American court hearing recordings and interviews - QVC Group - Listen to the bankruptcy hearing held June 8, 2026 starting 9:01 am

Episode Date: June 10, 2026

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Just head to mood.com. That's M-O-O-O-D.com to get started. Good morning. It's 9 a.m. on Monday, June 8, 2026. We're here for the continued here. hearing in case number 26-90447 QBC group. Why don't we get appearances and then we can proceed. Morning, Your Honor, Mark McCain of Kirkland-Nellis. On behalf of the debtors, we're here with the Kirkland team, as well as for our disinterested directors. The Katten team will be presenting Mr. Kegovik's testimony

and the Cobre and Kim team will be presenting Mr. Meltzer's testimony. Thank you. Good morning, Your Honor. Andrew Glenn, Glenn-Ager, Bergman, and Puentes, on behalf of the Adhock Committee of Preferred Shareholders. You'll hear from myself and John Friedman today. Thank you. And Your Honor, just we have obviously some more of the exhibits' housekeeping. I think Mr. Colligan addressed. There may be one open issue that we're going to have to argue, and then we're going to proceed straight to Mr. Kagglewak. Morning, Your Honor. Your Honor, George Colligan, for the debtors. We met and conferred with Glenegree over the weekend and reached further consensus.

From that discussion, we wanted to clarify the record on exhibits and evidence. So first, excluded from evidence are PX 386, PX 328, and through 332. And then PX, moving on to deposition transcripts, We agreed that PX 161, PX 186, PX 295, PX302, PX327 are also excluded from evidence. And then we wanted to correct some exclusions from Friday. The parties discussed and agreed that PX-160, PX-259, PX 281, PX 282, PX-282, PX-802-802, PX 308, PX 316, PX 317 were inadvertently excluded on Friday, and the parties agreed that these are in evidence. And then in line with the parties agreement on the admissibility of pleadings, DX44 is excluded from evidence.

We also discussed PX 289 through 294, which are certain catch-alls in the preferred shareholders exhibit list. and understand and agreed between the parties that they amount to reservations of right to seek to admit other evidence at a later date, but do not constitute a default admission into evidence of any such evidence. And with that, we would also like to move for admission today the following debtors exhibits, Dx 446 through 451, DX 456, DX 456, DX 457, DX 460, DX 463, 467, DX 483 through 485, DX 480, DX 490, DX 490, Dx 491, DX 494, DX-500 through 502. And then I will pass the floor over to Mr. McCain to discuss DX-235, which we understand that the preferred shareholders have objection to. Your Honor, DX-235 is a SEC Form 3, filed by Goldman Sachs on April 26th of this year.

this is a form recording Goldman Sachs opening beneficial ownership position of 10% of the outstanding preferred shares of QVC group. Your Honor, this is highly relevant to the court's inquiry regarding the size of the deferred tax liability and the risk that reorganized QVC may be exposed to hundreds of millions of dollars of out-of-pocket liabilities. Your Honor heard from Mr. Kearns on Thursday that the acquisition of preferred shares after the petition date could trigger a change of control under Section 3. to the bankruptcy code. That's at Trampsker pages 178 to 179. In such an event, the debtors may lose valuable interest deduction carry forwards that they would have to potentially offset the deferred tax liability. Your Honor, just as straightforward form, SEC form three are self-authenticating. It is not hearsay because it is a public record under federal rule of evidence 8028. And Your Honor, you can take judicial notice of it as well, specifically on that regard in Petrobus America

versus Samsung Heavy Industries case. That's 9F4-247 at 256. The Fifth Circuit specifically determined that SEC filings may be properly judicial notice to the extent they are considered for the purposes of determining what statements the documents contain not to prove the truth of the document's contents. We're not saying that Goldman Sachs single-handedly caused a change of control. We're saying Goldman Sachs, based on an acquisition that they made the day after the bankruptcy filing, when they acquired over 2.5 million shares, thought they had a sufficient risk of being a 10% beneficial owner by themselves of QVC group that they filed the form 3. And with that, we move into evidence DX-235. And I have a copy if you need it.

Yeah, let me get a cop because I was looking at PX 235, which is a 10K. Thank you. Thank you, Your Honor. We have no objection to this exhibit being put in for the limited purpose that Mr. Mark McCain articulated. Mr. Kearns also testified that if the debtors... Conference muted. Yeah, if anyone wants to speak, please hit 5 star. It's getting some background noise.

Well, I'll start over. Thank you. As I was saying, we have no objection to this exhibit being put into the record for the limited purpose that Mr. McCain articulated. The testimony that Mr. Kearns put forward is that if the company's deferred tax liability strategy prevails that these interests carry forwards become irrelevant because those tax attributes would be eliminated. It's only the circumstance in which that tax strategy would not work that the interest carry forwards would come into play. So for that limited purpose, we are fine with it, but no other. I don't think it has any other relevance to any other issue in the case. Your Honor, it's remarkable how consensus arises when it's presented.

Can we get a confirmation that's in evidence? Yeah, it'll be in evidence. Thank you, Your Honor. And I really think this goes to 382. It does go to 382. It goes to 382. And we'll tie that up a little bit with the tax expert as well. You're absolutely right.

It goes to 382. Your Honor, can you provide presentation privileges to Mr. Jose Lopez of Kirkland? Oh, sorry, we have more? Are you the presenter now, Mr. Lopez? Okay. I saw that. It looks like you're a presenter because it doesn't. You are.

Okay. All right. Your Honor, Mr. Rob Smith of the Caton firm will be handling the presentation of Mr. Keglick. All right, thank you. Good morning, Your Honor. Robert Smith. Caton Muson Rosamondon on behalf of the disinterested directors of KivVC Inc. I'd like to call Mr. Keglevick to the stand.

Raise your right hand. Do you tell me sorry for him to tell the truth, the whole truth of nothing but the truth? I do. Please be seated. And I'm sure you were here last week, but you need to get close to the mic for everybody to be able to hear. Thank you, Your Honor. Thank you. Good morning.

Can you please state your name and spell it for the record, please? My name is Paul Keglovick, K-E-G-L-E-V-I-I-E-V-I. I see. Please tell us a little bit about your education and professional background for the court. I have a Bachelor of Science and Accounting from Northern Illinois University. Upon graduation I went to work for Arthur Anderson, where I became a partner in 1987. I then became a partner at Pricewaterhouse Cuper's from 2002 to 2008. So 21 years is a partner at both firms combined.

I then went down to Energy Future Holdings, which is the Electric Utility Holding Company in Dallas, Texas, where I became the CEO and ultimately the chief restructuring officer. And then in my final two years at EFH, I became the chief executive officer. since then I retired in 2017 and since then I have done only disinterested director work. I've probably been on approximately 20 boards over those 10 years and had one chief restructuring officer engagement during that period of time as well. And focusing on those 20 some odd appointments that you just testified, to you where you served as a disinterested director. Were those principally for companies in financial distress?

Yes, probably 80% of them were, but there were others that were not. And tell the court a little bit about your role at QVC. At QVC in September 2025, I was appointed as a disinterested director at QVC Inc. And was anybody else appointed with you to serve as a disinterested director of QVC Inc? Yes. And do you know if Ms. Frisley has prior experience serving as a disinterested director? Yes, it probably exceeds mine. And a little bit on that background, your understanding of her experience?

Yeah, that she's been in many roles. She's a lawyer by background and has served disinterested director, I think, for at least the last 10 years at a variety of companies and has been deposed, has testified. fight in restructurings and I think has a well-rounded background. And how were you appointed along with Ms. Frisley as directors of the board of QVC Inc? Well, QVC Inc. QVC Group was a close corporation, so effectively the governance was provided by the sole shareholder QWERTE and based upon their decision to potentially restructure they were concerned about conflicts and resolving conflicts when they were effectively fiduciaries at

at least three of the levels that we've talked about during this case, the parent, which I call Topko, Linta, and QBC Inc. So they determined that they needed disinterested directors at, I believe, four boxes, the three I just mentioned as well as Cornerstone. And do you know how they went about securing your appointment as a disinterested director? My understanding is that Kirkland and Ellis put names in front of them, and then I was one of those names, and I was interviewed by the Chief Financial Officer and the General Counsel, and they called and confirmed that they would like me to take on that role. And did QVC have to file amended and restated certificate of incorporation to essentially establish a board at its level?

Yes, I believe that all occurred for the reasons I previously testified to in September 2025. Beyond you and Ms. Frisley, does anybody else serve on the board of QVC Inc? No. And I believe you testified to it earlier, but just touch upon a little bit of your understanding of why it was necessary to form a board. at QVC Inc. Yeah, it was something I had experience with because at Energy Future Holdings, I was an officer of all of the companies. You know, so potential conflicts being a fiduciary at different companies when their intercompany

issues or related party transactions is very difficult and, you know, I think that was the primary cause because Qarte as the sole shareholder was playing those roles and they thought based on many of the transactions that had occurred, that it would be difficult for them to make a fair assessment as a sole fiduciary when there were three entities that would have different points of view. As part of your appointment, did you and Mr. Frisley conduct any kind of investigation on behalf of the Board of QVC Inc? Yes.

We conducted an extensive investigation over several months, culminating in the five, you know, the filing of this case and the final settlement of the intercompany issues, I think, in April, where we looked at related party transactions, we looked at cash flows among entities, we looked at causes of action that might exist, and potential claims. And did you retain independent counsel to assist you with your investigation? Yes, we hired Katten in, I believe it was either September or October 25th. shortly after we became directors of QVC Inc. And how did you come to retain Katyn Eushen Rosamund?

Jill and I both had experience with several firms that have worked for us in the past. And, you know, actually on the list would have been COBRA as well, but they had beaten us to somebody already picked COBRA to represent them at Topko. So we thought Katten was a fine firm. We had experience with them, and we knew their background, and that's how we selected them. And walk us through a little bit of the steps that you took at the board level to conduct your independent investigation. Well, at the board level, the first thing, you know, I guess the first step is always to identify claims. So, you know, I'm going to count and finance guy by background, so we tried to follow cash flows.

And look at, you know, transactions between the entities. We looked at 10Ks, and that was the initial kind of identification that we did. But then once we hired CAT and we directed them to go out and do interviews of people that would have knowledge of any other potential transactions, and specifically the transactions that ultimately I'll talk about in a minute, the three primary areas of our claims, they interviewed, I think, seven or eight officers of the company. they looked at any memoranda, any information that existed with respect to those claims or issues or related party transactions,

provided us with summaries of the interviews, provided us with the key information that supported the claims. So it was a variety of information. I forget the number of pages, but it was massive, 150,000 pages or something like that. And you mentioned three primary areas where you reached some conclusions about your investigation. What were those? Dividends from QVC Inc. to TopGo. The indemnity provision of the tax sharing agreement where we were effectively going to, there was not enough funds to indemnify QVC Inc. of payments of future tax liabilities.

tax sharing payments under the tax sharing agreement in excess of the amounts paid to the IRS. That was the, I think, third bucket. Okay. And did you also investigate essentially payments related to the 2022 cash management plan? Yeah, that was really the starting point because the biggest dividend paid was $800 million as part of that plan. And it's also important to note that $600 million of dollars of that was borrowed to make that payment to, I'm going to use the term Topco, but I guess QBCG, if you'll allow me, that's who I'm talking about. And when I say Topco or QVCG, you'll understand that I'm talking about the ultimate holding company? I will.

Okay. So in addition to the cash management plan, you mentioned the dividends. Can you drill down a little bit for the court on your understanding of the facts around the, dividend payments that weren't part of the 2022 cash management plan? Yeah, starting in 2022 cash management plan, the majority of the funds that were provided as part of that plan came from QBC Inc. They borrowed $600 million. They used $200 million of their funds on hand, and they paid the $800 million up to Topco.

Subsequent to 2022, and their payments, dividends in 23, 24, and 25, that totaled a approximately $500 million. So in the information we talked to the disinterested directors at Topco about, the total was somewhere around $1.3 for all the dividends paid from QBC Inc to Topco. Okay. So I heard a couple different numbers there, and I just want to break that down. Sure. The $1.3 billion that you mentioned, is that the total amount of dividends, do you understand?

That's the total from 22 to the petition date, correct. And what was the roughly $500 million in dividends? that you referred to. That was 20, the total of dividends paid in 23, 24, 25. Sorry I don't have that exact background or how much of each year in my head, but that was the total. Okay. And by that, do you mean is that the total of dividends that QVC group paid to preferred

shareholders? Well, no, that was the dividends QVC Inc paid to Topco. I believe during that same period, Topco paid its preferred shareholders. there's roughly $450 million of preferred dividends. Okay. The numbers happen to be close. And then you mentioned, I think it was two categories of tax matters that you looked at with respect to Topco. What were those two categories?

Let me start with, and I apologize to the court because I know they've gone through a lot of this before. But it was the fact that under the tax sharing agreement, the parent indemnified QVC Inc. from any tax payments that weren't caused by QBC Inc. That's a simple way of describing the contract of TSA. So to the extent that we were the, excuse my term, but last man standing, and there weren't enough funds up at either Linta or the parent to pay what was recorded at that time of a $1.1 billion deferred tax liability. And of course that was, you know, before insurance I'm going to talk about first because when we started negotiations, there was no insurance.

There was a thought of getting it, but it had not occurred. So we looked at the $1.1 billion plus some interest in potential penalties and got to roughly a billion and a half dollars of potential liability that QVC Inc. would have to bear. And so a claim against the Topco as a result of the indemnity not being worth what the total liability might be. That was bucket number one. And what was bucket number two? Bucket number two was also under the TSA.

Roughly $500 million of tax was paid up to Topco in excess of the liability or the cash that Topco paid to the IRS. And did you ultimately assign a high-end value to the claims that keep VC Inc. possessed against Topco? No. So in total, if you add up the billion three of dividends, the billion five of, I'll call it the DTL tax indemnity pre-insurance, and then the $500 million excess payments, it's about $3 billion. And ultimately, the amounts were so big, and the value at Topco was $180 million. dollars. So we went to effectively, you know, the lowest amount we as fiduciaries could kind of

accept and we picked $400 million. So the claim was a substantial reduction of the gross amount. And we'll get to the discussions around the settlement. I do want to ask you of that $3 billion that you assigned as the total amount of, I guess, potential claims that KVC and Kat against top Topko, does that amount reflect pre-judgment interest that Topco might have been able to assert? No, it does not include pre-judgment interest, and I hesitate to bring it up, but it does not include under certain circumstances the change of ownership issue and the loss of interest carry forwards, which would have increased the amount of the liability. Okay.

And the change of ownership issue you're talking about is the Linta change of ownership issue or the... No, the preferred stock change that you just talked about, Your Honor, with the counsel. Your Honor, there's another one coming on Linta and the disregarded entity that I'll talk about in a minute, I'm sure. Did you conclude that QVC Inc would necessarily be successful in recovering on these claims? Well, in, no, in litigation, there's always significant uncertainty, so we did not assume we would be successful. I don't have braces. I hope that's not me. Did you have braces? No, I had poor man braces. They pulled a few teeth out and let them grow in hopefully straight. Tell us a little bit about the uncertainty in your mind as to QVC Inc's ability to

recover from Topco. Well, as I mentioned, litigation itself is uncertain. There were limited funds available at Topco to satisfy claims that we brought. Any litigation would be fact intensive, and it would literally be dueling fact experts around solvency, around tax risk. And so we also looked at the cost, the time value of that type of litigation, how long it would take. the disruption to the business of not being final, excuse me, finalized, you know, and be, you know, not distract the management of QBC because, of course, I represent the operating company. I'm the only one that will continue after the restructuring.

So we considered all of those factors in making that determination of, you know, uncertainty in evaluating the claims. And what did you do next, taking these uncertainties into account? We directed, you know, we thought because of all of those issues, you know, time, cost, limited recoverability, uncertainty, litigation, that it pushed us in the direction of, we thought settlement was the appropriate way to achieve a fast and final resolution. So we directed Caton to begin discussions with their counterparts at Topko-Cobre to see if settlement was a positive. Should I proceed, Your Honor? Do you want to go off the record?

No, no, let's proceed. Okay. Before we get to the settlement discussions, I just want to briefly ask you, did QVC Inc. also investigate potential claims against Linta? Yes. We used the exact same process to review claims against Linta. As I said at the beginning, it was related party transactions and intercompany, potential issues, claim and avoidance action for all through, in all of the entities. And so Linta, we used the same process and we, you know, investigated and evaluated their claims as well. And what types of claims did KVC Inc. have against Linta? We had two primary buckets of claims. Of course, Linta is a disregarded tax entity, so we didn't.

have to deal with the indemnity or the tax issues per se. We did have dividends of roughly $500 million that went to Linta, and we had a promissory note that on its face was $1.6 billion. So those were the two primary areas that we investigated from our side. Important to note that Linta also had, unlike Topco, Linta also had claims against QVC Inc. What were those claims? They had made over $300 million capital contribution, I think, in 2024 to QVC, Inc.

That was the primary counter that they were looking at. And then certainly, and I guess we'll get into it as a defense, there was questions about the quote unquote value of our promissory note of $1.6 billion. So would they have been able to assert potential claims based on payments that they had made under that note? Yeah, they had the same effectively solvency argument that we had. If we were going to make the solvency argument up, they could have made the solvency argument down. Okay. So you mentioned exploring settlement negotiations.

Did you authorize your counsel to proceed with those discussions? Yes, we did. And did your counsel send a demand letter to Topco and Linta as part of those negotiations? Yes, they did. They had previously done a presentation outlining some of the details supporting the claims, but then ultimately sent a demand letter. And did your counsel engage in both virtual and in-person negotiations with Linta and Topco's counsel?

Yes. several back and forth during this period. And again, just to remind the court, the total value of the claims that you assessed against Topco was $3 billion, I believe you testified? The gross amount? Yes. Yes. Not including sort of other tax issues that you mentioned, prejudgment interests and the like. Excluding those two issues, correct.

So what was your initial settlement demand in monetary terms to Topco? $400 million. And how did you start with that amount? Well, we thought the evidence was overwhelming, the gross amount of the claims. There was a limited amount of cash. There were no counterclaims against us from Topco that we became aware of. And so rather than the typical tennis match that starts where we start at $3 billion and they go zero, Then we go 2.8 and, you know, play that game.

Given that our overall objective was to do, you know, get through restructuring as quickly as possible with finiality, we just said, look, if we discount that gross amount, even down to 400 million, which was the lowest amount as fiduciaries, we could, you know, with a straight face, get to, it still is more than enough to support our claim that your cash, which, by the way, it was funded by QBC Inc. and assets should come to us. And in your initial proposed term sheet that you authorized counsel to send, did that include a release to preferred shareholders of Topco? No, the initial term sheet did not include the release of preferred shareholders. And did Topco include a release to preferred shareholders in a red line that you received to your term sheet? Yes, they came back with a red line, and I believe they, Yeah, the two notable changes to me were the three, they said what about 350 instead of 400 and releases to preferred was included.

And so what was your position first on the 350? It was, there was really no fact-based background or support for why we're doing $50 million less. As I said, we had kind of, we have, you know, spoken to stakeholders. We thought it was a small percentage of the gross claims, and we just didn't think it was worthy of changing that amount. We were very comfortable with the 400. But we thought, okay, but we were willing to give the preferred shareholders a release, which we saw having value given that, you know, in the event that we were insolvent,

and money went up to the parent, and the parent paid $450 million to preferred shareholders, potentially there was a claim against those preferred shareholders to get the dividend amounts back. And so we thought that was a reasonable request. And since we were getting effectively all of the assets in a settlement and we weren't going to pursue that claim, we thought it was reasonable to release it. During the course of in-person negotiations, did Topco make a proposal for preferred shareholders to receive some sort of payout? Yes, I believe they wanted $25 million, if I remember correctly.

And what was your response to that proposal? Our response was this was kind of an impossible line to cross, you know, given that, in our stakeholders and the fact that $450 million of QBC money had already gone to the preferred, that having additional funds go to them just, you know, was not, palatable. And so during the course of the negotiations with Topco, which I understand were by counsel, did you form an understanding of Topko's arguments and defenses or potential arguments and defenses to the claims that you might assert against them?

Yes. So I think I mentioned that before the demand letter went out that our counsel, Katten, provided a PowerPoint with some details around the claim and the basis of the claims that we were bringing. Cobra did a similar PowerPoint to rebut those claims and indicate the defenses that they would have if we brought claims, which wasn't surprising and we were expecting.

And of course, we knew that in any litigation, there's two sides to the argument. Sure. So I'd like to show you that presentation. It's been admitted into evidence is DX-43. Mr. Lopez, could you pull that exhibit up? What is this document if you can see it, Mr. Kegovic? It's published, correct?

Yeah, it's published, yeah. Yeah. Wait a second, hold on. That's my fault. Okay. I can see it. This is a nice visual. And I'm familiar with it.

It is the PowerPoint presentation from Cobre Kim that I just mentioned that was sent to us to support or to outline what their defenses would be to our claims. Okay, and you've mentioned solvency as being one potential impediment to some of the claims that you had against Topco, correct? Yes, certainly. And so let's go to page three, I believe it ends in Bates number 1524. What is this portion of Cobury Kim's PowerPoint presentation? We, I believe, had included that one of the things we took note of was severely discounted, debt, and I should add in QVC stocking treating prices, and I think here they are telling us that,

you know, that alone isn't the determination of insolvency, which I agree with, and that there were reports issued by experts. It says Duff and Phelps. I don't know if there are Duff and Phelps Center, Kroll, so if I use the terms interchangeably, it's the same firm, that they had issued, solvency opinion in December 22. I think those are the primary things that I took from this. And so fast-boarding down to the third bullet point here, does that fairly summarize their

position on insolvency? Yeah, I mean this, all the four points are relevant to their, you know, that the public documentation, 10-Ks, etc., did not, board materials did not support insolvency. as we were claiming. So their position was you were solvent at the time of all dividends, and therefore any claim that depended on solvency was not an actionable claim. That's right. What was your position on solvency?

Well, at this point, as I said, we had taken notice of, you know, severe, I mean, you can see on this page, severely discounted, you know, debt, which we recognize a loan is not enough. but we were also aware that there are substantial reductions in revenue, 50% reduction, and they call it OIBDA, but it kind of like EBAA, a little more operating focus, substantial reduction, EBITDA. We also noted that, you know, in this period of time, and as this interested director, Ms. Frisley and I, and I'm sure this court certainly served on a lot of bankruptcies for retail companies.

So it was a very, very difficult environment, remains a difficult environment for retail companies that we didn't think was, you know, appropriately mentioned. I think I mentioned before that they borrowed to pay a dividend, which is, you know, another indication of a company that, you know, public companies don't typically borrow to pay dividends, but they did. And some of the transactions that they did around the cash management were driven by potential debt issues, covenant issues, which the cash and moving the cash and moving. the cash around the organization solved. So it was, those are a few at least of the things that we saw initially that question solvency. And then as they mentioned the Duff and Phelps report, you know, we also did a dive into that Kroll or Duff and Phelps report to look at how they came up with their conclusions. So let's talk about that.

What was your assessment of the Kroll, the Kroll, the Kroll, or or Duffin-Felps solvency report from 2022? Well, you know, it was a pretty standard report that, you know, does discounted cash flows and then selected company analysis and then blends the two and comes up with a conclusion. We know, but I, you know, I've seen a lot of those and they relied on management's forecasts, which I think in the first two years, 23 and 24, the revenue line was missed in total by $2 billion. The operating income line was also missed by a substantial amount.

So Duffin-Felps goes on to say that they make no reference to the, you know, I won't say believability, but the accuracy of the projections of management, but this management company, unfortunately, and a lot of it was outside factors, excuse me, was missing forecast routinely. So I don't think there was enough sensitivity put in the, the underlying numbers there. Also, as you can see on this page, it wasn't just the declining in stock price, but you can see almost the same time they issued the report that the yields on the debt went up from 20 to 40 percent.

And Duff and Felt still used historical debt rates and came up in total with a weighted average cost of capital, I think, around 12.5 percent. So I thought there were some questions associated with that. There was really no mention of retail stress, industry-wide. I think this company, there was no mention. I think they used selected company multiples that were higher than what QVC Inc was trading at in the market. So while not an expert myself, I certainly thought all the dials were kind of turned in the favor of QVC, Inc.

And those dials have changed somewhat in a battle of other fact experts. And you could get a different conclusion. You could get that there was certainly a risk that the company was insolvent. Did Crowell take any position on access to credit markets in its solvency report? I don't recall that they did. And what about potential?

tax liabilities that Topco and the whole operating group might have had. Did that assess into their solvency analysis? No, but I think at that point they were Topco's tax liabilities, not QVC inks. But I do think that when they did the topco solvency opinion, they did not take those liabilities into consideration and coming to their conclusion. So, you know, we saw there were a lot of, issues that a expert, a lot of fact-based issues that an expert could argue. After 2022, did Crowell perform, or Duffin-Felps, as we're calling them,

perform a standalone solvency analysis for QVC Inc? No, even though $500 million was paid from QVC Inc to the parent, they never subsequently prior to the dividend did a solvency opinion, which we also saw, you know, found to be interesting. I think my understanding is they relied on solvency opinions that were done at the parent, but I think the parent had the same, in my mind, had some of the same infirmities that I saw at the QVC and companion. But in addition, the deferred tax liability, which is uniquely their liability. And you've taken it down. Thank you.

I want to talk to you a little bit about the tax issues between QVC Inc and Topco. So I think you mentioned two issues, but can you remind the court what those two principal issues were? Yeah, one was the relief of the indemnity of Topko and the fact that now QVC might, would have to pay the, you know, what would take on the risk associated with the deferred tax liability, which, as I said, pre-insurance, we evaluated at about a billion five. I'm happy to talk post-insurance, but I think there was a demonstrative to that point. let me know if you'd like me to get into that. Yeah, so let's talk first about the indemnity issue, that tax issue first. So tell the court a little bit more about your understanding of that tax issue, maybe pre- and post-insurance.

Well, the tax issue is the same. The only change is really the insurance, which changes all the calculation. You know, the fact that, I mean, you know, I think there's been a lot of testimony on the issue and the probability of the issue. But there's certainly, it's not riskless. And, you know, we, based on the number and the potential outcomes, we were concerned, you know, concerned that it could be a big number to QVC, Inc. And it, you know, it was, once again, you could get experts.

It was reliance, you know, PWC had a should opinion. I think Kirkland had a should opinion. But in those opinions, they're saying. that there's still risk. And if you apply there risk factors to a big number, you still get a big number that exceeds the amount of cash that QVC and CAS. So not riskless. And then what was the total potential liability, as you understood it, pre-insurance?

Pre-insurance of a billion and a half, which is kind of the billion one, and then adding on some of the things that Mr. Kerns did in his demonstrative. And then what's the... LPs in interest. And just to be clear for the record, was insurance in place when you were negotiating with Topco? Not at the beginning. We understood that there was going to be an attempt to get some, which in and of itself indicates at least that our constituents thought there was some value in having, you know, insurance that it wasn't risk-free. Okay, so walk through the changing risk landscape after insurance was prepared.

Well, I can't do it better than Mr. Kearns did it. I think his demonstrative was, you know, fine. Interestingly, he didn't put the cost of insurance as a claim. And, you know, the cost of insurance alone was about, you know, 20% of the total cash that Topco has. So, you know, it's not insignificant from a value standpoint when you're looking at a limited recovery. But it's really interesting penalties over a period of time, you know, that accumulates.

So I think he got to $600 million to $800 million. That's not prejudgment interest and that is not the change in ownership. If in fact the actions by the preferred stock cause a change in ownership calculation and we lose some of the interest rate carry forward, Mr. Kern's calculations go up. There's more liability because some of the carry forwards were used to offset the liability associated with the deferred tax liability. You mentioned a second tax issue with Topco. Again, what was that issue under the TSA? Yeah, and I think this one's also been discussed in some detail that I don't remember the gross amount paid, but I know the net amount in my head that the QVC Inc paid net up to Topco $500 million more than Topco paid to the IRS.

So there was $500 million funding for the corporate. And even if the TSA, you know, there was a contract and even if it was properly calculated, there's some, I believe there's some issues associated with solvency like the dividend issue. And I also understand that, you know, there's some issues associated, you know, with the contract itself. And that Topco was not named until 2023. So if you're relying on the contract, but the contract, contract has some issues. I'm sure lawyers love to litigate those types of things. And we would certainly do that if the settlement fell apart. And so you mentioned that. So what would happen

if you couldn't come to an agreement with Tocco? What were you prepared to do? Well, it's ugly. We would litigate all of the issues and the claims that we have. including going after the preferred shareholders for the $450 million of dividends. But as I said, we thought that was kind of, all that did is hurt the estate because a significant length of time it would take to litigate, appeal, et cetera, those issues. When you have fact-based arguments like that have to be brought into bear to solve this litigation, you know, you have duly experts which cost a lot of money and a lot of time. You have the disruption to the operating company.

You know, so all of that is bad, but, you know, I think we would be forced to pursue, you know, those actions. And I think our stakeholders are prepared to do that. You know, but that's why we thought settlement was much more attractive and consistent with, you know, fast and final to our objectives here. And did you reach a settlement with Linta and Topco? We did. Okay. Can you walk us through the gets, as you will, at Topco, or excuse me, that QVC Inc. received from Topco into the settlement? Yes, it was basically all the, you know, the cash and all the assets that Topco had.

That's what we got. And so that was your 400 million reduced by the amount of cash that they would have on hand. Yeah, so we got $180 million of cash. That's after they paid their unsecured creditors. And then we, you know, they didn't have significant. number of assets, but they had cornerstone, which I'm sure we'll talk about, and anything else they had, we would take. And in fact, you know, the cash was funded by us. Because they're just a holding company with no sources of cash. What did QVC Inc. give to Topco into the settlement?

What we gave was, you know, releases. You know, we would not pursue the claims. And as I said, I think the most significant, you know, the releases to officers, directors, you know, the entire box of Topco, and then also to the preferred shareholders ultimately. They would get releases. What about taxes? Is there any give to Topco on taxes? Yeah, we released the indemnity. So, you know, we took on any tax liability down the road for, and I should point this out because, you know, there's known and there's unknown. and it's the unknown that typically jumps up and gets you.

Sometimes both of them do. But we also took into consideration that who knows what the unknown issues were. And certainly at the time we began negotiations, we weren't aware of the potential change in ownership tax issue. But that came up. And who knows what else might come up down the road. I think the company has a sound strategy, but sometimes sound strategies don't work with the IRS.

And what was your understanding that the value that preferred shareholders might ascribe to the releases that you were providing? Well, it's hard to say. All I know is there was $450 million of dividends paid. So that's the gross amount that we would go after. And, you know, they might argue that it's, you know, they have some defenses and therefore it's not the full amount. But that's the gross amount. I didn't bother to then calculate what they. would think the net amount or the risk-adjusted amount would be.

You mentioned Cornerstone. What is Cornerstone? Cornerstone or CBI. It's a retail company with four brands. The predominant one is Frontgate, which sells home furnishings. The other three I've never heard of, but they all are apparel kind of companies. And I think it's probably front gate as at least three-fourths of the total. And they are owned 62% by Topco and 38% if I remember correctly of Linta, the intermediate holding company.

And if the plan is confirmed, what happens to Cornerstone, their ownership interests? Where does it go? It goes to QVC, Inc. And we've been talking about gives and gets. What was your assessment of the give or the get of Cornerstone? Well, I think it's important to note that, you know, we thought practically speaking we were the only one who could take Cornerstone. Cornerstone, at the time we started this, it was pre-judgment on the tariffs, and they needed an infusion of $30 billion. Cornerstone's credit card company informed them that they would no longer service Cornerstone,

and Cornerstone informed us that that was critical to their operations, so that cornerstone, Stone would have to become, you know, be covered under the QVC Inc credit card. QVC Inc provides, I think it was testified to all the back office functions, including, you know, IT. And also there's tremendous amount of synergies. I think the one that was brought up UPS is probably the, by far the biggest one, the rate that Cornerstone got. So the management had done a study in Fetnerstone. that said the liquidation value of Cornerstone to shareholders was zero. And, you know, interestingly, Linta said we don't want it.

And in our discussions, we asked Topko whether, you know, they thought, whether they wanted it. And I think when they saw the, you know, prevalent information about zero to the shareholders, and of course we didn't want to have it liquidated by them because that would have taken time and expense and still resulted in zero. And there were also people, you know, that had jobs at Cornerstone. So if there was going to be any value at Cornerstone, you know, we were the only one that could capture it

because there was zero value to Linta and zero value to Topco. And the value to us, we really questioned as did our ultimate, you know, as did our creditors. because of the things I've mentioned and also the fact that I think within the last year or so, they tried to sell it and got no bids. We talked about the stress in the retail industry. And, you know, so there's a lot of questions. And I guess once again, dueling experts can say what it's worth.

But I think it's important to note. I haven't heard anybody saying it was worth anything, Kalinta or Topko. And there's, in fact, a study in February. that says there's zero liquidation value associated with it. So people would have to make assumptions. And of course, in the valuation assumptions that everybody has used, they use the company's projections again, which have proved to be too high,

both from a profit standpoint and from a revenue standpoint. So, you know, we ascribe very little value to Cornerstone. It's going to take a turnaround. And it might have some value, but I think you could certainly argue the value range starts with zero. Did your settlement agreement also cover claims between QVC Inc and Linta? Yes. And what were – let me ask this. Did the negotiations differ between KVC Inc and TOPCO and QVC Inc and Linta?

Well, there were some clear distinctions, but our process was the same. We identified, evaluated, you know, claims and, you know, made various proposals to Linta, which I can get into. But there were significant differences. One, Linta had cash of $70 million. Second, Linta had, I think, $1.6 billion of debt that had claims against that $70 million. dollars. Third, they had counterclaims against us totaling in excess of $300 million. So there was substantial difference. There was less to play for and counterclaims were, you know, two of the big ones and the third one was sharing with the, you know, substantial amount of debt that was

outstanding. So what did QVC Inc. get from Linta under the settlement agreement? Basically a waiver of claims. And what a QV. And I'm sorry, and Cornerstone and their interest in Cornerstone. And what do QVC Inc. give to Linta under the settlement agreement? Ultimately, and we had different steps in the agreement, but ultimately releases not to pursue any claims and we paid them, I believe, $23 million in cash. And do you believe at the time and do you believe now,

that the settlement was fair and reasonable to QVC Inc's creditors? Well, we negotiated a settlement agreement with Linta and with the Linta disinterested directors that I think we would have gotten around 20, 25% of the $70 million of cash. The creditors then spoke among themselves, the Lentta creditors and the QVC creditors and came up with this deal. Now, our creditors, I believe, and they did not call it. me and explain their rationale, believe that it was important to do fast and final, and as a result, they were, you know, lent to debt holders were a voting class, so they had substantial hold-up value.

And then, you know, they had their own claims, which, you know, in our, the amount we asked for, you know, that we recognized that there were counterclaims, so we were never going to get, you know, we had a discounted for their claims. They valued them differently at the end of the day. But in cash, it was probably a $40 million difference, something like that. And so you had, I guess, two decision points from what I heard. One was the settlement that you had negotiated with Lintas, your counsel had negotiated with Lentas Council.

And then the second would be the creditor groups meeting and deciding on their own settlement. Well, I'd like to think we came to conclusion with the Linta disinterinterested directors facilitated by our council. Yes, and that was for about 25% of the $70 million. And then, you know, Linth's counsel, which had been very aggressive throughout, you know, refused to accept the disinterested director position.

The two groups of creditors talked, and I think best I can for the reasons I just stated, you know, the ability to block hold up the process and, you know, that they were a voting class, that they came to a different conclusion. And what is your conclusion on the overall settlement from the perspective of KVC Inc's creditors? I think it's fair and equitable considering, you know, the claims and all the, you know, issues surrounding the evaluation, you know, the claims, like I said, no legal. litigation is certain. The limited amounts that we were playing for, if you will, if you allow me to use

that term, at $180 million at Topco and $70 million. The amount of time and the dueling experts, and, you know, the judge would have to be the fact decider among dueling fact experts and with a lot of different inputs around, especially around solvency and tax, which are the key issues. the disruption, you know, to the, you know, people, you know, that would still have to be involved in litigation, provide documents and be deposed and all that stuff. You know, those are all difficult things. So we thought when considering the entire population of potential issues and time and uncertainty that settlement was the best way to go. And did you conduct an investigation into related party transactions involving individuals and individuals and other than Linta and Topco?

Yes. We didn't specifically limit the investigation. We look for any related party issues, intercompany, causes of action, regardless of where they were sourced, and was unaware, well, yes, we did. Yeah, and were you aware beyond the claims that KVC Inc possessed against Topko and Linta that we've already discussed about the existence of potentially viable and valuable claims, worthy of pursuit? No, we never became aware of any of those.

And putting aside the settlement involving Topco, Linta, and Cornerstone, do you support the releases that are included in the plan? Yes, I do. I think, you know, management has been extremely cooperative of their, you know, time and, you know, providing information and I think being as unbiased as possible in this process. And I think they deserve releases as well as, you know, the other creditors. and other groups involved if the settlement stays in place. And if the settlement isn't approved, how would QVC Inc. proceed?

Well, we would go into the down a path we don't want to go, which would be litigating all the issues we talked about doing fact experts, going after the preferred holders in addition to, you know, the claims I've mentioned. And, you know, as aggressively as we possibly could to, you know, get the assets that we think we're entitled to based on those claims. And if you pursue this litigation strategy, what happens to the estate during this time? Disruption cost, you know, like I said, you know, the officers and directors, and who knows how the outside world will evaluate. you know, the fact that this is still ongoing and could have impacts on, you know, the company is very difficult to say,

but it certainly is not a positive. And I think that's why, you know, you give releases, you get the settlements, it's because you get the finality. May I briefly speak with counsel? So just. Mr. Smith, before you ask me anything, because late in the conversation you did ask me about Linta and, you know, if the settlement, didn't occur and why the settlement ended up changing. I think I mentioned it early, but I don't know that I expanded and I don't know that I want to expand too much on it. But the Lint is a disregarded entity, but if we didn't reach settlement, there's a potential tax issue that

could come into play associated with, you know, Linta in their ownership of Cornerstone. And that was significant, too, that I think, you know, supported the addition. settlement amounts that our constituents ended up paying. And I believe you mentioned briefly a Kirkland memo on tax. Was that a formal tax opinion that you received? No. Okay. I'll pass the witness, Your Honor.

Do you want to take a 10 minute break? That would be perfect. All right. It's 905. We want to come back at 915. And I'm sure you know this, but don't talk about your testimony during the break. MR. Yes, sir.

Thank you. MR. We'll be in reset for 10 minutes.