ITEM 3 -- LEGAL PROCEEDINGS



On February 12, 1993, a class action complaint titled Arazie v. Malone, et
al. was filed by a shareholder of the Company in the Court of Chancery of the
State of Delaware, in and for the County of New Castle (the "Delaware Court"),
against the Company, John C. Malone, Peter R. Barton, Robert R. Bennett, John M.
Draper, Roy M. Speer and Liberty. Shortly thereafter, four other class action
complaints were filed with the Delaware Court by shareholders of the Company;
certain of these actions also named as defendants Les R. Wandler and RMS Limited
Partnership, a Nevada Limited Partnership ("RMS") in addition to the defendants
named in Arazie. On February 19, 1993, the five Delaware actions were
consolidated for all purposes in an action titled In re: Home Shopping Network,
Inc. Shareholders Litigation, Civil Action No. 12868 (the "Delaware Action"). On
March 15, 1993, three additional class action complaints were consolidated into
the Delaware Action. On April 26, 1993, the plaintiffs in the Delaware Action
filed a consolidated amended and supplemental class action complaint (the
"Supplemental Complaint"). The Supplemental Complaint was brought on behalf of
all public stockholders of the Company (other than defendants) as of February
12, 1993, and their successors in interest, and names as defendants the persons
and entities named in the prior pending complaint in the Delaware Action, as
well as Liberty, Liberty Program Investments, Inc. ("LPI") and three current or
former directors of the Company (Gerald F. Hogan, J. Anthony Forstmann and John
J. McNamara). In the Supplemental Complaint, the plaintiffs allege, among other
things, that (i) Mr. Speer and RMS breached their fiduciary duties in agreeing
to the Acquisition, and that Liberty aided and abetted the supposed wrongdoing
by Mr. Speer and RMS; (ii) Liberty and LPI have breached their fiduciary duties
by commencing an unfairly priced, improperly timed, coercive and manipulative
tender offer (the "Tender Offer"); (iii) the offer to purchase disseminated by
Liberty and LPI in connection with the Tender Offer contains several
misrepresentations and omits material information; and (iv) the members of the
Board of Directors of the Company have breached their fiduciary duties of
loyalty, due care and candor by failing to protect the public stockholders of
the Company from the Tender Offer. Plaintiffs seek to rescind the Acquisition,
to enjoin consummation of the Tender Offer and to enjoin the defendants from
taking any action to eliminate the separate class voting rights of the holders
of the Shares and the Class B Shares on any future proposal relating to a merger
or other business combination involving the Company. On May 10, 1993, the
plaintiffs filed a Second Consolidated Amended and Supplemental Class Action
Complaint (the "Second Supplemental Complaint"). In addition to the parties and
allegations contained in the Supplemental Complaint that plaintiffs filed on
April 26, 1993, the Second Supplemental



       
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Complaint contains allegations, among other things, that the Tender Offer is
false, misleading and coercive. On July 14, 1993, the Delaware Chancery Court
granted the plaintiffs leave to file a third consolidated amended and
supplemental class action complaint (the "Third Supplemental Complaint"). In
addition to the parties and allegations contained in the Second Supplemental
Complaint, the Third Supplemental Complaint adds claims and allegations and adds
QVC as an additional party defendant. The Third Supplemental Complaint alleges
that the QVC merger proposal of July 12, 1993 to form a business combination
with the Company (the "QVC Merger Proposal") was inadequate and grossly unfair
to the Company's minority stockholders. It asserts class action claims against
all defendants other than QVC for breach of fiduciary duty, and against QVC for
aiding and abetting Liberty's alleged breaches of fiduciary duty in connection
with the QVC Merger Proposal. In addition to the relief sought in the Second
Supplemental Complaint, the Third Supplemental Complaint seeks to rescind the
Tender Offer or obtain damages in connection therewith. On November 5, 1993, QVC
withdrew the QVC Merger Proposal.


On April 26, 1993, four stockholders of the Company filed with the Delaware
Court a purported class action complaint, styled as 7547 Corp. V. Liberty Media
Corp., C.A. No. 12956, on behalf of an unspecified class of stockholders of the
Company (the "Delaware State Law Action"). The defendants including Liberty,
LPI, the Company, and certain current and former directors of the Company
(Messrs. Speer, Forstmann, McNamara, Wandler, Chu, James, Ramsey and Roberts).
Plaintiffs contend, among other things, that (i) the Board of Directors of the
Company failed to approve the Agreement in Principle between RMS and Liberty
relating to purchase of a controlling interest in the Company by Liberty before
RMS and Liberty reached an agreement, arrangement or understanding regarding the
Acquisition; (ii) any approval of the Agreement in Principle by the Board of
Directors of the Company on December 4, 1992, was ineffective to exempt Liberty
from the restrictions of Section 203 of the Delaware General Corporation Law;
and (iii) the Tender Offer is a prohibited "business combination" under Section


203. Plaintiffs sought an injunction hearing prohibiting consummation of the
Tender Offer and sought a declaratory judgment prohibiting Liberty from engaging
in a "business combination," as defined in Section 203 of the Delaware General
Corporation Law (including a business combination with the Company) until
December 3, 1995.


On May 17, 1993, a hearing was held in the Delaware Court on the motions
for preliminary injunction filed by the plaintiffs in the Delaware Action and in
the Delaware State Law Action. On May 19, 1993, the Delaware Court issued an
Order denying plaintiffs' motions for preliminary injunction, ruling that
plaintiffs in the Delaware Action had not demonstrated a reasonable probability
of success on the merits of their disclosure claims, and that plaintiffs in the
Delaware State Law Action had not demonstrated a reasonable probability of
success on their claim that the proposed tender offer was in violation of the
Delaware Business Combinations Act, 8 Del. C. Section 203.


On July 19, 1993, certain named plaintiffs filed a Class Action Complaint
styled Bartnik, et al. V. Home Shopping Network, Inc., Liberty Media Corp., QVC
Network, Inc., Roy M. Speer, Les R. Wandler, John C. Malone, Peter R. Barton,
Robert R. Bennett, Gerald F. Hogan, J. Anthony Forstmann, and John J. McNamara,
Civil Action No. 93-336, in the United States District Court for the District of
Delaware (the "Bartnik Complaint"). The Bartnik Complaint alleges class action
claims against Roy M. Speer, Liberty, Gerald F. Hogan, John C. Malone, Peter R.
Barton, and Robert R. Bennett for violations of Section 10(b) of the Exchange
Act and Rule 10b-5 promulgated thereunder in connection with an alleged scheme
to maintain an artificially low market price for the common stock of the Company
and to induce class members to sell the Company's common stock during the class
period at artificially depressed prices. The Bartnik Complaint contains a class
action claim against QVC for aiding and abetting the defendants in their alleged
violations of Section 10(b) and Rule 10b-5. The Bartnik Complaint also alleges
class action claims against defendants Liberty, Hogan, Malone, Barton, and
Bennett for violating Sections 20 and 20A of the Exchange Act through their
alleged control over the Company and its disclosures during the class period.
The Bartnik Complaint further alleges class action claims against all defendants
except QVC, alleging that Liberty's Offer to Purchase and 14D-1 dated on or
about April 22, 1993, and the Company's 14D-9 dated on or about May 6, 1993,
were materially false and misleading in violation of Section 14(e) of the
Exchange Act. The Bartnik Complaint also alleges claims against all defendants
except QVC for negligent misrepresentation.



       
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On or about July 22, 1993, plaintiff Meny Beriro filed a purported class
action complaint, Beriro V. Home Shopping Network, Inc., et al., No. 93-347, in
the United States District Court for the District of Delaware (the "Beriro
Complaint"). On or about August 17, 1993, plaintiff Lawrence G. Metzger filed a
purported class action complaint, Metzger V. Home Shopping Network, Inc. et al.,
No. 93-406, in the United States District Court for the District of Delaware
(the "Metzger Complaint"). The Beriro and Metzger Complaints name the same
defendants and contain substantially the same claims as the Bartnik Complaint.
On September 14, 1993, the United States District Court for the District of
Delaware entered an order consolidating the Beriro Complaint and the Metzger
Complaint into the Bartnik Complaint as the Complaint for the consolidated
action.


On December 16, 1993, four actions that had been filed in, consolidated by
and transferred from the United States District Court for the District of
Colorado were consolidated with the Bartnik Complaint (the "Delaware Federal
Action"). On February 15, 1994, plaintiffs filed a consolidated and amended
complaint. The action seeks unspecified damages on behalf of a purported class
consisting of all purchasers of the Company's common stock prior to April 9,
1993 who thereafter sold such shares on public exchanges prior to July 12, 1993
or in the Tender Offer. The defendants include Liberty, LPI, John C. Malone,
Peter R. Barton and Robert R. Bennett (collectively, the "Liberty Defendants"),
QVC, the Company, Gerald F. Hogan, J. Anthony Forstmann, John J. McNamara, Roy
M. Speer and Les R. Wandler. Plaintiffs allege that, between March 30, 1993 and
July 12, 1993, the Liberty Defendants failed to disclose their supposed "plans
and expectations" for a merger of the Company and QVC. Plaintiffs also allege
that (i) defendants supposedly made misleading and overly negative disclosures
between April-July 1993 regarding the business activities and prospects of the
Company which had the effect of artificially depressing the price of the
Company's shares; (ii) defendants allegedly misled sellers of the Company's
shares by failing to disclose defendants' expectations regarding a July 1993
ruling by the Federal Communications Commission which improved the business
prospects of the Company; and (iii) Liberty and the Company supposedly misled
the Company's stockholders by making incorrect disclosures (particularly in
connection with the Tender Offer) regarding Liberty's ability to control the
Company's stockholder vote on certain fundamental corporate transactions.
Plaintiffs assert that the foregoing alleged acts and omissions violated the
federal securities laws and state law.


On December 31, 1993, an agreement in principle was reached to settle the
Delaware Action and the Delaware Federal Action. The Company does not anticipate
having to contribute to the settlement of these actions or pay any of the
plaintiffs' attorneys' fees or expenses therein. The settlement of these actions
is conditioned on, among other things, court approval after notice to the
shareholders and a hearing on the fairness of the settlement.


On February 12, 1993, a class action complaint entitled Mizell et al. V.
Speer et al., C.A. No. 93-000494-CI-020, was filed in the Circuit Court for
Pinellas County, Florida against Roy M. Speer, Les R. Wandler, Franklin J. Chu,
J. Anthony Forstmann, Thomas A. James, John J. McNamara, William J. Ramsey,
Michael V. Roberts and Liberty ("Mizell "). On February 19, 1993, plaintiffs in
Mizell filed an amended complaint adding the Company as an additional defendant.
The Mizell plaintiffs allege, among other things, that the Liberty merger
proposal delivered to the Board of Directors of the Company following the
closing of the Acquisition (the "Liberty Merger Proposal") was fundamentally
unfair to the Company's public stockholders; did not represent the current value
of the Company's Common Stock, assets and business; and that certain of the
defendants breached their fiduciary duties to plaintiffs and to the Company's
other shareholders. The plaintiffs seek, inter alia, an injunction enjoining any
merger or other business combination resulting from the Liberty Merger Proposal
and unspecified monetary damages. Liberty and the other defendants in the Mizell
action have filed motions to dismiss the amended complaint on various grounds
or, in the alternative, to stay that proceeding in favor of the prior-filed
Delaware action.


On January 19, 1994, the Mizell plaintiffs voluntarily dismissed the Mizell
lawsuit without prejudice.


On April 13 and 14, 1993, seven purported class action lawsuits were filed
in the United States District Court for the Middle District of Florida, Tampa
Division (the "Court") against the Company and Roy M. Speer and, in two of the
cases, current or former officers and directors of the Company. RMS is also
named as a defendant in two of the actions. The complaints filed in four of the
suits are virtually identical and allege that



       
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certain statements made by Roy Speer and the Company in press releases and in an
information statement dated March 11, 1993, failed to disclose material facts
relating to the Company's business practices. Goldstein V. Roy M. Speer, et al.
and Home Shopping Network, Inc., Civil Action No. 93-602-CIV-T-23B; Milton
Partners, L.P. V. Roy M. Speer, et al. and Home Shopping Network, Inc., Civil
Action No. 93-608-CIV-T-15C; Kirsch V. Roy M. Speer, et al. and Home Shopping
Network, Inc., Civil Action No. 93-623-CIV-T-23A; and Greenwald V. Roy M. Speer,
et al. and Home Shopping Network, Inc., Civil Action No. 93-624-CIV-T-17B. In
particular, these suits allege that employees of the Company improperly accepted
compensation from vendors; that the Company paid Nando DiFilippo, former
executive vice-president, general counsel and secretary of the Company, to
prevent him from disclosing such vendor bribes; and that the Company had failed
to properly disclose certain related party transactions in its filings with the
SEC. These suits allege that the failure to disclose these matters violated


Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder, and


Section 20 of the Exchange Act and constituted common law fraud.


In International Gemmological Institute, Inc. et al. V. Home Shopping
Network, Inc. et al., Civil Action No. 93-610-CIV-T-21B, another of the
purported class action suits, the plaintiffs assert that Speer and the Company
misstated material facts or omitted to state material facts in certain public
filings and announcements, that certain insiders of the Company (Franklin Chu,
John McNamara, Michael Roberts, and Edward Vaughn) traded securities of the
Company while in the possession of material nonpublic information and that Speer
and the Company engaged in certain activities which amount to common law fraud
and deceit and negligent misrepresentation. This purported class action seeks
damages, including punitive damages, interest, costs and fees. The allegations
in this complaint are similar to those in the class action suits described
above. Likewise, in Arnold Jerome Sussman, et al. V. Home Shopping Network,
Inc., Civil Action No. 93-613-CIV-T-17B the plaintiffs assert violations of


Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder based
upon a failure to properly disclose certain bribes allegedly paid by unspecified
vendors to Mr. Speer and Lowell W. Paxson, a former president of the Company,
the fact that certain payments to Mr. DiFilippo allegedly were to cover-up
financial wrongdoing, that corporate assets were purportedly transferred to
Western and that an improper loan was made to a consultant of the Company. The
plaintiffs in this action seek damages, prejudgment interest, costs, expenses
and attorneys' fees and other unspecified relief. The plaintiff in one of the
putative class actions, Kas V. Home Shopping Network Inc., et al., Civil Action
No. 93-621-CIV-T-15A, voluntarily dismissed his claims without prejudice.


On or about April 23, 1993, plaintiffs Mike and Natalie Magula filed
another purported class action in the Court titled Magula V. Home Shopping
Network, Inc., Civil Action No. 93-679-CIV-T-21C. The defendants in this action
are the Company, Roy M. Speer, Les R. Wandler, Franklin J. Chu, Fernando
DiFilippo, Jr., Lowell W. Paxson and RMS. The plaintiffs allege violations of


Section 10 of the Exchange Act, Rule 10b-5 promulgated thereunder and Section
20(a) of the Exchange Act as well as a Florida statute relating to commercial
bribery in seeking an unspecified amount of damages, including punitive damages,
prejudgment interest, costs and attorneys' fees. The complaint alleges that (i)
the Company failed to properly disclose the nature of certain payments made by
Mr. Speer and Mr. Paxson to Mr. DiFilippo; (ii) the Company knew or recklessly
disregarded the fact that certain vendors to the Company allegedly paid bribes
to certain employees of the Company; (iii) that the Company's Annual Report on
Form 10-K for the year ended August 31, 1992, and Report on Form 10-Q for the
period ended November 30, 1992, contained misleading financial statements
because they failed to disclose the payments to Mr. DiFilippo and that certain
employees of the Company had allegedly been paid bribes; (iv) that the Company
failed to disclose certain information regarding its inventory levels and a
recent change in management's policies which resulted in an increase in the
Company's inventory reserve; and (v) that the Company failed to accurately
disclose the existence of a known trend that would have a material impact on the
business of the Company.


On or about April 28, 1993, another purported class action lawsuit, Newborn
V. Home Shopping Network, Inc., et al., Civil Action No. 93 681 CIV T 17A was
filed in the Court against the Company, Mr. Speer and RMS. The plaintiff alleges
violations of Section 10(b) of the Exchange Act and Rule 10b-5 promulgated
thereunder, and the plaintiff seeks an unspecified amount of damages, including
prejudgment interest, plus costs, expenses and attorneys' fees. The plaintiff
alleges that the defendants engaged in improper activities including (i)
improper payments to Mr. Speer, Mr. Paxson, and possibly other senior executives
of the



       
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Company; (ii) diversion of Company funds to Western; (iii) a cover-up of the
alleged improper payments, including payments to Mr. DiFilippo and an alleged
improper loan to a financial advisor to the Company; and (iv) issuance of
materially false and misleading statements to the investing public.


Plaintiffs have moved to consolidate all of the pending class action suits
filed in April 1993 in the Court against the Company and various defendants (the
"Florida Federal Securities Actions").


On December 30, 1993, the counsel for both the Company and the plaintiffs
in the Florida Federal Securities Actions, entered into an agreement in
principle to settle the Florida Federal Securities Actions.


Pursuant to the terms of the agreement in principle to settle the Florida
Federal Securities Actions, the Company agreed to pay $9,600,000 in full
settlement of any and all claims whatsoever which have been or could have been
made in the Florida Federal Securities Actions by any members of a plaintiff
class consisting of all purchasers of the Company's common stock (other than the
defendants) from June 1, 1992 through and including April 12, 1993 (collectively
the "Purchaser Class"). Any attorneys' fees awarded by the Court to the
plaintiffs' attorneys will be paid out of the $9,600,000 settlement fund. The
settlement of the Florida Federal Securities Actions is conditioned on, among
other things, Court approval after notice to the Purchaser Class and a hearing
on the fairness of the settlement.


On December 15, 1992, a shareholder derivative lawsuit was filed by 7457
Corp., a Colorado corporation, against certain current and former officers and
directors of the Company (Roy M. Speer, Les Wandler, Franklin J. Chu, J. Anthony
Forstmann, Thomas A. James, John J. McNamara, William J. Ramsey, and Michael R.
Roberts) (the "Named Directors"), and against the Company as a nominal defendant
in the United States District Court for the Middle District of Florida, Tampa
Division, Case No. 92-1966-CIV-T-15A. Another shareholder derivative suit was
filed in the Court against the Named Directors and the Company as a nominal
defendant on December 31, 1992, by Isaac Fillosov and Claire Rand. On February
23, 1993, the Court granted a motion to consolidate these two actions as 7547
Corp. et al. V. Speer et al. (the "Derivative Action") with leave to file a
consolidated amended complaint. On April 16, 1993, the plaintiffs filed a
consolidated amended complaint. On May 24, 1993, the court granted plaintiffs
leave to file a second consolidated amended complaint (the "Second Amended
Complaint"). The amendments add Richard Speer, Western, Liberty and LPI as
defendants and add Ricky Werbosky as plaintiff. The Company is named as a
nominal defendant in a derivative capacity with respect to one of the claims
asserted in the Second Amended Complaint. The suit alleges a breach of fiduciary
duties owed to the Company and its stockholders by the Named Directors and a
failure to exercise due care and diligence in the management and administration
of the affairs of the Company. Western and Richard Speer are alleged to have
aided and abetted such breaches. The suit challenges the validity of a license
agreement with Western pursuant to which the Company was given the exclusive
rights to certain software and alleges that the Company wrongfully made, and
continues to make, payments to Western pursuant to a computer services agreement
which was allegedly terminated. The suit alleges that the Company wrongfully
made payments to Western of $3,502,000, $3,286,000 and $3,084,000 during the
Company's 1992, 1991 and 1990 fiscal years, respectively, pursuant to the
agreement. Merchandise that is unsuitable for sale via the Company's programs or
outlet stores was sold by Western, which received a commission of 15% on the
amount realized upon disposition. Western received $1,469,000, $1,615,000 and
$1,427,000 and through this arrangement during the Company's 1992, 1991 and 1990
fiscal years, respectively. The suit also alleges that this 15% commission was
commercially unreasonable. The sole stockholder of Western is Richard Speer, the
son of Roy M. Speer. The suit alleges that the above-described arrangements
would not have been entered into by the Company with an unrelated third party
and that Roy and Richard Speer owned undisclosed interests in unspecified firms
which sell merchandise to the Company. The Second Amended Complaint also asserts
a class action claim relating to certain alleged misstatements or omissions of
material facts in the Company's proxy statements for 1990, 1991 and 1992. In
particular, the suit alleges that the proxy statements (i) did not disclose
certain unspecified interests of Roy and Richard Speer in vendors which did
business with the Company; (ii) mischaracterized certain payments made to Mr.
DiFilippo as consulting fees rather than as amounts paid to DiFilippo to secure
his silence concerning certain alleged, unspecified misconduct by Speer; (iii)
failed to properly disclose the Western arrangements and the fact that the Audit
Committee of the Board of Directors had not approved related party transactions,
and (iv) that one of the Named Directors was the President of a company alleged
to have been controlled by Roy Speer. The



       
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suit seeks findings that the Named Directors, Richard Speer and Western breached
their fiduciary duties to the Company and its stockholders or aided and abetted
such breaches; that the Named Directors, Richard Speer and Western must account
to the Company for any losses, plus interest; that the plaintiffs be awarded all
costs for the action; that the Named Directors return to the Company all
compensation received by them during the relevant time periods; that certain
defendants be enjoined from paying additional money or delivering valuable
assets to Richard Speer or Western and that certain of the Named Directors take
corrective action with respect to the Company's alleged disclosure violations.
The Second Amended Complaint alleges class action claims against Liberty and LPI
for violations of Section 13(e) and 14(e) of the Exchange Act and Rules 13e-3
and 13e-4 promulgated thereunder in connection with the Offer to Purchase. The
Second Amended Complaint also contains a class action claim against Liberty and
LPI alleging that Liberty controlled the contents of the
Solicitation/Recommendation section of the Schedule 14D-9 the Company filed on
May 6, 1993, and that the 14D-9 is materially false and misleading in violation
of Sections 14(d) and 14(e) of the Exchange Act and Rule 14e-2 promulgated
thereunder.


On or about February 8, 1994, counsel for the Company, with the approval of
the special litigation committee of its Board of Directors, signed an agreement
in principle to settle the Derivative Action. Pursuant to the terms of this
agreement, Roy M. Speer has agreed to pay the Company $2,000,000 and to pay the
Company an additional $1,000,000 to partially fund the $9,600,000 settlement in
the Florida Federal Securities Actions. The Company has agreed to pay Western,
the successor to Pioneer Data Processing, Inc. ("Pioneer"), $4,500,000 in
exchange for releases and cancellation or acquisition of a 1985 license
agreement involving the Company and Pioneer. This agreement in principle also
provides for certain limitations on the rights of Roy M. Speer to seek
indemnification for the advancement of expenses from the Company and that the
parties to the Derivative Action agree to release certain claims against each
other. The Company also has agreed to pay such attorneys' fees as may be awarded
by the Court to the plaintiffs' counsel. The settlement of the Derivative Action
is conditioned on, among other things, Court approval after notice to the
shareholders and a hearing on the fairness of the settlement.


On April 1, 1993, Mr. Allen P. Allweiss, a former executive vice president
and general counsel of the Company, filed a lawsuit styled Allweiss V. HSN,
et al., in the Circuit Court of the Sixth Judicial Circuit of the State of
Florida for Pinellas County, Case No. 93-1176CI13, against the Company, Roy M.
Speer, Francis Santangelo, Liberty, Gerald F. Hogan and John M. Draper
complaining about, among other things, his February 24, 1993, termination from
the Company (the "Allweiss Suit").


The Allweiss Suit asserted that the defendants violated certain provisions
of Florida law relating to stock options and restricted stock (the "Stock
Rights") issued to Allweiss under the Company's 1986 Stock Option Plan for
Employees (the "Employee Plan") and the Company's 1990 Executive Stock Award
Program (the "Award Program"). Additional allegations against one or more of the
defendants relating to Mr. Allweiss' Stock Rights include securities fraud, an
alleged fraudulent scheme to deprive him of the value of such rights, theft,
conversion, breach of contract, interference with a business or contractual
relationship and deprivation of unpaid wages. In addition, Mr. Allweiss alleged
that his discharge was in retaliation for bringing to the attention of the
Company certain alleged improprieties by Mr. Speer, Mr. Santangelo and certain
former officers and directors of the Company. The Allweiss Suit is seeking an
unspecified amount of damages for losses associated with his Stock Rights and
lost benefits and wages, treble damages against the Company, Speer and
Santangelo for an alleged pattern of criminal activities that allegedly injured
Mr. Allweiss and relief for intentional infliction of emotional distress. During
his tenure with the Company, Mr. Allweiss was granted certain stock options and
restricted stock under the Company's Employee Plan and the Award Program.
Following his dismissal, the Company notified Allweiss that all of the options
granted under the Employee Plan had vested and were exercisable at $8.229 per
share, the exercise price set upon the initial grant of the options. Mr.
Allweiss maintains that the exercise price had been amended following the
initial grant date and that the correct exercise price is $4.753 per share. The
Award Program provides that nonvested shares of stock are forfeited upon the
termination of a participant's employment with the Company unless such
termination results from a change in control of the Company. Mr. Allweiss
alleges that the Company has violated certain of his rights by failing to notify
him of the status of the stock granted to him under the Award Program. In
addition to the counts relating to the Stock Rights, the Allweiss Suit refers to
a variety of allegedly improper



       
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transactions and purportedly inaccurate or incomplete disclosures involving (i)
the severance arrangements between the Company, Mr. Speer and Mr. Paxson, and
Mr. DiFilippo; (ii) transactions between the Company and Pioneer and Western;


(iii) the failure of the Company's Audit Committee to approve certain related
party transactions; (iv) disclosures to the IRS relating to payments to Pioneer
and a proposed reorganization of Western; (v) the independence of a former
member of the Audit Committee of the Board of Directors; (vi) disclosures
contained in certain documents filed with the FCC; (vii) transactions between
the Company and Francis Santangelo; and (viii) certain additional matters. The
Allweiss Suit maintains, among other things, that Mr. Allweiss' efforts to
disclose or rectify these matters caused him to be dismissed.


On August 30, 1993, Mr. Allweiss filed an amended complaint (the "Amended
Complaint") in the Circuit Court of the Sixth Judicial Circuit of the State of
Florida for Pinellas County, Case No. 93-1176CI13. The Amended Complaint
restates several of the causes of action in the original complaint and contains
essentially the same allegations of purported wrongdoing as the original
complaint but no longer includes several counts including the claims for
securities fraud, common law fraud, deprivation for unpaid wages, and
intentional infliction of emotional distress. The Amended Complaint also adds
counts for conspiracy to commit theft, conversion, and retaliatory discharge.
The Amended Complaint also includes a claim for civil remedies for alleged
criminal practices against the Company, Mr. Speer and Mr. Santangelo, along with
a claim for interference with business and contractual relations against
Santangelo only. On October 26, 1993, the court denied the defendants' motions
to dismiss the Amended Complaint except that the court dismissed the retaliatory
discharge count with prejudice as to all of the defendants except the Company.
Plaintiff also filed on August 30, 1993, a notice of appeal as to those claims
dismissed without leave to amend by the court's July 29, 1993, order in the
Allweiss Suit. The appeal was dismissed on October 15, 1993, as premature.


On December 2, 1993, the Company filed a counterclaim against Mr. Allweiss
alleging breach of fiduciary duties, legal malpractice and breach of a
confidentiality agreement. The Company believes it has meritorious defenses and
intends to vigorously defend this action.


On December 27, 1990, a customer of HSC filed an amended class action
complaint against the Company styled Mauger V. Home Shopping Network, Inc., in
the Court of Common Pleas, Philadelphia County, Pennsylvania. Plaintiff alleged
violation of the Pennsylvania Unfair Trade Practices and Consumer Protection Law
in relation to the Company's pricing practices with respect to diamond and
imitation diamond jewelry. Plaintiff seeks certification of the class,
compensatory damages or $100 per class member, treble damages, attorney's fees,
costs, interest and other relief. Plaintiff claims that the diamond ring she
purchased from HSC was not of the same value stated in an appraisal provided to
the customer.


On June 22, 1991, another customer of HSC filed a class action complaint
against the Company, styled Powell V. Home Shopping Network, Inc., making
similar allegations concerning jewelry purchased from HSC and seeking similar
relief.


On April 19, 1993, the Mauger and Powell cases were consolidated in the
Court of Common Pleas of Bucks County, Pennsylvania, (Case No. 91-6152-20-1). On
May 4, 1993, the Court entered an order granting the plaintiffs' motion for
class certification and declared the plaintiffs to be class representatives and
the class to be "all Pennsylvania residents who purchased any jewelry containing
diamonds or imitation diamonds from Home Shopping Network, Inc's subsidiary Home
Shopping Club, Inc. between December 27, 1984 and May 20, 1991." On July 23,
1993 the court denied the Company's motion for interlocutory appeal of the May
4, 1993 order. The Company believes that it has meritorious defenses and intends
to continue vigorously defending this action.


The Company has been informed that the Securities and Exchange Commission
has entered a formal order of investigation involving matters relating to, among
other things, certain of the Company's SEC filings and other public disclosures.
The Company has furnished documents in connection with this formal investigation
and is cooperating in the investigation while maintaining its legal privileges,
including the attorney/client privilege. This is a nonpublic investigation and
the scope of the investigation is confidential. The Company has been advised
that this inquiry should not be construed as an indication by the Commission or
its staff that any violations of law have occurred, nor should it be considered
a reflection upon any person, entity or security.



       
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The Company has been informed that a federal grand jury impaneled in the
Middle District of Florida is investigating matters relating to the Company. The
Company has furnished documents in connection with this investigation and has
taken action to protect its legal privileges in these proceedings, including the
attorney/client privilege. Information related to the scope of matters occurring
before the grand jury is confidential. The Company was advised by the federal
government that the Company is not a target, at this time, of the Grand Jury
investigation.


Pursuant to existing indemnification agreements with current and former
officers and directors, the Company has paid in 1993 approximately $1,983,000 in
attorneys' fees and expenses of its current and former officers and directors in
connection with the foregoing described litigation.


On March 4, 1993, the Company's Board of Directors formed a Special
Committee to investigate the allegations in the Derivative Action and certain
other matters and to take such action in response to the Derivative Action and
other litigation as the Committee determined to be in the interests of the
Company and its stockholders. The members of the Special Committee are Messrs.
Hindery, Draper and Bennett. Both Messrs. Draper and Bennett are officers of
Liberty. The Special Committee has retained legal counsel to assist in its
investigation. The Special Committee is finalizing their review in connection
with the settlement of the matters.


In conjunction with the proposed settlement of the Delaware Federal Action,
the Delaware Action, the Derivative Action and the Florida Federal Securities
Actions, certain defendants in those lawsuits agreed through their attorneys on
February 8, 1994 that, upon the final consummation of the proposed settlements
in all such actions, all such parties will release each other as to any claims
for contribution relating to the claims actually asserted in those proceedings
(the "Release Agreement"). The parties to the Release Agreement are the Company,
Roy M. Speer, Les R. Wandler, Franklin J. Chu, J. Anthony Forstmann, Gerald F.
Hogan, Thomas A. James, John J. McNamara, William J. Ramsey, Michael V. Roberts,
RMS, Liberty, LPI, John C. Malone, Peter R. Barton, Robert R. Bennett and John
M. Draper.


The foregoing descriptions of these actions and the proposed settlements of
the Delaware Action, the Delaware Federal Action, the Derivative Action and the
Florida Federal Securities Actions do not purport to be a complete summary
thereof and are qualified in their entirety by reference to the complaints and
other pleadings in these actions and the documents associated with the proposed
settlements.


The Company has determined that the publicity surrounding the legal
proceedings referenced above has not, and is not expected to, materially
adversely affect the Company's business operations.