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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 20, 1996
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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SILVER KING COMMUNICATIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 4833 59-2712887
(STATE OF INCORPORATION) (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
12425 28TH STREET NORTH
ST. PETERSBURG, FL 33716
(813) 573-0339
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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MICHAEL DRAYER
EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND CORPORATE SECRETARY
SILVER KING COMMUNICATIONS, INC.
12425 28TH STREET NORTH
ST. PETERSBURG, FL 33716
(813) 573-0339
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF AGENT FOR SERVICE)
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COPY TO:
PAMELA S. SEYMON
WACHTELL, LIPTON, ROSEN & KATZ
51 WEST 52ND STREET
NEW YORK, NY 10019
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As promptly as practicable after this Registration Statement becomes
effective, the effective time of the proposed merger of a wholly-owned
subsidiary of Registrant with and into Savoy Pictures Entertainment, Inc., a
Delaware corporation ("Savoy"), as described in the Agreement and Plan of Merger
dated as of November 27, 1995 and amended as of August 13, 1996, attached as
Appendix A to the Joint Proxy Statement/Prospectus forming a part of this
Registration Statement and the effective time of the proposed merger of an
80.1%-owned subsidiary of Registrant with and into Home Shopping Network, Inc.,
a Delaware corporation ("HSN"), as described in the Agreement and Plan of
Exchange and Merger dated as of August 25, 1996 attached as Appendix B to the
Joint Proxy Statement/Prospectus forming a part of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE(1)
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Common Stock, $.01 par
value per share........ 60,074,287 shares $23.92 $1,437,235,510 $435,526
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(1) This Registration Statement relates to securities of the Registrant issuable
to (i) holders of (x) Common Stock of Savoy in the proposed merger of a
wholly-owned subsidiary of the Registrant with and into Savoy and is based
on 30,041,932 shares of Savoy Common Stock, (y) options to purchase
1,200,145 shares of Savoy Common Stock and (z) debentures convertible into
2,031,290 shares of Savoy Common Stock, each outstanding on November 1,
1996; and (ii) holders of (w) Common Stock of HSN in the proposed merger of
an 80.1% subsidiary of the Registrant with and into HSN and is based on
71,997,559 shares of HSN Common Stock, (x) 20,000,000 shares of HSN Class B
Common Stock convertible into 20,000,000 shares of HSN Common Stock, (y)
options to purchase 18,815,810 shares of HSN Common Stock and (z) debentures
convertible into 8,333,333 shares of HSN Common Stock, each outstanding on
November 1, 1996. Pursuant to Rule 457(b), $267,231 of the Registration Fee
has been paid in connection with related transaction filings by the
Registrant pursuant to Section 14(g) of the Securities Exchange Act of 1934,
as amended.
(2) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(f)(1) and (f)(2) under the Securities Act of 1933,
as amended, on the basis of the market value of Savoy Common Stock and HSN
Common Stock to be received by the Registrant in the proposed transactions,
calculated in accordance with Rule 457(c) on the basis of the applicable
reported market prices for such securities on November 11, 1996, and on the
basis of the book value as of the most recent practicable date of the HSN
Class B Common Stock to be received by the Registrant in the proposed
transactions, calculated in accordance with Rule 457(f)(2).
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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SILVER KING COMMUNICATIONS, INC.
12425 28TH STREET NORTH
ST. PETERSBURG, FL 33716
NOVEMBER 20, 1996
Dear Stockholder:
An Annual Meeting of Stockholders of Silver King Communications, Inc. will
be held on December 19, 1996, at 11:00 a.m., local time, at The Four Seasons
Hotel, 57 East 57th Street, New York, New York.
At the Annual Meeting, you will be asked to consider and vote upon
proposals relating to, among other things, Silver King's acquisition of Savoy
Pictures Entertainment, Inc. ("Savoy") and Home Shopping Network, Inc. ("HSN"),
all as described in detail in the Joint Proxy Statement/Prospectus that
accompanies this letter.
The Savoy transaction will be accomplished by a merger in which a
subsidiary of Silver King will merge with Savoy, Savoy will be the surviving
corporation and each outstanding share of Savoy common stock will be converted
into the right to receive 0.14 of a share of Silver King common stock.
The HSN transaction will be accomplished by a merger involving three
principal steps. First, immediately prior to the merger, Liberty HSN, Inc.
("Liberty HSN") will exchange all of its shares of HSN common stock and
approximately 4% of its shares of HSN Class B common stock for an equal number
of shares of, respectively, common stock and Class B common stock of a currently
wholly-owned subsidiary of Silver King ("House"), and such shares of HSN stock
received by House will be cancelled in the merger. Second, in the merger, (i)
House will merge with and into HSN; (ii) HSN will be the surviving corporation;
(iii) each outstanding share of HSN common stock (other than shares held by
House or HSN) will be converted into the right to receive 0.45 of a share of
Silver King common stock; (iv) each outstanding share of HSN Class B common
stock (other than shares held by House or HSN) will be converted into the right
to receive 0.54 of a share of Silver King Class B common stock, a portion of
which (up to 2,644,299 shares (subject to adjustment)) will not be issued at the
time of the merger but will instead be represented by Silver King's contractual
obligation to issue such shares to Liberty HSN upon the occurrence of certain
events (the "Contingent Rights"); and (v) each outstanding share of House common
stock and House Class B common stock will be converted into one share,
respectively, of common stock and Class B common stock of HSN, as the surviving
corporation in the merger. Upon consummation of these transactions, Silver King
will own at least 80.1% of the voting power and equity of the surviving
corporation and Liberty HSN will own not more than 19.9% of the voting power and
equity of the surviving corporation. Third, after the HSN merger, at such time
or from time to time as Liberty HSN or its permitted transferee may be allowed
under applicable regulations to hold additional shares of Silver King stock,
Liberty HSN or its permitted transferee will exchange its stock of the surviving
corporation for additional Silver King stock at the same exchange ratios of 0.45
of a share of Silver King Common Stock for each share of the surviving
corporation's common stock owned by Liberty HSN or its permitted transferee and
0.54 of a share of Silver King Class B common stock for each share of the
surviving corporation's Class B common stock owned by Liberty HSN or its
permitted transferee, whereupon HSN would become a wholly-owned subsidiary of
Silver King. Liberty HSN, however, is obligated to effect such exchange only
after all shares of Silver King Class B common stock have been issued under the
Contingent Rights, subject to certain exceptions.
Although consummation of the Savoy merger is a condition to the obligation
of Silver King, HSN and Liberty HSN to consummate the HSN merger, the two
transactions are generally independent of each other and Silver King
stockholders are being asked to consider separately matters related to each
transaction.
In connection with the Savoy merger and the HSN merger, at the Annual
Meeting you will also be asked to consider proposals providing for certain
amendments to Silver King's Amended and Restated Certificate of
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Incorporation to (i) increase the authorized shares of Silver King common stock
from 30,000,000 shares to 150,000,000 shares, the authorized shares of Silver
King Class B common stock from 2,415,945 shares to 30,000,000 shares and the
authorized shares of Silver King preferred stock from 50,000 shares to
15,000,000 shares, (ii) upon consummation of the HSN merger, change the
corporate name of Silver King to "HSN, Inc." and (iii) eliminate the provisions
in Silver King's Amended and Restated Certificate of Incorporation that provide
for the vote as separate classes of the holders of each of the Silver King
common stock and the Silver King Class B common stock in certain specified
circumstances at any time when there are at least 2,280,000 shares of Silver
King Class B common stock outstanding. Consummation of the HSN merger requires
the adoption of the first of these amendments to Silver King's Certificate of
Incorporation. The shares of authorized but unissued Silver King capital stock
will be available for general corporate purposes, including possible future
acquisitions.
For the reasons described in the accompanying Joint Proxy
Statement/Prospectus, the rules of the National Association of Securities
Dealers, Inc. require that the issuance of Silver King common stock and Silver
King Class B common stock in each of the Savoy merger and the HSN merger be
approved by the holders of a majority of the shares present in person or
represented by proxy at the Annual Meeting, voting together as a single class.
Consummation of the transactions summarized above is also subject, in each case,
to regulatory and other conditions, including the receipt of all required
stockholder approvals.
In addition to the foregoing matters, at the Annual Meeting, you will also
be asked to consider and vote upon proposals to (i) adopt the 1995 Stock
Incentive Plan for officers and employees of Silver King; (ii) adopt the
Directors Stock Option Plan for the non-employee directors of Silver King; (iii)
elect six directors to hold office for a one-year term; and (iv) ratify the
appointment of Ernst & Young LLP as Silver King's independent auditors.
Silver King's Board of Directors has received the opinions of CS First
Boston Corporation, Silver King's financial advisor, that, as of the date of
each of the Savoy Merger Agreement and the HSN Merger Agreement, the
consideration to be paid by Silver King, respectively, pursuant to the Savoy
Merger Agreement and the HSN Merger Agreement is fair from a financial point of
view to Silver King. A copy of each of First Boston's opinions is included as
Appendix C (regarding the Savoy merger) and Appendix D (regarding the HSN
merger) to the enclosed Joint Proxy Statement/Prospectus.
Your Board of Directors has carefully considered the terms and conditions
of the proposed Savoy merger, the HSN merger and related transactions, the
amendments to the Silver King Certificate of Incorporation, the 1995 Stock
Incentive Plan, the Directors Stock Option Plan and the related proposals to be
considered by the Silver King stockholders at the Annual Meeting, and has
determined that such transactions and proposals are in the best interests of
Silver King and its stockholders. Your Board has also considered the other
proposals to be considered by stockholders at the Annual Meeting, including
election of directors described in the enclosed Joint Proxy
Statement/Prospectus, and recommends approval of such proposals. ACCORDINGLY,
THE BOARD RECOMMENDS THAT THE STOCKHOLDERS OF SILVER KING APPROVE EACH PROPOSAL
BEING SUBMITTED TO YOU FOR APPROVAL.
Pursuant to agreements entered into with respect to each of the Savoy
Merger Agreement and the HSN Merger Agreement, certain entities which own or
control the voting of 7% of the outstanding Silver King common stock and 83% of
the outstanding Silver King Class B common stock (which shares collectively
represent 66% of the outstanding voting power of Silver King voting stock) as of
the record date for the Annual Meeting have agreed to vote their shares of
Silver King stock, or cause such shares to be voted, in favor of certain
proposals being submitted to Silver King stockholders in connection with these
transactions.
In the material accompanying this letter, you will find a Notice of Annual
Meeting of Stockholders, a Joint Proxy Statement/Prospectus relating to the
actions to be taken by Silver King stockholders at the Annual Meeting (as well
as the actions to be taken by the Savoy and HSN stockholders at their respective
special meetings) and a proxy. The Joint Proxy Statement/Prospectus more fully
describes the proposed transactions and the other matters to be considered at
the Annual Meeting and includes information about each of Silver King, Savoy and
HSN.
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All stockholders are cordially invited to attend the Annual Meeting in
person. However, whether or not you plan to attend the Annual Meeting, please
complete, sign, date and return your proxy card in the enclosed envelope. If you
attend the Annual Meeting, you may vote in person if you wish, even though you
have previously returned your proxy card. It is important that your shares be
represented and voted at the Annual Meeting.
Sincerely,
/s/ Barry Diller
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Barry Diller
Chairman of the Board and
Chief Executive Officer
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SILVER KING COMMUNICATIONS, INC.
12425 28TH STREET NORTH
ST. PETERSBURG, FL 33716
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 19, 1996
TO THE STOCKHOLDERS OF SILVER KING COMMUNICATIONS, INC.:
The Annual Meeting of Stockholders of Silver King Communications, Inc., a
Delaware corporation ("Silver King"), will be held on December 19, 1996, at
11:00 a.m., local time, at The Four Seasons Hotel, 57 East 57th Street, New
York, New York (the "Annual Meeting"), for the following purposes:
A. To consider and vote upon certain matters, in connection with (i)
the Amended Agreement and Plan of Merger, originally dated as of November
27, 1995 and amended on March 22, 1996 and August 13, 1996 (the "Savoy
Merger Agreement"), by and among Silver King, Thames Acquisition Corp., an
indirect wholly-owned subsidiary of Silver King ("Thames"), and Savoy
Pictures Entertainment, Inc. ("Savoy"), pursuant to which Thames will be
merged with and into Savoy (the "Savoy Merger") and Savoy will become an
indirect wholly-owned subsidiary of Silver King, and (ii) the Agreement and
Plan of Exchange and Merger, dated as of August 25, 1996 (the "HSN Merger
Agreement"), by and among Silver King and House Acquisition Corp., a
newly-formed subsidiary of Silver King ("House"), Home Shopping Network,
Inc. ("HSN") and Liberty HSN, Inc. ("Liberty HSN"), pursuant to which House
will be merged with and into HSN and HSN will become initially an
80.1%-owned subsidiary of Silver King and 19.9%-owned by Liberty HSN (the
"HSN Merger"). Pursuant to the Savoy Merger, each outstanding share of
Savoy common stock, $.01 par value per share ("Savoy Common Stock") (other
than treasury shares and shares owned by Silver King or its wholly-owned
subsidiaries), will be converted into the right to receive 0.14 of a share
of Silver King common stock, par value $.01 per share ("Silver King Common
Stock"), and each outstanding option or warrant to purchase Savoy Common
Stock will be assumed by Silver King and converted into, respectively, an
option or warrant to acquire that number of shares of Silver King Common
Stock as the holder would have been entitled to receive had such holder
exercised such option or warrant in full immediately prior to the effective
time of the Savoy Merger, and each outstanding debenture convertible into
Savoy Common Stock will become convertible into the kind and amount of
Silver King Common Stock that such owner would have been entitled to
receive had such debenture been converted into Savoy Common Stock
immediately prior to the effective time of the Savoy Merger.
Pursuant to the HSN Merger Agreement, (i) immediately prior to the
merger, Liberty HSN will exchange all of its shares (subject to certain
adjustments) of HSN common stock (17,566,702 shares), par value $.01 per
share ("HSN Common Stock"), and 739,141 of its shares (subject to certain
adjustments) of HSN Class B common stock, par value $.01 per share ("HSN
Class B Common Stock"), for an equal number of shares, respectively, of
House common stock, par value $.00001 per share, and House Class B common
stock, par value $.00001 per share (the "Pre-HSN Merger Exchange"); (ii) in
the HSN Merger, (w) each outstanding share of HSN Common Stock (except for
treasury shares and shares held by House pursuant to the Pre-HSN Merger
Exchange, which will be cancelled), will be converted into the right to
receive 0.45 of a share of Silver King Common Stock; (x) each outstanding
share of HSN Class B Common Stock (except for shares held by House pursuant
to the Pre-HSN Merger Exchange, which will be cancelled), will be converted
into the right to receive 0.54 of a share of Silver King Class B common
stock, par value $.01 per share ("Silver King Class B Common Stock"), a
portion of which (up to 2,644,299 shares (subject to adjustment)) will not
be issued at the time of the HSN Merger but will instead be represented by
Silver King's contractual obligation to issue such shares to Liberty HSN
upon the occurrence of certain events (the "Contingent Rights"); (y) each
outstanding option to acquire HSN Common Stock will be assumed by Silver
King and converted into an option to receive that number of shares of
Silver King Common Stock as the holder would have been entitled to receive
had such holder exercised such option immediately prior to the
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effective time of the HSN Merger, and each outstanding debenture
convertible into HSN Common Stock will become convertible into the kind and
amount of Silver King Common Stock that the owner thereof would have been
entitled to receive had such debenture been converted into HSN Common Stock
immediately prior to the effective time of the HSN Merger; and (z) each
outstanding share of House common stock and House Class B common stock will
be converted into one share, respectively, of common stock and Class B
common stock of HSN, as the surviving corporation in the HSN Merger (the
"HSN Surviving Corporation Common Stock" and the "HSN Surviving Corporation
Class B Common Stock," respectively). Upon consummation of the HSN Merger,
Silver King will own at least 80.1% of the voting power and equity of the
surviving corporation and Liberty HSN will own not more than 19.9% of the
voting power and equity of the surviving corporation. After the HSN Merger,
at such time or from time to time as Liberty HSN or its permitted
transferee may be allowed under applicable regulations to hold additional
shares of Silver King stock, Liberty HSN or its permitted transferee will
exchange its HSN Surviving Corporation Common Stock for shares of Silver
King Common Stock at an exchange ratio of 0.45 per share and its HSN
Surviving Corporation Class B Common Stock for shares of Silver King Class
B Common Stock at an exchange ratio of 0.54 per share (the "Exchange").
Liberty HSN, however, is obligated to effect such Exchange only after all
shares of Silver King Class B Common Stock have been issued under the
Contingent Rights, subject to certain exceptions. Upon completion of the
Exchange, HSN will be a wholly-owned subsidiary of Silver King.
In connection with the Savoy Merger and the HSN Merger, Silver King
stockholders will be asked at the Annual Meeting:
1. To consider and vote upon a proposal to issue shares of Silver
King Common Stock in the Savoy Merger (the "Savoy Merger NASD
Proposal").
2. To consider and vote upon a proposal to issue shares of Silver
King Common Stock and Silver King Class B Common Stock in the HSN Merger
(including pursuant to the Contingent Rights and the Exchange) (the "HSN
Merger NASD Proposal").
3. To consider and vote upon a proposal to amend Article IV of the
Amended and Restated Certificate of Incorporation of Silver King to
increase the authorized shares of Silver King Common Stock from
30,000,000 shares to 150,000,000 shares and increase the authorized
shares of Silver King Class B Common Stock from 2,415,945 shares to
30,000,000 shares and increase the authorized shares of Silver King
preferred stock, par value $.01 per share ("Silver King Preferred
Stock"), from 50,000 shares to 15,000,000 shares (the "Authorized
Capital Stock Amendment Proposal"). Consummation of the HSN Merger
(including the issuance of the Contingent Rights Shares and the
consummation of the Exchange) requires an increase in the number of
authorized shares of Silver King Common Stock and Silver King Class B
Common Stock.
4. To consider and vote upon a proposal to amend Article I of the
Amended and Restated Certificate of Incorporation of Silver King to
change the corporate name of Silver King to "HSN, Inc." in the event
that the HSN Merger is consummated (the "Name Change Proposal").
5. To consider and vote upon a proposal to amend Article IV of the
Amended and Restated Certificate of Incorporation of Silver King to
eliminate the separate class vote of the holders of the Silver King
Common Stock and the Silver King Class B Common Stock in certain
specified circumstances at any time that there are at least 2,280,000
shares of Silver King Class B Common Stock outstanding (the "Class Vote
Amendment Proposal").
B. In connection with the Annual Meeting, Silver King stockholders
will also be asked:
1. To consider and vote upon the election of six members of the
Silver King Board of Directors, each to hold office for a one-year term
ending on the date of the next succeeding annual meeting of stockholders
and until such director's respective successor shall have been duly
elected and qualified.
2. To consider and vote upon the adoption of Silver King's 1995
Stock Incentive Plan for Silver King's officers and certain key
employees and consultants (the "1995 Stock Incentive Plan Proposal").
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3. To consider and vote upon the adoption of Silver King's
Directors Stock Option Plan for the non-employee directors of Silver
King (the "Directors Stock Option Plan Proposal").
4. To ratify the appointment of Ernst & Young LLP as the firm of
independent auditors to audit the consolidated financial statements of
Silver King and its subsidiaries for the year ended December 31, 1996
(the "Ratification of Auditors Proposal").
C. To transact such other business as may properly come before the
Annual Meeting or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Joint Proxy
Statement/Prospectus accompanying this Notice.
The stockholders of Silver King are not entitled to appraisal rights in
connection with either the Savoy Merger or the HSN Merger because Silver King is
not a constituent corporation in either merger. The list of Silver King
stockholders will be available to any Silver King stockholder for examination at
the principal executive offices of Savoy Pictures Entertainment, Inc., 152 West
57th Street, New York, NY 10019, during regular business hours at least ten days
prior to the Annual Meeting.
Only stockholders of record of Silver King Common Stock or Silver King
Class B Common Stock at the close of business on November 13, 1996 are entitled
to notice of, and will be entitled to vote at, the Annual Meeting or any
adjournment or postponement thereof. Approval of (i) each of the Savoy Merger
NASD Proposal, the HSN Merger NASD Proposal, the 1995 Stock Incentive Plan
Proposal, the Directors Stock Option Plan Proposal and the Ratification of
Auditors Proposal requires the affirmative vote of the holders of a majority of
the voting power of the shares of Silver King Common Stock and Silver King Class
B Common Stock, present in person or represented by proxy at the Annual Meeting,
entitled to vote and voting thereon, voting together as single class; and (ii)
each of the Authorized Capital Stock Amendment Proposal, the Name Change
Proposal and the Class Vote Amendment Proposal requires the affirmative vote of
the holders of a majority of the outstanding shares of Silver King Common Stock
and the separate affirmative vote of the holders of a majority of the
outstanding shares of Silver King Class B Common Stock. In addition, nominees
for directors who receive a majority of all votes cast will be elected (with the
holders of Silver King Common Stock and Silver King Class B Common Stock voting
together as a single class to elect four directors and the holders of Silver
King Common Stock voting separately as a class to elect two directors).
BY ORDER OF THE BOARD OF
DIRECTORS
/s/ Michael Drayer
--------------------------
Michael Drayer
Executive Vice President,
General Counsel and
Corporate Secretary
St. Petersburg, Florida
November 20, 1996
TO ENSURE THAT YOUR SHARES ARE REPRESENTED AT THE ANNUAL MEETING, YOU ARE
URGED TO COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE
POSTAGE-PAID ENVELOPE PROVIDED, WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL
MEETING IN PERSON. YOUR PROXY CAN BE WITHDRAWN BY YOU AT ANY TIME BEFORE IT IS
VOTED.
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SAVOY PICTURES ENTERTAINMENT, INC.
152 WEST 57TH STREET
NEW YORK, NY 10019
NOVEMBER 20, 1996
Dear Stockholder:
A Special Meeting of Stockholders of Savoy Pictures Entertainment, Inc., a
Delaware corporation ("Savoy"), will be held on December 19, 1996, at 9:30 a.m.,
local time, at The Four Seasons Hotel, 57 East 57th Street, New York, New York
(the "Special Meeting").
At the Special Meeting, you will be asked to consider and vote upon a
proposal to approve the Agreement and Plan of Merger, dated as of November 27,
1995 (the "November Savoy Merger Agreement"), as amended by the amendment, dated
March 22, 1996 (the "Extension Letter"), and the amendment, dated August 13,
1996 (the "Merger Agreement Amendment" and together with the November Savoy
Merger Agreement and the Extension Letter, the "Savoy Merger Agreement"), by and
among Silver King Communications, Inc., a Delaware corporation ("Silver King"),
Thames Acquisition Corp., an indirect wholly-owned subsidiary of Silver King
("Thames"), and Savoy, and the merger of Thames with and into Savoy (the "Savoy
Merger"). As a result of the Savoy Merger, Savoy will become an indirect
wholly-owned subsidiary of Silver King, each outstanding share of Savoy common
stock, $.01 par value per share ("Savoy Common Stock") (other than treasury
shares and shares owned by Silver King and its wholly-owned subsidiaries), will
be converted into the right to receive 0.14 of a share of Silver King common
stock, $.01 par value per share ("Silver King Common Stock"), and each
outstanding option or warrant to acquire Savoy Common Stock will be assumed by
Silver King and converted into an option or warrant to acquire that number of
shares of Silver King Common Stock as the holder would have been entitled to
receive had such holder exercised such option or warrant immediately prior to
the effective time of the Savoy Merger, and each outstanding debenture
convertible into Savoy Common Stock will become convertible into the kind and
amount of Silver King Common Stock that the owner thereof would have been
entitled to receive had such debenture been converted into Savoy Common Stock
immediately prior to the effective time of the Savoy Merger. If the requisite
approvals of the stockholders of Savoy and Silver King are received, the Savoy
Merger is expected to be consummated as soon as possible, but in any case within
three business days, following satisfaction or waiver of all of the other
closing conditions. Savoy and Silver King received the required approval by the
Federal Communications Commission of the Savoy Merger on August 16, 1996, which
became final on October 2, 1996. If the Savoy Merger is completed, Savoy
stockholders would no longer hold any interest in Savoy, other than through
their interest in shares of Silver King Common Stock.
Savoy's Board of Directors has received an opinion of Gleacher NatWest Inc.
that, as of the date of the Merger Agreement Amendment, the Savoy Merger is
fair, from a financial point of view, to the Savoy stockholders. A copy of this
opinion is included as Appendix E to the enclosed Joint Proxy
Statement/Prospectus.
SAVOY'S BOARD OF DIRECTORS HAS CAREFULLY REVIEWED AND CONSIDERED THE TERMS
OF THE SAVOY MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY AND HAS
DETERMINED THAT THE SAVOY MERGER AGREEMENT IS FAIR TO, AND THAT THE SAVOY MERGER
IS IN THE BEST INTERESTS OF, SAVOY AND ITS STOCKHOLDERS. THE BOARD, BY THE
UNANIMOUS VOTE OF ALL DIRECTORS PRESENT, HAS APPROVED THE SAVOY MERGER AGREEMENT
AND THE SAVOY MERGER AND RECOMMENDS THAT THE STOCKHOLDERS OF SAVOY APPROVE AND
ADOPT THE SAVOY MERGER AGREEMENT AND THE SAVOY MERGER.
Pursuant to agreements entered into simultaneously with the November Savoy
Merger Agreement and confirmed at the time of execution of the Merger Agreement
Amendment, holders of approximately 29% of the outstanding shares of Savoy
Common Stock as of the record date for the Special Meeting have agreed to vote
their shares of Savoy Common Stock in favor of the Savoy Merger Agreement and
the Savoy Merger.
In the material accompanying this letter, you will find a Notice of Special
Meeting of Stockholders, a Joint Proxy Statement/Prospectus relating to the
actions to be taken by Savoy stockholders at the Special
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Meeting (as well as the actions to be taken by the Silver King stockholders at
their annual meeting and by stockholders of Home Shopping Network, Inc. ("HSN")
at their special meeting) and a proxy. The Joint Proxy Statement/Prospectus more
fully describes the proposed Savoy Merger and includes information about Savoy
and Silver King, as well as information about HSN relating to a pending
transaction by Silver King pursuant to which a subsidiary of Silver King would
be merged with HSN (the "HSN Merger"). Consummation of the Savoy Merger is not
dependent on consummation of the HSN Merger, and, although the consummation of
the Savoy Merger is a condition to consummation of the HSN Merger, the HSN
Merger is generally independent of the Savoy Merger. Accordingly, it is possible
that only the Savoy Merger will be consummated or that both transactions will be
consummated, but not at the same time.
All stockholders are cordially invited to attend the Special Meeting in
person. However, whether or not you plan to attend the Special Meeting, please
complete, sign, date and return your proxy card in the enclosed envelope. If you
attend the Special Meeting, you may vote in person if you wish, even though you
have previously returned your proxy card. It is important that your shares be
represented and voted at the Special Meeting.
Sincerely,
/s/ VICTOR A. KAUFMAN
Victor A. Kaufman
Chairman of the Board and
Chief Executive Officer
10
SAVOY PICTURES ENTERTAINMENT, INC.
152 WEST 57TH STREET
NEW YORK, NY 10019
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 19, 1996
TO THE STOCKHOLDERS OF SAVOY PICTURES ENTERTAINMENT, INC.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of Savoy
Pictures Entertainment, Inc., a Delaware corporation ("Savoy"), will be held on
December 19, 1996, at 9:30 a.m., local time, at The Four Seasons Hotel,
57 East 57th Street, New York, New York (the "Special Meeting") for the
following purposes:
1. To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger, dated as of November 27, 1995 (the "November
Savoy Merger Agreement"), as amended by the amendment, dated March 22, 1996
(the "Extension Letter"), and the amendment, dated August 13, 1996 (the
"Merger Agreement Amendment" and together with the November Savoy Merger
Agreement and the Extension Letter, the "Savoy Merger Agreement"), entered
into by and among Silver King Communications, Inc., a Delaware corporation
("Silver King"), Thames Acquisition Corp., an indirect wholly-owned
subsidiary of Silver King ("Thames"), and Savoy, pursuant to which Thames
will be merged with and into Savoy, with Savoy being the surviving
corporation and becoming an indirect wholly-owned subsidiary of Silver King
(the "Savoy Merger"). Pursuant to the Savoy Merger, each outstanding share
of Savoy common stock, par value $.01 per share ("Savoy Common Stock")
(other than treasury shares and shares owned by Silver King or its
wholly-owned subsidiaries), will be converted into the right to receive
0.14 of a share of Silver King common stock, par value $.01 per share
("Silver King Common Stock"), and each outstanding option or warrant to
purchase Savoy Common Stock will be assumed by Silver King and converted
into, respectively, an option or warrant to acquire that number of shares
of Silver King Common Stock as the holder would have been entitled to
receive had such holder exercised such option or warrant in full
immediately prior to the effective time of the Savoy Merger, and each
outstanding debenture convertible into Savoy Common Stock will become
convertible into the kind and amount of Silver King Common Stock that the
owner thereof would have been entitled to receive had such debenture been
converted into Savoy Common Stock immediately prior to the effective time
of the Savoy Merger.
2. To transact such other business as may properly come before the
Special Meeting or any adjournment or postponement thereof.
The Savoy Merger is more fully described in the Joint Proxy
Statement/Prospectus accompanying this Notice.
Only stockholders of record of Savoy Common Stock at the close of business
on November 13, 1996 are entitled to notice of, and will be entitled to vote at,
the Special Meeting or any adjournment or postponement thereof. Approval of the
Savoy Merger Agreement and the Savoy Merger will require the affirmative vote of
the holders of a majority of the outstanding shares of Savoy Common Stock voted
in person or by proxy at the Special Meeting and entitled to vote thereon.
Pursuant to Section 262(b)(1) of the General Corporation Law of the State
of Delaware, Savoy stockholders are not entitled to appraisal rights in
connection with the Savoy Merger because Savoy Common Stock is quoted on the
Nasdaq National Market and such stockholders will receive as consideration in
the Savoy Merger only shares of Silver King Common Stock, which shares will be
listed on the Nasdaq National Market upon the closing of the Savoy Merger, and
cash in lieu of fractional shares. The list of Savoy
11
stockholders will be available to any Savoy stockholder for examination at the
principal executive offices of the Company during regular business hours at
least ten days prior to the Special Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ HOWARD K. BASS
Howard K. Bass
Senior Vice President and Chief
Financial Officer
New York, New York
November 20, 1996
TO ENSURE THAT YOUR SHARES ARE REPRESENTED AT THE SPECIAL MEETING, YOU ARE
URGED TO COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE
POSTAGE-PAID ENVELOPE PROVIDED, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL
MEETING IN PERSON. YOUR PROXY CAN BE WITHDRAWN BY YOU AT ANY TIME BEFORE IT IS
VOTED.
12
HOME SHOPPING NETWORK, INC.
2501 118TH AVENUE NORTH
ST. PETERSBURG, FL 33716
NOVEMBER 20, 1996
Dear Stockholder:
A Special Meeting of Stockholders of Home Shopping Network, Inc., a
Delaware corporation ("HSN"), will be held on December 19, 1996, at 10:00 a.m.,
local time, at The Four Seasons Hotel, 57 East 57th Street, New York, New York
(the "Special Meeting").
At the Special Meeting, you will be asked to consider and vote upon a
proposal to approve the Agreement and Plan of Exchange and Merger, dated as of
August 25, 1996 (the "HSN Merger Agreement"), by and among Silver King
Communications, Inc., a Delaware corporation ("Silver King"), House Acquisition
Corp., a newly-formed, wholly-owned subsidiary of Silver King ("House"), Liberty
HSN, Inc., a Colorado corporation ("Liberty HSN"), and HSN, and the merger of
House with and into HSN (the "HSN Merger"), with HSN being the surviving
corporation.
Pursuant to the HSN Merger Agreement, (i) immediately prior to the HSN
Merger, Liberty HSN will exchange all of its shares of HSN common stock and
approximately 4% of its shares of HSN Class B common stock for an equal number
of shares of, respectively, House common stock and House Class B common stock,
and such shares of HSN stock received by House will be cancelled in the HSN
Merger; (ii) in the HSN Merger, (w) each outstanding share of HSN common stock
(other than treasury shares and shares held by House will be converted into the
right to receive 0.45 of a share of Silver King common stock; (x) each
outstanding share of HSN Class B common stock (other than shares held by House)
will be converted into the right to receive 0.54 of a share of Silver King Class
B common stock, a portion of which (up to 2,644,299 shares (subject to
adjustment)) will not be issued at the time of the HSN Merger but will instead
be represented by Silver King's contractual obligation to issue to Liberty HSN
such shares upon the occurrence of certain events (the "Contingent Rights"); (y)
each outstanding option to acquire or conversion right to receive HSN common
stock will be converted into an option to acquire or conversion right to receive
that number of shares of Silver King common stock as the holder would have been
entitled to receive had such holder exercised such option or conversion right
immediately prior to the effective time of the HSN Merger; and (z) each
outstanding share of House common stock and House Class B common stock will be
converted into one share, respectively, of common stock and Class B common stock
of HSN, as the surviving corporation. Upon consummation of the HSN Merger,
Silver King will own at least 80.1% of the voting power and equity of the
surviving corporation and Liberty HSN will own not more than 19.9% of the
surviving corporation. After the HSN Merger, at such time or from time to time
as Liberty HSN or its permitted transferee may be allowed under applicable
regulations to hold additional shares of Silver King stock, Liberty HSN or its
permitted transferee will exchange its stock of the surviving corporation for
additional Silver King stock at the same exchange ratios of 0.45 of a share of
Silver King Common Stock for each share of the surviving corporation's common
stock owned by Liberty HSN or its permitted transferee and 0.54 of a share of
Silver King Class B common stock for each share of the surviving corporation's
Class B common stock owned by Liberty HSN or its permitted transferee, whereupon
HSN would become a wholly-owned subsidiary of Silver King. Liberty HSN, however,
is obligated to effect such exchange only after all shares of Silver King Class
B common stock have been issued under the Contingent Rights, subject to certain
exceptions.
If the requisite approvals of the stockholders of HSN and Silver King are
received, the HSN Merger is expected to be consummated as soon as possible, but
in any case within three business days following satisfaction or waiver of all
of the other closing conditions, including any required approvals of the Federal
Communications Commission and the consummation of the Savoy Merger (as defined
below). If the HSN Merger is completed, HSN stockholders, other than Liberty HSN
and its affiliates, would no longer hold any interest in HSN following the HSN
Merger, other than through their interest in shares of Silver King common stock.
13
A SPECIAL COMMITTEE OF THE BOARD OF DIRECTORS OF HSN CONSISTING OF TWO
INDEPENDENT DIRECTORS WAS ESTABLISHED BY THE BOARD OF DIRECTORS TO CONSIDER,
AMONG OTHER THINGS, THE FAIRNESS OF THE TERMS OF THE HSN MERGER AGREEMENT TO THE
HOLDERS OF HSN COMMON STOCK (OTHER THAN LIBERTY HSN AND ITS AFFILIATES). THE
SPECIAL COMMITTEE RETAINED WASSERSTEIN PERELLA & CO., INC. ("WASSERSTEIN
PERELLA"), WHICH HAS DELIVERED A WRITTEN OPINION, DATED AUGUST 28, 1996, TO THE
EFFECT THAT THE CONVERSION RATIO OF 0.45 OF A SHARE OF SILVER KING COMMON STOCK
FOR EACH SHARE OF HSN COMMON STOCK TO BE RECEIVED BY THE HOLDERS OF HSN COMMON
STOCK IN THE HSN MERGER IS FAIR, FROM A FINANCIAL POINT OF VIEW, TO SUCH HOLDERS
(OTHER THAN LIBERTY HSN AND ITS AFFILIATES). A COPY OF WASSERSTEIN PERELLA'S
OPINION IS SET FORTH AS APPENDIX F TO, AND A DESCRIPTION OF SUCH OPINION IS
INCLUDED IN, THE ENCLOSED JOINT PROXY STATEMENT/PROSPECTUS. IN LIGHT OF, AMONG
OTHER THINGS, WASSERSTEIN PERELLA'S OPINION AND THE DETERMINATION OF THE SPECIAL
COMMITTEE THAT THE TERMS OF THE HSN MERGER AGREEMENT ARE FAIR TO THE HOLDERS OF
HSN COMMON STOCK (OTHER THAN LIBERTY HSN AND ITS AFFILIATES), YOUR BOARD OF
DIRECTORS, BY THE AFFIRMATIVE VOTE OF EACH OF THOSE DIRECTORS WHO ARE NOT ALSO
AFFILIATED WITH LIBERTY HSN OR SILVER KING, HAS DETERMINED THAT THE TERMS OF THE
HSN MERGER AGREEMENT ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE HOLDERS OF
HSN COMMON STOCK (OTHER THAN LIBERTY HSN AND ITS AFFILIATES) AND RECOMMENDS THAT
YOU VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE HSN MERGER AGREEMENT AND THE
RELATED TRANSACTIONS.
Pursuant to an agreement entered into simultaneously with the HSN Merger
Agreement, holders of approximately 24% of the outstanding shares of HSN common
stock and 100% of the HSN Class B common stock as of the record date for the
Special Meeting have agreed to vote their shares of HSN common stock or HSN
Class B common stock, or cause such shares to be voted, in favor of the HSN
Merger Agreement. Pursuant to the HSN Merger Agreement, the HSN Merger must be
approved by a majority of the shares of HSN common stock present and voting at
the Special Meeting and not held by Liberty HSN or any of its affiliates. Such
requirement is in addition to the required approval of a majority of the voting
power of the outstanding shares of HSN Class B common stock and HSN common
stock, voting as a single class, with each share of HSN Class B Common Stock
entitled to ten votes and each share of HSN Common Stock entitled to one vote at
the Special Meeting.
In the material accompanying this letter, you will find a Notice of Special
Meeting of Stockholders, a Joint Proxy Statement/Prospectus relating to the
actions to be taken by HSN stockholders at the Special Meeting (as well as the
actions to be taken by the Silver King stockholders at their annual meeting and
by the stockholders of Savoy Pictures Entertainment, Inc. ("Savoy") at their
special meeting) and a proxy. The Joint Proxy Statement/Prospectus more fully
describes the proposed HSN Merger and includes information about HSN and Silver
King, as well as information about Savoy relating to a pending transaction by
Silver King pursuant to which a wholly-owned subsidiary of Silver King would
merge with Savoy (the "Savoy Merger"). Consummation of the Savoy Merger is not
dependent on consummation of the HSN Merger, and, although the consummation of
the Savoy Merger is a condition to consummation of the HSN Merger, the HSN
Merger is generally independent of the Savoy Merger. Accordingly, it is possible
that only the Savoy Merger will be consummated or that the transactions will
both be consummated, but not at the same time.
All stockholders are cordially invited to attend the Special Meeting in
person. However, whether or not you plan to attend the Special Meeting, please
complete, sign, date and return your proxy card in the enclosed envelope. If you
attend the Special Meeting, you may vote in person if you wish, even though you
have previously returned your proxy card. It is important that your shares be
represented and voted at the Special Meeting.
Sincerely,
/s/ BARRY DILLER
Barry Diller
Chairman of the Board
14
HOME SHOPPING NETWORK, INC.
2501 118TH AVENUE NORTH
ST. PETERSBURG, FL 33716
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 19, 1996
TO THE STOCKHOLDERS OF HOME SHOPPING NETWORK, INC.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of Home
Shopping Network, Inc., a Delaware corporation ("HSN"), will be held on December
19, 1996, at 10:00 a.m., local time, at The Four Seasons Hotel, 57 East 57th
Street, New York, New York (the "Special Meeting") for the following purposes:
1. To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Exchange and Merger, dated as of August 25, 1996 (the
"HSN Merger Agreement"), entered into by and among Silver King
Communications, Inc., a Delaware corporation ("Silver King"), House
Acquisition Corp., a newly-formed, wholly-owned subsidiary of Silver King
("House"), Liberty HSN, Inc., a Colorado corporation ("Liberty HSN"), and
HSN, pursuant to which House will be merged with and into HSN (the "HSN
Merger"), with HSN being the surviving corporation (the "HSN Surviving
Corporation").
Pursuant to the HSN Merger Agreement, (i) immediately prior to the
merger, Liberty HSN will exchange all of its shares (subject to certain
adjustments) of HSN common stock (17,566,702 shares), par value $.01 per
share ("HSN Common Stock"), and 739,141 of its shares (subject to certain
adjustments) of HSN Class B common stock, par value $.01 per share ("HSN
Class B Common Stock"), for an equal number of shares, respectively, of
House common stock, par value $.00001 per share, and House Class B common
stock, par value $.00001 per share (the "Pre-HSN Merger Exchange"); (ii) in
the HSN Merger, (w) each outstanding share of HSN Common Stock (except for
treasury shares and shares held by House pursuant to the Pre-HSN Merger
Exchange, which will be cancelled), will be converted into the right to
receive 0.45 of a share of Silver King common stock, par value $.01 per
share (Silver King Common Stock); (x) each outstanding share of HSN Class B
Common Stock (except for shares held by House pursuant to the Pre-HSN
Merger Exchange, which will be cancelled), will be converted into the right
to receive 0.54 of a share of Silver King Class B common stock, par value
$.01 per share ("Silver King Class B Common Stock"), a portion of which (up
to 2,644,299 shares (subject to adjustment)) will not be issued at the time
of the HSN Merger but will instead be represented by Silver King's
contractual obligation to issue to Liberty HSN such shares upon the
occurrence of certain events (the "Contingent Rights"); (y) each
outstanding option to acquire HSN Common Stock will be assumed by Silver
King and converted into an option to acquire that number of shares of
Silver King Common Stock as the holder would have been entitled to receive
had such holder exercised such option immediately prior to the effective
time of the HSN Merger, and each outstanding debenture convertible into HSN
Common Stock will become convertible into the kind and amount of Silver
King Common Stock that the owner thereof would have been entitled to
receive had such debenture been converted into HSN Common Stock immediately
prior to the effective time of the HSN Merger; and (z) each outstanding
share of House common stock and House Class B common stock will be
converted into one share, respectively, of common stock and Class B common
stock of the HSN Surviving Corporation (the "HSN Surviving Corporation
Common Stock" and the "HSN Surviving Corporation Class B Common Stock,"
respectively). Upon consummation of the HSN Merger, Silver King will own at
least 80.1% of the voting power and equity of the surviving corporation and
Liberty HSN will own not more than 19.9% of the voting power and equity of
the surviving corporation. After the HSN Merger, at such time or from time
to time as Liberty HSN or its permitted transferee may be allowed under
applicable regulations to hold additional shares of Silver King stock,
Liberty HSN or its permitted transferee will exchange its HSN Surviving
Corporation Common Stock for shares of Silver King Common Stock at an
exchange ratio of 0.45 per share and its HSN Surviving Corporation Class B
15
Common Stock for shares of Silver King Class B Common Stock at an exchange
ratio of 0.54 per share (the "Exchange"). Upon completion of the Exchange,
HSN will be a wholly-owned subsidiary of Silver King. Liberty HSN is
obligated to effect such Exchange only after all shares of Silver King
Class B Stock have been issued pursuant to the Contingent Rights, subject
to certain exceptions.
2. To transact such other business as may properly come before the
Special Meeting or any adjournment or postponement thereof.
The HSN Merger is more fully described in the Joint Proxy
Statement/Prospectus accompanying this Notice.
Only stockholders of record of HSN Common Stock or HSN Class B Common Stock
at the close of business on November 13, 1996 are entitled to notice of, and
will be entitled to vote at, the Special Meeting or any adjournment or
postponement thereof. Under Delaware law and HSN's Certificate of Incorporation,
approval of the HSN Merger Agreement will require the affirmative vote of the
holders of a majority of the voting power of outstanding shares of HSN Common
Stock and HSN Class B Common Stock voted in person or by proxy at the Special
Meeting and entitled to vote thereon, voting together as a single class, with
each share of HSN Class B Common Stock entitled to ten votes and each share of
HSN Common Stock entitled to one vote. In addition, under the HSN Merger
Agreement, consummation of the HSN Merger and related transactions is
conditioned upon the affirmative vote of the holders of a majority of the
outstanding shares of HSN Common Stock, other than Liberty HSN and its
affiliates, voted in person or by proxy at the Special Meeting and entitled to
vote thereon.
Pursuant to Section 262(b)(1) of the General Corporation Law of the State
of Delaware, holders of HSN Common Stock are not entitled to appraisal rights in
connection with the HSN Merger and related transactions because HSN Common Stock
is traded on the New York Stock Exchange, Inc. and such stockholders will
receive as consideration in the HSN Merger only shares of Silver King Common
Stock, which shares will be listed on the Nasdaq National Market upon the
closing of the HSN Merger, and cash in lieu of fractional shares. The list of
HSN stockholders will be available to any HSN stockholder for examination at the
principal executive offices of Savoy Pictures Entertainment, Inc., 152 West 57th
Street, New York, NY 10019, during regular business hours at least ten days
prior to the Special Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Kevin J. McKeon
----------------------------------
Kevin J. McKeon
Executive Vice President and
Chief Financial Officer
St. Petersburg, Florida
November 20, 1996
TO ENSURE THAT YOUR SHARES ARE REPRESENTED AT THE SPECIAL MEETING, YOU ARE
URGED TO COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE
POSTAGE-PAID ENVELOPE PROVIDED, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL
MEETING IN PERSON. YOUR PROXY CAN BE WITHDRAWN BY YOU AT ANY TIME BEFORE IT IS
VOTED.
16
SILVER KING COMMUNICATIONS, INC.,
SAVOY PICTURES ENTERTAINMENT, INC.
AND
HOME SHOPPING NETWORK, INC.
JOINT PROXY STATEMENT
------------------------
PROSPECTUS OF SILVER KING COMMUNICATIONS, INC.
60,074,287 SHARES OF COMMON STOCK
------------------------
INTRODUCTION
This Joint Proxy Statement/Prospectus is being furnished to the
stockholders of Silver King Communications, Inc., a Delaware corporation
("Silver King"), in connection with the solicitation of proxies by the Silver
King Board of Directors (sometimes, the "Silver King Board") for use at the
Annual Meeting of Silver King stockholders (the "Silver King Meeting") to be
held at 11:00 a.m., local time, on December 19, 1996, at The Four Seasons Hotel,
57 East 57th Street, New York, New York, and at any adjournments or
postponements of the Silver King Meeting.
This Joint Proxy Statement/Prospectus is also being furnished to the
stockholders of Savoy Pictures Entertainment, Inc., a Delaware corporation
("Savoy"), in connection with the solicitation of proxies by the Savoy Board of
Directors (sometimes, the "Savoy Board") for use at the Special Meeting of Savoy
stockholders (the "Savoy Meeting") to be held at 9:30 a.m., local time, on
December 19, 1996, at The Four Seasons Hotel, 57 East 57th Street, New York, New
York, and at any adjournments or postponements of the Savoy Meeting.
This Joint Proxy Statement/Prospectus is also being furnished to the
stockholders of Home Shopping Network, Inc., a Delaware corporation ("HSN"), in
connection with the solicitation of proxies by the HSN Board of Directors
(sometimes, the "HSN Board") for use at the Special Meeting of HSN stockholders
(the "HSN Meeting") to be held at 10:00 a.m., local time, on December 19, 1996,
at The Four Seasons Hotel, 57 East 57th Street, New York, New York, and at any
adjournments or postponements of the HSN Meeting.
At the Silver King Meeting, Silver King stockholders will be asked to
consider and vote upon proposals relating to, among other things, Silver King's
acquisition of Savoy and HSN and certain amendments to Silver King's Amended and
Restated Certificate of Incorporation (the "Silver King Certificate"); at the
Savoy Meeting, Savoy stockholders will be asked to consider and vote upon
proposals relating to the acquisition of Savoy by Silver King; and at the HSN
Meeting, HSN stockholders will be asked to consider and vote upon proposals
relating to the acquisition of HSN by Silver King, all as described in this
Joint Proxy Statement/Prospectus.
This Joint Proxy Statement/Prospectus also constitutes the Prospectus of
Silver King for use in connection with the offer and issuance of 4,658,271
shares of common stock of Silver King, $.01 par value per share ("Silver King
Common Stock"), pursuant to the merger of a newly-formed, indirect wholly-owned
subsidiary of Silver King ("Thames") with and into Savoy (the "Savoy Merger"),
and 55,416,016 shares of Silver King Common Stock pursuant to the merger of a
newly-formed subsidiary of Silver King ("House") with and into HSN (the "HSN
Merger").
As a result of the Savoy Merger, Savoy will become an indirect wholly-owned
subsidiary of Silver King. Upon the effectiveness of the Savoy Merger, each
outstanding share of Savoy common stock, par value $.01
17
per share ("Savoy Common Stock") (other than treasury shares and shares owned by
Silver King or its wholly-owned subsidiaries, which will be cancelled), will
automatically be converted into the right to receive 0.14 of a share of Silver
King Common Stock (the "Savoy Conversion Ratio"), and each outstanding option or
warrant to acquire or conversion right to receive Savoy Common Stock will be
assumed by Silver King and converted into, respectively, an option or warrant to
acquire or conversion right to receive that number of shares of Silver King
Common Stock as the holder would have been entitled to receive had such holder
exercised such option or warrant or conversion right in full immediately prior
to the effective time of the Savoy Merger.
Pursuant to the HSN Merger Agreement (as defined herein), (i) immediately
prior to the effective time of the HSN Merger, all shares (subject to adjustment
in certain circumstances) of HSN common stock, par value $.01 per share ("HSN
Common Stock"), held by Liberty HSN, Inc. (17,566,702 shares), a Colorado
corporation ("Liberty HSN"), will be exchanged for an equal number of shares of
House common stock, par value $.00001 per share ("House Common Stock"), and
739,141 shares (subject to adjustment in certain circumstances) of the
20,000,000 shares of HSN Class B common stock, par value $.01 per share ("HSN
Class B Common Stock"), held by Liberty HSN will be exchanged for an equal
number of shares of House Class B common stock, par value $.00001 per share
("House Class B Common Stock") (the "Pre-HSN Merger Exchange"); (ii) in the HSN
Merger, (w) each outstanding share of HSN Common Stock (except for treasury
shares and shares held by House pursuant to the Pre-HSN Merger Exchange, which
will be cancelled) will be converted into the right to receive 0.45 of a share
(the "HSN Common Conversion Ratio") of Silver King Common Stock; (x) each
outstanding share of HSN Class B Common Stock (except for shares held by House
pursuant to the Pre-HSN Merger Exchange, which will be cancelled) will be
converted into the right to receive 0.54 of a share (the "HSN Class B Conversion
Ratio") of Silver King Class B common stock, par value $.01 per share ("Silver
King Class B Common Stock" and, together with the Silver King Common Stock, the
"Silver King Securities"), a portion of which (the "Contingent Rights") (up to
2,644,299 shares (subject to adjustment)) will not be issued at the time of the
HSN Merger but will instead be represented by Silver King's contractual
obligation to issue such shares to Liberty HSN upon the occurrence of certain
events (the "Contingent Rights Shares"); (y) each outstanding option to acquire
HSN Common Stock will be assumed by Silver King and converted into an option to
acquire that number of shares of Silver King Common Stock as the holder would
have been entitled to receive had such holder exercised such option immediately
prior to the effective time of the HSN Merger, and each outstanding debenture
convertible into HSN Common Stock will become convertable into the kind and
amount of Silver King Common Stock that the owner thereof would have been
entitled to receive had such debenture been converted into HSN Common Stock
immediately prior to the effective time of the HSN Merger; and (z) each
outstanding share of House Common Stock and House Class B Common Stock will be
converted into, respectively, one share of common stock, par value $.01 per
share, of the surviving corporation (such corporation, the "HSN Surviving
Corporation," and such common stock, the "HSN Surviving Corporation Common
Stock") or one share of HSN Surviving Corporation Class B common stock, par
value $.01 per share ("HSN Surviving Corporation Class B Common Stock"). Upon
consummation of the HSN Merger, Silver King will own at least 80.1% of the
voting power and equity of the HSN Surviving Corporation and Liberty HSN will
own not more than 19.9% of the voting power and equity of the HSN Surviving
Corporation. After the HSN Merger, at such time or from time to time as Liberty
HSN or its permitted transferee may be allowed under applicable regulations to
hold additional shares of Silver King stock, Liberty HSN or its permitted
transferee will exchange its HSN Surviving Corporation Common Stock for shares
of Silver King Common Stock at the HSN Common Conversion Ratio and its HSN
Surviving Corporation Class B Common Stock for shares of Silver King Class B
Common Stock at the HSN Class B Conversion Ratio (such exchange and such Silver
King Securities issued pursuant thereto are referred to herein as the "Exchange"
and the "Exchange Shares," respectively). Liberty HSN, however, is obligated to
effect an Exchange only after all of the Contingent Rights Shares have been
issued, subject to certain exceptions. Upon completion of the Exchange, HSN
would become a wholly-owned subsidiary of Silver King.
Based upon the number of shares of Savoy Common Stock, Silver King
Securities, HSN Common Stock and HSN Class B Common Stock, in each case,
outstanding as of November 1, 1996, there will be an aggregate of (i)
approximately 4,205,870 shares of Silver King Common Stock issued in connection
with the Savoy Merger, representing approximately 31% of the total number of
Silver King Securities to be outstanding
ii
18
immediately after consummation of the Savoy Merger and the issuance of such
shares (but without giving effect to the HSN Merger), and, based upon the number
of options, warrants, conversion rights and Savoy convertible debentures
outstanding as of November 1, 1996, an additional 664,016 shares of Silver King
Common Stock would be reserved for issuance to the respective holders of such
options, warrants, conversion rights or convertible debentures (of which 211,615
shares are not being registered hereunder), and (ii) assuming the contingencies
to the issuance of the Contingent Rights Shares and the Exchange Shares are
satisfied, approximately 32,398,902 shares of Silver King Common Stock and
10,800,000 shares of Silver King Class B Common Stock issued in connection with
the HSN Merger, collectively representing approximately 76% of the Silver King
Securities to be outstanding after consummation of such transactions (after
giving effect to the Savoy Merger but without giving effect to the issuance of
certain additional Silver King Securities that may be issued under certain
circumstances pursuant to the Contingent Rights), and, based upon the number of
options and convertible debentures of HSN outstanding as of November 1, 1996, an
additional 12,217,114 shares of Silver King Common Stock would be reserved for
issuance to the respective holders of such options or convertible debentures
upon the exercise or conversion thereof, subject to possible adjustment in
accordance with the terms thereof. In the event that both transactions
(including issuance of the Contingent Rights Shares and the Exchange Shares) are
consummated, immediately thereafter, an aggregate of 36,604,772 shares of Silver
King Common Stock (approximately 84% of the shares of such stock to be
outstanding immediately after such transactions) and 10,800,000 shares of Silver
King Class B Common Stock (approximately 82% of the shares of such stock to be
outstanding immediately after such transactions) will be issued in such
transactions, which shares collectively represent approximately 83% of the
Silver King equity and approximately 82% of the total voting power of Silver
King capital stock to be outstanding thereafter. For a description of the equity
and voting interest in Silver King held by Barry Diller, Liberty HSN and certain
of their respective affiliates, and the stockholders agreement relating thereto,
see "Savoy Merger and Related Transactions -- Interests of Certain Persons in
the Savoy Merger," and "Special Factors Relating to the HSN
Transactions -- Background -- Relationship between Liberty and Mr. Diller -- The
Diller-Liberty Stockholders Agreement" and " -- Interests of Certain Persons in
the HSN Transactions; Conflicts of Interests -- Interests of Certain Persons in
Silver King."
In addition, at the effective time of the Savoy Merger, Savoy and Silver
King will enter into a supplemental indenture with the trustee under the
indenture governing Savoy's outstanding 7% Convertible Subordinated Debentures,
due July 1, 2003 (the "Savoy Debentures"), providing that each holder of a Savoy
Debenture shall be entitled to convert such Savoy Debenture into the kind and
amount of Silver King Common Stock that such holder would have been entitled to
receive had such Savoy Debenture been converted into Savoy Common Stock
immediately prior to consummation of the Savoy Merger. The Savoy Debentures are
registered under the Securities Act of 1933, as amended (the "Securities Act"),
and were issued pursuant to an indenture which provides for the foregoing
adjustment upon consummation of a merger such as the Savoy Merger. This Joint
Proxy Statement/Prospectus also constitutes the Prospectus of Silver King with
respect to the offer and issuance of the shares of Silver King Common Stock to
be issued upon the conversion of the Savoy Debentures.
As of the HSN Record Date (as defined herein), debentures convertible into
8,333,333 shares of HSN Common Stock were outstanding (the "HSN Debentures").
The HSN Debentures were issued in a private offering which was not registered
under the Securities Act. The resale of such HSN Debentures by the beneficial
owners thereof and the underlying shares of HSN Common Stock is expected to be
registered under the Securities Act. The HSN Debentures were issued pursuant to
an indenture by and between HSN and United States Trust Company of New York, as
trustee, dated as of March 1, 1996 (as amended or supplemented, the "HSN
Indenture"). Pursuant to the HSN Merger Agreement and the HSN Indenture, each
holder of an HSN Debenture will be entitled to convert such HSN Debenture into
the kind and amount of Silver King Common Stock that such holder would have been
entitled to receive had such HSN Debenture been converted into HSN Common Stock
immediately prior to consummation of the HSN Merger. Pursuant to the HSN Merger
Agreement, Silver King expects that it will become jointly liable with respect
to the obligations of HSN under the HSN Debentures and the HSN Indenture
pursuant to a supplemental indenture to the HSN Indenture as of the effective
time of the HSN Merger and will take appropriate actions to provide that the
resale of the HSN Debentures will be registered under the Securities Act. This
Joint Proxy
iii
19
Statement/Prospectus also constitutes the Prospectus of Silver King with respect
to the offer and issuance by Silver King of the Silver King Common Stock to be
issued upon conversion of the HSN Debentures.
The outstanding shares of Silver King Common Stock have been qualified for
trading on the National Association of Securities Dealers Automated Quotation
("Nasdaq") National Market, and it is a condition to the consummation of the
Savoy Merger and to the consummation of the HSN Merger that the shares of Silver
King Common Stock to be issued in the Savoy Merger or the HSN Merger, as the
case may be, be authorized for quotation on the Nasdaq National Market upon
official notice of issuance. On August 12, 1996, the last full trading day prior
to execution of the definitive amendments relating to the Savoy Merger, the
closing sales prices per share on the Nasdaq National Market of Silver King
Common Stock and Savoy Common Stock were $25.9375 and $4.625, respectively. On
August 23, 1996, the last full trading day prior to execution of the definitive
agreements relating to the HSN Merger, the closing sales price per share on the
Nasdaq National Market of Silver King Common Stock was $29.50 and the closing
sales price per share on the New York Stock Exchange, Inc. ("NYSE") of HSN
Common Stock was $11.25; on November 15, 1996, the closing sales prices per
share on the Nasdaq National Market of Silver King Common Stock and Savoy Common
Stock were $24.00 and $3.25, respectively, and the closing sales price per share
on the NYSE of HSN Common Stock was $11.375. Because the Savoy Conversion Ratio,
the HSN Common Conversion Ratio and the HSN Class B Conversion Ratio are fixed,
a change in the market price of Silver King Common Stock before the Savoy Merger
or the HSN Merger, as the case may be, will affect the dollar market value (but
not the number of shares) of the Silver King Common Stock to be received by
Savoy stockholders in the Savoy Merger and HSN stockholders in the HSN Merger.
This Joint Proxy Statement/Prospectus and the accompanying forms of proxy
are first being mailed to stockholders of Silver King, Savoy and HSN on or about
November 20, 1996.
THE ABOVE MATTERS ARE DISCUSSED IN DETAIL IN THIS JOINT PROXY
STATEMENT/PROSPECTUS. THE PROPOSED SAVOY MERGER AND HSN MERGER ARE COMPLEX
TRANSACTIONS. STOCKHOLDERS ARE STRONGLY URGED TO READ AND CONSIDER CAREFULLY
THIS JOINT PROXY STATEMENT/PROSPECTUS IN ITS ENTIRETY, PARTICULARLY THE MATTERS
REFERRED TO ON PAGES 37-52 UNDER "RISK FACTORS" AND THE MATTERS REFERRED TO ON
PAGES 93-146 UNDER "SPECIAL FACTORS RELATING TO THE HSN TRANSACTIONS."
NEITHER THESE TRANSACTIONS NOR THE SHARES OF SILVER KING COMMON STOCK TO BE
ISSUED IN THE SAVOY MERGER OR THE HSN MERGER HAVE BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS PASSED UPON THE FAIRNESS OR MERITS OF THESE TRANSACTIONS OR UPON
THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
The date of this Joint Proxy Statement/Prospectus is
November 20, 1996.
iv
20
TABLE OF CONTENTS
PAGE
----
INTRODUCTION........................................................................... i
TABLE OF CONTENTS...................................................................... v
DEFINED TERM INDEX..................................................................... ix
AVAILABLE INFORMATION.................................................................. 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................................ 2
FORWARD-LOOKING STATEMENTS............................................................. 3
SUMMARY................................................................................ 4
The Companies........................................................................ 4
The Transactions..................................................................... 6
Annual and Special Meetings of Stockholders.......................................... 8
Opinions of Certain Financial Advisors............................................... 12
Recommendations of the Boards of Directors........................................... 13
The Diller-Liberty Stockholders Agreement............................................ 14
Savoy Merger and Related Transactions................................................ 16
HSN Merger and Related Transactions.................................................. 21
Market Price Data.................................................................... 27
The Authorized Capital Stock Amendment Proposal...................................... 29
The Name Change Proposal............................................................. 29
The Class Vote Amendment Proposal.................................................... 29
Election of Directors................................................................ 30
Silver King 1995 Stock Incentive Plan................................................ 30
Silver King Directors Stock Option Plan.............................................. 30
Ratification of Independent Auditors................................................. 31
Recent Developments.................................................................. 31
SELECTED HISTORICAL FINANCIAL DATA..................................................... 33
UNAUDITED SELECTED PRO FORMA COMBINED CONDENSED FINANCIAL DATA......................... 35
NOTES TO SELECTED FINANCIAL DATA....................................................... 36
RISK FACTORS........................................................................... 37
Fixed Conversion Ratio for Savoy Merger and HSN Merger............................... 37
Dependence on Certain Key Personnel.................................................. 37
Controlling Stockholders............................................................. 38
Possibility of a Restructuring Transaction........................................... 39
Potential Dilution to Silver King Stockholders from Certain Provisions
of the Contingent Rights and the Exchange Agreement............................... 39
Limited Separate Rights of Holders of Silver King Common Stock;
Effects of Class Vote Amendment Proposal on Voting Power.......................... 39
Recent Operating Results and Financial Condition of HSN;
Combined Company will have Substantial Leverage................................... 40
Prospects for Future Revenue Growth of HSN........................................... 41
Possible Nondeductibility of Certain Compensation Relating to HSN Options............ 41
Financing Needs of Silver King and Savoy............................................. 42
Possible Risks to HSN with Respect to Anticipated Change in Silver King's
Broadcasting Business............................................................. 42
Minority Interest in HSN............................................................. 43
Losses Relating to Savoy Television Stations and Savoy Filmed Entertainment
Business.......................................................................... 44
Savoy Merger Agreement Amendment..................................................... 44
Integration of Operations; Management of Growth...................................... 44
Independence of the Savoy Merger and the HSN Merger; Stockholder Approvals........... 45
Regulation........................................................................... 45
Dilution; Shares Eligible for Future Sale; Possible Volatility of Silver King Common
Stock............................................................................. 50
Competition.......................................................................... 51
v
21
PAGE
----
Reduction of Certain Operations; Restructuring Charges; Inventory Writedowns......... 51
Uncertainty of Pending Transactions.................................................. 51
Certain Litigation................................................................... 52
THE SILVER KING MEETING................................................................ 52
Date, Time and Place of Meeting...................................................... 52
Record Date and Outstanding Shares................................................... 52
Voting of Proxies.................................................................... 53
Vote Required........................................................................ 54
Quorum; Broker Non-Votes............................................................. 55
Solicitation of Proxies and Expenses................................................. 56
THE SAVOY MEETING...................................................................... 56
Date, Time and Place of Meeting...................................................... 56
Record Date and Outstanding Shares................................................... 56
Voting of Proxies.................................................................... 56
Vote Required........................................................................ 57
Quorum; Broker Non-Votes............................................................. 57
Solicitation of Proxies and Expenses................................................. 57
THE HSN MEETING........................................................................ 57
Date, Time and Place of Meeting...................................................... 57
Record Date and Outstanding Shares................................................... 57
Voting of Proxies.................................................................... 58
Vote Required........................................................................ 58
Quorum; Broker Non-Votes............................................................. 58
Solicitation of Proxies and Expenses................................................. 59
SAVOY MERGER AND RELATED TRANSACTIONS.................................................. 59
General.............................................................................. 59
Background........................................................................... 61
Reasons for the Savoy Merger......................................................... 68
Certain Information Concerning Silver King and Savoy................................. 72
Board Recommendations................................................................ 73
Opinions of Certain Financial Advisors............................................... 73
Interests of Certain Persons in the Savoy Merger..................................... 82
Related Agreements................................................................... 85
Savoy Merger Agreement............................................................... 85
Certain Federal Income Tax Matters................................................... 91
Accounting Treatment................................................................. 91
Affiliates' Restrictions on Resale of Silver King Common Stock....................... 91
Absence of Dissenters' Rights........................................................ 92
Exchange of Certificates............................................................. 92
SPECIAL FACTORS RELATING TO THE HSN TRANSACTIONS....................................... 93
Background........................................................................... 93
Purposes of and Reasons for the HSN Transactions..................................... 113
Fairness of the HSN Transactions; Recommendations.................................... 113
Opinions of Certain Financial Advisors............................................... 122
Interests of Certain Persons in the HSN Transactions; Conflicts of Interest.......... 136
Certain Information Concerning HSN................................................... 140
Certain Effects of the HSN Transactions.............................................. 141
Plans for HSN after the HSN Merger................................................... 142
Certain Federal Income Tax Consequences of the HSN Transactions...................... 143
Accounting Treatment................................................................. 144
Financing of the HSN Transactions.................................................... 144
vi
22
PAGE
----
Regulatory Approvals................................................................. 145
Certain Litigation................................................................... 145
HSN MERGER AGREEMENT AND RELATED TRANSACTION AGREEMENTS................................ 146
General.............................................................................. 146
HSN Merger Agreement................................................................. 149
Related Agreements................................................................... 160
Amendments to Diller-Liberty Stockholders Agreement.................................. 161
Affiliates' Restrictions on Resale of Silver King Common Stock....................... 161
Absence of Dissenters' Rights........................................................ 162
Exchange of Certificates............................................................. 162
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS............................ 164
AUTHORIZED CAPITAL STOCK AMENDMENT PROPOSAL............................................ 177
Vote Required........................................................................ 177
NAME CHANGE PROPOSAL................................................................... 177
Vote Required........................................................................ 177
CLASS VOTE AMENDMENT PROPOSAL.......................................................... 178
Vote Required........................................................................ 178
ELECTION OF SILVER KING DIRECTORS...................................................... 178
Information Regarding Directors, Nominees for Election as Directors and Certain
Contemplated Directors............................................................ 179
Executive Officers................................................................... 181
Section 16 Reports................................................................... 182
BOARD OF DIRECTORS AND BOARD COMMITTEES OF SILVER KING................................. 182
Board of Directors................................................................... 182
Audit Committee...................................................................... 182
Compensation/Benefits Committee...................................................... 182
Executive Committee.................................................................. 182
COMPENSATION OF DIRECTORS AND CERTAIN EXECUTIVE
OFFICERS OF SILVER KING.............................................................. 182
General.............................................................................. 182
Summary of Executive Officer Compensation............................................ 183
Option Grants........................................................................ 185
Option Exercises..................................................................... 186
Compensation of Outside Directors.................................................... 186
Employment Contracts and Termination of Employment and
Change in Control Arrangements.................................................... 187
Compensation Committee Interlocks and Insider Participation.......................... 188
Compensation/Benefits Committee Report on Executive Compensation..................... 189
Stock Price Performance Graph........................................................ 190
1995 STOCK INCENTIVE PLAN PROPOSAL..................................................... 191
Introduction......................................................................... 191
Description.......................................................................... 191
Federal Income Tax Consequences...................................................... 194
New Plan Benefits.................................................................... 196
Vote Required........................................................................ 198
DIRECTORS STOCK OPTION PLAN PROPOSAL................................................... 199
Introduction......................................................................... 199
Description.......................................................................... 199
Federal Income Tax Consequences...................................................... 201
New Plan Benefits.................................................................... 201
Vote Required........................................................................ 202
vii
23
PAGE
----
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT................................................................ 202
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......................................... 206
COMPARISON OF RIGHTS OF STOCKHOLDERS OF
SILVER KING, SAVOY AND HSN........................................................... 206
Authorized Capital Stock............................................................. 206
Voting............................................................................... 207
Amendment of Certificate of Incorporation............................................ 208
Amendment of Bylaws.................................................................. 209
Board of Directors................................................................... 209
Removal of Directors................................................................. 210
Indemnification...................................................................... 210
Reorganization....................................................................... 212
Delaware Anti-Takeover Statute....................................................... 212
Anti-Takeover Provisions............................................................. 213
DESCRIPTION OF SILVER KING COMMON STOCK................................................ 214
Common Stock and Class B Stock....................................................... 214
Preferred Stock...................................................................... 215
Delaware General Corporation Law Section 203......................................... 215
Proposed Amendments to the Certificate of Incorporation of Silver King............... 216
APPOINTMENT OF INDEPENDENT AUDITORS.................................................... 216
STOCKHOLDER PROPOSALS.................................................................. 216
OTHER MATTERS.......................................................................... 217
EXPERTS................................................................................ 217
LEGAL MATTERS.......................................................................... 217
APPENDICES
A -- Amended and Restated Agreement and Plan of Savoy Merger
B -- Agreement and Plan of Exchange and Merger, including Exhibits
C -- Opinion of CS First Boston Corporation Regarding the Savoy Merger
D -- Opinion of CS First Boston Corporation Regarding the HSN Transactions
E -- Opinion of Gleacher NatWest Inc.
F -- Opinion of Wasserstein Perella & Co., Inc.
G -- Silver King 1995 Stock Incentive Plan
H -- Silver King Directors Stock Option Plan
I -- Stockholders Agreement by and between Barry Diller and Liberty Media Corporation
J -- Certain Information Regarding Directors and Executive Officers of HSN
K -- Certain Information Regarding Directors and Executive Officers of Silver King and House
L -- Certain Information Regarding Directors and Executive Officers of TCI
viii
24
DEFINED TERM INDEX
PAGE
NO.
----
401(k) Plan........................... 184
1934 Act.............................. 45
1992 Cable Act........................ 47
1995 Stock Incentive Plan............. 8
1995 Stock Incentive Plan Proposal.... 8
1995*................................. 183
1996 Act.............................. 46
Acquisition Proposal.................. 89
Acts.................................. 190
Additional Contingent Right........... 158
Additional Diller Options............. 196
Additional Diller Shares.............. 188
Additional Shares..................... 152
Adjusted Base Amount.................. 153
Affiliation Agreements................ 42
Agreement in Principle................ 93
Allen & Company....................... 62
Approved Shares....................... 154
Arrow................................. 15
Article IV............................ 8
ATV................................... 48
August Stockholders Agreement......... 14
Authorized Capital Stock
Amendment Proposal.................. 8
Available Share Amount................ 154
Available Silver King Amount.......... 156
award cycle........................... 193
Base Amount........................... 153
BCF................................... 124
BCI................................... 179
BDTV.................................. 5
BDTV Entity........................... 16
BDTV FCC Application.................. 48
BET................................... 94
Binzak Option Agreement............... 197
Binzak Options........................ 197
Breakup Fee........................... 18
broadcast cash flow................... 32
Business Plans........................ 79
Change in Law......................... 16
Class B Issuance...................... 110
Class Vote Amendment Proposal......... 8
Code.................................. 25
Columbia.............................. 179
Combined Transaction.................. 164
Comcast............................... 108
Commission............................ 1
Committee............................. 191
Compensation/Benefits Committee....... 14
Contingent Issuance Event............. 153
Contingent Rights..................... ii
Contingent Rights Shares.............. ii
Conversion Case....................... 132
Core Programming...................... 47
CTA................................... 47
DGCL.................................. 11
Diller Options........................ 185
Directors Stock Option Plan........... 8
Directors Stock Option Plan
Proposal............................ 8
PAGE
NO.
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Distribution.......................... 36
Distribution Date..................... 94
DOJ................................... 88
Downside Case......................... 132
Duopoly/LMA Case...................... 124
EBITDA................................ 31
Eligible Stockholder Amount........... 112
Employee Plan......................... 185
EPS................................... 77
Equity Compensation Agreement......... 85
ERISA................................. 199
Exchange.............................. ii
Exchange Act.......................... 1
Exchange Agreement.................... 149
Exchange Shares....................... ii
Executive............................. 187
Extension Letter...................... 4
Extra Share Amount.................... 154
Extra Shares.......................... 154
Extraordinary Matters................. 15
Fair Market Value..................... 200
FCC................................... 15
FCC Issuance Approval................. 23
FCC Orders............................ 49
FCC Regulations....................... 22
First Amendment....................... 14
First Boston.......................... 12
First Boston HSN Report............... 131
First Boston Savoy Report............. 74
Fox................................... 4
Fox Option............................ 124
FTC................................... 88
Gleacher.............................. 12
high definition....................... 48
House................................. i
House Class B Common Stock............ ii
House Common Stock.................... ii
HSC................................... 4
HSC Business.......................... 123
HSN................................... i
HSN Base Case......................... 125
HSN Board............................. i
HSN Bylaws............................ 23
HSN Case.............................. 123
HSN Certificate....................... 9
HSN Certificate of Merger............. 12
HSN Class B Common Stock.............. ii
HSN Class B Conversion Ratio.......... ii
HSN Common Conversion Ratio........... ii
HSN Common Shares Trust............... 147
HSN Common Stock...................... ii
HSN Debentures........................ iii
HSN Exchange Agent.................... 21
HSN FCC Approval...................... 24
HSN Indenture......................... iii
HSN Management Case................... 125
HSN Meeting........................... i
HSN Merger............................ i
HSN Merger Agreement.................. 4
ix
25
PAGE
NO.
----
HSN Merger Effective Time............. 12
HSN Merger NASD Proposal.............. 8
HSN Options........................... 21
HSN Plan.............................. 41
HSN Preferred Stock................... 207
HSN Prior Credit Facility............. 40
HSN Record Date....................... 9
HSN Replacement Facility.............. 40
HSN Special Committee................. 13
HSN Special Vote...................... 11
HSN Stock............................. 137
HSN Stockholder Proposal.............. 9
HSN Stockholder Voting Agreement...... 24
HSN Sub............................... 158
HSN Surviving Corporation............. ii
HSN Surviving Corporation Class B
Common Stock........................ ii
HSN Surviving Corporation
Common Stock........................ ii
HSN Transactions...................... 1
HSNCC................................. 36
HSR Act............................... 88
Independent Stations Case............. 124
Initial Diller Shares................. 188
Investment Condition.................. 48
IRS................................... 36
ISO Holding Period.................... 195
ISOs.................................. 192
June 14 MO&O.......................... 49
Liberty............................... 5
Liberty/BDTV Merger Agreement......... 63
Liberty HSN........................... ii
Liberty Option........................ 109
Liberty Surviving Class B............. 156
Liberty Surviving Common.............. 156
LMAs.................................. 115
Local Restriction..................... 46
LPTV.................................. 4
LSAR.................................. 194
LTM................................... 80
Management Case....................... 132
Management Election................... 111
March 11 MO&O......................... 48
must-carry............................ 47
Name Change Proposal.................. 8
NASD.................................. 1
Nasdaq................................ iv
National Restriction.................. 46
November Savoy Merger................. 64
November Savoy Merger Agreement....... 4
November Stockholders Agreement....... 63
November Transactions Documents....... 65
NYSE.................................. iv
operating cash flow................... 75
Performance Goals..................... 193
Pre-HSN Merger Exchange............... ii
Previous Directors Plan............... 187
Qualifying Disagreement............... 111
QVC................................... 96
Ratification of Auditors Proposal..... 8
Registration Statement................ 1
PAGE
NO.
----
Remaining Shares Issuable............. 155
Reorganization........................ 143
Restrictive Condition................. 153
Restructuring Transaction............. 16
retransmission consent................ 47
RMSLP................................. 93
Rule 16b-3............................ 194
SARs.................................. 108
Savoy................................. i
Savoy Board........................... i
Savoy Bylaws.......................... 18
Savoy Certificate..................... 18
Savoy Certificate of Merger........... 12
Savoy Common Shares Trust............. 60
Savoy Common Stock.................... ii
Savoy Conversion Ratio................ ii
Savoy Debentures...................... iii
Savoy Exchange Agent.................. 16
Savoy FCC Application................. 49
Savoy FCC Approvals................... 19
Savoy Meeting......................... i
Savoy Merger.......................... i
Savoy Merger Agreement................ 4
Savoy Merger Agreement Amendment...... 4
Savoy Merger Effective Time........... 12
Savoy Merger NASD Proposal............ 8
Savoy Note............................ 17
Savoy Options......................... 16
Savoy Preferred Stock................. 207
Savoy Record Date..................... 9
Savoy Stations........................ 4
Savoy Stockholder Proposal............ 8
Savoy Stockholder Voting Agreement.... 19
Savoy Surviving Corporation........... 18
Savoy Warrants........................ 17
Schedule 13E-3........................ 1
Second Silver King Stockholder
Voting Agreement.................... 24
Section 83(b) election................ 194
Securities Act........................ iii
Selected HSN Comparables.............. 132
Selected HSN Transactions............. 133
Selected Television Comparables....... 76
Selected Television Transactions...... 76
Shop at Home.......................... 132
Silver King........................... i
Silver King/BDTV Exchange
Agreement........................... 63
Silver King Board..................... i
Silver King Bylaws.................... 20
Silver King Certificate............... i
Silver King Class B Common Stock...... ii
Silver King Common Stock.............. i
Silver King Licenses.................. 16
Silver King LPTV Stations............. 4
Silver King Meeting................... i
Silver King Named Executive
Officers............................ 183
Silver King Preferred Stock........... 8
Silver King Record Date............... 9
Silver King Securities................ ii
Silver King Stations.................. 4
x
26
PAGE
NO.
---
Silver King Stockholder Proposals..... 8
Silver King Stockholder Voting
Agreement........................... 19
spread................................ 194
stick value........................... 127
Stock Option Agreement................ 196
Stockholders Agreement................ 14
Subscriber Condition.................. 48
Superior Proposal..................... 91
Tax Sharing Agreement................. 94
TBS................................... 96
TCI................................... 1
PAGE
NO.
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TCI HSN Shares........................ 61
TCI HSN Shares Acquisition............ 62
Termination Agreement................. 108
Thames................................ i
Total Voting Power.................... 10
Tri-Star.............................. 179
Urban................................. 48
ValueVision........................... 126
Ware Option Agreement................. 197
Ware Options.......................... 197
Wasserstein Perella................... 13
Wasserstein Perella Opinion........... 13
xi
27
NO PERSON HAS BEEN AUTHORIZED BY SILVER KING, SAVOY OR HSN TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS IN CONNECTION WITH THE SOLICITATION OF PROXIES OR THE
OFFERING OF SECURITIES MADE HEREBY, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY SILVER KING,
SAVOY OR HSN. THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE SECURITIES OFFERED BY THIS
JOINT PROXY STATEMENT/PROSPECTUS OR A SOLICITATION OF A PROXY IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT WOULD BE UNLAWFUL TO MAKE SUCH
AN OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS NOR ANY
DISTRIBUTION OF THE SECURITIES TO WHICH THIS JOINT PROXY STATEMENT/PROSPECTUS
RELATES SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE INFORMATION CONTAINED HEREIN SINCE THE DATE HEREOF.
AVAILABLE INFORMATION
Silver King, Savoy and HSN are each subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and, in accordance therewith, file reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission").
These materials should be available for inspection and copying at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the Commission's regional offices at
Northwest Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661 and 7 World Trade Center, 13th Floor, New York, New York 10048. Copies of
these materials can also be obtained from the Commission at prescribed rates by
writing to the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549. The Commission maintains a Web site on the
Internet that contains reports, proxy and information statements and other
information (http://www.sec.gov). In addition, materials filed by Silver King
and Savoy should be available for inspection at the offices of the National
Association of Securities Dealers, Inc. (the "NASD"), Reports Section, 1735 K
Street, N.W., Washington, D.C. 20006. Materials filed by HSN should be available
for inspection at the offices of the NYSE, 20 Broad Street, New York, N.Y.
10005.
Under the rules and regulations of the Commission, the solicitation of
proxies from stockholders of Savoy to approve and adopt the Savoy Merger
Agreement (as defined herein) and the Savoy Merger constitutes an offering of
the Silver King Common Stock to be issued in connection with the Savoy Merger,
and the solicitation of proxies from stockholders of HSN to approve and adopt
the HSN Merger Agreement (as defined herein) and the HSN Merger and related
transactions (including the grant of Contingent Rights, the related issuance of
the Contingent Rights Shares, the Exchange and the related issuance of the
Exchange Shares, and, together with the HSN Merger, the "HSN Transactions")
constitutes an offering of the Silver King Common Stock or Silver King Class B
Common Stock, as the case may be, to be issued in connection with the HSN
Merger. Accordingly, Silver King has filed with the Commission a Registration
Statement on Form S-4 under the Securities Act with respect to such offerings
(the "Registration Statement"). This Joint Proxy Statement/Prospectus
constitutes the prospectus of Silver King that is filed as part of the
Registration Statement. Silver King, HSN, Tele-Communications, Inc. ("TCI") and
certain other persons also have filed with the Commission a Rule 13e-3
Transaction Statement on Schedule 13E-3 (as amended, the "Schedule 13E-3") with
respect to the HSN Transactions described in this Joint Proxy
Statement/Prospectus. As permitted by the rules and regulations of the
Commission, this Joint Proxy Statement/Prospectus and the Schedule 13E-3 omit
certain information, exhibits and undertakings contained in the Registration
Statement and the Schedule 13E-3. Such additional information may be inspected,
without charge, at the offices of the Commission referred to above, or obtained
at prescribed rates from the Public Reference Section of the Commission at the
address set forth above. For further information pertaining to HSN, Silver King
and TCI,
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reference is made to the Registration Statement and the exhibits thereto and to
the Schedule 13E-3 and the exhibits thereto. Statements contained herein
concerning any such documents are not necessarily complete, and, in each
instance, reference is made to the copy of such document filed as an exhibit to
the Registration Statement and the Schedule 13E-3. Each such statement is
qualified in its entirety by such reference.
ALL INFORMATION CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS RELATING
TO SILVER KING, THAMES AND HOUSE HAS BEEN SUPPLIED BY SILVER KING, ALL
INFORMATION RELATING TO SAVOY HAS BEEN SUPPLIED BY SAVOY, ALL INFORMATION
RELATING TO HSN HAS BEEN SUPPLIED BY HSN, AND ALL INFORMATION RELATING TO TCI
HAS BEEN PROVIDED BY TCI. NONE OF SILVER KING, SAVOY, HSN OR TCI TAKES ANY
RESPONSIBILITY FOR THE ACCURACY OF THE INFORMATION PROVIDED BY THE OTHER
PARTIES.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
This Joint Proxy Statement/Prospectus incorporates documents by reference
that are not presented herein or delivered herewith. There will be provided
without charge to each person, including any beneficial owner, to whom a Joint
Proxy Statement/Prospectus is delivered, upon oral or written request of any
such person, a copy of any or all documents incorporated by reference herein
(excluding exhibits unless such exhibits are specifically incorporated by
reference herein). With respect to Silver King's documents, requests should be
directed to Silver King Communications, Inc., Investor Relations Department,
2425 Olympic Boulevard, Santa Monica, CA 90404 (telephone (310) 247-7930). With
respect to Savoy's documents, requests should be directed to Savoy Pictures
Entertainment, Inc., Secretary, 152 West 57th Street, New York, New York 10019
(telephone (212) 247-5810). With respect to HSN's documents, requests should be
directed to Home Shopping Network, Inc., Investor Relations Department, 2501
118th Street North, St. Petersburg, Florida 33716 (telephone (813) 572-8585). In
order to ensure timely delivery of the documents in advance of the Silver King
Meeting, the Savoy Meeting and the HSN Meeting to which this Joint Proxy
Statement/Prospectus relates, any such request should be made by December 12,
1996.
Silver King incorporates herein by reference Silver King's Annual Report on
Form 10-K for the fiscal year ended August 31, 1995, Silver King's Quarterly
Reports on Form 10-Q for the quarters ended November 30, 1995, March 31, 1996,
June 30, 1996 and September 30, 1996, Silver King's Transition Report on Form
10-Q for the four-month period ended December 31, 1995, Silver King's Current
Reports on Form 8-K dated October 25, 1995, November 27, 1995, February 13, 1996
(as amended on Form 8-K/A), July 2, 1996 and August 25, 1996, and the
description of Silver King's Common Stock and Silver King's Class B Common Stock
set forth in Silver King's Registration Statement on Form 10 dated August 27,
1992 (No. 0-20570), as amended.
Savoy incorporates herein by reference Savoy's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995, Savoy's Quarterly Report on Form
10-Q for the quarters ended March 31, 1996, June 30, 1996 and September 30,
1996, Savoy's Current Report on Form 8-K dated September 11, 1996 and the
description of Savoy's Common Stock set forth in Savoy's Registration Statement
on Form S-1 dated February 5, 1993 (No. 33-57956), as amended.
HSN incorporates herein by reference HSN's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995, HSN's Quarterly Report on Form 10-Q for
the quarters ended March 31, 1996, June 30, 1996 and September 30, 1996, HSN's
Current Reports on Form 8-K dated February 15, 1996, February 26, 1996, March 1,
1996, August 26, 1996 and October 15, 1996, and the description of HSN's capital
stock set forth in HSN's Registration Statement on Form S-1 dated May 4, 1987
(No. 33-12527), as amended.
All reports and definitive proxy or information statements filed by Silver
King, Savoy or HSN pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange
Act subsequent to the date of this Joint Proxy Statement/Prospectus and prior to
the date of its respective stockholder meetings shall be deemed incorporated by
reference into this Joint Proxy Statement/Prospectus from the date of filing of
such documents. Any statement contained in a document incorporated or deemed to
be incorporated herein shall be deemed to be modified or superseded for purposes
of this Joint Proxy Statement/Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be
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incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Joint Proxy Statement/Prospectus.
FORWARD-LOOKING STATEMENTS
This Joint Proxy Statement/Prospectus includes forward-looking statements
within the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act. All statements regarding Silver King's, Savoy's, HSN's or the
combined company's expected future financial position, business strategy,
budgets, projected costs and plans and objectives of management for future
operations, are forward-looking statements. Although Silver King, Savoy and HSN
believe their respective expectations reflected in such forward-looking
statements are based on reasonable assumptions, no assurance can be given that
such expectations will prove to have been correct. Important factors that could
cause actual results to differ materially from the expectations reflected in the
forward looking statements herein include, among others, those set forth under
"Risk Factors," general economic and business and market conditions, changes in
federal laws and regulation of the telecommunications and broadcast industries,
difficulties in achieving expected cost savings from the Savoy Merger and the
HSN Transactions, increased competitive pressure in the combined company's
industry, costs or difficulties relating to the integration of the businesses of
Silver King, Savoy and HSN, and the ability of Silver King, Savoy and HSN to
achieve the goals described in "Savoy Merger and Related Transactions -- Reasons
for the Savoy Merger" and "Special Factors Relating to the HSN
Transactions -- Purposes of and Reasons for the HSN Transactions" during the
periods covered by the forward looking statements. To the extent that
forward-looking statements included in this Joint Proxy Statement/Prospectus are
made in connection with HSN Transactions, such statements are not entitled to
the statutory safe harbor provided by Section 27A of the Securities Act and
Section 21E of the Exchange Act.
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SUMMARY
The following is a brief summary of certain information contained elsewhere
in this Joint Proxy Statement/Prospectus. The summary does not contain a
complete description of, among other agreements and transactions, (i) the
amended Agreement and Plan of Merger, dated as of November 27, 1995, by and
among Silver King, Thames and Savoy (the "November Savoy Merger Agreement"), as
amended by the amendment, dated March 22, 1996 (the "Extension Letter"), and the
amendment, dated August 13, 1996 (the "Savoy Merger Agreement Amendment" and
together with the November Savoy Merger Agreement and the Extension Letter, the
"Savoy Merger Agreement"), copies of which are attached as Appendix A to this
Joint Proxy Statement/Prospectus; (ii) the Savoy Merger; (iii) the Agreement and
Plan of Exchange and Merger, dated as of August 25, 1996, by and between Silver
King, House, Liberty HSN and HSN (the "HSN Merger Agreement"), a copy of which
is attached as Appendix B to this Joint Proxy Statement/Prospectus; (iv) the HSN
Merger and the other HSN Transactions; or (v) the other matters to be voted upon
by Silver King stockholders at the Silver King meeting. The summary is qualified
in its entirety by reference to the full text of this Joint Proxy
Statement/Prospectus and the Appendices attached to this Joint Proxy
Statement/Prospectus. Silver King stockholders, Savoy stockholders and HSN
stockholders are urged to read carefully this Joint Proxy Statement/Prospectus
and the Appendices attached to this Joint Proxy Statement/Prospectus in their
entirety.
THE COMPANIES
Silver King
Silver King is primarily engaged in the ownership and operation of
television stations and currently owns and operates 12 independent full-power
UHF television stations serving eight of the 13 largest metropolitan television
markets in the United States (the "Silver King Stations"), including one
television satellite station, which affiliate with and primarily broadcast
retail sales programming produced by Home Shopping Club, Inc. ("HSC"), a
wholly-owned subsidiary of HSN. Silver King also owns 26 low-power television
("LPTV") stations (the "Silver King LPTV Stations") that broadcast such retail
sales programming. To a limited extent, Silver King Stations also broadcast
syndicated programming, locally produced public affairs and public interest
programming and commercial-free children's programming. In addition, Silver King
holds notes receivable and/or minority equity interests in other entities that
hold broadcast licenses or authorizations in nine television markets.
Silver King was originally incorporated in Delaware in July 1986 as a
wholly-owned subsidiary of HSN under the name "Silver King Broadcasting Company,
Inc.," which subsequently changed its name to "HSN Communications, Inc." and, in
August 1992, to "Silver King Communications, Inc." On December 28, 1992, HSN
distributed the outstanding capital stock of Silver King to HSN's stockholders,
after the HSN Board and management concluded that the distribution would, among
other things, facilitate accurate valuation of the two companies' businesses by
the investment and financial communities, allow improved access to capital
markets for HSN and provide flexibility for HSN in negotiating programming
agreements with cable operators. Silver King's reasons for the HSN Transactions
are described under "Special Factors Relating to the HSN
Transactions -- Fairness of the HSN Transactions; Recommendations -- Silver
King."
Silver King's principal executive offices are located at 12425 28th Street
North, St. Petersburg, Florida 33716. Its telephone number is (813) 573-0339.
Savoy
Savoy has operations in two principal lines of business: (i) television
broadcasting and (ii) filmed entertainment. In its television broadcasting
business, Savoy owns interests in four television stations (the "Savoy
Stations") in markets ranging from the 41st through 71st designated market
areas. In its filmed entertainment business, Savoy has in the past financed,
developed, produced, marketed and distributed motion pictures, but has suspended
its marketing and distribution activities and is exploiting properties under
development for its motion pictures by entering into arrangements with third
parties. An affiliate of Fox Broadcasting Company ("Fox") holds a 50% economic
interest in the Savoy Stations, which interest is
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currently non-voting. Savoy was originally incorporated in New York in February
1992 and became a Delaware corporation in February 1993. Savoy's principal
executive offices are located at 152 West 57th Street, New York, New York 10019.
Its telephone number is (212) 247-5810.
HSN
HSN is a holding company, the subsidiaries of which conduct the day-to-day
operations of HSN's various business activities. HSN's primary business, and
principal source of revenue, is electronic retail sales by HSC, a leader in the
electronic retailing industry. HSC sells a variety of consumer goods and
services over live, customer interactive retail sales programs through its Home
Shopping Network and Spree! network programming services. HSN's programming is
transmitted over two networks, 24 hours a day, seven days a week, via satellite
to affiliated cable television systems and broadcast television stations and
satellite dish receivers. HSN's primary network, Home Shopping Network,
currently is received by approximately 69 million homes throughout the United
States. The Spree! network, which provides a similar retail shopping service in
a more casual and less structured format, is received by approximately 11.7
million cable homes as of June 30, 1996, of which approximately 4.8 million
receive it on a part-time basis and 10.2 million also receive Home Shopping
Network. In addition to the electronic retailing business, HSN's subsidiaries
are involved in mail order, electronic retailing on the Internet and other
businesses. HSN is a Delaware corporation which was incorporated in 1986. HSN's
principal executive offices are located at 2501 118th Avenue North, St.
Petersburg, Florida 33716. Its telephone number is (813) 572-8585.
Liberty HSN
Liberty HSN, a Colorado corporation, is an indirect wholly-owned subsidiary
of Liberty Media Corporation, which, in turn, is a wholly-owned subsidiary of
TCI. The term "Liberty" as used herein means (i) for periods prior to August 4,
1994, Liberty Media Corporation and (ii) for periods subsequent to August 4,
1994, Liberty Media Corporation, a wholly-owned subsidiary of TCI. Liberty HSN's
business is the ownership of the shares of HSN Common Stock and HSN Class B
Common Stock currently beneficially owned by TCI. Liberty HSN's principal
executive offices are located at 8101 East Prentice Avenue, Englewood, Colorado
80111. Its telephone number is (303) 721-5400.
Thames
Thames, a Delaware corporation, is a newly-formed, indirect wholly-owned
subsidiary of Silver King formed solely for the purposes of the Savoy Merger.
Thames's principal executive offices are located at 12425 28th Street North, St.
Petersburg, Florida 33716. Its telephone number is (813) 573-0339.
House
House, a Delaware corporation, is a newly-formed subsidiary of Silver King
formed solely for the purposes of the HSN Merger. Prior to the Pre-HSN Merger
Exchange, House will be a wholly-owned subsidiary of Silver King. House's
principal executive offices are located at 12425 28th Street North, St.
Petersburg, Florida 33716. Its telephone number is (813) 573-0339.
BDTV INC.
BDTV INC., formerly named "Silver Management Company," is a Delaware
corporation formed by Barry Diller, Liberty and certain of their affiliates
("BDTV"). BDTV was formed pursuant to the terms of a stockholders agreement
between Liberty and Mr. Diller relating to Silver King Securities owned by each
of them and certain of their respective affiliates. Mr. Diller beneficially owns
all the outstanding voting stock of BDTV and Liberty beneficially owns all of
the outstanding non-voting stock of BDTV (which non-voting stock represents
substantially all of the outstanding equity interest in BDTV). See "Special
Factors Relating to the HSN Transactions -- Background -- Relationship between
Liberty and Mr. Diller -- The Diller-Liberty Stockholders Agreement." BDTV's
principal executive offices are located at 2425 Olympic Boulevard, Santa Monica,
California 90404. Its telephone number is (310) 247-7905.
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THE TRANSACTIONS
Savoy Merger
Pursuant to the Savoy Merger Agreement, (i) Thames will merge with and into
Savoy; (ii) Savoy will become an indirect wholly-owned subsidiary of Silver
King; (iii) each outstanding share of Savoy Common Stock will be converted into
the right to receive 0.14 of a share of Silver King Common Stock (other than
treasury shares and shares owned by Silver King or its wholly-owned
subsidiaries); and (iv) each outstanding option or warrant to acquire Savoy
Common Stock will be assumed by Silver King and converted into an option or
warrant to acquire that number of shares of Silver King Common Stock as the
holder would have been entitled to receive had such holder exercised such option
or warrant immediately prior to the effective time of the Savoy Merger, and
Silver King will become jointly liable or otherwise guarantee Savoy's
performance with respect to each Savoy Debenture, each beneficial owner thereof
will be entitled to convert such Savoy Debenture into the kind and amount of
Silver King Common Stock that such owner would have been entitled to receive had
such Savoy Debenture been converted into Savoy Common Stock immediately prior to
the effective time of the Savoy Merger.
HSN Merger
Pursuant to the HSN Merger Agreement, (i) immediately prior to the
effective time of the HSN Merger, all shares (subject to adjustment in certain
circumstances) of HSN Common Stock held by Liberty HSN (17,566,702 shares) will
be exchanged for an equal number of shares of House Common Stock, and 739,141
shares (subject to adjustment in certain circumstances) of the 20,000,000 shares
of HSN Class B Common Stock held by Liberty HSN will be exchanged for an equal
number of shares of House Class B Common Stock in the Pre-HSN Merger Exchange;
(ii) in the HSN Merger, (w) each outstanding share of HSN Common Stock (except
for treasury shares and shares held by House pursuant to the Pre-HSN Merger
Exchange, which will be cancelled) will be converted at the HSN Common
Conversion Ratio into the right to receive 0.45 of a share of Silver King Common
Stock; (x) each outstanding share of HSN Class B Common Stock (except for shares
held by House pursuant to the Pre-HSN Merger Exchange, which will be cancelled)
will be converted at the HSN Class B Conversion Ratio into the right to receive
0.54 of a share of Silver King Class B Common Stock, a portion of which (up to
2,644,299 shares (subject to adjustment)) will not be issued at the time of the
HSN Merger but will instead be represented by Silver King's contractual
obligation to issue such shares to Liberty HSN upon the occurrence of certain
events; (y) each outstanding option to acquire HSN Common Stock will be assumed
by Silver King and converted into an option to acquire that number of shares of
Silver King Common Stock as the holder would have been entitled to receive had
such holder exercised such option immediately prior to the effective time of the
HSN Merger, and each outstanding HSN Debenture will become convertible into the
kind and amount of Silver King Common Stock that the owner of such HSN Debenture
would have been entitled to receive had such HSN Debenture been converted into
HSN Common Stock immediately prior to the effective time of the HSN Merger; and
(z) each outstanding share of House Common Stock and House Class B Common Stock
will be converted into, respectively, one share of HSN Surviving Corporation
Common Stock or one share of HSN Surviving Corporation Class B Common Stock.
Upon consummation of the HSN Merger, Silver King will own at least 80.1% of the
voting power and equity of the HSN Surviving Corporation and Liberty HSN will
own not more than 19.9% of the voting power and equity of the HSN Surviving
Corporation. After the HSN Merger, at such time or from time to time as Liberty
HSN or its permitted transferee may be allowed under applicable regulations to
hold additional shares of Silver King stock, Liberty HSN or its permitted
transferee will exchange, pursuant to the Exchange, its HSN Surviving
Corporation Common Stock for shares of Silver King Common Stock at the HSN
Common Conversion Ratio and its HSN Surviving Corporation Class B Common Stock
for shares of Silver King Class B Common Stock at the HSN Class B Conversion
Ratio. Liberty HSN is obligated to effect an Exchange only after all Contingent
Rights Shares have been issued, subject to certain exceptions. Upon completion
of the Exchange, HSN would become a wholly-owned subsidiary of Silver King.
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The following schematic diagrams set forth generally the equity ownership
and the combined voting power of all classes of common stock before and after
the Savoy Merger and the HSN Merger of each of Silver King, Savoy and HSN. The
percentages are based on shares issued and outstanding. Percentages inside an
oval denote ownership of the entity directly below such oval. Certain
wholly-owned subsidiaries have been omitted.
PRE-SAVOY MERGER AND HSN MERGER OWNERSHIP STRUCTURE
(rounded to the nearest percent)
TCI
100%
B. DILLER |
100% VOTING LIBERTY
| ____________________________ |
|____ | 100% EQUITY 100%
| | |
PUBLIC PUBLIC BDTV** PUBLIC LIBERTY HSN
100% 74% EQUITY 21% EQUITY 59% EQUITY 41% EQUITY
| 34% VOTING 65% VOTING 20% VOTING 80% VOTING
| | | | |
| | B. DILLER** | | |
| | 5% EQUITY | | B. DILLER |
| | 1% VOTING | | ______*** |
| |_____ ____| |_____ | _____|
| | | |||
| | | |||
| | |||
SAVOY SILVER KING HSN
POST-SAVOY MERGER AND HSN MERGER OWNERSHIP STRUCTURE*
(rounded to the nearest percent)
B. DILLER TCI
100% VOTING 100%
| |
|____ |
PUBLIC BDTV** |
78% EQUITY 21% EQUITY |
29% VOTING 71% VOTING ____________________ LIBERTY
| B. DILLER** | 100% EQUITY |
| 1% EQUITY | |
| ___% VOTING*** | | 100%
|_________________ _________________| |
| | |
SILVER KING LIBERTY HSN
_________________| |_________________ |
| | |
| | 80% EQUITY |
| | |
100% | | | 20% EQUITY
| | 91% VOTING |
| |______________ ____________| 9% VOTING
| | |
| | |
| | |
SAVOY HSN
* DOES NOT GIVE EFFECT TO THE ISSUANCE OF SILVER KING SECURITIES PURSUANT TO
THE CONTINGENT RIGHTS OR THE EXCHANGE AGREEMENT.
** ALL SILVER KING SECURITIES HELD BY MR. DILLER, LIBERTY, BDTV AND CERTAIN OF
THEIR AFFILIATES ARE SUBJECT TO THE STOCKHOLDERS AGREEMENT, PURSUANT TO
WHICH, SUBJECT TO CERTAIN EXCEPTIONS, MR. DILLER GENERALLY EXERCISES VOTING
CONTROL OVER THESE SILVER KING SECURITIES, INCLUDING 61,630 SHARES (LESS
THAN 1%) OF SILVER KING COMMON STOCK OWNED BY LIBERTY AND NOT DEPICTED.
*** LESS THAN 1%.
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ANNUAL AND SPECIAL MEETINGS OF STOCKHOLDERS
Date, Time and Place
Silver King. The Silver King Meeting will be held on December 19, 1996
at 11:00 a.m., local time, at The Four Seasons Hotel, 57 East 57th Street, New
York, New York.
Savoy. The Savoy Meeting will be held on December 19, 1996 at 9:30 a.m.,
local time, at The Four Seasons Hotel, 57 East 57th Street, New York, New York.
HSN. The HSN Meeting will be held on December 19, 1996 at 10:00 a.m.,
local time, at The Four Seasons Hotel, 57 East 57th Street, New York, New York.
Purposes of the Annual and Special Meetings
Silver King Meeting. At the Silver King Meeting, stockholders of record of
Silver King as of the close of business on the Silver King Record Date (as
defined herein) will be asked to consider and vote upon the following proposals
(collectively, the "Silver King Stockholder Proposals"):
1. To issue shares of Silver King Common Stock in the Savoy Merger
pursuant to the approval required by the NASD rules and bylaws (the "Savoy
Merger NASD Proposal").
2. To issue shares of Silver King Common Stock and Silver King Class B
Common Stock in the HSN Transactions pursuant to the approval required by
the NASD rules and bylaws (the "HSN Merger NASD Proposal").
3. To amend Article IV ("Article IV") of the Silver King Certificate
to increase the authorized shares of Silver King Common Stock from
30,000,000 shares to 150,000,000 shares of Silver King Common Stock,
increase the authorized shares of Silver King Class B Common Stock from
2,415,945 shares to 30,000,000 shares of Silver King Class B Common Stock
and increase the authorized shares of Silver King preferred stock, par
value $.01 per share ("Silver King Preferred Stock"), from 50,000 shares to
15,000,000 shares of Silver King Preferred Stock (the "Authorized Capital
Stock Amendment Proposal").
4. Upon consummation of the HSN Merger, to amend Article I of the
Silver King Certificate to change the corporate name of Silver King to
"HSN, Inc." (the "Name Change Proposal").
5. To amend Article IV of the Silver King Certificate to eliminate the
separate class vote of the holders of the Silver King Common Stock and the
Silver King Class B Common Stock in certain specified circumstances at any
time that there are at least 2,280,000 shares of Silver King Class B Common
Stock outstanding (the "Class Vote Amendment Proposal").
6. To elect six members of the Silver King Board of Directors, each to
hold office for a one-year term ending on the date of the next succeeding
annual meeting of stockholders and until such director's respective
successor shall have been duly elected and qualified.
7. To approve the Silver King 1995 Stock Incentive Plan (the "1995
Stock Incentive Plan") for Silver King's officers and certain key employees
and consultants (the "1995 Stock Incentive Plan Proposal").
8. To approve the Silver King Directors Stock Option Plan (the
"Directors Stock Option Plan") for the non-employee directors of Silver
King (the "Directors Stock Option Plan Proposal").
9. To ratify the appointment of Ernst & Young LLP as the firm of
independent auditors to audit the financial statements of Silver King and
its subsidiaries for the year ended December 31, 1996 (the "Ratification of
Auditors Proposal").
Savoy Meeting. At the Savoy Meeting, stockholders of record of Savoy as of
the close of business on the Savoy Record Date (as defined herein) will be asked
to consider and vote upon a proposal to approve and adopt the Savoy Merger
Agreement (the "Savoy Stockholder Proposal").
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HSN Meeting. At the HSN Meeting, stockholders of record of HSN as of the
close of business on the HSN Record Date (as defined herein) will be asked to
consider and vote upon a proposal to approve and adopt the HSN Merger Agreement
(including the HSN Transactions) (the "HSN Stockholder Proposal").
Record Dates; Shares Outstanding and Entitled to Vote
Silver King. Holders of record of Silver King Common Stock and Silver King
Class B Common Stock at the close of business on November 13, 1996 (the "Silver
King Record Date") are entitled to notice of and to vote at the Silver King
Meeting. At the close of business on the Silver King Record Date, there were
7,083,332 shares of Silver King Common Stock outstanding and 2,415,945 shares of
Silver King Class B Common Stock outstanding, each of which will be entitled to
the following votes with respect to the matters to be acted upon:
1. With respect to each of the Savoy Merger NASD Proposal and the HSN
Merger NASD Proposal, the holders of Silver King Securities will vote
together as a single class, with each share of Silver King Common Stock
entitled to one vote and each share of Silver King Class B Common Stock
entitled to ten votes thereon.
2. With respect to each of the Authorized Capital Stock Amendment
Proposal, the Name Change Proposal, and the Class Vote Amendment Proposal,
the holders of shares of each of the Silver King Common Stock and Silver
King Class B Common Stock will vote as separate classes, with each share of
Silver King Common Stock or Silver King Class B Common Stock, as the case
may be, entitled to one vote thereon.
3. With respect to the election of directors, the holders of Silver
King Securities will vote together as a single class with respect to four
director nominees (Barry Diller, Victor A. Kaufman, John E. Oxendine and
Richard E. Snyder), with each share of Silver King Common Stock entitled to
one vote and each share of Silver King Class B Common Stock entitled to ten
votes thereon, and the holders of Silver King Common Stock will vote as a
separate class with respect to two director nominees (Bruce M. Ramer and
Sidney J. Sheinberg), with each share of Silver King Common Stock entitled
to one vote thereon.
4. With respect to each of the 1995 Stock Incentive Plan Proposal, the
Directors Stock Option Plan Proposal and the Ratification of Auditors
Proposal, the holders of Silver King Securities will vote together as a
single class, with each share of Silver King Common Stock entitled to one
vote and each share of Silver King Class B Common Stock entitled to ten
votes thereon.
Savoy. Holders of record of Savoy Common Stock at the close of business on
November 13, 1996 (the "Savoy Record Date") are entitled to notice of and to
vote at the Savoy Meeting. At the close of business on the Savoy Record Date,
there were 30,041,932 shares of Savoy Common Stock outstanding, each of which
will be entitled to one vote on each matter to be acted upon at the Savoy
Meeting.
HSN. Holders of record of HSN Common Stock and HSN Class B Common Stock at
the close of business on November 13, 1996 (the "HSN Record Date") are entitled
to notice of and to vote at the HSN Meeting. Under HSN's Certificate of
Incorporation (the "HSN Certificate"), the holders of HSN Common Stock and HSN
Class B Common Stock will vote together as a single class with each share of HSN
Class B Common Stock entitled to ten votes per share and each share of HSN
Common Stock entitled to one vote per share. Under the HSN Merger Agreement, the
obligation of the parties to consummate the HSN Merger and the HSN Transactions
is also conditioned upon the separate affirmative vote of the holders of a
majority of the outstanding shares of HSN Common Stock present and voting at the
HSN Meeting other than shares of HSN Common Stock beneficially owned by Liberty
HSN and its affiliates. At the close of business on the HSN Record Date, there
were 72,006,559 shares of HSN Common Stock outstanding (excluding shares held in
treasury by HSN or by majority-owned subsidiaries of HSN), each of which will be
entitled to one vote on each matter to be acted upon, and 20,000,000 shares of
HSN Class B Common Stock outstanding (all of which are held by Liberty HSN),
each of which will be entitled to ten votes on each matter to be acted upon when
voting with the holders of HSN Common Stock (except that none of such shares of
HSN Common
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36
Stock and HSN Class B Common Stock held by Liberty HSN or its affiliates will be
voted in connection with the HSN Special Vote (as defined herein)).
Quorum
The required quorum for the transaction of business at the Silver King
Meeting is a majority of the shares of each of the Silver King Common Stock and
Silver King Class B Common Stock; the required quorum for the transaction of
business at the Savoy Meeting is a majority of the shares of Savoy Common Stock;
and the required quorum for the transaction of business at the HSN meeting is a
majority of the shares of each of the HSN Common Stock and the HSN Class B
Common Stock when voting as separate classes and a majority of both the HSN
Common Stock and the HSN Class B Common Stock when voting as a single class, in
each case, issued and outstanding on the applicable record date. Abstentions and
broker non-votes each will be included in determining the number of shares
present for purposes of determining the presence of a quorum.
Votes Required
Silver King. Approval of each of the Savoy Merger NASD Proposal, the HSN
Merger NASD Proposal, the 1995 Stock Incentive Plan Proposal, the Directors
Option Plan Proposal and the Ratification of Auditors Proposal requires the
affirmative vote of holders of shares representing a majority of the Total
Voting Power (as defined herein), present in person or represented by proxy at
the Silver King Meeting, entitled to vote and voting on such matter. The "Total
Voting Power" means the total number of votes represented by the shares of
Silver King Common Stock and Silver King Class B Common Stock when voting
together as a single class, with each share of Silver King Common Stock entitled
to one vote and each share of Silver King Class B Common Stock entitled to ten
votes. Approval of each of the Authorized Capital Stock Amendment Proposal, the
Name Change Proposal and the Class Vote Amendment Proposal requires the
affirmative vote of the holders of a majority of the outstanding shares entitled
to vote thereon of each of the Silver King Common Stock and the Silver King
Class B Common Stock, voting as separate classes.
To be elected to the Silver King Board of Directors, four of the director
nominees (Messrs. Diller, Kaufman, Oxendine and Snyder) require the favorable
vote of the holders of shares representing a majority of the Total Voting Power
and two of the director nominees (Messrs. Ramer and Sheinberg) require the
favorable vote of the holders of a majority of the shares of Silver King Common
Stock, in each case, present in person or represented by proxy at the Silver
King Meeting and voting on such matter.
Consummation of the Savoy Merger is conditioned upon, among other things,
the approval by the Silver King stockholders of the Savoy Merger NASD Proposal.
Consummation of the HSN Merger is conditioned upon, among other things, the
approval by the Silver King stockholders of each of the HSN Merger NASD Proposal
and the Authorized Capital Stock Amendment Proposal. In addition, consummation
of the HSN Merger is conditioned upon the consummation of the Savoy Merger and,
therefore, is conditioned indirectly upon the approval by Silver King
stockholders of the Savoy Merger NASD Proposal.
The approval by Silver King's stockholders of each of (i) the issuance of
shares of Silver King Common Stock pursuant to the Savoy Merger, (ii) the
issuance of shares of Silver King Common Stock and Silver King Class B Common
Stock pursuant to the HSN Transactions, (iii) the 1995 Stock Incentive Plan
Proposal, and (iv) the Directors Stock Option Plan Proposal is required by,
among other reasons described in this Joint Proxy Statement/Prospectus, the
rules of the NASD governing corporations with securities listed on the Nasdaq
National Market.
Each of Mr. Diller and Liberty has agreed to vote or cause to be voted all
Silver King Securities beneficially owned by such entities and their respective
affiliates in favor of each Silver King Stockholder Proposal. As of the Silver
King Record Date, the shares owned by Mr. Diller and Liberty and their
respective affiliates constituted an aggregate of 503,618 shares of the
outstanding Silver King Common Stock (consisting of 61,630 shares of Silver King
Common Stock beneficially owned by Liberty HSN and 441,988 shares of Silver King
Common Stock beneficially owned by Mr. Diller) and 2,000,000 shares of Silver
King Class B Common Stock held by BDTV (as to which Mr. Diller has effective
voting power), all of which shares are subject to the Stockholders Agreement, as
defined and described herein, which shares represent approximately
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7% of the outstanding Silver King Common Stock, 83% of the outstanding Silver
King Class B Common Stock and 66% of the outstanding Total Voting Power as of
the Silver King Record Date. Accordingly, in view of the votes required at the
Silver King Meeting, approval of the election of at least four of the director
nominees identified above and each of the Savoy Merger NASD Proposal, the HSN
Merger NASD Proposal, the 1995 Stock Incentive Plan Proposal, the Directors
Stock Option Plan Proposal and the Ratification of Auditors Proposal is assured,
notwithstanding the vote of any other holders of Silver King Securities.
However, approval of the Authorized Capital Stock Amendment Proposal is a
condition to the consummation of the HSN Transactions, as to which proposal the
holders of the Silver King Common Stock have a separate class vote. See "Savoy
Merger and Related Transactions -- Related Agreements -- Stockholder Voting
Agreements" and "-- Interests of Certain Persons in the Savoy Merger -- Silver
King;" "Special Factors Relating to the HSN Transactions -- Background --
Relationship between Liberty and Mr. Diller -- The Diller-Liberty Stockholders
Agreement" and "-- Interests of Certain Persons in the HSN Transactions;
Conflicts of Interests -- Interests of Certain Persons in Silver King;" and "HSN
Merger Agreement and Related Transaction Agreements -- Related Agreements --
Stockholder Voting Agreements" for information with respect to voting and other
agreements entered into by certain stockholders of Silver King, Savoy and HSN.
Broker non-votes as to any Silver King Stockholder Proposal will not be
counted for purposes of determining whether such Silver King Stockholder
Proposal has been approved. Abstentions, although counted for purposes of
determining whether there is a quorum at the Silver King Meeting, will not be
voted. Because approval of the Authorized Capital Stock Amendment Proposal and
the Class Vote Amendment Proposal require the vote of the holders of a majority
of the outstanding shares of each of the Silver King Common Stock and Silver
King Class B Common Stock, and because approval of the Name Change Proposal
requires the vote of the holders of a majority of the Total Voting Power
outstanding, abstentions and broker non-votes will have the same effect as votes
against such proposals. Because abstentions and broker non-votes do not
constitute votes cast, they will have no effect on the outcome of the other
proposals.
Savoy. Approval and adoption of the Savoy Stockholder Proposal require the
affirmative vote of the holders of a majority of the outstanding shares of Savoy
Common Stock entitled to vote thereon. Abstentions and broker non-votes will
have the same effect as votes against the Savoy Stockholder Proposal. Certain
directors and executive officers of Savoy, and certain other Savoy stockholders,
holding in the aggregate approximately 29% of the Savoy Common Stock outstanding
as of the Savoy Record Date, have agreed to vote shares of Savoy Common Stock
owned by such person in favor of the Savoy Stockholder Proposal and against any
action or other agreement that would impede, interfere with, delay, postpone or
attempt to discourage the Savoy Merger. See "Savoy Merger and Related
Transactions -- Related Agreements -- Stockholder Voting Agreements" for
information with respect to voting agreements entered into by certain
stockholders of Silver King and Savoy.
HSN. Under the HSN Certificate and the Delaware General Corporation Law
(the "DGCL"), approval and adoption of the HSN Stockholder Proposal require the
affirmative vote of the holders of a majority of the voting power of the
outstanding shares of HSN Common Stock and HSN Class B Common Stock entitled to
vote thereon, voting together as a single class, with each share of HSN Class B
Common Stock being entitled to ten votes and each share of HSN Common Stock
being entitled to one vote. In addition, under the terms of the HSN Merger
Agreement, consummation of the HSN Merger and the HSN Transactions is also
conditioned upon the separate affirmative vote of the holders of a majority of
the outstanding shares of HSN Common Stock present and voting at the HSN Meeting
other than shares of HSN Common Stock held by Liberty HSN and its affiliates
(the "HSN Special Vote"). Abstentions and broker non-votes will have the same
effect as votes against the HSN Stockholder Proposal but will have no effect for
purposes of the HSN Special Vote. Liberty HSN and certain of its affiliates,
who, as of the HSN Record Date, had the right to vote an aggregate of 17,566,702
shares of HSN Common Stock and 20,000,000 shares of HSN Class B Common Stock,
representing approximately 24% of the HSN Common Stock and 100% of the HSN Class
B Common Stock outstanding as of such date, have agreed to vote such shares, or
to cause such shares to be voted, in favor of the HSN Stockholder Proposal and
against any alternative proposal. See "HSN Merger Agreement and Related
Transaction Agreements -- Related Agreements -- Stockholder
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Voting Agreements" for information with respect to voting agreements entered
into by certain stockholders of Silver King and HSN.
Effective Time of the Savoy Merger
The Savoy Merger will become effective upon the filing of a certificate of
merger (the "Savoy Certificate of Merger") with the Secretary of State of
Delaware, or such later time as may be specified therein (the "Savoy Merger
Effective Time"). The Savoy Certificate of Merger is expected to be filed as
soon as practicable after the satisfaction or waiver of each of the conditions
to consummation of the Savoy Merger, which is expected to occur as soon as
practicable following receipt of stockholder approval at the Silver King Meeting
and at the Savoy Meeting. See "Savoy Merger and Related Transactions -- Savoy
Merger Agreement -- Conditions to the Savoy Merger" and "-- Governmental
Approvals."
Effective Time of the HSN Merger
The HSN Merger will become effective upon the filing of a certificate of
merger (the "HSN Certificate of Merger") with the Secretary of State of Delaware
(the "HSN Merger Effective Time"). The HSN Certificate of Merger is expected to
be filed as soon as practicable after the satisfaction or waiver of each of the
conditions to consummation of the HSN Merger, which is expected to occur as soon
as practicable following receipt of stockholder approval at the Silver King
Meeting and at the HSN Meeting. See "Special Factors Relating to the HSN
Transactions -- Regulatory Approvals," and "HSN Merger Agreement and Related
Transaction Agreements -- HSN Merger Agreement -- Conditions to the HSN Merger"
and "-- Governmental Approvals."
OPINIONS OF CERTAIN FINANCIAL ADVISORS
Silver King
CS First Boston Corporation ("First Boston") has delivered its written
opinion, dated August 13, 1996, to the Board of Directors of Silver King,
stating that, as of such date and subject to the assumptions and qualifications
set forth therein, the consideration to be paid pursuant to the Savoy Merger
Agreement is fair to Silver King from a financial point of view. See "Savoy
Merger and Related Transactions -- Opinions of Certain Financial Advisors." The
full text of the opinion of First Boston regarding the Savoy transaction, which
sets forth the assumptions made, matters considered and limitations on the
review undertaken by First Boston, is attached as Appendix C to this Joint Proxy
Statement/Prospectus. Silver King stockholders are urged to read such opinion
carefully and in its entirety.
In addition, First Boston has delivered its written opinion, dated August
25, 1996, to the Board of Directors of Silver King, stating that, as of such
date and subject to the assumptions and qualifications set forth therein, the
consideration to be paid pursuant to the HSN Transactions is fair to Silver King
from a financial point of view. See "Special Factors Relating to the HSN
Transactions -- Opinions of Certain Financial Advisors." The full text of the
opinion of First Boston regarding the HSN Transactions, which sets forth the
assumptions made, matters considered and limitations on the review undertaken by
First Boston, is attached as Appendix D to this Joint Proxy
Statement/Prospectus. Silver King stockholders are urged to read such opinion
carefully and in its entirety.
Savoy
Gleacher NatWest Inc. ("Gleacher") was retained by Savoy solely for the
purpose of rendering opinions as to the fairness, from a financial point of
view, of the Savoy Merger to Savoy's stockholders. Gleacher delivered its
opinion on August 13, 1996 to the Savoy Board stating that, as of such date and
subject to the assumptions and qualifications described to the Savoy Board, the
consideration to be received by the Savoy stockholders in the Savoy Merger is
fair to such stockholders from a financial point of view. Such opinion was
confirmed by Gleacher's written opinions (subject to the assumptions and
qualifications set forth therein) to the Savoy Board. See "Savoy Merger and
Related Transactions -- Opinions of Certain Financial Advisors." The full text
of the written opinion of Gleacher, dated August 13, 1996, which sets forth the
assumptions
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made, matters considered and limitations on the review undertaken in connection
with the opinion, is attached as Appendix E to this Joint Proxy
Statement/Prospectus and is incorporated herein by reference. Savoy stockholders
are urged to read such opinion carefully and in its entirety.
HSN
Wasserstein Perella & Co., Inc. ("Wasserstein Perella") was retained by the
special committee of independent directors of the HSN Board of Directors (the
"HSN Special Committee") to act as its financial advisor and to render an
opinion as to the fairness to HSN's stockholders (other than Liberty and its
affiliates), from a financial point of view, of the HSN Common Conversion Ratio.
On August 25, 1996, Wasserstein Perella delivered its oral opinion to the HSN
Special Committee, confirmed by Wasserstein Perella's written opinion dated
August 28, 1996 (the "Wasserstein Perella Opinion"), to the effect that, as of
each such date and subject to the assumptions and qualifications set forth
therein, the HSN Common Conversion Ratio in the HSN Merger is fair to the
stockholders of HSN, other than Liberty and its affiliates, from a financial
point of view. See "Special Factors Relating to the HSN Transactions -- Opinions
of Certain Financial Advisors." The full text of the Wasserstein Perella
Opinion, which sets forth the assumptions made, matters considered and
limitations on the review undertaken in connection with the opinion, is attached
as Appendix F to this Joint Proxy Statement/Prospectus and is incorporated
herein by reference. HSN stockholders are urged to read such opinion carefully
and in its entirety.
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
Silver King Board of Directors
The Board of Directors of Silver King has unanimously approved the Savoy
Merger Agreement and the Savoy Merger and believes that the Savoy Merger is fair
to and in the best interests of Silver King and its stockholders, and
unanimously recommends that Silver King stockholders vote for the approval of
the issuance of shares of Silver King Common Stock pursuant to the Savoy Merger
Agreement in the Savoy Merger. The primary factors considered and relied upon by
the Silver King Board of Directors in reaching its recommendation in connection
with the Savoy Merger NASD Proposal are described in "Savoy Merger and Related
Transactions -- Reasons for the Savoy Merger -- Silver King's Reasons for the
Savoy Merger."
The Board of Directors of Silver King, other than Mr. Diller, who did not
vote on the matters described in this paragraph, has unanimously approved the
HSN Merger Agreement, the HSN Merger and the HSN Transactions and believes that
the HSN Merger and the HSN Transactions are fair to and in the best interests of
Silver King and its stockholders, and unanimously recommends that Silver King
stockholders vote for approval of the issuance of Silver King Common Stock and
Silver King Class B Common Stock in the HSN Transactions pursuant to the HSN
Merger NASD Proposal. The primary factors considered and relied upon by the
Silver King Board of Directors in reaching its recommendation in connection with
the HSN Merger NASD Proposal are described in "Special Factors Relating to the
HSN Transactions -- Fairness of the HSN Transactions; Recommendations -- Silver
King."
In connection with the Savoy Merger and the HSN Transactions, as well as
for general corporate purposes, including possible future financings and
acquisitions, the Board of Directors of Silver King (other than Mr. Diller, who
did not participate in the voting on such matter) has unanimously approved and
declared advisable each of the Authorized Capital Stock Amendment Proposal, the
Name Change Proposal and the Class Vote Amendment Proposal and believes that
each of the Authorized Capital Stock Amendment Proposal, the Name Change
Proposal and the Class Vote Amendment Proposal is in the best interests of
Silver King and its stockholders, and unanimously recommends that Silver King
stockholders vote for approval of such proposal. See "Authorized Capital Stock
Amendment Proposal," "Name Change Proposal" and "Class Vote Amendment Proposal."
The Silver King Board of Directors unanimously recommends that Silver King
stockholders vote for the election of each of the director nominees to the
Silver King Board. See "Election of Silver King Directors."
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Based on the recommendation of the Compensation/Benefits Committee of the
Board of Directors of Silver King (the "Compensation/Benefits Committee"), the
Silver King Board has unanimously approved the 1995 Stock Incentive Plan
Proposal, believes that such proposal is in the best interests of Silver King
and its stockholders, and unanimously recommends that Silver King stockholders
vote for approval of such proposal. The primary factors considered and relied
upon by the Compensation/Benefits Committee and the Silver King Board of
Directors in reaching the recommendation in connection with the 1995 Stock
Incentive Plan Proposal are described in "1995 Stock Incentive Plan Proposal."
Based on the recommendation of the Compensation/Benefits Committee, the
Silver King Board has unanimously approved the Directors Stock Option Plan
Proposal, believes that such proposal is in the best interests of Silver King
and its stockholders, and unanimously recommends that Silver King stockholders
vote for approval of such proposal. The primary factors considered and relied
upon by the Compensation/Benefits Committee and the Silver King Board of
Directors in reaching the recommendation in connection with the Directors Stock
Option Plan Proposal are described in "Directors Stock Option Plan Proposal."
Based on the recommendation of the Audit Committee of the Board of
Directors of Silver King, the Silver King Board of Directors unanimously
recommends that Silver King stockholders vote to ratify the appointment of Ernst
& Young LLP pursuant to the Ratification of Auditors Proposal.
Savoy Board of Directors
On November 27, 1995, the Board of Directors of Savoy, by the unanimous
vote of all directors present, approved the November Savoy Merger Agreement and
the November Savoy Merger, stated that it believed that the November Savoy
Merger was fair to and in the best interests of Savoy and its stockholders and
unanimously recommended that Savoy stockholders vote for the approval and
adoption of the November Savoy Merger Agreement and the November Savoy Merger.
See "Savoy Merger and Related Transactions -- Background -- November Savoy
Merger Agreement and TCI HSN Shares Acquisition." On August 13, 1996, the Savoy
Board, by the unanimous vote of all directors present, approved the Savoy Merger
Agreement Amendment and the Savoy Merger and stated that it believes the Savoy
Merger is fair to and in the best interests of Savoy and its stockholders and
unanimously recommends that Savoy stockholders vote for the approval and
adoption of the Savoy Merger Agreement and the Savoy Merger. The primary factors
considered and relied upon by the Savoy Board of Directors in reaching its
recommendation are referred to in "Savoy Merger and Related
Transactions -- Reasons for the Savoy Merger -- Savoy's Reasons for the Savoy
Merger."
HSN Board of Directors
On August 25, 1996, the HSN Special Committee recommended that the Board of
Directors of HSN approve the HSN Transactions. Based on this recommendation and
certain other factors, the Board of Directors of HSN (other than Mr. Diller and
representatives of Liberty who did not vote) has approved the HSN Merger
Agreement, the HSN Merger and the other HSN Transactions and has determined that
the HSN Transactions are fair to and in the best interests of HSN and its
stockholders (other than TCI and its affiliates) and recommends that HSN
stockholders vote for the approval and adoption of the HSN Merger Agreement, the
HSN Merger and the other HSN Transactions. The primary factors considered and
relied upon by the HSN Board of Directors in reaching its recommendation are
referred to in "Special Factors Relating to the HSN Transactions -- Fairness of
the HSN Transactions; Recommendations."
THE DILLER-LIBERTY STOCKHOLDERS AGREEMENT
Mr. Diller and Liberty are parties to a stockholders agreement, dated as of
August 24, 1995 (the "August Stockholders Agreement"), as amended by the first
amendment (the "First Amendment") thereto, dated as of August 25, 1996 (the
First Amendment, together with the August Stockholders Agreement, the
"Stockholders Agreement"), pursuant to which the parties thereto and certain of
their affiliates have formed BDTV, which is the holder of record of 2,000,000
shares of Silver King Class B Common Stock (representing approximately 83% of
the outstanding Silver King Class B Common Stock as of the Silver King Record
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Date). Mr. Diller is the President of BDTV and beneficially owns all of the
voting stock of BDTV. Liberty currently holds all of the non-voting common stock
of BDTV, representing in excess of 99% of the equity of BDTV, which shares are
convertible under certain circumstances into shares of BDTV voting common stock.
Pursuant to the orders issued by the Federal Communications Commission (the
"FCC") in connection with the transfer of control of Silver King to BDTV,
implementation of the terms of the First Amendment is subject to review by the
FCC. See "Risk Factors -- Regulation."
In addition to the 2,000,000 shares of Silver King Class B Common Stock
held by BDTV, Mr. Diller, Liberty and Arrow Holdings, LLC (an entity controlled
by Mr. Diller ("Arrow")) collectively hold 503,618 shares of Silver King Common
Stock (approximately 7% of the outstanding shares of Silver King Common Stock as
of the Silver King Record Date). These Silver King Securities are subject to the
terms of the Stockholders Agreement and represent in the aggregate approximately
66% of the Total Voting Power outstanding as of the Silver King Record Date. If
the Savoy Merger and the HSN Merger are consummated (and without giving effect
to any issuance of Silver King Securities pursuant to the Contingent Rights or
the Exchange Agreement or any options to acquire HSN Common Stock or options to
acquire Silver King Common Stock held by Mr. Diller), the Silver King Securities
subject to the Stockholders Agreement will represent in the aggregate
approximately 1.5% of the then-outstanding Silver King Common Stock, 22% of the
then-outstanding combined common equity of Silver King and 71% of the
then-outstanding Total Voting Power. Assuming that all Silver King Securities to
be issued to Liberty pursuant to the Contingent Rights and the Exchange
Agreement were issued (and after otherwise giving effect to the Savoy Merger and
the HSN Merger but not to any other transaction that would require Silver King
to issue additional Silver King Securities to Liberty or any HSN Options or
options to acquire Silver King Common Stock held by Mr. Diller), the Silver King
Securities subject to the Stockholders Agreement would represent in the
aggregate approximately 19% of the then-outstanding Silver King Common Stock,
37% of the then-outstanding equity of Silver King and 78% of the
then-outstanding Total Voting Power.
Pursuant to the Stockholders Agreement, Mr. Diller exercises voting control
over the Silver King Securities held by BDTV, Mr. Diller, Liberty, Arrow and
certain of their affiliates, subject to certain restrictions on Mr. Diller's
authority to vote such shares with respect to certain matters relating to Silver
King and otherwise as provided in the Stockholders Agreement under "Fundamental
Matters" (the "Extraordinary Matters"). See "Special Factors Relating to the HSN
Transactions -- Background -- Relationship between Liberty and Mr. Diller -- The
Diller-Liberty Stockholders Agreement". Pursuant to the Stockholders Agreement,
Mr. Diller and Liberty have agreed that Silver King Securities owned by any of
Mr. Diller, Liberty and certain of their affiliates will not be voted in favor
of the taking of any action in connection with Extraordinary Matters except with
the consent of each of Mr. Diller and Liberty.
Pursuant to the Stockholders Agreement, each of Mr. Diller and Liberty has
approved the taking of any action by any of Mr. Diller, BDTV or Silver King,
which action is reasonably required or necessary or appropriate to approve and
consummate the transactions (including the approval of the Silver King
Stockholder Proposals as described in this Joint Proxy Statement/Prospectus)
contemplated by the Savoy Merger Agreement and the HSN Merger Agreement
(including pursuant to the Contingent Rights and the Exchange Agreement),
provided that, with respect to the Savoy Merger, the parties to the Savoy Merger
Agreement do not enter into or permit any material amendment to or waiver or
modification of material rights or obligations thereunder without the prior
written consent of Liberty, which consent will not be unreasonably withheld. In
addition, the HSN Merger Agreement provides that it may not be amended in any
manner that affects the rights, obligations, representations and warranties of
Liberty HSN thereunder without the written consent of Liberty HSN. Pursuant to
the Stockholders Agreement, all of the Silver King Securities subject thereto
will be voted in favor of each of the Silver King Stockholder Proposals as to
which such shares are entitled to be voted.
In the Stockholders Agreement, Mr. Diller has agreed that, at any time
following the consummation of the HSN Merger that Liberty or Liberty HSN is no
longer a subsidiary of TCI (and provided that a change in law, rule or
regulation or circumstance that would permit Liberty to exercise full ownership
and control over its Silver King Securities (including its pro rata portion of
Silver King Securities held by BDTV or any similar entity that may subsequently
be created pursuant to the Stockholders Agreement to hold Silver King
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Securities (each such entity, a "BDTV Entity") represented by Liberty's equity
interest in any BDTV Entity), notwithstanding Silver King's ownership of
broadcast licenses (the "Silver King Licenses") granted by the FCC (a "Change in
Law") has not theretofore otherwise occurred), Liberty may request that Mr.
Diller and Silver King use all reasonable efforts to take such actions as may be
reasonably necessary in order that Liberty would be permitted to exercise full
ownership rights with respect to the Silver King Securities owned by it
(including its pro rata interest in any Silver King Securities held by any BDTV
Entity) (a "Restructuring Transaction"). In the event that a Restructuring
Transaction has not occurred within 365 days following Liberty's notice of its
request (or earlier, in certain circumstances) and a Change in Law has not
otherwise occurred, Liberty would be permitted, subject to certain limitations
and rights of first refusal in favor of Mr. Diller, to sell its Silver King
Securities without regard to the restrictions on transfer contained in the
Stockholders Agreement, and such transferee would purchase the Silver King
Securities free and clear of any rights (other than certain registration rights)
or obligations under the Stockholders Agreement.
The terms of the Stockholders Agreement are described more fully under
"Special Factors Relating to the HSN Transactions -- Background -- Relationship
between Liberty and Mr. Diller -- The Diller-Liberty Stockholders Agreement."
In view of the number of shares of Silver King Class B Common Stock and
Silver King Common Stock as to which BDTV or Mr. Diller will have voting power
in connection with the matters described herein, it is anticipated that such
persons will be able to control the outcome of any vote of stockholders as to
any proposal or matter on which the holders of Silver King Common Stock and
Silver King Class B Common Stock vote together as a single class (including the
Savoy Merger NASD Proposal and the HSN Merger NASD Proposal) and the outcome of
any matter as to which only the holders of Silver King Class B Common Stock vote
as a separate class. In addition, in the event that Silver King stockholders
approve the Class Vote Amendment Proposal and such amendment becomes effective
under the DGCL, Mr. Diller, subject to the terms of the Stockholders Agreement,
will effectively be able to control the outcome of all matters submitted to a
vote or for the consent of Silver King stockholders (other than with respect to
the election by the holders of Silver King Common Stock of 25% of the members of
the Silver King Board of Directors (rounded up to the nearest whole number) and
certain matters as to which a separate class vote of the holders of Silver King
Common Stock is required under the DGCL).
SAVOY MERGER AND RELATED TRANSACTIONS
General
Effects of the Savoy Merger. Upon consummation of the Savoy Merger, Savoy
will become an indirect wholly-owned subsidiary of Silver King.
Conversion of Shares. Upon consummation of the Savoy Merger, each
then-outstanding share of Savoy Common Stock (other than treasury shares and
shares owned by Silver King or its wholly-owned subsidiaries) will automatically
be converted into the right to receive 0.14 of a share of Silver King Common
Stock. No fractional shares of Silver King Common Stock will be issued in the
Savoy Merger. Cash proceeds from the sale by the exchange agent for the Savoy
Merger (the "Savoy Exchange Agent") of the excess number of full shares of
Silver King Common Stock delivered to the Savoy Exchange Agent by Silver King
(which will equal the aggregate number of shares of Silver King Common Stock
issuable to Savoy stockholders pursuant to the Savoy Merger Agreement) over the
aggregate number of full shares of Silver King Common Stock to be distributed to
holders of Savoy Common Stock pursuant to the Savoy Merger Agreement will be
paid in lieu of fractional shares. Because the Savoy Conversion Ratio is fixed,
the number of shares to be received by stockholders of Savoy upon consummation
of the Savoy Merger will remain the same, regardless of whether the market price
of Silver King Common Stock or Savoy Common Stock increases or decreases at any
time, including after the date of this Joint Proxy Statement/Prospectus and
after the dates of the Silver King Meeting and the Savoy Meeting. See "Risk
Factors -- Fixed Conversion Ratio for Savoy Merger and HSN Merger" and "Savoy
Merger and Related Transactions -- Opinions of Certain Financial Advisors."
Assumption of Savoy Options, Warrants and Convertible Securities. Upon
consummation of the Savoy Merger, each then-outstanding option to purchase Savoy
Common Stock ("Savoy Options") and each
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outstanding warrant to purchase Savoy Common Stock ("Savoy Warrants") will be
assumed by Silver King and converted into an option or warrant, as the case may
be, to acquire that number of shares of Silver King Common Stock equal to the
number of shares of Savoy Common Stock subject to such Savoy Option or Savoy
Warrant multiplied by the Savoy Conversion Ratio with an exercise price per
share of Silver King Common Stock equal to the exercise price in effect under
such Savoy Option or Savoy Warrant immediately prior to the Savoy Merger
Effective Time divided by the Savoy Conversion Ratio. To avoid fractional
shares, the number of shares of Silver King Common Stock subject to an assumed
Savoy Option or Savoy Warrant will be rounded up to the nearest whole share. The
other terms of the Savoy Options, including vesting schedules, and of the Savoy
Warrants will remain unchanged, except that such options will be amended to
provide that provisions requiring the exercise (or termination) of Savoy Options
within 90 days following, among other things, a merger of Savoy, will not be
applicable to the Savoy Merger. Silver King will file a registration statement
on Form S-8 with the Commission with respect to the issuance of Silver King
Common Stock upon exercise of the assumed Savoy Options. As of the November 1,
1996, Savoy Options to acquire an aggregate of 1,200,145 shares of Savoy Common
Stock were issued and outstanding at exercise prices ranging from $3.92 to
$20.75 per share and Savoy Warrants to purchase 550,000 shares of Savoy Common
Stock were outstanding at exercise prices ranging from $12.00 (300,000 shares)
to $25.00 (250,000 shares) per share. After giving effect to the Savoy Merger,
the Savoy Options would be convertible into an aggregate of 168,020 shares of
Silver King Common Stock at exercise prices ranging from $28.00 to $148.21 per
share and the Savoy Warrants would be convertible into an aggregate of 77,000
shares of Silver King Common Stock at exercise prices ranging from $85.71
(42,000 shares) to $178.57 (35,000 shares) per share.
Upon consummation of the Savoy Merger, the Savoy Debentures and a certain
convertible note of Savoy (the "Savoy Note") will become convertible into that
number of shares of Silver King Common Stock that the holders of the Savoy
Debentures and the Savoy Note would have been entitled to receive in the Savoy
Merger had the Savoy Debentures and the Savoy Note been converted into Savoy
Common Stock immediately prior to the Savoy Merger Effective Time. As a result,
after giving effect to the Savoy Merger, the Savoy Note will be convertible into
approximately 134,615 shares of Silver King Common Stock. Pursuant to the Savoy
Merger Agreement, Silver King will, pursuant to a supplemental indenture to the
Savoy Indenture, become jointly liable with respect to, or otherwise guarantee
the obligations of Savoy under, the Savoy Indenture.
Interests of Certain Persons in the Savoy Merger
Assuming approval at the Silver King Meeting of the 1995 Stock Incentive
Plan Proposal, upon consummation of the Savoy Merger and the HSN Merger, the
conditions in the grant to Mr. Diller of certain additional options to purchase
shares of Silver King Common Stock at an exercise price of $30.75 per share
pursuant to the 1995 Stock Incentive Plan will have been satisfied. In the event
that the Savoy Merger is consummated and the HSN Merger is not consummated, Mr.
Diller has been granted options to purchase 221,625 shares of Silver King Common
Stock. If both the Savoy Merger and the HSN Merger are consummated, Mr. Diller
has been granted options to purchase 625,000 shares of Silver King Common Stock.
See "1995 Stock Incentive Plan Proposal -- New Plan Benefits -- The Stock Option
Agreement; Other Option Grants."
Upon consummation of the Savoy Merger, 500,000 shares of restricted Savoy
Common Stock awarded to two of Savoy's senior executive officers will become
fully vested and the restrictions on such stock will lapse. See "Savoy Merger
and Related Transactions -- General -- Assumption of Options and Warrants;
Restricted Stock; Savoy Debentures; Savoy Note."
Upon consummation of the Savoy Merger, it is contemplated that Mr. Kaufman
would become employed by Silver King as an executive officer serving in the
Office of the Chairman and would receive, in connection therewith, an annual
salary of $500,000 and, subject to his becoming so employed and to Silver King
stockholder approval of the 1995 Stock Incentive Plan Proposal, options to
purchase 100,000 shares of Silver King Common Stock at an exercise price of
$25.25 per share, the market value based on the closing price of such shares on
the date of grant (which options are also subject to a vesting schedule and are
not currently vested). Silver King has also agreed with Mr. Kaufman that options
to purchase shares of Silver King
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Common Stock owned by him as of the time of commencement of his employment with
Silver King or acquired prior to the termination of his employment with Silver
King (including his currently owned options to purchase 100,000 shares of HSN
Common Stock, which, pursuant to the HSN Merger Agreement, would be converted
into options to purchase shares of Silver King Common Stock in the HSN Merger)
would become fully vested in the event that Silver King terminates Mr. Kaufman's
employment without cause. See "Savoy Merger and Related
Transactions -- Interests of Certain Persons in the Savoy Merger."
Representations and Warranties; Covenants
In the Savoy Merger Agreement, Silver King and Savoy made a number of
representations regarding their respective capital structures, operations,
financial condition and other matters and agreed to take certain actions in
connection with the Savoy Merger. The correctness of these representations and
warranties at the closing date of the Savoy Merger is a condition to the
consummation of the Savoy Merger, provided that, pursuant to the Savoy Merger
Agreement Amendment, (i) the representations and warranties regarding Savoy's
legal and contractual compliance exclude certain matters set forth in the Savoy
Merger Agreement Amendment (including the financial performance of the Savoy
Stations and of any Savoy films under development, production or distribution)
and the proximate consequences thereof; and (ii) the representations and
warranties regarding undisclosed liabilities and the absence of certain changes
or events, as they relate to the operations of Savoy's business in the ordinary
course, (a) cover only the period from August 13, 1996 to the closing date of
the Savoy Merger, (b) exclude certain matters set forth in the Savoy Merger
Agreement Amendment (including the financial performance of the Savoy Stations
and of any Savoy films under development, production or distribution), and (c)
must be true and correct (without reference to any materiality standard) except
to the extent their failure to be so true and correct would not significantly
impair, or could reasonably be expected to significantly impair, the long-term
value of Savoy (it being understood that this standard is very substantially in
excess of a material adverse effect). See "Savoy Merger and Related Transactions
- -- Savoy Merger Agreement -- Representations and Warranties; Covenants."
Savoy has agreed that it will not, directly or indirectly, solicit or
encourage (including by furnishing nonpublic information) or take other action
to facilitate any inquiries or the making of any offer to acquire all or any
substantial part of the business and properties or capital stock of Savoy and
its subsidiaries, subject to certain exceptions relating to the fiduciary duties
of the Savoy directors. Savoy has also agreed, in certain circumstances relating
to termination of the Savoy Merger Agreement, to pay to Silver King a breakup
fee of $7.5 million (the "Breakup Fee"). Notwithstanding the foregoing, the
Savoy Board of Directors, in the exercise of and as required by its fiduciary
duties as determined in good faith by the Savoy Board of Directors, may (i)
furnish information (including confidential information) concerning Savoy to a
third party who makes an unsolicited request for such information for the
purpose of making an Acquisition Proposal (as defined herein) and (ii) engage in
discussion or negotiations with a third party who submits in writing an interest
in making an Acquisition Proposal that the Savoy Board of Directors believes is
reasonably capable of being consummated; provided that, in either case, Savoy
notifies Silver King in writing of such request for information or Acquisition
Proposal and keeps Silver King informed as to the status of any such discussions
or negotiations.
Silver King has agreed, if the Savoy Merger is consummated, to cause the
surviving corporation of the Savoy Merger (the "Savoy Surviving Corporation") to
fulfill all employment, severance, termination, consulting and retirement
agreements, as in effect on November 27, 1995, pursuant to the terms thereof and
applicable law. In addition, Silver King has agreed, if the Savoy Merger is
consummated, to (i) assume all of the obligations under Savoy's existing
indemnification agreements with directors and officers of Savoy as such
agreements relate to the indemnification of such persons for expenses and
liabilities arising from facts or events which occurred on or before the Savoy
Merger Effective Time, (ii) include in the bylaws of the Savoy Surviving
Corporation provisions identical to those set forth in Article VI of the bylaws
of Savoy (the "Savoy Bylaws") as in effect on December 31, 1994, which
provisions and Article Eighth of the Savoy Certificate of Incorporation (the
"Savoy Certificate") as in effect as of November 27, 1995 will not be amended,
repealed or otherwise modified for a period of six years from the Savoy Merger
Effective Time in any manner that would adversely affect the rights on or prior
to the Savoy Merger Effective Time of individuals who at the Savoy
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Merger Effective Time were directors, officers, agents or employees of Savoy,
and (iii) except as otherwise agreed by the Executive Committee of the Savoy
Board of Directors, cause the Savoy Surviving Corporation to purchase insurance
coverage for the benefit of Savoy's existing officers and directors who are
currently covered by Savoy's officers' and directors' liability insurance, which
coverage will continue for up to three years following the Savoy Merger
Effective Time and be on terms (to the extent commercially obtainable)
substantially similar to Savoy's policies in respect of actions or omissions by
such individuals occurring prior to the Savoy Merger Effective Time, provided
that the Savoy Surviving Corporation shall not be obligated to pay aggregate
premiums for the three-year period in excess of $750,000 for such coverage. See
"Savoy Merger and Related Transactions -- Interests of Certain Persons in the
Savoy Merger -- Savoy -- Indemnification and Insurance" and "-- Savoy Merger
Agreement -- Representations and Warranties; Covenants."
Conditions to the Savoy Merger; Savoy FCC Approvals
In addition to the requirement that the Silver King stockholders approve
the issuance of Silver King Common Stock in the Savoy Merger and that the Savoy
stockholders approve and adopt the Savoy Merger Agreement, consummation of the
Savoy Merger is subject to receipt of the approvals of the FCC in connection
with the transfer of control of Savoy (the "Savoy FCC Approvals") and to a
number of other conditions which, if not satisfied or waived, could cause the
Savoy Merger not to be consummated and the Savoy Merger Agreement to be
terminated. The parties received the Savoy FCC Approvals on August 16, 1996,
which became final on October 2, 1996. See "Savoy Merger and Related
Transactions -- Savoy Merger Agreement -- Conditions to the Savoy Merger."
Voting Agreements
At the time that the November Savoy Merger Agreement was entered into,
certain officers, directors and significant stockholders of Savoy, who
collectively owned approximately 29% of the outstanding Savoy Common Stock as of
the Savoy Record Date, entered into an agreement with Silver King that they will
vote such shares in favor of the Savoy Stockholder Proposal and against any
alternative proposal (the "Savoy Stockholder Voting Agreement"). In connection
with the Savoy Merger Agreement Amendment, such officers, directors and
significant shareholders affirmed the obligations contained in the Savoy
Stockholder Voting Agreement. In addition, Mr. Diller, Arrow, Liberty and BDTV,
who collectively owned approximately 7% of the outstanding Silver King Common
Stock and 83% of the outstanding Silver King Class B Common Stock as of the
Silver King Record Date (which collectively represent approximately 66% of the
Total Voting Power outstanding as of such date), entered into an agreement with
Savoy that they will vote such shares in favor of the issuance of Silver King
Common Stock pursuant to the Savoy Merger (the "Silver King Stockholder Voting
Agreement"). Accordingly, approval of the Savoy Merger NASD Proposal is assured.
In connection with the Savoy Merger Agreement Amendment, Mr. Diller, Arrow,
Liberty and BDTV affirmed the obligations contained in the Silver King
Stockholder Voting Agreement. See "Savoy Merger and Related
Transactions -- Related Agreements -- Stockholder Voting Agreements."
Restrictions on Resale of Silver King Common Stock
The shares of Silver King Common Stock issuable to stockholders of Savoy
upon consummation of the Savoy Merger have been registered under the Securities
Act. Such shares may be traded freely without restriction by those stockholders
who are not deemed to be "affiliates," as that term is defined in the rules
under the Securities Act, of Savoy or Silver King. Shares of Silver King Common
Stock received by those stockholders of Savoy who are deemed to be affiliates of
Savoy may be resold without registration under the Securities Act only as
permitted by Rule 145 under the Securities Act or as otherwise permitted under
the Securities Act. See "Savoy Merger and Related Transactions --Affiliates'
Restrictions on Resale of Silver King Common Stock."
Amendment or Termination of the Savoy Merger Agreement; Breakup Fee
The Savoy Merger Agreement may be amended by the parties at any time before
or after approval and adoption of the Savoy Merger Agreement by Silver King and
Savoy stockholders; but, after any such
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stockholder approval has been obtained, no amendment may be made that by law
requires the further approval of such stockholders without obtaining such
further approval. Pursuant to the HSN Merger Agreement, consummation of the HSN
Merger is conditioned upon consummation of the Savoy Merger. Pursuant to the
Stockholders Agreement, Mr. Diller has agreed with Liberty that he will not
permit any material amendment to or waiver or modification of material rights or
obligations under the Savoy Merger Agreement without the prior written consent
of Liberty, which consent shall not be unreasonably withheld. The Savoy Merger
Agreement provides for the payment by Savoy of the Breakup Fee to Silver King
under certain circumstances. See "Savoy Merger and Related Transactions -- Savoy
Merger Agreement -- Amendment or Termination of the Savoy Merger Agreement;
Breakup Fee."
Certain Federal Income Tax Consequences
The Savoy Merger will constitute a taxable exchange for federal income tax
purposes. A Savoy stockholder will recognize gain or loss equal to the
difference between (i) the fair market value of Silver King Common Stock and any
cash in lieu of fractional shares received in the Savoy Merger and (ii) the
stockholder's basis in the Savoy Common Stock exchanged therefor. Savoy
stockholders are urged to consult their own tax advisors as to the tax
consequences of the Savoy Merger. See "Savoy Merger and Related
Transactions -- Certain Federal Income Tax Matters."
Accounting Treatment
The Savoy Merger is intended to be treated as a purchase for accounting
purposes in accordance with Accounting Principles Board Opinion No. 16,
"Business Combinations," as amended. See "Savoy Merger and Related
Transactions -- Accounting Treatment."
No Dissenters' Rights
Both Silver King and Savoy are incorporated in the State of Delaware, and,
accordingly, are governed by the provisions of the DGCL. Pursuant to Section
262(b)(1) of the DGCL, the stockholders of Savoy are not entitled to appraisal
rights in connection with the Savoy Merger because Savoy Common Stock is quoted
on the Nasdaq National Market and such stockholders will receive as
consideration in the Savoy Merger only shares of Silver King Common Stock, which
shares will be listed on the Nasdaq National Market upon the closing of the
Savoy Merger, and cash in lieu of fractional shares. In addition, the Silver
King stockholders are not entitled to appraisal rights under Section 262 of the
DGCL because, even though approval of such stockholders is required for the
issuance of Silver King Common Stock in the Savoy Merger pursuant to NASD rules,
Silver King is not a constituent corporation in the Savoy Merger itself.
Comparison of Rights of Stockholders
Upon consummation of the Savoy Merger, holders of Savoy Common Stock will
become holders of Silver King Common Stock. As a result, their rights as
stockholders, which are now governed by Delaware corporate law and the Savoy
Certificate and Savoy Bylaws, will be governed by Delaware corporate law and the
Silver King Certificate and the Silver King bylaws (the "Silver King Bylaws").
Because of certain differences between the provisions of the Savoy Certificate
and the Savoy Bylaws and those of Silver King (including, without limitation,
the existence of the Silver King Class B Common Stock which provides the holders
thereof with the right to ten votes per share under most circumstances), the
rights of Savoy stockholders as stockholders of Silver King after the Savoy
Merger will be different from the rights of Savoy stockholders before the Savoy
Merger. For a discussion of various differences between the rights of
stockholders of Savoy and the rights of stockholders of Silver King, see
"Comparison of Rights of Stockholders of Silver King, Savoy and HSN." For a
discussion of the Stockholders Agreement, pursuant to which Mr. Diller and, in
limited circumstances, Liberty will continue to control the outcome of most
matters submitted to the Silver King stockholders, and will otherwise control
the Silver King Board of Directors, see "Special Factors Relating to the HSN
Transactions -- Background -- Relationship between Liberty and Mr. Diller -- The
Diller-Liberty Stockholders Agreement."
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HSN MERGER AND RELATED TRANSACTIONS
General
Effects of the HSN Merger. Pursuant to the HSN Merger Agreement, House
will merge into HSN. HSN will be the surviving corporation; and Silver King will
own at least 80.1% of the voting power and equity of the HSN Surviving
Corporation and Liberty HSN will own not more than 19.9% of the voting power and
equity of the HSN Surviving Corporation.
Pre-HSN Merger Exchange. Pursuant to the HSN Merger Agreement, immediately
prior to the HSN Merger Effective Time, 17,566,702 shares (subject to adjustment
in certain circumstances) of HSN Common Stock held by Liberty HSN, which shares
constitute all of the HSN Common Stock held by Liberty and its affiliates, will
be exchanged for an equal number of shares of House Common Stock, and 739,141
shares (subject to adjustment in certain circumstances) of the 20,000,000 shares
of HSN Class B Common Stock held by Liberty HSN, which 20,000,000 shares
represent all of the outstanding HSN Class B Common Stock, will be exchanged for
an equal number of shares of House Class B Common Stock.
Conversion of Shares. Upon consummation of the HSN Merger, (i) each
outstanding share of HSN Common Stock (except for treasury shares and shares
held by HSN or House following the Pre-HSN Merger Exchange, which will be
cancelled) will be converted at the HSN Common Conversion Ratio into the right
to receive 0.45 of a share of Silver King Common Stock; (ii) each outstanding
share of HSN Class B Common Stock (except for shares held by HSN or House
following the Pre-HSN Merger Exchange, which will be cancelled) will be
converted at the HSN Class B Conversion Ratio into the right to receive 0.54 of
a share of Silver King Class B Common Stock, a portion of which (up to 2,644,299
shares (subject to adjustment)), will not be issued at the time of the HSN
Merger but will instead be represented by Silver King's contractual obligation
to issue such shares upon the occurrence of certain events, and (iii) each
outstanding share of House Common Stock and House Class B Common Stock,
including those received by Liberty HSN in the Pre-HSN Merger Exchange, will be
converted into, respectively, one share of HSN Surviving Corporation Common
Stock or one share of HSN Surviving Corporation Class B Common Stock, as the
case may be.
No fractional shares of Silver King Common Stock will be issued in the HSN
Merger. Cash proceeds from the sale by the exchange agent for the HSN Merger
(the "HSN Exchange Agent") of the excess number of full shares of Silver King
Common Stock delivered to the HSN Exchange Agent by Silver King (which will
equal the aggregate number of shares of Silver King Common Stock issuable to HSN
stockholders (other than Liberty and its controlled affiliates) pursuant to the
HSN Merger Agreement) over the aggregate number of full shares of Silver King
Common Stock to be distributed to holders of HSN Common Stock (other than
Liberty and its controlled affiliates) pursuant to the HSN Merger Agreement will
be paid in lieu of fractional shares. Because the HSN Common Conversion Ratio is
fixed, the number of shares to be received by stockholders of HSN upon
consummation of the HSN Merger will remain the same, regardless of whether the
market price of Silver King Common Stock or HSN Common Stock increases or
decreases prior to the HSN Merger, including after the date of this Joint Proxy
Statement/Prospectus and after the dates of the Silver King Meeting and the HSN
Meeting. See "Risk Factors -- Fixed Conversion Ratio for Savoy Merger and HSN
Merger" and "Special Factors Relating to the HSN Transactions -- Opinions of
Certain Financial Advisors."
Assumption of HSN Options; HSN Debentures. Upon consummation of the HSN
Merger, each then outstanding option to purchase HSN Common Stock ("HSN
Options") will be assumed by Silver King and converted into an option to acquire
that number of shares of Silver King Common Stock equal to the number of shares
of HSN Common Stock subject to such HSN Option multiplied by the HSN Common
Conversion Ratio with an exercise price per share of Silver King Common Stock
equal to the exercise price in effect under such HSN Option immediately prior to
the HSN Merger Effective Time divided by the HSN Common Conversion Ratio. To
avoid fractional shares, the number of shares of Silver King Common Stock
subject to an assumed HSN Option will be rounded up to the nearest whole share.
The other terms of the HSN Options, including vesting schedules, will remain
unchanged. Silver King will file a Registration Statement on Form S-8 with the
Commission with respect to the issuance of Silver King Common Stock upon
exercise of the assumed HSN Options. As of the HSN Record Date, HSN Options to
acquire an aggregate of 18,815,810
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shares of HSN Common Stock were issued and outstanding at exercise prices
ranging from $3.25 to $14.75 per share.
Pursuant to the HSN Indenture and the HSN Merger Agreement, upon
consummation of the HSN Merger, the HSN Debentures will become convertible into
that number of shares of Silver King Common Stock that the holders of the HSN
Debentures would have been entitled to receive in the HSN Merger had the HSN
Debentures been converted into HSN Common Stock immediately prior to the HSN
Merger Effective Time. Pursuant to the HSN Merger Agreement, Silver King expects
that it will become jointly liable with respect to the obligations of HSN by
entering into a supplemental indenture to the HSN Indenture and will take
appropriate actions to provide that resales of the HSN Debentures by the
beneficial owners thereof will be registered under the Securities Act.
Although consummation of the Savoy Merger is a condition to the parties'
obligations pursuant to the HSN Merger Agreement, the Savoy Merger and the HSN
Transactions are generally independent transactions, and it is possible that
only the Savoy Merger will be consummated or that the Savoy Merger and the HSN
Transactions both will be consummated but not at the same time.
For a description of the HSN Merger Agreement, including certain
representations and warranties of the parties thereto and conditions to the
parties' obligations therein, see "HSN Merger Agreement and Related Transaction
Agreements -- HSN Merger Agreement."
The Contingent Rights
TCI, directly or through its subsidiaries and affiliates, owns cable
television systems serving communities located within certain of the markets
served by the Silver King Stations. The FCC concluded in the June 14 MO&O (as
defined herein) that TCI's beneficial ownership of Silver King Securities
through its ownership of convertible non-voting common stock of BDTV, as
augmented by an imputed 50% "control" premium, is subject to the FCC's
"cross-interest" policy, which, in certain limited circumstances, may be applied
to prohibit the common ownership of a cable system and a greater than
approximately 33.3% non-voting equity interest in a broadcast television station
serving substantially the same area. See "Risk Factors -- Regulation." In order
to comply with such regulatory restrictions on TCI's maximum beneficial
ownership of Silver King Securities while at the same time allowing Silver King
to own at least 80.1% of the voting power and equity of HSN, upon consummation
of the HSN Merger, Silver King will not issue, and Liberty HSN will not receive,
all of the shares of Silver King Class B Common Stock that otherwise would be
issuable to Liberty HSN in exchange for the 19,260,859 shares of HSN Class B
Common Stock to be owned by Liberty HSN at the time of the HSN Merger (after
giving effect to the Pre-HSN Merger Exchange). See "Risk Factors -- Regulation."
Thus, instead of receiving 10,400,863 shares of Silver King Class B Common Stock
in exchange therefor pursuant to the HSN Class B Common Conversion Ratio, at the
time of the consummation of the HSN Merger, Liberty HSN will receive 7,756,564
shares of Silver King Class B Common Stock and the Contingent Rights to receive,
subject to the satisfaction of certain conditions, the additional 2,644,299
shares. Both the number of shares of Silver King Class B Common Stock issuable
to Liberty HSN upon the HSN Merger and the number of Contingent Rights Shares
are subject to adjustment prior to the HSN Merger to allow Liberty HSN to
receive at the HSN Merger Effective Time as many shares of Silver King Class B
Common Stock as is permissible under the FCC Orders (as defined herein) and,
accordingly, as few Contingent Rights Shares as required under applicable law.
Silver King's obligation to issue the Contingent Rights Shares will expire
upon the fifth anniversary of the HSN Merger Effective Time. Subsequent to the
HSN Merger Effective Time, at such time and from time to time prior to the fifth
anniversary thereof as Liberty HSN can own additional Silver King Securities
(due to, among other things, a change in applicable FCC Regulations (as defined
in the HSN Merger Agreement, the "FCC Regulations") or to the issuance to third
parties (other than shares issued pursuant to the Exchange Agreement) by Silver
King of stock (including upon the exercise of options or the conversion of
convertible securities) that would reduce Liberty HSN's then-current percentage
ownership of Silver King), Silver King will issue to Liberty HSN that number of
Contingent Rights Shares as Liberty HSN will then be able to hold in accordance
with applicable law. If, on the third anniversary of the HSN Merger Effective
Time, there
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remain Contingent Rights Shares that have not been issued to Liberty HSN due
solely to the failure to obtain or receive a required approval, consent or
waiver from the FCC, then, on and after such date and until there are no
remaining Contingent Rights Shares issuable, Liberty HSN will have the right to
apply to the FCC for such consent or approval as may be necessary to permit the
issuance to it of some or all of such remaining Contingent Rights Shares for the
purpose of the disposition of such securities by Liberty HSN in an orderly
manner (the "FCC Issuance Approval"). Upon receipt of the FCC Issuance Approval,
Silver King will issue to Liberty HSN the number of Contingent Rights Shares for
which approval has been granted plus an additional number of shares of Silver
King Class B Common Stock such that after the taxable sale of all such shares so
issued, would yield for Liberty HSN the net after-tax proceeds equal to the
total fair market value of such Contingent Rights Shares as of the date of
receipt of such shares. The total number of shares of Silver King Class B Common
Stock so issued will be subject to any limitations imposed by the FCC Issuance
Approval. See "HSN Merger Agreement and Related Transaction Agreements -- HSN
Merger Agreement -- Contingent Rights."
The Exchange
Pursuant to the Exchange Agreement, subsequent to the HSN Merger and, in
the case of Liberty HSN, after Silver King has issued all of the Contingent
Rights Shares or otherwise is no longer obligated to issue any Contingent Rights
Shares, at such time as Liberty HSN or its permitted transferee under the
Stockholders Agreement can own additional Silver King Securities (due, in the
case of Liberty HSN, to, among other things, a change in applicable FCC
Regulations or to the issuance to third parties by Silver King of stock
(including upon the exercise of options or the conversion of convertible
securities) that would reduce Liberty HSN's then-current percentage ownership of
Silver King), Liberty HSN or its permitted transferee will be obligated, subject
to certain conditions, to exchange its shares of HSN Surviving Corporation
Common Stock or HSN Surviving Corporation Class B Common Stock, as the case may
be, for shares of Silver King Common Stock at the HSN Common Conversion Ratio
and Silver King Class B Common Stock at the HSN Class B Conversion Ratio,
respectively, to the extent so permitted. See "HSN Merger Agreement and Related
Transaction Agreements -- HSN Merger Agreement -- Terms of Exchange Agreement."
Representations and Warranties; Covenants
In the HSN Merger Agreement, each of Silver King and HSN has made a number
of representations regarding its respective capital structure, operations,
financial condition and other matters, and agreed to take certain actions in
connection with the HSN Merger. Liberty HSN also made a number of
representations regarding, among other things, its ownership of shares of HSN
Common Stock and HSN Class B Common Stock.
In addition, Silver King has agreed, if the HSN Merger is consummated, to
assume all of the obligations under HSN's existing indemnification agreements
with directors and officers of HSN, as such agreements relate to the
indemnification of such persons for expenses and liabilities arising from facts
or events which occurred on or before the HSN Merger Effective Time or relating
to the HSN Transactions; and, in any event, to provide to the current directors
and officers of HSN the maximum indemnification protection permitted under the
DGCL, the HSN Certificate and the Bylaws of HSN (the "HSN Bylaws"). See "Special
Factors Relating to the HSN Transactions -- Interests of Certain Persons in the
HSN Transactions; Conflicts of Interest -- Indemnification of HSN Directors and
Officers Pursuant to the HSN Merger Agreement" and " -- Employment
Arrangements," and "HSN Merger Agreement and Related Transaction Agreements --
HSN Merger Agreement -- Representations and Warranties; Covenants."
Each of the parties to the HSN Merger Agreement has also agreed thereunder
to vigorously defend against all actions, suits or proceedings in which such
party is named as a defendant which seek to enjoin, restrain or prohibit the HSN
Transactions or to seek damages with respect to such transactions. In addition,
each party agreed not to settle any such action, suit or proceeding or fail to
perfect on a timely basis any right to appeal any judgment rendered or order
entered against such party therein without the consent of the other parties. See
"HSN Merger Agreement and Related Transaction Agreements -- HSN Merger
Agreement -- Representations and Warranties; Covenants."
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Pursuant to the HSN Merger Agreement, Silver King has agreed that, promptly
following the HSN Merger Effective Time, in accordance with applicable law and
the Silver King Certificate and Silver King Bylaws, three members of the HSN
Board of Directors who are legally permitted to serve as members of the Silver
King Board will become members of the Silver King Board. The three members of
the HSN Board of Directors currently expected to serve as directors of Silver
King following consummation of the HSN Merger are James G. Held, General H.
Norman Schwarzkopf and Eli J. Segal. See "Election of Silver King
Directors -- Information Regarding Directors, Nominees for Election as Directors
and Certain Contemplated Directors."
FCC Approval
In addition to the requirement that the Silver King stockholders approve
the issuance of Silver King Common Stock in the HSN Transactions and that the
HSN stockholders approve and adopt the HSN Merger Agreement and the HSN
Transactions, consummation of the HSN Transactions is conditioned upon, among
other things, favorable review by, or, to the extent required, receipt of
approval of, the FCC in connection with the HSN Transactions (including the
contemplated amendments to the Stockholders Agreement contained in the First
Amendment), the absence of additional restrictions or limitations in such
approval or review, if any, on Silver King, Liberty or any affiliate of Liberty
in the ownership of their respective assets or the operation of their respective
businesses, and the absence of any order by the FCC requiring any changes to the
Stockholders Agreement or the HSN Transactions (the "HSN FCC Approval"). In
addition, consummation of the HSN Merger is conditioned upon consummation of the
Savoy Merger. See "Risk Factors -- Regulation" and "-- Uncertainty of Pending
Transactions" and "HSN Merger Agreement and Related Transaction
Agreements -- HSN Merger Agreement -- Governmental Approvals."
On October 30, 1996, the FCC issued a public notice of the filing of
applications for FCC approval of the transfer of control of certain satellite
earth stations from Liberty HSN to Silver King. Interested parties have a 30-day
period, ending on November 29, 1996, in which to file timely petitions to deny
the applications, after which date, in the absence of any such petitions, the
applications will be grantable by the FCC. Although no additional formal FCC
approval of the HSN Transactions is required, pursuant to the FCC Orders, on
September 30, 1996, Silver King submitted to the FCC the First Amendment, the
HSN Merger Agreement and certain other documents related to the HSN Transactions
for review by the FCC. In informal conversations prior to the September 30
filing, the FCC staff indicated to Silver King that it expected to be able to
complete its review of the documents within 30 days of their submission, and
Silver King advised the FCC in its filing that it was proceeding under the
assumption that it would receive FCC comments, if any, within such 30-day
period. The FCC has not responded to Silver King's submission.
Voting Agreements
At the time that the HSN Merger Agreement was entered into, Liberty,
Liberty HSN and certain of its affiliates, who collectively owned approximately
24% of the outstanding HSN Common Stock and 100% of the outstanding HSN Class B
Common Stock as of the HSN Record Date, entered into an agreement with Silver
King providing that they will vote such shares in favor of the HSN Stockholder
Proposal and against any alternative proposal (the "HSN Stockholder Voting
Agreement"). Such shares represent approximately 80% of the combined voting
power of the HSN Common Stock and HSN Class B Common Stock. Accordingly,
approval of the HSN Merger by the holders of HSN Common Stock and HSN Class B
Common Stock is assured. The HSN Merger Agreement, however, also requires
approval of the holders of HSN Common Stock (other than Liberty and its
affiliates) voting in person or by proxy at the HSN Meeting, which approval is
not assured. In addition, Mr. Diller, Arrow, Liberty and BDTV, who collectively
owned approximately 7% of the outstanding Silver King Common Stock and 83% of
the outstanding Silver King Class B Common Stock as of the Silver King Record
Date (which collectively represent approximately 66% of the Total Voting Power
outstanding as of such date), entered into an agreement with HSN providing that
they will vote such shares in favor of the issuance of Silver King Common Stock
pursuant to the HSN Transactions and any other related matter to be voted upon
by Silver King stockholders (the "Second Silver King Stockholder Voting
Agreement"). See "HSN Merger Agreement and Related Transaction
Agreements -- Related Agreements -- Stockholder Voting Agreements."
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Restrictions on Resale of Silver King Common Stock
The shares of Silver King Common Stock issuable to stockholders of HSN upon
consummation of the HSN Merger have been registered under the Securities Act.
Such shares may be traded freely without restriction by those stockholders who
are not deemed to be "affiliates," as that term is defined in the rules under
the Securities Act, of HSN or Silver King. Shares of Silver King Common Stock
received by those stockholders of HSN who are deemed to be affiliates of HSN
(including Liberty and its affiliates) may be resold without registration under
the Securities Act only as permitted by Rule 145 under the Securities Act or as
otherwise permitted under the Securities Act. See "HSN Merger Agreement and
Related Transaction Agreements -- Affiliates' Restrictions on Resale of Silver
King Common Stock."
Amendment or Termination of the HSN Merger Agreement
The HSN Merger Agreement may be amended by agreement among Silver King, HSN
and House (but, in the case of HSN, only upon recommendation by the HSN Special
Committee), at any time before or after approval of the HSN Merger by Silver
King and HSN stockholders; but, after any such stockholder approval has been
obtained, no amendment may be made that by law requires the further approval of
such stockholders without obtaining such further approval. In addition, no
amendment to the HSN Merger Agreement may be made which affects the rights,
obligations, representations or warranties of Liberty HSN without the consent of
Liberty HSN. See "HSN Merger Agreement and Related Transaction Agreements -- HSN
Merger Agreement -- Amendment or Termination of the HSN Merger Agreement."
Certain Federal Income Tax Consequences
It is intended that the HSN Merger and the issuance of the Contingent
Rights Shares will constitute a tax-free transaction for federal income tax
purposes as described in Section 368 of the Internal Revenue Code of 1986, as
amended (the "Code"), and, accordingly, that except as otherwise noted in
"Special Factors Relating to the HSN Transactions -- Certain Federal Income Tax
Consequences of the HSN Transactions," no income, gain or loss will be
recognized by any HSN stockholders upon the conversion of their shares of HSN
Common Stock into shares of Silver King Common Stock by reason of the HSN
Merger. No ruling from the IRS has been sought or received.
Accounting Treatment of the HSN Merger
In accordance with generally accepted accounting principles, the HSN Merger
will be accounted for in accordance with Accounting Principles Board Opinion No.
16, "Business Combinations," as amended. Although the former stockholders of HSN
will own Silver King Securities representing approximately 70.2% of the
outstanding equity after the transactions, BDTV and Mr. Diller, who have voting
and management control of Silver King prior to the Combined Transaction, will
continue to have voting and management control of Silver King after the Combined
Transaction. The voting and management control of Silver King by BDTV and Mr.
Diller is a result of the Stockholders Agreement between Liberty and Mr. Diller,
which effectively gives Mr. Diller voting rights over all shares of Silver King
Securities owned by Liberty. Accordingly, the transaction has been accounted for
as a purchase of HSN by Silver King.
No Dissenters' Rights
Both Silver King and HSN are incorporated in the State of Delaware, and,
accordingly, are governed by the provisions of the DGCL. Pursuant to Section
262(b)(1) of the DGCL, the holders of HSN Common Stock are not entitled to
appraisal rights in connection with the HSN Merger because HSN Common Stock is
listed on the NYSE and such stockholders will receive as consideration in the
HSN Merger only shares of Silver King Common Stock, which shares will be listed
on the Nasdaq National Market upon the closing of the HSN Merger, and cash in
lieu of fractional shares. In addition, Silver King stockholders are not
entitled to appraisal rights under Section 262 of the DGCL because, even though
approval of such stockholders is required for the issuance of Silver King Common
Stock in the HSN Transactions pursuant to NASD rules, Silver King is not a
constituent corporation in the HSN Merger itself.
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Comparison of Rights of Stockholders
Upon consummation of the HSN Merger, holders of HSN Common Stock at the
time of the HSN Merger will become holders of Silver King Common Stock. As a
result, their rights as stockholders, which are now governed by DGCL and the HSN
Certificate and the HSN Bylaws, will be governed by DGCL and the Silver King
Certificate and Silver King Bylaws. Because of certain differences between the
provisions of the HSN Certificate and the HSN Bylaws and those of Silver King
(including, without limitation, certain differences between the voting rights of
the Silver King Class B Common Stock and the HSN Class B Common Stock relating
to number of shares of Silver King Class B Common Stock or HSN Class B Common
Stock, as the case may be, that must be outstanding to entitle the holders of
the Silver King Common Stock and the HSN Common Stock to separate class votes),
the rights of HSN stockholders as stockholders of Silver King after the HSN
Merger will be different from the rights of HSN stockholders before the HSN
Merger. If the Class Vote Amendment Proposal is approved, holders of Silver King
Common Stock and Silver King Class B Common Stock will only be entitled to
separate class votes (i) when required under the DGCL or (ii) in the case of the
Silver King Common Stock, to elect 25% of the Silver King directors. For a
discussion of various differences between the rights of stockholders of HSN and
the rights of stockholders of Silver King, see "Comparison of Rights of
Stockholders of Silver King, Savoy and HSN." For a discussion of the
Stockholders Agreement, pursuant to which Mr. Diller, and, in limited
circumstances, Liberty, will continue to control the outcome of most matters
submitted to the Silver King stockholders, and will otherwise control the Silver
King Board of Directors, see "Special Factors Relating to the HSN
Transactions -- Background -- Relationship between Liberty and Mr. Diller -- The
Diller-Liberty Stockholders Agreement."
Related Agreements; Interests of Certain Persons in the HSN Merger
Liberty HSN is an indirect wholly-owned subsidiary of Liberty, which, in
turn, is a wholly-owned subsidiary of TCI. Liberty and Mr. Diller are parties to
the Stockholders Agreement, pursuant to which Mr. Diller exercises voting
control over the equity securities of Silver King held by such persons and
certain of their affiliates (which shares represent approximately 66% of the
Total Voting Power of the outstanding Silver King Securities as of the Silver
King Record Date), subject to certain exceptions. See "Savoy Merger and Related
Transactions -- Interests of Certain Persons in the Savoy Merger -- Silver King"
and "-- Interests in Silver King Securities and Options," and "Special Factors
Relating to the HSN Transactions -- Background -- Relationship between Liberty
and Mr. Diller -- The Diller-Liberty Stockholders Agreement."
TCI, through Liberty HSN's ownership of the TCI HSN Shares, exercises
voting control over HSN, including generally with respect to all matters
presented for the vote or consent of HSN stockholders. See "Special Factors
Relating to the HSN Transactions -- Interests of Certain Persons in the HSN
Transactions; Conflicts of Interest."
Since August 24, 1995, Mr. Diller has been the Chairman of the Board and
Chief Executive Officer of Silver King. Since November 24, 1995, Mr. Diller has
been the Chairman of the Board of HSN and, since August 24, 1995, a director of
HSN. In November 1995, Mr. Diller was granted options by the HSN Board to
purchase an aggregate of 13,400,000 shares of HSN Common Stock at an exercise
price of $8.50 per share (such options with respect to 100,000 shares were
subsequently returned by Mr. Diller to HSN). In addition, Mr. Diller owns
100,000 shares of HSN Common Stock and also owns 441,988 shares of Silver King
Common Stock and options to purchase 1,895,847 shares of Silver King Common
Stock, of which options to purchase 473,962 shares are currently exercisable.
See "Special Factors Relating to the HSN Transactions -- Interests of Certain
Persons in the HSN Transactions; Conflicts of Interest."
Upon consummation of the HSN Merger, the condition to the grant to Mr.
Diller by the Silver King Board of Directors of certain additional options to
purchase shares of Silver King Common Stock at an exercise price of $30.75 per
share will have been satisfied. In the event that both the Savoy Merger and the
HSN Transactions are consummated, Mr. Diller has been granted options to
purchase 625,000 shares of Silver King Common Stock. All such grants are subject
to Silver King stockholder approval of the 1995 Stock Incentive Plan. See "1995
Stock Incentive Plan Proposal -- New Plan Benefits."
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MARKET PRICE DATA
Silver King
Silver King Common Stock has been traded on the Nasdaq National Market
under the symbol "SKTV" since August 26, 1993 and has been publicly traded since
December 28, 1992. Each share of Silver King Class B Common Stock is convertible
into one share of Silver King Common Stock. The following table sets forth the
range of high and low closing sale prices reported on the Nasdaq National Market
for Silver King Common Stock for the periods indicated:
HIGH LOW
-------- -------
Fiscal Year Ended August 31, 1994
First Quarter................................................. $ 20.50 $12.25
Second Quarter................................................ $ 13.00 $ 8.50
Third Quarter................................................. $ 13.50 $ 8.25
Fourth Quarter................................................ $ 12.75 $ 9.50
Fiscal Year Ended August 31, 1995
First Quarter................................................. $ 12.25 $ 9.50
Second Quarter................................................ $ 11.25 $ 9.00
Third Quarter................................................. $ 15.00 $ 9.25
Fourth Quarter................................................ $ 39.375 $14.00
Fiscal Period Ended December 31, 1995*
September 1, 1995 through December 31, 1995................... $ 37.75 $28.75
Fiscal Year Ended December 31, 1996
First Quarter................................................. $ 33.75 $28.00
Second Quarter................................................ $ 34.00 $28.50
Third Quarter................................................. $ 29.813 $23.25
Fourth Quarter (through November 15, 1996).................... $ 25.75 $22.00
- ------------
* On November 1, 1995, Silver King announced that, effective January 1, 1996,
its fiscal year end would be changed to a calendar year end.
Savoy
Savoy Common Stock has been traded on the Nasdaq National Market under the
symbol "SPEI" since March 18, 1993. The following table sets forth the range of
high and low closing sale prices reported on the Nasdaq National Market for
Savoy Common Stock for the periods indicated:
HIGH LOW
-------- -------
Fiscal Year Ended December 31, 1994
First Quarter................................................. $ 20.50 $14.625
Second Quarter................................................ $ 15.00 $10.50
Third Quarter................................................. $ 13.25 $11.00
Fourth Quarter................................................ $ 11.75 $ 6.125
Fiscal Year Ended December 31, 1995
First Quarter................................................. $ 8.625 $ 6.00
Second Quarter................................................ $ 9.375 $ 7.750
Third Quarter................................................. $ 9.50 $ 6.578
Fourth Quarter................................................ $ 7.00 $ 4.75
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HIGH LOW
------- -------
Fiscal Year Ended December 31, 1996
First Quarter................................................. $ 6.125 $ 4.875
Second Quarter................................................ $ 6.125 $ 4.875
Third Quarter................................................. $ 5.375 $ 2.50
Fourth Quarter (through November 15, 1996).................... $ 3.375 $ 2.625
HSN
HSN Common Stock has been traded on the NYSE under the symbol "HSN" since
June 20, 1990. Each share of HSN Class B Common Stock is convertible into one
share of HSN Common Stock. The following table sets forth the range of high and
low sales prices reported on the NYSE for HSN Common Stock for the periods
indicated:
HIGH LOW
-------- -------
Fiscal Year Ended December 31, 1994
First Quarter................................................. $ 14.75 $11.75
Second Quarter................................................ $ 14.375 $ 9.75
Third Quarter................................................. $ 12.875 $10.625
Fourth Quarter................................................ $ 11.50 $ 9.625
Fiscal Year Ended December 31, 1995
First Quarter................................................. $ 10.00 $ 7.875
Second Quarter................................................ $ 8.50 $ 6.50
Third Quarter................................................. $ 10.75 $ 8.375
Fourth Quarter................................................ $ 9.875 $ 8.00
Fiscal Year Ended December 31, 1996
First Quarter................................................. $ 11.75 $ 8.25
Second Quarter................................................ $ 15.00 $10.25
Third Quarter................................................. $ 12.50 $ 9.625
Fourth Quarter (through November 15, 1996).................... $ 11.75 $ 9.625
Comparative Share Prices
The following table sets forth the closing sale prices per share of Silver
King Common Stock and Savoy Common Stock on the Nasdaq National Market on
November 22, 1995, the last full trading day before the announcement of the
execution of the November Savoy Merger Agreement, on August 12, 1996, the last
full trading day before the announcement of the Savoy Merger Agreement
Amendment, and on November 15, 1996, the latest practicable trading day before
the printing of this Joint Proxy Statement/Prospectus, and the implied per share
prices for Savoy Common Stock based on the Silver King Common Stock prices:
SILVER KING SAVOY SAVOY
COMMON STOCK COMMON STOCK IMPLIED PRICE
------------ ------------ -------------
November 22, 1995.......................... $ 30.75 $ 4.94 $ 6.15 (1)
August 12, 1996............................ $ 25.9375 $ 4.625 $ 3.6313(2)
November 15, 1996.......................... $ 24.00 $ 3.25 $ 3.36 (2)
- ---------------
(1) Represents the implied price of one share of Savoy Common Stock in the
November Savoy Merger calculated by multiplying the closing sale price per
share of Silver King Common Stock on such date by the conversion ratio of
.20 that Savoy stockholders were to receive pursuant to the November Savoy
Merger Agreement. See "Savoy Merger and Related Transactions -- Background."
(2) Represents the implied price of one share of Savoy Common Stock in the Savoy
Merger calculated by multiplying the closing sale price per share of Silver
King Common Stock on such date by the Savoy Conversion Ratio.
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Silver King and Savoy have never paid cash dividends on their respective
shares of common stock. Silver King does not anticipate paying cash dividends on
the Silver King Common Stock.
The following table sets forth the closing sales prices per share of Silver
King Common Stock on the Nasdaq National Market and of HSN Common Stock on
November 22, 1995, the last full trading day before the announcement of the TCI
HSN Shares Acquisition (as defined herein), on August 23, 1996, the last full
trading day before the announcement of the proposed HSN Merger, and on November
15, 1996, the latest practicable trading day before the printing of this Joint
Proxy Statement/Prospectus, and the implied per share prices for HSN Common
Stock based on the Silver King Common Stock prices. HSN Class B Common Stock is
convertible on a share-for-share basis into HSN Common Stock.
SILVER KING HSN HSN
COMMON STOCK COMMON STOCK IMPLIED PRICE
------------ ------------ -------------
November 22, 1995.......................... $ 30.75 $ 8.375 $ 8.50 (1)
August 23, 1996............................ $ 29.50 $ 11.25 $ 13.275(2)
November 15, 1996.......................... $ 24.00 $ 11.375 $ 10.80 (2)
- ---------------
(1) Represents the implied price of one share of HSN Common Stock in the TCI HSN
Shares Acquisition calculated by multiplying the closing sale price per
share of Silver King Common Stock on such date by the conversion ratio that
Liberty was to receive for its shares of HSN Common Stock pursuant to the
TCI HSN Shares Acquisition. See "Savoy Merger and Related
Transactions -- Background."
(2) Represents the implied price of one share of HSN Common Stock in the HSN
Transactions calculated by multiplying the closing sale price per share of
Silver King Common Stock on such date by the HSN Common Conversion Ratio.
Based on the HSN Class B Conversion Ratio and assuming that the value of
Silver King Class B Common Stock equals the market price of Silver King
Common Stock, the implied prices for HSN Class B Common Stock as of August
23, 1996 and November 15, 1996 would be $15.93 and $12.96, respectively.
HSN has never paid a cash dividend on the HSN Common Stock.
THE AUTHORIZED CAPITAL STOCK AMENDMENT PROPOSAL
Article IV of the Silver King Certificate currently authorizes 30,000,000
shares of Silver King Common Stock, 2,415,945 shares of Silver King Class B
Common Stock and 50,000 shares of Silver King Preferred Stock. Pursuant to the
Authorized Capital Stock Amendment Proposal, the authorized shares of such
Silver King capital stock would be increased to 150,000,000 shares of Silver
King Common Stock, 30,000,000 shares of Silver King Class B Common Stock and
15,000,000 shares of Silver King Preferred Stock. Such authorized but unissued
capital stock may be used for general corporate purposes, including for possible
future acquisitions. An increase in the authorized Silver King Common Stock and
Silver King Class B Common Stock is required to consummate the HSN Transactions.
THE NAME CHANGE PROPOSAL
Article I of the Silver King Certificate states the corporate name of
Silver King. The Name Change Proposal provides that, upon the consummation of
the HSN Merger, Article I of the Silver King Certificate will be amended to
state that the corporate name will be "HSN, Inc." If approved, the Name Change
Proposal will not be effected unless and until the HSN Merger is consummated.
THE CLASS VOTE AMENDMENT PROPOSAL
In addition, Article IV of the Silver King Certificate provides that, so
long as there are at least 2,280,000 shares of Silver King Class B Common Stock
outstanding, the holders of Silver King Common Stock and Silver King Class B
Common Stock will vote as separate classes in connection with certain matters,
including any merger, reorganization, liquidation, sale or transfer of
substantially all of the assets of Silver King, or any amendment to the Silver
King Certificate, and the holders of Silver King Class B Common Stock will vote
as a single class with the holders of Silver King Common Stock on all other
matters submitted to a vote or for the
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consent of Silver King stockholders, with each share of Silver King Class B
Common Stock entitled to ten votes and each share of Silver King Common Stock
entitled to one vote. Pursuant to Article IV, in the event that there are fewer
than 2,280,000 shares of Silver King Class B Common Stock outstanding, the
separate class vote described above is not required under the Silver King
Certificate. The Class Vote Amendment Proposal provides that the Silver King
Certificate be amended to eliminate these provisions providing for a separate
class vote of the holders of each of the Silver King Common Stock and the Silver
King Class B Common Stock, except that such amendments would not eliminate the
provisions of the Silver King Certificate providing for the election by the
holders of Silver King Common Stock, voting as a separate class, of 25% of the
members of the Silver King Board of Directors (rounded up to the nearest whole
number) or affect requirements of the DGCL that mandate a separate class vote.
ELECTION OF DIRECTORS
At the Silver King Meeting, Silver King stockholders will be asked to elect
the following six director nominees: Barry Diller, Victor A. Kaufman, John E.
Oxendine, Bruce M. Ramer, Sidney J. Sheinberg and Richard E. Snyder, two of whom
(Messrs. Ramer and Sheinberg) have been selected to stand for election by the
holders of Silver King Common Stock voting as a separate class and the remainder
of whom will stand for election by the holders of Silver King Common Stock and
Silver King Class B Common Stock voting together as a class, with each share of
Silver King Class B Common Stock entitled to ten votes and each share of Silver
King Common Stock entitled to one vote. Pursuant to the HSN Merger Agreement,
following consummation of the HSN Merger, three members of the HSN Board of
Directors will become directors of Silver King. In the event that Mr. Kaufman is
elected to the Silver King Board and the Savoy Merger is not consummated, Mr.
Kaufman will thereupon resign from the Silver King Board. See "Special Factors
Relating to the HSN Transactions -- Interests of Certain Persons in the HSN
Transactions; Conflicts of Interest -- Continuing HSN Directors."
SILVER KING 1995 STOCK INCENTIVE PLAN
The Compensation/Benefits Committee has approved and recommended, and,
based on such approval, the Silver King Board has approved and recommended, that
Silver King stockholders approve the 1995 Stock Incentive Plan, which authorizes
the grant, under certain circumstances, of options to purchase an aggregate of
1,500,000 shares of Silver King Common Stock for all such grants, at an exercise
price equal to the fair market value of the Silver King Common Stock on the date
of grant, as determined pursuant to the 1995 Stock Incentive Plan, to officers,
key employees or consultants of Silver King. Pursuant thereto, and subject to
consummation of each of the Savoy Merger and the HSN Merger and to approval of
the 1995 Stock Incentive Plan by Silver King stockholders, the
Compensation/Benefits Committee has granted to Mr. Diller options to purchase
625,000 shares of Silver King Common Stock at an exercise price of $30.75 per
share, which options will be reduced to 221,625 shares in the event that only
the Savoy Merger is consummated, and which grant will be cancelled in full if
neither the Savoy Merger nor the HSN Merger is consummated. Based upon the
number of Silver King Securities as to which Mr. Diller has voting control with
respect to such matter, and Mr. Diller's intention to vote such shares in favor
of the 1995 Stock Incentive Plan Proposal, the approval by Silver King
stockholders of such proposal is assured notwithstanding the vote of any other
Silver King stockholders. The 1995 Stock Incentive Plan and grants thereunder,
including to Mr. Diller, are described in greater detail in this Joint Proxy
Statement/Prospectus, see "1995 Stock Incentive Plan Proposal," and is attached
as Appendix G to this Joint Proxy Statement/Prospectus.
SILVER KING DIRECTORS STOCK OPTION PLAN
The Compensation/Benefits Committee has approved and recommended, and based
on such approval the Silver King Board has approved and recommended, that Silver
King stockholders approve the Silver King Directors Stock Option Plan for Silver
King's non-employee directors. In connection with, and subject to Silver King
stockholder approval of, the Directors Stock Option Plan Proposal, the Silver
King Board, based upon the recommendation of the Compensation/Benefits
Committee, terminated the current stock option plan for Silver King's
non-employee directors. No further grants will be made under that plan; however,
prior
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grants under the former plan will remain outstanding and unaffected by these
actions. Under the Directors Stock Option Plan, each Silver King director who
becomes a director of Silver King on or after February 13, 1996 and who is not
an employee of Silver King will receive an annual grant of options to purchase
5,000 shares of Silver King Common Stock in each year that such director serves
as a director of Silver King, which grant will generally become vested over
three years, with an exercise price equal to the fair market value of Silver
King Common Stock on the date of grant. Based upon the number of Silver King
Securities as to which Mr. Diller has voting control with respect to such
matter, and Mr. Diller's intention to vote such shares in favor of the Directors
Stock Option Plan Proposal, the approval by Silver King stockholders of such
proposal is assured notwithstanding the vote of any other Silver King
stockholders. The Directors Stock Option Plan is described in greater detail in
this Joint Proxy Statement/Prospectus, see "Directors Stock Option Plan
Proposal," and is attached as Appendix H to this Joint Proxy
Statement/Prospectus.
RATIFICATION OF INDEPENDENT AUDITORS
At the Silver King Meeting, Silver King stockholders will be asked to
ratify the appointment of Ernst & Young LLP as the independent auditors of the
consolidated financial statements of Silver King and its subsidiaries for the
fiscal year ending December 31, 1996. Based upon the number of Silver King
Securities as to which Mr. Diller has voting control with respect to such
matter, and Mr. Diller's intention to vote such shares in favor of this
proposal, the approval by Silver King stockholders of such proposal is assured
notwithstanding the vote of any other Silver King stockholders.
RECENT DEVELOPMENTS
This section sets forth certain summary information regarding certain
projected operating results of Silver King, Savoy, HSN and the combined company
following the Savoy Merger and the HSN Merger. Neither Silver King, Savoy nor
HSN publicly discloses financial information with respect to future revenues,
earnings or cash flow. The projections are based on a variety of assumptions
summarized below which involve significant elements of subjective judgment that
may or may not prove to be correct. The projections summarized below have not
been examined in any respect by any independent accountant and represent
estimates that are based upon information available as of the date of this Joint
Proxy Statement/Prospectus.
Silver King is considering a number of options with respect to the Silver
King Stations. These options include programming the Silver King Stations on a
local basis, selling the Silver King Stations, or entering into partnership
arrangements with broadcasters and/or cable operators. The direction that Silver
King will choose is in part dependent on various laws and governmental
regulations, such as whether rules regarding must-carry (as defined herein) are
upheld and whether the FCC allows ownership of more than one broadcasting
license in a single market area. As of the date of this Joint Proxy
Statement/Prospectus, Silver King has made no preliminary or final decisions as
to how it will utilize the Silver King Stations, although it is Silver King's
desire to program these stations on a local basis, either by itself or with
partners. See "Risk Factors -- Possible Risks to HSN with Respect to Anticipated
Change in Silver King's Broadcasting Business" and "-- Regulation."
In the event that Silver King does program these stations, it intends to do
so on a gradual basis with the first station launched in the beginning of 1998
and additional stations launched over the next several years. It is expected
that the preparation for the rollout of new programming on these stations would
have a negative impact on Silver King's earnings before interest taxes,
depreciation and amortization ("EBITDA"), although Silver King does not expect
that such impact will be materially adverse to the financial condition
(including liquidity) of Silver King.
Based on a review of the operations of the Savoy Stations for the nine
months ended September 30, 1996, Savoy and Silver King currently believe that
broadcast cash flow (as defined herein) for 1996 should be in the range of $14
to $15 million, although there can be no assurance that the actual results will
not be lower than this range.
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Both Savoy and Silver King believe that the period following the
affiliation switch to Fox is a transitional one for the Savoy Stations (which
may last up to 12 to 18 months), and that, during 1997, revenues and broadcast
cash flow should improve. Silver King currently believes that broadcast cash
flow for the Savoy Stations may reach $23 million in 1997 and $30 million in
1998. Attaining these goals will be dependent on a number of factors, including
factors beyond management's control, such as audience acceptance of Fox
programming, syndicated programming purchased by the Savoy Stations and local
programming broadcast by the Savoy Stations, and the success of management in
selling advertising on a local and national basis, as well as the national and
local economic conditions and competition from other stations and other forms of
media. Accordingly, there can be no assurance that the actual results of the
Savoy Stations will not be materially lower than these levels.
"Broadcast cash flow" is defined as broadcast operating income, plus
broadcast corporate overhead, depreciation and amortization, and amortization of
broadcast rights, minus cash payments for broadcast rights. Broadcast cash flow
referred to above is before giving effect to the 50% equity interest of Fox in
the Savoy Stations,described below. Broadcast cash flow is presented here not as
a measure of operating results and does not purport to represent cash provided
by operating activities. Broadcast cash flow should not be considered in
isolation or as a substitute for measures of performance prepared in accordance
with generally accepted accounting principles. Furthermore, the foregoing
definition of broadcast cash flow refers only to those cash flow figures
relating to the Savoy Stations and does not apply to cash flow figures relating
to either Silver King or HSN.
Based on a review of the operations of HSN, including the nine months ended
September 30, 1996, HSN currently believes that EBITDA for HSN will be
approximately $74 million for 1996 and approximately $128 million for 1997,
although there can be no assurance that actual results will not vary
significantly from these amounts. See "Special Factors Relating to the HSN
Transactions -- Certain Information Concerning HSN -- July 1996 HSN Projections"
for certain assumptions used in arriving at these estimates.
Assuming consummation of the Savoy Merger and the HSN Merger, and taking
into account the appropriate share of broadcast cash flow attributable to
Savoy's operations in light of Silver King's anticipated indirect ownership of
50% of the Savoy Stations as well as EBITDA estimates for HSN and Silver King,
Silver King believes that the combined EBITDA from Silver King and HSN and the
broadcast cash flow from Savoy should be approximately $160 million for 1997,
$193 million in 1998, $248 million in 1999 and $322 million in 2000; although
there can be no assurance of the extent to which such net benefits will actually
be realized, if at all. Moreover, these combined EBITDA are based on
consolidated Silver King and HSN operations and do not take into consideration
the anticipated initial minority ownership of 19.9% of HSN's equity by Liberty
HSN under the terms of the HSN Merger Agreement. See "-- HSN Merger and Related
Transactions."
The actual EBITDA for the combined company will be dependent on many
factors, including, without limitation, factors beyond the control of any of
Silver King, HSN, Savoy or the combined company, such as changes in general and
local economic conditions and changes in applicable laws and regulations,
including FCC Regulations, and may, therefore, differ materially from these
estimates. There can be no assurance that Silver King will elect to develop
programming for the Silver King Stations or that the results of operations of
any of Silver King, HSN or Savoy will be in accordance with the estimates
summarized above. See "Forward-Looking Statements."
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SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
SILVER KING
NINE MONTHS NINE MONTHS FOUR MONTHS
ENDED ENDED ENDED YEARS ENDED AUGUST 31,
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, ----------------------------------------------------
1996 1995 1995 1995 1994 1993 1992 1991
------------- ------------- ------------ -------- -------- -------- -------- --------
Revenues(1).............. $ 33,249 $ 34,483 $ 15,980 $ 47,918 $ 46,563 $ 46,136 $ 46,729 $ 26,551
Income (loss) before
cumulative effect of
change in accounting
principle for income
taxes(2)............... (1,429) (686) (2,882) 115 (899) (6,386) (15,222) (18,229)
Net income (loss)(3)..... (1,429) (686) (2,882) 115 (3,878) (6,386) (15,222) (18,229)
Net income (loss) per
share:
Income (loss) per share
before cumulative
effect(4).............. (.15) (.08) (.31) .01 (.10) (.72) -- --
Per share cumulative
effect(4).............. -- -- -- -- (.34) -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss) per
common share(4)........ (.15) (.08) (.31) .01 (.44) (.72) -- --
Total assets............. 122,674 143,537 136,670 142,917 145,488 153,718 153,491 172,373
Total long-term
obligations............ 83,922 97,937 95,980 97,937 114,525 128,210 227,456 229,885
Stockholders' equity..... 8,162 9,260 7,471 9,278 2,614
Working capital.......... 4,160 7,271 7,553 6,042 1,553
Total assets less
intangibles............ 69,710 81,214 76,686 79,814 72,996
Shares outstanding(10)... 9,498 9,412 9,412
Book value per share(10)-
Common Stock........... .86 .79 .99
Class B Common
Stock................ .86 .79 .99
SAVOY
NINE MONTHS PERIOD FROM
ENDED YEARS ENDED DECEMBER 31, INCEPTION TO
SEPTEMBER 30, ---------------------------------- DECEMBER 31,
1996 1995(5) 1994(6) 1993(6) 1992
------------- -------- -------- -------- ------------
Revenues.......................................... $ 98,848 $ 92,599 $ 85,763 $ 7,052 $ --
Income (loss) before extraordinary item........... (78,349) (73,744) (59,453) (12,515) 902
Net income (loss)................................. (84,720) (73,744) (59,453) (12,515) 902
Net income (loss) per share:
Income (loss) per share before extraordinary
item............................................ (2.64) (2.49) (2.58) (.71) .06
Extraordinary item per share...................... (.22) -- -- -- --
-------- -------- -------- -------- --------
Net income (loss) per share....................... (2.86) (2.49) (2.58) (.71) .06
Total assets...................................... 441,341 630,254 356,752 402,709 165,862
Total long-term obligations, net.................. 118,186 185,620 51,804 138,483 26,875
Stockholders' equity(10).......................... 131,257 214,969
Shares outstanding(10)............................ 30,042 30,042
Book value per share(10).......................... 4.37 7.16
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HSN
NINE MONTHS NINE MONTHS FOUR MONTHS YEARS ENDED
ENDED ENDED YEARS ENDED DECEMBER 31, ENDED AUGUST 31,
SEPTEMBER 30, SEPTEMBER 30, ---------------------------------- DECEMBER 31, -------------------
1996 1995 1995 1994 1993 1992(12) 1992(12) 1991(12)
------------- ------------- -------- ---------- -------- ------------ -------- --------
Net sales (7)........ $ 733,922 $ 658,841 $919,796 $1,014,981 $954,369 $324,155 $970,743 $944,779
Earnings (loss)
before
extraordinary
item............... 14,269 (36,236) (61,883)(8) 17,701 (15,539)(9) 5,140 37,405 (9,599)(13)
Net earnings
(loss)............. 14,269 (36,236) (61,883)(8) 16,777 (22,781)(9) 5,140 37,293 (8,945)(13)
Net earnings (loss)
per share:
Earnings (loss) per
share before
extraordinary
item............... .14 (.41) (.69) .19 (.18) .06 .42 (.11)
Extraordinary item
per share.......... -- -- -- (.01) (.08) -- -- .01
-------- -------- -------- --------- -------- -------- -------- --------
Net earnings (loss)
per share.......... .14 (.41) (.69) .18 (.26) .06 .42 (.10)
Total assets......... 418,036 477,704 436,295 446,499 501,143 477,913 519,670 565,036
Total long-term
obligations,
net(14)............ 98,131 116,040 135,810 27,491 86,927 159,191 172,856 205,042
Stockholders'
equity............. 155,473 149,361 125,061 206,443
Working capital...... 16,060 30,926 7,571 23,073
Total assets less
intangibles........ 415,421 473,310 432,362 439,233
Shares
outstanding(10).... 98,976 97,718
Book value per
share(10)-
Common Stock....... 1.57 1.28
Class B Common
Stock............ 1.57 1.28
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UNAUDITED SELECTED PRO FORMA COMBINED CONDENSED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
COMBINED TRANSACTION
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, 1996 DECEMBER 31, 1995(5)
------------------ --------------------
Revenues................................................... $ 834,749 $1,052,353
Income (loss) before extraordinary item.................... (73,811) (166,850)
Loss before extraordinary item per common share.......... (1.28) (2.95)
Total assets............................................... 2,028,700
Stockholders' equity(10)................................... 1,089,659
Shares outstanding......................................... 56,880
Total long-term obligations................................ 300,135
Book value per share(10)................................... 19.16
Savoy per share equivalent(11):
Loss before extraordinary item........................... (0.18) (0.41)
Book value............................................... 2.68
HSN per share equivalent(11):
Common Stock:
Loss before extraordinary item........................ (0.58) (1.33)
Book value............................................ 8.62
Class B Common Stock:
Loss before extraordinary item........................ (0.69) (1.59)
Book value............................................ 10.35
SAVOY MERGER
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, 1996 DECEMBER 31, 1995(5)
------------------ --------------------
Revenues................................................... $ 132,097 $ 174,006
Income (loss) before extraordinary item.................... (78,131) (78,450)
Loss before extraordinary item per common share.......... (5.71) (5.90)
Total assets............................................... 549,974
Total long-term obligations................................ 202,004
Stockholders' equity(10)................................... 120,879
Shares outstanding......................................... 13,685
Book value per share(10)................................... 8.83
Savoy per share equivalent(11):
Loss before extraordinary item........................... (0.80) (0.83)
Book value............................................... 1.24
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NOTES TO SELECTED FINANCIAL DATA
(1) Beginning in fiscal year 1992, Silver King recognized revenue based on an
hourly fee plus commission on HSN's net sales in certain circumstances.
Prior to fiscal year 1992, Silver King recognized only commission revenue
based on HSN's net sales. The net revenue includes sales from Silver King's
video production subsidiary, Telemation, Inc.
(2) In fiscal year 1994, Silver King adopted Statement of Financial Accounting
Standards No. 109 "Accounting for Income Taxes." The cumulative effect of
the accounting change resulted in a charge of approximately $3.0 million.
Prior years' financial statements were not restated.
(3) Beginning in fiscal year 1992, Silver King was charged interest based on
the historical cost of certain television stations to HSN and HSN's then
cost of long-term borrowings in connection with the acquisition of the
Silver King stations. In fiscal year 1993, Silver King was charged interest
expense on its note payable to Home Shopping Network Capital Corporation, a
wholly-owned subsidiary of HSN ("HSNCC"), at a rate of 9.5% per annum. In
fiscal year 1994, Silver King paid interest to HSNCC until August 1, 1994
when Silver King repaid the long-term obligation to HSNCC.
(4) Silver King loss per share information for fiscal 1992 and 1991 have been
omitted due to lack of comparability prior to the Distribution (as defined
herein).
(5) The results of operations for WVUE-TV, WALA-TV, and KHON-TV are included in
Savoy's consolidated results of operations since acquisition on August 22,
1995 and the results of operations for WLUK-TV are included in Savoy's
consolidated results of operations since acquisition on April 28, 1995. The
unaudited selected pro forma combined condensed financial data reflects
these transactions as if they had occurred as of January 1, 1995.
(6) The results of operations include non-cash charges ($22.6 million in 1994
and $2.3 million in 1993) to induce conversion of debt and there were
corresponding increases in paid in capital and net worth.
(7) During the nine months ended September 30, 1996, HSN changed the
classification of shipping and handling revenues from a component of "Net
Sales" to an offset to the related fulfillment costs incurred by HSN
recorded in "Cost of Sales." All periods presented herein have been
adjusted to conform to this change in classification.
(8) HSN's gross profit declined to 34.5% of net sales for the year ended
December 31, 1995 from 39.0% for the year ended December 31, 1994. This was
due in part to an inventory carrying value adjustment of $12 million taken
in the fourth quarter of 1995. Loss from continuing operations for HSN
included restructuring charges of $4.1 million related to the closing of a
fulfillment center and $11.9 million of other charges primarily due to
severance payments arising from work force reductions. It also included
pre-tax charges for lawsuit settlements and reserves of $6.4 million, a
$4.7 million charge related to the write down of idle equipment, $2.4
million related to the write-off of name lists and $0.8 million related to
bank fees.
(9) The gross profit of HSN declined to 35.9% for the year ended December 31,
1993, from 41.9% for the year ended August 31, 1992, primarily due to the
liquidation of inventory at less than cost. In 1993, HSN charged $13
million to other income (expense) for the settlement of various lawsuits.
(10) Historical and pro forma book value per share is calculated by dividing the
historical and pro forma stockholders' equity by the actual and pro forma
number of outstanding common shares at the end of the respective periods.
Pro forma shares outstanding for the Combined Transaction (as defined
herein) at September 30, 1996 and December 31, 1995 include the historical
shares outstanding of Silver King Common Stock outstanding and 43,195,122
shares to be issued to HSN stockholders (including the Contingent Rights
Shares to be issued) plus 4,205,870 shares to be issued to Savoy
stockholders. Pro forma shares outstanding for the Savoy Merger at
September 30, 1996 and December 31, 1995 include the historical shares
outstanding of Silver King Common Stock outstanding plus the 4,205,870
shares issued to Savoy stockholders.
(11) Pro forma per share equivalent amounts are calculated by multiplying the
pro forma loss from operations per common share and pro forma book value by
the respective exchange ratios. Savoy per share equivalents are based on
the exchange ratio of .14 shares of Silver King Common Stock for each share
of Savoy Common Stock. HSN per share equivalents are based on an exchange
ratio of .45 shares of Silver King Common Stock for each share of HSN
Common Stock and .54 shares of Silver King Class B Common Stock for each
share of HSN Class B Common Stock.
(12) The operating results of HSN for the years ended August 31, 1992 and 1991
and the four months ended December 31, 1992 include the results of Silver
King prior to the distribution of Silver King's capital stock as a stock
dividend to HSN's stockholders on December 28, 1992 (the "Distribution").
(13) During 1991, HSN recorded $44,500,000 in pre-tax non-recurring special
charges. Additionally, HSN increased its income tax provision $10 million
relating to certain adjustments proposed by the Internal Revenue Service
("IRS").
(14) At December 31, 1993 and 1992, and August 31, 1992, $25,000,000,
$3,200,000, and $27,500,000, respectively, was classified as a current
liability reflecting management's ability and intent to satisfy a portion
of the debt from funds provided from operations.
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RISK FACTORS
Each Silver King stockholder, Savoy stockholder and HSN stockholder should
carefully consider and evaluate the following factors, among others, before
voting.
FIXED CONVERSION RATIO FOR SAVOY MERGER AND HSN MERGER
The conversion ratios in the Savoy Merger and the HSN Merger are each fixed
and not subject to increase or decrease depending upon the market values of
Silver King Common Stock, Savoy Common Stock or HSN Common Stock, or upon any
other circumstance. None of Silver King, Savoy or HSN can predict the value at
the Savoy Merger Effective Time of the Silver King Common Stock to be received
by Savoy stockholders in the Savoy Merger or at the HSN Merger Effective Time of
the Silver King Common Stock to be received by HSN stockholders in the HSN
Merger. At such effective time, the market value of the shares of Silver King
Common Stock received by Savoy stockholders in exchange for shares of Savoy
Common Stock or by HSN stockholders in exchange for shares of HSN Common Stock,
as the case may be, may be more or less than the market price of Savoy Common
Stock or HSN Common Stock on the date of this Joint Proxy Statement/Prospectus
or on the date of the respective stockholder meetings. Pursuant to the HSN
Merger Agreement, Silver King may terminate the agreement in certain
circumstances in which, for a 20-trading-day period, the average of the mean of
the closing bid and ask prices for Silver King Common Stock on the Nasdaq
National Market exceeds $36.875, and the HSN Special Committee may similarly
terminate the agreement in the event that such average, for a 20-trading-day
period, is less than $22.125; however, there can be no assurance that either
Silver King or the HSN Special Committee would exercise such termination right
prior to the HSN Merger Effective Time in the event that such right were to
become exercisable. The respective effective times are expected to occur as soon
as practicable following receipt of stockholder approval at the Silver King
Meeting, the Savoy Meeting and the HSN Meeting, as the case may be, as well as
(with respect to the HSN Merger) the consummation of the Savoy Merger and the
receipt of the HSN FCC Approval in connection with the HSN Merger (assuming, in
each case, satisfaction or, if permissible, waiver of the other applicable
conditions). There can be no assurance as to when, if at all, the conditions and
contingencies to the Savoy Merger or the HSN Merger will be satisfied.
DEPENDENCE ON CERTAIN KEY PERSONNEL
Each of Silver King and HSN is dependent upon the continued contributions
of its senior corporate management, particularly Mr. Diller, and certain key
employees for its future success. Mr. Diller is the Chairman of the Board and
Chief Executive Officer of Silver King and is also the Chairman of the Board of
HSN. Mr. Diller does not have an employment agreement with either of Silver King
or HSN and does not receive a salary from either company, although he has been
granted by each company options to purchase a substantial number of shares of
Silver King Common Stock or HSN Common Stock, as the case may be, and the
vesting of such options is to occur over the next several years, subject to
acceleration in certain specified circumstances. See "Special Factors Relating
to the HSN Transactions -- Interests of Certain Persons in the HSN Transactions;
Conflicts of Interest -- Ownership of HSN Stock and HSN Options" and
"-- Interests of Certain Persons in Silver King," and "Compensation of Directors
and Certain Executive Officers of Silver King." Except in certain circumstances,
such vesting is conditioned upon Mr. Diller's remaining at Silver King or HSN,
as the case may be. Upon consummation of the HSN Merger and pursuant to the HSN
Merger Agreement, all such options will become options to purchase Silver King
Common Stock. The future success of Silver King may be substantially dependent
on Mr. Diller's continued participation in such company. In the event that Mr.
Diller were to resign or be terminated from such positions, or were otherwise
unable to perform his responsibilities at Silver King and/or HSN, the business
of such company, as well as the market price of Silver King Common Stock, could
be substantially adversely affected. There can be no assurance that Silver King
will be able to retain the services of Mr. Diller or any other members of senior
management or key employees of Silver King or HSN.
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CONTROLLING STOCKHOLDERS
Mr. Diller and BDTV, an entity controlled by Mr. Diller, currently
beneficially own or have the right to vote a sufficient number of shares of
Silver King Class B Common Stock to control the outcome of any matter submitted
to a vote or for the consent of stockholders of Silver King with respect to
which holders of Silver King Common Stock and Silver King Class B Common Stock
vote together as a single class. Assuming consummation of the Savoy Merger and
the HSN Merger (but without giving effect to the issuance of any Silver King
Securities pursuant to the Contingent Rights or the Exchange Agreement or any
HSN Options or options to acquire Silver King Common Stock held by Mr. Diller),
Mr. Diller and the BDTV Entities will own or have the right to vote
approximately 1.5% of the then-outstanding Silver King Common Stock, 96% of the
outstanding Silver King Class B Common Stock and 71% of the outstanding Total
Voting Power. In the event that Silver King stockholders approve the Class Vote
Amendment Proposal and such amendments become effective under the DGCL, Mr.
Diller, subject to the terms of the Stockholders Agreement, will effectively be
able to control the outcome of all matters submitted to a vote or for the
consent of Silver King stockholders (other than with respect to the election by
the holders of Silver King Common Stock of 25% of the members of the Silver King
Board of Directors (rounded up to the nearest whole number) and certain matters
as to which a separate class vote of the holders of Silver King Common Stock is
required under the DGCL). In addition, in the event that the Savoy Merger and
the HSN Transactions are consummated (including the issuance of the Contingent
Rights Shares and Exchange Shares, but without giving effect to any other
transactions that would require Silver King to issue additional Silver King
Securities to Liberty or to any HSN Options or options to acquire Silver King
Common Stock held by Mr. Diller), Mr. Diller, through his control of the BDTV
Entities, will control approximately 78% of the Total Voting Power. See "Special
Factors Relating to the HSN Transactions -- Background -- Relationship between
Liberty and Mr. Diller -- The Diller-Liberty Stockholders Agreement."
Pursuant to the Stockholders Agreement, Mr. Diller and Liberty have agreed
that Silver King Securities owned by any of Mr. Diller, Liberty, BDTV and
certain of their affiliates will not be voted in favor of the taking of any
action with respect to an Extraordinary Matter except with the consent of each
of Mr. Diller and Liberty. See "Special Factors Relating to the HSN
Transactions -- Background -- Relationship between Liberty and Mr. Diller -- The
Diller-Liberty Stockholders Agreement." Accordingly, in respect of such matters,
each of Liberty and Mr. Diller currently has, and upon consummation of the Savoy
Merger and the HSN Merger will continue to have, the ability to veto, in its or
his sole discretion, the taking of any action with respect to an Extraordinary
Matter. Further, Mr. Diller and Liberty have agreed in the Stockholders
Agreement to take, and to cause certain of their affiliates to take, all
reasonable actions required, subject to applicable law, to prevent the taking of
any action by Silver King with respect to an Extraordinary Matter without the
consent of each of Mr. Diller and Liberty. In addition, there can be no
assurance that Mr. Diller and Liberty will be able to agree in the future with
respect to any such transaction or action, in which case Silver King would not
be able to engage in such transaction or take such action.
In addition to the specific requirements of the Stockholders Agreement, the
existence of a controlling stockholder of Silver King may have the effect of
making it more difficult for a third party to acquire, or of discouraging a
third party from seeking to acquire, a majority of the outstanding Silver King
Securities. A third party would be required to negotiate any such transaction
with Mr. Diller, Liberty and the BDTV Entities, and the interests of any one or
more of such persons as stockholders may be different from the interests of
other Silver King stockholders.
Further, there can be no guarantee or assurance that Mr. Diller will remain
in control of Silver King. In the event that, under certain circumstances
following Liberty's request that Mr. Diller use all reasonable efforts to cause
a Restructuring Transaction to occur and, within certain time periods, such a
Restructuring Transaction or a Change in Law has not occurred, Liberty would be
permitted to sell its pro rata interest in Silver King Securities held by BDTV
Entities, as well as any other Silver King Securities owned by Liberty and its
affiliates, and its entire equity interest in BDTV Entities, subject to (i) a
right of first refusal by Mr. Diller or his designee, (ii) Mr. Diller's ability
to cause Liberty to exchange the shares of Silver King Class B Common Stock
proposed to be sold by Liberty for shares of Silver King Common Stock owned by
Mr. Diller and his affiliates and (iii) Mr. Diller's ability to force Liberty to
convert Silver King Class B
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65
Common Stock into Silver King Common Stock prior to transfer. In such
circumstances, the transferee of such securities would not be bound by the terms
of or have any rights under the Stockholders Agreement other than with respect
to certain registration rights, at which time Mr. Diller could, subject to the
approval of the FCC, lose his ability to control Silver King, including his
ability to cause the election of a majority of the Silver King Board. In
addition, in the event that Mr. Diller ceases to be Chairman of the Board, Chief
Executive Officer and/or President of Silver King, Liberty would no longer be
bound by the terms of the Stockholders Agreement regarding the voting of the
Silver King Securities although the approval of the FCC would be required in
order for Liberty to exercise voting control over these securities. The loss of
control of Silver King by Mr. Diller may adversely affect the market price of
Silver King Common Stock.
POSSIBILITY OF A RESTRUCTURING TRANSACTION
In the event that a Restructuring Transaction is consummated, there may be
certain adverse tax and accounting consequences to Silver King from such
transaction, which consequences may adversely affect the financial performance
of Silver King and the market price of Silver King Common Stock. See "Special
Factors Relating to the HSN Transactions -- Background -- Relationship between
Liberty and Mr. Diller -- The Diller-Liberty Stockholders Agreement."
POTENTIAL DILUTION TO SILVER KING STOCKHOLDERS FROM CERTAIN PROVISIONS OF THE
CONTINGENT RIGHTS AND THE EXCHANGE AGREEMENT
Pursuant to the Contingent Rights and the Exchange Agreement, Silver King
has agreed to indemnify Liberty, subject to certain limitations, with respect to
certain future tax liabilities that could be incurred by Liberty relating to the
Contingent Rights or the Exchange Shares. See "HSN Merger Agreement and Related
Transaction Agreements -- HSN Merger Agreement -- Contingent Rights" and "--
Terms of Exchange Agreement." Such indemnification obligations could arise,
among other reasons, due to the payment by Silver King of a taxable distribution
or dividend, certain extraordinary transactions engaged in by Silver King so
long as the Contingent Rights or the Exchange Shares are outstanding or the
issuance by Silver King of additional shares of Silver King Class B Common Stock
pursuant to an FCC Issuance Approval or a change after the HSN Merger Effective
Time in applicable tax laws. Silver King's indemnification obligation would be
satisfied by the issuance of additional Silver King Securities to Liberty.
Depending upon the circumstances of the indemnification obligation and the
number of shares as to which such obligation applies, the number of additional
Silver King Securities could be substantial and, if issued, would result in
dilution to other holders of Silver King Common Stock. Although Silver King
expects that it will take sufficient actions or that other events (such as the
conversion of securities convertible into Silver King Common Stock or the
exercise of options to purchase Silver King Common Stock) will occur so that
Silver King will not be obligated to issue any such shares, there can be no
assurance that such obligation will not arise.
LIMITED SEPARATE RIGHTS OF HOLDERS OF SILVER KING COMMON STOCK; EFFECTS OF CLASS
VOTE AMENDMENT PROPOSAL ON VOTING POWER
If the Class Vote Amendment Proposal is approved by the requisite vote of
Silver King stockholders and subsequently becomes effective under the DGCL,
holders of Silver King Common Stock would not be provided any special rights or
have any right to vote on matters submitted to a vote or for the consent of
Silver King stockholders as a separate class other than (i) as provided in the
Silver King Certificate with respect to the election by such holders of 25% of
the members of the Silver King Board and (ii) as required by the DGCL.
Under the DGCL, the holders of the outstanding shares of a class are
entitled to vote as a class upon a proposed amendment to a corporation's
certificate of incorporation if the amendment would increase or decrease the
aggregate number of authorized shares of such class, increase or decrease the
par value of the shares of such class, or alter or change the powers,
preferences or special rights of such class so as to affect them adversely.
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66
Certain matters on which holders of Silver King Common Stock and Silver
King Class B Common Stock would vote together as a single class could involve a
divergence, or the appearance of a divergence, of interests between the holders
of Silver King Common Stock and the holders of Silver King Class B Common Stock.
For example, if the Class Vote Amendment Proposal is approved by Silver King
stockholders and such amendment becomes effective pursuant to the DGCL, holders
of Silver King Common Stock would not be entitled to a separate class vote in
connection with the approval of a merger or consolidation of Silver King. As a
result, and because the Silver King Class B Common Stock would be entitled to
ten votes per share while the Silver King Common Stock would be entitled only to
one vote per share in connection with the voting on such matter, the holders of
Silver King Class B Common Stock would likely control the outcome of such vote,
and a merger or consolidation could be approved by the requisite vote of Silver
King stockholders even if the holders of a majority of the shares of Silver King
Common Stock voted against, or abstained from voting on, such matter. However,
if the provisions of the Class Vote Amendment Proposal were in effect on the
date of the Silver King Meeting, the vote required by Silver King stockholders
on each Silver King Stockholder Proposal, as set forth in "The Silver King
Meeting -- Vote Required," would be unaffected. As of the date of this Joint
Proxy Statement/Prospectus, Mr. Diller has the authority, subject to the terms
of the Stockholders Agreement, to vote a majority of the shares of Silver King
Class B Common Stock, which shares represent 64% of the outstanding Total Voting
Power as of the Silver King Record Date. See "-- Controlling Stockholders,"
"Comparison of Rights of Stockholders of Silver King, Savoy and HSN -- Voting"
and "-- Amendment of Certificate of Incorporation," and "Description of Silver
King Common Stock."
RECENT OPERATING RESULTS AND FINANCIAL CONDITION OF HSN; COMBINED COMPANY WILL
HAVE SUBSTANTIAL LEVERAGE
HSN experienced a significant decline in its business during 1995,
resulting in a net loss of approximately $62 million for the year ended December
31, 1995. HSN believes that its negative performance in 1995 was due primarily
to the adverse effects of certain merchandising and programming strategies which
had been implemented in late 1994 and 1995. The issuance of the HSN Debentures,
together with HSN's possible future borrowings under its $150 million senior
secured revolving credit facility (with a $25.0 million sublimit for import
letters of credit) entered into on August 2, 1996 (the "HSN Replacement
Facility"), which replaced HSN's prior revolving credit facility (the "HSN Prior
Credit Facility"), may have the effect of increasing the total amount of HSN's
consolidated indebtedness and may increase its interest expense obligations in
subsequent periods. HSN's ability to make scheduled payments or to refinance its
obligations with respect to its indebtedness depends on its financial and
operating performance which, in turn, are subject in part to prevailing economic
conditions and financial, business and other factors beyond its control. There
can be no assurance that HSN will generate sufficient funds from operations to
satisfy its obligations under its indebtedness.
HSN and its consolidated subsidiaries incurred substantial indebtedness and
other cash obligations as a result of the consummation of the sale of the HSN
Debentures. HSN used the net proceeds of $97.2 million from the HSN Debentures
to repay borrowings under the HSN Prior Credit Facility. This and other
repayments reduced the total outstanding amount under the HSN Prior Credit
Facility to $20 million at June 30, 1996. As of October 1, 1996, after repayment
of outstanding borrowings under the HSN Prior Credit Facility, the total
outstanding amount under the HSN Replacement Facility was zero and approximately
$139 million was available for borrowing after accounting for outstanding
letters of credit. HSN anticipates that it will use its borrowing capacity under
the HSN Replacement Facility to provide funds for working capital and other
corporate purposes to the extent that funds from operations are not sufficient
for such purposes. As a result, HSN anticipates that its consolidated
indebtedness may increase during the remainder of 1996. The HSN Debentures are
subordinated to all outstanding Indebtedness (as defined in the HSN Indenture)
of HSN, including amounts outstanding under the HSN Replacement Facility. All
outstanding amounts under the HSN Replacement Facility become due and payable in
August 1999. The HSN Indenture governing the HSN Debentures does not restrict
HSN or any of its subsidiaries or affiliates from incurring additional
indebtedness or other liabilities or obligations.
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The degree to which HSN is leveraged could have important consequences to
Silver King following consummation of the HSN Merger, due to, among other
things, (i) Silver King's increased vulnerability to adverse general economic
and industry conditions, (ii) limits on Silver King's ability to obtain
additional financing to take advantage of acquisition or development
opportunities that may arise in the future, whether in respect of new projects
or to expand existing projects, or to expand HSN's inventory, (iii) reduced
flexibility to respond to changing business, technological and economic
conditions, (iv) impediments on the ability to obtain financing or refinancing
for general working capital, capital expenditures or for other general corporate
purposes, and (v) limitations on the ability of Silver King to use excess cash
flow and earnings generated by HSN due to restrictions in HSN's credit
agreements. For information regarding the financing needs of Silver King and
Savoy, see "-- Financing Needs of Silver King and Savoy."
PROSPECTS FOR FUTURE REVENUE GROWTH OF HSN
HSN experienced only a 15.4% growth in net sales between 1990 and 1994, and
net sales in 1995 declined 9.4% from 1994. HSN has historically sought to
increase the number of homes receiving its programming, and, hence, the number
of potential customers, primarily through the establishment of affiliation
agreements with cable television system operators and broadcast station
operators for the transmission of its programming service to cable television
subscribers and broadcast television viewers and by transmission of HSN's
programming service directly to the owners of home satellite dishes. While
Silver King management believes that HSN will continue to seek further
opportunities to increase the number of homes receiving HSN's programming, it is
unlikely that the number of homes receiving HSN's programming will continue to
grow at rates comparable to those achieved in prior periods. Therefore, HSN's
ability to increase its revenue will depend more heavily on market penetration,
defined as the addition of new customers from homes already receiving its
programming, and continued growth in repeat sales to existing customers. No
assurance can be given that HSN will be successful in these efforts to increase
market penetration.
Messrs. Diller and Held, and other new management of HSN, have conducted a
comprehensive review of HSN's merchandising and programming strategies,
operations and budget and all other aspects of HSN's business and have
formulated plans and proposals intended to improve the operating performance of
HSN and to return it to profitability. HSN believes that the improved sales in
the quarter and nine months ended September 30, 1996 compared to 1995 were
primarily the result of immediate changes made by new management to HSN's
merchandising and programming strategies. These changes included initiating
changes in the merchandising area designed to broaden product assortments,
change the sales mix, optimize product variety and value, maintain the average
price per unit at the desired level, improve inventory management, and improve
planning of programmed shows. Management expects to take additional steps
designed to attract both first-time and active customers which include improving
product assortment, reducing the average price per unit, improving inventory
management and better planning of programmed shows. While management is
optimistic that results will continue to improve and HSN will remain profitable,
there can be no assurance that changes to HSN's merchandising and programming
strategies will achieve management's intended results.
POSSIBLE NONDEDUCTIBILITY OF CERTAIN COMPENSATION RELATING TO HSN OPTIONS
In May 1996, HSN stockholders approved the HSN 1996 Stock Option Plan for
Employees (the "HSN Plan"), pursuant to which, among other grants, options to
purchase an aggregate of 15,900,000 shares of HSN Common Stock at a weighted
average exercise price of $8.50 per share have been granted to individuals who
are expected to be executive officers of Silver King following consummation of
the HSN Merger and the Savoy Merger. Depending upon the facts and circumstances
at the time of exercise, some or all of these options may not qualify for
exemption from Section 162(m) of the Code. Section 162(m) generally does not
permit a corporation to take tax deductions for compensation in excess of $1
million paid to its chief executive officer and other four most highly
compensated officers. If the HSN Plan is not exempt from Section 162(m) and the
exercise of such options as otherwise subject to the Section 162(m) limit, then
HSN (and, following consummation of the HSN Merger, Silver King) may not be able
to take tax deductions in excess of the Section 162(m) limit in connection with
the exercise of these HSN stock options. Assuming that an option exercise does
not qualify for exemption from Section 162(m) and that the Section 162(m) limit
has otherwise been met with respect to the individual exercising the option, the
amount of the foregone deduction per share
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would be equal to the spread between the option exercise price (adjusted to
reflect the HSN Common Conversion Ratio following the HSN Merger), and the
market price of HSN Common Stock or Silver King Common Stock, as the case may
be, on the date of exercise. Whether HSN or Silver King will be able to realize
any benefit of this potential deduction in excess of the Section 162(m) limit,
and the amount of any such deduction, is dependent upon numerous factors,
including whether such individual is, at the time of exercise, one of the
officers of HSN (or, following the HSN Merger, Silver King) to which Section
162(m) relates, the price of HSN Common Stock or Silver King Common Stock, as
the case may be, on the date an option is exercised, the number of options
exercised and other compensation paid by HSN or Silver King to the individual
exercising the option. It is not possible to predict whether HSN or Silver King
will be able to recognize any tax deduction in respect of the exercise of these
options nor the amount of the tax deduction that might otherwise have been
recognized. In the event that HSN or Silver King is unable to recognize some or
all of the benefits of the tax deduction upon exercise of these options, HSN's
or Silver King's taxes payable could be materially increased in the relevant
period.
FINANCING NEEDS OF SILVER KING AND SAVOY
It is contemplated that the conduct of the businesses of Silver King after
the Savoy Merger, will require significant funds. The combined businesses of
Silver King and Savoy may not generate cash flow sufficient to fund anticipated
funding needs of the combined company, depending, in part, on Silver King's
ability to develop programming and Savoy's ability to generate sufficient
operating cash flow from its television broadcasting business, see "-- Possible
Risks to HSN with Respect to Anticipated Change in Silver King's Broadcasting
Business." In addition, any excess cash flow generated by the operations of the
Savoy Stations is required to be used to pay down loans made by certain
financial institutions to acquire these operations. In the event that the HSN
Merger is consummated and subject to the terms of HSN's credit agreements,
Silver King believes it will have available to it sufficient funds based on
HSN's cash flow. Silver King may, prior to or shortly after the Savoy Merger
Effective Time, enter into a new credit agreement to provide additional funds
for working capital and other corporate purposes or pursue other financing
alternatives. There can be no assurance that such financing will be obtained or
that it will be obtained on terms favorable to Silver King or that such
financing, if obtained, will be sufficient for the combined company's capital
requirements. Savoy experienced net losses in each of fiscal years 1995, 1994
and 1993 as well as for the nine months ended September 30, 1996, and Silver
King expects that the Savoy Merger will initially have a significant dilutive
impact on Silver King's earnings per share. See "Savoy Merger and Related
Transactions -- Opinions of Certain Financial Advisors -- Opinions of First
Boston, Financial Advisor to Silver King."
As of September 30, 1996, the Savoy Stations had an aggregate of $131.5
million in loans outstanding under the Savoy Stations' bank credit facility. In
order for the Savoy Stations to comply with a covenant regarding broadcast cash
flow, Savoy and Fox each contributed approximately $20 million (a total of $40
million) to the capital of the Savoy Stations in November 1996 pursuant to a
pre-existing agreement entered into in connection with the closing of the bank
credit facility, which, in turn, was used by the Savoy Stations to pay down such
loans to approximately $90 million. It is anticipated that another capital
contribution with respect to the four quarters ending December 31, 1996 will
have to be made by Savoy and Fox (in an amount which will be significantly lower
than the November contribution) to the Savoy Stations in order for the Savoy
Stations to reduce indebtedness under the Savoy Stations' credit facility and be
in compliance with such covenant.
POSSIBLE RISKS TO HSN WITH RESPECT TO ANTICIPATED CHANGE IN SILVER KING'S
BROADCASTING BUSINESS
Each of Silver King and HSN is, at present, highly dependent on the other
for the success of its operations. Silver King's current operations primarily
involve the broadcast of programming (up to 159 hours per week for each Silver
King Station) produced by HSN and its subsidiaries pursuant to 11 affiliation
agreements covering the 12 Silver King Stations (the "Affiliation Agreements").
By their terms, the Affiliation Agreements automatically renew for additional
five-year terms on December 28, 1997 and December 28, 2002 unless Silver King
provides notice of nonrenewal by December 28, 1996 (a six-month extension from
the prior deadline, which extension has been provided for in an amendment to the
Affiliation Agreements) and June 28, 2001, respectively, with respect to such
renewal terms. Thereafter, the Affiliation
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Agreements automatically renew for successive five-year terms unless and until
either party provides the other with written notice of nonrenewal.
No decision has been made by Silver King regarding whether it will renew
any or all of the Affiliation Agreements, or whether Silver King will, instead,
develop and broadcast programming independently of HSN. Silver King believes
there is a substantial likelihood that it will not terminate the Affiliation
Agreements, unless it receives adequate assurances that its broadcast signal
will be carried by cable systems presently carrying Silver King's broadcast
signal. However, Silver King is of the view that there may be other uses of
Silver King's broadcasting capacity that may better serve Silver King's
interests and, subject to such assurances, would be in favor of terminating the
Affiliation Agreements and programming these stations on a local basis, either
by itself or with partners. See "Summary -- Recent Developments." If Silver King
does not renew the Affiliation Agreements, such Affiliation Agreements would
then terminate 18 months after Silver King notifies HSN of its decision to not
to renew such Affiliation Agreements. After evaluating the needs and costs of
additional program carriage, HSN believes that the orderly termination of the
Affiliation Agreements may be in HSN's best interests because of the potential
cost savings and the existing cable carriage of HSC programming in many of the
Silver King markets. HSN has obtained carriage of its programming in many of the
Silver King markets through long-term cable affiliation agreements. As a result,
Silver King and HSN are discussing the process for an orderly termination of
such Affiliation Agreements in the event the agreements are not renewed, and HSN
and Silver King have initiated preliminary discussions in a number of markets
for the purpose of securing alternative carriage of its programming.
If the Affiliation Agreements are terminated, there may be a disruption in
the revenues of the Silver King Stations because HSN will no longer pay the
license fees to Silver King and the Silver King Stations will likely not
generate comparable revenue during this transitional stage. Depending upon the
availability and cost of alternative carriage for HSN programming, termination
of the Affiliation Agreements could also disrupt HSN's ability to reach existing
customers and may cause a reduction in HSN's revenues. HSN may also incur
additional expenses (including the making of upfront payments), which could be
substantial, in connection with entering into cable distribution agreements with
other cable system operators for the purpose of securing alternative carriage of
its programming. In addition, during this period, substantial expenditures would
be required to develop Silver King programming and promotions, requiring
significant capital expenditures, which, during this developmental and
transitional stage, will not be offset by sufficient revenues. Silver King
believes that the process of disengagement of HSN and Silver King can be
successfully managed to minimize these adverse consequences.
There can be no assurance that, if Silver King terminates any or all of the
Affiliation Agreements, Silver King will be successful in its strategy to
develop and broadcast its own programming, whether on a local or national basis,
or that HSN will be able to find other means of distributing its programming on
favorable terms to the households in the broadcast areas currently served by
Silver King Stations. Regardless of whether the HSN Merger occurs, the
consequences of any of the foregoing decisions will impact the business,
financial condition and results of operations of Silver King and HSN.
MINORITY INTEREST IN HSN
Upon consummation of the HSN Merger (and without giving effect to the
issuance of Silver King Securities pursuant to the Exchange Agreement), Liberty
will retain up to an approximate 19.9% equity interest in the HSN Surviving
Corporation, with Silver King owning the remaining equity interest and
approximately 91% of the voting power of outstanding HSN Surviving Corporation.
The existence of Liberty as a minority HSN shareholder imposes certain
limitations on transactions between HSN and Silver King, including limitations
with respect to use of funds generated by HSN's operations. While Silver King
does not believe that such limitations will be material, they may impact the
ability of Silver King to use excess cash flow and earnings generated by HSN. In
addition, the terms of the Contingent Rights and the Exchange Agreement contain
certain restrictions on, among other things, certain actions by Silver King with
respect to HSN following the HSN Merger. See "HSN Merger Agreement and
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Related Transaction Agreements -- HSN Merger Agreement -- Contingent Rights" and
"-- Terms of Exchange Agreement."
LOSSES RELATING TO SAVOY TELEVISION STATIONS AND SAVOY FILMED ENTERTAINMENT
BUSINESS
Beginning in late 1995 and in 1996, the Savoy Stations switched their
affiliation to Fox. Fox has advised Savoy management that it will not terminate
the affiliation agreements due to the Savoy Merger. Because the Savoy Stations
have only recently changed their network affiliation to Fox, there can be no
assurance that the new network affiliation will be successful for Savoy. Based
on the experience of other companies' stations that have changed their
affiliation to Fox, the short-term period following such a change is a
transitional one, which it is believed may adversely impact revenues and, to a
greater relative extent, net income and broadcast cash flow. The Savoy Stations
have experienced during the first two quarters of 1996, and are continuing to
experience, such effects. For the six months ended June 30, 1996, aggregate
revenues for the Savoy Stations decreased by approximately 22% compared to the
comparable period of 1995 and broadcast cash flow decreased by a significantly
greater extent in comparison to the comparable period of 1995. The longer-term
performance of the Savoy Stations after the initial transition period (which may
last up to 12 to 18 months) will depend upon the management of each station in
its local market, the adaptability of that station, its programming and Fox's
programming to the local market and the desire of advertisers to place
advertising on each station, as to all of which there can be no assurance.
Savoy's filmed entertainment business has experienced, and may in the
future experience, significant operating losses due to a variety of factors,
including poor performance of Savoy's released films, as well as costs
associated with Savoy's activities in refocusing its resources. A large portion
of Savoy's net operating losses for federal tax purposes, it is expected, will
not be available to offset any future taxable income of Silver King. In
September 1995, Savoy announced its intention to increase its focus on the
television broadcasting business and reduce the capital committed to the film
entertainment business, and since that time has taken steps to suspend its
marketing and distribution business, substantially reduced its activity in film
development and production and increasingly relied on agreements with third
parties to market and distribute films to which Savoy has certain rights. To
that end, Savoy (other than its television business) has reduced its number of
employees by approximately two-thirds since the fourth quarter of 1995. There
can be no assurance, however, that such measures will be successful or will
result in an improvement in Savoy's financial condition.
SAVOY MERGER AGREEMENT AMENDMENT
Due primarily to the significant decline in the performance of the Savoy
Stations since the date of the November Savoy Merger Agreement, Silver King
negotiated with Savoy the reduction in the Savoy Conversion Ratio from 0.20 of a
share of Silver King Common Stock per share of Savoy Common Stock to 0.14 of a
share of Silver King Common Stock. In connection with such reduced ratio, Silver
King also agreed to certain amendments to Savoy's representations and warranties
relating to events after August 13, 1996 (the date of the Savoy Merger Agreement
Amendment), such that the Savoy Merger Agreement (as so amended) effectively
limits Silver King's ability to terminate the Savoy Merger Agreement due to
changes after that date in Savoy's business and financial condition, including
the financial performance of the Savoy Stations and of any Savoy films under
development, production or distribution, or other events that do not
significantly impair the long-term value of Savoy. See "Savoy Merger and Related
Transactions -- Savoy Merger Agreement -- Representations and Warranties;
Covenants." As a result of these amendments, Silver King could be obligated to
consummate the Savoy Merger despite the occurrence of certain events that are
materially adverse to Savoy's business or financial condition, including,
without limitation, a further decline in the operating performance or cash flow
of the Savoy Stations.
INTEGRATION OF OPERATIONS; MANAGEMENT OF GROWTH
The integration of Silver King's and Savoy's operations following the Savoy
Merger and of Silver King's and HSN's operations following the HSN Merger will
require the dedication of management resources, which will temporarily detract
attention from the day-to-day business of the combined company. The difficulties
of assimilation may be increased by the necessity of coordinating geographically
separated organizations,
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integrating personnel with disparate business backgrounds and combining
different corporate cultures. The process of combining the organizations may
cause an interruption of, or a loss of momentum in, the activities of any or all
of the companies' businesses, which could have an adverse effect on the revenues
and operating results of the combined company, at least in the near term. There
can be no assurance that the combined entity will be able to retain its key
technical and management personnel or that the combined entity will realize any
of the other anticipated benefits of the Savoy Merger and the HSN Transactions.
In addition, based on the Savoy Conversion Ratio and the HSN Conversion Ratio,
Silver King expects to experience significant dilution of its earnings per share
for approximately two years following consummation of both the Savoy Merger and
the HSN Transactions. See "Special Factors Relating to the HSN Transactions --
Opinions of Certain Financial Advisors -- Opinions of First Boston, Financial
Advisor to Silver King."
INDEPENDENCE OF THE SAVOY MERGER AND THE HSN MERGER; STOCKHOLDER APPROVALS
Although the obligations of the parties to consummate the HSN Merger are
conditioned upon consummation of the Savoy Merger, the Savoy Merger and the HSN
Merger are generally independent transactions. There can be no guarantee or
assurance that, if the Savoy Merger is consummated, the HSN Transactions will be
consummated at any time thereafter, and consummation of the Savoy Merger does
not otherwise obligate the parties to the HSN Merger to cause the HSN Merger to
occur unless all other conditions to such consummation have been satisfied. The
approvals of stockholders of Silver King and Savoy at the Silver King Meeting
and the Savoy Meeting, respectively, with respect to consummation of the Savoy
Merger are not conditioned upon consummation of the HSN Merger and are
independent of the approvals required for the HSN Merger, and Silver King and
Savoy stockholders are being asked to approve the requisite matters in
connection with the Savoy Merger whether or not the HSN Merger is or at some
time in the future will be consummated. Based on the number of Silver King
Securities as to which Mr. Diller has voting control and the requirements of the
Silver King Stockholder Voting Agreement and the Second Silver King Stockholder
Voting Agreement, the approval at the Silver King Meeting of the Savoy Merger
NASD Proposal and the HSN Merger NASD Proposal is assured but, as described
below, the HSN Merger Agreement requires approval by the holders of HSN Common
Stock (other than Liberty and its affiliates) as well as approval by Silver King
stockholders of the Authorized Capital Stock Amendment Proposal, neither of
which approval is assured).
At the HSN Meeting, holders of HSN Common Stock other than Liberty and its
controlled affiliates will vote separately on the HSN Merger, and approval by a
majority of such holders present and voting with respect to such matter is a
condition to the parties' obligations to consummate the HSN Merger under the HSN
Merger Agreement. In addition, the holders of a majority of the outstanding
Silver King Common Stock must approve the Authorized Capital Stock Amendment
Proposal in order for the HSN Transactions to be consummated in accordance with
their terms, the outcome of which matter Liberty and Mr. Diller do not control.
There can be no assurance that such stockholder approvals will be obtained. In
the event that such approvals are not obtained at the HSN Meeting or the Silver
King Meeting (or at any postponement or adjournment thereof), the HSN Merger
could not be consummated (except, in the case where legally permitted, the
parties waive such conditions).
Notwithstanding the receipt of the required stockholder approvals in
connection with the applicable transactions, the respective parties to each of
the Savoy Merger Agreement and HSN Merger Agreement may terminate such agreement
by mutual consent as specified in such agreement and under certain other
circumstances specified in the respective agreements.
REGULATION
Current FCC Regulation
The communications industry, including the ownership, use and transfer of
the Silver King Licenses, and the broadcast of programming over television
stations owned or operated by Silver King (including, after the Savoy Merger,
the Savoy Stations), is subject to substantial federal regulation, particularly
pursuant to the Communications Act of 1934, as amended (the "1934 Act") and the
rules and regulations promulgated
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thereunder. The 1934 Act prohibits the operation of television broadcasting
stations except under a license issued by the FCC and empowers the FCC, among
other matters, to issue, renew, revoke and modify broadcast licenses, to
determine the location of stations, to establish areas to be served and to
regulate certain aspects of broadcast programming. The 1934 Act prohibits the
assignment of a broadcast license or the transfer of control of a licensee
without FCC prior approval. If the FCC determines that violations of the 1934
Act or any FCC rule have occurred, it may impose sanctions ranging from
admonishment of a licensee to license revocation.
The 1934 Act provides that a broadcast license may be granted to any
applicant if the public interest, convenience and necessity will be served
thereby, subject to certain limitations. Under regulations promulgated by the
FCC pursuant to the 1934 Act and in effect as of the date of this Joint Proxy
Statement/ Prospectus, television broadcast licenses are issued initially for
terms of five years. Upon application, and in the absence of a conflicting
application (which, prior to passage of the Telecommunications Act of 1996 (the
"1996 Act"), could be filed in limited circumstances) or an adverse finding as
to the licensee's qualifications, broadcast licenses usually have been renewed
without a hearing by the FCC for additional terms of up to five years.
Current FCC regulations also impose significant restrictions on certain
positional and ownership interests in broadcast and other media. The officers,
directors and certain of the equity owners of a broadcasting company are deemed
to have "attributable interests" in the broadcasting company. In the case of a
corporation controlling or operating television stations, ownership is
attributed only to officers, directors and stockholders who own 5% or more of
the company's outstanding voting stock. Institutional investors, including
mutual funds, insurance companies and banks acting in a fiduciary capacity, may
own up to 10% of the outstanding voting stock without being subject to
attribution, provided that such stockholders exercise no control over the
management or policies of the broadcasting company.
Under current FCC rules governing multiple ownership of broadcast stations,
a license to operate a television station will not be granted (unless
established waiver standards are met) to any party (or parties under common
control) that has an attributable interest in another television station with an
overlapping service area (the "Local Restriction"). The rules also currently
prohibit (with certain qualifications) the holder of an attributable interest in
a television station from also having an attributable interest in a radio
station, daily newspaper or cable television system serving a community located
within the relevant coverage area of that television station. Separately, the
FCC's "cross-interest" policy may, in certain circumstances, prohibit the common
ownership of an attributable interest in one media outlet and a non-attributable
equity interest in another media outlet in the same market. On December 15,
1994, the FCC adopted notices of proposed rulemaking to consider (i) the
modification of its attribution rules (including the exemption from attribution
for holders of non-voting stock) and "cross-interest" policy involving
nonattributable equity interests, and (ii) the modification of the Local
Restriction.
Telecommunications Act of 1996
On February 8, 1996, President Clinton signed the 1996 Act, which amends
the 1934 Act. The 1996 Act, among other measures, directs the FCC to (i) modify
its rules in order to permit an entity to have an attributable interest in an
unlimited number of United States television stations so long as such stations
do not reach, in the aggregate, more than 35% of the national television
audience (the "National Restriction"); (ii) conduct a rulemaking proceeding to
determine whether to retain, modify or eliminate the Local Restriction; and
(iii) conduct a rulemaking proceeding to determine whether to extend the license
term for television stations to eight years. The 1996 Act also prohibits the
filing of conflicting applications, under any circumstances, in connection with
broadcast station license renewals, and repeals the former statutory ban on
common ownership of a broadcast television station and a cable television system
serving a community located within the relevant coverage area of the television
station. As noted above, FCC rules continue to prohibit local broadcast/cable
cross-ownership. On March 8, 1996, the FCC issued an order that has now become
effective and that implements the National Restriction. This order makes it
possible for Silver King to own all of its current stations as well as the Savoy
Stations. The Savoy FCC Approvals were granted on August 16, 1996 and became
final on September 25, 1996. On April 12, 1996, the FCC issued a Notice of
Proposed
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Rulemaking in which it has proposed to extend the license terms for television
stations from five to eight years. It is not possible to predict when a decision
on this proposal will be issued. The 1996 Act also requires the cable and
broadcast industries to develop and transmit an encrypted rating that would
permit the blocking of violent or indecent video programming and allow telephone
companies to operate cable television systems in their own service areas. On
November 7, 1996, the FCC issued notices soliciting additional public comment in
connection with its pending rulemaking proceedings addressing the 1996 Act's
directives and other issues with respect to the Local Restriction, the
attribution rules and the cross-interest policy. The FCC seeks comment on, among
other things, a proposal that would effectively codify the cross-interest policy
to the extent it was applied in the FCC Orders to limit TCI's beneficial equity
interest in Silver King. The FCC has proposed to prohibit common ownership of a
media company and a greater than 33% non-voting equity interest in another media
company in the same market, but has requested comment on whether a higher or a
lower non-voting equity benchmark would be more appropriate. The comment cycle
is scheduled to end on March 7, 1997. However, it is not possible to predict the
extent to which the Local Restriction may be modified or the timing or effect of
other changes in FCC rules or policies pursuant to the 1996 Act or pending FCC
rulemaking proceedings.
Review of "Must-Carry" Rules
FCC regulations implementing the Cable Television Consumer Protection and
Competition Act of 1992 (the "1992 Cable Act") require each television
broadcaster to elect, at three-year intervals beginning June 17, 1993, either to
(i) require carriage of its signal by cable systems in the station's market
("must-carry") or (ii) negotiate the terms on which such broadcast station would
permit transmission of its signal by the cable systems within its market
("retransmission consent"). In a 2-1 decision issued on December 13, 1995, a
special three-judge panel of the U.S. District Court for the District of
Columbia upheld the constitutionality of the must-carry provisions. The District
Court's decision has been appealed to the U.S. Supreme Court, which has heard
the appeal and is expected to issue a decision prior to June 30, 1997. A Supreme
Court ruling reversing the District Court's decision could permit cable systems
to terminate carriage of the Silver King Stations and other HSN-affiliated
television stations which elected mandatory cable carriage under the must-carry
provisions. In most of the broadcast areas in which HSN has obtained carriage
pursuant to must-carry regulations, HSN has also obtained carriage through other
arrangements with cable operators. In the meantime, the FCC's must-carry
regulations implementing the 1992 Cable Act remain in effect. Silver King cannot
predict the outcome of the Supreme Court review of the case. Termination of
carriage of the Silver King Stations could have an adverse impact on Silver King
or HSN due to revenue loss. In addition, the elimination of must-carry
regulations would adversely affect Silver King's ability to obtain carriage of
programming that it may develop in the future. See "-- Possible Risks to HSN
with Respect to Anticipated Change in Silver King's Broadcasting Business."
Other FCC Regulations and Policies
On August 8, 1996, under the Children's Television Act of 1990 (the "CTA"),
the FCC amended its rules to establish a "processing guideline" for broadcast
television stations of at least three hours per week, averaged over a six-month
period, of "programming that furthers the educational and informational needs of
children 16 and under in any respect, including the child's
intellectual/cognitive or social/emotional needs." Children's "Core Programming"
has been defined as educational and informational programming that, among other
things, (i) has serving the educational and informational needs of children "as
a significant purpose," (ii) has a specified educational and informational
objective and a specified target child audience, (iii) is regularly scheduled,
weekly programming, (iv) is at least 30 minutes in length, and (v) airs between
7:00 a.m. and 10:00 p.m. Any station that satisfies the processing guideline by
broadcasting at least three weekly hours of Core Programming will receive FCC
staff-level approval of the portion of its license renewal application
pertaining to the CTA. Alternatively, a station may qualify for staff-level
approval even if it broadcasts "somewhat less" than three hours per week of Core
Programming by demonstrating that it has aired a weekly package of different
types of educational and informational programming that is "at least equivalent"
to three hours of Core Programming. Non-Core Programming that can qualify under
this alternative includes specials, public service announcements, short-form
programs and regularly scheduled non-weekly programs, with "a
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significant purpose of educating and informing children." A licensee that does
not meet the processing guideline under either of these alternatives will be
referred by the FCC's staff to the Commissioners of the FCC, who will evaluate
the licensee's compliance with the CTA on the basis of both its programming and
its other efforts related to children's educational and informational
programming, e.g., its sponsorship of Core Programming on other stations in the
market, or nonbroadcast activities "which enhance the value" of such
programming. A television station ultimately found not to have complied with the
CTA could face sanctions including monetary fines and the possible non-renewal
of its broadcast license.
The FCC is conducting a rulemaking proceeding to devise a table of channel
allotments in connection with the introduction of advanced (or "high
definition") television service ("ATV"). The FCC has preliminarily allotted a
second broadcast channel to each full-power commercial television station for
ATV operation. According to this preliminary decision, stations would be
permitted to phase in their ATV operations over a period of several years
following adoption of a final table of allotments, after which they would be
required to surrender their non-ATV channel. Meanwhile, Congress is considering
proposals that would require incumbent broadcasters to bid at auctions for the
additional spectrum required to effect a transition to ATV, or, alternatively,
would assign additional ATV spectrum to incumbent broadcasters and require the
early surrender of their non-ATV channel for sale by public auction. It is not
possible to predict if, or when, any of these proposals will be adopted or the
effect, if any, adoption of such proposals would have on the business of Silver
King, Savoy, HSN or the combined company.
The FCC currently is reviewing certain of its rules governing the
relationship between broadcast television networks, including HSN and Fox, and
their affiliated stations. The FCC is conducting a rulemaking proceeding to
examine its rules prohibiting broadcast television networks from representing
their affiliated stations for the sale of non-network advertising time and from
influencing or controlling the rates set by their affiliates for the sale of
such time. Separately, the FCC is conducting a rulemaking proceeding to consider
the relaxation or elimination of its rules prohibiting broadcast networks from
(i) restricting their affiliates' right to reject network programming, (ii)
reserving an option to use specified amounts of their affiliates' broadcast time
and (iii) forbidding their affiliates from broadcasting the programming of
another network; and to consider the relaxation of its rule prohibiting network
affiliated stations from preventing other stations from broadcasting the
programming of their network.
There are additional FCC regulations and policies, and regulations and
policies of other federal agencies, affecting the business and operations of
broadcast stations. Proposals for additional or revised rules are considered by
federal regulatory agencies and Congress from time to time. It is not possible
to predict the resolution of these issues or other issues discussed above,
although their outcome could, over a period of time, affect, either adversely or
favorably, the broadcasting industry generally or Silver King, the Savoy
Stations or HSN specifically.
The foregoing does not purport to be a complete summary of all the
provisions of the 1934 Act, the 1996 Act or other Congressional acts or of the
regulations and policies of the FCC thereunder. Reference is made to the 1934
Act, the 1996 Act, other Congressional acts, such regulations and policies, and
the public notices promulgated by the FCC for further information.
Status of Required FCC Approvals
On September 13, 1995, applications were filed with the FCC for consent to
transfer control of Silver King from Roy M. Speer to BDTV (collectively, the
"BDTV FCC Application"). In a Memorandum Opinion and Order released on March 11,
1996 (the "March 11 MO&O"), the FCC granted the BDTV FCC Application, subject to
certain conditions, including that the prior approval of the FCC be obtained for
any increase in Liberty's ownership interests in Silver King (the "Investment
Condition") and for any material increase in the percentage of subscribers of
cable systems owned by TCI within the markets served by any of Silver King's
television stations (the "Subscriber Condition") and any substantial and
material modification to the August Stockholders Agreement. Concurrently, the
FCC stayed the effectiveness of that grant pending an investigation of certain
allegations made against Silver King by Urban Broadcasting Corporation
("Urban"), the permittee of Station WTMW(TV), Arlington, Virginia, an entity in
which Silver King holds
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non-voting equity securities and to which it acted as primary lender in
connection with the construction of WTMW(TV). On April 10, 1996, BDTV filed a
Request for Clarification of the March 11 MO&O insofar as it imposed the
Subscriber Condition. In a Memorandum Opinion and Order and Notice of Apparent
Liability released on June 14, 1996 (the "June 14 MO&O," and together with the
March 11 MO&O, the "FCC Orders"), the FCC affirmed its grant of the BDTV FCC
Application and deleted the Subscriber Condition. In the June 14 MO&O, the FCC
required that BDTV notify the FCC prior to the consummation of an acquisition by
Liberty or TCI of cable systems, or other transaction, whereby the aggregate
percentage of television households served by cable systems owned or controlled
by TCI in any of the Silver King television markets would exceed 50%. The June
14 MO&O also retained the restrictions with respect to the ability of the
parties thereto to amend the August Stockholders Agreement. Separately, the FCC
also concluded that Urban had improperly ceded, and Silver King had exercised,
control over WTMW(TV) during construction of the station between approximately
1990 and 1993, and that Silver King's interests in Urban had violated the Local
Restriction on television ownership. See "-- Telecommunications Act of 1996."
The FCC imposed fines of $25,000 and $150,000, respectively, against Urban and
Silver King. The FCC also required that certain provisions of the agreements
between Silver King and Urban, and comparable provisions in similar agreements
between Silver King and Jovon Broadcasting Corporation, licensee of WJYS(TV),
Hammond, Indiana, be reformed in order to reduce the risk of future rules
violations. The June 14 MO&O dissolved the stay relating to the March 11 MO&O.
On April 8, 1996, Silver King filed applications at the FCC for consent to
the transfer of control of the Savoy Stations to Silver King (collectively, the
"Savoy FCC Application"). On August 16, 1996, the FCC granted the Savoy FCC
Application and made the requisite findings in connection therewith. On
September 25, 1996, the Savoy FCC Approvals became final.
Although prior FCC approval of the transfer of control of certain satellite
earth stations controlled by HSN is required with respect to the HSN Merger, no
further formal FCC approval is required with respect to the HSN Transactions
(although the documents relating to the HSN Transactions and the First Amendment
have been submitted to the FCC for their review). On October 30, 1996, the FCC
issued a public notice of the filing of applications for FCC approval of the
transfer of control of certain satellite earth stations from Liberty HSN to
Silver King. Interested parties have a 30-day period, ending on November 29,
1996, in which to file timely petitions to deny the applications, after which
date, in the absence of any such petitions, the applications will be grantable
by the FCC. The FCC concluded in the June 14 MO&O that Liberty's current
indirect interest in Silver King is 32.07%, as adjusted to reflect an imputed
"control" premium of 50% imposed by the FCC on Liberty's 21.37% current economic
ownership of Silver King. The HSN Transactions have been structured so that
Liberty's indirect interest in Silver King will not increase beyond the
percentage level approved by the FCC in order to comply with the FCC's
"cross-ownership" policy, which, in certain circumstances, may be applied to
prohibit the common ownership of a cable television system and a greater than
approximately 33.3% indirect interest in a broadcast television station serving
substantially the same area. Certain cable television systems owned by
subsidiaries and affiliates of TCI serve portions of the markets served by the
Silver King Stations. As required by the terms of the FCC Orders, on September
30, 1996, Silver King submitted to the FCC the First Amendment and the HSN
Merger Agreement and certain other documents related to the HSN Transactions for
review by the FCC. In informal conversations prior to the September 30 filing,
the FCC staff indicated to Silver King that it expected to be able to complete
its review of the documents within 30 days of their submission, and Silver King
advised the FCC in its filing that it was proceeding under the assumption that
it would receive FCC comments, if any, within such 30-day period. The FCC has
not responded to Silver King's submission. There can be no assurance that the
FCC's review of these documents or the HSN Transactions will be favorable, or
that the FCC will not impose conditions unacceptable to Liberty, Mr. Diller or
Silver King in connection with its review.
In view of the fact that Mr. Diller has been approved by the FCC as the
controlling person of Silver King, no one else, including Liberty, may under
applicable FCC Regulations control (as defined by applicable FCC Regulations)
Silver King (including through ownership of voting stock of a BDTV Entity)
without first obtaining FCC approval. Any such transferee would have to
demonstrate that it was qualified under then-
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applicable FCC Regulations to control Silver King. In the event that Mr. Diller
no longer had the authority pursuant to the Stockholders Agreement to exercise
voting control over the Silver King Securities subject to that agreement,
Liberty, under current FCC Regulations, could not exercise such voting control,
and another arrangement, such as a voting trust with a trustee approved by the
FCC or a stockholders agreement between Liberty and another qualified person
approved by the FCC, would have to be implemented.
DILUTION; SHARES ELIGIBLE FOR FUTURE SALE; POSSIBLE VOLATILITY OF SILVER KING
COMMON STOCK
Silver King stockholders will experience immediate and substantial dilution
in their percentage voting and equity interest in Silver King in the event that
either the Savoy Merger or both the Savoy Merger and the HSN Merger are
consummated. As of the Silver King Record Date, there were 7,083,332 shares of
Silver King Common Stock and 2,415,945 shares of Silver King Class B Common
Stock outstanding. Approximately 4,205,870 shares of Silver King Common Stock
will be issued in the Savoy Merger, with an additional approximate 664,016
shares reserved for issuance upon exercise of outstanding Savoy Warrants, Savoy
Options, Savoy Debentures and the Savoy Note convertible into Savoy Common
Stock, all of which will be assumed by Silver King at the Savoy Merger Effective
Time. In general, the shares issued in the Savoy Merger will be freely
tradeable, subject, in certain cases, to limitations on sales by affiliates of
Savoy. Pursuant to the HSN Merger, Silver King will initially issue 24,494,785
shares of Silver King Common Stock and 7,756,564 shares of Silver King Class B
Common Stock, with an additional approximate 12,217,114 shares of Silver King
Common Stock reserved for issuance upon exercise of outstanding HSN Options and
conversion of the HSN Debentures. Upon full satisfaction of the Contingent
Rights, an additional 2,644,299 shares of Silver King Class B Common Stock will
be issued, and upon the exchange of the Exchange Shares, an additional 7,905,016
shares of Silver King Common Stock and 399,136 shares of Silver King Class B
Common Stock will be issued (which numbers are subject to adjustment in certain
circumstances) (in each case, without giving effect to additional Silver King
Securities that may be issued in certain circumstances in connection with Silver
King's tax gross up obligation pursuant to the Contingent Rights or the
Exchange). In addition, subject to consummation of the Savoy Merger and the HSN
Merger and the approval of the 1995 Stock Incentive Plan Proposal by Silver King
stockholders, Mr. Diller has been granted options to purchase an additional
625,000 shares of Silver King Common Stock. In general, the shares issued in the
HSN Transactions will be freely tradeable, subject, in certain cases, to
limitations on sales by affiliates of HSN.
If both the Savoy Merger and the HSN Merger occur (and without giving
effect to the issuance of the Contingent Rights Shares and the Exchange Shares),
there will be an approximate initial 384% increase in the outstanding Silver
King Securities as of the Silver King Record Date. Although 7,756,564 shares of
Silver King Class B Common Stock, which represent approximately 21% of the
Silver King Securities to be issued initially in the Savoy Merger and the HSN
Merger will be held by a BDTV Entity and (along with all Silver King Securities
currently held by or issued to Liberty) will be subject to the Stockholders
Agreement, which contains certain restrictions on the sale or other transfer of
such securities, and shares of Silver King Common Stock issued to affiliates of
Savoy in the Savoy Merger will also be subject to certain restrictions on resale
pursuant to the Exchange Act and rules promulgated thereunder, sales of
substantial amounts of Silver King Common Stock (including the issuance of
shares of Silver King Common Stock upon conversion of Silver King Class B Common
Stock or in connection with the Contingent Rights Shares and the Exchange
Shares) or the availability of substantial amounts of Silver King Common Stock
for future sale could adversely affect the prevailing market price of the Silver
King Common Stock. See "Savoy Merger and Related Transactions -- Interests of
Certain Persons in the Savoy Merger -- Silver King" and "-- Affiliates'
Restrictions on Resale of Silver King Common Stock."
For a discussion of certain other potentially dilutive provisions of the
Contingent Rights and the Exchange Agreement, see "-- Potential Dilution to
Silver King Stockholders from Certain Provisions of the Contingent Rights and
the Exchange Agreement."
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COMPETITION
The markets for Silver King's, Savoy's and HSN's products and services are
intensely and increasingly competitive. Certain of Silver King's, Savoy's and
HSN's competitors have greater financial, technical, marketing, sales and
customer support resources than Silver King, Savoy and HSN. In addition to
competitors in the electronic retailing industry, HSN must compete with store
and catalogue retailers and its business, financial condition and results of
operations can be adversely affected by changes in the general retailing
industry. HSN also competes for distribution of its programming with other cable
programmers, many of whom have substantially greater resources. There can be no
assurance that the combined company will compete successfully in the future.
Silver King, Savoy and HSN expect that the environment of increased competition
may place significant strain on Silver King's, Savoy's and HSN's marketing,
technological and financial resources, possibly affecting the combined
companies. Silver King also expects that such competition may affect HSN's
profitability.
REDUCTION OF CERTAIN OPERATIONS; RESTRUCTURING CHARGES; INVENTORY WRITEDOWNS
Over the last 12 months, Silver King has restructured, and Savoy has
suspended and reduced, certain operations in order to streamline their
respective businesses and to improve operating results. In connection with its
operational restructuring, Silver King relocated its corporate headquarters to
Los Angeles, California, reduced staffing at certain of the Silver King Stations
and recognized $2.0 million of expense for restructuring charges (all of which
relate to termination benefits, except for $100,000 which is the estimated
charge for the relocation). Savoy has suspended its marketing and distribution
operations. To that end, Savoy (other than in its television station business)
has reduced its number of employees by approximately two-thirds since the fourth
quarter of 1995 and, in connection therewith, incurred $3.8 million in severance
and related costs. Although Savoy has reserved certain amounts in connection
with the anticipated costs of such suspension and reduction, Savoy may incur
substantial additional charges in connection therewith.
In addition, over the past several months, Silver King has reduced its
activity in connection with certain television operating activities and has
incurred restructuring charges in connection therewith.
In 1995, management of HSN undertook a comprehensive review of HSN's
merchandising and programming strategies, operations and budget. In that
connection, HSN established substantial reserves and recorded certain
write-downs as of December 31, 1995 with respect to such matters as inventory,
equipment, employee severance and related termination benefits and pending
litigation.
Additionally, following the HSN Transactions, Silver King will recognize
substantial expenses relating to the amortization of goodwill recorded in
connection with the HSN Merger, which will result in a non-cash amortization
expense of approximately $26 million per year.
UNCERTAINTY OF PENDING TRANSACTIONS
Each of the Savoy Merger and the HSN Merger is subject to material
conditions to consummation, including, among other things, (i) receipt of
required regulatory approvals, including, in the case of the Savoy Merger,
receipt of the Savoy FCC Approvals (which were received on August 16, 1996 and
became final on October 2, 1996) and, in the case of the HSN Merger, the HSN FCC
Approval, (ii) certain approvals of the stockholders of each of Savoy, Silver
King and HSN (including, in the case of HSN stockholders, the affirmative vote
of the holders (other than Liberty and its affiliates) of a majority of the HSN
Common Stock present and voting at the HSN Meeting with respect to the HSN
Merger, and, (iii) in the case of the HSN Merger, approval of Silver King
stockholders of the Authorized Capital Stock Amendment Proposal. The HSN Merger
is also conditioned upon consummation of the Savoy Merger. In addition, while
the HSN Merger has been structured to comply with FCC regulations, rules and
orders, there can be no assurance that the HSN FCC Approval will be obtained or,
if obtained, the FCC will not impose conditions in connection with its review of
the amendments to the Stockholders Agreement contained in the First Amendment
that may be unacceptable to Silver King, Mr. Diller or Liberty. Each of the
Savoy Merger and the HSN Merger is a substantial transaction for Silver King,
and the failure to consummate either or both transactions may materially impact
the operating and financial performance of Silver King and the market price of
the Silver King Common Stock. Likewise, the failure to consummate the Savoy
Merger or the HSN Merger, as the case
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may be, may materially impact, respectively, Savoy's or HSN's operating and
financial performance and the market price of their respective common stock.
There can be no assurance as to when, if at all, the conditions and other
contingencies with respect to each of the Savoy Merger and the HSN Merger will
be satisfied, or as to whether the conditions and contingencies to each
transaction will be satisfied at substantially the same time. Similarly, there
can be no assurance that the parties to either or both of the transactions will
not decide to abandon any of such transactions. See "-- Independence of the
Savoy Merger and the HSN Merger; Stockholder Approvals."
CERTAIN LITIGATION
In August 1996, after announcement that Silver King, House, Liberty HSN and
HSN had entered into the HSN Merger Agreement, certain HSN stockholders filed
five putative class action lawsuits in the Delaware Court of Chancery on behalf
of a purported class consisting of all public stockholders of HSN (other than
Liberty and its controlled affiliates). See "Special Factors Relating to the HSN
Transactions -- Certain Litigation." The actions have been consolidated for all
purposes. The complaint in the consolidated action seeks as relief, among other
things, an injunction preventing consummation of the HSN Transactions as well as
unspecified compensatory damages. Silver King and HSN believe that the claims in
the consolidated action are without merit, and do not believe it is reasonably
possible that the actions will be successful or otherwise materially adversely
affect the ability of the parties to consummate, and realize the benefits for
their respective stockholders of, the HSN Transactions. There can be no
assurance, however, that such plaintiffs will not be successful, and neither
Silver King nor HSN can estimate, based on facts available as of the date of
this Joint Proxy Statement/Prospectus, the possible adverse effects of such a
result, which could include the inability to consummate the HSN Transactions,
rescission of the HSN Transactions and/or monetary damages.
THE SILVER KING MEETING
DATE, TIME AND PLACE OF MEETING
The Silver King Meeting will be held on December 19, 1996 at 11:00 a.m.,
local time, at The Four Seasons Hotel, 57 East 57th Street, New York, New York.
RECORD DATE AND OUTSTANDING SHARES
Only holders of record of Silver King Common Stock and Silver King Class B
Common Stock at the close of business on November 13, 1996, the Silver King
Record Date, are entitled to notice of and to vote at the Silver King Meeting.
At the close of business on the Silver King Record Date, there were 7,083,132
shares of Silver King Common Stock outstanding and entitled to vote, held of
record by 5,250 stockholders, and 2,415,945 shares of Silver King Class B Common
Stock outstanding and entitled to vote, held of record by two stockholders.
Each Silver King stockholder is entitled to the following votes with
respect to the matters to be acted upon:
1. With respect to the Savoy Merger NASD Proposal, the holders of
Silver King Securities will vote together as a single class, with each
share of Silver King Common Stock entitled to one vote and each share of
Silver King Class B Common Stock entitled to ten votes thereon.
2. With respect to the HSN Merger NASD Proposal, the holders of Silver
King Securities will vote together as a single class, with each share of
Silver King Common Stock entitled to one vote and each share of Silver King
Class B Common Stock entitled to ten votes thereon.
3. With respect to the Authorized Capital Stock Amendment Proposal,
the holders of shares of each of the Silver King Common Stock and Silver
King Class B Common Stock will vote as separate classes, with each share of
Silver King Common Stock or Silver King Class B Common Stock, as the case
may be, entitled to one vote thereon.
4. With respect to the Name Change Proposal, the holders of shares of
each of the Silver King Common Stock and Silver King Class B Common Stock
will vote as separate classes, with each share of
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Silver King Common Stock or Silver King Class B Common Stock, as the case
may be, entitled to one vote thereon.
5. With respect to the Class Vote Amendment Proposal, the holders of
shares of each of the Silver King Common Stock and Silver King Class B
Common Stock will vote as separate classes, with each share of Silver King
Common Stock or Silver King Class B Common Stock, as the case may be,
entitled to one vote thereon.
6. With respect to the election of four director nominees (Messrs.
Diller, Kaufman, Oxendine and Snyder), the holders of Silver King
Securities will vote together as a single class, with each share of Silver
King Common Stock entitled to one vote and each share of Silver King Class
B Common Stock entitled to ten votes thereon, and with respect to the
election of two director nominees (Messrs. Ramer and Sheinberg) who are
recommended for election by the holders of Silver King Common Stock, such
holders will vote together as a separate class, with each share of Silver
King Common Stock entitled to one vote thereon.
7. With respect to the 1995 Stock Incentive Plan Proposal, the holders
of Silver King Securities will vote together as a single class, with each
share of Silver King Common Stock entitled to one vote and each share of
Silver King Class B Common Stock entitled to ten votes thereon.
8. With respect to the Directors Stock Option Plan Proposal, the
holders of Silver King Securities will vote together as a single class,
with each share of Silver King Common Stock entitled to one vote and each
share of Silver King Class B Common Stock entitled to ten votes thereon.
9. With respect to the Ratification of Auditors Proposal, the holders
of Silver King Securities will vote together as a single class, with each
share of Silver King Common Stock entitled to one vote and each share of
Silver King Class B Common Stock entitled to ten votes thereon.
VOTING OF PROXIES
The Silver King proxy accompanying this Joint Proxy Statement/Prospectus is
solicited on behalf of the Board of Directors of Silver King for use at the
Silver King Meeting. Stockholders are requested to complete, date and sign the
accompanying proxy and promptly return it in the accompanying envelope or
otherwise mail it to Silver King. All proxies that are properly executed and
returned, and that are not revoked, will be voted at the Silver King Meeting in
accordance with the instructions indicated on the proxies. If no instructions
are indicated, such proxies will be voted for (i) the Savoy Merger NASD
Proposal; (ii) the HSN Merger NASD Proposal; (iii) the Authorized Capital Stock
Amendment Proposal; (iv) the Name Change Proposal; (v) the Class Vote Amendment
Proposal; (vi) election of the director nominees described herein, see "Election
of Silver King Directors;" (vii) the 1995 Stock Incentive Plan Proposal; (viii)
the Directors Stock Option Plan Proposal; and (ix) the Ratification of Auditors
Proposal. Silver King's Board of Directors does not presently intend to bring
any business before the Silver King Meeting other than the specific Silver King
Stockholder Proposals referred to in this Joint Proxy Statement/Prospectus and
specified in the notice of the Silver King Meeting. So far as is known to the
Silver King Board, no other matters are to be brought before the Silver King
Meeting. As to any business that may properly come before the Silver King
Meeting, however, it is intended that proxies, in the form enclosed, will be
voted in respect thereof in accordance with the judgment of the persons voting
such proxies, except that proxies voted against the Authorized Capital Stock
Amendment Proposal, the Name Change Proposal or Class Vote Amendment Proposal
will not be voted for any motion made for adjournment of the Silver King Meeting
for purposes of soliciting additional votes to approve the Authorized Capital
Stock Amendment Proposal, the Name Change Proposal or Class Vote Amendment
Proposal. A Silver King stockholder who has given a proxy may revoke it at any
time before it is exercised at the Silver King Meeting by (i) delivering to the
Corporate Secretary of Silver King (by any means, including facsimile) 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 Silver King Meeting or (iii) attending the
Silver King Meeting and voting in person (although attendance at the Silver King
Meeting will not, by itself, revoke a proxy).
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VOTE REQUIRED
Because the number of shares of Silver King Common Stock to be issued or
reserved for issuance in connection with the Savoy Merger will exceed 20% of the
number of shares of Silver King Common Stock outstanding prior to the Savoy
Merger, approval by Silver King's stockholders of the proposal to issue Silver
King Common Stock pursuant to the Savoy Merger Agreement is required under the
rules of the NASD. Under the NASD rules, the Savoy Merger NASD Proposal must be
approved by a majority of the Total Voting Power, present in person or
represented by proxy at the Silver King Meeting, entitled to vote and voting on
such matter. Pursuant to the Silver King Stockholder Voting Agreement and the
Stockholders Agreement, Liberty and Mr. Diller have agreed to vote Silver King
Securities representing 66% of the Total Voting Power as of the Silver King
Record Date in favor of the Savoy Merger NASD Proposal, and, accordingly,
approval of such proposal is assured, notwithstanding the vote of any other
holders of Silver King Securities.
Silver King is not a constituent corporation to the Savoy Merger, and,
therefore, specific approval of the Savoy Merger or the Savoy Merger Agreement
by Silver King's stockholders is not required under the DGCL, the Silver King
Certificate or the Silver King Bylaws.
Because (i) the number of shares of Silver King Common Stock and Silver
King Class B Common Stock to be issued or reserved for issuance in connection
with the HSN Merger will exceed 20% of the number of shares of Silver King
Common Stock outstanding prior to the HSN Merger and will represent in excess of
20% of the Total Voting Power, and (ii) Liberty and BDTV (as substantial
stockholders of Silver King) and Mr. Diller (as a substantial stockholder,
officer and director of Silver King) collectively have a 10% or greater interest
in the assets to be acquired and in the consideration to be paid in the HSN
Merger and the issuance of Silver King Securities in the HSN Merger will result
in an increase in excess of 5% of the outstanding shares of Silver King Common
Stock and the Total Voting Power, approval by Silver King's stockholders of the
proposal to issue Silver King Common Stock and Silver King Class B Common Stock
pursuant to the HSN Merger Agreement is required under the rules of the NASD.
Under the NASD rules, the HSN Merger NASD Proposal must be approved by a
majority of the Total Voting Power, present in person or represented by proxy at
the Silver King Meeting and voting on such matter. Pursuant to the Stockholders
Agreement and the Second Silver King Stockholder Voting Agreement, Liberty and
Mr. Diller have agreed to vote Silver King Securities representing 66% of the
Total Voting Power as of the Silver King Record Date in favor of the HSN Merger
NASD Proposal, and, accordingly, approval of such proposal is assured,
notwithstanding the vote of any other holders of Silver King Securities.
Under the DGCL and the Silver King Certificate, approval by holders of a
majority of the outstanding shares of each of the Silver King Common Stock and
the Silver King Class B Common Stock, voting as separate classes, is required to
amend Article IV of the Silver King Certificate to (i) increase the number of
authorized shares of Silver King Common Stock, Silver King Class B Common Stock
and Silver King Preferred Stock pursuant to the Authorized Capital Stock
Amendment Proposal and (ii) eliminate the separate class vote of the holders of
each of the Silver King Common Stock and the Silver King Class B Common Stock in
certain specified circumstances at any time when there are at least 2,280,000
shares of Silver King Class B Common Stock outstanding pursuant to the Class
Vote Amendment Proposal. See "Description of Silver King Capital Stock -- Common
Stock and Class B Stock."
Under the DGCL and the Silver King Certificate, approval by holders of a
majority of the Total Voting Power outstanding, voting as a single class, is
required to amend Article I of the Silver King Certificate to change the
corporate name of Silver King to "HSN, Inc." upon consummation of the HSN Merger
pursuant to the Name Change Proposal. See "Description of Silver King Capital
Stock -- Common Stock and Class B Stock."
Silver King does not currently have sufficient shares of Silver King Common
Stock and Silver King Class B Common Stock authorized to consummate the HSN
Transactions. In addition, consummation of the HSN Merger is conditioned upon
the consummation of the Savoy Merger. Therefore, if the stockholders of Silver
King do not vote to approve the Authorized Capital Stock Amendment Proposal, the
Savoy Merger NASD Proposal and the HSN Merger NASD Proposal, the HSN Merger
cannot be consummated. Silver King itself is not a constituent corporation to
the HSN Merger, and, therefore, specific approval of the HSN
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Merger or the HSN Merger Agreement by Silver King's stockholders is not required
under the DGCL, the Silver King Certificate or the Silver King Bylaws.
At the Silver King Meeting, stockholders are also being asked to elect six
director nominees to the Silver King Board of Directors to hold office for a
one-year term ending on the date of the next succeeding annual meeting of
stockholders and until such director's respective successor shall have been duly
elected and qualified. Election of four of such director nominees requires the
favorable vote of the holders of shares representing a majority of the Total
Voting Power, and election of two of such director nominees (Messrs. Ramer and
Steinberg) requires the favorable vote of the holders of a majority of the
shares of Silver King Common Stock, in each case, present in person or
represented by proxy at the Silver King Meeting and voting on such matter. Mr.
Diller has the authority, and has indicated to Silver King that he intends, to
vote the Silver King Securities subject to the Stockholders Agreement
(representing 66% of the Total Voting Power and 7% of the outstanding Silver
King Common Stock as of the Silver King Record Date) for the election of each of
these directors; accordingly, election of the first four of such individuals
(Messrs. Diller, Kaufman, Oxendine and Snyder) is assured, notwithstanding the
vote of any other holders of Silver King Securities.
In addition, at the Silver King Meeting, Silver King stockholders are being
asked to consider and vote upon the 1995 Stock Incentive Plan and the Directors
Stock Option Plan. Approval of each of the 1995 Stock Incentive Plan Proposal
and the Directors Stock Option Plan Proposal requires the affirmative vote of a
majority of the Total Voting Power of Silver King, present in person or
represented by proxy at the Silver King Meeting and voting on such matter.
Approval of each such plan is required pursuant to the rules and bylaws of the
NASD, and, in the case of the 1995 Stock Incentive Plan, by the Code. Approval
by Silver King stockholders of the 1995 Stock Incentive Plan and the Directors
Stock Option Plan is also being sought to provide plan participants with certain
exemptions under Section 16 of the Exchange Act. Pursuant to the Stockholders
Agreement, Liberty and Mr. Diller have agreed to vote Silver King Securities
representing 66% of the Total Voting Power as of the Silver King Record Date in
favor of the 1995 Stock Incentive Plan Proposal, and, pursuant to the
Stockholders Agreement, Mr. Diller has the authority, and has indicated to
Silver King that he intends, to vote such shares in favor of the Directors Stock
Option Plan; accordingly, approval of such proposals is assured, notwithstanding
the vote of any other holders of Silver King Securities.
Approval of the Ratification of Auditors Proposal requires the affirmative
vote of a majority of the Total Voting Power, present in person or represented
by proxy at the Silver King Meeting and voting on such matter. Mr. Diller has
the authority, and has indicated to Silver King that he intends, to vote the
Silver King Securities subject to the Stockholders Agreement (representing 66%
of the Total Voting Power as of the Silver King Record Date) for the
Ratification of Auditors Proposal; accordingly, approval of such proposal is
assured, notwithstanding the vote of any other holders of Silver King
Securities.
QUORUM; BROKER NON-VOTES
The required quorum for the transaction of business at the Silver King
Meeting is a majority of shares of Silver King Common Stock, or 3,541,567
shares, and a majority of the shares of Silver King Class B Common Stock, or
1,207,973 shares, issued and outstanding on the Silver King Record Date, which
shares must be present in person or represented by proxy at the Silver King
Meeting. Abstentions and broker non-votes, although counted for purposes of
determining whether there is a quorum at the Silver King 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.
Because approval of each of the Authorized Capital Stock Amendment
Proposal, the Class Vote Amendment Proposal and the Name Change Proposal
requires the vote of a majority of the outstanding shares of Silver King Common
Stock and Silver King Class B Common Stock, voting as separate classes,
abstentions and broker non-votes will have the same effect as votes against such
proposals. Because approval of each of the other Silver King Stockholder
Proposals requires the vote of a majority of the votes cast, and because
abstentions and broker non-votes do not constitute votes cast, they will have no
effect on the outcome of such proposals.
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If a quorum is not obtained, or if fewer shares of Silver King Common Stock
than the number required therefor are voted in favor of each of the Authorized
Capital Stock Amendment Proposal, the Name Change Proposal and the Class Vote
Amendment Proposal, it is expected that the Silver King Meeting will be
postponed or adjourned in order to permit additional time for soliciting and
obtaining additional proxies or votes, and, at any subsequent reconvening of the
Silver King Meeting, all proxies will be voted in the same manner as such
proxies would have been voted at the original convening of the Silver King
Meeting, except for any proxies that have theretofore effectively been revoked
or withdrawn.
SOLICITATION OF PROXIES AND EXPENSES
Silver King will bear the cost of the solicitation of proxies in the
enclosed form from its stockholders. In addition to solicitation by mail, the
directors, officers and employees of Silver King may solicit proxies from
stockholders by telephone, telegram, letter, facsimile or in person. Following
the original mailing of the proxies and other soliciting materials, Silver King
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 Silver King Common Stock and to request authority for the exercise of
proxies. In such cases, Silver King, upon the request of the record holders,
will reimburse such holders for their reasonable expenses.
Silver King 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 Silver King stockholders. The fee for such firm's
services is estimated not to exceed $7,500 plus reimbursement for reasonable
out-of-pocket costs and expenses in connection therewith.
THE SAVOY MEETING
DATE, TIME AND PLACE OF MEETING
The Savoy Meeting will be held on December 19, 1996 at 9:30 a.m., local
time, at The Four Seasons Hotel, 57 East 57th Street, New York, New York.
RECORD DATE AND OUTSTANDING SHARES
Only holders of record of Savoy Common Stock at the close of business on
November 13, 1996, the Savoy Record Date, are entitled to notice of and to vote
at the Savoy Meeting. At the close of business on the Savoy Record Date, there
were 30,041,932 shares of Savoy Common Stock outstanding and entitled to vote,
held of record by 112 stockholders. Each Savoy stockholder is entitled to one
vote for each share of Savoy Common Stock held as of the Savoy Record Date.
VOTING OF PROXIES
The Savoy proxy accompanying this Joint Proxy Statement/Prospectus is
solicited on behalf of the Board of Directors of Savoy for use at the Savoy
Meeting. Stockholders are requested to complete, date and sign the accompanying
proxy and promptly return it in the accompanying envelope or otherwise mail it
to Savoy. All proxies that are properly executed and returned, and that are not
revoked, will be voted at the Savoy Meeting in accordance with the instructions
indicated on the proxies. If no instructions are indicated, such proxies will be
voted to approve the Savoy Stockholder Proposal. Savoy's Board of Directors does
not presently intend to bring any other business before the Savoy Meeting and,
so far as is known to Savoy's Board of Directors, no other matters are to be
brought before the Savoy Meeting. As to any business that may properly come
before the Savoy Meeting, however, it is intended that proxies, in the form
enclosed, will be voted in respect thereof in accordance with the judgment of
the persons voting such proxies, except that proxies voted against the Savoy
Stockholder Proposal will not be voted for any motion made for adjournment of
the Savoy Meeting for purposes of soliciting additional votes to approve the
Savoy Stockholder Proposal. A stockholder of Savoy who has given a proxy may
revoke it at any time before it is exercised at the Savoy Meeting, by (i)
delivering to the Secretary of Savoy (by any means, including facsimile) 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
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a later date prior to the vote at the Savoy Meeting, or (iii) attending the
Savoy Meeting and voting in person (although attendance at the Savoy Meeting
will not, by itself, revoke a proxy).
VOTE REQUIRED
Pursuant to the DGCL and the Savoy Bylaws, approval and adoption of the
Savoy Merger Agreement require the affirmative vote of the holders of a majority
of the outstanding shares of Savoy Common Stock entitled to vote thereon.
Pursuant to the Savoy Stockholder Voting Agreement, holders of shares
representing approximately 29% of the outstanding shares of Savoy Common Stock
as of the Savoy Record Date have agreed to vote in favor of the Savoy
Stockholder Proposal and against any action or other agreement that would
impede, interfere with, delay, postpone or attempt to discourage the Savoy
Merger.
QUORUM; BROKER NON-VOTES
The required quorum for the transaction of business at the Savoy Meeting is
a majority of the shares of Savoy Common Stock, or 15,020,967 shares, issued and
outstanding on the Savoy Record Date, which shares must be present in person or
represented by proxy at the Savoy Meeting. Abstentions and broker non-votes will
be counted for purposes of determining whether there is a quorum at the Savoy
Meeting but will not be voted. Because the Savoy Stockholder Proposal requires
the vote of a majority of the outstanding shares of Savoy Common Stock,
abstentions and broker non-votes will have the same effect as votes against the
proposal.
If a quorum is not obtained, or if fewer shares of Savoy Common Stock than
the number required therefor are voted in favor of the Savoy Stockholder
Proposal, the Savoy Meeting may be postponed or adjourned in order to permit
additional time for soliciting and obtaining additional proxies or votes, and,
at any subsequent reconvening of the Savoy Meeting, all proxies will be voted in
the same manner as such proxies would have been voted at the original convening
of the Savoy Meeting, except for any proxies that have theretofore effectively
been revoked or withdrawn.
SOLICITATION OF PROXIES AND EXPENSES
Savoy will bear the cost of the solicitation of proxies in the enclosed
form from its stockholders. In addition to solicitation by mail, the directors,
officers and employees of Savoy may solicit proxies from stockholders by
telephone, telegram, letter, facsimile or in person. Following the original
mailing of the proxies and other soliciting materials, Savoy 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
Savoy Common Stock and to request authority for the exercise of proxies. In such
cases, Savoy, upon the request of the record holders, will reimburse such
holders for their reasonable expenses.
Savoy 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 Savoy stockholders. The fee for such firm's
services is estimated not to exceed $7,500, plus reimbursement of reasonable
out-of-pocket expenses in connection therewith.
THE HSN MEETING
DATE, TIME AND PLACE OF MEETING
The HSN Meeting will be held on December 19, 1996 at 10:00 a.m., local
time, at The Four Seasons Hotel, 57 East 57th Street, New York, New York.
RECORD DATE AND OUTSTANDING SHARES
Only holders of record of HSN Common Stock and HSN Class B Common Stock at
the close of business on November 13, 1996, the HSN Record Date, are entitled to
notice of and to vote at the HSN Meeting. At the close of business on the HSN
Record Date, there were 72,006,559 shares of HSN Common
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Stock outstanding and entitled to vote, held of record by 7,515 stockholders,
and 20,000,000 shares of HSN Class B Common Stock outstanding and entitled to
vote, all of which is held of record by Liberty HSN. HSN stockholders are
entitled to one vote for each share of HSN Common Stock and ten votes for each
share of HSN Class B Common Stock held as of the HSN Record Date.
VOTING OF PROXIES
The HSN proxy accompanying this Joint Proxy Statement/Prospectus is
solicited on behalf of the Board of Directors of HSN for use at the HSN Meeting.
Stockholders are requested to complete, date and sign the accompanying proxy and
promptly return it in the accompanying envelope or otherwise mail it to HSN. All
proxies that are properly executed and returned, and that are not revoked, will
be voted at the HSN Meeting in accordance with the instructions indicated on the
proxies. If no instructions are indicated, such proxies will be voted to approve
the HSN Stockholder Proposal. HSN's Board of Directors does not presently intend
to bring any other business before the HSN Meeting and, so far as is known to
HSN's Board of Directors, no other matters are to be brought before the HSN
Meeting. As to any business that may properly come before the HSN Meeting,
however, it is intended that proxies, in the form enclosed, will be voted in
respect thereof in accordance with the judgment of the persons voting such
proxies, except that proxies voted against the HSN Stockholder Proposal will not
be voted for any motion made for adjournment of the HSN Meeting for purposes of
soliciting additional votes to approve the HSN Stockholder Proposal. A
stockholder of HSN who has given a proxy may revoke it at any time before it is
exercised at the HSN Meeting, by (i) delivering to the Secretary of HSN (by any
means, including facsimile) 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
HSN Meeting, or (iii) attending the HSN Meeting and voting in person (although
attendance at the HSN Meeting will not, by itself, revoke a proxy).
VOTE REQUIRED
Pursuant to the DGCL and the HSN Certificate, approval and adoption of the
HSN Merger Agreement requires the affirmative vote of the holders of a majority
of the voting power of the outstanding shares of HSN Common Stock and HSN Class
B Common Stock entitled to vote thereon, voting together as a single class, with
each share of HSN Class B Common Stock entitled to ten votes and each share of
HSN Common Stock entitled to one vote. Pursuant to the HSN Stockholder Voting
Agreement, holders of shares representing approximately 24% of the outstanding
shares of HSN Common Stock and 100% of the outstanding shares of HSN Class B
Common Stock (representing 80% of the voting power) as of the HSN Record Date
have agreed to vote, or cause such shares to be voted, in favor of the HSN
Stockholder Proposal and against any alternative proposal. Pursuant to the HSN
Merger Agreement, however, consummation of the HSN Merger and the HSN
Transactions is also conditioned upon the HSN Special Vote, which requires the
affirmative vote of the holders of a majority of the outstanding shares of HSN
Common Stock, who are neither Liberty HSN nor an affiliate thereof, present in
person or represented by proxy at the HSN Meeting and voting on such matter. The
HSN Stockholder Voting Agreement does not cover any shares to be counted for
purposes of such HSN Special Vote. As of the date of this Joint Proxy
Statement/Prospectus, approximately 76% of the outstanding HSN Common Stock was
held by persons other than Liberty HSN or any of its affiliates.
QUORUM; BROKER NON-VOTES
The required quorum for the transaction of business at the HSN Meeting is a
majority of the shares of both the HSN Common Stock and HSN Class B Common
Stock, or 46,003,280 shares, with respect to matters on which all HSN
stockholders vote as a single class and a majority of the shares of each of the
HSN Common Stock (36,003,280 shares) and the HSN Class B Common Stock
(10,000,001 shares) with respect to matters on which holders of such shares are
entitled to vote as separate classes, in each case, issued and outstanding on
the HSN Record Date, which shares must be present in person or represented by
proxy at the HSN Meeting. Abstentions and broker non-votes will be counted for
purposes of determining whether there is a quorum at the HSN Meeting but will
not be voted. Because the HSN Stockholder Proposal (except in respect of the HSN
Special Vote required by the terms of the HSN Merger Agreement) requires the
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affirmative vote of the holders of a majority of votes of the outstanding shares
of HSN Common Stock and HSN Class B Common Stock, voting together as a single
class, abstentions and broker non-votes will have the same effect as votes
against the proposal. With respect to the HSN Special Vote, however, abstentions
and broker non-votes will have no effect because such shares will not be
considered to have been voted.
If a quorum is not obtained, or if fewer shares of HSN Common Stock or HSN
Class B Common Stock than the number required therefor are voted in favor of the
HSN Stockholder Proposal, the HSN Meeting may be postponed or adjourned in order
to permit additional time for soliciting and obtaining additional proxies or
votes, and, at any subsequent reconvening of the HSN Meeting, all proxies will
be voted in the same manner as such proxies would have been voted at the
original convening of the HSN Meeting, except for any proxies that have
theretofore effectively been revoked or withdrawn.
SOLICITATION OF PROXIES AND EXPENSES
HSN will bear the cost of the solicitation of proxies in the enclosed form
from its stockholders. In addition to solicitation by mail, the directors,
officers and employees of HSN may solicit proxies from stockholders by
telephone, telegram, letter, facsimile or in person. Following the original
mailing of the proxies and other soliciting materials, HSN 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 HSN Common
Stock and to request authority for the exercise of proxies. In such cases, HSN,
upon the request of the record holders, will reimburse such holders for their
reasonable expenses.
HSN 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 HSN stockholders. The fee for such firm's services is estimated
not to exceed $12,000, plus reimbursement of reasonable out-of-pocket expenses
in connection therewith.
SAVOY MERGER AND RELATED TRANSACTIONS
GENERAL
The Savoy Merger Agreement provides for the merger of a newly-formed,
indirect wholly-owned subsidiary of Silver King with and into Savoy, with Savoy
to be the surviving corporation of the Savoy Merger and an indirect wholly-owned
subsidiary of Silver King. If the requisite approvals of the stockholders of
Savoy and Silver King are received, the Savoy Merger is expected to be
consummated as soon as practicable after the satisfaction or waiver of each of
the conditions to consummation of the Savoy Merger. The discussion in this Joint
Proxy Statement/Prospectus of the Savoy Merger and the description of the
principal terms of the Savoy Merger Agreement are subject to and qualified in
their entirety by reference to the Savoy Merger Agreement, a copy of which is
attached to this Joint Proxy Statement/Prospectus as Appendix A and incorporated
herein by reference.
Upon consummation of the Savoy Merger, the Silver King Board of Directors
will consist of the directors to be elected at the Silver King Meeting. The
executive officers of Silver King will include Mr. Kaufman as a result of the
Savoy Merger. The stockholders of Savoy will become stockholders of Silver King
(as described herein), and their rights will be governed by the Silver King
Certificate and the Silver King Bylaws. See "Comparison of Rights of
Stockholders of Silver King, Savoy and HSN."
For a description of the HSN Merger, see "HSN Merger Agreement and Related
Transaction Agreements." Consummation of the HSN Merger is not a condition to
consummation of the Savoy Merger.
Conversion of Shares
Upon the consummation of the Savoy Merger, each then outstanding share of
Savoy Common Stock (other than treasury shares or shares owned by Silver King or
its wholly-owned subsidiaries) will automatically be converted into the right to
receive 0.14 of a share of Silver King Common Stock. No fractional shares of
Silver King Common Stock will be issued in the Savoy Merger. Instead, each Savoy
stockholder who would
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otherwise be entitled to receive a fraction of a share of Silver King Common
Stock will be entitled to that portion of the Savoy Common Shares Trust (as
defined herein) equal to the fraction, the numerator of which is the amount of
the fractional shares interest to which such holder is entitled and the
denominator of which is the aggregate amount of fractional shares interests to
which all holders of Savoy Common Stock are entitled. The "Savoy Common Shares
Trust" means the net proceeds of the sale on the Nasdaq National Market by the
Savoy Exchange Agent, as soon as practicable following the Savoy Merger
Effective Time, of the excess number of full shares of Silver King Common Stock
delivered to the Savoy Exchange Agent by Silver King (which will equal the
aggregate number of shares of Silver King Common Stock issuable to Savoy
stockholders pursuant to the Savoy Merger Agreement) over the aggregate number
of full shares of Silver King Common Stock to be distributed to holders of Savoy
Common Stock pursuant to the Savoy Merger Agreement. The amount, if any, payable
to Savoy stockholders from the Savoy Common Shares Trust will be reduced by the
amount Silver King or the Savoy Exchange Agent is required to deduct and
withhold with respect to such payment pursuant to the Code or any other
applicable tax law. Such amounts so withheld and deducted will be deemed to have
been paid to the holder of Savoy Common Stock in respect of which such deduction
and withholding was made. Based upon the capitalization of Savoy and Silver King
as of the Savoy Record Date and the Silver King Record Date, respectively, and
without giving effect to the HSN Transactions, the former stockholders of Savoy
will own Silver King Common Stock representing approximately 37% of the Silver
King Common Stock outstanding, 31% of the Silver King Securities outstanding and
12% of the Total Voting Power outstanding immediately after consummation of the
Savoy Merger. In the event that the Savoy Merger and the HSN Transactions (but
without giving effect to additional Silver King Securities that may be issued
under certain circumstances in connection with a tax gross-up obligation of
Silver King pursuant to the Contingent Rights or the Exchange) are each
consummated, based upon the capitalization of each of Savoy, HSN and Silver King
as of the Savoy Record Date, the HSN Record Date and the Silver King Record
Date, respectively, the former stockholders of Savoy will own Silver King Common
Stock representing approximately 10% of the Silver King Common Stock
outstanding, 7% of the Silver King Securities outstanding and 2% of the Total
Voting Power outstanding immediately after consummation of such transactions.
Because the Savoy Conversion Ratio is fixed, the number of shares to be
received by stockholders of Savoy upon consummation of the Savoy Merger will
remain the same, regardless of whether the market price of Savoy Common Stock or
Silver King Common Stock increases or decreases at any time, including after the
date of this Joint Proxy Statement/Prospectus and after the dates of the Silver
King Meeting and the Savoy Meeting. See "-- Opinions of Certain Financial
Advisors."
Assumption of Options and Warrants; Restricted Stock; Savoy Debentures; Savoy
Note
Upon consummation of the Savoy Merger, each then outstanding Savoy Option
and each then outstanding Savoy Warrant will be assumed by Silver King and
converted into an option or warrant, respectively, to acquire that number of
shares of Silver King Common Stock equal to the number of shares of Savoy Common
Stock subject to such Savoy Option or such Savoy Warrant multiplied by the Savoy
Conversion Ratio at an exercise price per share of Silver King Common Stock
equal to the exercise price in effect under such Savoy Option or Savoy Warrant
immediately prior to the Savoy Merger Effective Time divided by the Savoy
Conversion Ratio. To avoid fractional shares, the number of shares of Silver
King Common Stock subject to an assumed Savoy Option or Savoy Warrant will be
rounded up to the nearest whole share. The other terms of the Savoy Options,
including vesting schedules, and the Savoy Warrants will remain unchanged,
except that the Savoy Options will be amended to provide that the provisions
requiring the exercise (or termination) of Savoy Options within 90 days
following, among other things, a merger of Savoy, will not be applicable to the
Savoy Merger. Silver King will file a Registration Statement on Form S-8 with
the Commission with respect to the issuance of Silver King Common Stock upon
exercise of the assumed Savoy Options.
As of November 1, Savoy Options to acquire an aggregate of 1,200,145 shares
of Savoy Common Stock were issued and outstanding at exercise prices ranging
from $3.92 to $20.75 per share and Savoy Warrants to purchase 550,000 shares of
Savoy Common Stock were outstanding at exercise prices ranging from $12.00
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(300,000 shares) to $25.00 (250,000 shares) per share. After giving effect to
the Savoy Merger, the Savoy Options would be convertible into an aggregate of
168,020 shares of Silver King Common Stock at exercise prices ranging from
$28.00 to $148.21 per share and the Savoy Warrants would be convertible into an
aggregate of 77,000 shares of Silver King Common Stock at exercise prices
ranging from $85.71 (42,000 shares) to $178.57 (35,000 shares) per share.
Pursuant to the Savoy Merger Agreement, following the Savoy Merger
Effective Time, Silver King has agreed to assume Savoy's obligations under
Savoy's 1994 Restricted Stock Plan and other restricted stock agreements upon
the same terms and conditions, except that the shares of Savoy Common Stock
awarded thereunder will be converted into the right to receive that number of
whole shares of Silver King Common Stock equal to the product of the number of
shares of Savoy Common Stock awarded thereunder and the Savoy Conversion Ratio,
plus an amount in cash in lieu of fractional shares, if any. As of the Savoy
Record Date, Savoy has outstanding 600,000 shares of restricted Savoy Common
Stock held by two executive officers and a former employee of Savoy. Upon
consummation of the Savoy Merger, 500,000 shares of restricted Savoy Common
Stock awarded to two of Savoy's senior executive officers will become fully
vested and the restrictions on such stock will lapse. The restrictions on the
remaining 100,000 shares of restricted Savoy Common Stock will lapse no later
than November 17, 1996.
Savoy Debt
Upon consummation of the Savoy Merger, it is currently contemplated that
all existing indebtedness of Savoy will remain outstanding; provided that the
Savoy Debentures and the Savoy Note will become convertible, pursuant to their
respective terms, into that number of shares of Silver King Common Stock that
the holders of the Savoy Debentures and the Savoy Note would have been entitled
to receive in the Savoy Merger had such Savoy Debentures and Savoy Note been
converted into Savoy Common Stock immediately prior to the Savoy Merger
Effective Time. In addition, Silver King expects that, as of the Savoy Merger
Effective Time, it will enter into a supplemental indenture with the trustee
under the Savoy Indenture pursuant to which it will become jointly liable with
Savoy with respect to the Savoy Debentures. As of the Savoy Record Date, Savoy
Debentures convertible into 2,031,290 shares of Savoy Common Stock at a
conversion price of $18.60 per share and the Savoy Note convertible into 961,539
shares of Savoy Common Stock at a conversion price of $13.00 per share were
outstanding. Upon the Savoy Merger Effective Time, the Savoy Debentures would be
convertible into an aggregate of 284,380 shares of Silver King Common Stock at a
conversion price of $132.86 per share and the Savoy Note would be convertible
into an aggregate of 134,615 shares of Silver King Common Stock at a conversion
price of $92.86 per share.
BACKGROUND
November Savoy Merger Agreement and TCI HSN Shares Acquisition
Silver King regularly evaluates strategic opportunities, including business
combinations with other companies, that could complement and strengthen its
communications business. Since Mr. Diller became Chairman of the Board and Chief
Executive Officer of Silver King in August 1995, Silver King has evaluated
growth strategies, including growth through internal development, acquisitions
and strategic investments. Beginning in July 1995 and from time to time
thereafter, Mr. Diller and TCI discussed generally the possible combination of
Silver King and HSN, or the possible acquisition by Silver King of Liberty's
17,566,702 shares of HSN Common Stock and 20,000,000 shares of HSN Class B
Common Stock (the "TCI HSN Shares"). For additional information regarding the
background of the HSN Merger, see "Special Factors Relating to the HSN
Transactions -- Background."
Beginning in October 1995, Mr. Diller and, shortly thereafter, other
executive officers of Silver King held discussions and meetings with senior
officers of Savoy, including Victor A. Kaufman, Savoy's Chairman of the Board
and Chief Executive Officer, regarding the financial, operating and business
condition of Savoy as well as the terms of a possible merger between Silver King
and Savoy. In October, Savoy prepared certain alternative scenarios regarding
the possible financial consequences of the distribution and/or the sale of
distribution rights relating to eight Savoy films then in production or already
produced. The alternative
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scenarios were not estimates of future performance but instead reflected the
effects of certain hypothetical assumptions on Savoy's cash position. In
general, the scenarios indicated that Savoy's filmed entertainment business
would operate at a cash deficit during the next 12 months, except in certain
scenarios including one in which Savoy sold all of its unreleased films and
suspended the production of new films. In addition, at the request of Silver
King, Savoy prepared scenarios combining the filmed entertainment scenarios with
hypothetical results for Savoy's other businesses. These scenarios were provided
to Allen & Company Incorporated ("Allen & Company"), as well as to Silver King
and First Boston in connection with their due diligence.
Beginning in late October 1995, Mr. Diller, as well as certain other senior
executives of Silver King, held informal discussions with representatives of
Allen & Company, which has had certain investment banking relationships with
Savoy (and with certain companies with which Mr. Diller has been associated) and
which, together with its affiliates, is a significant stockholder of Savoy
Common Stock and has representatives on the Savoy Board, regarding a possible
merger or acquisition relating to Savoy and Silver King. In the course of these
discussions, the concept of a stock-for-stock merger with Silver King was
discussed and Allen & Company also discussed the financial and business
condition of Savoy.
In late October 1995, based on Savoy's alternative scenarios, Allen &
Company, at the request of Mr. Diller, prepared a preliminary pro forma
combination analysis of a possible transaction in which Silver King would
acquire Savoy, which analysis was provided to Silver King and First Boston, as
financial advisor to Silver King. Allen & Company's analysis assumed, among
other things, that Savoy stockholders would receive 0.20 of a share of Silver
King Common Stock for each share of Savoy Common Stock. See "-- Certain
Information Concerning Silver King and Savoy."
On November 3, 1995, certain representatives of Allen & Company and senior
officers of Liberty, together with counsel for Liberty and Silver King, held a
telephone conference call in which they discussed the possibility of a merger
between Silver King and Savoy, as well as a number of alternatives regarding
HSN, including the possible purchase by Silver King of the TCI HSN Shares (the
"TCI HSN Shares Acquisition"), either separately or together with a purchase by
Silver King from HSN of preferred stock or debt securities of HSN. In addition,
the parties discussed the possible appointment of Mr. Diller as Chairman of the
Board of HSN, pursuant to which Mr. Diller would take a more active role in the
future direction of HSN and would be granted options to purchase an unspecified
number of shares of HSN Common Stock and/or would acquire an equity interest in
HSN.
On November 6, 1995, Mr. Diller, certain representatives of each of Allen &
Company and First Boston, Steven H. Grant, the then-Chief
Financial/Administrative Officer of Silver King and a member of the Silver King
Board of Directors, and counsel to Silver King met to discuss further a possible
acquisition by Silver King of the TCI HSN Shares and a possible merger with
Savoy. The topics of discussion included certain publicly available information
regarding each of HSN and Savoy as well as timing and structural issues relating
to the possible transactions.
In the course of the next three weeks, the parties to the Savoy Merger held
meetings and discussions and exchanged information regarding a possible
transaction. During the course of these discussions, Mr. Kaufman discussed the
possibility of a transaction with Silver King with the members of the Executive
Committee of the Savoy Board. In addition, each of Silver King and Savoy
consulted with special FCC counsel and discussed the required FCC approvals and
other actions that would need to be taken in connection with the transaction.
Discussion of the Savoy transaction included the terms of the conversion ratio,
which Silver King proposed should be 0.20 of a share of Silver King Common
Stock, which ratio was based on the then-recent trading prices of Savoy Common
Stock and Silver King Common Stock, with little or no premium above the
then-current market price of Savoy Common Stock. During this period, Silver
King, Liberty and their respective advisors continued discussions regarding a
possible exchange of the TCI HSN Shares for Silver King Securities. Discussion
of the terms of this proposed exchange included the terms of the exchange ratio
for the TCI HSN Shares, which ultimately was agreed to be a market-to-market
transaction with respect to the shares of HSN Common Stock to be so acquired
(representing an implied conversion ratio of 0.2764 shares of Silver King Common
Stock for each share of HSN Common Stock) and a premium, finally fixed at
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10% over then-market prices (based on the market prices of the respective shares
of common stock), with respect to the shares of HSN Class B Common Stock to be
so acquired (representing an implied conversion ratio of 0.3041 shares of Silver
King Class B Stock for each share of HSN Common Stock) to take account of the
fact that such shares were entitled to ten votes per share.
During the course of the foregoing discussions and negotiations, the
parties and their financial and legal advisors expressed substantial concern
that premature disclosure regarding either or both transactions could adversely
impact the ability of the parties to reach agreement on the terms and
conditions, or to consummate, either the Savoy transaction or the HSN
transaction. As a result, knowledge of the discussions and negotiations was
deliberately limited to the key officers and executives of each of Silver King,
Savoy, TCI and Liberty, and their respective advisors, whose participation was
essential to negotiation and execution of definitive documentation in connection
with the Savoy transaction or the HSN transaction.
In addition, during this three-week period, each of First Boston and
Gleacher conducted certain financial due diligence regarding Silver King, Savoy
and HSN. Gleacher was retained by Savoy for the purpose of rendering an opinion
as to the fairness to Savoy's stockholders, from a financial point of view, of
the Savoy Merger. See "-- Opinions of Certain Financial Advisors -- Opinions of
Gleacher." The due diligence review of HSN conducted by Gleacher was limited and
included only those items expressly referred to under "-- Opinions of Certain
Financial Advisors -- Opinions of Gleacher." The due diligence review of HSN
conducted by Savoy was limited and generally included only publicly available
information.
On Friday, November 24, 1995, Silver King, Savoy and Liberty became aware
of certain rumors in the market regarding a possible merger or other transaction
between HSN and Silver King, which rumors were also reported in various press
accounts that day. These rumors were accompanied by increased market activity in
Silver King Common Stock and HSN Common Stock on that Friday, which was a
half-trading day following the Thanksgiving holiday. As a result of the rumors,
and the concern for market activity and further rumors on the following Monday,
November 27, 1995, Silver King, Savoy and Liberty agreed that the parties should
attempt to conclude their respective negotiations and execute definitive
documentation, if an agreement were to be reached, no later than Monday,
November 27.
During the period of November 24-27, 1995, the parties and their advisors
conducted extensive discussions and negotiations to finalize the terms of each
of the Savoy transaction and the HSN transaction, and Liberty and Mr. Diller
likewise negotiated the terms of an amendment to the August Stockholders
Agreement (the "November Stockholders Agreement"). The November Stockholders
Agreement involved certain agreements between the parties with respect to the
TCI HSN Shares Acquisition and amended certain of the provisions in the original
August Stockholders Agreement with respect to BDTV and Mr. Diller's control over
Liberty's Silver King Securities. The effectiveness of the November Stockholders
Agreement was conditioned upon consummation of the TCI HSN Shares Acquisition.
At a special meeting of the Executive Committee of the Board of Directors
of HSN held on Friday evening, November 24, 1995, the Executive Committee (i)
accepted the resignation of Robert Bennett as Chairman of the Board of HSN and
appointed Mr. Diller as Chairman of the Board of HSN (subject to ratification of
his appointment by the full HSN Board), authorized Mr. Diller to recruit a
management team and authorized the Compensation Committee of the HSN Board to
determine an appropriate compensation package for Mr. Diller and certain members
of his prospective management team and (ii) appointed a special committee of
independent directors consisting of Anthony Forstmann and George C. McNamee to
review, pursuant to the request of each of Liberty and Silver King, the terms of
the proposed agreements that related to the TCI HSN Shares Acquisition which
included an agreement and plan of merger to be entered into by BDTV, Liberty HSN
and Liberty Program Investments, Inc., a Wyoming corporation (the "Liberty/BDTV
Merger Agreement"), a proposed exchange agreement to be entered into by Silver
King and BDTV (the "Silver King/BDTV Exchange Agreement") and the proposed
transactions contemplated thereby, and to recommend to the HSN Board of
Directors whether to approve such transactions, so as to exempt the parties to
such agreements and their respective affiliates from the restrictions on
"business combinations" with HSN contained in Section 203 of the DGCL. The
authority granted to the special committee by the HSN Executive Committee
included the power to prevent the full HSN Board of Directors from considering
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DGCL Section 203 approval of such transactions if the special committee
determined not to recommend such DGCL Section 203 approval.
Subsequent to the meeting of the HSN Executive Committee, the HSN
Compensation Committee met and granted Mr. Diller options to purchase 13,400,000
shares of HSN Common Stock (representing approximately 12% of the
then-outstanding shares of HSN Common Stock and HSN Class B Common Stock
(assuming exercise of all options granted by HSN on that day)) and granted to
certain members of his prospective management team options to purchase an
aggregate of 2,600,000 shares of HSN Common Stock. The exercise price of all
such options was $8.50 per share. (Mr. Diller subsequently surrendered to HSN,
without consideration therefor, options relating to 100,000 shares of HSN Common
Stock that were granted to him in November 1995 as well as the options to
purchase 90,000 shares of HSN Common Stock granted to him pursuant to HSN's
stock option plan for non-employee directors when he became a director of HSN in
August 1995.) Such options were granted in consideration of each person's
agreement to become part of the management team at HSN, or, in the case of Mr.
Diller, its Chairman of the Board, in recognition of the benefits each person
was expected to provide HSN and to encourage such persons to continue to serve
in such capacities at HSN during the term of the options, and the grant of such
options was unrelated to the TCI HSN Shares Acquisition. In the case of Mr.
Diller, it was also noted that he would not receive a salary. All of such HSN
Options were granted subject to HSN stockholder approval of a new stock option
plan.
At a meeting of the special committee of the HSN Board of Directors held on
November 27, 1995 pursuant to the request of each of Liberty and Silver King,
the special committee recommended approval, and the HSN Board of Directors
(other than Mr. Diller, who participated briefly in the deliberation and did not
vote on such matters) subsequently (i) approved, for purposes of Section 203 of
the DGCL, the acquisition of beneficial ownership of the TCI HSN Shares by
Silver King, BDTV, Mr. Diller and/or any of their respective affiliates and/or
associates and the reacquisition of such shares by Liberty and (ii) ratified the
appointment by the HSN Executive Committee of Mr. Diller as Chairman of the HSN
Board.
Over the course of the same weekend, Mr. Diller, Mr. Grant and legal
counsel to Silver King held discussions with members of the Silver King Board of
Directors and provided them with oral and written information regarding each of
the proposed transactions, as well as Mr. Diller's appointment as Chairman of
the Board of Directors of HSN and the terms of the proposed November
Stockholders Agreement. A special meeting of the Silver King Board of Directors
was held on the morning of Monday, November 27, 1995. Prior to such meeting, the
Silver King directors were provided with a written presentation by First Boston
regarding each of the transactions, as well as with the latest drafts of the
definitive documentation pertaining to each of the proposed Savoy Merger, the
proposed TCI HSN Shares Acquisition and the November Stockholders Agreement.
At the meeting of the Silver King Board of Directors, Silver King
management reported to the Silver King Board of Directors on the course of
negotiations relating to the proposed Savoy Merger and the proposed TCI HSN
Shares Acquisition, reported results of the due diligence that had been
conducted on each of Savoy and HSN, discussed with the other directors the
potential benefits and risks of each of the transactions and their view of the
business and financial condition of each of Savoy and HSN, and responded to
questions from the directors. First Boston discussed various analyses relating
to each of the proposed Savoy Merger and the proposed TCI HSN Shares Acquisition
and responded to questions from the directors regarding the manner and
conclusion of its analyses. At the Silver King Board meeting, the Board of
Directors of Silver King received separate oral opinions of First Boston that,
as of such date, the consideration to be paid by Silver King in each of the
Savoy Merger and the TCI HSN Shares Acquisition was fair, from a financial point
of view, to Silver King. See "-- Opinions of Certain Financial
Advisors -- Opinions of First Boston, Financial Advisor to Silver King" and
"Special Factors Relating to the HSN Transactions -- Opinions of Certain
Financial Advisors -- Opinions of First Boston, Financial Advisor to Silver
King." Thereafter, the Silver King Board of Directors received the written
opinions of First Boston confirming their oral statements at the Silver King
Board meeting. In addition, at the November 27 meeting, special outside counsel
and FCC counsel to Silver King reviewed with the Silver King Board of Directors
the principal terms and conditions of each of the transaction documents,
including the November Savoy Merger Agreement (and such proposed merger, the
"November Savoy Merger"), the Silver King Stockholder Voting Agreement and the
Savoy Stockholder
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Voting Agreement in connection therewith, the Liberty/Silver Merger Agreement,
the Silver King/BDTV Exchange Agreement and the November Stockholders Agreement
(collectively, the "November Transactions Documents"), as well as tax,
regulatory and other legal matters relating to the Savoy Merger and the TCI HSN
Shares Acquisition. The Silver King Board of Directors approved each of the
November Transactions Documents, subject to finalization by Silver King's
management and advisors of the necessary documentation. Mr. Diller did not
participate in the voting with respect to matters relating to the TCI HSN Shares
Acquisition.
In addition, at a meeting of the Compensation/Benefits Committee of the
Silver King Board on November 27, 1995, the Compensation/Benefits Committee
approved the 1995 Stock Incentive Plan and recommended that the Silver King
Board of Directors and Silver King stockholders approve such plan. Pursuant
thereto, the Compensation/Benefits Committee granted Mr. Diller options to
purchase 625,000 shares of Silver King Common Stock, subject to stockholder
approval of the 1995 Stock Incentive Plan and to consummation of each of the TCI
HSN Shares Acquisition (or another transaction involving the acquisition by
Silver King of a controlling interest in HSN) and the Savoy Merger, at an
exercise price of $30.75 per share, which options would be reduced to 403,375
shares in the event that only the TCI HSN Shares Acquisition (or another
transaction involving the acquisition by Silver King of a controlling interest
in HSN) is consummated and to 221,625 shares in the event that only the Savoy
Merger is consummated and would be cancelled in full in the event that neither
transaction is consummated. The Silver King Board also approved, and recommended
stockholder approval of, the 1995 Stock Incentive Plan. See "1995 Stock
Incentive Plan Proposal."
During October and November, 1995, senior management of Savoy provided the
members of the Executive Committee of the Savoy Board with information on the
status of the discussions and negotiations with Silver King and due diligence on
Silver King and consulted with the Savoy Executive Committee concerning these
matters. A special meeting of the Savoy Board of Directors was held on Sunday,
November 26, 1995. Prior to the meeting, each director was provided with a copy
of the latest drafts of the proposed Savoy Merger Agreement and certain related
documents.
At the meeting of the Savoy Board on Sunday evening, Savoy management
reported to the Savoy Board on the course of discussions and negotiations
relating to the proposed Savoy Merger, reported results of the due diligence
that had been conducted on Silver King, discussed with the other directors the
potential benefits and risks of the transaction and other alternatives for Savoy
and responded to questions from the directors. In substance, the Savoy directors
asked questions concerning the negotiations relating to the proposed November
Savoy Merger, the due diligence conducted on Silver King, the proposed TCI HSN
Shares Acquisition and the alternatives for Savoy other than the proposed
November Savoy Merger. Management also informed the Savoy Board that Silver King
intended to enter into an agreement to acquire the TCI HSN Shares and discussed
with the other directors the results of their review of HSN's publicly available
information and discussions with Mr. Diller regarding HSN. Gleacher provided the
Savoy Board with a written presentation of its financial analysis of the
proposed November Savoy Merger, reviewed the analysis with the Savoy Board and
responded to questions from the directors regarding the manner and conclusion of
its analyses. At the November 26, 1995 Savoy Board meeting, the Savoy Board
received the oral opinion of Gleacher that, as of such date, the consideration
to be received by Savoy stockholders in the November Savoy Merger was fair, from
a financial point of view, to Savoy stockholders. In addition, Gleacher rendered
its oral opinion to the Savoy Board that, as of such date, the consummation of
the TCI HSN Shares Acquisition would not alter their opinion with respect to the
November Savoy Merger. Thereafter, the Savoy Board of Directors received the
written opinion of Gleacher, dated November 27, 1995, confirming their opinions
rendered orally at the Savoy Board meeting. See "-- Opinions of Certain
Financial Advisors -- Opinions of Gleacher." At the request of Mr. Kaufman, Mr.
Diller attended a portion of the Savoy Board meeting and discussed with the
Savoy Board his plans for Silver King and HSN. The November 26 meeting was
adjourned without any vote being taken and was reconvened on Monday, November
27, 1995.
At the November 27, 1995 Savoy Board meeting, the Savoy Board continued its
discussions concerning the proposed November Savoy Merger and alternatives for
Savoy. The alternatives for Savoy that were discussed by the Savoy Board were
continuing its operations as an independent company on the basis
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described in its Form 8-K dated August 22, 1995, curtailing its investment in
motion picture production, marketing and distribution and continuing to operate
its remaining businesses or realizing the value of its then existing film
inventory and/or its television broadcasting stations for the benefit of its
stockholders. Gleacher reviewed its analyses with the Savoy Board and reiterated
its opinions concerning the November Savoy Merger and the TCI HSN Shares
Acquisition. In addition, at the November 26 and 27, 1995 meetings, outside
counsel to Savoy reviewed with the Savoy Board the principal terms and
conditions of each of the November Transactions Documents relating to the
November Savoy Merger, including the November Savoy Merger Agreement, the Silver
King Stockholder Voting Agreement and the Savoy Stockholder Voting Agreement,
the general terms of the TCI HSN Shares Acquisition and related transactions, as
well as tax, regulatory and other legal matters relating to the proposed
November Savoy Merger and the TCI HSN Shares Acquisition. The Savoy Board, by
unanimous vote of the directors present, approved each of the November
Transactions Documents relating to the proposed November Savoy Merger and
approved the November Savoy Merger, subject to finalization by Savoy's
management, Executive Committee and advisors of the necessary documentation.
Upon conclusion of the foregoing board meetings and resolution of remaining
issues to be negotiated among the parties, the respective parties entered into
each of the November Transactions Documents. On November 27, 1995, Silver King
and Savoy issued a joint press release announcing the November Savoy Merger and
the TCI HSN Shares Acquisition, and HSN issued a press release announcing the
appointment of Mr. Diller as Chairman of the Board of HSN, the grant of options
to Mr. Diller and his proposed management team and the approval by the HSN Board
of the proposed Liberty/Silver Merger Agreement and the Silver King/BDTV
Exchange Agreement for purposes of Section 203 of the DGCL. On November 30,
1995, HSN announced that James G. Held had been appointed the Chief Executive
Officer and President of HSN.
Beginning in December 1995, Savoy agreed to provide and provided certain
financial and administrative services to Silver King and HSN, including services
of certain of Savoy's executive officers. These services, which have been
provided predominantly to Silver King, include administrative, accounting,
payroll and financial management services. Savoy personnel assisted HSN in
preparation of a "Zero Based Budgeting Process." HSN personnel and consultants
from the accounting firm of Ernst & Young LLP also assisted in this process.
Silver King has agreed, if the Savoy Merger is not consummated, to (i) indemnify
Savoy employees in connection with their rendering of services to Silver King
and HSN, respectively, (ii) pay Savoy reasonable compensation for such services
and (iii) reimburse Savoy for its related out-of-pocket costs and expenses. As
of October 31, 1996, Savoy estimates that, if the Savoy Merger is not
consummated, such compensation and reimbursement total approximately $1 million.
During December 1995 and continuing through July 1996, Silver King, Savoy
and HSN continued to meet to exchange information, to prepare for the meetings
of stockholders of the respective companies called pursuant to the November
Savoy Merger Agreement and the Silver King/BDTV Exchange Agreement and,
generally, to prepare for the anticipated consummation of the November Savoy
Merger and the TCI HSN Shares Acquisition.
In May 1996, Silver King and Savoy entered into the Extension Letter to
extend, in certain circumstances, the termination date of the November Savoy
Merger Agreement from May 30, 1996 to October 30, 1996. See "-- Savoy Merger
Agreement -- Amendment or Termination of the Savoy Merger Agreement; Breakup
Fee -- Termination."
Merger Agreement Amendment
Based on the significant decline in the operating performance of the Savoy
Stations since November 1995, as discussed below, during June 1996 Mr. Diller
and representatives of First Boston, Silver King's financial advisor, held
several discussions with members of Savoy's Executive Committee, and Mr. Diller
also discussed with a representative of Allen & Company the financial and
business condition of Savoy. The revenues for the four Savoy Stations for the
six-month period ended June 30, 1996, and, to a greater relative extent, the net
income and broadcast cash flow for the period, had been adversely affected by
the recent switch
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in affiliation of the Savoy Stations to the Fox network. This resulted in a much
lower broadcast cash flow for the six months ended June 30, 1996 as compared to
the comparable period for the prior year. This adverse impact continued in the
beginning of the third quarter. Beginning in July 1996, Mr. Diller raised with
certain members of the Executive Committee of the Savoy Board the possibility of
a downward adjustment to the exchange ratio set forth in the November Savoy
Merger Agreement in light of the performance of the Savoy Stations, and Mr.
Diller and certain members of the Savoy Executive Committee had discussions
regarding this possibility and the amendments to the November Savoy Merger
Agreement which Savoy would request in connection with the consideration of any
adjustment to the Savoy Conversion Ratio.
During July 1996, at the request of Mr. Diller, senior management of Savoy
prepared, and provided to Silver King, certain financial information regarding
Savoy's and the Savoy Stations' cash flows and cash balances for the remainder
of 1996. These analyses were not prepared with a view to public disclosure or in
conformity with accounting guidelines regarding projections. In addition, with
the theatrical release of additional films during this period, Savoy management
determined that certain amounts relating to Savoy's film business that, as of
the execution of the November Savoy Merger Agreement, were anticipated to be
received would not be realized.
In August 1996, Silver King and Savoy engaged in negotiations with respect
to adjusting the conversion ratio set forth in the November Savoy Merger
Agreement and modifying certain other terms of the November Savoy Merger
Agreement. As a result of such negotiations, the parties agreed, subject to the
approval of the Silver King Board and the Savoy Board and the execution of an
amendment to the November Savoy Merger Agreement, that the conversion ratio set
forth in the Savoy Merger Agreement would be reduced from 0.20 of a share of
Silver King Common Stock for each share of Savoy Common Stock to 0.14 of a
share, and the parties also agreed to certain additional amendments to the
November Savoy Merger Agreement relating primarily to Silver King's inability to
terminate the agreement based on a further decline in Savoy's business and
financial condition and the termination date of the agreement, which it was
agreed would be extended to December 31, 1996, subject to extension by Savoy and
Silver King in certain circumstances. See "-- Savoy Merger
Agreement -- Amendment or Termination of the Savoy Merger Agreement; Breakup
Fee."
A special meeting of the Savoy Board was held on Tuesday, August 13, 1996.
Prior to the meeting, each director was provided with a report prepared by
Gleacher. At the meeting of the Savoy Board, Savoy management and the members of
the Savoy Executive Committee discussed the financial results of the Savoy
Stations, reported on the course of discussions and negotiations relating to the
proposed Savoy Merger and the Savoy Merger Agreement Amendment, reported on the
business of Silver King and discussed with the other directors the potential
benefits and risks of the transaction with Silver King and the other
alternatives for Savoy. The alternatives for Savoy that were discussed by the
Savoy Board were abandoning the transaction with Silver King and continuing as
an independent company operating primarily in the business of owning television
stations, seeking an alternative combination transaction with another company,
or realizing the value of the Savoy Stations and the existing film inventory for
the benefit of Savoy stockholders. Management of Savoy also informed the Savoy
Board that Silver King was contemplating engaging in a transaction with HSN in
which Silver King would acquire all or a significant portion of HSN in exchange
for Silver King Securities, although no agreement had been reached and no
assurances could be given that a transaction between Silver King and HSN would
be entered into or completed. At the special meeting, Gleacher discussed various
analyses relating to the Savoy Merger and the proposed Savoy Merger Agreement
Amendment and responded to questions from the directors regarding the manner and
conclusion of its analyses. The Savoy Board received the oral opinion of
Gleacher that, as of such date, the consideration to be received by the Savoy
stockholders in the Savoy Merger, as amended by the Savoy Merger Agreement
Amendment, was fair, from a financial point of view, to such stockholders. After
the meeting, the Savoy Board of Directors received the written opinion of
Gleacher confirming their oral statements at the Savoy Board meeting. See
"-- Opinions of Certain Financial Advisors -- Opinions of Gleacher." In
addition, at the meeting of the Savoy Board, outside counsel to Savoy reviewed
the principal terms and conditions of the November Savoy Merger Agreement and
the Savoy Merger Agreement Amendment. Management and the Executive Committee
responded to questions from the Savoy Board which included questions concerning
the performance and prospects for the Savoy Stations, the services being
performed by Savoy for Silver King, the alternatives for Savoy other than the
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proposed revised Savoy Merger and such persons' understanding as to the status
of Mr. Diller's discussions regarding Silver King and HSN. The Savoy Board, by
unanimous vote of the directors present, approved the Savoy Merger and the Savoy
Merger Agreement, each as amended by the Savoy Merger Agreement Amendment,
subject to finalization by Savoy's management and advisors of the necessary
documentation.
The Silver King Board of Directors held a meeting on August 13, 1996 to
consider the proposed Savoy Merger Agreement Amendment and the Savoy Merger, as
well as the proposed amendments to the November Transactions Documents. At the
meeting of the Silver King Board, Mr. Diller and First Boston discussed with the
Silver King Board their negotiations with and further due diligence regarding
Savoy, particularly with respect to the current operations and prospects of the
Savoy Stations and the substantial decline in the performance of the Savoy
Stations since November 27, 1995. First Boston presented the Silver King Board
with its report regarding the proposed Savoy Merger Agreement Amendment as well
as various analyses relating to the Savoy Merger, as proposed to be amended. The
Silver King Board received the oral opinion of First Boston, subsequently
confirmed in writing, that as of August 13, 1996, the consideration to be paid
by Silver King in the Savoy Merger is fair, from a financial point of view, to
Silver King. The Silver King Board approved, by unanimous vote of all directors,
the proposed Savoy Merger Agreement Amendment and the Savoy Merger, as amended,
as well as certain conforming amendments to the other November Transactions
Documents. By letter agreement dated as of August 13, 1996, Silver King also
agreed in certain circumstances to loan Savoy an amount equal to the exercise
price, estimated to be approximately $24 million, of a certain option held by
Fox to increase its ownership interest in some of the Savoy Stations in the
event that Fox did not exercise such option. On September 11, 1996, Fox acquired
such additional ownership interest pursuant to this option.
On August 14, 1996, Silver King and Savoy issued a joint press release
announcing the amendment of the Savoy Merger Agreement and the revised terms of
the Savoy Merger.
Since that date, Silver King and Savoy have had further discussions and
exchanged information and have worked to prepare this Joint Proxy
Statement/Prospectus and to otherwise prepare for the meetings of stockholders
of the respective companies to be held in connection with the Savoy Merger and
the HSN Merger and respective related transactions.
REASONS FOR THE SAVOY MERGER
Silver King's Reasons for the Savoy Merger
The Silver King Board has unanimously approved the Savoy Merger Agreement
and the Savoy Merger and has determined that the terms of the Savoy Merger
Agreement are fair to, and that the Savoy Merger is in the best interests of,
Silver King and its stockholders and, therefore, unanimously recommends that the
holders of Silver King Common Stock and Silver King Class B Common Stock vote
FOR the Savoy Merger NASD Proposal.
In reaching its determination to approve the Savoy Merger Agreement, the
Savoy Merger and the transactions contemplated thereby, the Silver King Board
has identified the following potential benefits of the Savoy Merger, some of
which were also considered in connection with the Silver King Board's approval
of the November Savoy Merger Agreement, that it believes will contribute to the
success of the combined company:
- Enhanced Operating and Financial Base. Silver King believes that the
Savoy Merger will enhance Silver King's operating and financial base by
substantially increasing Silver King's revenues. The Savoy Merger will
increase Silver King's capital base and should enable it to be better
positioned for future growth through internal growth and possible future
acquisitions.
- Ownership of Television Stations. Silver King believes that the Savoy
Stations will complement the Silver King Stations. In addition, Silver
King believes that the Savoy Stations were purchased on favorable terms.
Such stations may provide Silver King with additional operating leverage
related to its current broadcast stations, including in connection with
possible improvement of the channel position of the Silver King Stations
and additional distribution of Silver King programming that may be
developed in the future.
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- Affiliation Agreements. Silver King believes that the Savoy Stations'
affiliation agreements with Fox, although they have resulted in an
initial decline in ratings and revenues, are advantageous, and although
the Silver King Board recognized that, upon consummation of the Savoy
Merger, Fox may have the right to terminate these agreements (Fox advised
Savoy subsequent to the date of the November Savoy Merger Agreement but
prior to August 1996 that it would not exercise any such right based on
the Savoy Merger). See "Risk Factors -- Losses Relating to Savoy
Television Stations and Savoy Filmed Entertainment Business."
- Stronger Infrastructure. Silver King believes that Savoy offers
substantial management talent, particularly in its most senior executive
officers, which will assist Silver King in accelerating its growth and
development. Savoy's offices in New York and Los Angeles could provide
productive bases from which much of Silver King's business and corporate
affairs could be administered.
- Significant Efficiencies and Cost Savings. Savoy's infrastructure will
permit Silver King to utilize certain of its human and physical resources
in the operation of Silver King's business and corporate affairs and
should permit the elimination of certain duplicative functions.
- Suspended Operations and Related Downsizing. Silver King believes that
Savoy has initiated, and, by August 1996, had largely carried out, a
prudent program of suspending its film marketing and distribution
business and substantially reducing its film development and production
activities, which measures, together with related reductions in the Savoy
operational staff, should enhance Savoy's financial condition. In
addition, Savoy has entered into certain agreements relating to the
distribution of certain of its films to be released in 1996 that should
reduce Savoy's financial exposure in connection with these films, while
at the same time offering Savoy an opportunity to receive additional
revenues if such films are successful. In addition, certain aspects of
Savoy's production capabilities will be of benefit to possible future
television programming production at Silver King.
In the course of its deliberations, the Board of Directors of Silver King
reviewed and considered a number of other factors relevant to the Savoy Merger
with Silver King's management. In particular, in November 1995 and August 1996,
the Silver King Board considered, among other things:
(i) information concerning Silver King's and Savoy's respective
businesses, prospects, financial performances, financial condition, assets,
operations, and Savoy's program to refocus its business which the Silver
King Board believed would enhance Silver King's competitive position;
(ii) with the assistance of Silver King's financial advisor, the
comparative stock prices of Silver King and Savoy Common Stock;
(iii) with the assistance of Silver King's financial advisor, premiums
to market and multiples paid in other merger and acquisition transactions
in the communications, media, entertainment and other industries;
(iv) with the assistance of Silver King's financial advisor, an
analysis of the respective contributions to revenues, operating profits and
net profits of the combined companies (both after and without giving effect
to the TCI HSN Shares Acquisition);
(v) alternatives for growth in the television station ownership and
operation business, including internal development, which the Silver King
Board viewed as less advantageous due to Silver King's limited development
resources and current Silver King commitments to HSN regarding the carriage
of HSN programming as well as the uncertainty of the success of such
development efforts, none of which presented the opportunity that a
combination with Savoy presented;
(vi) a presentation by First Boston, including the opinion of First
Boston that the consideration to be paid by Silver King in the Savoy Merger
is fair, from a financial point of view, to Silver King, as well as the
underlying financial analysis of First Boston presented in connection
therewith;
(vii) Savoy's infrastructure, which the Silver King Board believed
would enhance Silver King's competitive position;
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(viii) the expectation that the Savoy Merger would be accounted for as
a purchase for financial reporting purposes and would be tax free to Silver
King for federal income tax purposes;
(ix) a review with Silver King's legal counsel of the terms of the
Savoy Merger Agreement, and related agreements, including the obligation of
Savoy not to solicit other acquisition proposals, the Breakup Fee
provisions, the closing conditions to the Savoy Merger and the
circumstances under which either Silver King or Savoy can terminate the
Savoy Merger; and
(x) the likelihood that the required regulatory approvals in
connection with the Savoy Merger, including the Savoy FCC Approvals, can be
promptly obtained and will not disrupt or otherwise result in adverse
consequences to Silver King's operations.
In connection with its deliberations concerning the November Savoy Merger
in November 1995 and the Savoy Merger in August 1996 and its consideration of
the fairness opinions of First Boston, the Board of Directors of Silver King
also considered a variety of specific financial factors, including the
following: (i) the fact that in November 1995 the Silver King Common Stock was
trading at or near the high end of its historical trading range, reflecting, in
part, Mr. Diller's abilities and reputation in the industry and Silver King's
consistent financial performance as well as market expectations of a continued
favorable business climate for the ownership and operation of television
stations, and the trading history of the Silver King Common Stock through
November 22, 1995; (ii) the fact that in November 1995 the Savoy Common Stock
was trading at or near the low end of its historical trading range, reflecting
the market's evaluation of Savoy's operating and financial performance; (iii)
developments in the respective stock prices of Savoy and Silver King from
November 1995 through August 12, 1996; (iv) the original Savoy conversion ratio,
which was negotiated to represent little or no premium to the recent and
historical market prices of Savoy Common Stock, and the Savoy Conversion Ratio,
which reflected a 30% reduction from the original Savoy conversion ratio; (v)
the expectation that Savoy represented a complementary business and that the
Savoy Merger may be viewed favorably by investors due to such complementary
nature; (vi) the opportunities presented by the current securities market
environment which support the ability to use Silver King Common Stock as an
attractive currency for mergers or acquisitions; and (vii) the recognition that
high-quality acquisition and merger opportunities are relatively limited within
the television station ownership and operation industry.
Following its deliberations concerning such factors and its review of the
presentation and fairness opinion of First Boston, the Board of Directors of
Silver King concluded that the Savoy Merger may increase the long-term prospects
of the combined company for continued sales and cash flow growth, may increase
stockholder value and was in the best interests of Silver King and its
stockholders from both a financial and strategic perspective.
The Board of Directors of Silver King also considered a variety of
potentially negative factors in its deliberations concerning the Savoy Merger,
including: (i) the possible dilutive effect of the issuance of Silver King
Common Stock in the Savoy Merger; (ii) the risk that the public market price of
Silver King's Common Stock might be adversely affected by announcement of the
Savoy Merger; (iii) the charges expected to be incurred in connection with the
Savoy Merger, including the transaction costs and costs of integrating the
businesses of the companies; (iv) the likely required divestiture in connection
with receipt of the Savoy FCC Approvals within a specified period of a certain
number of television broadcast licenses that would otherwise be owned by the
combined company unless the 1996 Act were to be enacted (which 1996 Act was
enacted subsequent to the Silver King Board's approval of the November Savoy
Merger); (v) the risks of managing a large subsidiary; (vi) the risk that
Savoy's efforts to refocus its business and related downsizing may not be
successful despite the efforts of Savoy management; (vii) the risk that, despite
the efforts of the combined company, key technical and management personnel of
Savoy may not be retained by the combined company; (viii) the risks to Silver
King from a further deterioration of the business and financial condition of the
Savoy Stations; (ix) the risk that other benefits sought to be obtained by the
Savoy Merger may not be obtained; and (x) other risks described above under
"Risk Factors."
In view of the wide variety of factors, both positive and negative,
considered by the Silver King Board of Directors, the Silver King Board did not
find it practical to, and did not, quantify or otherwise assign relative
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weights to the specific factors considered. In addition, individual members of
the Silver King Board of Directors may have given different weights to the
various factors considered.
In August 1996, the Silver King Board of Directors further considered the
matters identified above as well as the financial analysis presented by Silver
King management and First Boston, including the fairness opinion delivered by
First Boston that the Savoy Conversion Ratio was fair, from a financial point of
view, to Silver King. The Silver King Board did not consider the dilution to
TCI's ownership of Silver King Securities in connection with its approval of the
Savoy Merger Agreement.
Savoy's Reasons for the Savoy Merger
The Savoy Board, by unanimous vote of the directors present, has approved
the Savoy Merger Agreement and the Savoy Merger, has determined that the terms
of the Savoy Merger Agreement are fair to, and that the Savoy Merger is in the
best interests of, Savoy and its stockholders, and, therefore, by the unanimous
vote of all directors present, recommends that holders of Savoy Common Stock
vote FOR the Savoy Stockholder Proposal.
In reaching its determination to approve the November Savoy Merger
Agreement, the Merger Agreement Amendment, the November Savoy Merger, the Savoy
Merger and the transactions contemplated thereby, the Savoy Board considered a
number of positive factors and reasons in November 1995 and in August 1996,
including, without limitation, the following:
(i) information concerning Savoy's and Silver King's respective
businesses, prospects, financial performances, financial condition, assets,
operations and plans for the future;
(ii) the opportunity to participate in a larger enterprise with
greater financial resources and ability to compete with other companies in
the communications and entertainment industries, which could continue to
grow through further acquisitions, such as a business combination involving
HSN;
(iii) the opportunity to be part of a television enterprise managed by
Mr. Diller, and that such opportunity was consistent with Savoy's intention
to devote greater resources to the television business and related
entertainment areas;
(iv) with the assistance of Gleacher, the comparative stock prices of
Savoy Common Stock and Silver King Common Stock;
(v) with the assistance of Gleacher, premiums to market and multiples
paid in other merger and acquisition transactions in the communications,
media, entertainment and other industries;
(vi) the fact that the consideration to be received by Savoy
stockholders in the November Savoy Merger and the Savoy Merger was fixed
and would not be subject to change based on future fluctuations in the
market price of Savoy Common Stock and Silver King Common Stock;
(vii) alternatives to the November Savoy Merger and the Savoy Merger
for Savoy, including internal development, which the Savoy Board viewed as
less advantageous due to Savoy's limited resources and the competition in
the television industry;
(viii) a presentation by Gleacher, including the opinion of Gleacher
that the consideration to be received by Savoy stockholders in the November
Savoy Merger and the Savoy Merger is fair, from a financial point of view,
to such stockholders;
(ix) a review with Savoy's legal counsel of the terms of the November
Savoy Merger Agreement and the Savoy Merger Agreement, and related
agreements, including the right of Savoy in certain circumstances to
respond to requests for information by parties interested in acquiring
Savoy and accept a superior proposal for Savoy upon payment of the Breakup
Fee, the limited closing conditions to the November Savoy Merger and the
Savoy Merger and the circumstances under which either Savoy or Silver King
can terminate the November Savoy Merger Agreement and the Savoy Merger
Agreement; and
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(x) the terms of the Silver King Stockholder Voting Agreement which
provide that Mr. Diller, Liberty and certain of their affiliates will vote
in favor of the issuance of Silver King Common Stock in the Savoy Merger.
The Savoy Board also considered a variety of potentially negative factors
in its deliberations concerning the November Savoy Merger and the Savoy Merger,
including, without limitation, (i) the risk that the public market price of
Silver King Common Stock might be adversely affected by announcement of the
November Savoy Merger and the Savoy Merger or a business combination involving
Silver King and HSN; (ii) the risk that a business combination between Silver
King and HSN would not be agreed to or consummated; (iii) the risk that the
conditions to the Savoy Merger would not be satisfied; (iv) the limitations
placed on the conduct of Savoy's business during the pendency of the
transactions; and (v) certain of the other risks described above under "Risk
Factors."
In view of the wide variety of factors, both positive and negative,
considered by the Savoy Board of Directors, the Savoy Board did not find it
practical to, and did not, quantify or otherwise assign relative weights to the
specific factors considered. In addition, individual members of the Savoy Board
may have given different weights to the various factors considered.
CERTAIN INFORMATION CONCERNING SILVER KING AND SAVOY
In connection with its review of Savoy's business, the management of Silver
King reviewed publicly available analysts' views and estimates as to Savoy's
financial results in its fiscal year ended December 31, 1994 and expected
financial results in its fiscal year ending December 31, 1995. Management of
Silver King also reviewed certain preliminary financial information provided by
Savoy regarding Savoy's restructuring. In addition, Silver King reviewed certain
alternative scenarios prepared by Savoy regarding the possible financial
consequences of the distribution and/or the sale of distribution rights relating
to eight Savoy films then in production or already produced. The alternative
scenarios were not estimates of future performance but, instead, reflected the
effects of certain hypothetical assumptions on Savoy's cash position. In
general, the scenarios indicated that Savoy's filmed entertainment business
would operate at a cash deficit during calendar year 1996, except in certain
scenarios including one in which Savoy sold all of its unreleased films and
suspended the production of new films. In addition, at the request of Silver
King, Savoy prepared scenarios combining the filmed entertainment scenarios with
hypothetical results for Savoy's other businesses. These scenarios were provided
to Allen & Company, as well as to Silver King and First Boston in connection
with their due diligence. Based on the alternative scenarios provided by Savoy
management, Allen & Company prepared a preliminary pro forma combination
analysis of a possible transaction in which Silver King would acquire Savoy. The
preliminary pro forma combination analysis prepared by Allen & Company was not
independently verified by Silver King management or its advisors.
In connection with its review of Silver King's business, Savoy reviewed
management reports furnished by Silver King regarding staff reductions at the
Silver King Stations and the relocation of Silver King's headquarters, and a
recent independent valuation that had been done for Silver King.
In connection with the negotiation of the Merger Agreement Amendment, Savoy
provided Silver King with certain financial information relating to the
revenues, cash flow and earnings of the Savoy Stations, as well as estimates of
certain amounts to be collected by Savoy in connection with its film business.
The financial information and management reports prepared by Silver King
and Savoy and the preliminary pro forma combination analysis prepared by Allen &
Company were not prepared with a view to public disclosure or in conformity with
the established guidelines concerning financial projections promulgated by the
American Institute of Certified Public Accountants. Projections and business
plans are inherently uncertain and are subject to significant economic and
competitive uncertainties that are beyond the control of Silver King and Savoy.
Moreover, the financial forecasts and business plans exchanged by the companies
did not reflect the formal budgeting processes within Silver King and Savoy
which are currently under way. As a result, the financial forecasts exchanged
did not reflect the current forecasts of each company as to its future financial
performance. Disclosures concerning the foregoing projections and business plans
are provided herein
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only because they were furnished by the parties to each other. Neither Silver
King nor Savoy assumes any responsibility for the accuracy of this information
or any obligation to update such information.
BOARD RECOMMENDATIONS
THE BOARD OF DIRECTORS OF SILVER KING BELIEVES THAT THE SAVOY MERGER IS
FAIR TO AND IN THE BEST INTERESTS OF SILVER KING AND ITS STOCKHOLDERS AND,
THEREFORE, UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE SAVOY MERGER NASD
PROPOSAL TO APPROVE ISSUANCE OF SHARES OF SILVER KING COMMON STOCK PURSUANT TO
THE SAVOY MERGER AGREEMENT AND THE SAVOY MERGER. YOUR PROXY WILL BE SO VOTED
UNLESS YOU SPECIFY OTHERWISE.
THE BOARD OF DIRECTORS OF SAVOY BELIEVES THAT THE SAVOY MERGER IS FAIR TO
AND IN THE BEST INTERESTS OF SAVOY AND ITS STOCKHOLDERS AND, THEREFORE, BY
UNANIMOUS VOTE OF THE DIRECTORS PRESENT RECOMMENDS A VOTE FOR APPROVAL AND
ADOPTION OF THE SAVOY STOCKHOLDER PROPOSAL. YOUR PROXY WILL BE SO VOTED UNLESS
YOU SPECIFY OTHERWISE.
OPINIONS OF CERTAIN FINANCIAL ADVISORS
Opinions of First Boston, Financial Advisor to Silver King
Silver King retained First Boston on November 10, 1995 to provide certain
investment banking advice and services in connection with a possible merger with
Savoy. See also "-- Interests of Certain Persons in the Savoy
Merger -- Savoy -- Allen & Company Investment Banking Relationship." At the
November 27, 1995 meeting of the Silver King Board of Directors, representatives
of First Boston made a presentation with respect to the November Savoy Merger
and rendered an oral opinion to the Silver King Board, subsequently confirmed in
writing as of the same date, that, as of such date, based upon the facts and
circumstances as they existed at the time and subject to certain assumptions,
factors and limitations set forth in such opinion, the consideration to be paid
by Silver King pursuant to the November Savoy Merger Agreement was fair from a
financial point of view to Silver King. No limitations were imposed by the
Silver King Board upon First Boston with respect to the investigations made or
procedures followed by it in rendering its opinion with respect to the November
Savoy Merger.
Silver King retained First Boston in July 1996 to provide certain
investment banking advice and services in connection with a possible amendment
to the November Savoy Merger Agreement, including rendering its opinion as to
the fairness to Silver King from a financial point of view of the consideration
to be paid by Silver King pursuant to the Savoy Merger Agreement. See also
"-- Interests of Certain Persons in the Savoy Merger -- Savoy -- Allen & Company
Investment Banking Relationship." At the August 13, 1996 meeting of the Silver
King Board of Directors, representatives of First Boston made a presentation
with respect to the Savoy Merger and rendered an oral opinion to the Silver King
Board, subsequently confirmed in writing as of the same date, that, as of such
date, based upon the facts and circumstances as they existed at the time, and
subject to certain assumptions, factors and limitations set forth in such
opinion, the consideration to be paid by Silver King pursuant to the Savoy
Merger Agreement is fair from a financial point of view to Silver King. No
limitations were imposed by the Silver King Board upon First Boston with respect
to the investigations made or procedures followed by it in rendering its opinion
with respect to the Savoy Merger.
THE FULL TEXT OF FIRST BOSTON'S WRITTEN OPINION IN CONNECTION WITH THE
SAVOY MERGER DATED AUGUST 13, 1996, WHICH SETS FORTH, AMONG OTHER THINGS,
ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN,
IS ATTACHED AS APPENDIX C TO THIS JOINT PROXY STATEMENT/PROSPECTUS. FIRST
BOSTON'S OPINION IS DIRECTED TO THE SILVER KING BOARD, ADDRESSES ONLY THE
FAIRNESS TO SILVER KING FROM A FINANCIAL POINT OF VIEW OF THE CONSIDERATION TO
BE PAID BY SILVER KING PURSUANT TO THE SAVOY MERGER AGREEMENT AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY SILVER KING STOCKHOLDER AS TO HOW SUCH
STOCKHOLDER SHOULD VOTE AT THE SILVER KING MEETING. THE OPINION WAS RENDERED TO
THE SILVER KING BOARD FOR ITS CONSIDERATION IN DETERMINING WHETHER TO APPROVE
THE SAVOY MERGER AGREEMENT. THE DISCUSSION OF THE OPINION IN THIS JOINT PROXY
STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT
OF THE OPINION ATTACHED AS APPENDIX C TO THIS JOINT PROXY
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STATEMENT/PROSPECTUS. SILVER KING STOCKHOLDERS ARE URGED TO READ THIS OPINION
CAREFULLY AND IN ITS ENTIRETY.
In connection with its opinions regarding the November Savoy Merger
Agreement and the Savoy Merger Agreement, First Boston reviewed certain publicly
available financial information concerning Silver King and Savoy and certain
internal analyses and other information furnished to it by Silver King and
Savoy. First Boston held discussions with the members of the senior managements
of Silver King and Savoy regarding the businesses and prospects of those
companies. In addition, First Boston (i) reviewed the historical reported prices
and trading information for both Silver King Common Stock and Savoy Common
Stock; (ii) compared certain financial information and other publicly available
information for both Silver King and Savoy with similar information for certain
companies whose securities are publicly traded; (iii) compared certain stock
market information and valuations for both Silver King and Savoy with similar
information for certain companies whose securities are publicly traded; (iv)
reviewed the financial terms of certain recent business combinations which it
deemed comparable in whole or in part; (v) reviewed the terms of the November
Savoy Merger Agreement and the Savoy Merger Agreement and certain related
documents; and (vi) performed such other studies and analyses and considered
other such factors as First Boston deemed appropriate. In connection with its
opinions regarding the November Savoy Merger Agreement and the Savoy Merger
Agreement, First Boston reviewed, to the extent it deemed relevant, similar
information with respect to HSN in view of the proposed TCI HSN Shares
Acquisition and HSN Transactions, respectively.
In conducting its reviews and arriving at its opinions, First Boston did
not assume responsibility for independent verification of the accuracy and
completeness of the information that it reviewed and relied upon for purposes of
rendering its opinions. With respect to the financial information of Silver King
and Savoy, including estimates of certain potential synergies for the combined
company, and other information relating to the prospects of Silver King and
Savoy provided to First Boston by each company, First Boston assumed that such
information was reasonably prepared and reflected the currently available
judgments and estimates of the respective managements of Silver King and Savoy
as to the likely future financial performance of their respective companies and
of the combined entity. Although First Boston made the foregoing assumptions
concerning the financial information and other information, in the course of its
due diligence, First Boston reviewed certain of these assumptions with the
respective managements of Silver King and Savoy to confirm that the assumptions
appeared to have a reasonable basis. The financial information of Silver King
and Savoy that were provided to First Boston were utilized and relied upon by
First Boston in the Pro Forma Operating Cash Flow Analysis and Pro Forma
Earnings Analysis summarized below. In addition, First Boston did not assume
responsibility for making, and was not provided with, an independent evaluation
or appraisal of the assets of Silver King or Savoy, nor did it make any physical
inspection of the properties or assets of Silver King or Savoy. First Boston's
opinions are based on market, economic and other conditions as they existed and
should be evaluated as of the respective dates of the opinion letters. Such
conditions include, without limitation, the condition of the United States stock
markets, particularly in the communications, media and electronic retailing
sectors, and the current level of economic activity.
The following is a summary of the report presented by First Boston in
connection with rendering its opinion regarding the Savoy Merger to the Silver
King Board on August 13, 1996 (the "First Boston Savoy Report").
Historical Stock Price Performance. First Boston provided an updated
review of the per share market prices for each of the Silver King Common Stock
and Savoy Common Stock from November 27, 1995 (the date of the public
announcement of the November Savoy Merger) to August 9, 1996 (second to the last
trading day prior to the August 13, 1996 Silver King Board meeting). First
Boston noted that the market price of Savoy Common Stock during such period
largely reflected the value of the consideration to be paid to Savoy
stockholders as proposed in the November Savoy Merger (i.e., 0.20 of a share of
Silver King Common Stock for each share of Savoy Common Stock). First Boston
further noted that the market price of Silver King Common Stock had declined
approximately 26% from November 24, 1995 to August 9, 1996, while the market
price of the common stock of certain other comparable communications companies
had risen significantly during the same period.
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Referring to the report presented by First Boston in connection with
rendering its opinion regarding the November Savoy Merger to the Silver King
Board on November 27, 1995, First Boston reviewed the per share market prices
for each of the Silver King Common Stock and Savoy Common Stock from November
21, 1994 to November 22, 1995. First Boston noted that the market price of
Silver King Common Stock had risen significantly between August 24, 1995, the
date on which Mr. Diller became Chairman of the Board and Chief Executive
Officer of Silver King, and November 22, 1995. First Boston further noted that
the market price of Savoy Common Stock had declined substantially from August
24, 1995 through November 22, 1995 and that the closing price on November 22,
1995 of $4.94 per share was below the $14.50 initial public offering price of
Savoy Common Stock in 1993. This information was presented to give the Silver
King Board background information regarding the respective stock price
performance of Silver King and Savoy over the periods indicated.
Calculation of Implied Purchase Price and Implied Purchase Price
Multiples. First Boston calculated the implied aggregate purchase price of
Savoy to be approximately $127 million based on the terms of the Savoy Merger
(i.e., the implied aggregate purchase price equaled the market value of the
Silver King Common Stock to be issued in the Savoy Merger as of August 9, 1996,
adjusted to reflect net debt and the value of the indirect minority interest of
Fox in the Savoy Stations). For purposes of calculating net debt and the value
of the indirect minority interest of Fox in the Savoy Stations, First Boston
assumed the exercise of Fox's option to increase its ownership interest in all
of the Savoy Stations to 50% at a previously agreed upon price. Based on First
Boston's review of the economic terms of the preferred stock held by Fox in the
Savoy Stations, discussions with Savoy management and review of financial
information for the Savoy Stations provided by Savoy management, First Boston
determined the face value of the preferred stock held by Fox in the Savoy
Stations of approximately $39 million was unlikely to be realized and was,
therefore, not considered in the calculation of implied aggregate purchase
price. First Boston analyzed and reviewed certain multiples for Savoy's implied
purchase price relative to (i) Savoy's 1997 estimated adjusted EBITDA or
"operating cash flow" including results of broadcasting assets only) (11.0x) and
(ii) Savoy's 1997 estimated adjusted sales (including results of broadcasting
assets only) (4.2x).
Methodology to Ascertain Fairness. First Boston's determination that the
consideration to be paid by Silver King pursuant to the Savoy Merger Agreement
is fair from a financial point of view to Silver King began with an assessment
of the intrinsic equity value per share of Savoy prior to the Savoy Merger. For
purposes of its opinion, First Boston assumed the intrinsic equity value per
share of Savoy to equal the asset value of Savoy's television broadcasting and
filmed entertainment operations less net debt and the indirect minority interest
of Fox divided by all Savoy shares outstanding prior to the Savoy Merger. A
description of the methodologies used to determine the asset value (or
enterprise value) of Savoy is presented below. The assessment that the
consideration to be paid by Silver King pursuant to the Savoy Merger Agreement
is fair from a financial point of view to Silver King was based on a comparison
of Savoy's intrinsic equity value per share to the value of the consideration
being paid to Savoy stockholders in the Savoy Merger (i.e., 0.14 of a share of
Silver King Common Stock for each share of Savoy Common Stock).
Financial and Operating Characteristics of Savoy; Valuation of
Savoy. First Boston reviewed and analyzed the sales, operating cash flow and
unlevered free cash flow for each of the filmed entertainment and television
broadcasting operations and selected consolidated balance sheet items of Savoy
for 1993, 1994 and 1995, as well as estimated figures for 1996 and 1997. With
respect to the television broadcasting operations, First Boston also compared
the estimated 1996 and 1997 sales, operating cash flow and unlevered cash flow
in aggregate and broadcast cash flow (operating cash flow before corporate
overhead) by television station to those figures provided by Savoy management in
November 1995 in connection with the original Savoy Merger. First Boston also
reviewed and analyzed Savoy's film inventory and films in production or
development. Due to the distinct segmentation of Savoy's operations, First
Boston reviewed and analyzed the operations of each of Savoy's television
broadcasting and filmed entertainment operations separately, deriving a
stand-alone value for the television broadcasting operations and filmed
entertainment operations respectively, and then adding these two asset values
and adjusting for net debt and indirect minority interest of Fox in order to
arrive at Savoy's total intrinsic equity value. Such analyses produced an equity
valuation of Savoy between $113 million to $133 million, or $3.76 to $4.43 per
share of Savoy Common Stock. This analysis did
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not give any positive effect to the possible effect of the potential future tax
benefits to Savoy for its net operating losses.
Discounted Cash Flow Analysis -- Television Broadcasting Operations. First
Boston performed a discounted cash flow analysis of the projected unlevered free
cash flows of Savoy's television broadcasting operations for the fiscal years
ended December 31, 1997 through 2004. For purposes of such analysis, First
Boston utilized discount rates ranging from 10% to 11% and terminal year
operating cash flow multiples of 9.0x to 11.0x. The discounted cash flow
analysis resulted in an asset valuation range for Savoy's television
broadcasting operations of approximately $244 million to $292 million (before
adjusting for net debt and the indirect minority interest of Fox).
Comparable Company Analysis -- Television Broadcasting Operations. First
Boston reviewed and compared certain actual and estimated financial, operating
and stock market information of Savoy and selected companies in the television
broadcasting industry. First Boston attempted to select which television
comparables best matched the business profile of Savoy's television broadcasting
operations (i.e., those with similar financial performance and market size). The
selected television broadcasting companies included Argyle Television, Inc.,
Sinclair Broadcast Group, Inc., LIN Television Corp. and Young Broadcasting Inc.
(collectively, the "Selected Television Comparables"). First Boston compared
enterprise values as a multiple of 1997 estimated operating cash flow for each
of the Selected Television Comparables. Specifically, the Selected Television
Comparables traded at a multiple range of 9.6x to 12.0x 1997 estimated operating
cash flow, with a mean of 10.6x. First Boston derived the appropriate valuation
range for Savoy's television broadcasting operations by comparing Savoy's
television broadcasting business to those of the Selected Television
Comparables. First Boston multiplied Savoy's television broadcasting operations'
1997 estimated operating cash flow by an appropriate range of multiples (i.e.,
9.6x to 12.0x) based on the trading performance of the Selected Television
Comparables that best matched Savoy's broadcasting business. This comparable
company analysis resulted in an asset valuation range for Savoy's television
broadcasting operations of approximately $221 million to $276 million (before
adjusting for net debt and the indirect minority interest of Fox).
Comparable Transaction Analysis -- Television Broadcasting
Operations. Using publicly available information, First Boston analyzed the
purchase prices and multiples paid in selected merger or acquisition
transactions in the television broadcasting industry. Transactions in the
television broadcasting industry included (in chronological order of public
announcement): (i) Burnham Broadcasting Company/SF Broadcasting L.L.C. (Savoy's
television joint venture) (7/94); (ii) Act III Broadcasting, Inc./ABRY Broadcast
Partners II, L.P. (6/95); (iii) Outlet Broadcasting, Inc./General Electric Co.
(7/95); (iv) Silver King/Mr. Diller (8/95); (v) River City/Sinclair Broadcast
Group, Inc. (4/96); (vi) KCAL (Disney)/Young Broadcasting Inc. (5/96); (vii)
Renaissance/Tribune (7/96); and (viii) New World/News Corp. (7/96)
(collectively, the "Selected Television Transactions"). First Boston compared
enterprise purchase prices as a multiple of latest available 12-month operating
cash flow for each of the Selected Television Transactions. Specifically, the
Selected Television Transactions yielded a multiple range of 10.7x to 28.3x
latest available 12-month operating cash flow, with a mean of 16.0x. First
Boston discounted this range back one year at 10% to 11% to yield an estimated
multiple range of 9.6x to 25.5x 1997 estimated operating cash flow, with a mean
of 14.4x. First Boston derived the appropriate valuation range for Savoy's
television broadcasting operations by comparing Savoy's television broadcasting
business to those of the acquired companies in the Selected Television
Transactions. After determining which acquired companies best matched the
business profile of Savoy's television broadcasting operations and examining the
qualitative aspects of the relevant precedent transactions, First Boston
multiplied Savoy's television broadcasting operations' 1997 estimated cash flow
by an appropriate range of multiples (i.e., 11.0x to 13.0x) based on the
valuation multiples implied by the most comparable Selected Television
Transactions. This comparable transaction analysis resulted in an asset
valuation range for Savoy's television broadcasting operations of approximately
$253 million to $299 million (before adjusting for net debt and the indirect
minority interest of Fox).
Liquidation Analysis -- Filmed Entertainment Operations. Due to the
loss-making nature of Savoy's filmed entertainment operations, First Boston
valued these operations on a liquidation basis. Liquidation
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values reflect current estimates by Savoy management of what the filmed
entertainment operations could be sold for to a third party. The library of
previously released and unreleased films was valued at approximately $28 million
based on the terms of various contractual agreements and estimates by Savoy
management; receivables from previously released films were valued at face value
of approximately $12 million based on the strong credit quality of the
customers; and films in development, fixed assets and miscellaneous film assets
net of anticipated film expenses were valued at approximately $11 million to $13
million. In total, the liquidation analysis of the film operations resulted in
an asset valuation range of approximately $51 million to $53 million. Due to the
nature of the film industry, these asset values are inherently subjective and
the actual value of the film inventory may be significantly higher or lower than
the value used by First Boston.
Summary Valuation. The discounted cash flow analysis, comparable company
analysis and comparable transaction analysis for Savoy's television broadcasting
operations and the liquidation analysis for Savoy's filmed entertainment
operations resulted in an aggregate enterprise valuation (asset value) range for
Savoy of approximately $301 million to $338 million. After adjusting for net
debt and the indirect minority interest of Fox, this analysis resulted in a
total equity valuation range for Savoy of approximately $113 million to $133
million, or $3.76 to $4.43 per share.
Pro Forma Operating Cash Flow Analysis. First Boston analyzed certain pro
forma effects of the Savoy Merger based on Silver King's and Savoy's respective
management's projections of the operating cash flow of the combined company.
Based on such analysis, First Boston computed the resulting dilution/accretion
to Silver King's operating cash flow per share estimate for each of the years
ending December 1996 through December 2000, pursuant to the Savoy Merger after
taking into account estimated potential cost savings and other synergies that
Silver King could achieve if the Savoy Merger were consummated and before
certain nonrecurring costs. This analysis indicated that the Savoy Merger would
be approximately 11%, 39%, 51%, 51% and 51% accretive to Silver King's operating
cash flow per share for the years ending December 1996 through December 2000,
respectively. See also "Special Factors Relating to the HSN Transactions --
Opinions of Certain Financial Advisors -- Opinions of First Boston, Financial
Advisor to Silver King -- Pro Forma Operating Cash Flow Analysis."
Pro Forma Earnings Analysis. First Boston analyzed certain pro forma
effects of the Savoy Merger based on Silver King's and Savoy's respective
management's projections of the earnings of the combined company. Based on such
analysis, First Boston computed the resulting dilution/accretion to Silver
King's earnings per share ("EPS") estimate for each of the years ending December
1996 through December 2000, pursuant to the Savoy Merger after taking into
account estimated potential cost savings and other synergies that Silver King
could achieve if the Savoy Merger were consummated and before certain
nonrecurring costs. This analysis indicated that the Savoy Merger would be
approximately 212% dilutive, 59% dilutive, 23% accretive, 31% accretive and 36%
accretive to Silver King's EPS for the years ending December 1996 through
December 2000, respectively. The actual operating results or financial position
achieved by the combined company may vary from the projected results, and the
variations may be material. In addition, there can be no assurance that the
combined company will be able to realize savings and synergies in the amounts
identified by management, or at all, following the Savoy Merger. See also
"Special Factors Relating to the HSN Transactions -- Opinions of Certain
Financial Advisors -- Opinions of First Boston, Financial Advisor to Silver
King -- Pro Forma Earnings Analysis."
No company used in the analysis of other publicly traded companies nor any
transaction used in the analysis of selected mergers and acquisitions summarized
above is identical to Silver King, Savoy or the Savoy Merger. Accordingly, such
analyses must take into account differences in the financial and operating
characteristics of the Selected Television Comparables and the companies in the
Selected Television Transactions and other factors that could affect the public
trading value of the Selected Television Comparables and the acquisition value
of the Selected Television Transactions. For further information regarding First
Boston's opinion and analysis with respect to the HSN Transactions, see "Special
Factors Relating to the HSN Transactions -- Opinions of Certain Financial
Advisors -- Opinions of First Boston, Financial Advisor to Silver King."
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While the foregoing summary describes all material analyses and factors in
the First Boston Savoy Report, it is not a comprehensive description of all
analyses and factors considered by First Boston. The preparation of a fairness
opinion is a complex process that involves determination of the most appropriate
and relevant methods of financial analysis and the application of these methods
to the particular circumstances and, therefore, such an opinion is not readily
susceptible to summary description. First Boston believes that its analyses and
the summary set forth above must be considered as a whole and that selecting
portions of its analyses, without considering all analyses, or selecting
portions of the above summary, without considering all factors and analyses,
would create an incomplete view of the process underlying the analyses performed
and factors considered and set forth in the First Boston opinion with respect to
the Savoy Merger and the First Boston Savoy Report. In performing its analyses,
First Boston considered general economic, market and financial conditions and
other matters, many of which are beyond the control of Silver King or Savoy.
Such factors as to industry conditions include, without limitation, anticipated
changes in broadcasting properties ownership restrictions, increased competition
for programming due to development of new media distribution channels, and
consolidation and competition in the broadcasting and programming sectors. The
analyses performed by First Boston are not necessarily indicative of actual
values or future results, which may be significantly more or less favorable than
those suggested by such analyses. Accordingly, such analyses and estimates are
inherently subject to substantial uncertainty. Additionally, analyses relating
to the value of a business do not purport to be appraisals or to reflect the
prices at which the business actually may be sold. Furthermore, no opinion is
being expressed as to the prices at which shares of Silver King Common Stock may
trade at any future time.
Pursuant to a letter agreement, dated as of August 25, 1996, between Silver
King and First Boston, Silver King agreed to pay First Boston fees of $300,000
for acting as its financial advisor in connection with the November Savoy Merger
and the TCI HSN Shares Acquisition and for rendering its November 27, 1995
opinions with respect to such transactions, $100,000 for comparable services
with respect to the Savoy Merger and its August 13, 1995 opinion related thereto
and $100,000 for comparable services with respect to the HSN Transactions and
its August 25, 1996 opinion related thereto. Such fees were payable upon
delivery of the respective opinions of First Boston in connection with each
transaction. Silver King also agreed to reimburse First Boston for its
reasonable out-of-pocket expenses incurred in connection with rendering
financial advisory services for each of the Savoy Merger and the HSN
Transactions, including fees and disbursements of its legal counsel and expenses
related to First Boston's services in connection with the November Savoy Merger
and the TCI HSN Shares Acquisition. Silver King has agreed to indemnify First
Boston and its directors, officers, agents, employees and controlling persons,
for certain costs, expenses, losses, claims, damages and liabilities related to
or arising out of its rendering services under its engagement as financial
advisor for each of the November Savoy Merger, TCI HSN Shares Acquisition, Savoy
Merger and the HSN Transactions. Except as described above, First Boston has
received no compensation in connection with any investment banking service
provided to Silver King within the last two years.
The Board of Directors of Silver King retained First Boston to act as its
advisor based upon First Boston having provided investment banking services to
Silver King from time to time and based upon First Boston's qualifications,
experience and expertise. First Boston is an internationally recognized
investment banking firm and, as a customary part of its investment banking
business, is engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, private
placements and valuations for corporate and other purposes. First Boston may
actively trade the equity securities of Silver King, Savoy and HSN for its own
account and for the account of its customers and accordingly may at any time
hold a long or short position in such securities. First Boston regularly
publishes research reports regarding the communications, media and electronic
retailing industries and the businesses and securities of publicly traded
companies in the communications, media and electronic retailing industries.
Opinions of Gleacher
Savoy retained Gleacher solely for the purpose of rendering its opinion as
to the fairness, from a financial point of view, of the Savoy Merger to Savoy
stockholders. At the meetings of the Savoy Board on November 26 and November 27,
1995, Gleacher rendered its oral opinion, which was confirmed in a written
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opinion dated November 27, 1995, that, as of such date and based on the facts
and circumstances as they existed at the time, the November Savoy Merger was
fair, from a financial point of view, to the Savoy stockholders. In addition,
Gleacher stated in its November oral and written opinions that consummation of
the TCI HSN Shares Acquisition would not alter its opinion with respect to the
November Savoy Merger.
At the meeting of the Savoy Board on August 13, 1996, Gleacher rendered its
oral opinion, which was confirmed in a written opinion dated August 13, 1996,
that, as of such date, the consideration to be received by the Savoy
stockholders in the Savoy Merger is fair, from a financial point of view, to the
Savoy stockholders.
THE FULL TEXT OF GLEACHER'S AUGUST 13, 1996 WRITTEN OPINION, WHICH SETS
FORTH ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW
UNDERTAKEN IN CONNECTION WITH THE OPINION, IS ATTACHED AS APPENDIX E TO THIS
JOINT PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE.
GLEACHER'S OPINION IS DIRECTED ONLY TO THE FAIRNESS OF THE SAVOY MERGER, FROM A
FINANCIAL POINT OF VIEW, TO THE SAVOY STOCKHOLDERS AND DOES NOT ADDRESS SAVOY'S
UNDERLYING BUSINESS DECISION TO EFFECT THE SAVOY MERGER OR CONSTITUTE A
RECOMMENDATION TO ANY SAVOY STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE
WITH RESPECT TO THE SAVOY STOCKHOLDER PROPOSAL. THE SUMMARY OF GLEACHER'S
OPINION SET FORTH BELOW IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL
TEXT OF SUCH OPINION ATTACHED AS APPENDIX E TO THIS JOINT PROXY
STATEMENT/PROSPECTUS. SAVOY STOCKHOLDERS ARE URGED TO READ THE OPINION CAREFULLY
AND IN ITS ENTIRETY.
In connection with rendering this opinion, Gleacher reviewed, among other
things, the following: (i) drafts of the Savoy Merger Agreement; (ii) the Annual
Report to Stockholders and the Annual Reports on Form 10-K of Savoy for the
fiscal years ended December 31, 1993, 1994 and 1995, the Quarterly Reports on
Form 10-Q of Savoy for the quarter ended March 31, 1996 and the Current Reports
on Form 8-K of Savoy dated August 22, September 15 and November 27, 1995; (iii)
the Annual Report to Stockholders and the Annual Reports on Form 10-K of Silver
King for the fiscal years ended August 31, 1993 through 1995 and the Quarterly
Reports on Form 10-Q of Silver King for the quarters ended November 30, 1995 and
March 31, 1996 and Current Reports on Form 8-K of Silver King dated October 25
and November 27, 1995 and February 13 and July 2, 1996; (iv) the historical
market prices and reported trading volume of Savoy Common Stock and Silver King
Common Stock; and (v) certain forward-looking financial data and information
with respect to Savoy and Silver King and certain estimates of financial
synergies in the business combination resulting from the Savoy Merger prepared
by Savoy and Silver King (collectively, the "Business Plans"). In addition,
Gleacher compared, on an operating and trading basis, financial information
relating to Savoy's and Silver King's businesses with published financial
information concerning certain companies that Gleacher deemed to be comparable,
in whole or in part, to Savoy and Silver King. Gleacher also met with certain
members of senior management of Savoy and Mr. Diller, as Chairman of the Board
and Chief Executive Officer of Silver King, to discuss Savoy's and Silver King's
respective operations, historical financial statements and future prospects.
Gleacher also performed such other studies, analyses, inquiries and
investigations which they deemed appropriate.
In its review and analysis and in arriving at its opinion, Gleacher assumed
and relied upon the accuracy and completeness of all the financial and other
information provided to it or publicly available and did not assume any
responsibility for independently verifying any of such information. With respect
to the Business Plans, Gleacher assumed, without independent verification, that
they had been reasonably prepared by Savoy and Silver King, as the case may be,
and were generated on bases reflecting the best currently available information
and judgments of Savoy's and Silver King's management as to the future financial
performance of the relevant businesses. Gleacher did not make or obtain any
independent evaluations or appraisals of any of Savoy's or Silver King's assets
or liabilities. Gleacher was engaged by Savoy solely for purposes of rendering
an opinion as to the fairness of the Savoy Merger, from a financial point of
view, to Savoy's stockholders and Gleacher was not requested to and did not
solicit any offers to acquire Savoy or any of its constituent businesses or any
of its securities. In addition, although Gleacher evaluated the financial terms
of the Savoy Merger, Gleacher was not asked to and did not participate in the
negotiations regarding the consideration to be paid to Savoy stockholders in the
Savoy Merger.
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The following is a summary of certain of the financial analyses used by
Gleacher in connection with providing its written opinion to the Board of
Directors and which Gleacher described to the Savoy Board at the August 13, 1996
board meeting.
Overview of Savoy. Gleacher presented, for background purposes, certain
aspects of the financial performance of Savoy and Silver King, including, for
the latest 12 months ended July 31, 1996 with respect to Silver King and June
30, 1996 with respect to Savoy ("LTM"), sales, EBITDA and net income and book
value as of July 31, 1996 and June 30, 1996, respectively. Gleacher also
reviewed with the Savoy Board certain information concerning the trading prices
and volumes of trading of Savoy Common Stock through August 2, 1996.
Analysis of the Realizable Asset Values of Savoy. Gleacher analyzed the
value realizable from the sale of Savoy's assets. Gleacher, based, in part, upon
certain assumptions provided by Savoy's senior management, determined that the
realizable asset values of Savoy, less current indebtedness and other costs,
ranged from $3.29 per share to $3.90 per share. Gleacher observed that the
merger consideration represented a premium of 9.6% over the $3.29 valuation and
a discount of 7.6% from the $3.90 valuation, respectively. In its analysis of
realizable asset values, Gleacher determined that the value of Savoy's interest
in its television broadcasting operations ranged from $84 million to $97
million. These valuations were based, in part, upon a range of estimates
provided by Savoy's senior management of $16 million and $18 million of 1996
cash flows of the broadcasting operations (before Fox's minority interest and
net debt) and a valuation multiple of 13 times cash flows of the broadcasting
operations. The valuation also assumes that Fox exercises its option to purchase
an additional 25% ownership interest in the Savoy Stations at a previously
agreed upon price. Gleacher determined that each increase of one point (i.e.,
from 13 times to 14 times) in the multiple for the valuation of the Savoy
Stations would increase the value per share by $.27. The realizable asset
valuation also includes a value, based, in part, on assumptions of Savoy's
senior management, for Savoy's inventory of films in production and under
development. Due to the nature of the film industry, these values are inherently
subjective and the actual value for the film inventory may be significantly
higher or lower than the values used by Gleacher.
Going Concern Value. Gleacher also reviewed the going concern value of
Savoy assuming Savoy remained an independent entity operating its existing
broadcasting assets. Gleacher analyzed the discounted cash flow values based on
the following key assumptions provided by Savoy's senior management: (i) Savoy
would sell, or enter into joint ventures with respect to, its existing
pre-released films and enter into certain arrangements with producers and
actors, (ii) broadcast cash flow for Savoy's television broadcasting operations
of $17 million in 1996, $23 million in 1997, $27 million in 1998 and $30 million
in 1999 and 2000, (iii) Savoy would reduce its annual corporate overhead by $6
million, and (iv) Savoy would exit the television programming business. Based on
these assumptions, and using EBITDA exit multiples of 10x, 11x, 12x and 13x and
discount rates of 10%, 12% and 14%, Gleacher performed a five-year discounted
cash flow analysis and calculated a range of current per share values for Savoy
Common Stock of between $3.47 and $4.92.
Net Cost Analysis. Gleacher also performed a net cost analysis of Savoy
which established an implied pricing of Savoy's television broadcasting assets
under a range of film inventory valuations. Based on this analysis, Gleacher
determined that the implied 1996 cash flow multiple for Savoy's television
broadcasting assets, assuming (i) consideration in the Savoy Merger of $3.61 per
share (based upon the closing price of Silver King Common Stock on August 9,
1996 of $25.75 per share and the Savoy Conversion Ratio of 0.14 of a share of
Silver King Common Stock for each share of Savoy Common Stock) and (ii) 1996
cash flows of the broadcasting operations of $16 million and $18 million, was
between 12.0x and 14.2x 1996 cash flows of the broadcasting operations.
Analysis of Selected Mergers/Acquisition Transactions. Gleacher also
reviewed certain publicly available financial, operating and stock market
information for certain selected recent broadcast company acquisition
transactions. For each such transaction, Gleacher calculated the implied 1996
EBITDA multiple for the assets of the acquired entity, which yielded a range of
multiples of 12.5x to 18.4x, with a median of 13.3x and a mean of 14.0x. As
noted above, the Savoy Merger reflects a range of implied 1996 cash flow
multiples for Savoy's broadcasting assets of 12.0x and 14.2x. However, direct
comparisons between the
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selected transactions and the Savoy Merger are difficult due to the unique
attributes of the broadcast assets of each acquired entity.
Analysis of Silver King Equity and Equity of Selected Companies. Gleacher
reviewed the market price of Silver King Common Stock and noted that the Silver
King Common Stock is traded at a modest premium relative to comparable companies
involved in the operation of television stations and broadcasting. Gleacher also
reviewed and compared certain financial information of Silver King to the
corresponding public market multiples of certain comparable publicly traded
companies involved in the operation of television stations and broadcasting. The
multiples of Silver King were calculated using a price of $25.75 per share, the
closing price of the Silver King Common Stock on August 9, 1996. The multiples
of the selected comparable companies were based on the most recent publicly
available information. The median multiple of stock price to estimated 1996
EBITDA and estimated 1996 sales for the selected companies was 12.7x and 4.98x,
respectively, while the multiple for Silver King Common Stock was 13.6x and
6.97x, respectively. Gleacher stated that Silver King's market valuation is
aided by investors' belief in Mr. Diller's abilities.
Pro Forma Merger Analysis. Gleacher reviewed pro forma financial
information with respect to the Savoy Merger prepared by management of Savoy and
Silver King. Using earnings estimates for Savoy and Silver King prepared by
their respective managements for 1997, Gleacher compared the EPS of the Silver
King Common Stock, on a stand-alone basis, to the EPS of the combined company on
a pro forma basis. These comparisons were based on the following assumptions:
(i) a stock-for-stock merger based upon an exchange ratio of 0.14 of a share of
Silver King Common Stock for each share of Savoy Common Stock; and (ii) that
Silver King does not alter its broadcasting relationship with HSN by 1997. Based
on such analyses, the Savoy Merger would be 90.8% dilutive to Silver King's
stockholders on an EPS basis in 1997.
The foregoing summary does not purport to be a complete description of the
analyses performed by Gleacher or of its presentation to the Savoy Board. The
preparation of financial analyses and fairness opinions is a complex process and
is not necessarily susceptible to partial analysis or summary description.
Gleacher believes that its analyses (and the summary set forth above) must be
considered as a whole, and that selecting portions of such analyses and of the
factors considered by Gleacher, without considering all of such analyses and
factors, could create an incomplete view of the processes underlying the
analyses conducted by Gleacher and set forth in its opinion. Gleacher made no
attempt to assign specific weights to particular analyses. Any estimates
contained in Gleacher's analyses are not necessarily indicative of actual
values, which may be significantly more or less favorable than as set forth
therein. Estimates of values of companies do not purport to be appraisals or
necessarily to reflect the prices at which companies may actually be sold.
Pursuant to a letter, dated November 16, 1995, and an amendment thereto,
dated August 13, 1996, Savoy engaged Gleacher solely for the purposes of
rendering an opinion as to the fairness to Savoy's stockholders, from a
financial point of view, of the Savoy Merger. Gleacher is an internationally
recognized investment banking firm engaged, among other things, in the valuation
of businesses and their securities in connection with mergers and acquisitions,
restructurings and leveraged buyouts. Savoy retained Gleacher based on
Gleacher's reputation and expertise in transactions similar to the Savoy Merger.
Pursuant to the Gleacher engagement letter, Savoy paid Gleacher $150,000 upon
execution of the engagement letter, an additional $150,000 upon delivery by
Gleacher of its opinion to the Savoy Board on November 27, 1995 and an
additional $100,000 upon delivery by Gleacher of its opinion to the Board on
August 13, 1996. Savoy has also agreed to reimburse Gleacher for reasonable
travel and out-of-pocket expenses incurred in connection with its engagement
(including all reasonable fees and expenses of Gleacher's counsel) and to
indemnify Gleacher and certain related persons against certain liabilities and
expenses relating to or arising out of its engagement, including certain
liabilities under the federal securities laws.
Gleacher did not trade (for its own account or the account of any other
person or entity) in any securities of Savoy, Silver King or HSN during the
period just prior to its rendering of its opinions to Savoy regarding the Savoy
Merger.
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INTERESTS OF CERTAIN PERSONS IN THE SAVOY MERGER
Savoy
Change of Control/Severance Agreements. Each of Mr. Kaufman, Chairman and
Chief Executive Officer of Savoy, and Lewis J. Korman, President and Chief
Operating Officer of Savoy, has been awarded 250,000 shares under the Savoy 1994
Restricted Stock Plan, and Robert Fried, the former President, Motion Pictures
of Savoy Pictures, Inc., a wholly-owned subsidiary of Savoy, has been awarded
100,000 shares of restricted Savoy Common Stock under a restricted stock
agreement. Pursuant to the Savoy Merger Agreement, Silver King has agreed to
assume Savoy's obligations under the Savoy 1994 Restricted Stock Plan and under
Mr. Fried's restricted stock agreement upon the respective terms and conditions
contained in such plan and agreement, except that the shares of Savoy Common
Stock awarded thereunder will be converted into the right to receive that number
of whole shares of Silver King Common Stock equal to the product of the number
of shares of Savoy Common Stock awarded thereunder and the Savoy Conversion
Ratio, plus an amount in cash in lieu of fractional shares, if any. Upon
consummation of the Savoy Merger, all restrictions under the Savoy 1994
Restricted Stock Plan with respect to shares awarded to Messrs. Kaufman and
Korman will lapse, and such shares will become fully vested. The restrictions on
Mr. Fried's shares of restricted Savoy Common Stock will lapse no later than
November 17, 1996. In addition, the Savoy 1994 Restricted Stock Plan and Mr.
Fried's restricted stock agreement provide that Savoy will be obligated to make
Messrs. Kaufman, Korman and Fried whole for any excise tax liabilities arising
as a result of the lapsing of the restrictions on such restricted stock.
In addition, based on discussions between Messrs. Diller and Kaufman in
September 1996, it is contemplated that, upon the consummation of the Savoy
Merger, Mr. Kaufman would become employed by Silver King as an executive officer
serving in the Office of the Chairman and would receive, in connection
therewith, an annual salary of $500,000 and, subject to his becoming so employed
and to Silver King stockholder approval of the 1995 Stock Incentive Plan
Proposal, options to purchase 100,000 shares of Silver King Common Stock at an
exercise price equal to $25.25 per share, the closing market price of such
shares on the date of grant (which options would be subject to a vesting
schedule and are not currently vested). In the spring of 1996, HSN granted to
Mr. Kaufman options to purchase 100,000 shares of HSN Common Stock at $9.625 per
share, which options Mr. Kaufman has indicated to the HSN Board that he will
forfeit in the event that either the Savoy Merger or the HSN Merger is not
consummated. Silver King has also agreed with Mr. Kaufman that options to
purchase shares of Silver King Common Stock owned by him as of the time of
commencement of his employment with Silver King or acquired prior to the
termination of his employment with Silver King (including his options to
purchase 100,000 shares of HSN Common Stock granted by the HSN Board, which,
pursuant to the HSN Merger Agreement, would be converted into options to
purchase shares of Silver King Common Stock in the HSN Merger) would become
fully vested in the event that Silver King terminates Mr. Kaufman's employment
without cause. In addition, Mr. Kaufman is a candidate for election to the
Silver King Board at the Silver King Meeting. See "Election of Silver King
Directors."
In addition, in late September 1996, Silver King offered to Mr. Korman an
opportunity for employment with Silver King following the Savoy Merger. Mr.
Korman has informed Silver King that he intends to leave Savoy following
consummation of the Savoy Merger to pursue other interests. Mr. Korman and
Silver King have discussed the possibility that, depending on future
circumstances, Mr. Korman would provide services to Silver King, including as an
executive of Silver King.
Indemnification and Insurance. The Savoy Merger Agreement provides that
Silver King will assume all of the obligations of Savoy under Savoy's existing
indemnification agreements with each of the directors and officers of Savoy, as
such agreements relate to the indemnification of such individuals for expenses
and liabilities arising from facts or events that occurred on or before the
Savoy Merger Effective Time or relating to the transactions contemplated by the
Savoy Merger Agreement. In addition, the Savoy Merger Agreement provides that
the bylaws and certificate of incorporation of the Savoy Surviving Corporation
in the Savoy Merger shall contain provisions regarding indemnification identical
to those in the Savoy Certificate and the Savoy Bylaws, and that such provisions
shall not be amended, repealed or otherwise modified for a period of six years
from the Savoy Merger Effective Time in any manner that would adversely affect
the rights on or
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prior to the Savoy Merger Effective Time of individuals who at the Savoy Merger
Effective Time were the directors, officers, agents or employees of Savoy.
The Savoy Merger Agreement also requires, except as otherwise agreed to by
the Executive Committee of the Savoy Board, the Savoy Surviving Corporation to
maintain in effect, for up to three years after the Savoy Merger Effective Time,
directors' and officers' liability insurance for the benefit of the existing
directors and officers of Savoy currently covered by Savoy's officers' and
directors' liability insurance with respect to matters arising before the Savoy
Merger Effective Time, containing terms and conditions (to the extent
commercially obtainable) substantially similar to those contained in the
insurance currently provided by Savoy and having the maximum available coverage,
subject to maximum aggregate premiums for the three-year period not in excess of
$750,000.
Interests in Savoy Common Stock, Options and Warrants. As of the Savoy
Record Date, the executive officers and directors of Savoy and other entities or
persons who may be deemed to be their affiliates beneficially owned an aggregate
of 10,222,235 shares of Savoy Common Stock (including 544,332 shares of Savoy
Common Stock subject to Savoy Options exercisable within 60 days of the Savoy
Record Date at exercise prices ranging from $12.00 to $20.75 per share and
500,000 shares of Savoy Common Stock granted pursuant to the Savoy 1994
Restricted Stock Plan as to which vesting and similar restrictions will lapse in
connection with the Savoy Merger), collectively representing approximately 32%
of the outstanding Savoy Common Stock. Based upon the closing sale price of
Silver King Common Stock on November 11, 1996 of $25.4375, and assuming the
exercise of none of the outstanding Savoy Options (because all such options have
an exercise price greater than the product of the Savoy Conversion Ratio and the
price of Silver King Common Stock on the Savoy Record Date), the aggregate
dollar value of Silver King Common Stock to be received in the Savoy Merger by
the executive officers and directors of Savoy is approximately $36,403,934.
Pursuant to certain plans or option agreements of Savoy, all Savoy Options held
by members of the Savoy Board, as well as all Savoy Options held by other
parties, will become immediately exercisable at the time of the Savoy Merger.
Certain persons who may be deemed affiliates of certain members of the
Savoy Board of Directors hold Savoy Warrants to purchase 550,000 shares of Savoy
Common Stock, which warrants will be assumed by Silver King. The Savoy Warrants
have exercise prices ranging between $12.00 (300,000 shares) and $25.00 (250,000
shares) per share and, in view of such exercise prices, are not expected to be
exercised at any time prior to the Savoy Merger.
Interests in Savoy Convertible Securities. GKH Investors, L.P., which may
be deemed an affiliate of certain members of the Savoy Board of Directors, is
the beneficial owner of a 12% convertible subordinated note, which Savoy Note is
convertible into 961,539 shares of Savoy Common Stock upon surrender of the
Savoy Note. At the Savoy Merger Effective Time, such Savoy Note will become
convertible upon surrender of the Savoy Note into approximately 134,616 shares
of Silver King Common Stock.
Allen & Company Investment Banking Relationship. Allen & Company has acted
as principal outside financial advisor to Savoy since its inception, and, in
1993, Allen & Company was engaged by Savoy to provide ongoing financial advisory
services. Pursuant to such engagement, Allen & Company has rendered financial
advice to Savoy concerning the Savoy Merger, including assistance in negotiating
its terms. Under the terms of the financial advisory engagement, Savoy has
agreed to indemnify Allen & Company and certain related persons against certain
liabilities and expenses relating to or arising out of its engagement, including
certain liabilities under the federal securities laws. With Savoy's consent,
Allen & Company also assisted Silver King in analyzing the Savoy Merger, the TCI
HSN Shares Acquisition and the HSN Transactions. Neither Savoy nor Silver King
requested Allen & Company to deliver a fairness opinion or make any analytical
presentations to the Savoy Board or the Silver King Board regarding the Savoy
Merger, the TCI HSN Shares Acquisition or the HSN Transactions. Upon
consummation of the Savoy Merger, Savoy has agreed to pay Allen & Company for
its services a fee of $2.5 million, and will reimburse Allen & Company for its
related out-of-pocket expenses. Silver King has agreed to pay Allen & Company a
fee for its services, which amount has not yet been determined. Allen & Company
also provided certain services to the parties to the HSN Merger. See
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"Special Factors Relating to the HSN Transactions -- Interests of Certain
Persons in the HSN Transactions; Conflicts of Interest -- Allen & Company
Investment Banking Relationship."
Allen & Company has also acted as managing underwriter of Savoy's March
1993 initial public offering of Savoy Common Stock, the sale of the Savoy
Debentures and the November 1993 offering of Savoy Common Stock and Savoy
Debentures. Allen & Company and certain affiliated persons own an aggregate of
1,200,000 shares of Savoy Common Stock. Two members of the Savoy Board of
Directors, Kim Wieland and Philip Scaturro, are officers of Allen & Company and
one member, Dan W. Lufkin, serves as a Special Advisor to the Board of Directors
of Allen & Company. Allen & Company also acted as placement agent for the HSN
debt offering described above. See "Risk Factors -- Recent Operating Results and
Financial Condition of HSN; Substantial Leverage at HSN."
* * *
The foregoing interests of the directors and certain members of the
management of Savoy, or their affiliates, in connection with the Savoy Merger
may mean that such persons have personal interests in the Savoy Merger which may
not be identical to the interests of other Savoy stockholders.
Silver King
For a description of the Stockholders Agreement, see "Special Factors
Relating to the HSN Transactions -- Background -- Relationship between Liberty
and Mr. Diller -- the Diller-Liberty Stockholders Agreement."
Grant of Silver King Options to Mr. Diller
Mr. Diller has been granted options to purchase 625,000 shares of Silver
King Common Stock at an exercise price of $30.75 per share pursuant to the 1995
Stock Incentive Plan, which plan is subject to stockholder approval. In the
event that only one of the Savoy Merger or the HSN Merger is consummated (and
assuming Silver King stockholder approval of the 1995 Stock Incentive Plan), Mr.
Diller will receive options to purchase 221,625 or 403,375 shares, respectively,
of Silver King Common Stock. In the event that neither transaction is
consummated (or Silver King stockholder approval for the 1995 Stock Incentive
Plan is not obtained), all such options will be cancelled.
Interests in Silver King Securities and Options
In addition to the 2,000,000 shares of Silver King Class B Common Stock
held by BDTV following exercise of the Liberty Option (as defined herein), Mr.
Diller, Liberty and BDTV, together with certain of their affiliates,
collectively hold 503,618 shares of Silver King Common Stock (approximately 7%
of the outstanding shares of Silver King Common Stock as of the Silver King
Record Date). These Silver King Securities, which are subject to the terms of
the Stockholders Agreement, represent in the aggregate approximately 66% of the
Total Voting Power outstanding as of the Silver King Record Date. In addition,
Mr. Diller owns 441,988 shares of Silver King Common Stock and options to
purchase 1,895,847 shares of Silver King Common Stock.
As of the Silver King Record Date, the executive officers and directors of
Silver King and their affiliates (including BDTV) beneficially owned an
aggregate of 664,677 shares of Silver King Common Stock, representing
approximately 9% of the outstanding Silver King Common Stock and 2,000,000
shares of Silver King Class B Common Stock, representing approximately 83% of
the outstanding Silver King Class B Common Stock. Such Silver King Securities
represent approximately 66% of the outstanding Total Voting Power as of the
Silver King Record Date.
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RELATED AGREEMENTS
Stockholder Voting Agreements
At the time that the Savoy Merger Agreement was entered into, Mr. Kaufman,
Loretta Kaufman, Mr. Korman, Sharon Korman, Korman Trusts, GKH Partners, L.P.,
GKH Investments, L.P., Allen Value Limited, Allen Value Partners, L.P. and Allen
& Company, who collectively owned 8,642,364 shares of Savoy Common Stock
(representing approximately 29% of the shares of Savoy Common Stock outstanding
as of the Savoy Record Date), entered into the Savoy Stockholder Voting
Agreement with Silver King and have each agreed with Silver King that, until the
earliest of the consummation of the Savoy Merger, one day after termination of
the Savoy Merger Agreement in accordance with its terms and written notice of
termination of the Savoy Stockholder Voting Agreement by Silver King, they will
(i) vote their shares in favor of the Savoy Merger Agreement and the Savoy
Merger and against any action or agreement that would impede, interfere with,
delay, postpone or attempt to discourage the Savoy Merger and (ii) not transfer
any of their shares of Savoy Common Stock. In connection with the Merger
Agreement Amendment, the persons who entered into the Savoy Stockholder Voting
Agreement affirmed the obligations contained in the Savoy Stockholder Voting
Agreement.
Also, at the time that the Savoy Merger Agreement was entered into, Mr.
Diller, Arrow, Liberty and BDTV, who owned collectively or were expected to own
as of the Silver King Record Date 503,618 shares of Silver King Common Stock and
2,000,000 shares of Silver King Class B Common Stock (representing approximately
7% of the shares of the outstanding Silver King Common Stock, 83% of the
outstanding shares of Silver King Class B Stock, and 66% of the Total Voting
Power, in each case, as of the Silver King Record Date), entered into the Silver
King Stockholder Voting Agreement and have each agreed with Savoy that, until
the earliest of the consummation of the Savoy Merger, one day after termination
of the Savoy Merger Agreement in accordance with its terms and written notice of
termination of the Silver King Stockholder Voting Agreement by Savoy, they will
(i) vote their shares (to the extent such party controls the voting thereof) in
favor of the issuance of Silver King Common Stock pursuant to the Savoy Merger
Agreement and the Savoy Merger, and any other related matter to be voted upon by
Silver King stockholders at the Silver King Meeting and (ii) not transfer any of
their shares of Silver King Common Stock except to BDTV as contemplated therein
and except as contemplated in the Stockholders Agreement and an Equity and Bonus
Compensation Agreement, dated as of August 24, 1995, by and between Silver King
and Mr. Diller (the "Equity Compensation Agreement"). In connection with the
Savoy Merger Agreement Amendment, Mr. Diller, Arrow, Liberty and BDTV affirmed
the obligations contained in the Silver King Stockholder Voting Agreement.
Affiliate Agreements
Savoy has agreed to use its reasonable efforts to obtain, prior to the
Savoy Merger Effective Time, agreements by each affiliate of Savoy to the effect
that such persons will not sell, transfer or otherwise dispose of any shares of
Silver King Common Stock distributed to them pursuant to the Savoy Merger,
except in compliance with Rule 145 under the Securities Act, or in a transaction
that is otherwise exempt from the registration requirements of the Securities
Act, or in an offering which is registered under the Securities Act. Generally,
sales in compliance with Rule 145(d) under the Securities Act require that for
specified periods such sales be made in compliance with volume limitations,
manner of sale provisions and current information requirements of Rule 144 under
the Securities Act. The volume limitations should not impose any material
limitation on any Savoy stockholder who owns less than 1% of the outstanding
Silver King Common Stock after the Savoy Merger unless, pursuant to Rule 144
under the Securities Act, sales of such stockholder's shares are required to be
aggregated with those of other stockholders.
SAVOY MERGER AGREEMENT
Representations and Warranties; Covenants
Pursuant to the Savoy Merger Agreement, Silver King and Savoy made a number
of representations relating to, among other things: (i) their respective
organization and similar corporate matters and the
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organization and similar corporate matters of their respective significant
subsidiaries; (ii) their respective capital structures; (iii) their respective
authority to enter into the Savoy Merger Agreement and to consummate the Savoy
Merger; (iv) the absence of certain conflicts under their respective
certificates of incorporation or bylaws, certain required consents or approvals
and violations of any instruments or law; (v) documents filed with the
Commission and the accuracy of the information contained therein; (vi) with
respect to Savoy, the absence, since August 13, 1996 and excluding certain
specified matters (including the financial performance of the Savoy Stations and
of any Savoy films under development, production or distribution) or the
proximate consequences thereof, of any event or condition significantly
impairing or which could reasonably be expected to significantly impair the
long-term value of Savoy (it being understood that this standard is very
substantially in excess of a material adverse effect, which heightened
materiality standard reflects the decrease in the Savoy Conversion Ratio from
0.20 to 0.14); (vii) with respect to Silver King, the absence of certain
specified material adverse changes; (viii) the absence of certain specified
material litigation or material undisclosed liabilities; (ix) certain tax and
employee benefit matters; (x) compliance with requirements of their respective
FCC licenses and with the Exchange Act; (xi) the accuracy of information
supplied by each of Silver King and Savoy in connection with the preparation of
this Joint Proxy Statement/Prospectus and the related Registration Statement;
(xii) the receipt of fairness opinions from their respective financial advisors;
(xiii) the approval of the Savoy Merger Agreement by their respective boards
(including for purposes of Section 203 of the DGCL); and (xiv) certain
arrangements with their respective affiliates. In addition, Savoy also made
representations with respect to the completeness and accuracy of certain
material information made available by Savoy to Silver King regarding the
business, financial and operating condition of Savoy and that neither Savoy nor
certain specified individuals had, at such time, knowledge of any condition,
circumstance or event relating to Savoy not so disclosed to Silver King that
would, individually or in the aggregate, have a material adverse effect on
Savoy.
Each party covenanted as to itself and its subsidiaries that, until the
consummation of the Savoy Merger or the termination of the Savoy Merger
Agreement, it will, among other things, provide the other with reasonable access
to its financial, operating and other information, conduct its operations in the
ordinary course, not take certain actions outside the ordinary course without
the other party's consent or, in the case of Savoy, within certain parameters
set forth in the Savoy Merger Agreement, and take all reasonable actions to
consummate the Savoy Merger; provided that, with respect to Savoy, Savoy has
agreed to use its reasonable efforts to maintain and preserve intact its
business organization, to keep available the services of its officers and
employees and to maintain satisfactory relations with material licensors,
franchisees, licensees, suppliers, contractors, distributors, customers and
others having business relationships with Savoy and also agreed not to take
certain actions outside of parameters specified in the Savoy Merger Agreements,
such as paying dividends, recapitalizing its capital stock, issuing its capital
stock, amending the Savoy Certificate, incurring debt and increasing the
compensation paid to its employees. Savoy further covenanted as to itself and
its subsidiaries that it will maintain its business. Silver King further
covenanted to use its reasonable best efforts to cause the shares of Silver King
Common Stock to be issued to Savoy stockholders in the Savoy Merger to be
eligible for quotation on the Nasdaq National Market prior to the Savoy Merger
Effective Time.
Savoy has also agreed to use its reasonable best efforts to cause the
parties to the Amended and Restated Stockholders Agreement, dated as of March 1,
1993, by and among Savoy and certain holders of Savoy Common Stock, to terminate
such agreement (including any registration rights provided for therein) upon
consummation of the Savoy Merger. In addition, Savoy has agreed to use its
reasonable efforts to deliver to Silver King, prior to the Savoy Merger
Effective Time, letters from affiliates (as defined pursuant to Rule 145
promulgated under the Securities Act) of Savoy, substantially in the form
attached to the Savoy Merger Agreement.
Silver King has agreed, if the Savoy Merger is consummated, from and after
the Savoy Merger Effective Time, to cause Savoy to fulfill all employment,
severance, termination, consulting and retirement agreements, as in effect on
the date of the Savoy Merger Agreement, to which Savoy is a party, pursuant to
the terms thereof and applicable law.
Silver King has agreed further, if the Savoy Merger is consummated, to
assume at the Savoy Merger Effective Time all of the obligations of Savoy under
Savoy's existing indemnification agreements with each of
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the directors and officers of Savoy, as such agreements relate to the
indemnification of such individuals for expenses and liabilities arising from
facts or events that occurred on or before the Savoy Merger Effective Time or
relating to the Savoy Merger or transactions contemplated by the Savoy Merger
Agreement. In addition, the Savoy Merger Agreement provides that the bylaws of
the Savoy Surviving Corporation will contain provisions regarding
indemnification identical to those set forth in Article VI of the Savoy Bylaws
as in effect on December 31, 1994, and that such provisions and Article Eighth
of the Savoy Certificate as in effect as of the date of the Savoy Merger
Agreement shall not be amended, repealed or otherwise modified for a period of
six years from the Savoy Merger Effective Time in any manner that would
adversely affect the rights on or prior to the Savoy Merger Effective Time of
individuals who at the Savoy Merger Effective Time were directors, officers,
agents or employees of Savoy. Silver King also has agreed, if the Savoy Merger
is consummated and except as otherwise agreed to by the Executive Committee of
the Savoy Board, to cause the Savoy Surviving Corporation to purchase "tail"
insurance coverage, effective as of the Savoy Merger Effective Time, for the
benefit of Savoy's existing officers and directors who as of the date of the
Savoy Merger Agreement were covered by Savoy's officers' and directors'
liability insurance, which coverage shall continue for a period of up to three
years after the Savoy Merger Effective Time and be on terms (to the extent
commercially obtainable) substantially similar to the policies in existence on
the date of the Savoy Merger Agreement in respect of actions or omissions by
such individuals occurring prior to the Savoy Merger Effective Time, provided
that the Savoy Surviving Corporation shall not be obligated to pay aggregate
premiums for the three-year period in excess of $750,000 for such coverage.
Conditions to the Savoy Merger
In addition to the approvals of the stockholders of Silver King and Savoy
sought hereby in connection with the Savoy Merger, the obligations of Silver
King and Savoy to consummate the Savoy Merger are subject to the satisfaction of
a number of other conditions, including the absence of any stop orders or
proceedings seeking a stop order with respect to the Registration Statement
filed in connection with this Joint Proxy Statement/Prospectus; the absence of
any proceedings commenced by the Commission with respect to this Joint Proxy
Statement/Prospectus; the absence of any order, decree or ruling by any court or
governmental agency or threat thereof, or any other fact or circumstance that
would prohibit or render illegal the consummation of the Savoy Merger or the
transactions contemplated by the Savoy Merger Agreement; and the receipt of all
material governmental consents, orders and approvals and the expiration of any
waiting periods imposed by, any governmental entity necessary for the
consummation of the Savoy Merger. See "-- Governmental Approvals."
Each party's obligations under the Savoy Merger Agreement are also
conditioned upon the accuracy in all material respects of the representations
and warranties made by the other party, provided that, pursuant to the Savoy
Merger Agreement Amendment, (i) the representations and warranties regarding
Savoy's legal and contractual compliance exclude certain matters set forth in
the Savoy Merger Agreement Amendment (including the financial performance of the
Savoy Stations and any Savoy film under development, production or distribution)
and the proximate consequences thereof and (ii) the representations and
warranties regarding undisclosed liabilities and the absence of certain changes
or events, as they relate to the operations of Savoy's business in the ordinary
course, (a) cover only the period from August 13, 1996 to the closing date of
the Savoy Merger, (b) exclude certain matters set forth in the Savoy Merger
Agreement Amendment (including the financial performance of the Savoy Stations
and of any Savoy films under development, production or distribution and (c)
must be true and correct (without reference to any materiality standard) except
to the extent their failure to be so true and correct would not significantly
impair, or could reasonably be expected to significantly impair, the long-term
value of Savoy (it being understood that this standard is very substantially in
excess of a material adverse effect); the performance in all material respects
by the other party of its covenants; the receipt of all material third-party
consents except those consents the failure to so receive would not have a
material adverse effect on such party; the declaration of the effectiveness by
the Commission of the Registration Statement in connection with the Savoy
Merger; and the authorization for quotation on the Nasdaq National Market, upon
official notice of issuance, of the shares of Silver King Common Stock to be
issued in the Savoy Merger.
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Savoy's obligations to consummate the Savoy Merger are further conditioned
upon Mr. Diller being Chairman and/or Chief Executive Officer and/or President
of Silver King and not having resigned all such positions or announced an
intention to do so.
At any time prior to the Savoy Merger Effective Time, to the extent legally
allowed, Silver King or Savoy, without approval of the stockholders of such
company, may waive compliance with any of the agreements or satisfaction of any
of the conditions contained in the Savoy Merger Agreement for the benefit of
that company, provided that Mr. Diller has agreed with Liberty in the
Stockholders Agreement that he will not permit any material amendment to, or
waiver or modification of, material rights or obligations under the Savoy Merger
Agreement without the prior written consent of Liberty, which consent shall not
be unreasonably withheld. See "Special Factors Relating to the HSN
Transactions -- Background -- Relationship between Liberty and Mr. Diller -- The
Diller-Liberty Stockholders Agreement."
Governmental Approvals
Antitrust. Under the Savoy Merger Agreement, the obligations of each party
to consummate the Savoy Merger are subject to, among other conditions, the
expiration or termination of any waiting period applicable to the consummation
of the Savoy Merger under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act") and no action having been instituted by the
Department of Justice (the "DOJ") or the Federal Trade Commission (the "FTC")
challenging or seeking to enjoin the consummation of the Savoy Merger, which
action shall not have been withdrawn or terminated.
Transactions such as the Savoy Merger are reviewed by the DOJ and the FTC
to determine whether they comply with applicable antitrust laws. Under the
provisions of the HSR Act, the Savoy Merger may not be consummated until such
time as certain information has been furnished to the DOJ and the FTC and the
specified waiting period requirements of the HSR Act have been satisfied.
Pursuant to the HSR Act, on December 18, 1995, Silver King, acting on behalf of
Mr. Diller, and Savoy each furnished notification of the Savoy Merger and
provided certain information to the DOJ and the FTC. On January 3, 1996, Savoy
and Silver King received notice of early termination of the applicable waiting
period for the November Savoy Merger under the HSR Act. Such termination is also
applicable with respect to the waiting period under the HSR Act for the Savoy
Merger, so long as the Savoy Merger is consummated on or prior to January 3,
1997. In the event that the Savoy Merger is not consummated by such date, the
applicable parties would be required to file a new Notification Report under the
HSR Act and a new waiting period would begin.
At any time before or after the Savoy Merger Effective Time, the DOJ, the
FTC, state attorneys general or a private person or entity could challenge the
Savoy Merger under antitrust laws and seek, among other things, to enjoin the
Savoy Merger or to cause Silver King to divest itself, in whole or in part, of
Savoy or of other businesses conducted by Silver King. Based on information
available to them, Silver King and Savoy believe that the Savoy Merger will not
violate federal or state antitrust laws. There can be no assurance, however,
that a challenge to the Savoy Merger on antitrust grounds will not be made or
that, if such a challenge is made, Silver King and Savoy would prevail or would
not be required to accept certain conditions, possibly including certain
divestitures or hold-separate agreements in order to consummate the Savoy
Merger.
FCC. Under the Savoy Merger Agreement, the obligations of each party to
consummate the Savoy Merger are also conditioned on (i) the receipt of the Savoy
FCC Approvals and (ii) the expiration of the time for filing a request for
administrative or judicial review, or for instituting administrative review sua
sponte, of any such Savoy FCC Approvals, without any such filing having been
made or notice of such review having been issued; or, in the event of such
filing or review sua sponte, the disposition of such filing or review in favor
of the grant and the expiration of the time for seeking further relief with
respect thereto without any request for such further relief having been filed.
On August 16, 1996, Savoy and Silver King received the Savoy FCC Approvals,
which became final on October 2, 1996.
Other Approvals. The obligations of each party to consummate the Savoy
Merger are also subject to all other material authorizations, consents, orders
or approvals of, or declarations or filings with, or expiration of waiting
periods imposed by, any other governmental entity necessary for the Savoy Merger
and the consummation of the transactions contemplated by the Savoy Merger
Agreement, having been filed, expired
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or obtained, other than those that, individually or in the aggregate, the
failure to be filed, expired or obtained, would not, in the reasonable opinion
of Silver King, have a material adverse effect on Savoy or Silver King. There
can be no assurance that any applicable regulatory authority will approve or
take other required action with respect to the Savoy Merger, or as to the timing
of such regulatory approval or other action. Silver King and Savoy are not aware
of any other governmental approvals or actions that are required in order to
consummate the Savoy Merger except in connection with the Securities Act, the
filing of merger-related documents under the DGCL or compliance with applicable
securities and "blue sky" laws of the various states. Should such other approval
or action be required, it is contemplated that Silver King and Savoy would seek
such approval or action. There can be no assurance as to whether or when any
such approval or action, if required, could be obtained.
Limitation on Negotiations
The Savoy Merger Agreement provides that, unless and until the Savoy Merger
Agreement has been terminated, Savoy will not, directly or indirectly, through
any officer, director, employee, representative or agent of Savoy or any of its
subsidiaries, solicit or encourage (including by way of furnishing nonpublic
information) or take other action to facilitate any inquiries or the making of
any proposal that constitutes or may reasonably be expected to lead to an
Acquisition Proposal, or engage in any discussions or negotiation relating
thereto or in furtherance thereof or accept any Acquisition Proposal, except
that Savoy or the Savoy Board is not prohibited from making any disclosure to
the Savoy stockholders that, in the judgment of the Savoy Board in accordance
with, and based upon, the advice of outside counsel, is required under
applicable law. An "Acquisition Proposal" means any offer to acquire all or any
substantial part of the business and properties or capital stock of Savoy and
its subsidiaries, whether by merger, consolidation, sale of assets, tender offer
or similar transaction or series of transactions involving Savoy or any
subsidiaries of Savoy.
Notwithstanding the foregoing, the Savoy Board, in the exercise of and as
required by its fiduciary duties as determined in good faith by the Savoy Board,
may (i) furnish information (including, without limitation, confidential
information) concerning Savoy to a third party who makes an unsolicited request
for such information for the purpose of making an Acquisition Proposal and (ii)
engage in discussions or negotiations with a third party who submits in writing
an interest in making an Acquisition Proposal that the Savoy Board believes is
reasonably capable of being consummated, provided, in either case, that Silver
King has been notified in writing of such request for information or Acquisition
Proposal, including the principal financial terms and conditions of such
Acquisition Proposal, and will be kept informed as to the status of any such
discussions or negotiations.
The Savoy Merger Agreement also required Savoy to cease immediately any
discussions or negotiations with any other parties conducted prior to the date
of the Savoy Merger Agreement relating to an Acquisition Proposal, and to notify
Silver King immediately of any unsolicited offer or proposal to enter into
negotiations relating to an Acquisition Proposal and to provide Silver King with
information as to the identity of the party making such offer or proposal and
the principal financial terms and conditions of such offer or proposal. See
"-- Amendment or Termination of the Savoy Merger Agreement; Breakup Fee."
Amendment or Termination of the Savoy Merger Agreement; Breakup Fee
Amendment. Prior to the Savoy Merger Effective Time, the Savoy Merger
Agreement may be amended in writing by Silver King and Savoy at any time before
or after approval of the issuance of shares in connection with the Savoy Merger
or the Savoy Merger, as the case may be, by the stockholders of Silver King and
Savoy, except that, after any such stockholder approval, no amendment may be
made which by law requires further approval by such stockholders without such
further approval.
At any time prior to the Savoy Merger Effective Time, Silver King or Savoy,
without approval of the stockholders of such company, may (i) extend the time
for the performance of any of the obligations of the other party, (ii) waive any
inaccuracies in the representations and warranties contained in the Savoy Merger
Agreement or any documents delivered pursuant to the Savoy Merger Agreement and
(iii) waive compliance with any of the agreements or the conditions contained in
the Savoy Merger Agreement.
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Mr. Diller has agreed with Liberty in the Stockholders Agreement that he
will not permit any material amendment to, or waiver or modification of material
rights or obligations under, the Savoy Merger Agreement without the prior
written consent of Liberty, which consent shall not be unreasonably withheld.
See "Special Factors Relating to the HSN
Transactions -- Background -- Relationship between Liberty and Mr. Diller -- The
Diller-Liberty Stockholders Agreement."
Termination. The Savoy Merger Agreement (as amended by the parties in
August 1996) may be terminated at any time prior to the Savoy Merger Effective
Time by mutual written agreement of both parties whether before or after
approval of the Savoy Merger and the transactions contemplated by the Savoy
Merger Agreement by the stockholders of Silver King and Savoy, or by either
party (i) if the Savoy Merger has not been consummated by December 31, 1996
(unless the definitive Joint Proxy Statement/Prospectus is not mailed to Silver
King stockholders and Savoy stockholders by November 15, 1996 due to events
related to the HSN Merger, in which case such date will be extended by such
number of days after November 15, 1996 until the definitive Joint Proxy
Statement/Prospectus is so mailed, and unless such failure to so consummate the
Savoy Merger is caused by the action or failure to act of the party seeking to
terminate the Savoy Merger Agreement, in breach of such party's obligations
thereunder); (ii) if (a) a court of competent jurisdiction or other governmental
entity has issued an order, decree or ruling or taken any other action, in any
case, having the effect of permanently restraining, enjoining or otherwise
prohibiting the Savoy Merger, which order, decree or ruling is final and
nonappealable or (b) a governmental, regulatory or administrative agency or
commission is seeking to enjoin the Savoy Merger and the terminating party
reasonably believes that the time period required to resolve such governmental
action and the related uncertainty is reasonably likely to have a material
adverse effect on either Silver King or Savoy; (iii) if the required approvals
of the stockholders of Silver King or Savoy contemplated by the Savoy Merger
Agreement has not been obtained by reason of the failure to obtain the required
vote upon a vote taken at the Silver King Meeting and at the Savoy Meeting or at
any adjournment thereof (unless caused by the action or failure to act of the
party seeking to terminate the Savoy Merger Agreement in breach of such party's
obligations thereunder); or (iv) if Savoy (a) has accepted or recommended to
Savoy stockholders a Superior Proposal (as defined herein, see "-- Breakup
Fee"), and (b) in the case of the termination of the Savoy Merger Agreement by
Savoy, Savoy has paid to Silver King the Breakup Fee as described below.
The Savoy Merger Agreement may also be terminated by Silver King (i) if the
Savoy Board has withdrawn or modified its recommendation to Savoy stockholders
concerning the Savoy Merger and such action was not due to a breach by Silver
King as to the representations and warranties made by Silver King in, or the
performance of Silver King's obligations under, the Savoy Merger Agreement; or
(ii) upon a breach of any representation, warranty, covenant or agreement on the
part of Savoy set forth in the Savoy Merger Agreement, or if any representation
or warranty of Savoy shall have become untrue, in either case, such that the
conditions as to the accuracy of Savoy's representations and warranties in or
the performance of Savoy's obligations under the Savoy Merger Agreement would
not be satisfied as of the time of such breach or as of the time such
representation or warranty shall have become untrue, unless such inaccuracy in
Savoy's representations and warranties or breach by Savoy is curable by Savoy
through the exercise of its reasonable efforts and for so long as Savoy
continues to exercise such reasonable efforts.
The Savoy Merger Agreement may also be terminated by Savoy (i) if the
Silver King Board shall have withdrawn or modified its recommendation and such
action was not due to a breach by Savoy as to the representations and warranties
made by Savoy in, or the performance of Savoy's obligations under, the Savoy
Merger Agreement; (ii) in the event that Mr. Diller is not the Chairman and/or
Chief Executive Officer and/or President of Silver King; and (iii) upon a breach
of any representation, warranty, covenant or agreement on the part of Silver
King set forth in the Savoy Merger Agreement, or, if any representation or
warranty of Silver King shall have become untrue, in either case, such that the
conditions as to the accuracy of Silver King's representations and warranties in
or the performance of Silver King's obligations under the Savoy Merger Agreement
would not be satisfied as of the time of such breach or as of the time such
representation or warranty shall have become untrue, unless such inaccuracy in
Silver King's representations and warranties or breach by Silver King is curable
by Silver King through the exercise of its reasonable efforts and for so long as
Silver King continues to exercise such reasonable efforts.
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Breakup Fee
The Savoy Merger Agreement provides that, upon the occurrence of any of the
following events, Savoy will immediately make payment to Silver King of the
Breakup Fee of $7.5 million: (i) Savoy has accepted an Acquisition Proposal that
the Savoy Board of Directors believes (a) based upon advice of its financial
advisor, is reasonably likely to be superior to the Savoy Merger from a
financial point of view and (b) is reasonably capable of being consummated (a
proposal described in clauses (a) and (b), a "Superior Proposal"); or (ii) the
Savoy Board has withdrawn or modified its recommendation to Savoy stockholders
concerning the Savoy Merger or has disclosed its intention to change such
recommendation and Silver King and Thames shall have terminated the Savoy Merger
Agreement. Payment of the Breakup Fee will not be in lieu of damages incurred in
the event of breach of the Savoy Merger Agreement.
CERTAIN FEDERAL INCOME TAX MATTERS
The following discussion summarizes the material federal income tax
considerations relevant to the exchange of shares of Savoy Common Stock for
Silver King Common Stock pursuant to the Savoy Merger.
Savoy stockholders should be aware that this discussion does not deal with
all federal income tax considerations that may be relevant to particular
stockholders of Savoy in light of their particular circumstances, such as
stockholders who are banks, insurance companies, tax-exempt organizations,
dealers in securities, who are foreign persons, who do not hold their Savoy
Common Stock as capital assets, or who acquired their shares in connection with
stock option or stock purchase plans or in other compensatory transactions. In
addition, the following discussion does not address the tax consequences of the
Savoy Merger under foreign, state or local tax laws or the tax consequences of
transactions effectuated prior or subsequent to or concurrently with the Savoy
Merger (whether or not such transactions are in connection with the Savoy
Merger), including, without limitation, transactions in which Savoy Common Stock
is acquired or Silver King Common Stock is disposed of. ACCORDINGLY, SAVOY
STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX
CONSEQUENCES OF THE SAVOY MERGER, INCLUDING THE APPLICABLE FEDERAL, STATE, LOCAL
AND FOREIGN TAX CONSEQUENCES TO THEM OF THE SAVOY MERGER IN THEIR PARTICULAR
CIRCUMSTANCES.
The Savoy Merger will constitute a taxable exchange. Savoy stockholders
will recognize gain or loss equal to the difference between the fair market
value of the Silver King Common Stock and any cash in lieu of fractional shares
received in the Savoy Merger and the stockholder's basis in the Savoy Common
Stock exchanged therefor. Such gain or loss will be capital if the Savoy Common
Stock was held as a capital asset and long-term if the Savoy Common Stock has
been held for more than 12 months.
No ruling has been or will be obtained from the IRS in connection with the
Savoy Merger.
ACCOUNTING TREATMENT
In accordance with generally accepted accounting principles, the Savoy
Merger will be accounted for as a purchase of certain assets and assumption of
certain liabilities of Savoy with Silver King treated as the acquiror for
accounting purposes in accordance with Accounting Principles Board Opinion No.
16, "Business Combinations," as amended.
Representatives of each of Deloitte & Touche LLP and Ernst & Young LLP are
expected to be present at the Silver King Meeting, and representatives of Ernst
& Young LLP are expected to be present at the Savoy Meeting. In each case, such
representatives will have the opportunity to make a statement if they desire to
do so and are expected to be available to respond to appropriate questions.
AFFILIATES' RESTRICTIONS ON RESALE OF SILVER KING COMMON STOCK
The shares of Silver King Common Stock issuable to stockholders of Savoy
upon consummation of the Savoy Merger have been registered under the Securities
Act. Such shares may be traded freely without restriction by those stockholders
who are not deemed to be "affiliates," as that term is defined in the rules
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under the Securities Act, of Savoy or Silver King. Shares of Silver King Common
Stock received by those stockholders of Savoy who are deemed to be affiliates of
Savoy or Silver King may be resold without registration under the Securities Act
only as permitted by Rule 145 under the Securities Act or as otherwise permitted
under the Securities Act. Savoy has agreed to use its reasonable efforts to
obtain, prior to the Savoy Merger Effective Time, agreements by each affiliate
of Savoy to the effect that such persons will not sell, transfer or otherwise
dispose of any shares of Silver King Common Stock distributed to them pursuant
to the Savoy Merger, except in compliance with Rule 145 under the Securities
Act, or in a transaction that is otherwise exempt from the registration
requirements of the Securities Act, or in an offering which is registered under
the Securities Act. Generally, sales in compliance with Rule 145(d) under the
Securities Act require that for specified periods such sales be made in
compliance with volume limitations, manner of sale provisions and current
information requirements of Rule 144 under the Securities Act. The volume
limitations should not impose any material limitation on any Savoy stockholder
who owns less than 1% of the outstanding Silver King Common Stock after the
Savoy Merger unless, pursuant to Rule 144 under the Securities Act, sales of
such stockholder's shares are required to be aggregated with those of other
stockholders.
ABSENCE OF DISSENTERS' RIGHTS
Both Silver King and Savoy are incorporated in the State of Delaware, and,
accordingly, are governed by the provisions of the DGCL. Pursuant to Section
262(b)(1) of the DGCL, the stockholders of Savoy are not entitled to appraisal
rights in connection with the Savoy Merger because Savoy Common Stock is quoted
on the Nasdaq National Market and such stockholders will receive as
consideration in the Savoy Merger only shares of Silver King Common Stock, which
shares will be listed on the Nasdaq National Market upon the closing of the
Savoy Merger, and cash in lieu of fractional shares. In addition, the Silver
King stockholders are not entitled to appraisal rights under Section 262 of the
DGCL because Silver King is not one of the constituent corporations in the Savoy
Merger. Also, because Silver King is not a constituent corporation in the Savoy
Merger, even though approval of the stockholders of Silver King is required for
the issuance of Silver King Common Stock in the Savoy Merger under the rules and
bylaws of the NASD, the approval of the stockholders of Silver King is not
required under the DGCL for the Savoy Merger itself.
EXCHANGE OF CERTIFICATES
As soon as practicable after the Savoy Merger Effective Time, Silver King
will instruct the Savoy Exchange Agent to mail to each stockholder of record of
Savoy as of the Savoy Merger Effective Time (other than Savoy, Silver King,
Thames and any wholly-owned subsidiary of Silver King) a letter of transmittal
with instructions to be used by such stockholder in surrendering certificates
which, prior to the Savoy Merger Effective Time, represented shares of Savoy
Common Stock in exchange for certificates representing shares of Silver King
Common Stock. Letters of transmittal will also be available as soon as
practicable after the Savoy Merger Effective Time at the offices of the Savoy
Exchange Agent. After the Savoy Merger Effective Time, there will be no further
registration of transfers on the stock transfer books of the Savoy Surviving
Corporation of shares of Savoy Common Stock which were outstanding immediately
prior to the Savoy Merger Effective Time. SHARE CERTIFICATES SHOULD NOT BE
SURRENDERED FOR EXCHANGE PRIOR TO APPROVAL AND ADOPTION OF THE SAVOY MERGER
AGREEMENT AND THE SAVOY MERGER BY THE SAVOY STOCKHOLDERS AND APPROVAL OF THE
ISSUANCE OF SHARES OF SILVER KING COMMON STOCK PURSUANT TO THE SAVOY MERGER
AGREEMENT BY THE SILVER KING STOCKHOLDERS, OR PRIOR TO THE SAVOY MERGER
EFFECTIVE TIME.
Upon the surrender of a Savoy Common Stock certificate to the Savoy
Exchange Agent, together with a duly executed letter of transmittal and such
other documents as may be required by the Savoy Exchange Agent, the holder of
such certificate will be entitled to receive in exchange therefor a certificate
representing the number of whole shares of Silver King Common Stock and any cash
in lieu of fractional shares of Silver King Common Stock to which the holder of
Savoy Common Stock is entitled pursuant to the provisions of the Savoy Merger
Agreement. In the event of a transfer of ownership of Savoy Common Stock which
is not registered in the transfer records of Savoy, a certificate representing
the appropriate number of shares of Silver
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King Common Stock and any cash in lieu of fractional shares of Silver King
Common Stock may be issued to a transferee if the certificate representing such
Savoy Common Stock is presented to the Savoy Exchange Agent, accompanied by all
documents required to evidence and effect such transfer and to evidence that any
applicable stock transfer taxes have been paid, along with a duly executed
letter of transmittal.
Until a certificate representing Savoy Common Stock has been surrendered to
the Savoy Exchange Agent, each such certificate will be deemed, at any time
after the Savoy Merger Effective Time, to represent only the right to receive
upon such surrender the certificate representing the number of shares of Silver
King Common Stock plus cash in lieu of fractional shares of Silver King Common
Stock to which the Savoy stockholder is entitled under the Savoy Merger
Agreement. Upon consummation of the Savoy Merger, shares of Savoy Common Stock
will cease to be traded on the Nasdaq National Market, and there will be no
further market for Savoy Common Stock.
SPECIAL FACTORS RELATING TO THE HSN TRANSACTIONS
BACKGROUND
The following summary of the background of the HSN Merger should be read in
conjunction with the background of the Savoy Merger set forth above, see "Savoy
Merger and Related Transactions -- Background," which information is
incorporated herein.
Relationship between TCI and HSN
On December 4, 1992, the predecessor in interest of Liberty, which was then
an independent publicly held company, and RMS Limited Partnership ("RMSLP")
which is controlled by Roy M. Speer, the then-Chairman of the Board and
controlling stockholder of HSN, entered into an Agreement in Principle (the
"Agreement in Principle"), in which Liberty agreed, among other things and
subject to certain conditions, to purchase from RMSLP 20,000,000 shares of HSN
Class B Common Stock. Liberty entered into the Agreement in Principle in order
to acquire voting control of HSN through its acquisition of the shares of HSN
Class B Common Stock, which are generally entitled to ten votes per share on
matters submitted to HSN stockholders with respect to which the holders of HSN
Common Stock and HSN Class B Common Stock vote together as a single class, and
in order to acquire a substantial equity interest in HSN. On February 11, 1993,
Liberty consummated the purchase of the 20,000,000 shares of HSN Class B Common
Stock from RMSLP. Upon consummation of its purchase of such shares of HSN Class
B Common Stock, Liberty acquired control of HSN and HSN became a subsidiary of
Liberty.
Prior to its purchase of shares of HSN Class B Common Stock from RMSLP,
Liberty owned 616,300 shares of HSN Common Stock. Subsequent to such purchase,
in May 1993 Liberty acquired 16,296,602 shares of HSN Common Stock from the
public stockholders of HSN through a cash tender offer by a subsidiary of
Liberty at a price of $7.00 per share.
TCI acquired beneficial ownership of the shares of HSN Common Stock and HSN
Class B Common Stock owned by Liberty in August 1994 as a result of the merger
of the predecessor of TCI and Liberty. As a result of such merger, Liberty
became a wholly-owned subsidiary of TCI. Prior to such time, in 1993, the
predecessor of TCI had acquired 653,800 shares of HSN Class A Common Stock. Such
shares of HSN stock make up the TCI HSN Shares (17,566,702 shares of HSN Common
Stock and 20,000,000 shares of HSN Class B Common Stock).
Since February 11, 1993, Liberty and then TCI have exercised voting control
over HSN, including with respect to the election of 75% of the members of the
HSN Board of Directors (consisting of those directors elected by the holders of
HSN Common Stock and HSN Class B Common Stock, voting together as a single
class). Peter R. Barton and Mr. Bennett, who are also executive officers and/or
directors of TCI and/or Liberty, currently serve on the HSN Board. In addition,
Leo J. Hindery, Jr., who is a director of HSN, is also the managing general
partner of the general partner of InterMedia Partners, and certain affiliated
entities
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which own and operate a number of cable television systems, in which certain
affiliates of TCI have varying direct or indirect limited partnership interests.
During April 1996, HSN sold a majority of its interest in HSN Direct Joint
Venture, its infomercial operation, for $5.9 million to certain entities
controlled by Flextech P.L.C., a company controlled by TCI. HSN received $4.9
million in cash at closing and is due an additional $1.0 million payable in four
equal annual installments commencing on February 1, 1997. HSN will retain a 15%
interest in the venture and a related corporation.
During 1994, a subsidiary of HSN and Black Entertainment Television, Inc.
("BET") entered into an agreement to promote a direct response marketing program
and a shop-at-home show concept known as "BET Shop." TCI beneficially owns an
18.3% interest in BET.
In the normal course of business, HSN's principal operating subsidiary,
HSC, enters into agreements with the operators of cable television systems and
operators of broadcast television stations for the carriage of HSC programming.
HSC has entered into agreements with a number of cable operators that are
affiliates of TCI. These long-term contracts provide for a minimum subscriber
guarantee and incentive payments based on the number of subscribers. Payments by
HSN to TCI and certain of its affiliates under these contracts for cable
commissions and advertising were approximately $36 million for the year ended
December 31, 1995.
Relationship between Silver King and HSN
Prior to December 28, 1992, Silver King was a wholly-owned subsidiary of
HSN. In July 1986, HSN initiated a program to broaden the viewership of HSC's
programming services by acquiring broadcast television stations in principal
television markets through Silver King. On December 28, 1992 (the "Distribution
Date"), HSN distributed all of the shares of the capital stock of Silver King to
HSN's stockholders in the form of a pro rata stock dividend in the Distribution.
Since the Distribution, Silver King, or its subsidiaries, on the one hand, and
HSN, or its subsidiaries, on the other hand, have engaged in numerous
intercompany transactions. The transactions have included, among other things,
arrangements regarding the carriage of HSC programming on Silver King's
television stations and the related payments by HSN to Silver King of
commissions, loans and other forms of financial support, and providing corporate
services, including accounting, employee benefit, legal and other miscellaneous
services. In connection with the Distribution, Silver King and HSN entered into
certain agreements, including a distribution agreement, a Tax Sharing Agreement
(as defined herein), a loan agreement and a number of Affiliation Agreements,
all of which are described below. See also "Risk Factors -- Possible Risks to
HSN with Respect to Anticipated Change in Silver King's Broadcasting Business."
The distribution agreement governs the relationship between Silver King and
HSN, including, without limitation, the principal corporate transactions
required to effect the Distribution and the division between Silver King and HSN
of certain liabilities. In particular, HSN agreed to indemnify Silver King
against losses from existing or future claims relating to Silver King's business
prior to the Distribution Date. Each party agreed to indemnify the other against
claims relating to misstatements or omissions of material facts provided by such
party in the Information Statement (or in the Form 10 Registration Statement of
which it was a part) used in connection with the Distribution.
Silver King and HSN entered into a tax sharing agreement effective on the
Distribution Date (the "Tax Sharing Agreement"). In general, under the Tax
Sharing Agreement, HSN is responsible for filing all tax returns and paying all
taxes relating to Silver King for periods through the Distribution Date, and
Silver King is responsible for filing all tax returns and paying all taxes for
periods beginning after the Distribution Date. Silver King and HSN agreed to
cooperate with one another and to share information in preparing such tax
returns and in dealing with other tax matters. In addition, Silver King and HSN
agreed that if, as a result of adjustments to HSN's tax position for periods
prior to the Distribution Date due to a tax audit or otherwise, there would have
been a corresponding increase or decrease in the deferred tax liability account
of Silver King as of the Distribution Date, then Silver King will receive a cash
payment from HSN (or accept a reduction in the principal amount of the loan from
a subsidiary of HSN to Silver King discussed below) or make a cash payment to
HSN (or elect to increase the principal amount of the loan from a subsidiary of
HSN to Silver
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King discussed below) in the amount of such increase or decrease. Under the Tax
Sharing Agreement, Silver King agreed to indemnify HSN in the event that tax
liabilities are determined to arise from the Distribution as a result of certain
transactions undertaken by Silver King. Silver King made a payment to HSN of
$131,337 on November 21, 1994 pursuant to the Tax Sharing Agreement as a result
of an audit of HSN's federal income tax returns through the fiscal year ended
August 31, 1989, which included adjustments through August 31, 1993, for items
that were examined through August 31, 1989. In 1995, Silver King made a payment
to HSN relating to various state tax items in the aggregate amount of $4,280.
On the Distribution Date, Silver King owed approximately $228 million in
intercompany indebtedness to HSN, which indebtedness was primarily incurred by
Silver King in connection with the acquisition of the Silver King Stations. On
the Distribution Date, HSN cancelled intercompany indebtedness owed by Silver
King to HSN in the amount of approximately $93 million as a contribution to the
capital of Silver King, and the remaining intercompany indebtedness of Silver
King to HSN of approximately $135 million was converted into a secured long-term
senior loan between Silver King and a wholly-owned subsidiary of HSN pursuant to
a loan agreement, evidenced by a promissory note bearing interest on the unpaid
principal amount at a rate equal to 9.5% per annum calculated on the basis of a
360-day year. On August 1, 1994, Silver King secured financing from a group of
third-party lenders and used the proceeds from that loan to retire its debt to
the subsidiary of HSN.
Silver King owns the Silver King Stations through its subsidiaries. The
Silver King Stations are located in many of the top markets in the United States
and exclusively broadcast HSC programming, except for a portion of broadcast
time which is used to provide public affairs and other non-entertainment
programming and advertising inserts.
Each Silver King Station, through the applicable Silver King subsidiary,
has entered into an Affiliation Agreement with HSC pursuant to which (as
subsequently amended) such Silver King Station currently broadcasts HSC's
electronic retail sales programming for 159 hours per week. Each Affiliation
Agreement has an initial term of five years, renewable for an additional
five-year term unless the applicable Silver King subsidiary provides 18 months'
notice of termination on or before December 28, 1996. If renewed for the initial
renewal term, each Affiliation Agreement is renewable thereafter for one
additional term for up to five years at Silver King's sole option. Thereafter,
each Affiliation Agreement shall automatically renew for successive five-year
terms unless and until either party provides the other party with written notice
at least 18 months prior to the expiration date that it will not accept further
renewal. Under each Affiliation Agreement, if HSC misses two or more affiliation
payments to a Silver King Station during any five-year period, such Silver King
Station has the right to terminate the Affiliation Agreement and must inform HSC
of its intention to cease carrying HSC programming 18 months after the second
missed payment. Similarly, if HSC's programming is changed significantly, each
Silver King Station has the right to terminate the Affiliation Agreement and to
cease carrying HSC programming upon 18 months' prior written notice.
Each Silver King Station is compensated in accordance with the hourly
affiliation rate applicable to such Silver King Station. The Affiliation
Agreements provide for higher compensation to the Silver King Stations if a
Silver King Station's compensation amount, which is based upon a formula
involving HSC's net sales credited to such Silver King Station, exceeds the
minimum affiliation fee based upon that Silver King Station's hourly affiliation
rate. This determination is made on an annual basis within 30 days of each
anniversary of the Affiliation Agreements. On July 28, 1994, each of the
Affiliation Agreements was amended to clarify this compensation bonus consistent
with the intent of the parties.
Silver King also owns the 26 Silver King LPTV Stations that also broadcast
HSC's programming services. LPTV stations have lower power transmitters than
conventional television stations, and, therefore, the broadcast signal of an
LPTV station does not cover as broad a geographical area as conventional
broadcast stations.
Silver King and HSC entered into a Master Low Power Television Affiliation
Agreement as of May 1, 1996, covering all of the Silver King LPTV Stations and
providing for Silver King to be paid up to $550,000 annually. However, Silver
King LPTV Station W60AI, New York, New York, which is licensed to the same
Silver King subsidiary that holds the licenses for full-power television
stations WHSE-TV, Newark, New
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Jersey, and WHSI-TV, Smithtown, New York, is separately compensated for carrying
HSC programming pursuant to the Affiliation Agreement for the latter Silver King
Stations.
In 1995, expenses incurred by HSN under Affiliation Agreements with the
Silver King Stations and Silver King LPTV Stations aggregated approximately
$41.3 million.
In addition, pursuant to the interim services agreement, dated as of
December 1, 1995, entered into between Savoy and Silver King, certain employees
of Savoy, including its executive officers, have provided managerial,
accounting, administrative and other services to HSN, for which Silver King has
agreed to compensate Savoy and to indemnify Savoy employees in connection with
the rendering of such services. See "Savoy Merger and Related
Transactions -- Background."
Certain Discussions relating to HSN prior to August 1995
Prior to the time that Mr. Diller became Chairman of the Silver King Board
and Chief Executive Officer of Silver King and a member of the HSN Board,
Liberty and Mr. Diller had occasional discussions on the possibility of a
business combination relating to HSN. In July 1993, while Mr. Diller was the
Chairman of the Board and Chief Executive Officer of QVC, Inc., a Delaware
corporation ("QVC"), QVC made a proposal to HSN to combine the two companies in
a stock-for-stock transaction. Such proposal was made in accordance with a
stockholders agreement by and among Mr. Diller, Liberty and Comcast regarding
the securities of QVC and the management thereof. In November 1993, subsequent
to Liberty ceasing to be a party to such stockholders agreement, QVC and HSN
announced that the parties had agreed to terminate negotiations on the proposed
merger of QVC and HSN.
In March 1994, Turner Broadcasting Systems, Inc. ("TBS") and HSN had
certain preliminary discussions regarding the potential acquisition by TBS of
all or a portion of the outstanding HSN stock. Such discussions did not involve
any proposals regarding specific economic and other material terms of any such
proposed acquisition. Also in March 1994, TBS and HSN entered into a
confidentiality agreement relating to the matters then under discussion. In
April 1994, the parties' contacts with respect to a potential transaction were
discontinued without any proposal regarding such a transaction having been made
and without the parties having reached any agreement, arrangement or
understanding relating to any transaction.
In July 1995, Mr. Diller and representatives of TCI and Liberty (John
Malone and Peter Barton) discussed generally the possibility of a business
combination of Silver King and HSN. These discussions also contemplated that Mr.
Diller would purchase stock and receive stock options in the combined company
and that Mr. Diller would become the senior executive officer of the combined
company. In addition, it was contemplated that Mr. Diller and Liberty would
enter into a stockholders agreement regarding, among other things, the voting of
shares of stock of the combined company owned by Mr. Diller and Liberty and
transfers of such securities. Such discussions were general in nature and did
not involve the Boards of Directors of either Silver King or HSN (except for
individuals who at the time were directors of HSN acting in their capacity as
officers of Liberty). Liberty undertook these discussions to determine if a
proposal which both Mr. Diller and Liberty would support could be formulated in
order to present such proposal to the Silver King and HSN Boards of Directors.
Liberty and Mr. Diller were not able to formulate such a proposal agreeable to
both parties and such discussions were abandoned, and no proposal regarding a
possible business combination of Silver King and HSN was made to the Board of
either company. The discussions did not lead to any agreement, arrangement, or
understanding relating to such a proposal and no plan or proposal regarding HSN
or Silver King was made. Despite the failure of the discussions, on August 24,
1995, Mr. Diller agreed to become Chairman and Chief Executive Officer of Silver
King and a director of HSN. See "Special Factors Relating to the HSN
Transactions -- Background -- Relationship between Liberty and Mr. Diller."
Relationship between Mr. Diller and HSN; the TCI HSN Shares Acquisition
Prior to his appointment to the HSN Board of Directors, Mr. Diller owned
100,000 shares of HSN Common Stock and upon his appointment to the HSN Board, he
was granted 90,000 HSN Options as a non-employee director of HSN, which options
Mr. Diller subsequently returned to HSN without consideration on February 12,
1996.
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As a director of HSN, Mr. Diller became involved in reviewing the operation
of various aspects of HSN's business, including the nature of its programming,
inventory mix and build-up and HSN's credit and financial condition. Such
activities were undertaken by Mr. Diller at the request of the HSN Board based
on the HSN Board's belief that, in light of Mr. Diller's experience and prior
success in the entertainment and electronic retailing businesses, his services
would be beneficial to HSN.
After Mr. Diller became Chairman of the Silver King Board and Chief
Executive Officer of Silver King, Mr. Diller and representatives of TCI and
Liberty (including Messrs. Barton and Bennett) discussed the possibility of
Silver King acquiring TCI's equity interest in HSN. These discussions took place
from time to time during October 1995 and continued in November 1995.
Beginning in early November 1995, Mr. Diller informed Liberty that he had
begun discussions regarding a possible merger of Silver King and Savoy. Such a
merger would constitute an Extraordinary Matter under the Stockholders Agreement
and would, therefore, require the consent of both Liberty and Mr. Diller. The
parties acknowledged that such transaction and the possible TCI HSN Shares
Acquisition, if agreed to, should be entered into essentially simultaneously to
avoid potential complications that market reaction resulting from the
announcement of one transaction might impose on the ongoing negotiations of the
other transaction.
On Friday, November 24, 1995, Silver King, Savoy and Liberty became aware
of certain rumors in the market regarding a possible merger or other transaction
between HSN and Silver King, which rumors were also reported in various press
accounts that day. These rumors were accompanied by increased market activity in
Silver King Common Stock and HSN Common Stock on that Friday, which was a
half-trading day following the Thanksgiving holiday. As a result of the rumors,
and the concern for potential market activity and further rumors on the
following Monday, November 27, 1995, Silver King, Savoy and Liberty agreed that
the parties should attempt to conclude their respective negotiations and should
execute definitive documentation, if an agreement were to be reached, no later
than Monday, November 27, 1995.
At a special meeting of the Executive Committee of the Board of Directors
of HSN held on Friday evening, November 24, 1995, the Executive Committee
accepted the resignation of Robert Bennett as Chairman of the Board of HSN and
appointed Mr. Diller as Chairman of the Board of HSN (subject to ratification of
such appointment by the full HSN Board), authorized Mr. Diller to recruit a
management team and authorized the HSN Compensation Committee to determine an
appropriate aggregate compensation package for Mr. Diller and members of the
prospective management team which Mr. Diller was authorized to recruit. At a
meeting held on November 24, 1995, the HSN Compensation Committee granted,
subject to HSN stockholder approval of a new stock option plan, Mr. Diller HSN
Options to purchase 13,400,000 shares of HSN Common Stock (options as to 100,000
shares were subsequently returned to HSN by Mr. Diller in December 1995) and
granted, also subject to HSN stockholder approval of such new option plan, to
certain members of Mr. Diller's prospective management team HSN Options to
purchase up to 2,600,000 shares of HSN Common Stock. The exercise price of all
such options was $8.50 per share, which exercise price was based upon the
closing market price of HSN Common Stock on Wednesday, November 22, 1995, which
was the last full trading day prior to the date of grant. See "Risk
Factors -- Possible Nondeductibility of Certain Compensation Relating to HSN
Options." Such appointment and grant of options were not conditioned upon Silver
King or BDTV entering into the Liberty/BDTV Merger Agreement or the Silver
King/BDTV Exchange Agreement, or the consummation of the related transactions.
Mr. Diller did not vote, as a member of the HSN Board, on the matters described
in this paragraph.
At a meeting of the HSN Board of Directors held on November 27, 1995, the
HSN Board ratified the appointment of Mr. Diller as Chairman of the Board of
HSN. Pursuant to the request of each of Liberty and Silver King, following the
recommendation of a special committee formed to consider such action, the HSN
Board of Directors also approved, for purposes of Section 203 of the DGCL, the
acquisition of beneficial ownership of the TCI HSN Shares by Silver King, BDTV,
Mr. Diller and/or any of their respective affiliates and/or associates and any
subsequent re-acquisition of such shares by Liberty. All of the November
Transactions Documents were conditioned upon receipt of the Section 203
approval. Mr. Diller and Liberty's representatives on the HSN Board were present
at such meeting; however, such persons did not participate in the discussions
regarding this matter (other than Mr. Diller, who participated briefly), and Mr.
Diller and Liberty's representatives did not vote on such matter.
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TCI and Silver King agreed that the HSN Common Stock to be acquired in the
TCI HSN Shares Acquisition would be acquired in a market-to-market transaction,
using market prices for each of the HSN Common Stock and the Silver King Common
Stock unaffected by any market rumors or reports regarding a possible
transaction (and assuming that the market prices of the HSN Common Stock and
Silver King Common Stock fully reflected the respective market prices of the HSN
Class B Common Stock and the Silver King Class B Common Stock), and that the HSN
Class B Common Stock to be acquired in the TCI HSN Shares Acquisition, because
of its multiple voting rights, would be acquired at a 10% premium over the
unaffected market price of HSN Common Stock (and which assumed that the market
price of Silver King Class B Common Stock was equal to the market price of
Silver King Common Stock).
Information regarding the approval of the TCI HSN Shares Acquisition, the
related transactions and each of the November Transactions Documents by the
Silver King Board of Directors at its meeting on November 27, 1995 is set forth
under "Savoy Merger and Related Transactions -- Background." For a discussion of
the Stockholders Agreement, see "-- Relationship between Liberty and Mr.
Diller -- The Diller-Liberty Stockholders Agreement."
On November 27, 1995, the parties to each of the Liberty/BDTV Merger
Agreement and the Silver King/BDTV Exchange Agreement entered into such
agreements, and Liberty and Mr. Diller entered into the November Stockholders
Agreement. Thereafter, on the same day, Silver King and Savoy issued a joint
press release announcing the Savoy Merger and the TCI HSN Shares Acquisition,
and HSN issued a press release announcing the appointment of Mr. Diller as
Chairman of the Board of HSN, the grant of HSN Options to Mr. Diller and his
proposed management team and the approval by the HSN Board of the proposed
Liberty/BDTV Merger Agreement and the Silver King/BDTV Exchange Agreement for
purposes of Section 203 of the DGCL. Following Mr. Diller's appointment, HSN
announced on November 30, 1995 that Mr. Held had been appointed the Chief
Executive Officer and President of HSN. The respective market prices of HSN
Common Stock and Silver King Common Stock at the close of trading on Wednesday,
November 22, 1995 were used to determine the number of shares that would
comprise the Silver King Securities to be issued to Liberty in the TCI HSN
Shares Acquisition. The consideration to be paid to Liberty for the TCI HSN
Shares reflected 0.2764 of a share of Silver King Common Stock for each share of
HSN Common Stock to be acquired and 0.3041 of a share of Silver King Class B
Common Stock per share of HSN Class B Common Stock to be acquired.
Information regarding the approval of the TCI HSN Shares Acquisition, the
related transactions and each of the November Transactions Documents by the
Silver King Board of Directors at its meeting on November 27, 1995 is set forth
under "Savoy Merger and Related Transactions -- Background." For a discussion of
the Stockholders Agreement, see "-- Relationship between Liberty and Mr.
Diller -- The Diller-Liberty Stockholders Agreement."
Beginning in December 1995, and continuing through July 1996,
representatives of Silver King met with representatives of HSN on various
occasions to continue its review of HSN in connection with the TCI HSN Shares
Acquisition. In addition, since November 27, 1995, Mr. Diller has served as the
Chairman of the HSN Board of Directors.
Discussions Leading to the HSN Merger Agreement
On March 11, 1996, the FCC released its initial order in connection with
the BDTV FCC Application, which order approved the transfer of control of Silver
King from Mr. Speer to Mr. Diller as a result of the exercise of the Liberty
Option by BDTV. Such order, however, included certain conditions that were not
acceptable to TCI, including the Subscriber Condition. See "Risk
Factors -- Regulation -- Status of Required FCC Approvals." In the June 14 MO&O,
the FCC affirmed its grant of the BDTV FCC Application and revised the
Subscriber Condition to require BDTV to notify the FCC prior to the consummation
of an acquisition by Liberty or TCI of cable systems, or other transaction,
whereby the aggregate percentage of television households served by cable
systems owned or controlled by TCI in any of the Silver King television markets
would exceed 50%. In the FCC Orders reviewing the change in control from Mr.
Speer to Mr. Diller, the FCC determined that TCI's proposed indirect equity
interest in Silver King
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did not violate the FCC's cross-interest policy. Such determination was made
despite the fact that the FCC had imputed a 50% "control premium" to TCI's
21.37% equity interest in Silver King and the FCC thereby concluded that such
current indirect interest was, for purposes of the cross-interest analysis,
32.07%, which was still below the 33.3% threshold established by the FCC policy.
By virtue of the application of this "control premium" analysis, the FCC has
effectively limited TCI's equity interest in Silver King to current levels,
absent further FCC approval. See "Risk Factors -- Regulation -- Status of
Required FCC Approvals." In view of the effect of the FCC Orders, Mr. Diller and
Liberty began to discuss in late June 1996 whether the TCI HSN Shares
Acquisition could be consummated as currently structured in light of applicable
FCC rules and regulations and the FCC Orders. In early July 1996, Silver King
began discussing with its legal and financial advisors, including FCC counsel,
possible means of restructuring the TCI HSN Shares Acquisition. None of these
discussions between Liberty and Mr. Diller resulted in any mutually agreeable
alternative structure or any plans or proposals other than that reflected by the
TCI HSN Shares Acquisitions.
Having been unable to arrive at a mutually acceptable revised structure of
the TCI HSN Shares Acquisition, Mr. Diller and Silver King's advisors began to
consider alternative transactions involving Silver King and HSN in the event
that an acceptable restructuring of the TCI HSN Shares Acquisition could not be
worked out prior to August 30, 1996 (the date on which either party could elect
to terminate the Liberty/BDTV Merger Agreement and the Silver King/BDTV Exchange
Agreement pursuant to their respective terms). Because TCI's ownership of the
TCI HSN Shares gave it the ability to control whether or not such a transaction
could be effected, Mr. Diller discussed with Liberty certain basic requirements
for any mutually acceptable transaction. First, such a possible transaction
would either require approval by the FCC of an increase in TCI's ownership
percentage or would have to be structured to comply with the terms of the FCC
Orders fixing TCI's FCC-approved percentage interest in Silver King at the
current level and applying the control-premium analysis to TCI's Silver King
equity interest. See "Risk Factors -- Regulation -- Status of Required FCC
Approvals." Second, any such transaction should be tax free to HSN stockholders
(including TCI). Third, any possible acquisition or business combination should
be structured so that Silver King could consolidate HSN's financial results with
those of Silver King for financial reporting and tax purposes. Fourth, to the
extent that the structure of any transaction required TCI to be treated in a
different and less favorable manner than all other HSN stockholders, TCI would
have to be compensated to reflect any additional risks incurred by it in
connection therewith, in addition to any "control premium" that TCI may receive.
Subsequently, Liberty and Mr. Diller concluded that it would be advisable to
structure any such transaction within the limitations imposed by the FCC Orders,
rather than attempting to seek FCC approval for an increase in TCI's approved
percentage level of ownership, which the parties believed could result in
significant delays to any such transaction.
With regard to a possible business combination, Mr. Diller and Liberty
recognized that these requirements meant that (i) Silver King would, in the
initial step of the business combination, have to acquire at least 80% of each
of the outstanding HSN voting power and equity; (ii) even without providing
Liberty any premium for the TCI HSN Shares relative to the consideration to be
received by HSN public stockholders, in order to avoid the requirement of formal
FCC approval to permit the increase of TCI's interest in Silver King above the
current level it would be necessary, based on recent market-to-market trading
values of the Silver King Common Stock and the HSN Common Stock, for Liberty to
accept some contingent or deferred consideration in a merger and for the full
business combination to involve at least two steps; and (iii) prior to any
Silver King-HSN business combination, it would be necessary to consummate the
Savoy Merger or another transaction in which Silver King Securities would be
issued, resulting in the dilution of TCI's ownership to a level such that its
receipt of Silver King Securities in an HSN-Silver King business combination
would not cause its percentage ownership interest in Silver King to exceed
21.37%. Such a transaction would involve, first, the initial merger in which
Silver King would acquire at least 80% of the voting power and equity of HSN
and, second, a subsequent exchange of Liberty's retained minority interest in
HSN for Silver King Securities when and if permitted under applicable FCC
requirements, including the FCC Orders. The issuance to Liberty of the
contingent securities and the consummation of the exchange could occur under
applicable FCC requirements if, for example, Silver King were to issue
additional shares to one or more third parties, thereby effectively diluting
TCI's interest in Silver King, or the FCC were to alter its "control premium"
analysis with respect to TCI's ownership interest or otherwise approve TCI's
acquisition of
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additional shares. These discussions were general in nature and focused
primarily on exploring whether a transaction structure was available to meet all
of the above-stated prerequisites and would otherwise be mutually agreeable to
Mr. Diller and Liberty. Although Liberty continued to discuss and evaluate the
various transaction structures to determine if any were acceptable, Liberty also
informed Mr. Diller that it believed that seeking FCC approval for an increase
in TCI's approved percentage interest might be in the best interests of the
parties. In addition, Liberty indicated to Mr. Diller that it was continuing to
evaluate whether any business combination would be in Liberty's interest.
Because of the overlapping tax, accounting and FCC requirements for a
business combination, any such transaction would impose on Liberty additional
risks it would not otherwise have been required to assume in the case of a
complete merger in which HSN became a wholly-owned subsidiary of Silver King and
all of the TCI HSN Shares were converted into Silver King Securities. These
risks related to, among other things, (i) the possible expiration of Silver
King's obligation to issue the contingent Silver King Securities to Liberty
prior to the time that Liberty had received all of such contingent Silver King
Securities, since applicable tax laws require that such obligation be for a
finite and limited term; (ii) Liberty's retaining a 19.9% minority equity
interest in HSN, which would be controlled by Silver King; (iii) the uncertainty
of consummation of the exchange of Liberty's retained interest for Silver King
Securities, including the risks to Liberty in the event of a bankruptcy of HSN;
(iv) Mr. Diller's unwillingness to agree to restrictions on HSN's operations,
which restrictions would have limited some of the risks associated with
Liberty's retained HSN minority interest and the subsequent exchange of those
shares for Silver King Securities; (v) certain tax risks to Liberty due to the
imputed interest which would accrue on the Contingent Rights Shares, to the
extent such shares were issued to Liberty; (vi) additional limitations on
Liberty's liquidity in the Silver King Securities to be issued pursuant to the
Contingent Rights and the Exchange; (vii) possible adverse FCC regulatory
developments, which could have the effects of postponing or prohibiting
Liberty's receipt of the Contingent Rights Shares or the subsequent exchange of
Liberty's interest in the HSN Surviving Corporation for Silver King Securities;
and (viii) the risks associated with receiving its Silver King Securities
subsequent to other former HSN stockholders, including, but not limited to,
market risks relating to the Silver King Securities and changes in laws,
particularly tax laws, which could limit Liberty's ability to receive the Silver
King Securities at a later date in a tax-free transaction. Liberty indicated to
Mr. Diller that, in light of such risks to it arising out of the inability to
exchange all of the TCI HSN Shares for Silver King Securities in a single-step
transaction, it might be preferable, from Liberty's point of view, to defer any
business combination until such time as a complete merger of the two companies
could be effected in which Liberty would exchange all of the TCI HSN Shares for
Silver King stock immediately, along with HSN's public stockholders. Liberty
further informed Mr. Diller that it would not agree to any transaction unless
such risks were minimized to the greatest extent possible and Liberty were
compensated for those remaining risks which, by the very nature of the
transaction and the deferral of merger consideration due to it, were impossible
to eliminate.
These conversations between Mr. Diller and Liberty, as well as with Silver
King's legal counsel, were preliminary in nature. The Silver King Board had been
advised of the difficulty in consummating the TCI HSN Shares Acquisition and had
discussed generally whether there was an alternative structure which could be
implemented in order to consummate a similar transaction. Mr. Diller informed
Liberty that the Silver King Board had not discussed or decided what course of
action might be appropriate.
On July 25, 1996, representatives of Silver King and its legal counsel met
with Allen & Company, which had provided certain advisory services to the
parties to the TCI HSN Shares Acquisition (see "Savoy Merger and Related
Transactions -- Interests of Certain Persons in the Savoy
Merger -- Savoy -- Allen & Company Investment Banking Relationship") to discuss
possible alternative transactions to the TCI HSN Shares Acquisition, including a
possible merger of Silver King and HSN. Mr. Diller and Liberty agreed that, in
light of Allen & Company's knowledge of the industry and the parties, including
their respective business goals, it would be appropriate for Allen & Company to
continue to provide financial analyses regarding a possible transaction to the
parties and to otherwise assist in structuring a possible transaction for
consideration by the parties and their respective advisors. In light of the fact
that certain of HSN's directors were affiliated with Liberty and/or Silver King,
Mr. Diller and Liberty also recognized that in connection with any possible
merger proposal by Silver King to HSN, it would be appropriate for the HSN Board
of Directors to form a special committee of independent directors to evaluate
and negotiate any possible Silver King-HSN business
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combination. Mr. Diller and Liberty also concluded that given the complexity of
any proposed structure and the relationships between the parties, it would be
appropriate to form such committee and authorize it to evaluate a possible
business combination between Silver King and HSN prior to Silver King approving
any specific proposal or Liberty and Mr. Diller agreeing to support any possible
transaction.
Following discussions among Mr. Diller, Silver King's legal counsel,
Liberty, Liberty's legal counsel and Allen & Company, on August 1, 1996, Mr.
Diller requested that the HSN Board of Directors appoint a special committee of
independent directors of HSN who were neither officers nor employees of HSN nor
directors, officers or employees of, or otherwise affiliated with, Liberty, TCI
or Silver King, to evaluate whether a possible transaction with Silver King,
including one that Liberty would support, could be arrived at. The HSN Board
unanimously appointed General H. Norman Schwarzkopf and Eli J. Segal to serve as
the members of the HSN Special Committee. Other than the HSN Options to purchase
55,000 and 5,000 shares of HSN Common Stock held by General Schwarzkopf and Mr.
Segal, respectively, neither General Schwarzkopf nor Mr. Segal own or have owned
any securities of TCI, Liberty or Silver King. The HSN Board of Directors
authorized the HSN Special Committee (i) to assess the business, operations,
assets and liabilities of Silver King and Savoy; (ii) to evaluate the merits of
a possible business combination or other strategic transaction involving HSN and
Silver King and to conduct discussions with respect thereto; (iii) to select and
retain independent financial advisors and legal counsel to advise the HSN
Special Committee with respect to these matters; and (iv) to report, and make
recommendations, to the HSN Board of Directors with respect to any potential
transactions involving HSN, Silver King and/or Liberty. Following its
appointment, the HSN Special Committee retained Wasserstein Perella to act as
its financial advisor and also retained outside independent legal counsel to
assist it in conducting due diligence and in evaluating any possible
transaction. These advisors were retained by the HSN Special Committee after the
committee members met with and interviewed such firms and satisfied themselves
as to such firm's ability, experience and independence in advising and
representing the HSN Special Committee. Such firms originally had been referred
to members of the HSN Special Committee by representatives of Silver King. In
appointing the HSN Special Committee, the HSN Board of Directors agreed that the
HSN Board of Directors would not consider any proposed HSN-Silver King business
combination that had not been recommended to it by the HSN Special Committee.
In early August 1996, financial advisors and legal counsel for each of
Silver King, the HSN Special Committee and Savoy met with Messrs. Diller and
Held and with Kevin J. McKeon, the Executive Vice President and Chief Financial
Officer of HSN, to discuss the businesses and results of operations of Silver
King and HSN and to otherwise commence a due diligence inquiry with respect to
each of those companies. Following such meeting, Mr. Diller informed the HSN
Special Committee that he did not know whether a mutually agreeable business
combination relating to Silver King and HSN, including one that Liberty would
support, could be arrived at. During this time, the advisors also held
discussions regarding the possible timing of any discussions as well as due
diligence.
On August 6, 1996, Mr. Bennett and Liberty's legal counsel met with Mr.
Kaufman, as a representative of Silver King, and Silver King's legal counsel to
discuss legal and structural matters relating to a possible business combination
of Silver King and HSN. Mr. Bennett and Mr. Kaufman also discussed various
economic terms relating to a possible combination, including possible exchange
ratios for HSN Common Stock and HSN Class B Common Stock. Mr. Bennett informed
Mr. Kaufman that one of the conditions required to obtain Liberty's support
would be that it be compensated for all additional risks incurred by it because
of the multi-step nature of the proposed transaction and the other risks and
increased costs that may be incurred by it as a result, including any additional
taxes which may become payable by it, such as the tax upon imputed interest
income it could be deemed to have received upon issuance to it of Contingent
Rights Shares. In addition, Mr. Bennett noted that Liberty wished to receive all
of its Silver King Securities as soon after the proposed merger as possible and
therefore, Liberty would propose that the Contingent Rights and the Exchange
reflect an interest rate (payable in additional Silver King Securities) in order
to encourage Silver King to take such actions as were necessary to complete the
issuance of shares thereunder, including seeking FCC approval for such issuance.
In addition, such interest rate would compensate Liberty for the additional
risks it was being asked to incur, the lack of liquidity of the Contingent
Rights, and the tax it would incur on the imputed interest from the Contingent
Rights. Liberty indicated that it expected to receive a 10-15% premium for all
of the TCI HSN Shares, payable in shares of Silver King Class B Common Stock, as
well as
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an approximate 8% per annum interest rate with respect to the Contingent Rights
and the Exchange. Mr. Kaufman later informed Liberty that, after reviewing these
matters with Mr. Diller, it was their view that such terms would not be
acceptable to Silver King. The HSN Special Committee and its advisors did not
participate in these discussions.
At a meeting of the HSN Special Committee held on August 6, 1996,
Wasserstein Perella and counsel to the HSN Special Committee summarized (i) the
current corporate structures of Savoy, Silver King, HSN and Liberty; (ii) the
terms of the TCI HSN Shares Acquisition, the Savoy Merger and the Stockholders
Agreement, as each then existed; and (iii) the possible alternative transaction
structures involving HSN that had been discussed during the prior week among
various of the parties and their respective financial and legal advisors. One of
the potential transaction structures discussed with the HSN Special Committee
involved initially the acquisition of 80% or more of HSN's equity by Silver King
in a merger of HSN and a subsidiary of Silver King pursuant to which the public
stockholders of HSN would be offered Silver King Common Stock at a
market-to-market exchange ratio based on the unaffected market prices for each
of the HSN Common Stock and the Silver King Common Stock, with HSN thereafter
becoming a wholly-owned subsidiary of Silver King upon the subsequent exchange
of Liberty's interest in the HSN Surviving Corporation. The HSN Special
Committee was also informed that, although Liberty and Mr. Diller had had
discussions concerning the relative exchange ratios that might be offered for
the HSN Common Stock and HSN Class B Common Stock held by Liberty, and any
interest rate to be applied, there had been no agreement among Liberty, Silver
King and Mr. Diller as to such exchange ratios or as to any interest rate.
At that meeting, the HSN Special Committee was made aware that Liberty, in
the course of its preliminary discussions with Silver King, had indicated that a
prerequisite to its willingness to support a business combination between Silver
King and HSN would be the exchange of the TCI HSN Shares for Silver King
Securities at a ratio that would represent a premium over the ratio to be
offered to the stockholders of HSN not affiliated with Liberty. The HSN Special
Committee was informed that Liberty had discussed several reasons that it should
be entitled to such a premium, including the fact that Liberty was being asked
to incur various risks relating to a substantial amount of its HSN stock, as
summarized above, that any transaction between HSN and Silver King would result
in Liberty's relinquishing its present operational control over HSN as a result
of Liberty's inability to own a significant amount of voting stock of Silver
King under applicable FCC rules prohibiting Liberty from having an "attributable
interest" in Silver King (whether by ownership of voting stock or by having
representation on the Silver King Board) and the applicable provisions of the
Stockholders Agreement, and that, by virtue of the voting power attributable to
the TCI HSN Shares, it could control the outcome of the vote on any proposed
transaction. The HSN Special Committee directed its advisors to inform the
parties that it did not necessarily agree that Liberty was entitled to any
premium in the case of a transaction in which Liberty exchanged its shares of
HSN Class B Common Stock for Silver King Class B Common Stock.
At the conclusion of the HSN Special Committee's August 6, 1996 meeting,
the HSN Special Committee authorized its financial and legal advisors (i) to
continue their due diligence investigation of Silver King and Savoy; (ii) to
evaluate the merits of a possible business combination between HSN and Silver
King; (iii) to explore and discuss the possible alternative structures of a
business combination with Silver King, Liberty and their respective advisors;
and (iv) to report to the HSN Special Committee with respect thereto.
At the August 13 meeting of the Silver King Board to consider the Savoy
Merger, Mr. Diller informed the Silver King Board that he and Silver King's
counsel were engaged in discussions with the various parties regarding a
possible restructuring of the TCI HSN Shares Acquisition or a Silver King-HSN
business combination. Mr. Diller informed the Silver King Board that, although
such discussions were ongoing, he and Liberty had not agreed upon the terms of
any such transaction and that, while he was optimistic that a proposal
acceptable to all parties could be formulated, there were a number of complex
issues to be resolved and risk factors to be evaluated, any of which could
prevent the parties from developing a mutually acceptable transaction structure
that could be the basis for a proposal to the HSN Special Committee. He
indicated that he and Silver King's legal and financial advisors would keep the
Silver King Board informed of material developments.
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On August 13, 1996, the HSN Special Committee and its legal and financial
advisors were informed of the amendment of the exchange ratio in the Savoy
Merger and the exercise by BDTV of the Liberty Option. See "Savoy Merger and
Related Transactions -- Background -- Merger Agreement Amendment."
During the course of the ongoing discussions between Mr. Diller and
Liberty, the parties concluded that it was unlikely that the TCI HSN Shares
Acquisition could be consummated prior to August 30, 1996, the date on which
each of the parties to the Liberty/BDTV Merger Agreement and the Silver
King/BDTV Exchange Agreement would have the right to terminate such agreements.
On August 16, 1996, each of Liberty and Silver King filed with the Commission an
amendment to their respective reports on Schedule 13D relating to HSN Common
Stock in which they stated that the parties believed that, due to the delays in
receiving the FCC approval relating to the transfer of control of Silver King to
Mr. Diller and BDTV and certain limitations relating to Liberty's acquisition of
beneficial ownership of additional Silver King Securities contained in the FCC
Orders, it was unlikely that the TCI HSN Shares Acquisition could be consummated
by August 30, 1996. Such amendments also stated that Liberty and Mr. Diller had
begun discussions regarding a possible restructuring of the TCI HSN Shares
Acquisition or an alternative transaction relating to HSN, such that Silver King
could acquire control of HSN consistent with the FCC Orders.
During the period from August 7 to August 20, 1996, the HSN Special
Committee's financial advisors and legal counsel conducted financial and legal
due diligence investigations of Silver King and Savoy. Also during this period,
Wasserstein Perella and the HSN Special Committee's counsel held numerous
discussions with Mr. Diller and Silver King's financial and legal advisors
concerning possible transaction structures designed to effect a tax-free
business combination between Silver King and HSN. These discussions did not
include possible exchange ratios for the HSN Common Stock, other than that the
exchange ratio would reflect recent market prices and, possibly, a premium to be
paid to HSN stockholders. In addition, Silver King's FCC counsel and FCC counsel
retained to advise the HSN Special Committee held discussions with respect to
potential transaction structures that would accommodate the FCC's "control
premium" analysis limiting Liberty's ownership to a specified percentage of the
Silver King Securities. Throughout this period, counsel to the HSN Special
Committee regularly briefed the members of the HSN Special Committee concerning
the status of the discussions among the parties and the analyses that had been
made of various potential transaction structures, and received instructions from
the HSN Special Committee concerning the issues under discussion with Silver
King and Liberty.
As discussed above, during August 1996 and prior to August 21, 1996,
Messrs. Diller and Kaufman, Messrs. Barton and Bennett and representatives of
Allen & Company held numerous conversations regarding the possible economic and
other material terms of a potential business combination involving HSN and
Silver King that would be acceptable to Liberty. Such discussions concerned,
among other things, the nature of the interest in HSN that Liberty would have to
retain initially, the terms of the Contingent Rights and the Exchange (including
whether the applicable exchange ratios should increase over time at an
agreed-upon interest rate), the applicable exchange ratios for HSN Common Stock
and HSN Class B Common Stock, and whether Liberty should receive a premium for
its shares of HSN stock relative to the consideration to be paid to the other
holders of HSN Common Stock. Although no financial terms of a possible
transaction were agreed to, the parties discussed possible exchange ratios and
interest rate factors that, based on certain assumptions regarding, among other
things, that the holders of HSN Common Stock would receive a 10-20% premium for
these shares (based upon the then-current market prices of HSN Common Stock and
Silver King Common Stock) and the amount of time required to issue to Liberty
the Contingent Rights Shares and to effect the Exchange, would have resulted in
Liberty ultimately owning approximately 36-40% of the combined entities. In the
course of these discussions, the parties attempted to formulate a proposed
transaction acceptable to Silver King and which Liberty would agree to support,
which proposal would then be submitted to the Silver King Board and the HSN
Special Committee for their consideration.
At Mr. Diller's request, Mr. Kaufman, Allen & Company and First Boston
participated in various of these discussions. During this period, special
outside, FCC and Delaware counsel for Silver King and Liberty also discussed
tax, structural, FCC and other legal issues related to a possible HSN-Silver
King merger. In addition, Mr. Diller and Liberty continued to have substantial
disagreements over the economic and other material terms of a proposed business
combination that both of such parties would support.
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On August 21, 1996, the HSN Special Committee met (i) to review the
positions of the parties regarding a possible business combination involving HSN
and Silver King that were then under discussion between representatives of
Silver King and Liberty; (ii) to discuss certain preliminary analyses made by
Wasserstein Perella of the relative values of Silver King, Savoy and HSN; and
(iii) to conduct its own inquiry with respect to the businesses and operations
of Silver King and Savoy. Messrs. Diller, Held and McKeon were present for
portions of the August 21 meeting in order to present to the HSN Special
Committee their respective views of the operating strategies of each of Silver
King and HSN and their assessment of the relative benefits of effecting a
business combination involving HSN and Silver King.
At the August 21, 1996 HSN Special Committee meeting, at the request of the
HSN Special Committee, Mr. Diller informed the HSN Special Committee and its
advisors of the current status of the negotiations between Mr. Diller and
Liberty with respect to a potential merger involving HSN and Silver King. Mr.
Diller described certain principal terms of a transaction structure then under
discussion between Liberty, Silver King and their respective representatives.
Mr. Diller noted that Liberty held effective voting control of HSN and that a
merger involving HSN could not be effected without Liberty's approval. Mr.
Diller further indicated that, in a merger involving HSN and Silver King,
Liberty would, due to FCC rules and regulations and the FCC Orders, not be
permitted to exercise voting control over the combined company and that it would
therefore have to surrender operational control of the combined company
(including HSN) which would be vested in Mr. Diller pursuant to the Stockholders
Agreement, and that Liberty would have to incur the risks described above
relating to, among other things, the potential loss it may suffer in the event
the Contingent Rights Shares are not issued prior to the termination of the
Contingent Rights, the potential adverse consequences of future changes in the
tax laws, the potential adverse tax consequences relating to receipt of the
Contingent Rights Shares, the lack of liquidity of the Contingent Rights and
Liberty's retained HSN minority interest and FCC-related considerations. Mr.
Diller explained that Liberty expected to receive a blended exchange ratio for
the TCI HSN Shares that exceeded the ratio to be offered to the public
stockholders of HSN, in addition to an interest rate factor relating to the
Contingent Rights and the Exchange in order to give Silver King an economic
incentive to cause the Contingent Rights Shares issuance to be made and the
Exchange to take place as soon as possible.
Mr. Diller noted that he believed Silver King would be prepared to offer a
premium above the unaffected market price of the HSN Common Stock to all HSN
stockholders, and that the precise exchange ratios to be offered to HSN's
stockholders (including Liberty) (and to be presented to the HSN Special
Committee for its consideration), as well as any of the other terms of the
transactions, had not yet been agreed to initially as between any of Liberty,
Silver King and Mr. Diller and that the applicable exchange ratios and the
making of any proposal would require the prior approval of the Silver King
Board. Mr. Diller indicated that, if an offer were to be made, the ratio of
Silver King Securities to be paid to all holders of HSN Common Stock would
likely represent a 10-20% premium over the unaffected market price of the HSN
Common Stock and that Liberty would receive an additional 8-10% premium for all
of the TCI HSN Shares. Mr. Diller further explained that, because of competing
tax and FCC considerations, Liberty could, under the then-contemplated
transaction structure, neither convert all of the TCI HSN Shares into Silver
King Securities nor retain all of the TCI HSN Shares not so converted. Mr.
Diller informed the HSN Special Committee that the parties had, therefore,
discussed the issuance to Liberty of certain contingent rights to receive
additional Silver King Securities and Liberty retaining a minority interest in
HSN following the merger, which interest would be exchanged for Silver King
Securities when it was permissible under the FCC Orders for Liberty to own
additional Silver King Securities as a means of accommodating both (i) the tax
law and accounting requirements that Silver King acquire 80% or more of each of
the outstanding HSN voting power and equity, and (ii) the terms of the FCC
Orders, which effectively limited Liberty's interest in Silver King to 21.37% of
the outstanding Silver King Securities without further FCC consideration. In
view of the previous delays experienced by Silver King in obtaining the previous
FCC Orders, Mr. Diller indicated that he believed any transaction would have to
be structured to minimize or eliminate formal FCC approval in order to avoid the
possibility of substantial delay in consummating any proposed transaction.
In response to questions from the HSN Special Committee, Mr. Diller
explained the then-contemplated terms of the Contingent Rights. Mr. Diller
informed the HSN Special Committee that one of the terms of the
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Contingent Rights then under discussion was the accrual of additional Contingent
Rights Shares to Liberty if the Contingent Rights Shares to be issued to Liberty
were not issued within a specified period of time. Mr. Diller explained that, as
then contemplated, a 6% per annum interest rate (payable in additional
Contingent Rights Shares) would apply to any remaining Contingent Rights Shares
not issued to Liberty within six months of consummation of a merger involving
Silver King and HSN and that such 6% accrual would continue to apply until the
termination of the Contingent Rights upon the fifth anniversary of the
consummation of any such merger. In connection with the foregoing discussions,
Mr. Diller informed the members of the HSN Special Committee that neither the
Silver King Board nor Liberty had agreed to any of the terms he had previously
described and that no agreement, arrangement, or understanding had been reached
with respect to any of these matters among any of Silver King, Liberty or Mr.
Diller.
After Mr. Diller's presentation, he and Messrs. Held and McKeon excused
themselves from the August 21, 1996 meeting, and the HSN Special Committee met
separately with its legal and financial advisors to discuss the terms of the
possible transaction that Mr. Diller had presented.
On August 22, 1996, at the HSN Special Committee's direction, Wasserstein
Perella and the HSN Special Committee's counsel contacted Mr. Diller to inform
him that, under the circumstances described the previous day by Mr. Diller
concerning the treatment of Liberty's control block of HSN Stock, the HSN
Special Committee was willing to consider a transaction in which Liberty would
be paid a premium for its shares, but that the members of the HSN Special
Committee believed that the level of the premium to be paid to Liberty should be
reduced below the range previously indicated by Mr. Diller. Mr. Diller noted
that he would inform Liberty of the HSN Special Committee's views but that he
did not believe that Liberty would agree to the transaction at a lower premium.
Also during the August 22, 1996 conversation between Mr. Diller and the HSN
Special Committee's advisors, Mr. Diller noted that Silver King and Liberty also
had discussed the possibility of applying a 6% accrual rate to the Exchange
Shares not exchanged within six months of consummation of a merger of Silver
King and HSN. Mr. Diller explained that the 6% accrual on the Exchange Shares
would apply on essentially the same terms as the Contingent Rights interest rate
that had been described the previous day to the HSN Special Committee and that
such 6% interest rate would cease to accrue after the fifth anniversary of the
consummation of an HSN/Silver King business combination, although the exchange
obligation would continue after that date. The HSN Special Committee's advisors
indicated to Mr. Diller that, although they believed the HSN Special Committee
might consider transaction terms that compensated Liberty for the occurrence of
the risks of the possible transaction to Liberty that were described to the
committee, they did not think that the HSN Special Committee would agree to the
6% interest rate that had been proposed either with respect to the Contingent
Rights or the Exchange Shares.
A meeting of the HSN Special Committee was held on the evening of August
22, 1996. At that meeting, the HSN Special Committee's financial and legal
advisors reported the discussions that had taken place since the HSN Special
Committee's previous meeting. Wasserstein Perella presented its preliminary
analysis of the maximum number of Silver King shares that would be issued under
the proposed interest rates that Mr. Diller had described, as applied to both
the unissued Contingent Rights Shares and the unissued Exchange Shares. The
members of the HSN Special Committee reiterated their view that, although they
might consider compensating Liberty for the assumption of risks inherent in the
transaction, they were not prepared to accept an interest rate which could
result in Liberty receiving a significant additional percentage equity interest
of the combined companies' outstanding equity following the Savoy Merger and the
HSN Transactions, an amount that could represent several million Silver King
shares.
Following the August 22, 1996 meeting of the HSN Special Committee, counsel
to the committee discussed with Silver King's advisors and with Mr. Diller the
objections raised by the HSN Special Committee with respect to the possible
transaction and, specifically, the accretion of additional Silver King
Securities to Liberty under the interest rates that representatives of Silver
King had indicated were then being discussed. On August 23, 1996, several
modifications of the prior proposals were discussed among the parties, and each
of General Schwarzkopf and Mr. Segal spoke with Mr. Diller to communicate
directly their concerns regarding the accrual rate that had been discussed at
the HSN Special Committee's meeting held
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the prior evening. These conversations continued through the day on Friday,
August 23, 1996. During the day, Liberty indicated to Mr. Diller that it would
consider a transaction in which there were no accrual rates with respect to the
Contingent Rights Shares and the Exchange Shares, and Mr. Diller and Liberty
agreed that the HSN Special Committee should be asked to consider the respective
conversion ratios of 0.45 and 0.54 for the HSN Common Stock and the HSN Class B
Common Stock.
In conversations on August 23, 1996 between Mr. Diller and Messrs. Barton
and Bennett, such parties agreed that the HSN Special Committee (as well as the
Silver King Board) should be asked to consider a transaction containing the
then-currently proposed terms of the HSN Transactions, including the conversion
ratios mentioned above.
In the late afternoon of August 23, 1996, the Silver King Board held an
informational meeting at which Mr. Diller, First Boston and Silver King's
counsel discussed with the Silver King Board tentative terms of the HSN
Transactions. Such terms included the 0.45 HSN Common Conversion Ratio, the 0.54
HSN Class B Conversion Ratio, the terms of the proposed amendments to the
Stockholders Agreement, and the material terms of a then-current draft of the
HSN Merger Agreement and then-current drafts of the related transaction
documents, which included the right of the Silver King Board in accordance with
the Silver King Board's fiduciary duties to withdraw its recommendation with
respect to the HSN Transactions or to refrain from mailing to Silver King
stockholders a proxy statement containing such recommendation.
At the August 23, 1996 informational meeting, Mr. Diller reviewed with the
Silver King Board his conversations with representatives of Liberty and his
conversation with the HSN Special Committee. First Boston provided the Silver
King Board with a written and oral financial analysis of the terms of a possible
transaction. Silver King's counsel provided the board with written and oral
summaries of the most recent drafts of transaction documents, including drafts
of the HSN Merger Agreement and the First Amendment. The Silver King Board
agreed that it would be appropriate to make such a proposal to the HSN Special
Committee and to determine over the course of the weekend whether a transaction
acceptable to all parties could be agreed upon. The Silver King Board instructed
Mr. Diller and Silver King's legal and financial advisors to report back to the
Silver King Board regarding these discussions. Following the Silver King Board
meeting, Liberty indicated to Mr. Diller that it supported Silver King proposing
such a transaction to the HSN Special Committee but that it had not determined
whether to support the terms of such proposal and would reserve its rights with
respect to any possible business combination. The Silver King Board did not vote
upon or otherwise approve any possible business combination at its August 23
meeting and instructed Mr. Diller and Silver King's legal and financial advisors
to keep the Silver King Board informed of developments regarding a possible
transaction.
On the evening of August 23, 1996, counsel for Silver King delivered to
counsel for the HSN Special Committee and to Wasserstein Perella the financial
and legal terms of a possible Silver King-HSN merger described above. Later that
evening, a meeting of the HSN Special Committee was convened at which the terms
of the proposal were discussed among the members of the HSN Special Committee
and their advisors. The HSN Special Committee instructed its financial advisors
to analyze the terms of the proposal that had been received and to report to the
HSN Special Committee the following day. Later on August 23, 1996, counsel for
Silver King delivered to counsel for the HSN Special Committee a draft of each
of the HSN Merger Agreement, the First Amendment and the related transaction
agreements, including the HSN Stockholder Voting Agreement and the Second Silver
King Stockholder Voting Agreement. At the time these materials were delivered to
the HSN Special Committee's advisors, such persons were informed that neither
the Silver King Board nor Liberty had agreed to the terms reflected in the draft
materials, and that no agreement, arrangement or understanding with respect to
any of these matters had been reached among any of Silver King, Liberty and Mr.
Diller.
On the evening of August 23 and on August 24, 1996, counsel for the HSN
Special Committee held discussions with counsel for Silver King and counsel for
Liberty concerning the terms of the HSN Merger Agreement and the related
transaction agreements. The parties also discussed Liberty's requirement that it
be offered an exchange ratio for the HSN Class B Common Stock that exceeded the
ratio proposed to be offered
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to the holders of HSN Common Stock, as well as the various risks and potential
tax liabilities to Liberty, described above, due to the structure of the
transaction.
On August 24, 1996, the HSN Special Committee met to discuss the terms of
the proposal that had been received the previous day. At the meeting,
Wasserstein Perella and the HSN Special Committee's counsel described the terms
of the transactions set forth in the draft HSN Merger Agreement and the drafts
of the related transaction agreements and summarized the discussions that had
taken place among the parties since the committee's previous meeting.
Wasserstein Perella presented its analysis of the economic terms of the
transactions, and counsel informed the HSN Special Committee of the issues that
had been raised with counsel for each of Silver King and Liberty. Mr. Segal
reported that he had spoken with Mr. Diller earlier in the day and had urged
that the ratio to be paid to the holders of HSN Common Stock be increased and
that the premium to be paid to Liberty with respect to the HSN Class B Common
Stock be decreased. Mr. Segal further reported that Mr. Diller had indicated
that there was no possibility, in his view and based on the course of
discussions over the past several days, that Liberty would agree to vote in
favor of a transaction with a reduced HSN Class B Conversion Ratio.
Discussions and negotiations continued among the parties' advisors on the
evening of August 24 and on August 25, 1996. Among the issues discussed by the
parties' respective legal and financial advisors were the positions taken by the
HSN Special Committee, including the committee's position that the transaction
documents should (i) grant the HSN Special Committee the right to terminate the
HSN Merger Agreement in the event that the market price of the Silver King
Common Stock were to fall below a specified level; (ii) require approval of the
HSN Transactions by a majority of the outstanding shares of HSN Common Stock
(other than those held by Liberty or any of its affiliates) present and voting
at the HSN Meeting; (iii) grant the HSN Special Committee the right to initially
approve any amendments or modifications to the HSN Merger; and (iv) provide that
a certain number of current HSN directors would join the Silver King Board upon
consummation of the HSN Merger. During the negotiations, Silver King agreed in
certain respects to the foregoing requests of the HSN Special Committee, and
Liberty indicated that it would support the transaction with the inclusion of
such terms. See "HSN Merger Agreement and Related Transaction Agreements -- HSN
Merger Agreement."
On Sunday evening, August 25, 1996, at a meeting of the Silver King Board
of Directors, Mr. Diller informed the Silver King Board of the developments that
had taken place over the weekend, including various negotiations with the HSN
Special Committee and its advisors regarding the financial and legal terms of
the proposed transaction. Prior to the meeting, First Boston provided the Silver
King Board with its final written analysis and oral opinion (subsequently
confirmed in writing) regarding the terms and fairness of the HSN Transactions.
See "-- Opinions of Certain Financial Advisors -- Opinion of First Boston,
Financial Advisor to Silver King." Silver King's outside legal counsel discussed
further with the Silver King Board material terms of the transaction documents,
including the contemplated amendments to the Stockholders Agreement. All of the
members of the Silver King Board (other than Mr. Diller, who did not vote on
these matters because of his position as Chairman of the Board of HSN) approved
the HSN Merger Agreement and the HSN Merger (including the related HSN
Transactions), including for purposes of Section 203 of the DGCL, and determined
that such transactions are fair to, and in the best interests of, Silver King
stockholders. See "-- Fairness of the HSN Transactions;
Recommendations -- Silver King."
At a meeting of the HSN Special Committee held on the same evening,
Wasserstein Perella presented the analysis described under "-- Opinions of
Certain Financial Advisors -- Opinion of Wasserstein Perella, Advisor to the HSN
Special Committee." Also at that meeting, counsel for the HSN Special Committee
described the terms of the proposed transactions, including the terms of the HSN
Merger Agreement and the related transaction agreements, copies of which
previously had been provided to the HSN Special Committee. Following a
discussion among the members of the HSN Special Committee and their advisors,
Wasserstein Perella delivered to the HSN Special Committee its oral opinion,
described under "-- Opinions of Certain Financial Advisors -- Opinion of
Wasserstein Perella, Advisor to the HSN Special Committee," that the HSN Common
Conversion Ratio in the HSN Merger is fair, from a financial point of view, to
the holders of the HSN Common Stock other than Liberty and its affiliates.
Wasserstein Perella's oral opinion was later confirmed in writing, and a copy of
such opinion is attached as Appendix F to this Joint Proxy Statement/
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Prospectus. At its August 25, 1996 meeting, the HSN Special Committee concluded
that the HSN Merger and the related transactions are fair to, and in the best
interest of HSN and its stockholders (other than Liberty and its affiliates) and
resolved to recommend to the HSN Board of Directors that it approve the HSN
Merger Agreement and the related transactions. See "-- Fairness of the HSN
Transactions; Recommendations -- HSN."
At a meeting of the HSN Board of Directors held later in the evening of
August 25, 1996, the HSN Special Committee presented and formally recommended
approval of the HSN Merger and the related transactions. Wasserstein Perella
presented to the HSN Board the analysis described under "-- Opinions of Certain
Financial Advisors -- Opinion of Wasserstein Perella, Advisor to the HSN Special
Committee" and delivered its oral opinion (later confirmed in writing) as to the
fairness of the HSN Common Conversion Ratio, from a financial point of view, to
the holders of HSN Common Stock other than Liberty and its affiliates. After
receiving the recommendation of the HSN Special Committee, the HSN Board of
Directors (other than Messrs. Diller, Barton and Bennett, who, although present
at the meeting, did not participate in the deliberations and did not vote with
respect to the HSN Merger or the related transactions) approved the HSN Merger
Agreement and the related HSN Transactions. See "-- Fairness of the HSN
Transactions; Recommendations -- HSN." Mr. Diller did not vote on such matters
because of his positions as Chairman of the Board, President and Chief Executive
Officer of Silver King, and Messrs. Barton and Bennett abstained because of
their positions as executive officers of Liberty.
Following the respective Special Committee and board meetings, the parties
entered into the HSN Merger Agreement, the First Amendment, the Second Silver
King Stockholder Voting Agreement and the HSN Stockholder Voting Agreement. The
parties to each of the Liberty/BDTV Merger Agreement and the Silver King/BDTV
Exchange Agreement terminated those agreements pursuant to the Termination
Agreement, dated August 25, 1996 (the "Termination Agreement"). The November
Stockholders Agreement was superceded by the First Amendment. On the morning of
Monday, August 26, 1995, Silver King and HSN issued a press release regarding
the HSN Transactions.
Relationship between Liberty and Mr. Diller
Prior to February 28, 1995
From January 1993 until February 28, 1995, Mr. Diller was Chairman of the
Board and Chief Executive Officer of QVC, an entity in which Liberty and its
affiliates held an approximate 19% equity interest. Mr. Diller, Liberty and
Comcast Corporation, a Pennsylvania corporation ("Comcast"), were parties to a
stockholders agreement relating to purchases, dispositions and voting of equity
securities of QVC. In the first quarter of 1995, an entity formed by Liberty and
Comcast completed the acquisition of the remainder of the outstanding capital
stock of QVC not theretofore owned by Liberty and Comcast through a cash tender
offer and "short-form" merger, and Mr. Diller resigned from his positions at
QVC.
Silver King and HSN
On August 24, 1995, Mr. Diller became Chairman of the Board and Chief
Executive Officer of Silver King, and Mr. Diller and Liberty entered into the
August Stockholders Agreement. In connection with the appointment of Mr. Diller,
Silver King granted him options to purchase 1,895,847 shares of Silver King
Common Stock at a per share exercise price of $22.625. In addition, Mr. Diller
purchased an aggregate of 441,988 shares of Silver King Common Stock, which
purchase price was paid for in cash and a non-recourse note secured by a pledge
of his shares. Silver King and Mr. Diller have also entered into the Equity
Compensation Agreement, which contains the terms of the option grant (including
related limited stock appreciation rights granted in tandem with such options
("SARs")) and pursuant to which Mr. Diller is entitled to receive certain
bonuses from Silver King and to the reimbursement of expenses. Mr. Diller does
not receive a salary from Silver King. The Equity Compensation Agreement has
been previously described in and filed as an exhibit to Silver King's Form 10-K
for the fiscal year ended August 31, 1995. Mr. Diller has subsequently been
granted the Additional Diller Options (as defined herein), which are conditioned
upon stockholder approval of the 1995 Stock Incentive Plan and consummation of
the Savoy Merger and the HSN
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Merger. See "1995 Stock Inventive Plan Proposal -- New Plan Benefits -- The
Stock Option Agreement; Other Option Grants."
As described above, on August 24, 1995, Mr. Diller became a director of HSN
and on November 27, 1995, Mr. Diller became Chairman of the Board of HSN and was
granted certain options to purchase HSN Common Stock. See "-- Relationship
between Mr. Diller and HSN; the TCI HSN Shares Acquisition."
The Diller-Liberty Stockholders Agreement
General. Mr. Diller and Liberty are parties to the Stockholders Agreement,
which governs the ownership, voting, transfer or other disposition of Silver
King Securities owned by any of Mr. Diller, Liberty, and certain of their
respective affiliates (including, in the case of Mr. Diller, Arrow, and, in the
case of Liberty, TCI, so long as Liberty is a subsidiary of TCI) as well as
certain aspects of the management of Silver King and control of the Silver King
Board of Directors. The Stockholders Agreement is attached as Appendix H to this
Joint Proxy Statement/Prospectus, and the following summary description of
certain terms of the Stockholders Agreement is qualified by reference to such
appendix.
Pursuant to the Stockholders Agreement, Liberty and Mr. Diller have formed
BDTV, to which Liberty contributed as its capital contribution to BDTV (i) an
option to purchase 2,000,000 shares of Silver King Class B Common Stock (the
"Liberty Option") from RMSLP and (ii) $3.5 million, the aggregate Liberty Option
exercise price, and Mr. Diller contributed $100 as his capital contribution to
BDTV. As a consequence of the exercise of the Liberty Option on August 13, 1996,
BDTV is the holder of record of 2,000,000 shares of Silver King Class B Common
Stock. Mr. Diller, through Arrow, holds all of the voting common stock of BDTV,
and Liberty holds all of the convertible non-voting common stock of BDTV which
non-voting common stock represents in excess of 99% of the equity of BDTV and is
convertible into voting common stock upon the occurrence of certain events as
described below.
Prior to a Change in Law or other event permitting Liberty to convert its
BDTV stock to voting stock, Mr. Diller generally exercises voting control over
the Silver King Securities held at any time by BDTV or any other BDTV Entity as
well as any Silver King Securities held by Liberty and the members of its
Stockholder Group (as defined in the Stockholders Agreement), except that,
subject to applicable law, the approval of both Liberty and Mr. Diller is
required in connection with the taking of any action with respect to
Extraordinary Matters and certain other specified matters. As of the date
hereof, 503,618 shares of Silver King Common Stock (7% of the outstanding Silver
King Common Stock as of the Silver King Record Date) and 2,000,000 shares of
Silver King Class B Common Stock (83% of the outstanding Silver King Class B
Stock as of the Silver King Record Date) are subject to the Stockholders
Agreement, which shares together represent 66% of the outstanding Total Voting
Power as of such date. Assuming that the HSN Transactions (including issuance of
the Contingent Rights Shares and the Exchange Shares) and the Savoy Merger are
consummated (without giving effect to any additional issuance of Silver King
Securities in connection with Silver King's tax gross-up obligation in certain
circumstances pursuant to the Contingent Rights or the Exchange Agreement),
8,453,633 shares of Silver King Common Stock and 12,800,000 shares of Silver
King Class B Common Stock would be subject to the Stockholders Agreement, which
shares together would represent 78% of the Total Voting Power of Silver King.
The Silver King Securities received by Liberty pursuant to the HSN Merger
Agreement (including the Contingent Rights Shares) and the Exchange Agreement
will either be contributed by Liberty to a BDTV Entity or will be subject to the
conditional proxy granted to Mr. Diller and described in the next paragraph
below.
Voting of Silver King Securities; Extraordinary Matters. The Stockholders
Agreement provides that Mr. Diller is entitled, subject to the terms of the
Stockholders Agreement, to exercise voting authority and authority to act by
written consent over all Silver King Securities owned by any of Liberty, Mr.
Diller, Arrow, BDTV or any other BDTV Entity as well as over any Silver King
Securities held by Liberty and the members of its Stockholder Group on all
matters submitted to a vote of Silver King's stockholders or by which Silver
King's stockholders may act by written consent, subject to certain exceptions.
In connection therewith, in
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certain specified circumstances, Liberty has provided Mr. Diller with a
conditional proxy, which proxy shall be valid for the full term of the
Stockholders Agreement and is irrevocable.
Upon consummation of the HSN Merger, Extraordinary Matters will include the
following transactions or events:
(i) Any transaction not in the ordinary course of business, launching
new or additional channels or engaging in any new field of business, in any
case, which will result in, or will have a reasonable likelihood of
resulting in, Liberty or any member of its Stockholder Group being required
under law to divest itself of all or any part of its Silver King
Securities, or interests therein (including its interest in BDTV or any
other BDTV Entity), or any other material assets of such entity, or which
will render such entity's continued ownership of such stock or assets
illegal or subject to the imposition of a fine or penalty or which will
impose material additional restrictions or limitations on such entity's
full rights of ownership (including, without limitation, voting) thereof or
therein.
(ii) The acquisition or disposition (including pledges), directly or
indirectly, by Silver King or any of its subsidiaries of any assets
(including debt and/or equity securities) or business (by merger,
consolidation or otherwise), the grant or issuance of any debt or equity
securities of Silver King or any of its subsidiaries, the redemption,
repurchase or reacquisition of any debt or equity securities of Silver King
or any of its subsidiaries by Silver King or any such subsidiary, or the
incurrence of any indebtedness, or any combination of the foregoing, in any
such case, in one transaction or a series of transactions in a six-month
period, with a value of 10% or more of the market value of Silver King's
outstanding equity securities at the time of such transaction, provided
that the prepayment, redemption, repurchase or conversion of prepayable,
callable, redeemable or convertible securities in accordance with the terms
thereof shall not be a transaction subject to this paragraph.
(iii) Any material amendments to the Silver King Certificate or the
Silver King Bylaws.
(iv) Engaging in any line of business other than media, communications
and entertainment products, services and programming, and electronic
retailing, or other businesses engaged in by HSN as of August 25, 1996.
(v) The settlement of any litigation, arbitration or other proceeding
which is other than in the ordinary course of business and which involves
any material restriction on the conduct of business by Silver King or its
affiliates or the continued ownership of its assets by Silver King or any
of its affiliates (in each case, including Liberty).
(vi) Any transaction (other than those contemplated by the
Stockholders Agreement) between Silver King and its affiliates, on the one
hand, and Mr. Diller and his affiliates, on the other hand, subject to
exceptions relating to the size of the proposed transaction and those
transactions which are otherwise on an arm's-length basis.
Mr. Diller and Liberty have agreed in the Stockholders Agreement to take,
and to cause certain of their affiliates to take, all reasonable actions
required, subject to applicable law, to prevent the taking of any action by
Silver King with respect to an Extraordinary Matter and, except as provided in
the Stockholders Agreement and the documents with respect to the HSN
Transactions, to prevent the taking of any action by Silver King with respect to
any issuance or proposed issuance or any shares of Silver King Class B Common
Stock (including convertible securities) (such issuance, a "Class B Issuance"),
in each case, without the consent of each of Mr. Diller and Liberty.
Change in Law. At such time as a Change in Law occurs, Liberty's equity
interest in BDTV and any other BDTV Entity will be converted, upon receipt of
required regulatory approvals (including expiration or termination of the
waiting period under the HSR Act), into BDTV and any other BDTV Entity voting
common equity having the same pro rata rights, powers and preferences as Mr.
Diller's equity interest in BDTV and any other BDTV Entity, and Liberty or its
designees will purchase Mr. Diller's entire equity interest in BDTV and any
other BDTV Entity for an amount equal to the amount invested by Mr. Diller in
such entity plus interest thereon at the prime rate in effect from time to time
from the date of such investment
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to the date of such purchase. The Silver King Securities owned by Liberty
(including through its interest in BDTV), however, will continue to be subject
to Mr. Diller's conditional proxy described above.
After consummation of the HSN Merger and upon either a Change in Law
(which, with respect to a BDTV Entity, would include, among other things, a
change in FCC Regulations that would permit Liberty to hold directly or
indirectly voting securities of Silver King (which owns broadcast licenses), or
a change in the status or ownership of Liberty which would entitle it under
applicable FCC Regulations to hold directly or indirectly voting securities of
Silver King) or consummation of a Restructuring Transaction, Mr. Diller will be
entitled to designate a mutually agreeable number of the members of the Silver
King Board of Directors and Liberty will be entitled to designate the remainder
(which will be a majority) of the Silver King directors. In the event that (i)
any of Liberty's designees on the Silver King Board of Directors votes in a
manner different from Mr. Diller (or, in the event that Mr. Diller is required
to abstain from voting under applicable law, different from Mr. Diller's
expressed preference) with respect to any matter voted upon by the Silver King
Board of Directors, and the outcome of such vote is inconsistent with such vote
or preference solely as a result of such different vote by any of Liberty's
designees (except to the extent such Liberty designees are required under
applicable law to abstain from voting) or (ii) any member of Liberty's
Stockholder Group votes any of its Silver King Securities with respect to any
matter presented for a vote of the stockholders of Silver King in a manner
inconsistent with the manner in which the Diller Stockholder Group votes its
Silver King Securities and the outcome of such vote is inconsistent with the
manner in which Mr. Diller has voted, solely as a result of such different vote
by any member of Liberty's Stockholder Group (including, except as set forth
below, decisions relating to Mr. Diller's employment with Silver King), in
either case, other than (a) as specifically provided for by the Stockholders
Agreement, (b) any decision to terminate Mr. Diller's employment with Silver
King for Cause (as defined in the Stockholders Agreement), (c) any decision
relating to Mr. Diller's compensation by Silver King or any of its subsidiaries
(except as provided for by the Equity Compensation Agreement), or (d) any
decision relating to an Extraordinary Matter (any such failure to vote in
accordance with Mr. Diller's preference, except as set forth in (a), (b), (c)
and (d) above, a "Qualifying Disagreement"), then Mr. Diller will be entitled to
deliver notice of his election (a "Management Election") to exercise his
management rights as a result of the occurrence of such Qualifying Disagreement
in the manner and to the extent set forth in the following paragraph.
Following a Management Election by Mr. Diller: (i) Mr. Diller will be
entitled to exercise his voting authority or authority to act by written consent
over all Silver King Securities then owned by each member of Liberty's
Stockholder Group and Mr. Diller's Stockholder Group on all matters submitted to
a vote of Silver King stockholders, or by which Silver King stockholders may act
by written consent, pursuant to a conditional proxy, provided that Mr. Diller
and Liberty have agreed, and agreed to cause each member of their respective
Stockholder Groups, to take or cause to be taken all reasonable actions required
(a) for the election of a slate of directors of Silver King, two of whom will be
designated by Liberty and the remainder of whom will be designated by Mr.
Diller, and (b) to prevent the taking of any action by Silver King or its
subsidiaries with respect to an Extraordinary Matter without the consent of both
Mr. Diller and Liberty; and (ii) subject to applicable law and fiduciary duties
and except with respect to any Extraordinary Matters or a Class B Issuance and
any matter referred to in clause (a), (b) or (c) in the previous paragraph and
except as otherwise specifically provided by the Stockholders Agreement, Liberty
shall be required to use its reasonable best efforts to cause its designees on
the Silver King Board to vote with respect to any matter presented to a vote of
the Silver King Board in the manner instructed by Mr. Diller.
Diller-Liberty Share Exchange. In addition, pursuant to the Stockholders
Agreement, Mr. Diller may exchange, on a share-for-share basis, shares of Silver
King Common Stock owned by him and certain of his affiliates for shares of
Silver King Class B Common Stock owned by Liberty or held by BDTV, provided
that, after such exchange, Liberty will not cease to own Silver King Securities
(including its pro rata portion of any Silver King Securities held by BDTV or
any other BDTV Entity) constituting at least 50% of the voting power of the
outstanding Silver King Securities, on a fully diluted basis. The Stockholders
Agreement also contains provisions applicable to Mr. Diller and Liberty relating
to rights of first refusal on permitted sales of Silver King Securities and,
under certain limited circumstances, the right of Mr. Diller to require Liberty
to purchase his Silver King Securities. Mr. Diller also has a right of first
refusal with respect to certain transfers by Liberty
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of its shares of HSN Surviving Corporation Common Stock and HSN Surviving
Corporation Class B Common Stock.
Termination of Certain Rights. Liberty or Mr. Diller will cease to be
entitled to exercise any rights under the Stockholders Agreement as of the date
that its or his Stockholder Group, as the case may be, collectively ceases to
own the equivalent of 1,100,000 shares of Silver King Common Stock in the case
of Mr. Diller and 1,000,000 shares of Silver King Common Stock in the case of
Liberty (including, in the case of Liberty, the proportionate number of Silver
King Securities represented by Liberty's equity interest in BDTV and any other
BDTV Entity), in each case, determined on a fully diluted basis (taking into
account, in the case of Liberty, the shares issuable to Liberty pursuant to the
Contingent Rights and the Exchange Agreement, and, in the case of Mr. Diller,
all unexercised options to purchase Silver King Common Stock, whether or not
then exercisable, and all Silver King Securities owned by him) (as to each
stockholder, its "Eligible Stockholder Amount").
In addition, Mr. Diller and each member of his Stockholder Group will cease
to be entitled to exercise any rights under the Stockholders Agreement with
respect to the following matters at such time as Mr. Diller is no longer
Chairman of the Board and/or Chief Executive Officer and/or President of Silver
King: (i) the voting (including by proxy) of Silver King Securities owned by
Liberty and the members of its Stockholder Group (including Liberty's pro rata
portion of Silver King Securities held by BDTV and any other BDTV Entity) and
Mr. Diller's management rights with respect to Silver King; (ii) Mr. Diller's
right, under certain circumstances, to exchange shares of Silver King Common
Stock owned by Mr. Diller for shares of Silver King Class B Common Stock owned
by Liberty or BDTV and any other BDTV Entity; and (iii) Mr. Diller's right of
first refusal in connection with certain transfers of Silver King Securities by
Liberty.
Obligation to Effect a Restructuring Transaction. Pursuant to the
Stockholders Agreement, at any time following the consummation of the HSN Merger
that Liberty is no longer a subsidiary of TCI (and provided that a Change in Law
has not theretofore otherwise occurred), Liberty may request by written notice
to Mr. Diller and Silver King that Mr. Diller use all reasonable efforts to
take, and, subject to any applicable fiduciary duties of Mr. Diller as a
director or officer of Silver King to Silver King stockholders, use all
reasonable efforts to cause Silver King to take, such actions as may be
reasonably necessary, including, but not limited to, to file any required
applications with the FCC and any other governmental or regulatory agency, to
obtain any required FCC or other governmental or regulatory consents and
approvals, and to undertake a Restructuring Transaction.
In the event that a Restructuring Transaction has not occurred within 365
days following Liberty's notice (or such earlier time as Liberty reasonably
determines, after consultation with Mr. Diller, that Mr. Diller has ceased to
use his reasonable efforts to cause Silver King to consummate a Restructuring
Transaction) and a Change in Law has not otherwise occurred, Liberty would be
permitted to sell any and all of its Silver King Securities, including its
entire equity interest in BDTV and any other BDTV Entity and any securities
receivable pursuant to the Exchange Agreement and any HSN Surviving Corporation
Securities (or securities into which such HSN Surviving Corporation Securities
have been converted), without regard to the restrictions on transfer contained
in the Stockholders Agreement, subject only to (i) a right of first refusal by
Mr. Diller or his designee, (ii) Liberty's obligation to exchange shares of
Silver King Class B Common Stock proposed to be sold for shares of Silver King
Common Stock owned by Mr. Diller and his affiliates (without regard to Liberty's
right to retain Silver King Securities (including its pro rata portion of any
Silver King Securities represented by Liberty's equity interest in BDTV and any
other BDTV Entity) representing 50% of the voting power of Silver King
Securities, on a fully diluted basis), and (iii) Liberty's obligation to convert
shares of Silver King Class B Common Stock to Silver King Common Stock prior to
sale to a third party. Such transferee would purchase the Silver King Securities
free and clear of any rights or obligations under the Stockholders Agreement
other than certain registration rights.
Consent Relating to the Savoy Merger and the HSN Transactions. For
purposes of the Stockholders Agreement (including Extraordinary Matters), each
of Liberty and Mr. Diller has agreed to the taking of any action by any of Mr.
Diller, BDTV or Silver King, which action is reasonably necessary or appropriate
to approve and consummate the transactions (including the related amendments to
the Silver King Certificate
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and the approval of the other Silver King Stockholder Proposals as described in
this Joint Proxy Statement/Prospectus) and other actions to be taken by Silver
King stockholders at the Silver King Meeting (including the approval by Silver
King stockholders of the 1995 Stock Incentive Plan, pursuant to which certain
additional options to purchase Silver King Common Stock have been granted to Mr.
Diller, see "1995 Stock Incentive Plan Proposal") contemplated by each of the
HSN Merger Agreement and the Savoy Merger Agreement, provided that the
applicable parties shall not enter into, or permit any material amendment to, or
waiver or modification of material rights or obligations under, the Savoy Merger
Agreement without the prior written consent of Liberty (which consent will not
be unreasonably withheld).
PURPOSES OF AND REASONS FOR THE HSN TRANSACTIONS
The purpose of the HSN Transactions is to effect the acquisition by Silver
King of all of the outstanding shares of HSN Common Stock and HSN Class B Common
Stock, with Silver King thereby acquiring control of and the entire equity
interest in HSN. As described above, Silver King, Liberty and BDTV, an entity
controlled by Mr. Diller, had previously entered into the Liberty/BDTV Merger
Agreement and the Silver King/BDTV Exchange Agreement, which transactions, if
consummated, would have provided Silver King with a controlling interest in HSN
and pursuant to which HSN's public stockholders would have continued to hold
their shares of HSN Common Stock. See "-- Background -- Relationship between Mr.
Diller and HSN; the TCI HSN Shares Acquisition." The HSN Transactions (including
the Contingent Rights and the Exchange) have been structured in order to
consummate the transactions as promptly as practicable, to comply with all
applicable FCC rules and regulations and the FCC Orders, not to require any
formal FCC approval (other than the HSN FCC Approval) in connection with
consummation of the transactions (although there can be no assurance that the
FCC will not object to the HSN Transactions) and to provide a tax-free
transaction for HSN stockholders.
FAIRNESS OF THE HSN TRANSACTIONS; RECOMMENDATIONS
The transactions contemplated by the HSN Merger Agreement are being
submitted to a vote of the public holders of HSN Common Stock (other than
Liberty and its affiliates), in addition to the vote of the holders of all
outstanding shares of HSN Common Stock and HSN Class B Common Stock, at the HSN
Meeting, and certain aspects of the transactions requiring Silver King
stockholder approval, including the separate vote of the holders of Silver King
Common Stock with respect to the Authorized Capital Stock Amendment Proposal,
are being submitted to a vote of the holders of Silver King Common Stock.
HSN
HSN's Reasons for the HSN Transactions and Recommendation to HSN
Stockholders
As described above, the HSN Special Committee, consisting of two of the
seven directors who are not employees of HSN or representatives of Liberty, was
appointed by the HSN Board to consider the terms of the HSN Merger Agreement and
the HSN Transactions to the holders of HSN Common Stock (other than Liberty and
its affiliates). See "-- Background -- Discussions Leading to the HSN Merger
Agreement." The HSN Special Committee retained Wasserstein Perella to assess and
prepare a report with respect to the fairness of the consideration to be
received in the HSN Merger by the HSN Stockholders (other than Liberty and its
affiliates). Wasserstein Perella has delivered the Wasserstein Perella Opinion
stating that, as of the date of the HSN Merger Agreement, the HSN Common
Conversion Ratio is fair to the holders of HSN Common Stock (other than Liberty
and its affiliates) from a financial point of view. See "-- Opinions of Certain
Financial Advisors -- Opinion of Wasserstein Perella, Advisor to the HSN Special
Committee." A copy of the Wasserstein Perella Opinion is attached hereto as
Appendix F. In light of, among other things, the Wasserstein Perella Opinion and
the determination of the HSN Special Committee that the terms of the HSN Merger
Agreement and the HSN Transactions are fair to the holders of HSN Common Stock
(other than Liberty and its affiliates), the HSN Board, by the unanimous vote of
the directors voting, has approved the HSN Merger Agreement and the HSN
Transactions and has determined that the terms of the HSN Merger Agreement are
fair to, and in the best interests of, the holders of HSN Common Stock (other
than Liberty and its affiliates) and, accordingly, recommends that the holders
of HSN Common Stock vote FOR
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the proposal to approve and adopt the HSN Stockholder Proposal. Messrs. Diller,
Barton and Bennett did not vote on such matter. The HSN directors who approved
and recommended the HSN Transactions included all of the directors who are not
employees of HSN (other than Messrs. Barton and Bennett, who abstained because
of their positions as executive officers of Liberty).
HSN's Reasons for Recommendation
In reaching its determination to approve the HSN Merger Agreement, the HSN
Merger and the transactions contemplated thereby, the HSN Board and the HSN
Special Committee have, without assigning relative weights, carefully considered
the following potential benefits of the HSN Merger:
- Facilitating Termination of Affiliation Arrangements between Silver King
and HSN. Although no formal decision has yet been made by Silver King,
the HSN Board and the HSN Special Committee recognized that Silver King
had indicated that it contemplated that it will not terminate the
Affiliation Agreements, unless it is able to obtain continued cable
system carriage of the Silver King broadcast signal. However, Silver King
has also informed HSN that, assuming it is able to obtain such carriage,
Silver King believes that it will not renew the Affiliation Agreements.
The HSN Board and the HSN Special Committee believe, based upon HSN
management's analysis, that the orderly termination of the affiliation
arrangements between HSN and Silver King may be in HSN's best interests,
because broadcast television (as compared to cable television and direct
satellite broadcast) is a relatively inefficient medium for distributing
HSN's programming. However, arranging alternative carriage of HSN's
programming is likely to be a complex and time-consuming process.
Accordingly, the HSN Board and the HSN Special Committee believe that it
would be of significant benefit to HSN and to the combined entity as a
whole for the disengagement process to be accomplished by HSN and Silver
King in a coordinated and flexible manner, taking into consideration the
interests of both HSN and Silver King, and not by unilateral action of
Silver King.
- Participating in Potential Growth of Silver King's Businesses. Following
consummation of the HSN Transactions, former HSN stockholders other than
Liberty and its affiliates will hold approximately 43% of the equity of
Silver King. Silver King's current business and operations consists
almost exclusively of the broadcast over the Silver King Stations of
retail sales programming produced by HSC. Silver King has 12 independent
full-power UHF television stations serving eight of the 13 largest
metropolitan markets in the United States. The HSN Board and the HSN
Special Committee have been advised that management of Silver King is
presently developing potential strategies for such different broadcast
and programming formats for the Silver King Stations, which may realize
significantly more profit than is realized through the current HSN
relationship. As holders of a majority of the outstanding Silver King
Common Stock following consummation of the HSN Merger, HSN stockholders
(including Liberty) will have substantial participation in the potential
benefits of any such change in broadcast and programming format, while
continuing to have a majority interest in the businesses of HSN.
- Diversification. HSN presently derives virtually all of its operating
revenue from its electronic retail shopping business. Silver King and the
Silver King Stations could provide HSN and its stockholders with the
opportunity to diversify into the broadcast television and entertainment
industry, while still retaining a majority interest in the businesses of
HSN.
- Favorable Silver King Valuation. The HSN Board and the HSN Special
Committee believe, based upon, among other things, presentations by
management of Silver King and Wasserstein Perella, that the potential
value of the Silver King Stations is presently not fully reflected in the
recent public trading prices of Silver King Common Stock. The HSN Board's
and the HSN Special Committee's views in this regard are based on the
belief that the current public market valuation of Silver King does not
fully reflect the potential value of the Silver King Stations following
Silver King's likely disengagement from HSN. The HSN Board and the HSN
Special Committee believe that the value of the Silver King Stations may
exceed the current market value of Silver King were those stations to
cease carrying HSN programming and shift instead to different broadcast
and programming formats.
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The HSN Board and the HSN Special Committee also considered the potential
value of the Silver King Stations if, in 1998, such stations enter into
local management agreements ("LMAs") with potential third-party buyers as
a result of duopoly ownership restrictions becoming relaxed, and
concluded that the potential value of the Silver King Stations in the
Duopoly/LMA Case (as described under "-- Opinions of Certain Financial
Advisors -- Opinion of Wasserstein Perella, Advisor to the HSN Special
Committee) also exceeded the current public market valuation of Silver
King.
- Role of Mr. Diller. The HSN Board and the HSN Special Committee believe
that the roles of Mr. Diller as Chairman of the Board and Chief Executive
Officer of Silver King and Chairman of the Board of HSN have been, and
will continue to be, and, upon the consummation of the HSN Merger, his
role as the controlling stockholder of the combined company will be, of
substantial benefit to the evolving business strategies of Silver King,
HSN and the combined company. Mr. Diller has, in the view of the HSN
Board and the HSN Special Committee, a proven track record in running,
managing and developing entertainment, broadcast and electronic retailing
businesses, and his prior experience, as well as his general industry
knowledge, increase the likelihood that Silver King, HSN and the combined
companies will be able to successfully develop and execute their
respective business strategies.
- Avoidance of Potential Conflicts of Interest. Because of the existing
affiliation arrangements between HSN and Silver King and the possible
disengagement thereof, the HSN Board and the HSN Special Committee
recognized that certain conflicts of interest could have arisen as a
result of Mr. Diller's role in both companies and the possible
termination of such affiliation arrangements. The HSN Merger will
eliminate any such potential conflict of interest and will allow
management to operate the businesses of HSN and Silver King in the best
interests of the combined entities' stockholders.
- Existing Relationship between HSN and Silver King. The HSN Board and the
HSN Special Committee believe that, because of the prior and the existing
relationship between HSN and Silver King, the integration of the business
and operations of HSN and Silver King can be accomplished in an efficient
and expeditious manner, avoiding or minimizing certain costs typically
incurred in connection with complex business combinations and realize
sooner certain operating efficiencies and cost savings relating to their
respective operations. Accordingly, the combined entity may be able to
realize the benefits of the HSN Transactions more quickly than would be
the case if the companies had not previously been affiliated and had the
companies not been as familiar with each other's businesses, operations
and industries.
- HSN Facility. HSN's programming and broadcast facility located in St.
Petersburg, Florida is presently significantly underutilized. The HSN
Board and the HSN Special Committee recognized that, in addition to
producing HSN programming, this facility could potentially be utilized by
Silver King to produce and broadcast non-HSN programming for the Silver
King Stations.
- Savoy Merger. The HSN Board and the HSN Special Committee also
considered the benefits to Silver King of the Savoy Merger described
above under the caption "Savoy Merger and Related Transactions -- Reasons
for the Savoy Merger." The HSN Board and the HSN Special Committee
concluded that factors considered by the Silver King Board in connection
with the approval of the Savoy Merger would contribute to the success of
the combined companies.
In reaching its determination to approve the HSN Merger Agreement and the
HSN Transactions, the HSN Board and the HSN Special Committee gave careful
consideration, without assigning relative weights, to a number of other factors
pertinent to the HSN Transactions, including the following:
(i) information concerning HSN's, Silver King's and Savoy's respective
businesses, prospects, financial performances, financial condition, assets,
operations and plans;
(ii) with the assistance of Wasserstein Perella, the comparative
historical stock prices of HSN Common Stock and Silver King Common Stock;
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(iii) with the assistance of Wasserstein Perella, the multiple paid in
another acquisition transaction in the electronic retail industry;
(iv) a presentation by Wasserstein Perella, including the Wasserstein
Perella Opinion to the effect that the HSN Common Conversion Ratio is fair
to the holders of HSN Common Stock (other than Liberty and its affiliates)
from a financial point of view;
(v) the expectation that, for federal income tax purposes, the HSN
Merger will be tax free to HSN and to the holders of HSN Common Stock and
HSN Class B Common Stock;
(vi) a review with the HSN Special Committee's legal counsel of the
terms of the HSN Merger Agreement and related agreements, including the
conditions to the closing of the HSN Merger and the circumstances under
which the parties to the HSN Merger Agreement can terminate the HSN Merger
Agreement;
(vii) the right of the HSN Special Committee (or any successor
committee consisting of independent directors of HSN) to terminate the HSN
Merger Agreement if, at any time prior to the HSN Merger Effective Time,
the arithmetic average of the mean of the closing bid and ask prices of
Silver King Common Stock on Nasdaq for the 20 trading-days immediately
preceding such time is less than $22.125;
(viii) the ability of the HSN Special Committee to terminate the HSN
Merger Agreement under certain circumstances or to change or withdraw its
recommendation to the HSN stockholders without HSN having to pay any
breakup fee or similar fee under the HSN Merger Agreement;
(ix) the condition to the HSN Merger that, in addition to obtaining
the requisite vote of the HSN stockholders in accordance with the DGCL and
the HSN Bylaws, the HSN Merger Agreement be approved and adopted by
stockholders of HSN (other than Liberty and its affiliates) holding a
majority of the outstanding shares of HSN Common Stock (other than shares
held by Liberty and its affiliates) present and voting at the HSN Meeting;
(x) the provision in the HSN Merger Agreement providing that no
amendment to the HSN Merger Agreement will be approved by the HSN Board
unless such amendment shall have been recommended by the HSN Special
Committee; and
(xi) the condition to the HSN Merger that the Savoy Merger shall have
been consummated pursuant to the Savoy Merger Agreement and the Savoy
Merger Agreement Amendment.
The HSN Board and the HSN Special Committee, in connection with their
deliberations concerning the HSN Transactions and their consideration of the
Wasserstein Perella Opinion, also considered certain financial factors,
including, without limitation, the following: (i) certain financial and
operating information provided by the management of HSN, Silver King and Savoy,
including certain projections of financial performance relating to HSN, Silver
King and Savoy and certain of their principal operating subsidiaries; (ii) the
aggregate number of shares of Silver King Common Stock and Silver King Class B
Common Stock to be issued in the HSN Transactions (including the Contingent
Rights Shares and the Exchange Shares); (iii) the public trading prices of HSN
Common Stock and the fact that the HSN Common Stock had been trading at or near
the high end of its recent historical trading range; (iv) the public trading
prices of Silver King Common Stock and the fact that the Silver King Common
Stock was trading below the high end of its historical trading range; and (v)
the potential for using Silver King Common Stock as currency for future
acquisitions.
Following their deliberations concerning the factors described above and
their review of the presentation of Wasserstein Perella and the Wasserstein
Perella Opinion, the HSN Board and the HSN Special Committee determined that the
HSN Transactions may increase the long-term business prospects of the combined
entity, may increase stockholder value of the combined entity and is in the best
interests of HSN and its stockholders from both a financial and strategic point
of view.
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The HSN Board and the HSN Special Committee also considered a variety of
potentially negative factors in their deliberations concerning the HSN
Transactions, including: (i) the right of Silver King to terminate the HSN
Merger Agreement if, at any time prior to the HSN Merger Effective Time, the
arithmetic average of the mean of the closing bid and ask prices of Silver King
Common Stock on the Nasdaq National Market for the 20 trading days immediately
preceding such time is more than $36.875; (ii) the character and amount of the
premium being paid to Liberty for its HSN Stock which could potentially
adversely impact the trading price of Silver King Common Stock; (iii) the risk
that the public market price of HSN Common Stock and Silver King Common Stock
might be adversely affected by announcement and/or consummation of the HSN
Merger and the Savoy Merger; (iv) the complex structure of the transaction
necessary to comply with FCC rules, regulations and orders and the potential
risks to, and limitations on, Silver King associated with the Contingent Rights
and the Exchange Agreement, including risks and limitations related to possible
future tax consequences to Liberty and Silver King's related indemnification
obligation and the associated dilutive effects on the holders of Silver King
Common (other than Liberty and its affiliates); (v) the risk that, despite the
structure of the HSN Transactions, which is intended to be consistent with the
terms of the FCC Orders and other applicable FCC rules and regulations, the FCC
will nevertheless challenge the HSN Transactions; (vi) the risk that Silver King
will not be successful in developing or implementing any change in the broadcast
or programming format of the Silver King Stations; (vii) the risk that other
benefits sought to be obtained by the HSN Transactions will not be obtained;
(viii) the possibility that Silver King may not be able to obtain sufficient
financing to satisfy its funding needs (including, without limitation, any
funding needs required in connection with any change in the broadcast or
programming format of the Silver King Stations); and (ix) other risks described
above under "Risk Factors."
In view of the wide variety of factors, both positive and negative,
considered by the HSN Board and the Special Committee, neither the HSN Board nor
the HSN Special Committee found it practical to, and did not, quantify or
otherwise assign relative weights to the specific factors considered. In
addition, individual members of the HSN Board and the HSN Special Committee may
have given different weights to different factors.
HSN's Recommendation to HSN Stockholders
BASED UPON THE RECOMMENDATION OF THE HSN SPECIAL COMMITTEE, THE BOARD OF
DIRECTORS OF HSN BELIEVES THAT THE HSN TRANSACTIONS ARE FAIR TO AND IN THE BEST
INTERESTS OF HSN AND ITS STOCKHOLDERS (OTHER THAN LIBERTY AND ITS AFFILIATES)
AND, THEREFORE, BY UNANIMOUS VOTE OF THE DIRECTORS VOTING RECOMMENDS A VOTE FOR
APPROVAL AND ADOPTION OF THE HSN STOCKHOLDER PROPOSAL. YOUR PROXY WILL BE SO
VOTED UNLESS YOU SPECIFY OTHERWISE.
Fairness Conclusions of Silver King, TCI and Mr. Diller
Each of Silver King, TCI and Mr. Diller has concluded that the HSN Merger
and related transactions (including the amendments to the Stockholders
Agreement) are fair to HSN's stockholders (other than Liberty, its controlled
affiliates, and Mr. Diller and his controlled affiliates), for the express
reasons set forth above with respect to the HSN Special Committee and the HSN
Board, and each of Silver King, TCI and Mr. Diller expressly adopts the
conclusions and analyses of the HSN Special Committee and the HSN Board
described above. In addition, each of Silver King, TCI and Mr. Diller has based
their conclusion upon the following factors: (i) the oral and written opinions
of Wasserstein Perella, delivered on August 25 and August 28, 1996,
respectively, to the HSN Special Committee (and other than with respect to the
consideration to be issued to Liberty and its affiliates) to the effect that the
HSN Common Conversion Ratio is fair to the stockholders of HSN (other than
Liberty and its affiliates) from a financial point of view; (ii) the factors
referred to as having been taken into account by the HSN Special Committee and
the HSN Board; (iii) the premium represented by the HSN Common Conversion Ratio
over the recent trading prices of the HSN Common Stock at the time of the HSN
Merger Agreement, which recent history also reflects a substantial increase in
the price of the HSN Common Stock since the time that Mr. Diller became Chairman
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of the Board of HSN; (iv) the condition to the parties' obligation to consummate
the HSN Merger that the HSN Special Vote be obtained; (v) the fact that the
terms of the HSN Merger Agreement, including the HSN Common Conversion Ratio and
the HSN Class B Conversion Ratio, were the result of arm's-length negotiations
with the HSN Special Committee and its advisors; and (vi) the right of HSN to
terminate the HSN Merger Agreement if, at anytime prior to the HSN Merger
Effective Time, the arithmetic average of the mean of the closing bid and ask
prices of Silver King Common Stock on the Nasdaq National Market for the 20
trading days immediately preceding such time is less than $22.125. Silver King,
TCI and Mr. Diller did not find it practicable to, and did not, quantify or
otherwise attach relative weights to the specific factors considered by the HSN
Special Committee and the HSN Board. However, each of Silver King and Mr. Diller
gave significant weight to all of the factors discussed in this paragraph.
Silver King
Silver King's Reasons for the HSN Transactions and Recommendation to Silver
King Stockholders
The Silver King Board of Directors (other than Mr. Diller, who did not
participate in connection with the voting thereon because of his relationship
with HSN) has unanimously approved the HSN Merger Agreement and the HSN
Transactions and has determined that the terms of the HSN Merger Agreement are
fair to, and that the HSN Transactions are in the best interests of, Silver King
and its stockholders and, therefore, unanimously recommends that the holders of
Silver King Common Stock and Silver King Class B Common Stock vote FOR the
Authorized Capital Stock Amendment Proposal and the HSN Merger NASD Proposal
(approval of each of which is a condition to consummation of the HSN Merger) and
the Class Vote Amendment Proposal.
Silver King's Reasons for Recommendation
In reaching its determination to approve the HSN Merger Agreement, the HSN
Merger and the transactions contemplated thereby, the Silver King Board has
identified the following potential benefits of the HSN Transactions that it
believes will contribute to the success of the HSN Transactions (some of which
benefits would have also been realized if the TCI HSN Shares Acquisition had
been consummated):
- Acquisition of Controlling Interest. The HSN Transactions have been
structured to provide Silver King with voting control of HSN and the
ability to consolidate HSN's results with those of Silver King for tax
purposes immediately upon consummation of the HSN Merger, and prior to
consummation of the Exchange. As a minority shareholder in the HSN
Surviving Corporation, Liberty will not be able to control the election
of directors or otherwise influence the management of the HSN Surviving
Corporation, except with respect to certain actions which would adversely
affect Liberty's rights under the Exchange Agreement.
- Role of Mr. Diller. The Silver King Board of Directors believes that the
contributions of Mr. Diller as Chairman of the Board of HSN have been,
and will continue to be, of substantial benefit to the operating and
financial performance of HSN and the combined company. Mr. Diller has, in
the view of the Silver King Board, a proven track record in running,
managing and developing an electronic retailing company, and his prior
experience, as well as general knowledge in the industry, may produce
substantially improved, and more immediate, results at HSN.
- Familiarity with Electronic Retail Shopping and HSN. The Silver King
Board believes that, in view of Silver King's experience both prior to
its separation from HSN and subsequent thereto, it is uniquely positioned
with respect to its knowledge and experience in the electronic retail
shopping industry in general and HSN in particular. As such, many of the
costs that might be associated with initial actions that may be taken
following consummation of the HSN Transactions may be avoided or
minimized, and Silver King may be able to realize the benefits of the HSN
Transactions more quickly than would be the case of an acquiror who is
not as knowledgeable of the industry generally and in respect of HSN in
particular.
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- Significant Efficiencies and Cost Savings. In view of the current strong
affiliation between HSN and Silver King, Silver King and HSN may both
realize certain cost savings relating to the operation of their
respective businesses.
- Potential for Growth and Profitability in HSN's Core Business. The
Silver King Board believes that the electronic retail industry continues
to have significant potential for growth in terms of both revenues and
profitability of such industry and that HSN, as a major participant in
the industry, can participate substantially in such growth. The Silver
King Board noted that Mr. Diller's experience and background could be of
great value to HSN's business.
- Interest in Interactive Shopping Network. In addition to HSN's other
assets, the Silver King Board noted in particular that HSN has acquired
ownership of an on-line interactive shopping network, which the Silver
King Board believes has substantial potential for growth in the future
and is an industry in which HSN and Silver King may be well-positioned to
participate.
- HSN Cash Flow; Liquidity. The Silver King Board recognized that, since
Mr. Diller's appointment as the Chairman of the Board of HSN in November
1995, HSN's cash flow and liquidity position have improved substantially
and greatly exceed those of Silver King. The Silver King Board recognized
that management's plans for the Silver King Stations (including the Savoy
Stations) may require substantial additional capital investment to
develop and distribute new programming, and that HSN's excess cash flow,
subject to the terms of its credit facility, might be used as an internal
source of financing for additional investment in the Silver King Stations
without adversely impacting HSN.
- Avoidance of Potential Conflicts of Interest. Under the TCI HSN Shares
Acquisition, Mr. Diller would have continued as Chairman of the Board of
HSN and Chairman of the Board and Chief Executive Officer of Silver King,
and HSN would have remained a public company. In view of the extensive
business relationships between Silver King and HSN, including the
Affiliation Agreements, the Silver King Board had recognized in November
1995 that certain conflicts of interest could have arisen with respect to
Mr. Diller's role in both companies, particularly in connection with the
possible termination of the Affiliation Agreements. The HSN Transactions
will eliminate any such potential conflict of interests and will permit
Mr. Diller and his management team to operate the businesses of HSN and
Silver King in the best interests of the combined company's stockholders.
- Termination of Affiliation Agreements. The Silver King Board recognized
that, although it may generally be in the interests of both Silver King
(assuming it can obtain adequate assurances of carriage of the Silver
King broadcast signal by cable systems) and HSN to terminate the
Affiliation Agreements, the process of establishing alternative carriage
for HSN's programming, as well as the process of establishing alternative
programming for the Silver King Stations, could be complex and subject to
fluctuation. As such, the Silver King Board believed it would be of
significant benefit to Silver King to have the ability unilaterally to
determine appropriate amendments to the Affiliation Agreements and to
make other interim arrangements regarding the broadcast of HSN
programming on the Silver King Stations.
- HSN's Assets. The Silver King Board noted that HSN owns a large
television production facility which is fully equipped for programming
and broadcasting.
For a discussion of additional reasons regarding the Silver King Board's
approval and recommendation of the HSN Merger Agreement and the HSN
Transactions, see "Savoy Merger and Related Transactions -- Reasons for the
Savoy Merger -- Silver King's Reasons for the Savoy Merger."
In the course of its deliberations, the Board of Directors of Silver King
reviewed and considered a number of other factors relevant to the HSN
Transactions with Silver King's management. In particular, the Silver King Board
considered, among other things:
(i) information concerning Silver King's and HSN's respective
businesses, prospects, financial performances, financial condition, assets
and operations, which the Silver King Board believed would enhance Silver
King's competitive position;
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(ii) with the assistance of Silver King's financial advisor, the
comparative stock prices of Silver King and HSN Common Stock;
(iii) with the assistance of Silver King's financial advisor, premiums
to market and multiples paid in other merger and acquisition transactions
in the electronic retail industry and other industries;
(iv) with the assistance of Silver King's financial advisor, an
analysis of the respective contributions to revenues, operating profits and
net profits of the combined companies (both after and without giving effect
to the Savoy Merger) based on industry analysts' estimates;
(v) alternatives for growth in the television station ownership and
operation business, including internal growth, which the Silver King Board
viewed as less advantageous, due to Silver King's limited development
resources and current Silver King commitments to HSN regarding the carriage
of HSN programming as well as the uncertainty of the success of such
development efforts, none of which presented the opportunity that the
acquisition of a controlling interest in or merger with HSN presented;
(vi) a presentation by First Boston, including the opinion of First
Boston that the consideration to be paid by Silver King in the HSN Merger
Agreement is fair, from a financial point of view, to Silver King, as well
as the underlying financial analysis of First Boston presented in
connection therewith;
(vii) the expectation that the HSN Merger will be tax free to Silver
King for federal income tax purposes;
(viii) a review with Silver King's legal counsel of the terms of the
HSN Merger Agreement and the other related transaction agreements,
including the closing conditions to the HSN Merger (which include certain
requirements as to HSN's business and financial condition), and the
circumstances under which the parties to the HSN Merger Agreement can
terminate the HSN Merger Agreement;
(ix) the right of Silver King to terminate the HSN Merger Agreement in
the event that, for any 20-trading-day period prior to the HSN Merger
Effective Time, the average of the mean of the closing bid and ask prices
on the Nasdaq National Market of Silver King Common Stock is greater than
$36.875 per share;
(x) the ability of the Silver King Board to change or withdraw its
recommendations to Silver King stockholders relating to the HSN Merger
without paying any breakup fee or similar fee under the HSN Merger
Agreement;
(xi) the fact that the HSN Special Committee and its financial and
legal advisors had conducted extensive due diligence on both Silver King
and Savoy and had participated actively in the negotiation of the terms of
the HSN Merger Agreement, including the financial terms thereof, and the
HSN Special Committee had retained recognized legal and financial advisors
to assist it;
(xii) the fact that the applicable waiting period under the HSR Act
with respect to the TCI HSN Shares Acquisition has already expired or been
terminated and that such expiration or termination is applicable to the HSN
Merger so long as such transaction is consummated on or prior to January 3,
1997;
(xiii) the Silver King Board's view, based on advice of FCC counsel,
that all applicable notices or approvals to be provided to or received from
the FCC in connection with the HSN Transactions (including the amendment to
the Stockholders Agreement) should be achievable, and that, assuming the
requisite approvals are obtained from HSN stockholders and Silver King
stockholders, the HSN Merger should be capable of prompt consummation
following consummation of the Savoy Merger;
(xiv) the condition to the HSN Merger that the required approvals by
Silver King stockholders in connection with the increase in Silver King's
authorized shares of Silver King Common Stock and Silver King Class B
Common Stock, and the issuance of shares of Silver King Common Stock and
Silver King Class B Common Stock in the HSN Transactions are each obtained;
(xv) the condition to the HSN Merger that the HSN Merger Agreement be
approved and adopted by HSN common stockholders (other than Liberty and its
affiliates) holding a majority of the
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outstanding shares of HSN Common Stock (other than shares held by Liberty
and its affiliates) present and voting at the HSN Meeting;
(xvi) the representation in the HSN Merger Agreement that the HSN
Board, based upon the recommendation of the HSN Special Committee, approved
the HSN Transactions for purposes of Section 203 of the DGCL, which meant
that Silver King would not be subject to the restrictions on business
transactions with respect to HSN contained in Section 203 of the DGCL;
(xvii) the fact that Mr. Diller is not receiving any special benefit
in his capacity as an HSN common stockholder or the holder of a substantial
number of HSN Options to purchase HSN Common Stock, and that the HSN Merger
would not constitute a change of control or other event resulting in the
acceleration of the vesting or exercise of Mr. Diller's options to purchase
HSN Common Stock; and
(xviii) the recognition by the Silver King Board that the TCI HSN
Shares Acquisition was unlikely to occur due to the FCC Orders.
In connection with its deliberations concerning the HSN Transactions and
its consideration of the fairness opinion of First Boston, the Silver King Board
also considered a variety of specific financial factors including the following:
(i) the fact that the Silver King Common Stock was trading slightly below the
high end of its historical trading range; (ii) the fact that the HSN Common
Stock had been trading at or near the high end of its recent historical trading
range and had generally increased in price since the time that Mr. Diller became
Chairman of the HSN Board in November 1995, reflecting the market's evaluation
of HSN's operating and financial condition and, in part, Mr. Diller's successful
efforts at HSN and those of his management team; (iii) the aggregate number of
shares of Silver King Common Stock and Silver King Class B Common Stock
comprising the Silver King Securities to be issued in the HSN Transactions
(including the Contingent Rights Shares and the Exchange Shares); (iv) the
expectation that HSN represented a complementary business and that the HSN
Transactions may be viewed favorably by investors due to such complementary
nature; (v) the opportunities presented by the current securities market
environment which support the ability to use Silver King Common Stock as an
attractive currency for mergers or acquisitions; and (vi) the recognition that
high quality acquisition and merger opportunities are relatively limited within
the electronic retail and interactive shopping industries.
Following its deliberations concerning such factors and its review of the
presentation and fairness opinion of First Boston, the Board of Directors of
Silver King concluded that the HSN Transactions may increase the long-term
prospects of Silver King for continued sales and earnings growth, may increase
stockholder value and is in the best interests of Silver King and its
stockholders from both a financial and strategic perspective.
The Board of Directors of Silver King also considered a variety of
potentially negative factors in its deliberations concerning the HSN
Transactions, including: (i) the complex structure of the transaction necessary
to comply with FCC rules, regulations and orders and the potential risks to, and
limitations on, Silver King associated with the Contingent Rights and the
Exchange Agreement, including risks and limitations related to possible future
tax consequences to Liberty and Silver King's related indemnification obligation
and the related dilutive effects on the holders of Silver King Common Stock
(other than Liberty); (ii) the risk that, despite the parties' efforts to cause
the structure of the HSN Transactions to comply with the FCC Orders, the FCC
might nevertheless challenge the HSN Transactions; (iii) the nature of the
premium being paid to Liberty for its shares of HSN Common Stock and HSN Class B
Common Stock, which, although the Silver King Board regarded such consideration
as appropriate in view of the nature of the transaction and Liberty's
controlling interest in HSN, could adversely impact Silver King Common Stock;
(iv) the fact that the HSN Common Conversion Ratio and HSN Class B Conversion
Ratio are materially higher than the ratios for the HSN Common Stock and HSN
Class B Common Stock (0.2764 and 0.3041, respectively) contained in the Silver
King/BDTV Exchange Agreement, reflecting the substantial increase in HSN's
market value since the negotiation of the terms of the TCI HSN Shares
Acquisition; (v) the possible dilutive effect of the issuance of Silver King
stock in the HSN Transactions including the Contingent Rights Shares and the
Exchange Shares; (vi) the risk that the public market price of Silver King
Common Stock might be adversely affected by announcement of the HSN Merger;
(vii) the charges expected to be incurred in connection with the HSN
Transactions, including transaction costs; (viii) the risks of managing a large
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subsidiary that is not, initially, wholly-owned by Silver King; (ix) the risk
that HSN's recent recovery in its operating and financial performance, and its
related cash liquidity problems, may not be sustained; (x) the risk that,
despite the efforts of HSN, key technical and management personnel of HSN,
including new management brought in at the request of Mr. Diller, may not be
retained by HSN; (xi) the risk that other benefits sought to be obtained by the
HSN Transactions will not be obtained; (xii) the right of the HSN Special
Committee to cause termination of the HSN Merger Agreement if, at any time prior
to the HSN Merger, the arithmetic average of the mean of the closing bid and ask
prices of Silver King Common Stock on the Nasdaq National Market for the 20
trading-days immediately preceding such time is less than $22.125; and (xiii)
other risks described above under "Risk Factors."
In view of the wide variety of factors, both positive and negative,
considered by the Silver King Board of Directors, the Board did not find it
practical to, and did not, quantify or otherwise assign relative weights to the
specific factors considered. In addition, individual members of the Silver King
Board of Directors may have given different weights to different factors.
Silver King's Recommendation to Silver King Stockholders
THE BOARD OF DIRECTORS OF SILVER KING BELIEVES THAT THE HSN TRANSACTIONS
ARE FAIR TO AND IN THE BEST INTERESTS OF SILVER KING AND ITS STOCKHOLDERS AND,
THEREFORE, BY UNANIMOUS VOTE OF THE DIRECTORS (OTHER THAN MR. DILLER, WHO DID
NOT VOTE ON SUCH MATTERS) RECOMMENDS A VOTE FOR APPROVAL OF (I) THE HSN MERGER
NASD PROPOSAL TO APPROVE ISSUANCE OF SHARES OF SILVER KING COMMON STOCK PURSUANT
TO THE HSN MERGER AGREEMENT AND THE HSN TRANSACTIONS AND (II) THE AUTHORIZED
CAPITAL STOCK AMENDMENT PROPOSAL. YOUR PROXY WILL BE SO VOTED UNLESS YOU SPECIFY
OTHERWISE.
OPINIONS OF CERTAIN FINANCIAL ADVISORS
Opinion of Wasserstein Perella, Advisor to the HSN Special Committee
The HSN Special Committee retained Wasserstein Perella on August 1, 1996 to
provide certain investment banking advice and services in connection with a
possible business combination between Silver King and HSN, including rendering
its opinion as to the fairness from a financial point of view of the
consideration to be paid to the HSN stockholders (other than Liberty and its
affiliates) in such a transaction. Wasserstein Perella was not requested to
recommend the amount of consideration to be paid; it was requested solely to
evaluate the fairness of the consideration as determined by negotiation among
HSN, Silver King and Liberty.
On August 25, 1996, Wasserstein Perella delivered its oral opinion to the
HSN Special Committee, confirmed by Wasserstein Perella's written opinion, dated
August 28, 1996, to the effect that, as of the date of such opinion and based
upon the assumptions specified in the Wasserstein Perella Opinion, the HSN
Common Conversion Ratio of 0.45 of a share of Silver King Common Stock for each
share of HSN Common Stock to be received by the holders of HSN Common Stock in
the HSN Merger is fair, from a financial point of view, to such holders (other
than Liberty and its affiliates). Wasserstein Perella also presented certain
aspects of the analyses described below at the meeting of the HSN Board held on
August 25, 1996.
A COPY OF THE WRITTEN WASSERSTEIN PERELLA OPINION IS ATTACHED AS APPENDIX F
TO THIS JOINT PROXY STATEMENT/PROSPECTUS. STOCKHOLDERS ARE URGED TO READ THE
WASSERSTEIN PERELLA OPINION IN ITS ENTIRETY FOR INFORMATION WITH RESPECT TO THE
PROCEDURES FOLLOWED, ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS OF THE
REVIEW BY WASSERSTEIN PERELLA IN RENDERING THE WASSERSTEIN PERELLA OPINION.
REFERENCES TO THE WASSERSTEIN PERELLA OPINION HEREIN AND THE SUMMARY OF THE
WASSERSTEIN PERELLA OPINION SET FORTH BELOW ARE QUALIFIED BY REFERENCE TO THE
FULL TEXT OF THE WASSERSTEIN PERELLA OPINION, WHICH IS INCORPORATED HEREIN BY
REFERENCE. THE WASSERSTEIN PERELLA OPINION IS DIRECTED ONLY TO THE FAIRNESS FROM
A FINANCIAL POINT OF VIEW TO THE HSN PUBLIC STOCKHOLDERS (EXCLUDING LIBERTY AND
ITS AFFILIATES) OF THE HSN COMMON CONVERSION RATIO AND IT DOES NOT ADDRESS ANY
OTHER ASPECT OF THE HSN MERGER OR THE HSN TRANSACTIONS. THE WASSERSTEIN PERELLA
OPINION DOES
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NOT CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER WITH RESPECT TO WHETHER TO
VOTE IN FAVOR OF THE HSN MERGER AND SHOULD NOT BE RELIED UPON BY ANY STOCKHOLDER
AS SUCH.
In connection with arriving at its opinion, Wasserstein Perella reviewed
among other things (i) certain publicly available information with respect to
each of HSN, Silver King and Savoy, including publicly available consolidated
financial statements of each of HSN, Silver King and Savoy, in each case, for
recent years and interim periods that were available at the relevant times; (ii)
certain financial and operating information provided by the managements of HSN,
Silver King and Savoy (either orally or in writing), including certain
information of financial performance relating to HSN, Silver King and Savoy and
certain of their principal operating subsidiaries, divisions and joint ventures
as well as certain television stations in which Silver King owns a minority
interest; (iii) certain publicly available information concerning the public
trading prices of HSN Common Stock, Silver King Common Stock and Savoy Common
Stock, certain market indices and the stock of certain other companies having
publicly traded securities in businesses believed by Wasserstein Perella to be
similar to that of HSN, Silver King or Savoy, as the case may be; and (iv) the
financial terms of certain recent acquisitions and business combination
transactions in the television broadcasting and home shopping industries
specifically, and in other industries generally, which Wasserstein Perella
believed to be relevant to its inquiry. Wasserstein Perella did not identify any
publicly traded companies with a mix of businesses in the aggregate
substantially similar to that of HSN which are of comparable size to HSN and
identified only one recent precedent acquisition transaction involving a company
of comparable size to HSN. Wasserstein Perella did not identify any publicly
traded companies or recent acquisitions of companies with a mix of businesses
substantially similar to that of Silver King's current mix of businesses.
Wasserstein Perella reviewed and considered the potential effects of
certain regulatory changes and consolidation trends in the television
broadcasting, production and cable industries on the future prospects of HSN and
Silver King. Wasserstein Perella also reviewed and considered the potential
impact on the surviving corporation of the HSN Merger of the consummation of the
Savoy Merger, because the consummation of that transaction is a condition
precedent to the closing of the HSN Merger.
Wasserstein Perella had discussions with the managements of HSN, Silver
King and Savoy and their representatives concerning the respective businesses,
operations, assets, financial condition and future prospects of HSN, Silver King
and Savoy and their subsidiaries. Wasserstein Perella also performed such
studies, analyses and investigations as it considered appropriate for purposes
of arriving at and preparing the Wasserstein Perella Opinion.
In arriving at its opinion, Wasserstein Perella performed valuations of
each of HSN, Silver King and Savoy. Wasserstein Perella performed its valuation
of HSN by separately analyzing HSN's four principal business segments: Home
Shopping Club, which includes HSN's Home Shopping Club, Inc., HSN Capital Corp.
(Nevada), HSN Fulfillment, Inc., HSN Realty, Inc., National Call Center, Inc.,
HSN Credit Corp. and Home Shopping Network Outlets, Inc. subsidiaries, for
historical purposes, an insurance subsidiary divested in May 1996 and certain
other subsidiaries of HSN (collectively, the "HSC Business"), Vela Research,
Internet Shopping Network and Mail-Order/Lifeway Products.
Wasserstein Perella performed its valuation of Silver King by separately
analyzing, without giving effect to the Savoy Merger, Silver King's 100%-owned
television stations (including its 26 LPTV stations) and its minority-owned
television stations. Wasserstein Perella analyzed Silver King's 100%-owned
stations under three alternative hypothetical, post-closing scenarios: (i) a
scenario in which Silver King renews its Affiliation Agreements with HSN
(renewable solely at Silver King's option) and continues to broadcast HSN
programming through 2001 (the "HSN Case"), pursuant to which Silver King
receives (x) a fee that increases by 50% of the Consumer Price Index each year
(the fee for 1996 is expected to total approximately $41.6 million), (y) a
commission of 5.0% on incremental merchandise sales in Silver King's markets
over 1992 sales in such markets and (z) royalty, programming and other
additional revenues (estimated by Silver King's management to be $2.7 million in
1996) assumed by Wasserstein Perella to grow at a 4.0% annual rate from 1996
through 2001; (ii) a scenario in which Silver King continues to operate under
the assumptions of the HSN Case through the end of 1997 and, commencing in 1998,
develops into a new group of independent
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television stations with an emphasis on local programming pursuant to Mr.
Diller's primary business strategy for Silver King (the "Independent Stations
Case"), in connection with which (x) Wasserstein Perella estimated the
100%-owned stations' combined broadcast cash flow ("BCF") (defined as EBITDA
plus corporate overhead less cash film payments) margin to be approximately
25.0% in 1998, increasing to 40.0% by 2002 and remaining flat through 2006 and
(y) based on its discussions with Silver King's management, Wasserstein Perella
assumed start-up capital expenditures to be $198.0 million equally distributed
over a three-year period commencing in 1998; and (iii) a scenario in which
Silver King continues to operate under the assumptions of the HSN Case through
the end of 1997 and, commencing in 1998, Silver King's 100%-owned stations enter
into LMAs with potential third-party buyers pursuant to which such stations
would eventually be sold to such buyers (expected to be strategic buyers
pursuing "second station" opportunities in the stations' markets) if duopoly
ownership restrictions were relaxed (the "Duopoly/LMA Case"). (The duopoly
restrictions are regulations limiting the ownership by one person or entity of
more than one television station in a single market.)
Wasserstein Perella analyzed the value of Silver King's minority-owned
stations using a range of multiples of each station's estimated 1997 BCF, based
on comparable public company trading histories and comparable acquisitions in
the television broadcasting industry. BCF estimates were derived from EBITDA
estimates for such stations provided by management of Silver King as part of an
appraisal report regarding Silver King prepared by an independent consultant in
1995. Because estimates of corporate overhead and cash film payments for the
minority-owned stations were not provided, Wasserstein Perella made an
assumption that EBITDA would be equal to BCF in the case of the minority-owned
stations. Wasserstein Perella assumed that, in such case, any actual difference
between EBITDA and BCF would not be material, and it deemed such assumption to
be reasonable. A discount of 25%, reflecting Silver King's minority position and
the lack of liquidity for such interests in privately held entities, was applied
in determining the implied enterprise value ranges of Silver King's
proportionate interests in the minority-owned stations.
Wasserstein Perella separately analyzed the Savoy Stations, its now
suspended film operations and its McHale Videofilm segment. This analysis was
performed because, as mentioned above, the consummation of the Savoy Merger is a
condition precedent to the closing of the HSN Merger. The Savoy Stations were
analyzed in respect of two scenarios involving Fox's exercise and,
alternatively, its nonexercise of Fox's option to increase its ownership
interest in three of the Savoy Stations to 50.0% (from a current 25.0% stake in
each such station) in consideration for a $23.8 million cash payment to Savoy
(the "Fox Option").
Other than the above-mentioned consultant's report regarding Silver King,
Wasserstein Perella was not provided with any valuations of HSN, Silver King or
Savoy prepared by their respective managements or financial advisors. No special
instructions were given to Wasserstein Perella relating to its review, and,
other than with respect to certain limitations on access to nonpublic
information of HSN, Silver King or Savoy, no limitations were imposed with
respect to investigations made or procedures followed by Wasserstein Perella in
rendering the Wasserstein Perella Opinion.
In conducting its analysis and arriving at its opinion, Wasserstein Perella
assumed and relied upon the accuracy and completeness of all financial and other
information that was publicly available and, with HSN's, Silver King's and
Savoy's consent, upon information provided by HSN, Silver King and Savoy,
without independent verification. Wasserstein Perella also assumed, with HSN's,
Silver King's and Savoy's consent, that all forward looking financial
information provided by HSN, Silver King and/or Savoy were prepared in good
faith and on bases reflecting the best currently available judgments and
estimates of the management of the party preparing such information. Wasserstein
Perella also assumed that none of HSN, Silver King and Savoy have contingent
liabilities exceeding those reserved therefor established in their respective
financial statements. Wasserstein Perella consulted with and relied on the
advice of counsel for each of HSN and Silver King and its own counsel with
respect to certain legal and tax matters. Because of Liberty's control of HSN,
Wasserstein Perella was not asked to and did not solicit any third parties
regarding their possible interest in acquiring HSN or any of its business or
assets or investigate alternative transactions which may be available to HSN.
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The Wasserstein Perella Opinion was prepared and delivered based upon
conditions as they existed and could be evaluated by Wasserstein Perella as of
the date thereof and based upon: the HSN Merger Agreement; the HSN Stockholder
Voting Agreement; the Second Silver King Stockholder Voting Agreement; the
Termination Agreement; the Stockholders Agreement; and the Savoy Merger
Agreement, each in the form provided to Wasserstein Perella prior to rendering
the Wasserstein Perella Opinion. The Wasserstein Perella Opinion is based on the
assumption that the transactions contemplated by the HSN Merger Agreement (in
the form provided to Wasserstein Perella) will be consummated on the terms set
forth therein.
At the August 25, 1996 meeting of the HSN Special Committee, Wasserstein
Perella reviewed with members of the committee certain financial, industry and
market information with respect to Silver King, HSN and Savoy and the procedures
used in preparing, and the analyses underlying, the Wasserstein Perella Opinion.
In connection with its presentation to the HSN Special Committee, Wasserstein
Perella provided the members with a written report summarizing such information,
procedures and analyses. The full text of the report presented to the HSN
Special Committee on August 25, 1996 is attached as an exhibit to the Schedule
13E-3. See "Available Information." The report is also available for inspection
and copying at the principal offices of HSN during HSN's regular business hours
by any interested holder of HSN Common Stock or such holder's representative who
has been so designated in writing. The summary set forth below does not purport
to be a complete description of the Wasserstein Perella Opinion or Wasserstein
Perella's analysis as set forth in the exhibit to the Schedule 13E-3. The
preparation of a fairness opinion is a complex process that is not purely
mathematical and is not necessarily susceptible to partial analyses or summary
description. It involves complex considerations and judgments. Interested HSN
stockholders are encouraged to review the Wasserstein Perella Opinion in its
entirety and to obtain a copy of the Wasserstein Perella report for a more
complete description of the procedures used and the analysis underlying the
Wasserstein Perella Opinion.
In performing its analysis for the Wasserstein Perella Opinion, Wasserstein
Perella relied on numerous assumptions made by the managements of HSN, Silver
King and Savoy and made numerous judgments of its own with regard to the
performance of HSN, Silver King and Savoy, industry performance, general
business and economic conditions and other matters, many of which are beyond
HSN's, Silver King's and Savoy's ability to control. Any estimates contained in
such analysis are not necessarily indicative of actual values or actual future
results, which may be significantly more or less favorable than suggested in the
Wasserstein Perella report. In addition, analyses relating to values of
companies do not purport to be appraisals or to reflect the prices at which
companies may actually be sold. Since such estimates are inherently subject to
uncertainty, none of HSN, Silver King, Savoy, Wasserstein Perella and any other
person assumes responsibility for their accuracy.
In delivering the Wasserstein Perella Opinion and making its presentation
to the HSN Special Committee, representatives of Wasserstein Perella considered
and discussed various financial and other matters that it deemed relevant.
General valuation considerations deemed to be relevant by Wasserstein Perella
include, without limitation, those outlined in the Wasserstein Perella report,
such as: (i) the television broadcasting and home shopping industries; (ii)
Barry Diller's qualifications as a leading media industry executive; (iii) HSN's
historical financial and operating performance and future prospects in the
context of its business strategy, market position and current and prospective
competition; (iv) certain forward-looking information for HSN and its primary
operating segments prepared by HSN's management (the "HSN Management Case") and
a separate set of projections for HSN prepared by Wasserstein Perella on the
basis of information provided by HSN's management (the "HSN Base Case"); (v) the
historical and financial operating performance and future prospects of Silver
King's 100%-owned television stations in the context of Silver King's business
strategy, market position and current and prospective competition, with respect
to each of the HSN Case, the Independent Stations Case and the Duopoly/LMA Case;
(vi) the historical and financial operating performance and future prospects of
Silver King's minority-owned television stations in the context of Silver King's
minority ownership position and the stations' market positions and current and
prospective competition; (vii) Savoy's historical and financial operating
performance and future prospects in the context of its business strategy, market
position and current and prospective competition, taking into account the
possible exercise and non-exercise of the Fox Option; (viii) each of HSN's,
Silver King's and Savoy's size and asset mix; (ix) the potential public market
trading value of HSN as a stand-alone entity;
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(x) publicly available commentary, research and valuation estimates of industry
analysts; and (xi) Liberty's beneficial ownership of a majority of the voting
and a substantial economic interests in HSN and an assumption that Liberty
(through Liberty HSN) would not necessarily be a willing seller of its shares of
HSN capital stock. Wasserstein Perella also noted that the HSN Merger is
intended to qualify as a reorganization within the meaning of Section 368(a) of
the Code, and assumed that the HSN Merger will so qualify. Wasserstein Perella
also assumed that the Savoy Merger would qualify as a reorganization within the
meaning of such Section.
The financial analyses underlying the Wasserstein Perella Opinion are
outlined in the Wasserstein Perella report and are summarized below. The report
contains an implied exchange ratio range for the exchange of HSN Common Stock
for Silver King Common Stock of 0.435-0.304 (pro forma for the Savoy Merger,
assuming exercise of the Fox Option) and 0.445-0.276 (excluding the Savoy
Merger, it having been noted by Wasserstein Perella, however, that completion of
the Savoy Merger is a condition precedent to the obligations of the parties to
the HSN Merger Agreement to consummate the HSN Merger). These exchange ratio
ranges were derived from reference ranges for implied values per share of each
of HSN and Silver King (both pro forma for and excluding the Savoy Merger),
which were, in turn, derived from reference ranges of total enterprise value for
each of HSN, Silver King and Savoy, in each case, based on Wasserstein Perella's
judgment of the data analyzed. Wasserstein Perella performed three types of
analyses in determining the total enterprise value of the three companies: a
comparable company trading analysis; a comparable acquisitions analysis; and a
discounted cash flow analysis. Wasserstein Perella also performed a pro forma
merger analysis. As noted elsewhere in this description of the Wasserstein
Perella Opinion, not all types of analyses were appropriate in analyzing all
three companies or certain of their business segments.
Each of these analyses, applied as described below, permitted Wasserstein
Perella to arrive at reference ranges of enterprise value -- $975.0 million to
$1,350.0 million for HSN, $464.0 million to $809.0 million for Silver King (pro
forma for the Savoy Merger) and $340.0 million to $660.0 million for Silver King
(excluding the Savoy Merger) -- and as a result reference ranges of implied
value per share -- $9.46 to $13.06 for HSN, $21.74 to $42.95 for Silver King
(pro forma for the Savoy Merger) and $21.27 to $47.30 for Silver King (excluding
the Savoy Merger) -- implying the exchange ratio ranges mentioned above. Hence,
Wasserstein Perella's analysis supports the conclusion in the Wasserstein
Perella Opinion because the HSN Common Conversion Ratio is above these implied
exchange ratio ranges (both pro forma for and excluding the Savoy Merger).
Public Company Trading Analysis. As noted above, Wasserstein Perella
analyzed HSN by business segment. With respect to HSN's HSC Business segment,
Wasserstein Perella reviewed, analyzed and compared certain operating,
financial, and trading information of the HSC Business and ValueVision
International, Inc. ("ValueVision") and selected companies in the infomercial
industry and analyzed trading multiples of QVC over the period of time just
before Mr. Diller was appointed Chairman and Chief Executive Officer of QVC, in
December 1992, to the time rumors first circulated regarding QVC's proposed
merger with CBS, Inc. in June 1994. Wasserstein Perella determined that
ValueVision's current trading data did not generate meaningful multiples because
ValueVision is significantly smaller in size compared to the HSC Business in
terms of its market capitalization and its relative revenues. Based on
Wasserstein Perella's trading analysis of selected infomercial companies, which,
like the HSC Business require, among other things, programming facilities,
inventory management systems and customer management systems, Wasserstein
Perella used a range of 7.0x to 8.0x estimated 1997 EBITDA to arrive at an
implied enterprise value range for the HSC Business. Based on historical trading
multiples of QVC for the time period mentioned above, Wasserstein Perella used a
range of 6.0x to 8.0x estimated 1997 EBITDA to arrive at an implied enterprise
value range for the HSC Business.
With respect to HSN's Mail-Order/Lifeway Products segment, Wasserstein
Perella analyzed selected comparable publicly traded companies in the mail
order/catalog industry. Based on trading multiples for such companies,
Wasserstein Perella used a range of 5.0x to 7.0x estimated 1997 EBITDA to arrive
at an implied enterprise value for Mail Order/Lifeway Products. Wasserstein
Perella did not identify any companies providing a basis for a comparable public
company trading analysis of HSN's Vela Research or Internet Shopping Network
segments.
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Wasserstein Perella did not identify any companies providing a basis for a
comparable public company trading analysis of Silver King's 100%-owned
television stations. Proportionate values for Silver King's minority-owned
television stations were determined, in part, using a range of multiples of each
station's estimated 1997 BCF, based on multiples for comparable publicly-traded
companies, and then applying the 25% minority and liquidity related discount
mentioned above.
Wasserstein Perella analyzed Savoy by business segment. With respect to the
Savoy Stations, Wasserstein Perella analyzed BCF multiples of selected publicly
traded television broadcasting companies and, based on such multiples, used a
range of 10.5x to 11.5x estimated 1997 BCF to arrive at an enterprise value
range for each of Savoy's television stations. Wasserstein Perella did not apply
a comparable publicly traded company analysis to Savoy's now suspended film
operations or its McHale Videofilm segment.
Precedent Merger and Acquisition Transactions. Wasserstein Perella
reviewed and analyzed the Comcast/TCI acquisition of the 65.5% of QVC that they
did not already own, the only acquisition comparable in size and scope to an
acquisition of the HSC Business. Based on the $46 purchase price per share of
QVC agreed upon in August 1994, Comcast and TCI paid approximately 9.5x QVC's
estimated 1995 EBITDA. Based on its analysis of the QVC acquisition, Wasserstein
Perella used a multiple of 9.5x the HSC Business's estimated 1997 EBITDA to
arrive at an implied enterprise value for the HSC Business. Wasserstein Perella
did not identify acquisitions comparable to HSN's other business segments.
Wasserstein Perella separately valued Silver King's 100%-owned and
minority-owned television stations. Wasserstein Perella applied a comparable
acquisitions analysis in valuing Silver King's 100%-owned television stations in
the context of the Duopoly/LMA Case. Wasserstein Perella analyzed recent
acquisitions of independent UHF television stations in major markets to arrive
at a range of pre-tax "stick values" for each Silver King's 100%-owned stations.
(A "stick value" is the value of a television station's ability to broadcast in
its market without reference to its prior programming or measures such as
multiples of EBITDA or free cash flow or other measures of prior performance.) A
notable example is the August 1995 sale of WNYC-TV (a UHF channel and former
public television station) to Dow Jones & Co., Inc. and ITT Corp. for
approximately $207.0 million. Wasserstein Perella assigned pre-tax stick values
to Silver King stations in markets where no acquisitions were identified based
on market rank and size. Silver King's 26 LPTV stations were assigned an
aggregate pre-tax stick value range of $5.0 to $10.0 million. Wasserstein
Perella arrived at an after-tax enterprise value range for Silver King's
100%-owned stations in the Duopoly/LMA Case, using tax basis information
provided by Silver King's management and a 38.0% tax rate. Wasserstein Perella
determined that a comparable acquisition analysis was not appropriate in
analyzing the 100%-owned stations in the HSN Case or the Independent Stations
Case. Proportionate values for Silver King's minority-owned television stations
were determined, in part, by using a range of multiples of 10.0x to 12.0x of
each such station's estimated 1997 BCF, based on multiples for comparable
acquisitions in the broadcasting industry, and then applying the 25% minority
and liquidity related discount mentioned above (in cases where estimated EBITDA
from which such estimated BCF was derived was available; it was not available
for Silver King's recently-acquired minority-owned interests, in which cases a
range of stick values was assumed for each such station).
With respect to the Savoy Stations, Wasserstein Perella analyzed recent
acquisitions of similar stations in the television broadcasting industry and,
based on these precedent transactions, used a range of 11.0x to 13.0x estimated
1997 BCF to arrive at an enterprise value range for each of the Savoy Stations.
Wasserstein Perella did not apply a comparable acquisitions analysis to Savoy's
film operations segment or its McHale Videofilm segment.
Discounted Cash Flow Analysis. Wasserstein Perella performed discounted
cash flow analyses of each of HSN's business segments. The discounted cash flow
analysis of the HSC Business is based on two different sets of financial
projections for the HSC Business for the years 1997 through 2001: the HSN
Management Case and the HSN Base Case. In performing its discounted cash flow
analysis of the HSC Business, Wasserstein Perella considered various assumptions
and applied valuation parameters that it deemed appropriate to the HSN
Management Case and the HSN Base Case.
In its report, Wasserstein Perella noted that the HSN Base Case, which it
developed on the basis of information supplied by HSN's management, reflected
lower revenue growth rates and EBITDA margins than
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the HSN Management Case, which was developed by HSN's management. Wasserstein
Perella also highlighted certain assumptions that were common to its analysis of
both the HSN Management Case and the HSN Base Case. Wasserstein Perella reviewed
with HSN's management the prospects and risks associated with the HSC Business
to arrive at appropriate discount rates and terminal year free cash flow
perpetuity growth rates. Based on this review, Wasserstein Perella applied a
discount rate range of 13.0% to 14.0% and a perpetuity growth rate range of
terminal year free cash flows of 0.0% to 3.0% to arrive at an enterprise value
range for the HSC Business in both the HSN Management Case and the HSN Base
Case. In analyzing both cases, Wasserstein Perella assumed that the Affiliation
Agreements and the HSC Business's other contracts with broadcasters would be
renewed after 1997. However, Wasserstein Perella also examined a scenario for
each case in which these contracts would not be renewed after 1997. In the
report, Wasserstein Perella noted HSN management's belief that under a
nonrenewal scenario there would be a sustainable increase in the HSC Business's
cash flow because cost savings realized through elimination of contractually
required payments would exceed revenues forgone as a result of nonrenewal.
Wasserstein Perella also noted that renewal of the Affiliation Agreements and
similar agreements with other broadcasters is not within HSN's control.
Wasserstein Perella performed discounted cash flow valuation analyses of
each of HSN's Vela Research, Internet Shopping Network and Mail-Order/Lifeway
Products segments based on projections provided by HSN's management. Wasserstein
Perella used a discount rate range of 12.0% to 14.0% and a perpetuity growth
rate range of terminal year cash flow of 1.0% to 4.0% to arrive at an implied
enterprise value range for Vela Research. It used a discount rate range of 15.0%
to 17.0% and an exit multiple range of terminal year revenues of 2.0x to 4.0x to
arrive at an enterprise value range for Internet Shopping Network. Terminal
values using multiples of revenues (rather than EBITDA or free cash flow) were
used in analyzing the Internet Shopping Network segment because it is expected
by HSN's management to have negative EBITDA and negative free cash flow in 2001.
Wasserstein Perella used a discount rate range of 12.0% to 13.0% and a
perpetuity growth rate range of terminal year free cash flow of 1.0% to 4.0% to
arrive at an implied enterprise value range for Mail Order/Lifeway Products.
Wasserstein Perella applied a discounted cash flow analysis to the
valuation of Silver King's 100%-owned stations in each of Silver King's three
hypothetical, post-closing scenarios. In the context of the HSN Case,
Wasserstein Perella used Silver King management's 1996 budget to develop
projections for Silver King's 100%-owned stations from 1997 through 2001 and
used a discount rate range of 9.0% to 10.0% and an exit multiple range of
terminal year BCF of 8.0x to 10.0x to arrive at the enterprise value range for
these stations in such context. The relatively low discount rates applied here
reflect the relatively high degree of certainty of revenues in the HSN Case.
Projections for the Independent Stations Case were developed by Wasserstein
Perella on the basis of information supplied by Silver King's management. A
discount rate range of 14.0% to 16.0% and an exit multiple range of terminal
year BCF of 10.0x to 11.0x were used in determining the enterprise value range
for the 100%-owned stations in the Independent Stations Case. The relatively
high discount rates applied are intended by Wasserstein Perella to reflect the
high level of uncertainty surrounding the creation of a new network (offset to
some degree by Mr. Diller's track record with Fox and QVC).
Projections for the Duopoly/LMA Case were also developed by Wasserstein
Perella on the basis of information supplied by Silver King's management. A
discount rate range of 12.0 % to 14.0% and an exit multiple range of terminal
year BCF of 10.0x to 11.0x were employed by Wasserstein Perella in arriving at
an enterprise value range in this case.
The analysis in each of the Independent Stations Case and the Duopoly/LMA
Case excludes any value for Silver King's LPTV stations which were assigned an
aggregate stick value range of $5.0 to $10.0 million.
Wasserstein Perella applied a discounted cash flow analysis to each of
Savoy's three business segments. For the Savoy Stations, Wasserstein Perella
developed projections for each of the Savoy Stations based on an average of
"estimated" and "downside" individual station BCF estimates provided by Savoy's
management for the second half of 1996. Wasserstein Perella slightly reduced
Savoy management's estimates to arrive at 1997 and 1998 BCF estimates.
Wasserstein Perella used a discount rate range of 10.0% to 12.0% and an exit
multiple range of terminal year BCF of 10.0x to 11.0x to arrive at an enterprise
value range for each of the
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Savoy Stations. The discounted cash flow analysis of Savoy's film operations is
based on Savoy management's after-tax cash flow estimates for 1997 and 1998. No
value was assigned to management's expected $10.0 to $20.0 million of cash flow
after 1998 because of Wasserstein Perella's view of the high degree of
uncertainty of Savoy receiving such payments. A discount rate range of 8.0% to
12.0% was applied to the 1997 and 1998 projected cash flow. Such relatively low
discount rates were used because Savoy management informed Wasserstein Perella
that these payments are largely guaranteed. Wasserstein Perella developed
projections for McHale Videofilm for 1997 through 2001 based on information
supplied by Savoy's management. Wasserstein Perella used a discount rate range
of 10.0% to 12.0% and a perpetuity growth rate range of terminal year cash flow
of 1.0% to 4.0% to arrive at an implied enterprise value range for McHale
Videofilm.
Pro Forma Combination Analysis. Wasserstein Perella also analyzed the pro
forma effects of the HSN Merger assuming a closing on January 1, 1997. In
performing its pro forma analysis Wasserstein Perella used HSN Base Case
projections for HSN (without giving effect to the nonrenewal of the Affiliation
Agreements or other broadcasting contracts), projections for Silver King (pro
forma for the Savoy Merger) based on the HSN Case in respect of Silver King's
100%-owned television stations and projections for Savoy which were developed by
Wasserstein Perella based on management supplied information which assume
exercise of the Fox Option.
Wasserstein Perella's analysis, as set forth in its report, shows that
prior to giving effect to the HSN Merger, HSN's estimated EBITDA per HSN common
equivalent share for 1997, 1998 and 1999, prior to giving effect to the HSN
Merger, would be $0.98, $1.27 and $1.45, respectively, and Silver King's
estimated EBITDA per HSN common equivalent share for each such year, after
giving effect to the HSN Merger and the Savoy Merger, would be $1.11, $1.31 and
$1.31, respectively. The analysis also shows that HSN's earnings per HSN common
equivalent share for 1997, 1998 and 1999, prior to giving effect to the mergers,
would be $0.40, $0.56 and $0.68 and that Silver King's earnings per HSN common
equivalent share for such years, after giving effect to the mergers, would be
($0.01), $0.11 and $0.12, respectively.
In addition to the above outlined analyses, Wasserstein Perella performed
such other valuation analyses as it deemed appropriate in determining the
fairness to the HSN public stockholders (excluding Liberty and its affiliates)
of the HSN Common Conversion Ratio from a financial point of view. Wasserstein
Perella concluded that, in its judgment, including the full range of its
analyses described above, the HSN Common Conversion Ratio was fair from a
financial point of view to the holders of HSN Common Stock other than Liberty
and its affiliates.
Wasserstein Perella is an investment banking firm engaged, among other
things, in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings and
secondary distributions of listed and unlisted securities and private
placements. Wasserstein Perella was selected to render its opinion regarding the
fairness of the consideration to be received by the HSN public stockholders in
the HSN Merger because it is a nationally recognized investment banking
firm and because of its experience in the valuation of companies.
Terms of Wasserstein Perella's Engagement. Pursuant to the terms of an
engagement letter, dated as of August 15, 1996, HSN agreed to pay Wasserstein
Perella a retainer fee of $50,000 upon execution of the engagement letter and an
additional fee amounting to $250,000 upon Wasserstein Perella's rendering of an
opinion to the HSN Special Committee as to the fairness of the HSN Common
Conversion Ratio to the HSN public stockholders other than Liberty and its
affiliates (or upon informing the HSN Special Committee of its inability to
render the opinion). HSN also agreed to reimburse Wasserstein Perella for its
out-of-pocket expenses, including reasonable fees and disbursements of its
counsel. HSN agreed to indemnify Wasserstein Perella and its affiliates, their
respective directors, officers, partners, agents and employees and each person,
if any, controlling Wasserstein Perella or any of its affiliates against certain
liabilities and expenses, including certain liabilities under the federal
securities laws, relating to or arising out of such engagement.
Opinions of First Boston, Financial Advisor to Silver King
Silver King retained First Boston on November 10, 1995 to provide certain
investment banking advice and services in connection with a possible acquisition
of the TCI HSN Shares, including rendering its opinion
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as to the fairness to Silver King from a financial point of view of the
consideration to be paid by Silver King pursuant to the Silver King/BDTV
Exchange Agreement. See also "-- Interests of Certain Persons in the HSN
Transactions; Conflicts of Interest -- Allen & Company Investment Banking
Relationship." At the November 27, 1995 meeting of the Silver King Board of
Directors, representatives of First Boston made a presentation with respect to
the TCI HSN Shares Acquisition and rendered an oral opinion to the Silver King
Board, subsequently confirmed in writing as of the same date, that, as of such
date, based upon the facts and circumstances as they existed at the time, and
subject to certain assumptions, factors and limitations set forth in such
opinion, the consideration to be paid by Silver King pursuant to the Silver
King/BDTV Exchange Agreement was fair from a financial point of view to Silver
King. No limitations were imposed by the Silver King Board upon First Boston
with respect to the investigations made or procedures followed by it in
rendering its opinion with respect to the TCI HSN Shares Acquisition.
Silver King retained First Boston in July 1996 to provide certain
investment banking advice and services in connection with the HSN Transactions,
including rendering its opinion as to the fairness to Silver King from a
financial point of view of the consideration to be paid by Silver King pursuant
to the HSN Merger Agreement. See also "-- Interests of Certain Persons in the
HSN Transactions; Conflicts of Interest -- Allen & Company Investment Banking
Relationship." At the August 25, 1996 meeting of the Silver King Board of
Directors, representatives of First Boston made a presentation with respect to
the HSN Transactions and rendered an oral opinion to the Silver King Board,
subsequently confirmed in writing as of the same date, that, as of such date,
based upon the facts and circumstances as they existed at the time, and subject
to certain assumptions, factors and limitations set forth in such opinion, the
consideration to be paid by Silver King pursuant to the HSN Merger Agreement was
fair from a financial point of view to Silver King. No limitations were imposed
by the Silver King Board upon First Boston with respect to the investigations
made or procedures followed by it in rendering its opinions.
THE FULL TEXT OF FIRST BOSTON'S WRITTEN OPINION IN CONNECTION WITH THE HSN
TRANSACTIONS DATED AUGUST 25, 1996, WHICH SETS FORTH, AMONG OTHER THINGS,
ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN,
IS ATTACHED AS APPENDIX D TO THIS JOINT PROXY STATEMENT/PROSPECTUS. FIRST
BOSTON'S OPINION IS DIRECTED TO THE SILVER KING BOARD, ADDRESSES ONLY THE
FAIRNESS TO SILVER KING FROM A FINANCIAL POINT OF VIEW OF THE CONSIDERATION TO
BE PAID BY SILVER KING PURSUANT TO THE HSN MERGER AGREEMENT AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY SILVER KING STOCKHOLDER AS TO HOW SUCH
STOCKHOLDER SHOULD VOTE AT THE SILVER KING MEETING. THE OPINION WAS RENDERED TO
THE SILVER KING BOARD FOR ITS CONSIDERATION IN DETERMINING WHETHER TO APPROVE
THE HSN MERGER AGREEMENT. THE DISCUSSION OF THE OPINION IN THIS JOINT PROXY
STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT
OF THE OPINION ATTACHED AS APPENDIX D TO THIS JOINT PROXY STATEMENT/PROSPECTUS.
SILVER KING STOCKHOLDERS ARE URGED TO READ THIS OPINION CAREFULLY AND IN ITS
ENTIRETY.
In connection with its opinions regarding the TCI HSN Shares Acquisition
and the HSN Merger Agreement, First Boston reviewed certain publicly available
financial information concerning Silver King and HSN and certain internal
analyses and other information furnished to it by Silver King and HSN. First
Boston held discussions with the members of the senior managements of Silver
King and HSN regarding the businesses and prospects of those companies. In
addition, First Boston (i) reviewed the historical reported prices and trading
information for the common stock of both Silver King and HSN; (ii) compared
certain financial information for both Silver King and HSN with similar
information for certain companies whose securities are publicly traded; (iii)
compared certain stock market information and valuations for both Silver King
and HSN with similar information for certain companies whose securities are
publicly traded; (iv) reviewed the financial terms of certain recent business
combinations which it deemed comparable in whole or in part; (v) reviewed the
terms of the Silver King/BDTV Exchange Agreement and the HSN Merger Agreement
and certain related documents; and (vi) performed such other studies and
analyses and considered other such factors as First Boston deemed appropriate.
In connection with its opinions regarding the Silver King/BDTV Exchange
Agreement and the HSN Merger Agreement, First Boston reviewed, to the extent it
deemed relevant, similar information with respect to Savoy in view of the
proposed November Savoy Merger and Savoy Merger, respectively, and the fact that
consummation of the Savoy Merger is a condition to consummation of the HSN
Merger.
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In conducting its reviews and arriving at its opinions, First Boston did
not assume responsibility for independent verification of the accuracy and
completeness of the information that it reviewed and relied upon for purposes of
rendering its opinions. With respect to the financial projections of Silver King
and HSN, including estimates of potential synergies for the combined company,
and other information relating to the prospects of Silver King and HSN provided
to First Boston by each company, First Boston assumed that such projections and
other information were reasonably prepared and reflected the currently available
judgments and estimates of the respective managements of Silver King and HSN as
to the likely future financial performances of their respective companies and of
the combined entity. Although First Boston made the foregoing assumptions
concerning the financial projections and other information, in the course of its
due diligence, First Boston reviewed certain of these assumptions with the
respective managements of Silver King and HSN to confirm that the assumptions
appeared to have a reasonable basis. The financial projections of Silver King
and HSN that were provided to First Boston were utilized and relied upon by
First Boston in the Contribution Analysis, Pro Forma Operating Cash Flow
Analysis, Pro Forma Operating Cash Flow Less Interest Expense Analysis, and Pro
Forma Earnings Analysis summarized below. In addition, First Boston did not
assume responsibility for making, and was not provided with, an independent
evaluation or appraisal of the assets of Silver King or HSN, nor did it make any
physical inspection of the properties or assets of Silver King or HSN. First
Boston's opinions are based on market, economic and other conditions as they
existed and could be evaluated as of the respective date of the opinion letters.
Such conditions include, without limitation, the condition of the United States
stock markets, particularly in the communications, media and electronic
retailing industries, and the current level of economic activity.
The following is a summary of the report presented by First Boston in
connection with rendering its opinion regarding the HSN Merger Agreement to the
Board on August 25, 1996 (the "First Boston HSN Report"). The First Boston HSN
Report is filed as an exhibit to the Schedule 13E-3 and as Appendix D to this
Joint Proxy Statement/Prospectus, and the summary set forth below does not
purport to be a complete description of such report or of First Boston's opinion
in connection with the HSN Merger Agreement.
Historical Stock Price Performance. First Boston provided an updated
review of the per share market prices for each of the Silver King Common Stock
and HSN Common Stock from November 27, 1995 (the date of the public announcement
of the TCI HSN Shares Acquisition) to August 21, 1996 (third to the last trading
day prior to the August 25, 1996 Silver King Board meeting). First Boston noted
that the market price of Silver King Common Stock had declined 16% from November
27, 1995 to August 21, 1996, while the market price of HSN Common Stock had
increased 12% over the same period. First Boston also reviewed and analyzed 30,
60 and 90 day average exchange ratios for the HSN Common Stock and Silver King
Common Stock over the 180 trading-days between December 6, 1995 and August 21,
1996.
Referring to the report presented by First Boston in connection with
rendering its opinion regarding the TCI HSN Shares Acquisition to the Silver
King Board on November 27, 1995, First Boston reviewed the per share market
prices for each of the Silver King Common Stock and HSN Common Stock from
November 21, 1994 to November 22, 1995. First Boston noted that the market price
of Silver King Common Stock had risen significantly between August 24, 1995, the
date on which Mr. Diller became Chairman of the Board and Chief Executive
Officer of Silver King, and November 22, 1995. First Boston further noted that
the market price of HSN Common Stock had declined substantially from August 24,
1995 through November 22, 1995 and has generally risen since November 27, 1995,
the date on which Mr. Diller became Chairman of the Board of HSN. This
information was presented to give the Silver King Board background information
regarding the respective stock price performance of Silver King and HSN over the
periods indicated.
Calculation of Implied Purchase Price and Implied Purchase Price
Multiples. First Boston calculated the implied aggregate purchase price of HSN
to be a range of approximately $1,375 million to $1,399 million based on the
terms of the proposed HSN Transactions (i.e., the range equaled (i) the implied
aggregate purchase price calculated as the market value of the Silver King
Common Stock as of August 21, 1996 that would be issued in the event that all
outstanding shares of HSN Common Stock and HSN Class B Common Stock were
acquired pursuant to the economic terms of the HSN Transactions, adjusted to
reflect the net debt on HSN's balance sheet and (ii) the implied aggregate
purchase price calculated in (i) above adjusted for the possible issuance of
additional shares of Silver King Common Stock pursuant to the tax gross-up
provision
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relating to the FCC Issuance Approval provisions of the Contingent Rights).
First Boston analyzed and reviewed certain multiples for HSN's implied purchase
price range relative to (i) HSN's 1996 estimated EBITDA or operating cash flow
(19.6x to 19.9x) and (ii) HSN's 1997 estimated operating cash flow (10.8x to
11.0x).
Methodology to Ascertain Fairness. First Boston's determination that the
consideration to be paid by Silver King pursuant to the HSN Merger Agreement is
fair from a financial point of view to Silver King began with an assessment of
the intrinsic equity value per share of HSN prior to the HSN Transactions. For
purposes of its opinion, First Boston assumed the intrinsic equity value per
share of HSN to equal the asset value of HSN in its entirety less total net debt
divided by all HSN shares outstanding prior to the HSN Transactions. A
description of the methodologies used to determine the asset value (or
enterprise value) of HSN is presented below. The assessment that the
consideration to be paid by Silver King pursuant to the HSN Merger Agreement is
fair to Silver King from a financial point of view was based on a comparison of
HSN's intrinsic equity value per share to the value of the consideration being
paid to HSN shareholders in the HSN Transactions (i.e., 0.45 of a share of
Silver King Common Stock and 0.54 of a share of Silver King Class B Stock for
each share of HSN Common Stock and HSN Class B Common Stock, respectively).
Financial and Operating Characteristics of HSN; Valuation of HSN. First
Boston reviewed and analyzed HSN's operating and financial performance on an
historical and forecasted basis, deriving an aggregate asset value for HSN and
adjusting for net debt in order to arrive at HSN's total intrinsic equity value.
Such analyses produced an equity valuation of HSN between $957 million to $1.598
billion, or $10.40 to $17.37 per share of HSN Common Stock. This analysis did
not give any positive effect to the possible effect of the potential future tax
benefits to HSN for its net operating losses.
Discounted Cash Flow Analysis. First Boston reviewed and analyzed three
scenarios relating to the projected revenues, operating cash flow and unlevered
free cash flow of HSN over the eleven fiscal years beginning in 1996. The three
scenarios include the "Management Case," "Conversion Case" and "Downside Case."
The Management Case is based on HSN management's projections, which assume
Silver King and other broadcasters renew affiliation agreements with HSN and
continue carriage of HSN programming after 1997. The Conversion Case assumes (i)
HSN management's projections for 1996 and 1997 and (ii) Silver King and other
broadcasters do not renew affiliation agreements with HSN and terminate carriage
of HSN programming after 1997 (resulting in special one-time charges in 1997 and
1998 to continue cable carriage under selected cable affiliation agreements and
increased operating cash flow compared to HSN management's projections in 1998
and beyond primarily due to elimination of broadcasting fees) and (iii) higher
capital expenditures compared to management's projections. The Downside Case
assumes (i) HSN management's projections for 1996 and 1997 and (ii) lower
operating cash flow margins in 1998 and beyond compared to management's
projections and (iii) higher capital expenditures in 1998 and beyond compared to
management's projections. The discounted cash flow analysis, using certain
assumptions regarding the cost of capital and the terminal multiple of EBITDA
attempts to assign a present value to the company's assets based on the
unlevered free cash flows generated by those assets. Based on this analysis,
First Boston concluded, using a discount rate ranging from 13% to 14% and
terminal value multiples ranging from 7.0x to 9.0x operating cash flow that the
enterprise value range of HSN was approximately $1.058 billion to $1.699
billion, or $10.40 to $17.37 equity value per share of HSN. Due to a variety of
dynamic factors, including the turnaround nature of HSN and the possible
disengagement of HSN's broadcast households in 1998 in the event of the
termination of the affiliation agreements with broadcasters, the discounted cash
flow analysis is well-suited to take these dynamic factors into account. As a
result, First Boston weighed this analysis more heavily than the other valuation
methodologies described below.
Comparable Company Analysis. First Boston reviewed and compared certain
actual and estimated financial, operating and stock market information of HSN
and selected companies in the electronic retailing industry. First Boston noted
that HSN's largest competitor, QVC, was no longer a public company and therefore
stock market information of QVC was not available; however, prior to the
announcement of its acquisition in July 1994, QVC traded publicly at
approximately 9.0x to 10.0x forward operating cash flow. Electronic retailing
companies included HSN, ValueVision and Shop at Home, Inc. ("Shop at Home")
(collectively, the "Selected HSN Comparables"). First Boston compared enterprise
values as a multiple of
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1996 and 1997 estimated operating cash flow and revenue for each of the Selected
HSN Comparables. Specifically, the Selected HSN Comparables traded at the
following multiple (i) 13.9x to 15.8x 1996 estimated operating cash flow, with a
mean of 14.7x, (ii) 8.7x 1997 estimated operating cash flow, (iii) 0.9x to 1.2x
1996 estimated revenue, with a mean of 1.0x and (iv) 0.8x 1997 estimated
revenue. After comparing the business profiles of HSN, ValueVision and Shop at
Home, First Boston determined that neither ValueVision nor Shop at Home is
substantially similar to HSN in terms of financial performance, maturity or
market size. Therefore, First Boston multiplied HSN's 1997 estimated operating
cash flow by an appropriate range of multiples (i.e., 8.5x to 11.0x) based on
the trading performance of HSN and QVC (prior to the announcement of its
acquisition in July 1994). This comparable company analysis resulted in an asset
valuation range for HSN in aggregate of approximately $1.082 billion to $1.400
billion, representing an equity value per share of approximately $10.66 to
$14.12.
Comparable Transaction Analysis. Using publicly available information,
First Boston analyzed the purchase prices and multiples paid in selected merger
or acquisition transactions in the electronic retailing industry. Transactions
in the electronic retailing industry included (in chronological order of public
announcement): (i) CVN Companies, Inc./QVC (10/89); (ii) HSN/Liberty (purchase
of HSN Class B Common Stock) (12/92); (iii) HSN/Liberty (purchase of HSN Common
Stock) (4/93); and (iv) QVC/Comcast/ Liberty (8/94) (collectively, the "Selected
HSN Transactions"). First Boston compared enterprise purchase prices as a
multiple of latest available 12-month sales and operating cash flow for each of
the Selected HSN Transactions. Specifically, the Selected HSN Transactions
yielded a multiple range of 8.3x to 11.0x latest 12-month operating cash flow,
with a mean of 10.0x. First Boston discounted this range back one year at 13% to
14% to yield an estimated multiple range of 7.3x to 9.6x 1997 estimated
operating cash flow. First Boston derived the appropriate valuation range for
HSN by comparing HSN's business to those of the acquired companies in the
Selected HSN Transactions. After determining which acquired company best matched
the business profile of HSN and also examining the qualitative aspects of the
relevant precedent transactions, First Boston multiplied HSN's 1997 estimated
operating cash flow by an appropriate range of multiples (i.e., 8.8x to 9.6x)
based on the valuation multiples implied by the most comparable Selected HSN
Transactions. This comparable transaction analysis resulted in an asset
valuation range for HSN of approximately $1.120 billion to $1.222 billion,
representing an equity value per share of approximately $11.08 to $12.18.
Summary Valuation. The discounted cash flow analysis, comparable company
analysis and comparable transaction analysis for HSN's operations resulted in an
aggregate enterprise valuation (asset value) range for HSN of approximately
$1.058 billion to $1.699 billion. After adjusting for net debt, this analysis
resulted in a total equity valuation range for HSN of approximately $957 million
to $1.598 billion, or $10.40 to $17.37 per share.
Contribution Analysis. First Boston analyzed the relative contributions of
each of Silver King, Savoy and HSN to the pro forma income statement of the
combined company, based on managements' projections for their respective
companies. This analysis showed that, on a pro forma combined basis, based on
the 12-month period ending December 31, 1997 for Silver King, Savoy and HSN,
Silver King, Savoy and HSN would account for approximately 3%, 4% and 93%,
respectively, of the combined company's pro forma estimated revenue and
approximately 13%, 13%, 73%, respectively, of the combined company's pro forma
estimated operating cash flow.
The contribution analysis further indicated that current Silver King
stockholders would have an approximate 17% economic stake and approximate 20%
voting stake in the combined company, that Savoy stockholders would have an
approximate 7% economic stake and 3% voting stake in the combined company and
that HSN stockholders (including the interest represented by the TCI HSN Shares)
would have an approximate 76% economic stake and 77% voting stake (assuming that
all outstanding shares of HSN Common Stock and HSN Class B Common Stock were
acquired pursuant to the economic terms of the HSN Transactions and adjusted for
the possible issuance of additional shares of Silver King Common Stock pursuant
to the tax gross-up provision relating to the Contingent Rights). The
contribution analysis indicated that current Silver King stockholders would have
an economic stake in excess of the contribution to each of the pro forma
estimated 1997 revenue and operating cash flow of the combined company by the
current business of Silver King.
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First Boston also considered the contribution of each of the current Silver
King business, Savoy and HSN to projected operating cash flow per share,
operating cash flow less interest expense per share and earnings per share for
each of the five years ending December 1996 through December 2000, together with
the accretive or dilutive effects of each of the Savoy Merger and HSN
Transactions (and both transactions together) on the earnings per share of
Silver King Common Stock. These analyses were computed assuming that all
outstanding shares of HSN Common Stock and HSN Class B Common Stock were
acquired pursuant to the economic terms of the HSN Transactions and adjusted for
the possible issuance of additional shares of Silver King Common Stock pursuant
to the tax gross-up provision relating to the Contingent Rights.
Pro Forma Operating Cash Flow Analysis. First Boston analyzed certain pro
forma effects of the Savoy Merger and the HSN Transactions based on Silver King,
Savoy and HSN respective management's projections of the operating cash flow of
the combined company. Based on such analysis, First Boston computed the
resulting dilution/accretion to Silver King's operating cash flow per share
estimate for each of the years ending December 1996 through December 2000,
pursuant to the Savoy Merger and the HSN Transactions after taking into account
estimated potential cost savings and other synergies that Silver King could
achieve if the Savoy Merger and the HSN Transactions were consummated and before
certain nonrecurring costs. This analysis indicated that the Savoy Merger would
be approximately 12%, 39%, 52%, 52% and 52% accretive to Silver King's operating
cash flow per share for the years ending December 1996 through December 2000,
respectively. First Boston also noted that the HSN Transactions would be
approximately 26% dilutive, 17% accretive, 42% accretive, 62% accretive and 75%
accretive to Silver King's operating cash flow per share for the years ending
December 1996 through December 2000, respectively. In addition, First Boston
computed the aggregate resulting dilution/accretion to Silver King's operating
cash flow per share assuming that both the Savoy Merger and the HSN Transactions
are consummated. Both transactions in the aggregate would be approximately 21%
dilutive, 25% accretive, 51% accretive, 70% accretive and 82% accretive to
Silver King's operating cash flow per share for the years ending December 1996
through December 2000, respectively.
Pro Forma Operating Cash Flow Less Interest Expense Analysis. First Boston
analyzed certain pro forma effects of the Savoy Merger and the HSN Transactions
based on Silver King, Savoy and HSN respective management's projections of the
operating cash flow less interest of the combined company. Based on such
analysis, First Boston computed the resulting dilution/accretion to Silver
King's operating cash flow less interest per share estimate for each of the
years ending December 1996 through December 2000, pursuant to the Savoy Merger
and the HSN Transactions after taking into account estimated potential cost
savings and other synergies that Silver King could achieve if the Savoy Merger
and the HSN Transactions were consummated and before certain nonrecurring costs.
This analysis indicated that the Savoy Merger would be approximately 28%
dilutive, 11% accretive, 28% accretive, 29% accretive and 31% accretive to
Silver King's operating cash flow less interest per share for the years ending
December 1996 through December 2000, respectively. First Boston also noted that
the HSN Transactions would be approximately 8% dilutive, 46% accretive, 69%
accretive, 82% accretive and 87% accretive to Silver King's operating cash flow
less interest per share for the years ending December 1996 through December
2000, respectively. In addition, First Boston computed the aggregate resulting
dilution/accretion to Silver King's operating cash flow per share assuming that
both the Savoy Merger and the HSN Transactions are consummated. Both
transactions in the aggregate would be approximately 15% dilutive, 44%
accretive, 70% accretive, 82% accretive and 87% accretive to Silver King's
operating cash flow less interest per share for the years ending December 1996
through December 2000, respectively.
Pro Forma Earnings Analysis. First Boston analyzed certain pro forma
effects of the Savoy Merger and the HSN Transactions based on Silver King, Savoy
and HSN respective management's projections of the earnings of the combined
company. Based on such analysis, First Boston computed the resulting
dilution/accretion to Silver King's earnings per share (EPS) estimate for each
of the years ending December 1996 through December 2000, pursuant to the Savoy
Merger and the HSN Transactions after taking into account estimated potential
cost savings and other synergies that Silver King could achieve if the Savoy
Merger and the HSN Transactions were consummated and before certain nonrecurring
costs. This analysis indicated that the Savoy Merger would be approximately 224%
dilutive, 60% dilutive, 22% accretive, 32%
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accretive and 38% accretive to Silver King's EPS for the years ending December
1996 through December 2000, respectively. First Boston also noted that the HSN
Transactions would be approximately 146% dilutive, 63% accretive, 106%
accretive, 122% accretive and 141% accretive to Silver King's EPS for the years
ending December 1996 through December 2000, respectively. In addition, First
Boston computed the aggregate resulting dilution/accretion to Silver King's EPS
assuming that both the Savoy Merger and the HSN Transactions are consummated:
both transactions in the aggregate would be approximately 492% dilutive, 134%
dilutive, 46% dilutive, 0% accretive and 29% accretive to Silver King's EPS for
the years ending December 1996 through December 2000, respectively. The actual
operating results or financial position achieved by the combined company may
vary from the projected results, and the variations may be material. In
addition, there can be no assurance that the combined company will be able to
realize savings and synergies in the amounts identified by management, or at
all, following either the Savoy Merger or the HSN Merger.
No company used in the analysis of other publicly traded companies nor any
transaction used in the analysis of selected mergers and acquisitions summarized
above is identical to Silver King, HSN or the HSN Transactions. Accordingly,
such analyses must take into account differences in the financial and operating
characteristics of the Selected HSN Comparables and the companies in the
Selected HSN Transactions and other factors that could affect the public trading
value and acquisition value of the Selected HSN Comparables and the Selected HSN
Transactions, respectively. For further information regarding First Boston's
opinion and analysis with respect to the Savoy Merger, see "Savoy Merger and
Related Transactions -- Opinions of Certain Financial Advisors -- Opinions of
First Boston, Financial Advisor to Silver King."
While the foregoing summary describes all material analyses and factors in
the First Boston HSN Report, it is not a comprehensive description of all
analyses and factors considered by First Boston. The preparation of a fairness
opinion is a complex process that involves determination of the most appropriate
and relevant methods of financial analysis and the application of these methods
to the particular circumstances and, therefore, such an opinion is not readily
susceptible to summary description. First Boston believes that its analyses and
the summary set forth above must be considered as a whole and that selecting
portions of its analyses, without considering all analyses, or selecting
portions of the above summary, without considering all factors and analyses,
would create an incomplete view of the process underlying the analyses performed
and factors considered set forth in the First Boston opinion with respect to the
HSN Transactions and the First Boston HSN Report. In performing its analyses,
First Boston considered general economic, market and financial conditions and
other matters, many of which are beyond the control of Silver King, Savoy or
HSN. Such factors as to industry conditions include, without limitation, change
in domestic cable penetration, alterations to FCC "must-carry" rules and other
communications and media-related legislation, growth in demand for electronic
retailing services and competition in the cable programming sector. The analyses
performed by First Boston are not necessarily indicative of actual values or
future results, which may be significantly more or less favorable than those
suggested by such analyses. Accordingly, such analyses and estimates are
inherently subject to substantial uncertainty. Additionally, analyses relating
to the value of a business do not purport to be appraisals or to reflect the
prices at which the business actually may be sold. Furthermore, no opinion is
being expressed as to the prices at which shares of Silver King Common Stock may
trade at any future time.
For information regarding certain fees and expenses paid to, and
indemnification of, First Boston in connection with its services rendered to
Silver King as financial advisor, see "Savoy Merger and Related
Transactions -- Opinions of Certain Financial Advisors -- Opinions of First
Boston, Financial Advisor to Silver King." Except as described above, First
Boston has received no compensation in connection with any investment banking
service provided to Silver King within the last two years.
The Board of Directors of Silver King retained First Boston to act as its
advisor based upon First Boston having provided investment banking services to
Silver King from time to time and based upon First Boston's qualifications,
experience and expertise. First Boston is an internationally recognized
investment banking firm and, as a customary part of its investment banking
business, is engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, private
placements and valuations for corporate and other purposes. First Boston may
actively trade the equity securities of Silver
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King, Savoy and HSN for its own account and for the account of its customers and
accordingly may at any time hold a long or short position in such securities.
First Boston regularly publishes research reports regarding the communications,
media and electronic retailing industries and the businesses and securities of
publicly traded companies in the communications, media and electronic retailing
industries. In addition, First Boston has in the past performed investment
banking services for HSN and TCI and certain of TCI's subsidiaries.
* * * *
Copies of Wasserstein Perella's and First Boston's written opinion to the
HSN Special Committee and the Silver King Board, respectively, are attached as
Appendices F and D to this Joint Proxy Statement/Prospectus. Wasserstein
Perella's and First Boston's written presentations to the HSN Special Committee
and to the Silver King Board, respectively, have been filed as exhibits to the
Schedule 13E-3. Copies of such presentations will be made available for
inspection and copying at the principal executive offices of HSN during regular
business hours by any interested stockholder of HSN, or his representative who
has been so designated in writing. The summaries set forth above do not purport
to be a complete description of either such advisor's respective analyses,
including those set forth as exhibits to the Schedule 13E-3, or such advisor's
presentations to the HSN Special Committee or the Silver King Board, as the case
may be. Each of Wasserstein Perella and First Boston believes that its
respective analyses must be considered as a whole and that selecting portions of
these analyses and of the factors considered by it, without considering all
factors and analyses, could create an incomplete view of the processes
underlying its respective opinion. In their respective analyses, each of
Wasserstein Perella and First Boston made numerous assumptions with respect to
industry performance, general business and economic conditions and other
matters, many of which are beyond HSN's or Silver King's control. Any estimates
contained therein are not necessarily indicative of actual values, which may be
significantly more or less favorable than as set forth therein. Estimates of
value of companies do not purport to be appraisals or necessarily reflect the
prices at which companies may actually be sold. Because such estimates are
inherently subject to uncertainty, none of HSN, Silver King, Savoy, Thames,
House, TCI, Mr. Diller or any other person assumes responsibility for their
accuracy.
INTERESTS OF CERTAIN PERSONS IN THE HSN TRANSACTIONS; CONFLICTS OF INTEREST
The interests of certain persons and entities described in this section may
mean that such persons and/or entities have interests in the HSN Merger which
may not be identical to the interests of other HSN stockholders or Silver King
stockholders, as the case may be.
Affiliation of HSN Directors with TCI and Mr. Diller
Two of the eight members of the HSN Board of Directors, Peter R. Barton and
Robert R. Bennett, are executive officers and/or directors of TCI and/or
Liberty, a wholly-owned subsidiary of TCI. Mr. Barton is an executive officer of
both TCI and Liberty, and Mr. Bennett is an executive officer of Liberty. Mr.
Diller is Chairman of the HSN Board and Chairman of the Silver King Board and
Chief Executive Officer of Silver King. In addition, Leo J. Hindery, Jr.,
another member of the HSN Board of Directors, is also the managing general
partner of the general partner of InterMedia Partners and certain affiliated
entities which own and operate a number of cable television systems in which
certain affiliates of TCI have varying direct or indirect limited partnership
interests.
Each of Mr. Diller, Mr. Barton and Mr. Bennett participated in the meeting
of the HSN Board at which the recommendation of the HSN Special Committee was
considered but none of them voted upon any matter relating to the HSN
Transactions other than to approve the formation of the HSN Special Committee.
See "-- Background."
Ownership of HSN Stock and HSN Options
Liberty HSN, an indirect wholly-owned subsidiary of TCI, owns the TCI HSN
Shares, which, as of the HSN Record Date, represent approximately 41% of the
outstanding equity of HSN and approximately 80% of
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the combined outstanding voting power of HSN with respect to matters on which
the holders of HSN Common Stock and HSN Class B Common Stock vote together as a
single class.
Based on information provided by HSN, the following table sets forth the
number of shares of HSN Common Stock and HSN Options, and the percentage of HSN
Common Stock, on a fully diluted basis, and the percentage of outstanding shares
of HSN Common Stock and HSN Class B Common Stock (the "HSN Stock"), on a fully
diluted basis, beneficially owned, as of November 1, 1996, by each executive
officer and director of HSN who owns any HSN Common Stock or HSN Options and by
all executive officers and directors of HSN as a group. Other than the
individuals named below, no executive officer or director of HSN owns any shares
of HSN Stock or HSN Options.
PERCENT OF
NAME OF DIRECTOR PERCENT OF HSN
OR EXECUTIVE SHARES OF CLASS STOCK
OFFICER OF HSN HSN BENEFICIALLY BENEFICIALLY
HSN COMMON STOCK OPTIONS(1) OWNED OWNED
- ----------------------------------------- ------------ ----------- ------------ ------------
Peter R. Barton.......................... 6,250(2) 0 *% *%
Robert R. Bennett........................ 14,500(3) 0 * *
Barry Diller............................. 100,000 3,325,000 4.5 1.2
Brian F. Feldman......................... 7,509(4) 12,000 * *
James G. Gallagher....................... 0 0 * *
James G. Held............................ 46 625,000 3.4 *
Leo J. Hindery, Jr....................... 0 91,668 * *
Honore A. LeBrun, III.................... 122 60,000 * *
Kevin J. McKeon.......................... 4,502(4) 60,800 * *
Mary Ellen Pollin........................ 134 10,000 * *
Gen. H. Norman Schwarzkopf............... 0 1,668 * *
Eli J. Segal............................. 0 1,668 * *
===== ===== ===== =====
133,063 4,187,804 7.9% 1.2%
- ---------------
* Less than 1%.
(1) Does not include options to purchase the following number of shares of HSN
Common Stock (none of which will be vested within 60 days from the date of
this Joint Proxy Statement/Prospectus): Mr. Diller - 9,975,000, Mr.
Feldman - 12,000, Mr. Gallagher - 35,000, Mr. Held - 1,875,000, Mr.
Hindery - 3,332, Mr. LeBrun - 40,000, Mr. McKeon - 45,200, Ms.
Pollin - 40,000, Gen. Schwarzkopf - 53,332 and Mr. Segal - 3,332. See "Risk
Factors -- Possible Nondeductibility of Certain Compensation Relating to HSN
Options."
(2) Includes HSN Debentures held by Mr. Barton which are convertible at the
option of the holder into 6,250 shares of HSN Common Stock at $12.00 per
share, subject to certain adjustments.
(3) Includes HSN Debentures held by Mr. Bennett which are convertible at the
option of the holder into 12,500 shares of HSN Common Stock at $12.00 per
share, subject to certain adjustments.
(4) Includes, with respect to Mr. Feldman, 2,000, and with respect to Mr.
McKeon, 1,000 unvested shares of HSN Common Stock awarded pursuant to HSN's
1990 Executive Stock Award Program.
The following table sets forth the number of shares of HSN Common Stock and
HSN Class B Common Stock and HSN Options, and the percentage of HSN Common
Stock, on a fully diluted basis, and the percentage of outstanding HSN Stock, on
a fully diluted basis, beneficially owned, as of November 1, 1996, by each
executive officer and director of TCI and Silver King who owns any HSN Common
Stock or HSN Options and by all executive officers and directors of TCI and
Silver King as a group. Other than the individuals named below, no executive
officer or director of TCI or Silver King owns any shares of HSN Stock or HSN
Options.
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SHARES
PERCENT OF OF HSN PERCENT OF
NAME OF DIRECTOR HSN CLASS HSN
OR EXECUTIVE SHARES OF COMMON STOCK B STOCK
OFFICER OF TCI OR HSN BENEFICIALLY COMMON BENEFICIALLY
SILVER KING COMMON STOCK HSN OPTIONS OWNED STOCK OWNED
- ---------------------------------- ------------ ----------- ------------ ------ ------------
Barry Diller...................... 100,000 3,325,000(1) 3.5% -- 2.9%
Peter R. Barton................... 6,250(2) -- * -- *
Jerome H. Kern.................... 10,000 -- * -- *
Robert A. Naify................... 13,000 -- * -- *
Lia Afriat-Hernandez.............. -- 1,800 * -- *
===== ===== ===== =====
19,250 3,326,800 3.5% -- 2.9%
- ---------------
* Less than 1%.
(1) Does not include options to purchase 9,975,000 shares of HSN Common Stock
(none of which will be vested within 60 days from the date of this Joint
Proxy Statement/Prospectus). See "Risk Factors -- Possible Nondeductibility
of Certain Compensation Relating to HSN Options."
(2) Includes HSN Debentures held by Mr. Barton which are convertible at the
option of the holder into 6,250 shares of HSN Common Stock at $12.00 per
share, subject to certain adjustments.
Silver King, HSN, Liberty and Mr. Diller believe that each of the foregoing
persons intends to vote their shares of HSN Common Stock and HSN Class B Common
Stock in favor of the HSN Stockholder Proposal. See "HSN Merger Agreement and
Related Transaction Agreements -- Related Agreements -- Stockholder Voting
Agreements."
Business Relationship between Silver King and HSN, and TCI and HSN
Certain business relationships between Silver King and HSN and between TCI
and HSN are described herein. See "-- Background -- Relationship between TCI and
HSN" and "-- Relationship between Silver King and HSN."
Liberty HSN, an indirect wholly-owned subsidiary of each of TCI and
Liberty, is a party to the HSN Merger Agreement and the Exchange Agreement.
Indemnification of HSN Directors and Officers Pursuant to the HSN Merger
Agreement
Under the HSN Merger Agreement, Silver King has agreed upon the HSN Merger
Effective Time to provide the current directors and officers of HSN with the
maximum indemnification protection permitted under the DGCL with respect to
expenses and liabilities arising in connection with facts or events which
occurred on or before the HSN Merger Effective Time or relating to the HSN
Transactions. Silver King has also agreed to assume all of the obligations of
HSN under HSN's existing indemnification agreements with each of HSN's directors
and officers.
Continuing HSN Directors
Pursuant to the HSN Merger Agreement, Silver King has agreed that promptly
following the HSN Merger Effective Time, in accordance with applicable law and
the Silver King Certificate and Silver King Bylaws, three members of the HSN
Board of Directors who are legally permitted to serve as members of the Silver
King Board will become members of the Silver King Board. Based on information
available to Silver King, Silver King expects that such individuals will be
Messrs. Held and Segal, and General Schwarzkopf.
Employment Arrangements
In the HSN Merger Agreement, Silver King has agreed to assume all
outstanding HSN Options granted under HSN's option plans and to cause the HSN
Surviving Corporation to fulfill all employment, severance, termination,
consulting and retirement agreements, as in effect on the date of the HSN Merger
Agreement, to
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which HSN is a party. None of the HSN Options will be accelerated, vest or
otherwise become exercisable due to the HSN Merger. See "HSN Merger Agreement
and Related Transaction Agreements -- General."
Interests of Certain Persons in Silver King
The TCI HSN Shares to be acquired by Silver King in the HSN Merger are
owned by Liberty HSN, an indirect subsidiary of TCI and Liberty. Liberty and
certain of its affiliates, including TCI, are subject to the terms of the
Stockholders Agreement between Liberty and Mr. Diller. As a result of the
exercise of the Liberty Option, Mr. Diller and Liberty own, directly or
indirectly (including through BDTV), sufficient shares of the voting stock of
Silver King that they can control the outcome of substantially all matters
submitted to a vote, or for the consent, of Silver King stockholders, other than
matters which require the separate class vote of the holders of Silver King
Common Stock. For a summary of the terms of the Stockholders Agreement, as well
as the number of Silver King Securities subject thereto as of the Silver King
Record Date, see "-- Background -- Relationship between Liberty and Mr.
Diller -- The Diller-Liberty Stockholders Agreement."
Mr. Diller is Chairman of the Board and Chief Executive Officer of Silver
King. Mr. Diller did not participate in the voting by the Silver King Board on
matters related to the HSN Merger or the grant in connection with the Savoy
Merger and the HSN Merger to him of options to purchase up to 625,000 shares of
Silver King Common Stock. The grant to Mr. Diller of these options is
conditioned upon, among other things, consummation of the HSN Merger and the
Savoy Merger. See "The 1995 Stock Incentive Plan Proposal -- New Plan Benefits."
Both before and after the HSN Merger, Mr. Diller will also own 441,988 shares of
Silver King Common Stock and options to purchase 1,895,847 shares of Silver King
Common Stock, one-fourth of which are currently exercisable, or become
exercisable, in the next 60 days. See "-- Background -- Relationship between
Liberty and Mr. Diller -- Relationship between Silver King and HSN."
Prior to the HSN Transactions, Liberty (and, indirectly, TCI) will own
61,630 shares of Silver King Common Stock and will indirectly own, through
Liberty's non-voting equity interest in BDTV, 2,000,000 shares of Silver King
Class B Common Stock. Pursuant to the terms of the HSN Merger Agreement,
Liberty, upon the HSN Merger Effective Time, will have the right to receive no
additional shares of Silver King Common Stock and an additional 7,756,564 shares
of Silver King Class B Common Stock, which amounts are subject to adjustments in
the event Liberty may own additional Silver King Securities prior to the HSN
Merger. If all of the Exchange Shares and the Contingent Rights Shares are
issued (and without giving effect to any additional issuances of Silver King
Securities in certain circumstances where Liberty is entitled to a tax
gross-up), Liberty will receive an additional 2,644,299 shares of Silver King
Class B Common Stock pursuant to the Contingent Rights and an additional
7,905,015 shares of Silver King Common Stock and 399,136 shares of Silver King
Class B Stock pursuant to the Exchange Agreement. Such Silver King Securities
are or, upon issuance, will be subject to the terms of the Stockholders
Agreement. Prior to the HSN Merger, BDTV will own 2,000,000 shares of Silver
King Class B Common Stock.
Allen & Company Investment Banking Relationship
Paul A. Gould, a managing director of Allen & Company, served as a director
of Liberty from December 1991 to 1995 and currently serves as a director of two
majority-owned subsidiaries of TCI. Allen & Company has from time to time
performed investment banking services for each of HSN and Liberty and acted as
placement agent in March 1996 for the HSN Debentures for which it received $2.8
million.
Based on the mutual agreement of Silver King and Liberty, Allen & Company
provided certain financial analyses and otherwise assisted in the negotiation of
the HSN Transactions (and to the TCI HSN Shares Acquisition). Neither Silver
King nor Liberty requested Allen & Company to provide a fairness opinion in
connection with either transaction, and no such opinion from Allen & Company was
provided. There have been no discussions to date among the parties regarding the
amount of any fee or reimbursement of expenses to be paid to Allen & Company in
connection with its services. See "Savoy Merger and Related
Transactions -- Interests of Certain Persons in the Savoy
Merger -- Savoy -- Allen & Company Investment Banking Relationship."
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CERTAIN INFORMATION CONCERNING HSN
In connection with its review of HSN's business prior to entering into the
Silver King/BDTV Exchange Agreement, the management of Silver King reviewed
publicly available analysts' estimates as to HSN's expected financial results in
its fiscal year ended December 31, 1994 and the fiscal year ending December 31,
1995. Management of Silver King reviewed certain household/member penetration
reports and monthly financial results for 1993, 1994 and 1995. In addition,
Silver King reviewed certain preliminary financial information provided by HSN
management regarding HSN's projected monthly financial performance through
December 31, 1996 and budgets for 1996. Such projections indicated that HSN
would likely continue to show improved financial results as demonstrated in the
months of September and October of 1995. Allen & Company also reviewed such
information and provided an analysis based on such information of the TCI HSN
Shares Acquisition to Silver King. For certain information provided by Silver
King to Allen & Company, see "The Savoy Merger and Related
Transactions -- Certain Information Concerning Silver King and Savoy."
This material was prepared in the third and fourth quarters of 1995 and has
not been revised to reflect, among other things, the terms of the proposed HSN
Merger or intervening changes in HSN's business since the appointment of Mr.
Diller as Chairman of the Board of HSN and the new senior management team
installed at HSN after November 1995.
July 1996 HSN Projections
General. In connection with the negotiation of the HSN Merger Agreement,
HSN made available to Silver King, Savoy, Wasserstein Perella, First Boston and
Gleacher certain summary projected financial information regarding HSN that was
prepared by HSN management. Such information was also available to Liberty
because two directors of HSN are officers of Liberty. The projections, which are
summarized below, were not prepared with a view toward publication. The
projections summarized below are included herein only because they were
considered by the HSN Board and the HSN Special Committee during the course of
their respective deliberations regarding the HSN Transactions and because they
were provided to Silver King, Savoy and their respective financial advisors. HSN
does not publicly disclose projected financial information as to future
revenues, earnings or cash flows.
The projections summarized below were based upon a variety of assumptions,
as described below. Such assumptions involved significant elements of subjective
judgment which may or may not prove to be correct. While HSN's management felt
that such assumptions were reasonable when made, they may no longer be accurate.
The projections were prepared in the third quarter of 1996 and have not been
revised to reflect, among other things, the terms of the proposed HSN
Transactions or any actual financial results of HSN since such date, revised
prospects for HSN's businesses, changes in general business and economic
conditions or any other transactions or events that have occurred or that may
occur and that were not anticipated at the time such projections were prepared.
Accordingly, the projections are not necessarily indicative of the current
values or future performance of HSN, which may be significantly more favorable
or less favorable than as summarized, and should not be regarded as
representations that such values or performances will be achieved as indicated
or at all. Projections are inherently uncertain and are subject to significant
economic and competitive uncertainties that are beyond the control of Silver
King or HSN, and there can be no assurance that the results of operations
reflected in any of the projections will be realized or that actual results will
not be significantly different from those projected. Because of the inherent
uncertainties, none of HSN, Silver King, Liberty HSN or House or any other
person assumes any responsibility for the accuracy of the projections, and the
inclusion of a summary of the projected information in this Joint Proxy
Statement/Prospectus should not be regarded as an indication that any of HSN,
Silver King, Liberty HSN or House considers such projected outcomes to be
accurate or reliable.
The projections summarized below are not included in this Joint Proxy
Statement/Prospectus in order to induce any stockholder to vote for any proposal
set forth herein. HSN's independent accountants did not examine, compile or
apply any procedures to the projections and have not examined, compiled or
applied any
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procedures to the following summary of the projections and therefore express no
opinion or any other form of assurance with respect to such summary and
accordingly assume no responsibility for such summary.
Assumptions for July 1996 HSN Projections. The summary of HSN's financial
projections set forth below was completed by HSN management prior to the
decision to change the classification of shipping and handling revenues from a
component of "Net Sales" to an offset to the related fulfillment costs incurred
by HSN recorded in "Cost of Sales." Such reclassification would have no effect
on the EBITDA, Pre-tax Income or Net Income items set forth below under "Summary
of HSN Financial Projections". In addition, these projections do not reflect any
projections based upon the termination of the Silver King affiliation
agreements.
The projections set forth below assume HSN's consolidated net sales
increase by approximately 13.5% in 1997 and 10% thereafter. Net sales for HSN's
main operating subsidiary, HSC, are assumed to increase 15% in 1997 and 10%
thereafter. These projections were based in part on the past six months'
historical performance which generated net sales increases of 16.9% for
consolidated net sales, excluding the effect of HSN Direct, and 17.1% for HSC
net sales compared to prior periods. In addition, these sales increases were
based upon management continuing to implement new merchandising and programming
strategies. These strategies include a business plan designed to improve product
assortments, reduce the average price per unit, improve inventory management and
reduce liquidation expense, reduce the return rate, and better plan programming
shows.
HSN's consolidated gross profit as a percent of net sales is assumed to
slowly increase over the years to 35% by the year 2001. For the quarter and six
months ended June 30, 1996, consolidated gross profit was 34.1% and 32%,
respectively. This improvement in the gross profit was projected based on the
assumption that HSN continue to improve the product mix by offering items with a
higher gross margin and reduce its liquidation expense by limiting sales
discounts and markdowns and managing product mix and inventory levels.
Operating expenses consist of selling and marketing, engineering and
programming and general and administrative expenses. Selling and marketing
expenses are projected based upon a fixed cost component plus variable expenses
that average 9% of net sales. The principal components of selling and marketing
expenses include telephone, operator and customer service expenses and
commissions to cable system operators. Engineering and programming expenses,
which consist primarily of fixed fees for broadcast carriage, and general and
administrative expenses are projected to increase at assumed inflation rates.
Interest income is assumed to be 5% of the outstanding cash balance.
Interest expense is projected based upon the outstanding balances on HSN's
revolving line of credit, other long-term debt and convertible subordinated
debt.
Income taxes are assumed to be at 38% of pre-tax income. Based upon these
projections, HSN anticipates full realization of its net operating loss carry
forward of $64 million by the year ended December 31, 1997.
Summary of HSN Financial Projections
1996 1997 1998 1999 2000 2001
---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
Total revenue............. $1,127,694 $1,280,584 $1,406,290 $1,543,153 $1,697,449 $1,868,807
EBITDA.................... 70,176 127,925 166,942 200,952 235,168 274,311
Pre-tax income............ 32,918 88,651 126,486 160,961 200,230 245,524
Net income................ 20,407 54,963 78,421 99,796 124,143 152,225
Total assets.............. 428,111 487,506 584,260 707,047 847,415 1,017,346
Total liabilities......... 266,251 269,483 286,615 309,313 325,539 343,245
Stockholders' equity...... 161,860 218,023 297,645 397,734 521,876 674,101
CERTAIN EFFECTS OF THE HSN TRANSACTIONS
At the HSN Merger Effective Time, House will be merged with and into HSN,
with HSN continuing its corporate existence under the DGCL as the HSN Surviving
Corporation and each share of HSN Common
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Stock and HSN Class B Common Stock will be converted into the right to receive
Silver King Securities according to, respectively, the HSN Common Conversion
Ratio and the HSN Class B Conversion Ratio, which, in the case of the HSN Class
B Common Stock, includes a pro rata interest in the Contingent Rights.
Initially, upon consummation of the HSN Merger, Silver King will own at least
80.1% of each of the outstanding shares of HSN Surviving Corporation Common
Stock and HSN Surviving Corporation Class B Common Stock, with Liberty HSN
owning the remaining such shares, subject to the Exchange Agreement. Upon the
HSN Merger Effective Time, Silver King will thereby become entitled to all of
the benefits and detriments resulting from its interest in the HSN Surviving
Corporation, including relating to income or losses generated by the HSN
Surviving Corporation's operations and any future increase or decrease in the
HSN Surviving Corporation's value which is attributable thereto. For certain
restrictions and covenants relating to HSN pursuant to the Exchange Agreement,
see "HSN Merger Agreement and related Transaction Agreements -- HSN Merger
Agreement -- Terms of Exchange Agreement."
After the HSN Merger is consummated, the present holders of HSN Common
Stock (other than Liberty and its affiliates in connection with their ownership
of the shares of stock of the HSN Surviving Corporation) will no longer have any
equity interest in the HSN Surviving Corporation, will not share in the results
of the HSN Surviving Corporation and will no longer have rights to vote on
corporate matters of the HSN Surviving Corporation, except to the extent present
holders of HSN Common Stock become holders of Silver King Common Stock and such
holders of Silver King Common Stock have such interest or rights. The financial
results of HSN will be consolidated with those of Silver King and its
wholly-owned subsidiaries for accounting, financial reporting and tax purposes.
Following the HSN Merger Effective Time, HSN Common Stock will no longer be
traded on the NYSE, registration of HSN Common Stock under the Exchange Act will
terminate and, subject to any reporting requirements related to the HSN
Debentures (which Silver King expects will be satisfied by information to be
contained in Silver King's reports to be filed pursuant to the Exchange Act),
HSN's obligation to file reports pursuant to the Exchange Act will be suspended.
Upon the HSN Merger Effective Time, each outstanding HSN Option will be
converted into the right to receive, upon due exercise pursuant to the terms of
such HSN Option, the shares of Silver King Common Stock that the holder of such
HSN Option would have received had the HSN Option been exercised immediately
prior to the HSN Merger Effective Time. See "HSN Merger Agreement and Related
Transaction Agreements -- General -- Assumption of Options."
Pursuant to the terms of the HSN Indenture and the HSN Merger Agreement,
the HSN Debentures initially will become convertible upon the HSN Merger
Effective Time into an aggregate of 3,750,000 shares of Silver King Common Stock
at a conversion price of $26.67 per share, subject to adjustment pursuant to the
HSN Indenture. Pursuant to the HSN Merger Agreement, Silver King expects that it
will become jointly liable as of the HSN Merger Effective Time with respect to
the HSN Debentures and will enter into a supplemental indenture with the trustee
under the HSN Indenture to that effect and will take appropriate actions to
provide that the resale of the HSN Debentures will be registered under the
Securities Act. See "HSN Merger Agreement and Related Transaction
Agreements -- General -- HSN Debt; HSN Debentures." Silver King expects that it
will become jointly liable with respect to HSN's obligations under the HSN
Indenture.
PLANS FOR HSN AFTER THE HSN MERGER
Except as described in this Joint Proxy Statement/Prospectus, Silver King
and its affiliates currently have no plans or proposals which relate to or would
result in an extraordinary corporate transaction involving HSN or any of its
subsidiaries (such as a merger, reorganization, liquidation, relocation of any
operations or sale or other transfer of a material amount of assets), any change
in HSN's Board of Directors or management, any material change in HSN's
capitalization or dividend policy or any other material change in HSN's
corporate structure or business.
Upon consummation of the HSN Merger, Silver King will own at least 80.1% of
the then-outstanding equity and voting power of HSN. Upon the HSN Merger
Effective Time, the directors of House, all of whom
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are members of Silver King management, will become the directors of the HSN
Surviving Corporation. In addition, Silver King expects that, upon the HSN
Merger Effective Time, HSN's Chief Financial Officer (Kevin J. McKeon) and
General Counsel (James G. Gallagher) will occupy these respective positions at
Silver King. Silver King expects that, following the HSN Merger Effective Time,
HSN's principal executive offices will become the principal offices of the
combined company.
Pursuant to the Exchange Agreement, Silver King and Liberty HSN have agreed
to exchange Liberty HSN's shares of HSN Surviving Corporation Common Stock and
HSN Surviving Corporation Class B Common Stock for shares of Silver King Common
Stock and Silver King Class B Common Stock, respectively, at such time, or from
time to time, that Liberty HSN, or any permitted transferee of Liberty HSN's HSN
Surviving Corporation Stock is permitted under applicable FCC Regulations to own
such Silver King Securities. See "HSN Merger Agreement and Related Transaction
Agreements -- HSN Merger Agreement -- Terms of Exchange Agreement." Upon
completion of the Exchange, HSN would become a wholly-owned subsidiary of Silver
King.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE HSN TRANSACTIONS
The following discussion summarizes the material federal income tax
considerations relevant to the exchange of shares of HSN Common Stock for Silver
King Common Stock pursuant to the HSN Merger.
HSN stockholders should be aware that this discussion does not deal with
all federal income tax considerations that may be relevant to particular
stockholders of HSN in light of their particular circumstances, such as
stockholders who are banks, insurance companies, tax-exempt organizations or
dealers in securities, who are foreign persons, who do not hold their HSN Common
Stock as capital assets, or who acquired their shares in connection with stock
option or stock purchase plans or in other compensatory transactions. In
addition, the following discussion does not address the tax consequences of the
HSN Transactions under foreign, state or local tax laws or the tax consequences
of transactions effectuated prior or subsequent to or concurrently with the HSN
Merger (whether or not such transactions are in connection with the HSN Merger),
including, without limitation, transactions in which HSN Common Stock is
acquired or Silver King Common Stock is disposed of. ACCORDINGLY, HSN
STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX
CONSEQUENCES OF THE HSN MERGER, INCLUDING THE APPLICABLE FEDERAL, STATE, LOCAL
AND FOREIGN TAX CONSEQUENCES TO THEM OF THE HSN MERGER IN THEIR PARTICULAR
CIRCUMSTANCES.
Silver King and HSN have been advised by Wachtell, Lipton, Rosen & Katz and
Howard, Darby & Levin, respectively, that, subject to the limitations and
qualifications referred to herein, qualification of the HSN Merger as a
"reorganization" within the meaning of Section 368 of the Code (a
"Reorganization") will result in the following federal income tax consequences:
(i) No gain or loss will be recognized by holders of HSN Common Stock
solely upon their receipt of Silver King Common Stock solely in exchange
for HSN Common Stock in the HSN Merger (except to the extent of cash
received in lieu of a fractional share of Silver King Common Stock).
(ii) The aggregate tax basis of the Silver King Common Stock received
by HSN stockholders in the HSN Merger will be the same as the aggregate tax
basis of HSN Common Stock surrendered in exchange therefor, including any
tax basis allocated to fractional share interests.
(iii) The holding period of the Silver King Common Stock received in
the HSN Merger will include the period for which the HSN Common Stock
surrendered in exchange therefor was held, provided that the HSN Common
Stock is held as a capital asset at the time of the HSN Merger.
(iv) Cash payments received by holders of HSN Common Stock in lieu of
a fractional share will be treated as if a fractional share of Silver King
Common Stock had been issued in the HSN Merger and then redeemed by Silver
King. A stockholder of HSN receiving such cash will generally recognize
gain or loss upon such payment, equal to the difference (if any) between
such stockholder's basis in the fractional share and the amount of cash
received.
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(v) Neither Silver King, House nor HSN will recognize gain or loss
solely as a result of the HSN Merger.
No ruling has been or will be obtained from the IRS, and as of the date of
this Joint Proxy Statement/Prospectus, no opinions of counsel have been
provided, in connection with the HSN Merger. Consummation of the HSN
Transactions is conditioned upon, among other things, receipt by Silver King and
HSN of customary opinions of, respectively, Wachtell, Lipton, Rosen & Katz,
special counsel to Silver King, and Howard, Darby & Levin, special counsel to
HSN, to the effect that, among other things, the HSN Merger will constitute a
Reorganization. Although the conditions relating to the receipt of such opinions
are waivable by the parties, none of the parties to the HSN Merger Agreement
currently expects that it will waive such conditions. Such opinions are not
binding on the IRS or the courts. HSN stockholders should be aware that the IRS
is not precluded from successfully asserting an opinion contrary to the above
statements, in which case Silver King Common Stock to be received in the HSN
Merger could be taxable to HSN stockholders.
Further, the foregoing opinions of Wachtell, Lipton, Rosen & Katz and
Howard, Darby & Levin will be based on, among other things, current law and
certain representations as to factual matters made by, among others, Silver King
and HSN which, if incorrect in certain material respects, would jeopardize the
conclusions reached by counsel in their opinions. Neither Silver King nor HSN is
currently aware of any facts and circumstances that would cause any
representations of such party to Wachtell, Lipton, Rosen & Katz and Howard,
Darby & Levin to be untrue or incorrect in any material respect. In the event
that the conditions relating to the receipt of the tax opinions are waived by
the parties or such opinions are not received prior to the HSN Merger Effective
Time, Silver King and HSN intend to re-solicit stockholders with respect to,
respectively, the HSN Merger NASD Proposal and the HSN Stockholder Proposal.
If the HSN Merger were not to qualify as a Reorganization, the principal
federal income tax consequences, under currently applicable law, would be as
follows: (i) no gain or loss would be recognized by Silver King or HSN as a
result of the HSN Merger; (ii) gain or loss would be recognized by the holders
of HSN Common Stock and HSN Class B Common Stock upon the exchange of such
shares in the HSN Merger for, respectively, shares of Silver King Common Stock
and Silver King Class B Common Stock; (iii) the tax basis of Silver King Common
Stock and Silver King Class B Common Stock to be received by the holders of HSN
Common Stock and HSN Class B Common Stock in the HSN Merger would be the fair
market value of such respective shares of Silver King Securities as of the HSN
Merger Effective Time; and (iv) the holding period of such shares of Silver King
Securities to be received by HSN stockholders pursuant to the HSN Merger would
begin the day after the HSN Merger Effective Time.
ACCOUNTING TREATMENT
In accordance with generally accepted accounting principles, the HSN Merger
will be accounted for in accordance with Accounting Principles Board Opinion No.
16, "Business Combinations," as amended. Although the former stockholders of HSN
will own Silver King Securities representing approximately 70.2% of the
outstanding equity after the transactions, BDTV and Mr. Diller, who have voting
and management control of Silver King prior to the Combined Transaction, will
continue to have voting and management control of Silver King after the Combined
Transaction. The voting and management control of Silver King by BDTV and Mr.
Diller is a result of the Stockholders Agreement between Liberty and Mr. Diller,
which effectively gives Mr. Diller voting rights over all shares of Silver King
Securities owned by Liberty. Accordingly, the transaction has been accounted for
as a purchase of HSN by Silver King.
Representatives of each of Deloitte & Touche LLP and Ernst & Young LLP are
expected to be present at the Silver King Meeting, and representatives of KPMG
Peat Marwick LLP are expected to be present at the HSN Meeting. In each case,
such representatives will have the opportunity to make a statement if they
desire to do so and are expected to be available to respond to appropriate
questions.
FINANCING OF THE HSN TRANSACTIONS
Based on information provided by HSN, Silver King estimates that the total
number of shares of Silver King Common Stock and Silver King Class B Common
Stock required to consummate the HSN Merger
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(including shares of Silver King Common Stock to be reserved for issuance in
connection with the assumption of HSN Options and upon the conversion, after the
HSN Merger Effective Time, of the HSN Debentures and in connection with the
Contingent Rights Shares and Exchange Shares issuable pursuant to the HSN Merger
Agreement and the Exchange Agreement, respectively) is approximately 44,612,235
and 10,800,000, respectively. In addition, Silver King will reserve
approximately 10,800,000 shares of Silver King Common Stock for issuance upon
the conversion of the shares of Silver King Class B Common Stock to be issued
pursuant to the HSN Transactions. All of such shares of Silver King Common Stock
and Silver King Class B Common Stock will be newly issued shares.
The total amount of funds necessary for expenses related to the HSN
Transactions are estimated to be approximately $6.7 million. Silver King expects
to obtain its current cash requirements from cash on hand and borrowings under
its revolving credit facility. The table set forth below contains an estimate of
certain fees and expenses incurred or expected to be incurred in connection with
consummation of the HSN Transactions:
EXPENSES AND FEES
------------------------------------------------------------------
Commission Filing................................................. $ 411,000
Other Filings..................................................... 45,000
Legal............................................................. 5,000,000
Accounting........................................................ 150,000
Financial Advisory................................................ 550,000
Printing.......................................................... 375,000
Miscellaneous..................................................... 200,000
----------
Total................................................... $6,731,000
=========
Each party to the HSN Merger Agreement will pay its own expenses in
connection with the HSN Merger. See "HSN Merger Agreement and Related
Transaction Agreements -- HSN Merger Agreement -- Fees and Expenses." It is
expected that, of the costs and fees set forth above, approximately $1.7 million
will be payable by HSN.
REGULATORY APPROVALS
In connection with the consummation of the HSN Merger, each of HSN, Silver
King, Liberty, House and BDTV and their respective affiliates must comply with
and receive approvals from various federal, state, and local governmental bodies
and regulatory agencies, including filings under the HSR Act (except that, in
the event that the HSN Merger is consummated on or prior to January 3, 1997, no
further filing under the HSR Act is required), the HSN FCC Approval, filings
under state and federal securities laws (including the effectiveness of the
Registration Statement), the authorization for listing on the Nasdaq National
Market of the shares of Silver King Common Stock to be issued in the HSN Merger
and filings required pursuant to the DGCL. Each of HSN and Silver King believes
that it will timely make all necessary filings and receive all necessary
approvals which, in each case, are required in connection with consummation of
the HSN Merger. See "HSN Merger Agreement and Related Transaction
Agreements -- HSN Merger Agreement -- Conditions to the HSN Merger" and "Risk
Factors -- Regulation."
CERTAIN LITIGATION
In August 1996, after announcement that Silver King, House, Liberty HSN and
HSN had entered into the HSN Merger Agreement, five putative class action suits
were filed by certain HSN shareholders in the Delaware Court of Chancery on
behalf of a purported class consisting of all public shareholders of HSN (other
than Liberty and its controlled affiliates). The defendants include HSN, the
members of the HSN Special Committee, the other members of the HSN Board of
Directors, Silver King, Liberty and TCI. Plaintiffs allege, among other things,
that, by approving the HSN Merger Agreement, the HSN director defendants and, by
supporting the HSN Transactions, Liberty breached their fiduciary duties to the
stockholders and that the consideration to be paid to stockholders in the HSN
Merger is unfair and inadequate. Plaintiffs seek, among other things, an
injunction preventing the defendants from taking actions toward consummation of
the HSN Transactions, rescission or rescissory damages (should the transactions
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proceed) and an award of unspecified compensatory damages to the members of the
plaintiff class. The five actions have been consolidated for all purposes under
the caption In re Home Shopping Network, Inc. Shareholders Litigation,
Consolidated Civil Action No. 15179.
HSN MERGER AGREEMENT AND RELATED TRANSACTION AGREEMENTS
GENERAL
The HSN Merger Agreement provides for the merger of House, a newly-formed
subsidiary of Silver King, with and into HSN, with HSN to be the surviving
corporation of the HSN Merger and initially an 80.1%-owned subsidiary of Silver
King. If the requisite approvals of the stockholders of HSN and Silver King are
received, the HSN Merger is expected to be consummated as soon as practicable
after the satisfaction or waiver of each of the conditions to consummation of
the HSN Merger, including the consummation of the Savoy Merger and receipt of
the requisite HSN FCC Approval, to the extent required. The discussion in this
Joint Proxy Statement/Prospectus of the HSN Merger and other HSN Transactions
and the description of the principal terms of the HSN Merger Agreement and the
related agreements are subject to and qualified in their entirety by reference
to such agreements, copies of which are attached as Appendix B to this Joint
Proxy Statement/Prospectus and are incorporated herein by reference.
Upon consummation of the HSN Merger, the Silver King Board of Directors
will consist of the directors elected at the Silver King Meeting. Pursuant to
the HSN Merger Agreement, Silver King has agreed that promptly following the HSN
Merger Effective Time, in accordance with applicable law and the Silver King
Certificate and Silver King Bylaws, three members of the HSN Board of Directors
who are legally permitted to serve as members of the Silver King Board will
become members of the Silver King Board. Based on information available to
Silver King, Silver King expects that such individuals will be Messrs. Held,
Schwarzkopf and Segal. The executive officers of Silver King and HSN will not
change as a result of the HSN Merger. See "Election of Silver King
Directors -- Information Regarding Directors, Nominees for Election as Directors
and Certain Contemplated Directors" and "-- Executive Officers." Upon
consummation of the HSN Merger, Kevin J. McKeon, the Executive Vice President
and Chief Financial Officer of HSN is expected to become the Chief Financial
Officer of Silver King, and James G. Gallagher, the Executive Vice President and
General Counsel of HSN, is expected to become the General Counsel of Silver
King.
With the exception of Liberty with respect to certain of its shares subject
to the Exchange Agreement, the stockholders of HSN will become stockholders of
Silver King (as described herein), and their rights will be governed by the
DGCL, the Silver King Certificate and the Silver King Bylaws.
Consummation of the Savoy Merger is a condition to consummation of the HSN
Transactions. For a description of the Savoy Merger, see "Savoy Merger and
Related Transactions."
Pre-HSN Merger Exchange
Pursuant to the HSN Merger Agreement, immediately prior to the HSN Merger
Effective Time, 17,566,702 shares (subject to adjustment in certain
circumstances) of HSN Common Stock held by Liberty HSN, which represent all of
the shares of HSN Common Stock beneficially owned by Liberty, will be exchanged
for an equal number of shares of House Common Stock, and 739,141 shares (subject
to adjustment in certain circumstances) of the 20,000,000 shares of HSN Class B
Common Stock held by Liberty HSN (which represent all of the outstanding shares
of HSN Class B Common Stock) will be exchanged for an equal number of shares of
House Class B Common Stock. Upon completion of such Pre-HSN Merger Exchange,
Silver King will own at least 80.1% and Liberty HSN will own not more than 19.9%
of the equity interest of House.
Conversion of Shares
Upon consummation of the HSN Merger, (i) each outstanding share of HSN
Common Stock (except for treasury shares and shares held by HSN or House
following the Pre-HSN Merger Exchange, which will be
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cancelled) will be converted at the HSN Common Conversion Ratio into the right
to receive 0.45 of a share of Silver King Common Stock; (ii) each outstanding
share of HSN Class B Common Stock (except for shares held by HSN or House
following the Pre-HSN Merger Exchange, which will be cancelled) will be
converted at the HSN Class B Conversion Ratio into the right of Liberty HSN to
receive 0.54 of a share of Silver King Class B Common Stock, a portion of which
(up to 2,644,299 shares) will not be issued at the time of the HSN Merger but
will instead be represented by Silver King's contractual obligation to issue
such shares upon the occurrence of certain events; and (iii) each outstanding
share of House Common Stock and House Class B Common Stock, including those
received by Liberty in the Pre-HSN Merger Exchange, will be converted into,
respectively, one share of HSN Surviving Corporation Common Stock or one share
of HSN Surviving Corporation Class B Common Stock.
No fractional shares of Silver King Common Stock or Silver King Class B
Common Stock will be issued in the HSN Merger. Instead, each holder of HSN Class
B Common Stock who would otherwise be entitled to receive a fraction of a share
of Silver King Common Stock will be entitled to a cash payment in lieu thereof,
without any interest thereon, based on the closing market price of Silver King
Common Stock as of the business day preceding such conversion on the principal
national securities exchange or interdealer system on which Silver King Common
Stock is then listed or quoted multiplied by the fractional interest. Each
holder of shares of HSN Common Stock who would otherwise be entitled to receive
a fraction of a share of Silver King Common Stock will be entitled to that
portion of the HSN Common Shares Trust (as defined herein) equal to the
fraction, the numerator of which is the amount of the fractional shares interest
to which such holder is entitled and the denominator of which is the aggregate
amount of fractional shares interests to which all holders of HSN Common Stock
are entitled. The "HSN Common Shares Trust" means the net proceeds of the sale
on the Nasdaq National Market by the HSN Exchange Agent, as soon as practicable
following the HSN Merger Effective Time, of the excess number of full shares of
Silver King Common Stock delivered to the HSN Exchange Agent by Silver King
(which will equal the aggregate number of shares of Silver King Common Stock
issuable to HSN stockholders pursuant to the HSN Merger Agreement) over the
aggregate number of full shares of Silver King Common Stock to be distributed to
holders of HSN Common Stock pursuant to the HSN Merger Agreement. The amount, if
any, payable to HSN stockholders from the HSN Common Shares Trust will be
reduced by the amount Silver King or the HSN Exchange Agent is required to
deduct and withhold with respect to such payment pursuant to the Code or any
other applicable tax law. Such amounts so withheld and deducted will be deemed
to have been paid to the holder of HSN Common Stock in respect of which such
deduction and withholding was made.
Based upon the capitalization of HSN and Silver King as of November 1, 1996
and without giving effect to the Savoy Merger, the stockholders of HSN
(including Liberty and its affiliates) will own Silver King Securities
representing (i) approximately 77% of the Silver King equity outstanding and 77%
of the Total Voting Power outstanding as of the HSN Merger Effective Time (prior
to the issuance of any Contingent Rights Shares or Exchange Shares, and (ii)
approximately 82% of the Silver King equity outstanding and 82% of the Total
Voting Power outstanding immediately after consummation of the HSN Transactions
(assuming the issuance of all the Contingent Rights Shares and completion of the
Exchange). Upon consummation of the Savoy Merger and the HSN Merger, based upon
the capitalization of each of HSN, Savoy and Silver King as of November 1, 1996,
the stockholders of HSN (including Liberty and its affiliates) will own Silver
King Securities representing (i) approximately 70% of the Silver King equity
outstanding and 74% of the Total Voting Power outstanding immediately after
consummation of such transactions (and prior to the issuance of all the
Contingent Rights Shares and completion of the Exchange) and (ii) approximately
76% of the Silver King equity outstanding and 80% of the Total Voting Power
outstanding immediately after consummation of such transactions (assuming the
issuance of all the Contingent Rights Shares and completion of the Exchange).
Because the HSN Common Conversion Ratio and HSN Class B Conversion Ratio
are fixed, the number of shares to be received by stockholders of HSN upon
consummation of the HSN Merger will remain the same, regardless of whether the
market price of HSN Common Stock or Silver King Common Stock increases or
decreases at any time, including after the date of this Joint Proxy
Statement/Prospectus and after the dates of the Silver King Meeting and the HSN
Meeting. See "Special Factors Relating to the HSN
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Transactions -- Opinions of Certain Financial Advisors" and "HSN Merger
Agreement and Related Transaction Agreements -- HSN Merger
Agreement -- Amendment or Termination of the HSN Merger
Agreement -- Termination."
Assumption of Options
Upon consummation of the HSN Merger, each then outstanding HSN Option will
be assumed by Silver King and converted into an option to acquire that number of
shares of Silver King Common Stock equal to the number of shares of HSN Common
Stock subject to such HSN Option multiplied by the HSN Common Conversion Ratio
at an exercise price per share of Silver King Common Stock equal to the exercise
price in effect under such HSN Option immediately prior to the HSN Merger
Effective Time divided by the HSN Common Conversion Ratio. To avoid fractional
shares, the number of shares of Silver King Common Stock subject to an assumed
HSN Option will be rounded up to the nearest whole share. The other terms of the
HSN Options, including vesting schedules, will remain unchanged. Silver King
will file a registration statement on Form S-8 with the Commission with respect
to the issuance of Silver King Common Stock upon exercise of the assumed HSN
Options. As of November 1, 1996, HSN Options to acquire an aggregate of
18,815,810 shares of HSN Common Stock were issued and outstanding at exercise
prices ranging from $3.25 to $14.75 per share. See "Risk Factors -- Possible
Nondeductibility of Certain Compensation Relating to HSN Options."
HSN Debt; HSN Debentures
Upon consummation of the HSN Merger, it is currently contemplated that all
existing indebtedness of HSN will remain outstanding; provided that the HSN
Debentures will become convertible, pursuant to their terms, into that number of
shares of Silver King Common Stock that the holders of the HSN Debentures would
have been entitled to receive in the HSN Merger had such HSN Debentures been
converted into HSN Common Stock immediately prior to the HSN Merger Effective
Time. As of the HSN Record Date, HSN Debentures convertible into approximately
8,333,333 shares of HSN Common Stock at a conversion price of $12.00 per share
were outstanding, which debentures will, as of the HSN Merger Effective Time,
become convertible into 3,750,000 shares of Silver King Common Stock at a
conversion price of $26.667 per share. In addition, Silver King has agreed to
become jointly liable with HSN or to guarantee HSN's obligations under the HSN
Indenture after the HSN Merger Effective Time. Pursuant to the HSN Merger
Agreement, Silver King expects that it will become jointly liable as of the HSN
Merger Effective Time with respect to the HSN Debentures and will enter into a
supplemental indenture with the trustee under the HSN Indenture to that effect
and will take appropriate actions to provide that the resale of the HSN
Debentures will be registered under the Securities Act. The shares of Silver
King Common Stock issuable upon conversion of the HSN Debentures are being
registered under the Securities Act pursuant to the Registration Statement.
The Contingent Rights
In order to comply with certain regulatory restrictions on TCI's beneficial
ownership of Silver King Securities while at the same time allowing Silver King
to own at least 80.1% of the equity and voting power of HSN and subject to
certain adjustments, upon consummation of the HSN Merger, Liberty HSN initially
will receive 7,756,564 shares of Silver King Class B Common Stock and the
Contingent Rights to receive, subject to the satisfaction of certain conditions,
an additional 2,644,299 shares of Silver King Class B Common Stock. Both the
number of shares of Silver King Class B Common Stock issuable to Liberty HSN
upon the HSN Merger and the number of Contingent Rights Shares are subject to
adjustment prior to the HSN Merger in order that Liberty HSN receive as many
shares of Silver King Class B Common Stock as is permissible under the FCC
Orders and, accordingly, as few Contingent Rights as possible.
Subsequent to the HSN Merger Effective Time, at such time as Liberty HSN
can own additional Silver King Securities (due to, among other things, a change
in applicable FCC Regulations or as a result of the issuance by Silver King of
stock which would reduce Liberty HSN's then-current percentage ownership of
Silver King), Silver King will issue to Liberty HSN that number of Contingent
Rights Shares as Liberty HSN will then be able to hold. If, on the third
anniversary of the HSN Merger Effective Date, there remain
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Contingent Rights Shares that have not been issued to Liberty HSN due solely to
a required approval, consent or waiver from the FCC, then, on and after such
date and until there are no remaining Contingent Rights Shares issuable, Liberty
HSN will have the right to apply for the FCC Issuance Approval as may be
necessary to permit the issuance to it of some or all of such remaining
Contingent Rights Shares for the purpose of disposition of such securities by
Liberty HSN in an orderly manner. Upon receipt of the FCC Issuance Approval,
Silver King will issue to Liberty HSN the number of Contingent Rights Shares for
which approval has been granted and additional shares of Silver King Class B
Common Stock, which, after the taxable sale of all such Contingent Rights Shares
and such additional shares so issued, would yield for Liberty HSN the net
after-tax proceeds equal to the total fair market value of the such issued
Contingent Rights Shares as of the date of receipt of such shares. The total
number of Silver King Class B Common Stock so issued will be subject to any
limitations imposed by the FCC Issuance Approval. Silver King's obligation to
issue the Contingent Rights Shares will expire upon the fifth anniversary of the
HSN Merger Effective Time and no such Contingent Rights Shares will be issued
after such fifth anniversary. See "-- HSN Merger Agreement -- Contingent
Rights."
The Exchange
Pursuant to the Exchange Agreement, subsequent to the HSN Merger and, in
the case of Liberty HSN, following the issuance of all Contingent Rights Shares,
at such time as Liberty HSN or its permitted transferee can own additional
Silver King Securities (in the case of Liberty HSN, due to, among other things,
a change in applicable FCC Regulations or as a result of the issuance by Silver
King of stock that would reduce Liberty HSN's then-current percentage ownership
of Silver King), Liberty HSN or its permitted transferee will be obligated,
subject to certain conditions, to exchange its shares of HSN Surviving
Corporation Common Stock and HSN Surviving Corporation Class B Common Stock for
shares of Silver King Common Stock at the HSN Common Conversion Ratio and Silver
King Class B Common Stock at the HSN Class B Conversion Ratio, respectively, to
the extent so permitted. See "-- HSN Merger Agreement -- Terms of Exchange
Agreement." Prior to the HSN Merger Effective Time, Silver King and Liberty HSN
will enter into a definitive exchange agreement having the terms set forth in
Exhibit C to the HSN Merger Agreement and otherwise in form and substance
reasonably satisfactory to Silver King, HSN and Liberty HSN (the "Exchange
Agreement").
HSN MERGER AGREEMENT
Representations and Warranties; Covenants
Pursuant to the HSN Merger Agreement, Silver King and HSN made a number of
representations relating to, among other things: (i) their respective
organization and similar corporate matters and the organization and similar
corporate matters of their respective significant subsidiaries; (ii) their
respective capital structures; (iii) their respective authority to enter into
the HSN Merger Agreement and to consummate the HSN Merger; (iv) the absence of
certain conflicts under their respective certificates of incorporation or
bylaws, certain required consents or approvals and violations of any instruments
or law; (v) documents filed with the Commission and the accuracy of the
information contained therein; (vi) the absence of certain specified material
adverse changes, material litigation or material undisclosed liabilities; (vii)
certain tax and employee benefit matters; (viii) the accuracy of information
supplied by each of Silver King and HSN in connection with the preparation of
this Joint Proxy Statement/Prospectus and the related Registration Statement;
(ix) the receipt of fairness opinions from their respective financial advisors;
(x) the approval of the HSN Merger Agreement by their respective boards
(including for purposes of Section 203 of the DGCL); (xi) the absence of any
actions, or any agreements to take any action, by each that would prevent the
HSN Merger from constituting a reorganization qualifying under the provisions of
Section 368(a) of the Code; and (xii) in the case of Silver King, certain
arrangements with its affiliates.
In addition, Liberty HSN made a number of representations relating to,
among other things: (i) its organization and similar corporate matters; (ii) its
capital structure; (iii) its authority to enter into the HSN Merger Agreement
and to consummate the HSN Merger and the transactions contemplated thereby; (iv)
the absence of certain conflicts under its certificate of incorporation or
bylaws, certain required consents or
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approvals and violations of any instruments or law; (v) its ownership of
17,566,702 shares of HSN Common Stock and 20,000,000 shares of HSN Class B
Common Stock; (vi) the absence of material litigation; and (vii) its tax basis
in the 20,000,000 shares of HSN Class B Common Stock as of the date of the HSN
Merger Agreement.
Silver King and HSN covenanted as to itself and its subsidiaries that,
until the consummation of the HSN Merger or the termination of the HSN Merger
Agreement, it will, among other things, provide the other with reasonable access
to its financial, operating and other information, conduct its operations in the
ordinary course, not take certain actions outside the ordinary course without
the other party's consent, including paying dividends, recapitalizing its
capital stock, issuing its capital stock, amending its certificate of
incorporation or bylaws, taking any action that would or could reasonably be
expected to result in any of its representations and warranties being untrue or
in any of the conditions to the HSN Merger not being satisfied, or enter into
any agreement to do any of the above. Each of the parties also agreed to take
all reasonable actions to consummate the HSN Merger. In addition, each of the
parties agreed to vigorously defend against all actions, suits or proceedings in
which such party is named as a defendant which seek to enjoin, restrain or
prohibit the transactions contemplated by the HSN Merger Agreement or seek
damages with respect to such transactions, and not to settle any such action,
suit or proceeding or fail to perfect on a timely basis any right to appeal any
judgment rendered or ordered entered against such party therein without the
consent of the other parties, which consent shall not be unreasonably withheld.
Silver King and HSN agreed that, subject to the fiduciary duties of their
respective directors, this Joint Proxy Statement/Prospectus will include the
recommendations of the Silver King Board and the HSN Board (based on the
recommendations of the HSN Special Committee) with respect to certain matters
set forth in the HSN Merger Agreement and relating to the HSN Transactions.
Silver King further covenanted to use its reasonable best efforts to cause
the shares of Silver King Common Stock to be issued to HSN stockholders in the
HSN Merger to be eligible for quotation on the Nasdaq National Market prior to
the HSN Merger Effective Time. Silver King has agreed further, if the HSN Merger
is consummated, to assume at the HSN Merger Effective Time all of the
obligations of HSN under HSN's existing indemnification agreements with each of
the directors and officers of HSN, as such agreements relate to the
indemnification of such persons for expenses and liabilities arising from facts
or events that occurred on or before the HSN Merger Effective Time or relating
to the HSN Merger or transactions contemplated by the HSN Merger Agreement;
provided, however, that Silver King will provide to directors and officers of
HSN at the time of the HSN Merger Agreement the maximum indemnification
protection permitted under the DGCL and the HSN Certificate and HSN Bylaws.
HSN has agreed to use its reasonable efforts to deliver to Silver King,
prior to the HSN Merger Effective Time, letters from "affiliates" (as defined
pursuant to Rule 145 promulgated under the Securities Act) of HSN, substantially
in the form attached to the HSN Merger Agreement.
Conditions to the HSN Merger
In addition to the approvals of the stockholders of Silver King and HSN
sought hereby in connection with the HSN Merger (including the approval of the
majority of the HSN stockholders present at the HSN Meeting and voting on such
matter other than Liberty HSN or any of its affiliates), the obligations of each
of the parties to consummate the HSN Merger are subject to the satisfaction of a
number of other conditions, including the declaration by the Commission of the
effectiveness of the Registration Statement filed in connection with this Joint
Proxy Statement/Prospectus; the absence of any stop orders or proceedings
seeking a stop order with respect to the Registration Statement; the absence of
any proceedings commenced by the Commission with respect to this Joint Proxy
Statement/Prospectus; the absence of any order, decree or ruling by any court or
governmental agency or threat thereof, or any other fact or circumstance that
would prohibit or render illegal the consummation of the HSN Merger or the
transactions contemplated by the HSN Merger Agreement; the authorization for
quotation on the Nasdaq National Market, upon official notice of issuance, of
the shares of Silver King Common Stock to be issued in the HSN Merger; and the
receipt of all material governmental consents, orders and approvals (including
the HSN FCC Approval) and the expiration of any
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waiting periods imposed by, any governmental entity necessary for the
consummation of the HSN Merger. See "-- Governmental Approvals."
Each party's obligations under the HSN Merger Agreement are also
conditioned upon the consummation of the Savoy Merger; the execution of the
Exchange Agreement; and the exchange by Liberty HSN of its shares of HSN Common
Stock and a number of its HSN Class B Common Stock into shares of House Common
Stock and House Class B Common Stock immediately prior to the HSN Merger
Effective Time.
In addition, the obligations of each of Silver King and HSN under the HSN
Merger Agreement are conditioned upon the accuracy in all material respects of
the representations and warranties made by the other parties; the performance in
all material respects by the other parties of their respective covenants; the
receipt of all material third-party consents except those consents the failure
to so receive would not have a material adverse effect on such party; and the
receipt by each party of an opinion from such party's legal counsel with respect
to the tax treatment of the HSN Merger.
Liberty HSN's obligations under the HSN Merger Agreement are conditioned
upon the accuracy in all material respects of certain representations and
warranties made by the other parties; the performance in all material respects
of certain covenants of the other parties; the receipt of certain material
third-party consents; and the receipt by the other parties of the respective tax
opinions of their outside legal counsel in connection with the HSN Merger.
Liberty HSN's obligations under the HSN Merger Agreement are further conditioned
upon there being, as of the HSN Merger Effective Time, no law, rule or
regulation in effect or formally introduced in the United States Congress which
would prevent the Exchange or the contribution of Silver King Securities to a
BDTV Entity from being tax-free exchanges for federal income tax purposes.
At any time prior to the HSN Merger Effective Time of the HSN Merger, to
the extent legally allowed, Silver King or HSN, without approval of the
stockholders of such company, may waive compliance with any of the agreements or
satisfaction of any of the conditions contained in the HSN Merger Agreement for
the benefit of that company; provided that certain of such conditions may not be
waived by any of the parties without the prior written consent of Liberty HSN.
Governmental Approvals
Antitrust. Under the HSN Merger Agreement, the obligations of each party
to consummate the HSN Merger are subject to, among other conditions, the
expiration or termination of any waiting period applicable to the consummation
of the HSN Merger under the HSR Act, and no action having been instituted by the
DOJ or the FTC challenging or seeking to enjoin the consummation of the HSN
Merger, which action shall not have been withdrawn or terminated.
Transactions such as the HSN Merger are reviewed by the DOJ and the FTC to
determine whether they comply with applicable antitrust laws. Under the
provisions of the HSR Act, the HSN Merger may not be consummated until such time
as certain information has been furnished to the DOJ and the FTC and the
specified waiting period requirements of the HSR Act have been satisfied.
Pursuant to the HSR Act, on December 18, 1995, Silver King, acting on behalf of
Mr. Diller, and HSN each furnished notification of the TCI HSN Shares
Acquisition and provided certain information to the DOJ and the FTC. On January
3, 1996, HSN and Silver King received notice of early termination of the
applicable waiting period for the TCI HSN Shares Acquisition under the HSR Act.
Such termination is also applicable with respect to the waiting period under the
HSR Act for the HSN Merger, so long as the HSN Merger is consummated on or prior
to January 3, 1997. In the event that the HSN Merger is not consummated by such
date, the applicable parties would be required to file a new Notification and
Report under the HSR Act and a new waiting period would begin.
At any time before or after the HSN Merger Effective Time, the DOJ, the
FTC, state attorneys general or a private person or entity could challenge the
HSN Merger under antitrust laws and seek, among other things, to enjoin the HSN
Merger or to cause Silver King to divest itself, in whole or in part, of HSN or
of other businesses conducted by Silver King. Based on information available to
them, Silver King and HSN believe that the HSN Merger will not violate federal
or state antitrust laws. There can be no assurance,
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however, that a challenge to the HSN Merger on antitrust grounds will not be
made or that, if such a challenge is made, Silver King and HSN would prevail or
would not be required to accept certain conditions, possibly including certain
divestitures or hold-separate agreements in order to consummate the HSN Merger.
FCC. Under the HSN Merger Agreement, the obligations of each party to
consummate the HSN Merger are also conditioned on (i) the receipt of the HSN FCC
Approval, subject to clause (v) below; (ii) the expiration of the time for
filing a request for administrative or judicial review, or for instituting
administrative review sua sponte, of any such HSN FCC Approval, without any such
filing having been made or notice of such review having been issued, or, in the
event of such filing or review sua sponte, the disposition of such filing or
review in favor of the grant and the expiration of the time for seeking further
relief with respect thereto without any request for such further relief having
been filed; (iii) the lack of any imposition by such HSN FCC Approval of any
additional restrictions or limitations (in addition to those imposed by laws and
regulations of general applicability as in effect from time to time) on Silver
King or the Liberty Group (as defined in the HSN Merger Agreement) in the
ownership of their respective assets or the operation of their respective
businesses; (iv) the absence of any order by the FCC requiring any changes to
the First Amendment; and (v) the receipt of the approval of the FCC relating to
the transfer of control of HSN's satellite earth stations, or the issuance of
special temporary authority by the FCC with respect to the transfer of such
earth stations to allow the Company to proceed with the HSN Merger. Although no
formal FCC approval (other than in connection with the transfer of control of
certain satellite earth stations from Liberty HSN to Silver King) is required in
connection with the HSN Transactions, pursuant to the FCC Orders on September
30, 1996, Silver King submitted to the FCC the First Amendment, the HSN Merger
Agreement and certain other documents related to the HSN Transactions for review
by the FCC. In informal conversations prior to the September 30 filing, the FCC
staff indicated to Silver King that it expected to be able to complete its
review within 30 days of receipt of such submission, and Silver King advised the
FCC staff that it was proceeding under the assumption that it would receive FCC
comments, if any, within such 30-day period. As of the date of this Joint Proxy
Statement/Prospectus, the FCC has not responded to Silver King's submission.
Other Approvals. The obligations of each party to consummate the HSN
Merger are also subject to all other material authorizations, consents, orders
or approvals of, or declarations or filings with, or expiration of waiting
periods imposed by, any other governmental entity necessary for the HSN Merger
and the consummation of the transactions contemplated by the HSN Merger
Agreement, having been filed, expired or obtained, other than those that,
individually or in the aggregate, the failure to be filed, expired or obtained,
would not, in the reasonable opinion of Silver King, have a material adverse
effect on HSN or Silver King. There can be no assurance that any applicable
regulatory authority will approve or take other required action with respect to
the HSN Merger, or as to the timing of such regulatory approval or other action.
Silver King and HSN are not aware of any other governmental approvals or actions
that are required in order to consummate the HSN Merger except in connection
with the Securities Act, the filing of merger-related documents under the DGCL
or compliance with applicable securities and "blue sky" laws of the various
states. Should such other approval or action be required, it is contemplated
that Silver King and HSN would seek such approval or action. There can be no
assurance as to whether or when any such approval or action, if required, could
be obtained.
Contingent Rights
General. Pursuant to the terms of the Contingent Rights set forth in
Exhibit A to the HSN Merger Agreement, upon the occurrence of, or in the event
of the existence of circumstances constituting, at any time subsequent to the
HSN Merger Effective Time and on or before the fifth anniversary of the HSN
Merger Effective Time, a Contingent Issuance Event (as defined herein), Silver
King will issue to Liberty HSN a number of Contingent Rights Shares (such
additional Contingent Rights Shares, the "Additional Shares") equal to the
Available Share Amount (as defined herein) determined at such time of, and after
giving effect to, the occurrence or existence of such Contingent Issuance Event
(and any share issuances resulting therefrom). Silver King will issue any
Additional Shares to Liberty HSN simultaneously with or immediately following
the occurrence of a Contingent Issuance Event, subject to (i) the receipt of
requisite governmental
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or regulatory consents, approvals or authorizations (if any), and the expiration
or termination of any waiting periods under the HSR Act required in connection
with the issuance of such Additional Shares and (ii) such issuance not being
taxable to Liberty HSN. Each of Silver King and Liberty HSN has agreed to use
their reasonable best efforts to obtain any such required consent or approval,
and to file and cause the expiration or termination of any waiting period
required in accordance with the HSR Act, in each case, as promptly as
practicable. At or after the HSN Merger Effective Time, Liberty HSN will have
the right to assign the Contingent Rights, in whole or in part, to one or more
wholly-owned subsidiaries of Liberty HSN.
Contingent Issuance Event. The term "Contingent Issuance Event" means any
event, including without limitation, any transaction, stock issuance, change in
law, rule, or regulation, order, decree or policy and/or the existence or change
in any other circumstance(s), which results in Liberty HSN being permitted under
applicable FCC Regulations (as defined in the HSN Merger Agreement) to own
(without limitation or restriction relating to the continuation of such
ownership following issuance, or the imposition of any restriction or limitation
on Silver King or the Liberty Group in the ownership of their respective assets
(including the Contingent Rights and the Contingent Rights Shares) or the
operation of their respective businesses) or any requirement to dispose or
divest of any Silver King Securities (including any interest in BDTV or any BDTV
Entity) or other assets or businesses in connection with such Contingent
Issuance Event (any of the foregoing restrictions or limitations, a "Restrictive
Condition")) directly or indirectly, a greater number of Silver King Securities,
including any securities exercisable or exchangeable for or convertible into
Silver King Securities, than the Adjusted Base Amount (as defined herein) as of
the date of the occurrence or first existence of such Contingent Issuance Event;
provided, however, that a sale or other disposition by the Liberty Group of
Silver King Securities or Exchange Shares will not constitute or result in the
occurrence of a Contingent Issuance Event and such securities will not be
considered in determining the number of Silver King Securities issuable in
connection with a subsequent Contingent Issuance Event. The "Base Amount" means
an amount equal to the number of Silver King Securities owned, directly or
indirectly, by the Liberty Group immediately prior to the HSN Merger (including
the 2,000,000 of Silver King Class B Common Stock held by BDTV) together with
all Silver King Securities actually issued to Liberty HSN in the HSN Merger at
the HSN Merger Effective Time. The "Adjusted Base Amount" means the Base Amount
plus the number of Contingent Rights Shares issued to Liberty HSN subsequent to
the HSN Merger and prior to such Contingent Issuance Event by Silver King.
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Available Share Amount. Under the Contingent Rights, the number of
Additional Shares issuable to Liberty HSN upon the occurrence of a Contingent
Issuance Event will be equal to the "Available Share Amount," which will be
calculated in accordance with the following formula:
A = (MP * OS) - ABA
1-MP
where:
A = the Available Share Amount.
MP = 21.37% or such greater percentage equity interest in Silver King which the
Liberty Group is then permitted to own (directly or indirectly) in accordance
with FCC Regulations (as amended, modified or otherwise changed to the date
thereof) or any subsequent order or determination by the FCC which supersedes
or modifies the FCC Orders or any waiver of or exception to the prohibitions
or requirements of any of the foregoing, the effect of which would be to
permit the Liberty Group to increase its percentage equity interest in Silver
King (including, but not limited to, after giving effect to any "control
premium" or other adjustment to the percentage equity interest of the Liberty
Group required by FCC Regulations).
OS = the aggregate number of Silver King Securities issued and outstanding after
giving effect to any issuances of Silver King Securities resulting in or
contributing to the occurrence of the Contingent Issuance Event, but
excluding (i) the issuance of the Additional Shares to Liberty HSN as a
result of such Contingent Issuance Event and (ii) any shares issued to a
member of the Liberty Group (or its permitted transferee) pursuant to the
terms of the Exchange Agreement.
ABA = the Adjusted Base Amount immediately prior to the occurrence of the
Contingent Issuance Event.
FCC Issuance Approvals. In the event that there are any Remaining Shares
Issuable (as defined herein) which cannot be issued solely due to a required
approval, consent or waiver from the FCC on the third anniversary of the HSN
Merger, then, on and after such third anniversary until such time as there are
no Remaining Shares Issuable, Liberty HSN will have the right to make
application to the FCC for the FCC Issuance Approval. Liberty HSN will be
entitled to seek such FCC Issuance Approval from time to time following the
third anniversary of the HSN Merger and to make all applicable determinations
relating to the form and substance of the consent or approval sought, including,
without limitation, the number of Remaining Shares Issuable for which such
consent or approval is to be sought. The right to seek the FCC Issuance Approval
will not limit Liberty HSN's right to have Contingent Rights Shares issued to it
upon the occurrence of a Contingent Issuance Event subsequent to such third
anniversary, nor will it limit Silver King's obligations regarding its efforts
to cause all Remaining Shares Issuable to be issued consistent with the terms
hereof, and, in this regard, Silver King and Liberty HSN agree to cooperate in
good faith in order to provide for the orderly issuance of Contingent Rights
Shares and Approved Shares pursuant to the Contingent Rights. Silver King has
agreed that it will use its reasonable best efforts to support any request or
application for an FCC Issuance Approval made by Liberty HSN.
Following the receipt of any FCC Issuance Approval, Silver King will, upon
the request of Liberty HSN and upon the date reasonably specified by Liberty,
issue to it up to the number of Contingent Rights Shares for which such approval
has been granted, including therein a number of shares of Silver King Class B
Common Stock equal to the Extra Share Amount; subject, however, to any
limitation contained in the FCC Issuance Approval as to the aggregate number of
shares to be so issued. Upon each issuance of Contingent Rights Shares pursuant
to a FCC Issuance Approval and the subsequent taxable sale of such shares,
Silver King will issue to Liberty HSN an additional number of shares of Silver
King Class B Common Stock (the "Extra Share Amount," and such shares, the "Extra
Shares") such that after such taxable sale of all Contingent Rights Shares and
Extra Shares so issued (collectively, the "Approved Shares"), Liberty HSN (or
its permitted assignee) would have net after-tax proceeds equal to the total
fair market value of the
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Contingent Rights Shares as of the date of receipt of such shares. Prior to the
first issuance of shares pursuant to the FCC Issuance Approval, Silver King and
Liberty HSN will enter into a registration rights agreement providing to Liberty
HSN customary terms for the registration of the Approved Shares issuable,
including, but not limited to, reasonable demand and piggyback registration
rights, minimum amounts of shares to be offered, and other customary and
reasonable provisions, in light of the number of Remaining Shares Issuable. Such
agreement will provide that Liberty HSN will have a single special demand right
which will entitle it to require Silver King to use its commercially reasonable
best efforts to register the full amount of shares requested to be registered
and will require Silver King to use its best efforts to cause such registration
to become effective on or as near as possible, to the date of an FCC Issuance
Approval.
The "Remaining Shares Issuable" as of any date will be equal to the number
of Contingent Rights Shares issuable to Liberty HSN immediately following the
HSN Merger Effective Time of the HSN Merger less the number of Contingent Rights
Shares which have been issued to Liberty HSN as of such date (and will exclude
any Extra Shares issued to it). The number of Remaining Shares Issuable will
also be subject to customary antidilution adjustments. Liberty HSN will not be
permitted to assign or transfer the Contingent Rights or its rights with respect
to any Remaining Shares Issuable, other than any such assignment or transfer to
a wholly-owned subsidiary of Liberty HSN.
Silver King Covenants. Silver King has covenanted in the HSN Merger
Agreement that it will, among other things, use commercially reasonable efforts
to cause all Remaining Shares Issuable to have been issued to Liberty HSN prior
to the third anniversary of the closing of the HSN Merger and, in any event,
prior to the expiration of the Contingent Rights.
In addition, notwithstanding any other provision of the HSN Merger
Agreement, but excluding the transactions specifically contemplated thereby, and
in addition to the foregoing rights and any other rights of Liberty HSN under
the HSN Merger Agreement, until such time as there are no longer any Remaining
Shares Issuable, without the consent of Liberty HSN, Silver King will not (and
will not cause or permit any of its subsidiaries to) take any action that would,
or could reasonably be expected to, or fail to take any action which failure
would, or could reasonably be expected to, (i) make the ownership by the Liberty
Group of the Contingent Rights, the Contingent Rights Shares issuable in respect
thereof, or any other material assets thereof, or the creation, existence or
continuation of Liberty HSN's Contingent Rights, unlawful or result in a
violation of any law, rule, regulation, order or decree (including the FCC
Regulations) or impose material additional restrictions or limitations on the
Liberty Group's full rights of ownership of the Contingent Rights Shares or the
existence or continuation of the Contingent Rights or the ownership by the
Liberty Group of its other material assets or the operation of its businesses
(provided that, for purposes of the foregoing, to the extent that a condition,
restriction or limitation upon Silver King or the HSN Surviving Corporation or
their respective subsidiaries relates to or is based upon or would arise as a
result of any action or the consummation of a transaction by the Liberty Group,
such condition, restriction or limitation will be deemed to be such a condition,
restriction or limitation on the Liberty Group (regardless of whether it is a
party to or otherwise would be legally obligated thereby) to the extent that the
taking of an action or the consummation of a transaction by the Liberty Group
would result in BDTV, Silver King, or any of their respective subsidiaries being
in breach or violation of any law, rule, regulation, order or decree or
otherwise causing such rule, regulation, order or decree to terminate or expire
or would otherwise result in Liberty HSN's ownership of the Contingent Rights,
the Contingent Rights Shares or any other material assets being illegal or in
violation of any law, rule, regulation, order or decree); (ii) cause the
creation, existence or continuation of the Contingent Rights to be taxable to
Liberty HSN; (iii) cause the issuance of any of the Contingent Rights Shares to
be taxable to Liberty HSN or any member of the Liberty Group; or (iv) otherwise
restrict, impair, limit or otherwise adversely affect Liberty HSN's right or
ability to receive the Contingent Rights Shares at any time.
In addition to the foregoing, so long as there are any Remaining Shares
Issuable, Silver King has agreed that it will not (i) declare or pay any cash
dividends, or make any distribution of its properties or assets to the holders
of the Silver King Securities (other than a distribution that is tax free to the
holders of Silver King Securities), unless, prior thereto, Silver King will have
made arrangements reasonably acceptable to Liberty HSN to protect it with
respect to any adverse tax consequence incurred by Liberty HSN (other than its
obligation to pay tax solely because of and to the extent of the holder's
receipt of such dividend or distribution)
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resulting from the declaration and payment of such dividend or the making of
such distribution, or (ii) (a) merge with or into any person, or consolidate
with any person, (b) sell or transfer to another corporation or other person the
property of Silver King as an entirety or substantially as an entirety, or (c)
engage in any statutory exchange of Silver King Securities with another
corporation or other person (other than in connection with a merger or
acquisition), in each case, as a result of which Silver King Securities would be
reclassified or converted into the right to receive stock, securities or other
property (including cash) or any combination thereof, unless in connection with
any such transaction (and immediately prior to the consummation thereof) all
Remaining Shares Issuable are issuable (and are issued) to Liberty HSN and
Liberty HSN would be entitled to own and exercise full rights of ownership of
such Silver King Securities following such transaction or Liberty HSN would be
entitled to own and exercise full rights of ownership of the stock, securities
or other property receivable by a holder of the number and kind of Silver King
Securities receivable by it upon the issuance to it of such Remaining Shares
Issuable.
If the issuance of Contingent Rights Shares is taxable to Liberty HSN as a
result of a change in law after the HSN Merger Effective Time (but not due to
certain actions or unreasonable inaction by Liberty HSN or the Liberty Group),
Silver King has agreed that it will provide to Liberty HSN upon each issuance of
Contingent Rights Shares, a number of additional shares sufficient on an
after-tax basis to pay any such resulting tax.
Termination. Silver King's obligation to issue Contingent Rights Shares,
Remaining Shares Issuable or Extra Shares will terminate at the close of
business on the fifth anniversary of the HSN Merger Effective Time.
Terms of Exchange Agreement
General. In connection with the consummation of the HSN Merger, the
Liberty Group (or any permitted transferee) will receive 739,141 shares of HSN
Surviving Corporation Class B Common Stock and 17,566,702 shares of HSN
Surviving Corporation Common Stock (which number of shares are subject to
adjustment) (the shares of HSN Surviving Corporation Common Stock and HSN
Surviving Corporation Class B Common Stock issued to the Liberty Group are
referred to herein, respectively, as the "Liberty Surviving Common" and the
"Liberty Surviving Class B," in each case, including any other securities or
rights for which such shares of Liberty Surviving Common or Liberty Surviving
Class B, as the case may be, are exchanged or into which such shares are
converted prior to the exchange of such shares for Silver King Securities).
Pursuant to the terms of the Exchange Agreement set forth in Exhibit C to the
HSN Merger Agreement, the members of the Liberty Group (or any transferee) will
have the right to exchange such shares of Liberty Surviving Class B for shares
of Silver King Class B Common Stock and such shares of HSN Surviving Corporation
Common Stock for shares of Silver King Common Stock from time to time as
provided below.
The Liberty Group is obligated to exchange, from time to time, a number of
shares of Liberty Surviving Common or Liberty Surviving Class B (with the holder
entitled to elect the class of HSN Surviving Corporation stock to be so
exchanged), which would result in the issuance to such holder of a number of
Silver King Securities equal to the then Available Silver King Amount. The
"Available Silver King Amount" will equal the difference between (i) the maximum
number of Silver King Securities which the holder of the Liberty Surviving
Common or Liberty Surviving Class B would, under the FCC Regulations then in
effect, then be entitled to own, and (ii) the number of Silver King Securities
then owned (for purposes of the FCC Regulations) by such holder of Exchange
Shares; provided that, in determining the foregoing, a holder will not be deemed
to be permitted to own shares pursuant to the FCC Regulations to the extent that
such exchange would result in any Restrictive Condition. The Exchange Agreement
provides that each share of Liberty Surviving Common will be exchangeable into
0.45 shares of Silver King Common Stock and each share of Liberty Surviving
Class B will be exchangeable into 0.54 shares of Silver King Class B Common
Stock. The HSN Common Conversion Ratio and the HSN Class B Conversion Ratio will
be subject to customary antidilution adjustments.
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The obligation of the holder of Exchange Shares to consummate any such
exchange pursuant to the Exchange Agreement will be subject to customary
conditions of closing, including, but not limited to, (i) the receipt of any and
all consents, approvals or authorizations of any governmental or regulatory
entities, and the expiration or termination of any waiting periods under the HSR
Act required in connection with the exchange of such Exchange Shares, and (ii)
such exchange not being taxable to Liberty HSN. Each of Silver King and Liberty
HSN has agreed in the Exchange Agreement to use their reasonable best efforts to
obtain any such required consent or approval, and to file and cause the
expiration or termination of any waiting period required in accordance with the
HSR Act, in each case, as promptly as practicable.
The rights of the Liberty Group under the Exchange Agreement are assignable
to any person acquiring Exchange Shares (or any interest therein (including an
interest in any BDTV Entity) in a transfer made pursuant to the Stockholders
Agreement (treating the Exchange Shares as though they were Silver Securities
(as defined in the Stockholders Agreement)). The terms of the Exchange Agreement
provide that, subject to certain exceptions, no shares of Liberty Surviving
Common or Liberty Surviving Class B will be exchanged with a member of the
Liberty Group under the Exchange Agreement until all Contingent Rights Shares
issuable to Liberty HSN pursuant to the Contingent Rights have been so issued.
Notwithstanding the foregoing, the Exchange Agreement provides that any member
of the Liberty Group shall be permitted to exchange the applicable amount of
Exchange Shares held by it in connection with any direct or indirect transfer of
Silver King Securities issuable upon such exchange by such member of the Liberty
Group to one or more third parties in accordance with the Stockholders Agreement
(including in connection with a public offering of Silver King Securities
effected pursuant to the Liberty Group's demand and piggyback registration
rights under the Stockholders Agreement).
Silver King Covenants. The Exchange Agreement provides that, in the event
of any merger, consolidation, statutory exchange of securities or other
recapitalization or reclassification of the securities of the HSN Surviving
Corporation, or a sale or transfer of all or substantially all of the assets of
the HSN Surviving Corporation, the securities or other property receivable by
the holder of the Exchange Shares in such transaction will be exchangeable for
Silver King Securities upon the same terms and conditions as such shares of
Liberty Surviving Common and Liberty Surviving Class B (including, without
limitation, any adjustments to the HSN Common Conversion Ratio and the HSN Class
B Conversion Ratio).
In the Exchange Agreement, Silver King has agreed that, so long as any
Exchange Shares remain outstanding, it will provide to Liberty HSN quarterly and
annual financial statements and reports prepared with respect to the HSN
Surviving Corporation and such additional financial and other information with
respect to the HSN Surviving Corporation and its subsidiaries as Liberty HSN may
from time to time reasonably request.
Notwithstanding any other provision of the Exchange Agreement or the HSN
Merger Agreement to the contrary (but excluding actions specifically
contemplated thereby), and in addition to the foregoing rights and any other
voting rights granted by law to the holders of the Exchange Shares, without the
consent of Liberty HSN (which consent, in the case of clauses (ii) through (v)
below, will not be unreasonably withheld), Silver King has agreed that it will
not (and will not cause or permit any of its subsidiaries to) cause or permit
the HSN Surviving Corporation or any of its subsidiaries to take any action that
would, or could reasonably be expected to, or fail to take any action which
failure would or could reasonably be expected to, (i) make the ownership by the
Liberty Group of the Exchange Shares or any other material assets thereof
unlawful or result in a violation of any law, rule, regulation, order or decree
(including the FCC Regulations) or impose material additional restrictions or
limitations on the Liberty Group's full rights of ownership of the Exchange
Shares or the ownership of its other material assets or the operation of its
businesses; (ii) cause the acquisition or ownership by the Liberty Group of any
Exchange Shares to be taxable to such holder; (iii) cause the exchange of
Exchange Shares for Silver King Securities to be a taxable transaction to the
holder thereof; (iv) result in the HSN Surviving Corporation being unable to pay
its debts as they become due or becoming insolvent; or (v) otherwise restrict,
impair, limit or otherwise adversely affect the right or ability of a holder of
Exchange Shares at any time to exercise the exchange rights under the Exchange
Agreement.
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In addition to the foregoing, the Exchange Agreement provides that so long
as any Exchange Shares are outstanding, Silver King will not declare or pay any
cash dividends, or make any distribution of its properties or assets to the
holders of Silver King Securities (other than a distribution which is tax free
to the holders of Silver King Securities), unless, prior thereto, Silver King
will have made arrangements reasonably acceptable to the holders of the Exchange
Shares to protect such holders with respect to any adverse tax consequence
incurred by such holder (other than the obligation of such holder to pay tax
solely because of the holder's receipt of such dividend or distribution)
resulting from the declaration and payment of such dividend or the making of
such distribution. In addition, the Exchange Agreement provides that, so long as
any Exchange Shares are outstanding, Silver King will not (i) merge with or into
any person, or consolidate with any person; (ii) sell or transfer to another
corporation or other person the property of Silver King as an entirety or
substantially as an entirety; or (iii) engage in any statutory exchange of
Silver King Securities with another corporation or other person (other than in
connection with a merger or acquisition), in each case, as a result of which
Silver King Securities would be reclassified or converted into the right to
receive stock, securities or other property (including cash) or any combination
thereof, unless in connection with any such transaction (and immediately prior
to the consummation thereof) the holder of the Exchange Shares would be entitled
to exchange all Exchange Shares for Silver King Securities (and own and exercise
full rights of ownership of such Silver King Securities following such
transaction) or the holder of such Exchange Shares would be entitled to own and
exercise full rights of ownership of the stock, securities or other property
receivable by a holder of the number and kind of Silver King Securities
receivable by such holder upon such exchange of Exchange Shares. Silver King has
agreed that it will not become a party and will not permit any of its
subsidiaries to become a party to any transaction with respect to the foregoing
unless the terms of the agreements relating to such transaction include
obligations of the applicable parties consistent with the foregoing.
Silver King also has agreed that, as soon as reasonably practicable
following the HSN Merger, it will use its reasonable best efforts to take and
cause any of its subsidiaries to take any actions necessary in order to assign
to a wholly-owned subsidiary of the HSN Surviving Corporation ("HSN Sub") all of
the material assets (other than the capital stock of HSN Sub) and material
liabilities of the HSN Surviving Corporation and to cause HSN Sub to assume or
guarantee all such material liabilities and to obtain the release of the HSN
Surviving Corporation from all such material liabilities. Following such
transfer, Silver King will not permit the HSN Surviving Corporation to own any
assets other than the capital stock of the HSN Sub, and will not permit the HSN
Surviving Corporation to be or become subject to any material liabilities.
Bankruptcy of HSN Surviving Corporation. In the event that the HSN
Surviving Corporation should become insolvent or, within the meaning of any
federal or state bankruptcy law, commence a voluntary case or consent to the
entry of any order of relief or for the appointment of any custodian for its
property or a court of competent jurisdiction enters an order or decree for
relief against the HSN Surviving Corporation appointing a custodian or ordering
its liquidation, and Liberty HSN determines in good faith that the equity of the
HSN Surviving Corporation is reasonably likely to be impaired or extinguished,
then, upon the request of Liberty HSN, its rights under the Exchange Agreement
will be converted into the deferred right to receive from Silver King the number
of shares of Silver King Common Stock and Silver King Class B Common Stock which
Liberty HSN would then have had the right to acquire upon the exchange of all
Exchange Shares then outstanding (such deferred right, the "Additional
Contingent Right"). The terms and conditions of the Additional Contingent Right
will be identical to those of the Contingent Rights, except that the Remaining
Shares Issuable pursuant to the Additional Contingent Right will automatically
become issuable, subject to regulatory approval, on the fifth anniversary of the
date the Additional Contingent Right is granted.
In connection with the grant of the Additional Contingent Right, Silver
King will thereafter be obligated to use all reasonable efforts to consummate a
Restructuring Transaction on or before the third anniversary of the date of the
grant of the Additional Contingent Right. In the event that such Restructuring
Transaction has not been consummated by such fifth anniversary and the
Additional Contingent Right has not been satisfied in full by such date, Silver
King will thereafter be required to use its best efforts to cause all Silver
King Securities issuable in respect of the Additional Contingent Right to be
issued prior to the seventh anniversary thereof. Such efforts will include,
without limitation (but subject to applicable fiduciary obligations) engaging
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in a Restructuring Transaction, completing an equity offering, or other
corporate restructuring or causing all of the equity interests in Silver King to
be acquired by a third party in a transaction which is tax free to the
stockholders of Silver King, in any case, which would result in all Contingent
Rights Shares issuable to Liberty HSN pursuant to the Additional Contingent
Right being issued to it and Liberty HSN being entitled to hold such Silver King
Securities or other properties receivable by it in such transaction free of any
governmental or regulatory restrictions and to exercise full rights of ownership
with respect thereto.
Additional Tax Indemnity; Registration Rights. In addition, Silver King
has agreed that, if the exchange of Exchange Shares is taxable to Liberty HSN as
a result of a change in law (but not due to an action or unreasonable inaction
by Liberty HSN or a member of the Liberty Group) after the HSN Merger Effective
Time, it will be obligated to provide to Liberty HSN upon each exchange of
Exchange Shares, a number of additional shares sufficient on an after-tax basis
to pay any such resulting tax.
The Exchange Agreement also provides that Silver King will grant to the
holder of Silver King Securities issuable upon the exchange of Exchange Shares
certain rights relating to the registration of such securities under the
Securities Act upon customary terms and conditions, including demand and
piggyback registration rights.
Amendment or Termination of the HSN Merger Agreement
Amendment. Prior to the HSN Merger Effective Time, the HSN Merger
Agreement may be amended in writing by Silver King and HSN at any time before or
after approval of the issuance of shares in connection with the HSN Merger or
the HSN Merger, as the case may be, by the stockholders of Silver King and HSN,
except that, after any such stockholder approval, no amendment may be made which
by law requires further approval by such stockholders without such further
approval; provided, however, that an amendment approved by the HSN Board must
have been recommended by the HSN Special Committee; and provided, however, that
the HSN Merger Agreement may not be amended in any manner that affects the
rights, obligations, representations or warranties of Liberty HSN thereunder
without the written consent of Liberty HSN.
At any time prior to the HSN Merger Effective Time whether before or after
approval of the HSN Merger and the transactions contemplated by the HSN Merger
Agreement by the stockholders of Silver King and HSN, Silver King or HSN,
without approval of the stockholders of such company, may (i) extend the time
for the performance of any of the obligations of the other party, (ii) waive any
inaccuracies in the representations and warranties contained in the HSN Merger
Agreement or any documents delivered pursuant to the HSN Merger Agreement and
(iii) waive compliance with any of the agreements or the conditions contained in
the HSN Merger Agreement; provided, however, that any extension or waiver on
behalf of HSN may be taken only upon the recommendation of the HSN Special
Committee; and provided, however, that no such extension or waivers may be
effected that affects the rights, obligations, representations or warranties of
Liberty HSN thereunder without the written consent of Liberty HSN.
Termination. The HSN Merger Agreement may be terminated at any time prior
to the HSN Merger Effective Time whether before or after approval of the HSN
Merger and the transactions contemplated by the HSN Merger Agreement by the
stockholders of Silver King and HSN by (i) mutual written agreement of Silver
King and HSN (based on the recommendation of the HSN Special Committee in the
case of HSN) whether before or after approval of the HSN Merger and the
transactions contemplated by the HSN Merger Agreement by the stockholders of
Silver King and HSN, (ii) any of the parties if the HSN Merger has not been
consummated by September 1, 1997 (unless caused by the action or failure to act
of the party seeking to terminate the HSN Merger Agreement in breach of such
party's obligations thereunder); (iii) either Silver King or HSN if (a) a court
of competent jurisdiction or other governmental entity has issued an order,
decree or ruling or taken any other action, in any case, having the effect of
permanently restraining, enjoining or otherwise prohibiting the HSN Merger,
which order, decree or ruling is final and nonappealable or (b) a governmental,
regulatory or administrative agency or commission is seeking to enjoin the HSN
Merger and the terminating party reasonably believes that the time period
required to resolve such governmental action and the related uncertainty is
reasonably likely to have a material adverse effect on either Silver King or
HSN; or (iv) by either Silver King or HSN if the required approvals of the
stockholders of Silver King or HSN
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contemplated by the HSN Merger Agreement have not been obtained by reason of the
failure to obtain the required vote upon a vote taken at the Silver King Meeting
and at the HSN Meeting or at any adjournment thereof (unless caused by the
action or failure to act of the party seeking to terminate the HSN Merger
Agreement, in breach of such party's obligations thereunder).
The HSN Merger Agreement may also be terminated by Silver King (i) if the
HSN Board, acting upon recommendation by the HSN Special Committee, has
withdrawn or modified its recommendation to HSN stockholders concerning the HSN
Merger and such action or inaction was not due to a breach by Silver King as to
the representations and warranties made by Silver King in or the performance of
Silver King's obligations under the HSN Merger Agreement; (ii) upon a breach of
any representation, warranty, covenant or agreement on the part of HSN set forth
in the HSN Merger Agreement, or if any representation or warranty of HSN shall
have become untrue, in either case, such that the conditions as to the accuracy
of HSN's representations and warranties in or the performance of HSN's
obligations under the HSN Merger Agreement would not be satisfied as of the time
of such breach or as of the time such representation or warranty shall have
become untrue, unless such inaccuracy in HSN's representations and warranties or
breach by HSN is curable by HSN through the exercise of its reasonable efforts
and for so long as HSN continues to exercise such reasonable efforts; or (iii)
if at any time prior to the Effective Time, the arithmetic average of the mean
of the closing bid and ask prices of Silver King Common Stock on the Nasdaq
National Market (or other national market or exchange on which Silver King
Common Stock is then traded or quoted) for the 20 trading days immediately
preceding such time is more than $36.875.
The HSN Merger Agreement may also be terminated by HSN (i) if the Silver
King Board shall have withdrawn or modified its recommendation and such action
or inaction was not due to a breach by HSN as to the representations and
warranties made by HSN in and the performance of HSN's obligations under the HSN
Merger Agreement; or (ii) upon a breach of any representation, warranty,
covenant or agreement on the part of Silver King set forth in the HSN Merger
Agreement, or if any representation or warranty of Silver King shall have become
untrue, in either case, such that the conditions as to the accuracy of Silver
King's representations and warranties in or the performance of Silver King's
obligations under the HSN Merger Agreement would not be satisfied as of the time
of such breach or as of the time such representation or warranty shall have
become untrue, unless such inaccuracy in Silver King's representations and
warranties or breach by Silver King is curable by Silver King through the
exercise of its reasonable efforts and for so long as Silver King continues to
exercise such reasonable efforts; or (iii) if, at any time prior to the HSN
Merger Effective Time, the arithmetic average of the mean of the closing bid and
ask prices of Silver King Common Stock on the Nasdaq National Market (or other
national market or exchange on which Parent Common Stock is then traded or
quoted) for the 20 trading days immediately preceding such time is less than
$22.125.
Fees and Expenses
The HSN Merger Agreement provides that all fees and expenses incurred in
connection with the HSN Merger Agreement, the HSN Merger and the related
transactions will be paid by the party incurring such expenses, provided that
Silver King and HSN will share equally all fees and expenses, other than
attorneys' fees, incurred in relation to the printing, filing and mailing of
this Joint Proxy Statement/Prospectus, the Schedule 13E-3 and the Registration
Statement, to the extent such fees and expenses relate to the HSN Merger or the
issuance of Silver King Securities in the HSN Merger.
RELATED AGREEMENTS
Stockholder Voting Agreements
At the time that the HSN Merger Agreement was entered into, Liberty,
Liberty Program Investments, Inc. (a direct wholly-owned subsidiary of Liberty)
and Liberty HSN (a direct wholly-owned subsidiary of Liberty Program
Investments, Inc.), who owned collectively 17,566,702 shares of HSN Common Stock
(representing approximately 24% of the shares of HSN Common Stock outstanding as
of the HSN Record Date) and 20,000,000 shares of HSN Class B Common Stock
(representing 100% of the shares of HSN Class B Common Stock outstanding as of
the HSN Record Date), entered into the HSN Stockholder Voting
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Agreement with Silver King and have each agreed with Silver King that, until the
earliest of the HSN Merger Effective Time, one day after termination of the HSN
Merger Agreement in accordance with its terms and written notice of termination
of the HSN Stockholder Voting Agreement by Silver King, they will (i) vote their
shares (to the extent such party controls the voting thereof) in favor of the
HSN Merger Agreement and the HSN Transactions and against any action or
agreement that would impede, interfere with, delay, postpone or attempt to
discourage the HSN Transactions and (ii) not transfer any of their shares of HSN
Common Stock or HSN Class B Common Stock.
Also, at the time that the HSN Merger Agreement was entered into, Mr.
Diller, Arrow, Liberty and BDTV, who owned collectively or were expected to own
as of the Silver King Record Date 503,618 shares of Silver King Common Stock and
2,000,000 shares of Silver King Class B Common Stock (representing approximately
7% of the shares of the outstanding Silver King Common Stock, 83% of the
outstanding shares of Silver King Class B Stock, and 66% of the Total Voting
Power, in each case, as of the Silver King Record Date), entered into the Second
Silver King Stockholder Voting Agreement and have each agreed with HSN that,
until the earliest of the HSN Merger Effective Time, one day after termination
of the HSN Merger Agreement in accordance with its terms and written notice of
termination of the Second Silver King Stockholder Voting Agreement by HSN, they
will (i) vote their shares (to the extent such party controls the voting
thereof) in favor of the issuance of Silver King Securities pursuant to the HSN
Merger Agreement and the HSN Transactions, and any other related matter to be
voted upon by Silver King stockholders at the Silver King Meeting and (ii) not
transfer any of their Silver King Securities except to BDTV as contemplated
therein and except as contemplated in the Stockholders Agreement and the Equity
Compensation Agreement.
Affiliate Agreements
HSN has agreed to use its reasonable efforts to obtain, prior to the HSN
Merger Effective Time, agreements by each affiliate of HSN to the effect that
such persons will not sell, transfer or otherwise dispose of any shares of
Silver King Common Stock distributed to them pursuant to the HSN Merger, except
in compliance with Rule 145 under the Securities Act, or in a transaction that
is otherwise exempt from the registration requirements of the Securities Act, or
in an offering which is registered under the Securities Act. Generally, sales in
compliance with Rule 145(d) under the Securities Act require that for specified
periods such sales be made in compliance with volume limitations, manner of sale
provisions and current information requirements of Rule 144 under the Securities
Act. The volume limitations should not impose any material limitation on any HSN
stockholder who owns less than 1% of the outstanding Silver King Common Stock
after the HSN Merger unless, pursuant to Rule 144 under the Securities Act,
sales of such stockholder's shares are required to be aggregated with those of
other stockholders.
AMENDMENTS TO DILLER-LIBERTY STOCKHOLDERS AGREEMENT
In connection with the HSN Merger Agreement and the HSN Merger, Liberty and
Mr. Diller have agreed to certain amendments to the Stockholders Agreement. See
"Special Factors Relating to the HSN Transactions -- Background -- Relationship
between Liberty and Mr. Diller -- the Diller-Liberty Stockholders Agreement."
The Stockholders Agreement, as so amended, is attached as Appendix I to this
Joint Proxy Statement/Prospectus.
AFFILIATES' RESTRICTIONS ON RESALE OF SILVER KING COMMON STOCK
The shares of Silver King Common Stock issuable to stockholders of HSN upon
consummation of the HSN Merger have been registered under the Securities Act.
Such shares may be traded freely without restriction by those stockholders who
are not deemed to be "affiliates," as that term is defined in the rules under
the Securities Act, of HSN or Silver King. Shares of Silver King Common Stock
received by those stockholders of HSN who are deemed to be affiliates of HSN or
Silver King may be resold without registration under the Securities Act only as
permitted by Rule 145 under the Securities Act or as otherwise permitted under
the Securities Act. HSN has agreed to use its reasonable efforts to obtain,
prior to the HSN Merger Effective Time, agreements by each affiliate of HSN to
the effect that such persons will not sell, transfer or otherwise dispose of any
shares of Silver King Common Stock distributed to them pursuant to the
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HSN Merger, except in compliance with Rule 145 under the Securities Act, or in a
transaction that is otherwise exempt from the registration requirements of the
Securities Act, or in an offering which is registered under the Securities Act.
Generally, sales in compliance with Rule 145(d) under the Securities Act require
that for specified periods such sales be made in compliance with volume
limitations, manner of sale provisions and current information requirements of
Rule 144 under the Securities Act. The volume limitations should not impose any
material limitation on any HSN stockholder who owns less than 1% of the
outstanding Silver King Common Stock after the HSN Merger unless, pursuant to
Rule 144 under the Securities Act, sales of such stockholder's shares are
required to be aggregated with those of other stockholders.
ABSENCE OF DISSENTERS' RIGHTS
Both Silver King and HSN are incorporated in the State of Delaware, and,
accordingly, are governed by the provisions of the DGCL. Pursuant to Section
262(b)(1) of the DGCL, the stockholders of HSN (other than Liberty HSN) are not
entitled to appraisal rights in connection with the HSN Merger because HSN
Common Stock is listed on the NYSE and such stockholders will receive as
consideration in the HSN Merger only shares of Silver King Common Stock, which
shares will be listed on the Nasdaq National Market upon the closing of the HSN
Merger, and cash in lieu of fractional shares. Liberty HSN is not entitled to
appraisal rights in connection with the HSN Merger because it is a party to the
HSN Merger Agreement and has agreed to vote its shares of HSN Common Stock and
HSN Class B Common Stock in favor of the HSN Merger Agreement. In addition, the
Silver King stockholders are not entitled to appraisal rights under Section 262
of the DGCL because Silver King is not one of the constituent corporations in
the HSN Merger. Also, because Silver King is not a constituent corporation in
the HSN Merger, even though approval of the stockholders of Silver King is
required for the issuance of Silver King Common Stock in the HSN Merger under
the rules and bylaws of the NASD, the approval of the stockholders of Silver
King is not required under the DGCL for the HSN Merger itself.
HSN stockholders who object to the HSN Transactions may seek to pursue any
available claims for breach of fiduciary duty under Delaware law. Several
decisions by Delaware courts have held that, in certain instances, a controlling
stockholder of a corporation involved in a merger has a fiduciary duty to the
other stockholders that requires the merger to be fair to such other
stockholders. In determining whether a merger is fair to the minority
stockholders, the Delaware courts have considered, among other things, the type
and amount of consideration to be received by the stockholders and whether there
were fair dealings among the parties. See "Special Factors Relating to the HSN
Transactions -- Certain Litigation."
EXCHANGE OF CERTIFICATES
As soon as practicable after the HSN Merger Effective Time, Silver King
will instruct the HSN Exchange Agent to mail to each stockholder of record of
HSN as of the HSN Merger Effective Time (other than HSN, Liberty HSN, Silver
King, House and any wholly-owned subsidiary of Silver King) a letter of
transmittal with instructions to be used by such stockholder in surrendering
certificates which, prior to the HSN Merger Effective Time, represented shares
of HSN Common Stock in exchange for certificates representing shares of Silver
King Common Stock. Letters of transmittal will also be available as soon as
practicable after the HSN Merger Effective Time at the offices of the HSN
Exchange Agent. After the HSN Merger Effective Time, there will be no further
registration of transfers on the stock transfer books of the HSN Surviving
Corporation of shares of HSN Common Stock which were outstanding immediately
prior to the HSN Merger Effective Time. SHARE CERTIFICATES SHOULD NOT BE
SURRENDERED FOR EXCHANGE PRIOR TO APPROVAL AND ADOPTION OF THE HSN MERGER
AGREEMENT AND THE HSN MERGER BY THE HSN STOCKHOLDERS AND APPROVAL OF THE
ISSUANCE OF SHARES OF SILVER KING COMMON STOCK PURSUANT TO THE HSN MERGER
AGREEMENT BY THE SILVER KING STOCKHOLDERS OR PRIOR TO THE HSN MERGER EFFECTIVE
TIME.
Upon the surrender of a HSN Common Stock certificate to the HSN Exchange
Agent, together with a duly executed letter of transmittal and such other
documents as may be required by the HSN Exchange Agent, the holder of such
certificate will be entitled to receive in exchange therefor a certificate
representing
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the number of whole shares of Silver King Common Stock and any cash in lieu of
fractional shares of Silver King Common Stock to which the holder of HSN Common
Stock is entitled pursuant to the provisions of the HSN Merger Agreement. In the
event of a transfer of ownership of HSN Common Stock which is not registered in
the transfer records of HSN, a certificate representing the appropriate number
of shares of Silver King Common Stock and any cash in lieu of fractional shares
of Silver King Common Stock may be issued to a transferee if the certificate
representing such HSN Common Stock is presented to the HSN Exchange Agent,
accompanied by all documents required to evidence and effect such transfer and
to evidence that any applicable stock transfer taxes have been paid, along with
a duly executed letter of transmittal.
Until a certificate representing HSN Common Stock has been surrendered to
the HSN Exchange Agent, each such certificate will be deemed at any time after
the HSN Merger Effective Time to represent only the right to receive upon such
surrender the certificate representing the number of shares of Silver King
Common Stock plus cash in lieu of fractional shares of Silver King Common Stock
to which the HSN stockholder is entitled under the HSN Merger Agreement. Upon
consummation of the HSN Merger, shares of HSN Common Stock will cease to be
traded on the NYSE, and there will be no further market for HSN Common Stock.
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UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial statements
have been prepared to give effect separately to the Savoy Merger and the
combined effect of the Savoy Merger and the HSN Merger. When referred to in
combination, the Savoy Merger and HSN Merger shall be referred to as the
"Combined Transaction." In addition, the unaudited pro forma combined condensed
financial statements have been prepared to give effect separately to the Savoy
Merger and Combined Transaction assuming that the Savoy Stations were acquired
by Savoy as of January 1, 1995. These unaudited pro forma combined condensed
financial statements give effect to the Savoy Merger, the Combined Transaction
and the acquisition of the Savoy Stations using the purchase method of
accounting.
The unaudited pro forma financial statements reflect certain assumptions
regarding the proposed transactions and are based on the historical consolidated
financial statements of the respective companies. These unaudited pro forma
combined condensed financial statements, including the notes thereto, are
qualified in their entirety by reference to, and should be read in conjunction
with, the audited financial statements and the unaudited interim financial
statements, including the notes thereto, of Silver King, Savoy and HSN, which
are incorporated by reference in this Joint Proxy Statement/Prospectus. See
"Incorporation of Certain Documents by Reference."
The pro forma combined condensed balance sheet, as of September 30, 1996,
gives effect to each transaction as if it had occurred on September 30, 1996,
and combine, in the case of the Combined Transaction, the unaudited balance
sheet of Silver King, Savoy and HSN as of September 30, 1996; in the case of the
Savoy Merger alone, the unaudited balance sheet of Silver King and Savoy as of
September 30, 1996.
The pro forma combined condensed statement of operations combines, in the
case of the Combined Transaction, the unaudited statement of operations of
Silver King, Savoy and HSN for the nine-month period ended September 30, 1996
and the 12-month period ended December 31, 1995; in the case of the Savoy Merger
alone, the unaudited statement of operations of Silver King and Savoy for the
nine-month period ended September 30, 1996 and the 12-month period ended
December 31, 1995, in each case, as if the relevant transaction had occurred on
January 1, 1995. In addition, the pro forma combined condensed statement of
operations combines the entities listed above in the case of the Savoy Merger
and Combined Transaction as if the relevant transactions had occurred on January
1, 1995, adjusted for the assumed acquisition of the Savoy Stations as of
January 1, 1995.
The notes to the pro forma combined condensed financial statements for the
Combined Transaction also serve as the notes for the pro forma combined
condensed financial statements for the Savoy Merger.
After the consummation of the Combined Transaction, Silver King will
determine the fair value of significant assets and liabilities and business
operations of HSN and Savoy, which may include the use of independent
appraisals. Using this information, Silver King will make a final allocation of
the excess purchase price, including allocation to the intangibles other than
goodwill. Accordingly, the purchase accounting information is preliminary and
has been made solely for the purposes of developing such unaudited pro forma
combined condensed financial information.
The unaudited pro forma combined information is presented for illustrative
purposes only and is not necessarily indicative of the financial position or
results of operations which would have actually been reported had any of the
transactions occurred as of September 30, 1996, or for the nine months ended
September 30, 1996, or for the year ended December 31, 1995, nor is it
necessarily indicative of future financial position or results of operations.
Although cost savings and other benefits from the synergies of operations of the
combined companies are expected, no such benefits are reflected in these pro
forma combined condensed financial statements.
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UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS
TABLE OF CONTENTS
PAGE
Combined Transaction(1)
Pro Forma Combined Condensed Balance Sheet -- September 30, 1996.................... 166
Pro Forma Combined Condensed Statement of Operations -- Nine Months Ended September
30, 1996......................................................................... 167
Pro Forma Combined Condensed Statement of Operations -- Year Ended December 31,
1995............................................................................. 168
Notes to Unaudited Pro Forma Combined Condensed Financial Statements................ 169
Savoy Merger(1)
Pro Forma Combined Condensed Balance Sheet -- September 30, 1996.................... 172
Pro Forma Combined Condensed Statement of Operations -- Nine Months Ended September
30, 1996......................................................................... 173
Pro Forma Combined Statement of Operations -- Year Ended December 31, 1995.......... 174
Savoy Adjusted(1)
Pro Forma Combined Condensed Statement of Operations -- Year Ended December 31,
1995............................................................................. 175
Notes to Unaudited Pro Forma Combined Condensed Statement of Operations............. 176
- ---------------
(1) Reflects the Combined Transaction and the Savoy Merger with Savoy's 1995
acquisition of the Savoy Stations (WVUE-TV, WALA-TV, KHON-TV and WLUK-TV) as
if the television station acquisitions occurred as of January 1, 1995.
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COMBINED TRANSACTION
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
(IN THOUSANDS)
SEPTEMBER 30, 1996
-----------------------------------------------------------------------
PRO FORMA
SILVER KING HSN SAVOY ADJUSTMENTS COMBINED
----------- -------- --------- ----------- ----------
Assets
Current Assets:
Cash and other short-term
investments................. $ 13,900 $ 31,833 $ 51,796 $ 97,529
Accounts and notes
receivable.................. 3,752 26,044 24,766 54,562
Inventories................... -- 90,728 46,271 136,999
Other......................... 2,523 31,887 1,505 35,915
--------- -------- --------- ---------- ----------
Total current
assets............ 20,175 180,492 124,338 325,005
Property, plant and equipment,
net......................... 23,677 100,084 18,818 142,579
Intangible assets including
goodwill and broadcast
licenses, net............... 52,964 2,615 255,294 1,060,690(1b)(4) 1,371,563
Deferred tax asset............ -- 6,967 -- 6,967
Cable distribution fees....... -- 109,594 -- 109,594
Noncurrent inventories........ -- -- 34,223 (14,041)(1a) 20,182
Long-term investments and
receivables................. 22,270 14,129 -- 36,399
Deferred charges and other.... 3,588 4,155 8,668 16,411
--------- -------- --------- ---------- ----------
Total noncurrent
assets............ 102,499 237,544 317,003 1,046,649 1,703,695
Total assets........ $ 122,674 $418,036 $ 441,341 1,046,649 $2,028,700
========= ======== ========= ========== ==========
Liabilities and
Stockholders' Equity
Liabilities:
Accounts payable, accrued and
other current liabilities... $ 3,015 $164,202 $ 37,486 11,200(4) $ 215,903
Current portion of long-term
debt........................ 13,000 230 59,300 $ 72,530
--------- -------- --------- ---------- ----------
Total current
liabilities....... 16,015 164,432 96,786 11,200 288,433
Deferred income taxes......... 14,575 -- 45 14,620
Long-term debt................ 83,922 98,131 111,186 293,239
Other long-term liabilities... -- -- 6,895 6,895
--------- -------- --------- ---------- ----------
Total liabilities... 114,512 262,563 214,912 11,200 603,187
Minority interest in Savoy
Stations and HSN............ -- -- 95,171 240,683(1b) 335,854
Stockholders' Equity:
Preferred stock............... -- -- -- --
Common stock(12).............. 71 790 300 (724)(1a)(1b) 437
Common stock -- Class B....... 24 200 -- (92) (1b) 132
Additional paid-in capital.... 127,493 184,252 366,952 529,819(1a)(1b)(5) 1,208,516
Note receivable from key
executive for common stock
issuance.................... (4,998) -- -- (4,998)
Unamortized value of
restricted stock............ -- -- (6,465) 6,465(5) --
Unearned compensation......... (2,876) (2,997) -- 2,997(1b) (2,876)
Treasury stock................ -- (48,718) -- 48,718(1b) --
Retained earnings (deficit)... (111,582) 21,946 (229,529) 207,583(1a)(1b) (111,552)
--------- -------- --------- ---------- ----------
Total stockholders'
equity............ 8,162 155,473 131,258 794,766 1,089,659
--------- -------- --------- ---------- ----------
Total liabilities and
stockholders' equity........ $ 122,674 $418,036 $ 441,341 $ 1,046,649 $2,028,700
========= ======== ========= ========== ==========
See notes to unaudited pro forma combined condensed financial statements for the
Combined Transaction.
166
193
COMBINED TRANSACTION
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NINE MONTHS ENDED SEPTEMBER 30, 1996
---------------------------------------------------------------
PRO FORMA
SILVER KING HSN SAVOY ADJUSTMENTS COMBINED
----------- -------- -------- ----------- ---------
Revenues:
Broadcasting, net.................... $33,249 -- $ 35,374 (31,270)(6) $ 37,353
Home shopping........................ -- $733,922 -- 733,922
Filmed entertainment................. -- -- 63,474 63,474
------- -------- -------- -------- --------
Total revenues............... 33,249 733,922 98,848 (31,270) 834,749
Operating costs and expenses:
Cost of sales........................ 271 453,483 138,518 592,272
Engineering and programming.......... -- 73,280 -- (33,944)(6) 39,336
Selling, general and
administrative(3)................. 17,819 157,853 19,091 194,763
Depreciation and amortization........ 10,178 24,849 10,934 19,888(7) 65,849
------- -------- -------- -------- --------
Total operating expenses..... 28,268 709,465 168,543 (14,056) 892,220
Operating income (loss)...... 4,981 24,457 (69,695) (17,214) (57,471)
Other income (expense):
Net interest expense................. (4,726) (6,856) (11,273) (22,855)
Miscellaneous........................ 154 5,415 -- 5,569
------- -------- -------- -------- --------
(4,572) (1,441) (11,273) (17,286)
Income (loss) before income taxes,
minority interest and
extraordinary item................ 409 23,016 (80,968) (17,214) (74,757)
Income tax (expense) benefit........... (1,838) (8,747) 580 8,056(9) (1,949)
Minority interest in Savoy Stations and
HSN(1b).............................. -- -- 2,039 1,647(8) 3,686
------- -------- -------- -------- --------
Income (loss) before extraordinary
item.............................. $(1,429) $ 14,269 $(78,349) $ (7,511) $ (73,020)
======= ======== ======== ======== ========
Weighted average number of common
shares and common share
equivalents.......................... 9,479 56,880
Loss before extraordinary item per
common share......................... $ (0.15) $ (1.28)
See notes to unaudited pro forma combined condensed financial statements for the
Combined Transaction.
167
194
COMBINED TRANSACTION -- SAVOY ADJUSTED (10)
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31, 1995
-------------------------------------------------------------------------
SAVOY PRO FORMA
SILVER KING HSN ADJUSTED(10) ADJUSTMENTS COMBINED
----------- ---------- ------------ ----------- ----------
Revenues:
Broadcasting, net............ $46,628 -- $ 60,078 $ (41,449)(6) $ 65,257
Home shopping................ -- $ 919,796 -- 919,796
Filmed entertainment......... -- -- 67,300 67,300
------- --------- -------- -------- ---------
Total revenues....... 46,628 919,796 127,378 (41,449) 1,052,353
Operating costs and expenses:
Cost of sales................ 591 602,849 148,348 751,788
Engineering and
programming............... -- 98,216 -- (41,449)(6) 56,767
Selling, general and
administrative(3)......... 26,110 244,150 29,014 299,274
Depreciation and
amortization.............. 14,466 38,854 12,794 26,517(7) 92,631
Other, including
restructuring
charges................... 2,603 16,007 18,610
------- --------- -------- -------- ---------
Total operating
expenses........... 43,770 1,000,076 190,156 (14,932) 1,219,070
Operating income (loss)...... 2,858 (80,280) (62,778) (26,517) (166,717)
Other income (expense):
Net interest expense......... (7,031) (8,116) (10,450) (25,597)
Miscellaneous................ 549 (426) -- 123
Litigation................... -- (6,383) -- (6,383)
------- --------- -------- -------- ---------
(6,482) (14,925) (10,450) (31,857)
(Loss) before income taxes..... (3,624) (95,205) (73,228) (26,517) (198,574)
Income tax (expense)
benefit................... 218 33,322 (1,628) 31,912
Minority interest in Savoy
Stations(1b).............. -- -- (591) 403(8) (188)
------- --------- -------- -------- ---------
Net loss............. $(3,406) $ (61,883) $(75,447) $ (26,114) $ (166,850)
======= ========= ======== ======== =========
Weighted average number of
common shares and common
share
equivalents.................. 9,084 56,485
Net loss per common share...... $ (0.37) $ (2.95)
See notes to unaudited pro forma combined condensed financial statements for the
Combined Transaction.
168
195
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(IN THOUSANDS)
(1a) Savoy Merger. The cost to acquire Savoy pursuant to the Savoy Merger
and the determination of the excess net assets acquired over the acquisition
cost are as set forth below:
Issuance of Silver King Common Stock, including estimated $ 117,217
transactions costs -- see Note 4............................
Net assets of Savoy at September 30, 1996..................... 131,258
Less: Fair value adjustments -- see Note 2.................... (14,041)
--------
Fair value of Savoy assets.................................... (117,217)
--------
Goodwill...................................................... $ 0
========
The pro forma adjustments assume a price of $26.80 per share of Silver King
Common Stock. The pro forma issuance is based on the negotiated Savoy Conversion
Ratio of .14 of a share of Silver King Common Stock for each share of Savoy
Common Stock.
(1b) HSN Merger. The cost to acquire HSN pursuant to the HSN Merger and
the preliminary determination of the unallocated excess acquisition cost over
the net assets acquired are as set forth below:
Issuance of Silver King Common Stock and Silver King Class B Common
Stock.................................................................. $1,209,463
Net assets of HSN at September 30, 1996.................................. (155,473)
----------
Goodwill................................................................. $1,053,990
==========
The pro forma adjustment assumes a price of $28.00 per share of Silver King
Common and Class B Common Stock. The pro forma issuance is based on an exchange
ratio of .45 of a share of Silver King Common Stock for each share of HSN Common
Stock and an exchange ratio of .54 of a share of Silver King Class B Common
Stock for each share of HSN Class B Common Stock. No Contingent Rights Shares
are assumed to be currently issued.
Due to the obligations of the parties to exchange Liberty's remaining
shares upon certain future events, the pro forma adjustment for minority
interest represents approximately 19.9% of the net assets of HSN as adjusted for
the current fair value or $240.7 million. In addition, $48.7 million of HSN
Common Stock in treasury has been eliminated, and all HSN unearned compensation
has been eliminated. Compensation expense of approximately $3.3 million arising
as a result of the accelerated vesting of restricted stock directly related to
the transaction has not been reflected in the pro forma statement of operations
because the expense is non-recurring. No minority interest in losses of HSN has
been reflected in the pro forma income statements as a result of the obligations
discussed above.
(2) Film Inventory. In accordance with Accounting Principles Board Opinion
No. 16, "Business Combinations," as amended, Silver King has preliminarily
allocated the excess of net assets acquired over the acquisition cost to reduce
long-term assets, specifically film inventory. This reduction is consistent with
a preliminary analysis by Silver King of Savoy's released film inventory, its
unreleased films (other than those films anticipated to be released prior to
closing of the Savoy Merger) and its projects in development. The preliminary
determination of fair values was based, in part, on consideration of the present
value of known and estimated cash flows, as well as Silver King's preliminary
intentions with respect to exploiting the acquired film assets.
The actual purchase price accounting adjustments will be based on the facts
and circumstances at the time of closing of the Savoy Merger.
(3) In connection with the Savoy Merger and the Combined Transaction,
Silver King will incur compensation expense of approximately $1.3 million, which
will be amortized over the four-year vesting period, as a result of the grant to
Mr. Diller of options to purchase 625,000 shares of Silver King Common Stock.
The expense has not been reflected in the pro forma combined condensed financial
statements because the charge is non-recurring. The options are subject to
shareholder approval of the 1995 Stock Incentive Plan, and 221,625 and 403,375,
respectively of such shares are also conditioned upon consummation of the Savoy
169
196
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS -- (CONTINUED)
Merger and the Exchange. Each share of Silver King Common Stock granted to Mr.
Diller under the proposed 1995 Stock Incentive Plan is priced at $30.75 per
share, which is approximately $2.15 per share less than the trading value of
Silver King Common Stock on the date of grant.
(4) Silver King estimates it will incur aggregate transaction costs of
approximately $4.5 million and $6.7 million associated with the Savoy Merger and
the HSN Transactions, respectively. Total transaction costs to be incurred by
Silver King, Savoy and HSN with respect to the consummation of the transactions
include legal, printing, accounting and financial advisory services as well as
other related expenses attributable to such transactions.
(5) Savoy issued 500,000 shares of restricted Savoy Common Stock to two key
executives pursuant to Savoy's 1994 Restricted Stock Plan and 100,000 shares of
restricted Savoy Common Stock to one executive pursuant to a restricted stock
agreement. Upon completion of the Savoy Merger, the three executives will
receive an aggregate of 84,000 shares of unrestricted Silver King Common Stock.
Compensation expense of approximately $6.8 million arising as a result of the
accelerated vesting of restricted stock directly related to the transaction has
not been reflected in the pro forma statement of operations because the expense
is non-recurring. The compensation charge will be recorded by Savoy immediately
prior to the consummation of the Savoy Merger.
(6) Intercompany revenue and engineering expense between Silver King and
HSN have been eliminated in these pro forma combined condensed financial
statements. Silver King currently receives a monthly affiliation fee for
broadcasting HSC's programming on the Silver King Stations. HSN accrues the cost
of the bonus expense according to the affiliation agreement whereas Silver King
records this bonus as revenue when the cash is received.
(7) Pro forma amortization adjustments reflect additional amortization
expense resulting from the increase in intangible assets. Silver King believes
that any significant allocation of excess purchase price to intangibles will be
amortized over 40 years. Such amortization period is based on Silver King's
belief that the combined company has substantial potential for achieving
long-term appreciation as a fully integrated retail, entertainment and
communications company. Silver King believes that the combined company will
benefit from the Savoy Merger and the HSN Transactions for an indeterminable
period of time and, therefore, a 40-year amortization period is appropriate.
(8) On June 13, 1996 and September 11, 1996, Fox acquired, through exercise
of the Fox Options, additional 25% non-voting interests in one and three of the
Savoy Stations, respectively, thereby increasing its total non-voting interest
in these entities to 50%. Fox has no representatives on the board of directors
of the subsidiaries of Savoy holding the Savoy Stations and will not participate
in the operations of the Savoy Stations. Minority interest in the result of
operations of the Savoy Stations has been adjusted to reflect Fox's increased
ownership percentages as of the beginning of the respective periods.
(9) The pro forma income statement reflects an adjustment to reverse HSN's
federal tax expense. The federal tax liability for HSN would have been reduced
if the transactions had occurred at the beginning of the period as the combined
companies may have elected to file a consolidated federal tax return. No
adjustment to state taxes has been reflected in these pro forma financial
statements due to the inability to allocate the benefits by state.
(10) The Unaudited Pro Forma Condensed Combined Statements of Operations
included herein reflect the Savoy Merger and the Combined Transaction with
Savoy's 1995 acquisition of the Savoy Stations (WVUE-TV, WALA-TV, KHON-TV and
WLUK-TV) as if the television station acquisitions occurred as of January 1,
1995.
(11) Pro forma weighted average shares for the Combined Transaction at
September 30, 1996 and December 31, 1995 include the Silver King historical
weighted average shares outstanding and 43,195,122 shares to be issued to HSN
shareholders (including Contingent Shares to be issued) plus 4,205,870 shares to
be issued to Savoy shareholders. Pro forma weighted average shares for the Savoy
Merger at September 30, 1996 and December 31, 1995 include the Silver King
historical weighted average shares outstanding plus
170
197
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS -- (CONTINUED)
4,205,870 shares issued to Savoy shareholders. Due to net loss for the periods
presented, no common stock equivalents (such as options, warrants and shares
related to convertible debt) have been included as the effect of inclusion would
be antidilutive.
(12) Pro forma common stock for the Combined Transaction at September 30,
1996 reflects historical Silver King Common Stock at par value of $71,000 plus
additional par value of $324,000 and $42,000 related to the issuance of shares
for the HSN Merger and Savoy Merger, respectively. Savoy Common Stock and HSN
Common Stock at par value outstanding at September 30, 1996 of $790,000 and
$300,000, respectively, was eliminated.
Silver King Common Stock to be issued in connection with the HSN
Transactions and the Savoy Merger is as follows (in thousands):
HSN historical Common Stock.......................................... 78,976
Less: HSN historical Treasury shares................................. (6,986)
------
71,990
Silver King shares to be issued at .45 conversion ratio.............. 32,395
HSN historical Class B Common Stock.................................. 20,000
Silver King Class B shares to be issued at .54 conversion ratio...... 10,800
Savoy historical Common Stock........................................ 30,042
Silver King shares to be issued at .14 conversion ratio.............. 4,206
------
Total Silver King Common Stock to be issued (see Note
11)...................................................... 47,401
======
171
198
SAVOY MERGER
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
(IN THOUSANDS)
SEPTEMBER 30, 1996
-----------------------------------------------------------
PRO FORMA
SILVER KING SAVOY ADJUSTMENTS COMBINED
----------- --------- ----------- ---------
Assets
Current Assets:
Cash and other short-term instruments............ $ 13,900 $ 51,796 $ 65,696
Accounts and notes receivable.................... 3,752 24,766 28,518
Inventories...................................... -- 46,271 46,271
Other............................................ 2,523 1,505 4,028
--------- --------- ---------
Total current assets................... 20,175 124,338 144,513
Property, plant and equipment, net............... 23,677 18,818 42,495
Intangible assets including goodwill and
broadcast licenses, net........................ 52,964 255,294 308,258
Noncurrent inventories........................... -- 34,223 $ (14,041)(1a) 20,182
Long-term investments and receivables............ 22,270 -- 22,270
Deferred charges and other....................... 3,588 8,668 12,256
--------- --------- --------- ---------
Total noncurrent assets................ 102,499 317,003 14,041 405,461
Total assets........................... $ 122,674 $ 441,341 $ 14,041 $ 549,974
========= ========= ========= =========
Liabilities and Stockholders' Equity
Liabilities:
Accounts payable, accrued and other current
liabilities.................................... $ 3,015 $ 37,486 $ 4,500(4) $ 45,001
Current portion of long-term debt................ 13,000 59,300 72,300
--------- --------- --------- ---------
Total current liabilities.............. 16,015 96,786 4,500 117,301
Deferred income taxes............................ 14,575 45 14,620
Long-term debt................................... 83,922 111,186 195,108
Other long-term liabilities...................... -- 6,896 6,896
--------- --------- --------- ---------
Total liabilities...................... 114,512 214,913 4,500 333,925
Minority interest in Savoy Stations.............. -- 95,170 0(8) 95,170
Stockholders' Equity:
Preferred stock.................................. -- -- 0
Common stock..................................... 71 300 (258)(1a) 113
Common stock Class B............................. 24 -- 24
Additional paid in capital....................... 127,493 366,952 (254,277)(1a) 240,168
Note receivable from key executive for
common stock issuance.......................... (4,998) -- (4,988)
Unamortized value of restricted stock............ -- (6,465) 6,465(5) 0
Unearned compensation............................ (2,876) -- (2,876)
Retained earnings (deficit)...................... (111,552) (229,529) 229,909(1a) (111,552)
--------- --------- --------- ---------
Total stockholders' equity............. 8,162 131,258 (18,161) 120,879
Total liabilities and stockholders'
equity............................... $ 122,674 $ 441,341 $ (13,661) $ 549,974
========= ========= ========= =========
See notes to unaudited pro forma combined condensed financial statements for the
Combined Transaction.
172
199
SAVOY MERGER
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NINE MONTHS ENDED SEPTEMBER 30, 1996
------------------------------------------------------
PRO FORMA
SILVER KING SAVOY ADJUSTMENTS COMBINED
----------- -------- ----------- ---------
Revenues:
Broadcasting, net............................ $33,249 $ 35,374 $ 68,623
Filmed entertainment......................... -- 63,474 63,474
------- -------- --------
Total revenues....................... 33,249 98,848 132,097
Operating costs and expenses:
Costs of sales............................... 271 138,518 138,789
Selling, general and administrative(3)....... 17,819 19,091 36,910
Depreciation and amortization................ 10,178 10,934 21,112
------- -------- --------
Total operating expenses............. 28,268 168,543 196,811
Operating income (loss).............. 4,981 (69,695) (64,714)
Other income (expense):
Net interest expense......................... (4,726) (11,273) (15,999)
Miscellaneous................................ 154 -- 154
------- -------- --------
(4,572) (11,273) (15,845)
Income (loss) before income taxes,
minority interest and extraordinary
item.................................... 409 (80,968) (80,559)
Income tax (expense) benefit................. (1,838) 580 (1,258)
Minority interest in Savoy Stations.......... -- 2,039 $ 1,647(8) 3,686
------- -------- ------- --------
Loss before extraordinary item............... $(1,429) $(78,349) $ 1,647 $ (78,131)
======= ======== ======= ========
Weighted average number of common shares and
common share equivalents..................... 9,479 13,685
Loss before extraordinary item per common
share........................................ $ (0.15) $ (5.71)
See notes to unaudited pro forma combined condensed financial statements for the
Combined Transaction.
173
200
SAVOY MERGER -- SAVOY ADJUSTED (10)
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31, 1995
--------------------------------------------------------
SAVOY PRO FORMA
SILVER KING ADJUSTED(10) ADJUSTMENTS COMBINED
----------- ------------ ----------- ---------
Revenues:
Broadcasting, net............................ $ 46,628 $ 60,078 $ 106,706
Filmed entertainment......................... -- 67,300 67,300
------- -------- ---- --------
Total revenues....................... 46,628 127,378 174,006
Operating costs and expenses:
Cost of sales................................ 591 148,348 148,939
Selling, general and administrative(3)....... 26,110 29,014 55,124
Other, including restructuring charges....... 2,603 -- 2,603
Depreciation and amortization................ 14,466 12,794 27,260
------- -------- ---- --------
Total operating expenses............. 43,770 190,156 233,926
Operating income (loss)...................... 2,858 (62,778) (59,920)
Other income (expense)
Net interest expense......................... (7,031) (10,450) (17,481)
Miscellaneous................................ 549 -- 549
------- -------- ---- --------
(6,482) (10,450) (16,932)
Loss before income taxes..................... (3,624) (73,228) (76,852)
Income tax (expense) benefit................... 218 (1,628) (1,410)
Minority interest in Savoy Stations............ -- (591) $ 403(8) (188)
------- -------- ---- --------
Net loss..................................... $ (3,406) $(75,447) $ 403 $ (78,450)
======= ======== ==== ========
Weighted average number of common shares
and common share equivalents................. 9,084 13,290
Net earnings (loss) per common share........... $ (0.37) $ (5.90)
See notes to unaudited pro forma combined condensed financial statements for the
Combined Transaction.
174
201
SAVOY ADJUSTED(11)
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31, 1995
---------------------------------------------------------
SAVOY STATIONS SAVOY
HISTORICAL(A) ACQUIRED ADJUSTMENTS ADJUSTED(11)
------------- -------- ----------- --------
Revenues:
Broadcasting, net......................... $ 25,299 $ 34,779 $ 60,078
Filmed entertainment...................... 67,300 -- 67,300
-------- ------- --------
Total revenues.................... 92,599 34,779 127,378
Operating costs and expenses:
Costs of sales............................ 137,126 11,799 $ (577)(b) 148,348
Selling, general and administrative....... 21,445 11,774 (4,205)(b)(c) 29,014
Depreciation and amortization............. 5,893 5,102 1,799(d) 12,794
-------- ------- ------- --------
Total operating expenses.......... 164,464 28,675 (2,983) 190,156
Operating income (loss)................... (71,865) 6,104 2,983 (62,778)
Net interest expense...................... (947) (6,966) (1,954)(e) (10,450)
(583)(f)
-------- ------- ------- --------
Loss before income taxes.................. (72,812) (862) 446 (73,228)
Income tax (expense) benefit.............. (702) (404) (522)(g) (1,628)
Minority interest in Savoy Stations....... (230) -- (361)(h) (591)
-------- ------- ------- --------
Net loss.......................... $ (73,744) $ (1,266) $ (437) $(75,447)
======== ======= ======= ========
Weighted average number of common shares
and common share equivalents.............. 29,560 29,560
Loss per common share....................... $ (2.49) $ (2.55)
See notes to Savoy Adjusted Unaudited Pro Forma Combined Condensed Statement of
Operations.
175
202
SAVOY ADJUSTED
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENT OF OPERATIONS
(a) The four Savoy Stations acquired consist of WVUE, WALA, KHON (including
McHale Videofilm and satellite stations KAII-TV and KHAQ-TV) and WLUK. The
results of operations for WVUE, WALA and KHON through August 22, 1995, and
the results of operations for WLUK through April 28, 1995, are included in
the stations acquired results of operations. The results of operations for
WVUE, WALA and KHON from August 23, 1995 to December 31, 1995, and the
results of operations for WLUK from April 29, 1995 to December 31, 1995, are
included in Savoy's historical results of operations.
(b) Reflects the approximate personnel and other cost savings implemented at
Savoy Stations including reduction of corporate overhead (approximately $3.1
million) due to lower compensation arrangements with Savoy Station corporate
executives, cost differentials of purchasing certain equipment versus prior
lease arrangements (approximately $500,000), termination and replacement of
consulting and other outsourcing arrangements on more favorable terms
(approximately $400,000) and other cost savings (approximately $800,000).
(c) Reflects the differential in corporate overhead expenses incurred by the
Savoy Stations subsequent to the acquisition, including approximately
$400,000 of franchise tax on an annual basis.
(d) Reflects amortization related to broadcast licenses and other intangibles
recorded in connection with the acquisition, and to the increase in
depreciation primarily related to the purchases of fixed assets.
(e) Reflects incremental amortization of financing costs, including interest, on
$45 million borrowed by Savoy under the Credit Agreement, dated as of June
1, 1995, among Savoy, the financial institutions from time to time party
thereto and Chemical Bank as Administrative Agent and Collateral Agent, and
$135 million in acquisition loans made to the Savoy Stations under the
Credit Agreement, dated as of June 30, 1995 to fund the acquisition at an
effective interest rate of 8%. A change in the respective interest rates of
1/8 of 1% would have the effect of increasing or decreasing interest expense
by approximately $226,000. The pro forma results do not include any interest
income to be earned or interest expense that would be reduced based on the
cash flow generated by the stations acquired.
(f) Reflects the reduction in interest income resulting from approximately $35
million of Savoy's U.S. Government Securities that were used to finance a
portion of Savoy's $80 million investment in the Savoy Stations acquired at
an effective interest rate of 5%.
(g) Reflects the income tax expense effect of adjustments (b) through (f).
(h) Reflects the initial 25% non-voting minority interest in the Savoy Stations.
In a series of transactions in 1996, such minority interest was increased to
a 50% non-voting minority interest, which has been adjusted for in the
applicable pro forma financial statements.
176
203
AUTHORIZED CAPITAL STOCK AMENDMENT PROPOSAL
At the Silver King Meeting, Silver King stockholders will be requested to
consider and approve the Authorized Capital Stock Amendment Proposal. The
Authorized Capital Stock Amendment Proposal provides that Article IV of the
Silver King Certificate will be amended to increase the authorized shares of
Silver King Common Stock from 30,000,000 shares to 150,000,000 shares, the
authorized shares of Silver King Class B Common Stock from 2,415,945 shares to
30,000,000 shares and the authorized shares of Silver King Preferred Stock from
50,000 shares to 15,000,000 shares. The increase in the authorized Silver King
Common Stock and Silver King Class B Common Stock is required in order to
consummate both the Savoy Merger and the HSN Merger, although approval of such
proposal is only a condition to the parties obligations to consummate the HSN
Merger. The remaining shares of authorized but unissued Silver King Common Stock
and Silver King Class B Common Stock (after reserving shares of Silver King in
connection with the HSN Debentures, the HSN Options, the Contingent Rights
Shares and the Exchange Shares), as well as shares of Silver King Preferred
Stock, may thereafter be used for general corporate purposes, including in
connection with future acquisitions. The Authorized Capital Stock Amendment
Proposal is described under, "Summary -- The Authorized Capital Stock Amendment
Proposal." The approval of the Authorized Capital Stock Amendment Proposal is
required to consummate the Savoy Merger and the HSN Merger. For a description of
Silver King Common Stock and rights of Silver King stockholders, see "Comparison
of Rights of Stockholders of Silver King, Savoy and HSN -- Authorized Capital
Stock" and "Description of Silver King Common Stock."
VOTE REQUIRED
Pursuant to the Silver King Certificate and the DGCL, approval of the
Authorized Capital Stock Amendment Proposal requires the affirmative vote of the
holders of a majority of the outstanding shares of each of the Silver King
Common Stock and Silver King Class B Common Stock, voting as separate classes.
In view of the agreement between Mr. Diller and Liberty to vote the Silver King
Securities owned by them (or BDTV) in favor of such proposal, approval of the
Authorized Capital Stock Amendment Proposal by the holders of Silver King Class
B Common Stock is assured, but approval by the holders of Silver King Common
Stock is not assured.
THE SILVER KING BOARD OF DIRECTORS (OTHER THAN MR. DILLER, WHO DID NOT
PARTICIPATE IN THE VOTING ON SUCH PROPOSAL) BELIEVES THAT APPROVAL OF THE
AUTHORIZED CAPITAL STOCK AMENDMENT PROPOSAL IS IN THE BEST INTERESTS OF SILVER
KING STOCKHOLDERS AND, ACCORDINGLY, UNANIMOUSLY RECOMMENDS A VOTE FOR THE
AUTHORIZED CAPITAL STOCK AMENDMENT PROPOSAL. YOUR PROXY WILL BE SO VOTED UNLESS
YOU SPECIFY OTHERWISE.
NAME CHANGE PROPOSAL
At the Silver King Meeting, Silver King stockholders will be requested to
consider and approve the Name Change Proposal. The Name Change Proposal provides
that, upon consummation of the HSN Merger, Article I of the Silver King
Certificate will be amended to state that the name of Silver King is "HSN, Inc."
If approved, the Name Change Proposal will not be effected unless and until the
HSN Merger is consummated.
VOTE REQUIRED
Pursuant to the Silver King Certificate and the DGCL, approval of the Name
Change Proposal requires the affirmative vote of the holders of a majority of
the outstanding shares of each of the Silver King Common Stock and Silver King
Class B Common Stock, voting as separate classes. In view of the agreement
between Mr. Diller and Liberty to vote the Silver King Securities owned by them
(or BDTV) in favor of such proposal, approval of the Name Change Proposal by the
holders of Silver King Class B Common Stock is assured, but approval by the
holders of Silver King Common Stock is not assured.
THE SILVER KING BOARD OF DIRECTORS BELIEVES THAT APPROVAL OF THE NAME
CHANGE PROPOSAL IS IN THE BEST INTERESTS OF SILVER KING STOCKHOLDERS AND,
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ACCORDINGLY, UNANIMOUSLY RECOMMENDS A VOTE FOR THE NAME CHANGE PROPOSAL. YOUR
PROXY WILL BE SO VOTED UNLESS YOU SPECIFY OTHERWISE.
CLASS VOTE AMENDMENT PROPOSAL
At the Silver King Meeting, Silver King stockholders will be requested to
consider and approve the Class Vote Amendment Proposal. The Class Vote Amendment
Proposal provides that Article IV of the Silver King Certificate will be amended
to eliminate certain provisions in Article IV providing for the separate class
vote of the holders of Silver King Common Stock and Silver King Class B Common
Stock. The proposed elimination of the separate class vote in the circumstances
specified in the Silver King Charter reflects the fact that such a provision,
which provides a separate class vote as long as at least 2,280,000 shares of
Silver King Class B Common Stock are outstanding, was adopted based on Silver
King's then existing capital structure in which the 2,280,000 shares of Silver
King Class B Common Stock were related to the aggregate number of shares of
Silver King Class B Common Stock then authorized and outstanding and which
authorized number is proposed to be increased pursuant to the Authorized Capital
Stock Amendment Proposal and, accordingly, such 2,280,000 number will no longer
bear any such relation. The Silver King Board recognized that, even with the
current separate class vote provision, Mr. Diller, through the Stockholders
Agreement and his positions with Silver King, would have the ability to control
the outcome of substantially all matters submitted to a vote of Silver King
stockholders by virtue of his control over in excess of 30% of the outstanding
Silver King Common Stock, assuming that both the Savoy Merger and the HSN Merger
are consummated. In the view of the Silver King Board, such control may have a
beneficial impact on the financial performance of Silver King and the market
value of Silver King Common Stock, which value has increased substantially since
the time Mr. Diller became Chairman of the Board and Chief Executive Officer of
Silver King and obtained a significant equity interest in Silver King. The Class
Vote Amendment Proposal is described under "Summary -- The Class Vote Amendment
Proposal" and "Risk Factors -- Controlling Stockholders" and "-- Limited
Separate Rights of Holders of Silver King Common Stock; Effects of Class Vote
Amendment Proposal on Voting Power." For a description of Silver King Common
Stock and rights of Silver King stockholders, see "Comparison of Rights of
Stockholders of Silver King, Savoy and HSN -- Voting," "-- Amendment of
Certificate of Incorporation" and "-- Anti-Takeover Provisions;" and
"Description of Silver King Common Stock."
VOTE REQUIRED
Pursuant to the Silver King Certificate and the DGCL, approval of the Class
Vote Amendment Proposal requires the affirmative vote of the holders of a
majority of the outstanding shares of each of the Silver King Common Stock and
Silver King Class B Common Stock, voting as separate classes. In view of the
agreement between Mr. Diller and Liberty to vote the Silver King Securities
owned by them (or BDTV) in favor of such proposal, approval of the Class Vote
Amendment Proposal by the holders of Silver King Class B Common Stock is assured
but approval by the holders of Silver King Common Stock is not assured.
THE SILVER KING BOARD OF DIRECTORS (OTHER THAN MR. DILLER, WHO DID NOT
PARTICIPATE IN THE VOTING ON SUCH PROPOSAL) BELIEVES THAT APPROVAL OF THE CLASS
VOTE AMENDMENT PROPOSAL IS IN THE BEST INTERESTS OF SILVER KING STOCKHOLDERS
AND, ACCORDINGLY, UNANIMOUSLY RECOMMENDS A VOTE FOR THE CLASS VOTE AMENDMENT
PROPOSAL. YOUR PROXY WILL BE SO VOTED UNLESS YOU SPECIFY OTHERWISE.
ELECTION OF SILVER KING DIRECTORS
The Silver King Board has adopted a resolution to reduce the size of the
Silver King Board to six directors, effective upon the election of Silver King
directors at the Silver King Meeting. Six directors are to be elected by the
stockholders of Silver King to hold office until the annual meeting of
stockholders for fiscal year 1996 or until their respective successors have been
elected. Proxies granted by stockholders in the form enclosed will be voted,
unless otherwise directed, in favor of electing the following persons as
directors: Barry
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Diller, Victor A. Kaufman, John E. Oxendine, Bruce M. Ramer, Sidney J. Sheinberg
and Richard E. Snyder. Messrs. Ramer and Sheinberg have been designated by the
Silver King Board of Directors as nominees for the positions on the Silver King
Board to be elected by holders of Silver King Common Stock voting as a separate
class. To be elected, such directors must receive the favorable vote of the
holders of a majority of the outstanding shares of Silver King Common Stock
present in person or represented by proxy and entitled to vote thereon at the
Silver King Meeting. Election of the remaining four directors requires the
favorable vote by the holders of a majority of the outstanding Total Voting
Power, present in person or represented by proxy and entitled to vote thereon at
the Silver King Meeting. In the event any nominee named herein for election as a
director at the Silver King Meeting is not available or willing to serve when
the election occurs, proxies in the accompanying form may be voted for a
substitute as well as for the other persons named herein. Messrs. Diller, Ramer
and Sheinberg currently serve as directors of Silver King.
Directors and executive officers of Silver King and their affiliates
(including BDTV) who, as of the Silver King Record Date, had the right to vote
an aggregate of 506,119 shares of Silver King Common Stock (including 61,630
shares of Silver King Common Stock beneficially owned by TCI and 441,988 shares
of Silver King Common Stock beneficially owned by Mr. Diller) and 2,000,000
shares of Silver King Class B Common Stock, which shares collectively represent
66% of the outstanding Total Voting Power as of the Silver King Record Date and
7% of the outstanding shares of Silver King Common Stock as of such date, have
indicated their intention to vote in favor of the directors nominated by the
Silver King Board. Such holders hold Silver King Securities representing a
percentage of the Total Voting Power sufficient to ensure approval of the
proposed directors other than the directors to be elected by the holders of
Silver King Common Stock voting as a separate class, notwithstanding the vote of
any other Silver King stockholder.
THE BOARD OF DIRECTORS OF SILVER KING UNANIMOUSLY RECOMMENDS THAT
STOCKHOLDERS VOTE FOR APPROVAL OF THE FOLLOWING DIRECTORS: BARRY DILLER, VICTOR
A. KAUFMAN, JOHN E. OXENDINE, BRUCE M. RAMER, SIDNEY J. SHEINBERG AND RICHARD E.
SNYDER. YOUR PROXY WILL BE SO VOTED UNLESS YOU SPECIFY OTHERWISE.
INFORMATION REGARDING DIRECTORS, NOMINEES FOR ELECTION AS DIRECTORS AND CERTAIN
CONTEMPLATED DIRECTORS
Barry Diller, age 53, has been a director and the Chairman of the Board and
Chief Executive Officer of Silver King since August 24, 1995. He was Chairman of
the Board and Chief Executive Officer of QVC from January 1993 until February
28, 1995. 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 ten years as Chairman of the Board and Chief Executive Officer of
Gulf+Western Inc.'s (now Paramount Communications, Inc.) Paramount Pictures
Corporation. Mr. Diller is a director and Chairman of the Board of HSN and a
director of Golden Books Family Entertainment, Inc. 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. Mr.
Diller also serves on the Board of Directors for AIDS Project Los Angeles and
the Executive Board for the Medical Sciences of University of California, Los
Angeles.
Victor A. Kaufman, age 52, has been Chairman and Chief Executive Officer of
Savoy since March 1992 and a director of Savoy since February 1992. Mr. Kaufman
was the founding Chairman and Chief Executive Officer of Tri-Star Pictures, Inc.
("Tri-Star") from 1983 until December 1987, at which time he became President
and Chief Executive Officer of its successor company, Columbia Pictures
Entertainment, Inc. ("Columbia"). 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. Upon consummation of the Savoy
Merger, Mr. Kaufman will be appointed an executive officer of Silver King to
serve in its Office of the Chairman. In the event that Mr. Kaufman is elected to
the Silver King Board and the Savoy Merger is not consummated, Mr. Kaufman will
thereupon resign from the Silver King Board.
John E. Oxendine, age 53, is the founder and, since 1987, has been Chairman
of Blackstar Communications, Inc. ("BCI"), a company that currently owns and
operates three television stations affiliated with HSN.
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Since the fall of 1994, he has also served as Chairman and Chief Executive
Officer of Blackstar LLC, the owner of BCI and, through a subsidiary of station
KEVN-TV, Rapid City, South Dakota and its satellite station, KIVV-TV, licensed
to Lead-Deadwood, South Dakota. From 1981 to 1995, Mr. Oxendine served as
President and Chief Executive Officer of Broadcast Capital Fund, Inc. Mr.
Oxendine was recently appointed to the Board of the nonprofit Monterey
Institute.
Bruce M. Ramer, age 63, has been a principal of the law firm of Gang, Tyre,
Ramer & Brown, Inc. for more than five years. He is Chairman of the Board of
Directors of Geffen Playhouse, Los Angeles and was formerly a member of the
Board of Directors of Rebuild L.A. Mr. Ramer is also Executive Director of the
Entertainment Law Institute of the University of Southern California Law School,
a member of the Board of Councilors and a member of the Board of Trustees of
Loyola Marymount University.
Sidney J. Sheinberg, age 61, served as President and Chief Operating
Officer and as a director of MCA INC. from June 1973 until October 1995. Since
October 1995 Mr. Sheinberg has been a partner of The Bubble Factory, an
entertainment company. Mr. Sheinberg served as a director of Cineplex Odeon
Corporation from May 1986 until October 1995.
Richard E. Snyder, age 63, has been Chairman and Chief Executive Officer
since May 1996 and President since February 1996 of Golden Books Family
Entertainment, Inc. (formerly Western Publishing Group). Prior to that time, Mr.
Snyder had, since 1994, been an independent business consultant and investor. He
was the Chairman and Chief Executive Officer of Simon & Schuster from 1975 to
1994. Mr. Snyder is also a director of Reliance Group Holdings, Inc. and
Children's Blood Foundation. Mr. Snyder is a member of the Society of Fellows of
the American Museum of Natural History, the Council on Foreign Relations and the
Board of Overseers for the University Libraries of Tufts University.
Directors whose terms of office will not continue after the Silver King
Meeting and who are not nominees for election are not listed in this
informational section.
Pursuant to the HSN Merger Agreement, upon consummation of the HSN Merger,
the size of the Silver King Board will be increased to nine directors and
Messrs. Held, Schwarzkopf and Segal will be elected to the Silver King Board.
Mr. Held, age 45, has been a director of HSN since February 1996. Since
November 1995, Mr. Held has been President and Chief Executive Officer of HSN.
From January 1995 to November 1995, Mr. Held served as President and Chief
Executive Officer of Adrienne Vittadini, Inc., an apparel manufacturer and
retailer. Between September 1993 and January 1995, Mr. Held was a senior
executive of QVC, first as Senior Vice President in charge of new business
development and later as Executive Vice President of merchandising, sales,
product planning and new business development. For eleven years prior to that,
until September 1993, Mr. Held was employed in different executive positions at
Bloomingdale's.
General Schwarzkopf, age 64, has been a director of HSN since May 1996.
Since his retirement from the military in August 1991, General Schwarzkopf has
been an author, a participant in several television specials and is currently
working 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 has
35 years of service with the military. He is also on the Board of Governors of
the Nature Conservancy, 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 Borg-Warner Security
Corporation, Remington Arms Company, Washington Water Power, Pentzer
Corporation, Kuhlman Corporation and Cap CURE, Association for the Cure of
Cancer of the Prostate.
Mr. Segal, age 53, has been a director of HSN since February 1996. Mr.
Segal served as Assistant to the President of the United States from January
1993 to February 1996. In that connection, Mr. Segal was also confirmed by the
United States Senate as the first Chief Executive Officer of the Corporation for
National Service. Prior to that, Mr. Segal served as President of Bits & Pieces,
Inc., a direct mail consumer product company from 1984 to January 1993, and
publisher of GAMES magazine, a monthly publication from 1990 to January 1993.
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EXECUTIVE OFFICERS
The following table sets forth certain information concerning the persons
who currently serve or will serve as executive officers of Silver King and who
do not serve on the Silver King Board of Directors or are not included in
"-- Information Regarding Directors and Nominees for Election as Directors and
Certain Contemplated Directors."
NAME AGE TITLE AND POSITION
- ------------------------------------- --- -------------------------------------------------
Douglas Binzak....................... 32 Executive Vice President -- Broadcasting
Adam Ware............................ 30 Executive Vice President -- Broadcasting
Michael Drayer....................... 36 Executive Vice President, General Counsel and
Secretary
Lia Afriat-Hernandez................. 51 Executive Vice
President -- Compliance/Programming
James J. Miller...................... 36 Vice President, Acting Chief Financial Officer
and Controller
Adam Ware joined Silver King in June 1996 as Executive Vice
President -- Broadcasting. From November 1994 to June 1996, he served as Senior
Vice President of Network Distribution at Fox. From 1991 to 1994, he was Vice
President, Affiliate Relations, West-Central Region of Fox. Mr. Ware joined Fox
in 1989.
Douglas Binzak joined Silver King in June 1996 as Executive Vice
President -- Broadcasting for Silver King Communications, Inc. From August 1994
to June 1996, Mr. Binzak served as Senior Vice President of Scheduling and
Market Strategy at Fox, and, from February 1991 to August 1994, as Vice
President of Program Scheduling and Planning at Fox. He joined Fox in 1986.
Michael Drayer joined Silver King on February 1, 1993 as Vice President,
Senior Counsel and Assistant Secretary. On May 10, 1993, Mr. Drayer was
appointed Vice President, General Counsel and Assistant Secretary of Silver
King, and, since August 17, 1993, Mr. Drayer has been Executive Vice President,
General Counsel and Corporate Secretary of Silver King. Prior to joining Silver
King, Mr. Drayer served as Senior Counsel for HSN since July 1991. Prior to that
date, Mr. Drayer served as an associate attorney with the law firm of Mintz,
Levin, Cohn, Ferris, Glovsky and Popeo from October 1989 to July 1991, and as an
associate attorney with the law firm of Wilner and Scheiner from February 1986
to October 1989.
Lia Afriat-Hernandez served as Vice President -- Compliance/Programming of
Silver King from May 1988 until April 23, 1993. Since April 23, 1993, Ms.
Hernandez has been Executive Vice President -- Compliance/Programming of Silver
King. Ms. Hernandez also served as Director of Compliance of Silver King from
October 1986 until May 1988. Ms. Afriat-Hernandez is also a director of the New
Jersey Broadcasters Association.
James J. Miller has served as Vice President, Acting Chief Financial
Officer and Controller of Silver King since July 1996. Prior to that time, he
had been an officer of Savoy since October 1993 and Vice President and
Controller since June 1994. Prior to joining Savoy, Mr. Miller was Manager of
Studio Finance and Planning and Manager of Financial Reporting at Walt Disney
Company.
Upon consummation of the HSN Merger, Silver King expects that HSN's Chief
Financial Officer and General Counsel will assume these respective positions at
Silver King.
Kevin J. McKeon has served as Executive Vice President, Chief Financial
Officer and Treasurer of HSN since February 1996 and will become the Chief
Financial Officer of Silver King upon consummation of the HSN Merger. He served
as Senior Vice President of Accounting and Finance and Treasurer of HSN from
December 1993 to February 1996. He served as Controller of HSN from July 1992 to
December 1993. Prior to that appointment, he served as Executive Director of
Finance of HSN from May 1991 to July 1992. From December 1986 to September 1990,
he served in various financial capacities for HSN.
James G. Gallagher joined HSN on October 4, 1996 as Executive Vice
President and General Counsel. Prior to joining HSN, Mr. Gallagher served in a
variety of capacities, including most recently as Group Counsel at American
Express Travel Related Services Company, Inc. from July 1988 to September 1996.
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SECTION 16 REPORTS
During the fiscal year ended August 31, 1995 and during the period
September 1, 1995 through December 31, 1995, Michael A. Green failed to file on
a timely basis one Form 3 stock ownership report reflecting his initial
beneficial ownership of Silver King Securities, and James M. Lawless failed to
file on a timely basis one Form 4 stock ownership report reflecting a change in
his beneficial ownership of Silver King Securities.
BOARD OF DIRECTORS AND BOARD COMMITTEES OF SILVER KING
BOARD OF DIRECTORS
The Silver King Board of Directors held 13 meetings during fiscal year
1995, including one meeting of employee directors, and acted by unanimous
written consent on one occasion. The Silver King Board does not have a
nominating committee for recommending to stockholders candidates for positions
on the Board of Directors. During a February 13, 1996 Silver King Board meeting,
the Silver King Board took action pursuant to the Silver King Bylaws to increase
the size of the Silver King Board by one, to a total of eight directors.
AUDIT COMMITTEE
The Audit Committee of the Silver King Board, consisting of Mr. Green,
Vincent F. Barresi and Kenneth T. MacDonald, is authorized to recommend to the
Silver King Board independent certified public accounting firms for selection as
auditors of Silver King; make recommendations to the Silver King Board on
auditing matters; examine and make recommendations to the Silver King Board
concerning the scope of audits; and review and approve the terms of transactions
between Silver King and related party entities. During the fiscal year 1995, the
Audit Committee met five times. Silver King retained Deloitte & Touche LLP to
conduct the audit for the fiscal year ended August 31, 1995, and has retained
Ernst & Young LLP to conduct the audit for the fiscal year ended December 31,
1996. None of the members of the Audit Committee is an employee of Silver King.
COMPENSATION/BENEFITS COMMITTEE
The Compensation/Benefits Committee, consisting of Messrs. MacDonald,
Barresi, Green and Russell I. Pillar, is authorized to exercise all of the
powers of the Silver King 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, and the Compensation/Benefits Committee is authorized to exercise all of
the powers of the Silver King Board in matters pertaining to employee promotions
and the designation and/or revision of employee positions and job titles. The
Compensation/Benefits Committee met six times during the fiscal year 1995 and
acted by unanimous written consent on one occasion.
EXECUTIVE COMMITTEE
The Executive Committee of the Silver King Board, consisting of Messrs.
Diller and Grant, has all the power and authority of the Silver King Board of
Directors, except those powers specifically reserved to the Board of Directors
by Delaware law, the Silver King Certificate or the Silver King Bylaws. The
Executive Committee met four times during the fiscal year 1995.
COMPENSATION OF DIRECTORS AND CERTAIN
EXECUTIVE OFFICERS OF SILVER KING
GENERAL
This section of the Joint Proxy Statement/Prospectus sets forth certain
information pertaining to compensation of the Chief Executive Officer of Silver
King and Silver King's four most highly compensated executive officers other
than the Chief Executive Officer and certain other former executive officers
during its
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fiscal year ended August 31, 1995, as well as information pertaining to the
compensation of members of the Silver King Board of Directors.
SUMMARY OF EXECUTIVE OFFICER COMPENSATION
The following sets forth the annual and long-term compensation for services
to Silver King for the four months ended December 31, 1995 ("1995*") and the
fiscal years ended August 31, 1995, 1994 and 1993 of those persons who were, at
August 31, 1995, (i) the Chief Executive Officer of Silver King, (ii) the other
four most highly compensated officers of Silver King whose compensation exceeded
$100,000 for fiscal year 1995 and (iii) one other individual who would have been
part of the group described in clause (ii) but for the fact that such individual
was not serving as an executive officer of Silver King at the end of fiscal year
1995 (the "Silver King Named Executive Officers").
SUMMARY COMPENSATION TABLE(1)
LONG TERM COMPENSATION
ANNUAL COMPENSATION -----------------------------------------
------------------------------------------------ RESTRICTED
FISCAL OTHER ANNUAL STOCK STOCK ALL OTHER
NAME & PRINCIPAL POSITION YEAR(2) SALARY BONUS COMPENSATION(3) AWARDS(4) OPTIONS COMPENSATION(5)
- ------------------------------ ------- -------- -------- --------------- ---------- --------- ---------------
Barry Diller.................. 1995* $ 0 $833,333(7) $ 0 0 0 $ 331,038(10)
Chairman and CEO(6) 1995 0 47,945(7) 1,892,401(8) 0 1,895,847(9) 19,046(10)
James M. Lawless.............. 1995* 57,693 0 0 0 0 0
President(11) 1995 150,001 6,000 0 0 10,000 1,000
1994 92,416 0 0 0 15,000 1,000
1993 149,428 0 0 0 0 1,000
Steven H. Grant............... 1995* 50,770 0 0 0 0 0
Vice Chairman, Executive 1995 123,492 5,000 0 0 2,500 1,000
Vice President, Chief 1994 119,461 0 0 0 0 1,000
Financial/Administrative 1993 90,625 0 0 0 25,000 1,000
Officer and Treasurer(12)
Alan L. Evans................. 1995* 0 0 0 0 0 0
Executive Vice President -- 1995 111,265 4,000 0 0 2,500 1,000
Engineering and 1994 105,122 0 0 0 0 1,000
Operations(13) 1993 102,524 0 0 0 35,000 1,000
Michael Drayer................ 1995* 41,135 0 0 0 0 0
Executive Vice President, 1995 116,484 4,000 0 0 2,500 1,000
General Counsel and 1994 102,653 0 0 0 0 1,000
Secretary 1993 83,692 0 0 0 20,000 1,000
Lia Afriat-Hernandez.......... 1995* 34,923 0 0 0 0 0
Executive Vice President -- 1995 97,858 3,500 0 0 2,500 1,000
Compliance/Programming 1994 76,731 0 0 0 0 1,000
1993 64,325 0 0 0 10,000 1,000
- ---------------
(1) Silver King was formerly a wholly-owned subsidiary of HSN and did not
become a separate reporting company until December 28, 1992. Therefore,
compensation includes amounts earned as salary at HSN from September 1,
1992 through December 28, 1992. Messrs. Grant and Evans, and Ms. Hernandez
earned $23,318, $31,553 and $20,746, respectively, at HSN, excluding HSN
Executive Stock Award Program income. Mr. Lawless joined Silver King in
June 1993, and earned salary of $133,928 at HSN from September 1992 through
May 1993. Mr. Drayer joined Silver King in February 1993, and earned salary
of $35,315 at HSN from September 1992 through January 1993.
(2) On November 1, 1995, Silver King announced that, effective January 1, 1996,
its fiscal year end would be changed from August 31 to the calendar year
end. For purposes of the Summary Compensation Table, "1995*" refers to the
four months ended December 31, 1995, and "1995," "1994" and "1993" refer to
the fiscal years ended August 31, 1995, August 31, 1994 and August 31,
1993, respectively.
(3) Disclosure of perquisites and other personal benefits, securities or
property received by a Silver King Named Executive Officer is only required
where the aggregate amount of such compensation exceeded the lesser of
$50,000 or 10% of the total of the Silver King Named Executive Officer's
salary and bonus for the year.
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(4) Messrs. Lawless and Evans received $609,950 and $33,625, respectively, in
fiscal year 1993 under the terms of the HSN Executive Stock Award Program.
(5) The amounts listed with respect to Messrs. Lawless, Grant, Evans and
Drayer, and Ms. Hernandez represent Silver King's contributions to each
Silver King Named Executive Officer under Silver King's 401(k) Retirement
Savings Plan (the "401(k) Plan"). Pursuant to the 401(k) Plan, the Silver
King Board of Directors may elect to match a portion of employee
contributions up to a maximum amount of $1,000 per year, which
contributions vest in equal installments over a five-year period. Messrs.
Lawless, Grant, Evans and Drayer, and Ms. Hernandez are each fully vested
in the 401(k) Plan.
(6) Mr. Diller was appointed Chairman of the Board and Chief Executive Officer
of Silver King on August 24, 1995.
(7) Pursuant to the Equity Compensation Agreement between Mr. Diller and Silver
King, Mr. Diller received a bonus payment of approximately $2.5 million on
August 24, 1996. Silver King accrued seven days of this bonus in fiscal
year 1995 and four months for 1995*.
(8) This figure includes $966,263 in compensation paid to Mr. Diller to fund
his tax liability in connection with his acquisition of Silver King Common
Stock pursuant to the Equity Compensation Agreement, and $926,138 in
non-cash income to Mr. Diller based upon the difference between the fair
market value of the Silver King Common Stock on the date of purchase and
the price per share paid for the stock by Mr. Diller.
(9) Mr. Diller's stock options were granted in tandem with conditional SARs.
(10) Pursuant to the Equity Compensation Agreement, Mr. Diller was granted
options to purchase 1,895,847 shares of Silver King Common Stock, vesting
over a four-year period, at an exercise price below the fair market value
of Silver King Common Stock on the date of grant. Silver King has amortized
unearned compensation of $19,046 representing seven days of Mr. Diller's
service in fiscal year 1995 and $331,038 representing four months of Mr.
Diller's service for 1995*.
(11) Mr. Lawless was appointed President effective January 12, 1994, and served
as Chairman from June 7, 1994 until August 24, 1995. Effective December 22,
1995, Mr. Lawless resigned as a director of Silver King and no longer
serves as its President. On January 5, 1996, Mr. Lawless received a lump
sum payment of $298,006 under the terms of his termination agreement with
Silver King.
(12) Mr. Grant resigned as an executive officer of Silver King on July 5, 1996.
Mr. Grant continues to serve as a director of Silver King. Upon
termination, Mr. Grant received a lump sum payment of $291,203 under the
terms of his termination agreement with Silver King.
(13) Mr. Evans resigned from his position at Silver King in June 1995.
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OPTION GRANTS
Set forth in the table below is information with respect to options to
purchase Silver King Common Stock granted to the Silver King Named Executive
Officers during the fiscal year ended August 31, 1995. The grants to Messrs.
Lawless, Grant, Evans and Drayer, and Ms. Hernandez were made under the Silver
King Stock Option and Restricted Stock Plan (the "Employee Plan"). The grant to
Mr. Diller was not made under the Employee Plan but was made pursuant to the
Equity Compensation Agreement (the "Diller Options").
The Employee Plan is administered by the Compensation/Benefits Committee,
which has the sole discretion to determine the selected employees and
consultants to whom options or restricted stock may be granted. As to such
awards, the Compensation/Benefits Committee also has the sole discretion to
determine the number of shares subject thereto and the type, terms, conditions
and restrictions thereof. The exercise price of an incentive stock option
granted under the Employee Plan must be at least 100% of the Fair Market Value
(as defined in the Employee Plan) of the Silver King Common Stock on the date of
grant. In addition, an option granted under the Employee Plan must terminate
within ten years of the date of grant. For information regarding the grant on
November 27, 1995 to Mr. Diller of certain additional options to purchase Silver
King Common Stock pursuant to the proposed 1995 Stock Incentive Plan, see "1995
Stock Incentive Plan Proposal -- New Plan Benefits."
OPTION/SAR GRANTS IN LAST FISCAL YEAR(1)
POTENTIAL REALIZABLE
VALUE AT
ASSUMED ANNUAL
% OF TOTAL RATES OF STOCK
OPTIONS PRICE APPRECIATION
GRANTED TO EXERCISE PRICE FOR OPTION TERM(5)
OPTIONS EMPLOYEES IN PER SHARE EXPIRATION -----------------------
NAME GRANTED(#)(2) FISCAL YEAR ($/SH)(3) DATE(4) 5%($) 10%($)
- ------------------------- ------------- ------------ -------------- ---------- ---------- ----------
Barry Diller............. 1,895,847(6) 95.71 $ 22.625 08-24-05 36,625,938 83,727,937
James M. Lawless(7)...... 10,000 .50 $ 10.00 01-16-04 55,133 135,795
Steven H. Grant(8)....... 2,500 .13 $ 10.00 01-16-04 13,783 33,949
Alan L. Evans(9)......... 2,500 .13 $ 10.00 01-16-04 13,783 33,949
Michael Drayer........... 2,500 .13 $ 10.00 01-16-04 13,783 33,949
Lia Afriat-Hernandez..... 2,500 .13 $ 10.00 01-16-04 13,783 33,949
- ---------------
(1) For the four months ended December 31, 1995, no option or SAR grants were
made except the Additional Diller Options. See note 6.
(2) Under the terms of the Employee Plan, the Compensation/Benefits Committee
retains discretion, subject to plan limits, to modify the terms of
outstanding options and to reprice such options. This footnote does not
apply to the Diller Options.
(3) The exercise price and tax withholding obligations related to exercise may
be paid by delivery of already owned shares or by offset of the underlying
shares, subject to certain conditions.
(4) Under the Employee Plan, the Compensation/Benefits Committee determines the
exercise price, vesting schedule and exercise periods for option grants made
pursuant to the Employee Plan. Options granted during the fiscal year ended
August 31, 1995 become exercisable in five equal, annual installments
commencing on the grant date. Each such option expires five years after it
becomes exercisable. All unvested shares granted under the Employee Plan
became vested December 1, 1995 pursuant to action taken by the
Compensation/Benefits Committee in connection with the downsizing of Silver
King's staff and the then-pending change in the ownership of Silver King.
The expiration dates for the accelerated options remain five years from the
date of their original scheduled vesting. This note does not apply to the
Diller Options.
(5) Gains are reported net of the option exercise price, but before taxes
associated with exercise. These amounts represent certain assumed rates of
appreciation only. Actual gains, if any, on stock option exercises are
dependent on the future performance of the Silver King Common Stock, overall
stock
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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.
(6) The Diller Options were granted in tandem with conditional SARs. For
information regarding certain additional options granted to Mr. Diller under
the 1995 Stock Incentive Plan, see "1995 Stock Incentive Plan
Proposal -- New Plan Benefits."
(7) Effective December 22, 1995, Mr. Lawless resigned as a director of Silver
King and no longer serves as its President.
(8) Mr. Grant resigned from his position as an executive officer of Silver King
effective July 5, 1996.
(9) Mr. Evans resigned from his position at Silver King in June 1995.
OPTION EXERCISES
The following table provides information concerning the exercise of stock
options by the Silver King Named Executive Officers during the fiscal year ended
August 31, 1995 and the fiscal year-end value of all unexercised options held by
such persons. On September 5, 1995, Mr. Drayer exercised options on 8,000 shares
and realized a gain of $257,500.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED,
OPTIONS HELD AT FISCAL YEAR IN-THE-MONEY OPTIONS AT
SHARES END(#) FISCAL YEAR-END($)(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------- ----------- ----------- ----------- ------------- ----------- -------------
Barry Diller................ 0 -- -- 1,895,847 -- 25,949,406
James M. Lawless(2)(3)...... 0 -- 8,000 17,000 195,500 424,813
Steven H. Grant(2)(4)....... 0 -- 15,500 12,000 527,844 395,750
Alan E. Evans(5)............ 0 -- 37,500 -- 1,266,719 --
Michael Drayer(2)(6)........ 0 -- 12,500 10,000 414,406 320,125
Lia Afriat-Hernandez(2)..... 1,000 10,000 5,500 6,000 184,719 189,875
- ---------------
(1) Represents the difference between the $36.3125 closing price of Silver King
Common Stock on August 31, 1995 and the exercise price of the options, and
does not include the federal and state taxes due upon exercise.
(2) All unvested shares granted under the Employee Plan became vested on
December 1, 1995 pursuant to action taken by the Compensation/Benefits
Committee in connection with the downsizing of Silver King's staff and the
then-pending change in ownership of Silver King. The expiration dates for
the accelerated options remain five years from the date of their original
scheduled vesting.
(3) On January 2, 1996, Mr. Lawless exercised options on 25,000 shares and
realized a gain of $553,875. Mr. Lawless sold 24,000 shares for a gain of
$530,250 and held 1,000 shares with a spread of $23,625. Effective December
22, 1995, Mr. Lawless resigned as a director of Silver King and no longer
serves as its President.
(4) Mr. Grant resigned from his position as an executive officer of Silver King
effective July 5, 1996.
(5) Mr. Evans resigned from his position at Silver King in June 1995.
(6) On September 5, 1995, Mr. Drayer exercised options on 8,000 shares and
realized a gain of $257,500.
COMPENSATION OF OUTSIDE DIRECTORS
Prior to January 1, 1996, Silver King paid an annual fee of $10,000 to each
director who is not an employee of Silver King. Effective January 1, 1996, upon
the recommendation of the Compensation/Benefits Committee, the Silver King Board
approved an increase of the annual retainer for each director who is not an
employee of Silver King to $30,000 per year. Silver King also pays each such
director $1,000 for each Silver
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King Board of Directors meeting and each Silver King Board committee meeting
attended, plus reimbursement for all reasonable expenses incurred by such
director in connection with such attendance at any meeting of the Silver King
Board of Directors or one of its committees.
The directors who are not employees of Silver King and became directors
prior to February 13, 1996 also participate in the Silver King Stock Option Plan
for Outside Directors (the "Previous Directors Plan"), pursuant to which each
such director has been granted an option to purchase 25,000 shares of Silver
King Common Stock. The exercise price of options granted under the Previous
Directors Plan for all outside directors who joined Silver King prior to
December 28, 1992 is equal to the average of the opening and closing trading
prices of the Silver King Common Stock on December 28, 1992, the Distribution
Date. The exercise price of subsequent grants is equal to the fair market value
as determined by the closing bid price on the date of grant. Such options become
exercisable in three equal, annual installments beginning on the date of grant.
Each option expires five years after it becomes exercisable. During fiscal year
1993, Silver King granted options to purchase 150,000 shares of Silver King
Common Stock at an exercise price of $2.00 under the Previous Directors Plan.
During fiscal year 1994, Silver King granted options to purchase 25,000 shares
of Silver King Common Stock at an exercise price of $11.75 under the Previous
Directors Plan. During fiscal year 1995, Silver King granted options to purchase
an aggregate of 50,000 shares of Silver King Common Stock under the Previous
Directors Plan, with one grant at an exercise price of $9.75 and the other grant
at an exercise price of $10.00.
At a meeting of the Compensation/Benefits Committee on February 13, 1996,
the Compensation/Benefits Committee recommended, and the Silver King Board
approved, the termination of the Previous Directors Plan and the adoption of the
Directors Stock Option Plan. Grants of options previously made under the
Previous Directors Plan will remain outstanding pursuant to the terms of the
Previous Directors Plan. Adoption of the Directors Stock Option Plan is subject
to stockholder approval at the Silver King Meeting of the Directors Stock Option
Plan Proposal. See "Directors Stock Option Plan Proposal." Mr. Diller, through
shares owned by him and shares owned by BDTV, controls the vote of a sufficient
number of shares (representing approximately 66% of the outstanding Total Voting
Power) of Silver King Securities to assure stockholder approval of such
proposal, notwithstanding the vote of any other holders of Silver King
Securities.
Under the Directors Stock Option Plan, directors who are not employees of
Silver King and who became directors of Silver King on or after February 13,
1996 will receive an annual grant of options to purchase 5,000 shares of Silver
King Common Stock. The exercise price per share of Silver King Common Stock
subject to such options is the fair market value of the Silver King Common Stock
on the date of grant, which is provided to be the mean of the high and low sale
price on such date on any stock exchange on which the Silver King Common Stock
is listed or as reported by the Nasdaq National Market, or, in the event that
the Silver King Common Stock is not so listed or reported, as determined by an
investment banking firm selected by the Compensation/Benefits Committee. Such
options vest in equal increments of 1,667 shares on each of the first two
anniversaries of the date of grant, and with respect to the remaining 1,666
shares, on the third anniversary of the date of grant. For directors who became
directors on February 13, 1996, the exercise price per share of the annual grant
was $32.875. For a description of the Directors Stock Option Plan and the
Directors Stock Option Plan Proposal, see "Directors Stock Option Plan
Proposal."
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
Employment Contracts
Silver King has entered into an employment agreement with Douglas Binzak,
dated as of February 13, 1996, and an employment agreement with Adam Ware, dated
May 28, 1996, pursuant to which each such individual serves as an executive
officer of Silver King (Messrs. Binzak and Ware are referred to herein
individually as an "Executive" and collectively as the "Executives"). The
employment agreement with Mr. Binzak provides for an annual base salary of
$415,000, with possible increases at the sole discretion of the Silver King
Board, and a term of five years. The employment agreement with Mr. Ware provides
for an annual base salary of $275,000 for the first year, $300,000 for the
second year and $325,000 for the third year of his employment with Silver King,
and a term of three years. Each such employment agreement provides that, if
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Silver King terminates the Executive's employment other than for Cause (as
defined in such employment agreement), or if the Executive terminates his
employment for Good Reason (as defined in such employment agreement), Silver
King will pay to the Executive a lump sum payment equal to his accrued and
unpaid annual salary, bonuses and vacation pay, as well as any previously
deferred compensation, and will continue to make periodic payments of his annual
base salary for the remainder of his contract term (less any amounts such
Executive receives from another employer during that time). If Silver King
terminates the Executive's employment for Cause, if the Executive terminates his
employment with Silver King other than for Good Reason, or if the Executive's
employment is terminated by reason of death or disability, Silver King will pay
to the Executive or his estate his accrued and unpaid annual salary, bonuses and
vacation pay, as well as any previously deferred compensation. Neither of these
employment agreements provide for any obligations of any of the parties upon a
change in control of Silver King.
Equity Compensation Agreement
As of August 24, 1995, Silver King and Mr. Diller entered into the Equity
Compensation Agreement pursuant to which Silver King agreed to sell Mr. Diller
220,994 shares of Silver King Common Stock at $22.625 per share in cash (the
"Initial Diller Shares") and an additional 220,994 shares of Silver King 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, nonrecourse 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. In addition, Silver King granted Mr. Diller the Diller Options.
The Diller Options were granted in tandem with conditional SARs which become
exercisable only in the event of a change in control of Silver King and in lieu
of exercise of the Diller Options.
Mr. Diller also was granted a bonus arrangement, contractually independent
from the promissory note, pursuant to which he received a bonus payment of
approximately $2.5 million on August 24, 1996 and will receive a further such
payment on August 24, 1997, except that the bonuses will be paid immediately
upon a Change in Control of Silver King or upon termination of Mr. Diller's
employment either by Silver King other than for Cause or by Mr. Diller prior to
a Change of Control with good reason (as such terms are defined in the Equity
Compensation Agreement). Mr. Diller also received approximately $1.0 million 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 Silver King Common
Stock and the per share purchase price of the Initial Diller Shares and
Additional Diller Shares.
Termination Agreement
Silver King has entered into a termination agreement with Michael Drayer,
Executive Vice President, General Counsel and Secretary. This agreement provides
that, upon termination other than for Cause, Mr. Drayer will receive a lump sum
cash payment equal to his effective annual salary as of the date of his
termination, plus any earned and unused vacation and sick time, plus the amount
of any contribution otherwise payable for his benefit under the 401(k) Plan for
the year in which termination occurs, plus any additional severance as provided
for under Silver King's standard executive severance policy in effect as of the
date of the agreement. The termination agreement also provides that Mr. Drayer
will receive paid medical benefits for a one-year period following termination
or until alternative medical coverage is obtained.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation/Benefits Committee are Kenneth T.
MacDonald, Vincent F. Barresi, Michael A. Green and Russell I. Pillar. Hector
Alcalde and Guy A. Fritts served on the Committee until January 13, 1995.
In fiscal year 1994, the Audit Committee approved a consulting agreement
whereby Mr. Barresi, a member of the Silver King Board of Directors and the
Audit and Compensation/Benefits Committees, would seek to enhance Silver King's
revenue through the increased sale of station airtime and satellite earth
station
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uplink time, and the leasing of station tower and building space. Mr. Barresi
was compensated at the rate of $6,000 per month plus a 10% commission on net
receipts directly attributable to his efforts and reasonable and prudent
expenses. The consulting agreement was effective March 4, 1994 and terminated
December 31, 1994. Mr. Barresi remains entitled to a 10% commission on net
receipts directly attributable to his efforts. As of August 31, 1995, Mr.
Barresi was compensated in the amount of $94,924. Mr. Barresi received
compensation of $70,924 and $24,000 in fiscal years 1995 and 1994, respectively.
Mr. Barresi abstained from voting on all Audit Committee matters pertaining to
the consulting agreement.
COMPENSATION/BENEFITS COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation/Benefits Committee of the Silver King Board of Directors
currently consists of four directors who are not employees of Silver King:
Kenneth T. MacDonald, Vincent F. Barresi, Michael A. Green and Russel I. Pillar.
The Compensation/Benefits Committee is responsible for evaluating and
approving Silver King's compensation policies for all of Silver King's executive
officers. The compensation program for executive officers consists of salary,
bonuses and stock options.
The executive officers of Silver King as of December 28, 1992, the
Distribution Date, were former employees of HSN, the parent of Silver King prior
to such date. Accordingly, baseline executive salary levels for the fiscal year
ended August 31, 1993, Silver King's first year of stand-alone operation, were
based upon existing salary levels of Silver King's executive officers during
their employ at HSN and changes in their responsibilities upon joining Silver
King.
In making salary decisions for the fiscal years beginning September 1, 1993
and September 1, 1994, the Compensation/Benefits Committee reviewed the existing
salaries of executive officers and made salary decisions based upon a variety of
considerations designed to ensure that Silver King is able to attract and retain
qualified executives. The primary criteria followed by the Compensation/Benefits
Committee were as follows: (i) the ability of Silver King to absorb any
increases in salary, (ii) the fairness of individual executive officers'
salaries relative to their responsibilities and the salaries of other executive
officers, (iii) the individual performance of executive officers and an
assessment of the value to Silver King of their services, (iv) the salaries of
comparable officers at comparable companies in the communications industry and
(v) Silver King's financial performance. At different times, depending upon
prevailing circumstances, these criteria were given varying degrees of weight by
the Compensation/Benefits Committee.
The Compensation/Benefits Committee also considers awarding bonuses to
executive officers based on management's proven ability to increase stockholder
value over the past year, the ability of Silver King to absorb any such bonuses,
the individual performance of executive officers and an assessment of the value
to Silver King of their services and Silver King's financial performance. At
different times, depending upon prevailing circumstances, these criteria have
been given varying degrees of weight by the Compensation/Benefits Committee.
The compensation of the Chief Executive Officer, which includes the grant
of certain options to purchase Silver King Common Stock as well as the payment
of certain cash bonuses and reimbursement of expenses received in connection
with such officer's activities on behalf of Silver King, was determined based on
the criteria set forth above and based upon such officer's stature in the
industry and compensation package at other companies at which he has served. See
"-- Employment Contracts and Termination of Employment and Change in Control
Arrangements -- Equity Compensation Agreement."
Stock options are granted to executive officers and other key employees
under the Employee Plan to align the interests of executive officers, key
employees and stockholders in the enhancement of stockholder value and long-term
growth of Silver King. The Employee Plan is administered by Silver King's Vice
President, Acting Chief Financial Officer and Controller under the direction of
the Compensation/Benefits Committee. Stock options may be granted either as a
condition of employment or to existing employees. Stock options vest in 20%
increments commencing on the date of grant and annually thereafter, and expire
five years after each vesting date. The Compensation/Benefits Committee believes
that the five-year vesting period and four-year
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exercise period promotes the alignment of interests between stock option holders
and stockholders in the long-term growth of Silver King. In view of the 1995
Stock Incentive Plan Proposal, the Compensation/Benefits Committee does not
anticipate any further grants under the Employee Plan.
The use of salaries, bonuses and stock option grants consistent with the
policies described above has resulted in an executive officer compensation
program which the Compensation/Benefits Committee believes is fair to the
executive officers and in the best interests of Silver King's stockholders.
Accordingly, in making salary and bonus decisions for the four-month period
beginning September 1, 1995 and the fiscal year ending December 31, 1996 and for
the fiscal year beginning January 1, 1996, and in granting stock options, the
Compensation/Benefits Committee intends to continue to follow existing
compensation policies.
By the Compensation/Benefits Committee
Kenneth T. MacDonald, Chairman
Vincent F. Barresi
Michael A. Green
Russell I. Pillar
STOCK PRICE PERFORMANCE GRAPH
The Stock Price Performance Graph shall not be deemed incorporated by
reference by any general statement incorporating by reference this Joint Proxy
Statement/Prospectus into any filing under the Securities Act or the Exchange
Act (together, the "Acts"), except to the extent that Silver King specifically
incorporates this information by reference, and shall not otherwise be deemed
filed under such Acts.
The graph below compares cumulative total return of the Silver King Common
Stock, Nasdaq's Composite Index and Nasdaq's Tele-Comm Index based on $100
invested at the close of trading on December 31, 1992. Silver King selected the
Nasdaq Tele-Comm Index as its "Peer Group" because that Index is the category
designated for Silver King by the NASD.
Measurement Period NASDAQ Tele-Comm NASDAQ Composite
(Fiscal Year Covered) SKTV Index Index
12/31/92 $100.00 $100.00 $100.00
8/31/93 $355.00 $109.33 $148.43
8/31/94 $240.00 $113.80 $139.20
8/31/95 $726.25 $153.18 $150.78
12/31/95 $695.00 $158.56 $153.45
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1995 STOCK INCENTIVE PLAN PROPOSAL
INTRODUCTION
At the Silver King Meeting, Silver King's stockholders will be requested to
consider and act upon a proposal to adopt an incentive stock plan to be known as
the "1995 Stock Incentive Plan."
On November 27, 1995, based upon the recommendation of the
Compensation/Benefits Committee, the Silver King Board of Directors adopted the
1995 Stock Incentive Plan, subject to approval by Silver King's stockholders.
The 1995 Stock Incentive Plan became effective as of November 27, 1995, subject
to approval by Silver King's stockholders, and will terminate ten years after
its effective date. The purpose of the 1995 Stock Incentive Plan is to give
Silver King a competitive advantage in attracting, retaining and motivating
officers and employees and to provide Silver King with the ability to provide
incentives more directly linked to the profitability of Silver King's businesses
and increases in stockholder value.
Prior to approval of the 1995 Stock Incentive Plan by the Silver King Board
of Directors, it was reviewed by outside counsel to Silver King.
Approval of the 1995 Stock Incentive Plan is sought to qualify the plan
under Section 16(b) of the Exchange Act and the rules and regulations
promulgated thereunder, to comply with Section 162(m) of the Code, and to
preserve the deductibility to Silver King under the Code of compensation paid
under such plan. No further approval by Silver King stockholders will be
required in connection therewith. If such approval is not obtained, the 1995
Stock Incentive Plan will not become effective and the Stock Option Agreement
(as defined herein) will be terminated immediately. In view of the number of
Silver King Securities the voting of which with respect to the 1995 Stock
Incentive Plan Proposal is controlled by Mr. Diller, which shares represent 66%
of the outstanding Total Voting Power, and Mr. Diller's intention to vote such
shares in favor of approval of the 1995 Stock Incentive Plan Proposal, approval
by Silver King stockholders of the 1995 Stock Incentive Plan Proposal is
assured, notwithstanding the vote of any other Silver King stockholder.
Silver King expects that the 1995 Stock Incentive Plan will be modified in
light of the amendment to the rules under Section 16 of the Exchange Act
effective August 15, 1996.
DESCRIPTION
Set forth below is a summary of certain important features of the 1995
Stock Incentive Plan (as well as the form of stock option agreement pursuant
thereto), which summary is qualified in its entirety by reference to the actual
plan attached as Appendix G to this Joint Proxy Statement/Prospectus.
Administration
The 1995 Stock Incentive Plan will be administered by the
Compensation/Benefits Committee or such other committee of the Silver King Board
of Directors as the Silver King Board of Directors may from time to time
designate (the "Committee"). Among other things, the Committee will have the
authority to select officers and employees to whom awards may be granted, to
determine the type of award as well as the number of shares of Silver King
Common Stock to be covered by each award, and to determine the terms and
conditions of any such awards. The Committee also will have the authority to
adopt, alter and repeal such administrative rules, guidelines and practices
governing the 1995 Stock Incentive Plan as it deems advisable, to interpret the
terms and provisions of the 1995 Stock Incentive Plan and any awards issued
thereunder and to otherwise supervise the administration of the 1995 Stock
Incentive Plan. All decisions made by the Committee pursuant to the 1995 Stock
Incentive Plan will be final and binding. For federal income tax purposes, the
members of the Compensation/Benefits Committee must be outside directors within
the meaning of Department of Treasury regulations promulgated under the Code.
Eligibility
Persons who serve or agree to serve as officers, employees or consultants
of Silver King and its subsidiaries and affiliates designated by the Committee
who are responsible for or contribute to the
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management, growth and profitability of Silver King are eligible to be granted
awards under the 1995 Stock Incentive Plan. No grant will be made under the 1995
Stock Incentive Plan to a director who is not an officer or a salaried employee.
The Silver King Board of Directors currently estimates that approximately 15
persons will participate in the 1995 Stock Incentive Plan.
Plan Features
The 1995 Stock Incentive Plan authorizes the issuance of up to 1,500,000
shares of Silver King Common Stock pursuant to the grant or exercise of stock
options, including incentive stock options ("ISOs"), nonqualified stock options,
SARs, restricted stock and performance units. No single participant may be
granted awards pursuant to the 1995 Stock Incentive Plan covering in excess of
1,250,000 shares of Silver King Common Stock over the life of the 1995 Stock
Incentive Plan. Subject to the foregoing limits, the shares available under the
1995 Stock Incentive Plan can be divided among the various types of awards and
participants as the Committee sees fit. The shares subject to grant under the
1995 Stock Incentive Plan are to be made available from authorized but unissued
shares or from treasury shares as determined from time to time by the Silver
King Board of Directors. Awards may be granted for such terms as the Committee
may determine, except that the term of an ISO may not exceed ten years from its
date of grant. No awards outstanding on the termination date of the 1995 Stock
Incentive Plan shall be affected or impaired by such termination. Awards
generally will not be transferable, except by will and the laws of descent and
distribution and, in the case of nonqualified stock options, pursuant to a
qualified domestic relations order or a gift to an optionee's children. The
Committee has broad authority to fix the terms and conditions of individual
agreements with participants.
As indicated above, several types of stock grants can be made under the
1995 Stock Incentive Plan. A summary of these grants is set forth below:
Stock Options
The 1995 Stock Incentive Plan authorizes the Committee to grant options to
purchase Silver King's stock at an exercise price which cannot be less than 100%
of the fair market value of such stock on the date of grant. The 1995 Stock
Incentive Plan permits optionees, with the approval of the Committee, to pay the
exercise price of options in cash, stock (valued at its fair market value on the
date of exercise) or a combination thereof, or by "cashless exercise" through a
broker or Silver King. The term of options shall be as determined by the
Committee, but not longer than ten years from the date of grant. The Committee
also has the discretion to cash out options when they are exercised. The
Committee will determine when and subject to what conditions options will become
exercisable, and the extent to which they will be exercisable after the option
holder's employment terminates. Generally, options terminate upon the option
holder's termination of employment for Cause (as defined in the 1995 Stock
Incentive Plan), and will remain exercisable for not more than one year after
the option holder's death, not more than three years after the option holder's
employment terminates because of disability, not more than five years after the
option holder's retirement and not more than three months after the option
holder's employment terminates for any other reason. As noted above, options may
be granted either as ISOs or nonqualified options. The principal difference
between ISOs and nonqualified options is their tax treatment. See "-- Federal
Income Tax Consequences."
SARs
The 1995 Stock Incentive Plan authorizes the Committee to grant SARs in
conjunction with all or part of any stock option granted under the 1995 Stock
Incentive Plan. An SAR entitles the holder to receive upon exercise the excess
of the fair market value of a specified number of shares of Silver King Common
Stock at the time of exercise over a specified price per share. Such amount will
be paid to the holder in stock (valued at its fair market value on the date of
exercise), cash or a combination thereof, as the Committee may determine. An SAR
may be granted as an alternative to a previously or contemporaneously granted
nonqualified option, but may only be granted contemporaneously with the grant of
an ISO. An SAR will entitle the optionee, in lieu of exercising the option, to
receive the excess of the fair market value of a share of stock on the date of
exercise over the option price multiplied by the number of shares as to which
the optionee is exercising the
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SAR. Since an SAR is an alternative to an option, the option will be cancelled
to the extent that the SAR is exercised and the SAR will be cancelled to the
extent the option is exercised.
Restricted Stock
The 1995 Stock Incentive Plan authorizes the Committee to grant restricted
stock to individuals with such restriction periods as the Committee may
designate. The Committee may also provide at the time of grant that restricted
stock cannot vest unless applicable performance goals are satisfied. These
performance goals must be based on the attainment of one or any combination of
the following: specified levels of earnings per share from continuing
operations, operating income, revenues, return on operating assets, return on
equity, stockholder return, total stockholder return or stock price of Silver
King. Such performance goals also may be based on the attainment of specified
levels of Silver King's performance under one or more of the measures described
above relative to the performance of other corporations. Performance goals based
on the foregoing factors are hereinafter referred to as "Performance Goals." The
provisions of restricted stock awards (including any applicable Performance
Goals) need not be the same with respect to each participant. During the
restriction period, the Committee may require that the stock certificates
evidencing restricted shares be held by Silver King. Restricted stock may not be
sold, assigned, transferred, pledged or otherwise encumbered. Restricted stock
is forfeited upon termination of employment, unless otherwise provided by the
Committee. Other than these restrictions on transfer and any other restrictions
the Committee may impose, the participant will have all the rights of a holder
of stock holding the class or series of stock that is the subject of the
restricted stock award.
Performance Units
The 1995 Stock Incentive Plan authorizes the Committee to grant performance
units payable in cash or shares of Silver King Common Stock, conditioned upon
continued service and/or the attainment of Performance Goals (based on one or
more of the measures described under "-- Restricted Stock") determined by the
Committee during an award cycle. An "award cycle" consists of a period of
consecutive fiscal years or portions thereof designated by the Committee over
which performance units are to be earned. At the conclusion of a particular
award cycle, the Committee will determine the number of performance units
granted to a participant that have been earned and will deliver to such
participant (i) the number of shares of Silver King Common Stock equal to the
number of performance units determined by the Committee to have been earned
and/or (ii) cash equal to the fair market value of such shares. The Committee
may, in its discretion, permit participants to defer the receipt of performance
units, provided that the election to defer payment is made prior to the
commencement of the applicable award cycle.
The Committee will have the authority to determine the officers, employees
and consultants to whom, and the time or times at which, performance units will
be awarded, the number of performance units to be awarded to any participant,
the duration of the award cycle and any other terms and conditions of an award.
In the event that a participant's employment is terminated (other than for
Cause) or in the event of the participant's retirement, the Committee will have
the discretion to waive, in whole or in part, any or all remaining payment
limitations.
Tax Offset Bonuses
At the time an award is made under the 1995 Stock Incentive Plan or at any
time thereafter, the Committee may grant to the participant receiving such award
the right to receive a cash payment in an amount specified by the Committee, to
be paid at such time or times (if ever) as the award results in compensation
income to the participant, for the purpose of assisting the participant to pay
the resulting taxes, all as determined by the Committee and on such other terms
and conditions as the Committee shall determine.
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Amendment and Discontinuance
The 1995 Stock Incentive Plan may be amended, altered or discontinued by
the Silver King Board of Directors, but no amendment, alteration or
discontinuance may be made that would (i) impair the rights of an optionee under
an option or a recipient of an SAR, restricted stock award or performance unit
award previously granted without the optionee's or recipient's consent, except
such an amendment made to qualify the 1995 Stock Incentive Plan for the
exemption provided by Rule 16b-3 under the Exchange Act ("Rule 16b-3"), or (ii)
disqualify the 1995 Stock Incentive Plan from the exemption provided by Rule
16b-3. Except as expressly provided in the 1995 Stock Incentive Plan, the 1995
Stock Incentive Plan may not be amended without stockholder approval to the
extent such approval is required by law or agreement.
The 1995 Stock Incentive Plan provides that, in the event of any change in
corporate capitalization, such as a stock split, or a corporate transaction,
such as any merger, consolidation, separation, spin-off or other distribution of
property, or any reorganization or partial or complete liquidation of Silver
King, the Committee or the Silver King Board of Directors may make such
substitution or adjustment in the aggregate number and kind of shares reserved
for issuance under the 1995 Stock Incentive Plan, in the number, kind and option
price of shares subject to outstanding stock options and SARs, and in the number
and kind of shares subject to other outstanding awards granted under the 1995
Stock Incentive Plan as may be determined to be appropriate by the Committee or
the Silver King Board of Directors, in its sole discretion. The 1995 Stock
Incentive Plan also provides that in the event of a Change in Control of Silver
King, as defined in the 1995 Stock Incentive Plan, (i) any SARs and stock
options outstanding as of the date of the Change in Control, other than SARs
which have not been outstanding for at least six months on such date, which are
not then exercisable and vested will become fully exercisable and vested, (ii)
the restrictions and deferral limitations applicable to restricted stock will
lapse and such restricted stock will become free of all restrictions and fully
vested, (iii) all performance units will be considered to be earned and payable
in full and any deferral or other restrictions will lapse and such performance
units will be settled in cash as promptly as practicable, and (iv) stock options
may be surrendered, subject to certain limitations, at any time during the
60-day period following such Change in Control, for a cash payment (or, in
certain circumstances, an equivalent number of shares of Silver King Common
Stock) equal to the spread between the exercise price of the option and the
Change in Control Price (as defined in the 1995 Stock Incentive Plan) (such
right, an "LSAR").
FEDERAL INCOME TAX CONSEQUENCES
The following discussion is intended only as a brief summary of the federal
income tax rules that are generally relevant to stock options, SARs, restricted
stock and performance units. The laws governing the tax aspects of awards are
highly technical and such laws are subject to change.
Nonqualified Options and SARs
Upon the grant of a nonqualified option (with or without an SAR), the
optionee will not recognize any taxable income and Silver King will not be
entitled to a deduction. Upon the exercise of such an option or an SAR, the
excess of the fair market value of the shares acquired on the exercise of the
option over the option price (the "spread"), or the consideration paid to the
optionee upon exercise of the SAR, will constitute compensation taxable to the
optionee as ordinary income. In determining the amount of the spread or the
amount of consideration paid to the optionee, the fair market value of the stock
on the date of exercise is used, except that, in the case of an optionee subject
to the six-month short-swing profit recovery provisions of Section 16(b) of the
Exchange Act (generally officers and directors of Silver King), the fair market
value will be determined six months after the date on which the option was
granted (if such date is later than the exercise date) unless such optionee
elects to be taxed based on the fair market value at the date of exercise. Any
such election (a "Section 83(b) election") must be made and filed with the IRS
within 30 days after exercise in accordance with the regulations under Section
83(b) of the Code. Silver King, in computing its federal income tax, will
generally be entitled to a deduction in an amount equal to the compensation
taxable to the optionee, subject to the provisions of Code Section 162(m). See
"-- Section 162(m)."
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ISOs
An optionee will not recognize taxable income on the grant or exercise of
an ISO. However, the spread at exercise will constitute an item includible in
alternative minimum taxable income, and, thereby, may subject the optionee to
the alternative minimum tax. Such alternative minimum tax may be payable even
though the optionee receives no cash upon the exercise of his ISO with which to
pay such tax.
Upon the disposition of shares of stock acquired pursuant to the exercise
of an ISO after the later of (i) two years from the date of grant of the ISO or
(ii) one year after the transfer of the shares to the optionee (the "ISO Holding
Period"), the optionee will recognize long-term capital gain or loss, as the
case may be, measured by the difference between the stock's selling price and
the exercise price. The corporation is not entitled to any tax deduction by
reason of the grant or exercise of an ISO, or by reason of a disposition of
stock received upon exercise of an ISO if the ISO Holding Period is satisfied.
Different rules apply if the optionee disposes of the shares of stock acquired
pursuant to the exercise of an ISO before the expiration of the ISO Holding
Period.
Restricted Stock
A participant who is granted restricted stock may make a Section 83(b)
election to have the grant taxed as compensation income at the date of receipt,
with the result that any future appreciation (or depreciation) in the value of
the shares of stock granted will be taxed as capital gains (or loss) upon a
subsequent sale of the shares. However, if the participant does not make a
Section 83(b) election, then the grant will be taxed as compensation income at
the full fair market value on the date that the restrictions imposed on the
shares expire. Unless a participant makes a Section 83(b) election, any
dividends paid on stock subject to the restrictions are compensation income to
the participant and compensation expense to Silver King. Silver King is
generally entitled to an income tax deduction for any compensation income taxed
to the participant, subject to the provisions of Code Section 162(m). See
"-- Section 162(m)."
Performance Units
A participant who has been granted a performance unit award will not
realize taxable income until the applicable award cycle expires and the
participant is in receipt of the stock subject to the award or an equivalent
amount of cash, at which time such participant will realize ordinary income
equal to the full fair market value of the shares delivered or the amount of
cash paid. At that time, Silver King generally will be allowed a corresponding
tax deduction equal to the compensation taxable to the award recipient, subject
to the provisions of Code Section 162(m). See "-- Section 162(m)."
Section 162(m)
The 1995 Stock Incentive Plan has been designed to take into account recent
tax law changes that impose limits on the ability of a public corporation to
claim tax deductions for compensation paid to certain highly compensated
executives. Section 162(m) of the Code generally denies a corporate tax
deduction for annual compensation exceeding $1 million paid to the Chief
Executive Officer and the four other most highly compensated officers of a
public corporation. Certain types of compensation, including options granted
with a fair-market-value exercise price, and performance-based stock awards, are
generally excluded from this deduction limit. Other than with respect to Mr.
Diller, Silver King does not expect that it will pay compensation in excess of
the $1 million limit in the foreseeable future. However, in an effort to ensure
that options under the 1995 Stock Incentive Plan will qualify for the exclusion
for performance-based compensation, and to permit the Committee to grant other
awards under the 1995 Stock Incentive Plan that will also so qualify, the 1995
Stock Incentive Plan is being submitted to stockholders for approval at the
Silver King Meeting. By approving the 1995 Stock Incentive Plan, the
stockholders will be approving, among other things, the performance measures,
eligibility requirements and limits on various stock awards contained therein
for purposes of Section 162(m) of the Code.
The Committee will have the authority to grant awards (other than options)
under the 1995 Stock Incentive Plan that are not subject to Performance Goals
and therefore will not qualify as performance-based
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compensation for purposes of Section 162(m) of the Code. Finally, under certain
circumstances such as death, disability and a Change in Control (as defined in
the 1995 Stock Incentive Plan), awards that would otherwise so qualify may
result in the payment of compensation that is not qualified under Section
162(m).
NEW PLAN BENEFITS
The Stock Option Agreement; Other Option Grants
Pursuant to the 1995 Stock Incentive Plan, the Committee and the Silver
King Board of Directors have approved a stock option agreement by and between
Mr. Diller and Silver King, dated as of November 27, 1995 (the "Stock Option
Agreement"), subject to stockholder approval of the 1995 Stock Incentive Plan.
Under the Stock Option Agreement, Silver King granted Mr. Diller options
pursuant to the 1995 Stock Incentive Plan, consisting of the right to purchase
625,000 shares of Silver King Common Stock for an exercise price of $30.75 per
share (the "Additional Diller Options"); provided however, that (i) in the event
that the Savoy Merger is not consummated, the number of shares subject to this
Stock Option Agreement will be reduced to 403,375, (ii) in the event that the
HSN Merger is not consummated, the number of shares subject to this Stock Option
Agreement will be reduced to 221,625 and (iii) in the event that neither the
Savoy Merger nor the HSN Merger is consummated, the Additional Diller Options
will terminate immediately. The Additional Diller Options will become
exercisable with respect to 25% of the total shares on each anniversary of the
date of the Stock Option Agreement beginning with November 27, 1996 and will
remain exercisable until November 27, 2005. The Additional Diller Options will
terminate and cease to be exercisable, whether then exercisable or not, if
Silver King terminates Mr. Diller's employment for Cause and 90 days after the
effective date of Mr. Diller's termination of his employment with Silver King
other than for Good Reason (each as defined in the Stock Option Agreement).
Upon a Change in Control (as defined in the Stock Option Agreement), all of
the Additional Diller Options that have not previously become exercisable or
been terminated will become exercisable.
The Additional Diller Options cannot be transferred except by will or by
the laws of descent and distribution or with the consent of the Silver King
Board of Directors.
In addition to the Committee's rights to make adjustments pursuant to terms
of the 1995 Stock Incentive Plan, the number and kind of securities purchasable
upon the exercise and the exercise price of the Additional Diller Options, as
well as the related LSAR, will be subject to adjustment in the event that Silver
King pays a dividend in shares of Silver King Common Stock, makes a distribution
to all holders of shares of any class of its capital stock in shares of Silver
King Common Stock, subdivides its outstanding shares of Silver King Common Stock
into a greater number of shares or combines its outstanding shares of Silver
King Common Stock into a smaller number of shares of Silver King Common Stock.
Silver King also has agreed that, in case of any reclassification or change of
outstanding Silver King Common Stock, recapitalization, separation (including a
spin-off or other distribution of stock or property of Silver King),
reorganization, any dividend or distribution not described in the previous
sentence, or any consolidation or merger of Silver King with another corporation
(other than a consolidation or merger in which Silver King is the surviving
corporation that does not result in any reclassification of or change in the
outstanding shares of Silver King Common Stock) or partial or complete
liquidation, or any sale or conveyance to another corporation of all or
substantially all of the assets of Silver King (other than by mortgage or
pledge), Silver King or such successor or purchasing corporation, as the case
may be, will undertake to assure that the Additional Diller Options as well as
the related LSAR (i) will be exercisable, upon payment of the applicable
exercise price in effect immediately before such action, for the kind and amount
of shares and other securities and property that Mr. Diller would have owned
and/or been entitled to receive after such action, had such options been
exercised immediately before such action and (ii) will be adjusted accordingly
with respect to the number and kind of securities purchasable and its exercise
price.
Under the Stock Option Agreement, Silver King has agreed, upon request by
Mr. Diller, to use all reasonable efforts promptly to effect a registration of
Silver King Common Stock owned by Mr. Diller, except that Silver King will not
be obligated to effect any such registration if counsel designated by Silver
King and reasonably acceptable to Mr. Diller delivers an opinion to Mr. Diller
to the effect that the number of shares of
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Silver King Common Stock specified in such request for registration could then
be sold by Mr. Diller within a three-month period under Rule 144 under the
Securities Act (or any successor provision then in effect), and Mr. Diller is
then entitled to sell Silver King Common Stock pursuant to Rule 144. Such
registration would be effected without cost to Mr. Diller, other than
underwriting discounts and commissions, any broker or dealer fees or commissions
and the fees and expenses of any special accounting required in connection
therewith.
Pursuant to the 1995 Stock Incentive Plan, Silver King has entered into a
stock option agreement, dated as of February 13, 1996 and amended as of November
12, 1996, with Mr. Binzak (as amended, the "Binzak Option Agreement"), and a
stock option agreement, dated as of May 28, 1996 and amended as of November 12,
1996, with Mr. Ware (as amended, the "Ware Option Agreement"), each of which is
subject to stockholder approval of the 1995 Stock Incentive Plan. Under the
Binzak Option Agreement, Silver King has agreed to grant Mr. Binzak options
pursuant to the 1995 Stock Incentive Plan, consisting of the right to purchase
110,000 shares of Silver King Common Stock for an exercise price of $25.25 per
share (the "Binzak Options"). Under the Ware Option Agreement, Silver King has
agreed to grant Mr. Ware options pursuant to the 1995 Stock Incentive Plan,
consisting of the right to purchase 100,000 shares of Silver King Common Stock
for an exercise price of $25.25 per share (the "Ware Options").
The Binzak Options and the Ware Options will become exercisable with
respect to 25% of the total shares on each anniversary of the date of
commencement of full-time employment of Mr. Binzak or Mr. Ware, as the case may
be, and will remain exercisable until the tenth anniversary of the date of the
respective option agreements. The Binzak Options and the Ware Options will
terminate and cease to be exercisable, whether then exercisable or not, if
Silver King terminates the employment of Mr. Binzak or Mr. Ware, as the case may
be, for Cause or if Mr. Binzak or Mr. Ware, as the case may be, terminates his
employment with Silver King other than for Good Reason (each as defined in the
employment agreements by and between Silver King and Mr. Binzak or Mr. Ware, as
the case may be). If Silver King terminates the employment of either Mr. Binzak
or Mr. Ware without Cause, all of the Binzak Options or the Ware Options, as the
case may be, that are not then exercisable will be accelerated and become
exercisable immediately.
The Binzak Options and the Ware Options cannot be transferred except by
will or by the laws of descent and distribution.
In addition to the Committee's rights to make adjustments pursuant to terms
of the 1995 Stock Incentive Plan, the number and kind of securities purchasable
upon the exercise and the exercise price of the Binzak Options and the Ware
Options will be subject to adjustment in the event of any change in the
outstanding Silver King Common Stock due to recapitalizations, reorganizations,
combinations, mergers, stock splits or reverse stock splits.
The Binzak Options and the Ware Options are also subject to the provisions
of the 1995 Stock Incentive Plan and, therefore, may become vested upon a change
in control of Silver King. See "1996 Stock Incentive Plan
Proposal -- Description." Neither the Savoy Merger nor the HSN Transactions
constitute a change in control of Silver King for the purposes of the 1995 Stock
Incentive Plan.
On November 12, 1996, the Compensation/Benefits Committee granted to Mr.
Kaufman options to purchase 100,000 shares of Silver King Common Stock at an
exercise price of $25.25 per share, on substantially the same terms and
conditions as the Binzak Options and the Ware Options except that such options
would be subject to a four-year vesting schedule beginning on the date of the
commencement of his employment with Silver King, be vested immediately if his
employment with Silver King were terminated other than for cause and are subject
to the consummation of the Savoy Merger and to the commencement of Mr. Kaufman's
employment with Silver King thereafter.
Other Plan Benefits
Neither the specific benefits or amounts that may be received by or
allocated to various persons or group of persons under the 1995 Stock Incentive
Plan if the 1995 Stock Incentive Plan is adopted nor the specific benefits or
amounts that would have been received by or allocated to any person or group of
persons for the last fiscal year if the 1995 Stock Incentive Plan had been in
effect can be determined at this time.
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The following table sets forth the benefits allocated under the 1995 Stock
Incentive Plan to (i) each of the Silver King Named Executive Officers (other
than Mr. Evans, who resigned from his position at Silver King in June 1995),
(ii) all the Silver King executive officers as a group, (iii) all directors who
are not executive officers as a group and (iv) all other employees, including
Silver King officers who are not executive officers, as a group. All of the
awards set forth in the following table are subject to adoption of the 1995
Stock Incentive Plan by Silver King's stockholders.
NEW PLAN BENEFITS
1995 STOCK INCENTIVE PLAN
EXERCISE PRICE NUMBER
NAME AND POSITION PER SHARE($)(1) OF SHARES
-------------------------------------------------------------- --------------- ---------
Barry Diller.................................................. $ 30.75 625,000(2)
Chairman and Chief Executive Officer
James M. Lawless.............................................. 0 0
President
Steven H. Grant............................................... 0 0
Vice Chairman, Executive Vice President, Chief
Financial/Administrative Officer and Treasurer
Douglas Binzak................................................ 25.25 110,000
Executive Vice President -- Broadcasting
Adam Ware..................................................... 25.25 100,000
Executive Vice President -- Broadcasting
Michael Drayer................................................ 0 0
Executive Vice President, General Counsel and Secretary
Lia Afriat-Hernandez.......................................... 0 0
Executive Vice President -- Compliance/Programming
Executive Group............................................... 28.93(3) 935,000(2)
Non-Executive Director Group.................................. 0 0
Non-Executive Officer Employee Group.......................... 0 0
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(1) It is not possible to determine the value of these benefits because the
benefits will depend upon exercise decisions by participants and the fair
market value of the Silver King Common Stock at various future dates
following the adoption of the proposed 1995 Stock Incentive Plan.
(2) The Additional Diller Options to purchase 625,000 shares of Silver King
Common Stock pursuant to the Stock Option Agreement are conditioned upon
consummation of both the Savoy Merger and the HSN Merger as well as on
stockholder approval of the 1995 Stock Incentive Plan. If only the Savoy
Merger is consummated, Mr. Diller has been granted options to purchase
221,625 shares of Silver King Common Stock, and, if only the HSN Merger is
consummated, Mr. Diller has been granted options to purchase 403,375 shares
of Silver King Common Stock. If neither transaction is consummated, the
grant to Mr. Diller under the 1995 Stock Incentive Plan will be cancelled in
full. Includes options to purchase 100,000 shares of Silver King Common
Stock granted to Mr. Kaufman.
(3) Represents weighted average of exercise prices per share.
VOTE REQUIRED
Approval of the 1995 Stock Incentive Plan requires the affirmative approval
of a majority of the Total Voting Power present in person or represented by
proxy at the Silver King Meeting and entitled to vote and voting thereon. Based
on the intention of Mr. Diller to vote shares of Silver King Securities owned by
him or as to which he controls the voting with respect to this proposal pursuant
to the Stockholders Agreement, approval by Silver King stockholders of this
proposal is assured.
THE SILVER KING BOARD OF DIRECTORS BELIEVES THAT APPROVAL OF THE 1995 STOCK
INCENTIVE PLAN IS IN THE BEST INTERESTS OF ALL STOCKHOLDERS AND, ACCORDINGLY,
RECOMMENDS A VOTE FOR THE PROPOSED 1995 STOCK INCENTIVE PLAN. YOUR PROXY WILL BE
SO VOTED UNLESS YOU SPECIFY OTHERWISE.
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DIRECTORS STOCK OPTION PLAN PROPOSAL
INTRODUCTION
At the Silver King Meeting, Silver King's stockholders will be requested to
consider and act upon a proposal to adopt a non-employee directors' stock option
plan to be known as the Directors Stock Option Plan.
On February 13, 1996, based upon the recommendation of the
Compensation/Benefits Committee, the Silver King Board adopted the Directors
Stock Option Plan, subject to approval by Silver King's stockholders, and
terminated the Previous Directors Plan. The Directors Stock Option Plan became
effective on February 13, 1996, subject to approval by Silver King's
stockholders, and will terminate on December 31, 2006. The purpose of the
Directors Stock Option Plan is to provide Silver King with a means of
attracting, retaining and motivating non-employee directors of the highest
calibre and of compensating such directors in part by means of stock options,
the value of which depends upon the profitability of Silver King, as reflected
in the market value of Silver King Common Stock. The Directors Stock Option Plan
was reviewed, prior to approval by the Silver King Board, by outside counsel to
Silver King.
Approval of the Directors Stock Option Plan is sought pursuant to the rules
and bylaws of the NASD and to qualify the plan under Section 16(b) of the
Exchange Act and the rules and regulations promulgated thereunder. No further
approval by Silver King stockholders will be required in connection therewith.
If such approval is not obtained, the Directors Stock Option Plan will not
become effective and any options granted thereunder (as described below) will be
terminated immediately. In view of the number of Silver King Securities
controlled by Mr. Diller, which shares represent 66% of the outstanding Total
Voting Power, and Mr. Diller's intention to vote such shares in favor of
approval of the Directors Stock Option Plan Proposal, approval of the Directors
Stock Option Plan Proposal is assured, notwithstanding the vote of any other
Silver King stockholder.
Silver King expects that the Directors Stock Option Plan will be modified
in light of the amendment to the rules under Section 16 of the Exchange Act
effective August 15, 1996.
DESCRIPTION
Set forth below is a summary of certain important features of the Directors
Stock Option Plan, which summary is qualified in its entirety by reference to
the actual plan attached as Appendix H to this Joint Proxy Statement/Prospectus.
Administration
The Directors Stock Option Plan will be administered by the Committee.
Among other things, the Committee, subject to the terms of the Directors Stock
Option Plan, will have full and final authority to interpret the plan,
prescribe, amend and rescind rules and regulations, if any, relating to the
plan, and make all determinations necessary or advisable for administration of
the plan. All decisions made by the Committee with respect to interpretation of
the terms of the plan and with respect to questions or disputes under the plan
will be final and binding on Silver King and the plan participants.
Eligibility
Participation in the Directors Stock Option Plan is limited to persons who
serve as members of the Silver King Board and who, at the time of a grant under
the plan, are not "employees" (as defined in the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")) of Silver King and/or any of its
subsidiaries. An employee of Silver King or its subsidiaries who resigns or
retires from all such employment and remains a director of Silver King will
become eligible to participate in the plan at the time of such resignation or
retirement.
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Plan Features
The Directors Stock Option Plan authorizes the grant of options to purchase
up to 100,000 shares of Silver King Common Stock during the life of the plan.
During the 60-day period following a Change of Control (as defined in the
Directors Stock Option Plan), a director having an option granted under the plan
will have the right, in lieu of the payment of the exercise price of the shares
of Silver King Common Stock being purchased under an option granted under the
plan, by giving notice to Silver King, to surrender all or part of such option
to Silver King and to receive in cash, within ten days of such notice, an amount
equal to the amount by which the Change of Control Price (as defined in the
Directors Stock Option Plan) per share exceeds the exercise price per share
under the option, multiplied by the number of shares of Silver King Common Stock
granted under the option, provided that, if the Change of Control is within six
months of the date of grant of the option, no such election shall be made by a
director with respect to such option prior to six months from the grant date.
The Silver King Board generally may amend, alter or discontinue the
Directors Stock Option Plan at any time, but no such amendment, alteration or
discontinuation shall be made that would impair the rights of an optionee under
an option theretofore granted without the optionee's consent (other than an
amendment made to cause the plan to qualify for the exemption provided by Rule
16b-3, as such rule may be amended from time to time), or to disqualify the plan
from the exemption in Rule 16b-3. As indicated above, the Committee retains
broad discretion to administer the plan.
The number of shares of Silver King Common Stock reserved for grants under
the Directors Stock Option Plan will be subject to appropriate adjustment by the
Committee, as necessary, to reflect any stock split, stock dividend,
recapitalization, reclassification, merger, consolidation, reorganization,
combination or exchange of shares or similar event.
The Directors Stock Option Plan is not subject to any provision of ERISA
and is not qualified under Section 401(a) of the Code, relating to pension plans
and certain other deferred compensation plans.
Stock Options
Pursuant to the Directors Stock Option Plan, each eligible director will be
granted, upon initial election to the Silver King Board and annually thereafter
on the date of a Silver King annual meeting of stockholders at which such
director is reelected (provided that such date is at least 12 months following
such director's initial election to office) of an option to purchase 5,000
shares of Silver King Common Stock at the Fair Market Value (as defined herein)
of Silver King Common Stock on the trading day immediately preceding such date
of grant. As defined in the plan, "Fair Market Value" means the mean of the
highest and lowest sale price for the Silver King Common Stock as reported on
any securities exchange on which the Silver King Common Stock is listed, or the
mean of the highest and lowest "bid" price on the Nasdaq National Market, or, if
the Silver King Common Stock is not so reported or listed, as determined by an
investment banking firm selected by the Committee.
Except in the event of a Change of Control (as defined in the Directors
Stock Option Plan), options granted under the plan will vest and become
exercisable as follows: with respect to 1,667 shares of Silver King Common
Stock, on each of the first two anniversaries of the date of grant, and with
respect to the remaining 1,666 shares, on the third anniversary of such date. In
the event that a director's service to Silver King terminates before options
granted under the plan have vested, any option not yet vested will be cancelled
with the director having no further right or interest therein. Upon a Change of
Control, all options not previously exercisable will become exercisable.
An option granted under the Directors Stock Option Plan may not be
assigned, transferred, pledged, hypothecated or otherwise disposed of, except by
will or the laws of descent or distribution.
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FEDERAL INCOME TAX CONSEQUENCES
The following summary of tax consequences is not comprehensive and is based
on laws and regulations in effect on the date of this prospectus. These laws and
regulations are subject to change.
The grant of an option under the Directors Stock Option Plan is not a
taxable event, and Silver King is not entitled to a deduction upon such grant.
Upon exercise of an option, participants will be taxed at ordinary income rates
on the difference between the exercise price of the option and the fair market
value of the shares of Silver King Common Stock issued thereunder. In
determining the amount of the difference, the fair market value will be
determined on the latter of the date of exercise and the date which is six
months and one day after the date on which the option is granted, unless the
participant elects to be taxed based on the fair market value at the date of
exercise. Silver King will receive a corresponding deduction for the amount of
income recognized by a participant upon exercise of an option. Any gain or loss
realized upon the subsequent sale of shares of Silver King Common Stock issued
upon exercise of the option (measured by the difference between the fair market
value determined or utilized by the optionee as described above) and the sale
price will be taxed at either long-term or short-term capital gain (or loss)
rates, depending on the selling stockholder's holding period. The subsequent
sale would have no tax consequences for Silver King. Options granted under the
plan are not qualified as incentive stock options, as that term is defined in
Section 422 of the Code, which means that Silver King will receive a deduction
for the amount of income recognized by a participant in the same year that the
participant recognizes income in connection with the exercise of an option.
NEW PLAN BENEFITS
Pursuant to the Directors Stock Option Plan, on February 13, 1996, Messrs.
Ramer and Sheinberg were each granted options to purchase 5,000 shares of Silver
King Common Stock at an exercise price of $32.875 per share. Such grants are
subject to the approval by Silver King stockholders of the Directors Option
Plan.
The following table sets forth the benefits allocated under the Directors
Stock Option Plan to (i) each of the Silver King Named Executive Officers (other
than Mr. Evans, who resigned from his position at Silver King in June 1995),
(ii) all the Silver King executive officers as a group, (iii) all directors who
are not executive officers as a group and (iv) all other employees, including
Silver King officers who are not executive officers, as a group. All of the
awards set forth in the following table are subject to adoption of the Directors
Stock Option Plan by Silver King's stockholders.
NEW PLAN BENEFITS
DIRECTORS STOCK OPTION PLAN
EXERCISE PRICE NUMBER
NAME AND POSITION(1) PER SHARE($)(2) OF SHARES(3)
- ----------------------------------------------------------------- --------------- ------------
Barry Diller..................................................... $ 0 0
Chairman and Chief Executive Officer
James M. Lawless................................................. 0 0
President
Steven H. Grant.................................................. 0 0
Vice Chairman, Executive Vice President, Chief
Financial/Administrative Officer and Treasurer
Michael Drayer................................................... 0 0
Executive Vice President, General Counsel and Secretary
Lia Afriat-Hernandez............................................. 0 0
Executive Vice President -- Compliance/Programming
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EXERCISE PRICE NUMBER
NAME AND POSITION(1) PER SHARE($)(2) OF SHARES(3)
- ----------------------------------------------------------------- ------- ------
Executive Group.................................................. 0 0
Non-Executive Director Group..................................... 32.875 10,000
Non-Executive Officer Employee Group............................. 0 0
- ---------------
(1) Pursuant to the terms of the Directors Stock Option Plan, only non-employee
directors of the Silver King Board will be eligible for grants thereunder.
(2) It is not possible to determine the value of these benefits because the
benefits will depend upon exercise decisions by participants and the fair
market value of the Silver King Common Stock at various future dates
following the adoption of the proposed 1995 Stock Incentive Plan.
(3) On February 13, 1996, each of Messrs. Ramer and Sheinberg were granted
options to purchase 5,000 shares of Silver King Common Stock at an exercise
price of $32.875 per share pursuant to the Directors Stock Option Plan. Such
options are subject to the approval of the Directors Stock Option Plan by
Silver King stockholders and vest over a three-year period in the following
increments: 1,667, 1,667 and 1,666.
VOTE REQUIRED
Approval of the Directors Stock Option Plan Proposal requires the
affirmative vote of a majority of the Total Voting Power present in person or
represented by proxy at the Silver King Meeting and entitled to vote and voting
thereon. Based on the intention of Mr. Diller to vote shares of Silver King
Securities owned by him or as to which he controls the voting with respect to
this proposal pursuant to the Stockholders Agreement, approval by Silver King
stockholders of this proposal is assured.
THE SILVER KING BOARD OF DIRECTORS BELIEVES THAT APPROVAL OF THE DIRECTORS
STOCK OPTION PLAN IS IN THE BEST INTERESTS OF ALL STOCKHOLDERS, AND,
ACCORDINGLY, RECOMMENDS A VOTE FOR THE PROPOSED DIRECTORS STOCK OPTION PLAN.
YOUR PROXY WILL BE SO VOTED UNLESS YOU SPECIFY OTHERWISE.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth, as of November 1, 1996, information
relating to the beneficial ownership of Silver King Common Stock by (i) each
person known by Silver King to own beneficially more than 5% of the outstanding
shares of Silver King Common Stock, (ii) each director, (iii) the Chief
Executive Officer of Silver King and the other four most highly compensated
officers of Silver King whose compensation exceeded $100,000 for fiscal year
1995, and (iv) all executive officers and directors of Silver King as a group:
NAME AND ADDRESS NUMBER OF PERCENT PERCENT OF VOTES
OF BENEFICIAL OWNER SHARES OF CLASS (ALL CLASSES)
- ------------------------------------------------------- ---------- -------- ----------------
Roy M. Speer(1)........................................ 107,732 1.5% *
P.O. Box F-41414
Freeport, Grand Bahamas
Bahamas
RMS Limited Partnership(2)............................. 763,059 10.2 2.8%
50 West Liberty Street, Suite 650
Reno, Nevada 89501
Roy M. Speer Foundation(3)............................. 409,265 5.8 1.3
1803 U.S. Highway 19
Holiday, FL 34691
Montgomery Asset Management, L.P.(4)................... 366,000 5.2 1.2
600 Montgomery Street
San Francisco, CA 94111
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NAME AND ADDRESS NUMBER OF PERCENT PERCENT OF VOTES
OF BENEFICIAL OWNER SHARES OF CLASS (ALL CLASSES)
- -------------------------------------------------------- ---------- -------- ----------------
Snyder Capital Management, Inc.......................... 645,900 9.1 2.1
350 California Street
Suite 1460
San Francisco, CA 94104
Tele-Communications, Inc.(5)............................ 2,061,630 22.7 15.6
5619 DTC Parkway
Englewood, Colorado
Transamerica Corporation................................ 677,500 9.6 2.2
600 Montgomery Street
San Francisco, CA 94111
Transamerica Investment Securities, Inc................. 677,500 9.6 2.2
1150 South Olive Street
Los Angeles, CA 90015
Wanger Asset Management, L.P............................ 400,000 5.7 1.3
227 West Monroe Street, Suite 3000
Chicago, Illinois 60606
Barry Diller(6)......................................... 2,977,580 31.2 21.7
1940 Coldwater Canyon
Beverly Hills, CA 90210
Vincent F. Barresi(7)................................... 25,150 * *
Steven H. Grant(8)...................................... 27,651 * *
Michael A. Green(9)..................................... 15,000 * *
James M. Lawless(10).................................... 1,000 * *
Kenneth T. MacDonald(11)................................ 25,000 * *
Russell I. Pillar(12)................................... 25,000 * *
Bruce M. Ramer(13)...................................... 0 * *
Sidney J. Sheinberg(13)................................. 0 * *
Alan L. Evans(14)....................................... 39,400 * *
Michael Drayer(15)...................................... 14,500 * *
Lia Afriat-Hernandez(16)................................ 11,800 * *
All executive officers and directors as a group (13
persons)
(6)-(16).............................................. 3,203,618 33.5 23.4
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Unless otherwise indicated, beneficial owners listed herein may be contacted at
Silver King's corporate headquarters address, 12425 28th Street North, St.
Petersburg, FL 33716. The percentage of votes listed assumes the conversion of
any shares of Silver King Class B Common Stock owned by such listed person, but
does not assume the conversion of Silver King Class B Common Stock owned by any
other person. Under the rules of the Commission, 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.
* The percentage of shares beneficially owned does not exceed 1% of the class.
(1) The number of shares does not include 409,265 shares of Silver King Common
Stock held by Richard W. Baker as Trustee for the Roy M. Speer Foundation
for which Mr. Speer disclaims beneficial ownership. The number of shares
does not include shares of Silver King Common Stock or Silver King Class B
Common Stock held by RMSLP.
(2) Includes 415,945 shares of Silver King Class B Common Stock, which may be
converted at any time into an equal number of shares of Silver King Common
Stock. RMSLP is a limited partnership organized
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under the laws of the State of Nevada, the managing general partner of which
is Crystal Diamond, Inc. Roy M. Speer is the sole stockholder of Crystal
Diamond, Inc. and the non-managing general partner of RMSLP. Richard W.
Baker, as Trustee under an Intervivos Trust agreement dated January 1, 1967
with Roy M. Speer, is a limited partner of RMSLP.
(3) The number of shares does not include 26,040 shares of Silver King Common
Stock held by Richard W. Baker for which the Roy M. Speer Foundation
disclaims beneficial ownership. Richard W. Baker disclaims beneficial
ownership of the 409,265 shares of Silver King Common Stock held by the Roy
M. Speer Foundation.
(4) The number of shares includes 80,000 shares of Silver King Common Stock as
to which the reporting entity has sole dispositive power but no voting
power, based on such entity's filing on Schedule 13G with the Commission.
(5) Includes 2,000,000 shares of Silver King Class B Common Stock, which may be
converted at any time into an equal number of shares of Silver King Common
Stock. The number of shares does not include any shares or options to
purchase shares held by Mr. Diller as to which shares TCI disclaims
beneficial ownership.
(6) The number of shares includes vested options to purchase 473,962 shares but
does not include unvested options to purchase 1,421,885 shares granted to
Mr. Diller. Such number also includes 2,000,000 shares of Silver King Class
B Common Stock beneficially owned by Mr. Diller which shares are
convertible into Silver King Common Stock and 61,630 shares of Silver King
Common Stock held by BDTV with respect to which Mr. Diller may be deemed to
be a beneficial owner.
(7) The number of shares includes 25,000 beneficially owned vested shares
granted under the Previous Directors Plan.
(8) The number of shares includes 27,500 beneficially owned vested shares
granted under the Employee Plan. All unvested shares granted under the
Employee Plan vested December 1, 1995 pursuant to action taken by the
Compensation/Benefits Committee in connection with the downsizing of Silver
King's staff and the then-pending change in ownership of Silver King.
(9) The number of shares includes 15,000 beneficially owned vested shares
granted under the Previous Directors Plan.
(10) The number of shares includes 1,000 beneficially owned vested shares
granted under the Employee Plan. All unvested shares granted under the
Employee Plan vested December 1, 1995 pursuant to action taken by the
Compensation/Benefits Committee in connection with the downsizing of Silver
King's staff and the then-pending change in ownership of Silver King.
Effective December 22, 1995, Mr. Lawless resigned as a director of Silver
King and no longer serves as President of Silver King.
(11) The number of shares includes 25,000 beneficially owned vested shares
granted under the Previous Directors Plan.
(12) The number of shares includes 25,000 beneficially owned vested shares
granted under the Previous Directors Plan.
(13) The number of shares does not include unvested options to purchase an
aggregate of 10,000 shares of Silver King Common Stock granted to Messrs.
Ramer and Sheinberg pursuant to the Directors Stock Option Plan, which
options are conditioned upon approval of such plan.
(14) The number of shares includes 37,500 beneficially owned vested shares
granted under the Employee Plan.
(15) The number of shares includes 14,500 beneficially owned vested shares
granted under the Employee Plan. All unvested shares granted under the
Employee Plan vested December 1, 1995 pursuant to action taken by the
Compensation/Benefits Committee in connection with the downsizing of Silver
King's staff and the then-pending change in ownership of Silver King.
(16) The number of shares includes 11,500 beneficially owned vested shares
granted under the Employee Plan. All unvested shares granted under the
Employee Plan vested on December 1, 1995 pursuant to action taken by the
Compensation/Benefits Committee in connection with the downsizing of Silver
King's staff and the then-pending change in ownership of Silver King.
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The following table sets forth, as of November 1, 1996, information
relating to the beneficial ownership of the Silver King Class B Common Stock:
PERCENT OF
NAME AND ADDRESS NUMBER OF PERCENT VOTES
OF BENEFICIAL OWNER SHARES OF CLASS (ALL CLASSES)*
- ---------------------------------------------------------- --------- -------- --------------
Barry Diller(2)........................................... 2,000,000 82.8% 64.0%
1940 Coldwater Canyon
Beverly Hills, California 90210
Tele-Communications, Inc.(2).............................. 2,000,000 82.8 64.0
5619 DTC Parkway
Englewood, Colorado
BDTV INC.(2).............................................. 2,000,000 82.8 64.0
2425 Olympic Boulevard
Santa Monica, California 90404
RMS Limited Partnership(1)(3)............................. 415,945 17.2 13.3
50 West Liberty Street
Suite 650
Reno, Nevada 89501
- ---------------
* Excludes shares of Silver King Common Stock owned by any of the listed
persons.
(1) All or any portion of shares of Silver King Class B Common Stock may be
converted at any time into an equal number of shares of Silver King Common
Stock. Upon the conversion of all of the Silver King Class B Common Stock
owned by RMSLP, RMSLP would own, in total, 763,059 shares of Silver King
Common Stock or approximately 10.2% of the issued and outstanding shares of
Silver King Common Stock.
(2) Liberty, a wholly-owned subsidiary of TCI, and Mr. Diller have entered into
the Stockholders Agreement pursuant to which Liberty and Mr. Diller have
formed BDTV, to which Liberty assigned the Liberty Option. On August 13,
1996, BDTV exercised the Liberty Option. Accordingly, if conversion by RMSLP
of the remaining shares of Silver King Class B Common Stock is effected
(which conversion BDTV has the right to require RMSLP to effect), Liberty
and Mr. Diller will then both have beneficial ownership of 2,000,000 shares
of Silver King Class B Common Stock constituting 100% of the Silver King
Class B Common Stock and 72.7% of the outstanding Total Voting Power. Mr.
Diller also owns 441,988 shares of Silver King Common Stock and options to
purchase 1,895,847 shares of Silver King Common Stock, 473,962 of which are
currently vested representing 12.1% of the issued and outstanding shares of
Silver King Common Stock. Moreover, if BDTV converted its beneficially owned
Silver King Class B Common Stock into Silver King Common Stock, such shares
would represent approximately 22.0% of the issued and outstanding shares of
Silver King Common Stock. These shares do not include shares of Silver King
Common Stock and Silver King Class B Common Stock to be issued to Liberty
HSN pursuant to the HSN Merger, the Contingent Rights or the Exchange. TCI
disclaims beneficial ownership of all Silver King Securities held by Mr.
Diller but not any Silver King Securities held by BDTV. Mr. Diller owns all
of the voting stock of BDTV and Liberty owns all of the non-voting stock,
which non-voting stock represents in excess of 99% of the equity of BDTV.
The Silver King Securities held by BDTV are subject to the terms of the
Stockholders Agreement.
(3) RMSLP is a limited partnership organized under the laws of the State of
Nevada, the managing general partner of which is Crystal Diamond, Inc. Roy
M. Speer is the sole stockholder of Crystal Diamond, Inc. and the
nonmanaging general partner of RMSLP. Richard W. Baker, as Trustee under an
Intervivos Trust agreement dated January 1, 1967 with Roy M. Speer, is a
limited partner of RMSLP. BDTV has the right pursuant to the agreement by
which Liberty originally acquired the Liberty Option (which was subsequently
assigned to BDTV), to require RMSLP to convert its shares of Silver King
Class B Common Stock into Silver King Common Stock at any time.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Diller, the Chairman of the Board and Chief Executive Officer of Silver
King, is Chairman of the Board of HSN and is the sole holder of the voting stock
of BDTV. Liberty currently is the controlling shareholder of HSN and, by virtue
of its interest in BDTV, may, subject to certain regulatory and other
requirements, acquire a controlling interest in Silver King. For further
information regarding BDTV and the Stockholders Agreement, see "Special Factors
Relating to the HSN Transactions -- Background -- Relationship between Liberty
and Mr. Diller -- The Diller-Liberty Stockholders Agreement."
Prior to the Distribution Date, Silver King was a wholly-owned subsidiary
of HSN. On the Distribution Date, HSN distributed all of the shares of the
capital stock of Silver King to the stockholders of record of HSN as of December
24, 1992. See "Special Factors Relating to the HSN Transactions -- Background --
Relationship between Silver King and HSN."
See "Compensation of Directors and Certain Executive Officers of Silver
King -- Compensation Committee Interlocks and Insider Participation."
COMPARISON OF RIGHTS OF STOCKHOLDERS
OF SILVER KING, SAVOY AND HSN
The rights of Silver King's stockholders are governed by the Silver King
Certificate, the Silver King Bylaws and the laws of the State of Delaware. The
rights of Savoy's stockholders are governed by the Savoy Certificate, the Savoy
Bylaws and the laws of the State of Delaware. The rights of HSN's stockholders
are governed by the HSN Certificate, the HSN Bylaws and the laws of the State of
Delaware. Upon consummation of the Savoy Merger, holders of Savoy Common Stock
will become holders of Silver King Common Stock. Upon consummation of the HSN
Merger, the public holders of HSN Common Stock will become holders of Silver
King Common Stock. As a result, the rights of Savoy and HSN stockholders will be
governed by the Silver King Certificate, the Silver King Bylaws and the laws of
the State of Delaware. In most respects, the rights of Silver King stockholders,
the rights of Savoy stockholders and the rights of HSN stockholders are similar.
The following discussion of certain similarities and material differences
between the rights of Silver King stockholders and the rights of Savoy
stockholders and between the rights of Silver King stockholders and the rights
of HSN stockholders under their respective certificates of incorporation and
bylaws is only a summary of certain provisions and does not purport to be a
complete description of such similarities and differences. The following
discussion is qualified in its entirety by reference to the laws of the state of
Delaware and the full texts of the respective certificates of incorporation and
bylaws of Silver King, Savoy and HSN, which texts are incorporated by reference
as exhibits to the Registration Statement of which this Joint Proxy
Statement/Prospectus is a part.
AUTHORIZED CAPITAL STOCK
Silver King
As of the date of this Joint Proxy Statement/Prospectus, Silver King's
authorized capital stock consists of 30,000,000 shares of Silver King Common
Stock, 2,415,945 shares of Silver King Class B Common Stock and 50,000 shares of
Silver King Preferred Stock. If the Authorized Capital Stock Amendment Proposal
is approved at the Silver King Meeting and such amendments to the Silver King
Certificate become effective pursuant to the DGCL, the authorized capital stock
of Silver King will consist of 150,000,000 shares of Silver King Common Stock,
30,000,000 shares of Silver King Class B Common Stock and 15,000,000 shares of
Silver King Preferred Stock. Shares of Silver King Class B Common Stock are
convertible into shares of Silver King Common Stock at the option of the holder
thereof at any time on a share-for-share basis. Upon the conversion of shares of
Silver King Class B Common Stock into shares of Silver King Common Stock, said
shares of Silver King Class B Common Stock will be retired and will not be
subject to reissue. Shares of Silver King Common Stock are not convertible into
shares of Silver King Class B Common Stock.
The Silver King Certificate provides that there can be no stock dividends
or stock splits or combinations of stock declared or made on Silver King Common
Stock or Silver King Class B Common Stock unless the
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shares of Silver King Common Stock and Silver King Class B Common Stock then
outstanding are treated equally and identically.
Savoy
Savoy's authorized capital stock consists of 110,000,000 shares, divided
into the following classes: 100,000,000 shares of Savoy Common Stock and
10,000,000 shares of preferred stock, par value $.01 per share ("Savoy Preferred
Stock").
HSN
As of the date of this Joint Proxy Statement/Prospectus, HSN's authorized
capital stock consists of 150,000,000 shares of HSN Common Stock, 20,000,000
shares of HSN Class B Common Stock and 500,000 shares of HSN preferred stock,
par value $.01 per share (the "HSN Preferred Stock"). Shares of HSN Class B
Common Stock are convertible into shares of HSN Common Stock at the option of
the holder thereof at any time on a share-for-share basis. Upon the conversion
of shares of HSN Class B Common Stock into shares of HSN Common Stock, said
shares of HSN Class B Common Stock will be retired and will not be subject to
reissue. Shares of HSN Common Stock are not convertible into shares of HSN Class
B Common Stock.
The HSN Certificate provides that there can be no stock dividends or stock
splits or combinations of stock declared or made on HSN Common Stock or HSN
Class B Common Stock unless the shares of HSN Common Stock and HSN Class B
Common Stock then outstanding are treated equally and identically.
VOTING
Silver King
The holders of a majority of each class of Silver King Common Stock and
Silver King Class B Common Stock issued and outstanding, present in person or
represented by proxy, constitute a quorum. The holders of Silver King Common
Stock and the holders of Silver King Class B Common Stock vote as separate
classes upon any merger, reorganization, recapitalization, liquidation,
dissolution or winding-up, sale or transfer of substantially all of the assets
of Silver King, any amendment to the Silver King Certificate or similar matter
that requires stockholder approval under the DGCL, all of which must be
submitted to a vote of or to the consent of the stockholders of Silver King; and
the separate approvals of both the holders of Silver King Common Stock and the
holders of the Silver King Class B Common Stock, voting as separate classes, are
necessary for the adoption of any such matter. In the event that fewer than
2,280,000 shares of Silver King Class B Common Stock are outstanding, the
holders of Silver King Class B Common Stock will vote together with the holders
of Silver King Common Stock as a single class with respect to these matters,
with the holders of Silver King Class B Common Stock entitled to ten votes per
share and the holders of Silver King Common Stock entitled to one vote per
share. With respect to other matters that may be submitted to a vote or to the
consent of the stockholders of Silver King, including the election of directors,
and except as otherwise provided by the DGCL, the holders of Silver King Class B
Common Stock will vote together with the holders of Silver King Common Stock as
a single class, with the holders of Silver King Class B Common Stock entitled to
ten votes per share and the holders of Silver King Common Stock entitled to one
vote per share.
Notwithstanding the foregoing, the holders of Silver King Common Stock,
acting as a single class, are entitled to elect 25% of the total number of
directors (and, in the event that such number is a fraction, then the holders of
the Silver King Common Stock, acting as a single class, are entitled to elect
the next higher whole number of directors).
In the event that the Class Vote Amendment Proposal is approved by the
requisite vote of Silver King stockholders at the Silver King Meeting and such
amendment is duly filed with the Secretary of State of Delaware pursuant to the
DGCL, the Silver King Certificate will be amended to provide that, except as
otherwise provided by the DGCL with respect to all matters submitted to a vote
or to the consent of the stockholders of Silver King, the holders of Silver King
Common Stock and the holders of Silver King Class B
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Common Stock will vote together as a single class, with shares of Silver King
Common Stock entitled to one vote per share and shares of Silver King Class B
Common Stock entitled to ten votes per share. Approval of the Class Vote
Amendment Proposal and the related amendment to the Silver King Certificate will
not affect the provisions of the Silver King Certificate relating to the
election by the holders of Silver King Common Stock of 25% of the members of the
Silver King Board. Based on the number of Silver King Securities held by BDTV or
as to which Mr. Diller has voting authority subject to the terms of the
Stockholders Agreement, if the Class Vote Amendment Proposal is approved, Mr.
Diller and Liberty will generally be able to control the outcome of all matters
submitted to the vote or consent of Silver King stockholders, other than matters
as to which the separate class vote of the holders of Silver King Common Stock
is provided for pursuant to the DGCL and the Silver King Certificate.
Savoy
The holders of a majority of Savoy Common Stock issued and outstanding,
present in person or represented by proxy, constitute a quorum. Each share of
Savoy Common Stock entitles its record holder to one vote on any matter which is
submitted to a vote or to the consent of the stockholders of Savoy.
HSN
The required quorum for the transaction of business at the meeting of HSN
stockholders is a majority of the shares of both the HSN Common Stock and HSN
Class B Common Stock with respect to matters on which all HSN stockholders vote
as a single class and a majority of the shares of each of the HSN Common Stock
and the HSN Class B Common Stock with respect to matters on which holders of
such shares are entitled to vote as separate classes, in each case, issued and
outstanding on the record date established for such meeting, which shares must
be present in person or represented by proxy at such meeting. So long as at
least 22,800,000 shares of HSN Class B Common Stock are outstanding, the holders
of HSN Common Stock and the holders of HSN Class B Common Stock vote as separate
classes upon any merger, reorganization, recapitalization, liquidation,
dissolution or winding-up, sale or transfer of substantially all of the assets
of HSN, all of which must be submitted to a vote of or to the consent of the
stockholders of HSN; and the separate approvals of both the holders of HSN
Common Stock and the holders of the HSN Class B Common Stock, voting as separate
classes, are necessary for the adoption of any such matter. In the event that
less than 22,800,000 shares of HSN Class B Common Stock are outstanding, as is
currently the case, the holders of HSN Class B Common Stock will vote together
with the holders of HSN Common Stock as a single class, with the holders of HSN
Class B Common Stock entitled to ten votes per share and the holders of HSN
Common Stock entitled to one vote per share. With respect to other matters that
may be submitted to a vote or to the consent of the stockholders of HSN,
including the election of directors, and except as otherwise provided by the
DGCL, the holders of HSN Class B Common Stock will vote together with the
holders of HSN Common Stock as a single class, with the holders of HSN Class B
Common Stock entitled to ten votes per share and the holders of HSN Common Stock
entitled to one vote per share.
Notwithstanding the foregoing, the holders of HSN Common Stock are entitled
to vote as a separate class on any amendment to the HSN Certificate and, acting
as a single class, are entitled to elect 25% of the total number of directors
(and, in the event that such number is a fraction, then the holders of the HSN
Common Stock, acting as a single class, are entitled to elect the next higher
whole number of directors).
AMENDMENT OF CERTIFICATE OF INCORPORATION
Silver King
So long as there are at least 2,280,000 shares of Silver King Class B
Common Stock outstanding, amendment of the Silver King Certificate requires the
affirmative vote by holders of a majority of each of the outstanding shares of
Silver King Common Stock and Silver King Class B Common Stock, voting as a
separate class. If there are fewer than 2,280,000 shares of Silver King Class B
Common Stock outstanding, amendment of the Silver King Certificate generally
requires the affirmative vote by holders of a majority of the outstanding Total
Voting Power, with each share of Silver King Common Stock entitled to one vote
and each
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share of Silver King Class B Common Stock entitled to ten votes. In addition,
under the DGCL, if a proposed amendment to the Silver King Certificate would
increase or decrease the aggregate number of authorized shares of Silver King
Common Stock or Silver King Class B Common Stock, increase or decrease the par
value of the shares of such class, or alter or change the powers, preferences,
or special rights of the shares of such class so as to affect them adversely,
then the holders of the outstanding shares of such class would be entitled to
vote as a separate class in the proposed amendment.
If the Class Vote Amendment Proposal is approved by the requisite vote of
Silver King stockholders at the Silver King Meeting and such amendment is duly
filed with the Secretary of State of Delaware pursuant to the DGCL, the holders
of Silver King Common Stock and Silver King Class B Common Stock will vote
together as a single class with respect to amendments to the Silver King
Certificate except (i) as set forth in the Silver King Certificate with respect
to the election by the holders of Silver King Common Stock of 25% of the members
of the Silver King Board or (ii) as required by the DGCL.
Savoy
Amendment of the Savoy Certificate requires the affirmative approval of a
majority of the shares of Savoy Common Stock outstanding.
HSN
Amendment of the HSN Certificate generally requires the affirmative vote by
holders of a majority of the votes of the outstanding shares of HSN Common
Stock, voting as a separate class. In addition, under the DGCL, if a proposed
amendment to the HSN Certificate would increase or decrease the aggregate number
of authorized shares of HSN Common Stock or HSN Class B Common Stock, increase
or decrease the par value of the shares of such class, or alter or change the
powers, preferences, or special rights of the shares of such class so as to
affect them adversely, then the holders of the outstanding shares of such class
would be entitled to vote as a separate class in the proposed amendment.
AMENDMENT OF BYLAWS
The Silver King Bylaws, the Savoy Bylaws and the HSN Bylaws may be altered,
amended or repealed by their respective Board of Directors (by 60% of such
directors in the case of HSN) or stockholders. Amendment of the Silver King
Bylaws by the Silver King Board and of the HSN Bylaws by the HSN Board requires,
in the case of Silver King, three days', and in the case of HSN ten days',
advance written notice to the directors of the meeting and the proposed
amendment or alteration.
BOARD OF DIRECTORS
Silver King
The Silver King Certificate and the Silver King Bylaws provide for a Board
of Directors of not less than three and not more than 15 members. The exact
number of directors is determined by resolution of the entire Silver King Board,
which currently provides for an eight-member Board of Directors.
The holders of Silver King Common Stock and the holders of Silver King
Class B Common Stock vote as a single class for the election of directors, with
the holders of Silver King Common Stock having one vote per share and the
holders of Silver King Class B Common Stock having ten votes per share.
Notwithstanding the foregoing, the holders of Silver King Common Stock, acting
as a single class, are entitled to elect 25% of the total number of directors,
and in the event that 25% of the total number of directors results in a fraction
of a director, then the holders of Silver King Common Stock would be entitled to
elect the next higher whole number of directors. In each case, the approval of
the majority of votes cast is required for election of a director.
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Savoy
The Savoy Bylaws initially provide for a Board of Directors of two members.
The exact number of directors, currently set at 12 members, is determined by the
affirmative vote of a majority of the entire Savoy Board or by action of Savoy
stockholders. Directors are elected by a plurality of the votes cast.
HSN
The HSN Certificate and the HSN Bylaws provide for a Board of Directors of
not less than four and not more than 15 members. The exact number of directors
is provided from time to time in the HSN Bylaws, which currently provides for a
ten-member Board of Directors.
The holders of HSN Common Stock and the holders of HSN Class B Common Stock
vote as a single class for the election of directors, with the holders of HSN
Common Stock having one vote per share and the holders of HSN Class B Common
Stock having ten votes per share. Notwithstanding the foregoing, the holders of
HSN Common Stock, acting as a single class, are entitled to elect 25% of the
total number of directors, and in the event that 25% of the total number of
directors results in a fraction of a director, then the holders of HSN Common
Stock would be entitled to elect the next higher whole number of directors. In
each case, the approval of the majority of votes cast is required for election
of a director.
REMOVAL OF DIRECTORS
Silver King
The Silver King Certificate provides that a director may be removed at any
time, either with or without cause, by the affirmative vote of the holders of a
majority of each of the Silver King Common Stock and Silver King Class B Common
Stock. A director who was elected by the holders of Silver King Common Stock
voting as a separate class, however, may only be removed by the holders of
Silver King Common Stock.
Savoy
The Savoy Bylaws provide that any director may be removed, either with or
without cause, at any time, by the holders of a majority of the Savoy Common
Stock outstanding.
HSN
The HSN Certificate provides that a director may be removed at any time,
either with or without cause, by the affirmative vote of the holders of a
majority of the HSN Common Stock and HSN Class B Common Stock, voting together
as a single class. A director who was elected by the holders of HSN Common Stock
voting as a separate class, however, may only be removed by the holders of HSN
Common Stock.
INDEMNIFICATION
Section 145 of the DGCL provides that a corporation may indemnify any
person made a party to an action (other than an action by or in the right of the
corporation) by reason of the fact that he or she was a director, officer,
employee or agent of the corporation or was serving at the request of the
corporation against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him or her in
connection with such action if he or she acted in good faith and in a manner he
or she reasonably believed to be in, or not opposed to, the best interests of
the corporation and, with respect to any criminal action (other than an action
by or in the right of the corporation), has no reasonable cause to believe his
or her conduct was unlawful. Determination of indemnification shall be made by
(i) the members of the corporation's board of directors who were not parties to
such action, even if less than a quorum, or (ii) if there are no such directors
or if such directors so direct, by independent legal counsel in a written
opinion, or (iii) the corporation's stockholders.
The DGCL provides that a corporation may indemnify any person made a party
to an action by or in the right of the corporation to procure a judgment in its
favor by reason of the fact that he or she was a director,
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officer, employee or agent of the corporation or was serving at the request of
the corporation against expenses (including attorneys' fees) actually and
reasonably incurred by him or her in connection with such action if he or she
acted in good faith and in a manner he or she reasonably believed to be in, or
not opposed to, the best interests of the corporation and except that no
indemnification shall be made in respect of any matter as to which such person
shall have been adjudged to be liable to the corporation unless and only to the
extent that the Delaware Court of Chancery, or the court in which such action
was brought, shall determine that such person is entitled to indemnity for such
expenses which the Delaware Court of Chancery or such other court shall deem
proper.
Each of the Silver King Certificate, the Savoy Certificate and the HSN
Certificate expressly provides that directors will not be personally liable to
their respective companies or stockholders for monetary damages for breach of
their fiduciary duty as directors, other than liability (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders; (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law; (iii) under section 174 of the DGCL; or (iv) for any
transaction from which the director derived an improper personal benefit, and
will be indemnified to the fullest extent authorized by Delaware law. The Silver
King Certificate provides that directors, officers and certain other persons
will be indemnified to the fullest extent authorized by the DGCL or other
applicable Delaware law. The Savoy Certificate has no comparable provision
regarding officers and such other persons. Each of the Silver King Bylaws and
the Savoy Bylaws provides that directors, officers and certain other persons
will be indemnified with respect to third-party actions or suits, provided that
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of their respective companies and,
with respect to criminal actions, provided that such person had no reasonable
cause to believe his conduct was unlawful. The HSN Certificate provides that HSN
may indemnify such similar persons in similar circumstances and will indemnify
such persons in the event that such persons have been successful in such
defense. Each of the Silver King Bylaws and the Savoy Bylaws further provides
that directors, officers and certain other persons will be indemnified with
respect to actions or suits by or in the right of their respective companies,
provided that such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of such
company; except that no indemnification shall be made in the event that such
person shall be adjudged to be liable to such company, unless a court determines
that indemnification is fair and reasonable in view of all the circumstances.
The HSN Certificate provides that HSN may indemnify such similar persons in
similar circumstances and will indemnify such persons in the event that such
persons have been successful in such defense.
The Savoy Bylaws require that a determination as to the propriety of
indemnification shall be made within 30 days after Savoy receives a written
request for indemnification. The Savoy Bylaws also provide that, if such
determination is not made within 90 days after the receipt by Savoy of such
request, the requisite determination of entitlement to indemnification shall be
deemed to have been made and the applicant shall be absolutely entitled to such
indemnification absent misrepresentation by the applicant of a material fact or
a final judicial determination that all or any part of such indemnification is
expressly prohibited by law. The Savoy Bylaws further provide that, in the event
that a judicial determination is made that the applicant is entitled to
indemnification, interest shall be paid by Savoy to the applicant, to the extent
deemed appropriate by the court, at a reasonable interest rate for amounts which
Savoy indemnifies or is obliged to indemnify the applicant. The Silver King
Bylaws and the HSN Certificate do not have comparable requirements relating to
deadlines or interest. The Silver King Bylaws provide that a prospective
indemnitee who applies to a court for a determination of entitlement to
indemnification and who is successful, in whole or in part, will also be
entitled to be paid the expense of prosecuting such application. The Silver King
Bylaws provide that Silver King may and the Savoy Bylaws provide that Savoy will
pay the expenses incurred by its respective director, officer, employee or agent
in defending any proceeding within the scope of the indemnification provisions
as such expenses are incurred in advance of its final disposition, subject to
certain conditions. The Savoy Bylaws further require that Savoy make such
payment within 20 days of receipt of the request for advances and provide
expressly that the financial ability of an indemnitee to repay an advance shall
not be a prerequisite to the making of such an advance.
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REORGANIZATION
The Savoy Certificate provides that whenever a compromise or arrangement is
proposed between Savoy and its creditors and/or between Savoy and its
stockholders, any court of equitable jurisdiction within the State of Delaware,
on application of Savoy, any creditor, stockholder, receiver or trustee of
Savoy, may order a meeting of the creditors and/or the stockholders of Savoy, as
the case may be. If a majority in number representing three-fourths in value of
the creditors and/or the stockholders, as the case may be, agrees to any
compromise or arrangement and to any reorganization of Savoy as a consequence of
such compromise or arrangement, then such compromise or arrangement and such
reorganization, if sanctioned by the court, shall be binding on all the
creditors and/or all the stockholders, as the case may be, and on Savoy. The HSN
Certificate has a similar provision but the Silver King Certificate has no
similar provision.
DELAWARE ANTI-TAKEOVER STATUTE
Section 203 of the DGCL generally prohibits a "business combination"
between a corporation and an "interested stockholder" within three years of the
time such stockholder became an "interested stockholder," unless (i) prior to
such time the board of directors of the corporation approved either the business
combination or the transaction which resulted in the stockholder becoming an
interested stockholder, (ii) upon consummation of the transaction which resulted
in the stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, exclusive of shares owned by
directors who are also officers and by certain employee stock plans, or (iii)
after such time, the business combination is approved by the board of directors
and authorized by the affirmative vote at a stockholders' meeting of at least
66 2/3% of the outstanding voting stock which is not owned by the interested
stockholder. The term "business combination" is defined to include, among other
transactions between the interested stockholder and the corporation or any
direct or indirect majority-owned subsidiary thereof, a merger or consolidation;
a sale, pledge, transfer or other disposition (including as part of a
dissolution) of assets having an aggregate market value equal to 10% or more of
either the aggregate market value of all assets of the corporation on a
consolidated basis or the aggregate market value of all the outstanding stock of
the corporation; certain transactions that would increase the interested
stockholder's proportionate share ownership of the stock of any class or series
of the corporation or such subsidiary; and any receipt by the interested
stockholder of the benefit of any loans, advances, guarantees, pledges or other
financial benefits provided by or through the corporation or any such
subsidiary. In general, and subject to certain exceptions, an "interested
stockholder" is any person who is the owner of 15% or more of the outstanding
voting stock (or, in the case of a corporation with classes of voting stock with
disparate voting power, 15% or more of the voting power of the outstanding
voting stock) of the corporation, and the affiliates and associates of such
person. The term "owner" is broadly defined to include any person that
individually or with or through his or its affiliates or associates, among other
things, beneficially owns such stock, or has the right to acquire such stock
(whether such right is exercisable immediately or only after the passage of
time) pursuant to any agreement or understanding or upon the exercise of
warrants or options or otherwise or has the right to vote such stock pursuant to
any agreement or understanding, or has an agreement or understanding with the
beneficial owner of such stock for the purpose of acquiring, holding, voting or
disposing of such stock. The restrictions of Section 203 of the DGCL do not
apply to corporations that have elected, in the manner provided therein, not to
be subject to such section or which do not have a class of voting stock that is
listed on a national securities exchange or authorized for quotation on the
Nasdaq Stock Market or held of record by more than 2,000 stockholders.
The Silver King Certificate does not contain any provision "opting out" of
the application of DGCL Section 203 and Silver King has not taken any of the
actions necessary for it to "opt out" of such provision. As a result, the
provisions of Section 203 of the DGCL will remain applicable to transactions
between Silver King and any of their respective "interested stockholders." The
Silver King Board has approved in accordance with the applicable requirements of
Section 203 of the DGCL certain transactions, including the HSN Transactions,
between Liberty, Mr. Diller, BDTV and their respective affiliates and associates
and Silver King, which transactions may have resulted in any of Liberty, Mr.
Diller or BDTV becoming an interested stockholder of Silver King, within the
meaning of Section 203 of the DGCL.
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Neither the Savoy Certificate nor the HSN Certificate contains any
provision opting out of the application of DGCL Section 203 and neither Savoy
nor HSN has taken any of the actions necessary for it to opt out of such
provision. The HSN Board has approved for purposes of Section 203 of the DGCL
the HSN Transactions.
ANTI-TAKEOVER PROVISIONS
Silver King
Because there are more than 2,280,000 shares of Silver King Class B Common
Stock outstanding, the approval by both the holders of Silver King Common Stock
and the holders of Silver King Class B Common Stock, voting as separate classes,
is required for any merger, reorganization, recapitalization or sale of
substantially all the assets of Silver King. If there were fewer than 2,280,000
shares of Silver King Class B Common Stock outstanding, the holders of Silver
King Common Stock and Silver King Class B Common Stock would vote together as a
single class, with each share of Silver King Common Stock entitled to one vote
and each share of Silver King Class B Common Stock entitled to ten votes. Under
certain ownership scenarios, these circumstances can make a change in control of
Silver King that is not approved by the holders of the Silver King Class B
Common Stock more difficult and, therefore, less likely. If the Class Vote
Amendment Proposal is approved and such amendment becomes effective pursuant to
the DGCL, the foregoing provisions will be eliminated from the Silver King
Certificate. In view of the number of Silver King Securities held by BDTV or as
to which Mr. Diller otherwise has voting authority pursuant to the Stockholders
Agreement, however, a change in control of Silver King requires the consent of
each of Mr. Diller and Liberty regardless of whether the Class Vote Amendment
Proposal is approved by Silver King stockholders.
Furthermore, the Silver King Certificate authorizes 50,000 shares of Silver
King Preferred Stock (which number would be increased to 15,000,000 shares
pursuant to the Authorized Capital Stock Amendment Proposal), the rights,
preferences, powers and restrictions of which may be determined by the Silver
King Board of Directors without stockholder approval. The Silver King Board of
Directors has the ability to designate a series of preferred stock with rights,
preferences, powers and restrictions that would make a change in control of
Silver King not approved by the Silver King Board of Directors difficult and
therefore less likely.
In the event that the Authorized Capital Stock Amendment Proposal is
approved by the requisite vote of Silver King stockholders at the Silver King
Meeting, additional authorized Silver King Securities (and shares of Silver King
Preferred Stock) could be issued in one or more transactions, which issuance and
transactions may not require Silver King stockholder approval and which may have
the effect of making a change of control of Silver King more difficult.
See "Special Factors Relating to the HSN
Transactions -- Background -- Relationship between Liberty and Mr. Diller -- the
Diller-Liberty Stockholders Agreement."
Savoy
Neither the Savoy Certificate nor the Savoy Bylaws contain specific
anti-takeover provisions; however, the Savoy Certificate authorizes 10,000,000
shares of Savoy Preferred Stock, the rights, preferences, powers and
restrictions of which may be determined by the Savoy Board of Directors without
stockholder approval. The Savoy Board of Directors has the ability to designate
a series of preferred stock with rights, preferences, powers and restrictions
that would make a change in control of Savoy not approved by the Savoy Board of
Directors difficult and therefore less likely. In addition, as of November 20,
1995, there were 100,000,000 shares of Savoy Common Stock authorized, of which
only 30,041,932 shares were issued and outstanding. Shares of authorized and
unissued Savoy Common Stock could be issued in one or more transactions which
also would make a change in control of Savoy more difficult and, therefore, less
likely. Any such issuance of additional stock could have the effect of diluting
the earnings per share and book value per share of outstanding shares of Savoy
Common Stock, and such additional shares could be used to dilute the stock
ownership or voting rights of persons seeking to obtain control of Savoy.
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HSN
The approval by both the holders of HSN Common Stock and HSN Class B Common
Stock voting together as a single class is required with respect to any merger,
reorganization, recapitalization or sale of substantially all the assets of HSN,
with each share of HSN Common Stock entitled to one vote and each share of HSN
Class B Common Stock entitled to ten votes. These circumstances can make a
change in control of HSN that is not approved by the holders of the HSN Class B
Common Stock more difficult and, therefore, less likely. Liberty currently owns
20,000,000 shares of HSN Class B Common Stock (which shares constitute all of
the outstanding shares of such class), representing 74% of the outstanding
voting power of HSN, and thus Liberty has the power to block all such
transactions or other proposed actions presented to the holders of HSN Common
Stock and HSN Class B Common Stock for their approval, voting as a single class.
Furthermore, the HSN Certificate authorizes 500,000 shares of HSN Preferred
Stock, the rights, preferences, powers and restrictions of which may be
determined by the HSN Board of Directors without stockholder approval. The HSN
Board of Directors has the ability to designate a series of preferred stock with
rights, preferences, powers and restrictions that would make a change in control
of HSN not approved by the HSN Board of Directors difficult and therefore less
likely.
DESCRIPTION OF SILVER KING COMMON STOCK
As of the date of this Joint Proxy Statement/Prospectus, the authorized
capital stock of Silver King consists of 30,000,000 shares of Silver King Common
Stock, 2,415,945 shares of Silver King Class B Common Stock, and 50,000 shares
of Silver King Preferred Stock.
COMMON STOCK AND CLASS B STOCK
As of the Silver King Record Date, there were 7,083,132 shares of Silver
King Common Stock outstanding held of record by 7,515 registered stockholders
and 2,415,945 shares of Silver King Class B Common Stock outstanding held of
record by two registered stockholders. Upon consummation of both the Savoy
Merger and the HSN Merger and completion of the Exchange (assuming issuance of
all the shares underlying the Contingent Right), there would be outstanding
approximately 43,687,904 shares of Silver King Common Stock and 13,215,945
shares of Silver King Class B Common Stock.
So long as at least 2,280,000 shares of Silver King Class B Common Stock
are outstanding, the holders of Silver King Common Stock and the holders of
Silver King Class B Common Stock will vote as separate classes upon any merger,
reorganization, recapitalization, liquidation, dissolution or winding-up, sale
or transfer of substantially all of the assets of Silver King, any amendment to
the Silver King Certificate, or similar matter that requires stockholder
approval under the DGCL, all of which must be submitted to a vote of or to the
consent of the stockholders of Silver King; and the approvals of the holders of
each of the Silver King Common Stock and Silver King Class B Common Stock,
voting as separate classes, are necessary for the adoption of any such matter.
In the event that fewer than 2,280,000 shares of Silver King Class B Common
Stock are outstanding, the holders of Silver King Class B Common Stock will vote
with the holders of Silver King Common Stock with respect to these matters, with
the holders of Silver King Class B Common Stock entitled to ten votes per share
and the holders of Silver King Common Stock to one vote per share. With respect
to other matters that may be submitted to a vote or to the consent of the
stockholders of Silver King, including the election of directors, each holder of
Silver King Class B Common Stock is entitled to vote ten votes for each share of
Silver King Class B Common Stock held and will vote together with the holders of
Silver King Common Stock as a single class. If the Class Vote Amendment Proposal
is approved and such amendment becomes effective pursuant to the DGCL, the
foregoing provisions will be eliminated from the Silver King Certificate.
Notwithstanding the foregoing, the holders of Silver King Common Stock,
acting as a single class, are entitled to elect 25% of the total number of
directors, and, in the event that 25% of the total number of directors shall
result in a fraction of a director, then the holders of Silver King Common
Stock, acting as a single class, are entitled to elect the next higher whole
number of directors.
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Shares of Silver King Class B Common Stock are convertible into shares of
Silver King Common Stock at the option of the holder thereof at any time on a
share-for-share basis. Such conversion ratio will in all events be equitably
preserved in the event of any recapitalization of the corporation by means of a
stock dividend on, or a stock split or combination of, outstanding Silver King
Common Stock or Silver King Class B Common Stock, or in the event of any merger,
consolidation or other reorganization of the corporation with another
corporation. Upon the conversion of Silver King Class B Common Stock into shares
of Silver King Common Stock, said shares of Silver King Class B Common Stock
will be retired and will not be subject to reissue. Shares of Silver King Common
Stock are not convertible into shares of Silver King Class B Common Stock.
In all other respects, the Silver King Common Stock and the Silver King
Class B Common Stock are identical. The holders of Silver King Common Stock and
the holders of Silver King Class B Common Stock are entitled to receive, share
for share, such dividends as may be declared by the Silver King Board out of
funds legally available therefor. In the event of a liquidation, dissolution,
distribution of assets or winding-up of Silver King, the holders of Silver King
Common Stock and the holders of Silver King Class B Common Stock are entitled to
share ratably in all the assets of Silver King available for distribution to its
stockholders, after the rights of the holders of the Silver King Preferred
Stock, if any, have been satisfied. Holders of Silver King Common Stock and
Silver King Class B Common Stock have no preemptive rights to purchase
additional shares.
The Silver King Certificate provides that there can be no stock dividends
or stock splits or combinations of stock declared or made on Silver King Common
Stock or Silver King Class B Common Stock unless the shares of Silver King
Common Stock and Silver King Class B Common Stock then outstanding are treated
equally and identically.
The shares of Silver King Common Stock to be issued in connection with the
Savoy Merger and the shares of Silver King Common Stock and Silver King Class B
Common Stock to be issued in connection with the HSN Merger will be validly
issued, fully paid and non-assessable.
PREFERRED STOCK
As of the Silver King Record Date, there were no shares of Silver King
Preferred Stock outstanding. The Silver King Preferred Stock may be issued from
time to time in one or more series. The Silver King Board has authority, by
resolution, to designate the powers, preferences, rights and qualifications,
limitations and restrictions of the Silver King Preferred Stock. The Silver King
Board has no present plan or intention to issue any Silver King Preferred Stock.
DELAWARE GENERAL CORPORATION LAW SECTION 203
As a corporation organized under the laws of the State of Delaware, Silver
King is subject to Section 203 of the DGCL which restricts certain business
combinations between Silver King and an "interested stockholder" (as defined in
the DGCL) or its affiliates or associates for a period of three years following
the date on which the stockholder becomes an "interested stockholder." The
restrictions do not apply if (i) prior to an interested stockholder becoming
such, the Silver King Board approves either the business combination or the
transaction in which the stockholder becomes an interested stockholder, (ii)
upon consummation of the transaction in which any person becomes an interested
stockholder, such interested stockholder owns at least 85% of the voting stock
of Silver King outstanding at the time the transaction commences (excluding
shares owned by certain employee stock ownership plans and persons who are both
directors and officers of Silver King) or (iii) on or subsequent to the date an
interested stockholder becomes such, the business combination is both approved
by the Silver King Board and authorized at an annual or special meeting of
Silver King stockholders, not by written consent, by the affirmative vote of at
least 66 2/3% of the outstanding voting stock not owned by the interested
stockholders. See "Comparison of Rights of Stockholders of Silver King, Savoy
and HSN -- Delaware Anti-Takeover Statute."
The Silver King Board has previously approved for purposes of Section 203
of the DGCL certain transactions (including the HSN Merger and the exercise by
BDTV of the Liberty Option) between Liberty,
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Barry Diller, BDTV and their respective affiliates and associates and Silver
King, which transactions may have resulted in either of Liberty or Mr. Diller
becoming an "interested stockholder" of Silver King.
PROPOSED AMENDMENTS TO THE CERTIFICATE OF INCORPORATION OF SILVER KING
In the event that Silver King stockholders vote to approve each of the
Authorized Capital Stock Amendment Proposal and the Class Vote Amendment
Proposal, the number of authorized shares of Silver King Common Stock will be
150,000,000, the number of authorized shares of Silver King Class B Common Stock
will be 30,000,000 and the number of authorized shares of Silver King Preferred
Stock will be 15,000,000. The rights of the stockholders of Silver King
otherwise will remain the same except that as to all matters submitted to a vote
or to the consent of the stockholders of Silver King, the holders of Silver King
Common Stock and the holders of Silver King Class B Common Stock will generally
vote together as a single class. As a consequence of this single class vote,
although more than 2,280,000 shares of Silver King Class B Common Stock may be
outstanding, approval of the holders of a majority of the shares of Silver King
Common Stock will no longer be required to approve any merger, reorganization,
recapitalization, liquidation, dissolution or winding-up, sale or transfer of
substantially all of the assets of Silver King, any amendment to the Silver King
Certificate, or similar matter that requires stockholder approval under the
DGCL. As is currently the case when such holders vote together as a class, the
holders of Silver King Common Stock will be entitled to one vote per share of
Silver King Common Stock held and the holders of Silver King Class B Common
Stock will be entitled to ten votes per share of Silver King Class B Common
Stock held. The proposed amendments would not eliminate the provisions of the
Silver King Certificate providing for the election by the holders of Silver King
Common Stock, voting as a separate class, of 25% of the members of the Silver
King Board of Directors (rounded up to the nearest whole number) or affect
provisions of the DGCL that require a separate class vote.
APPOINTMENT OF INDEPENDENT AUDITORS
Deloitte & Touche LLP was appointed as Silver King's independent auditors
for fiscal year 1995. The Silver King Board of Directors, upon the
recommendation of the Audit Committee, recommended that Ernst & Young LLP be
retained as Silver King's auditors for fiscal year 1996. Representatives of each
of Deloitte & Touche LLP and Ernst & Young LLP are expected to be present at the
meeting and will be available to respond to questions and may make a statement
if such representatives so desire. Approval of the Ratification of Auditors
Proposal requires the affirmative approval of a majority of the Total Voting
Power present in person or represented by proxy at the Silver King Meeting and
entitled to vote and voting thereon. Based on the intention of Mr. Diller to
vote shares of Silver King Securities owned by him or as to which he controls
the voting with respect to this proposal pursuant to the Stockholders Agreement,
approval by Silver King stockholders of this proposal is assured.
THE SILVER KING BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL TO
RATIFY ERNST & YOUNG LLP AS SILVER KING'S INDEPENDENT AUDITORS. YOUR PROXY WILL
BE SO VOTED UNLESS YOU SPECIFY OTHERWISE.
STOCKHOLDER PROPOSALS
Proposals of stockholders of Silver King which are intended to be presented
by such stockholders at Silver King's 1996 Annual Meeting of Stockholders must
have been received by Silver King no later than November 1, 1996 in order to be
considered for inclusion in the proxy statement and form of proxy relating to
that meeting.
Proposals of stockholders of Savoy which are intended to be presented by
such stockholders at Savoy's 1996 Annual Meeting of Stockholders (if the Savoy
Merger is not consummated) must have been received by Savoy no later than
December 10, 1996 in order to be considered for inclusion in the proxy statement
and form of proxy relating to that meeting.
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Proposals of stockholders of HSN which are intended to be presented by such
stockholders at HSN's 1997 Annual Meeting of Stockholders (if the HSN Merger is
not consummated) must have been received by HSN no later than November 15, 1996
in order to be considered for inclusion in the proxy statement and form of proxy
relating to that meeting.
OTHER MATTERS
The Silver King Board of Directors knows of no other matters which are
likely to be brought before the Silver King Meeting. If any matters are brought
before the Silver King Meeting, however, Michael Drayer, who is Executive Vice
President, General Counsel and Secretary of Silver King and the proxy agent
named in the enclosed proxy, will vote on such matters in accordance with his
best judgment.
EXPERTS
The consolidated financial statements as of December 31, 1995 and August
31, 1995 and 1994, and for the period September 1, 1995 through December 31,
1995 and for each of the three years in the period ended August 31, 1995,
incorporated herein by reference from Silver King's Current Report on Form 8-K
dated July 2, 1996, have been audited by Deloitte & Touche LLP, independent
auditors, as set forth in their report appearing therein and incorporated by
reference herein. The consolidated financial statements of Silver King as of
August 31, 1995 and 1994 and for each of the three years in the period ended
August 31, 1995, incorporated herein by reference from Silver King's Annual
Report on Form 10-K for the fiscal year ended August 31, 1995, have been audited
by Deloitte & Touche LLP, independent auditors, as set forth in their report
thereon appearing therein and incorporated by reference herein. Such
consolidated financial statements are incorporated herein by reference in
reliance upon such reports given upon the authority of such firm as experts in
accounting and auditing.
The consolidated balance sheets of Savoy as of December 31, 1995 and 1994
and the consolidated statements of operations, stockholders' equity and cash
flows of Savoy for each of the three years in the period ended December 31,
1995, incorporated herein by reference from Savoy's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995, have been audited by Ernst & Young
LLP, independent auditors, as set forth in their reports thereon appearing
therein and incorporated by reference herein. Such consolidated financial
statements are incorporated herein by reference in reliance upon such reports
given upon the authority of such firm as experts in accounting and auditing.
The consolidated financial statements of HSN at December 31, 1995 and 1994
and for each of the three years in the period ended December 31, 1995,
incorporated by reference in this prospectus from HSN's Annual Report on Form
10-K for the fiscal year ended December 31, 1995, have been audited by KPMG Peat
Marwick LLP, independent auditors, as set forth in their reports thereon
appearing therein and incorporated by reference herein. Such consolidated
financial statements have been incorporated herein by reference in reliance upon
such reports given upon the authority of such firm as experts in accounting and
auditing.
Representatives of each of Deloitte & Touche LLP and Ernst & Young LLP are
expected to be present at the Silver King Meeting, representatives of Ernst &
Young LLP are expected to be present at the Savoy Meeting and representatives of
KPMG Peat Marwick LLP are expected to be present at the HSN Meeting. In each
case, such representatives will have the opportunity to make a statement if they
desire to do so and are expected to be available to respond to appropriate
questions.
LEGAL MATTERS
The validity of the shares of Silver King Common Stock offered hereby in
connection with the Savoy Merger and the HSN Merger will be passed upon for
Silver King by Wachtell, Lipton, Rosen & Katz, New York, New York.
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APPENDIX A
CONFORMED COPY
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AGREEMENT AND PLAN OF MERGER
BY AND AMONG
SILVER KING COMMUNICATIONS, INC.,
THAMES ACQUISITION CORP.
AND
SAVOY PICTURES ENTERTAINMENT, INC.
AS AMENDED AND RESTATED
AS OF AUGUST 13, 1996
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245
TABLE OF CONTENTS
PAGE
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ARTICLE 1 THE MERGER............................................................. 1
Section 1.1. The Merger...................................................... 1
Section 1.2. Effective Time of the Merger.................................... 1
Section 1.3. Closing......................................................... 1
Section 1.4. Effects of the Merger........................................... 2
Section 1.5. Certificate of Incorporation and Bylaws of Surviving
Corporation..................................................... 2
ARTICLE 2 EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT
CORPORATIONS; EXCHANGE OF CERTIFICATES................................. 2
Section 2.1. Effect on Capital Stock......................................... 2
(a) Capital Stock of Sub........................................ 2
(b) Cancellation of Certain Shares of Company Common Stock...... 2
(c) Exchange Ratio for Company Common Stock..................... 2
(d) Adjustment of Exchange Ratio................................ 3
(e) Company Preferred Stock..................................... 3
Section 2.2. Exchange of Certificates........................................ 3
(a) Exchange Agent.............................................. 3
(b) Exchange Procedures......................................... 3
(c) Distributions with Respect to Unsurrendered Certificates.... 4
(d) No Further Ownership Rights in Company Common Stock......... 4
(e) No Issuance of Fractional Shares............................ 4
(f) Termination of Exchange Fund................................ 5
(g) No Liability................................................ 5
(h) Lost, Stolen or Destroyed Certificates...................... 5
Section 2.3. Stock Options; Restricted Stock; Warrant Agreements............. 5
Section 2.4. Taking of Necessary Action; Further Action...................... 6
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY.......................... 7
Section 3.1. Organization and Qualification; Subsidiaries.................... 7
Section 3.2. Certificate of Incorporation and Bylaws......................... 7
Section 3.3. Capitalization.................................................. 7
Section 3.4. Authority Relative to this Agreement............................ 8
Section 3.5. No Conflict; Required Filings and Consents...................... 8
Section 3.6. Compliance; Permits............................................. 9
Section 3.7. SEC Filings; Financial Statements............................... 9
Section 3.8. Absence of Certain Changes or Events............................ 10
Section 3.9. Absence of Litigation........................................... 10
Section 3.10. Registration Statement; Proxy Statement......................... 10
Section 3.11. Taxes........................................................... 11
Section 3.12. Brokers......................................................... 11
Section 3.13. Opinion of Financial Advisor.................................... 11
Section 3.14. Board Approval.................................................. 11
Section 3.15. Employee Benefit Plans.......................................... 12
Section 3.16. FCC Licenses.................................................... 12
Section 3.17. Affiliate Arrangements.......................................... 13
Section 3.18. Disclosure...................................................... 13
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ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB....................... 13
Section 4.1. Organization and Qualifications; Subsidiaries................... 13
Section 4.2. Certificate of Incorporation and Bylaws......................... 14
Section 4.3. Capitalization.................................................. 14
Section 4.4. Authority Relative to this Agreement............................ 14
Section 4.5. No Conflict; Required Filings and Consents...................... 15
Section 4.6. Compliance; Permits............................................. 16
Section 4.7. SEC Filings; Financial Statements............................... 16
Section 4.8. Absence of Certain Changes or Events............................ 16
Section 4.9. Absence of Litigation........................................... 17
Section 4.10. Registration Statement; Proxy Statement......................... 17
Section 4.11. Taxes........................................................... 17
Section 4.12. Brokers......................................................... 17
Section 4.13. Opinion of Financial Advisor.................................... 17
Section 4.14. Board Approval.................................................. 18
Section 4.15. Interim Operations of Sub....................................... 18
Section 4.16. Employee Benefit Plans.......................................... 18
Section 4.17. FCC Licenses.................................................... 18
Section 4.18. Silver Company Arrangements..................................... 19
ARTICLE 5 CONDUCT AND TRANSACTIONS PRIOR TO EFFECTIVE TIME; ADDITIONAL
AGREEMENTS............................................................. 19
Section 5.1. Information and Access.......................................... 19
Section 5.2. Conduct of Business of the Company.............................. 19
Section 5.3. Conduct of Business of Parent................................... 20
Section 5.4. Negotiation with Others......................................... 21
Section 5.5. Preparation of S-4 and the Proxy Statement; Other Filings....... 22
Section 5.6. Letter of Independent Auditors.................................. 23
Section 5.7. Stockholders' Meetings.......................................... 23
Section 5.8. Agreements to Take Reasonable Action............................ 23
Section 5.9. Consents........................................................ 24
Section 5.10. NASDAQ Quotation................................................ 24
Section 5.11. Public Announcements............................................ 24
Section 5.12. Affiliates...................................................... 24
Section 5.13. Indemnification................................................. 24
Section 5.14. Notification of Certain Matters................................. 25
Section 5.15. The Company Debentures.......................................... 25
Section 5.16. Employee Agreements............................................. 25
Section 5.17. Stockholders Agreement.......................................... 25
ARTICLE 6 CONDITIONS PRECEDENT................................................... 25
Section 6.1. Conditions to Each Party's Obligation to Effect the Merger...... 25
(a) HSR Act; FCC Approvals...................................... 25
(b) Stockholder Approval........................................ 26
(c) Effectiveness of the S-4.................................... 26
(d) Governmental Entity Approvals............................... 26
(e) No Injunctions or Restraints; Illegality.................... 26
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