<PAGE> 1
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
USA NETWORKS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials:
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
------------------------------------------------------------------------
(4) Filing Date:
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<PAGE> 2
[Logo of USA Networks, Inc.]
August 26, 1999
Dear Stockholder:
You are invited to attend the 1999 Annual Meeting of Stockholders of USA
Networks, Inc., which will be held at The Parker Meridien Hotel, 118 West 57th
Street, New York, New York on Thursday, September 30, 1999, at 10:00 a.m.,
Eastern time.
At this year's stockholders meeting, you will be asked to elect 12
directors and to ratify the appointment of Ernst & Young LLP as independent
auditors. The Board of Directors unanimously recommends a vote FOR the directors
recommended by the Board and FOR ratification of the appointment of Ernst &
Young LLP as independent auditors.
It is important that your shares be represented and voted at the Annual
Meeting regardless of the size of your holdings. Whether or not you plan to
attend the Annual Meeting, please complete, sign, date and return the
accompanying proxy card in the enclosed envelope in order to make certain that
your shares will be represented at the Annual Meeting.
Attendance at the Annual Meeting will be limited to stockholders of record
as of August 19, 1999 and to guests of the Company. I look forward to greeting
those of you who will be able to attend the meeting.
Sincerely,
/s/ Barry Diller
Barry Diller
Chairman and
Chief Executive Officer
152 WEST 57TH STREET 42ND FLOOR NEW YORK, NEW YORK 10019 212.314.7300 FAX
212.314.7309
<PAGE> 3
USA NETWORKS, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
SEPTEMBER 30, 1999
To the Stockholders:
The Annual Meeting of Stockholders of USA Networks, Inc., a Delaware
corporation (the "Company" or "USAi"), will be held at The Parker Meridien
Hotel, 118 West 57th Street, New York, New York, on Thursday, September 30,
1999, at 10:00 a.m., Eastern time, for the following purposes:
1. To elect 12 directors, each to hold office for a one-year term ending on
the date of the next succeeding annual meeting of stockholders or until
such director's respective successor shall have been duly elected and
qualified;
2. To ratify the appointment of Ernst & Young LLP as independent auditors
of the Company for 1999; and
3. To transact such other business as may properly come before the meeting
or any adjournments or postponements thereof.
Only holders of record of the Company's common stock and Class B common
stock as of the close of business on August 19, 1999 are entitled to notice of,
and to vote at, the Annual Meeting. You may examine a list of the stockholders
of record as of the close of business on August 19, 1999 for any purpose germane
to the meeting during the 10-day period preceding the date of the meeting at the
offices of the Company, located at 152 West 57th Street, New York, New York
10019.
By order of the Board of Directors,
TOM KUHN SIGNATURE
Thomas J. Kuhn
Senior Vice President, General Counsel
and Secretary
New York, New York
August 26, 1999
IMPORTANT
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING IN
PERSON, WE URGE YOU TO SIGN, DATE, AND RETURN THE ENCLOSED PROXY CARD AT YOUR
EARLIEST CONVENIENCE IN THE POSTAGE-PAID ENVELOPE PROVIDED.
<PAGE> 4
USA NETWORKS, INC.
152 WEST 52ND STREET
42ND FLOOR
NEW YORK, NY 10019
PROXY STATEMENT
This Proxy Statement (first mailed on or about August 27, 1999) is being
furnished to holders of common stock and Class B common stock in connection with
the solicitation of proxies by the Board of Directors of USA Networks, Inc.
("USAi" or the "Company") for use at the Annual Meeting of Stockholders (the
"Annual Meeting") to be held for the purposes described in this Proxy Statement.
Each copy of this Proxy Statement mailed to holders of common stock and Class B
common stock is accompanied by a form of proxy for use at the Annual Meeting.
At the Annual Meeting, USAi stockholders will be asked:
(1) To elect 12 members of the USAi Board, each to hold office for a
one-year term ending on the date of the next succeeding annual meeting of
stockholders or until such director's respective successor shall have been
duly elected and qualified;
(2) To ratify the appointment of Ernst & Young LLP as independent
auditors for the Company's 1999 fiscal year; and
(3) To transact such other business as may be properly brought before
the meeting and any adjournments or postponements thereof.
DATE, TIME AND PLACE OF MEETING
The Annual Meeting will be held on Thursday, September 30, 1999 at 10:00
a.m. Eastern time, at The Parker Meridien Hotel, 118 West 57th Street, New York,
New York.
RECORD DATE; SHARES OUTSTANDING AND ENTITLED TO VOTE
Only holders of record of common stock and Class B common stock at the
close of business on August 19, 1999 (the "Record Date") are entitled to notice
of, and will be entitled to vote at, the Annual Meeting. Class B common stock is
entitled to ten votes per share and common stock is entitled to one vote per
share on each matter that Class B common stock and common stock vote together as
a single class. At the close of business on the Record Date, there were
136,306,241 shares of common stock and 31,516,726 shares of Class B common stock
outstanding and entitled to vote.
VOTING AND REVOCATION OF PROXIES
The proxy card accompanying this Proxy Statement is solicited on behalf of
the Board of Directors of USAi for use at the Annual Meeting. You are requested
to complete, date and sign the accompanying proxy card and promptly return it in
the accompanying envelope or otherwise mail it to USAi. All proxies that are
properly executed and returned, and that are not revoked, will be voted at the
Annual Meeting in accordance with the instructions indicated thereon. If no
instructions are indicated, such proxies will be voted FOR each of the proposals
described in this Proxy Statement.
The Board of Directors of USAi does not presently intend to bring any
business before the Annual Meeting other than the specific proposals referred to
in this Proxy Statement and specified in the Notice of the Annual Meeting. So
far as is known to the USAi Board, no other matters are to be brought before the
Annual Meeting. If any other business properly comes before the Annual Meeting,
however, it is intended that proxies, in the form enclosed, will be voting on
such matters in accordance with the judgment of the persons voting such proxies.
<PAGE> 5
A stockholder who has given a proxy may revoke it at any time before it is
exercised at the Annual Meeting by (i) delivering to The Bank of New York a
written notice, bearing a date later than the proxy, stating that the proxy is
revoked, (ii) signing and so delivering a proxy relating to the same shares and
bearing a later date prior to the vote at the Annual Meeting, or (iii) attending
the Annual Meeting and voting in person (although attendance at the Annual
Meeting will not, by itself, revoke a proxy). You should send any written notice
or new proxy card to USAi c/o The Bank of New York at the following address: USA
Networks, Inc., P.O. Box 11070, New York, New York 10203-0070. You may request a
new proxy card by calling MacKenzie Partners, Inc. at 1-800-322-2885.
QUORUM; BROKER NON-VOTES
The required quorum for the transaction of business at the Annual Meeting
is a majority of the shares of common stock or 68,153,121 shares, and a majority
of the shares of Class B common stock, or 15,758,364 shares, issued and
outstanding on the Record Date, which shares must be present in person or
represented by proxy at the Annual Meeting. Abstentions and broker non-votes,
although counted for purposes of determining whether there is a quorum at the
Annual Meeting, will not be voted. A non-vote occurs when a nominee holding
shares for a beneficial owner votes on one proposal, but does not vote on
another proposal because the nominee does not have discretionary voting power
and has not received instructions from the beneficial owner.
VOTE REQUIRED
Election of nine of the director nominees to be elected at the Annual
Meeting requires the affirmative vote of the holders of a plurality of the total
number of votes represented by the shares of common stock and Class B common
stock voting together as a single class (the "Total Voting Power"). Election of
three of the director nominees requires the affirmative vote of the holders of a
plurality of the shares of common stock, in each case, represented at the Annual
Meeting and voting on this matter.
Approval of the ratification of auditors requires the affirmative vote of
the holders of a majority of the Total Voting Power, present in person or
represented by proxy at the Annual meeting and voting on this proposal.
Pursuant to a stockholders agreement, each of Universal Studios, Inc.
("Universal"), a subsidiary of The Seagram Company Ltd. ("Seagram"), and Liberty
Media Corporation ("Liberty") have granted to Mr. Diller an irrevocable proxy
over all USAi securities owned by Universal, Liberty and their affiliates for
all matters except for a fundamental change, which requires the consent of each
of Mr. Diller, Universal and Liberty. Thus, regardless of the vote of any other
USAi stockholder, Mr. Diller has control over the vote on each matter to be
considered by stockholders at the Annual Meeting other than election of the
three directors to be elected separately by the holders of the common stock.
SOLICITATION OF PROXIES AND EXPENSES
USAi will bear the cost of the solicitation of proxies from its
stockholders. In addition to solicitation by mail, the directors, officers and
employees of USAi may solicit proxies from stockholders by telephone, telegram,
letter, facsimile or in person. Following the original mailing of the proxies
and other soliciting materials, USAi will request brokers, custodians, nominees
and other record holders to forward copies of the proxy and other soliciting
materials to persons for whom they hold shares of common stock and to request
authority for the exercise of proxies. In such cases, USAi, upon the request of
the record holders, will reimburse such holders for their reasonable expenses.
USAi has retained MacKenzie Partners, Inc. to distribute proxy solicitation
materials to brokers, banks and other nominees and to assist in the solicitation
of proxies from USAi stockholders. The fee for such firm's services is estimated
not to exceed $12,500 plus reimbursement for reasonable out-of-pocket costs and
expenses in connection therewith.
2
<PAGE> 6
ITEM 1
ELECTION OF DIRECTORS AND MANAGEMENT INFORMATION
INFORMATION CONCERNING NOMINEES
At the upcoming Annual Meeting, a board of 12 directors will be elected, to
hold office until the next Annual Meeting of Stockholders and until their
successors are elected and qualified. Messrs. Keough, Savoy and Schwarzkopf have
been designated by the Board of USAi as nominees for the positions on the USAi
Board to be elected by the holders of USAi Common Stock voting as a separate
class. Although management does not anticipate that any of the persons named
below will be unable or unwilling to stand for election, in the event of such an
occurrence, proxies may be voted for a substitute designated by the Board. All
of the Board's nominees are incumbent Directors of the Company.
Background information about the Board's nominees for election is set forth
below.
Paul G. Allen, age 46, has been a director of USAi since July 1997. Mr.
Allen has been a private investor for more than five years, with interests in a
wide variety of companies, many of which focus on multimedia digital
communications. These companies include Interval Research Corporation, of which
Mr. Allen is the controlling shareholder and a director, Vulcan Ventures Inc.,
of which Mr. Allen is the President, Chief Executive Officer and Chairman of the
Board, Vulcan Northwest Inc., of which Mr. Allen is Chairman of the Board,
Charter Communications, Inc., of which Mr. Allen is Chairman of the Board, and
Vulcan Programming, Inc. In addition, Mr. Allen is the Chairman of the Board of
Trail Blazers, Inc. of the National Basketball Association and is the owner and
Chairman of the Board of the Seattle Seahawks of the National Football League.
Mr. Allen currently serves as a director of Microsoft Corporation and also
serves as a director of various private corporations.
Barry Baker, age 46, has been a director of USAi and has been President and
Chief Operating Officer of USAi since March 1999. Mr. Baker was Executive Vice
President of Sinclair Broadcast Group, Inc. and served as Chief Executive
Officer designate and as a director of Sinclair Communications, Inc. from June
1996 through February 1999. From 1989 through May 1996, he was the founder and
served as Chief Executive Officer of River City Broadcasting, L.P., which was
acquired by Sinclair Broadcasting. Mr. Baker serves as a director of
Ticketmaster-Online CitySearch, Inc.
Edgar Bronfman, Jr., age 44, has been a director of USAi since February
1998. He has been President and Chief Executive Officer of Seagram since June
1994. Previously, he was President and Chief Operating Officer of Seagram. Mr.
Bronfman is a director of Seagram and a member of the Boards of New York
University Medical Center, The Wharton School of the University of Pennsylvania,
and the Board of Governors of The Joseph H. Lauder Institute of Management &
International Studies at the University of Pennsylvania.
Anne M. Busquet, age 49, has been a director of USAi since March 1999. She
has been the President of American Express Relationship Services since October
1995. Previously, she had been the Executive Vice President of American Express'
Consumer Card Group since November 1993. She is a member of the Board of
Trustees for Teach of America, Rheedlen Centers for Children and Families and
the Cornell University Trustees Council. She also serves on the Board of
Directors for Epsilon and Globeset, Inc.
Barry Diller, age 57, has been a director and the Chairman and Chief
Executive Officer of USAi since August 1995. He was Chairman of the Board and
Chief Executive Officer of QVC, Inc. from December 1992 through December 1994.
From 1984 to 1992, Mr. Diller served as the Chairman of the Board and Chief
Executive Officer of Fox, Inc. Prior to joining Fox, Inc., Mr. Diller served for
10 years as Chairman of the Board and Chief Executive Officer of Paramount
Pictures Corporation. Mr. Diller is a director and member of the Executive
Committee of Seagram, and serves as a director of Ticketmaster
Online-CitySearch. He also serves on the Board of the Museum of Television and
Radio and is a member of the Board of Councilors for the University of Southern
California's School of Cinema-Television and is a member of the Board of
Directors of 13/WNET. Mr. Diller also serves on the Board of Directors for AIDS
Project Los
3
<PAGE> 7
Angeles, the Executive Board for the Medical Sciences of University of
California, Los Angeles and the Board of the Children's Advocacy Center of
Manhattan.
Victor A. Kaufman, age 56, has been a director of USAi since December 1996.
Mr. Kaufman has served in the Office of the Chairman for USAi since January
1997, and as Chief Financial Officer since November 1, 1997. Prior to that time,
he served as Chairman and Chief Executive Officer of Savoy since March 1992 and
as a director of Savoy since February 1992. Mr. Kaufman was the founding
Chairman and Chief Executive Officer of Tri-Star Pictures, Inc. from 1983 until
December 1987, at which time he became President and Chief Executive Officer of
Tri-Star's successor company, Columbia Pictures Entertainment, Inc. He resigned
from these positions at the end of 1989 following the acquisition of Columbia by
Sony USA, Inc. Mr. Kaufman joined Columbia in 1974 and served in a variety of
senior positions at Columbia and its affiliates prior to the founding of
Tri-Star. Mr. Kaufman also serves as a director of Ticketmaster-Online
CitySearch.
Donald R. Keough, age 72, has been a director of USAi since September 1998.
He is Chairman of the Board of Allen & Company Incorporated, a New York
investment banking firm. He was elected to that position in April 1993. Mr.
Keough retired as President, Chief Operating Officer and a director of The Coca-
Cola Company in April 1993. Mr. Keough serves as a director on the boards of
H.J. Heinz Company, The Washington Post Company, The Home Depot, and McDonald's
Corporation and is Chairman of Excalibur Corporation. He is immediate past
chairman of the board of trustees of the University of Notre Dame and a trustee
of several other educational institutions. He also serves on the boards of a
number of national charitable and civic organizations.
Robert W. Matschullat, age 51, has been a director of USAi since February
1998. He has been Vice Chairman and Chief Financial Officer of Seagram since
October 1995. Previously, he was Managing Director and Head of Worldwide
Investment Banking for Morgan Stanley & Co., Inc. and a director of Morgan
Stanley Group, Inc., investment bankers. Mr. Matschullat is a director of
Seagram and the Clorox Corporation.
Samuel Minzberg, age 50, has been a director of USAi since February 1998.
He has been President and Chief Executive Officer of Claridge Inc., a management
company, since January 1, 1998. Previously, he was Chairman of and a partner in
the Montreal office of Goodman, Phillips and Vineberg, attorneys at law, of
which he is currently of counsel. Mr. Minzberg is a director of Seagram, Koor
Industries, Ltd. and Dylex Limited.
William D. Savoy, age 34, has been a director of USAi since July 1997.
Currently, Mr. Savoy serves as President of Vulcan Northwest Inc., managing the
personal finances of Paul Allen, and Vice President of Vulcan Ventures Inc., a
venture capital fund wholly owned by Paul Allen. From 1987 until November 1990,
Mr. Savoy was employed by Layered, Inc. and became its President in 1988. Mr.
Savoy serves on the Advisory Board of DreamWorks SKG and also serves as director
of C/NET, Inc., Go2Net.com, Harbinger Corporation, High Speed Access
Corporation, Metricom, Inc., Telescan, Inc., Ticketmaster Online-CitySearch and
Value America.
Gen. H. Norman Schwarzkopf, age 64, has been a director of USAi since
December 1996. He previously had served as a director of Home Shopping Network
since May 1996. Since his retirement from the military in August 1991, Gen.
Schwarzkopf has been an author and a participant in several television specials
and works with NBC on additional television programs. From August 1990 to August
1991, he served as Commander-in-Chief, United States Central Command and
Commander of Operations, Desert Shield and Desert Storm. General Schwarzkopf had
35 years of service with the military. He is also on the Nature Conservancy's
President's Conservation Council, Chairman of the Starbright Capital Campaign,
co-founder of the Boggy Creek Gang, a member of the University of Richmond Board
of Trustees, and serves on the Boards of Directors of Burns International
Services Corporation, Remington Arms Company, Kuhlman Corporation and Cap CURE,
Association for the Cure of Cancer of the Prostate.
Diane Von Furstenberg, age 52, has been a director of USAi since March
1999. She is the founder and Chairman of Diane Von Furstenberg Studio L.P. since
August 1995. Previously, she was the founder and Chairman of Diane Von
Furstenberg Studio.
4
<PAGE> 8
THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE ELECTION OF EACH OF
ITS NOMINEES FOR DIRECTOR NAMED ABOVE.
INFORMATION CONCERNING EXECUTIVE OFFICERS
Background information about the Company's executive officers who are not
nominees for election as director is set forth below.
Michael P. Durney, age 36, has been Vice President and Controller of USAi
since March 1998. Prior to joining USAi, from 1996 to 1998, he was the Chief
Financial Officer of Newport Media, Inc., and from 1994 to 1996, he was
Executive Vice President of Finance of Hallmark Entertainment, Inc. From 1989 to
1994, he was Vice President, Controller of Univision Television Group, Inc.
Stephen Goodin, age 32, has been Vice President, Internal Corporate
Communications since June 1999 and was Vice President and Assistant to the
Chairman from March 1998 to June 1999. Prior to joining USAi, he served as
Special Advisor to President William J. Clinton's Chief of Staff and as the
President's Aide for three years from October 1994 to December 1997. Prior to
his employment with the Office of the President, Mr. Goodin was the Director of
Operations -- Finance at the Democratic National Committee from January 1993 to
October 1994.
Thomas J. Kuhn, age 37, has been Senior Vice President, General Counsel and
Secretary of USAi since February 1998. Prior to joining USAi, from 1996 to 1998,
he was a partner in the New York City law firm of Howard, Smith & Levin LLP.
From 1989 until 1996, Mr. Kuhn was associated with the law firm of Wachtell,
Lipton, Rosen & Katz in New York City.
John R. Larrabee, age 35, has been Vice President, Chief Information
Officer of USAi since June 1999. Prior to joining USAi, he was the Director of
Information Technology of Sinclair Broadcast Group, Inc. from 1998 to 1999. From
1996 to 1998, he was director of Networks and Telecommunications of Duron Inc.
Prior thereto, he was Regional Director of Information Technology of Coca-Cola
Enterprises.
MEETINGS AND COMMITTEES OF THE BOARD
The Board met seven times during 1998. During 1998, all then incumbent
Directors attended at least 75% of the meetings of the Board and the Board
committees on which they served.
The Board has four standing committees: the Executive Committee, the Audit
Committee, the Compensation/Benefits Committee, and the Performance-Based
Compensation Committee. The Board does not have a nominating committee.
Executive Committee. The Executive Committee of the Board of Directors
consisting of Messrs. Baker, Bronfman, Diller and Kaufman, has all the power and
authority of the Board of Directors of the Company, except those powers
specifically reserved to the Board by Delaware law or the Company's
organizational documents. The Executive Committee did not meet during 1998 but
acted by unanimous written consent seven times.
Audit Committee. The Audit Committee of the Board of Directors, currently
consisting of Messrs. Keough and Savoy and Gen. Schwarzkopf, is authorized to
recommend to the Board of Directors independent certified public accounting
firms for selection as auditors of the Company; make recommendations to the
Board of Directors on auditing matters; examine and make recommendations to the
Board of Directors concerning the scope of audits; and review and approve the
terms of transactions between or among the Company and related parties. None of
the members of the Audit Committee is an employee of the Company. Mr. Keough is
Chairman of the Audit Committee. The Audit Committee met five times during 1998.
Compensation/Benefits Committee. The Compensation/Benefits Committee of
the Board of Directors, currently consisting of Messrs. Keough and Savoy and Ms.
Busquet, is authorized to exercise all of the powers of the Board of Directors
with respect to matters pertaining to compensation and benefits, including, but
not limited to, salary matters, incentive/bonus plans, stock option plans,
investment programs and insurance plans,
5
<PAGE> 9
except that the Performance-Based Compensation Committee exercises such powers
with respect to performance-based compensation of corporate officers who are, or
who are likely to become, subject to Section 162(m) of the Internal Revenue
Code. The Compensation/Benefits Committee is also authorized to exercise all of
the powers of the Board of Directors in matters pertaining to employee
promotions and the designation and/or revision of employee positions and job
titles. None of the members of the Compensation/ Benefits Committee is an
employee of the Company. Mr. Savoy is Chairman of the Compensation/Benefits
Committee. The Compensation/Benefits Committee met ten times during 1998.
Performance-Based Compensation Committee. The Performance-Based
Compensation Committee of the Board of Directors, currently consisting of Mr.
Savoy and Ms. Busquet, is authorized to exercise all of the powers of the Board
of Directors with respect to matters pertaining to performance-based
compensation of corporate officers who are, or are likely to become, subject to
Section 162(m) of the Internal Revenue Code. Section 162(m) limits the
deductibility of compensation in excess of $1,000,000 paid to a corporation's
chief executive officer and four other most highly compensated executive
officers, unless certain conditions are met. None of the members of the
Performance-based Compensation Committee is an employee of the Company. The
Performance-Based Compensation Committee was created during 1998. The
Performance-Based Compensation Committee did not meet during 1998 but acted once
by unanimous written consent.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table presents, as of July 30, 1999, information relating to
the beneficial ownership of USAi's common stock by (1) each person known by USAi
to own beneficially more than 5% of the outstanding shares of USAi's common
stock, (2) each director of USAi, (3) each of the Named Executive Officers, and
(4) all executive officers and directors of USAi as a group.
Unless otherwise indicated, beneficial owners listed here may be contacted
at USAi's corporate headquarters address, 152 West 57th Street, New York, New
York 10019. For each listed person, the number of shares and percent of class
listed assumes the conversion of any shares of Class B common stock owned by
such person, but does not assume the conversion of Class B common stock owned by
any other person. Shares of Class B common stock may at the option of the holder
be converted on a one-for-one basis into shares of common stock. Under the rules
of the SEC, a person is deemed to be a beneficial owner of a security if that
person has or shares voting power, which includes the power to vote or to direct
the voting of such security, or investment power, which includes the power to
dispose of or to direct the disposition of such security. A person is also
deemed to be the beneficial owner of any securities of which that person has the
right to acquire beneficial ownership within 60 days. Under these rules, more
than one person may be deemed to be a beneficial owner of the same securities
and a person may be deemed to be a beneficial owner of securities as to which
that person has no beneficial interest. For each listed person, the number of
shares and percent of class listed includes shares of common stock that may be
acquired by such person upon exercise of stock options that are or will be
exercisable within 60 days of July 30, 1999.
The percentage of votes for all classes is based on one vote for each share
of common stock and ten votes for each share of Class B common stock. These
figures do not include any unissued shares of common stock or Class B common
stock issuable upon conversion of Liberty's Home Shopping Network, Inc.
("Holdco") shares and USANi LLC shares beneficially owned by Liberty or Seagram.
6
<PAGE> 10
<TABLE>
<CAPTION>
NUMBER OF PERCENT PERCENT OF VOTES
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES OF CLASS (ALL CLASSES)
- ------------------------------------ ---------- -------- ----------------
<S> <C> <C> <C>
Capital Research & Management Co.(1).................... 8,496,500 6.3% 1.9%
333 South Hope Street
Los Angeles, CA 90071
Liberty Media Corporation(2)(3)......................... 33,260,980 20.7% 56.9%
9197 South Peoria Street
Englewood, CO 80112
The Seagram Co. Ltd.(4)................................. 15,805,654 11.1% 16.9%
375 Park Avenue
New York, NY 10152
Barry Diller(2)(5)...................................... 65,258,282 35.8% 74.9%
Paul Allen(6)........................................... 15,835,348 11.7% 3.5%
Barry Baker(7).......................................... 5,300 * *
Edgar J. Bronfman, Jr................................... 0 * *
Anne M. Busquet......................................... 0 * *
Michael P. Durney(8).................................... 13,400 * *
Victor A. Kaufman(9).................................... 335,000 * *
Donald R. Keough(10).................................... 24,167 * *
Dara Khosrowshahi(11)................................... 30,000 * *
Thomas J. Kuhn(12)...................................... 50,518 * *
John Larrabee........................................... 0 * *
Robert W. Matschullat................................... 0 * *
Samuel Minzberg......................................... 0 * *
William D. Savoy(13).................................... 81,744 * *
Gen. H. Norman Schwarzkopf(14).......................... 62,834 * *
Diane Von Furstenberg................................... 0 * *
All executive officers and directors as a group (17
persons).............................................. 81,696,911 44.7% 78.3%
</TABLE>
- ---------------
* The percentage of shares beneficially owned does not exceed 1% of the
class.
(1) Based upon information filed with the Securities and Exchange Commission by
Capital Research & Management Co. as of June 30, 1999.
(2) Liberty, Universal, Seagram, the parent of Universal, USAi and Mr. Diller
are parties to a stockholders agreement under which Liberty and Mr. Diller
have formed BDTV INC., BDTV II INC., BDTV III INC. and BDTV IV INC
(collectively, the "BDTV Entities") which entities, as of July 30, 1999,
held 4,000,000, 15,618,222, 4,005,182 and 800,000 shares of Class B common
stock, respectively, and an aggregate of 22 shares of common stock
collectively. Mr. Diller generally has the right to vote all of the shares
of common stock and Class B common stock held by the BDTV Entities, and the
shares of common stock and Class B common stock held by Seagram and
Liberty.
(3) Consists of 8,459,232 shares of common stock and 378,322 shares of Class B
common stock held by Liberty as to which Mr. Diller has general voting
power and 22 shares of common stock and 24,423,404 shares of Class B common
stock held by the BDTV Entities. These shares are subject to the
stockholders agreement.
(4) Consists of 9,090,654 shares of common stock and 6,715,000 shares of Class
B common stock held by Universal as to which Mr. Diller has general voting
power and which are otherwise beneficially owned by Seagram. These shares
are subject to the stockholders agreement.
(5) Consists of 1,029,954 shares of common stock owned by Mr. Diller, options
to purchase 15,101,694 shares of common stock granted under USAi's stock
option plans, 60,000 shares of common stock held by a private foundation as
to which Mr. Diller disclaims beneficial ownership, 22 shares of common
stock and 24,423,404 shares of Class B common stock held by the BDTV
Entities, and 8,459,232 shares of common stock and 378,322 shares of Class
B common stock which are held by Liberty, and 9,090,654
7
<PAGE> 11
shares of common stock and 6,715,000 shares of Class B common stock, which
are held by Universal and otherwise beneficially owned by Seagram, as to
which Mr. Diller has general voting authority under the Stockholders
Agreement. Does not reflect the exercise of 520,000 options and the sale of
the underlying shares from August 1 through August 23, 1999.
(6) Consists of 15,822,014 shares of common stock and options to purchase
13,334 shares of common stock granted under USAi's stock option plans.
(7) Consists of 5,300 shares of common stock.
(8) Consists of 900 shares of common stock and options to purchase 12,500
shares of common stock granted under USAi's stock option plans.
(9) Consists of options to purchase 335,000 shares of common stock granted
under USAi's stock option plans. Does not reflect the exercise of 100,000
options and the sale of the underlying shares in August 1999.
(10) Consists of 10,000 shares of common stock and options to purchase 14,167
shares of common stock granted under USAi's stock option plans. Does not
include 31,198 shares of common stock held by an irrevocable trust for the
benefit of a family member as to which shares Mr. Keough disclaims
beneficial ownership. Also does not include 2,077,668 shares of common
stock beneficially owned, as of December 31, 1998, by Allen & Co., for
which Mr. Keough serves as Chairman, and certain of its affiliates. Mr.
Keough disclaims beneficial ownership of such shares.
(11) Consists of options to purchase 30,000 shares of common stock granted under
USAi's stock option plans. Does not reflect the exercise of 25,000 options
and the sale of the underlying shares in August 1999.
(12) Consists of options to purchase 50,000 shares of common stock granted under
USAi's stock option plans and 518 shares of common stock purchased under
the 401(k) Plan. Does not reflect the exercise of 30,000 options and the
sale of the underlying shares in August 1999.
(13) Consists of 29,000 shares of common stock and options to purchase 52,744
shares of common stock granted under USAi's stock option plans.
(14) Consists of options to purchase 62,834 shares of common stock granted under
USAi's stock option plans.
The following table presents, as of July 30, 1999, information relating to
the beneficial ownership of USAi's Class B common stock:
<TABLE>
<CAPTION>
NUMBER OF PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES OF CLASS
- ------------------------------------ ---------- --------
<S> <C> <C>
Barry Diller(1)............................................. 31,516,726 100%
c/o USA Networks, Inc.
152 West 57th Street
New York, NY 10019
Liberty Media Corporation(1)(2)............................. 24,801,726 78.7%
9197 South Peoria Street
Englewood, CO 80112
BDTV Entities(1)(2)......................................... 24,423,404 77.5%
(includes BDTV INC., BDTV II INC.,
BDTV III INC. and BDTV IV INC.)
8800 West Sunset Boulevard
West Hollywood, CA 90069
The Seagram Company Ltd.(3)................................. 6,715,000 21.3%
375 Park Avenue
New York, NY 10152
</TABLE>
- ---------------
(1) These figures do not include any unissued shares of common stock or Class B
common stock issuable upon conversion of Liberty's Holdco shares and USANi
LLC shares beneficially owned by Liberty or Seagram.
8
<PAGE> 12
(2) Liberty, Universal, Seagram, the parent of Universal, USAi and Mr. Diller
are parties to the stockholders agreement, under which Liberty and Mr.
Diller have formed the BDTV Entities which entities hold 4,000,000,
15,618,222, 4,005,182 and 800,000 shares of Class B common stock,
respectively. Mr. Diller generally has the right to vote all of the shares
of Class B common stock held by the BDTV Entities and the shares of Class B
common stock held by Universal and Liberty. Mr. Diller owns all of the
voting stock of the BDTV Entities and Liberty owns all of the non-voting
stock, which non-voting stock represents in excess of 99% of the equity of
the BDTV Entities.
(3) Mr. Diller generally votes all of the shares held by Seagram under the terms
of the stockholders agreement.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's executive officers and directors, and
persons who own more than 10% of a registered class of the Company's equity
securities, to file initial statements of beneficial ownership (Form 3) and
statements of changes in beneficial ownership (Forms 4 and 5) of Common Stock
and other equity securities of the Company with the SEC. Executive officers,
directors and greater than 10% stockholders are required by SEC rules to furnish
the Company with copies of all such forms they file. Based solely on a review of
the copies of such forms furnished to the Company, and/or written
representations that no additional forms were required, the Company believes
that its officers, directors and greater than 10% beneficial owners complied
with these filing requirements in 1998.
9
<PAGE> 13
ITEM 2
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
Subject to stockholder ratification, the Board has appointed Ernst & Young
LLP as independent auditors for the fiscal year ending December 31, 1999 and
until their successors are elected. The appointment was made upon the
recommendation of the Audit Committee, which is comprised of Directors who are
not employees of the Company.
A representative of Ernst & Young LLP is expected to be present at the
Annual Meeting and will be given an opportunity to make a statement if he or she
so chooses and will be available to respond to appropriate questions.
The Board considers Ernst & Young to be well qualified and recommends that
the stockholders vote FOR ratification of their appointment as independent
auditors of the Company for 1999.
EXECUTIVE COMPENSATION
GENERAL
This section of the Proxy Statement sets forth certain information
pertaining to compensation of the Chief Executive Officer and the Company's four
most highly compensated executive officers other than the Chief Executive
Officer, as well as information pertaining to the compensation of members of the
Boards of Directors of the Company.
The following table presents information concerning total compensation
earned by the Chief Executive Officer and the four other most highly compensated
executive officers of USAi who served in such capacities as of December 31, 1998
(the "Named Executive Officers") for services rendered to USAi during each of
the last three fiscal years. The information presented below represents all
compensation earned by the Named Executive Officers for all services performed
for USAi or any of its subsidiaries.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------------------------- -----------------------
OTHER RESTRICTED
ANNUAL STOCK STOCK ALL OTHER
NAME & PRINCIPAL FISCAL SALARY BONUS COMPENSATION AWARDS OPTIONS COMPENSATION
POSITION YEAR ($) ($) ($) ($) (#) ($)
- ---------------- ------ ------- --------- ------------ ---------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Barry Diller................ 1998 126,923(1) 0 -- 0 0 1,288,472(2)(3)
Chairman and Chief 1997 0 0 -- 0 9,500,000 1,282,343(2)
Executive Officer 1996 0 1,618,722(4) -- 0 0 1,280,508(2)(3)
Victor A. Kaufman........... 1998 500,000 450,000(6) -- 500,000(7) 100,000 4,800(3)
Office of the Chairman and 1997 500,000 0 -- 0 500,000 0
Chief Financial Officer(5) 1996 19,230 0 -- 0 346,000 0
Thomas J. Kuhn.............. 1998 398,077(9) 450,000(6) -- 187,500(7) 250,000 2,118(3)
Senior Vice President,
General Counsel and
Secretary(8)
Dara Khosrowshahi........... 1998 248,077(11) 300,000(6) -- 125,000(7) 220,000 0
Vice President, Strategic
Planning(10)
Michael P. Durney........... 1998 187,500(13) 125,000(6) -- 0 70,000 1,731(3)
Vice President and
Controller(12)
</TABLE>
- ---------------
(1) Reflects an annual base salary of $500,000 commencing September 25, 1998.
(2) Mr. Diller was granted options in 1995 to purchase 3,791,694 shares of
common stock, vesting over a four-year period, at an exercise price below
the fair market value of common stock on the date of grant.
10
<PAGE> 14
USAi has amortized unearned compensation of $993,135 in 1996, $995,856 in 1997
and $999,162 in 1998. In addition, Mr. Diller has an interest-free, secured,
non-recourse promissory note in the amount of $4,997,779 payable to USAi which
was used to purchase 441,988 shares of common stock. As a result, Mr.
Diller had compensation for imputed interest of $286,373 in 1996, $286,487
in 1997 and $286,368 in 1998.
(3) Includes USAi's matching contributions under its 401(k) Retirement Savings
Plan. Under the 401(k) Plan as in effect through December 31, 1998, USAi
matches $.50 for each dollar a participant contributes up to the first 6%
of compensation.
(4) Pursuant to an equity compensation agreement between Mr. Diller and USAi
Mr. Diller received a bonus payment of approximately $2.5 million on August
24, 1996. USAi accrued four months and seven days of such bonus in periods
prior to the year ended December 31, 1996.
(5) Mr. Kaufman assumed the position of Chief Financial Officer of USAi on
November 1, 1997.
(6) Of this amount, Messrs. Kaufman, Kuhn, Khosrowshahi and Durney elected to
defer $225,000, $90,000, $60,000 and $62,500, respectively, under USAi's
Bonus Stock Purchase Program. Under the Bonus Stock Purchase Program in
lieu of receiving a cash payment for the entire amount of their 1998
bonuses, all bonus eligible employees of USAi had a right to elect to
purchase shares of common stock with up to 50% of the value of their 1998
bonus payments. Employees received a 20% discount on the purchase price of
these bonus shares, which was calculated by taking the average of the high
and low trading prices of common stock over a specified period of time in
February 1999.
(7) As of December 31, 1998, Messrs. Kaufman, Kuhn and Khosrowshahi held
20,000, 7,500 and 5,000 shares of restricted common stock, respectively,
all of which were granted by USAi to such persons on December 15, 1998.
These shares vest on the third anniversary of the date of grant, except for
Mr. Kaufman's shares, which vest on the first anniversary of the date of
grant. The value of these shares as of December 31, 1998 was $662,500,
$248,438 and $165,625, respectively.
(8) Mr. Kuhn joined USAi as its Senior Vice President, General Counsel and
Secretary on February 9, 1998.
(9) Reflects an annual base salary of $450,000 beginning February 9, 1998.
(10) Mr. Khosrowshahi joined USAi as its Vice President, Strategic Planning on
March 2, 1998. Mr. Khosrowshahi was appointed President of USA Networks
Interactive and resigned from his position at USAi on August 5, 1999.
(11) Reflects an annual base salary of $300,000 commencing March 2, 1998.
(12) Mr. Durney joined USAi as its Vice President and Controller on March 30,
1998.
(13) Reflects an annual base salary of $250,000 beginning March 30, 1998.
OPTION GRANTS
The following table presents information with respect to options to
purchase USAi's common stock granted to the Named Executive Officers during the
year ended December 31, 1998. The grants were made under the 1997 Incentive
Plan.
The 1997 Incentive Plan is administered by the Compensation/Benefits
Committee and the Performance-Based Compensation Committee, which have the sole
discretion to determine the selected officers, employees and consultants to whom
incentive or non-qualified options, SARs, restricted stock and performance units
may be granted. As to these awards, the Compensation/Benefits Committee and the
Performance-Based Compensation Committee also have the sole discretion to
determine the number, type, exercise price, vesting schedule and other terms,
conditions and restrictions of the grants. The Compensation/Benefits Committee
and the Performance-Based Compensation Committee also retain discretion, subject
to plan limits, to modify the terms of outstanding options and to reprice such
options. The exercise price of an incentive stock option granted under the 1997
Incentive Plan must be at least 100% of the fair market value of USAi's common
stock on the date of grant. In addition, options granted under the 1997
Incentive Plan terminate within ten years of the date of grant. To date, only
non-qualified stock options have been granted under the 1997 Incentive Plan.
11
<PAGE> 15
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
PERCENT VALUE AT ASSUMED
OF TOTAL ANNUAL RATES
NUMBER OF OPTIONS TO OF STOCK
SECURITIES EMPLOYEES EXERCISE PRICE APPRECIATION
UNDERLYING GRANTED PRICE FOR OPTION TERMS(2)
OPTIONS IN THE PER SHARE EXPIRATION ----------------------
NAME GRANTED(#) FISCAL YEAR ($/SH) DATE(1) 5%($) 10%($)
- ---- ---------- ----------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Barry Diller.......................... 0 -- -- -- -- --
Chairman and Chief Executive Officer
Victor A. Kaufman..................... 100,000 1.69% 25.00 12/15/2008 1,572,237 3,984,356
Office of the Chairman and Chief
Financial Officer
Thomas J. Kuhn........................ 200,000 3.39% 24.50 02/09/2008 3,081,584 7,809,338
Senior Vice President, 50,000 0.85% 25.00 12/15/2008 786,118 1,992,178
General Counsel and Secretary
Dara Khosrowshahi..................... 120,000 2.03% 25.75 03/02/2008 1,943,284 4,924,664
Vice President, Strategic Planning 100,000 1.69% 25.00 12/15/2008 1,572,237 3,984,356
Michael P. Durney..................... 50,000 0.85% 26.75 03/30/2008 841,147 2,131,631
Vice President and Controller 20,000 0.34% 25.00 12/15/2008 314,447 796,871
</TABLE>
- ---------------
(1) Options granted during the year ended December 31, 1998, generally become
exercisable in four equal annual installments commencing on the first
anniversary of the grant date. These options expire ten years from the date
of grant.
(2) Potential value is reported net of the option exercise price, but before
taxes associated with exercise. These amounts represent assumed rates of
appreciation only. Actual gains, if any, on stock option exercises are
dependent on the future performance of USAi's common stock, overall stock
market conditions, as well as on the option holders' continued employment
through the vesting period. The amounts reflected in this table may not
necessarily be achieved.
The table below presents information concerning the exercise of stock
options by the Named Executive Officers during the year ended December 31, 1998
and the fiscal year-end value of all unexercised options.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS HELD AT IN-THE-MONEY OPTIONS AT
VALUE YEAR END (#) YEAR-END($)(1)
ACQUIRED ON REALIZED --------------------------- ---------------------------
NAME EXERCISE(#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Barry Diller...................... 980,000 14,754,390 14,153,770 11,377,924 300,853,247 195,495,882
Chairman and Chief Executive
Officer
Victor A. Kaufman................. 0 0 317,000 629,000 4,584,016 9,253,274
Office of the Chairman and Chief
Financial Officer
Thomas J. Kuhn.................... 0 0 0 250,000 0 2,131,250
Senior Vice President, General
Counsel and Secretary
Dara Khosrowshahi................. 0 0 0 220,000 0 1,697,500
Vice President, Strategic
Planning
Michael P. Durney................. 0 0 0 70,000 0 481,250
Vice President and Controller
</TABLE>
- ---------------
(1) Represents the difference between the $33.125 closing price of USAi's common
stock on December 31, 1998 and the exercise price of the options, and does
not include the U.S. federal and state taxes due upon exercise.
12
<PAGE> 16
COMPENSATION OF OUTSIDE DIRECTORS
Each director of USAi who is not an employee of USAi or any of its
subsidiaries receives an annual retainer of $30,000 per year. USAi also pays
each of these directors $1,000 for each USAi or USANi LLC Board meeting and each
USAi or USANi LLC Board committee meeting attended, plus reimbursement for all
reasonable expenses incurred by a director as a result of attendance at any of
these meetings. For the year ended December 31, 1998, the directors that were
designated by Universal and Liberty waived their rights to receive the annual
retainer and attendance fees.
Under the USAi Directors' Stock Option Plan, directors who are not
employees of USAi or any of its subsidiaries receive a grant of options to
purchase 5,000 shares of USAi's common stock upon initial election to office and
thereafter annually on the date of USAi's annual meeting of stockholders at
which the director is re-elected. The exercise price per share of USAi's common
stock subject to the options is the fair market value of USAi's common stock on
the date of grant, which is defined as the mean of the high and low sale price
on the date on any stock exchange on which the common stock is listed or as
reported by NASDAQ or, in the event that the common stock is not so listed or
reported, as determined by an investment banking firm selected by the
Compensation/Benefits Committee. The options vest in increments of 1,667 shares
on each of the first two anniversaries of the date of grant, and 1,666 shares on
the third. The options expire ten years from the date of grant. For the year
ended December 31, 1998, the directors that were designated by Universal and
Liberty waived their rights to receive such option grants.
EQUITY COMPENSATION AGREEMENT; EMPLOYMENT AGREEMENTS
Mr. Diller. Under the Equity and Bonus Compensation Agreement dated August
24, 1995, USAi issued and sold to Mr. Diller 441,988 shares of USAi's common
stock at $11.3125 per share in cash (the "Initial Diller Shares") and an
additional 441,988 shares of common stock for the same per share price (the
"Additional Diller Shares") payable by means of a cash payment of $2,210 and an
interest-free, secured, non-recourse promissory note in the amount of
$4,997,779. The promissory note is secured by the Additional Diller Shares and
by that portion of the Initial Diller Shares having a fair market value on the
purchase date of 20% of the principal amount of the promissory note.
Mr. Diller's Equity and Bonus Compensation Agreement with USAi also
provides for a gross-up payment to be made to Mr. Diller, if necessary, to
eliminate the effect of the imposition of the excise tax under Section 4999 of
the Internal Revenue Code upon payments made to Mr. Diller and imposition of
income and excise taxes on the gross-up payment.
Mr. Diller was also granted a bonus arrangement, contractually independent
from the promissory note, under which he received a bonus payment of
approximately $2.5 million on August 24, 1996, and was to receive a further such
bonus payment on August 24, 1997, which was deferred. The deferred amount
accrues interest at a rate of 6% per annum. Mr. Diller also received $966,263
for payment of taxes by Mr. Diller due to the compensation expense which
resulted from the difference in the per share fair market value of USAi's common
stock and the per share purchase price of the Initial Diller Shares and
Additional Diller Shares.
Mr. Durney. On March 30, 1998, USAi and Mr. Durney entered into a
three-year employment agreement, providing for an annual base salary of $250,000
per year. Mr. Durney is also eligible to receive an annual discretionary bonus.
Mr. Durney's employment agreement provides for a grant of options to
purchase 50,000 shares of USAi's common stock. Mr. Durney's options become
exercisable with respect to 25% of the total shares on March 30, 1999 and on
each of the next three anniversaries of that date. Upon a change of control of
USAi, 100% of Mr. Durney's options become vested and exercisable. Mr. Durney's
options expire upon the earlier to occur of 10 years from the date of grant or
90 days following the termination of his employment for any reason. In the event
that Mr. Durney's employment is terminated by USAi for any reason other than
cause, death or disability, USAi is required to pay Mr. Durney's base salary
through the end of the term of his agreement, subject to mitigation by Mr.
Durney.
13
<PAGE> 17
Mr. Khosrowshahi. On March 2, 1998, USAi and Mr. Khosrowshahi entered into
a three-year employment agreement, providing for an annual base salary of
$300,000 per year. Mr. Khosrowshahi is also eligible to receive an annual
discretionary bonus.
Mr. Khosrowshahi's employment agreement provides for a grant of options to
purchase 120,000 shares of Common Stock. Mr. Khosrowshahi's options became
exercisable with respect to 25% of the total shares on March 2, 1999, with an
additional 25% vesting on each of the next three anniversaries of such date.
Upon a change of control of USAi, 100% of Mr. Khosrowshahi's options become
vested and exercisable. Upon termination of Mr. Khosrowshahi's employment by
USAi for any reason other than death, disability or cause, or if Mr.
Khosrowshahi terminates his employment for good reason, USAi is required to pay
Mr. Khosrowshahi the present value of his base salary through the term of his
agreement in a lump sum within thirty days of the termination date, subject to
mitigation by Mr. Khosrowshahi. In the event of a termination for any reason
other than death, disability or cause or if Mr. Khosrowshahi terminates his
employment for good reason, Mr. Khosrowshahi's options will vest immediately and
remain exercisable for one year from the date of such termination.
Mr. Kuhn. On February 9, 1998, USAi and Mr. Kuhn entered into a four-year
employment agreement, providing for an annual base salary of $450,000 per year.
Mr. Kuhn is also eligible to receive an annual discretionary bonus.
Mr. Kuhn's employment agreement provides for a grant of options to purchase
200,000 shares of USAi's common stock. Mr. Kuhn's options became exercisable
with respect to 25% of the total shares on February 9, 1999, with an additional
25% vesting on each of the next three anniversaries of such date. The provisions
in his employment agreement regarding change of control, payment upon
termination (for any reason other than death, disability or cause), payment in
the event Mr. Kuhn terminates his employment for good reason, and vesting and
exercisability of options upon termination are substantially the same as those
in Mr. Khosrowshahi's employment agreement.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. William D. Savoy was a member of the Compensation/Benefits Committee
for the entire 1998 calendar year. Messrs. Eli J. Segal, Bruce M. Ramer, Richard
E. Snyder and Donald R. Keough also served on the Compensation/Benefits
Committee during portions of 1998. None of these directors was ever an officer
or employee of USAi or its subsidiaries.
14
<PAGE> 18
PERFORMANCE GRAPH
The Stock Price Performance Graph shall not be deemed incorporated by
reference by any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act or the Securities Exchange
Act of 1934, as amended (the "Exchange Act", and together with the Securities
Act, the "Acts"), except to the extent that USAi specifically incorporates this
information by reference, and shall not otherwise be deemed filed under such
Acts.
The graph below compares cumulative total return of USAi Common Stock, the
Nasdaq Composite Index, the Standard & Poor's Entertainment Index, and the
Nasdaq Tele-Comm Index based on $100 invested at the close of trading on
December 31, 1993 through the latest practicable date. USAi selected the
Standard & Poor's Entertainment Index as its Peer Group because it includes
companies engaged in many of the same businesses as USAi. The Nasdaq Tele-Comm
Index was the Peer Group index USAi used in the preceding fiscal year.
PERFORMANCE GRAPH
<TABLE>
<CAPTION>
NASDAQ- S&P- NASDAQ-TELE-
USAI COMPOSITE ENTERTAINMENT COMM
---- --------- ------------- ------------
<S> <C> <C> <C> <C>
12/31/93 100.00 100.00 100.00 100.00
12/30/94 107.50 96.80 94.72 83.93
12/29/95 347.50 135.44 113.15 112.61
12/31/96 237.50 166.19 114.28 116.70
12/31/97 515.00 202.15 165.64 165.71
12/31/98 662.50 282.26 223.42 270.73
7/30/99 958.75 339.65 242.14 345.66
</TABLE>
15
<PAGE> 19
COMPENSATION/BENEFITS COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
The Compensation/Benefits Committee of the Board of Directors furnished the
following report on executive compensation for the 1998 fiscal year.
COMPENSATION PHILOSOPHY
The Company's executive compensation program is philosophically designed to
reward exceptional performance and to align the financial interests of the
Company's senior executives with those of the equity owners of the Company. To
achieve this end, the Committee has developed and implemented a compensation
program designed to attract and retain highly skilled executives with the
business experience and acumen necessary for achievement of the Company's
long-term business objectives. The Compensation/Benefits Committee uses
compensation surveys to provide information and data to assist it in developing
compensation programs that are competitive with other similarly-situated
companies.
The Company's executive compensation consists of three components: base
salary; an annual performance-based bonus; and stock-based compensation. The
general guidelines used by the Company to determine these components are
described below. Subject to these guidelines, bonus awards and option grants are
awarded on a discretionary rather than a formulaic basis. The Company also
occasionally grants restricted stock to employees who demonstrate extraordinary
performance.
The compensation of the Company's Chief Executive Officer and the four
other most highly compensated executive officers is governed in part by the
terms of certain agreements which are described under "Executive
Compensation -- Equity Compensation Agreement; Employment Agreements; Stock
Option Agreements" herein.
BASE SALARY
The base salaries paid to the Company's executive officers are based upon
recommendations of senior management, and require approval of the
Compensation/Benefits Committee. Management takes into account a variety of
factors in determining base salary, including (i) competitive salaries for
comparable officers at comparable companies, (ii) individual performance and an
assessment of the value of the individual's services to USAi, (iii) the fairness
of individual executive officers' salaries relative to their responsibilities,
(iv) the salaries of other executive officers, and (v) USAi's financial
performance. At different times, depending upon prevailing circumstances, the
Compensation/Benefits Committee gives these criteria varying degrees of weight.
ANNUAL BONUS
The Company uses annual incentive bonuses to recognize individual
performance and reward exceptional contributions to the Company's business.
Bonuses are determined as follows: At the end of each fiscal year, a bonus pool
is proposed by senior management and reviewed with the Compensation/Benefits
Committee. This pool is allocable to each division and to USAi. The bonus pool,
which includes amounts to be paid to the Chief Executive Officer and the four
other most highly compensated officers in the Company, is allocable to the
divisions based on (i) USAi's EBITDA growth rate for the year (taking into
account long-term investment); (ii) divisional contribution to the whole; and
(iii) the prior year's bonus pool. Although these factors are considered, bonus
pools are allocated on a discretionary, rather than a formulaic basis.
Once the bonus pool is established, the division heads and senior USAi
management are responsible for making recommendations to the
Compensation/Benefits Committee regarding allocation to executives other than
the five most highly compensated officers of the Company based on a subjective
assessment of individual performance. The Compensation/Benefits Committee is
responsible for determining the CEO's bonus and the CEO makes recommendations to
the Compensation/Benefits Committee regarding allocation of the bonus pool to
the four other most highly compensated executive officers of the Company, which
the Compensation/ Benefits Committee then approves or disapproves. Subject to
certain guidelines based on salary levels, bonuses
16
<PAGE> 20
are entirely discretionary, with exceptional efforts and results rewarded
disproportionately. In lieu of receiving a cash payment for the entire amount of
their annual bonuses, employees may elect to receive up to 50% of their bonus
award in shares of USAi Common Stock, which may be purchased at a 20% discount
to market price.
STOCK OPTIONS
The Committee believes that its stock option program appropriately links
executive interest to stockholder value. The Company makes annual option grants
to eligible employees based on performance and issues options to certain
employees upon initial employment and (promotion) and in connection with
entering into certain new employment arrangements.
The number of options available for grant each year and the allocation of
options is determined as follows: At the end of the year, an aggregate option
pool available for grant to executives at each division and at USAi is proposed
by senior management and reviewed with and approved by the Compensation/Benefits
Committee. As is the case with bonuses, once the option pool is established, the
division heads and senior USAi management are responsible for making
recommendations to the Compensation/Benefits Committee regarding allocation to
executives other than the five most highly compensated executive officers. As is
the case with bonuses, the CEO makes recommendations to the
Compensation/Benefits Committee regarding option grants to the four most highly
compensated executive officers other than the CEO and the Compensation/Benefits
Committee determines the number of options to be granted to the CEO. Subject to
certain guidelines based on salary levels, option grants from the established
pool are discretionary. In addition, a certain number of options are set aside
each year for extraordinary grants to new hires, renewals or other grants that
fall outside the annual grant program. All grants are reviewed and approved by
the Compensation/Benefits Committee and the vast majority of the options granted
vest over a four-year period.
TAX MATTERS
Section 162(m) of the Internal Revenue Code generally disallows a tax
deduction to public corporations for compensation over $1,000,000 paid in any
fiscal year to a corporation's chief executive officer and four other most
highly compensated executive officers as of the end of any fiscal year. However,
the statute exempts qualifying performance-based compensation from the deduction
limit if certain requirements are met. The Company has structured certain of its
compensation policies to comply with Section 162(m), including submitting
certain matters to the Performance Board Compensation Committee. Option grants
under the 1997 Plan are also structured to comply with Section 162(m).
Consistent with its philosophy of rewarding exceptional performance on a
discretionary rather than a formulaic basis, the Board, the
Compensation/Benefits Committee and the Performance-Based Compensation Committee
reserve the authority to award non-deductible compensation in appropriate
circumstances. In addition, it is possible that some compensation paid pursuant
to certain awards that have already been granted, including options granted by a
company that was subsequently acquired by USAi, may be nondeductible.
COMPENSATION OF CHIEF EXECUTIVE OFFICER FOR THE FISCAL YEAR
Effective September 25, 1998, the Compensation/Benefits Committee
authorized the payment to Mr. Diller of an annual base salary of $500,000. Prior
to such time, Mr. Diller had not received a salary from the Company. Mr. Diller
did not receive a bonus or additional option grants in 1998. See "Executive
Compensation -- Summary Compensation Table". Mr. Diller holds a significant
equity stake in the Company and, to the extent his performance as CEO translates
into an increase in the value of the Company's stock, all stockholders,
including Mr. Diller, share the benefit. The Compensation/Benefits Committee
believes Mr. Diller's compensation is reasonable. The Compensation/Benefits
Committee may, in the future, elect to pay bonuses and/or grant additional
options to Mr. Diller.
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<PAGE> 21
SUMMARY
The Compensation/Benefits Committee believes that the Company's executive
compensation program must continually provide executives with a strong incentive
to focus on and achieve the Company's business objectives and link a significant
portion of long-term remuneration directly to stock price appreciation realized
by all of the Company's stockholders. By assuring that executives are
appropriately compensated and therefore motivated, the long-term interests of
stockholders will be best served. The actions taken by the Compensation/Benefits
Committee in 1998 were consistent with this focus and the principles outlined
above.
Members of the Compensation Committee
Anne M. Busquet
Donald R. Keough
William D. Savoy (Chairman)
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Mr. Diller, the Chairman of the Board and Chief Executive Officer of USAi,
is the sole holder of the voting stock of the BDTV Entities. The BDTV Entities
hold shares of USAi common stock and Class B common stock, which have effective
voting control of USAi with respect to all matters submitted for the vote or
consent of stockholders as to which stockholders vote together as a single
class.
As of January 1, 1998, USAi entered into a lease with Nineteen Forty CC,
Inc. under which USAi leases an aircraft for use by Mr. Diller and other
directors and executive officers of USAi and USANi LLC in connection with USAi's
and USANi LLC's business. Nineteen Forty is wholly owned by Mr. Diller. The
lease provides for monthly rental payments equal to the monthly operating
expenses incurred by Nineteen Forty for operation and maintenance of the
aircraft. The lease has a five-year term and is terminable by either party on
thirty days' notice. In 1998, USAi paid a total of $1,967,000 in expenses
related to the use of the aircraft. USAi believes that the terms of the lease
are more favorable to USAi than those USAi would have received had it leased an
aircraft from an unrelated third party or purchased and maintained a corporate
aircraft.
In 1997, USAi and Mr. Diller agreed to defer repayment of an interest-free,
secured, non-recourse promissory note in the amount of $4,997,779 due from Mr.
Diller from September 5, 1997 to September 5, 2007. As of December 31, 1998, the
promissory note remained outstanding. In 1997, Mr. Diller and USAi agreed to
defer the payment of a bonus in the amount of $2.5 million that otherwise was to
be paid to Mr. Diller in 1997. The deferred bonus amount accrues interest at a
rate of 6% per annum.
In April 1996, USAi entered into a three-year consulting arrangement with
General Schwarzkopf, currently a member of the Boards of Directors of USAi and
USANi LLC. Under the consulting arrangement, General Schwarzkopf received
options to purchase 45,000 shares of Common Stock at an exercise price of $11.11
per share, all of which are vested. These options expire as of April 3, 2006.
On July 1, 1998, USAi made a $4.0 million loan to Mr. Held, who was the
Chairman and Chief Executive Officer of Home Shopping Network and a member of
the Board of Directors of USAi until March 5, 1999 when he resigned from all
positions with USAi and its affiliates. The loan was made to facilitate Mr.
Held's construction of a personal residence. The loan bore interest at USAi's
average bank rate during the term of the loan and was secured by Mr. Held's
options to purchase 3,000,000 shares of USAi's common stock. The loan was
scheduled to mature on July 1, 1999 and was scheduled to be repaid in three
quarterly installments, either in cash or through the exercise of options to
purchase 163,600 shares of USAi's common stock per installment following the
public announcement of USAi's financial results for each of (1) the quarter
ending September 30, 1998, (2) the year ending December 31, 1998 and (3) the
quarter ending March 31, 1999. As required under the terms of the loan, in
November 1998, Mr. Held exercised options and used their net proceeds to repay
the first installment on the loan in the amount of $1,375,568. Mr. Held repaid
the remainder of the loan on March 18, 1999.
Under the employment agreement entered into by Home Shopping Network and
Mr. Held, in 1996, Home Shopping loaned Mr. Held $1.0 million for the purpose of
purchasing a residence in the Tampa/
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<PAGE> 22
St. Petersburg area. As of December 31, 1998, a $400,000 balance on the loan
remained outstanding. The loan bears interest at 5% per annum, and the
outstanding principal and any accrued and unpaid interest become due and payable
in the event that Mr. Held is terminated for any reason, on the first
anniversary of the termination. Mr. Held repaid the remainder of the loan on
March 18, 1999.
UNIVERSAL TRANSACTION
On February 12, 1998, the Company completed the Universal transaction, in
which USAi acquired USA Networks, a New York partnership (which consisted of USA
Network and The Sci-Fi Channel cable television networks) and the domestic
television production and distribution business ("Studios USA") of Universal
from Universal. Universal is controlled by Seagram. USAi paid Universal
approximately $1.6 billion in cash ($300 million of which was deferred with
interest) and an effective 45.8% interest in USAi through shares of common
stock, Class B common stock and shares of USANi LLC, a Delaware limited
liability company ("USANi LLC"). The USANi LLC shares are exchangeable for
shares of common stock and Class B common stock on a one-for-one basis.
Due to Federal Communication Commission ("FCC") restrictions on foreign
ownership of entities such as USAi that control domestic television broadcast
licenses, Universal, which is controlled by Seagram, a Canadian company, is
limited in the number of shares of USAi's stock that it may own. USAi formed
USANi LLC primarily to hold USAi's non-broadcast businesses in order to comply
with such FCC restrictions and for other tax and regulatory reasons. Universal's
interest in USANi LLC is not subject to the FCC foreign ownership limitations.
USAi maintains control and management of USANi LLC, and the businesses held by
USANi LLC are managed by USAi in substantially the same manner as they would be
if USAi held them directly through wholly owned subsidiaries.
In connection with the Universal transaction, USAi, Seagram, Universal,
Liberty and Mr. Diller entered into various transaction agreements, including
the following:
- an investment agreement, pursuant to which, among other things, (1) each
of Universal and Liberty were granted a preemptive right, subject to
limitations, to maintain their respective percentage ownership interests
in USAi in connection with future issuances of USAi capital stock and (2)
with respect to issuances of USAi capital stock in specified
circumstances, Universal is obligated to maintain its percentage
ownership interest in USAi that it had prior to the issuances
- a governance agreement which, among other things, (1) details
restrictions on the acquisitions of additional USAi securities, on the
transfer of USAi securities and other conduct restrictions, in each case,
applicable to Universal and (2) governs Universal's and Liberty's rights
to representation on the USAi Board of Directors and Liberty's,
Universal's and Mr. Diller's right to approve certain fundamental changes
by USAi or any USAi subsidiary
- a stockholders agreement which, among other things, governs the
ownership, voting, transfer or other disposition of USAi securities owned
by Universal, Liberty and Mr. Diller and their respective affiliates
under which Mr. Diller exercises voting control over the equity
securities of USAi held by these persons and their affiliates
- a spinoff agreement which, in the event Mr. Diller no longer serves as
Chief Executive Officer of USAi or becomes disabled, generally provides
for interim arrangements relating to management of USAi and efforts to
achieve a spinoff or sale of USAi's broadcast stations and, in the case
of a spinoff, arrangements relating to their respective rights in USAi
resulting from the spinoff
Summaries of these agreements are set forth in USAi's Annual Report on Form 10-K
for the year ended December 31, 1998. Furthermore, copies of these agreements
have been filed with the SEC as Appendices A through D to USAi's Definitive
Proxy Statement, dated January 12, 1998, and are available from the SEC.
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<PAGE> 23
POLYGRAM FILMED ENTERTAINMENT AND OCTOBER FILMS TRANSACTIONS
In May 1999, USAi acquired from an affiliate of Universal certain assets
and liabilities relating to the domestic (including Canada) motion picture and
home video distribution businesses of PolyGram Filmed Entertainment, Inc.,
including such businesses as conducted by Gramercy Pictures, Interscope
Communications and Propaganda Films. The consideration in the transaction
consisted of the assumption by USAi of certain liabilities of the acquired
businesses. In addition, in connection with the transaction, USAi and Universal
entered into various related agreements, including:
-- a domestic distribution agreement relating to certain PolyGram films,
pursuant to which USAi has the exclusive right to distribute in the
United States and Canada these films in theatres, on television and
on video for a fee;
-- a $200 million interest-bearing promissory note, pursuant to which
USAi loaned to Universal the face amount of the note, which is a
recourse note and is payable out of the revenues otherwise due
Universal under the distribution agreement; and
-- other ancillary agreements, relating to videogram fulfillment, music
administration and transitional services.
USAi believes that the terms of the PolyGram transaction are at least as
favorable to USAi as the terms that would have been obtained from an unrelated
third party.
In addition, in May 1999, USAi acquired 100% of the capital stock of OFI
Holdings, Inc., which owns the business of October Films. Universal was the
majority shareholder in OFI. In the transaction, the minority shareholders of
OFI received an aggregate of $12 million in respect of their equity interest in
OFI, Universal received 300,000 shares of USAi Common Stock in respect of its
interest, and Universal also purchased 300,000 shares of USAi Common Stock for
an aggregate purchase price of $12 million. The market price of USAi Common
Stock was $37.50 per share on the trading day immediately prior to the date the
OFI merger agreement was executed. The terms of this transaction were negotiated
by USAi, Universal and a special committee of independent directors of OFI and
their respective advisors.
EXERCISE OF PREEMPTIVE RIGHTS
In 1998, pursuant to the investment agreement, each of Universal and
Liberty exercised their respective preemptive rights at a price of $20 per share
as follows: (a) with respect to the issuance of common stock in connection with
the conversion of Holdco's convertible debentures on March 1, 1998, (i) on March
23, 1998, Universal acquired 6,135,564 shares of USANi LLC ("LLC Shares") for an
aggregate consideration of $122,711,280; on (ii) June 4, 1998, Universal
acquired 3,843,267 LLC Shares for an aggregate consideration of $76,865,340;
(iii) on June 4, 1998, Liberty acquired 4,697,327 shares of common stock for an
aggregate consideration of $93,946,540; and (b) with respect to the issuance of
common stock to the former holders of Ticketmaster Group, Inc. common stock in
connection with the merger of a wholly owned subsidiary of the Company with and
into Tickmaster on June 24, 1998, (i) on July 9, 1998, Universal acquired
10,309,091 LLC Shares for an aggregate consideration of $206,181,820; (ii) on
July 27, 1998, Universal acquired 6,453,281 LLC Shares for an aggregate
consideration of $129,065,620; and (iii) on July 27, 1998, Liberty acquired
7,887,344 LLC Shares in exchange for $157,746,880. In addition, on June 30,
1998, in accordance with section 1.5(f) of the investment agreement, Liberty
acquired 15,000,000 LLC Shares for an aggregate consideration of $308,506,849.
In 1999, pursuant to the investment agreement, each of Universal and
Liberty exercised preemptive rights to acquire Company capital stock as follows:
(a) with respect to the issuance of common stock in connection with option
exercises and related events between June 11, 1998 and May 31, 1999 (i) on July
19, 1999, Universal acquired 7,390,876 LLC shares for an aggregate consideration
of $242,272,915, or $32.78 per share and (ii) on July 19, 1999, Liberty acquired
3,479,486 shares of common stock for an aggregate consideration of $114,057,551,
or $32.78 per share; and (b) with respect to the issuance of 600,000 shares of
common stock to Universal in connection with the October transaction described
above, (i) on July 19,
20
<PAGE> 24
1999, Liberty acquired 159,159 shares of common stock for an aggregate
consideration of $6,248,582.34, or $39.26 per share.
RELATIONSHIP BETWEEN USAI AND UNIVERSAL
Under the Universal transaction, USAi and some of its subsidiaries entered
into business agreements with Universal and some of its subsidiaries relating
to, among other things: (1) the domestic distribution by USAi of
Universal-produced television programming and Universal's library of television
programming; (2) the international distribution by Universal of television
programming produced by Studios USA; (3) long-term arrangements relating to the
use by Studios USA of Universal's production facilities in Los Angeles and
Orlando, Florida; and (4) a joint venture relating to the development of
international general entertainment television channels.
As part of the Universal transaction, Universal and USAi agreed to form a
50-50 joint venture to be managed by Universal which would own, operate and
exploit the international development of USA Network, The Sci-Fi Channel and
Universal's action/adventure channel, "13th Street". USAi elected to have
Universal buy out its 50% interest in this venture. Accordingly, during the
first half of 1999, USANi LLC reversed amounts previously recorded for its share
of losses of the joint venture.
Universal, through its ownership of USAi stock and USANi LLC shares, is
USAi's largest stockholder, assuming conversion of Universal's LLC Shares that
is not currently permissible under FCC rules. Messrs. Bronfman, Matschullat and
Minzberg are members of the Boards of Directors of USAi and USANi LLC and, other
than Mr. Minzberg, hold director and executive positions with Universal and its
affiliates, including Seagram. These individuals were elected to the Boards of
Directors of USAi and USANi LLC as part of the completion of the Universal
transaction, under the transaction agreements. The Bronfman family, which
includes Mr. Bronfman, holds a controlling interest in Seagram, which holds a
controlling interest in Universal. Other than in their capacities as
stockholders and officers of Seagram or Universal, and as directors and
stockholders of USAi and USANi LLC, these individuals do not have any direct or
indirect interest in the Universal-USAi agreements.
As described above, in May 1999, USAi and Universal entered into certain
agreements relating to the PolyGram Filmed Entertainment and October Films
transactions.
USAi believes that the business agreements between USAi and Universal
entered into as part of these transactions are all on terms at least as
favorable to USAi and USANi LLC as terms that could have been obtained from an
independent third party.
In the ordinary course of business, USAi and USANi LLC may determine to
enter into other agreements with Universal and its affiliates.
RELATIONSHIP BETWEEN USAI AND LIBERTY
In March 1999, AT&T Corp. ("AT&T") acquired all of the outstanding common
stock of Telecommunications, Inc. ("TCI"), through a merger in which TCI became
a wholly-owned subsidiary of AT&T. Liberty is an indirect wholly-owned
subsidiary of TCI. As a result of this merger and certain governance provisions
implemented at the time of the merger, based on information publicly reported by
Liberty, neither AT&T nor TCI is deemed to be the beneficial owner of securities
of USAi owned by Liberty. Based on such information, USAi does not believe that
the business combination between AT&T and TCI will substantially impact USAi's
relationship with Liberty.
USAi and USANi LLC in the ordinary course of business enter into agreements
with TCI and its subsidiaries relating to, among other things, the carriage of
the USA Networks cable networks and the Home Shopping Network and America's
Store programming and the acquisition of, or other investment in, businesses
related to the businesses of USAi and USANi LLC. Currently, none of the members
of USAi's Board of Directors is affiliated with, or has been designated by,
Liberty. Under the agreements relating to the Universal transaction, two
designees of Liberty, Messrs. Malone and Bennett, are members of the USANi
21
<PAGE> 25
LLC Board of Directors. Liberty holds a substantial equity interest in USAi and
USANi LLC, and Liberty is a party to the Universal transaction agreements filed
as exhibits to USAi's publicly filed reports.
In the ordinary course of business, USA Networks and Home Shopping Network
enter into agreements with the operators of cable television systems for the
carriage of USA Networks cable networks and the Home Shopping Network and
America's Store programming over cable television systems. USA Networks and Home
Shopping Network have entered into agreements with a number of cable television
operators that are owned or controlled by TCI. The Home Shopping Network
contracts are long-term and provide for a minimum subscriber guarantee and
incentive payments based on the number of subscribers. Payments by Home Shopping
Network to TCI and its affiliates under these contracts for cable commissions
and advertising were approximately $9.4 million for the year ended December 31,
1998. The renewal of the USA Network contract is currently being negotiated. The
Sci-Fi Channel has entered into a long-term contract, which may provide for
carriage commitments, and provides a fee schedule based upon the number of
subscribers. Payments by TCI and its controlled affiliates to USA Networks under
these contracts were approximately $70,000,000 in the aggregate for the year
ended December 31, 1998.
During April 1996, Home Shopping Network sold a majority of its interest in
HSN Direct Joint Venture, its infomercial operation, for $5.9 million to
entities controlled by Flextech P.L.C., a company controlled by TCI. In each of
February 1998 and 1999, Flextech paid Home Shopping Network a $250,000
installment of the purchase price. Home Shopping Network retains a 15% interest
in the venture and a related corporation.
During 1996, Home Shopping Network, along with Jupiter Programming Company,
formed Shop Channel, a television shopping venture based in Tokyo. TCI
International, a subsidiary of Liberty, owns a 50% interest in Jupiter, the 70%
shareholder in the venture. Home Shopping Network owns a 30% interest in Shop
Channel. During 1998, Home Shopping Network contributed $2.7 million to Shop
Channel. In addition, Home Shopping Network sold inventory and provided services
in the amount of $1.0 million to Shop Channel during 1998.
USAi and USANi LLC believe that their business agreements with TCI and
Liberty have been negotiated on an arm's-length basis and contain terms at least
as favorable to USAi and USANi LLC as those that could be obtained from an
unaffiliated third party. Neither Liberty nor TCI derives any benefit from such
transactions other than in its capacity as a stockholder of the other party or
USAi and USANi LLC, as the case may be.
In the ordinary course of business, and otherwise from time to time, USAi
and USANi LLC may determine to enter into other agreements with Liberty, TCI and
other TCI subsidiaries.
ANNUAL REPORTS
Upon written request to the Corporate Secretary, USA Networks, Inc., 152
West 57th Street, New York, New York 10019, the Company will provide without
charge to each person solicited an additional copy of USAi's 1998 Annual Report
on Form 10-K, including the financial statements and financial statement
schedules filed therewith. The Company will furnish a requesting securityholder
with any exhibit not contained therein upon payment of a reasonable fee.
PROPOSALS OF STOCKHOLDERS
The Company currently intends to hold its next annual meeting in May of
Year 2000. Stockholders who intend to have a proposal considered for inclusion
in the Company's proxy materials for presentation at the Year 2000 Annual
Meeting of Stockholders must submit the proposal to the Company at its principal
executive offices no later than December 15, 1999. Stockholders who intend to
present a proposal at the 2000 Annual Meeting of Stockholders without inclusion
of such proposal in the Company's proxy materials are required to provide notice
of such proposal to the Company no later than March 2, 2000. The Company
reserves the right to reject, rule out of order, or take other appropriate
action with respect to any proposal that does not comply with these and other
applicable requirements.
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<PAGE> 26
OTHER MATTERS
The Board has no knowledge of any other matters to be presented at the
meeting other than those described herein. If any other matters should properly
come before the meeting, it is the intention of the persons designated in the
proxy to vote on them according to their best judgment.
YOUR VOTE IS VERY IMPORTANT. YOUR BOARD URGES YOU TO MARK, DATE, SIGN AND
RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE AS SOON AS
POSSIBLE.
USA NETWORKS, INC.
If you have any questions or need assistance in voting your shares, please
contact MacKenzie Partners, Inc. at their toll free number: 1-800-322-2885.
New York, New York
August 26, 1999
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<PAGE> 27
USA NETWORKS, INC.
P R O X Y
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF USA NETWORKS,
INC. IN
CONNECTION WITH THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD SEPTEMBER 30, 1999
The undersigned stockholder of USA Networks, Inc., a Delaware corporation,
hereby acknowledges receipt of the Notice of Annual Meeting of Stockholders and
Proxy Statement, each dated August 26, 1999, and hereby appoints each of Thomas
J. Kuhn, Michael P. Durney, Roger W. Clark and Daniel L. Burch, proxy and
attorney-in-fact, each with full power of substitution, on behalf and in the
name of the undersigned, to represent the undersigned at the Annual Meeting of
Stockholders of USA Networks, Inc. to be held on Thursday, September 30, 1999,
at 10:00 a.m., Eastern Time, at the Parker Meridien Hotel, 118 West 57th Street,
New York, New York, and at any adjournments or postponements thereof, and to
vote all shares of Common Stock which the undersigned would be entitled to vote
if then and there personally present, on the matters set forth on the reverse
side hereof.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
ENVELOPE PROVIDED.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED OR, IF NO
DIRECTION IS INDICATED, WILL BE VOTED "FOR" EACH OF THE PROPOSALS LISTED, AND IN
THE DISCRETION OF THE PROXIES ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE
THE MEETING, INCLUDING, AMONG OTHER THINGS, CONSIDERATION OF ANY MOTION MADE FOR
ADJOURNMENT OR POSTPONEMENT OF THE MEETING.
(See reverse side)
USA NETWORKS, INC.
P.O. BOX 11070
NEW YORK, NY 10203-0070
THE USAI BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1 AND 2.
<TABLE>
<S> <C> <C>
1. ELECTION OF DIRECTORS. [ ] FOR all nominees listed [ ] WITHHOLD AUTHORITY to vote
below for all the nominees listed below
<CAPTION>
<S> <C>
1. ELECTION OF DIRECTORS. [ ] EXCEPTIONS
</TABLE>
<TABLE>
<S> <C> <C> <C>
Nominees: Paul G. Allen Anne M. Busquet Donald R. Keough*
Barry Baker Barry Diller Robert W. Matschullat
Edgar Bronfman, Jr. Victor A. Kaufman Samuel Minzberg
<CAPTION>
<S> <C>
Nominees: William D. Savoy*
Gen. H. Norman Schwarzkopf*
Diane Von Furstenberg
</TABLE>
* To be voted upon by the holders of Common Stock voting as a separate class.
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK THE
"EXCEPTIONS" BOX AND STRIKE A LINE THROUGH THAT NOMINEE'S NAME.)
All nominees will serve a term of one year or until their respective successors
shall have been duly elected and qualified.
<PAGE> 28
(Continued from other side)
2. THE PROPOSAL TO RATIFY THE APPOINTMENT OF ERNST & YOUNG LLP TO SERVE AS THE
INDEPENDENT AUDITORS OF THE COMPANY FOR THE YEAR ENDING DECEMBER 31, 1999.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Change of Address [ ]
Mark here
Please sign exactly as name appears
on Proxy.
Note: When shares are held by joint
tenants, both should sign. When
signing as attorney, executor,
administrator, trustee, guardian or
corporate officer or partner,
please give full title as such. If
a corporation, please sign in
corporate name by President or
other authorized officer. If a
partnership, please sign in
partnership name by authorized
person.
Dated:
-----------------------------------
-----------------------------------
Signature
-----------------------------------
(Signature, if held jointly)
-----------------------------------
(Title)
<TABLE>
<S> <C> <C>
(PLEASE SIGN, DATE AND RETURN THIS PROXY IN THE ENCLOSED
POSTAGE PREPAID ENVELOPE.) VOTES MUST BE INDICATED
(X) IN BLACK OR BLUE INK. [X]
</TABLE>
<PAGE> 29
NAME OF HOLDER________________________________
NUMBER OF CLASS B SHARES______________________
USA NETWORKS, INC.
CLASS B COMMON STOCK PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF USA NETWORKS,
INC. IN CONNECTION WITH THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD
SEPTEMBER 30, 1999
The undersigned stockholder of USA Networks, Inc., a Delaware
corporation, hereby acknowledges receipt of the Notice of Annual Meeting of
Stockholders and Proxy Statement, each dated August 26, 1999, and hereby
appoints each of Thomas J. Kuhn, Michael P. Durney, Roger W. Clark and Daniel L.
Burch proxy and attorney-in-fact, each with full power of substitution, on
behalf and in the name of the undersigned, to represent the undersigned at the
Annual Meeting of Stockholders of USA Networks, Inc. to be held on Thursday,
September 30, 1999, at 10:00 a.m., Eastern time, at the Parker Meridien Hotel,
118 West 57th Street, New York, New York, and at any adjournments or
postponements thereof, and to vote all shares of Class B Common Stock which the
undersigned would be entitled to vote if then and there personally present, on
the matters set forth on the reverse side hereof.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE
ENCLOSED ENVELOPE PROVIDED.
(See reverse side)
USA Networks, Inc.
152 West 57th Street
New York, New York 10019
Attn: General Counsel
<PAGE> 30
CLASS B COMMON STOCK PROXY
THE USAI BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1 AND 2
1. ELECTION OF DIRECTORS
Paul G. Allen Donald R. Keough*
Barry Baker Robert W. Matschulatt
Edgar Bronfman, Jr. Samuel Minzberg
Anne M. Busquet William D. Savoy*
Barry Diller Gen. H. Norman Schwarzkopf*
Victor A. Kaufman Diane Von Furstenberg
*To be voted upon by the holders of Common Stock voting as a separate
class.
<TABLE>
<S> <C> <C>
[ ] FOR all nominees (except as [ ] WITHHOLD AUTHORITY [ ] EXCEPTIONS
marked to the contrary above) to vote for all the nominees
listed above
</TABLE>
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
MARK THE "EXCEPTIONS" BOX AND STRIKE A LINE THROUGH THAT NOMINEE'S NAME).
All nominees will serve a term of one year or until their respective
successors shall have been duly elected and qualified.
2. THE PROPOSAL TO RATIFY THE APPOINTMENT OF ERNST & YOUNG LLP TO SERVE AS
THE INDEPENDENT AUDITORS OF THE COMPANY FOR THE YEAR ENDING DECEMBER 31,
1999
[ ] FOR [ ] AGAINST [ ] ABSTAIN
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED OR, IF NO
DIRECTION IS INDICATED, WILL BE VOTED "FOR" EACH OF THE PROPOSALS LISTED, AND IN
THE DISCRETION OF THE PROXIES ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE
THE MEETING, INCLUDING, AMONG OTHER THINGS, CONSIDERATION OF ANY MOTION MADE FOR
ADJOURNMENT OR POSTPONEMENT OF THE MEETING.
Please sign exactly as name appears on Proxy
Dated:__________________________________________________________________________
________________________________________________________________________________
(Signature)
________________________________________________________________________________
(Signature if held jointly)
________________________________________________________________________________
(Title)
Note: When shares are held by joint tenants, both should sign. When signing as
attorney, executor, administrator, trustee, guardian or corporate officer or
partner, please give full title as such. If a corporation, please sign in
corporate name by President or other authorized officer. If a partnership,
please sign in partnership name by authorized person.
VOTES MUST BE INDICATED
(X) IN BLACK OR BLUE INK.
