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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 1994
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 0-14999
QVC NETWORK, INC.
(Exact name of registrant as specified in its charter)
Delaware 23-2414041
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Goshen Corporate Park, West Chester, PA 19380
(Address of principal executive offices) (Zip Code)
(610) 430-1000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months, and
(2) has been subject to such filing requirements for the past 90
days.
Yes X No
---- ----
The number of shares outstanding of the registrant's common
stock (net of shares held in treasury) as of April 30, 1994, was:
Common Stock ($.01 par value) -- 40,214,097 shares
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QVC NETWORK, INC.
INDEX
Part I - FINANCIAL INFORMATION
Page No.
--------
Consolidated Balance Sheets........................ 3
Consolidated Statements of Operations.............. 4
Consolidated Statements of Cash Flows.............. 5
Consolidated Statement of Shareholders' Equity..... 6
Notes to Consolidated Financial Statements......... 7
Management's Discussion and Analysis of Financial
Condition and Results of Operation............ 11
Part II - OTHER INFORMATION
Item 1: Legal Proceedings.......................... 17
Item 5: Other Information.......................... 18
Item 6: Exhibits and Reports on Form 8-K........... 21
Signatures.......................................... 22
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QVC, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(unaudited)
(in thousands)
April 30, January 31,
1994 1994
-------- -----------
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
-------- --------
The accompanying notes are an integral part of these consolidated
financial statements.
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QVC, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited)
(in thousands, except per share data)
Three months ended April 30,
----------------------------
1994 1993
------- -------
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
------- -------
The accompanying notes are an integral part of these consolidated
financial statements.
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QVC, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
(in thousands) Three months ended
April 30,
--------------------
1994 1993
-------- --------
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
-------- --------
The accompanying notes are an integral part of these consolidated
financial statements.
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QVC, INC. AND SUBSIDIARIES
Consolidated Statement of Shareholders' Equity
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------
Additional
Convertible Common Paid-in Retained
Preferred 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
--- ---- -------- -------- --------
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
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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:
April 30, January 31,
1994 1994
-------- --------
(in thousands)
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
-------- --------
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.
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Accordingly, the Company has included 100% of the loss on operations of this
venture in the Consolidated Statements of Operations. The operating results
of the joint venture in Mexico are shared equally by the partners.
Summarized financial information for "QVC - The Shopping Channel" and
"CVC" on a 100% basis as of and for the quarter ended April 30, 1994 follows
(in thousands):
QVC
The Shopping Channel CVC
-------------------- ---------
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)
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 outstand-
ing 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):
Shares
Authorized Outstanding Par Value
---------- ----------- ---------
Series A 10 - $ -
Series B 1,000 28 3
Series C 1,000 531 53
Series D 300 1 -
----
$ 56
----
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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 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
Three months ended
April 30,
-----------------------
1994 1993
-------- --------
(in thousands)
Supplemental cash flow information:
Interest paid $ 321 $ 561
Income taxes paid 20 4,393
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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.
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.
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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:
April 30,
--------------------
1994 1993
---- ----
(in millions, except
dollar amounts)
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
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.
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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:
Three months
ended April 30,
-------------------
1994 1993
-------------------
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%
------ ------
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.
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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 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:
Three months
ended April 30,
-----------------
1994 1993
------ ------
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%
------ ------
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):
Three months
ended April 30,
---------------------------
1994 1993
----------- -----------
$ % $ %
---- ---- ---- ----
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
---- ---- ---- ----
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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 general and
administrative expenses are detailed below, expressed in amounts and as a
percentage of net revenue (dollars in millions).
Three months
ended April 30,
---------------------------
1994 1993
----------- -----------
$ % $ %
---- ---- ---- ----
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
---- ---- ---- ----
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
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<PAGE> 15
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.
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.
<PAGE>
<PAGE> 16
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.
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.
<PAGE>
<PAGE> 17
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
<PAGE>
<PAGE> 18
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 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
<PAGE>
<PAGE> 19
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
<PAGE>
<PAGE> 20
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.
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.
<PAGE>
<PAGE> 21
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits.
10.1 Employment Agreement, dated as of January 1, 1994,
between QVC and Douglas S. Briggs.
10.2 Employment Agreement, dated as of January 1, 1994,
between QVC and William F. Costello.
11. Statement re Computation of Per Share Earnings.
99. Stipulation and Order of Dismissal in Viacom
International Inc. v. Tele-Communications, Inc., et
al., filed on May 3, 1994, in the United States
District Court for the Southern District of New
York.
b. Reports on Form 8-K.
During the fiscal quarter ended April 30, 1994, no
Current Reports on Form 8-K were filed.<PAGE>
<PAGE>
<PAGE> 22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
QVC NETWORK, INC.
(Registrant)
/s/ Barry Diller
--------------------------------
Barry Diller
Chairman and
Chief Executive Officer
/s/ William F. Costello
--------------------------------
William F. Costello
Executive Vice President
and Chief Financial Officer
Dated: June 13, 1994
<PAGE>
<PAGE> 23
INDEX OF EXHIBITS
Exhibit No. Description
- - ----------- -----------
10.1 Employment Agreement, dated as of January 1, 1994,
between QVC and Douglas S. Briggs.
10.2 Employment Agreement, dated as of January 1, 1994,
between QVC and William F. Costello.
11. Statement re Computation of Per Share Earnings.
99. Stipulation and Order of Dismissal in Viacom
International Inc. v. Tele-Communications, Inc., et
al., filed on May 3, 1994, in the United States
District Court for the Southern District of New
York.
<PAGE>
<PAGE>
<PAGE> 24
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
This Employment Agreement is dated as of January 1, 1994, and
is entered into between QVC, Inc., a Delaware corporation (the
"Company"), and Douglas S. Briggs ("Executive").
WHEREAS, the Company desires to continue to employ Executive
and Executive desires to continue in the employ of the Company, and
Executive and the Company desire to embody in this Agreement the
terms and conditions under which Executive shall continue to be
employed.
NOW, THEREFORE, the parties hereby agree:
ARTICLE I
Employment, Duties and Responsibilities
1.01 Employment. During the term of this Agreement (the
"Term"), Executive shall serve as Executive Vice President of the
Company and as President of the Company's Electronic Retailing
Division. Executive hereby accepts such employment. Executive
agrees to devote his full working time and efforts to promote the
interest of the Company.
1.02 Duties and Responsibilities. Executive shall have
such duties, function, responsibilities and position level as on
the date hereof and as shall be assigned to him by the Board of
Directors of the Company or its designee.
1.03 Base of Operation. Executive's principal base of
operation for the performance of his duties and responsibilities
under this Agreement shall continue to be the offices of the
Company in West Chester, Pennsylvania; provided, however, that
Executive shall perform such duties and responsibilities at such
other places as shall from time to time be reasonably necessary to
fulfill his obligations hereunder.
ARTICLE II
Term
2.01 Term. The Term shall commence on January 1, 1994
and shall continue for a period of five years, terminating on
December 31, 1998, unless terminated earlier as provided in Article
V. The Term shall automatically be renewed for one year terms
unless either party gives at least 120 days prior written notice of
its intention not to renew the Term.
<PAGE>
<PAGE> 25
ARTICLE III
Compensation, Expenses and Indemnification
3.01 Salary, Bonuses and Benefits. As compensation and
consideration for the performance by Executive of his obligations
under this Agreement, Executive shall be entitled to the following
(subject, in each case, to the provisions of ARTICLE V hereof):
(a) Salary. The Company shall pay Executive a base
salary during the Term, payable in accordance with the normal
payment procedures of the Company and subject to such withholding
and other normal employee deductions as may be required by law, at
the rate of $350,000 per year during the first year of the Term,
$400,000 per year during the second year of the Term, $450,000
during the third year of the Term and $500,000 per year during the
fourth and fifth years of the Term.
(b) Bonus. During the Term, Executive shall be
eligible for and participate in such bonus and incentive
compensation programs as shall be generally provided to Executive
Officers of the Company.
(c) Benefits. Executive shall participate during
the Term in such life insurance, health, disability and major
medical insurance benefits, and in such other employee benefit
plans and programs for the benefit of the employees of the Company,
as may be maintained from time to time during the Term, in each
case to the extent and in the manner available to other Executive
Officers of the Company and subject to the terms and provisions of
such plan or program.
(d) Vacation. Executive shall be entitled to paid
vacation during the Term in accordance with Company policy.
(e) Perquisites. During the Term, the Company
shall pay or reimburse Executive or otherwise make available to him
those perquisites which were made available to him immediately
prior to entering into this Agreement, including, but not limited
to, use of a Company-owned automobile or a monthly car allowance.
(f) Long-Term Stock Grant Plan. The Company shall
establish a Long-Term Stock Grant Plan. Employee shall participate
in the Long-Term Stock Grant Plan of the Company at a senior level
of participation existing on the date of the creation of such plan.
3.02 Expenses. The Company shall reimburse Executive for
all reasonable out-of-pocket expenses incurred by Executive in
connection with the business of the Company and in performance of
his duties under this Agreement upon Executive's presentation to
the Company of an itemized accounting of such expenses with
reasonable supporting data, subject, however, to the Company's
<PAGE>
<PAGE> 26
policies relating to business-related expenses as in effect from
time to time during the Term.
3.03 Indemnification. Throughout the Term and
thereafter, the Company shall indemnify the Executive to the
fullest extent not prohibited by law against any and all expenses,
fees, liabilities and obligations of any nature whatsoever paid or
incurred by Executive in connection with any suit, proceeding,
inquiry, hearing or investigation arising out of or related to (a)
the fact that the Executive is or was an employee, officer,
director, or agent of the Company, or (b) anything done or not done
by Executive in any such capacity.
ARTICLE IV
Exclusivity, Etc.
4.01 Exclusivity; Non-Competition. Executive shall
perform his duties, responsibilities and obligations hereunder
efficiently and to the best of his ability. Executive shall devote
his entire working time, care and attention and best efforts to
such duties, responsibilities and obligations throughout the Term.
During the Term Executive shall not engage in any business
activities that are competitive with the business activities of the
Company or any of its divisions, subsidiaries or affiliates.
4.02 Other Business Ventures. Executive shall not during
the Term be engaged in any other business activity whether or not
such business activity is pursued for gain, profit or other
pecuniary advantage; but this shall not be construed as preventing
Executive from investing his personal assets in businesses which do
not compete with the Company in such form or manner as will not
require any services on the part of Executive in the operation of
the affairs of the companies in which such investments are made and
in which his participation is solely that of an investor; and
except that Executive may purchase securities in any corporation
whose securities are regularly traded provided that such purchase
shall not result in his collectively owning beneficially at any
time one percent (1%) or more of the equity securities of any
corporation engaged in business activities that are competitive
with the business activities of the Company or any of its
divisions, subsidiaries or affiliates.
4.03 Properties; Business Secrets; and Non-Solicitation.
(a) Executive hereby sells, transfers and assigns
to the Company or to any person, or entity designated by the
Company all of the entire right, title and interest of Executive in
and to all inventions, ideas, disclosures and improvements, whether
patented or unpatented, and copyrightable material, made or
conceived by Executive solely or jointly, during the Term which
relate to methods, apparatus, designs, products, processes or
devices, sold, used or under consideration or development by the
Company or any of its divisions, subsidiaries or affiliates, or
<PAGE>
<PAGE> 27
which otherwise relate to or pertain to the business, functions or
operations of the Company or any of its divisions, subsidiaries or
affiliates, or which arise from the efforts of Executive during the
course of his employment with the Company. Executive shall
communicate promptly and disclose to the Company, in such form as
the Company requests, all information, details and data pertaining
to the aforementioned inventions, ideas, disclosures and
improvements; and Executive shall execute and deliver to the
Company such formal transfers and assignments and such other papers
and documents as may be necessary or required of Executive to
permit the Company or any person or entity designed by the Company
to file and prosecute the patent applications and, as to
copyrightable material, to obtain copyright thereof. Any invention
relating to the business of the Company and disclosed by Executive
within one year following the termination of this Agreement shall
be deemed to fall within the provisions of this Section 4.03(a)
unless proved to have been first conceived and made following such
termination.
(b) Executive shall not, at any time during or
after the Term, make use of or divulge to any other person, firm or
corporation any trade or business secret, process, method or means,
or any other confidential information concerning the business or
policies of the Company or any of its divisions, subsidiaries or
affiliates, which he may have learned in connection with his
employment by the Company. For purposes of this Agreement, a
"Trade or business secret, process, method or means, or any other
confidential information" shall mean and include written
information treated as confidential or as a trade secret by the
Company. Executive's obligation under this Section 4.03(b) shall
not apply to any information which (i) is known publicly; (ii) is
in the public domain or hereafter enters the public domain without
the fault of Executive; (iii) is known to Executive prior to his
receipt of such information from the Company, as evidenced by
written records of Executive; or (iv) is hereafter disclosed to
Executive by a third party not under an obligation of confidence to
the Company. Executive shall not remove from the premises of the
Company, except as an employee of the Company in pursuit of the
business of the Company or except as specifically permitted in
writing by the Company, any document or other object containing or
reflecting any such confidential information. Executive recognizes
that all such documents and objects, whether developed by him or by
someone else, will be the sole exclusive property of the Company.
Upon termination of his employment hereunder, Executive shall
forthwith deliver to the Company all such confidential information,
including, without limitation, all lists of customers,
correspondence, accounts, records and any other documents or
property made or held by him or under his control in relation to
the business or affairs of the Company or its subsidiaries or
affiliates, and no copy of any such confidential information shall
be retained by him.
(c) Executive shall not, for a period of one year
after any payment of base salary by Company to Executive under the
<PAGE>
<PAGE> 28
terms of this Agreement, directly or indirectly, whether as an
employee, consultant, independent contractor, partner, joint
venturer or otherwise, (i) on behalf of any person or entity
engaged in the sale of retail goods by means of television, solicit
or induce, or in any manner attempt to solicit or induce, any
person employed by, or as agent of, the Company or any of its
divisions, subsidiaries or affiliates to terminate such person's
contract of employment or agency, as the case may be, with the
Company or with any such division, subsidiary or affiliate, or (ii)
divert, or attempt to divert, any person, concern, or entity from
doing business with the Company or any of its divisions,
subsidiaries or affiliates, nor will he attempt to induce any such
person, concern or entity to cease being a customer or supplier of
the Company or any of its divisions, subsidiaries or affiliates.
ARTICLE V
Termination
5.01 Termination by the Company. The Company shall have
the right to terminate Executive's employment at any time for
"Cause". For purposes of this Agreement, "Cause" shall mean (a)
termination by written action by the Chairman of the Company acting
because of the Executive's willful and continued refusal, without
proper cause, to substantially perform his duties under this
Agreement; or (b) the conviction of Executive of a felony or of an
act of fraud or embezzlement against the Company or any of its
divisions, subsidiaries or affiliates (which through lapse of time
or otherwise is not subject to appeal). Such termination shall be
effected by written notice thereof, personally hand delivered by
Company to Executive, and, except as hereinafter provided, shall be
effective as of the thirtieth day after such notice; provided,
however, that if within such thirty day period Executive shall
cease his refusal and shall use his best efforts to perform such
obligations, the termination shall not be effective.
5.02 Death. In the event Executive dies during the Term,
this Agreement shall automatically terminate, such termination to
be effective on the date of Executive's death.
5.03 Disability. In the event that Executive suffers a
disability which prevents him from substantially performing his
duties under this Agreement for a period of at least 90 consecutive
days, or 180 non-consecutive days within any 365-day period, the
Company shall have the right to terminate this Agreement, such
termination to be effective upon the giving of notice to Executive
in accordance with Section 6.02 of this Agreement.
5.04 Termination by Executive for Good Reason. Executive
may terminate his employment with the Company for "Good Reason" by
giving 30 days advance written notice to the Company of his intent
to so terminate. For purposes of this Agreement, the following
circumstances shall constitute "Good Reason":
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<PAGE> 29
(a) any action by the Company which results in a
material diminution or material adverse change in Executive's
title, authority, duties or responsibilities, except for written
actions taken by the Chairman of the Company.
(b) any failure by the Company to timely pay the
amounts or provide the benefits described in Article III of this
Agreement, other than an isolated failure not occurring in bad
faith and which is remedied promptly after receipt of written
notice thereof given by Executive;
(c) any failure by the Company to require any
successor to be bound by the terms of this Agreement;
(d) any action by the Company requiring Executive
to be based at any office or location other than the offices of the
Company in West Chester, Pennsylvania; provided, however, that this
Section 5.04(d) shall not apply to a general relocation of the
offices of the Company to a location not more than 20 miles from
West Chester, Pennsylvania.
5.05 Effect of Termination.
(a) For Cause; Without Good Reason; Death;
Disability. In the event of termination of this Agreement (i) by
the Company for Cause, (ii) by Executive without Good Reason, or
(iii) by reason of Executive's death or disability, the Company
shall pay Executive (or his beneficiary in the event of his death)
any base salary, bonus or other compensation earned but not paid to
Executive prior to the effective date of such termination.
(b) Without Cause; for Good Reason. In the event
of termination of this Agreement (i) by the Company other than for
Cause or the death or disability of the Executive; or (ii) by
Executive for Good Reason, the Company shall pay Executive the sum
of (A) the amount described in Section 5.05(a) of this Agreement,
to be paid within 30 days after the termination of this Agreement,
(B) Executive's base salary for the period from the date of
termination to December 31, 1998, to be paid monthly in accordance
with the Company's payroll practices, and (C) a pro-rata portion of
all bonus compensation to which Executive would have been entitled
for the year of the termination based on the number of days served
by the Executive, assuming full satisfaction of any objective
performance criteria. In the event of the termination of this
Agreement as provided in this Section 5.05(b), Executive shall
remain an employee of the Corporation without the obligation to provide
further services to the Corporation until the earliest of December 31,
1998, his death or his disability and shall be entitled during
such period to all benefits and perquisites set forth in
Section 3.01(c) and (e) and the continuation of his rights as an
employee under the terms of the Stock Option Agreements between
Executive and the Company dated as of December 9, 1992 and as of
February 7, 1994 (the "Option Agreements").
<PAGE>
<PAGE> 30
(c) Option Agreements. Executive's rights under
this Agreement upon termination of employment shall be in addition
to Executive's rights under the Option Agreements.
5.06 Excise Taxes. In the event that (a) any payments
required to be made to Executive under this Agreement, in
combination with the vesting of options under the Option
Agreements, would result in the imposition of an excise tax (the
"Excise Tax") under Section 4999 of the Internal Revenue Code of
1986, as amended, and (b) Executive and Company agree that a
reduction of such payment and/or vesting by the minimum amount
necessary to avoid imposition of the Excise Tax would result in
Executive retaining a greater after-tax amount than if no such
reduction were applied, then the Company may, with the consent of
Executive, so reduce such payments and/or vesting in a manner
acceptable to Executive.
ARTICLE VI
Miscellaneous
6.01 Benefit of Agreement; Assignment; Beneficiary.
(a) This Agreement shall inure to the benefit of
and be binding upon the Company and its successors and assigns,
including, without limitation, any corporation or person which may
acquire all or substantially all of the Company's assets or
business, or with or into which the Company may be consolidated or
merged. This Agreement shall also inure to the benefit of, and be
enforceable by, Executive and his personal or legal
representatives, executors, administrators, successors, heirs,
distributee, devisee and legatees. If Executive should die while
any amount would still be payable to Executive hereunder if he had
continued to live, all such amounts shall be paid in accordance
with the terms of this Agreement to Executive's beneficiary,
devisee, legatee or other designee, or if there is no such
designee, to Executive's estate.
(b) The Company shall require any successor
(whether direct or indirect, by operation of law, by purchase,
merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company to expressly assume and
agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such
succession had taken place.
6.02 Notice. Except as provided in Section 5.01 hereof,
any notice required or permitted hereunder shall be in writing and
shall be sufficiently given if personally delivered or if sent by
telegram or telex or by registered or certified mail, postage
prepaid, with return receipt requested, addressed: (a) in the case
of the Company to QVC, Inc., 1365 Enterprise Drive, West Chester, PA 19380,
Attention: General Counsel, or to such other address and/or to the attention
of such other person as the Company
<PAGE>
<PAGE> 31
shall designate by written notice to Executive; and (b) in the case
of Executive, to 22 Dogwood Hill Lane, Chadds Ford, PA 19317, or to
such other address as Executive shall designate by written notice
to the Company. Any notice given hereunder shall be deemed to have
been given at the time of receipt thereof by the person to whom
such notice is given.
6.03 Entire Agreement; Amendment. This Agreement
contains the entire agreement of the parties hereto with respect to
the terms and conditions of Executive's employment during the term
and supersedes any and all prior agreements and understandings,
whether written or oral, between the parties hereto with respect to
compensation due for services rendered under this Agreement, except
that this Agreement shall not affect Executive's rights under the
Option Agreements other than as specifically provided in the Option
Agreements. This Agreement may not be changed or modified except
by an instrument in writing signed by both of the parties hereto.
6.04 Waiver. The waiver by either party of a breach of
any provision of this Agreement shall not operate or be construed
as a continuing waiver or as a consent to or waiver of any
subsequent breach hereof.
6.05 Headings. The Article and Section headings herein
are for convenience of reference only, do not constitute a part of
this Agreement and shall not be deemed to limit or affect any of
the provisions hereof.
6.06 Enforcement. Executive shall have no right to
enforce any of his rights hereunder by seeking or obtaining
injunctive or other equitable relief and acknowledges that damages
are an adequate remedy for any breach by the Company of this
Agreement.
6.07 Governing Law. This Agreement shall be governed by
laws of the Commonwealth of Pennsylvania without reference to the
principles of conflict of laws.
6.08 Agreement to Take Actions. Each party to this
Agreement shall execute and deliver such documents, certificates,
agreements and other instruments, and shall take such other
actions, as may be reasonably necessary or desirable in order to
perform his or its obligations under this Agreement or to
effectuate the purposes of this Agreement.
6.09 Legal Actions. In the event Executive institutes
any legal action to enforce his rights under, or to recover damages
for breach of, this Agreement, Executive, if he is the prevailing
party shall be entitled to recover from Company any actual expenses
for attorneys' fees and disbursements incurred. In such action,
Executive shall be entitled to seek specific performance of his
right to compensation, expenses and indemnification set forth in
Sections 3.01, 3.02 and 3.03.
<PAGE>
<PAGE> 32
6.10 Survivorship. The respective rights and obligations
of the parties under this Agreement shall survive any termination
of this Agreement to the extent necessary to the intended
preservation of such rights and obligations.
6.11 Validity. The invalidity or unenforceability of any
provision or provisions of this Agreement shall not affect the
validity or enforceability of any other provision or provisions of
this Agreement, which shall remain in full force and effect.
6.12 Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be deemed to be an
original but all of which together will constitute one and the same
instrument.
IN WITNESS WHEREOF, the Company and Executive have duly
executed this Agreement as of the date first above written.
QVC, INC.
By: ___________________________________
Name: Barry Diller
Title: Chairman
___________________________________
Douglas S. Briggs
<PAGE>
<PAGE>
<PAGE> 33
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
This Employment Agreement is dated as of January 1, 1994, and
is entered into between QVC, Inc., a Delaware corporation (the
"Company"), and William F. Costello ("Executive").
WHEREAS, the Company desires to continue to employ Executive
and Executive desires to continue in the employ of the Company, and
Executive and the Company desire to embody in this Agreement the
terms and conditions under which Executive shall continue to be
employed.
NOW, THEREFORE, the parties hereby agree:
ARTICLE I
Employment, Duties and Responsibilities
1.01 Employment. During the term of this Agreement (the
"Term"), Executive shall serve as Executive Vice President and Chief
Financial Officer of the Company. Executive hereby accepts such employment.
Executive agrees to devote his full working time and efforts to promote
the interest of the Company.
1.02 Duties and Responsibilities. Executive shall have
such duties, function, responsibilities and position level as on
the date hereof and as shall be assigned to him by the Board of
Directors of the Company or its designee.
1.03 Base of Operation. Executive's principal base of
operation for the performance of his duties and responsibilities
under this Agreement shall continue to be the offices of the
Company in West Chester, Pennsylvania; provided, however, that
Executive shall perform such duties and responsibilities at such
other places as shall from time to time be reasonably necessary to
fulfill his obligations hereunder.
ARTICLE II
Term
2.01 Term. The Term shall commence on January 1, 1994
and shall continue for a period of three years, terminating on
December 31, 1996, unless terminated earlier as provided in Article
V. The Term shall automatically be renewed for one year terms
unless either party gives at least 120 days prior written notice of
its intention not to renew the Term.
<PAGE>
<PAGE> 34
ARTICLE III
Compensation, Expenses and Indemnification
3.01 Salary, Bonuses and Benefits. As compensation and
consideration for the performance by Executive of his obligations
under this Agreement, Executive shall be entitled to the following
(subject, in each case, to the provisions of ARTICLE V hereof):
(a) Salary. The Company shall pay Executive a base
salary during the Term, payable in accordance with the normal
payment procedures of the Company and subject to such withholding
and other normal employee deductions as may be required by law, at
the rate of $300,000 per year. Such salary shall be subject to
annual upward review at the discretion of the Company.
(b) Bonus. During the Term, Executive shall be
eligible for and participate in such bonus and incentive
compensation programs as shall be generally provided to Executive
Officers of the Company.
(c) Benefits. Executive shall participate during
the Term in such life insurance, health, disability and major
medical insurance benefits, and in such other employee benefit
plans and programs for the benefit of the employees of the Company,
as may be maintained from time to time during the Term, in each
case to the extent and in the manner available to other Executive
Officers of the Company and subject to the terms and provisions of
such plan or program.
(d) Vacation. Executive shall be entitled to paid
vacation during the Term in accordance with Company policy.
(e) Perquisites. During the Term, the Company
shall pay or reimburse Executive or otherwise make available to him
those perquisites which were made available to him immediately
prior to entering into this Agreement, including, but not limited
to, use of a Company-owned automobile or a monthly car allowance.
3.02 Expenses. The Company shall reimburse Executive for
all reasonable out-of-pocket expenses incurred by Executive in
connection with the business of the Company and in performance of
his duties under this Agreement upon Executive's presentation to
the Company of an itemized accounting of such expenses with
reasonable supporting data, subject, however, to the Company's
policies relating to business-related expenses as in effect from
time to time during the Term.
3.03 Indemnification. Throughout the Term and
thereafter, the Company shall indemnify the Executive to the
fullest extent not prohibited by law against any and all expenses,
fees, liabilities and obligations of any nature whatsoever paid or
<PAGE>
<PAGE> 35
incurred by Executive in connection with any suit, proceeding,
inquiry, hearing or investigation arising out of or related to (a)
the fact that the Executive is or was an employee, officer,
director, or agent of the Company, or (b) anything done or not done
by Executive in any such capacity.
ARTICLE IV
Exclusivity, Etc.
4.01 Exclusivity; Non-Competition. Executive shall
perform his duties, responsibilities and obligations hereunder
efficiently and to the best of his ability. Executive shall devote
his entire working time, care and attention and best efforts to
such duties, responsibilities and obligations throughout the Term.
During the Term Executive shall not engage in any business
activities that are competitive with the business activities of the
Company or any of its divisions, subsidiaries or affiliates.
4.02 Other Business Ventures. Executive shall not during
the Term be engaged in any other business activity whether or not
such business activity is pursued for gain, profit or other
pecuniary advantage; but this shall not be construed as preventing
Executive from investing his personal assets in businesses which do
not compete with the Company in such form or manner as will not
require any services on the part of Executive in the operation of
the affairs of the companies in which such investments are made and
in which his participation is solely that of an investor; and
except that Executive may purchase securities in any corporation
whose securities are regularly traded provided that such purchase
shall not result in his collectively owning beneficially at any
time one percent (1%) or more of the equity securities of any
corporation engaged in business activities that are competitive
with the business activities of the Company or any of its
divisions, subsidiaries or affiliates.
4.03 Properties; Business Secrets; and Non-Solicitation.
(a) Executive hereby sells, transfers and assigns
to the Company or to any person, or entity designated by the
Company all of the entire right, title and interest of Executive in
and to all inventions, ideas, disclosures and improvements, whether
patented or unpatented, and copyrightable material, made or
conceived by Executive solely or jointly, during the Term which
relate to methods, apparatus, designs, products, processes or
devices, sold, used or under consideration or development by the
Company or any of its divisions, subsidiaries or affiliates, or
which otherwise relate to or pertain to the business, functions or
operations of the Company or any of its divisions, subsidiaries or
affiliates, or which arise from the efforts of Executive during the
course of his employment with the Company. Executive shall
communicate promptly and disclose to the Company, in such form as
the Company requests, all information, details and data pertaining
to the aforementioned inventions, ideas, disclosures and
<PAGE>
<PAGE> 36
improvements; and Executive shall execute and deliver to the
Company such formal transfers and assignments and such other papers
and documents as may be necessary or required of Executive to
permit the Company or any person or entity designed by the Company
to file and prosecute the patent applications and, as to
copyrightable material, to obtain copyright thereof. Any invention
relating to the business of the Company and disclosed by Executive
within one year following the termination of this Agreement shall
be deemed to fall within the provisions of this Section 4.03(a)
unless proved to have been first conceived and made following such
termination.
(b) Executive shall not, at any time during or
after the Term, make use of or divulge to any other person, firm or
corporation any trade or business secret, process, method or means,
or any other confidential information concerning the business or
policies of the Company or any of its divisions, subsidiaries or
affiliates, which he may have learned in connection with his
employment by the Company. For purposes of this Agreement, a
"Trade or business secret, process, method or means, or any other
confidential information" shall mean and include written
information treated as confidential or as a trade secret by the
Company. Executive's obligation under this Section 4.03(b) shall
not apply to any information which (i) is known publicly; (ii) is
in the public domain or hereafter enters the public domain without
the fault of Executive; (iii) is known to Executive prior to his
receipt of such information from the Company, as evidenced by
written records of Executive; or (iv) is hereafter disclosed to
Executive by a third party not under an obligation of confidence to
the Company. Executive shall not remove from the premises of the
Company, except as an employee of the Company in pursuit of the
business of the Company or except as specifically permitted in
writing by the Company, any document or other object containing or
reflecting any such confidential information. Executive recognizes
that all such documents and objects, whether developed by him or by
someone else, will be the sole exclusive property of the Company.
Upon termination of his employment hereunder, Executive shall
forthwith deliver to the Company all such confidential information,
including, without limitation, all lists of customers,
correspondence, accounts, records and any other documents or
property made or held by him or under his control in relation to
the business or affairs of the Company or its subsidiaries or
affiliates, and no copy of any such confidential information shall
be retained by him.
(c) Executive shall not, for a period of one year
after any payment of base salary by Company to Executive under the
terms of this Agreement, directly or indirectly, whether as an
employee, consultant, independent contractor, partner, joint
venturer or otherwise, (i) on behalf of any person or entity
engaged in the sale of retail goods by means of television, solicit
or induce, or in any manner attempt to solicit or induce, any
person employed by, or as agent of, the Company or any of its
divisions, subsidiaries or affiliates to terminate such person's
<PAGE>
<PAGE> 37
contract of employment or agency, as the case may be, with the
Company or with any such division, subsidiary or affiliate, or (ii)
divert, or attempt to divert, any person, concern, or entity from
doing business with the Company or any of its divisions,
subsidiaries or affiliates, nor will he attempt to induce any such
person, concern or entity to cease being a customer or supplier of
the Company or any of its divisions, subsidiaries or affiliates.
ARTICLE V
Termination
5.01 Termination by the Company. The Company shall have
the right to terminate Executive's employment at any time for
"Cause". For purposes of this Agreement, "Cause" shall mean (a)
termination by action of a majority of the members of the Board of
Directors of the Company, acting on the written opinion of counsel,
because of the Executive's willful and continued refusal, without
proper cause, to substantially perform his duties under this
Agreement; or (b) the conviction of Executive of a felony or of an
act of fraud or embezzlement against the Company or any of its
divisions, subsidiaries or affiliates (which through lapse of time
or otherwise is not subject to appeal). Such termination shall be
effected by written notice thereof, personally hand delivered by
Company to Executive, and, except as hereinafter provided, shall be
effective as of the thirtieth day after such notice; provided,
however, that if within such thirty day period Executive shall
cease his refusal and shall use his best efforts to perform such
obligations, the termination shall not be effective.
5.02 Death. In the event Executive dies during the Term,
this Agreement shall automatically terminate, such termination to
be effective on the date of Executive's death.
5.03 Disability. In the event that Executive suffers a
disability which prevents him from substantially performing his
duties under this Agreement for a period of at least 90 consecutive
days, or 180 non-consecutive days within any 365-day period, the
Company shall have the right to terminate this Agreement, such
termination to be effective upon the giving of notice to Executive
in accordance with Section 6.02 of this Agreement.
5.04 Termination by Executive for Good Reason. Executive
may terminate his employment with the Company for "Good Reason" by
giving 30 days advance written notice to the Company of his intent
to so terminate. For purposes of this Agreement, the following
circumstances shall constitute "Good Reason":
(a) any action by the Company which results in a
material diminution or material adverse change in Executive's
title, authority, duties or responsibilities, except for written
actions taken by resolution of the Board of Directors of the
Company.
<PAGE>
<PAGE> 38
(b) any failure by the Company to timely pay the
amounts or provide the benefits described in Article III of this
Agreement, other than an isolated failure not occurring in bad
faith and which is remedied promptly after receipt of written
notice thereof given by Executive;
(c) any failure by the Company to require any
successor to be bound by the terms of this Agreement;
(d) any action by the Company requiring Executive
to be based at any office or location other than the offices of the
Company in West Chester, Pennsylvania; provided, however, that this
Section 5.04(d) shall not apply to a general relocation of the
offices of the Company to a location not more than 20 miles from
West Chester, Pennsylvania.
5.05 Effect of Termination.
(a) For Cause; Without Good Reason; Death;
Disability. In the event of termination of this Agreement (i) by
the Company for Cause, (ii) by Executive without Good Reason, or
(iii) by reason of Executive's death or disability, the Company
shall pay Executive (or his beneficiary in the event of his death)
any base salary, bonus or other compensation earned but not paid to
Executive prior to the effective date of such termination.
(b) Without Cause; for Good Reason. In the event
of termination of this Agreement (i) by the Company other than for
Cause or the death or disability of the Executive; or (ii) by
Executive for Good Reason, the Company shall pay Executive the sum
of (A) the amount described in Section 5.05(a) of this Agreement,
to be paid within 30 days after the termination of this Agreement,
(B) Executive's base salary for the period from the date of
termination to December 31, 1996, to be paid monthly in accordance
with the Company's payroll practices, and (C) a pro-rata portion of
all bonus compensation to which Executive would have been entitled
for the year of the termination based on the number of days served
by the Executive, assuming full satisfaction of any objective
performance criteria. In the event of the termination of this
Agreement as provided in this Section 5.05(b), Executive shall
remain an employee of the Corporation without the obligation to provide
further services to the Corporation until the earliest of
December 31, 1996, his death or his disability and shall be
entitled during such period to all benefits and perquisites set forth
in Section 3.01(c) and (e) and the continuation of his rights as an
employee under the terms of the Stock Option Agreements between
Executive and the Company dated as of December 9, 1992 and as of
March 28, 1994 (the "Option Agreements").
(c) Option Agreements. Executive's rights under
this Agreement upon termination of employment shall be in addition
to Executive's rights under the Option Agreements.
5.06 Excise Taxes. In the event that (a) any payments
<PAGE>
<PAGE> 39
required to be made to Executive under this Agreement, in
combination with the vesting of options under the Option
Agreements, would result in the imposition of an excise tax (the
"Excise Tax") under Section 4999 of the Internal Revenue Code of
1986, as amended, and (b) Executive and Company agree that a
reduction of such payment and/or vesting by the minimum amount
necessary to avoid imposition of the Excise Tax would result in
Executive retaining a greater after-tax amount than if no such
reduction were applied, then the Company may, with the consent of
Executive, so reduce such payments and/or vesting in a manner
acceptable to Executive.
ARTICLE VI
Miscellaneous
6.01 Benefit of Agreement; Assignment; Beneficiary.
(a) This Agreement shall inure to the benefit of
and be binding upon the Company and its successors and assigns,
including, without limitation, any corporation or person which may
acquire all or substantially all of the Company's assets or
business, or with or into which the Company may be consolidated or
merged. This Agreement shall also inure to the benefit of, and be
enforceable by, Executive and his personal or legal
representatives, executors, administrators, successors, heirs,
distributee, devisee and legatees. If Executive should die while
any amount would still be payable to Executive hereunder if he had
continued to live, all such amounts shall be paid in accordance
with the terms of this Agreement to Executive's beneficiary,
devisee, legatee or other designee, or if there is no such
designee, to Executive's estate.
(b) The Company shall require any successor
(whether direct or indirect, by operation of law, by purchase,
merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company to expressly assume and
agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such
succession had taken place.
6.02 Notice. Except as provided in Section 5.01 hereof,
any notice required or permitted hereunder shall be in writing and
shall be sufficiently given if personally delivered or if sent by
telegram or telex or by registered or certified mail, postage
prepaid, with return receipt requested, addressed: (a) in the case
of the Company to QVC, Inc., 1365 Enterprise Drive, West
Chester, PA 19380, Attention: General Counsel, or to such other
address and/or to the attention of such other person as the Company
shall designate by written notice to Executive; and (b) in the case
of Executive, to 1065 Heartsease Road, West Chester, PA 19382, or
to such other address as Executive shall designate by written
notice to the Company. Any notice given hereunder shall be deemed
to have been given at the time of receipt thereof by the person to
<PAGE>
<PAGE> 40
whom such notice is given.
6.03 Entire Agreement; Amendment. This Agreement
contains the entire agreement of the parties hereto with respect to
the terms and conditions of Executive's employment during the term
and supersedes any and all prior agreements and understandings,
whether written or oral, between the parties hereto with respect to
compensation due for services rendered under this Agreement, except
that this Agreement shall not affect Executive's rights under the
Option Agreements other than as specifically provided in the Option
Agreements. This Agreement may not be changed or modified except
by an instrument in writing signed by both of the parties hereto.
6.04 Waiver. The waiver by either party of a breach of
any provision of this Agreement shall not operate or be construed
as a continuing waiver or as a consent to or waiver of any
subsequent breach hereof.
6.05 Headings. The Article and Section headings herein
are for convenience of reference only, do not constitute a part of
this Agreement and shall not be deemed to limit or affect any of
the provisions hereof.
6.06 Enforcement. Executive shall have no right to
enforce any of his rights hereunder by seeking or obtaining
injunctive or other equitable relief and acknowledges that damages
are an adequate remedy for any breach by the Company of this
Agreement.
6.07 Governing Law. This Agreement shall be governed by
laws of the Commonwealth of Pennsylvania without reference to the
principles of conflict of laws.
6.08 Agreement to Take Actions. Each party to this
Agreement shall execute and deliver such documents, certificates,
agreements and other instruments, and shall take such other
actions, as may be reasonably necessary or desirable in order to
perform his or its obligations under this Agreement or to
effectuate the purposes of this Agreement.
6.09 Legal Actions. In the event Executive institutes
any legal action to enforce his rights under, or to recover damages
for breach of, this Agreement, Executive, if he is the prevailing
party shall be entitled to recover from Company any actual expenses
for attorneys' fees and disbursements incurred. In such action,
Executive shall be entitled to seek specific performance of his
right to compensation, expenses and indemnification set forth in
Sections 3.01, 3.02 and 3.03.
6.10 Survivorship. The respective rights and obligations
of the parties under this Agreement shall survive any termination
of this Agreement to the extent necessary to the intended
preservation of such rights and obligations.
<PAGE>
<PAGE> 41
6.11 Validity. The invalidity or unenforceability of any
provision or provisions of this Agreement shall not affect the
validity or enforceability of any other provision or provisions of
this Agreement, which shall remain in full force and effect.
6.12 Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be deemed to be an
original but all of which together will constitute one and the same
instrument.
IN WITNESS WHEREOF, the Company and Executive have duly
executed this Agreement as of the date first above written.
QVC, INC.
By: ___________________________________
Name: Barry Diller
Title: Chairman
___________________________________
William F. Costello
<PAGE>
<PAGE>
<PAGE> 42
Exhibit 11
STATEMENT OF COMPUTATION OF NET INCOME PER SHARE
(amounts in thousands, except per share data)
Three Months Ended
------------------
April 30,
------------------
1994 1993
---- ----
Net 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
------- -------
Weighted average number of common shares
outstanding 39,977 35,842
Add - common equivalent shares assuming
conversion of Series B, Series C and
Series D Convertible Preferred Stock 5,595 9,165
Add - Common shares assumed to be
outstanding from exercise of warrants
and options 9,927 10,394
Less - Assumed purchase of Common Stock
from proceeds of exercise of
warrants and options (6,872) (5,845)
------- -------
48,627 49,556
------- -------
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
------- -------
<PAGE>
<PAGE>
<PAGE> 43
CONFORMED COPY EXHIBIT 99
UNITED STATES DISTRICT COURT (U.S. DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK FILED
- - ---------------------------------------X MAY 3, 1994
: S.D. OF N.Y.)
VIACOM INTERNATIONAL INC.,
:
Plaintiff, STIPULATION AND ORDER
: OF DISMISSAL
-against-
:
TELE-COMMUNICATIONS, INC. 93 Civ. 6658 (LAP)
LIBERTY MEDIA CORPORATION, SATELLITE :
SERVICES, INC., ENCORE MEDIA CORP.,
NETLINK USA, COMCAST CORPORATION, and :
QVC NETWORK, INC.,
:
Defendants.
- - ---------------------------------------X
IT IS HEREBY STIPULATED AND AGREED by the undersigned
counsel that pursuant to Rule 41(a)(1) of the Federal Rules of
Civil Procedure, all claims in the above-entitled action as-
serted by plaintiff Viacom International Inc. against defendant
QVC Network, Inc. are hereby dismissed without prejudice and
without costs to any party.
Dated: New York, New York
April 21, 1994
SHEARMAN & STERLING
By: /s/ Jeremy G. Epstein
----------------------------------
Jeremy G. Epstein (JE 1606)
153 East 53rd Street
New York, New York 10022
(212) 848-4000
Attorneys for Plaintiff
(MICROFILM) Viacom International Inc.
MAY 03 1994
3 00 PM)
<PAGE>
<PAGE> 44
WACHTELL, LIPTON, ROSEN & KATZ
By: /s/ Bertram M. Kantor
----------------------------------
Bertram M. Kantor (BK 2465)
51 West 52nd Street
New York, New York 10019
(212) 403-1000
Attorneys for Defendant
QVC Network, Inc.
BAKER & BOTTS, L.L.P.
By: /s/ James E. Maloney
----------------------------------
James E. Maloney (JM 5974)
910 Louisiana
Houston, TX 77002
(713) 229-1234
Attorneys for Defendants
Tele-Communications, Inc.
Satellite Services, Inc.
Netlink USA, Liberty Media
Corporation and Encore
Media Corporation
SO ORDERED: 4/28/94
/s/ Loretta A. Preska
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Loretta A. Preska
United States District Judge
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