individual on
the account(1)
3. Custodian account of a minor (Uniform The minor(2)
Gift to Minors Act)
4. a. The usual revocable savings trust The
(grantor is also trustee) grantor-trustee(1)
b. So-called trust account that is not The actual owner(1)
a legal or valid trust under state law
5. Sole proprietorship The owner(3)
---------------------------------------------------------------
GIVE THE NAME AND
EMPLOYER
FOR THIS TYPE OF ACCOUNT: IDENTIFICATION NUMBER
OF:
- ---------------------------------------------------------------
6. Sole proprietorship The owner(3)
7. A valid trust, estate or pension trust Legal entity(4)
8. Corporate The corporation
9. Association, club, religious, The organization
charitable, educational, or other
tax-exempt organization
10. Partnership The partnership
11. A broker or registered nominee The broker or nominee
12. Account with the Department of The public entity
Agriculture in the name of a public
entity (such as a state or local
government, school district, or
prison) that receives agricultural
program payments
</TABLE>
- ------------------------------------------------------------------
------------------------------------------------------------------
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) You must show your individual name, but you may also enter your business or
"doing business as" name. You may use either your social security number or
employer identification number.
(4) List first and circle the name of the legal trust, estate, or pension trust.
(Do not furnish the taxpayer identification number of the personal
representative or trustee unless the legal entity itself is not designated
in the account title.)
NOTE: IF NO NAME IS CIRCLED WHEN THERE IS MORE THAN ONE NAME, THE NUMBER WILL BE
CONSIDERED TO BE THAT OF THE FIRST NAME LISTED.
