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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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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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. 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 19107. 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 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").
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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, Paramount notified the Company that Viacom had received
tenders sufficient to satisfy the minimum condition in its tender offer and had
delivered to Paramount a completion certificate, in accordance with the bidding
procedures agreed to by Paramount, the Company and Viacom. In accordance with
those procedures, the Company terminated its tender offer for 50.1% of the
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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 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, 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 employees of Liberty or TCI who
were then members of the boards of directors of the Company or Paramount
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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 their parity right under 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 (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, dated as of July 16, 1993, among Comcast, Mr. Diller and
certain of their affiliates (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 Investments, L.P. ("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. As part of the Proposal, the Company
was to relinquish certain rights to repurchase QVC Stock held by Liberty and its
affiliates and 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
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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.
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 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 written presentation to the Company's Board of Directors
has been filed as an exhibit 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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<PAGE> 24
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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<PAGE> 25
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.
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 11, 1994 By: 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
A-1
<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 11, 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 10, 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 19107
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 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 83.8%
Liberty Media Corporation
c/o Davis, Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Comcast Corporation 72,050(1) 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 19107
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. See "Certain Transactions and Business
Relationships" below. Includes 72,050 shares of Series C Preferred Stock
beneficially owned by Comcast.
(3) 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 "Certain Transactions and
Business Relationships" below.
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.
<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 (AS DEFINED 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".
------------------------
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.
------------------------
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.
------------------------
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 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
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<S> <C>
INTRODUCTION.......................................................................... 1
SPECIAL FACTORS....................................................................... 4
Background of the Transaction....................................................... 4
Purpose of the Transaction.......................................................... 16
Fairness of the Transaction......................................................... 16
Opinions and Reports of Financial Advisors.......................................... 19
Plans for the Company After the Merger.............................................. 25
Interests of Certain Persons in the Transaction..................................... 27
The Merger Agreement................................................................ 31
Dissenters Rights................................................................... 36
Certain Tax Consequences............................................................ 39
Certain Effects of the Transaction.................................................. 39
Financing of the Transaction........................................................ 41
Certain Litigation.................................................................. 41
THE TENDER OFFER...................................................................... 42
1. Terms of the Offer.............................................................. 42
2. Acceptance for Payment and Payment.............................................. 42
3. Procedure for Tendering Shares.................................................. 43
4. Withdrawal Rights............................................................... 45
5. Price Range of Shares; Dividends................................................ 46
6. Certain Information Concerning the Company...................................... 47
7. Certain Information Concerning the Purchaser and Parent Purchasers.............. 49
8. Dividends and Distributions..................................................... 53
9. Extension of Tender Period; Termination; Amendment.............................. 54
10. Certain Conditions of the Offer................................................. 55
11. Certain Legal Matters; Regulatory Approvals..................................... 56
12. Fees and Expenses............................................................... 58
13. Miscellaneous................................................................... 59
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 the Purchaser Designees
Annex A -- Opinion of Allen & Company Incorporated
Annex B -- Section 262 of the Delaware General Corporation Law
Annex C -- Certain Financial Statements of the Company
</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 (AS HEREINAFTER DEFINED) AND NOT WITHDRAWN PRIOR TO THE EXPIRATION DATE
(AS DEFINED HEREIN) SHARES WHICH, TOGETHER WITH THE 18,883,801 FULLY DILUTED
SHARES 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
<PAGE> 4
and into the Company (the "Merger" and, together with the Offer, the
"Transaction"), with the Company 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 18,833,801 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 (as defined below), 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." In addition, 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
2
<PAGE> 5
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 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 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 its 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 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 as well as the
formation of the Group by Comcast, Liberty and Barry Diller.
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,
Mr. Diller would be entitled to purchase shares of Common Stock from each of
Comcast and Liberty required 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 equal to the then current exercise price for certain of his options which
had exercise prices which increased over time (options for such shares being
referred to 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 Arrow Investments, L.P., a
limited partnership indirectly controlled by Mr. Diller through Arrow
Investments, Inc. ("Arrow"), 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 Media and its affiliates, the Company
issued 2,475,434 Common Shares to Liberty Media and its affiliates upon the
exercise or exchange of Warrants to purchase 3,903,764 Common Shares.]
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, 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 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 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 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 Company 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 agreed to by at least two of the three
Parties; provided, however, that (i) if there were only two
6
<PAGE> 9
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 (with Comcast and Liberty as co-bidders with the Company) (the "Paramount
Offer") at $80 per share for 50.1% of the outstanding common shares of
Paramount. This tender offer was 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. 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 with
the balance of the Paramount securities to be acquired with a combination of the
Company's securities. The Paramount Offer was to have been funded through a
$3.25 billion bank loan commitment and purchases of the Company's securities for
$1.5 billion by BellSouth and $0.5 billion by each of Advance, Cox and Comcast.
In accordance with the bidding procedure agreed to by Paramount, the Company and
Viacom on February 15, 1994, the then current expiration date of the Paramount
Offer and Viacom's offer, the Company learned that Viacom had received tenders
for a majority of the Paramount shares in satisfaction of the minimum condition
in its tender offer. Accordingly, 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 has 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 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.
7
<PAGE> 10
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. 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 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
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
8
<PAGE> 11
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, 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 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
9
<PAGE> 12
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 of the Company stating, among other
things, that it no longer may be deemed part of the Group with Comcast and Barry
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 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.
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 Federal
Communications Commission (the "FCC") regulated, broadcast activities and
non-broadcast businesses into separate subsidiaries with Comcast having
representation on the Board of Directors of the 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 proposed 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 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 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. As part
of the proposal, the Company was to relinquish certain rights to repurchase QVC
Stock held by Liberty and its affiliates and 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, 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 would be adverse to its interests as one of the major
shareholders of the Company.
10
<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, consisting of $37 in cash and $7 of a new
class of Comcast convertible exchangeable preferred stock (the "Comcast
Proposal"). Late that afternoon Messrs. 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 the 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.
11
<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>
12
<PAGE> 15
------------------------
On July 13, 1994, Ralph J. and Brian L. Roberts and their counsel attended
a meeting of the Board of the Company in New York City and at such meeting
discussed the Comcast proposal and the decision by CBS to terminate the CBS
Proposal. 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 CBS Proposal, 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. 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.
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. In
addition to this potential tax liability, Liberty continued to consider the
Company to be a valuable cable programming asset which was likely to increase in
value over time because of anticipated future growth in the home shopping
service area. Therefore, given the adverse tax consequences to Liberty if the
Comcast Proposal were consummated and Liberty's view that the Company Securities
were likely to continue to grow in value over time, 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
may 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 enable
Liberty to maintain a direct or indirect interest in the Company in a
transaction which would be tax-free to it or result in significantly less tax
liability to it. 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"). In the First Joint Bidding
Agreement, Liberty and Comcast agreed that Liberty would participate in the
Comcast Proposal as a joint bidder with Comcast and agree to contribute its
equity interest in the Company to one or more entities formed for the
transactions in exchange for a minority equity interest in the surviving
corporation. As a result of Liberty's agreement to participate, the
approximately $390 million which Comcast would have been required to pay to
Liberty in respect of the cash portion of the Purchase Price for its Company
Securities pursuant to the Comcast Proposal would become available to finance
the acquisition, and as a result Comcast and Liberty determined to revise the
Comcast Proposal to provide for the purchase of all shares not owned by Comcast
or Liberty at $44 per share of Common Stock.
On July 19, 1994, Comcast delivered to the Company a form of proposed
merger agreement.
13
<PAGE> 16
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.
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, 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 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 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 $44 per share all cash offer. 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 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
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 Comcast 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 $28
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.
14
<PAGE> 17
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 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 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 "Arrow 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 shares
of Common Stock owned by it. Upon the request of Comcast, Mr. Diller agreed to
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 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
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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.
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.
FAIRNESS OF THE TRANSACTION
The Company. At a meeting held on August 4, 1994, the Board, other than
Messrs. 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 (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 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
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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, 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 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 (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
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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 Comcast/Liberty 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 Common Shares 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 [Fully
Diluted 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 purchase price
for their Shares.
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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 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 Messrs.
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 (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 Freres & Co. 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 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
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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.
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 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
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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 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.
A copy of Allen's written presentation to the Board has been filed as an
exhibit to the Rule 13e-3 Transaction Statement on Schedule 13E-3 filed by the
Company, the Parent Purchasers 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 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
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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 (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
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.
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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 Securities and Exchange
Commission (the "Commission") as exhibits to the Schedule 13E-3 (as defined
under "The Tender Offer -- 13. Miscellaneous") and may be inspected, copied and
obtained in 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
23
<PAGE> 26
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 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 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 of Common Stock the Company 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 earnings before
interest, taxes, depreciation and amortization ("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
24
<PAGE> 27
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, and an analysis
of the implied multiples of such share price.
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 and Trading Volume 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 Opinions. In the course of determining the fairness of the
TCI/Liberty Merger to the respective stockholders of each of Liberty and [Old
TCI] during the first and second quarter of 1994, CS First Boston and Merrill
Lynch each estimated the value of the two companies' respective component assets
and businesses. In assigning values to publicly traded, non-control investments
held by the two companies (or, in the case of non-publicly traded securities
which are convertible into or exercisable or exchangeable for publicly traded
securities, to the equivalent publicly traded security basis), 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 as to the
value of the Company or the underlying Common Stock.
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
25
<PAGE> 28
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
among electronic media and activities ancillary thereto or vertically integrated
therewith; (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, 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 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 Securities Exchange Act of 1934, as amended
(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 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 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
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.
In certain circumstances, Comcast may be required to pay Liberty in Comcast
equity securities
26
<PAGE> 29
If Comcast fails to purchase the shares of the Surviving Corporation 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 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 have also agreed to use all reasonable efforts to
consummate any purchase and sale in the most tax efficient method available.
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 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 partners
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 connection with the merger of the Company with CVN Companies, Inc.
("CVN"), Satellite Services, Inc. ("SSI"), a wholly owned subsidiary of TCI,
entered into an Equity Participation Agreement (the "TCI Equity Participation
Agreement") and an Addendum to CVN Affiliation Agreement (the "TCI Adden-
27
<PAGE> 30
dum"), both dated October 27, 1987, with the Company. The TCI Addendum extends
the original term of an affiliation agreement (the "TCI Affiliation Agreement")
between CVN and SSI from July 1, 1994 to June 30, 2004 and requires TCI, its
subsidiaries and certain of its affiliates, (the "TCI Affiliates") to distribute
the QVC service to a minimum of 4,519,435 cable television subscribers for the
remainder of the term. The TCI Affiliation Agreement 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 the TCI Addendum 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 the TCI Equity
Participation Agreement and other similar agreements between certain
subsidiaries and affiliates of TCI and the Company.
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. The 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 of 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.
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).
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<PAGE> 31
Comcast currently distributes the QVC service to 2,670,259 subscribers and
the Q2 service to 428,662 subscribers.
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.
29
<PAGE> 32
<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 2,300
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.
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.
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.
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.
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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. In July 1994, 128 shares of Preferred
Stock were converted into 1,280 shares of Common Stock.
In April 1994, Comcast exercised warrants to purchase 310,000 Common Shares
for $10.00 per share.
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 Media and its affiliates, the Company
issued 2,475,434 Common Shares to Liberty Media and its affiliates upon the
exercise or exchange of Warrants to purchase 3,903,764 Common Shares.
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. 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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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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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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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 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
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receipt from the Indemnified Party to whom expenses are advanced of any
undertaking to repay such advances 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
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Purchasers which 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 (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), 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, 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
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stockholder seeking appraisal rights must hold the Shares for which appraisal is
sought on the date of the 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 tenency 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
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ascertained as of the date of merger which throw any light on future prospects
of the merged corporation..." 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,
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majority stockholder. Several recent decisions by the Delaware courts, which may
or may not apply to the 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 of
1933, as amended (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
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after consummation of the Offer as the requirements for termination of
registration of the Common Stock are met.
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 capital contributions to the Purchaser by Comcast
and Liberty, and borrowings from various commercial banks and 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 The Bank of New York 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. 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.
44
<PAGE> 47
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
45
<PAGE> 48
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.
46
<PAGE> 49
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.
47
<PAGE> 50
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
-------- -------- ---------- ---------- --------
(UNAUDITED)
<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
48
<PAGE> 51
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 revenues, net earnings before interest, taxes, depreciation and
amortization ("EBITDA") and net income for the Company for the period fiscal
year 1994 through fiscal year 1997.
The information provided to the Parent Purchasers by QVC 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 Comcast, Liberty and
TCI. 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 19107.
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
49
<PAGE> 52
December 31, 1993. In addition, Comcast owns a 19.9% interest in Heritage
Communications, Inc., a cable 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, the Company and Teleport
Communications Group Inc. ("Teleport"), 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
19107-3723. 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 $1.27 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.
("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
50
<PAGE> 53
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 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.
Such transaction has been reflected in the accompanying condensed pro forma
financial data of TCI set forth below.
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".
51
<PAGE> 54
COMCAST CORPORATION
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<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)
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<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.
52
<PAGE> 55
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 and the library of the NYSE 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
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<PAGE> 56
(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)
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<PAGE> 57
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.
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<PAGE> 58
which, in the reasonable judgment of the Purchaser, in any such case, and
regardless of the circumstances (including any action or omission by the
Purchaser) 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.
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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 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 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 outstanding QVC 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. 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 Purchasers of the shares of the Purchaser, and
the contribution of QVC Securities 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 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
be extended.
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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 "The
Merger Agreement -- Conditions of the Offer" in Item 3b(iii).
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
Shares. Comcast has
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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
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............................................. $ 219,417
Dealer Manager/Financial Advisory Fees.................. 18,000,000
Information Agent Fees.................................. 7,500
Depositary Fees......................................... 41,000
Legal Fees.............................................. 2,600,000
Accounting Fees......................................... 5,000
Printing and Mailing Costs.............................. 200,000
Miscellaneous........................................... 50,000
-----------
Total......................................... $21,122,917
==========
</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 (the "Schedule 14D-1") pursuant to Rule
14d-3 of the General Rules and Regulations under the Exchange Act (the "Exchange
Act Rules"), and, together with the Company, a Rule 13e-3 Transaction Statement
on Schedule 13E-3 (the "Schedule 13E-3") pursuant to Rule 13e-3 of the Exchange
Act Rules, 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).
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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 Executive The Company Mr. Diller has been
Officer and Director of Chairman of the Board, the
the Company Chief Executive Officer
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> 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>
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 Company General Counsel and
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 Telecommunications and
Officer 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> 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>
J. Bruce Llewellyn Chairman of the Board and Soft drink bottler Mr. Llewellyn has been a
Chief Executive Officer and distributor Director of the Company
of The Philadelphia since June 1990. Mr.
Coca-Cola Bottling Llewellyn has been
Company Chairman of the Board and
Rubin, Baum, Levin, Chief Executive Officer of
Constant & Friedman the Philadelphia Coca-Cola
30 Rockefeller Plaza Bottling Company for more
29th Floor than five years. Mr.
New York, NY 10012 Llewellyn also serves as
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 of Comcast Mr. Roberts has been a
Directors and Director Director of the Company
of Comcast since June 1991. Mr.
1500 Market Street Roberts has been Chairman
Philadelphia, PA 19107 of the Board of Directors
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> 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>
Brian L. Roberts President and Director of Comcast Mr. Roberts has been a
Comcast Director of the Company
1500 Market Street since October 1987. Mr.
Philadelphia, PA 19107 Roberts has served as
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 Company Director of the 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> 66
<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 Officer Director of the Company
of Warnaco Inc. since May 1994. She has
90 Park Avenue been Chairman, President
New York, NY 10016 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.
</TABLE>
I-5
<PAGE> 67
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 19107, 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
73.
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
Corporation ("Sural"), a of Nextel, Inc., Storer
holding company that Communications, Inc. and
owns shares of Comcast RBB Fund, Inc. Age 60.
constituting
approximately 78% of the
voting power of Comcast
</TABLE>
II-1
<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>
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 34.
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 45.
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> 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>
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 Chief
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> 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>
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. Director, Attorney Law Firm Mr. Amsterdam has been a
Amsterdam 1845 Walnut Street Director of Comcast for
Suite 2390 more than five years. Mr.
Philadelphia, PA 19103 Amsterdam was, for more
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
and Heckscher more than five years. Mr.
4200 One Liberty Place Bonovitz has been an
Philadelphia, PA 19103 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> 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>
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 Foundation Director of Comcast for
One Valley Square more than five years. Dr.
Suite 101 Watson has been President
12 Township Line Road, and Chief Executive
Blue Bell, Officer of the William
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 & Walsh, Director of Comcast for
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 The Consulting firm Ms. Wexler has been a
Wexler Group specializing in 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> 72
<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 1375 Vice President and
Fairview Road Director of Sural for more
Coatesville, PA 19107 than five years.
</TABLE>
II-6
<PAGE> 73
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>
Peter R. Barton Executive Vice President TCI Mr. Barton has served as a
of TCI Director and President of
Liberty since 1990. Mr.
Barton was Senior Vice
President of TCI from 1988
until March 1991, and was
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 the Company
and BET Holdings, Inc. Age
43.
Bob Magness Chairman of the Board TCI Mr. Magness has been a
and Director of TCI Director of Liberty since
1990. Mr. Magness has been
Chairman of the Board and
a Director of TCI since
1973. Mr. Magness is also
a Director of TCI, Turner
Broadcasting System, Inc.
and Republic Pictures
Corporation.
John C. Malone President, Chief TCI Dr. Malone has been
Executive Officer and Chairman of the Board and
Director of TCI a Director of Liberty
since 1990. Dr. Malone has
also served as President
of TCI since 1973. Dr.
Malone is also a Director
of TCI and Turner
Broadcasting System, Inc.,
The Bank of New York
Company, Inc., QVC and
BET. Age 53.
Donne F. Fisher Executive Vice President, Acquisition, Executive Vice President
Treasurer of Director development and and Treasurer of
of TCI operation of cable TCI/Liberty since January
television systems 27, 1994; Executive Vice
and cable President of TCI since
television December of 1991; was
programming previously Senior Vice
President of TCI since
1982 and Treasurer since
1970; Vice President,
Treasurer and a director
of most of TCI's
subsidiaries. Age 56.
</TABLE>
II-7
<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>
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
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 Way, liners for irrigation
#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, Suite York, since September
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> 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>
Stephen M. Brett Executive Vice President, Acquisition, Executive Vice President
Secretary and General development and and Secretary of
Counsel of TCI operation of cable TCI/Liberty since January
television systems 27, 1994. Senior Vice
and cable President and General
television Counsel of TCI since
programming December of 1991. 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 Acquisition, Executive Vice President
of TCI development and of TCI/Liberty since
operation of cable January 27, 1994.
television systems Executive Vice President
and cable and Chief Operating
television Officer of TCI since March
programming 1992. 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 Acquisition, Executive Vice President
of TCI development and of TCI/Liberty since
operation of cable January 27, 1994. Senior
television systems Vice President of TCI
and cable since 1991. From 1972 to
television the present held various
programming 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 Acquisition, Executive Vice President
of TCI development and of TCI/Liberty since
operation of cable January 27, 1994.
television systems Executive Vice President
and cable of TCI since 1987. Age 62.
television
programming
</TABLE>
II-9
<PAGE> 76
<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>
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 Acquisition, Executive Vice President
of TCI development and of TCI/Liberty since
operation of cable January 27, 1994.
television systems Executive Vice President
and cable of TCI since December of
television 1991. Was President and
programming. 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> 77
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 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, General Comcast Mr. Block has been Deputy
Counsel and Assistant General Counsel and
Secretary of Comcast; Assistant Secretary of
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> 78
ANNEX A
[ALLEN & COMPANY 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;
A-1
<PAGE> 79
(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> 80
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> 81
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> 82
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> 83
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 Auditor's Report.................................................... C-2
Consolidated Balance Sheets at January 31, 1994 and 1993........................ C-3
Consolidated Statements of Operations of the years 1993, 1992 and 1991.......... C-4
Consolidated Statements of Cash Flows for the years 1993, 1992 and 1991......... C-5
Consolidated Statements of Shareholders' Equity for 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 from Form 10-Q for the Quarter Ended April 30, 1994
Consolidated Unaudited Balance Sheets, 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
Part II -- Other Information.................................................... C-49
</TABLE>
C-1
<PAGE> 84
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> 85
QVC, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 31,
--------------------
1994 1993
-------- --------
<S> <C> <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> 86
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> 87
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> 88
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> 89
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> 90
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> 91
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> 92
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> 93
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
-------- --------
<S> <C> <C>
(IN THOUSANDS)
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
------- -------
<S> <C> <C>
(IN THOUSANDS)
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> 94
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> 95
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
------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
1994 AND 1993 1994 1993 1994 1993
------------- ---- ---- ---- ----
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> 96
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> 97
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> 98
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> 99
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> 100
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> 101
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> 102
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> 103
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> 104
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> 105
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> 106
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> 107
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> 108
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> 109
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> 110
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> 111
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> 112
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> 113
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
-----------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1993 1992 1993
------------- ------------- -------------
<CAPTION>
$ % $ % $ %
----- ---- ----- ---- ----- ----
<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> 114
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> 115
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> 116
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> 117
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> 118
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> 119
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> 120
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> 121
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> 122
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> 123
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> 124
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> 125
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> 126
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> 127
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> 128
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> 129
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.
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<PAGE> 130
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.
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<PAGE> 131
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
As previously reported in the Annual Report on Form 10-K of QVC Network,
Inc. (the "Company" or "QVC, Inc." or "QVC") for the fiscal year ended January
31, 1994 (the "Form 10-K"), filed with the Securities and Exchange Commission
(the "Commission") on April 20, 1994, the Company has been named as a defendant
in certain actions filed in the 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"). As also previously reported in the Form 10-K, the plaintiffs and
other defendants to the HSN Actions had previously executed a Memorandum of
Understanding (the "MOU") setting forth an agreement in principle for the
settlement of the HSN Actions for a total consideration of $13 million (plus
$200,000 to cover administrative expenses), all of which is to be funded by
Liberty. In 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 parties are
currently in the process of preparing formal settlement papers to submit to the
Delaware courts for approval of the proposed settlement.
In September 1993, Viacom International Inc. ("Viacom International"), a
subsidiary of Viacom Inc. ("Viacom"), brought an action in a 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 efforts to acquire Paramount, and
Viacom eventually acquired Paramount in a cash and stock-for-stock exchange. On
April 21, 1994, plaintiffs filed a Stipulation and Order of Dismissal,
dismissing all claims against QVC without prejudice. This Stipulation and Order
of Dismissal was filed as a court order on May 3, 1994.
In October 1993, the Company brought an action in the Delaware Chancery
Court against Viacom, Paramount and certain Paramount directors for breach of
fiduciary duty in failing to give fair treatment to QVC's proposal to merge with
Paramount while granting undue advantages to Viacom's merger proposal. The
Company sought to compel Paramount's board of directors 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 Paramount shares. 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 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.
ITEM 5. OTHER INFORMATION.
As previously reported in the Form 10-K, under the Stock Option Agreement,
dated as of February 15, 1994 (the "Stock Option Agreement"), among the Company,
BellSouth Corporation ("BellSouth"), Advance Publications, Inc. ("Advance"), and
Cox Enterprises, Inc. ("Cox"), BellSouth, Advance and Cox were granted certain
options to purchase shares of QVC Common Stock. These options are currently
C-49
<PAGE> 132
exercisable until the later of the date that is (i) August 15, 1994, or (ii) if
approval of the stockholders of the Company of the issuance of these options is
required, ten (10) business days after the stockholders vote with respect to
such matter (whether or not such approval is received). By proxy materials
mailed to its stockholders on or about May 31, 1994, the Company is seeking such
approval at the annual meeting of stockholders which is scheduled to be held on
June 27, 1994.
Additionally, under the Stock Option Agreement, BellSouth has agreed that
if it purchases Common Stock pursuant thereto, it will become a party to the
Stockholders Agreement dated as of July 16, 1993, among Comcast, Liberty, Arrow
Investments, L.P. ("Arrow"), and certain affiliates and subsidiaries of such
parties (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"). The Stock
Option Agreement further provides that, after BellSouth becomes a party to the
Stockholders Agreement, so long as Comcast, Arrow, Liberty 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 (if it has become a party to the Stockholders
Agreement under the terms of the Liberty-QVC Agreement, dated November 11, 1993,
between QVC and Liberty (the "Liberty-QVC Agreement")) of Common Stock so long
as such entity's total fully diluted voting power of the Company does not exceed
35% of the fully diluted outstanding voting power of the Company or (ii)
>discriminate against such Eligible Stockholder or Liberty (if it has become a
party to the Stockholders Agreement pursuant to the Liberty-QVC Agreement) as a
stockholder or deprive BellSouth, Comcast, Arrow or Liberty (if it has become a
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 shares of Common Stock pursuant to the
Stock Option Agreement, the Company will give such purchaser along with Comcast
(and Liberty, 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 will be entitled to any such preferential
opportunity, however, to the extent it is not legally permitted to participate
in the relevant transaction.
The description herein of the Stock Option Agreement is qualified in its
entirety by reference to such agreement, a copy of which is an Exhibit to the
Proxy Statement on Schedule 14A of the Company filed with the Commission on May
31, 1994, which is incorporated by reference herein.
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, dated as of November 11, 1993, between QVC and
BellSouth.
Comcast, Liberty, BellSouth, Advance, Arrow and Cox have 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 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 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 Stock pursuant to the Stock Option
Agreement and (ii) each of Comcast, Liberty, Arrow and BellSouth remains bound
by the provision of the Agreement Among Stockholders acknowledging the
Liberty-QVC Agreement.
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<PAGE> 133
On May 19, 1994, Liberty filed a Schedule 13D (Amendment No. 25) with the
Commission, in which it stated that it no longer may be deemed to constitute a
"group" with Comcast and Barry Diller for purposes of Rule 13d-5 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") with respect to
the respective beneficial ownership of Liberty, Comcast and Mr. Diller of the
Common Stock of QVC, as a result of the expiration of the 90-day period
following the termination of the Company's bid for Paramount, within which
Liberty was entitled to elect to be reinstated as an Eligible Stockholder under
the Stockholders Agreement, and Liberty's decision not to be so reinstated.
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 of the Company, Liberty states that it 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 states that it
has sole voting and dispositive power with respect to all 10,255,867 shares of
QVC Common Stock beneficially owned by it and no longer has any rights or
obligations under the Stockholders Agreement.
The Company has entered into new employment agreements with Douglas S.
Briggs and William F. Costello, each dated as of January 1, 1994 (collectively,
the "Employment Agreements"), agreeing to employ them as President, QVC
Electronic Retailing, and Executive Vice President and Chief Financial Officer,
respectively. The Employment Agreements are similar to Mr. Briggs' and Mr.
Costello's former employment agreements with the Company, dated as of December
9, 1992, except that Mr. Briggs and Mr. Costello have had the terms of their
agreements extended to December 31, 1998, and December 31, 1996, respectively.
Mr. Briggs' Employment Agreement provides for an annual base salary of $350,000,
subject to specific stated annual increases. Mr. Costello's Employment Agreement
provides for an annual base salary of $300,000, subject to annual upward review
at the discretion of the Company. Mr. Briggs and Mr. Costello 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.
C-51
<PAGE> 134
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 Stockholders...............................................................
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 and any and
all dividends thereon or distributions with respect thereto 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
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) in the case of Common
Shares, deliver Share Certificates for such Common Shares (and all such other
Common Shares and securities), or transfer ownership of such Common Shares (and
all such other 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 which the undersigned is
entitled to vote of 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 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 , the
undersigned hereby certifies on its behalf 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 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 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 within five trading days on the National
Association of Securities Dealers, Inc. Automatic Quotation System/National
Market System 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.
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
<PAGE> 10
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 or the Merger. 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.
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
<PAGE> 11
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.
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
(Call Collect)
(212) 632-6000
<PAGE> 1
EXHIBIT 3
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
QVC Network, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
QVC Network, Inc.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or
14a-6(i)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transactions applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:1
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
/X/ Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
$125
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
Preliminary Proxy Statement on Schedule 14A
- --------------------------------------------------------------------------------
(3) Filing Party:
QVC Network, Inc.
- --------------------------------------------------------------------------------
(4) Date Filed:
May 20, 1994
- --------------------------------------------------------------------------------
- ---------------
1Set forth the amount on which the filing fee is calculated and state how it
was determined.
<PAGE> 2
[LOGO]
1365 ENTERPRISE DRIVE
WEST CHESTER, PENNSYLVANIA 19380
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 27, 1994
AT QVC CHESAPEAKE, INC.
1553 NORTH RIVER BIRCH RUN
CHESAPEAKE, VIRGINIA
To Our Shareholders:
The Annual Meeting of Shareholders (the "Annual Meeting") of QVC Network,
Inc. (the "Corporation") will be held at 10:00 A.M. on June 27, 1994 at QVC
Chesapeake, Inc., 1553 North River Birch Run, Chesapeake, Virginia for the
following purposes:
1. To elect directors of the Corporation to serve until the next
Annual Meeting and until their successors are elected and shall
qualify;
2. To vote on the ratification of the directors' selection of
auditors;
3. To vote on the adoption of an amendment to the Restated Certificate
of Incorporation of the Corporation to change its corporate name
from "QVC Network, Inc." to "QVC, Inc.";
4. To vote on the ratification of the 1993 Qualified Incentive Stock
Option Plan;
5. To vote on the ratification of the grant by the Board of Directors
of certain stock options; and
6. To transact such other business as may properly come before the
meeting.
Holders of the Corporation's Common Stock, Series B Preferred Stock, Series
C Preferred Stock and Series D Preferred Stock at the close of business on May
13, 1994 are entitled to vote at the Annual Meeting and any adjournments
thereof. Such shareholders may vote in person or by proxy.
Your attention is directed to the following Proxy Statement.
By Order of the Board of Directors
Neal S. Grabell
Secretary
Dated: May 31, 1994
WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING IN PERSON, AND REGARDLESS
OF THE AMOUNT OF YOUR HOLDINGS, PLEASE COMPLETE, SIGN AND PROMPTLY RETURN YOUR
PROXY IN THE ENCLOSED RETURN ENVELOPE. THIS WILL NOT PREVENT YOU FROM VOTING IN
PERSON AT THE MEETING. IT WILL, HOWEVER, HELP ASSURE A QUORUM AND AVOID ADDED
PROXY SOLICITATION COSTS.
<PAGE> 3
[LOGO]
1365 ENTERPRISE DRIVE
WEST CHESTER, PENNSYLVANIA 19380
------------------------------
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
JUNE 27, 1994
------------------------------
SOLICITATION, VOTING AND REVOCABILITY OF PROXIES
This Proxy Statement, which is first being mailed to shareholders on or
about May 31, 1994, is furnished in connection with the solicitation by the
Board of Directors of QVC Network, Inc. (the "Corporation", "QVC, Inc." or
"QVC") of proxies to be used at the Annual Meeting of Shareholders (the "Annual
Meeting") of the Corporation, to be held at 10:00 A.M. on June 27, 1994 at QVC
Chesapeake, Inc., 1553 North River Birch Run, Chesapeake, Virginia, and at any
adjournments thereof. If proxies in the accompanying form are properly executed
and returned, the shares of Common Stock, Series B Preferred Stock, Series C
Preferred Stock and Series D Preferred Stock (the Common Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock are
collectively referred to as the "Voting Stock") represented thereby will be
voted as instructed on the proxy. If no instructions are given on a properly
executed and returned proxy, the shares of Voting Stock represented thereby will
be voted as follows: (i) for the election of two directors by the holders of
Common Stock, voting as a class, and the election of six directors by the
holders of Voting Stock, as indicated below, (ii) in favor of the ratification
of the directors' selection of KPMG Peat Marwick as auditors, (iii) in favor of
the adoption of an amendment to the Restated Certificate of Incorporation of the
Corporation to change its corporate name from "QVC Network, Inc." to "QVC,
Inc.", (iv) in favor of the ratification of the 1993 Qualified Incentive Stock
Option Plan, (v) in favor of the ratification of the grant by the Board of
Directors of certain stock options to BellSouth Corporation, Advance
Publications, Inc. and Cox Enterprises, Inc., and (vi) in support of management
on such other business as may properly come before the Annual Meeting or any
adjournments thereof. Any proxy may be revoked by a shareholder prior to its
exercise upon written notice to the Secretary of the Corporation, by the
execution and delivery of a later dated proxy, or by the vote of the shareholder
cast in person at the Annual Meeting.
VOTING SECURITIES
Holders of record of the Corporation's Voting Stock on May 13, 1994 will be
entitled to vote at the Annual Meeting or any adjournments thereof. As of April
30, 1994, there were 40,214,097 shares of Common Stock, 27,788 shares of Series
B Preferred Stock, 530,757 shares of Series C Preferred Stock and 938 shares of
Series D Preferred Stock outstanding and entitled to vote. The voting rights of
Common Stock, Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock are as follows: (i) as to the election of directors, two
directors are elected by the holders of Common Stock as a class, each share
being entitled to cast one vote in the election of each such director, and the
holders of the Voting Stock will be 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 the Annual Meeting, the holders of Voting Stock shall be entitled
to one vote on each matter for each share of Voting Stock owned.
QUORUM
As to the election of the two directors to be elected solely by the holders
of Common Stock, a majority of the outstanding shares of Common Stock will
constitute a quorum. As to all other matters
1
<PAGE> 4
to be voted on, a majority of the outstanding shares of Voting Stock combined
will constitute a quorum. Abstentions and broker non-votes are counted for the
purposes of determining the presence or absence of a quorum for the transaction
of business.
VOTE REQUIRED FOR ELECTION OF DIRECTORS AND APPROVAL OF PROPOSALS
To be elected as a director, a nominee for election by the holders of the
Common Stock must receive the favorable vote of a majority of the outstanding
shares of Common Stock. To be elected as a director, a nominee for election by
the holders of the Voting Stock must receive the favorable vote of a majority of
the outstanding shares of Voting Stock. Approval of the other Proposals will
require a favorable vote of a majority of the outstanding shares of Voting
Stock. Abstentions and broker non-votes will have the same effect as a vote
"against" the proposal.
PROPOSAL NO. 1 -- ELECTION OF DIRECTORS
The Corporation's Board of Directors 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 Corporation. 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 the Annual Meeting for a term ending at the
next Annual Meeting 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 Stock were established, the holders of shares of
Preferred Stock of the Corporation have the right to vote for all but two
directors of the Corporation, which two directors are elected solely by the
holders of Common Stock. Unless otherwise specified in the accompanying proxy,
(i) the shares of Common Stock voted pursuant thereto will be cast for the
following nominees: William F. Costello, Barry Diller, J. Bruce Llewellyn, Bruce
M. Ramer, Brian L. Roberts, Ralph J. Roberts, Joseph M. Segel and Linda J.
Wachner, and (ii) the shares of Series B Preferred Stock, shares of Series C
Preferred Stock and shares of Series D Preferred Stock voted pursuant thereto
will be cast for the following nominees: J. Bruce Llewellyn, Bruce M. Ramer,
Brian L. Roberts, Ralph J. Roberts, Joseph M. Segel and Linda J. Wachner. Each
nominee has consented to be named as a nominee and, to the present knowledge of
the Corporation, is willing to serve as a director, if elected. If at the time
of election any of the nominees should be, for any reason, unable to accept
nomination or election, it is intended that such proxy will be voted for the
election of a substituted nominee to be selected by the Executive Committee of
the Board of Directors. The Board of Directors, however, has no reason to
believe that any nominee will be unable to serve as a director.
William F. Costello, age 47, has served as a director, Executive Vice
President and Chief Financial Officer of the Corporation since December 1989. He
also served as Treasurer of the Corporation from December 1989 to September
1992. Mr. Costello was an independent management and financial consultant from
1988 until he joined the Corporation. 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 Corporation 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 Commit-
2
<PAGE> 5
tee. 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 Corporation. See
"Certain Transactions and Business Relationships" below.
J. Bruce Llewellyn, age 66, has served as a director of the Corporation
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 60, has served as a director of the Corporation 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 34, has served as a director of the Corporation 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 and a
nominee for 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 Corporation. See
"Certain Transactions and Business Relationships" below.
Ralph J. Roberts, age 74, has served as a director of the Corporation 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 and a
nominee for 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 Corporation since
June 1986 and as Chairman Emeritus since January 1993. He served as Chairman,
Chief Executive Officer and a director of the Corporation 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 Corporation. 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.
3
<PAGE> 6
Linda J. Wachner, age 48, has served as a director of the Corporation 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. Warnaco 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.
The Board of Directors recommends that shareholders vote "FOR" the election of
the nominated directors.
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 the total number
of meetings of the Board of Directors and committees of the Board of Directors
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. Except with respect to certain extraordinary acts,
the Executive Committee may exercise all of the power and authority of the Board
of Directors in the management of the Corporation.
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
Corporation's management regarding compensation and fringe benefits of the
senior executives of the Corporation, determines whether the recommendations of
management are consistent with general policies, practices and compensation
scales established by the Board of Directors, considers management's proposals
regarding incentive stock option grants and their consistency with policies
established by the Board of Directors and, in general, administers the
Corporation'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 of Directors. Shareholders who wish to suggest
qualified candidates should write to Neal S. Grabell, Secretary of the
Corporation, 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 Corporation listed above who
are also directors or nominees for director, other executive officers of the
Corporation, 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.
4
<PAGE> 7
Candice M. Carpenter, age 42, has served as President of Q2, Inc. a
wholly-owned subsidiary of the Corporation, since July 1993. Prior to joining
the Corporation, 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 38, has served as the General Counsel, Senior Vice
President and Secretary of the Corporation since 1987. Mr. Grabell is also Of
Counsel to the law firm of Bolger, Picker, Hankin & Tannenbaum.
James G. Held, age 41, served as Senior Vice President -- New Business
Development of the Corporation 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 -- 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 46, has served as President of QDirect, since March
1994. Prior to joining the Corporation, 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 Corporation 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.
5
<PAGE> 8
EXECUTIVE COMPENSATION
The following table sets forth the annual and long-term compensation for
the Corporation's Chief Executive Officer and the four highest paid executive
officers, as well as the total compensation paid to each individual for the
Corporation'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 1992 236,667 250,000 -- -- 250,000 -- 13,021
President
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 Corporation's Retirement Plan
and matching contributions made pursuant to the Corporation's 401(k) Savings
Plan. In the fiscal year ended January 31, 1994, amount includes for the
five named executives (a) contributions to the Corporation's Retirement Plan
of $0, $7,050, $7,075, $7,075 and $5,775, respectively; and (b) matching
contributions to the Corporation'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 $500,000.
(4) Represents the dollar value as of December 9, 1992, of 160,000 shares
granted as an Executive Stock Award to Barry Diller on that date as an
incentive to become Chairman and Chief Executive Officer of the Corporation.
(5) In February 1994, Michael C. Boyd resigned as President and Chief Operating
Officer of the Corporation.
Note: The symbol "--" means the Corporation paid no such compensation.
6
<PAGE> 9
AGGREGATED OPTIONS EXERCISED IN FISCAL 1993
AND FYE 1993 OPTION VALUES
The following table sets forth information regarding stock options
exercised and unexercised by the named officers in fiscal year 1993.
<TABLE>
<CAPTION>
UNEXERCISED OPTIONS AT FYE 1993
-------------------------------------------------------------------
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING IN-THE-MONEY
SHARES UNEXERCISED OPTIONS OPTIONS(1)
ACQUIRED VALUE ------------------------------- -------------------------------
ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
NAME (#) ($) (#) (#) ($) ($)
- -------------------------- ------------ ---------- ------------ -------------- ------------ --------------
<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 Stock on January 31, 1994 ($44.00) and
the exercise price of the options.
REPORT OF EXECUTIVE COMPENSATION COMMITTEE
The Corporation's executive compensation program is administered by the
Executive Compensation Committee (the "Committee") of the Board of Directors.
The Committee is comprised of two independent, non-employee directors. The
Committee sets officers' salaries, determines bonus criteria for the
Corporation's management and administers the Corporation's stock-based incentive
programs. The following is the Committee's report addressing the Corporation's
compensation policy as it relates to the named executive officers for fiscal
1993.
COMPENSATION POLICY -- The Corporation's compensation plan reflects the
Committee's belief that executive compensation should be directly related to the
profitability of the Corporation as well as increased shareholder value.
Accordingly, in the years in which profitability goals are achieved or exceeded,
executive compensation tends to be higher than in the years in which performance
is below expectations. Annual cash compensation, together with the issuance of
stock options, is designed to attract and retain qualified executives and to
ensure that such executives have a continuing stake in the success of the
Corporation. The following sections describe the three components of the
Corporation's executive compensation plan.
BASE COMPENSATION -- To insure a greater reliance on the bonus program, which is
directly related to the Corporation's performance, the annual cash compensation
for executives is set below the median level observed in the labor market. For
its purposes, the Committee has defined the labor market as the pool of
executives who are currently employed in similar positions in public companies
with similar sales and market capitalization, with an emphasis placed on
salaries paid by companies
7
<PAGE> 10
that constitute the Wilshire Retail Index. Salary decisions are determined using
market information as a frame of reference in a structured annual review by the
Committee with input from the Chairman and Chief Executive Officer of the
Corporation. This annual review also considers the responsibilities and work
performance of each executive. In February 1994, Michael C. Boyd retired as
President and Chief Operating Officer of the Corporation and became a
consultant. In accordance with his employment agreement entered into on December
9, 1992, Mr. Boyd will receive his listed salary of $290,000 for the remaining
four years of his agreement, starting in fiscal 1994.
ANNUAL BONUS PLAN -- The Corporation established the Key Management Incentive
Bonus Plan to reward certain employees, including executive officers, but
excluding the Chief Executive Officer, for accomplishing annual financial
objectives. The targets for the plan are set at the beginning of the fiscal
year. For fiscal 1993 and 1992, the Committee established that the most
meaningful measure of financial performance is the Corporation's EBITA (earnings
before interest, taxes and amortization). Accordingly, executive bonuses are
based on increases in EBITA over the prior fiscal year. Executives receive
bonuses based on whether the Corporation as a whole met or exceeded financial
expectations; if the objectives are not met, no bonuses are paid, regardless of
individual achievement or departmental performance. In fiscal 1993 and 1992, the
Corporation as a whole exceeded financial expectations in respect to increases
in EBITA over the prior year and the executive officers were entitled to receive
bonuses equal to their base salaries. Any bonus amount in excess of base salary
is a matter of judgment and is based on qualitative factors. The Committee
believes that the current system of awarding bonus compensation has been
extremely effective.
LONG-TERM INCENTIVE COMPENSATION -- Stock options are the principal vehicle for
payment of long-term compensation. This component of compensation is intended to
retain executives and motivate them to improve stock market performance. Stock
options are granted from time to time to members of management based primarily
on the individual's potential contribution. They are granted at the prevailing
market value and will have value only if the Corporation's stock price
increases. The Committee's policy is that the exercise price of stock options
should not be amended after grant. In fiscal 1993, no options were granted to
the top five named executives due to options granted in the previous year.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER -- On January 18, 1993, upon the
retirement of Joseph M. Segel, Barry Diller became Chairman and Chief Executive
Officer of the Corporation. Mr. Diller was formerly Chairman and Chief Executive
Officer of Fox, Inc. and Twentieth Century Fox Film Corporation. Prior to
joining Fox, Mr. Diller served for ten years as Chairman and Chief Executive
Officer at Paramount Pictures Corporation. The Committee believes that the
compensation of the Corporation's Chief Executive Officer should be more closely
linked to the performance of the Corporation's stock than the compensation of
other executive officers. Accordingly, in connection with his agreement to serve
as the Corporation's Chairman of the Board and Chief Executive Officer, Mr.
Diller was granted 160,000 shares of Common Stock as an executive stock award.
Mr. Diller receives a base annual salary of $500,000 and does not participate in
the Corporation's Annual Bonus Plan. Also, Mr. Diller was granted stock options
covering 6,000,000 shares of Common Stock. One-half of such options have an
exercise price of $30.43; the other one-half have an exercise price of $30.43
increased by 13 percent per annum in 1993 and 1994 and thereafter by 15 percent
per annum compounded annually.
The Committee believes that its policy concerning Chief Executive Officer
compensation coincides with the Corporation's financial objectives and closely
aligns the interests of the Chief Executive Officer with the interests of the
Corporation's shareholders.
Executive Compensation Committee
Ralph J. Roberts, Chairman
Brian L. Roberts, Member
8
<PAGE> 11
The following graph compares the cumulative total shareholder return
(assuming reinvestment of dividends) on the Corporation's Common Stock with the
cumulative total return of the Wilshire Retail Index and the Wilshire 5000 Index
for the five years ending January 31, 1994.
FIVE YEAR CUMULATIVE TOTAL RETURNS
<TABLE>
<CAPTION>
MEASUREMENT PERIOD WILSHIRE
(FISCAL YEAR COVERED) QVC, INC. RETAIL WILSHIRE 5000
<S> <C> <C> <C>
1989 100 100 100
1990 142 112 112
1991 66 131 119
1992 204 186 152
1993 447 213 168
1994 485 211 190
</TABLE>
EMPLOYMENT AGREEMENTS
BARRY DILLER
Barry Diller has been Chairman of the Board and Chief Executive Officer of
the Corporation since January 18, 1993, when Joseph M. Segel retired from such
positions. At that time, the Corporation 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 Corporation as Chairman
of the Board and Chief Executive Officer. Under the Compensation Agreement, Mr.
Diller was granted 160,000 shares (the "Bonus Shares") of Common Stock. 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
shares of Common Stock 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 3,000,000 shares of Common Stock 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 Corporation as a result of death or disability, (2) the termination of Mr.
Diller's employment with the Corporation other than for Cause (as defined
9
<PAGE> 12
in the Compensation Agreement), or (3) Mr. Diller's voluntary termination of
employment with the Corporation 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 Corporation 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 Stock, any consolidation, merger, sale of substantially all of the assets
and business of the Corporation 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 Stock at a price per share below
fair market value, subject to certain exceptions. The Corporation also agreed to
use all reasonable efforts to effect a registration of Common Stock owned by Mr.
Diller upon his request.
Mr. Diller receives an annual salary of $500,000.
JOSEPH M. SEGEL
On January 18, 1993, the Corporation entered into a new employment
agreement with Joseph M. Segel for his services as Chairman-Emeritus and as a
consultant of the Corporation. The agreement has a term of 10 years and provides
for a fee of $240,000 per year. The agreement provides that the Corporation 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 Corporation 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 Corporation 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 Corporation and
became consultant to the Corporation 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
Corporation. 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 Corporation.
Each agreement provides that the Corporation 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 Corporation at any time for
Good Reason (as defined in the agreement). In the event of a termination of the
agreement by the Corporation for Cause, or by the officer without Good Reason,
or by reason of the officer's death or disability, the Corporation is required
to pay the officer the amounts of base salary, bonus or other compensation
earned but not paid prior to the effective
10
<PAGE> 13
date of the termination. In the event the officer's employment is terminated by
the officer for Good Reason, or by the Corporation other than for Cause, death
or disability, the Corporation 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 Corporation 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 Corporation's program, including Comcast and Liberty Media and
their respective affiliates, has entered into an Affiliation Agreement with the
Corporation, providing that the cable system operator will receive a percentage
of net sales within its service area in return for transmitting the
Corporation'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 Corporation are
not separately compensated for serving on the Board of Directors. The directors
who are not employed by the Corporation 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 Corporation.
Mr. Costello, Mr. Diller and Mr. Segel are employees of the Corporation and do
not receive any compensation as directors. Mr. Boyd was an employee of the
Corporation and did not receive any compensation as a director. For a
description of the directors' compensation, see "Employment Agreements" above.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following tables set forth information, as of April 30, 1994, with
respect to ownership of shares of Common Stock, Series B Preferred Stock, Series
C Preferred Stock and Series D Preferred Stock of the Corporation (the only
classes of outstanding voting securities of the Corporation) by each person who
is known to the Corporation to be the beneficial owner of more than five percent
of the Corporation's outstanding Common Stock, Series B Preferred Stock, Series
C Preferred Stock and Series D 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.
11
<PAGE> 14
COMMON STOCK
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT
BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
- ------------------------------ ---------------------- --------
<S> <C> <C>
Comcast Corporation and 12,627,934(1) 27.7%(2)
Barry Diller
c/o Davis, Polk & Wardell
450 Lexington Avenue
New York, New York 10017
Advance Publications, Inc. 2,958,333(3) 6.9%(2)
and its affiliates
950 Fingerboard Road
Staten Island, New York 10305
BellSouth Corporation 8,627,934(4) 17.7%(2)
1155 Peachtree Street, N.E.
Atlanta, Georgia 30367
Comcast Corporation 8,627,934(5) 20.2%(2)
and its affiliates
1234 Market Street
Philadelphia, PA 19107
Cox Enterprises, Inc. 2,833,333(6) 6.6%(2)
1400 Lake Hearn Drive
Atlanta, Georgia 30319
Liberty Media Corporation 10,255,867(7) 23.3%(2)
and its affiliates
8101 E. Prentice Avenue
Englewood, Colorado 80111
Time Warner Inc. 4,062,218(8) 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 Barry Diller have
reported that they have agreed to act as a group for the purpose of voting
their securities of the Corporation 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 shares of Common Stock,
and warrants to purchase 1,700,000 shares of Common Stock, which are
presently exercisable. Mr. Diller's shares include options to purchase
3,000,000 shares of Common Stock, which are presently exercisable, but does
not include options to purchase 3,000,000 shares of Common Stock, which are
not presently exercisable or exercisable within 60 days after April 30,
1994, and does not include 1,627,934 shares of Common Stock that Mr. Diller
will be entitled to purchase from Liberty Media pursuant to the terms of the
Stockholders Agreement and the Liberty-QVC Agreement.
(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, Series C Preferred Stock and Series D Preferred
Stock that are presently convertible or convertible within 60 days after
April 30, 1994 into shares of Common Stock, options to purchase Common Stock
and warrants to purchase Common Stock that are presently exercisable or
exercisable within 60
12
<PAGE> 15
days after April 30, 1994, which are owned by each individual are deemed to
be outstanding for purposes of computing the percentage of Common Stock
owned by that individual. Therefore, each percentage is computed based on
the sum of (i) the 40,214,097 shares of Common Stock actually outstanding as
of April 30, 1994, (ii) the number of shares of Common Stock into which
shares of Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock are presently convertible or convertible within 60 days
after April 30, 1994, and (iii) warrants to purchase Common Stock, 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, Series C Preferred Stock or Series D
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, Series C Preferred Stock and Series D Preferred Stock, and
warrants to purchase Common Stock, 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%, 16.2% and 9.6%, respectively, of the shares of Common Stock
actually outstanding as of April 30, 1994.
(3) Includes an option to purchase 2,833,333 shares of Common Stock which is
exercisable within 60 days after April 30, 1994.
(4) Consists solely of an option to purchase 8,627,934 shares of Common Stock
which is exercisable within 60 days after April 30, 1994.
(5) 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 1 above and "Certain
Transactions and Business Relationships" below. Includes 72,050 shares of
Series C Preferred Stock presently convertible into 720,500 shares of Common
Stock and warrants to purchase 1,700,000 shares of Common Stock.
(6) Consists solely of an option to purchase 2,833,333 shares of Common Stock
which is exercisable within 60 days after April 30, 1994.
(7) In a Schedule 13D filing with the Commission on May 19, 1994, Liberty Media
reported that it no longer has shared voting and 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 shares of Common Stock. Includes 1,627,934 shares
of Common Stock that Mr. Diller will be entitled to purchase from Liberty
Media pursuant to the terms of the Stockholders Agreement and the
Liberty-QVC Agreement. Does not include any shares of Common Stock
beneficially owned by Comcast or Mr. Diller.
(8) Includes 21,250 shares of Series C Preferred Stock presently convertible
into 212,500 shares of Common Stock.
13
<PAGE> 16
SERIES B PREFERRED STOCK
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT
BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
- ---------------------------- --------------------- ---------
<S> <C> <C>
Liberty Media Corporation 17,922 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>
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 72,050(1) 13.6%
and Barry Diller
c/o Davis, Polk & Wardell
450 Lexington Avenue
New York, New York 10017
Comcast Corporation 72,050(2) 13.6%
and its affiliates
1234 Market Street
Philadelphia, PA 19107
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 Barry Diller have
reported that they have agreed to act as a group for the purpose of voting
their securities of the Corporation. See "Certain Transactions and Business
Relationships" below. Includes 72,050 shares of Series C Preferred Stock
beneficially owned by Comcast.
(2) 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 "Certain Transactions and
Business Relationships" below.
SERIES D PREFERRED STOCK
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT
BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
- ------------------------------- --------------------- ---------
<S> <C> <C>
Harron Communications Corp. 810 86.4%
70 East Lancaster Avenue
Frazer, PA 19355-2121
Raystay Co. 128 13.6%
P.O. Box 38
1312 Holly Pike
Carlisle, PA 17013
</TABLE>
14
<PAGE> 17
SECURITY OWNERSHIP OF MANAGEMENT
The following tables set forth information as of April 30, 1994, with
respect to the ownership of the Corporation's Common Stock, Series B Preferred
Stock, Series C Preferred Stock and Series D Preferred Stock 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) 9.3%(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) 4,698,358(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 Stock
which are presently exercisable or exercisable within 60 days after April
30, 1994 and owned by each individual are deemed to be outstanding for
purposes of computing the percentage of Common Stock owned by that
individual. Therefore, each percentage is computed based on a total number
of shares of Common Stock actually outstanding as of April 30, 1994 and the
number of options to purchase Common Stock 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, Series C Preferred Stock
and Series D 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 shares of Common Stock which
are presently exercisable or exercisable within 60 days after April 30,
1994.
(4) Includes stock options to purchase 3,000,000 shares of Common Stock which
are presently exercisable or exercisable within 60 days after April 30,
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 Corporation
and that they each have shared voting and dispositive power as to all
12,627,934 shares of Common Stock 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 shares of Common Stock which are presently
exercisable or exercisable within 60 days after April 30, 1994.
(7) Includes all executive officers and directors as of May 20, 1994.
15
<PAGE> 18
(8) Includes stock options to purchase 3,568,750 shares of Common Stock which
are presently exercisable or exercisable within 60 days after April 30,
1994.
No directors or executive officers are beneficial owners of shares of
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, or
warrants to purchase shares of Common Stock.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
Section 16(a) of the Exchange Act requires the Corporation's directors and
executive officers, and persons who own more than ten percent of a registered
class of the Corporation's equity securities, to file with the Commission
initial reports of ownership and reports of changes in ownership of Common Stock
and other equity securities of the Corporation. 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 Corporation
with copies of all Section 16(a) forms that they file.
To the Corporation's knowledge, based solely on review of the copies of
such reports furnished to the Corporation 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 shares of Common Stock.
PROPOSAL NO. 2 -- RATIFICATION OF SELECTION OF AUDITORS
The Board of Directors has again selected KPMG Peat Marwick as auditors for
the fiscal year ending January 31, 1995, and the shareholders are asked to
ratify this selection. KPMG Peat Marwick has advised the Corporation that it has
no direct or material indirect interest in the Corporation or its affiliates.
A representative from KPMG Peat Marwick will be present at the Annual
Meeting and will be afforded an opportunity to make a statement. The
representative will also be available to respond to appropriate questions
submitted by shareholders at the meeting.
The Corporation has an Audit Committee which is responsible for the
supervision of its auditors.
Vote Required for Adoption of Proposal No. 2
Ratification will require a favorable vote of a majority of the outstanding
shares of Voting Stock.
The Board of Directors recommends that shareholders vote "FOR" Proposal No. 2.
PROPOSAL NO. 3 -- APPROVAL OF THE AMENDMENT TO
THE CORPORATION'S CERTIFICATE OF INCORPORATION
The Board of Directors believes that it is desirable for the Corporation to
change its corporate name from "QVC Network, Inc." to "QVC, Inc." in order to
reflect more accurately the Corporation's future direction and established goal
of becoming a multimedia corporation. The new name will be in conformity with
the Corporation's objectives of expanding its existing lines of business,
exploring new lines of business outside the scope of its present cable
television home shopping programming services, and taking fuller advantage of
emerging new technologies.
Therefore, the Board recommends that the shareholders vote in favor of the
change of corporate name. If the shareholders approve such name change, the
First Article of the Corporation's Restated Certificate of Incorporation will be
amended to read in its entirety as follows:
"FIRST. The name of this Corporation shall be QVC, INC."
Vote Required for Adoption of Proposal No. 3.
16
<PAGE> 19
Approval of Proposal No. 3 will require a favorable vote of a majority of
the outstanding shares of Voting Stock.
The Board of Directors recommends that shareholders vote "FOR" Proposal No. 3.
PROPOSAL NO. 4 -- APPROVAL AND ADOPTION OF
1993 QUALIFIED INCENTIVE STOCK OPTION PLAN
The Board of Directors has approved a 1993 Qualified Incentive Stock Option
Plan (the "Plan"), pursuant to which the Executive Compensation Committee of the
Board of Directors may grant stock options to key managerial employees of the
Corporation. Such individuals will be selected from employees who have
responsibility for the management of the Corporation or its parent or
subsidiaries, if any. The purpose of the Plan is to afford an incentive to key
managerial employees of the Corporation and to enable the Corporation to attract
and retain such key employees.
The maximum number of executive officers of the Corporation the Committee
deems eligible to be granted stock options as of the date of this Proxy
Statement is ten, of which two are also directors; the maximum number of other
key employees of the Corporation the Committee deems eligible to be granted
stock options as of the date of this Proxy Statement is approximately 250.
Directors who are not also employees are not eligible to receive stock options.
Stock options to purchase 276,000 shares of Common Stock have been granted,
subject to shareholder approval of the Plan, through the date of this Proxy
Statement. Because the number of shares that may be made subject to stock
options, as well as the option price per share of Common Stock depends on
contingent and variable factors, it is not possible to estimate or otherwise
determine the stock options likely to be granted pursuant to the Plan. The
market value of the Common Stock as of May 19, 1994 was $32 1/4 per share.
Options for not more than 100,000 shares of Common Stock may be issued
under the Plan to a Chairman, President or Executive Vice President of the
Corporation or its parent or subsidiaries, options for not more than 50,000
shares may be issued under the Plan to any Senior Vice President of the
Corporation or its parent or subsidiaries, options for not more than 25,000
shares may be issued under the Plan for any Vice President of the Corporation or
its parent or subsidiaries, and options for not more than 10,000 shares may be
issued under the Plan for any other employee of the Corporation or its parent or
subsidiaries.
The options granted under the Plan are intended to qualify as incentive
stock options under Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"), and thereby provide the Plan participants with favorable income
tax consequences. However, the Plan expressly stipulates that any person
receiving an option thereunder shall be solely responsible for all taxes to
which he may be or become subject as a consequence of his participation in the
Plan.
Options for up to an aggregate of 750,000 shares of the Common Stock may be
issued under the Plan. The option price, which may not be less than 100% of the
fair market value of the Common Stock on the date of the grant, is to be fixed
by the Committee at the time of the grant of such option. No option is
exercisable in full or in part after the expiration of ten (10) years from the
date such option is granted. However, if the option is granted to an individual
who at the time the option is granted owns stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Corporation or its parent or subsidiary, such option is not exercisable in full
or in part after the expiration of five (5) years from the date such option is
granted. Options which have been granted to an employee will continue to be
exercisable only so long as the optionee remains an employee of the Corporation
or its parent or subsidiary. The Corporation may, in its sole discretion,
accelerate the option exercise period, based upon its evaluation of an
optionee's individual performance (subject to certain limitations).
The Plan may be amended or terminated by the Board of Directors at any
time, but no action of the Board of Directors, unless approved by shareholders,
may increase the maximum number of shares to be offered for sale or issued under
the Plan (except as permitted under certain anti-dilution
17
<PAGE> 20
provisions), change the manner of determining the minimum option price or the
price of outstanding options or terms of payments, extend the term of the Plan
or the period during which options may be granted or exercised, or change the
description of the class of persons eligible to receive options under the Plan.
Approval of the Plan by the shareholders is being sought in order to comply
with the Rules of the National Association of Securities Dealers, Inc. regarding
the issuance of securities, Section 162(m) of the Code regarding deductions of
compensation to employees in excess of $1,000,000 per annum and Section 422 of
the Code and Rule 16b-3 promulgated under the Securities and Exchange Act of
1934, as amended, regarding incentive stock option plans.
FEDERAL INCOME TAX CONSEQUENCES
Neither the Corporation, the Executive Compensation Committee nor any
member thereof makes or shall make any representation or warranty to any
participant regarding the Federal or State income tax consequences or effects of
participation in the Plan.
Without in any way limiting the foregoing, the following is a brief
discussion of the Federal income tax consequences of transactions under the Plan
based on the Code. Options granted under the Plan are intended to qualify as
incentive stock options ("Incentive Options") under Section 422 of the Code.
This discussion is not intended to be exhaustive and does not describe state or
local tax consequences.
INCENTIVE OPTIONS
No taxable income is realized by the optionee upon the grant or exercise of
an Incentive Option. If Common Stock is issued to an optionee pursuant to the
exercise of an Incentive Option, and if no disqualifying disposition of such
shares is made by such optionee within two years after the date of grant or
within one year after the transfer of such shares to such optionee, then (1)
upon sale of such shares, any amount realized in excess of the option price will
be taxed to such optionee as a long-term capital gain and any loss sustained
will be a long-term capital loss, and (2) no deduction will be allowed to the
optionee's employer for Federal income tax purposes.
If the Common Stock acquired upon the exercise of an Incentive Option is
disposed of prior to the expiration of either holding period described above,
generally (1) the optionee will realize ordinary income in the year of
disposition in an amount equal to the excess (if any) of the fair market value
of such shares at exercise (or, if less, the amount realized on the disposition
of such shares) over the option price paid for such shares, and (2) the
optionee's employer will be entitled to deduct such amount for Federal income
tax purposes if the amount represents an ordinary and necessary business
expense. Any further gain (or loss) realized by the optionee will be taxed as
short-term or long-term capital gain (or loss), as the case may be, and will not
result in any deduction by the employer.
Subject to certain exceptions for disability or death, if an Incentive
Option is exercised more than three months following termination of employment,
the exercise of the Incentive Option will generally be taxed as the exercise of
a Non-Statutory Option (defined below).
The exercise of an Incentive Option will give rise to an alternative
minimum tax adjustment that may result in alternative minimum tax liability for
the optionee, unless the optionee engages, within the same year of exercise, in
a disqualifying disposition of the shares received upon exercise. Each optionee
is potentially subject to the alternative minimum tax. In substance, a taxpayer
is required to pay the higher of his alternative minimum tax liability or his
"regular" tax liability. As a result, a taxpayer has to determine his potential
liability under the alternative minimum tax.
In general, for purposes of the alternative minimum tax, the exercise of an
Incentive Option will be treated essentially as if it were the exercise of a
Non-Statutory Option. As a result, the rules of Section 83 of the Code relating
to transfers of property, including restricted property, will apply in
18
<PAGE> 21
determining the optionee's alternative minimum taxable income. Consequently, an
optionee exercising an Incentive Option with respect to unrestricted Common
Stock will have income, for purposes of determining the base for the application
of the alternative minimum tax, in an amount equal to the difference between the
option price paid for the shares and the fair market value of the shares, if
unrestricted, on the date of exercise.
NON-STATUTORY OPTION
In the case of an option that fails to qualify as an Incentive Option (a
"Non-Statutory Option"), (1) no income is realized by the optionee at the time
the Non-Statutory Option is granted; (2) generally, at exercise, ordinary income
is realized by the optionee in an amount equal to the difference between the
option price paid for the shares and the fair market value of the shares, if
unrestricted, on the date of exercise, and the optionee's employer is generally
entitled to a tax deduction in the same amount subject to applicable tax
withholding requirements; and (3) at sale, appreciation (or depreciation) after
the date of exercise is treated as either short-term or long-term capital gain
(or loss) depending on how long the shares have been held.
A copy of the full text of the Plan is attached hereto as Exhibit A.
Vote Required for Adoption of Proposal No. 4
Approval of Proposal No. 4 will require a favorable vote of a majority of
the outstanding shares of Voting Stock.
The Board of Directors recommends that shareholders vote "FOR" Proposal No. 4.
PROPOSAL NO. 5 -- RATIFICATION OF GRANT OF CERTAIN STOCK OPTIONS
In connection with the financing of the Corporation's proposed acquisition
of Paramount Communications Inc., a Delaware corporation ("Paramount"), during
the latter part of the fiscal year ended January 31, 1994, the Corporation and
BellSouth Corporation ("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 Corporation's efforts to acquire Paramount
were terminated or abandoned, BellSouth would have an option to purchase
directly from the Corporation, during the six-month period following such
termination or abandonment, 8,627,934 shares of Common Stock of the Corporation
for an aggregate purchase price of $517,676,040. The Corporation also entered
into a Commitment Letter, dated November 11, 1993, with Comcast, Advance
Publications, Inc. ("Advance"), and Cox Enterprises, Inc. ("Cox"), pursuant to
which, among other things, if the Corporation terminated or abandoned its
interest in pursuing the acquisition of Paramount, then each of Advance and Cox
would be entitled to purchase 2,833,333 shares of Common Stock of the
Corporation for an aggregate purchase price of $170,000,000. Based on the
foregoing, the options were in effect granted at an exercise price of $60 per
share. On November 11, 1993, the closing market price for the Corporation's
Common Stock was $51.75 per share. In accordance with the foregoing terms, the
Corporation, BellSouth, Advance and Cox entered into a Stock Option Agreement,
dated as of February 15, 1994 (the "Stock Option Agreement"), pursuant to which,
among other things, the Corporation granted to BellSouth, Advance and Cox the
above-described options to purchase Common Stock of the Corporation. These
options were granted in connection with the obligations of BellSouth, Advance
and Cox to purchase securities of the Corporation if the Corporation's efforts
to acquire Paramount were successful. These options will be exercisable during
the period (the "Option Period") commencing on the date of the Corporation's
public announcement of termination of its efforts to acquire Paramount (February
15, 1994) and will end on the later of the date that is (i) August 15, 1994, or
(ii) if approval of the stockholders of the Corporation of the issuance of these
options to BellSouth, Advance and Cox is required, ten (10) business days after
the stockholders vote with respect to such matter (whether or not such approval
is received). The options will be exercisable by BellSouth, Advance and Cox in
whole only at any time during the Option Period. If the options are exercised,
the proceeds will be used for general corporate purposes, such as financing
potential
19
<PAGE> 22
acquisitions, expanding existing businesses and exploring emerging new
technologies. Pending such uses, it is anticipated that the proceeds would be
invested in short-term interest bearing investments.
A copy of the text of the Stock Option Agreement (without exhibits and
schedules) is attached hereto as Exhibit B. Approval by the shareholders of the
grant of stock options under the Stock Option Agreement is being sought in order
for the Corporation to comply with Section 6(a) of the Stock Option Agreement.
Vote Required for Adoption of Proposal No. 5
Approval of Proposal No. 5 will require a favorable vote of a majority of
the outstanding shares of Voting Stock.
The Board of Directors recommends that shareholders vote "FOR" Proposal No. 5.
CERTAIN TRANSACTIONS AND BUSINESS RELATIONSHIPS
The Commission requires disclosure of certain business transactions or
relationships between the Corporation and other organizations with which any of
the Corporation's directors or executive officers is affiliated as an owner,
partner, director or executive officer. From time to time, the Corporation has
engaged in transactions with or has used products or services of organizations
with which directors or executive officers of the Corporation are affiliated
when it has been appropriate and reasonable, and it is expected that the
Corporation will continue to do so.
On December 1, 1992, Comcast and Liberty Media, both significant
shareholders of the Corporation, 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 Corporation.
On December 9, 1992, the Board of Directors of the Corporation 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 Corporation from Liberty Media and Joseph
M. Segel and his wife and become Chairman of the Board and Chief Executive
Officer of the Corporation, (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 Corporation's securities,
and (iii) Mr. Diller would be granted, subject to his entering into an
employment agreement with the Corporation, 160,000 shares of Common Stock,
options to purchase 3,000,000 shares of Common Stock at $30.43 per share and
options to purchase an additional 3,000,000 shares of Common Stock 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 shares of Common Stock 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 shares of
Common Stock 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 Corporation, and Mr. Segel retired from such positions.
The Corporation entered into the Compensation Agreement with Mr. Diller and
Arrow in connection with Mr. Diller's serving the Corporation 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
20
<PAGE> 23
voting securities of the Corporation, 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 Corporation 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 Corporation), (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
Voting Stock on all matters presented to the Corporation'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 Corporation's Board of Directors
in accordance with such agreement, subject, with respect to director action, to
directors' fiduciary duties to the Corporation's stockholders; otherwise, each
member of the QVC 13D 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 Corporation, 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
Corporation 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 Corporation 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 Corporation.
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 Stock of the Corporation. As a result of the expiration of the 90-day
period following the termination of the Corporation's bid for Paramount
Communications Inc., within which Liberty Media was entitled to be 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
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Exchange Act with respect to the respective beneficial ownership of the Common
Stock 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 Stock, 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 Corporation. 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 shares of Common Stock beneficially owned by it and no longer has any
rights or obligations under the Stockholders Agreement.
Pursuant to the Stock Option Agreement (see description of Proposal No. 5),
BellSouth has agreed that if it purchases Common Stock 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 Corporation
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
Stock so long as such entity's total fully diluted voting power of the
Corporation does not exceed thirty-five percent of the fully diluted outstanding
voting power of the Corporation 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 party to the
Stockholders Agreement pursuant to the Liberty-QVC Agreement) of full rights as
a stockholder of the Corporation.
Under the Stock Option Agreement, the Corporation, BellSouth, Cox and
Advance also agreed that, for a period of 18 months from February 15, 1994, if
the Corporation 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 shares of Common Stock
pursuant to the Stock Option Agreement, the Corporation will give such purchaser
along with Comcast, (and Liberty Media, if it has become a party to the
Stockholders Agreement), to the extent the Corporation 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 Corporation, 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 Corporation
(to the extent such securities are entitled to vote with respect thereto) in
favor of the issuance of the shares of Common Stock 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.
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Brian L. Roberts and Ralph J. Roberts, directors and nominees for election
as directors of the Corporation, 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 and nominees for election as directors of the
Corporation.
The QVC 13D Group has indicated to the Corporation its intention to vote
all shares of Voting Stock beneficially owned by them in favor of the nominees
to the Board of Directors set forth in Proposal No. 1 and in favor of Proposal
Nos. 2, 3, 4, and 5 as described above.
Each cable system operator which broadcasts the Corporation's program,
including Comcast, Liberty Media, Time Warner Inc. and their respective
affiliates, has entered into an Affiliation Agreement with the Corporation,
providing that the cable system operator will receive a percentage of net sales
within its service area in return for transmitting the Corporation's program as
part of the cable system operator's basic cable service. The current commission
rate is five percent.
The Corporation has agreed that any future transaction between the
Corporation and any officer, director, key employee or a shareholder owning at
least 10% of the outstanding capital stock of the Corporation, or an affiliate
of any such person, will be approved by a majority of the disinterested
directors of the Corporation and will be on terms no less favorable to the
Corporation 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 Corporation. Comcast Financial Corporation
received a convertible promissory note (the "Convertible Note") in an equal
principal amount and QVC Common Stock purchase warrants. Interest for the first
year of the Convertible Note was paid in advance by the issuance by the
Corporation to Comcast Financial Corporation of 1,000,000 Common Stock purchase
warrants. Interest for the second year was paid by the issuance by the
Corporation to Comcast Financial Corporation of warrants to purchase Common
Stock and shares of Common Stock. On October 31, 1992, Comcast Financial
Corporation converted the Convertible Note into 1,704,546 shares of Common
Stock.
On January 31, 1990, the Corporation 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 Corporation's Common Stock in October
1991, the Corporation (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 shares of Common Stock, and
(iii) waived certain rights to repurchase 400,000 shares of Common Stock 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 Corporation.
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 Stock to convert any or all of the Company's 9,479,913 outstanding
Warrants into shares of Common Stock. 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, shares of Common
Stock 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 Stock for the five trading days ending December 22, 1992
(the "Conversion Price")) equal to the difference between the Conversion Price
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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 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 election (ii) described 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 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 shares of Common Stock
(consisting of 6,385,979 shares issuable upon exercise of Warrants and 404,572
shares issuable upon exchange of Warrants), has repurchased 998,457 shares of
Common Stock (with $37,692,000 cash proceeds received as a result of the
exercise of Warrants) and accepted 1,424,404 shares of Common Stock as payment
of the Exercise Price for certain Warrants, for a net issuance by the Company of
4,367,691 shares. Warrants to purchase 2,418,908 shares of Common Stock remain
outstanding. Assuming that all such Warrants are exercised, the Company will
receive approximately $38,604,000 in aggregate gross proceeds.
OTHER BUSINESS
Management knows of no other matters that will be presented at the Annual
Meeting. However, if any other matter properly comes before the Annual Meeting,
or any adjournment thereof, it is intended that proxies in the accompanying form
will be voted in support of the judgment of Management of the Corporation.
FINANCIAL STATEMENTS
A copy of the Corporation's Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations are
included on pages 28 to 52 of the Corporation's Annual Report to Shareholders
for the fiscal year ended January 31, 1994, which accompanies the Proxy
Statement.
SHAREHOLDER PROPOSAL
To be eligible for inclusion in the Corporation's proxy materials for the
1995 Annual Meeting of Shareholders, a proposal intended to be presented by a
shareholder for action at that meeting must, in addition to meeting the
shareholder eligibility and other requirements of the Securities and Exchange
Commission's rules governing such proposals, be received not later than January
28, 1995 by Neal S. Grabell, Secretary of the Corporation, at the Corporation's
principal executive offices, 1365 Enterprise Drive, West Chester, Pennsylvania
19380.
COST OF SOLICITATION
The cost of soliciting proxies in the accompanying form will be borne by
the Corporation. In addition to solicitation by mail and by the Corporation's
regular officers and employees personally or by telephone, telegram, facsimile
transmission or express mail, arrangements may be made with brokerage houses and
other custodians, nominees and fiduciaries to send proxies and proxy material to
their principals, and the Corporation may reimburse them for any attendant
expenses.
It is important that your shares be represented at the meeting. Therefore,
whether or not you expect to be present in person, and regardless of the amount
of your holdings, you are respectfully requested to complete and sign the
enclosed proxy and promptly return it in the enclosed stamped
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addressed envelope. This will not prevent you from voting in person at the
meeting. It will, however, help to assure a quorum and avoid added proxy
solicitation costs.
By Order of the Board of Directors
Neal S. Grabell
Secretary
Dated: May 31, 1994
West Chester, Pennsylvania
A COPY OF THE CORPORATION'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR
ENDED JANUARY 31, 1994 FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS
AVAILABLE WITHOUT CHARGE TO THOSE SHAREHOLDERS WHO WOULD LIKE MORE DETAILED
INFORMATION CONCERNING THE CORPORATION. TO OBTAIN A COPY, PLEASE WRITE TO: NEAL
S. GRABELL, SECRETARY, QVC, INC., 1365 ENTERPRISE DRIVE, WEST CHESTER,
PENNSYLVANIA 19380.
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EXHIBIT A
QVC NETWORK, INC.
1993 QUALIFIED INCENTIVE STOCK OPTION PLAN
1. Purpose of the Plan
This 1993 Qualified Incentive Stock Plan ("Plan") is intended to afford an
incentive to key managerial employees of QVC NETWORK, INC. (the "Company") to
acquire a proprietary interest in the Company and to enable the Company to
attract and retain such key employees. For purposes of this Plan, the Company's
"parent" or "subsidiaries", if any, shall include any corporation which is a
"parent corporation" or a "subsidiary corporation" within the meaning of
Sections 425(e) and (f) of the Internal Revenue Code of 1986, as hereafter
amended (the "Code").
2. The Stock
Except as provided in Sections 6 and 7, the number of shares of stock which
may be optioned and sold under the Plan is 750,000 shares of Common Stock, $.01
par value, of the Company ("Shares"). If options granted under this Plan shall
expire or terminate for any reason without having been exercised in full, the
unpurchased Shares subject hereto shall again be available for the granting of
options under this Plan. Shares which are the subject of options to purchase may
be made available from authorized and unissued stock or from treasury stock.
3. Eligibility
An option shall be granted only to a person who at the time of the grant is
a key managerial employee of the Company or its parent or a subsidiary of the
Company. The term "key managerial employee" shall mean an employee (including
officers), who has responsibility for the management of the Company or its
parent or subsidiaries. The committee designated pursuant to Section 8
("Committee") shall determine from time to time the key managerial employees to
whom options shall be granted and the number of Shares subject to each option.
Notwithstanding the foregoing, options for not more than 100,000 shares may be
issued under the Plan to a Chairman, President or Executive Vice President of
the Company or its parent or subsidiaries, options for not more than 50,000
shares may be issued under the Plan to any Senior Vice President of the Company
or its parent or subsidiaries, options for not more than 25,000 shares may be
issued under the Plan for any Vice President of the Company or its parent or
subsidiaries, and options for not more than 10,000 shares may be issued under
the Plan for any other employee of the Company or its parent or subsidiaries.
4. Option Terms
(a) Except as otherwise provided herein, the Option Price shall be fixed
by the Committee at the time of the grant of such option and shall not be less
than 100% of the fair market value of the stock at the time the option is
granted. The Committee shall, in good faith, determine the fair market value of
the stock (without regard to any restrictions other than a restriction which, by
its terms, will never lapse) based upon a reasonable method of valuation adopted
by the Committee, or such other method as may be permitted by the Code, or
regulations or rulings promulgated thereunder. In no event shall the Option
Price be less than the par value of the Shares. The Committee will use its best
efforts to determine the fair market value of the Shares subject to the option,
but neither the Committee nor the Company will be responsible for the payment of
any tax imposed upon the participants, nor will they reimburse participants for
their payment of any tax so imposed. Neither the Company, the Committee nor any
member thereof makes or shall make any representation or warranty to any
participant regarding the Federal or State income tax consequences or effects of
participation in the Plan.
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(b) Subject to the provisions and limitations of this Plan, and subject to
applicable securities, tax and other laws and regulations, options may be
granted at such time or times and pursuant to such terms and conditions as may
be determined by the Committee during the period this Plan is in effect.
(c) Each Option shall provide that it may be exercised in not less than
such number of equal installments which may be cumulative between three and six
in number as shall be set forth in the Stock Option Agreement for such Option,
commencing from the date set forth in the Stock Option Agreement for such
Option; provided, however, that no option shall be exercised in full or in part
after the expiration of ten (10) years from the date such option is granted.
However, if the option is granted to an individual who at the time the option is
granted owns stock possessing more than ten (10%) percent of the total combined
voting power of all classes of stock of the Company or its parent or subsidiary,
such option shall not be exercisable in full or in part after the expiration of
five (5) years from the date such option is granted. Except as otherwise
specifically provided in the Stock Option Agreement between the Company and the
employee, options which have been granted to an employee will continue to be
exercisable only so long as the optionee remains an employee of the Company or
its parent or a subsidiary of the Company. Notwithstanding anything to the
contrary contained in this Section 4, the Committee may, in its sole discretion,
accelerate the option exercise period, based upon its evaluation of an
optionee's individual performance, as limited by subparagraph (d) hereof.
(d) Shares to be purchased upon the exercise of any option shall be paid
for, in full, in cash or by certified check payable to the order of the Company
(or in certificates of stock issued by the Company, which stock shall be
assigned a fair value by the Committee in its discretion) and delivered to the
Company at the time of such exercise.
(e) Each Option granted under the Plan shall be evidenced by a Stock
Option Agreement between the Company and the employee. The Committee shall
initially make all decisions as to the form of Stock Option Agreement to be
entered into with each optionee. All forms of Stock Option Agreement shall
contain such provisions, restrictions and conditions as are not inconsistent
with this Plan but need not be identical. The provisions of this Plan shall be
set forth in full or incorporated by reference in each Stock Option Agreement.
(f) Except as otherwise specifically provided in the Stock Option
Agreement between the Company and the employee, in the event an optionee retires
or otherwise ceases to be employed by the Company or its parent or any
subsidiary of the Company for any reason, including leaves of absences (other
than a termination by death, permanent and total disability within the meaning
of Section 22(e)(3) of the Code, or for cause), such employee shall have the
right to exercise any options which became exercisable prior to retirement or
cessation of employment but only within a period of three (3) months from the
date of cessation of employment (but in any event not later than the termination
date of the option), after which time any unexercised portion of all outstanding
options shall expire. If the optionee dies during such three-month period, the
executors, administrators, legatees or distributees of the optionee's estate
shall have the right to exercise such options during the remainder of such
period. In no event and under no circumstances may an option be exercised by an
employee (or his personal representative) after termination of the optionee's
employment for cause. Notwithstanding the foregoing provisions of this Section
4(f), the Stock Option Agreement between the Company and the employee may
provide that upon the cessation of the employment of such employee, such
employee shall have the right to exercise any options granted to the employee
but only within a period of three (3) months from the date of cessation of
employment (but in any event not later than the termination date of the option).
(g) In the case of an employee who becomes permanently disabled within the
meaning of Section 22(e)(3) of the Code while in the employ of the Company, or
its parent or any subsidiary of the Company, any option which was exercisable on
the date when such employee became disabled may be exercised within one (1) year
after such employee ceases employment (but in no event later than the
termination date of the option) after which time any unexercised portion of all
outstanding options shall expire.
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(h) In the event of the death of an optionee while in the employ of the
Company, its parent or any subsidiary of the Company, the executors,
administrators, legatees or distributees of the estate of the optionee shall
have the right to exercise any options which became exercisable prior to the
optionee's death but only within a period of three (3) months from the date of
the optionee's death (but in no event later than the termination date of the
option), after which time any unexercised portion of all outstanding options
shall expire. In the event an option is exercised by the executors,
administrators, legatees or distributees of the estate of the optionee, under
Subsection (f) or (h) of this Section 4, the Company shall be under no
obligation to issue Shares hereunder unless and until the Company is satisfied
that the person (or persons) exercising the option is the duly appointed legal
representative of the optionee's estate or the proper legatee or distributee
thereof.
5. Non-Transferability
No option granted hereunder shall be transferable by the optionee other
than by Will or by the laws of descent and distribution, and options shall be
exercisable, during the optionee's lifetime, only by such optionee; provided,
however, that in the event an optionee shall be subject to a legal disability,
his legal representative may exercise an option on his behalf.
6. Stock Dividends or Recapitalization
In the event of a stock dividend paid in shares of the class of stock
subject to any option outstanding hereunder, or recapitalization,
reclassification, splitup or combination of shares with respect to said class of
stock, the Committee shall make appropriate adjustments to the Option Price
under such option and to the kind and number of shares as to which such option
is then exercisable, to the end that the optionee's proportionate interest shall
be maintained as before the occurrence of such event, and in any case an
appropriate adjustment shall also be made in the total number and kind of event,
and in any case an appropriate adjustment shall also be made in the total number
and kind of shares of stock reserved for the future granting of options under
this Plan. Any such adjustment made by the Committee pursuant to this Plan shall
be binding upon the holders of all unexpired options outstanding hereunder.
7. Merger, Consolidation, Reorganization, Liquidation, Etc.
If the Company shall become a party to any corporate reorganization,
merger, liquidation, spinoff, or agreement for the sale of substantially all of
its assets and property, the Committee shall make appropriate arrangements,
which shall be binding upon the holders of unexpired options rights, for the
substitution of new options for any unexpired options then outstanding under
this Plan, or for the assumption of any such unexpired options, to the end that
the optionee's proportionate interest shall be maintained as before the
occurrence of such event.
8. Administration of Plan
(a) This Plan shall be administered by the Executive Compensation
Committee (the "Committee") appointed by the Board of Directors. The Committee
shall consist of a minimum of 2 and a maximum of 3 members of the Board of
Directors, each of whom shall be a "disinterested person" as defined in Rule
16b-3 under the Securities Exchange Act of 1934. The Committee shall, in
addition to its other authority and subject to the provisions of this Plan, have
authority in its sole discretion to determine who are the officers and key
employees of the Company or any parent or subsidiary of the Company eligible to
receive options under this Plan; which officers and key employees shall in fact
be granted an option or options; whether the option shall be an incentive stock
option or a nonqualified stock option; the number of Shares to be subject to
each of the options; the time or times at which the options shall be granted;
and, subject to Section 4 hereof, the price at which each of the options is
exercisable, the rate of option exercisability; and the duration of the option.
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(b) The Committee shall adopt such rules for the conduct of its business
and administration of this Plan as it considers desirable. A majority of the
members of the Committee shall constitute a quorum for all purposes. The vote or
written consent of a majority of the members of the Committee on a particular
matter shall constitute the act of the committee on such matter. The Committee
shall have the exclusive right to construe the Plan and the options issued
pursuant to it, correct defects, supply omissions and reconcile inconsistencies
to the extent necessary to effectuate the Plan and the options issued pursuant
to it, and such action shall be final, binding and conclusive upon all parties
concerned. No member of the Committee or the Board of Directors shall be liable
for any act or omission (whether or not negligent) taken or omitted in good
faith, or for the exercise of authority or discretion granted in connection with
this Plan to the Committee or the Board of Directors, or for the acts or
omissions of any other members of the Committee or the Board of Directors.
Subject to the numerical limitations on Committee membership set forth in
Subsection 8(a) hereof, the Board of Directors may at any time appoint
additional members of the Committee and may at any time remove any member of the
Committee with or without cause. Vacancies in the Committee, however caused, may
be filled by the Board of Directors if it so desires.
9. Effective Date
This Plan shall become effective upon adoption by the Board of Directors,
subject to the approval by holders of a majority of the Common Shares present in
person or by proxy and entitled to vote at the 1994 Annual Meeting of
Shareholders. Options may be granted under the Plan prior to receipt of such
approval, provided that, in the event such approval is not obtained, the Plan
and all Options granted under the Plan shall be null and void and of no force
and effect.
10. Modification, Amendment, Suspension and Termination
Unless sooner terminated, this Plan shall expire ten (10) years from the
date the Plan is adopted by the Board of Directors, or from the date of
shareholder approval, whichever is earlier. The Plan may be altered, suspended,
discontinued or terminated by the Board of Directors at any time, but no action
of the Board of Directors, unless approved by the shareholders, may increase the
maximum number of shares to be offered for sale or issued under the Plan (except
as permitted under Sections 6 and 7 above), change the manner of determining the
minimum option price or the price of outstanding options or terms of payments,
extend the term of the Plan or the period during which options may be granted or
exercised, or change the description of the class of persons eligible to receive
options under the Plan. Nothing contained herein shall be construed to permit a
termination, modification or amendment adversely affecting the rights of any
optionee under an existing option theretofore granted without the consent of
such optionee.
11. General
(a) Nothing contained in this Plan or any option granted pursuant to this
Plan shall confer upon any employee the right to continue in the employ of the
Company or its parent or subsidiary or any other corporation affiliated with the
Company, or interfere in any way with the rights of the Company or its parent or
subsidiary or any corporation affiliated with the Company to terminate his or
her employment.
(b) Corporate action constituting an offer of stock for sale to any
employee under the terms of the options to be granted hereunder shall be deemed
completed as of the date when the Committee authorizes the grant of the option
to the employee, regardless of when the option is actually delivered to the
employee or acknowledged or agreed to by the employee.
(c) The provisions of this Plan shall be binding upon and inure to the
benefit of the parties and their respective heirs, executors, administrators,
personal representatives, successors and permitted assigns.
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(d) Wherever used herein, the singular shall be deemed to refer to and
include the plural, and vice versa, where appropriate. Wherever used herein, the
masculine shall be deemed to refer to and include the feminine and the neuter,
and vice versa, where appropriate.
(e) Nothing contained in this Plan or in any option agreement issued
hereunder shall impose any liability or responsibility on the Company, the Board
of Directors, the Committee or any member of either of the foregoing to pay, or
reimburse any participant for the payment of any tax arising out of, or on
account of the issuance of an option or options hereunder to any participant, a
participant's exercise of any option issued under this Plan or a participant's
sale, transfer or other disposition of any Shares acquired pursuant to the
exercise of an option issued hereunder. Any person receiving an option hereunder
shall expressly acknowledge and agree that such participation is voluntary and
that the participant will be solely responsible for all taxes to which he or she
may be or become subject as a consequence of such participation.
(f) As a condition to the exercise of any Option, the Company may require
that an employee satisfy, through withholding from other compensation or
otherwise, the full amount of all federal, state and local income and other
taxes required to be withheld in connection with such exercise.
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EXHIBIT B
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT dated as of February 15, 1994 (this "Stock Option
Agreement"), among QVC NETWORK, INC., a Delaware corporation (the "Company"),
COX ENTERPRISES, INC., a Delaware corporation ("Cox"), ADVANCE PUBLICATIONS,
INC., a New York corporation ("Advance"), and BELLSOUTH CORPORATION, a Georgia
corporation ("BellSouth", and Cox, Advance and BellSouth each individually a
"Purchaser").
WHEREAS the Company had proposed to acquire (the "Acquisition") Paramount
Communications Inc., a Delaware corporation; and
WHEREAS the Acquisition has been abandoned, and each Purchaser wishes to
have the option to acquire from the Company shares of the Company's Common
Stock, par value $.01 per share (the "Common Stock"), as provided in this Stock
Option Agreement.
NOW, THEREFORE, in consideration of the representations, warranties and
agreements herein contained, the parties hereto agree as follows:
1. Grant of Options. The Company hereby grants to (i) BellSouth an
irrevocable option (the "BellSouth Option") to purchase 8,627,934 shares of
Common Stock (the "BellSouth Optioned Shares") for a purchase price of
$517,676,040 (the "BellSouth Purchase Price"), (ii) Cox an irrevocable option
(the "Cox Option") to purchase 2,833,333 shares of Common Stock (the "Cox
Optioned Shares") for a purchase price of $170,000,000 (the "Cox Purchase
Price") and (iii) Advance an irrevocable option (the "Advance Option") to
purchase 2,833,333 shares of Common Stock (the "Advance Optioned Shares") for a
Purchase Price of $170,000,000 (the "Advance Purchase Price"). The period during
which the BellSouth Option, the Cox Option or the Advance Option may be
exercised (the "Option Period") shall begin on the date hereof and shall end
(the "Option Expiration Date") at 5:00 p.m. on the later of the date that is (i)
August 15, 1994, or (ii) if receipt of the approval of the stockholders of the
Company of the issuance of the BellSouth Optioned Shares, the Cox Optioned
Shares or the Advance Optioned Shares is required pursuant to Section 5(i) of
Part III of Schedule D of the By-laws of the National Association of Securities
Dealers, Inc. (the "Stockholder Approval"), ten Business Days after the
stockholders vote with respect to such matter (whether or not such approval is
received, and provided that consummation of a Closing (as defined in Section
2(a)) shall remain subject to satisfaction of all conditions contained herein,
including, without limitation, the conditions contained in Sections 8(iv) and
9(v)).
2. Exercise of the Options; Termination. (a) BellSouth, Cox or Advance may
exercise the BellSouth Option, Cox Option or Advance Option, as the case may be,
in whole only at any time during the Option Period. In the event that BellSouth,
Cox or Advance wishes to exercise the BellSouth Option, the Cox Option or the
Advance Option, as the case may be, such exercising party shall give written
notice thereof (the date of such notice being the "Notice Date") to the Company
and the closing in connection therewith (a "Closing") shall take place at the
offices of Wachtell, Lipton, Rosen & Katz, 51 West 52nd Street, New York, N.Y.
10019, on a date (subject to the provisions of paragraph (b) below) not later
than the later of ten Business Days following the Notice Date or two Business
Days following the satisfaction or waiver of the Closing conditions contained in
Sections 8 and 9 of this Stock Option Agreement; provided, however, that
(subject to the provisions of paragraph (b) below) if a Closing does not occur
before the tenth Business Day after the Option Expiration Date (the "Option
Termination Date"), the BellSouth Option, the Cox Option or the Advance Option,
as the case may be, shall automatically terminate on such date and the parties
with respect to whom such termination has occurred shall have no further rights
or obligations hereunder.
(b) To the extent that the condition to BellSouth's obligation to purchase
the BellSouth Optioned Shares set forth in Section 8(vii) hereof (the "MFJ
Condition") has not been satisfied, the Closing with respect thereto (but not
the Option Period) may be delayed by BellSouth (if BellSouth
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has given the written notice of exercise described above during the Option
Period) until the tenth Business Day after satisfaction of the MFJ Condition,
and the consummation of the exercise of the BellSouth Option may be conditioned
upon satisfaction of the MFJ Condition; provided, however, that if the Company
fulfills its obligations pursuant to Section 6(c) hereof and BellSouth
nevertheless is unable to acquire the BellSouth Optioned Shares as a result of
the failure of the MFJ Condition to be satisfied on or prior to February 15,
1996, then the BellSouth Option shall automatically be terminated on such date
and the Closing with respect thereto shall not occur (the "MFJ Option
Termination Date"). BellSouth agrees to provide the Company prompt written
notice of the receipt of approval, waiver or other resolution of any MFJ
problems, with the date for the Closing then being the 10th Business Day after
the day such notice is given. The term "Business Day" shall mean any day of the
year other than a day on which banks are required or authorized to be closed in
the City of New York.
(c) On the Option Expiration Date, if the BellSouth Option, the Cox Option,
or the Advance Option, as the case may be, has not been exercised on or before
such date, or upon termination of the BellSouth Option, the Cox Option or the
Advance Option, as the case may be, on the Option Termination Date or the MFJ
Option Termination Date, the terms of this Stock Option Agreement shall
thereafter become void and have no effect as to the Company and the Purchaser
with respect to whom such termination or expiration occurs, and no such party
hereto or directors or officers in respect thereof, except for the obligations
set forth in Section 6(f), and except that nothing herein will relieve any party
from liability for any breach of this Stock Option Agreement (except a
non-wilful breach of the representations and warranties in Sections 4 and 5, in
which case termination of this Stock Option Agreement shall be the sole remedy)
prior to such termination.
3. Payment of Purchase Price and Delivery of Certificate for Optioned
Shares. At a Closing of the BellSouth Option, the Cox Option or the Advance
Option, as the case may be, (i) BellSouth will pay the Company the BellSouth
Purchase Price, Cox will pay the Company the Cox Purchase Price and Advance will
pay the Company the Advance Purchase Price, in each case by wire or intrabank
transfer in immediately available funds to an account or accounts designated by
the Company as far in advance of such Closing as is reasonably practicable and
(ii) the Company will deliver to BellSouth, Cox or Advance, as the case may be,
a duly executed certificate or certificates representing the BellSouth Optioned
Shares, Cox Optioned Shares or Advance Optioned Shares, as the case may be,
registered in the name of BellSouth, Cox or Advance, as the case may be, in the
denominations designated by BellSouth, Cox or Advance, as the case may be, in
its notice of exercise.
4. Representations and Warranties of Company. The Company hereby makes the
following representations and warranties to each Purchaser (except the
representation and warranty set forth in paragraph (o), which is for the sole
benefit of BellSouth):
(a) Corporate Existence. The Company and each corporation which is a
"significant subsidiary" as defined in Regulation S-X under the Securities Act
of 1993, as amended (the "Securities Act"), of the Company (a "Significant
Subsidiary") is a corporation duly organized, validly existing and in good
standing under the laws of the state of its incorporation and has full corporate
power and authority to own and operate its properties and conduct its business
as now conducted by it. Each of the Company and each Significant Subsidiary is
duly qualified as a foreign corporation to transact business and is in good
standing in each jurisdiction in which such corporation owns or leases
substantial properties or in which the conduct of its business requires such
qualification and in which failure of such corporation to be so qualified and in
good standing would have a material adverse effect upon the business, financial
condition or results of operations of the Company and its consolidated
subsidiaries considered as a whole.
(b) Authorization; Enforcement. The Company has full corporate power and
authority to execute and deliver this Stock Option Agreement and (subject to
obtaining the Stockholder Approval) to perform its obligations hereunder in
accordance with its terms. The Company has taken all necessary corporate action
to authorize the execution and delivery of this Stock Option Agreement
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and (other than obtaining the Stockholder Approval) the consummation of the
transactions contemplated hereby. This Stock Option Agreement is a valid and
legally binding obligation of the Company, enforceable in accordance with its
terms (assuming due authorization, execution and delivery by each Purchaser),
subject to bankruptcy, insolvency, reorganization and other laws affecting
creditors' rights generally and to general equity principles.
(c) Compliance with Law. (i) Neither the Company nor any Significant
Subsidiary has received notice, nor believes that it is in violation of any
statute, regulation or order of, or any restriction imposed by, the United
States of America, any state, municipality or other political subdivision having
jurisdiction over it or any agency thereof, in respect of the conduct of its
business or the ownership of its properties, that is expected to have a material
adverse effect on the business, financial condition or results of operations of
the Company and its consolidated subsidiaries considered as a whole.
(ii) Subject to the expiration or early termination of the applicable
waiting period under the HSR Act (as defined in paragraph (e) of this
Section 4), the execution and delivery by the Company of this Stock Option
Agreement does not, and the performance by the Company of its obligations
hereunder and the transactions contemplated hereby will not, violate any
provision of any material law or regulation, or any existing writ or decree
of any court or governmental authority applicable to it.
(d) Compliance with Obligations. (i) Neither the Company nor any
Significant Subsidiary is in violation of or in default under any obligation,
agreement, covenant or condition contained in its Certificate of Incorporation
or By-laws, or in any contract, lease or other instrument to which it is a party
(or which is binding on it or its assets), other than for such violations or
defaults the occurrence of which would not have a material adverse effect on the
business, financial condition or results of operations of the Company and its
consolidated subsidiaries considered as a whole.
(ii) The execution and delivery by the Company of this Stock Option
Agreement does not, and the performance by the Company of its obligations
hereunder and the transactions contemplated hereby will not, violate,
conflict with or constitute a breach of, or a default under, its Restated
Certificate of Incorporation or By-laws, or any other material agreement or
instrument to which it is a party (or which is binding on it or its assets)
and will not result in the creation of any lien on, or security interest
in, any of its assets.
(e) Consents and Approvals. All consents, approvals, authorizations and
orders (other than (i) under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act") and (ii) Stockholder Approval) required for the
Company to execute and deliver this Stock Option Agreement and to consummate the
transactions contemplated hereby have been obtained.
(f) Exchange Act Reports. Each of the Company's (i) Annual Reports on Form
10-K, for the fiscal years ended after January 31, 1990, (ii) Quarterly Reports
on Form 10-Q for the current fiscal year and (iii) proxy statement for the most
recently called annual meeting (collectively, the "SEC Documents"), has been
duly and timely filed, and when filed was in substantial compliance with the
requirements of the Securities Exchange Act of 1934 and the applicable rules and
regulations of the Securities and Exchange Commission thereunder (the "Exchange
Act"). Each of the SEC Documents was complete and correct in all material
respects as of its date and, as of its date, did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(g) Financial Condition. The consolidated balance sheets of the Company
and its consolidated subsidiaries as of (i) January 31, 1990, 1991 and 1992, and
(ii) October 31, 1993, together with consolidated statements of operations,
shareholders' equity and cash flows for the fiscal year then ended in the case
of (i) above, or the three months and nine months then ended, in the case of
(ii) above, contained in the SEC Documents and, in the case of (i) above,
certified by KPMG Peat Marwick, fairly present the financial condition of the
Company and its consolidated subsidiaries and the results of their operations
and changes in financial position as of the dates and for the periods
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referred to and have been prepared in accordance with generally accepted
accounting principles in the United States consistently applied (except, in the
case of (ii) above, that the consolidated financial statements have been
prepared in accordance with Exchange Act Form 10-Q and do not necessarily
reflect all normal audit adjustments throughout the periods involved).
(h) Litigation. Except as disclosed in the SEC Documents or as otherwise
disclosed in writing to each Purchaser and identified as an exception to this
representation, there is no legal action, suit, investigation or proceeding
pending or, to the knowledge of the Company, threatened against or affecting the
Company or any of its subsidiaries or the assets of any of them which is
expected by the Company to materially and adversely affect the business,
financial condition or results of operations of the Company and its consolidated
subsidiaries considered as a whole, or its ability to perform or observe any
obligation or condition under this Stock Option Agreement.
(i) Material Adverse Change. Except as disclosed in the SEC Documents or
as otherwise disclosed in writing to each Purchaser prior to the exercise of the
BellSouth Option, Cox Option or Advance Option, as the case may be, there has
been no material adverse change in the business, financial condition, results of
operations or prospects, of the Company and its consolidated subsidiaries since
October 31, 1993, it being understood that the incurrence and payment of fees
and expenses related to the Acquisition shall not give rise to or result in a
breach of this representation.
(j) Governmental Investigations. To the knowledge of the Company, except
as disclosed to each Purchaser in writing and identified as an exception to this
representation, there are no pending or threatened governmental investigations
or proceedings against the Company or any of its controlled affiliates or
against any officers, directors or employees of the Company or any of its
controlled affiliates, related to possible violations of any material Federal,
state or local law.
(k) Outstanding Capital Stock. As of the date hereof, the authorized
capital stock of the Company consists of 175,000,000 shares of Common Stock and
5,000,000 shares of Preferred Stock, par value $.10 per share. As of February
28, 1994, 27,788 shares of Series B Preferred Stock, 530,757 shares of Series C
Preferred Stock, 938 shares of Series D Preferred Stock and 39,902,822 shares of
Common Stock were validly issued and outstanding, fully paid and nonassessable.
The Company is the sole beneficial owner of all of the outstanding capital stock
of each Significant Subsidiary and has good and valid title to all shares of
such outstanding capital stock, free and clear of all liens and encumbrances,
and all shares of such outstanding capital stock are duly authorized and validly
issued and outstanding, fully paid and nonassessable. Except for the rights set
forth in the Stockholders Agreement (as defined in Section 6(e)) and the
Understanding Among Stockholders (as defined in Section 8(viii)), there are no
preemptive or similar rights in respect of the capital stock of the Company or
any Significant Subsidiary. The Company has previously delivered to each
Purchaser true, complete and correct copies of the Restated Certificate of
Incorporation and By-laws of the Company, which are in full force and effect on
the date hereof. Except as provided in this Stock Option Agreement and the
Liberty-QVC Agreement dated as of November 11, 1993 (the "Repurchase
Agreement"), between the Company and Liberty Media Corporation ("Liberty"), as
disclosed in the SEC Documents, or as disclosed to each Purchaser in writing and
identified as an exception to this representation, there are no outstanding
options, warrants, agreements, convertible or exchangeable securities or other
commitments pursuant to which the Company or any Significant Subsidiary is
obligated to issue, sell, purchase, repurchase, return or redeem any shares of
capital stock or other securities of the Company or any Significant Subsidiary
and there are not any securities of the Company or any Significant Subsidiary
reserved for such purpose.
(l) Common Stock. The BellSouth Optioned Shares, the Cox Optioned Shares
and the Advance Optioned Shares to be issued in accordance with the terms of
this Stock Option Agreement have been duly authorized; upon issuance to the
Purchasers as provided hereunder, such shares will be validly issued, fully paid
and nonassessable; and such shares are not subject to any preemptive or similar
rights.
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(m) Nasdaq National Market. The outstanding Common Stock has been included
for quotation in the Nasdaq National Market. The Company's agreement with the
NASD with respect thereto is in full force and effect and no action has been
taken or threatened by the NASD with respect to the suspension from trading of
the Common Stock.
(n) Securities Act Registration. Assuming the accuracy of the
representation contained in paragraph (g) of Section 5 with respect to the
applicable Purchaser, the issuance and sale of the BellSouth Optioned Shares,
the Cox Optioned Shares and the Advance Optioned Shares, as the case may be,
will be exempt from the registration and prospectus delivery requirements of the
Securities Act.
(o) MFJ Activities. Set forth on Exhibit 1 is a complete list, as of the
date hereof, of (i) all interLATA transmission facilities and services
(including, without limitation, satellite uplink facilities, satellite
transponders, receive-only earth stations and 800 numbers) and (ii) any
activities which constitute the manufacture or distribution of
telecommunications equipment or the manufacture of customer premises equipment
(but not the distribution of customer premises equipment) (collectively, "MFJ
Activities"), owned or provided by the Company or any of its subsidiaries.
Neither the Company nor any of its subsidiaries directly or indirectly, engages
or participates, alone or with any individual or entity, whether as a principal,
agent, reseller, representative, consultant or independent contractor, in any
MFJ Activity, other than activities listed on Exhibit 1. For purposes of this
Stock Option Agreement, "interLATA" means telecommunications between a point or
points located in one LATA, or within one service area or an independent
telephone company associated with the LATA, and a point or points located in one
or more LATAs or points outside a LATA, in each case as LATAs and associated
telephone company areas have been approved in the Modification of Final Judgment
entered August 24, 1982, by the U.S. District Court of the District of Columbia
(the "MFJ"). BellSouth acknowledges that the Company has no expertise in MFJ
matters and that the Company's knowledge with respect to MFJ matters consists
solely of BellSouth's descriptions of such matters.
5. Representations and Warranties of Each Purchaser. Each Purchaser hereby
severally with respect to itself only, and not jointly, makes the following
representations and warranties to the Company (except that the representation
and warranty contained in paragraph (i) is made solely by BellSouth):
(a) Corporate Existence. Such Purchaser is a corporation, duly organized,
validly existing and in good standing under the laws of its state of
incorporation.
(b) Authorization; Enforcement. Such Purchaser has full power and
authority to execute and deliver this Stock Option Agreement, and to perform its
obligations under and as contemplated by this Stock Option Agreement in
accordance with its terms. Such Purchaser has taken all necessary action to
authorize the execution and delivery of this Stock Option Agreement and the
transactions contemplated hereby. This Stock Option Agreement is a valid and
legally binding obligation of such Purchaser, enforceable in accordance with its
terms (assuming due authorization, execution and delivery by the Company),
subject to bankruptcy, insolvency, reorganization and other laws affecting
creditors' rights generally and to general equity principles.
(c) Compliance with Law. (i) Such Purchaser has not received notice, and
does not believe, that it is in violation of any statute, regulation or order
of, or any restriction imposed by, the United States of America, any state,
municipality or political subdivision having jurisdiction over it or any agency
thereof, in respect of the conduct of its business or the ownership of its
properties, that it expects to materially and adversely affect the ability of
the Purchaser to consummate the transactions contemplated by this Stock Option
Agreement.
(ii) Subject to the consents and approvals listed in paragraph (e) of
this Section 5, the execution and delivery by such Purchaser of this Stock
Option Agreement does not, and the performance by such Purchaser of its
obligations and the transactions contemplated hereby will
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not, violate any provision of any material law or regulation, or any
existing writ or decree of any court of governmental authority applicable
to it.
(d) Compliance with Obligations. (i) Such Purchaser is not in violation of
or in default under any obligation, agreement, covenant or condition contained
in its organizational documents or by-laws, or in any contract, lease or other
instrument to which it is a party (or which is binding on its assets), other
than such violations or defaults the occurrence of which would not materially
and adversely affect such Purchaser's ability to consummate the transactions
contemplated by this Stock Option Agreement.
(ii) The execution and delivery by such Purchaser of this Stock Option
Agreement does not, and the performance by such Purchaser of its
obligations hereunder and the transactions completed hereby will not,
violate, conflict with or constitute a breach of, or default under, any
charter or similar instrument, or any other material agreement or
instrument to which it is a party or which is binding on it or its assets.
(e) Consents and Approvals. All consents, approvals, authorizations and
orders (other than (i) under the HSR Act, (ii) with respect to BellSouth,
matters related to the MFJ and (iii) the Stockholder Approval) of governmental
or other third parties required for such Purchaser to execute and deliver this
Stock Option Agreement, and to consummate the transactions contemplated hereby
have been obtained.
(f) Litigation. There is no legal action, suit, investigation or
proceeding pending or, to the knowledge of such Purchaser, threatened against or
affecting such Purchaser or any of its subsidiaries or the assets of any of them
which is expected by such Purchaser materially and adversely to affect its
ability to perform or observe any obligation or condition under, or consummate
the transactions contemplated by, this Stock Option Agreement.
(g) Status and Investment Intent. Such Purchaser is an "accredited
investor" within the meaning of Regulation D under the Securities Act, and it is
purchasing the securities hereunder for its own account and (subject to its
property being at all times within its control) not with a view to any resale,
distribution or other disposition thereof.
(h) Governmental Investigation. To the knowledge of such Purchaser there
are no pending or threatened governmental investigations or proceedings against
it or any of its controlled affiliates or against any officers, directors or
employees of such Purchaser or any of its controlled affiliates which are
expected by such Purchaser to materially and adversely affect its ability to
perform or observe any obligation or condition under this Stock Option
Agreement.
(i) MFJ Activity. BellSouth represents that, to its knowledge, neither the
Company nor any of its subsidiaries, directly or indirectly engages or
participates, alone or with any individual or entity, as a principal, agent,
reseller, representatives, consultant or independent contractor, in any MFJ
Activity, other than activities listed on Exhibit 1. BellSouth further
represents that, to its knowledge, the Company's implementation of its Q-2
programming will not result in the Company engaging or participating, alone or
with any individual or entity, as a principal, agent, reseller, representative,
consultant or independent contractor, in any MFJ Activity. The parties
acknowledge that BellSouth's representations hereunder are made in reliance upon
the truthfulness and completeness of the responses to the questions BellSouth
has asked the Company.
6. Covenants of the Parties. Each of the Company and each Purchaser makes
the following covenants applicable to it (provided, however, that paragraphs
(c), (d), (e), (i) and (m) are made only between and for the benefit of the
Company and BellSouth, and that paragraph (k) is made only between and for the
benefit of the Company and each of Cox or Advance, as the case may be):
(a) Stockholder Approval. As promptly as practicable (which may be as late
as the Company's next annual stockholders meeting), the Company shall call a
stockholders meeting to obtain Stockholder Approval for the issuance of the
BellSouth Optioned Shares, the Cox Optioned Shares
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and the Advance Optioned Shares and shall use its reasonable best efforts to
obtain the Stockholder Approval.
(b) Reservation of Common Stock. The Company shall reserve and keep
available out of its authorized but unissued shares of Common Stock the full
number of the BellSouth Optioned Shares, the Cox Optioned Shares and the Advance
Optioned Shares.
(c) Satisfaction of MFJ Condition. Exhibit 2 sets forth the steps that the
Company is required to take to permit BellSouth to purchase the BellSouth
Optioned Shares pursuant to this Stock Option Agreement in compliance with the
MFJ (the "MFJ Transactions"). As promptly as practicable, the Company and
BellSouth shall use their reasonable best efforts to permit BellSouth to make
investments contemplated hereby (including acquiring the BellSouth Optioned
Shares pursuant to the terms of this Stock Option Agreement or participating in
certain acquisitions and joint ventures as contemplated by Section 6(g)) without
violation of the MFJ. Without limiting the foregoing, the Company agrees to
effectuate the MFJ Transactions promptly, and in any event within one year of
the date hereof.
(d) Other MFJ Related Activities. So long as (i) the Option Period has not
expired, (ii) BellSouth has exercised the BellSouth Option to acquire the
BellSouth Optioned Shares and is attempting in good faith to cause the
satisfaction of all conditions to Closing with respect to such exercise,
including the MFJ Condition, or (iii) BellSouth continues to own at least
2,588,380 shares of Common Stock (as adjusted consistently with the provisions
of Section 7), the Company will avoid engaging in new activities in a manner
that would, in BellSouth's good faith judgment, based upon the written advice of
counsel (which may be internal corporate counsel), advance written notice of
which has been provided to the Company, result in a potential violation of the
MFJ, as applicable to BellSouth, subject to BellSouth's obligation to make all
reasonable efforts to permit the Company to undertake an activity it wishes to
pursue without any such violation. In connection with the Company's obligation
to avoid conducting new activities in a manner that would result in a violation
of the MFJ, such activities may be conducted in a separate entity in which
BellSouth owns no interest (or otherwise structured to BellSouth's reasonable
satisfaction) so long as (i) BellSouth shall have been given a reasonable
opportunity (including obtaining the Company's reasonable cooperation) to take
steps to conduct such potentially violative activities (or a portion thereof, to
the extent reasonable) in the Company in a manner or to the extent permitted by
the MFJ and (ii) the Company will have the right to reacquire such activities
from such other entity if such potentially violative activities are no longer
prohibited by the MFJ; provided, however, that the reservation of such
reacquisition right does not result in a material economic detriment to the
Company.
(e) Open Market Purchases. After BellSouth becomes a party to the
Stockholders Agreement dated as of July 16, 1993, among Comcast Corporation
("Comcast"), Arrow Investments, L.P. ("Arrow"), Liberty and Barry Diller (the
"Stockholders Agreement") and so long as Comcast, Liberty, Arrow or BellSouth,
as the case may be, remains an Eligible Stockholder thereunder, the Company will
not take any action to (i) block or prevent open market purchases by such
Eligible Stockholder (or Liberty, if it has become a party to the Stockholders
Agreement pursuant to Section 5 of the Repurchase Agreement) of shares of Common
Stock so long as such entity's total fully diluted voting power of the Company
does not exceed 35% of the fully diluted outstanding voting power of the Company
or (ii) discriminate against such Eligible Stockholder (or Liberty, if it has
become a party to the Stockholders Agreement pursuant to Section 5 of the
Repurchase Agreement) as a stockholder or deprive BellSouth, Comcast or Arrow
(or Liberty, if it has become a party to the Stockholders Agreement pursuant to
Section 5 of the Repurchase Agreement) of full rights as a stockholder of the
Company.
(f) Additional Information and Confidentiality. Prior to the termination
of this Stock Option Agreement with respect to a Purchaser, the Company agrees
to provide such Purchaser with all information which such Purchaser may
reasonably request concerning the Company's business, financial condition and
prospects. Such Purchaser agrees to keep all such information (and other
confidential information previously supplied to such Purchaser) confidential and
not to use such
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information other than in connection with its investment hereunder or to
disclose any such information to any third party unless (i) it receives the
express written consent of the Company, (ii) such information otherwise is or
becomes publicly available (except where such Purchaser knows that such
information became publicly available as a result of a breach of any
confidentiality arrangement) or (iii) in its reasonable judgement it is required
by applicable law to do so, and then only to the extent it is so required, in
each case, to the extent practicable, only after notice to and consultation with
the Company. In the event that this Stock Option Agreement is terminated, such
Purchaser shall forthwith return to the Company or destroy all information
(including all copies of any documents) obtained by such Purchaser and required
to be kept confidential pursuant to this paragraph.
(g) Certain Acquisitions and Ventures. For a period of 18 months from the
date hereof, if the Company proposes to invest in, acquire or form all or part
of an originator, owner or other producer of programming or content (including,
without limitation, a film studio, network, film library or television
programming producer) in a transaction valued at greater than $250 million, if
this Stock Option Agreement has not terminated with respect to a Purchaser or
such Purchaser has acquired shares of Common Stock pursuant to this Stock Option
Agreement, the Company will give such Purchaser along with Comcast (and Liberty,
if it has become a party to the Stockholder's Agreement pursuant to Section 5 of
the Repurchase Agreement), to the extent the Company requires third party
financing in connection with such transaction, a preferential opportunity to
participate meaningfully in any such transaction on an arm's-length basis and
will negotiate in good faith concerning any such party's participation therein.
In connection with the foregoing but subject to the obligations of BellSouth and
the Company set forth in Section 6(c) hereof, none of Comcast, Cox, Advance,
Liberty or BellSouth shall be entitled to any such preferential opportunity, to
the extent it is not legally permitted to participate in the relevant
transaction.
(h) Certain Consents and Approvals. Each of the Company and such Purchaser
shall use its reasonable efforts to obtain, or to assist the other in obtaining,
as soon as practicable (i) expiration or early termination of the applicable
waiting period under the HSR Act and (ii) all other governmental approvals
required in connection with the transactions contemplated by this Stock Option
Agreement.
(i) Operations in Ordinary Course. From the date hereof until the Closing
hereunder with respect to BellSouth or termination of this Stock Option
Agreement with respect to BellSouth, except for those actions consented to by
BellSouth in advance in writing, the Company shall conduct its business in the
ordinary course and substantially in accordance with past practice. For purposes
of this covenant, any actions that under the Company's practices existing on the
date hereof are taken or authorized to be taken by the executive officers of the
Company without approval of the Board of Directors shall constitute ordinary
course. In addition, any action taken by the Company with the approval of the
Eligible Stockholders (as defined in the Stockholders Agreement) or its Board of
Directors shall be deemed to be in the ordinary course and substantially in
accordance with past practice if the Eligible Stockholders or the directors
designated by the Eligible Stockholders voted in favor of such action pursuant
to and in compliance with Paragraph 3(a) of the Understanding Among Stockholders
(as defined in Section 8(viii)).
(j) Transfers; Restrictive Legend. Each Purchaser acknowledges that the
shares of Common Stock to be issued pursuant to this Stock Option Agreement have
not been registered under the Securities Act and may be sold or disposed of in
the absence of such registration only pursuant to an exemption from such
registration. The certificates evidencing shares of Common Stock to be issued
pursuant to this Stock Option Agreement shall bear the following legend until
such time as such Purchaser or any transferee thereof delivers an opinion of
counsel reasonably acceptable to the Company to the effect that such legend is
no longer required:
THESE SECURITIES WERE SOLD IN A PRIVATE PLACEMENT, WITHOUT
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE
OFFERED OR SOLD ONLY IF REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
IF AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
B-8
<PAGE> 41
In addition, certificates evidencing the BellSouth Optioned Shares shall
bear the following additional legend:
THESE SECURITIES MAY BE SUBJECT TO THE RESTRICTIONS CONTAINED IN THE
STOCKHOLDERS AGREEMENT DATED AS OF JULY 16, 1993, AMONG THE
SIGNATORIES THERETO, AS MAY BE AMENDED FROM TIME TO TIME, COPIES OF
WHICH MAY BE OBTAINED WITHOUT CHARGE FROM THE SECRETARY OF QVC
NETWORK, INC.
(k) Obtaining Consents. At any time from the date hereof, if any legally
imposed condition exists to the issuance of Common Stock pursuant to the Cox
Option or the Advance Option, Cox or Advance may notify the Company that it
intends to exercise the Cox Option or the Advance Option, as applicable, upon
the satisfaction of any such legally imposed condition and request that the
Company use its reasonable efforts to assist Cox or Advance in satisfying such
condition (including cooperating with the preparation of, or participating in,
any governmental filing or application required to be made by Cox or Advance);
provided, however, that (i) any such request by Cox or Advance shall not
obligate Cox or Advance to exercise the Cox Option or the Advance Option, as
applicable, and (ii) if Cox or Advance elects not to exercise the Cox Option or
the Advance Option, as the case may be, such Purchaser shall indemnify the
Company for the costs and expenses incurred by the Company in taking any action
requested by such Purchaser pursuant to this paragraph that would not have been
otherwise required under this Stock Option Agreement. Any such condition shall
not extend the Option Termination Date.
(l) Cooperation. The parties shall cooperate with one another in
determining whether any action by or in respect of, or filing with, any
governmental body, agency, official or authority is required, or any actions,
consents, approvals or waivers are required to be obtained from parties to any
material contracts, in connection with the consummation of the transactions
contemplated by this Stock Option Agreement. Subject to the terms and conditions
of this Stock Option Agreement, the Company and each Purchaser agree to use
their reasonable best efforts to take, or cause to be taken, all actions and to
do, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate and implement, as soon as
reasonably practicable, the transactions contemplated by this Stock Option
Agreement.
(m) Stockholders Agreement. At the Closing of the BellSouth Option,
BellSouth agrees to become a party to the Stockholders Agreement in accordance
with the terms of the Understanding Among Stockholders.
(n) Registration Rights. The Company will use reasonable efforts to
provide each of Advance and Cox, if such entity purchases shares of Common Stock
pursuant to its option hereunder, with one demand registration of such shares
purchased hereunder (or a portion thereof, but not less than 25% of the shares
so purchased), subject to such selling entity entering into a registration
rights agreement reasonably acceptable to the Company. Such registration rights
shall not be transferable and may be exercised at any time after the first
anniversary of the purchase of shares hereunder and not after the third
anniversary thereof. The entity requesting registration shall bear all of the
Company's expenses in connection with the registration and sale of such entity's
shares.
7. Adjustments Upon Changes in Capitalization. If on or after the date of
this Stock Option Agreement there shall occur any stock dividend, stock split,
recapitalization, combination or exchange of shares, merger, consolidation,
reorganization or other change or transaction of or by the Company as a result
of which (i) shares of any class of stock, other securities, cash or other
property would have been issued in respect of the BellSouth Optioned Shares, the
Cox Optioned Shares or the Advance Optioned Shares had such shares been
outstanding at such time (the "Additional Property") or (ii) the Common Stock
issuable as the BellSouth Optioned Shares, the Cox Optioned Shares or the
Advance Optioned Shares shall be changed into the same or a different number of
shares of the same or another class of stock or other securities (the "New
Optioned Securities"), then upon the Closing of the acquisition of the BellSouth
Optioned Shares, the Cox Optioned Shares or the Advance
B-9
<PAGE> 42
Optioned Shares, BellSouth, Cox or Advance, as the case may be, shall receive
for the BellSouth Purchase Price, Cox Purchase Price or the Advance Purchase
Price payable upon such closing (x) in the case of clause (i) above, the
BellSouth Optioned Shares, the Cox Optioned Shares or the Advance Optioned
Shares plus the Additional Property and (y) in the case of clause (ii) above,
the New Optioned Securities.
8. Conditions to Obligations of each Purchaser. The obligations of each
Purchaser to consummate a Closing after the exercise of the BellSouth Option,
the Cox Option or the Advance Option, as the case may be, are, at the option of
such Purchaser, subject to the satisfaction of the following conditions
precedent (except the conditions precedent contained in paragraphs (vii) and
(viii) are for the sole benefit of BellSouth):
(i) Representations and Warranties. The representations and
warranties made by the Company in this Stock Option Agreement shall have
been true and correct when made, and except for the representations set
forth in paragraphs (c), (d), (f), (g), (h), (i), (j), (m) and (o) of
Section 4 (the "Exercise Representations"), shall be true and correct on
the date of Closing as though such representations and warranties were made
on and as of such date, and the Exercise Representations (except, with
respect to Cox and Advance, paragraph (o) of Section 4) shall have been
true and correct on the date the BellSouth Option, Cox Option or Advance
Option, as the case may be, was exercised (except that, in each case,
representations and warranties that are made as of a specific date need be
true and correct only as of such date).
(ii) Compliance with Agreements and Conditions. The Company shall
have performed and complied in all material respects with all agreements,
obligations and conditions required by this Stock Option Agreement to be
performed or complied with by the Company at or before the date of Closing
(unless such agreement, obligation or condition was not for the benefit of
the relevant Purchaser).
(iii) Litigation. There shall not then be in effect any order
enjoining or restraining the acquisition of the BellSouth Optioned Shares,
the Cox Optioned Shares or the Advance Optioned Shares, as the case may be,
or the other transactions contemplated by this Stock Option Agreement, and
there shall not then be threatened or instituted any action or proceeding
by any governmental body or agency with respect to the acquisition of the
BellSouth Optioned Shares, the Cox Optioned Shares or the Advance Optioned
Shares or the other transactions contemplated by this Stock Option
Agreement.
(iv) Stockholder Approval. To the extent required in connection with
the purchase of the BellSouth Optioned Shares, the Cox Optioned Shares or
the Advance Optioned Shares pursuant to the terms of this Stock Option
Agreement, the Company shall have received the Stockholder Approval.
(v) Certificate. Such Purchaser shall have received a certificate
executed on behalf of the Company by an executive officer acceptable to the
Purchaser and dated the date of Closing, to the effect that the conditions
set forth in clauses (i), (ii) and (iv) above have been satisfied.
(vi) Requisite Approvals. The Company and such Purchaser shall have
obtained all requisite consents or approvals from each Federal, state and
any other governmental agency, authority or regulatory body necessary in
order to permit the acquisition and sale and issuance of the BellSouth
Optioned Shares, the Cox Optioned Shares or the Advance Optioned Shares, as
the case may be, and the consummation of the other transactions
contemplated under this Stock Option Agreement, and all HSR Act and other
governmental waiting periods applicable to such transactions shall have
expired.
(vii) MFJ Condition. The Company shall have effected the MFJ
Transactions and BellSouth shall have concluded, in its good faith judgment
based upon the written advice of counsel (which may be internal corporate
counsel) that BellSouth's acquisition of the BellSouth
B-10
<PAGE> 43
Optioned Shares as contemplated by this Stock Option Agreement would not
result in a potential violation of the MFJ.
(viii) Performance of Understanding Among Stockholders. Liberty Media
Corporation, Comcast and Arrow Investments, L.P. shall have performed all
their obligations pursuant to the Understanding Among Stockholders dated as
of November 11, 1993, among BellSouth and such parties (the "Understanding
Among Stockholders"); BellSouth shall, concurrently with the Closing of the
BellSouth Option, become a party to the Stockholders Agreement as
contemplated by the Understanding Among Stockholders; and the Stockholders
Agreement shall, concurrently with the Closing of the BellSouth Option, be
amended as contemplated by the Understanding Among Stockholders in
connection with a purchase of BellSouth Optioned Shares pursuant to this
Stock Option Agreement.
9. Conditions to Obligations of the Company. The obligations of the
Company to consummate a Closing after the exercise by a Purchaser of the
BellSouth Option, the Cox Option or the Advance Option, as the case may be, are,
at the option of the Company, subject to the satisfaction of the following
conditions precedent:
(i) Representations and Warranties. The representations and
warranties made by such Purchaser in this Stock Option Agreement shall have
been true and correct when made, and shall be true and correct on the date
of Closing as though such representations and warranties were made on and
as of such date (except that representations and warranties that are made
as of a specific date need be true and correct only as of such date).
(ii) Compliance with Agreements and Conditions. Such Purchaser shall
have performed and complied in all material respects with all agreements,
obligations and conditions required by this Stock Option Agreement to be
performed or complied with by such Purchaser at or before the date of
Closing.
(iii) Litigation. There shall not then be in effect any order
enjoining or restraining the sale and issuance of the BellSouth Optioned
Shares, the Cox Optioned Shares or the Advance Optioned Shares, as the case
may be, or the other transactions contemplated by this Stock Option
Agreement, and there shall not then be threatened or instituted any action
or proceeding by any governmental body or agency with respect to the sale
and issuance of the BellSouth Optioned Shares, the Cox Optioned Shares or
the Advance Optioned Shares, as the case may be, or the other transactions
contemplated by this Stock Option Agreement.
(iv) Certificate. The Company shall have received a certificate
executed on behalf of such Purchaser by an executive officer acceptable to
the Company to the effect that the conditions set forth in clauses (i) and
(ii) above have been satisfied.
(v) Stockholder Approval. To the extent required in connection with
the sale and issuance of the BellSouth Optioned Shares, the Cox Optioned
Shares or the Advance Optioned Shares, as the case may be, pursuant to the
terms of this Stock Option Agreement, the Company shall have received the
Stockholder Approval.
(vi) Requisite Approvals. The Company and such Purchaser shall have
obtained all requisite consents or approvals from each Federal, state and
any other governmental agency, authority or regulatory body necessary in
order to permit the acquisition and sale and issuance of the BellSouth
Optioned Shares, the Cox Optioned Shares or the Advance Optioned Shares, as
the case may be, and the consummation of the other transactions
contemplated by this Stock Option Agreement, and all HSR Act and other
governmental waiting periods applicable to such transactions shall have
expired.
10. Further Assurances. If a Purchaser shall exercise the BellSouth
Option, the Cox Option or the Advance Option, as the case may be, in accordance
with the terms of this Stock Option Agreement, from time to time and without
additional consideration the Company will execute and
B-11
<PAGE> 44
deliver, or cause to be executed and delivered, such additional or further
transfers, assignments, endorsements, and other instruments as such Purchaser
may reasonably request for the purpose of effectively transferring ownership of
the BellSouth Optioned Shares, the Cox Optioned Shares or the Advance Optioned
Shares, as the case may be, to such Purchaser as contemplated by this Stock
Option Agreement.
11. Assignment. Neither this Stock Option Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any party without the
prior written consent of the other party, except that a Purchaser may assign, in
its sole discretion, any or all of its rights, interests and obligations
hereunder to any direct or indirect wholly-owned subsidiary of such Purchaser;
provided, however, that at all times such entity remains a direct or indirect
wholly-owned subsidiary of such Purchaser. Subject to the preceding sentence,
this Stock Option Agreement will be binding upon, inure to the benefit of and be
enforceable by the parties and their respective successors and assigns.
12. General Provisions. (a) Specific Performance. The parties hereto
acknowledge that damages would be an inadequate remedy for any breach of the
provisions of this Stock Option Agreement and agree that the obligations of the
parties hereunder shall be specifically enforceable.
(b) Expenses. Whether or not the BellSouth Option, the Cox Option or the
Advance Option is exercised, all costs and expenses incurred in connection with
this Stock Option Agreement and the transactions contemplated hereby shall be
paid by the party incurring such expense.
(c) Amendments. This Stock Option Agreement may not be amended except by
an instrument in writing signed by each of the parties hereto.
(d) Notices. All notices and other communications hereunder shall be
validly given or served, as the case may be, if in writing and delivered
personally or mailed by registered or certified mail (return receipt requested)
or sent by facsimile to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
(i) if to the Company, to:
QVC Network, Inc.
1365 Enterprise Drive
Goshen Corporate Park
West Chester, PA 19380
Attention: Neal S. Grabell, Esq.
Senior Vice President and
General Counsel;
Fax: (610) 430-2380
With a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, NY 10019
Attention: Pamela S. Seymon, Esq.
Fax: (212) 403-2000
B-12
<PAGE> 45
(ii) if to BellSouth, to:
BellSouth Corporation
1155 Peachtree Street, N.E.
Atlanta, GA 30367-6000
Attention: Walter H. Alford, Esq.
Fax: (404) 249-5908
With a copy to:
Cravath, Swaine & Moore
825 Eighth Avenue
Worldwide Plaza
New York, New York 10019
Attention: Philip A. Gelston, Esq.
Fax: (212) 474-3700
(iii) if to Cox, to:
Cox Enterprises, Inc.
1400 Lake Hearn Drive
Atlanta, GA 30319
Attention: John R. Dillon
Fax: (404) 843-5104
With a copy to:
Dow, Lohnes & Albertson
1255 Twenty-Third Street
Washington, DC 20037
Attention: Stuart Sheldon, Esq.
Fax: (202) 857-2900
(iv) if to Advance:
Advance Publications, Inc.
c/o Newark Morning Ledger Co.
Star-Ledger Plaza
Newark, NJ 07101
Attention: Donald E. Newhouse
Fax: (201) 621-2604
With a copy to:
Sabin, Berman & Gould
350 Madison Avenue
New York, NY 10017
Attention: Craig D. Holleman, Esq.
Fax: (212) 692-4406
(e) Interpretation. When a reference is made in this Stock Option
Agreement to Sections or Exhibits, such reference shall be to a Section or
Exhibit to this Stock Option Agreement unless otherwise indicated. The headings
contained in this Stock Option Agreement are for reference purposes only and
shall not affect in any way the meaning or interpretation of this Stock Option
Agreement.
B-13
<PAGE> 46
(f) Counterparts. This Stock Option Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same agreement,
and shall become effective when one or more of the counterparts have been signed
by each of the parties and delivered to the other parties, it being understood
that all parties need not sign the same counterpart.
(g) Entire Agreement; Third-Party Beneficiaries. This Stock Option
Agreement (including the documents and instruments referred to herein and
Exhibits 3, 4 and 5 and the agreements referred to therein) (i) constitutes the
entire agreement and supersedes all prior agreements and understandings
(including, without limitation, the Memorandum of Understanding dated November
11, 1993, between BellSouth and the Company, the Commitment Letter dated
November 19, 1993, between BellSouth and the Company and the Equity Commitment
Letter dated November 11, 1993, among Comcast, the Company, Cox and Advance,
each as heretofore amended), both written and oral, among the parties with
respect to the subject matter hereof and (ii) is not intended to confer upon any
person other than the parties hereto any rights or obligations hereunder, except
with respect to (x) paragraphs (e) and (g) of Section 6, which are for the
explicit benefit of the persons mentioned therein and (y) paragraph (m) of
Section 6, which is for the benefit of the Eligible Stockholders, and such
paragraphs may not be amended, waived or altered to the detriment of any person
benefitting therefrom without the written consent of such person.
(h) SUBMISSION TO JURISDICTION; CONSENT TO SERVICE OF PROCESS. WITH
RESPECT TO ANY CLAIM ARISING OUT OF, OR RELATED TO THE TRANSACTIONS CONTEMPLATED
BY THIS STOCK OPTION AGREEMENT, (A) THE COMPANY AND EACH PURCHASER EACH
IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF
NEW YORK AND THE UNITED STATES DISTRICT COURT LOCATED IN THE BOROUGH OF
MANHATTAN IN NEW YORK CITY, AND (B) THE COMPANY AND EACH PURCHASER EACH
IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY HAVE AT ANY TIME TO THE LAYING OF
VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF, OR RELATING TO THE
TRANSACTIONS CONTEMPLATED BY, THIS STOCK OPTION AGREEMENT, BROUGHT IN ANY SUCH
COURT, IRREVOCABLY WAIVES ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING
BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM AND FURTHER
IRREVOCABLY WAIVES THE RIGHT TO OBJECT, WITH RESPECT TO SUCH SUIT, ACTION OR
PROCEEDING BROUGHT IN ANY SUCH COURT, THAT SUCH COURT DOES NOT HAVE JURISDICTION
OVER SUCH PARTY. THE COMPANY AND EACH PURCHASER EACH AGREES THAT SERVICE OF
PROCESS UPON IT IN ANY SUCH SUIT, ACTION OR PROCEEDING SHALL BE DEEMED IN EVERY
RESPECT EFFECTIVE SERVICE OF PROCESS UPON IT IF GIVEN IN THE MANNER SET FORTH IN
SECTION 12(d); PROVIDED, HOWEVER, THAT SUCH SERVICE SHALL NOT BE EFFECTIVE IF
MADE ONLY BY FACSIMILE.
(i) GOVERNING LAW. THIS STOCK OPTION AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK,
REGARDLESS OF THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES
OF CONFLICTS OF LAWS THEREOF.
B-14
<PAGE> 47
IN WITNESS WHEREOF, the Company and each Purchaser have caused this Stock
Option Agreement to be signed by their respective officers thereunto duly
authorized, all as of the date first written above.
QVC NETWORK, INC.
by
-----------------------------------
Name:
Title:
BELLSOUTH CORPORATION
by
-----------------------------------
Name:
Title:
COX ENTERPRISES, INC.
by
-----------------------------------
Name:
Title:
ADVANCE PUBLICATIONS, INC.
by
-----------------------------------
Name:
Title:
B-15
<PAGE> 48
EXHIBIT 3
QVC NETWORK, INC.
1365 ENTERPRISE DRIVE
WEST CHESTER, PA 19380
PROXY
The undersigned hereby appoints William F. Costello and Neal S. Grabell, and
each of them, with power of substitution, to represent and to vote on behalf of
the undersigned all of the shares of QVC Network, Inc. which the undersigned is
entitled to vote at the Annual Meeting of Stockholders to be held at QVC
Chesapeake, Inc., 1553 North River Birch Run, Chesapeake, Virginia, on Monday,
June 27, 1994 at 10:00 A.M., and at any adjournment or adjournments thereof,
hereby revoking all proxies heretofore given with respect to such stock, upon
the following proposals more fully described in the notice of and proxy
statement for the meeting receipt whereof is hereby acknowledged.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF QVC NETWORK,
INC. THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HERIN BY THE UNDERSIGNED STOCKHOLDER, IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR THE ELECTION OF ALL LISTED NOMINEES, FOR PROPOSALS 2, 3, 4 AND 5,
AND IN SUPPORT OF MANAGEMENT FOR SUCH OTHER BUSINESS AS MAY PROPERLY COME
BEFORE THE MEETING OR ANY ADJOURNMENTS THEREOF.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR (1), (2), (3), (4) and (5)
<TABLE>
<S> <C>
/ / FOR ALL NOMINEES LISTED BELOW
<CAPTION>
/ / WITHHOLD AUTHORITY TO VOTE FOR ALL NOMINEES
<CAPTION>
LISTED BELOW
</TABLE>
EXCEPTIONS
Nominees to be elected by holders of shares of Preferred Stock:
B. Llewellyn, B. Ramer, B. Roberts, R. Roberts, J. Segel, L. Wachner
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK
THE EXCEPTIONS AND WRITE, THAT NOMINEE'S NAME ON THE SPACE PROVIDED BELOW.)
- --------------------------------------------------------------------------------
2. PROPOSAL TO APPROVE THE APPOINTMENT OF KPMG PEAT MARWICK AS THE INDEPENDENT
PUBLIC ACCOUNTANTS OF THE CORPORATION.
[CAPTION]
<TABLE>
<S> <C>
FOR AGAINST
FOR ABSTAIN / /
<S> <C>
</TABLE>
3. PROPOSAL TO APPROVE AN AMENDMENT TO THE RESTATED CERTIFICATE OF
INCORPORATION TO CHANGE THE CORPORATE NAME TO "QVC, INC."
[CAPTION]
<TABLE>
<S> <C>
FOR AGAINST
FOR ABSTAIN / /
<S> <C>
</TABLE>
4. PROPOSAL TO APPROVE THE 1993 QUALIFIED INCENTIVE STOCK OPTION PLAN.
[CAPTION]
<TABLE>
<S> <C>
FOR AGAINST
FOR ABSTAIN / /
<S> <C>
</TABLE>
5. PROPOSAL TO APPROVE THE GRANT OF STOCK OPTIONS TO BELLSOUTH CORPORATION,
ADVANCE PUBLICATIONS, INC. AND COX ENTERPRISES, INC.
[CAPTION]
<TABLE>
<S> <C>
FOR AGAINST
FOR ABSTAIN / /
<S> <C>
</TABLE>
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER MATTERS
AS MAY PROPERLY COME BEFORE THE MEETING.
<TABLE>
<S> <C>
ADDRESS CHANGE AND/OR COMMENTS MARK HERE
PLEASE SIGN EXACTLY AS NAME(S) APPEARS BELOW. WHEN
SHARES ARE HELD BY JOINT TENANTS, BOTH SHOULD SIGN.
WHEN SIGNING AS ATTORNEY, EXECUTOR, ADMINISTRATOR,
TRUSTEE, OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
IF A CORPORATION, PLEASE SIGN IN FULL CORPORATE NAME
BY PRESIDENT OR OTHER AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY
AUTHORIZED PERSON.
Dated:
Signature:
---------------------------------------------
Signature if held jointly
Sign, Date and Return the Proxy Card Promptly using Votes must be indicated (X) in Black or Blue Ink.
the Enclosed Envelope.
</TABLE>
<PAGE> 49
QVC NETWORK, INC.
1365 ENTERPRISE DRIVE
WEST CHESTER, PA 19380
PROXY
The undersigned hereby appoints William F. Costello and Neal S. Grabell, and
each of them, with power of substitution, to represent and to vote on behalf of
the undersigned all of the shares of QVC Network, Inc. which the undersigned is
entitled to vote at the Annual Meeting of Stockholders to be held at QVC
Chesapeake, Inc., 1553 North River Birch Run, Chesapeake, Virginia, on Monday,
June 27, 1994 at 10:00 A.M., and at any adjournment or adjournments thereof,
hereby revoking all proxies heretofore given with respect to such stock, upon
the following proposals more fully described in the notice of and proxy
statement for the meeting receipt whereof is hereby acknowledged.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF QVC
NETWORK, INC. THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER
DIRECTED HERIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE. THIS
PROXY WILL BE VOTED FOR THE ELECTION OF ALL LISTED NOMINEES, FOR PROPOSALS 2, 3,
4 AND 5, AND IN SUPPORT OF MANAGEMENT FOR SUCH OTHER BUSIENSS AS MAY PROPERLY
COME BEFORE THE MEETING OR ANY ADJOURNMENTS THEREOF.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR (1), (2), (3), (4) and (5)
<TABLE>
<S> <C>
/ / FOR ALL NOMINEES LISTED BELOW
<CAPTION>
/ / WITHHOLD AUTHORITY TO VOTE FOR ALL NOMINEES
<CAPTION>
LISTED BELOW
</TABLE>
EXCEPTIONS
Nominees to be elected by holders of shares of Common Stock:
W. Costello, B. Diller, B. Llewellyn, B. Ramer, B. Roberts, R. Roberts, J.
Segel, L. Wachner
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK,
WRITE THE EXCEPTIONS BOX AND THAT NOMINEE'S NAME ON THE SPACE PROVIDED BELOW.)
- --------------------------------------------------------------------------------
2. PROPOSAL TO APPROVE THE APPOINTMENT OF KPMG PEAT MARWICK AS THE INDEPENDENT
PUBLIC ACCOUNTANTS OF THE CORPORATION.
[CAPTION]
<TABLE>
<S> <C>
FOR AGAINST
FOR ABSTAIN / /
<S> <C>
</TABLE>
3. PROPOSAL TO APPROVE AN AMENDMENT TO THE RESTATED CERTIFICATE OF
INCORPORATION TO CHANGE THE CORPORATE NAME TO "QVC, INC."
[CAPTION]
<TABLE>
<S> <C>
FOR AGAINST
FOR ABSTAIN / /
<S> <C>
</TABLE>
4. PROPOSAL TO APPROVE THE 1993 QUALIFIED INCENTIVE STOCK OPTION PLAN.
[CAPTION]
<TABLE>
<S> <C>
FOR AGAINST
FOR ABSTAIN / /
<S> <C>
</TABLE>
5. PROPOSAL TO APPROVE THE GRANT OF STOCK OPTIONS TO BELLSOUTH CORPORATION,
ADVANCE PUBLICATIONS, INC. AND COX ENTERPRISES, INC.
[CAPTION]
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FOR AGAINST
FOR ABSTAIN / /
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IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER MATTERS
AS MAY PROPERLY COME BEFORE THE MEETING.
<TABLE>
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PROXY DEPARTMENT NEW YORK, NY 10203-0486
PLEASE SIGN EXACTLY AS NAME(S) APPEARS BELOW. WHEN
SHARES ARE HELD BY JOINT TENANTS, BOTH SHOULD SIGN.
WHEN SIGNING AS ATTORNEY, EXECUTOR, ADMINISTRATOR,
TRUSTEE, OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
IF A CORPORATION, PLEASE SIGN IN FULL CORPORATE NAME
BY PRESIDENT OR OTHER AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY
AUTHORIZED PERSON.
Dated:
Signature:
---------------------------------------------
Signature if held jointly
Sign, Date and Return the Proxy Card Promptly using Votes must be indicated (X) in Black or Blue Ink.
the Enclosed Envelope.
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EXHIBIT 4
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AGREEMENT AND PLAN OF MERGER
AMONG
QVC, INC.,
COMCAST CORPORATION,
LIBERTY MEDIA CORPORATION
AND
COMCAST QMERGER, INC.
DATED AS OF AUGUST 4, 1994
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TABLE OF CONTENTS
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ARTICLE I
THE OFFER AND THE MERGER
SECTION 1.01. The Offer............................................................. 1
SECTION 1.02. Company Action........................................................ 2
SECTION 1.03. Directors............................................................. 2
SECTION 1.04. The Merger............................................................ 3
SECTION 1.05. Action by Stockholders................................................ 3
SECTION 1.06. Proxy Statement....................................................... 3
SECTION 1.07. Closing............................................................... 4
SECTION 1.08. Effective Time........................................................ 4
SECTION 1.09. Effect of the Merger.................................................. 4
SECTION 1.10. Certificate of Incorporation.......................................... 4
SECTION 1.11. Bylaws................................................................ 4
SECTION 1.12. Directors and Officers................................................ 4
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 2.01. Conversion of Securities.............................................. 5
SECTION 2.02. Exchange of Certificates and Cash..................................... 5
SECTION 2.03. Stock Transfer Books.................................................. 6
SECTION 2.04. Stock Options; Payment Rights......................................... 6
SECTION 2.05. Dissenting Shares..................................................... 6
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF QVC
SECTION 3.01. Organization and Qualifications; Subsidiaries......................... 7
SECTION 3.02. Certificate of Incorporation and Bylaws............................... 7
SECTION 3.03. Capitalization........................................................ 7
SECTION 3.04. Authority Relative to This Agreement.................................. 8
SECTION 3.05. No Conflict; Required Filings and Consents............................ 8
SECTION 3.06. Compliance............................................................ 9
SECTION 3.07. SEC Filings; Financial Statements..................................... 9
SECTION 3.08. Absence of Certain Changes and Events................................. 10
SECTION 3.09. Employee Benefit Plans................................................ 10
SECTION 3.10. Opinion of Financial Advisor.......................................... 10
SECTION 3.11. Brokers............................................................... 10
SECTION 3.12. Taxes................................................................. 11
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF COMCAST,
LIBERTY AND BUYER
SECTION 4.01. Organization and Qualification........................................ 11
SECTION 4.02. Authority Relative to This Agreement.................................. 11
SECTION 4.03. No Conflict; Required Filings and Consents............................ 11
SECTION 4.04. SEC Filings, Financial Statements..................................... 12
SECTION 4.05. Brokers............................................................... 12
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SECTION 4.06. Organization and Qualification........................................ 13
SECTION 4.07. Authority Relative to This Agreement.................................. 13
SECTION 4.08. No Conflict; Required Filings and Consents............................ 13
SECTION 4.09. SEC Filings, Financial Statements..................................... 13
SECTION 4.10. Brokers............................................................... 14
SECTION 4.11. Organization and Qualification........................................ 14
SECTION 4.12. Certificate of Incorporation and Bylaws............................... 14
SECTION 4.13. Authority Relative to This Agreement.................................. 14
SECTION 4.14. No Conflict; Required Filings and Consents............................ 15
SECTION 4.15. Brokers............................................................... 15
ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 5.01. Conduct of Business by QVC Pending the Merger......................... 15
ARTICLE VI
ADDITIONAL COVENANTS
SECTION 6.01. Access to Information; Confidentiality................................ 16
SECTION 6.02. No Solicitation....................................................... 16
SECTION 6.03. Directors' and Officers' Indemnification and Insurance................ 17
SECTION 6.04. Notification of Certain Matters....................................... 18
SECTION 6.05. Further Action; Best Efforts.......................................... 18
SECTION 6.06. Public Announcements.................................................. 18
SECTION 6.07. Conveyance Taxes...................................................... 18
SECTION 6.08. Gains Tax............................................................. 18
SECTION 6.09. Obligations of Buyer.................................................. 19
SECTION 6.10. Severance Policy; Employee Benefits................................... 19
SECTION 6.11. FCC Approvals......................................................... 19
SECTION 6.12. Tax Certification..................................................... 19
ARTICLE VII
CLOSING CONDITIONS
SECTION 7.01. Condition to Obligations of Each Party to Effect the Merger........... 19
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01. Termination........................................................... 20
SECTION 8.02. Effect of Termination................................................. 20
SECTION 8.03. Amendment............................................................. 20
SECTION 8.04. Waiver................................................................ 21
SECTION 8.05. Fees, Expenses and Other Payments..................................... 21
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01. Effectiveness of Representations, Warranties and Agreements........... 21
SECTION 9.02. Notices............................................................... 21
SECTION 9.03. Certain Definitions................................................... 22
SECTION 9.04. Headings.............................................................. 23
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SECTION 9.05. Severability.......................................................... 23
SECTION 9.06. Entire Agreement...................................................... 23
SECTION 9.07. Assignment............................................................ 23
SECTION 9.08. Parties in Interest................................................... 23
SECTION 9.09. Governing Law......................................................... 23
SECTION 9.10. Enforcement of the Agreement.......................................... 23
SECTION 9.11. Counterparts.......................................................... 23
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INDEX OF DEFINED TERMS
<TABLE>
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TERM SECTION
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affiliate..................................................................... 9.03
Agreement..................................................................... PREAMBLE
Alternative Transaction....................................................... 6.02
Bidding Agreement............................................................. 4.08
business day.................................................................. 9.03
Buyer......................................................................... PREAMBLE
Buyer Material Adverse Effect................................................. 4.13
Certificates.................................................................. 2.02
Claim......................................................................... 6.03
Code.......................................................................... 2.02
Comcast....................................................................... PREAMBLE
Comcast Material Adverse Effect............................................... 4.01
Comcast SEC Reports........................................................... 4.04
Common Merger Consideration................................................... 2.01
Common Shares................................................................. 1.01
Confidentiality Agreements.................................................... 6.01
control....................................................................... 9.03
Delaware Law.................................................................. PREAMBLE
Dissenting Shares............................................................. 2.05
Effective Time................................................................ 1.08
ERISA......................................................................... 3.09
Exchange Act.................................................................. 3.05
Exchange Agent................................................................ 2.02
Exchange Fund................................................................. 2.02
Expenses...................................................................... 8.05
Fair Market Value............................................................. 6.02
FCC........................................................................... 6.11
Gains Tax..................................................................... 6.08
Governmental Entity........................................................... 3.05
HSR Act....................................................................... 3.05
Indemnified Parties........................................................... 6.03
IRS........................................................................... 3.09
Liberty....................................................................... PREAMBLE
Liberty Material Adverse Effect............................................... 4.06
Liberty SEC Reports........................................................... 4.09
Material QVC Subsidiary....................................................... 3.01
Merger........................................................................ PREAMBLE
Merger Consideration.......................................................... 2.02
MergerCo...................................................................... PREAMBLE
Minimum Condition............................................................. 1.01
Offer Documents............................................................... 1.01
Offer......................................................................... PREAMBLE
Options....................................................................... 3.03
Preferred Shares.............................................................. 1.01
Preferred Merger Consideration................................................ 2.01
Proxy Statement............................................................... 1.06
</TABLE>
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TERM SECTION
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QVC........................................................................... PREAMBLE
QVC Common Stock.............................................................. 1.01
QVC Disclosure Schedule....................................................... 3.03
QVC Material Adverse Effect................................................... 3.01
QVC Plans..................................................................... 3.09
QVC Preferred Stock........................................................... 1.01
QVC SEC Reports............................................................... 3.07
QVC Stock..................................................................... 1.01
QVC Stock Options............................................................. 3.03
QVC Subsidiary................................................................ 3.01
Respective Representatives.................................................... 6.01
Restated Certificate of Incorporation......................................... 3.05
Schedule 14D-9................................................................ 1.02
SEC........................................................................... 3.01
Securities Act................................................................ 3.07
Shares........................................................................ 1.01
subsidiary.................................................................... 9.03
Surviving Corporation......................................................... 1.04
taxes......................................................................... 3.12
Transactions.................................................................. 1.02
Transfer Taxes................................................................ 6.08
Transmittal Documents......................................................... 2.02
</TABLE>
v
<PAGE> 7
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of August 4, 1994 (the "Agreement"),
among COMCAST CORPORATION, a Pennsylvania corporation ("Comcast"), LIBERTY MEDIA
CORPORATION, a Delaware corporation ("Liberty"), COMCAST QMERGER, INC., a
Delaware corporation ("Buyer"), and QVC, INC., a Delaware corporation ("QVC").
W I T N E S S E T H:
WHEREAS, upon the terms and subject to the conditions of this Agreement and
in accordance with the General Corporation Law of the State of Delaware
("Delaware Law"), Buyer will make the offer described in Section 1.01 below (the
"Offer") and thereafter QVC and Buyer will enter into a business combination
transaction pursuant to which a wholly owned subsidiary of Buyer ("MergerCo")
will merge with and into QVC (the "Merger");
WHEREAS, the Board of Directors of QVC has determined that the Offer and
the Merger are fair to, and in the best interests of, QVC and its stockholders
and has approved and adopted this Agreement, has approved the Offer and the
Merger and the other transactions contemplated hereby and has recommended
approval and adoption of this Agreement and approval of the Merger by the
stockholders of QVC; and
WHEREAS, the Board of Directors of each of Comcast, Liberty and Buyer have
approved and adopted this Agreement and have approved the Offer and the Merger
and the other transactions contemplated hereby;
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement, the parties hereto agree as follows:
ARTICLE I
THE OFFER AND THE MERGER
SECTION 1.01. The Offer. (a) Provided that nothing shall have occurred
that would result in a failure to satisfy any of the conditions set forth in
paragraphs (a) through (d) of Annex I hereto, Buyer (or a subsidiary of Buyer)
shall, as promptly as practicable after the date hereof, but in no event later
than five business days following the public announcement of the terms of this
Agreement, commence an offer to purchase (i) all of the outstanding shares (the
"Common Shares") of Common Stock, par value $.01 per share, of QVC (the "QVC
Common Stock") at a price of $46.00 per Common Share, and (ii) all of the
outstanding shares (the "Preferred Shares") of QVC Series B Preferred Stock,
Series C Preferred Stock and Series D Preferred Stock, par value $.10 per share,
(collectively, the "QVC Preferred Stock") at a price of $460 per Preferred
Share, in each case net to the seller in cash. For purposes of this Agreement,
"Shares" means the Common Shares and the Preferred Shares and "QVC Stock" means
the QVC Common Stock and the QVC Preferred Stock.
(b) The Offer shall be subject to the conditions set forth in Annex I
hereto. Buyer shall not, without the prior written consent of QVC, make any
change in the terms or conditions of the Offer that is adverse to the holders of
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 in Annex I) or impose conditions
to the Offer in addition to those set forth in Annex I.
(c) As soon as practicable on the date of commencement of the Offer,
Comcast, Liberty and Buyer shall file with the SEC (as defined in Section 3.01)
a Tender Offer Statement on Schedule 14D-1 and, together with QVC, a Rule 13E-3
Transaction Statement on Schedule 13E-3, with respect to the Offer which will
contain the offer to purchase and form of the related letter of transmittal
(together with any supplements or amendments thereto, collectively the "Offer
Documents"). QVC agrees to provide Comcast, Liberty and Buyer with such
information concerning QVC as any of such parties may reasonably request in
connection with the preparation of the Schedule 13E-3. Each party hereto agrees
promptly to supplement, update and correct any information provided by it for
use in the Offer Documents if and to the extent that it is or shall
<PAGE> 8
have become incomplete, false or misleading. Each of Comcast, Liberty and Buyer
agrees to take all steps necessary to cause the Offer Documents as so corrected
to be filed with the SEC and to be disseminated to holders of Shares, in each
case as and to the extent required by applicable federal securities laws. QVC
and its counsel shall be given an opportunity to review and comment on the
Schedule 14D-1 prior to its being filed with the SEC.
SECTION 1.02. Company Action. (a) QVC hereby consents to the Offer and
represents that its Board of Directors, at a meeting duly called and held, has
unanimously (other than the directors affiliated with Comcast) (i) determined
that this Agreement and the transactions contemplated hereby, including the
Offer and the Merger, are fair to and in the best interest of QVC's stockholders
(other than Comcast and Liberty and their affiliates), (ii) approved this
Agreement and the transactions contemplated hereby, including the Offer and the
Merger, which approval satisfies in full the requirements of Delaware Law
(including all approvals required under Section 203 of Delaware Law in
connection with the consummation of the transactions contemplated hereby (the
"Transactions") and the contribution by each of Comcast and Liberty of Shares
and other QVC Securities to Buyer in connection with the consummation of the
Offer) and (iii) subject to its fiduciary duties under applicable law, resolved
to recommend acceptance of the Offer, and approval and adoption of this
Agreement and the Merger, by its stockholders. QVC further represents that Allen
& Company Incorporated has delivered to QVC's Board of Directors its written
opinion dated the date hereof that the consideration to be paid in the Offer and
the Merger is fair to the holders of Shares (other than Comcast and Liberty)
from a financial point of view. To the best of QVC's knowledge, all of its
directors (other than those directors affiliated with Comcast) and executive
officers intend either to tender their Shares pursuant to the Offer or to vote
in favor of the Merger. QVC will promptly furnish Buyer with a list of its
stockholders, mailing labels and any available listing or computer file
containing the names and addresses of all record holders of Shares and lists of
securities positions of Shares held in stock depositories, in each case true and
correct as of the most recent practicable date, and will provide to Buyer such
additional information (including, without limitation, updated lists of
stockholders, mailing labels and lists of securities positions) and such other
assistance as Buyer may reasonably request in connection with the Offer.
(b) As soon as practicable on the day that the Offer is commenced QVC will
file with the SEC a Solicitation/Recommendation Statement on Schedule 14D-9 (the
"Schedule 14D-9") which shall reflect the recommendations of QVC's Board of
Directors referred to above. Each party hereto agrees promptly to supplement,
update and correct any information provided by it for use in the Schedule 14D-9
if and to the extent that it is or shall have become incomplete, false, or
misleading. QVC agrees to take all steps necessary to cause the Schedule 14D-9
as so corrected to be filed with the SEC and to be disseminated to holders of
Shares, in each case as and to the extent required by applicable federal
securities laws. Buyer and its counsel shall be given an opportunity to review
and comment on the Schedule 14D-9 prior to its being filed with the SEC.
SECTION 1.03. Directors. (a) Effective upon the acceptance for payment by
Buyer of any Shares, Buyer shall be entitled to designate the number of
directors, rounded up to the next whole number, on QVC's Board of Directors that
equals the product of (i) the total number of directors on QVC's Board of
Directors (giving effect to the election of any additional directors pursuant to
this Section) and (ii) the percentage that the number of Shares owned by Buyer,
Comcast, Liberty or any of their respective wholly owned subsidiaries (including
Shares accepted for payment) bears to the total number of Shares outstanding,
and QVC shall take all action necessary to cause Buyer's designees to be elected
or appointed to QVC's Board of Directors, including, without limitation,
increasing the number of directors or seeking and accepting resignations of
incumbent directors. At such times, QVC will use its best efforts to cause
individuals designated by Buyer to constitute the same percentage as such
individuals represent on QVC's Board of Directors 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 (as defined
in Section 3.01) 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
Buyer acquires a majority of the outstanding Common Shares on a fully-diluted
basis, QVC shall use its reasonable best efforts to ensure that all of the
members of the Board of Directors and
2
<PAGE> 9
such boards and committees as of the date hereof who are not employees of QVC
shall remain members of the Board of Directors and such boards and committees
until the Effective Time (as defined in Section 1.06).
(b) QVC's obligations to appoint designees to the Board of Directors shall
be subject to Section 14(f) of the Exchange Act (as defined in Section 3.05) and
Rule 14f-1 promulgated thereunder and any other required material regulatory
approvals. QVC shall promptly take all actions required pursuant to Section
14(f) and Rule 14f-1 in order to fulfill its obligations under this Section and
shall include in the Schedule 14D-9 such information with respect to QVC and its
officers and directors (and to the extent required by law, those persons
designated by Buyer) as is required under Section 14(f) and Rule 14f-1 to
fulfill its obligations under this Section 1.03. Buyer will supply to QVC in
writing and be solely responsible for any information with respect to itself and
its nominees, officers, directors and affiliates required by Section 14(f) and
Rule 14f-1.
(c) Following the election or appointment of Buyer's designee(s) pursuant
to this Section and prior to the Effective Time (defined in Section 1.08), any
amendment or termination of this Agreement, grant by QVC of any extension for
the performance or waiver of the obligations or other acts of Buyer, Comcast or
Liberty or waiver of QVC's rights hereunder, or action with respect to any QVC
(or Surviving Corporation) employee benefit plan or option agreement, including,
without limitation, any equity compensation agreement, shall require the
concurrence of a majority of QVC's directors then in office who are directors on
the date hereof, or are directors (other than directors designated by Buyer in
accordance with Section 1.03(a) and other than the directors affiliated with
Comcast) designated by such persons to fill any vacancy.
SECTION 1.04. The Merger. Upon the terms and subject to the conditions
set forth in this Agreement, and in accordance with Delaware Law, at the
Effective Time (as defined in Section 1.08), Buyer shall cause MergerCo to be
merged with and into QVC. As a result of the Merger, the separate existence of
MergerCo shall cease and QVC shall continue as the surviving corporation of the
Merger (the "Surviving Corporation") under the name "QVC, Inc."
SECTION 1.05. Action by Stockholders. If required by applicable law to
consummate the Merger, QVC, acting through its Board of Directors, shall, in
accordance with applicable law, its Certificate of Incorporation and bylaws: (i)
as soon as practicable after consummation of the Offer, duly call, give notice
of, convene and hold a special meeting of stockholders for the purpose of
adopting this Agreement and approving the Merger; (ii) subject to its fiduciary
duties on the basis of advice of independent counsel, include in any proxy
statement the determination and recommendation of the Board of Directors to the
effect that the Board of Directors, having determined that this Agreement and
the transactions contemplated hereby are in the best interests of QVC and its
stockholders, has approved this Agreement and such transactions and recommends
that the stockholders vote in favor of the approval and adoption of this
Agreement and the Merger; and (iii) use its best efforts, subject to its
fiduciary duties on the basis of advice of independent counsel, to obtain the
necessary approval of this Agreement and the Merger by stockholders. Comcast,
Liberty, MergerCo and Buyer shall vote all Shares acquired in the Offer, or
heretofore owned, in favor of the Merger.
SECTION 1.06. Proxy Statement. (a) As promptly as practicable after
consummation of the Offer, QVC shall prepare and file with the SEC (if
necessary) a proxy statement relating to the meeting of QVC's stockholders to be
held in connection with the Merger (together with any amendments thereof or
supplements thereto, the "Proxy Statement"). Comcast, Liberty, MergerCo and
Buyer shall furnish to QVC all information concerning Comcast, Liberty and Buyer
as QVC may reasonably request in connection with the preparation of the Proxy
Statement. As promptly as practicable after the Proxy Statement has been cleared
by the SEC, QVC shall mail the Proxy Statement to its stockholders. The Proxy
Statement shall include the recommendation of the Board of Directors of QVC in
favor of the Merger, unless otherwise necessary due to the applicable fiduciary
duties of the directors of QVC, as determined by such directors in good faith
after consultation with, and based upon the advice of, outside counsel.
(b) The information supplied by each of Comcast, Liberty, MergerCo and
Buyer for inclusion in the Proxy Statement shall not, at (i) the time the Proxy
Statement (or any amendment thereof or supplement thereto) is first mailed to
the stockholders of QVC, (ii) the time of the QVC stockholders' meeting
contemplated by such Proxy Statement, and (iii) the Effective Time, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the
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statements therein not misleading. If at any time prior to the Effective Time
any event or circumstance relating to any party hereto, or their respective
officers or directors, should be discovered by such party which should be set
forth in an amendment or a supplement to the Proxy Statement, such party shall
promptly inform QVC and Buyer thereof and take appropriate action in respect
thereof.
(c) Notwithstanding anything in the foregoing to the contrary, in the event
that Comcast, Liberty, MergerCo, Buyer and/or any other direct or indirect
subsidiary thereof, shall acquire at least 90 percent of the outstanding shares
of each class of capital stock of QVC, Comcast, Liberty and QVC hereby agree to
take all necessary and appropriate action (subject to Section 1.07 hereof) 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 in Article VII hereof, without a meeting of QVC's stockholders, in
accordance with Section 253 of Delaware Law.
SECTION 1.07. Closing. Unless this Agreement shall have been terminated
and the transactions herein contemplated shall have been abandoned pursuant to
Section 8.01 and subject to the satisfaction or, if permissible, waiver of the
conditions set forth in Article VII, the closing of the Merger will take place
as promptly as practicable (and in any event, subject to the proviso at the end
of this sentence, within ten business days) after satisfaction or waiver of the
conditions set forth in Article VII, at the offices of Davis Polk & Wardwell,
450 Lexington Avenue, New York, New York, unless another date, time or place is
agreed to in writing by the parties hereto, provided that the Closing shall not
occur prior to October 21, 1994.
SECTION 1.08. Effective Time. As promptly as practicable after the
satisfaction or, if permissible, waiver of the conditions set forth in Article
VII (but subject to Section 1.07 hereof), the parties hereto shall cause the
Merger to be consummated by filing a certificate of merger with the Secretary of
State of the State of Delaware and by making any related filings required under
Delaware Law in connection with the Merger. 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").
SECTION 1.09. Effect of the Merger. From and after the Effective Time,
the Surviving Corporation shall possess all the rights, privileges, powers and
franchises and be subject to all of the restrictions, disabilities and duties of
QVC and MergerCo, and the Merger shall otherwise have the effects, all as
provided under Delaware Law.
SECTION 1.10. Certificate of Incorporation. The certificate of
incorporation of MergerCo in effect at the Effective Time shall be the
certificate of incorporation of the Surviving Corporation until amended in
accordance with applicable law, except that the name of the Surviving
Corporation shall be "QVC, Inc.", provided that (i) the par value of the common
stock of the Surviving Corporation shall not be $.01 per share, or (ii) there
shall be such other changes made to the certificate of incorporation of the
Surviving Corporation or otherwise as shall be reasonably acceptable to the
parties hereto as shall be necessary or appropriate in order for the Merger and
the Transactions to qualify as a reclassification under Delaware Law.
SECTION 1.11. Bylaws. The bylaws of MergerCo in effect at the Effective
Time shall be the bylaws of the Surviving Corporation until amended in
accordance with applicable law.
SECTION 1.12. Directors and Officers. From and after the Effective Time,
until successors are duly elected or appointed and qualified (or earlier
resignation or removal) in accordance with applicable law, (i) the directors of
MergerCo at the Effective Time shall be the directors of the Surviving
Corporation and (ii) the officers of QVC at the Effective Time shall be the
officers of the Surviving Corporation.
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<PAGE> 11
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 2.01. Conversion of Securities. At the Effective Time, by virtue
of the Merger and without any action on the part of Buyer or MergerCo, QVC or
the holders of any of the following securities:
(a) Each share of QVC Common Stock issued and outstanding immediately
prior to the Effective Time (other than any shares of QVC Common Stock to
be canceled pursuant to Section 2.01(b) and any Dissenting Shares (as
defined in Section 2.05)) shall be converted into the right to receive
$46.00 in cash, without interest (the "Common Merger Consideration"). Each
share of QVC Preferred Stock issued and outstanding immediately prior to
the Effective Time (other than any shares of QVC Preferred Stock to be
canceled pursuant to Section 2.01(b) and any Dissenting Shares), shall be
converted into the right to receive $460.00 in cash, without interest (the
"Preferred Merger Consideration"). At the Effective Time, all shares of QVC
Stock shall no longer be outstanding and shall automatically be canceled
and retired and shall cease to exist, and each certificate previously
evidencing any such shares shall thereafter represent the right to receive,
upon the surrender of such certificate in accordance with the provisions of
Section 2.02, the Common Merger Consideration or the Preferred Merger
Consideration, as the case may be. The holders of such certificates
previously evidencing such shares of QVC Stock outstanding immediately
prior to the Effective Time shall cease to have any rights with respect to
such shares of QVC Stock except as otherwise provided herein or by law.
(b) Each share of QVC Stock held in the treasury of QVC or by any
wholly owned subsidiary thereof and each share of QVC Stock owned by Buyer
and MergerCo or any of its subsidiaries, immediately prior to the Effective
Time shall automatically be canceled and extinguished without any
conversion thereof and no payment shall be made with respect thereto.
(c) 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 with the same rights, powers and
privileges as the shares so converted and shall constitute the only
outstanding shares of capital stock of the Surviving Corporation.
SECTION 2.02. Exchange of Certificates and Cash. (a) Exchange
Agent. Prior to the Effective Time, Buyer shall deposit, or shall cause to be
deposited, with or for the account of a bank or trust company designated by
Comcast, which shall be reasonably satisfactory to QVC (the "Exchange Agent"),
for the benefit of the holders of shares of QVC Stock (other than Dissenting
Shares), for exchange in accordance with this Article II, through the Exchange
Agent, an amount in cash equal to the Common Merger Consideration and the
Preferred Merger Consideration payable pursuant to Section 2.01(a) in exchange
for all of the outstanding shares of QVC Stock (such cash funds are hereafter
referred to as the "Exchange Fund"). The Exchange Agent shall, pursuant to
irrevocable instructions, deliver the Merger Consideration (as defined in
paragraph (b) below) to be paid and issued pursuant to Section 2.01(a) out of
the Exchange Fund to holders of shares of QVC Stock. The Exchange Fund shall not
be used for any other purpose. Any interest, dividends or other income earned on
the investment of cash held in the Exchange Fund shall be for the account of
Buyer.
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, Buyer will instruct the Exchange Agent to mail to each holder of
record of a certificate or certificates which immediately prior to the Effective
Time evidenced outstanding shares of QVC Stock (other than Dissenting Shares)
(the "Certificates"), (i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates shall
pass, only upon proper delivery of the Certificates to the Exchange Agent and
shall be in such form and have such other provisions as Buyer may reasonably
specify) and (ii) instructions to effect the surrender of the Certificates in
exchange for cash. Upon surrender of a Certificate for cancellation to the
Exchange Agent or to such other agent or agents as may be appointed by Buyer
together with such letter of transmittal, duly executed, and such other
customary documents as may be required pursuant to such instructions
(collectively, the "Transmittal Documents"), the holder of such Certificate
shall be entitled to receive in exchange therefor an amount in cash which such
holder has the right to receive pursuant to
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Section 2.01(a) (the "Merger Consideration"), and the Certificate so surrendered
shall forthwith be canceled. In the event of a transfer of ownership of shares
of QVC Stock which is not registered in the transfer records of QVC, the Merger
Consideration may be issued and paid in accordance with this Article II to a
transferee if the Certificate evidencing such shares of QVC Stock is presented
to the Exchange Agent, accompanied by all documents required to evidence and
effect such transfer and by evidence that any applicable stock transfer taxes
have been paid. The Merger Consideration will be delivered by the Exchange Agent
as promptly as practicable following surrender of a Certificate and the related
Transmittal Documents, and cash payments may be made by check (unless otherwise
required by a depositary institution in connection with the book-entry delivery
of securities). No interest will be payable on such Merger Consideration
regardless of any delay in making payments. Until surrendered as contemplated by
this Section 2.02, each Certificate shall be deemed at any time after the
Effective Time to evidence only the right to receive, upon such surrender, the
Merger Consideration, without interest.
(c) Termination of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to the holders of QVC Stock for six months after the
Effective Time shall be delivered to Buyer, upon demand, and any holders of QVC
Stock who have not theretofore complied with this Article II shall thereafter
look only to Buyer for the Merger Consideration to which they are entitled
pursuant to this Article II.
(d) No Liability. Neither Buyer, Comcast, Liberty, the Surviving
Corporation nor QVC shall be liable to any holder of shares of QVC Stock for any
cash from the Exchange Fund delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law.
(e) Withhold Rights. Buyer or the Exchange Agent shall be entitled to
deduct and withhold from the consideration otherwise payable pursuant to this
Agreement to any holder of shares of QVC Stock such amounts as Buyer or the
Exchange Agent is required to deduct and withhold with respect to the making of
such payment under the United States Internal Revenue Code of 1986, as amended
(the "Code"), or any provision of state, local or foreign tax law. To the extent
that amounts are so withheld by Buyer or the Exchange Agent, such withheld
amounts shall be treated for all purposes of this Agreement as having been paid
to the holder of the shares of QVC Stock in respect of which such deduction and
withholding was made by Buyer or the Exchange Agent.
SECTION 2.03. Stock Transfer Books. At the Effective Time, the stock
transfer books of QVC shall be closed, and there shall be no further
registration of transfers of shares of QVC Stock thereafter on the records of
QVC. On or after the Effective Time, any Certificates presented to the Exchange
Agent or the Surviving Corporation for any reason shall be converted into the
Merger Consideration.
SECTION 2.04. Stock Options; Payment Rights. At the Effective Time, each
outstanding QVC Stock Option (as defined in Section 3.03) to purchase shares of
QVC Common Stock, whether or not then 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 $46.00 and the per share exercise price
thereof, multiplied by the number of shares issuable pursuant to such QVC Stock
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
Exchange Act (as hereinafter defined), 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 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 Surviving Corporation shall perform
all of QVC's obligations under all QVC Stock Options and shall honor all rights
with respect thereto, and the Surviving Corporation shall have no right of
offset, counterclaim, reduction, recoupment or similar right with respect to any
such QVC Stock Options or any Optionee's rights with respect thereto, on any
basis whatsoever.
SECTION 2.05. Dissenting Shares. (a) Notwithstanding any other provision
of this Agreement to the contrary, shares of QVC Stock 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 Delaware Law 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
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receive the Merger Consideration. Such stockholders shall be entitled to receive
payment of the appraised value of such shares of QVC Stock held by them in
accordance with the provisions of Delaware Law, 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
of QVC Stock under Delaware Law 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,
in the manner provided in Section 2.02, of the certificate or certificates that
formerly evidenced such shares of QVC Stock.
(b) QVC shall give Buyer prompt notice of any demands for appraisal
received by it, withdrawals of such demands, and any other instruments served
pursuant to Delaware Law and received by QVC and relating thereto. QVC and Buyer
shall jointly direct all negotiations and proceedings with respect to demands
for appraisal under Delaware Law. Neither QVC nor Buyer shall, except with the
prior written consent of the other, make any payment with respect to any demands
for appraisal, or offer to settle, or settle, any such demands.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF QVC
QVC hereby represents and warrants to Comcast, Liberty and Buyer that:
SECTION 3.01. Organization and Qualifications; Subsidiaries. (a) Each of
QVC and each Material QVC Subsidiary (as defined below) is a corporation,
partnership or other legal entity duly incorporated or organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization and has the requisite power and authority and all
necessary governmental approvals to own, lease and operate its properties and to
carry on its business as it is now being conducted, except where the failure to
be so organized, existing or in good standing or to have such power, authority
and governmental approvals would not, individually or in the aggregate, have a
QVC Material Adverse Effect (as defined below). QVC and each Material QVC
Subsidiary is duly qualified or licensed as a foreign corporation to transact
business, and is in good standing, in each jurisdiction where the character of
the properties owned, leased or operated by it or the nature of its business
makes such qualification or licensing necessary, except for such failures to be
so qualified or licensed and in good standing that would not, individually or in
the aggregate, have a material adverse effect on the business, results of
operations or financial condition of QVC and the QVC Subsidiaries, taken as a
whole (a "QVC Material Adverse Effect").
(b) Each subsidiary of QVC (a "QVC Subsidiary") that constitutes a
Significant Subsidiary of QVC within the meaning of Rule 1-02 of Regulation S-X
of the Securities and Exchange Commission (the "SEC") is referred to herein as a
"Material QVC Subsidiary."
SECTION 3.02. Certificate of Incorporation and Bylaws. QVC has heretofore
made available to Buyer a complete and correct copy of the certificate of
incorporation and the bylaws or equivalent organizational documents, each as
amended to the date hereof, of QVC and each Material QVC Subsidiary. Such
certificates of incorporation, bylaws and equivalent organizational documents
are in full force and effect. Neither QVC nor any Material QVC Subsidiary is in
violation of any provision of its certificate of incorporation, bylaws or
equivalent organizational documents, except for such violations that would not,
individually or in the aggregate, have a QVC Material Adverse Effect.
SECTION 3.03. Capitalization. The authorized capital stock of QVC
consists of 175,000,000 shares of QVC Common Stock and 5,000,000 shares of QVC
Preferred Stock. As of June 30, 1994, (i) (a) 40,226,197 shares of QVC Common
Stock were issued and outstanding, all of which were validly issued, fully paid
and nonassessable, (b) 5,586,730 shares of QVC Common Stock were reserved for
issuance upon conversion of the QVC Preferred Stock, (c) 8,194,650 shares of QVC
Common Stock were reserved for issuance upon the exercise of outstanding stock
options granted pursuant to QVC's employee stock plans and certain other stock
options not issued pursuant to employee stock plans ("QVC Stock Options"), (d)
1,700,000 shares of QVC Common Stock were reserved for issuance upon exercise of
all outstanding warrants of QVC, (e) 730 shares of QVC Common Stock and no
shares of QVC Preferred Stock were held in
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the treasury of QVC, (f) no shares of QVC Common Stock or QVC Preferred Stock
were held by QVC Subsidiaries, and (g) 553,713 shares of QVC Common Stock and 0
shares of QVC Preferred Stock were reserved for future issuance pursuant to QVC
Stock Options to be granted; and (ii) 27,788 shares of QVC Series B Preferred
Stock, 530,757 shares of QVC Series C Preferred Stock, and 128 shares of QVC
Series D Preferred Stock were issued and outstanding, all of which were fully
paid and nonassessable and no other shares of QVC Preferred Stock were issued or
outstanding. Except as set forth above, as of June 30, 1994, no shares of
capital stock or other voting securities of QVC were issued, reserved for
issuance or outstanding. Except as set forth in this Section 3.03 or in Section
3.03 of the Disclosure Schedule previously delivered by QVC to Comcast (the "QVC
Disclosure Schedule"), there are no options, stock appreciation rights, warrants
or other rights, agreements, arrangements or commitments of any character
(collectively, "Options") relating to the issued or unissued capital stock of
QVC or any QVC Subsidiary, or obligating QVC or any QVC Subsidiary to issue,
grant or sell any shares of capital stock of, or other equity interests in, or
convertible into equity interests in, QVC or any QVC Subsidiary. Since June 30,
1994, QVC has not issued any shares of its capital stock or Options in respect
thereof, except upon the conversion of the securities or the exercise of the
options or warrants referred to above. All shares of QVC Common Stock subject to
issuance as aforesaid, upon issuance on the terms and conditions specified in
the instruments pursuant to which they are issuable, will be duly authorized,
validly issued, fully paid and nonassessable. Except as set forth in Section
3.03 of the QVC Disclosure Schedule, there are no outstanding contractual
obligations of QVC or any QVC Subsidiary to repurchase, redeem or otherwise
acquire any shares of QVC Common Stock or any capital stock of any Material QVC
Subsidiary, or make any material investment (in the form of a loan, capital
contribution or otherwise) in, any QVC Subsidiary or any other person. Except as
set forth in Section 3.03 of the QVC Disclosure Schedule, each outstanding share
of capital stock of each Material QVC Subsidiary is duly authorized, validly
issued, fully paid and nonassessable and is owned by QVC or another QVC
Subsidiary free and clear of all security interests, liens, claims, pledges,
options, rights of first refusal, agreements, limitations on QVC's or such other
QVC Subsidiary's voting rights, charges and other encumbrances of any nature
whatsoever.
SECTION 3.04. Authority Relative to This Agreement. QVC has all necessary
corporate power and authority to execute and deliver this Agreement, to perform
its obligations hereunder and to consummate the Transactions. The execution and
delivery of this Agreement by QVC and the consummation by QVC of the
Transactions have been duly and validly authorized by all necessary corporate
action and no other corporate proceedings on the part of QVC are necessary to
authorize this Agreement or to consummate the Transactions (other than, with
respect to the Merger, the approval and adoption of this Agreement by the
holders of a majority of the then outstanding shares of QVC Common Stock and QVC
Preferred Stock, voting together as a single class, and the filing and
recordation of appropriate merger documents as required by Delaware Law). This
Agreement has been duly and validly executed and delivered by QVC and, assuming
the due authorization, execution and delivery by the other parties hereto,
constitutes the legal, valid and binding obligation of QVC, enforceable against
QVC in accordance with its terms. QVC has taken all appropriate actions so that
the restrictions on business combinations contained in Section 203 of Delaware
Law will not apply with respect to or as a result of the Transactions or the
transactions contemplated by the Bidding Agreement (as defined in Section 4.08).
SECTION 3.05. No Conflict; Required Filings and Consents. (a) Except as
set forth in Section 3.05 of the QVC Disclosure Schedule, the execution and
delivery of this Agreement by QVC do not, and the performance of this Agreement
and the consummation of the Transactions by QVC will not, (i) conflict with or
violate the certificate of incorporation or by-laws or equivalent organizational
documents of QVC or any Material QVC Subsidiary, (ii) conflict with or violate
any law, rule, regulation, order, judgment or decree applicable to QVC or any
QVC Subsidiary or by which any property or asset of QVC or any QVC Subsidiary is
bound or affected, or (iii) result in any breach of or constitute a default (or
an event which with notice or lapse of time or both would become a default)
under, result in the loss of a material benefit under, or give to others any
right of termination, amendment, acceleration, increased payments or
cancellation of, or result in the creation of a lien or other encumbrance on any
property or asset of QVC or any QVC Subsidiary pursuant to, any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which QVC or any QVC Subsidiary is a party or
by which QVC or any QVC
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Subsidiary or any property or asset of QVC or any QVC subsidiary is bound or
affected, except, in the case of clauses (ii) and (iii), for any such conflicts,
violations, breaches, defaults or other occurrences which would not prevent or
delay consummation of the Merger in any material respect, or otherwise prevent
QVC from performing its obligations under this Agreement in any material
respect, and would not, individually or in the aggregate, have a QVC Material
Adverse Effect.
(b) The execution and delivery of this Agreement by QVC do not, and the
performance of this Agreement and the consummation of the Transactions by QVC
will not, require any consent, approval, authorization or permit of, or filing
with or notification to, any governmental or regulatory authority, domestic or
foreign (each a "Governmental Entity"), except (i) for (A) applicable
requirements, if any, of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and state takeover laws, (B) the pre-merger notification
requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the rules and regulations thereunder (the "HSR Act"), and (C)
filing and recordation of appropriate merger and similar documents and the
restated certificate of incorporation (the "Restated Certificate of
Incorporation") as required by Delaware Law and (ii) where failure to obtain
such consents, approvals, authorizations or permits, or to make such filings or
notifications, would not prevent or delay consummation of the Merger in any
material respect, or otherwise prevent QVC from performing its obligations under
this Agreement in any material respect, and would not, individually or in the
aggregate, have a QVC Material Adverse Effect.
SECTION 3.06. Compliance. Except as set forth in Section 3.06 of the QVC
Disclosure Schedule, neither QVC nor any QVC Subsidiary is in conflict with, or
in default or violation of, (i) any law, rule, regulation, order, judgment or
decree applicable to QVC or any QVC Subsidiary or by which any property or asset
of QVC or any QVC Subsidiary is bound or affected, or (ii) any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which QVC or any QVC Subsidiary is a party or
by which QVC or any QVC Subsidiary or any property or asset of QVC or any QVC
Subsidiary is bound or affected, except for any such conflicts, defaults or
violations that would not, individually or in the aggregate, have a QVC Material
Adverse Effect.
SECTION 3.07. SEC Filings; Financial Statements. (a) QVC has filed all
forms, reports and documents required to be filed by it with the SEC since
January 31, 1992, and has heretofore made available to Buyer, in the form filed
with the SEC (excluding any exhibits thereto), (i) its Annual Reports on Form
10-K for the fiscal years ended January 31, 1992, 1993 and 1994, respectively,
(ii) its Quarterly Report on Form 10-Q for the quarter ended April 30, 1994,
(iii) all proxy statements relating to QVC's meetings of stockholders (whether
annual or special) held since February 1, 1992, and (iv) all other forms,
reports and other registration statements (other than Quarterly Reports on Form
10-Q not referred to in clause (iii) above and preliminary materials) filed by
QVC with the SEC since January 31, 1992 (the forms, reports and other documents
referred to in clauses (i), (ii), (iii) and (iv) above being referred to herein,
collectively, as the "QVC SEC Reports"). The QVC SEC Reports and any forms,
reports and other documents filed by QVC with the SEC after the date of this
Agreement (x) were or will be prepared in accordance with the requirements of
the Securities Act of 1933, as amended (the "Securities Act") and the Exchange
Act, as the case may be, and the rules and regulations thereunder and (y) did
not at the time they were filed, or will not at the time they are filed, contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading. No QVC Subsidiary is required to file any form, report or other
document with the SEC.
(b) Each of the consolidated financial statements (including, in each case,
any notes thereto) contained in the QVC SEC Reports was prepared in accordance
with generally accepted accounting principles applied on a consistent basis
throughout the periods indicated (except as may be indicated in the notes
thereto), and each fairly presented the consolidated financial position, results
of operations and cash flows of QVC and the consolidated QVC Subsidiaries as at
the respective dates thereof and for the respective periods indicated therein
(subject, in the case of unaudited statements, to normal and recurring year-end
adjustments which were not and are not expected, individually or in the
aggregate, to be material in amount). Since January 31,
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1994, there has been no change in any of the significant accounting (including
tax accounting) policies, practices or procedures of QVC or any QVC Material
subsidiary.
(c) Except (i) as set forth in Section 3.07 of the QVC Disclosure Schedule,
(ii) as and to the extent set forth in the QVC SEC Reports filed with the SEC
prior to the date of this Agreement, or (iii) since April 30, 1994, as incurred
in the ordinary course of business, and not in violation of this Agreement
(assuming this Agreement was in effect as of April 30, 1994), QVC and the QVC
Subsidiaries do not have any liability or obligation of any nature (whether
accrued, absolute, contingent or otherwise) other than liabilities and
obligations which would not, individually or in the aggregate, have a QVC
Material Adverse Effect.
SECTION 3.08. Absence of Certain Changes and Events. Except as set forth
in Section 3.08 of the QVC Disclosure Schedule, contemplated by this Agreement
or disclosed in any QVC SEC Report filed since April 30, 1994 and prior to the
date of this Agreement, since April 30, 1994, (i) QVC and the QVC Subsidiaries
have conducted their businesses only in the ordinary course and have not taken
any of the actions set forth in paragraphs (a) through (j) of Section 5.01 and
(ii) there has not been any material adverse change in the business, financial
condition or results of operations of QVC and the QVC Subsidiaries, taken as a
whole.
SECTION 3.09. Employee Benefit Plans. With respect to all the employee
benefit plans, programs and arrangements maintained for the benefit of any
current or former employee, officer or director of QVC or any QVC Subsidiary
(the "QVC Plans"), except as set forth in Section 3.09 of the QVC Disclosure
Schedule or the QVC SEC Reports filed prior to the date of this Agreement: (i)
none of the QVC Plans is a multi-employer plan within the meaning of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), (ii) none
of the QVC Plans promises or provides retiree medical or life insurance benefits
to any person, (iii) each QVC Plan intended to be qualified under Section 401(a)
of the Code has received a favorable determination letter from the Internal
Revenue Service (the "IRS") that it is so qualified and nothing has occurred
since the date of such letter that could reasonably be expected to affect the
qualified status of such QVC Plan other than occurrences that would not,
individually or in the aggregate, have a QVC Material Adverse Effect; (iv) each
QVC Plan has been operated in all material respects in accordance with its terms
and the requirements of applicable law; (v) neither QVC nor any QVC Subsidiary
has incurred any direct or indirect liability under, arising out of or by
operation of Title IV of ERISA in connection with the termination of, or
withdrawal from, any QVC Plan or other retirement plan or arrangement, and no
fact or event exists that could reasonably be expected to give rise to any such
liability, other than any liability that would not, individually or in the
aggregate, have a QVC Material Adverse Effect; and (vi) QVC and the QVC
Subsidiaries have not incurred any liability under, and have complied in all
material respects with, the Worker Adjustment Retraining Notification Act, and
no fact or event exists that could give rise to liability under such act, other
than any liability that would not, individually or in the aggregate, have a QVC
Material Adverse Effect. Except as set forth in Section 3.09 of the QVC
Disclosure Schedule or the QVC SEC Reports, the aggregate accumulated benefit
obligations of each QVC Plan subject to Title IV of ERISA (as of the date of the
most recent actuarial valuation prepared for such QVC Plan) do not exceed the
fair market value of the assets of such QVC Plan (as of the date of such
valuation).
SECTION 3.10. Opinion of Financial Advisor. QVC's Board of Directors has
received the opinion of Allen & Company Incorporated dated the date hereof, to
the effect that, as of such date, the consideration to be received by the
holders of the Shares (other than Comcast and Liberty) pursuant to the Offer and
the Merger is fair to such holders from a financial point of view, a copy of
which opinion has been delivered to Buyer.
SECTION 3.11. Brokers. No broker, finder or investment banker (other than
Allen & Company Incorporated) is entitled to any brokerage, finder's or other
fee or commission in connection with the proposed transaction with CBS Inc., the
Offer, the Merger or the Transactions based upon arrangements made by or on
behalf of QVC. QVC has heretofore furnished to Comcast a complete and correct
copy of all agreements between QVC and Allen & Company Incorporated as of the
date hereof pursuant to which such firm would be entitled to any payment
relating to the Transactions or the proposed transaction with CBS Inc.
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SECTION 3.12. Taxes. (a) Except as set forth in Section 3.12(a) of the
QVC Disclosure Schedule, each of QVC and the QVC Subsidiaries has filed all tax
returns and reports required to be filed by it or requests for extensions to
file such returns or reports have been timely filed, granted and have not
expired, except to the extent that such failures to file or to have extensions
granted that remain in effect individually and in the aggregate would not have a
QVC Material Adverse Effect. All returns filed by QVC and each of the QVC
Subsidiaries are complete and accurate in all material respects. QVC and each of
the QVC Subsidiaries has timely paid (or QVC has paid on its behalf) all taxes
shown as due on such returns, and the most recent financial statements contained
in the QVC SEC Reports reflect an adequate reserve for all taxes payable by QVC
and the QVC Subsidiaries for all taxable periods and portions thereof accrued
through the date of such financial statements. Except as set forth in Section
3.12(a) of the QVC Disclosure Schedule, no deficiencies for any taxes have been
proposed, asserted or assessed against QVC or any QVC Subsidiary that are not
adequately reserved for, except for deficiencies that individually or in the
aggregate would not have a QVC Material Adverse Effect, and no requests for
waivers of the time to assess any such taxes have been granted or are pending.
QVC is not nor has it been within 5 years of the date hereof a "United States
real property holding corporation" as defined in Section 897 of the Code.
(b) As used in this Section 3.12, "taxes" shall include all Federal, state,
local and foreign income, franchise, alternative or add-on minimum tax, gross
receipts, transfer, withholding on amounts paid to or by QVC or any QVC
Subsidiary, payroll, employment, license, property, sales, use, excise and other
taxes, tariffs or governmental charges of any nature whatsoever, together with
any interest, penalty or addition to tax attributable to such taxes.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF COMCAST, LIBERTY
AND BUYER
Comcast hereby makes to QVC the representations and warranties set forth
below in Sections 4.01 through 4.06:
SECTION 4.01. Organization and Qualification. Comcast is a corporation
duly incorporated, validly existing and in good standing under the laws of
Pennsylvania and has the requisite power and authority and all necessary
governmental approvals to own, lease and operate its properties and to carry on
its business as it is now being conducted, except where the failure to be so
incorporated, existing or in good standing or to have such power, authority and
governmental approvals would not, individually or in the aggregate, have a
material adverse effect on the business, results of operations or financial
condition of Comcast and its subsidiaries, taken as a whole (a "Comcast Material
Adverse Effect"). Neither Comcast nor any of its subsidiaries is in violation of
any provision of its certificate of incorporation, bylaws or equivalent
organizational documents, except for such violations that would not,
individually or in the aggregate, have a Comcast Material Adverse Effect.
SECTION 4.02. Authority Relative to This Agreement. Comcast has all
necessary corporate power and authority to execute and deliver this Agreement,
to perform its obligations hereunder and to consummate the Transactions. The
execution and delivery of this Agreement by Comcast and the consummation by
Comcast of the Transactions have been duly and validly authorized by all
necessary corporate action and no other corporate proceedings on the part of
Comcast are necessary to authorize this Agreement or to consummate the
Transactions (other than the filing and recordation of appropriate merger
documents as required by Delaware Law). This Agreement has been duly and validly
executed and delivered by Comcast and, assuming the due authorization, execution
and delivery by QVC and Liberty, constitutes the legal, valid and binding
obligation of Comcast, enforceable against Comcast in accordance with its terms.
SECTION 4.03. No Conflict; Required Filings and Consents. (a) The
execution and delivery of this Agreement by Comcast do not, and the performance
of the Transactions by Comcast will not, (i) conflict with or violate the
certificate of incorporation or by-laws or equivalent organizational documents
of Comcast, (ii) conflict with or violate any law, rule, regulation, order,
judgment or decree applicable to Comcast or by
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which any property or asset of Comcast is bound or affected, or (iii) result in
any breach of or constitute a default (or an event which with notice or lapse of
time or both would become a default) under, result in the loss of a material
benefit under or give to others any right of termination, amendment,
acceleration, increased payments or cancellation of, or result in the creation
of a lien or other encumbrance on any property or asset of Comcast pursuant to,
any note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or any other instrument or obligation to which Comcast is a
party or by which Comcast or any property or asset of Comcast is bound or
affected, except in the case of clauses (ii) and (iii), for any such conflicts,
violations, breaches, defaults or other occurrences which would not prevent or
delay consummation of the Merger in any material respect, or otherwise prevent
Comcast from performing its obligations under this Agreement in any material
respect, and would not, individually or in the aggregate, have a Comcast
Material Adverse Effect.
(b) The execution and delivery of this Agreement by Comcast do not, and the
performance of this Agreement and the consummation of the Transactions by
Comcast will not, require any consent, approval, authorization or permit of, or
filing with or notification to, any Governmental Entity, except (i) for (A)
applicable requirements, if any, of the Exchange Act and state takeover laws,
(B) the pre-merger notification requirements of the HSR Act, and (C) filing and
recordation of appropriate merger and similar documents as required by Delaware
Law and (ii) where failure to obtain such consents, approvals, authorizations or
permits, or to make such filings or notifications, would not prevent or delay
consummation of the Merger in any material respect, or otherwise prevent Comcast
from performing its obligations under this Agreement in any material respect,
and would not, individually or in the aggregate, have a Comcast Material Adverse
Effect.
SECTION 4.04. SEC Filings, Financial Statements. (a) Comcast has filed
all forms, reports and documents required to be filed by it with the SEC since
December 31, 1991, and has heretofore made available to QVC, in the form filed
with the SEC (excluding any exhibits thereto), (i) its Annual Reports on Form
10-K for the fiscal years ended December 31, 1991, 1992 and 1993, respectively,
(ii) its Quarterly Report on Form 10-Q for the quarter ended March 31, 1994,
(iii) all proxy statements relating to Comcast's meetings of stockholders
(whether annual or special) held since January 1, 1992, and (iv) all other
forms, reports and other registration statements (other than Quarterly Reports
on Form 10-Q not referred to in clause (ii) above and preliminary materials)
filed by Comcast with the SEC since December 31, 1991 (the forms, reports and
other documents referred to in clauses (i), (ii), (iii), and (iv) above being
referred to herein, collectively, as the "Comcast SEC Reports"). The Comcast SEC
Reports and any other forms, reports and other documents filed by Comcast with
the SEC after the date of this Agreement (x) were or will be prepared in
accordance with the requirements of the Securities Act and the Exchange Act, as
the case may be, and the rules and regulations thereunder and (y) did not at the
time they were filed, or will not at the time they are filed, contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not misleading.
(b) Each of the consolidated financial statements (including, in each case,
any notes thereto) contained in the Comcast SEC Reports was prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods indicated (except as may be indicated in the notes
thereto) and each fairly presented the consolidated financial position, results
of operations and cash flows of Comcast and the consolidated Comcast
subsidiaries as at the respective dates thereof and for the respective periods
indicated therein (subject, in the case of unaudited statements, to normal and
recurring year-end adjustments which were not and are not expected, individually
or in the aggregate, to be material in amount). Since December 31, 1993, there
has been no change in any of the significant accounting (including tax
accounting) policies, practices or procedures of Comcast.
SECTION 4.05. Brokers. No broker, finder or investment banker (other than
Lazard Freres & Co.) is entitled to any brokerage, finder's or other fee or
commission in connection with the Merger and the Transactions based upon
arrangements made by or on behalf of Comcast.
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Liberty hereby makes to QVC the representations and warranties set forth
below in Sections 4.06 through 4.10:
SECTION 4.06. Organization and Qualification. Liberty is a corporation
duly incorporated, validly existing and in good standing under the laws of
Delaware and has the requisite power and authority and all necessary
governmental approvals to own, lease and operate its properties and to carry on
its business as it is now being conducted, except where the failure to be so
incorporated, existing or in good standing or to have such power, authority and
governmental approvals would not, individually or in the aggregate, have a
material adverse effect on the business, results of operations or financial
condition of Liberty and its subsidiaries, taken as a whole (a "Liberty Material
Adverse Effect"). Neither Liberty nor any of its subsidiaries is in violation of
any provision of its certificate of incorporation, bylaws or equivalent
organizational documents, except for such violations that would not,
individually or in the aggregate, have a Liberty Material Adverse Effect.
SECTION 4.07. Authority Relative to This Agreement. Liberty has all
necessary corporate power and authority to execute and deliver this Agreement,
to perform its obligations hereunder and to consummate the Transactions. The
execution and delivery of this Agreement by Liberty and the consummation by
Liberty of the Transactions have been duly and validly authorized by all
necessary corporate action and no other corporate proceedings on the part of
Liberty are necessary to authorize this Agreement or to consummate the
Transactions (other than the filing and recordation of appropriate merger
documents as required by Delaware Law). This Agreement has been duly and validly
executed and delivered by Liberty and, assuming the due authorization, execution
and delivery by QVC and Comcast, constitutes the legal, valid and binding
obligation of Liberty, enforceable against Liberty in accordance with its terms.
SECTION 4.08. No Conflict; Required Filings and Consents. (a) The
execution and delivery of this Agreement by Liberty do not, and the performance
of the Transactions by Liberty will not, (i) conflict with or violate the
certificate of incorporation or by-laws or equivalent organizational documents
of Liberty, (ii) conflict with or violate any law, rule, regulation, order,
judgment or decree applicable to Liberty or by which any property or asset of
Liberty is bound or affected, or (iii) result in any breach of or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, result in the loss of a material benefit under or give to others
any right of termination, amendment, acceleration, increased payments or
cancellation of, or result in the creation of a lien or other encumbrance on any
property or asset of Liberty pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or any other instrument
or obligation to which Liberty is a party or by which Liberty or any property or
asset of Liberty is bound or affected, except in the case of clauses (ii) and
(iii), for any such conflicts, violations, breaches, defaults or other
occurrences which would not prevent or delay consummation of the Merger in any
material respect, or otherwise prevent Liberty from performing its obligations
under this Agreement in any material respect, and would not, individually or in
the aggregate, have a Liberty Material Adverse Effect.
(b) The execution and delivery of this Agreement by Liberty do not, and the
performance of this Agreement and the consummation of the Transactions by
Liberty will not, require any consent, approval, authorization or permit of, or
filing with or notification to, any Governmental Entity, except (i) for (A)
applicable requirements, if any, of the Exchange Act and state takeover laws,
(B) the pre-merger notification requirements of the HSR Act applicable to the
transactions contemplated by the letter agreement dated August 4, 1994 among
Comcast, Liberty and TCI (the "Bidding Agreement") and (C) filing and
recordation of appropriate merger and similar documents as required by Delaware
Law and (ii) where failure to obtain such consents, approvals, authorizations or
permits, or to make such filings or notifications, would not prevent or delay
consummation of the Merger in any material respect, or otherwise prevent Liberty
from performing its obligations under this Agreement in any material respect,
and would not, individually or in the aggregate, have a Liberty Material Adverse
Effect.
SECTION 4.09. SEC Filings, Financial Statements. (a) Liberty has filed
all forms, reports and documents required to be filed by it with the SEC since
December 31, 1991, and has heretofore made available to QVC, in the form filed
with the SEC (excluding any exhibits thereto), (i) its Annual Reports on Form
10-K for the fiscal years ended December 31, 1991, 1992 and 1993, respectively,
(ii) its Quarterly Report on Form 10-Q for the quarter ended March 31, 1994,
(iii) all proxy statements relating to Liberty's
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meetings of stockholders (whether annual or special) held since January 1, 1992,
and (iv) all other forms, reports and other registration statements (other than
Quarterly Reports on Form 10-Q not referred to in clause (ii) above and
preliminary materials) filed by Liberty with the SEC since December 31, 1991
(the forms, reports and other documents referred to in clauses (i), (ii), (iii),
and (iv) above being referred to herein, collectively, as the "Liberty SEC
Reports"). The Liberty SEC Reports and any other forms, reports and other
documents filed by Liberty with the SEC after the date of this Agreement (x)
were or will be prepared in accordance with the requirements of the Securities
Act and the Exchange Act, as the case may be, and the rules and regulations
thereunder and (y) did not at the time they were filed, or will not at the time
they are filed, contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary in order to make the
statements made therein, in the light of the circumstances under which they were
made, not misleading.
(b) Each of the consolidated financial statements (including, in each case,
any notes thereto) contained in the Liberty SEC Reports was prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods indicated (except as may be indicated in the notes
thereto) and each fairly presented the consolidated financial position, results
of operations and cash flows of Liberty and the consolidated Liberty
subsidiaries as at the respective dates thereof and for the respective periods
indicated therein (subject, in the case of unaudited statements, to normal and
recurring year-end adjustments which were not and are not expected, individually
or in the aggregate, to be material in amount). Since December 31, 1993, there
has been no change in any of the significant accounting (including tax
accounting) policies, practices or procedures of Liberty, except in connection
with the business combination transaction between Liberty and
Tele-Communications, Inc.
SECTION 4.10. Brokers. No broker, finder or investment banker (other than
Lazard Freres & Co.) is entitled to any brokerage, finder's or other fee or
commission in connection with the Merger and the Transactions based upon
arrangements made by or on behalf of Liberty.
Buyer, Comcast and Liberty each hereby makes to QVC the representations and
warranties in respect of Buyer set forth below in Sections 4.11 through 4.15:
SECTION 4.11. Organization and Qualification. Buyer is a corporation duly
incorporated, validly existing and in good standing under the laws of Delaware
and has the requisite power and authority and all necessary governmental
approvals to own, lease and operate its properties and to carry on its business
as it is now being conducted, except where the failure to be so incorporated,
existing or in good standing or to have such power, authority and governmental
approvals would not, individually or in the aggregate, have a material adverse
effect on the business, results of operations or financial condition of Buyer
and its subsidiaries, taken as a whole (a "Buyer Material Adverse Effect").
Since the date of its incorporation, Buyer has not engaged in any activities
other than in connection with or as contemplated by this Agreement or in
connection with arranging any financing required to consummate Transactions.
Buyer does not have any operating subsidiaries.
SECTION 4.12. Certificate of Incorporation and Bylaws. Buyer has
heretofore made available to QVC a complete and correct copy of its certificate
of incorporation and bylaws, each as amended to the date hereof. Such
certificates of incorporation and bylaws are in full force and effect. Buyer is
not in violation of its certificate of incorporation or bylaws.
SECTION 4.13. Authority Relative to This Agreement. Buyer has all
necessary corporate power and authority to execute and deliver this Agreement,
to perform its obligations hereunder and to consummate the Transactions. The
execution and delivery of this Agreement by Buyer and the consummation by Buyer
of the Transactions have been duly and validly authorized by all necessary
corporate action and no other corporate proceedings on the part of Buyer are
necessary to authorize this Agreement or to consummate the Transactions (other
than the filing and recordation of appropriate merger documents as required by
Delaware Law). This Agreement has been duly and validly executed and delivered
by Buyer and, assuming the due authorization, execution and delivery by QVC,
constitutes the legal, valid and binding obligation of Buyer, enforceable
against Buyer in accordance with its terms.
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SECTION 4.14. No Conflict; Required Filings and Consents. (a) The
execution and delivery of this Agreement by Buyer do not, and the performance of
the Transactions by Buyer will not, (i) conflict with or violate the certificate
of incorporation or by-laws or equivalent organizational documents of Buyer,
(ii) conflict with or violate any law, rule, regulation, order, judgment or
decree applicable to Buyer or by which any property or asset of Buyer is bound
or affected, or (iii) result in any breach of or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
result in the loss of a material benefit under or give to others any right of
termination, amendment, acceleration, increased payments or cancellation of, or
result in the creation of a lien or other encumbrance on any property or asset
of Buyer pursuant to, any note, bond, mortgage, indenture, contract, agreement,
lease, license, permit, franchise or any other instrument or obligation to which
Buyer is a party or by which Buyer or any property or asset of Buyer is bound or
affected, except in the case of clauses (ii) and (iii), for any such conflicts,
violations, breaches, defaults or other occurrences which would not prevent or
delay consummation of the Merger in any material respect, or otherwise prevent
Buyer from performing its obligations under this Agreement in any material
respect, and would not, individually or in the aggregate, have a Buyer Material
Adverse Effect.
(b) The execution and delivery of this Agreement by Buyer do not, and the
performance of this Agreement and the consummation of the Transactions by Buyer
will not, require any consent, approval, authorization or permit of, or filing
with or notification to, any Governmental Entity, except (i) for (A) applicable
requirements, if any, of the Exchange Act and state takeover laws, (B) the
pre-merger notification requirements of the HSR Act and (C) filing and
recordation of appropriate merger and similar documents as required by Delaware
Law and (ii) where failure to obtain such consents, approvals, authorizations or
permits, or to make such filings or notifications, would not prevent or delay
consummation of the Merger in any material respect, or otherwise prevent Buyer
from performing its obligations under this Agreement in any material respect,
and would not, individually or in the aggregate, have a Buyer Material Adverse
Effect.
SECTION 4.15. Brokers. No broker, finder or investment banker (other than
Lazard Freres & Co.) is entitled to any brokerage, finder's or other fee or
commission in connection with the Merger and the Transactions based upon
arrangements made by or on behalf of Buyer.
ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 5.01. Conduct of Business by QVC Pending the Merger. QVC
covenants and agrees that, between the date of this Agreement and the Effective
Time, unless Buyer shall have consented in writing (such consent not to be
unreasonably withheld), QVC and its respective subsidiaries shall not, except as
set forth on Schedule 5.01 to the QVC Disclosure Schedule:
(a) conduct its business in any manner other than in the ordinary
course of business consistent with past practice;
(b) amend or otherwise change the certificate of incorporation or
by-laws of QVC;
(c) issue, grant, sell, pledge, redeem or acquire for value (i) any of
its or their securities, including options thereon (other than the issuance
of equity securities upon the conversion of outstanding convertible
securities or in connection with any dividend reinvestment plan or by any
QVC Plan with an employee stock fund or employee stock ownership plan
feature, consistent with applicable securities laws, or the exercise of
options or warrants outstanding as of the date of this Agreement and in
accordance with the terms of such options or warrants in effect on the date
of this Agreement) or (ii) any material assets, except for sales of assets
in the ordinary course of business;
(d) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with respect
to any of its capital stock, except dividends declared and paid by a
subsidiary of QVC only to QVC, or subdivide, reclassify, recapitalize,
split, combine or exchange any of
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its shares of capital stock (other than in connection with the exercise of
currently outstanding options or warrants);
(e) 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;
(f) 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;
(g) 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);
(h) acquire by merger or consolidation, or by purchase of assets, or
by any other manner, any material business;
(i) mortgage or otherwise encumber or subject to any lien any of its
properties or assets that are material to it and its subsidiaries taken as
a whole, except for liens in connection with indebtedness incurred in
connection with the Merger as permitted by clause (e) above; or
(j) authorize any of, or commit or agree to take any of, the foregoing
actions.
ARTICLE VI
ADDITIONAL COVENANTS
SECTION 6.01. Access to Information; Confidentiality. (a) From the date
hereof to the Effective Time, QVC shall (and shall cause its subsidiaries and
officers, directors, employees, auditors and agents to) afford the officers,
employees and agents of Comcast and Liberty (the "Respective Representatives")
reasonable access at all reasonable times to its officers, employees, agents,
properties, offices, plants and other facilities, books and records, and shall
furnish such Respective Representatives with all financial, operating and other
data and information as may be reasonably requested. All information obtained
will be subject to the Confidentiality Agreement, dated as of July 13, 1994,
between Comcast and QVC, and the Confidentiality Agreement, dated as of July 21,
1994, between Liberty and QVC (collectively, the "Confidentiality Agreements").
(b) No investigation pursuant to this Section 6.01 shall affect any
representation or warranty in this Agreement of any party hereto or any
condition to the obligations of the parties hereto.
SECTION 6.02. No Solicitation. QVC shall not, nor shall it 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 it 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, however, that nothing
contained in this Section 6.02 shall prohibit QVC, or its Board of Directors
from (i) taking and disclosing to its stockholders a position contemplated by
Exchange Act Rule 14e-2 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 QVC Board of Directors on behalf of QVC may upon the
unsolicited request of a third party furnish information or data (including,
without limitation,
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confidential information or data) relating to QVC 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 QVC Board of Directors
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 QVC Board of Directors to act in a manner that is consistent with
its fiduciary obligations under applicable law. QVC shall promptly advise Buyer
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 QVC
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 Buyer
and shall consult, and thereafter shall continue to consult, with Buyer. If QVC
is required by this Section 6.02 to give notice of a request, Alternative
Transaction proposal or inquiry, it shall keep Buyer reasonably informed of the
status and details of any such request, Alternative Transaction, inquiry or
proposal (or any amendment to any proposal). Nothing in this Section 6.02 shall
(x) permit QVC to enter into any agreement with respect to an Alternative
Transaction during the term of this Agreement (it being agreed that during the
term of this Agreement QVC shall not enter into any agreement with any person
that provides for, or in any way facilitates, an Alternative Transaction, other
than a confidentiality agreement in customary form) or (y) affect any other
obligation of QVC under this Agreement. "Alternative Transaction" means a
transaction or series of related transactions (other than the Transactions)
resulting in (a) any change of control of QVC, (b) any merger or consolidation
of QVC in which another person acquires 25% or more of the aggregate voting
power of all voting securities of it or the surviving corporation, as the case
may be, (c) any tender offer or exchange offer for, or any acquisitions of, any
securities of QVC which, if consummated, would result in another person owning
25% or more of the aggregate voting power of all voting securities of it or (d)
any sale or other disposition of assets of QVC 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 QVC 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 QVC in good faith.
SECTION 6.03. Directors' and Officers' Indemnification and
Insurance. (a) From and after the Effective Time, the Surviving Corporation
shall indemnify, defend and hold harmless the present and former officers and
directors of QVC (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 (a "Claim"), based in whole or in part on the
fact that such person is or was a director or officer of QVC and arising out of
actions or omissions occurring at or prior to the Effective Time (including,
without limitation, the transactions contemplated by this Agreement), in each
case to the full extent permitted under Delaware Law (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 Delaware Law, upon
receipt from the Indemnified Party to whom expenses are advanced of any
undertaking to repay such advances required under Delaware Law).
(b) For a period of three years after the Effective Time, the Surviving
Corporation shall cause to be maintained in effect the current policies of
directors' and officers' liability insurance maintained by QVC (provided that
the Surviving Corporation may substitute therefor policies of at least the same
coverage and amounts containing terms and conditions which are no less
advantageous to such officers and directors) with respect to claims arising from
facts or events which occurred before the Effective Time; provided, however,
that in no event shall the Surviving Corporation be required to expend pursuant
to this Section 6.03(b) more than an amount equal to 200% of the current annual
premiums paid by QVC for such insurance (which premiums QVC represents and
warrants to be approximately $700,000 in the aggregate on an annualized basis in
addition to the remaining premium to be paid during the next twelve months in
connection with a prior acquisition by QVC).
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(c) This Section 6.03 is intended to be for the benefit of, and shall be
enforceable by, the Indemnified Parties, their heirs and personal
representatives and shall be binding on the Surviving Corporation and its
respective successors and assigns.
SECTION 6.04. Notification of Certain Matters. QVC shall give prompt
notice to Buyer, and Buyer shall give prompt notice to QVC, of (a) the
occurrence, or non-occurrence, of any event the occurrence, or non-occurrence,
of which would be likely to cause (i) any representation or warranty contained
in this Agreement to be untrue or inaccurate or (ii) any covenant, condition or
agreement contained in this Agreement not to be complied with or satisfied and
(b) any failure of QVC or Buyer (or Comcast or Liberty), as the case may be, to
comply with or satisfy any covenant, condition or agreement to be complied with
or satisfied by it hereunder; provided, however, that the delivery of any notice
pursuant to this Section 6.04 shall not limit or otherwise affect the remedies
available hereunder to the party receiving such notice.
SECTION 6.05. Further Action; Best Efforts. (a) Upon the terms and
subject to the conditions hereof, each of the parties hereto shall (i) make
promptly its respective filings, and thereafter make any other required
submissions, under the HSR Act with respect to the Transactions, and (ii) use
its best efforts to take, or cause to be taken, all appropriate action, and to
do, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations or otherwise to consummate and make effective
the Transactions, including, without limitation, using its best efforts to
obtain all financing necessary to consummate the Transactions as well as all
licenses, permits, waivers, orders, consents, approvals, authorizations,
qualifications and orders of Governmental Entities and parties to contracts with
QVC and its subsidiaries as are necessary for the consummation of the
Transactions. In case at any time after the Effective Time any further action is
necessary or desirable to carry out the purposes of this Agreement, the proper
officers and directors of each party to this Agreement shall use their best
efforts to take all such action.
(b) Each party shall use its best efforts not to take any action, or enter
into any transaction, which would cause any of its representations or warranties
contained in this Agreement to be untrue or result in a breach of any covenant
made by it in this Agreement.
SECTION 6.06. Public Announcements. Buyer, Comcast, Liberty and QVC shall
consult with each other before issuing any press release or otherwise making any
public statements with respect to this Agreement or any Transaction and shall
not issue any such press release or make any such public statement without the
prior consent of the other parties, which consent shall not be unreasonably
withheld; provided, however, that a party may, without the prior consent of the
other parties, issue such press release or make such public statement as may be
required by law or any listing agreement or arrangement to which Buyer, Comcast,
Liberty or QVC is a party with a national securities exchange or the National
Association of Securities Dealers, Inc. Automated Quotation System if it has
used all reasonable efforts to consult with the other parties and to obtain such
parties' consent but has been unable to do so in a timely manner.
SECTION 6.07. Conveyance Taxes. Buyer and QVC shall cooperate in the
preparation, execution and filing of all returns, questionnaires, applications,
or other documents regarding any real property transfer or gains, sales, use,
transfer, value added, stock transfer and stamp taxes, any transfer, recording,
registration and other fees, and any similar taxes which become payable in
connection with the Transactions that are required or permitted to be filed on
or before the Effective Time.
SECTION 6.08. Gains Tax. Buyer shall pay any New York State Tax on Gains
Derived from Certain Real Property Transfers (the "Gains Tax"), New York State
Real Estate Transfer Tax and New York City Real Property Transfer Tax (the
"Transfer Taxes") and any similar taxes in any other jurisdiction (and any
penalties and interest with respect to such taxes), which become payable in
connection with the Offer and the Merger, on behalf of the stockholders of QVC.
Buyer and QVC shall cooperate in the preparation, execution and filing of any
required returns with respect to such taxes (including returns on behalf of the
stockholders of QVC) and in the determination of the portion of the
consideration allocable to the real property of QVC and the QVC Subsidiaries in
New York State and City (or in any other jurisdiction, if applicable). The terms
of the Offer and Proxy Statement shall provide that the stockholders of QVC
shall be deemed to have agreed to be bound by the allocation established
pursuant to this Section 6.08 in the preparation of any return with respect to
the Gains Tax and the Transfer Taxes and any similar taxes, if applicable.
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SECTION 6.09. Obligations of Buyer. Comcast and Liberty each agree to
take all action necessary to cause Buyer and the Surviving Corporation to
perform their respective obligations under this Agreement and to consummate, and
cause MergerCo to consummate, the Offer and the Merger on the terms and
conditions set forth in this Agreement. Comcast and Liberty shall be jointly and
severally liable for any breach of any representation, warranty, covenant or
agreement of Buyer and for any breach of this covenant.
SECTION 6.10. Severance Policy; Employee Benefits. (a) Comcast, Liberty
and Buyer will cause the Surviving Corporation to maintain for a period ending
on the second anniversary of the Effective Time, without interruption, 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 such employees of QVC and its subsidiaries, as
applicable, as in effect on the date hereof. Notwithstanding the foregoing, for
a period ending on the second anniversary of the Effective Time, Comcast,
Liberty and Buyer will cause the Surviving Corporation to provide to all
employees of QVC and its subsidiaries severance pay and benefits which are no
less favorable than under the applicable severance plans, programs and policies
of QVC and its subsidiaries, as applicable, as in effect on the date hereof.
(b) Immediately prior to consummation of the Offer, Buyer shall establish
with a trustee satisfactory to QVC and Buyer, a "Rabbi" trust, in a form
reasonably acceptable to QVC, and shall deposit in such trust cash in an amount
sufficient to satisfy all obligations under QVC Stock Options. The terms of such
trust shall provide that payments shall be made to the holders of QVC Stock
Options following the Effective Time, in accordance with the provisions of
Section 2.04, upon delivery to the trustee by or on behalf of the option holder
of a copy of the option agreement evidencing such QVC Stock Options (or other
appropriate documentation) and certification by the option holder that such
option holder is entitled to such payment under the terms of such option
agreement and Section 2.04.
SECTION 6.11. FCC Approvals. If not already withdrawn, within five
business days after the date hereof QVC will withdraw any applications pending
with the Federal Communications Commission (the "FCC") relating to the transfer
of control of any licenses or other permits issued by the FCC to QVC or any QVC
Subsidiary. QVC will not make any applications to the FCC in respect of the
Transactions without Buyer's prior approval.
SECTION 6.12. Tax Certification. At any time during the period beginning
on the date hereof and ending on the Effective Time, QVC shall provide to Buyer,
within two business days of a request by Buyer, a certificate signed by QVC to
the effect that QVC is not, nor has it been within 5 years of the date thereof,
a "United States real property holding corporation" as defined in Section 897 of
the Code.
ARTICLE VII
CLOSING CONDITIONS
SECTION 7.01. Conditions to Obligations of Each Party to Effect the
Merger. The respective obligations of each party to effect the Merger and the
Transactions shall be subject to the satisfaction at or prior to the Effective
Time of the following conditions, any or all of which may be waived, in whole or
in part, to the extent permitted by applicable law:
(a) Stockholder Approval. If required by Delaware Law, this Agreement
and the Merger shall have been approved and adopted by the requisite vote
of the stockholders of QVC.
(b) No Order. 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 this Agreement; provided,
however, that the parties shall use their reasonable efforts to cause any
such decree, judgment, injunction or other order to be vacated or lifted.
(c) Other Approvals. Other than the filing of merger documents in
accordance with Delaware Law, all authorizations, consents, waivers, orders
or approvals required to be obtained, and all filings,
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notices or declarations required to be made, by Comcast, Liberty or Buyer
and QVC prior to the consummation of the Merger and the Transactions shall
have been obtained from, and made with, all required Governmental Entities,
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 QVC and the QVC
Subsidiaries, taken as a whole.
(d) The Offer. Buyer shall have purchased shares pursuant to the
Offer.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01. Termination. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval of this Agreement
and the Merger by the stockholders of QVC:
(a) by mutual consent of QVC and Buyer;
(b) prior to the purchase of Shares pursuant to the Offer, (x) by
Buyer or QVC upon termination of the Offer by Buyer pursuant to Annex I,
(y) by Buyer upon a breach of any covenant or agreement on the part of QVC
set forth in this Agreement which has not been cured, or if any
representation or warranty of QVC shall have become untrue, in either case
such that such breach or untruth is incapable of being cured by February
28, 1995 or (z) by QVC in the event of a breach of any representation,
warranty, agreement or covenant of Comcast, Liberty or Buyer set forth in
this Agreement, provided that such breach (other than the covenant
contained in Section 6.10(b)) 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;
(c) by either Buyer or QVC, if any permanent injunction or action by
any Governmental Entity preventing the consummation of the Merger shall
have become final and nonappealable;
(d) by either Buyer or QVC, if the Offer shall not have been
consummated before February 28, 1995, unless, in the case of termination by
Buyer, Buyer shall not have purchased Shares pursuant to the Offer by
reason of any failure by Buyer, Comcast or Liberty to fulfill its
obligations hereunder; or
(e) by Buyer or QVC if (i) the Board of Directors of QVC shall
withdraw, modify or change its recommendation so that it is not in favor of
this Agreement, the Offer or the Merger or shall have resolved to do any of
the foregoing or (ii) the Board of Directors of QVC shall have recommended
or resolved to recommend to its stockholders an Alternative Transaction,
provided that, in the case of any such termination by QVC, simultaneously
with such termination it complies with Section 8.05(b) of this Agreement.
The right of any party hereto to terminate this Agreement pursuant to this
Section 8.01 shall remain operative and in full force and effect regardless of
any investigation made by or on behalf of any party hereto, any person
controlling any such party or any of their respective officers or directors,
whether prior to or after the execution of this Agreement.
SECTION 8.02. Effect of Termination. Except as provided in Section 8.05
or Section 9.01, in the event of the termination of this Agreement pursuant to
Section 8.01, this Agreement shall forthwith become void, there shall be no
liability on the part of any party hereto, or any of their respective officers
or directors, to the other and all rights and obligations of any party hereto
shall cease; provided, however, that nothing herein shall relieve any party from
liability for the wilful breach of any of its representations, warranties,
covenants or agreements set forth in this Agreement.
SECTION 8.03. Amendment. This Agreement may be amended by the parties
hereto by action taken by or on behalf of their respective Boards of Directors
at any time prior to the Effective Time; provided, however, that, after approval
of this Agreement and the Merger by the stockholders of QVC, no amendment,
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<PAGE> 27
which under applicable law may not be made without the approval of the
stockholders of QVC, may be made without such approval. This Agreement may not
be amended except by an instrument in writing signed by the parties hereto.
SECTION 8.04. Waiver. At any time prior to the Effective Time, either
party hereto may (a) extend the time for the performance of any of the
obligations or other acts of the other party hereto, (b) waive any inaccuracies
in the representations and warranties of the other party contained herein or in
any document delivered pursuant hereto and (c) waive compliance by the other
party with any of the agreements or conditions contained herein. Any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed by the party or parties to be bound thereby.
SECTION 8.05. Fees, Expenses and Other Payments. (a) All costs and
expenses, including, without limitation, fees and disbursements of counsel,
financial advisors and accountants, incurred by the parties hereto shall be
borne solely and entirely by the party which has incurred such costs and
expenses (with respect to such party, its "Expenses"); provided, however, that
all costs and expenses related to printing and mailing the Proxy Statement shall
be borne equally by QVC and Buyer.
(b) Except to the extent earlier payment is required pursuant to Section
8.01(e), QVC agrees that if this Agreement shall be terminated by Buyer or QVC
pursuant to Section 8.01(e), then QVC will pay to Buyer an amount equal to
$55,000,000, which amount is inclusive of all expenses of Buyer, Comcast and
Liberty. Any payment required to be made pursuant to this paragraph (b) shall be
made as promptly as practicable but not later than two business days after
termination of this Agreement and, in any such case, shall be made by wire
transfer of immediately available funds to an account designated by Buyer.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01. Effectiveness of Representations, Warranties and
Agreements. (a) Except as set forth in Section 9.01(b), the representations,
warranties and agreements of each party hereto shall remain operative and in
full force and effect, regardless of any investigation made by or on behalf of
any other party hereto, any person controlling any such party or any of their
respective officers or directors, whether prior to or after the execution of
this Agreement.
(b) The representations, warranties and agreements in this Agreement shall
terminate at the Effective Time or upon the termination of this Agreement
pursuant to Article VIII, except that the agreements set forth in Articles I, II
and IX, and Sections 6.03, 6.09, 6.10 and 6.11 shall survive the Effective Time
and those set forth in the last sentence of Section 6.01(a) and Sections 8.02
and 8.05 and Article IX shall survive termination.
SECTION 9.02. Notices. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made as of the date delivered or transmitted, and shall be effective upon
receipt, if delivered personally, mailed by registered or certified mail
(postage prepaid, return receipt requested) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
changes of address) or sent by electronic transmission to the telecopier number
specified below:
(a) If to Comcast or Buyer:
Comcast Corporation
1500 Market Street
Philadelphia, Pennsylvania 19102-4735
Attention: General Counsel
Telecopier No.: (215) 981-7794
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with a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, NY 10017
Attention: Dennis S. Hersch
Telecopier No.: (212) 450-4800
(b) If to Liberty or Buyer:
Liberty Media Corporation
8101 East Prentice Avenue
Suite 500
Englewood, CO 80111
Attention: President
Telecopier No.: (303) 721-5415
with a copy to:
Baker & Botts
885 Third Avenue
New York, NY 10022
Attention: Jerome H. Kern
Telecopier No.: (212) 705-5125
(c) If to QVC:
QVC, Inc.
1365 Enterprise Drive
Goshen Corporate Park
West Chester, PA 19380
Attention: Corporate Secretary
Telecopier No.: (610) 430-2380
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, NY 10019
Attention: Pamela S. Seymon
Telecopier No.: (212) 403-2000
SECTION 9.03. Certain Definitions. For purposes of this Agreement, the
term:
(a) "affiliate" means a person that, directly or indirectly, through
one or more intermediaries, controls, is controlled by, or is under common
control with, the first mentioned person;
(b) "business day" means any day other than a day on which (i) banks
in the State of New York are authorized or obligated to be closed or (ii)
the SEC or NYSE is closed;
(c) "control" (including the terms "controlled," "controlled by" and
"under common control with") means the possession, directly or indirectly
or as trustee or executor, of the power to direct or cause the direction of
the management or polices of a person, whether through the ownership of
stock or as trustee or executor, by contract or credit arrangement or
otherwise; and
22
<PAGE> 29
(d) "subsidiary" or "subsidiaries" of any person means any
corporation, partnership, joint venture or other legal entity of which such
person (either alone or through or together with any other subsidiary)
owns, directly or indirectly, 50% or more of the stock or other equity
interests, the holders of which are generally entitled to vote for the
election of the board of directors or other governing body of such
corporation or other legal entity.
SECTION 9.04. Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 9.05. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible to the fullest extent
permitted by applicable law in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.
SECTION 9.06. Entire Agreement. This Agreement (together with the
Exhibits, the QVC Disclosure Schedule, the Confidentiality Agreements and the
other documents delivered in connection herewith), constitutes the entire
agreement of the parties and supersedes all prior agreements and undertakings,
both written and oral, between the parties, or any of them, with respect to the
subject matter hereof.
SECTION 9.07. Assignment. This Agreement shall not be assigned by
operation of law or otherwise and any purported assignment shall be null and
void, provided that any of Comcast, Liberty or Buyer may assign its rights, but
not its obligations, under this Agreement to any affiliate of Comcast, Liberty
or Buyer.
SECTION 9.08. Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied (other than the provisions of Section 6.03 and
6.10, which provisions are intended to benefit and may be enforced by the
beneficiaries thereof), is intended to or shall confer upon any person any
right, benefit or remedy of any nature whatsoever under or by reason of this
Agreement.
SECTION 9.09. Governing Law. Except to the extent that Delaware Law may
be applicable to the Merger and the rights of the stockholders of QVC, this
Agreement shall be governed by, and construed in accordance with, the laws of
the State of New York, regardless of the laws that might otherwise govern under
applicable principles of conflicts of law.
SECTION 9.10. Enforcement of the Agreement. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof, this being in addition to
any other remedy to which they are entitled at law or in equity.
SECTION 9.11. Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
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<PAGE> 30
IN WITNESS WHEREOF, Comcast, Liberty, Buyer and QVC have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
COMCAST CORPORATION
By /s/ BRIAN L. ROBERTS
--------------------------------------
Name: Brian L. Roberts
Title: President
LIBERTY MEDIA CORPORATION
By /s/ PETER BARTON
--------------------------------------
Name: Peter Barton
Title: President
COMCAST QMERGER, INC.
By /s/ BRIAN L. ROBERTS
--------------------------------------
Name: Brian L. Roberts
Title: President
QVC, INC.
By /s/ NEAL S. GRABELL
--------------------------------------
Name: Neal S. Grabell
Title: General Counsel, Senior Vice
President and Secretary
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<PAGE> 31
ANNEX I
Notwithstanding any other provision of the Offer, Buyer shall not be
required to accept for payment or pay for any Shares, and may terminate the
Offer, if (i) the Shares tendered pursuant to the Offer by the expiration of the
Offer and not withdrawn, together with the Shares agreed to be contributed by
Comcast and Liberty to Buyer pursuant to the Bidding Agreement (as in effect on
the date hereof), represent, on a fully diluted basis less than a majority of
the outstanding Common Shares, in each case calculated on a fully diluted basis
(the "Minimum Condition"), (ii) Buyer has not 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 under the HSR Act applicable to the proposed Transactions and
the transactions contemplated by the Bidding Agreement shall not have expired or
been terminated, provided that prior to December 31, 1994, Buyer 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 Buyer from terminating the Offer or failing to
extend the Offer by reason of the nonsatisfaction of any other condition of the
Offer), (iv) Buyer 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 or (v) at any time 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 Buyer or the consummation by
Buyer 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 Buyer or its affiliates of all or any portion of
the business or assets of QVC and its subsidiaries, taken as a whole, or of
Buyer or any of its affiliates, or to compel Buyer or any of its affiliates
to dispose of or hold separate all or any material portion of the business
or assets of QVC and its subsidiaries, taken as a whole, or of Buyer or any
of its affiliates, (iii) seeking to impose limitations on the ability of
Buyer 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 Buyer or any of its affiliates on all
matters properly presented to QVC's stockholders or (iv) seeking to require
divestiture by Buyer 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 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 Buyer, might,
directly or indirectly, result in any of the consequences referred to in
clauses (i) through (iv) of paragraph (a) above; or
(c) QVC 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 QVC 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 Buyer 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.
A-1
<PAGE> 1
EXHIBIT 5
AGREEMENT
August 4, 1994
Mr. Barry Diller
Arrow Investments, L.P.
1940 Coldwater Canyon
Beverly Hills, California 90210
Dear Mr. Diller:
Reference is made to (i) the Merger Agreement (the "Merger Agreement"),
dated the date hereof, among QVC, Inc. ("QVC"), Comcast Corporation ("Comcast"),
Liberty Media Corporation ("Liberty") and Comcast Qmerger, Inc., (ii) the
Stockholders Agreement, dated as of July 16, 1993, as amended to date (the
Stockholders Agreement"), among Comcast, Barry Diller ("Diller"), Arrow
Investments, L.P. ("Arrow") and certain of their affiliates and (iii) the Equity
Compensation Agreement dated as of December 9, 1992 by and among QVC, Diller and
Arrow (the "Equity Compensation Agreement"). Capitalized terms used but not
defined herein have the meanings set forth in the Merger Agreement.
We agree as follows:
1. The Arrow Group (as defined below) represents and warrants that as of
the date hereof (a) it has good and marketable title to 1,000,000 shares (the
"Shares," which term shall include any shares of Common Stock (as defined below)
issued to the Arrow Group after the date hereof upon the exercise of any Options
(as defined below)) of common stock, par value $.01 per share, of QVC (the
"Common Stock"), (b) all of such Shares are registered in the name of Diller,
entities controlled by Diller or Arrow (collectively, the "Arrow Group"), (c)
the Arrow Group is the holder of presently exercisable options to purchase
3,000,000 shares of Common Stock and options to purchase an additional 3,000,000
shares of Common Stock which are not presently exercisable (collectively, the
"Options"), and (d) each of Diller and Arrow has the legal power, right and
authority to enter into and perform this Agreement, and this Agreement has been
duly executed and delivered by each of Diller and Arrow and constitutes a legal,
valid and binding agreement of each of them. The Shares and Options are
sometimes collectively referred to as the "QVC Securities."
2. Subject to the absence or waiver of any inconsistent agreements, each of
Comcast, Diller and Arrow agrees (for himself or itself and his or its
respective affiliates) that the Stockholders Agreement shall terminate
immediately without any further obligation thereunder, and each of Comcast,
Diller and Arrow further agrees (for himself or itself and his or its respective
affiliates) 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, such Stockholders Agreement (including all rights and
obligations thereunder) and such claims will be restored effective as of the
date hereof and this paragraph will be of no effect effective as of the date
hereof.
3. Diller agrees to vote (as a director of QVC) in favor of the Merger
Agreement and the Transactions, provided that there is not then a bona fide
transaction proposed to QVC or its stockholders which would result in
consideration to the QVC 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 Diller's fiduciary
obligations as a member of the Board of Directors of QVC.
4. From the date hereof until the earlier of consummation of the Merger or
termination of the Merger Agreement:
(a) 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 of the QVC Securities except that the Arrow Group
shall be free to tender Shares pursuant to the Offer (provided that the
Arrow Group shall be permitted to dispose of Shares to QVC in order to
effect cashless exercises of Options), (ii) deposit any QVC Securities
owned by it 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
<PAGE> 2
Mr. Barry Diller
August 4, 1994
to such QVC Securities, except pursuant to paragraph 4(b), or (iv) seek or
solicit any of the foregoing, other than as permitted (as a director of the
Company) under the Merger Agreement.
(b) The Arrow Group agrees 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, Diller will exercise
all of the then exercisable Options provided that arrangements satisfactory
to Diller for the financing of the exercise and the purchase of the Shares
by Comcast have been made.
(c) Unless each Share 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 QVC unless Comcast or Liberty consents.
The foregoing notwithstanding, this paragraph 4 shall 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 the QVC 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) (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.
5. From the date hereof until the earlier of consummation of the Merger or
termination of the Merger Agreement, neither 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.
6. Comcast agrees to cause QVC and the Surviving Corporation (which Comcast
represents and agrees that it has and will maintain the authority to do) to
fulfill and completely discharge all obligations under the Options. Comcast
agrees that, upon consummation of the Offer, unless otherwise agreed to by
Diller, Diller's employment under the Equity Compensation Agreement shall
continue until at least December 12, 1994 (it being agreed that Diller may
perform his services to QVC as provided by the Equity Compensation Agreement on
a non-exclusive basis and without minimum time requirements but will be
reasonably available to facilitate the transition), and QVC shall continue to
pay all expenses incurred by Diller at least through December 12, 1994 on a
basis consistent with past practice. In addition, each of Comcast and Diller
agree that, upon termination of Diller's employment, Comcast shall cause (which
Comcast represents and agrees that it has and will maintain the authority to do)
QVC to execute for the benefit of Diller and the entities included in the Arrow
Group, and provided Diller shall have been paid all amounts due in respect of
the Options and his employment (including payment of Diller's expenses), Diller
shall execute for the benefit of QVC, general releases in a form mutually agreed
to by the parties. This paragraph 6 shall survive termination of this Agreement,
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 QVC.
7. This Agreement shall terminate automatically and simultaneously with the
Merger Agreement in accordance with its terms.
<PAGE> 3
If the foregoing reflects your understanding of our agreement, please
execute this letter agreement in the space provided below. This letter agreement
will be governed by and construed in accordance with the substantive law of the
State of New York.
Very Truly Yours,
COMCAST CORPORATION
By: /s/ BRIAN S. ROBERTS
Name: Brian S. Roberts
Title:
Accepted and Agreed:
/s/ BARRY DILLER
Barry Diller
ARROW INVESTMENTS, L.P.
By: Arrow Investments, Inc.,
its general partner
By: /s/ BARRY DILLER
Name: Barry Diller
Title:
<PAGE> 1
EXHIBIT 6
COMCAST CORPORATION
1500 MARKET STREET
PHILADELPHIA, PA 19102-4735
August 4, 1994
LIBERTY MEDIA CORPORATION
8101 East Prentice Avenue
Suite 500
Denver, Colorado 80111
Gentlemen:
This letter agreement (the "Agreement") confirms our agreement with respect
to the joint acquisition (the "Acquisition") of QVC, Inc. ("QVC") on the terms
described in the Merger Agreement (the "Merger Agreement") dated the date hereof
among Comcast Corporation ("Comcast"), Liberty Media Corporation ("Liberty"),
Comcast QMerger, Inc. ("QVC Holdings") and QVC. This Agreement supersedes in its
entirety the agreement dated July 21, 1994 between Comcast and Liberty which,
effective upon the execution and delivery of this Agreement, shall terminate.
Simultaneously with the execution of this Agreement, Comcast, Arrow Investments,
L.P. ("Arrow") and Barry Diller are entering into a letter agreement (the
"Letter Agreement") relating to the Acquisition.
1. The Acquisition. Comcast and Liberty agree to proceed with the
transactions contemplated by this Agreement and the Merger Agreement jointly and
to use all reasonable efforts to cause the transactions contemplated by this
Agreement and the Merger Agreement to be consummated as promptly as practicable.
Until the merger (the "Merger") contemplated by the Merger Agreement is
consummated, except as provided in Section 7, all material decisions with
respect to the Acquisition shall be unanimous. Comcast and Liberty agree to use
all reasonable efforts, acting in good faith, to resolve, on a mutually
acceptable basis, any disagreements they may have with respect to such material
decisions.
In connection with the Acquisition, Comcast and Liberty shall contribute to
QVC Holdings (simultaneously with QVC Holdings' acceptance for payment of shares
tendered pursuant to the Offer (as defined in the Merger Agreement)) the QVC
securities (or shares of QVC common stock into which such securities are
convertible) as are respectively specified on Schedule IV. Comcast will also
contribute at such time to QVC Holdings an amount of cash equal to (i) the
amount necessary to exercise all warrants to acquire QVC common stock that are
contributed by Comcast to QVC Holdings (which warrants shall be exercised
immediately following such contribution) and (ii) $267 million (the "Comcast
Additional Contribution"). Liberty will also contribute at such time to QVC
Holdings $20 million, in cash (the "Liberty Additional Contribution"). Based
upon the parties' relative contributions (with all shares valued at $46 per
share of common stock or common stock equivalent) to QVC Holdings, following the
Merger the equity interests in QVC Holdings will be owned 57.4% by Comcast and
42.6% by Liberty. The parties agree that all such contributions shall be made
by, and the equity interests in QVC Holdings received in consideration therefor
shall be issued to, wholly-owned subsidiaries of Comcast or Liberty, as the case
may be.
The parties agree to work together to arrange the financing required by the
Merger Agreement, as heretofore proposed by Comcast, including (i) a margin
credit facility to be made available to QVC Holdings for purposes of purchasing
shares of QVC capital stock tendered pursuant to the Offer, which margin credit
facility shall be secured by the shares of QVC capital stock purchased in the
Offer and the shares contributed to QVC Holdings as provided above; and (ii)
permanent financing to be put in place in connection with the Merger consisting
of (A) $200 million of subordinated debt of QVC Holdings and (B) a $950 million
senior secured bank facility to be made available to QVC which, together with
the proceeds of such subordinated debt, shall be used to repay the margin tender
offer facility, to pay for shares of QVC acquired in the Merger,
<PAGE> 2
to pay certain fees and expenses of the transaction (and/or reimburse the
parties for certain previously paid fees and expenses as provided below) and to
provide certain working capital to QVC. Neither Comcast nor Liberty shall be
required to give any guarantee or similar credit support to QVC Holdings or QVC
in connection with any such financing referred to in clauses (i) and (ii) above.
In connection with the consummation of the Merger, Comcast and Liberty
agree to cause QVC (i) to waive any remaining rights that it may have pursuant
to the Company Repurchase Rights (as defined in the Stockholders Agreement (the
"Stockholders Agreement") dated July 16, 1993 among Comcast, Liberty, Barry
Diller and Arrow) (or any similar contingent right of QVC to reacquire shares of
its capital stock) with respect to all shares of capital stock of QVC (or rights
to acquire such shares) currently held by Liberty, TCI or Comcast (or any of
their respective direct and indirect subsidiaries and affiliates); and (ii) to
agree that all of such shares (and related rights) are vested and no longer
subject to such repurchase rights.
2. Post-Merger Structure. Following the Merger, the charter and by-laws of
QVC Holdings will provide that matters submitted to the board of directors or to
the shareholders of QVC Holdings shall be determined by a majority vote of the
directors or shareholders, as the case may be. The parties also agree that
without the consent of Liberty, QVC Holdings may not take or cause or permit to
be taken any of the actions set forth on Schedule I hereto.
Each of Comcast and Liberty will be entitled to cause its shares of QVC
Holdings to be registered under the Securities Act of 1933 in the manner set
forth in Schedule II hereto, subject to a right of first refusal by the other
party. Unless Liberty through the exercise of its demand registration rights set
forth in Schedule II shall have been the party which first caused the common
stock of QVC Holdings to be registered under the Securities Exchange Act of
1934, as amended (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 anniversaries of the Merger) exercise its exit
rights set forth in Schedule III. All other transfers (except to majority-owned
affiliates that agree to be bound by all of the terms of the definitive
agreement referred to below) will be subject to a right of first refusal to the
other party except that a change of control of Liberty Parent (as defined in
Schedule III), Comcast, any successor controlling shareholder thereof or any
subsidiary thereof in which QVC Holdings securities do not constitute more than
50% of such subsidiary asset shall not be deemed to trigger such rights of first
refusal.
The foregoing provisions of this Section 2 will be included in a definitive
stockholders' agreement to be prepared and executed by the parties hereto as
soon as practicable, but in any event prior to the consummation of the Offer.
3. Representations and Warranties of Comcast. Comcast represents and
warrants to Liberty that: (a) Comcast is a corporation duly organized, validly
existing and in good standing under the laws of the Commonwealth of
Pennsylvania, and has full power and authority to execute, deliver and perform
this Agreement and the performance of Comcast's obligations hereunder have been
duly authorized by all necessary action (corporate or other) on the part of
Comcast; (b) this Agreement has been duly executed and delivered by Comcast and,
assuming the due execution and delivery thereof by Liberty and TCI, is a valid
and binding obligation of Comcast, enforceable in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws affecting the rights of
creditors generally and by general principles of equity; (c) the execution and
delivery of this Agreement and the performance of Comcast's obligations
hereunder will not (i) require the consent, approval or authorization of, or any
registration, qualification or filing with, any governmental agency or authority
or any other person or (ii) conflict with or result in a material breach or
violation of (A) any material agreement to which Comcast is a party or (B)
assuming expiration of all applicable waiting periods under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), without objection to the transactions contemplated hereby by the DOJ or
the FTC, any applicable law or regulation; (d) except for certain Delaware
shareholder suits, there is no litigation, governmental or other proceeding,
investigation or controversy pending or, to Comcast's knowledge, threatened
against Comcast relating to the transactions contemplated by this Agreement; (e)
except for filings under the HSR Act, no consent, approval or authorization of,
nor any
2
<PAGE> 3
registration, qualification or filing with, any governmental agency or authority
or any other person is required in order for Comcast to execute, deliver or
perform this Agreement; (f) neither Comcast nor any of its subsidiaries or
affiliates has any remaining obligations under the Stockholders Agreement (or
any successor or other similar agreement); and (g) Comcast has good title to all
of the QVC securities set forth under its name on Schedule IV hereto, subject to
no liens, claims or encumbrances (including pursuant to the Stockholders
Agreement or any successor or other similar agreement) other than pursuant to
the Company Repurchase Rights (or any similar contingent rights of QVC).
4. Representations and Warranties of Liberty. Liberty represents and
warrants to Comcast that: (a) Liberty is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
full power and authority to execute, deliver and perform this Agreement and the
performance of Liberty's obligations hereunder have been duly authorized by all
necessary action (corporate or other) on the part of Liberty; (b) this Agreement
has been duly executed and delivered by Liberty and, assuming the due execution
and delivery thereof by Comcast and TCI, is a valid and binding obligation of
Liberty, enforceable in accordance with its terms, except as enforceability may
be limited by bankruptcy, insolvency, reorganization, moratorium and other
similar laws affecting the rights of creditors generally and by general
principles of equity; (c) the execution and delivery of this Agreement and the
performance of Liberty's obligations hereunder will not (i) require the consent,
approval or authorization of, or any registration qualification or filing with,
any governmental agency or authority or any other person or (ii) conflict with
or result in a material breach or violation of (A) any material agreement to
which Liberty is a party or (B) assuming expiration of all applicable waiting
periods under the HSR Act without objection to the transactions contemplated
hereby by the DOJ or the FTC, any applicable law or regulation; (d) Liberty has
previously made filings (and the applicable waiting period has expired) under
the HSR Act with respect to the acquisition of up to 49.9% of the shares of
common stock of QVC; (e) except for certain Delaware shareholder suits, there is
no litigation, governmental or other proceeding, investigation or controversy
pending or, to Liberty's knowledge, threatened against Liberty relating to the
transactions contemplated by this Agreement; and (f) except for filings under
the HSR Act, no consent, approval or authorization of, nor any registration,
qualification or filing with, any governmental agency or authority or any other
person is required in order for Liberty to execute, deliver or perform this
Agreement; and (g) Liberty has good and valid title to all of the QVC securities
set forth under its name on Schedule IV hereto, subject to no liens, claims or
encumbrances other than pursuant to the Company Repurchase Rights (or any
similar contingent rights of QVC).
5. Covenants of Liberty, Comcast and TCI. Each of Liberty, Comcast and TCI
(but as to TCI, only with respect to clauses (i) and (iv) below) agree that it
will (i) vote (or, if requested by any other party hereto, cause QVC Holdings to
exercise all warrants and convert all shares of QVC preferred stock contributed
to QVC Holdings and to vote) all shares of QVC capital stock in respect of which
it has, directly or indirectly, the power to vote or control the voting of, in
favor of the Merger and the related matters provided for in the Merger
Agreement; (ii) except for transfers to QVC Holdings as provided above, not sell
or dispose of any shares of QVC capital stock (or rights to acquire such shares)
owned (now or at any time prior to the Merger), directly or indirectly, by it or
enter into any agreement, arrangement or understanding with any other person the
effect of which is to limit or restrict its right to vote such shares in
accordance with the terms of this Agreement; (iii) not enter into any agreement,
arrangement or understanding with any other person with respect to the purchase,
sale or voting of shares of QVC; and (iv) not solicit or encourage any
Alternative Transaction (as defined in the Merger Agreement).
If any proposal for an Alternative Transaction which offers an amount per
share greater than that offered in the Merger (a "Superior Proposal") shall be
received by QVC prior to the consummation of the Merger, Comcast and Liberty
agree to use all reasonable efforts, acting in good faith, to agree on a
response to such Superior Proposal. If the parties are unable to agree on such
response, each of Liberty and Comcast shall have the right to propose to QVC one
or more other transactions at a price in excess of $46 per share of QVC common
stock; provided that, if both Liberty and Comcast desire to make proposals and
such proposals are different, then Liberty and Comcast shall use all reasonable
efforts to resolve any such difference, or if they are unable to do so then
Lazard Freres & Co. shall determine the manner in which such difference shall be
3
<PAGE> 4
resolved. Prior to making each such proposal to QVC, the party making such
proposal (the "Proposing Party") shall offer to the other party (the "Responding
Party") the right to participate in such transaction substantially on the terms
contemplated by this Agreement except that the Comcast Additional Contribution
(other than such of it as is attribute to the Warrant exercise) and the Liberty
Additional Contribution shall be increased proportionately such that QVC
Holdings shall continue to be owned following the Merger 57.4% and 42.6% by
Comcast and Liberty, respectively (such increase to be in cash or such other
consideration as the parties shall agree). If the Responding Party fails to
accept such proposal within 48 hours, this Agreement shall terminate; provided,
that notwithstanding any such termination, the provisions of the first paragraph
of this Section 5 shall remain binding on each party with respect to the most
recent of such proposals made by a Proposing Party to the extent that the shares
of QVC stock held by the Responding Party and TCI (if Liberty is the Responding
Party) are treated in such proposal the same as all other shares held by QVC
shareholders other than the Proposing Party (and any other joint bidder with the
Proposing Party) but only until such Proposing Party withdraws or otherwise
terminates all such proposals (of which withdrawal or termination such Proposing
Party shall promptly notify the other parties hereto). The provisions of this
paragraph shall apply to successive Superior Proposals (as well as successive
responses by a Proposing Party).
In addition, Comcast agrees that in the event Liberty is the Proposing
Party and Comcast has not elected to participate in the transaction being
proposed by Liberty, that Comcast shall cooperate fully with Liberty with
respect to any consents or approvals Comcast is entitled to grant pursuant to
the Letter Agreement, and that upon the written request of Liberty, Comcast
shall grant or withhold such approvals and consents as Liberty shall direct.
6. Mutual Covenants. Each of Comcast and Liberty agree, following
consummation of the Merger, to cooperate in good faith to cause QVC and Home
Shopping Network, Inc. to pursue jointly business opportunities outside the
United States and Canada. The parties also agree that following consummation of
the Merger, no party shall be under any obligation (legal or otherwise) to offer
to QVC or any other party any business opportunity which any of them may now or
thereafter desire to pursue.
7. Regulatory Approvals. The obligations of the parties under this
Agreement will be conditioned upon the receipt of all necessary governmental and
agency approvals required for the consummation of the transactions contemplated
hereby, including but not limited to, compliance with all securities laws and
the termination of all applicable waiting periods under the HSR Act; provided
that, either Comcast or Liberty shall be entitled to cause QVC Holdings to
terminate the Offer as provided in the Merger Agreement (and in connection
therewith, the Merger Agreement pursuant to 8.01(b)(x) thereof) in the event
that all waiting periods applicable to the Acquisition and the related
transactions under the HSR Act have not terminated prior to December 31, 1994.
8. Fees and Expenses. All costs and expenses incurred in connection with
this Agreement and the transactions contemplated hereby (other than any costs
and expenses related to the Comcast Additional Contribution or the Liberty
Additional Contribution, which shall be paid by Comcast and Liberty,
respectively) shall be paid or reimbursed by QVC following the Merger, or if the
Merger is not consummated, then paid by the party incurring such expenses
(except for financing and financial advisory fees not related to the Comcast
Additional Contribution or the Liberty Additional Contribution, which shall be
borne equally by the parties).
If QVC makes a payment pursuant to Section 8.05(b) of the Merger Agreement,
then all costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid out of the proceeds of such
payment. After the payment of all such costs and expenses, any remainder of the
proceeds of such payment shall be divided equally between Comcast and Liberty.
9. Indemnification. If any act or omission of a party causes the
termination of the Merger Agreement pursuant to Section 8.01(b)(z) thereof, then
such party shall indemnify the other party for any loss, damage or expense such
other party may incur or suffer as a result of such termination. If an act or
omission by MergerCo (as defined in the Merger Agreement) causes such
termination pursuant to Section 8.01(b)(z), of if the acts or omissions of both
parties cause or contribute to such loss, damage or expense, then such loss,
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<PAGE> 5
damage or expense shall be allocated among Comcast and Liberty in proportion to
the relative fault of each party.
10. Governing Law. This letter shall be governed by and construed in
accordance with the substantive law of the State of New York.
11. Termination. Except as provided in Section 5, the obligations of the
parties hereunder shall only terminate if the Merger Agreement is terminated
pursuant to Section 8.01(a) through (d) thereof or pursuant to Section 8.01(e)
(except in the case of the making of a Superior Proposal to which the second
paragraph of Section 5 above applies).
12. Binding Obligation. It is understood that this letter agreement
constitutes a legally binding obligation of the parties hereto. The parties
acknowledge and agree that the proposed business combination of TCI and Liberty
shall not constitute a sale or transfer of the shares of QVC capital stock held
by Liberty.
Very truly yours,
COMCAST CORPORATION
By: /s/ BRIAN L. ROBERTS
----------------------
Name: Brian L. Roberts
Title: President
Agreed to:
LIBERTY MEDIA CORPORATION
By: /s/ PETER BARTON
------------------
Name: Peter Barton
Title: President
TELE-COMMUNICATIONS, INC.
Agreed to, as to clauses (i) and
(iv) of Section 5 only:
By: /s/ JOHN MALONE
------------------
Name:
Title:
5
<PAGE> 6
SCHEDULE I
MANAGEMENT STRUCTURE
MANAGEMENT COMMITTEE: Subsequent to the Merger, the Management Committee
of QVC Holdings will be comprised of three
representatives appointed by Comcast and two
representatives appointed by Liberty; provided,
that each of such representatives shall be
reasonably acceptable to the other party.
DAY-TO-DAY MANAGEMENT: The day-to-day operations of QVC Holdings will be
managed by Comcast. Comcast shall use reasonable
efforts to manage QVC Holdings in the best
interests of QVC Holdings, subject to the provision
of this Agreement.
SIGNIFICANT TRANSACTIONS: Neither QVC Holdings nor QVC shall engage in any of
the following transactions or take any of the
following actions unless approved in advance by
Liberty:
(i) any transaction or action which would result
in QVC Holdings, directly or indirectly, (x)
conducting or engaging in any business other
than the Primary Business, (y) participating
(whether by means of a management, advisory,
operating, consulting or similar agreement or
arrangement) in a business other than the
Primary Business, or (z) having any record or
beneficial equity interest, either as a
principal, trustee, stockholder, partner,
joint venturer or otherwise, in any Person
not primarily engaged in the Primary Business
(a "Restricted Person"); provided, however,
that the beneficial ownership for investment
purposes of ten percent (10%) or less of the
equity of any such Restricted Person shall
not constitute a violation of this clause;
the term "Primary Business" shall mean the
business of (x) marketing of goods or
services over any electronic media (other
than principally entertainment programming)
and (y) any activities ancillary thereto or
vertically integrated therewith (including,
without limitation, manufacturing,
production, warehousing and distribution of
such goods and services and customer
financing);
(ii) any transaction not in the ordinary course of
business, launching new or additional
channels or engaging in any new field of
business, in each case, which would result
in, or would have a reasonable likelihood of
resulting in, Liberty or any of its
affiliates being required (pursuant to any
law, statute, rule, regulation, order or
judgement promulgated or issued by any court
of competent jurisdiction or the United
States government or any Federal
governmental, regulatory, or administrative
authority or agency or tribunal) to divest
itself of its QVC Holdings securities, or
interests therein, or any other assets of
such entity, or which would render such
entity's continued ownership of such stock or
assets illegal or subject to the imposition
of a fine or penalty or which would impose
material restrictions or limitations on such
entity's full rights of ownership (including,
without limitation, voting) thereof or
therein;
<PAGE> 7
(iii) the disposition, directly or indirectly by
QVC Holdings (or any subsidiary thereof) in a
transaction or series of transactions not in
the ordinary course of business of QVC
Holdings or any subsidiary of QVC Holdings,
of a material amount of the assets of QVC
Holdings or any such subsidiary (to be
defined in the definitive agreements), except
for pledges, grants of security interests,
security deeds, mortgages or similar
encumbrances securing bona fide indebtedness;
(iv) the merger or consolidation of QVC Holdings
or QVC (except (A) a merger between a
wholly-owned subsidiary and QVC Holdings or
QVC where QVC Holdings or QVC, as the case
may be, is the surviving entity of such
merger and where there is no change in any
class or series of outstanding capital stock
of QVC Holdings or QVC, as the case may be,
or (B) a merger between QVC Holdings and QVC
in which QVC Holdings is the surviving entity
of such merger and there is no change in any
class or series of outstanding capital stock
of QVC Holdings) or the dissolution or
liquidation of QVC Holdings;
(v) any amendments to the Certificate of
Incorporation or By-Laws of QVC Holdings;
(vi) the issuance, grant, offer, sale,
acquisition, redemption or purchase by QVC
Holdings or QVC of any shares of its capital
stock or other equity securities, or any
securities convertible into, or options,
warrants or rights of any kind to subscribe
to or acquire, any shares of its capital
stock or other equity securities; any split-
up, combination or reclassification of the
capital stock of QVC Holdings or the entering
into of any contract, agreement, commitment
or arrangement with respect to any of the
foregoing, except that QVC Holdings may issue
an aggregate of up to 1% of its capital stock
(at any time outstanding) pursuant to
employee stock options granted to employees
on or after the closing and repurchase stock
or options from present or former employees;
(vii) the amendment or modification of any
outstanding options, warrants or rights to
acquire, or securities convertible into,
shares of the capital stock or other
securities of QVC Holdings or of any
outstanding stock option or stock purchase
plans or agreements;
(viii)the filing by QVC Holdings (or any material
subsidiary thereof) 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) except with the consent of Liberty (such
consent not to be unreasonably withheld), the
commencement or settlement of litigation or
arbitration which is other than in the
ordinary course of business and is likely to
have a material impact on QVC Holdings and
its subsidiaries, taken as a whole;
(x) the entering into by QVC Holdings or any of
its subsidiaries of material contracts,
except any such contract which is connected
with carrying on the Primary Business; and
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<PAGE> 8
(xi) (a) without the consent of Liberty, such
consent not to be unreasonably withheld, any
transactions between QVC Holdings or any of
its affiliates and Comcast or any of its
affiliates or associates, other than
transactions between Comcast and its
affiliates or associates and QVC Holdings and
its affiliates that are on arms-length terms
(which Comcast shall advise Liberty of) and
(b) agreements between QVC Holdings or its
affiliates and Comcast or its affiliates or
associates relating to carriage of the
Primary Business which are on terms no more
favorable than those granted to Liberty and
its affiliates.
CORPORATE OPPORTUNITIES: Notwithstanding anything contained herein, neither
party (nor the directors, officers, members of the
Management Committee, employees or agents of QVC
Holdings or any subsidiary who are also directors,
officers, employees or agents of either party)
shall be obligated to present any corporate
opportunity to QVC Holdings or its subsidiaries and
each such party shall be free to pursue such
opportunity for its sole benefit.
TRANSFER OF MANAGEMENT
FUNCTIONS: Upon the occurrence of a Management Transfer Event
(as defined below), day-to-day management of QVC
Holdings shall be transferred from Comcast to
Liberty and Liberty shall thereafter be entitled to
appoint three representatives of the Management
Committee and Comcast shall be entitled to appoint
two such representatives. From and after the date
of the Management Transfer Event, (a) all rights
and obligations of Comcast, as manager of the
business of QVC Holdings, shall terminate and
Liberty shall thereafter succeed to all such rights
and obligations, and (b) any right to consent to
the taking of any action theretofore granted to
Liberty shall become the right of Comcast upon the
same terms and conditions.
The term "Management Transfer Event" shall mean the
first to occur of (x) the delivery of written
notice by Liberty to Comcast exercising Liberty's
right to purchase all of the common stock of QVC
Holdings held by Comcast and its subsidiaries
pursuant to Paragraph D of Schedule III of this
Agreement and (y) a Comcast Purchase Default (as
defined in Schedule III of this Agreement)
3
<PAGE> 9
SCHEDULE II
Following the Merger, each of Comcast and Liberty shall be entitled to
three demand registrations with respect to their stock of QVC Holdings pursuant
to customary registration rights agreements to be included in the definitive
agreement referred to in paragraph 2 of this Agreement. Prior to the time QVC
Holdings has publicly-traded common stock, the price at which the non-demanding
party may purchase the shares proposed to be registered of the demanding party
pursuant to the right of first refusal shall be based upon a projected initial
secondary public offering price of QVC Holdings common stock as determined by
three investment bankers (one chosen by Comcast, one chosen by Liberty and, if
they cannot agree, by a third independent investment banker chosen by the first
two investment bankers).
<PAGE> 10
SCHEDULE III
A. In the event that Liberty, through the exercise of its demand
registration rights set forth in Schedule II of this Agreement, shall not have
been the party which first caused the common stock of QVC Holdings to be
registered under the Exchange Act, then Liberty shall have the right 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 anniversaries of the Merger) to exercise
its exit rights hereunder by notice in writing to Comcast, whereupon Liberty and
Comcast shall seek to agree upon the "Fair Market Value" of QVC Holdings on the
date such notice is given. The "Fair Market Value" of QVC Holdings shall mean
the fair market value of QVC Holdings on a going concern or liquidation basis,
whichever method would yield the highest valuation. The Fair Market Value of QVC
Holdings on a going concern basis shall take into account such considerations as
would customarily affect the price at which a willing seller would sell and a
willing buyer would buy QVC Holdings as a going concern in an arms-length
transaction in which such buyer purchases all of the stock of QVC Holdings. The
Fair Market Value of QVC Holdings on a liquidation basis shall take into account
tax liabilities that would be incurred on a liquidation assuming the most tax
efficient and practical plan of liquidation.
B. If Liberty and Comcast are unable to agree upon the Fair Market Value
within 30 days, then such value shall be determined pursuant to the appraisal
process hereafter described. Liberty and Comcast shall, within 15 days after the
expiration of such 30-day period, each designate a qualified independent
appraiser to determine such value. Such appraisers shall submit their written
appraisals not later than 45 days after the date of their retention. If the
amount of the higher of the two appraisals is greater than 110% of the amount
determined in the lower appraisal, then a third qualified independent appraiser
designated by the first two qualified independent appraisers shall be retained
promptly by Liberty and Comcast and shall deliver its written appraisal within
30 days after the date of such retention. If any valuation is made pursuant to
such appraisal process, the value to be determined shall be the average of the
first two appraisals, if only two appraisals are required, or if three
appraisals are required, the average of the two closest appraisals (or if there
are not two closest appraisals, the average of all three such appraisals). The
term "qualified independent appraiser" shall mean a nationally recognized
appraiser or investment banking firm with substantial experience in evaluating
significant communications properties, including cable television programming
businesses, that is not directly or indirectly affiliated with any party to this
Agreement and which has no interest (other than the receipt of customary fees)
in any of the transactions contemplated hereby.
C. Comcast shall have the right (exercisable by notice in writing to
Liberty within 30 days after the determination of such Fair Market Value) to
purchase all of the common stock of QVC Holdings held by Liberty and its
subsidiaries for an amount (the "Liberty Exit Price") equal to the fraction of
the Fair Market Value represented by such common stock as a percentage of the
fully diluted common stock of QVC Holdings (after giving effect to any
consideration that would be received by QVC Holdings upon the exercise of any
options or warrants). The purchase price of each share of preferred stock or
other securities of QVC Holdings convertible without payment of further
consideration into common stock of QVC Holdings shall be determined by reference
to the number of shares of common stock of QVC Holdings into which such share
may be converted. The purchase price of each warrant or option or other
securities of QVC Holdings exercisable in respect of shares of common stock of
QVC Holdings shall be the applicable purchase price of the underlying share of
common stock of QVC Holdings, less the applicable exercise price per share. If
Comcast exercises such right, Comcast shall have the right to pay such purchase
price in (at Comcast's election) one or more of the following: (i) cash; (ii) a
Comcast promissory note maturing not later than three years after issuance and
having an interest rate (determined by appraisal if the parties cannot agree)
that, taking into account the terms of such note, would cause such note to trade
at par immediately following its issuance; provided that, Comcast may only pay
the Liberty Exit Price with such a promissory note if the interest rate thereon
does not exceed 500 basis points over the three-year treasury note rate on the
date of issuance of such note; or (iii) shares of Comcast common stock or other
equity securities having an aggregate Average Market Price (as of the date the
last of such appraisals are delivered to Comcast and Liberty) equal to the
Liberty Exit Price; provided, that such Comcast common stock or other equity
securities have been
<PAGE> 11
previously listed or traded on a national securities exchange or quoted on an
inter-dealer quotation system. The term "Average Market Price" shall mean the
average for the twenty prior trading days of the closing sales price of such
security in the over-the-counter market, as reported by NASDAQ, or if listed on
a national securities exchange, as reported on the principal consolidated
transaction reporting system with respect to securities listed on the principal
national securities exchange on which such securities are listed or admitted for
trading (as such Average Market Price shall be adjusted for splits,
recapitalizations, stock dividends and other events occurring during such twenty
trading day period). Notwithstanding Comcast's election as to the form in which
to pay the Liberty Exit Price, Liberty shall have the right, exercisable within
5 days of Comcast's written notice to it as to the form of consideration in
which it intends to pay the Liberty Exit Price, to require that Comcast pay such
amount by delivering to it Comcast common stock or other equity securities
having an aggregate Average Market Price equal to the Liberty Exit Price;
provided that, Comcast shall not be obligated to issue stock if (i) it would
represent more than 4.9% of the outstanding common stock or more than 4.9% of
the stockholder voting power of Comcast; or (ii) such issuance would result in,
or would have a reasonable likelihood of resulting in, Comcast or any of its
affiliates being required (pursuant to any law, statute, rule, regulation, order
or judgement promulgated or issued by any court of competent jurisdiction or the
United States government or any Federal governmental, regulatory, or
administrative authority or agency or tribunal) to divest itself of any of its
assets, or would render its continued ownership of such assets illegal or
subject to the imposition of a fine or penalty or would impose material
restrictions or limitations on its full rights of ownership of its assets. In
the event Comcast elects to deliver Comcast stock to Liberty as aforesaid, it
shall also grant to Liberty rights substantially equivalent to the registration
rights set forth in Schedule II hereto with respect to the registration of such
shares of Comcast stock. Any closing of the purchase of the QVC Holdings common
stock held by Liberty and its subsidiaries pursuant to this Schedule III shall
be consummated as soon as practicable after receipt of all applicable regulatory
approvals, but in any event not later than the 135th day following the date upon
which the form of the consideration to be paid to Liberty in payment of the
Liberty Exit Price shall have been determined in accordance with this Paragraph
(the "Liberty Determination Date"); provided however, that in the event Comcast
is prohibited from consummating such purchase by such date because of the entry
of any injunction, order, or decree or the enactment of any law or regulation,
in each case subsequent to the date Liberty notifies Comcast of its exercise of
the Liberty Exit Right, then the date by which such purchase was to be
consummated pursuant to the foregoing clause shall be extended for an additional
period ending on the earlier to occur of (x) the 10th day following the date
such purchase is no longer prohibited as aforesaid and (y) the 195th day
following the Liberty Determination Date.
D. In the event that Comcast (x) shall fail to elect to purchase Liberty's
shares of QVC common stock within the time period specified or (y) following an
election to so purchase, shall fail to consummate such purchase by the date
specified in Paragraph C (the event specified in clause (y) is hereafter
referred to as the "Comcast Purchase Default"), then Liberty shall have the
right (exercisable by notice in writing to Comcast within 30 days thereafter) to
purchase all of the common stock of QVC Holdings held by Comcast and its
subsidiaries for an amount (the "Comcast Exit Price") equal to the fraction of
the Fair Market Value represented by such common stock as a percentage of the
fully diluted common stock of QVC Holdings (after giving effect to any
consideration that would be received by QVC Holdings upon the exercise of any
options or warrants). The purchase price of each share of preferred stock or
other securities of QVC Holdings convertible without payment of further
consideration into common stock of QVC Holdings shall be determined by reference
to the number of shares of common stock of QVC Holdings into which such share
may be converted. The purchase price of each warrant or option or other
securities of QVC Holdings exercisable in respect of shares of common stock of
QVC Holdings shall be the applicable purchase price of the underlying share of
common stock of QVC Holdings, less the applicable exercise price per share. If
Liberty exercises such right, Liberty shall have the right to pay such purchase
price in (at Liberty's election) one or more of the following: (i) cash; (ii) a
promissory note issued by Liberty (or if it is a subsidiary, issued by its
ultimate parent entity) ("Liberty Parent") maturing not later than three years
after issuance and having an interest rate (determined by appraisal if the
parties cannot agree) that, taking into account the terms of such note, would
cause such note to trade at par immediately following its issuance; provided
that, Liberty may only pay the Comcast Exit Price with such a promissory note if
the interest rate thereon does not exceed 500 basis points over the three-year
treasury note rate on the date of issuance of such note; or (iii) shares of
2
<PAGE> 12
Liberty Parent common stock or other equity securities of Liberty Parent having
an aggregate Average Market Price (as of the date the last of such appraisals
are delivered to Liberty and Comcast) equal to the Comcast Exit Price; provided
that such Liberty Parent common stock or other equity securities have been
previously listed or traded on a national securities exchange or quoted on an
inter-dealer quotation system. Notwithstanding Liberty's election as to the form
in which to pay the Comcast Exit Price, Comcast shall have the right,
exercisable within 5 days of Liberty's written notice to it as to the form of
consideration in which it intends to pay the Comcast Exit Price, to require that
Liberty pay such amount by delivering to it Liberty Parent stock having an
aggregate Average Market Price equal to the Comcast Exit Price; provided that,
Liberty Parent shall not be obligated to issue stock if (i) it would represent
more than 4.9% of the outstanding common stock or more than 4.9% of the
stockholder voting power of Liberty Parent; or (ii) if such issuance would
result in, or would have a reasonable likelihood of resulting in, Liberty Parent
or any of its affiliates being required (pursuant to any law, statute, rule,
regulation, order or judgement promulgated or issued by any court of competent
jurisdiction or the United States government or any Federal governmental,
regulatory, or administrative authority or agency or tribunal) to divest itself
of any of its assets or would render its continued ownership of such stock or
assets illegal or subject to the imposition of a fine or penalty or would impose
material restrictions or limitations on its full rights of ownership of its
assets. In the event Liberty elects to deliver Liberty Parent stock to Comcast
as aforesaid, it shall also grant to Comcast rights substantially equivalent to
the registration rights set forth in Schedule II hereto with respect to the
registration of such shares of Liberty Parent stock. Any closing of the purchase
of the QVC Holdings common stock held by Comcast and its subsidiaries pursuant
to this Schedule III shall be consummated as soon as practicable after receipt
of all applicable regulatory approvals, but in any event not later than the
135th day following the date upon which the form of the consideration to be paid
to Comcast in payment of the Comcast Exit Price shall have been determined in
accordance with this Paragraph (the "Comcast Determination Date"); provided
however, that in the event Liberty is prohibited from consummating such purchase
by such date because of the entry of any injunction, order, or decree or the
enactment of any law or regulation, in each case subsequent to the date Comcast
notifies Liberty of its exercise of the Comcast Exit Right, then the date by
which such purchase was to be consummated pursuant to the foregoing clause shall
be extended for an additional period ending on the earlier to occur of (x) the
10th day following the date such purchase is no longer prohibited as aforesaid
and (y) the 195th day following the Comcast Determination Date.
E. In the event that Liberty (x) shall fail to elect to purchase Comcast's
shares of QVC common stock within the time period specified or (y) following an
election to so purchase, shall fail to consummate such purchase by the date
specified in Paragraph D, then Liberty and Comcast shall use their best efforts
to sell QVC Holdings. Liberty, Comcast or any of their respective affiliates may
be purchasers (individually or as part of a group) in any such sale.
F. Notwithstanding anything contained herein, the parties agree to use all
reasonable efforts to consummate any such purchase and sale pursuant to this
Schedule III in a tax-free transaction or, if not available, most tax efficient
method available. In the event that the party whose QVC Holdings securities are
to be purchased pursuant to this Schedule III (the "Selling Party") shall notify
the party required to purchase the Selling Party's QVC Holdings securities (the
"Purchasing Party") at the time of its election to exercise its right to cause
the other party to purchase, as to a structure of the transactions contemplated
by the Liberty Exit Right or the Comcast Exit Right which is otherwise in
accordance with the provisions of Paragraphs C or D above (as applicable) and
which such Selling Party reasonably believes to be tax-free or the most tax
efficient structure for such transaction (the "Proposed Structure"), and if
requested by the Purchasing Party within 10 days of receipt of notice of the
Proposed Structure, such Selling Party shall deliver an opinion of counsel (such
counsel to be reasonably acceptable to the Purchasing Party) reasonably
confirming the tax free or tax efficient nature of the Proposed Structure, then
such sale shall be consummated in accordance with the Proposed Structure unless,
within 15 days of the last to occur of the notice as to the Proposed Structure
or such opinion of counsel, the Purchasing Party delivers to the Selling Party a
notice setting forth an alternate structure for such transaction (the "Alternate
Structure"), which is no less favorable from a tax standpoint to the Selling
Party than the Proposed Structure (as evidenced by an opinion of counsel
addressed to and reasonably acceptable to the Selling Party) and which does not
result in the creation of restrictions or limitations applicable to the Selling
Party which are, in the good faith, reasonable judgment of the Selling
3
<PAGE> 13
Party, more onerous to it than those which would result in the Proposed
Structure, then the parties shall proceed to consummate such transaction in
accordance with the Alternate Structure.
4
<PAGE> 14
SCHEDULE IV
QVC SECURITIES HELD BY COMCAST AND LIBERTY
TO BE CONTRIBUTED TO QVC HOLDINGS
<TABLE>
<S> <C>
I. Liberty
Common Stock: 6,527,207 shares
Class C. Preferred Stock: 372,866 shares (convertible into 3,728,660 shares of Common
Stock)
II. Comcast
Common Stock: 6,207,434 shares
Class C. Preferred Stock: 72,050 shares (convertible into 720,500 shares of Common
Stock)
Warrants to Purchase Common Stock: 1,700,000
</TABLE>
<PAGE> 1
EXHIBIT 7
[QVC, INC. LETTERHEAD]
August 11, 1994
Dear Stockholder:
On August 4, 1994, following receipt of an unsolicited proposal from
Comcast Corporation and two revised proposals from Comcast together with Liberty
Media Corporation (a wholly owned subsidiary of Tele-Communications, Inc.), QVC,
Inc. entered into a merger agreement with Liberty, Comcast and a wholly owned
subsidiary thereof. Pursuant to the merger agreement, a company to be wholly
owned by Comcast and Liberty has today commenced a cash tender offer to purchase
all outstanding QVC common shares at a price of $46 per share and all
outstanding QVC preferred shares at a price of $460 per share.
YOUR BOARD OF DIRECTORS (OTHER THAN THOSE DIRECTORS WHO ARE REPRESENTATIVES
OF COMCAST WHO EXPRESS NO OPINION AS TO THE FOLLOWING MATTERS) BELIEVES THAT THE
COMCAST/LIBERTY OFFER AND THE MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF,
QVC AND ITS STOCKHOLDERS (OTHER THAN COMCAST, LIBERTY AND THEIR AFFILIATES) AND
HAVE UNANIMOUSLY APPROVED THE COMCAST/LIBERTY MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE OFFER AND THE MERGER.
ACCORDINGLY, YOUR BOARD (OTHER THAN THE COMCAST REPRESENTATIVES) RECOMMENDS THAT
STOCKHOLDERS ACCEPT THE COMCAST/LIBERTY OFFER, TENDER ALL THEIR SHARES PURSUANT
THERETO AND APPROVE AND ADOPT THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY.
In arriving at its recommendation, your Board of Directors gave careful
consideration to a number of factors described in the enclosed Schedule 14D-9,
including the opinion of Allen & Company Incorporated, financial advisor to QVC,
that the consideration to be received by QVC's stockholders in the offer and the
merger is fair to such stockholders (other than Comcast and Liberty) from a
financial point of view. The factors considered by the Board of Directors are
described in "The Solicitation or Recommendation" section of the enclosed
Schedule 14D-9.
Additional information with respect to these transactions is contained in
the enclosed Schedule 14D-9. Also enclosed is the Offer to Purchase and related
materials, including a Letter of Transmittal to be used for tendering your
shares. These documents set forth in detail the terms and conditions of the
Comcast/Liberty offer and provide instructions on how to tender your shares. We
urge you to read the enclosed material carefully before making your decision
with respect to tendering your shares.
Sincerely yours,
Barry Diller
Chairman of the Board and
Chief Executive Officer
<PAGE> 1
EXHIBIT 8
COMCAST AND LIBERTY MEDIA
SIGN MERGER AGREEMENT WITH QVC
------------------------------------------------
PRICE INCREASED TO $46 PER SHARE
------------------------------------------------
Philadelphia, Pennsylvania, Englewood, Colorado and West Chester, Pennsylvania
- -- August 5, 1994: Comcast Corporation, Liberty Media Corporation and QVC, Inc.
jointly announced today that Comcast, Liberty and QVC have entered into a
definitive merger agreement pursuant to which Comcast and Liberty will acquire
QVC. QVC stockholders will receive $46 in cash per share of QVC Common Stock and
$460 in cash per share of QVC Preferred Stock.
QVC's Board of Directors has received the opinion of Allen & Company
Incorporated that the consideration to be received by QVC's shareholders (other
than Comcast, Liberty and their affiliates) pursuant to the transaction is fair
to such shareholders from a financial point of view.
In accordance with the merger agreement, Comcast and Liberty expect to
commence on or prior to Thursday, August 11, 1994, a tender offer for all shares
of stock of QVC at a net cash price of $46 per share of QVC Common Stock and a
net cash price of $460 per share of QVC Preferred Stock. Lazard Freres & Co.
will act as dealer manager for the tender offer.
Following expiration of the tender offer, a corporation controlled by both
Comcast and Liberty will merge with QVC and any remaining shares of QVC will be
converted into cash at the same price as offered in the tender offer.
The total cost of the acquisition of the remainder of QVC stock not
currently owned by Comcast or Liberty will be approximately $1.42 billion.
Comcast and Liberty have agreed to fund approximately $267 million and $20
million respectively, of the acquisition with the balance to be provided through
debt financing, which, after the merger, will be an obligation of QVC. Following
the acquisition, Comcast and Liberty will own approximately 57% and 43%,
respectively, of QVC and QVC will be managed by Comcast.
The transaction is conditioned upon Comcast and Liberty obtaining the
requisite financing on satisfactory terms to purchase all of the outstanding
shares of QVC, upon receipt of certain governmental approvals and other
customary conditions.
Comcast, Liberty and Tele-Communications, Inc., who collectively currently
own approximately 35% of QVC's outstanding voting shares on a fully diluted
basis, have agreed to vote their shares of QVC in favor of the transaction.
Barry Diller has also agreed among other things, to vote his QVC shares in favor
of the transaction to the extent such shares are not tendered in the offer.
QVC has agreed that if the merger agreement is terminated in certain
circumstances prior to consummation of the merger, QVC will pay an aggregate of
$55 million to Comcast and Liberty.
Comcast Corporation is principally engaged in the development, management
and operation of cable communications networks. Comcast's consolidated and
affiliated operations served approximately 3.0 million cable subscribers at
March 31, 1994. After completion of the acquisition of Maclean Hunter's United
States cable properties, Comcast's consolidated and pro-rated affiliated
operations will serve approximately 3.5 million cable subscribers, making it the
third largest cable operator in the country. Comcast provides cellular telephone
services in the Northeast United States to markets encompassing a population in
excess of 7.4 million. Comcast also has investments in cable programming,
telecommunications systems, and international cable and telephony franchises.
Comcast's Class A and Class A Special Common Stock are traded on the Nasdaq
Stock Market under the symbols CMCSA and CMCSK, respectively.
Liberty, its affiliates and companies in which it holds investments operate
cable television systems serving an aggregate of approximately 3.2 million
subscribers in 30 states. Liberty's programming interests include
<PAGE> 2
BET, The Family Channel, Encore, Starz!, Home Shopping Club, QVC, Court TV,
X*PRESS and regional and national sports networks.
On August 4, 1994, TCI and Liberty consummated a business combination
transaction resulting in TCI and Liberty becoming wholly-owned subsidiaries of a
newly formed holding company, which has been renamed Tele-Communications, Inc.
Beginning August 5, 1994, the new TCI's Class A Common Stock, Class B Common
Stock and Class E Preferred Stock will trade on the NASDAQ Stock Market under
the symbols TCOMA, TCOMB and TCOMP, respectively. Liberty's Class A Common
Stock, Class B Common Stock and Class E 6% Cumulative Redeemable Exchangeable
Junior Preferred Stock discontinued trading on such market at the close of
business on August 4, 1994.
QVC, Inc. is the world's largest electronic retailer, reaching more than 50
million homes across the United States and an additional 17 million households
through joint ventures in the United Kingdom and Mexico. QVC is traded on the
NASDAQ Stock Market under the symbol QVCN.
<PAGE> 1
EXHIBIT 9
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
A-1
<PAGE> 2
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> 1
EXHIBIT 10
PROJECT QVC
CONFIDENTIAL
ALLEN & COMPANY INCORPORATED AUGUST 4, 1994
<PAGE> 2
CONFIDENTIAL
FAIRNESS OPINION
REGARDING THE PROPOSED $46 PER SHARE CASH OFFER FOR ALL
OF THE OUTSTANDING SHARES OF QVC, INC ("QVC") BY COMCAST
CORPORATION ("COMCAST") AND LIBERTY MEDIA CORPORATION ("LIBERTY")
ALLEN & COMPANY INCORPORATED AUGUST 4, 1994
<PAGE> 3
PROJECT QVC CONFIDENTIAL AUGUST 4, 1994
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Tab
---
<S> <C>
Basis of Opinion I
Description of the Proposed Transaction II
Analysis of QVC III
- Overview of QVC
- Historical Operating Statements
- Projected Operating Statements
- Consolidated Balance Sheet
- Common Stock Price Performance
- Market Multiple Comparison
Transaction Analysis IV
- Discounted Cash Flow Analysis
- Premium Paid in Proposed Transaction
- Multiples Paid in Comparable Transactions
Summary V
Conclusion VI
</TABLE>
<PAGE> 4
PROJECT QVC CONFIDENTIAL AUGUST 4, 1994
BASIS OF OPINION
AMONG OTHER ITEMS WE:
REVIEWED:
* Trends in the Cable Programming and Electronic Retailing Industries
* Business Prospects and Financial Condition of QVC
* Historical Business Information and Financial Results of QVC
* Non-Public Financial and Operating Results of QVC
* Financial Projections and 1994 Budget Prepared by the Management of QVC
* Information Obtained From Meetings with Senior Management of QVC
* Trading Range of QVC Common Stock
* Public Financial Information of Comparable Companies in the Cable
Programming and Specialty Retailing Industries
Page 1
<PAGE> 5
PROJECT QVC CONFIDENTIAL AUGUST 4, 1994
BASIS OF OPINION (CONTINUED)
REVIEWED (Continued):
* Public Financial and Transaction Information Related to Comparable
Mergers and Acquisitions
* Terms and Conditions of the Merger Agreement and Related Documents
ANALYZED:
* The Terms of the Proposed Transaction
* QVC's Present Condition and Prospects
* Trading History of QVC's Common Stock Related to Selected Public
Announcements Regarding the Company
* Trading History of QVC's Common Stock Compared to that of Comparable
Companies and Other Market Indices
* The Stock Price and Market Multiples of QVC Compared to those of
Selected Cable Programmers and Selected Specialty Retailers
* The Discounted Cash Flow Value Per Share of QVC Based on Management's
Financial Forecast
* Premiums and Multiples Paid in Comparable All Cash and Cash and Stock
Transactions
Page 2
<PAGE> 6
PROJECT QVC CONFIDENTIAL AUGUST 4, 1994
DESCRIPTION OF THE PROPOSED TRANSACTION
* The Proposed Transaction Is in the Form of a Tender Offer for a
Majority of the Common Stock of QVC with a Subsequent Merger for the
Same Consideration
* Holders of Common Stock, Other Than Comcast and Liberty, Are Offered
$46 Per Share in Cash
* Holders of Convertible Preferred Stock, Other Than Comcast and
Liberty, Will Receive $460 Per Share in Cash
* Outstanding QVC Options Are Cashed Out at $46 Per Share Net of Their
Exercise Price
* The Transaction Values All Of QVC's Outstanding Shares at
Approximately $2.6 Billion
* Net Proceeds to Shareholders, Other Than Comcast and Liberty, Is
Approximately $1.4 Billion
Page 3
<PAGE> 7
PROJECT QVC CONFIDENTIAL AUGUST 4, 1994
OVERVIEW OF QVC
* Major Cable Television Shopping Company with Budgeted 1994 Revenues of
$1.4 Billion, Operating Income of $154 Million and Operating Cash Flow
of $202 Million
* Market Value of $1.6 Billion as of June 29, 1994, Prior to QVC/CBS
Merger Announcement
* Two New Domestic Shopping Services, Q2 and onQ, Launched in May 1994
* International Joint Ventures with BSkyB in the United Kingdom and Grupo
Televisa in Mexico
- Opportunity to Expand Customer Base and Increase Sales
- Challenge to Penetrate Market through Limited Cable Infrastructure,
Especially in the UK
* Company Incurred a $34.8 Million Charge in the Fourth Quarter of 1993
from Expenses in the Paramount Takeover Battle
* Significant Opportunity for Growth in the Near Term from Increasing
Acceptance of Home Shopping Industry
* Challenge of Increasing Competition in the Home Shopping Industry
- New Entrants to the Market May Include Macy's, Spiegel, and the
S Channel
* Decreasing Growth Rate of Base Business Has Raised Concern About Future
Prospects for the Company
Page 4
<PAGE> 8
PROJECT QVC CONFIDENTIAL AUGUST 4, 1994
QVC HISTORICAL OPERATING STATEMENTS
(In Millions, Except Per Share Data)
<TABLE>
<CAPTION>
Actual
----------------------------------------------- Budget
1990 1991 1992 1993 1994
===================================================================================
<S> <C> <C> <C> <C> <C>
Net Sales $776 $922 $1,071 $1,222 $1,367
Growth 71.2% 18.8% 16.1% 14.2% 11.9%
Operating Income 29 84 118 152 154
Operating Cash Flow 76 131 165 195 202
Growth 96.3% 73.2% 25.6% 18.3% 3.4%
Free Cash Flow * (15) 125 80 26 40
Net Income * (17) 20 55 59 65
Growth NM NM 179.5% 7.6% 10.0%
Net Income Per Share * ($0.98) $0.62 $1.26 $1.18 $1.33
</TABLE>
- ------------------------------------
* Includes costs of Paramount tender offer of $35 million in 1993.
Page 5
<PAGE> 9
PROJECT QVC CONFIDENTIAL August 4, 1994
QVC PROJECTED OPERATING STATEMENTS
(In Millions, Except Per Share Data)
<TABLE>
<CAPTION>
Projected
Budget --------------------------------------------------------
1994 1995 1996 1997 1998 1999
===========================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Sales $1,367 $1,621 $2,052 $2,421 $2,785 $3,202
Growth 11.9% 18.5% 26.6% 18.0% 15.0% 15.0%
Operating Income 154 206 304 366 435 516
Operating Cash Flow 202 262 356 425 499 586
Growth 3.4% 29.7% 36.1% 19.3% 17.5% 17.3%
Operating Cash Flow,
Not Including
Q2 Startup Costs 219 266 356 425 499 586
Free Cash Flow 40 53 134 174 217 279
Net Income 65 96 154 189 228 278
Growth 10.0% 47.3% 59.8% 23.1% 20.9% 21.6%
Net Income Per
Share $1.33 $1.95 $3.12 $3.84 $4.64 $5.64
</TABLE>
Page 6
<PAGE> 10
PROJECT QVC CONFIDENTIAL AUGUST 4, 1994
QVC CONSOLIDATED BALANCE SHEET
(In Millions, Except Per Share Data)
<TABLE>
<CAPTION>
April 30, LIABILITIES & April 30,
ASSETS 1994 SHAREHOLDERS' EQUITY 1994
========================================= ==============================================
<S> <C> <C> <C>
Cash and Marketable Securities $20 Current Maturities of Debt $3
Receivables 170 Accounts Payable 70
Inventories 157 Other Current Liabilities 216
----
Deferred Taxes and Other 67 Total Current Liabilities 289
----
Total Current Assets 414
Net Property Plant & Equipment 79 Long-Term Debt 7
Cable TV Distribution Rights 96 Shareholders' Equity 576
Goodwill 249
Other 34
----
Total Assets $872 Total Liabilities & Shareholders' $872
==== Equity ====
</TABLE>
Page 7
<PAGE> 11
PROJECT QVC CONFIDENTIAL AUGUST 4, 1994
QVC COMMON STOCK PRICE PERFORMANCE
* QVC Common Stock Price and Trading Volume Data
* Market Reaction to Selected Public Announcements
* QVC Common Stock Price Behavior Compared to:
- S&P 500
- Index of Cable Programming Companies
- Index of Specialty Retail Companies
Page 8
<PAGE> 12
PROJECT QVC CONFIDENTIAL AUGUST 4, 1994
QVC COMMON STOCK PRICE AND TRADING VOLUME
[GRAPHICAL MATERIAL]
Daily closing price and volume traded of QVC Common Stock from
01/01/92 to 08/02/94.
The following dates are highlighted:
* 12/10/92 Diller buys $25 MM stake
(Closing Price on 12/11/92: $37.13, up 12.5%, Volume
2,636,600 Shares)
* 01/19/93 Diller joins QVC
(Closing Price $41.00, Volume 599,600 Shares)
* 07/12/93 Plans to merge with HSN announced
(Closing Price $67.75, Volume 1,870,100 Shares)
* 09/20/93 - 02/15/94 Paramount takeover battle
(Closing Price on 09/20/93: $56.00, Volume 1,353,800
Shares)
(Closing Price on 02/15/94: $50.25, Volume 2,666,700
Shares)
* 6/30/94 QVC - CBS Merger announced
(Closing Price $38.00, Volume 1,709,500 Shares)
* 07/12/94 Comcast bids for QVC
(Closing Price on 7/13/94: $42.00, Volume 7,314,000
Shares)
Page 9
<PAGE> 13
PROJECT QVC CONFIDENTIAL AUGUST 4, 1994
QVC COMMON STOCK PRICE PERFORMANCE VERSUS MARKET INDICES
[GRAPHICAL MATERIAL]
Weekly Indexed comparison of QVC Common Stock closing prices
versus S&P 500 Index, Cable Programming Company Index, and
Specialty Retail Company Index from 01/01/92 to 08/02/94.
Cable Programming Company Index is comprised of: GET, FAM, TBS.A
and TBS.B.
Specialty Retail Company Index is comprised of: BV, HD, LOW, MES,
PCCW and TOY.
All indices are market capitalization weighted.
Page 10
<PAGE> 14
PROJECT QVC CONFIDENTIAL AUGUST 4, 1994
QVC COMMON STOCK TRADING PERFORMANCE AND MARKET REACTION TO SELECTED
PUBLIC ANNOUNCEMENTS
* QVC Common Stock Is Freely and Actively Traded on NASDAQ
* QVC Common Stock Traded in the Range of $37.25 to $72.50 for
the Year 1993 with an Average Daily Volume of 466,794 Shares
* QVC Common Stock Traded in the Range of $30.00 to $51.50 from
January 1, 1994 to June 29, 1994, the Day Prior to the QVC/CBS
Merger Announcement, with an Average Daily Volume of 553,890
Shares
* From June 30, 1994 to July 12, 1994, the Trading Day Prior to
the Announcement of the Comcast Offer, QVC Common Stock Traded
in the Range of $35.75 to $38.00 with an Average Daily Volume
of 688,125 Shares and an Average Price of $36.73 Per Share
* From July 13, 1994 to August 2, 1994, QVC Common Stock Traded
in the Range of $42.00 to $46.00 with an Average Daily Volume
of 1,244,253 Shares and an Average Price of $44.78 Per Share
* General Trading Patterns for QVC Common Stock Were Not in Line
with an Index of Comparable Companies from December 1992
through August 1994
Page 11
<PAGE> 15
PROJECT QVC CONFIDENTIAL AUGUST 4, 1994
QVC COMMON STOCK TRADING PERFORMANCE AND MARKET REACTION TO SELECTED
PUBLIC ANNOUNCEMENTS (CONTINUED)
* From December 1992, when Barry Diller Became Associated with
the Company, through August 1993, QVC Stock Had a Spectacular
Period of Price Appreciation
* From September 1993 through February 1994, QVC Stock Was
Influenced by the Company's Participation in the Paramount
Takeover Battle, Announcements of New Competitors Entering the
Home Shopping Industry, Perceived Slowdown in Growth of the
Company's Base Business, Start Up Costs of Q2 and Concern
About the Company's Involvement in International Joint
Ventures
* Since June 30, 1994, There Has Been Speculative Activity in
QVC Stock Prompted by the QVC/CBS Merger Announcement and the
Announcement of the Comcast Offer
* QVC Common Stock Price of $44.25 as of August 2, 1994
Reflected a Speculative Takeover Premium Due to the
Comcast/Liberty Offer and Speculation Regarding Other Bidders
and a QVC Self-Tender
* QVC Common Stock Price of $36.00 as of July 12, 1994, the
Trading Day Prior to the Announcement of the Comcast Offer,
Reflected a Premium Due to the Proposed Merger with CBS
* For the Twenty Trading Days Prior to June 30, 1994, the Date
of the QVC/CBS Merger Announcement, QVC Common Stock Traded in
the Range of $32.38 to $36.00 with an Average Daily Volume of
185,560 Shares and an Average Price of $33.83 Per Share
Page 12
<PAGE> 16
PROJECT QVC CONFIDENTIAL AUGUST 4, 1994
QVC COMMON STOCK TRADING PERFORMANCE AND MARKET REACTION TO SELECTED
PUBLIC ANNOUNCEMENTS (CONTINUED)
* For the Ten Trading Days Prior to June 30, 1994, the Date of
the QVC/CBS Merger Announcement, QVC Common Stock Traded in
the Range of $32.38 to $34.00 with an Average Daily Volume of
153,690 Shares and an Average Price of $33.26 Per Share
* QVC Common Stock as of June 29, 1994, the Day Prior to the
QVC/CBS Merger Announcement, Closed at $32.38 Per Share and in
Our Opinion Was a Representative Price for that Security
Page 13
<PAGE> 17
PROJECT QVC CONFIDENTIAL AUGUST 4, 1994
QVC MARKET MULTIPLE COMPARISON
COMPARED QVC TO:
* Home Shopping Network, Inc.
* Publicly-Traded Cable Programming Companies
- Gaylord Entertainment Company
- International Family Entertainment, Inc.
- Turner Broadcasting System, Inc.
* Publicly-Traded Specialty Retail Companies
- Blockbuster Entertainment Corporation
- The Home Depot, Inc.
- Lowe's Companies, Inc.
- Melville Corporation
- Price/Costco, Inc.
- Toys 'R' Us, Inc.
Page 14
<PAGE> 18
PROJECT QVC CONFIDENTIAL AUGUST 4, 1994
QVC MARKET MULTIPLE COMPARISON
TOTAL MARKET CAPITALIZATION TO LTM SALES (1)
[TABLE REPLACES BAR CHART]
<TABLE>
<CAPTION>
As of 06/29/94 As of 07/12/94 As of 08/02/94(2)
-------------- -------------- -----------------
<S> <C> <C> <C>
QVC 1.26 x 1.40 x 1.79 x
Cable Programming Companies 3.22 x 3.17 x 3.18 x
Specialty Retail Companies 1.24 x 1.27 x 1.24 x
</TABLE>
(1) Comparable Company multiples are average multiples for each
group. See detail in Common Stock Comparison analyses located
in Exhibits.
(2) QVC multiple based on offering price of $46.00 per share. All
other multiples based on closing stock prices for comparable
companies as of 08/02/94.
Page 15
<PAGE> 19
PROJECT QVC CONFIDENTIAL AUGUST 4, 1994
QVC MARKET MULTIPLE COMPARISON
TOTAL MARKET CAPITALIZATION TO LTM OPERATING CASH FLOW (1) (3)
[TABLE REPLACES BAR CHART]
<TABLE>
<CAPTION>
As of 06/29/94 As of 07/12/94 As of 08/02/94(2)
-------------- -------------- -----------------
<S> <C> <C> <C>
QVC 8.0 x 8.9 x 11.4 x
Cable Programming Companies 19.3 x 19.1 x 19.2 x
Specialty Retail Companies 10.5 x 10.8 x 10.7 x
</TABLE>
(1) Comparable Company multiples are average multiples for each
group. See detail in Common Stock Comparison analyses located
in Exhibits.
(2) QVC multiple based on offering price of $46.00 per share. All
other multiples based on closing stock prices for comparable
companies as of 08/02/94.
(3) Operating Cash Flow known as EBITDA in Common Stock Comparison
analyses.
Page 16
<PAGE> 20
PROJECT QVC CONFIDENTIAL AUGUST 4, 1994
QVC MARKET MULTIPLE COMPARISON
MARKET VALUE OF EQUITY TO LTM EPS (1)
[TABLE REPLACES BAR CHART]
<TABLE>
<CAPTION>
As of 06/29/94 As of 07/12/94 As of 08/02/94(2)
-------------- -------------- -----------------
<S> <C> <C> <C>
QVC 21.3 x 23.6 x 30.2 x
Cable Programming Companies 38.5 x 38.0 x 37.4 x
Specialty Retail Companies 23.1 x 23.6 x 24.0 x
</TABLE>
(1) Comparable Company multiples are average multiples for each
group. See detail in Common Stock Comparison analyses located
in Exhibits.
(2) QVC multiple based on offering price of $46.00 per share. All
other multiples based on closing stock prices for comparable
companies as of 08/02/94.
Page 17
<PAGE> 21
PROJECT QVC CONFIDENTIAL AUGUST 4, 1994
QVC MARKET MULTIPLE COMPARISON
Market Value of Equity to 1994E EPS(1)
[TABLE REPLACES BAR CHART]
<TABLE>
<CAPTION>
As of 06/29/94 As of 07/12/94 As of 08/02/94(2)
-------------- -------------- ---------------
<S> <C> <C> <C>
QVC(3) 20.2 x 22.4 x 28.7 x
Cable Programming Companies 19.7 x 19.3 x 19.0 x
Specialty Retail Companies 18.3 x 18.7 x 19.0 x
</TABLE>
(1)Comparable Company multiples are average multiples for each
group. See detail in Common Stock Comparison analyses located
in Exhibits.
(2)QVC multiple based on offering price of $46.00 per share. All
other multiples based on closing stock prices for comparable
companies as of 08/02/94.
(3)QVC multiples of 20.2 x, 22.4 x and 28.7 x represent 1994E EPS
excluding Q2 startup costs as of 06/29/94, 07/12/94 and the
offering price, respectively. 1994E EPS including Q2 startup
costs results in multiples of 24.2 x, 26.9 x and 34.3 x 1994E
EPS as of 06/29/94, 07/12/94 and the offering price,
respectively.
Page 18
<PAGE> 22
PROJECT QVC CONFIDENTIAL AUGUST 4, 1994
QVC MARKET MULTIPLE COMPARISON
* Compared QVC Trading Multiples to those of Cable Programming
Companies and Specialty Retail Companies
* For the Dates Considered, QVC Traded at Multiples Closely
Related to Specialty Retail Companies
* QVC Stock Prices as of July 12, 1994 and August 2, 1994
Traded at Multiples of LTM Sales, Operating Cash Flow, LTM
EPS and 1994E EPS that Were Higher (Except in One Case)
than the Range for Specialty Retail Companies
* As of June 29, 1994, QVC Traded at Multiples of LTM Sales,
Operating Cash Flow, LTM EPS and 1994E EPS which Were
within the Range of Multiples for Specialty Retail
Companies and at a Multiple of 1994E EPS that Was Higher
than the Average for Cable Programming and Specialty Retail
Companies
Page 19
<PAGE> 23
PROJECT QVC CONFIDENTIAL AUGUST 4, 1994
QVC DISCOUNTED CASH FLOW ANALYSIS
(In Millions, Except Per Share Data)
<TABLE>
<CAPTION>
Projected
Budget -------------------------------------------
1994 1995 1996 1997 1998 1999
===================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Unlevered Free Cash Flow From Operations $33 $46 $126 $165 $207 $263
</TABLE>
Net Per Share Present Value of
Company Based on Discounted Cash Flows:
<TABLE>
<CAPTION>
Multiple of 1999 Estimated EBITDA
Discount --------------------------------------------
Rate 7.0 x 8.0 x 9.0 x
-------- ------ ------ ------
<S> <C> <C> <C>
15.0% $49.00 $53.94 $58.88
17.5% 44.54 48.94 53.33
20.0% 40.64 44.56 48.48
22.5% 37.20 40.71 44.22
25.0% 34.18 37.33 40.47
</TABLE>
Page 20
<PAGE> 24
PROJECT QVC CONFIDENTIAL AUGUST 4, 1994
PREMIUM PAID IN PROPOSED TRANSACTION
* Comcast/Liberty Offer Price: $46.00 Per Share
Premium Over QVC Stock Price as of:
<TABLE>
<CAPTION>
Stock Price Premium
----------- -------
<S> <C> <C>
June 29, 1994 $32.38 42.1%
10 Trading Days Prior to June 29, 1994 33.26 38.3%
20 Trading Days Prior to June 29, 1994 33.83 36.0%
July 12, 1994 36.00 27.8%
August 2, 1994 44.25 4.0%
</TABLE>
* Premiums Paid in Selected All Cash Merger Transactions:(1)
<TABLE>
<S> <C>
Average Premium 38.6%
High 82.5%
Low 10.0%
</TABLE>
(1) See detail in Comparison of Selected Acquisitions located in
Exhibits.
Page 21
<PAGE> 25
PROJECT QVC CONFIDENTIAL AUGUST 4, 1994
MULTIPLES PAID IN COMPARABLE TRANSACTIONS
TRANSACTIONS REVIEWED:
* Major Media Mergers and Acquisitions within the Last Five Years
- Transaction Values in Excess of $1.0 Billion
- Transactions with All Cash or Cash and Stock
Consideration
- Acquisition of 100% of Company
* Acquisitions of All or a Significant Portion of Cable Programmers
within the Last Ten Years
- Transactions with All Cash or Cash and Stock
Consideration
* Mergers and Acquisitions of Specialty Retailers and Selected
General Retailers within the Last Five Years
- Transactions with All Cash or Cash and Stock
Consideration
Page 22
<PAGE> 26
PROJECT QVC CONFIDENTIAL AUGUST 4, 1994
MULTIPLES PAID IN COMPARABLE TRANSACTIONS
Multiples Paid in Selected Acquisitions in Comparable Industries
<TABLE>
<CAPTION>
Transaction Price as a Multiple of:
-------------------------------------------------------------------
Sales EBITDA Net Income Book Value
----- ------ ---------- ----------
<S> <C> <C> <C> <C>
Comcast / Liberty Offer for QVC(1) 1.79 x 11.4 x 29.2 x 3.89 x
Comparable Transactions in(2):
Media -- Average 1.91 x 11.7 x 21.3 x 2.54 x
High 6.22 25.9 25.8 3.91
Low 0.81 1.1 18.5 1.52
Cable Programming -- Average NA 12.1 x NA NA
High NA 30.0 NA NA
Low NA 5.7 NA NA
Retail -- Average 0.55 x 9.6 x 19.9 x 2.82 x
High 0.99 14.3 27.2 4.34
Low 0.10 7.9 10.7 0.53
</TABLE>
(1) Based on offering price of $46.00 per share.
(2) See detail in Comparison of Selected Acquisitions located in Exhibits.
Page 23
<PAGE> 27
PROJECT QVC CONFIDENTIAL AUGUST 4, 1994
SUMMARY
* QVC Common Stock Is Freely and Actively Traded on the NASDAQ
* QVC Common Stock Price Behavior Was Affected by Various Events
From December 1992 through August 2, 1994
* QVC Common Stock Price Between June 30, 1994 and August 2, 1994
Reflected a Potential Merger or Acquisition Premium
* QVC Common Stock Price of $32.38 Per Share on June 29, 1994, the
Day Prior to the Announcement of the Proposed Transaction with
CBS, Traded In-Line with the Range of Multiples of Comparable
Companies
* QVC Common Stock Price of $32.38 Per Share on June 29, 1994, the
Day Prior to the Announcement of the Proposed Transaction with
CBS, in Our Opinion Is a Representative Price for that Security
* The Proposed Offer of $46 Per Share is In-Line with Our
Discounted Cash Flow Per Share Analysis of QVC Common Stock
* The Proposed Offer of $46 Per Share is within the Range of
Premiums Paid in Comparable Transactions
* The Proposed Offer of $46 Per Share is within the Range of
Multiples Paid in Comparable Transactions
Page 24
<PAGE> 28
PROJECT QVC CONFIDENTIAL AUGUST 4, 1994
CONCLUSION
Based on the Foregoing, We Are of the Opinion that the Consideration
to be Received in Connection with the Merger 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.
Page 25
<PAGE> 1
EXHIBIT 11
[ALLEN & COMPANY INCORPORATED LETTERHEAD]
August 4, 1994
QVC, Inc.
Goshen Corporate Park
West Chester, PA 19380
Gentlemen:
This letter will confirm that Allen & Company Incorporated ("Allen") has
been engaged by QVC, Inc., a Delaware corporation ("QVC"), to act as investment
banker and financial advisor to assist QVC in evaluating opportunities and, to
the extent appropriate, developing and implementing a plan to maximize value for
QVC stockholders.
In connection with its engagement hereunder, Allen will assist in the
preparation of any appropriate offering or descriptive materials, identify and
contact potential buyers, investors or other interested parties, assist QVC in
(i) evaluating proposals, including offers made by Comcast Corporation and
others, and (ii) negotiations between QVC and any potential acquirors, investors
or other interested parties. In the event QVC determines to pursue one or more
potential transactions, Allen will assist QVC in structuring and negotiating
such transaction or transactions, arranging any necessary financing, and
documenting and consummating such transaction or transactions.
In addition, Allen will provide QVC with such other financial advisory and
investment banking services as are reasonably necessary and appropriate in
connection with its engagement, including rendering an opinion (if requested by
QVC) as to the fairness of any proposed transaction or transactions, from a
financial point of view, to the stockholders of QVC.
QVC will furnish Allen with such information concerning QVC and its
affiliates as Allen and QVC believe appropriate to this engagement. Allen does
not assume responsibility for the accuracy or completeness of any such
information provided by QVC. Allen agrees to keep confidential all non-public
information provided to it by QVC, except as required by law and except that
Allen may disclose such non-public information to its agents and advisors who
agree to keep such information confidential, whenever Allen determines that such
disclosure is necessary to provide the services contemplated hereunder. No party
shall make any public announcement regarding this engagement without the prior
consent of the other party except that QVC may disclose that Allen has been
engaged as its investment banker and financial advisor.
For its services hereunder, QVC shall pay to Allen, upon the earlier to
occur of (i) the consummation by Comcast Corporation, Liberty Media Corporation
and/or any affiliate of such parties of a tender offer for the stock of QVC at a
price of at least $46 per share (on a common equivalent basis) pursuant to the
Merger Agreement among such parties dated as of the date hereof, or (ii) such
earlier time as the parties hereto mutually agree, a fee in the amount of $10.3
million. In the event of the consummation of an alternative transaction to that
contemplated by such Merger Agreement, Allen shall be paid a fee in an amount to
be agreed upon by the parties hereto.
In addition, QVC agrees to reimburse Allen for its reasonable out-of-pocket
expenses, including reasonable travel and legal expenses, incurred in rendering
its services hereunder.
QVC and Allen have entered into an indemnification letter agreement dated
the date hereof providing for the indemnification of Allen by QVC in connection
with Allen's engagement hereunder. QVC acknowledges that the Allen executives
advising QVC in connection with Allen's engagement hereunder include Mr. Paul A.
Gould, a Managing Director of Allen, who also serves as a Director of Liberty
Media Corporation.
<PAGE> 2
QVC, Inc.
August 4, 1994
The validity and interpretation of this agreement shall be governed by the
laws of the State of New York applicable to agreements made and to be fully
performed therein.
This letter agreement may be executed in counterparts which, taken
together, shall constitute our binding agreement.
If you find the above in accordance with our understanding kindly so
indicate by signing and returning the enclosed duplicate of this letter.
Very truly yours,
ALLEN & COMPANY INCORPORATED
By: /s/ ENRIQUE F. SENIOR
------------------------------------
Enrique F. Senior
Managing Director
AGREED AND ACCEPTED:
QVC, INC.
By: /s/ NEAL S. GRABELL
----------------------------------
Name: Neal S. Grabell
Title: Senior Vice President
ALLEN & COMPANY
INCORPORATED
<PAGE> 3
ALLEN & COMPANY INCORPORATED EXHIBIT 11
711 Fifth Avenue
New York, New York 10022
Date: August 4, 1994
Gentlemen:
In connection with your engagement to assist us with financial advisory and
investment banking and related services pursuant to our engagement letter dated
as of August 4, 1994, as amended from time to time (the "Engagement Letter")
including related activities prior to this date, we agree that we will indemnify
and hold harmless you and your affiliates, any director, officer, agent or
employee of you or any of your affiliates and each other person, if any,
controlling you or any of your affiliates (hereinafter collectively referred to
as "you" and "your"), to the full extent lawful, from and against, and that you
shall have no liability to us or our affiliates or security holders for, any
losses, expenses, claims or proceedings including shareholder actions
(hereinafter collectively referred to as "losses") (i) related to or arising out
of (A) oral or written information provided by us, our employees or our other
agents, and used by you in providing services pursuant to the Engagement Letter,
or (B) other action or failure to act by us, our employees or our other agents
or by you at our request or with our consent, or (ii) otherwise related to or
arising out of such engagement or any transaction or conduct in connection
therewith except that this clause (ii) shall not apply with respect to any
losses that result primarily and directly from your bad faith or gross
negligence.
In the event that the foregoing indemnity is unavailable to you for any
reason other than your bad faith or gross negligence, we agree to contribute to
any loss related to or arising out of such engagement or any transaction or
conduct in connection therewith. For such losses referred to in clause (i) of
the preceding paragraph, each of us shall contribute in such proportion as is
appropriate to reflect the relative benefits received (or anticipated to be
received) by you and by us from any transaction contemplated by the Engagement
Letter; provided, however, that you shall not be responsible for any amounts in
excess of the amount of the benefits received by you. For any other losses, or
for losses referred to in clause (i) if the allocation provided by the
immediately preceding sentence is unavailable for any reason, each of us shall
contribute in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of each of us in connection with
the statements, omissions or other conduct which resulted in such losses, as
well as any other relevant equitable considerations. Benefits received (or
anticipated to be received) by us shall be deemed to be equal to the aggregate
cash consideration and value of securities or any other property payable,
exchangeable or transferable in connection with any transaction contemplated by
the Engagement Letter, and benefits received by you shall be deemed to be equal
to the compensation payable by us to you in connection with such engagement.
Relative fault shall be determined by reference to, among other things, whether
any alleged untrue statement or omission or any other alleged conduct relates to
information provided by us or other conduct by us (or our employees or other
agents) on the one hand or by you (or your employees or other agents) on the
other hand. You and we agree that it would not be just and equitable if
contribution were determined by pro rata allocation or by any other method of
allocation which does not take account of the equitable considerations referred
to above.
We agree that we will not, without the prior written consent of Allen &
Company Incorporated (which will not be unreasonably withheld) settle any
pending or threatened claim or proceeding related to or arising out of such
engagement or transactions or conduct in connection therewith (whether or not
you are a party to such claim or proceeding) unless such settlement includes a
provision unconditionally releasing you from and holding you harmless against
all liability in respect of claims by any releasing party related to or arising
out of such engagement or any transaction or conduct in connection therewith. We
will also promptly reimburse you for all expenses (including counsel fees) as
they are incurred by you in connection with investigating, preparing or
defending, or providing evidence in, any pending or threatened claim or
proceeding in respect of which indemnification or contribution may be sought
hereunder (whether or not you are a party to such claim or proceeding) or in
enforcing this agreement.
We may, at our sole expense and through counsel of our choice acceptable to
you, litigate, defend or otherwise attempt to resolve the demand or proceeding
underlying any indemnification matter, except that you
<PAGE> 4
Allen & Company Incorporated
August 4, 1994
shall have the right to participate therein, at your sole expense and through
counsel of your choice. If we fail to assume and defend diligently in the
proceeding or if you shall have defenses which are not available to us or shall
be in conflict with us, then you shall have the right to assume such defense at
our expense. In any event, we and you shall fully cooperate with each other and
our respective counsel in the litigation, defense or other attempt to resolve
such demand or proceeding, and shall make available to each other any books,
records or other documents necessary or appropriate for such purpose, subject to
the right of each party to protect reasonably, from disclosure, confidential
business information.
The foregoing agreement shall be in addition to any rights that you may
have at common law or otherwise. Solely for purposes of enforcing this
agreement, we hereby consent to personal jurisdiction, service and venue in any
court in which any claim or proceeding which is subject to this agreement is
brought against you. Any right to trial by jury with respect to any claim or
proceeding related to or arising out of such engagement, or any transaction or
conduct in connection therewith or this agreement is waived. This agreement
shall remain in full force and effect following the completion or termination of
such engagement.
Very truly yours,
QVC, INC.
By: /s/ NEAL S. GRABELL
------------------------------------
Name: Neal S. Grabell
Title: Senior Vice President
Agreed:
ALLEN & COMPANY INCORPORATED
By: /s/ ENRIQUE F. SENIOR
----------------------------------
Enrique F. Senior
Managing Director
